Fuel expenses at sector leaders to rise 29.9b yuan Chinese power producers may face losses this year because of higher coal prices and government controls on electricity prices, the nation's electricity regulator said. Fuel costs at five leading power companies including China Huaneng Group, parent of listed Huaneng Power International (HPI), will increase 29.9 billion yuan (HK$33.31 billion) this year, the State Electricity Regulatory Commission (SERC) said in a statement on its website. HPI, which owns about 7 per cent of national coal-fired power generation capacity, last year had a fuel cost expense of 27.79 billion yuan. It expected its coal cost per unit of output to rise by up to 18 per cent this year. This is the first time a power sector authority has publicly given details on the plight of the nation's power industry, although the National Statistics Bureau said late last month that the power sector - including distributors - had recorded a 61 per cent year-on-year profit decline in the first two months of the year. As distributors enjoy relatively steady regulated returns, analysts believe the profit decline of power generators is sharper than 61 per cent with less well-managed power plants on the brink of losses, especially those that were forced to shut during the nation's worst winter storms in 50 years in January to February. SERC is responsible for launching the power industry's market reform. It does not have power over tariffs and new project approvals which are handled by the National Development and Reform Commission. The NDRC last raised power tariffs 21 months ago. Less than 50 per cent of the contracts for coal supplies this year have been secured between power producers and coal companies, with an average price increase of 30 yuan to 40 yuan a tonne, SERC said. China allows power producers to pass on higher costs under a mechanism that is triggered when the price of coal rises more than 5 per cent over a six-month period. In January, Premier Wen Jiabao ordered a freeze on prices of energy products, including power, to rein in inflation running at an 11-year high. 'Thermal coal costs have been on the rise in the past few years, averaging about 10 per cent a year,' Zou Yiqiao, head of the pricing department at the commission said in the statement. 'We suggest that the government implement the coal-power price linkage mechanism at an appropriate time to ensure the healthy development of the power industry.' According to a Nomura Securities research report, restrained increases have seen domestic spot market coal prices turn from a premium to a discount against Asian spot prices. 'We do not rule out that moral suasion directed at state-owned enterprises mines and fears of price control may be at work,' wrote analyst Donovan Huang. China Resources Power Holdings chief executive Wang Shuaiting said the central government in February issued a circular asking coal producers to 'exercise self-discipline' to fulfil delivery on contracts signed and to not raise prices 'as they wish'. Mainland producers typically only deliver 80 per cent of contracted coal, China Resources Power chief financial officer Wang Xiaobin said.