Squeezed between soaring coal costs and government controls on electricity rate charges, two of China's top power producers said Tuesday that they expect to post half-year losses. But scheduled rate hikes for the second half may prevent or stem yearly losses for the firms, analysts say.

Huaneng Power International and Huadian Power International significantly bolstered electricity output, by 13% and 65%, respectively, in the first half of 2008, compared to the equivalent period last year. But sharply rising coal prices, which are up by 60 yuan ($8.80) per metric ton since the start of 2008, according to the East China Electricity Regulatory Bureau, wiped out profit. Soaring oil prices also contributed to higher transport costs for the power companies. Because of government controls in the interest of combating consumer price inflation, the firms are unable to raise rates freely in response.

The two firms did not give details on the expected scale of their losses. More than 80% of the country's power producers reported losses for the year¡¯

s first five months.

To ease the pressure on power generators, China's top state planning agency, the National Development and Reform Commission, hiked electricity prices by 4.7% starting July 1, primarily for industrial and commercial enterprises. The rate hikes may help some power producers turn a slight profit for 2008, said Beijing-based analyst Kay Li, who tracks the power producers for TX Investment Consulting, though most will not be able to escape first-half losses.

The state planning agency also said that the government would temporarily cap the domestic price of coal suitable for power production below that on June 19. But Li said that such a cap "may not work effectively," as intermediate or auxiliary fees levied by mining firms may still subvert direct price controls.

The government will likely have to raise electricity prices again, as the adjustments made thus far will not be enough to stem losses for power firms in the long term, Li added. A JPMorgan research report on Tuesday stated that "sizable" electricity price hikes would be necessary by January 2009 and possibly again in July 2009 in order for the country's power suppliers to regain positive earnings flow in 2010.

In 2007, Huaneng posted half-year profits of 2.94 billion yuan ($431 million), and Huadian had first-half earnings of 546 million yuan ($80 million). Full financial results for Huaneng and Huadian are expected in late August.