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
(02-Jun-23 )
(10-Jun-22 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Pak Arab Pipeline Company Ltd. (the Company) owns and operates a dedicated pipeline network which is used to transport White Oil. The pipeline network is 786KM long which extends from Port Qasim and Kaemari to mid-country Mehmodkot and from there to Machike. 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. Its unique business model provides basic infrastructure for smooth running and transportation of White Oil through mid-country. Therefore, its strategic importance at country level is eminent. The pipeline has been upgraded to transport Motor Gasoline (MOGAS) in addition of High Speed Diesel (HSD) in Nov’21. This upgradation is debt driven; from syndicate local debt and foreign borrowings. The Company has successfully started its repayment as per schedule and going forward leverage is expected to reduce. 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. Market for petroleum products (POL) declined in 3QFY23, business volumes of PAPCO also displayed a similar trend capacity utilization reduced at ~28% including 8% for MOGAS in 3QFY23 (1HFY22: ~50%). The macro economic factors lead to slow down in economic activity which resulted in lower demand of petroleum products. In addition to that the upliftment of at least 35% of MOGAS transported through pipeline by authority may have negatively impacted the company's throughput and the impact of which going forward is yet to be seen. 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
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 Mr. Amr Ahmed, Chief Executive Officer (CEO), MBA qualified. 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.

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.