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Karachi, June 18, 2012 (PPI-OT): The National Electric Power Regulatory Authority (NEPRA) recently finalized the much awaited tariff pertaining to Hub Power’s Narowal plant.
According to AKD Securities, upward revision in key variables is below management expectation. Key feature of interest for investors is the increase in ROE component of tariff to PkR0.53998 per KWH from previously determined PkR0.4348 per KWH. At the same time, net capacity has been assessed at 213.6MW compared to 213.82MW assessed post initial test. The Return on Equity during construction (ROEDC) has been computed at PkR0.1106 per KWH (previously: 0.0437), where based on actual equity injections, exchange rate variations and construction period from May 15’08 to Mar 31’10, ROEDC works out to US$15.91mn (PkR1.3bn) compared to original determination of US$8.02mn (HUBC request: US$40mn). AKD Securities’ estimates point towards an incremental EPS impact of PkR1.05 based on the new Narowal tariff. Currently, AKD Securities is in the process of revising AKD Securities’ estimates for HUBC and will update investors shortly.
Tariff Revision – What’s changed? Post commencement in Apr’11, HUBC applied for adjustment to its reference tariff, for which the determination has finally been authorized by NEPRA. Following are the major details and the changes in the reference tariff:
Pre and post COD Narowal tariff
| (PkR/KwH) | Post COD | Pre COD | |||
| Years | Years | Years | Years | Indexation | |
|
1-10 |
11-25 |
1-10 |
11-25 |
||
| Capacity Charge | |||||
| Fixed O and M | |||||
| Local |
0.0412 |
0.0412 |
0.0325 |
0.0325 |
WPI |
| Foreign |
0.1446 |
0.1446 |
0.11 |
0.11 |
US$/PkR and |
| US CPI | |||||
| Cost of working capital |
0.2902 |
0.2902 |
0.09 |
0.09 |
KIBOR |
| Insurance |
0.0821 |
0.0821 |
0.1106 |
0.1106 |
US$/PkR |
| Debt Service – local |
1.5138 |
0 |
1.2401 |
0 |
KIBOR |
| ROE |
0.5398 |
0.5398 |
0.4348 |
0.4348 |
US$/PkR |
| ROEDC |
0.1106 |
0.1106 |
0.0437 |
0.0437 |
US$/PkR |
| Total Capacity Charge |
2.7223 |
1.2085 |
|||
| Energy Charge | |||||
| Fuel cost component |
11.278 |
11.278 |
4.7811 |
4.7811 |
Fuel price |
| Variable O and M | |||||
| Local |
0.2231 |
0.2231 |
0.1336 |
0.1336 |
WPI |
| Foreign |
0.3543 |
0.3543 |
0.2694 |
02694 |
US$/PkR and |
| US CPI | |||||
| Source: NEPRA |
Investment Perspective: The announcement of Narowal tariff has cleared a major uncertainty regarding future cash flows for the project. The incremental PkR1.2bn in ROE (EPS PkR1.05) will somewhat offset the PkR1.6bn cash flow hit the company will take owing to the settlement of the much discussed WHT dispute. Over the past month, the scrip has outperformed the broader market by 9.8% on the back of a likely proxy war in the upcoming BoD elections to be held in Sep’12. This follows the exit of National Power International Holdings BV with Dawood Group and ABL coming to the fore. Currently, AKD Securities is in the process of updating AKD Securities’ financial model for HLJBC and will update investors shortly.