majan eleCtriCity Company in 2011

1

Company’s profile

Majan Electricity company (MJEC) resulted from restructuring the Electricity Sector in Oman according to the royal decree number 78/2004.The Sector Law defined the duties and responsibilities of all companies. MJEC’s core business is to manage the electricity network through the Distribution and Supply of electricity to customers in the authorized area of 50,250 km2 in North Al-Batinah & Al-Dahirah and Buraimi governorates under a license issued by the Authority for Electricity Regulation, Oman.

Since its inception , Majan Electricity Company has introduced exceptional services to 150,490 customers in its authorized areas and carried out many projects for network enhancements and reliability of supply and provided power to various consumers and establishments within North Batinah, Dahirah and Buraimi governorates.

The authorized capital of the company is fixed at RO. 500,000 divided into 500,000 shares, resulting “One” in Rial Omani value for each share.

Our Shareholders

The table below summarizes the shareholders pattern as at 31st December 2011

ShareholdersElectricity Holding Company 99.99% of share capital

Ministry of Finance 0.01% of share capital

Key Figures

2011 809.7 MW2010 736.5 MW2009 728.1 MW2008 653.8 MW2007 583.8 MW2006 532 MW

Max. Demand

2011 RO. 68,104,8122010 RO. 51,711,1732009 RO. 43,204,6092008 RO. 37,246,9482007 RO. 30,254,8142006 RO. 25,724,387

Electricity revenue

2011 4,798,870 MWh2010 3,616,524 MWh2009 3,004,866 MWh2008 2,620,243 MWh2007 2,151,841 MWh2006 1,893,486 MWh

Annual Units Sold

2011 150,4902010 141,3052009 130,9982008 124,5722007 118,9682006 113,985

Number of Customers

2011 12.8 %2010 14.1 %2009 17.4 %2008 17.1 %2007 15.6 %2006 12.9 %

Network losses

mission, vision and values

visionTo be one of the leading distribution and supply companies in the region by 2016

missionDeliver safe, reliable and economical electricity to our customers and maximize stakeholders’ value.

values:SAFEty FirSt:Personal safety, employee health, protecting our environment and securing our network is our greatest responsibility.

COMMUNiCAtE & COllAbOrAtE:We are committed to communicate effectively. We will collaborate to achieve our goals and make every effort to deliver our work on time and within our business plan and guidelines.

rESpECt AND CArE FOr CUStOMErS:We are committed to pay all the efforts to maximize the return on all our internal and external customers by meeting customer expectations and demands.

rESpECt EACh OthEr:We will create a respectful and meaningful workplace characterized by honest and direct communication.

OwN thE bUSiNESS:All our actions are taken in the best interests of the business and achieving its strategic objectives.

iNNOvAtE:We will achieve leadership in our field by being proactive, innovative and flexible in creat-ing products and processes .We welcome change and continuously seek to improve.

ACt with iNtEGrity:We will act with integrity and engender trust in both colleagues and customers. We are committed to conduct our business with the highest professional and ethical standards.

Key performanCe indiCators

Key Performance Indicators

Unit 2005 2006 2007 2008 2009 2010 2011

Service Area Km2 50,250 50,250 50,250 50,250 50,250 50,250 50,250

Customers Number 110,384 113,968 118,836 124,572 130,998 141,305 150,490

Total Energy distributed MWh 1,677,433 1,885,375 2,183,242 2,650,189 3,004,866 3,616,524 4,798,870

Total Energy Imported MWh 1,409,044 2,283,121 2,700,427 3,229,085 3,666,909 4,232,087 5,398,806

Distribution Losses % 15.7 12.9 15.6 17.1 17.4 14.13 12.8

SAIFI Customer 4 1.3 1.019 0.23 2.38 0.2 0.23

CAIDI Minutes 240 44.6 56.43 72 72.8 50.49 50

SAIDI Minutes 58 58.08 59.03 77.63 177.3 9.96 10

Max. Demand MW 503 532 583.8 653.8 728.1 736.5 809.7

33kV distribution network length KM 1,505 1,537 1,719 1,780 1,824 1,914 2,067

Maint. Cost /MWh supplied RO./MWh 0.53 0.57 0.51 0.62 0.64 0.50 0.45

Opex per MWh supplied RO./MWh 3.5 3.6 5.2 3.5 4 3.2 3.0

Total MWh/ total No. of connections

MWh/NO. 12.71 17 17.8 21.2 22.9 25.6 31.9

Compliance with License conditions

% 0 70 87 89 89 87 87

EBIT/share RO. 15 20 17.5 9.7 15 16.1 17.2

Staff cost/MWh supplied RO./MWh 1 0.6 1.11 1.12 1.12 1.16 1.41

Assets per share RO. 150 142 150 149 157 278 314

Average staff cost RO. 608 880 861 897 1,146 1,410 1478

Revnue /MWh supplied RO./MWh 13.6 13.6 14.1 14.5 14.4 14.3 14.2

Average debtor collection DAYS 40 85 83 144 105 90 78

Current ratio NO. 1.6 0.84 0.81 0.65 0.65 0.55 0.53

Average No. of courses for each staff

NO. - 2 2 4 5 3 3

Training cost per staff RO. - 576 740 791 962 811 990

Economic costRO. 25.1 25.5 22.26 21.41 25.5 23.7 20.9

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1014 16 24 25 27 29 29 31 31 32 33 35 36 37 38 39 39 41 414142424447

Chairman Report

Management of the company

Corporate Governance

MJEC Organization Structure

Majan Responsibilities

Price Control

Majan Elecricity Company in 2011

Projects

GIS

Customer Growth

Energy Imported

Energy Distributed

Distribution Energy Losses

Revenue from Sale of Electricity

Electricity Demand

Human Resources

Social Responsibility

MAXIMO

Time Sheet

Customer Relationship Management (CRM)

Meter Reading Campaign

SCADA

HSSE

Statistics

Financial StatementsCo

nten

ts

Gm forward2011 was a challenging year but Majan electricity company (MJEC ) was able to achieve excellent results despite these challenges. This was only possible with people of MJEC , our staff. For that reason the theme of the annual report of 2011 is “Team Work “.

This report is dedicated to each and every staff whose contributions and commitments have put Majan in the lead.

ahmed al mazrouyGenera l Manager

call center : 800 7 8000www.majanco.co.om

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Chairman report

dear shareholders,

On behalf of the Board of Directors, it is my pleasure to present the results and performance of Majan Electric-ity Company S.A.O.C (MJEC) for the year ended 31st December 2011.

The year 2011 was a challenging year for the compa-ny particularly many events happened in Sohar region that potentially has an impact on the company’s abil-ity to operate. Despite the unforeseen circumstances, the company is committed to continuously provide ex-cellent services to all our customers all the times and this cannot be made possible without the committed and dedicated management and staff working together striving to achieve common objectives.

The company also participated in certain Government’s initiatives introduced during the year to address the national issues including the creation of 50,000 jobs opportunity for the youth .To this end , the company has recruited 114 fresh graduates.

Financial performance

The company continues to maintain a strong financial position which allows us to provide the shareholders with a secure and growing earning stream, as in the past years . This is in line with the our objectives and strategies and has been proved successful since 2006.

MJEC has achieved total revenue of RO 103.379 million ( 2010 , RO. 84.616 million). Sale from electricity was RO. 68.104 million (2010, RO. 51.712 million). Subsidy received was RO. 32.579 million compared to RO. 35.259 million in 2010. Direct costs stood at RO. 84.272 million (2010,RO. 67.889 million).The result for the year, an underlying profit of R.O 7.956 million ,with an increase of 4.9% on our result for the last year (R.O 7.585 million ). Gross profit achieved for the same period was RO. 19.107 million compared to RO. 16.727 million in 2010, with an increase of 14%. These are a remarkable results achieved by the company despite all the unfavorable events happened during the year.

Customer Services

The company’s goal is always to provide excellent services to all our customers all the times .To achieve this, we have invested heavily in systems to help meet this goal and the management has devoted substantial resources and efforts to engage everyone in the company in building an organisation centred on meeting customer expectations. Although we still have much work to do , we will continue to improve in customers service levels with faster response times and improved call handling times at our call centre.

Capital Management

The company has invested a total investment of R.O 22 million during the year in the network for both load and non load related projects to meet the demand of the electricity supply as well as enhancing the quality of supply to the customers . These investments have significantly reduced the network losses to 12.8% in 2011 compared to 14.13% last year. This is a remarkable achievement attained by the company.

people

We recognized the importance of having our people throughout the company and commit-ted to maintain high level of employee engagement particularly the development of talent Omainis to undertake key leadership roles in the future.

We will continue to create a cordial working environment to enhance a culture revolved around productivity ,commited to continuously improving performance in order to achieve or exceed operating benchmark and objectives.

regulated Activities:

Proactive involvement in Regulatory arenas is one of our highest priorities. The utility busi-ness is fundamentally dependant on this economic regulation. In 2011 , MJEC has com-pleted the PCR III requirement . The new PCR III will start from 2012 to 2014.

Acknowledgement

On behalf of the Board members I would like to express my gratitude to His Majesty Sultan Qaboos Bin Said for his support and his strong and wise leadership, which has paved the way for ongoing development of Oman.

I would like to thank all our customers for their support .I wish to express my gratitude to my fellow board Members as well as the management and all staff for their dedication and commitment to the safe and reliable supply of electricity .

