CLP Holdings, Hong Kong's biggest electricity supplier, posted an 8.5 percent decline in net profits in the first six months, due to surging fuel costs, and a smaller one-off gain.

The company earned HK$5.61 billion for the first half this year, down from HK$6.13 billion a year earlier. Sales increased by 11.6 percent to HK$27.53 billion, but the fuel and other operating expenses rose sharply by 37.9 percent to HK$4.51 billion. Shareholders will be given an interim dividend of HK$0.52 per share.

The skyrocketing fuel costs had badly hit the CLP's mainland operations, said chief executive officer Andrew Brandler, adding that the company cannot increase tariffs to combat the rising fuel costs.

The surging coal prices since the end of 2007 contributed to the overall reduction of HK$28 million in the operating earnings from its mainland investments, the company said in a statement to the stock exchange.

The total earnings attributed to CLP's mainland business dropped to HK$34 million from HK$62 million a year earlier. Chief financial officer Peter Tse noted that the fuel cost increased 22 percent since January this year, and the recent on-grid tariff increase was too little and too late.

Brandler emphasized that CLP will not reduce its investments on the mainland. "We hope to start new projects, and are happy to continue investing," he said. In January, CLP completed a 1,200 megawatt coal-fired power plant in Fangchenggang in Guangxi, and its 330-megawatt Jiangbian hydro-power project is underway.

The Hong Kong-based utility maintained a modest core business growth in the first half, with operating earnings before one-off items increased 5.4 percent to HK$5.25 billion. Tse explained that the company booked a HK$1 billion gain in the first half of 2007 after selling a stake in Taiwan's Ho-ping power station.

Hong Kong business posted a 7.6 percent increase in earnings to HK$4.04 billion, despite a 1.5 percent drop in local electricity sales due to the unusual weather condition.

CLP reached the new Scheme of Control (SoC) agreement with the Hong Kong SAR government, which will take effect from October. The permitted rate of return on investments will be reduced to 9.99 percent from the current maximum of 15 percent.

Betty Yuen, managing director (Hong Kong), said the tariff reduction item is included in the development plan submitted to the government. "We are optimistic that there will be a tariff reduction when the new SoC takes effect."

In order to ensure reliable electricity supply in Hong Kong, CLP is actively seeking the approval for building a liquefied natural gas (LNG) terminal in Hong Kong.

Brandler said environment is now favorable for seeking new investments. "The climate is favorable for acquisition," he said, "as the market has become less competitive and rational in behaviors."

CLP will look for investment opportunities in renewable energy projects, nuclear and selectively in good quality coal-fired projects, he said.

(HK Edition 08/13/2008 page2)