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A n n u a lR e p o r t 2 0 1 3

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Contents

Board of Directors and Management 06

Board of Directors’ Report 08

Operational Highlights 10

Description of the Project 16

Profile of the Current Preference Shareholders 19

Health & Safety and Environment 20

Corporate Social Responsibility 22

Management Discussion and Analysis Report 23

Report of the Auditors on Corporate Governance 29

Corporate Governance Report 30

Report of the Auditors on Financial Statements 43

Financial Statements 44

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BOARD OF DIRECTORS AND MANAGEMENT

Mr. Murtaddha Ahmed SultanChairman

Mr. Mark LemmonVice Chairman

Dr. Mohammed Al ZaabiDirector

Mr. Andrew NowellDirector

Mr. Rahul MittalDirector

Mr. James S. HarperDirector

Mr. Yaseen AbdullatifDirector

Mr. Hamad Al BalushiDirector


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Mr. Ahmed Al SinaniDirector

Mr. Guilaume BaudetDirector & Co. Secretary

Mr. Jamal Al BloushiAdministration Manager

Mr. S. M. TariqChief Financial Officer

Mr. Zoher KarachiwalaDirector & CEO

Mr. Sreenath HebbarTechnical Manager

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BOARD OF DIRECTORS’ REPORT

Dear Shareholders,

On behalf of the Board of Directors of United Power Company SAOG (“UPC” or the “Company”), I am glad to

present you with the Nineteenth Annual Report of the Company for the year ended 31 December 2013.

The Company owns the Power Generating Station of Manah under a BOOT (build, own, operate and transfer)

scheme, and Interconnection and Transmission Facilities under a BOT (build own and transfer) scheme. While

the Power Generating Plant will be transferred to the Government in 2020, the Interconnection and Transmission

Facilities will be transferred in 2016. All power produced is sold to Oman Power and Water Procurement Company

SAOC under long term Power Purchase Agreements, with guaranteed off-take. As such, the Company is not

subject to market competition or fluctuation.

The Manah Power Plant has been running smoothly and efficiently, and there is no particular event worthwhile to

mention. The 5 generator sets of the project showed an exceptional reliability, and the performances expected for

such high-technology machines. However, some changes have been observed in the power environment that the

Power Plant operates in. The year saw a number of dispatched starts and stops for the gas turbines coinciding

with the commissioning of the power plant at Sur.

Safety in all aspects of operation is the top priority of the Company. The Company is actively involved in the

safety activities of its Operator and participates regularly in their safety walks and safety committee meetings.

Manah Power Plant has achieved 6424 days of LTI free operation since inception, a significant milestone in energy

sector in Oman. The Company would like to thank its operator, its associates, contractors and other entities

involved in the Plant activities for this unique achievement.


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During the year, the Company successfully commissioned an ambient air quality monitoring station at

the Plant. This will help monitor gaseous effluents at ground level and enable the concerned Authorities

to establish base-line data for the area.

The Company recorded in 2013, a net profit of Rials Omani 0.762 million. The underlying revenues and costs

are in line with the plan and the variation in revenue reflects the agreed tariff structure in PPA of generation

and transmission facilities for Phase 1. The Directors of the Company have recommended a final ordinary

dividend of Rials Omani 1.394 million, which represents 20% (200 baiza per share) of the current share capital of

the Company.

The Company also carried out in December 2013, capital reduction of 5% of the original capital as a

consequence to the structured plan of capital reduction approved by the market regulators and the

shareholders in the EGM held in 2012.

Due to the definitive life of the project and its purpose, it is the policy of the company to maximize

distributing its available profits and in the years where profits are low, it distributes its funds not required

for operations by way of well-structured plan of capital reduction. Past five years’ distribution to

shareholders, are disclosed separately under ‘Management Discussion and Analysis Report’.

UPC complies and maintains high standards to the Code of Corporate Governance implemented by

the Capital Market Authority as described in the related attached section of this report. In this respect,

the Company complies with the guidelines on dividend policy and we are committed to the objectives

underlying such guidelines.

There has been no change in the personnel of the Company during the year, except for

Mr. Arnaud de Limburg who resigned during the year as Company’s Secretary and was replaced by

Mr. Guillaume Baudet

The Company is a responsible corporate citizen and supports wide range of Manah community issues

with greater emphasis on education of school going children. This year we have decided to publish

separately in the Annual Report the details of such activities.

I would like to thank all the personnel associated with the operation of our Manah Power Plant and staff

of the Company for their dedication and hard work.

On behalf of the Board of Directors, I would also like to take this opportunity to extend our gratitude to His

Majesty Sultan Qaboos Bin Said and His Government for their continued support and encouragement

to the private sector. May Allah protect them for all of us.

Murtadha Ahmed Sultan

Chairman of the Board

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Power Generation

The total power exported by the plant in 2013 (Phases I and II) amounts to 1,194 GWh. The cumulative energy

exported by the plant from initial commissioning is 18,820 GWh.

The maximum load recorded during the year was 304.5 MW on September 1, 2013 at 00:00 hrs. The maximum

ambient temperature recorded was 48°C on June 16, 2013 at 16:00 hrs. and minimum temperature was 10°C on

January 18, 2013 at 07:00 hrs.

The average plant guaranteed net output (PGNO) for the reporting period was 92.649 MW for Phase I, and 206.248

MW for Phase II at an average ambient temperature of 28.68°C. The use factor was 49.2%.

Manah recorded 99.47% Reliability of the total Plant (phase 1 & phase 2 units) with 188.86 hours of forced

outages in 2013.

For the whole plant, the evolution of these figures from the date of Phase I commercial operation date

(COD) is as under:

YearAvailable energy

(GWh)

Availability factor

( % )

Energy generated

(GWh)

Use factor

( % )

Reliability factor

( % )

1996(*) 176.5 93.0 106.3 60.2 99.9

1997 811.2 95.6 680.1 83.8 99.8

1998 776.6 97.4 667.1 85.9 99.9

1999 760.3 93.3 615.9 81.0 99.9

2000(**) 1,758.8 87.8 1,057.5 60.1 92.4

2001 2,541.6 94.9 1,274.7 50.2 99.7

2002 2,525.8 95.4 1,442.3 57.1 99.5

2003 2,526.6 94.9 1,337.4 52.9 99.9

2004 2,469.2 93.9 1,125.5 46.4 99.9

2005 2,502.4 95.3 1,046.0 41.9 99.9

2006 2,536.1 96.6 1,187.9 47.0 99.9

2007 2,476.1 94.8 981.8 40.0 100.0

2008 2,557.9 97.4 1,012.8 40.4 99.9

2009 2,371.6 90.5 1,045.1 44.0 98.2

2010 2,335.1 89.7 1,320.8 54.9 99.9

2011 2,259.1 86.6 1,407.6 60.1 96.6

2012 2,493.0 95.3 1,473.1 59.1 99.9

2013 2,404.4 91.9 1,194.1 49.2 99.5

(*)COD Phase 1: 15th October 1996

(**) COD Phase 2: 19th May 2000

OPERATION HIGHLIGHTS


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Maintenance and Operation methodology

The PPA and its additional agreements lay down norms for operation and maintenance of the station

and expect certain minimum levels of performance. However, in formulating the strategy for operation

and maintenance, UPC strives to meet the highest industry standards.

Gas turbines are highly reliable power generating machines, provided they are operated and maintained

under certain norms. Efforts have been constantly put in to further improve reliability.

During the initial years of service of the gas turbines in Manah, valuable experience has been gained

and used to establish unique signature for each machine. This experience is used in evolving better

operations and maintenance methodologies.

For Phase I, UPC entered in November 1997 into a Spare Parts Supply & Repair Contract with EGT

(now GE) the term of this contract ended on 31st December 2005. Following a competitive bidding

process, UPC entered in September 2005 into a Long Term Parts and Repair Agreement (LTPA) with

GE the term of this new contract is 15 years.

For Phase II, UPC entered in December 2000 into a Long Term Service Agreement (LTSA) with GE. This

agreement secures the procurement of the spares needed for the whole commercial life of the 2 new

Frame 9 units (20 years).

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In 2009, UPC changed the structure of its O&M Contracts and entered into an agreement with Suez-Tractebel

Operation & Maintenance Oman (STOMO). With this agreement in place, UPC has a single point of contact for

O&M services as opposed to multiple contractors in the earlier structure. STOMO now co-ordinates all the O&M

activities (including the LTSA with GE) and procurement of parts through the LTPRA Contract.

According to the terms of these contracts, a suitable and sufficient stock of spares is maintained in order to avoid

unplanned outage of the gas turbines.

The combined efforts of UPC and its contractors - GE and STOMO, have produced best results in terms of

reliability, efficiency and best value for resources used.

Maintenance Activities

Phase I Scheduled maintenance:

The total maintenance time consumed for the year was 782.6 hours, i.e. 2.97% of total calendar hours or an

availability factor of 97.03%.

Annual maintenance was carried out on GT1A and GT1B. Combustion Inspection was undertaken on GT1C in

December 2013.

Phase II Scheduled maintenance:

The total time consumed for maintenance was 1,588.5 hours in the reporting period, i.e. 9.06% of total calendar

hours during reporting period or an availability factor of 90.93%.

GT2A: Hot Gas Path Inspection was completed in January 2013.

GT2B: Hot Gas Path Inspection was conducted in November 2013.

Performance Tests

Performance tests were conducted during December 2013 for Phase 1 and 2 in the presence of OPWP. The

test results were satisfactory, all machines have higher electrical output capacity and lower heat rate values (gas

consumption) when compared to the guaranteed values as per contract.


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Omanization

UPC and its O&M contractor STOMO pay the greatest attention to respect the requirements of the

Power Purchase Agreement in matters of Omanization: at the end of the year 2013, Omani employees

comprised 77.08% of the plant staff of STOMO.

In order to address the Omanization issue, our operator, STOMO, had put in place in 2009, training

programs for young graduates from Oman Universities. This effort is paying dividends with a number

of these trainees being inducted into the operation & maintenance personnel of the Plant after

undergoing training.

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History of the Project

United Power Company (SAOG) (the “Company”) was formed and registered as a joint stock Company on January

9th, 1995. The public currently owns 40% of the Company’s shares while the founder shareholders own 60%.

The founder shareholders were Tractebel S.A., International Finance Corporation (part of the World Bank Group),

National Trading Company LLC, W.J. Towell & Co. LLC, The Zubair Corporation LLC, and Tawoos LLC.

Shares of Tawoos LLC have been transferred to the Ministry of Defence Pension Fund of Oman in 2003. While,

Tractebel SA (now GDF Suez), had transferred its shares to MENA Infrastructure Investment Limited in 2009 and

National Trading Company LLC. W.J. Towell & Co. LLC and The Zubair Corporation LLC transferred its shares to

MGEC (Oman) Holdings Limited in December 2010.

