Barka Water and Power Company SAOG (BWPC) Earnings Call Transcript & Summary

So under these 2 periods, the capacity charge should be same. And resultantly, the profit should also be same, but we can see the deviation in profit. Where is this coming from?

I will explain. So basically, the movement in profits from period-to-period, that is majorly contributed as what Ahmed previously explained. It's because of the load factor. You understand that load factor increased the -- our fuel charges as well as our fuel cost. That's your understanding. It is very much correct. However, they are not just pass-through. So fuel charges have another mechanism as per our WPA, along with -- based on which it is calculated and charged to our offtaker. And gas input is based on the other agreements from the gas supply. So these are pass-through and there is some margin which resulted because of higher load factor in our higher profits. That's one. Number second is last period, if you see prior financials, there were liquidated damages of OMR 400,000, which was recorded in prior period. Which are not in current period. So that also contributed in higher profits. And as well as our electricity cost remains lower as the previous period because of the high load factors, our electricity import was -- that's also went up. So there are these 3 major factors which have contributed higher profit as compared to the last period. Hope I'm clear on that.

Yes, yes. Very clear. And how -- so excluding the OMR 400,000 liquidity charges that were not here this year, should we expect that a higher load factor would mean higher net income as well going forward?

it's not like -- straight like this. Many factors works. So heat rate factors, machine efficiencies, how machine is responding based on different ambient factors factors like temperatures, [indiscernible] et cetera, et cetera. So the revenue calculation is a little complex, which is system base and which generated our fuel charges. So you cannot just say that higher load factor will result in higher income. That's not like that. But it depends period-to-period. How numbers now come.

So Shaoor, just let me add what Adnan said. First, principally, your argument is absolutely correct. Normally, it is pass-through cost and there should not be any impact on the revenue or profit. However, as Adnan said, there are other facts which include lower electricity cost, better heat rate. These kind of stuff are basically providing better revenue. So these are the factors which are impacting on the higher end.

Also, if you may add, Mr. Shaoor is that the load factor depending on the type of configuration. So we may end up in a situation where the plant on emergency is operated on a very high speed in state of time element on an open cycle, which is basically less efficient, but faster or operated very frequently on a stable load, which is very efficient on a combined cycle, utilizing the [ grid ] generated to additional hour, so which is more stable. So these factors, already explained by Adnan and [ Hazir ] really impact. So effectively, from capacity is more or less the same. But from operationally, there is a variable cost, and there is also gas consumption costs depending on [ month ] configuration. And that risk remains with the company.

This is obviously makes sense. As us analyzing the company in a great detail. My next question is on the general sector. So obviously, you guys have undergone 2 renewals and we have seen a couple of renewals this year and the last year as well. My question is on these renewals and the nature of how these are decided. So basically, is it correct to assume that when a renewal is put forward to the authority, or the regulator, what actually are the factors that they consider? Or is it completely on their discretion? Or is it demand/supply based in the market? Or is it up to the IPP itself or whatever they want to go. Because if I see the difference between capacity pertaining to your company, what they were in 2021 and what they are now, there has been a 30% to 40% drop. So is this like -- is this a uniform rate that we can observe as a benchmark and that should serve other renewals as well? Or are there other factors? If you could shed some light here that would be great.

So Shaoor if you would just -- Salim will add on this, but every generator is discussing or negotiating separately with offtaker. However, the process is very clear that there are different waves for extension. So Barka was in the previous wave and 3 generators or 4 generators, which got renewal. Recently, it was in wave. And then upcoming, we will consider the upcoming -- other generators, which are coming to expire within next 4 to 5 years or 6 years period. So it is coming like that. Of course, it all depends on the demand as well. As you can see that 7-year statement of offtaker is showing around 14 gigawatt or 30 gigawatt future outlook for new plants, mainly renewables. But as you can see that recently, 2 new CCGTs were awarded and another under pipeline. So all these things are basically highlighting that there is a huge demand in the market because of development activity for the industrial sector, mainly and, of course, increase in the household demand as well. So that process is by OPWP through different wave before expiry of any PPA, like 3 or 4 years before they will start the process and every generator is submitting their proposal, and it's all between negotiation, between offtaker and generator. So by saying that Barka is a benchmark, I don't think that this is the case. It depends on existing tariff of any asset and then negotiation between offtaker and generator. And off-taker has the visibility on all the tariffs. So they know what is the current market if they will have a new CCGT project. So based on that, all the negotiations are taking place.

