Annual Report 2013
P o wering lives. Powering the future.
SMN Power Holding SAOG
has been powering the nation’s
needs through two
power projects –
Al Rusail Power Company and
SMN Barka Power Company,
catering to one fourth of Oman’s
power needs and one fifth of its
desalinated water requirements.
Powering lives.
Powering the future.
His Majesty Sultan Qaboos Bin Said
Highlights 2013
0
0
70
665.0
2011
665.0
2012
665.0
2013
665.0
2010
5,000
2011
5,000
2012
5,000
2013
5,000
Power & Water Delivered
2,232
0
2010
5,
00
0
SMN Barka
Power (in MW)
2,698
2011
2,620
2012
2013 650
3,394
2010
3,687
3,940
2012
3,459
2013
34,382
2010
2010
SMN Barka
2011
92.4
2011
2012
2010
2011
87.7
88.7
85.3
88.6
85.2
90.6
2012
94.3
2013
94.1
Power (in %)
Water (in %)
| 2 | Annual Report 2013
00
00
,0
40
,0
30
00
,0
20
00
43,536
,0
0
42,687
2013
0
10
80
91.5
2013
2013
SMN Barka
91.3
81.7
2012
2010
Al Rusail
60
40
20
0
Power & Water
Commercial Availability
39,973
2012
10
SMN Barka
2011
Power (in GWh)
Water (in thousand m3)
00
Al Rusail
2011
,0
Water (in m3/hr.)
50
0
00
4,
00
3,
0
00
2,
0
00
1,
0
0
50
0
2,
00
0
2,
50
0
3,
00
0
3,
50
0
4,
00
0
2010
1,
674.3
0
674.8
2013
00
0
60
0
40
50
0
0
30
20
675.6
2012
0
SMN Barka
676.5
2011
1,
Al Rusail
2010
50
SMN Barka
10
0
0
Power & Water Contracted
Capacities (Year-End)
00
,0
00
10
,0
00
80
60
,0
00
,0
40
20
0
,0
00
Consolidated Revenues (in RO ’000)
78,322
2010
81,520
2011
84,998
00
00
10
1,190
Dividend Paid (Bzs/Share)
3,836
60
0
50
0
0
40
30
0
20
0
10
0
6,562
0
2013
,0
8,918
2013
,0
0
00
8,
00
0
6,
0
00
4,
0
00
2,
0
2012
0
7,397
2012
2011
10
5,272
2011
2010
00
4,198
2010
Consolidated Net Profit (in RO ’000)
8,
00
0
4,
00
2,
0
00
0
74,560
2013
0
Consolidated Profits
before Taxes (in RO ’000)
6,
2012
7,844
2010
2011
193
193
440
510
2012
2013
380
460
Dividends projection (IPO Prospectus)
Dividends paid
Annual Report 2013 | 3 |
| 4 | Annual Report 2013
Contents
06
Board of Directors and Management
08
Chairman’s Report
11
Highlights on Operation
14
Description of the Company
22
Profile of the Founders
24
Management Discussion &
Analysis Report
29
Corporate Governance Report
42
Consolidated Financial Statements
Annual Report 2013 | 5 |
Board of Directors
Johan Van Kerrebroeck
Chairman of the Board
Abdullah Al Yahya’ey
Vice Chairman
Mohammed Al Huraimel
Al-Shamsi
Director
Masroor Jilani
Director
Antonios Chatzi Georgiou
Director
Alan Robinson
Director
Gijs Olbrechts
Director
Zoher Karachiwala
| 6 | Annual Report 2013
Company Secretary
Management
Gillian-Alexandre Huart
Chief Executive Officer
Frédéric Halkin
Suresh Athilkar
Chief Financial Officer
Technical Manager
Annual Report 2013 | 7 |
Chairman’s Report
Operations
During the year 2013, the Company, through
Barka II and Al Rusail plants, achieved
excellent
operational
performance,
with
both plants demonstrating high level of
power and water commercial availability,
the key parameters considered to monitor
the performance of the plants and revenues
generated over the period.
The Company, over the year 2013, dispatched
an aggregated net power volume of 4,108
GWh (6,560 GWh in 2012) and a total volume of
Dear Shareholders,
43,536,256 m³ of potable water was delivered
On behalf of the Board of Directors of SMN
(42,686,522 m³ in 2012). The decrease in
Power Holding SAOG (“the Company”), I
power volume is linked to lower dispatch at
have the pleasure to present the audited
Barka II resulting from the commissioning
consolidated financial statements for the year
of new Power Plants on the Oman main
ended 31 December 2013.
grid; there is however no impact on the
gross profit of the Company since financial
Over the year 2013, the Health & Safety (H&S)
performance is primarily linked to availability.
performance was excellent with no Lost Time
Barka II commercial availability for the year
Injuries (LTI) occurred, in line with previous
was 92.4% (91.5% in 2012) for power and
years.
94.1% (94.3% in 2012) for water. At Al Rusail,
The conclusions from Health & Safety audits
the power commercial availability during the
conducted at the Barka II and Rusail plants
reporting period was 88.6% (85.3% in 2012).
by the Authority for Electricity Regulation
At both plants, the levels of power availability
(“AER”) confirmed the two plants’ compliance
improved with respect to last year, thanks to
with the Health & Safety requirements
very low forced outage over the period. The
stipulated in the respective licenses. The few
water availability for the year remains at the
recommendations highlighted in the AER
level of 2012, within the budget. With regards
audit report are being implemented.
to Rusail 2012 transformer outage, the
The
management’s
ongoing
review
of
corporate structures, policies and processes
ensures that the highest standards of
governance are adopted and implemented,
Company was compensated by the insurers
in 2013 and insurance proceeds were booked
this year following acceptance of the claim by
the insurance companies.
in compliance with local and international
Financial Results
regulatory requirements and principles, as
SMN Power Holding & Affiliates generated
confirmed by the conclusions of the Capital
a consolidated net profit of RO 7,844,000
Market Authority’s compliance audit carried
for the year 2013, compared to a net profit
out during the year.
of RO 6,562,000 for the corresponding
| 8 | Annual Report 2013
period in 2012. The increase in net result is
are pleased to participate to the CMA efforts
mostly attributable to the excellent technical
to enhance the efficiency of the market in the
performance of the plant, insurance proceeds
country and improve uniformity between the
obtained after insurance acceptance of last
listed entities.
year claims and lower interest charge.
As Chairman of the Board, which mandate
I invite the investors to refer to the
arrives at its term at the date of the Annual
Management Discussion and Analysis Report
General Meeting, I would like to thank our
section of this third Annual Report of the
shareholders, not only for their confidence,
Company for further explanations on the
but also for their continued support and for the
evolution of the financial results.
expertise they bring into the Company. The
With net earnings of 393 bzs/share for the
financial year 2013, the Board of Directors
is therefore inclined to recommend to the
shareholders to agree on a final dividend of
200 baizas per share for the year 2013.
Board of Directors expresses its gratitude to
OPWP, the Authority for Electricity Regulation
(AER), the Capital Market Authority (CMA) and
other governmental and non-governmental
bodies for their guidance and support. I also
insist upon thanking all the operational staff
Future Outlook
in the SMN Barka and Al Rusail plants as well
All reasonable measures are taken by the
as the staff members of the Company for
Management of the Company to maintain the
their loyalty and dedication. Thanks to their
excellent plant availability levels in 2014.
day-to-day work, the Company was able to
Al Rusail, subsidiary of SMN Power, has
achieve its goals and objectives.
filed an objection to the Tax Department
Finally, on behalf of the Board of Directors,
position that disregards the finance lease
I would like to extend our deep appreciation
model adopted by Al Rusail in its Financial
and gratitude to His Majesty Sultan Qaboos
Statements in compliance with IFRS and
Bin Said and His Government for their
used for tax calculation purposes. Likelihood
continued support and encouragement to
for a favourable outcome from the various
the private sector by creating an environment
recourses offered to Al Rusail is high. Such
that allows us to participate effectively in the
position is supported by the independent
growth of the Sultanate’s economy and to
assessment obtained by Al Rusail from its
dedicate our achievements to the building of
tax advisor. Investors are invited to read note
a strong nation.
17(d) of the consolidated financial statements
of the Company.
The Board of Directors, further to the
Capital Market Authority (CMA) invitation,
recommends
the
Shareholders
of
Johan Van Kerrebroeck
Chairman of the Board
the
Company to proceed with a stock split in a
ratio of 10 shares for 1 existing share. The
Management of the Company obtained over
the last months the required consents. We
Annual Report 2013 | 9 |
| 10 | Annual Report 2013
Highlights on Operation
Health & Safety
SMN Barka: The contractual capacity of SMN Barka
Health and Safety (H&S) is of paramount importance
under the Power & Water Purchase Agreement
within SMN Power Holding and its subsidiaries. It
(PWPA) for the year 2013 was 674.28 MW power
obviously embraces the site activities of STOMO
and 120,000 m³/day water. The Annual Performance
(O&M Contractor) as well.
Test demonstrated that for both, power and water,
The overall H&S performance over 2013 was
the plant met the contractual requirements.
excellent, as no Lost Time Injuries (LTI) occurred.
Al Rusail (RPC): The contractual capacity of Al
SMN Barka and Al Rusail Plants completed 2,253
Rusail under the Power Purchase Agreement (PPA)
and 1,775 days respectively without LTA as on the
is 665 MW power. At the Annual Performance Test,
31st December 2013. Consequently, the Incident
the Plant demonstrated its capability to meet the
Frequency equals zero. Many proactive actions
contractual capacity requirements.
undertaken by STOMO at both plants lead to such
excellent accomplishment:
Zero harm to people objective
Introduction of a proactive Key Performance
Indicators Index (KPI)
Introduction of the behavioral based program
called Fresh Eyes, internal competitions.
Implementation of INTELEX – a Safety incidents
management system
AER H&S audit at both sites (SMN Barka
& Rusail), completed with an appropriate
implementation
ISO 14001 & OSHAS 18001 Certification
completed for Barka II plant
OSHAS 18001 Certification completed for
Rusail plant
Small incidents are taken very seriously, and
the occurrence has been shared internally and
externally within the GDF SUEZ group participating
in the return on experience (REX) process.
Availability
Availability is the amount of time the plant is
technically capable of generating power as per
specifications. As per the P(W)PA, SMN Barka shall
be available for 100% of the time in summer and
85% of the time in winter for power, and 95% of
the time at any moment of the year for water, while
RPC shall be available for 100% of time in summer
and 80% of the time in winter. The projected plan
nevertheless assumes that – for power – the SMN
Barka plant is under forced outage 1.39% of the
time and 1.2% for Al Rusail. The projected forced
outage for water at SMN Barka amounts to 1.62%.
The forced outages in 2013 for SMN Barka were
0.10% for power and 0.86% for water, clearly
outperforming
the
projections.
The
technical
availability for SMN Barka was 91.64% for power
and 96.33% for water. In Al Rusail, the forced
outages were 0.38% for power and the Technical
Availability was 87.20%.
Capacity
In 2013, the SMN Barka Power and Desalination
The capacity of a plant is defined as the total
Plant exported a total of 649,589 MWh electrical
electrical power (MW) and water (cubic meter
energy, with a utilization factor of 12% for the power
per day), which can be delivered by the plant at
plant, and 43,536,256 m3 of potable water with an
reference conditions.
utilization factor 103.18 % for the RO desalination
Annual Report 2013 | 11 |
plant. Power volumes delivered by the plant over
RPC: Energy Delivered
0
to 2012 production as a result of the new power
50
0
1,
00
0
1,
50
0
2,
00
0
2,
50
0
3,
00
0
3,
50
0
4,
00
0
4,
50
0
2013 significantly decreased with comparison
capacities commissioned in the country over the
year.
2009
SMN Barka: Energy Delivered
0
00
00
2011
GWh
3,
2,
0
1,
00
0
0
2010
2009
2012
GWh
2010
2011
2013
Force Majeure Claim
2012
During 2013, there was no water capacity loss due
to any algae blooms (red tide).
2013
SMN Barka had served in 2012 a Force Majeure
claim to OPWP to cover the loss of water capacity
SMN Barka: Water Delivered
due to hazardous algae blooms (red tide) occurred
50
40
30
20
10
0
during August - September 2012. OPWP approved
extending the PWPA period for the RO plant by 2.4
2009
2011
2012
days.
in thousand m3/hr.
2010
this Force Majeure Claim for 2012 early 2013,
Reliability
The reliability of the Plant is its ability to deliver the
declared availability, as per the PWPA. In 2013,
the SMN Barka reliability for power and water was
99.90 and 99.14% respectively, displaying the high
level of reliability of the plant. Al Rusail showed a
2013
reliability of 99.62%.
During the Year 2013, the Al Rusail Power Plant
Plant Efficiency (Heat Rate)
exported a total of 3,458,645 MWh electrical
The efficiency of the power plant is measured in
energy with an utilization factor 68.76% for the
terms of the amount of energy required to produce
power plant.
one unit of electrical energy. Demonstrated
| 12 | Annual Report 2013
efficiency in the original performance test of SMN
transformer from GT2. The cable sealing ends and
Barka was better than contractual requirements
the cable for GT3 transformer was found to be in
under the PWPA. As for Al Rusail, the overall heat-
good condition. The Life Time Extension of GT 6
rate improved significantly compared to previous
was completed in January 2014.
years thanks to many upgrades and actions being
implemented over 2011, 2012 and 2013.
Maintenance and Improvements
SMN Barka: Annual Maintenance of GT1, GT2,
GT3, ST1 & ST2 was performed. The insurance
Incident
SMN Barka: There was an incident of diesel oil
leak through flange joint in recovery line at Barka
plant on 18th October 2013. Approximately 14m
claim that was made for unexpected issues with
by 22m area adjacent to the diesel tanks was
stator vanes (stage 4) of all gas turbines in 2012
affected and about 75m³ of diesel oil leaked. The
was not accepted and finally it was turned into a
contamination remained within the boundaries of
commercial settlement.
the fence. Currently the remedial work through
Following incident on the GT2 transformer in 2011,
specialized contractor is ongoing. The soil samples
all other transformers were checked through a third
were taken and analyzed at the external laboratory.
party and the OEM. The Dissolved Gas Analysis
A method of remediation works would be agreed
(DGA) of the transformer oil for all transformers has
with MECA and implemented accordingly.
been intensified. The transformer’s OEM continued
the inspection during 2012 to ensure reliability
of all the transformers. The extended warranty
negotiated with OEM has expired in July 2013.
EPC Contract - Amicable Settlement
Process:
All the transformers are found to be healthy at the
The amicable settlement process with the EPC
plant.
contractor Doosan was concluded and executed
Fire Fighting System: Various improvements
on 1 June, 2012.
implemented (Anti-surge control valve and ARVs/
amendment to EPC contract was executed to deal
PRVs) in Fire Fighting system ring network, resulted
with the outstanding warranty issues with RO HP
in system reliability improvement.
On 26 November 2014, 3rd
pumps. Pursuant to the terms of the agreements,
Relocation of the Chlorination Pipe: In order to
the Retention Money Bond was reduced to 4
improve the performance of the 5th intake the new
MUSD and was extended up to 30 June 2017.
Chlorination pipe at RO seawater intake has been
installed. Commissioning is scheduled for early
2014.
Al Rusail: Scheduled Maintenance on the Gas
Turbines was performed as per the plan. GT 5 Life
RO Expansion Project
SMNB submitted proposal to OPWP for additional
capacity (10 MIGD) with RO expansion project
Time Extension was completed in March 2013.
using beach wells with short lead time of 15
GT3 Generator Transformer was replaced during
months. SMN proposal is still under analysis and
November and December 2013 with repaired
decision is awaited from OPWP/PAEW.
Annual Report 2013 | 13 |
Description of the Company
SMN Power Holding SAOG was incorporated on 7
120,000 m3/day potable water capacity, around
May 2011. As the holding company of two power
24%1 of the total power capacity of Oman Main
entities, SMN Barka and Al Rusail, the Group
Interconnected Systems (MIS), and 22% of the
represented in 2013, with 1,343 MW of power and
water capacity for the Main Supply Zone.
Sohar
Barka
Ibri
Ib
MUSCAT
Ar Rusayl
Nizwa
Sur
Sul
Sultanate
of Oman
Salalah
Capital ...........................
Willayah / Town ...........
This map is not an authority on Administrative Boundaries.
Background:
process. The project has been established under
On 2 November 2005, the Government invited
a BOO scheme. The BOO concept enables the
proposals for the development of an Independent
Founders (through the operator) to operate the
Water and Power Producer (IWPP) at Barka and the
Plants beyond the project horizon of 15 years by
privatization of Al Rusail (Tender No 210 / 2005).
either extending the P(W)PA (if agreed to by OPWP)
In 2006, the Founders (Suez Tractebel S.A.;
Mubadala Development Company PJSC and
or by selling into an electricity pool which may exist
at that time.