Prior to formation of the Company, founder shareholders were awarded, following a competitive bidding process,

the concession for a project consisting of a 90 MW gas-fired power station comprising 3 open cycle gas turbines

(the “Units”) near Manah, to be developed on a build, own, operate and transfer (so-called “BOOT”) basis, and a

related network of interconnection and transmission facilities (the “ITF”), keep (“BOT”) basis on land leased by the

Government.

Construction of the Manah Power Station began in March 1995 and the Company began delivering electricity on

May 31, 1996 upon completion of two Units and approximately 58 kilometers of overhead transmission lines to

Nizwa and Bahla replacing the supply by the obsolete local diesel engine power plants.

Full supply to Dakhliya region from Manah (3rd Unit and Izki line) was achieved in early August 1996 and project

completion occurred in October 1996 with the interconnection of network fed by the Manah Power Station to

Muscat network at Al Rusayl. The lines owned by UPC have a total of about 170 kilometers in 132KV. Responsibility

for the operation and maintenance of the ITF was transferred in stages to the Government during construction,

with the final transfer occurring on October 15, 1996.

During 1999, the Company was awarded a contract for an extension of its generation facilities consisting of two 90 MW

open cycle gas turbines and the necessary auxiliary facilities (GIS, firefighting system, liquid fuel storage, etc.).

The construction and installation of the turbines were completed in May 2000, and thereafter the electricity was

delivered to the grid. The official commercial operation was notified as 19 May 2000. The total capacity of the

plant, therefore, reached 270 MW. Consequent to the extension of the facilities, the life of the project has been

extended to 30 April 2020. The Company will continue to own and operate the Manah Power Station (both Phases)

till this date. The date of transfer of ITF remains unchanged and this transfer shall be effected to the Government

in 2016.

DESCRIPTION OF THE PROJECT


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The Manah Power Station operates on Dispatch Orders from Oman Power and Water Procurement

Company (“OPWP”) and all of the net energy from the Manah Power Station is sold to OPWP, which is

responsible for all power purchase in Oman.

UPC maintains an administrative office in Muscat.

The Project constitutes the first privately developed and owned power plant in Sultanate of Oman

and the first interconnection of privately constructed transmission facilities with the country’s national

grid.

Brief Technical Description of the Project

Manah Power Station

The Manah Power Station is located on 200 acres of land, approximately 180 kilometers South-West of

Muscat, and 20 kilometers south of Nizwa at an elevation of 378 meters above sea level.

Phase I – Power generation facilities

Originally, the Manah Power Station consisted of three open cycle dual fuel Gas Turbine Units, each

having a capacity of approximately 28,076 kW at 50º C, completed with 11/132 kV step-up generator

transformers, a GIS sub-station interconnecting the Manah Power Station with the two 132 kV overhead

line feeders to the Nizwa substation, natural gas pipeline facilities, back-up diesel oil facilities, water

storage tanks, a control and administration building, a work shop and storage facilities for spare parts,

staff housing and access roads.

Phase II – Power generation facilities

The Manah Power Station Phase II consists of two GE Frame 9E dual fuel Gas Turbines, with 15/132

kV step-up transformers, two GIS identical to the existing ones. These cells are connected with the

two existing 132 kV circuits, each of them being originally sized to carry the whole expanded capacity

of the Manah Power Station. The Phase II includes extension of auxiliary facilities: firefighting system,

lightning protection system and additional 4000 m3 back-up diesel oil storage. The nominal capacity

of each gas turbine is 92,160 kW (at 50º C) with a guaranteed heat rate of 11,555 kJ/kWh (at 50ºC).

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Interconnection and Transmission Facilities

The ITF includes the following substations: a 132 kV GIS substation at Manah; a 132 kV outdoor substation at

Nizwa; a 132 kV outdoor substation at Izki; a 132/33 kV substation at Bahla; a 33/11 kV substation at Nizwa town;

and a 132 kV GIS substation extension at the Al-Rusayl Power Station.

In addition, the ITF includes approximately 168.7 kilometers of 132 kV double circuit (i.e. two circuits on one

tower) overhead transmission lines, constructed with steel lattice towers running between the Manah and Nizwa

substations (18.8 km; 63 towers), between the Nizwa and Bahla sub stations (32.2 km; 92 towers), between the

Nizwa and Izki substations (30.7 km; 94 towers) and over very mountainous terrain, between the Izki and Al-Rusayl

substations (87 km; 287 towers).

The ITF includes one 33 kV double circuit overhead transmission line comprised of two single circuits (i.e. two

parallel single lines on wooden poles) between Nizwa and Nizwa Town substations (7.25 km, 140 wood poles) and

one 11 kV overhead distribution network comprising three single circuit 11 kV wood pole lines between the Izki

substation and the Izki power station (2 km).

These lines and the related switching facilities of the ITF enable the power generated at the Manah Power Station

to supply the local electricity demands in the town of Manah, Nizwa, Bahla and Izki.

Excess electrical power can also be transmitted to the Muscat grid to help support the demand in the coastal

region of Oman through an interconnection at the Al-Rusayl power station.

Fuel Supply

The Manah Power Station has been designed to use natural gas as its primary fuel with diesel oil as a back-up

fuel. Natural gas is supplied to the power station from a 36-inch pipeline delivering gas at 70 Bar from the Yibal

gas collecting station, which is located 198 kilometers from the Manah Power Station, to a pressure reducing

station, including metering equipment, located outside the northeast corner of the Site. The pipeline is owned and

controlled by PDO.

Environmental Aspect

The Manah Power Station represents an environmentally benign source of power for the local market, ground level

monitoring of on air quality for gaseous pollutants such as SO2, NOX, CO and unburnt hydrocarbon are monitored

on a monthly basis by UPC using the newly installed Ambient Air Quality Monitoring System at the Plant.


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MENA Infrastructure Investments Limited

Mena Infrastructure Investments Limited is a wholly owned subsidiary of MENA Infrastructure. Founded

in 2007 and owned by HSBC, Fajr Capital and Waha Capital, MENA Infrastructure currently manages a

US$300 million infrastructure fund from its headquarters in the Dubai International Financial Centre.

MENA Infrastructure has established an important position in private equity infrastructure investment,

and has one of the most experienced specialist infrastructure investment teams operating across the

region. The team is supported by a network of sponsors, investors, intermediaries and strategic partners

that command significant influence in the region’s business communities. With these resources and

networks at its disposal, the firm offers a unique combination of unrivalled origination capability with

proven investment and execution expertise. MENA Infrastructure has executed some of the region’s

landmark transactions and holds a collection of well-regarded awards which bear testament to its

superior performance. Further information can be found at www.menainfrastructure.com

Ministry of Defence Pension Fund (“MODPF”)

The Ministry of Defence Pension Fund is a public legal entity in the Sultanate of Oman duly organized

under, and registered pursuant to, Sultani Decree 87/93 issued on 29th December 1993. The Ministry

of Defence Pension Fund is one of the largest pension funds in Oman and is a major investor in the

local capital markets, both in equities and bonds. It is also a major participant in project investments

and Real Estate investments. The fund is represented on the boards of several prominent Corporate

in Oman.

MGEC (Oman) Holdings Limited

MGEC (Oman) Holdings Limited is 100% owned by Mubadala GE Capital PJSC. Mubadala GE

Capital PJSC is a specialized commercial finance company based in the United Arab Emirates, which

offers structured financing solutions to help businesses grow and adapt in rapidly evolving economic

environments. It is a joint venture between Mubadala Development Company PJSC (Mubadala) and

General Electric Capital Corporation (GE) and is headquartered in Abu Dhabi. Mubadala GE Capital

offers commercial lending and leasing financing solutions plus strategic project equity investments in

energy and infrastructure assets across the Middle East, Turkey & Africa. For further information about

Mubadala GE Capital PJSC, please visit www.mubadala-ge.com

PROFILE OF THE CURRENT PREFERENCESHARE HOLDERS

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Health & Safety

Health and Safety is accorded the highest priority by the Company. While the statistics show a consistent record

of excellence, the Company is mindful of complacency that can set in with these results. As a consequence, steps

have been taken that shall ensure a more proactive approach towards the issue of Health & Safety.

The Loss Time Incident (LTI) of Manah Power Plant remains ZERO during the O&M regime following COD of

both phases. As of December 2013, the Plant has clocked 6,424 LTI free days since the commencement of

operations.

The Company Management regularly takes part in safety walks with its Operator and attends their Safety Committee

Meetings. In January 2013, the Authority for Electricity Regulation undertook an audit of the facilities. They found

the Plant compliant with the Health and Safety conditions of the generation license. A few improvements were

suggested, all of which have been implemented.

During the year, the Operator was audited and certified for OHSAS 18001 for Health & Safety Management. Due

to pending MECA Environment Permit, the ISO 14001 Environmental Management certification was not awarded.

This should be achieved during 2014.

An on-line safety management system called “Intelex” has been implemented by the Operator. This is a dynamic

system that enables reporting of incidents, assigns actions to concerned persons, monitors close follow-up of

actions being taken and ensures that adequate closure is achieved.

HEALTH & SAFETY AND ENVIRONMENT


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Environment Monitoring

Since 2008, the Company had installed a Predictive Emissions Monitoring System that reported

individual stack emissions based on power generated by each Gas Turbine. This software was

validated once a year by actual stack measurements at various loads for each gas turbine and the data

fed into the system.

In addition to stack monitoring as above, the Company would undertake ambient air monitoring for a

period of 15 days, two times a year.

However, MECA required that UPC install a permanent station for monitoring of ambient air quality as

a prerequisite to renewal of the Company’s Final Environmental Permits.

Accordingly, in 2013, the Company installed and commissioned an Ambient Air Quality Monitoring

Station within its plant premises. This has been commissioned in August 2013 and has been in

operations continuously since then.

The equipment continuously monitors the ambient air for gaseous effluents such as carbon monoxide,

non-methane hydro-carbons, oxides of nitrogen (NO, NO2, NOx) and sulphur dioxide.

We believe this equipment would also help MECA in establishing base line ground level concentrations

for gaseous effluents by feeding into the larger environment data being monitored by MECA. In this

way, it can be considered that the Company is one of the contributors to the mapping of Oman’s

environment.

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In line with the directives enunciated by His Majesty, Sultan Qaboos bin Said, on the responsibilities of private

companies in respect of their contribution to the social development of communities; United Power Company takes

its role as a responsible corporate citizen very seriously. Over the years, the Company has actively supported local

community bodies, schools and charity organizations. Recognizing the fact that the future of the country will be

in the hands of its youth, the Company takes special interests in the sponsorship and support of education and

sports; two foundations for the all-round development of a young mind.