Okay. Perfect. -- my last...

That's well covered. But then also, I think I may add. Part of the Nama Group is adherence to the Vision 2040, which includes ramp-up of renewable energy which we are seeing in the market that a number of renewable are in the -- either already inaugurated, already confirmed or something in the pipeline. Typically, renewable will always require further support on gas-based power plant on a peaker level, whether it is cyclical or weather conditions. From our case, as explained by [ Hazir ], Barka is a very good -- Barka 2 stands a very good chance that we actually were fulfilling the part of that [indiscernible] statement 2033. Typically, the cycle is in the coming years, there will be other plants that we have due to -- and will be renewed. Our cycle will only be visible from 2031 onward, which is a long way to go. And based on the actual reality between the renewable energy and the additional peak plant, what we observe that most likely for Barka 2 will happen.

Thank you. My last question is now regarding your cash flows. We have seen that you guys have made a OMR 5 million repayment of principal repayment and then OMR 1 million in terms of interest cost during the first half of this year. Now if I'm looking at the numbers correctly, your operating profit plus your depreciation, which is essentially the cash flows before debt servicing, equals equate to OMR 5 million as well. So is there an abnormal debt repayment this year, which is expected to normalize going forward? Or is this the debt repayment that we should be expecting every year, which is OMR 5 million. Because if that is the case for the half year, I don't see any free cash left distributed.

On the tax service, that service has been agreed when we did the refinancing in 2024, and that is based on the cash flow considering our PWP 9 year extension. That so that has been already determined, period to period. And we have -- and the company is generating cash flow as per our financial model. So we are aligned with that as well as for the distribution. So if you have seen our disclosure along with the Board. So Board has approved to distributing OMR 0.00481 per share in July 2026. Previously, we also paid OMR 0.0045 per share in January 2026. So on a half-yearly basis, as part of our dividend policy, what we disclosed, we are distributing dividend and the company is making cash flows as per our financial model. So there are some kind of differences because a few of our revenues are seasonal. So sometimes it's high, in summer, it's high, in winter it's low. So sometimes differences come, but our cash flows are aligned with our financial model as well as distributions.

Right. So on a sustainable basis, company would be able to generate and provide 8 to 9 baisas a year until the end of this PPA until 2031.

It depends. I mean as you are aware, our PWPA, we have MSFE plant, which is probably for 3 years till 2027. So for first 3 years, debt service and dividend distributions are based on those. And after that, it will be based on the power plant operations. So it is aligned as per our PWP and we will continue distribute dividends based on cash availability and meeting our debt service.

So just to clear, until 2027, obviously, you guys have elevated debt repayments and then your debt repayment would come down because obviously, your debt would be a smaller portion of the balance sheet. So should we expect -- but then your revenues would also come down, right, because of the expiry of this agreement. So should we expect 2027 onwards dividends or cash flows to improve in total or to slightly decrease. Because of the...

So basically, we can't comment like this. This all depends like on the operations of the plant. So based on -- and our available cash flows and the current operating requirements also CapEx requirements. So a lot of factors. But one thing to assure you that the management is working all its best to increase value for our shareholders to make distribution as much as possible if you have seen in 2024 to '25, we attributed up for a high dividend also. So definitely, we are working to improve value for our share. Any other member has a query? So thank you. Thank you all for your time joining the meeting, and we shall see you on the next investor session. Thank you, and have a nice day.

Thank you, Adnan.