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Beijing is considering ways of injecting funds into the country's weakened power generation sector, executives at China's largest independent power producer, Huaneng Power International, have said.
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"The government is weighing options on how to help the sector," said Liu Guoyue, president of the state-controlled Huaneng Power International Inc .
"They can inject capital or provide subsidy. But I think capital injection is the most likely, just like what they did to the airline industry before," Liu informed reporters at the company's results briefing.
The Chinese government previously injected capital into its airline industry in 2008 after the country's growth in air travel lapsed into single digits for the first time in five years.
Shares in Huaneng, which sunk 8 per cent when the company announced a much worse-than-expected fall in earnings for 2011, were up more than five per cent after the announcement.
Four of the five big Chinese power generators – Huaneng, Datang Power , Huadian Power and China Power International – have been damaged by surging coal prices in recent years and limited power tariff increases.
Thermal coal prices had risen 41.2 per cent in China, by the end of 2011, from the fourth quarter of 2009. Meanwhile, the Chinese authorities were worried about inflation and stoking public discontent, and so had only allowed a minimal rise in tariffs.
Huaneng, which also owns generation assets in Singapore, posted a “65 per cent drop in 2011 net profit” despite a “22 per cent increase in electricity output” in China. It blamed the fall in earnings on a nine per cent jump in unit fuel costs and higher interest expenses.
If the Chinese government does choose to inject capital into the sector, it will most likely pump it through state-owned parent companies of listed independent power producers, claimed Liu and Huaneng Chief Accountant Zhou Hui.