Banpu eyes coal/power acquisitions

Reposted from The Nation
By Achara Deboonme

May 14, 2013

Banpu, with more than Bt10 billion of cash in hand, is looking to expand its regional presence with a focus on existing power plants and coal mines. “Investment targets must be able to generate cash flow immediately after the transaction,” said Chanin Vongkusolkit, chief executive officer of the energy company, which now operates in six countries: Thailand, Laos, Indonesia, China, Australia and Mongolia.

Facilitating the expansion plan is the low debt-to-equity ratio of 0.83:1, against the internally set limit of 1.1:1, he said during a trip to Hongsa Power in Laos last week. The coal-fired power plant, owned 40 per cent by the company, is about 50 per cent completed.

“At some points, the D/E ratio may rise to 1.3:1. Yet I can assure you that all assets of Banpu are profitable.

“In 2015 when Hongsa power plant commences commercial operations, the power business will contribute 30 per cent of earnings. This is on assumption that no new power plant is acquired before then. Looking forward to the next five years, the ratio could rise above 30 per cent but not exceed 40 per cent, as we still see a lot of opportunities from the mining business,” he said. Posting Bt117 billion in revenue and Bt9.3 billion in net profit in 2012, coal sales in the year accounted for 95 per cent of total revenue while power business – through the 50-per-cent-owned BLCP power plant in Rayong and three plants in China – made up the balance.

In the coal business, last year the average selling price declined by 3 per cent from 2011 to US$85.72 per tonne. The average selling price dropped further in the first quarter of this year, which along with lower sales volume severely pressured the company’s quarterly net profit. Attributing this to a slight oversupply amid increasing demand, Chanin foresees an improvement soon. “Coal demand will continue to grow, especially from China, India, South Korea and Japan. The growing coal demand will reduce the level of excess supply by the middle of this year. This will help improve the prices in the market,” he said.

Seeing no good news in the next few months and falling coal prices, Asia Plus Securities slashed earning forecasts for Banpu in 2013 and 2014. The only positive factor it saw in the first quarter was profits from the BLCP power plant, which resumed full utilisation after a two-month annual maintenance shutdown in the first quarter.

Chanin said Banpu also placed bigger hopes on the power business, chiefly on the 1,800-megawatt Hongsa power plant, which will increase Banpu’s installed capacity by 715MW. Under the 25-year power-purchase agreements, Hongsa Power will sell 1,500MW to the Electricity Generating Authority of Thailand for Bt2.275 per kilowatt-hour and 100MW to Electricite du Laos for 6 US cents (Bt1.78) per kilowatt-hour. It is estimated that at Bt2.275, the Hongsa project will generate revenue of about Bt58 billion.

While Ratch, another shareholder, takes charge of the engineering side, Banpu has devoted all of its knowledge and experience in planning and operations accumulated in the past years to the project. The price of lignite – sourced in nearby pits – to fire the power plant is fixed throughout the 25 years. The $3.71-billion (Bt110 billion) project is funded 50:50 by baht- and dollar-denominated loans. Power is also priced in baht and dollars at the 50:50 ratio, to avoid foreign-exchange risks.

Chanin acknowledged that there were many risks involved with such a large power plant. Located in Hongsa subdistrict of Xayaburi province, the plant needs a better road for the transport of equipment from Nan province in Thailand. The resettlement scheme for more than 400 households was just completed last year, but programmes to create jobs and control pollutants are under way.

One big risk involves the Civil Court’s order for Banpu to pay Siva Ngarntavee and his group more than Bt31 billion. The case is now in the appeal process. Chanin said Banpu was looking forward to expanding its coal-fired power business in Thailand if public acceptance improves, to take advantage of ample supplies of coal from its mines.





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