Shares rise on hopes of power price increases

PUBLISHED : Friday, 17 September, 2010, 12:00am
UPDATED : Friday, 17 September, 2010, 12:00am

Mainland power generator shares surged yesterday on reports that the National Development and Reform Commission had submitted a proposal to the State Council to raise power prices for the first time since November.

In a research report, Citigroup head of Asia utilities research Pierre Lau wrote that the NDRC on Tuesday had met officials from the five state power-generating majors to discuss their demand for a rise.

The NDRC had proposed rises of 1.5 fen (1.7 HK cents) to 2.5 fen per kilowatt-hour in seven provinces, for an average 6.2 per cent rise, the report said, adding that this would happen next month if inflation was in check.

Provinces where a 2.5 fen increase is proposed include Hainan and Gansu, while Shandong, Shanxi, Shaanxi and Qinghai are expected to get a lift of 2 fen, and Hebei is expected to get a 1.5 fen rise.

To qualify, the provinces must have average plant utilisation of at least 5,000 hours a year - roughly 57 per cent of utilisation - for those that are primarily coal-fired, or 4,500 hours for those with hydro plants. This might be aimed at avoiding cutting demand in regions suffering from low utilisation, an analyst said.

The provinces also have more than 70 per cent of their coal-fired power plants losing money. Regions suffering from steeper losses are expected to get bigger tariff rises.

A senior official at one of the big five power groups said implementation could be this month. 'Coal prices have risen, but power prices have not. This is unsustainable. Otherwise, there is no incentive to build plants and shortages will return.'

He said some regional governments in less developed provinces or autonomous regions had not requested power price increases despite losses in their power generation sectors, in order to avoid hurting their economies that are reliant on power-intensive industries. Such regions would not see price increases.

According to the Citi report, although the big five power groups have requested higher tariffs for Hebei, Jiangxi, Heilongjiang, Guizhou and Chongqing, they were unlikely to be accepted.

Mainland inflation hit a 22-month high last month, with the consumer price index rising 3.5 per cent from a year earlier, compared to 3.3 per cent in July and Beijing's full-year target of 3 per cent.

For every 1 per cent rise in power prices, Lau estimated Huadian Power International Corp would see a 68 per cent increment in net profit this year, followed by 24 per cent for China Power International Development, 16 per cent for Huaneng Power International, 14 per cent for Datang International Power Generation and 6 per cent for China Resources Power Holdings.

Share price gains were led by Huadian, which rose 8.7 per cent, followed by Datang with 6.7 per cent, China Power with 4.2 per cent, Huaneng with 3.9 per cent and CR Power with 2.4 per cent.