(February 13, 2006) Beijing has told the provinces they will have to buy Three Gorges power before purchasing from any other source. Now officials in charge of building the dam also want the central government to absorb 25% of the project’s debts.

Ever since Chairman Mao Zedong wrote a poem in 1956, dreaming of a “stone wall standing in the river … the high gorges spawning a placid lake”, the idea of damming China’s fiercest river has been embedded in the national psyche. By the end of this year, Mao’s figment is set to materialise. A 185-metre-high hydropower dam will span the river, creating a reservoir that will expand to around 600 sq km by 2009. Whole cities will be flooded, requiring the resettlement of more than 1m people. The area’s climate will change. The dam’s proponents say its main function will be to tame the floods that have killed millions of people through the centuries, and to generate 18,200MW of electricity. But while China’s engineers may succeed in subduing a force of nature, the project’s managers face a more difficult task converting investors to their cause. Nevertheless, Li Yongan, deputy general manager of the Yangtze River Three Gorges Project Development Corp, seems to relish the challenge. “We want to make this company into a corporation in line with international standards of transparency and corporate governance,” he said, sitting in an office overlooking the Yangtze. The first task will be to persuade potential investors within China to buy shares in a Rmb4bn (Dollars 483m, Pounds 339m) to Rmb5bn initial public offering scheduled for sometime in 2003. Later, an international IPO is planned in Hong Kong and possibly London. Sceptics point to the estimated Rmb180bn cost of the dam to deduce that a commercial rate of return will prove elusive. Mr Li acknowledges that returns will not be spectacular, perhaps around 2 percentage points above the current cost of capital – just over 5 per cent for a year’s term loan. “The era of 15 per cent guaranteed rate of return for power projects in China is gone forever,” Mr Li added. But, he says, the dam will be efficiently run, with just 300 people employed to manage an eventual installed capacity of 26 turbines. The operating cost of producing a kilowatt/ hour will be Rmb0.04 – much lower than that of thermal power stations.

Financial Times, February 13, 2006