POWERING THE ECONOMY - Namanama.om/pdf/2013_English_EHC-A_REPORT-ENG-final.pdfKhalid Al Salmani Acting Executive Manager, IT Suhaila Al Farsi Company Secretary E H C A n n u a l R

E H C A n n u a l R e p o r t 2 0 1 3 1

E l e c t r i c i t y H o l d i n g C o m p a n y S A O C A n n u a l R e p o r t 2 0 1 3

POWERING THE ECONOMY

E H C A n n u a l R e p o r t 2 0 1 3 2 E H C A n n u a l R e p o r t 2 0 1 3 3

His Majesty Sultan Qaboos Bin Said


CONTENTSE l e c t r i c i t y H o l d i n g C o m p a n y S A O C A n n u a l R e p o r t 2 0 1 3

- About Electricity Holding Group

- Vision and Mission

- Values

- Board Members

- Leadership Team

- Chairman's Report

- CEO's Report

- Corporate Governance Report

- Human Resources

- Health & Safety Improvement Program

- Asset Management

- Communication

- Customer Service

- Operational & Financial Review

- Financial Highlights

- Group Business Performance Review

- Subsidiaries Performance Highlights

- Consolidated Financial Statement

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40-48

49-101


About Electricity Holding Group

The Electricity Holding Company SAOC (EHC) is a joint stock company that was registered in the Sultanate of Oman on 19 October 2002. The company commenced commercial operations on 16 September 2003.

EHC holds the shares on behalf of the Government in nine companies engaged in the procurement, generation, transmission and distribution of electricity and related water services. These companies are:

• Al Ghubrah Power and Desalination Company

• Dhofar Power Company • Majan Electricity Company• Mazoon Electricity Company• Muscat Electricity Distribution

Company• Oman Electricity Transmission

Company• Oman Power & Water Procurement

Company• Rural Areas Electricity Company• Wadi Al Jizzi Power Company• Dhofar Generation Company

The Electricity Holding Group engaged in the procurement, generation, transmission and distribution of electricity and related water services.


Values

Vision “We strive to develop and empower our human resources to deliver safe and sustainable electricity solutions to our customers.”

MissionTo provide electricity solutions by optimizing and utilizing its resources through implementing five critical strategies, namely:

• Human Resource Development• Health and Safety • Customer Service• Asset Management• Communication

• Building strong working relationships• Maintaining a collaboration work climate• Recognizing and celebrating success• Supporting career mobility• Rewarding appropriate team behavior

• Being sensitive to others’ time• Recognizing contributions of others• Supporting work/ life balance needs of

self and others• Treating others impartially and with

dignity• Practicing patience and active listening.

• Making customers a top priority• Considering long- and short term

customer needs• Delivering on commitments to customers• Taking responsibility for improving

customer service.

• Keeping commitments and promises• Representing the truth• Acting in the best interests of the

customer, company, team and individual• Adhering to the company ethics• Accurately representing own

competencies.

• Insisting on high quality in all things• Making quality customer service a top

priority• Striving for continuous improvement• Providing timely and constructive

performance feedback• Recruting and developing quality staff

• Seeking and providing honest feedback• Developing skills instead of maintaining• Considering organizational needs in our

own development• Sharing individual expertise and

experience• Supporting and mentoring others.

Team Work

Respect

Customer Focus

Integrity

Quality

Professionalism

Vision & Mission


Board Members Leadership Team

H.E. Mohammed AbdullahAl MahrooqiChairman

H.E. Abdulmalik AbdullahAl HinaiVice Chairman

Mrs. Manal Mohammed Al AbdwaniMember

Mr. Abdulsalam NasserAl KharousiMember

Omar Al WahaibiChief Executive Officer

Ali Al AbriExecutive Manager, Group Strategy Planning and Risk Management

Ibrahim Al SulaimaniExecutive Manager,Group Human Resource

Hassan AbdawaniDeputy Chief Executive Officer

Saleh Al RashdiVP Generation

Vishwanath SChief Financial Officer

Ghada Al YousefExecutive Manager, Group Communication and Sustainability

Khalid Al SalmaniActing Executive Manager, IT

Suhaila Al FarsiCompany Secretary


in subsidy is mainly driven by the significant continuing capital investment, increase in procurement cost due to new IPPs on account of the significant growth in residential and commercial customers, which have lower tariff revenue. Subsidy per customer grew from RO 302 in 2012 to RO 361 in 2013 and Subsidy per unit increased to RO 13.7 per Mwh in 2013 as against RO 11.4 per Mwh in 2012.

Working Capital ratios are expected to improve in the coming years upon revision in the overall financing structure of the companies.

Strategic Direction The EH Group has continued its streak in line with its established Vision, Mission and Values, focusing on the following key areas of activities to improve the people capabilities to ultimately strengthen the customer relationship by delivering

Chairman’s Report

Dear Shareholders, On behalf of the Board of Directors of the Electricity Holding Company SAOC (“EHC”), I am pleased to present the annual report and the audited financial statements for the EH Group for financial year ended 31 December 2013.

Operational Performance Oman’s Electricity and Water Sector registered a strong growth rate in 2013 with the continued spending on the Distribution and Transmission Capital Assets, connecting the New IPPs and Customers, to cater to the increased demand owing to new customers and growing population.

FY2013, the EH Group has continued to grow strongly contributing to the overall economic development of the country. Compared to 2012, the number of customers has increased by 8.7% to 859,392; the electricity supplied has

increased by 7.9% to 22,621 GWh. The group companies have incurred capital expenditure of RO 278 million on network expansion compared to RO 242 million in 2012. EH Group consisted of staff strength of 2,781 as at 31 December 2013 of which 90% or 2,494 were Omani Nationals compared to 89% Omanisation in 2012.

Financial Performance The gross operating revenue of the Group increased by 17.6% from RO 645 million in 2012 to RO 759 million in 2013, the net profit after tax increased by 33.6% from RO 84.6 million to RO 113.1 million, mainly due to increase in customers numbers and higher power consumption.

The Electricity subsidy for the year 2013 (including Salalah) is at RO 310 million, which is 30% over the 2012 outturn subsidy of RO 239 million. The increase

higher level of customer value added services: • Human Resource Development • Health, Safety and Environment • Customer Service • Asset Management • Communication

Major Project Development Year 2013 witnessed the addition of electricity generation capacity, with the procurement of power from Barka III and Sohar II plants. To continue meeting the economic development of the Sultanate of Oman and the customers demand for electricity and related water in the future, the following major initiatives are planned to achieve this: • Sur Power Project • Musandam IPP • Salalah New IPP• Al Ghubrah IWP

The Distribution and Transmission companies will continue to invest in the Capex program, in line with the regulatory framework.

The Group completed the Re-structuring exercise of Dhofar Power Company SAOC, with the bifurcation of generation and transmission business to Dhofar Generation Company SAOC and Oman Electricity Transmission Company SAOC respectively.

Acknowledgements On behalf of the Board members, I would like to express our sincere gratitude to His Majesty Sultan Qaboos Bin Said for

his support to the electricity and related water sector and for his strong and wise leadership, which has paved the way for the ongoing development of Oman. I would like to take this opportunity to thank all our customers, suppliers, bankers and all others who have contributed to the success of the EH Group.

I also thank our CEO, Mr. Omar Al-Wahaibi and CEOs/GMs of the subsidiary companies, the management team of the Group and all staff of the EH Group for their dedication and commitment to the continued growth and development of the Group.

Mohammed Abdullah Al Mahrouqi Chairman of the Board of Directors

Year 2013 witnessed the addition of electricity generation capacity, with the procurement of power from Barka III and Sohar II plants.


CEO’s Reportagreement for the supply of cables and conductors for the Group companies was executed to provide cost effective solutions to the procurement process, ensuring quality and timeliness.

• Completion of ‘RUWAD’ assessment and development Centers which helped us identify 60 participants were identified as high potential employees who will be groomed to become future leaders of EH Group.

• The launch of first “Knowledge Sharing Conference” with an objective to share knowledge and new technologies to develop the electricity sector within Oman.

• The ‘Integrated Talent Management Framework’ Project was launched to enhance the capability of human resources and to support Omanisation plans for long term success, in line with our strategy.

• EH group progressed with the implementation of the Asset Management Programme and completed the first asset performance review to assess the Group’s capability in this area.

• EHC extended its communication horizon beyond Oman through its participation in International fairs to approach Omani students studying in United Kingdom.

• Completion of the IT Master plan for the Group.

• EHC opened its Group Data Center at Knowledge Oasis Muscat (KOM).

Challenges Ahead In 2014, the Group will continue placing the final building blocks to implement the approved strategy to start realizing the desired benefits, while also embarking on key initiatives such as Organize long-term fund raising program for Group companies. Conduct a study on the readiness privatization options for Muscat Electricity Distribution Company.

I believe that the EH Group Leadership is capable in leading the businesses, and will deliver on the strategic initiatives, as planned.

Gratitude I would like to thank the Group’s Leadership Team for their commitment to the future development of the group’s

The first “Knowledge Sharing Conference” was held with an objective to share knowledge and new technologies to develop a world-class electricity sector.

I believe that the EH Group Leadership is capable in leading the businesses, and delivering on the strategic initiatives, as planned.

Dear Shareholders, The Electricity Holding Group (EH Group) marched ahead in 2013, taking forward the established Group Vision, Mission and Values; engaging people, delivering higher value services to customers and securing the financial sustainability for the future of the sector.

In its endeavor to strategise the business performance goals, EHC significantly progressed in delivering the 5 pillars established in 2012: Human Resource, Health Safety and Environment, Customer Service, Asset Management and Communication. The strategies have turned into actions to enable the realization of the desired benefits

Key Achievements:• Approval of 5-year Business

Strategy as part of EHC’s efforts in streamlining its business to achieve

conformity with International best practices.

• Completion of the project “self-meter reading” project, which aims at enhancing the functional systems of the five electricity distribution companies to provide an alternative solution to our customers and achieve greater satisfaction with the delivery of our services.

• Establishment of a ‘Utilities Centre for Competency Development”, as a Joint Venture Company, which will strive to contribute to the development of Omani talent through the provision of bespoke competency assessments and training programmes for the Electricity and Water Sectors.

• The sign off of the framework

business development programme and commitment to execute and ensure the success of the Group initiatives.

I would also like to thank all our employees for their hard work, willingness to embrace changes and the remarkable effort and commitment towards achieving a successful 2013.

Finally, I would like to thank the Board of Directors for their support and guidance.

Omar Al-WahaibiChief Executive Officer


Corporate Governance Report

1. EHC’s Philosophy on Code of GovernanceThe Electricity Holding Company (EHC) recognizes the important role that good corporate governance 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 ethical standards, personal and corporate integrity and respect for others.

EHC’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 SAOG companies, and it is being formally developed to be put in place and shared with EHC’s subsidiaries. It is our view that governance is not just a matter for the Board; a good governance culture must be focused throughout the Group.

2. Organizational Structure

3. Role of the Board of Directors and the Board CommitteesBoard of DirectorsThe Board represents the shareholder (MOF) and is accountable to them for protecting their interest in accordance with the Sector Law through effective governance of the business. The EHC – Corporate Governance Report 2 Board has the responsibility of overseeing, counseling and directing the corporate managers to ensure that the interests of the Government are served. The roles of the BoD of EHC for the Group in general are:• Establishing for the Group, a framework

of prudent and effective controls which enable risk to be assessed and managed across the Group

• Setting strategic aims for the group, ensuring that the adequate shared resources are in place for the Group to meet its objectives;

• Setting the values and standards forthe Group, ensuring that the obligations to its shareholders and other stakeholders are understood and met by all the Directors in the Group.

Audit CommitteeThe Audit Committee is expected to ensure that adequate processes are in place to ensure compliance with regulatory requirements, enhance the effectiveness of internal and externalauditors through interacting with them and insulating them from the undue influence of the management, and provide subject matter expertise to the Board on matters of governance and risk.

Their objectives are to: • Monitor the integrity of the financial

statements of the company and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgments contained in them

• Review the company’s internal financial controls, internal controls and risk management systems

• Monitor and review the effectiveness of the company’s internal audit function

• Review and monitor the external auditor’s independence & objectivity and the effectiveness of the audit process, taking into consideration relevant Capital Market Authority regulation, Commercial Companies Law and Sector Law; and any other related law

• Adopt policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm.

Group Nomination, Remuneration and Human Resources CommitteeThe GNRHC is an EHC Board level committee which looks at matters related to the nomination of candidates to the Subsidiary Boards and Management of both EHC and its Subsidiaries, HR policies and other significant HR matters that need the attention of the members of the BoD.

Their objectives are to:• To assist the EHC Board and the

Subsidiary Boards in fulfilling their oversight responsibilities for the independence of BoD members and the integrity of the remuneration strategy at EHC and its Subsidiaries

• To support Subsidiary Boards in identifying appropriate candidates for nomination to the Subsidiary Board and to fill BoD vacancies as and when they arise

• To assist the EHC Board and the Subsidiary Boards in identifying appropriate candidates for nomination to positions within Management at EHC and Subsidiary levels.

