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Growth through energy

Interview - May 6, 2014
The Hub power station was one of the first and largest Independent Power Producer (IPP) in Pakistan to be financed by the private sector in Southern Asia and one of the largest private power projects in the newly industrialized world. In an interview with Upper Reach, CEO of the Hub Power Company (HUBCO) Mr. Khalid Mansoor talks about the company’s commitment to deliver growth in Pakistan through energy.
It is believed that Pakistan has reached a new landmark with its first transition from democracy to democracy in its history. As the High Commissioner of Pakistan in London said, this could be a new beginning for Pakistan. Do you think that this could be a new beginning for Pakistan in the economical way of seeing it?
Absolutely, and there are a couple of reasons for that belief. Firstly, the political leadership. They are the kind of people who have absolutely the right intentions and that’s because they have the business background to understand the reasons behind the virtually crippling economy. If I were to identify one of the key reasons there are, the power crisis this country has been facing which has not only crippled the economy but it has also made the lives of millions of Pakistanis miserable bearing more than 18 hours of continuous load shedding. Soon after coming to power they reached out to the private sector and sought their ideas as to how the strategies have to be made, developed and executed to address the country’s power crisis issue and so far this is not just a mere intention, they have taken a step in the right direction. Hopefully soon many projects will be underway to really start addressing this critical issue.
How important is the corporation between the policy makers - the government and the IPPs (Independent Power Producers) for example in order to solve this problem?
It’s not the Governments job to invest; their job is to create the enabling environment. It is the private sector who should come forward and utilizing the right kind of investment opportunity should not do projects by themselves but also create joint ventures with the foreign investors and make full use of this wonderful business opportunity which in turn will make huge contributions towards the development of the country. 
Regarding foreign investment this opportunity in energy has been there for the past 5 years or so. Never the less, for example last year foreign investment fell around 40 percent. Why do you think the investors were scared off before and why should they come back now? 

If I were to answer that question purely from energy and power sector there are couple of reasons. First of all, the power policy, which this country offers, and the return on the investment, it is second to none anywhere in the world. It offers from 15 to 20 percent of the return in terms of US dollars IRR on the equity investment. And also there is a huge gap between demand and supply as we speak the country is net shortfall of more than 7000 mega watts and it is growing. This gap between supply and demand is widening which means that if any potential investor has positioned himself into this outstanding opportunity there will be a huge opportunity, which will continue to exist.
But why hasn’t that happened? I believe there are two reasons for that, firstly the law and order situation and the media hype has kept many other people from coming into this country unless and until you have been here and seen for yourself that the country isn’t as bad as the media portrays it to be from the outside. Secondly, the main issue unfortunately is, in the past we have not put the right kind of focus on the appropriate energy mix. If you look back ten years, before the energy mix was very equally poised, we had 33 percent, which was weighable renewable – renewable means hydric. 33 percent was based on the hydril, 33 percent based on gas and 33 percent based on imported Furnace Oil but as the gas reserves in the country started to reduce, that share had been taken by expensive Furnace Oil and because of that the country started to produce on a levelized basis. Power generation cost was significantly increased compared to what the power purchaser which is the national utility company was retrieving from the people and consumers as part of the tariff. So that resulted in increasing the gap between whatever they were paying to purchase the electricity versus whatever they were collecting to sell the electricity. As a result of that a serious issue began in the country which is known as the circular debt. 
Circular debt was the independent power producers, like us, we were not getting our timely payments and that has created a negative kind of confidence in the investors to continue to invest in this country. A highlight in the Nawaz Sharif government I would like to state is that, as soon as they come they address the separated issues, a loan of HUBCO was paid which was close to 90 billion rupees which is 900 million dollars.
What does it mean for HUBCO or what would HUBCO mean for the government then, to be the first beneficiaries of the payment of the circular debt?
Well, there are couples of things expected of us. If you look at it purely from a business perspective, we got our money, which was outstanding, but being a good corporate citizen we went forward to see where we could help from the national perspective. We’ve already signed a memorandum of understanding with the government that one of the primary reasons for this separate issue I was talking about, it was because of a high cost of power generation, so we have agreed with our government that we will convert our Furnace Oil based power plant into coal based so that has the potential to reduce the cost of generating by 50 percent. 
