Energy & Resources

Tale of the unexpected

Environmentalists applaud bans on two titans of the power industry

Tale of the unexpected

Huaneng and Huadian must clean up their act, say environment officials

China’s first emperor, Qin Shi Huangdi once ennobled a tree that had sheltered him from a storm. In fact, he made it a Minister of the Fifth Rank. One cannot imagine the minister contributed much to policy debates.

There are some who liken Qin’s tree to the Ministry of Environmental Protection – assuming it to be a ministry similarly devoid of clout.

But that impression – if it was ever fair – changed this week. That’s because the ministry took to task two of the country’s biggest power producers, and effectively banned them from further expansion. The ministry announced via its website that it would no longer process applications for environmental evaluations from Huaneng Group and Huadian Group.

The two power industry giants generated almost 20% of China’s electricity last year, and the ban seriously dents their ability to build new generating capacity – since each project requires an environmental assessment to get the go-ahead.

The ban is reckoned to be unprecedented and shows a hardening of attitude on green issues, says Zhao Yi, the dean of the school of environmental science and engineering at North China Electric Power University. “As far as I know the environmental authorities had never been able to rein in those big boys,” Zhao told the South China Morning Post.

In its announcement, the ministry said the ban was sparked by previous violations of environmental regulations. It accused Huaneng of damming the Jinsha River in January without approval; and Huadian of something similar. Both were building hydroelectric plants, but the ministry said their actions had damaged the area’s ecology.

Additionally, Huaneng was accused of straying from a ministryapproved design for its coal-fired plant in Inner Mongolia. The power firm was supposed to use air to cool its generators but used water instead – to save costs. But this led to wastage of a scarce local resource, the ministry complained. In general the “illegal construction” of hydropower plants had been carried out without sufficient focus on design or management issues, a spokesman confirmed.

The National Business Daily welcomed the ministry’s tougher stance, believing that it will act as a warning to other power companies. It also quoted an analyst from Guotai Securities who thought it would deter others from pushing forward with projects without completing adequate feasibility studies.

News of the ban dented the stock prices of both groups’ listed entities. In characteristic Chinese understatement, a press officer for Huadian said “this is certainly a drawback to our company’s operations.”

Dam-building in China has long been a source of controversy. Some experts even believe that dam construction may have been partly responsible for triggering last year’s Sichuan earthquake – given the location of a major hydro-electric facility close to the fault line.

Keeping Track: In China the road is rarely straight. Last week we reported that the Ministry of Environmental Protection seemed to have found its teeth in banning two of the biggest electric utilities from building further power stations, due to their contravention of regulations. It also barred Huadian and Huaneng from any further work on their hydroelectric plants on the Jinsha River – on which they had started work in January without approval. But when CCTV’s News Weekly programme visited the sites, both firms had ignored the stop order and work on damming the river was continuing. The South China Morning Post reports that green activists believe the issue proves the ministry “remains toothless, despite attempts to strengthen it.”(26 June 2009)

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.