BHUTAN TELECOM LIMITED · The company’s operating income for 2016 is Nu. 3,067,834,463.11. This...

BHUTAN TELECOM LIMITED - Always there for you

Annual Report 2016 i

BHUTAN TELECOM LIMITEDAlways there for you

Annual Report2016

BHUTAN TELECOM LIMITED - Always there for you BHUTAN TELECOM LIMITED - Always there for you

Annual Report 2016Annual Report 2016 ii iii

TABLE OF CONTENT

1. Vision and Mission.......................................1

2. Corporate Beliefs & Ethics...........................2

3. Board of Director’s Report.. ........................3

4. Report on Corporate Governance..............10

5. CEO’s Report.............................................14

6. Board of Directors......................................18

7. Organizational Structure............................19

8. WTD Celebration.......................................20

9. Auditor’s Report.........................................25


Annual Report 2016 1

VISION AND MISSION

To always be the leading infocomm services provider delivering great customer care through highly motivated employees working in a learning organization that is creating sustained value

1. To provide reliable, affordable, innovative and high quality infocomm services in a customer friendly manner.

2. To enhance access to infocomm services through robust and appropriate technologies and infrastructure.

3. To create a conducive work environment and culture that fosters creativity, collaboration and learning and reward performances.

4. To maximize shareholder value in a manner that is sustainable.


Annual Report 2016Annual Report 2016 2 3

This Board of Directors’ Report contains the operational performance along with achievements, audited financial statements, human resources, corporate governance, corporate social

responsibility, audit observations/recommendations and management’s response, and challenges in 2016, and broad outlook for 2017. On behalf of the Board of Directors, I am pleased to report that Bhutan Telecom Limited (BT) had a successful 2016 for which the Board acknowledges the hard work put in by the management and staff of the company throughout 2016.

Operational Performance & AchievementsAs was done in the past years, the company continued to provide services even in non-profitable and challenging areas as a social mandate. The company continued to give top priority on the technological front and undertook many activities to both extend and improve the services. Some of the notable operational performance and achievements are highlighted below.

Some major expansion works were carried out in 2016 on the company’s mobile network. Expansion on the Core network involved license capacity upgrades of SGSN from 250k to 350k SAU, 100k to 200k PDP, 500k to 1000k PPS and GGSN from 100k to 200k PDP and 500 to 1000k PPS. On the Radio Access Network (RAN) front, 2nd Radio Network Controller (RNC) with a capacity of 1.5 Gbps was integrated to meet the demand of increasing 3G data users. With this, total capacity of the RNC is 3 Gbps. 25 Node Bs were installed at various locations to augment capacity and expand 3G coverage. 15 2G BTS sites were also installed to extend mobile services to the rural areas which previously had weak or no mobile network coverage. Domestic backbone capacity was increased from 2.5 Gbps to 40 Gbps using the DWDM technology for Thimphu-Phuentsholing and Thimphu-Paro links.

Some congestion in the 3G network in core areas was experienced because of substantial increase in 3G users and data consumption. Despite the many upgrades and expansions to the maximum capacity limit, congestion could not be completely eliminated even though some improvements were made. To tackle the congestion problem with even greater measures, deployment of 4G/LTE in the core areas of Thimphu, Paro, Phuentsholing, Punakha and Wangdue was approved sometime in August 2016. Data handling capacity would be increased from 21Mbps per cell of 3G to 200 Mbps with the 4G deployment. A total of 70 LTE nodes were commissioned which improved the quality of mobile data

1. To act responsibly towards local community embracing efficiency, transparency and accountability as its cornerstones for all operations.

2. To act responsibly in upholding the principle of balanced economic development through extension of telecommunications service to rural and remote areas of the country.

3. To promote and practice best work ethics by inculcating a sense of positive attitude in all its employees.

4. To motivate employees by encouraging to take initiative through appropriate incentives and rewards based on merits

5. To develop human capacities and capabilities through education, training and retraining of employees.

6. To diversify products and services to meet changing needs of its customers and

7. To implement good internal control systems designed to ensure complete and accurate procedures to limit potential losses and lapses through fraud.

BOARD OF DIRECTORS’ REPORTCORPORATE BELIEFS & ETHICS



Financial PerformanceThe company’s operating income for 2016 is Nu. 3,067,834,463.11. This is an increase by Nu. 350.69 million or 12.9% as compared to Nu. 2,717,139,978.47 in 2015. The increase in operating income was contributed by adjustment of DANIDA loan amount of Nu. 134,390,512.71 which is treated as miscellaneous income. Another major reason for the huge increase in income was adjustment of Nu. 32,091,883.37 as income under “revenue from operations: domestic” which was required to rectify the sundry debtors records. The profit before tax increased by Nu. 529.92 million or 71% to Nu. 1,278,620,990.94 in 2016 from Nu. 748,692,304.04 in 2015. The profit after tax for 2016 is Nu. 868,746,436.89 which is an increase by 68.35% or Nu. 352.70 million compared to Nu. 516,044,005.51 in 2015. All these figures, and those reflected in the following paragraphs, are based on the accounts prepared as per Bhutan Accounting Standards (BAS).

The total operating expenditure of the company decreased by 9.07% or Nu. 178.44 million to Nu. 1,789,213,472.17 from Nu. 1,967,657,821.81 in 2015. The decrease is contributed mainly by reduction in AMC charges because of hard and persisted negotiations with the vendors. Further, depreciation has reduced by about Nu. 88 million mainly because of assets getting fully depreciated.

The net fixed assets of the company stands at Nu. 3,271,044,130.97 in 2016 as against Nu. 3,125,892,062.05 in 2015. While the net intangible assets is Nu. 801,481,387.77 in 2016, it was Nu. 648,791,874.14 in 2015. The current assets and advances (excluding long-term advances and investments) is Nu. 593,717,896.16 in 2016 as compared to Nu. 705,433,612 in 2015. From Nu. 498,957,158.00 in 2015, the total current liabilities have increased to Nu. 502,785,828.74 in 2016.

DividendThe dividend for 2016 to the shareholder (DHI) is recommended at 43% of the profit after tax which amounts to Nu. 301,973,537.55. The PAT for the purpose of dividend is excluding the notional income resulting from adjustments of DANIDA loan and sundry debtors as recommended by the statutory auditors.

in these 5 major towns. The company also deployed WiFi offload solution in major settlements across the country to help decongest the 3G network and provide improved data service to the users. A total of 1020 Wifi equipments (access points) were deployed in 2016 which allowed the customers to use about 165 Gb of data per day on a regular basis towards the end of 2016.

The company also completed the construction of the new equipment and Network Operation Centre (NOC) building in Thimphu which is equipped with facilities and features that of a Tier III Data Centre. Migration of all the Core network equipment for Mobile, Internet and Fixed lines into this new building will be completed in 2017.

The company launched, among others, BT Cloud, BT Offload, and BT Mobile Shop in 2016. For better service delivery, the company came up with and started implementing Standard Operating Procedures (SOP) and Customer Charter.

The company’s active prepaid mobile customers increased from 368,183 in 2015 to 370,116 at the end of 2016. Following the trend in the previous years, active post-paid mobile customers decreased to 10,274 at the end of 2016 from 10,784 in 2015, and fixed line customers reduced to 21,081 at the end of 2016 from 21,811 in 2015. Leased line internet subscriptions have increased from 431 in 2015 to 581 at the end of 2016. The company had 16,172 broadband internet subscriptions at the end of 2016.

Audit ReportsThe company was audited by statutory auditors, KASG & CO., Chartered Accountants based in Kolkata, India. There are audit observations in the Auditors’ Report and past recommendations made by the auditors are being implemented and followed through. However, the auditors have made the following two suggestions:

a. Adjustment of Nu. 32,091,883.37 to tally the sundry debtors of billing with books of accounts was approved by the board. This amount, while being treated as income, should not be considered for the purpose of declaration of dividend.

b. Adjustment of Nu. 134,390,512.71 against DANIDA loan was approved by the board. This amount, while being considered as income should not be considered for the purpose of declaration of dividend.



members to prepare them on the roles and responsibilities of the board. Orientation program for the new board members in 2016 was conducted from 5-6 May 2016. Board members who have not attended directorship training programme in the past attended the training in Malaysia from 27 June to 1 July 2016. Further, the board members, CEO and senior management team participated in an International Seminar on Corporate Governance in Thimphu on 26 November 2016. At the end of 2016, the company’s board comprised of seven directors, including the Chief Executive Officer. The board had nine board meetings and one general meeting in 2016.

The company had three board committees in place – Board Audit Committee, Board HR Committee, and Board Tender Committee. Audit Committee had 4 meetings, HR Committee 9 meetings, and Tender Committee 8 meetings in 2016.

ChallengesSome of the significant challenges faced by the company are highlighted below.

In the absence of any redundancy in the Core, it also becomes equally or more challenging to carry out maintenance without disruptions in service. The magazine alarm with the Mobile Switching Centre (MSC), for instance, has made the whole of the mobile core system very critical. Despite all the attempts to rectify the fault, it was not possible to bring the system back to normal operation status, and the probability of the whole system failing due to this alarm is very high.

In light of the critical situation that the mobile core is in due to the magazine alarm, the Board endorsed to invest on a new core in 2017 with geo redundancy. The new Core will be installed and commissioned in the new NOC in Thimphu within May 2017. The company faced major challenges on the quality of services, mobile data connectivity and its charging system, in particular. During the months of July, August and September, 3G network had high congestions due to which quality of both voice and data were erratic. The double charging on data to some customers after the charging system was cutover from CAPv3 to Diameter (GY) fuelled more complaints from the users. Since the double charging had happened purely due to an unforeseen technical glitch, the company refunded all customers who were impacted.

Reserve and SurplusThe balance amount of Nu. 560,730,821.34 is being transferred to the company’s Reserve & Surplus. However, this figure includes the notional income from DANIDA loan and sundry debtors adjustments. If the adjustments are taken into account, the actual transfer to reserve and surplus works out to only Nu. 394,248,425.26.

Human Resource Development and ManagementAs was done in the previous years, the company accorded high priority to the development and management of its human resource. The company spent Nu. 28.3 million in 2016 to impart trainings and for other HRD events.

With some employees attending more than one training/event, a total of 1,034 employees either received trainings or attended other HRD events like seminars and conferences in 2016. 49 employees received trainings outside the country, 253 in-country, 647 in-house, and 85 attended other HRD events like seminars and conferences.

Nine ESP, 1 contract, and 32 regular employees got separated from the company in 2016. At the end of 2016, the company had a total of 650 employees which includes 569 regular employees, 6 contract employees, 65 ESPs, and 10 local caretakers. The total also includes 4 employees on long-term study leave and another 4 on extraordinary leave.

Corporate Social ResponsibilityThe company donated Nu. 1.2 million to the Bhutan Health Trust Fund as part of its Corporate Social Responsibility initiative. The company also donated a further sum of Nu. 0.366 million in support of 26 institutions/organizations. Corporate Governance The company is generally compliant with the provisions of the Corporate Governance Code and Ownership Policy developed and introduced by its owner – the Druk Holding & Investments Limited (DHI), the Companies Act, and other statutory requirements.

All members of the board are identified and appointed by DHI with subsequent endorsement in the general meetings. The DHI organizes and conducts orientation programme for the new board



AcknowledgementAs always, our foremost gratitude goes to the company’s valued customers for their continued loyalty and support. In spite of some shortcomings, the company has continued to receive the cooperation and support from its valued customers. The company had made major investments in 2016 to address the problems and improve the customer experience. With the improvements being made in the service quality and the hard work put in by everyone associated with the company, we have no doubt that our valued customers will continue to remain with us.

The company’s shareholder, Druk Holding & Investments (DHI), has guided the company throughout 2016 in overcoming the challenges. The company has been able to undertake many major projects only with the unwavering support and guidance from DHI. Therefore, the board and management of the company would like to thank DHI for the same.

Lastly, the board would like to thank the management and employees of the company for working hard and achieving a lot of success in 2016. The board looks forward to similar efforts and success in 2017.

On behalf of the Board of Directors;

(Tenzin Dhendup) CHAIRMAN

OutlookThe company has always maintained a positive outlook even in the face of numerous challenges. The company has a positive outlook even for 2017.

In light of the high risk posed by magazine alarm with the MSC, the company will install a new core in the new NOC building in Thimphu. The new core is planned to be commissioned within May 2017 subsequent to which all mobile services will be transferred to it from the ailing existing core in the old building. All core equipment for Internet and fixed lines will also be relocated to the new NOC building.

To meet the ever-increasing demand for mobile data, the company will deploy 75 4G/LTE nodes in the various Dzongkhags and towns not covered by 70 nodes deployed in 2016. The company will continue to deploy WiFi solutions primarily to offload mobile data in high-usage areas and also to cover areas where 3G or 4G deployment is not viable.

There are plans to commercially launch the OTT TV platform developed in 2016 as a pilot case. With the introduction of a dedicated Data Centre and Cloud Services Division, the company will see itself embarking onto developing competency in the application development to take full advantage of the open source software available online. This new Division will spearhead the development of a Document Management System and fleet management system for the company’s own consumption to start with. The company will join forces with DHI to develop an ERP platform for Construction Development Corporation Limited. The company has carried out proper study based on customer feedback and readied implementation of new data packages and tariff revision. These will be implemented within the first quarter of 2017. The company will be coming up with Strategic Marketing Plan which will act as a roadmap for the company’s marketing team. Since the company believes in “Right is not right, right is what customers say”, the company will deploy customer feedback machines for proper recording of feedback provided by the customers so that subsequent necessary measures can be implemented to improve customer service. The company will continue to work towards improving service delivery.



