| The Hub Power Company Ltd. |
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| Annual
Report 1999 |
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| CONTENTS |
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| Company
Information |
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| Notice
of Meeting |
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| Board
of Directors |
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| Chairman's
Review |
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| Report
of the Directors |
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| Auditors'
Report |
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| Profit
and Loss Account |
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| Balance Sheet |
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| Statement
of Changes in Financial Position |
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| Notes
to the Accounts |
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| Pattern
of Shareholding |
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| Shareholders'
Information |
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| COMPANY
INFORMATION |
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| Head Office: |
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3rd Floor, Islamic
Chamber of Commerce Building |
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ST-2/A, Block-9, Clifton,
P.O. Box No. 13841 |
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Karachi-75600 |
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| Registered
Office: |
C/o Ford, Rhodes, Robson,
Morrow, |
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Premises No. 1 to 5,
Elahi Chambers, |
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C/o Ambassador Hotel
Building, |
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I&T Centre,
Khayaban-e-Suhrawardi, |
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Aabpara, P.O. Box No.
2388, Islamabad. |
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| Company
Secretary: |
Arshad A. Hashmi |
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| Principal
Bankers: |
Account Banks: |
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· National Development
Finance Corporation, Karachi |
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· Citibank N.A., Karachi |
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· ANZ Grindlays Bank
Limited, Karachi |
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· The Bank of
Tokyo-Mitsubishi Limited, London |
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· The Sakura Bank
Limited, London |
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· Banco di Napoli
International S.A., Luxembourg |
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Inter-Creditor Agent: |
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Citibank International,
plc, London |
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| Legal Advisors: |
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Linklaters &
Alliance, London |
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Kabraji & Talibuddin,
Karachi |
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Rizvi Isa & Co.,
Karachi |
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| Auditors: |
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Ford, Rhodes, Robson,
Morrow |
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| Registrar: |
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Ford, Rhodes, Robson,
Morrow |
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| NOTICE
OF THE EIGHTH ANNUAL GENERAL MEETING |
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| Notice
is hereby given that the Eighth Annual General Meeting of the Company will be
held |
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| on
Wednesday, December 1, 1999 at 2.00 p.m. at Margala Motel, 1 Kashmir Highway, |
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| Near
Jinnah Sports Complex, Islamabad to transact the following business: |
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| 1.
To confirm the minutes of the Seventh Annual General Meeting of the Company
held on |
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| December
16, 1998. |
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| 2.
To receive and adopt the Audited Accounts of the Company for the year ended |
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| June
30, 1999 and the Directors' & Auditors Reports thereon. |
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| 3.
To appoint Auditors and to fix their remuneration. |
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By Order of the Board |
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|
Arshad A. Hashmi |
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| Karachi
- September 23, 1999 |
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Company Secretary |
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| NOTES: |
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| 1.
The Share Transfer Books of the Company will remain closed from October
21,1999 to |
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| October
29, 1999 (both days included). |
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| 2.
A member entitled to attend and vote at the meeting may appoint a proxy in
writing to |
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| attend
the meeting and vote on the member's behalf. A Proxy need not be a member of |
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| the Company. |
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| 3.
Duly completed forms of proxy must be deposited with the Company Secretary at
the |
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| Head
Office of the Company not later than 48 hours before the time appointed for
the |
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| meeting. |
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| 4.
Shareholders are requested to notify any change in their address immediately. |
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| BOARD
OF DIRECTORS |
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| Mr.
M. A. Alireza H. I. |
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| Chairman |
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| Other
Directorships |
|
| Xenel
Industries Ltd |
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| &
other Xenel Group Companies |
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| Xenel
International Ltd |
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|
| Mr.
P. J. Windsor |
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| Vice Chairman |
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| Other
directorships |
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| American
National Power, Inc |
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| National
Power International Holdings BV |
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| National
Power International Ltd |
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| National
Power of America, Inc |
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| National
Power Polska Spolka z.o.o. |
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| National
Power (Kot Addu) Ltd |
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| Bizkala
Energia SL |
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| Mr.
S. K. Husain |
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| Chief Executive |
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| Mr. Y. Asahata |
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| Other
directorships |
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| Hub
Power Japan Corporation |
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| Mr. B. Chang |
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| Other
directorships |
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| Task
Technology Ltd |
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| Brian
Chang Group of Companies |
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| Asia
Petroleum Ltd |
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| Fauji
Oil Terminal Company Ltd |
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| Pakistan
Power Ltd |
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| Mr.
P.M. Grasby |
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| Other
directorships |
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| National Power |
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| NP Enerji |
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| Gurney
Ege Enerji |
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| Baymina Enerji |
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| Tejo Energia |
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| Mr.
