Power

The Company

Phoenix Power’s core activity is to develop, finance, operate, maintain and insure a gas-fired power generating plant located in Sur Industrial Estate between the Oman LNG terminal and Oman India Fertiliser Company plant. The plant has been in full commercial operation since December 2014. Phoenix Power has an operation and maintenance agreement with Phoenix Operation and Maintenance Company, which is managed by the same shareholders as Phoenix Power.

The company announced the opening of its initial public offering (IPO) in May 2015, offering 511.9m shares at a price of OR0.11 ($0.28) each, or a total of OR56.3m ($145.8m). The IPO represented 35% of the share capital.

At the IPO price, the company projected an average dividend yield of 7.3%, compared with an average of 5.9% for other power companies listed on the Muscat Securities Market.

The IPO was very successful and 18 times oversubscribed, mobilising bids worth OR1bn ($2.6bn). This underscored the demand for stable dividend-yielding stocks in Oman. The stable and predictable cash flows from power companies are underpinned by long-term power purchase agreements (PPAs) with the government. There is currently healthy demand for such stocks from Omani institutions such as pension funds. GCC institutions also take great interest in such IPOs because of higher dividends and predictable cash flows.

Following the closure of the IPO, the shares were listed on the stock market on June 22, 2015. The stock price rose by 35% on the first day of trading to OR0.15 ($0.39) on heavy volumes.

Phoenix Power has the largest power plant in Oman with installed capacity of 2000 MW, representing 27.8% of the sultanate’s total current capacity of 7197 MW and making it key to the sultanate’s power infrastructure. The plant’s size and its modern technology give it a competitive advantage over other power plants in Oman. It is strategically located 175 km south-east of Muscat, while most of the other plants are to the north of the capital. With demand expected to grow in the south – particularly around Duqm – Phoenix Power is set to become particularly important.

Projections

The project is one of 11 independent and government-owned power and/or water production projects in Oman, and benefits from a well-established contractual framework. The entire power output from Phoenix Power’s installed capacity is contracted with Oman Power and Water Procurement (OPWP) through a long-term power PPA that expires on March 31, 2029. Over the first half of 2015 the company achieved an excellent operational performance, with the Sur Power Plant demonstrating commercial availability of 98.3%, the key parameter to be considered when assessing the revenues generated during the period. In the first nine months of 2015 the company reported net revenues of OR89.8m ($232.5m) and net profit of OR13.9m ($36m).

Overall demand for electricity in Oman is expected to increase significantly, driven by economic development, population growth, rising personal income, capital investment, industrial spending, and housing, infrastructure and tourism developments. Peak and annual demand for electricity is expected to grow from 4455 MW and 22,702 GWh, respectively, in 2013 to 13,729 MW and 66,144 GWh in 2029. This industry outlook bodes well for Phoenix Power.

Beyond the PPA period, the company can extend its PPA with OPWP or sell its output in a more liberalised market, depending on market regulations at that time. In any case, Phoenix Power is expected to play a significant role in meeting the growing power demand in Oman over the longer term.