CLP Group

CLP may raise fees amid earnings squeeze

Power firm books big losses on overseas businesses and fuel costs are set to triple under new gas supply contract - meaning tariffs could be about to go up

PUBLISHED : Wednesday, 15 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 1:33am

CLP Holdings may propose another tariff rise in Hong Kong by the end of the year, as big losses in its overseas investments squeeze earnings and a new gas supply contract due to be signed next year triples fuel costs.

Plagued by a number of natural disasters, the group's earnings dropped 42 per cent to HK$3.36 billion over the six months to June from HK$5.8 billion a year ago - the second consecutive decline following a 10 per cent fall in earnings for the whole year of 2011.

Analysts said the outlook for the second half of the year was not bright as adverse factors - including a shortage of coal supply in India and further remedial works on the company's biggest coal-fired power plant in Australia - would remain in the short term.

CLP, however, slightly increased its interim dividend to 53 HK cents per share, up from 52 HK cents in the same period last year.

Earnings from the company's Australian business, which made up three-fifths of the group's revenue, slumped 77.5 per cent to HK$268 million during the first six months.

That was a result of losses in hedging against spot power prices and an impairment loss of HK$644 million incurred by flooding in the southern state of Victoria, which crippled three of the four units at the Yallourn Power Station in June.

CLP said it was on the way to booking another HK$200 million for remedial works on river diversions, levees and dewatering in its financial statements for the second half.

In Hong Kong, the company's operating earnings edged up 4 per cent to HK$3.24 million.

CLP vice-chairman Betty Yuen said there was pressure on fuel costs as the company would have to seek new gas supplies from PetroChina within the next 12 months, given the dwindling supply from the Yacheng gas field, which has been the source of natural gas for CLP over the past two decades.

"The new gas prices will be three times higher than the old rate," Yuen said. "We will seek to cut down on the use of natural gas by sourcing good quality coal and educate the public on ways to cut power consumption."

Yuen would not say whether CLP would propose another tariff increase this year, but an analyst who did not wish to be named said its tariffs would have to go up by 40 per cent if it was to fully cover the escalating fuel costs.

CLP raised its tariffs by 4.9 per cent on January 1 this year - only half of the company's original proposal of a 9.2 per cent rise, which it said was necessary to cover its investment in emission control facilities.

As for the damage caused by severe Typhoon Vicente on CLP's Castle Peak power station last month, Yuen said the typhoon's impact in terms of fuel costs and remedial works would be minimal and short term.

The company said it spent a few tens of millions of dollars to mend a broken coal conveyor belt as a result of the typhoon.

Demand for power output from the plant should ease next month as the weather cools down, meaning the company may no longer have to rely on the more expensive ultra-low sulphur diesel to meet extra demand.

The company's operation in India incurred a loss of HK$19 million in the first half, compared with a profit of HK$183 million the same period last year, as the country's state-owned coal supplier failed to supply the nation with enough coal.

Its coal-fired plant in Jhajjar alone incurred losses of HK$150 million in the three months after it opened in March.

The plant's second unit began operating last month, and is expected to cost the company another HK$500 million in losses in the second half of the year.

CLP chief executive Andrew Brandler said the company would be "very cautious" in considering any further investment in India, although he remained optimistic about the country's long-term prospects.

The company's share price fell to an intraday low of HK$67.3 after the results were announced.

But it recovered later in the day to close 0.22 per cent higher at HK$67.75.