Huaneng International Power, China's largest independent power producer (IPP), will lose 18 million yuan (about HK$16.86 million) in revenues this year as a result of a compulsory tariff cut.
The H share yesterday said the second phase of its Shidongkou power plant in Shanghai was forced to cut its on-grid tariff by 1.87 per cent to 368.8 yuan per megawatt hour. The lost revenues, however, are only a fraction of Huaneng's 3.45 billion yuan net profit last year.
The tariff reduction, milder than most analysts had expected, took effect on May 25. It is part of the central Government's efforts to restructure the country's massive power sector, as it seeks to close the tariff gap between private and state-owned power plants by lowering the former and raising the latter.
Analysts believed Huaneng's tariff cut would have a limited impact on its overall profitability as the H share has vowed to offset the revenue loss by cutting costs and boosting output.
Merrill Lynch analyst Wang Guohua, who recently predicted a negative impact on China's listed IPPs as a result of the mainland power industry restructuring drive, believes the downward pressure on tariffs will continue for the next five to 10 years.
Like other H-share IPPs such as Beijing Datang Power Generation and Shandong Power International Development, Huaneng faces yet another challenge - rising coal prices.