Although the news increases pressure on Beijing to lift tariffs to restore profitability and offer investment incentives, analysts were not optimistic of an increase any time soon because of the time it will take for inflation to fall from the 12-year high it reached in February.

Huadian Energy, sister firm of Hong Kong and Shanghai-listed Huadian Power International, yesterday said it would report a loss as a result of falling plant utilisation and higher coal costs.

Of the economy's three worst-performing sectors - power generation, power distribution and oil refining - the generation sector was the hardest hit, with profit falling 93 per cent in January and February, mainland newspaper The Economic Observer reported, quoting an unnamed source.

The National Statistics Bureau said late last month that the power sector as a whole had recorded a 61 per cent year-on-year profit decline in the first two months of the year.

While electricity distribution companies suffered revenue losses because of winter storm damage they were not affected by higher coal costs, the report said.

Power companies generally lock in most of their coal supply through one-year contracts negotiated at the start of the year. However, some agreements are not fulfilled, exposing them to the risk that coal sellers will ask for higher prices and renege on existing contracts.

'Our concern is that as long as domestic spot coal prices remain at roughly the same level, there is a growing possibility that contract coal prices may need to be revised upwards throughout the year,' JP Morgan head of Asia-Pacific utilities and infrastructure research Edmond Lee wrote in a recent research report.

With domestic spot market coal prices 40 per cent below international levels, Mr Lee projected coal costs of locally listed mainland power producers would rise between 20 per cent and 30 per cent year on year in the third quarter.

Analysts said unlisted power plants were believed to have fared worse than listed ones, because listed power plants were likely to be more efficient and receive priority in power sales.

This means lower utilisation rates for less efficient plants, which tends to translate into lower profits as fixed costs such as depreciation and maintenance are spread over lower output. Listed power plants also tend to be in under-supplied or balanced markets.

One exception is Huadian Energy, which operates 21 per cent of the total generation capacity of over-supplied Heilongjiang province in northeast China. The province's overall power plant utilisation is forecast to fall 9.27 per cent this year to 4,890 hours from 5,390 hours last year, Huadian Energy said last week. The company's plant utilisation eased 3.39 per cent to 5,270 hours last year.

Meanwhile, surging interest costs have bitten into the bottom lines of companies that sought to offset higher coal costs by building more plants and generating more power.

Huadian Power International, whose debt-to-equity ratio is the highest among locally listed power firms, saw a 203.88 per cent jump in interest costs last year to 1.38 billion yuan (HK$1.53 million), higher than its net profit of 1.19 billion yuan.