اﻟﺘﻘـﺮﻳـﺮ اﻟﺴﻨﻮي ٢٠١٦ اﻟﺸﺮﻛﺔ اﻟﻤﺘﺤﺪة ﻟﻠﻄﺎﻗﺔ ش م ع ع اﻟﺸﺮﻛﺔ اﻟﻤﺘﺤﺪة ﻟﻠﻄﺎﻗﺔ ش م ع ع UNITED POWER COMPANY (SAOG) UNITED POWER COMPANY (SAOG) اﻟﺸﺮﻛﺔ اﻟﻤﺘﺤﺪة ﻟﻠﻄﺎﻗﺔ ô``jô``≤`àdG ش م ع ƒ``æ`°ùdG…
2016 (SAOG) ANNUAL REPORT 2016 UNITED POWER COMPANY
THE POWER TO MAKE YOUR FUTURE BETTER ﻧـﻌـــــــــــﺰز ﻣـﺴـﺘــﻘـــﺒـــــﻞ ُﻋــﻤــــــــــﺎن ANNUAL REPORT 2016 REPORT ANNUAL
HIS MAJESTY SULTAN QABOOS BIN SAID 2 ANNUAL REPORT 2016
CONTENTS
Board of Directors and Management...... 5
Board of Directors’ Report...... 6
Operational Highlights...... 8
Health & Safety and Environment...... 14
Corporate Social Responsibility...... 18
Description of the Mannah Power Plant...... 20
Profile of the Current Preference Shareholders...... 24
Management Discussion and Analysis Report...... 26
Report of the Auditors on Corporate Governance...... 33
Corporate Governance Report...... 34
Report of the Auditors on Financial Statements...... 48
Financial Statements...... 52
3
ANNUAL REPORT 2016 Board of Directors and Management
TITLE NAME REPRESENTING
Chairman Mr. Murtadha Ahmed Sultan MGEC (Oman) Holdings Limited
Vice Chairman Mr. Bander Allaf* Mannah Powerco Limited
Director Mr. Abdullah Mohammed Ministry of Defence Pension Fund (MODPF) Al-Maamari
Director Mr. Grahame Farquhar* -
Director Mr. Yaseen Abdullatif -
Director Mr. Hamad Lal Baksh Al Balushi -
Director Mr. Sami Yahya Al Dugaishi Civil Service Employees’ Pension Fund
Director Mr. Ryan Armand Zanin* -
Director Mr. Fabrizio Bocciardi* -
Director & CEO Mr. Zoher Karachiwala -
Director Mr. Steve Ruth ** -
Director Mr. Shehzaad Sacranie** -
Director Mr. Mark Lemmon*** -
Director Ms. Isabelle Gunay Demir*** -
Director Mr. Guillaume Bremond*** -
Management
Chief Executive Officer Mr. Zoher Karachiwala
Company Secretary Mr. Guillaume Baudet
Chief Technical Officer Mr. Sreenath Hebbar
Chief Financial Officer Mr. Mirdas Al Rawahi
Administration Manager Mr. Jamal Al Bloushi
* Appointed during the year.
** Appointed and also resigned during the year.
*** Resigned during the year.
5 Board of Directors’ REPORT
Dear Shareholders,
On behalf of the Board of Directors of United Power Company SAOG (“UPC” or the “Company”), I am glad to present you with the Twenty Second Annual Report of the Company for the year ended 31 December 2016.
The Company owns the Power Generating Station of Manah under a BOOT (build, own, operate and transfer) scheme. While the Power Generating Plant will be transferred to the Government in 2020, The Interconnection and Transmission Facilities were transferred on 1 December 2016. All power produced is sold to Oman Power and Water Procurement Company SAOC under long term Power Purchase Agreements, with guaranteed off- take. As such, the Company is not subject to market competition or fluctuation.
The Manah Power Plant has been running smoothly and efficiently. The 5 generator sets of the project showed an exceptional reliability, and the performances expected for such high-technology machines.
Safety in all aspects of operation is the top priority of the Company. The Company is actively involved in the safety activities of its Operator and participates regularly in their safety walks and safety committee meetings. It gives me a great pleasure to announce that the Manah Power Plant achieved 7,520 LTI free days, which translates to 20 years since starting of commercial operations of the plant in 1996. Not only is this a unique achievement in the energy sector in Oman, but this record stands out among few companies in the world. The Plant was also awarded the ROSPA Gold Award in recognition of its excellent safety standards.
Our current statutory auditors, BDO have qualified their audit opinion for non- compliance of IFRIC 12. As explained fully in the MD&A Report, the Company believes that our revenue recognition (policy) since inception is in compliance to the project agreements finalized in 1994 with Ministry of Electricity and water (now novated to OPWP). The revenue billed each year has been fully received and it captures the real economic realities that were negotiated and agreed at the commencement of the project. We have consistently followed the policy which has resulted in return in line with the commitment made to the shareholders in prospectus /rights issue. Any change in our policy would have led to not honoring our commitments to our shareholders who have always reposed their trust in our Company.
It is also worth pointing out in this context that the matters raised in IFRIC 12 were not new and the said IFRIC was issued in order to bring clarity to discussions relating to mis-matching of costs/ revenue that had taken place since inception. From the very start of the concession, the past three statutory auditors had highlighted this in the “emphasis of matter” paragraph in their audit reports. The entire matter was consistently and fully disclosed in our financial statements since inception.
6 ANNUAL REPORT 2016
The current auditors have taken a view that the audit report will have a “qualification” as opposed to “emphasis of matter”.
We will continue to report our results in accordance with disclosed accounting policies adopted since the formation of the Company, as this policy correctly reflects the substance of our business.
The Company recorded in 2016, a net profit of OMR 0.942 million. The underlying revenues and costs are in line with the plan and the variations in revenue reflect the agreed tariff structure in PPA of generation and transmission facilities (till the transfer during the year) for Phase 1. The detailed explanations of the variations are contained in the section “Management Discussion and Analysis Report” of the Annual Report. The Directors of the Company have recommended a final ordinary dividend of OMR 1.0 million, which represents 50% of the current share capital of the Company (500 Baiza per share).
The current capital is OMR 2,000,000 (OMR Two Million). This will be distributed to the shareholders, based on the nominal value of the share OMR 1 (OMR One) as and when the Company is liquidated as a consequence of handing over the Plant to the Government in the year 2020. Further, the Company is expected to continue distributing dividends from the audited retained earnings till the time the Plant is handed over to the Government.
Due to the definitive life of the project and its purpose, it is the policy of the Company to maximize distributing its available profits to the shareholders. Past five years’ distribution to shareholders, are disclosed separately under ‘Management Discussion and Analysis Report’.
UPC complies and maintains high standards to the Code of Corporate Governance implemented by the Capital Market Authority as described in the related attached section of this report. In this respect, the Company complies with the guidelines on dividend policy and we are committed to the objectives underlying such guidelines.
There has been no change in the personnel of the Company during the year.
The Company is a responsible corporate citizen and supports wide range of Manah community matters with greater emphasis on education and health issues of school going children.
I would like to thank all the personnel associated with the operation of our Manah Power Plant and staff of the Company for their dedication and hard work.
On behalf of the Board of Directors, I would also like to take this opportunity to extend our gratitude to His Majesty Sultan Qaboos Bin Said and His Government for their continued support and encouragement to the private sector. May Allah protect them for all of us.
Murtadha Ahmed Sultan Chairman of the Board
7 operationAL highlights ANNUAL REPORT 2016 operationAL highlights
Power Generation
The total power exported by the plant in 2016 (Phases I and II) amounts to 1,142.0 GWh. The cumulative energy exported by the plant from initial commissioning is 22,358 GWh.
The aggregate average plant guaranteed net output (PGNO) for the reporting period was 91.9 MW for Phase I, and 204.7 MW for Phase II at an average ambient temperature of 29.5°C. The use factor (No. of fired hours as a percentage of the hours that the units were made available) was 9.0% for Phase I and 83.4% for Phase II.
Manah recorded 96.9% Reliability for the total Plant (Phase I & Phase II units) with 1,136 hours of Forced Outages in 2016.
Evolution of these figures from Commercial Operation Date is as under:
Available Availability Energy Use Reliability Year energy factor Exported factor factor (GWh) ( % ) (GWh) ( % ) ( % ) 1996(*) 209.5 93.3 105.5 50.2 99.9 1997 811.2 94.8 675.0 83.7 99.8 1998 800.2 96.5 661.1 83.0 99.9 1999 760.3 92.3 611.1 81.1 99.9 2000(**) 1,783.5 81.9 1,047.8 62.3 92.4 2001 2,541.6 94.2 1,269.3 49.8 99.7 2002 2,525.5 95.4 1,436.1 57.0 99.5 2003 2,502.0 94.9 1,219.1 48.8 99.9 2004 2,469.2 93.9 1,125.5 45.5 99.9 2005 2,502.4 95.3 1,046.0 41.9 99.9 2006 2,536.1 96.6 1,187.9 47.0 99.9 2007 2,476.1 94.8 981.8 40.0 100.0 2008 2,557.9 97.4 1,012.8 40.4 99.9 2009 2,371.6 90.9 1,045.1 44.0 98.2 2010 2,335.1 89.7 1,320.8 54.9 99.9 2011 2,259.1 86.6 1,407.6 60.1 96.6 2012 2,493.0 95.3 1,473.5 59.1 99.9 2013 2,404.4 91.9 1,194.1 49.2 99.5 2014 2,160.0 82.6 1,102.0 50.0 90.0 2015 2,429.7 93.5 1,293.9 53.2 98.8 2016 2,274.7 87.2 1,142.0 48.8 96.9 (*) COD Phase I: 15th October 1996 (**) COD Phase II: 19th May 2000
9 Maintenance and Operation methodology The PPA and its additional agreements lay down norms for operation and maintenance of the station and expect certain minimum levels of performance. However, in formulating the strategy for operation and maintenance, UPC strives to meet the highest industry standards.
Gas turbines are highly reliable power generating machines, provided they are operated and maintained under certain norms. Efforts have been constantly put in to further improve reliability.
During the initial years of service of the gas turbines in Manah, valuable experience has been gained and used to establish unique signature for each machine. This experience is used in evolving better operations and maintenance methodologies.
For Phase I, UPC entered in November 1997 into a Spare Parts Supply & Repair Contract with EGT (now GE), the term of this contract ended on 31st December 2005. Following a competitive bidding process, UPC entered in September 2005 into a Long Term Parts and Repair Agreement (LTPRA) with GE, the term of this new contract is 15 years.
For Phase II, UPC entered in December 2000 into a Long Term Service Agreement (LTSA) with GE. This agreement secures the procurement of the spares needed for the whole commercial life of the 2 new Frame 9 units (20 years).
In 2009, UPC changed the structure of its O&M Contracts and entered into an agreement with Suez-Tractebel Operation & Maintenance Oman (STOMO). With this agreement in place, UPC has a single point of contact for O&M services as opposed to multiple contractors in the earlier structure. STOMO now co-ordinates all the O&M activities including the LTSA with GE and procurement of parts through the LTPRA Contract. Energy in GWh
According to the terms of these contracts, a suitable and sufficient stock of spares is maintained in order to avoid unplanned outage of the gas turbines.
The combined efforts of UPC and its contractors – GE and STOMO – have produced best results in terms of reliability, efficiency and best value for resources used.
10 ANNUAL REPORT 2016
Maintenance Activities Phase I Scheduled maintenance:
The total maintenance time consumed for the year was 968 hours, i.e. 3.7% of total calendar hours .
Annual maintenance was carried out on all GTs.
Phase II Scheduled maintenance:
The total time consumed for maintenance was 1,853 hours in the reporting period, i.e. 10.5% of total calendar hours during reporting period.
Major Inspection was undertaken on GT2A.
Performance Tests
Performance tests were conducted during December 2016 for Phase I and II in the presence of OPWP. The test results were satisfactory, all machines have higher electrical output capacity and lower heat rate values (gas consumption) when compared to the guaranteed values as per contract.
Phase 1 Heat Rate (KJ/KWH)
Guaranteed output in kW GT 1A (measured) GT 1B (measured) GT 1C (measured)
13000
12800
12600
12400
12200
12000
11800
11600 2011 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016
11 Phase 1 Power Output (KW)
Guaranteed output in kW GT 1A (measured) GT 1B (measured) GT 1C (measured) 29500
29000
28500
28000
27500
27000
26500
26000
25500
25000
24500 2011 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016
Ph 2 Heat Rate (KJ/KWH)
Guaranteed output in kW GT 2A (measured) GT 2B (measured) 12,000
11,800
11,600
11,400
11,200
11,000
10,800
10,600
10,400 2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016
12 ANNUAL REPORT 2016
Ph 2 Power Output (KW)
Guaranteed output in kW GT 2A (measured) GT 2B (measured)
96,000
94,000
92,000
90,000
88,000
86,000
84,000 2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016
Omanization
UPC and its O&M contractor STOMO pay the greatest attention to respect the requirements of the Power Purchase Agreement in matters of Omanization: at the end of the year 2016, Omani employees comprised 80.85% of the plant staff of STOMO.
