China Energy Industry

Power ploys

South China Morning Post
March 15, 2006

Investors are hoping China’s big generating companies will be able to grow bigger in a restructuring which is believed to be imminent. By 2008, the largest grid is expected to be in operation, centred on the Three Gorges Dam.

The shares of China’s top listed power utilities have shot up this year despite the slow pace in implementing ambitious plans to deregulate the industry along the lines pioneered by Britain and the United States. Beijing Datang Power Generation and Shandong International Power are up 60 per cent this year while Huaneng Power International’s shares have risen 36 per cent after nearly doubling last year. Confidence in the growth prospects of those companies has not been dented by China’s wavering over rapid deregulation. After witnessing California’s blackouts as a result of its efforts at deregulation, some officials have become cautious and worried whether China will end up with similar problems. “We need to break up the regional monopolies quickly and integrate them into a nation-wide grid to ensure prices drop quickly or what happened in California will take place here,” warned the Economic Daily in a commentary bewailing the lack of firm intention. “At the moment there are too many different opinions.” Investors are hoping China’s big generating companies will be able to grow bigger by picking off smaller rivals in a restructuring of the industry which is believed to be imminent. The State Development Planning Commission has announced that State Power Corp is under orders to break up the industry into independent and competing companies. Premier Zhu Rongji is known to be keen to see an industry famous for its price gouging subject to market discipline and tough competition. If he succeeds he hopes the industry will start favouring consumers over shareholders. The China Economic Times reported how an inspection of 2,637 firms unearthed illegal fees costing consumers 2.74 billion yuan (about HK$2.5 billion) and a host of illegal practices.

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