China’s largest hydrodam will lose US$121 million (1 billion yuan) this year, according to its general manager, because it doesn’t have enough customers for its output.

When the massive Ertan dam, which spans a Yangtze tributary in Sichuan province, began producing electricity last year, China’s top leaders praised it for demonstrating China’s ability to build world-class projects. Partly financed by the World Bank, the US$3.4 billion hydrodam was built to alleviate “severe power shortages.”

But last month Xinhua News Agency reported that Liu Junfeng, general manager of Ertan Hydropower Development Corporation, “has become increasingly anxious” because he can only sell 60 percent of
the dam’s output.

With many state-owned factories shutting down, electricity consumption has dropped sharply, and China is faced with a growing surplus of electricity after a decade of rapid expansion.

According to the South China Morning Post, Ertan officials are furious that Chongqing municipality – the dam’s largest prospective customer – has refused to buy 31 percent of Ertan’s power output, as agreed to in 1995, saying it only needs 14 percent.

An Ertan spokesman said that Chongqing, which separated from Sichuan province in 1997 and became a municipality under the central government, has other reasons for refusing Ertan power besides the electricity glut.

Local power plants, newly-built and financed by the private sector, can readily produce power more cheaply than Ertan. And because Chongqing’s new status allows it to collect tax from power producers in its jurisdiction, the municipality now has a financial incentive to favour local power producers over Ertan. Deregulation of the electricity industry also allows power consumers in Chongqing to choose their own power suppliers based on economic considerations such as price and efficiency. Knowing that cheaper power is available locally, Chongqing leaders have complained that the price of Ertan power, about six US cents per kilowatt-hour, is too high. The Ertan Corporation, meanwhile, has lost its monopoly status and can’t force consumers to buy power they don’t want or need.

Ertan is thus threatened, not just by the electricity glut, but by the increasingly competitive electricity market, Xinhua News Agency reports.

Unless Ertan’s managers can find more customers, the dam will be losing an estimated US$2.4 million daily by the time its last two turbines are installed next year.

A pet project of former premier Li Peng, Ertan will have a total generating capacity of 3300 MW. Its difficulties are an ominous sign for the Three Gorges dam, which is also in Sichuan province. Three Gorges, which is designed to produce five times as much electricity as Ertan, is expected to start generating electricity in 2003.

General Electric of Canada is supplying turbines to Ertan and Three Gorges.

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CONTACT: GRAINNE RYDER, Policy Director, Probe International, (416) 964 9223 ext. 228 or e-mail GrainneRyder@nextcity.com

Probe International is a Toronto-based economic and environmental think-tank investigating the impact of Canadian aid and trade. This is the first in a series of articles about China’s rapidly-changing electricity industry.