Pull the Plug on Bailouts for Power Companies; The government gave billions in public funds to state-owned firms, a practice that would end if the market set electricity prices

03.11.2013 18:58

Closer Look: Pull the Plug on Bailouts for Power Companies

The government gave billions in public funds to state-owned firms, a practice that would end if the market set electricity prices

By staff reporter Pu Jun

(Beijing) – Last year reports that the State-owned Assets Supervision and Administration Commission (SASAC) might give 10 billion yuan to five major state-owned power companies started to circulate. On March 5, we learned the bailout happened.

The beneficiaries were China Huaneng Group, China Huadian Group, China Datang Corp., China Guodian Corp. and China Power Investment Corp.

A report submitted by the Ministry of Finance to the National People’s Congress shows that some of the profits that state-owned companies turned over to the central government in 2012 were given to the struggling companies. The report did not provide the exact amount and reasons for the bailouts.

SASAC gave 1.2 billion yuan to China Power Investment last year, company president Lu Qizhou said on March 7. He added that the five companies received the same amount from the regulator of state-owned assets.

This means SASAC gave 6 billion yuan to the power companies last year. Also, Caixin has learned that the commission expects to fund the companies for another two years.

SASAC did not publicly reveal the bailout. When an executive from one of the companies was asked about the matter, his answer was: “Our company is not a listed one.”

However, these state-owned companies, which are owned by the people, should disclose this information. Transparency is important because the public has the right to know the firms’ operating costs and how capital is used.

There have been criticisms over the monopolies enjoyed by state-owned firms and the preferential treatment they get. At the same time, the public wants the companies to turn over more of their profits to the central government, which would then use the money to improve peoples’ well-being.

It is likely that SASAC considered public opinion and chose to fund the firms in secret.

The asset-liability ratios of the five exceed more than 80 percent because their coal-fired electricity generation businesses have been in the red for several years. In 2011, the combined losses of the companies’ coal-fired power generation businesses rose to 31.2 billion yuan. In 2010, the figure was 12.2 billion yuan.

So, 1.2 billion yuan is just a drop in the bucket as these companies seek to improve their balance sheets.

Coal prices are directly linked to the performances of coal-burning power companies. Since 2004, coal prices have increased, but the price of electricity has been controlled by the government, which has kept it low.

The price of electricity should be set by the market, something that is an objective of electricity reform. Under current system, the enthusiasm of power companies to lower their costs is not high.

To change the situation sees these companies asking for subsidies or bailouts, China must continue with reform, and addressing electricity prices must be at the core of that.