Thar Energy Limited

RATING REPORT | Oct-26

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
15-Oct-26 AA- A1 Stable Maintain -
23-Oct-25 AA- A1 Stable Maintain -
25-Oct-24 AA- A1 Stable Maintain -
25-Oct-23 AA- A1 Stable Upgrade -
16-Feb-23 A A2 Stable Upgrade -
About the Entity

TEL is Incorporated on May 17, 2016. HUBCO holds a 60% stake along with management control, followed by Fauji Fertilizer Company Limited (30%) and China Machinery Engineering Corporation, through CMEC TEL Power Investments Limited (10%). The plant achieved COD on October 1, 2022, and operates under long-term Power Purchase and Coal Supply Agreements. Mr. Amjad Ali Raja, appointed CEO in July 2024, brings over 22 years of sector experience and reports to a seven-member Board chaired by Mr. Muhammad Kamran Kamal.

Rating Rationale

Thar Energy Limited ("TEL" or "the Company") operates a 330 MW mine-mouth, lignite-fired power plant at Block II, Thar Coalfield, District Tharparkar, Sindh. The project forms part of the energy portfolio under the China-Pakistan Economic Corridor (CPEC). In FY26, Pakistan's power sector generated 128,700 GWh, up 1.2% YoY, while total installed capacity rose 8.5% to 49,651 MW (FY25: 45,782 MW). Clean sources, comprising hydel, nuclear and renewables, led the mix at 50.8% of installed capacity (FY25: 43.3%), whereas the share of thermal declined to 49.2% (FY25: 56.7%). Coal contributed 22.9% of total generation (FY25: 19.4%), underscoring its growing role in providing stable base-load supply. Generation from imported coal rose sharply, as constrained RLNG availability and elevated LNG prices shifted dispatch toward coal. Meanwhile, indigenous Thar coal has emerged as a key pillar of energy security, offering cost-effective and reliable power relative to imported fuels. TEL sources its fuel from Sindh Engro Coal Mining Company under a 30-year Coal Supply Agreement, signed at the project's inception, for approximately 1.9 MTPA of lignite. The arrangement provides fuel cost stability and minimal resource risk over the project's life, backed by liquidated damages provisions. Owing to its low-cost generation profile, the plant continues to receive priority dispatch from the power purchaser, CPPA-G. Accordingly, generation increased to 1,822 GWh in FY26 from 1,594 GWh in FY25, with a load factor of 69%, while operational performance remained strong. The Company’s working capital remained manageable, with receivables from CPPA-G declining to PKR 17,731mln as of June 2026 from PKR 18,321mln in FY25. While working capital days increased during the year, the requirement continues to be largely managed through internally generated cash flows and short-term borrowings. Strong cash generation has also supported timely debt repayments, with around 17% of PKR debt and 27.2% of USD debt repaid to date, bringing leverage down to 63.3% in FY26 from 64.3% in FY25. The Company has also paid a healthy dividend, with the payout expected to remain a regular source of income for the sponsors going forward. The Company is also disputing HVDC charges of USD 23mln linked to COD delays; management, supported by legal counsel, does not expect any financial liability to arise. Under the Sponsor Support Agreement dated January 8, 2019, a standby letter of credit (SBLC) of up to USD 31mln has been arranged for the benefit of lenders. The SBLC covers potential cost overruns, financing requirements or funding shortfalls, and will remain valid until January 2034 or until full repayment of the project debt. On the ESG front, as per HUBCO's report, TEL adheres to sound environmental standards, with all ash yards lined with geo-membranes to prevent leaching. The Company is also actively pursuing fly ash reuse in cement and roadworks, alongside recycling partnerships, which are expected to reduce waste management costs.

