Mughal Energy Limited ("MEL" or "the Company") is in process of installing a 36.5MW hybrid captive power plant located at 17-km on Lahore- Sheikhupura Road, Punjab that will supply electricity to the Mughal Iron & Steel Industries Limited (MISIL) and its associated entities.

The bulk supply tariff was initially set at PKR 29.8131/kWh for the three Bulk Purchasing Companies (BPCs) of the Mughal Group. However, the actual tariff will be finalized upon the plant's commencement of commercial operations. This final tariff will ensure the recovery of operating costs, interest expenses, asset depreciation, a reasonable return on investment, and any other capital costs or loans.

Return on the project is yet to be finalized.

MEL was incorporated as a public unlisted company in Pakistan on August 19, 2012. Later, in an Extraordinary General Meeting (EOGM) held on September 19, 2023, members of the MISIL approved the acquisition of 174.692mln fully paid ordinary shares and 22.570mln fully paid Class-B shares of MEL for a total consideration of PKR 3,150mln. This acquisition resulted in MEL became a wholly owned subsidiary of MISIL. Subsequently, on May 23, 2024, MEL was listed on the Growth Enterprise Market (GEM) Board of the Pakistan Stock Exchange Limited (PSX), with a free float of 10%. The primary reasons for this listing are to ensure compliance with the Code of Corporate Governance applicable to listed companies, and prepare for eventual listing on the main Trading Board of PSX in the near future.

The stability of ownership is supported by the Company’s role as a captive power generation unit. Once operational, it will provide an uninterrupted power supply to the group companies at favorable rates, contributing to cost efficiencies and supporting margins. This key role within the Group underscores the stability of its ownership.

MISIL is one of the leading companies of Pakistan in the iron and steel sector. The Company is involved in multidimensional activities from making Billets of Mild Steel, Spring Steel, Deformed bars, Re-bar, Cold Twisted Rebar and huge range of sections such as I. Beams, C. Section, H. Beam, T. Bar etc. in the downstream industry. The sponsors have demonstrated strong business acumen through their timely diversification and adoption of advanced technologies. This strategic approach reflects their deep understanding of market dynamics and has enabled them to navigate challenging economic conditions effectively.

The sponsor's financial soundness is deemed strong, evidenced by their demonstrated commitment to the Company. The sponsors have already secured the plant equipment and land for the site through equity contributions. Additionally, their approval of corporate guarantees totaling PKR 6bln in favor of MEL to secure financing for a five-year period further underscores their financial strength.

The Board of Directors (BoD) comprises seven members, primarily from the sponsoring family, including both the Chairman and the CEO. The board includes two Executive Directors and five Non-Executive Directors, with no independent oversight present.

Mr. Mirza Javed Iqbal serves as the Chairman of the Board of Directors (BoD). With over four decades of experience in the steel and iron industry, he has been actively involved in the family business since 1976. He also holds the position of Chairman at MISIL. Mr. Khurram Javaid, the Chief Executive Officer of MEL, serve as Executive Director. The Non-Executive Directors include Mr. Jamshed Iqbal, Mr. Mateen Jamshed, Mr. Muhammad Sayyam, and Mr. Waleed bin Tariq. Each board member brings a wealth of diverse experience and offers strategic guidance to the Company.

The Company has two board committees in place: (i) Audit and (ii) Human Resource & Remuneration. Each committee comprises three members, all of whom are non-executive directors. Both committees are chaired by Mr. Mirza Javed Iqbal. The attendance of board members at meetings has been satisfactory.

Muniff Ziauddin & Co. Chartered Accountants is the external auditor of the Company and they have expressed an unqualified opinion on the financial statements for the year ended on 30th June, 2024. In addition to the annual financials, as a listed company, MEL also publishes its duly reviewed and approved quarterly results, along with the directors' comments on the Company's performance, on the PSX in a timely manner.

Currently, the Company has a basic organizational structure with clear lines of reporting in place. The CFO and COO report to the CEO, who in turn reports to the BoD. The Company Secretary reports directly to the BoD. The COO is responsible for overseeing operational matters related to plant installation and supervising construction activities, while the CFO manages financial matters, ensuring effective financial oversight across the Company. As the Company begins its operations, the organizational structure will evolve further to meet the growing needs.

Mr. Khurram Javed, the CEO of MEL, also serves as the Group CEO of Mughal Group. He leads multiple entities within the group, including MISIL, Mughal Steel Re-Rolling Industries Limited, Mughal International IMPEX Limited, and Indus Engineering (Private) Limited. He holds over a decade of professional experience and an MBA from Coventry University, Mr. Javed is supported by a team of experienced professionals including: Mr. Shakeel Ahmed, Chief Operating Officer (COO); Mr. Zafar Iqbal, Chief Financial Officer (CFO); and Mr. Fahad Hafeez, Company Secretary. These leaders, also hold key positions within the group companies, work alongside experienced teams to ensure smooth operations equipped with necessary technical skills and relevant industry experience.

The management, under the leadership of the BoD, demonstrates effectiveness through its hands-on approach to the Company’s operations. By actively overseeing critical tasks such as procurement of plant, equipment installation, opening Letters of Credit, and arranging funds, the management ensures smooth operational workflows. This coordinated effort underscores the team's commitment to achieving the company's targets.

