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His Majesty Sultan Qaboos bin Said

ANNUAL REPORT 2012

People Are The Heart Of Our Business

POWERING THE ECONOMY

Electricity Holding Company SAOC

ABOUT EHC GROUP


The Electricity Holding Company SAOC (EHC) is a joint stock company that
was registered in the Sultanate of Oman on 19 October 2002. The company
commenced commercial operations on 16 September 2003.
EHC holds the shares on behalf of the Government in nine companies engaged
in the generation, transmission and distribution of electricity and related water
services.

Wadi Al Jizzi Power Company SAOC


(WJPC)

Majan Electricity Company SAOC


(MJEC)

Muscat Electricity Distribution


Company SAOC
(MEDC)
Oman Power and Water
Procurement Company SAOC
(OPWP)

Mazoon Electricity Company SAOC


(MZEC)
Oman Electricity Transmission
Company SAOC
(OETC)

Al Gubrah Power & Water


Desalination Company SAOC
(GPDC)
Rural Areas Electricity Company SAOC
(RAEC)

Dhofar Power Company SAOG


(DPC)

Rural Areas Elec. Co. (SAOC)


Mazoon Elec. Co. (SAOC)
Majan Elec. Co. (SAOC)
Muscat Elec. Distribution Co. (SAOC)
Salalah Concession Area
Main Interconnected System (MIS)
Rural System

CONTENTS
About EHC Group

EHC Group Vision

EHC Group Mission

EHC Values

10

Board Members

12

Chairmans Report

14

CEOs Report

16

Operational & Financial Review

23

Financial Highlights

24

Group Business Performance Review

25

Subsidiaries Performance Highlights

27

Corporate Governance Report

30

Consolidated Financial Statements

37

THE EHC GROUP


VISION

We strive to develop and empower


our human resources to deliver safe
and sustainable electricity solutions
to our customers.

The Sultan Qaboos Grand Mosque

THE EHC GROUP


MISSION

To provide electricity solutions


by optimizing and utilizing its
resources through implementing
five critical strategies namely:
Human Resource Development
Health,Safety and Environment
(HSE)
Customer Service
Asset Management
Communication

Muttrah Corniche, Muscat

EHC GROUP VALUES


TEAM WORK
Building strong working relationships.
Maintaining a collaborative work climate.
Recognizing and celebrating success.
Supporting career mobility.
Rewarding appropriate team behavior.

INTEGRITY
Keeping commitments and promises.
Representing the truth.
Acting in the best interests of the customer, company,
team and individual.
Adhering to the companys ethics.
Accurately representing own competencies.

RESPECT
Being sensitive to others time.
Recognizing contributions made byothers.
Supporting work/ life balance needs.
Treating others impartially and with dignity.
Practicing patience and active listening.

QUALITY
Insisting on high quality.
Making quality customer service a top priority.
Striving for continuous improvement.
Providing timely and constructive performance feedback.
Recruiting and developing quality staff.

CUSTOMER FOCUS
Making customers a top priority.
Considering long and short-term customer needs.
Delivering on commitments to customers.
Taking responsibility for improving customer service.

PROFESSIONALISM
Seeking and providing honest feedback.
Developing skills.
Considering organizational needs.
Sharing expertise and experience.
Supporting and mentoring others.

BOARD MEMBERS

H.E. Mohammed Abdullah Al Mahrouqi


CHAIRMAN

H.E. Abdulmalik Abdullah Al Hinai


VICE CHAIRMAN

12

Electricity Holding Company S.A.O.C

Mrs. Manal Mohammed Al Abdwani


MEMBER

Mr. Abdulsalam Nasser Al Kharousi


MEMBER

LEADERSHIP TEAM

From left to right

Mr. Micheal Lim


EX. MANAGER IT

Mr. Saleh Al-Rashdi


VP GENERATION

Mr. Hassan Abdawani


DEPUTY CEO

Mr. Omar Al-Wahaibi


CEO

Mr. Ibrahim Al-Suleimany


EX. MANAGER HR

Mr. Ali Al-Abri

EX. MANAGER RISK MANAGEMENT

Mr. Vishwanath
CFO

Mr. John Tan

EX. MANAGER S&P

Mrs. Suhaila Al-Farsi


COMPANY SECRETARY

CHAIRMANS Report

THE YEARS ACHIEVEMENTS


ARE THE RESULT OF A WELLDEFINED BUSINESS STRATEGY
THAT HAS SHAPED THE
COMPANYS SUCCESS OVER
ITS SEVEN-YEAR EXISTENCE.

Dear Shareholders,
On behalf of the Board of Directors of the Electricity Holding Company SAOC (EHC), I am
pleased to present the annual report for the EHC Group for financial year ended 31 December
2012.

Operational Performance
FY2012, the EHC Group has continued to grow strongly contributing to the overall economic development of the country. Compared to 2011, the number of customers has increased by 8.6%
to 790,272, the electricity supplied has increased by 12.8% to 20,960 GWh and the Main interconnected system losses has marginally increased to 13.8% from 12.8%. The marginal increase
in system loss in 2012 is mainly due to the manpower issues faced with the outsourced meter
reading and billing contractors. Nevertheless, action has been taken to mediate the situation to
improve the meter reading to billing cycle.
The group companies have incurred capital expenditure of RO 242 million on network expansion compared to RO 286 million in 2011. EHC Group consisted of a staff strength of 2,696 as at
31 December 2012 of which 89% or 2,399 were Omani Nationals compared to 88% Omanisation
in 2011.

Financial Performance
The gross operating revenue of the Group increased by 17.6% from RO 560.3 million in 2011
to RO 659.1 million in 2012, the net profit after tax increased by 36.0% from RO 62.3 million
to RO 84.7 million, mainly due to increase in customers numbers and higher consumptions.

14

Electricity Holding Company S.A.O.C

Strategic Direction
During the year, the EHC group has established new Vision, Mission and Values to focus on the
following key areas of activities to improve the people capabilities to ultimately strengthen our
customer relationship by delivering higher level of customer value added services:
1.
2.
3.
4.
5.

Human Resource Development


Health, Safety and Environment
Customer Service
Asset Management
Communication

Major Project Development


To continue meeting the economic development of the Sultanate of Oman and the customers
demand for electricity and related water in the future, the following major initiatives are planned
to achieve this:




Sur Power Project


Musandam IPP
Al Ghubrah IWP
Barka III
Sohar II IWPP

Acknowledgements
On behalf of the Board members, I would like to express our sincere gratitude to His Majesty Sultan Qaboos Bin Said for his support to the electricity and related water sector and for his strong
and wise leadership, which has paved the way for the ongoing development of Oman.
I would like to take this opportunity to thank all our customers, suppliers and all others who
have contributed to the success of the EHC Group.
I also thank our CEO, Mr. Omar Al-Wahaibi and CEOs/GMs of the subsidiary companies, the management team of the Group and all staff of the EHC Group for their dedication and commitment
to the continued growth and development of the Group.

Mohammed Abdullah Al Mahrouqi


Chairman of the Board of Directors
Annual Report 2012

15

A JOURNEY TO BUILD A BETTER FUTURE


CEOS Report

THE GROUP AIMS TO SIGNIFICANTLY


BOOST THE PEOPLE CAPABILITIES IN THE
SECTOR INTO DRIVING PRODUCTIVITY,
INCREASING EFFICIENCY, BY ADOPTING
INTERNATIONAL BEST PRACTICES AND
STRENGTHENING OUR CUSTOMER
RELATIONSHIP.

Dear Shareholders,
Through the evaluation of past experiences and people engagement, the Group has collectively
developed a new Group Vision, Mission and Values to pave the direction and to commit to
progress towards delivery of higher value added services to customers and to secure financial
sustainability for the future of the sector.
The Group strategies provide a roadmap towards business performance goals for the coming
years. They have been established based on the following pillars:
1. Human Resource Development will continue to unfold and develop the talent and
capability of the Omani work force to meet the future challenges and developments
2. Health, Safety and Environment will ensure we remain committed to leading
safety practices and cultures across all of our businesses and continue driving
improvements in processes, procedures and individual behaviors
3. Customer Service will continue to create new innovations and environment to
improve the customer services, needs and expectations along with strengthening
our customer service team to cultivate the client and customer relationship culture
4. Asset Management will improve the asset capability and reliability and continue to
focus on minimizing risk and the associated maintenance cost.
5. Communication will ensure timely, transparent and positive communication with
all stakeholders to foster a close and co-ordinal relationship

16

Electricity Holding Company S.A.O.C

WE VALUE PROFESSIONALS WHO ARE CUSTOMER FOCUSED,


DELIVERING QUALITY THROUGH TEAMWORK THAT IS BASED
ON RESPECT AND INTEGRITY.

The key part of the journey is the implementation of our new operating model which defines
that all parts of the group should work together to create a faster, less complex and more cooperative environment, thereby enhancing transparency, management accountability and
enabling rapid corrective action where required.

Challenges Ahead

In 2013 we will continue laying down the foundation and program designed to unlock our full
potential and capabilities. The key challenge is to turn our strategies into action and realize the
desired benefits in the future. This challenge can only be overcome by the combination of our
unique capabilities and talented management within the Group coming together to deliver the
Group to the next phase of achievement. Nevertheless, I am confident that with the exceptional
track record of the Groups Leadership in leading, growing and developing business will ensure
successfull delivery of the strategic initiatives.

Thank you

I would like to thank the Groups Leadership Team for their commitment to the future development
of the group and commitment to execute and ensure the success of the Group initiatives.
I would also like to thank all our employees for their hard work, willingness to embrace changes
and the remarkable effort and commitment towards achieving a successful 2012.
Finally I would like to thank the Board of Directors for their support and guidance.


Omar Al-Wahaibi
CEO

Annual Report 2012

17

HUMAN RESOURCE DEVELOPMENT


EHC Group has embarked on a new Leadership
development program in 2012. To bring alive the
new EHC Group Vision, we have focused on two key
areas being the development and empowerment of
our people. We firmly believe that the key factor that
differentiates a successful organization from the others
is the competitive edge that its people bring to the table.
It is the contribution of our employees that will help the
EHC Group translate our organizational vision into a
reality and we wish to reinforce this further.

RO 3
million

invested on Group employees


training programs

We are committed to our employees development and in


2012 have invested RO 3 million on the Group employees
training programs, an amount that has grown by 34%
during the seven years existence. We recognize and
reward the employees through our Takreem program for
their valuable contributions.
As a part of our continued efforts to strengthen our
leadership capabilities and development of a robust

leadership pipeline, we have launched the Ruwad


program in 2012, which identifies high performing and
high potential employees at every level, in all group
companies, to groom them to become the future of EHC
Group.

230

Interns hired during 2012

EHC Group aims to transform itself into an Employer of


Choice and implement, not only the Ruwad program
but also develop an integrated talent management
framework and establish a training and development
center to secure and nourish talent. Seventy six percent
of EHC Group employees are between 18-40 years of age
and the strategic human resource initiatives will support
and develop the employees into future leaders.
EHC Group companies have supported the local
development of talent by conducting training programs
by having positioned 230 interns during the year.

Age Profile of EHC Group Employees


18-30

31-40
+51

41-50
Investment in Employees (RO millions)

CEO presents a Takreem award to


an outstanding employee
18

Electricity Holding Company S.A.O.C

HEALTH, SAFETY AND ENVIRONMENT


The group accords special attention to health, safety
and environment through the implementation of onjob training and awareness programs. The group aims at
developing and improving HSE culture among its staff,
contractors, and its service providers by ensuring the
implementation of HSE regulations in all activities and
operations.
The HSE strategic goal is to be OHSAS certified by the
end of 2017. The successful implementation of HSE

5.9

Man-Hours without Lost Time Injury

Million

and ZERO LTI/Fatality incidents in

6.1

Man-Hours without Lost Time Injury

Million

2012 across Generation Companies

and TWO LTI incidents in 2012 across


Rural Areas Companies

policies and procedures will be facilitated through bestin-class IT systems.


EHC Group companies focus on improving the
working conditions of their employees and ensure a
safe environment for contracted employees through
policies, procedures, awareness programs and trainings.
In February 2012, OETC achieved 10 million safe manhours; this is the first achievement of its kind in the
Oman Electricity Sector.

