Energy

State-owned power firms to merge

By Du Juan (China Daily)
Updated: 2011-04-21 10:45

BEIJING - China Gezhouba Group Co Ltd (CGGC), builder of the Three Gorges Dam, said on Wednesday that its parent company, China Gezhouba Group Corp, will merge with China Power Engineering Consulting Group Corp (CPECC), signaling the start of the country's effort to consolidate its power sector.

The proposed merger exercise will see the formation of a new power construction company, said CGCC.

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As part of the grand scheme, the exploration and power construction units of China State Grid Corp and China Southern Power Grid Co will be merged under a new power company.

An official of China Gezhouba, who declined to be named because of company's policy, said the proposal is a framework for the restructuring plan and the final agenda is under discussion at present.

Analysts estimated the restructuring will require six months to complete.

"The new company will expand its business in the global market based on its stronger competitiveness and higher efficiency," said Qiu Bo, chief analyst at Guosen Securities Co, a Chinese financial services firm based in Shenzhen.

CPECC is one of the world's top 50 engineering design companies. Its businesses include engineering designs of water, thermal and nuclear power projects.

The proposed merger is expected to further strengthen CGGC's design division, completing its range of industrial offerings to clients, which leads to more profitability, said Qiu.

"The design sector is the most profitable part in the power industry," he added.

Qiu said the power exploration and construction units in many provinces in China will experience a reshuffle soon because of the restructuring.

CGGC's stock in Shanghai rose 9.97 percent to close at 1.312 yuan on Wednesday, boosted by the news.

China started the reform of the power industry in 2002 when the previous national power company was split into two grid companies and five power generation companies.

Reacting to CGCC's announcement, analysts said the new restructuring plan can be a starting point of separating State-owned enterprises' secondary business from their core to convert into independent companies.

Qiu said Sinohydro Group Co, another large-scale power company in the country, will be the main competitor to the proposed new power company, where the competition will help the development of the domestic power industry.

However, certain analysts believe the electricity pricing mechanism is a much more important issue to be tackled rather than separating the secondary businesses of State-owned power enterprises.

"The restructuring will only bring much additional cost rather than the benefits," said Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University.

"The secondary businesses of the State-owned power companies are not hindering their development. It is not a key issue for the industry."

He said it is crucial to form a market-oriented electricity pricing system.

Otherwise, the power industry reform will not achieve any results . A lower electricity price is what really matters for the common people, he said.