The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA maintains entity ratings of Pak-Arab Pipeline Company Limited.

Rating Type Entity
(10-Jun-22 )
(10-Jun-21 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Pak Arab Pipeline Company (PAPCO) operates a 786 KM dedicated White Oil Pipeline (WOP) network. The ratings are reflective of PAPCO’s strategic importance to the country and its distinctive business model deriving its strength from a US$ based tariff structure, providing sustainability to the Company’s profit and certain cushion against exchange rate fluctuations. The Company’s pipeline up-gradation plan for the transportation of Motor Gasoline (MOGAS) has been operationalized and started pumping petrol from Karachi to Mahmoodkot and from there to Machhike, the plan was initially expected to be completed by Dec'19. Tariff assigned for MOGAS project is also determined in US$ which creates an implied hedge to cover exchange rate volatility. The expansion is debt driven; from syndicate local debt and foreign borrowings. The Company has successfully started it repayments as per schedule and going forward leverage is expected to reduce. Market for petroleum products (POL) slightly improved in 1HFY22, business volumes of PAPCO also displayed a similar trend capacity utilization remains at ~50% including 17% for MOGAS in 1HFY22 (1HFY21: ~45%). Low volumes of MOGAS is according to the instructions issued by OGRA. It is projected to be increased further as management is confident that the business volumes will grow substantially in the coming periods owing to the operationalization of MOGAS project. The pipeline capacity to transport is 8mln tons of the commodity/annum, which can be increased up to 12mln tons/annum, considered to be sufficient to meet the upcountry’s demand. The liquidity profile of the company is considered as strong due to its sizable short-term investment book on the balance sheet and its cash richness. The cash flows of the company remain persistently strong, stemming from formidable profitability margins. The company's governance structure derives full benefit from its association with PARCO, which also deputes its functionaries in PAPCO, with Shell Pakistan Limited nominating the CFO.
The ratings are dependent on sustained business model and its share in the overall country’s petroleum movement. Sustainability in system share remains vital for the ratings. Execution of contracts and timely delivery of products is also important. Meanwhile, adherence to strong performance indicators is imperative.

About the Entity
Pak-Arab Pipeline Company Limited (PAPCO) was incorporated in 2000. PAPCO’s majority holding lies in the hands of PARCO - 62%, which is majorly owned by GoP, while remaining by Shell Pakistan Limited (26%) and PSO (12%). PAPCO operates a cross-country pipeline system to transport refined High Speed Diesel from Karachi ports to mid-country. It has the flexibility to receive imported and locally produced HSD products from multiple sources and to deliver it at different demand centers. The pipeline was commissioned in March 2005, comprising 786 Km 26” dia cross-country pipeline, storage tanks, pumps and other allied facilities. The Company’s overall control is overseen by ten-member board of directors (BoD), representing all the shareholders. The Chairman of the board is nominated by PARCO. Mr. Amr Ahmed, Chief Executive Officer (CEO), holds a Bachelors degree in Mechanical Engineering and is also an MBA. He took charge as CEO-PAPCO in December 2020 and has been aptly deploying his expertise since then. Mr. Syed Muhammad Haris Chief Financial Officer (CFO) is an MBA. and has a vast experience in the Oil & Gas sector and has been nominated by Shell Pakistan Limited.

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