Bloomberg News

Kot Addu Power May Get $300 Million Pakistan Dues in Few Months

November 20, 2012

Kot Addu Power Co. (KAPCO), Pakistan’s biggest non-state electricity producer, may soon receive an overdue payment of about $300 million from the government to help increase output as the nation faces a record power shortage.

A payment “in the next few months will improve our working capital management, help the cleansing of our expensive debt and help make a better impression on our profit,” Aftab Mahmood Butt, chief executive officer, said in an interview in Lahore yesterday. “It’s an election year so the government wants maximum production.”

Delayed payment of dues by state-owned grid companies is making it difficult for private electricity producers in Pakistan to operate, many of whom are forced to run below capacity. The delays lead to so-called circular debt in the nation’s energy industry that amounts to as much as 400 billion rupees ($4.2 billion), according to Invest Capital Markets Ltd. in Karachi.

The government sold bonds worth 82 billion rupees in September to make payments to electricity producers. Kot Addu received 29 billion rupees in overdue payments at the time, which helped the company pay funds owed to Pakistan State Oil for fuel supplies to its plant. Pakistan, scheduled to hold general elections by early next year, has faced violent protests over electricity outages lasting as long as 18 hours a day.

“Pakistan State Oil and the power sector were the biggest beneficiaries of the September sale, as the supply of fuel improved, electricity generation became efficient, and power blackouts lessened,” said Abdul Azeem, research analyst with Invest Capital. Kot Addu uses an average 60 percent of its 1,600-megawatt capacity, he said.

Shares Gain

Kot Addu’s shares have gained 13 percent this year, compared with a 45 percent increase in the benchmark KSE100 index. The shares rose 0.2 percent to 46.61 rupees in Karachi yesterday.

The company’s net income rose 47 percent to 1.75 billion rupees in the quarter ended Sept. 30, according to data compiled by Bloomberg.

The government owes 54 billion rupees to Kot Addu as of Nov. 20 and the power producer in turn is late on 25 billion rupees of payments to Pakistan State Oil, including financial charges, Butt said.

The company is expected to continue making dividend payments, said Butt, 42, who has been CEO since 2008. Kot Addu has been paying dividends to its shareholders twice a year since the company was listed on the exchange in 2005, according to data compiled by Bloomberg.

Plant Efficiency

Kot Addu is spending 500 million rupees this year to improve efficiency through a fuel treatment plant, converting boilers from oil to coal and better interconnection of machinery, Butt said.

Pakistan is seeking to set up power plants to help overcome a record electricity shortage that has closed factories and led to riots. The nation’s electricity shortfall rises to as much as 5,000 megawatts a day in the summer.

Kot Addu’s plant, located in the central Punjab province, uses furnace oil, natural gas and diesel to generate electricity, which is sold to the state-owned Water and Power Development Authority.

To contact the reporter on this story: Faseeh Mangi in Karachi, Pakistan at fmangi@bloomberg.net; Khurrum Anis in Karachi, Pakistan at Kkhan14@bloomberg.net.

To contact the editor responsible for this story: Andrew Hobbs at Ahobbs4@bloomberg.net


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