HONG KONG: Shares of mainland power producers, including China Resources Power Holdings Co, rose in Hong Kong yesterday, bucking the broader market decline, on speculation electricity tariffs may increase this year as the cost of coal falls, boosting earnings.

China Resources Power gained 4.9 percent to HK$17.96, the best performer on the main Hang Seng Index, which fell 1.7 percent to 17,776.66 points. Huaneng Power International Inc., the biggest generator, climbed 0.9 percent to HK$5.38, while Datang International Power Generation Co advanced 2.4 percent to HK$4.35. Huadian Power International Co. rose 2.5 percent to HK$2.46.

China's five biggest state power producers have asked the government to further raise electricity prices to help reduce losses caused by high fuel costs, the National Development and Reform Commission, the top economic planner, said on April 20. Tariffs were increased twice in the second half of last year.

The government may raise prices in the second half because of losses at power producers in the first six months, Daisy Zhang, an analyst at BNP Paribas, said in a report yesterday.

Huaneng posted its first annual deficit last year since its shares started trading in 1998 after the cost of coal, its main fuel, soared to a record in July. In the first quarter this year, profit more than doubled on higher power prices. Datang, the No 2 power producer, reported a 92 percent slump in net income.

BNP raised Huaneng to "buy" from "hold," while China Resources Power was upgraded to "hold" from "reduce". BNP reiterated its "buy" rating on Datang and Huadian. Mainland power prices may increase 5 percent next year, Zhang said.

China, the world's second-biggest energy consumer, will step up efforts this year to loosen government caps on power and gas tariffs and allow market forces to determine prices, the economic planner said in a report delivered to the legislature's annual meeting on March 5.

Power demand may rise in the quarter ending June as the government's 4 trillion yuan ($586 billion) stimulus package revives the world's third-biggest economy, the official Xinhua News Agency said on April 22. Industrial production expanded 8.9 percent in May, after output growth slowed to 3.8 percent in January and February combined, government data show.

Electricity use will rise 3 percent in 2009 and 6 percent next year, similar to 1998 and 1999 after the Asian financial crisis, Citigroup analyst Pierre Lau said in a report.

"We think our power demand growth assumptions are conservative as the economic stimulus package launched by the central government would boost power demand growth," he said.

On-grid tariffs may not rise this year because of improving profitability at power producers as coal costs fall, Lau said. China uses coal to generate about 80 percent of its electricity.

Last year, the net loss of mainland coal-fired power plants exceeded 70 billion yuan, including 32 billion yuan from the five big producers, according to Lau. In the first quarter of 2009, the loss from the five companies narrowed to 3.8 billion yuan, he said.

Spot prices of coal at Qinhuangdao port, a mainland benchmark, almost halved last month from a record in July last year as the global recession reduced demand.

The cost of coal used in power stations may fall 12 percent this year, according to BNP's Zhang.

Bloomberg News

(HK Edition 06/19/2009 page3)