National Trading Company LLC) secured the
The Founders incorporated SMN Power Holding
award from OPWP following a competitive bidding
Company Ltd (“SMN Jafza”) for the purpose of
1
Based on OPWP 7-year statement 2013, p. 15 and 27.
| 14 | Annual Report 2013
holding the shares in both Project Companies and
99.99% of the shares in the Project Companies.
for undertaking the Project through the Project
Each of the Projects developed by each of the
Companies. From the inception of the Project
relevant Project Company has been implemented
until the transfer to the Company, SMN Jafza held
as follows:
For SMN Barka
Date
Events
2 November 2005 Request for Proposal issued by Tender Board
26 June 2006
Bid Submission
6 December 2006
Execution of Project Documents
20 February 2007
Financial Close
28 July 2008 Early Power COD
30 September 2008 End of Early Power period
15 November 2009
Final COD achieved
For Al Rusail
Date
Events
2 November 2005 Request for Proposal issued by Tender Board
26 June 2006
Bid Submission
6 December 2006
Execution of Project Documents
31 January 2007
Completion under SPA / Settlement Agreement
20 February 2007
Financial Close / Facilities Agreement
Description of SMN Barka Plant
and potable water capacity and production to
SMN Barka is an IWPP plant situated at Barka. The
OPWP.
site is approximately 50 km northwest of Muscat,
The power plant comprises three V 94.2 Rev 6
Oman.
dual fuel combustion turbines (Siemens design
Also popularly known as Barka II / Barka Phase 2,
manufactured by Ansaldo Energia, Italy), three
the design net rated power output of the facility in
supplementary fuel fired heat recovery steam
a combined cycle mode is 678 MW and 363 MW in
generators and two Siemens condensing steam
open cycle. The water production capacity is about
turbine generators, along with ancillary plant
26.4 MIGD or 120,000 m3/day.
required for operation of the power plant.
The facility entered into full commercial operation
The SMN Barka power plant is designed as a three
on 15 November 2009 and commenced the fifteen-
+ two configuration with three combustion turbines,
year PWPA, guaranteeing the sale of its electricity
three supplementary fired HRSGs and two steam
Annual Report 2013 | 15 |
Description of the Company
turbines forming one combined cycle power block.
condensers is also provided. The SMN Barka Plant
The arrangement allows for operational flexibility
is designed for black start operation by means of
as high and low pressure steam from any boiler
diesel generators which are capable of starting the
can be supplied to either steam turbine.
plant via connections to at least two gas turbines.
The individual V94.2 gas turbines exhaust hot
Desalination for water production involves a
gases directly into naturally circulated heat
Degrémont sea water reverse osmosis desalination
recovery steam generators, these generate steam
plant with a contracted capacity of 26.4 MIGD or
at two pressure levels: high pressure steam at 85
5,000 m3/hour of water, along with associated
bar and low pressure steam at 7 bar. The high
ancillary plant. The reverse osmosis system
pressure steam from each of the heat recovery
comprises of 14 trains in the first pass and 7 trains
steam generators is combined in a common header
in the second pass. Unlike "natural" osmosis, which
and passes to one of the two steam turbines as is
facilitates solvent migration so that concentrations
low pressure steam.
are even on both sides of the membrane, reverse
The facility is provided with bypass stacks allowing
operation of each combustion turbine in open
cycle if a boiler or steam turbine failure occurs
and steam dumping direct to the steam turbine
osmosis involves forcing seawater at high pressure
through a membrane that is almost impervious to
suspended minerals. In the end pure water is left
on one side and highly concentrated brine on the
other.
220 kv
3 x 470m3 air / sec
3 x 9.5 kg natural gas / sec
3 x 121MW
temp 551ºC
3 x 1.5 kg natural gas / sec
3 x 328 ton steam / h; 90 bar; 544ºC
2 x 157MW
Water
Power Consumption
31MW
Reverse Osmosis
remineralization
132 mbara
potable water; 5,000 m3 / h
seawater
15,500m3 / h seawater
| 16 | Annual Report 2013
Reverse osmosis needs much less energy than MSF
SMN Barka has contracted the O&M of the power
or MED. It also provides SMN Barka the flexibility,
station to STOMO under an arrangement covering
in certain cases, to buy power from the grid for the
the management of major maintenance for the
purpose of running the desalination plant, instead
entire plant.
of depending only on its own generated power.
The plant operates on natural gas as primary fuel
with fuel oil as back-up. The Plant is connected
to the gas transmission infrastructure owned
and operated by MOG, to the existing water
transmission system owned and operated by
PAEW and finally to the main interconnected
transmission system at 220 kV which is owned and
operated by the OETC.
The auxiliary power for the Plant is derived from
the Plant’s internal electrical system with back up
from the grid. The equipment and facilities required
for the operation, testing, maintenance and repair
of the equipment (for example control room,
laboratory, stores, workshop, etc.) are available at
site.
Description of Al Rusail Plant
Al Rusail is a natural gas-fired 665 MW power
plant, the first state-owned power generation
company to be privatized in the Sultanate of Oman.
In December 2006, the shareholders acquired from
the Government, the shares of Al Rusail (through
acquisition of 99% of the shares in Al Rusail by
SMN Jafza).
The Plant is located inland, approximately 40 km
west of Muscat in an industrial area. It consists of
eight Frame 9E gas turbines that were installed in
four phases between 1984 and 2000. Al Rusail’s
primary fuel is natural gas supplied by MOG, but
diesel oil is also stored on site to serve as a backup
fuel. Power capacity and production are sold to
the OPWP under the 17-year PPA ending in March
2022.
132 kV
8 x 400m3 air / sec
6 x 80MW
2 x 93MW
8 x 7 kg natural gas / sec
Annual Report 2013 | 17 |
Description of the Company
The combustion turbines are laid out side by
side. An overhead travelling crane can access
all turbines for maintenance purposes. The
generating equipment is outdoor type with the 132
kV Gas Insulated Switchgear (GIS) housed in brick
buildings.
Underground cable circuits run from
– Phase IV consists of GT 8 commissioned
in 2000.
As a result of technology advances over time,
the machines have different firing temperatures
and
spares
are
therefore
not
necessarily
interchangeable between units
the generator step-up transformers to the 132 kV
switchgear and then by overhead line to the system
at the northern and southern site boundaries.
The control room, management offices and
administration are housed in one building adjacent
to the gatehouse. Spares are housed in a separate
building on the site. The Plant is connected to the
main interconnected transmission system at 132
kV.
Generators
Generators for Unit GTs 1 to 6 are of Brush (UK)
manufacture, for Unit GT 7, Alstom (France) and
Unit GT 8, BHEL (India). The generators are rated
at 0.8 power factor and are variously stated at 15
oC, 40 oC and 50 o C, but all generators match the
turbine outputs. The terminal voltages are 11 kV,
11.5 kV, 14 kV and 15 kV. The associated AVRs
Al Rusail has contracted the O&M of the power
have a voltage range of ±15 per cent, which is
station to STOMO under an arrangement covering
used to regulate the reactive power output of each
the management of major maintenance for the 665
generator.
MW power station.
Generator transformers
Combustion turbines
Unit GTs 1 to 3 are of Bonar Long (UK) manufacture,
The combustion turbines are all the same frame
Unit GTs 4 to 6 are from Nuova di Legano (Italy),
size but have been provided by different suppliers
Unit GT 7 is from Crompton Greaves (UK) and Unit
at different times. The EPC Contractors who built
GT 8 from BHEL (India).
Al Rusail units prior to the privatization were MJB
Unit GT2 transformer in July 2012, it was replaced
/ GE / Alstom / BHEL, recognized as some of the
with new ABB make transformer. The failed GT2
world’s leading suppliers of systems, components
transformer was refurbished by Voltamp (Oman)
and services in the generation, transmission and
over the year. After successful factory test, it
distribution of power. The units at Al Rusail were
has been commissioned in place of the old GT3
installed in four phases between 1984 and 2000:
transformer, which refurbishment by the same
– Phase I consists of GTs 1, 2 and 3 the first
company is ongoing to replace the existing GT1
being commissioned in 1984.
Following the failure of
transformer by end of 2014.
– Phase II consists of GTs 4, 5 and 6 the first
being commissioned in 1987.
– Phase III consists of GT 7 commissioned
in 1997.
| 18 | Annual Report 2013
132 kV switchgear
The 132 kV SF6 switchgear comprises two (2)
phases, phase 1 being of GEC (UK) manufacture
(12 bays), whilst phase 2 is of Merlin Gerin (France)
Al Rusail has an excess capacity of 10 MW which
manufacture, DHT7 (13 bays).
can be contracted with OPWP.
The Initial Public Offering (IPO)
Pre IPO
Post IPO
Kahrabel
47.5%
Public
35%
Mubadala Power Holding
36.625%
Kahrabel
30.875%
MDC Industrial Holding
10.875%
Mubadala Power Holding
30.875%
National Trading Co.
5%
National Trading Co.
3.25%
The Project Founders’ Agreement (PFA) requires
into an SAOG at the time of the IPO. EHC approved
that the Founders float 35% of the shares in the
the amendment, and an amendment to the PFA
Project Companies on the MSM through an IPO.
was executed on 30 October 2010 to reflect such
It was envisaged under the original PFA that
change in approach.
an Omani SAOG was to be established for the
purposes of fulfilling the obligation of the Founders
of the consortium to undertake an IPO, which
SMN Jafza could not satisfy since it is a JAFZA
company incorporated in the United Arab Emirates.
Following the incorporation of the Omani SAOG,
the Founders were to ensure that all of the rights,
title and interests of SMN Jafza are simultaneously
In accordance with the amended and restated
PFA the Shareholders incorporated SMN Power
Holding SAOC in May 2011. Pursuant to (i) a share
sale and subscription agreement dated 9 August
2011 and entered into between the Company
and SMN Jafza; and (ii) the Deed of Novation, all
of the rights, title and interests of SMN Jafza in
transferred to the Omani SAOG and all of the
the two Project Companies (including the shares
obligations and liabilities of SMN Jafza are be
in the Project Companies and rights under the
simultaneously assumed by the Omani SAOG. It
ECL’s) were transferred to the Company for the
was agreed in October 2010 between the Founders
purpose of offering 35% of the share capital of the
that the PFA be modified in order to allow for a two
Company to the public through an IPO at which
step approach comprising (i) the incorporation of
time the Company has been converted from an
an SAOC and (ii) the transformation of the SAOC
SAOC to an SAOG.
Annual Report 2013 | 19 |
Description of the Company
On 2 May 2012, Mubadala Power Holding
that year, attracted strong interest from investors
Company Limited has acquired a stake of
and the issue collected RO 40.9 million against
10.875% (2,171,037 Shares) in the Company from
the target size of RO 24.6 million. Accordingly, the
MDC Industry Holding Company LLC. With this
issue was subscribed 1.7 times. Following the IPO,
acquisition, the stake of Mubadala Power Holding
35% of the shares of SMN Power have been listed
Company Limited has increased to 30.875%.
since 23 October 2011 on the Muscat Securities
Both the seller and purchaser are ultimately
Market.
owned by Mubadala Development Company
PJSC. Mubadala Power Holding Company Limited
received the approval of the Capital Market
Authority on 4 April 2012 to increase its stake in
the Company up to 30.875%.
On 31 December 2013, the share price of SMN
Power reached RO 5.45 per share, close to its
highest level since the listing of the Company on
23 October 2011. The level of the dividends paid
since then amounts to 1 Rial 163 bzs per share
The IPO of SMN Power Holding, the only IPO in
compared to 1 Rial 013 bzs, as projected in the
Oman in 2011 and one of the very few in the region
IPO prospectus.
TOP 20 AWARD
On 7 January 2014, SMN Power received the Top
20 Award rewarding largest corporations in Oman.
The event was being held by Oman Economic
Review (OER) under the patronage of the Capital
Market Authority. The award was collected by
Dr. Abdullah Al Yahya’ey, Vice Chairman of SMN
Power.
OER’s ranking assesses the country’s corporate
sector based on financial indicators including
growth of profit, earnings per share and share price
growth.
| 20 | Annual Report 2013
Profile of the Founders
Kahrabel F.Z.E.
worldwide and achieved revenues of €82 billion
Kahrabel F.Z.E. oversees and manages the
in 2012. GDF SUEZ S.A. is listed on the Brussels,
development, construction and operation of the
Luxembourg and Paris stock exchanges and is
electricity & water business of International Power
represented in the main international indices: CAC
Ltd in the Middle East and North African region.
40, BEL 20, DJ Euro Stoxx 50, Euronext 100, FTSE
Kahrabel FZE is an entity 100% owned directly
and indirectly by International Power Ltd. through
other minority stakes held by GDF SUEZ Group
companies, which operates under the commercial
Eurotop 100, MSCI Europe, and Euronext Vigeo
(World 120, Eurozone 120, Europe 120 and France
120). Further information about the GDF SUEZ
Group is available at: www.gdfsuez.com
brand name of GDF SUEZ Energy International.
In the Gulf Cooperation Council countries (GCC),
GDF SUEZ Energy International is responsible for
Kahrabel F.Z.E. acts as an asset developer, selling
the energy activities of the GDF SUEZ Group in 31
the electricity and water it produces directly to
countries across five regions worldwide. Together
public distribution companies under long-term P(W)
with power generation and water desalination,
PAs. Kahrabel F.Z.E. is the GCC’s leading private
GDF SUEZ Energy International is also active in
power developer with a total power generation
closely linked businesses including downstream
capacity (including capacity in operation and
liquefied natural gas, gas distribution and retail. It
under construction) of 27,000 MW and almost 5.3
has a strong presence in its markets with 78 GW
million m³ of water per day of desalination capacity
gross (41.9 GW net) capacity in operation and
(as of January 2014). Its assets are located in the
5.5 GW gross (3.5 GW net) capacity of projects
United Arab Emirates, the Sultanate of Oman, the
under construction as at 30 June 2013.
GDF
Kingdom of Saudi Arabia, the Kingdom of Bahrain,
SUEZ Energy International is a proven international
Qatar and Kuwait. Kahrabel F.Z.E. provides
power plant developer and operator, with a strong
operations & maintenance services to the projects
track record in the Middle East and internationally,
that it has developed and built through O&M
and has vast expertise with Siemens’ SGT5-4000F
companies generally incorporated by Kahrabel
turbines, which are used in our plant.
F.Z.E. in the country where the relevant assets
International Power Ltd is owned directly and
are located. In the Sultanate of Oman, Kahrabel
indirectly by GDF SUEZ S.A. through other
F.Z.E. has direct and indirect ownership interest
minority stakes held by the GDF SUEZ Group,
in six of the eleven operational independent power
one of the world’s leading energy companies
and water projects. This experience has allowed
and a benchmark in the fields of gas, electricity,
Kahrabel F.Z.E. to build up a strong relationship
energy services and the environment. The group
with OPWP and acquire in-depth knowledge of
is active throughout the entire energy value
the country, including its regulations and customs,
chain, in electricity and natural gas, upstream to
which is highly beneficial to the management of
downstream. It currently employs 138,200 people
these projects.
| 22 | Annual Report 2013
Mubadala Power Holding Company
diversified group. The corporations are engaged
Mubadala Power Holding Company Limited is a
in activities such as power generation, harvesting
wholly owned subsidiary of Mubadala Development
of fish, travel, security equipment, oil & gas,
Company PJSC (Mubadala), a registered public
printing & electronics and providing contracting
joint stock company in the Emirate of Abu Dhabi.
services. Other corporations supported by the
Mubadala
is
a
catalyst
for
diversification of Abu Dhabi.
the
economic
Established and
owned by the Government, the company’s strategy
is built on the management of long-term, capital-
National Trading Company produces chemicals
and procure raw materials. The established areas
of operation are construction and contracting,
engineering and business promotion.
intensive investments that deliver strong financial
Associated/subsidiary companies of NTC consist
returns and tangible social benefits to the Emirate.
of Gulf of Oman Fishing International LLC, Al
The
company
partners
with
leading
global
organizations to develop, operate, or invest
in businesses across a wide range of industry
sectors including aerospace, financial services,
healthcare,
information
communications
and
technology, infrastructure, logistics, metals and
mining, semiconductors and real estate. By doing
so, Mubadala accomplishes its mission to expand
the economic base of the Emirate and contribute
to the growth and diversification of the Abu Dhabi
economy.
For more information about Mubadala, please visit
Madina Development & Supply LLC, Security
Printing Press LLC, Falcon Insurance SAOC,
Oman Chlorine Company SAOG, Oman Holding
International SAOG, National Trading & Projects
Company LLC, Oryx Metal Industries LLC, Sita
& Al Bashaer Environment LLC, Stow NTC LLC,
Gulfcon Logistics, 4 Trust LLC, BioMatrix LLC,
WDS Middle East LLC, Al Rusail Power Company
SAOC, SMN Barka Power Company SAOC and
SMN Power Holding SAOG.
Further information about NTC is available at:
http://ntc-oman.com.
www.mubadala.ae
National Trading Company LLC
National Trading Company, which was founded
in 1982 with a capital of RO 210,000, serves
as a holding group for investment and project
development. The capital was later increased to
RO 1 million. The owners of NTC are HH Haitham
bin Tarik Al-Said and Antonios Chatzi Georgiou.
Focusing on the development of Oman, the National
Trading Company establishes corporations to
facilitate projects and develop industries as a
Annual Report 2013 | 23 |
Management Discussion and Analysis Report
The Business Model
over a long-term period. The supply of the output
The business model of both the project companies
to the off-taker OPWP, the gas supply from MOG,
held by SMN Power Holding SAOG, i.e. SMN Barka
the operation and maintenance of the plants by the
and Al Rusail, is based on a strong contractual
operator STOMO and the financing of the project,
framework, with solid and reliable partners. Back-
are all guaranteed over a long-term period of 15
to-back contracts significantly reduce the risks
years for SMN Barka and 17 years for Al Rusail.
STOMO
Operation and Maintenance
costs contracted over the
life of the PWPA and
back-to-back with OPWP
off-take agreement
Ministry of
Oil & Gas
Long term contracted
fuel supply agreement
that is back-to-back
with the OPWP
off-take agreement
SMN BARKA
&
Al Rusail
Long term contracted
revenues base on
availability of Power and
Water, on the back of
the strong credit
worthiness of OPWP
OPWP
Long term financing
agreements with hedging
strategy to mitigate interest
rate risk
Lenders
Over this 15-year period (17 years for Al Rusail),
and operational excellence are applied, to ensure
ending in March 2022 for Al Rusail and March
availability and efficiency.
