Three Gorges Probe

Powerful new corporation plans more Yangtze megadams

Patricia Adams and Mu Lan

December 5, 2002

China’s newest power giant, created with much fanfare in Beijing’s Great Hall of the People in September, aims to finance not only the completion of the Three Gorges project on the Yangtze River but also the construction of many more huge dams upstream, a respected Chinese publication reports.

China Yangtze Electric Power Corporation is expected to raise about US$500 million a year on the domestic stock market to help finance its development dreams in the Yangtze Valley, the Guangzhou-based 21st Century Economic Report (Ershiyi shiji jingji baodao) said in an analysis piece.

The new name — Yangtze Power Corp., for short — was chosen over the Three Gorges Power Corporation to reflect the firm’s expanded dam-building ambitions, the newspaper said in the article published Oct. 16.

The major player in the new power entity, with an 89.5-per-cent stake, is the Three Gorges Project Development Corporation (or Three Gorges Corp.), builder of the Three Gorges dam and also owner of the downstream Gezhouba dam.

In addition, Huaneng International Power Development Corporation (China’s largest independent electricity producer, run by the son of Three Gorges dam enthusiast Li Peng), China National Petroleum Corporation and China National Nuclear Corporation will each have a 3-per-cent stake. The Gezhouba Group (the largest contractor working on the Three Gorges dam) and the Changjiang Water Resources Commission’s Design Institute will hold 1-per-cent and 0.5-per-cent stakes respectively.

Li Yongan, vice-manager of the Three Gorges Corp., went to Hong Kong in February to drum up interest in the new firm from local companies such as CLP China Power and foreign corporations such as the U.S. energy giant Mirant. But in the interests of speed, a decision was later made to set up the new power entity without foreign involvement, 21st Century Economic Report said, adding that foreign investors might be invited on board in future.

The central government has decided not to fund any more dams after Three Gorges, forcing the Three Gorges Corp. to find ways of raising money not only to complete the world’s biggest dam, but also to realize its now much broader ambitions.

Mr. Li said the Yangtze Power Corp. will launch an immediate domestic listing, and a future listing in foreign markets, to finance the third phase (2004-2009) of the Three Gorges project as well as the construction of other huge dams — such as Xiangjiaba and Xiluodu — on the Jinsha River, as the Yangtze is known upstream of Chongqing.

China’s ruling State Council is moving forward with its plan to reorganize the power sector, separating the generation and the distribution of electricity. The State Power Corporation is being broken up into five regional generating companies, each with an average generating capacity of 40,000 MW, and two grid corporations.

The Yangtze Power Corp. will face stiff competition as a result of these changes, and its hasty birth was a result of the pressure it felt from other rapidly expanding power companies, 21st Century Economic Report said. Guodian Power, for example, a subsidiary of the State Power Corp., is leasing and acquiring new assets and also diversifying its means of capital injections, which now include raising funds on the domestic stock market.

And Huaneng International, which owns 10 power plants with a total generating capacity of 10,810 MW, is raising capital through domestic listings in Shanghai, as well as on the Hong Kong and New York stock exchanges. Until the first turbines are put into operation at the Three Gorges dam next August, the Three Gorges Corp. will be puny by comparison, with a generating capacity of just 2,715 MW from the Gezhouba dam. (Gezhouba was a separate entity until 1996, when the State Council bundled it together with the Three Gorges project to form the Three Gorges Project Development Corp. Since then, $500 million in Gezhouba revenues have been used to help finance construction of the Three Gorges dam.)

Despite the competition, the Yangtze Power Corp. is expecting to expand rapidly. Based on a study by Nei Kun at the Northeast China Institute for Finance and Industry, the new firm is likely to be the largest power generator in China by 2008-2009, with a generating capacity of 18,000 MW. It hopes to expand that to 20,000 MW by 2012, and to 40,000MW by 2022.

While details are still sketchy, 21st Century Economic Report says the new corporation plans to raise money to finance the acquisition of generators for the Three Gorges dam over the next seven years. The 26 generators (with generating capacity of 700 MW each) will be installed at the rate of four a year starting in 2003, though only two in 2006. About $375 million to $500 million will need to be raised each year, with a projected 15 to 20 per cent of the funds coming from the stock market.

Stock-market analysts have expressed optimism about the new power giant, predicting that its stock will be attractive in domestic markets because of the firm’s potential for growth, reputation for providing clean energy and, perhaps most significantly, strong support from the central government. For example, Mr. Li told reporters in August that the State Council has approved a favourable tax policy for Three Gorges. The average value-added tax for the hydropower sector is 17 per cent, but that rate has been lowered to 8 per cent for the Three Gorges Corp.

The corporate restructuring of the Three Gorges project is aimed at strengthening its ability to raise money directly from capital markets, and at diversifying its fundraising channels. On Sept. 20, the Three Gorges Corp. issued domestic bonds worth five billion yuan RMB ($604 million) to help finance construction of the dam. Chen Dalin, manager of the corporation’s finance department, disclosed that domestic bonds totalling $2 billion have been issued since the dam project started in 1993. While yet more domestic bonds would be issued, he said his company’s preferred means of fundraising would be through the equity markets.

– Patricia Adams is an economist and the publisher of Three Gorges Probe. Mu Lan is the editor of the Chinese edition of Three Gorges Probe.

Related story: Big dam beset by big money troubles

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