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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (5321)	8/10/2005 12:46:59 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Power earnings plunge Gladys Tang August 10, 2005 Huaneng sets the stage for dismal results by mainland utilities as coal prices, tariff curbs weigh Rising coal prices and a delay in granting tariff hikes have hit power firms. XINHUA Huaneng Power International Tuesday set the stage for a dismal first-half performance by mainland electric utilities, reporting net profits plunged 32 percent, a victim of soaring coal prices and government restrictions on power prices. There may be even darker news to come. ''Chinese independent power producers are likely to report their worst-ever interim results against a backdrop of escalating coal prices and a delay in granting tariff hikes,'' wrote Citigroup analyst Adam Lau in a report. He expects Huadian Power International and China Power International will report profits fell by about a third in the first half. Datang Power and China Resources Power will also unveil first-half results later this month which are expected to reflect the same woes. Huaneng, the largest Hong Kong-listed utility by generating capacity, said first-half net profits fell to 1.68 billion yuan (HK$1.61 billion), from 2.48 billion yuan a year earlier, even as sales jumped 45 percent to 18.8 billion yuan, from 13 billion yuan in the same period last year. Huaneng warned last month that first-half profits might fall 30 percent to 40 percent. Paradoxically, the poor results come amid a booming mainland economy that has sent electricity demand soaring, leading to widespread power outages that have already forced many mainland factories to curtail production. In a business where demand increases in the industrial world are typically measured in low single digits, Huaneng's output leapt 46.4 percent to 67.8 billion kilowatt-hours in the first half. The trouble stems largely from the mainland's system of power price regulation, which kept utilities from passing on rapidly rising fuel costs to their customers. Utilities also face heavy depreciation charges that hold down reported profits since most have been adding new production capacity at a furious clip in an effort to keep up with rising power demand. During the first half, depreciation expenses at Huaneng subsidiaries climbed 49.4 percent to 3.17 billion yuan because of newly acquired power plants and new generating units starting commercial operations. Huaneng's total fuel bill surged 71.8 percent to 10.35 billion yuan - a 16.7 percent rise in unit fuel costs. ``The increase ... was mainly due to the expansion of the company's operating scale and the rise of fuel prices,'' said the company in a statement to the Hong Kong stock exchange. Huaneng's rapid expansion, much of it through the acquisition of existing power stations, may have exacerbated the problem. ``Huaneng's average tariff dropped 1.4 percent, which is lower than my expectation,'' said UBS utility analyst Alice Hui. ``It's because the tariff of the power stations it bought was relatively low.'' The cost squeeze may ease in coming months - thanks to government efforts to make it easier for utilities to recoup rising fuel charges. Beginning in May, they can now pass on 70 percent of fuel cost rises. But the change came too late to do much to help their first-half bottom lines. The utilities were also hurt by their reliance on the volatile spot market, rather than stable long-term contracts, for much of their coal supplies. Huaneng said earlier it had signed contracts covering 80 percent of its coal needs this year. But since they weren't signed until February, the company's reliance on the spot market was far higher in the first six months of the year. Guotai Junan analyst Zhang Wenxian estimates that Huaneng bought only 47 percent of its coal supplies under contract in the first quarter.gladys.tang@singtaonewscorp.com Copyright 2005, The Standard, Sing Tao Newspaper Group and Global China Group. All rights reserved. No content may be redistributed or republished, either electronically or in print, without express written consent of The Standard. thestandard.com.hk