5.5

Man-Hours without Lost Time Injury

Million

and TWO LTI incidents in 2012 across

caused to an employee of a contractor

Fatality

Transmission Company

for Majan

MJEC staff participate in Safety Awareness exhibition


Annual Report 2012

19

CUSTOMER SERVICE
During 2012, EHC group defined and agreed on the first
customer service policy, which set the guidelines for
managing customer relations and defining the priorities
of customer service in the distribution companies. Based
on this policy the 5 distribution companies devised and

95%

Efficiency at Customer
Call Centers

established a customer Charter which details the initial


commitment to provide excellent customer service for
electricity customers
The distribution companies improved in customer
service by ensuring 95% efficiency in receiving customer
calls and inquiries.
In 2012 EHC Group are using customer satisfaction as one
of its key performance indicators, and hence has been
working consistently to collect customer feedback about
their services and measure customer satisfaction on
monthly basis. Recent statistics from surveys conducted

80%

Customers say between


good and excellent service
by Distribution companies

by the Distribution Companies show that more than


80% of surveyed customers have rated the distribution
company services between good and excellent.
A survey done in June 2012, by EHC through an external
consultant, has shown that more than 70% of the surveyed
customers are either happy or very happy with their

e-portal experience, to access the Group Services. The


same survey showed that more than 85% of the surveyed
customers found the e-portal user-friendly.
EHC group has also implemented a customer relation
management system (CRM) to be able to understand
and better analyze customer needs and requirements,
and to record all customer interactions to make sure
that customer requests and complaints are traced and
resolved quickly and effectively.
In 2012 EHC group with the help of the distribution
companies conducted a comprehensive assessment of
the customer service capabilities and potential areas of
development in terms staff competencies, core business
processes and systems and tools and developed a fully
roadmap for customer service development that tackles
all the aspects of customer service in the electricity
sector.

85%

EHC group is well aware of the importance of customer


service development to ensure sustainable growth,
hence the group created a strategic Customer Service
Improvement program with the primary objectives of
improving customer service in the electricity sector
through the customer journey and life cycle.

70%

Launching of a new Customer Service outlet in Muscat City Centre for MEDC
20

Electricity Holding Company S.A.O.C

Customers find portal userfriendly

Customers are happy or


very happy with E-Portal
experience

ASSET MANAGEMENT
The Companies performed well against the
initial Asset Management KPIs achieving
between 80 and 100% of targets.
The aim of the Group Asset Management strategy
implementation program is to enhance the asset
management systems of the six participating subsidiaries,
MEDC, MJEC, MZEC, OETC, RAECO and DPC. Enabling
them to be accredited to PAS 55/ISO certification,
an international standard for asset management, by
December 2015 in order to provide improved reliability
of supply to EHC Group customers and progressively
meet sector compliance obligations.
The program is based around 3 key themes of work;
The development of the technical asset
management requirements such as policy,
strategy and process design.
Building the internal asset management people
capability and capacity within the companies.
Providing appropriate asset management IT based
tools and techniques.
The focus of 2012 was to establish a sound foundation
for implementing best practice asset management
systems and has initially focused on:

Establishing the appropriate organization structure


and accountabilities for asset management.
Commence selecting and appointing staff to
newly created asset management roles.
Prepare comprehensive 3 year implementation
plans based on previous PAS 55 gap analysis
recommendations.
Design appropriate asset hierarchies to support a
future Computerized Maintenance Management
System.
Prepare an associated data quality improvement
strategy and plan.
Establishing the performance, condition and
associated risk of key asset classes.

We will introduce best practice


lifecycle asset management to optimize
performance, reduce cost and mitigate risk
in order to improve reliability and meet
our compliance obligations.
Continued progress with adequately resourcing the
asset management function and effective program and
project management of the companies implementation
plans will be essential in order to ensure that the group
target completion date is achieved.

80-100% Asset Management


KPIs achieved

Transformer at Buraimi
Annual Report 2012

21

COMMUNICATION
The sustainability and success of the Groups strategy is highly dependent on how it is viewed by key stakeholders and
communications function forms a critical part of building, maintaining and protecting such reputations. Effective
corporate communications offers a framework for effective coordination of all internal and external communication.
It is therefore critical that a message is transmitted in a coherent, credible and ethical manner.
In order to ensure the establishment of best practices communication strategy and policy for EHC and group of
companies, Group Communications and CSR Department has been formulated under EHC to oversee all the group
initiatives/issues and provide direction and resources in the following strategic initiatives:
1. Knowledge Sharing: To encourage knowledge and best practice sharing within the EHC Group of companies.
2. Demand Side Management:
a. To influence customer behavior with the objective of reducing average consumption per customer and the
overall peak demand.
b. To influence decision makers in the government to support policies to introduce new building codes and
specification aiming at reducing electricity consumption.
c. To influence decision makers in the government and big organizations to implement measure to reduce
their organization electricity consumption.
d. To demonstrate to the general public the support they are getting from the government that is making
their life much more comfortable.
3. Communication Policy and Processes:
a. Enable a streamlined and integrated communications approach to be implemented across EHC internal /
external stakeholders
b. Ensure the introduction of a practical and effective communications approach to seamlessly engage
external stakeholders as a group and as individual subsidiaries
4. To utilize the IT toward applying best practice in communication.

MJEC conduct an energy saving awareness session


22

Electricity Holding Company S.A.O.C

OPERATIONAL & FINANCIAL OVERVIEW


Financial Highlights
Net Profit After Tax
Operating Revenue
Capital Investment

Operational Highlights
Energy Sold
Increase by 13%
Water Sold
Increase by 14%
Customer Numbers
Increase by 9%

Key Financials

Increase by 36%
Increase by 19%
Decrease by 7%

2012

2011

% Change

Earning Before Interest and Tax

RO 000s

121,673

82,361

48%

Net Profit After Tax

RO 000s

84,686

62,291

36%

Operating Cash Flow

RO 000s

167,172

227,333

-26%

Net Government Subsidy

RO 000s

199,225

153,444

30%

Capital expenditure

RO 000s

238,656

285,510

-16%

Total Assets

RO 000s

2,176,708

1,933,909

13%

Total Equity

RO 000s

1,065,203

984,446

8%

Key Ratios
Earnings Per Share

RO

42.34

31.15

36%

Operating Cash flow per Share

RO

83.59

113.67

-26%

Net Assets Per Share

RO

532.60

492.22

8%

Key Operations

Electricity (MIS)
Units Generated

GWh

3,354

3,691

-9%

Units Purchased

GWh

18,464

15,548

19%

Units Transmitted

GWh

21,041

18,508

14%

Units Sold

GWh

18,503

16,375

13%

13.8

12.8

8%

GWh

4.4

4.0

11%

Units Generated

GWh

1,518

1,840

-18%

Units Purchased

GWh

1,431

716

100%

Units Sold

GWh

2,457

2,138

15%

16.7

15.5

8%

Distribution Loss
Max. Transmission system demand
Electricity (Rural*)

System Loss

Water
Units Generated

M CuM

52.4

49.5

6%

Units Purchased

M CuM

118.0

98.6

20%

Units Sold

M CuM

167.8

147.8

13%

Customers
MIS

Number

695,345

641,137

8%

Rural System

Number

94,927

86,346

10%

Total

Number

790,272

727,483

9%

Number

2,696

2,639

2%

Staff Count
* Rural System includes RAEC & Salalah systems

Annual Report 2012

23

FINANCIAL HIGHLIGHTS
Total Revenue (increase RO 98.8 million)

16% Average Growth



Power sales have increased by RO 33.3 million due to a 9% increase


in customer numbers and a 13% growth in consumption.
Net subsidy from Government has increased RO 45.7 million
caused by increased purchase cost from commissioning of
new plants and growth in business infrastructure.

Total Expenses (increase RO 83.7 million)

18% Average Growth


Operating costs higher by RO 59.1 million mainly due


to increased power and water procurement to meet the
increased demand through commissioning of new plants
and temporary generation facilities.
General and Administrative expenses higher in line with
growth in business operations and inflationary impact.
Tax expense increased due to a change in the tax
regulation issuing clarification on the accounting
treatment of lease transactions reflecting a restrospective
impact since 2007.

Profit after Tax (increase RO 22.4 million)

26% Average Growth


Gross Profit Margins increased due to the impact of new


price control allowances, increase in power consumptions
and customer base and efficiencies in generating
companies in the EHC Group.

Operating Cash Flow (decrease RO 60.2 million)

14% Average Growth


24

Electricity Holding Company S.A.O.C

Significant decrease, primarily due to lower recovery of


receivables as a result of the manpower issues faced with
the outsourced meter reading and billing contractors
and a higher amount of payments made to creditors, as
compared to 2011.

GROUP BUSINESS PERFORMANCE REVIEW


CUSTOMERS -

790,272

Total Customer base has increased by 9% to 790,272.


The Major increase is in domestic by 45,161, commercial by 14,246 and Government by 1,872.
CUSTOMER PER COMPANY

ELECTRICITY SUPPLIED - 20,960 GWh


Total electricity supplied reached 20,960 GWh in
2012 a 13% increase.

ELECTRICITY SUPPLIED BY COMPANY (GWH)

ELECTRICITY SUPPLIED (GWH)

Industrial category realised the largest growth, by


33% , domestic by 11% and commercial by 9%.

4,872 GWh
POWER GENERATED Power production in the group decreased by 12% to
4,872 GWh compared to 5,531 GWh in 2011. This is in
line with plant retirement.

POWER GENERATION AND PROCUREMENT (GWH)

POWERPROCUREMENT - 19,894 GWh


Power procurement has increased by 22% over 2011
to 19,894 GWh in line with the growth in demand,
essentially in the MIS region. Commissioning of new
plants has enhanced ability to procure, namely Sohar II, Barka III and Salalah IWPP.

Annual Report 2012

25

GROUP BUSINESS PERFORMANCE REVIEW


WATER DESALINATED AND PROCUREMENT (MCUM)

52.4 MCuM

WATER DESALINATION -

During 2012 water desalinated by the group


companies grew by 6% to 52.4 MCuM whereas
procurement grew by 20% to 118.0 MCuM.
WATER PROCUREMENT -

118.0 MCuM

DISTRIBUTION AND SYSTEM LOSS (%)

13.8%

- DISTRIBUTION LOSS-MIS

16.7%

- RURAL AREAS SYSTEM LOSS

GOVERNMENT SUBSIDY - RO 199.2 million


Net Government Subsidy has increased by 30%
to RO 199.2 million compared to RO 153.4 million
in 2011 due to higher purchase cost, growth in
infrastructure along with an increase in volume
procured.
GOVERNMENT SUBSIDY (RO MILLIONS)
9.8

9.4
8.0

7.1

SUBSIDY (RO MILLIONS)

26

7.7

SUBSIDY PER UNIT(RO / MWH)

Electricity Holding Company S.A.O.C

SUBSIDY PER COMPANY (RO MILLIONS)

SUBSIDIARIES PERFORMANCE HIGHLIGHTS


Wadi Al Jizzi Power Company SAOC
Contribution to Group profit 1.3%
Activities:
Electricity generation
Annual Highlights:
Plant availability in summer at 100%.
598 GWh power delivered to the grid lower by 23% compared to
2011.
843,144 man hours without Lost Time Incident.

Al Gubrah Power & Water Desalination Company SAOC


Contribution to Group profit 7.4%
Activities:
Electricity generation and related water desalination.
Annual Highlights:
Overall plant availability is 85.6% which is 1% higher than 2011.

2,559 GWh power delivered to the grid,lower by 2% compared to
2011.
Water dispatched 49.8 million m3, higher by 6% compared to 2011.
Total man-hours without lost time accident is 3.15 million including
0.78 million attributed to on-site contractors.
Oman Electricity Transmission Company SAOC
Contribution to Group profit 32.6%
Activities:
Electricity Transmission
Annual Highlights:
Total length of 220KV transmission circuits have increased from 835 circuit-KM
in 2011 to 1,345 circuit-KM in 2012. Total length of 132KV transmission circuits
increased from 2,970 circuit-KM in 2011 to 3,061 circuit-KM in 2012.
Five new grid stations constructed (Blue City, Yiti, Al Qurum, Muttrah and
Sohar PWR GS), additional transformers in Bousher, Seeb, Barka Main, Ibri &
Dhank.
Maximum transmission system demand up 8% (4,080MW) and regulated
units transmitted up 14% (21,041GWh) as compared to 2011.

