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Hubco’s Laraib Energy to come online by year-end

Laraib Energy, the Hub Power Company Limited’s (Hubco) hydel project, is expected to come online by the end of this year or early 2013, slightly earlier than scheduled i.e. middle of 2013, Hubco’s management told an analysts briefing on Thursday.

Laraib is the first independent hydropower producer (IPP) in Pakistan/AJ&K with an installed plant capacity of 84 MW situated near the New Bong Escape, some 7.5 km downstream of the Mangla Dam and 120 km from Islamabad.

The project is being developed under build, operate, transfer (BOT) mechanism and to be transferred free of cost to the government of AJ&K at the end of the 25-year term. The management presentation informed that with the company’s new Narrowal plant, operated under Power Policy 2002, its increased vulnerability to circular debt had concerned many investors.

To recall, certain other IPPs that are operated under the 2002 policy are facing liquidity constraints.

The management’s understanding of the situation suggests that the government would not allow any IPPs operating under the 2002 policy to be converted into the 1994 policy. However, opting for a cooperative strategy with the government as against confrontation is boding well for the company in this regard, added the presentation.

Net receivable in lieu of circular debt that rose to Rs22 billion reported as of June 30, 2012, currently stands around Rs17 billion.

“In case circular debt escalates and adversely affects the company’s cash flows, international arbitration continues to be an option as per their Power Purchase Agreement. However, given the company as well as the sponsor’s ability to resolve through cooperative strategy, they are not likely to take this route,” said Nauman Khan, an analyst at Topline Securities.

On the operational front, Hubco’s old plant is operating at thermal efficiency of 38 percent against tariff specified 37 percent efficiency, while the Narrowal plant is operating at efficiency of 46 percent against 45 percent tariff specified. “The load factors of the two plants are currently above 75 percent. Thermal efficiency, along with higher load factor, continues to bode well for the company in FY13 earnings,” Khan said. Change in dividend policy with new sponsors coming in has also been an area of concern for the investors as at one side, the agreement prohibits them to disburse dividends quarterly. —Javed Mirza

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