PACRA maintains entity ratings of Pak Arab Pipeline LTD

June 05, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Pak Arab Pipeline Company Limited (PAPCO) at "AAA" for the long term and "Al+" for short term with a stable outlook forecast, a latest press release issued by PACRA showed.

PAPCO owns and operates a dedicated pipeline network that is used to transport white oil.

The network is 786 Kilometers (KM) long, extending from Port Qasim and Kaemari to mid-country Mehmodkot and from there to Machike.

The pipeline capacity to transport is 8 million tons of the commodity per annum, which can be increased up to 12mn tons per annum, considered to be sufficient to meet the upcountry’s demand.

It has been upgraded to transport Motor Gasoline (MOGAS) in addition to High-Speed Diesel (HSD) in Nov’21.

The ratings reflect PAPCO’s strategic importance to the country and its distinctive business model deriving its strength from a U.S. dollar-based tariff structure, providing sustainability to the company’s profit and certain cushion against exchange rate fluctuations.

The market for petroleum products (POL) declined in 3QFY23, and business volumes of PAPCO also displayed a similar trend capacity utilization reduced at 28% including 8% for MOGAS in 3QFY23 (1HFY22: 50%).

The macroeconomic factors lead to a slowdown in economic activity which resulted in lower demand for petroleum products.

In addition to that the upliftment of at least 35% of MOGAS transported through pipeline by authority may have negatively impacted the company's throughput and the impact of which going forward is yet to be seen.

The cash flows of the company remain persistently strong, stemming from formidable profitability margins. 

The ratings are dependent on sustained business model and its share in the overall country’s petroleum movement.

Sustainability in system share remains vital for the ratings.

Execution of contracts and timely delivery of products is also important.

Meanwhile, adherence to strong performance indicators is imperative.

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