PACRA Upgrades Entity Ratings of Engro PowerGen Thar (Pvt.) Limited
Engro Energy Limited (EEL) along with China Machinery & Engineering Corporation (CMEC) has set up first Thar coal based (2 x 330 MW) power plant (Complex) - Engro Powergen Thar (Pvt.) Limited (EPTL). The project achieved financial close (FC) in Apr-16 and COD in July-19. Since its COD, EPTL is running its operations smoothly and sustainably and exceeding operational benchmarks. The primary fuel is Thar Coal; however, the plant can accommodate imported coal. A 30-year coal supply agreement is signed with Sindh Engro Coal Mining Company (SECMC), which is operating a coal mine in Thar Block-II. The coal mine’s COD was July-19. Company's both units were successfully connected to and are providing electricity to the grid. The company has successfully provided 2,175GWh of electricity to the grid in 1HCY20 as compared to 1,999 GWh in 2HCY19 showing a growth of ~8% in generation. The financial strength and experience in the energy chain of the sponsoring companies – EEL and CMEC – is positive to the ratings. EPTL has build its own financial strengths in a short span of time by adding to its equity base, consistent profitability and improved FCFOs support the timely repayment of debt. Strong cash position and un-utilized short term borrowing lines depicts healthy financial position of the company. The onshore EPC contract is with CERIECO and offshore EPC contract is with CMEC. Comfort is drawn from the experience of these contractors and the involvement of Pakistan and Chinese governments, as this project comes under CPEC. Going forward, the Company’s main focus would be to keep the plant operational. Power purchase agreement is with CPPA-G, which will, upon plant’s availability as per contract, provide capacity payments even if no off take by power purchaser. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The business risk of the company is mitigated as the company has successfully produced electricity on the specifications of Thar coal, which is being used for the first time. Furthermore, the use of CFB Boiler by the Company largely covers the risk of varying lignite quality.
The management’s ability to effectively manage EPC risks and COD provides comfort. Trend in operational profitability would bode well for rating. The availability of Thar Coal is critical. External factors such as any changes in the regulatory framework may impact the ratings.
EPTL, incorporated in September 2014, has set up a 2 x 330 MW Coal-based Power Plant under the 2002 Power Policy. The Company is a special purpose vehicle. It is the first indigenous coal based Power Plant of Pakistan in Thar Block – II, Sindh, for a total cost of USD 1.1bln, having a D/E ratio of 75:25. EPTL's majority ordinary shares are owned by Engro Energy Limited (EEL) (50.1%) and China Machinery Engineering Corporation (CMEC)(35%), while the remaining stake is owned by Habib Bank Limited (HBL) (9.5%) and Liberty Mills Limited (LML) (5.4%). Engro Energy Limited (EEL) is 100% owned subsidiary of Engro Corporation.