CLP braces for earnings squeeze at mainland's coal-fired facilities

CLP Holdings expected the profitability of its coal-fired power plants on the mainland to be squeezed further as runaway inflation dashed hopes of tariff rises and high fuel costs continued to bite, chief executive Andrew Brandler said.

The century-old utility, one of the biggest foreign power producers across the border, was 'lobbying hard' for tariff increases at its eight mainland coal-fired plants in Shandong, Hebei, Shanxi and Guizhou provinces, given a 5 to 10 per cent jump in coal prices in the first half, Mr Brandler said a day after the company reported a 23.2 per cent rise in interim net profits.

On the back of the country's steepest rise in inflation in a decade of 5.6 per cent last month, the chance of having tariffs raised was slim despite a mechanism to permit power producers to pass on to end-users fuel costs, he said.

Also contributing to the unlikeliness of a price increase was the healthy profit growth of mainland producers, analysts said.

'We expect the business will continue to be squeezed,' Mr Brandler said. 'It is hard to compete head to head with the five Chinese independent power producers.'

In the first half, CLP's profit from coal-fired and hydropower plants on the mainland tumbled 62.5 per cent to HK$57 million because of the combined effect of eroded profits at coal-fired plants and expenses on new projects, including 1200MW of capacity in Fangchenggang, Guangxi.

Citi analyst Pierre Lau forecast that the full-year profit of these coal-fired and hydropower plants would drop 24 per cent this year to HK$186 million.