Earnings Call: Q3 2006

Oct 25, 2006

Earnings release

Good evening, Mr. Xu. Please begin your conference. Thank you. [Foreign language] Good evening, ladies and gentlemen, and good afternoon to those from the U.K. Thank you very much for joining Huaneng Power International's telephone conference today. Today's conference is about the company's results for the first three quarters of year 2006. My name is Raymond Xu from Rice Communications, and I will be your moderator for this conference. [Foreign language] Before we start, I would like to first introduce the company's senior management members who are with you this evening. [Foreign language] Vice Chairman Mr. Huang Yongda, [Foreign language] Mr. Huang Yongda, you are welcome. 你好，大家好。 Vice President and Secretary to the Board of Directors Mr. Huang Jian, [Foreign language] Mr. Huang, you are welcome. 肖先生你好。 [Foreign language] Securities representative and General Manager of the Capital Market Department Ms. Jia Wenxin. [Foreign language] 你好，大家好。 General Manager of the Finance Department Mr. Huang Lixin. [Foreign language] 你好，大家好。还有公司的翻译景君先生。景先生，你好。大家好。 We will first have Vice Chairman Mr. Huang Yongda brief you on the results. Then will be the Q&A session, so that you can ask questions to the management team. [Foreign language] Without further ado, I now call upon Mr. Huang. 女士们、先生们，大家好，欢迎大家参加华能国际2006年三季度业绩发布电话会议。昨天公司召开了董事会，随后公布了业绩。今天召开电话会议，与境内外的投资者和分析师就公司今年前三季度经营情况和今后业务发展进行交流。 Ladies gentlemen, good evening. Welcome to Huaneng Power International 2006 Third Quarter Result Conference Call. Yesterday, the company convened board meeting and subsequently announced its operating results. Today, with this conference call, we are hoping to communicate with investors and analysts both at home and abroad over the company's operating results in the first 9 months of 2006 and the future business development. 按照中国会计准则计算，今年前三季度，公司实现主营业务收入314.51亿人民币，同比增长7.98%，净利润34.55亿人民币，同比增长13.25%。公司各运行电厂累计完成发电量1168亿千瓦时，同比增长5.31%。董事会对公司前三季度的生产经营业绩表示满意。 Based on Chinese accounting standards, in the first 9 months of this year, the company realized operating revenue of CNY 31.451 billion, representing an increase of 7.98% over the same period last year. Net profit was CNY 3.455 billion, representing an increase of 13.25% over the same period last year. The company's operating power plants accomplished total power generation of 116.8 billion kWh of electricity, representing an increase of 5.31% over the same period last year. The board of directors is satisfied with the production operating results of the company in the first 3 quarters of this year. 2006年前三季度，公司抓住机遇，应对挑战，强化内部管理，在建项目如期投入商业运行，提高了电力供应能力。公司售电量增长了5.39%，其中新机投产使售电量增长7.66%，原有机组发电设备利用小时下降，使得售电量下降了2.27%。由于两次煤电联动调价影响，公司平均结算电价上升到每千千瓦时333.93元，比去年同期提高了8.01元每千千瓦时。需要说明的是，前三季度东北区结算竞价机制的暂按每千千瓦时259元的临时电价进行结算。目前国家有关部门正在研究制定相关结算办法，待具体办法出台后，将进行追溯结算。在成本方面，公司采取多种措施控制燃料成本，平均售电单位燃料成本比去年同期下降了1.22%。发电量增加、电价的上升、成本的有效控制使公司取得了较好的经营业绩。 In the first 3 quarters of 2006, the company seized opportunities, coped with challenges and strengthened its internal control. With the new projects commencing commercial operation as scheduled, the power generating capacity has increased. Power sales increased by 5.39%, whereas newly commissioned units contributed to 7.68% increase in power sale. The decline in utilization of the company's existing units resulted in a reduction in power sale by 2.27%. Due to the impact of the tariff hike under the fuel cost pass-through policy, average settlement tariff of the company's operating power plants increased to CNY 333.93 per megawatt hour, which was CNY 8.01 per megawatt hour higher than that of the same period of last year. It is worth noting that in the first 3 quarters of this year, the power generating units in Northeast China that participated in power pool competition have the electricity bills tentatively settled based on a temporary tariff of CNY 259 per megawatt hour. Currently, relevant government agencies are trying to work out a settlement method. Once this detailed settlement method is introduced, we expect it to be retrospective. On cost front, the company adopted various measures to control fuel costs, with unit fuel costs decreased by 1.22% compared with the same period of last year. The increase in power generation and the tariff hike, as well as the effective control on costs, enabled the company to achieve better operating results. 