The Pakistan Credit Rating Agency Limited
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Muhammad Mubashir Nazir

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PACRA Maintains Entity Ratings of PakGen Power Limited

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

The ratings reflect the regulated structure of Pakgen Power Limited (Pakgen Power) business; whereby revenues and cash flows are guaranteed by the sovereign government given adherence to agreed operational parameters. A risk of any decrease in efficiency factor against required benchmark would be borne by the Company itself given the fact, Pakgen Power is managing its operations and maintenance (O&M) in-house. Topline of the company, coupled with capacity utilization has slightly improved, owing to demand from power purchaser on account of better fuel prices. In August’2020, the Company and the Committee for Negotiation with IPPs formed by Government of Pakistan, executed a Memorandum of Understanding (MoU) converted to Master agreement on 12 February, 2021. In accordance with the Master agreement, the Company has agreed on 11% reduction in capacity payments and variable O&M, among other clauses. As a result of the revision in agreement with CPPA-G, company’s profitability indicators will be slightly lower going forward, albeit are considered to be adequate. However, in line with the agreement, the issue of long outstanding receivables has been assuaged and the Company has received 40% of its receivables (PKR 6.535bln) from the off taker in 1HCY21 remaining 60% amounting to PKR.9.802bln is expected in December 2021.The profitability of Company during 1HCY21 has decreased due to non-issuance of Capacity Purchase Price invoice for a period starting from 05-05-21 to 30-06-21, pursuant to PPA Amendment signed on April 20th, 2021. Under this PPA Amendment Agreement, amongst resolution of disputes, term of the PPA has been extended by 156 days. During this extended period the Company will issue Energy Purchase Price invoices only and will not issue Capacity Purchase Price invoices and accordingly Liquidated Damages imposed on the Company for this period have been waived by the CPPA-G. The Company would start issuing Capacity Purchase Price invoices from 8 October, 2021 onwards. Moreover, The Company is entitled to send CPP invoices for these 156 days after completion of remaining seven years of the PPA term, at the indexation applicable for seventh year. The long term project debt was completely paid off in 2010; thus, company’s debt position mainly reflects current borrowings secured to bridge the working capital requirements and maintenance of projects.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. Further timely payment from the Power purchaser as per agreement remained imperative.

About the Entity
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 approx. 7 years under the PPA. The Company has entered into a contract for a period of thirty years for purchase of fuel from PSO. Pakgen Power is listed on Pakistan Stock Exchange. The major shareholders of the company are Nishat Group (40.09%) and City Schools (Private) Limited (17.33%). Majority of the board members are nominated by Nishat Group and are group Executives. Mr. Ghazanfar Hussain Mirza is the Chairman of Board of the company. He possesses around four decades of experience in business development, corporate management in an engineering, technical and multinational environment. Mr. Hassan Mansha, heading the Nishat Group's interest in power sector, is the CEO of the board.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.