The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Maintains Entity Ratings of Engro PowerGen Thar (Pvt.) Limited

Rating Type Entity
Action Maintain Upgrade
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

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). Since its COD in July’19, EPTL is running its operations smoothly and sustainably and achieving 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. During the period from Jan’21 to June’21 company provided ~2,052GWh of electricity to the national grid and recorded sales revenue of PKR ~37,866mln along with Net Profit (N.P) of PKR 7,004mln in 1HCY21 (1HCY20: N.P ~PKR 6,651mln). The financial strength and experience in the energy chain of the sponsoring companies – EEL and CMEC – is positive to the ratings. EPTL has built 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 and its leveraging as at end June’21: 70.5% (End Dec’20: 74.5%). Curtailed policy rates support the bottom line of the company and help to improve the coverage to stand at 3.8x in 1HCY21 (CY20: 3.1x). Company reported FCFO of PKR ~12,877mln as at end June’21 and have strong cash base of PKR ~16,323mln. 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.

About the Entity
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.

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