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INTERNATIONAL ECONOMY: China seeks price cut at foreign power plants ELECTRICITY FUJIAN PROVINCE ORDERS DISCOUNTS BECAUSE OF OVERSUPPLY, BUT MOVE MAY HIT COUNTRY'S ABILITY TO ATTRA:
Financial Times; Mar 22, 2002
By JAMES KYNGE
Chinese authorities are pressing two foreign-owned power plants to slash the price of their electricity. The move threatens their profits and may damage Beijing's ability to attract overseas funding for its vast power sector.
Government officials in the south-eastern province of Fujian said that because of considerable local oversupply, it had told Meizhou Wan, a 720MW power station owned by a large foreign consortium, and Houshi, a planned 3,600MW Taiwanese plant, to sell power at a steep discount.
The order comes a few months after the Fujian government reneged on power purchase agreements with the plants, the first wholly foreign-owned power projects Beijing has approved.
The Meizhou Wan plant, which includes the Asian Development Bank among its shareholders, was considered a potential model for future foreign involvement in the power sector.
The Houshi plant, which is scheduled to cost Dollars 3.2bn (Pounds 2.2bn) if it reaches full capacity, is one of Taiwan's largest and most high-profile investments in the mainland. Its controller is Wang Yung-ching, chairman of Formosa Plastic Group and one of Taiwan's most powerful businessmen. An official with Fujian Province Power Corporation, which buys the power from Meizhou and Houshi, said it was offering Rmb 0.44 (37p, Dollars 0.53, Euros 0.60) per kwh to Meizhou, from Rmb 0.56 in the original power purchase agreement.
An executive at Meizhou, which is run by InterGen, a joint venture of Royal Dutch/Shell and Bechtel, declined to say whether the project could make a profit at this price.
"The negotiation is not yet finished, but there is some progress and both sides are sincere," said a Fujian provincial government official of negotiations at Meizhou Wan. "We will try to get the price down a bit more . . . but it will be an extremely tough negotiation."
Fujian power was offering only around Rmb 0.3 per kwh, against a contractually agreed Rmb 0.5 per kwh, industry analysts said.
Michael Komesaroff, managing director of Urandaline, an independent consultancy, said that such breaches of contractual agreements have been common in China's power industry over the past few years, but the Meizhou Wan problem would be a "warning bell" to anyone considering financing a power sector investment.
The Meizhou Wan project, whose other investors are El Paso Natural Gas and Lippo China Resources, borrowed Dollars 566m from 17 lenders including the French and Spanish export credit agencies, BNP Paribas, Bank of America, CSFB and the Tokai Bank.
A Fujian Province Power Corporation official said the company had to renegotiate the contract.
He said the province had several million kilowatts of extra capacity, adding: "At the current price, we are making losses by using the electricity from Meizhou Wan." The average price per kwh in Fujian was Rmb 0.40, he said.
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