IGI Securities Limited – Day Break

Karachi, February 26, 2016 (PPI-OT): Power Generation and Distribution – Generation Inches up by 1.0%YoY in Dec-15

As per latest data available at NEPRA, overall power generation during the month of De-15 witnessed a slight increase of +1.0%YoY (+2.0%MoM) to 6,880Gwh.

FO prices have witnessed a significant decline of 43%YoY/24%MoM in Dec-15 to PKR 24,963/Mton. As per IGI Securities Limited’s estimates, based on current price level, fuel cost on RFO comes at PKR 4.95/Kwh, at a discount of 18% from generation cost on gas.

IGI Securities Limited expects, generation on gas to increase due to higher availability of LNG going forward, as agreement has been signed with Qatar Gas. RFO based generation is expected to increase gradually as cost of generation comes down amid falling FO prices. Hydel based power is anticipated to decline and remain at lower levels between 1,400-1800Gwh until June due to lower availability of water.

Power Generation Inches up by 1.0%YoY in Dec-15

As per latest data available at NEPRA, overall power generation during the month of De-15 witnessed a slight increase of +1.0%YoY (+2.0%MoM) to 6,880Gwh. During the month, generation on Hydel and RFO dropped by 5%YoY each to 1,803Gwh/2,484Gwh respectively, while production on Gas witnessed an increase of +29%YoY to 2,088Gwh.

FO Prices Down 24%MoM, Pushing Cost of Generation below Gas

FO prices have witnessed a significant decline of 43%YoY/24%MoM in Dec-15 to PKR 24,963/Mton. As per IGI Securities Limited’s estimates, based on current price level, fuel cost on RFO comes at PKR 4.95/Kwh, at a discount of 18% from generation cost on gas. With International FO prices hovering between USD 150-160/Mton since Jan-16, IGI Securities Limited expects generation cost to remain lower than gas for the same period. IGI Securities Limited believes, this should bode well for power sector in terms of easing circular debt and subsequently better cash position hence reducing fuel supply concerns.

Generation up by ~2%YoY in 1HFY16 owing to LNG Supply

Overall power generation was up by+ 2%YoY to 52,665Gwh during 1HFY16, compared to a total 51,586Gwh during 1HFY15. However, generation through Gas went up by +42%YoY to 15,350Gwh in the same period, owing to higher availability of Gas on the back of supply of LNG to power generation companies. RFO based power witnessed a decline of 12%YoY to 14,369Gwh in 1HFY16, while generation through HSD dropped by 38%YoY to 8,12Gwh.

Outlook

IGI Securities Limited expects, generation on gas to increase due to higher availability of LNG going forward, as agreement has been signed with Qatar Gas. RFO based generation is expected to increase gradually as cost of generation comes down amid falling FO prices. Power generation by RFO is probable to go up from 4QFY16 on the back of a) Pakgen Power’s plant generation and b) Hub Plant increasing production after conclusion of repair works on all of boilers. Hydel based power is anticipated to decline and remain at lower levels between 1,400-1800Gwh until June due to lower availability of water.