High demand, favourable policies encourage the mill to diversify. PHOTO: APP
“In view of the rising demand for electricity and government’s favourable policy for promoting bagasse-based power projects, Mehran Sugar Mills has decided to set up a 26.5MW bagasse-based power project,” said a notification sent to the Pakistan Stock Exchange on Monday.
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“The company has, in principle, decided to invest an equity of up to Rs750 million in the power project. The plant will be operational by December 2018,” it added.
The decision was taken by the board of directors on Saturday last week. The project will be 100% owned by Mehran Sugar.
“The decision to develop the power project was taken as part of the company’s diversification plan,” said Mehran Sugar Mills Chief Financial Officer Muhammad Hanif Aziz.
Sugar production is about to reach the saturation point with no more agricultural land available for cultivating sugarcane. Almost all the available land close to the mill has been fully utilised.
“There is no barani (rain-fed) land available that could be converted into agricultural field with sugarcane cultivation,” he said. “The saturation is not allowing us to expand our {sugar production} business. This is likely to impact our growth in the next 5-10 years,” added Aziz.
He pointed out that bagasse (the residue of sugarcane) would be utilised as fuel for power production. “Since bagasse is readily available, it would save the fuel cost.”
The National Electric Power Regulatory Authority (Nepra) has recently reported that the share of bagasse-based power in total production stood at 0.61% in May 2016. An approved tariff of Rs5.88 per kilowatt-hour (kWh) was paid to the producers in the month.
Baking business.
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The notification further said that as part of the diversification plan, the mill had also decided to invest Rs125 million in a new company. “The company will be involved in the manufacturing and branding of confectionery/baking products,” it said.
Mehran Sugar plans to hold 24% equity in the company and will seek formal approval of shareholders in due course for both investments.
Aziz added their wind-based power project ‘UniEnergy’ of 50MW at Jhimpir, Sindh was expected to come online in the next two years.
“We are waiting for tariff approval by Nepra for the wind-based power project which is expected in the next couple of months. This will be followed by approval from the regulatory authorities and signing of an agreement for the sale of power,” he said.
Mehran Sugar has injected Rs500-million equity into the project. It has a shareholding of 25% valuing Rs10 billion including 70% debt.
Published in The Express Tribune, August 2nd, 2016.
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