NEXIA - PakGen Power, Pakistanpakgenpower.com/finance/pdf/annual2010.pdf · NEXIA INTERNATIONAL AUDITORS' REPORT TO THE MEMBERS ... Long-term compensation paid Net cash generated

RIAZ AHMAD & COMPANYChartered Accountants

FINANCIAL STATEMENTS WITHACCOMPANYING INFORMATION

31 DECEMBER 2010

NEXIAI N T E R N A T I O N A L


NEXIAI N T E R N A T I O N A L

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of PAKGEN POWER LIMITED[FORMERLY AES PAK GEN COMPANY LIMITED] as at 31 December 2010 and therelated profit and loss account, cash flow statement and statement of changes in equitytogether with the notes forming part thereof, for the year then ended and we state thatwe have obtained all the information and explanations which, to the best of ourknowledge and belief/ were necessary for the purposes of our audit.

It is the responsibility of the company's management to establish and maintain asystem of internal control, and prepare and present the above said statements inconformity with the approved accounting standards and the requirements of theCompanies Ordinance, 1984. Our responsibility is to express an opinion on thesestatements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable inPakistan. These standards require that we plan and perform the audit to obtainreasonable assurance about whether the above said statements are free of any materialmisstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the above said statements. An audit also includes assessingthe accounting policies and significant estimates made by management, as well as,evaluating the overall presentation of the above said statements. We believe that ouraudit provides a reasonable basis for our opinion and, after due verification, we reportthat:

As more fully explained in Note 2 to the financial statements, operations of thecompany were disrupted by floods in Pakistan during the year under reference. Themanagement is in the process of estimating actual loss of property, plant, equipmentand inventory for claims from the insurance company. Therefore, impairment loss onproperty, plant, equipment and inventory has not been recognized in these financialstatements. Loss of capacity revenue and all other costs incurred by the company forrehabilitation work upto the reporting date amounting to Rupees 550.073 million havebeen recorded as receivable from the insurance company (Note 17.4). However, theultimate recovery from the insurance company against the loss is dependent on theamount of claims to be filed and their final settlement by the insurance company.

Except for the effects of the matters stated in the preceding paragraph, we report that:

(a) in our opinion, proper books of account have been kept by the company asrequired by the Companies Ordinance, 1984;

10-B, Saint Mary Park

Main Boulevard, Culberg-lll

Lahore 54660, PakistanTelephones (92-42) 3571 81 37-9

Fax (92-42)357181 [email protected]

www. racop k. com


(b) in our opinion:

i) the balance sheet and profit and loss account together with the notes thereonhave been drawn up in conformity with the Companies Ordinance, 1984, andare in agreement with the books of account and are further in accordance withaccounting policies consistently applied;

ii) the expenditure incurred during the year was for the purpose of the company'sbusiness; and

iii) the business conducted, investments made and the expenditure incurred duringthe year were in accordance with the objects of the company;

(c) in our opinion and to the best of our information and according to theexplanations given to us, the balance sheet, profit and loss account, cash flowstatement and statement of changes in equity together with the notes formingpart thereof conform with approved accounting standards as applicable inPakistan, and, give the information required by the Companies Ordinance,1984, in the manner so required and respectively give a true and fair view ofthe state of the company's affairs as at 31 December 2010 and of the profit, itscash flows and changes in equity for the year then ended; and

(d) in our opinion, no Zakat was deductible at source under the Zakat and UshrOrdinance, 1980 (XVIII of 1980).

The financial statements of the company for the year ended 31 December 2009 wereaudited by another firm of Chartered Accountants whose report dated 07 April 2010expressed an unqualified opinion on those statements.

RIAZ^HMAD & COMPANYChartered Accountants 0

Name of engagement partner:Syed Mustafa All

Date: 0 9 FEB 2011

Lahore

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Authorised share capital400,000,000(2009:400,000,000)ordinary shares of Rupees 10 each

Issued, subscribed and paid up share capitalCapital reserveRevenue reserves

NON-CURRENT LIABILITY

Long-term finance

CURRENT LIABILITIES

Trade and other payablesAccrued mark-upShort-term borrowingsCurrent portion of long-term finance

Total liabilities

CONTINGENCIES AND COMMITMENTS

TOTAL EQUITY AND LIABILITIES

Note

9107

11

PAKGEN POWER LIMITED

(FORMERLY AES PAK GEN COMPANY LIMITED)

BALANCE SHEET AS AT 31 DECEMBER 2010

2010 2009

(Rupees in thousand)

4,000,000

3,720,816116,959

9,914,31613,752,091

5,568,6805,568,680

19,320,771

The annexed notes form an integral part of these financial statements.

4,000,000

3,720,816116,959

9,754,67913,592,454

867,400120,791

4,580,489-

585,68867,005

3,000,177113,126

3,765,996

3,765,996

Note

ASSETS

NON-CURRENT ASSETS

Property, plant and equipmentLong-term security depositsDerivative financial instrument

CURRENT ASSETS

Stores, spare parts and other consumablesFuel stockTrade debtsAdvances and short-term prepaymentsInterest accruedOther receivablesCurrent portion of derivative financial instrumentSales tax recoverableCash and bank balances

17,358,450 TOTAL ASSETS

2010 2009

CHIEF EXECUTIVE


12

13

14

15

16

1713

18

7,603,81415

-

7,603,829

123,203426,878

6,277,775

1,706,534

6,384

1,008,259

-

579,1361,588,773

11,716,942

19,320,771

/%

7,815,61315

-

7,815,628

88,101345,455

6,349,093

122,7246,417

654,986

427,307378,800

1,169,9399,542,822

17,358,450

^'DIRECTOR

Note 2010 2009

Revenue

Cost of sales

Gross profit

Administrative expenses

Other operating expenses

Other operating income

Profit from operations

Finance cost

Profit before taxation

Taxation

Profit after taxation

Other comprehensive income

Total comprehensive income for the year

Earnings per share - basic and diluted (Rupees)


19

20

21

22

23

24

25

26

20,506,732

(17,947,818)

2,558,914

(223,419)

(189,849)

2,145,646

353,203

2,498,849

(947,848)

1,551,001

(13,557)

1,537,444

1,537,444

4.13

21,843,189

(17,160,740)

4,682,449

(142,335)

(118,666)

4,421,448

56,781

4,478,229

(1,837,876)

2,640,353

(6,728)

2,633,625

2,633,625

7.08


CHIEF EXECUTIVE DIRECTOR

PAKGEN POWER LIMITED(FORMERLY AES PAK GEN COMPANY LIMITED)

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010

Note

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 27

Finance cost paidInterest income receivedIncome tax paidGratuity paidLong-term compensation paid

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditure on property, plant and equipmentProceeds from sale of property, plant and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long-term financeDividends paid

Net cash used in financing activities

Net (decrease) / increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

CASH AND CASH EQUIVALENTS

Cash in handCash at banksShort-term borrowings


2010 2009(Rupees in

919,878

(466,754)38,566(19,311)(18,443)

453,936

(126,852)125

(126,727)

(113,126)(1,375,561)

(1,488,687)

(1,161,478)

(1,830,238)

(2,991,716)

1,588,773(4,580,489)

(2,991,716)

thousand)

4,282,511

(636,839)12,161(4,944)(42,368)

(454)

3,610,067

(113,248)

(113,248)

(1

(1

(190,772),037,127)

,227,899)

2,268,920

(4,099,158)