In order to address the Omanization issue, our operator, STOMO, had put in place in 2009, training programs for young graduates from Oman Universities. This effort is paying dividends with a number of these trainees being inducted into the operation & maintenance personnel of the Plant after undergoing training.
13 HEALTH & SAFETY AND ENVIRONMENT ANNUAL REPORT 2016 HEALTH & SAFETY AND ENVIRONMENT
Health & Safety
Health and Safety is accorded the highest priority by the Company. While the statistics show a consistent record of excellence, the Company is mindful of complacency that can set in with these results. As a consequence, steps have been taken that shall ensure a more proactive approach towards the issue of Health & Safety.
Loss Time Incident (LTI) of Manah Power Plant remains ZERO during the O&M regime following COD of both phases. As of December 2016, the Plant has clocked 7,520 LTI free days since the commencement of operations. Manah Plant was awarded the ROSPA Gold
Award in recognition of its stellar performance on Health & Safety.
The Company Management regularly takes part in safety walks with its Operator and attends their Safety Committee Meetings. Our Customer, OPWP, as part of their commitment to
HSE also conducted an audit during the year.
The Plant Operator (STOMO) is certified for OHSAS 18001 for Health & Safety Management.
STOMO is also been certified for ISO 14001 Environmental Management. In order to further the culture of safety through all levels, STOMO is encouraging its key personnel to qualify for NEBOSH.
The on-line safety management system “Intelex” – a dynamic system that enables reporting of incidents, assigns actions to concerned persons, monitors close follow-up of actions being taken and ensures that adequate closure is achieved – is in place and is actively used by all employees.
During 2016, we had three incidents : One near miss, one minor fire incident and one medical treatment case. All incidents are logged onto the system and appropriate tool box talks and training provided to staff and contractors.
15 The Health & Safety statistics for the year is represented graphically by the Safety Triangle below:
Other Proactive Indicators for Safety Monitoring:
(Use scale on left hand for bar graphs)
16 ANNUAL REPORT 2016
Environment Monitoring
Since 2013, UPC has a permanent station for monitoring of ambient air quality within its plant premises.
The equipment continuously monitors the ambient air for gaseous effluents such as carbon monoxide, non-methane hydro-carbons, oxides of nitrogen (NO, NO2, NOx) and sulphur dioxide.
Reports from this station are submitted to MECA on a quarterly basis.
We believe this also helps MECA in establishing base line ground level concentrations for gaseous effluents by feeding into the larger environment data being monitored by MECA. In this way, it can be considered that the Company is one of the contributors to the mapping of Oman’s environment.
17 CORPORATE SOCIAL RESPONSIBILITY ANNUAL REPORT 2016 CORPORATE SOCIAL RESPONSIBILITY In line with the directives by His Majesty Sultan Qaboos bin Said on the responsibilities of the private sector in respect of their contribution to the social development of communities; United Power Company takes its role as a responsible corporate citizen seriously. Over the years, the Company has actively supported local community bodies, schools and charity organizations. Valuing the importance of the youth of Oman in future progress of the country, the Company considers education as a cornerstone and accordingly takes special interests in the sponsorship and support of education and sports; two foundations for the all-round development of a young mind.
In 2016, the Company focused its efforts on education projects, youth & sports activities, society support and municipal activities. The Company carried out the following projects during the year:
• Distribution of stationery items to all students of low income families: The supervision of this activity was managed by Manah Charity Team who keeps updated registers of all the needy students in all schools located in Manah. The financial support was used to purchase stationery items (writing books, pens, pencils, color pencils, drawing books, etc.) to a total 428 needy students.
• Sponsorship of Oman Dental Students’ Symposium: The event was spread over two days that included lectures and workshops covering different specialties. Few doctors from the GCCC also participated in the symposium. Main participants were dental students and fresh graduates.
• Support to Omani Women Association Manah: The financial support was utilized to equip the Children Corner at the Association premises and to assist purchasing of essential furniture and office stationery and to cover some of its activities.
• Sponsoring Open Day for Al Arabi Team in Manah: The club is under the umbrella of Al Bashaier Club of Manah. Participants, totaling 450 persons from different ages, were divided into four groups to carry out, among other activities: cleaning of falajes, cemetery, pathways, mosques, neighborhoods, trees trimming and general cleaning activities in Manah. It was a full day event which concluded with sports activities and cultural competitions.
• UPC also provided financial aid to Al Arabi Team for building concrete stands to hold the flashlights of the Team’s playfield.
• The Company also renewed its membership with Environment Society Oman (ESO) and participated in Earth Hour event as the Bronze Sponsor. The event was organized by ESO: Every year ESO asks companies, individuals, the government sector and schools to commit to turning off all non-essential lighting during Earth Hour on March 19th between 8:30 and 9:30 pm. Earth Hour event started 8 years ago is meant to do more than lights being turned off, but raise awareness of climate change and to unite people and show our desire to protect the planet and encourage and empower people to take action beyond the hour itself.
• Financial contribution towards sponsoring Manah National Pharmacy Conference: The Conference aimed to encourage pharmacist to be updated with latest pharmaceutical skills and knowledge, strengthen community education and to concentrate more on preventive measures, improve the quality of pharmaceutical service, update pharmaceutical service knowledge and skills for doctors and staff nurse and to orient pharmaceutical students about pharmaceutical service.
• Traffic Safety Campaign: The campaign was organized by Royal Oman Police for one week in the month of March 2016. It aimed to limit traffic accidents and related losses in lives & assets and address the matter as a development hindrance issue. The campaign included an exhibition where safety gears and traffic safety guidelines were displayed, plays on traffic; a mini traffic village was setup for students. The program also included visits by students to hospitals for the injured in traffic accidents. The function was part of GCCC Traffic Week.
• The Company also sponsored a fund raising event and provided some financial contribution to a graduation ceremony.
19 DESCRIPTION OF THE PROJECT ANNUAL REPORT 2016 DESCRIPTION OF THE PROJECT
History of the Project United Power Company (SAOG) (the “Company”) was formed and registered as a joint stock Company on January 9th, 1995.
The original duration of the Company was for a period of twenty-five years commencing from 9 January 1995 being the date of its registration in the Commercial Register of the Ministry of Commerce and Industry (‘MOCI’). At an Extra-ordinary General Meeting held on 17 January 2000, the duration of the Company was increased by five years thereby revising the duration of the Company to thirty years commencing from 9 January 1995. The MOCI approved the extension to the Company’s life on 11 October 2000.
The founder shareholders were Tractebel S.A., International Finance Corporation (part of the World Bank Group), National Trading Company LLC, W.J. Towell & Co. LLC, The Zubair Corporation LLC, and Tawoos LLC.
Shares of Tawoos LLC were transferred to the Ministry of Defence Pension Fund of Oman in 2003. Tractebel SA (now ENGIE), transferred its shares to MENA Infrastructure Investment Limited in 2009. National Trading Company LLC. W.J. Towell & Co. LLC and The Zubair Corporation LLC transferred their shares to MGEC (Oman) Holdings Limited in December 2010.
During the year, MENA Infrastructure Investment Limited transferred their entire share holdings to Mannah Power Co. Limited, a group company of Khalid Juffali Holding Company.
Prior to formation of the Company and following a competitive bidding process, the founder shareholders were awarded, the concession for a project consisting of a 90 MW gas-fired power station comprising 3 open cycle gas turbines (the “Units”) near Manah, to be developed on a Build, Own, Operate and Transfer (“BOOT”) basis, and a related network of Interconnection and Transmission Facilities (the “ITF”), on Build, Own, Transfer (“BOT”) basis on land leased by the Government.
Construction of the Manah Power Station began in March 1995 and the Company began delivering electricity on May 31, 1996 upon completion of two Units and approximately 58 kilometers of overhead transmission lines to Nizwa and Bahla replacing the supply by the obsolete local diesel engine power plants.
Full supply to Dakhliya region from Manah (3rd Unit and Izki line) was achieved in early August 1996 and project completion occurred in October 1996 with the interconnection of network fed by the Manah Power Station to Muscat network at Al Rusayl. The lines owned by UPC have a total of about 170 kilometers in 132KV. Responsibility for the operation and maintenance of the ITF was transferred in stages to the Government during construction, with the final transfer occurring on October 15, 1996.
The Project constitutes the first privately developed and owned power plant in Sultanate of Oman and the first interconnection of privately constructed transmission facilities with the country’s national grid.
During 1999, the Company was awarded a contract for an extension of its generation facilities consisting of two 90 MW open cycle gas turbines and the necessary auxiliary facilities (GIS, firefighting system, liquid fuel storage, etc.).
The construction and installation of the turbines were completed in May 2000, and thereafter the electricity was delivered to the grid. The official commercial operation was notified as 19 May 2000. Thetotal installed capacity of the plant, therefore, reached 270 MW. Consequent to the extension of the facilities, the life of the project has been extended to 30 April 2020.
The Manah Power Station operates on Dispatch Orders from the Load Dispatch Centre of the Oman Electricity Transmission Company. All of the net energy dispatched from the Manah Power Station is sold to Oman Power and Water Procurement Company (“OPWP”), which is responsible for all power purchase in Oman.
UPC maintains an administrative office in Muscat.
21 Brief Technical Description of the Project
Manah Power Station
The Mannah Power Station is located on 200 acres of land, approximately 180 kilometers South- West of Muscat, and 20 kilometers south of Nizwa at an elevation of 378 meters above sea level.
Phase I – Power generation facilities
Originally, the Manah Power Station consisted of three open cycle dual fuel Gas Turbine Units, each having a capacity of approximately 28,076 kW at 50º C, completed with 11/132 kV step- up generator transformers, a GIS sub-station interconnecting the Manah Power Station with the two 132 kV overhead line feeders to the Nizwa substation, natural gas pipeline facilities, back- up diesel oil facilities, water storage tanks, a control and administration building, a work shop and storage facilities for spare parts, staff housing and access roads.
Phase II – Power generation facilities
The Manah Power Station Phase II consists of two GE Frame 9E dual fuel Gas Turbines, with 15/132 kV step-up transformers, two GIS identical to the existing ones. These cells are connected with the two existing 132 kV circuits, each of them being originally sized to carry the whole expanded capacity of the Manah Power Station. The Phase II includes extension of auxiliary facilities: firefighting system, lightning protection system and additional 4000 m3 back-up diesel oil storage. The nominal capacity of each gas turbine is 92,160 kW (at 50º C) with a guaranteed heat rate of 11,555 kJ/kWh (at 50ºC).
Interconnection and Transmission Facilities
The ITF includes the following substations: a 132 kV GIS substation at Manah; a 132 kV outdoor substation at Nizwa; a 132 kV outdoor substation at Izki; a 132/33 kV substation at Bahla; a 33/11 kV substation at Nizwa town; and a 132 kV GIS substation extension at the Al-Rusayl Power Station.
In addition, the ITF includes approximately 168.7 kilometers of 132 kV double circuit (i.e. two circuits on one tower) overhead transmission lines, constructed with steel lattice towers running between the Manah and Nizwa substations (18.8 km; 63 towers), between the Nizwa and Bahla sub stations (32.2 km; 92 towers), between the Nizwa and Izki substations (30.7 km; 94 towers) and over very mountainous terrain, between the Izki and Al-Rusayl substations (87 km; 287 towers).
The ITF includes one 33 kV double circuit overhead transmission line comprised of two single circuits (i.e. two parallel single lines on wooden poles) between Nizwa and Nizwa Town substations (7.25 km, 140 wood poles) and one 11 kV overhead distribution network comprising three single circuit 11 kV wood pole lines between the Izki substation and the Izki power station (2 km).
22 ANNUAL REPORT 2016
These lines and the related switching facilities of the ITF enable the power generated at the Manah Power Station to supply the local electricity demands in the town of Manah, Nizwa, Bahla and Izki.
Excess electrical power can also be transmitted to the Muscat grid to help support the demand in the coastal region of Oman through an interconnection at the Al-Rusayl power station.
Effective 1st December 2016, the Interconnection and Transmission Facilities were handed over to government as fully explained in Management Discussion and Analysis report section.
Fuel Supply
The Manah Power Station has been designed to use natural gas as its primary fuel with diesel oil as a back-up fuel. Natural gas is supplied to the power station from a 36-inch pipeline delivering gas at 70 Bar from the Yibal gas collecting station, which is located 198 kilometers from the Manah Power Station, to a pressure reducing station, including metering equipment, located outside the northeast corner of the Site. The pipeline is owned and controlled by PDO.
