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FAQ Message |
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 Please analyse the situations of the fuel market and the corresponding measures taken by the Company |
Our strategic advantage in the purchase of fuel: At present our operating power plants are principally situated in northern China with major coal mines located nearby. We therefore enjoy lower transportation costs and are subject to less pressure in transportation. In the past, we have maintained good relationships with our coal suppliers and our fuel supply is therefore more secured.
During the past few years we have persistently employed strategic measures to alleviate the risks in the fuel market and such efforts have paid off: In recent years, when market coal prices increased significantly, our unit cost of fuel for 2003 was 3% lower than 2002, and 1.6% lower in the first half of 2004 than the first half of 2003. Although a 14.54% increase in unit fuel cost was recorded for the Year, it is still significantly lower than the level of increase in market coal prices as well as the industries average level of increase in fuel costs.
We are facing a number of challenges with regard to fuel prices due to market price fluctuations: In the last two years, due to rampant demand, stricter safety requirements and restrictions due to transportation bottlenecks, there has been a growing tension in the coal market. Our unit cost of fuel in the last two years also increased by a certain extent. During the Year, the unit cost of fuel that we achieved was RMB93.8/MWh, an increase of 14.54% over 2003. Up till now, the outlook of the coal market is still uncertain while the prices for thermal coal have seen fluctuations, thereby making our fuel cost control more difficult.
Our fuel supply in 2005 will be more secured: We will continue to implement our proven measures in controlling fuel costs and at the same time safeguard the quality and quantity of our coal supply. At the conference for the ordering of coal this year, we had principally secured the supply of coal for six of our power plants in eastern China which require railway transport; the supply of coal so contracted represents approximately 95% of our anticipated total demand. We have also secured the supply of coal for Tuoketuo, Shentou, Yungang and Liancheng power plants situated in western China with coal mines nearby. As to transportation, with the completion of the enhancement of Daqin Railway, transportation capacity is greatly increased and the railway transportation bottlenecks for the Company's service area have been significantly relieved.
The "Coal-Electricity Price Linkage Mechanism" shall ease the pressure of rising coal prices: The relevant authorities of China have been actively considering the possibility of introducing the "Coal-Electricity Price Linkage Mechanism" in response to changes in coal prices. The purpose of this is to make it possible to adjust on-grid tariffs in a timely manner in response to changes in coal prices. The mechanism, if introduced, will definitely ease the pressure on our costs due to rising coal prices.
We seek to alleviate the risks of the fuel market by adopting pro-active and rational development strategies: We have stepped up our development plan of new energy, primarily featuring hydropower which is targeted to account for more than 25% of our total installed capacity in the next few years. We shall also seek to enhance the vertical integration of our operation. The Ta Shan Coal Mine in Shanxi in which we have acquired an equity interest will commence operation to a certain scale in 2005 and supply coal to the Company. We have also acquired an equity interest in Daqin Railway with a view to securing our railway transportation capacity. We shall also consider the possibility of seeking alternative coal sources to further secure coal supply for our electricity generation.
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