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CLP plays by Australian rules

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Yesterday's $13 billion acquisition of a power station and distribution network in Australia brings CLP Holdings managing director Andrew Brandler a big step closer to his target of generating a third of the group's earnings outside Hong Kong's protected 'scheme of control' electricity market. But diversification has come at a price.

With the Australian dollar at eight-year highs and with the company's credit rating under review, this is likely to prove an expensive purchase.

But CLP has little choice. For the past 40-odd years, the company has enjoyed the protection of a generous government guarantee. Under the scheme of control, CLP and its co-monopolist Hong Kong Electric are promised an annual return on their assets of nearly 15 per cent. That compares handsomely with the 7 or 8 per cent return electricity generators make in other developed markets.

Sensitive to criticism that it is supporting big business at the expense of consumers, the government is to scrap the current scheme in 2008. What will replace it is not clear, but it is a safe bet that the generators' guaranteed returns will be slashed.

In response CLP has been trying to diversify for the past 10 years. But making their way in the big wide world has proved tougher than company executives anticipated. A string of attempted purchases has fallen through. And where CLP has made acquisitions, they have often failed to generate worthwhile returns.

In Malaysia, the company backed out of its holding in local utility YTL after failing to make any headway with further acquisitions.

In India, CLP, like other foreign power generators, has struggled to collect payments from state electricity boards.

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