What aspects are being taken into care or consideration of course kohl is a highly polluted agent but your kobold footprint is really low. So how will you address this? 
As I first told you, the initial step is the coal conversion. At the moment we are using Furnace Oil so we will switch our choice of fuel from Furnace Oil to coal. The Furnace Oil we use contains 3.5 percent sulphur and when we switch this plant to coal that contains less than 1 percent of sulphur. So relatively speaking you tell me if we are going to be polluting or helping the environment. When the environmental impact assessment will be done this coal conversion will be very environmentally friendly compared to whatever we are using right now. 
Speaking about environmental friendliness, HUBCO was the first IPP including a hydro power plant, a private one. So what would that mean? It seems HUBCO is always addressing the country’s biggest needs and it’s the first.  
You see, there is one more honour, which HUBCO has; it has constructed the very first IPP in hydro, which is independent power producer by a private company. This country has got huge potential for hydropower generation and based on careful assessment we believe that the country has potential to generate up to 50,000 mega watts because of dam based and run of the river, both. The IPP, which we have constructed, it is run of the river. People were talking about it but Laraib Energy Ltd. is the company, which demonstrated and made it happen. We’ve got the inherent in-house capability to really explore more and more opportunities and leveraging our in-house capabilities to undertake more and more power.
This is also part of my vision as the new CEO of HUBCO that while doing the conversion we are aspiring for growth initiatives as well. Whether that takes place, more thermal plant at the HUBCO location because in HUBCO we’ve got a lot of strategic advantage, we’re right on the coast and we’ve got more than 1,400 acres of free land. We’ve got all the other infrastructure available so that we are able to execute more opportunities because there is a lot of demand. However, at the same time we will continue to focus on the renewable part as well, whether that is wind projects, hydel or the new emerging solar. Pakistan is one of the very strategic countries; it has the sun all the time. We can generate as much power as we want from solar energy too.
One of the mind-blowing things about not only this company but the energy sector is what you said before, about the return of investment. Correct me if I’m wrong but you have already passed the 1 million mark this year in revenues and the analysts, as Paulina well said, provide or foresee an 11 percent growth on revenues here in a year. How is HUBCO going to reinvest all these revenues into being a stronger corporate?
Since our core competence is power and energy obviously our first intention would be to continue to reek the benefits of this huge opportunity. What you said is absolutely correct that, if you compare the investment opportunity or the potential return on the investment in the energy and power sector, this country’s power policy offers as high as lets say 20 percent return on the equity but if you compare it with the opportunities at Middle East they offered a return on equity which was less than 10 percent. So moving forward we believe we’ve got excellent balance sheet that will leverage doing the co-conversion.
Co-conversion will help in a couple of ways, it will give my business a long term sustainability because I want to be the most competitive and my cost of production should be much lower than what it is. If I’m a least power producer then I will have a much better chance of being dispatched when it comes to the dispatched priority. Secondly, it will give me an opportunity to retire my existing boilers and bring the new coal based boiler, giving me the reliability too. So that will give my base business the reliability and sustainability but leveraging my balance sheet, it says there is a huge gap between demand and supply. I will effectively utilize it with the talent and capacity I will be building in the company to aspire towards growth. 
Do you have in mind any joint ventures with international companies? For example, Oriel Petroleum did a venture with a UK company for feasible activity. Do you think it is possible for HUBCO to do something alike?
I think HUBCO is the most strategic location in energy and power sector that anybody has. It has a very sexy location. It’s right on the coast and has a brown field. A brown field is a location where there is a lot of much needed infrastructure available. Once I’m going to be converting my plan into coal then I will construct the jetty to start importing the coal. So it’s going to be at the existing location where all other infrastructure is already there. It is a well-secured site, has all the interconnecting roads and infrastructure needed for the development of the project. 
I have absolutely no doubt in my mind that with my jetty over there I will having yet another very important infrastructure and making use of 1,400 acres of free land then many potential investors including some internationals ones, some have already started to contact me. When we do some kind of joint venture I will position myself and effectively leverage whatever I bring to the table, be it my free land, expertise, people, project development strength, project execution strength, operations etc. 
Do you see any possible cooperation from the UK? Have you had anyone approach or do you see any potential?
