Chinese language - Up to the challenge

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Up to the challenge
By LIU BAIJIA (China Daily)
Updated: 2007-09-24 07:17

To double a business in three years may be deemed a desirable result for
many companies, but for the US industrial giant Honeywell International
Inc, that kind of growth rate in the Chinese energy performance
contracting (EPC) market just isn't enough.

When George Ko, general manager of Honeywell Building Solutions in China
and chief of the EPC business, proposed doubling the EPC business to his
chiefs, he was told the goal should be even higher. And he can ask for
all support necessary for even more aggressive growth.

"This is a very challenging task, but it is also the best time to develop
this business," Ko tells China Business Weekly in his office near
Shanghai Hongqiao Airport on a rainy summer afternoon.

Energy efficiency and emissions control have become a pressing task for
the Chinese government, which lists sustained and eco-friendly economic
growth as a top priority.

In the 11th Five-Year Plan (2006-10), the world's second largest energy
user aims to cut energy consumption per unit of GDP by 20 percent,
although the latter is still expected to maintain an annual growth rate
of 8 percent.

However, the reduction of energy use per unit of GDP in 2006 was 1.33
percent, lower than the planned five-year average of 4 percent.

This year, the central government has allocated 21.3 billion yuan on
energy efficiency and emission control projects, 30 times the 2006
investment.

Zhan Shuzhong, deputy director of the Energy Management Contracting
Association of China, estimated that to save 300 million tons of standard
coal as needed to achieve 20 percent energy reduction, the country needs
to spend 300 billion yuan over five years.

Honeywell, which commands over 30 percent of the EPC market in the US,
received its first contract in August 2006 from Tsingtao Beer Asahi Co
Ltd in Shenzhen, a South China economic hub neighboring Hong Kong.

In the five-year contract with an investment over 10 million yuan,
Honeywell guarantees to cut the beer maker's energy consumption by 17
percent. That works out to 5.47 million yuan off energy bills per year.

Ko said his company has now inked about 10 contracts in just one year,
but he has visited over 100 potential customers in more than 10 Chinese
provinces.

Zhou Minjie, the Shanghai Economic Committee's spokesperson, said 23
million yuan has been invested into 11 projects in the first half of the
year and 12,000 tons of standard coal is expected to be saved.

In the past five years, over 600 million yuan was invested in more than
300 EPC projects in Shanghai.

In Zhejiang Province, more than 120 EPC projects were launched last year
and 48.70 million yuan has been invested.

Industries like steel, paper-making and cement, and public organizations
such as hospitals, airports and railway stations, which require power
suppliers 24 hours a day, have an especially strong interest in EPC.

Ko claims the Tsingtao deal is the first true EPC contract in China, in
which a service company guarantees energy reduction and provides
financing.

"This not only reduces electricity bills, but quite often transforms
clients' processes, so profound industrial knowledge is needed here,"
says Ko, who was born in Hong Kong and attended university in Guangzhou.

An EPC project in western markets usually requires thorough understanding
of customers' business processes, strong financing capability and
comprehensive technologies.

Many local firms have special expertise in one or several areas, like
lighting or air conditioning, but many of them focus primarily on selling
equipment, while lacking total technological solutions or financial
strength.

Ko said Honeywell's 30 years in the industry and over 2,000 projects
provide Chinese customers with the benefits of experience.

At the same time, Ko's EPC team has doubled to 30 people, with
professionals in energy efficiency, sales, laws and accounting.

Too much competition is a concern for many business executives, but Ko
has a very different situation: He needs more competitors in his area.

"This is still a young business in China and the market needs more
players," Ko says.

Shanghai has announced a plan to grow 120 local energy management service
companies this year and will bridge several banks in the city to provide
them with over 100 million yuan in credit lines.

Ko said many companies realized the need for higher energy efficiency,
but EPC is still not an option, because the rate of energy consumption is
not high enough to encourage companies to act now.

"The price of resources like coal, oil, water and electricity have risen
a lot, but they are still quite cheap for companies," Ko says.

Another question is about the lack of standard measurement of effects.

There are many different measure metrics in the market, so clients are
often confused by differences and do not have an accurate analysis of
return on assets.

(China Daily 09/24/2007 page3)

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