(1,830,238)

361,169,903(3,000,177)

(1,830,238)



STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010

Balance as at 31 December 2008

Interim dividend for the year ended31 December 2009 @ Rupees 2.79 per share

Total comprehensive income for the yearended 31 December 2009


Interim dividend for the year ended

31 December 2010 @ Rupees 2.95 per share

Interim dividend for the year ended31 December 2010 @ Rupees 0.75 per share

Total comprehensive income for the yearended 31 December 2010

Discontinuation of employee stock optionscheme


SHARECAPITAL

RESERVESCapital

Retainedpayments

reserve

Revenue

Employeestockoption

Un-appropriated

profit

TOTALEQUITY

3,720,816 116,959

-Rupees in thousand

3,720,816 116,959

2,246

2,246

(2,246)

3,720,816 116,959

8,155,935 11,995,956

(1,037,127) (1,037,127)

2,633,625 2,633,625

9,752,433 13,592,454

(1,096,500) (1,096,500)

(279,061) (279,061)

1,537,444 1,537,444

(2,246)

9,914,316 13,752,091




NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2010

1. THE COMPANY AND ITS OPERATIONS

Pakgen Power Limited ("the Company") [formerly AES Pak Gen Company Limited] wasincorporated in Pakistan on 22 June 1995 under the Companies Ordinance, 1984. The registeredoffice is situated at 53-A, Lawrence Road, Lahore. The principal activities of the Company are toown, operate and maintain an oil fired power station ("the Complex") having gross capacity of 365MW in Mehmood Kot, Muzaffargarh, Punjab, Pakistan. Legal status of the Company was changedfrom private unlimited company to public limited company on 12 July 2010 and the name of theCompany was changed from AES Pak Gen Company Limited to Pakgen Power Limited on 22November 2010.

During the year ended 31 December 2010, the Company was acquired by a consortiumcomprising of Nishat Mills Limited, Adamjee Insurance Company Limited, Security GeneralInsurance Company Limited, Mian Hassan Mansha, Engen (Private) Limited and StanhopeInvestments (Cayman Islands) of Abu Dhabi Investment Council.

2. SIGNIFICANT EVENT DURING THE YEAR

Power plant of the Company was hit by floods on 04 August 2010 and plant was closed. All safetymeasures were taken to keep the power plant safe during floods. However, floods damagedcertain parts of the plant, store inventory, electric instrument, furniture and fixtures, boundarywails, and other civil works of the power plant. The management started the restoration activitiesimmediately after the flood. The management arranged visits of the experts of the originalequipment manufacturers, Mitsubishi Heavy Industries (MHI) at site to get repaired the damagedparts under their supervision. After necessary rehabilitation work, the operations of power planthave been resumed on 06 November 2010.

The management is in the process of assessment of losses caused by the floods based onOriginal Equipment Manufacturer (OEM) report and subsequent inspection of the site. All lossesare covered under the insurance policy except deductible amounts as per insurance policy. Noprovision for losses for property damage has been made in these financial statements as theestimates regarding amount of losses are not available on the reporting date. Insurance policycovers both business interruption losses and property losses and the claim will be filedimmediately after assessment of business and property losses. However, the insurance companyhas been intimated about the event. The management has recognized receivable from insurancecompany against business interruption losses for the period from 04 August 2010 to 05 November2010 and other costs incurred on restoration of property, plant, equipment and inventory upto thedate of balance sheet amounting to Rupees 550.073 million (Note 17.4 to the financialstatements). The management expects that the business interruption losses and property lossesdue to floods except deductibles will be fully recovered under the insurance policy.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

a) Statement of compliance

These financial statements have been prepared in accordance with approved accountingstandards as applicable in Pakistan. Approved accounting standards comprise of suchInternational Financial Reporting Standards (IFRS) issued by the International AccountingStandards Board as are notified under the Companies Ordinance, 1984, provisions of anddirectives issued under the Companies OrdinanceJ 1984. In case requirements differ, theprovisions of or directives issued under the Companies Ordinance, 1984 shall prevail.

b) Accounting convention

These financial statements have been prepared on historical cost basis, except for recognition ofcertain financial instruments at fair value.

c) Critical accounting estimates and judgments

The preparation of financial statements in conformity with approved accounting standards requiresthe use of certain critical accounting estimates. It also requires management to exercise itsjudgment in the process of applying the Company's accounting policies. Estimates and judgmentsare continually evaluated and are based on historical experience and other factors, includingexpectations of future events that are believed to be reasonable under the circumstances. Theareas where various assumptions and estimates are significant to the Company's financialstatements or where judgments were exercised in application of accounting policies are asfollows:

Taxation

In making the estimate for income tax payable by the Company, the Company takes intoaccount the applicable tax laws and the decisions by appellate authorities on certain issuesin the past.

Useful lives and residual values of property, plant and equipment

Estimates with respect to residual values and depreciable lives and pattern of flow ofeconomic benefits are based on the analysis of the management of the Company. Further,the Company reviews the value of the assets for possible impairments on an annual basis.Any change in the estimates in the future might affect the carrying amount of respectiveitem of property, plant and equipment, with a corresponding effect on the depreciationcharge and impairment. Estimated useful life of an asset is reviewed periodically taking intoaccount commercial and technical obsolescence as well as normal wear and tear.

Impairment

The carrying amounts of the Company's assets are reviewed at each balance sheet date todetermine whether there is any indication of impairment. If such indication exists, theasset's recoverable amount is estimated in order to determine the extent of the impairmentloss, if any. Impairment losses are charged to income.

Provision for obsolescence of stores, spares parts and other consumables

Provision for obsolescence of stores, spares parts and other consumables is made on thebasis of management's estimate of net realizable value and ageing analysis prepared on anitem-by-item basis.

d) Standards and amendments to published approved accounting standards that areeffective in current year

Standards and amendments to published approved accounting standards that are effective inthe current year and are relevant to the Company have no significant impact on the Company'sfinancial statements and are therefore not detailed in these financial statements.

e) Standards, interpretations and amendments to published approved accountingstandards that are effective in current year but not relevant

There are new standards, interpretations and amendments to the published approvedaccounting standards that are mandatory for accounting periods beginning on or after 01January 2010 but are considered not to be relevant or do not have any significant impact on theCompany's financial statements and are therefore not detailed in these financial statements.

f) Standard and amendments to published approved accounting standards that are not yeteffective but relevant

Following standard and amendments to existing standards have been published and aremandatory for the Company's accounting periods beginning on or after 01 January 2011 orlater periods:

IFRS 9 'Financial Instruments' (effective for annual periods beginning on or after 01 January2013). IFRS 9 has superseded the International Accounting Standard (IAS) 39 'FinancialInstruments: Recognition and Measurement1. It requires that all equity investments are to bemeasured at fair value while eliminating the cost model for unquoted equity investments.Certain categories of financial instruments available under IAS 39 will be eliminated. Moreover,it also amends certain disclosure requirements relating to financial instruments under IFRS 7,'Financial Instruments: Disclosures'. The management of the Company is in the process ofevaluating impacts of the aforesaid standard on the Company's financial statements,

There are other amendments resulting from annual improvements project initiated byInternational Accounting Standards Board in May 2010, specifically in IFRS 7 'FinancialInstruments: Disclosures', IAS 1 'Presentation of Financial Statements', IAS 24 'Related PartyDisclosures' and IAS 36 'Impairment of Assets' that are considered relevant to the Company'sfinancial statements. These amendments are unlikely to have a significant impact on theCompany's financial statements and have therefore not been analyzed in detail.

