Kot Addu Power Company Limited (PSX: KAPCO) is the country's one of the oldest independent power producers and the second largest combined cycle power plant. It was built by the Pakistan Water and Power Development Authority in five phases between 1985 and 1996 in District Muzaffargarh, Punjab. In 1996, KAPCO was incorporated as a public limited company with the objective of acquiring the Power Plant from WAPDA. Its principal activities include ownership, operation and maintenance of a 1,600 MW nameplate capacity power plant that is located at Kot Addu.
In the same year, following international competitive bidding by the Privatisation Commission, KAPCO was privatised. At the time of privatisation and following privatisation, WAPDA divested 36 percent of its shareholding in the Company to the strategic investor. In February 2005, the Privatisation Commission on behalf of WAPDA sold another 18 percent of WAPDA shareholding in the company to the general public. The same year, KAPCO was formally listed on the Pakistan Stock Exchange. In August 2013, the strategic investor sold its entire shareholding in the company to local corporate entities and individuals. KAPCO is a multi-fuel gas-turbine power plant that can run on gas, FO and diesel to generate electricity.
Shareholding pattern KAPCO's only customer and the largest shareholder (holding around 40 percent of the shares) is Water and Power Development Authority (WAPDA). The illustration shows other shareholders in the company's stock.
The power sector performance was sluggish in FY16 as KAPCO's revenues fell by over 36 percent year-on-year, and higher selling expenses, and higher operations and maintenance costs squeezed earnings by 7 percent year-on-year.
KAPCO's financial performance in FY17 was better as revenue grew over 28 percent, year-on-year, due to improved generation levels in a rising input cost environment. A noticeable factor in FY17 was the decrease in the IPP's consumption of furnace oil due to the availability of RLNG to the power plant - a key policy move being made by the government across the power sector. Its profits grew by 4 percent, year-on-year in that fiscal year. Despite higher sales, disproportionate increase in cost of sales suppressed gross margins, while net margins took a beating from higher finance cost and other expenses. However, lower administrative expenses and higher other income, which is largely the penal income, supported the bottom-line.
In FY18, the company's revenues and profits both increased by over 12 percent, year-on-year. However, net output of the company stood at 7,473GWh - only up by a percent, on a year-on-year basis. Here, higher prices played its role in lifting the revenues.
On the expense side, higher cost of fuel resulted in higher cost of sales, which along loss of efficiency despite turbine overhauls pulled down the company's gross margins. However, a significant jump in other income in FY18 lifted net profits. As per the notes to the annual accounts, the jump in other income came primarily from "true-up income" along with interest on late payment from WAPDA. As per the Annual report, this extraordinary item represents income resulting from change in US Dollar - PKR exchange rate exceeding the threshold defined in PPA, compared to the rates used for indexation calculation of relevant CPP invoices.
KAPCO's profitability in 9MFY19 was up on weaker currency largely. It recently announced a significant jump in earnings for 9MFY19 and 3QFY19 that did not come from growth in the IPP's top-line as revenues for the firm declined by 11 percent and 50 percent, respectively for 9MFY19 and 3QFY19. The only reason for the fall in revenues for KAPCO was lower power generated in the period under review; for 3QFY19, the IPP generated 385GWh of power with a load factor of only 13 percent, versus 58 percent in 3QFY18; similarly, the load factor remained 34 percent in 9MFY19 versus 58.7 percent in 9MFY18.