PACRA Maintains Entity Ratings of Chiniot Power Limited

Chiniot Power Limited, a bagasse based IPP, was set up under 2006 Renewable Energy Policy. Chiniot Power, with in-house Operations and Maintenance (O&M), has a well-experienced team. The company has desired insurance coverage; providing comfort against operational risk factors. It has firm off-take agreements with NTDC (main buyer) and Ramzan Sugar Mills Limited, a group company. The Government of Pakistan has given payment guarantee against dues from NTDC, subject to adherence to agreed parameters. This, along with the fact that Chiniot Power’s financial burden is designed to be met on operations of around six months in a year, is expected to keep financial risk management. Revenues and cash flows are primarily dependent upon maintaining plant’s availability and capacity factors at adequate levels. This, in turns, requires the timely availability of bagasse, which it is buying mainly from Ramzan Sugar Mills (~5.5 months need), minimizing fuel supply risk. The Company has arrangements with other mills to cover the additional requirement of bagasse. Fuel cost in tariff is linked to international coal price. Since its CoD, the Company has outperformed its required parameters and has generated positive free cash flow from operations. The company's availability (required: 45%) and efficiency (required: 24.5%) remained above the required benchmarks. Meanwhile, better repayment behavior of NTDC to Chiniot Power provided comfort in managing its finances. To manage its working capital requirements, the Company used a mix of internal cash flows and short-term borrowing.

Repayment of Chiniot Power's long-term debt is supported by monthly reserve build-up to fund quarterly installment. Further comfort is available through stand by letter of credit covering one upcoming installment.

Improving, indeed aligning, build-up of DPA from internal sources, receipt pattern from power purchaser, debt repayment behavior and liquidity cushion would impact the directions of rating. Effective execution of plant operations by the in-house O&M team would remain important. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of the financial profile of the company owing to delays in cash flow receipts may impact the ratings.

About the Entity
Chiniot Power, a 62.4 MW cogeneration bagasse based power plant with a final cost of PKR 9,310 mln, has debt to equity ratio of 75:25. It is situated adjacent to Ramzan Sugar Mills Limited (associate of the company), at Jhang Road near Chiniot, Pakistan. Sharif Group has recently acquired another sugar mill, which is expected to help CPL in better availability of fuel.

Mr. Suleman Shehbaz Sharif, Chairman and CEO of Chiniot Power, has 94% shareholding in the company. Chiniot Power is a part of Sharif Group. The group is engaged in the business of sugar, poultry feed, dairy, and livestock.

Chiniot Power has a three-member board, including CEO, comprises the wife of Mr. Suleman Shehbaz Sharif, and Mr. Sajjad Anwar who is also the Business Head of the company. Strengthening of governance framework should benefit.