The public offering of Kot Addu Power Company (KAPCO)
will be made at Rs 30/share. The offering price was approved in a
recently held meeting of the Cabinet Committee on Privatization. As has
been witnessed in the recent government divestments, priority will be
given to smaller applications, consisting of a lot of 500 shares. With
the clearance of the offer for sale document of KAPCO by the Karachi
Stock Exchange, the public offering is expected to be held in the third
week of January 2005.
KAPCO, a multi-fuel fired power plant with a
nameplate capacity of 1600 MW, is likely to power the three Pakistani
bourses. Unlike HUBCO, the KAPCO can use gas, fuel oil (FO) and high
speed diesel (HSD) to fire its generators. The dependable capacity of
the power house is 1340 MW. The KAPCO was privatized in 1996 and
management control was transferred to International Power by the GoP
along with 26 per cent shares. Subsequently, additional 10 per cent
shares were also divested to the new owners.
The company prefers gas for electricity generation
over fuel oil as per the WAPDA's requirement to produce low cost
electricity. The gas supply is subjected to loadshedding by SNGPL
particularly during winter where the gas utility has committed supply of
250 mmcfd. Historically, the company produced an average of 57 per cent
of its total electricity on gas. It is interesting to note that the
share of gas in electricity generation increased to 72% during 2004 that
perked up the bottom line of the company by manifold.
Looking at the financial performance of the company,
gross profit surged by 14% during 2004 despite a 6% decrease in
revenues. The primary reason for this was exceptionally high share of
gas in electricity generation. The matter of concern here is whether
this high availability of gas is a one-time phenomenon or would continue
to linger on in forthcoming fiscals because of the growing concerns
about future gas availability looming large in the country.
Realizing the impact of electricity shortage and high
cost of electricity on the sustainable growth of the economy, government
has moved its focus towards low cost electricity generation. In the
absence of any consensus on building large dams, WAPDA had a significant
breakthrough in developing Ghazi Barotha Hydropower Project (GBHP), a
major 'run-of-river' hydro power project. Unlike dams, GBHP has a
capability of generating electricity up to its maximum generation
capacity of 1,450 MW throughout the year.
Moreover, Alternate Energy Commission is also active
in exploring windmill and solar energy potential for the country.
Keeping in view the negatives of importing expensive fuel oil on the
cost of electricity and import bill, the government is promoting gas or
multi-fuel fired power plants and working aggressively to ensure smooth
gas supplies with extensive exploration targets. Some progress has also
been made in gas pipeline projects and negotiations with neighboring
countries for long-term gas supply contracts are under process.
Being a multi-fuel fired power plant having more than
50 per cent production on gas, KAPCO's future is still brighter than
HUBCO because the later is on fuel oil and WAPDA gives least priority to
it and it suffered by low load factors.
Keeping in view the power sector PER of 6.9x, the
short-term target price of KAPCO arrives at Rs53 per share based upon
2004 earnings. So far the information dispersed to analysts is limited
to annual accounts of 2003 and 2004 where the 2004 accounts do not
contain the figure of electricity generated by the company during the
The divestment of up to 20% shares of KAPCO is
expected to yield up to Rs 5.28 billion to the government. Its listing
at the Karachi Stock Exchange would increase market capitalization
significantly and would bring a worthwhile addition. It has the
potential to become a leader of the listed power sector companies. The
large quantity of shares being offered would also add to the liquid
share float of the market. If the market response to the recent Pakistan
Petroleum and Sui Southern Gas Company share offering gives any
indication, an offer of shares of a company like KAPCO would most likely
receive a heavy response from the general public.
A large number of banks have been appointed as
bankers to the offer in order to facilitate the general public and
subscription is expected to remain open for four to five days in line
with the government's policy to transfer the benefits of privatization
to the common man under the slogan, "Privatization for the