Huaneng Power International, China's largest independent power producer, posted a modest rise in net profits for the first half of this year.

During the January to June period, the company registered a consolidated net profit of 2.481 billion yuan (US$299.6 million), an increase of 8.58 percent compared to 2.29 billion yuan (US$277 million) a year ago, the company said in a statement Wednesday.

Net operating revenues of the company and its subsidiaries during the period rose to 12.964 billion yuan (US$1.57 billion), up 23.3 percent over the same period last year.

The company also reported its earnings per share of 0.21 yuan (2.5 US cents), but did not recommend any interim dividends for year 2004 in the statement.

"Huaneng's business performance in the first half is within expectations, as the number of power generating units in operation since the second half of 2003 were not many," said Yin Yifeng, industry analyst from Huaxia Securities.

It is expected that Huaneng will achieve better results in the second half, as it is constructing new projects and has been actively acquiring new power assets to enhance its operation scale and profitability, he said.

The company's profit increase during the period was mainly attributed to the rise in power generation, the company statement said.

The company generated 48.83 billion kilowatt-hours of power from January to June, a year-on-year increase of 18.87 percent.

China's rapid and steady economic growth led to a sharp increase in power demand and power generation in the country, which jumped 15.8 percent in the first half.

However, the persistent rise in coal prices since the end of 2003 had brought about a significant impact on the company's generation and operation. The effect became particularly conspicuous since the second quarter, the company said.

Coal prices have jumped more than 40 percent in the past year and accounted for half of most power plant operating costs.

High costs will remain a major concern in the second half for the company based on fears of a further rise in coal prices.

"In the second half, demand will still be greater than supply in the power market," Huaneng said.

It has only secured about 60 percent of its coal supply under fixed-price contracts and has had to buy the rest on the spot market, where prices are roughly 60 percent higher than under longer-term contracts.

Some analysts expect Huaneng's unit fuel costs will jump as much as 25 percent for the full year.

The unit fuel cost of the company for the first half of the year increased by 25.85 percent when compared to the same period last year.

To rein in coal costs, Huaneng recently signed long-term supply contracts with Shenhua Group and China National Coal Group.

The company also announced yesterday that it plans to issue up to US$300 million in convertible bonds to meet the company's foreign exchange needs.

The bonds, which will be convertible into new H shares within 12 months from the obtaining of the shareholders' approval, will be offered only to professional and institutional investors.

The net proceeds of the proposed issue of convertible bonds will be used for purchasing major imported equipment for new power plants, expanding existing power plants, and acquiring power plants in operation.

Huaneng's shares in Shanghai stock market closed 1.66 percent lower at 8.84 yuan (US$1.07) yesterday, while its H shares dropped 3.448 percent to HK$5.6 (72 US cents).

(China Daily August 12, 2004)