Foundation Power Company Daharki Limited

CREDIT RATING REPORT | Jan-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
03-Jan-25 AA- A1+ Stable Maintain -
05-Jan-24 AA- A1+ Stable Maintain -
06-Jan-23 AA- A1+ Stable Maintain -
07-Jan-22 AA- A1+ Stable Maintain -
01-Feb-21 AA- A1+ Stable Maintain -
About the Entity

Foundation Power was established in 2005 under the Companies Ordinance 1984 as an independent power producer. The Company is operating a combined cycle power plant with a net initial capacity of 180MW. Foundation Power's plant commenced operations in May 2011. Foundation Power is wholly owned by Daharki Power Holdings Limited, which, in turn is a wholly owned subsidiary of Fauji Foundation. The Board constitutes of six members. All the representatives are from Fauji Foundation and provides adequate guidance to the company. Maj Gen Amjad Ahmed Butt, HI(M) (Retd), is the Managing Director of Foundation Power. He is assisted by a team of qualified professionals having requisite experience.

Rating Rationale

The ratings take comfort from strong business profile of Foundation Power Company Daharki Limited (Foundation Power or the Company) emanating from the demand risk coverage under Power Purchase Agreement and the Company's association with Fauji Foundation (FF). Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. The Company has transitioned from outsourced O&M to self O&M and with experience technical/operational team, envisages to maintain the higher performance standards as demonstrated in the past. Fuel of the plant is 'low BTU' gas, which is supplied by an associate –Mari Petroleum Company Limited (40% owned by Fauji Foundation). Supplier being a sister concern reduces fuel supply risk. Working Capital Management risk is substantially mitigated through aligning payments to fuel supplier with energy billing related receipts. As of FY24, the Company has no borrowings apart from the loan from Fauji Foundation which is classified under equity. Rating reflects the low financial risk of the Company as all the project related long term loan has been repaid. The plants operational statistics including availability and efficiency were remains satisfactory throughout the period.

Key Rating Drivers

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 is ably supported by sponsor who remains committed towards commercial obligations. Furthermore, recent developments in Pakistan's power sector indicate that the Government of Pakistan (GoP) has entered into negotiations with Independent Power Producers (IPPs) to explore potential adjustments in contractual arrangements. The modalities and outcome of these negotiations are yet to be seen, and any changes in the current regulatory structure may impact the ratings, going forward.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Foundation Power Company Daharki Limited

rating analysis

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Profile
Plant

Foundation Power Company Daharki Limited ("Foundation Power" or "the Company"), a public limited company, is operating a combined cycle power plant on a build-own-operate (BOO) basis with a net initial capacity of 180MW (7.8MW auxiliary consumption). The plant is situated in Daharki, District Ghotki, Sindh, and it achieved its Commercial Operations Date (COD) in May 2011.

Tariff

Foundation Power's key source of earnings is the generation tariff from the power purchaser, CPPAG. The reference generation tariff comprises a capacity charge component and an energy charge component. Foundation Power’s levelized tariff is US¢ 6.55/kWh.

Return on Project

The dollar IRR of Foundation Power, as agreed with NEPRA is 15%.

Ownership
Ownership Structure

Foundation Power is wholly owned by Daharki Power Holdings Limited (DPHL), a company registered in the British Virgin Islands. Fauji Foundation Pakistan owns 100% of DPHL, establishing it as the ultimate parent entity of Foundation Power.

Stability

The Company's ownership structure has historically been stable, with no anticipated changes, reflecting the sponsors' commitment to maintaining their stake. The Fauji Foundation's involvement further ensures consistent ownership and long-term support for the Company.

Business Acumen

The sponsor, Fauji Foundation Group, stands as one of Pakistan's largest and most diversified business conglomerates. Its extensive portfolio spans energy generation, fertilizer production, cement manufacturing, and the chemicals sector. Additionally, the group is actively involved in financial services, healthcare, education, and infrastructure development. This diversification highlights the group’s strategic vision and its significant role in driving Pakistan's economic growth. With a proven track record of successfully executing projects from concept to full operation, the group’s expertise reinforces its strength and reliability as a sponsor.

Financial Strength

The Fauji Foundation Group is recognized for its strong financial stability and resilience, enabling it to provide reliable support to its subsidiaries, including Foundation Power, whenever required. This financial strength ensures operational continuity, reinforces stakeholder confidence, and underscores the group’s commitment to sustaining long-term success.