Key Rating Drivers

TEL continues to demonstrate strong operational performance, underpinned by the consistent achievement of efficiency and availability benchmarks that support its favorable merit order position. Sustained cash flow generation and timely servicing of project debt remain central to the Company's credit strength. Developments in the power sector, including tariff adjustments, CPPA-G payment trends and circular debt, remain key monitorable. Any regulatory measures introduced under ongoing sector reforms may have implications for the ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Thar Energy Limited


Rating Analysis

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Profile
Plant

Thar Energy Limited (TEL), an independent power producer (IPP), has developed a 330 MW (gross) mine-mouth Thar coal-based power plant at Block II, Thar Coal Mine, District Tharparkar, Sindh, in accordance with the Letter of Support (LOS) from the Private Power and Infrastructure Board (PPIB). Operating on a Build-Own-Operate (BOO) basis, the project achieved Financial Close on January 30, 2020, and the plant reached its Commercial Operations Date (COD) on October 1, 2022. The Company also achieved its Project Completion Date (PCD) on October 30, 2025.


Tariff

TEL has been awarded a levelized tariff of US¢8.5015/kWh (PKR 8.2550/kWh) by NEPRA for its coal power project, with a control period of 30 years from COD. The tariff is indexed to the Pakistan Rupee-US Dollar exchange rate, US & Pakistan CPI inflation, and interest rate benchmarks such as KIBOR and SOFR. Principal and interest repayments, return on equity (ROE), insurance, and fixed and variable O&M costs form part of the adjustable tariff components. Under the revised tariff for the July-September 2026 quarter, the capacity charge is Rs. 11.3459/KWh and the energy purchase price is Rs. 1.0627/KWh.


Return on Project

As per NEPRA’s tariff determination, TEL is entitled to a Return on Equity (ROE) of 30.65%  per annum, applicable to the project with a 40-month construction period. Since the plant achieved commercial operations in October 2022, this ROE is embedded in the approved tariff and contributes to the company’s regulated returns.  


Ownership
Ownership Structure

Thar Energy Limited (TEL) is sponsored by The Hub Power Company Limited (HUBCO), Fauji Fertilizer Company Limited (FFC), and China Machinery & Engineering Corporation (CMEC) through CMEC Tel Power Investments Limited (CMEC Dubai). HUBCO holds the controlling stake of 60%, followed by FFC with 30% and CMEC with 10%. As part of the HUBCO Group’s growth strategy, TEL forms a key component of its coal-based portfolio under the China-Pakistan Economic Corridor (CPEC), reflecting strong collaboration between local and international partners.


Stability

Stability is underpinned by the long-term strategic investment of its sponsoring groups, including The Hub Power Company Limited (HUBCO), Fauji Fertilizer Company Limited, and China Machinery & Engineering Corporation (CMEC) through CMEC TEL Investments. This strong and diversified sponsorship ensures TEL’s long-term sustainability and operational resilience.


Business Acumen

The sponsor groups have a proven track record in developing and operating power projects across Pakistan, spanning thermal, coal, and renewable energy sources. HUBCO, as the major sponsor, is one of the country’s largest independent power producers, with a total installed power generation capacity of 3,581 MW across its directly and indirectly held power assets. The portfolio comprises the 1,292 MW Hub Power Plant, 225 MW Narowal Energy Limited, 84 MW Laraib Energy Limited, 1,320 MW China Power Hub Generation Company Limited (CPHGC), 330 MW Thar Energy Limited (TEL), and 330 MW ThalNova Power Thar (TNPTL). These assets are held through a combination of direct ownership, subsidiaries, and joint ventures, including Hub Power Holdings Limited (HPHL).


Financial Strength

Diversified across multiple sectors, HUBCO and the Fauji Group are among Pakistan’s top conglomerates, supported by strong financial foundations. Their partner, China Machinery & Engineering Corporation (CMEC), brings global engineering expertise and international project experience, further reinforcing TEL’s operational and strategic strength. The sponsors have invested a total of Rs. 19,956 million in paid-up equity in TEL, comprising Rs. 11,974 million by The Hub Power Company Limited (HUBCO), Rs. 5,987 million by Fauji Fertilizer Company Limited (FFC) and Rs. 1,996 million by CMEC TEL Power Investments Limited (CMEC). Together with retained earnings, this has resulted in total shareholders' equity of Rs. 40,779 million as of June 30, 2026 (Jun-25: Rs. 45,141 million).