In 2013, the company focused its efforts on education projects, youth & sports activities, on direct social support

and municipal activities. The Company carried out the following projects during the year:

Educational Activities:

• Financial support to Izz School for their educational project.

• Purchase of stationery for Manah nursery and literacy center.

• Purchase of stationery to all students from low income families in the wilayat of Manah.

• Financial support to Manah School to install lockers.

• Financial support to scholar Mohammad bin Masoud public library.

Social Activities:

• Sponsoring the annual anniversary for Manah Charity Association

• Sponsoring Injaz Private School carnival for fund raising.

• Sponsoring fund raising project by Dar Al Atta

Association.

• Sponsoring fund raising for the orphanages

• Financial support for pre-marriage medical check.

• Donation for welfare activities to needy expat workers.

• Financial support to Manah Municipality.

Youth and Sports

• Financial support towards installing a signboard for

Al Bashaier club in Manah.

• Sponsoring Oman Forum for creating jobs for the youth.

• Financial contribution for social activities carried out by

Al Bashaier club in Manah.

• Sponsoring the open day organized by Al Bashaier

club in Manah.

CORPORATE SOCIAL RESPONSIBILITY


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A. Industry Structure and Development

The Company is the first privately owned power project in the country.

The Government regulates the development of this sector under a well-formulated program on

long-term basis. The new sector law is in existence.

B. Opportunities and Threats

The Company was formed specifically to build, own and operate the Plant located at Manah and

build and own related distribution network of overhead transmission lines, and cannot undertake

new ventures. Long term Power Purchase Agreements with Government protects the Company

from market forces.

In terms of Energy delivered to the grid, the following trend has been observed:

• Since 2002, except for a spike in 2006, there was a steady decline in power delivered from

Manah till 2007 (From 1,443 GWH in 2002 to 946 GWH in 2007).

• Since 2007, there has been a steady increase in the power delivered till 2012 (1,473 GWH).

• In 2013, there has been a sharp decrease of almost 19% over the previous year.

In the period 2002 – 2007, new plants (Barka-1, Al Kamil, Sohar-1) addressed rising demand,

however, demand itself grew by only 5%. Therefore the power dispatched from Manah during

this period decreased. In the period from 2007 – 2012, despite other new plants coming on

stream (Barka-2, Sohar-2, Barka-3), demand has also grown significantly – peak demand at a

compounded annual growth rate (CAGR) of 10% minimum demand at 21% CAGR. This growth in

demand forced OPWP to supplement power capacity through renting Diesel Generators. During

this period therefore, power dispatch from Manah also increased.

In 2013, a new power plant of 2000 MW is being commissioned at Sur. To meet the loading

requirements of this plant, Manah (and other open cycle power plants) were started and stopped

very often; leading to a high number of starts for us.

After Sur is commissioned, the power requirement in that part of the country is likely to be taken

care of fully by Sur. Manah may be utilized as grid support. This would result in reduction of power

dispatched from Manah, resulting in lower variable revenues and correspondingly, lower variable

costs paid out to Operator.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

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Obsolescence of equipment; especially electronic control and communication equipment is expected. The Company

and its operator are carefully monitoring this aspect and ready to take appropriate action as necessaery.

C. Analysis of Results

The net profit for the year under review was higher by RO 178K as compared to previous year. This was mainly

on account of higher revenue, as explained in forthcoming paragraph.

Increase in revenue by RO 349K in the year under review as compared to previous year, is mainly on account

of power tariff. The structure of power tariff has been designed in such a way that tariff rates are higher during

the initial years as compared to later period of the project life. The tariff decreased by RO 162K. The reduction

was offset by positive variance in revenue on account of ‘additional starts’ of RO 743K. This is the first year

when this provision of power tariff was applicable due to changes in management of Load Dispatch Centre.

This also resulted in decrease of energy and indexation revenues aggregating to 232K.


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Operation & administration expenses increased by RO 260K. The reasons for the net increase

were on account of the following:

Negative Variances

• Higher O&M fees on account of ‘additional starts’ (RO 667K).

• Management fee indexation and miscellaneous (RO 22K).

• Tax expense is higher due to positive results (RO 25K).

Positive Variances

• Saving in O&M fees due to lower production RO 286K.

• Lower custom duty RO 90K.

• Legal professional RO 23K.

• Insurance premium RO 30K.

• Depreciation expenses have reduced by RO 72K.

• Interest on working capital facility has decreased by RO 42K due to lower utilization

of the facility.

D. Analysis of Balance Sheet

The variations in balance sheet section can be explained as follows:

Net reduction in tangible assets of RO 5,093K in the year under review is mainly due to the

depreciation charge for the current year.

In 2012, CMA approved a capital reduction plan for the years 2012 to 2014 ranging from 5%

to 10%, subject to condition that the share capital after each reduction would not be below the

threshold of RO 5 million. Accordingly, in December 2013 the Company reduced its paid up capital

by 5% of the original share capital of RO 34,869,400. Moreover, due to the capital reduction in

December 2013, a further amount of RO 582K has been transferred from the legal reserve to the

retained earnings.

The net drawdown of the working capital facility in 2013 was lower by RO 2,000K.

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E. Financial Highlights

The Company’s performance for the past five years was as follows:

2013 2012 2011 2010 2009

OMR’000 OMR’000 OMR’000 OMR’000 OMR’000

Net Profit 762 584 1,872 2,070 1,701

Total Assets 18,514 23,912 29,090 34,946 40,748

Total Revenue 11,399 11,050 12,487 13,612 13,477

Total Shareholders’ Fund 10,759 13,572 19,499 28,029 32,575

Paid up Capital (Original) 34,869 34,869 34,869 34,869 34,869

Capital reduction-accumulated to date

27,895 26,152 22,665 19,178 15,691

Current Paid up Capital 6,974 8,717 12,204 15,691 19,178

Weighted average number of Shares

8,572 11,918 15,400 18,887 22,374

2013 2012 2011 2010 2009

Return on total assets 4.1% 2.4% 6.4% 5.9% 4.2%

Return on Current paid up Capital

10.9% 6.7% 15.3% 13.2% 8.9%

Long Term Debt: Capital ratio 0.100 0.100 0:100 0:100 0:100

Ordinary Dividend (Interim) * - 10% - 7.5% -

Ordinary Dividend (Final) ** 20% 20% 14% 12.5% 8.0%

Book value per share on weighted average shares

1.26 1.14 1.27 1.48 1.46

Reduction of original paid up capital during the year

5% 10% 10% 10.0% 10.0%

*Based on paid up capital at 30 June.

** Based on paid up capital at 31 December.

The variance in total revenue and net profit is due to tariff as contained in the Power Purchase Agreement. This

trend, as a consequence of the agreed tariff structure for the life of the Project, will continue in future years and

bears no reflection on the operational performance of the Company.

The above trend should also be seen in the light of the fact that the value of the Company’s shares shall

become nil at the end of the project life.

F. Outlook for 2014

Due to nature of its activities and the fixed contractual framework within which the Company operates we

foresee no major change in the Company’s activities.


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Due to tariff structure contained in the Power Purchase Agreement, the Phase I revenues stands

reduced beginning the last quarter of 2011. This trend will continue and is not reflection of the

operational performance of the Company, but is solely dependent on the agreed tariff structure for

the life of the project.

The Company, based on the plan approved by shareholders expects to carry out capital reduction

in December 2014 so as to reduce the paid up capital to R.O. 5 Million. This has been envisaged

as a measure to maximize the return to shareholders in the absence of dividend or in case of low

dividend in subsequent years.

The Company is eagerly awaiting an outcome of the study undertaken by the regulatory authorities

which among other things could determine the continuity of operations beyond the initial term

stated in the Power Purchase Agreement. The Company is committed to explore all possibilities

to enhance shareholders returns and will seek shareholders’ approval if and when any such

opportunities arise.

G. Internal Control System and their adequacy

The Company believes in strong internal control systems as a tool to contribute high performance

in operation and management of the Company.

As required under CMA regulations an internal auditor was appointed in 2010 and is actively

engaged to renew the processes and transactions. United Power Company has implemented

a critical review of all unique processes of the Company, and that the appropriate control and

segregation of duties has been applied.

Furthermore, the internal auditor also reviews Company’s compliance with applicable laws and

CMA regulations.

H. Transfers to Investors Trust Fund

On behalf of the Company, Muscat Clearing & Depository Company SAOC transferred to Investors

Trust Fund account amounts of RO 4,047.000 and RO 1,460.353 in respect of unclaimed amounts,

as a consequence to the capital reduction carried out in December 2012 and dividend for the year

2012 respectively.

30

PHILOSOPHY ON CODE OF CORPORATE GOVERNANCE

In the Sultanate of Oman, Capital Market Authority (CMA) implemented the Code of Governance by issuing “Code

of Corporate Governance for Muscat Securities Market listed Companies” vide its Circular No. 11/2002 on June

3, 2002.

The Company believes that Code of Governance is an effective tool to improve operational and financial

performance of listed companies. Code of Governance ensures accountability, which leads to transparency

and ensuring impartial treatment to all investors. This ultimately increases the confidence of shareholders and

prospective investor in the results.

We confirm to comply and maintain high standards to the Code and enhance our image as a good corporate

citizen.

In compliance with the Article 26 of the above code, the Company is including this separate chapter on Code of

Governance in its annual financial statements for the year ended December 31, 2013.

BOARD OF DIRECTORS

During the year the CMA, vide its circular No. (K/9/2013) dated 20th November 2013, postponed mandatory

application of Independent Director and Related Parties as enforced in their circular No. (K/14/2012) dated 24th

October 2012. Till such time new corporate covernance rules are introduced, the Company has decided to continue

to classify directors as per the existing Corporate Governance rules.

CORPORATE GOVERNANCE REPORT


31

(a) Composition of the Board of Directors, Category of Directors, and their attendance record and

number of Board meetings held during the year.

Name of DirectorsCategory of

Directors

Board Meetings held and attended during

2 0 1 3

31/01 20/04 15/07 06/11 TOTAL AGM

Mr. Murtadha A. Sultan(Chairman)

Non-Executive Nominee & Independent

ü ü ü ü 4 ü

Mr. Mark Lemmon(Vice Chairman)


ü ü ü ü 4

Mr. James HarperNon-Executive & Independent

ü ü ü ü 4 ü

Mr. Rahul MittalNon-Executive & Independent

ü ü ü ü 4

Dr. Mohd. Bin Nasser Bin Ali Al Zaabi


ü ü ü ü 4 ü

Mr. Ahmed Al SinaniNon-Executive & Independent

ü ü ü ü 4 ü

Mr. Andrew Nowell Non-Executive & Independent

ü ü ü 3 ü

Mr. Hamad Lal Baksh Al Balushi

Non-Executive & Independent

ü ü ü 3

Mr. Yaseen AbdullatifNon-Executive & Independent

ü ü ü 3 ü

Mr. Arnaud de Limburg *

Executive & Non Independent

ü ü ü 3 ü

Mr. Zoher Karachiwala


ü ü ü ü 4 ü

Mr. Guillaume Baudet **


ü 1

* Resigned during the year

** Appointed during the year

The Directors of the company also had a circular meeting on 24th October 2013 to approve quarterly

accounts for the period 30th September 2013.

