Power
BOT Gains in Popularity
Following the awarding of China's first BOT power project, the Guangxi Laibin B Plant, to GEC Alsthom and Electricite de France, other BOT-type projects appear poised to take off. The Hunan Changsha Power Plant has received permission to start the bidding for two 350 MW coal-fired generators under a BOT arrangement. A previous deal with a Swiss firm fell through after three years of negotiating, in part because the Swiss firm wanted to use Swiss equipment instead of holding an open bid. Hunan Provincial officials are hoping to avoid similarly protracted negotiations by making the Changsha Plant an open bid BOT. So far, some 45 investors have expressed interest in the plant. Other BOT projects are hoping to follow up on the success of the Laibin Plant, including a Yangzi River bridge project in Wuhan and a water supply project in Chengdu, both valued at over $120 million.
China News Service (PRC), 12/14/96
New Financing Method for Shanghai Power Venture
In what is described as the first commercially financed, non-guaranteed power project in China, GE has closed a $250 million deal with Shanghai Municipal Electric Power Co. to own and operate a 400 MW gas turbine power plant for a 17-year term. The deal was secured thanks to a novel funding arrangement, in which Standard Charter Bank provided a 10-year, non-guaranteed $124 million loan through a ten-bank consortium. Although the loan is non-recourse, it will be secured by a power supply contract with Shanghai power authorities, under which the Shanghai Municipal Electric Power Co. will be required to purchase electricity whether it is produced or not. Such a contract was seen as sufficient to satisfy investors in place of traditional financial guarantees. Despite the unusual financing arrangements, the initial debt issue was 2.5 times oversubscribed, and the new arrangement is seen as a possible model for other investors anxious to get into China's power markets.
Asian Wall Street Journal (HK), 12/18/96
Policies Favorable to Wind Power Development Called For
Chinese wind power experts have called on the government to develop policies favorable to the further exploitation of wind energy, particularly in areas like Xinjiang Province and Inner Mongolia. China estimates it has 250 million kw of wind power resources, equivalent to 1.2 times China's total current installed generating capacity. However, China has only installed 350,000 kw of wind generating equipment. The experts urged China to address the price differential between wind power and much cheaper thermal power, as well as reduce import tariffs on wind power generating equipment.
China Economic Information (PRC), 12/20/96
Researcher Proposes TOT
Feng Fei, an associate fellow with the State Council Development Research Center, has called on China to adopt a transfer-operate-transfer (TOT) financing system as an alternative to BOT. Difficulties in negotiating BOT power contracts have centered on differing expectations of the Chinese and foreign sides, especially on the construction portion of the project. TOT would eliminate this problem by using plants that have already been built. The foreign side would pay a single sum for permission to operate the plant for a set period, with the plant reverting to the government when the contract expires. The payment would be used to fund other power plant construction. Because risk would be lower, rates of return could be lower. The TOT method would offer foreign investor a quick way to cash in on the rapid growth of China' power sector.
China Economic News (PRC), 12/16/96
Power Industry Seeking More Forms of Overseas Investment
China is seeking new forms of foreign investment to help fund growth in the power sector. This will include the establishment of solely foreign-funded power projects during the Ninth Five-Year Plan (1996-2000). China currently has some 217 million kw of installed generating capacity, but this amounts to only 0.18 kw per capita, and so installed capacity will be raised to 290 million kw by 2000 and 550 million kw by 2010. Some 75 overseas-funded power projects, with a contractual value of $17 billion, have been established, accounting for about 10% of total power investment. China will need over $87 billion in power investment during the Ninth Five-Year Plan, and is hoping to raise 20% of that overseas. In addition to introducing wholly-foreign-owned plants, China will continue to raise money through international financial organization and foreign government loans, bond and shares issue overseas, and Sino-foreign joint ventures.
China Economic News (PRC), 12/23/96
SPC Seeking Joint Venture Partners for Wind Turbines Assemblies
The Chinese State Planning commission is seeking joint venture partners for wind turbines of 300kw/600kw for assembly in China. The SPC is taking the JV approach in an effort to reduce import costs and build its domestic industry. The China National Aero-Engine Corp. and the China First Tractor and Construction Machinery Bloc were chosen as Chinese partners in the proposed joint venture. The SPC guarantees that turbines manufactured by the venture will be purchased, provided the price and quality is competitive. Even with foreign funding (including soft loans), the JV will get preference over imports on tenders. U.S. manufacturers of wind turbines are encouraged to seek more information about this proposal as imports will be more difficult under the SPC ruling. JV proposals are due January 18, 1996. For details of the inquiry document and bidding related issues please contact Division of New Energy & Energy Saving Department of Energy & Communications of State Planning Commission of the People's Republic of China. 39 Yue Tan South Road, Beijing. Phone: (8610) 6850-2489 or 6850-1437. Fax: (8610) 6850-2489, Post Code: 100824.
