ANNUAL REPORT 2014 - upcmanah.com · Annual Report 2014 Board of Directors and Management 4 Board...
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ANNUAL REPORT 2014
Transcript of ANNUAL REPORT 2014 - upcmanah.com · Annual Report 2014 Board of Directors and Management 4 Board...
A N N U A L R E P O R T 2 0 1 4
His Majesty Sultan Qaboos Bin Said
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Annual Report 2014
Board of Directors and Management 4
Board of Directors’ Report 7
Operation Highlights 10
Health and Safety, and Environment 15
Corporate Social Responsibility 17
Description of the Project 19
Profile of the Current Preference Shareholders 22
Management Discussion and Analysis Report 23
Report of the Auditors on Corporate Governance 27
Corporate Governance Report 28
Report of the Auditors on Financial Statements 39
Financial Statements 40
Contents
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BOARD OF DIRECTORS AND MANAGEMENT
Management
REPRESENTING
Chairman Mr. Murtadha Ahmed Sultan MGEC (Oman) Holdings Limited
Vice Chairman Mr. Mark Lemmon MENA Infrastructure Investment Ltd.
Director Col. Sultan Sulaiman Salim Al Mahrooqi Ministry of Defence Pension Fund
Director Mr. James S. Harper -
Director Mr. Rahul Mittal -
Director Ms. Isabelle Demir
Director Mr. Yaseen Abdullatif -
Director Mr. Hamad Lal Baksh Al Balushi -
Director & Co. Secretary Mr. Guillaume Baudet
Director & CEO Mr. Zoher Karachiwala -
Chief Executive Officer Mr. Zoher Karachiwala
Company Secretary Mr. Guillaume Baudet
Technical Manager Mr. Sreenath Hebbar
Chief Financial Officer Mr. S. M. Tariq
Administration Manager Mr. Jamal Al Bloushi
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Annual Report 2014
Mr. Murtadha Ahmed SultanChairman
Mr. Mark LemmonVice Chairman
Col. Sultan Sulaiman Salim Al MahrooqiDirector
Mr. Rahul MittalDirector
Mr. James S. HarperDirector
Mr. Yaseen AbdullatifDirector
Ms. Isabelle DemirDirector
Mr. Hamad Lal Baksh Al BalushiDirector
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Mr. Jamal Al BloushiAdministration Manager
Mr. S. M. TariqChief Financial Officer
Mr. Guillaume BaudetDirector & Co. Secretary
Mr. Zoher KarachiwalaDirector & CEO
Mr. Sreenath HebbarTechnical Manager
BOARD OF DIRECTORS AND MANAGEMENT
7
Annual Report 2014BOARD 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 Twentieth Annual Report of the Company for the year ended 31 December 2014.
The Company owns the Power Generating Station of Manah under a BOOT (build, own, operate and transfer) scheme, and Interconnection and Transmission Facilities under a BOT (build own and transfer) scheme. While the Power Generating Plant will be transferred to the Government in 2020, the Interconnection and Transmission Facilities will be transferred in 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.
On 7th January 2014, arcing in the Generator Circuit Breaker (GCB) of one of the frame 9E GT caused it to trip. Looking at the extent of damage, it was decided to replace the GCB with a new one. This project was fast tracked with the GCB OEM (Alstom Grid) and GT2A operation was finally commenced on July 1, 2014.
Besides the above, the Manah Power Plant has been running smoothly and efficiently, and there is no other particular event worthwhile to mention. The 5 generator sets of the project showed an exceptional reliability, and the performances expected for such high-technology machines. During the year the company received long pending Final Environment Permit for Phase 1, Phase 2 and the Housing Complex.
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. Manah Power Plant has achieved 6,789 days of LTI free operation since inception, a significant milestone in energy sector in Oman.
The Company recorded in 2014, a net profit of Rials Omani 1.020 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 for Phase 1. The detailed explanations of the variations are contained
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in the section “Management Discussion and Analysis Report” of the Annual Report. The Directors of the Company have recommended a final ordinary dividend of Rials Omani 1.500 million, which represents 30% (300 baiza per share) of the current share capital of the Company.
The Company also carried out in December 2014, capital reduction of RO 1.974 Million as a consequence to the structured plan of capital reduction approved by the market regulators and the shareholders in the EGM held in 2012. The current capital after the reduction is RO 5.000 Million.
Due to the definitive life of the project and its purpose, it is the policy of the company to maximize distributing its available profits and in the years where profits are low, it distributes its funds not required for operations by way of well-structured plan of capital reduction. Past five years’ distribution to shareholders, are disclosed separately under ‘Management Discussion and Analysis Report’.
UPC complies and maintains high standards of 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 issues with greater emphasis on education of school going children. This service has been duly recognized by the fact that the Manah Municipality was awarded a second prize among the municipalities of the country.
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 SultanChairman of the Board
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Power Generation
The total power exported by the plant in 2014 (Phases I and II) amounts to 1,102 GWh. The cumulative energy exported by the plant from initial commissioning is 19,922 GWh.
The aggregate average plant guaranteed net output (PGNO) for the reporting period was 93.281 MW for Phase I, and 205.773 MW for Phase II at an average ambient temperature of 28.91°C. The use factor (No. of fired hours as a percentage of the hours that the units were made available) was 34.1% for Phase I and 84.9% for Phase II.
Manah recorded 90.0% reliability of the total Plant (Phase I & Phase II units) with 3,509.9 hours of Forced Outages in 2014. Failure of Generator Circuit Breaker of GT2A in January, led to prolonged forced outage of approximately 3,400 hours. The old GCB has now been replaced by a new one and is operating satisfactorily.
Evolution of these figures from commercial operation date is as under:
YearAvailable energy(GWh)
Availability factor( % )
Energy delivered(#)
(GWh)
Use factor( % )
Reliability factor( % )
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 1,473.1 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
(*) COD Phase 1: 15th October 1996 (**) COD Phase 2: 19th May 2000(#) Figures reported between 1996 and 2003 have been changed to reflect Energy Exported to the grid.
OPERATION HIGHLIGHTS
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Annual Report 2014
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.
3,000
2,500
2,000
1,500
1,000
500
-
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
209
106
811
675 80
066
1 760
611
1,78
31,
048
2,54
21,
269
2,52
61,
436
2,50
21,
219
2,46
91,
125
2,50
21,
046
2,53
61,
188
2,47
698
2
2,55
81,
013
2,37
21.
045
2,33
51,
321
2,25
91,
473
2,49
31,
470
2,40
4
2,16
0
1,19
4
1,10
2
Available energy in GWh Energy dispatched in GWh
Ener
gy in
GW
h --
>
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 (LTPA) 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.
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.
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Maintenance Activities
Phase I Scheduled maintenance:
The total maintenance time consumed for the year was 388.3 hours, i.e. 1.48% of total calendar hours or an availability factor of 98.52%.
Annual maintenance carried out on all GTs.
Phase II Scheduled maintenance:
The total time consumed for maintenance was 710 hours in the reporting period, i.e. 4.05% of total calendar hours during reporting period or an availability factor of 95.95%.
Combustion Inspection undertaken on GT2A and GT2B. A mid-life overhaul of the Generator Circuit Breaker of GT2B was done.
Performance Tests
Performance tests were conducted during November 2014 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.
29500
29000
28500
28000
27500
27000
26500
26000
25500
25000
24500
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Phase 1 Power Output (KW)
Year Guaranteed output in kW GT 1A (measured) GT 1B (measured) GT 1C (measured)
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Annual Report 2014
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
13000
12800
12600
12400
12200
12000
11800
11600
Guaranteed HR in kJ/kWh GT 1A (measured) GT 1B (measured) GT 1C (measured)
Phase 1 Heat Rate (KJ/KWH)20
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
96,000
94,000
92,000
90,000
88,000
86,000
84,000
Phase 2 Power Output (KW)
Guaranteed output in kW GT 2A (measured) GT 2B (measured)
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2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Phase 2 Heat Rate (KJ/KWH)
12,000
11,800
11,600
11,400
11,200
11,000
10,800
10,600
10.400
Guaranteed HR in kJ/kWh GT 2A (measured) GT 2B (measured)
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 2014, Omani employees comprised 79.17% 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 Omani 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.
