KAPCO topline grows 120% in 1QFY09

KAPCO’s topline grew by a massive 120 percent in the first quarter of current fiscal year 2008-09 in year-on-year terms, however, the increase was relatively subtle when compared to 4QFY08 (18 percent Quarter-on-Quarter). KAPCO’s energy increased despite a 19 percent YoY decrease in net output (2,045GWh of electricity generation in 1QFY09). The reasons were, 61 percent YoY increase in fuel bill for 1QFY09, higher index figure resulting from increased US inflation (5.3 percent YoY increase in 1QFY09) and falling rupee value.

KAPCO being the only IPP in Pakistan with a power plant that has the ability to self-start in case of a countrywide blackout has 10 gas turbines that power the complex and 5 steam turbines. Eight of the 10 gas turbines can operate on residual fuel oil while all 10 can operate on both HSD and gas, thus giving the plant flexibility of using 3 different fuels to generate electricity, namely natural gas, LSFO and HSD, analyst of power sector said in the report.The increase in fuel bill despite a decrease in output generated can be attributed to characteristics stated above as well as an increase in fuel prices (121percent YoY). Upon unavailability of gas, KAPCO’s dependency upon LSFO in the fuel mix increased from 24 percent in 1QFY08 to 66 percent in 1QFY09, while that of gas decreased from 76 percent in 1QFY08 to 22 percent in 1QFY09. This factor in turn led to a 221 percent YoY increase in fuel cost/KWh bringing it up to Rs 9.33/KWh approximately. Fuel cost being a past through item; this had no impact on KAPCO’s profitability as KAPCO charges the power purchaser, WAPDA, in full for the fuel consumed, thus hedging itself from fluctuation in fuel oil prices. The IPP’s PAT grew by 17 percent YoY despite declining gross margins.KAPCO’s gross margins almost halved declining by a massive 10 percentage points YoY from 23 percent in 1QFY08. This was due to a higher percentage YoY increase in cost of sales as compared to the energy income. Non-payment of dues by WAPDA are still a critical factor for the IPP.

Financing costs rose by a gigantic 191 percent YoY in 1QFY09 as KAPCO increased its dependence on mark-up arrangements in order to resolve its liquidity issues. On the positive side, WAPDA is liable to pay KAPCO a penal mark-up of SBP discount rate plus 4 percent per annum on amounts unpaid within their respective due dates. On account of such penal markup charged, KAPCO’s other income rose by a massive 320 percent YoY in 1QFY09- 38 percent increase QoQ- reflecting escalating liquidity concerns on KAPCO’s part as WAPDA continues delaying payments. staff report

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