Wide net to be cast for energy loans
THERE should be no problem financing China's massive power projects, which will cost up to US$12 billion annually over the next few years, but to ensure success over the long-term it needs to improve its finance services and regulatory tariffs, according to executives of Schroders PLC.
Over the next decade China is expected to spend US$10 to 12 billion a year to increase energy output by 13,000 to 15,000 megawatts annually - a nine to 10 per cent annual growth rate or the equivalent of reproducing the entire electricity capacity of Britain every four years.
Schroders executive chairman George Mallinckrodt said China would have no problem raising that finance, but added that ''with the massive requirements of China you have to activate every source that is available in the world''.
This includes traditional approaches such as export credit loans and commercial bank loans guaranteed by Chinese banks, and newer approaches, such as project financing techniques, asset sales and privatisation.
''China's requirement for investment in the power sector is so large, and the circumstances facing each project so different, that there is room for all of these financing approaches and sources of funding,'' said Mr Mallinckrodt, who was in Beijing to open a Schroders-Ministry of Electric Power seminar on power development finance.
Guo Hua, a senior official of the Ministry of Electric Power, told the conference that a third of all investment in the energy sector would have to come from overseas.
''We can only meet two thirds of our needs through the internal collection of funds,'' he said. ''Nationwide, electricity deficiency will be a serious problem now and in the near future.'' He put the need for power development finance at $150 billion over the next decade.
Mr Mallinckrodt said he was optimistic about raising finance for power over the next five years. Later, much would depend on China's balance of payments.
''I would be optimistic in the first cycle and still be reserved about the second cycle because it depends so much on the success of their development. But given the determination of the people, both at the political level and the manner in which implementation has so far taken place, one should be optimistic that it can be achieved,'' he said.
Schroders director Read Gomm said another key factor was price reform. Electricity prices did not reflect the true market value, ''but over the next few years they are moving towards market rates''.
Other issues, including regulatory structures and foreign exchange convertibility, also had to be resolved before some power projects could go ahead, he added.
''What China needs to do in this first cycle is develop the track record of success of the outcome of international investment, so that it can spur further inward investment,'' Mr Gomm said.