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Annual Report 2014
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.
The Loss Time Incident (LTI) of Manah Power Plant remains ZERO during the O&M regime following COD of both phases. As of December 2014, the Plant has clocked 6,789 LTI free days since the commencement of operations.
The Company Management regularly takes part in safety walks with its Operator and attends their Safety Committee Meetings.
The Operator is certified for OHSAS 18001 for Health & Safety Management. During 2014, they have also been certified for ISO 14001 Environmental Management.
An on-line safety management system called “Intelex” has been implemented by the Operator. This is 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.
00
00
000
0
00
05
46 Open 316 Closed362 Raised
Frequency Rate: 0.0 (0.0) Severity Rate: 0.0 (0.0)
Fatality
LTI
Medical TreatmentOccupational Disease
First Aid
Employee Lost DaysFire / Explosion
Driving / Traffic Incident
Damage to Eqpt / PropertyEnvironmental Incidents
Security IncidentsNear Misses
Unsafe Acts / Conditions
The Health and Safety statistics for the year is represented graphically by the Safety Triangle below:
HEALTH & SAFETY AND ENVIRONMENT
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Other Proactive Indicators for Safety Monitoring:
160
140
120
100
80
60
40
20
0
10
9
8
7
6
5
4
3
2
1
0Jan Feb Mar Apr May
2014
Toolbox talks performed
Unsafe Acts & conditions closed
Fresh Eyes Observations
HSE Committee Meetings Safety Walks
Point of Work Risk Assessments Instinct Training
Jun Jul Aug Sep
Environment Monitoring
Since 2008, the Company had installed a Predictive Emissions Monitoring System that reported individual stack emissions based on power generated by each Gas Turbine. This software was validated once a year by actual stack measurements at various loads for each gas turbine and the data fed into the system.
In addition to stack monitoring as above, the Company would undertake ambient air monitoring for a period of 15 days, two times a year.
However, MECA required that UPC install a permanent station for monitoring of ambient air quality as a prerequisite to renewal of the Company’s Final Environmental Permits.
Accordingly, in 2013, the Company installed and commissioned an Ambient Air Quality Monitoring Station within its plant premises. This has been commissioned in August 2013 and has been in operations continuously since then.
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.
We believe this equipment would also help 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.
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Annual Report 2014
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 2014 as well, the Company focused its efforts on education projects, youth & sports activities, on direct social support and municipal activities. The Company carried out the following projects during the year:
Educational Activities- Providing a Porto cabin to be used as a classroom for students with difficulty in learning along with the
necessary equipment to serve the purpose. - Distribution of stationary items to students of low income families in collaboration with Manah Charity
which keeps record of all low income families in Manah.- Participated in a project which identifies teachers and students who have excelled in their field in
collaboration with the Wali Office in Manah.- Social Support to the project TEACH to ensure continuation of education to students having cost
constraints.Social Activities: Financial donation - Manah Municipality for their ongoing municipal projects.- Public Authority for Small & Medium Enterprises for their Dates Festival.- Provide relief to victims of floods and heavy rains.- A wing of a social club for their events.Youth & Sports: Sponsorship/financial support- Al Bashaer Club in Manah for the open day event which included recreational activities and cleaning
campaign of the villages. - Al Arabi Team in Manah for the summer camp which included cleaning of particular areas, holding leisure
competitions, computer courses and lectures. Participants of the summer camps include students from 11-12 grades in universities and colleges.
- Sponsoring a summer camp to promote sports activities during the month of Ramadan. The purpose of the camp was to prepare ground to organize a football league, contribute prizes and buy items to be used for cleaning the village/falajes.
CORPORATE SOCIAL RESPONSIBILITY
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Annual Report 2014
History of the Project
United Power Company (SAOG) (the “Company”) was formed and registered as a joint stock Company on January 9th, 1995. The public currently owns 40% of the Company’s shares while the founder shareholders own 60%.
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 have been transferred to the Ministry of Defence Pension Fund of Oman in 2003. Tractebel SA (now GDF Suez), 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.
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 (so-called “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.
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. The total 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. Taking into account the initial term of the extension project, the Company life has been extended by another five years to 9 January 2025. The Company will continue to own and operate the Manah Power Station (both Phases) and own the ITF till this date.
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.
DESCRIPTION OF THE PROJECT
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UPC maintains an administrative office in Muscat.
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.
Brief Technical Description of the Project
Manah Power Station
The Manah 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 workshop 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 substations (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).
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.
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Annual Report 2014
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 by the newly installed Ambient Air Quality Monitoring System at the Plant.
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MENA Infrastructure Investments Limited
Mena Infrastructure Investments Limited is a wholly owned subsidiary of MENA Infrastructure. Founded in 2007 and owned by HSBC, Fajr Capital and Waha Capital, MENA Infrastructure currently manages a US$300 million infrastructure fund from its headquarters in the Dubai International Financial Centre.
MENA Infrastructure has established an important position in private equity infrastructure investment, and has one of the most experienced specialist infrastructure investment teams operating across the region. The team is supported by a network of sponsors, investors, intermediaries and strategic partners that command significant influence in the region’s business communities. With these resources and networks at its disposal, the firm offers a unique combination of unrivalled origination capability with proven investment and execution expertise. MENA Infrastructure has executed some of the region’s landmark transactions and holds a collection of well-regarded awards which bears testament to its superior performance. Further information can be found at www.menainfrastructure.com
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 Corporates in Oman.
MGEC (Oman) Holdings Limited
MGEC (Oman) Holdings Limited is 100% owned by Mubadala GE Capital PJSC. Mubadala GE Capital PJSC is a specialized commercial finance company based in the United Arab Emirates, which offers structured financing solutions to help businesses grow and adapt in rapidly evolving economic environments. It is a joint venture between Mubadala Development Company PJSC (Mubadala) and General Electric Capital Corporation (GE) and is headquartered in Abu Dhabi. Mubadala GE Capital offers commercial lending and leasing financing solutions to corporates. For further information about Mubadala GE Capital PJSC, please visit www.mubadala-ge.com
PROFILE OF THE CURRENT PREFERENCE SHAREHOLDERS
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Annual Report 2014
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 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:
- Since 2002, except for a spike in 2006, there was a steady decline in power delivered from Manah till 2007 (From 1,443 GWH in 2002 to 946 GWH in 2007).
- Since 2007, there has been a steady increase in the power delivered till 2012 (1,473 GWH).
- In 2013, there has been a sharp decrease of almost 19% over the previous year and a further reduction of 8% in 2014 as compared to 2013.
In the period 2002 – 2007, new plants (Barka-1, Al Kamil, Sohar-1) addressed rising demand, however, demand itself grew by only 5%. Therefore the power dispatched from Manah during this period decreased. In the period from 2007 – 2012, despite other new plants coming on stream (Barka-2, Sohar-2, Barka-3), demand has also grown significantly – Peak Demand at a compounded annual growth rate (CAGR) of 10%, while Minimum Demand grew at a CAGR of 20%. This growth in demand forced OPWP to supplement power capacity by renting Diesel Generators. During this period therefore, power dispatch from Manah also increased.
The 2,000MW Sur Power Plant has been commissioned towards the end of 2014. While it is still early to comment, Manah dispatch towards the end of 2014 has dropped. Manah could be progressively utilized as grid support loading to a reduction in variable revenues and costs.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1,600
1,400
1,200
1,000
800
600
400
200
Total MWH
Summer
Winter
Summer MWH Winter MWH
MANAGEMENT DISCUSSION & ANALYSIS REPORT
24
Obsolescence of equipment; especially electronic control and communication equipment is expected. The Company and its operator are carefully monitoring this aspect and ready to take appropriate action as necessary.
C. Analysis of Results
The net profit for the year under review was higher by RO 258K as compared to previous year. This was mainly on account of a number of factors, explained in forthcoming paragraphs.