g) Standards, interpretations and amendments to published approved accountingstandards that are not effective in current year and not considered relevant

There are other accounting standards, amendments to published approved accountingstandards and new interpretations that are mandatory for accounting periods beginning on orafter 01 January 2011 but are considered not to be relevant or do not have any significantimpact on the Company's financial statements and are therefore not detailed in these financialstatements.

h) Exemption from Applicability of IFRIC 4 'Determining Whether an Arrangement Containsa Lease'

On 22 June 2009, the Securities and Exchange Commission of Pakistan (SECP) exempted theapplication of International Financial Reporting Interpretation Committee (IFRIC) 4 'Determiningwhether an arrangement contains a Lease' for power sector companies where Letter of IntentfLO!) was issued by the Goyernrnont on or bp^nrp ^n .innp 2010 Hnwp\/pr thp SFCIP maHp it\ / I 1 . . .«! t v I . -J , V , V. W u ~ V. . ' , ^ . . , ^ , , , W . - J . , . . , l ^ . ^ . _ ^ , . . .«.«. V ...

mandatory to disclose the impact of the application of IFRIC 4 on the results of the companies,

Consequently, the Company is not required to account for the portion of its Power PurchaseAgreement (PPA) with Water and Power Development Authority (WAPDA) as a lease under!AS 17 "Leases". If the Company were to follow IFRIC 4 and IAS 17, the effect on the financialstatements would be as follows:

2010 2009(Rupees in thousand)

De-recognition of property, plant and equipment (7,531,368) (7,777,224)Recognition of lease debtor 6,632,142 7,156,122

Decrease in un-appropriated profit at the beginning of the year (621,102) (434,884)Decrease in profit for the year (278,1 _24^_ [186,218]Decrease in un-appropriated profit at the end of the year (899,226) (621,102)

3.2 Property, plant and equipment

3.2.1 Operating fixed assets

Operating fixed assets, except freehold land are stated at cost less accumulated depreciation andimpairment losses, if any. Freehold land is stated at cost less impairment loss, if any. Residual valuesand estimated useful lives are reviewed at each balance sheet date, with the effect of changes inestimate accounted for on prospective basis. Depreciation is charged to income applying the straightline method whereby cost of an asset less its residual value is written off over its estimated useful life,

Depreciation on additions is charged for the full month in which the asset is available for use and ondeletion up to the month immediately preceding the deletion.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flow tothe Company and the cost of the item can be measured reliably. All other repair and maintenance costsare included in the profit and loss account during the period in which they are incurred,

The Company assesses at each balance sheet date whether there is any indication that property, plantand equipment may be impaired. If such indication exists, the carrying amounts of such assets arereviewed to assess whether they are recorded in excess of their recoverable amount. Where carryingvalues exceed the respective recoverable amount, assets are written down to their recoverableamounts and the resulting impairment loss is recognized in income currently, The recoverable amountis higher of an asset's fair value less costs to sell and value in use. Where an impairment loss isrecognized, the depreciation charge is adjusted in the future periods to allocate the asset's revisedcarrying amount over its estimated remaining useful life.

An item of property, plant and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. The gain or loss on disposal or retirement of an assetrepresented by the difference between the sale proceeds and the carrying amount of the asset isrecognized as an income or expense.

3.2.2 Capital work-in-progress

Capital work-in-progress is stated at cost less any identified impairment loss. All expenditure connectedwith specific assets incurred during installation and construction period are carried under capital work-in-progress. These are transferred to operating fixed assets as and when these are available for use.

3.3 Foreign currency translation

These financial statements are presented in Pak Rupees, which is the Company's functional andpresentation currency.

Transactions in foreign currency are converted in Pak Rupees at the rates of exchange prevailing onthe date of transaction. Monetary assets and liabilities in foreign currencies at the balance sheet dateare translated into Pak Rupees at the rate of exchange prevailing on that date. Net exchangedifferences are recognized as income or expense in the period in which they arise.

3.4 Employee benefits

3.4.1 Defined contribution plan

The Company contributes towards a funded contributory provident fund scheme being maintained byLalpir Power Limited [formerly AES Lai Pir (Private) Limited] - associated company at the rate of 10%of basic salary of employees.

3.4.2 Share-based payments

Previously, the ultimate parent company (AES Corporation, V.A., United States of America) operated anumber of equity-settled, share-based compensation plans. The economic cost of awarding shares toemployees was reflected by recording a charge in the profit and loss account equivalent to the fairvalue of shares on the grant date over the vesting period. Since the awarded shares relate to ultimateparent company, a corresponding reserve was created to reflect the equity component. The totalamount to be recognized was provided by the ultimate parent.

During the year, on change of management share-based compensation plans have been discontinuedby the Company.

3.5 Inventories

Inventories, except in transit are stated at lower of cost and net realizable value. Cost is determined asfollows:

Fuel stock

Cost is determined on the basis of first-in-first-out method.

Stores, spare parts and other consumables

Cost is determined on the basis of average cost method, less allowance for obsolete and slow movingitems. Cost in relation to items in transit comprises of invoice value and other charges incurred thereonup to the balance sheet date.

Net realizable value signifies the estimated selling price in the ordinary course of business less theestimated costs necessary to make the sale.

3.6 Financial instruments

3.6.1 Recognition and de-recognition

Financial assets and financial liabilities are recognized at the time when the Company becomes a partyto the contractual provisions of the instrument and de-recognized when the Company loses control ofcontractual rights that comprise the financial assets and in the case of financial liabilities when theobligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of financial assets and financial liabilities is included in the profit and loss account.

Financial instruments carried on the balance sheet include deposits, trade debts, accrued interest, otherreceivables, cash and bank balances, borrowings and trade and other payables. The particularrecognition methods adopted are disclosed in the individual policy statements associated with eachitem.

3.6.2 Derivative financial instruments

Derivative financial instruments are initially recognized at fair value and are subsequently re-measuredat their fair value. Fair value of the derivative financial instrument is determined using estimateddiscounted future cash flows. Derivatives are carried as assets where fair value is positive and asliabilities where fair value is negative.

Derivatives embedded in other financial instruments or non-derivative host contracts are traced asseparate derivatives when their risks and economic characteristics are not closely related to those ofhost contracts and the host contracts are not carried at fair value with unrealized gains or lossesreported in the profit and loss account.

If the fair value of an embedded derivative that is required to be separated cannot be reliably measured,the entire combined contract is treated as a financial instrument held for trading. The combined contractis measured at fair value if the fair value of the combined instrument can be reliably measured.

Changes in fair value of derivative financial instruments are recognized in the profit and loss account.

3.6.3 Offsetting

A financial asset and a financial liability is offset and the net amount is reported in the balance sheet, ifthe Company has a legally enforceable right to set-off the transaction and also intends either to settleon a net basis or to realize the asset and settle the liability simultaneously.

3.7 Cash and cash equivalents

Cash and cash equivalents comprises cash, balances with banks in current, savings and depositaccounts and short-term borrowings under mark up arrangements.

3.8 Provision

A provision is recognized when the Company has a present legal or constructive obligation as a resultof past events, it is probable that an outflow of resources embodying economic benefits will be requiredto settle the obligation and a reliable estimate of the obligation can be made. Provisions are reviewed ateach balance sheet date and adjusted to reflect the current best estimate.