D. P. G. Hadfield |
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| Other
directorships |
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| Kot
Addu Power Company Ltd |
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| Mr.
C. R. W. Masterson |
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| Other
directorships |
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| National
Power Share Schemes Ltd |
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| Electra
Insurance Ltd |
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| De
Haviland Aircraft Museum Ltd |
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| Mr.
S. N. A. Shah |
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| Other
directorships |
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| Jahangir
Siddiqui & Co. Ltd |
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| Philips
Electrical Industries of Pakistan Ltd |
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| Forbes,
Forbes, Campbell & Co. (Private) Ltd |
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| National
Development Finance Corporation |
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| Refrigerators
Manufacturing Co. Pakistan Ltd |
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| Mr. E. E. Silagy, |
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| Other
appointments |
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| Entergy
Pakistan Ltd |
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| Mr. P. H. Smith |
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| Other
directorships |
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| Kot
Addu Power Company Ltd |
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| Leicester
City PLC |
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| Leicester
City Football Club PLC |
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| Capital
Value Brokers Ltd |
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| Mr.
M. A. Tumbi |
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| Other
appointments |
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| General
Manager Finance, Xenel |
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| Mr.
M. B. Sheikh |
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| Nominee of |
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| National
Development |
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| Finance
Corporation |
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| Mr. M. A. Zafar |
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| Nominee of |
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| Government
of Balochistan |
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| Mr. D. V. Johns |
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| Nominee of |
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| Commonwealth
Development |
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| Corporation |
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| CHAIRMAN'S
REVIEW |
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| In
the name of God the Most Merciful and Most Benevolent. |
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| It
gives me great pleasure to introduce the Company's Report and Accounts for
the financial year ended June |
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| 30, 1999. |
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| Unfortunately,
the Company has operated throughout the year under very difficult
circumstances which have |
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| been
widely reported, at times inaccurately, both locally and internationally. The
Company continues to receive |
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| significantly
lower payments than originally contracted with Water and Power Development
Authority (WAPDA) |
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| and
guaranteed by the Government of Pakistan (GOP). For the past eleven months,
the Company has been |
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| subject
to ongoing investigations by the Federal Investigation Agency (FIA) and by
Government appointed auditors. |
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| To
date, no report has been issued by the auditors and no prosecution has been
commenced by the FIA. The |
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| Company
has and continues to strenuously deny any wrongdoing. |
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| The
Company is defending its rights in the courts of law and has commenced |
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| arbitration
proceedings under the auspices of the International Chamber |
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| of
Commerce. Despite legal restrictions imposed by the Courts in Pakistan, |
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| which
we believe are temporary, the Company remains confident that it will |
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| be
vindicated and that the outcome of
arbitration will be favourable. |
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| Throughout
this dispute, the Company has not only acted to preserve the |
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| rights
of the shareholders by resort to law and arbitration but has also actively |
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| pursued
a resolution through dialogue and negotiations. During the year, the |
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| Government
set up several committees to resolve the IPP disputes in general |
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| and
the Company has attempted in good faith to participate in all these
initiatives. The Company has made |
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| several
proposals which would result in a significant reduction in WAPDA's financial
burden. All proposals being |
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| subject
to lenders and shareholders approval. |
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| Despite
the financial difficulties arising from the assault on its integrity and
reputation, the Company has continued |
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| to
operate the Power Plant in accordance with its obligations under its
contracts. However Shareholders should |
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| note
that although the Company reported a profit in the year it has not received
all this income from WAPDA. In |
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| the
event that this full income is not received from WAPDA, it would result in a
loss for this year. |
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| We
all hope that the problems faced by the Pakistan economy and IPPs will be
resolved soon. Electricity generation, |
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| being
a fundamental building block of a modern economy, has a long term future, the
benefits of which, we hope, |
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| will
be shared by the entire economy. |
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| On
behalf of all the shareholders, I offer thanks to the employees of the
Company who have worked hard and |
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| with
dedication under very difficult circumstances. |
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|
Mohamed A. Alireza |
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|
Chairman |
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| REPORT
OF THE DIRECTORS |
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| The
Directors have pleasure in presenting the Annual Report and the Accounts for
the year ended June 30, |
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| 1999. |
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| General |
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| The
principal activities of the Company are to own, operate and maintain an
oil-fired power station with a net |
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| capacity
of 1,200 MW. |
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| Finance |
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| Turnover
for the year was Rs. 20,667 million (1998: Rs. 25,682 million) and Operating
Costs amounted to |
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| Rs.10,307
million (1998:Rs.11,728 million) resulting in a net profit of Rs. 6,705
million (1998: Rs. 10,808 million). |
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| The
current year values are lower than the previous years values due to the
declining profile of the tariff charged |
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| under
the Power Purchase Agreement (PPA) and lower electricity despatch by WAPDA at
51% (1998: 55%). |
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| Notwithstanding
the net profit recorded in the Profit and Loss Statement, the Company has
during the year |
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| suffered
a net cash outflow. This is due to the receipt of partial payment in respect
of sale of electricity throughout |
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| the
year as a result of litigation and disputes which are detailed in note 17 to
the Annual Accounts. |
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| The
payment of amounts due from the Water and Power Development Authority
("WAPDA"), the Company's only |
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| customer,
is secured through, firstly, a standby letter of credit, and secondly, a
guarantee from the Government |
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| of
Pakistan. The Company has twice attempted to call on the standby letter of
credit to enforce its rights to |
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| payment
but on both occasions WAPDA secured protection through the Courts of Law. |
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| In
spite of this, all liabilities have been discharged by the Company as they
have become due. During the year, |
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| the
Company repaid the two tranches of the senior debt amounting to Rs. 3,020
million in July 1998 and January |
|
| 1999.
