The government has given tax exemption to Hub Power Company (Hubco) on demerger of Hubco Narowal Project after the latter pleaded that the company's cash flow and profit would decline significantly and it would not have sufficient funds for conversion of 1292 MW power plant to coal and for setting up a new power plant, sources close to Minister for Water and Power told Business Recorder.
The Economic Co-ordination Committee (ECC) of the Cabinet, in its meeting on December 19, 2014, approved the proposal submitted by the Ministry of Water and Power. According to sources, the ECC was informed that Hubco owns and operates a 1292 MW power project at Khalifa point, Balochistan, which was commissioned on March 31, 1997. The company has developed another 213.60 MW power project in the name of Hubco Narowal Power plant, which was commissioned on April 22, 2011.
The company has stated that the rationale behind establishing the Narowal project under the same legal entity was to avail better financing terms from lenders using the credentials of its already operational project of 1292 MW. Now the company has decided to demerge the Narowal plant as a new wholly-owned subsidiary of the company wherein all assets and liabilities relating to the Narowal plant would be transferred to the new company under Sections 284-287 of the Companies Ordinance, 1984, for better administration and financial control. The demerger was permissible under the implementation Agreement signed between the GoP and the Company on October 27, 2008.
The meeting was further informed that all IPPs enjoy exemption of tax on profits and gains under clause (132) part-I of the second schedule to the Income Tax Ordinance, 2001. Accordingly, profits and gains arising from both plants of the company are exempt from tax. The company has signed an MoU with the Government of Pakistan (GoP) to convert its 1292 MW power plant on coal and the company is also working to set up a 660 MW coal based power plant adjacent to its 1292 MW power plant in Balochistan.
The company maintains that in case the demerged entity (Hubco Narowal project) has to pay tax after its demerger, its cash flow and profits would decline significantly and it would not have sufficient funds for conversion of 1292 MW power plant to coal and for setting up a new power plant. The meeting was briefed of grant of tax exemption on the profits and gains of the electric power generation project formed by the splitting up, or reconstruction or the reconstitution of an electric power generation business already in existence and availing exemption under clause (132) of part-I of the second schedule to the Income Tax Ordinance, 2001. After a detailed discussion, the ECC approved the proposal regarding tax exemption on demerger and tax implication for Hub Power Company.
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