Beijing might come to rescue of power producers

China’s power producers, battered by unrestrained hikes in coal prices, could get some relief from the government.

Liu Guoyue, president of state-owned Huaneng Power International, Inc. believes Beijing might inject capital into ailing power generation sector. He said the government is weighing options on how to help the sector.

"They can inject capital or provide subsidy,” he said. “But I think capital injection is the most likely, just like what they did to the airline industry before.”

He said that if the Chinese government chooses to inject capital into the sector, it will most likely pump it through state-owned parent companies of listed independent power producers.

Thermal coal prices in China rose by over 40% in 2011 from the fourth quarter of 2009. Chinese power firms such as Huaneng are reeling from this surge in coal prices and paltry rate hikes the government refuses to increase for fear of stoking inflation and public anger.

Huaneng aims for an 8% increase in its power output this year, and its unit fuel cost growth should be capped at 4%, Liu said. Over 80% of Huaneng's 55.5 gigawatts of generating capacity are coal-fired.

Huaneng last week announced a 65% drop in 2011 net profit despite a 22% increase in electricity output. It blamed the plunge in earnings on a 9% jump in unit fuel costs and higher interest expenses.