The Electricity Holding Company (EHC) recognizes the important role that good corporate governance plays in the smooth and efficient functioning of the company

Ministry of Finance

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BOD

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Chief Executive Officer

Board of Directors

Group Nomination, Remuneration & Human

Resource Committee

Deputy Chief Executive Officer

ExecutiveHuman Resources

ExecutiveCommuncation

ExecutiveInformation Technology

ChiefFinancial Officer

Executive Strategic Planning & Risk Management

Vice President - Generation

Internal Audit Committee

Functional Reporting

Administrative Reporting

CompanySecretary


4. Board CompositionEHC being an unlisted joint stock company is guided by the provisions of Commercial Companies Law No. 4/1974 as amended from time to time and individual articles of associations. By virtue of this:• EHC has 4 Board Members• The Board composition is a mix

of Independent and Non-Executive Independent Board Members

• The Non-Executive Independent Members are not doing any work with the Company for which they receive permanent monthly and annual remuneration.

5. Qualification and Election of the Board MembersIn electing Members of the Board of Directors, the terms and conditions issued by the Minister of Commerce & Industry is being be followed, taking into consideration the provisions of Article (95) of the Commercial Companies Law, and without prejudice to the contents of the Articles of Association.

The Member of the Board of Directors fulfills the following requirements:• Not be less than 21 years old• Not be a member of a public joint

stock or closed company whose

SI Member Name Position in the BOD

1 H.E. Mohammad Abdullah Al Mahrouqi Chairman

2 H.E. Abdulmalik Abdullah Al Hinai Vice Chairman

3 Mr. Abdulsalam Al Kharousi Member

4 Mrs. Manal Al Abdwani Member

principal place of business is in the Sultanate of Oman and practicing similar activities

• Not have been declared bankrupt or dissolved unless such case is ceased to exist as per the provisions of the law

• Not have been convicted in a felonyor criminal act unless rehabilitated

• Not be unable to settle his debts & obligations to various lenders

• It is not permitted to combine the position of CEO/General Manager and the Chairman of the Board of Directors.

H.E. Mohammad Abdullah Al MahrouqiMaster Degree in International Business Administration which he obtained from the University of Bristol U.K in 1998. In 1993, he graduated from the Economics College of King Saud University, Kingdom of Saudi Arabia. Currently the Chairman of the Public Authority for Electricity and Water. He has been holding the position since the establishment of this Authority in September 2007

H.E. Abdulmalik Abdullah AL HinaiPh.D. in International Relations/Political Economy obtained from the London School of Economics and Political Sciences (LSE) University of London, UK in 1999. He is currently Advisor to Ministry of Finance, charged to manage the Works of Ministry of National Economy.

Mr. Abdulsalam Al KharousiMaster Degree in Business Economic obtained from University of Hull in 2005. Currently, he is a Director General of Budget and Contracts in Ministry Of Finance.

Mrs. Manal Al AbdwaniMaster Degree in Business Administration with Distinction obtained from University of Lincloinshire and Humberside UK in 2003. Currently, she is a Director General Planning and Follow up in Ministry Of Commerce & industry. Her main responsibility is participating in setting the strategies for the development of private sector and various economic sectors that are directly supervised by Ministry of Commerce and Industry.

Electricity Holding Company is led by a strong and experienced Board. The members bring diversity in expertise and perspective to the leadership of a complex, highly regulated, Electricity sector.

It is not permitted to combine the position of CEO/General Manager and the Chairman of the Board of Directors.


6. Details of attendance for the Board and Committees meetings during 2013

7. General meetings of shareholdersAnnual General Meeting (AGM) refers to the general meeting of the Company which is held annually. Article 120 of the Commercial Company Law mandates EHC to hold an AGM within three months of the end of each financial year. It is the policy of EHC that the gap between subsequent AGMs shall not be more than fifteen months.

8. Communications with the Shareholders and InvestorsPursuant to Royal Decree 78/2004, the company maintains close liaison with the Ministry of Finance (MOF), the shareholder, on various policy issues. Annually, the company communicates its annual report to the shareholder MOF.

Member NamesMohammedAl Mahrouqi

AbdulmalikAl Hinai

AbdulsalamAl Kharousi

ManalAbdwani

BOD Meetings Dates Chairman Vice Chairman Member Member

1st BOD Meeting 23/02/2013 Attended Attended Attended Attended

2nd BOD Meeting 28/5/2013 Attended Attended Attended Attended

3rd BOD Meeting 25/8/2013 Attended Attended Attended Attended

4th BOD Meeting 25/11/2013 Attended Attended Apologies Attended

5th BOD Meeting 5/12/2013 Attended Attended Attended Attended

6th BOD Meeting 31/12/2013 Attended Attended Attended Attended

Total Number of BOD Attended 5 5 4 5

IAC Meetings Dates Chairman Member Member

1st IAC Meeting 20/2/2013 Attended Attended Attended

2nd IAC Meeting 21/5/2013 Attended Attended Attended

3rd IAC Meeting 06/8/2013 Attended Attended Attended

4th IAC Meeting 27/10/2013 Attended Attended Apologies

Total Number of IAC Attended 4 4 3

GNRHC Meetings Dates Chairman Member Member

1st GNRHRC Meetings 20/2/2013 Attended Attended Attended

2nd GNRHRC Meeting 21/05/2013 Attended Attended Attended

3rd GNRHRC Meeting 18/07/2013 Attended Attended Attended

4th GNRHRC Meeting 06/10/2013 Attended Attended Attended

5th GNRHRC Meeting 19/12/2013 Attended Attended

Total Number of IAC Attended 4 5 5

9. Governance between EHC and its SubsidiariesEHC was established by the Sector Law and, with the exception of DPC and DGC, has 99.99% ownership of the Subsidiaries. EHC’s ownership of DPC is 98.60% and DPC owns 100% of DGC.

EHC’s primary roles consist of:

• As a majority shareholder in the Subsidiaries, representing the ownership of the Government of the Sultanate of Oman, supporting and implementing the Government’s privatization policy.

• As a service provider to the Subsidiaries, providing central accounting and financial support services pursuant to EHC’s responsibilities under the Sector Law

• As the holding company for the Group, developing and leading strategy for the Group.

As part of its strategic role, EHC is responsible for promoting and developing the highest standards of corporate governance across the Group and this includes appointing each of the Subsidiary Boards in coordination with the MoF pursuant to the Sector Law and satisfying themselves that an appropriate governance structure is in place within EHC and its Subsidiaries.

The Governance structure adopted by the EHC Board and its subsidiaries is represented in the following chart:

7. General meetings of shareholders Annual General Meeting (AGM) refers to the general meeting of the Company which is held annually. Article 120 of the Commercial Company Law mandates EHC to hold an AGM within three months of the end of each financial year. It is the policy of EHC that the gap between subsequent AGM’s shall not be more than �fteen months. 8. Communications with the Shareholders and Investors Pursuant to Royal Decree 78/2004, the company maintains close liaison with the Ministry of Finance (MOF), the shareholder, on various policy issues. Annually, the company communicates its annual report to the shareholder MOF. 9. Governance between EHC and its Subsidiaries EHC was established by the Sector Law and, with the exception of DPC and DGC, has 99.99% ownership of the Subsidiaries. EHC’s ownership of DPC is 98.60% and DPC owns 100% of DGC. EHC’s primary roles consist of:

As a majority shareholder in the Subsidiaries, representing the ownership of the Government of the Sultanate of Oman, supporting and implementing the Government’s privatization policy;

As a service provider to the Subsidiaries, providing central accounting and financial support services pursuant to EHC’s responsibilities under the Sector Law;

As the holding company for the Group, developing and leading strategy for the Group.

As part of its strategic role, EHC is responsible for promoting and developing the highest standards of corporate governance across the Group and this includes appointing each of the Subsidiary Boards in coordination with the MoF pursuant to the Sector Law and satisfying themselves that an appropriate governance structure is in place within EHC and its Subsidiaries.

GPDC, 99.99%

WJPC, 99.99%

OPWP, 99.99%

OETC, 99.99%

Percentage of EHC Shareholding

DPC, 98.66%

MZEC, 99.99%

RAECO, 99.99%

MEDC, 99.99%

MJEC, 99.99%


We strive to develop and empower our human resources to deliver safe and sustainable electricity solutions to our customers.

10. Non Compliance by the CompanyThe company has not paid any penalty and no strictures have been imposed on the company by the Ministry of Commerce and Industry on any matter during the year.

11. Dividend PolicyThe Board adopts fixed dividend payout policy that provides ample internal financial reserves to support the future capital investments.

12. Distribution of ShareholdingSince the company is fully owned by the Government of the Sultanate of Oman, represented by MoF, EHC directly reports to the shareholder through the MoF.

13. Statutory AuditorsStatutory auditors express an opinion on the fairness with which EHC presents, in all material respects, its financial positions the results of its operations, and its cash flows in line with internationally recognized Accounting Standards.

Deloitte and Touch (Deloitte) were the Statutory Auditors of EHC during 2013. Deloitte is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide Audit, Consulting, Financial Advisory, Enterprise Risk Services, and Tax services to selected clients.


Human Resources Health & Safety Improvement Program

The aim of the Group Health & Safety improvement program is to improve workplace safety outcomes through cultural transformation and attainment of OHSAS 18001 Certification by 2017.

Establishment of Utility Center for Competency Development (UCCD)

Earlier in 2013, Electricity Holding Group of Companies and Veolia Environment held a signing ceremony to the start of implementation of the joint-venture agreement to establish the UCCD.

Under the agreement, EH Group announced its collaboration with Veolia to join their expertise to source and offer tailor-made training solutions through the establishment of UCCD, EHC will contribute to the provision of bespoke competency assessments and training programs. The UCCD will equip and inspire Omani Companies to practice

The aim of the Group Health & Safety improvement program is to improve workplace safety outcomes through cultural transformation and attainment of OHSAS 18001 Certification by 2017.

The program is being run under MSP program management principles with each company represented on the program board.

It is based around 3 key themes of work:

• Certification to OHSAS 18001• Transforming health & safety culture• Providing appropriate H&S IT based

tools and techniques.

The focus of 2013 concentrated on the improvement work necessary in attaining certification with three companies expecting to obtain it by quarter 1,2014.Additionally, only 2 companies remain to implement the Interlex Health & Safety Management System.

While there have been enormous efforts over the last 5 years in improving safety performance, significant work remains in transforming the safety culture which will be the primary focus of work for the forthcoming two years.

the highest standards of the profession, develop their capacities in water and energy, and encourage Omani talents to realize their full potential.

Therefore, the Group aims to develop human resources by establishing a clear strategy for enhancing the capability of the Omani workforce in particular.

Leadership Development Program (Ruwad)

As part of our continued efforts to strengthen our leadership capabilities and development of a robust leadership pipeline, we are proud to launch Ruwad, our Leadership Development Program. The key objective of Ruwad is to identify

high performing and high potential employees at every level, in all group companies and grooming them to become the future of EH Group.

14 high potential employees (Ruwad) have been identified within the group companies for the first time.

Ruwad is one of the many developmental interventions that EH Group is committed to undertake.

Integrated Talent Management Framework (ITMF)

Electricity Holding Group signed a partnership agreement recently with Protiviti to commence the implementation of an “Integrated Talent Management Framework” to enhance the capability of its human resources.

ITMF provides an integrated approach to recruitment, development, performance management, compensation and training. The objective of this approach is to make the human resources functions operate more efficiently and to create an integrated approach for managing people which can allow EH Group respond more effectively to business needs. Furthermore, the implementation of ITMF is in line with the Group’s strategy to achieve People Capability Maturity Model (PCMM level-3) certification.


Asset Management Communication

Asset Management Improvement Program

The Group Asset Management improvement strategy implementation progressed well during 2013. The aim of the program is to enhance the asset management systems of the six participating subsidiaries MEDC, MJEC, MZEC, OETC, RAECO and DPC in order to provide improved reliability of supply to our customers and progressively meet sector compliance obligations. Additionally, it is expected that they will be able to be accredited to ISO 55000, an international standard for asset management, by October 2016.

The program has been structured around a group level steering committee to provide overall co-ordination, governance and decision making on common work. Each company has its own management committee with an appointed asset management program manager. It is based around 3 key themes of work:

• The development of the technical asset management requirements such as policy, strategy and process design.

• Building the internal AM people capability and capacity within the companies

• Providing appropriate AM IT based tools and techniques.

The most important achievement of 2013 is the inauguration of the Group Communications and Sustainability Department which is responsible for delivery EH Group’s communication strategy pillar.

As a strategic pillar and as an enabler for other strategic pillars, Group Communication and Sustainability Department was established at EHC to provide strategic direction, operational standards and a shared service, where required, to its subsidiaries. The shared services provided include:• Brand management and marketing• Sustainability• Corporate Communications, and

employee engagement.