Revenue
RO’000Power tariff reduction 173[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. . 77Lower ‘additional starts’ 641
Loss on account of Generator Circuit Breaker (GCB), as explained in ‘Operational Highlights’ section of the Annual Report (net of insurance claim) 133
Expenses
1. Operation & Administration Expenses decreased by RO 635K. The net decrease was on account of the following:
RO’000Negative VariancesInsurance costs due to higher premium 25Loss on GCB scrapped 32Higher Directors’ Remuneration 22Higher staff costs – as per sharing arrangements 12Miscellaneous (net) 7
Positive VariancesLower O&M fees on account of ‘additional starts’ not earned 592Saving in O&M fees due to lower production 100Lower custom duty 41
2. Depreciation
The net decrease in depreciation cost of RO 659K is due to:
Positive effect on revision in estimates of useful life of plant assets 705Additional depreciation on new GCB installed during the year (46)
3. Finance costs
Saving on account of positive volume variance in short term facilities 23
25
Annual Report 2014
D. Analysis of Balance Sheet
The variations in balance sheet section can be explained as follows:
RO’000• Fixed assets: Net negative variance of RO 4,011
New GCB installed 455Net book value – Scraped GCB (32)Depreciation for the year (4,434)
• Increase in Accounts and Other Receivables is mainly due to insurance claim booked in respect of GCB failure amounting to RO 761, as fully explained in note 18 to the audited financial statements for the year 2014.
• Changes in Share capital and legal reserve: In 2012, CMA approved a capital reduction plan for the years 2012 to 2014 ranging from 5% to 10%, subject to condition that the share capital after each reduction would not be below the threshold of RO 5 million. Accordingly, in December 2014 the Company reduced its paid up capital by RO 1.974 Million to bring it to the above mentioned threshold of RO 5 Million. Further, due to the capital reduction in December 2014, a further amount of RO 657K has been transferred from the legal reserve to the retained earnings.
E. Financial Highlights
The Company’s performance for the past five years was as follows:
2014 2013 2012 2011 2010OMR’000 OMR’000 OMR’000 OMR’000 OMR’000
Net Profit 1,020 762 584 1,872 2,070Total Assets 15,892 18,514 23,912 29,090 34,946Total Revenue 10,376 11,399 11,050 12,487 13,612Total Shareholders’ Fund 8,344 10,759 13,572 19,499 28,029Paid up Capital (Original) 34,869 34,869 34,869 34,869 34,869Capital reduction-accumulated to date 29,869 27,895 26,152 22,665 19,178Current Paid up Capital 5,000 6,974 8,717 12,204 15,691Weighted average number of Shares 6,810 8,572 11,918 15,400 18,887
2014 2013 2012 2011 2010Return on total assets 6.4% 4.1% 2.4% 6.4% 5.9%Return on Current paid up Capital 20.4% 10.9% 6.7% 15.3% 13.2%Long Term Debt: Capital ratio 0:100 0:100 0:100 0:100 0:100Ordinary Dividend (Interim) * - - 10% - 7.5%Ordinary Dividend (Final) ** 30% 20% 20% 14% 12.5%Book value per share on weighted average shares
1.23 1.26 1.14 1.27 1.48
Reduction of original paid up capital during the year
5.66% 5% 10% 10% 10%
*Based on paid up capital at 30 June.** 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.
26
F. Outlook for 2015
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.
Due to tariff structure contained in the Power Purchase Agreement, the Phase I revenues stand reduced beginning the last quarter of 2011. This trend will continue and is not a reflection of the operational performance of the Company, but is solely dependent on the agreed tariff structure for the life of the project.
The Company, based on the plan approved by shareholders expects to carry out capital reduction program during the year 2015 so as to reduce the paid up capital to R.O. 2 Million. This has been envisaged as a measure to maximize the return to shareholders in the absence of dividend or in case of low dividend in subsequent years.
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 when any such opportunities arise.
G. 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.
H. Transfers to Investors Trust Fund
On behalf of the Company, Muscat Clearing & Depository Company SAOC transferred to Investors Trust Fund account amounts of RO 2,458 and RO 2,078 in respect of unclaimed amounts, as a consequence to the capital reduction carried out in December 2013 and dividend for the year 2013 respectively.
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Philosophy On Code Of Corporate Governance
In the Sultanate of Oman, Capital Market Authority (CMA) implemented the Code of Governance by issuing “Code of Corporate Governance for Muscat Securities Market listed Companies” vide its Circular No. 11/2002 on June 3, 2002.
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 investors 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 the above code, the Company is including this separate chapter on Code of Governance in its annual financial statements for the year ended December 31, 2014.
Board Of Directors
During the year 2013 the CMA, vide its circular no.(K/9/2013) dated 20th November 2013, postponed mandatory application of Independent Director and Related Parties as enforced in their circular No. (K/14/2012) dated 24th October 2012. Till such time new corporate governance rules are introduced, the Company has decided to continue to classify directors as per the existing Corporate Governance rules.
Composition of the Board of Directors, Category of Directors, and their attendance record and number of Board meetings held during the year.
Name of Directors Category of Directors Board Meetings held and attended during 2014
06/02 24/04 15/07 29/10 TOTAL AGMMr. Murtadha A. Sultan(Chairman)
Non-Executive Nominee & Independent
ü ü ü ü 4 ü
Mr. Mark Lemmon(Vice Chairman)
Non-Executive Nominee & Independent
ü ü ü ü 4 -
Mr. James Harper Non-Executive & Independent - - ü - 1 ü
Mr. Rahul Mittal Non-Executive & Independent ü ü ü ü 4 ü
Col. Sultan Sulaiman Salim Al Mahrooqi
Non-Executive Nominee & Independent - ü ü ü 3 -
Mr. Andrew Nowell * Non-Executive & Independent ü ü - - 2 ü
Mr. Yaseen Abdullatif Non-Executive & Independent ü ü - ü 3 ü
Mr. Hamad Lal Baksh Al Balushi Non-Executive & Independent - ü ü ü 3 -
Mr. Ahmed Sinani* Non-Executive & Independent ü - - - 1 ü
Ms. Isabelle Demir ** Non-Executive & Independent - - - - 0 -Mr. Zoher Karachiwala Executive & Non Independent ü ü ü ü 4 ü
Mr. Guillaume Baudet Executive & Non Independent ü ü ü ü 4 ü
* Resigned during the year** Appointed during the year
CORPORATE GOVERNANCE REPORT
29
Annual Report 2014
The Directors of the company also met after the AGM on 20th March 2014, to elect Chairman, Vice Chairman, Company Secretary and members of the Audit Committee.
Directorship/membership of the Company’s directors in other SAOG companies in Oman held during the year.
Name of Directors Position held Name of the Company
Mr. Murtadha A. SultanDirectorDirectorChairman
Gulf International Chemicals SAOGOman Flour Mills SAOGSohar Power Company SAOG
Mr. Mark Lemmon None -Mr. James Harper None -Mr. Rahul Mittal None -Col. Sultan Sulaiman Salim Al Mahrooqi None -
Ms. Isabelle Demir None -Mr. Andrew Nowell None -
Mr. Yaseen Abdullatif Director & Chairman Audit Committee Sahara Hospitality Co. SAOG
Mr. Hamad Lal Baksh Al Balushi None -Mr. Guillaume Baudet Director Al Batinah Power Company SAOGMr. 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.
30
(b) Composition of Audit Committee and attendance record of Committee Members.
Name of Committee Members Position
Meetings held and attended during 2014
06/02 24/04 15/07 29/10 TOTALMr. Yaseen Abdullatif Chairman ü ü - ü 3Mr. James Harper Member - - ü - 1Mr. Andrew Nowell * Member ü ü - - 2Mr. Mark Lemmon * Member - - ü ü 2Ms. Isabelle Demir ** Member - - - - -
* Resigned during the year** Appointed in the meeting of 29/10
(c) Sitting fee of RO 200 per meeting is paid to the attendee members.
(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 and the management letter.
In 2014, 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.
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. 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.
