A CLEANER GUANGDONG FACES MORE SEVERE POWER SHORTAGES THIS

UNCLAS SECTION 01 OF 02 GUANGZHOU 000631

SIPDIS

STATE FOR EAP/CM AND DRL
USDOC FOR 4420/ITA/MAC/MCQUEEN
USPACOM FOR FPA

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG PGOV ECON KTDB CH
SUBJECT: A CLEANER GUANGDONG FACES MORE SEVERE POWER SHORTAGES THIS
SUMMER


(U) This document is sensitive but unclassified. Please protect
accordingly.


1. (SBU) Summary: Guangdong continues to be confronted by severe
power shortages this summer. The provincial government's plan to
lower local air pollution discharges and shut down small power
stations has been affected by the shortages; rolling blackouts have
been applied in different areas, many American firms in Shenzhen and
elsewhere are affected. End summary.

Guangdong's Power Shortages Intensify
--------------


2. (U) This is the fourth consecutive summer that Guangdong is short
of power generating capacity - this summer, the shortage is more
than 4,000 megawatts (MW) hours. According to a report from China
Business News citing the Director of Electricity Energy Division of
Guangdong Provincial Economic and Trade Commission, Guangdong's
generating gap was 4,000 MW in April, which is higher than the
predicted figure of 2,550 to 3,690 MW. Major industrial cities in
Guangdong's Pearl River Delta (PRD) are suffering from shortages
this quarter: Guangzhou is short 400 to 600 MW hours of capacity
Foshan, 800 MW hours, and Shenzhen, 1,000 MW.


3. (SBU) Guangdong officials have pointed out that many of
Guangdong's new power generation plants are still under
construction, rainfall for generating hydroelectricity has been low,
the supply of oil and gas for power stations is insufficient. At
the same time, the government is attempting to make good on a much
earlier commitment to shut down small and inefficient power plants
to reduce air pollution. The Government expects the averaged
generating gap for 2007 will be 2,000 MW hours, with the summer peak
gap of 4,000 MW.


4. (SBU) The Guangdong Government plans to lower the energy
consumption and sulphur dioxide for each unit of GDP output by 16
percent and 15 percent respectively as part of the new environmental
emphasis under the 11th Five-Year Program (2006-2010). Shutting
down inefficient and heavily polluting small oil and coal
generators, which account for 28.4 percent and 16 percent of the
province's total capacity, is the key part of the Government's
environment protection effort. Though the Government plans to
reduce 2,200 MW of small generating capacity in 2007, it has only
managed to shut down generators with 227 MW hours of capacity in one
power plant in Shantou so far. Elsewhere, including Guangzhou, many
other inefficient and polluting generators are still operating full
scale due to the shortages.

IBM Hit by Blackouts for the First Time in Shenzhen
-------------- --------------


4. (SBU) IBM was notified late on Monday, May 28, that due to power
shortages in Shenzhen, the local government would impose rolling
blackouts throughout Shenzhen, starting immediately. Apparently
there will be no exceptions, and no exemptions for favored
industries, including hi-tech and renowned foreign companies such as
IBM. This will be an across-the-board blackout. Shenzhen has been
divided up into a number of sectors and each day all the businesses
in that day's sector will have their power cut from 0800 to 2300
each day. IBM will lose power on Fridays. IBM's Shenzhen and
Beijing offices are contacting Shenzhen Mayor to seek relief. IBM
will be one of many companies standing in a long line outside the
Mayor's office.


5. (SBU) IBM's biggest concern is that it has a worldwide call
center in Shenzhen that operates 24 hours a day, seven days a week.
Closing the center for one day each week will cause huge problems
for IBM. This call center is part of a showcase operation for IBM;
the company was able to negotiate certain exemptions from the labor
department on overtime and benefits that have never been granted to
any other enterprise. IBM is anxious to keep the call center from a
potential public relations disaster. IBM was surprised by the local
government's tough move to deal with the crisis with no special
treatment for the "favored" industries and enterprises.

Comment: No End but a Silver Lining for U.S. Energy Firms?
-------------- --------------


7. (SBU) Guangdong's power shortage is expected to continue into the
near future, especially with the Provincial Government's
determination to lower local air pollution discharges; this has
become an important criterion of local officials' performance
evaluations. Previous attempts to shut down inefficient plants have

GUANGZHOU 00000631 002 OF 002


failed because of the power shortages. An American in the power
generation business predicted on-going shortages for the foreseeable
future due to a combination of Guangdong officials' hesitancy to
approve what they view as excess capacity and Guangdong's rapid
economic growth. With the conversion of the PRD economy from labor
intensive to high-tech, capital intensive industries will only make
the shortages more intense. The situation may force local
governments to pay more attention to power saving campaigns and
apply more energy saving technologies as they continue to increase
the number of power plants under construction. This could be an
excellent business opportunity for American enterprises in this
field. END COMMENT.

GOLDBERG