I also would like to thank Ministry of Finance, Ministry of Housing, Tender Board and Au-thority of Electricity Regulatory Oman for their effort and support provided to the com-pany .

yahya S. Al JabriChairman

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Financial Data (Thousand R.O)

Financial DATA 2005 (May-Dec.) 2006 2007 2008 2009 2010 2011

Revenue 35,143 50,993 51,967 62,541 77,633 84,616 103,379

Gross profit 6,295 9,757 10,086 11,395 15,368 16,727 19,107

Operating profit 3,354 4,720 3,749 4,988 7,923 8,456 9,016

Net profit 3,050 4,840 3,643 3,184 6,359 7,585 8,102

Government Subsidy 18,900 26,100 23,000 18,140 31,199 35,259 32,579

Bulk Supply Tariff 19,599 28,909 28,494 36,346 42,447 47,649 61,414

Transmission use of sys-tem charges 5,280 6,042 5,326 6,449 8,605 9,605 11,323

Net cash from operating activities 11,525 15,241 11,565 7,078 2,724 19,477 10,618

Cash equivalent at the end of the period 9,013 6,126 6,015 5 5 8 8

Total assets 85,987 91,548 102,063 113,171 125,969 138,866 157,165

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manaGement of the Company

board of Directors:

MJEC Board of Directors in 2011

S.R Name Designation

1 H.E Yahya Bin Said AL-Jabri Chairman

2 Eng. Hassan bin Mohammed Abdawani Deputy Chairmen

3 Mr. John Wright Board Member

4 Mr. Michael Lim Board Member

5 Mr. Abdul Aziz Mohammed Al-kharusi Board Member

Appreciation to our previous Board of Directors

S.R Name Designation

1 H.E Yahya Bin Said AL-Jabri Chairman

2 Dr. Hamed Bin Hashim Al-Dhahab Deputy Chairmen

3 Mr. Muhanna Bin Said AL-Mahrooqi Board Member

4 Mr. Haitham Bin Yousif AL-Zedjali Board Member

5 Eng. Nabil Bin Abdullah AL-Ghassani Board Member

Excutive Management team

Name Job Title

1. Ahmed Al Mazrouy General Manager

2. Mohammed Al Abri Senior Manager of Project Office

3. Ibrahim Al Farsi Senior Manager of Customer Services

4. Peter Halliday Financial Controller

5. Syd Mcdowell Senior Manager Asset Management

6. Fayza Mohamed Sadik Regulatory Affairs Manager

7. Khalil Al.Jabri Manager of Human Resources and Administration

8. Vacant Senior Manager Distribution, Operation and Maintenance

2

2

1

3

3

6

4

4

1

7

5

5

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Corporate GovernanCe

Majan Electricity company (SAOC) recognizes the important role that good corporate governances plays in the smooth and efficient functioning of the company , protecting its interests and enhancing shareholder value. In pursuing the corporate objectives we are committed to the highest level of governance and strive to foster a culture that values ethi-cal standards , personal and corporate integrity and respect for others.

MJEC’s Corporate Governance policy has been built on the philosophy and principles outlined in international form and the code of corporate governance issued by the Ministry of Commerce and Industry for SAOC Companies.

Board of Directors:

The board of directors consists of 5 members . Out of which 4 represents the Electricity Holding Company and one represent the Ministry of Finance. As per the article (132) of the Commercial Law and based on article 17 of the Article of Association which specified the membership of the Board of Directors to 3 years and ended on 5/3/2011 and based on the resolution issued by the board of directors of Electricity Holding Company to reform the board of directors of Majan Electricity Company and to the General Committee meeting no. 8/2010 , it was decided unanimously to appoint the existing Board of Directors.

Board Meetings:

The tables below includes the number of meetings carried in 2011 and the representative source

The Board of Directors (up to 5th of march 2011)

Name Designation No.of meetings Representation

H.E Yahya Bin Said Al-Jabri Chairman 2 Electricity Holding Co.

Dr. Hamed Bin Hashim Al-Dhahab Deputy Chairman 1 Electricity Holding Co.

Mr. Muhanna Bin Said Al-Mahrooqi Board Member 2 Electricity Holding Co.

Eng. Nabil Bin Abdullah Al-Ghassani Board Member 1 Electricity Holding Co.

Mr. Haitham Bin Yousif Al-Zedjali Board Member 4 Ministry of Finance

The new board of Directors

Name DesignationNo. of

meetings Representation

H.E Yahya Bin Said Al-Jabri Chairman 3 Electricity Holding Co.

Eng.Hassan bin Mohammed Abdawani Deputy Chairman 4 Electricity HoldingCo.

Mr. John Wright Board Member 3 Electricity HoldingCo.

Mr.Michael Lim Board Member 5 Electricity HoldingCo.

Mr. Abdullaziz Mohammed Al-Karusi Board Member 3 Ministry of Finance*Total 7 meetings during the year.

Internal Audit Committee

The internal Audit Committee consists of 3 independent, non executive members. The internal and external auditors are invited in the committee meetings. The board has estab-lished the Internal Audit Committee as per resolution no. (5/1/2008) and Board of Direc-tors resolution no. (17/2011) ,the decision on the restructuring of the Audit Committee.

Table1: Previous committee (up to 5th of March 2011)

Name Position Number of meetings

Mr. Muhanna Bin Said Al-Mahrooqi Chairman 1

Dr. Hamed Bin Hashim Al-Dhahab Member 0

Mr. Haitham Bin Yousif Al-Zedjali Member 2

Table 2: New committee

Name Position Number of meetings

Mr. John Wright Chairman 3

Mr. Abdullaziz Mohammed Al-Karusi Member 2

Mr.Michael Lim Member 3

The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities and in line with the responsibilities and duties assigned to the Corporate Governance for the Closed Stock Companies. The main responsibilities of the Internal Audit Committee can be summarized as follows:

internal Control and risk management:

• Applicable Review the company’s financial controls, other internal controls, and risk management.

• Discuss the internal control systems with the management to ensure that they are operating effectively;

• Ensure adequate processes are in place to check compliance with the license conditions and information requirement of AER and other regulations.

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review of financial information :

• Ensure (on quarterly and annual basis) integrity of the financial statements while emphasizing any changes to the accounting policies and practices, aspects subject to significant judgment or estimation, substantial adjustments resulting from the audit going concern nature of the company and compliance with inter-national Financial Reporting Standards.

• Consider any significant and unusual matters to be reported in the financial statements and to address concerns raised by the Financial Controller, the com-pliance officer or the external auditors.

relation with external auditors:

• Monitor the independence of the external and discuss with the external auditor the nature, scope and efficiency of the audit in accordance with generally ac-cepted auditing standards.

• Review audit plans , ensuring the auditors have full access to all relevant docu-ments.

• Ensure that significant findings and recommendations made by the external au-ditors and the management’s proposal responses are received , discussed and appropriately acted on.

• Develop and implement a policy on dealing with external auditor to supply non- audit services, if any, to ensure that provision of such services would not impair the independence or objectivity of the external auditor.

• Adopt a policy on dealing with external auditors and reporting/ recommending to the Board any issues that require action on the part of the board.

• Meet with the external auditors at least once a year without the presence of any management staff.

• Reply promptly to any correspondence or queries received from the external auditor.

• Review and recommend the appointment, reappointment or placement of an external auditor.

• Review and recommend the remuneration and term of engagement of the exter-nal auditor.

internal audit

• Develop a policy on confidential reporting by employees. The policy should re-late to financial regulations, internal control matters of concern to the company. Further to ensure that proper procedures are in place to allow independent and fair investigations of reported matters.

• Review audit plans , ensuring that auditors have full access to all relevant docu-ments.

• Ensure that the Internal Audit function is adequate resourced and has an appro-priate standing within the company.

• Consider the findings of investigation initiated by the Board of Directors.

• Ensure coordination between the external and the internal auditors.

• Ensure adherence to the duties and responsibilities included in this manual.

• Ensure that significant findings and recommendations made by the internal au-ditors and the managements proposed responses are received , discussed and appropriately acted on.

• Submit a report to the Board of Directors on the extent of the committee’s com-pliance with the duties and responsibilities in this manual.

fraud

• Ensure that adequate fraud oversight mechanism exists at the company and review the antifraud processes and control.

• Devise procedures to identify the improve antifraud control and reengineering.

• St up proactive fraud detection methodology.

• Review reports on fraud risk assessment, fraud management policies and infra-structure.

• Promote prevention mechanisms within the company.

• Review reports of fraud investigations, and recommended necessary actions based on fraud investigations.

Governance

• Review the governance practices of the Board , consult as necessary with the external advisors and company secretaries and identify leading governance practices.

• Recommend to the Board leading governance practices and monitors imple-mentation of the Board adopted practices.

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internal tender Committee

As per the government tender law, the board has established the internal tender commit-tee as per resolution no. (6/1/2008) . The committee was redesigned based on the Board of Directors resolution no. (18/2011) .

The members of Internal Tenders Committee and number of meeting are listed below:

Table 1: Previous committee (up to 5th of March 2011)

Name Position Number of meeting

Eng. Nabil Bin Abdullah Al-Ghassani Chairman 4

Mr. Haitham Bin Yousif Al-Zedjali Member 12

Eng. Ahmed Bin Saif Al.Mazrouy Member 3

Eng. Khamis Bin Hameed Al.Saidi Member 5

Mr. Ahmed Bin Hamed Al.Shuaili Member 4

Mr. Nasser Bin Abdullah Al Huqani Coordinator 12


Name Position Number of meeting

Eng.Hassan bin Mohammed Abdawani Chairman 8

Mr. Abdullaziz Mohammed Al-Karusi Member 4

Eng. Ahmed Bin Saif Al.Mazrouy Member 8

Eng. Khamis Bin Hameed Al.Saidi Member 7

Mr. Ahmed Bin Hamed Al.Shuaili Member 9

Mr. Adil Bin Rashid Al Kalbani Coordinator 5

ITC has the authority to assign contracts for procuring services or goods within its del-egated authority by the Board,

The main responsibilities of the Internal Tender Committee are:

• Ensure that all evaluations are subject to the principles of publicity., equal opportu-nity, equal treatment and free competition.

• Ensuring that Article 79 of the sector law require fair and transparent competition, Article 4 of the tender law requiring openness, equality of opportunity and freedom of competition are fully complied within evaluating tenders.

• Ensuring that any Board Member, executive management or advisors who have a potential conflict of interest do not form part of the evaluation and decision mak-ing process. ITC Chairman in particular will insist that any direct or indirect interest should be declared by the directors before discussing any items on ITC agenda. He will also ensure that the presence or absence of conflict for each director is con-firmed in writing before discussions on any bids.

• Classification and registration of suppliers and contractors in accordance with the provisions of the policies at EHC and its subsidiaries and regulations prescribed in the Tender Law.

• Accepting bids and offers from suppliers , contractors and consulting companies;

• Reviewing and accepting preferred vendor list for ongoing purchases.

• Appointing third party evaluators where necessary to evaluate the technical and commercial aspect of any proposal.

• Approving the methods followed for evaluating bids.

• Receiving the results of the bids analysis from the Tendering and Procurement Sec-tion or any other authorized parties , reviewing them and taking assignment deci-sion thereof.

