China Power Hub Generation Company (Private) Limited (“CPHGC” or “the Company”), incorporated on September 3, 2015, as a private limited company under the Companies Ordinance 1984 (now the Companies Act 2017), operates a 1320 MW coal-fired power plant in Hub, Tehsil Gaddani, District Lasbella, Baluchistan. The plant commenced commercial operations on August 17, 2019, achieving its Commercial Operation Date (COD) within the projected cost of approximately USD 2 billion. It is amongst the early harvest energy initiatives under the China-Pakistan Economic Corridor (CPEC) framework. CPHGC is a subsidiary of China Power International (Pakistan) Investment Limited.

CPHGC has been granted a reference levelized tariff of 8.3601 US¢ per kWh, with a tariff control period of 30 years from the COD. The tariff is indexed to the Pakistan Rupee-US Dollar exchange rate and adjusted for inflation based on both US and Pakistan CPIs. Escalable components include principal and interest repayments, return on equity (ROE), insurance, and fixed and variable O&M costs. Additionally, fuel prices and all taxes/levies are passed through directly to the power purchaser. CPHGC applied for a one-time tariff adjustment under Clause 12.10, Schedule 1 of the Power Purchase Agreement (PPA), which was determined by NEPRA in June 2022. Subsequently, CPHGC filed an appeal with the Appellate Tribunal and obtained a stay order. The matter is awaiting a final decision.

The return on equity (ROE) for CPHGC is 27.2% in USD terms, as specified in the tariff determination for the project.

CPHGC was established under a Joint Venture Agreement (JVA) dated April 20, 2015, between China Power International Holding Limited (CPIHL), a subsidiary of State Power Investment Corporation (SPIC), and the Hub Power Company (HUBCO). Under the JVA, CPIHL, through its wholly owned subsidiary China Power International (Pakistan) Investment Limited (CPIPI), holds a 52.5% ownership stake, while HUBCO, through its wholly owned subsidiary Hub Power Holdings Limited (HPHL), owns the remaining 47.5%.

The stability in the ownership of CPHGC was established through a clearly defined Joint Venture Agreement (JVA) signed on April 20, 2015. This ownership structure ensures alignment between the stakeholders, combining China's financial and technical expertise with HUBCO's deep understanding of the local market. Additionally, the project's inclusion in the China-Pakistan Economic Corridor (CPEC) framework provides further assurance of stability in ownership, given the strategic importance and governmental support.

The sponsor groups bring extensive experience in the development and operation of power projects across a diverse range of energy sources. Their expertise spans coal-fired, hydro, and natural gas projects, as well as various renewable energy technologies, including wind, solar, biomass, waste-to-energy, and cogeneration. They have also developed specialized projects such as mine-mouth coal plants that integrate coal production and power generation. This comprehensive experience underscores their capability to manage complex energy projects effectively.

State Power Investment Corporation (SPIC), formed in June 2015 through the merger of China Power Investment Corporation and State Nuclear Power Technology Corporation, is a major state-owned enterprise with a registered capital of RMB 45 billion (USD 7 billion) and total assets of RMB 722.3 billion (USD 112 billion). Similarly, HUBCO has a strong financial muscle. Together, these factors demonstrate the financial strength of the sponsors, ensuring their capability to support and sustain the CPHGC effectively.

The Board of Directors (BoD) of CPHGC consists of seven members. Four members represent China Power International (Pakistan) Investment Limited, while three members represent Hub Power Holdings Limited. The board brings together a diverse range of expertise from various industries, ensuring well-rounded governance and strategic decision-making for the Company.

The Board of Directors of China Power Hub Generation Company (CPHGC) comprises technical and managerial experts. Mr. Zhao Yonggang, the Chairman of the Board and Director at CPIPI, holds a Bachelor's degree in Thermal Energy and Power Engineering with extensive experience in power systems. Mr. Zhang Xi (Director, CPIPI) is a Certified Public Accountant with expertise in accounting and financial management. Mr. Shi Zhenxing (Director, CPIPI) has a Bachelor's degree in Economics and has played a key role in CPHGC's project development. Mr. Wu Jian (Director, CPIPI) holds a Master’s degree and possesses significant experience in infrastructure and project management. Mr. Muhammad Saqib (Director, HPHL), the CFO of HUBCO, has an MBA and vast experience in financial management. Mr. Kamran Kamal (Director, HPHL) holds a Master’s in Public Policy with specialization in energy technology and policy. Mr. Aly Khan (Director, HPHL) holds an Honors M.Sc. and has extensive experience in business and finance. Together, the board ensures strong governance and strategic leadership, drawing on their diverse expertise in energy, finance, and policy.

In CY24, the Board of Directors of CPHGC convened three meetings to deliberate on the Company’s strategic decisions. The attendance at these meetings was satisfactory, reflecting the board's commitment to effective governance and oversight.

A.F. Ferguson & Co., Chartered Accountants, a member firm of PwC, serves as the external auditor for CPHGC. The firm issued an unqualified opinion on the company's financial statements for CY23, reflecting a clean and fair presentation of its financial position.

CPHGC boasts a well-organized structure with clearly defined reporting lines. Each department is led by seasoned and experienced professionals who report directly to the CEO, ensuring streamlined decision-making and accountability. The CEO, in turn, reports to the BoD, reinforcing a strong governance framework. In addition to the expertise of its in-house plant engineers, the Company has outsourced the Operations and Maintenance (O&M) of the plant to ensure smooth operations and mitigate potential issues. This combination of internal expertise and external support underscores CPHGC's operational reliability.

