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Foreign power firm sheds assets

By Chen Dujuan (Global Times)

08:08, May 09, 2012

Power giant AES Corp has signed two agreements to sell most of its assets in China for $134 million, signaling that foreign power companies are finding it difficult to stay in China due to rising coal costs and the current electricity pricing mechanism.

The Virginia, US-based company announced late Monday that it would sell its 25 percent stake in Yangcheng thermal plant and 49 percent equity in China Wind joint venture to Singapore-based Sembcorp Utilities for $86 million.

AES also said it would sell its 49 percent stake in Jianghe Rural Electrification Development Co to its joint venture partner China Three Gorges New Energy Corp for $48 million.

These transactions are still subject to approval by the Chinese government and are expected to be completed in the second half of 2012.

"Narrowing our geographic focus and investing in our core markets better positions us for long-term earnings growth," AES Chief Executive Andres Gluski said in a statement, as the company does not "have a competitive advantage" in China.

"AES, like all coal-fired power generation companies in China, suffers huge losses as the coal costs have kept surging in recent years but the price of electricity is set by the government, so the company is unable to transfer the cost increase to end consumers," Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times yesterday.

China's power generators have reported continued losses in recent years because of soaring thermal coal prices, but the government has not raised electricity prices correspondingly due to inflationary concerns.

China's five largest State-owned power groups reported a total loss of 31.22 billion yuan ($4.96 billion) for thermal power sector in 2011, 19.07 billion yuan more than that in 2010.

Data from the China Electricity Council showed that from 2003 to 2011, the average price of coal used by the five power groups has increased 210 percent, while the electricity price has only risen by 52.5 percent.

The electricity prices were raised twice in some areas of China in 2011, which relieved the cost pressure for thermal power plants, said Guan Dali, a researcher with, a bulk commodity portal, but "this is just a shortcut to stem their losses. The lasting solution is to introduce a market-oriented pricing mechanism for electricity."

Foreign power companies were encouraged to invest in China at the end of the 1980s and many came into the sector in the 1990s, when they accounted for about 15 percent of China's thermal power market in terms of investment, said Lin.

However, after the first round of retreat in 2000 due to power overcapacity and the second round in 2004 as coal prices began to increase quickly, the current market share is less than 5 percent, he estimated.


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