A Hong Kong-mainland energy consortium is in talks to acquire a majority stake in Castle Peak Power (CAPCO), Hong Kong's largest power-generation firm. CLP Power, which owns 40 per cent of CAPCO, said yesterday it had joined with China Southern Power Grid to negotiate buying a 60 per cent stake in CAPCO from United States firm ExxonMobil Energy. The deal, if it happens, would give China Southern unprecedented access to the city's closely-held electricity market. But it would also mean ExxonMobil's exit from the city's power market. CAPCO owns three power plants in Castle Peak and Black Point in Tuen Mun, as well as Penny's Bay on Lantau. The plants have a combined generation capacity of 6,908 megawatts, and were valued at HK$22.68 billion as of December 31 last year, according to CLP's annual report. China Southern does not own any power-generation assets. It solely distributes and transmits electricity in five southern mainland provinces - Guangdong, Guangxi, Yunnan, Guizhou and Hainan. CLP Power is the larger of Hong Kong's two electricity suppliers, serving customers in Kowloon, the New Territories and Lantau. The potential deal marks the second attempt by mainland state-owned power firms to break into the city's market that is dominated by CLP Power and Hongkong Electric, which serves the Hong Kong and Lamma islands. Former premier Li Peng's daughter Li Xiaolin, the head of state-owned power producer China Power International, tried in vain to break into the market a few years ago. Analysts say ExxonMobil's desire to exit from the city's power market may be due to political and public resistance to raising tariffs. CLP Power was forced to reduce its tariff increase to 4.9 per cent from the previously proposed 9.2 per cent on January 1. It did so after wrestling with the government in the last two weeks of December. 'It is a clear signal that ExxonMobil finds the investment no longer attractive,' said an analyst at a Southeast Asian brokerage. 'Unless partnering with either CLP or Hongkong Electric, it is virtually impossible for any outsider to step into the market.' Some analysts are intrigued by the timing of the proposed deal. ExxonMobil was the largest US investor in the city in 2006, and it had threatened to shun Hong Kong if the renewal of the scheme of control agreement between the government and CLP Power resulted in a lower investment return. The scheme of control was renewed in 2008 after being enacted for 41 years to govern the return of CLP Power and Hongkong Electric's energy supply businesses in Hong Kong. The latest contract ties their profits to spending on fixed power assets. It stipulates that both firms will reap a 9.99 per cent return on average net fixed assets in use, compared with 13 to 13.5 per cent previously. Last month, Sir Michael Kadoorie, chairman of CLP Holdings, delivered a rare criticism of the government. He said it had failed to inform or was having difficulties in explaining to the public the trade-off between using clean fuel and tariff increases. BOC International said the consolidation of the local power-generation sector could be neutral or adverse to CLP Power.