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Quality Tops Priorities of Three Gorges Project
Quality control is the top priority as the massive Three Gorges Project enters its final construction phase, project head Lu Youmei told China Daily yesterday.

Lu, president of the China Three Gorges Project Corp (CTGCC), the developer and owner of the Three Gorges Project, said: "Although the first two phases of the project have been successfully completed, we will take stricter measures to ensure the smooth development of the project."

Lu said quality control is the company's most important, yet challenging, goal in the two-decade long construction period.

"Some technological issues found in the first two phases need to be further tackled," said Lu, who is also a renowned hydraulics expert.

Referring to some small cracks found in the huge dam, Lu said that the firm will take necessary measures to prevent this from occurring, but it was unavoidable in the construction of this type of thick cement project.

Other thorny issues also include the development of a new ship-lifter with a huge lifting capacity of over 10,000 tonnes on the southern bank of the Yangtze to allow small ships to pass through the dam gate.

Combined with the lifter, the company will provide a two-direction lifting facility through either the 6.44-kilometre lock or the ship lifter.

"But design and construction of the lifter remains very complicated and some technical issues remain to be solved," said Lu, adding that the project's priority is safety.

"But we have already signed deals with a German firm to develop the lifter," said Lu.

Referring to some other concerns that water quality will deteriorate, Lu said that a number of programmes have been designed to prevent this.

China plans to invest a total of 40 billion yuan (US$4.8 billion) from 2001 to 2010 to build 150 sewage disposal works and 170 urban garbage treatment plants. Environmentally friendly programmes will also be launched in the upper reaches of the huge river to promote better water quality.

With a total investment of 203.5 billion yuan (US$24.57 billion), the gigantic project does not only offer tremendous business opportunities for domestic companies, but it is also a gold mine for large foreign firms.

The best news for foreign companies, said Li Yong'an, deputy general manager of CTGPC and general manger of the newly founded Yangtze Power Co Ltd, will be that four of the 12 power generators designed for the third phase of the project will be purchased through a public bidding process open to international firms.

The news, a final decision from the central government and the firm, was first revealed last Friday in China Daily.

The bidding process will take place very soon, said Li, and tendering details will be available next month.

"It will be a large contract worth hundreds of millions of dollars to foreign companies," said Li.

Prior to the move, the contracts for the construction of all the 14 power generators needed in phase two were awarded to foreign companies, with six going to VoithSiemens Hydro Power Generation Co and eight to Alstom Power Hydro.

Meanwhile, Li said that the business opportunities for foreign companies do not end in the four power generating units.

Its growth blueprint includes plans to snap up more rivals in order to form an energy empire.

Lu said he welcomed further co-operation with foreign companies.

"We will not be a sole hydropower provider in the long run, and our goal is to turn ourselves into a giant energy supplier in China," said Lu.

He said the company will move to tap new business potential by seeking opportunities for mergers and acquisitions, including thermal power stations and nuclear power stations.

"Although we have not finalized any deals with foreign partners so far, we hope that we could build firmer business links with foreign companies," said Lu.

As one of its most aggressive programmes to raise finances, the firm is planning to file documents with the regulatory watchdog for a major initial public offering on the domestic A-share market this autumn.

CTGPC launched the Yangtze Power Co with four other companies last September, and it is now preparing for the flagship public flotation.

The other five investors are Huaneng Power International, China National Nuclear Corp, China National Petroleum Corp, the Gezhouba Construction Group for Water Resources and Hydropower and the Changjiang Institute of Survey, Planning, Design and Research.

With a registered capital of 5.53 billion yuan (US$667.8 million), Yangtze Power will become one of the largest companies listed on the Shanghai market.

"We are speeding up preparatory works for the landmark listing and the we believe that our timing is good," said Lu.

Currently, the preparatory materials have been submitted to the State Council -- China's cabinet -- for reviewing, which will be followed by an formal application to the China Securities Regulatory Commission.

And the CITIC Securities Co survived during a round of heated competition to become the giant offering's underwriter, which will bring CITIC Securities a hefty income of millions of yuan.

According to the schedule, the Yangtze Power Co has been in its "coaching period" -- a time to restructure candidate companies -- since last November.

The listing will be in the autumn following the production of the first two power generation units, according to Li.

