Grabbing the TIGER by the Tail

Grabbing the TIGER by the Tail

Industry turns out in record numbers to explore the potential of the Asian power market

By Ann Chambers, Contributing Editor

All eyes in the power industry turned to the east in September, as DA/DSM(TM) Asia and POWER-GEN(TM) Asia landed in Singapore. The much-hailed Asian power market drew record numbers of attendees–topping 7,000–as industry leaders converged on the premiere events for the electric power market in Asia.

Trendsetters have found that rolling up their cuffs and panning for gold in the rich streams of Asia is much more exciting than fishing the stagnant waters found in the developed western nations that house most of the international power development and supply firms. But, while the need and the potential is visible in abundance, profit is somewhat more difficult to find. Explorers gathered at the three-day conference, comparing notes on profits, losses, experiments, successes and failures.

Adding its own touch of drama to the conference was Singapore Power, which literally exploded onto the international scene, announcing its privatization with the impressive punctuation of indoor, overhead fireworks.

“The corporatization of Singapore Power takes place against the backdrop of an industry in transition,” said Ho Kwon Ping, Singapore Power chairman. “Deregulation by governments has, over the past few years, transformed the power industry into one of the most attractive growth sectors of Asian economies.”

Rapid economic growth in China combined with a doubling in per capita electricity consumption may allow China to capture 25 percent of the additions to the world`s generating capacity in the next five years, Mr. Ho predicted. He sees India as another attractive investment area, as India has increased its installed capacity by 80 percent in the last decade, outpaced by consumption that grew 113 percent. New legislation aimed at attracting foreign investors, combined with an increased allowable rate of return could combine to draw more interest to this area.

“Against this background of high growth, the power players of the West flocked to Asia–all chasing the rainbow for the proverbial pot of gold. Requests for proposals for new capacity drew overwhelming responses. The stakes were high, the risks higher, the reward presumably sweeter,” Mr. Ho said. “Unfortunately, many who have come to Asia are now experiencing a rude awakening. They have had to contend with political bottlenecks, delays, regulatory constraints and unrealistic limits on rates of return.”

China, which caps rates of return and requires central government approval for projects, has proven to be a much more difficult market to master than many had expected.

“There is growing concern that unless these and other obstacles to private power projects can be quickly resolved, not only will investor interest start to wane, but more seriously, there may be a growing shortfall between power supply and demand, with potentially damaging consequences on overall economic growth,” Mr. Ho stated.

He noted three trends in the Asian power industry:

1. The introduction of competition in power generation may lead to other areas being opened. Regulatory barriers to competition in distribution, and even in transmission, may “disintegrate.”

2. Privatization is spurring restructuring of the industry, with vertically integrated monopolies breaking up in search of lower costs.

3. Mergers and acquisitions, joint ventures and strategic alliances are on the forefront of activities as companies struggle to find optimum sizes and operating mixes.

Yeo Cheow Tong, Singapore`s Minister for Trade and Industry, also addressed the crowd at the conference`s opening session, saying, “Asia`s dynamism must be adequately powered to sustain its high performance. With rapid development will come an ever-increasing demand for the means to power this growth.”

Minister Yeo estimated that Asia will need to invest up to (US)$50 billion annually in new power stations and transmission networks, which means more than 40 percent of the new power generation capacity to be constructed in the next decade may be in Asian countries. This growth will require importing capital, expertise, technology and manpower into an area where the installed capacity is already unable to fulfill existing demand.

“Increasingly, governments are turning to the private sector not only to build more capacity, but also to own and operate power generation and transmission facilities. National utilities in the region are beginning to be privatized on a larger scale,” said Minister Yeo. “The sheer size of the markets in the region means that there is plenty of the pie to go around. For foreign companies, opportunities abound for participating directly in individual projects or forming joint ventures and consortia with companies in the region to undertake multiple and larger-scale projects. Regional companies naturally have the advantage of being more familiar with the business environment in their own backyard and some have now grown into reliable and significant players in their own right.”

Predictions for China

Xu Dayou, China Council for the Promotion of International Trade vice-chairman, predicted that China will make “full use” of foreign investment in developing its power industry. China`s power development has been growing at 8 to 10 percent annually, with more than 12 GW commissioned annually in the last five years. The transmission and distribution infrastructure is keeping pace, and 89.6 percent of the households now have access to electricity. New generation capacity is expected to jump to 16 to 18 GW annually in coming years.

Mr. Xu reported 469.33 TWh of electricity generation in the first half of 1995, up 8.1 percent from the same period one year earlier, but that is only 47.41 percent of the planned target. Hydropower contributed 82.64 TWh; thermal, 382.92 TWh; and nuclear, 3.75 TWh. Daily electricity generation is between 2.6 and 2.7 TWh.

In 1993, per capita electricity consumption was 692 KWh, one-fourth of the world average figure. In daily life, residents used an average of only 62 KWh per capita.

Mr. Xu predicts that thermal power and hydroelectric power will remain the “mainstay” of power generation for quite some time, but he expects nuclear and other technologies that are not yet common in China to carve their own niche.

The sheer volume of proposed projects and needed funding are forcing the Chinese government to look for international funding in the development of the power industry. “Among the total investments, 20 percent will utilize foreign investment. That is to say, (US)$20 billion in foreign investment is needed. The domestic capacity to manufacture electric power generating equipment cannot meet China`s needs. About 30 percent of the equipment will be imported or be produced by joint venture factories,” he said. “Apart from the traditional channels such as international financial organization and other country`s government loans, China will devote major efforts to attract direct investment of foreign business to develop the power industry.”

The government is putting its support of foreign capital into writing, with the “Guide Catalogue for Foreign Business Industry” stating foreign business investing in the construction and operation of thermal, hydro and nuclear facilities is encouraged. Mr. Xu also noted that the “Power Act” to improve the investing environment will soon be submitted to the Standing Committee of the National People`s Congress. He gave no details of the Act`s contents.

“China`s power industry is a cooperation area with lowest risk and stable profit for foreign investors. The 64 operating power joint ventures in China all gained reasonable return. We believe that in the principle of `Share profit mutually, administrate market together,` foreign investors will gain profit through cooperation in China`s large market,” Mr. Xu said in closing.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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