Press Release

VIS Reaffirms Entity Ratings of Engro Powergen Qadirpur Limited

Karachi, June 5, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Engro Powergen Qadirpur Limited (EPQL) at ‘AA-/A-1’ (Double A Minus/A-One). The long term rating of ‘AA-’ signifies high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on April 23, 2019.

EPQL has been operating a 217.3 MW gas based thermal combined cycle power plant near Qadirpur, District Ghotki, Sindh since 2010. Engro Energy Limited (EEL), a subsidiary of Engro Corporation Limited (Engro), has majority shareholding in the company with 69% ownership while remaining stake is held by general public. EPQL has outsourced its operations & maintenance (O&M) services to Engro Energy Services Limited (EESL).

The assigned ratings incorporate sound profile and significant experience of the sponsor (EEL), and satisfactory operational track record of the O&M contractor, EESL. Assessment of the business risk profile indicates low off-take risk due to take or pay tariff awarded whereby EPQL is eligible for guaranteed capacity payments from the power purchaser in case of non-purchase of electricity despite availability. Fuel supply and hike in prices of raw material risks are limited due to long-term supply contract and cost pass through mechanism built in the tariff. Performance of the plant has remained compliant with normative parameters as laid down in the power purchase agreement (PPA). As projected in the implementation agreement, EPQL is now facing gas curtailment from Qadirpur gas field as it is depleting and has made its plant available on mixed mode i.e. comingling of gas and high speed diesel from September 7, 2018 onwards. Profitability and cash flows will not be impacted due to this event as both fuel costs and conversion costs are pass through.

Financial risk assessment illustrates that cash flows are adequate to service outstanding debt obligations, thereby indicating satisfactory debt servicing ability. Due to inefficiencies in the system, circular debt continues to pose a challenge to the power industry as total overdue receivables to the energy sector continue to depict an increasing trend. Comfort is drawn from recent issuance of Rs. 200b circular debt Sukuk will result in temporary reduction in outstanding receivables. Nevertheless, liquidity challenge is expected to persist for EPQL due to circular debt. Leverage indicators remain within manageable limits. Going forward, with repayment of long term debt, leverage indicators are expected to remain a function of utilization of short term borrowings to fund working capital requirements. Maintaining adequate liquidity profile in increasing circular debt scenario and satisfactory plant operations are considered important rating drivers.

For further information on this rating announcement, please contact Mr. Narendar Shankar Lal (Ext: 203) or the undersigned (Ext. 306) at 021-35311861-70 or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (April 2019)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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