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Soaring coal costs dent Huaneng Power profit
By Sammy Chan (China Daily)
Updated: 2005-03-16 15:58

Huaneng Power International yesterday reported its first decline in earnings since being listed as soaring coal prices drove up its operating costs.

The mainland's largest independent power generator, floated in Hong Kong in 1998, said its net profit slipped 1.96 per cent to 5.32 billion yuan (US$641 million) last year, worse than market forecasts of a 1.05 per cent fall.

The company attributed the poor result to the sharp rise in coal prices that shot up operating costs by 42.2 per cent, to 23.2 billion yuan (US$2.8 billion). Huaneng's fuel costs, which constituted 65 per cent of its total operating costs, rocketed 67 per cent to 15 billion yuan (US$1.82 billion). And its unit fuel costs climbed 33 per cent over 2003.

Sun Hung Kai Research strategist Castor Pang said Huaneng's contract coal price was 10-15 per cent higher than its counterparts. And he feared that the fuel costs would continue to cloud the company's performance this year, even though it won the mainland government's approval in January to raise its tariff by 7.7 per cent for any additional power it would generate. A scheme that will allow power firms to link electricity tariff with fluctuations in coal price is expected in the first half of this year.

"The tariff increase is unlikely to do much to help power producers because it cannot keep up with the coal price hike," Pang said.

Other mainland power companies, such as China Power International and Datang International Power, too have suffered because of the higher-than-expected coal prices after suppliers reneged on their one-year contracts following sharp price spikes in the spot market.

Pang fears the continuous hike in coal price would cut power generators' profit and holds a "sell" recommendation upon the stock.

Huaneng reported its power output jumped 25.7 per cent, to 114.28 billion kilowatts per hour last year, and saw its turnover climb 29 per cent to 30.1 billion yuan (US$3.6 billion).

The company proposed a final dividend of 0.25 yuan a share, the same as a year earlier. Its share prices fell 1.67 per cent to close at HK$5.9 before the results were released.

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