HONG KONG: Hongkong Electric Holdings Ltd, the city's second largest electricity supplier, reported a slightly better-than-expected interim profit yesterday as the downturn of its home business was largely offset by robust growth from operations outside Hong Kong.

Net income for the first six months ended June 30 fell 16 percent to HK$2.67 billion, or HK$1.25 per share, from HK$3.17 billion, or HK$1.49 a share, a year earlier. The result is slightly better than an earlier estimate of HK$2.52 billion by Bloomberg.

The company's Hong Kong business was impacted by a lower rate of permitted return on earnings prescribed by the Scheme of Control agreement implemented in January 2009. Profits from Hong Kong operations dropped 35 percent to HK$1.79 billion, from HK$2.75 billion in the previous year.

Under the renewed Scheme of Control agreement, the rate of return on fixed-asset spending by Hongkong Electric and bigger rival CLP Holdings Ltd was reduced to 9.99 percent from 13.5 percent previously. The return level on renewable energy assets was set higher at 11 percent, as a stimulus to promote clean energy development.

Hongkong Electric now generates 15 percent of its electricity from natural gas, but expects to increase the proportion to 30 percent by 2010, while larger competitor CLP already generates one third of its electricity from natural gas.

The company is now finalizing a proposal for an offshore wind farm with a capacity of 100 megawatts to be submitted to the Hong Kong SAR Government later this year, according to its statement yesterday.

"The two private utility companies have passed an investment phase and entered an operating stage, thus reducing expenditure needs," said Anna Yu, energy expert at Taifook Securities. "The new scheme also aims to provide reasonable prices for electricity users" she added.

In the meantime, electricity sales in Hong Kong were 0.6 percent lower than the same period last year, primarily owing to warmer weather in January and energy saving measures.

By contrast, the company's profits from operations outside Hong Kong more than doubled to HK$883 million in the first half of the year, compared to HK$424 million in the same period last year.

The much better overseas earnings have been boosted by the company's power networks in Thailand, the UK, New Zealand and on the mainland, as the power producer has a long-established presence in these markets.

(HK Edition 08/06/2009 page4)