Power generators in China long plagued by tight profit margins are optimistic the higher electricity price will boost sales.

Most electricity producers nationwide have said May's power price hike will "definitely" boost annual sales.

Guangdong Electric Power Co Ltd, which has plants in the southern Chinese province bordering Hong Kong, told the Shenzhen stock exchange on Tuesday that an average 0.02 yuan (0.24 US cents) hike in on-grid electricity prices from May 1st will boost their sales revenue in 2005 to jump by 250 million yuan (US$30 million) from last year's 7.15 billion yuan (US$864 million), calculated according to power consumption projected by the local government.

Datang International Power Generation Co Ltd, the mainland's second-largest power producer listed in Hong Kong, yesterday said their sales have shown "a far better performance" after the May rise in power prices compared with the first four months, according to Zhang Shaopeng, manager of the firm's investor relations.

But Zhang did not give a specific figure to indicate sales growth, because "authoritative results have not been released."

Wang Xiaohui, a power industry analyst with Beijing-based CITIC Securities, predicted that of the nation's major power generators, the biggest beneficiary from the hike would be the Guodian Power Development Co Ltd.

"The price increase will likely boost Guodian's earnings per share by 0.13 yuan (1.5 US cents) to 0.14 yuan (1.6 US cents) this year from last year's 0.369 yuan (4.46 US cents), and the growth in earnings per share of other power companies such as Huaneng Power International Inc and China Yangtze Power Co Ltd is expected to stand around 0.1 yuan (1.2 US cents) or lower," Wang said, giving the reason as Guodian's relatively small share capital.

China's top policy maker, the National Development and Reform Commission (NDRC) increased the power generators' on-grid prices by an average 0.02 yuan (0.24 US cents) from the start of last month, under a new pricing scheme to float the power price with coal prices.

Under the new pricing scheme, if the change in thermal coal prices reaches at least 5 per cent for six consecutive months, the electricity prices will consequently be adjusted, and power producers themselves will have to take in 30 per cent of the cost in the electricity price increase.

The move aims to offset operational pressure resulting from soaring coal prices, which bite into almost half of the power producers' costs. The on-grid power price hike was ultimately passed on to end- users as electricity sales prices mainly for industrial and commercial uses were accordingly raised by an average 0.0252 yuan (0.3 US cents) in May.

"The coal-power pricing linkage marked a strategic step towards the marketization of the energy pricing mechanism by gradually freeing up the State-controlled thermal coal and electricity prices," Tang Yuan, deputy-director of Research Department for Industry, Transport and Trade under the State Council's Research Office, said.

(China Daily June 23, 2005)