Let me tell you something, in HUBCO the O&M (Operations and Maintenance) contractor was the international power to begin with and even now it is GDF SUEZ. GDF has taken the IPR (international power) so our O&M contractor is still well you know this country is still IP by GDF SUEZ. It’s kind of taken over. My career as part of Engro, we have utilized a number of times the expertise from UK. I have also very effectively utilized international power in Yemen and technological strength. They have been utilized for various projects developments. The commercial advisor of UK consulate visited me and they know that this company is going through a huge co-conversion project which going to be over a billion dollars of investment. They have approached me and we’ve given them relevant information. We’ve very open and flexible and I’m sure that as the business opportunities will unfold they will also have a share. 

As Warren Buffet once say, “I can lose money, I can lose a lot of money but what I can’t afford to lose is my reputation”. Do you think Pakistan’s reputation is worth a lot of money? Has it worked against business in Pakistan?
That is an unfortunate part. I have a lot of interaction with people like you in my field of work and before coming to HUBCO I was working at Engro heading the first public private partnership project, which is the development of a coal, mine and also the power generation – Sindh Engro Coal Mine Company (SECMC). I was the CEO of that company. So in developing that project we needed a lot of expertise from outside. We needed to leverage and effectively utilize the expertise of RWE. RWE is one of the biggest companies and their one of the biggest coal mine developers and operators etc. Each time I would go and convince people to work with us, unfortunately, this media hype has build a dirty reputation. We would persuade them to come and visit one time and then make a decision themselves. They came and obviously their perspective changed.
Before that, I remember one of the experts who had retired from RWE and I offered him a job to be chief executive. I went there and I was sitting with his family, they were like you’ll be crazy to go to a place like Pakistan. I told his wife why don’t you let your husband come and we’ll give him all sort of protocol right from his arrival to giving him all sorts of security etc. and I encouraged her to accompany him as well and see it for herself. And they came and they still continue to come. It is very unfortunate and detrimental as a Pakistani to go and tell people where you’re from and hear all sorts of negative things like people here are holding guns on the road all the time so its an unfortunate reputation and I believe this bad reputation has not evolved from the people of the country, this country has been an ideal place for others to achieve their long term motives and objectives.
It’s merely a thing of publicity of showing the country’s face in a wrong way maybe its on purpose sometimes because for example, Mr. Muhammad Zubair from the board of investment, he told us that Procter and Gamble declared that Pakistan was their most profitable market in the world. That means that, the downs usually don’t come around. 
In fact you know many of the people who have invested in Pakistan never had any problems with net, no problems in repatriation of profits, to transfer the money here and there. They were able to leverage the excellent talent this country offers in terms of manpower, management and technical skills. But I guess at the end of the day even we are responsible for letting our country be so easily accessible for other people to exploit. 
At one point you left the country and went to Nigeria and then you came back to work in Pakistan. How was that experience abroad and why did you come back?
I had no intentions to go but I was approached by arguably one of the most prosperous group in the Middle East. They’re called Bahwans.  They’ve got a very diversified portfolio they’re into fertilizers, energy and power, they’ve got 20,000 mega watts under their belt, they’re into IT and one of the biggest regional automobile dealers. Somebody very senior contacted me and arranged a meeting with the Chairman of Bahwan. I met him and he was very visionary and somehow he persuaded me and said that I should come and lead their biggest investment, which was a 3.5 billion investment. The world’s biggest fertilizer complex was under construction and that was a joint venture between Bahwan and Sonatrach, which is the largest petrochemical company. They are the second largest producer of LNG in the world. 
Anyway, I thought that this would be a good opportunity, being a CEO of such a big company and I thought I could really give them an entire scope of the modern leadership, the project has not been completed and I have got a lot of experience in project execution and management, and then setting up the professional companies in terms of corporate governance and the corporate services. So I went there and I thought it was exciting. There were people there from 9 different nationalities, a lot of diversity, and it was exciting to set up the company from grass and see the whole procedure but then unfortunately there were some issues around the project. There was some commercial understanding between the two joint venture partners, in terms of price of the gas and profit sharing and because of those differences the project was suspended. Imagine the 3.5 billion investment and we had completed the project and because of these reasons it has to be shut down. I took that opportunity and met the engineering bureaucracy and said you could handle these kinds of differences and you should let the project run, it’s so unfortunate, but somehow it wasn’t getting resolved. When that kind of situation arose I did not want to be where people were just sitting around. They also demobilized most of their workforce and the project is still suspended. I hope they will be able to resolve their issue.
