Power Purchase Agreement b/w Sapphire Electric and CPPA-G help keep former’s rating on check

March 21, 2019 (MLN): Pakistan Credit Rating Agency has maintained entity ratings of Sapphire Electric Company Limited at ‘AA-’ for long-term and ‘A1+’ for short-term. The company’s outlook was deemed ‘stable’ by the rating agency.

The ratings reflect strong business profile of the company emanating from the demand risk coverage under Power Purchase Agreement signed between CPPA-G (Central Power Purchasing Agency) and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cash flows, given adherence to agreed performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge.

The ratings incorporate low operational risk, a result of the performance of General Electric - the O&M operator. Primary fuel of the plant is Regasified Liquefied Natural Gas (RLNG) which is supplied by Sui Northern Gas Pipeline Limited (SNGPL). Thus fuel supply risk is considered adequate, pertaining to meaningful addition of RLNG in Pakistan’s fuel mix.

Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of circular debt would pose threat to the company’s ability to continue with this practice. However, the management ably supported by sponsors’ remains committed to sustain improvement in management of commercial obligations and timely debt repayments.

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