Pakistan: DG Khan invests in new power unit

Firm putting up 8.6-megawatt Waste Heat Recovery Power Plant at the Kalar Kaahar unit.

{reg}Pakistani cement maker DG Khan (DGKC) is reportedly putting up another 8.6-megawatt Waste Heat Recovery Power Plant worth over Rs2.5 billion at the Kalar Kaahar unit, The Nation reported.

The report quoted sources who said with the new facility, the company's energy cost would be cut by Rs300 million from 2013.

The project, according to sources in the industry, will be funded through foreign loan, while the equity portion will be raised through rights issuance. Based on Ammonia technology, the 8.6-MW Waste Heat Power Plant will provide the company an edge over the previously used water-based heat recovery plant due to its uninterrupted power generation.

Aside from having efficient power source, the company will also save on maintenance and fuel cost as well.

The set-up period for this plant would be around two years, while power generation is expected from the mid of 2013. Sources said the plant would cost around Rs2.5 billion, for which the company would maintain a debt to equity ratio of 60:40.

With relatively weak pricing power amid persistent supply-demand gap and rising coal prices, cost reduction strategy for cement manufacturers has become a must, experts said.

Sources also said the company is in the process of procuring foreign loan worth $16 to $17 million (Rs1.5 billion). Experts said that the company's dispatches are also expected to fall by 16 percent to 2 million tons compared to 2.4 million tons due to subdued cement demand amid severe floods.

They expect gross margins to decline by 60bps to 20.8 percent compared to 21.4 percent in 1HFY10. However, for 2QFY11, it is expected the company will post profit of Rs230 million, as compared to loss of Rs115 million in 2QFY10, primarily due to higher retention prices.