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Lu Qizhou: Atypical Chinese SOE Leader

2014-06-17 15:44:33 Caijing
Lu’s successor will continue to face the challenge of how to survive in the crevices of the power industry planned economy, market competition, and the state-owned enterprises’ assessment mechanism.

  By staff reporter Zhu Yue

  Lu Qizhou, the 63 year-old general manager of China Power Investment Corporation (CPICC), is expected to retire this June or soon after.

  During his seven-year tenure at CPICC, Lu maintained good relations with various media due to his reputation as a moderate liberal who was fond of speaking openly. His penchant for being candid also allowed the public to better understand the inner workings of a large number of state-owned energy companies.

  Lu’s arrival at CPIC coincided with the global financial crisis and large-scale losses in the thermal power industry, which had put power generation groups into a dismal financial state. To combat this, Lu established CPIC’s "electricity as the core, coal as the base, industrial integration" development strategy. Under this line of thinking, CPIC invested heavily in upstream coal and downstream electrolytic aluminum.

  The thermal power industry continued to suffer losses from 2010-2012, but coal and aluminum helped to bolster CPIC’s profits. During that time, the company’s average annual profits from coal and aluminum were 1.942 billion yuan and 1.022 billion yuan respectively, while over the same three-year period the group’s total profit averaged 4.68 billion yuan. But with market changes and the end of a ten-year golden era in coal, profit contributions from coal and aluminum showed a substantial decline. In 2013, revenue from coal accounted for 770 million yuan of CPIC’s profits, down 60 percent year-on-year; meanwhile, the company experienced a 1.978 billion yuan loss in the aluminum sector.

  Lu stated that there is much debate within the industry as to whether or not the diversification of power generation enterprises is the right path. Looking back now, industrial integration has its pluses and minuses; however, under the prevailing conditions, it is a necessary choice, he added.

  In 2014, CPIC’s proportion of clean energy installed capacity reached up to 34.19 percent, the highest among China’s top five power generation groups. When Lu became general manager in 2007, total clean energy installed capacity was around 24 percent.

  Due to its intermittent nature and instability, grid enterprises once wrote off wind and photovoltaic (PV) power as "junk electricity." Lu told Caijing his thinking changed in 2010 after carefully studying the photovoltaic and wind power industries. Research results showed that the cost of electricity in these two sectors would inevitably show a decreasing trend, making them worthy investments.

  Facts later proved that CPIC’s strategy this regard was indeed more forward-looking. Just after 2010, the PV module manufacturing industry experienced large capital inflows and component costs took a swift dive. The current average price of polycrystalline silicon PV modules in the Chinese market is 4 yuan per watt.

  The establishment of a clean energy strategy originated from CPIC’s unique advantage in the field of nuclear power - CPIC is the only one of China’s five power generation companies qualified to own and operate nuclear power plants. Lu said that due to historical reasons, CPIC’s assets scale is relatively small compared to the other four power generation groups; it cannot compete with the others in terms of scale, so the company must take a different development path. Guided by this philosophy, Lu proposed the goal of raising CPIC’s proportion of clean energy installed capacity to 50 percent by 2020.

  Lu is still in the middle of negotiating a merger and reorganization with State Nuclear Power Technology Corporation (SNPTC). The end result is expected to be announced around July of this year.

  During Lu’s seven-year tenure as general manager, CPIC’s total assets increased by 224 percent, operating income increased 273 percent, and the company went from losing 6.9 billion yuan to earning 11.176 billion yuan in profits. At the same time, CPIC weathered a financial crisis and the coal-electricity contradiction phenomenon, and also coped with historic breakthroughs in photovoltaic, wind power, nuclear power and other fields. When the thermal power industry slumped, the group chose to enter upstream and downstream industries, and survived in the crevices of the power industry planned economy, market competition, and the state-owned enterprises’ assessment mechanism. Such a system and business environment will continue to challenge Lu’s successor.

  The Organization Department of the Central Committee of the CPC will announce Lu’s successor soon. Multiple sources say current SNPTC Chairman Wang Binghua is a strong contender for the position.

  Full article in Chinese:http://magazine.caijing.com.cn/2014-06-16/114264682.html

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