Engro Powergen Qadirpur Limited

Engro Powergen Qadirpur Limited (PSX: EPQL) is an independent power producer with 217 megawatts (MW) combined cycle power plant near Qadirpur, District Ghotki. It was incorporated in 2006 and is headquartered in Karachi. The plant is a combined cycle plant, with 1+1+1 configuration including one gas turbine, one heat recovery system generator (HRSG), and one steam turbine. It uses permeate gas as its primary fuel source and high speed diesel (HSD) as backup fuel to produce electricity.

EPQL achieved commercial operation in March 2010, and was listed on the Karachi Stock Exchange in October 2014 where 25 percent of the shares were offered. EPQL was previously known as Engro Energy (Private) Limited, but it was renamed as Engro Powergen Qadirpur Limited (EPQL) back in October 2010.

It is the first power plant to be commissioned under the 2002 power policy and was completed in record time. EPQL’s customer is National Transmission and Dispatch Company (NTDC) under the Power Purchase Agreement (PPA) dated October 26, 2007, which is valid for a period of 25 years from the date of commercial operations commencement.

Shareholding pattern

As at December 31, 2018, the major shareholder of EPQL is Engro Energy Ltd. (formerly Engro Powergen Limited) with a shareholding of around 69 percent, while 22 percent of the shares of the power company are held by local general public. A breakup of the shareholding category-wise is given in the table.

A look five years back show that in 2014, Engro Powergen Limited and Engro Corp, divested 18 percent and 100 percent of their shareholdings in EPQL, respectively. The offer aggregated to 80.95 million shares and represented 25 percent of the total shareholding of the company.

Previous performance

From the time it was listed on the stock exchange in 2014, the power company saw improvement in its operational performance where its net electrical output surged by 29 percent year-on-year, while its billable available capacity factor stood at 99.9 percent versus 83.1 percent in 2013. Overall, 2014 was a better year for EPQL after a weak 2013 due to a fault in the gas turbine generator rotor. With the plant back online in 2014, better operations translated into higher profitability for EPQL. In 2014, EPQL’s sales grew by around 29 percent, while the earnings were up by 39 percent, year-on-year.

During 2015, EPQL’s billable available capacity factor dropped slightly from 99.9 percent in 2014 to 99.7 percent in 2015, and revenues depicted a moderate growth of 11 percent year-on-year mainly on account of retrospective billing of GIDC pertaining to prior years. However, EPQL’s earnings slipped by 11 percent year-on-year, which the company believes was due to lower demand owing to grid issues at power purchaser’s end and a higher planned outage for a major inspection activity; this dragged EPQL’s load factor from 92.6 percent in 2014 to 76.7 percent in 2015. 2016 marked the improvement in EPQL’s billable availability factor improved to 100.3 percent, but the load factor dropped further to 67.2 percent compared to 76.7 percent in 2015. This was due to NTDC’s transformer catching fire. However, the plant remained on standby mode until the completion of transformer repair and was entitled to full capacity payments throughout the period. Revenues for 2016 were down by over 14 percent, year-on-year due to lower load factor. However, earnings remained stable due to improvement in working capital position, lower running finance costs and timely payments to the fuel supplier.

In 2017, EPQL was able to raise its electricity output and hence, load factor improved from 67.2 percent to 92.9 percent in 2017. EPQL’s top line was up by a little over one percent, year-on-year due to improvement in load factors; and reduction in finance cost and higher absorption of O&M costs on account of increased demand in 2017 resulted in the bottom line showing an increase of 34 percent, year-on-year.

EPQL in 2018

The power company remained steady in CY18; the company’s revenues remained almost the same as for the last two years. The company faced supply disruptions again in 2018 on account of gas supplier’s compressor issues, which resulted in lower load factors for the company. The firm’s revenues remained stable, while the bottom line was up by 10 percent in the latest annual year performance. Significant decline in finance cost and no growth in cost of sales supported the profits and margins for CY18.

Gross margins of the company saw an improvement in 2018 versus 2017 due to higher tariff indexation as a result of steep depreciation of the Rupee versus the US dollar. And despite escalating circular debt, effective working capital management helped the company keep its liquidity position at sanguine levels.

1QCY19 and beyond

In 1QFY19, EPQL’s revenues saw a 16 percent year-on-year growth, which was primarily due to dollar-indexed capacity purchase price component. However, the company’s load factors dropped. In the 1QCY19, the company demonstrated a billable available capacity factor of 99.8 percent compared to 100 percent in 1QCY18 – with a load factor of 67 percent versus 89 percent in 1QCY18.

EPQL’s revenues increased by 16 percent year-on-year due to higher gas prices, but this also increased the generation cost that can be seen in more than proportionate increase in cost of sales. As a result, the company witnessed lower gross margins for the power company. However, what supported the bottom line in 1QCY19 were lower administrative expenses because of cost curtailment and no significant increase in finance cost. The company’s earnings increased by a little over 6 percent, year-on-year, but net margins slipped.

The issue of overdue from NTDC remains unresolved for the power sector. As on March 31, 2018, these receivables stood at Rs5,727 million, though they have come down from Rs6,133 as at December 31. 2018. The company has a GSA with SNGPL for the supply of permeate gas from the Qadirpur gas field. However, the firm is now facing gas curtailment from Qadirpur gas field and has made its plant available on mixed mode from September 7, 2018 onwards, working on finding a long term alternate fuel option.