The total remuneration to the Directors was as follows:
OMR
Director’s remuneration 56,800
Sitting fee (excluding fees to Audit Committee members) 13,200
TOTAL 70,000
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Annual Report 2014
The sitting Board fees paid to Directors for meetings of the Board attended during the year are given below. The Company does not pay sitting fees for participation in Board sub-committees meetings, except for the Audit Committee meetings. The Directors’ remuneration is paid pro-rata each Directors’ participation in the Board meetings. Attendance at Board meetings and Audit Committee meetings by video – or teleconference is deemed to be attendance in person; attendance by proxy is not considered attendance for purpose of remuneration.
Sl. No. Name of Director No. of meetings for sitting fee
paid
Total sitting fees paid in
RO
Total Remuneration
in RO1 Mr. Murtadha Ahmed Sultan 4 1,600 6,885 2 Mr. Mark Lemmon 4 1,600 6,885 3 Mr. James Harper 1 400 1,721 4 Mr. Rahul Mittal 4 1,600 6,885 5 Col. Sultan Sulaiman Salim Al
Mahrooqi3 1,200 5,164
6 Mr. Andrew Nowell 2 800 3,441 7 Mr. Yaseen Abdullatif 3 1,200 5,164 8 Mr. Hamad Lal Baksh Al Balushi 3 1,200 5,164 9 Mr. Ahmed Al Sinani 1 400 1,721
10 Mr. Zoher Karachiwala 4 1,600 6,885 11 Mr. Guillaume Baudet 4 1,600 6,885
TOTAL 13,200 56,800
The Company will continue to pay sitting fee per Director per meeting amounting to R.O.400 in the year 2015, up to a maximum of R.O. 10,000 per year to any individual Director as per CMA regulations.
(b) TopFiveOfficers
The aggregate remuneration charged by Power Development Company under the management sharing agreement for the top five officers of the Company was RO 234,174.
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.
There were no 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 website www.upcmanah.com. The Chairman gives press releases in case of important news and development that arises. Such press releases are posted to the website of MSM in accordance with the guidelines issued by the market regulators.
The Company is available to meet its shareholders and their analysts on an as and when need basis.
32
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).
Month Low Price High Price Average Price MSM Index(Service Sector)
Jan 1.453 1.453 1.453 3,761.380Feb 1.657 1.686 1.672 3,810.540Mar 1.798 1.785 1.792 3,705.820Apr 1.700 1.725 1.713 3,623.340May 1.610 1.610 1.610 3,666.730Jun 1.602 1.605 1.604 3,605.010Jul - - - 3,681.940Aug 1.500 1.500 1.500 3,765.910Sep - - - 3,809.090Oct 1.500 1.500 1.500 3,660.300Nov 1.348 1.385 1.367 3,541.030Dec 1.259 1.298 1.279 3,475.210
Distribution Of Shareholding
The Shareholding pattern as on 31 December 2014 is as follows:
Category of Shareholders Number of Shareholders
TotalShares
Share Capital%
Preference Shareholders (Local) 1 273,402 5.47Preference Shareholders (Foreign) 2 2,726,590 54.53Fractions from capital reduction - 8 -Ordinary Shareholders above 5% 1 322,657 6.45Ordinary shareholders below 5% but above 1% 9 1,089,075 21.782Ordinary Shareholders below 1% 788 588,268 11.765TOTAL 801 5,000,000 100.00
Professional Profile Of The Statutory Auditors
The Oman branch of Moore Stephens commenced practice in 1988. Over the years, the practice has developed considerably and now services a number of clients, including major listed companies, groups, government organizations and Ministries providing either audit, tax or management consultancy services. The local staff strength is around 40, most of whom are qualified Chartered Accountants, internal auditors and information systems auditors.
Since Moore Stephens London was founded 100 years ago, the Moore Stephens International Limited network has grown to be one of the largest international accounting and consulting groups worldwide. Moore Stephens International is regarded as one of the world’s major accounting and consulting networks consisting of 307 independent firms with 667 offices and 27,081 people across 105 countries.
33
Annual Report 2014
During the year 2014, RO 11,500 was charged by external auditors against the services rendered by them to the Company (RO 9,000 for audit, RO 2,500 for other audit related services).
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 are no material matters that affect the continuation of the Company and its ability to continue its operations during the next financial year.
34
Name Murtadha Ahmed Sultan – ChairmanYear of Joining 1994Education Graduate - Sales and Marketing ManagementExperience Director of W. J. Towell Group of Companies
Well known in the business community, Mr. Sultan has more than 34 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 Sohar Power Company. He is also a Director of Oman Flour Mills and Gulf International Chemicals.
Name Mark Lemmon
Year of Joining 2009Education Chartered Accountant and Masters in Finance from the London School of EconomicsExperience Mr. Lemmon, the Executive Vice Chairman of MENA Infrastructure, was from April
2008 to July 2014, the Chief Executive of that Company and prior to that the deputy Chief Executive of HSBC’s global Project and Export Finance business, responsible for growing that business over recent years to its current pre-eminent position in infrastructure and energy finance. An investment banker and investor of 30 years, he has substantial experience leading business development and winning and executing financing mandates across transportation, social infrastructure, power, water and energy sectors throughout the Middle East and elsewhere.
Name James S. HarperYear of Joining 2011Education MA (Oxon)Experience Mr. Harper is an experienced banking and investment professional with over fifteen
years’ experience in investment, advisory and debt financing. Mr. Harper moved to the region five years ago to join Mubadala GE Capital. Currently he is a Managing Director leading the Investments Team which focuses on co-investing with GE Capital across a broad range of industries, products and geographies.
Name Rahul MittalYear of Joining 2011Education B.Tech, MBA, CFAExperience Mr. Mittal is Director - Investments & Risk Strategy at Mubadala GE Capital (MGEC).
At MGEC, Mr. Mittal is responsible for Enterprise Risk Management, Risk Analytics, Portfolio Management and Energy & Project Finance Investments.
Mr. Mittal is an experienced risk professional with over 16 years of international experience in various aspects of risk management including underwriting, portfolio management, risk analytics and infrastructure investments.
Mr. Mittal holds B.Tech. from IIT Kanpur and MBA from IIM Calcutta. Mr. Mittal is a CFA charter holder.
BRIEF PROFILE OF DIRECTORS
35
Annual Report 2014
Name Isabelle DemirYear of Joining 2014Education Bachelor of Law (Hons.), Bachelor of Commerce (Hons.), University of SydneyExperience Ms. Demir is an Investment Director at the MENA Infrastructure Fund. She has over
13 years combined experience leading and executing infrastructure investments and corporate finance transactions. Ms. Demir joined MENA Infrastructure from HSBC London where she was a Director in the Power, Utilities & Renewables team covering Africa, Turkey and Europe. She has worked with numerous FTSE100 and S&P500 companies, Middle Eastern sovereign wealth funds and financial investors. Prior to HSBC, Ms. Demir was an Investment Manager at Babcock and Brown in London and Sydney. She is a qualified legal practitioner, admitted in the NSW Supreme Court.
Name Col. Sultan Sulaiman Al-MahrooqiYear of Joining 2014Education Bachelor of Military Science, Chartered AccountantExperience Director of Finance in Royal Army of Oman.
Col. Sultan Al-Mahrooqi has more than 28 years of experience with the Ministry of Defence in the field of Military and Financial Sector. He is involved in numerous occupations in the field of finance starting from the position of Financial Officer in the unit and different positions in the field of auditing and budgeting. Col. Sultan Al-Mahrooqi represents in many subcommittee on the military level of Royal Army of Oman and is a member of the Board of Directors of the Ministry of Defence Pension Fund.
Name Yaseen AbdullatifYear of Joining 2009Education Bachelor of Arts degree in Business Administration (major – Finance) from the
American University in December 1996.Experience Mr. Abdullatif has been with 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.
36
Name Hamad Lal Baksh Al BalushiYear of Joining 2009Education Master of Business Administration (MBA), University of Strathclyde.Experience Mr. Al Balushi is a financial professional with over 18 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 GDF Suez Group of Companies in Oman. 38 years in the 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, FranceUniversity Degree in Business and Administration, Universite de Toulon
Experience 17 years of experience in the fields of Controlling and Finance, he joined GDF Suez Energy International in 2007 as Head of Business Control for the MENA region, before becoming CFO of Hidd Power Company in Bahrain in 2011. Guillaume is the CEO of Sohar Power Company SAOG since 2013.
