The recent news report suggest, the re‐emergence of the notorious circular debt after the government cleared its outstanding stock on Jun 28’13 and increased the power tariff staggered in two stages. It has been quoted that that circular debt has swelled to PkR216bn as of Dec 02’13, of which PkR156bn are dues to the IPP’s (Independent Power Producers). This has raised concerns amongst the investors and has caused the sector to significantly underperform the broader index in the current rally. The benchmark KSE100 index has yielded a return of 17% from the recent low of 21,600pts on Oct 14’13 whereas the power sector has provided a mere return of 3%. Drilling deeper, amongst the individual IPP’s there is a variant built‐up in overdue receivable. Of the four major listed IPPs, Hub Power (HUBC) and Nishat Power (NPL) have shown a significant built‐up in overdue while the increase is not as alarming in Kot Addu (KAPCO) and Nishat Chunian Power (NCPL).
HUBC and NPL at one end, KAPCO and NCPL at the other
It has been reported that circular debt has been once again surged to PkR216bn as of Dec 02’13. Out of the total amount, the government owes PkR156bn to IPP’s, including PkR42bn to HUBC, PkR36bn to KAPCO and approx. PkR6bn each to NPL and NCPL. The resurgence in the circular debt has once again created concerns about the liquidity positions of the IPP’s. HUBC’s overdue receivables have increased by a significant PkR10bn in the last two months to PkR42bn as of Dec 02’13 against PkR32bn reported on Sep 30’13. HUBC’s base plant receivable rose by PkR7bn to PkR37bn while the residual increase of PkR3bn came from Narrowal operations. For the period under review, NPL has also shown a skewed increase in its overdue receivables to PkR6bn (up PkR3bn). On the other end of the spectrum, KAPCO and NCPL depicted a muted growth in their overdue. KAPCO’s reported overdue has increased to PkR36bn while NCPL’s receivable stands at PkR6bn, both showing an increase of approx. PkR1bn.
Built‐up in receivable a temporary issue now
Though this receivable built‐up has alarmed investors but we believe the situation to gradually improve going forward. Our conviction comes from the new government’s focus on resolving the energy crisis that encompasses i) corporatization and privatization of the energy sector, ii) curtailment of distribution losses and iii) gap rationalization between cost of generation and collection from consumer.
