State officials look to send energy know-how to China.

Officials of local energy companies cast wary eye on trip

California officials plan to lead a trade delegation to China next month to tap into that country's huge need for energy-producing facilities. But local companies -- so far -- have not been impressed by the efforts that these officials have generated to date.

Among the candidates the state hopes to recruit for its April delegation are engineering firm Parsons Corp. in Pasadena and Universal City-based Texaco Cogeneration & Power Co., a division of White Plains, N.Y.-based Texaco.

The state began recruiting -- via mailings to 3,000 California firms and workshop sessions earlier this month -- with an appeal to the bottom line. According to Kenneth Boras, a consultant to the California Energy Commission, China's great need for electrical power has pushed up the internal rates of return on Chinese power projects to an estimated 15-20 percent.

The projects, explained Boras, generally require that the foreign participant form a joint venture with a Chinese partner and have a great deal of patience.

China-followers from engineering and legal firms unaffiliated with CEC have reported rates of return exceeding 30 percent for the Shajiao B plant in Guangdong, a joint venture between China and the publicly traded Hong Kong property developer and construction giant Hopewell Holdings Ltd. That plant went on line in 1989.

In comparison, in California, said CEC spokesman Tim Olson, "Anything in the 15 percent range is considered a pretty good investment."

Following a "scouting" mission in February, CEC teamed up with the state's Commission for Economic Development to lead a delegation of 12-20 private sector project developers and equipment suppliers that will go to China on April 22 at a cost of $4,700 per delegate. Between April 22 and May 4, the delegates will meet with decision makers and potential buyers in three Chinese cities.

If the trade delegation is successful, said Olson, CEC may bring Chinese officials here and also consider annual grants to selected California companies to help cover the pre-construction costs of China-based projects.

Financial backing, Olson insisted, is all important to compete in the international area. To make a successful proposal, he said, U.S. companies must provide financial plans that are competitive with Japanese and European contractors.

CEC has been running its energy technologies export program since 1987, when the program was launched by the state Legislature due to a glut in the California power market.

"California's energy producers needed to look for additional markets -- it was a natural extension to go overseas," Olson explained. "The international market place is growing rapidly and is largely undeveloped."

CEC has been acting as an intermediary between foreign governments and California-based energy companies ever since, said Olson, producing more than $205 million in deals. Another $250 million worth of deals are currently under negotiation.

To fill the ranks of its China delegation, CEC officials have been soliciting interested parties through a mailing list of 3,000 companies screened for their interest in international markets. Another 50 companies were brought in through other sources and contacted by telephone. But only about 75 participants attended the free public workshops earlier this month in Los Angeles and San Francisco that previewed the delegation that the CEC will host.

Jeff Duncan, manager of business development for a subsidiary of Parsons, said he attended the workshop to learn more about cogeneration projects (facilities that literally run on the steam produced by other facilities) in the 50-plus-megawatt range.

While most available information and financing have focused on megaprojects in the 300-plus-megawatt range, he noted, CEC promoted its workshop as one that would help smaller projects. The problem was, said Duncan, "they've really isolated their focus to really really small industrial applications" of 25 megawatts and less.

To date, Parsons has not worked on power projects in China, although Duncan said the company is currently involved in developing pre-feasibility and feasibility studies for China projects with major equipment suppliers.

Jon C. Bruegl, a project and planning analyst for Texaco, likewise told the Business Journal that for the right companies, the delegation to China could be a good opportunity. But as far as his company goes, Bruegl said, "Right now we are looking at bigger projects." The Texaco subsidiary has already licensed its technology patent for clean-burning coal to the Chinese

And Edward Boray, president of Genesis Energy Systems, summed up his opinion of the workshop this way: "For people already doing business in China, it was elementary. For people looking to do business in China, it was over their heads."

Genesis is a 4-year-old energy project development company in West Los Angeles that is developing a 300-megawatt coal-fired power plant in China's Shangdong province. "Six other Chinese cities have appointed us as their exclusive energy adviser," Boray noted.

The toughest part of dealing with China, he said, is that the Chinese "haven't written all the (electric) power laws, so you're kind of working in a vacuum."

According to his calculations, it takes a year or two to complete contract negotiations, permits and approvals from China before a foreign company can begin procurement of equipment and expertise from their respective home countries to work on the projects.

He thinks financing is also a problem. "California's energy commission is operating way too slow to support businesses' involvement in China," Boray indicated.

"A once-a-year funding cycle," he said, alluding to possible seed money from CEC, "is way too slow to support the accelerated activities that are going on in China."