But both Lu and Li declined to reveal the total amount of funds it plans to be raised, only admitting it could be a huge issue on China's 12 year-old stock market.

Experts believe the offering will raise as much as billions of yuan, similar with that of Sinopec, a giant State-owned oil refiner which gathered 10 billion yuan (US$1.2 billion) by issuing a total of 2.8 billion A-shares.

The funds gathered will be used to acquire the new power generation units put into production in the Three Gorge Project through repeated follow-on offering and rights offerings.

Plans for an overseas listing are also under consideration, said Li.

"If the domestic market is unable to afford enough funds, we will move to overseas markets, most likely to Hong Kong," said Li.

"We are very confident that we will win approval from the market thanks to our sound balance sheet, durable profit-making capacity and sustainable growth potential," said Li.

Referring to the price of the electricity generated from such a huge investment, Li said that the electricity will be offered at very competitive prices of around 0.25 yuan per kilowatt/hour, compared with the current rivaling 0.29 yuan per kilowatt/hour in the market.

"Judged from the cost, the price could be further lowered down as our production cost only stands at 0.05 yuan (US$0.006) per kilowatt/hour," Li added.

Following the shareholding reform earlier this year, Yangtze Power's power generation unit only has 370 employees, which dramatically drop its management costs.

Apart from stock issues to raise funds, the company also plans to issue more corporate bonds to fund its self-reliant development, and new corporate bonds of 3 billion yuan (US$362.3 million) will be issued within two months.

As of today, the company has issued a total of 16 billion yuan (US$1.93 billion) in long-term corporate bonds.

"The market situation is encouraging for us to issue bonds as the interest rates remain lower," said Lu, who said that the company is planning to introduce some 3 billion yuan bonds (US$362.3 million) long-term issues annually in the coming several years.

In line with the development of the project, CTGCC quickened the pace to turn itself into a major business conglomerate.

According to Lu, the company will improve its competitiveness in a number of fields, including power generation, hydropower engineering and consulting, construction, the financial sector, tourism and logistics.

A number of independent companies will be launched or will emerge from the restructuring to run these businesses, and CTGPC will be the controlling stakeholder in these new firms.

As the first step in tapping into the new markets, the company's engineering and consulting units won contracts last week to manage and supervise the construction of National Swimming Stadium for the upcoming Olympic Games in 2008.

"It shows that the competitiveness of our company grows stronger and we will go out looking for more opportunities," said Li.

Besides the power-generation unit, the other heavyweight arm of CTGPC will be a finance company, which will be the major entity managing the company's hefty capital flows, which amount to as much as 20 billion yuan (US$2.41 billion) each year.

The non-banking finance company is set to enter other financial sectors in the coming years, said Li.

A tourism firm is also being developed to exploit the great potential of the country's abundant natural resources and cultural treasures.

Joining with China Travel Service, a Shenzhen-based listed company, and the local government in Yichang where the Three Gorges Project is based, the new tourism company will integrate tourism resources in the immediate and adjacent regions, including the renowned Three Gorges and Shennongjia Mountain, in a bid to make it a leading tourism business in Central China.

Running parallel with the construction of the Three Gorge Project, another two dams will also be established on the Jinsha River, an tributary of the Yangtze River, in Xiluodu and Xiangjiaba in the mountain regions of West China's Sichuan and Yunnan provinces.

"The feasibility studies for these two giant projects have already been finished and some earlier preparatory works and bidding works have already been initiated," said Lu.

"It is part of our strategy to realize the independent development of power generation," he said.

He said the two new dam projects are designed to provide abundant and clean energy to power the country's grand western development plan, which is billed as one of China's most important social and economic development programmes in the first half of this century.

These two projects, with an annual power-generation capacity of 18.6 billion kilowatts, are similar to the Three Gorges Project and will become major powerhouses to back China's energy restructuring to reduce the use of coal.

So far the dams' preparatory work is going well, and much of the design and construction is close to being finalized for public bidding, open to both domestic and foreign companies, Lu said.

The two projects will officially start before 2005, with much slimmer investments than the Three Gorges Project due to the smaller relocation budgets.

"But most of the funds will be gathered through a market-oriented method, such as stock issuing and corporate bond issuing," said Li.

(China Daily June 2, 2003)

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