That’s when I decided to come back, initially I had thought of taking an early retirement and enjoy life but I’m blessed with four daughters and two of them are in Canada, one is in UK and the other is thinking of coming back to Pakistan. So I thought of coming back to make myself available to contribute to give something back to my country, that was the main aspiration which brought me back. And the day I arrived I was approached by Mr. Dawood, he knew me from Engro, and he asked me to come and help in the country’s contribution in energy and power and also it gave me a strategic connect with one of my aspiration which was not yet fulfilled, which was Thar. So I said this co-conversion project, which I am designing, it will have the flexibility to start using local coal as soon as it becomes available from Thar. It was a win-win kind of a situation and I’m really happy to be back. It has opportunity to transform this company. It was a different company, it was set up to ensure only that the Holdings company was just managing and the entire operation was being handled through Oil and contractor but now you know, it is in a different league altogether. 
I’m trying to contribute to transform this company to help people unleash the tremendous potential they have and at the end of the day it’s going to be really fulfilling that I’m able to contribute in the power crisis of my beloved company.
Exactly, there will be a time when this power crisis comes to an end and then as you say the true potential of the country will be unleashed. Where would you like to see Pakistan in the next 5 years?
In the next five years I think, there should not be any law and order situation in the country. There should be peace and people should not be afraid of traveling within Pakistan and it is such a wonderful country, which offers too much for the tourists. We’ve got the most outstanding mountains, rivers and oceans, desert. From agricultural standpoint, one of the most suitable lands including all four seasons in the country. It should be known as a peaceful country and the issue of terrorism which we’ve been tagged with, its not our problem we should alleviate that kind of concern and I would like to see our people happy and prosperous.
Nelson Mandela once said, “When you reach on top of a mountain, then there’s another mountain and another mountain”. You’ve reached several mountains, you’ve handled, if not, one of the largest fertilizer companies in the world and now you’re leading this company trying to change the fate of Pakistan. What is your next mountain to climb?
Well I take each thing at a time; at the moment my vision is as follows, as I told you before I have come here for three objectives. The first being, I must transform this country and people. I would like this company to be known as the world’s best-run company. It has got all the worlds best practices at place and then it would show up in many things in terms of profitability, productivity and generating more and more power, which this country desperately needs. Secondly, I would like to retire whereby I would leave a legacy that I have not only held this company to have grown significantly but transforming this company, the entire demographic of this company. One is in Hub Balochistan, we are in Karachi and there’s one in the middle of the country, in Azad Kashmir. I would like to bring it absolute consistency whereby all those organizations are running with the authorized practices. 
The largest objective of my life is that I should be able to proudly that I significantly contributed in the power crisis of the country. If I am able to achieve these objectives, I think that’s about it and then I would like to retire and enjoy my life. 
With all your experience and these three objectives, most importantly making a significant change and contribution to the energy crisis. What is it that drives you and pushes you forward?
Two things actually. This country has given me a lot. This country has given me all sorts of opportunities, it has allowed me to work with the world’s best people and interact and compete with the worlds best. I don’t know if you remember, we were part of Exxon, Engro was part of Exxon until early 1990 and then it diversified its shares and became Engro. When I was still part of Exxon I was sent abroad on an assignment because of the exposure my country has given me, I was able to compete and rated as one of the best employees so that’s all given to me by my country. I wake up in the morning saying Alhamdulillah, a silent prayer of thanks for all that I’ve been fortunate to achieve, that anybody can think of, but this is the time to give back. In our religion, the maximum thing is that, if you can contribute in changing the lives of the people in helping them achieve their potential. Each morning I get up, I pray to Allah that He gives me the passion and energy to continue to function and it is very contagious. If your intention is right it is amazing to see how people grow around you. Those people who weren’t working with a sense of urgency and passion, each day I could see how they improved. If I can bring a smile on the face of somebody I could see people aspiring and envisioning to be growing in their careers and really contributing. In the end of the day it gives you tons of energy to go back and keep on doing it.

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