2024 for SMN Barka, the project companies are
Interest rates volatility and impact on the financing
remunerated for their capacity and availability.
expenses are mitigated through adequate hedging
Their profitability and ability to generate cash flows
policies, in line with the requirements defined by
are independent of market fluctuation, commodity
the lenders in the Facility Agreements.
prices and market demand throughout the PWPA
Finally, the Company is benefiting from the strong
terms. The plants are operated and maintained
track records of its original founders, reflected in the
under the terms of the O&M agreement with
high level of experience of the Board of Directors,
STOMO. The highest standards in terms of H&S
bringing significant value to both projects.
| 24 | Annual Report 2013
Financial Highlights
All figures in RO ‘000
2013
2012
Variance
Total Revenues
74,560
84,998
(10,438)
Net Profit
7,844
6,562
+1,282
Total Assets
268,860
281,800
(12,940)
Total Shareholders’ Fund
31,410
32,749
(1,339)
Paid-up Capital
19,964
19,964
-
Hedging Deficit
(19,145)
(32,737)
+13,592
2013
2012
Variance
Return on Total Assets
2.92%
2.32%
+0.6%
Net Profit to Revenue
10.52%
7.71%
+2.81%
91.6 : 8.4
92.0 : 8.0
-
424 bzs/share
602 bzs/share
(178) bzs/share
Debt : Capital Ratio
Ordinary Dividend
(incl. final dividend for 2013)
Analysis of the Profit & Loss
potable water production was 43,536,256 m³
The consolidated net result for the period ended
in 2013 (+849,734 m3). Increase / decrease in
31 December 2013 amounts to RO 7,844,000
variable revenues do not impact Gross Profit.
corresponding to net earnings of 393 bzs per share.
The decrease in variable revenues is offset by
The increase of RO 1,282,000 with respect to
the decrease in variable costs for an equivalent
2012, results mainly from higher capacity revenues
amount.
as a consequence of Barka 2 and Rusail excellent
2) Fixed Capacity Fees, net of finance lease
availability, insurance proceeds and lower financial
income variance, increased significantly with
expenses.
respect to last year by RO 671,000. Fixed
Operating revenues decreased by (-RO 10,438,000)
Capacity Fees reflect the availability of the
(-12.3%) to RO 74,560,000. Operating revenues
plant. Such positive result has been achieved
include variable revenues (Fuel Charge and
thanks to the excellent availability of the Barka
Variable Operating & Maintenance Charge) and
2 and Rusail plants over 2013.
fixed revenues (Fixed Capacity Fees).
1) The decrease in variable revenues (- RO
10,954,000) is the consequence of lower
3) Additional RO 259,000 insurance proceeds
following acceptance in 2013 of the 2012
transformer failure claim by the insurers.
dispatching levels as a result of additional
4) The residual variance with respect to 2012
power capacities commissioned in the country
operating revenues (-RO 414,000) includes,
during the year. The total power production
among others, non-recurrent 2012 revenues
was 4,108 GWh in 2013 (-2,452 GWh) and
from demineralized water sales used for
Annual Report 2013 | 25 |
Management Discussion and Analysis Report
the construction of Barka 3 plant and other
Al-Rusail has filed an objection. Management is
revenues from fuel oil dispatching of both plants
confident of a favourable outcome. Such position
for a few hours during the months of June and
is supported by the independent assessment
August 2012.
obtained by Al-Rusail from its tax advisor.
As a result of the above elements and considering
Accordingly earnings per share for the year 2013
the additional operating costs incurred in 2012 for
were not affected.
the replacement of the stator vanes on the three
Gas Turbines of Barka 2 plant, the Gross Profit in
Analysis of the Balance Sheet
2013 increased by RO 774,000 to RO 21,915,000.
The
General & Administrative expenses amount to
total
consolidated
assets
amount
to
RO 268,860,000 on 31 December 2013.
Current assets and liabilities with regards to
RO 1,031 in line with 2012.
Financing costs decreased drastically (+ RO
1,270,000) following the scheduled repayments
of the facilities and the decrease in the effective
interest rate as a result of swap contracts expiring
2012 remain stable. Other major balance sheet
movements were driven by the depreciation
of the plant (fixed assets), the appropriation of
the 2012/2013 consolidated net result and the
in March 2013. Finally, with consideration of 2012
payment of the Senior Debt installment and
non-recurrent other income booked in accordance
interests as scheduled.
with the terms of the EPC contract settlement
The hedging deficit, net of deferred tax, is negative
agreement (- RO 510,000), the Profit before Tax
by RO –19,145,000 by end of 2013. Variance with
increased by RO 1,512,000 to RO 8,918,000.
respect to last year balance (2012: RO –32,737,000)
Income tax is higher due to the higher taxable
results from the scheduled repayments falling due
profits and deferred tax expenses during the year.
over the year and the increase in forward interest
Accordingly, the Company achieved a Net
rates. As per IAS 39, the fair value of financial
Profit for the year ended 31 December 2013 of
instruments has to be calculated at each balance
RO 7,844,000, RO 1,282,000 above 2012.
sheet date. Such deficit represents the lack of
Early
January
2014,
the
Tax
Department,
completing its assessment for the tax year 2007 of
Al Rusail Power Company (Al-Rusail), disregarded
opportunity for the future would the Company
have been hedged at the inception of the project
and exposed to interest rate volatility. Considering
the finance lease model adopted by the Company
the obligations defined in the Facility Agreements,
in its Financial Statements in compliance with IFRS
the Company however is not allowed to be fully
and completed the tax assessment on the basis of
exposed to market volatility. Such deficit does
‘fixed asset’ model allowing tax depreciation to the
neither impact the future profitability of the
Company. The Tax Administration’s position being
Company nor its capability to distribute dividends
in clear contradiction with Income Tax Law 47/81,
to the shareholders.
| 26 | Annual Report 2013
The Company repaid installments of its long-
the EPC Contractor in October 2013 defining the
term loans in accordance with the contractual
remediation plan, extension of the warranty period
repayment schedule. The Company is pleased to
for those equipment and extension of the 4 MUSD
announce that it met all its obligations under its
Retention Money Bond up to June 2017.
bank covenants.
Outlook for 2014
Dispute with the EPC Contractor
The Management of the Company remains
SMN Barka Power Company declared the Project
confident for 2014, thanks to the robustness of
Commercial Operation Date (“PCOD”) on 15
the power sector in the Sultanate of Oman, the
November 2009, against an originally scheduled
increasing performance of the plants over the past
date of 1 April 2009. Operational and timing issues
2 years and the business model of the Company
caused a major dispute between SMN Barka and
based on back-to-back long-term contracts.
the EPC contractor Doosan Heavy Industries &
Construction.
An amicable dispute resolution process was
initiated with the EPC Contractor, Doosan, in
March 2010 and in May 2012, the settlement
and final agreement settled all outstanding
disputes, including some additional corrections
and warranties by the EPC contractor. By end
of 2013, all conditions defined in the settlement
Internal control systems
The Management believes in a strong internal
control
system.
Control
environment
has
been further reinforced over the year 2013 by
continuously enhancing the organization of the
Company, upgrading the accounting and reporting
systems and further implementing policies and
procedures on key processes.
agreement were completed by Doosan at the
In compliance with the CMA regulation, full-time
exception of the remediation for the High Pressure
internal auditor was appointed during the year.
Pumps leaks and crevice corrosion. As a result,
Moore Stephens will continue to support the
a second settlement agreement was reached with
Internal Audit function of the Company.
Annual Report 2013 | 27 |
Corporate Governance Report
As per the guidelines issued by the Capital Market
Management’s
Authorities (CMA) vide their circular 11/2002 dated
structures, policies and processes ensures that the
3 June, 2002 and the Capital Market Authority
highest standards are adopted and implemented,
Administrative Decision No. 5/2007, the Board and
consistent with local and international regulatory
Management of SMN Power Holding SAOG (SMN)
requirements and principles. In this respect, during
presents the third Corporate Governance Report
the year 2013, the following policies have been
for the year ended 31 December 2013.
approved and implemented:
The Company’s Corporate Governance philosophy
is based on three main components: shareholders’
enhancement
and
transparency,
review
of
corporate
HR Policies & Procedures Manual
Company’s Philosophy
value
ongoing
strict
observance of the laws and display of the highest
ethical standards in conducting its business.
The composition of the Board of Directors is
designed to ensure its independence that will,
in turn, ensure an effective discharge of its
responsibilities. Similarly, the Audit Committee is
composed of three non-executive directors with
high level of expertise in financial matters.
On 29 July 2013, pursuant to the Capital Market
Authority Administrative Decision 6/2002 “Rules of
constitution of Board of Directors and appointment
of Internal Auditor and legal advisor”, the Board
of Directors of SMN Power appointed Ms. Intisar
Al-Kharusi as Internal Auditor. The internal audit
Procurement Policies and Procedures Manual
HSE Management Manual and Procedures
Health, Safety, Environmental Management
and Emergency Response System
IT Systems Back-up and Recovery Tests
Policies & Procedures
Short-term
Cash
Investment
Policies
&
Procedures
Deployment
of
the
Ethics
Charter
and
appointment of the Ethics Officer
On 29 October 2013, the Audit Committee reviewed
the list of Policies & Procedures applicable for the
Company and its affiliates and concluded that the
management system of the Company is up-todate. Such list and content of policies is reviewed
on a yearly basis in compliance with the Audit
Committee working plan.
function of the Company is supported by Moore
Stephens.
Annual Report 2013 | 29 |
Corporate Governance Report
The Board of Directors
The Board of Directors is composed of seven non-executive members.
Details of composition and attendance of Board Members for Board Meetings during 2013:
Board of Directors Meetings - 2013
AGM
6
Mar.
26
Mar.
Name of Directors
Category of
Directors1
Mr. Mario Savastano (Chairman)
Non-Executive &
Independent
4
Non-Executive &
Independent
4
Mr. Masroor Jilani
Non-Executive &
Independent
4
Mr. Antonios Chatzi Georgiou
Non-Executive &
Independent
4
Mr. Ahmed Yahia (*)
Non-Executive &
Independent
Mr. Mohammed Issa Khalfan
Alhuraimel Alshamsi (**)
Non-Executive &
Independent
Mr. Gijs Olbrechts
Mr. Alan Robinson
Dr. Abdullah Al Yahya'ey
(Vice-Chairman)
* Resigned during the year
8
May
29
July
-
30
Oct.
-
2
-
2
-
Non-Executive &
Independent
4
-
Non-Executive &
Independent
4
-
-
-
-
Total
** Appointed during the year
On 29 July 2013, The Board of Directors
On 16 January 2014, to fill the vacancy resulting
received the resignation of Mr. Ahmed Yahia. Mr.
from the resignation of Mr. Mario Savastano,
Mohammed Issa Khalfan Alhuraimel Alshamsi was
Mr. Johan Van Kerrebroeck was appointed as
appointed as Temporary Director during the Board
Director and elected Chairman of SMN Power, in
of Directors held on the same day.
replacement of Mr. Mario Savastano.
During the year the CMA, vide its circular No. (K/9/2013) dated 20/11/2013, postponed application of Independent Director and Related Parties as
1
amended in their circular No. (K/14/2012) dated 24/10/2012. The Company therefore decided to classify the directors as existed before the issuance of
Circular (K/14/2012).
| 30 | Annual Report 2013
Directorship / membership in other public Companies (SAOG) in Oman held during the year:
Name of Directors
Position held
Name of the Company
Mr. Mario Savastano
None
-
Mr. Masroor Jilani
None
-
Mr. Antonios Chatzi Georgiou
Vice-Chairman
Director
OHI SAOG
Oman Chlorine SAOG
Mr. Ahmed Yahia
None
-
Mr. Mohammed Issa Khalfan
Alhuraimel Alshamsi
None
-
Dr. Abdullah Al Yahya'ey
None
-
Mr. Gijs Olbrechts
None
-
Mr. Alan Robinson
None
-
The profile of the Directors and management
accounting and financial reporting processes.
team is included as an annexure to the Corporate
The compliance by the Company with legal and
Governance report.
regulatory requirements.
Consistent with the above responsibilities, the
The Audit Committee
The primary purpose of the Audit Committee is
to serve as an independent and objective party
to monitor the Company’s financial reporting
process and internal control system and to review
and appraise the audit efforts of the Company’s
Audit Committee encourages management to
engage in continuous improvement of, and foster
adherence to, the Company’s policies, procedures
and practices at all levels. The Committee provides
an open channel of communication among the
external auditors, financial and other senior
statutory auditors to the Board.
management, and the Board.
The Audit Committee comprises of 3 Directors
appointed by the Board and meets at least 4 times
The Audit Committee charter has been approved
by the Board of Directors and is in line with
annually, reporting to the Board of Directors.
Annexure 3 of the Code of Corporate Governance.
All members of the Audit Committee are nonOn a yearly basis, around the month of October,
executive.
the Audit Committee defines its working plan
The
Audit
Committee’s
primary
duties
and
responsibilities are to assist the Board in the
oversight of:
The integrity of the parent and consolidated
financial statements of the Company.
for the coming year. The working plan is placed
before the Board of Directors of the Company for
approval. The 2014 Audit Committee working plan
has been approved by the Board of Directors held
on 30 October 2013.
The integrity of the Company’s auditing,
Annual Report 2013 | 31 |
Corporate Governance Report
Composition of the Audit Committee and attendance during 2013:
Meetings held and attended during 2013
Name of Committee Members
Position
5
March
7
May
28
July
29
Oct
TOTAL
Mr. Masroor Jilani
Chairman
4
Mr. Mario Savastano
Vice-Chairman
4
Mr. Gijs Olbrechts
Member
4
On 16 January 2014, Mr. Johan Van Kerrebroeck has been appointed as Member of the Audit Committee
of the Company, following the resignation of Mr. Mario Savastano.
Process of Nomination of the Directors
Directors are selected as per the Article 20-23
of Articles of Association of the Company, at
the Annual General Meeting (AGM). The process
calls for any individual or registered shareholders
to file their nominations, for the post of directors
in prescribed form as stipulated by the Capital
Market Authority (CMA). The nomination files are
Remuneration Matters
a) Directors – Remuneration / Attendance Fee
As per Article No. 42 of Articles of Association
and administrative decision 11/2005 issued by
CMA, the Company was entitled to pay directors’
remuneration, sitting fees and sub-committee
sitting fees not more than 5% of calculated net
profit.
scrutinized as prescribed by the CMA guidelines
before being accepted.
Elections are held by
ballot at the AGM.
During the Board meeting held on 31 October
2011, the Board of Directors has approved sitting
fees of RO 400 for the Board of Directors and RO
Pursuant to the terms of Article 95 of the
Commercial Companies Law No 4/1974 as
translated into Clause 25 of SMN Power Articles
of Association, The tenure of the members of the
Board shall be for three (3) years, subject to reelection where a year for these purposes is the
200 respectively for the Audit Committee, effective
as from 2012. The sitting fees are payable to the
Board members and Audit Committee members
for attending the Board meeting and Audit
Committee meeting respectively either in person
or over phone/video conference.
period between two annual general meetings or,
if a member of the Board is appointed other than
at an annual general meeting, the period between
his or her appointment and the next annual general
meeting. As a consequence, full re-election of
Sitting fees for the year 2013 due to the Directors
attending
Boards
of
Directors
and
Audit
Committees amount to RO 11,200. No further
remuneration was paid to Directors.
the Board of Directors of the Company shall be
b) Top Five Officers of the Company
organized at the Coming Annual General Meeting
The top five executives of the Group were paid an
to take place on 31 March 2014.
aggregated amount of RO 376,306 which includes
| 32 | Annual Report 2013
related discretionary bonuses. The remuneration
Means of Communication with
Shareholders and Investors
paid is commensurate with the qualification, role,
The Company disseminates its financial results
responsibility and performance of the executives
and material information by uploading the same on
during the year 2013.
the MSM website. The Company is committed to
management fees, salaries and performance
publish its quarterly unaudited financial results and
Details of Non Compliance by the
Company
There have been no instances of non-compliance
on any matter relating to the CMA’s code of
corporate governance for MSM listed companies,
CMA regulations or the MSM listing agreements.
annual audited results in two newspapers, English
and Arabic. The annual accounts and the Directors’
report are dispatched to all the shareholders by
mail as required by the law and are also available
at the Company’s Head Office. The Company
discloses its initial and unaudited financial results
There were no penalties or strictures imposed on
by uploading the same on the MSM website. The
the Company by CMA, MSM or any other statutory
Company is available to meet its shareholders and
authority on any matter related to capital markets
their analysts as and when needed.
during the last three years.
The Group has a website at www.smnpower.com
During the second quarter 2013, the Capital
and the financial results are posted when required.
Market Authority’s audit team (the “CMA”) carried
Disclosures are uploaded on MSM website.
out a field visit aiming to check the Company’s
compliance with the systems and regulations
issued by the CMA. The CMA expressed its
The Management Discussions and Analysis Report
appended to this report assures fair presentation
of the affairs of the Company.
satisfaction with the Company’s compliance and
encouraged the management to continue with its
approach.
Annual Report 2013 | 33 |
Corporate Governance Report
Market Price Data
The Company has been listed on the Muscat Securities Market as from 23 October 2011.
The monthly high/low prices of the Company shares over the year 2013 are as shown below.