3.9 Taxation

Current

Income (profit and gains) of the Company derived from power generation are exempt from income taxunder Clause 132 of Part I and Clause 11A of Part IV of Second Schedule to the income TaxOrdinance, 2001, This exemption is available till the term of Power Purchase Agreement (PPA).Provision for tax on other income is calculated in accordance with the prevailing law for taxation onincome.

Deferred

Deferred tax is accounted for using the balance sheet liability method in respect of all temporarydifferences arising from differences between the carrying amount of assets and liabilities in thefinancial statements and the corresponding tax bases used in the computation of the taxable profit.Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred taxassets to the extent that it is probable that taxable profits will be available against which the deductibletemporary differences, unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the period when the differencesreverse based on tax rates that have been enacted or substantively enacted by the balance sheetdate. Deferred tax is charged or credited in the profit and loss account, except to the extent that itrelates to items recognized in other comprehensive income or directly in equity. In this case the tax isalso recognized in other comprehensive income or directly in equity, respectively.

Deferred tax liability has not been provided in these financial statements as the management believesthat the temporary differences will not reverse in the foreseeable future due to the fact that theCompany remains exempt from taxation under Clause 132 of Part I and Clause 11A of Part IV ofSecond Schedule to the Income Tax Ordinance, 2001.

3.10 Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings aresubsequently stated at amortized cost, any difference between the proceeds (net of transaction costs)and the redemption value is recognized in the profit and loss account over the period of the borrowingsusing the effective interest method. Finance costs are accounted for on an accrual basis and arereported under accrued finance costs to the extent of the amount remaining unpaid.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defersettlement of the liability for at least twelve months after the balance sheet date.

3.11 Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalized during the period oftime that is required to complete and prepare the asset for its intended use. Other borrowing costs areexpensed in the profit and loss account in the period in which they arise.

3.12 Trade debts and other receivables

Trade debts and other receivables are recognized initially at invoice value, which approximates fairvalue and subsequently measured at amortized cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade debts and other receivables is established whenthere is objective evidence that the Company will not be able to collect the entire amount due accordingto the original terms of the receivable. Significant financial difficulties of the debtors, probability that thedebtor will enter bankruptcy or financial reorganization, and default or delinquency in payments areconsidered indicators that the trade debt is impaired. The provision is recognized in the profit and lossaccount. When a trade debt is uncollectible, it is written off against the provision. Subsequentrecoveries of amounts previously written off are credited to the profit and loss account.

3.13 Trade and other payables

Liabilities for trade and other amounts payable are initially recognized at fair value which is normally thetransaction cost.

3.14 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market. They are included in current assets, except for maturities greater thantwelve months after the balance sheet date, which are classified as non-current assets. Loans andreceivables comprise advances, deposits, other receivables and cash and bank balances in thebalance sheet.

3.15 Impairment

Financial assets

A financial asset is considered to be impaired if objective evidence indicate that one or more events hada negative effect on the estimated future cash flow of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as adifference between its carrying amount and the present value of estimated future cash flows discountedat the original effective interest rate. An impairment loss in respect of available for sale financial asset iscalculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on individual basis. The remainingfinancial assets are assessed collectively in groups that share similar credit risk characteristics.

Non-financial assets

The carrying amounts of the Company's assets are reviewed at each balance sheet date to determinewhether there is any indication of impairment. If such indication exists, the recoverable amount of suchasset is estimated. An impairment loss is recognized wherever the carrying amount of the assetexceeds its recoverable amount. Impairment losses are recognized in profit and loss account. Apreviously recognized impairment loss is reversed only if there has been a change in the estimatesused to determine the asset's recoverable amount since the last impairment loss was recognized. If thatis the case, the carrying amount of the asset is increased to its recoverable amount. That increasedamount cannot exceed the carrying amount that would have been determined, net of depreciation, hadno impairment loss been recognized for the asset in prior years. Such reversal is recognized in profitand loss account.

3.16 Revenue

Sale of electricity

Revenue from sale of electricity to the Water and Power Development Authority (WAPDA), the solecustomer of the Company, is recorded on the basis of output delivered and capacity available at ratesspecified under the Power Purchase Agreement (PPA). PPA is a contract over a period of 30 years.

Interest income

Interest income is accrued on a time proportion basis by reference to the principal outstanding and theapplicable rate of return.

Rental income

Rental income is recognized on accrual basis.

3.17 Dividend and other appropriations

Dividend distribution to the Company's shareholders is recognized as a liability in the Company'sfinancial statements in the period in which the dividends are declared and other appropriations arerecognized in the period in which these are approved by the Board of Directors.

3.18 Share capital

Ordinary shares are classified as equity and recognized at their face value. Incremental costs directlyattributable to the issue of new shares are shown in equity as a deduction, net of tax.

2010 2009

4.1

ISSUED, SUBSCRIBED AND PAID-UP SHARE CAPITAL

370,586,125 (2009: 370,586,125) ordinary shares of Rupees 10each fully paid in cash

1,495,466 (2009:1,495,466) ordinary shares of Rupees 10 eachissued as fully paid for consideration other than cash

Ordinary shares of the Company held by related parties as at 31December 2010 are as follows:


3,705,861

14,9553,720,816

3,705,861

14,9553,720,816

2010 2009

Nishat Mills LimitedAdamjee Insurance Company LimitedSecurity General Insurance Company LimitedStanhope InvestmentsEngen (Private) Limited

4.2 Capital risk management

(Number of shares)

119,065,61029,766,5277,441,132

74,416,31874,415,818

305,105,405

The Company's objective when managing capital is to safeguard the Company's ability to remain as agoing concern and continue to provide returns for shareholders and benefits for other stakeholders.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paidto shareholders keeping in view its cash flow requirements to maintain its operating capacity in terms ofPPA.

No changes were made in the objectives, policies or processes from the previous year. The Companymonitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. TheCompany includes within net debt, long term finance and short-term borrowings, less cash and bankbalances. Capital includes equity attributable to the equity holders.


Long-term financeShort-term borrowingsCash and bank balancesNet debt

Equity

Equity and net debt

113,1264,580,489(1,588,773)2,991,716

13,752,091

16,743,807

Q AQO "I7~7

(1,169,939)1,943,364

13,592,454

15,535,818

Gearing ratio 17.87% 12.51%

CAPITAL RESERVE

This represents the Retained Payments Fund ("the reserve") maintained under clause 9.11 of the PowerPurchase Agreement (PPA). Initially the fund was established at one twenty fourth of the annual operatingand maintenance budget of the Company's first year of operations less fuel expenses. The fund can beonly be utilized to pay expenses on major maintenance for proper operation of the Complex in case of nonavailability of sufficient funds. The reserve fund needs to be replenished for the monies utilized by theCompany.


REVENUE RESERVES

Employee stock option reserve (Note 6.1) - 2,246Un-appropriated profit 9,914,316 9,752,433

9,914,316 9.754.679

6.1 Employee stock option reserve

Opening balance 2,246 2,246Discontinuation of employee stock option (Note 23) (2,246) -Closing balance - 2,246

7 LONG-TERM FINANCE - Secured

LenderInstallment

payableInterest rate per

annumRepayment

period2010 2009

%age (Rupees in thousand)International FinanceCorporation

LoanA-US$ Half yearly 4.1875 1998-2010 - 113,126(LIBOR + 3.5%)

Current portion shown under current liabilities - (113,126)

7.1 The above long term finance was secured by way of first floating charge on present and future propertiesand assets of the Company including all tangible moveable properties, and fixed charge on interest inproperties held by AES Pak Gen Holding Inc., Mauritius, and AES Pakistan Holding and pledge of sharesof the Company held by AES Pak Gen Holding Inc. and AES Pakistan Holding (group entities of previousmanagement). During the year, the Company has fully repaid this long-term finance.


