PACRA Maintains Entity Ratings of Narowal Energy Limited

The ratings reflect Narowal Energy’s strong ownership profile as a wholly owned subsidiary of HUBCO, coupled with its established contractual framework under the Power Purchase Agreement (PPA) with CPPA-G. The Company maintains a sound operational profile, evidenced by plant availability of approximately 98% during 1HFY26, in line with the contractual benchmark. Operational risk remained low, supported by the outsourcing of operations and maintenance activities to Hub Power Services Limited (HPSL), an associated HUBCO entity with a proven track record in managing power assets.
The Company entered a new operational phase following the execution of the amended PPA in February 2025, which introduced tariff revisions and transitioned the return on equity component to a hybrid take-and-pay structure. The revised framework reduces revenue certainty relative to the historical take-or-pay mechanism. During FY25, sales revenue declined to PKR 6,076 million from PKR 15,342 million in FY24, primarily due to lower dispatch levels, reduced demand from the power purchaser, the Company's position on the merit order list, and transitional impacts associated with amendments to the PPA, including revisions to the tariff structure and indexation mechanism.
During 9MFY26, operational performance slightly improved, with net electricity generation increasing to 82 GWh from 22 GWh in the corresponding period last year. The improvement was driven by a higher load factor of 6% compared to 2% in 9MFY25, resulting in sales revenue increasing to PKR 5,624 million from PKR 4,641 million. Nevertheless, dispatch levels remained constrained due to the relatively higher cost of RFO-based generation compared to others. Furthermore, Narowal Energy reported a dividend payable of PKR 10,148 million to its parent company, HUBCO, as of June 2025, reflecting its earnings capacity and continued support to the shareholder.
Narowal Energy's financial risk profile remains strong, supported by the complete repayment of project-related long-term debt in 2021. As of March 2026, leverage remained minimal at 1.2%, while short-term borrowing declined to PKR 195 million. The Company reported receivables of PKR 3.7 billion from CPPA-G, primarily related to capacity and energy invoices and delayed payment interest. Although cash flow generation moderated amid subdued dispatch levels, coverage indicators remain robust, supported by the Company's debt-free capital structure, strong equity base, and continued support from HUBCO.
The strong financial standing and strategic support of The Hub Power Company Limited remain key strengths underpinning the assigned ratings. Going forward, maintaining operational performance above contractual benchmarks, ensuring timely recovery of receivables, and effectively managing liquidity under the amended PPA framework will remain important rating considerations. Furthermore, the Company's ability to navigate the persistent lower-than-available dispatch levels and the evolving regulatory environment will be critical. Continued financial discipline, adherence to contractual obligations, and prudent liquidity management will remain essential for sustaining the current rating profile.

About the Entity
Narowal Energy Limited ("Narowal Energy" or "the Company"), a wholly owned subsidiary of The Hub Power Company Limited (HUBCO), operates a 225 MW residual fuel oil (RFO)-fueled power plant located in Narowal, Punjab. The plant commenced commercial operations in April 2011 under the Power Policy 2002 and is designed as an engine-based combined cycle facility with an average efficiency of approximately 45%. Following a court-approved demerger, Narowal Energy assumed ownership and operations of the plant in March 2017. The Company is governed by a four-member Board comprising representatives of HUBCO. Mr. Kamran Kamal serves as the Chief Executive Officer and Chairman of the Company, supported by an experienced management team with extensive expertise in Pakistan’s power sector.