Month
High
Low
Average
MSM 30 Index
January 2013
4.50
4.50
4.50
5,807.95
February 2013
4.60
4.45
4.51
6,897.80
March 2013
5.50
4.60
5.18
6,074.37
April 2013
5.42
5.40
5.40
6,157.81
May 2013
5.40
5.25
5.26
6,313.87
June 2013
5.25
5.13
5.17
6,460.89
July 2013
5.20
5.13
5.19
6,564.92
August 2013
5.20
5.20
5.20
6,806.64
September 2013
5.74
5.20
5.55
6,589.02
October 2013
5.75
5.70
5.72
6,657.95
November 2013
5.70
5.40
5.46
6,755.17
December 2013
5.45
5.43
5.44
6,782.32
During the AGM held on 26 March 2013, the
2011, a total amount of RO 1.163/share has been
Shareholders approved the declaration of a final
distributed to the Shareholders of the Company
cash dividend of 236 bzs / share to all shareholders
who subscribed to the share during the Initial
as per shareholders’ register details as on 1 May
Public Offer (IPO) in October 2011 and still held
2013. The dividend was paid early May 2013.
those shares by 31 October 2013.
The Company has paid an interim dividend of 224
bzs/share to all shareholders as per shareholders’
register details as on 31 October 2013. The
dividend was paid early November 2013.
Distribution of Shareholding
The distribution of shareholding of SMN Power
Holding SAOG as at 31 December 2013 was as
follows:
Since the listing of the Company on 23 October
CATEGORY
Number of
Shareholders
Number of shares
held
Share capital %
Less than 5%
291
5,625,240
28.18%
5% to 10%
2
2,010,822
10.07%
10% and above
2
12,327,498
61.75%
295
19,963,560
100%
Total
| 34 | Annual Report 2013
Professional Profile of Statutory
Auditor
Acknowledgement by the Board of
Directors
The shareholders of the Company appointed
In line with the Commercial Companies Law
KPMG as the Company’s auditors for the year
4/1974 and the CMA Administrative Decision
2013. KPMG is a leading accounting firm in
5/2007, the Directors confirm their responsibility
Oman and is a part of KPMG Lower Gulf that was
for the preparation of the financial statements in
established in 1974. KPMG, in Oman, employs
accordance with International Financing Reporting
more than 130 people, amongst whom are 4
Standards (“IFRS”) and International Accounting
Partners, 5 Directors and 20 Managers, including
Standards (“IAS”) to fairly reflect the financial
Omani nationals and is a member of the KPMG
position of the Company and its performance
network of independent firms affiliated with KPMG
during the relevant financial period. The Board
International Co-operative. KPMG is a global
confirms that it has reviewed the efficiency and
network of independent firms providing Audit, Tax
adequacy of the internal control systems in the
and Advisory services and has more than 152,000
Company. Following its review, the Board is
outstanding professionals working together in 156
pleased to inform the shareholders that adequate
countries worldwide.
and appropriate internal controls are in place,
KPMG in Oman is accredited by the Capital Market
Authority (CMA) to audit joint stock companies
which are in compliance with the relevant rules and
regulations.
(SAOG’s). During the year 2013, KPMG billed
The Board of Directors confirms that there are no
an amount of RO 51,529 towards professional
material matters that would affect the continuity
services rendered to the Company (RO 27,422 for
of the Company, and its ability to continue its
audit and RO 24,107 for tax and other services).
operations during the next financial year.
Annual Report 2013 | 35 |
Corporate Governance Report
Brief Profiles of Directors
Name
:
Johan Van Kerrebroeck
Year of Joining
:
2014 – Chairman (previously CEO 2010-2014)
Education
:
Master Degree in Industrial Engineering Electricity. Business Education – Vlerick
Management School, Belgium and CEDEP / INSEAD, France.
Experience
:
Mr. Johan Van KERREBROECK joined GDF SUEZ Group in 1989 and developed over this period experience
in energy business in Belgium as technical manager for utility distribution (1989-1996) and head of study
department (1996-2001) in various regions in Flanders/Belgium. He was also board member of Belgian
distribution company IMEWO. He joined Tractebel EGI in 2002 as VP Transport and Distribution, focusing
on Mexico, Peru and Turkey. In 2004 he continued as Senior Vice President Transport and Distribution
in the MENA region for GDF SUEZ and Deputy CEO of PTT NGD and Amata NGD in Thailand. He was
board member in Hanjin City Gas (Korea), PTT NGD and Amata NGD. Up to January 2014 he was CEO
of SMN Power, SMN Barka and Al Rusail. In January 2014 he was appointed as Director of SMN Power
and affiliates and was elected Chairman of the Company. He currently assumes the position as EVP asset
management for GDF SUEZ- SAMEA region for Oman, Qatar and the Kingdom of Saudi Arabia.
Name
:
Dr. Abdullah Al Yahya'ey (Vice-Chairman)
Year of Joining
:
2011
Education
:
BSc. in Geology - University of Qatar, MSc. in Mineral Resources - University of
Wales, Cardiff, UK, MSc. in Basin Evolution and Dynamics - University of London,
UK, PhD. in Energy Policy - University of Dundee, UK
Experience
:
Dr Abdullah Al Yahya’ey is the Country President of Mubadala Development Company’s (MDC) Oman
Representative Office (ORO). He has been occupying this position since joining MDC in September 2007,
and since his appointment, he has made significant achievements in setting up the Mubadala ORO,
managing Mubadala interest in Mukahizna Enhancement Oil Recovery project, Habiba Gas Exploration
& Development and contributing to various MDC new business development opportunities. He spent the
period from 1988 to 2007 moving through various leadership positions in the Oman Ministry of Petroleum
and Minerals and the Ministry Oil and Gas.
| 36 | Annual Report 2013
Name
:
Antonios Chatzi Georgiou
Year of Joining
:
2011
Experience
:
Mr. Antonios Georgiou is the Managing Partner of National Trading Company LLC, well known for his
rallying achievements. Mr. Georgiou has been in Oman for over 35 years, founded National Trading
Company LLC in 1982 and has been the Managing Partner since then. Mr. Georgiou was instrumental in
the first power privatization of Manah back in 1994 and has been involved in subsequent power companies
in Oman, namely Sohar Power Company SAOG, and SMN Power. Mr. Georgiou also sits on the Board of
Oman Chlorine Company SAOG.
Name
:
Mohammed Al Huraimel Al-Shamsi
Year of Joining
:
2013
Education
:
MBA from the HEC School of Management Paris, France and a Bachelor of Business
Administration from the American University of Sharjah, UAE.
Experience
:
Mr. Mohammed Alhuraimel Al-Shamsi is a Vice President of Mubadala Development company, in which
capacity he is responsible for the asset management function of Mubadala Industry Unit’s portfolio, which
includes Metals & Mining, Utilities, and Advanced Materials and products. He also is a member of the board
of directors of Jiangsu Suyadi Tancai Company Limited based in Zhenjiang, China. Prior to that, he held
a series of executive and senior level positions with McKinsey & Company, General Motors and the UAE
Prime Minister’s Office. He has more than 10 years of experience in business development projects, asset
management and public policy.
Name
:
Masroor Jilani
Year of Joining
:
2012
Education
:
MBA from the Segal Graduate School of Business, Simon Fraser University, Canada,
Bachelor of Engineering in Computer Systems from N.E.D University of Engineering
and Technology, Pakistan, Chartered Financial Analyst (CFA), CFA Institute, USA.
Experience
:
Mr. Masroor Jilani is a Senior Vice President of Mubadala Development company, in which capacity he is
responsible for the finance function of Mubadala Industry Unit’s portfolio, which includes Metals & Mining,
Utilities, and Advanced Materials and products. Prior to that, he held a series of executive and senior level
positions with CH2M HILL, L-3 Communications and MDA Corporation. He has more than 20 years of
experience in large scale global and industrial development projects, operations management and finance.
Annual Report 2013 | 37 |
Corporate Governance Report
Name
:
Alan Robinson
Year of Joining
:
2012
Education
:
HNC Industrial Measurement and Control
Experience
:
Mr. Alan Robinson is the Plant General Manager of Qatar Power Company. Prior to that, he was a Director
of Shuwiehat S2 in Abu Dhabi and was the Operations Manager for Enron Power Operations across several
sites. Alan has a total of 35 years of experience in the industry, out of which he has spent more than 20
years in the power industry worldwide. He has been involved in EPC contracting, project management,
Operations and commissioning functions. As Plant General Manager of Qatar Power Company he has been
involved from project conception through Construction, commissioning and subsequent Operations of a
1025 Mw Power Plant with 60 MIGD of MSF desalination.
Name
:
Gijs Olbrechts
Year of Joining
:
2012
Education
:
Master in Business Economics
Experience
:
Mr. Gijs Olbrechts is Senior Vice President Business Control of GDF SUEZ Energy South Asia, Middle East
& Africa and responsible for monitoring the financial performance of all GDF Suez power and water projects
in the South Asia, Middle East & Africa region. Prior to that, he was working in the M&A department of
GDF SUEZ, responsible for debt and equity structuring of I(W)PP projects in the GCC region. He started his
career in financial audit with PwC.
He has a total of 14 years of all-round finance experience: acquisitions, investments & financial advisory,
business control, internal controls and ‘Big 4’ audit experience, out of which he has spent more 8 years in
the power sector.
| 38 | Annual Report 2013
Brief Profile of the Management Team
SMN Power Holding is led by a team of professionals managing SMN Barka Power Company and Al Rusail
Power Company. Apart from a core team of 16 employees at the Holding and Project Company levels, a
team of 130 qualified and experienced people, within STOMO, manage the operations and maintenance
at the two sites.
The senior management team, led by Gillian-Alexandre Huart, Chief Executive Officer, has been empowered
by the Board of Directors of the Company and the Project Companies, and jointly operates within welldefined authorization limits. The team is responsible for the day-to-day operations of the Company and
affiliates. The team benefits from the local and international support of its shareholders.
Particulars
Omani
Non-Omani
Total
Managers
3
5
8
Other staff
10
3
13
Total*
13
8
21
* Including 5 employees seconded to STOMO.
Name
:
Gillian-Alexandre Huart
Year of Joining
:
2014 – Chief Executive Officer
Education
:
Master Degree in Business Engineering (Solvay Brussels School of Economics
and Management), Master Degree in Political Sciences (University of Brussels) and
Management Degree from INSEAD in Singapore.
Experience
:
Mr. Gillian-Alexandre Huart joined GDF SUEZ Group in 2002 and developed over this period various
experiences in energy business in Europe and Asia Countries. After a few years as consultant for Accenture,
Mr. Gillian-Alexandre Huart took over in 2002 a Senior Internal Auditor position within Electrabel, subsidiary
of GDF SUEZ, before taking manager responsibilities in 2005 for both Market Research & Competitive
Intelligence department within Electrabel Marketing and Sales Business Unit, covering BeNeDeLux,
France and Italy. In 2008, he moved to the GDF SUEZ’s office in Bangkok as a Senior Vice-President
Business Development in Asia. He worked on several projects in the region and successfully closed various
transactions in Singapore, Thailand, Laos and India.
Annual Report 2013 | 39 |
Corporate Governance Report
Name
:
Frédéric Halkin
Year of Joining
:
2011 – Chief Financial Officer
Education
:
Master Degree in Business Engineering. Solvay Brussels School of Economics and
Management (University of Brussels).
Experience
:
Mr. Frédéric Halkin joined the GDF SUEZ group in 2004 as Corporate Controller, based in Brussels,
supervising Electrabel’s (GDF SUEZ) power activities in France, Spain and Portugal. Seconded in 2005
to Italy, he was appointed early 2007 as Head of Business Control Department for the business unit Italy,
based in Rome, coordinating business control activities of various GDF SUEZ Energy Europe assets in Italy
and Greece. Mr. Frédéric Halkin started his career in 1997 with PriceWaterhouseCoopers as Senior Auditor
in Belgium. He joined SMN Power, SMN Barka and Al Rusail in March 2011 as Chief Financial Officer
participating actively to the successful IPO of SMN Power in October 2011 and supporting strongly the
post-IPO period by participating actively in the enhancement of the organization, systems and processes
of the Company and its subsidiaries.
Name
:
Suresh Athilkar
Year of Joining
:
2010 – Technical Manager
Education
:
Master Degree in Mechanical Engineering, University of Bombay, Ex. MBA Management Development Institute, India, PMP – Project Management Institute,
USA QMS Lead Auditor – IRCA, UK.
Experience
:
Mr. Suresh Athilkar joined SMN Power, SMN Barka and RPC in February 2010 and has worked within
GDF-SUEZ Group since 2006. Prior to joining SMN Power, he was Project Manager at Hidd Power
Company in Bahrain. He joined the Ministry of Electricity & Water, Bahrain, in 1999. Earlier he worked with
Bureau VERITAS, Qatar as Chartered Engineer and QA Consultant. Over this last 25 years Mr. Suresh
gained multi-functional experience in engineering, power & desalination and oil & gas industry in India and
Middle East.
| 40 | Annual Report 2013
Name
:
Zoher Karachiwala
Year of Joining
:
2007 – Company Secretary
Education
:
Bachelor Degree in Commerce, Chartered Accountant.
Experience
:
Mr. Zoher Karachiwala is the Company Secretary. He is also the Chief Executive Officer of United Power
Company SAOG and Company Secretary of Sohar Power Company. He has 35 years in field of Statutory
Audit & Accounting and Finance. He was KPMG Audit Partner in Pakistan before joining United Power
Company in 1995. Acted as Honorary Chairman of Audit Committee and the Board of Directors for a
public company in Oman.
Annual Report 2013 | 41 |
Statement of consolidated
financial position
As at 31 December
Notes
2013
2012
RO’000
RO’000
Assets
Finance lease receivables
6
30,509
33,947
Property, plant and equipment
9
202,364
210,164
Investment in joint arrangement
26 (b)
Intangible assets
7
Non-current assets
Inventories
10
244
250
16,614
16,720
249,731
261,081
3,251
2,938
Trade and other receivables
11
4,067
4,504
Finance lease receivables
6
5,724
5,774
Fixed term cash deposits
12 (a)
2,140
4,390
Cash and cash equivalents
12 (b)
Current assets
Total assets
3,947
3,113
19,129
20,719
268,860
281,800
Equity and reserves
Share capital
13 (a)
19,964
19,964
Statutory reserve
13 (b)
3,293
2,528
8,153
10,257
Retained earnings
Shareholder's funds
Hedging deficit
14
Total equity
31,410
32,749
(19,145)
(32,737)
12,265
12
Liabilities
Long term loan
15
203,733
216,442
Hedging deficit
14
21,755
37,200
19
13
Provision for site restoration
18
5,114
4,826
Deferred tax liability
17
Provision for end of service benefits
Non-current liabilities
Current portion of long term loan
15
Trade and other payables
19
5,535
2,737
236,156
261,218
13,119
12,592
7,320
7,978
20,439
20,570
Total liabilities
256,595
281,788
Total equity and liabilities
268,860
281,800
1.573
1.640
Current liabilities
Net asset per share (RO)
30
These consolidated financial statements were approved by the Members of the board on 5 March 2014
and signed on their behalf by:
Director
Director
The notes on pages 47 to 81 form part of these consolidated financial statements.
The Independent Auditors’ report is set forth on page 42.
Annual Report 2013 | 43 |
Statement of consolidated profit or loss
and other comprehensive income
for the year ended 31 December
2013
2012
Notes
RO’000
RO’000
Revenue
21
74,560
84,998
Operating costs
22
(52,645)
(63,857)
21,915
21,141
(1,031)
(1,018)
20,884
20,123
(11,960)
(13,236)
(6)
-
-
510
8,918
7,397
(1,074)
(835)
7,844
6,562
13,592
226
21,436
6,788
0.393
0.329
Gross profit
General and administrative expenses
23
Profit from operations
Finance charges
Share of loss of joint arrangement
24
26 (b)
Other income
Profit before tax
Income tax
17
Net profit for the year
Other comprehensive income
Items that will be classified to profit or loss
Changes in fair value of cash flow hedge
14
Total comprehensive income for the year
Basic earnings per share (RO)
31
The notes on pages 47 to 81 form part of these consolidated financial statements.
The Independent Auditors’ report is set forth on page 42.
| 44 | Annual Report 2013
Statement of consolidated
changes in equity
for the year ended 31 December
Share
Legal
Retained
Hedging
capital
reserve
earnings
deficit
Total
RO ‘000
RO ‘000
RO ‘000
RO ‘000
RO ‘000
19,964
622
15,782
(32,963)
3,405
-
-
6,562
-
6,562
Fair value of cash flow hedge
adjustments
-
-
-
226
226
Total comprehensive income
-
-
6,562
226
6,788
Dividend paid (note 12(c))
-
-
(10,181)
-
(10,181)
Transfer to legal reserve
-
1,906
(1,906)
-
-
At 31 December 2012
19,964
2,528
10,257
(32,737)
12
At 1 January 2013
19,964
2,528
10,257
(32,737)
12
-
-
7,844
-
7,844
adjustments
-
-
-
13,592
13,592
Total comprehensive income
-
-
7,844
13,592
21,436
Dividend paid (note 12(c))
-
-
(9,183)
-
(9,183)
Transfer to legal reserve
-
765
(765)
-
-
19,964
3,293
8,153
(19,145)
12,265
At 1 January 2012
Net profit for the year
Other comprehensive loss
Transactions with owners recognized
directly in equity
Net profit for the year
Other comprehensive income
Fair value of cash flow hedge
Transactions with owners
recognized directly in equity
At 31 December 2013
The notes on pages 47 to 81 form part of these consolidated financial statements.
The Independent Auditors’ report is set forth on page 42.
