The management of a second batch of power generating assets owned by State Grid Corp of China has been transferred to electricity producers, paving way for an eventual sale and making the firm a pure distributor as part of an industry reform.

As of Sunday, the power-producing companies are responsible for safety operations and management of eight power plants in which State Grid owned a combined equity generating capacity of 6.47 gigawatts. The State Electricity Regulatory Commission said yesterday this marks the completion of the "main work" in the asset disposal. Other areas still to be done include deal signing, transaction and registration.

State Grid, China's dominant power distributor, retained certain generating assets in 2002 during the breakup of the former State Power Corp into five national power producers and two grid operators. It had completed the sale of combined 10.8GW in the first phase of the sale in May to 31 companies, raising 18.7 billion yuan (US$2.5 billion), or 56 percent higher than the book value.

Unlike the first phase sale, made through open tenders which allowed foreign and domestic private bidders, the second sale was mainly limited to the five national power producers, plus China Shenhua Group and Hunan-based Xiangtou Holdings Group, to maintain a smooth transfer and for the sake of protecting the value of state assets, SERC said.

The second batch of assets for sale are considered more attractive than the first as the firms have better profitability given their larger unit capacities. Pricing of the second batch of assets remains a key issue now, with SERC saying it would be decided by market forces with a premium.

"As they are better quality firms, they should enjoy a premium higher than 56 percent," said an analyst wishing not to be named. "But since it's not an open tender and off limits to foreign and private sectors, the premium could be quite small."

A SERC official said the transaction should come soon.

Proceeds from the sale are intended to finance grid construction and to spin off other non-core business from the grid.

(Shanghai Daily December 25, 2007)