Hongkong Electric Holdings and Hong Kong and China Gas (Towngas) are expected to report flat earnings growth for the 12 months to last December. Net profit at Hongkong Electric, the regulated electricity supplier on Hong Kong and Lamma islands, was estimated to grow 2.56 per cent to HK$6.67 billion, a Thomson First Call consensus of 24 analysts showed. Towngas, a non-regulated supplier of naphtha-gas, was expected to lift net profit 0.69 per cent to HK$3.20 billion as it fell victim to the poor economy and frozen tariffs. With bleak forecasts, brokerages CLSA Emerging Markets and HSBC Securities said Towngas earnings could decline for the first time in 15 years. Hongkong Electric is due to reveal its final results next Thursday and Towngas next Wednesday. Analysts agreed Hongkong Electric's earnings would be driven by the core electricity supply business and its power distribution operations in Australia. The core business, governed by the Scheme of Control (SoC), is expected to grow anywhere between 3.7 per cent and 7.8 per cent to between HK$5.86 billion and HK$6.05 billion due to lower interest expenses and higher spending on power assets, they said. The SoC, which links the utility's profit to investment in power assets, allows it to earn a maximum of 15 per cent return on its fixed asset value. Hongkong Electric's 2001 results were inflated by non-recurring gains totalling HK$344 million, prompting a larger base of comparison. Bear Stearns analyst Gary Chiu suspected a potential 'positive surprise' of a HK$210 million gain if the company had divested its remaining stake in oil firm China National Offshore Oil Corp (CNOOC). Mr Chiu excluded the potential gain in his net profit estimate of HK$6.68 billion. Hongkong Electric gained HK$54 million in its interim result by selling part of its 3 per cent stake in CNOOC. JP Morgan, which estimated Hongkong Electric's net profit at HK$6.58 billion, reckoned its recurring earnings from Australia's power distribution projects - ETSA, PowerCor and Citipower - would grow 35 per cent to HK$371 million. On the back of the SAR's 0.29 per cent growth in gas consumption last year, dominant player Towngas was anticipated to see marginal growth in turnover ranging between HK$6.74 billion and HK$7 billion, compared with HK$6.85 billion in 2001. In addition, Towngas has frozen tariffs since 1999. This year's tariffs are also frozen. CLSA Emerging Markets analyst Anthony Wilkinson, who forecast a 3.9 per cent drop in net profit to HK$3.05 billion, said '2002 will not be Towngas' best year but we hope for good news from its investment in China'. Bear Sterns forecast eight of 11 Towngas mainland projects would contribute a combined HK$51 million profit.