32

(b) Directorship / membership of the Company’s directors in other SAOG companies in Oman held during

the year.

Name of Directors Position held Name of the Company

Mr. Murtadha A. SultanDirectorDirectorChairman

Gulf International Chemicals SAOGOman Flour Mills SAOGSohar Power Company SAOG

Mr. Mark Lemmon Vice Chairman Sohar Power Company SAOG

Mr. James Harper None -

Mr. Rahul Mittal None -

Dr. Mohd bin Nasser bin Ali Al Zaabi None -

Mr. Andrew Nowell None -

Mr. Yaseen AbdullatifDirector & Chairman Audit committee

Sahara Hospitality Co. SAOG

Mr. Hamad Lal Baksh Al Balushi None -

Mr. Guillaume Baudet None -

Mr. Zoher Karachiwala None -

Mr. Ahmed Al SinaniDirectorDirector & member Audit Committee

ACWA Power Barka SAOGOman National Engineering & Investment Co. SAOG

The profile of directors and management team is included as an Annexure to the Corporate Governance Report.

AUDIT COMMITTEE

A. Brief description of terms of reference.

The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight

responsibilities by reviewing the financial reports and other financial information provided by the Company to

any governmental body or the public the Company’s systems of internal controls regarding finance, accounting,

legal compliance and ethics that management and the Board have established; and the Company’s auditing,

accounting and financial reporting processes generally.

Consistent with this function, the Audit Committee encourages continuous improvement of, and fosters

adherence to, the Company’s policies, procedures and practices at all levels.


33

The Audit Committee’s primary duties and responsibilities are to:

• Serve as an independent and objective party to monitor the Company’s financial reporting process

and internal control system;

• Review and appraise the audit efforts of the Company’s statutory and internal auditors;

• Provide an open avenue of communication among the statutory and internal auditors, financial and

senior management and the Board of Directors.

B. Composition of Audit Committee and attendance record of Committee Members.

Name of Committee Members

PositionMeetings held and attended during 2013

30/01 20/04 15/07 06/11 TOTAL

Mr. Yaseen Abdullatif Chairman ü ü ü 3

Mr. Andrew Nowell Member ü ü ü ü 4

Mr. James Harper Member ü ü ü ü 4

The Audit Committee also had a circular meeting on 24th October 2013 to approve quarterly accounts

for the period 30th September 2013.

C. Sitting fee of RO 200 per meeting is paid to the attendee members.

D. Activities during the year

The Audit Committee has reviewed, on behalf of the Board, the effectiveness of internal controls

by meeting the internal auditor of the company, reviewing the internal audit reports and the

recommendations, met the external auditor, and reviewed the audit findings and the management

letter.

In 2013, the Board of Directors, through the Audit Committee, reviewed and assessed the Company’s

system of internal controls based on the audit report submitted by the Auditors. The Board also

reviews the operational reports generated by the Management of the Company, which compares the

budget and the actual. The Audit Committee and the Board are pleased to inform the shareholders

that, in their opinion, an adequate and effective system of internal controls is in place.

34

PROCESS OF NOMINATION OF DIRECTORS

The election of the Board is governed by the Company’s Articles of Association (Article 24 to 27). The current

Board of Directors was elected on 21 March 2011 for the term of three years ending 20 March 2014. Full election

of the Board is scheduled at the AGM being held on 20th March 2014 and the election process will be done in

accordance with the amended Articles of Association of the Company. Further, as required by CMA circulars,

the Company will obtain “Nomination Form” from all directors and the forms were verified to its compliance and

authenticity by the Company’s Secretary and its legal counsel, before being sent to the CMA.

REMUNERATION

Directors – Remuneration and Attendance Fee.

As per Articles of Association, the Company was entitled to pay directors’ remuneration equivalent to 10% of

calculated net profit. However, due to CMA’s administrative decision 11/2005, the Directors’ remuneration including

sitting fees are restricted to 5% and is also subject to limits prescribed.

The total remuneration to the Directors was as follows:

OMR

Director’s remuneration 33,600

Sitting fee (excluding fees to audit Committee members) 16,400

Total 50,000


35

The sitting Board fees paid to Directors for meetings of the Board attended during the year are given

below. The Company does not pay sitting fees for participation in Board sub-committees meetings,

except for the Audit Committee meetings. The Directors’ remuneration is paid pro-rata each Directors’

participation in the Board meetings. Attendance at Board meetings and Audit Committee meetings by

video – or teleconference is deemed to be attendance in person; attendance by proxy is not considered

attendance for purpose of remuneration.

Sl. No. Name of DirectorNo. of

meetings for sitting fee Paid

Total sitting fees paid

in RO

Total Remuneration

in RO

1 Mr. Murtadha Ahmed Sultan 4 1,600 3,278

2 Mr. Mark Lemmon 4 1,600 3,278

3 Mr. James Harper 4 1,600 3,278

4 Mr. Rahul Mittal 4 1,600 3,278

5Dr. Mohd Bin Nasser Bin Ali Al Zaabi

4 1,600 3,278

6 Mr. Ahmed Al Sinani 4 1,600 3,278

7 Mr. Andrew Nowell 3 1,200 2,459

8 Mr. Hamad Lal Baksh Al Balushi 3 1,200 2,459

9 Mr. Yaseen Abdullatif 3 1,200 2,459

10 Mr. Arnaud de Limburg 3 1,200 2,459

11 Mr. Zoher Karachiwala 4 1,600 3,277

12 Mr. Guillaume Baudet 1 400 819

TOTAL 16,400 33,600

The Company will continue to pay sitting fee per Director per meeting amounting to R.O.400 in the year

2014, up to a maximum of R.O. 10,000 per year to any individual Director as per CMA regulations.

B. Top Five Officers

The aggregate remuneration paid to the top five officers of the Company was RO 380,656. Pursuant to

Management Sharing Agreement only 60% of the amount is chargeable to the Company.

36

NON-COMPLIANCE PENALTIES OR NON-COMPLIANCE OF CORPORATE GOVERNANCE AND REASON

• No penalties or strictures were imposed on the Company by Muscat Securities Market / Capital Market

Authority or any other statutory authority on any matter related to Capital Market during the last three years.

• There were no instances of non-compliance of corporate governance.

MEANS OF COMMUNICATION WITH THE SHAREHOLDER AND INVESTORS

Annual accounts and quarterly accounts are put on official web site of MSM as per the guidelines by the market

regulators. Notice to the annual general meetings is sent by post to the registered shareholders.

The Company has launched its own web site www.upcmanah.com. The Chairman gives press releases in case of

important news and development that arises. Such press releases are posted to the web site of MSM in accordance

with the guidelines issued by the market regulators.

The Company is available to meet its shareholders and their analysts on as and when need basis

MARKET PRICE DATA

High / Low during each month in the last financial year and performance in comparison to broad based index of

MSM (service sector).

Month Low Price High Price Average PriceMSM Index

(Service Sector)

Jan 1.083 1.107 1.095 2,963.09

Feb 1.387 1.390 1.389 3,116.09

Mar 1.373 1.379 1.376 3,150.72

Apr 1.166 1.167 1.167 3,144.96

May 1.160 1.160 1.160 3,322.58

Jun 1.150 1.150 1.150 3,307.46

Jul 1.175 1.200 1.188 3,419.57

Aug 1.228 1.231 1.230 3,445.25

Sep 1.225 1.225 1.225 3,457.68

Oct 1.243 1.243 1.243 3,500.74

Nov 1.260 1.262 1.261 3,623.31

Dec 1.385 1.398 1.392 3,669.10


37

DISTRIBUTION OF SHAREHOLDING

The Shareholding pattern as on 31 December 2013 is as follows:

Category of ShareholdersNumber of

ShareholdersTotal

ShareholdersShare

Capital%

Preference Shareholders (Local) 1 381,336 5.47

Preference Shareholders (Foreign) 2 3,802,990 54.53

Fractions from capital reduction - 9 -

Ordinary Shareholders above 5% 1 450,037 6.45

Ordinary shareholders below 5% but above 1% 9 1,394,109 20.00

Ordinary Shareholders below 1% 813 945,315 13.55

TOTAL 826 6,973,896 100.00

PROFESSIONAL PROFILE OF THE STATUTORY AUDITORS

The Oman branch of Moore Stephens commenced practice in 1988. Over the years, the practice

has developed considerably and now services a number of clients, including major listed companies,

Groups, government organizations and Ministries providing either audit, tax or management consultancy

services. The local staff strength is around 40, most of whom are qualified Chartered Accountants,

internal auditors and information systems auditors.

Since Moore Stephens London was founded 100 years ago, the Moore Stephens International

Limited network has grown to be one of the largest international accounting and consulting groups

worldwide. Moore Stephens International is regarded as one of the world’s major accounting and

consulting networks consisting of 299 independent firms with 624 offices and 21,224 people across

101 countries.

During the year 2013, RO 11,500 was charged by external auditors against the services rendered by

them to the Company (RO 9,500 for audit, RO 2,000 for other audit related services).

ACKNOWLEDGEMENT BY THE BOARD OF DIRECTORS

The Board of Directors confirms the following:

• Its responsibility for the preparation of the financial statements in accordance with the applicable

standards and rules.

• Review of the efficiency and adequacy of internal control systems of United Power Company

SAOG and that it complies with internal rules and regulations.

• That there is no material matters that affect the continuation of the Company and its ability to

continue its operations during the next financial year.

38

BRIEF PROFILES OF DIRECTORS

Name Murtadha AHMED SULTAN – Chairman

Year of Joining 1994

Education Graduate - Sales and Marketing Management

Experience Director of W. J. Towell Group of Companies

Well known in the business community, Mr. Sultan has more than 33 years’ experience in different commercial fields; holding or held various positions in public, private and government organizations.

Mr. Murtadha Sultan is also the Chairman of Sohar Power Company. He is also a Director of Oman Flour Mills and Gulf International Chemicals.

Name Mark LEMMON – Vice Chairman


Education Chartered Accountant and Masters in Finance from the London School of Economics

Experience Mr. Lemmon, the Chief Executive Officer of MENA Infrastructure, was previously the deputy chief executive of HSBC’s global Project and Export Finance business, responsible for growing that business over recent years to its current pre-eminent position in infrastructure and energy finance. An investment banker and investor of 30 years, he has substantial experience leading business development and winning and executing financing mandates across transportation, social infrastructure, power, water and energy sectors throughout the Middle East and elsewhere.

