The principal activities of Kohinoor Energy Limited (KEL or the Company) is to own, operate, and maintain a furnace oil power station with a net capacity of 124 MW. The plant is situated at 35-KM Link Manga Raiwind Road,Lahore. The main equipment at the power complex includes eight (8) WARTSILA Diesel 18V46 Type Diesel Generators, Steam turbine, and three (3) ABB 63 MVA Step-Up Transformers converting the electrical output from 11 kV to 132 kV.

The Company's key source of earnings is the generation tariff from the power purchaser, WAPDA. The reference generation tariff comprises a capacity charge component and an energy charge component. The former is based upon dependable capacity and constitutes a minimum tariff guaranteed to the Company which covers the fixed O&M costs, insurance charges, working capital funding costs, and return on equity. The levelized tariff for the period of 30 years is US cents/kWh 5.2492.

The components of capacity payments are being indexed with the variation in the US dollar exchange rate and US CPI to ensure the dollar-based return on investment.

The Saigol family owns 62% of the shareholding of the Company through different family members (34.56%) and associated companies and related parties (27.48%). Wartsila Finland holds a 2% stake in the Company while the remaining ownership stake is held by various institutions, including DFIs, NBFIs, FIs, insurance companies, modarabas and mutual funds, and individuals.

The ownership stake of the Company has remained stable over the years, with the major stake belonging to the Saigol family. Moreover, the ownership structure is expected to remain stable due to the nature of the project and the long-term agreements signed with the government and its other related entities.

KEL was amongst the pioneer projects of Independent Power Producers in Pakistan. Additionally, the sponsors have also previously successfully developed and operated a 15 MW furnace oil power station in Faisalabad under Kohinoor Power Company Limited. Hence, the sponsors have vast experience and knowledge about the local power sector along with expertise in successfully delivering projects.

Saigol Group stands as a leading group in the industrial and commercial sector of Pakistan and holds a majority shareholding in the company. Major businesses of the group comprise textiles, home appliances, electrical equipment manufacturing, and power generation.

As of June 2024, the Company's board comprises seven directors, including three non-executive and three independent directors, along with one executive director who is also the CEO of the company. Three members represent the interests of the Saigol group, while one director represents Wartsila.

Mr. M. Naseem Saigol has been the Chairman of the board since the inception of KEL. He is leading the Saigol group in diverse business sectors and thus possesses leadership and entrepreneurial expertise. Mr. M. Naseem Saigol, through his business group in terms of services, manufacturing home appliances and electrical equipment, textile products and exports thereof, and power generation, has contributed towards the economic development of the country. Mr. Muhammad Murad Saigol is working as Chief Executive and Managing Director of PAK ELEKTRON LIMITED (PEL).  He looks after all of the strategic and operational affairs of the company. He joined PEL in 2005 and achieved certain landmarks.  He is a Corporate Governance Certified Director under the Directors Training Program.  He is also on the boards of other related entities of the group. Syed Manzar Hassan is a Fellow Member of the Institute of Chartered Accountants of Pakistan. He has over 20 years of experience in financial management, financial management reporting, and handling corporate matters with a specialization in corporate finance. He is an Executive Director on the Board and Chief Financial Officer of PEL.  Mr. Faisal Riaz has done Cost and Management Accountancy (CMA) from the Institute of Cost & Management Accountants of Pakistan. He has been associated with Wärtsilä since 2005, and during his tenure, he has performed different roles. Since Nov 01, 2018, Mr. Faisal has also been performing as Managing Director/Chief Executive Officer of Wärtsilä Pakistan (Pvt.) Limited, and since Jan 07, 2019, he has also been assigned to the Board of KEL as director.

The board has made two committees, namely the Audit Committee and the Human Resource & Remuneration Committee, which ensure effective governance of the company. The directors of the company have attended directors training programs as per the mandatory requirement of SECP to ensure that they are aware of their duties and responsibilities and can effectively manage the affairs of listed companies on behalf of the shareholders.

Being a publicly listed company, KEL has to abide by the code of corporate governance, which includes timely preparation and dissemination of financial accounts and other material information related to the Company's operations.  A.F. Ferguson & Co. Chartered Accountants are the external auditors of the company. They expressed an unqualified opinion on the company’s financial statements as of June 30th, 2024. Furthermore, the auditors have drawn attention to the uncertainties regarding the outcome of certain claims by the Central Power Purchasing Agency (“CPPA-G”), which have been disputed by the Company. The opinion is not qualified in respect of this matter.

The management's role in an IPP is confined largely to financial matters and regulatory interaction. In light of this, KEL has a lean organizational structure. The organizational structure of the company is divided into two major functional areas (i) Technical and (ii) Support functions.

Mr. Zeid Yousaf Saigol is the CEO of the company. He has been associated as Executive Director with Pak Elektron Limited since 2011 and is leading the Company's Power Division Operations. He is also on the board of Saritow Spinning Mills Limited, Kohinoor Power Company Limited, and Kohinoor Industries Limited. He is a Corporate Governance Certified Director under the Directors Training Program. He is accompanied by a small team of senior management professionals having relevant experience in the industry.

