Sembcorp Industries, on Aug 2, announced that it will record an impairment of $212 million for its 49%-owned joint venture (JV) Chongqing Songzao Sembcorp Electric Power Co in its 1HFY2021 financial statements.
Chongqing Songzao operates a 1,320MW mine-mouth coal-fired power plant in Chongqing, China with coal taken from its JV partner Chongqing Energy Investment Group’s coal mines.
Following a government directive for coal mines in Chongqing to re-evaluate its coal mine operations, Chongqing Energy has had to close its Chongqing-based coal mines since January.
This means Chongqing Songzao had to procure coal from other provinces, thereby incurring significantly higher coal costs with the loss of its mine-mouth advantage.
The escalating market coal prices due to the supply-demand imbalance also added to the added cost.
Coal prices have also further escalated with low coal inventory in China since May due to restrictions on coal production combined with continued high demand.
While there were “some support” received from the government initially, the availability and form of government support in the long-term have bene “uncertain and insufficient”, says the group.
The asset is also expected to face competitive pressures from low carbon power sources in the longer term.
Chongqing Songzao, for the 2QFY2021, turned in a loss, from a profit of $19 million in the FY2020. It is expected to record a net loss for the 1HFY2021 as well as for the FY2021.
“A review of the carrying value of Chongqing Songzao was undertaken, and arising from the assessment, the carrying value of the group’s entire equity interest was fully impaired,” says Sembcorp.
That said, the group expects its net profit for the 1HFY2021 to remain positive.
Sembcorp will be releasing its results for the period on Aug 6.
Shares in Sembcorp closed 1 cent lower or 0.5% down at $2.09 on July 30.
Photo: Sembcorp
