Company background
Engro Powergen Limited, a wholly owned subsidiary of Engro Corporation Limited, is the parent company of Engro Powergen Qadirpur Limited. Engro Powergen Qadirpur Limited (EPQL), incorporated in 2008, is a first green facility IPP in Pakistan that uses permeate gas, having plant capacity of 217 MW.
Plant details
EPQL acquired a Chinese origin Combine Cycle Plant, with one gas turbine, one Heat Recovery Steam Generator, and one steam turbine during the year 07/09 with net capacity of 217MW. The plant has remaining life of approximately 21 years.
Unique Proposition:
Fuel Mix
The plant uses 75mmscfd Permeate Gas from Qadirpur gas field, which was earlier being flared. The unique fuel, makes EPQL the lowest tariff power plant, however, the lowest tariff structure does not have any impact on net profitability of the Company. EPQL is financially protected against non-supply of gas beyond allowed outage allowance.
Sovereign guarantee
The GOP is liable to pay each and every sum to EPQL in case WAPDA and Gas supplier default on their payments for capacity and power purchases.
Exemption from Tax
EPQL entered into Power Purchase Agreement with NTDC on March, 2010 having a term of 25 years. Under the Power Policy of 2002, EPQL is exempted from income tax payments.
Much in line with the Group’s apparent policy to list assets, Engro Corp’s power generation business is all set to list Engro Powergen Qadirpur Limited. And it wouldn’t be wrong to say that realising Engro Corp’s value could be a motive behind the Initial Public Offering (IPO).
As per the offer for sale document of Engro Powergen Qadirpur Limited (EPQL), expanding and diversifying the capital base, improving governance structure of the company, raising liquidity and accessing alternate capital resources are the key reasons for the public listing. The proceeds from the IPO are planned to be used for financing key projects like LNG terminal and paying-off liabilities.
The offer consists of sale of 4.475 million ordinary shares of EPQL, which is 12.5 percent of the total paid up capital of the company. The offer price has been decided at Rs30.2 per share, which includes a premium of Rs20.2 per share. The company will be formally listed on October 27, 2014.
Currently, Engro Corp (ECL)-–the group-–directly owns 9.88 percent of EPQL, while the biggest slice of the cake (84%) is held with Engro Powergen ((EPL). The remainder is owned by the International Finance Corporation (IFC) and employees. In this IPO, ECL is divesting 100 percent shareholding in the company, while EPL is offering 2.62 percent out of its shareholdings in the EPQL.
EPQL is an unlisted public limited company with 217MW gas based thermal-power project near Qadirpur, District Ghotki, Sindh. The plant is of Chinese origin purchased new in 2007-2009. A distinguishing feature of the plant is that it is the only power plant in the country that converts low-BTU, high sulphur content permeate gas, which was earlier being wasted and flared, into much needed electricity. This permeate gas is the main fuel which makes EPQL one of the lowest tariff plants compared to other thermal-power plants both in terms of economic and net energy saving. Over the three years of operations the plant has operated at a healthy average availability factor of 95 percent. In terms of profitability, EPQL’s gross margins and net margins dropped in 2013 when compared to 2012 mainly because of a machinery malfunction that forced plant shutdown. However, profits are expected to lift back to 2012 levels after the repair this year.
Market makers do not see extraordinarily towards this IPO as (a) it is in congruence with Engro’s setting-nurturing-listing philosophy, (b) the public offering is already well perceived in the private placement with a premium of Rs20.2 per share—Rs810 million in total. The firm has reached the offer price through private book building process with only corporate clients as public book building has been prohibited by the SECP after the Hascol transaction.
However, some experts also think that the IPO will be received better by the public as the project established under the Power Policy 2002 is guaranteed an IRR in dollars of around 15 irrespective of the electricity dispatch/off take.
In all this, the key risk faced by the firm going public is the availability of permeate gas. Though the firm is immune to gas curtailment, a decrease in Qadirpur permeate gas will force the company to move to run both on gas and HSD and eventually furnace oil until such time that gas from other fields is abundant, accessible and compatible.
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