Environmental Aspect
The Manah Power Station represents an environmentally benign source of power for the local market and although the gas fired has small traces of sulphur, impact on air quality are monitored on a monthly basis by UPC using the Ambient Air Quality Monitoring System at the Plant.
23 PROFILE OF THE CURRENT PREFERENCE SHAREHOLDERS ANNUAL REPORT 2016 PROFILE OF THE CURRENT PREFERENCE SHAREHOLDERS
Mannah Powerco Limited
Mannah Powerco Ltd. is owned by Khaled Juffali Energy & Utilities Co, a subsidiary of Khaled Juffali Holding Company (‘Khaled Juffali Group’) established in Jeddah, Kingdom of Saudi Arabia. Khaled Juffali Group (‘KJC’) is having an underlying focus on the creation & incubation of growth business ventures. KJC is involved in various industries that include aviation, automotive, maritime, petrochemicals, banking, insurance, healthcare, venture capital funds, buyouts, distribution, information technology, education, philanthropic, real estate development, project management & consulting services, biotechnology, heavy cranes, auto/equipment leasing, telecommunication & energy.
KJC’s strength lies in its strategic mix of innovative projects that have a solid financial foundation coupled with an excellent network of multinational partnerships, know-how, & proven track record.
The legacy of KJC’s principal stems from a professional business heritage of one of Saudi Arabia’s premier entrepreneurs. This strong leadership has effectively developed ventures that became part and parcel of Saudi Arabia’s infrastructure and economic growth. Khaled Juffali’s ventures are global and KJC develops, spawns and consolidates these diversified investments.
Ministry of Defence Pension Fund (“MODPF”)
The Ministry of Defence Pension Fund is a public legal entity in the Sultanate of Oman duly organized under, and registered pursuant to, Sultani Decree 87/93 issued on 29th December 1993. The Ministry of Defence Pension Fund is one of the largest pension funds in Oman and is a major investor in the local capital markets, both in equities and bonds. It is also a major participant in project investments and Real Estate investments. The fund is represented on the boards of several prominent Corporate in Oman.
MGEC (Oman) Holdings Limited
MGEC (Oman) Holdings Limited is 100% owned by Mubadala GE Capital PJSC. Mubadala GE Capital PJSC is a joint venture between Mubadala Development Company PJSC (Mubadala) and General Electric Capital Corporation (GE) and is headquartered in Abu Dhabi. For further information about Mubadala GE Capital PJSC, please visit www.mubadala-ge.com
25 MANAGEMENT DISCUSSION AND ANALYSIS REPORT ANNUAL REPORT 2016 MANAGEMENT DISCUSSION AND ANALYSIS REPORT
A. Industry Structure and Development
The Company is the first privately owned power project in the country.
The Government regulates the development of this sector under a well-formulated program on long-term basis. The new sector law is in existence.
B. opportunities and Threats
The Company was formed specifically to build, own and operate and transfer the Plant located at Manah and build and own related distribution network of overhead transmission lines, and cannot undertake new ventures. Long term Power Purchase Agreements with Government protects the Company from market forces.
In terms of Energy delivered to the grid, the following trend has been observed:
As can be noted, there is a decreasing trend in the dispatch of Phase – I. This is expected to continue to be dispatched at low levels.
Phase – II shows a slight increasing trend in energy delivered, making up for the lost amounts in Phase – I. However, this may not continue after the commissioning of the new Power Plant being built at Ibri.
Since UPC’s revenues are mainly driven by Plant Availability, revenues from Energy delivered would not have a significant impact on profitability.
C. Qualification of audit opinion
1. Our current statutory auditors, BDO have qualified their audit opinion for non- compliance of IFRIC 12.
27 2. It is worth pointing o ut in this context that the matters raised in IFRIC 12 were not new and the said IFRIC was issued in order to bring clarity to discussions relating to mis- matching of costs/ revenue that had taken place since inception.Three statutory auditors had given “emphasis of matter” paragraphs in their reports relating to this issue, and the financial statements have fully disclosed this matter indetails, so that the user of the financial statements have complete information.
3. Some background to the matter follows:
4. IFRIC 12 was issued in November 2006 to be effective for financial statements commencing on or after 1 January 2008. The essential components of IFRIC 12 are that under a BOOT agreement:
(a) the property, plant, and equipment of a concessionaire should not be considered as an ‘own’ asset; and
(b) the concessionaire should recognize as a financial asset the value which it has gained by nature of the definite amounts receivable under the BOOT agreement or as an ‘intangible asset’ the value of amounts that are potentially receivable. On recognizing the asset at inception, an amount of deferred revenue would therefore be created.
5. Under IFRIC 12, the amount of revenue recognized each year would be a combination of:
(a) a release from the deferred income account in a manner consistent with services provided; and
(b) the unwinding of the receivable discounting
6. The release each year from the deferred income account would not be an equal amount each year over the period of the concession, but would mirror the services provided in that year. Under concession agreements generally, and specifically for UPC the services provided include:
− Construction of the plant − Operating costs − Arranging funding − Interest costs
7. Since the BOOT billing arrangement was structured by the parties to allow for dividends or capital reductions to be paid to the shareholders and repayments made to the banks in a contractually agreed manner, the application of IFRIC 12 would have defeated the intention contractually agreed between the different parties. It is highly unlikely that the then MEW and the Government (seeking at the time to attract foreign investment in the power sector) would have endorsed adopting new accounting rules that would have penalized the investors that they had committed to under arrangements that were structured on previously applicable accounting practice.
8. It was primarily for this reason that the management had considered it inappropriate to apply IFRIC 12. Since the terms of the concession agreement were based
28 ANNUAL REPORT 2016
on the ‘accounting rules’ that applied at the time of the agreement, it was not possible to re-negotiate terms with the investors and bankers, merely because accounting rules had changed.
9. In the view of the management, and as agreed to by most of three previous statutory auditors, application of the new accounting rules would have given rise to financial statements that unfairly represent the commercial reality at the time of establishment of the Company.
10. Moreover, up to the introduction of IFRIC 12, the revenue recognized by UPC had been in accordance with the rates agreed in the concession agreement. Those rates had been structured in such a way that the annual billings would cover both expenses that would be incurred or charged in the income statements and loan repayments to banks and dividends & capital reductions to investors.
11. Since all the above components of services were built into the billing rates, it follows that revenue under IFRIC 12 would to a large extent be consistent with the revenue based on the billing rates, although there would be a certain level of mis-matching, which had anyway been the case since the inception of the concession. Again it is necessary to understand that the annual release from deferred revenue would not be an equal amount such year, but would reflect the different components ofservices provided (in the same way that the annual billing mirrored the services provided).
12. Further if we look at 19 years of operations, the billings raised to our client have been fully realized and the net profit is more or less consistent. We have achieved the return profile to shareholders in line with the commitments made in the prospectus. Had the Company IFRIC 12, the return profile would be different and the Company may not have been able to honour its commitments.
13. The Company had entered into agreements with the shareholders and MEW (and others) that were based on the accounting rules and practices accepted at that time and it was those agreements that constituted the substance of the arrangements and wasformalized in the Power Purchase Agreement (PPA). The continuation of the Company is totally dependent to the adherence to the PPA. If we violate the PPA then we don’t have a company to operate. It continues to be the view of the management that the financial statements must reflect the true nature of the business of theCompany.
.D. Analysis of Results
The net profit for the year under review was lower by OMR129K as compared to previous year. This was mainly on account of a number of factors, explained in the following paragraphs.
29 Revenue R0’000
Power tariff reduction (415) [The power tariff has been structured in such a way that tariff rates are higher during the initial years as compared to later period of the project life]. Lower energy and indexation revenue, etc. (169) Lower ‘additional starts’ revenue (187) Deduction in Variable Capacity tariff re. ITF insurance (33) Variable Capacity tariff – Indexation (14) No other income in 2016 (117) Lower failure to start deductions 40 Net reduction of revenue (895)
Expenses Negative Variances Higher custom duty costs (84) Higher Legal fees (10) ITF Tower repair costs (107) Miscellaneous (6)
Positive Variances Lower insurance on account of ITF 45 Lower Directors’ remuneration (excess provision made in 2015) 51 Lower O&M fees on account of lower ‘additional starts’ 162 Decrease in O&M fees due to lower production 66 Lower Tax rate claim 10 Lower meeting and related expenses 13 Decrease in depreciation 580 Decrease in Finance costs 28 Taxation – due to lower profit 18 Net reduction in costs 766
E. Analysis of Balance Sheet
The significant variations in balance sheet section can be explained as follows R0’000 • Fixed assets: Mainly depreciation for the year (3,842) • Decrease in Trade Receivable due to lower revenue post phase 1 (375) • Decrease in other receivables due to insurance invoices received after the year end (140) • Decrease in Deferred tax liability – due to reversal effect (407) • Short term borrowing – Effective of cumulative repayment of facility (3,500)
30 ANNUAL REPORT 2016
F. Financial Highlights
2016 2015 2014 2013 2012 RO’000 RO’000 RO’000 RO’000 RO’000 Net Profit 942 1,071 1,020 762 584 Total Assets 5,723 9,988 15,892 18,514 23,912 Total Revenue 10,033 10,928 10,376 11,399 11,050 Total Shareholders’ Fund 3,718 3,831 8,344 10,759 13,572 Paid up Capital (Original) 34,869 34,869 34,869 34,869 34,869 Capital reduction-accumulated to date 32,869 32,869 29,869 27,895 26,152 Current Paid up Capital 2,000 2,000 5,000 6,974 8,717 Weighted average number of Shares 2,000 3,750 6,810 8,572 11,918
2016 2015 2014 2013 2012 Return on total assets 16.5% 10.7% 6.4% 4.1% 2.4% Return on Current paid up Capital 47.1% 53.5% 20.4% 10.9% 6.7% Long Term Debt: Capital ratio 0:100 0:100 0:100 0:100 0:100 Ordinary Dividend (Interim) * - 50% -- 10% Ordinary Dividend (Final) ** 50% 50% 30% 20% 20% Book value per share on weighted 1.86 1.02 1.23 1.26 1.14 average shares - OMR Reduction of original paid up capital - 8.6% 5.66% 5% 10% during the year
*Based on paid up capital at the time of distribution. ** Based on paid up capital at 31 December.
The above trend should also be seen in the light of the fact that the value of the Company’s shares shall become nil at the end of the project life.
G. outlook for 2017
Due to nature of its activities and the fixed contractual framework within which the Company operates we foresee no major change in the Company’s activities.
The year 2016 saw an end of 20 year term of Phase-I. As per the conditions of the Power Purchase Agreement, the fixed capacity fee for Phase I plant and fixed capacity fee for the transmission network ended on 14 September 2016. The Company will continue to run the Phase-1 units till 2020 at which time the plant assets including Phase- II will be handed over to the government. Transmission network were transferred on 1 December 2016, as explained in paragraph H below.
However, the Company is eagerly awaiting an outcome of the study undertaken by the regulatory authorities which among other things could determine the continuity of operations beyond the initial term stated in the Power Purchase Agreement. The Company is committed to explore all possibilities to enhance shareholders returns and will seek shareholders’ approval if and whenany such opportunities arise.
31 H. Transfer Of Interconnection And Transmission Facilities
The Government of the Sultanate of Oman represented by the former Ministry of Electricity and Water and United Power Company SAOG (“UPC”) had entered into a Power Purchase Agreement dated 27th of June 1994 (“PPA”), A Supplement Agreement to the Power Purchased Agreement dated 19th of December 1999 (“SAPPA”) and an Addendum Agreement to the Power Purchase Agreement 19th of December 1999 by which UPC constructed, own and operated the project comprising the Plant and the Interconnection and Transmission Facilities (“ITF”) and by the end of the initial term transfer the Project to the former Ministry of Electricity & Water (“MEW”).
Following the Sultani Decree No. 78/2004 Promulgating the Law for the Regulation and Privatization of the Electricity and Related Water Sector (as amended), a Novation Agreement dated 8th October 2005 was signed between former Ministry of Housing, Electricity & Water (“MHEW”) UPC and Oman Power and Water Procurement SAOC (“OPWP”) whereby the rights and obligation of the MEW under the Manah Project Agreements were novated to OPWP.
All the Parties acknowledged that while the ITF was owned by UPC, it was being operated by Oman Electricity Transmission Company SAOC (“OETC “) in respect to its transmission components and by Mazoon Electricity Company (“MEC”) in respect to its distribution components, each as per their licensed activities.
UPC and OPWP (in accordance with its right under the Novation Agreement), transferred the ITF to OETC and MEC, whereby OETC received the Transmission Assets and MEC received the Distribution Assets.