• Reviewing the technical specifications, conditions and instructions submitted by the contractors and verifying their sufficiency.

• Determining the general conditions to classify and appoint the suppliers, contrac-tors and consulting companies.

• Determining the price of any part of the selected contract , negotiating with suppli-ers, contractors and consulting companies.

• Approving the pricing and recommending for further evaluation of the Government Tender Board based on approved delegation authorities.

• Approving the extension of contract completion period.

• Approving variation orders and scope changes to an already accepted services within the approves delegated authority.

human resources Committee

The Board of Directors has established the Human Resources Committee based on reso-lution no. (7/1/2008) . The committee was redesigned based on the Board of Directors resolution no. (5/3/2011) .

The respected number of meetings attended is also provided in the following table:

Table 1: Previous committee (up to 5th of March 2011)

Name Position Number Of Meetings

H.E Yahya Bin Said Al-Jabri Chairman 1

Dr. Hamed Bin Hashim Al-Dhahab Member 0

Eng. Ahmed Al-Mazrouy Member 1

Mr.Dawood Suleiman Al-Mahrizi Member 1

Mr. Khalil Suleiman Al-jabri Member 1

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Name Position Number Of Meetings

H.E Yahya Bin Said Al-Jabri Chairman 2

Eng.Hassan bin Mohammed Abdawani Member 1

Eng. Ahmed Bin Saif Al-Mazrouy Member 1

Mr.Dawood Bin Suleiman Al-Mahrizi Member 1

Mr. Khalil Bin Suleiman Al-Jabri Member 1

The main responsibilities of Human Resources Committee are:

• Consider and review the structure of salaries , allowances and bonuses speci-fied for the employees and submission of recommendations thereof to the BOD.

• Ensure that an effective management succession process exists.

• Review the job descriptions and arrangements that are applicable in the com-pany.

• Review methods of development of work and career gradient.

• Conduct disciplinary investigations for employees.

• Assist the Board in conducting performance evaluation of Executive Manage-ment.

• Ensure compliance with directives set by Ministry of Manpower.

• Reviewing the training plan and calendar.

• Consider employees’ complaints and grievance.

• Make decisions necessary to solve problems occurring from the Implementation of HR Regulations or problems arising due to the lack of provisions dealing with such problems.

• Review the basis and criteria related to assessment of employees and

• Consider and solve any issue referred to the Committee by the BOD.

remunerations

The total sitting fees paid to the Board of Directors and the Committees members for 2011 was RO 29,550/- calculated on the following basis per meeting:

Chairman of the Board: RO 650 /-

Chairman of the committee: RO 400 / -

Board members: RO 500 /-

Committee members: RO 300 /-

The table below shows board members and the fees paid to each of them:

NameBoard of directors meeting

Internal Audit com-mittee

ITC Human Resources Committee

Total

H.E Yahya Bin Said Al-Jabri 3,250 0 0 1,200 4,450

Dr. Hamed Bin Hashim Al-Dhahab 500 0 0 0 500

Mr. Muhanna Bin Said Al-Mahrooqi 1,000 400 0 0 1,400

Eng. Nabil Bin Abdullah Al-Ghassani 500 0 1,600 0 2,100

Mr. Haitham Bin Yousif Al-Zedjali 2,000 600 3,600 0 6,200

Eng. Hassan bin Mohammed Abdawani 2,000 0 3,200 300 5,500

Mr. John Wright 1,500 1,200 0 0 2,700

Mr.Michael Lim 2,500 900 0 0 3,400

Mr.Abdullaziz Mohammed Al-Karusi 1,500 600 1,200 0 3,300

the External Auditor:

Price Water House Coopers (PWC) was appointed as external auditor for 2011 by the previous Annual General Meeting.

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Management of the Company

MJEC has an organization at the corporate level headed by the General Manager, respon-sible for achieving the strategic objectives of the company and realizing its performance and expansion targets .The Executive Management Team is responsible for the day-to-day management of the company and for establishing the company’s Business Plan as main interface and link with the Board and company staff.

MJEC Organization Structure

majan responsibilities

Articles number 90 and 91 outlines the responsibilities of Majan and other distribution companies.

article 90

Without prejudice to the provisions of any other Law the Licensed Distribution System Operator shall have the following rights and powers and shall be subject to the following duties:

a) Undertake to finance, operate, maintain, develop and expand the Distribution Sys-tem owned by him in a safe manner and in accordance with the relevant perfor-mance Security Standards, and shall offer terms for Connection with the Distri-bution System and use of the System on a non-discriminatory basis and equal opportunity.

b) To charge the Permitted Tariff or Cost-Reflective Tariff for Connection to its Distri-bution System, and shall have the right to disconnect services from the Customers who do not pay amounts due to it or to a Licensed Supplier.

c) To become a party to the Grid Code, and to implement, publish, develop and amend a Distribution Code.

d) To charge a Cost-Reflective Tariff to Persons Licensed to Supply from his System.

e) Not to Connect RAECO System without the approval of the Authority.

f) To acquire any Distribution assets from the Rural Areas Electricity Company in ac-cordance with the manner specified by the Authority pursuant to Article (88) of this Law.

g) Undertake not to discriminate without legal justification in favour or against any Person when undertaking its regulated activities.

h) Undertake to design, construct, develop, own, operate and maintain International Interconnections in accordance with Article (115) of this Law.

i) To purchase all goods and services and manage them on the basis of Economic Purchase.

All being in the manner specified in the License according to the provisions of this Law.

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article 91

Without prejudice to the provisions of any other Law the Licensed Supplier shall have the following rights and powers and shall be subject to the following duties:

a) To meet all reasonable demand for the Supply of electricity to Premises located within its Authorized Area, which are Connected to a Distribution or Transmission System on a non-discriminatory basis, and he shall publish the Permitted Tariff and Cost-Reflective Tariff.

b) To arrange for the meter reading and to submit bills to Customers and to collect amounts due to it in accordance with the conditions of its License.

c) To pay a Licensed Transmission System Operator or a Licensed Distribution Sys-tem Operator, in consideration for the use of the System, as the case may be.

d) Not to acquire electricity other than from the Oman Power and Water Procurement Company and shall act as the agent of the Oman Power and Water Procurement Company in relation to the purchase of the Output of Auto generators.

e) Undertake not to discriminate without legal justification in favour or against any Person when undertaking his regulated activities.

f) To purchase and manage all goods and services on an Economic Purchase basis.

g) To charge Permitted Tariffs and Cost-Reflective Tariffs in consideration of all Sup-plies made by it according to the License granted to him and shall have the right to take all prescribed procedures in this Law in case of Customers who default on payment, including the termination of Supply.

h) To acquire Supply business from the Rural Areas Electricity Company in the manner specified by the Authority.

All being in the manner specified in the License according to the provisions of this Law.

priCE CONtrOl

2011

MADRt MASRt MARt

PCt 61,414,257

Uof St 11,322,485

Connection charges 1,816,481

MWh purchased 5,398,806

at 14,934,420

bt 1.282

RUDt 3,345,099

ct 37.236

CAt 150,490 150,490

DBt 24,828,014

dt 26.412

SBt 3,974,742

LF distribution 123,150

LFS supply 41,050

LOSSt 15,458

Kt (3,038,813)

MAR 26,783,103 76,752,534 100,496,824

Customer Revenue 68,104,812

Subsidy 32,579,046

Other Revenue (44,594)

ARR 100,639,264

distribution business price Control

MADR t = DBt + Ct + LOSSt + LFDt – KDt

Where:

DBt reflects the economic cost of the Distribution Business and designed to recover non pass through economic cost (i.e. CAPEX, OPEX and a return on capital) and is defined as:

DBt = at + (bt*RUDt) + (ct* CAt)

Ct is connection charges paid to OETC for connection of the licensed transmission system in year t

LOSSt means network losses revenues (positive or negative) in relevant year t and is cal-culated as:

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majan eleCtriCity Company in 2011

1. projects

One of main objectives of Majan Electricity in 2011 was to achieve responsive and reliable service to its customers. To achieve this and to meet customer expectations Majan needs to strengthen its network and to enhance reliability of supply. The table below shows the total value of work done in major capital expenditure in 2011:

Category Amount (R.O)

11KV Investment & LT - Load 8,761,645

11KV Investment & LT -Non Load 3,350,238

33KV Investment - Load 5,360,436

33KV Investment - Non-Load 733,658

GIS 302,774

SCADA 706,803

Plant spares 353,974

Others 1,226,012

Building 957,280

TOTAL 21,752,819

LOSSt = LD t* RUD t-1 * pt

Where:

RUDt means regulated units distributed.Pt is a notified value determined by the AuthorityLDt means the percentage point difference between the level of Target Losses (TL) and Actual Losses (AL) calculated according to the following formula:

LDt = TLt-1 – Alt-1

Where:

TLt-1 means the target level of Distribution losses stipulated by the authority. Alt-1 means the actual level of Distribution losses in Relevant Year t-1. The above per-centage difference is then multiplied by p (expressed in terms of R.O/kWh) to provide the monetary value.LFDt is the License Fee paid to the Authority in year t relevant to Distribution Business

Kt is a correction factor relevant to MADRt

supply business price Control

MASR t = PCt + UofSt + SBt + LFSt – KS tPCt means amounts due (measured on accruals basis) in respect of purchases of electric-ity in year t;UofSt means amount due (measured on accrual basis) in respect of charges for use of Distribution and Transmission System in relevant year t,SBt means the allowed supply cost of MJEC supply business in relevant year t, calculated according to the following formula:SBt = dt* Catwhere:Dt = dt-1 * ((1+CPIt)*(1-Xs)LFSt is the License Fee paid to the Authority in year t relevant to Supply BusinessKt is a correction factor relevant to MASRt

2011 was the end of PCR II . During 2011, MJEC has worked on the new period of price control , PCR III (2012 -2014) . AER has continued the separation of PCR of the two busi-ness Distribution and Supply. Total Capex allowance in the three years will be R.O 102.2 million and Opex allowance R.O45.3 million .