Name Dr. Mohammed Nasser Al-Zaabi


Education A Chartered Quantify Surveyor with PhD in contracting out government services. M.Sc. in Projects Management. B.Sc.Hons in Quantity Surveying and an Engineering Diploma all from the UK.

Experience Mr. Al-Zaabi has more than 19 years of experience with the Ministry of Defence in the field of contracts and projects management. Headed planning and quality management departments and worked as AgTechnical expert up to September 2011. Currently attached to a high level Technical Committee in the Ministry of Transport and Communication responsible for overseeing the execution of Muscat International and Salalah airports development projects and three new regional airports at Sohar, Doqum, and Ras Alhadd

ANNEXURE


39

Name James S. HARPER


Education MA (Oxon)

Experience Mr. Harper is an experienced banking and investment professional with over fourteen years’ experience in investment, advisory and debt financing. Mr. Harper moved to the region five years ago to join Mubadala GE Capital. Currently he is a Managing Director leading the Global Investments Team which focuses on co-investing with GE Capital across a broad range of industries, products and geography’s.

Name Andrew NOWELL


Education Chartered Financial Analyst, B. Eng. (Aero) (hons), Grad. Dip. Finance and Investment

Experience Mr. Nowell is an Associate Director at the MENA Infrastructure. He has over nine years of experience in infrastructure investment and asset management in the Middle East and Australia. He has been involved in deal structuring, due diligence and valuation in projects across the energy, utilities and transport sectors. Prior to joining MENA Infrastructure, Andrew was an Associate in the Infrastructure Investment team at Leighton in Australia. Before that he was a Senior Consultant in Infrastructure Advisory at Booz & Company in Sydney. Andrew is a CFA Charter holder.

Name Rahul MITTAL


Education B.Tech, MBA, CFA

Experience Rahul Mittal is Director - Investments & Risk Strategy at Mubadala GE Capital (MGEC). Rahul is responsible for energy and project finance investments in META region. In addition Rahul has responsibility for Risk Strategy including Enterprise Risk Management, Risk Analytics and Portfolio Management at MGEC.

Rahul has over 15 years of experience in development, financing and management of large power projects in India, Middle East, Africa and the US. Before joining MGEC, Rahul was leading GE Capital - Energy Financial Services underwriting team in India. Rahul holds B.Tech from IIT Kanpur and MBA from IIM Calcutta. Rahul is a CFA charter holder

40

Name Yaseen Abdullatif


Education Bachelor of Arts degree in Business Administration (major – Finance) from the American University in December 1996.

Experience Mr. Abdullatif has been with the Bank Muscat since March 1987 and he has handled different functions from being branch manager to managing credit assessment and credit controls. In 1998, he was promoted to the position of assistant general manager to handle the Risk Management function of the bank and later on finance function has been an additional responsibility. Currently, Mr. Abdullatif, as deputy general manager, is responsible for managing support services functions at the bank, and he is a member of Management Credit Committee.

Name Hamad Lal Baksh Al Balushi


Education Master of Business Administration (MBA), University of Strathclyde.

Experience Mr. Al Balushi is a Financial Professional with over 16 years’ experience in Corporate Banking, specializing in corporate relationship management, business development, operations, strategic planning and project management. Possess comprehensive understanding of Risk Management, Mergers and Acquisitions, and leveraged asset, and structured finance.

Name Ahmed Al Sinani


Education Master of Business Administration

Experience Mr. Sinani has more than 21 years of experience in the fields of finance, accounting, human resources management, public administration and management. He represents the Civil Service Employees Pension Fund in a number of forums. Currently, he sits on the board of directors of Oman National Engineering & Investment Company and ACWA Power Barka.

Name Zoher Karachiwala


Education Chartered Accountant

Experience Currently CEO of the Company, Mr. Karachiwala was a CFO until June 2009. He also acts as Company Secretary for some of the GDF Suez group of companies in Oman. 36 years in field of Statutory Audit & Accounting and Finance. He was KPMG Audit Partner in Pakistan before joining United Power Company in 1995. Acted as Honorary Chairman of Audit Committee and the Board of Directors for a public company in Oman.


41

Name Guillaume Baudet


Education Master’s Degree in Accounting and Finance, ISC Paris Business SchoolManagement Program, CEDEP/INSEAD, FranceUniversity Degree in Business and Administration, Universite de Toulon.

Experience Mr. Guillaume Baudet has 17 years of experience in Controlling and Finance. After 11 years in the automotive industry, he joined GDF SUEZ Energy International in 2007 as Head of Business Control for the MENA region, before being appointed in 2011 CFO of Hidd Power Company in Bahrain. He is now the CEO of Sohar Power Company SAOG.

BRIEF PROFILE OF MANAGEMENT TEAM

Under the terms of the management agreement entered with Power Development Company LLC (PDC)

in 1994, PDC provides day to day management of the Company and gives all supports by providing

manpower and other infra-structure. For this PDC is paid an annual fee and reimbursement of its

expenses. It provides the following:

Particulars Omani Non-Omani Total

Managers 1 4 5

Other staff 10 6 16

The management team has been empowered and jointly operates within a well-defined authorization

limits set by the Board of Directors.

Brief profile of the current managerial team is as follows:

Name Zoher Karachiwala


Education Chartered Accountant

Experience Currently CEO of the Company, Mr. Karachiwala was CFO until June 2009. He also acts as Company Secretary for some of the GDF Suez group of companies in Oman. 36 years in field of Statutory Audit & Accounting and Finance. He was KPMG Audit Partner in Pakistan before joining United Power Company in 1995. Acted as Honorary Chairman of Audit Committee and the Board of Directors for a public company in Oman.

42

Name Guillaume Baudet


Education Master’s Degree in Accounting and Finance, ISC Paris Business SchoolManagement Program, CEDEP/INSEAD, FranceUniversity Degree in Business and Administration, Universite de Toulon.

Experience Mr. Guillaume Baudet has 17 years of experience in Controlling and Finance. After 11 years in the automotive industry, he joined GDF SUEZ Energy International in 2007 as Head of Business Control for the MENA region, before being appointed in 2011 CFO of Hidd Power Company in Bahrain. He is now the CEO of Sohar Power Company SAOG.

Name Sreenath Hebbar


Education Bachelor of Engineering (Mechanical), VJTI, Mumbai University

Experience 28 years of work experience, primarily in Business Development of Engineer Procure Construct (EPC) Contracts in Gas Turbine based Cogeneration & Combined Cycle Power Plants. In his current position as Technical Manager, and Safety Officer, he is responsible for monitoring Contractors’ compliance to safety norms, technical liaison with the client, statutory authorities, and contractors and provides technical support to the CEO. He has been a member of the Grid Code Review Panel of Oman

Name S.M. Tariq


Education Master degree in Business administration and ACA (intermediate), Institute of Chartered Accountants of Pakistan.

Experience Overall 37 Years of experience of external audit, internal audit and accounting & finance Currently working as Chief Financial Officer of the company. Prior to this, he was Financial Controller of United Power Company SAOG. He had also worked as internal auditor for National Trading Company LLC, Muscat and is as an External Auditor for KPMG, Muscat (Oman) and Karachi (Pakistan) Offices.

Name Jamal Al Bloushi


Education Diploma in Computer Science.

Experience 19 years’ experience in administration activity including managing spare parts logistics, liaisons with government organizations, licenses, translation function and supervising local insurance programs and assisting CEO for statutory meetings

44

Statement of Financial Positionat 31 December 2013

Note 2013 2012

RO ’000 RO ’000

ASSETSNon-current assetsProperty, plant and equipment 7 16,132 21,224

Current assetsInventories 8 259 259Accounts and other receivables 9 2,006 2,033Bank balances and cash 117 396

Total current assets 2,382 2,688

Total assets 18,514 23,912

EQUITY AND LIABILITIESEquity Share capital 10 6,974 8,717Legal reserve 11 2,324 2,906Retained earnings 1,461 1,949

Total equity 10,759 13,572

Non-current liabilitiesEmployees’ end of service benefits 11 8Deferred tax liability 13 1,499 2,050

Total non-current liabilities 1,510 2,058

Current liabilitiesTaxation 13 879 885Accounts and other payables 14 666 697Short term borrowings 15 4,700 6,700

Total current liabilities 6,245 8,282

Total liabilities 7,755 10,340

Total equity and liabilities 18,514 23,912

Net assets per share (RO) 16 1.543 1.557

These financial statements were authorised for issue and approved by the Board of Directors on 6 February 2014

and were signed on their behalf by:

Director Director

The accompanying notes from an integral part of the financial statement.

45

Statement Of Comprehensive Incomefor the year ended 31 December 2013

Note 2013 2012

RO ’000 RO ’000

INCOME

Revenue 6 k) 11,399 11,050

EXPENSES

Operating and administrative expenses 17 (5,324) (5,064)

Depreciation 7 (5,093) (5,165)

Finance costs (119) (161)

Profit before taxation 863 660

Taxation 13 (101) (76)

Profit and total comprehensive income for the year

762 584

Basic earnings per share 18 0.089 0.049


46

Statement of Changes In Equityfor the year ended 31 December 2013

Sharecapital

RO ’000(note 10)

Legal reserveRO ’000

(note 11)

RetainedearningsRO ’000

TotalRO ’000

At 31 December 2011 12,204 4,068 3,227 19,499

Payment of final dividend for 2011 - - (1,804) (1,804)

Payment of interim dividend for 2012 [note 12 b)] - - (1,220) (1,220)

Reduction of capital (3,487) - - (3,487)

Transfer from legal reserve to retained earnings - (1,162) 1,162 -

Net profit and total comprehensive income for the year - - 584 584

At 31 December 2012 8,717 2,906 1,949 13,572

At 31 December 2012 8,717 2,906 1,949 13,572

Payment of final dividend for 2012 - - (1,832) (1,832)

Reduction of capital (1,743) - - (1,743)

Transfer from legal reserve to retained earnings - (582) 582 -

Net profit and total comprehensive income for the year - - 762 762

At 31 December 2013 6,974 2,324 1,461 10,759


47

Statement of Cash Flowsfor the year ended 31 December 2013

2013 2012

RO ’000 RO ’000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 11,499 11,167

Cash paid to suppliers and employees (5,425) (5,239)

Cash generated from operations 6,074 5,928

Finance costs (119) (161)

Taxation (658) (828)

Net cash from operating activities 5,297 4,939

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment and net cash used in investing activities (1) (4)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividend paid (1,832) (3,024)

Reduction of capital (1,743) (3,487)

Net cash used in financing activities (3,575) (6,511)

Net increase / (decrease) in cash and cash equivalents during the year 1,721 (1,576)

Cash and cash equivalents at the beginning of the year (6,304) (4,728)

Cash and cash equivalents at the end of the year (4,583) (6,304)

Cash and cash equivalents [note 6 e)] at the end of the year comprise:

Bank balances and cash 117 396

Short term borrowings (4,700) (6,700)

(4,583) (6,304)


48

Notes to the Financial Statementsfor the year ended 31 December 2013

1 LEGAL STATUS AND PRINCIPAL ACTIVITIES

United Power Company SAOG (‘the Company’) was registered as a joint stock company in the Sultanate

of Oman on 9 January 1995. The Company has been established to undertake a project primarily to Build,

Own, Operate and Transfer (“BOOT”) to the Government of the Sultanate of Oman (‘the Government’) a

power station at Manah, and to build, own and transfer (“BOT”) to the Government, interconnection and

transmission facilities. The Company may also undertake activities related to the expansion of its primary

objective. Accordingly, the Company implemented the Phase II-Expansion Project (‘Expansion Project’)

during the year ended 31 December 2000.

