Ministry of Energy (Power Division)

Hubco plans conversion of power plant to coal

 KARACHI: Pakistan’s largest independent power producer Hub Power Company (Hubco) is planning to convert its residual furnace oil (RFO) power plant to coal, said the company’s top official. 

Chief Executive Officer Hubco Khalid Mansoor said the company is planning to convert four of its furnace oil boilers to coal as per the government’s cost reduction strategy to revamp power sector in Pakistan.

A jetty is planned to be constructed for importing coal. The conversion will be in phases and as per the initial plan the construction is expected to commence from September 2014, Mansoor said.

 Out of four boilers, the first boiler is expected to commence operation by September 2016 and each boiler will get online after every three months. Thus, the whole conversion is expected to be completed by June 2017.

The company conducted its first annual general meeting (AGM) in Karachi on Monday. The major area of the focus was the discussion over coal conversion plan by the company, tax issues, and circular debt situation.

Farhan Mehmood, head of research & business development at Sherman Securities, said that the financing details had yet to be finalised. The company expects that the project may be funded through debt to equity ratio of 70:30. That said the equity injection could be around Rs35 billion, he said.

Further the company revealed the plant cost also includes the amount used for plant up- gradation so that the plant can run for further 20 years.

The project cost is guesstimated around one to $1.2 billion. Initial estimates given by the management will reduce electricity tariff by one-third. The management in the AGM hinted that the increase in authorised capital is due to company’s plan to finance the project via right shares, Mehmood said.

He further added though the cost and financing details are yet to be revealed, yet assuming the information provided in the AGM is correct and the company will not hurt dividend going forward the company may issue 100 percent right shares.

The issue of sales tax for the period FY08-FY11 was also discussed in the meeting. According to the Federal Board of Revenue (FBR), the company had claimed input tax in excess of what was allowed under the law and for that the FBR passed an order for the recovery of Rs8.7 billion (7.5per share).

The management believes the decision will come into company’s favor as IPPs are already exempt of sales tax on turnover, said Mehmood.Following the settlement of around Rs92billion overdue receivables in June 2013, the circular debt is again piling up. The management revealed currently overdue receivables stand at around Rs28 billion on base plant, while Rs400 million is overdue on Narowal plant. However, the cash flow is managed by the company by increasing payables to Pakistan State Oil as overdue payables stand at around Rs28 billion. 

(Hina Mahgul Rind)