Nearly a year ago, Profit did a story which highlighted the fact that many of the listed companies in the energy sector were trading at a market price which was even below the amount of cash they held on their books.
In simple terms, the assets of the company were worth much more than what the market was pricing the company at. The reason? The recent cancellation of the government contracts made under the Central Power Purchasing Agency (CPPA-G) would have meant that the revenue stream of many of these power generation companies was going to be cut short. The result? As profits were expected to fall, the market priced in the losses and was willing to pay a price much lower than the company was worth.
Now it seems that the energy sector has taken a step in response. Lalpir and Pakgen power are two companies who are jumping on the opportunity and buying back their shares at a discount price in the market. Rather than being reactive, both these companies have taken the proactive decision to take advantage of the opportunity and buy back their own shares. The reason they have given for this purchase is that it will increase the book value per share. This can prove to be the first in a domino effect that might see similar buybacks being carried out by the other listed companies as well.
What led to the current situation, what will the buyback entail and how can the other companies take the buyback to its extreme limits? Profit tries to unpack what the future holds for these companies and how this can prove to be a crossroads for the sector.
The history of CPPA-G
The act of contract cancelling can be traced back to the 1980s when the seeds of this crisis were sown. The power sector of the country has been through a history of loadshedding and excess demand. As the demand kept increasing, during the 1990s and 2000s, there was a constant issue of power breakdowns and outages that were carried out on an everyday basis. The government could not mobilize its own resources to develop the power infrastructure.
Due to lack of foresight and proper planning, the country was failing to meet its energy needs which was the result of its earlier policies dating back to 1985. In 1985, a strategy was developed in order to spur economic growth which would have required the power sector to keep pace with this economic development. This could not be carried out as demand grew by 12 percent in the next 10 years while supply only expanded by 5 percent. By 1994, the gap between supply and demand had reached 1,500 MW.
With a lack of resources to use, the best course of action taken by the government was to introduce a stop gap solution leading to the Power Policy introduced in 1994. Rather than look to invest in the sector themselves, the private sector was incentivized to set up power generation plants in order to fill the generation capacity gap. The additional power would be bought by the Central Power Purchasing Authority under contract. The deal was sweetened by putting in a provision for capacity charges to be paid in case the government did not purchase the additional capacity that could be produced by the plant.
The private sector was being encouraged to establish a power plant as they would be paid whether the power was purchased from them or not. The result of this policy was that Independent Power Producers (IPPs) started to enter the sector to sell their power while they were bought by a single customer.
The cherry on top of such a sweetheart deal was that these contracts were made for a period of 30 years which could be renewed once they had elapsed. Not only were the IPPs getting compensated on their capacity rather than actual production, these revenues were locked in for 30 years in one go.
The result of this policy was that by the end of 2018, 40 IPPs were operating in the market.
The problem with this policy was that it was expected that demand would keep increasing in a linear manner and that any need for additional demand in the economic activity could be paid for as the capacity payments were already being made. It was actually beneficial for the electricity users to keep using more electricity as it would lead to a fixed capacity charge to be divided over a larger number of units.
The policy failed to accommodate for the case in which the demand would actually fall which is exactly what started to take place. In 1991, demand stood at 31,534 GWh which had increased to 76,789 GWh in 2014 and stood at 116,816 GWh by 2021. This trend should have kept going upwards, however, it started to fall and was at 83,109 GWh by 2024.
The demand in 2024 was the same it was in 2015 which meant that many of the plants that had come online since 2015 were obsolete. It would have been better if none of these power plants had been established. The IPPs were doing exactly that by shutting down production at these plants as no production was required while they still received the capacity payments.
The impact of this was that consumers were using a lower amount of power which meant that the capacity charges were being divided over a lower number of units. This increased the per unit cost of electricity and burdened the consumers with paying for the bad policy of the government. With the cost of electricity becoming unbearable, the government decided to cancel many of the contracts that had been made with the IPPs and pay off any dues that were pending on them. From now on, a new take and pay model would be followed which would buy electricity in case there was excess demand in the system.
The new reality for the electricity producers
With that, a new reality started to dawn on the IPPs. With the cancellation of the contracts, the steady and long term flow of revenues was going to dry up. Lower revenues would mean lower profits which would lead to lower valuation on the stock market. The reaction to the cancelling of the contracts proved to be detrimental to the share price of many of the power producers. Some of the companies saw the share price fall to such a level where they were lower than the net book value per share, net current asset value and net cash value of the companies as well.