Over the years, the company’s effective management played a significant role in empowering the organization through its progressive results. Additionally, management’s effective decision-making causes processes to be more systematic, while the robustness of control systems is considered a reflection of strong management.

The management has adopted, as far as practicable, all the internal control policies and procedures in achieving management's objectives of ensuring, as far as practicable, the orderly and efficient conduct of its business, including adherence to management policies, safeguarding of assets, prevention and detection of fraud and error, accuracy and completeness of accounting records, and timely preparation of reliable financial information.

KEL has an exclusive 30-year Power Purchase Agreement (PPA) with CPPA-G (the power purchaser) starting from the Commercial Operations Date. Recently, KEL has agreed to the amendments to the Power Purchase Agreement as proposed by the Task Force constituted by the Prime Minister of Pakistan to convert the existing tariff to a 'Hybrid Take and Pay' model. The amendments cover the following points and will be effective from November 1, 2024 retrospectively on approval by the cabinet.

1. The indexation mechanism of variable O&M has been changed. Before the amendment, it was supposed to be indexed against 100% devaluation of the Pak Rupee and the variation of the US CPI. In terms of the amendment, it shall be indexed against a 70% devaluation of the Pak Rupee; however, indexation against the US CPI will remain the same.

2. The frozen part of the escalable component, will be paid in a hybrid take and pay mode. 35% of this component shall be paid on a take-or-pay and 65% on a take-and-pay basis.

3. The indexable part of the escalable component has been reduced by 30%. It shall be indexed at the rate of 5% or NCPI annually, whichever is lower.

4. Waiver of Delay Payments interest till Oct 31, 2024.

5. The PPA term will be extended for 161 days, with no capacity payment, in lieu of an amicable settlement of the disputed Liquidated Damages.

6. LCIA Arbitration clause in PPA will be substituted with Islamabad seated Arbitration under the local laws.

Previously, O&M activities were handled in-house while major maintenance work was managed by Wartsila Pakistan. Since 2016, the Company started to undertake major O&M in-house that has produced a meaningful outcome.

KEL has an exclusive 30-year Fuel Supply Agreement (FSA) with Pakistan State Oil (the fuel supplier), which ensures uninterrupted supply of fuel to maintain the plant's availability.

The Company has adequate insurance coverage for property damage and business interruption of the plant.

During FY24, Pakistan's power generation declined by 1.9%, totaling 127,160 GWh. This marks the second consecutive year of reduced output, driven by elevated electricity costs, rising inflation, and lower economic activity. The Country's power generation remains heavily reliant on thermal and hydel sources, contributing approx. 45% and 31%, respectively, in FY24. The share of nuclear energy has notably increased to approx. 19% in FY24, while renewable energy sources continue to constitute a modest 5% of the total generation. The Government of Pakistan (GoP) resumed negotiations with Independent Power Producers (IPPs) and established a special task force to implement structural reforms in the power sector. The ongoing process aims to lower generation costs and make electricity more affordable. The government has terminated the PPA of five IPPs while it is under negotiation with the remaining IPPs to amend their PPAs. The outcomes of these negotiations are yet to be seen.

The generation from the plant depends on the overall demand from the power purchaser from the specific plant. During FY24, the dispatch of electricity was lower than that of the previous financial year. Therefore, the power plant, by operating at 19.06%, delivered 207,615 MWh of electricity as compared to the 30.30% capacity factor (329,160 MWh) delivered during the previous financial year.

The Company meets its availability and efficiency benchmarks as required under the PPA, resulting in smooth and uninterrupted operations of the plant.

The Company successfully repaid its long-term project-related debt by 2008.

The piling of circular debt in the power sector remains a challenge for the IPPs including the Company leading to delayed payments from CPPAG against Energy and Capacity invoices. As of the end of Sep 2024, the receivables stand at PKR ~3,068mln witnessing a slight increase from the end of June 2024 of PKR 2,853mln. However, the trade debts are secured by a guarantee from the Government of Pakistan (GoP) under the Implementation Agreement. The Company manages liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities.

KEL manages its working capital through a mix of internal cash generation and uses short-term working capital lines to bridge the delay in payments from the power purchaser. As of the end of Sep 2024, short-term borrowings stood at PKR 2,758mln representing 27% utilization of the approved limits.

During FY24, the Company's FCFO stood at PKR 2,356mln representing a stable position as a result of continuous profitability and tariff structure. Going forward, the amendments in the PPA will have an adverse impact on the future cash flows based on the new hybrid tariff structure.

As the long-term project debt stands repaid, the borrowings comprise 100% short-term financing to support ongoing operations. As of the end of Sep 2024, the leveraging ratio stood at 43%. The dividend distribution over the previous years has led to a decline in equity position, which stands at PKR 3,654mln as of the end Sep 2024 (June 2024: 4,526mln, June 2023: 5,383mln).