Another very important achievement is the launch of the first group conference and the ‘sharing’ brand. The department was responsible for coordinating more than 40 research papers received for the conference, and arranged for 26 internal staff speakers from EH Group to present their papers at the conference in addition to coordinating the registration of more than 350 staff members from the Group to participate in this important conference.

A baseline assessment against the requirements of the asset management specification, PAS 55, was conducted with companies. To be conducted annually, this has set the targets for annual improvement over the next 3 years. Companies have identified the gaps against the required standard and updated their implementation plans

accordingly.

The focus of the company’s work in 2013 has included improved understanding the assets, their condition and risk with a number of initiatives commenced to achieve this. Additionally, improving asset information systems, asset performance reporting and maintenance management processes were targeted by most companies. Over 90 staff in the sector were trained in asset management principles and training for a certificate in asset management was provided to 20 staff in the newly created asset management departments which has seen the first cohort of Omani engineers with formal Institute of Asset Management UK qualifications including the first female engineer in the region. This is in addition to internal training by the companies as part of implementing new systems and tools. While there is necessarily a lot of foundational work being conducted, in parallel, several initiatives have been conducted to make real improvements in customer reliability and reduced business risk through the identification of high risk assets and targeted reliability improvement programs.

As part of the Group’s vision to become the ‘leading utility services provider in Oman’, EH Group approved its Sustainability Policy and Plan in 2013 and adopted three main themes; Social, Environment, Economic. The policy compliments the vision to develop and empower human resources to deliver safe and sustainable electricity solutions to customers which aim to support three pillars: social, economic and environmental.


Customer Service

The year 2013 was a very exiting year for customer service and full and challenges and achievement and major breakthroughs in customer service which was the result of the intense efforts made by the distribution and supply companies to improve their customer services.

One of the most important achievements on 2013 is establishing the future direction and operational model of customer service operations in the distribution and supply companies (Blueprint). The Future Model is developed in collaboration with an international consulting firm specialized in the utilities sector (ESBI).

The Future Model is designed to enable the distribution and supply companies to deliver excellent customer service to

their customers based on international standards. As a result of this model, a 5- year plan was put into place to develop customer service in the distribution and supply companies gradually and in a comprehensive manner.

During 2013, many projects were implemented and brought forth excellent results. One of the most important projects of 2013 was the Pilot Billing Project, which enabled the distribution and supply companies to produce customer bills on a monthly basis using their internal resources. Within this project the internal resources in the distribution and supply companies were trained and developed to be able to implement a new billing system and use it to product customer bills with exceptional levels of accuracy. The project was successfully

implemented to product bills for 30,000 customers on a monthly basis, in the first stage. The next step for the project is to complete the rollout and including the entire customer base in the new billing system.

Another project that was launched in 2013 was the Self Meter Reading System (SMR) which was implemented successfully in MEDC, MJEC, MZEC, RAECO and DPC. This system allow the electricity customer in all the distribution and supply companies to send their meter readings on a monthly basis through a variety of channels including SMS, Email, the call center or they can come to the company’s offices and deliver their meter readings to be used in the calculation of the bill values. The project was associated with a major awareness campaign titled “YOU KNOW IT BETTER” to provide the needed information to the customer to be able to send their reads through the different channels.

During 2013, MEDC launched a major initiative in the sector with the introduction of Prep-Paid Meters branded as (SABIQ) to the Omani electricity market. Using these meters the customers can charge their accounts with the expected amount of consumption from many locations in Muscat Governorates or the company offices. The new service helps real estate ownes to rent their asset without worrying about the accumulation of debt as a result of non-payment of electricity bills by tenants.

During the 2013, distribution and supply companies worked aggressively on enhancing the communication with their customer using different means: • Deploying customer communications

through SMS, email and outbound calls for many activities like billing, new connections, collection, meter reading and other customers interactions.

• Launching several awareness campaigns for electricity consumption and self meter reading and health and safety.

• The distribution and supply companies have worked to develop their contact centers to be able to answer customer queries and complaints efficiently and effectively

• Several distribution and supply companies are using Twitter and Facebook and Instagram to

One of the most important achievements on 2013 is establishing the future direction and operational model of customer service operations in the distribution and supply companies (Blueprint).

communicate with their customers on a continuous basis to understand their needs and answer their queries and keep them abreast with the developments in the company which might help the customer make better use of the company services.

During 2013, the Distribution and supply companies continued in developing the skills and knowledge of their customer service staff by extensive training programs on customer handling and complaints resolution. The training programs also included extensive training of international standards of customer service adopted worldwide.

During 2013, the DISCO were also committed to meet the service standards that were set in the beginning of the year and achieved 90% resolution rate of all complaints within 30 days. In addition, they achieved more than 85% of efficiency in their contact center response with 75% of the calls being answered in less than 20 seconds. In addition, during 2013, the distribution and supply companies were able to enhance many of their operational performance indicators by increasing bills collection ratio and reducing delayed in the amount of payments while at the same time reducing the overall losses related to their commercial activities.


Operational & Financial Review 2013Operational Highlights• Energy Sold: Increase by 7.3%• Water Sold: Increase by 5%• Customer Number: Increase by 9%

Financial Highlights• Net Profit Afer Tax Increase by 34%• Operating Revenue Increase by 17%• Capital Investment Increase by 17%

Key Financials RO 000’s 2013 2012 % Change

Earning Before Interest and Tax RO 000’s 153,976 124,134 24

Net Profit After Tax RO 000’s 113,124 84,686 34

Operating Cash Flow RO 000’s 208,284 167,172 25

Net Govt Subsidy (Including Salalah Business) RO 000’s 310,279 247,422 25

Capital Expenditure RO 000’s 277,638 241,900 15

Total Assets RO 000’s 2,366,217 2,176,708 9

Total Equity RO 000’s 1,188,040 1,065,203 12

Key Ratios RO 2013 2012 % Change

Earnings per share RO 56.56 42.34 34

Operating Cash Flow per share RO 104.14 83.59 25

Net Assets per share RO 594.02 532.60 12

Key Operations 2013 2012 % Change

Electricity MIS (GWh)

Units Generated GWh 3162 3354 (6)

Units Purchased GWh 19718 18464 7

Units Transmitted GWh 21898 21041 4

Units Sold GWh 19851 18504 7

Distribution Loss % 10.3 13.4 (23)

Max Transmission System Demand GWh 4.4 4 10


Key Operations 2013 2012 % Change

Electricity Rural (GWh)

Units Generated GWh 1,296 1,468 (12)Units Purchased GWh 1,954 1,431 37Units Sold GWh 2,770 2,456 13Distribution Loss % 14.8 15.3 (3)

Water

Units Generated M CuM 51.3 52.4 (2)Units Purchased M CuM 126.8 118 7Units Sold M CuM 176.8 167.8 5

Customers

MIS Number 754,254 695,345 8Rural System Number 105,138 94,927 11Total Number 859,392 790,272 9

Staff count Number 2,781 2,696 v

• Group Business• Performance Review

Revenue• Total Revenue (Increase by RO 110.8

million)• 16.8% Annual Growth• Power Sales have increased by

RO 31.2 million due to 9% increase in customer growth and 7% growth in units sold, change in customer mix.

• Net Subsidy from Government has increased by RO 62.8 million caused by increased purhcase cost from commission of new plants and growth in business infrastructure.

• Reversal of decommissioning liability has contributed an extraordinary income of RO 16.8 million.

769.9

560.3518.4

451.5

900

800

700

600

500

400

300

200

100

0

2013 2012 2011 2010 2009

659.1

Total Expenses• Total Expenses (Increase by RO 96.4

million) 96.232• 16.3 % Annual growth.• Operating cost higher by RO 82

million mainly due to increased power and water procurement.

• General and Administration expenses higher in line with growth in businesss operations and inflationary impact.

• Higher finance cost due to increase in short-term borrowings and impact on account of unwinding of SWAP.

Profit after Tax• Profit after Tax (Increase by RO 28.4

million)• 33.5% annual growth• Increase in power consumption,

Industrialisation and customer base contributed to the increased profits.

• Efficiencies in generation also contributed to the increase.

• Efficiencies in procurement due to the new generation capacities added to the growth.

• Reversal on de-recognition of decommissioning assets, provided an extraordinary income to the group.

2013

113.1

84.7

62.3

71.975.4

2012 2011 2010 2009

2013

686.3

589.9

506.2455.4

382.6

2012 2011 2010 2009

800

700

600

500

400

300

200

100

0

120

100

80

60

40

20

0


Operating Cash Flow• Operating Cash flow (Increased by RO 41 million)• 24.5% annual growth• The 33% increase in Net Profit,

resulted in a 24% increase in operating cashflow of the Subsidiary companies.

• Almost the entire operational cash-flow was re-invested in the Distribution and Transmission Companies’ Capital Expenditure program, servicing of loans etc.

• A smal l por t ion of the cash flow, contributed by the generating companies was invested in local bank deposits.

2013

208.2227.3 225.2

118.6

167.2

2012 2011 2010 2009

250

200

150

100

50

0

GROUP BUSINESS PERFORMANCE REVIEW

Customers

Customer per company

MEDC 261,480

MZEC 318,182

MJEC 174,592

RAECO 28,287

DPC 76,851

• Total customer base has been increased by 9% to 859,392

• The major increase is in domestic customers 48,419; commercial customers 18,029

• Government customers 1778; with a small growth in agricultural and industrial customers.

859,392

MEDC, 261.480

MSEC, 174.592

RAECO, 28.287

DPC, 76.851

MZEC, 318.182

Customers per Company

1,000,000

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

-

2013

859.397

727.483

677.668630.767

2012 2011 2010 2009

790.272


Electricity Supplied - GWh

Electricity Supplied per Company

MEDC 8,025

MZEC 5,778

MJEC 6,048

RAECO 651

DPC 2,119

22,621

MEDC, 8,025

MZEC, 5,778

MJEC, 6,048

RAECO, 651

DPC, 2,119

Electricity Supplied per Company (GWh)

25,000

20,000

15,000

10,000

5,000

1000

500

0

2013 2012 2011 2010 2009

22,621

18,51316,132

13,834

20,960

POWER PROCUREMENT (GWh) POWER GENERATED (GWh)

Power Generation and Procurement

• Power production in the group decreased by 8%, in line with the planned plant retirements and lower generations.

• Power procurement has increased by 8% in line with the growth in demand, essentially in the MIS region.

• Commissioning of new plants has enhanced ability to procure, namely Sohar II, Barka III and Salalah IWPP.

4,458 Power Generated (GWh)

21,672 Power Procurement (GWh)

30.000

25.000

20.000

15.000

10.000

5.000

1.000

0

2013 2012 2011 2010 2009

21.672

4.458 4.872 5.531 5.553 4.946

16.265

13.87413.131

19.932

Water Desalination (MCuM)

51.3 Water Desalination (MCuM) Group

126.8 Water Procurement (MCuM) External

126.8

51.3 52.4 49.5 49.1 52.3

97.181

62.4118

180

160

140

120

100

80

60

40

20

0

2013 2012 2011 2010 2009

WATER PROCUREMENT (MCuM) EXTERNAL WATER DESALINATION (MCuM) GROUP

While the Water desalinated by the Group reduced by 2%; Water procurement grew by over 7%.


10.3 DistributionLoss: MIS

14.8 Distribution Loss: Rural Areas and DPC

The Distribution Loss has shown a significant improvement in the MIS region at 25% while a minor improvement in rural areas at 3%.

10.3

15.3

12.8

15.514.4 14.7

17.2

15.113.9

14.8

DISTRIbUTION LOSS: MIS DISTRIbUTION LOSS: RURAL AREAS AND DPC

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0

2013 2012 2011 2010 2009

Distribution Loss (%) Government Subsidy

Government Subsidy

MEDC 62.7

MZEC 90.5

MJEC 55.0

RAECO 50.2

Salalah Business 30.5

OPWP K Factor 21.5

The electricity subsidy for the year 2013 (including Salalah) is at RO 310 million, which is 25% over the 2012 outturn subsidy of RO 247 million. The increase in subsidy is mainly driven by the significant continuing capital investment, increase in procurement cost due to new IPPs on account of the significant growth in residential and commercial customers, which have lower tariff revenue.

Subsidy per customer grew from RO 313 in 2012 to RO 361 in 2013 and Subsidy per unit increased to RO 13.7 per Mwh in 2013 as against RO 11.8 per Mwh in 2012.

MEDC, 62.7

RAECO, 50.2

MJEC, 55.0

DPC, 30.5

OPWP 21.5

MZEC, 90.5

Subsidy per Company (RO Millions)

310.3

153.4

144.0 146.9

350

300

250

200

150

100

50

0

2013 2012 2011 2010 2009

247.4

Subsidy per Unit

13.711.8

7.7 8 9.4

15.0

10.0

5.0

0.0

2013 2012 2011 2010 2009

Total Subsidy (RO million)


Subsidiaries Performance Highlights

WADI AL JIZZI POWER COMPANy SAOC

Activities: Electricity Generation.

