KAPCO – FY23 Analyst Briefing Takeaway

Kot Addu Power Company Limited (KAPCO) conducted its analyst briefing today to present investors with updates on their FY23 results and offer insights into the future outlook:

· KAPCO is a sole multi-fueled fired power plant (LSFO, Gas/RLNG and HSD), with a name plate capacity of 1600MW. In FY23, the company generated 588gwh (load factor: 15.7%) vs. 4,980gwh in FY22 (load factor: 42.4%). Thermal efficiency during the year was recorded at 42.3%.

· Company’s PPA expired back in Oct’22 and is currently in the process of renewal. Additionally, company’s generation license which also expired back in Sep’21, was extended for three further years until Sep’24.

· KAPCO was included in IGCEP’s forecast until 2026 due to system constraints and KAPCO’s significance in the national grid (main link with transmission line, back-start facility and location benefit). For this reason, company filed for a new tariff for take-or-pay basis for 500MW, while rest of the capacity as take-and-pay (ex-capacity payments).

· Company is in final stages with power purchaser to finalize PPA (and tariff), and was in a public hearing with NEPRA in Oct’23, where-in management submitted KAPCO’s case diligently. Management is hopeful that tariff will be issued in coming few months.

· Company has requested for 17% ROE in the new tariff determination. Currently, under the provisional tariff, the regulator has approved a ROE of 12% for the company.

· With regards to CTBCM (market-based model), management stated that its implementation has faced delays and expects it to be fully in function by Jun’24. Overall, company awaits CTBCM’s implementation (for which tariff would not be required), which would also enable company to explore B2B sales (wheeling to industries).

· With regards to future plans, company is actively exploring potential brown/green field projects, specifically in the renewables side (or possibly thermal). Company is open to other forms of non-energy ventures as well.

· Company presently has cash and equivalents to the tune of ~PkR52bn, which is divided into PIBs/Sukuks/cash of PkR22.8/27.2bn/1.9bn, respectively. The decision to refrain from distributing to shareholders (through special dividends/buybacks) is largely due to company’s active pursuit of new ventures. Management stated that WAPDA (~40% ownership) supports the said strategic plan.

· Regarding decision to undertake already established power plants under the 2002 policy, management clarified that their focus would be on projects with longer term PPA’s (not expiring in next 10-12 yrs). For this reason, new projects under renewables (solar, wind etc.) remains a priority for now.

Courtesy- AKD Research