Governance
Board Structure

TEL’s Board of Directors comprises seven members, including six non-executive members and the CEO. HUBCO has four nominees on the board (including the Chief Executive Officer), Fauji Fertilizer Company Limited (FFC) is represented by two members, while China Machinery Engineering Corporation (CMEC) has one nominee. The current board members are Mr. Muhammad Kamran Kamal (Chairman), Mr. Aly Khan, Mr. Muhammad Saqib, and Mr. Amjad Ali Raja (CEO) as Hubco nominees; Mr. Jahangir Piracha and Mr. Syed Atif Ali as FFC nominees; and Mr. Zhao Wenke as the CMEC nominee.


Members’ Profile

Mr. Kamran Kamal is the Chairman of the Board of Directors of TEL and also the CEO of The Hub Power Company Limited (HUBCO). He has been associated with HUBCO Group in various capacities and brings vast experience of the local power sector. The remaining members also possess sufficient experience in their respective fields.


Board Effectiveness

The board conducts regular meetings to discuss matters relating to the Company's operations and financials, along with providing supervision and granting approval for other policies of the Company.


Financial Transparency

A.F. Ferguson & Co., Chartered Accountants (Category 'A'), a reputable and long-established audit and assurance firm in Pakistan, serve as the external auditors of TEL.


Management
Organizational Structure

IPPs are generally featured by a flat organizational structure, mainly comprising finance and technical staff, while the engineering, construction and operations of the plant are outsourced.


Management Team

Mr. Amjad Ali Raja has been appointed as the CEO in July 2024. He has been associated with HUBCO group since 2013. With an engineering background, Mr. Amjad brings 22 years of experience in the energy sector. The remaining team of individuals possess prerequisite qualification and experience.


Effectiveness

The management is majorly engaged in operational matters relating to the Company including invoicing to CPPAG, internal audit, preparation of accounts and tariff determination while the plant's operations and maintenance are outsourced.


Control Environment

The management has developed a comprehensive internal audit function which ensures timely delivery of data and reports. Furthermore, the operation and maintenance contractors deliver reports to the management relating to the plant operations to ensure smoothness.


Operational Risk
Power Purchase Agreement

Thar Energy Limited has executed a 30-year Power Purchase Agreement (PPA) with the Central Power Purchasing Agency-Government (CPPA-G), under which TEL will supply electricity and issue invoices for both the Energy Purchase Price and the Capacity Purchase Price. The PPA ensures revenue certainty over the term, tying payments to availability (capacity) and actual energy supplied.


Operation and Maintenance

Thar Energy Limited has entered into a long-term contractual arrangement with Hub Power Services Limited (HPSL), a wholly-owned subsidiary of HUBCO, to manage the plant’s operations and maintenance. As part of this, GE Power has also been awarded equipment supply and a 12-year maintenance services agreement for TEL, covering boiler, turbine and generator support, spare parts, inspections, and advisory services.


Resource Risk

TEL sources its coal requirements from Sindh Engro Coal Mining Company (SECMC) under a 30-year Coal Supply Agreement signed at the project’s inception. The risk primarily arises if SECMC fails to deliver the contracted coal quantity or quality, which may affect plant availability and generation. Since the plant is designed specifically for Thar lignite, the absence of alternate local suppliers further heightens dependency on SECMC. Mitigation is provided through a long-term contractual framework and regulatory mechanisms, yet supply chain disruptions, operational challenges at the mine, or policy shifts could still pose risks to TEL’s performance.


Insurance Cover

TEL has arranged comprehensive insurance policies to safeguard its assets and operations. The coverage includes material damage, machinery breakdown, third-party liability, and business interruption/delay in startup losses, ensuring protection of both physical assets and revenue streams. In addition, contractors are contractually bound to pay Liquidated Damages (LDs) in the event that benchmark performance ratios are not achieved. These measures collectively mitigate operational and financial risks associated with unforeseen events, ensuring continuity of plant operations and revenue stability.