TRADE AND OTHER PAYABLES

Creditors 189,726 174,521Accrued liabilities 136,054 97,050Due to related parlies (Note 8.1) 107,249 5,313Workers' profit participation fund payable (Note 8.2) 325,095 247,545Workers' welfare fund payable 91,449 60,429Others 17,827 830

867,400 585,688

8.1 Due to related parties

These represented amounts payable for various services, expenses, etc. incurred by related parties in theordinary course of business.


107,249

5,086

227107,249 5,313

247,545 207,335

77,550 132,007

20377,550 132,210

(92,000)

325,095 247,545

Related parties of new management

Lalpir Power Limited [Formerly AES Lai Pir (Private) Limited]

Related parties of previous management

AES Pakistan OperationAES Oasis - Dubai

8.2 Workers' profit participation fund payable

Opening balanceAllocation during the year:

CurrentPrior

Payments made during the year

Closing balance

9 ACCRUED MARK-UP

Accrued markup on:Long-term financeShort-term borrowings

10 SHORT TERM BORROWINGS

The Company has total working capital finance facilities of Rupees 6,800 million (2009: Rupees 4,500million) available from commercial banks out of which Rupees 2,220 million (2009: Rupees 1,500 million)remained unutilized at year end. These facilities carry mark-up at average offer rate for 1 month to 6months KIBOR plus 1.5% to 3% (2009 :1 month KIBOR plus 1.9% to 2.5%) per annum payable quarterly /semi-annually (2009: quarterly). These facilities are secured by way of charge to the extent of Rupees11,984 million (2009: Rupees 8,933 million) on the present and future current assets of the Company.

11 CONTINGENCIES AND COMMITMENTS

11.1 Contingencies

111.1 Up to the year ended 31 December 2002, the Company had recorded and paid to the Federal Treasurycontributions on its annual profit as per the provisions of the Companies Profits (Workers' Participation)Act, 1968 (the Act).

120791

120,791

1,389

65,61667,005

Based on legal advice, the Company has filed a petition on 15 April 2004 in the Lahore High Courtchallenging the application of the Act to the Company on the grounds that since inception the Companyhas not employed any person who falls within the definition of the term "Worker" as per the provisions ofthe Act. The Company asserts that it had erroneously deposited in the past certain sums with FederalTreasury as contributions of Workers' Profit Participation Fund (WPPF) and Workers' Welfare Fund(WWF), although it was not obligated to make such payments. The petition has been filed subsequent tothe Company's receipt of the Federal Board of Revenue's Income Tax / Wealth Tax Circle's letter dated 30March 2004 directing the Company to allocate five percent of its net profit towards the WPPF and depositthe un-utilized amount of the WPPF in the Federal Treasury. The petition had been filed against theLabour, Manpower and Overseas Pakistani Division of Ministry of Labour, Manpower and OverseasPakistanis.

Management, based on legal advice, asserts that if the Company does not succeed in the above petitionand it is held that the scheme is applicable to the Company, any payments that the Company is ultimatelyrequired to make under the provision of the Act are considered as pass through items recoverable fromWAPDA under the provisions of the PPA. Consequently, there will be no impact on its financial positionand its results of operations, even if it does not succeed in the above petition.

Consequent to the amendments that have been made in the Act through the Finance Act, 2006, theCompany is required to pay 5% of its profits to WPPF from the financial year 2006, The Companyestablished a workers' profit participation fund to comply with the requirements of the Companies Profit(Workers' Participation) Act, 1968 in which the Company has paid an amount of Rupees NIL (2009:Rupees 92 million) during the year.

In addition to above, consequent to Finance Act, 2008, the Company has also paid Rupees 46.5 million inrespect of Workers' Welfare Fund for the financial year 2008 and same has been billed to Water andPower Development Authority (WAPDA) being a pass through item under PPA. Further, the Company hasmade provision of Rupees 31.02 million (2009: Rupees 52.8 million) against current year's profit,

The changes to the law will not affect the aforementioned petition filed by the Company. The Companyexpects a favourable outcome of the matter.

11.1.2 The Company has issued a letter of credit in favour of Water and Power Development Authority (WAPDA)for an amount of Rupees 651 million (2009: Rupees 651 million) to meet its obligations under the PowerPurchase Agreement (PPA).

11.2 Commitment

The Company has entered into a contract for a period of thirty years for purchase of oil from PakistanState Oil Company Limited (PSO). Under the terms of Fuel Supply Agreement (FSA), the Company is notrequired to buy any minimum quantity of oil from PSO.

2010 2009

(Rupees in thousand)12 PROPERTY, PLANT AND EQUIPMENT

Operating fixed assets (Note 12.1)Capital work-in-progress (Note 12.2)

12.1 OPERATING FIXED ASSETS

At 01 January 2009

CostAccumulated depreciationNet book value

Year ended 31 December 2009

Opening net book value

Additions

Reclassification adjustments

Depreciation charge

Closing net book value

At 31 December 2009

CostAccumulated depreciationNet book value

Year ended 31 December 2010

Opening net book valueAdditionsDisposal:

CostAccumulated depreciation

Reclassification adjustments

Depreciation charge

Closing net book value

At 31 December 2010

Cost

Accumulated depreciation

Net book value

Annual rate of depreciation(%)

FreeholdLand

24,831

24,831

24,831

24,831

24,831

24,831

24.831

-

-

24,831

24,831

24,831

.

Buildings onFreehold Land

709,122

(206,804)

502,318

502,318

20,271

(10,544)

(20,838)

491,207

718,849

(227,642)

491,207

491,207

1,102

-

717

(20,597)

472,429

720,668

(248,239)

472,429

2.5-5

Air Strip

24,307

(13,015)

11,292

1 1 .292

(500)

(1,191)

9,601

23,807

(14,206)

9,601

9,601

-

(1,190)

8,411

23,807

(15,396)

8,411

5

Plant and Furnl

Machinery and Fit

Riinp

ure w .. . OfficeVehicles _. .

tings Equipment

10,190,011 1,916 494 6.077

(2,830,606) (1,913) (494) (1,708)

7,359,405

7,359,405

68.708

9.591

(300,582)

7,137,122

10,268,310 1

(3,131,188) (1

7,137,122

7,137,122

59,673

;(14,064)

(309,894)

6,872,837

10,313,919 1

(3,441,082) (1

6,872,837

2.5-25 10

3 - 4.369

3 - 4,369

1 ,890

(1,110)

3 - 5,149

,916 494 7,967

,913) (494) (2,818)

3 - 5,149

3 - 5,1495,311 306

(467)

467

(1) (885) (1,150)

2 4,426 4,305

,916 5,338 8,273

,914) (912) (3,968)

2 4,426 4,305

20 6.67-33

7,431,027

172,787

7,603,814

Electric Equipment

and Appliances

32,655

(18,097)

14,558

14,558

936

1,453

(3,058)

13,889

35,044

(21,155)

13,889

13,88921,484

;13,347

(4,934)

43,786

69,875

(26,089)

43,786

(5.20-33

7,681,802

133,811

7,815,613

TOTAL

10,989,413

(3,072,637)

7,916,776

7,916,776

91,805

(326.779)

7,681,802

11,081,218

(3,399,416)

7,681,802

7,681,802

87,876

(467)

467

(338,651)

7,431,027

11.168,627

(3.737,600)

7,431,027

2010 2009


12.1.1 The depreciation charge for the year has been allocated as follows:

Cost of sales (Note 20) 330,491 321,420Administrative expenses (Note 21) 8,160 5,359

338,651 326779

12.1.2 Property, plant and equipment include operating fixed assets costing Rupees 17.179 million (2009:Rupees 16.969 million) which are fully depreciated.