The Company has throughout fulfilled its obligations under its various
contracts and continues to do so. |
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| Taxation |
|
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| The
Company is not liable to taxation in Pakistan on its income by virtue of a
tax exemption granted to it by the |
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| Government
of Pakistan. However, it is liable to pay other Federal, Provincial and local
taxes such as Customs |
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| Duty
and Octroi. During the year the Company received several assessments and
demand notices from the tax |
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| authorities
which are disputed and are detailed in note 17 to the Annual Accounts. |
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| Operations |
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| Operationally,
the year has been a difficult one. In September 1998, the generator on Unit 4
failed due to |
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| damage
to the winding insulation. The unit was out of service for approximately 15
weeks. Repairs were carried out by |
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| the
manufacturers under an extended warranty. |
|
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| In
February 1999, the Unit 2 main generator transformer suffered an internal
fault which resulted in the |
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| transformer
being destroyed by fire. A replacement transformer was procured and installed
within 6 |
|
| months.
The unit returned to service in August 1999. The costs relating to this
damage are covered under |
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| the
Company's insurance policies. |
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| Both
the above problems |
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| were
fully investigated and similar components on other units were inspected to
avoid similar problems in the |
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| future. |
|
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| Despite
these problems, the plant achieved a 38% thermal efficiency rate and
generated 5,351,000 MWhrs of |
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| electricity. |
|
|
| Environment,
Health, Safety and Social Actions |
|
|
| The
overall health and safety performance of the Plant was excellent throughout
the year. The Hub Power Station |
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| Site
has an ongoing proactive approach to safety management. |
|
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| The
station successfully achieved 1,000 days without a lost time accident on
December 27, 1998. For its excellent |
|
| achievement
and performance, the station was awarded the prestigious Gold Award for
Occupational Safety by |
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| the
Royal Society for the prevention of Accident (RoSPA) based in the United
Kingdom. |
|
|
| The
Company is committed to the development and uplift of the people living near
the Plant in particular in Hub |
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| in
the province of Balochistan. In this regard, the Company continued to support
various programmes in order |
|
| to
help poverty alleviation. In Hub, the Operations & Maintenance Contractor
runs a mobile dispensary |
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| to
18 villages and provides basic medical services. |
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|
| Year
2000 Compliance |
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| The
Company takes very seriously the unparalleled challenge that all businesses
in the world |
|
| face
between now and the Year 2000 arising from the first century date change the
computerised world will experience. There are |
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| numerous
anticipated consequences of the Year 2000 problem. |
|
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| The
Company's engineers and experts worked throughout the year to meet this
challenge by adopting |
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| the
British Standards Institute (BSI) definition of Year 2000 Compliance. A Year
2000 Programme Office which |
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| was
established last year provided a framework and monitored progress. The Year
2000 compliance |
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| programme
has been completed in respect of the Company head office and extensive work
is in progress |
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| to
make sure that the Plant is Y2K compliant before the end of this calendar
year. |
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| Litigation |
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| During
the period the Company has continued to be involved in litigation both inside
Pakistan and abroad |
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| and
has been the subject of investigation by the Federal Investigation Agency
(FIA) and Government appointed |
|
| auditors
with whom the Company is co-operating fully. The Company has strenuously
denied any wrongdoing |
|
| and
continues to defend itself vigorously. The Company is confident that it will
be vindicated and that the |
|
| accusations
made against it will be shown to be baseless. On July 9, 1998 the Company
commenced |
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| Arbitration
proceeding with the International Chamber of Commerce in accordance with the
terms of the Power |
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| Purchase
Agreement (PPA) seeking an adjudication on the enforceability of the PPA.
