Temasek Holdings

Huaneng, HK Electric target Singapore plant

PUBLISHED : Monday, 07 January, 2008, 12:00am
UPDATED : Monday, 07 January, 2008, 12:00am

Huaneng Power International, the mainland's largest power company, and Hongkong Electric, the smaller of Hong Kong's two electricity producers, are among four companies shortlisted by the Singapore government as potential bidders for the US$2 billion sale of Tuas Power Station, a major power generating plant in the city state, market sources said.

Japanese trading house Marubeni Corp and Australian investment bank Macquarie were the other shortlisted bidders.

Temasek Holdings, the investment arm of the Singapore government, said in October that it expected to have Tuas sold by March.

Both Huaneng and Hongkong Electric were looking at financing US$1.5 billion of the deal with loans, the sources said.

Spokesmen at Huaneng, Hongkong Electric and Macquarie declined to comment, while officials of Marubeni and Temasek could not be reached for comment.

Tuas can produce 2,670 megawatts of electricity and accounts for about 25 per cent of Singapore's total power generation capacity.

It earned S$177 million (HK$962.9 million) in net profit last year on S$2.28 billion in revenue.

A mainland bid may raise questions in some quarters, with China's rapidly expanding power sector offering more than enough opportunity for growth.

'Singapore has a stable market and stable returns and that's attractive,' said Vivian Cheng, a power analyst at Everbright Securities.

'The priority should be developing the mainland market, but overseas acquisitions are likely to help companies gain management expertise and knowledge at the same time. Like the rest of China, there is a policy drive to expand overseas,' Ms Cheng said.

A successful acquisition by Huaneng, which would increase its total capacity by 30 per cent, could also hedge against rising coal prices at home.

'Most of Huaneng's power plants are thermal, which rely on coal as raw material, while the three power plants in Singapore mainly use water and gas to generate electricity. Therefore, acquiring stakes in those plants would to some extent reduce Huaneng's risk from coal costs,' said Henry Li, a power analyst at Core Pacific Yamaichi.

Overseas acquisitions give a company such as Hongkong Electric the chance to expand outside a home market that is already well-developed with little room for growth.

Temasek plans to sell two other power assets, Senoko Power and PowerSeraya, by the middle of next year.

Senoko Power is the largest of the three companies with 3,300MW of capacity followed by PowerSeraya with 3,100MW.

The three companies for sale account for 90 per cent of Singapore's power generation capacity.

The mainland's total electricity generation capacity surpassed 650 gigawatts at the end of June, thanks to the addition in just six months of 38.75GW in new plants - roughly the capacity of the entire power industry of Taiwan.

This came after the industry commissioned 105GW last year, a third more than Britain's total capacity and a record addition anywhere in the world.

The development of natural gas-fired plants, which emit fewer pollutants than those powered by coal and oil, has been hampered in the mainland because of a shortage of gas supply and tariffs kept low by a government fearful of inflation.

Prized assets

Tuas Power earned S$177 million in net profit last year

Portion of the city's generation capacity that the three plants for sale contribute: 90%