30 31

major network projects in 2011

Project Description Value (R.O)

Construction of office, Ware house and Guard room building in Sohar 150,000

Upgrading Swaihirah PSS 33/11KV from 2x6MVA to 2x20MVA in Sohar at Batinah Governorate 704,000

33kV interlink from Masarat feeder to Mazim PSS in Dhahirah Governor-ate 194,400

Upgrading Mukhailif 33/11.5kV indoor primary substation from 2x10MVA to 2x20MVA in North Batinah Governorate 44,979

Construction of 2x6 MVA Outdoor Substation at Buraimi Ind-2 in Buraimi Governorate 142,460

Construction of 33KV New feeder from Al Khaborah Grid to Al Briak Primary SS 123,700

2. GiS

GIS had completed surveying and collecting data for all Majan networks (33kv, 11kv & LT) in all service areas (except Mohadha) with a total investment of R.O 302,774/-.

3. Customer growth

A total number of 9,185 customers were connected to Majan network in 2011. The total number of customers connected stood at 150,490 customers and increased by 6.5 % from last year. The majority of these customers were connected in North Batinah gover-norate with 59% followed by Dhahirah 23% and Buraimi at 18%.

The highest increase was in the Industrial Sector by 57% followed by Agriculture & Fish-eries which increased by 15% from last year.

Domestic sector represented 75.7% from the total number of customers followed by com-mercial sector with 17.6%.

The table below represents the new connected customers through the year in MJEC au-thorized area:

Customers during Dec 2011

North Batinah Dhahirah Burimi MJEC

TotalKhaborah Saham Sohar Shinas Liwa Total Ibri Dhank Yanqel total Total

Domestic 455 762 1,368 450 299 3,334 1,349 112 270 1,731 894 5,959

Industrial 18 0 52 1 0 71 6 0 0 6 12 89

Commercial 80 354 626 150 132 1,342 416 6 72 494 616 2,452

Agri. & Fish 21 32 125 15 17 210 26 7 12 45 53 308

Tourism 0 0 0 0 0 0 1 0 0 1 33 34

Government 45 53 74 25 36 233 41 18 30 89 21 343

Total 619 1,201 2,245 641 484 5,190 1,839 143 384 2,366 1,629 9,185

32 33

4. Energy imported

MJEC imported 5,398,806 MWh during 2011 with a total cost of OR. 62,643,190 com-pared to 4,232,087 MWh and OR.47,649,042 from last year with an increase of 28% and 32% respectively.

total Customer distributionarea wise

NB59 %

Buraimi18 %

DHR23 %

total Customer distribution per tarrief Catagory

Gov.4.8 %

Agri. & Fish1.5 %

Indus.0.2 %

Tourism0.2 %

Dom.75.7 %

Comm.17.6 %

5. Energy Distributed

MJEC distributed 3,345,099 MWh to its customers . MJEC end users ( direct connected customers to transmission system ) consumed 1,453,771 MWh . The strong growth re-flects the increased electricity demand of Industrial customers.

2011 2010

energy imported

mWh distributed

tho

usan

ds

mW

h

2010 2011

1010

410397409369

1,900

1,729

535502

8269

34 35

The highest percentage of energy was distributed to Domestic Sector with 56.8% from the total distributed energy followed by Commercial Sector with 16% .Agriculture and Tourism Sectors consumed the lowest energy as a percentage from the total distributed energy at 2.4 % and 0.3% respectively. Because of its large number of customers, North Batinah Governorate distributed the highest percentage of energy 66% followed by Dhai-rah 19 %and Buraimi governorate 15%.

Domestic56.8 %

Commercial16 %Agri. & fish

2.4 %Tourism0.3 %

Industrial12.3 %

Government12.2 %

N. Batinah66 %

Buraimi15 %

Dhahirah19 %

% of mWh distributed as per tariff category

% mWh distributed per region

6. Distribution Energy losses

One of the 2011 Majan strategic objective was to reduce energy losses to 12.9 %. To achieve this Majan undertook various activities such as random meter checking , meters replacement and effective Reading and Collection Contract management with ONEIC . The year ended with an outstanding record of 12.8% which was lower than last year posi-tion of 14.13% . Due to the high percentage of customers and the network, North Batinah governorate recorded the highest percentage of network losses during 2011 which was 15.4% followed by Buraimi governorate with 12.8% . Al Dhahirah governorate recorded Nil losses.

2011 2010

distributed energy losses per month

energy losses per month/region

per

cent

age

per

cent

age

DHRBuraimi N.B

2010 = 14.13 %2011= 12.8 %

N.B = 15.4 %DHR= - 0.02 %Buraimi=12.8 %

36 37

7. revenue from Sale of Electricity

Revenue from sale of electricity is the major component of MJEC revenue. As at Decem-ber 2011 , MJEC recorded total revenue from sale of electricity of R.O 68.104 million an increase by 32% from last year. The main contributor was the Industrial Customers . The major proportion of revenue was from the Industrial sector of 37% followed by Domestic sector by 32%. 19% from the total revenue was generated from Commercial sector fol-lowed by government sector with 11%.

tho

usan

ds

(r.o

)

revenue from sale of electricity

2011 2010

8. Electricity Demand

The peak demand recorded on 08/08/2011 and was 809.7 MW representing 10% increase from last year. The minimum demand recorded on 22/01/2011 and was 156.0MW.

daily max. and min. dimand

monthly max. and min demand

162

24,771

14,965

7,5396,706

21,63119,660

13,138

9,941

865722 162

809.7

809.7

736.5

38 39

9. human resources

At Majan our Human Resources make difference. Our employees are our key strength and our most valuable assets. The company continuously invests in developing the human capital by recruiting qualified people and developing them to best serve our customers. Our priority is to attract, develop and retain employees who are qualified, motivated and engaged through human resource strategies. In 2011 Majan recruited 143 employees with Omanization percentage of 94%. The table below shows human resources allocation division wise.

Division/Department /Section Staff Number

GM Office 14

Regulatory Affairs 5

HR & Admin Affairs 34

Customer Affairs 88

Distribution, Operation & Maintenance 147

Finance Division 21

Planning & Asset Management 46

Project Management Office 27

Total 382

learning and Growth at MJEC

MJEC is continuously investing in its manpower to enhance their capabilities and skills. This year MJEC invested R.O 378,519 in 103 different development programmes.The av-erage training cost per employee was R.O 990 /- per staff.

10.Social responsibility

Majan recognizes its social responsibility towards local societies in its authorized areas. In this regard the company has participated in a number of local activities through a direct interaction with different societal segments. The company has held a number of meetings with locals Walis, Sheikhs, dignitaries, schools and colleges representatives , association of Omani women, summer youth camps etc.

In 2011 MJEC has contributed in R.O. 26,450/- with 32% increases from last year. Also in 2011 the company has provided vocational training for 302 Omani students from different disciplines such as engineering and business administration compared to 234 students last year.

11.MAXiMO

MJEC has initiated the implementation of a best practice asset management system, in alignment with the PAS 55 standard is expected that MJEC will be able to gain accredita-tion to that standard by 2015 .The MAXIMO project is fundamental to focusing staff on the preventive, routine and emergency maintenance processes and procedures and automat-ing them with the CMMS. Key opjective of MAXIMO :

• Implement best practice asset management processes for MJEC network with a particular focus on maintenance, work planning, scheduling and monitoring.

• Full rollout for Maximo across the MJEC’s network to be planned based on the Phase I implementation.

• The implemented system and designed processes should be flexible and sustainable.

40 41

the frameWorK 12.timesheet

In 2011, MJEC completed phase 1 of the the SRAP project ( Strategic Resource Alloca-tion Project) . MJEC developed time sheet system , innhouse , to enable the company to allocate some of the operating cost related to the capital expenditure under CAPEX and thus adding value to the asset base and reducing the operating cost.

The system is used by the core functions whose work is related to the capital expenditure. The system records the time spent in each job such as Capital work, Maintenance work or Administrative work for the engineers working under these areas.

13.Customer relationship Management (CrM )

In 2011, MJEC started implementation of the Customer Relationship Management (CRM) to provide the tools and capabilities needed to create and easily maintain smooth opera-tions with the customers. The system captures the data starting from first contact with the csutomer until final connection of the customers and post-connection services .

The system is used in all the locations to register all the information related to the custom-ers.

14.Meter reading Campaign

In 2011, MJEC has launched meter reading Campaign “ Treasure Hunting Campaign”. The primary aim of the campaign was to check the quality of 145,000 electricity meters installed in households and commercial establishments. The campaign has been con-ducted due to complaints lodged by customers regarding various cases of tampering the electricity meters in different distribution areas. Majority of the employees participated in the campaign . The results of the campaign utilized to plan for reducing the system losses in the future.

42 43

15.SCADA :

Extending SCADA at all MJEC primary substations and the provision of associated DMS software is the plan to fully integrate the SCADA. This will provide significant benefits in-cluding:

• Reduction in outage durations and customer minutes lost;

• Facilitates a reduction in technical losses;

• Improved emergency and outage management;

• Network optimization particularly at times of peak load;

• Free up significant resources from manual data manipulation and

reporting to higher value activities; and

• Supports the training and development of network operations staff.

16. hSSE

2011 has carried with it many HSSE challenges. Challenges that still MJEC and contrac-tors need to wrestle and deal with in order to improve the current HSSE performance.

health

No occupational illnesses were reported by both MJEC and contractors.

safety,

Unfortunately one LTI occurred on 29th June 2011 which has led to fatality.

The incident occurred while a line man received severe electric shock while he was at-tempting to connect LT overhead lines with a cable in order to feed a tent with electric-ity. The investigation has revealed that the lineman was not wearing his safety electrical gloves and he was not following the correct service connection procedures. In addition , two restricted work cases occurred last year and one safety a first Aid incident occurred on 12/07/2011.

security

Continuous effort was escorted by the concerned departments to safeguard the security of the assets through continuous inspections and audits. However about 27 incidents of thefts and vandalisms were reported. Indeed this is a very serious threat that MJEC net-work is facing . In 2011 a man lost his life in attempting to steal a cable from pole mounted transformer. The cable was live and the man died immediately in the spot due to severe electric shock he received.

environment

There were no environmental incidents reported.

The table below provides details of the HSSE KPIs (statistics) set for 2011, broken down to health, safety, Security and Environment.