Nevertheless, the Company |
|
| continues
to seek an amicable resolution of its disputes with WAPDA in an atmosphere of
mutual respect and |
|
| co-operation.
Throughout the period the Company has fulfilled its obligation under its
various contracts and |
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| continues
to do so. |
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| Appropriations |
|
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| The
ongoing litigation and the restriction imposed by the Pakistan courts places |
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| the
directors in a position where they are unable to recommend a dividend. |
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|
|
| Board
of Directors |
|
|
| The
current members of the Board are listed on Page 3. During the year the
changes were as follows: |
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| Mr.
P. F. Bennett (Resigned w.e.f. 10.02.1999) |
|
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| Nominee,
National Power International |
|
|
| Holdings BV |
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| Dr.
I. M. H. Preston C.B.E. |
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| (Resigned
w.e.f. 18.05.1999) |
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|
| Mr.
N. Pervaiz (Resigned w.e.f. 17.06.1999) |
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| Nominee,
Government of Balochistan |
|
|
|
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|
| Mr.
S. B. Gross (Resigned w.e.f. 23.09.1999) |
|
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| Nominee,
Entergy Pakistan Limited |
|
|
|
|
|
|
|
| Mr.
R. A. Pritchard (Resigned w.e.f. 23.09.1999) |
|
|
| Nominee,
National Power International |
|
|
| Holdings BV |
|
|
|
|
|
|
|
|
|
| Mr.
D. P. G. Hadfield |
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| (Appointed
w.e.f. 10.02.1999) |
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| Nominee,
National Power International |
|
| Holdings BV |
|
|
|
|
|
| Mr. M. A. Zafar |
|
|
| (Appointed
w.e.f. 05.07.1999) |
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| Nominee,
Government of Balochistan |
|
|
|
|
| Mr. E. E. Silagy |
|
|
| (Appointed
w.e.f. 23.09.1999) |
|
| Nominee,
Entergy Pakistan Limited |
|
|
|
|
| Mr.
P.M. Grasby |
|
| (Appointed
w.e.f. 23.09.1999) |
|
| Nominee,
National Power International |
|
| Holdings BV |
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|
|
|
|
| Auditors |
|
|
| The
retiring auditors Messrs Ford, Rhodes, Robson, Morrow, Chartered Accountants
being eligible offer |
|
| themselves
for re-appointment. |
|
|
| Shareholding
Pattern |
|
|
| A
statement reflecting the distribution of shareholding is attached with this
report. |
|
|
|
|
By Order of the Board |
|
|
|
|
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|
S. K. Husain |
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| Karachi
- September 23, 1999 |
|
Chief Executive |
|
|
|
|
|
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
|
| We
have audited the annexed balance sheet of The Hub Power Company Limited as at
June 30, 1999 and the |
|
| related
profit and loss account and statement of changes in financial position,
together with the notes forming |
|
| part
thereof, for the year then ended and we state that we have obtained all the
information and explanations |
|
| which
to the best of our knowledge and belief were necessary for the purposes of
our audit and, after due |
|
| verification
thereof, we report that: |
|
|
| (a)
in our opinion, proper books of account have been kept by the Company as
required by the Companies |
|
| Ordinance,
1984; |
|
|
|
|
| (b)
in our opinion: |
|
|
| (i)
the balance sheet and profit and loss account together with the notes thereon
have been drawn up |
|
| in
conformity with the Companies Ordinance, 1984, and are in agreement with the
books of account |
|
| and
are further in accordance with accounting policies consistently applied; |
|
|
| (ii)
the expenditure incurred during the year was for the purpose of the Company's
business; and |
|
|
| (iii)
the business conducted, investments made and the expenditure incurred during
