The Pakistan Credit Rating Agency Limited
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Muhammad Mubashir Nazir

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PACRA Maintains Entity Ratings of Narowal Energy Limited

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

The ratings reflect the strong business profile of Narowal Energy Limited (Narowal Energy or the Company) emanating from the demand risk coverage under the Power Purchase Agreement (PPA) signed between CPPA-G and the Company. Meanwhile, the Implementation Agreement provides a sovereign guarantee for cash flows, given adherence to agreed performance benchmarks (Availability: 96%, Efficiency: 45%). The Company continues to meet its performance benchmarks. The ratings incorporate low operational risk, a result of in-house O&M undertaken by Hub Power Services Limited (HPSL) – an associated company and adequate insurance coverages. During the period, 9MFY22 Narowal Energy provided ~634GWh (9MFY21 ~349GWh) of electricity to the national grid and recorded sales revenue of PKR ~18,089mln (9MFY21 PKR ~11,113mln) generation and revenue witnessed an increase on account of better off-take from RFO based IPPs. In accordance with the MoU signed with the Government of Pakistan (GoP), the Company’s received 40% of trade debts outstanding as of Nov’20 and remaing 60% is ecpected to receive in few months time. Nevertheless, despite the settlement, the Company continues to face the issue of receivables build up, which had increased to PKR. 21bln as of March’22. The buildup of receivables is a concern, as the same may translate the pressure on Company’s working capital requirements, going forward; however, the rating incorporates very low risk on receivables from GoP. Furthermore, The Company has also secured a long-term finance facility of PKR 25mln under the salary refinancing scheme by SBP. The loan is repayable in eight equal quarterly installments and the repayments have already started from Jan 2021, providing the much needed comfort. The Company’s project related debt has been paid off in full and going forward, the Company had no plans to raise any additional debt; accordingly the balance sheet is likely to remain debt-free.
The sound financial profile of Hubco; the holding company, provides comfort to the ratings. Adherence to good financial discipline towards both financial and commercial obligations would remain important. Meanwhile, upholding strong operational performance in line with agreed performance levels remains essential.

About the Entity
Narowal Energy Limited (Narowal Energy) – 100% owned subsidiary of The Hub Power Company Limited (Hubco) - was established in 2015 as a public limited company to take up Narowal plant of Hubco. Hubco completed demerger of its Narowal Plant and Narowal Energy completely acquired functions of Narowal Plant from March 2017 after the court’s approval. Narowal Energy Limited, with a gross capacity of 225MW, is operating under the Power Policy 2002. It began commercial operations in April 2011. The Board of Directors of Narowal Energy Limited comprises four Directors, including the CEO. The members of the Board are also Board members of HUBCO. Mr. Kamran Kamal is the CEO of the Company. He holds a Masters in Public Policy from Harvard University and a Bachelors degree in Electrical and Computer Engineering from Georgia Tech. He is supported by the team of the experienced and professional management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.