Huaneng plans 21b yuan capex
Huaneng Power International plans a 21 billion yuan capital investment this year as it seeks to raise its net generation capacity more than 50 per cent in the next four years.
The projected spending is up 50 per cent on last year's capital expenditure and much higher than some analysts' estimates, raising concern about the impact of higher interest and depreciation expenses on the group's bottom line.
The big jump in spending also comes as mainland power companies expect plant utilisation to fall as they estimate that the expanded supply will outstrip power demand in the next few years due to a power plant construction boom.
'Huaneng's capital expenditure this year is much higher than our earlier estimate of 13 billion yuan,' said Alice Hui Suk-fong, head of Asia utilities research at UBS. 'Whether this will affect its profits depends on how good it is in translating new projects into earnings given [falling] utilisation rates.'
Huaneng, the nation's largest listed power producer, plans to raise its net capacity by 3,048 megawatts (MW) this year, 3,253 MW next year, 3,361 MW in 2008, and 2,961 MW in 2009. It has 23,549 MW of capacity.
It plans to spend 21 billion yuan on the expansion this year and 16 billion yuan next year.
Chairman Li Xiaopeng said government estimates put the nation's annual new capacity growth at 10 per cent to 14 per cent for the next few years, against 8 per cent to 10 per cent growth in power demand. This would help relieve tight supply and see plant utilisation fall, he said. The government's push to develop rural areas would sustain strong energy demand growth in the long term, he added.
Mr Li projected that Huaneng's average plant utilisation hours would fall 7.17 per cent year on year to 5,800 hours this year. But he considered utilisation rates of 5,000 to 5,500 hours reasonable given the need for plant maintenance.
Huaneng expects coal cost per unit of power generated to rise less than 5 per cent, against 11.8 per cent last year. Listed rivals including Datang International Power Generation and China Resources Power expected coal costs rising not more than 7 per cent this year.
Mr Li said Huaneng has signed contracts to procure 70 per cent of its 66 million tonne coal requirements for the year. On Tuesday, the firm posted an 8.49 per cent fall in last year's net profit to 4.87 billion yuan due to high coal costs.
The company said it had no imminent plans to engage in nuclear projects, despite its parent deciding to take a 5 per cent stake in the China National Nuclear Corp-led Haiyang nuclear project, and to invest in another project with Qinhua University and China Nuclear Engineering and Construction. Ms Hui said it would be better if the listed firm entered its parent's nuclear projects later to avoid construction and technical risks.
Rival Datang International, meanwhile, is pursuing a greenfield nuclear project.