As envisaged in the PPA, the fully depreciated ITF assets were transferred for consideration of RO 1/-. Accordingly, on 1 December 2016, all of the above parties executed the “Interconnection and Transfer Facility Agreement”, to complete this process.
As per the terms of the PPA, UPC has fully received the fixed capacity fees relating to ITF from Commercial Operation Date to 14 September 2016 (completion of 20 years of Phase I) and therefore there was no financial loss/gain arising on transfer of ITF assets.
I. Internal Control System and their adequacy
The Company believes in strong internal control systems as a tool to contribute high performance in operation and management of the Company.
As required under CMA regulations an internal auditor was appointed in 2010 and is actively engaged to renew the processes and transactions. United Power Company has implemented a critical review of all unique processes of the Company, and that the appropriate control and segregation of duties has been applied.
Furthermore, the internal auditor also reviews Company’s compliance with applicable laws and CMA regulations.
J. Transfers to Investors Trust Fund
On behalf of the Company, Muscat Clearing & Depository Company SAOC transferred to Investors Trust Fund account amounts of OMR 417,877.065 in respect of unclaimed amounts, as a consequence dividend for the year 2015.
32 ANNUAL REPORT 2016
33 33 CORPORATE GOVERNANCE REPORT ANNUAL REPORT 2016 CORPORATE GOVERNANCE REPORT
Philosophy on Code of Corporate Governance In July 2015, a new Code of Corporate Governance for Public Listed companies was issued which was applicable from 22nd July 2016.
The Company believes that Code of Governance is an effective tool to improve operational and financial performance of listed companies. Code of Governance ensures accountability, which leads to transparency and ensuring impartial treatment to all investors. This ultimately increases the confidence of shareholders and prospective investor in the results.
We confirm to comply and maintain high standards to the Code and enhance our image as a good corporate citizen.
In compliance with the Article 26 of Circular No. 11/2002, the Company is including this separate chapter on Code of Governance in its annual financial statements for the year ended December 31, 2016. Implementation Of Code Of Corporate Governance Circular E/4/2015 On 22nd July 2015, CMA issued the above mentioned circular which was effective from 22nd July 2016.
To comply with the Circular, during the year the Company reviewed its existing policies and procedures and identified the changes and formulated new policies for adoption. Consequently, in the Board Meeting of Directors held in 18th July 2016, the directors approved the following documents:
1. Board of Directors Governance & Policies
2. Procedures, Rules and Guidelines on Disclosure
3. Delegation of Authority
4. Directors Communication Policy
5. Rules for Related Party Transactions
6. Corporate Social Responsibility Policy
7. nomination & Remuneration Committee Policy
8. Board Induction Policy
9. Shareholders guide to general meeting
10. Code of Ethics and Professional Conduct for Directors and Executive Management
11. Audit Committee Working Plan for 2016
35 Furthermore, during the Board meeting of July 2016, a training session was held, with the assistance of independent legal consultants M/s Alawi Mansoor Jamal & Company, to comply to the requirements of the new Code and to apprise the Board and its directors and management of the Company to their roles and responsibilities and liabilities embedded in the new Code and various commercial laws in Oman. Board of Directors a) Composition of the Board of Directors, Category of Directors, and their attendance record and number of Board meetings held during the year.
Board Meetings held and attended 2016 Name of Directors ABR during 04/02 22/03 28/04 19/07 20/10 22/11 TOTAL AGM Mr. Murtadha A. Sultan (Chairman) NENNI 6 Mr. Bander Allaf* (Vice Chairman) NENNI- 5 Mr. Abdullah Mohammed Al-Mamari NENNI 6 Mr. Grahame Farquhar* NEI - - - 3 - Mr. Yaseen Abdullatif NEI - 5 Mr. Hamad Lal Baksh Al Balushi NEI 6 - Mr. Sami Yahya Al Daghaishi NEI - - - - 2 - Mr. Ryan Armand Zanin* NEI - - - -- 1 - Mr. Fabrizio Bocciardi* NEI - - - - - 1 - Mr. Zoher Karachiwala ENI 6 Mr. Steve Ruth** NEI --- 3 - Mr. Shehzaad Sacraine** NEI - ---- 1 - Mr. Mark Lemmon*** NENNI ----- 1 - Ms. Isabelle Demir *** NEI ----- 1 - Mr. Guillaume Bremond*** NEI ----- 1 - * Appointed during the year ** Appointed and also resigned during the year *** Resigned during the year.
NENNI Non-Executive Nominee & Non-Independent NEI Non-Executive & Independent ENI Executive & Non Independent
b) The Board and its composition will be re-assessed and rectified, for non-compliance cases, in the annual general meeting scheduled for 28 March 2017.
c) Directorship / membership of the Company’s directors in other SAOG companies in Oman held during the year.
36 ANNUAL REPORT 2016
Name of Directors Position held Name of the Company Mr. Murtadha A. Sultan Chairman Gulf International Chemicals SAOG Mr. Bander Allaf None - Mr. Abdullah Mohammed Al-Mamari None -
Mr. Grahame Farquhar None - Director & Chairman Mr. Yaseen Abdullatif Sahara Hospitality Co. SAOG Audit committee Mr. Hamad Lal Baksh Al Balushi None - Mr. Sami Yahya Al Daghaishi Director Ubar Hotels and Resorts Mr. Ryan Zanin None - Ms. Fabrizio Bocciardi None - Mr. Zoher Karachiwala None -
The profile of directors and management team is included as an Annexure to the Corporate Governance Report.
Audit Committee a) Brief description of terms of reference.
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to any governmental body or the public the Company’s systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; and the Company’s auditing, accounting and financial reporting processes generally.
Consistent with this function, the Audit Committee encourages continuous improvement of, and fosters adherence to, the Company’s policies, procedures and practices at all levels.
The Audit Committee’s primary duties and responsibilities are to:
• Serve as an independent and objective party to monitor the Company’s financial reporting process and internal control system;
• Review and appraise the audit efforts of the Company’s statutory and internal auditors;
• Provide an open avenue of communication among the statutory and internal auditors, financial and senior management and the Board of Directors.
• Validate and verify the overall efficiency of the executive management in implementing the operational directives and guidelines set up by the board.
• Evaluate and monitor the adequacy of internal control systems and their efficiency.
• Create policies for safeguarding the company’s human, material and intellectual resources and assets.
37 b) Composition of Audit Committee and attendance record of Committee Members.
Meetings held and attended during 2016 Name of Committee Position Members 04 FEB 28 APR 19 JUL 20 OCT TOTAL
Mr. Yaseen Abdullatif Chairman 1 1 1 1 4
Mr. Grahame Farquhar * Member - 1 1 1 3
Mr. Ryan Zanin * Member -- 1 - 1
Ms. Isabelle Gunay Demir *** Member 1 -- - 1
Mr. Steve Ruth ** Member - 1 - - 1
* Appointed during the year ** Appointed and also resigned during the year *** Resigned during the year.
c) Sitting fee of RO 200 per meeting is paid to the attendee members. Ms. Isabelle Gunay Demir has waived her right to receive her sitting fee.
d) Activities during the year
The Audit Committee has reviewed, on behalf of the Board, the effectiveness of internal controls by meeting the internal auditor of the company, reviewing the internal audit reports and the recommendations, met the external auditor, and reviewed the audit findings.
In 2016, the Board of Directors, through the Audit Committee, reviewed and assessed the Company’s system of internal controls based on the audit report submitted by the Auditors. The Board also reviews the operational reports generated by the Management of the Company, which compares the budget and the actual. The Audit Committee and the Board are pleased to inform the shareholders that, in their opinion, an adequate and effective system of internal controls is in place.
Nomination And Remuneration Committee
a) Brief description of terms of reference
During the year, the Company set up a ‘Nomination and Remuneration Committee’ (NRC) and approved its Policy in the Board meeting held on 18th July 2016.
The primary function of the NRC is to assist the Board of Directors in fulfilling its responsibilities set out in the Code of Corporate Governance Circular E/4/2015 issued in July 2015.
The above is summarized as follows:
• Determining the required skills for smooth functioning of the Board and the Company’s executive management, its continuous development and selecting appropriate person to recommend and fill the seat in the Board. Assist the Board in determining ‘Directors remuneration and sitting fee’.
38 ANNUAL REPORT 2016
• Develop succession plan for the executive management and develop remuneration package including performance based incentive plan.
• Investigate ethics, regulatory & compliance matters
• Assist the Board in setting up criteria in respect of evaluation the Board and its directors, including appointment of the independent consultants and advisors to carry out the evaluation. b) Composition of NRC and attendance record of Committee members
Name of Committee Members Position Meetings held and attended during 2016
20 /10 22 /11 13 /12 Total
Mr. Bander Allaf Chairman 1 1 1 3
Mr. Abdullah Mohammed Al-Mamari Member 1 1 1 3
Mr. Fabrizio Bocciardi Member --- 0 c) Sitting fee of OMR 200 per meeting is paid to the attendee members d) Activities during the year
The NRC met three times during the year to appoint the Chairman and its secretary, approved the working plan for 2016 and 2017, reviewed the three proposals received from independent consultants to carry out the evaluation of the Board and its directors, developed the remuneration package of the Chief Executive Officer and recommended to the Board to reduce the Board size, including changes to the Board in the next AGM in line with the requirements of the new Code of Corporate Governance.
Process Of Nomination Of Directors
The election of the Board is governed by the Company’s Articles of Association (Article 24 to 27). The current Board of Directors was elected on 20 March 2014 for the term of three years ending 19 March 2017. Full election of the Board is scheduled at the AGM being held on 13th March 2017. Further, as required by CMA circulars, the Company obtained “Nomination Form” from all directors and the forms were verified to its compliance and authenticity by the Company’s Secretary and its legal counsel, before being sent to the CMA.
Remuneration a) Directors – Remuneration and Attendance Fee.
As per Articles of Association, the Company was entitled to pay directors’ remuneration equivalent to 10% of calculated net profit. However, due to CMA’s administrative decision 11/2005, the Directors’ remuneration including sitting fees are restricted to 5% and is also subject to limits prescribed.
39 The remuneration to be approved by the shareholders in the up -coming AGM is set out below:
RO Director’s remuneration 24,006
Sitting fee (excluding fees to audit Committee members) 18,000
Total 42,006
The sitting Board fees paid to individual Directors for meetings of the Board attended during the year are given below. The Directors’ remuneration is paid pro-rata each Directors’ participation in the Board meetings. Attendence by video or teleconference is deemed to be attendance in person; attendance by proxy is not considered as attendance for purpose of remuneration.
No. of Total sitting Total Sl. Name of Director meetings for fees paid Remuneration No. sitting fee Paid in RO in RO
1 Mr. Murtadha Ahmed Sultan 6 2,400 3,200
2 Mr. Bander Allaf 5 2,000 2,668
3 Mr. Abdullah Mohammed Al Mamari 6 2,400 3,200
4 Mr. Grahame Farquhar 3 1,200 1,600
5 Mr. Yaseen Abdullatif 5 2,000 2,668
6 Mr. Hamad Lal Baksh Al Balushi 6 2,400 3,200
7 Mr. Sami Yahya Al Daghaishi 2 800 1,068
8 Mr. Ryan Zanin 1 400 534
9 Mr. Fabrizio Bocciardi 1 400 534
10 Mr. Zoher Karachiwala 6 2,400 3,200
11 Mr. Steve Ruth 3 1,200 1,600
12 Mr. Shehzaad Sacraine 1 400 534
Total 18,000 24,006
The Company will continue to pay sitting fee per Director per meeting amounting to RO 400 in the year 2017, up to a maximum of RO 10,000 per year to any individual Director as per CMA regulations.
b) Top Five Officers
The aggregate remuneration charged by Power Development Company under the Amended and Restated Management Company Agreement for the top five officers of the Company was RO 275,633/-.
40 ANNUAL REPORT 2016
Non-Compliance Penalties or Non-Compliance of Corporate Governance and Reason
• no penalties or strictures were imposed on the Company by Muscat Securities Market / Capital Market Authority or any other statutory authority on any matter related to Capital Market during the last three years.
• As per clarification from CMA, the application of definition of Independence directors, non-executive director, etc. is deferred till the election of the Board. Accordingly, the Board and its composition will be re-assessed and rectified, for non- compliance cases, in the annual general meeting scheduled for 28 March 2017
• There were no other instances of non-compliance of corporate governance.
Means of Communication with the Shareholder and Investors
Annual accounts and quarterly accounts are put on official web site of MSM as per the guidelines by the market regulators. Notice to the annual general meetings is sent by post to the registered shareholders.
The Company has launched its own web site www.upcmanah.com. The Chairman gives press releases in case of important news and development that arises. Such press releases are posted to the web site of MSM in accordance with the guidelines issued by the market regulators.
