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Power companies to feel coal cost pinch

By Wan Zhihong (China Daily)
Updated: 2008-04-10 09:18

Rise in coal prices will result in an additional 29.9 billion yuan ($4.27 billion) in Chinese power companies' fuel costs, according to the nation's electricity regulatory body.

Coal prices for power generation have risen by an average 10 percent this year, which will put power companies "under big pressure", said Zou Yiqiao, director-general of the department of tariffs and financial regulation under the State Electricity Regulatory Commission (SERC).

The country's five major power generating groups have signed less than 50 percent of the term contracts with coal suppliers they need for this year, Zou said on SERC website.

In order to ensure fuel supply, Chinese power companies can buy coal and transport assets to expand their business, he said. "Chinese power groups may buy stakes in the county's coal producers and transport companies to ensure coal supply and to offset rising costs."

Rising coal prices have long been a bone of contention between power generators and coal producers. China's leading electricity companies say their 2007 profits were largely affected by soaring energy costs.

Huadian Power International Co Ltd reported its gross profit last year was 1.82 billion yuan, down 3.57 percent year-on-year.

Revenue for Huaneng Power International Inc, the listed arm of China Huaneng Group, was 50.44 billion yuan in 2007, up 13.5 percent. But its gross profit slid 8.37 percent year-on-year to 7.39 billion yuan.

The nation should "use the coal power price linkage mechanism at the appropriate time to reduce the cost pressure on power companies", said Zou.