Beijing stalls on power cash formula
By DUSTY CLAYTON
A HIGH-PROFILE bid by a Price Waterhouse-led consortium to create a project financing blueprint for a Shanghai power plant has been set aside as China expands its options for attracting overseas funds to its power sector.
It appears likely China will finance the enormous 1,800 megaWatt Waigaoqiao II plant with low-interest loans from government-level multilateral agencies, according to Nigel Ayton, director of electricity services for Price Waterhouse in China.
Mr Ayton said at least two multilateral agencies were negotiating with the government to provide preferential loans, which would be a cheaper source of financing for the US$1.5 billion project than a build-operate-transfer (BOT) agreement.
The Asian Development Bank (ADB), the World Bank and the European Investment Bank are all examples of multilateral agencies, but Mr Ayton would not reveal which agencies were involved.
China's State Planning Commission is drafting a law to set out a framework for BOT projects, which Mr Ayton expects to appear in the first half this year.
That law is almost certain to say that future BOT projects must be wholly foreign owned, not joint ventures.
It also could permit foreign power projects with special approval from the planning commission to enjoy unprecedented guarantees at the provincial government level, including: Sole rights to a power project.
Provincial government assistance in ensuring a supply of foreign exchange.
The provincial government's willingness to ensure the local power purchaser will be able to pay for the electricity it receives from the plant. That could take the form of tariff increase approvals or cash payouts.
Beijing would continue to refuse to provide sovereign guarantees for power projects, Mr Ayton said.
The government's pilot project for its new BOT law is the 700 mW Laibin B power plant in inland Guangxi province, which is open to tendering.
The coal-fired plant, which could cost US$500-$700 million, would be an easier test case for BOT financing than Waigaoqiao because it would use standard-sized generators.
Laibin B's returns would be negotiated according to the traditional model, with China guaranteeing it would buy a certain minimum amount of electricity.
Mr Ayton remained confident his consortium's BOT bidding system, developed under a technical assistance grant from the ADB, would be adopted by the government in the future. 'Our BOT [framework] is fairly generic and can be applied to all power projects,' he said, adding that a new test case for the tendering process had not been chosen.
The Price Waterhouse consortium, which includes PowerGen of Britain and US law firm Morrison and Foerster, will recommend a new approach to China project financing this April.
To avoid the risks involved with guessing how much electricity a new power plant would be able to sell, Mr Ayton said China should agree to pay a regular capacity fee for the use of the plant.
'A power plant isn't providing electricity, it's providing a system operator with a tool and you have to pay a rental fee,' he said.
'Whether you use it is your problem.' He said the difficulty was in getting the Price Bureau to agree with that approach, which was not as intuitive as linking returns to approvals for tariff increases.