12.2 Capital work-in-progress

Advances for purchase of land 1,594Buildings 1,472 25,223Plant and machinery 169,721 108,588

172,787 133,811

13 DERIVATIVE FINANCIAL INSTRUMENT

Foreign currency indexation in Non-Escalable Component (NEC) - 427,307Current portion shown under current assets - (427,307)

13.1 During the year, the Company has repaid long-term finance in foreign currency, accordingly the remainingfair value of the embedded derivative has been derecognized and charged to profit and loss account.

14 FUEL STOCK

Furnace oil 406,946 332,360Diesel 19,932 13,095

426,878 345,455

15 TRADE DEBTS

Considered good (Note 15.1) 6,277,775 6,349,093Considered doubtful (Note 15.2) 77,104 47,445

6,354,879 6,396,538Provision for doubtful debts (Note 15.3) (77,104) (47,445)

6,277,775 6.349.093

15.1 These represent receivables from Water and Power Development Authority (WAPDA), the Company's solecustomer, and are backed by sovereign guarantee of Government of Pakistan. This includes an overdueamount of Rupees 4,091 million (2009: Rupees 3,486 million) on which a penal mark-up at the rate ofState Bank of Pakistan (SBP) reverse repo (discount rate) plus 2% per annum is charged in case theamounts are not paid within due dates. The penal mark-up rate charged during the year ranges from14.5% to 16% per annum.

As at 31 December, the ageing analysis of trade debts was as follows:

TotalNeither past

due norimpaired

Past due but not impaired

26-55 days 56-85 days >85 days( Rupees in thousand )

2010 6,277,775 2,186,704 1,717,510 89,624 2,283,9372009 6,349,093 2,862,835 2,685,714 757,212 43,332

15.2 These represent amounts not acknowledged by WAPDA.


15.3 Provision for doubtful debts

Opening balance 47,445 17,541Charge for the year (Note 22) 29,659 29,904Closing balance 77.104 47,445

16 ADVANCES AND SHORT-TERM PREPAYMENTS

Advances to suppliers - considered good 1,628,686 68,929Advance income tax - net 33,161 27,407Short-term prepayments 44,687 26.388

1.706,534 122,724

17 OTHER RECEIVABLES

Due from related party (Note 17.1) - 305,470Receivable from WAPDA - workers' profit participation fund (Note17.2 and 11.1.1) 374,210 296,660Receivable from WAPDA - workers' welfare fund - net (Note 17.3) 83,823 52,803Receivable from insurance company (Note 17.4) 550,073Others 153 53

1.QQ8.259 654,986

17.1 This represented receivable from Lalpir Power Limited [formerly AES Lai Pir (Private) Limited] - associatedcompany.

17.2 Receivable from WAPDA - workers' profit participation fund

Opening balance 296,660 300,464Allocation during the year:

CurrentPrior

77,550 132,007203

77,550 132,210Received during the year - (136,014)Closing balance 374,210 296,660

17.3 Receivable from WAPDA • workers' welfare fund - net

Opening balance 57,938 5,135Allocation for the year 31,020 52,803Closing balance 88,958 57,938

Provision for doubtful receivable (5,135) (5,135)83.823 52.803

17.4 Receivable from insurance company

Business interruption loss (Note 17.4.1) 310,396Other costs (Note 17.4.2) 239.677 -

550,073

17.4.1 This represents amount recognized as receivable from the insurance company against loss of capacityrevenue for the period from 04 August 2010 to 05 November 2010 due to floods after taking into accountdeductible period as per insurance policy.

17.4.2 This represents other costs incurred by the Company on restoration of property, plant, equipment andinventory upto the date of balance sheet.


18 CASH AND BANK BALANCES

Cash in handCash at banks:Foreign currencyDeposit accounts - US Dollars [$ 330,451 (2009: $ 1,527,679)]Deposit accounts - Japanese Yen [¥ NIL (2009: ¥ 3,529,052)]

Local currencySaving accountsCurrent account

36

28,400 129,2563,213

28,400 132,469

1,560,373 1,035,3362,098

1,560,373 1,037,4341,588,773 1,169,939

18.1 Cash at bank includes an amount of Rupees 107 million (2009: Rupees 220 million) which is not availablefor free use by the Company under the Master Security Agreement (MSA) and Power PurchaseAgreement (PPA). Under the provision of MSA, the Company is required to deposit above mentionedamount into separate bank accounts.

18.2 Deposit and saving accounts carry mark-up at the rates ranging from 1.3% to 12% (2009: from 0.9% to8.25%) per annum.


19 REVENUE

CapacityEnergyInterest on delayed payments by WAPDASupplemental bonus incomeGross revenueSales tax

20 COST OF SALES

Fuel consumed (Note 20.1)Operation and maintenance costs (Note 20.2)Insurance costDepreciation (Note 12.1.1)

20.1 Fuel consumed

Opening stockPurchased during the year

Closing stock

3,282,33319,150,460

754,8903,283

23,190,966(2,684,234)20,506,732

5,375,57218,507,606

480,02832,756

24,395,962(2,552,773)21,843,189

17,287,093229,006101,228330,491

17,947,818

16,430,430305,525103,365321,420

17,160,740

345,45517,368.51617,713,971

(426.878)17,287,093

188,91716,586,96816,775,885

(345,455)16,430,430

2010 2009

20.2

21

21.1

22

Operation and maintenance costs

Power station salaries, wages and other allowancesBonusRepair and maintenanceStores and spare parts consumedElectricity consumed in-houseOil handling charges

ADMINISTRATIVE EXPENSES

Salaries, benefits and other allowancesBonusProvident fund contributions (Note 21.1)Provision for gratuity (Note 21.1)Employee stock optionProvision for long-term compensationTravelling, conveyance and entertainmentCommunication and utilitiesLegal and professional chargesPrinting and stationeryRent, rates and taxesRepairs and maintenanceDepreciation (Note 12.1.1)

Community welfareSecurity servicesGeneral expenses

These represent the expenses for employee benefits schemes charged byAES Lai Pir (Private) Limited) - associated company in accordance with the "

OTHER OPERATING EXPENSES

Exchange loss - netAuditors' remuneration (Note 22.1)Charity and donationsLiquidated damagesWorkers1 profit participation fund (Note 22.2)Provision for doubtful debts (Note 15.3)Provision against WWF - receivable from WAPDA


73,316 76,3658,503 30,625

11,179 26,76188,513 113,666

46,163 54,997

1,332 3,111

229,006 305,525

28,245 25,465

3,276 10,212

7,711 6,669

18,443 8,149

814 3,103

410 454

13,662 12,220

2,475 3,044

93,439 21,600

499 863

3,186 4,454

1,623 1,815

8,160 5,359

20,295 9,847

12,929 9,531

8,252 19,550

223,419 142,335

Lalpir Power Limited (formerlyShared Facilities Agreement".