Annual Report 2013 | 45 |
Statement of consolidated cash flows
for the year ended 31 December
Operating activities:
Profit before tax
Adjustments for:
Amortisation of deferred finance cost
Depreciation of property, plant and equipment
Gain on disposal of fixed assets
Amortization of intangible assets
Accretion charge for provision for site restoration
Ineffective portion of cash flow hedge
Provision against replacement and refurbishment of transformers
Net transfer to provision for end of service benefits
Share of loss of joint arrangement
Provision for doubtful debts
Finance charges
Working capital changes in:
- Inventories
- Trade and other receivables
- Trade and other payables
Cash generated from operations
End of service benefits paid
Finance charges paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Fixed term cash deposits (maturity 3 to 6 months)
Repayment of finance lease
Net cash from (used in) investing activities
Cash flows from financing activities:
Dividend paid
Term loan repaid
Repayment of shareholder’s subordinated loan
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 47 to 81 form part of these consolidated financial statements.
The Independent Auditors’ report is set forth on page 42.
| 46 | Annual Report 2013
2013
RO ‘000
2012
RO ‘000
8,918
7,397
409
7,955
106
288
(137)
6
6
11,263
28,814
431
7,932
(3)
106
277
(7)
38
(5)
(109)
12,535
28,592
(313)
382
(91)
28,792
(11,726)
(49)
17,017
(241)
36,810
(35,341)
29,820
(3)
(12,609)
(139)
17,069
(155)
2,250
3,496
5,591
(815)
3
(4,390)
2,790
(2,412)
(9,183)
(12,591)
(21,774)
834
(10,181)
(11,967)
(9,957)
(32,105)
(17,448)
3,113
20,561
3,947
3,113
Notes
(forming part of the consolidated financial statements)
1.
Legal status and principal activities
SMN Power Holding SAOG (the “Company”) is a public Omani joint stock company incorporated on
7 May 2011 under the Commercial Companies Law of Oman in Sultanate of Oman.
The Company holds a 99.99% stake in each of Al-Rusail Power Company SAOC (“RPC”) and SMN
Barka Power Company SAOC (“SMNBPC” and together with RPC the “Project Companies”), two
closed joint stock companies incorporated in the Sultanate of Oman.
The Company and its subsidiaries (“the Group”) are engaged in acquiring the shares of, or other
equity interests in companies engaged in the business of power generation, water desalination or
other businesses related thereto, the management and supervision of such companies, to invest its
funds in shares, bonds and securities, to provide loans, security and finance to its subsidiaries, and
to own patents, trademarks, concessions and other incorporeal rights, utilize them and lease them to
its subsidiaries and other companies.
2.
Significant events
The Company: Initial Public Offering (“IPO”)
At an Extraordinary General Meeting (“EGM”) held on 21 August 2011, the Shareholders resolved to
transform the Company into a public joint stock company (“SAOG”) organized under the laws of the
Sultanate of Oman and to amend its Articles of Associations accordingly.
The IPO was finalized during the month of October 2011 and the Company was listed on Muscat
Securities Market on 23 October 2011.
SMNBPC: Commercial Operation Date and Settlement with EPC Contractor
SMNBPC declared the Commercial Operation Date (“COD”) of the Plant on 15 November 2009
against an originally scheduled date of 1 April 2009.
An amicable dispute resolution process was initiated with the EPC Contractor in March 2010.
On 22 May 2012, SMNBPC and Doosan signed the Settlement Agreement (“Settlement Agreement”).
The execution of the settlement agreement on 1 June 2012 settles the outstanding dispute between the
two parties, principally concerning delays to the Early Power Commencement Date, the Commercial
Operating Date and some other technical issues (2nd Amendment to the EPC contract).
In accordance with the terms and conditions of the settlement agreement, Doosan relinquished in
2012 all cost claims and paid to SMNBPC:
i)
an amount of RO 10.4 million in respect of delay liquidated damages under the EPC Contract,
net of any additional works;
ii)
an amount of RO 7.4 million of liquidated damages due to the off-taker under the PWPA and
already paid by SMNBPC to OPWP in 2011;
iii)
an amount of RO 2 million as compensation for non-punch list and punch-list items for the
outstanding works to be carried out by SMNBPC; and
iv)
all outstanding invoices issued by SMNBPC for a total amount of RO 0.2 million.
As per the Settlement Agreement, SMNBPC in 2012:
i)
paid an amount of RO 16.3 million for milestones payments withheld under the EPC Contract;
Annual Report 2013 | 47 |
Notes
(forming part of the consolidated financial statements)
2.
Significant events (continued)
ii)
released the Performance Bond for an amount of RO 15.4 million; and
iii)
decreased the level of the Money Retention Bond to RO 1.9 million.
All payments arising from or in connection with the settlement agreement have been made by
SMNBPC and Doosan, resulting in a positive cash flow of RO 3.8 million for SMNBPC in June 2012.
On 26 November 2013, SMNBPC and Doosan signed the 3rd Amendment to the EPC contract
covering the outstanding warranty works on the Reverse Osmosis First Pass High Pressure Pumps
and extended the Retention Money Bond till 30 June 2017.
3. Significant agreements
a)
The Company
i)
The Share Sale and Subscription Agreement dated 9 August 2011 and entered into
between (i) the Company; and SMN Power Holding Company Limited (‘SMNPHC’).
ii)
The Deed of Novation dated 9 August 2011 and entered into between (i) SMNBPC: (ii) RPC;
(iii) SMNPHC; (iv) the Company; (v) Kahrabel FZE; (vi) Mubadala Power Holding Company
Limited; (vii) National Trading Company LLC and (viii) MDC Industry Holding Company
LLC.
iii)
Assumption Certificate: dated 9 August 2011 and entered into inter alia by the Company,
SMNPHC; SMNBPC; RPC; HSBC Bank Plc (as Facility Agent and Offshore Security Bank)
and Sumitomo Mitsui Banking Corporation (as Security Trustee) dated 9 August 2011
relating to the Equity Subscription and Retention Agreement dated 20 February 2007,
the Holdco English Charge dated 20 February 2007 and the Holdco Agreement dated 20
February 2007.
iv) Accession Memorandum to the Agreement for Security Over Omani Shares Certificate
(“ASOS”): dated 9 August 2011 and entered into by the Company and related to the ASOS.
v)
ASOS PoA: dated 9 August 2011 and entered into by the Company and related to ASOS.
vi) The Secondment Services Agreement entered into on 1 May, 2012 by and between
SMNBPC, RPC, Kahrabel Operation and Maintenance Oman LLC (“KOMO”) and the
Company.
viii) Cost Sharing Agreement entered into on 30 October 2013, by and between SMNBPC,
RPC and the Company.
b)
Subsidiary – RPC
i)
Power Purchase Agreement (“PPA”) dated 1 May 2005 (amended on 6 December 2006
and 19 April 2012) with Oman Power and Water Procurement Company SAOC (“OPWP”)
relating to the commitment (1) from the Company to sell to OPWP the available capacity
of electricity and (2) from OPWP to purchase this available capacity and electricity energy
delivered up to March 2022.
ii)
Natural Gas Sales Agreement (“NGSA”) dated 1 May 2005 and the NGSA Amendment
Agreement dated 6 December 2006 with the Ministry of Oil and Gas (“MOG”) for the
purchase of natural gas.
iii)
Usufruct agreement dated 1 May 2005 with the Government for grant of Usufruct rights
over the plant site for 25 years.
| 48 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
3.
Significant agreements (continued)
iv) Secondment Services Agreement entered into on 1 May 2012 between Al Rusail Power
Company SAOC, SMN Barka Power Company SAOC, Kahrabel Operation and Maintenance
Oman LLC and the Company.
v)
Financing Agreements with international banks and local banks and respective hedging
agreements as disclosed in notes 14 and 15.
vi) Equity Contribution Loan (“ECL”) agreement dated 20 February 2007 and 25 July 2007
with SMN Power Holding Company Ltd, subsequently transferred to SMN Power Holding
SAOG following a Deed of Novation dated 9 August 2011 and entered into between (i)
RPC; (ii) SMN Power Holding Company Ltd; (iii) SMN Power Holding SAOG; (iv) Kahrabel
FZE; (v) Mubadala Power Holding Company Limited; (vi) National Trading Company LLC
and (vii) MDC Industry Holding Company LLC with the Parent.
vii) Agreement with Bank Muscat for working capital facilities dated 15 February 2007, with
latest amendment dated 31 May 2013.
viii) Operation & Maintenance (“O & M”) Agreement with Suez Tractebel Operations and
Maintenance Oman LLC (“STOMO”) dated 1 February 2007 for a period of 15 years ending
March 2022.
ix) Cost Sharing Agreement entered into on 30 October 2013, by and between SMNBPC,
RPC and the Company.
(c) Subsidiary – SMNBPC
i)
Power and Water Purchase Agreement (“PWPA”) dated 6 December 2006, amended on
27 January 2010, with OPWP for a period of 15 years from the scheduled commercial
operation date.
ii)
Natural Gas Sales Agreement (“NGSA”) dated 6 December 2006 with the Ministry of Oil and
Gas (“MOG”) for the purchase of natural gas for a period of 15 years from the scheduled
commercial operation date.
iii)
Usufruct Agreement relating to the Barka site dated 6 December 2006 and respective
amendment dated 3 December 2007, with the Government for grant of Usufruct rights over
the plant site for 25 years.
iv) Turnkey Engineering, Procurement and Construction (“EPC”) Contract dated 14 December
2006 and successive amendments on 14 April 2008, 22 May 2012, and 26 November
2013 with Doosan to perform the engineering, procurement and construction of the shared
facilities and the plant.
v)
Settlement Agreement with Doosan dated 22 May 2012 to close the disputes related to
delay in construction of the plant.
vi) O & M Agreement with Suez Tractebel Operations and Maintenance Oman LLC (“STOMO”)
dated 10 February 2007 and O & M Agreement amendments dated 31 October 2007 and
17 December 2007 for a period of 15 years from the scheduled commercial operation date.
viii) Settlement Agreement with STOMO dated 14 April 2012 relating to the Interim Power
Period.
viii) The Secondment Services Agreement entered into on May 1, 2012 by and between SMN
Barka Power Company SAOC, Al Rusail Power Company SAOC, Kahrabel Operation and
Maintenance Oman LLC and the Company.
Annual Report 2013 | 49 |
Notes
(forming part of the consolidated financial statements)
3.
Significant agreements (continued)
viii) Financing Agreements with international banks and local banks and respective hedging
agreements as disclosed in notes 14 and 15.
ix) Equity Contribution Loan (“ECL”) agreement dated 20 February 2007 with SMN Power
Holding Company Ltd, subsequently transferred to SMN Power Holding SAOG following a
Deed of Novation dated 9 August 2011 and entered into between (i) SMN Barka: (ii) RPC;
(iii) SMN Jafza; (iv) the parent Company; (v) Kahrabel FZE; (vi) Mubadala Power Holding
Company Limited; (vii) National Trading Company LLC and (viii) MDC Industry Holding
Company LLC.
x)
Agreement with Bank Muscat for working capital facilities dated 9 September 2010 and
amended on 6 July 2011 and 31 May 2013.
xi) Shareholders Agreement dated 20 February 2007 with AES Barka SAOG in respect of the
establishment of Barka Seawater Facilities Company SAOC.
xii) Parts Co-Operation Agreement dated 01 June 2008 between Al Ezzel Power Company
B.S.C, Al Ezzel O & M Company W.L.L, Sohar Power Company SAOC, Sohar O & M
Company LLC, the Company, STOMO, and Tractebel Parts & Repairs FZE.
xiii) Cost Sharing Agreement entered into on 30 October 2013, by and between SMNBPC,
RPC and the Company.
4. Basis of preparation and significant accounting policies
Basis of preparation
a)
Statement of compliance
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”), the rules and guidelines on disclosures issued by the Capital Market Authority of
the Sultanate of Oman (“CMA”) and the applicable requirements of the Commercial Companies
Law of 1974, as amended.
b)
Basis of measurement
These financial statements are prepared on historical cost basis except for provision for site
restoration and deferred finance cost which are measured at amortised cost and derivative
financial instruments which are measured at fair value.
c)
Functional and presentation currency
The functional currency of the Company is US Dollar (“USD”) which is the currency that influences
the majority of transactions, while the presentation currency is Omani Rials (“RO”) rounded to
the nearest thousand. Exchange rate considered for conversion is USD 1 = RO 0.3845.
d)
Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the results of which
form the basis of making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources.
| 50 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision affects both current and future
periods.
In particular, estimates that involve uncertainties and judgments which have a significant effect on the
financial statements include provision for site restoration cost; provision for doubtful debts; provision
for inventory obsolescence; lease classification; and measurement of defined benefit obligation.
Significant accounting policies
The accounting policies set out below have been applied consistently by the Company and are
consistent with those used in the previous year.
(a)
Basis of consolidation
The results of subsidiaries acquired or disposed of during the year are included in profit and
loss from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All significant intra-group transactions, balances, income and expenses are eliminated in full on
consolidation.
Place of
incorporation
and operation
Proportion of
ownership
interest
Proportion
of voting
power held
RPC
Sultanate of
Oman
99.99%
99.99%
Electricity
generation
activities under
a license issued
by the Authority
for Electricity
Regulation,
Oman.
1 February
2007
SMNBPC
Sultanate of
Oman
99.99%
99.99%
Electricity
generation
and water
desalination
activities under
a license issued
by the Authority
for Electricity
Regulation,
Oman.
26 November
2006
Name of
Subsidiary
Principal
activity
Date of
acquisition /
incorporation
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power
to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that currently are exercisable are taken
into account. Management has assessed its investments as required under IFRS 10 (see note
4(u)) and concluded that it has significant control over these investments. Accordingly, the
investments continue to be recognized as subsidiaries. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences
until the date that control ceases. The accounting policies of subsidiaries have been changed
when necessary to align them with the policies adopted by the Group.
Annual Report 2013 | 51 |
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(a)
Basis of consolidation (continued)
The Group has opted for book value accounting methodology for business combination of
entities under common control, where assets and liabilities are carried over from the transferor to
the acquirer at book value. Retained earnings of the acquired companies, cumulated prior to the
acquisition date, are transferred to the acquirer and disclosed as such within the consolidated
financial statements.
Interest in joint arrangements
The Group has interests in joint arrangements which include joint operations and joint ventures.
A joint arrangement is a contractual arrangement in which two or more parties have joint control.
A joint operation is a joint arrangement whereby the parties have rights to the assets, and
obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement
whereby the parties have rights to the net assets of the arrangement.
The Group combines its share of each of the assets, liabilities, income and expenses of joint
operations with similar items, line by line, in its consolidated financial statements. The financial
statements of joint operations are prepared at the same reporting date as the Group, using
consistent accounting policies. The Group’s investments in its joint operations are accounted
for under the proportionate method of accounting.
Under the proportionate method, the Group’s share of each of the assets, liabilities, income
and expenses of the joint operation is combined line by line with similar items in the Group’s
financial statements.
Profits or losses resulting from ‘upstream’ and ‘downstream’ transactions between the Group
and the joint operation are recognized in the Group’s financial statements only to the extent of
unrelated investor’s’ interests in the joint venture.
The joint operations are proportionately consolidated until the date on which the Group ceases
to have joint control over them.
(b)
Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the
cost of the business combination over the Group’s interest in the net fair value of the separately
identifiable assets and liabilities acquired. Following initial recognition, goodwill is measured at
cost less any accumulated impairment losses. Goodwill is reviewed for impairments, annually,
or more frequently if events or changes in circumstances indicate that the carrying value may
be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination, irrespective
of whether other assets or liabilities of the Group are assigned to those units or groups of units.
Each unit or group of units to which the goodwill is so allocated represents the lowest level
within the Group at which the goodwill is monitored for internal management purposes.
Impairment is determined by assessing the recoverable amount of the cash-generating unit
(group of cash- generating units), to which the goodwill relates. Where the recoverable amount
of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an
impairment loss is recognized. Where goodwill forms part of a cash-generating unit (group of
cash-generating units) and part of the operation within that unit is disposed of, the goodwill
| 52 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(b)
Goodwill (continued)
associated with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative values of the operation disposed of and the
portion of the cash-generating unit retained.
(c)
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation
and any identified impairment loss.
i)
Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and equipment
including major inspection and overhaul expenditure is capitalized. Other subsequent
expenditure is capitalized only when it increases the future economic benefits embodied in
the item of property, plant and equipment. All other maintenance expenditure is recognized
in profit and loss as an expense as and when incurred.
ii)
Depreciation
Depreciation is calculated so as to allocate the cost of property, plant and equipment
(other than capital work in progress) on a straight line basis over the expected remaining
useful economic life of the asset concerned. The estimated useful lives for this purpose
are:
.
Plant and equipment.......................................................................................................... 30
.
Furniture, fixture and office equipment......................................................................... 5 to 7
.
Computer software.............................................................................................................. 3
.
Motor vehicles...................................................................................................................... 3
Depreciation methods, useful lives and residual values are reassessed at each reporting
date.
Years
iii) Capital work in progress
Capital work in progress is measured at cost and is not depreciated until it is transferred
into one of the above categories, which occurs when the asset is ready for intended use.
iv) Site restoration
(d)
A liability for future site restoration is recognized as the activities giving rise to the obligation
of site restoration take place. The liability is measured at the present value of the estimated
future cash outflows to be incurred on the basis of current technology. The liability includes
all costs associated with site restoration, including plant closure and monitoring costs.
Impairment
i)
Financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or
more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated
as the difference between its carrying amount, and the present value of estimated future
cash flows discounted at the original effective interest rate.
Annual Report 2013 | 53 |
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(d)
Impairment (continued)
i)
Financial assets (continued)
Individually significant financial assets are tested for impairment on an individual basis. The
remaining financial assets are assessed collectively in groups that share similar credit risk
characteristics. All impairment losses are recognized in profit or loss. An impairment loss is
reversed if the reversal can be related objectively to an event occurring after the impairment loss
was recognized. For financial assets measured at amortized cost, the reversal is recognized in
profit or loss.
ii)
Non-financial assets
The carrying amounts of the Group’s non-financial assets 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 recognized if the carrying
amount of an asset or its cash generating unit exceeds its estimated recoverable amount. The
recoverable amount of an asset or cash generating unit is the greater of 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 specific to the asset. Impairment losses recognized 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 recognized.
