Annual Report 2016 United Power Company
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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