Governance
Board Structure

The Board of Directors (BoD) of the Company constitutes six members. All the representatives are from Fauji Foundation. They provide valuable guidance and oversight to ensure the effective direction and management of the Company.

Members’ Profile

Lt. Gen. Anwar Ali Hyder, HI(M), (Retd), serves as the Chairman of the Board of Directors. He is the CEO of Fauji Foundation and Chairman of several companies within the Fauji Foundation Group. The other board members are experienced professionals with a long-standing association with the company.

Board Effectiveness

The experience of BoD will help guide the management in developing effective operational and financial policies. The BoD has formulated Audit, Tech and HR Committee to ensure smooth and effective monitoring of operations. Participation of all BoD during board meetings remained satisfactory.

Financial Transparency

BDO Ebrahim & Co. Chartered Accountants has been engaged as Foundation Power’s external auditors for FY24. The auditors expressed an unqualified opinion on financial statements of the Company for the year ended June 30, 2024.

Management
Organizational Structure

Foundation Power has a lean management structure, mainly comprising finance, administration and technical staff. The management control of the Company vests with Daharki Power Holdings Limited (DPHL), which, in turn, is owned by Fauji Foundation.

Management Team

Maj Gen Amjad Ahmed Butt, HI(M) (Retd) is the Managing Director and CEO of the Company. He had a distinguished career in the Pakistan Army. The rest of the management team is experienced and is capable of handling the affairs of the Company.

Effectiveness

The management of Foundation Power is engaged in Finance as well as Operational activities. The Company has transitioned from outsourced O&M to self O&M and with experienced technical/operational team, envisages to maintain the higher performance standards as demonstrated in the past.

Control Environment

The Company maintains an adequate MIS which helps the management track all operations effectively.

Operational Risk
Power Purchase Agreement

Foundation Power’s primary source of earnings is the revenue generated from the sale of electricity to the power purchaser, CPPA-G. The Company is entitled to receive capacity payments if it meets the benchmark availability and is ready to provide electricity, even if no purchase order is placed by the power purchaser. The agreement term is 25 years, starting from the Commercial Operations Date (COD) in May 2011. However, in recent developments in Pakistan's power sector indicate that the Government of Pakistan (GoP) entered negotiations with Independent Power Producers (IPPs), including the Company, to explore potential adjustments in contractual arrangements. The modalities and outcomes of these negotiations are yet to be determined. If executed, the PPA and other agreements may need to be revised, potentially resulting in a demand-based revenue stream.

Operation and Maintenance

Foundation Power had initially negotiated an O&M contract with KEPCO for a period of 18 years, signed in 2008. However, now the Company has transitioned to self O&M. During, FY24, the plant actual availability stood at 94% (benchmark: 88%) with an efficiency factor of 48.8% (benchmark: 48.8%).

Resource Risk

Foundation Power has entered into a Gas Supply Agreement (GSA) with Mari Petroleum for the supply of 65 MMCFD of Low BTU Gas to the plant. The contract, aligned with the PPA, is for a period of 25 years to ensure a continuous gas supply. The construction and commissioning of the gas pipeline were completed in February 2009.

Insurance Cover

Foundation Power has sufficient insurance coverage for property damage and business interruption.

Performance Risk
Industry Dynamics

FY-2024, Pakistan's power generation declined by 1.9%, totaling 127,160 GWh. This marks the second consecutive year of reduced output, driven by elevated electricity costs, rising inflation, and lower economic activity. The Country's power generation remains heavily reliant on thermal and hydel sources, contributing approx. 45% and 31%, respectively, in FY24. The share of nuclear energy has notably increased to approx.19% in FY24, while renewable energy sources continue to constitute a modest 5% of the total generation. Recently, the Government of Pakistan (GoP) resumed negotiations with Independent Power Producers (IPPs) and established a special task force to implement structural reforms in the power sector. The ongoing process aims to lower generation costs and make electricity more affordable, although the outcomes of these negotiations are yet to be seen.

Generation

During FY24, Foundation Power generated 1,076 GWh of electricity, compared to 1,184 GWh in FY23. The reduction in output was primarily due to a decrease in overall economic activity. Additionally, the power purchaser shifted demand toward more cost-effective sources of electricity generation in order to maintain an optimal energy mix.

Performance Benchmark

Under the PPA, Foundation Power is required to maintain an availability of 88%, while the actual availability during FY24 was 94%. Additionally, the plant’s efficiency remained same to 48.8%, as the agreed benchmark of 48.8%. The impact of these declines in availability and efficiency was adjusted in capacity payments invoices.

