PACRA Upgrades the Entity Ratings of Multan Electric Power Company Limited

Multan Electric Power Company Limited (“MEPCO” or “the Company”) holds strategic importance within Pakistan’s power sector. With over 8mln consumers—the largest among distribution companies—its customer mix is predominantly domestic, concentrated in rural areas (around 89%). The Company benefits from sovereign ownership under the Ministry of Energy (Power Division), which ensures continued financial and managerial support. Additionally, MEPCO enjoys access to concessional funding and the capacity to mobilize financial resources from multilateral development partners. The Company’s revenue base is solely derived from electricity distribution. Under the regulated tariff mechanism, any shortfall between the approved tariff and consumer-end price is absorbed by the Government of Pakistan in the form of Tariff Differential Subsidy (TDS), which is reflected in the topline. MEPCO’s business risk profile is assessed at low to moderate, underpinned by its significant exposure to government entities and customer segments with reasonable recovery ratios, reinforced by security deposits maintained against connections. Operational risk is further supported by MEPCO’s widespread distribution network and the absence of alternate electricity distributors within its service territory. Nevertheless, the increasing pace of solarization may introduce emerging demand-side risks. During 9MFY25, MEPCO’s transmission and distribution (T&D) losses improved to 11.6% (allowed: 11.34%) compared to 15.28% (allowed: 11.83%) in the SPLY. The Company’s recovery ratio also recorded an upward trend, reflecting strengthening operational performance. Liquidity risk across maturity buckets remains low; however, delays in receivables collection—particularly from government-backed entities—can exert temporary pressure. This is partially offset by netting arrangements or adjustments against government payables for electricity purchases. The Company's core strength is the strong cash conversion cycle, with working capital requirements largely met through internal cash generation. As of 9MFY25, MEPCO maintained short-term investments of PKR 20bln, reflecting sound liquidity. The Company has no reliance on market-based short-term borrowings, while its long-term debt comprises relent loans provided by the Government of Pakistan (GoP) for investment and system improvement purposes. The equity base, as of 9MFY25, though negative at PKR 87bln (FY24: negative PKR 95bln), has shown improvement. To stabilize the capital structure, the GoP has historically infused equity when required, and further injections are expected in the medium term. MEPCO continues to benefit from the government’s financial and managerial support, which underpins its overall stability.
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. Amer Zia, while the management team is led by Eng. Jam Gul Muhammad, the Chief Executive Officer of the Company.