Power group profits first year after gov't shake up

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Last updated at: (Beijing Time) Wednesday, February 11, 2004

Power group profits first year after gov't shake up

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The State Grid Corp, which oversees most of China's power transmission and distribution assets, revealed on February 10 it posted a profit of 4.2 billion yuan (US$507.8 million) last year with a turnover of 427.7 billion yuan (US$51.7 billion).

It is the first time the company has announced its financial position since the government stripped back most of its generating assets at the end of 2002 to break up its monopoly in the industry.

The company, the former State Power Corp, used to have half of the nation's generating assets and booked a profit of nearly 10 billion yuan (US$1.2 billion) for 2001 and 2002.

General Manager Zhao Xizheng said on February 11 the company is looking at the possibility of opening up to new investors and getting listed on stock markets.

Zhao made the remarks at the company's annual conference, but did not elaborate about the prospect of listing.

State Grid sold 1,120 billion kilowatt-hours of electricity last year, an increase of 15.6 per cent year on year, the company revealed.

Looking ahead for the year, Zhao said the company's profit is expected to increase by more than 16 per cent as more electricity is sold amid a widespread power shortage throughout parts of the country.

Zhao said the company's profit is expected to hit 4.9 billion yuan (US$592.5 million) this year. The revenue is tipped to rise to 450 billion yuan (US$54.4 billion) with total assets reaching 1,050 billion yuan (US$128.1 billion).

Electricity sales to end users is expected to increase by 9.2 per cent year on year to 1,222 billion kilowatt-hours.

Zhao also said the electricity transmission across different regional grids is expected to increase by 66.7 per cent to 54.3 billion kilowatt-hours for the year.

Amid China's electricity crunch, Zhao said the company will embark on a 81.5 billion yuan (US$9.9 billion) transmission line construction and grid upgrading programme.

The national gird is vulnerable and cannot sustain large power transmissions.

Its vulnerability - combined with connection problems between regional grids - stops power flowing from power-rich to power-pinched areas, and is part of the reason more than two thirds of the country was thrown into blackout chaos last year.

Zhao, however, also hinted that the company is running short of capital to cover the much-needed improvements.

"There is a big gap between our capital for development and the huge investment needed for the upgrading of grids. We need to tap new sources to raise money," Zhao said.

At present, the electricity tariff system favors power generation companies. Nearly 80 per cent of tariffs paid by end-users go to the companies so they can attract investors to build more power plants.

Analysts have expressed concern that the finances of grid operators may become even worse after the government forced State Grid to shed its own generating plants.

Previously, the company used the revenue from its generating plants to back the construction of the nation's grids.

To meet the capital shortfall,State Grid issued 10-year corporate bonds late last year to raise 5 billion yuan (US$604.5 million).

The company also plans to issue corporate bonds to raise 5-8 billion yuan (US$604.5-US$967.3 million) annually in coming years to finance the construction of transmission lines and grid networks.

Zhao said the company will lobby the central government to try and garner favourable policies to sustain investment in grid construction.

The company is also considering selling off its remaining generating assets of 6,470 megawatts to increase its cash flow, Zhao added.

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