Sohar Power preparing to declare bankruptcy

The Board of Directors of Sohar Power Company SAOG (the Company) would like to inform the Muscat Stock Exchange and the investors’ community that it has resolved the following in its meeting held on 22 May 2023:

The term of the Company’s power and water purchase came to an end on 15″ May 2022. Due to the annulment of Power 2022 process by OPWP, the Company was not able to enter into a further contract with OPWP.

The Company actively engaged with the Authority for Public Services Regulation (APSR), OPWP, and other parties to explore options aimed at extending the Company’s operating life, however, these engagements were ultimately unsuccessful and will not meet the Company’s ambitions.

One option for the Company is Spot market but it was determined that the framework is not feasible for the Company. Based on the experience of the last full year of spot market operations, both the average system marginal price and scarcity price have been low on account of low demand and over supply of power in the market. This validates the earlier conclusions reached by an independent consultant engaged by the Company that it is very unlikely that the Company will be able to secure sufficient source of revenues under the current design of the spot market.

Another option available is the Bilateral Contract Framework but the Framework as currently designed is very restrictive and open only to those Customers having Captive Power Units. Aside from the restricted customer base, there are additional grid costs imposed that effectively make any power supply from the Company more expensive that their own internal generation.

On April 12, 2023, the OPWP issued the tender “Power 2024” and requested the concerned companies to submit their offers. The Company has reviewed the same in detail and has concluded that its chances of success in obtaining a further contract are negligible. There are multiple obstacles to the Company being able to submit a compliant bid, not least of which are the tender qualification requirements, which stipulate a Tangible Net Worth of RO 25 Million in case no modifications to the Plant are proposed and RO 100 Million in the event modifications are proposed.

The Company’s Net Worth currently stands at a negative RO 30 Million. The Company is unable to find a Primary Sponsor to support its bid, nor any alternative mode to re-capitalise the Company in a way that could satisfy OPWP’s mandate as a prudent procurer, due to the annulment of Power 2022 process by OPWP.

The Company had outstanding debt of OMR 39 million in December 2022. The Company has no expectation that the lenders would provide an extension to the final maturity date and a relief to the outstanding interest payment and restructuring of the outstanding debt beyond June 30, 2023, will be very challenging.

THEREFORE, the Board of Directors has reviewed all proposals in detail, hereby unanimously resolve to call for Extraordinary General Meeting (EGM) to consider and approve the proposal to commence bankruptcy proceedings in accordance with Article 69 and / or Article 71 of the Bankruptcy Law (Royal Decree No. 53/2019).