KAPCO - profits despite no revenue

The Power Purchase Agreement (PPA) of Kot Addu Power Company Limited (PSX: KAPCO) expired in October 2022, which resulted in the plant being out of operation. The recent financial performance of the company shows an absence of topline in 3MFY24 and 9MFY24.

Up to the date of expiry of the Power Purchase Agreement in 2022, KAPCO sold 588 GWh of electricity to the Central Power Purchasing Agency (Guarantee) Limited, following which the plant was put into preservation mode in accordance with the original equipment manufacturer’s recommendations and industry best practices as per the annual report FY23. This restricted FY23 revenues for KAPCO and resulted in no topline due to no dispatches in FY24 so far.

The power company continued to post a gross loss for the sixth consecutive quarter due to the topline situation as well as the higher cost of sales.

KAPCO’s bottom line, however, was able to post earnings despite no revenues during 9MFY24. Even though it witnessed a decline of around 8 percent year-on-year, the earnings in the absence of topline came through due to its investment income strategy. The contribution to the bottom line was made by the other income in the higher interest rate scenario, where earnings were primarily driven by interest income from PIBs, Sukuks, and penal income. KAPCO’s profits in 3QFY24 increased by 65 percent year-on-year. Hence, the IPP’s only source of earnings currently is the other income that consists of interest on cash and short-term investments since the expiration of the PPA. The approval of KAPCO’s new tariff is in limbo, whereas the company is also trying to diversify into both greenfield and brownfield projects reduce its emission levels and venture into renewable energy sources which do not deplete.