四季度，公司管理层将把握机遇，全力以赴，克服困难，圆满完成全年的生产经营任务。接下来，我和我的同事愿意回答各位提出的问题。谢谢大家。 In fourth quarter, the management of the company will seize opportunities, make all out efforts and overcome various difficulties and to successfully accomplish its task for the full year. Now my colleagues and I are ready to take your questions. Thank you. Thank you, Mr. Huang. [Foreign language] Ladies and gentlemen, now it's time for questions. If you'd like to ask a question, please push 1 on your telephone pad. And anytime if you would like to have any operator assistance, please push star and zero on your telephone pad. [Foreign language] First question comes from Merrill Lynch, Mr. Joseph Jacobe. Joseph, please go ahead. 大家好，我是美林证券的岳奇。我想请教两个问题，第一个问题是有关于利用小时全国的下降的趋势，贵公司对于明年，尤其是上半年的第一季度、第二季度，在各个主要地区，尤其是东北、华东、南方，在这些地方大概利用小时的趋势会是什么样子？第二个问题，可不可以多谈一下公司对于煤炭、煤价成本的控制，可不可以再给我们一些数据，有关第三季度，谢谢。 I have two questions. The first question is the trends in the decline of utilization. What is company's expectation for utilization levels in the first quarter, second quarter of next year? And how will the situation be like with respect to utilization decline in the company's major service areas, including Northeast China, East China and South China? Second question, could the management provide more figures on the coal price and fuel cost control? 这个问题我想请黄坚副总经理回答。 Mr. Huang Jian will answer the question. 公司前三季度的利用小时比同期下降了3%，在4585个小时。 In the first three quarters of this year, average utilization hours of the company's generating unit amounted to 4,448, which was 137 hours less than the utilization hours in the first three quarters of last year, which was 4,585. That was a 3% decline. [Foreign language] To our knowledge, the 137-hour decline is smaller than the average decline in utilization on a nationwide basis. For the full year outlook, there is going to be 25,000 megawatts of new capacity coming on stream in the fourth quarter, which that utilization will continue to decline. Regarding the trend in 2007, because there is going to be about 70,000 megawatts of new capacity coming into commercial operation next year, we expect generally utilization will continue to come down. The regions that will record the steepest decline include Jiangxi, Hunan, Chongqing, Shandong, South Hebei Grid, and Gansu. In these regions, because their power demand will not be very strong, with increased installed capacity, utilization in these regions will suffer a bit higher than some other regions. [Foreign language] I quite agree with Mr. Huang's assessments on the general trends for next year and also geographic divisions. [Foreign language] By the end of last year, total installed capacity in China reached 510 gigawatts. This year, there is going to be about 75,000 megawatts of new capacity commence operation. Next year, more than 70,000 megawatts of new capacity will come on stream. In the last two years, due to the commencement of operation of many generating units, supply of electricity has been enhanced considerably. In the meantime, strong economic environment has driven up power demand for electricity. This year, we expect nationwide power growth will be around 13%. For this year, power consumption is expected to grow by 13%. [Foreign language] The current demand and supply situation is decided by various factors, including the climate and the rainfall in certain regions, and the government's economic control measures. [Foreign language] In accordance with the government policy on energy conservation, some small capacity units are going to be shut down. [Foreign language] As a result, the high efficient and large capacity generating units of Huaneng Power will benefit from such a situation. [Foreign language] Mr. Huang Lixin will answer your question regarding coal prices. Regarding the coal prices, I have a few figures to provide. In the third quarter of this year, the average delivered price of coal was CNY 378.79 per ton. This is the third quarter. 