37
Annual Report 2014
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 support by providing manpower and other infrastructure. For this PDC is paid an annual fee and reimbursement of its expenses. It provides the following:
Particulars Omani Non-Omani TotalManagers 1 4 5Other staff 10 6 16
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 CFO until June 2009. He also acts as Company Secretary for some of the GDF Suez Group of Companies in Oman. 38 years 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 BaudetYear of Joining 2013Education Master’s Degree in Accounting and Finance, ISC Paris Business School
Management Program, CEDEP/INSEAD, FranceUniversity 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 17 years of experience in the field of Controlling and Finance. He joined GDF Suez 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 HebbarYear of Joining 2009Education Bachelor of Engineering (Mechanical), VJTI, Mumbai UniversityExperience 29 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.
BRIEF PROFILE OF MANAGEMENT TEAM
38
Name S.M. TariqYear of Joining 1995Education Master’s degree in Business Administration and ACA (Intermediate), Institute of
Chartered Accountants of Pakistan.Experience Overall 38 years of experience of external audit, internal audit and accounting &
finance. Currently working as Chief Financial Officer of the Company. Prior to this, he was Financial Controller of United Power Company SAOG. He had also worked as Internal Auditor for National Trading Company LLC, Muscat and as an External Auditor for KPMG, Muscat (Oman) and Karachi (Pakistan) Offices.
Name Jamal Al BloushiYear of Joining 1995Education Diploma in Computer Science. Certified Manager from the Institute of Certified
Professional Managers (ICPM), James Madison University, USA.Experience 20 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
40
Statement of financial position for the year ended 31 December 2014
Note 2014 2013RO ‘000 RO ‘000
ASSETSNon-current assetsProperty, plant and equipment 8 12,121 16,132
Current assetsInventories 9 259 259Accounts and other receivables 10 2,663 2,006Bank balances and cash 849 117Total current assets 3,771 2,382
Total assets 15,892 18,514
EQUITY AND LIABILITIESEquity Share capital 11 5,000 6,974Legal reserve 12 1,667 2,324Retained earnings 1,677 1,461Total equity 8,344 10,759
LiabilitiesNon-current liabilitiesEmployees’ end of service benefits 12 11Deferred tax liability 14 1,028 1,499Total non-current liabilities 1,040 1,510
Current liabilitiesTaxation 14 800 879Accounts and other payables 15 908 666Short term borrowings 16 4,800 4,700Total current liabilities 6,508 6,245
Total liabilities 7,548 7,755
Total equity and liabilities 15,892 18,514
Net assets per share (RO) 17 1.669 1.543
These financial statements were authorised for issue and approved by the Board of Directors on 05/02/2015 and were signed on their behalf by:
Director Director
The accompanying notes form an integral part of the financial statement.
41
Annual Report 2014Statement of comprehensive incomefor the year ended 31 December 2014
Note 2014 2013RO ‘000 RO ’000
INCOME
Revenue 7 (k) 9,613 11,399
Other income 18 763 1
10,376 11,400
EXPENSES
Operating and administrative expenses 19 (4,690) (5,325)
Depreciation 8 (4,434) (5,093)
Finance costs (96) (119)
(9,220) (10,537)
Profit before taxation 1,156 863
Taxation 14 (136) (101)
Profit and total comprehensive income for the year 1,020 762
Basic earnings per share 20 0.150 0.089
The accompanying notes form an integral part of the financial statement.
42
Share Legal Retainedcapital reserve earnings Total
RO ’000 RO ’000 RO ’000 RO ’000(note 11) (note 12)
At 31 December 2012 8,717 2,906 1,949 13,572
Payment of final dividend for 2012 -- -- (1,832) (1,832)
Reduction of capital (1,743) -- -- (1,743)
Transfer from legal reserve to retained earnings -- (582) 582 --
Net profit and total comprehensive income for the year -- -- 762 762
At 31 December 2013 6,974 2,324 1,461 10,759
At 31 December 2013 6,974 2,324 1,461 10,759
Payment of final dividend for 2013 -- -- (1,461) (1,461)
Reduction of capital (1,974) -- -- (1,974)
Transfer from legal reserve to retained earnings -- (657) 657 --
Net profit and total comprehensive income for the year -- -- 1,020 1,020
At 31 December 2014 5,000 1,667 1,677 8,344
The accompanying notes form an integral part of the financial statement.
Statement of changes in equity for the year ended 31 December 2014
43
Annual Report 2014
2014 2013RO ’000 RO ’000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers 9,632 11,499Cash paid to suppliers and employees (4,328) (5,425)
Cash generated from operations 5,304 6,074Finance costs (96) (119)Taxation (686) (658)Net cash generated from operating activities 4,522 5,297
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment and net cash used in investing activities (455) (1)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid (1,461) (1,832)Reduction of capital (1,974) (1,743)Net cash used in financing activities (3,435) (3,575)
Net increase in cash and cash equivalents during the year 632 1,721
Cash and cash equivalents at the beginning of the year (4,583) (6,304)Cash and cash equivalents at the end of the year (3,951) (4,583)
Cash and cash equivalents [note 7 e)] at the end of the year comprise:
Bank balances and cash 849 117Short term borrowings (4,800) (4,700)
(3,951) (4,583)
The accompanying notes form an integral part of the financial statement.
Statement of cash flowsfor the year ended 31 December 2014
44
Notes to the financial statementsfor the year ended 31 December 2014
1 LEGAL STATUS AND PRINCIPAL ACTIVITIES
United Power Company SAOG (‘the Company’) was registered as a 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 may also undertake activities related to the expansion of its primary objective. Accordingly, the Company implemented the Phase II-Expansion Project (‘Expansion Project’) during the year ended 31 December 2000.
2 DURATION OF THE COMPANY
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 has approved the extension to the Company’s life on 11 October 2000.
All the property, plant and equipment of the Company shall 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 shall become nil.)
3 SIGNIFICANT AGREEMENTS
• 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 has assumed all rights, duties, liabilities and obligations of the Group pursuant to the Project Agreements.
• Effective 1 May 2005, the rights and obligations of Ministry of Housing, Electricity and Water under the Power Purchase Agreement (‘PPA’) have been 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 US Consumer price index and the Omani Consumer price index assuming an exchange rate pegged to the United States Dollar (‘USD’).
• 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 being the indexed Base Fee for 2008 converted to Rials Omani at the exchange rate prevailing on 31 December 2008) and is indexed annually based on Sultanate of Oman CPI published by Ministry of National Economy. The Company is also liable to an annual 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.
45
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
3 SIGNIFICANT AGREEMENTS (Continued)
The Company has entered into an Operations & Maintenance Agreement with Suez Tractebel Operation and Maintenance Oman (“STOMO”), a company owned by GDF Suez Group (70%) and Sogex LLC (30%).
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.
4 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
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), the disclosure requirements of the Commercial Companies Law of the Sultanate of Oman, 1974 (as amended) and the relevant disclosure requirements for licensed companies issued by the Capital Market Authority.
The financial statements are presented in Omani Rials rounded off to the nearest thousand on a historical cost basis.
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 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 has been 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 from the respective completion dates for the two units of the Expansion Project as per the Supplemental Agreement.
The tariff for electricity generated and supplied to OPWPC 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.
46
Notes to the financial statementsfor the year ended 31 December 2014
4 BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Continued)
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. To provide a return to the shareholders in the years where the reported profit is low, the Company has planned reduction of share capital during certain periods [note 23 d) on page 21].
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 recognized 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 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 other security features.
5 ADOPTION OF NEW AND AMENDED IFRS
5.1 New and amended IFRS adopted by the Company
The Company has adopted the following new and revised Standards and Interpretations issued by International Accounting Standards Board and the International Financial Reporting Interpretations Committee, which were effective for the current accounting period:
• Amendments to IAS 32 ‘Financial Instruments: Presentation’ issued in December 2011 clarifies the existing offsetting requirements for a financial asset and a financial liability.
