Power ban set to last a year in China

By PAMELA LEUNG

Nov. 27, 2000 (South China Morning Post)à‚–Beijing’s recent freeze on the transfer or acquisition of existing power plants could last a year, a decision that would slow growth at mainland power companies, according to analysts and company officials.

The ban on the transfer or disposal of state-owned power plants was ordered by the State Economic and Trade Commission earlier this month as part of a reform package meant for the power industry.

The freeze is aimed at preventing government assets from being sold cheaply ahead of the release and enforcement of the country’s new power regulations.

No timetable has been given on the launch of the new power regulations, which are still being drawn up.

Only existing power plants are affected by the directive.

Officials of some power companies – including H shares – hope the moratorium could be lifted within six months, but some analysts have learned from power officials that the ban is more likely to last at least a year.

The new policy would mean power companies could invest only in greenfield projects, which did not provide immediate earnings contributions, and thus it would result in a delay in growth of overall earnings, according to Alice Hui Suk-fong, head of utilities research of Prudential-Bache Securities.

In a sign of the effects of the new policy, H-share Beijing Datang Power Generation announced the purchase of a greenfield power project in Shanxi two weeks ago.

The company had been expected to invest in an existing plant with a proven track record.

The ban will dampen China’s consolidation in the power sector.

The investment community had been expecting more mergers and acquisitions in China’s power industry following the buyout by Huaneng Power International of sister company Shandong Huaneng Power Development in July.

The first merger between overseas Chinese-listed companies – both companies are listed on the New York Stock Exchange – created much excitement among investors about the prospect of deepening rationalisation in the power sector.

Mergers and acquisitions of Chinese power interests are now expected to grind to a halt.

Most Chinese power plants are partly owned by local governments, although they theoretically come under the umbrella of the industry regulator, the State Power Corp.

The ban reduces the authority of local governments over power development and gives more authority to the central government.

But while the ban will thwart consolidation in the power sector in the near term, the new package of reforms is expected to give a long- term boost to mergers and acquisitions by helping to bring about the restructuring of the industry.

“The temporary halt is made because the government is preparing for the restructuring – separation of power-generating units and distribution networks, and power pooling as well,” said an H-share executive who declined to be named.

“I think they are preparing for consolidation and the restructuring of the industry, and to move towards a market-oriented path,” another H-share company executive said.

“To have a country-wide unified rule will be good for the company and the whole industry . . . the rules of game will be clearer,” one of the executives said.

à‚© 2000 South China Morning Post. via Bell&Howell Information and Learning Company; All Rights Reserved

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