Bhutan Telecom Limited (BT) is mostly compliant with the provisions of the Corporate Governance Code and the Ownership Policy developed and introduced by its owner – the Druk Holding

and Investments Limited (DHI), the Companies Act of the Kingdom of Bhutan, and other statutory requirements.

Board of Directors, Board Meetings, Board Committee Meetings, and ProceduresAll members of the Board of BT are identified and appointed by the DHI. All appointments made are submitted to the BT’s General Meetings for endorsement. As on 31st December 2016, the BT Board comprised of seven Board Directors, including the Chief Executive Officer. Necessary disclosures about each Board Director are provided below:

Name of Director Category ProfileNo. of Board

Meetings attended in 2016

Directorship in other companies

Mr. Tenzin Dhendup, Chairman

IndependentNon-executive

Former Secretary, Ministry of Agriculture & Forests

8 (including AGM)

DHI (Board Director)

Dr. Damber S. Kharka Non-independentNon-executive Director, CPD, DHI 10 (including

AGM)

State Mining Corporation Ltd (Board Director)

Mr. Jigme Tenzing IndependentNon-executive

Chief, Application Division, DITT, MoIC

5

Ms. Leki Wangmo IndependentNon-executive

Director, National Pension & Provident Fund

6Penden Cement Authority Ltd (Board Director)

Ms. Pasang Dorji IndependentNon-executive

Executive Secretary, Thimphu Thromde 7

Mr. Dechen Dorji IndependentNon-executive

Country Representative, WWF Bhutan

3

Mr. Tshewang Gyeltshen Non-independentExecutive CEO, BT 10 (including

AGM)

The following Board Directors served on the BT Board for part of 2016:

Name of Director Category Profile No. of Board Meetings attended in 2016

Mr. Gyeltshen (until 28 March 2016)

Independent Non-executive

Collector, Department of Revenue & Customs 3 (including AGM)

Mr. Minjur Dorji (until 28 March 2016)

Independent Non-executive

Executive Secretary, Samdrup Jongkhar Thromde

3 (including AGM)

Mr. Phuntsho Tobgay (until 28 March 2016)

IndependentNon-executive

Director General, Department of Geology & Mines

2 (including AGM)

A total of nine Board Meetings here held in 2016. The meetings were held as frequently as required and gap between any two meetings never exceeded three months as required by the Companies Act. Board Meetings in 2016 were held on the following dates:

1. 4th January2. 10th March3. 13th May4. 24th June5. 22nd July6. 2nd August7. 24th October8. 29th November9. 12th December

The calendar for the Board Meetings during the entire year is proposed at the beginning of the year. The calendar is reviewed and the date for the next Board Meeting is confirmed in every Board Meeting. All the Board Meetings in 2016 were held at the Conference Hall of the Company’s Headquarters in Chubachu, Thimphu. The agenda and related documents for the Board Meetings are generally circulated to the Board Members at least a week in advance of the Meetings. However, this timeline is not able to be met on rare occasions when the Board Meeting is called on short notice and/or when papers take time to finalize because of various reasons.

REPORT ON CORPORATE GOVERNANCE



The following Board Committees are in place:1. Board Audit Committee2. Board Tender Committee3. Board HR Committee

Board Audit CommitteeThe Board Audit Committee was established to, inter alia, monitor the internal control system and internal audit activities. The Committee held four meetings in 2016 on the following dates:29th August1. 1st December2. 8th December3. 23rd December

Board Tender CommitteeThe Board Tender Committee was established to make decisions and approve works/procurements which are beyond the management’s authority. The Committee held eight meetings in 2016 on the following dates:

1. 13th May2. 8th August3. 24th August4. 8th September5. 16th September6. 20th September7. 25th September8. 28th December

Board HR CommitteeThe Board HR Committee was established to make decisions on HR related issues which are beyond the authority of the management. The Committee held nine meetings in 2016 on the following dates:

1. 13th May2. 7th June3. 7th July

4. 2nd August5. 11th August6. 24th August7. 16 September8. 21st November9. 22nd & 23rd November

Ad-hoc CommitteesThe Board also establishes Ad-hoc Board Committees as and when required to deal with matters not relevant or limited to the three Committees mentioned above. Only one Ad-hoc Committee was established in 2016 for Compact Review/Negotiation Meeting with DHI on 10th August. General MeetingsThe Company held only one General Meeting in 2016 on the following date:

1. 28th March – Annual General Meeting

No Extraordinary General Meeting was held in 2016.

Board Orientation ProgramDHI organizes and conducts orientation programme for the new board members to prepare them on the roles and responsibilities of the board. Orientation program for the new board members in 2016 was conducted from 5-6 May 2016. Board members who have not attended directorship training programme in the past attended the training in Malaysia from 27 June to 1 July 2016. Further, the board members, CEO and senior management team participated in an International Seminar on Corporate Governance in Thimphu on 26 November 2016. Non-Compliance ReportingSubject to the “comply or explain” clause, BT has generally complied with the provisions of the Corporate Governance Code, except:

1. The Board does not have a procedure in place for directors to follow if actual, potential, or perceived conflict of interest should arise. However, it is felt that any issue of conflict of interest would be dealt in an appropriate manner as and when it arises.



2016 has been a challenging, but a successful year for Bhutan Telecom Limited (BT). With dedicated hard work from everyone, BT’s performance on the financial front has been exceptional. BT also achieved most of the other non-financial targets.

Compared to profit before tax of Nu. 748.69 million in 2015, BT’s profit before tax in 2016 was Nu. 1,278.62 million thereby witnessing a huge increase by Nu. 529.92 million or 71%. Increase in revenue by 12.9% in 2016 coupled with substantial reduction in operating expenditure helped BT achieve remarkable growth in profits. Notable reduction in expenses occurred in “administration and general expenses” and “repair & maintenance” account heads. Increased revenue and reduced expenses allowed BT to achieve record high profit after tax of Nu. 868.746 million in 2016.

BT generates most of its revenue from its mobile network because of which BT puts in a lot of effort and resources in improving the mobile network. Therefore, major expansion activities were carried out on the mobile network in 2016. The core network capacity was upgraded on SGSN from 250k to 350k SAU, 100k to 200k PDP, 500k to 1000k PPS and GGSN from 100k to 200k PDP and 500 to 1000k PPS. Second Radio Network Controller with a capacity of 1.5 Gbps was integrated to increase its capacity from 1.5Gbps to 3Gbps. 25 Node Bs were also installed to augment capacity and expand 3G coverage to meet the increasing demand of 3G data users. 15 2G BTS sites were installed to extend mobile services in rural areas. Domestic backbone capacity was increased from 2.5 Gbps to 40 Gbps using the DWDM technology for Thimphu - Phuentsholing and Thimphu - Paro links. International Bandwidth was also expanded by STM4 to Mumbai, India and additional 2.5 Gbps to Singapore.

Despite the many upgrades and expansions, BT is fully aware and acknowledges that congestion in the 3G network could not be eliminated completely. However, as the valued customers of BT might have experienced, significant improvements were made and congestion in the network has been reduced by a large extent. With an objective to make further improvements in the network and to further reduce the congestion, 4G/LTE was widely deployed in the core areas of Thimphu, Paro, Phuentsholing, Punakha and Wangdue. 4G/LTE will soon be deployed in core areas in other parts of the country. 4G/LTE deployment results in increasing the data handling capacity from 21 Mbps per cell of 3G to 200 Mbps. BT also deployed BT-Wifi and Offload solution in major settlements across the country which

have helped decongest the 3G network. These solutions have also helped in providing improved data service to the users. With the various measures put in place, BT is hopeful that network congestion problem will be solved to a greater extent.

In addition to making improvements in the services already put in place, BT is continuously innovating and coming up with new and improved services to increase value for customers and BT’s profitability. Three new services – BT Cloud, BT Offload, and BT Mobile Shop – were launched in 2016. BT Cloud service – aimed mainly for business/organizational clients – lets the client share data more efficiently within the organization. It also helps in centralizing the network security. While BT Offload service is aimed at improving BT’s internet service through wifi solution, BT Mobile Shop was launched to provide quality mobile devices and enhance customer convenience in subscribing to BT’s network.

BT also completed the construction of the new equipment and Network Operation Centre (NOC) building in Thimphu. This building is equipped with facilities and features of a Tier – III Data Centre. Core network equipment for Mobile, Internet and Fixed line services are aimed to be migrated to this building within 2017.

Besides the commercial mandates, BT strives to be a socially responsible company which will create a positive impact on the society. As part of its Corporate Social Responsibility, BT donated Nu. 1.2 million to the Bhutan Health Trust Fund in 2016. BT also donated a further sum of Nu. 0.366 million to support the noble activities of 26 institutions/organizations.

Recognizing the importance and contributions of its human resources, BT continued to give high priority and focus on the development and management of its human resources. For the first time in its history, BT celebrated the “BT Day” coinciding with the World Telecommunication & Information Society Day on 17th May 2016. The day was observed to celebrate the achievements of BT employees and their contributions to BT. High-performing employees were recognized and rewarded on the day. BT Day will be an annual event henceforth. BT also spent Nu. 28.3 million to impart various trainings and participation in other HRD events in 2016.

2016 has not been a smooth journey without challenges. BT had to face various challenges on the way to achieving its success. One of the biggest challenges was the quality of service mainly for mobile data

CHIEF EXECUTIVE OFFICER’S REPORT



connectivity and its charging system. This challenge will continue to be faced even in 2017.

Just like in the past years, BT has a positive outlook for 2017 in spite of the anticipated challenges. BT will face the challenges by taking proactive measures and developing innovative solutions with a focus on business growth and creating shareholder value. To tackle the network congestion issue with greater resolve, 75 4G/LTE nodes will be deployed in various Dzongkhags and towns which were not covered by 4G/LTE deployment in 2016. Wifi solutions will be deployed in more areas of high-usage and areas where 3G or 4G/LTE are not viable. Investments will be made in a new core with geo redundancy in 2017 which will address the issue of probable failure in the existing core system which lacks redundancy. BT will also be deploying converged billing solution in 2017 to make charging more dynamic and accurate.

Customer feedback and improving service delivery will be basis for BT’s strategic decisions. Customer feedback machines will be deployed in 2017 in service counters in Thimphu (HQ) to start with for proper recording of feedback from customers. Proper recording of feedback will help BT take subsequent measures to improve the customer service. To meet the various needs and expectations of the customers, new data plans and tariff revision will be implemented in the first quarter of 2017. New data packages will provide more choices to the customers in addition to being affordable.

BT has plans to commercially launch BTTV/OTT TV platform developed in 2016 as a pilot project. This new service provisioning is an attempt at business diversification by providing new services which will not only enhance value for money, but also ensure sustainable revenue generation for BT by catering to a different customer base. BT’s newly created “Data Centre and Cloud Services” division will develop competency in the application development and take full advantage of the open source software available online.

Commendable achievements in 2016 would not have been possible without the unwavering support of the Royal Government of Bhutan, support and guidance from the Druk Holding and Investments (DHI), and the Board of Directors of BT. On behalf of my colleagues in BT, I would like to acknowledge and pay our humble gratitude for the support and guidance from all quarters. I appreciate and am thankful to all employees in BT for their dedicated, hard work and sincerity displayed in 2016 which have contributed to a very successful year. Last, but most importantly, I am immensely thankful to all the valued customers of BT for their loyalty and choosing BT as their service provider of choice.

Tashi Delek!

Yours Sincerely,

(Tshewang Gyeltshen)Chief Executive Officer



Board of Directors

Dr. Damber S Kharkha, Director, CPD

DHI

Mr. Tshewang GyeltshenChief Executive Officer

Bhutan Telecom Ltd.

Mr. Tenzin Dhendup Chairman

Former Secretary, MoAF

Mr. Pasang DorjiExecutive Secretary Thimphu Thromde

Mr. Jigme TenzingChief, Application Division

DITT, MoIC

Ms. Leki Wangmo Director, Dept. of Investment

NPPF

Mr. Dechen DorjiCountry Representative

WWF, Bhutan

BOARD OF DIRECTORS

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WTD CELEBRATIONJusk like every year, BT observed the World Telecommunication & Information Society Day with the rest of the world. The theme for 2016 was “ICT Entrepreneurship for Social Impact”. BT is committed to meet the ICT needs in the country, which are in line with the Royal Government’s Policy of e-governance, paperless office & knowledge based society. This WTD was a historic day for BT as we launched various new services and celebrated its first ever BT Day.

A. Service LaunchTo provide reliable and advanced ICT facilities in the country, BT has been adding new services by making substantial investments over the years. Coinciding with the World Telecommunication & Information Society Day, BT launched 3 new services: BT Cloud, BT WiFi and BT Mobile Shop on 17th May.

WTD CELEBRATION1. BT Cloud

Cloud can help companies or organizations to share data more efficiently and centralize their network security. Additionally, cloud based virtualization can help business reduce the number of computer system and software licenses which they need to buy to run a business more efficiently at least cost. Our Cloud is built on HPE technology, since HPE is one of the leading cloud hardware solution providers in the world.

2. BT WiFi/Offload

Owing to the huge growth in data, BT has been experiencing lot of congestion on 3G network. To resolve this, BT has deployed BT WiFi and BT Offload services in various locations in Thimphu. Users need to do a onetime set up on their handset after which they will automatically be connected to BT WiFi/Offload as and when they enter into WiFi Zones.

3. BT Mobile Shop

With the evolution of smart phones in the market, people could use features like web browsing, music, photos and other forms of social networking as means of communication. However, most of the handsets used in the market are designed for use in a specific country, depending on different radio frequency deployed by the operators. The frequencies that are used by BT is 900mhz for 2G, 850mhz & 2100mhz for 3G and 1800mhz for 4G. To overcome the challenge of varying frequencies, BT has opened up a Mobile Shop in Thimphu selling iPhones and NUU Mobiles supporting our frequencies, and phone accessories and other useful gadgets.



