Source: Chinese gas network 2017/7/26
In 2016, the state introduced the “the method of price management about natural gas pipeline transportation’s (Trial)” and “the method of pricing cost supervision about natural gas pipeline transportation (Trial)” to establish the price regulation of pipeline transportation in middle reaches. However, the price supervision of the gas distribution is relatively lagging in the lower reaches of our cities.
On June 20th, the national development and Reform Commission issued the "guiding opinions about strengthening gas price regulation" (Later referred to "guidance") to strengthen the regulation of urban gas distribution’s price. The introduction of the “guidance” is to help more standardized and scientific guiding the gas prices among local areas, and to create conditions in order to promoting the natural gas price in all circles.
According to the "guidance", the gas prices in town shall abide by the principle " cost permission plus reasonable profit", which allows that costs and earnings shall be formulated by the principles. The principles about costs are made from cost supervision and examination measures, while the principles about earnings are made according to a formula which multiplies effective assets by the permitted yield rate. The permitted yield rate shall not exceed 7%.
The "guidance" requires gas enterprises that they shall take the initiative to relevant information such as price, cost, so that different enterprises can compare with the costs. The relatively higher gross profit rates are not included in the yield rate, which will make the gas enterprises separating and disclosing the revenue of all aspects. The chain of gas industry will be more standardized and transparent. The national development and Reform Commission has asked price authorities to abide by the “guidance”, and, to establish the monitor of long-term mechanism, to formulate gas price management and pricing cost examination rules combined with the local reality. The rules will be introduced at the end of June next year.
The rate of return on investment is one of the key indexes that affect the price of gas distribution, and it also becomes the focus of attention. Accordance to the “guidance”, the permitted yield rate of the distribution shall be determined by multiplying the effective assets by the permitted rate of earnings. The permitted yield rate is the rate of total investment return after tax and shall be no more than 7%. It is worth noting that, 7% is the ceiling, all localities can determine the specific yield rate under 7% according to the local development degree of natural gas market and affordability.
At present, high price of gas distribution in a few cities will be reduced in the near future with the implementation of the "guidance”, the introduction of regulatory rules and strengthen cost construction. However, residential gas prices will not be affected in the short term. In the long run, the income of the natural gas industry chain will be more reasonable with the gradual effect of a series of measures, and it will effectively promote the sustained, healthy and orderly development of the natural gas industry.