Engro Powergen Qadirpur Limited (EPQL), a subsidiary of Engro Energy Limited, received a vote of confidence from the VIS Credit Rating Company Limited (VIS) as the entity’s ratings were reaffirmed at ‘AA-‘ for long-term and ‘A-1’ for the short term. The latest press release from VIS highlights EPQL’s strong creditworthiness, supported by a stable future outlook.
The ‘AA-‘ long-term rating signifies a high credit quality, with robust protection factors and modest risks. The stability of this rating may vary slightly due to changing economic conditions. In contrast, the ‘A-1’ short-term rating indicates high certainty of timely payment, reflecting excellent liquidity and minimal risk factors.
The most notable update is the revision of the outlook on the assigned ratings from ‘Stable’ to ‘Positive,’ a testament to EPQL’s continued commitment to excellence.
These credit ratings affirm EPQL’s low business risk, mainly attributed to its 25-year power purchase agreement (PPA) with the Central Power Purchasing Agency (CPPA-G), which includes a ‘take or pay’ provision from the Commercial Operations Date (COD). Additionally, EPQL entered into an Implementation Agreement (IA) with the Government of Pakistan (GoP) through the Private Power Infrastructure Board (PPIB) in 2007, providing a strong foundation for its operations.
EPQL’s long-term PPA, backed by a sovereign guarantee, significantly mitigates off-take risk and ensures capacity payments. The company’s financial stability and the experience of its sponsor, Engro Energy Limited, were also taken into account when assigning the ratings.
The ratings also acknowledge EPQL’s effective management of fuel supply and price uncertainties through long-term supply agreements and an integrated cost recovery mechanism. Since January 2022, the company has been handling Operations and Maintenance in-house, aligning with the stipulated benchmarks in the PPA.
EPQL’s financial risk profile boasts strong debt coverage metrics and healthy cash flow generation. The company’s long-term debt-free balance sheet since FY20 and reliance on short-term borrowings for working capital contribute to its favorable creditworthiness.
Gas curtailment issues arising from the depletion of the Qadirpur gas field have led to EPQL operating in mixed mode with a combination of gas and High-Speed Diesel. However, the company continues to receive full capacity payments during this period.
To address the gas depletion challenge, EPQL has presented a Gas Depletion Mitigation Plan (GDMP) to PPIB, outlining strategies for alternative fuel arrangements. In 2022, the company secured 8-13 million standard cubic feet per day (MMSCFD) of indigenous gas from the Badar gas field, operated by Petroleum Exploration Limited (PEL).
Simultaneously, EPQL has submitted a generation license and tariff modification request to the National Electric Power Regulatory Authority (NEPRA) while actively engaging with relevant stakeholders for regulatory approvals.
The positive outlook revision is anchored in EPQL’s robust business and financial risk profile, reflecting its favorable merit order position in both Permeate Gas and alternative Gas scenarios compared to projects relying on imported fuel.
However, it is essential to note that the company’s ratings are contingent on its ability to maintain operational efficiency, ensure concurrent profitability, and secure regulatory approvals from NEPRA. These developments will be closely monitored to determine the sustainability of the positive outlook.
