HONG KONG: Huaneng Power International Inc, the largest electricity supplier on the mainland, has retreated from its battle to cut contract coal prices. The directional change is part of an effort to speed talks between the country's coal mines and power generators, the company's chairman said yesterday.

Huaneng, which initially asked for a cut of 50 yuan per tonne in contract coal prices, has been battling side by side with other power utilities in a price dispute with mainland coal producers that's been going on for months. While the utilities have been demanding a price cut, the coal producers want a price increase. "Our bottom line is that we want the coal price to remain at last year's level," Chairman Cao Peixi said, referring to the contract coal agreement between coal and power producers.

The contract coal price was at 504 yuan per tonne in 2008.

"My feeling is that we are getting closer to a resolution. Negotiations will be quicker from here on," Cao told reporters.

The outlook for power companies is clouded by uncertainty over the coal price in 2009. High prices for coal last year had dropped Huaneng to a record second-half loss.

Huaneng plans to spend 33 billion yuan ($4.83 billion) in capital expenditures in 2009, up from 28 billion a year ago.

The company has no plans to raise equity and any new capital is likely to come from debt issuance or bank loans, Chief Accountant Zhou Hui said.

Huaneng will import 6 million to 7 million tonnes of coal in 2009, up from 5 million last year. About 2 million to 3 million tonnes of the new supply will come from Indonesia, Australia and Vietnam, President Liu Guoyue said.

Imported thermal coal is now cheaper than domestic coal.

About 60 percent of Huaneng's coal is supplied at contract prices by the country's coal producers - led by industry giant China Shenhua Group, the parent of Hong Kong-listed China Shenhua Energy. The remainder of the company's fuel needs is purchased on the spot market.

The firm expects to use 80 million tonnes of coal in 2009.

Reuters

(HK Edition 04/03/2009 page16)