1. BT CLOUD2. BT WiFi / OFFLOAD 3. BT MOBILE SHOP

SERVICE LAUNCHSERVICE LAUNCHB. BT Day

The historic BT Day celebration for the first time also coincided with the celebration of World Telecommunications and Information Society Day. BT Day is an annual event and will be celebrated every year on 17th May. BT Day celebration this year was a joyous occasion for both the company and the employees. The main purpose of BT Day was to celebrate the achievements of BT employees and their contributions to the company. Thus, the event was to reward and give recognition to the high performing employees who have excelled in their work performance and corporate values. The main objective was to:• Rededicate ourselves to the service of Tsa-Wa-Sum• Recognize, Reward and Honor the high performing employees• Motivate and encourage all to perform at the best of their capabilities• And, to inculcate a sense of ownership and belongings towards company



High Performer’s Award

A. Team Performers Award Category1. Best Division2. Best Region

B. Special Achievement Award Category1. Best Initiative Award2. Special Recognition to External Expert

C. Individual Award Category1. Top Performers Award including Employer of the Year

D. Leadership AwardE. Honorarium

RECEPIENTS OF VARIOUS AWARDSRECEPIENTS OF VARIOUS AWARDS

AWARD CATEGORY

A. Team Performers Award Category1. Best Division2. Best Region

B. Special Achievement Award Category1. Best Initiative Award2. Special Recognition to External Expert

C. Individual Award Category1. Top Performers Award including Employer of the Year

D. Leadership AwardE. Honorarium

SlNo. Page No.

1 Auditor’s Report 26 - 28

2 Annexure as referred to in our report of even date 29 - 35

3 Statement of Financial Position 36- 37

4 Statement of Comprehensive Income 38 - 39

5 Cash Flow Statement 40 - 42

6 Statement of Changes in Equality 43

7 Ratio Analysis 44 - 45

8 Note Forming part of the Financial Statement 46 - 84



INDEPENDENT AUDITORS’ REPORT

ToThe Members ofBhutan Telecom Limited

1. Report on the Audit of Financial StatementsWe have audited the financial statements of Bhutan Telecom Limited, which comprise the Statement of Financial Position as at 31st December, 2016, the Statement of Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date and notes to financial statements, including a summary of the significant accounting policies.

In our opinion, except for the possible effects of the matter described in the our report to management, the accompanying financial statement give a true and fair view of the financial position of the company as at 31st December, 2016, and of its financial performance and its cash flows for the year ended on that date in accordance with Bhutanese Accounting Standards.

2. Management Responsibilities for the Audit of the Financial StatementsThe Company’s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Bhutanese Accounting Standards and provisions of the Companies Act of the Kingdom of Bhutan, 2016 (“the Act”) - This responsibility includes the design, implementation and maintenance of internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to fraud or error.

3. Auditors’ Responsibilities for the Audit of the Financial StatementOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Bhutanese Accounting Standards on Auditing. Those

Standards require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.

We believe that we have exercised professional judgment and maintains professional skepticism throughout the audit and audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4. OpinionIn our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the Bhutanese Accounting Standards: i) in the case of Statement of Financial Position, of the state of affairs of the Company as at 31st

December, 2016;ii) in the case of Statement of Comprehensive Income, of the Profit of the Company for the year

ended on that date;iii) in case of Statement of changes in Equity, of the changes in equity of the Company for the

year ended on that date; andiv) in the case of Statement of Cash Flows, of the movement of cash flows of the Company for

the year ended on that date.



5. Report on Other Legal and Regulatory RequirementsAs required by Section 266 of the Companies Act of the Kingdom of Bhutan, 2016 read with Part II of Schedule XIV thereto (the Minimum Audit Examination and Reporting Requirements) we enclose in the Annexure a statement on the matters specified therein to the extent applicable.

6. As required by Section 265 of the Act, we report that:i) We have obtained all the information and explanations which to the best of our knowledge and

belief were necessary for the purposes of our audit.ii) In our opinion, proper books of account as required by law have been kept by the Company so

far as appears from our examination of those books, proper returns adequate for the purposes of our audit have been received from the branches not visited by us.

iii) The Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows dealt with by this report have been prepared

iv) In our opinion, the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows comply with the Bhutanese Accounting Standards and provisions of the Companies Act of the Kingdom of Bhutan, 2016.

for KASG & Co.Chartered Accountants(Firm Reg. No. 002228C)

CA. Raj Kumar AgarwalPartnerM. No. 073063

Place: ThimphuDate: 17.02.2016

(ANNEXURE AS REFERRED TO IN OUR REPORT OF EVEN DATE)

MINIMUM AUDIT EXAMINATION AND REPORTING REQUIREMENT

Re: Bhutan Telecom Limited

1. The Company has maintained the Property, Plant & Equipment register during the year. The register is showing particulars relating to acquisition cost, depreciation and net value. As explained to us, the Physical Verification of Property, Plant & Equipment has been conducted at two regions (Central & South Western Regions)

2. None of the fixed assets have been re-valued during the year.

3. Physical verification of inventories has been conducted at reasonable intervals by a committee nominated by the management for reconciling Inventories between the System and actual physical inventories.

4. Procedures followed for physical verification of inventories are considered reasonable and adequate in relation to the size of the company and the nature of its business.

5. Physical verification of Inventory has been conducted. Material discrepancy was observed on such verification and the same have been properly dealt with in the books of accounts.

6. On the basis of our examination of stock records, we are of the opinion that the valuation is fair and proper in accordance with the normally accepted accounting principles. The basis of valuation of stock is same as that in the previous year.

7. The Company has issued 7.5% secured non-convertible redeemable bonds of 1000 each redeemable at par in full on 15th july 2020 which is secured by hypothecation of Fixed Assets/ Plant & Machinery of the company The terms of the said loans are prima facie not prejudicial to the interest of the Company.



8. The Company has not granted any loan to other companies, firms or other parties and/or to the companies under the same management. The point no. 8 of Part II of Schedule XIV of The Companies Act of The Kingdom of Bhutan 2016 is not applicable.

9. The Company has not granted any loan to other companies, firms or other parties and/or to the companies under the same management. The point no. 9 of Part II of Schedule XIV of The Companies Act of The Kingdom of Bhutan 2016 is not applicable.

10. The advances granted to officers/staffs are in keeping with the provision of service rules. No excessive/frequent advances are granted and accumulation of large advances against particular individual is avoided.

11. The Company generally has an established system of internal control to ensure completeness, accuracy and reliability of accounting records, for carrying out the business in an orderly and efficient manner, to safeguard the assets of the Company as well as to ensure adherence to the rules & regulations, systems and procedures.

12. As informed to us, there is a reasonable system of obtaining competitive bids/quotations from the vendors in respect of purchase of stores, plant & machinery, equipments and other assets commensurate with the size of the Company and nature of its business.

13. (a) As informed to us, there is no transaction for purchase and sale of goods and services made in pursuance of contracts or arrangements entered into with the directors or any other parties related to directors or with the Company or firms in which the directors are directly or indirectly interested.

(b) The examination of records does not reveal any transaction entered into by the Company which is prejudicial to the interest of the company wherein the directors are directly or indirectly interested.

14. As explained to us, the unserviceable or damaged inventories are disposed off as and when ascertained and taken in accounts.

15. It has been explained that the Company has reasonable system of ascertaining and identifying point of occurrence of breakage/damages of stores, spares and capital goods while in transit, during loading/unloading in storage and during handling etc. so that responsibility could be fixed and compensation sought from those responsible.

16. The Company is a service oriented organization and not a manufacturing concern. Hence maintenance of records of production etc. is not applicable.

17. The Company is maintaining reasonable records for disposal of realizable scraps. No scrap was disposed off during the year.

18. According to the records, the Company is generally regular in depositing rates and taxes, duties etc. and other statutory dues with the appropriate authorities during the year 2016. Provision for Corporate Income Tax is adequate and necessary adjustments have been made to compute the amount of tax required to be paid as per the Rules of the Income Tax Act of the Kingdom of Bhutan, 2001. There were disputed dues on a/c of Income tax for Rs. 2,030,450.10, for which appeal has been filed with the appropriate authorities.

19. Undisputed amount payable to Regional Revenue & Custom Office amounting to Nu. 14,767,967.22 and TDS amounting to Nu. 265,162.03 were payable as at the last day of the financial year ending on 31st December, 2016.

20. According to the information and explanations given to us, no personal expenses have been debited to the Statement of Comprehensive Income Account excepting those payable under contractual obligations.

21. The Company is a service oriented organization and not a manufacturing concern. Hence recording consumption of materials and stores etc. is not applicable.



22. Quantitative reconciliation has been carried out during the year in respect of all major items of inventories at the end of the accounting period.

23. There have been material loss/discrepancies of Inventory between physical and book balances during the year under review and approval of appropriate authority has been obtained for writing off amounts due to material loss/discrepancies in physical/book balances of inventories including finished goods, raw materials, stores and spares.

24. The Company is a service oriented organization and not a manufacturing concern and there is no system of allocating man hours utilized to the respective jobs etc.

25. The System of authorization and internal control regarding issue of stores and allocation of materials and labour need to be strengthened.

26. System of price fixation taking into account the cost of production and market conditions is not applicable for a service oriented Company.

27. The credit sales policy and credit rating of customers is not applicable for the Company.

28. The Company has engaged some agents in connection with mobile service through appropriate screening. The agency commission structure is in keeping with the industry norms / market conditions.

29. The system of follow-up with debtors and other parties for recovery of outstanding amounts needs to be improved. Vigorous follow-up is required to realize the old debts. The age wise analysis of sundry debtors has been made by the Management, but for sundry debtors which are more than one year, no further segregation has been made.

30. The management of liquid resources particularly cash / bank is reasonably adequate considering the nature and size of the business. Funds are not lying idle in non-interest bearing accounts.

31. According to the information and explanations given to us and on the basis of examination of books and records on test check basis, the activities carried out by the Company are in our opinion lawful and intra-vires the Articles of Incorporation of the Company.

32. According to the information and explanations given to us, the Company has a system of approval of the Board for all capital investment decision and investments in new projects.

33. The Company has established an effective budgetary control system.

34. System of standard costing, variance analysis etc. is not applicable for a service oriented Company.

35. The details of remuneration to the Board of Directors including the Chief Executive Officer have been indicated in the Notes to the Accounts.

36. According to the information and explanation given to us, the directives of the Board have been complied with.

37. According to the information and explanations given to us, the officials of the Company have not transmitted any price sensitive information, which is not made publicly available, unauthorised to their relatives/friends/associates, or close persons, which would directly or indirectly benefit themselves.

In Case Of Other Service Sector Companies

1. The Company does not have a costing system to ascertain cost of its services.

2. The proper records are kept for inter unit transactions/services and arrangements for Services were made with other agencies engaged in similar activities.

3. The Company has executed proper agreements wherever the machinery/equipment are acquired on lease. The terms and conditions of leases are reasonable and are applied for.



Computerized Accounting environment

1. The Company has a Computerized accounting system and the internal control system seems to be adequate taking into account the size and nature of its computer installations.

2. It is explained to us that the Company has a standby server installed at Phuntsholing and backup is going on daily basis with complete backup with two way process. Firstly data backup are going on system and then it takes it to TSM server on daily basis.

3. As per information given to us, the Company keeps a back-up data for the entire Company in a standby server installed at Phuntsholing.

4. As per information given to us, Operational controls are adequate to ensure correctness and validity of input data and output information.

5. As per information given to us, there are adequate preventive measures to prevent unauthorized access over the computer installation and files.

GENERAL

1. Going Concern ProblemBased on the Company’s financial statements for the year ended 31st December, 2016 audited by us, the Company is healthy and going concern assumption is appropriate.

2. Ratio AnalysisFinancial and operational ratio in respect of the Company is given in the statement of Ratio Analysis.

3. Compliance of Companies Act of Kingdom of Bhutan:The Company has complied with the provisions of The Companies Act of the Kingdom of Bhutan, 2016

4. Adherence of Laws, Rules & Regulations:Audit of the Company is governed by The Companies Act of the Kingdom of Bhutan, 2016 and the scope of audit is limited to examination and reviews of the financial statement as produced to us by the management. In the course of audit, we have considered the compliance of provision of the said Companies Act and its Article of Incorporation. The Company does not have a comprehensive Compliance Reporting and Recording System as regards adherence to all laws, rules and regulations, systems, procedures and practices.

for KASG & Co. Chartered Accountants (Firm Reg. No. 002228C)

CA. Raj Kumar Agarwal Partner M. No. 073063

Place : Thimphu Date : 17.02.2017



BHUTAN TELECOM LIMITEDStatement of Financial Position as at 31st December 2016

Amount in Nu.

Particulars Note no.

