• Fri
  • Aug 22, 2014
  • Updated: 8:53am

Amber issues profit warning after cost rises

PUBLISHED : Friday, 16 July, 2010, 12:00am
UPDATED : Friday, 16 July, 2010, 12:00am

Amber Energy, a Zhejiang operator of power plants fuelled by natural gas, has warned that its profit margin will be squeezed after the provincial government forced it to bear 30 per cent of a recent gas price rise.

The news came as a fresh setback to the company, whose profitability only started to improve in the second quarter, following a loss-making first quarter due to a gas supply shortage.

It also highlights the risk of investing in the gas-fired power sector, as local governments - the sole suppliers of gas and buyers of power - control both gas and power prices, and may not always protect investors' interests in the face of public pressure to contain consumer price inflation.

The central government has raised ex-factory gas prices for the first time since early 2008. Prices have surged by 25 per cent since June 1, narrowing the wide gap between domestic and overseas prices. It capped coal prices last month to fight inflation and relieve losses of power producers.

After the moves, analysts said it was unlikely that a long-awaited power price rise would be implemented until the fourth quarter.

Mainland June consumer price inflation eased to 2.9 per cent in June from 3.1 per cent in May. Beijing hopes to contain it at 3 per cent for the full year.

Starting from Thursday, Amber's gas price charged by sole supplier Zhejiang Province Natural Gas will be raised by 15.9 per cent to 2.41 yuan (HK$2.76) per cubic meter from 2.08 yuan, Amber said in an announcement through the local bourse.

The Zhejiang Provincial Price Bureau has specified that 30 per cent of the increased gas cost should be borne by gas-fired power plants and 70 per cent covered through higher power prices, Amber said, adding it has not received official notice about power tariff adjustments.

'In this round of natural gas price increases, [we] are unable to fully pass on the increase in cost to our customers and [our] financial results will be adversely affected,' it said.

A utilities analyst said it was the first time he had heard that gas-fired power plants are also subject to the 70 per cent cost pass-through that has been implemented among coal-fired projects since 2005.

'People have been expecting 100 per cent pass-through since gas is a clean energy whose usage are promoted,' he said.

But the analyst noted gas-fired power prices are regulated locally, so different pass-through formulae may apply elsewhere.

Due to insufficient gas supply since September, Amber recorded a net profit of 21.6 million yuan for last year, well short of the 62 million yuan it forecast. The shortage continued in the first quarter.

Margin squeeze

The power producer is ordered to bear 30 per cent of cost increases

This is the profit, in yuan, reported by Amber Energy last year, well short of its forecast of 62 million yuan: 21.6m yuan

Share

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

 
 
 
 
 

Login

SCMP.com Account

or