China stands firm on power tariff agreement

CHINA'S new tariff agreement for mainland power companies slated for overseas listing will not be changed, says a senior official of Shandong's electricity authority.

The assurance is much-needed as the flotation plans of another three Chinese power companies are in the pipeline, after the primary listing of Shandong Huaneng Power Development Co on the New York Stock Exchange last Thursday.

However, American Depository Receipts (ADRs) of Shandong Huaneng have fallen below the issue price of US$14.25 on a declining turnover and closed at $13.50 on Tuesday. Each ADR represents 50 ordinary shares of the company.

Analysts ascribed the poor reception mainly to investors' concern about how the pricing agreement would be implemented, given China's soaring inflation rate. The formula, which was approved by the Ministry of Electricity Power, for the four overseas listing candidates links a rise in tariffs to a company's growth in net asset value.

''Investors don't have to worry,'' said Yuan Maozhen, vice-general manager of Shandong Electric Power Bureau. ''Since China has opened its economy, policies adopted have been adamantly implemented.'' As the companies were seeking overseas listings, he said the agreement would not be changed as ''we have to win the trust of international investors''.

Mr Yuan is also deputy director of Shandong International Power Development Company (SIPD), which is seeking an H-share listing in Hong Kong, and is a non-executive director of Shandong Huaneng, the company's competitor.

Under the new tariff agreement, the power companies are allowed to increase the electricity fee which should be high enough to cover generating costs, taxes and a 15 per cent return on its average net asset value.

Mr Yuan also dismissed fears that Shandong province might not be able to afford a rise in tariffs, noting that the government had fully considered its affordability in formulating the agreement.

Even with the new policy, he asserted that the average tariffs in Shandong would be lower than those charged by the power plants established by enterprises themselves.

In a bid to lure more interest, an analyst at a European securities house said the forthcoming power plant issues had to revise downward their pricing and to structure a better tariff agreement.

She said the companies had to provide investors more guarantees about the increases in electricity fees.

Mr Yuan said an excess demand for power in Shandong would guarantee electricity sales for SIPD. ''As there is a shortage of electricity in Shandong, there is not a problem of sales and there won't be a problem by the year 2000.'' He estimated that the province would have to increase its installed generating capacity by 10,000 megawatts (mW) by 2000.

As investment per kilowatt costs about $500 to $800, Shandong's expansion plan will require total investment of at least $5 billion over next six years.

SIPD is larger in scale than Shandong Huaneng, which owns four power plants in the province. With an existing installed capacity of 1,825 mW, SIPD accounts for 20 per cent of Shandong's total installed capacity, compared with 11.2 per cent from Shandong Huaneng.

The company plans to have total installed capacity of at least 7,225 mW by 2004, which will be funded by its flotation in the territory.

SIPD currently owns two operating plants in Zouxian and Shiliquan.

It is developing two 600 mW generating units at Zouxian as the third phase development of the plant and two 300 mW units at Shiliquan.

It will also construct a new plant in Jiezhuang, western Shandong, with four 600 mW units and the phase four development for the Zouxian plant with two 600 mW units.