Financial Risk
Financing Structure Analysis

Foundation Power’s project cost (75%) was financed through a syndicated term finance loan. The loan size, PKR 11,565mln, was priced at 6-month KIBOR + 2.93% p.a. which was fully paid in Mar 2020.

Liquidity Profile

As of June 2024, the Company’s trade receivables stood at PKR 14,751mln (FY23: PKR 13,870mln, FY22: PKR 10,595mln). The increase in trade receivable days was primarily due to delayed payments from the power purchaser. In line with this, net working capital days also rose to 139 days as of FY24 (FY23: 54 days, FY22: 73 days), reflecting the higher outstanding receivables. To support its liquidity, the Company holds a liquid investment of approximately PKR 2,114mln, strengthening its financial position.

Working Capital Financing

The Company is managing its working capital through internal cash generation and by extending payment terms with its gas supplier, Mari, a related company. Additionally, the Company has secured short-term credit lines amounting to PKR 476 million, which remain unutilized as of June 2024.

Cash Flow Analysis

FPCDL's improved profits in FY24 attributed to higher electricity tariffs, which have led to enhanced free cash flows from operations (FCFO) of PKR 5,815mln (FY23: PKR 4,372mln, FY22: PKR 3,632mln). The Company's Interest Coverage Ratio (EBITDA/Finance Cost) has increased to 18.9x in FY24, compared to 11.5x in FY23.

Capitalization

Foundation Power has a strong capital structure with no commercial borrowings as of June 2024. The Company only have outstanding debt from its parent, Fauji Foundation Pakistan, which has been classified as subordinated equity, as it was used to finance initial cost overruns.

 
 

Jan-25

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Foundation Power Company Daharki Limited

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 9,169 9,488 9,982
2. Investments 0 0 0
3. Related Party Exposure 204 128 0
4. Current Assets 21,509 18,328 17,795
a. Inventories 361 212 72
b. Trade Receivables 14,751 13,870 10,595
5. Total Assets 30,882 27,944 27,778
6. Current Liabilities 7,885 10,255 10,590
a. Trade Payables 6,403 9,544 10,365
7. Borrowings 0 15 12
8. Related Party Exposure 0 0 0
9. Non-Current Liabilities 51 78 57
10. Net Assets 22,946 17,595 17,118
11. Shareholders' Equity 22,946 17,595 17,118
B. INCOME STATEMENT
1. Sales 17,382 16,043 13,958
a. Cost of Good Sold (11,737) (12,005) (10,759)
2. Gross Profit 5,645 4,038 3,198
a. Operating Expenses (567) (357) (261)
3. Operating Profit 5,078 3,681 2,937
a. Non Operating Income or (Expense) 934 353 (109)
4. Profit or (Loss) before Interest and Tax 6,012 4,035 2,828
a. Total Finance Cost (315) (387) (237)
b. Taxation (345) (73) (19)
6. Net Income Or (Loss) 5,352 3,574 2,572
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 5,815 4,372 3,632
b. Net Cash from Operating Activities before Working Capital Changes 5,503 3,274 3,332
c. Changes in Working Capital (6,804) (3,666) 4,983
1. Net Cash provided by Operating Activities (1,301) (392) 8,315
2. Net Cash (Used in) or Available From Investing Activities 344 4,214 (4,343)
3. Net Cash (Used in) or Available From Financing Activities (23) (2,397) (1,776)
4. Net Cash generated or (Used) during the period (981) 1,426 2,196
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 8.3% 14.9% 0.7%
b. Gross Profit Margin 32.5% 25.2% 22.9%
c. Net Profit Margin 30.8% 22.3% 18.4%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) -5.7% 4.4% 61.7%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 24.5% 20.4% 14.8%
2. Working Capital Management
a. Gross Working Capital (Average Days) 307 282 363
b. Net Working Capital (Average Days) 139 55 73
c. Current Ratio (Current Assets / Current Liabilities) 2.7 1.8 1.7
3. Coverages
a. EBITDA / Finance Cost 18.9 11.5 15.6
b. FCFO / Finance Cost+CMLTB+Excess STB 18.5 10.9 15.0
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.0 0.0 0.0
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 0.0% 0.1% 0.1%
b. Interest or Markup Payable (Days) 0.0 0.0 0.0

Jan-25

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Foundation Power Company Daharki Limited

rating scale

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Jan-25

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Foundation Power Company Daharki Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
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