Performance Risk
Industry Dynamics

As of March 2026, Pakistan's total installed generation capacity reached 49,651 MW. This is 8.5% higher than 45,782 MW a year earlier. The growth was driven mainly by net-metered distributed solar (7,319 MW cumulative). Over the same period, 13 thermal IPPs totaling 5,105 MW were retired or closed. Clean sources (hydel, nuclear and renewables) now account for the majority of installed capacity at 50.8%, up from 43.3% a year earlier. Thermal's share fell to 49.2% from 56.7%. Total generation for FY26 rose 1.2% YoY to 128,700 GWh. Combined local and imported coal generation climbed to 22.9% of the mix, up from 19.4% in FY25. This was led by a 51.6% YoY surge in imported coal. Reduced RLNG availability and elevated LNG costs pushed dispatch toward coal. This trend sharpened further in Jul'26. Power demand rose 7.1% YoY to 15,122 GWh. Coal-based generation reached 3,819 GWh (+44% YoY), the highest for any July, with imported coal up 90% YoY.


Generation

Net electrical output of the plant during FY26 stood at 1,822 GWh (FY25: 1,594 GWh) with a load factor of 69%. The power purchaser continued to source electricity from the plant on priority owing to its low cost of generation.


Performance Benchmark

The required availability for Thar Energy Limited under the PPA is 85%, while the required efficiency is 37%. During the period, the plant maintained an average availability of 90.5%, comfortably exceeding the contractual requirement, while average efficiency stood at 36.84%, broadly in line with the benchmark.


Financial Risk
Financing Structure Analysis

The project cost of the 330 MW plant is approx. USD 520 million, financed through 75% debt (USD 390 million) and 25% equity (USD 130 million). The debt portion has been arranged through a mix of foreign (~67%) and local (~33%) financing. The foreign debt was provided by a consortium of Chinese lenders led by China Development Bank (CDB) and China Minsheng Banking Corporation Limited, with CDB also acting as financial advisor. The local debt was arranged by a consortium of Pakistani banks led by Bank Alfalah Limited, including HBL, BAHL, NBP, FBL, SBL, and Soneri Bank Limited, with HBL serving as local financial advisor. Foreign debt was initially priced at 6-month LIBOR plus 4.05% per annum, later amended to Daily SOFR + 0.42826% credit adjustment spread + 4.05% per annum, while local debt carries pricing of 3-month KIBOR plus 3.5% per annum, both payable semi-annually. The financing agreements were executed in December 2018, with an effective date of March 6, 2020, and repayments structured in 20 semi-annual instalments (first disbursements in March 2020 for local debt and August 2021 for foreign debt). The loans are secured against a first-ranking hypothecation charge over project assets and pledged shares of the Company in favor of the Security Trustee. Equity contributions were provided by Hub Power Company, Fauji Fertilizer Company Limited, and China Machinery Engineering Corporation (CMEC). As of June 2026, approximately 17% of PKR and 27.2% of USD debt has been repaid.


Liquidity Profile

TEL, under its off-take agreement with CPPA(G), is entitled to receive capacity payments as long as the plant maintains contractual availability, regardless of whether a purchase order is placed. As of June 2026, the Company's trade receivables from CPPA(G) stood at PKR 17,731 million (2025: PKR 18,321 million), including PKR 1,112 million overdue from 6 to 12 months and PKR 519 million overdue for more than 1 year. Circular debt remains a persistent challenge for the power sector, compelling IPPs to rely on short-term borrowings and internal cash generation to manage liquidity.


Working Capital Financing

Due to rising trade receivables from CPPA(G), gross working capital cycle stood at 131 days as of June 2026 (June 2025: 115 days). Net working capital days were recorded at 58 days in June 2026, compared to 22 days in June 2025. The Company is managing its working capital requirements through a mix of internal cash generation and short-term banking facilities, while future financing remains dependent on the payment behavior of the power purchaser against outstanding receivables.