As at 31st December 2016


I. ASSETS :b). Non-Current Assets

Property,Plant and Equipment 1(a) 3,271,044,130.97 3,125,892,062.05 Intangible Assets 1(b) 801,481,387.77 648,791,874.14 Capital work-in-progress 1(a) 191,736,666.62 157,742,055.81 Long-Term Loans & Advances 2 85,900,000.00 38,850,000.00 Other Non-Current Assets 3 92,308,400.00 92,308,400.00 Total Non-Current Assets 4,442,470,585.36 4,063,584,392.00

c). Current AssetsInventories 4 172,894,075.65 68,971,055.26 Trade Receivables 5 130,871,143.62 53,207,355.95 Cash and Bank Balances 6 249,846,714.70 522,595,314.20 Short-term Loans and Advances 7 38,585,910.28 56,275,960.42 Other Current Assets 8 1,520,051.91 4,383,926.17 Total Current Assets 593,717,896.16 705,433,612.00

Total Assets 5,036,188,481.52 4,769,018,004.00

II. EQUITY AND LIABILITIES :a). Shareholders Fund

Equity Share Capital 9 854,082,000.00 854,082,000.00 Retained Earnings & Reserves 10 3,228,764,881.79 2,860,609,995.00 Total Shareholders Fund 4,082,846,881.79 3,714,691,995.00

b). Non-Current LiabilitiesDeferred Government Grants 11 89,608,076.08 99,658,861.45 Long-Term Borrowings 12 300,000,000.00 434,590,512.71 Long-Term Provisions 13 60,947,694.91 21,119,476.84 Total Non-Current Liabilities 450,555,770.99 555,368,851.00

c). Current LiabilitiesTrade Payables 14 37,441,471.52 73,503,206.63 Short-Term Provisions 15 267,268,210.29 165,498,754.46 Other Current Liabilities 16 198,076,146.93 259,955,196.91 Total Current Liabilities 502,785,828.74 498,957,158.00

Total Outside Liabilities (b+c) 953,341,599.73 1,054,326,009.00

Total Equity & Liabilities 5,036,188,481.52 4,769,018,004.00 Summary of significant Accounting Policies 27 - - Notes on Accounts 28The above accompanying notes are an integral part of the financial statementsThis is the Statement of Financial Position referred to in our report of even date.

For KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd.(Firm Reg. No. 002228C)

CA Raj Kumar Agarwal ChairmanPartnerM. No. 073063v

Place: Thimphu Date: 17/02/2017 Chief Executive Officer



BHUTAN TELECOM LIMITEDStatement of Comprehensive Income for the year ended 31st

December 2016Amount in Nu.

Particulars Note no.



I. Income :Revenue from Operations:Domestic 17 2,815,226,970.90 2,537,687,141.57 International 18 40,300,577.89 55,196,173.65 Other Operating Income 19 190,459,959.24 62,474,348.87 Gain on Forex Fluctuations 21,846,955.08 61,782,314.38 Total Revenue 3,067,834,463.11 2,717,139,978.47

II. Expenditures:Stores and Spares Parts 20 60,886,233.92 66,388,979.37 Employees' Remuneration and Benefits 21 313,442,822.09 327,147,208.93 Repair & Maintainence 22 182,833,263.97 207,148,083.26 Administrative and General Expenses 23 379,635,394.48 436,087,906.95 International Payments 24 185,081,304.95 165,125,331.76 Depreciation of Property, Plant & Equipment 25(a) 491,838,629.64 652,132,705.90 Amortisation of Intangible Asset 25(b) 149,765,755.00 77,551,086.85 Foreign Exchange Fluctuations 25,730,068.12 36,076,518.79 Total Expenditures 1,789,213,472.17 1,967,657,821.81

Profit before Prior-period items,Other Comprehensive Income, Ineterst and Tax 1,278,620,990.94 749,482,156.66

Prior-period Expenses - 813,962.77 Prior-period Income - 24,110.15 Profit Before Tax 1,278,620,990.94 748,692,304.04

III. Add/(Less): Tax Expenses:Previous Tax 7,062,128.47 Current Tax 393,857,779.75 234,819,442.53 Deferred Tax 8,954,645.83 2,171,144.00 Total Tax Expenses 409,874,554.05 232,648,298.53

Profit After Tax for the Year 868,746,436.89 516,044,005.51

IV. Other Comprehensive Income - Acturial (gains)/losses on defined benefit plans 6,042,078.00 849,280.00 Income tax relating to component for other comprehensive Income 254,784.00

Other comprehensive Income,net of tax 6,042,078.00 594,496.00 Total comprehensive Income for the year 862,704,358.89 516,638,501.51

Earning per EmployeeEarnings Per Share 26 1,017.17 604.21 Summary of significant Accounting Policies 27Notes on Accounts 28The above accompanying notes are an integral part of the financial statementsThis is the Statement of Comprehensive Income referred to in our report of even date.

For KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd.(Firm Reg. No. 002228C)

CA Raj Kumar Agarwal ChairmanPartnerM. No. 073063

Place: Thimphu Date: 17/02/2017 Chief Executive Officer



BHUTAN TELECOM LIMITEDStatement of Cash Flow for the year ended 31st December 2016

Amount in Nu.Particulars 2016 2015

Cash Flow from Operating ActivitiesNet profit before tax 1,263,624,267.11 695,841,710 Writeoff of loan to Income (134,590,512.71)Add/Less: Net Addition in Provision (Current & Non-Current) 141,597,673.90 7,608,693

Add/Less: Gain on sale of Property Plant and Equipments - (4,960,235)

Add/Less: Foreign Exchange Loss/(Gain) (43,773,195)

Net profit before tax and after prior period adjustment 1,270,631,428.30 654,716,973

Adjustment forDepreciation during the year 641,604,384.64 736,679,658 Interest Paid 23,342,168.92 Interest Received (6,179,487.80) 658,767,065.76 (19,997,766) 716,681,893 Net Profit from Operating Activities before working capital changes 1,929,398,494.06 1,371,398,866

(Increase)/Decrease in Inventories (103,923,020.39) (35,182,621)(Increase)/Decrease in Trade Receivables (77,663,787.67) (2,738,654)

(Increase)/Decrease in Short Term Loans and advances 17,690,050.14 138,126,351

(Increase)/Decrease in Other Current Assets 2,863,874.26 117,514,187

(Increase)/Decrease in Long term Loans and advances (47,050,000.00) 12,950,000

Increase/(Decrease) in Other Trade Payables (36,061,733.42) 35,373,971

Increase/(Decrease) in Other Current Liabilities (85,333,528.36) (329,478,145.44) (64,473,030) 201,570,204

Cash Generated from operating activities 1,599,920,348.62 1,572,969,070

Income Tax Paid (298,391,586.39) (232,870,074)Net Cash Flow from Operating Activities 1,301,528,762.23 1,340,098,996

Cash Flow from Investing ActivitiesPayment for Property Plant and Equipments (678,327,161.20) (657,331,002)

Payment for Intangible Assets (303,614,771.63) (121,007,346)Sale of Property Plant and Equipments including gain 10,992,984

Payment for Capital Work in Progress (33,994,610.81) (209,030,167)Interest Received 6,179,487.80 19,997,766 Investment in Fixed Deposits 200,000,000.00 (58,000,000)Margin //money Provided 9,561,887.22 Investment in Subsidiary company - (92,308,400)Net cash used in Investing Activities (800,195,168.62) (1,106,686,165)

Cash Flow from Financing ActivitiesRepayment of Loan (94,636,502.00) (102,812,316)Receipt of Capital Grant from BICMA 44,264,941.45 9,895,000 Payment of Dividend (490,806,576.42) (216,007,203)Interest Paid on Bond (23,342,168.92) - Net cash used in Financing Activities (564,520,305.89) (308,924,519)Increase/(Decrease) in Cash & Cash Equivalents (63,186,712.28) (75,511,689)

Opening Cash & Bank Balances 313,033,426.98 237,815,518 Closing Cash & Bank Balances 249,846,714.70 162,303,829 Increase/(Decrease) in Cash & Cash Equivalents (63,186,712.28) (75,511,689)

Reconciliation of Cash and Cash Equivalent with Statement of Financial Position 2016 2015

Cash on handBalances with Banks in current accountsFixed deposits placed for a period less than 3 months

194,044.54 249,652,670.16

-

247,218.43 312,786,208.55

- Cash and Cash Equivalents Other Bank balances

249,846,714.70 -

313,033,426.98 209,561,887.22

Cash and Cash Equivalents as per Statement of Financial Position 249,846,714.70 522,595,314.20

This is the Statement of Cash Flow referred to in our Report of even date.



For KASG & Co. for & on behalf of Board of Directors Chartered Accountants Bhutan Telecom Ltd. (Firm Reg. No. 002228C)

CA Raj Kumar Agarwal Chairman Partner M. No. 073063 Place: Thimphu Date: 17/02/2017 Chief Executive Officer

BHUTAN TELECOM LIMITEDStatement of Changes in Equity for the year ended 31st December 2016

Amount in Nu.

Particulars Equity share Capital Retained Earnings Revaluation

Surplus

Group Investment

ReserveTotal Equity

Balance at 1st January 2015 854,082,000.00 2,220,139,557.17 55,353,466.26 405,489,602.00 3,535,064,623.11

Changes in equity for 2015 - - - - -

Comprehensive Income for the year

- 516,638,501.51 - - 516,638,501.51

Dividend for FY 2014 - (337,011,129.62) - - (337,011,129.62)

Transferred to Group Investment Reserve

- - -

Balance at 31st December 2015 854,082,000.00 2,399,766,929.06 55,353,466.26 405,489,602.00 3,714,691,995.00

Changes in equity for 2016 - - - -

Comprehensive Income for the year

- 862,704,358.89 - - 862,704,358.89

Dividend for FY 2015 - (490,806,576.42) (490,806,576.42)

Transferred to Free Hold Land - (3,742,898.00) - (3,742,898.00)

Balance at 31st December 2016 854,082,000.00 2,767,921,813.53 55,353,466.26 405,489,602.00 4,082,846,881.79

For KASG & Co. for and on behalf of Board of Director Chartered Accountants Bhutan Telecom Ltd. (Firm Reg. No. 002228C) CA Raj Kumar Agarwal ChairmanPartner M. No. 073063 Place: Thimphu Chief Executive OfficerDate: 17/02/2017



BHUTAN TELECOM LIMITEDRatio Analysis for the yeard ended 31st December 2016

2016 20151. LIQUIDITY

A. Current Ratio 1.18:1 1.41:1B. Quick Ratio: 0.84:1 1.28:1Quick Assets/Quick LiabilitiesC. Accounts Receivable Period 04.80 days 07.49 days365*Accounts receivable/operating IncomeD. Working Capital to Sales 3.18% 7.96%Current Assets-Current Liabilities/Operating Income

2. SOLVENCY:A. Term Debt to Total Fixed Assets 7.04% 11.05%Long term Debt/Total Fixed Asset-NetB. Debt Equity Ratio: 0.07:1 0.11:1Debt/(Capital Fund+Reserve & Surplus)

3. PROFITABILITY:A. Return on Capital Employed:

a. PBT/Capital Employed 29.17% 18.04%b. PAT/Capital Employed 19.68% 12.44%

Capital Employed=Equity Capital + Loan FundB. Return on Equity: 21.13% 13.89%Profit After Tax/Total EquityTotal Equity= Capital + Reserve & SurplusC. Return on Sales 31.32% 28.00%PBT/Operating IncomeD. Employee Cost to Gross Income 10.98% 12.62%Total Employee Expenses/Operating IncomeE. Profit per Employee: 1.34 million 0.70 millionPAT/Total no. of Employees

For KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd. (Firm Reg. No. 002228C)

CA Raj Kumar Agarwal

Partner ChairmanM. No. 073063 Place: Thimphu Date: 17/02/2017 Chief Executive Officer



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The Useful lives applied are as follows:

Asset Type Useful life1. Land NA2. Building

a. Permanent Structure 50 yrsb. Semi-Permanent Structure 15 yrsc. Temporary Structure 5 yrs

3. Tele-Equipmenta. Tower 30 yrsb. Rest 7 yrs

4. Power Systems & Cablea. Air Conditioner 5 yrsb. Rest 10 yrs

5. Furniture 10 yrs6. Office Equipment 5 yrs7. Vehicle 5 yrs8. Software Application 5 yrs

For KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd. (Firm Reg. No. 002228C) CA Raj Kumar Agarwal ChairmanPartner M. No. 073063 Place: Thimphu Date: 17/02/2017 Chief Executive Officer



BHUTAN TELECOM LIMITEDNotes forming part of the Financial Statement for the year ended 31st

December 2016

Amount in Nu.