Performance Indicator 2011 target 2011 Actual

Health Occupational illness 30 0

Safety

LTI (Lost time injury) 6 1

RWC (Restricted work case)

8 2

First Aid 15 1

Security No. of thefts & vandalisms N/A 27

Environment No. of Envoi incident 5 0

Near Miss No. of unsafe acts & con-ditions

240 279

Third party incidents Security N/A 3

major hsse activities of 2011

We had a highly active year where a number of HSSE initiatives took place such as Safety Believers Gathering day, improving the use of Intelex and some of major activities were replacing unsafe stay wires, terminating open end cables and improving asset security.

a- Unsafe Stay wires.Throughout 2011, MJEC managed to replace about 4,000 unsafe stay wires at an esti-mate cost of R.O 115,000.

b- Unlocked Facilities.Consequence to notice no. 116 from Authority Electricity Regulation –AER, on Asset se-curity, MJEC imparked into a major project to standardize and replace over 10,000 locks in the network. MJEC carried out several inspections and awareness programs as well.

c- reporting of unsafe acts and conditions MJEC utilize the benefits of safety communication system software ‘Intelex’ to record near miss and follow up mechanism. Also encouraged and awarded staff through “TESTAHIL “ program to report near misses. As a result of such initiative MJEC received good quality near misses reports where accidents might occur if were not reported through near miss.

44 45

statistiCs

Maximum and Minimum Demand

2006 2007 2008 2009 2010 2011

Max Min Max Min Max Min Max Min Max Min Max Min

January 201.5 82.1 224.8 91.4 257.9 115.2 279.5 119.7 304.7 140.8 336.5 156.0

February 205.3 84 223.6 99.5 253.8 114.4 309.3 126.2 303.5 151 332.5 167.9

March 233.1 97.7 260.2 103.5 361 136.4 408.2 158.9 451.5 169.5 418.2 167.4

April 385.8 162.8 463.7 169.2 472.6 235.1 516.2 176.3 591.9 283.3 557.5 263.4

May 502.7 214.9 538.6 271.6 645.3 285 728.1 182.9 719.4 326.6 790.4 353.7

June 516 269.7 573.1 212.9 653.8 335.2 711.6 405.5 736.5 336 799.6 517.6

July 532 278.9 583.8 326.6 644.1 371.7 721.6 420.8 735 425 790.5 483.2

August 500.2 266.5 563 322.1 626.3 368.8 722.5 400.4 717.3 436.4 809.7 445.9

September 494.2 253.2 580.4 275.3 642.9 368.6 718 346.1 705.9 351.2 751.4 433.1

October 460.2 187.4 456.9 179.1 542.8 267.7 600.2 285.6 625.5 312.3 676.0 306.4

November 306.8 125.4 352.9 147 412.2 172.8 428.5 181 467.2 187.7 468.2 232.1

December 218.4 93.3 262.7 121.6 289.7 124.8 319.2 141 341.8 162.6 350.3 157.8

Daily maximum and minimum demand

2006 2007 2008 2009 2010 2011

Time Max on 15/07/06

Min on 21/01/06

Max on 16/07/07

Min on 21/01/07

Max on 28/06/08

Min on 02/02/05

Max on 31/05/09

Min on 24/1/09

Max on 30/6/10

Min on 16/1/10

Max on 08/08/11

Min on 22/01/11

1:00 491.6 93.7 558.1 110.7 579.5 126.3 652 133.6 684.8 155.2 713.7 178.7

2:00 478.4 85.9 542.3 102.7 564 119.4 633.7 124.3 669.4 145.6 733.2 164.4

3:00 472.1 84.5 526.8 91.4 547.2 115.6 610.3 121.2 652.9 140.8 729.3 157.1

4:00 464.1 82.1 513.4 98.7 529.1 114.4 598.6 119.7 639.1 141.1 710.4 156.0

5:00 429.8 85 475.2 102 490.1 119.8 528.8 121.5 585.5 144.0 685.0 157.7

6:00 378.7 109.4 421.8 128.6 441.1 146 447.4 153.5 531.8 194.1 626.3 189.2

7:00 366.2 129.1 409.5 141.6 438.5 166.9 446.5 172.7 503.3 207.6 616.7 192.7

8:00 365.1 144 405.6 159.5 441.8 187 463.7 184.8 502.1 208.2 636.5 203.6

9:00 364.5 149.3 412.4 168.5 443 202.7 473.6 192.7 511.9 205.6 658.2 217.5

10:00 362 157.4 409.9 169 439.1 215 476.6 202.3 510.9 221.2 673.8 225.1

11:00 367.7 157.6 420.4 167.7 451.9 215.6 492.7 204.2 519.0 223.8 685.4 225.8

12:00 392 155.3 451.5 165.8 479.6 208.55 531.4 204.8 544.3 229.8 694.1 227.4

13:00 437.8 156.1 501.1 170.9 534 210.15 603.7 212.1 599.7 230.5 715.4 237.5

14:00 491.4 132.7 548.7 146 591.4 187.05 688.4 189.8 677.9 206.1 782.1 217.1

15:00 531.5 132.1 583.8 144.4 653.8 184.4 728.1 182.5 736.5 206.4 809.7 199.6

16:00 516.5 156 569.2 169.9 636.5 205.8 699.7 210.4 717.1 230.2 788.1 222.8

17:00 407.3 158.6 453.2 173.3 504.7 215 578.5 212.6 588.7 236.6 686.9 223.8

18:00 336.6 188.3 395.2 201.1 433.1 224.8 485.2 248.4 505.4 281.2 615.9 283.8

19:00 336.1 183 388 196.2 427.1 240.1 480.8 259.5 505.2 273.0 590.9 284.8

20:00 406.8 173.4 460.8 188.2 507.2 229 555.6 247.3 598.0 266.5 662.0 276.9

21:00 426.5 157.9 475.3 172.3 520.5 211.9 580.4 232.6 608.6 251.9 679.8 257.6

22:00 446.6 144.5 496.4 162.4 545.9 194.2 610.7 215.8 617.2 237.5 643.7 242.8

23:00 483.8 129 535.2 145 599.3 174.9 658.5 193.4 664.6 209.8 652.6 221.0

0:00 499 111 550.8 126.6 626.9 156.9 668.1 165.9 696.1 186.0 683.3 199.8

Customer information

Customersduring

Dec 2011

North Batinah Dhahirah Buraimi MJEC

Khab

orah

Saham

Sohar

Shinas

Liwa

Total

Ibri

Dhank

Yanqel

Total

Total

Total

Dom. 8,443 14,427 31,293 8,747 5,644 68,554 19,170 3,122 4,251 26,543 18,257 113,964

Ind. 19 2 175 1 5 202 13 0 0 13 29 244

Comm. 1,356 3,194 6,972 1,778 1,217 14,517 4,399 410 714 5,523 6,446 26,486

Agri. & Fish 230 379 690 171 123 1,593 341 66 86 493 227 2,313

Hotel 3 0 12 0 0 15 3 0 1 4 291 310

Gov. 525 667 1,546 533 289 3,560 1,625 299 377 2,301 1,312 7,173

Total 10,576 18,669 40,688 11,230 7,278 88,441 25,551 3,897 5,429 34,877 27,172 150,490

46 47

Domestic Commercial Government Industrial Agr.Fish. Tourism Total

Revenues

2011 21,630,766 13,137,655 7,538,630 24,770,625 865,128 162,010 68,104,814

2010 19,660,348 9,940,929 6,705,871 14,964,775 722,439 162,258 51,711,173

2009 18,378,974 11,210,340 5,582,605 7,223,527 657,706 151,457 43,204,609

2008 16,427,512 9,219,703 5,999,592 4,816,385 615,711 168,046 37,246,948

2007 14,003,583 8,324,523 4,738,880 2,508,601 534,660 144,567 30,254,814

2006 12,983,801 5,438,671 4,739,148 1,979,688 476,130 106,949 25,724,387

2005 9,993,199 3,556,050 3,493,955 1,691,777 358,334 102,532 19,195,847

MWh

2011 1,899,777 729,693 408,808 1,668,745 81,716 10,131 4,798,870

2010 1,728,788 497,217 369,249 942,029 69,267 9,975 3,616,525

2009 1,633,461 563,365 295,109 445,282 58,430 9,219 3,004,866

2008 1,488,522 460,985 292,371 307,228 55,057 16,080 2,620,243

2007 1,281,987 416,226 240,461 156,478 48,125 8,564 2,151,841

2006 1,201,917 271,934 246,466 123,800 43,680 5,689 1,893,486

2005 920,281 177,803 180,791 92,489 32,279 5,402 1,409,045

No of Customers

2011 113,964 26,486 7,173 244 2,313 310 150,490

2010 108,005 24,034 6,830 155 2,005 276 141,305

2009 100,558 21,703 6,588 116 1,764 269 130,998

2008 95,389 20,812 6,445 97 1,563 266 124,572

2007 91,088 19,818 6,082 77 1,504 267 118,836

2006 87,388 19,139 5,918 74 1,426 23 113,968

2005 84,670 18,624 5,652 59 1,354 25 110,384

MWh / Customers

(MWh)

2011 17 28 57 6,839 35 33 32

2010 16 21 54 6078 35 36 26

2009 16 26 45 3,839 33 34 23

2008 16 22 45 3,167 35 60 21

2007 15 22 41 2,115 34 372 2,599

2006 14 14 42 1,673 31 247 17

2005 11 10 32 1,568 24 216 13

Revenue/ Customer (RO.)

2011 190 496 1051 101519 374 523 453

2010 182 414 982 96547 360 588 366

2009 183 517 847 62,272 373 563 330

2008 172 443 931 49,653 394 632 299

2007 154 420 779 32,579 355 541 255

2006 149 284 801 26,753 334 4,650 226

2005 118 191 618 28,674 265 4,101 174

finanCial statementsF O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 1

48 49

Contents page

independent auditor’s report 49

Statement of comprehensive income 50

balance sheet 51

Statement of changes in equity 52

Statement of cash flows 53

Notes to the financial statements 54 - 81

50 51

52 53

StAtEMENt OF ChANGES iN EQUity

FOr thE yEAr ENDED 31 DECEMbEr 2011

share

capital

legal

reserve

General

reserve

re-tained

earnings

share-holder’s

funds

total

equity

note ro’000 ro’000 ro’000 ro’000 ro’000 ro’000

At 1 January 2010 500 167 250 6,359 71,348 78,624

Comprehensive income:

Profit for the year - - - 7,585 - 7,585Transactions with own-

ers:

Dividends paid 30 - - - (6,355) - (6,355)

At 31 December 2010 500 167 250 7,589 71,348 79,854

At 1 January 2011 500 167 250 7,589 71,348 79,854

Comprehensive income:

Profit for the year - - - 8,102 - 8,102transactions with own-ers:

Dividends paid 30 - - - (7,585) - (7,585)

At 31 December 2011 500 167 250 8,106 71,348 80,371

The notes on pages 54 to 81 form an integral part of these financial statements.

