Smelters face consumption-based power tariffs

The central government has stepped up its efforts to tackle overcapacity in the aluminium smelting industry and reduce pollution by imposing tiered electricity tariffs based on the previous year's consumption.

The move is expected to affect a large number of smelters as the bar for exemption from the policy is set fairly high. It is also in line with the new leadership's policies to shift the main driver of economic growth away from fixed-asset investments to consumption and services, combat chronic air pollution and cut industrial overcapacity.

"In the past year, severe pollution has become recurring in major cities. This has prompted Beijing to enforce more policies to combat pollution," said Vanessa Lau, a senior analyst at US brokerage Sanford C. Bernstein.

From January 1, smelters of the lightweight metal, whose power consumption last year exceeded 13,700 kilowatt-hours (kWh) per tonne, would be subject to a power bill surcharge of two fen (2.53 HK cents) per kWh, the National Development and Reform Commission said in a statement. Those exceeding 13,800 kWh will have to pay eight fen per kWh more.

Smelters using more than 13,700 kWh per tonne are also banned from entering into direct supply deals with power generators. These deals offer cheaper power to smelters as they bypass the local grid operators, which otherwise enjoy monopoly status. By contrast, those consuming less than 13,350 kWh per tonne will be given "preferential support" to enter into such deals.

According to data from the China Non-ferrous Metals Industry Association, the average power consumption of the aluminium smelting industry was 13,844 kWh last year. This represents an average annual decline of 0.9 per cent from 2007 as new and efficient plants are added and obsolete ones are shut.