Annual HighlightsPower generation is 21% lower than previous year (474GWh vs. 602GWh) on expiry of 3 units.

0.1% Contributionto Group Profit

12

10

8

6

4

2

0

-5

2013 2012

7.7

10.2

-0.4

REVENUEPROFIT AFTER TAX

1.1

AL GUBRAH POWER AND DESALINATION COMPANy SAOC

Activities: Electricity Generation and related water desalination.

Annual Highlights• Overall plant availabilty is 85.9%

which is 0.3% higher than 2012• 2514 GWh power delivered to the

grid, lower by 2% compared to 2012• Water dispatched 50.02 million m^3,

higher by 0.4% compared to 2012• Total Man Hours without Lost Time

Accident is 4.06 million

2.8% Contributionto Group Profit

45

40

35

30

25

20

15

10

5

0

-5

2013 2012

40.6 42.8

0.2


6.3

GPDC, 2.80%

Contribution to Group EBT


Average plant availability for the period is 92%, 4% over budgeted availability of 88% & 1% higher than 2012 (91%).1,014,910 man hours without Lost Time Incident.

OMAN ELELCTRICITy TRANSMISSION COMPANy SAOC

Activities: Electricity Transmission

Annual Highlights• Total length of 220KV transmission

circuit have increased from 1,400 circuit KM in 2012 to 1529 circuit KM in 2013.

• Total length of 132 KV transmission circuits decreased from 3,160 circuit KM in 2012 to 3,150 circuit‐KM in 2013

• Two new grid stations constructed (Quriyat and Sur) during 2013 in addition to upgrading of gridstations in Jahloot, Misfah and Barka.

41.30% Contributionto Group EBT

80

70

60

50

40

30

20

10

0

2013

77.9

56.5

46.2

27.6REVENUEPROFIT AFTER TAX

2012

OETC, 41.30%


• Maximum transmission system demand up by 7% (4,369 MW) and regulated transmittied up by 4% (21,898 GWh) as compared to 2012.

MUSCAT ELECTRICITy DISTRIBUTION COMPANy SAOC

Activities: Distribution and supply of electricity and maintenance of distribution networks in the Muscat region

Annual Highlights• 21,610 new customers added to the

network, an increase of 9% over 2012.


250

200

150

100

50

0

2013

204.80

188.50

23.5


2012

MEDC, 21.20%


21.3


• System loss performance of 9.17% achieved as compared to 12.86% in 2012

• Subsidy per MWh is 7.6 in 2013 as compared to 7.2 in 2012

MAZOON ELECTRICITy COMPANy SAOC

Activities: Distribution and supply of electricity and maintenance of distribution networks in the willayats of A’Sharqiya, Al Dhakliyah and South Batinah region.

Annual Highlights• 25,219 new customers, an increase

of 8.6% over 2012• System loss performance of 11.2%


180

160

140

120

100

80

60

40

20

0

2013

178.9

158.9


2012

MZEC, 19.40%


22.4 21.7

achieved as compared to 15.3% in 2012

• Subsidy per MWh is 15.7 in 2013 and is maintained at 2012 percentage of 15.7.

MAJAN ELECTRICITy COMPANy SAOC

Activities: Distribution and supply of electricity and maintenance of distribution networks in the willayats of A “Dhahirah” Governorate of Buraimi and North Batinah region.

Annual Highlights• 12,080 new customers, an increase

of 7.4% over 2012• System loss performance of 11.3%

achieved as compared to 13.47% in 2012

• Subsidy per MWh is 9.1 in 2013 as compared to 8.0 in 2012


160

140

120

100

80

60

40

20

0

2013

145.6

130.6

14.4


2012

MJEC, 12.80%


12.8


RURAL AREAS ELECTRICITy COMPANy SAOC

Activities: Electricity generation, water desalination and electricity distribution and supplyactivities in rural areas.

Annual Highlights• 2,912 new customers, an increase of

11.4% over 2012• Net power genarated and sent out

has increased from 555,808 MWh to 635,167 an increase of 14.2% over 2012

• Desalinated water generation has increased from 1,985,724 m3 in 2012 to 2,291,034 m3 in 2013, an increase of 15%.


70

60

50

40

30

20

10

0

-10

2013

64.2

52.7


2012

RAECO, 5.60%


5.9

-.8

DHOFAR POWER COMPANy SAOC

Activities: Electricity generation, distribution and supply activities in the Dhofar (Salalah) area.

Annual Highlights• 7,299 new customers, an increase of

10.5% over 2012• System loss is 14.3% compared to

16.4% in 2012• Regulated units sold are 2,119 GWh

and have increased by 12% over 2012.

50

45

40

35

30

25

20

15

10

0

-5

2013

47.8 46.6

-0.9


2012

5


OMAN POWER AND WATER PROCUREMENT COMPANy SAOC

Activities: Bulk Purchase and Sale of electricity and related water and supervision of the Salalah Concession Agreement.

Annual Highlights• The IPPs Barka III (Al Sawadi Power Company) and Sohar II (Al Batinah Power Company) achieved their Commercial Operation

within the first week of April 2013. These projects contributed a total combined generation capacity of 1,488 MW for Summer 2013.

• Al Ghubrah IWP (42 MIGD) OPWP achieved successful conclusion of the WPA with execution of the agreements on 11 February with the Scheduled Commercial Operation in October 2014.

• 2013 witnessed the re-structuring of Dhofar Power Company and the Salalah concession agreement and the unbundling of assets leading to the formation of separate Generation, Distribution and Transmission entities to be effective from January 2014.

• During 2013 a total capacity of 101MW of temporary power was generated to support MIS due to construction delays of Sur IPP.

500

450

400

350

300

250

200

150

100

50

0

-50

2013

468

403.3


2012

3.9 -8.1

Consolidated financial statements for the year ended 31 December 2013

- Independent auditor’s report

- Consolidated statement of financial position

- Consolidated statement of profit or loss and other comprehensive income

- Consolidated statement of changes in equity

- Consolidated statement of cash flows

- Notes to the consolidated financial statements

50

53 - 55

56

57

59

61 - 99


Consolidated statement of financial positionfor the year ended 31 December 2013

2013 2012

Notes RO ’000 RO ’000

ASSETS

Non-current assets

Property, plant and equipment 6 1,780,389 1,607,112

Goodwill 4,320 7,092

Deferred tax assets 24 1,237 -

Advance payments 7 15,668 21,267

Service concession receivables 8 141,285 173,069

Bank Deposits 9 56,042 48,311

Total non-current assets 1,998,941 1,856,851

Current assets

Inventories 10 35,660 39,974

Trade and other receivables 11 177,730 146,828

Bank deposits 9 82,151 70,461

Cash and bank balances 12 31,069 62,594

326,610 319,857

Assets classified as held for sale 42 40,666 -

Total current assets 367,276 319,857

Total assets 2,366,217 2,176,708

The accompanying notes form an integral part of these consolidated financial statements.


Consolidated statement of financial positionfor the year ended 31 December 2013 (continued)

2013 2012


EQUITy AND LIABILITIES

Capital and reserve

Share capital 13 2,000 2,000

Legal reserve 14 12,342 12,342

General reserve 15 3,000 3,000

Hedge reserve 35 - (1,860)

Retained earnings 542,100 421,123

Shareholders’ funds 17 628,598 628,598

Total equity 1,188,040 1,065,203



Mohammed Abdullah Al Mahrouqi Dr. Abdulmalik Abdullah Al Hinai Omar Khalfan Al WahaibiChairman Director Chief Executive Officer

2013 2012


Non-current liabilitiesTerm loan 18 75,865 125,512Finance lease liabilities 19 44,351 49,102Trade and other payables 20 8,372 8,131Provision for decommissioning costs 21 17,427 43,347Provision for employee benefits 21 8,272 7,983Provision for major maintenance 21 - 4,703Deferred revenue 22 112,125 105,458Hedging deficit 35 - 8,940Advance from Ministry of Finance 23 123,222 93,545Deferred tax liability 24 63,754 51,305

Total non-current liabilities 453,388 498,026

Current liabilitiesTerm loan 18 12,708 11,086Short-term borrowings 25 400,000 305,000Bank overdrafts 26 30,345 9,674Finance lease liabilities 19 4,753 4,258Trade and other payables 20 261,412 269,322Current tax liability 34 6,894 9,222Provision for employee benefits 21 3,530 3,617Hedging deficit 35 - 1,300

719,642 613,479Liabilities classified as held for sale 42 5,147 -

Total current liabilities 724,789 613,479

Total liabilities 1,178,177 1,111,505

Total equity and liabilities 2,366,217 2,176,708

Consolidated statement of financial positionfor the year ended 31 December 2013 (continued)


Notes 2013 2012

RO’000 RO’000

Revenue 27 759,416 645,027

Operating costs 28 (540,693) (454,948)

Gross profit 218,723 190,079

General and administrative expenses 29 (96,232) (83,766)

Other income 31 26,046 13,121

Profit from operations 148,537 119,434

Finance income 32 3,478 2,461

Finance costs 33 (23,584) (15,548)

Profit before tax 128,431 106,347

Taxation 34 (14,396) (22,267)

Profit for the year from continuing operations 114,035 84,080

(Loss) / profit for the year from discontinued operation 43 (911) 606

Profit for the year 113,124 84,686

Other comprehensive income :

Items that may be reclassified subsequently to profit or loss :

Revaluation gain on hedge instruments for the year 2,275 1,215

Reclassification to profit or loss 7,965 -

Other comprehensive income for the year 10,240 1,215

Total comprehensive income for the year 123,364 85,901

Profit for the year attributable to:

Owners of the parent 113,124 84,686

Total comprehensive income attributable to:

Owners of the parent 123,364 85,901


Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2013

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Consolidated statementof cash flowsfor the year ended 31 December 2013

2013 2012

RO’000 RO’000

Cash flows from operating activities

Profit before tax 127,520 106,953

Adjustments for:

Tax impact of discontinued operations (64) -

Depreciation on property, plant and equipment 83,576 72,800

Loss on sale of property, plant and equipment 925 32

Loss on writeoff of property, plant and equipment 7,709 -

Provision for inventory obsolescence 168 626

Provision for doubtful debts 1,687 1,704

Provision for employee benefit expense 924 1,823

Provision for major maintenance 444 511

Reversal of decommissioning provision (27,775) -

Interest expense 23,584 17,181

Interest income (3,478) (2,461)

Unwinding of decommissioning cost provisions 465 1,256

Operating cash flows before working capital changes 215,685 200,425

Working capital changes to:

Inventories (726) (2,745)

Trade and other receivables (32,589) (26,436)

Advance payments 5,599 1,881

Service concession receivable (1,174) (15,827)

Deferred revenue 6,667 9,583

Advance from Ministry of Finance 29,677 (6,480)

Trade and other payables (7,669) 7,592



2013 2012

RO’000 RO’000

Cash generated from operating activities 215,470 167,993

Payment of end-of-service benefits (1,283) -

Income tax paid (5,903) (821)

Net cash generated from operating activities 208,284 167,172

Cash flows from investing activities

Purchase of property, plant and equipment (277,638) (241,966)

Proceeds on sale of property, plant and equipment 12,150 93

Investment in bank deposits (19,421) (54,972)

Interest received 3,478 2,461

Interest paid (21,140) (17,181)

Net cash used in investing activities (302,571) (311,565)

Cash flows from financing activities

Short-term borrowings 95,000 115,000

Term loan availed (48,025) 39,657

Settlement of finance lease liabilities (4,256) (3,830)

Minority interest acquisition adjustment (27) (51)

Investment in subsidiary (101) -

Dividend paid (500) (501)

Net cash generated from financing activities 42,091 150,275

Net change in cash and cash equivalents (52,196) 5,882

Cash and cash equivalents at the beginning of the year 52,920 47,038

Cash and cash equivalents at the end of the year 724 52,920

Cash and cash equivalents at the end of the year

Cash and bank balances 31,069 62,594

Overdraft (30,345) (9,674)

724 52,920


SubsidiaryCompany

Shareholding Percentage %

PrincipalActivities

Al Gubrah Power and Desalination Company SAOC (GPDC)

99.99 Electricity generation and related water desalination.

Wadi Al Jizi Power Company SAOC (WJPC) 99.99 Electricity generation.

Oman Electricity Transmission Company SAOC (OETC)

99.99 Electricity transmission.

Oman Power and Water Procurement Company SAOC (OPWP)

99.99 Bulk purchase and sale of electricity and related water.

Muscat Electricity Distribution Company SAOC (MEDC)

99.99 Distribution and Supply of electricity and maintenance of distribution networks in the Muscat region.

Mazoon Electricity Company SAOC (MZEC) 99.99 Distribution and Supply of electricity and maintenance of distribution networks in the wilayats of A’Sharqiya, Al-Dhakliyah and South Batinah region.

