Foreign exchange rate risks
The Group principally operates its businesses in Mainland China with most of its transactions settled in RMB. Apart from certain bank and other borrowings as well as cash and cash equivalents, the Group’s assets and liabilities are mainly denominated in RMB. The Group held borrowings denominated in JPY and USD during the year. Higher volatility of RMB exchange rate against USD and JPY increases the exchange rate risks of the Group, thus affecting its financial position and operating results.
As at 31 December 2018, the Group’s borrowings denominated in foreign currencies amounted to RMB3,322,940,000 (31 December 2017: RMB3,864,606,000). The Group will continue to keep track on the exchange rate movements and, if necessary, take responsive measures to avoid excessive foreign exchange rate risks.
With the Group’s efforts to strengthen its development of all kinds of new power projects, funding adequacy will have an increasing impact on the Group’s operations and development. The financing market is affected by a number of factors such as the liquidity of the lending market and the economic environment, which in turn may also affect the effectiveness and costs of the Group’s borrowing.
The Group has always leveraged its capability of accessing the Mainland China and overseas markets to optimize its funding sources, increase the credit facilities and lower its financing costs. Various cost-saving and efficiency enhancement initiatives have also been adopted in the Group’s business management to lower administrative and operating expenses. Moreover, the financial services framework agreement with SPIC Financial also helps to reduce funding risks. In early 2018, SPIC Financial provided convenient and strong capital support to the Group when the challenging liquidity environment of the PRC gave rise to financing difficulties and high financing cost for enterprises.
As at 31 December 2018, the Group had sufficient available unutilized financing facilities amounting to RMB34,328,213,000.
At the beginning of each year, the management reports to the Board on the working capital budget for the year and estimates the credit facilities and facilities reserves required for the year to ensure the Group has adequate financial resources to support the continued operation and development of projects in the foreseeable future. The management will also review the situation regularly to take contingency measures.
Risks relating to the coal market
Coal demand and supply are affected by various factors including economic development, government policies, transportation and weather. Regional and time factors may also expose the supply and price of the coal market to volatility risk.
In view of the various risks in the coal market, the Group has actively communicated and coordinated with major coal enterprises, increased centralized procurement, managed coal procurement through long-term procurement contracts and strengthened the monitoring of performance and execution of such contracts, enhanced inventory management and expanded various new channels for coal supply, thereby securing coal supply and controlling the procurement price. The Company will continue to closely monitor the changes in government policy as well as the domestic and overseas coal markets, based on which, it will adopt corresponding measures for effective risk aversion.
Risks relating to electricity tariff
The share of market trading electricity will increase as the State advances the reform of the power market. Due to intense market competition, electricity is traded at a discount to the benchmark electricity tariff price in market transactions, which puts downward pressure on the average on-grid tariffs of the Group.
The Group will actively optimize customer resources and target high-quality and trustworthy clients to combat adverse price competitions. It will also strengthen synergy between power generating enterprises so as to avoid malicious competitions on the power generating side. A reasonable scheme for tariff pricing will be formulated to prevent tariff transactions with low marginal revenue. Apart from the above, the Group will monitor the changes in government tariff policy and strive to obtain more tariff subsidies.
Risks relating to cybersecurity
The rapid adoption of Internet technology has resulted in more frequent and severe cyber-attacks around the world. The Group is exposed to cyber-attacks on the power monitoring system, which would undermine production safety. Meanwhile, a shared financial service centre of the Group has commenced operation for the centralized management of various financial data, and any attacks on it may cause disruption of data transmission or even data loss, which will, in turn, affect business operation. Thus, these risks could materially and adversely affect the operation and reputation of the Group.
In view of the risks of possible attacks on the power monitoring system, the Group pushed forward the pilot technology and prevention projects, and continuously required all units to enhance promotion and education, maintain strict compliance with the safety management system and safeguard information security. As for the newly commenced shared financial service centre, the system has fully identified and taken corresponding measures against various risks since its inception, which included the adoption of dual power supply, the high-power uninterruptible power system with mutual hot backup function, comprehensive fire safety equipment and other environmental safety measures. The center is also equipped with adequate network safety equipment and the capability of on-site backup, off-site disaster recovery and segmentation of internal and external networks. The Group has a response mechanism in place for emergencies, which is under inspection and rectification on a regular basis to assess changes in relevant risks.