Particulars As at 31st December 2016


Note "2" : Long Term Loans & Advances :Prepaid Expense - Non Current 25,900,000.00 38,850,000.00 Bond Redemption Reserve 60,000,000.00

85,900,000.00 38,850,000.00

Note "3" : Other Non-Current Assets:Investment in Equity Shares, UnquotedInvestment in the form of Share-TTPL 92,308,400.00 92,308,400.00 (923084 number of equity shares of face value of Nu 100)

92,308,400.00 92,308,400.00

Note "4": Inventories :Inventory - Vehicle Spares 1,311,797.72 1,970,252.24 Inventory - Office Equipment Spares 3,976,964.99 5,301,349.38 Inventory - Equipment Spares 15,096,085.66 22,222,166.11 Inventory - General Item 3,046,578.39 1,437,459.75 Inventory - Consumables 527,466.50 - Inventory - Printing and Stationaries 1,468,903.68 1,548,723.86 Inventory - Capital Goods 98,425,875.57 2,221,253.65 Inventory for Stores & Spares 123,853,672.51 34,701,204.99

COGS - Trading Goods 49,040,403.14 34,269,850.27 Total Inventories 172,894,075.65 68,971,055.26

Note "5": Trade Receivables :Sundry Debtors - Domestic - Current 149,588,596.47 74,358,848.22 Provision for Bad and Doubtful Debts (25,319,333.88) (27,995,153.19)

124,269,262.59 46,363,695.03 Sundry Debtors - International - Current 6,601,881.03 6,843,660.92

130,871,143.62 53,207,355.95

Note "6": Cash and Bank Balances :Cash and Cash EquivanlentsCash on hand in Regions & Exchanges 194,044.54 247,218.43 (As certified by the manaement)

Cash at BanksBNB GIR Current Account 4,056,647.13 125,949,922.81 BNB Disbursement Bank Account (65,556,335.47) (32,126,340.51)BNB Depository Works Account 77,953,991.49 67,539,698.22 BOB Current Account 18,592,068.32 7,337,143.27 BNB Foreign Currency Account 10,226,935.14 17,098,890.41 BDBL Revenue Account 12,346,404.29 2,892,232.44 BNB Insurance Account 22,101,033.27 21,937,786.62 BOB Disbursement Account 137,183,505.64 37,238,249.26 BNB Main Revenue Account 1,000.00 Bank Balances in Regions & Exchanges 32,747,420.35 64,918,626.03

249,652,670.16 312,786,208.55 Other Bank BalancesFixed Deposits - more than three months and less than tweleve months - 200,000,000.00 Margin Money - Pledge with BNB 9,561,887.22

- 209,561,887.22 249,846,714.70 522,595,314.20

Note "7": Short-term Loans and Advances :Unsecured, Considered good(Advances recoverable in cash and/or in kind or for value to be re-ceived)Advance to Suppliers - Current 22,578,344.84 37,260,973.64 Advance to Others - Current 970,378.19 1,564,801.18 Security Deposit - 739,651.00



Advance to Staff, Travel Expense - 81,642.00 Advance to Staff, Personal Expenses- Current 9,130.81 49,842.65 Advance to Staff, Office Expenses - Current 499,408.09 151,945.46 Advance to Staff, Imprest - 67,999.00 Creditor Employee 5,250.00 Prepaid Expense - Current 14,528,648.35 16,353,855.49

38,585,910.28 56,275,960.42

Note "8": Other Current Assets :Security Deposit - Others 1,454,215.36 - Income accrued but not Due - 2,143,452.82 Other Receivables - Current 64,264.35 69,329.35 TDS on Others 1,572.20 - Deferred Tax Assets - 2,171,144.00

1,520,051.91 4,383,926.17

Note "9" : Share Capital :Equity Share CapitalAuthorised :

1,500,000 (Previous Year 1,500,000) Equity Shares of Nu. 1,000 each 1,500,000,000 1,500,000,000

Issued, Subscibed and Paid up :854,082 (previous Year 854,082) Equity Shares of Nu.1,000 each 854,082,000.00 854,082,000

Total issued, subscribed and fully paid-up 854,082,000 854,082,000

Foot Notes: i. Terms / Rights attached to Equity Shares The Company has only one class of equity shares having a par value of Nu.1,000/- per share. Each holder of equity shares is entitled to one vote per share. Each holder of these ordinary shares are entitiled to receive dividends as and when declared by the company. Of the above 854,082 (previous year 854,082) shares are held by the Druk Holding & Investment Limited,being the Holding Company. During the year ended December 31, 2016, dividend of Nu: 372,199,941.63 is declared (Previous year 490,806,576.42).

i. Shares held by the Holding Company

Name of Shareholder As at 31st December 2016 As at 31st December 2015

No. of Shares held

% of total holding

No. of Shares held

% of total holding

Druk Holdings & Investment Limited 854,082 100% 854,082 100 Total 854,082 100% 854,082 100

iii. Reconciliation of number of shares

Particulars As at 31st December 2016 As at 31st December 2015

Equity Shares Equity SharesNo. of Shares Amount in Nu. No. of Shares Amount in Nu.

Shares outstanding at the begin-ning of the year 854,082 854,082,000 854,082.00 854,082,000.00

Shares issued during the year - - - - Shares bought back during the year - - - -

Shares outstanding at the end of the year 854,082 854,082,000 854,082.00 854,082,000.00

Note “10” : Retained Earnings & Reserves :a). Group Investment ReserveBalance as per the last financial statements 405,489,602.00 405,489,602.00 Add: during the year - Closing Balances 405,489,602.00 405,489,602.00

b). Revaluation ReservesBalance as per the last financial statements 55,353,466.26 55,353,466.26 Add: during the year - - Closing Balances 55,353,466.26 55,353,466.26

. c). Retained EarningsBalance as per last financial statements 2,399,766,926.74 2,220,139,554.85 Add: during the year 862,704,358.89 516,638,501.51 Less: Dividend Paid (490,806,576.42) (337,011,129.62)Less: Transferred to Land (3,742,898.00)Closing Balances 2,767,921,811.21 2,399,766,926.74 Total Retained Earnings & Reserves (a+b+c) 3,228,764,879.47 2,860,609,995.00




December 2016

Amount in Nu.



Note "11" : Deferred Government Grants-Non-Current :a). Grant from RGOBAt the beginning of year 2,219,648.76 2,439,648.76 Less: Transferred to RGOB- Current (110,000.00) (110,000.00)

2,109,648.76 2,329,648.76 b). Grant from RGOB-BICMA for GSMAt the beginning of year 87,110,723.93 120,839,545.77 Add : Received during the year 29,267,797.45 44,314,488.00 Less: Transferred to RGOB- Current (39,021,654.92) (39,021,654.92)

77,356,866.46 126,132,378.85 c). Grant from GOI for B MobileAt the beginning of year 3,002,483.77 6,202,211.05 Less: Transferred to GOI- Current (1,599,863.64) (1,599,863.64)

1,402,620.13 4,602,347.41 d). Grant from Others-JICAAt the beginning of year 7,326,005.43 - Received during the year 3,403,351.29 8,295,781.43 Less: Transferred to JICA- Current (1,990,415.99) (484,888.00)

8,738,940.73 7,810,893.43

Deferred Government Grants (a to e) 89,608,076.08 140,875,268.45 Less: Transferred to Current Maturity Grant - 41,216,407.00 Total Deferred Government Grants 89,608,076.08 99,658,861.45

Note "12": Long Term Borrowings :a). Loan from Danida - 134,590,512.71

(Unsecured, Interest Free)b). Corporate Bond - Bank of Bhutan 300,000,000.00 300,000,000.00

i) 7.50% Secured, non-cumulative, non-convertible redeemable bonds of 1000 each redeemable at par in full on 15th July 2020. ii) Corporate Bond is secured by hypotheciation of Fixed Assets/Plant & Machinery of the company.

Note "13" : Long Term Provision:Provision for Leave Encashment-NC 32,157,939.46 21,119,476.84 Provision for Insurance of Assets 22,006,253.62 - Deferred Tax Liability 6,783,501.83 - Mobile Prepaid Recharge Cards 60,947,694.91 21,119,476.84

164,693,271.14 151,634,248.58

Note "14" : Trade Payables:

Sundry Creditors - Domestic 18,116,064.00 29,411,667.58 Sundry Creditors - DHI Intra Company 11,066.00 464,135.75 Sundry Creditors - International 19,314,341.52 43,627,400.30

37,441,471.52 73,503,203.63

Note "15" : Short Term Provision:

Income Tax Payable 255,647,303.29 153,118,981.46 Provision for Leave Encashment 11,620,907.00 12,379,773.00

267,268,210.29 165,498,754.46

Note "16" : Other Current Liabilities:

a) Deferred Government Grants- Current :a) Grant from RGOBAt the beginning of year 110,000.00 Add:Transferred from RGOB-Non-current 110,000.00 Less: Transferred to Statement of Comprehensive Income (110,000.00)

110,000.00



c) Grant from GOI for B MobileAt the beginning of year 1,599,863.64 Add; Transferred from GOI-Non-current 1,599,863.64 Less: Transferred to Statement of Comprehensive Income (1,599,863.64)

1,599,863.64 - d) Grant from Others-JICAAt the beginning of year 484,888.00 Add: Received during the year 1,974,755.00 Add; Transferred from JICA-Non-current 1,990,415.99 Less: Transferred to Statement of Comprehensive Income (2,211,354.00)

2,238,704.99 - (44,131,174.56)

Total Deferred Government Grants- Current (a to d) 56,779,065.55 41,216,407.00 b) Other liabilitiesCurrent Maturities of Long Term Borrowing - 94,636,502.00 Expense Accrued 4,746,575.34 4,509,246.58 Tax Deducted at Source (TDS) 265,162.03 713,588.83 Tax on Telecom Service Payable (ST) 14,767,967.22 17,740.51 Stale Cheques 12,941.00 20,054.86 Advances from Customer 136,130.85 162,006.85 Advances from Customer - Deposit Work 86,925,389.50 72,004,580.57 Provision for Audit Fees 120,750.00 115,000.00 Sundry Creditors - Employees 50,911.00 - Security Deposits - Customer 3,120,000.00 3,010,000.00 Security Deposits - Vendor 10,740,036.75 4,798,954.93 Provision on Insurance - 9,421,534.79 Liability for Unearned Income 20,411,217.69 29,329,579.99

198,076,146.93 259,955,196.91


December 2016

Amount in Nu.



Note "17" : Revenue - Domestic :Telephone Service 100,730,673.99 113,251,544.88 Miscellaneous Income Fixed Line 2,025,459.15 5,932,507.57 Mobile Sim Cards 15,520,998.00 15,847,182.00 Mobile Prepaid Recharge Cards 1,198,500,351.38 1,368,362,194.41 Mobile Postpaid Services 164,693,271.14 151,634,248.58 Eload Mobile 847,551,880.04 538,338,757.31 Income from IN and VAS 4,030,233.21 2,458,587.76 Miscellaneous Income Mobile 9,020,076.66 1,149,222.34 Sale of Mobile Data Card 1,529,400.00 3,389,500.00 Broadband Postpaid 69,346,379.83 70,066,487.54 Broadband Prepaid 53,198,442.97 58,481,512.13 Internet Leaseline 206,287,844.90 142,809,657.68 Income from Domain Name Registration 63,687.49 75,250.00 Income from IPLC National 787,632.00 23,088,300.80 Miscellaneous Income Druknet 3,834,487.02 3,519,255.67 Sale of Internet Modem 6,577,056.08 8,485,637.27 Broadband Recharge Card 19,626,623.80 19,511,389.00 Eload Broadband 18,848.00 3,873,517.75 Contact Center Revenue 9,460,216.85 7,066,455.88 Data Center Revenue 9,533,468.10 345,933.00 Income from Interconnect 92,889,940.29 -

2,815,226,970.90 2,537,687,141.57

Note "18" : Revenue - International :International ISD 8,566,775.89 14,712,317.56 Income from International Roaming 23,912,695.30 27,112,860.50



Income from IN & VAS-International 1,148,303.70 7,102,196.24 Income from IPLC - International 5,116,881.43 5,123,900.96 Income from Domain Name - International 1,140,913.03 848,108.61 Income from Leaseline - International 415,008.54 296,789.78

40,300,577.89 55,196,173.65

Note "19" : Other Operating Income :Income from House Rent 2,659,178.22 2,078,458.93 Income from Hire Charges 752,307.00 51,080.00 Income from BT Guide 492,443.20 97,900.00 Income from BSecure 5,394,022.08 - Income from One Stop Shop 2,079,928.00 - Income from Thuraya Services 841,655.21 546,695.91 Income from sale of CPE and Equipments 1,168,773.85 626,985.50 Fines 3,991,048.49 7,774,720.56 Net Income from Depository Works 16,226,124.67 7,312,655.04 Income from Sale of Tender Documents 1,800.00 - Price Difference of Material - Gain 852,207.81 1,132,471.82 Physical Verification on Inventory - Gain 149,899.74 946,945.57 Discount Received 10,755,499.37 - Rounding Difference - Gain 205.93 286.80 Miscellaneous Income 138,915,377.87 33,282,884.24 Interest from Fixed Deposits 6,179,487.80 8,623,264.50

190,459,959.24 62,474,348.87

Gain on Forex Fluctuation 21,846,955.08 61,782,314.38 21,846,955.08 61,782,314.38

Note "20" : Stores and Spares Parts :Consumption of Vehicle Spares 3,180,602.04 2,655,535.06 Consumption of Office Equipment Spares 2,526,250.59 2,378,783.56 Consumption of Equipment Spares 14,416,355.40 25,997,370.84 Consumption of General Item 1,702,085.38 3,730,859.83 Consumables 1,296,482.55 25,875.00 Consumption of Printing and Stationaries 2,026,021.86 2,452,646.72 Consumption of Trading Goods 1,538,480.87 26,470.98

COGS of Trading Goods 34,199,955.23 29,121,437.38 60,886,233.92 66,388,979.37

Note "21" : Employees' Remuneration and Benefits :Basic Pay 141,613,981.34 147,006,571.04 Wages 152,200.00 223,504.00 Allowances 38,571,857.27 39,332,617.88 Leave Travel Concession 8,937,072.15 8,887,175.00 Bonus 45,448,323.51 29,876,179.84 Medical Expenses 206,312.00 679,265.75 Uniform and Livery Expenses 744,428.00 - Staff Welfare Expenses 144,707.00 439,997.00 Training - In Country 9,024,508.75 5,535,859.00 Training - Ex Country 9,898,542.59 28,922,679.29 Meeting and Seminar 10,314,181.90 4,796,588.13 Transfer Grant Expenses 3,837,024.58 - Pilgrimage Expenses 523,427.00 708,540.00 Leave Encashment 20,731,374.00 17,889,304.00 Provident Fund Contribution 14,932,312.00 15,235,044.00 Gratuity 8,362,570.00 27,613,884.00

313,442,822.09 327,147,208.93

Note "22" : Repairs and Maintenance :R&M Power - Service 755,243.92 690,114.81 Generator Running Expenses 2,972,146.15 2,873,133.68 R&M Generator Set - Service 133,701.06 18,797.31 R&M Plant and Machinery - Service 1,030,099.32 1,296,479.35 R&M Plant and Machinery - AMC 153,931,014.43 156,432,397.82 R&M Building - Service 1,274,223.82 8,237,235.76 R&M Office Equipment - Service 298,068.26 252,779.14 R&M Furniture & Fixture - Service 50,875.00 34,500.00 R&M Office Equipment - AMC 494,500.00 441,250.00 R&M Cables and Accessories - Services 324,297.00 233,676.00 R&M Software Application - AMC 10,777,754.56 26,267,323.65 Vehicle Running Expense - POL 8,172,776.25 7,834,202.00



