China Power Utility to Rein in Expansion

China Power Utility to Rein in Expansion

Jun 14 - International Herald Tribune

By Wang Ying

Huadian Power International, a Chinese electricity producer listed in Hong Kong, plans to cut spending on new plants by two- thirds next year to increase profitability. Capital investment may drop to 5 billion yuan, or $654 million, and will add 1,200 megawatts of coal-fired capacity in 2008, Zhang Gelin, head of the Beijing-based utility's securities department, said Tuesday. Spending may total 15 billion yuan this year, the managing director, Chen Jianhua, said in March.

Huadian Power's bigger rivals, including Huaneng Power International, are adding plants at a faster pace than growth in demand, leaving some capacity unused. That has increased pressure on Huadian Power to maintain profitability amid higher fuel costs, the deputy general manager, Zhong Tonglin, said Tuesday, after the company's annual general meeting in Beijing.

"Huadian Power is cutting spending amid concern of a possible supply surplus and it needs to reduce debt by making full use of existing plants," Zhang Wenxian, an analyst with Guotai Junan Securities Hong Kong, said Wednesday. "The government is also tightening approvals for new plants."

China is limiting coal-fired power generation to improve the environment. Huadian Power's parent, China Huadian, is among companies ordered by the government in March to reduce pollution.

"We will try to stabilize our profits this year from the 2006 level amid operational pressures," Zhong, the deputy general manager, said. "Our profitability will improve after 2008 as fewer plants are put on stream, increasing the company's utilization rate."

Construction of new power plants in China will decrease next year because of a potential surplus in the market after three years of rapid development since 2004, Zhong said.

Growth in China's electricity demand will probably slow to a maximum of 12.5 percent this year, from 14 percent in 2006, the State Grid Corp. of China said in January. The country plans to increase power generating capacity by 15 percent this year, the government said in April.

Huadian Power will start operating 6,000 megawatts of capacity this year, raising total output to about 20,000 megawatts, Zhong said. Among the independent generators, the company may experience the biggest decline in the utilization rate at its plants, JPMorgan Chase said in March.

Utilization rates at Huadian Power's generators may fall 10 percent this year as new capacity starts operating, Chen said March. Average utilization hours were 5,402 in 2006, 5.4 percent lower than a year earlier, the company said then.

Huadian Power's net income increased by 12.7 percent last year to 1.2 billion yuan, the company said. Revenue rose 14 percent to 15.13 billion yuan.

"The company's output will rise in the second quarter because of the summer consumption peaks," Zhong said, without giving detailed forecasts.

China plans to add 95 gigawatts of capacity by the end of this year, the State-owned Assets Supervision and Administration Commission said in February. Generating capacity will reach 720 gigawatts, it said.

Huadian Power has not yet decided on a plan to purchase generation assets from its parent company, Zhong said Tuesday. "We are still studying the possibility for the asset injection, but there isn't a definite plan on how much to buy or when to buy."

Citigroup upgraded the company's stock on May 7 because it may take over 5,000 megawatts of assets at 15 billion yuan effective July 1, 2008, from its parent, the Citigroup analysts Pierre Lau and Maggie Mok, said.

China Huadian's generating capacity will reach 56,000 megawatts by the end of June, Zhong said Tuesday.