Sector Performance

Owing to lower production bonus due to reduction in load factor which affected the net sales
and the higher maintenance cost, the cumulative earnings of the power sector remained lower
in the 1HFY14 as they earned a profit after taxation of Rs 8,313 million during the period which
is 25.5% less when compared to a PAT of Rs 11,153 million in 1HFY13.
The cumulative sales of the sector reached Rs 162,271 million in 1HFY14 witnessing a marginal
decline of 0.8% as against Rs 163,511 million during the identical period in FY13.
The operating cost however surge by 3.1% YoY in 1HFY14 to Rs 148,064 million due to higher
fuel cost.
The gross profit reduced by around 29% YoY in 1HFY14 to Rs 14,207 million. Therefore gross
profit margin dropped to 8.75% during the period under review versus 12.2% in 1HFY13.

Key Players
HUB Power Company (HUBCO)
Reason for the decline in earnings was higher O&M costs, as the company carried out boiler
tube replacement at the base plant. Maintenance activity resulted in lower efficiency, lower
generation and a lower generation bonus, causing a further decline in earnings.
Kot Addu Power Company (KAPCO)
Earnings remained relatively low due to higher repair and maintenance cost
Nishat Chunian Power (NCPL) and Nishat Power Limited (NPL)
The earnings of Nishat Power (NPL) and Nishat Chunian Power (NCPL) declined by 0.1% YoY and
14% YoY in 1HFY14 respectively.

Supply Demand Scenario Past 30 Years
The gap between supply and demand has increased from 1970s onwards and reaching a very
high level after 2000s
The increase in generational capability has not been able to keep up with the surge in demand
A terribly inefficient power transmission and distribution system that currently records losses of
23-25% due to poor infrastructure, mismanagement, and theft of electricity.
A supply-demand gap where the demand for electricity far outstrips the current generation
capacity leading to gaps of up to 4,500 5,500 MW.
The supply-demand gap has continuously grown over the past 5 years until reaching the existing
levels.
Such an enormous gap has led to load-shedding of 12-16 hours across the country.

2012 2014
Energy shortfall has reduced from 6325 MV in 2012 to 2827 MV in 2013
Overall generation capability was increased as government cleared circular debt
National power policy states target to reduce demand and supply gap to zero by 2017

Why is there a gap?
Excessive Demand
Increased use of electrical appliances (air conditioning, lighting equipment etc.) and advent of
new electrical devices
Rapid expansion of distribution system to villages and other un electrified areas
Technical improvements in efficiency of large electrical appliances have been offset by increases
in the uses and numbers of appliances
If there is a 1% increase in income, FDI and population growth; electricity consumption
increases by 0.9%; 0.05% and 1.6%, respectively (Khalid Zaman)
Industrialization
Growth in agriculture
Services sectors
Urbanization
Lagging Supply
Leakages in fuel oil delivery and usage system
Natural Gas to Fuel Oil resulting in fuel crisis, and increase in power supply costs
Inefficient Distribution System

Tariffs and Emerging Circular Debt
During November 2003 to February 2007, end-consumer tariffs remained unchanged. This was
because NEPRA did not allow any revision in tariffs despite requests from DISCOs.
After February 2007, NEPRA allowed some upward revision in tariffs in response to the increase
in the power purchase price. But the government-notified tariffs remained lower than those
determined by NEPRA
On the other hand, tariffs for power suppliers (IPPs and GENCOs) continued to rise mainly due
to rising fuel prices and the depreciating value of the rupee against the US dollar. As mentioned
earlier, any adjustment in the power suppliers tariff does not require government approval to
be effective.
Since the government was not fully compensating PEPCO against these losses, this wedge
essentially shows the extent of loss that PEPCO incurred on each unit of power it supplied.