Caixin
Jan 31, 2018 07:27 PM
BUSINESS & TECH

Energy Producers Rake It In as Power Firms Warn of Losses

Many major Chinese energy producers have estimated strong profit growth for 2017, citing higher commodity prices and government reforms. Photo: VCG
Many major Chinese energy producers have estimated strong profit growth for 2017, citing higher commodity prices and government reforms. Photo: VCG

Many of China’s major energy producers have estimated strong profit growth for 2017, citing higher commodity prices and reforms that have improved efficiency — but power generators are feeling the sting of the price hike.

State-owned oil and gas giant PetroChina Co. Ltd. estimated that its net profit in 2017 increased by between 13 billion yuan ($2 billion) and 16 billion yuan, up from 165% to 203% from the previous year, according to a notice filed to the Hong Kong stock exchange on Tuesday.

PetroChina said the growth was due to “the combined impact of the Company optimizing its production and operation, broadening sources of income, reducing costs and improving efficiency,” as well as rising prices of its products.

Meanwhile, Inner Mongolia Yitai Coal Co. Ltd. announced late Tuesday that it has estimated its 2017 net profit to be 3.13 billion yuan higher than 2016’s figure — up 168%. China Shenhua Energy Co. Ltd., the country’s largest coal-mining company, reported an estimated 2017 profit growth of 92%, citing high electricity consumption in China and “the satisfactory outcome brought by the supply-side structural reform.”

Zhongyu Gas Holdings Ltd. also predicted strong growth — a 150% increase year-on-year in profit — in the past year. “The growth in turnover is mainly attributable to (a) significant increase in sales of piped gas to industrial customers and connection revenue from residential households under the implementation of the “coal-to-gas” conversion policy in the Chinese Mainland,” the company said in its announcement.

While gas producers benefited from government policy, demand for coal also surged in late 2017 as the country’s plan to shift from coal to “cleaner” gas energy failed to meet heating needs after the onset of winter.

Additionally, years of supply-side reform aimed at trimming excess capacity have improved efficiency, according to many of the energy companies reporting high expected profit growth.

However, power generators are feeling pressure downstream. Huadian Power International Corp., the listed subsidiary of state-owned Huadian Group, issued a negative profit alert Tuesday, which it said was “mainly due to the increase in costs as a result of the significant increase in thermal coal prices.”

Pollution-reduction policies have also pushed up power companies’ operating costs, especially a ban on diesel-powered trucks delivering coal to northern China’s Bohai rim area. Last week, China’s four largest power companies — including Huadian — jointly asked the National Development and Reform Commission to intervene against rising coal transportation fees.

Contact reporter Teng Jing Xuan (jingxuanteng@caixin.com)

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