• Amendments to IFRS 10, IFRS 12 and IAS 27 issued in October 2012 define an investment entity and introduce an exception to consolidating particular subsidiaries of an investment entity. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 in its consolidated and separate financial statements.
• Amendments to IAS 36 ‘Impairment of assets’ issued in May 2013 corrects certain consequential amendments to IAS 36 disclosures when IFRS 13 was issued. The amendments also clarify other disclosure requirements relating to recoverable amount for non-financial assets.
• IFRIC 21 ‘Levies’ issued in May 2013 addresses the accounting for a liability to pay a levy if that liability is within the scope of IAS 37 ‘Provisions, Contingent liabilities and Contingent assets’. It clarifies the accounting for a liability to pay a levy whose timing and amount is certain.
• Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ issued in June 2013 clarifies that there is no expiration or termination of hedging instrument if as a consequence of change in laws or regulations, there is a change in the clearing counter-parties.
The Management believes the adoption of the above amendments has not had any material impact on the presentation and disclosure of items in the financial statements for the current accounting period.
47
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
5 ADOPTION OF NEW AND AMENDED IFRS (Continued)
5.2 New and amended IFRS which are in issue but not yet effective
At the end of the reporting period, the following new and revised standards were in issue but not yet effective:
• 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 decrecognition 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 Instrument: 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 to prove 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 supercedes IAS 11 ‘Construction Contracts’, IAS 18 ‘Revenue’ and related IFRICs 13, 15 and 18. IFRS 15 is applicable for annual periods beginning on or after 1 January 2017. 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. The standard includes principles on disclosing the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, by providing qualitative and quantitative information.
• Annual amendments to IFRSs (2010 - 2012 cycle and 2011 - 2013 cycle) issued in December 2013 covers the following IFRSs and the related subject amendments in those standards:
- IFRS 2 – Definition of vesting condition; - IFRS 3 – Accounting for contingent consideration in a business combination; - IFRS 8 – Aggregation of operating segments and reconciliation of the total of the reporting segments’
assets to the total assets;- IFRS 13 – Short term receivables and payables;- IAS 24 – Inclusion of ‘management entity’ within key management personnel; - IAS 16 and IAS 38 – Proportional restatement of accumulated depreciation or amortization under
revaluation method;- IFRS 3 – Exclusion of joint arrangements (previously worded as joint ventures) from the scope of business
combination;- IFRS 13 – Clarification on portfolio exception rule and its applicability to all contracts under IAS 39 and
IFRS 9;- IAS 40 – Judgement required on whether an acquisition of investment property is an acquisition of asset
/ group of assets / business combination under IFRS 3.
The amendments are applicable for annual periods commencing on or after 1 July 2014.
• IFRS 14 Regulatory Deferral Accounts issued in January 2014 permits first time adopters of IFRS to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. IFRS 14 is applicable for annual periods beginning on or after 1 January 2016.
48
Notes to the financial statementsfor the year ended 31 December 2014
5 ADOPTION OF NEW AND AMENDED IFRS (Continued)
5.2 New and amended IFRS which are in issue but not yet effective
• Amendments to IFRS 11 ‘Joint Arrangements’ issued In May 2014 provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments are applicable for annual periods beginning on or after 1 January 2016. The amendments clarify that a joint operator that acquires an asset or group of assets in a joint operation that represents a business in accordance with IFRS 3, applies the principles in IFRS 3 in accounting for business combinations to the acquisition. This will result in separate recognition of goodwill if any arises on the acquisition. If the asset or group of assets acquired does not constitute a business the principles of IFRS 3 are not applied.
• Amendments to IAS 16 ‘Property, plant and equipment’ and IAS 38 ‘Intangible assets’ were issued in May 2014 clarifying the acceptable methods of depreciation and amortization. The amendments are applicable for annual periods beginning on or after 1 January 2016.
• Amendments to IAS 16 ‘Property, plant and equipment’ and IAS 41 ‘Biological assets’ were issued in June 2014. The amendments define a bearer plant and include bearer plants within the scope of IAS 16. Previously, bearer plants were not defined and bearer plants related to agricultural activity were included within the scope of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. The amendments are applicable for annual periods beginning on or after 1 January 2016.
• Amendments to IAS 27 ‘Separate Financial Statements’ issued in August 2014 permits the use of equity method for investments in subsidiaries, associates and joint ventures when an entity prepares its separate financial statements. The amendments are applicable for annual periods beginning on or after 1 January 2016.
• Annual amendments to IFRSs (2012-2014 cycle) issued in September 2014 covers the following IFRSs and the related subject amendments in those standards:
- IFRS 5 – Change in the method of disposal from ‘held for sale’ to ‘held for distribution’ to be treated as continuation of the original plan;
- IFRS 7 - Clarifies ‘servicing contracts’ create continuing involvement of the transferred financial asset if the service fee is contingent upon the timing and amount of cash flows;
- IAS 19 - Discount rate under actuarial assumptions for employee benefits to be based at currency level and not at country level;
- IAS 34 – A reference to ‘elsewhere in the interim financial report disclosure includes cross-referencing to information in any statement which is available at the same time the interim financial report is made available
The amendments are applicable for annual periods commencing on or after 1 January 2016.
• Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’ issued in September 2014 specifies the accounting treatment for gain or loss arising on sale or contribution of assets between investor and joint ventures based on whether or not the sale or contribution results in a business. The amendments are applicable for annual periods beginning on or after 1 January 2016.
The Management believes the adoption of the above amendments is not likely to have any material impact on the presentation and disclosure of items in the financial statements for future periods.
49
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
6 ESTIMATES AND JUDGEMENTS
In preparing the financial statements, the Management is required to make estimates and assumptions which affect reported income and expenses, assets, liabilities and related disclosures. The use of available information and application of judgements based on historical experience and other factors are inherent in the formation of estimates. Actual results in future could differ from such estimates.
The estimates and assumption considered by the Management to have a significant risk of material adjustment in subsequent years primarily comprise:
Estimation of useful lives of the assets which 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;
Estimation of insurance claim to be received for replacement of damaged parts and loss of revenue during the business interruption period (note 18); and
Allowance for credit losses which is based on the management’s estimates of recoverability of the amounts based on historical experiences.
7 SIGNIFICANT ACCOUNTING POLICIES
a) Accounting convention
These financial statements have been prepared under the historical cost convention.
b) 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 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 gain or loss arising on de-recognition of the asset is included in the statement of comprehensive income in the year the item is derecognized.
Depreciation is charged to the statement of 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:
2014 2013Years Years
Gas Turbines [note 8 c)] 20 15Balance of plant 20 20Plant spares 8 8Interconnection and transmission facilities 18 to 20 18 to 20Plant buildings and ancillaries [note 8 c)] 25 20Other assets – furniture, equipment and motor vehicles 4 4
c) Inventories
Inventories comprise of fuel oil and are stated at lower of cost and net realisable value. The cost of inventories is based on first-in-first-out basis and includes expenditure incurred in acquiring the inventories in their present location and condition.
50
Notes to the financial statementsfor the year ended 31 December 2014
7 SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Accounts and other receivables
Accounts and other receivables originated by the Company are measured at cost. An allowance for credit losses of accounts and other receivables is established when there is objective evidence that the Company will not be able to collect the amounts due. When an account or other receivable is uncollectible, it is written off against the allowance account for credit losses. The carrying value of accounts and other receivables approximate their fair values due to the short-term nature of those receivables.
e) Cash and cash equivalents
For the purpose of statement of cash flows, cash and cash equivalents consist of bank balances and cash including deposits with an original maturity period of 3 months or less, net of short term bank borrowings.
f) Impairment
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 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 recognizes an impairment loss in the statement of comprehensive income. The Management also assesses if there is any indication that an impairment loss recognized in prior years no longer exists or has reduced. The resultant impairment loss or reversals are recognised immediately in the statement of comprehensive income.
g) 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 Company’s profits. The Directors take into account appropriate parameters including the requirements of the Commercial Companies Law, 1974 (as amended), while recommending dividend.
h) Employees’ end of service benefits
Payment is made to Omani Government’s Social Security Scheme under Royal Decree number 72 / 91 (as amended) for Omani employees. Provision is made for amounts payable under the Sultanate of Oman’s labour law under Royal Decree number 35 / 2003 applicable to non Omani employees’ accumulated periods of service at the end of the reporting period.
