China's booming economy has led to a major energy shortage but foreign power companies are pulling out because they cannot make enough money, industry managers and analysts said Monday. After investing heavily in the sector during the early 1990s, foreign power companies hit mainly by rising coal prices but fixed electricity tariffs have been finding China a losing proposition.
"It's a complete disaster. In 2004 coal prices skyrocketed along with other commodities in China and we got no tariff increase," said Robert Peterson, chief executive of Power Peak, which operates plants with total capacity of 400 megawatts. "You can't make money in China's power sector," Peterson said.
Partially to blame is the fact that the country's five state-owned power groups do not compete on equal terms. They are protected by state-allocated prices that allow them to buy coal much more cheaply. Foreign firms have to buy coal on the spot market where prices are much higher.
"Surging coal prices are pressuring power plants' profits," said Luo Ming, a power industry analyst with Changsheng Fund Management. "Foreign firms will continue to face the problem for the next two years. Now is the right time to pull out of China," Luo said. Although Beijing raised electricity tariffs in January and June last year, the rise could not offset surging coal prices, up 36.8% year-on-year in the first nine months of 2004.
