Towngas eases on water acquisitions

PUBLISHED : Tuesday, 28 March, 2006, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

Firm aims to consolidate projects before expanding further

Hong Kong and China Gas (Towngas), the city's dominant piped gas service provider, plans to consolidate its fledgling water supply projects on the mainland this year before proceeding with further acquisitions, according to managing director Alfred Chan Wing-kin.

The three projects, in Suzhou and Wujiang in Jiangsu province and Wuhu in Anhui province with a total cost of $2.6 billion, were still in their infancy and lost an undisclosed amount last year, Mr Chan said.

Towngas, however, plans to spend about $2.5 billion this year largely on piped gas supply on the mainland.

'We will see how successful our water projects are before adding more to our plate,' Mr Chan said.

He said the utility's bills could decrease 5 to 10 per cent in the fourth quarter of this year after it decided to import liquified natural gas, which is cheaper and cleaner, for its naphtha piped gas.

Seeking growth from the mainland's deregulating utilities sector, the firm last year branched out to water supply in cities where it supplies piped gas, using its ties with local authorities and billing infrastructure.

Mr Chan said supplying drinking water or treating sewage services was more lucrative than supplying piped gas on the mainland, but the water projects required more investment.

He said investment returns on the group's 31 gas projects ranged from 13 to 15 per cent, while implying that those on water projects stood at 'low teens'.

Towngas recently committed to supplying drinking water and treating sewage at Suzhou Industrial Park for 30 years.

It expects the three billion yuan project, of which it holds 50 per cent, to create synergies with its gas supply operation in the park.

Mr Chan said the company, which is conducting due diligence on about 40 acquisition targets involving water and gas services, aimed to expand its mainland portfolio by six new projects this year.

Profit contribution of Towngas' mainland portfolio jumped 84 per cent to $243 million last year.

Lehman Brothers analyst Ivan Lee expected the utility to cherry-pick smaller water projects with larger numbers of bulk consumers - especially industrial users - in affluent cities.

Mr Lee said Towngas' water projects would continue to lose money, although he believed the profit contribution of the mainland business would grow 74 per cent to $422 million this year.