The loss was despite a 64.8 per cent year-on-year jump in output, highlighting the plight of mainland power producers squeezed by Beijing's efforts to tame inflation, soaring fuel costs and the responsibility of satisfying national energy demand.

The company said yesterday that its net loss in the first six months was 506.32 million yuan (HK$578.93 million), compared with a profit of 543.45 million yuan in the same period last year.

The loss was in line with estimates by Citigroup, Lehman Brothers and HSBC of a deficit of between 500 million and 630 million yuan.

Turnover surged 60.3 per cent to 13.69 billion yuan on the back of huge generation growth made possible by a 19 per cent increase in generation capacity commissioned in the year to June.

Huadian's gross profit margins plummeted to 5.37 per cent from 19.89 per cent in the first half of last year, eroded by a more than doubling of coal costs which accounted for a whopping 78.4 per cent of total operating costs.

'Due to the imperfect implementation by the government of the coal cost pass-through mechanism in the form of a power price rise, we expect a significant profit drop or a loss in the third quarter,' Huadian said in a statement.

A utilities analyst at a United States-based brokerage expected Huadian to return to the black in the third and fourth quarters.

Power prices have been increased about 10 per cent since last month and a cap on coal prices imposed in mid-June should be reflected in operations from next month.

For each kilowatt-hour of power generated, the company's coal costs amounted to 225.30 yuan, up 29.98 per cent year on year.

That compared with cost increases at larger rival Huaneng Power International, which saw costs rising 34.03 per cent while those of Datang International Power Generation were up 24 per cent.

Huadian, the largest power producer in Shandong province, buys more than half of its coal in the province from Yanzhou Coal Mining.

Another contributor to Huadian's first-half loss was a doubling of interest expenses to 1.12 billion yuan, due to a rapid ramp-up in commissioning new plants.

Commissioning interest charges can no longer be capitalised as assets and have to be recognised as an expense in profit and loss statements.

A bright spot in the interim result was a 16.7 per cent rebound in Huadian's plant utilisation to 2,597 hours after it fell substantially in previous years due to capacity oversupply.

Higher utilisation is profit margin enhancing as it means less fixed costs for each unit of output.

The company also cut coal consumption per unit of output by 1.8 per cent, thanks to commissioning of larger and more fuel-efficient generating units.

Electric shock

Government's fuel price rise fails to offset more than double coal costs

Of Huadian Power's total operating costs, coal costs account for: 78.4%