Karachi: This has reference to your Show Cause Notice No KSE/ Gen-4414 dated June 22, 2010, our reply dated June 24, 2010 and your answer No KSE/ Gen-4693, copies enclosed for ready reference, and your latest letter no. KSE/Gen-3584 dated June 7th 2011.
The grave financial difficulties and the reasons thereof as detailed in our enclosed reply are reiterated here. It will be appreciated that such major setbacks cannot be overcome in a short period but requires time and substantial effort.
The very survival of the project depends upon the regular supply of fuel to operate our engines. While WAPDA has resumed advances to PSO for this purpose, it has done so in an irregular and erratic manner which not only affects production but puts undue stress and strain on the engines, causing increased maintenance and spare part costs.
The forced closure of the plant for two years led directly to defaults in the payment to our lenders and this in turn implied drying up of working capital and a sever cash flow problem.
Piecemeal and delayed Capacity invoices payments by WAPDA further aggravated this problem.
Since the resumption of plant operations, the company has been attempting to tackle these twin and other problems which involve;
1. Reaching a Third Settlement Agreement with WAPDA which would, in the main, regularize Fuel payments, satisfactorily settle claimed Liquidated Damages and allow the installation of a Steam Turbine which would generate extra income.
2. Reach restructuring with all our lenders to ease mark-ups and repay principal as well as reduced Interest.
3. Increase the efficiency of the plant by ensuring availability of spare parts and proper maintenance of the engines.
Negotiations with WAPDA and the lenders are in progress and the company has grounds for hope that they will prove fruitful.
As to the latest financial position, we bring the following to your notice:
The profit for the year ended June 30th, 2010, Rs 52.862 million, declined significantly in comparison to that of June 30th 2009 which was Rs 146.862 million. This 64% decline was due to the company’s defaults to its lenders and anticipated requirements of increased repairs and maintenance of the engines which prevented the company from declaring dividends.
It will also be relevant to point out that the company incurred losses of Rs 310.261 million for the nine months ended March 2011 which can also be mainly attributed to repair and maintenance which resulted in increased liquidated damages and consumption of spares.
While the company remains in default with its lenders, it is prohibited by contract to declare dividends which, in any case, its finance would not allow.
If the project is to survive, the lenders and WAPDA must be ready to compromise and come to mutually satisfactory settlements.
If the shareholders desire to save their investment, they must show restraint and be patient.
If the efforts of the company and the management in the above general terms and the specific of installing the Steam Turbine prove successful, it is sincerely hoped that the company will once again turn tables and enter a period of financial stability which will enable it to share with its shareholders.
It is therefore sincerely hoped that the Stock Exchange will appreciate the current problems facing the company and the sincere efforts of the management to overcome them and will show restraint in taking any adverse action which would further endanger the investment of our shareholders and add to our burden of problems.
For more information, contact:
Karachi Stock Exchange
Tel: +9221 111 001 122
Fax: +9221 3241 0825, +9221 3241 5136