THE HUB POWER COMPANY LIMITED

MARIAM NASIR
Manager Research, PAGE
Jan 21 - 27, 2008

INTRODUCTION

Hub power station is the first and largest power station to be financed by the private sector in Southern Asia and one of the largest private power projects in the newly industrialized world. The Hub power station was the first project to be successfully co-financed by several governments, the World Bank as well as international private sector lenders and investors. Financial closure took place in January 1995. The company is listed on Karachi, Lahore and Islamabad Stock Exchange and its GDR's are listed on Luxembourg Stock Exchanges. And the company has over seventeen thousand (15,000) Pakistani and International shareholders. The principal activities of the company are to own, operate and maintain an oil-fired power station with a net capacity of 1,200 MW located at the Hub River estuary in Balochistan and also to carry out the business of power generation, distribution and sale at other places in Pakistan.

FIRST'S ACHIEVED BY HUBCO

* First private sector infrastructure project.

* First limited recourse financing.

* First lending into Pakistan by 15 onshore and 43 offshore banks.

* First stock market floatation of a single power station under construction (US$380m).

* First multi co-finance private sector infrastructure project - 9 co-financiers.

* First mark up based limited recourse infrastructure project financing.

* First mark up based finance to rank pari-passu with interest based finance.

* First use of the ECO program to support a private sector project.

The plant continues to supply reliable and uninterrupted electricity throughout the years to the consumers. In the past year the company was able to supply 7,241GWH an increase of 83% on FY06, which is a record output by the company. Operational and maintenance regime conforms to best international standards which has enabled the company to achieve its goals. By the end of last fiscal year, the company had a considerable amount overdue from the WAPDA. At present, an amount of Rs.6,344m is overdue. The obligation of WAPDA to the company are fully secured by a letter of credit from WAPDA and letter of credit from the government.

EXPANSION

In accordance with the company's mandate and initiative to develop new projects, it received an approval for a 225MW RFO based fire power project at Narowal with an anticipated operation date of March 2010. The company is working to achieve this and the Board has currently approved Rs.733mn for this. The company has also initiated discussions with potential leaders for an optimal financing plan. The project is proposed to be financed on debt on the security of company's assets. The company continues to explore other opportunities as well and has recently commenced its finance, legal and technical due diligence on a hydro project, based on these reports the company may consider taking a controlling stake in the project. The company also remains unconditionally pre-qualified for participation in the International Competitive Bidding for three combined cycle power generation projects launched by Private Power and Infrastructure Board (PPIB).

INTEREST IN PRIVATIZATION OF SSGC

Hubco is part of a consortium of companies that has submitted expressions of interest to acquire a 51% strategic stake and management control of Sui Southern Gas Company (SSGC) on offer by the government. Although the privatization is a long way off, the acquisition will most likely diversify Hubco's business.

FINANCIAL PERFORMANCE IN 1Q/FY08

During the review period plant operated at an average load factor of 71% and an average complex availability (ACA) of 89%. Electricity sold to Wapda was 1881 GWh. Unit No. 4 was shut down on October 7, 2007 for its first planned major overhaul. The Turbine has been dismantled visual inspection carried out and no defects were noted, routine ultrasonic inspections are in progress to conclude the findings. In addition, the complete rewinding of Stator is being carried out by Ansaldo under the project management of the Operator.

Turnover for the quarter was Rs.13.19bn (2006: Rs.11.72bn), operating costs were Rs.12.08bn (2006: Rs.10.64bn). Turnover and operating costs increased in the quarter under review compared to corresponding quarter last year mainly due to higher fuel oil prices. The Company earned a net profit of Rs.607mn, resulting in earnings per share of Rs.0.52, compared to a net profit of Rs.722mn and earnings per share of Rs.0.62 in the corresponding quarter last year.

RS. IN MILLION

1Q/FY07

1Q/FY08

CHANGE

Revenue

11,725

13,191

13%

Cost of Sales

10,638

12,086

14%

Gross Profit

1,087

1,105

2%

Operating Cost

71

65

-8%

Operating Profit

1,016

1,040

2%

Finance Cost

356

447

25%

Other Income

62

15

-76%

Profit After Taxation

722

607

-16%

Earning Per Share (Rs.) - Diluted

0.62

0.52

-16%

Gross Margins (%)

9.27%

8.37%

 

Operating Margins (%)

8.67%

7.88%

 

Net Margins (%)

6.16%

4.60%

 

FUTURE OUTLOOK

Hubco, an independent power producer, has cash flows based on a 30-year power purchase agreement (PPA) until 2027 with its sole customer Water and Power Development Authority of Pakistan (WAPDA). The tariff paid to Hubco provides real US dollar-based returns, which has added importance, given the surging trade deficit of the country given that the devaluation of the rupee against the dollar is a distinct possibility. It is an emerging as a major player, given its strong final position with debt/equity at 34% to tap the abundant investment opportunities in Pakistan's power sector as authorities attempt to curtail excess demand. The company has already pre-qualified for international competitive bidding of the three new power projects on offer by the government.