Lahore, May 24, 2019 (PPI-OT): The ratings are a reflection of PAPCO’s distinctive business model driving its strength from a tariff based return model. PAPCO operates a 786 Km pipeline network dedicated for White Oil Pipeline (WOP). The tariff follows a pre-defined structure denominated in USD$, providing sustainability to the company’s profit base. PAPCO has been operating its WOP for HSD only, at a capacity utilization of ~47% (~57% previously). Company’s envisaged expansion plan is near to completion, which is expected to enhance and further leverage the infrastructure capacity, by way of transporting MOGAS.
The expansion is debt driven, wherein interest spread is very much akin to risk free rate. A level of comfort is drawn from the exclusive tariff given for the MOGAS project; all set to be operational by July’19. This will also create strategic advantage for the country. The cash flows of the company are persistently strong, providing sustainable coverages to debt repayments. The business risk is considered moderate – given current economic slowdown – indeed a relatively volatile demand of MOGAS and declining trend in HSD demand is perceived for foreseeable future, in addition to OMCs reliance on PAPCO for oil supply.
The company’s governance derives benefit from its association with PARCO, which also deputes its functionaries (esp. CEO) in PAPCO, with Shell Pakistan Limited nominating the CFO. The ratings are dependent on the sustained business model and operations. Strong cash flows backs the decline in topline while enabling relevant coverages to its debt repayments is prerequisite.
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