【The,Last,Warden,Gone,Taking,Nothing,Along】The Last Mohican

　　AES, the largest independent electric power supplier in the United States, is packing to leave China.
　　One month ago, AES was reported to recruit an investment bank as the trade consultant to sell a part of or entire business in China. The trade value was estimated at between 300 million and 400 million U.S. dollars. In April, the Energy Magazine reported that Yangcheng International Electric Co., Ltd was the last thermal power plant controlled by AES that was still working, but now it was put on the shelf for sale.
　　The website of AES China is no longer available. On April 18, 2012, journalists visited AES China’s headquarters in China only to find a few people. As the girl at the reception desk said, AES was undergoing relevant business adjustment and the global headquarters did not make any comment.
　　
　　 The Last Warden Gone
　　When the Chinese electric power market was haunted by the shortage in power, capital and technologies, China opened this door to foreign investors with the banner of “super-national treatment”. A lot of foreign investors were attracted by the potential.
　　The thermal power market is one of the few industries open to foreign investors before China joined in the WTO in 2001. In 1993, AES became the first U.S. power company in China.
　　“Qi Lubing (then the vice president and chief representative of AES China) once came to me to tell me about AES’plan in China,” recalled Kang Qiao, an insider from the Chinese Association of Electric Power. “AES considered China as a very important strategic market when it was initially there.”
　　AES’ first step in China was to found thermal power plants in the form of joint ventures. Its potential partners included national or local electric power companies. It signed power purchasing contracts with local enterprises that decided the lowest purchase volume and the power price calculation format.
　　At that time, the Chinese power market was in great need of capital and technologies to solve the problem of insufficient power that greatly affected its economic development. In order to attract foreign capital, local authorities in Shandong, Fujian and Guangdong gave foreign power companies favorable policies including “three guarantees” – the power volume, power price and return on investment are to be guaranteed.
　　The market opportunities without any risks of loss attracted many inves- tors. By the end of 1998, there were 39 registered foreign power companies in China. In 1997, they contributed to 14.5% of the electric power generated in China. The installed capacity of foreign companies accounted for 12% of the total capacity.
　　But now, AES is planning to leave. Prior to that, many of its peers have already gone.
　　“We all know about AES’ plan to sell its assets in China,” said Prof. Lin Boqiang from Xiamen University. “These coming with it at the same time have left China long before. AES is the foreign thermal power plant that has been fighting in China for the longest time. And the government should give it a medal.”
　　After AES’ withdrawal, Electricite de France is the only foreign power company remaining in China. But this French company now focuses itself on the development of nuclear power in China while it has only one thermal power station in Guangxi, a southwestern province of China.
　　“The Red Carpet Rolled”
　　When the power shortage in China ended, the Chinese government began to “roll the carpet” for foreign companies. With the favorable conditions gone, many foreign enterprises left the Chinese market.
　　After the hot wave of investment in China’s thermal power industry, the surplus electric power emerged in China in 1998. Then the policies about investment in electric power shifted from encouraging to limiting.
　　According to the requirement of the National Development and Reform Commission, local authorities at different levels gradually took back their promises of returns for foreign companies. The power generation hours and lowest volume of purchased power volume recorded in the contract were removed. As some foreign media reported, “China began to roll the red carpet for foreign electric power companies”.
　　
　　“What does the 15% return on investment imply? It must be based on generating power for 5500 hours. But the power generation hours are determined by the grid. In 2000, the defaults related with insufficient power generation hours occurred in many places. Though some foreign companies appealed to the law but the results were not satisfactory,”Kang Qiao said.
　　Wu Dongming, then vice president of AES China, once said: “We hope that the Chinese partners and power purchasers can carry out the contact as seriously as they did when they welcomed our investment.”
　　For this, the Chinese government snapped back that setting up the fixed returns was against the rule of equality. The “super national treatment” was quite rare in any other place of the world.
