Pakistan’s Hub Power to Spend $1 Billion on Conversion to Coal

Pakistan’s Hub Power to Spend $1 Billion on Conversion to Coal

By Faseeh Mangi
Jan. 10 (Bloomberg) — Hub Power Co., Pakistan’s second- largest non-state power producer, plans to spend about $1 billion to convert its oil-fired plant to coal as it seeks to double production.
The company has received proposals from about six contractors and has talked with lenders to raise $750 million through loans for the conversion, Chief Executive Officer Khalid Mansoor said in an interview in Karachi yesterday, without saying when the project would be completed. The company plans to increase its generation capacity to 5,000 megawatts by 2020 from about 1,600 megawatts at present.
Pakistan’s power companies are shifting to cheaper fuels as Prime Minister Nawaz Sharif’s government takes steps to end energy subsidies to comply with loan agreement conditions set by the International Monetary Fund. Pakistan generates about 65 percent of its electricity from oil and gas and 0.1 percent from coal, according to the Pakistani finance ministry’s
2013 Economic Survey.
“There is a gap between electricity cost and the amount consumers pay for it.” said Nauman Khan, a Karachi-based analyst at Shajar Capital Pakistan Ltd. “Coal is the cheapest option and will help bridge that gap.”
Dwindling gas supplies, which fell 2.2 percent to 1.14 trillion cubic feet in the nine months ended March 2013 from a year earlier, are also hastening the switch to coal.
Hub Power rose 0.1 percent to 64 rupees on Karachi yesterday. The shares have gained 41 percent in the past year, compared with a 66 percent increase in the benchmark KSE100 Index.

Indonesian Coal

The company will initially import coal from Indonesia and switch to local coal after six years as Pakistan develops domestic reserves, Mansoor said. The Thar coal seam, located 360 kilometers (224 miles) north of Karachi, contains about 175 billion metric tons of lignite, making it the world’s largest deposit, according to the government of the province of Sindh.
The company expects to pay a dividend in “the same ballpark” as the 8 rupees a share it paid in the year ended June 30, said Mansoor, adding that the conversion will not have an impact on the payout.
Hub Power, the largest private power producer after Kot Addu Power Co., runs its largest plant in the city of Hub in the western province of Baluchistan.