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.
51
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
7 SIGNIFICANT ACCOUNTING POLICIES (Continued)
j) Accounts and other payables
Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to the Company.
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 recognized 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) Operating lease payments
Payments made under operating leases are recognised in the statement of comprehensive income on a straight line basis over the term of the lease.
m) Foreign currency transactions
Transactions denominated in foreign currencies are translated to Rial Omani at the foreign exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are translated to Rial Omani at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the statement of comprehensive income.
n) Taxation
Taxation for the period comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at the end of the reporting period.
Deferred tax is calculated using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the end of the reporting period. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Current and deferred tax are recognised as an expense or income in the statement of comprehensive income, except when they relate to items that are recognised in statement of other comprehensive income, in which case the tax is also recognised in the statement of other comprehensive income.
o) Financial liabilities
All financial liabilities are initially measured at fair value and are subsequently measured at amortised cost.
p) Directors’ remuneration
The Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant directives issued by CMA, in regard to determination of the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of comprehensive income in the year to which they relate.
52
Notes to the financial statementsfor the year ended 31 December 2014
8 PROPERTY, PLANT AND EQUIPMENT
The movement schedule of property, plant and equipment for the year ended 31 December 2014 and the year ended 31 December 2013 are set out on pages 60 and 61 respectively.
Land on which the power station, buildings and ancillaries are constructed has been leased from the Government for the duration of the Project Life. Lease rent is paid at the rate of RO 1,000 per annum.
During the year, the management has reviewed the useful lives of assets and based on a technical assessment carried out by an independent consultant, have revised the useful lives of plant building and ancillaries from 20 years to 25 years and Phase 2 gas turbines from 15 years to 20 years to coincide with the expiry of the related project agreement in the year 2020. Consequently, there has been a reduction in the depreciation for the current year by RO 0.705 million and an increase in the profit for the year before taxation by an equivalent amount. The change in useful lives will also have an effect on the depreciation and the profit for the future periods.
9 INVENTORIES
2014 2013RO ‘000 RO ‘000
Liquid fuel 259 259Spares 63 63
322 322Provision 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 ITF and is held for emergencies.
10 ACCOUNTS AND OTHER RECEIVABLES
2014 2013RO ‘000 RO ‘000
Accounts receivable from OPWPC 1,765 1,784Allowance for credit losses (93) (93)
1,672 1,691Insurance claim receivable (note 18) 761 --Prepayments and other receivables 230 315
2,663 2,006
The following further note applies:
Accounts receivable from OPWPC amounting to RO 1.672 million (2013 – RO 1.691 million) are neither past due nor impaired.
11 SHARE CAPITAL
Authorized share capital
At 31 December 2014 and 31 December 2013, the Company’s authorised share capital comprised 15,965,760 ordinary shares and 23,948,640 preference shares of RO 1 each.
53
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
11 SHARE CAPITAL (Continued) Paid-up share capital At 31 December 2014, the Company’s issued and paid-up share capital consists of 5,000,000 shares
of RO 1 each analysed as follows:
Total Paid in cash Paid in kindRO ’000 % RO ’000 RO ’000
Preference shares 3,000 60 1,962 1,038Ordinary shares 2,000 40 2,000 --
5,000 100 3,962 1,038
At 31 December 2013, the Company’s issued and paid-up share capital consists of 6,973,896 shares of RO 1 each analysed as follows:
Total Paid in cash Paid in kindRO ’000 % RO ’000 RO ’000
Preference shares 4,184 60 3,146 1,038Ordinary shares 2,790 40 2,790 --
6,974 100 5,936 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 % topreference preference total
31 December 2014 shares shares sharesMena Infrastructure Investments Limited 1,906,381 63.55 38.12Ministry of Defence, Pension Fund 273,402 9.11 5.47M GEC (Oman) Holdings Limited 820,209 27.34 16.41Fractions from capital reduction 8 -- --
3,000,000 100.00 60.00
Mena Infrastructure Investments Limited 2,658,979 63.56 38.12Ministry of Defence, Pension Fund 381,336 9.11 5.47M GEC (Oman) Holdings Limited 1,144,011 27.33 16.41Fractions from capital reduction 9 -- --
4,184,335 100.00 60.00
None of the ordinary shareholders own more than 10% of the Company’s share capital (2013 – none). During the year, the Company carried out a capital reduction of RO 1.974 million, being 5.7% of the
original capital as a consequence to the structured plan of capital reduction approved by the CMA and the shareholders in the extraordinary general meeting held on 21 March 2012 (2013 – a similar capital reduction of RO 3.487 million.) The value of the shares becomes nil at the end of the Project Life.
54
Notes to the financial statementsfor the year ended 31 December 2014
12 LEGAL RESERVE In accordance with Article 106 of the Commercial Companies Law of the Sultanate of Oman, 1974
(as amended), 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. Transfer has not been made in the current year as the reserve has reached the statutory minimum of one third of the capital.
In accordance with the approval of the shareholders at the Extraordinary General Meeting held on 21 March 2012, a proportionate amount of the legal reserve, RO 0.657 million has been transferred to the retained earnings on account of a capital reduction in December 2014 (2013 – an amount of RO 0.582 million was transferred to the retained earnings on capital reduction.)
13 DIVIDEND During the year, dividend to preference shareholders of RO 0.216 per share amounting to RO 0.903
million and dividend to ordinary shareholders of RO 0.200 per share amounting to RO 0.558 million for the year 2013 was approved in the Annual General Meeting held on 20 March 2014 and paid subsequently (2013 – dividend to preference shareholders of RO 0.217 per share amounting to RO 1.135 million and dividend to ordinary shareholders of RO 0.200 per share amounting to RO 0.697 million).
During the year, an amount of RO 2,078 pertaining to the year 2013 unclaimed dividends and RO 2,458 pertaining to unclaimed capital reduction related entitlement (2013 – RO 1,460, and RO 4,047 pertaining to the year 2012 unclaimed dividends and unclaimed capital reduction related entitlement) have been transferred to the Investors’ Trust Fund of the CMA.
Subsequent to the end of the reporting period, the Board of Directors have proposed a cash dividend of 32.8% (RO 0.328 per share) to the preference shareholders amounting to RO 0.984 million and a cash dividend of 30% (RO 0.300 per share) to ordinary shareholders amounting to RO 0.600 million for the year 2014, which is subject to shareholders’ approval in the forthcoming Annual General Meeting.
14 TAXATION
2014 2013RO ’000 RO ’000
Statement of comprehensive incomeTax charge (net)Current tax charge 607 652Deferred tax credit (471) (551)
136 101
Statement of financial positionCurrent liabilityCurrent year 607 652Prior years [note 14 b)] 193 227
800 879Non-current liabilityDeferred tax liability 1,028 1,499
The following further notes apply:
a) 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.
55
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
14 TAXATION (Continued)
b) During the year, the Company’s tax assessment for the years 2008 to 2010 was finalised by the Secretariat General for Taxation (SGT). Based on assessment order issued, the SGT raised a demand for additional tax amounting to RO 49,777 as result of disallowances of certain expenses. The Company has filed an objection to the assessment order. Pending a hearing on the objection, the amount has been settled during the year by utilizing tax refund due for the year 2007 amounting to RO 14,432 and the balance was charged against the existing tax provision for prior years.
c) The Company’s taxation assessments for the years 2011 to 2013 have not been finalised by the SGT. The Management believes that the tax assessed, if any, for the unassessed tax years would not be material to the Company’s financial position at the end of the reporting period.
