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Official: Fuel prices will drop under new fuel-pricing system

(Xinhua)
Updated: 2008-12-09 10:36

China's existing pump prices will go down a bit as the country begins reform of fuel taxation and refined oil product pricing system, which is expected to take place on January 1 of 2009, an official said in Beijing on Tuesday.

Xu Kunlin, vice head of the pricing department at the National Development and Reform Commission (NDRC), told reporters that there was room to lower the country's current fuel prices.

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Current pump prices in China, if converted, were equivalent to a world crude oil price of $83.5 a barrel, he said.

"When the fuel taxation reform begins, we will adjust the fuel prices based on the world oil price then," Xu said.

On Monday, world crude oil recovered from last week's losses and stood at above $43 a barrel on the New York Mercantile Exchange.

Currently, Chinese drivers are paying much more than those in many other countries because domestic fuel prices have been unchanged since June despite plunge of world crude oil prices. Government-set prices are changed only infrequently.

Take gasoline 93, the most commonly used type of fuels. The current price stands at 6.37 yuan (about 93 US cents) per liter in Beijing and 6.20 yuan in the other parts of the country.

It is higher than in the United States. US Energy Department said the average weekly retail price of gasoline fell to $1.699 a gallon (equivalent to about 3.8 liters) as of Monday, the lowest point since February 2004.

Last Friday, the NDRC, along with three other government agencies, unveiled a draft plan on fuel taxes and refined oil product pricing to solicit public opinion.

The plan, scheduled to take effect on January 1, will abolish six fees now charged for road or waterway maintenance and management. At the same time, it will raise gasoline taxes from 0.2 yuan per liter to 1 yuan and diesel taxes from 0.1 yuan per liter to 0.8 yuan.

The fuel price system will also cover farm vehicles and ships.

The draft plan said China's domestic crude oil prices should be set directly in line with world prices, but the link should be controlled and indirect for refined petroleum prices.

Under the reform scheme, "pricing of domestic refined oil prices should not only reflect fluctuations of international oil prices and production cost, but also take into account domestic oil supply and demand," it said.

In the retail sector, the draft said fuel would be sold at set ceiling prices, which would be based on producer prices with some reference to world prices.

Currently, China allows retail fuel prices to fluctuate around a state-set benchmark.

The government will retain "an appropriate control" over the fuel price, according to the draft.

China has been pushing for fuel tax reform for many years, and the idea of a fuel tax was raised as long ago as 1994. Both government officials and economists have said that the current global oil price plunge presents a window of opportunity for this reform.