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China power firms return to profit as coal miners lose out

Soaring first-half profits for China's thermal power producers on the back of state-set tariffs and a collapse in coal prices that left miners with huge losses have led to fresh calls for power sector reform.

Officials from China's struggling coal sector complain that they have been left at the mercy of the market, at a time when the bloated and inefficient power industry continues to benefit from state support.

Huaneng Power , the listed unit of the Huaneng Group, the country's biggest power generator, boosted its first-half net profit by 31.5 percent after adopting what it described as a "price competitive approach" to buying coal.

Smaller Guangxi Guiguan Power and Zhangze Power saw profits soar 181 percent and 120 percent respectively.

By contrast, more than 70 percent of Chinese miners made losses in the first half of this year, according to National Development and Reform Commission (NDRC) estimates, and miners have urged the state to provide support.

"The situation in the power sector is complicated and market reforms are now being discussed, but the current situation shows they are really essential," said Zhang Lizi, researcher at the North China Electric Power University.

Coal accounts for around two thirds of the costs of thermal power producers, who have benefited from steep falls in prices, while electricity tariffs are controlled by the NDRC.

Thermal coal at Qinhuangdao port SH-QHA-TRMCOAL averaged 468 yuan ($73.54) a tonne over the first six months of 2015, compared with 555 yuan a tonne for the same period a year ago, and has since fallen to around 410 yuan a tonne.

COAL COMPLAINTS

Some experts say the current situation simply reflects market fluctuations.

"In 2011, when coal prices surged, many power firms suffered losses, so complaints from the coal companies are unreasonable," said Zhu Limin, power analyst with Shanghai Securities. "It is just a reversal of fortune."

Coal officials say the state stepped in to subsidise power generators in 2011, but it has so far ignored calls to set a minimum coal price as it tries to encourage cleaner energy and trim overcapacity in the sector.

Fixed tariffs, meanwhile, shield power generators from overcapacity and inefficiency, experts say, with thermal power plants working at about 20 percent below normal levels while overcapacity stands at about 200 gigawatts.

China cut electricity tariffs in April to reflect falling coal costs, but Qinhuangdao prices have fallen another 12.6 percent since the adjustment.

The government aims to reform the price system, but further tariff adjustments were unlikely in the short term, analysts said.

"The NDRC has said it will adjust just once a year and to change them again would send out a wrong signal," said Zhu.

($1 = 6.3635 Chinese yuan renminbi)

source: http://in.reuters.com