43pc of mainland power plants in the red in 2010

PUBLISHED : Saturday, 12 February, 2011, 12:00am
UPDATED : Saturday, 12 February, 2011, 12:00am

Almost half of the mainland's power plants made a loss in the first 11 months of last year as the government's power-price freeze eroded their bottom lines amid rising coal prices and higher interest rates.

The coal-fired power generation sector saw a 38.8 per cent drop in combined profit in those 11 months, the industry's planner and regulator, the National Development and Reform Commission (NDRC), said yesterday.

It did not provide a profit figure, but according to a Samsung Securities research report, net profit was 28 billion yuan (HK$33.07 billion).

The NDRC said 43 per cent of coal-fired power plants were in the red, up from 35 per cent in 2009.

Even in the more lucrative years of 2005 to 2007, 30 to 38 per cent of the coal-fired power producers made losses, the report said.

For the whole electricity-producing industry, including non-coal power, profits edged up 3.6 per cent to 82.7 billion yuan in the 11 months.

This was largely due to last year's 19.4 per cent surge in the output of hydropower - which has no fuel cost - thanks to ample rainfall. In 2009, hydropower output grew only 1.6 per cent.

Coal-fired output accounted for 80.7 per cent of the mainland's power generation last year, followed by 16.2 per cent from hydropower and 3 per cent from wind, nuclear and other forms of power, according to China Electricity Council data.

Coal-power producers suffered because coal prices rose while Beijing has kept a lid on prices since August 2008 to keep inflation in check.

The average price of benchmark power-station coal at the coal port of Qinhuangdao with a heating value of 6,000 kilo-calories surged 24 per cent from 2009 to 790 yuan per tonne last year, close to the record 793 yuan average seen in 2008, the Samsung report said.

The actual fuel cost increase for power producers was lower than 24 per cent, since they typically buy more than half their coal via long-term contracts whose price levels and price increases are lower than spot prices.

According to Samsung's figures and calculations by the Post, the power tariffs of five Hong Kong-listed mainland power producers saw their fuel costs per unit of output rise 10.3 per cent to 19.1 per cent a year between 2007 and last year, while their power prices gained only 3.5 per cent to 9.9 per cent.

The five were China Resources Power Holdings, Datang International Power Generation, Huaneng Power International, China Power International Development and Huadian Power International.

Since fuel costs typically chew up two-thirds of a power plant's revenues, the negative impact on profits from every one per cent rise in fuel cost needs to be offset by a 0.66 per cent rise in power price.

According to the Samsung report, the average gross profit margin of all coal-fired power generators fell to 8.8 per cent in the first 11 months of last year from 14.7 per cent in 2009, and compared with 5.5 per cent in 2008, when most of the sector was making losses. The average margin was 16.8 per cent between 2005 and 2007.