R&M Vehicles - Services 2,618,564.20 2,536,193.74 182,833,263.97 207,148,083.26

Note "23" : Administrative and General Expenses :Deposit Work Expense (23,889.24) - Business Promotion 2,422,898.95 2,112,329.85 Discount Allowed 296,058.50 408,822.32 Directors Fees 740,000.00 764,000.00 Brand & Management Fees 6,510,290.29 6,768,167.49 Fees and Subscriptions - National 54,786,507.88 54,465,272.95 Printing and Stationary 109,680.00 83,165.00 Advertisement 1,887,439.25 1,980,112.00 Communication (Fax, Mail, Post) 809,405.20 690,485.54 Office Maintenance 702,448.33 998,134.32 Water and Sewerage 132,520.74 266,927.00 Rent 5,443,188.18 5,402,424.74 Fines & Penalty 661,932.17 - Travel - Foreign 1,432,598.39 1,318,261.72 Travel - Local 10,873,111.73 14,463,795.31 Travel - Maintenance & Project 4,485,738.00 3,370,774.00 Rates and Taxes 790,845.65 934,254.99 Custom Clearing Charges - 4,375.54 Service Tax Paid - 135,026,544.01 Registration and Filing Fees/Survey 531,939.13 418,447.56 General Insurance 13,044,392.09 304,982.53 Expense on Interconnect Settlement 69,572,803.58 - Commission 132,742,346.24 127,477,520.43 Revenue Sharing - National 3,737,497.75 6,674,752.00 Electricity 27,178,158.08 22,903,240.36 Entertainment 4,501,296.15 4,314,128.34 Carriage Outward 870,120.67 593,145.55 Carriage Inward 145,543.74 58,135.00 Hire Charges - 78,400.00 Books, Magazines and Newspapers 7,591.00 11,634.00 Corporate Social Responsibility 1,200,000.00 10,447,601.87 Donation 366,000.00 Price Difference of Material - Loss 746,023.42 2,939,071.39

Physical Verification of Inventory - Loss 126,455.97 908,174.40 Loss/Scrapping/Retirement of Inventory 4,643.58 1,224,632.16 Rounding Difference - Loss 5.64 19.10 Misc. Expenses 352,852.04 665,612.00 Professional Charges 2,033,788.00 1,692,063.40 Audit Expenses 415,345.00 508,706.20 Interest on Loans 23,342,168.92 10,371,575.34 Bank Charges 1,628,253.33 1,832,803.56 Revaluation of Material - Loss 2,146,753.60 - Bad and Doubtful Debts 2,759,892.53 2,430,028.28 Loss/Scrapping/Retirement of Asset - 11,060,386.70 Audit Fees 120,750.00 115,000.00

379,635,394.48 436,087,906.95

Note "24" : International Payments :Fees and Subscriptions - International 7,388,041.69 1,119,157.69 Satellite Utilization Charges 3,233,841.50 5,089,534.56 Service fee for IPLC 107,412,086.40 103,885,279.80 International Traffic Settlement, Voice 38,133,709.59 31,979,776.24 Internet Port Charges, IP Transit 9,250,984.98 10,806,941.68 International Roaming 18,862,381.29 11,476,493.69 GMPCS Services 800,259.50 768,148.10

185,081,304.95 165,125,331.76

Note "25" : Depreciation and Amortisation :Depreciation - Building 19,655,533.00 17,791,517.24 Depreciation - Tele Equipment 353,284,382.20 520,573,647.28 Depreciation - Office Equipment 6,115,382.00 5,708,757.31 Depreciation - Furniture and Fixtures 1,396,722.00 1,289,086.63 Depreciation - Power System 114,985,600.00 117,117,674.00 Depreciation - Cable and Accessories 28,232,929.00 23,472,054.00 Depreciation - Vehicle 6,241,182.00 3,880,908.00 Depreciation - Tools and Spare Parts 4,898,571.00 3,515,468.00 Depreciation - Capital Grants 42,971,671.56 41,216,406.56

491,838,629.64 652,132,705.90 Amortization of Software 150,925,258.00 77,551,086.85 Depreciation - Capital Grants 1,159,503.00



149,765,755.00 77,551,086.85

Loss on Forex Fluctuation 25,730,068.12 36,076,518.79 25,730,068.12 36,076,518.79

Prior Period Expense - 813,962.77 Prior Period Income - 24,110.15

- 789,852.62

Deferred Tax Expense 8,954,645.83 2,171,144.00 Corporate Income Tax Paid 400,919,908.22 235,074,226.53

409,874,554.05 232,903,082.53

Actuarial G/L Post Employment Benefit Obligations 6,042,078.00 849,280.00 6,042,078.00 849,280.00

Note "26" : Earnings Per Share :Profit available for Equity Shareholders 868,746,436.89 516,044,005.51 "Weighted number of Equity Shares outstanding " 854,082.00 854,082.00 Nominal Value of Equity Shares 1,000.00 1,000.00 Basic & Dilutted Earnings Per Share 1,017.17 604.21

No. of Employee as on 31.12.16 643.00 Profit After tax 868.75 Earning per employee 1.35

For KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd. (Firm Reg. No. 002228C) CA Raj Kumar Agarwal ChairmanPartner M. No. 073063 Place: Thimphu Date: 17/02/2017 Chief Executive Officer

BHUTAN TELECOM LIMITEDNote No. 27: Significant Accounting Policies

REPORTING ENTITYBhutan Telecom Limited (“Company”) was formed as a public corporation by virtue of Bhutan Telecommunication Act, 1999. The principal activities of Bhutan Telecom Limited are providing the telecom services like landline service, mobile service, internet and other allied services. The Holding company is Druk Holding and Investments Limited.

1. BHUTANESE ACCOUNTING STANDARDS: i) The present Financial Statements for the year ended 31stDecember 2016 is prepared in

compliance with the BASs.ii) The Financial statements have been prepared on a going concern basis in accrual system of

accounting.iii) Employee retirement benefits are valued on an actuarial basis which better reflects the estimated

liability in Statement of Financial Position date.

2. USE OF ESTIMATES The preparation of financial statements in conformity with BAS requires that the management of the company makes estimates and assumptions that affect the reported amounts of income and expenses of the period, the reported balances of assets and liabilities and the disclosures relating to contingent liabilities as of the date of the financial statements. Examples of such estimates include useful life of Plant Property and Equipment’s and intangible assets, provision for doubtful debts/advances, future obligations in respect of retirement benefit plans etc. Differences between the actual results and the estimates are recognised in the year in which results are known/materialised.

3. REVENUE RECOGNITIONRevenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably.The following specific recognition criteria must also be met before revenue is recognized:



i) Post-paid calls are recognized on the basis of metered calls in monthly cycles as generated through central billing system except for 281 for landline and 19 for broadband (Previous Year – 610) BT office connection all over the country, 26 (Previous Year – 25) VVIP connections in Thimphu and Phuentsholing, 37 (Previous Year – 58) for Post-paid and 244 (Previous Year – 266) for Land Line employees’ residential connections with certain ceiling as per Service Rule w.e.f. 1st March 2006.

ii) ISP bills are booked monthly on the basis of usage times and include revenue on account of start-up kits.

iii) All fixed network leased lines (international, local and domestic) are billed. iv) Income from sale of recharge voucher is recognized on the basis of usage by subscribers. v) Sale of instruments including satellite phones are billed on delivery basis.vi) All other miscellaneous incomes are booked in the accounts only when collection is made.vii) Revenue is measured at the fair value of the consideration received or receivable.

4. PROPERTY PLANT & EQUIPMENTPPE is recognized when it is probable that the future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably.i) Property Plant &Equipment except land are stated at historical cost less accumulated

depreciation and impairment losses, if anyii) Cost includes Purchase Price and directly attributable expenses including installation charges,

taxes & duties etc. up to the date the asset is ready for its intended use.iii) Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,

as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred.

Leasehold Landiv) Land is carried at the revalued amount equal to the fair value as envisaged in BAS- 16 and the

difference in book value has been credited to Equity as Revaluation Surplus.

v) The company has several plots of land on an operating lease rental basis without any clause of transition of ownership. These lands are obtained from the Government of Bhutan, mostly for the purpose of erecting telecommunication towers of the company. These are cancellable leases and have only rental payment and minimum amount of security deposit at the time of signing of agreement. These leases being operative leases are not to be capitalized and the rents paid are equally charged to Statement of Comprehensive Income from year to year till the conclusion of the lease period.

Deprecationvi) Deprecation is recorded by a charge to operating profit computed on a straight-line basis so

as to write off the cost of the assets to their residual values over the expected useful lives. The residual value and the useful life of an asset are reviewed at each year end.

vii) Estimated useful life of Assets applied is as follows:

Asset Type Useful life1. Land NA2. Building

a. Permanent Structure 50 yrsb. Semi-Permanent Structure 15 yrsc. Temporary Structure 5 yrs

3. Tele-Equipmenta. Tower 30 yrsb. Rest 7 yrs

4. Power Systems & Cablea. Air Conditioner 5 yrsb. Rest 10 yrs

5. Furniture 10 yrs6. Office Equipment 5 yrs7. Vehicle 5 yrs

Capital Work in Progressviii) Work, which is still in progress relating to civil construction, is accounted for under capital



work-in-progress after considering 1st running bill from the contractor.ix) Expenses directly attributable to the asset including expenses to bring the asset to the site and

in the working condition for its intended use are capitalised along with that asset.x) Capitalization of work-in-progress has been done on the basis of completion certificate issued

by the concerned authority.

5. INTANGIBLE ASSETS Computer softwareAcquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Amortisation These costs are amortised over their estimated useful lives of 5 years.Costs associated with maintaining computer software programmes are recognised as an expense as incurred.

6. BORROWING COSTSGeneral and specific borrowing costs directly attributable to the acquisition, construction or production of a major capital project, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

7. GOVERNMENT GRANTS i) Grants relating to the period prior to 30th June 2000 are not identifiable and as such merged

with the Deferred Government Grants.ii) Grants relating to property, plant and equipment are included in noncurrent liabilities as

Deferred Government Grants and as current liabilities for the Grants adjustable during current year and those received for other purposes have been treated as Income.

iii) Amount of Depreciation on Property, Plant and Equipment acquired through grant has been transferred to Statement of Comprehensive Income as a credit to depreciation on the respective assets.

8. EMPLOYEE BENEFITSi) Actuarial valuation of gratuity liability has been made and equivalent amount has been

transferred to gratuity trust.ii) Bonus accounted for on cash basis and is dependent on the reported profit subject to approval

of the Board of Directors.iii) Leave encashment liability is accounted for on the basis of actuarial valuation

9. CURRENT AND DEFERRED INCOME TAXThe tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in Other Comprehensive Income. In this case, the tax is also recognised in Other Comprehensive Income.The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date in Bhutan.Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred income tax is determined using tax rates (and laws) that have been enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.Deferred tax are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

10. PROVISIONS AND CONTINGENT LIABILITIESi) Provisions are recognised when the company has a present legal or constructive obligation as

a result of past events, it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.



ii) A contingent liability is only disclosed in the notes to the account if an outflow of resources embodying economic benefits is possible.

iii) Contingent Assets are neither recognized, nor disclosediv) Provisions & Contingent Liabilities are reviewed at each Balance Sheet date

11. FOREIGN CURRENCY TRANSLATIONi) Foreign currency transactions that are completed within the accounting period are translated

into Bhutan Ngultrum using the exchange rates prevailing at the date of settlement. Monetary assets and liabilities in foreign currencies at balance date are recorded at the spot rate rather than rate at balance date.

ii) Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

12. INVENTORIESInventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method. Cost of Inventories includes all cost of purchase, cost of conversion and other cost incurred in bringing the inventories to their present location and conditions.

13. SEGMENTAL REPORTINGThe company is in the Business of providing telecom services and its operating facilities are all situated in the Royal Kingdom of Bhutan only. Under the broad segment of telecom services the company has subsidiary segments of Fixed Line Service, Mobile Service, Data Center and Cloud Service and Internet Service. Further as the company’s share are not listed with any stock exchange market, the provision of BFRS-8 – Operating segments is not applicable to the company.

14. CASH AND CASH EQUIVALENTSIn the Statement of Cash Flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three

months or less and bank overdrafts15. TRADE AND OTHER RECEIVABLES

Trade and other receivables are initially recognised at the fair value of the amounts to be received. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Receivables are reviewed regularly for impairment.