Notes to the consolidated financial statementfor the year ended 31 December 2013

1. General

Electricity Holding Company SAOC (the “Company” or “Parent Company”) is a closed Omani joint stock company registered under the Commercial Companies Law of Oman on 19 October 2002.

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”) promulgated by Royal Decree 78/2004.The principal activities of the company comprise the management of Government investments in, and the Privatisation of the Electricity and Related Water Sector in the Sultanate of Oman and provision of certain central services to its subsidiary companies.

The subsidiary companies, other than

Dhofar Power Company SAOC (DPC) commenced their operations on 1 May 2005 (the transfer date) following the implementation of a decision of the Ministry of National Economy (the “transfer scheme”) issued pursuant to Royal Decree 78/2004.

The principal activities of the subsidiaries are set out below:


SubsidiaryCompany

Shareholding Percentage %

PrincipalActivities

Majan Electricity Company SAOC (MJEC) 99.99 Distribution and Supply of electricity and maintenance of distribution networks in the wilayats of A’Dhahirah, and North Batinah region.

Rural Areas Electricity Company SAOC (RAECO)

99.99 Electricity generation, water desalination, and electricity distribution and supply activities in Musandam Governate, Alwusta Region, Masirah Island, Khuweima and Qroon area in Sharqiya Region, Aswad area in Dahirah Region in the Dhofar Governate, the area outside Dhofar Power Company SAOC authorised area and in the Dakhliya Region, the area outside Mazoon Electricity Co SAOC authorised area.

Dhofar Power Company SAOC (DPC) 98.79 The Government of Sultanate of Oman has granted the right to build, takeover certain existing assets, generate, transmit, distribute and supply electricity in the Salalah region.

Utilities Centre for Competency Development LLC (under formation)

67.00 Under formation as per an agreement with Veolia Middle East to provide human resource services, consultancy services and training services.

These consolidated financial statements represent the results of operations of the company and all the above subsidiaries (together the “Group”).

2. Adoption of new and revised International Financial Reporting Standards (IFRS)

For the year ended 31 December 2013, the Group has adopted all the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the period beginning on 1 January 2013.

2.1 Standards and Interpretations adopted with no effect on the financial statements

The following new and revised Standards and Interpretations have been adopted in these consolidated financial statements. Their adoption has not had any significant impact on the amounts reported in these consolidated financial statements but may affect the accounting for future transactions or arrangements.

Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities

The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement.

IFRS 10: Consolidated Financial Statements

IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and SIC-12 Consolidation - Special Purpose Entities. IFRS 10 changes the definition of control such that an investor has control over an investee when (a) it has power over the investee, (b) it is exposed, or has rights, to variable returns from its involvement with the investee and (c) has the ability to use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee.

Previously, control was defined as the power to govern financial and operating policies of the entity so as to obtain benefits from its activities.

IFRS 11:Joint arrangements

IFRS 11, replaces IAS 31 Interest in Joint Ventures and guidance contained in a related interpretations. IFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified and account for. Under IFRS 11, investments in joint arrangements are classified either as joint operations or joint ventures, based on rights and obligation of parties to the arrangements by considering the structure, the legal form of the arrangement, the contractual terms agreed by the parties to the arrangement and, when relevant, other facts and circumstances.

IFRS 12:Disclosure of Interests in Other Entities

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and / or unconsolidated structured entities. In general, the application of IFRS 12 has resulted in more extensive disclosures in the consolidated financial statements.

IFRS 13:Fair Value Measurement

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The scope of IFRS 13 is broad; the fair value measurement requirements of IFRS 13 apply to both financial instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value (e.g. net realisable value for the purposes of measuring inventories or value in use for impairment assessment purposes).


Amendments to IAS 1Presentation of Items ofOther ComprehensiveIncome

The amendments introduce new terminology, whose use is not mandatory, for the statement of comprehensive income and income statement. Under the amendments to IAS 1, the ‘statement of comprehensive income’ is renamed as the ‘statement of profit or loss and other comprehensive income’ [and the ‘income statement’ is renamed as the ‘statement of profit or loss’]. The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis - the amendments do not change the option to present items of other comprehensive income either before tax or net of tax.

The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 does not result in any impact on profit or loss, other comprehensive income and total comprehensive income.

Annual Improvements 2009-2011 Cycle

Makes amendments to the following standards:IAS 1 - Clarification of the requirements for comparative informationIAS 16 - Classification of servicing equipmentIAS 32 - Clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with IAS 12 Income TaxesIAS 34 - Clarify interim reporting of segment information for total assets in order to enhance consistency with the requirements in IFRS 8 Operating Segments

IAS 19 Employee Benefits (as revised in 2011)

IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs.

2.2 Standards & Interpretations in issue not yet effective

At the date of authorisation of these consolidated financial statements, the following new and revised Standards and Interpretations were in issue but not yet effective:

New IFRS and relevant amendments Effective for annual periods beginning on or after

Financial Instruments

IFRS 9: Financial Instruments (as revised in 2010 to include requirements for the classification and measurement of financial liabilities and incorporate existing derecognition requirements)

January 2015

Consolidation, joint arrangements, associates and disclosures

Amendment to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements, to provide ‘investment entities’ (as defined) an exemption from the consolidation of particular subsidiaries and instead require that an investment entity measure the investment in each eligible subsidiary at fair value through profit or loss in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.

January 2014

All actuarial gains and losses are recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus.

Furthermore, the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a ‘net interest’ amount under IAS 19 (as revised in 2011), which is calculated by applying the discount rate to the net defined benefit liability or asset. These changes have had an impact on the amounts recognised in profit or loss and other comprehensive income in prior years. In addition, IAS 19 (as revised in 2011) introduces certain changes in the presentation of the defined benefit cost including more extensive disclosures.


3. Summary of significant accounting policies

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

Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, (IFRS) and the requirements of the Commercial Companies Law of 1974, as amended.

Basis of preparationThe consolidated financial statements are prepared on the historical cost basis except for certain financial instruments which are measured at fair value.

Historical cost is generally based on the fair value of the consideration given in exchange of goods and services.

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving

a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.

As at 31 December 2013, the Group’s current liabilities exceeded its current assets by RO 357.513 million (2012 - RO 293.622 million). The Parent Company’s management, on behalf of the Group is in the process of obtaining long term credit facilities which will be drawn down, as required, in order to meet the Group’s on-going funding requirements. Accordingly, the net negative current assets position as at the year end is not considered to have an impact on the going concern status. Hence these financial statements are prepared on a going concern basis. Basis of consolidation

SubsidiariesThe consolidated financial statements incorporate the financial statements of the Parent Company and entities controlled by the Parent Company and its subsidiaries. Control is achieved when the Parent Company:• has power over the investee;• is exposed, or has right, to variable

returns from its investment with the investee;

• and has the ability to use its power to affect its returns.

The Parent Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are circumstances to indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than majority of voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specially, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Amendments to IFRSs Effective for annual periods beginning on or after

IAS 32: Financial instruments: presentation, Offsetting Financial Assets and Financial Liabilities: to clarify certain aspects because of diversity in application of the requirements on offsetting, focused on four main area (a) the meaning of ‘currently has a legally enforceable right of set-off’(b) the application of simultaneous realisation and settlement (c) the offsetting of collateral amounts (d) the unit of account for applying the offsetting requirements

January 2014

IAS 36: impairment of assets, Recoverable Amount Disclosures for Non-Financial Assets to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on fair value less costs of disposal) is determined using a present value technique.

January 2014

IAS 39: Financial Instruments: Recognition and Measurement, Novation of Derivatives and Continuation of Hedge Accounting’ makes it clear that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met.

A novation indicates an event where the original parties to a derivative agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. In order to apply the amendments and continue hedge accounting, novation to a central counterparty (CCP) must happen as a consequence of laws or regulations or the introduction of laws or regulations.

January 2014

IFRIC 21 – Levies January 2014

New Interpretations and amendments to Interpretations:

The Directors anticipate that the adoption of the above standards and interpretations in future periods will have no material impact on the financial statements of the Group in the period of initial application.


Profit or loss and each component of other comprehensive income are attributed to the owners of the Parent Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Parent Company and to the non-controlling interests even if this results in the non-controlling interests having deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with Group’s accounting policies.

All intra group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interests in existing subsidiariesChanges in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amounts by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Parent Company.

When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between

1. the aggregate of fair value of the consideration received and fair value of any retained interest, and

2. the previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any non-controlling interests.

All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e, reclassified to profit or loss or transferred to another category of equity as specified / permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

Business combinationsAcquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair value of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquire and the equity interests issued by the Group in

exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred.

All acquisition date, the identifiable assets acquired and liabilities assumed are recognized at their fair value.

Goodwill Goodwill is measured as the excess if the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Goodwill is carried at cost as established at the date of acquisition of the business, as explained above, less accumulated impairment losses, if any.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocate first to reduce the carrying amount of any goodwill allocated to the unit and then to the

other assets of the unit pro rate based on carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill not reversed in subsequent period.

On disposal of a relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Foreign currencyItems included in the financial statements of the Group are measured and presented using Rials Omani which is the currency of the Sultanate of Oman, being the economic environment in which the Group operates (the functional currency). The financial statements are prepared in Rials Omani, rounded to the nearest thousand.

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 foreign currencies are translated at the rates prevailing on the reporting date. Gains and losses from foreign currency transactions are recognized in the profit or loss.

Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss. Borrowing costs which are directly attributable to the acquisition of items of property, plant and equipment, are capitalised.

Subsequent expenditureExpenditure incurred to replace a component of an item of property, plant and equipment is capitalised if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. All other repairs and maintenance expenditure is recognised in the profit or loss as an expense as and when incurred.

DepreciationDepreciation is recognised in the profit or loss 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:

YearBuildings 30Transmission and related assets 20-60Assets under finance lease 13-20Distribution and related assets 20-40Other plant and machinery 3-60Decommissioning assets 8-50Furniture, vehicles and equipment 5-7Plant spares 20


Capital work-in-progressCapital work-in-progress is stated at cost. When the underlying asset is ready 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 policies of the Group.

Financial instrumentsFinancial assets and financial liabilities are recognised on the Group’s consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Non-derivative financial instrumentsNon-derivative financial instruments comprise service concession receivables, trade and other receivables, bank deposits, cash and bank balances, term loans and other borrowings and trade and other payables. 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.

Trade receivablesTrade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business.

Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits and term deposits with original maturity not greater than three months from the date of placement which are not subject to significant risk of change in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. In the consolidated statement of financial position bank overdrafts are shown as current liabilities.

Trade and other payablesTrade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are classified as non-current liabilities.

Derivative financial instrumentsThe Group holds derivative financial instruments to hedge interest rate risk exposures. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Cash flow hedgesChanges in the fair value of the derivative hedging instrument designated as a

cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then the hedge accounting is discontinued prospectively. Any gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss.

Impairment

Financial assetsFinancial 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• it becoming probable that the borrower

will enter bankruptcy or financial reorganization.

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 Group’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 financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of allowance account.

When a trade receivable is considered uncollectible, it is directly written off as bad. Subsequent recoveries of amounts previously written off are credited to the profit or loss.

Non-financial assetsThe carrying amounts of the Group’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 indications 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 exceeds its value in use and its fair value less costs to sell. In assessing the value in use, the estimated 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 amortization, if no impairment loss had been recognised.

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

LeasesOperating leasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as

operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss on a straight-line basis over the period of the lease.

Finance leasesLeases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges. The interest element of the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

TaxationIncome tax is calculated as per the fiscal regulations of the Sultanate of Oman.

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

Deferred tax is recognized 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 expected 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 effects on the temporary differences are disclosed under non-current liabilities or non-current assets as deferred tax liabilities / assets, as the case may be.

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 as there is a legally enforceable right to set off these in Oman.

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

Employee benefitsEnd of service benefits are accrued in accordance with the terms of employment of the Group’s employees at the reporting date, having regard to the requirements of the Oman Labour Law 2003 as amended. Employee entitlements to annual leave and leave encashments 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 reporting date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.

Gratuity for Omani employees who transferred from Ministry of Housing, Electricity and Water on the transfer date is contributed in accordance with the terms of the Social Securities Law 1991 and Civil Service Employees Pension Fund Law.

Contributions to a defined contribution retirement plan for Omani employees in accordance with the Omani Social Insurance Law 1991, are recognised as an expense in the profit or loss as incurred.

ProvisionsProvisions are recognised in the consolidated statement of financial position when the Group 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 the reporting date, taking into account the risks and uncertainties surrounding 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.

Provision for decommissioning A provision for decommissioning costs is recognised when there is a present obligation as a result 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.

