Huaneng predicts profit if coal prices stay level

Huaneng Power International, which had a 3.9 billion yuan (HK$4.42 billion) net loss last year, expects a profit this year if the contract coal price does not exceed the level of December and plant utilisation falls no more than 6.6 per cent.

The listed unit of the country's largest electricity producer, China Huaneng Group, expects a conclusion soon to the drawn-out price negotiations between coal producers and the five state-owned national power producers.

'I can feel that the gap between the two sides [on prices] is narrowing gradually, the state's brokering effort is increasing and progress of the talks is advancing,' Huaneng chairman Cao Peixi said.

Since the talks began late December, coal producers have been demanding a 17.4 per cent or 80 yuan per tonne increase from last year's 460 yuan for delivery at the country's largest coal port in Qinghuangdao.

However, the power companies wanted to cut the price by 50 yuan per tonne and set a bottom line of not paying more than last year's levels.

Spot market prices for Shanxi premium coal have fallen to 558 yuan per tonne from a peak of more than 1,000 yuan in July last year. Fuel costs accounted for 73.7 per cent of Huaneng's operating expenses last year.

Huaneng planned to buy about 60 per cent of its 84 million tonnes of coal requirement for this year through contracts and the rest from the spot market, Mr Cao said. The contract price this year was likely to be similar to last year's, he added.

With imports cheaper than domestic prices, president Liu Guoyue said Huaneng had signed deals to import more than 5 million tonnes of coal from Australia, Indonesia and Russia, and may import another 2 million to 3 million tonnes more. Its nine coastal plants need 40 million tonnes this year.

Chief accountant Zhou Hui said if the final coal contract price was fixed at December's level, Huaneng would be profitable this year.

Mr Liu added that that would also depend on the company's plant utilisation being not less than its target of 4,900 hours, a 6.6 per cent decline from last year's. Utilisation fell 7.2 per cent last year from 2007.

The sharp falls in utilisation came after aggressive new plant construction and a drastic slowdown in power demand. Huaneng expects its generating capacity to rise 9.5 per cent to 42,915 megawatts but only targets the sale of 2.91 per cent more power.

Low plant utilisation crimps profit margins since more fixed costs such as depreciation and management are borne by each unit of output.