Power generators: HUBCO puts coal-conversion plan on hold

CEO says money has been spent on fixing current boilers.

KARACHI:

Hub Power Company Limited (Hubco) has put on hold the plan to convert its oil-based power generators to coal, as it has already spend $40 million to fix existing boilers, according to a top company official.

“Overhaul of the boilers of four power plants, with nameplate capacity of 325MW each, has been going on for months and is expected to be completed by May 2015,” said company CEO Khalid Mansoor.

“At least for the immediate term we do not intend switching to coal — especially not after having spent so much money already,” he said, explaining the fact that using coal instead of furnace oil would require construction of new boilers from scratch.



Mansoor pointed out that as soon as he took over the company as CEO, he rang the alarm bell regarding boilers’ condition. They broke down frequently and had leaks.

A few months later government announced that it had convinced some Independent Power Producers (IPPs) including Hubco to switch to coal, that would eventually reduce their electricity tariffs by fifty per cent.

Mansoor said that none of the companies started with the conversion because the policy guidelines needed were not approved by the government. In cases where heavy investment is required, the IPPs want updated contracts.

“Hubco’s contract expires in 2027. We would like to extend it to 2037 or beyond. Conversion of existing plants to coal might happen in a few years, but right now we have other plans,” explained Mansoor.

The boiler overhaul has taken a toll on the company’s profitability as every attached unit undergoes a one-time shutdown that spans over 110 days, cutting output and revenue.

Hubco recently announced a 30.2% decline in net profit at Rs6.549 billion in 2013-14 against Rs9.387 billion it posted in 2012-13.

Profit for current fiscal 2014-15 will remain under pressure as work on two remaining boilers is yet to be carried out. “We expect to see profitability at round the same level (as 2013-14). But things will go back to the way they were from next fiscal year.”

“The recurring problem of circular debt, which has once again created a liquidity crunch for IPPs, will have to be resolved for effective management of the power sector,” Mansoor said.

“The government owes Rs235 billion to IPPs. Hubco alone has Rs70 billion stuck in the circular debt.”

Company’s growth plans

About Hubco’s growth plans, Mansoor said that the company is moving ahead to build a new coal-fired 660MW power plant near its existing facility in Hub, a few kilometres away from Karachi.

“Being right at the coast, we have the most ideal location for a coal-based power plant. We have land measuring 1,500 acres, out of which we are currently using just 100. It leaves us enough space. We can build many power plants there,” he said.

The company is considering what Mansoor calls offshore-unloading solution to handle coal imports. “A large floating storage could be parked in the sea. We could then use barges to bring coal from there to the plant on the coast. This would save cost of building a dedicated coal terminal.”

Hubco might also utilise spare coal capacity at Karachi Port Trust’s terminal, located 50km from Hub, to meet the estimated requirement of 2 million tons a year for the power plant.

The 660MW power plant would cost around $1 billion and Hubco expects to get most of the financing from Chinese investors.

It has also signed an agreement with Sindh Engro Coal Mining Company to inject $20 million in the project, which will extract coal from the vast reserves in Tharparkar district.

Published in The Express Tribune, August 29^th, 2014.

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