The present pricing system set by the NDRC has many problems, Dong said, the biggest of which is the lag in the adjustment of oil prices. The NDRC adjusts domestic oil prices months or even half a year after fluctuations in international oil prices. The lag in setting new prices brings large recessive costs to society. When international oil prices rise and domestic oil prices cannot catch up, suppliers of refined oil lose money. On the other hand, when international oil prices drop but domestic oil prices are high, consumers are unhappy. Therefore, the government should seize the present opportunity to reform the pricing system of refined oil at an early date, Dong said.

Reform with caution

Zhou Dadi, Director of the Energy Research Institute at the NDRC, believes that the key point of the reform of China's refined oil pricing system is to establish a complete set of mechanisms so that the domestic market can withstand both a drop in refined oil prices after international oil prices fall and a price hike in refined oil prices after international oil prices rise. After the government launches the reform, it should reformulate its fuel tax policies so that taxes will be collected on the consumption of oil. China does not levy fuel taxes at present, but there have been calls for such taxes for a long time.

Qi Fang, Vice Chairman of the China Chamber of Commerce for Petroleum Industry, said that when the government reforms the pricing system of refined oil, it also must straighten out its management of the oil market.

In China's oil market, CNPC and Sinopec constitute a duopoly, and private oil companies have to buy refined oil from the two magnates at wholesale prices. At present, there are 80,000 private oil companies, but the number of private oil refineries is only about 100 and their annual refining capacity stands at 10 million tons. Since 2001, private oil companies have been running short of refined oil.

Qi said private oil companies need more security to ensure they can get enough refined oil at reasonable wholesale prices and then ensure fair competition on the petroleum retail market. If the government does not properly resolve this issue when it sets its oil-pricing reform policy, private oil companies may face more difficulties of survival as a result of tougher price competition, he said.