In a significant development early last week, the Hub Power Company indicated that it might reduce the commercial size of its imported coal power plant joint venture with China Power Hub Generation Company Limited from 2x660MW to 1x660MW.

Management cited delays in the Power Purchase Agreement (PPA) and Implementation Agreement (IA) signing with the government (which was to be inked by Oct 11, 2016) as reasons for potentially shelving the Unit-II.

The company has also intimated improving the ‘required commercial operations date’ (RCOD) as Hubco had been awaiting finalisation from government before execution.

According to company management, the government has differentiated the status of the two units with Unit-I being ‘early harvest’ in the list of CPEC Priority Projects, while Unit-II was ‘lower in the pecking order in the list’, hence exposing it to potential removal in order to achieve project closure by 2018-19. Unit-I of 1x660MW may achieve commercial operations by 2018-19.

In the meantime Hubco remains in active pursuance with the government on the inclusion of Unit-II as well. “We highlight shelving of Unit-II (1x660MW) as a potential downside risk. Currently Hubco holds a 26pc equity stake in the project (2x660MW)”, says energy analyst Yusra Beg at brokerage Intermarket Securities.

A year ago, in the fall of 2015, when the joint venture agreement with the China Power Hub Generation Company Limited (CPHGCL) was first signed to construct a 1,320MW (2x660MW) imported coal-fired power plant at Hub, Balochistan, the CEO of Hubco Khalid Mansoor had told this writer that the cost of the project would amount to nearly $2.4bn and it would be “one of the biggest private-sector investments in the country”.

Until something concrete emerges, energy sector experts and investors in Hubco are keeping their fingers crossed

The developments of last week have therefore thrown the expectations and calculations of energy experts in jeopardy. However, Analyst Hashim Sohail at Topline Securities argued that as per his discussions, the management was in the advance stages of negotiations with the government.

Optimism was in the air that the company may not need to compromise the scale of the whole project. Moreover, the management was confident that the 2x660MW project would achieve financial closure by Jan 2017, and the IA and PPA would be signed and finalised within the month.

Further, the company had stated earlier that it had the right to increase its stake to a minimum of 43pc and maximum of 49pc from the current stake of 26pc, 200 days before the commercial operation date (COD).

In the Annual General Meeting (AGM) of shareholders held on last Tuesday, the management indicated that it might opt to exercise the option to increase its stake. So, until something concrete emerges, energy sector experts and investors in Hubco are keeping their fingers crossed.

Meanwhile, earlier this month on Oct 06, the Thar Energy Limited (TEL) — a wholly owned subsidiary of Hubco — applied for a license with the National Electric Power Regulatory Authority (NEPRA) to set up a 330MW local coal-based power generation facility at Thar.

Amreen Soorani, analyst at JS Global, stated in a Sep 28 report that Hubco had expressed the intention of demerging its 225MW Narowal Plant into a separate legal entity, Narowal Energy Limited (NEL). The company had received permission to keep the tax-exempt status for NEL from the Economic Coordination Committee (ECC), and awaited approval from shareholders and the Sindh High Court, expected in FY17.

Hubco owns an oil-fired power station with an installed net capacity of 1,200MW at Hub and another of 214MW capacity at Narowal in Punjab. It also holds three-fourth of equity in 84MW Laraib Energy Limited, which prides itself on being the first hydropower independent power producer (HIPP) in Pakistan.

The Company is also investing $20m in Sindh Engro Coal Mining Company Limited (SECMC), a joint venture between Engro Powergen, Thal Limited, HBL, CMEC, Government of Sindh and the Company, to develop a coal mine at Thar (which has the seventh largest reserves of coal in the world).

Analysts expect Hubco’s profitability to experience an upward trajectory based on: the possibility of rupee depreciation against the greenback, higher operational savings due to self-management of Hub & Narowal power plants, and overdue interest on account of a glut of receivables due from WAPDA — which at last count amounted to a staggering 79.5bn.

Total assets of Hubco at the last close on June 30 stood at Rs134bn.

The price of the Hubco stock of the par value of Rs10, at the end of trading last Wednesday stood at Rs114.21. Investors seek the company stock for the Board’s policy of a consistent payout.

Published in Dawn, Business & Finance weekly, October 24th, 2016