(e)
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership. All other leases are classified as operating leases.
Amounts receivable under operating leases, as lessor, are recognised as lease income on a
straight-line basis over the lease term, unless another systematic basis is more representative of
the time pattern in which use benefit derived from the leased asset is diminished. In accordance
with IFRS, revenue stemming from (substantial) services in connection with the leased asset is
not considered lease revenue and is accounted for separately.
IFRIC 4 deals with the identification of services and take-or-pay sales or purchasing contracts
that do not take the legal form of a lease but convey the rights to customers/suppliers to use
an asset or a group of assets in return for a payment or a series of fixed payments. Contracts
meeting these criteria should be identified as either operating leases or finance leases. This
interpretation is applicable to the Group’s PWPA.
(f)
Intangible asset
Intangible assets include inventory of spares given up in consideration of the right to operations
and maintenance services under the Operation & Maintenance (“O & M”) Agreement. This right
is amortized on a straight-line basis over the term of the O & M agreement.
(g)
Inventories
Inventories comprise of fuel oil and are measured at the lower of cost and net realizable value on
a weighted average basis. The cost of inventories includes expenditures incurred in acquiring
the inventories and bringing them to their existing location and condition. Inventory is valued
| 54 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(g)
Inventories (continued)
principally using the weighted average method. Slow moving and obsolete inventory items are
written down to their estimated net realisable value, based on criteria determined by the Group.
Work in progress comprises transformers and other parts required to provide electric capacity
to OPWP. These are recognized at cost net of any provision already recorded in statement
of profit or loss and other comprehensive income. Work in progress is reduced as expense
is realized in the statement of profit or loss and other comprehensive income in line with the
related revenue.
(h)
Financial instruments
i)
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash at bank,
loans and 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 and loss, any directly attributable transaction
costs. Subsequent to initial recognition non-derivative financial instruments are measured
as described below.
Cash at bank comprise bank balance. For the purposes of the statement of cash flows,
the Group considers all cash and bank balances with an original maturity of less than three
months from the date of placement to be cash and cash equivalents.
Other non-derivative financial instruments are measured at amortised cost using the
effective interest method, less any impairment losses.
ii)
Derivative financial instruments
The Group has entered into interest rate swap contracts in order to hedge its cash flow
exposure to future changes in interest rates payable on bank loans. The fair value of
a derivative is the equivalent of the unrealized gain or loss from marked to market the
derivative using prevailing market rates or internal pricing models. Derivatives with positive
market values (unrealized gains) are included under non-current assets and derivatives
with negative market values (unrealized losses) are included under non-current liabilities in
the statement of financial position.
Derivative financial instruments are re-measured to fair value at subsequent reporting
dates. Changes in the fair value of derivative financial instruments that are designated and
effective as cash flow hedges are recognized directly in other comprehensive income and
presented in hedging reserve in equity. Any in-effective portion is recognised immediately
in profit and loss. Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognized in profit and loss as they arise.
(i)
Provisions
A provision is recognised in the 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 an outflow of
economic benefits will be required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the liability.
Annual Report 2013 | 55 |
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(j)
Interest bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable costs such as
loan arrangement fee. Subsequent to initial recognition, interest-bearing borrowings are stated
at amortised cost with any difference between cost and redemption value being recognised in
profit and loss over the expected period of borrowings on an effective interest rate basis.
(k)
Taxation
Income tax comprises current and deferred tax. Income tax expense is recognised in profit and
loss except to the extent that it relates to items recognized directly in equity, in which case it is
recognized in equity.
Current tax is the expected tax payable on the taxable income for the period, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in
respect of previous periods.
Deferred tax is calculated using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax
rates that are expected to be applied to the temporary difference when they reverse, based on
the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the temporary differences can be utilized. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.
(l)
Foreign currency
In preparing the financial statements, transactions in currencies other than the Group entity’s
respective functional currency are recorded at the exchange rates prevailing at the dates of the
transactions.
At each reporting date, monetary items denominated in foreign currencies are translated at the
rates prevailing at the reporting date. Non-monetary items that are measured at historical cost
in a foreign currency are not translated at the exchange rates prevailing at the reporting date.
Translation gains and losses related to monetary items are recognized in profit or loss in the
period in which they arise, with the exception of those related to monetary items that qualify as
hedging instruments in a cash flow hedge that are recognized initially in other comprehensive
income to the extent that the hedge is effective.
(m) Employee benefits
Obligations for contributions to a defined contribution retirement plan, for Omani employees,
in accordance with the Oman Social Insurance Scheme, are recognized as an expense in profit
and loss as incurred.
The Group's obligation in respect of non-Omani terminal benefits is the amount of future benefit
that such employees have earned in return for their service in the current and prior periods.
| 56 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(n)
Revenue
Revenue stemming from PWPA/ PPA comprises:
From the PWPA:
–
Capacity charge covering the Investment charge and the Fixed Operating and Maintenance
charge; and
–
Energy charge covering the Fuel charge and Variable Operating and Maintenance charge.
From the PPA:
–
Fixed Operating and Maintenance charge; and
–
Energy charge covering the Fuel charge and Variable Operating and Maintenance charge.
The revenue is recognized by the Group on an accrual basis of accounting when the services
have been rendered and/or the risks and rewards have been transferred, the amounts of revenue
and related costs can be reliably measured, and it is probable that the economic benefits
associated with the transaction will flow to the Group. Capacity charge covering the investment
charge, received under the PPA, are finance lease payments (notes 6 and 21).
(o)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their
intended use, are added to the cost of those assets, until such time as the assets are substantially
ready for their intended use. Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is deducted from the cost of those
assets. All other borrowing costs are recognized as expenses in the period in which they are
incurred.
(p)
Segment reporting
Segment results that are reported to the CEO include revenues directly attributable to a segment.
Unallocated items comprise mainly assets, liabilities, expenses and tax assets and liabilities.
(q)
Directors’ remuneration
Director’s remunerations are computed in accordance with the Article 101 of the Commercial
Companies Law of 1974, as per the requirements of Capital Market Authority and are recognised
as an expense in the statement of profit or loss and other comprehensive income.
(r)
Dividend
The Board of Directors takes into account appropriate parameters including the requirements of
the Commercial Companies Law while recommending the dividend.
Dividend distribution to the Parent Company’s shareholders is recognized as a liability in the
Group’s and Parent Company’s financial statements in the period in which the dividend is
declared.
(s)
Earnings and net assets per share
The Group presents earnings per share (“EPS”) and net assets per share data for its ordinary
shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares outstanding during the
period.
Annual Report 2013 | 57 |
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(s)
Earnings and net assets per share (continued)
Net assets per share is calculated by dividing the net assets attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares outstanding during the
period.
(t)
New standards and interpretation not yet effective
A number of new relevant standards, amendments to standards and interpretations are not yet
effective for the year ended 31 December 2013, and have not been applied in preparing these
consolidated financial statements. Those which may be relevant to the Company are set out
below.
IFRS 9: Financial Instruments
IFRS 9 introduces new requirements for the classification and measurement of financial assets.
Under IFRS 9, financial assets are classified and measured based on the business model in
which they are held and the characteristics of their contractual cash flows. IFRS 9 introduces
additions relating to financial liabilities. The IASB currently has an active project to make limited
amendments to the classification and measurement requirements of IFRS 9 and add new
requirements to address the impairment of financial assets and hedge accounting. IFRS 9 is
effective for annual periods beginning on or after 1 January 2015 with early adoption permitted.
The Group is currently assessing the impact of this standard and does not plan to adopt early.
(u)
New standards and interpretation applied during the year
During the year, following new standards were applied in preparing these consolidated financial
statements with no effect on the current year consolidated financial statements.
–
IAS 1: Presentation of financial statements
IAS 1 has amended and the name of statement of comprehensive income is changed to
statement of profit or loss and other comprehensive income.
–
IFRS 10: Consolidated financial statements
IFRS 10 introduces a single control model to determine whether an investee should be
consolidated.
–
IFRS 12: Disclosure of interests in other entities
IFRS 12 brings together into a single standard all the disclosure requirements about
an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated
structured entities.
–
IFRS 11: Joint arrangements
Under IFRS 11, the structure of the joint arrangement, although still an important
consideration, is no longer the main factor in determining the type of joint arrangement and
therefore the subsequent accounting.
| 58 | Annual Report 2013
–
The Group’s interest in a joint operation, which is an arrangement in which the parties
have rights to the assets and obligations for the liabilities, will be accounted for on the
basis of the Group’s interest in those assets and liabilities.
–
The Group’s interest in a joint venture, which is an arrangement in which the parties
have rights to the net assets, will be equity-accounted.
Notes
(forming part of the consolidated financial statements)
4. Basis of preparation and significant accounting policies (continued)
(u)
5.
New standards and interpretation applied during the year (continued)
–
IFRS 13: Fair value measurements
IFRS 13 provides a single source of guidance on how fair value is measured, and replaces
the fair value measurement guidance that is currently dispersed throughout IFRS. Subject
to limited exceptions, IFRS 13 is applied when fair value measurements or disclosures are
required or permitted by other IFRSs.
The Group has re-evaluated its involvement in its joint arrangements and has reclassified the
investment from a jointly controlled entity to a joint operation. Notwithstanding the reclassification,
the investment continues to be recognized by applying the proportionate method of accounting
and there has been no impact on the recognized assets, liabilities and comprehensive income
of the Group.
Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value,
for both financial and non-financial assets and liabilities.
a)
Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is
determined by reference to selling price less cost to sell. Slow moving and obsolete inventory
items are written down to their estimated net realisable value, based on criteria determined by
the Group.
Work in progress comprises transformers and other parts required to provide electric capacity
to OPWP. These are recognized at cost net of any provision already recorded in statement
of profit or loss and other comprehensive income. Work in progress is reduced as expense
is realized in the statement of profit or loss and other comprehensive income in line with the
related revenue.
b)
Trade and other receivables
The fair value of trade and other receivables approximates to their carrying amount due to their
short term maturity.
c)
Derivatives
The fair value of interest rate swaps is calculated by discounting estimated future cash flows
based on the terms and maturity of each contract and using market interest rates for a similar
instrument at the measurement date. This calculation is tested for reasonableness through
comparison with the valuations received from the parties issuing the instruments.
d)
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present
value of future principal and interest cash flows, discounted at the market rate of interest at the
reporting date.
Annual Report 2013 | 59 |
Notes
(forming part of the consolidated financial statements)
6. Finance lease receivables
Leasing arrangements
RPC
Management has concluded that the Power Purchase Agreement, as amended effective 1 December
2006, conveys a right of use on the power plant to the customer (OPWP), which qualifies as a finance
lease in accordance with IFRIC 4 – ‘Determining whether an arrangement contains a lease”. The
lease classification is based on the fact that Management estimated that (a) the lease term is for the
major part of the economic life of the plant, and, accordingly (b) at inception of the lease, the present
value of the minimum lease payments amounted to substantially all of the fair value of the plant. In
accordance with IFRS, revenue stemming from the substantial operation and maintenance services
is not considered lease revenue.
31 December 2013
Amounts receivable under finance lease
Within one year
In 2 to 5 years (inclusive)
After 5 years
Less : unearned finance income
Present value of minimum lease receipts
Included in the statement of financial position as :
Current finance lease receivables
Non-current finance lease receivables
Minimum
lease receipts
Present value
of minimum
lease receipts
RO ‘000
RO ‘000
7,733
21,801
15,781
45,315
(9,082)
36,233
5,724
16,105
14,404
36,233
36,233
5,724
30,509
36,233
Minimum
lease receipts
Present value of
minimum lease
receipts
Amounts receivable under finance lease:
RO ‘000
RO ‘000
Within one year
In 2 to 5 years (inclusive)
After 5 years
7,989
21,801
21,227
51,017
(11,296)
39,721
5,774
15,140
18,807
39,721
39,721
31 December 2012
Less : unearned finance income
Present value of minimum lease receipts
Included in the statement of financial position as:
Current finance lease receivables
Non-current finance lease receivables
| 60 | Annual Report 2013
5,774
33,947
39,721
Notes
(forming part of the consolidated financial statements)
6. Finance lease receivables (continued)
The minimum lease receipts include a compensation for future rehabilitation obligations with respect
to life time extensions of the gas turbines in the amount of RO 61,000 (2012: RO 53,000) and site
restoration provisions in the amount of RO 1.86 million (2012: RO 1.86 million) (notes 18 and 19).
The upgrade costs have been detailed in an Operations and Maintenance Agreement, which the
subsidiary has entered into for the operation and maintenance of the plant facilities. Under this
agreement an “Operator Rehabilitation works” program has been implemented identifying certain
refurbishment work along with the costs and the implementation schedule for each work to be
completed. The interest rate implicit in the lease is 6.2% per annum.
Leased land
Land on which the Plant is constructed has been leased by Government of Sultanate of Oman to the
Company for a period of 25 years expiring on 1 May 2030 under the terms of the Usufruct Agreement
with an option for a further lease extension of 25 years if required (note 26(a)).
7.
Intangible assets
2013
2012
RO ‘000
RO ‘000
Goodwill
15,739
15,739
The Goodwill relates to the acquisition of RPC in 2007. Management has reviewed the underlying
results and financial position of related cash generating units (as per Company policy) and has
determined that no provision for impairment of goodwill is required as at 31 December 2013.
Other intangible assets
Balance at beginning of year
Less: amortization for the year (note 22)
Balance at end of year
981
1,087
(106)
(106)
875
981
Intangible assets include inventory of spares given up in consideration of the right to operations
and maintenance services under the Operation & Maintenance (“O & M”) Agreement. This right is
amortized on a straight-line basis over the term of the O & M agreement.
Total intangible assets
8.
16,614
16,720
Cost of acquisition
In the year 2007 and 2006, SMNPHC acquired RPC and incorporated SMNBPC respectively. The
cost of acquisition and incorporation was paid as follows:
RO ‘000
Net cash outflow
Consideration paid in cash and cash equivalents
19,987
Settlement Agreement paid by EHC
(150)
Less: cash and cash equivalents balances acquired
(502)
19,335
Annual Report 2013 | 61 |
Notes
(forming part of the consolidated financial statements)
9. Property, plant and equipment
Plant and
equipment
RO ‘000
Furniture
and fixture
RO ‘000
Motor
vehicles
RO ‘000
Office
equipment
RO ‘000
Total
RO ‘000
237,247
80
237,327
21
2
23
55
17
72
96
56
(6)
146
237,419
155
(6)
237,568
27,149
17
27
62
27,255
Cost
At 1 January 2013
Additions
Disposals
At 31 December 2013
Accumulated depreciation
At 1 January 2013
Charge for the year (note
22 and 23)
Disposals
At 31 December 2013
7,911
1
19
24
7,955
35,060
18
46
(6)
80
(6)
35,204
Carrying amount
At 31 December 2013
At 31 December 2012
202,267
210,098
5
4
26
28
66
34
202,364
210,164
Leased land
Land on which the Plant is constructed has been leased by Government of Sultanate of Oman to
SMNBPC for a period of 25 years expiring on 5 December 2031 under the term of the Usufruct
Agreement, which can be extended for an additional 25 years. Lease rent is paid at the rate of
RO 1,066 per annum (note 26 (b)).
10. Inventories
Fuel oil (diesel)
Work in progress (transformers)
2013
RO ‘000
2012
RO ‘000
2,637
614
3,251
2,631
307
2,938
Work in progress mainly represents transformers acquired as part of a rehabilitation program of
three transformers. Work in progress is recognized at cost net of any provision already recorded in
statement of profit or loss and other comprehensive income. Work in progress is reduced as expense
is realized in the statement of profit or loss and other comprehensive income in line with the related
revenue.
11. Trade and other receivables
Trade receivables
Prepayments
Due from related parties (note 25)
Other receivables
2013
RO ‘000
3,392
367
40
268
4,067
2012
RO ‘000
3,593
418
90
403
4,504
The Group has one customer (OPWP) which accounts for majority of the trade receivables balance at
31 December 2013 (majority balance as at 31 December 2012).
| 62 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
11. Trade and other receivables (continued)
The aging of trade receivables at the reporting date was:
3,392
1 to 90 days
3,593
12. Cash and bank
Cash and bank comprise the fixed term cash deposits and cash and cash equivalents.
(a)
Fixed term cash deposits
Fixed term cash deposits represent amounts kept with a local bank for a period of 3 to 6 months
having fixed interest rate.
(b)
Cash and cash equivalents
2013
2012
RO ‘000
RO ‘000
Cash at bank
3,940
730
Cash in hand
7
3
Fixed term deposits (maturity less than 3 months)
-
2,380
3,947
3,113
Cash and cash equivalents
13. Share capital and reserves
(a)
Share capital
The Company’s authorized, issued and paid-up capital consists of 19,963,560 shares of RO 1
each. The details of the shareholders are as follows:
31 December 2013
Nationality
Number
of shares
held of
nominal
value
RO 1 each
% of total
Aggregate
nominal
value of
shares held
(RO ‘000)
Kahrabel FZE
UAE
6,163,749
30.875%
6,164
Mubadala Power Holding
UAE
6,163,749
30.875%
6,164
648,816
3.250%
649
6,987,246
35.000%
6,987
19,963,560
100%
19,964
Company Limited
National Trading Co. LLC
Public
Omani
Annual Report 2013 | 63 |
Notes
(forming part of the consolidated financial statements)
13. Share capital and reserves (continued)
(a)
Share capital (continued)
31 December 2012
Nationality
Kahrabel FZE
UAE
Mubadala Power Holding
Company Limited
UAE
National Trading Co. LLC
Omani
Public
Number
of shares
held of
nominal
value RO 1
each
% of total
Aggregate
nominal
value of
shares held
(RO'000)
6,163,749
30.875%
6,164
6,163,749
30.875%
6,164
648,816
3.250%
649
6,987,246
35.000%
6,987
19,963,560
100%
19,964
The Company was incorporated with initial paid-up capital of 500,000 shares of RO 1 each.