16. TRADE AND OTHER PAYABLESTrade and other payables are initially recognised at the fair value of the amounts to be paid. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

17. EARNING PER SHAREBasic Earnings per share is calculated by dividing the net profit / (loss) after tax for the period attributable to equity shareholders of the Company by the total number of shares which are fully paid up.

for KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd.(Firm Reg. No. 002228C)

CA. Raj Kumar Agarwal Chairman PartnerM. No. 073063

Place : ThimphuDate : 17.02.2017 Chief Executive Officer



BHUTAN TELECOM LIMITEDNote No. 28: Notes to Accounts

1. Related Party DisclosureAs identified by the management and in accordance with the Bhutanese Accounting Standard - 24 following are the list of related parties a) List of related parties where control exists and related parties with whom transactions have

taken place during the period and relationships:Nature of Relationship Name of Entity Acronym usedHolding Company Druk Holding & Investment Ltd. DHISubsidiary Company Thimphu Tech Park Limited TTPL

Chairperson Mr. Tenzin DhendupDirector Dr. Damber S. KharkaDirector Mr. Pasang DorjiDirector Ms. Leki WangmoDirector Mr. Jigme TenzingDirector Mr. Dechen DorjiDirector Mr. Phuntsho Tobgay*Director Mr. Gyeltshen*Director Mr. Minjur Dorji*Chief Executive Officer Mr. Tshewang Gyeltshen

Subsidiary of Holding Company Bhutan Power Coporation Limited BPCSubsidiary of Holding Company Drukair Corporation Limited DACLSubsidiary of Holding Company Druk Green Power Corporation DGPCSubsidiary of Holding Company Natural Resource Development Corporation Ltd NRDCLSubsidiary of Holding Company Construction Development Corporation Ltd CDCLSubsidiary of Holding Company Wood Craft Center Ltd WCCLSubsidiary of Holding Company State Mining Corporation Ltd SMCLControlled Company of Holding Company Bank of Bhutan Ltd BOBLControlled Company of Holding Company Bank of Bhutan Security Limited BOBSLControlled Company of Holding Company Dungsam Polymers Ltd DPLControlled Company of Holding Company Dungsam Cement Corporation Ltd DCCLControlled Company of Holding Company State Trading Corporation of Bhutan Ltd STCBLLinked Company of Holding Company Bhutan Board Product Ltd BBPLLinked Company of Holding Company Penden Cement Authority Ltd PCAL

Entities under common Control

Key Management Personnel

*Mr. Phuntsho Tobgay, Mr. Gyeltshen and Mr. Minjur Dorji retired during the yeara) Transactions with related parties during the Year:

i) Sitting Fee & DSA

Transactions:Amount in Nu

2016 2015DSA Sitting Fee DSA Sitting Fee

Mr. Tenzin Dhendup 220,767.34 88,000.00 270,239.00 92,000.00 Mr. Phuntsho Tobgay 16,000.00 55,291.00 80,000.00 Dr. Damber S. Kharka 87,311.50 160,000.00 34,592.00 120,000.00 Mr. Kezang 44,000.00 Mr. Minjur Dorji 13,750.00 24,000.00 100,664.00 68,000.00 Mr. Gyeltshen 24,000.00 53,059.00 108,000.00 Mr. Karma Tshering 53,059.00 104,000.00 Mr. Pasang Dorji-Sitting Fees 53,504.00 100,000.00 Ms. Leki Wangmo-Sitting Fees 230,500.02 60,000.00 Mr. Jigme Tenzing-Sitting Fees 53,504.00 72,000.00 Mr. Dechen Dorji-Sitting Fees 44,000.00 Total 659,336.86 588,000.00 566,904.00 616,000.00

ii) Chief Executive Officer’s Remuneration

Chief Executive Officer’s Remuneration 2016 2015Salary 1,438,400.00 1,403,600.00Leave Travel Concession 15,000.00 15,000.00Bonus and PBVA 405,500.00 104,974.18Contribution to superannuation fund 109,120.00 106,260.00Sitting Fess 152,000.00 160,000.00



iii) Intergroup Transaction:

As Per GCOA As Per GCOA Respective

Entity ID

Respective Segment

ID

Default Value will be F_OPE

If INTCO applica-ble then

respective InterCO ID, else

I_NONE

For QTR 4 =

2016.DEC Signed Data

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_BBPL 2016.DEC

(709,190.03)

2103010302 Intragroup trade payables BTL COMTRP F_CLO I_BBPL 2016.DEC (12,490.00)

3109010627 Electricity Charges - paid to DHI Group companies BTL COMTRP F_CLO I_BPC 2016.DEC

26,997,027.88

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_BPC 2016.DEC

(5,627,717.37)

1213030001 Furniture, fixtures, computers and office equipment BTL COMTRP F_CLO I_STCBL 2016.DEC

648,433.43

1213020001 Plant & Machinery BTL COMTRP F_CLO I_STCBL 2016.DEC 200,200.00

1213040001 Cables and Power System BTL COMTRP F_CLO I_STCBL 2016.DEC 39,872.50

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_STCBL 2016.DEC

(866,378.79)

2103010302 Intragroup trade payables BTL COMTRP F_CLO I_STCBL 2016.DEC (13,800.00)

3107010012 Running & Maintenance Of Vehi-cle-Intergroup BTL COMTRP F_CLO I_STCBL 2016.DEC

152,470.11

1101020103 Balances with BOBL BTL COMTRP F_CLO I_BOBL 2016.DEC 184,219,251.16

2103040002 Intergroup Accrued expenses BTL COMTRP F_CLO I_BOBL 2016.DEC (4,746,575.34)

2204030001 Inter corporate deposits BTL COMTRP F_CLO I_BOBL 2016.DEC (300,000,000.00)

3109010044 Intra Group Commission and Bro-kage fees BTL COMTRP F_CLO I_BOBL 2016.DEC

12,658,320.77

3110010607 Interest on intra group bonds BTL COMTRP F_CLO I_BOBL 2016.DEC 22,500,000.00

3110010602 Interest on loans from BoBL BTL COMTRP F_CLO I_BOBL 2016.DEC 842,168.92

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_BOBL 2016.DEC

(14,052,036.67)

4107010521 Rental Income from Group Com-panies BTL COMTRP F_CLO I_BOBL 2016.DEC

(48,000.00)

4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_BOBL 2016.DEC (17,000.00)




4107010522 Intra Group Commission and Brok-age Income BTL COMTRP F_CLO I_BOBL 2016.SEP

(2,329,277.70)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_DG01 2016.DEC

(2,753,910.48)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_DG01 2016.DEC 88,169.07

4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_DG01 2016.DEC (15,000.00)

3109010616 Rental Expenses paid to DHI Group Companies BTL COMTRP F_CLO I_DG01 2016.DEC

8,550.00

1109020104 Intergroup deposits BTL COMTRP F_CLO I_DG01 2016.DEC 51,727.15

4107010508 Service Revenue from DHI Group companies BTL COMTRP F_CLO I_DG01 2016.DEC

(1,051,190.66)

1207010017 Investment in Shares of Thimphu TechPark Limited BTL COMTRP F_CLO I_TTPL 2016.DEC

92,308,400.00

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_TTPL 2016.DEC

(8,372,077.99)

3109010616 Rental Expenses paid to DHI Group Companies BTL COMTRP F_CLO I_TTPL 2016.DEC

1,054,130.20

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_TTPL 2016.DEC 11,614.79

2503010008 Intragroup Dividends relating to current year BTL COMTRP F_CLO I_DI01 2016.DEC

(490,806,576.42)

4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_DI01 2016.DEC (100,000.00)

3109010617 Inter group Brand management Fees BTL COMTRP F_CLO I_DI01 2016.DEC 6,510,290.29

2501010001 Equity Shares held by DHI BTL COMTRP F_CLO I_DI01 2016.DEC (854,082,000.00)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_DI01 2016.DEC

(1,097,736.19)



4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_DI01 2016.DEC (30,000.00)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_DACL 2016.DEC

(8,296,365.45)

2103010302 Intragroup trade payables BTL COMTRP F_CLO I_DACL 2016.DEC (11,066.00)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_DACL 2016.DEC 606,714.83

3109010614 Flight tickets and other services purchased from DACL BTL COMTRP F_CLO I_DACL 2016.DEC

3,202,745.50

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_PCAL 2016.DEC 71,471.53

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_PCAL 2016.DEC

(476,720.96)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_CDCL 2016.DEC

(2,264,522.92)

4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_CDCL 2016.DEC (13,000.00)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_SMCL 2016.DEC

(675,680.00)

4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_SMCL 2016.DEC (50,000.00)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_DC01 2016.DEC 219,074.14

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_DC01 2016.DEC

(2,850,789.03)

4107010524 Inter Group Miscellanous Income BTL COMTRP F_CLO I_DC01 2016.DEC (50,000.00)

4116010008 Other Communication Services Related Operating Revenue BTL COMTRP F_CLO I_DC01 2016.DEC

(117,425.00)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_WCC 2016.DEC 19,767.65

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_WCC 2016.DEC

(228,159.02)

1213030001 Furniture, fixtures, computers and office equipment BTL COMTRP F_CLO I_WCC 2016.DEC

134,215.00

3109010043 Intra Group Miscellaneous Expenses BTL COMTRP F_CLO I_WCC 2016.DEC 4,328.00

3107010011 Repairs & Maintenance Of Furni-ture, fixtures and equipment BTL COMTRP F_CLO I_WCC 2016.DEC

50,875.00

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_THEL 2016.DEC

(762,400.64)

4107010524 Inter Group Miscellaneous Income BTL COMTRP F_CLO I_THEL 2016.DEC - 1,364,290.00

4107010524 Inter Group Miscellaneous Income BTL COMTRP F_CLO I_NRD-CL 2016.DEC

(100,000.00)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_NRD-

CL 2016.DEC (1,679,458.89)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_NRD-CL 2016.DEC 244,241.20

4107010524 Inter Group Miscellaneous Income BTL COMTRP F_CLO I_DP01 2016.DEC (50,000.00)

4107010524 Inter Group Miscellaneous Income BTL COMTRP F_CLO I_BHSL 2016.DEC (357,087.50)

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_BHSL 2016.DEC

(332,916.66)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_BHSL 2016.DEC 29,275.93

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_DH01 2016.DEC

(749,658.50)

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_DH01 2016.DEC 27,550.95

1109010102 Intragroup trade receivables BTL COMTRP F_CLO I_DI01 2016.DEC 93,997.25

4107010514 Communication and ICT revenue from DHI Group companies BTL COMTRP F_CLO I_DP01 2016.DEC

(132,601.00)

2. Employee’s Benefit disclosures as per BAS 19

2.1 Gratuity scheme

A. ACCOUNTING EXHIBITS in Ngultrums

A1. Change in defined benefit obligation (DBO) 31-Dec-2016 31-Dec-2015DBO at the beginning of the current period 116,130,447 93,577,864 Current service cost 7,291,985 7,067,771 Past service cost - 20,184,547 Interest cost 8,786,371 7,590,146 Benefits paid by the plan (12,601,629) (8,564,056)Benefits paid by the employer - - Actuarial (gains)/losses due to plan experience (1,085,727) 12,762,980 Actuarial (gains)/losses due to change in demographic assump-tions - 543,688

Actuarial (gains)/losses due to change in financial assumptions 4,181,505 (17,032,494)DBO at the end of the current period 122,702,952 116,130,447



A2. Change in fair value of plan assets 31-Dec-2016 31-Dec-2015Fair Value of Assets at the beginning of current period 89,365,843 85,070,441 Contributions paid into the plan 26,764,604 8,507,423 Expected return on the plan assets 7,715,786 7,228,581 Benefits paid by the plan (12,601,629) (8,564,056)Return on plan assets greater or (less) than discount rate (2,946,300) (2,876,546)Fair Value of assets at the end of the current the period 108,298,304 89,365,843

A3. Income statement 31-Dec-2016 31-Dec-2015Current service cost 7,291,985 7,067,771 Past service cost - 20,184,547 Net interest cost on net DB liability/(asset) 1,070,585 361,565 Net cost for the year recognized in income statement 8,362,570 27,613,884

A4. Other comprehensive income (OCI) 31-Dec-2016 31-Dec-2015Actuarial (gains)/losses due to liability experience (1,085,727) 12,762,980 Actuarial (gains)/losses due to liability assumption changes 4,181,505 (16,488,806)Return on plan assets (greater )or less than discount rate 2,946,300 2,876,546 Re-measurement (gains)/losses recognized in OCI 6,042,078 (849,280)

A5. Defined benefit cost 31-Dec-2016 31-Dec-2015Current service cost 7,291,985 7,067,771 Past service cost - 20,184,547 Net interest cost on net DB liability/(asset) 1,070,585 361,565 Re-measurement (gains)/losses recognized in OCI 6,042,078 (849,280)Total Defined Benefit Cost 14,404,648 26,764,604

A6. Development of net financial position 31-Dec-2016 31-Dec-2015Defined benefit obligation (122,702,952) (116,130,447)Fair value of plan assets 108,298,304 89,365,843 Funded status - (deficit)/surplus (14,404,648) (26,764,604)Net defined benefit asset/(liability) (14,404,648) (26,764,604)

A7. Reconciliation of net financial position 31-Dec-2016 31-Dec-2015

Net defined benefit liability/(asset) at the beginning of current period 26,764,604 8,507,423

Amount recognized in the income statement 8,362,570 27,613,884 Amount recognized in the OCI 6,042,078 (849,280)Contributions paid into the plan (26,764,604) (8,507,423)Benefits paid by employer - - Net defined benefit liability/(asset) at the end of current period 14,404,648 26,764,604

A8. Expected benefit payments for the year ending in Nu.December 31, 2017 17,693,845 December 31, 2018 14,615,277 December 31, 2019 18,601,976 December 31, 2020 18,046,424 December 31, 2021 17,621,130 December 31, 2022 to December 31, 2026 119,145,817

A9. Estimated term of liability (Years) 11.22

A10. Scheme Asset Allocation Amount Percentage Corporate Bond 15,848,770 14.63%Bank Account 92,449,534 85.37%Total 108,298,304 100.00%

A.11 Sensitivity Analyses In Nu.