2010 2009


4,476 2,130

2,317 3,560

10,137

153,397 67,800

-29,659 29,904

5,135

189,849 118,666

2010 2009

22.1 Auditors' remuneration

Statutory auditSpecial audit

ronnrtinnI I I VSJ | \jLJVI LH iy

US GAAPSox auditOther certificationsOut of pocket expenses

22.2 Workers' profit participation fund

Allocation for workers' profit participation fund (Note 17.2 and11.1.1)

Allocation to workers' profit participation fund recoverable fromWAPDA

23 OTHER OPERATING INCOME

Income from financial assetsInterest income

Income from assets other than financial assets

Rental incomeGain on disposal of property, plant and equipmentBusiness interruption loss receivable from insurance company (Note17.4)Discontinuation of employees stock option scheme (Note 6.1)Others

24 FINANCE COST

Mark-up on long-term financeMark-up on short-term borrowingsLoss on changes in fair value of derivative financial instrument (NEC)Bank charges

25 TAXATION

Current


1,3001,000

1,300

---17

2,317

720800275285

3;560


77,550

(77,550)

38,533

1,055125

310,3962,246

353,203

1,001510,344427,307

9,196947,848

13,557

132,210

(132,210)

17,402

1,691

37,68856,781

9,309477,360

1,337,14714,060

1,837,876

6,728

25.1 The numerical reconciliation between the average tax rate and the applicable tax rate has not beenpresented in these financial statements as the total income of the Company except other income is exemptfrom levy of income tax under clause 132 of Part I and clause 11A of Part IV of the Second Schedule tothe Income Tax Ordinance, 2001.

26 EARNINGS PER SHARE - BASIC AND DILUTED

There is no dilative effect on the basic earnings per share which isbased on:

Profit after taxation attributable to ordinary shareholders (Rupees inthousand)

Weighted average number of shares (Number)

Earnings per share - basic (Rupees)

27 CASH GENERATED FROM OPERATIONS

Profit before taxation

Adjustment for non cash charges and other items:DepreciationProvision for gratuityProvision for employee stock option expensesProvision for long-term compensationProvision for doubtful debtsGain on disposal of property, plant and equipmentInterest incomeFinance costLoss on changes in fair value of derivative financialinstrument (NEC)

Cash flows from operating activities before working capital changes

(Increase) / decrease in current assets:

Stores, spare parts and other consumablesFuel stockTrade debtsAdvances and short-term prepaymentsOther receivablesSales tax recoverable

(Decrease) / increase trade and other payables

2010 2009

1,537,444 2,633,625

372,081,591 372,081,591

4.13 7.08


1,551,001 2,640,353

2

(1

(2

338,65118,443

814410

29,659(125)

(38,533)520,540

427,307

,848,167

(35,102)(81,423)41,659

,578,056)(353,273)(200,336),206,531)

278,242

326,7798,1493,103454

35,039-

(17,402)500,729

1,337,147

4,834,351

(5,677)(156,538)900,85332,970

(349,334)7,213

429,487

(981,327)

919,878 4,282,511

28 TRANSACTIONS WITH RELATED PARTIES

The related parties of the Company comprise of associated undertakings, other related group companiesand key management personnel. Transactions with related parties include expenses charged betweenthese companies. The Company in the normal course of business carries out transactions with variousrelated parties. Detail of transactions with related parties other than those which have been specificallydisclosed elsewhere in these financial statements are as follows:

Associated company Nature of transaction 2010 2009

29.1

Nishat Mills Limited

Adamjee Insurance CompanyLimited

Security Genera! InsuranceCompany Limited

Engen (Private) Limited

Stanhope Investments

Lalpir Power Limited

(formerly AES Lai Pir (Private)Limited)

Dividend paid

Dividend paidInsurance premium

Dividend paid

Dividend paid

Dividend paid

Share of expenses

Share of rental income


89,299

22,325114,246

5,581

55,812

55,812

261,386 217,660

1,055 1,691

28.1 The Company shares premises, employees and other common costs with its associated company, LalpirPower Limited (formerly AES Lai Pir (Private) Limited) on fifty-fifty basis in accordance with "SharedFacilities Agreement".

29 REMUNERATION OF CHIEF EXECUTIVE AND DIRECTORS

The aggregate amounts charged in the financial statements for the year in respect of remuneration,including all benefits to the chief executive and directors of the Company were as follows:

2010

Chief Executive Directors

2009

Chief Executive Directors

r

9,20918

2,62211,849

1,687

13,536

1

• " • rvupeco m

4,15857

1,3835,598

725

6,323

4

7,51061

3,00410,575

1,318

11,893

1

/

4,32663

1,2985,687

708

6,395

4

Short-term employee benefits

Managerial remunerationMedical expensesBonus

Retirement benefits

Number of persons

The remuneration to directors includes remuneration paid to three retiring directors up till the change ofmanagement.

30 FINANCIAL RISK MANAGEMENT

30.1 Financial risk factors

The Company's activities expose it to a variety of financial risks: market risk (including currency risk, other price risk and interest raterisk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financialmarkets and seeks to minimize potential adverse effects on the Company's financial performance.

Risk management is carried out by the Company's finance department under policies approved by the Board of Directors. TheCompany's finance department evaluates and hedges financial risks. The Board provides principles for overall risk management, aswell as policies covering specific areas such as currency risk, other price risk, interest rate risk, credit risk, liquidity risk and investmentof excess liquidity. All treasury related transactions are carried out within the parameters of these policies.

(a) Market risk

(i) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes inforeign exchange rates. Currency risk arises mainly from future commercial transactions or receivables and payafales that existdue to transactions in foreign currencies.

The Company partly financed its investment in plant through foreign currency loans and was exposed to foreign exchange riskarising from US Dollar, on the other hand, the Company contracted the recovery of loan installments including finance cost in PakRupees from WAPDA under a formula provided in PPA which entailed recovery of foreign currency indexation on loaninstallments and recognized that US Dollar element (embedded derivative) under the PPA as separate derivative financialinstrument. The Company's foreign exchange risk exposure on foreign currency loans was effectively migrated from derivativefinancial instrument. During the year, the Company has fully repaid this long term finance in foreign currency.

The Company is exposed to currency risk arising from various currency exposures, primarily with respect to the United StatesDollar (USD), Japanese Yen and Great Britain Pound (GBP) and Euro. Currently, the Company's foreign exchange risk exposureis restricted to bank balances and payables. The Company's exposure to currency risk was as follows:

2010 2009

Bank balances - USD 330,451 1,527,679Bank balances - Yen - 3,529,052Trade and other payable

-USD (116,619) (239,734)

-GBP (38,778) (88,101)

-Yen (201,291) (12,691,025)

- Euro (32,062) (23,668)

Net exposure-USD 213,832 1,287,945

Net exposure-Yen (201,291) (9,161,973)Net exposure- GBP (38,778) (88,101)

Net exposure - Euro (32,062) (23,668)

The following significant exchange rates were applied during the year:

Rupees per US DollarAverage rate 85.18 81.89Reporting date rate 85.70 84.61

Rupees per YenAverage rate 0.98 0.88

Reporting date rate 1.05 0,91

Rupees per GBPAverage rate 131.48 125.82

Reporting date rate 132.34 135.24

Rupees per EUROAverage rate 112.43 114,34

Reporting date rate 113.93 121.10

Sensitivity analysis

If the functional currency, at reporting date, had weakened / strengthened by 5% against the USD, Yen, GBP and Euro with allother variables held constant, the impact on profit after taxation for the year would have been Rupees 0.466 million (2009:Rupees 4.293 million) respectively higher / lower, mainly as a result of exchange gains / losses on translation of foreign exchangedenominated financial instruments. Currency risk sensitivity to foreign exchange movements has been calculated on a symmetricbasis. In management's opinion, the sensitivity analysis is unrepresentative of inherent currency risk as the year end exposuredoes not reflect the exposure during the year.

