Investor Presentaiton
ANNUAL
REPORT
2018-2019
42
ANNUAL
REPORT
2018-2019
Dividend
Your Board recommends 40% cash dividend (i.e. Tk 4.00
per share of Tk 10 each) for the financial year ended 30
June 2019, subject to approval by the shareholders at the
21st Annual General Meeting.
Business Risk & Uncertainties
Investment in equity shares involves various levels of risk.
Consequently, the return of investment is dependent
on the functioning of the risk factors, KPCL operates
in an industry which is exposed to a number of internal
and external risk factors over which our company has
little or no control. The occurrence of the risk factors as
delineated hereunder can have significant bearing on the
operational and financial performance of the Company.
Therefore, it is imperative to thoroughly understand the
risk profile of the Company along with management's
perception of the risks so that you are aware that your
company is in safe hands.
Financial risk management
The Board of Directors has overall responsibility for
the establishment and oversight of the Company's
risk management framework. The Company's risk
management policies are established to identify and
analyse the risks faced by it, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits.
Risk management policies, procedures and systems are
reviewed regularly to reflect changes in market conditions
and the Company's activities. The Company has exposure
to the following risks from its use of financial instruments:
• Credit risk • Liquidity risk • Market risk
Credit risk
Credit risk is the risk of financial loss to the Company if
a customer or counterparty to a financial instrument fails
to meet its contractual obligations, and arises principally
from the Company's receivables from customers and
investment securities. Credit risk is mainly attributable to
trade and other receivables. Management has a credit
policy in place and the exposure to credit risk is monitored
on an ongoing basis.
The Company's receivables arise from a Government
entity, viz, Bangladesh Power Development Board (BPDB)
to whom the Company's sales are made under the
conditions of the power purchase agreement and contract
for supply of electricity on rental basis. Sales made to this
entity is fully secured by Letters of Credit issued by local
scheduled banks.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or
another financial asset. The Company's approach to
managing liquidity is to ensure, as far as possible, that it
will have sufficient liquidity to meet its liabilities when they
are due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage
to the Company's reputation.
Market risk
Market risk is the risk that changes in market prices, such
as foreign exchange rates and interest rates will affect the
Company's income or the value of its holdings of financial
instruments. The objective of the Company's management
is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
Currency risk
The Company is exposed to currency risk on revenue and
certain expenses such as procurement of heavy fuel oil,
spare parts and purchase of capital items. Majority of the
Company's foreign currency transactions are denominated
in United States Dollar (USD) and Euro (EUR) and related
to revenue and procurement of heavy fuel oil and spare
parts. The company maintains USD denominated bank
accounts where receipts from BPDB are deposited.
Interest rate risk
Interest rate risk is the risk that arises due to changes in
interest rates on borrowings. Loans and borrowings are
affected by fluctuations in interest rates as the rate is of
LIBOR plus variable rate ranging from 1.30% to 1.50%.
Details financial risk management has been disclosed in
the notes 34 to the financial statements.
Capital risk management
KPCL's objectives when managing capital are to safeguard
its ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.
Operational Risk
Operational risk is measured against the ability of the
Company's power projects to generate and distribute
stipulated electricity to its off-taker. Limitation of
technology used, fuel supply arrangement, operation and
maintenance (O&M) arrangement, political or force majeure
in the form of natural disasters like floods, cyclone,
tsunami and earthquake may hamper normal performance
of power generation. However, severe natural calamities
which are unpredictable and unforeseen have the potential
to disrupt normal operations of KPCL. The management of
your company believes that prudent rehabilitation schemes
and quality maintenance will lessen the damages caused
by such natural disasters. Most importantly, all the above
risks are covered under the insurance agreement with
Pragati Insurance Limited, to compensate for all potential
damages caused in such situations.
The provisions of the power purchase agreement
guaranteeing 100% of the monthly capacity payment
of KPCL and 100% of monthly capacity rental payment
of KPC Unit II 115 MW Plant (KPCL II) and KPC 40 MW
Noapara Plant (KPCL III), minimizes the risk of non-
utilization of the capacity of the plant. The payment of
tariff by BPDB within the specified time is secured under
the provisions of the agreement for which Letter of Credit
has been issued by BPDB for two months' minimum
guaranteed payment. Additionally, GoB through the
Implementation Agreement provides sovereign guarantee
with regard to payments which mitigates risk of any non-
payments.
The Company is operated by a team of highly motivated
and trained engineers who were employed for the last
nineteen years under Wärtsilä and KPCL. Wärtsilä, the
leading power plant manufacturer and plant operator in
the world, is technologically advanced enough to keep
KPCL plants out of any technology related risk. Moreover,
the company is maintaining adequate spare parts stock to
avert any or all risk of incurring any liquidated damage due
to the non-performance/maintain down time of the plant.
The availability of all sorts of spare parts is ensured under a
Supply Agreement with Wartsila.
Heavy Fuel Oil (HFO) is used as basic raw material for
the operation of all the three units of KPCL power plants.
Summit Asia Pacific Pte Ltd. and United Energy Trading Pte
REE
Ltd. have been supplying Heavy Fuel Oil (HFO) to the Company
under the Fuel Supply Agreement and the risk of price fluctuation
in the global oil market is mitigated by the varying Fuel Tariff
structure which is based on fuel cost as a Pass-through item.
Moreover, KPCL can procure HFO from other vendors if the
aforesaid vendors are unable to supply.
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