PACRA Maintains Entity Ratings of Chanar Energy Limited

Chanar Energy Limited ('Chanar Energy' or the 'Company') operates a 22MW co-generation bagasse-based, a renewable energy, power plant with a net rated capacity of 20MW, producing both electricity and steam. Sustainable business profile of Chanar Energy emanates from the demand risk coverage under Energy Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited (CSML), a related entity. This model creates synergy and higher efficiency gains between IPP and sugar mill. Previously, the Company faced challenges in procuring bagasse from third parties due to pricing differences. However, following NEPRA's August 2024 decision to index bagasse prices to coal, the Fuel Cost Component (FCC) was adjusted to PKR 12.4788/KWh from Oct'23 to Sep'24, with a bagasse price of PKR 6,187/ton against previous allowed tariff of PKR 2,805/ ton. Going forward, the Company plans to source raw materials from third parties, benefiting from favorable tariff revisions, which is also expected to contribute positively to the margins. In FY24, the Company generated 26,633 MWh of electricity, down from 41,050 MWh in FY23. This decline was due to technical issues in CSML's crushing operations, which reduced bagasse availability. The Company's turnover increased to PKR 1,219mln (FY23: PKR 912mln), despite a decline in generation. This increase is attributable to prior and current tariff adjustments amounting to PKR 842mln billed to CPPA-G, along with PKR 32.5mln from steam sales to CSML. The Company has a project debt of PKR 2,200 million, repayable in 40 quarterly installments, with 22 installments successfully paid to date. The Company meets its working capital requirements through internal cash flows and support from CSML, which extends payment terms for bagasse supplies and provides loans when needed. The Company has not utilized any short-term borrowing lines and remains confident in its liquidity, driven by timely recoveries from CPPA-G to service upcoming debt obligations.
The ratings are dependent on Chanar Energy’s ability to sustain its business and financial profile; any deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Rating Watch signifies the prevailing uncertainty pertinent to the Company’s financial muscles, and timely debt servicing. Financial support from sponsors remains imperative in the long term. Moreover, any changes in the current regulatory structure may impact the ratings.

About the Entity
Chanar Energy was incorporated in 2014 as an independent power producer. The EPA between the Company and the Power Purchaser was signed in Apr'2017. The term of EPA anticipates expected useful life of plant at 30 Years from its COD. The plant achieved its COD in Feb'2019. The Company is majorly owned by Mr. Javed Ahmad Kayani and his family. The Company's Board of Directors consists of four members, all from the Kayani family. Mr. Javed Ahmad Kayani serves as both the Chairman of the Board and the CEO, leading the Company.