Kapco shelves 280MW power expansion plan

KARACHI - The Kot Addu Power Company, the biggest independent power producer of the country, has shelved its 280 megawatts power expansion project of $350 million due to circular debt. KAPCO said in a communique despatched to Karachi Stock Exchange here Thursday that ithas stopped progress on its 280 megwatts expansion project due to impending circular debt and its consequential impact on fuel supply chain to power sector. The KAPCO had earlier planned to invest nearly $350 million for the expansion of its existing power plant and to generate an additional 280 MW. The statement further read that the volume of circular debt has reached its all-time high and the power producers are in a fix as they are facing one of the worst financial crisis in past few months. KAPCO has to pay approximately Rs 59 billion of different institutions, of which Rs 19 billion is to be paid only to the Pakistan State Oil (PSO) for furnace oil buying the company needed to run its power plant, officials said. Officials informed that the company was seriously thinking of retiring circular debt rather investing bulk amount in expansion plan, therefore, the expansion project has been shelved, they added. It may be recalled that as a result of tight liquidity conditions and other commercial considerations, the company had earlier cut the proposed expansion project size from 450MW to 280MW. According to an analyst Faraz Farooq, the company instead of installing an oil-fired power plant, is now pursuing other alternative energy projects which might be announced in next 6 to 9 months. The target price for the scrip remained unchanged at Rs 52 per share as it had not incorporated any value from this 280MW proposed project. At current trading levels, Kapcos remaining dividend stream offers a US$ IRR of 16 percent (Rs IRR 18 percent).