UPDATE 2-China Huaneng's H2 disappoints, warns on 2008

(Adds Huadian Power executives' comment, details)

By Judy Hua

HONG KONG, March 26 (Reuters) - Huaneng Power International Inc (0902.HK), China's largest electricity producer, posted a disappointing 16 percent slide in second-half earnings as coal prices soared, and warned of a sustained cost squeeze and intensified competition in 2008.

Robust demand in China, the world's largest electricity consumer after the United States, has propped up the bottom line for Huaneng (600011.SS) (HNP.N) and rivals Datang International Power (0991.HK) (601991.SS), Huadian Power International (1071.HK) (600027.SS) and China Resources Power (0836.HK).

But the outlook for the power producers is overshadowed by record high coal prices and little chance of an inflation-fearing government raising power tariffs in the near future.

Huaneng's unit fuel cost jumped 10 percent in 2007, outstripping management's 8 percent target. It aims to contain the increase in unit fuel costs to below 18 percent for 2008.

"That will be an arduous task," admitted Chairman Li Xiaopeng, adding that contract coal prices had already jumped 12 percent this year from 2007.

Huaneng conceded its challenges this year included a shortage of coal, a continuous increase in coal prices, a decline in coal quality and intensified competition domestically.

It earned 3.3 billion yuan ($470 million) in the second half of 2007 versus 3.9 billion yuan a year earlier, based on calculations off previously reported first-half earnings. That lagged a forecast of 3.6 billion yuan, the average estimate of 17 analysts surveyed by Reuters Estimates.

For the year, it recorded a net profit 6.16 billion yuan in 2007, versus 6.07 billion yuan a year ago.

For a full earnings statement, please click here 032 Smaller rival Huadian Power International saw 2007 net pr ofit slip 0.36 percent. [ID:nHKG333631].

Huadian expects its coal prices to rise at least 17 percent this year, adding immense pressure to its operations, Vice General Manager Zhong Tonglin told reporters.

LOOKING ABROAD

Macquarie estimates coal prices, which hit a record in February, are likely to rise more than 50 percent in 2008/2009 from the 2007/2008 contract year.

So cash-rich Huaneng is setting its sights abroad. Parent Huaneng Group agreed this month to pay S$4.2 billion ($3 billion) to buy Tuas Power from Singaporean state investor Temasek Holdings [TEM.UL], sealing the largest overseas purchase by a Chinese power firm.

Listed Huaneng said it had signed a letter of intent to subsequently buy Tuas Power from its parent, but analysts doubted the deal would make sense in the short term [ID:nSP102842].