The Company is available to meet its shareholders and their analysts on as and when need basis.
Market Price Data
High / Low during each month in the last financial year and performance in comparison to broad based index of MSM (service sector).
Low Price High Price Average Price MSM Index Month RO RO RO (Service Sector) RO Jan 2.557 2.589 2.573 2,902.21 Feb 3.161 3.186 3.173 3,056.41 Mar 3.359 3.374 3.367 3,101.77 Apr - - - 3,224.82 May 3.060 3.060 3.060 3,254.75 Jun - - - 3,235.72 Jul 3.060 3.060 3.060 3,196.06 Aug 3.060 3.060 3.060 3,135.75 Sep - - - 3,108.57 Oct 3.228 3.228 3.228 3,027.53 Nov 3.250 3.250 3.250 2,991.38 Dec 3.253 3.253 3.253 3,058.76
41 Distribution of Shareholding
The Shareholding pattern as on 31 December 2016 is as follows:
Number of Total Share Category of Shareholders Shareholders Shares Capital% Preference Shareholders (Local) 1 109,360 5.47
Preference Shareholders (Foreign) 2 1,090,635 54.53
Fractions from capital reduction - 5 0
Ordinary Shareholders above 5% 1 129,062 6.45
Ordinary shareholders below 5% but above 1% 7 369,687 18.48
Ordinary Shareholders below 1% 774 301,251 15.07
Total 785 2,000,000 100.00
Professional Profile of the Statutory Auditors
BDO Jawad Habib LLC, the statutory auditors of the Company, has been operating in the Sultanate of Oman for the past 38 years and is one of the leading professional services organizations in the region providing industry focused Assurance, Tax and Advisory Services to enhance value for their clients. The firm is a member firm of BDO International, the fifth largest international accounting organization with over 67,000 employees working in a global network of over 1,400 offices situated in 154 countries.
The services of the external auditors were not utilized during the year for any non-audit services listed by the Capital Market Authority that requires the approval of the Audit Committee and needs to be disclosed in this report. The total audit fees for the year ended 31 December 2016 was RO 7,750.
Acknowledgement by the Board of Directors
The Board of Directors confirms the following:
• Its responsibility for the preparation of the financial statements in accordance with the applicable standards and rules.
• Review of the efficiency and adequacy of internal control systems of United Power Company SAOG and that it complies with internal rules and regulations.
• That there is no material matters that affect the continuation of the Company and its ability to continue its operations during the next financial year.
42 ANNUAL REPORT 2016 BRIEF PROFILES OF DIRECTORS
Name Murtadha Ahmed SULTAN – Chairman Year of Joining 1994 Education Graduate - Sales and Marketing Management Experience Director of W. J. Towell Group of Companies Well known in the business community, Mr. Sultan has more than 36 years’ experience in different commercial fields; holding or held various positions in public, private and government organizations. Mr. Murtadha Sultan is also the Chairman of Gulf International Chemicals SAOG.
Name Bander ALLAF Year of Joining 2016 Education Master Degree in Total Quality Management (TQM), Arab Academy for Science & Technology and Bachelor Degree in Electrical Engineering, King Abdulaziz University. Experience Worked as Senior Director of Business Development with ACWA Power and prior to joining ACWA Power, he was working with Saudi Electricity Company (SEC) for 14 years in the area of Power System Planning, Operation, Control and Technical Services. He is now the CEO of Khaled Juffali Energy and Utilities. He was Chairman of Electrical Chapter at Saudi Council of Engineers for 3 years and now Chairman of Renewable Energy Chapter at Saudi Council of Engineers. Mr. Bander is Licensed Professional Engineer (PE) by Saudi Council of Engineers and he published many papers in the area of Electrical Power Systems.
Name Grahame FARQUHAR Year of Joining 2016 Education UK FCCA accountant, MBA Strathclyde University, Scotland. Experience Worked in corporate finance roles in UK, Europe, Asia-Pacific (based out of Hong Kong) and USA and for past last seven years spent in the Middle East. Primary roles taken in company financial management, usually as CFO and with responsibilities for merger & acquisitions and consequent business integration.
43 Name Fabrizio BOCCIARDI Year of Joining 2016 Education Graduated “Cum Laude” in Business Administration at Bocconi University, Milan (ITALY) Experience Mr. Bocciardi is Head of Credit Investments at Mubadala Capital and had prime responsibility of the joint-venture that Mubadala created with GE Capital to co-invest in global credit opportunities alongside GE Capital. Before joining Mubadala in 2009, Mr. Bocciardi worked for 12 year in London with top-tier investment banks, covering distressed debt and restructuring, leveraged finance, corporate finance and advisory.
Name Ryan Armand ZANIN Year of Joining 2016 Education Mr. Zanin is a Chartered Financial Analyst. Experience Mr. Zanin is the President & CEO of the Restructuring, Strategic Ventures and Insurance Group at GE Capital. He is responsible for working with GE Capital’s strategic joint venture partners and he oversees operations of a variety of investments and operating businesses across the globe. Mr. Zanin joined GE Capital in 2010 with more than 25 years of experience in financial services specializing in risk management. Most recently, Mr. Ryan served as chief risk officer for GE Capital until early 2015 when he assumed his current role. Mr. Zanin serves on the Board of GE Capital and Fannie Mae.
Name Abdullah Mohd Al Ma’mari Year of Joining 2016 Education Bachelor Degree in Finance from College of Economics and Political Science in Sultan Qaboos University. Experience Mr. Abdullah Al Ma’mari is an Assistant Director of Investment in Ministry of Defence Pension Fund. He has a good experiences in investment, financial analysis and financial Markets.
Name Sami Yahya AL DUGAISHI Year of Joining 2015 Education Bachelor degree of finance and banking from Applied Science University - Jordan Experience Mr. Sami Yahya Al Dugaishi has been with the civil service employees’ pension fund since 1997; he is assistant director of pension benefits department. He is on the Board of Directors at Ubar Hotels & Resorts SAOG and was on the board of directors at Oman Housing Bank SAOG.
44 ANNUAL REPORT 2016
Name Yaseen ABDULLATIF Year of Joining 2009 Education Bachelor of Arts degree in Business Administration (major – Finance) from the American University in December 1996. Experience Mr. Abdullatif has been with the Bank Muscat since March 1987 and he has handled different functions from being branch manager to managing credit assessment and credit controls. In 1998, he was promoted to the position of assistant general manager to handle the Risk Management function of the bank and later on finance function has been an additional responsibility. Currently, Mr. Abdullatif, as deputy general manager, is responsible for managing support services functions at the bank.
Name Hamad Lal Baksh AL BALUSHI Year of Joining 2009 Education Master of Business Administration (MBA), University of Strathclyde. Experience Mr. Al Balushi is a Financial Professional with over 19 years’ experience in Corporate Banking, specializing in corporate relationship management, business development, operations, strategic planning and project management. Possess comprehensive understanding of Risk Management, Mergers and Acquisitions, and leveraged asset, and structured finance. Mr. Al Balushi, in 2013 joined Alizz Islamic Bank in the position of Head Large Corporate being responsible for managing corporate banking section at the bank, and he is a member of Management Credit Committee.
Name Zoher KARACHIWALA Year of Joining 2009 Education Chartered Accountant Experience Currently CEO of the Company, Mr. Karachiwala was a CFO until June 2009. He also acts as Company Secretary for some of the ENGIE group of companies in Oman. He has 40 years of experience in field of Statutory Audit & Accounting and Finance. He was KPMG Audit Partner in Pakistan before joining United Power Company in 1995. Acted as Honorary Chairman of Audit Committee and the Board of Directors for a public company in Oman.
45 BRIEF PROFILE OF MANAGEMENT TEAM
Under the terms of the management agreement entered with Power Development Company LLC (PDC) in 1994, PDC provides day to day management of the Company and gives all supports by providing manpower and other infra-structure. For this PDC is paid an annual fee and reimbursement of its expenses. It provides the following:
Particulars Omani Non-Omani Total Managers 2 3 5 Other staff 9 4 13
The management team has been empowered and jointly operates within a well-defined authorization limits set by the Board of Directors. Brief profile of the current managerial team is as follows:
Name Zoher KARACHIWALA Year of Joining 1995 Education Chartered Accountant Experience Currently CEO of the Company, Mr. Karachiwala was a CFO until June 2009. He also acts as Company Secretary for some of the GDF Suez (now ENGIE) group of companies in Oman. He has 40 years of experience in field of Statutory Audit & Accounting and Finance. He was KPMG Audit Partner in Pakistan before joining United Power Company in 1995. Acted as Honorary Chairman of Audit Committee and the Board of Directors for a public company in Oman.
Name Guillaume BAUDET Year of Joining 2013 Education Master’s Degree in Accounting and Finance, ISC Paris Business School Management Program, CEDEP/INSEAD, France University Degree in Business and Administration, Universite de Toulon Experience Guillaume is the CEO of Sohar Power Company SAOG since 2013 and acts as Company Secretary of the Company. He has 20 years of experience in the fields of Finance and General Management. He joined GDF SUEZ (now Engie) Energy International in 2007 as Head of Business Control for the MENA region, before becoming CFO of Hidd Power Company in Bahrain in 2011.
Name Sreenath HEBBAR Year of Joining 2009 Education Bachelor of Engineering (Mechanical), VJTI, Mumbai University Experience 31 years of work experience, primarily in Business Development of Engineer Procure Construct (EPC) Contracts in Gas Turbine based Cogeneration & Combined Cycle Power Plants. In his current position as Technical Manager, and Safety Officer, he is responsible for monitoring Contractors’ compliance to safety norms, technical liaison with the client, statutory authorities, and contractors and provides technical support to the CEO. He has been a member of the Grid Code Review Panel of Oman.
46 ANNUAL REPORT 2016
Name Mirdas AL RAWAHI Year of Joining 2016 Education Bachelor of Commerce and Economics from Sultan Qaboos University and has cleared CPA exams from the American Institute of Certified Public Accountants Experience Mr. Mirdas Al Rawahi has 12 years of experience in Finance and accounts. Prior to joining United Power Company, he was the Financial Controller for Takamul Investment Company SAOC. He has also worked in Ernst & Young Muscat office in the fields of External and Internal Audit.
Name Jamal AL BLOUSHI Year of Joining 1995 Education Diploma in Computer Science. Certified Manager from the Institute of Certified Professional Managers, James Madison University, USA. Experience 22 years’ experience in administration activity including managing spare parts logistics, liaisons with government organizations, licenses, translation function and supervising local insurance programs and assisting CEO for statutory meetings.
47
Statement of Financial Position
Note 2016 2015 RO’000 RO’000 ASSETS Non-current assets Property, plant and equipment 6 3,821 7,663 Total non-current assets 3,821 7,663
Current assets Inventories 7 259 259 Trade and other receivables 8 1,471 1,986 Cash and bank balances 9 172 80 Total current assets 1,902 2,325
Total assets 5,723 9,988
EQUITY AND LIABILITIES Capital and reserves Share capital 10 2,000 2,000 Legal reserve 11 667 667 Retained earnings 1,051 1,164 Total capital and reserves 3,718 3,831
Non-current liabilities Employees’ terminal benefits 15 13 Deferred tax liability 13 147 554 Total non-current liabilities 162 567
Current liabilities Trade and other payables 14 597 780 Taxation 13 746 810 Short term borrowings 15 500 4,000 Total current liabilities 1,843 5,590
Total equity and liabilities 5,723 9,988
Net assets per share (OMR) 21 1.859 1.916
These financial statements, as set out on pages 6 to 34, were approved and authorised for issue by the Board of Directors on 9 February 2017 and signed on their behalf by:
Director Director
The accompanying notes form an integral part of the financial statement.
52 ANNUAL REPORT 2016 Statement of Comprehensive Income
Year ended Year ended Note 2016 2015 RO’000 RO’000
INCOME Revenue 17 10,033 10,811 Other income 18 - 177 10,033 10,928
EXPENSES General and administrative expenses 19 (5,021) (5,161) Depreciation 6 (3.878) (4,458) Finance costs 20 (67) (95) (8,966) (9,714)
Profit before tax for the year 1,067 1,214
Income tax expense 13 (125) ( 1 4 3 )
“Net profit after tax for and total comprehensive income for the year” 942 1,071
Basic earnings per share 22 0.471 0.286
The accompanying notes form an integral part of the financial statement.
