The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains Entity Ratings of Foundation Power Company Daharki Limited

Rating Type Entity
(07-Jan-22 )
(01-Feb-21 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings took comfort from strong business profile of Foundation Power Company Daharki Limited (Foundation Power) emanating from the demand risk coverage under Power Purchase Agreement and company's association with Fauji Foundation (FF). Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. The ratings incorporate low operational risk, a result of the performance of KEPCO - the O&M operator. Fuel of the plant is 'low BTU' gas, which is supplied by an associate –Mari Petroleum Company Limited (40% owned by Fauji Foundation). Supplier being a sister concern reduces fuel supply risk. Significant increase in account receivables create a challenge to working capital management. However, the risk is substantially mitigated through aligning payments to fuel supplier with energy billing related receipts. Short-term borrowing lines of PKR 410 million stands at end Sept-21, out of which 61% are utilized. Rating reflects the low financial risk of the company as all the project related long term loan has been repaid.
Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of circular debt would pose threat to the company's ability to continue with this practice. However, the management is ably supported by sponsor who remains committed towards commercial obligations. Further the Company is on priority list of NTDC's payment merit order because of low unit cost of electricity.

About the Entity
Foundation Power was established in 2005 under the Companies Ordinance 1984 as an independent power producer. The company is operating a combined cycle power plant with a net initial capacity of 180MW. Foundation Power's plant commenced operations in May 2011. Foundation Power is wholly owned by Daharki Power Holdings Limited, which, in turn is owned by FF (81%) and Asian Development Bank (ADB) (19%). The six-member Board, comprising five representatives from Fauji Foundation and one from Asian Development Bank provides adequate guidance to the company. Maj Gen (Retd) Muhammad Junaid, HI(M), is the newly appointed Managing Director of Foundation Power. He is assisted by a team of qualified professionals having requisite experience.

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.