Al Suwadi Power Company SAOG (SUWP) Earnings Call Transcript & Summary

Good morning. [Foreign Language] Welcome to this MSX discussion session for Al Suwadi Power Company SAOG. We would like to present the results for the first 6 months of 2026. So there are 3 agendas basically. First is the HSE and CSR, second is the company performance; and third is the future strategy and plan of action. So I would request Mr. Yousuf, our CTO, to please take us through this slide.

Thank you, Preetam. Starting with health, safety and environment as it remains a top priority for the company. We are pleased to inform you that the brand achieved [indiscernible] as of end of June '26 without any loss or accident and zero environmental incidents. [indiscernible] international certificates related to ISO9001 which is related to the quality management ISO14001, which is related to the environmental management and also ISO45001, which is related to the occupational health and safety. Moving to the next slide...

Okay. Thank you very much. Next slide is about the CSR. So basically, our CSR plan for 2026, it is consisting of 3 main projects. So first project is about the mandatory contribution to Oman Charitable Organization. As per the [indiscernible] decision, we are supposed to contribute 20% of our total budget of OMR 50,000. So accordingly, 20%, OMR 10,000, we have contributed to Oman Charitable Organization during Q2. Second project is about building a park and a walkway in [indiscernible] Barka. So this public park and walkway, this project we started in 2025, and we had contributed an amount of OMR 15,000. The balance OMR 35,000, we are planning to spend it in this year. So this project is ongoing and hopefully, it should be completed within this year. The third project is about the Oman Science Festival. So this, along with the other former company, Al Batinah, we are jointly doing this project. This is to promote scientific awareness and creativity among the students, which will help to have them better knowledge. So for this, we have earmarked a budget of OMR 5,000, which we'll be spending in Q3, Q4 of this year. The next agenda is about the company performance. So you'll be happy to note that our company Al Suwadi has performed very well in the first 6 months. So the first is the reliability. You would see the reliability during the first half is close to 100%. It is 99.75%. So it is very good reliability. The load factor also, it is in the high 70s. So this -- our plant is ranked very high in the merit order of dispatch in the whole of Oman. And also since it is very close to Muscat City, the plant load factors are consistently high. With respect to efficiency, we had efficiency very high, around 98.4%. So as you may recall, which we have communicated in our previous sessions that since our plant inherently suffers from slight negative heat rates at very high load factors, so it is not 100%. It is close to 100%. With regards to the financial statements, so you will see the revenue is higher than last year's similar period, mainly on account of the annual 3% gas price escalation and also the indexation, which is inbuilt in our tariffs. The operating costs were higher due to similar reasons. And also, we had routine major inspection of one of our gas turbines in Q1 this year. Finance costs, they keep on coming down because as we are repaying the loans, the finance costs come down. The net income, if you see overall, they were slightly lower than last year similar period because, as I mentioned, that we had a major inspection of gas turbine in Q1 this year. So these major inspections we have once in 3, 4 years. So that is why the expenses and net income, they fluctuate to that account. The next agenda is the future strategy and our plan. So you'd be happy to note that we have been distributing dividends every year after we have removed the cash sweep. So this year, in June, we paid dividend of 2 baisa. And in December this year, we are planning to distribute subject to availability of cash and other covenants within the finance documents. The planned maintenance in the upcoming winter period, we have one major maintenance for the steam turbine, which will result into higher maintenance costs. So this is again once in -- the cycle once in 3, 4 years. The PPA extension, as we have published this to the stock exchange that we have successfully executed a new PPA on 7th of April this year. And this new PPA covers the period starting 1st April 2028 for a period of 15 years until 31st March 2043. So our current PPA expires on 31st March 2028. And thereafter, this new PPA will commence. So this ensures business continuity and stable cash flows for the future. With respect to opportunities, as we have disclosed to the market, we are assessing a potential merger with Al Batinah Power Company. So this is on account of trying to build synergies between the 2 companies. And we have accordingly, in our bid commission to OPWP, we have submitted a better tariff based on this potential merger with ABPC. Then we are also exploring some refinancing opportunities. So we are still in the early stages of this assessment. So right now, we have around 11 international lenders, banks, and we are trying to reduce this number to a smaller number and maybe with local Omani banks, which will help us to have a better efficient loan management. Currently, we are having -- as I mentioned, our plant is very high in the merit order. And we may further like to improve upon the fuel efficiency and heat rate factors. Then the high demand growth, we are expecting this to continue. That is why we have been successfully able to achieve the new PPA execution. With respect to challenges, we feel that the new technologies, renewables and hydrogen, battery storage, these are the new technologies which are emerging. And we feel that since our PPA is already executed for the next 15 years starting 2028, maybe this could pose some challenges thereafter. Also based on the renewable penetration -- since renewable portion is significantly increasing year-by-year, so this may lead to settling of our plants, which would further increase the heat rate process. So these were briefly some of the opportunities and challenges, which we feel may come up in the future. So this brings an end to our presentation and the usual disclaimer that this presentation should not be construed as an offer, invitation for subscribing to the company's securities. Nothing in this presentation stated shall form the basis of any contract or commitment from our side. Also, this presentation is not intended to be relied upon as an advice to the investors for their investment objectives or any other needs. Any future outlook statements or commitments are associated with unknown and known risks and uncertainties. And hence, this presentation provides no guarantees or commitments for any future results, neither expressly or impliedly. Further, this presentation is -- the financial numbers which have been put here, they are of public knowledge and already disclosed on the MSX website. So this is -- what we have presented today, it's only for information purposes. So we now open the floor for question and answers. Kindly introduce yourself by your name and the firm which you represent and then maybe you can start posing your questions.

