PACRA Maintains Entity Ratings of PakGen Power Limited
The ratings reflect the regulated structure of Pakgen's business; Whereby revenues and cash flows are guaranteed by the sovereign government given adherence to agreed operational parameters. On standalone basis, increase in delta losses between required and actual efficiency levels has impacted the operational performance. Negative delta remained a drag. However, topline of the company has improved owing to increase in the price of furnace oil and rupee depreciation again dollar, which in turn translating into better profitably. Receivable days has increased significantly in 3MCY18 owing to deteriorated payment behavior from the power purchaser. The company's financial profile, though adequate, is highly dependent on the behavior of the power purchaser. The Company has been consistent in paying dividends. Pakgen Power repaid its long term project debt in 2010. However, current borrowings reflects the need to bridge the working capital requirements. Moreover, Company’s profitability has increased because of reduction in delta losses.
Company was pursuing conversion of plant from oil fired to coal. However there has been no further development owing to government policy to restrict use of imported coal. Additionally, company was also considering to enter in to a solar power energy projects, which is currently on hold due to pending approval by NTDC.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. Accumulation of debt to finance CAPEX - the coal conversion project and/or fresh investment in new power project – may impact financial risk profile of the company. Meanwhile, any significant increase in overdue receivables, as a result of rising circular debt, may negatively impact the ratings.
Pakgen Power Limited was established for electricity generation under the power policy 1994 as an Independent Power Producer (IPP). The plant, with a total project cost of USD 347mln, is located at Mehmood Kot, near Muzaffargarh (Punjab) and has an installed capacity of 365MW. The PPA has a remaining contractual life of 11 years under the PPA (ending in 2028). The Company has entered into a contract for a period of thirty years for purchase of fuel from PSO. Lalpir’s O&M activities are handled by an in house team trained under the expertise of AES, former O&M operator. This team is involved in O&M activities since the plant’s COD and hence carries significant experience. Pakgen is listed on Pakistan Stock Exchange.
The major shareholders of the company are Nishat Group (40%) and City Schools (Private) Limited (17%). Majority of the board members are nominated by Nishat Group and are group Executives. Mr. Hassan Mansha, heading the Nishat Group's interest in power sector, is the Chairman of the board. Mr. Ghazanfar Hussain Mirza, CEO of the company possesses around four decades of experience in business development, corporate management in an engineering, technical and multinational environment. Mr. Khalid Qadeer, the Director Finance has over four decades of experience, supported by the competent management team.