For all its faults and follies, the government deserves a pat on the back for having fuelled the fire of investment in stocks among the general public. From just around 50,000 people who dabbled in shares four years ago, the number is estimated to have risen to over a million.

The investor education was as simple as this: Fill up an application form for 500 shares worth Rs27,500 in Pakistan Petroleum Limited (PPL) and the invested sum would multiply to Rs1,25,000 in a year's time (given the phenomenal climb of the price of PPL stock at the stock exchange, from the issued price of Rs55 to Rs248 currently).

Nothing could have been more mouth-watering. The number of stock holders is therefore increasing by leaps and bounds. Somewhere around 900,000 applications were received by the government for small lots of 500 shares each in PPL.

The Privatization Commission last week invited applications from investors for 176 million shares In Kot Addu Power Company Limited (Kapco). which would be 20 per cent shares inclusive of a 10 per cent green shoe option, from the government's holding in the power plant. Out of that, 2 per cent of the shares have been kept aside for the employees of the company.

The Initial Public Offering (IPO) price was set at Rs 30 per share. It would take a day or two for the Privatisation Commission to come up with the total number of applicants, who deposited Rs15,000/- for 500 shares.

But the long queues at the banks for four days, when the applications could be filed (Monday through Thursday) suggested that at least more than a million investors must have applied.

One had just to peep into a class room to see even lady teachers pouring over the Kapco application forms tying to figure out what to fill where. The students looked on. Doctors in hospitals put the patient on the hold while they argued on which box to tick on the application forms.

Shopkeepers lifted the shutters a little late for the queues of people outside the banks to file applications for Kapco shares, were longer than those waiting in rows to pay their utility bills. And then there was the household lot, which put together all their savings and pestered the bank officers to fill up their 'lottery' forms.

The number of people who would win comes to 352,000, which puts the ratio of success to one-in-three (or may be four). But for those who succeed at the ballot, the windfall gains in Kapco are not as momentous as were in PPL or Oil & Gas Development Company Limited (OGDC), the reason being that Kapco like Hubco would not really be a growth stock such as OGDCL and PPL and would be a total dividend based share.

Part of its shareholdings in those two oil and gas exploration giants had been divested by the government through the stock exchange. But investment in Kapco is, nonetheless, attractive.

Market participants generally believe Kapco to be a good bet at the offer price of Rs30. Considering that the power plant had paid dividend of Rs6.50 per share last year, the stock was offering a dividend yield of 21.6 per cent and was placed on price-to-earnings (p/e) multiple of 3.8 times the FY'04 earnings (the KSE-100 index p/e being 14 times on financial year 2004 earnings). On the provisional counter, the Kapco share is already trading at a premium of 113 per cent at around Rs65.

Kapco has an installed capacity to produce 1600MW of power, which makes is the largest Independent Power Producer (IPP) and thermal power plant in the country. Its closest comparable peer is Hub Power Company Limited (Hubco) with capacity of 1240MW.

But unlike Hubco, Kapco is a multi fuel fired power plant. It currently accounts for eight per cent of the total energy produced in the country, which equals to 26 per cent of the total energy produced by all IPPs combined.

Kapco, a project having a term period of 25 years, was incorporated in April 1996 and the government initially sold 26 per cent of its stake in the company along with management rights to UK based International Power (sponsors of Hubco) on June 27, 1997.

Subsequently in November of 1997, government divested another 10 per cent shares to International Power, which makes it the owner of 64 per cent shares in Kapco. International Power is understood to have interests in more than 28 power stations in 12 countries around the globe.

Currently, government holds 64 per cent shares in the company's total 880 million outstanding shares. The divestment of 20 per cent of its equity would raise Rs5.28 billion for the government.

The company has a 25 year Power Purchase Agreement (PPA) to supply electricity to Wapda, its sole customer, until the year 2021. As a multi fuel power plant capable of using gas, furnace oil and high speed diesel (HSD), Kapco's cost of electricity produced is significantly lower than Hubco, since the latter uses just the Furnace Oil.

As a result, Kapco has seen much higher capacity utilization, averaging at around 60 per cent between FY98 and FY04. But for all the good things about Kapco, there is a caveat. The income earned by the company is tax exempted up to 27th of June, 2006, under the Income Tax Ordinance, 2001.

That is likely to reduce the power plant's earnings roughly by over 40 per cent following financial year 2007, when its income becomes taxable. But does that worry the small investor-probably over a million-who filed applications for 500 shares last week? They couldn't care less about how much the company would earn or lose in four years for now. All that they are eyeing is the sum of money that they could make in four months, provided the balloting computer decides to take a short break against their names.