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The Pakistan Credit Rating Agency Limited
Press Release

Date
10-Jun-21

Analyst
Bazah Tul Qamar
bazahtul.qamar@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Pak-Arab Pipeline Company Limited

Rating Type Entity
Current
(10-Jun-21)
Previous
(10-Jun-20)
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings are reflective of PAPCO’s strategic importance to the country and its distinctive business model deriving its strength from a tariff based return structure. PAPCO operates a 786 Km pipeline network dedicated for White Oil Pipeline (WOP). The tariff follows a pre-defined pattern, determined in US$ by the GoP, providing sustainability to the company’s profit base and certain cushion against exchange rate fluctuations. PAPCO has been operating its WOP for High Speed Diesel (HSD) at a capacity utilisation of ~45% in 9MFY21 (FY20: ~42%) - which is projected to be increased to ~66% as soon as MOGAS project becomes operational. The Company’s envisaged pipeline up-gradation plan for the transportation of Motor Gasoline (MOGAS) was initially expected to be completed by Dec'19. However, on account of inevitable factors and unprecedented situation of Covid-19 outbreak, the commencement of the project was stretched beyond FY20. Currently the infrastructure is complete however some approvals from ministry are yet to be received. The management expects the project to be operational by the start of FY22. Tariff assigned for MOGAS project is also determined in US$ which creates an implied hedge to cover exchange rate volatility. The expansion is debt driven; from syndicate local debt and foreign borrowings. The liquidity risk profile of the company is considered as strong due to its sizable short term investment book on the balance sheet and its cash richness. The cash flows of the company remain persistently strong, stemming from formidable profitability margins. In post Covid period, as market for petroleum products (POL) improved in 3QFY21, business volumes of PAPCO also displayed a similar trend. Management is also confident that business volumes will grow substantially in the coming periods on the back of MOGAS project. The pipeline capacity to transport is 8mln tons of the commodity/annum, which can be increased up to 12mln tons/annum, considered to be sufficient to meet the upcountry’s demand. The company's governance structure derives full benefit from its association with PARCO, which also deputes its functionaries in PAPCO, with Shell Pakistan Limited nominating the CFO.
The ratings are dependent on sustained business model and its share in the overall country’s petroleum movement. Sustainability in system share remains vital for the ratings. Completion of the MOGAS project and execution thereof is also important. Meanwhile, adherence to strong performance indicators is imperative.

About the Entity
Pak-Arab Pipeline Company Limited (PAPCO) was incorporated in 2000. PAPCO’s majority holding lies in the hands of PARCO - 51%, which is majorly owned by GoP, while remaining by Shell Pakistan Limited (26%), PSO (12%) and Total PARCO Marketing Limited (11%). PAPCO operates a cross-country pipeline system to transport refined High Speed Diesel from Karachi ports to mid-country. It has the flexibility to receive imported and locally produced HSD products from multiple sources and to deliver it at different demand centers. The pipeline was commissioned in March 2005, comprising 786 Km 26” dia cross-country pipeline, storage tanks, pumps and other allied facilities.
The Company’s overall control is overseen by ten-member board of directors (BoD), representing all the shareholders. The Chairman of the board is nominated by PARCO. Mr. Amr Ahmed, Chief Executive Officer (CEO), holds a Bachelors degree in Mechanical Engineering and is also an MBA. He took charge as CEO-PAPCO in December 2020 and has been aptly deploying his expertise since then. Mr. Syed Muhammad Haris Chief Financial Officer (CFO) is an MBA and has a vast experience in the Oil & Gas sector and has been nominated by Shell Pakistan Limited.

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.