Massive power sector gears up for more restructuring

China's massive power sector is coming under increasing pressure to make progress under State-owned enterprise reform, in a bid to turn around the loss-making industry, analysts said.

There are currently 12 central SOEs in the energy sector, making up more than 10 percent of the country's total number of 102 SOEs. Analysts say it has the biggest potential to restructure through mergers and integration.

Peng Huagang, deputy secretary-general of the State-owned Assets Supervision and Administration Commission, at a news conference in early June reinforced how important it was to speed up reform in sectors like coal power generation, heavy equipment manufacturing and the steel industry.

Soon after, China Shenhua Energy Co and Guodian Technology and Environment Group, two major listed power heavyweights, announced a halt to the trading of their shares.

Analysts said that they suspected the utilities had responded to the latest call on reform by the authorities and halted share trading, because the coal and electricity giants were holding merger talks.

"The coal power generation sector has been falling behind," said Essene Security analyst Peng Weijun.

"The demand for thermal power is declining and the price of coal is going up, and the thermal power companies are losing profits," he said.

"It is very likely the two giants were about to integrate their industrial chain, both their upstream and downstream operations, to solve the problem."

Between March and June, Xiao Yaqing, chairman of the SASAC, made seven field trips to various SOEs to see the progress being made in their reforms.

In his most recent trip to China Shenhua Group, another power company, Xiao said that SOEs should keep deepening their reforms, optimizing their industrial structures and pushing forward supply side economic reform in the power supply system.

Li Jin, chief researcher of the China Enterprise Research Institute, said that not only the electricity and coal sectors saw the possibility for mergers, but also the thermal and nuclear power sectors were weighing their options.

"Some SOEs－especially the heavy industry, energy and power businesses－have too much capacity, while there are others with capacity in short supply," he said.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said that through restructuring the country's nuclear power technologies could achieve higher value-added exports－for example, with nuclear and high-speed railway technologies with intellectual property rights.

"Approval (of the restructuring) has come at a critical time, as the country embarks on a massive nuclear power plant program to optimize its energy mix," Lin said.