StAtEMENt OF CASh FlOwS


2011 2010

rO’000 RO’000Cash flows from operating activities

Profit before tax 8,620 8,057Adjustments for:

Depreciation 7,135 6,969Gain on sale of property plant and equipment - (1)Provision for employee benefits 1,086 178Finance cost on decommissioning liability 229 225Deferred revenue amortised (86) (68)Operating cash flows before employee benefits payments and working capital changes

16,984 15,360Employee benefits payments (8) (57)working capital changes due to:

Inventories (1,001) (1,607)Trade and other receivables (2,762) (325)Trade and other payables 415 2,997Other liabilities (3,010) 3,109Net cash generated from operating activities 10,618 19,477

Cash flows from investing activities

Purchase of property, plant and equipment (19,112) (15,606)Proceeds from sale of property, plant and equipment - 4Deferred revenue 662 341Net cash used in investing activities (18,450) (15,261)

Cash flows from financing activities

Amount received from Holding company 7,500 1,000Bank overdraft (4,083) (3,853)Short-term borrowings 12,000 4,995Dividend paid (7,585) (6,355)Net cash generated from/(used in) financing activities 7,832 (4,213)

Net change in cash and cash equivalents - 3Cash and cash equivalents at beginning of the year 8 5Cash and cash equivalents at end of the year 8 8

The notes on pages 54 to 81 form an integral part of these financial statements.

54 55

NOtES tO thE FiNANCiAl StAtEMENtS


1 legal status and principal activities

M ajan Electricity Company SAOC (the company) is a closed Omani joint stock company regis-tered under the Commercial Companies Law of Oman.

The establishment and operations of the company are governed by the provisions of the Law for the Regulation and Privatisation of the Electricity and Related Water Sector (the Sector Law) pro-mulgated by Royal Decree 78/2004.

The company is primarily undertaking regulated distribution of electricity in the North Batinah Gov-ernorate, Al Dhahirah Governorate and the Buraimi Governorate of the Sultanate of Oman under a licence issued by the Authority for Electricity Regulation, Oman (AER).

The company commenced its operations on 1 May 2005 (the Transfer Date) following the imple-mentation of a decision of the Ministry of National Economy (the Transfer Scheme) issued pursu-ant to Royal Decree 78/2004.

Majan Electricity Company SAOC is a 99.99% subsidiary of the Electricity Holding Company SAOC (EHC or the Holding company), a company registered in the Sultanate of Oman and 0.01% is held by the Ministry of Finance, of the Government of Sultanate of Oman.

2 Summaryofsignificantaccountingpolicies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless oth-erwise stated.

2.1 basis of preparation

(a) These financial statements are prepared on the historical cost basis and in accordance with International Financial Reporting Standards (IFRS).

(b) The preparation of financial statements in conformity with IFRS requires the use of cer-tain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.


FOr thE yEAr ENDED 31 DECEMbEr 2011 (continued)

2 Summaryofsignificantaccountingpolicies(continued)

2.1 basis of preparation (continued)

(c) As at 31 December 2011, the company’s current liabilities exceeded its current assets by RO 18.321 million (2010: RO 14.007 million). The holding company has confirmed that it will pro-vide the necessary financial support to enable the company to continue to operate as a going con-cern for the foreseeable future and to discharge its liabilities to other parties, as they fall due. Ac-cordingly, these financial statements are prepared on a going concern basis.

(d) Standards and amendments effective in 2011 and relevant for the company’s operations:For the year ended 31 December 2011, the company has adopted all of the new and revised standards and interpretations issued by the Internation-al Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IF-RIC) of the IASB that are relevant to its operations and effective for periods beginning on 1 January 2011.

The adoption of these standards and interpretations has not resulted in changes to the company’s accounting policies and has not affected the amounts reported for the current year.

2.2 revenue

2.2.1 Customer revenue

Revenue represents the sale of electricity to the Government and private customers within the company’s distribution network. Total revenue in excess/(deficit) of the maximum allowed by the regulatory formula in accordance with the licencing requirements is deferred to the subsequent year and is shown as other current liabilities/(other current assets).

2.2.2 Government subsidy

The Government of the Sultanate of Oman has funded the excess of economic costs over cus-tomer and other revenue within the Electricity and Related Water Sector. This funding is included in revenue as Government subsidy. The company recognises the subsidy when the right to receive the subsidy is established.

2.2.3 Other revenue

Other revenue includes installation charges and meter connection and disconnection charges, and is accounted for on an accrual basis.

56 57




2.3 Operating costs

Electricity purchases

The electricity purchases represent the purchase cost of electricity from Oman Power and Water Procurement Company SAOC, a related party.

transmission connection charges

The transmission connection charges represent the charges payable to Oman Electricity Trans-mission Company SAOC, a related party, for connections to the transmission system to cover the capital cost of the connection assets and ancillary assets and the ongoing cost of maintaining the connection assets.

transmission use of system charges

The transmission use of system charges represent the charges payable to Oman Electricity Trans-mission Company SAOC, a related party, for the transmission of electricity generated by the gen-eration companies into the company’s distribution network.

2.4 Finance income and costs

Finance income and costs are accounted for on accrual basis.

All interest and other costs incurred in connection with borrowings are expensed as incurred, as part of financing costs and are accounted for on an accrual basis, except that the interest costs incurred on borrowings specifically undertaken to finance the construction of qualifying assets, are capitalised along with the cost of the asset during the construction period.

2.5 Foreign currency translation

Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities denominated in such cur-rencies are translated at the rates prevailing on the reporting date. Gains and losses from foreign currency transactions are dealt with, in the statement of comprehensive income.

2.6 property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss. The cost of property, plant and equipment is their purchase price together with any incidental expenses necessary to bring assets to its usable condition.

Subsequent expenditure

Expenditure incurred to replace a component of an item of property, plant and equipment is capi-talised if it is probable that the future economic benefits embodied within the part will flow to the company, and its cost can be measured reliably. All other maintenance expenditure is recognised in the statement of comprehensive income as an expense as and when incurred.




2.6 property, plant and equipment (continued)

Depreciation

Depreciation is recognised in the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

the principal estimated useful lives used for this purpose are:

assets years

Buildings on leasehold land 30

Electricity distribution works 20-40

Lines and cables 20-40

Substations assets 20-40

Other plant and machinery 20-60

Furniture, fixtures and vehicles 5-7

Plant spares 20

Decommissioning assets 50

Disposals

Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining operating profits.

work-in-progress

Work-in-progress is stated at cost. When the underlying asset is available for use in its intended condition and location, work-in-progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with depreciation policy of the company.

2.7 Financial instruments

Financial assets and financial liabilities are recognised in the company’s balance sheet when the company becomes a party to the contractual provisions of the instrument.

Non-derivative financial instruments comprise trade and other receivables, cash and cash

58 59




2.7 Financial instruments (continued)

equivalents, bank overdrafts, loans, borrowings, and trade and other payables. Cash and cash equivalents comprise cash balances only.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.

Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest rate method, less any impairment losses.

2.8 impairment

Financial assets

Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets, objective evidence of impairment could include:

• significant financial difficulty of the counterparty;

• default or delinquency in payments; or

• it becomes probable that the borrower will enter bankruptcy or financial reorganisation.

For certain categories of financial assets, such as trade receivables that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis.

Objective evidence of impairment for a portfolio of receivables could include the company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period as well as observable changes in national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all finan-cial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account.

When a trade receivable is considered uncollectible, it is directly written off after appropriate ap-provals. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income.




2.8 impairment (continued)

Non-financial assets

The carrying amounts of the company’s non-financial assets other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such in-dications exist then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit ex-ceeds its value in use and its fair value less costs to sell. In assessing the value in use, the esti-mated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specified to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.9 inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise purchase cost and where applicable, direct labour costs and those overheads that have been incurred in bring-ing the inventories to their present location and condition. Cost is calculated principally using the weighted average cost method. Provision is made for slow moving and obsolete inventory items where necessary, based on management’s assessment.

2.10 trade and other receivables

Trade and other receivables are stated at their fair value. Trade receivables are initially recognised at fair value and subsequently are stated at amortised cost using the effective interest rate method less impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the statement of comprehensive income within ‘General and administrative expenses’.

2.11 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amount of cash, which are subject to an insignifi-cant risk of changes in value and have maturity of three months or less at the date of acquisition.

60 61




2.12 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds.

2.13 trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

2.14 taxation

Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Income tax com-prises current tax and deferred tax.

Current tax is the expected tax payable on the taxable income for the year, using the tax rates prevailing at the reporting date.

Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis of the tax rates that are ex-pected to apply to the year when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantially enacted by the reporting date. The tax ef-fects on the temporary differences are disclosed under non-current liabilities as deferred tax.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. The carrying amount of deferred tax assets is reviewed at reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off cur-rent tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax is recognised as an expense or benefit in the statement of comprehen-sive income except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity.




2.15 provisions

Provisions are recognised in the balance sheet when the company has a legal or constructive obligation as a result of a past event and it is probable that it will result in an outflow of economic benefit that can be reliably estimated.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surround-ing the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Where some or all of the economic benefits required to settle a provision are expected to be recovered from third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

2.15.1 provision for decommissioning cost

A provision for decommissioning cost is recognised when there is a present obligation as a re-sult of activities undertaken pursuant to the usufruct agreements, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of provision can be measured reliably. The estimated future obligations include the costs of removing the facilities and restoring the affected areas.

The provision for future decommissioning cost is a best estimate of the present value of the expen-diture required to settle the decommissioning obligation at the reporting date based on the current requirements as per the usufruct agreements. Future decommissioning cost is reviewed annually and any changes in the estimate are reflected in the present value of the decommissioning provi-sion at each reporting date. The initial estimate of the decommissioning provision is capitalised into the cost of the asset and depreciated over the usufruct terms. Changes in the estimate of the provision for decommissioning is treated in the same manner, except that the unwinding of the effect of the provision is recognised as a finance cost rather than being capitalised into the cost of the related asset.