Based on the earlier analysis carried out, 15 of the listed companies were studied and it was seen how the share price of each of these companies compared to their net asset value, net current asset value and net cash value held by the company per share. The share price is compared to these values as the stock price is the perception the market has in regards to how they perceive the company to perform in the future. The stock price takes into account a long term perspective of the company and integrates them into the value they attach to a company.
The conclusion from the analysis carried out earlier was that there were certain companies which were trading below their net cash value. In basic terms, these companies could shut down and be sold for more compared to what the market was ready to pay for them. These companies were termed as being worth more dead than alive. Just the cash held by these companies was more than the perceived value even if all the other assets were ignored.
Now it seems two of the companies have decided to buy back their shares in order to take advantage of the low prices prevailing in the market. Lalpir Power Limited and Pakgen Power Limited have announced that they are interested in buying back their shares from the market. Let’s take a closer look at the buy back announced by each company.
Lalpir Power
On 22nd October, Lalpir Power announced its Extraordinary General Meeting (EOGM) to be held on the 20th of November with one agenda item to approve the resolution to buy back 100 million of its own shares. The board had already approved this resolution which was being carried out in order to cancel these shares after they had been bought back. This would make up 26.3% of the total outstanding shares of the company and would be purchased from 27th of November to May 15th of 2026. The cancellation of the shares would improve the book value per share of the company.
On the day of the EOGM, the resolution was passed by the shareholders as well.
The buying started on the 4th of December and by the 16th, the company announced that it had bought back the complete number of shares it required. The buyback was successful around Rs 24. One of the biggest sellers of the shares was Jahangir Firoz who held 69 million shares and used this buyback to sell his total holdings at Rs 24.5297.
In order to understand the impact of the cancellation of the contract, the three quarter performance of Lalpir can be seen from January 2025 to March 2025 compared to the same period last year. The contracts had been curtailed from January of 2025 which meant that in the most recent quarter, the company earned no revenues leading to losses of Rs 1.22 per share. In the same period last year, the company was able to earn revenues of Rs 8.8 billion which led to profit per share of Rs 3.81.
Things only got worse as the next quarter saw losses increase further by Rs 0.61 to Rs 1.83 for the six months ended. By the end of September, Lalpir had made losses of Rs 2.18 per share and there was no signs of revenues restarting ever again. To put this performance in context, Lalpir had been able to earn Rs 12.47 in the same period last year which had turned into a loss of Rs 2.18.
To gauge the performance of the company, the net book value will be considered at different intervals. At the end of December 2024, the net book value was at Rs 39. By March end, this had fallen to Rs 37.83, by June to Rs 37.22 and by September end to Rs 36.86. In comparison to this, the share price had started 2025 at Rs 21.74 touching a high of Rs 30 and is currently hovering at Rs 24.
Based on the share price, it can be seen that the market expects the losses to keep continuing causing book value to further decrease. The solution to this issue has been set by the company by buying back the shares at the lower rate.
In terms of the shareholding pattern, Lalpir showed at December end 2024 that its directors and associates held around 65% of the shares while 35% was held by outsiders. Included within the directors and related parties was the shareholding held by Jahangir Firoz as well. Once the shares are bought and cancelled, the number of outstanding shares would fall to 280 million out of which 63% would be held by the director and associates while the number of shares held outside the company would increase to 37%.
The reason for this decrease in ownership is due to the fact that the company is buying almost 70% of the shares from one of its related parties leading to the decrease in their shareholding after the cancellation.
Pakgen Power Limited
Similar to Lalpir, Pakgen Power also announced on 22nd October that it was going to hold its own EOGM on the 20th of November 2025. The one item on the agenda was to approve the resolution to buy back 185 million shares from the market. This would constitute 49.72% of its total outstanding shares and these would be cancelled after they were bought back. The buyback would go from the same dates as Lalpir Power.
On the day of the EOGM, the resolution was passed by the shareholders as well.
The buying started on the 11th of December and the purchase has not been completed as of yet. The company has bought 170 million shares by the 15th of December at a rate around Rs 62 per share. One of the biggest sellers in the activity was Providus Capital (Pvt) Limited which sold 57 million of their shares.