So I see Mr. Amir Rao.

I have a couple of questions. First of all, can you talk about of the merger with the Al Batinah Power. Can you tell us what is the expected deadline for this merger?

So we are contemplating to finish this as soon as possible. But currently, we have a feasibility study ongoing, which we have appointed one of the local legal firms to undertake this study, whether this merger is feasible and what are the various steps required what are the time lines expected. So this study is ongoing. So once the study is over, we would be having a complete picture on the time lines required. So at this point of time, I'm not able to give you the time line, but our intention is to do as soon as possible. That is our intention.

Understood. Understood. And also what is current plant life of your plant?

So our plant life is 40 years. This is what we have been disclosing in the prospectus and in all our correspondent communications. So the technical life of the plant is 40 years.

Okay. And we talk about the financing of your existing financing facility. So can we expect a one-off dividend when you finalize this refinancing?

So the refinancing is basically to spread -- so as we know that our loan will get over in 2027 September. And we have 2 major installments. One is October this year and again, October next year. So before this October installment, our intention is to refinance the outstanding term loan. Definitely, as this refinancing would happen, this will increase the cash available in the company. And subject to the fulfillment of all the necessary covenants in the new loan documents, the approvals from the regulatory authorities, APSR, et cetera, et cetera, we will be in a position to determine what is going to be the dividend for this year. So we'll be able to confirm the number only once we have the approvals from APSR and other authorities. And also once we have finalized the terms of the loans and they have finalized the lenders, who are the lenders. Once we have done that, then we would be in a better position to share with you those numbers.

Understood. One more question about the financing. Like your PPA was 15 years, which is the first PPA, which is set to expire. But in PPA, the debt repayment are the part of tariff. Can we understand or we can take this understanding that the new PPA also adding the debt repayment or you get only the return on equity in the new PPA.

So as I mentioned that we are going to extend these loan repayments, which we have this year and next year. We are going to spread it over the new PPA tenure. So this extension of the repayment of the loans over the next 15, 16 years would be partly funded by the new PPA.

So have you finalized terms, partly means how much part of the debt repayment will be part of your new PPA, if you can explain?

See, we have around USD 100-odd million outstanding as of today, USD 104 million, USD 105 million we have outstanding. And this information is already available in the published financial statements. So this USD 104 million, we would be spreading it over the balance life of the PPA subject to, of course, finalizing the terms with the banks, how much they agree. So this amount will be spread over that period. How much is going to be the final number, those are under still discussion. And as I said, once we have agreed with the banks and the authorities, then we can finalize that number.

Sorry, I'm stretching this question because in PPA, the debt repayment is part of tariff. Are you getting the new tariff, which also includes debt repayment? My question is that.

So these 2 are not linked. See, as we have disclosed this information that this refinancing is on account of basically 2 things. One is for the new CapEx, which we require for the new PPA period. And second, it is about the merger, which we are anticipating. So in view of these 2 aspects, this refinancing exercise is being assessed. So this is totally independent of the new PPA tariff which you are asking.

So in new PPA, technically, the earnings are expected to decline...

So see, as I said that -- of course, if my financing increases, then that would lead to higher finance cost. And of course, the net income would reduce to that extent. So that is a logical derivation of how this works and as you also know very well, yes.

Sorry, just one last question, I'm taking -- in first quarter, you people have booked impairment loss of around INR 29.8 million. Can you explain why you have booked this?

So this impairment is on account of the new PPA terms of tariff. So this new PPA has a different tariff structure, different terms and conditions. So as per the IFRS, the management evaluated based on the present value of future cash outflows, what is the present value and we compared it with the carrying value of the fixed assets in our books. When we did this assessment, we found that the carrying value of assets is more than the present value of the future cash flows. Accordingly, we had to book an impairment. But this, again, is subject to audit. We would be having an audit towards the end of the year. And at that time, this number would be confirmed whether this is adequate or this is short. So we would be able to have the final number at the year-end. Any other question?

[Foreign Language].

[Foreign Language].

[Foreign Language].

So as I said that refinancing -- our next installment loan repayment installment is due in October 2026. So our -- that effort, our endeavor would be to complete the refinancing by October 2026 so that we can take advantage of the big repayment, which is [indiscernible]. That is our intention.