Huaneng Power International, the mainland's largest electricity producer, posted a disappointing 1.48 percent rise in profit in 2007 as price curbs prevented the company from passing the rise in coal costs to consumers.

Earnings rose 2 percent to 0.51 yuan ($0.07) per share. The company will pay a dividend of 0.30 yuan a share, up from 0.28.

Despite the strong demand for electricity that has driven the bottom line of power companies, challenges remain as coal prices have risen to a record high and competition gets tougher.

"The government has taken note of the coal shortage and its rising price," said Huaneng Chairman Li Xiaopeng. "But whether we will be allowed to pass the extra coal costs to users this year is hard to determine."

The central government ordered a freeze on energy prices in January as part of moves to tackle inflation.

The company's unit fuel cost jumped 10 percent in 2007, higher than the 8 percent target. For this year, it aims to contain the increase in unit fuel costs at 18 percent.

"Coal prices under contract have already risen 12.5 percent this year," said Li. The company estimates 65 percent of the 82 million tons of total coal consumption will be purchased under contract.

Operating revenue increased 12 percent to 49.77 billion yuan as power generation increased 13.21 percent to 173.7 billion kWh. The company's target for 2008 is 200.8 billion kWh.

Average utilization hours of coal-fired units were 5,656 hours, 340 hours higher than the national average. The company's target this year is 5,757 hours.

To increase production capacity, capital expenditure will reach 34.1 billion yuan this year, 19.8 billion yuan in 2009 and 8.9 billion yuan in 2010, chief accountant Zhou Hui said. Controllable coal supply is targeted to reach 50 million tons per annum in 2010.

Although the domestic market will still be the main focus, the company is setting its sights abroad to diversify operations and increase shareholders' returns, Li said. The company has 7.3 billion yuan in cash or cash equivalent.

Its parent, Huaneng Group, this month agreed to pay S$4.2 billion to buy Tuas Power from the Singaporean government's investment arm Temasek Holdings - the largest overseas purchase by a mainland power company.

Huaneng International said it had signed a letter of intent to subsequently buy Tuas Power from its parent but the price is still being negotiated. Li said the price will be "reasonable", responding to charges by some analysts that it was too high.