Cash Flow Analysis

In FY26, the Company's Free Cash Flow from Operations (FCFO) stood at PKR 25,440 million, compared to PKR 24,326 million in FY25. Coverage ratios strengthened further: EBITDA/Finance Cost improved to 3.0x (FY25: 2.3x; FY24: 2.0x) and FCFO/Finance Cost improved to 3.2x (FY25: 2.4x), aided by a decline in finance cost to PKR 7,894 million (FY25: PKR 10,024 million), reflecting lower average debt balances following continued repayments and a lower average borrowing rate.


Capitalization

As of June 30, 2026, Thar Energy Limited’s capital structure improved, with leveraging at 63.3% (Jun-25: 64.3%; Jun-24: 72.0%). Shareholders’ equity stood at Rs. 40,779 million (Jun-25: Rs. 45,141 million; Jun-24: Rs. 34,520 million), after dividend payouts of Rs. 18,080 million during the year (Jun-25: nil). Total borrowings declined to Rs. 70,383 million (Jun-25: Rs. 81,422 million; Jun-24: Rs. 88,555 million), continuing the company’s multi-period deleveraging trend, supported by a net asset base of Rs. 40,779 million.
 
 

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Thar Energy Limited


Financial Summary

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(PKR mln)


 Jun-26
12M		 Jun-25
12M		 Jun-24
12M
A. BALANCE SHEET
1. Non-Current Assets 95,914 100,104 101,665
2. Investments 0 0 0
3. Related Party Exposure 282 94 528
4. Current Assets 42,760 52,776 49,535
a. Inventories 596 572 585
b. Trade Receivables 17,731 18,321 15,364
5. Total Assets 138,956 152,974 151,728
6. Current Liabilities 27,394 25,810 26,466
a. Trade Payables 8,502 12,150 15,877
7. Borrowings 70,383 81,422 88,555
8. Related Party Exposure 400 600 2,186
9. Non-Current Liabilities 0 0 0
10. Net Assets 40,779 45,141 34,520
11. Shareholders' Equity 40,779 45,141 34,520
B. INCOME STATEMENT
1. Sales 51,961 55,292 61,875
a. Cost of Good Sold (30,422) (34,086) (39,142)
2. Gross Profit 21,539 21,206 22,734
a. Operating Expenses (316) (224) (220)
3. Operating Profit 21,223 20,983 22,513
a. Non Operating Income or (Expense) 2,042 1,200 818
4. Profit or (Loss) before Interest and Tax 23,266 22,182 23,332
a. Total Finance Cost (8,802) (10,970) (13,310)
b. Taxation (741) (585) (286)
6. Net Income Or (Loss) 13,723 10,627 9,736
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 25,440 24,326 25,602
b. Net Cash from Operating Activities before Working Capital Changes 16,954 12,867 13,733
c. Changes in Working Capital 1,778 6,053 1,293
1. Net Cash provided by Operating Activities 18,732 18,920 15,026
2. Net Cash (Used in) or Available From Investing Activities (203) (428) (1,342)
3. Net Cash (Used in) or Available From Financing Activities (28,464) (8,884) (845)
4. Net Cash generated or (Used) during the period (9,936) 9,609 12,839
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -6.0% -10.6% 63.4%
b. Gross Profit Margin 41.5% 38.4% 36.7%
c. Net Profit Margin 26.4% 19.2% 15.7%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 52.4% 54.9% 43.5%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 32.0% 23.6% 29.3%
2. Working Capital Management
a. Gross Working Capital (Average Days) 131 115 69
b. Net Working Capital (Average Days) 58 22 -13
c. Current Ratio (Current Assets / Current Liabilities) 1.6 2.0 1.9
3. Coverages
a. EBITDA / Finance Cost 3.0 2.3 2.0
b. FCFO / Finance Cost+CMLTB+Excess STB 1.7 1.5 1.4
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 4.0 5.5 6.3
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 63.3% 64.3% 72.0%
b. Interest or Markup Payable (Days) 145.2 135.9 152.0
c. Entity Average Borrowing Rate 10.5% 12.0% 13.7%

Oct-26

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Thar Energy Limited


Rating Scale

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Oct-26

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Thar Energy Limited


regulatory disclosure

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