2 DURATION OF THE COMPANY

The original duration of the Company was for a period of twenty-five years commencing from 9 January

1995 being the date of its registration in the Commercial Register of the Ministry of Commerce and Industry

(‘MOCI’). At an extra-ordinary general meeting held on 17 January 2000, the duration of the Company was

increased by five years thereby revising the duration of the Company to thirty years commencing from

9 January 1995. The MOCI has approved the extension to the Company’s life on 11 October 2000.

All the property, plant and equipment of the Company shall be transferred at RO 1 to the Government

automatically at the end of the Project Life, which, in accordance with Supplemental Agreements for the

Expansion Project, expires on 30 April 2020. (At the end of the Project Life the value of the shares of the

Company shall become nil.)

3 SIGNIFICANT AGREEMENTS

• Agreements with the Government for project implementation, power purchase and land lease for Phase

1 (‘Project Agreements’) were entered into on 27 June 1994 by the United Power Group (‘the Group’)

comprising some of the Founder Shareholders. Under a Novation Agreement entered into by the Company

with the Group, the Company has assumed all rights, duties, liabilities and obligations of the Group

pursuant to the Project Agreements.

• Effective 1 May 2005, the rights and obligations of Ministry of Housing, Electricity and Water under the Power

Purchase Agreement (‘PPA’) have been novated to the Oman Power and Water Procurement Company

SAOC (‘OPWPC) in accordance with the arrangements described in the Master Novation Agreement

signed on 8 October 2005. All the financial obligations of the OPWPC under the Project Agreements are

secured under the Guarantee issued by the Ministry of Finance, Government of Oman, which has come

into force on execution of the Novation Agreements. The PPA contains embedded derivatives in the

pricing formulae that compute the variable capacity charge rate and energy charge rate for Phase 1 and

Phase 2. The percentages of the variable capacity charge rate and energy charge rate for Phase 1 and

Phase 2 is adjusted to reflect changes in US Consumer price index and the Omani Consumer price index

assuming an exchange rate pegged to the United States Dollar (‘USD’).

49

• The Company has entered into a Management Agreement (‘the Management Agreement’) with Power

Development Company LLC (‘PDC’), a related party, to provide full management and administrative

services to the Company. From 1 January 2009, the Base Fee has been fixed at RO 601,842 (USD 1.561

million being the indexed Base Fee for 2008 converted to Rials Omani at the exchange rate prevailing

on 31 December 2008) and is indexed annually based on Sultanate of Oman CPI published by Ministry

of National Economy. The Company is also liable to an annual management fee of USD 400,000 (RO

154,200) for each calendar year in respect of Phase II of the plant (‘the Expansion Project’). No indexation

is applicable on the Expansion Project fee. In addition to the Management Fee, the Company also pays to

PDC, all proper costs and expenses which are incurred by PDC in rendering the above services.

• The Company has entered into an Operations & Maintenance Agreement with Suez Tractebel

Operation and Maintenance Oman (“STOMO”), a company owned by GDF Suez Group (70%) and

Sogex LLC (30%).

• Pursuant to the Project Agreements, the Company had, on 19 December 1999, entered into Supplemental

and Addendum Agreements with the Government for the expansion of the power generation facilities. The

above agreements have been amended and the duration of all the agreements has now been extended up

to 30 April 2020.

4 BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared in accordance with International Financial Reporting Standards

(“IFRS”), the minimum disclosure requirements of the Capital Market Authority and the requirements of the

Commercial Companies Law of 1974, as amended.

The financial statements are presented in Omani Rials rounded off to the nearest thousand on a historical

cost basis.

These financial statements have been prepared on the basis that the Company commenced full generation

and distribution of electricity on 15 October 1996. All costs incurred during the construction period of the

project were capitalized on 15 October 1996.

The Company commenced partial generation of electricity on 31 May 1996. On 15 October 1996, the

entire construction of the power station and transmission facilities was completed and from that date the

Company commenced full generation of electricity. The MHEW had initially determined 1 January 1997 as the

“Commercial Operation Date’ and had issued the Commercial Completion Certificate on that date.

During 2004, the Company reached settlement with the MHEW (‘OPWPC’) regarding the commencement

of Phase 1 term life of twenty years effective 14 September 1996 instead of 15 October 1996. The effect

of this change and resolution of other matters has been taken into account in the financial year ended

31 December 2004.

50

4 BASIS OF PREPARATION OF FINANCIAL STATEMENTS (continued)

Under the Supplemental and Addendum Agreement to the PPA (‘Supplemental Agreement’), the operation

date for the Expansion Project was 1 May 2000. The MHEW (‘OPWPC’) issued an interim completion certificate

for the first unit of the Expansion Project on 29 April 2000. The interim completion certificate for the second

unit of the Expansion Project as well as the commercial operations certificate for the Expansion Project was

issued by the OPWPC on 19 May 2000. Accordingly, 19 May 2000 has been determined as the “Commercial

Operation date’ for the Expansion Project. The Company has billed the MHEW from the respective completion

dates for the two units of the Expansion Project as per the Supplemental Agreement.

The tariff for electricity generated and supplied to OPWPC has been structured in the Project Agreements in

such a way that the tariff rates were significantly higher during the initial years as compared to the later period

of the Project Life. The tariff for electricity to be generated and supplied from the Expansion Project under

the Supplemental Agreement has been structured so that the tariff is more uniformly received over the

Project Life.

The Company’s gas turbines, interconnection and transmission facilities, balance of plant, plant spares and

plant buildings and ancillaries are being depreciated over a period of eight to twenty years on a straight-line

basis in accordance with their expected useful lives and with the Project Agreements. Accordingly, while the

combined tariff revenue for the Company after the first eight years of operations will significantly reduce,

the annual depreciation charges will remain constant. Accordingly, the net profits available for appropriation

to the shareholders has been significantly higher during the first half compared to the second half of the

Project life. Although it is not possible to accurately determine the effect on profits if revenue recognised was

matched with the depreciation charge, the Company is expected to continue to earn net profits. To provide a

return to the shareholders in the years where the reported profit is low, the Company has planned reduction

of share capital during certain periods [note 21 d on page 66].

In terms of the PPA signed in 1994 between the Company and the Government, the Company was given

the right to build, own, operate and transfer a power plant and build, own and transfer interconnection and

transmission facilities, to the Government.

IFRIC 12 ‘Service Concession Arrangements’ which was effective for annual periods commencing on or

after 1 January 2008 gives guidance on the accounting by operators for public-to-private service concession

arrangements. However, since inception of the Company in the year 1995, the financial statements of the

Company have disclosed that:

• The Company has recognized the ‘revenue’ based on the agreed Tariff prescribed under the PPA between

the Government and the Company.

• Depreciation on property, plant and equipment has been booked on straight-line basis at rates prescribed

in the above mentioned agreement.

Notes to the Financial Statements (continued)for the year ended 31 December 2013

51

• The tariff has been agreed based on covenants of financing agreements, which includes a prescribed

repayment profile, debt coverage ratios and other security features.

In view of the above and to ensure that the financial statements result in fair presentation and relevant and

reliable information for the users of the financial statements, the Board of Directors believes it would not be

appropriate to change the basis of accounting and have therefore not opted for adoption of IFRIC 12 ‘Service

Concession Arrangements’.

5 ADOPTION OF NEW AND AMENDED IFRS

5.1 New and amended IFRS adopted by the Company

The Company has adopted the following new and revised Standards and Interpretations issued by

International Accounting Standards Board and the International Financial Reporting Interpretations

Committee, which were effective for the current accounting period:

• Amendments to IAS 1 ‘Presentation of Financial Statements’ issued in June 2011 improves

the consistency and clarity of the presentation of items of other comprehensive income (OCI). The

amendments require an entity to group items presented in OCI on the basis of whether they are

potentially reclassifiable to profit or loss subsequently.

• The revised IAS 19 ‘Employee benefits’ issued in June 2011 has resulted, amongst other amendments,

in the removal of ‘corridor approach’ to defer some gains and losses arising from defined benefit

plans. The amendment also introduces a different basis of recognizing the impact of changes in the

obligation within the performance statements i.e. net interest cost.

• IFRS 10 ‘Consolidated Financial Statements’ was issued in May 2011 primarily to deal with divergence

in practice in applying the existing IAS 27 ‘Consolidated and Separate Financial Statements’ and

SIC 12 ‘Consolidation – Special Purpose Entities’. IFRS 10 and revised IAS 27 ‘Separate Financial

Statements’ together supersede the current IAS 27 ‘Consolidated and Separate Financial Statements’.

IFRS 10 also applies a substance approach to control and that control will need to be reviewed on

application.

• IFRS 11 ‘Joint arrangements’ was issued in May 2011 and improves on IAS 31 ‘Joint ventures’ by

establishing principles to the accounting for all joint arrangements. IFRS 11 also eliminates the option

available for accounting of joint ventures by the proportionate consolidation method.

• IFRS 12 ‘Disclosure of interest in other entities’ was issued in May 2011 and requires an entity to

disclose information to evaluate the nature of, and risks associated with, its interests in other entities

and effects of those interests on its financial position, performance and cash flows. The standard

introduces new disclosures for off-balance sheet vehicles.

52

5 ADOPTION OF NEW AND AMENDED IFRS (continued)

5.1 New and amended IFRS adopted by the Company (continued)

• Amendments to IFRS 10, IFRS 11 and IFRS 12 issued in June 2012 provide additional transition relief

by limiting the requirement to present adjusted comparative information to the period immediately

preceding the date of initial application.

• IFRS 13 ‘Fair value Measurements’ was issued in May 2011 and sets out in a single IFRS a framework

for measuring and disclosing fair values. The standard also introduces more disclosures on fair value

for non-financial assets.

• Amendments to IFRS 7 ‘Financial Instruments: Disclosures’ issued in December 2011 amended the

required disclosures to include information that will enable users of an entity’s financial statements to

evaluate the effect or potential effect of netting arrangements, including rights of set-off associated

with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial

position.

