Elixir Securities Limited – Elixir Insight

Karachi, December 21, 2017 (PPI-OT): Pakistan IPPs Sector – November RFO Generation Falls 47%

Overall electricity generation in November rose 2.8%YoY to 7,132Gwh. Generation on select RFO plants declined by 46.9%YoY.

Despite decline in utilization levels of NCPL/NPL, their earnings are expected to rise slightly in 4Q2017 by 4.0%/10.0% due to a low base set in 4Q2016 caused by lower thermal efficiency in that period.

LPL and PKGP will greatly benefit from lower utilization levels with LPL’s earnings expected to rise by 90%YoY in 4Q2017.

HUBC’s base/Narowal plants operated at 27.7%/23.8% utilization during Nov-17 compared to 47.2%/51.7% in Nov-16.

RFO Generation Fell Substantially: Pakistan generated 7,132GwH of electricity in Nov-17, rising by 2.8%YoY, whereas energy sold increased by 2.3%YoY. The difference between energy generated and energy sold widened from 97Gwh in November 2016 to 137Gwh in November 2017, likely due to increase in Transmission and Distribution (T and D) losses.

Select RFO Plants Generation declined by 47%YoY: Compared to our forecast of a ~60%YoY decline in RFO generation in Nov-17, the actual decline was close to 47%YoY. Although lower than our forecast, the decline is still quite substantial. Overall generation on RFO declined from 1,300GwH in Nov-16 to 691GwH in Nov-17 for certain RFO plants (detailed later).

LPL’s Earnings to Improve Markably, NPL and NCPL’s earnings to remain flattish: We have estimated 4Q2017 utilization levels by using actual October and November numbers and assuming December generation is equal to average generation in the preceding two months. This results in 4Q2017 utilization levels of 47% and 51% for Nishat Power (NPL) and Nishat Chunian Power (NCPL), respectively. Similarly utilization levels for Lalpir Power (LPL) and Pak Gen Power (PKGP) are estimated at 4% and 29%, respectively.

Despite the decline in utilization levels, earnings for NPL and NCPL are expected to increase 4%YoY and 10%YoY, respectively. The anomaly is due to poor earnings reported in 4Q2016 owing to lower thermal efficiency during the period. In the case of NPL, fuel savings fell from PKR0.4/share in 4Q2015 to PKR0.1/share in 4Q2016, setting a low base for 4Q2017. Similarly in the case of NCPL, fuel savings fell from PKR0.5/share in 4Q2015 to PKR0.1/share in 4Q2016.

LPL will be the biggest beneficiary, with earnings estimated to increase by 90%YoY to PKR1.2/share for 4Q2017. Lalpir benefits on two accounts 1) Planned plant outage in Oct-17 2) Reduced RFO generation in Nov-17 owing to RFO plant closure.

PKGP will similarly benefit with utilization levels falling from 44% in 4Q2016 to 29% in 4Q2017. The drop in utilization is less abrupt for PKGP compared to LPL as the plant’s planned outage was in November rather than October, coinciding with RFO plant closure.

GENCOs see the largest drop in utilization levels: Northern Generation Company (NPGCL) (excluding Nandipur plant which runs on RLNG) and Jamshoro Generation Company (JPGCL) (excluding Kotri Units 3-7 on gas) saw the largest declines in generation in November 2017. NPGCL completely closed down during Nov-17, while JPGCL’s utilization levels fell to 9%. Interestingtly utilization levels for Kot Addu Power Company (KAPCO) rose to 19% on RFO in Nov-17 compared to 13% in Nov-16. Hub Power Company’s (HUBC) base plant’s utilization levels fell drastically from 47% in Nov-16 to 27.7% in Nov-17. HUBC’s Narowal plant saw similar declines from 52% to 24%.

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