February 14, 2006
Beijing is banking on new foreign money to help the domestic power industry become more market-oriented, but only a few foreign players remain interested in China.
In the mid-1990s, investing in power plants in China was considered an almost sure-fire path to profit for global energy companies and private equity investors alike. The country was so desperate for power plants that deals were easy to make with those with the right “connections” in the power-hungry country. Now, after just about all of those intrepid foreign direct investors have retreated from China, badly burned for their efforts, Beijing will soon roll out a power industry reform program to entice them back. The Chinese government plans to break up the country’s complex power generation quasi-monopolies, which strangled foreign investors the first time they entered the country. A blueprint has been circulating in Beijing for some time among senior bureaucrats and analysts expect an announcement later this month. Borrowing from the model used in the recent restructuring of China’s highly protected telecom industry two months ago, the power industry reform will offer up power plant assets either for initial public offerings or foreign acquisition, analysts and industry executives said. In addition to power-generation deregulation, promised reforms on the power distribution side of the equation hold out hope that earlier power sector investments by foreign energy companies and private equity firms may recoup some of their losses. Beijing is banking on new foreign money to help the domestic power industry become more market-oriented, just as it did in the mid-1990s. But this time Chinese officials will face a far more skeptical audience. “Just about everybody that I know in North America was in China in the early to mid 1990s,” says Colin S. Tam, chairman and CEO of Meiya Power Co., a Hong Kong-based company owned by several U.S. power companies and private equity investors and one of the few remaining investors still buying power plants in China. “North American and European investors came to China and began to invest in the early 1990s. But the gold rush lasted only for two to three years.” Dozens of foreign investment groups were active in building or acquiring independent power plants across China in the 1990s, but that number has declined to fewer than 10 as supposedly savvy foreign players such as Cogentrix Energy Inc., Cogen Technologies, Inc., National Power plc, Oxbow Power Corp., Powergen plc, Entergy Corp. and Duke Energy Corp., to name just a few, have exited.