Summer blackouts put heat on business

PUBLISHED : Monday, 13 June, 2011, 12:00am
UPDATED : Monday, 13 June, 2011, 12:00am


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Small- and medium-sized enterprises in the Yangtze River Delta say they are gearing up for a summer of 'extreme inconvenience' thanks to power cuts that are expected to lead to countless lost staff hours of manufacturing time.

With the season of peak demand barely under way, factory owners in peripheral cities have already begun experiencing electrical cuts, leaving production lines idle and order books incomplete.

Industry officials last month predicted that there would be a national power shortage of more than 30 gigawatts during the summer peak demand, which would be the biggest shortfall in at least seven years.

The manager of a machinery plant outside Kunshan in Jiangsu province said that although power cuts were not a new problem, the scale of the expected blackouts was worrying.

'They had been doing a lot better in the last few years, but everyone is saying this year is going to be the worst yet,' he said. 'Nobody knows what is going to happen. We are already being affected and the weather hasn't even been super hot yet.'

While many businessmen talk freely in private about the frustrations associated with power shortages, concerns about ruffling official feathers mean they are reticent about putting their names - and those of their companies - to statements critical of policy and service provision.

'I have just been told by one of our main suppliers that their factory is going from a seven-day week to operating on a four- to five-day week, simply due to the power shortages,' the factory manager said. 'Fortunately it isn't going to affect our orders, but it is an extreme inconvenience.'

He said he believed there was generally a degree of planning behind the cuts, as there was a certain amount of forewarning.

'We normally get just under a week's notice ... Those are the good times,' he said. 'The problem often is that, like today for example, they tell us there is going to be a power cut - and we make arrangements for that - but in the end there isn't one. Alternatively we get one that isn't announced or we get told too late so we don't have time to prepare.'

The electricity shortfall - caused by a lack of core capacity to meet the demand coupled with a range of other factors, including scaled-back generation due to the high price of coal - is a major problem that affects much of the national grid.

Shuai Junqing, executive vice-president of the State Grid Corporation, said late last month that he expected the power cuts would affect no fewer than 26 provinces, municipalities and autonomous regions during summer.

There was already a 27 GW shortfall in January, a time when electricity demand is normally well below peak levels. The historical record supply gap was 30 GW in 2004, but industry indications suggest this summer's deficit is likely to surpass even that.

The corporation said it would prioritise power delivery to residential customers and essential public services, such as hospitals, schools and national security installations.

But while business figures say they can understand the need for such priorities, some say they resent the lack of reward for their contribution to the economy. 'I know the government has to make difficult decisions. There is a lot of bad feeling among the grass-roots population these days that there would be serious consequences if people's homes were blacked out but the factories were still running,' the director of a mid-sized electronics plant outside Suzhou said. 'That doesn't make life any easier for me when I have factory lines sitting motionless.'

In Jiangsu province, much of the industrial economy is driven by smaller manufacturers producing components to supply larger companies. But there are signs this supply chain is being strained by the electricity situation.

'The power shortage is definitely having an impact on trying to source products from China,' one sourcing agent said.

'Production is slowing down and that has an effect on lead times. If people find they have to wait too long for the product, they start looking for alternative suppliers.'

One veteran entrepreneur in the area said he was aware of major export manufacturers who were now considering relocating production to other Asian countries.

'These are the guys who are really hurting,' he said. 'It is actually so serious now that they have held back their plans for expansion, and will probably go to another country. They are manufacturing for export so it makes no difference to them if they build [the plant] in China or Indonesia or wherever.'

Entrepreneurs also talk of a 'tiered' energy pricing system that gives preferential treatment to companies that pay premium rates for electricity.

'What rate you pay determines what level of service you get,' the Kunshan factory manager said. 'We only pay the cheapest rate so we get very poor service.'

However, some particularly large companies with good government contacts say they have been able to circumvent power supply problems. One executive who until recently ran a major soft-drinks plant in the region said his company had tackled the problem head on. 'We don't get power cuts because we pay so much tax,' he said. 'Our company ran into a lot of problems with power supply in our Guangdong plants several years ago, so we were very quick to get a binding agreement from the authorities here.'


The China Electricity Council says national demand for power this summer will rise by up to thisamount compared to last year