• Annual improvements to IFRS issued in May 2012 (effective for annual periods beginning on or after

1 January 2013) has resulted, amongst other amendments, changes to the following standards:

- IAS 1 ‘Presentation of Financial Statements clarifies the requirements for comparative

information.

- IAS 16 ‘Property, plant and equipment’ clarifies that items such as spare parts, stand-by equipment

and servicing equipment shall be recognised as property, plant and equipment when they meet

the definition of property, plant and equipment. If they do not meet this definition they shall be

classified as inventory.

- IAS 32 ‘Financial Instruments: Presentation’ addresses the perceived inconsistencies between

IAS 12 ‘Income Taxes’ and IAS 32 with regards to recognising the consequences of income tax

relating to distributions to holders of an equity instrument and to transaction costs of an equity

transaction.

The Management believes that the adoption of the amendments have not had any material impact on

the presentation and disclosure of items in the financial statements for the current period.

5 ADOPTION OF NEW AND AMENDED IFRS (Continued)

5.2 New and amended IFRS which are in issue but not yet effective

At the end of the reporting period, the following new and revised standards were in issue but not

yet effective:


53

• IFRS 9, ‘Financial Instruments’, is effective for accounting periods beginning on or after 1 January

2015. The standard was issued in November 2009, which was added to in October 2010 and further

amended in December 2011 amending the effective date from 1 January 2013 to 1 January 2015.

Currently, IFRS 9 outlines the recognition and measurement of financial assets, financial liabilities and

the derecognition criteria for financial assets. Financial assets in accordance with IFRS 9 are to be

measured either at amortised cost or fair value through profit and loss, with an irrevocable option on

initial recognition to recognise some equity financial assets at fair value through other comprehensive

income. A financial asset can only be measured at amortised cost if the entity has a business model

to hold the asset to collect contractual cash flows and the cash flows arise on specific dates and are

solely for payment of principal and interest on the principal outstanding.

• Amendments to IFRS 10, IFRS 12 and IAS 27 issued in October 2012 define an investment entity

and introduce an exception to consolidating particular subsidiaries of an investment entity. These

amendments require an investment entity to measure those subsidiaries at fair value through

profit or loss in accordance with IFRS 9 in its consolidated and separate financial statements. The

amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS

27. The amendments are effective for annual periods beginning on or after 1 January 2014.

• Amendments to IAS 36 ‘Impairment of assets’ issued in May 2013 corrects certain consequential

amendments to IAS 36 disclosures when IFRS 13 was issued. The amendments also clarify other

disclosure requirements relating to recoverable amount for non-financial assets. The amendments

are effective for annual periods beginning on or after 1 January 2014.

• IFRIC 21 ‘Levies’ issued in May 2013 addresses the accounting for a liability to pay a levy if that liability

is within the scope of IAS 37 ‘Provisions, Contingent liabilities and Contingent assets’. It clarifies the

accounting for a liability to pay a levy whose timing and amount is certain. The amendments are

effective for annual periods beginning on or after 1 January 2014.

• Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ issued in June 2013

relates to the novation of a derivative and the impact on hedge accounting. The amendments are

effective for annual periods beginning on or after 1 January 2014. The amendment provides relief

from discontinuing hedge accounting when certain criteria are met.

The Management believes the adoption of the above amendments is not likely to have any material

impact on the presentation and disclosure of items in the financial statements for future periods.

54

6 SIGNIFICANT ACCOUNTING POLICIES

a) Accounting convention

These financial statements have been prepared under the historical cost convention.

b) Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment

losses. Following initial recognition at cost, expenditure incurred to replace a component of an item of

property, plant and equipment which increases the future economic benefits embodied in the item of

property, plant and equipment is capitalised. All other expenditures are recognised in the statement of

comprehensive income as an expense as incurred.

Items of property, plant and equipment are derecognised upon disposal or when no future economic

benefit is expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition

of the asset is included in the statement of comprehensive income in the year the item is derecognized.

Depreciation is charged to the statement of comprehensive income on a straight-line basis over the

estimated useful lives of items of property, plant and equipment. The estimated useful economic lives are

as follows:

Years

Gas Turbines 15

Balance of plant 20

Plant spares 8

Interconnection and transmission facilities 18 to 20

Plant buildings and ancillaries 20

Other assets – furniture, equipment and motor vehicles 4

c) Inventories

Inventories comprise of fuel oil and are stated at lower of cost and net realisable value. The cost of

inventories is based on first-in-first-out basis and includes expenditure incurred in acquiring the inventories

in their present location and condition.

d) Accounts and other receivables

Accounts and other receivables originated by the Company are measured at cost. An allowance for credit

losses of accounts and other receivables is established when there is objective evidence that the Company

will not be able to collect the amounts due. When an account or other receivable is uncollectible, it is

written off against the allowance account for credit losses. The carrying value of accounts and other

receivables approximate their fair values due to the short-term nature of those receivables.


55

e) Cash and cash equivalents

For the purpose of statement of cash flows, cash and cash equivalents consist of bank balances and

cash including deposits with an original maturity period of 3 months or less, net of short term bank

borrowings.

f) Impairment

Financial assets

At the end of each reporting period, the Management assesses if there is any objective evidence indicating

impairment of financial assets carried at cost or non collectability of receivables. An impairment loss, if

any, arrived at as a difference between the carrying amount and the recoverable amount, is recognised

in the statement of comprehensive income. The recoverable amount represents the present value of

expected future cash flows discounted at the original effective interest rate. Cash flows relating to short

term receivables are not discounted.

Non-financialassets

At the end of each reporting period, the Management assesses if there is any indication of impairment

of non financial assets. If an indication exists, the Management estimates the recoverable amount of the

asset and recognizes an impairment loss in the statement of comprehensive income. The Management

also assesses if there is any indication that an impairment loss recognized in prior years no longer exists

or has reduced. The resultant impairment loss or reversals are recognised immediately in the statement of

comprehensive income.

g) Dividends

Dividends are recognised as a liability in the period in which they are declared.

The Board of Directors recommends to the shareholders the dividend to be paid out of Company’s profits.

The Directors take into account appropriate parameters including the requirements of the Commercial

Companies Law, 1974 (as amended), while recommending dividend.

h) Employees’ end of service benefits

Payment is made to Omani Government’s Social Security Scheme under Royal Decree number 72 / 91 (as

amended) for Omani employees. Provision is made for amounts payable under the Sultanate of Oman’s

labour law under Royal Decree number 35 / 2003 applicable to non Omani employees’ accumulated

periods of service at the end of the reporting period.

i) Provisions

A provision is recognised in the statement of financial position when the Company has a legal or

constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits

will be required to settle the obligation.

56

j) Accounts and other payables

Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to

the Company.

k) Revenue

Revenue comprises tariffs for fixed capacity charges for transmission facilities and turbines, variable

capacity charges and energy charges. Tariffs are calculated in accordance with the Project Agreements.

No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due

and associated costs.

Tariff revenue has been accounted net of gas fuel costs, which are borne by the Government of the

Sultanate of Oman.

l) Operating lease payments

Payments made under operating leases are recognised in the statement of comprehensive income on a

straight line basis over the term of the lease.

m) Foreign currency transactions

Transactions denominated in foreign currencies are translated to Rial Omani at the foreign exchange rates

ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at

the end of the reporting period are translated to Rial Omani at the foreign exchange rates ruling at that date.

Foreign exchange differences arising on translation are recognised in the statement of comprehensive

income.

n) Taxation

Taxation for the period comprises current and deferred tax.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or

substantially enacted at the end of the reporting period.

Deferred tax is calculated 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

taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or

settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted

at the end of the reporting period.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be

available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is

no longer probable that the related tax benefit will be realised.

Current and deferred tax are recognised as an expense or income in the statement of comprehensive

income, except when they relate to items that are recognised in statement of other comprehensive income,

in which case the tax is also recognised in the statement of other comprehensive income.


57

o) Financial liabilities

All financial liabilities are initially measured at fair value and are subsequently measured at amortised

cost.

p) Directors’ remuneration

The Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant

directives issued by CMA, in regard to determination of the amount to be paid as Directors’ remuneration.

Directors’ remuneration is charged to the statement of comprehensive income in the year to which

they relate.

q) Estimates and judgements

In preparing the financial statements, the Management is required to make estimates and assumptions

which affect reported income and expenses, assets, liabilities and related disclosures. The use of available

information and application of judgements based on historical experience and other factors are inherent in

the formation of estimates. Actual results in future could differ from such estimates.

The estimates and assumption considered by the Management to have a significant risk of material

adjustment in subsequent years primarily comprise:

• Estimation of useful lives of the assets which is based on management’s assessment of various factors

such as the operating cycles, the maintenance programs and normal wear and tear using its best

estimates; and

• Allowance for credit losses which is based on the management’s estimates of recoverability of the

amounts based on historical experiences.

7 PROPERTY, PLANT AND EQUIPMENT

a) The movement schedule of property, plant and equipment for the year ended 31 December 2013 and

the year ended 31 December 2012 are set out on pages 67 and 68 respectively.

b) Land on which the power station, buildings and ancillaries are constructed has been leased from the

Government for the duration of the Project Life. Lease rent is paid at the rate of RO 1,000 per annum.

58

8 INVENTORIES

2013 2012

RO ‘000 RO ‘000

Liquid fuel 259 259

Spares 63 63

322 322

Provision for obsolescence (63) (63)

259 259

The Company, in accordance with the Project Agreements, is required to maintain a base stock of liquid fuel

to be used in case of interruption of gas fuel. Spares stock is maintained for the gas turbines and ITF and is

held for emergencies.

9 ACCOUNTS AND OTHER RECEIVABLES

2013 2012

RO ‘000 RO ‘000

Accounts receivable from OPWPC 1,784 1,884

Allowance for credit losses (93) (93)

1,691 1,791

Prepayments and other receivables 315 242

2,006 2,033

The following further notes apply:

a) The movement in the allowance for credit losses is as follows:

2013 2012

RO ‘000 RO ‘000

At the beginning of the year 93 91

Provided during the year (note 17) - 2

93 93

b) Accounts receivable from OPWPC amounting to RO 1.691 million (2012 – RO 1.791 million) are neither

past due nor impaired.


59

10 SHARE CAPITAL

Authorized share capital

At 31 December 2013 and 31 December 2012, the Company’s authorised share capital comprised 15,965,760

ordinary shares and 23,948,640 preference shares of RO 1 each.

