HUBCO expansion to yield fruits

The Hub Power Company (HUBCO) was incorporated in Pakistan in August 1991. The principal activities of the company are to develop, own, operate and maintain power stations. The Company owns an oil-fired power station of 1200MW (net) in Balochistan (Hub Plant) and a 214MW (net) oil-fired power station in Punjab (Narowal Plant). The company also has a 75% controlling interest in Laraib Energy, a subsidiary company which owns an under construction hydel power project of 84MW.

BMA Capital, Pakistan’s leading brokerage house has revised TP of HUBCO upwards after taking into consideration 1) increasing revenues from Narowal Power Plant (NPP) and 2) better dividend outlook going forward.

HUBCO like the entire energy chain is stuck up with the ever mounting circular debt issue which has also impacted the NPP payments and can affect the company’s payout capacity, if no resolution comes through.

During 1QFY13 profit increase by 70% YoY as load factor improved, with a phenomenal 70% increase in profits to Rs2,114 million (EPS: Rs1.83) from Rs1,241 million (EPS: Rs1.07) in FY12, HUBCO commenced its financial year on a positive note. The topline of the company also grew by 19% on YoY basis to Rs48,316 million during this period.

According to the brokerage house, the prime reasons for augmented profitability are 1) revenue stream from NPP, 2) improved load factor of 85% in FY13 as compared to 75% in 1QFY12 and 3) continued depreciation of Pak Rupee against US Dollar.

Recent news story highlighting the management’s concerns over non-payment of dues has raised many eyebrows on the company’s capacity to payout this year. However, the brokerage house keeps its assumptions intact and expect the company to pay Rs6.5/share as dividends believing FY13 being the election year is expected to urge government to release funds and resultantly curb power outages.

Laraib Power project, the second expansion project in line after Narowal is expected to come online sooner than scheduled (mid CY13), according to sources.

Brokerage house believes this to augur well for the company once the project starts its operations. However, it has not incorporated the earnings from Laraib in its financial models awaiting COD and finalization of tariff.

HUBCO remains a favorite pick in the electricity sector as the payouts have remained robust despite augmenting levels of circular debt and profitability hedged against Rupee devaluation. 

Ogra proposes new CNG pricing formula

According to the latest media reports on Thursday Oil and Gas Regulatory Authority (Ogra) has submitted new CNG pricing formula to the federal government.

According to the proposed formula, CNG price would be raised by Rs 10.56 to Rs 72.20 per kg in Region-I (comprising Khyber Pakhtunkhwa, Balochistan and Potohar region), and at Rs 63.76 Region-II (Sindh and Punjab). The suggested prices are Rs 2.5 less than the previously submitted priceby Ogra.

Meanwhile, the CNG Association has rejected the proposed prices. Ghayas Paracha, Chairman of the All Pakistan CNG Association, accused Ogra of acting against the Supreme Court’s orders by sending the proposal directly to the Ministry of Petroleum. He further accused the regulatory body of destroying the CNG sector.

Paracha said that Ogra had further decreased prices by Rs 2.5, while no consultations were made when the price was determined.

GoP ripping off CNG Consumers

A controversy is going on regarding fair price of CNG.

Cost of gas                                                             Rs28.65

Taxes                                                                         20.50

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Cost                                                                           49.15

Operating cost of CNG stations                                 21.00

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Amount to be charged from consumer                      70.15

Price fixed by apex court                                            54.16

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Loss incurred by CNG stations                             Rs15 .99

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Based on the data provided by CNG stations they are incurring a loss of Rs16/kg.

Despite the fact that one does not have the authentic information, it is clear that that GoP is collecting total Rs21/kg taxes.

Ideally the GoP must immediately withdraw Gas infrastructure Development Tax amounting to Rs10.95/kg.

Gas infrastructure (transmission and distribution infrastructure) is owned by exploration and production and gas marketing companies and not the GoP.

GoP planning new tax on CNG

According to media reports the Government of Pakistan (GoP) is considering to impose a new tax on compressed natural gas (CNG). This is aimed at reducing the price difference between CNG and petrol to phase out the use of the gas in vehicles.

“The government has planned to phase out CNG stations gradually as they are causing heavy loss to the national economy by wasting this valuable commodity,” Prime Minister’s Adviser on Petroleum Dr Asim Hussain told the National Assembly’s Standing Committee on Petroleum on Wednesday.

He said the CNG should only be used by public transport and private vehicles should be discouraged from burning the cheaper fuel.

The members said that while Oil and Gad Regulatory Authority (Ogra) and the station owners were taking extreme positions, the consumers were forced to spend a major part of their day in long queues to get CNG.

MNA Rana Afzaal Hussain said the CNG Association had become a cartel and minted millions of rupees at the cost of people.