In the current year some of subsidiaries’ management decided to derecognise provision for decommissioning cost, as the eventuality of incurring decommissioning costs by the subsidiaries appears to be remote at present, given the present set of circumstances, and will become a liability if and only when a notice to this effect is issued by the government of Sultanate of Oman or its representative to the subsidiaries.

Further, since the eventual outflow of resources embodying economic benefits to settle the obligation of decommissioning cost is remote rather than a possibility, the Group management is of the view that the obligation need not be disclosed as a contingent liability.

Deferred revenueDeferred revenue represents Government project funding 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 2011 customer contributions other than assets funded by government for the use of the public

at large are recognised in accordance with IFRIC 18 ‘Transfers of assets from customers’ and are not deferred.

Government grants Grants from government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all related conditions.

Government grants relating to costs are deferred and recognised in the profit or loss 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 profit or loss on a straight line basis over the expected useful lives of related assets.

RevenueRevenue represents the sale of electricity to the Government, commercial and residential customers within the Group’s distribution network, sale of desalinated water, transmission connection charges and subsidy from government.

Revenue also includes the funding received from the Ministry of Finance (MOF) in respect of costs relating to the Salalah business of Oman Power and Water Procurement Company SAOC, a subsidiary.

Revenue is measured at fair value of the consideration received or receivable. Revenue is reduced for estimated

rebates and other similar allowances.

Revenue is recognised to the extent of maximum allowed revenue (MAR) by the regulatory formula in accordance with the licensing requirements. Actual regulated revenue in excess of MAR is deferred to the subsequent year and is shown under trade and other payables.

Revenue also includes meter connection fees, tender fees, fines and application of deferred revenue on contributions and is accounted for on an accrual basis.

Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

Government subsidyThe Government of the Sultanate of Oman funds the excess of economic costs over customer and other revenue within the Electricity and Related Water Sector. This funding is included in revenue. The Group recognises the subsidy when the right to receive the subsidy is established.

Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the

borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the profit or loss in the year in which they are incurred.

4. Critical accounting estimates

The preparation of consolidated 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 applying the Group’s accounting policies. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

Estimates and judgements 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 judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are set out below:

DepreciationDepreciation is charged so as to write off the cost of 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 estimates.


Allowance for inventory obsolescenceAllowance for inventory obsolescence is based on management’s assessment of various factors such as usability, the maintenance programs, and normal wear and tear using its best estimates.

Allowance for doubtful debtsAllowance 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.

Provision for decommissioning costsUpon expiry of the Usufruct agreement, the Group will have a legal requirement to remove the facilities and restore the affected area.

In the current year management of certain subsidiaries decided to derecognise provision for decommissioning cost, as the eventuality of incurring decommissioning costs by the subsidiaries appears to be remote at present, given the present set of circumstances, and will become a liability if and only when a notice to this effect is issued by the government of Sultanate of Oman or its representative to the subsidiaries.

Further, since the eventual outflow of resources embodying economic benefits to settle the obligation of decommissioning cost is remote rather than a possibility, the Group management is of the view that the obligation need not be disclosed as a contingent liability.

TaxationThe Group has considered revenue arising from contribution from connected entities in respect of connection assets as taxable income based on management discussions with the tax authorities.

According to the guidance released by the Oman taxation authorities, the Group has considered the revenue on contribution from connected customers as taxable income from 2010 to 2013.

Government sponsored projects have been treated as government grants, and removed from taxation calculations with effect from 2007.

Deferred taxationThe Group makes provision for deferred tax liability during the term of the power purchase agreement, arising primarily from accelerated tax depreciation and accumulated tax losses.

The Group makes provision for deferred tax liability during the term of the power purchase agreement, arising primarily due to timing difference between the cost as per regulatory framework based on which revenue is determined and the lease cost as per IAS 17.

In the tax assessment for years 2007 and 2008, the Tax Department has mentioned that, as per the tax law, depreciation shall be allowed as a deduction to the legal owner of the assets.

The Tax Department, disregarded the finance lease treatment adopted by

the subsidiaries and concluded that the subsidiaries are entitled only to the output from the assets and not the owner of the assets. The department finalized the tax assessment for 2007 and 2008 based on operating lease treatment considered by the subsidiaries in the tax returns and stated that the same treatment will be adopted consistently for later years also unless there is substantial change in the terms of the agreement. Based on Tax Department’s position, the management decided to reverse the deferred tax liability earlier recognised on account of accelerated tax depreciation on leased assets accounted in prior years on a conservative basis with the corresponding effect in the statement of profit or loss.

Lease classificationThe Group has entered into the power purchase agreements with the Power Generation Companies. In accordance with the criteria provided in IFRIC 4, “Determining Whether an Arrangement Contains a Lease” (“IFRIC 4”), the Group assesses whether PPA agreement conveys a right to use an asset meets the definition of a lease. The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception date.

The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Based on the assessment the PPA is classified either as finance

leases or operating leases. Leases are classified according to the arrangement and to the underlying risks and rewards specified therein in line with IAS 17.

5. Financial risk management

The Group’s activities expose it to a variety of financial risks including market risk (including foreign exchange risk and interest rate risk), liquidity risk and credit risk. However, the Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Credit, liquidity and market risk management is carried out by the Group’s management under policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

Financial risk factors

Market risk

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. The Group 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 transactions are in US dollar 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

Bank depositsThe Group has deposits which are interest bearing and are exposed to changes in market interest rates. The Group carries out periodic analysis and monitors the market interest rate fluctuations taking into consideration the Group’s needs in order to manage interest rate risk.

A 1% increase or decrease in interest rate on bank deposits would have increased / decreased the profit, by the amounts shown below:

2013 2012

RO’000 RO’000

Change in bank deposits interest income 1,382 1,187

BorrowingsThe Group has interest bearing liabilities, which expose the Group to interest rate risk. At the reporting date the Group’s interest bearing financial instruments was as below:


2013 2012

RO’000 RO’000

Term loan 88,573 136,598Short term borrowings 400,000 305,000Bank overdrafts 30,345 9,674

518,918 451,272

A 1% increase or decrease in interest rates on interest bearing liabilities would have decreased / increased the profit, by the amounts shown below.

2013 2012

RO’000 RO’000

Term loan 886 1,116Short term borrowings 3,665 2,770Bank overdrafts 76 33

4,627 3,919

Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and the availability of funding from an adequate amount of committed credit facilities. The management maintains flexibility in funding by maintaining availability under committed credit lines. The management monitors the Group’s liquidity by forecasting the expected cash flows.

The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities that will be settled on a net basis into relevant maturity grouping based on the remaining period at the reporting 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.

31 December 2013Carrying amount

Total contractual cash flows

less than1 year

1 year to5 years

More than5 years

RO’000 RO’000 RO’000 RO’000 RO’000Non-interest bearing

Trade and other payables 269,784 269,784 261,412 8,372 - Interest bearingTerm loan 88,573 95,912 16,342 79,570 - Short term borrowings 400,000 400,000 400,000 - - Bank overdrafts 30,345 30,345 30,345 - - Finance lease liabilities 49,104 78,006 11,092 53,902 13,012

568,022 604,263 457,779 133,472 13,012

31 December 2012

Non-interest bearing

Trade and other payables 277,453 277,453 269,322 8,131 -

Interest bearing

Term loan 136,598 166,846 15,139 112,108 39,599

Short term borrowings 305,000 305,000 305,000 - -

Bank overdrafts 9,674 9,674 9,674 - -

Finance lease liabilities 53,360 89,864 11,559 43,583 34,722

504,632 571,384 341,372 155,691 74,321

The advance from Ministry of Finance amounting to RO 123.222 million (2012: RO 93.545 million) has no fixed repayment term and do not carry any interest and, therefore, not shown in the above table.

The following are the contractual undiscounted cash flows associated with derivatives that are cash flows hedges:

Notional amount by term to maturity

Interest rate swaps: Negative fair value

Notional amount

1 - 12 months 1 to 5 years Over 5 years

RO’000 RO’000 RO’000 RO’000 RO’000

31 December 2013 - - - - -

31 December 2012 10,240 62,854 7,979 41,179 13,696

Credit risk Credit risk is the risk of financial loss to the Group, if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The credit risk of the Group is primarily attributable to trade and other receivables, service concession receivables, investment in bank deposits and bank balances.

Trade and other receivables The Group’s exposure to credit risk on trade and other receivables is influenced mainly by the individual characteristics of each customer. The Group has established credit policies and procedures that are considered appropriate and commensurate with the nature and size of receivables. Trade receivables primarily represent amounts due from government and private customers.

The exposure to credit risk for trade and service concession receivables at the reporting date by type of customer is as below:The age of trade receivables and related impairment loss at the reporting date is as below:


2013 2012

RO’000 RO’000

Government customers (including service concession receivable) 167,874 226,747

Other private customers 107,209 59,601

275,083 286,348

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

31 December 2013 31 December 2012

Gross Impairment Past due but not impaired

Gross Impairment Past due but not impaired

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

Not past due 35,735 - - 46,785 - -

Less than 1 month 10,217 - - 12,564 (204) 12,360

1 month to 3 months 23,538 - - 28,907 (640) 28,267

3 months to 1 year 50,230 (1,797) 48,433 14,243 (1,176) 13,067

1 year to 5 years 155,363 (8,200) 147,163 183,849 (6,290) 177,559

275,083 (9,997) 195,596 286,348 (8,310) 231,253

Investment in bank deposits and bank balances The Group manages credit risk on bank balances by placing balances with reputed financial institutions with a minimum credit rating of P-1.

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

2013 2012

RO’000 RO’000

Service concession receivable 141,285 173,069

Trade receivables (gross) 133,798 113,277

Amount due from related parties 15,296 -

Other receivables 13,534 21,772

Bank deposits 138,193 118,772

Cash at bank 31,033 62,594

473,139 489,484

Fair value estimationThe carrying amounts of financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. The fair value of interest rate swap is determined using the mark to market valuations available at the reporting date. The fair value of long term loans is considered to approximate to their fair values as they are obtained at market interest rates.

Capital risk managementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, and to provide an adequate return to shareholders.

The Group’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 Group comprises share capital, reserves, retained earnings and shareholders’ funds.

The Group sets the amount of capital in proportion to risk. The Group 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.

The fair value of non-current trade and other receivables and service concession receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

6. Property, plant and equipment

The Group’s property, plant and equipment are constructed on lands leased from Ministry of Housing, Government of Sultanate of Oman.

The finance leased assets primarily represent power generation and transmission equipment acquired under finance lease.


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11. Trade and other receivables

2013 2012

RO’000 RO’000

Trade receivables 133,798 113,277

Less: allowance for impaired debts (9,997) (8,310)

Net trade receivables 123,801 104,967

Amount due from related parties 15,296 -

Advances and prepayments 25,099 20,089

Other receivables 13,534 21,772

177,730 146,828

Movement in allowance for impaired debts

At 1 January 8,310 7,072

Bad debts written off (712) (466)

Provision recognized during the year 2,399 1,704

At 31 December 9,997 8,310

The allowance for impaired debt substantially relates to government debts yet to be collected, taken over from erstwhile, Ministry of Housing, Electricity and Water (MHEW) as part of the transfer scheme and frozen accounts of private customers. The other receivables classes within trade and other receivables do not contain impaired assets.

12. Cash and bank balances

2013 2012

RO’000 RO’000

Cash on hand 36 66

Cash at bank 31,033 62,528

31,069 62,594

Bank balance of RO 101,000 pertains to one of the subsidiaries, Utilities Centre for Competency Development LLC which is under formation.

7. Advance payments

2013 2012

RO’000 RO’000

Generation facilities 15,668 16,925

Interconnection and transmission facilities - 4,342

15,668 21,267

8. Service concession receivablesService concession receivables arise from construction and operation services provided in relation to a service concession arrangement between Dhofar Power Company SAOC and government of Sultanate of Oman which was subsequently novated to OPWP. These receivables are accounted as per guidance provided in IFRIC 12- Service Concession Arrangements.

9. Bank depositsBank deposits have maturity dates ranging from 130 to 728 days (2012 - 125 to 984 days) from the reporting date and are with commercial banks in Oman at commercial rates.

10. Inventories

2013 2012

RO’000 RO’000

Inventories 52,597 56,743

Less: allowance for inventory obsolescence (16,937) (16,769)

35,660 39,974

Movement in allowance for inventory obsolescence

At 1 January 16,769 16,618

Provisions recognized / (reversed) 973 626

Amounts written off (805) (475)

At 31 December 16,937 16,769


13. Share capitalThe Parent Company’s authorised, issued and paid-up capital consists of 2 million (2012: 2 million) shares of RO 1 each. The shares are fully owned by the Ministry of Finance, Government of the Sultanate of Oman.

14. Legal reserveThe legal reserve, which is not available for distribution is accumulated in accordance with Article 154 of the Commercial Companies Law 1974, as amended. The annual appropriation must be 10% of the net profit for each year after taxes, until such time as the reserve amounts to at least one third of the share capital. No portion from the profit has been made during the year as the Group already achieved this minimum amount required in the legal reserve. This reserve is not available for distribution.

