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1- DISRUPTION IN GAS SUPPLY
2- INTELLECTUAL PROPERTY RIGHTS
3- KAPCO TO BE A GOOD ADDITION TO BOURSES
4- JAPAN'S ASSISTANCE TO PAKISTAN
5- GROWTH OF TELECOM SECTOR IN YEAR 2004


KAPCO TO BE A GOOD ADDITION TO BOURSES

 

In line with the government's policy to transfer the benefits to the common man under the slogan, "Privatization for the People"

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By SHABBIR H. KAZMI
Jan 17 - 30, 2005
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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 said fiscal.

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 People".