53 Statement of Changes in Equity
Share Legal Retained Note capital reserve earnings Total RO’000 RO’000 RO’000 RO’000
At 31 December 2014 5,000 1,667 1,677 8,344
Reduction in share capital (3,000) - - (3,000)
“Net profit after tax for and total comprehensive income for the year” - - 1,071 1,071
Transferred from legal reserve to retained earnings 11 - (1,000) 1,000 -
Final dividend for the year 2014 - - (1,584) (1,584)
Interim dividend for the year 2015 - - (1,000) (1,000)
At 31 December 2015 2,000 667 1,164 3,831
“Net profit after tax for and total comprehensive income for the year” - - 942 942
Final dividend for the year 2015 12 - - (1,055) (1,055)
At 31 December 2016 2,000 667 1,051 3,718
The accompanying notes form an integral part of the financial statement.
54 ANNUAL REPORT 2016 Statement of Cash Flows
Notes 2016 2015 RO’000 RO’000
CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 10,408 10,844 Cash paid to suppliers and employees (5.042) (4,527) Cash provided by operating activities 5,366 6,317
Finance costs (67) (95) Taxation (617) (607) Net cash generated from operating activities 4,682 5,615
INVESTING ACTIVITIES Purchase of property, plant and equipment 6 (36) - Net cash used in investing activities (36) -
FINANCING ACTIVITIES Reduction in share capital - (3,000) Dividends paid 12 (1,055) (2,584) Net cash used in financing activities (1,055) (5,584)
Net increase in cash and cash equivalents 3,592 31 Cash and cash equivalents, beginning of the year (3,920) (3,591) Cash and cash equivalents, end of the year (328) (3,920)
The accompanying notes form an integral part of the financial statement.
55 Notes to the Financial Statements for the year ended 31 December 2016
1. Legal status and activities
United Power Company SAOG (‘the Company’) was registered as a public joint stock company in the Sultanate of Oman on 9 January 1995. The Company has been established to undertake a project primarily to Build, Own, Operate and Transfer (“BOOT”) to the Government of the Sultanate of Oman (‘the Government’) a power station at Manah, and to build, own and transfer (“BOT”) to the Government, interconnection and transmission facilities. The Company is also permitted to undertake activities related to the expansion of its primary objective. Accordingly, the Company implemented the Phase II-Expansion Project (‘the Expansion Project’) during the year ended 31 December 2000. “The original duration of the Company was for a period of twenty-five years commencing from 9 January 1995 being the date of its registration in the Commercial Register of the Ministry of Commerce and Industry (‘MOCI’). At an Extra-ordinary General Meeting held on 17 January 2000, the duration of the Company was increased by five years thereby revising the duration of the Company to thirty years (“”the Project Life””) commencing from 9 January 1995. The MOCI approved the extension to the Company’s life on 11 October 2000.
All the property, plant and equipment of the Company is to be transferred at RO 1 to the Government automatically at the end of the Project Life, which, in accordance with Supplemental Agreements for the Expansion Project, expires on 30 April 2020. (At the end of the Project Life, the value of the shares of the Company will become nil.)
The Company’s principal place of business is located at Nizwa, Sultanate of Oman.
The financial statements were approved for issue by the Board of Directors on 9 February 2017.
2. Significant agreements
The Company has entered into the following significant agreements:
(i) Agreements with the Government for project implementation, power purchase and land lease for Phase 1 (‘Project Agreements’) were entered into on 27 June 1994 by the United Power Group (‘the Group’) comprising some of the Founder Shareholders. Under a Novation Agreement entered into by the Company with the Group, the Company assumed all rights, duties, liabilities and obligations of the Group pursuant to the Project Agreements.
(ii) Effective 1 May 2005, the rights and obligations of the Ministry of Housing, Electricity and Water under the Power Purchase Agreement (‘PPA’) was novated to the Oman Power and Water Procurement Company SAOC (‘OPWPC’) in accordance with the arrangements described in the Master Novation Agreement signed on 8 October 2005. All the financial obligations of the OPWPC under the Project Agreements are secured under the guarantee issued by the Ministry of Finance, Government of Oman, which has come into force on execution of the Novation Agreements. The PPA contains embedded derivatives in the pricing formulae that compute the variable capacity charge rate and energy charge rate for Phase 1 and Phase 2. The percentages of the variable capacity charge rate and energy charge rate for Phase 1 and Phase 2 is adjusted to reflect changes in United States Consumer Price Index (CPI) and the Omani Consumer Price Index assuming an exchange rate pegged to the United States Dollar (‘USD’).
56 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
2. Significant agreements (continued)
(iii) The Company has entered into a Management Agreement (‘the Management Agreement’) with Power Development Company LLC (‘PDC’), a related party, to provide full management and administrative services to the Company. From 1 January 2009, the base fee has been fixed at RO 601,842 (USD 1.561 million, beingthe indexed base fee for 2008 converted to Omani Rials at the exchange rate prevailing on 31 December 2008) and is indexed annually based on the Sultanate of Oman CPI published by the Ministry of National Economy. The Company is also liable to pay a management fee of USD 400,000 (RO 154,200) for each calendar year in respect of Phase II of the plant (‘the Expansion Project’). No indexation is applicable on the Expansion Project fee. In addition to the management fee, the Company also pays to PDC, all proper costs and expenses which are incurred by PDC in rendering the above services.
(iv) The Company has entered into an Operations and Maintenance Agreement with Suez Tractebel Operation and Maintenance Oman (“STOMO”), a company owned by Kahrabel FZE (Engie) (70%) and Sogex LLC (30%).
(v) Pursuant to the Project Agreements, the Company had, on 19 December 1999, entered into Supplemental and Addendum Agreements with the Government for the expansion of the power generation facilities. The above agreements have been amended and the duration of all the agreements has now been extended up to 30 April 2020.
(vi) The Government of the Sultanate of Oman represented by the former Ministry of Electricity and Water and United Power SAOG (“UPC”) had entered into a Power Purchase Agreement dated 27 June 1994 (“PPA”), a supplemental agreement to the PPA dated 19 December 1999 and an addendum agreement to the PPA dated 19 December 1999 by which UPC constructed, owned and operated the project comprising the plant and the Interconnection and Transmission Facilities (“ITF”) and by the end of the initial term transfer the Project to the former Ministry of Electricity and Water (“MEW”).
Following the Royal Decree No. 78/2004 promulgating the law for the regulation and privatisation of the electricity and water sector (as amended), a novation agreement dated 8 October 2005 was signed between former Ministry of Housing, Electricity and Water (“MHEW”) and UPC and OPWP whereby the rights and obligation of the MEW under the Manah Project Agreement were novated to OPWP.
All parties acknowledged that which the ITF was owned by UPC, it was being operated by Oman Electricity Transmission Company SAOC (“OETC”) in respect to its transmission components and by Mazoon Electricity Company (“MEC”) in respect to its distribution components, each as per their licensed activities.
UPC and OPWP (in accordance with its right under the novation agreement), have decided to transfer the interconnection and transmission facility to OETC and MEC, whereby OETC will receive the Transmission Assets and MEC will receive the Distribution Assets.
As envisaged in the PPA, the fully depreciated ITF assets were to be transferred for consideration of RO 1. Accordingly, on 1 December 2016, all of the abov e parties executed the “Interconnection and Transfer Facility Agreement”, to complete this process.
57 Notes to the Financial Statements for the year ended 31 December 2016
2. Significant agreements (continued)
As per the terms of the PPA, UPC has fully received the fixed capacity fees relating to ITF from Commercial Operation Date to 14 Deptember 2016 (completion of 20 years of Phase 1) and therefore there was no financial loss/gain arising on tranfer of ITF assets.
3. Basis of preparation
Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (IASB), interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC) and the relevant requirements of the Commercial Companies Law 1974, as amended, of the Sultanate of Oman and the relevant disclosure requirements for licensed companies issued by the Capital Market Authority (CMA).
Functional currencies
The financial statements are presented in Omani Rials, rounded off to the nearest thousand, which is the functional and reporting currency for the financial statements.
Basis of presentation
The financial statements are prepared under historical cost convention. These financial statements have been prepared on the basis that the Company commenced full generation and distribution of electricity on 15 October 1996. All costs incurred during the construction period of the project were capitalized on 15 October 1996.
The Company commenced partial generation of electricity on 31 May 1996. On 15 October 1996, the entire construction of the power station and transmission facilities was completed and from that date the Company commenced full generation of electricity. The Ministry of Housing, Electricity and Water (“MHEW”) had initially determined 1 January 1997 as the “Commercial Operation Date’ and had issued the Commercial Completion Certificate on that date.
During 2004, the Company reached settlement with the MHEW (‘OPWPC’) regarding the commencement of Phase 1 term life of twenty years effective 14 September 1996 instead of 15 October 1996. The effect of this change and resolution of other matters was taken into account in the financial year ended 31 December 2004.
Under the Supplemental and Addendum Agreement to the PPA (‘Supplemental Agreement’), the operation date for the Expansion Project was 1 May 2000. The MHEW (‘OPWPC’) issued an interim completion certificate for the first unit of the Expansion Project on 29 April 2000. The interim completion certificate for the second unit of the Expansion Project as well as the commercial operations certificate for the Expansion Project was issued by the OPWPC on 19 May 2000. Accordingly, 19 May 2000 has been determined as the “Commercial Operation date’ for the Expansion Project. The Company has billed the MHEW (‘OPWPC’) from the respective completion dates for the two units of the Expansion Project in accordance with the Supplemental Agreement.
58 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
3. Basis of preparation (continued)
The tariff for electricity generated and supplied to OPWP has been structured in the Project Agreements in such a way that the tariff rates were significantly higher during the initial years as compared to the later period of the Project Life. The tariff for electricity to be generated and supplied from the Expansion Project under the Supplemental Agreement has been structured so that the tariff is more uniformly received over the Project Life.
The Company’s gas turbines, interconnection and transmission facilities, balance of plant, plant spares and plant buildings and ancillaries are being depreciated on a straight-line basis in accordance with their expected useful lives and with the Project Agreements.
Accordingly, while the combined tariff revenue for the Company after the first eight years of operations will significantly reduce, the annual depreciation charges will remain constant. Accordingly, the net profits available for appropriation to the shareholders has been significantly higher during the first half compared to the second half of the Project life. Although it is not possible to accurately determine the effect on profits if revenue recognised was matched with the depreciation charge, the Company is expected to continue to earn net profits.
In terms of the PPA signed in 1994 between the Company and the Government, the Company was given the right to build, own, operate and transfer a power plant and build, own and transfer interconnection and transmission facilities, to the Government.
IFRIC 12 ‘Service Concession Arrangements’ which was effective for annual periods commencing on or after 1 January 2008 gives guidance on the accounting by operators for public-to-private service concession arrangements. However, since inception of the Company in the year 1995, the financial statements of the Company have disclosed that:
• The Company has recognised the ‘revenue’ based on the agreed tariff prescribed under the PPA between the Government and the Company.
• Depreciation on property, plant and equipment has been booked on a straight-line basis at rates prescribed in the above mentioned agreement.
• The tariff has been agreed based on covenants of financing agreements, which includes a prescribed repayment profile, debt coverage ratios and othersecurity features.
4. Adoption of new and revised IFRS
Improvements/amendments to IFRS/IAS 2012/2014 cycle
Improvements/amendments to IFRS/IAS issued in 2012/2014 cycle contained numerous amendments to IFRS that the IASB considers non-urgent but necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes to presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments are effective for the Company’s annual audited financial statements beginning on or after 1 January 2016 and subsequent periods with earlier adoption permitted.
59 Notes to the Financial Statements for the year ended 31 December 2016
4. Adoption of new and revised IFRS (continued)
Standards, amendments and interpretations effective and adopted in the year 2016
The following new standards, amendment to existing standards or interpretations to published standards are mandatory for the first time for the financial year beginning 1 January 2016 and have been adopted in the preparation of the financial statements: Standard or Title Effective for annual periods Interpretation beginning on or after IAS 1 Presentation of Financial Statements 1 January 2016 IAS 16 Property, Plant and Equipment 1 January 2016
Standards, amendments and interpretations issued and effective in the year 2016 but not relevant
The following new standards, amendments to existing standards and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2016 or subsequent periods, but are not relevant to the Company’s operations:
Standard or Title Effective for annual periods Interpretation beginning on or after
IAS 19 Employee Benefits 1 January 2016 IAS 27 Separate Financial Statements 1 January 2016 IAS 28 Investments in Associates and Joint Ventures 1 January 2016 IAS 34 Interim Financial Reporting 1 January 2016 IAS 38 Intangible Assets 1 January 2016 IAS 41 Agriculture 1 January 2016 IFRS 7 Non-current Assets Held for Sale and 1 January 2016 Discontinued Operations IFRS 7 Financial Instruments – Disclosures 1 January 2016 IFRS 10 Consolidated Financial Statements 1 January 2016 IFRS 11 Joint Arrangements 1 January 2016 IFRS 12 Disclosure of Interests in Other Entities 1 January 2016 IFRS 14 Regulatory Deferral Accounts 1 January 2016
Standards, amendments and interpretations issued but not yet effective in the year 2016
The following new/amended accounting standards and interpretations have been issued, but are not mandatory for the year ended 31 December 2016. They have not been adopted in preparing the financial statements for the year ended 31 December 2016, but may affect the Company in the period of initial application. In all cases, the Company intends to apply these standards from the application date as indicated in the table below.
