PACRA Maintains Entity Ratings of Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited

China Huaneng Group Company Limited - a state-owned Chinese Company, is the ultimate parent of Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited (“HSR” or “the Company”), which is Independent Power Producer (IPP) operating a 1,320MW coal based power plant located at Qadirabad, District Sahiwal. HSR is part of the China Pakistan Economic Corridor (CPEC). The financial strength and experience in the energy chain of the sponsoring group is considered positive to the ratings. The rating took comfort from strong business profile, timely commissioning of the plant, achieved on 28th October, 2017 within the approved tariff limit and low demand risk on account of power purchase agreement (PPA) for a period of 30 years (guaranteed 50% off take) with CPPA-G. Meanwhile, the Implementation Agreement provides sovereign guarantee, given adherence to agreed performance benchmarks (Availability: 85%, Efficiency: 39.75%). Operational Risk is concerned with the plants availability and efficiency as per the benchmarks agreed in the Energy Purchase Agreement (EPA). Shandong Huatai Electric Operations & Maintenance (Private) Limited is appointed as the O&M operator for the plant. The plant operates on imported coal which is sourced through China Huaneng Group Fuel Company Ltd under the Coal Supply Contract. However, in recent development, the Company has started operating the entire plant on Afghan coal which meets the specifications of the plant. The coal is being procured through local traders on spot basis. During CY22 the plant generated net electrical output of 4,855GWh (CY21: 7,720GWh) while maintaining its agreed benchmarks. The decline in generation reflects the priority of the power purchaser to source electricity from cheaper sources. As per NTDC merit order list for July 2023, HSR is ranked at 30th with a specific cost of PKR 28.87050 KWh. Subsequently, the company reported Net Income of PKR~20,970mln for the year end Dec 2022. The company meets its working capital requirements through internally generated cash and short-term borrowings. The company has successfully repaid approximately 30% of its project debt (USD 1,411mln) obtained from Chinese lenders with the consortium led by Industrial and Commercial Bank of China (ICBC). The Company’s reliance on short working capital financing has increased significantly owing to delays in payments from CPPAG. Circular debt issues along with mounting receivables due from CPPAG of PKR 111,254mln against capacity and energy payments remains an issue for the Company.
The Company’s effective management of working capital financing to prevent any hindrance in plant operations is critical. Furthermore, adherence to financial parameters along with timely repayment of project debt remains crucial to sustain the assigned ratings.

About the Entity
Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited was incorporated in Pakistan on 28th May 2014. It is a wholly owned subsidiary of Huaneng Shandong Ruyi (Hong Kong) Energy Limited, a company incorporated in Hong Kong. The ultimate parent of the Company is China Huaneng Group Company Limited which is mainly engaged in the investment, development, construction, operations and management of power plants globally. The Board of Directors comprises of five members representing the sponsoring group having sufficient experience. The management team is led by Mr. Li Xin, appointed as CEO. He is accompanied by a team of qualified and experienced individuals.