PACRA Maintains Entity Ratings of PakGen Power Limited

Business News English

Lahore, October 01, 2021 (PPI-OT): 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 and 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 and 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.

For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425