这个数比上期下降了1.75%，比第二季度。 That represents a 1.75% decline from the second quarter. Thank you, Mr. Huang. Joseph, are you OK? 可以，谢谢。 Thank you, Joseph. The next question comes from Morgan Stanley Simon Li. [Foreign language] Simon, please. 管理层你们好，我是李浩然，摩根士丹利。我有两个关于东北的问题。第一个就是，刚才你们介绍了全国的趋势，我想问一下，关于东北三省的，特别是辽宁省的供需情况、利用小时的情况，关于2006、2007年。第二个问题就是刚才你们也介绍了东北的电价还没有决定，现在是259。现在政府还没有定，但是我想知道这个时间表，还有政府会按照什么来决定你们最后的结算的定价？谢谢。 I have a couple questions regarding Northeast China. Just now you talk about the trend in the whole country. What will be the demand supply trend in the Northeast China, especially Liaoning Province in 2006 and 2007? How will the utilization in the Northeast region be like in 2006 and 2007? You also mentioned that currently the temporary settlement tariff for the power plant in Northeast China is CNY 259. The government is trying to work out a final solution on tariff. How will the time frame be for the introduction of the final settlement method? 关于东北三厂的利用小时，我给报告一下。大连1到9月份是5334小时，丹东是5175小时，营口是5754小时。应该说东北三厂，特别是辽宁三厂，利用小时目前是比较高的。 I can give you the utilization hours for our three power plants in Liaoning Province. With Dalian in the first nine months of this year, 5,334; Dandong, 5,175; Yingkou, 5,754. We should say that the utilization rates of our three power plants in Liaoning Province were relatively high compared with the power plants in other regions. 据我们了解的情况，明年辽宁省新增装机是300万千瓦左右。 To our knowledge, next year, there is going to be about 3,000 megawatts of new capacity coming on stream. 由于辽宁省前两年以及最近几年投产的容量比较少，我们预测明年辽宁省的供需状况基本上是平衡略微趋紧。 Based on the fact that there have been a relatively little amount of new capacity coming on stream in the last few years, we believe the general demand supply situation in Liaoning will be equilibrium, and there might even be a slight supply shortage. 辽宁省作为东北三省的重要省份，在振兴东北经济的大的背景下，用电量增长是比较快的。今年1到9月份，辽宁省的火力发电量增长幅度在16.1%。 Liaoning Province, which is one of the most important province in Northeast China, plays an important role in revitalizing the economy of the Northeast. This province has recorded strong demand growth over the last several years, and in the first nine months of this year, power consumption grew by 15.1% in Liaoning. 我们知道东北是中国电力市场建设第一个试点单位。 As we understand, Northeast China is the first region to pilot the power pooling scheme. 电力市场建设是一个复杂的系统工程，所以出现一些反复，我们很能理解，并也是正常的。 The establishment of regional power markets is a comprehensive, systematic project, and it is quite natural to encounter some difficulties. 目前东北区域电力市场正处于暂停阶段，正在总结经验。 For the time being, Northeast China power market has been suspended, they are still at a stage of accumulating experiences. 竞价机组都是在保证电网安全的前提下，按照需求来调电。 For the time being, generating units in Northeast China are being dispatched based on the principle of ensuring the safety of the power grids and meeting the demands of our consumers. 刚才我已经介绍了，竞价基础的电量目前都按临时电价每千瓦时0.259元进行结算。 Just I mentioned earlier, currently the power bills are settled based on a temporary tariff of CNY 259 per megawatt hour. 目前国家电监会和国家发改委正在研究制定相关的结算办法。 The SERC and NDRC are working together to develop the methods for calculating and deciding the tariff for the settlement of the power pooling in the first nine months of this year. 初步的方案是以2004年的结算电价为基础，考虑近两年的煤电联动因素来确定各方的结算价格。 The preliminary idea of the method is to use the settlement tariff of 2004 as the basis, and take into account the fuel cost pass through mechanism to decide the final settlement tariff. 那么这个方案目前正在征求地方物价部门以及各发电企业、电网企业的意见过程当中。 At this stage, the government agencies are soliciting opinions from relevant government agencies, including power bureaus, pricing bureaus, and the power generators, and also the grid companies. 现在具体的结算时间表还没有，但是我们相信在12月31号以前肯定能够实现这个目标。 We have still no timetable for the introduction of the settlement method. But we believe this issue can be settled before December 31st. 我想我这个说法可能是比较悲观的说法，我们也寄希望他们在更短的时间里把这个问题能够尽快解决。 