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Thursday, July 19th, 2018

Pakistan Credit Rating Agency Limited places ratings of IPPs on Rating Watch

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Lahore: PACRA currently rates ten IPPs, four of these fall under 1994 policy, while the rest are governed by 2002 power policy. By virtue of their structure, cash flows to all IPPs are guaranteed by GoP under the Power Purchase Agreement, subject to adherence to agreed upon operational performance benchmarks.

Pakistan’s power chain is plagued by circular debt mainly arising due to i) differential in generation cost and consumer tariff, ii) distribution losses, and iii) non-payment by consumers. The impact is very significant – above PKR 1bln per day.

The government has been managing this through sporadic injection of funds in power chain. However, lack of timeliness has disturbed the financial discipline of constituent entities. This is pronounced in case of 2002 power policy IPPs, since in case of others, long term debt has been largely settled. As the liability for debt repayment is eventually terminated on GoP, transferring the financial risk to sovereign, operational IPPs enjoy high ratings (usually in AA category).

IPPs are majority financed through long term debt, the repayment of which is dependent upon cash flows received by IPPs through capacity payments. As explained, the capacity payments by GoP have been volatile. Consequently, the burden is transferred to IPPs, which manage their cash flows either by extending working capital or delaying the instalments to the lenders. In few instances, sponsors of these IPPs have to inject cash to timely repay these obligations. Currently, these instalments are being paid within forbearance period of 90 days as practiced in the banking industry.

Recently few IPPs have invoked the government guarantee. However, we believe that despite all financial problems, GoP would not let any such situation to arise resulting in closure of an IPP, in turn, sovereign default. Meanwhile, the sponsors of these IPPs remain committed in honouring financial obligations.

Nevertheless, keeping in view the ongoing situation and uncertainty as to timeliness of money flow to IPPs, PACRA is placing the ratings of following IPPs on Rating Watch. PACRA would take the appropriate action on individual entities as and when required.

i) Atlas Power Limited, ii) Liberty Power Tech Limited, iii) Nishat Power Limited, iv) Saif Power Limited, and v) Sapphire Electric Company Limited.

For more information, contact:
Hammad Rashid
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

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