Energy firm counts cost of clean air

China is expanding its energy sector and tying to curb pollution

A major Chinese energy firm has said it expects the cost of complying with China's anti-pollution laws to almost double in the next two years, according to the Reuters news agency.

Huaneng Power International (HPI) executives said on Thursday that pollution compliance costs are expected to reach 220m yuan ($26.6m; £16.5m) in its 2004 financial year, Reuters said.

HPI said it expected compliance costs to rise to 420m yuan in 2005.

The Chinese parliament's standing committee approved new, tougher anti-pollution laws in July 2002.

The new law obliges firms to prove they are continuously installing cleaner technology and reviewing their choice of raw materials.

Lower profits

Huaneng Power is thought to be planning to install desulfering units at a cost of 300,000 yuan per megawatt. Sulphur dioxide is a key component in acid rain.

Energy industry analysts in Hong Kong promptly sliced back their profits forecasts on the power generator, which is listed in New York and Hong Kong.

"This is a big impact to the company's future earnings and the charges are larger than expected," said HSBC analyst Ivan Lee.

HSBC is now predicting Huaneng Power's profits for 2004 and 2005 could be up to 4% lower than its previous forecast.

UBS Warburg has lowered its expectations by more than 5% for both years.

Huaneng Power posted a 29% jump in profits for the first half of its financial year on Wednesday to 2.29bn yuan.

Huaneng Power's shares have risen 37% in the last three months as investors hunted good bets in China's rapidly-expanding infrastructure sector.

Fighting pollution

China's industrial boom has left it with badly polluted air and water, a legacy that the authorities are fighting to reverse while also grappling with power shortages.

One of the main problems has been weak enforcement by local and provincial governments who are often shareholders in local industries.

To improve air quality, a 2000 law set ceilings on the total emissions of pollutants allowed in many districts.

The cleaner production law is a nationwide commitment which places responsiblity for enforcement on China's cabinet-level State Council.