Power Sector has Investment Depth in Pakistan
Pakistan Times Business & Commerce Desk

KARACHI: On the back of tremendous demand growth for power which obviously linked with the economic growth, most of the power generating plants are engaged in capacity expansion plans across the country.

While an overall investment appetite running in over 42 billion dollars if all power generating segments are taken into account including thermal and hydropower projects.

The capacity expansion activity was reported from HUBCO which has sought establishment of another power plant of 400mw, and the KESC currently facing a short supply of over 1000mw, is also looking for capacity to meet the pressing demand of Karachi.

However, latest expansion report is from Kot Addu Power Company (KAPCO0) which is conducting a feasibility study for initiating expansion of power generation capacity by 400MW to 2000MW from the existing nameplate capacity of 1,600MW and has already received a Letter of Interest (LOI) from the Private Power & Infrastructure Board (PPIB).

It may be mentioned here that KAPCO’s earnings for the period ended March 2006 soared by 9% to Rs6, 227million as compared to Rs5, 735million during the corresponding period last year.

This translates into an EPS at Rs7.07 as against Rs6.52 previously. The 9% YoY growth in the bottom line during the quarter is primarily due to a 490% increase in other income to Rs366million as against Rs62million during the same period last year owing to higher interest income.

Furthermore, financial charges declined by 17% to Rs1, 118million due to repayment of long term loan borrowed from WAPDA. The turnover of the company increased by 15% to Rs23.5billion as against Rs20.4billion previously. However, the net output of the power plant remained the same.

The company sold 5,923 GWh of electricity resulting in load factor at 67% while the availability of the plant remained at 85%. KAPCO’s plant runs with a combination of fuels. During the nine month ended period, KAPCO’s fuel mixed comprised of 76.9% of gas, 22.9% of furnace oil and 0.2% of High-speed diesel (HSD).

According to the Power Purchase Agreement (PPA) with WAPDA, the level of output does not affect the company’s earnings.

Therefore, the Capacity Price payments made by WAPDA are not dependent on the amount of electricity sold. Like other IPPs, the growth in the company’s earnings is linked with the indexation factors i.e. the US CPI and rupee/US$ parity. Similarly, cash flows and not accounting earnings are the main focus for investors that depend upon the escalable portion of KAPCO’s tariff.

Rs8.50/share total dividend expected for FY06.

KAPCO has already announced Rs4/share interim cash dividend with 1H/FY06 results. The total payout for FY06 at Rs8.5/share. The company had declared Rs8.0/share total cash payout with interim dividend amounting to Rs3.5/share last. At current levels, KAPCO is offering 20% dividend yield.●