Lower electricity costs Aluminium Corp of China (Chalco) envisioned earlier this month, by teaming up with H-share Beijing Datang Power, may not come until 2006. The alliance, announced about a month ahead of the planned listing of Chalco - was widely seen as a move to encourage interest in the share sale. While the deal will help the company secure a 25-year long-term power supply, analysts said the impact might come later than some have believed. Chalco and Datang signed a memorandum of understanding under which Datang intends to build a power plant in Shanxi province, where Chalco plans to build a primary aluminium smelter by 2006, according to its preliminary listing prospectus. The November 9 joint Chalco and Datang press release did not mention when the smelter would be completed. Under the accord, Datang contemplates a 25-year power supply and purchase agreement with Chalco. Each year, Chalco would buy a minimum of 4,000 gigawatt hours of electricity. The price would be about 20 per cent lower than the actual average electricity cost for Chalco's existing smelters in the six months to June 30. Cheaper electricity will bolster Chalco's profitability as electricity accounts for about one-third of its operating costs, according to analysts. Beijing had introduced various preferential electricity supply policies for large aluminium producers since 1998, but smelters were still paying more than their counterparts in most industrialised countries, the prospectus said. Chalco, China's only alumina refiner and the world's third-largest, aims to raise between US$348 million and US$440 million from its sale of 2.35 billion new shares, to fund expansion and renovation of its production facilities. The company's parent, Chinalco, and existing shareholders will raise an additional US$44 million selling existing shares. The company refines bauxite into alumina then smelts the alumina into primary aluminium - which is used in sectors such as construction and transportation. Last year, it produced 70 per cent of China's alumina, but only 23.7 per cent of its primary aluminium. After the mainland's entry into the World Trade Organisation Chalco faces greater competition from imports. The standard import tariff on alumina, at 18 per cent, will come down to 12 per cent in January, falling to 10 per cent in 2003, then 8 per cent a year later. However, last year, the majority of China's alumina imports were under the protection of import quotas and at a tariff of only 8 per cent, the prospectus said. Chalco is one of two companies authorised to import alumina at this preferential tariff. Chalco believes it will remain competitive even with China's WTO membership. 'We believe that the continued existence of tariff and non-tariff costs will continue to support our competitive market position against imports,' its prospectus said. China's appetite for primary aluminium means it imports 30 per cent of its needs due to a domestic supply shortfall.