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dam-l China's largest hydro dam unable to stem losses
Financial Times October 29, 1999
WORLD NEWS: ASIA-PACIFIC: China's largest hydro dam unable to
stem losses POWER PROJECTS PROBLEMS AT ERTAN POWER
STATION BODE ILL FOR GIANT THREE GORGES SCHEME:
29-Oct-1999 01:51:35 am
by James Kynge
China's largest hydro-electric dam, built with the biggest project loan ever
extended by the World Bank, is running at about half capacity and making a
hefty loss, executives and bankers said yesterday.
The bleak situation at the Dollars 3.4bn (œ2bn) Ertan Hydropower Station,
which started operating late last year, may further complicate the
implementation of the controversial Dollars 29.5bn Three Gorges dam across
the Yangtse river.
It may also tarnish the reputation of Li Peng, the former premier who still
ranks second in the Communist party hierarchy, who has been the champion
of both projects.
A manager at Ertan, in the south western province of Sichuan, said that the
dam, built with Dollars 1.8bn in World Bank loans, is expected to lose more
than Rmb1bn (œ72.2m) this year. Losses are expected to spiral next year
after the last two of six turbines are installed for a total generating
capacity of
3,300MW.
"The Sichuan provincial government has ordered only about half of our current
generating capacity. We do not see the situation improving next year," said
the manager, who declined to be identified. He added that the Sichuan
provincial government, the dam's main customer, has agreed to pay only
Rmb0.17 cents per kw/ h, compared to the Rmb0.30 cents that had originally
been budgeted for.
The fundamental problem is that Sichuan, along with many other parts of
China, has an electricity glut after a steady slowdown in economic growth
from 12.6 per cent in 1994 to a predicted 7 per cent this year. A second, but
potentially more serious problem, is that the electricity generated at Ertan is
significantly more expensive than that produced by smaller power stations
that have sprung up since Ertan's inception in 1991.
There are also issues of local politics. Chongqing, which in 1991 was
Sichuan's largest city, has since become a separate administrative region. It
has agreed to take only a fraction of the power that was originally earmarked
for it.
"We have our own power stations to satisfy our needs and they are cheaper
than Ertan. Why should we take that power?" said a Chongqing city official.
The World Bank is confident of that its loan will be repaid on time because of
a ministry of finance guarantee. However, a World Bank official expressed
concern over the project and said talks were under way to find a solution
to its
grave financial problems. This may include rescheduling or refinancing its
debts.
The implications of Ertan's predicament for the Three Gorges stem from the
two hydro projects' many similarities as pet projects of Li Peng.
Ertan's difficulties may strengthen the position of those such as Zhu Rongji,
the premier, who are critics of the Three Gorges. It may also complicate
efforts to bridge an Rmb25bn funding shortfall for the second phase of the
Three Gorges, possibly via foreign lenders.
But Ertan's problems are unlikely to derail Three Gorges, China's biggest
infrastructure undertaking since the Great Wall, because a retreat from the
project would cost too much in national prestige.