Lahore, August 07, 2018 (PPI-OT): Chiniot Power Limited, a bagasse based IPP, was set up under 2006 Renewable Energy Policy. Chiniot Power, with in-house Operations and Maintenance (O and M), has a well-experienced team. The company has desired insurance coverage; providing comfort against operational risk factors. It has firm off-take agreements with NTDC (main buyer) and Ramzan Sugar Mills Limited, a group company. The Government of Pakistan has given payment guarantee against dues from NTDC, subject to adherence to agreed parameters. This, along with the fact that Chiniot Power’s financial burden is designed to be met on operations of around six months in a year, is expected to keep financial risk management.
Revenues and cash flows are primarily dependent upon maintaining plant’s availability and capacity factors at adequate levels. This, in turns, requires the timely availability of bagasse, which it is buying mainly from Ramzan Sugar Mills (~5.5 months need), minimizing fuel supply risk. The Company has arrangements with other mills to cover the additional requirement of bagasse. Fuel cost in tariff is linked to international coal price. Since its CoD, the Company has outperformed its required parameters and has generated positive free cash flow from operations.
The company’s availability (required: 45%) and efficiency (required: 24.5%) remained above the required benchmarks. Meanwhile, better repayment behaviour of NTDC to Chiniot Power provided comfort in managing its finances. To manage its working capital requirements, the Company used a mix of internal cash flows and short-term borrowing.
Repayment of Chiniot Power’s long-term debt is supported by monthly reserve build-up to fund quarterly instalment. Further comfort is available through stand by letter of credit covering one upcoming instalment.
Improving, indeed aligning, build-up of DPA from internal sources, receipt pattern from power purchaser, debt repayment behaviour and liquidity cushion would impact the directions of rating. Effective execution of plant operations by the in-house O and M team would remain important. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of the financial profile of the company owing to delays in cash flow receipts may impact the ratings.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com