Luotang Power Company

Executive Summary

Luotang Power Company is in Hubei Province, China. This project is contracted on a Build Operate Transfer (BOT) basis. In this report, we found that Luotang is facing problem of falling in revenues caused by some issue we are pointed out in this report. One of the reason that cause the reduction in revenue is Luotang primary and only customer which is Hubei Provincial Power Company (HPPC), they have their own electricity generating units in Hubei Province so that the demand of the electricity generation from Luotang might decrease. Not only that, in year 2011 the main supplier such as Pingdingshan Coal Company provided poorer quality of coal and it may generated less energy when burning and the price of coal in year 2011 is exceed the market price so that it will affect the performance of the company. Therefore, we are using variance analysis and income statement analysis to find out what is the reason that caused the bad performance of Luotang. At the end of the report we also given some recommendation and suggestion for the issues hoping that can help Luotang solve their problem.

1.0 Introduction

In 1997, the Provincial Planning Commission which represented the Hubei Provincial Government had solicited bids from international power developers to design, construct, finance and operate a 600 MW coal-fired power plant. There was almost 30 power developed are participated in biding the projects and it was won by an American independent power producer. After that, the American company established a company which called Luotang Power Company (Luotang) to run the project. Luotang started to conduct the negotiation of the requirement of the projects contract and obtained approval from government. Luotang came out with the result of it required approximately $500 million to construct the power plant.

Luotang Power Company is located in Hubei Province, China.  This project is contracted on a Build Operate Transfer (BOT) basis. In addition, the government approved this project to be wholly-foreign owned but with the condition of using the Chinese-manufactured equipment in the project. Luotang’s parent company is China Hua Tong Power (HT Power) and its main supplier is Pindingshan Coal Company (Pingdingshan). Hubei Provincial Power Company (HPPC) is its primary customers. HPPC is a state-owned electric power company and it was the only company that provides power distribution and transmission in Hubei Province.

In the case of Luotang Power: Variances Explained, we can observed that Tan Min Yi, the general manager of Luotang Power Company Ltd was planned to make a presentation to the Board of Directors (BOD) of China Hua Tong Power on the following week about the most recent results and their concerns towards the disappointing results. Tan knew that this presentation is important because HT Power was considering a 2,000 MW expansion at Luotang and he hoped that he will be promoted for the company’s Executive Vice President’s position.