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Coal Supply Woes Force Early Power Rationing

Pollution threat to Olympics as factories shift to costly diesel

Denise Tsang – Updated on Jun 09, 2008 – SCMP

Coal supply disruptions intensified by China’s recent earthquake have brought forward scheduled peak-power rationing in industrialised Guangdong province and raised power costs, according to manufacturers.

In local production hubs such as Dongguan, a three-day-a-week compulsory rationing system began last month, about two months before a traditional scaling down of power supplies in July and August, some Hong Kong factory owners said.

The early introduction of rationing also came as the countdown to the Beijing Olympic Games, which starts on August 8, got under way against a background of mounting concerns that air pollution could jeopardise the event.

Manufacturers said the early start of the rationing system, had forced many factories to resort to costlier diesel-fuelled power generators, which they said increased electricity costs 10 per cent to 15 per cent.

Although the Guangdong provincial government warned of severe power shortages earlier this year, massive snowstorms in February and last month’s earthquake in Sichuan worsened the supply problem.

“The peak season power rationing was brought forward by two months in some parts of Dongguan and is spreading to other manufacturing towns,” Federation of Hong Kong Industries general committee member Jimmy Kwok Chun-wah said last week.

The magnitude 8 earthquake disrupted coal mining in Sichuan and Shanxi and delayed deliveries. The State Electricity Regulatory Commission revealed last week that five mainland provinces had less than the alarm-level seven-day stockpiles of coal.

Analysts blamed the situation on high coal prices and a two-year electricity tariff freeze, which they said had discouraged small miners from keeping normal levels of coal inventories.

“We now have no choice but to generate our own electricity, which is far more expensive,” Mr Kwok said. “This is a very unfortunate time for every manufacturer in China.”

To keep production on track, many factory owners have installed diesel-fired generators, which produce power at costs that are about up to 15 per cent higher than electricity supplied by power plants, he said.

Green Manufacturing Alliance chairman Sunny Chai Ngai-chiu warned that manufacturers should meet emission requirements when consuming diesel-fuelled electricity, as the Guangdong provincial government had tightened environmental controls.

“They should follow emission requirements even though their costs have increased,” Mr Chai said.

Mainland manufacturing costs, meanwhile, remained close to four-year highs, a monthly survey by CLSA showed. The CLSA index of input prices for May was 78.6, fractionally below March’s four-year peak.

“With demand exceeding supply for a wide range of commodities, average input prices faced by Chinese manufacturers continued to rise at a rapid rate in May,” CLSA said.

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