60 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
4. Adoption of new and revised IFRS (continued)
Standards, amendments and interpretations issued but not yet effective in the year 2016 (continued)
Standard or Title Effective for annual periods Interpretation begining on or after IFRS 9 Financial Instruments 1 January 2018 IFRS 15 Revenue from Contracts with Customers 1 January 2018 IFRS 16 Leases 1 January 2019
IFRS 9, ‘Financial Instruments’ has an effective date for accounting periods beginning on or after 1 January 2018 now that it has been finalised. IFRS 9 outlines the recognition, measurement and derecognition of financial assets and financial liabilities, the impairment of financial assets and hedge accounting. Financial assets are to be measured at amortised cost, fair value through profit and loss or fair value through other comprehensive income, with an irrevocable option on initial recognition to recognise some equity financial assets at fair value through other comprehensive income. The impairment model in IFRS 9 moves to one that is based on expected credit losses rather than the IAS 39 incurred loss model. The derecognition principles of IAS 39, ‘Financial Instruments: Recognition and Measurement’ have been transferred to IFRS 9. The hedge accounting requirements have been liberalised from that allowed previously. The requirements are based on whether an economic hedge is in existence, with less restriction about proving whether a relationship will be effective than current requirements.
IFRS 15, ‘Revenue from Contracts with Customers’ issued in May 2014 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. IFRS 15 supersedes IAS 11 ‘Construction Contracts’, IAS 18 ‘Revenue’ and related IFRICs 13, 15 and 18, and SIC-31. IFRS 15 is applicable for annual periods beginning on or after 1 January 2018. The standard is based on a 5 step approach to recognise revenue and also provides specific principles to apply, when there is a contract modification, accounting for contract costs and accounting for refunds and warranties. On application of the standard, the disclosures are likely to increase.
IFRS 16 issued in January 2016 provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with lessor accounting substantially unchanged from IAS 17. IFRS 16 is effective from 1 January 2019.
The Company is assessig the impact on the operational results of the Company for the year ended 31 December 2016 had the Company early adopted any of the above standards applicable to the Company.
Early adoption of amendments or standards in the year 2016
The Company did not early-adopt any new or amended standards in the year ended 31 December 2016.
61 Notes to the Financial Statements for the year ended 31 December 2016
5. Summary of significant accounting policies.
A summary of the significant accounting policies adopted in the preparation of these financial statements is set out below. These policies have been adopted for all the years presented, unless stated otherwise.
(a) Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Following initial recognition at cost, expenditure incurred to replace a component of an item of property, plant and equipment which increases the future economic benefits embodied in the item of property, plant and equipment is capitalised. All other expenditures are recognised in the statement of profit or loss and other comprehensive income as an expense as incurred.
Items of property, plant and equipment are derecognised upon disposal or when no future economic benefit is expected to arise from the continued use of the asset. Any gains or losses arising on de-recognition of the asset is included in the statement of profit or loss and other comprehensive income in the year the item is derecognised.
Depreciation is charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful economic lives are as follows:
Description Years Gas turbines 20 Balance of plant 20 Plant spares 8 Interconnection and transmission facilities 18 to 20 Plant buildings and ancillaries 25 Other assets - furniture, office equipment and motor vehicles 4
Repairs and renewals are charged to the statement of profit or loss and other comprehensive income when the expenditure is incurred.
(b) Capital work-in-progress
Capital work-in-progress is stated at cost including capital advances incurred upto the date of the statement of financial position and is not depreciated. When commissioned, capital work-in-progress is transferred to the appropriate property, plant and equipment and depreciated in accordance with the Company’s policy.
62 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
5. Summary of significant accounting policies (continued)
(c) Impairment of assets Financial assets At the end of each reporting period, the management assesses if there is any objective evidence indicating impairment of financial assets carried at cost or non-collectability of receivables. An impairment loss, if any, arrived at as a difference between the carrying amount and the recoverable amount, is recognised in the statement of profit or loss and other comprehensive income. The recoverable amount represents the present value of expected future cash flows discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted.
Non-financial assets
At the end of each reporting period, the management assesses if there is any indication of impairment of non-financial assets. If an indication exists, the management estimates the recoverable amount of the asset and recognises an impairment loss in the statement of profit or loss and other comprehensive income. The management also assesses if there is any indication that an impairment loss recognised in prior years no longer exists or has reduced. The resultant impairment loss or reversals are recognised immediately in the statement of profit or loss and other comprehensive income.
(d) Dividends “Dividends are recognised as a liability in the period in which they are declared. The Board of Directors recommends to the shareholders the dividend to be paid out of the Company’s profits. The Directors take into account appropriate parameters including the requirements of the Commercial Companies Law 1974, as amended, while recommending dividend.
(e) Inventories Inventories comprise of fuel oil and other spares and are stated at the lower of cost and net realisable value. The cost of inventories is based on first-in-first-out basis and comprises expenditure incurred in the normal course of business in bringing inventories to their present location and condition. Net realisable value is the estimate of the selling price in the ordinary course of business. Where necessary, provision is made for obsolete, slow-moving and defective inventories.
(f) Trade and other receivables
Trade and other receivables originated by the Company are measured at cost. An allowance for credit losses of trade and other receivables is established when there is objective evidence that the Company will not be able to collect the amounts due. When a trade or other receivable is uncollectible, it is written-off against the allowance account for credit losses.
(g) Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents consist of bank balances and cash, net of short-term bank borrowings.
63 Notes to the Financial Statements for the year ended 31 December 2016
5. Summary of significant accounting policies (continued)
(h) Trade payables Trade payables are recognised for amounts to be paid for goods and services received, whether or not billed to the Company. Trade payables are initially measured at their fair values and subsequently measured at amortised cost, using the effective interest method.
(i) Provisions A provision is recognised in the statement of financial position when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.
(j) Employees’ terminal benefits In respect of Omani employees, contributions are made in accordance with the Oman Social Insurance Law and recognised as an expense in the statement of profit or loss and other comprehensive income as incurred.
For non-Omani employees, provision is made for amounts payable under the Oman Labour Law, based on the employees’ accumulated periods of service at the statement of financial position date. This provision is classified as a non-current liability.
(k) Revenue
Revenue comprises tariffs for fixed capacity charges for transmission facilities and turbines, variable capacity charges and energy charges. Tariffs are calculated in accordance with the Project Agreements. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due and associated costs. Tariff revenue has been accounted net of gas fuel costs, which are borne by the Government of the Sultanate of Oman.
(l) other income
Other income is accounted for on the accruals basis, unless collectibility is in doubt.
(m) operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of profit or loss and other comprehensive income on a straight-line basis over the lease term.
(n) Foreign currencies
Transactions denominated in foreign currencies are translated to Omani Rial at the foreign exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are translated to Omani Rial at the foreign exchange rates prevailing at that date. Foreign exchange differences arising on translation are recognised in the statement of profit or loss and other comprehensive income.
64 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
5. Summary of significant accounting policies (continued)
(o) Directors’ remuneration
The Company follows the Commercial Companies Law 1974, as amended, and other latest relevant directives issued by the CMA, with regards to determining the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of profit or loss and other comprehensive income in the year to which they relate.
(p) Income tax
Taxation is provided in accordance with Omani fiscal regulations.Taxation for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax-rates enacted or substantially enacted at the end of the reporting period.
Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liablities and their carrying amounts. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax laws that have been enacted at thereporting date. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available, against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised.
The carrying amount of deferred income tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
(q) Financial liabilities
All financial liabilities are initially measured at fair value and are subsequently measured at amortised cost. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated asa derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in statement or profit or loss and other comprehensive income.
(r) Critical accounting judgments and key source of estimation uncertainity
Preparation of financial statements in accordance with IFRS requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The determination of estimates requires judgments which are based on historical experience, current and expected economic conditions, and all other available information. Actual results could differ from those estimates.
65 Notes to the Financial Statements for the year ended 31 December 2016
5. Summary of significant accounting policies (continued) The most significant areas requiring the use of management estimates and assumptions in the financial statements relate to:
Economic useful lives of property, plant and equipment
The Company’s property, plant and equipment are depreciated on a straight-line basis over their economic useful lives. Economic useful lives of property, plant and equipment are reviewed by management periodically. Estimation of economic useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs and normal wear and tear using its best estimates.
Provisions
An assessment is made at each statement of financial position date to determine whether there is objective evidence that specific financial assets may be impaired. An estimate of the collectible amount of trade receivables is made when the collection of the full amount is no longer probable. For individually significant amounts, this estimate is performed on an individual basis. Amounts which are not significant, but which are past due, are individually assessed collectively and a provision is applied according to the length of time the receivable is past due, based on historical recovery rates. Any difference between the amount actually collected in future periods and the amounts expected is recognised in the statement of profit or loss and other comprehensive income.
The Company also creates a provision for obsolete and slow-moving inventories. Estimates of net realisable value of inventories are based on the most reliable evidence available at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events occurring subsequent to the statement of financial position date to the extent that such events confirm conditions existing at the end of the reporting period.
Going concern
The management of the Company reviews the financial position of the Company on a periodical basis and assesses the requirement of any additional funding to meet the working capital requirements and estimated funds required to meet the liabilities as and when they become due. In addition, the shareholders of the Company ensure that they provide adequate financial support to funding the requirements to the Company to ensure the going concern status of the Company.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.
66 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016 36 3,821 58,339 54,518
(49,994) (49,994)
-- 100,634 3,878 - 108,297 - - - 21 21 21 Capital work-in- progress Total - - - - 1 127 128 128 ther 127 O assets - - 15 153 601 Plant 7,468 6,867 ancillaries buildings and buildings
- - - - ITF (49,994) (49,994) - - - 56 Plant 5,391 5,335 spares - - -
2,683 26,386 23,703 of plant Balance Balance - - - Gas 173 1,263 231 2,058 459 18,313 22,440 5,104 47,936 6,714 18,945 26,386 5,391 49,994 7,453 18,945 18,486 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 turbines PERTY, PLANT AND EQUIPMENT PLANT PERTY, O PR
Accumulated depreciation At 31 December 2015 Charge for the year At 31 December 2016 6 The movement in property, plant and equipment is as set out bel ow: Year 2016 Net book amount At 31 December 2016 At 31 December 2016 In accordance with the PPA, interconnection and transmission fa cilities (“ITF”) have been transferred to Government of Sultanate Oman with effect from 1 December 2016 as per note 2 (vi). Transferred during the year Cost At 31 December 2015 Additions during the year Transferred during the year
67 Notes to the Financial Statements for the year ended 31 December 2016
297 663 7, 4,458 108, 100,634
1
1 128 127 Other assets Total
453 739
151 Plant 7, 6,714 ancillaries buildings and
ITF 994 058 2, 2,496 49, 47,936
391 287
233 Plant 5, 5,104 spares 946 , 3 26,386 1,378 22,440 of plant Balance Balance
632
Gas 199 18,945 18,313 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 18,114 21,062 4,871 45,440 6,563 126 96,176 turbines PERTY, PLANT AND EQUIPMENT (Continued) PLANT PERTY, O PR
At 31 December 2015 6 Cost At 31 December 2014 and at 31 December 2015 Accumulated depreciation At 31 December 2014 At 31 December 2015 Year 2015 Charge for the year Net book amount
68 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
7. Inventories
31 December 31 December 2016 2015 RO’000 RO’000 Liquid fuel 259 259 Spares 63 63 322 322 Provision for obsolescence (63) (63) 259 259
The Company, in accordance with the Project Agreements, is required to maintain a base stock of liquid fuel to be used in case of interruption of gas fuel. Spares stock is maintained for the gas turbines and is held for emergencies.
8. Trade and other receivables
31 December 31 December 2016 2015 RO’000 RO’000 Trade receivables 1,475 1,850 Less: provision for impaired trade receivables (93) (93) 1,382 1,757 Prepayments and other receivables 89 229 1,471 1,986
Trade receivables from the OPWPC amounting to RO 1.382 million (2015 – RO 1.757 million) are neither past due nor impaired.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The trade receivables are secured by a guarantee from the Ministry of Finance.
The ageing analysis of unimpaired trade receivables is as follows:
31 December 31 December 2016 2015 RO’000 RO’000 Up to 3 months 1,382 1,757
Trade receivables are from OPWPC, the only customer of the Company. The carrying amounts of the Company’s trade receivables are primarily denominated in Omani Rial.