That sounds a little bit pessimistic, but we do hope that this issue can be resolved as soon as possible. 我们对我们的政府的行政能力充满信心。 We have confidence in our government's ability in handling such issues. 好，谢谢黄副董事长。 Simon, do you have any follow-up questions on this? 没有了，谢谢你们。 [Foreign language] Thank you. [Foreign language] The next question comes from Deutsche Bank's Mr. Michael Tong. Michael, please go ahead. 你好，我是唐江桥，我有三个问题。第一个问题是，现在最新的一个调度规则，就是经济调度。这个您能介绍一下这个规则对你们公司会有一些什么样的影响吗？因为我知道你们华能的这个技术是相对来说比较先进的。第二个，我想问一下，在你们所有的发电量中，有多少电量是属于省间交易电量这部分的？其中哪几个电厂这方面的电量比较多？最后一个问题就是，最近有报道说你们德州电厂发生了一个爆炸事故。请问一下，这个事故对你们的德州电厂发电运营有没有影响？谢谢。 I have three questions. The first question is that currently, the regulator is implementing economic dispatch based on the principle of economic dispatch, like to take in the most economic way. How will that impact on the operations of Huaneng Power as you have a lot of units with advanced technology? Second question is of all the power outputs of the company, how much from inter-provincial trading? Third question is that recently there has been an accident at Dezhou plant, will that impact the operation of Dezhou plant? 您提了三个问题，我想第一个问题、第三个问题由我来回答。 You raised three questions, I will answer the first one and the third one. 第二个问题请黄副总进行回答。 Mr. Huang will answer the second question. 最新的调度方式是国家政府根据建设节能环保型社会的要求提出的一种新的措施。 The latest dispatch method is a measure opted by the government in building a society of energy conservation and environmental protection. 目的是在满足社会需求的前提下，使我们消耗的燃料最少，环保排放最少的。 The aim of this dispatch method is to ensure that while meeting the demand for electricity, there should be less fuel consumed and less emission to be discharged. 据了解，现在政府有关部门正在组织专门的人员进行调查研究，制定办法。 To our knowledge, the government has formed a task force to do research and study on this issue. 我们华能技术经济研究院也派了专人参加了调研。 Finance, Huaneng Technical and Economic Research Institute have some people involved in such research and study initiative. 从目前掌握的情况来看，就是要让高效低排放的机组尽量多发电。 According to the latest information, the introduction of this new dispatch method aims at allowing highly efficient and less pollutant units to produce more electricity. 如果这种调度方式改革，显然对华能这种具有高效机组比重比较大的公司是非常有利的。 The reform of the dispatch methods will be beneficial for companies like Huaneng Power, which has a higher number of highly efficient and less pollutant units. 但是这种调度方式的改革是电力企业之间的利益调整，难度也比较大，我们分析可能会分步实施。 But as this reform of dispatch methods involves rebalancing of the redistribution of interests or benefits among power generating companies, it is going to be difficult. Therefore, we expect this new dispatch method to be phased in gradually. 明年会选择个别省份进行试点，在积累经验基础上再推开。 Next year, the government is going to select a few provinces to pilot this scheme, and based on the experiences learned from the experiments, this scheme will be gradually spread to other provinces. 但对这项改革，大家的认识是高度一致的。 But there is a general consensus about this reform initiative. 关于第三个问题，10月18号10点50分，由清华同方公司承揽的华能德州电厂三号机组大修期间，脱硫改造工程进行系统调试的时候，原烟道侧墙突然崩塌，将原烟道侧下部的脱硫现场临时工作间、杂塔两间共埋7个人。 Your third question. At 10:50 on October 18, there was an explosion at a Dezhou power plant where Tsinghua Tongfang, as the contractor, was conducting the commissioning of the FGD system at the site. The explosion of the flue gas duct caused the collapse of a temporary workshop under the duct and resulted in seven casualties. 目前死亡3人，重伤1人，轻伤3人，7人为现场施工单位的调试和监理人员。 For the time being, there are seven casualties, three fatal, one suffered heavy injury, and another four suffered minor injuries. These three people are the commissioning and supervising staff at the site. 目前事故原因正在调查之中，我们将与有关单位密切配合，做好后续工作。 At present, the cause of the accident is under investigation. We will cooperate with related parties to properly handle this issue. 三号机组在昨天6点31分已经正常并网发电。 Unit three has synchronized yesterday at 6:31 P.M. 刚才我的同事告诉我，省间调度的电量数据还不完整。请这位先生在适当的时间跟我们证券事务进行沟通联系。好的，谢谢。 Just now, my colleague told me that we do not have complete data on inter-provincial trading volume, and we will find out those data and get back to you later.