(ii) Other price risk

Other price risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused byfactors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instrument traded in themarket. The Company is not exposed to equity price risk since there are no investments in equity securities. The Company is alsonot exposed to commodity price risk since it does not hold any financial instalment based on commodity prices.

(iii) Interest rate risk

This represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes inmarket interest rates.

The Company has no long-term interest-bearing asset. The Company's interest rate risk arises from short-term borrowings.Borrowings obtained at variable rates expose the Company to cash flow interest rate risk. Borrowings obtained, if any, at fixedrate expose the Company to fair value interestrate risk.

At the balance sheet date, the interest rate profile of the Company's interest bearing financial instruments was as follows:

2010 2009


Floating rate instruments

Financial assets

Bank balances- saving and deposit accounts 1,588,773 1,167,805Trade debts - overdue 4,091,071 3,486,258

Financial liabilities

Long-term finance - 113,126Short-term borrowings 4,580,489 3,000,177

Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, achange in interest rate at the balance sheet date would not affect profit or loss of the Company.

Cash flow sensitivity analysis for variable rate instruments

If interest rates at the year end date, fluctuates by 1% higher / lower with all other variables held constant, profit after taxation forthe year would have been Rupees 5.433 million (2009: Rupees 12.451 million) higher / lower, mainly as a result of higher / lowerinterest income and as a result of lower / higher interest expense on floating rate borrowings. This analysis is prepared assumingthe amounts of assets and liabilities outstanding at balance sheet dates were outstanding for the whoie year. The Company wasnot exposed to interest rate risk on its long term finance due to the reasons explained in note 30.1(a)(i).

(b) Credit risk

Credit risk represents the risk that one party to a financial instrument will cause a financial loss for the other party by failing to

discharge an obligation. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to

credit risk at the reporting date was as follows:

2010 2009

Security deposits

Trade debts

Interest accrued

Other receivables

Bank balances


15 15

6,277,775 6,349,093

6,384 6,417

1,008,259 654,9861,588,773 1,169,9038,881,206 8,180,414

The ageing analysis of trade debts as at balance sheet date is given in note 15.1,

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (Ifavailable) or to historical information about counterparty default rate:

Short Term |

A-1 +

A1 + .

AH

A-1 +

A1 +

A-1 +

A1 +

P-1*

Rating

| Long term |

AAA

AA

AA

AA+

AA+

AA+

AA-

Aa2

Aa2

Agency

JCR-VIS

PACRA

PACRA

JCR-VIS

PACRA

JCR-VIS

PACRA

Moody's

Moody's

2010 2009


1

908,212

308

543,716 1,204

1

4

28,400 132,468

108,131 1,036,231

1,588,773 1,169,903

Banks

National Bank of Pakistan

Allied Bank Limited

Askari Bank Limited

Habib Bank Limited

MCB Bank Limited

United Bank Limited

The Bank of Punjab

The Bank of Tokyo-Mitsubishi UFJ, Ltd

(London Branch)

The Bank of Tokyo-Mitsubishi UFJ, Ltd

(Karachi Branch)

Due to the Company's long standing business relationships with these counterparties and after giving due consideration to their strong

financial standing, management does not expect non-performance by these counter parties on their obligations to the Company.

Accordingly the credit risk is minimal.

(c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages

liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. As

31 December 2010, the Company had Rupees 2,220 million available borrowing limits from financial institutions and Rupees 1,588

million cash and bank balances to meet the short-term funding requirements due to delay in payments by WAPDA. Management

believes the liquidity risk to be low. Following are the contractual maturities of financial liabilities, including interest payments. Theamounts disclosed in the table are undiscounted cash flows:

Contractual maturities of financial liabilities as at 31 December 2010:

Non-derivative financial liabilities:

Trade and other payablesAccrued markup

Short term borrowings

Carrying

amountContractual

cash flows6 months or

less6-12 months 1-2 ̂

, More than 2ears v

Years

450,856

120,791

4,580,489

450,856

120,791

4,944,267

450,856

120,791

363,778

-

-4,580,489

)

-

--

5,152,136 5,515,914 935,425 4,580,489

Contractual maturities of financial liabilities as at 31 December 2009:

Carryingamount

Contractualcash flows

6 months orless

6-12 months 1-2 Years More than 2Years

Rupees in thousand

Non-derivative financial liabilities:

Long term financeTrade and other payablesAccrued markupShort term borrowings

The contractual cash flows relating to the above financial liabilities have been determined on the basis of interest rates / mark up rateseffective as at 31 December. The rates of interest / mark up have been disclosed in notes 7 and 10 to these financial statements.

113,126277,71467,005

3,000,1773,458,022

114,127277,71467,005

3,216,0643,674,910

114,127277,71467,005215,887674,733

--.

3,000,1773,000,177

-.---

30.2 Fair values of financial assets and liabilities

The carrying values of all financial assets and liabilities reflected in financial statements approximate their fair values. Fair value isdetermined on the basis of objective evidence at each reporting date.

30.3 Financial instruments by categories

Assets as per balance sheet

Security depositsTrade debtsInterest accruedOther receivablesCash and bank balances

Loans and receivables

2010 2009


156,277,775

6,3841,008,2591,588,773

156,349,093

6,417654,986

1,169,9398,881,206 8,180,450

Financial liabilities at amortized

cost

2010 2009


Liabilities as per balance sheet

Long-term financeTrade and other payables 450,856Accrued markup 120,791Short-term borrowings 4,580,489

5.152,136 _ 3,458,02^

31 EVENTS AFTER THE REPORTING PERIOD

The Board of Directors have proposed a final cash dividend for the year ended 31 December 2010 of Rupees ftft^ per share

113,126277,714

67,0053,000,177

(2009: Rupees Nil per share). However, this event has been considered as non-adjusting event under IAS 10 'Event after ReportingPeriod' and has not been recognized in these financial statements.

. by the Board of Directors of the Company.

32 DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue on.

33 CORRESPONDING FIGURES

Corresponding figures have been rearranged and reclassified to reflect more appropriate presentation of events and transactions forthe the purpose of comparison. Significant rearrangements and reclassification have been made as follows.

From To Nature (Rupees in thousand)



Other operating expenses Provision for doubtful debts

Operation and maintenance Salaries, benefits and othercosts allowances

Operation and maintenance costs Administrative expenses

34 GENERAL

Bonus

29,904

76,365

3,273

Figures have been rounded off to the nearest thousand Rupees, unless otherwise stated,

CHIEF EXECUTIVE

Documents

NEXIA - PakGen Power, Pakistanpakgenpower.com/finance/pdf/annual2010.pdf · NEXIA INTERNATIONAL AUDITORS' REPORT TO THE MEMBERS ... Long-term compensation paid Net cash generated