Annual Report 2012

27

SUBSIDIARIES PERFORMANCE HIGHLIGHTS


Muscat Electricity Distribution Company SAOC
Contribution to Group profit 25.2%
Activities:
Distribution and Supply of electricity and maintenance of distribution
networks in the Muscat region.
Annual Highlights:
18,322 new customers added to the network, an increase of 8.2 % over 2011.
System loss performance of 12.86 %, increased marginaly from 2011 system loss of 11.76 %.
CAIDI decreased to 45.3 minutes in 2012 from 46.7 in 2011.
Subsidy per unit is 7.2 in 2012 compared to 4.29 in 2011.

Mazoon Electricity Company SAOC


Contribution to Group profit 25.6%
Activities:
Distribution and Supply of electricity and maintenance of distribution
networks in the wilayats of ASharqiya, Al-Dhakliyah and South Batinah
region.
Annual Highlights:
23,864 new customers, an increase of 9% over 2011.
System loss up to 15.31% from 14.26% in 2011.
CAIDI increased to 67 minutes in 2012 from 60 minutes in 2011.
Subsidy per unit is 15.51 in 2012 compared to 13.10 in 2011. Subsidy per
customer is 279 in 2012 compared to 186 in 2011.

Majan Electricity Company SAOC


Contribution to Group profit 15.1%
Activities:
Distribution and Supply of electricity and maintenance of distribution
networks in the wilayat of ADhahirah, Governorate of Buraimi and
North Batinah region.
Annual Highlights:
12,022 new customers added to the network, an increase of 8.0% over 2011.
System loss is 13.47% compared to 12.9% in 2011.
CAIDI up from 50 minutes to 52 minutes in 2012.
Subsidy per unit is RO 8.9 in 2012 compared to RO 7.4 in 2011.
CAIDI is Customer Average Interuption Duration Index
28

Electricity Holding Company S.A.O.C

SUBSIDIARIES PERFORMANCE HIGHLIGHTS


Rural Areas Electricity Company SAOC
Contribution to Group profit -1.0%
Activities:
Electricity generation, water desalination, and electricity distribution and
supply activities in rural areas.
Annual Highlights:
2,727 new customer added to the network an increase of 12% over 2011.

Net power generated and sent out has been increased from 513,039 MWh
to 555,808 MWh an 8.3% increase over 2011.
Desalinated water generation has increased from 1,413,080 m3 in 2011 to
1,985,724 m3 in 2012 mainly due to Duqm Desalination Plant.

Dhofar Power Company SAOG


Contribution to Group profit 5.9%
Activities:
Electricity generation, distribution and supply activities in the Salalah Concession area.
Annual Highlights:
6,260 new customers added to the salalah networks a 9% increase over
2011.
System loss is 16.4% compared to 17.3% in 2011.
Regulated units sold are 1,897GWh and have increased by 14% over 2011.

Oman Power and Water Procurement Company SAOC


Contribution to Group profit -9.5%
OPWPs financial accounts continue to be materially affected by changes in
the accounting treatment of its Power (and Water) Purchase Agreements in
line with International Accounting Standards.
Activities:
Bulk purchase and sale of electricity and related water and supervision of
the Salalah Concession Agreement.
Annual Highlights:

Successful commissioning of Salalah IWPP with a production capacity of 445 MW


and desalination capacity of 15 MIGD.
Early power from the Barka III IPP and Sohar II IPP has significantly contributed in
meeting the peak demand of the summer 2012.
Finalisation of contracts and deployment of temporary generation for the Main
Interconnected System (MIS) and Salalah Power System in order to meet all Loss
of Load Hour obligations for the summer 2012.

Annual Report 2012

29

CORPORATE GOVERNANCE REPORT


1. EHCs Philosophy on Code of Governance
The Electricity Holding Company (EHC) recognizes the important role that good corporate governance plays in the
smooth and efficient functioning of the company, protecting its interests and enhancing shareholder value. In pursuing the corporate objectives we are committed to the highest level of governance and strive to foster a culture
that values ethical standards, personal and corporate integrity and respect for others.
EHCs Corporate Governance Policy has been built on the philosophy and principles outlined in International form
and the code of corporate governance issued by the Ministry of Commerce and Industry for SAOG companies, and
it is being formally developed to be put in place and shared with EHCs subsidiaries. It is our view that governance is
not just a matter for the Board; a good governance culture must be focused throughout the Group.

Shareholder

2. Organizational Structure:

Ministry of Finance

BOD

Functional Reporting

Board of Directors

Company Secretary

Exceutives

Internal Audit Committee

Administrative Reporting

Vice President
Generation

Exceutive
Human Resources

Human Resource Committee

Chief Exceutive Officer

Exceutive Strategy
& Planning

Exceutive
Information Technology

Deputy Chief Exceutive Officer

Chief Financial Officer

Exceutive
Risk Management

3. Role of the Board of Directors (BoD)and the Board Committees


The following chart provides an overview on the EHC BoD and its Committees:

30

BoD

Internal Audit Committee

Human Resource Committee

H.E Mohammed Abdullah Al Mahrouqi


H.E Dr. Abdulmalik Abdullah Al Hinai
Mr. Abdulsalam Nasser Al Kharousi
Mrs. Manal Mohammed Al Abdwani

H.E Dr. Abdulmalik Abdullah Al Hinai


Mr. Abdulsalam Nasser Al Kharousi
Mrs. Manal Mohammed Al Abdwani

H.E Dr. Abdulmalik Abdullah Al Hinai


Mrs. Manal Mohammed Al Abdwani

Electricity Holding Company S.A.O.C

CORPORATE GOVERNANCE REPORT


Board of Directors
The BoD represents the shareholder (MOF) and is accountable to them for protecting their interest in accordance
with the Sector Law through effective governance of the business. The BoD has the responsibility of overseeing,
counseling and directing the corporate managers to ensure that the interests of the Government are served. The
roles of the BoD of EHC for the Group in general are:
Establishing for the Group, a framework of prudent and effective controls which enable risk to be assessed
and managed across the group
Setting strategic directions for the group, ensuring that the adequate shared resources are in place for the
Group to meet its objectives; and
Setting the values and standards for the Group, ensuring that the obligations to its shareholders and other
stakeholders are understood and met by all the Directors in the Group;

Audit Committee
The Audit Committee is expected to ensure that adequate processes are in place to ensure compliance with regulatory requirements, enhance the effectiveness of internal and external auditors through interacting with them and
insulating them from the undue influence of the management, and provide subject matter expertise to the Board
on matters of governance and risk. Their objectives are to:
Monitor the integrity of the financial statements of the company and any formal announcements relating to
the companys financial performance, reviewing significant financial reporting judgments contained in them;
Review the Companys internal financial controls, internal controls and risk management systems;
Monitor and review the effectiveness of the Companys internal audit function;
Review and monitor the external auditors independence and objectivity and the effectiveness of the audit
process, taking into consideration relevant Capital Market Authority regulation, Commercial Companies Law
and Sector Law; and any other related law; and
Adopt policy on the engagement of the external auditor to supply non-audit services, taking into account
relevant ethical guidance regarding the provision of non-audit services by the external audit firm.

Human Resources Committee


A Human Resources Committee (HR Committee) comprises of two BoD members and members nominated from the
management. The HR Committee deliberates matters relating to:
Develop and recommend to the BoD policies and procedures regarding selection of BoD Member candidates
recommended by shareholders;
Develop and annually review the Companys remuneration policy;
Review and approve training and development plans recommended by the BoD of each subsidiary for BoD,
CEO/GM and executive management;
Develop, control, implement and annually revise the human resources and training policy including the following:
1. An executive remuneration and incentive policy;
2. Remuneration of the CEO/GM; and
3. Any executive incentive plan.

Annual Report 2012

31

CORPORATE GOVERNANCE REPORT


4. Board Composition
EHC being unlisted joint stock company is guided by the provisions of Commercial Companies Law No. 4/1974 as
amended from time to time and its article of association. By virtue of this, the table below lists the members of EHC
BoD for 2012:
Sl.

Member Name

Position in the BOD

H.E. Mohammed Abdullah Al Mahrouqi

Chairman

H.E. Abdulmalik Abdullah Al Hinai

Vice Chairman

Mr. Abdulsalam Nasser Al Kharousi

Member

Mrs. Manal Mohammed Al Abdwani

Member

5. Qualification and Election of the Board Members


In electing Members of the BoD, the terms and conditions issued by the Minister of Commerce & Industry is being
be followed taking into consideration the provisions of Article (95) of the Commercial Companies Law, and without
prejudice to the contents of the Articles of Association. The Member of the BoD fulfills the following requirements:
i. Not be less than 21 years old.
ii. Not be a member of a public joint stock or closed company whose principal place of business is in the Sultanate
of Oman and practicing similar activities.
iii. Not have been declared bankrupt or dissolved unless such case is ceased to exist as per the provisions of the
law.
iv. Not have been convicted in a felony or criminal act unless rehabilitated.
v. Not be unable to settle his debts & obligations to various lenders.
vi. It is not permitted to combine the position of CEO/General Manager and the Chairman of the BoD.
EHC is led by a strong and experienced BoD. The members bring diversity in expertise and perspective to the
leadership of a complex, highly regulated, Electricity sector.

H.E. Mohammed Abdullah Al Mahrouqi:


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

32

Electricity Holding Company S.A.O.C

CORPORATE GOVERNANCE REPORT

H.E. Abdulmalik Abdullah Al Hinai:


Ph.D. in International Relations/Political Economy obtained from the London School of
Economics and Political, Sciences (LSE) University of London, UK in 1999. He is currently
Advisor to Ministry of Finance.

Mr. Abdulsalam Nasser Al Kharousi:


Master degree in Business Economic obtained from University of Hull in 2005. Currently,
he is a Director General of Budget and Contracts in Ministry Of Finance.

Mrs. Manal Mohammed Al Abdwani:


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

Annual Report 2012

33

CORPORATE GOVERNANCE REPORT


6. Details of attendance for the BoD and Committees meetings during 2012
Member Name

Mohammed Abdallah Al Mahrouqi

Abdulmalik Abdallah Al Hinai

Abdulsalam Nasser Al Kharousi

Manal Mohammed Abdwani

Board of Director (BOD)


BOD Meetings

Dates

Chairman

Vice Chairman

Member

Member

1st BOD Meeting

19-Feb-2012

Attended

Attended

Attended

Attended

2nd BOD Meeting 04-Mar-2012

Attended

Attended

Apologies

Attended

3rd BOD Meeting

18-Apr-2012

Attended

Attended

Attended

Apologies

4th BOD Meeting

28-May-2012

Attended

Attended

Attended

Attended

5th BOD Meeting

19-Dec-2012

Attended

Attended

Attended

Attended

Total Number of BOD Attended


Internal Audit Committee (IAC)
IAC Meetings

Dates

Chairman

Member

Member

1st IAC Meeting

13-Feb-2012

Attended

Attended

Attended

2nd IAC Meeting

28-Feb-2012

Attended

Attended

Attended

3rd IAC Meeting

28-May-2012

Attended

Attended

Attended

4th IAC Meeting

09-Sep-2012

Attended

Apologies

Attended

5th IAC Meeting

01-Dec-2012

Attended

Apologies

Attended

Total Number of IAC Attended

Human Resource Committee (HRC)


HRC Meetings

Dates

Chairman

Member

1st HRC Meeting

21-Oct-2012

Attended

Attended

Total Number of HRC Attended

7. Remuneration Matters
Subject to the applicable law and subject to the approval of the shareholder, it is proposed to pay a yearly remuneration to the members of the BoD out of the net profits of the financial year. Total sitting fees received for meetings of the BoD and any subcommittee shall not exceed RO 6,000 for each member as shown in the table below:
MEMBER

BOARD & COMMITTEE SITTING FEES 2011

BOARD

H.E. Mohammed Abdullah Al Mahrouqi

3,250

H.E. Dr Abdulmalik Abdullah Al Hinai

2,500

2000

400

4,900

Mr. Abdul Salam Nasser Al Kharousi

2,000

900

2,900

Mrs. Manal Mohammed Abdawani

2,000

1,500

300

3,800

Grand Total

9,750

4,400

700

34

Electricity Holding Company S.A.O.C

AUDIT

HR

ITC
400

400

Grand Total
3,650

15,250

CORPORATE GOVERNANCE REPORT


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

9. Communications with the Shareholders and Investors


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

10. Governance between EHC and its Subsidiaries


EHC was established by the Sector Law and, with the exception of DPC and DGC, has 99.99% ownership of the Subsidiaries. EHCs ownership of DPC is 98.74 % and DPC owns 100% of DGC.
EHCs primary roles consist of:
1. As a majority shareholder in the Subsidiaries, representing the ownership of the Government of the Sultanate
of Oman, supporting and implementing the Governments privatization policy;
2. As a service provider to the Subsidiaries, providing central accounting and financial support services pursuant
to EHCs responsibilities under the Sector Law;
3. As the holding company for the Group, developing and leading strategy for the Group.
As part of its strategic role, EHC is responsible for promoting and developing the highest standards of corporate governance across the Group and this includes appointing each of the Subsidiary Boards in coordination with the MoF
pursuant to the Sector Law and satisfying themselves that an appropriate governance structure is in place within
EHC and its Subsidiaries.

