Facing an increase in coal prices of up to 10 percent this year, China's electricity generators may seek government permission to raise the electricity prices again.

"Power producers may suggest to the government raise electricity tariffs in order to counter coal price increases of an average of 30 yuan per ton this year," said Ye Rongsi, senior adviser with the China Electricity Council (CEC).

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But an analyst from the China Coal Industry Association, who did not want to be named, said power companies cannot easily raise prices as they face an on-grid electricity price bidding mechanism.

Rising coal prices have long been a bone of contention between power generators and coal producers in China. Electricity giants continue to insist that rising coal prices have undermined their profits.

Compared with the coal prices, which are more market-oriented, the nation's electricity prices are still controlled by the government.

Due to the rising cost of coal, the country's main resource for electricity production, the Chinese government decided to approve a mechanism linking coal and power prices at the end of 2004.

Under the linkage, electricity prices will move in line with coal price increases. If coal prices rise by more than 5 percent in a six-month period, electricity prices will be adjusted by the government.

Under the mechanism, 70 percent of coal price increases are passed on to consumers. Power generating firms absorb the remaining 30 percent.

Leaving key energy prices to market forces is an inevitable step on the road to a market-oriented economy, said Zhou Dadi, former director of the Energy Research Institute of the National Development and Reform Commission (NDRC).

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