The Company increased its issued share capital from RO 500,000 to RO 19,963,560 by issuing
19,463,560 new shares in the Company to SMN Power Holding Company Limited (“SMNPHC”)
in exchange to transfer its investment in RPC and SMNBPC to the Company from SMNPHC as
contribution in kind and at original value.
The transfer was made by way of the Company issuing new shares as follows:
500,000 shares of SMNBPC at a swap ratio of 1 share of the Company for 1 share of
SMNBPC equal to RO 500,000;
500,000 shares of RPC at a swap ratio of 37.607 shares of the Company per 1 share of
RPC equal to RO 18,803,564; and
A cash amount in its accounts equal to RO 160,160.
Pursuant to an arrangement between SMNPHC and founders shareholders, the share held by
the SMNPHC in the Company was transferred to the founder’s shareholders prior to the IPO.
On 4 April 2012, Mubadala Power Holding Company Limited received the approval of the
Capital Market Authority to increase its stake in the Company up to 30.875% by acquiring a
stake of 10.875% (2,171,037 Shares) in the Company from MDC Industry Holding Company
LLC. Both the seller and purchaser are ultimately owned by Mubadala Development Company
PJSC (UAE).
During the year, the Capital Market Authority (CMA) invited listed companies with a nominal
value of RO 1 per share to proceed with a stock split of 1:10; i.e.10 new shares with nominal
value of 100 baizas for 1 existing share with RO 1 nominal value. As at the reporting date,
all required consents have been obtained and it is the recommendation of the Board of the
Company to proceed with the share split, subject to the approval by shareholders during the
Extraordinary General Meeting foreseen in March 2014.
| 64 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
13. Share capital and reserves (continued)
(b)
Statutory reserve
In accordance with the Commercial Companies Law of 1974 (as amended) applicable to
companies registered in the Sultanate of Oman, 10% of a company’s net profits after the
deduction of taxes will be transferred to a non-distributable statutory reserve each year until the
amount of such legal reserve has reached a minimum one-third of that company’s issued share
capital. This reserve is not available for distribution to shareholders as dividends.
(c)
Dividend paid
During the previous year, shareholders of the Company approved during the Annual General
Meeting dated 26 March 2012, to pay a dividend of RO 2,874,753 from the retained earnings of
2011 corresponding to 14.4% (144 bzs/share) to the shareholders of the Company who were
on the shareholders’ list registered with Muscat Clearing & Depository Company SAOC as on 3
June 2012.
During the Ordinary General Meeting on 26 November 2012, the shareholders approved to
pay an interim dividend of RO 7,306,663 from the retained earnings of the Company as at 30
September 2012 corresponding to 36.6% (366 bzs/share) to the shareholders of the Company
who were on the shareholders’ list registered with Muscat Clearing & Depository Company
SAOC at the date of the OGM.
During the Annual General Meeting on 26 March 2013, shareholders’ of the Company approved
a final dividend of RO 4,711,400 from its consolidated retained earnings as at 31 December
2012 corresponding to 23.6% (236 bzs/share) to the shareholders of the Company who were
on the shareholders’ list registered with Muscat Clearing & Depository Company SAOC as on 1
May 2013.
During the meeting of the Board of Directors held on 30 October 2013, pursuant to 26 March
2013 shareholders’ resolution, the Board approved an interim dividend of RO 4,471,837 from
the consolidated retained earnings of the Company as at 30 June 2013 corresponding to 22.4%
(224 bzs/share) to the shareholders of the Company who are on the shareholders’ list registered
with Muscat Clearing & Depository Company SAOC as on 31 October 2013.
(d)
Proposed dividend
Subject to the shareholders’ approval during the Annual General Meeting foreseen in March
2014, the Company is expected to pay a final dividend of RO 3,992,712 from its consolidated
retained earnings as at 31 December 2013 corresponding to 20% (200 bzs/share) to the
shareholders of the Company who are on the shareholders list registered with Muscat Clearing
& Depository Company SAOC as on 1 May 2014.
14. Hedging deficit
a) Subsidiary - RPC
RPC entered on 20 February 2007 into an interest rate swap agreement with Calyon related to the
base term loan facility at the rate of 4.88% per annum.
On 19 November 2008, RPC entered into a new hedging agreement with Calyon increasing the
hedged amount from 80% to 95% for the period from March 2009 to March 2013 at a fixed rate of
3.30% per annum.
Annual Report 2013 | 65 |
Notes
(forming part of the consolidated financial statements)
14. Hedging deficit (continued)
a) Subsidiary - RPC (continued)
On 24 May 2012, RPC entered into a new hedging agreement with CA-CIB increasing the hedged
amount from 80% to 100% for the period from March 2013 to September 2016 at the following rates:
Period
March 2013 to September 2014
September 2014 to September 2015
September 2015 to September 2016
Fixed rate
0.7500%
1.5000%
1.6625%
The notional value of the hedge as at reporting date was RO 32.27 million (31 December 2012: RO
33.24 million).
b) Subsidiary - SMNBPC
SMNBPC has entered on 20 February 2007 into three interest rate swap agreements related to the
base term loan facility with international banks (HSBC, Mizuho, Calyon) at fixed rates of 4.8675%,
4.8885% and 4.8570% per annum respectively.
On 19 November 2008, SMNBPC entered into a new hedging agreement with Calyon increasing the
amount hedged from 80% to 95% of the term loan for the March 2009 to March 2013 period at a fixed
rate of 3.36% per annum.
On 26 April 2012, SMNBPC entered into a new hedging agreement with HSBC increasing the hedged
amount from 80% to 100% for the period from March 2013 to September 2018 at the following rates:
Period
March 2013 to September 2014
September 2014 to March 2016
March 2016 to September 2017
September 2017 to September 2018
Fixed rate
0.7500%
1.5000%
2.0000%
3.4400%
The notional value of the hedge as at reporting date was RO 187.29 million (31 December 2012:
RO 188.76 million).
Fair value of swaps
The negative fair value of the above swaps amounting to RO 19.14 million (31 December 2012:
RO 37.2 million) is based on market values of equivalent instruments at the reporting date.
All of these interest rate swaps are designated and effective as cash flow hedges and the fair value
thereof has been recognized directly in other comprehensive income and presented in equity net of
related deferred tax.
15. Term loan
Term loans
Less: Current portion
Less: Unamortised transaction costs
Term loan – non-current portion
RPC
SMNBPC
| 66 | Annual Report 2013
i)
ii)
2013
RO ‘000
219,560
(13,119)
206,441
(2,708)
203,733
2012
RO ‘000
232,151
(12,592)
219,559
(3,117)
216,442
32,268
187,292
219,560
34,920
197,231
232,151
Notes
(forming part of the consolidated financial statements)
15. Term loan (continued)
The syndicated term loan of RPC is secured over the present and future assets of the subsidiary,
carries interest at a variable rate of LIBOR plus applicable margin and is repayable in bi-annual
installments due from 30 September 2009 until 31 March 2022. There is also a mandatory repayment
of the loan through all excess cash, beginning on 30 September 2016.
The syndicated term loan of SMNBPC is secured over the present and future assets of the subsidiary,
carries interest at a variable rate of LIBOR plus applicable margin. The loan amortizes, with bi-annual
repayments of predetermined percentages of 87.5% of the outstanding principal amount due from
30 September 2009 until 31 March 2024 with the remaining 12.5% being repaid, after the validity
of the PWPA, in four equal installments from 30 September 2024 to 31 March 2026. There is also a
mandatory repayment of the loan through all excess cash (“cash sweep”), beginning on 30 September
2018.
Repayment term
The repayment schedule of the loans is as follows:
Payable within one year
13,119
12,592
Payable between 1 and 2 years
13,567
13,119
Payable between 2 and 5 years
45,625
43,211
147,249
163,229
219,560
232,151
Payable after 5 years
Security
The term loan, working capital facilities, the debt reserve account facility and the performance bond
facility are secured, under the security documents as a whole, by the following collateral:
–
a charge over the Subsidiaries’ assets (including, amongst others, the Project Accounts, all
tangible assets and receivables);
–
a pledge of Subsidiaries’ shares;
–
a pledge of shares in the investment in joint arrangement (see note 26(b));
–
an assignment of Subsidiaries’ contracts (including the Project Documents) to which it is a
party;
–
an assignment of Subsidiaries’ insurance; and
–
security over the Company cash pooling accounts and an assignment of the rights of the
Company there under.
Covenants
The Facility contains certain covenants pertaining to, amongst other things, liquidation and merger,
entering into material new agreements, negative pledge, debt service coverage ratio, change of
business, loan and guarantee, etc.
Commitment and other fees
Under the terms of the loan facilities, the Subsidiaries are required to pay DSRA LC Facility Fee,
Security trustee fee, Facilities agency Fee and all Bank Fees.
Annual Report 2013 | 67 |
Notes
(forming part of the consolidated financial statements)
16. Shareholders’ subordinated loans
The SMNPHC had entered into Subordinated Loan Agreements with the founders Shareholders’ (i.e.
those listed below) to obtain loans of RO 29.72 million for the repayment of EBL in 2010.
In 2011, the Company entered into novation agreement between (i) SMNBPC: (ii) RPC; (iii) SMNPHC;
(iv) the Company; (v) Kahrabel FZE; (vi) Mubadala Power Holding Company Limited; (vii) National
Trading Company LLC and (viii) MDC Industry Holding Company LLC to transfer part of total loan to
the Company.
The Subordinated loans were repayable on demand and interest free as per the terms of the
agreements. Further to Board approval on 31 October 2012 and notification to original founders, the
loans were settled in November 2012.
17. Taxation
a)
2013
2012
RO ‘000
RO ‘000
118
39
10
(48)
128
(9)
Deferred tax for the year
946
844
Tax expense for the year
1,074
835
Recognised in income statement
Current tax
Current year
Prior year
The tax charge has arisen on the profits of the Company and its subsidiaries which are
subject to income tax at the rate of 12% of taxable profits in excess of RO 30,000 as per the
Omani tax laws.
b)
Reconciliation
The following is a reconciliation of income taxes with the income
tax expense at the applicable tax rate:
Profit before tax
8,918
7,397
Income tax as per rates mentioned above
1,077
892
10
(39)
(13)
(18)
1,074
835
Income tax refund for prior year
Previously unrecognized deferred tax asset
Tax expense for the year
| 68 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
17. Taxation (continued)
c)
Deferred tax liability
Recognized deferred tax assets and liabilities are attributable to the following items:
As at 1
January
2013
Recognized
during the
year
As at 31
December
2013
RO ‘000
RO ‘000
RO ‘000
(9,021)
(1,482)
(10,503)
356
34
390
27
(17)
10
Lease income
(180)
20
(160)
Deferred finance costs
(378)
51
(327)
(33)
(40)
(73)
Losses carried forward
2,029
489
2,518
Net deferred tax liability
(7,200)
(945)
(8,145)
4,463
(1,853)
2,610
(2,737)
(2,798)
(5,535)
Deferred tax liability recognized in profit and loss
Depreciation for property, plant and equipment
Provision for site restoration
Provision against rehabilitation of transformers
Work in progress (transformer)
Deferred tax asset directly recognised in equity
Fair value adjustment of interest rate swap
Deferred tax liability
d)
Status of previous year returns
Subsidiary - SMNBPC
The tax returns of the subsidiary for the year 2007 is under assessment by the Secretariat
General for Taxation at the Ministry of Finance. The tax returns for the years 2008 to 2013 have
not yet been assessed by the Secretariat General for Taxation at the Ministry of Finance. The
Management is of the opinion that additional taxes, if any, related to the open tax years would
not be material to the Company's financial position as 31 December 2013.
Subsidiary - RPC
The tax returns of subsidiary for the year 2005 was assessed by the Secretariat General for
Taxation (“SGT”) and resulted in additional tax payable, which was subsequently paid by the
subsidiary. The subsidiary filed an appeal against the aforesaid assessment order which was
subsequently accepted by the Tax authorities. The additional payment was recovered during
the previous year. The tax return of the subsidiary for the year 2006 was assessed with no
significant additional tax payable.
The tax return for the year 2007 was assessed by the Tax Department in December 2013.
In its conclusion, the Tax Department has disregarded the finance lease model adopted by
the subsidiary (as per the requirements of IFRIC 4 – see note 6) and has completed the tax
assessment on the basis of ‘fixed asset’ model allowing depreciation to the subsidiary.
The Tax Department position is in clear contradiction with Income Tax Law 47/81 (providing
that taxable income shall be computed in accordance with a generally accepted method of
commercial accounting) and Royal Decree 77/86 (mandating all companies to prepare the
financial statements in accordance with the International Accounting Standards - now IFRS).
Accordingly, the subsidiary has filed an objection to the Tax Department conclusions and will
use all possible recourses to defend its interests.
Annual Report 2013 | 69 |
Notes
(forming part of the consolidated financial statements)
17. Taxation (continued)
d)
Status of previous year returns (continued)
Management is confident of a favourable outcome. Such position is supported by the
independent assessment obtained by the subsidiary from its tax advisor. Accordingly, income
tax and deferred tax are calculated on the basis of the finance lease model. Applying the fixed
asset model would result in a potential negative impact on the consolidated earnings per share
of approximately 52 baizas as at the reporting date.
18. Provision for site restoration
Balance at beginning of year
Accretion charge for the year (note 24)
Balance at end of year
2013
2012
RO ‘000
RO ‘000
4,826
4,549
288
277
5,114
4,826
Because of the long term nature of the liability, the significant uncertainty in estimating the provision
is the cost that will be incurred. It has been assumed that the site will be retired using technology and
material that are currently available. The provision has been calculated using a discount rate of 6%.
19. Trade and other payables
2013
2012
RO ‘000
RO ‘000
Suppliers and contractors payables
1,682
1,854
Accrued expenses
4,228
5,049
Due to related parties (note 25)
1,231
983
Provision for rehabilitation costs (note 6)
Income tax payable (note 17)
61
53
118
39
7,320
7,978
20. Bank borrowings
RPC’s and SMNBPC’s working capital facilities are secured under the conditions below and carry
interest at the 3-month rate applicable at the date of utilization request with a maximum interest rate
of 2.0% per annum (31 December 2012: fixed 1.5% per annum).
The working capital facility is secured under the security documents as a whole, by the following
collateral:
–
A charge over the subsidiaries’ assets (including, amongst others, the bank accounts, plant
assets and finance lease receivables);
–
A pledge of its shares;
–
An assignment of its contracts (including the Project Documents) to which it is a party;
–
An assignment of its insurance; and
–
Security over the Company’s cash pooling account and an assignment of its rights there under.
| 70 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
21. Revenue
RPC
Finance lease
Fixed operating and maintenance charge
5,281
4,697
Lease interest income
2,214
2,212
Electricity energy charges
7,495
6,909
26,453
30,327
33,948
37,236
Finance lease revenue includes an amount of RO 299,000 relating to an insurance claim. During the
year, the Company claimed business interruption insurance against forced outages in 2012. This
claim was approved by the insurers during the current year.
SMNBPC
Electricity and water capacity charges
Electricity and water energy charges
32,527
32,183
8,085
15,579
40,612
47,762
74,560
84,998
2013
RO ‘000
30,299
8,672
3,859
151
376
(137)
195
106
137
763
7,911
87
73
141
12
52,645
2012
RO ‘000
40,087
8,525
5,060
50
125
38
89
106
617
(109)
940
7,903
84
166
156
20
63,857
22. Operating costs
Gas consumption
Contract fixed fee for plant operations
Contract variable fee for plant operation
Contract other fee for plant operations
Contract incentives for plant operation
Provision against rehabilitation of transformers ( note 22.1)
Work in progress (note 10)
Amortization of other intangibles (note 7)
Repair and Maintenance expenses
Provision for impairment
Insurance
Depreciation (note 9)
Generation and license fee
Customs duty
Fuel oil
Other direct costs
22.1 Provision against rehabilitation of three transformers at Rusail Power Plant
In 2010, RPC performed a technical study to assess the life span of three transformers. The result of
technical study confirmed that there is a need to perform a rehabilitation of transformers as the latter
have reached the end of their life span. Consequently, Management had proposed a resolution to the
Board to rehabilitate the transformers.
Annual Report 2013 | 71 |
Notes
(forming part of the consolidated financial statements)
Accordingly a provision had been recorded since 2010 by spreading the total estimated cost of
refurbishment of the three transformers, in the amount of RO 1.2 million, over the remaining period of
PPA, from 2010 to March 2022.
During the previous year, one new transformer had been consigned and commissioned. During the
current year, a refurbished transformer has been consigned and comissioned. These transformer
costs have been recorded as work in progress net of the accumulated provision relating to those
transformers (note 10).
23. General and administrative expenses
Staff costs
Insurance expenses
592
577
16
14
294
328
Depreciation (note 9)
44
29
Other expenses
85
70
1,031
1,018
2013
RO ‘000
2012
RO ‘000
2,704
3,209
409
434
8,486
9,185
288
277
48
49
(31)
-
Legal and professional charges
24. Finance charges Interest on term loan
Amortization of deferred finance cost
Interest rate swap settlement
Accretion charge for provision for site restoration (note 18)
Interest on DSCRA LC
Interest on fixed term deposits
Exchange loss
56
82
11,960
13,236
25. Related parties
Related parties comprise the shareholders, directors, key management personnel and business
entities which 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
from the commercial transactions and are entered into at terms and conditions which the directors
consider to be comparable with those adopted at arm’s length transactions with third parties.