the year were in |
|
| accordance
with the objects of the Company; |
|
|
| (c)
in our opinion and to the best of our information and according to the
explanations given to us, the balance |
|
| sheet,
profit and loss account and the statement of changes in financial position,
together with the notes |
|
| forming
part thereof, give the information required by the Companies Ordinance, 1984,
in the manner so |
|
| required
and respectively give a true and fair view of the state of the Company's
affairs as at June 30, |
|
| 1999
and of the profit and the changes in financial position for the year then
ended; |
|
|
| (d)
in our opinion, no Zakat was deductible at source under the Zakat and Ushr
Ordinance, 1980; and |
|
|
| (e)
without qualifying our opinion, we draw attention to the contents of notes
17.4 and 17.5 relating to a |
|
| constitutional
petition filed in the Lahore High Court, suit filed by WAPDA for cancellation
of certain |
|
| amendments
in the Power Purchase Agreement and for the recovery of overpaid amount and
assessments |
|
| raised
by the Central Board of Revenue; the ultimate outcome of these matters cannot
presently be |
|
| determined,
and no provision for any liability or impairment of any asset that may result
has been made in |
|
| the accounts. |
|
|
|
|
|
Ford, Rhodes, Robson, Morrow |
|
| Karachi
- September 23, 1999 |
|
Chartered Accountants |
|
|
|
|
| PROFIT
& LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 1999 |
|
|
|
|
|
1999 |
1998 |
|
|
Note |
(Rs. '000s) |
(Rs. '000s) |
|
|
|
|
| Turnover |
|
|
20,667,454 |
25,681,747 |
|
| Operating costs |
|
3 |
(10,307,327) |
(11,727,580) |
|
|
|
|
------------------ |
------------------ |
|
| GROSS
PROFIT |
|
|
10,360,127 |
13,954,167 |
|
| Selling,
general and administration expenses |
|
4 |
(394,787) |
(263,057) |
|
| Other
operating income |
|
5 |
1,01 6,997 |
1,581,522 |
|
| Other
operating expenses |
|
6 |
(152,551 ) |
(154,638) |
|
|
|
|
------------------ |
------------------ |
|
| OPERATING
PROFIT |
|
|
10,829,786 |
15,117,994 |
|
| Financing costs |
|
7 |
(4,125,199) |
(4,310,057) |
|
|
|
|
------------------ |
------------------ |
|
| NET
PROFIT FOR THE YEAR |
|
|
6,704,587 |
10,807,937 |
|
| Unappropriated
profit brought forward |
|
|
10,048,178 |
7,340,322 |
|
|
|
|
------------------ |
------------------ |
|
| Profit
available for appropriation |
|
|
16,752,765 |
18,148,259 |
|
| Appropriations: |
|
|
|
|
|
| Interim
dividend Rs. Nil (1998: Rs. 7.00) per share |
|
|
-- |
(8,100,081) |
|
|
|
|
|
|
------------------ |
------------------ |
|
| Unappropriated
profit carried forward |
|
16,752,765 |
10,048,178 |
|
|
|
========== |
========== |
|
| BASIC
EARNINGS PER SHARE (RUPEES) |
|
22 |
5.79 |
9.34 |
|
|
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
S. K. Husain |
|
D.V. Johns |
|
|
Chief Executive |
|
Director |
|
|
|
| BALANCE
SHEET AS AT JUNE 30, 1999 |
|
|
|
|
1999 |
1998 |
|
|
Note |
(Rs. '000s) |
(Rs. '000s) |
|
|
|
|
| TANGIBLE
FIXED ASSETS |
|
|
|
| Operating
fixed assets |
|
8 |
43,821,131 |
45,422,010 |
|
| Capital
work-in-progress |
|
9 |
13,822 |
28,427 |
|
| LONG
TERM DEPOSITS, PREPAYMENTS AND |
|
|
|
| DEFERRED
COSTS |
|
10 |
4,796,866 |
5,382,626 |
|
|
|
|
|
| CURRENT
ASSETS |
|
11 |
18,419,942 |
12,509,242 |
|
|
|
|
------------------ |
------------------ |
|
|
67,051,761 |
63,342,305 |
|
|
|
|
|
========== |
========== |
|
|
|
|
| SHARE
CAPITAL AND RESERVE |
|
|
| Share capital |
|
|
|
|
| Authorised,
issued, subscribed and paid-up |
|
12 |
11,571,544 |
11,571,544 |
|
| Revenue
Reserve |
|
|
| Unappropriated
profit |
|
|
16,752,765 |
10,048,178 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
28,324,309 |
21,619,722 |
|
| LONG
TERM LOANS |
|
13 |
31,053,904 |
34,042,867 |
|
| OBLIGATIONS
UNDER FINANCE LEASE |
|
14 |
6,172 |
7,199 |
|
| DEFERRED
LIABILITY |
|
15 |
7,879 |
6,883 |
|
| CURRENT
LIABILITIES |
|
16 |
7,659,497 |
7,665,634 |
|
| COMMITMENTS
AND CONTINGENCIES |
|
17 |
-- |
-- |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
|
67,051,761 |
63,342,305 |
|
|
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
S. K. Husain |
|
D.V. Johns |
|
|
Chief Executive |
|
Director |
|
|
|
