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Power firms' losses may hit 7b yuan

Four of the five big state-owned national power producers are estimated to have suffered combined losses of 7 billion yuan (HK$8 billion) in the first six months of the year, hurt by surging coal costs and frozen power tariffs.

China Guodian Group posted a first-half loss of 1.4 billion yuan while China Huadian Group slipped into the red to the tune of 2.65 billion yuan, the Shanghai Securities News reported, citing internal figures from the companies.

China Datang Group's six-month loss is estimated at 2 billion yuan while China Power Investment Corp's deficit is believed to be not far from that of its peers.

Hit by a doubling of spot market coal costs in the past year, the nation's biggest generators - which account for 45 per cent of the nation's generating capacity - are also restricted by government controls on their tariffs.

A spokesman for the nation's largest power producer, China Huaneng Group, said the company had managed to make a profit in the half but declined to reveal a figure. 'Our coal and financial services businesses helped offset losses in the power industry,' he said.

Separately, the company's listed subsidiary, Huaneng Power International and rival Huadian Power International, a listed unit of China Huadian Group, earlier this month warned they would post first-half losses.

The spot market price for coal for delivery at the Qinhuangdao port in northern China has surged two-thirds since the start of the year and has doubled year on year to almost 1,000 yuan a tonne.

Spot prices have far outstripped those of one-year supply contracts signed earlier this year, which rose only about 15 per cent from last year. That means spot prices are now double contract prices. Power companies typically buy 80 per cent or more of their coal supply from coal miners on contracts and procure the remainder in the spot market.

But as spot prices have soared due to the tight supply stemming from the government-ordered closure of unsafe mines ahead of the Olympics, many mining companies have reneged on their contracts to gain better prices on the spot market.

Deteriorating coal quality and lower contract fulfilment rates have added to power generators' woes in addition to surging coal prices.

The government last week ordered miners to honour all contracts and imposed price caps at three coal ports after a freeze on spot prices charged at the mine gates failed to stop distributors from jacking up prices.

To help generators, the central government raised the tariffs they can charge customers by 5 per cent on average from July 1, the first increase in two years.

However, analysts said it was too small relative to the hefty increments in power generators' coal bills.

Nomura Securities analyst Donovan Huang estimated that the tariff increases amount to only 30.2 per cent of those needed to cover cumulative rises in coal prices.

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