1. Discount Rate Defined Benefit

ObligationNet Effect on

DBOBase Discount Rate of 8% 122,702,952 -Discount rate of 8.5% (+0.5%) 118,605,788 (4,097,164)Discount rate of 7.5% (-0.5%) 127,057,939 4,354,987

2. Salary Escalation RateBase Salary Escalation Rate of 8% 122,702,952 - Salary Escalation Rate of 9% (+1%) 127,003,396 4,300,444 Salary Escalation Rate of 7% (-1%) 118,112,514 (4,590,438)

3. Attrition RateBase Attrition Rate of 5% 122,702,952 -



Attrition Rate of 6% (+1%) 122,132,238 (570,714)Attrition Rate of 4% (-1%) 123,231,684 528,732

B. Gratuity Scheme Benefits as at 31 December 20161. Normal Retirement Age: 56 years 2. Benefit payable on: Death/Disability/Resignation/Normal Retirement 3. Form of Benefit: Lump sum 4. Vesting period: 5 years for Normal Retirement and Resignation and none for the rest 5. Maximum Benefit: Nu. 1,500,000 revised from Nu. 1,000,000 in 20146. Benefit Formula: Monthly Basic Salary at the time exit X Eligible service rendered till the time

of exit rounded to the nearest integer.

C. Summary of Actuarial Assumptions

31-Dec-2016 31-Dec-2015Discount Rates 8.00% 8.50%Salary Escalation Rates 8.00% 8.00%Employee Turnover Rates 5.00% 5.00%Mortality Rates 100% of IALM (2006-08) 100% of IALM (2006-08)

2.2 Leave Encashment Benefits as at 31st December 2016

A. ACCOUNTING EXHIBITS In NgultrumsA1. Change in defined benefit obligation (DBO) 31-Dec-2016 31-Dec-2015DBO at the beginning of the current period 7,827,266 8,742,260 Current service cost 1,283,201 1,024,526 Past service cost - - Interest cost 590,926 716,078 Benefits paid by the plan - - Benefits paid by the employer (881,373) (635,625)Actuarial (gains)/losses due to plan experience (97,812) 720,514 Actuarial (gains)/losses due to change in demographic assump-tions

- 62,090

Actuarial (gains)/losses due to change in financial assumptions 388,259 (2,802,577)DBO at the end of the current period 9,110,467 7,827,266

A2. Change in fair value of plan assets 31-Dec-2016 31-Dec-2015

Fair Value of Assets at the beginning of current period - - Contributions paid into the plan - - Expected return on the plan assets - - Benefits paid by the plan - - Return on plan assets greater or (less) than discount rate - - Fair Value of assets at the end of the current the period - -

A3. Income statement 31-Dec-2016 31-Dec-2015Current service cost 1,283,201 1,024,526 Past service cost - - Net interest cost on net DB liability/(asset) 590,926 716,078 Re-measurement (gains)/losses 290,447 Net cost for the year recognized in income statement 2,164,574 1,740,604

A4. Development of net financial position 31-Dec-2016 31-Dec-2015Defined benefit obligation (9,110,467) (7,827,266)Fair value of plan assets - - Funded status - (deficit)/surplus (9,110,467) (7,827,266)Net defined benefit asset/(liability) (9,110,467) (7,827,266)

A5. Reconciliation of net financial position 31-Dec-2016 31-Dec-2015Net defined benefit liability/(asset) at the beginning of current period

7,827,266 8,742,260

Amount recognized in the income statement 2,164,574 1,740,604 Contributions paid into the plan - - Benefits paid by employer (881,373) (635,625)Net defined benefit liability/(asset) at the end of current period 9,110,467 9,847,239

A6. Expected benefit payments for the year ending in Nu.December 31, 2017 715,198 December 31, 2018 615,657 December 31, 2019 936,359 December 31, 2020 668,317 December 31, 2021 730,390 December 31, 2022 to December 31, 2026 4,282,636



A7. Estimated term of liability (Years) 10.45

A8. Sensitivity Analysis in Nu.

1. Discount RateDefined Benefit

ObligationNet Effect on

DBOBase Discount Rate of 8% 9,110,467 -Discount rate of 8.5% (+0.5%) 8,722,209 (388,259)Discount rate of 7.5% (-0.5%) 9,528,970 418,502

2. Salary Escalation RateBase Salary Escalation Rate of 8% 9,110,467 - Salary Escalation Rate of 9% (+1%) 10,021,500 911,032 Salary Escalation Rate of 7% (-1%) 8,312,921 (797,546)

3. Attrition RateBase Attrition Rate of 5% 9,110,467 - Attrition Rate of 6% (+1%) 9,102,848 (7,619)Attrition Rate of 4% (-1%) 9,123,728 13,261

B. SCHEME DESCRIPTIONS1. Normal Retirement Age: 56 years.2. Benefit payable on: Death/Disability/Resignation/Normal Retirement.3. Form of Benefit: Lump sum.4. Maximum Benefit: 60 days of accrued leave.5. Benefit Formula: Monthly Basic Salary at the time of exit X Accrued earned leave.

C. ACTUARIAL ASSUMPTIONS

31-Dec-2016 31-Dec-2015

Discount Rates 8.00% 8.50%

Salary Escalation Rates 8.00% 8.00%

Employee Turnover Rates 5.00% 5.00%

Mortality Rates 100% of IALM (2006-08) 100% of IALM (2006-08)

3. Provisions and Contingent Liabilities a. Capital Commitments :

Particulars 2016 2015Amount of contract remaining to be executed on Capital Accounts but no provided (Net of Advances) 81,035,058.77 25,546,671.00

b. Contingent Liabilities Particulars 2016 2015Contingent Liability (30% CIT on Brand & Mgt. Fee) 2,030,450.10 Nil24% Penal Interest on Nu: 9,011,342.66 2,162,722.24 Nil

c. Provisions

Leave Encashment

Inventories Bad Debts Leave Encashment

Inventories Bad Debts

Opening 33,499,252.00 - 27,995,152.93 26,307,611.00 - 30,335,813.00 Addition 9,110,467.00 - 2,759,892.53 7,827,266.00 - 2,430,028.28 Addition 11,620,907.00 - - - - Utilized 10,451,780.00 - 5,435,711.84 635,625.00 - 4,770,688.35 Closing 43,778,846.00 - 25,319,333.62 33,499,252.00 - 27,995,152.93

Particular2016 2015

4. Land vested in the company is subject to confirmation and verification by the National Land Commission out of which some are still pending for the registration. As per the approved DHI land policy and implementation guidelines, the first phase of land transfer from DOC’s to DHI has been completed for the 6 (six) Eastern Dzongkhag in 2016 vide DHI letter no: DHI/DOI/OIU/Lands/2017/66 dated 10th February. In view of the above, 33 (thirty three) numbers of Free Hold Land costing Nu: 3,742,898 has been transferred from BTL to DHI as on 31.12.16 vide document no: 5200001941

5. As per the Assessment order by Regional Revenue & Custom Office, a demand notice was raised



for Nu: 9,011,342.66 and penal interest of @24% has to be paid from 1st April, following income year till the date of payment. Out of Nu: 9,011,342.66, BTL has filed an appeal to the appropriate authority for Nu. 6,768,167.00, under the Brand & Management fee as disputed liability on which 30% CIT amounting to Nu. 2,030,450.10 is due and the balance amount has been paid.

6. A contract agreement for supply of FG Wilson DEG set was signed between M/s NR Industrial Corporation and Bhutan Telecom Ltd in 2013 and 2014. On the review of the supplier’s ledger an amount of Nu: 7,960,862.56 remains unsettled as on 31.12.16. As per revised purchase order reference no: BT/2013000071/2013/439 dated 8th April 2013, corporate guarantee of 7% of the purchased order value within 30 days from the date of receipt of this order had to be provided by the party to BTL, failing which the purchase order shall be treated as cancelled, but the said corporate guarantee was not provided by the party to BTL. In spite of noncompliance by the party in submitting the corporate guarantee, 90% advance was given to the party for the supply of material which was a lapses from the management as per the contract. As per the information given to us by the management the materials is still lying with the custom authorities at Kolkata for noncompliance of legal formalities by the party for sending the material to BTL. From the information on the correspondence made, it seems that the management has not been proactive in taking proper steps to realize the advance amount paid to the party with penalty neither ascertain the supply of the material on time. Therefore we would like to suggest that a provision of similar amount to be made against this as the chances of receiving the material is very remote.

7. Depreciation on Property, Plant and Equipment acquired through grants amounting to Nu. 44, 131,174.56 (Previous Year Nu. 41,216,407) have been adjusted by way of transfer of equal amount from Capital Reserve.

8. During the year, company has received an additional grant of Nu. 44,264,941.45 (Previous Year Nu.44, 313,488.00) from Bhutan Information and Communication & Media Authority (BICMA) as towards Rural GSM Project. However, Nu: 22,107,697.45 is yet to receive from the total grant amount. The company also received JICA grants worth Nu: 5,378,106.26 in the form of fixed assets. (Splicing Van, Engine Generator and Tools & Test Kits)

9. GSM License fee payable to BICMA for 15 years is Nu. 777,000,000 of which Nu. 453,250,000 (Previous Year Nu. 401,450,000) has been incurred up to 31st December, 2016.

10. The Closing Balances of Sundry Debtors between the Books of Accounts and the Billing system against Fixed Line Services, Internet Services and Mobile Services have been reconciled. The closing balance of Sundry Debtors for these services is Nu. 102,391,065.91, as on 31st December, 2016. Based on the proposal of the management, the board during the 125th board meeting held on 3rd January 2017 approved an adjustment entry of Nu: 32,091,883.37 to be passed in accounts has been recorded in the income statement as income.

11. Under the General Insurance an amount of Nu: 12,584,718.83 has been debited for the self-insurance of asset and credit to the provision for insurance of asset as on 20th December 2016 vide document no: 2100055382. As the management had missed to provide the same in the year 2014 and 2015, it has been provided during the current year. The details of the figures of self-insurance are as given below:

Year: Amounts (Nu)2014 4, 302, 571.912015 3,925,571.252016 4,356,575.67Total 12,584,718.83

12. Provision for bad and doubtful debt is made @ 0.5% (Previous Year 0.5%) of domestic land line, ISP and mobile post-paid revenue on ad-hoc basis.

13. Miscellaneous Income includes Nu. 134,590,512.71, against the adjustment for the Term Loan balance from Danida. The adjustment has to be made in this financial year, since the same amount has been paid by Nordea Bank (Danish Bank) in the year 2008 and partly in 2009 from the accrued interest of the project fund.



14. Service Tax until last year was treated as income and the same was expensed out while remitting to Department of Revenue & Custom. However starting 2016, it has been booked as liability and adjusted while remitting to RRCO.

15. Interconnect settlement-national was booked on net basis until last year, however starting 2016, both expense and income has been recognized on gross basis.

16. The CWIP value at the year-end 2014 against the GSM project was Nu: 30,208,122.84. However, an amount of Nu. 30,546,268.17 was capitalized in 2015, resulting in an over capitalization of Nu. 338,145.33 The rectification entry was passed in 2016 under the same asset code where the capitalization was made.

17. When the inventory data was migrated to SAP, recharge card stock amounting to Nu. 2,232,412.20 was mistakenly uploaded as Nu. 4,462,600.00 thereby inflating the inventory by Nu. 2,230,187.80. The issue was rectified accordingly after passing the difference figure in 2016 as Revaluation of material loss.

18. There was an increase of Nu: 2,146,753.60 in the inventory at the time of migration to new SAP system on dated 30.6.14 due to mistake in feeding the data. The same has been rectified on 31.12.2016 by revaluing the inventory and booking the loss as revaluation on material loss under the head administrative and general expenses.

19. On the physical verification of inventory during the year 2016, it was found that there has been difference in physical and accounted inventory, due to which there has been gain of Nu. 149,899.74 The same has been booked in accounts under the head “physical verification on inventory-Gain” and loss of Nu: 126,455.97, which has been booked in accounts under the head “physical verification of inventory-Loss”. The net effect of the above results to a gain of Nu. 23,443.77.

20. An amount of Nu: 7,359,120.39 was recovered from the distributors in 2016 against the excess payment made to the distributors in the year 2015. The same was recovered in 2016 reflected under miscellaneous income in 2016.

21. An amount of Nu. 1,200,000.00 was contributed to Ministry of Health against the Non-communicable Disease Program in the year. This is an Corporate Social Responsibility expense and is reflected accordingly.

22. The office (BTL) fixed line service connections and VVIP connections, amounting to Nu. 3, 669,841.00 (Previous Year Nu. 4,472,401) have not been considered in the books of accounts as income or expenditure.

23. Consumption of BT Contact Center and Data Center services amounting to Nu. 16,987,776.00 (Previous Year Nu. 14,875,340.32) was not considered in the accounts as income neither as expenditure.

24. From the Profit after Tax, Nu. 372,199,941.63 (Previous Year Nu. 490,806,576.43) is declared as Dividend.

25. Provision for Taxation

Particulars 2016 2015Current tax on:Operating Profit 393,857,779.75 234,819,443.00Comprehensive Income 254,784.00Total Tax Payable 393,857,779.75 235,074,227.00Less:Advance Tax Paid 135,984,613.31 81,173,950.00TDS 2,225,863.15 781,295.00Net Tax payable 255,647,303.29 153,118,982.00

26. In the opinion of the management, all the assets other than Fixed Assets and non – current investments have a value on realizations in the ordinary course of business otherwise stated, at least equal to the amount at which they are stated.

27. The current reporting period is 01.01.2016 to 31.12.2016 (Previous reporting period is 01.01.2015 to 31.12.2015).

28. The Previous year figures are rearranged/regrouped/re-casted wherever necessary to conform to this year’s classification.


Annual Report 2016 84

As per our report of even date.

for KASG & Co. for and on behalf of Board of DirectorsChartered Accountants Bhutan Telecom Ltd.(Firm Reg. No. 002228C)

CA. Raj Kumar Agarwal ChairmanPartnerM. No. 073063

Place: ThimphuDate: 17.02.2016 Chief Executive Officer

BHUTAN TELECOM LIMITED · The company’s operating income for 2016 is Nu. 3,067,834,463.11. This...

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