Net profit slumps 7.8%; firm looks to buy more coal assets

China Resources Power Holdings Co, a blue chip electricity producer, said it is looking to acquire more coal assets to power its generators after a fuel costs spike dragged down its net profit 7.8 percent last year.

The company said in a statement Thursday that its 2010 full-year net profit dropped to HK$4.9 billion or HK$1.05 a share, from HK$5.3 billion or HK$1.19 a share in 2009. Its profitability was mainly eaten up by surging fuel costs, which accounted for 72 percent of operating expenses in 2010, according to the company.

Revenue rose 46.3 percent to HK$48.58 billion from HK$33.21 billion. The power producer generated a total of 95.2 million MWh (megawatt hours) in 2010, up 26.5 percent over the previous year.

According to the statement, average unit fuel cost rose 21.4 percent over the year to 252.7 yuan per MWh. Overall fuel costs increased 55.7 percent to HK$29.67 billion.

"We are reviewing our business model, as our core business, namely coal-fired generation, is too constrained on the value chain," said Wang Shuaiting, chairman of China Resources Power.

Wang added that the company is stuck between market-driven coal prices and state-capped power prices, "limiting our ability to cope with cost volatility".

The company's coal mining division produced a total of 9.55 million metric tons of coal, up 265.9 percent over 2009. Wang said China Resources Power will speed up the acquisition of coal assets in the years ahead, aiming to raise the portion of coal supplied by its own mines.

The company hopes to increase its self-supply ratio to more than 25 percent in 2011, up from 15 percent in 2010. In the five years, it is looking at a 60 percent target, according to Wang.

The company acquired a total of 10 mines by the end of 2010. In the first two months of 2011, it has completed the acquisition of seven coal mines, with the latest on March 13 when it said it bought a 56 percent stake in a coal mine in Shanxi province.

In 2011, the company aims to produce a total of 19 million metric tons of coal from reserves it controls in resources-rich provinces such as Shanxi.

Looking at future coal prices, Wang Yujun, the company's president, thinks that high levels will persist this year. However, prices will rise at a more modest pace of less than 10 percent, said Wang.

In a bid to diversify its operations and lessen the impact of surging coal prices, China Resource Power also plans to further develop new energy such as wind power, committing one-third of its 18 billion yuan capital expenditure budget in 2011.

In 2010, the company had 15 wind farms in operation, with a total capacity of 646 megatwatts (MW). It expects to add at least 800 MW in 2011.

As for nuclear projects, the chairman said the on-going projects will continue as planned and the company will keep monitoring the situation in Japan. After the 9-magnitute earthquake hit Japan on March 11, its nuclear leakage crisis has led the central government to put the brakes on new nuclear power projects.

"The incident will bring disruptions in the short-run. As a result, other types of new energy, such as wind power and solar power, may get a boost. However, in the long-run, nuclear power will still be an important source of energy," Wang added.

China Daily

(HK Edition 03/18/2011 page3)