Coal shortages put pressure on Beijing

Coal shortages put pressure on Beijing

By Richard McGregor in Beijing and Tom Mitchell in Hong Kong

Published: January 28 2008 19:34 | Last updated: January 28 2008 19:34

An acute coal shortage left China suffering its worst power crisis in years as unseasonably large snowfalls saw hundreds of thousands stranded when they tried to travel to their families for the lunar new year holiday.

About half of China’s 31 provinces and regions have been hit by “brownouts”, or voltage reductions, caused by Beijing’s attempt to reimpose and tighten price controls on commodities including coal and oil.

Beijing is using old-fashioned price controls in an effort to stop food inflation, which has pushed the consumer price index to an 11-year high, from spreading to the rest of the economy.

Power companies insist the brownouts are the result solely of coal shortages. But executives admit privately the industry may have exacerbated the situation to drive home to Beijing the unfairness of price controls. Global prices of coal, China’s staple fuel, have surged, causing pressure for the rises to be passed on. Power industry margins have also been cut by higher freight costs.

“The shutdown of power stations by the generators is not force majeure [the cancelling of contracts because of a major unforeseen event]. This is price majeure,” said a China-based energy executive. Chinese media estimated that 150,000 travellers were stuck on Monday at the main rail station in Guangzhou, capital of southern Guangdong province, with hundreds of thousands more expected in coming days.

Every lunar new year, millions of migrant workers labouring at factories in the country’s southern industrial heartland stream through the station and the nearby bus station during the peak “spring rush” travel period.

About 2,500 police have been deployed at the train station to maintain order. The Guangzhou Railway Group also announced that it was suspending new ticket sales through February 6, new year’s eve on the lunar calendar, to help clear the backlog, potentially stranding hundreds of thousands more workers far from home over the week-long holiday.

The company estimates it will be up to five days before the Beijing-to-Guangzhou rail line is operating at normal capacity.

Beijing has ordered coal companies to delay price rises negotiated in the new year and deliver the fuel immediately to power stations. Li Chaolin, a Beijing-based energy expert, said the coal shortage had also been caused by the closures of scores of small mines on safety grounds.