15. General reserveThe Group companies other than DPC transfer 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 of the respective company. This reserve is available for distribution to shareholders.

16. Non-controlling interestThe total amount of shares attributable to non-controlling interest as at 31 December 2013 are 348,469 shares (2012- 375,025 ordinary shares) equating to a 1.21% (2012 – 1.26%) right in DPC. Non-controlling interest has not been disclosed in these consolidated financial statements, as management is of the opinion that the amount of non-controlling interest is not material.

17. Shareholders’ fundsFollowing the implementation of a decision of the Sector Law and in accordance with the transfer scheme, the Group received certain assets and liabilities from the Ministry of Housing, Electricity and Water (MHEW) on the transfer date (1 May 2005).

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

During 2012, the company has adjusted the excess amount paid RO 4.592 million to MOF for Rusail Power Company SAOC sale against shareholder’s funds.

18. Term loan

2013 2012

RO’000 RO’000

Non-current 75,865 125,512

Current 12,708 11,086

88,573 136,598

The Group syndicated long-term loan facilities from financial institutions in the aggregate amount of approximately RO 131 million (2012 – RO 131 million). These facilities bear interest at US Dollar denominated LIBOR plus applicable margins. Margin percentages range from 0.53% to 3.25% (2012 - 0.53% to 3.25%). Up to 31 December 2013, facilities of approximately RO 86 million (2012 - RO 126 million) have been drawn. The term loan is repayable in half yearly installments which commenced from 4 November 2007. The loan repayment schedule is as follows:

31 December 2013 Carrying amount Less than 1 year 1 year to 5 years More than 5 years

RO’000 RO’000 RO’000 RO’000

Liability 88,573 12,708 75,865 -

31 December 2012

Liability 136,598 11,086 101,317 24,195

The loan agreements contain certain restrictive covenants, which amongst other; include restrictions over project finance ratios. The loans are secured by a pari-passu legal mortgage over certain property, plant and equipment and over the Group’s rights under the concession arrangements.

19. Finance lease liabilities

Minimum lease payments Present value of minimum lease payments

2013 2012 2013 2012

RO’000 RO’000 RO’000 RO’000

Not later than 1 year 11,092 11,559 4,753 4,258

Later than 1 year not later than 5 years

53,902 43,583 33,027 21,770

Later than 5 years 13,012 34,722 11,324 27,332

78,006 89,864 49,104 53,360

Less: future finance charges (28,902) (36,504) - -

49,104 53,360 49,104 53,360


The maturity profit of these finance lease liabilities is as under:

2013 2012

RO’000 RO’000

Non-current portion of finance lease liabilities 44,351 49,102

Current portion of finance lease liabilities 4,753 4,258

49,104 53,360

20. Trade and other payables

Non-current

Other payables 8,372 8,131

Current

Trade payables 56,334 26,322

Other payables 42,772 82,444

Accruals 162,306 160,556

261,412 269,322

Total trade and other payables 269,784 277,453

Non-current other payables mainly relates to retention monies for capital work-in-progress contracts and facilities maintenance provision.

21. Provisions

2013 2012

RO’000 RO’000

Non-current

Employee benefits 8,272 7,983

Decommissioning costs 17,427 43,347

Major maintenance - 4,703

25,699 56,033

Current

Employee benefits 3,530 3,617

Movement in provision for employee benefits

2013 2012

RO’000 RO’000

At 1 January 11,600 10,206

Additions during the year 924 1,823

Payments made (722) ( 429)

At 31 December 11,802 11,600

Movement in provision for decommissioning costs

At 1 January 43,347 57,689

Adjustment 1,390 (15,598)

Unwinding of decommissioning provision 465 1,256

Reversal of decommissioning provision (27,775) -

At 31 December 17,427 43,347

The provision for 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 affected area at the Group’s leased sites. The estimate has been made on the basis of quotes obtained from third party contractors.

Movement in provision for major maintenance costs

At 1 January 4,703 4,192

Provided during the year 1,552 1,552

Reversal due to major repairs incurred during the year (1,108) (1,041)

Transferred to liabilities held for sale (5,147) -

At 31 December - 4,703

22. Deferred revenueDeferred revenue shown under non-current liabilities represents sponsored 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.


23. Advance from Ministry of FinanceAdvance from Ministry of Finance represents the amount received for capital expenditure for specified projects subsequent to 1 January 2009 and is classified as non-current liability. 24. Deferred tax Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of 12%. The net deferred tax liability / (assets) in the consolidated statement of financial position and the net deferred tax charge in the profit or loss are attributable to the following items:

Balance at1 January 2013

Charge/ (credit)for the year

Balance at31 December 2013

RO’000 RO’000 RO’000

Assets

Provision for inventory obsolescence

(445) (52) (497)

Allowance for doubtful debts (997) (203) (1,200)

Accumulated tax losses (4,348) 4,081 (267)

Finance lease liability - (3,104) (3,104)

Decommissioning assets (1,933) 1,425 (508)

(7,723) 2,147 (5,576)

Liability

Advance payments - 1,880 1,880

Accelerated tax depreciation 59,028 7,185 66,213

59,028 9,065 68,093

Net deferred tax liability 51,305 11,212 62,517

The Group has recognized deferred tax assets amounting to RO 1.237 in respect of OPWP and DPC and a deferred tax liability of RO 63.754 million for other subsidiaries.

Balance at1 January 2012

Charge/ (credit)for the year

Balance at31 December 2012

Assets

Provision for inventory obsolescence

(187) (258) (445)

Allowance for doubtful debts (849) (148) (997)

Accumulated tax losses (2,421) (1,927) (4,348)

Finance lease liability (1,490) 1,490 -

Deferred revenue (639) 639 -

Decommissioning assets (2,140) 207 (1,933)

(7,726) 3 (7,723)

Liability

Advance payments 2,140 (2,140) -

Accelerated tax depreciation 43,460 15,568 59,028

45,600 13,428 59,028

Net deferred tax liability 37,874 13,431 51,305

25. Short-term borrowings

2013 2012

RO’000 RO’000

Short-term borrowings 400,000 305,000

The Group’s short-term borrowings are denominated in Rial Omani.

The credit facility bears a fixed interest rate and is due for bullet repayment on 1 July 2014. Borrowings are secured by letter of guarantee issued by the Parent Company. These borrowings are expected to be re-financed through long-term credit facilities to be arranged in due course.

26. Bank overdraftsThe Group has credit facilities with Bank Muscat SAOG including overdrafts to finance the working capital requirements and to support its other operational requirements. Bank overdrafts are repayable on demand and carry interest at commercial rates.


27. Revenue

2013 2012

RO’000 RO’000

Electricity sales 342,795 311,574

Water sales 97,516 90,709

Government subsidy 288,744 204,101

Funding for operation of Salalah concession 30,457 39,394

Other operating revenue 8,826 4,125

768,338 649,903

Adjustment as per price control methodology (8,922) (4,876)

759,416 645,027

28. Operating costs

Energy and water purchases 418,728 353,770

Depreciation and amortisation 79,435 69,220

Plant operation and maintenance costs 22,253 17,262

Material and chemical costs 8,187 1,386

Employee benefit expenses 5,235 6,324

Service expense - 2,283

Other direct costs 6,855 4,703

540,693 454,948

29. General and administrative expenses

Employee benefit expenses 50,976 44,534

Service expenses 24,729 22,596

Commission 10,563 9,468

Depreciation 4,139 3,533

Loss on retirement of property, plant and equipment 983 151

Directors remuneration and sitting fees 500 479

Other expenses 4,342 3,005

96,232 83,766

30. Employee benefit expense

2013 2012RO’000 RO’000

Wages, salaries and other benefits 50,155 44,619End-of-service benefits 6,056 6,239

56,211 50,858Allocated to:Operating costs 5,235 6,324General and administrative expenses 50,976 44,534

56,211 50,858

31. Other income

Penalties and fines 1,865 2,031Reversal of provisions 16,811 -Profit on disposal of property, plant and equipment 58 119Other income 7,312 10,971

26,046 13,121

32. Finance income

Interest income 3,478 2,461

33. Finance costs

Finance charges on:Finance lease liabilities 7,297 6,262Long term loans 11,457 5,169Unwinding of decommissioning cost provision 465 1,254Short-term loans 4,167 2,366Overdraft facilities 198 497

23,584 15,548


34. TaxationIncome tax is provided as per the provisions of the Law of Income Tax on Companies in Oman after adjusting for items which are not taxable or disallowed. The tax rate applicable to the Group is 12%. The deferred tax on all temporary differences has been calculated and dealt within the profit or loss.

2013 2012

RO’000 RO’000

Current tax 3,183 8,836

Deferred tax 11,213 13,431

14,396 22,267

The respective companies within the Group are 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:

2013 2012

RO’000 RO’000

Accounting profit before tax 128,365 106,953

Income tax at Oman tax rate of 12% 15,400 12,834

Add / (less) tax effect of:

Tax exempt revenue - (600)

Changes in temporary differences 612 105

Current year tax losses not recognised 206 5,471

Tax in respect of prior years (1,822) 4,457

14,396 22,267

Tax assessments for the following years onwards are pending assessment by Oman taxation authorities:

Taxation for Electricity Holding Company SAOC has been agreed with the Oman Taxation Authorities for all the years up to 31 December 2009 whereas taxation has been agreed for all the subsidiaries with the Oman Taxation Authorities for all years up to 31 December 2008 except for Al Gubrah Power & Desalination Company SAOC for which tax assessment has been completed up to 31 December 2007. The management is of the opinion that additional taxes, if any, related to the open tax years would not be material to the financial position of the Group as at 31 December 2013.

35. Fair value (loss) / gain on hedge instrumentsThe Group entered into interest rate swaps to hedge against interest rate exposures arising from its variable interest rate term loans (note 18). All fair value losses/gains on the interest rate swaps are recorded in the hedge reserve, with a corresponding hedge deficit/surplus balance.

Based on the interest rate gap between the 6 month US LIBOR and the fixed interest rates, over the life of the Interest Rate Swap (IRS), the indicative losses were assessed at approximately RO 10.2 million by the counter parties to the IRS as at 31 December 2012.

In view of the restructuring as disclosed in note 40, during the year ended 31 December 2013 the initial syndicated term loan facilities was refinanced and accordingly the related Interest Rate Swap Agreements were terminated.

The loss on IRS amounting to RO 2.1 million has been allocated to discontinued operations. The Group has made an adjustment to opening hedging reserve to reclassify hedging deficit taken over at the time of acquisition of Dohfar Power Company SAOC. The management considers the adjustments to the hedging reserve are not material.

36. Related partiesRelated 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.

The Group maintains balances with these related parties which arise in the normal course of business. Outstanding balances at year end are unsecured and settlement occurs in cash.

The Parent Company and PAEW have common directors and hence are considered as related parties. During the year, the Parent Company provided support services to PAEW earning revenue of RO 0.017 million (2012 - RO 0.038 million). The year end trade receivable balances amounted to RO 0.125 million (2012 - RO 0.118 million). The Parent Company also incurred costs on behalf of PAEW and the year-end amounts receivable relating to this amounted to RO 1.704 million (2012 - RO 1.474 million).

No expenses have been recognised in the year (2012 - RO Nil) for bad or doubtful debts in respect of amounts owed by related parties.

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

2013 2012

RO’000 RO’000

Short-term employee benefits 6,844 4,805

Post-employment benefits 781 717

Directors’ remuneration and sitting fees 500 429

8,125 5,951


37. Proposed dividendThe Board of Directors of the parent company, at their meeting held on 26 February 2014, have proposed a dividend of RO 0.250 per share aggregating RO 500,000 on the Group’s existing share capital (2012 - RO 0.250 per share aggregating RO 501,000). This dividend is subject to the approval of the company’s shareholders in the Annual General Meeting.

38. Commitments

2013 2012

RO’000 RO’000

Operating lease commitments

Not more than 1 year 210,670 156,777

More than 1 year but not more than 5 years 1,086,603 1,099,637

More than 5 years 1,420,268 1,622,137

2,717,541 2,878,551

Capital commitments 134,404 90,451

Letters of credit 8,091 8,387

39. Contingencies

Al Ghubrah Power & Desalination Company SAOCThe Ministry of Oil and Gas (MOG) has levied an interest of RO 803,564 in 2010, pertaining to delayed payment of gas invoices for the years 2005 to 2008 at an interest rate of 6%.

The management is of the opinion that these interest charges will not be payable as there is no contractual obligation in the absence of gas supply agreement between Al Ghubrah Power & Desalination Company SAOC (the “Company”) and the MOG. Further, the Company believes that the 6% rate of interest is significantly high. The

Company is in the process of negotiation with MOG for the waiver of these interest charges.

