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Power giants call for tariff rise

By Song Hongmei (chinadaily.com.cn)
Updated: 2008-05-07 17:20

China's five major power producers unanimously called for electricity price rises at a meeting held at the State Electricity Regulatory Commission (SERC) on Tuesday as they all saw losses in their power production business resulting from higher coal costs in the first quarter, the Beijing News reported.

"If the government does not raise power tariffs along with the rising coal prices, the power companies won't survive," the newspaper reported citing an unidentified source.

China Huaneng Group, the country's largest power company, said its first quarter net profit fell 79.95 percent year-on-year to 241.94 million yuan ($34.63 million) due to higher fuel costs, which offset a rise in electricity output.

Although China Power Investment Corporation generated 64.3 billion kilowatt-hours of electricity in the first four months, up 10.5 percent from last year, rising coal prices cost the power giant an additional 1.45 billion yuan more than the same period last year.

"Datang Power as a whole suffered losses for the first time in five years. Ten of its coal-fired power plants have reserves of coal for power generation dropping to fewer than three days, accounting for 17.5 percent of the total," said Fang Xiao, director of Datang's marketing and sales department.

Wang Xinan, deputy director of marketing and sales department at Huadian Power, said Huadian Power generated 70.1 billion kilowatt-hours of electricity in the first quarter, up 24.55 percent, with losses reaching 813 million yuan.

"The more electricity your firm generates, the bigger the losses it will post," said Zhang Wenjian, deputy director of marketing and sales department at Guodian. Guodian generated 74.2 billion kilowatt-hours of electricity in the first quarter, up 27.9 percent.

The price of coal for power generation has risen by about 10 percent this year, which has added about 30 billion yuan to domestic power companies' costs, according to the SERC.

In the meeting, power companies said that this year promises to be a tough one as they recently received a notice that coal prices will be raised by another 50 to 70 yuan a ton.

Profits are keep shrinking, which makes it harder for these enterprises to get loans from banks to facilitate their capital flow, they complained.

As a result, power companies are pushing the government to raise power tariffs in line with coal prices as one way to stay afloat. In 2004, the government introduced a mechanism that tied power tariffs to coal price. If the coal price rises by 5 percent over a six-month period, power tariffs will be raised, going by the mechanism.

However, the SERC worries about rising power costs.

"An increase in power prices will have a chain effect across all industries, and the government will take into consideration both power producers and end users, especially now, with the consumer price index (CPI) at such a high level," the SERC vice-chairman Wang Yeping said earlier.

The government has no plan to raise power tariffs now as it would add to the pressure on inflation, Xu Zhimin, director of the National Development and Research Commission's economic operations department, confirmed earlier.

An Jun, an official with Zhejiang Energy Investment Corporation, said "the country will not be free from major power shortages at the end of this year unless the government raises power tariffs or offers other types of help."

Power companies say another way to ease the situation is for the government to subsidize coal-fired power plants, the paper reported without releasing the regulator's response.

"Subsidizing power companies is one possible option, but we are still considering and discussing suggestions from all sides," Xu said earlier.

China's CPI growth hit a 12-year peak of 8.7 percent in February and dipped only slightly to 8.3 percent in March.