69 Notes to the Financial Statements for the year ended 31 December 2016
9. Cash and cash equivalents
For the purposes of the statement of cash flows, cash and 31 December 31 December cash equivalents comprise the following: 2016 2015 RO’000 RO’000 Current account balances with banks 172 80 172 80 Less: short-term bank borrowings (500) (4,000) The current account balances with banks are (328) (3,920) non-interest bearing.
10. Share capital
Authorised share capital At 31 December 2016 and 31 December 2015, the Company’s authorised share capital comprised of 15,965,760 ordinary shares and 23,948,640 preference shares of RO 1 each.
Issued and fully paid-up share capital At 31 December 2016, the Company’s issued and paid-up share capital consists of 2,000,000 shares of RO 1 each (2015: 2,000,000 shares of RO 1 each) analysed as follows:
Paid Paid Total in-cash in-kind RO’000 % RO’000 RO’000
Preference shares 1,200 60 162 1,038
Ordinary shares 800 40 800 - 2,000 100 962 1,038
Preference shareholders have the right to two votes per share at any general meeting of the Company and are entitled to a dividend of up to 5% of the net profit of the Company prior to and in addition to any dividend to the holders of ordinary shares. The holders of ordinary shares have the right to one vote per share at any general meeting of the Company.
At the end of the reporting period, the details of the significant preference shareholders and the percentage of their shareholding in the Company is as follows:
Number of % to % to preference preference total 31 December 2016 shares shares shares Mannah Powerco Limited 762,552 63.55 38.13 Ministry of Defence, Pension Fund 109,360 9.11 5.47 M GEC (Oman) Holdings Limited 328,083 27.34 16.40 Fractions from capital reduction 5 - - 1,200,000 100 60
70 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
10 Share capital (continued) Number of % to % to preference preference total 31 December 2015 shares shares shares
Mena Infrastructure Investments Limited 762,552 63.55 38.13 Ministry of Defence, Pension Fund 109,360 9.11 5.47 M GEC (Oman) Holdings Limited 328,083 27.34 16.40 Fractions from capital reduction 5 - - 1,200,000 100 60
None of the ordinary shareholders own more than 10% of the Company’s share capital (2015 – none).
11 Legal reserve
In accordance with Article 106 of the Commercial Companies Law 1974, as amended, of the Sultanate of Oman, 10% of the Company’s net profit for the year is to be transferred to a non- distributable legal reserve until the amount of the legal reserve becomes equal to one-third of the Company’s issued share capital. During the year ended 31 December 2016, no transfer has been made as the legal reserve has reached the statutory minimum of one-third of the capital (2015: RO Nil).
12 Dividends paid and proposed
(a) During the year, dividend to preference shareholders of RO 0.545 per share amounting to RO 0.654 million and dividend to ordinary shareholders of RO 0.500 per share amounting to RO 0.400 million for the year 2015 was approved in the Annual General Meeting held on 22 March 2016 and paid subsequently.
(b) During the year, an amount of RO 417,877 pertaining to the years 2015 unclaimed dividends have been transferred to the Investors’ Trust Fund of the CMA.
13 Income tax a) Current tax Provision for income tax has been made after giving due consideration to adjustments for potential allowances and disallowances.
Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Statement of profit or loss and other comprehensive income Tax charge (net) 533 617 Current tax charge (408) (474) Deferred tax credit 125 143
71 Notes to the Financial Statements for the year ended 31 December 2016
13 Income tax (continued) 31 December 31 December 2016 2015 RO’000 RO’000 Statement of financial position Current liability Current year 533 617 Prior years 213 193 746 810
Deferred tax liability 147 554
The reconciliation of taxation on the accounting profit with the current taxation charge for the year is as follows:
Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Profit before tax 1,067 1,214 Taxation on accounting profit at applicable rates 125 142 Add tax effect of: Depreciation on property, plant and equipment 408 474 Other expenses disallowed for tax purpose - 1 533 617 (b) Status of tax assessments The Company is subject to income tax in accordance with the income tax law of the Sultanate of Oman at the tax rate of 12% on taxable profits in excess of RO 30,000. The taxation assessments for the years 2011 to 2015 have not been finalised by the Secretariat General for Taxation (SGT). The Management believes that the tax assessed, if any, for the unassessed tax years would not be material to the financial position as at the 31 December 2016.
(c) Deferred tax The deferred tax liability and the deferred tax charge (net) in the statement of profit or loss and other comprehensive income are attributable to the following items:
Provision for obsolete inventories Property, and impaired plant and trade equipment receivables Total 31 December 2016 RO’000 RO’000 RO’000 31 December 2015 573 (19) 554 Recognised in the statement of profit or loss and other comprehensive income (408) - (408) At 31 December 2016 165 (19) 147
72 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
13 Income tax (continued) Provision for obsolete inventories Property, and impaired plant and trade equipment receivables Total 31 December 2015 RO’000 RO’000 RO’000 At 31 December 2014 1,047 (19) 1,028 Recognised in the statement of profit or loss and other comprehensive income (474) - (474) At 31 December 2015 573 (19) 554
Trade payables are generally settled within 60 to 90 days of the suppliers’ invoice date.2015 The contractual maturity date for trade payables is due within 12 months from the statement of financial position date.
14. Trade and other payables 31 December 31 December 2016 2015 RO’000 RO’000 Trade payables 179 468 Accruals and other payables 376 237 Directors’ remuneration payable 42 75 597 780
15 Short-term bank borrowings
31 December 31 December 2016 2015 31 December 2016 RO’000 RO’000
Short-term borrowings 500 4,000
Short term bank borrowings are from local commercial banks which carry interest ranging between 2.25% and 3.5% per annum (2015 – between 1.85% and 2.5% per annum). The borrowings are revolving facilities with a maximum period of 6 months during the availability period. The borrowing facilities contain certain restrictive covenants that are common for such arrangements.
16 Related party transactions and balances
The Company, in the ordinary course of business, deals with parties, which fall within the definition of ‘related parties’ as contained in International Accounting Standard Number 24. The management believes that such transactions are not materially different from those that could be obtained from unrelated parties.
73 Notes to the Financial Statements for the year ended 31 December 2016
Significant transactions during the period with Year ended Year ended related parties are as follows: 31 December 31 December 2016 2015 RO’000 RO’000 Management fees 897 896 Shared office overheads 471 464 Directors’ remuneration and attendance fees 45 91 Key management personnel remuneration - 11
17 Revenue Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Revenue from Phase 1 3,958 4,523 Revenue from Phase 2 6,075 6,288 10,033 10,811
18 other income Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Penalty income from STOMO - 96 Others - 21 - 117
19 General and administrative expenses Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Operation and maintenance fee – STOMO 2,766 2,993 Repairs and maintenance expenses – plant 121 35 Repairs and maintenance expenses – ITF 107 - 2,994 3,028 Management fees 897 896 Shared office overheads 471 464 Insurance 462 507 Directors’ meeting attendance fees and remuneration 45 91 Salaries and employee related costs 39 35 Legal and professional fees 38 26 Meetings and other related expenses 28 42 Claim tax rate change 23 33 Office expenses 24 33 Registration and renewals - 6 5,021 5,161
74 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
20 Finance costs
Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Interest on base facility 67 95 Others 67 95
21 Net assets per share
Net assets per share is calculated by dividing the shareholders funds at the end of the reporting period by the number of shares outstanding as follows:
Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Shareholders’ equity 3,718 3,831
“Number of issued and fully paid-up shares outstanding at the reporting date” 2,000 2,000
Net assets per share 1.859 1.916
22 Basic earnings per share
Basic earnings per share is calculated by dividing the net profit for the year with the weighted average number of shares issued during the year.
Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Net profit for the year 942 1,071
“Weighted average number of preference and ordinary shares outstanding throughout the year (’000)” 2,000 3,750
Basic and diluted earnings per share 0.471 0.286
No figure for diluted earnings per share has been presented because the Company has not issued any instruments which would have an impact on earnings per share when exercised.
23 Contingent liabilities
There were no contingent liabiities as at 31 December 2016 (31 December 2015: RO Nil).
75 Notes to the Financial Statements for the year ended 31 December 2016
24 Lease commitments
Land on which the power station, buildings and ancillaries are constructed has been leased from the Government for the duration of the Project Life. At the end of the reporting period, the future minimum lease commitments under non-cancellable operating leases are as follows:
Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000 Within 1 year 1 1 Between 2 to 5 years 3 4 4 5
25 Capital risk management
The capital in managed by the Company in a way that it is able to continue to operate as a going concern while maximising returns to the shareholders.
The capital structure of the Company consists of share capital, reserves and retained earnings. The Company manages its capital by making adjustments in dividend payments and bringing in additional capital in light of changes in business conditions. No changes were made in the objectives, policies and processes during the years ended 31 December 2016 and 31 December 2015.
26 Financial assets and liabilities and risk management
(a) Financial assets and liabilities Financial assets and liabilities carried on the statement of financial position include cash and bank balances, trade and other receivables, short-term bank borrowings and trade and other payables. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.
(b) Risk management Risk management is carried out by the Finance Department of the Company under the guidance of the senior management and Board of Directors. The senior management and Board of Directors provide significant guidance for overall risk management covering specific areas such as credit risk, interest rate risk, foreign exchange risk and investment of excess liquidity.
(c) Capital management The primary objective if the Company’s capital management is to ensure that it maintains a healthy capital ratio in order to support its business and maximise shareholders’ value.
76 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
26 Financial assets and liabilities and risk management (continued)
The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, trade and other payables and short-term bank borrowings less cash and bank balances. Capital includes share capital, reserves and retained earnings. Year ended Year ended 31 December 31 December 2016 2015 RO’000 RO’000
Trade and other payables 597 780 Taxation 746 810 Short-term bank borrowings 500 4,000 Less: cash and bank balances (172) (80) Net debt 1,671 5,510
Share capital 2,000 2,000 Legal reserve 667 667 Retained earnings 1,051 1,164 Total capital 3,718 3,831
Total capital and net debt 5,389 9,341
Gearing ratio 0.31 0.59
In addition, the Company’s activities expose it to a variety of financial risks: market risk (including currency rate risk, interest rate risk and price risk), credit risk and liquidity risk.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of a changes in foreign exchange rates.
The Company is exposed to foreign exchange risk arising from various currency exposures. Significant portion of revenues and major operating costs are denominated in OMR and indexed to the USD / OMR exchange rates. The balance operating costs denominated in USD are covered by the fact that OMR is pegged to the USD and has remained unchanged since 1986. As these currencies are pegged against the Omani Rial, the Management does not believe that the Company is exposed to any material currency risk.
77 Notes to the Financial Statements for the year ended 31 December 2016
26 Financial assets and liabilities and risk management (continued)
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates.
The Company’s short term borrowings are on fixed rate basis. Accordingly, the Company is not exposed to interest rate risk due to fluctuation in market interest rate. The Management manages its exposure to interest rate risk on short term borrowings by ensuring that they are as far as possible on a fixed rate basis.
(iii) Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
As the Company has no exposure to investments, it does not have the risk of fluctuation inprices.
(b) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables. At the end of the year, the entire trade receivable was from a government owned company (OPWP). The management considers the credit risk associated with the trade receivables to be very low because the receivables are from the Government. Furthermore, the cash is placed in reputable banks, which minimise the credit risk. The carrying value of accounts and other receivables approximate their fair values due to the short-term nature of those receivables.
Age analysis of trade and other receivables is as follows: 31 December 31 December 2016 2016 RO’000 Provision Not past dues 1,382 - More than one year 93 93 1,475 93
31 December 31 December 2015 2015 RO’000 Provision Not past dues 1,757 - More than one year 93 93 1,850 93
78 ANNUAL REPORT 2016 Notes to the Financial Statements for the year ended 31 December 2016
(c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company maintains sufficient bank balances and cash to meet the Company’s obligations as they fall due for payment.
The table below analyses the expected contractual maturities of the financial liabilities at the end of the year. Carrying Contractual 0 to 6 31 December 2016 amount cash flows months RO’000 RO’000 RO’000
Trade and other payables 597 597 597 Short-term bank borrowings 500 500 500 1,097 1,097 1,097
Carrying Contractual 0 to 6 31 December 2015 amount cash flows months RO’000 RO’000 RO’000
Trade and other payables 780 780 780 Short-term bank borrowings 4,000 4,000 4,000 4,780 4,780 4,780
27 Capital commitments
Outstanding capital commitments as at 31 December 2016 amounted to RO 97 thousand (31 December 2015: Rial Nil).
28 Subsequent events
There were no events occurring subsequent to 31 December 2016 and before the date of the report that are expected to have a significant impact on these financial statements.
29 Comparative figures
Certain comparative figures for the previous year have been reclassified, wherever necessary, in order to conform with the presentation adopted in the current year. Such reclassifications do not affect previously reported net profit or shareholders’ equity.
79