(Yicai) Oct. 9 -- China’s electricity retail market is facing severe pressure from rising costs and low retail prices, with dire warnings issued recently about the state of the electricity sales industry in South China’s Guangxi Zhuang Autonomous Region.

The losses in Guangxi’s electricity sales industry exceeded CNY2 billion (USD298.6 million) in the first eight months and are expected to be over CNY1 billion in September alone, said a document submitted by nine local state-owned electricity sales companies. The total losses are likely to surpass CNY5 billion (USD746.6 million) this year, they said.

The nine firms, all of which are affiliated to state-owned energy giants, are China Energy Investment, SDIC Power Holdings, CR Power Holdings, China Datang, China Huaneng Group, China General Nuclear Power Group, China National Coal Group, China Huadian, and State Power Investment.

The losses stem largely from increasingly severe price inversion, in which wholesale prices have become higher than those that can be charged to end-use customers. Since the escalation of the Middle East conflict at the end of February, the prices of primary energy such as coal, oil, and gas have been on the rise, leading to an increase in the cost of thermal power generation and driving up wholesale electricity prices.

Also, a large number of contracts have already been agreed in Guangxi, with prices locked at a relatively low level, so the higher wholesale prices cannot be transmitted to the retail end. This means companies that buy electricity from the wholesale market and then sell it to retail users suffer a loss of CNY0.373 (about 6 US cents) per kilowatt hour, the document said. Some large electricity sales companies have even suffered losses of over CNY130 million (USD19.4 million) a month, it said.

Guangxi is not alone, with other provinces in China facing similar difficulties. A report from Guangdong Power Exchange Center said that in the first half of this year, 202 electricity sales companies in the southern economic powerhouse made a profit, while 298 suffered losses, accounting for nearly 60 percent of the firms in the industry.

Without government intervention, the electricity sales industry in Guangxi will experience large-scale bankruptcies in the fourth quarter, the nine companies stated in the document.

They appealed to higher-level authorities to launch emergency bailout measures, such

as suspending the settlement of contracts in the electricity retail market for September and allowing electricity sales companies to terminate existing contracts in an orderly way by paying default penalties.

The document also proposed establishing a wholesale and retail price transmission mechanism in the electricity market to truly reflect the cost of purchasing electricity in the wholesale market.

Editors: Dou Shicong, Tom Litting