Percentage of EHC Shareholding

Annual Report 2012

35

CORPORATE GOVERNANCE REPORT


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

Board of Directors

Internal Audit Committee

Company Secretary

Internal Tender Committee

Human Resource Committee

Subsidiaries Board of Directors

Internal Audit Committee

Internal Tender Committee

11. Non Compliance by the Company

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

12. Dividend Policy

The BoD adopts fixed dividend payout policy that provides ample internal financial reserves to support the future
capital investments.

13. Distribution of Shareholding

Since the company is fully owned by the Government of the Sultanate of Oman, represented by MOF, EHC directly
reports to the shareholder through the MOF.

14. Statutory Auditors

Statutory auditors express an opinion on the fairness with which EHC presents, in all material respects, its financial
positions the results of its operations, and its cash flows in line with internationally recognized Accounting Standards.
PriceWaterhouseCoopers (PWC) were the Statutory Auditors of EHC during 2012. PwC is one of the worlds largest providers of assurance, tax, and business consulting services. It has been operating in Oman for over 30 years
providing a broad spectrum of services to its clients ranging across Assurance, Business Advisory and Tax services.

36

Electricity Holding Company S.A.O.C

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR


ENDED 31 DECEMBER 2012
Report of the auditors

38

Consolidated statement of comprehensive income

39

Consolidated statement of financial positions

40

Consolidated statement of changes in equity

42

Consolidated statement of cash flows

43

Notes to the consolidated financial statements

45

Annual Report 2012

37

Independent auditors report to the shareholder of


Electricity Holding Company SAOC

PricewaterhouseCoopers LLP
PO Box 3075, Ruwi 112
Suites 204-210 Hatat House
Wadi Adai, Muscat
Sultanate of Oman
Telephone +(968) 2455 9110
Facsimile +(968) 2456 4408

Report on the consolidated financial statements


We have audited the accompanying consolidated financial statements of Electricity Holding Company SAOC (the
company) and its subsidiaries (together the group) which comprise the consolidated statement of financial position
as at 31 December 2012, and the consolidated statements of comprehensive income, changes in equity and cash
flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Directors responsibility for the financial statements
The Directors of the company are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the Commercial Companies
Law of 1974, as amended, and for such internal control as the management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the
risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the group as at 31 December 2012 and its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards and the requirements of the Commercial
Companies Law of 1974, as amended.

10 March 2013
Muscat, Sultanate of Oman

Chartered Accountants Licence No. MH/26 - Management Consultants Licence No. MA/161 - Commercial Register No. 5/30766/1
38

Electricity Holding Company S.A.O.C

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


FOR THE YEAR ENDED 31 DECEMBER 2012

Note

2012 2011
RO 000

RO 000

Revenue

659,133 560,327

Operating costs

(466,098) (407,002)

Gross profit
193,035 153,325
General and administrative expenses

Other income

(84,332) (76,623)
12,970

5,659

Profit from operations


121,673 82,361
Finance income

10

2,461 2,492

Finance costs

11

(17,181) (16,068)

Profit before tax

106,953 68,785

Taxation 12
(22,267) (6,494)

84,686 62,291
Profit for the year
Attributable to:
Owners of the parent

84,686 62,291

Other comprehensive income for the year:


Revaluation loss on hedge instruments

13

1,215 (2,135)

Total comprehensive income for the year


85,901 60,156
Attributable to:
Owners of the parent

85,901 60,156

The notes on pages 45 to 74 form an integral part of these financial statements


Report of the Auditors - page 38.

Annual Report 2012

39

CONSOLIDATED STATEMENT OF FINANCIAL POSITION


AS AT 31 DECEMBER 2012

Note

2012 2011
RO 000

RO 000

ASSETS
Non-current assets
Property, plant and equipment

14

1,607,112 1,457,362

Goodwill
7,092 7,092
21,267 23,148

Advance payments

15

Service concession receivables

16

173,069

157,242

Bank deposits

19

48,311

32,769


1,856,851 1,677,613
Current assets

Inventories 17
39,974 37,855
Trade and other receivables

18

146,828 126,687

Bank deposits

19

70,461 31,031

Cash and bank balances

20

62,594

60,723


319,857 256,296

Total assets
2,176,708 1,933,909

EQUITY
Capital and reserves
Share capital

21

2,000 2,000

Legal reserve

22

12,342 12,342

General reserve

23

3,000 3,000

Hedge reserve

13

(1,860) (3,075)

Retained earnings

421,123 336,989

Shareholders funds

628,598 633,190

25

Total equity
1,065,203 984,446
LIABILITIES
Non-current liabilities
Term loan

26

125,512 86,586

Finance lease liabilities

27

49,102 53,360

Trade and other payables

28

8,131 16,058

Provision for decommissioning costs

29

43,347 57,689

Provision for employee benefits

29

7,983 7,040

Continued on page 41.

The notes on pages 45 to 74 form an integral part of these financial statements


Report of the Auditors - page 38.

40

Electricity Holding Company S.A.O.C

CONSOLIDATED BALANCE SHEET (continued)


AS AT 31 DECEMBER 2012


2012 2011

Note

RO 000

RO 000

LIABILITIES (continued)
Non-current liabilities (continued)
Provision for major maintenance

29

4,703 4,192

Deferred revenue

31

105,458 95,875

Hedging deficit

13

8,940 10,240

Advance from Ministry of Finance

30

93,545 100,025

Deferred tax liability

32

51,305

37,872


498,026 468,937
Current liabilities
Term loan

26

11,086 10,354

Short-term borrowings

33

305,000 190,000

Bank overdrafts

34

9,674 13,685

Finance lease liabilities

27

4,258 3,830

Trade and other payables

28

269,322 256,511

Current tax liability

9,222 1,766

Provision for employee benefits

29

3,617 3,166

Hedging deficit

13

1,300

1,214


613,479 480,526

Total liabilities

1,111,505 949,463

Total equity and liabilities


2,176,708 1,933,909


The financial statements on pages 33 to 68 were approved by the Board of Directors on 23 February 2013 and were
signed on their behalf by:

H.E. Mohammed Abdullah Al Mahrouqi



Chairman


H.E. Dr. Abdulmalik Abdullah Al Hinai
Director

Omar Khalfan Al Wahaibi


Chief Executive Officer

Report of the Auditors - page 38.

Annual Report 2012

41

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


FOR THE YEAR ENDED 31 DECEMBER 2012
Note

Share

Legal General

capital

reserve reserve

Hedge Retained Shareholders Total


Minority Total
reserve earnings

RO 000 RO 000 RO 000 RO 000

RO 000

funds interest
RO 000

RO 000 RO 000

equity
RO 000


At 1 January 2011

2,000

12,342

3,000

(940)

275,537

633,190

925,129

925,129

Comprehensive income:
Profit for the year

62,291

62,291

62,291

Other comprehensive income:


Fair value adjustment for interest
rate swap contracts

(2,135)

(2,135)

(2,135)

Transactions with owners:


Acquisition of minority interest

(332)

(332)

(332)

Dividend paid

(507)

(507)

(507)

At 31 December 2011

2,000

12,342

3,000

(3,075)

336,989

633,190

984,446

984,446

984,446


At 1 January 2012

2,000

12,342 3,000

(3,075)

336,989

633,190

984,446

Comprehensive income:
Profit for the year

- 84,686

- 84,686

- 84,686

Other comprehensive income:


Fair value adjustment for interest
rate swap contracts -

- -
1,215

- 1,215

- 1,215

Transactions with owners:


Adjustment of receivable towards sale
of Rusail Power Company SAOC

(4,592)

(4,592)

(4,592)

Acquisition of minority interest


- - - - - (51) (51) - (51)
Dividend paid

At 31 December 2012

2,000

12,342 3,000

(501)

(1,860)

421,123

The notes on pages 45 to 74 form an integral part of these financial statements


Report of the Auditors - page 38.

42

Electricity Holding Company S.A.O.C

(501)

628,598 1,065,203

(501)

- 1,065,203

CONSOLIDATED STATEMENT OF CASH FLOWS


FOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011

RO 000

RO 000

Cash flows from operating activities

Profit before tax 106,953


68,785
Adjustments for:
Depreciation on property, plant and equipment
Loss on sale of property, plant and equipment
Provision for/(write back of ) inventory obsolescence

72,800 66,832
32 625
626 (600)

Provision for doubtful debts

1,704 851

Provision for employee benefit expense

1,823 7,434

Provision for major maintenance


Interest expense
Interest income
Unwinding of decommissioning cost provisions
Operating cash flows before working capital changes

511 545
17,181 14,369
(2,461) (2,492)
1,256

1,699

200,425

158,048

Payment of end of service benefits


(358)
Working capital changes:
Inventories
Trade and other receivables
Advance payments
Service concession receivable
Deferred revenue
Advance from Ministry of Finance
Trade and other payables
Cash generated from operations
Income tax paid
Net cash generated from operating activities

(2,745) (2,131)
(26,436) 7,428
1,881 574
(15,827) (39,134)
9,583 18,738
(6,480) 38,404
7,592

46,112

167,993

227,681

(821)

(348)

167,172

227,333

Cash flows from investing activities


Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Investment in of bank deposits
Interest received
Interest paid
Net cash used in investing activities

(241,966) (285,510)
93 279
(54,972) (7,325)
2,461 2,492
(17,181)

(14,369)

(311,565)

(304,433)


Continued on page 44.

The notes on pages 45 to 74 form an integral part of these financial statements


Report of the Auditors - page 38.

Annual Report 2012

43

CONSOLIDATED STATEMENT OF CASH FLOWS (continued)


FOR THE YEAR ENDED 31 DECEMBER 2012

2012 2011

RO 000

RO 000

Cash flows from financing activities

Short-term borrowings 115,000


114,000
Term loan availed

39,657 17,183

Settlement of finance lease liabilities

(3,830) (5,043)

Minority interest acquisition adjustment


Dividend paid
Net cash generated from financing activities

(51) (332)
(501)

(507)

150,275

125,301


Net change in cash and cash equivalents

5,882

48,201

Cash and cash equivalents at the beginning of the year

47,038 (1,163)

Cash and cash equivalents at the end of the year

52,920

47,038


Cash and cash equivalents at the end of the year

62,594 60,723

Cash and bank balances

(9,674) (13,685)

Bank overdraft

52,920 47,038

The notes on pages 45 to 74 form an integral part of these financial statements


Report of the Auditors - page 38.

44

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

1. Legal status and principal activities


Electricity Holding Company SAOC (the company or parent company) is a closed Omani joint stock company registered under the Commercial Companies Law of Oman on 19 October 2002.
The establishment and operations of the company are governed by the provisions of the Law for the Regulation
and Privatisation of the Electricity and Related Water Sector (the Sector Law) promulgated by Royal Decree 78/2004.
The principal activities of the company comprise the management of Government investments in, and the Privatisation of the Electricity and Related Water Sector in the Sultanate of Oman and provision of certain central services to
its subsidiary companies.
The subsidiary companies, other than Dhofar Power Company SAOC, (DPC) commenced their operations on
1 May 2005 (the transfer date) following the implementation of a decision of the Ministry of National Economy
(the transfer scheme) issued pursuant to Royal Decree 78/2004.
The principal activities of the subsidiaries are set out below:
Subsidiary company

Shareholding percentage

Al Gubrah Power and Desalination Company SAOC (GPDC)

99.99

Principal activities

Electricity generation and related water

desalination.
Wadi Al Jizi Power Company SAOC (WJPC)

99.99

Electricity generation.

