By: Alfalah Securities Private Limited
NEPRA recently announced its reply to the petition filed by Lalpir Power Limited for coal conversion of its existing RFO plant. As per our calculations, assuming fuel losses/no fuel losses Lalpir Power’s value after coal conversion comes out to be PKR4/10 on a per share basis, taking Dec-16 TP to PKR46/52, depending on whether NEPRA approves lower efficiency benchmark or not. This project, if materialized, is expected to come online in CY19 and hence we await the final tariff and financial close before incorporating in our model.
According to the preliminary document (Lalpir’s reply awaited), a tariff period of 25 years has been proposed by NEPRA allowing existing capacity payments for the first 10 years. Net dependable capacity for new tariff has been reduced to 329.42MW. The Authority has allowed total project cost of only USD228.4mn against the requested USD262mn. Moreover, the company was seeking approval for efficiency of 35.6% as against the approved 36.6% efficiency.
Significant concerns still loom over the acceptance of tariff by Lalpir Power. The whole process could take quite some time (1HCY16) as the company would be filing a reply to NEPRA on the disallowed components, following which a final tariff will be put forward by NEPRA which Lalpir Power may choose to accept/reject. We also believe that company might not accept the current proposed efficiency as, after such a huge CAPEX, it makes no sense to still remain an inefficient plant. Logistics for coal transportation up-country also present a major hurdle to the proposed project.