Industrial users in Shandong to pay more in power consumption

By Fu Chenghao  |   2008-6-13  |     NEWSPAPER EDITION

CHINA'S Shandong Province said yesterday it has raised peak-hour power tariffs for industrial users to relieve a summer consumption crunch and avoid shortages.

The news immediately boosted shares in utilities, particularly Shandong-based Huadian Power International Corp, in anticipation the increases would provide some relief to utilities that have been squeezed by soaring coal prices.

The Shandong government said it raised power prices by 70 percent from the benchmark for industrial use between 10:30am and 11:30am and between 7pm and 9pm from Tuesday. Residential and agricultural users are unaffected.

In Hong Kong, Huadian rose 3.5 percent to HK$2.65 (34 US cents) and Huaneng Power International Inc was up 1.1 percent. In Shanghai, Huadian rose 1.1 percent.

Still, analysts said the price rises may not help very much to boost earnings in independent power producers as the tariffs are paid to grid firms rather than to electricity generators.

"Such temporary tariff rises won't benefit shares too much," said Orient Securities' Zhang Zhonghua, who believed utilities need a 10-percent tariff rise to cover the coal price rise. China last raised the tariffs in June 2006.

A Huadian spokesman agreed with Zhang by saying he couldn't see any direct gains from the price rises.

But the latest tariff hike could hurt industrial users such as aluminum smelters, for which power is the major contributor to production costs.

Other provinces may follow suit but analysts don't expect the central government to raise the benchmark tariffs soon given the high inflation rate, which stood at 7.7 percent in May.

"We expect no major loosening of price controls before the fourth quarter, although there could be some exceptions" such as the Shandong case, a Merrill Lynch report said.