New fuel pricing mechanism disappoints consumers

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(China Daily)
Updated: 2009-11-17 08:02

The National Development and Reform Commission decided to raise retail gasoline and diesel prices again from Nov 10.

Ironically, as soon as the decision was announced, service stations including those under Sinopec and China Petroleum have all cut their prices to attract customers.

Following a new pricing system, domestic fuel prices will be adjusted when the moving average of a barrel of international crude changes more than 4 percent over a period of 22 working days.

However, the market price should be decided by supply and demand. It's reported that the two petroleum giants, Sinopec and China Petroleum, were forced to lower their prices because they had huge stockpiles amidst shrinking market demand.

The public also doubts the calculation formula for the new pricing mechanism that the retail fuel price should be decided by both oil price fluctuations on the world market and a base price. If the base price is set at a high level, fuel prices will be higher. And unfortunately, our base price has been set too high.

The Chinese retail fuel market is plagued by monopoly and it needs price intervention from the government.

However, such intervention should lower instead of raise fuel prices.

The price control by the government should target lower price levels, curbing unreasonable profits for monopoly firms and subsidizing those at a loss.

But under the new pricing system, there have been eight adjustments in retail fuel prices, including five rises. And fuel prices rise faster than they drop.

It can be said that the new pricing system is essentially a government price control mechanism.

As it operates in the name of "international oil prices", it has avoided the public scrutiny of the legitimacy of the government pricing.

As such, we can understand why fuel prices are frequently raised and why government pricing will bring high profits to oil companies.

In the end, consumers have no say in the pricing process.

Mo Fengqi

(The comment first appeared in Beijing Times on Nov 16.)

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