PACRA Assigns Initial Ratings to Multan Electric Power Company Limited.

Multan Electric Power Company Limited (“MEPCO” or “the Company”) is a strategically important entity of the Country. MEPCO supports over 8 million consumers (largest consumer base), predominantly in rural areas, with around 89% domestic customers. Ratings takes comfort from the sovereign ownership by Government of Pakistan (GoP) under the Ministry of Energy – Power Division. The Company continues to take benefit of financial, and managerial support as well as, enjoys access to low-cost funds and has the ability to mobilize financial resources from various multilateral development institutions. MEPCO sold 16,732Gwh of electric power during FY23 thus billing an amount totaling to PKR 450bln. The Company is able to effectively manage the cash cycle through improved collection efficiency (FY23: 98.25%, FY22: 92.08%). The excess cash summing to PKR 13bln is invested in Term Deposit Receipts. During FY23, MEPCO reported a topline of PKR 372.9bln (FY22: PKR 345.8bln) and a subsidy of PKR 77.8bln (FY22: PKR 70.2bln). Despite these gains, MEPCO’s bottom line became red with net loss of PKR 23bln in FY23 (FY22: PKR -22bln, FY21: PKR 10bln). This deficit is industry wide phenomenon occurring due to distribution losses exceeding regulatory benchmarks, recovery losses, and other costs not covered by the tariff. In terms of financial loss, the Company falls in middle tier of the peer universe. Over the past five years, MEPCO has implemented multiple initiatives to improve Aggregate Technical and Commercial Losses (AT&C), reducing losses from 15.8% in FY19 to 14% in FY23. However, this is still above the regulatory benchmark of 12.3%, contributing loss of around PKR 8bln to MEPCO's bottom line. MEPCO's total asset base stands at PKR 344bln, with equity at a negative PKR 118bln (FY22: PKR 86bln) due to accumulated losses. To stabilize the equity, the GoP infused PKR 61.5bln in FY23. The additional equity infusion is expected to improve the capital structure of MEPCO in the medium term. The Company's has borrowings amounting to PKR 14.199bln (FY22: PKR 14.217bln), primarily comprising of GoP-relent loans from various multilateral institutions at subsidized rates. Working capital is managed through inhouse cash collection. MEPCO operates in a regulatory framework and follows a Cost-Plus Tariff regime, with the consumer-end tariff determined by the Authority.
Effective management of forthcoming investment plan, consistency in financial performance and adherence to risk matrices is crucial for maintaining MEPCO’s Ratings. The Ratings also hinge on to reduce the gap between actual and target distribution losses and recovery losses, encompassing increased efficiency of the overall system of MEPCO. Going Forward, reduced demand due to rise in electricity prices and exponential growth in solar installations, could impact MEPCO’s topline. Additionally, progress towards the privatization of State-Owned Enterprises (SoEs), including MEPCO, would be a key factor.

About the Entity
The Company, a public limited entity, was incorporated on May 14, 1998, as part of the GoP's policy to unbundle and corporatize the power sector. It was established to take over the assets, liabilities, rights, and obligations of the Multan Area Electricity Board (MAEB), previously owned by the Pakistan Water and Power Development Authority (WAPDA). MEPCO hold license for supply of electric power distribution across 13 administrative districts in Southern Punjab . The Company's principal place of business located on Khanewal Road, Multan. The Board is chaired by Mr. Khurrum Mushtaq, while the management team is led by Eng. Nasir Ayaz Gurmani, the Chief Executive Officer of the Company.