Lahore, July 25, 2019 (PPI-OT): The ratings reflect Sindh Engro coal mining company’s ownership structure- owned by the Government of Sindh and financially sound business groups of the country. The rating also incorporates the fact that indigenous coal is expected to play a dominant role in meeting the country’s future energy requirement. The Policy for Coal Tariff Determination Rules 2014 offers a guaranteed internal rate of return, cost indexation and pass-through tariff structure for SECMC. SECMC has leased Block-II (out of 12 blocks) of Thar, for the period of thirty (30) years, which has a cumulative capacity of ~1.57bln tonnes of coal which could be used to produce 5,000 MW for fifty (50) years.
The rating favourably factors in successful commissioning of 3.8mln TPA (Phase-I) mine on 10th July 2019, three months earlier than the Scheduled COD. Subsequently, it will be ramped up to 7.6mln TPA in phase II. Block-II has four phases. Comfort is drawn from China Machinery Engineering Corporation (CMEC) – the O and M operator – having significant experience of International EPC Projects in Power Plants.
Business risk is considered low, exhibited by demand risk coverage as SECMC has signed a Coal Supply Agreement with its associated company, Engro Powergen Thar Limited (EPTL), incorporated to operate mine-mouth coal-fired Power Plant (2x330MW), for phase-I. Total project cost (3.8mln TPA) which is funded through 75% debt and 25% equity and is supported by back-to-back Sovereign Guarantee, which is a huge comfort. SECMC has in place insurance arrangements against risk related to property and business continuity. This amply covers SECMC for its own risks and risks arising from its customer.
Adherence to good financial discipline towards both financial and commercial obligations is considered a strength. Meanwhile, upholding strong operational performance in line with agreed performance levels remain important. Effective management of the project, favourable regulatory regime, and consistency in related policies remain critical for the ratings.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Category: General Business News