By staff reporter Li Qiyan

Two of China's biggest power producers said they expect to post losses for the first half of the year as higher coal prices trump gains from increased electricity output.

Huaneng Power International Inc. (HKSE: 00902) said July 15 that power generation rose 13 percent in the first half of 2008. Nevertheless, the company said it would likely record a loss for the period due to substantially higher coal prices.

On the same day, Huadian Power International Corp. (HKSE: 01071) said it expects a net loss for the first six months of 2008. The company said a 65 percent growth in electricity production had failed to offset higher coal prices.

Neither Huaneng, China's largest electricity producer, nor Huadian released preliminary financial figures. They're scheduled to report first half results in August.

An industry expert told Caijing that the grim forecast from Huaneng -- considered the sector's strongest player -- suggests the entire industry is suffering losses. The expert blamed the higher coal prices on inadequate supplies.

Huadian lamented that the government has not adjusted power tariffs to compensate for significant increases in coal costs this year.

Coal suppliers have increased prices paid by power plants to more than 1,000 yuan per ton at the port of Qinhuangdao -- a 100 percent increase since the beginning of the year.

According to a report by Shenyin & Wanguo Securities Co., major power plants paid 10 percent more for coal in the second quarter than the previous three months. Combined losses for the coal-fired power industry totaled 2.29 billion yuan, the report said, and more than 80 percent of power plants lost money.

In July, the National Development and Reform Commission lifted the average electricity tariff paid by power grids 0.025 yuan per kilowatt hour starting July 1, up 4.7 percent on average. At the same time, a temporary price cap for coal used by power plants was announced.

However, analysts said the adjustment was slight and provided limited support for power plants. They expect further price tweaks in the near future.

“We expect more adjustments on power tariff after the Olympics,” said a Huaneng source. Power companies are now waiting for the government to respond to the industry's inevitable losses with subsidies.

The source also said an industry reshuffle is likely, with large power companies taking over smaller firms.

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