PACRA Maintains Entity Ratings of Thar Energy Limited

The Hub Power Company Limited (HUBCO) of Pakistan, along with Fauji Fertilizer Company Limited (FFCL) and China Machinery Engineering Corporation (CMEC) TEL Investment, has set up a 330 MW mine-mouth lignite-fired power plant at Thar Coal Block-II Sindh, under the umbrella of Thar Energy Limited (TEL). The plant is part of the China Pakistan Economic Corridor (CPEC) and is fueled by coal extracted from Thar Block-II by the Sindh Engro Coal Mining Company. Being on local coal, the plant reduces dependence on imported fuels and resultantly positively affects the overall basket price of the electricity generated. The plant is prioritized in the merit order list by NTDC due to its low generation cost. Additionally, the plant efficiency and utilization factor are high. TEL has been awarded an upfront tariff, with the payments to be received from CPPA-G against energy and capacity, backed by a sovereign guarantee. The plant successfully achieved its Commercial Operations (COD) on October 1, 2022. As per the Power Purchase Agreement (PPA), CPPA-G has charged Liquidated Damages amounting to USD 7.70mln due to delay in achievement of COD beyond Required Commercial Operations Date (RCOD) for the period 23rd November 2021 to 30th September 2022. In accordance with the agreement, Hub Power Services Limited (HPSL), an associated company, will provide operations and maintenance (O&M) services for the plant. The O&M contractor will be responsible for maintaining the operational benchmarks (availability: 85%, efficiency: 37%). During FY24, the net electrical output of the plant stood at 1,940 GWh (FY23: 1,053 GWh) with a load factor of 73.4% while maintaining its operational benchmarks. Currently, the working capital requirements are managed through a mix of internal cash generation and short-term borrowings from banks.  Going forward, future borrowings are dependent on the rising operational needs along with the repayment behavior of the power purchaser against outstanding receivables.
Timely repayment of project debt along with successfully meeting operational benchmarks remains crucial to upholding the assigned ratings. Furthermore, considering the ongoing developments in the power sector, any modification in the long-term agreements might potentially impact the ratings.

About the Entity
Thar Energy Limited was incorporated in Pakistan on May 17, 2016 as a limited company under the repealed Companies Ordinance, 1984. The 330 MW coal IPP is situated in the energy park located in Block II of the Thar coalfields in Sindh. HUBCO Group has the controlling interest of 60%, while Fauji Fertilizer and CMEC TEL Investment own 30% and 10%, respectively. Mr. Amjad Ali Raja has been appointed as the new CEO in July 2024. He has been associated with the HUBCO group since 2013. With an engineering background, Mr. Amjad brings 22 years of experience in the energy sector. The CEO reports to the Board of Directors (BoD), which consists of seven members. Mr. Kamran Kamal is the Chairman of the BoD and also serves as the CEO of HUBCO.