Why China’s power sector restructuring is a game of mergers and demergers
Restructuring of China’s electricity generation industry looks set to come full circle with a reconsolidation of state-owned majors, some of which were established only 15 years ago through the break-up of former behemoth State Power Corporation into five big generation firms.
However, the latest revamp is not a straightforward regrouping of broken up power companies, as it involves the merger of Shenhua Group, a coal mining giant that also has a big fleet of power plants, with China Guodian Group, one of the big five power generators.
“The curtain for the central government’s power generation firms has just been raised. We expect a second and third case to come soon,” Pingan Securities analyst Zhu Dong said in a note.
“Two possible routes are mergers between power generators and the combination of coal and power firms.”
The merger is part of Beijing’s long term plan to reduce 99 firms directly administered by the central government – nine of which are power generators focusing on segments other than nuclear power – to 40 to enhance competitiveness.
It comes at a time when the power generation industry is suffering from its second major profit downturn in a decade due to volatile coal prices and an inability to pass higher fuel costs on to customers, since power prices are still largely state stipulated.
