THE Hub Power Company — the country’s largest independent power producer — has a chequered history.

At the time of the project’s inception in 1994, its two sponsors — the National Power International Holdings B.V and Xenel — cumulatively owned a 34.9 per cent stake, or 404 million shares, in the company. But in the autumn of 2011, Xenel called quits; divesting its entire shareholding of 140 million shares (12.3 per cent) at a price of Rs37 per share.

Then in March last year, the other foreign majority shareholder also stepped out; selling its 17.44 per cent controlling stake in the IPP at a price of Rs31 per share. The Dawood group, the new owner, is now taking the project forward.

Hubco owns an oil-fired power station with an installed net capacity of 1,200MW at Mouza Kund in Hub, Balochistan, and a 214MW net capacity oil-fired power station at Mouza Poong in Narowal, Punjab.

It also has a 75 per cent controlling interest in Laraib Energy Limited, a subsidiary that has developed a 84MW hydropower plant near the New Bong Escape, eight kilometres downstream of Mangla Dam in Azad Kashmir. The project began commercial operation on March 23 this year.

According to its recently released financial statements for the quarter ended September 30, 2013, Hubco posted a net profit of Rs1.815 billion, compared to Rs2.114 billion in the same time last year. The company attributed the decline in earnings mainly to lower efficiency and higher repairs and maintenance expenditure. Turnover for the period stood at Rs38 billion.

Analysts say that since the tariff is dollar-denominated, the IPP, to a great extent, is immune from the loss of the rupee’s value against the dollar.

A major project that the company has been pursuing is to convert its plant from costly oil to coal. Sources close to the company told this scribe that Hubco had signed a Memorandum of Understanding (MoU) in June 2013 to convert the plant to coal in two years, subject to the government coming up with all the regulatory policies and approval.

Policy guidelines for the conversion to coal are awaited. “This project is complex in nature, as compared to a conventional green field project. It is a unique brown field project, in which new boilers will be built and tied in with the existing balance of the plant, which would also be refurbished,” said the sources. Hubco is evaluating various coal securing options, and several companies have been approached for assessing the viability of setting up a jetty for the plant.

Hubco has also consulted financial institutions for financial advisory and arrangement services to gauge the market’s response and appetite for such a project. Various parties have shown interest for partnering with the company for the coal conversion project. “The company is currently in the process of evaluating all the possible aspects of the project,” said the source.

Yet, in their report for the quarter ended September 30, Hubco’s directors wrote, “if the power purchasers are unable to pay the outstanding amounts and demonstrate that the circular debt would not build up again, it will not be possible to arrange financing for the coal conversion project”.

Power sector analysts stress it would be a pity if the company would have to delay or shelve the project due to the damaging circular debt, which has again reared its ugly head.

In response to a query, a company official, who asked not be named, responded, “currently, the estimated circular debt outstanding for IPPs and oil marketing companies (OMCs) is in the range of Rs150 to 160 billion”. He disclosed that as of October 31, Hubco’s outstanding amount was Rs42.6 billion, whereas outstanding amount of the Narowal plant was Rs5 billion, and Hubco itself owed Rs35.3 billion to PSO.

“After the major settlement of the circular debt in June 2013, we have been paid on a regular basis, but in small chunks. And no major settlement has been made wih Wapda,” he said.

Yet, Hubco hopes to play a major role in resolving the country’s severe energy crisis, which currently is estimated to result in a shortfall of 7,000MW. A sector analyst pointed out that Hubco is positioned to alleviate the power crisis in the country, since it had been the first IPP to set up a thermal and hydropower plant in Pakistan. “The company has a rich experience, through which it can capitalise on future opportunities and contribute to the grid,” he said.

On Hubco’s plans, the company official stated that the Hub plant is ideally located for expansion projects due to the availability of a vast 1,400 acres of land (only 100 acres out of a total of 1,500 acres is currently occupied by the entire plant setup). It has a sea front to set up a jetty; the brown field advantage of existing infrastructure; synergies with the conversion project and travel logistics (existing helipad and provision for air strip have been identified jointly with the Civil Aviation Authority).

A senior company executive was asked if the passing of the majority stake from foreign to local hands had brought about a change in the company’s culture. He asserted that there was not much of a change, since the foreign shareholders had long since handed over management to local experts.

A Dawood group executive employed in another sister concern, Dawood Hercules, said, “management believes in growth and also enhancing and developing the human assets of the company. The transfer of ownership, if at all, has brought about a positive change in the culture”.

Hubco is listed on the national stock exchanges, and its global depository receipts are listed on the Luxembourg bourse. It has 13,000 Pakistani and international shareholders on its members roll.

In the recent run up, a share of Hubco of par value of Rs10 has climbed to Rs62. Analysts consider the Hubco stock as a safe haven in uncertain times due to a constant flow of dividends. The company paid out a cash dividend of Rs8 per share in FY2013, raising the payout from Rs6 per share in FY2012.