Investors wary of NPL as circular debt mounts | Pakistan Today

Investors wary of NPL as circular debt mounts

KARACHI – Uncertainty regarding circular debt, plant efficiency and timings of dividend payment are likely reasons of Nishat Power Limited’s (NPL) inability to gain market strength. Investors are surprised that, despite more than expected earning per share of Rs 3.4 in the first half of the Financial Year 2011, NPL has been unable to gain investors’ attention.
With electricity tariffs put on hold for the last several months, government is bearing a monthly subsidy of Rs 15 to16 billion. In addition, the recent surge in international oil markets led by concerns in MENA (Middle East North Africa) has instilled fear, among investors, of a further subsidy accumulation on electricity.
NPL has been unable to pass on the circular debt unlike other IPPs (HUBCO and KAPCO), who have private fuel suppliers like Shell Pakistan, said Farhan Mahmood at Topline. He added that, since the government is not paying the full amount of electricity produced by NPL, company’s receivables swelled to Rs 6.3 billion in December compared to Rs 4.4 billion in September.
It is likely that WAPDA, who had paid a meager 30 percent of the sales in the 2QFY11, may reduce its payments to NPL in the coming months, at a time when oil prices are continuously rising. Contrarily, other IPPs like HUBCO and KAPCO, possessing state owned fuel suppliers are passing on the circular debt by not paying to these entities. Thus, their net receivables are not mounting.
Moreover, NPL’s non-recurring reported earnings and expectation of variation is hurting the power company. Apart from the guaranteed 15 percent dollar Internal Rate of Return (IRR), earnings also contributed to the fuel efficiency gain, keeping divided payout on the higher side. For NPL, the tariff is designed to maintain specific fuel efficiency throughout the plant life i.e. 25 years.
Amongst such efficiency parameters is furnace oil (FO) usage per kilo watt hour (kw/hr). NPL’s energy cost is designed after incorporating the 196 grams of FO to produce 1.0 Kwh of electricity. Thus, in initial years, efficiency might be higher but it tends to reduce after a few years. The company, successfully, passed its efficiency run by producing a single kwh with 190 grams of FO, saving cost of six grams of FO.
This may vary depending upon the usage. Though, the company has posted attractive earnings, however, it has been unable to pay any interim dividend. According to industry sources, no particular limit in the PPA (Power Purchase Agreement), that NPL cannot announce dividend in its first year, exists.
However, such restriction could be in the covenants between the IPP and the lenders which could restrict the company from announcing any dividend in its first year of operation, he added.

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