Mainland power firms in red again
The mainland's five state-owned power generation firms sank back into losses in January on the back of weaker output and rising interest and coal costs, but an analyst said the poor showing was distorted by the Lunar New Year effect.
The big five generators, which account for roughly half the national generating capacity, recorded a loss of 2.22 billion yuan (HK$2.73 billion) in January, compared with a deficit of 390 million yuan in the same month last year, the official Securities Times reported.
The loss on coal-fired power generation amounted to 2.81 billion yuan, compared to a loss of 2.56 billion yuan in the year-earlier month. This was the first time the Ministry of Finance had disclosed the big five's performance figures, the paper said. The figures were not found on the ministry's website.
Power generators have long complained about Beijing's failure to lift power prices in tandem with coal prices to fight inflation, resulting in weak profits and losses over many years.
The paper cited a 32.6 per cent jump in interest expenses, to 9.47 billion yuan, a 5 per cent rise in coal costs to 768.5 yuan per tonne, and an 8.3 per cent year-on-year fall in power output to 180 billion kWh as the main reasons for January's loss. Lower output means fixed costs like maintenance and asset depreciation are higher on a per-kWh basis.
Evan Li, an analyst at Standard Chartered Bank, said January's loss had limited value in reflecting the underlying performance of power companies, since it was distorted by Lunar New Year falling in January this year but February last year.
Sharply lower industrial production, which accounts for 75 per cent of the nation's electricity consumption, and the holiday distortion, explains the January output decline.
National Bureau of Statistics figures showed that power generation in January and February together grew 7.1 per cent year on year.
Li also noted that since power plants typically kept inventory sufficient for a few weeks of coal usage, January's coal cost reflected more of the higher cost of coal procured last December. Coal prices have started to fall since last November and are now just under 10 per cent lower. Profits were also boosted from December 1 by a power tariff hike.
'I expect profits in this year's first and second quarters to be better than that of last year's fourth quarter,' Li said. 'But the improvement may not be as significant as some investors believe, as some generators have delayed start-up of new plants to shift asset-depreciation costs from last year to this year.'
Falling spot-market coal prices also do not necessarily mean lower overall coal costs for power firms, since coal suppliers are selling more volumes to the spot market instead of via annual contracts. Spot prices are around a third more expensive. Beijing has capped this year's contract price hikes at 5 per cent.
According to the China Business News, the big five generators' combined profit amounted to 18.2 billion yuan last year, although over half of their coal-fired power plants experienced losses due to higher coal prices and rapid rises in debt to finance new plants.
All of the big five have debt-to-asset ratios of over 80 per cent, the threshold considered by the State-Owned Assets Supervision and Administration Commission to be unacceptably high.
The share of China's total electricity use that is accounted for by industrial production - which dropped off sharply in January