While elected representatives and bureaucracy may have all the reasons to discourage use of CNG in vehicles, the move must be discouraged unless some alternative cheap fuel is made available.

Regrettably Orga has failed in protecting interest of general public. It has been facilitating the GoP to collect more tax from CNG and facilitating the CNG station owners to mint money. 

Actioning against CNG sellers

The way owners of public and private vehicles have been tortured lately, demands the most stringent action against owners of CNG stations, many of them refusing outright to sell CNG and others following 'go slow tactic'. Their act tantamount to contempt of court, which demands immediate arrest of owners of CNG stations, cancellation of their permission and disconnection of gas supply. The apex court had decided to curtail price and in all sincerity have valid reasons to slash the price. Now it is the responsibility of owners of CNG stations to prove they are incurring losses, but do they have to any argument to refute that they had minted tons of money in the past?

At times one tends to believe that SSGC and SNGPL have also joined hands with the owners of CNG stations. Decision to keep CNG stations closed for 48 hours at a stretch force a person to infer that SSGC is supporting the owners. The other point is that SSGC has not disconnected supply of those stations, which have chosen to remain closed despite court orders.  It may also be said that closing of CNG stations 'due to technical reasons' is also the mantra of gas marketing companies.

If one looks at the role of Oil and Gas Development Authority (Ogra), one point has been clear that it has been protecting the interest of Government of Pakistan (GoP), gas marketing companies and owners of CNG stations. This was in gross violation of the mandate for which it was created, looking after the interest of consumers.  It hardly has any argument to refute that most of the permissions to set up CNG stations have been issued in blatant disregard to the policy. The most obvious violation is that there should have been a distance of three kilometers between two stations.

A little probe also shows that both SSGC and SNGPL have been used to achieve political mileage. Not only domestic connections were granted indiscriminately but all sorts of violations were committed in granting connections to CNG stations owned by politicians belonging to all the political parties including PML-N. These stations are also accused of pilfering the highest quantity of gas from SNGPL network, estimated around 300mmcfd.

While it is true that during winter gas consumption increases but this time it is fears that gas supply to CNG stations is denied for ensuring higher supply for power plants and fertilizer manufacturing units. It has been highlighted that burning gas in power plant, is its worst use because of availability of alternative fuel. The point that electricity generation by burning furnace oil costs more is also the lamest excuse because worst has been the performance of distribution companies. Payment for 30% of the total units dispatched is received and remaining goes to theft and bad debt.

The apex court is requested to please complete the hearing at the earliest and give its final verdict. However, the court is requested to: 1) allow only a modest increase in CNG price, 2) instruct the government to come up with an alternative fuel that is chap and 3) instruct the government to ensure sale of E-10 (motor gasoline containing 10 per cent ethanol). The beauty of E-10 is it does not require installation any additional gadgetry. 

Courtesy: The Financial Daily

 Closure of CNG Stations

On Tuesday Karachi witnessed the worst traffic jam in early hours of the day, when most of CNG stations did open. Motorists got real jittery because SSGC also announced suspension of gas supply to CNG for 48 hours starting Wednesday 9.00am. 

Rangers were called to disperse those vehicles which were causing disruption in traffic flow. Strangely, no effort was made to open up those stations defying selling CNG at the price fixed by the Supreme Court of Pakistan, that tantamount to contempt of court. The negotiations regarding new price formula of CNG could not be determined as talks between the Oil and Gas Regulatory Authority (OGRA) and CNG Dealers Association once again failed on Monday.

Consumers have been enduring closure of CNG station throughout Pakistan under ‘Gad load Management Program’. While Government of Pakistan attributes this to shortage of gas experts call it ‘gross mismanagement’. However, after reduction in price ordered by the Supreme Court of Pakistan the situation turned real nasty for consumers, worst hit is the general public because most of the public transport remained off road.

Consumers go to the extent of saying that gas marketing companies are conniving with the owners of CNG stations as they have not disconnected gas of stations defying court order. They also demand that the issue needs immediate resolution to save millions of people from ‘man made crises. A lady driver of a school van said, “We are not benefitting from reduction in CNG price as now we have to use motor gasoline, which is very expensive. If the government wants to discourage use of CNG it must offer a cheap alternative fuel.”

Another driver who hails from Swat said, “The war on terror has turned hundreds and thousands of people living in northern areas internally displaced persons. I came to Karachi to earn for my family but being denied the right. Running public transport on diesel is almost impossible due to its sky rocketing rice.”

Thanks the situation didn’t turn nasty on Tuesday but public can turn violent if CNG stations remain close indefinitely. No rocket science is required to find out cost of CNG and operating expenses of stations. Public is forced to conclude that some of the quarters want the crisis to prevail so that they could achieve their vested interest.