Oman Electricity Transmission Company SAOC (OETC)

99.99

Electricity transmission.

Oman Power and Water Procurement Company SAOC (OPWP)

99.99

Bulk purchase and sale of electricity and related water.

Muscat Electricity Distribution Company SAOC (MEDC)

99.99

Distribution and Supply of electricity and maintenance

of distribution networks in the Muscat region.

Mazoon Electricity Company SAOC (MZEC)

Distribution and Supply of electricity and maintenance

99.99

of distribution networks in the wilayats of ASharqiya,

Al-Dhakliyah and South Batinah region.

Majan Electricity Company SAOC (MJEC)

Distribution and Supply of electricity and maintenance

99.99

of distribution networks in the wilayats of ADhahirah,

and North Batinah region.

Rural Areas Electricity Company SAOC (RAECO)

Electricity generation, water desalination, and

99.99

electricity distribution and supply activities in Musandam

Governate, Alwusta Region, Masirah Island, Khuweima

and Qroon area in Sharqiya Region, Aswad area in

Dahirah Region in the Dhofar Governate, the area outside

Dhofar Power Company SAOC authorised area and in the

Dakhliya Region, the area outside Mazoon Electricity Co

SAOC authorised area.

Dhofar Power Company SAOC (DPC)

Generation, transmission, distribution and supply of

98.74

electricity in the Salalah region

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

Annual Report 2012

45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies


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

2.1 Basis of preparation


(a) The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS),
and on the historical cost basis except for derivative financial instruments which are measured at fair value.
(b) The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying
the groups accounting policies. The areas involving a higher degree of judgement or complexity or areas
where assumptions and estimates are significant to the consolidated financial statements are disclosed in
note 4.
(c) As at 31 December 2012, the groups current liabilities exceeded its current assets by RO 293.622 million (2011
- RO 224.230 million). The parent companys management, on behalf of the group is in the process of obtaining long term credit facilities which will be drawn down, as required, in order to meet the groups on-going
funding requirements. Accordingly, the net negative current assets position as at the year end is not considered to have an impact on the going concern status. Hence these financial statements are prepared on a going concern basis.
(d) Standards, amendments and interpretations to existing standards that are not yet effective and have not been
early adopted by the company:
A number of new standards, amendments and interpretations to existing standards have been published and
are mandatory for the annual accounting periods beginning on or after 1 January 2013 or later periods, but the
Group has not early adopted them. None of these is expected to have a significant effect on the consolidated
financial statements of the Group, except the following set out below:
IAS 19 (Amendments), Employee benefits (effective on or after 1 January 2013);
IAS 27 (Revised), Separate financial statemetns (effective on or after 1 January 2013);
IFRS 9, Financial instruments (effective on or after 1 January 2015);
IFRS 10, Consolidated financial statements (effective on or after 1 January 2013);
IFRS 12, Disclosures of interests in other entities (effective on or after 1 January 2013); and
IFRS 13, Fair value measurement (effective on or after 1 January 2013).

2.2 Basis of consolidation


Subsidiaries
Subsidiaries are all entities over which the group has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of
potential voting rights that are currently exercisable or convertible are considered when assessing whether the
group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the
group. They are de-consolidated from the date the control ceases. The purchase method of accounting is used to
account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of
the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.

46

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the fair value of the groups share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary, the difference is recognised directly in the consolidated statement of comprehensive income. Inter-company transactions, balances and unrealised gains and losses on transaction between group companies are eliminated.
Transactions and minority interests
The group treats transactions with non-controlling interest as transactions with equity owners of the group. For
purchases from non-controlling interests, the difference between any consideration paid and the relevant share
of the carrying value of net assets of the subsidiary acquired is recorded in equity. Gains or losses on the disposal
to non-controlling interests are also recorded in equity.
When the group ceases to have control or significant influence, the retained interest in the entity is remeasured
to its fair value, with the change in carrying amount recognised in consolidated statement of comprehensive
income. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the group had directly disposed off the
related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income
are reclassified to consolidated statement of comprehensive income.

2.3 Foreign currency


Items included in the financial statements of the group are measured and presented using Rials Omani which is
the currency of the Sultanate of Oman, being the economic environment in which the company operates
(the functional currency). The financial statements are prepared in Rials Omani, rounded to the nearest thousand.
Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the
date of the transaction. Monetary assets and liabilities denominated in such foreign currencies are translated at
the rates prevailing on the reporting date. Gains and losses from foreign currency transactions are dealt with in
the consolidated statement of comprehensive income.

2.4 Property, plant and equipment


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

Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised if it is
probable that the future economic benefits embodied within the part will flow to the group, and its cost can be
measured reliably. All other repairs and maintenance expenditure is recognised in the consolidated statement of
comprehensive income as an expense as and when incurred.
Depreciation
Depreciation is recognised in the consolidated statement of comprehensive income on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Annual Report 2012

47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.4 Property, plant and equipment (continued)
The principal estimated useful lives used for this purpose are:
Assets

Years

Buildings 30
Transmission and related assets

20-60

Finance lease assets

13-20

Distribution and related assets

20-40

Other plant and machinery

3-60

Decommissioning assets

8-50

Furniture, vehicles and equipment


Plant spares

5-7
20

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

2.5 Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the groups share of the net
identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

2.6 Financial instruments


Financial assets and financial liabilities are recognised on the groups consolidated statement of financial position
when the company and its subsidiaries become a party to the contractual provisions of the instrument.
Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, bank deposits, cash and cash equivalents, loans and borrowings, and trade and other payables. Cash and cash equivalents comprise cash balances
and call deposits and term deposits with original maturity not greater than three months from the date of placement. Bank overdrafts that are repayable on demand and form an integral part of the groups cash management
are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value
through profit or loss, any directly attributable transaction costs.
Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the
effective interest rate method, less any impairment losses.

48

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.6 Financial instruments (continued)
Derivative financial instruments

The group holds derivative financial instruments to hedge interest rate risk exposures. Derivatives are recognised
initially at fair value; attributable transaction costs are recognised in the consolidated statement of comprehensive income when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes
therein are accounted for as described below.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised
directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in
fair value are recognised in the statement of comprehensive income.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
exercised, then the hedge accounting is discontinued prospectively. Any gain or loss previously recognised in
equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the
amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other
cases, the amount recognised in equity is transferred to statement of comprehensive income in the same period
that the hedged item affects profit or loss.

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


significant financial difficulty of the counterparty


default or delinquency in payments
it becoming probable that the borrower will enter bankruptcy or financial reorganization.

Certain categories of financial assets, such as trade receivables that are assessed not to be impaired individually,
are subsequently assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables could include the groups past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period as well
as observable changes in national or local economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with
the exception of trade receivables, where the carrying amount is reduced through the use of a provision account.
When a trade receivable is considered uncollectible, it is directly written off as bad. Subsequent recoveries of
amounts previously written off are credited to the consolidated statement of comprehensive income.

Annual Report 2012

49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.7 Impairment (continued)
Non-financial assets
The carrying amounts of the groups non-financial assets other than inventories are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indications exist then the assets
recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or cash generating unit exceeds its value in
use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specified to the asset. Impairment losses recognised in prior periods are assessed at each
reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the assets carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment loss had been recognised.

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

2.9 Trade receivables


Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary
course of business. Trade receivables are recognised initially at fair value and subsequently measured at amortised
cost using the effective interest rate method, less provision for impairment.

2.10 Cash and cash equivalents


Cash and cash equivalents comprise cash on hand and demand deposits. Cash equivalents are short term, highly
liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk
of changes in value and have maturity of three months or less at the date of acquisition. Bank overdrafts that are
repayable on demand and that form an integral part of the groups cash management is included as a component
of cash and cash equivalents for the purpose of the statement of cash flows.
In the consolidated statement of financial position, bank overdrafts are shown under current liabilities.

2.11 Trade payables


Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or
in the normal operating cycle of the business if longer). If not, they are classified as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest rate method.

50

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.12 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated statement of comprehensive income in the year in
which they are incurred.

2.13 Taxation
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman.
Current tax is the expected tax payable on the taxable income for the year, using the tax rates ruling at the reporting date.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Deferred tax is calculated on the basis of the tax rates that are expected to apply to the year when the asset is
realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantially enacted
by the reporting date. The tax effects on the temporary differences are disclosed under non-current liabilities as
deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. The carrying amount of deferred tax assets
is reviewed at reporting date and reduced to the extent that it is no longer probable that the related tax benefit
will be realised.

Deferred tax assets and liabilities are offset as there is a legally enforceable right to set off these in Oman.
Current and deferred tax is recognised as an expense or benefit in the consolidated statement of comprehensive
income except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity.

2.14 Employee benefits


End of service benefits are accrued in accordance with the terms of employment of the companys employees at the
statement of financial position date, having regard to the requirements of the Oman Labour Law 2003 as amended.
Employee entitlements to annual leave and leave encashments are recognised when they accrue to employees and
an accrual is made for the estimated liability arising as a result of services rendered by employees up to the statement of financial position date. These accruals are included in current liabilities, while that relating to end of service
benefits is disclosed as a non-current liability.
Gratuity for Omani employees who transferred from Ministry of Housing, Electricity and Water on the transfer date
is contributed in accordance with the terms of the Social Securities Law 1991 and Civil Service Employees Pension
Fund Law.
Contributions to a defined contribution retirement plan for Omani employees in accordance with the Omani Social
Insurance Law 1991, are recognised as an expense in the statement of comprehensive income as incurred.

Annual Report 2012

51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.14 Employee benefits (continued)
Gratuity for Omani employees who transferred from the Ministry of Housing, Electricity and Water on 1 May 2005
is calculated based on the terms expected to be agreed with the Government. An accrual for this liability has
been made and is classified as a non-current liability in the consolidated balance sheet.
Contributions to a defined contribution retirement plan for Omani employees in accordance with the Omani
Social Insurance Law 1991, are recognised as an expense in the statement of comprehensive income as incurred.

2.15 Provisions
Provisions are recognised in the consolidated statement of financial position when the group has a legal or constructive obligation as a result of a past event and it is probable that it will result in an outflow of economic benefit that can be reliably estimated.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where
a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the
present value of those cash flows.

2.16 Provision for decommissioning


A provision for decommissioning costs is recognised when there is a present obligation as a result of activities
undertaken pursuant to the usufruct agreements, it is probable that an outflow of economic benefits will be
required to settle the obligation, and the amount of provision can be measured reliably. The estimated future
obligations include the costs of removing the facilities and restoring the affected areas.
The provision for future decommissioning costs is a best estimate of the present value of the expenditure required to settle the decommissioning obligation at the reporting date based on the current requirements as per
the usufruct agreements. Future decommissioning costs are reviewed annually and any changes in the estimate
are reflected in the present value of the decommissioning provision at each reporting date. The initial estimate of
the decommissioning provision is capitalised into the cost of the asset and depreciated over the usufruct term.
Changes in the estimate of the provision for decommissioning is treated in the same manner, except that the
unwinding of the effect of the provision is recognised as a finance cost rather than being capitalised into the cost
of the related asset.

2.17 Revenue
Revenue represents the sale of electricity to the government, commercial and residential customers within the
groups distribution network, sale of desalinated water, transmission connection charges and subsidy from government.
Revenue also includes the funding received from the Ministry of Finance (MOF) in respect of costs relating to the
Salalah business of Oman Power and Water Procurement Company SAOC, a subsidiary.

52

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.17 Revenue (continued)
Revenue is recognised to the extent of maximum allowed revenue (MAR) by the regulatory formula in accordance with the licensing requirements. Actual regulated revenue in excess of MAR is deferred to the subsequent
year and is shown under trade and other payables.
Revenue also includes meter connection fees, tender fees, fines and application of deferred revenue on contributions and is accounted for on an accrual basis.
Revenue from services rendered is recognised in the consolidated statement of comprehensive income in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed
by reference to surveys of work performed.