2.15.2 Provision for employee benefits

Provision for employee benefits is accrued having regard to the requirements of the Oman Labour Law 2003 as amended or in accordance with the terms and conditions of the employment contract with the employees, whichever is higher. Employee entitlements to annual leave are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by employees up to the balance sheet date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.

End of service benefit for Omani employees are contributed in accordance with the terms of the Social Securities Law 1991 and Civil Service Employees Pension Fund Law.

Gratuity for Omani employees who transferred from the Ministry of Housing, Electricity and Water on 1 May 2005 (the Transfer Date) is calculated based on the terms expected to be agreed be-tween the Holding company and the Government. An accrual has been made and is classified as a non-current liability in the statement of financial position.

62 63




2.16 Customer contributions

Effective from 1 July 2010, the company has adopted IFRIC 18, whereby customer contributions towards the cost of property plant and equipment have been recognised in the statement of com-prehensive income in accordance with the provisions of IFRIC 18.

2.17 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assur-ance that the grant will be received and the company will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the statement of comprehen-sive income over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to construction of assets are included in deferred revenue within non-current liabilities and are credited to statement of comprehensive income on a straight line basis over the expected useful lives of related assets.

2.18 leases

Leases where the lessor retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight line basis over the lease term.

2.19 Dividend distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the company’s shareholders.

3 financial risk management

The company’s activities expose it to a variety of financial risks: market risk (including price risk, foreign currency risk and interest rate risk), liquidity risk and credit risk. However, the company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the company’s financial performance.

Credit risk management is carried out by the company and liquidity risk and market risk by the Holding company’s treasury department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, use of derivative financial instru-ments and non derivative financial instruments, and investment of excess liquidity.



3 financial risk management (continued)

3.1 Financial risk factors

(a) Market risk

price risk

The permitted tariff (prices) for distribution of electricity is determined either by long term agree-ments with the customer or under the Permitted Tariff Regulations issued by the Authority for Electricity Regulation, Oman (AER). Hence, the company is not subject to significant price risk.

Foreign currency risk

Foreign exchange risk arises when future commercial transactions or recognised assets or li-abilities are denominated in a currency that is not the entity’s functional currency. The company is exposed to foreign exchange risk arising from currency exposures primarily with respect to the US Dollar. The Rial Omani is pegged to the US Dollar. Since most of the foreign currency transac-tions are in US Dollars or other currencies linked to the US Dollar, management believes that the exchange rate fluctuations would have an insignificant impact on the pre-tax profit.

interest rate risk

The company’s interest rate risk arises from short term borrowings and overdraft facilities. Short-term borrowings have been obtained at a fixed interest rate of 1%. The company analyses its in-terest rate exposure on a regular basis and reassesses the source of borrowings and renegotiates interest rates at terms favourable to the company.

The interest rates on overdraft facilities are subject to change upon re-negotiation of the facilities which takes place on an annual basis.

At the balance sheet date the interest rate risk profile of the company’s interest bearing financial instruments was:

2011 2010

rO’000 RO’000

Bank overdraft 646 4,729

Short-term borrowings 22,000 10,000

22,646 14,729

The interest rate on the company’s bank overdraft is subject to change as and when renewed.

A 1% increase in interest rates at the reporting date would have reduced profit, on an annual basis, by the amounts shown below.

2011 2010

rO’000 RO’000

Interest expense on bank overdraft 163 22

A 1% decrease in interest rates would have had the equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant.

64 65




3.1 Financial risk factors (continued)

(b) liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of fund-ing from an adequate amount of committed credit facilities. Management maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors the company’s liquidity by forecasting the expected cash flows.

The table below analyses the company’s financial liabilities that will be settled on a net basis into relevant maturity grouping based on the remaining period at the balance sheet date to the contractual maturities date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances, as the impact of discounting is not significant.

The following are the contractual undiscounted cash flows associated with financial liabilities:

31 December 2011

Carrying amount

less than 1 month

1 month to 3

months

3 months to 1 year

1 year to 5 years

More than 5 years

rO’000 rO’000 rO’000 rO’000 rO’000 rO’000

Non-interest bearing

Trade and other payables

8,507 - 8,507 - - -

Amount due to related parties

7,627 - 7,627 - - -

Amounts due to holding company 21,025 - - - 21,025 -

interest bearing

Bank overdrafts 646 - 646 - - -

Short-term borrowings 22,000 - - 22,000 - -

59,805 - 16,780 22,000 21,025 -





31 December 2010

Carrying amount

Less than 1 month

1 month to 3

months

3 months to 1 year

1 year to 5 years

More than 5 years

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

Non-interest bearing

Trade and other payables

6,117 - 6,117 - - -

Amount due to related parties

6,961 - 6,961 - - -

Amounts due to Holding Company 13,525 - - - 13,525 -

Interest bearing

Bank overdrafts 4,729 - 4,729 - - -

Short-term borrowings 10,000 - - 10,000 - -

41,332 - 17,807 10,000 13,525 -

(c) Credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The credit risk of the company is primarily at-tributable to trade and other receivables.

trade and other receivables

The company’s exposure to credit risk on trade and other receivables is influenced mainly by the individual characteristics of each customer. The company has established credit policies and procedures that are considered appropriate and commensurate with the nature and size of receiv-ables. Trade receivables primarily represent amounts due from Government and private custom-ers. The company has a significant concentration of credit risk as below:

The exposure to credit risk for trade receivables at the balance sheet date by type of customer is:

2011 2010

rO’000 RO’000

Government customers 3,216 2,655

Private customers 11,394 10,300

14,610 12,955

66 67





(c) Credit risk (continued)

The age of trade receivables and related impairment loss at the reporting date is:

31 December 2011 31 December 2010

Gross impairedpast due

but not impaired

Gross ImpairedPast due

but not impaired

rO’000 rO’000 rO’000 RO’000 RO’000 RO’000

Not past due 4,333 - - 4,161 - -

Past due - up to 180 days

8,891 - 8,891 5,976 - 5,976

Past due - 181 to 365 days

413 (115) 298 680 - 680

Above one year 973 (600) 373 2,138 (1,437) 701

Total 14,610 (715) 9,562 12,955 (1,437) 7,357

The company’s bank accounts are placed with reputed financial institutions with a minimum credit rating of P-1 as per Moody’s Investors Service ratings.

The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at the balance sheet date is on account of:

2011 2010

rO’000 RO’000

Trade receivables 14,610 12,955

Other receivables 1,650 1,357

Cash and cash equivalents 8 8

total 16,268 14,320

3.2 Capital risk management

The company’s objectives when managing capital are to safeguard the company’s ability to con-tinue as a going concern and to provide an adequate return to shareholders. The Board’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain future development of the business. The capital structure of the company comprises share capi-tal, reserves, retained earnings and shareholders’ funds. The company is not subject to external imposed capital requirements.

The company sets the amount of capital in proportion to risk. The company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.




3.3 Fair value estimation

The carrying amounts of financial assets and liabilities with a maturity of less than one year are as-sumed to approximate to their fair values. The loan from Holding company does not carry interest and is repayable on demand; hence its fair value cannot be determined.

4 Critical accounting estimates

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of ap-plying the company’s accounting policies. The company makes estimates and assumptions con-cerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas requiring a higher degree of judgment or complexity, or areas where as-sumptions and estimates are significant to the financial statements are set out below:

(a) Depreciation

Depreciation is charged so as to write off the cost of the assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best esti-mates.

(b) Allowance for doubtful debts

Allowance for doubtful debts is based on management’s best estimates of recoverability of the amounts due along with the number of days for which such debts are due.

(c) provision for decommissioning cost

Upon expiry of their respective Usufruct agreements, the company will have an obligation to re-move the facilities and restore the affected area. The estimated cost, discount rate and risk rate used in the provision of decommissioning cost calculation is based on management’s best esti-mates.

68 69



5 revenue

2011 2010

rO’000 RO’000

Electricity sales to private customers 60,565 45,006

Electricity sales to Government customers 7,539 6,706

Government subsidy received 32,579 35,259

Other revenue 1,081 1,323

101,764 88,294

Adjustment of electricity sales to Sohar Power Company SAOG

(1,395) -

Previous year revenue in excess of/(less than) maximum allowed as per the price control formula, brought for-ward 3,109 (569)

Revenue in excess of the maximum allowed as per the price control formula deferred to next year

(99) (3,109)

103,379 84,616

6 operating costs

2011 2010

rO’000 RO’000

Electricity purchases 61,414 47,649

Transmission use of system charges 11,323 9,605

Depreciation 6,710 6,560

Maintenance and repairs expenses 2,166 1,804

Transmission connection charges 1,817 1,238

Spares and consumable expenses 741 654

Other direct costs 101 379

84,272 67,889



7 General and administrative expenses

2011 2010

rO’000 RO’000

Staff costs (note 8) 6,776 4,197

Service expenses 2,200 2,041

Commission 1,336 1,418

Depreciation 425 409

Directors remuneration and sitting fees 59 53

Other expenses 562 502

11,358 8,620

Commission represents the billing commission paid to Oman National Engineering and Investment Company SAOG (ONEIC) for undertaking customer meter reading, billing and collection services.

8 staff costs

2011 2010

rO’000 RO’000

Wages and salaries 2,771 1,846

Other allowances and benefits 3,033 2,334

End of service benefits 972 17

6,776 4,197

9 other income

2011 2010

rO’000 RO’000

Reversal of allowance for doubtful debts 722 -

Penalties and fines 79 98

Sale of forms and tenders 65 24

Sale of scrap 6 7

Gain on sale of property, plant and equipment - 1

Other income 395 219

1,267 349

Other income includes amortisation of deferred revenue amounting to RO 86,294 (2010: RO 68,000) during the year.

70 71



10 finance income

2011 2010

rO’000 RO’000

Interest from bank 29 37

Interest is earned from current account balances held with bank during the year with interest rates ranging from 0.5% to 0.75% (2010: 0.5% to 2.05%).

11 finance costs

2011 2010

rO’000 RO’000

Unwinding of discount rate on decommissioning provision (note 22) 229 225

Interest on short-term borrowings 187 152

Interest on bank overdraft 8 39

Bank charges 1 20

425 436

12 taxation

(a) Income tax is provided as per the provisions of the “Law of Income Tax on Companies” in Oman after adjusting for items which are non-assessable or disallowed. The tax rate applicable to the company is 12%. The deferred tax on all temporary differences have been calculated and dealt with in the statement of comprehensive income.