　　In spite of the changing environment, AES still held an optimistic viewpoint for the potential of the Chinese electric power market and the belief that it can earn profits in China. Thus it chose to stay in China after reducing its size.
　　After putting the third phase project in Yangcheng into production in 2001, AES never got engaged in thermal power projects in China. By February 2008, AES only had four thermal power plants in Yangcheng, Jiaozuo, Aixi and Wuhu. In the same yaer, AES sold all its 70% of stock of Jiaozuo-based AES Wanfang Electric Power Co., Ltd.
　　At that time, there were still some foreign companies that were still bullish on the Chinese electric power market getting into China, such as the Pacific Peak Electric Power Corporation founded by the U.S. United Energy Corp. and the World Bank. This company got into China in 2002 and from 2002 to 2004 it set up seven thermal power plants, ranked at the second place among foreign electric power companies in China. In comparison, most enterprises left the Chinese market. For example, France-based Alstom transferred 40% of the stock of a thermal power plant in Guangxi and the U.S.-based Mirant sold its stocks in the thermal power plants in Shandong and Guangdong.
　　From 1998 to 2002, the propor- tion of foreign capital in the fixed assets investment of electric power decreased from 14.3% to 7.5%.
　　 Giants Driven out by Coal Price
　　Why did the foreign electric power companies give up their stocks in China despite their previous success in this country?
　　Apart from the government-related factor, the coal price, which began to upsurge from 2002, also played an important role. As the coal price kept increasing, the power suppliers could not transfer the increasing cost of raw materials to consumers since the electric power price was controlled by the government. Take the year of 2004 for example: the coal cost, which takes 50% of the total cost of generating power increased from 100 yuan/ton in that year’s beginning to 300 yuan/ton that winter. In comparison, the electric power price increased by 0.7 cents/kilowatt in that period.
　　In 2004, four of Pacific Peak’s seven plants in China encountered losses while the remaining three still maintained tiny profits because of their closeness to coal mines. The operating revenue of this company decreased by 20% compared with a year before. Its foreign shareholders questioned its CEO Robert: “Why do you stay here while others are preparing to leave?” At last, Pacific Peak also decided to quit the Chinese market.
　　The foreign companies began to collectively give up their shares in China in 2003. The wave was started by the U.S.-based Scitec Energy Corp. which transferred 40% of its stock in a Wenzhoubased plant in March 2003. It was followed by its American peer – in March 2004, American Electric Power Ltd sold 70% of its shares of a joint venture in Henan.
　　In January 2005, Siemens and Hamburgische Electricitaets-Werke sold their 40% shares of a Hebei-based electric plant, following which they sold all their shares in 16 thermal power plants in China step by step.
　　“Those foreign companies that entered China in a high profile have almost left silently,” Kang Qiao said. “The features of China’s electric power market decided that these happy participants have their own reasons to be happy. There are quite a few happy enterprises and their reasons for success are different. But these doomed participants shared the same reason – the irrational pricing of coal and electric power.”
　　In 2004, when the proportion of foreign investment in the fixed assets investment of electric power decreased to 5%, the National Development and Reform Commission tried to open the linkage system for coal and electric power price for the second time by stipulating that “if the coal price increased by over 5% (5% included) within half a year, the electric power price would increase accordingly as well”. But its attached condition is that the power suppliers must digest 30% of the increased coal price by themselves once the system is launched.
　　But foreign companies found it hard to digest the 30% of the price increase of raw materials. “We never see the similar situation in any other place in the world,” Robert from Pacific Peak said angrily.
　　As we said that, there are “happy enterprises” in China’s electric power market. That means not all thermal power plants were worn down by the coal price.
　　These companies are state-owned enterprises. They are immune to the increased coal price because of contract coal price controlled by the government. In addition, the state funds give them strong support, releasing them from the concerns about loss even if it indeed happens.
　　“Foreign companies cannot enjoy these good things as state-owned enterprises. Otherwise they will not leave so quickly,” Lin Boqiang said.

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