2.18 Government subsidy


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

2.19 Deferred revenue


Deferred revenue represents Government project funding towards the cost of property, plant and equipment.
These contributions are deferred over the life of the relevant property, plant and equipment. From 1 July 2011
customer contributions other than assets funded by government for the use of the public at large are recognised
in accordance with IFRIC 18 Transfers of assets from customers and are not deferred.

2.20 Leases
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the
lease.
Finance leases
Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership
are classified as finance leases. Finance leases are capitalised at the leases commencement at the lower of the fair
value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The interest element of the finance
cost is charged to the statement of comprehensive income over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period.

Annual Report 2012

53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

2. Summary of significant accounting policies (continued)


2.21 Government grants
Grants from government are recognised at their fair value where there is a reasonable assurance that the grant
will be received and the group will comply with all related conditions.
Government grants relating to costs are deferred and recognised in the consolidated statement of comprehensive income over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to construction of assets are included in deferred revenue within non-current liabilities and are credited to consolidated statement of comprehensive income on a straight line basis over the
expected useful lives of related assets.

3. Financial risk management


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

3.1 Financial risk factors


(a) Market risk
(i) Foreign currency risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entitys functional currency. The group is exposed to foreign exchange
risk arising from currency exposures primarily with respect to the US Dollar. The Rial Omani is pegged to the
US Dollar. Since most of the foreign currency transactions are in US dollar or other currencies linked to the US
dollar, management believes that the exchange rate fluctuations would have an insignificant impact on the
pre-tax profit.
(ii) Interest rate risk
Bank deposits
The group has deposits which are interest bearing and are exposed to changes in market interest rates. The
group carries out periodic analysis and monitors the market interest rate fluctuations taking into consideration
the groups needs in order to manage interest rate risk.

54

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

3. Financial risk management (continued)


3.1 Financial risk factors (continued)
(a) Market risk (continued)
(ii) Interest rate risk (continued)
A 1% increase or decrease in interest rate on bank deposits would have increased/decreased the profit, by the
amounts shown below:

2012 2011
RO 000

RO 000


Change in bank deposits interest income

1,187 601

Borrowings
The group has short-term interest bearing liabilities, which expose the group to interest rate risk. At the reporting
date the groups interest bearing financial instruments was as below:

2012 2011

RO 000

Term loan

136,598 96,940

Short term borrowings

305,000 190,000

Bank overdrafts

RO 000

9,674

13,685

448,572 300,625

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

2012 2011
RO 000

RO 000


Term loan

1,116 883

Short term borrowings

2,770 1,330

Bank overdrafts

33

175

3,919 2,388

(b) Liquidity risk


Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding from an adequate amount of committed credit facilities. The management maintains flexibility in funding by maintaining availability under committed credit lines. The management monitors the groups liquidity by forecasting the expected
cash flows.
The table below analyses the groups financial liabilities and net-settled derivative financial liabilities that will be settled on a net basis into relevant maturity grouping based on the remaining period at the reporting date to the contractual maturities date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances
due within twelve months equal their carrying balances, as the impact of discounting is not significant.

Annual Report 2012

55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

3. Financial risk management (continued)


3.1 Financial risk factors (continued)
(b) Liquidity risk (continued)
The following are the contractual undiscounted cash flows associated with financial liabilities:
At 31 December 2012
Carrying

Less

1 year

amount
contractual than

Total

RO 000

More

to than

cash flows

1 year

5 years

5 years

RO 000

RO 000

RO 000

RO 000

Non-interest bearing
Trade and other payables

277,453

277,453

269,322

8,131


Interest bearing
Term loan

136,598
166,846 11,086 101,317 24,195

Short term borrowings

305,000

Bank overdrafts
Finance lease liabilities

305,000

305,000

9,674 9,674 9,674


53,360

89,864

11,559

43,583

34,722

504,632 571,384 337,319 144,900 58,917

At 31 December 2010
Carrying

Less

1 year

amount
contractual than

Total

RO 000

More

to than

cash flows

1 year

5 years

5 years

RO 000

RO 000

RO 000

RO 000

Non-interest bearing
Trade and other payables

272,569

272,569

256,511

16,058


Interest bearing
Term loan
Short term borrowings

96,940 125,607 15,231 61,644 48,732


190,000

190,000

190,000

Bank overdrafts

13,685

13,685

13,685

Finance lease liabilities

57,190

101,588

11,725

45,050

44,813

357,815 430,880 230,641 106,694 93,545

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

56

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

3. Financial risk management (continued)


3.1 Financial risk factors (continued)
(b) Liquidity risk (continued)
Negative

National

1 year

fair
amount than
value

Less

RO 000

RO 000

More

to than

1 year

5 years

5 years

RO 000

RO 000

RO 000

Notional amount by term to maturity


Interest rate swaps:
31 December 2012

10,240

62,854

7,979

41,179

13,696


31 December 2011

11,454

70,304

7,451

42,340

20,513

(c) Credit risk


Credit risk is the risk of financial loss to the group, if a customer or counterparty to a financial instrument fails to
meet its contractual obligations. The credit risk of the group is primarily attributable to trade and other receivables, service concession receivables, investment in bank deposits and bank balances.
Trade and other receivables
The groups exposure to credit risk on trade and other receivables is influenced mainly by the individual characteristics of each customer. The group has established credit policies and procedures that are considered appropriate and commensurate with the nature and size of receivables. Trade receivables primarily represent amounts
due from government and private customers.
The exposure to credit risk for trade and service concession receivables at the reporting date by type of customer
is as below:

2012 2011
RO 000

RO 000


Government customers (including service concession receivable)
Other private customers

2,26,747 209,699
59,599

47,607

286,346

257,306

Annual Report 2012

57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

3. Financial risk management (continued)


3.1 Financial risk factors (continued)
(c) Credit risk (continued)
The age of trade receivables and related impairment loss at the reporting date is as below:

31 December 2012

Gross Impairment

Gross Impairment

Past

due but

due but

not impaired

not impaired

Past

31 December 2011

RO 000

RO 000

RO 000

RO 000

RO 000

RO 000

Not past due

46,785 - -
38,687 - -

Less than 1 month

12,564 (204)

1 month to 3 months

28,907 (640) 28,267 23,546 (276) 23,270

3 months to 1 year

14,243 (1,176) 13,067 18,525 (928) 17,597

- 11,535 (130) 11,405

1 year to 5 years

183,847 (6,290) 177,557 165,013 (5,738) 159,275

286,346 (8,310) 218,891 257,306 (7,072) 211,547

Investment in bank deposits and bank balances


The group manages credit risk on bank balances by placing balances with reputed financial institutions with a
minimum credit rating of Baa.
The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at
the reporting date is on account of:
2012 2011

RO 000

RO 000

Service concession receivable

173,069

157,242

Trade receivables (gross)

113,277

100,064

21,772

16,070

118,772

63,800

62,594

60,723

489,484

397,899

Other receivables
Bank deposits
Cash and bank balances

3.2 Capital risk management


The groups objectives when managing capital are to safeguard the groups ability to continue as a going concern, and to provide an adequate return to shareholders.

The groups policy is to maintain a strong capital base so as to maintain creditor and market confidence and to
sustain future development of the business. The capital structure of the group comprises share capital, reserves,
retained earnings, hedge reserves and shareholders funds.
The group sets the amount of capital in proportion to risk. The group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.

58

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

3. Financial risk management (continued)


3.3 Fair value estimation
The carrying amounts of financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. The fair value of interest rate swap is determined using the mark to market valuations available at the reporting date. The fair value of long term loans is considered to approximate to their fair
values as they are obtained at market interest rates.
Receivables
The fair value of non-current trade and other receivables and service concession receivables is estimated as the
present value of future cash flows, discounted at the market rate of interest at the reporting date.
Derivatives
Techniques, such as estimated discounted cash flows, are used to determine fair value for the interest rate swap.
The fair value is calculated as the present value of the estimated future cash flows.

4. Critical accounting estimates and judgments


The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the
groups accounting policies. The group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual results.
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. The areas
requiring a higher degree of judgement or complexity, or areas where assumptions and estimates are significant
to the financial statements are set out below:
Depreciation
Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of
useful lives is based on managements assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best estimates.
Provision for inventory obsolescence
Provision for inventory obsolescence is based on managements assessment of various factors such as usability,
the maintenance programs, and normal wear and tear using its best estimates.
Allowance for doubtful debts
Allowance for doubtful debts is based on managements best estimates of recoverability of the amounts due
along with the number of days for which such debts are due.
Provision for decommissioning costs
Upon expiry of the Usufruct agreement, the group will have a legal requirement to remove the facilities and restore the affected area.
The group has estimated the costs of decommissioning the relevant facilities. In addition, the discount rate used
in the calculation is subject to estimation. The discount rate and risk rate used in the provision for decommissioning cost calculation are based on managements best estimates.
Annual Report 2012

59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

4. Critical accounting estimates (continued)


Derivative fair valuation
The group holds Interest Rate Swaps (IRS) which are over-the-counter derivative instruments and are not quoted
in an active market. Fair values of such instruments are provided by the issuer using valuation techniques (models). Models use observable data, to the extent practicable. However, areas such as credit risk (both own and
counterparty), volatilities and correlations require estimates to be made. Changes in assumptions about these
factors could affect the reported fair value of financial instruments.
Taxation
The group has considered revenue arising from customer contributed assets recognised under IFRIC 18, Transfers of assets from customers as taxable income based on management discussions with the tax authorities.
According to the guidance released by the Oman taxation authorities, the company has considered the IFRIC
18 revenue as taxable income from 2010 to 2012. Government sponsored projects have been treated as government grants, and removed from taxation calculations with effect from 2007.
Deferred taxation
The group makes provision for deferred tax liability during the term of the power purchase agreement, arising
primarily from accelerated tax depreciation and accumulated tax losses.
Based on the executive regulations for the treatment of finance leases issued by the Oman Taxation Authorities
on 28 January 2012, the management has considered adoption of IFRIC 4 and IAS 17 retrospectively from the
year 2007 for tax purposes. The retrospective adoption of the above change in lease classification from operating lease to finance lease resulted in additional deferred tax charge in these financial statements and the corresponding effect of liability in the statement of financial position.
5. Revenue
2012 2011

RO 000

RO 000

Electricity sales

311,574

278,234

90,709

84,225

204,101

142,996

48,197

34,408

9,428

10,016

664,009

549,879

(4,876)

10,448

659,133

560,327

Water sales
Government subsidy
Funding for operation of Salalah concession
Other operating revenue

Adjustment as per price control methodology

60

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

6. Operating costs
2012 2011

RO 000

RO 000

Energy and water purchases

353,770

292,621

Depreciation and amortisation

69,220

63,986

Plant operation and maintenance costs

19,742

24,886

Material and chemical costs

8,558

8,278

Employee benefit expenses

7,059

6,712

Service expense

2,283

3,806

Other direct costs

5,466

6,713

466,098

407,002


7. General and administrative expenses

2012 2011
RO 000

RO 000

Employee benefit expenses

44,876

42,696

Service expenses

22,596

19,823

Commission

9,468

8,629

Depreciation and amortization

3,580

2,846

489

571

3,323

2,058

84,332

76,623

Directors remuneration and sitting fees


Other expenses

8. Employee benefit expenses



Wages, salaries and other benefits
End of service benefits

2012 2011
RO 000

RO 000

45,606

39,195

6,329

10,213

51,935

49,408

Allocated to:
7,059

6,712

General and administrative expenses

44,876

42,696

51,935

49,408

Operating costs


9. Other income

2012 2011
RO 000

RO 000

2,031

1,195

(32)

(625)

Other income

10,971

5,089

12,970

5,659

2012

2011

RO 000

RO 000

2,461

2,492

Penalties and fines


Loss on disposal of property, plant and equipment


10. Finance income

Interest income

Annual Report 2012

61

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

11. Finance costs


2012 2011

RO 000

RO 000

Finance charges on:


Finance lease liabilities

7,895

8,549

Long term loans

5,169

4,422

Unwinding of decommissioning cost provision

1,254

1,699

Short-term loans

2,366

1,218

497

180

17,181

16,068

Overdraft facilities


12. Taxation
Income tax is provided as per the provisions of the Law of Income Tax on Companies in Oman after adjusting
for items which are not taxable or disallowed. The tax rate applicable to the group is 12%. The deferred tax on
all temporary differences has been calculated and dealt with in the consolidated statement of comprehensive
income.
2012 2011

RO 000

RO 000

Current tax

8,836

1,785

Deferred tax

13,431

4,709

22,267

6,494


The respective companies within the group are liable to income tax in accordance with the Income Tax Law of
the Sultanate of Oman at the enacted tax rate of 12% on taxable income in excess of RO 30,000. The following is
a reconciliation of income taxes calculated on accounting profits at the applicable tax rate with the income tax
expense for the year:
2012 2011

RO 000

RO 000

Accounting profit before tax

106,953

68,785

12,834

7,981

Income tax at Oman tax rate of 12%

Add/(less) tax effect of:


(600)

(354)

105

954

Current year tax losses not recognised

5,471

(2,172)

Tax in respect of prior years

4,457

85

22,267

6,494

Tax exempt revenue


Changes in temporary differences

Tax charge as per statement of comprehensive income

Tax assessments for the following years onwards are pending assessment by Oman taxation authorities:
Taxation for Electricity Holding Company SAOC has been agreed with the Oman Taxation Authorities for all the
years up to 31 December 2010 whereas taxation has been agreed for all the subsidiaries with the Oman Taxation
Authorities for all years up to 31 December 2006. The companys management is of the opinion that additional
taxes, if any, related to the open tax years would not be material to the financial position of the company as at
31 December 2012.