The legal heirs of Habib Khalfan Al Hasni have lodged a claim amounting to RO 1,324,000 in respect of a piece of land within the premises of the Company. The claim was pending retrial proceedings in the Appeal Court.

During the year, the Appeal Court on retrial proceedings rendered a judgment by virtue of which the case against the Company was dismissed. However, the judgment obligated the Ministry of Housing to grant the claimants a piece of land of 600 square meters in compensation for the land claimed. It is

not known whether Ministry of Housing has claimed objection proceedings against the judgment.

Kent International LLC has lodged a case in the Primary Court for damages in respect of alleged unilateral termination of Purchase Order # G009/15454 dated 26 September 2009. Both Primary Court and Appeal Court rendered a judgment in favor of the Company by virtue of which the claim as well as the appeal was dismissed. It is not known whether the arbitration proceedings are filed before the Supreme Court in relation to the judgment.

Dhofar Power Company SAOC and its subsidiary

Transmission and Distribution - Extension and Enhancement Allowance (‘T & DEE Allowance’)The Group has accrued the T & DEE allowance at a rate of RO 106,865 per month based on the contracted value of the Transmission and Distribution – Extension and Enhancement work. The Government disputed the determination of T & DEE allowance by the Group and contended that the allowance should be determined based on the estimated value of T & D – Extension and Enhancement work executed by the Group, i.e., RO 88,415 per month. In accordance with the provisions of the Concession Agreement, the matter was referred to a legal expert who gave a ruling in favour of the Group on 24 August 2005.

Transmission and Distribution - Extension and Enhancement Allowance (‘T & DEE Allowance’)However, the Government notified the Group that it intends to challenge the ruling of the Expert through the process of arbitration. The Group contends that the Government failed to commence the proceedings within the timeline provided in the Concession Agreement. The Government has not taken any further action and is currently paying the T & DEE allowance at the rate of RO 106,865 per month as determined by the Group. Accordingly, the Group, has recognised the appropriate portion of the disputed T & DEE allowance amount as income under IFRIC 12.

Power interruptions - penalties for 2003During 2004, the Government claimed an amount of approximately RO 1.1 million in respect of interruptions in power supply during 2003, which was challenged by the Group. In accordance with the provisions of the Concession Agreement, the parties referred the matter to an independent expert, who ruled in favour of the Group on 14 July 2005. However, in August 2005, the Government notified the Group that it intends to challenge the ruling of the Expert through the process of arbitration but has not yet commenced the proceedings. Accordingly, the Group has not established any provision in respect of penalties for power interruptions in these consolidated financial statements.

Power interruptions - penalties for 2004In 2005, the Government claimed RO 1.965 million as penalties in respect of interruptions in power supply during 2004. The Group contended that events of blackouts are not penalisable as per the provisions of the Concession Agreement, and that the other penalties calculated by the Government for events other than blackouts were not in accordance with the provisions of the Concession Agreement. In any case, the Group considers these events as “Force Majeure” i.e. substantially these outages were caused by events beyond the reasonable control of the Group management as has been supported by the Technical Experts appointed by the Group, which has been contested by the Government.

In view of the expert’s judgement on similar issues in 2003, which supported the Group’s contention, the Group has rejected the Government’s claim. The Government has notified the Group that it intends to refer the matter for Expert determination, but the Group contends that the Government has failed to commence the proceedings in accordance with the timeline provided in the Concession Agreement. Accordingly, and Group has not established any provision in respect of penalties for power interruptions in these consolidated financial statements.

Power interruptions – penalties for 2005In 2006, the Government claimed RO 0.438 million as minimum penalties for a few incidences of power outages during 2005. The Group contend that, in regards to these, power was restored within the allowable time of restoration, as interpreted by management as per the Service Concession Agreement and as had been ascertained by the mediating expert in relation to similar events experienced in 2003. The Group also considers these events as “Natural Force Majeure” events and has notified the Government accordingly. The other material event has been notified by and Group as a cause of an existing “Political Force Majeure” event. Accordingly, the Group has not established any provision in respect of penalties for power interruptions in these consolidated financial statements.


Power interruptions – penalties for 2006In 2007, the Government claimed RO 13.4 million as penalties for 2006. The Group believe the claim is unsubstantiated. The Group has relied upon the Annual Performance and Quality of Service Report for the year 2006, which was audited by independent consultants, wherein the calculated penalties aggregated to RO 11,852, which the Group duly paid on 9 April 2007. Therefore, the Group rejected in totality the claim made by the Government. Accordingly, the Group’s management believes that there are no legal or constructive obligations under the Concession Agreement and hence no provision has been established in these consolidated financial statements.Power interruptions – penalties for 2007In June 2008, the Government has claimed RO 1.05 million as penalties for power outages during 2007. There was one incident of complete power supply failure (“blackout”), due to a gas supply failure. The Group had notified this event as both a Natural Force Majeure and a Political Force Majeure to the Government. The Group management believe that there are no legal or constructive obligations as to the power interruptions penalties under the Concession Agreement and has rejected in totality the claim made by the Government and hence no provision for power interruption penalties has been established in these consolidated financial statements.

Power interruptions – penalties for 2008In 2009, the Government has claimed RO 53,181 as penalties for power outages during 2008. The Group had calculated and paid an amount of RO 11,917 as penalties for power interruptions, which occurred in 2008. No provision for the additional power interruption penalties has been established in these consolidated financial statements.

Power interruptions – penalties for 2009In 2011, the Government has claimed provisional penalties of RO 31,677 for power outages during 2009. The Group had calculated and paid an amount of RO 6,873 as penalties for power interruptions. The Group management believe that there are no legal or constructive obligations as to the power interruptions penalties under the Concession Agreement and hence no provision for power interruption penalties has been established in these consolidated financial statements.

Power interruptions – penalties for 2010In 2011, the Government has claimed provisional penalties of RO 218,211 for power outages during 2010. The Group had calculated and paid an amount of RO 13,830 as penalties for power interruptions. Currently the Group is discussing with OPWP the basis for its penalty calculation. The Parent company and the Group management believe that there are no legal or constructive obligations as to the power interruptions

penalties under the Concession Agreement and hence no provision for power interruption penalties during 2010 has been established in these consolidated financial statements.

Power interruptions – penalties for 2011In 2012, the Government claimed RO 6,512 as penalties for 2011. The Parent company and Group has relied upon the Annual Performance and Quality of Service Report for the year 2011, which was audited by independent consultants, wherein the calculated penalties aggregated to RO 2,880, which the Parent company and Group duly paid on 4 April 2012. The Parent company and the Group additionally accepted and provided for claims amounting to RO 1,348 based upon internal assessments of these claim. Accordingly, Group’s management believes that there are no other legal or constructive obligations under the Concession Agreement and hence no further provision has been established in these consolidated financial statements.

40. Reorganization / restructuring of Salalah concession businessIn line with the decision of the Council of Minister in 2009, the Public Authority for Electricity and Water, pursuant to its powers under Sultani Decree No. 58/2009 “Promulgating the By-Law of Public Authority for Electricity and Water (as amended)” and Sultani Decree No. 78/2004 “Promulgating the Law for the Regulation and Privatisation of the

Electricity and Related Water Sector (as amended)”, has decided to reorganise the existing Salalah concession business to form separate generation, high voltage transmission and distribution and retail supply businesses (the "Reorganisation"). In line with decision of the Council of Ministers of 30 November 2012, the Shareholders have approved the reorganization in the extra ordinary general meeting held on 7 July 2012 and authorized the Board of Directors to take all necessary steps to implement the Reorganization/Restructuring of the Salalah concession business. The implication on the Salalah concession business would be that the Generation, Transmission, Distribution and Supply businesses currently undertaken by Dohfar Power Company SAOC (DPC) as a vertically integrated utility will be separated and that these businesses would be regulated under the general provisions of the Sector Law. Accordingly, the following major arrangements will take place effective 1 January 2014 to facilitate the Reorganization/ Restructuring:

1. Concession Agreement entered into between the DPC and the Government (novated to OPWP) and related Process Agreements (for IWPP and PDO interconnection) will be terminated.

2. Dohfar Generation Company SAOC (DGC) will be granted a Generation Business License by Authority for Electricity Regulation (AER) and become sole responsible for the

Generation business, DGC will enter into a Power Purchase Agreement (‘PPA’) with OPWP.

3.Transmission assets will be transferred to Oman Electricity Transmission Company SAOC who will take over ownership and responsibility for Transmission system (132kV) in Dhofar region.

4. DPC will be granted a license by AER for the Distribution and Supply businesses. The Distribution & Supply license sets out the mechanism for setting the revenues of DPC through Price Control Review. In preparation for the Reorganization/Restructuring, DPC has already agreed Maximum Allowed Revenue for year 2014.

5. DPC will formalize Asset Transfer Agreement with the Subsidiary and OETC for transferring the ownership of the Generation and Transmissions Assets to the Subsidiary and OETC respectively. As per the draft agreements the assets will be transferred at book value.

6. Electrical Connection Agreements for connection of the different systemst (Generation; Transmission and Distribution) will be executed by relevant parties (DGC, OETC and DPC).

7. DPC will novate certain Electrical Connection Agreements and Usufruct agreements relating to transmission system to OETC.

The Board of Directors of DPC has approved all draft agreements referred

to above where DPC is a party. The concession agreement is terminated effective 31 December 2013 and all new agreements become effective from 1 January 2014.

41. Sale of subsidiary company and transfer of transmission business

Generation businessIn line with decision of the Council of Ministers of 30 November 2012, shareholders of DPC in the Extra Ordinary General Meeting (EGM) held on 7 July 2013 approved sale / privatization of the DGC as part of Salalah Independent Power Plant 2 tender and authorized the Board to take all necessary steps to implement the same.

In December 2013, Authority for Electricity Regulation (“AER”) wrote to the Parent Company referring to Sector Law conditions prohibiting any licensee from having economic interest in another licensees and therefore advising that DPC’s interest in Subsidiary be transferred to the Parent Company. AER agreed a period of 90 days from date of grant of license to the DPC, 1 January 2014, to complete this transfer. Management expects that the transfer of shares in DGC will be completed in the first quarter of 2014. Management expects that fair value less cost to sell of the generation business will be higher than the aggregate carrying amount of the related assets and liabilities.


Transmission business Effective from 1st January 2014, the transmission assets of DPC will be transferred to Oman Electricity Transmission Company SAOC (“OETC”). DPC and OETC have agreed to transfer the transmission related assets at their book values which has been approved by the shareholders of the DPC and OETC in their Extra Ordinary General Meeting (EGM) /Annual General Meeting held on 7 July 2013 and 7 September 2013 respectively.

42. Assets and liabilities classified as held for saleConsidering the Reorganization/Restructuring of DPC and transfer of shareholding in DGC to the Parent Company as discussed in detail in note 41, assets and liability relating to generation business of DPC are classified as held for sale as at 31 December 2013 in accordance with the requirements of IFRS 5. The following table shows assets and liability classified as held for sale as on 31 December 2013.

2013

RO’000

Service concession receivables 32,958

Deferred tax assets 64

Inventories 4,872

Goodwill 2,772

Assets classified as held for sale (including goodwill) 40,666

Maintenance provisions (5,147)

Liability classified as held for sale (5,147)

Net assets classified as held for sale 35,519

43. Discontinued operationIn view of the Reorganization / Restructuring of Salalah Concession Business as discussed in detail in note 40 to note 42, the operations of generation business has been classified as discontinued operations. The Group presented the income for such discontinued operations in a single line in the Statement of profit or loss. For the Group, this amount represent net income from generation businesses of Salalah Concession Business.

Analysis of profit for the year from discontinued operationsThe results of the discontinued operations included in the profit for the year are set out below. The comparative profit and cash flows from discontinued operations have been re-presented to include those operations classified as discontinued in the current year.

2013 2012

RO’000 RO’000

(Loss) / profit for the year from discontinued operation

Revenue 10,476 14,106

Operating cost (7,733) (11,150)

Gross profit 2,743 2,956

General and administrative cost (782) (717)

Net finance charges (2,936) (1,633)

Income Tax 64 -

(Loss) / profit from discontinued operation (911) 606

Cash flows from discontinued operation

Net cash inflows from operating activities 3,592 4,780

Net cash outflows from financing activities (3,592) (4,780)

Net cash outflows - -

44. Comparative figuresComparative figures have been reclassified, where necessary for consistency with current year classifications. Such reclassifications did not result in changes to previously reported comprehensive income or equity.

45. Approval of financial statementsThe financial statements were approved by the Board and authorised for issue on 26 February 2014.

E H C A n n u a l R e p o r t 2 0 1 3 10 0

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

Mohammed Abdullah Al Mahrouqi Chairman of the Board of Directors

Documents

POWERING THE ECONOMY - Namanama.om/pdf/2013_English_EHC-A_REPORT-ENG-final.pdfKhalid Al Salmani Acting Executive Manager, IT Suhaila Al Farsi Company Secretary E H C A n n u a l R