U.S. Embassy Beijing, The Commercial Service, 12/18/96
Power Market Boosted by Foreign Energy Firms
The market for electric power in China is growing at about 10 percent a year with most of the growth coming from foreign firms. The electric capacity in China is expected to grow to somewhere between 270,000 to 300,000 MW by 2000 from 210,000 MW in 1995. An official at the Ministry of Machinery Industry said "Forty percent of the additional power capacity will depend on imported equipment." Over the next five years, China plans to build four nuclear power plants. Hitachi and Toshiba will offer tenders to sell reactors to China for the projects.
China Daily (PRC), 01/03/97
The Coming Asian Energy Crisis
According to the latest Asia-Pacific outlook by the economic consultancy DRI/McGraw-Hill, the region's inability to meet its energy needs may impede overall economic growth because its demand is growing too fast. Primary energy demand is estimated to grow 117 percent to 5.4 billion tons in 2020 with China accounting for 42.4 percent of the demand. "With strong economic and population growth...energy shortages could be a major bottleneck for growth," DRI/ McGraw-Hill Energy Group director Silvia Pariente-David said. There would be a strong reduction in energy intensities in a bid to try and bridge a gap between energy consumption and production, particularly in South Korea and China. Even with these measures, energy demand will more than double by 2020 making the region the biggest energy market in the world, the report said.
South China Morning Post (Hong Kong), 01/06/97
China to Double Natural Gas Output
As one of the country's strategies to develop energy resources, by 2005 China will attempt to double its annual natural gas capacity to 30 billion cubic meters. China is expected to verify additional gas reserves of 1 trillion cubic meters by 2000, according to a senior official with the China National Petroleum Corp. He said that enormous potential exists in gas production.
China Daily (PRC), 01/07/97
Foreign Exchange Reserves to Energize Domestic Power Industry
Some of China's foreign exchange reserves will be set aside to purchase domestic power-generating equipment, giving it a much-needed boost. The government intends to use $1.5 billion of its foreign exchange reserves to purchase equipment from the three largest Chinese makers of power generators. The firms are Dongfang Electrical, Harbin Power Equipment Co., and Shandong Power Equipment Group Corp. These companies had recently been hit hard by China's credit crunch. China's foreign exchange reserves stood at $105 billion at the end of 1996, the world's second largest.
South China Morning Post (Hong Kong), 01/11/97
Power Project Agreements Have Overcome Obstacles
For years, foreign companies wanting to get in China's power sector have been stuck in a rut. All of that appears to be clearing up however as the Chinese are beginning to sign contracts left and right. In the several weeks before 1997 four major power projects were signed. Why did this change occur? The Chinese government seems to have accepted that overseas investors will only commit funds if there is a reasonable return on their money. Financiers are now giving rates in the area of 15 percent. Foreign participants, including lenders are now ready to take a risk on guarantees and foreign exchange. These deals appear to be a general trend in the industry and not one time deals. This is clear because of the diverse nature of the projects.
EIU Business China (U.K.), 01/06/97
Oil Imports Boosted By Economy
As the gulf between domestic petroleum supply and demand of imports continued to widen, imports grew 37.5 percent in 1996. Yang Wenfang, vice president of the China National Chemicals Import and Export Corporation (Sinochem) said that China purchased 22 million tons of crude oil from overseas last year. This compares to the 16 tons bought in 1995, he said. China's robust economic growth is increasingly fueling demand for more oil. He said that demand for energy products like oil, coal, power and natural gas usually equals about half the growth rate of the GDP. In 1996 the GDP grew about 10 percent over 1995. Yang said "Surging demand for finished oil and relatively slow growth in the supply of onshore oil have forced refineries to look to overseas markets." He said that his company intends to import more oil from overseas markets in the next few years. Currently, oil imports account for 12 percent of China's total demand but "the percentage is expected to rise in the coming years," he said. An expert has predicted that China will import 34 million tons of crude oil in 1997, increasing market share to 25 percent. China's shortage will exist for a long time, said CNPC president Wang Tao.
