KAPCO shows interest in equity stake of Tenaga Generasi

Kot Addu Power Company (KAPCO) has placed a bid to acquire an equity stake in Tenaga Generasi Limited, which owns a 49.5 MW wind power project located in Sindh, according to a notice sent by the company to the Pakistan Stock Exchange (PSX) on Tuesday. 

As per KAPCO’s notice, if the bid becomes successful, then it will own a majority stake in Tenaga Generasi, a subsidiary of Dawood Lawrencepur Limited.

“Discussions about the potential acquisition transaction are in the preliminary stage and are subject to shareholders' approval,” the company’s notice further said. 

In its annual report 2023, KAPCO has indicated its priority of investing in renewable energy sources.

“The Board of Directors continues to review different options for diversification of the Company's business. Options for acquisition of shareholding in greenfield and brownfield projects are being reviewed in conjunction with initiatives for growth in environmentally friendly renewable (solar and wind) projects,” Chairman KAPCO Lt. General (Retd.) Sajjad Ghani. 

Additionally, the annual report explains that diversification opportunities exist for the company in greenfield and brownfield projects. 

Furthermore, KAPCO has developed ways to decrease costs on fossil fuels, lower emission levels, and, most importantly, use renewable energy sources that do not deplete. Hence, KAPCO plans to seek growth opportunities in solar and wind energy projects.

KAPCO's transformation policy to shift to renewable energy in the future, highlighted by its chairman, reflects that the company is planning to work on reducing its carbon footprint to become a more socially responsible brand in the energy sector.

However, KAPCO's financial performance in 2023 created some potential concerns for shareholders because there was a clear reduction in the company's operating profits and net profits from 2022 to 2023.

There was a gross (loss) in 2023, but the company ended up generating net profit in 2023 because of the other income of Rs 15.8 billion generated from investments in financial and non-financial assets, which was added up in the company's operating profit.

Therefore, the question is whether the KAPCO can allocate funds for the potential acquisition, especially when the KAPCO is generating low profits from its current operations in its last fiscal year.

On the other hand, Tenaga Generasi is a subsidiary of Dawood Lawrencepur Limited.

Dawood Lawrencepur's financials reported for the third quarter, which ended on 30 September 2023, suggested that the Tenaga Generasi wind power plant of 49.5 MW came to a financial close in March 2015 and received the government of Pakistan guarantee.

Therefore, the government policy to help sustainable energy-generating companies has potentially saved Tenaga Generasi in 2015. In 2024, if KAPCO successfully acquires Tenaga Generasi, then it will strengthen its policy of acquiring shareholding in greenfield projects.