The Company has awarded the installation and construction contract for the plant to local contractors with a good reputation in the industry. The contractors bring significant and relevant experience to the table, showcasing their proficiency in similar projects. Regular meetings are conducted to assess and track the contractors' performance, allowing for timely completion and corrective actions if needed.

The Company has procured a used coal power plant, along with all necessary equipment, including the main and auxiliary boilers, two turbines, generators, and supplementary equipment, all of which are available on-site. A groundbreaking ceremony was held in October 2023, during which the EPC contract was awarded to Izhar Construction for civil work, installation, fabrication, and testing of the plant.

MEL has awarded a 30-year generation license from the National Electric Power Regulatory Authority (NEPRA), effective from the Commercial Operation Date (COD). A Power Purchase Agreement (PPA) has been finalized between MEL and MISIL, under which MISIL will pay MEL a tariff of PKR 29.8131/kWh.

The total duration for civil work, mechanical installation, piping (MIP), and testing will be completed in fourteen (14) months from the start of work. The work is divided into three phases: Phase I: Civil work, which will take twelve (12) months, Phase II: Mechanical installation and piping (MIP), which will take nine (9) months and Phase III: Testing, cold commissioning, and trials, which will take three (3) months. Phase I commenced in November 2023. Civil and mechanical designs have been completed, and civil construction and MIP are currently underway. Testing, cold commissioning, and trials are yet to begin. The plant is capable of operating on both local and imported coal; the Company is in the process of finalizing its coal supply agreement for sourcing coal.

The Company has already procured the necessary equipment, effectively reducing procurement risks. The civil work contract has been awarded to a reputable and experienced contractor, significantly minimizing construction risks. However, the delay in the COD of the MEL may result in a delay in the benefits to MISIL, such as electricity procurement at competitive rates, which would help reduce production costs and support the margins of MISIL.

In FY 2024, Pakistan's power generation declined by 1.9%, totaling 127,160 GWh, marking the second consecutive year of reduced output. This decline was driven by high electricity costs, rising inflation, and lower economic activity. The country's power generation remains heavily reliant on thermal and hydel sources, which contributed approximately 45% and 31%, respectively, in FY 2024. The share of nuclear energy has notably increased to around 19% in FY 2024, while renewable energy sources continue to make up a modest 5% of the total generation. Due to high electricity prices, key industrial sectors such as sugar, textiles, steel, and cement have been shifting to alternative energy sources, including captive power plants (thermal, solar, and more recently wind-based generation) to supply energy to their facilities. Captive power plants not only help reduce electricity costs but also ensure a continuous and reliable supply of electricity without outages.

O & M contract remains with Izhar Construction for 2 years after COD.

The plant can operate on both local and imported coal. The Company has yet to finalize its coal supply agreement and is currently considering options, including signing an agreement with Sindh Lakhra Coal Mining or sourcing coal from Afghanistan. However, the final agreements will be concluded closer to the testing phase of the plant, taking into account the most favorable solution.

The minimum required performance benchmark yet to be finalized.

The total estimated cost for the installation and procurement of the plant, including land acquisition, is PKR 6.5bln. This will be financed through a combination of debt and equity, with an approximate ratio of 65:35. The sponsors have already contributed PKR 2.4bln through equity in form of land and basic plant equipment, and the remaining funding will be raised through local borrowings. The Company plans to secure PKR 4.1bln to finance the plant's erection. To date, PKR 300mln in debt has been secured from PAIR Investment Company Limited, and PKR 150mln from Parwaaz Financial Services Limited. Additionally, MISIL has secured a one-year running finance facility of up to PKR 800mln from Pak Libya and lend it to MEL. The Company has also established letters of credit for importing ancillary equipment, valued at PKR 500mln, through MCB Bank. Furthermore, the Company is in the process of issuing a long-term Sukuk worth PKR 2.5bln to cover the remaining amount.

Since MEL is still under construction and has not yet commenced operations, there is no liquidity profile available at this time. Currently, the cash on hand consists of debt drawn to complete the plant's development.

The Company is currently in the construction phase, so there is no immediate need for working capital. However, once operations begin, short-term borrowings will be required to procure coal, the major raw material for MEL's operations. It is expected that working capital will be managed through a combination of internal cash flow generation and bank borrowings.

Once operational, MEL's cash flow is expected to come from the sale of electricity at an agreed tariff to other group companies.

As of September 2024, the Company's long-term debt amounted to PKR 422 million, while short-term debt stood at PKR 791 million. The short-term loan is expected to be reclassified as long-term in the second quarter of FY25. Repayment of the loan has already commenced, with the sponsors making the payments, as the Company is not yet operational. In 1QFY25, the Company's leverage stands at ~32%.As of September 2024, the Company's long-term debt amounted to PKR 422mln, while short-term debt stood at PKR 791mln. The short-term loan is expected to be reclassified as long-term in the second quarter of FY25.Repayment of the loan has already commenced, with the sponsors making the payments, as the Company is not yet operational. In 1QFY25, the Company's leverage stands at ~32%.