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The Pakistan Credit Rating Agency Limited
Press Release

Date
13-Sep-22

Analyst
Muhammad Mubashir Nazir
mubashir.nazir@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Assigns Initial Entity Ratings to Tapal Energy (Private) Limited

Rating Type Entity
Current
(13-Sep-22 )
Action Initial
Long Term A-
Short Term A2
Outlook Developing
Rating Watch -

Tapal Energy Private Limited or “TEL” is a power generating Company formed under the 1994 power policy framework, for sale of electricity to K-Electric. TEL signed a Power Purchase Agreement (PPA) with K-Electric, for a period of 22 years which expired in June 2019. However, under the term of PPA TEL and K-Electric had an option to extend the tenor of PPA with mutual consent, accordingly, both parties applied to NEPRA (The Authority) for the extension in the PPA. NEPRA approved the extension in generation license and modified the validity of its license up to June 2029, while allowing a take and pay tariff for the period of 3 years and instructed the CPPA-G and NTDC to make available alternate cheap resources of electricity generation to K-Electric to meet its current demand. TEL has successfully completed operations for the 3 year extension tenor based on take and pay tariff (expired in June 2022). Upon expiry of extended tariff period, TEL was issued a letter of consent for power acquisition by K-Electric for further extension of two years. TEL applied for the extension term tariff for additional 2 years i.e. till June 2024. The Authority while admitting the petition, allowed provisional tariff to TEL, which is lower than the applied tariff, with approval to sell power to KE beyond June 19, 2022. The hearing of the petition was held on August 11, 2022, tariff determination is pending with NEPRA. The provisional tariff has conditions namely i), tariff continues to be on take and pay basis by virtue of which the Company will generate revenue only when electricity is supplied to the power purchaser ii), fuel cost worked out at specific RFO value including transportation cost and is subject to adjustment for variation in fuel price iii), dispatch shall be in accordance with economic merit order list of K-Electric, iv) The final tariff when announced by NEPRA will have retrospective application from 20th June 2022. No liquidated damages relating to electricity supply will be applicable to either party. Average plant availability during 9MFY22 has been maintained according to agreed parameter. TEL has successfully generated 495GW in 9MFY22 and recorded a topline of PKR 11,449mln. TEL project debt has been fully paid in 2004, and it has not taken any further long term loans. TEL finances its working capital through its operations and working capital facilities. (available limits of approx. PKR: 3.5bln, PKR: 1.5bln funded, PKR: 2bln unfunded).
The ratings have a developing outlook owing to the finalization of extension in the tariff by the authority. TEL’s management is confident based on rational argument as to the finalization of said tariff and its continued operations. Comfort can be drawn from the Company’s liquid cash position and low leveraged balance sheet and no working capital lines utilization as of 31 Mar 2022. Although well-managed, in-house O&M activities are carried out, it leads to exposure of the Company to operational risk; thus upholding strong operational performance to remain a key driver of the ratings. Meanwhile, the determination of tariff is at the final stage, while timely finalization of the same is essential for the ratings.

About the Entity
Tapal Energy Limited is a 126 MW RFO-based private power project, constructed on a Build, Own, Operate (BOO) basis. It commences its Commercial operation on June 20, 1997. TEL is 50% owned by Sithe Mauritius Limited (a fully owned subsidiary of Marubeni Corporation of Japan), remaining 50% owned by the Tapal Family. BoD comprises eight members including the Chief Executive Officer, four of them belong to Tapal Family and four directors are nominees of Sithe Mauritius. Mr. Tabish Tapal is the CEO of the company and has over four decades of experience.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.