It was once a company with an identity crisis, but Beijing Enterprises Holdings is now showing promise of becoming a powerful infrastructure and public utilities firm. In particular, the strategic acquisition of Beijing Gas Group in June last year appears vindicated as it contributed 66.5 per cent of the total profits. On Thursday, the company reported a 93.7 per cent jump in first-half earnings, which rose to HK$1.27 billion from HK$657 million a year earlier. Despite the success in the first half of the year, the natural gas business faces considerable challenges, according to Jimmy Tam, financial controller at Beijing Enterprises. He warned: 'The rest of 2008 should be cautious and [we] will endeavour to implement investments already committed.' In this volatile market, even though there are cheap assets to be picked up, Beijing Enterprises will focus on integrating and consolidating all existing businesses before rushing into further acquisitions. He said the major challenge for management this year would be implementing regional expansion. Margins would also be depressed in this inflationary environment, and the supply of natural gas would become more expensive, he said. Beijing Enterprises may not be able to entirely pass on such price increases to its consumers as the government's objective is to keep prices stable. Mr Tam said that 'inflation may pose some [problems] to the government when it approves tariff hikes'. He said the biggest issues that the industry would face for the rest of the year were maintaining a 'sufficient gas supply and transparent and sustainable price pass on mechanism'. Natural gas fits well with the central government's increasing emphasis on clean energy. As a result, the government is increasingly looking to create a market-oriented system for natural gas production and distribution. Beijing Enterprises sold 2.5 billion cubic metres of natural gas, up from 2 billion a year ago. This compares with the Beijing municipal allowance of up to 6.0 billion cubic metres of natural gas to be sold in 2010, and 12.0 billion cubic metres in 2020. There appears room for further growth and Beijing Enterprises appears to be well-positioned to take advantage of opportunities that lie ahead. The Beijing Gas Group is the largest municipal gas company on the mainland. The gas group's ambition is to reach beyond Beijing. It implemented the central China gas and Inner Mongolia Keqi coal-based gas project. It is seeking to expand significantly in the Bohai region with its close partnership with PetroChina, and looking at mergers and acquisition opportunities. It also plans to expand vertically in the production process. On the one hand, it is seeking investment opportunities in the upstream business and in coal-based alternative energy. On the other, it invests in downstream businesses by expanding the applications of natural gas in generating electricity, and for heating and cooling devices. The company also has two reasons for expanding its water business. One is in the coming five to 10 years when the mainland's urbanisation will be on the steepest upward track. This will be a crucial period for reform and development of the water industry, including water supply and wastewater treatment, and the prime time for investment in the water market. The other reason is the continuous impetus for marketing and water pricing reforms, which create a favourable environment for development. Beijing Enterprises was formed in 1997 with premium assets in Beijing, and listed in Hong Kong. However, these assets didn't have a strategic focus as they consisted of an assorted mix of businesses. These included a food company, a tourism operator, department stores, a hi-tech company, a beer company, a water company, and toll roads. The company went through an identity crisis in 2001-2003. It explored various ways it could to take advantage of the Beijing Olympic Games, such as focusing on green industry and hi-tech businesses. After a difficult period of soul searching, in 2004, the company established its market position as 'an integrated public utilities company with municipal energy services as the core business segment'. Its overall strategic mission in 2004 was to be 'the major entity and the investment and financing platform under the Beijing Municipal Government for the operation and administration of infrastructure and public utilities'. Since then, it has divested non-core businesses, such as the food business, the tourism business and department stores.