Chanar Energy Limited ('Chanar Energy' or the 'Company') operates a 22MW co-generation bagasse-based power plant, with a net rated capacity of 20MW near Faisalabad, adjacent to Chanar Sugar Mill Limited (CSML). The plant is capable of supplying both electricity and steam.

Chanar Energy's key source of earnings is the revenue generated through the sale of electricity to the power purchaser, CPPA-G, and sale of steam to related company, Chanar Sugar Mill Limited ('CSML'). The levelized upfront tariff for the sale of electricity to the power purchaser decided by NEPRA is US cents10.5601/KWh. Currently, the tariff for the quarter Jan-Mar 2025 excluding Fuel Cost Component ('FCC') stands at PKR 8.8040/KWh. The FCC since 2018 stood at PKR 5.9822/KWh, marking the price of bagasse fixed at PKR 2,966/ton. However, as bagasse prices have fluctuated alongside sugarcane costs, Chanar Energy, along with its peers, requested an FCC adjustment from October 1, 2018, to September 30, 2024. NEPRA, after considering all aspects, approved the retrospective adjustment on September 23, 2024. As a result, the FCC was indexed to coal, leading to an increase to PKR 12.4788/kWh for the period from October 2023 to September 2024, with the bagasse price at PKR 10,000/ton.

Pursuant to the Master Agreement signed on 12 February, 2021, the Company agreed to discounts in tariff components specifically in Return on Equity (ROE). The ROE component has been discounted to 12% (previously 17%) for the next five years with further indexation allowed against US $. Moreover, on the date of fifth anniversary of execution of Master Agreement the ROE shall be changed to 17% calculated at PKR 168/USD, with no future indexation.

The Company's majority of shareholding resides with Mr. Javed Ahmad Kayani (60%). Other shares of the Company are held by his family members, Ms. Atiya Kayani (10%), Mr. Murtaza Feroze Kayani (10%), Mr. Hamza Feroze Kayani (10%), Ms. Tayyaba Kayani (5%) and related company, Chanar Sugar Mills Limited -CSML (5%).

The ownership structure of the Company has been stable historically, with no anticipated changes. However, as a family-owned business with Mr. Kiyani holding significant control, this concentration of authority could undermine stability, especially if leadership transitions are not managed effectively due to the lack of formal succession planning.

Chanar Group; the foundation of the group was laid with the establishment of CSML in 1990 with further diversification into power sector. The Group is led by Mr. Javed Ahmad Kayani, an experienced entrepreneur with over 20 years in the industry. His strategic insight into market trends and operational efficiency has driven the Group's continued growth and adaptability. Under his leadership, CSML has implemented innovative measures, such as using bagasse for energy production, which has effectively lowered operational costs.

CSML, consistently provides financial support to the Company by offering loans and extending payment terms for bagasse supplies, the main raw material for electricity generation. This ongoing assistance, granted at the owners' discretion, has enabled the Company to manage its working capital requirements without relying on banking lines. It demonstrates the sponsor's ability and willingness to assist the Company during challenging times.

The Company's Board of Directors (BoD) consists of four members, including the CEO, Mr. Javed Ahmad Kayani, who also serves as the Chairman of the Board. The Board members are all from the Kayani family: Mr. Javed Ahmad Kayani, Ms. Atiya Kayani (his wife), Mr. Murtaza Feroz Kayani, and Mr. Hamza Feroz Kayani. As a private entity, the Company is not required to adhere to the formal code of corporate governance, resulting in the absence of independent oversight.

Mr. Javed Ahmad Kayani, the "man at the last mile" of the Chanar Group, has been integral to the Company's success since its inception. He has also served as Chairman of the Pakistan Sugar Mills Association for multiple terms. Other members of the Kayani family, have been on the Company's Board since its inception, they also serve on the CSML Board, providing strong leadership and strategic guidance to the Group.

There are no subcommittees and independent directors on the Board of the Company indicating room for improvement. However, for effective oversight of the matters of the Company, board discussions are held regularly where important matters related to the Company are discussed.

BDO Ebrahim & Co. are the external auditors of the Company who expressed an unqualified opinion on the Company’s financial statements for the period ended 30 June, 2024.

The Company has a clear organizational structure with the CFO and GM Plant reporting directly to the CEO. It also maintains an in-house team of professional engineers responsible for managing the operations and maintenance of the plant.

Mr. Javed Kayani is the CEO of the Company carrying more than three decades of experience in Sugar & Textile and Power Sectors. Mr. Sameem Ahmed is serving the Company as its CFO.

The management is supported by the board, which oversees the plant’s overall performance and ensures optimal effectiveness through regular evaluations, provide guidance, and support in key decision-making for the smooth operations of the Company.

Chanar Energy has developed a robust in-house Management Information System (MIS) that effectively supports operational monitoring and strategic management reporting. This system enables timely data collection, analysis, and dissemination, ensuring informed decision-making across all levels of the organization.

The Company generates revenue primarily from selling electricity to CPPA-G and steam to CSML. According to the Energy Purchase Agreement (EPA) signed in April 2017, the Company receives energy and capacity payments during the season if it meets availability benchmarks, even without demand from CPPA-G. However, no payments are made in the off-season when there is no demand. The EPA defines a 30-year plant life from the Commercial Operations Date (COD), which was achieved in February 2019.