China Daily Business Weekly (PRC), 01/12/97
More Power to China
In 1996, China generated 1,075 billion kilowatt-hours of electricity, a rise of 6.8 percent over 1995. This eased the gap between supply and demand, said the Ministry of Power Industry. Of the total about 185 billion kilowatt hours of electricity was generated by hydropower and 875.7 billion kilowatt-hours were produced by thermal stations.
China Daily Business Weekly (PRC), 01/19/97
Developmental Targets for Power Industry
The basic power development targets in China for its Ninth Five Year Plan (1996-2000) includes increasing the nationally installed generating capacity to about 300 GW and a 1400 TWh annual generation of electricity. The breakdown is as follows: hydropower being 69 GW, thermal power 228.9 GW and nuclear power 1.20 GW. By 2000, all counties nationwide should have access to electricity, solving the problem of providing electricity to 80 million farmers. The long term targets for 2010 anticipate an installed generating capacity of 553 GW, the Three Gorges Project completed, and advanced electrification of villages. The hydropower installed capacity will reach 125 GW, accounting for 22.6 percent of the national total. Effort will also be made to reach a 20 GW target for installed nuclear power, representing 3.6 percent of the total, initially playing the role of alleviating the acute supply of coal and improving pollution in the coastal regions. Thermal power will still be the major source of power. Renewable energy will total 2500 MW in capacity, among which wind power being 1100 MW, geothermal power 200 MW, solar power 1000 MW and tide power 300 MW.
CCPIT (PRC), 01/01/97
Power Projects to Get Guarantees
The National Electric Power Corporation recently broke off from the Ministry of Power to assist power projects with guarantees and funding on a per project basis. The newly founded NECP's purpose is to help boost the confidence of international banks for mainland power projects by means of providing credit guarantees. The function of investing has been taken from the MEP, whose sole responsibility is now regulator. In order to alleviate worries of certain foreign bankers about the status of NEPC, China Power International will seek letters of comfort from MEP and guarantees from NEPC for upcoming projects.
South China Morning Post, 01/31/97
Foreign Power Companies Use New Strategy
A power industry specialist said that because of financing and red tape problems, foreign investors are now switching their focus in China from large power projects to smaller ones. Instead of going through the stress of obtaining project loans and complex state approvals, foreign investors have turned to direct equity investment, according to John Mitchell, Price Waterhouse director of corporate financing. "At the beginning, many said they wanted to invest in large projects in China. But when they come back with a whole box of memorandums of understanding, they only pick one or two most feasible ones which are usually small ones." This means that foreign power investors are mostly looking at projects worth less than $30 million to avoid state approvals. They are purchasing more domestic equipment also after Beijing canceled tariff exemptions on imported machinery in 1996, Michell said. Although there are some successful examples of large projects, financing for most without state guarantees would be nearly impossible. He believes that in the long run, China will slowly relax its grip on tariffs and be more forthcoming with guarantees for power projects.
South China Morning Post (Hong Kong), 02/12/97
New BOT Measures to Go Into Effect
Under an experimental package of reforms focused on boosting business interest in China, foreign companies will have greater control over investment projects in 1997. On Tuesday, the State Planning Commission laid forth plans to allow foreign companies to invest in China under the build, operate, transfer scheme. The BOT investments will be allowed for infrastructure projects such as highways, bridges, and water supply plants. If the new experiment succeeds, the BOT method of investment would be expanded to other sectors which were previously denied to foreign control. The SPC will also give "special permission" investment in some now closed sectors. Priority will be given to agriculture, transportation, energy, environmental protection and other important industries. However, the commission has not given a date when this would take effect.
Reform of Power Plants Will Open Door to Foreigners
China intends to reform its energy sector, creating an open door to foreign investment in its power plants. Under the new system to be established in the next few years, the state will keep control of the national and local power grids, but foreign firms and investors could now be allowed to operate the power plants, according to Electricity Minister Shi Dazhen. "The new system is to be marked with state monopoly on power grids but multi-ownership of power plants, including foreign capital, state assets, enterprises shares and individual investment."
China Daily Business Weekly (PRC), 04/07/97