Pak-Arab Pipeline's credit ratings held steady at ‘AAA’ by PACRA

June 03, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Pak-Arab Pipeline Company Limited at " AAA" for long term and "A1+" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

The company owns and operates a dedicated pipeline network which is used to transport White Oil.

The pipeline network is 786 km long which extends from Port Qasim and Kaemari to mid-country Mehmodkot.

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

Its unique business model provides basic infrastructure for smooth running and transportation of White Oil through mid-country.

Therefore, its strategic importance at country level is eminent. The pipeline has been upgraded to transport Motor Gasoline (MOGAS) in addition of High Speed Diesel (HSD) in Nov’21.

This upgradation is debt driven; from syndicate local debt and foreign borrowings.

The company has successfully started its repayment as per schedule and going forward leverage is expected to reduce.

The ratings are reflective of PAPCO’s strategic importance to the country and its distinctive business model deriving its strength from a US$ based tariff structure, providing sustainability to the Company’s profit and certain cushion against exchange rate fluctuations.

Market for petroleum products (POL) declined by 7% in Q3 FY24.

Macro economic factors lead to slow down in economic activity which resulted in lower demand of petroleum products.

Capacity utilization of PAPCO also showed the same trend reported to be 45% including 17% for MOGAS in 3QFY24 (3QFY23: 51%).

In addition, authority approval for the upliftment of at least 35% of MOGAS transported through pipeline has been enhanced to 45% since Sep'23 for one year period.

The liquidity profile of the Company is considered as strong due to its sizable short-term investment book on the balance sheet and its cash richness.

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

The company's governance structure derives full benefit from its association with PARCO, which also deputes its functionaries in PAPCO, with Shell Pakistan Limited nominating the CFO.

The ratings are dependent on sustainable 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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