PPI Original Text (PPI-OT) – JCR-VIS Assigns Entity Ratings to Nishat Chunian Power Limited

Karachi, May 29, 2012 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned medium to long-term and short-term entity ratings of ‘A’ (Single A) and ‘A-2’ (A two) respectively, to Nishat Chunain Power Limited (NCPL). The outlook on the medium to long-term rating is ‘Stable’.

NCPL, an independent power producer (IPP), operates under Power Policy 2002 with a nameplate capacity of 200MW. The company has shown consistent performance since commercial operations date (CoD) in July 2010.

Under the Power Purchase Agreement (PPA), the Government of Pakistan (GoP) guarantees consistent cash flow stream to NCPL given it meets certain predefined performance benchmarks. Moreover, Operations and Maintenance (O and M) Agreement has been signed between Wartsila Pakistan (private) Limited and NCPL for a period of 5 years from the CoD. Proven track record of Wartsila especially in the Pakistan’s power sector considerably minimizes the operational risk.

The country’s power sector continues to be adversely impacted by the circular debt crisis with significant losses under various heads including line losses, non-recoveries and differential in cost of generation and tariff.

Delays in release of timely payments and inadequate funds to resolve the issue has created liquidity constraints in the power sector while forcing companies to leverage their position. In the absence of any nearby solution, the debt on books can increase to a level where access to further borrowings may become difficult.

While payments are guaranteed under the PPA, irregular pattern in these disbursements by the GoP has negatively impacted the cash flow position thereby weakening the risk profile of the company. Volatile payments from GoP and unprecedented delays in cash flows has forced few IPPs, including NCPL, to invoke government guarantee.

The GoP has been successful in settling the issue with IPPs by disbursing partial payments, however, these initiatives are short-lived as receivables inevitably pileup again on the books of power producers. Going forward, major structural reforms across the power sector will be required as a sustainable solution to ensure uninterrupted power supply.

For more information, contact:
Mr. Javed Callea
Advisor
JCR-VIS Credit Rating Company Limited
Tel: +9221 35311861 (10 lines) (Ext: 501)
Fax: +9221 35311872-3
E mail: javed.callea@jcrvis.com.pk

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