Hub Power Company Limited

The Hub Power Company Limited (PSX: HUBC) is the first and largest Independent Power Producer (IPP) in the country with a combined installed power generation capacity of 3,581 MW. The base plant - Hub Plant, is a RFO fired thermal power plant, which supplies electricity to the national grid. The Narowal Plant is also an RFO-fired, engine based, combined cycle power station. HUBC also holds 75 percent controlling interest in Laraib Energy Limited, which is a run-of-the-river hydel power plant. The company has a joint-venture with China Power International Holdings (CPIH) for a 1320MW imported coal-based power plant, China Power Hub Generation Company Limited (CPHGC) with its integrated coal jetty, which has started its commercial operations.

HUBC also has two wholly owned subsidiaries for its future growth initiatives, The Hub Power Services Limited (HPSL) & Hub Power Holdings Limited (HPHL). HPHL has been incorporated to invest in the future growth projects. Whereas HPSL manages O&M of HUBCO’s existing power assets including the indigenous coal-based growth projects. In addition to this, HPSL is also exploring other onshore and offshore business opportunities. HPSL is currently operating the Hub, Narowal, Laraib and Thar Energy Limited Plants.

HUBC also holds 8 percent shareholding in Sindh Engro Coal Mining Company Limited (SECMC), a joint venture between the Company, Engro, Thal Limited, HBL, CMEC and Government of Sindh. SECMC achieved Commercial Operations for Phase II on October 1st, 2022 doubling its coal mining capacity for supplying fuel to Hubco’s Thar Energy Limited and ThalNova projects.

HUBC has established Thar Energy Limited (TEL), to set up a 330MW mine-mouth lignite-fired power Plant at Thar Coal Block II Sindh. The Company has signed a Shareholders’ agreement with Fauji Fertilizer Company Limited (FFCL) and CMEC TEL Power Investments Limited (CMEC Dubai) for equity investment of 30 percent and 10 percent in the project, while HUBCO holds 60 percent shares of TEL. The company has acquired majority shares in 330MW ThalNova Power Thar Pvt. Ltd (TNPTL) mine mouth lignite fired power plant.

Past Performance

FY15 was a year of transformation and growth for HUBC. The company generated one of the highest returns for the shareholders, revamped and turned around the base business. The slight decrease in load factors came from a decrease in generation, caused by maintenance work on the boilers. The company’s consolidated earnings increased by around 48 percent year-on-year in FY15

In FY16, the company’s consolidated earnings increased by around 7.5 percent year-on-year, which was affected by the decline in turnover in FY16. Revenues toppled by 34 percent year-on-year due to lower furnace oil prices, lower generation bonus and lower Net Electrical Output (NEO) due to low load demanded by NTDC

The IPP’s consolidated earnings in FY17 came down significantly. The decrease in consolidated earnings as reported in the company’s annual accounts was mainly due to higher repair and maintenance expenditure on the Hub Plant and 36,000 running hours’ major maintenance of six engines at Narowal Plant, lower exchange rate and higher losses of TEL and CPHGC projects that had been initiated. Apart from that, higher general and administrative expenses and lower other income also affected the bottomline in FY17 that fell by 9.2 percent year-on-year.

HUBC posted slight improvement in earnings for FY18 despite slight dip in revenues. The consolidated earnings grew by three percent year-on-year in FY18. The modest growth in earnings was driven by lower repair and maintenance expenditure at Hub and Narowal Plants. However, these were partially offset by lower profits of Laraib, higher financing costs and administrative expenses. In FY18, HUBC’s base plant at Hub witnessed a drop in load factors from 65 percent to 49.5 percent due to lower electricity demand from the power purchaser. The Narowal plant also witnessed a decrease in load factors from 71 percent to 64 percent in FY18, which was due to the overhaul of three engines and seven alternators at Narowal plant.

During FY19, the country’s power generation from furnace oil declined by 60 percent year-on-year, where its share in total power generation was only 7 percent in FY19 versus19 percent in FY18. As a result, HUBC’s load factors for its base plant plunged from 49 percent to just at 7.87 percent due to no generation on FO. Revenues were seen shrinking by 42 percent year-on-year due to lower electricity dispatches. Lower generation resulted in lower operating costs. However, the company’s bottomline posted a flattish growth of only 2 percent year-on-year, and apart from slow growth in revenues, the restriction in earnings came from higher finance cost due to higher interest rates and higher capital expenditure largely coming from coal investments. The IPP also did not announce any dividend during the year. Moreover, the cash it received from the first Energy Suck was used to pay off PSO’s payables.

