Karachi Electric Supply Company (KESC) has set a target to bring down transmission and distribution (T&D) losses by 2.5 per cent to 27 per cent in the current fiscal year FY13. "The KESC has been facing the challenge of high T&D losses, with every one percent loss compelling the company to forego Rs 1 billion of revenue", analysts said.
The KESC had posted record profit of Rs 2.6 billion translating earning per share of Re 0.11 in FY12 as against loss of Rs 9.4 billion with per share loss of Re 0.39 posted in FY11. The share price of the stock has increased by 306 percent in 2012YTD. The KESC management conducted its much awaited analysts briefing where the management explained that they booked one-time gains of Rs 4.72 billion in tariff adjustment along with Rs 1.06 billion reversal of mark-up on security deposits in the fourth quarter. "The T&D losses for the company on an average stood at 29 per cent in FY12 as compared 32 per cent in FY11", Nauman Khan, an analyst at Topline Securities said. The company aims to improve the number by 2.5 per cent to 27 per cent in FY13.
Regarding recent issue of debt conversion of IFC and ADB loan worth $50 million, the management stated that as per their agreement the timeline for the conversion expires in December 2012. For this reason, before going to the lenders they wanted to achieve all the regulatory approvals, he said.
On the point of right issue, the management stated that as per their purchase agreement the amount of $361 million has been invested by the sponsor and decision about future right issue will depend on company's need assessment. Replying about media reports regarding diversion of 650MW away from KESC to Punjab, the company has an agreement with the government to ensure 650MW electricity till 2015. Beyond this scenario, company is actively pursing coal and biomass generation projects. The projects are still in infancy stage while may take two years to be executed.
Lastly, about their projected earnings in its right issue notice dated July 29, 2011, the company is saying that they will make their effort to achieve that target. Taseer Abbas at Arif Habib Limited said that the company is undergoing fuel diversification projects with the coal conversion project being on top of the list. Negotiations with regulator and EPC contractor are underway and the project is expected to be completed within two years.
The is sponsored by a Hong Kong based investment company and will contribute towards KESC's bottom line as the earnings are to be shared on pro rata basis. "By giving second priority to power sector in the new gas allocation policy, the management hopes to curtail its working capital cost", Taseer said. "Going forward it will help in easing the circular debt problem for the company", he added.