The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Assigns Initial Entity Ratings to Gul Ahmed Electric Limited

Rating Type Entity
(20-Feb-20 )
Action Initial
Long Term BBB-
Short Term A3
Outlook Stable
Rating Watch -

Gul Ahmed Energy Limited is setting up 50 MW wind power plant - Gul Ahmed Electric Limited. The ratings incorporate the Group's previous experience in successfully commissioning and operating a 50MW Wind Energy Power Plant (Metro Power Company Limited) and another 50MW Wind Energy Power Plant (Gul Ahmed Wind Power Limited). GEL is awarded a cost plus tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. Currently, project is exposed to completion risk because construction is due to start in May 2020; Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in the wind power technology. The performance bond is yet to be procured. In case of delay in achieving the COD, the EPC contractors will be liable to pay the liquidated damages of $ 28,000 per day backed by irrevocable bank guarantee of 15% of EPC cost. The construction contractor will be the O&M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD. These bank guarantees provide additional cushion for the sustainable financial risk profile. They intend to mobilize the local resources for achieving timely completion despite travel advisories. Further, the company will maintain the Debt Service Reserve Account (DSRA), which will be backed by 6 months SBLCs, in total providing coverage of six months on its financial obligations till maturity. Further, the project revenues and cash flows are exposed to wind risk, there is seasonal variation in the wind speed which effect the electricity generation, and ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that GEL would be able to generate enough cash flows to keep its financial risk manageable. Comfort is drawn from the group association, having strong financial backing and relevant experience as well.
The Company has signed Energy Purchase Agreement ("EPA") with CPPA-G, as per the EPA, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes calculated using tariff rates. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The Company does not have project insurance as of now but the management is in the process of finalization of the Project Insurance and they are confident it will be procured before the Construction of the Project begins in May, 2020, which remains important at the moment. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings. Upholding financial discipline is also a consideration.

About the Entity
Gul Ahmed Electric Limited, incorporated in Dec 2015, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The 50MW wind IPP is setting up in Jhimpir, District Thatta, Sindh. Mr. Iqbal Alimohamed is the CEO of the company. Mr. Iqbal has over fifty years of experience as an Industrialist/businessman. Mr. Iqbal is fellow member of ICAP and ICAEW. The total estimated cost of the project is USD 62.952mln. Debt financing constitutes 80% of the project cost i.e. USD 50.36mln, which is financed from foreign financial institutions and locally from SBP under re-financing scheme at fixed rate 6%. The foreign facility has tenor of thirteen years with two years grace period and quarterly repayments while local loan has tenor of ten years with 2 years of grace period. The project construction will start in May 2020 with the COD expected in 15 months after that i.e. August 2021. Gul Ahmed Energy Ltd (GAEL) is the sponsor of GEL, already running RFO based plant of 136 MW from last 21 years, which achieved COD in Nov-1997. GAEL successfully running another wind project of 50MW - Gul Ahmed Wind Power Ltd.

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.