62

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

13. Fair value (loss)/gain on hedge instruments


The group entered into interest rate swaps to hedge against interest rate exposures arising from its variable interest rate term loans (note 26). All fair value losses/gains on the interest rate swaps are recorded in the hedge
reserve, with a corresponding hedge deficit/surplus balance.
14. Property, plant and equipment
The movement on property, plant and equipment is set out on page 69.
The groups property, plant and equipment are constructed on lands leased from Ministry of Housing, Government of Sultanate of Oman.
The finance leased assets primarily represent power generation and transmission equipment acquired under
finance lease.
Certain items of property, plant and equipment are mortgaged as security for the borrowings of the group
(note 26).
15. Advance payments

RO 000
Generation facilities
Interconnection and transmission facilities

2012 2011
RO 000
16,925 17,843
4,342

5,305

21,267 23,148

16. Service concession receivables


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


Inventory
Less: provision for inventory obsolescence

2012 2011
RO 000

RO 000

56,743 54,473
(16,769) (16,618)
39,974 37,855

Movement in provision for inventory obsolescence


2012 2011

RO 000

At 1 January

(16,618) (19,623)

Provisions recognised/(reversed)
Amounts written off
At 31 December

RO 000

(626) 600
475

2,405

(16,769) (16,618)

Annual Report 2012

63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

18. Trade and other receivables


2012

2011

RO 000

RO 000

Trade receivables

113,277

100,064

(8,310)

(7,072)

104,967

92,992

Advances and prepayments

20,089

17,625

Other receivables

21,772

16,070

146,828

126,687

2012

2011

RO 000

RO 000

At 1 January

7,072

6,314

Bad debts written off

(466)

(93)

Provision recognized/(reversed) during the year

1,704

851

At 31 December

8,310

7,072

Less: impairment provisions


Net trade receivables

Movement in impairment provision

The impairment provision substantially relates to government debts yet to be collected, taken over from erstwhile, Ministry of Housing, Electricity and Water (MHEW) as part of the transfer scheme and frozen accounts of
private customers.
The other receivables classes within trade and other receivables do not contain impaired assets.
19. Bank deposits
Bank deposits have maturity dates ranging from --- to---days (2011 - 90 to 1,024 days) from the reporting date
and are with commercial banks in Oman at commercial rates.
20. Cash and bank balances
2012 2011

RO 000

RO 000

66

62

Bank accounts

62,528

60,661

62,594

60,723

Cash on hand

21. Share capital


The companys authorised, issued and paid-up capital consists of 2 million shares of RO 1 each. The shares are
fully owned by the Ministry of Finance, Government of the Sultanate of Oman.
22. Legal reserve
In accordance with the Commercial Companies Law of 1974 (as amended), 10% of the net profit after deduction
of taxes should be transferred to a non-distributable legal reserve each year until the amount of such legal reserve has reached a minimum of one-third of the companys issued share capital.

64

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

23. General reserve


The group companies other than DPC transfer an amount not exceeding 20% of the profit after transfer to legal
reserve should be transferred to a general reserve until the balance of the general reserve reaches one half of the
share capital of the respective company. This reserve is available for distribution to shareholders.
24. Non-controlling interest
The total amount of shares attributable to non-controlling interest as at 31 December 2012 are 375,025 shares
(2011- 400,318 ordinary shares) equating to a 1.26% (2011 1.35%) right in DPC.
Non-controlling interest has not been disclosed in these consolidated financial statements, as management is of
the opinion that the amount of non-controlling interest is not material.
25. Shareholders funds
Following the implementation of a decision of the Sector Law and in accordance with the transfer scheme, the
group received certain assets and liabilities from the Ministry of Housing, Electricity and Water (MHEW) on the
transfer date (1 May 2005).
The value of the net assets transferred is represented in the books as shareholders funds and there is no contractual obligation to repay this amount and there are no fixed repayment terms.
During 2012, the company has adjusted the excess amount paid RO 4.592 million to MOF for Rusail Power Company SAOC sale against shareholders funds.
26. Term loan
2012 2011

RO 000

RO 000

Non-current

125,512 86,586
11,086

Current

10,354

136,598 96,940

The group syndicated long-term loan facilities from financial institutions in the aggregate amount of approximately RO 131 million including refinancing of the existing term loan of RO 65 million. These facilities bear interest at US Dollar denominated LIBOR plus applicable margins. Margin percentages range from 0.53% to 3.25%
(2011 - 0.63% to 3.25%). Up to 31 December 2012, facilities of approximately RO 126 million
(2011 - RO 100 million) have been drawn.
The term loan is repayable in half yearly installments which commenced from 4 November 2007. The loan repayment schedule is as follows:
31 December 2012

Carrying

less

1 year

amount than

More

to

than

1 year

5 years

5 years

RO 000

RO 000

RO 000

RO 000

Liability

136,598 11,086 101,317

Annual Report 2012

24,195

65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

26. Term loan(continued)


31 December 2011
Carrying

Less

1 year

amount than

RO 000

More

to

1 year

5 years

5 years

RO 000

RO 000

RO 000

96,940 10,354 48,508

Liability

than

38,078

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

Minimum

lease

payments

Present value of

Minimum

Present value of

minimum lease

lease

minimum lease

payments

payments

payments

2012 2012 2011


RO 000

RO 000

RO 000

11,559 4,258 11,725

3,830

Later than 1 year not later than 5 years 43,583 21,770 45,050

20,158

Not later than 1 year

RO 000

2011

Later than 5 years

34,722

27,332

44,813

33,202

89,864 53,360 101,588

57,190

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


2012 2011


Non-current lease liabilities
Current lease liabilities

RO 000

RO 000

49,102

53,360

4,258

3,830

53,360

57,190

28. Trade and other payables


2012 2011

RO 000

RO 000

Non-current
Other payables

8,131 16,058

Current
Trade payables

26,322 68,456

Other payables

82,444 5,620

Accruals

160,556 182,435

269,322 256,511

Total trade and other payables

277,453

272,569

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

66

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

29. Provisions

2012 2011
RO 000

RO 000

Non-current
Employee benefits
Decommissioning costs
Major service expense

7,983

7,040

43,347

57,689

4,703

4,192

56,033

68,921

Current
Employee benefits

3,617

3,166

Movement in provision for employee benefits


2012 2011
RO 000

RO 000

10,206

3,130

1,095

5,606

Additions others

728

1,828

Payments made

( 429)

(358)

At 31 December

11,600

10,206

At 1 January
Additions Omani ESB


Movement in provision for decommissioning costs


At 1 January
Adjustment
Unwinding of decommissioning provision
At 31 December

2012 2011
RO 000

RO 000

57,689

60,415

(15,598)

(4,425)

1,256

1,699

43,347

57,689

The provision for decommissioning costs represents the present value of managements best estimate of the
future sacrifice of the economic benefits that will be required to remove the facilities and restore the affected
area at the groups leased sites. The estimate has been made on the basis of quotes obtained from third party
contractors.
Movement in provision for major maintenance costs

2012 2011
RO 000

RO 000

At 1 January

4,192

3,647

Provided during the year

1,552

1,552

(1,041)

(1,007)

4,703

4,192

Reversal due to major repairs incurred during the year


At 31 December


30. Advance from Ministry of Finance
Advance from Ministry of Finance represents the amount received for capital expenditure for specified projects
subsequent to 1 January 2009 and is classified as non-current liability.

Annual Report 2012

67

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

31. Deferred revenue


Deferred revenue shown under non-current liabilities represents sponsored project funding and customer contributions towards the cost of property, plant and equipment. These contributions are deferred over the life of
the relevant property, plant and equipment.
32. Deferred tax liability
Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax
rate of 12%. The net deferred tax liability/(assets) in the consolidated statement of financial position and the net
deferred tax charge in the consolidated statement of comprehensive income are attributable to the following items:
Balance at 1 January 2012 Charge/(credit) for the year Balance at 31 December 2012

RO 000

RO 000

RO 000

Assets
Provision for inventory obsolescence

(187) (258) (445)

Allowance for doubtful debts

(849) (148) (997)

Accumulated tax losses

(2,421) (1,927) (4,348)

Finance lease liability

(1,490) 1,490

(639) 639

Deferred revenue

Decommissioning assets

(2,140)

207

(1,933)

(7,726)

(7,723)


Liability
2,140 (2,140)

Advance payments

Accelerated tax depreciation

43,458 15,568 59,028

45,598 13,428 59,028


37,872 13,431 51,305

Net deferred tax liability

Balance at 1 January 2011 Charge/(credit) for the year Balance at 31 December 2011

RO 000

RO 000

RO 000

Assets
Provision for inventory obsolescence

(160)

(27)

(187)

Allowance for doubtful debts

(757)

(92)

(849)

(1,993)

(428)

(2,421)

Finance lease liability

(969)

(521)

(1,490)

Deferred revenue

(638)

(1)

(639)

Decommissioning assets

(1,751)

(389)

(2,140)

(6,268) (1,458) (7,726)

Accumulated tax losses


Liability
Advance payments

2,208

(68)

2,140

Accelerated tax depreciation

37,223

6,235

43,458

39,431 6,167 45,598


Net deferred tax liability
68

Electricity Holding Company S.A.O.C

33,163

4,709

37,872

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

33. Short-term borrowings


2012

2011

RO 000

RO 000

Short term borrowings

305,000

190,000


The groups short-term borrowings are denominated in Rial Omani.
The credit facility bears a fixed interest rate and is due for bullet repayment on 30 June 2012. Borrowings are secured by letter of guarantee issued by Electricity Holding Company SAOC. These borrowings are expected to be
re-financed through long-term credit facilities to be arranged in due course.
34. Bank overdrafts
The group has credit facilities with Bank Muscat SAOG including overdrafts to finance the working capital requirements and to support its other operational requirements. Bank overdrafts are repayable on demand and
carry interest at commercial rates.
35. Related parties
Related parties comprise the shareholders, directors, key management personnel and business entities in which
they have the ability to control or exercise significant influence in financial and operating decisions.
The group maintains balances with these related parties which arise in the normal course of business. Outstanding balances at year end are unsecured and settlement occurs in cash.
The parent company and PAEW have common directors and hence are considered as related parties. During the
year, the parent company provided Support services to PAEW earning revenue of RO 0.038 million
(2011 - RO 0.070 million). The year end trade receivable balances amounted to RO 0.118 million
(2011 - RO 0.080 million). The parent company also incurred costs on behalf of PAEW and the year end amounts
receivable relating to this amounted to RO 1.474 million (2011 - RO 1.023 million).
No expenses have been recognised in the year (2011 - RO Nil) for bad or doubtful debts in respect of amounts
owed by related parties.
Key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the group, directly or indirectly, including any Director (whether executive or otherwise). The compensation for key managerial personnel during the year is as follows:

2012 2011
RO 000

RO 000

4,805

5,551

Post employment benefits

717

794

Directors remuneration and sitting fees

429

571

5,951

6,916

Short term employee benefits

Annual Report 2012

69

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

36. Proposed dividend


The Board of Directors of the parent company at their meeting held on ________ 2013 have proposed a
dividend of RO 0.250 per share aggregating RO 500,000 on the groups existing share capital (2011 - RO 0.250 per
share aggregating RO 500,000). This dividend is subject to the approval of the companys shareholders in the Annual
General Meeting.
37. Commitments
2012 2011

RO 000

RO 000

Operating lease commitments


156,777

105,399

More than 1 year but not more than 5 years

1.099,637

1,046,806

More than 5 years

1,622,137

1,828,492

2,878,551

2,980,697

Not more than 1 year


Capital commitments

90,451

94,727


Letters of credit

8,387

8,812

38. Contingencies
Al Ghubrah Power & Desalination Company SAOC
a) The Ministry of Oil and Gas (MOG) has levied an interest of RO 803,564 (2011 - RO 807,837), pertaining to delayed payment of gas invoices for the years 2005 to 2008 at an interest rate of 6%.
The management is of the opinion that these interest charges may not be payable as there is no contractual
obligation in the absence of gas supply agreement between the company and the MOG. Further the company
believes that the 6% rate of interest is significantly high. The company is in the process of negotiation with
MOG for the waiver of these interest charges.
b) The heirs of Habib Khalfan Al Hasni have lodged a claim amounting to RO 1,324,000 in respect of a piece of
land within the premises of the company. The claim is pending retrial proceedings in the Appeal Court.
c) Kent International LLC has lodged a case in the Primary Court for damages in respect of alleged unilateral
termination of Purchase Order # G009/15454 dated 26 September 2009. The amount of damages to be paid
as per the claim is yet to be determined by an expert.
Dhofar Power Company SAOC and its subsidiary
(a) Transmission and Distribution - Extension and Enhancement Allowance (T & DEE Allowance)
The group has accrued the T & DEE allowance at a rate of RO 106,865 per month based on the contracted
value of the Transmission and Distribution Extension and Enhancement work. The Government disputed the
determination of T & DEE allowance by the group and contended that the allowance should be determined
based on the estimated value of T & D Extension and Enhancement work executed by the group, i.e., RO
88,415 per month. In accordance with the provisions of the Concession Agreement, the matter was referred
to a legal expert who gave a ruling in favour of the group on 24 August 2005.

70

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

38. Contingencies (continued)


Dhofar Power Company SAOC and its subsidiary (continued)
However, the Government notified the group that it intends to challenge the ruling of the Expert through the
process of arbitration. The group contends that the Government failed to commence the proceedings within
the timeline provided in the Concession Agreement. The Government has not taken any further action and
is currently paying the T & DEE allowance at the rate of RO 106,865 per month as determined by the group.
Accordingly, the group, has recognised the appropriate portion of the disputed T & DEE allowance amount as
income under IFRIC 12 in these financial statements.
(b) Power interruptions - penalties for 2003
During 2004, the Government claimed an amount of approximately RO 1.1 million in respect of interruptions
in power supply during 2003, which was challenged by the group. In accordance with the provisions of the
Concession Agreement, the parties referred the matter to an independent expert, who ruled in favour of the
Group on 14 July 2005. However, in August 2005, the Government notified the group that it intends to challenge the ruling of the Expert through the process of arbitration but has not yet commenced the proceedings.
Accordingly, the group has not established any provision in respect of penalties for power interruptions in
these financial statements.
(c) Power interruptions - penalties for 2004
In 2005, the Government claimed RO 1.965 million as penalties in respect of interruptions in power supply
during 2004. The group contended that events of blackouts are not penalisable as per the provisions of the
Concession Agreement, and that the other penalties calculated by the Government for events other than
blackouts were not in accordance with the provisions of the Concession Agreement. In any case, the group
considers these events as Force Majeure i.e. substantially these outages were caused by events beyond the
reasonable control of the group management as has been supported by the Technical Experts appointed by
the group, which has been contested by the Government.
In view of the experts judgement on similar issues in 2003, which supported the groups contention, the
group has rejected the Governments claim. The Government has notified the group that it intends to refer the
matter for Expert determination, but the group contends that the Government has failed to commence the
proceedings in accordance with the timeline provided in the Concession Agreement. Accordingly, and group
has not established any provision in respect of penalties for power interruptions in these financial statements.
(d) Power interruptions penalties for 2005
In 2006, the Government claimed RO 0.438 million as minimum penalties for a few incidences of power outages during 2005. The Group contend that, in regards to these, power was restored within the allowable time
of restoration, as interpreted by management as per the Service Concession Agreement and as had been ascertained by the mediating expert in relation to similar events experienced in 2003. The group also considers
these events as Natural Force Majeure events and has notified the Government accordingly. The other material event has been notified by and group as a cause of an existing Political Force Majeure event. Accordingly,
the group has not established any provision in respect of penalties for power interruptions in these financial
statements.
(e) Power interruptions penalties for 2006
In 2007, the Government claimed RO 13.4 million as penalties for 2006. The group believe the claim is unsubstantiated. The group has relied upon the Annual Performance and Quality of Service Report for the
year 2006, which was audited by independent consultants, wherein the calculated penalties aggregated
to RO 11,852, which the group duly paid on 9 April 2007. Therefore, the group rejected in totality the claim
made by the Government. Accordingly, the groups management believes that there are no legal or constructive obligations under the Concession Agreement and hence no provision has been established in
these financial statements.
Annual Report 2012

71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

38. Contingencies (continued)


Dhofar Power Company SAOC and its subsidiary (continued)
(f) Power interruptions penalties for 2007
In June 2008, the Government has claimed RO 1.05 million as penalties for power outages during 2007. There
was one incident of complete power supply failure (blackout), due to a gas supply failure. The group had
notified this event as both a Natural Force Majeure and a Political Force Majeure to the Government. The
group management believe that there are no legal or constructive obligations as to the power interruptions
penalties under the Concession Agreement and has rejected in totality the claim made by the Government
and hence no provision for power interruption penalties has been established in these financial statements.
(g) Power interruptions penalties for 2008
In 2009, the Government has claimed RO 53,181 as penalties for power outages during 2008. The group had
calculated and paid an amount of RO 11,917 as penalties for power interruptions, which occurred in 2008. No
provision for the additional power interruption penalties has been established in these financial statements.
(h) Power interruptions penalties for 2009
In 2011, the Government has claimed provisional penalties of RO 31,677 for power outages during 2009. The
group had calculated and paid an amount of RO 6,873 as penalties for power interruptions. The group management believe that there are no legal or constructive obligations as to the power interruptions penalties
under the Concession Agreement and hence no provision for power interruption penalties has been established in these financial statements.
(i) Power interruptions penalties for 2010
In 2011, the Government has claimed provisional penalties of RO 218,211 for power outages during 2010. The
group had calculated and paid an amount of RO 13,830 as penalties for power interruptions. Currently the
group is discussing with OPWP the basis for its penalty calculation. The Parent company and group management believe that there are no legal or constructive obligations as to the power interruptions penalties under
the Concession Agreement and hence no provision for power interruption penalties during 2010 has been
established in these financial statements.
(j) Gas consumption correction
In 2012, the Government claimed RO 6,512 as penalties for 2011. The Parent company and group has relied
upon the Annual Performance and Quality of Service Report for the year 2011, which was audited by independent consultants, wherein the calculated penalties aggregated to RO 2,880, which the Parent company
and Group duly paid on 4 April 2012. The Parent company and Group additionally accepted and provided for
claims amounting to RO 1,348 based upon internal assessments of these claim. Accordingly, groups management believe that there are no other legal or constructive obligations under the Concession Agreement and
hence no further provision has been established in these financial statements.
(k) Incremental rate claim on gas consumption
During January 2013, the Ministry of Oil and Gas (MOG) claimed an amount of RO 186,004 towards incremental rates on natural gas quantities that were consumed, in excess of those that were previously forecasted over
the period March 2012 to December 2012. Whereas the group is reviewing the claim in detail, management
feels that the claim is not admissible in view of the fact that the excess gas consumption was necessitated
due to a change in the power dispatch profile of the groups own plant, following a decline within the power
dispatch profile of the newly commissioned Independent Water and Power Plant (IWPP) during the forecasted
period during the year. The changes within the power dispatch profiles of the two power plants were brought
about by, altered considerations over the need for ensuring system security and concerns over the reliability
of the IWPP power generation plant, which followed as a consequence of unexpected complete shutdowns
of the plant during February 2012 and June 2012. Further the NGSA also stipulates that the incremental rate is
not applicable as long the Companys generation unit is in compliance with that of its power dispatch instructions. Hence no provision has made towards this claim within the financial statements
72

Electricity Holding Company S.A.O.C

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

39. Comparative figures


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

Report of the Auditors - page 38.


Annual Report 2012

73

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED 31 DECEMBER 2012

14 Movement of property, plant and equipment (continued)


Buildings Transmission

and related


RO 000

Other De-commissioning Furniture,

under

plant

and related

assets finance

Assets Distribution

RO 000

assets

assets

vehicles

and

Plant Capital
spares

Total

work-in-

and progress

lease machinery equipment


RO 000

RO 000

RO 000

RO 000

RO 000 RO 000

RO 000

RO 000

Cost
1 January 2012

74,788

Additions

2,739

Transfers

11,036

Disposals/adjustments

9,095
82,927

31 December 2012 88,563

662,032 158,024

46,014

19,734 10,306 291,638


1,818,720

84,385 6,314

3,244

4,831 3,306 127,986 241,900

38,028 21,329

286,842 269,342

378,864 269,342

784,445 185,667

(325)

1,765 (1,885) (153,525)

(18,841)

(450)

30,417

(19,291)

25,880 11,727 266,099


2,041,004

Depreciation
1 January 2012
Charge for the year
Transfers

10,626

29,748

132,786

130,126

38,716

6,148

10,370

2,838

361,358

2,913

7,120

19,918

28,702

8,950

747

3,791

659

72,800

(51)

- - 16
184

- 51
(200) - -

(266)

( 266)

13,488

36,868

152,704

158,844

47,850

6,895

13,946

3,297

434,892

Disposals/adjustments
31 December 2012

Net book value


31 December 2012 75,075

341,996 116,638

Buildings Transmission

11,934 8,430 266,099


1,607,112

Other De-commissioning Furniture,

under and related

plant

assets finance

23,522

Assets Distribution

and related

625,601 137,817

assets

assets

vehicles

and

Plant Capital

Total

spares work-in-

and progress

lease machinery equipment

RO 000

RO 000

RO 000

RO 000

RO 000

RO 000

RO 000

RO 000

59,539

260,736

269,342

543,091

104,359

50,565

15,873

11,636

RO 000

RO 000

Cost
1 January 2011
Additions
Transfers

3,532
12,070

Disposals/adjustments (353)
31 December 2011

74,788

1,930
24,295

- 78,309 8,595
-

(119)

286,842

269,342

40,632 46,457
-

225,093 1,540,234

442 3,819 2,387


186,938
285,952
-

211 (3,286) (120,379)

(1,387)

(4,993)

(169)

(431)

662, 032 158, 024

46,014

19, 734

10,306

(14)

(7,466)

291, 638 1,818,720

Depreciation
1 January 2011

8,023

23,261

112,868

104,639

32,397

4,980

7,611

2,375

296,154

Charge for the year

2,768

6,504

19,918

25,445

7,259

1,228

2,846

864

66,832

Transfers

Disposals/adjustments (165)
31 December 2011

42 338

- (380)

(17)

(1,278)

(60)

(87)

(21)

(1,628)

10,626

29,748

132,786

130,126

38,716

6,148

10,370

2,838

361,358

64,162

257,094

136,556

531,906

119,308

39,866

9,364

7,468

Net book value


31 December 2011

74

Electricity Holding Company S.A.O.C

291,638 1,457,362

Annual Report 2012

75

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