The management team of CPHGC is led by Mr. Shi Zhenxing, the recently appointed CEO, who brings 29.1 years of experience, including 6.4 years with the Company. Mr. Chen Yonghua serves as the CFO, contributing over 21 years of expertise and reporting directly to the CEO. Mr. Li Kexin, the Chief Engineer, has an extensive 33 years of experience, including 5.9 years with the Company. Mr. Farhan Naqvi, the Head of Legal, has 26.9 years of professional experience. Mr. Li Hualin, the Project Development Technical Director, brings over 35 years of industry experience. Mr. Huang Wenliang, the Head of PMD, has 16.1 years of experience. Additionally, Mr. Farhan Naqvi holds a dual role as Company Secretary and Head of Corporate Secretariat, with over 37 years of experience.This seasoned and diverse leadership team collaborates under the guidance of the CEO to ensure the effective management and growth of the organization.

The management of CPHGC demonstrates effectiveness through its structured organization, experienced leadership, and clear reporting lines. Each department is led by skilled professionals who bring extensive expertise, ensuring efficient operations and strategic decision-making. The combination of in-house engineering capabilities and outsourced O&M services further enhances the Company’s ability to maintain smooth operations.

The Company maintains an adequate MIS that enables the management to effectively monitor operations and maintain seamless coordination with the O&M operator. Additionally, the presence of an in-house internal audit department ensures proactive identification and management of risks arising from operations, reinforcing the company’s commitment to transparency, efficiency, and operational resilience.

CPHGC has entered into a Power Purchase Agreement (PPA) with the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) for a duration of 30 years, commencing from the COD - August 17, 2019.

The operations and maintenance of the CPHGC plant and jetty have been outsourced to a consortium of O&M contractors, including China Power International Maintenance Engineering Co. Ltd. and China Power Hub Operating Company Private Limited. This arrangement ensures strict adherence to minimum performance benchmarks, effectively mitigating the risk of liquidated damages (LDs). The plant's core equipment—Boilers, Turbines, and Generators (BTGs)—is based on advanced European design and technology, reflecting CPHGC's dedication to maintaining high operational standards and efficiency.

CPHGC has a dedicated jetty at the plant site, ensuring efficient coal handling and delivery operations. The Company has a Coal Supply Agreement (CSA) with reputable international suppliers to secure a reliable fuel supply. The power plant requires approximately 3.8 million tons of coal annually, which translates to an average of three vessels per month, each with a capacity of 160,000 tons, delivered to the jetty. Payments for coal deliveries are made through a Letter of Credit (LC) at sight, ensuring a smooth and reliable transaction process.

CPHGC has adequate insurance coverage for business interruptions, property damages etc. as per PPA and lenders facility agreements.

In FY-2024, 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. Recently, 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, although the outcomes of these negotiations are yet to be seen.

The electricity generation by CPHGC was recorded at 220 GWh during the third quarter of CY24, compared to 735.45 GWh (as per CPPA-G billing) in CY23. The benchmark generation of CPHC is 9,828 GWh (1320MW*0.85*8760hrs). This decline in output is attributed to reduced demand from the Power Purchaser.

Under the Power Purchase Agreement (PPA), the required availability for CPHGC is set at 85%, equivalent to 8,184 GWh annually. The Company successfully maintained its required availability meeting the benchmark of 85% (8,184 GWh).

Debt financing constitutes 75% of the allowed project cost i.e. USD 1,995mln. Hence, allowed project debt and equity stood at USD 1,496.25mln (75%) and USD 498.75mln (25%). Total project debt was funded by Chinese lenders with the consortium led by CDB including EXIM Bank, BOC, CCB and ICBC. Project debt has the pricing of Daily Simple SOFR + Credit Adjustment Spread (CAS at 0.26161%) + 3.8% Spread previously it was 3 month LIBOR, payable quarterly. The principal repayment shall be made in 20 semi-annual installments

CPHGC, in its off-take agreement with CPPA-G, will receive capacity payments given the plant meets contract availability, even if no purchase order is placed. In order to comfort the lenders, DSRA is maintained and fully funded through capacity payments equivalent to debt servicing due for one semi-annual principal and two quarterly interest payments.

The company finances its operations through a combination of internal cash generation and has approved working capital lines on 24th October, 2024 of PKR 69 billion included PKR 52.4 billion of funded facility. As of 3QCY24, short-term borrowing utilization amounted to PKR 23.4 billion. In September 2023, the company redeemed a PKR 7 billion instrument and chose not to issue a replacement due to reduced demand from power purchasers, leading to lower coal procurement.

During 3QCY24, free cash flows from operations (FCFO) stood at PKR 92,510mln (3QCY23: PKR 94,592mln, CY23: PKR 134,420mln). Interest and debt coverage ratio stood at 4.3x and 1.7x respectively, reflecting Company’s ability to pay its financial obligations.

As of 3QCY24 CPHGC's gearing ratio stood at 53.9% (compared to 60% in CY23). The debt is primarily composed of project-related debt, with short-term borrowings comprises for only 7% of the total debt. Due to timely and periodic repayments, the gearing ratio is expected to decrease further.