2011 2010

rO’000 RO’000

Deferred tax 518 472



12 taxation (continued)

(b) The company is liable to income tax in accordance with the income tax law of the Sultanate of Oman at the enacted tax rate of 12% on taxable income in excess of RO 30,000. The following is a reconciliation of income taxes calculated on accounting profits at the applicable tax rate with the income tax expense for the year:

2011 2010

rO’000 RO’000

Accounting profit before tax 8,620 8,057

Tax on accounting profit before tax at 12% 1,031 963

Add/(less) tax effect of:

Tax on brought forward tax losses on which no deferred tax was released

(518) (463)

Change in unrecognised temporary differences 5 (28)

Tax charge for the year 518 472

(c) Tax assessments for the years 2006 to 2011 have not yet been assessed by Oman taxation authorities.

(d) The company has carried forward tax losses of RO 3.344 million as at 31 December 2011 (2010: RO 7.662 million).

13 property, plant and equipment

(a) The movement in property, plant and equipment is set out on pages 80 and 81.

(b) The company’s property, plant and equipment are constructed on lands leased from the Min-istry of Housing, Government of Sultanate of Oman under Usufruct agreements.

14 inventories

2011 2010

rO’000 RO’000

Spares and consumables 4,802 3,801

Provision for inventory obsolescence (168) (168)

4,634 3,633

72 73



15 trade and other receivables

2011 2010

rO’000 RO’000

Amounts due from private customers 11,394 10,300

Amounts due from Government customers 3,216 2,655

Allowance for doubtful debts (715) (1,437)

Net trade receivables 13,895 11,518

Prepayments 564 472

Income tax advance 100 100

Amount due from related parties 40 43

Other receivables 1,610 1,314

16,209 13,447

(a) Movement in allowance for doubtful debts

2011 2010

rO’000 RO’000

At beginning of the year 1,437 1,437

Reversed during the year (722) -

At end of the year 715 1,437

(b) the other receivables included within trade and other receivables do not contain impaired assets.

16 Cash and cash equivalents

2011 2010

rO’000 RO ’000

Cash in hand 8 8



17 share capital

The company’s authorised, issued and paid-up capital consists of 500,000 shares of RO 1 each. The details of the shareholders are as follows:

percentage of Number of 2011 2010

Shareholding Shares issued

rO RO

Electricity Holding Company SAOC

99.99% 499,950 499,950 499,950

Ministry of Finance 0.01% 50 50 50

500,000 500,000 500,000

18 legal reserve

In accordance with the Commercial Companies Law of 1974, as amended this reserve is equal to one third of the company’s share capital and is not available for distribution to shareholders.

19 General reserve

In accordance with the company’s policy, an amount not exceeding 20% of the profit after transfer to legal reserve should be transferred to a general reserve until the balance of the general reserve reaches one half of the share capital.

20 shareholder’s funds

Following the implementation of a decision of the Sector Law and in accordance with the transfer scheme, the Electricity Holding Company SAOC (holding company) received certain assets and liabilities from the Ministry of Housing, Electricity and Water (MHEW) on the transfer date (1 May 2005).

Subsequently, part of the assets and liabilities were transferred to the company. The value of the net assets transferred is represented in the books as shareholder’s funds. There is no contractual obligation to repay this amount and there are no fixed repayment terms.

21 amounts due to holding company

Amounts due to Holding company, represent interest free loans provided to the company for capi-tal expenditure projects. The loans do not have a fixed repayment terms and are unsecured.

74 75



22 provisions

2011 2010

rO’000 RO’000

Non-current

Provision for employee benefits - Gratuity 1,007 43

Provision for decommissioning cost 7,287 7,140

8,294 7,183

Current

Provision for employee benefits - Leave encashment 293 179

Movement in provision for employee benefits - Gratuity

2011 2010

rO’000 RO’000

At beginning of the year 43 34

Charge for the year 972 17

Payments made during the year (8) (8)

At end of the year 1,007 43

Movement in provision for decommissioning costs

2011 2010

rO’000 RO’000

At beginning of the year 7,140 4,981

Addition during the year 1,209 -

Adjustment of fair value due to change in inflation rate (1,291) -

Adjustment of fair value due to change in discount rate - 1,934

Unwinding of discount rate on decommissioning provision (note 11) 229 225

At end of the year 7,287 7,140

Decommissioning costs represents the present value of management’s best estimate of the future sacrifice of the economic benefits that will be required to remove the facilities and restore the af-fected area at the company’s rented sites. The estimate has been made on the basis of quotes obtained from contractors.

Movement in provision for employee benefits - Leave encashment

2011 2010

RO’000 RO’000

At beginning of the year 179 67

Charge for the year 114 161

Payments made during the year - (49)

At end of the year 293 179



23 deferred tax liability

Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate of 12%. The net deferred tax liability in the balance sheet and the net deferred tax charge in the statement of comprehensive income are attributable to the fol-lowing items:

At 1 January 2011Charge/

(credit) for the year

At 31 December 2011

rO’000 rO’000 rO’000

Assets

Allowance for doubtful debts (172) 86 (86)

Provision for inventory obsolescence (20) - (20)

Provision for employee benefits – Gratuity for transferred employees

- (113) (113)

Decommissioning assets (232) (41) (273)

(424) (68) (492)

liability

Accelerated tax depreciation 5,286 586 5,872

Net deferred tax liability 4,862 518 5,380

At 1 January 2010(Credit)/

charge for the year

At 31 December 2010

RO’000 RO’000 RO’000

Assets

Allowance for doubtful debts (172) - (172)

Provision for inventory obsolescence - (20) (20)

Decommissioning assets (190) (42) (232)

(362) (62) (424)

Liability

Accelerated tax depreciation 4,752 534 5,286

Net deferred tax liability 4,390 472 4,862

76 77



24 deferred revenue

Deferred revenue represents Government project funding and customer contributions towards the cost of property, plant and equipment. These contributions are deferred over the life of the relevant property, plant and equipment. From 1 July 2010 customer contributions are recognised in accor-dance with IFRIC 18 ‘Transfers of assets from customers’ and are not deferred.

25 trade and other payables

2011 2010

rO’000 RO’000

Amount due to related parties 7,627 6,961

Creditors for capital projects 5,822 3,181

Accruals and other payables 2,490 2,584

Suppliers and contractors payable 195 352

16,134 13,078

26 other liabilities

Other liabilities represent revenue in excess of maximum allowed as per price control formula de-ferred to the subsequent year (note 5).

27 bank overdrafts

The company has overdraft facilities with Bank Muscat SAOG to finance the company’s working capital requirements and to support its other operational requirements. Interest on such overdrafts ranges from 0.75% to 1.00%. (2010: 1% to 2.55%). Bank overdrafts are repayable on demand.

28 short-term borrowings

2011 2010

rO’000 RO’000

Short-term borrowings 22,000 10,000

The carrying amount of the company’s short-term borrowings are denominated in Rial Omani. The loan facility agreement has been entered into with Bank Muscat SAOG on 25 June 2011 for a period ending 30 June 2012. The term loan is repayable as a bullet payment on 30 June 2012 (expiry date). The credit facility bears interest at a fixed rate of 1% per annum. The company is not required to pay any arrangement or commitment fees. Borrowings are secured against a letter of comfort given by the Holding company.



29 related parties

Related parties comprise the shareholders, directors, key management personnel and business entities in which they have the ability to control or exercise significant influence in financial and operating decisions (other related parties). For the purpose of IAS 24, the Government of the Sul-tanate of Oman is not considered as a related party.

The company maintains balances with the related parties which arise in the normal course of busi-ness. Outstanding balances at year end are unsecured and settlement occurs in cash.

Following is the summary of significant transactions with related parties during the year:

(i) transactions with related parties

2011 2010

rO’000 RO’000

Expenses

Electricity purchase from Oman Power and Water Procurement Company SAOC

61,414 47,649

Transmission connection charges to Oman Electricity Transmis-sion Company SAOC

1,817 1,238

Transmission use of system charges to Oman Electricity Trans-mission Company SAOC

11,323 9,605

Accounting service charge to Electricity Holding Company SAOC 210 250

74,764 58,742

(ii) Key management personnel compensation

Key management personnel are those persons who have authority and responsibility for planning, directing and controlling the activities of the company, directly or indirectly, including any director (whether executive or otherwise). The compensation for key management personnel during the year is as follows:

2011 2010

rO’000 RO’000

Salaries and other short term benefits 322 294

End of service benefits 25 13

347 307

78 79



29 related parties (continued)

(iii) payables as at year end:

2011 2010

rO’000 RO’000

Holding company

- Administrative expenses 202 223

Oman Electricity Transmission Company SAOC

- Transmission connection charges 764 498

- Transmission use of system charges 2,079 1,488

- Training expenses 1 -

- Sharing capital projects 6 21

2,850 2,007

Oman Power and Water Procurement Company SAOC

- Electricity purchases 4,267 4,424

Muscat Electricity Distribution Company SAOC

- Inventory 128 128

- Distribution code review panel - Salary 3 3

131 131

Mazoon Electricity Company SAOC

- Inventory/assets transfer 173 173

- Training expenses 4 -

- Distribution code review panel -Salary - 3

177 176

7,627 6,961

(iv) Receivables as at year end:

2011 2010

rO’000 RO’000

Holding company

- Training refund 2 -

Inventory/assets transfer

- Muscat Electricity Distribution Company SAOC - 5

- Mazoon Electricity Company SAOC 38 38

40 43

(v) Loan from Holding company 21,025 13,525



30 proposed dividend

The Board of Directors of the company at their meeting held on 14 February 2012 have proposed a cash dividend of RO 2 per share aggregating RO 1 million in the company’s existing share capi-tal (for the year ended 31 December 2010, of RO 15.17 per share aggregating RO 7.585 million was proposed and paid as dividend). This dividend is subject to the approval of the company’s shareholders in the Annual General Meeting.

31 Commitments

2011 2010

rO’000 RO’000

Operating lease commitments

Not more than 1 year 149 150

More than 1 year but not more than 5 years - -

149 150

Capital commitments 5,247 3,048

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قـــــــــــوة نحــــو التقــــــــدمpOwEriNG thE FUtUrE

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majan eleCtriCity Company in 2011