FFBQReportedly Fauji Fertilizer Bin Qasim (FFBL) has achieved financial close of its 100MW (net) coal fired power plant project having an estimated US$265 million. The project is scheduled to commence commercial operations by 1QCY17. Venturing into this diversified business is expected to deliver two pronged returns, namely: 1) transmitting 58.7% of net capacity (52MW) to KEL under a power purchase agreement with the utility at a levelized tariff of Rs10.15/KwH for 30 years which is estimated to add Rs586.7 million (Rs0.63/share) to company’s bottomline and 2) remaining capacity (40MW) will be used to meet power requirements of FFBL’s plant and in the process freeing up gas for urea production.
While FFBL management believes that about 20mmcfd will be freed up, analyst from AKD Securities suggests savings of 12mmcfd. Factoring in this synergy and prevailing urea pricing dynamics, the increase in feed stock gas supply is expected to supplement earnings by Rs1.79 billion (Rs1.92/share). Despite risks being present, FFBL is poised to benefit from diversified revenue base, where profits from planned ventures into consumer goods (acquisition of controlling stake in Noon Pak, launch of FML) are to reposition the firm away from its core fertilizer interests.
According to the tariff application submitted by KEL to NEPRA and accompanying documents for the generation license, the estimated project cost is US$265 million equivalent to Rs27.56 billion. Out of this 25% (US$66 million) equity proportion, out of which 75% will be provided by Fauji Fertilizer Bin Qasim (US$49.7 million) and remaining by the Fauji Foundation Group. The CPP portion of the tariff includes an ROE component amounting to Rs1.59/KwH indexed to adjustments in US$/PkR on a quarterly basis.
Risks for the planned project emanate from: 1) concerns raised by NEPRA (regulator approving PPA with KEL) over the high cost (US$2.25 million/MW as compared to US$1.62 million/MW benchmark project cost for upfront coal), reduced capacity and low thermal efficiency 29% vs. 37% benchmark for upfront coal and 2) any delays in commissioning may become a drag on liquidity as tariff payments commence post COD.
FFBL is poised to benefit from a diversified revenue base, where planned ventures into consumer goods and alternative energy projects should reposition the firm away from its core fertilizer interests. Assuming urea margins at 40% and prices at Rs1,990/bag, earnings contribution in this regard is expected to come around Rs1.92/share.
FFBQ venturing into new businesses, coal fired power project, gas saved to be utilized for urea production

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