Rising coal costs in the mainland have forced Huaneng Power International, China's biggest independent power producer, to record a 1.96 per cent decline in earnings for last year. Although higher power output and average tariff rates enhanced revenue and net profit, they could not fully offset greater expenses, 'particularly increased fuel costs', the group said yesterday. Huaneng's fuel costs last year surged 67 per cent as coal prices reached historic highs, triggered by strong demand from power plants eager to ease a power shortage. The company said in a statement to the Hong Kong stock exchange that its net profit fell to 5.32 billion yuan last year from 5.43 billion yuan in 2003. This was despite a 28.77 per cent rise in turnover to 30.11 billion yuan as Huaneng generated 25.7 per cent more electricity by the end of last year, aided by contributions from acquired plants, according to a separate statement to the Shanghai Stock Exchange, where the company's A shares are traded. Earnings per share fell to 44 fen from 45 fen in 2003. The full-year net profit reported yesterday was almost in line with the consensus forecast of a 1.05 per cent drop to 5.37 billion yuan made by Thomson Financial. Huaneng spent 32.97 per cent more in unit fuel costs last year than during the previous year. Power producers' margins this year could be hit less as the central government may allow them to peg coal costs to electricity prices. Although announced months ago, the policy has yet to be implemented. In a research report on the power industry, Morgan Stanley estimated that contract coal prices this year would rise 15.6 per cent but could be affected by uncertainties such as transport charges. But the US bank said Huaneng was slightly less prone to risk as about 60 per cent of its coal procurement this year was secured against long-term commercial bilateral contracts. Huaneng will pay a final dividend of 25 fen a share.