The Company assumes the Operations & Maintenance (O&M) risk as it does not have a back-to-back agreement with an external service provider. O&M activities are managed internally by a dedicated team of engineers and staff, who are recruited and trained in collaboration with the EPC contractor to effectively mitigate potential risks.

Previously, bagasse was the primary fuel of the co-generative plant. CSML and Chanar Energy entered in to an agreement of supply of bagasse to the Company. However, procurement of raw material, solely from the associated concern, Chanar Sugar Mills, is posing constraints on the generation capability and cash flow stream of the Company. However, due to challenges in the procurement of bagasse, mainly driven by a sharp increase in pricing, the Company is exploring a strategic shift towards biomass energy, specifically wheat husk. In August 2024, NEPRA issued a decision to index bagasse prices to coal, leading to an adjustment in the Fuel Cost Component (FCC) to PKR 12.4788/KWh for the period from October 2023 to September 2024, with a bagasse price of PKR 10,000/ton. The main risk affecting return stability is the potential for bagasse prices to exceed the price assigned by NEPRA in the fuel component of the tariff. When actual bagasse prices are higher than the assigned price, the delta creates additional costs for the power producer that are not reimbursed by the fixed tariff. This risk leads to reduced profit margins, financial instability, and potentially lower returns on investment, as the revenue from electricity generation does not adjust to cover the increased fuel costs.

The Company maintains comprehensive insurance coverage against property damage and business interruption. This reflects its proactive approach to risk management and commitment to business continuity.

In FY-2024, Pakistan's power generation declined by 1.9%, totaling 127,160 GWh. This marks the second consecutive year of reduced output, driven by elevated electricity costs, rising inflation, and lower economic activity. The Country's power generation remains heavily reliant on thermal and hydel sources, contributing approx. 45% and 31%, respectively, in FY24. The share of nuclear energy has notably increased to approx.19% in FY24, while renewable energy sources continue to constitute a modest 5% of the total generation. Recently, the Government of Pakistan (GoP) resumed negotiations with Independent Power Producers (IPPs) and established a special task force to implement structural reforms in the power sector. The ongoing process aims to lower generation costs and make electricity more affordable, although the outcomes of these negotiations are yet to be seen.

Chanar Energy has an installed capacity of 182,032 MWh (based on 8,280 hours). During 9MFY25, no electricity was produced. The reduced generation was primarily due to the technical issue in CSML’s crushing operations, leading to a limited the availability of bagasse, the primary fuel source for Chanar Energy. Due to this setback, the plant remained operational for only 9 days as compared to 108 days in the previous year. Consequently, Chanar Energy had to forgo capacity payments as stipulated in the EPA. During 9MFY25, Chanar Energy recorded a turnover of PKR 43 million, down from PKR 1,219 million in FY24. 

The Company’s profitability is dependent on maintaining operational performance in line with agreed parameters. The Power Purchaser requires an efficiency rate of 24.50%, but in 9MFY25, the Company’s efficiency deteriorated. The plant's availability should exceed 45%, or 165 operational days; however, in 9MFY25, it was operational for only around 9 days, resulting in non-availability. Going forward, the management expects to achieve the benchmark availability by running the plant for 300 days as the Company is exploring a strategic shift towards biomass energy, specifically wheat husk.

The capital structure of the project consists of 25% equity and 75% debt. Chanar Energy's project-related debt was PKR 2,200mln, structured to be repaid in 40 quarterly installments over twelve years, including a two-year grace period, starting from May 2019. Any cost overruns were covered by the sponsors. The debt allowed by CPPA-G was PKR 1,752mln, while the actual debt amounted to PKR 2,200mln. The excess debt of PKR 448mln was secured as a loan backed by an additional guarantee from CSML, using its assets valued at PKR 597mln.

As of 9MFY25, Chanar Energy's net cash cycle increased significantly to 2,235 days from 98 days in FY24. This rise was mainly due to the accumulation of receivables linked to prior FCC adjustments, with receivables reaching PKR 72 million at the end of FY24, Consequently, net receivable days surged to 3,437 days, compared to 158 days the previous year. Despite the extended cash cycle and higher receivables, the Company’s liquidity profile remains stable, indicating effective cash flow management. However, timely payments from the power purchaser remain crucial.

The Company has been meeting its cash requirements through internal cash generation, support from its CSML in the form of extended payment terms for bagasse, and loans from its sponsor when necessary. The Company has not utilized any short-term borrowing lines; however, with the tariff indexation, it may consider utilizing working capital lines in the future.

During 9MFY25, Chanar Energy’s free cash flows from operations (FCFO) declined significantly, turning negative at PKR -78 million compared to PKR 842 million in FY24. Despite a reduction in interest costs to PKR 182 million (FY24: PKR 503 million), coverage metrics weakened. Interest coverage fell to (0.4x) from 1.7x, while debt coverage dropped to (0.1x) compared to 1.1x in the previous year, reflecting increased pressure on the Company’s ability to service its obligations from operational cash flows.

As of 9MFY25, Chanar Energy’s leverage increased to 74%, up from 68% in FY24, comprising exclusively long-term debt. The Company’s equity declined to PKR 617 million from PKR 909 million in FY24, mainly due to accumulated unappropriated losses. However, with the continued timely repayment of long-term project debt, leverage is expected to gradually decline, improving the Company’s capital structure over time.