FY20 was undoubtedly a turbulent year for the power sector not only because of the COVID-19 pandemic overtaking the second half of the year, but also the investigation in the IPPs’ returns that landed IPPs in hot waters. In terms of financial performance, FY20 for HUBC has primarily been about milking its coal investments. At a time when thermal power generation has been dwindling in the country due to depleting natural gas and controls on furnace oil consumption, HUBC’s associated company - China Power Hub Generation Company commenced generation in August 2019.

HUBC posted consolidated earnings growth of over 2.2 times for FY20 despite a 17 percent year-on-year decline in the turnover. This was because around 50 percent of the growth in the bottomline was brought by the earnings from the 1320MW coal fired power plant, while the company’s base plant at Hub continued to face falling load factors. Another factor that fueled earnings growth was currency depreciation that stood at around 24 percent in FY20. The growth in earnings in FY20 for HUBC was held back by 61 percent higher finance cost; higher effective tax rate for FY20 versus FY19, which was due to the recognition of deferred tax on share of profit from CPHGC; and one-off loss due to transfer of 3 percent equity shareholding in CPHGC by Hub Power Holding Company and China Power International (Pakistan) Investment Limited (CPIPI) to Government of Balochistan.

In FY21, HUBC’s performance also reflects some of the strategic decisions and diversification plans. HUBC’s consolidated turnover in FY21 was up by 13 percent year-on-year. Growth in revenues for HUBC on the whole came from close to 40 percent rise witnessed in power dispatches on a year-on-year basis. This meant that the IPP recorded better plant(s) utilization levels. Compared to FY20, load factor for Hub plant was 1.8 percent versus 0.3 percent in FY20, while that of Narowal and Laraib plants were 26 and 63 percent versus 18 and 52 percent respectively in FY20. Load factor for CPHGC was also highest in FY21 at 72 percent versus 58 percent in FY20.

While there was a rise seen in cost of sales that increases along with increased load factors and utilization of plants and hence restricts GP growth, the consolidated earnings benefited from the rise in earnings from the share of profit from China Power Hub Generation Company (CPHGC), lower finance cost in FY21, and absence Rs1 billion transfers of share of 1.5 percent stake in CPHGC to Government of Balochistan in FY20. The rise in share of profits from CPHGC was 13 percent, while the fall in finance cost was 38 percent year-on-year due to lower interest rates. HUBC’s consolidated earnings for FY21 rose by 34 percent year-on-year.

In FY22, HUBC witnessed a slight dip in consolidated earnings for the year – 15 percent year-on-year. The decline in earnings stemmed from lower share of profits from associates as well as higher finance cost. The company’s consolidated revenues were seen growing by 78 percent due to higher utilization of the base plant and Narowal plant overall in FY22 from 2 and 26 percent in FY21 to 12 and 46 percent respectively in FY22. On the other hand, the utilization of Laraib and China Power Hub Generation Company (CPHGC) plants were down from 63 and 72 percent in FY21 to 57 and 62 percent respectively in FY22. CPHGC utilization was low due to the outage during the year. CPHGC unit 1 returned to service in January 2022. Gross profits were flat for HUBC in FY22, whereas the net earnings fell despite growth in other income due to 40 percent decline in share of profits from associates and joint ventures and an 8 percent rise in finance costs. The company did not pay any dividends for FY22, which was due to high fuel and commodity prices.

HUBC in FY23

The IPP announced a massive increase in consolidated earnings with highest ever profit for FY23. The growth in earnings came from HUBC’s diversification strategy and higher share of profits from associates and JV during the year. The power company does not depend on the base plant at Hub anymore for dispatches; besides its coal investment, China Power Hub Generation Company under CPEC driving profitability since FY20, the inclusion of ThalNova Power Plant in Feb-23 and TEL in the latter part of FY23 contributed to the earnings.

Starting from the top, HUBC’s consolidated revenue growth stood at 18 percent where the rise was due to higher furnace oil prices rather than the electricity dispatches that were down by around nine percent, year-on-year in FY23.

HUBC’s bottomline was seen growing by 110 percent year-on-year, not only due to controlled expenses but also higher other income. And as mentioned, the biggest role was that of share of profits from associates that was up by more than 3.7 times, which was probably due to a claim for property damage and business interruption as well as the addition of Eni’s business. The rise was also contributed by the currency depreciation during the year. What however impacted the bottomline was the higher finance cost – up by 144 percent year-on-year – due to higher interest rates as well as inclusion of TEL’s finance cost.