(Thestandard, Dec 29, 2006) In a bid to ease the impact of planned price hikes in natural gas, China will bar gas distributors in affluent Guangdong province from collecting one-off fees when they connect new piped-gas users, a government official and industry executives said Thursday.
They said the government will likely meet less resistance from consumers to rises in gas prices if the connection fee is waived.

China has said it will continue to hike domestic prices for natural gas, bringing it closer to "international" levels, and higher.

"We are going to cancel the connection fee, but we haven't finalized the timing or other policy details," an official from the Guangdong Consumer Price Bureau said.

The official said the new policy will only be implemented in Guangdong province, where strong demand for gas is underpinned by the region's vibrant economy.

The three major Hong Kong-listed Chinese gas distributors - Xinao Gas Holdings (2688), China Gas Holdings (0384) and Panva Gas Holdings (1083) - said they are aware of the planned policy change, but have yet to receive official confirmation of the move.

Connection fees represent a substantial revenue stream for gas distributors, especially during the initial three years of a new gas- distribution project.

Connection fees, though a one-off charge, usually offer a gross profit margin of about 70 percent, while gas sales have a margin of about 30 percent, industry executives said.

"The original purpose of the connection fee was to subsidize us for providing gas at a low price," a China Gas official said. "Guangdong now needs to import liquefied natural gas, which is more expensive, so it needs to increase prices there."

He added that the new policy should not have much impact on China Gas' earnings, as it has "only a few projects in Guangdong."

Yuen Fei, senior vice president of Panva Gas, said the new policy will boost total returns in the long run. "One-off fees will be translated into long-term profit streams resulting from gas price increases, which should help sustain our profits to grow on a longer term basis."

The acquisition price of future projects in the province may be lowered as uncertainty in fee policy is removed, he said.

Source:Thestandard