Lahore, June 24, 2021 (PPI-OT):Master Group, pioneers of foam products, is setting up its second 50MW wind power plant in district Jamshoro, Sindh – Master Green Energy Limited. Master Green has been awarded a cost-plus tariff by NEPRA, with the energy payments to be received from CPPA-G backed by the sovereign guarantee of Government of Pakistan. The overall construction of the project is ~98% completed. Construction on the project is started in September 2019 and commercial operation date (COD) was expected to be achieved in November 2020. However, due to the outbreak of Covid19 construction activities were halted.
The management now expects COD to be achieved by end-July 2021. Hydrochina International Engineering Company Limited and Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in wind power technology. The management has represented that in case of delay in achieving the COD, the EPC contractors will be liable to pay liquidated damages of $29000 per day backed by an irrevocable guarantee of 15% of the EPC cost.
The construction contractor will be the O and M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of an irrevocable bank guarantee for 24 months after COD. These bank guarantees provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Payment Service Reserve Account (PSRA), which will be filled by 6 months SBLCs and 3 months cash flows, in total providing coverage of nine months on its financial obligations till maturity.
In addition, the project revenues and cash flows are exposed to wind risk, there is seasonal variation in the wind speed which affect the electricity generation, and ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that Master Green would be able to generate enough cash flows to keep its financial risk manageable. Comfort is drawn from the group association, having strong financial backing and relevant experience in successfully commissioning and operating 52.80MW Wind Energy Power Plant (Master Wind Energy Ltd).
The Company has signed Energy Purchase Agreement (“EPA”) with CPPA-G. As per the EPA, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes at applicable tariff rates. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The Company has adequate insurance coverage to cover the risk of business interruptions, marine and erection etc. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings. Upholding financial discipline is also a consideration.
For more information, contact:
Analyst,
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
Email: hammad.rashid@pacra.com
Website: www.pacra.com