Even though the contracts had been cancelled, Pakgen was able to earn revenues of Rs 93 crores leading to earning per share of Rs 0.1. This was in stark contrast to the year before when the company earned revenues of Rs 5.1 billion and profit per share of Rs 5. Things started to deviate further as by the end of June, losses had accumulated to Rs 1.11 per share compared to Rs 10.75 of profit a year ago. The slide was stunted to some extent in the most recent quarter as the company made other income of Rs 70 crores leading to a earning per share of Rs 0.31 only. The losses had fallen slightly to Rs 0.8 per share for the 9 months ended September 2025. The year before that, the company had earned Rs 16.66 per share in the same nine month period.
The impact of these losses can be seen on the balance sheet and the book value per share as well. At December end 2024, the book value per share was at Rs 71.47 which decreased to Rs 68.68 by the end of September 2025. In comparison to this, the share price was hovering at Rs 100 at the start of the year and touched a high of Rs 293. Currently, it is trading at Rs 60. Even after taking the losses into account, the market expects the trend to continue and for more losses to be suffered leading to lower market price.
Based on the low share price, the buy back has been considered by the company.
The first of many?
A buyback is mostly considered by the company when they perceive their share as being undervalued in the market. Both Lalpir and Powergen can see that the market is valuing the shares at a much lower rate compared to the assets it holds on its books which has led to the move being undertaken by them.
As the contracts were being cancelled in March of 2025, there were different courses of actions that were considered by the energy producers. One course of action that was taken for these companies was to look for alternative ventures and investments. Companies like Hub Power and Nishat group itself have recently decided that they have ample resources on their balance sheets and have invested in assembling electric vehicles in the country.
Hub power was the first company to do so when they decided to import and assemble BYD cars from China. At that point in time, the management at Hub Power decided to invest in electric vehicle assembly and set up a nationwide charging network under the name of Hubco green. Companies under the Nishat group of companies like and Nishat Power have chosen this route as well in order to divert their investment into a new venture which was not being done in the past. Lalpir and Powergen also count themselves as part of the Nishat Group and can consider that option for themselves.
Pakgen Power currently holds Rs 23.7 billion from its Rs 25.9 billion of total assets in the form of current assets. Out of total current assets of Rs 23.7, most of it is held in short term investment. A similar story can be seen at Lalpir where current assets are worth Rs 12.1 billion out of total assets of Rs 14.3 billion. From these current assets, Rs 11.3 billion are held in short term investment which can be converted into long term investments very easily. The Nishat Group has set up its manufacturing venture at $100 million to assemble Jaecoo and Omoda brand cars. The assets held by either of these companies can be used to establish their own plant independently or in collaboration with another investor.
For now, both these companies are joining together with other Nishat Group companies in order to make a bid for the takeover of Rafhan Maize Products Company Limited which will see both these companies invest into a small portion of the takeover bid.
The second option for the companies can be to delist from the stock exchange on the voluntary basis. The buy back already shows that the share price being traded at is considered to be low. Making this the basis, the company can voluntarily apply for a delisting for now. Something similar was carried out by Pak Suzuki two years ago where they chose to buy back the shares from the public. Pak Suzuki contended at that time that they were facing huge losses on their books and wanted to give an opportunity for investors to sell their investments at a good price. In order to make this buy back successful, they have to acquire 90% of the shares and both the companies are already close to that threshold.
Another track that can be ventured down is to look to wind up the company completely which was carried out by Pakistan Hotel Developers in the recent past as well. Pak Developers had sold its sole asset called Regent Plaza to SIUT and gave out the proceeds to the shareholders in the form of dividends. This disbursed most of the assets that it had on its books and allowed investors to recoup their investment.
The parallel can be drawn with the energy sector as the revenues were going to dry up for the hotel operator which is also taking place here. Energy producers can start to liquidate their assets and then distribute the proceeds to their shareholders. Any scope of continuing to operate these plants further will only prove to be a drain on their assets. In case any alternative venture cannot be formulated, winding up will allow the shareholders to earn back their investment while the management will be able to earn a premium by selling their assets at a price higher than the amount they had bought back the shares for.
One reason given by the companies was that they wanted the book value per share to rise after the cancellation took place. This was a good reason, however, it should also be noted that after the cancellation, the loss per share would also increase due to a lower number of shares. Rather than avoiding the inevitable, a better option would be to wind up the companies.
The recent buyback being carried out can lead to other companies choosing one of the two routes as well. They also have the option of either finding a new venture or winding up their operations to give the best value to the shareholders and themselves. The buyback could prove to be the first in a series of dominos leaving the energy sector or finding a new niche for themselves.