The reconciliation of taxation on the accounting profit with the current taxation charge for the year is as follows:
2014 2013RO ’000 RO ’000
Profit before tax 1,156 863Taxation on accounting profit at applicable rates 135 100Add tax effect of:Depreciation on property, plant and equipment 471 551Other expenses disallowed for tax purpose 1 1Taxation charge 607 652
The deferred tax liability (net) and the deferred tax credit in the statement of comprehensive income are attributable to the following items:
Property, plant and equipment
Provision for obsolete inventories and allowance
for credit losses
Total
31 December 2014 RO ‘000 RO ‘000 RO ‘000
At 31 December 2013 1,518 (19) 1,499
Recognised in the statement of comprehensive income (471) - (471)
At 31 December 2014 1,047 (19) 1,028
31 December 2013 Property, plant and equipment
Provision for obsolete inventories and allowance
for credit losses
Total
RO ‘000 RO ‘000 RO ‘000At 31 December 2012 2,069 (19) 2,050Recognised in the statement of comprehensive income (551) - (551)At 31 December 2013 1,518 (19) 1,499
56
Notes to the financial statementsfor the year ended 31 December 2014
15 ACCOUNTS AND OTHER PAYABLES
2014 2013RO ‘000 RO ‘000
Accounts payable 396 414Directors’ remuneration payable 57 33Accruals and other payables 455 219
908 666
16 SHORT TERM BORROWINGS
Short term borrowings are from local commercial banks which carry interest ranging from 1.85% - 2.5% per annum (2013 – 1.85% - 3.5% 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.
17 NET ASSETS PER SHARE
Net assets per share is calculated by dividing the net assets at the end of the reporting period by the number of preference and ordinary shares outstanding as follows:
2014 2013
Net assets (RO ‘000) 8,344 10,759
Number of preference and ordinary shares outstanding at the end of the year (‘000) 5,000 6,974Net assets per share (RO) 1.669 1.543
18 OTHER INCOME
2014 2013RO ’000 RO ’000
Insurance claim settlement (see note below) 761 --Others 2 1
763 1
The following further note applies:
During the year, the plant encountered unexpected electrical circuit breaker failure, which resulted in closure of one turbine unit. The Company had insurance arrangements in place to cover the replacement of damaged parts (note 8) and loss of revenue during the business interruption period. The Company has filed insurance claims and, based on the surveyor’s assessment, recognised the compensation aggregating to RO 0.761 million, an amount which is expected to be received in the year 2015 (note 10).
57
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
19 OPERATING AND ADMINISTRATIVE EXPENSES
2014 2013RO ’000 RO ’000
Operation and maintenance fee – STOMO 2,586 3,278Repair and maintenance expenses – plant 17 58
2,603 3,336Management fee 893 893Shared office overheads 432 420Insurance 487 462Directors’ meeting attendance fees and remuneration 70 50Meetings and other related expenses 37 36Claim tax rate change 49 34Office expenses 34 34Legal and professional charges 21 30Salaries and employee related costs 23 21Registration and renewals 9 9Loss on disposal of plant 32 --
4,690 5,325
20 BASIC EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of preference and ordinary shares outstanding during the year as follows:
2014 2013Profit for the year (RO ’000) 1,020 762Weighted average number of preference and ordinary shares outstanding throughout the year (’000) 6,810 8,572Basic earnings per share (RO) 0.150 0.089
As the Company does not have any dilutive potential shares, the diluted earnings per share is the same as the basic earnings per share.
21 RELATED PARTY TRANSACTIONS
a) The Company has entered into transactions with key management personnel, entities and shareholders who have either control or significant influence over the Company. These transactions are entered into on terms and conditions approved by the Management.
b) The following is a summary of significant transactions with related parties during the year:
2014 2013RO ’000 RO ’000
Services provided by Power Development Company LLCManagement fee 893 893Shared office overheads 432 420Directors’ remuneration and attendance fees 70 50
58
Notes to the financial statementsfor the year ended 31 December 2014
22 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:
2014 2013RO ’000 RO ’000
Within 1 year 1 1Between 2 to 5 years 4 4Above 5 years 1 2
6 7
23 FINANCIAL RISK AND CAPITAL MANAGEMENT
The Company’s activities expose it to various financial risks, primarily being, market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Company’s risk management is carried out internally in accordance with the policies approved by the Management. The risk management policies and systems are reviewed regularly to ensure that they reflect any changes in market conditions and the Company’s activities.
a) Market risk
Foreign currency risk
The Company is exposed to foreign exchange risk arising from various currency exposures. Significant portion of revenues and major operating costs are denominated in RO and indexed to the USD / RO exchange rates. The balance operating costs denominated in USD are covered by the fact that RO 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.
Interest rate risk
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.
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 reporting period, the entire accounts receivable was from a Government owned company (OPWPC). The Management considers the credit risk associated with the receivables to be very low because the receivables are from the Government. Furthermore, the cash and short term deposits are also placed in reputable banks, which minimize the credit risk.
59
Annual Report 2014Notes to the financial statementsfor the year ended 31 December 2014
23 FINANCIAL RISK AND CAPITAL MANAGEMENT (Continued)
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 reporting period.
31 December 2014
Carrying amount
RO ’000
Contractual cash flows
RO ’000
0 to 6 months
RO ’000
Accounts and other payables 908 908 908
Short term borrowings 4,800 4,800 4,800
5,708 5,708 5,708
31 December 2013
Accounts and other payables 666 666 666
Short term borrowings 4,700 4,700 4,700
5,366 5,366 5,366
d) Capital management
The Company’s objectives when managing capital are:
o to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
o to provide an adequate return to shareholders and sustain future development of the business.
The Company has complied with externally imposed capital requirements as stipulated in the Commercial Companies Law, 1974 (as amended) and by the CMA.
To provide a return to the shareholders in the years where the profit is low or there are losses, the Company has also planned reduction of share capital during certain periods.
At the Extraordinary General Meeting held on 21 March 2012, the shareholders resolved to reduce the share capital in three phases during the next three years subsequent to the meeting. The reduction per phase would be in the range of 5% to 10% of the original share capital of RO 34.87 million, but would be subject to maintaining a minimum capital of RO 5 million. During the year, the last phase of capital reduction of RO 1.974 million was effected in December 2014 resulting in the revised capital now being maintained at RO 5 million (2013 – RO 1.743 million was effected in December 2013).
24 COMPARATIVES
Comparatives have been reclassified, wherever necessary, to conform to the presentation adopted for the current year.
60
Notes to the financial statem
entsfor the year ended 31 D
ecember 2014
8 PROPERTY, PLANT AND EQUIPMENT (Continued)
Year 2014 Gas
turbines
Balance of plant
Plant
spares ITF
Plant buildings and
ancillaries
Other
assets Total
RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000CostAt 31 December 2013 18,945 26,032 5,391 49,994 7,453 127 107,942Additions during the year -- 454 -- -- -- 1 455Disposals during the year -- (100) -- -- -- -- (100)At 31 December 2014 18,945 26,386 5,391 49,994 7,453 128 108,297
DepreciationAt 31 December 2013 17,915 19,777 4,639 42,944 6,411 124 91,810Charge for the year 199 1,353 232 2,496 152 2 4,434Relating to disposals -- (68) -- -- -- -- (68)At 31 December 2014 18,114 21,062 4,871 45,440 6,563 126 96,176
Net book valueAt 31 December 2014 831 5,324 520 4,554 890 2 12,121
At 31 December 2013 1,030 6,255 752 7,050 1,042 3 16,132
61
Annual Report 2014N
otes to the financial statements
for the year ended 31 Decem
ber 20148 PROPERTY, PLANT AND EQUIPMENT (Continued)
Year 2013 Gas turbines
Balance of plant
Plant spares ITF
Plant buildings and ancillaries
Other assets Total
RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000
Cost
At 31 December 2012 18,945 26,032 5,391 49,994 7,453 126 107,941
Additions during the year -- -- -- -- -- 1 1
At 31 December 2013 18,945 26,032 5,391 49,994 7,453 127 107,942
Depreciation
At 31 December 2012 17,232 18,475 4,407 40,448 6,038 117 86,717
Charge for the year 683 1,302 232 2,496 373 7 5,093
At 31 December 2013 17,915 19,777 4,639 42,944 6,411 124 91,810
Net book value
At 31 December 2013 1,030 6,255 752 7,050 1,042 3 16,132
At 31 December 2012 1,713 7,557 984 9,546 1,415 9 21,224