Outstanding balances at period end are unsecured and settlement occurs in cash.
No expenses have been recognized in the year for bad or doubtful debts in respect of amounts owed
by related parties (2012: RO nil).
| 72 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
25. Related parties (continued)
Following is the summary of significant transactions with related parties during the year:
Expenses:
SUEZ-Tractebel Operation and Maintenance Oman LLC
Operation and maintenance expense – fixed fee
8,582
8,425
Operation and maintenance expense – variable fee
3,859
5,060
Other operating fee
151
48
Contract incentives for plant operations
376
125
Repairs and maintenance (owners risk costs)
134
612
15
84
13,117
14,354
Fixed service fee
76
68
Legal fee
10
52
86
120
242
259
7
-
Customs duty
Kahrabel FZE
KOMO expenses
Administrative fee (net)
Power Management Company LLC
Support service
Key Management benefits
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).
Employment benefits
Directors’ remuneration and sitting fee
Due from related parties:
STOMO
International Power SA (previously Suez Tractebel SA)
KOMO
Electrabel S.A.
Kahrabel FZE
2013
RO ‘000
376
11
2012
RO ‘000
382
10
16
10
14
40
8
3
60
19
90
Due to related parties:
STOMO
KOMO
Power Management Company LLC
Directors sitting fee
International Power SA (previously Suez Tractebel SA)
1,171
31
2
11
16
1,231
952
21
10
983
Annual Report 2013 | 73 |
Notes
(forming part of the consolidated financial statements)
26. Contingencies and operational commitments
Financial guarantee (DSRA LC Facility)
SMNBPC
8,759
9,107
RPC
1,734
1,787
10,493
10,894
1,538
1,923
1,538
1,923
Bank guarantee received from Doosan
Retention guarantee dated 24 January 2007 with the latest amendment
dated 27 September 2013 (valid up to 30 June 2017)
Subsequent to the Settlement Agreement with Doosan dated 22 May 2012 (note 2), the EPC
Performance Bond had been released and the Retention guarantee reduced from RO 10.2 million
to RO 1.9 million on 3 June 2012. Pursuant to the terms of 2nd amendment of EPC agreement, the
Retention guarantee has been further reduced to RO 1.6 million on 27 September 2013. Pursuant to
the terms of 3rd amendment of EPC agreement, the Retention guarantee has been extended up to
30 June 2017.
a)
Subsidiary - RPC
Low heating value of gas
The invoices issued by the MOG for natural gas from February 2007 to February 2010 include
a disputed amount of RO 1.14 million as a consequence of MOG invoice defined up to June
2008 on the basis of volume of gas sold (m3), as opposed to quantity of energy sold (BTU) as
prescribed by the NGSA.
The above disputed amounts are due to:
earlier negation by MOG of the NGSA; and
non installation of a chromatograph meter at Al Rusail Power Plant (“the Plant”) gas
pressure reduction terminal by MOG in breach of its obligations under the NGSA.
Prior to mid May 2010, since no chromatograph meter was available at the Plant, the Company
has systematically reviewed and often disputed the amount invoiced monthly by MOG in
accordance with the NGSA and paid an amount obtained by converting the volume of gas into
energy based on an assumption on gas calorific value derived from some gas samples being
analyzed by the Company to determine the low heating value that should have been used by
MOG.
Management believes that no additional payment, other than already provided, is likely to be
made by the Company in relation to this pending dispute of RO 1.14 million.
From mid May 2010, MOG has installed and put in service the online chromatograph as required
by the NGSA and the measurement is being used by MOG to prepare its invoices.
Environmental Permit from Ministry of Environment and Climate Affairs of the Sultanate
of Oman (“MECA”)
At the time of acquisition of the Company by SMN Jafza in 2007, the Authority for Electricity
Regulation (“AER”) issued specific recommendations on the environmental monitoring system
to be installed at the power plant (i.e. the Predictive Emissions Monitoring Systems – “PEMS”).
These recommendations were fully implemented by the Company and compliance confirmed
by AER as stated in their 2007 Annual Report.
| 74 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
26. Contingencies and operational commitments (continued)
a)
Subsidiary - RPC (continued)
Consequently the Company satisfied compliance requirements with the environmental
regulations, and absent clear directives from the MECA at the time of the acquisition, the Board
confirms its position that no additional costs for the implementation of an alternative monitoring
systems and the issuance of Final Environmental Permits shall be incurred by the Company
save where the burden of such costs is borne by MECA and/or another counterpart.
Operation and Maintenance commitment
As per the O&M agreement, STOMO operates and maintains the Subsidiary’s Plant at Rusail
until 31 March 2022. Under the O&M agreement, the Subsidiary has to pay the following
operating fees:
a fixed monthly fee; and
a variable fee.
All fees are subject to indexation based on Omani and US Consumer Price Indices.
The minimum future payments under the O&M agreement (excluding indexation) are as follows:
2013
2012
RO ‘000
RO ‘000
Not later than one year
2,427
2,427
Receivable one to five years
9,706
9,706
After five years
7,886
10,311
20,019
22,444
Land lease commitments
Future minimum operating lease commitments under the non-cancellable land sub-lease are
(note 6):
Not later than one year
1
1
One to five years
4
4
11
12
16
17
After five years
b)
Subsidiary – SMNBPC
Shared facilities commitment
With reference to the Shareholders Agreement dated 20 February 2007, ACWA Power Barka
SAOG (formerly AES Barka) and the Subsidiary committed to establish a shared facility company
owned 50/50 between the above shareholders.
On 9 March 2009, SMNBPC injected a total of RO 250,000 in a restricted bank account to
fund the capital of the new company to be named Barka Seawater Facilities Company SAOC
(“BSFC”).
On 19 July 2010, SMNBPC and ACWA Power Barka SAOG finalized the incorporation of the
Shared Facilities Company and conducted the Constitutive General Meeting and the first Board
Meeting.
Annual Report 2013 | 75 |
Notes
(forming part of the consolidated financial statements)
26. Contingencies and operational commitments (continued)
b)
Subsidiary – SMNBPC (continued)
As at 31 December 2013, BSFC has not commenced commercial operations. The Management
of both shareholders is finalizing the contractual requirements prior to commencing operations.
Operation and Maintenance commitment
As per the O&M agreement, STOMO operates and maintains the SMNBPC’s Plant at Barka until
31 March 2024. Under the O&M agreement, the Subsidiary has to pay the following operating
fees:
a Fixed Monthly Fee;
a Power Variable Fee; and
a Water Variable Fee.
All fees are subject to indexation based on Omani and US Consumer Price Indices.
Operation and Maintenance commitment (continued)
The minimum future payments under the O&M agreement considering a COD on 15 November
2009 (excluding indexation) are as follows:
2013
2012
RO ‘000
RO ‘000
4,021
4,021
Receivable one to five years
16,083
16,083
After five years
21,109
27,642
41,213
47,746
Not later than one year
Land lease commitments
Future minimum operating lease commitments under the non-cancellable land sub-lease are
(note 9):
Not later than one year
1
1
One to five years
4
4
13
14
18
19
After five years
27. Financial instruments
Financial assets are assessed for indicators of impairment at each reporting date. Financial assets
are impaired where there is objective evidence that as a result of one or more events that occurred
after the initial recognition of the financial asset, the estimated future cash flows of the investment
have been impacted.
The classification of financial assets depends on the purpose for which the financial assets were
acquired. Management determines the classification of its financial assets at initial recognition.
The Group has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Market risk
| 76 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
27. Financial instruments (continued)
The Group’s overall risk management focuses on the unpredictability of markets it is potentially
exposed to and seeks to minimize potential adverse effects on the Group’s financial performance.
Risk management is carried out in order to identify, evaluate, mitigate and monitor financial risks.
(i) 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 and arises principally from the Group’s
receivables from customers.
The potential risk in respect of amounts receivables is limited to their carrying values as
Management regularly reviews these balances whose recoverability is in doubt.
The carrying amount of financial assets represents the maximum credit exposure. The exposure
to credit risk at the reporting date was RO 46.4 million (31 December 2012: RO 51.7 million).
(ii)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they
fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it
will have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group’s access to credit facilities is described in note 14 and 15.
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest
rates affect the Group’s income or the value of its holdings of financial instruments. The objective
of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimizing the return.
The Company is essentially not exposed to power demand or price risks due to the long term
PWPA with pre agreed prices.
(iv) Currency risk
The Group’s performance is substantially independent of changes in foreign currency rates.
There are no significant financial instruments denominated in foreign currency and therefore,
foreign currency risk is not significant.
(v) Interest rate risk
The Group has borrowings which are interest bearing and exposed to changes in market interest
rates. The Group has hedged this interest rate risk through interest rate swaps. The percentage
of interest charges hedged are presented below:
a)
In RPC, 100% of the interest charges are hedged for the period from 1 April 2013 to 30
September 2016, 60%-53% from 1 October 2016 to 30 September 2018 and 50%-0%
from 1 October 2018 onwards.
b)
In SMNBPC, 100% of the interest charges are hedged for the period from 1 April 2013 to
30 September 2018, 65% from 1 October 2018 onwards.
Interest rate profile of the Group is disclosed in note 14 and 15 to these consolidated financial
statements.
Annual Report 2013 | 77 |
Notes
(forming part of the consolidated financial statements)
27. Financial instruments (continued)
(vi) Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue
as a going concern and benefit other stakeholders. Management’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.
Management is confident of enhancing top line growth with prudent cost management.
The Group is not subject to externally imposed capital requirements, except as required by
Commercial Company Law.
a) Credit risk
The carrying amount of financial assets represents the maximum credit exposure. The exposure
to credit risk at the reporting date was on account of:
Trade and other receivables
Finance lease receivables
Due from related parties
Cash and bank
2013
2012
RO ‘000
RO ‘000
4,027
4,414
36,233
39,721
40
90
6,087
7,503
46,387
51,728
The exposure to credit risk for trade receivables at the reporting date was due entirely from
OPWP.
There is no impairment of receivables at the reporting date.
The allowance account in respect of trade receivables is used to record impairment losses
unless the Group is satisfied that no recovery of the amount owing is possible; at that point the
amount considered irrecoverable is written off against allowance account.
(b) Liquidity risk
The following are the contractual maturities of the financial liabilities.
Carrying
amount
RO ’000
Contractual
cash flows
RO ’000
6 months
or less
RO ’000
6 to 12
months
RO ’000
1 to 2
years
RO ’000
More than
2 years
RO ’000
216,852
(219,560)
(5,189)
(7,930)
(13,567)
(192,874)
6,089
(6,089)
(6,089)
-
-
-
Non-Derivatives
31 December 2013
Term loan
Trade and other
payables
Due to related
parties
1,231
(1,231)
(1,231)
-
-
-
224,172
(226,880)
(12,509)
(7,930)
(13,567)
(192,874)
21,755
(22,256)
(2,014)
(3,800)
(6,332)
(10,110)
Derivatives
Interest rate swap
| 78 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
27. Financial instruments (continued)
(vi) Capital management (continued)
(b) Liquidity risk (continued)
Carrying
amount
RO ’000
Contractual
cash flows
RO ’000
6 months
or less
RO ’000
6 to 12
months
RO ’000
1 to 2
years
RO ’000
More than
2 years
RO ’000
229,034
(232,151)
(4,846)
(7,746)
(13,119)
(206,440)
6,995
(6,995)
(6,995)
-
-
-
Non-Derivatives
31 December 2012
Term loan
Trade and other
payables
Due to related
parties
983
(983)
(983)
-
-
-
237,012
(240,129)
(12,824)
(7,746)
(13,119)
(206,440)
37,200
(40,557)
(4,478)
(3,712)
(8,194)
(24,173)
Derivatives
Interest rate swap
(c) Interest rate risk
The interest rate profile of the Group’s interest bearing financial instruments is disclosed in
notes 14 and 15.
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through
profit and loss. Therefore a change in interest rates at the reporting date would not affect profit
and loss.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would not have a significant
impact on the equity or the profit or loss at the reporting date.
Fair value of financial instruments
The Management believes that the fair value of the financial assets and liabilities are not
significantly different from their carrying amounts as shown in the financial statements at the
reporting date.
The following table provides an analysis of financial instruments that are measured subsequent
to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the
fair value is observable.
–
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities.
–
Level 2 fair value measurements are those derived from inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
–
Level 3 fair value measurements are those derived from valuation techniques that include
inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Annual Report 2013 | 79 |
Notes
(forming part of the consolidated financial statements)
27. Financial instruments (continued)
(vi) Capital management (continued)
(c) Interest rate risk (continued)
Fair value of financial instruments (continued)
Level 2
2013
2012
RO ‘000
RO ‘000
21,755
37,200
216,852
229,034
238,607
266,234
Financial liabilities measured at fair value
Interest rate swap
Financial liabilities not measured at fair value
Term loan
The valuation techniques of the above financial liabilities are disclosed in note 5.
There are no financial assets at fair value at the reporting date. Further, there were no transfers
between Level 1, Level 2 and Level 3 during the period.
28. Operating lease agreement for which a Subsidiary (SMNBPC) acts as a lessor
SMNBPC has entered into a PWPA with OPWP for a substantial element of the production of power
with 100% ‘take-or-pay’ clauses in favour of the Subsidiary.
Management has determined that the take-or-pay arrangements with OPWP under PWPA are
subject to the International Financial Reporting Interpretation Committee-Determining whether an
Arrangement contains a Lease (“IFRIC 4”) as such arrangements convey the right to use the assets.
Management further determined that such arrangement in substance represents an operating lease.
The lease commenced on 15 November, 2009. The following is the total of future minimum lease
receipts expected to be received under PWPA, excluding indexation:
2013
2012
RO ‘000
RO ‘000
25,474
25,507
Due:
Not later than one year
Later than one year and not later than five years
101,936
101,907
Later than five years
149,660
175,442
277,070
302,856
29. Embedded derivatives
The PPA, PWPA and the O&M Agreement for RPC and SMNBPC contain embedded derivatives in the
form of price adjustments for inflation based on changes in the Unites States and Omani Consumer
Price Indices.
These embedded derivatives are not separated from the host contracts and accounted for as standalone derivatives under IAS 39, as the Management believes that the economic characteristics and
risks associated with the embedded derivatives are closely related to those of the host contracts.
| 80 | Annual Report 2013
Notes
(forming part of the consolidated financial statements)
30. Net assets per share
The calculation of net assets per share is based on net assets at the reporting dates in the amount of
approximately 19.964 million shares.
2013
2012
RO ‘000
RO ‘000
Net assets - Shareholder’s fund (RO ‘000)
31,410
32,749
Number of shares outstanding during the year (‘000)
19,964
19,964
1.573
1.640
Net asset per share (RO)
31. Basic and diluted earnings per share
Basic and diluted earnings per share are calculated by dividing the profit for the year by the weighted
average number of shares outstanding during the year as follows:
Profit for the year (RO ‘000)
Weighted average number of shares outstanding during the year (‘000)
Earnings per share - basic and diluted (RO)
7,844
6,562
19,964
19,964
0.393
0.329
Since the Company has no potentially dilutive instruments, the basic and dilutive earnings per share
are same. 32. Comparative information
Certain comparative information has been reclassified to conform to the presentation adopted in
these financial statements.
Annual Report 2013 | 81 |
Separate statement of
financial position
as at 31 December
2013
2012
RO’000
RO’000
1,000
1,000
Goodwill
18,303
18,303
Non-current assets
19,303
19,303
Loans to subsidiaries
8,445
9,957
25
18
6
4
238
277
Current assets
8,714
10,256
TOTAL ASSETS
28,017
29,559
Assets
Investment in subsidiaries
Prepayments
Due from related parties
Cash and cash equivalents
Equity and liabilities
19,964
19,964
Legal reserves
3,125
2,361
Retained earnings
4,904
7,213
27,993
29,538
Other payables
11
11
Due to related parties
13
10
Share capital
Shareholders’ funds and total equity
24
21
Total equity and liabilities
28,017
29,559
Net assets per share (RO)
1.402
1.480
Current liabilities
| 82 | Annual Report 2013
Separate statement of profit or loss
and other comprehensive income
for the year ended 31 December
2013
2012
RO’000
RO’000
7,729
19,133
(91)
(75)
Profit and total comprehensive income for the year
7,638
19,058
Basic earnings per share (RO)
0.383
0.955
Investment income
General and administrative expenses
Annual Report 2013 | 83 |
Separate statement of
cash flow
for the year ended 31 December
2013
2012
RO ’000
RO ’000
7,638
19,058
(7,729)
(19,133)
(91)
(75)
(9)
(21)
3
(266)
(97)
(362)
Dividend received
7,729
19,133
Repayment of loan from a subsidiary
1,512
-
Net cash from investing activities
9,241
19,133
-
(9,957)
Dividend paid
(9,183)
(10,181)
Net cash used in financing activities
(9,183)
(20,138)
Net change in cash and cash equivalents
(39)
(1,367)
Cash and cash equivalents at the beginning of the year
277
1,644
Cash and cash equivalents at the end of the year
238
277
Cash flows from operating activities:
Profit before tax
Adjustments for:
Dividend received
Working capital changes in:
- Other receivables
- Other payables
Net cash used in operating activities
Cash flows from investing activities:
Cash flows from financing activities:
Repayment of shareholder’s subordinated loans
| 84 | Annual Report 2013

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