(January 20, 2006) With clouds gathering over Huaneng Power International’s decision to invest in the controversial Three Gorges project, some research analysts have come to the mainland power company’s defence.

With clouds gathering over Huaneng Power International’s decision to invest in the controversial Three Gorges hydropower project, some research analysts have come to the mainland power company’s defence. The support largely relates to two themes – the project is commercially viable and the size of the investment is small. If analysts are happy with the project, then why do they keep emphasising the purportedly small investment size? The answer may lie in the fact that Huaneng is expected to be in a position to buy a string of power assets under an asset-sale programme announced last month. At least one analyst has speculated that the “lacklustre” Three Gorges investment may be repaid with good deals on other investments. In the asset-sale programme, parent company China Huaneng Group was the sole entity identified as a national generation company under a mainland power reform plan. Without the expectation of asset injections, it would be hard to explain the 14 “strong buy” and six “buy” recommendations, compared to six “hold” and one “sell”, according to Thomson Financial Securities Data. The bullish recommendation does not match any hope for strong returns on its existing assets. Consensus figures show earnings per share are slated to fall 1.64 per cent this year and rise just 5 per cent next year. Investors also seemed relieved when the company clarified its Three Gorges initial investment last week. It said it would pay 254 million yuan (about HK$237.97 million) for a 3 per stake in China Three Gorges Power – due to list in Shanghai next year. The company will initially own the Gezhouba Power Plant in Hubei province and will progressively buy the Three Gorges units as they come on line.

South China Morning Post, January 20, 2006