Karachi, May 15, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has revised the medium to long-term entity rating of Rousch (Pakistan) Power Limited (‘RPPL’ or ‘the Company’) from ‘AA’ (Double A) to ‘AA-’ (Double A Minus) while short-term rating has been maintained at ‘A-1’ (A-One). The medium to long-term rating of ‘AA-’ denotes 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’ denotes 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’. The previous rating action was announced on May 20, 2022.
The principal activity of RPPL is to generate and supply electricity to Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) through its combined cycle thermal power plant, having a gross capacity of 450 MW. The assigned ratings takes into account strong ownership profile of the company, with Power Management Company (Private) Limited - a part of Descon Group - and Siemens Project Ventures of Germany being the major shareholders. Operational Risk is considered manageable in view of satisfactory Operations and Maintenance (O and M) arrangement in place and adequate insurance coverages.
The Power Purchase Agreement (PPA) has been extended by a total of 435 days on account of non-availability of RLNG under interim Gas Supply Agreement (GSA) by Sui Northern Gas Pipelines Limited (SNGPL) and resolution of liquidated damages issue between the Company and CPPA for 2013 and 2017 period; the term of PPA will now end in February 2031. Fuel supply risk will be mitigated upon finalization of long-term GSA. Under the PPA, non-supply of RLNG for any reason other than non-payment of for RLNG shall be treated as 'Other Force Majeure event' (OFME) and shall extend the tenure of the PPA for the number of days in which RLNG was unavailable. Moreover, RPPL cannot invoice for capacity payments during this period.
The ratings incorporate limited demand risk underpinned by guaranteed capacity payments from the Govt. in case electricity is not purchased. Plant availability remained over 90% over the years; meanwhile, in the ongoing year, the Company carried major outage activities for 52 days resulting in lower availability factor. The revision in medium to long-term rating is on account of persistent gas supply issues faced by the Company impacting its operations while receiving return on equity which is relatively lower as a result of signing PPA amendment agreement in 2021. Given the plant’s lower position in the dispatch order and the likely impact of the government’s inability to purchase spot LNG cargoes, the capacity utilization level would remain marginal. In addition, the buildup of receivables is a concern, as the same may translate into higher liquidity risk going forward; however, the ratings incorporate very low risk on receivables from GoP.
The liquidity position of the Company is underpinned by adequate cash flows in relation to outstanding obligations amidst limited interest charge on short-term borrowings and no contractual repayments given the entire long-term financing has been retired in 2019. The Company has also switched some of its short-term borrowings into Islamic Commercial Paper (ICP) for flexibility in liquidity management. With growth in equity base on the back of internal capital generation, gearing and debt leverage have improved over the years. Meanwhile, finalization of a long-term gas supply arrangement is considered important from a ratings perspective. VIS will continue to monitor the developments in this regard, as and when these materialize.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/