The HuaiBei Guoan Power Company Ltd.

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In 1996, the Huaibei Guoan Power Company Ltd. was created to construct and manage 600 MW coal-fired (2 units of 300 MW each) power plants for 19 years. The company was situated in Anhui Province in the middle-east of China. The company was a joint venture between Chinese state-owned entities and one foreign party. The Chinese entities were China State Development and Investment Co. (SDIC) with 35%, Anhui Wenergy Company Ltd. (AWCL) with 25%, Huaibei City Power Development Company (HPDC) with 15%, and AA Dynamic Investment Limited (AA) with 12.5%. The foreign party was Cogen Technologies China Ltd. (Cogen) with 12.5%. SDIC was a branch of the Central Government and was thus closely linked to the Central Bank in particular. The Anhui Provincial Government owned and controlled AWCL. The Huaibei Munnicipal Government (under Anhui provincial jurisdiction) owned and controlled HPDC. AA was an offshore subsidiary of a Chinese stated-owned company Citic Group By 2004, ownership of Huaibei Guoan Power Company Ltd was: SDIC (35%), AWCL (40%), Citic Pacific (12.5%) and WPI (12.5%). In 1998, Cogen sold its 12.5% shares to World Point International Holdings Ltd. (WPI), Hong Kong based company. The project was implemented over a few years. Project negotiations started in 1992. The BOT contract was formally signed in 1996. Construction began at the beginning of 1997, and plants were commissioned in 2000. The total investment in the project was US$ 333 million, with registered capital accounting for about 30% of the total investment at US$ 100 million. Of total investment, 70% came from Chinese bank loans and 30% from owners’ capital. The capital raised from two foreign partners (AA and Cogen) was put into a USD bank account, which was later used to pay initial monies to the foreign partners based on the guaranteed rate of return. The Anhui Provincial government granted a number of guarantees to the foreign parties of the project. Initially, the foreign parties sought a guarantee of 15% Internal Rate of Return (IRR), over the 19 years period. Later it was agreed that the guarantee rate was 15% per year, on average, over the 19 years contract period. Second, the government guaranteed the conversion and remittance of RMB revenue from the BOT project based on a given USD-RMB exchange rate. Third, the government allowed an extension of concession period should any force major incident cause delay/suspension in operation. Fourth, the government guaranteed a Fuel Supply Agreement with Huaibei Fuel Co. and a Power Purchase agreement with Anhui Power Industry Bureau. Despite the contractual agreements, the Huaibai BOT project company had not been able sell electricity at the agreed price. A reduction in market demand in the short-term put a downward pressure in the price of electricity and placed a strain on the provincial government’s guarantees. In 2003, the Huaibai project could only make 70% of the guaranteed sales at 90% of the guaranteed price. At these rates it was likely that the project generated losses in the first two years. None None