Paid-up share capital

At 31 December 2013, the Company’s issued and paid-up share capital consists of 6,973,896 shares of RO

1 each analysed as follows:

Paid PaidTotal in cash in kind

RO ’000 % RO ’000 RO ’000

Preference shares 4,184 60 3,146 1,038

Ordinary shares 2,790 40 2,790 -

6,974 100 5,936 1,038

At 31 December 2012, the Company’s issued and paid-up share capital consists of 8,717,365 shares of RO 1

each analysed as follows:

Paid PaidTotal in cash in kind

RO ’000 % RO ’000 RO ’000

Preference shares 5,230 60 4,192 1,038

Ordinary shares 3,487 40 3,487 -

8,717 100 7,679 1,038

Preference shareholders have the right to two votes per share at any general meeting of the Company and

are entitled to a dividend of up to 5% of the net profit of the Company prior to and in addition to any dividend

to the holders of ordinary shares. The holders of ordinary shares have the right to one vote per share at any

general meeting of the Company.

At the end of the reporting period, the details of the significant preference shareholders and the percentage

of their shareholding in the Company is as follows:

60

Number of % to % to

preference preference total

31 December 2013 shares shares shares

Mena Infrastructure Investments Limited 2,658,979 63.56 38.12

Ministry of Defence, Pension Fund 381,336 9.11 5.47

M GEC (Oman) Holdings Limited 1,144,011 27.33 16.41

Fractions from capital reduction 9 - -

4,184,335 100.00 60.00

Number of % to % to

preference preference total

31 December 2012 shares shares shares

Mena Infrastructure Investments Limited 3,323,723 63.56 38.12

Ministry of Defence, Pension Fund 476,670 9.11 5.47

M GEC (Oman) Holdings Limited 1,430,014 27.33 16.41

Fractions from capital reduction 9 - -

5,230,416 100.00 60.00

None of the ordinary shareholders own more than 10% of the Company’s share capital (2012 – none).

During the year, the Company carried out a capital reduction of RO 1.743 million, being 5% of the original

capital as a consequence to the structured plan of capital reduction approved by the CMA and the shareholders

in the extraordinary general meeting held on 21 March 2012 (2012 – a similar capital reduction of RO 3.487

million.) The value of the shares becomes nil at the end of the Project Life.

11 LEGAL RESERVE

a) In accordance with Article 106 of the Commercial Companies Law of the Sultanate of Oman, 1974 (as

amended), 10% of the Company’s net profit for the year is to be transferred to a non-distributable legal

reserve until the amount of the legal reserve becomes equal to one-third of the Company’s issued share

capital. Transfer has not been made in the current year as the reserve has reached the statutory minimum

of one third of the capital.

b) In accordance with the approval of the shareholders at the Extraordinary General Meeting held on 21

March 2012, a proportionate amount of the legal reserve, RO 0.582 million has been transferred to the

retained earnings on account of a capital reduction in December 2013 (2012 – an amount of RO 1.162

million was transferred to the retained earnings on capital reduction.)


61

12 DIVIDEND

a) During the year, dividend to preference shareholders of RO 0.217 per share amounting to RO 1.135 million

and dividend to ordinary shareholders of RO 0.200 per share amounting to RO 0.697 million for the year

2012 was approved in the Annual General Meeting held on 18 March 2013 and paid subsequently (2012

– dividend to preference shareholders of RO 0.153 per share amounting to RO 1.12 million and dividend

to ordinary shareholders of RO 0.140 per share amounting to RO 0.684 million).

b) During the year, an amount of RO 1,460 pertaining to the year 2012 unclaimed dividends and RO 4,047

pertaining to unclaimed capital reduction related entitlement (2012 – RO 1,666, RO 5,669 and RO 3,696

pertaining to the year 2011 unclaimed dividends, unclaimed share premium and unclaimed capital

reduction related entitlement) have been transferred to the Investors’ Trust Fund of the CMA.

c) Subsequent to the end of the reporting period, the Board of Directors have proposed a cash dividend of

21.57% (RO 0.2157 per share) to the preference shareholders amounting to RO 0.902 million and a cash

dividend of 20% (RO 0.200 per share) to ordinary shareholders amounting to RO 0.558 million for the year

2013, which is subject to shareholders’ approval in the forthcoming Annual General Meeting.

13 TAXATION

2013 2012

RO ’000 RO ’000

Statement of comprehensive income

Current tax 652 631

Deferred tax credit (551) (555)

Taxation charge 101 76

2013 2012

RO ’000 RO ’000

Statementoffinancialposition

Current liability

Current taxation 879 885

Non-current liability

Deferred tax liability 1,499 2,050

The following further notes apply:

a) The Company is subject to income tax in accordance with the income tax law of the Sultanate of Oman

at the tax rate of 12% on taxable profits in excess of RO 30,000.

b) During the year, the Company’s tax assessment for the year 2007 was finalised by the Secretariat General

for Taxation (SGT) with an additional tax demand for RO 26,752 as a result of disallowance of certain

expenses. The Company has filed an objection to the assessment order. Pending a hearing on the

objection, the amount has been settled during the year by utilizing the existing tax provision.

62

13 TAXATION (continued)

c) The Company’s taxation assessments for the years 2008 to 2012 have not been finalised by the SGT. The

Management believes that the tax assessed, if any, for the unassessed tax years would not be material to

the Company’s financial position at the end of the reporting period.

d) The reconciliation of taxation on the accounting profit with the current taxation charge for the year

is as follows:

2013 2012

RO ’000 RO ’000

Profit before tax 863 660

Taxation on accounting profit at applicable rates 100 76

Add tax effect of:

Depreciation on property, plant and equipment 551 555

Other expenses disallowed for tax purpose 1 -

Taxation charge 652 631

e) The deferred tax liability (net) and the deferred tax credit in the statement of comprehensive income are

attributable to the following items:

2012

Credit in the statement of

comprehensive income 2013

RO ’000 RO ’000 RO ’000

Property, plant and equipment 2,069 (551) 1,518

Provision for obsolete inventories and allowance for credit losses (19) - (19)

Deferred tax liability (net) 2,050 (551) 1,499

14 ACCOUNTS AND OTHER PAYABLES

2013 2012

RO ’000 RO ’000

Accounts payable 414 445

Directors’ remuneration payable 33 34

Accruals and other payables 219 218

666 697


63

15 SHORT TERM BORROWINGS

Short term borrowings are from local commercial banks which carry interest ranging from 1.85% - 3.5% per

annum (2012 – 2.50% per annum). The borrowings are revolving facilities with a maximum period of 6 months

during the availability period. The borrowing facilities contain certain restrictive covenants that are common

for such arrangements.

16 NET ASSETS PER SHARE

Net assets per share is calculated by dividing the net assets at the end of the reporting period by the number

of preference and ordinary shares outstanding as follows:

2013 2012

Net assets (RO ‘000) 10,759 13,572

Number of preference and ordinary shares outstanding at the end of the year (‘000) 6,974 8,717

Net assets per share (RO) 1.543 1.557

17 OPERATING AND ADMINISTRATIVE EXPENSES

2013RO ’000

2012RO ’000

Operation and maintenance fee – STOMO 3,278 2,911

Repair and maintenance expenses – plant 58 148

3,336 3,059

Management fee 893 873

Shared office overheads 420 407

Insurance 462 492

Directors’ meeting attendance fees and remuneration 50 50

Meetings and other related expenses 36 36

Claim tax rate change 34 34

Office expenses 33 27

Legal and professional charges 30 53

Salaries and employee related costs 21 19

Registration and renewals 9 12

Allowance for credit losses [note 9 a)] - 2

5,324 5,064

64

18 BASIC EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number

of preference and ordinary shares outstanding during the year as follows:

2013 2012

Profit for the year (RO ’000) 762 584

Weighted average number of preference and ordinary shares outstanding throughout the year (’000)

8,572 11,918

Basic earnings per share (RO) 0.089 0.049

As the Company does not have any dilutive potential shares, the diluted earnings per share is the same as the

basic earnings per share.

19 RELATED PARTY TRANSACTIONS

a) The Company has entered into transactions with key management personnel, entities and shareholders

who have either control or significant influence over the Company. These transactions are entered into on

terms and conditions approved by the Management.

b) The following is a summary of significant transactions with related parties during the year:

2013 2012

RO ’000 RO ’000

Services provided by Power Development Company LLC

Management fee 893 873

Shared office overheads 420 407

Directors’ remuneration and attendance fees 50 50

20 LEASE COMMITMENTS

Land on which the power station, buildings and ancillaries are constructed has been leased from the

Government for the duration of the Project Life. At the end of the reporting period, the future minimum lease

commitments under non-cancellable operating leases are as follows:

2013 2012

RO ’000 RO ’000

Within 1 year 1 1

Between 2 to 5 years 4 4

Above 5 years 2 3

7 8


65

21 FINANCIAL RISK AND CAPITAL MANAGEMENT

The Company’s activities expose it to various financial risks, primarily being, market risk (including foreign

currency risk and interest rate risk), credit risk and liquidity risk. The Company’s risk management is carried

out internally in accordance with the policies approved by the Management. The risk management policies

and systems are reviewed regularly to ensure that they reflect any changes in market conditions and the

Company’s activities.

a) Market risk

Foreign currency risk

The Company is exposed to foreign exchange risk arising from various currency exposures. Significant

portion of revenues and major operating costs are denominated in RO and indexed to the USD / RO

exchange rates. The balance operating costs denominated in USD are covered by the fact that RO is

pegged to the USD and has remained unchanged since 1986. As these currencies are pegged against

the Omani Rial, the Management does not believe that the Company is exposed to any material

currency risk.

Interest rate risk

The Company’s short term borrowings are on fixed rate basis. Accordingly, the Company is not

exposed to interest rate risk due to fluctuation in market interest rate. The Management manages its exposure

to interest rate risk on short term borrowings by ensuring that they are as far as possible on a fixed

rate basis.

b) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument

fails to meet its contractual obligations, and arises principally from the Company’s receivables. At the end

of the reporting period, the entire accounts receivable was from a Government owned company (OPWPC).

The Management considers the credit risk associated with the receivables to be very low because the

receivables are from the Government. Furthermore, the cash and short term deposits are also placed in

reputable banks, which minimize the credit risk.

c) Liquidity risk

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

The Company maintains sufficient bank balances and cash to meet the Company’s obligations as they fall

due for payment. The table below analyses the expected contractual maturities of the financial liabilities

at the end of the reporting period.

66

21 FINANCIAL RISK AND CAPITAL MANAGEMENT (continued)

c) Liquidity risk (continued)

31 December 2013

Carrying amountRO ’000

Contractual cash flows

RO ’0000 to 6 months

RO ’000

Accounts and other payables 666 666 666

Short term borrowings 4,700 4,700 4,700

5,366 5,366 5,366

31 December 2012

Carrying amount

RO ’000

Contractual cash flows

RO ’0000 to 6 months

RO ’000

Accounts and other payables 697 697 697

Short term borrowings 6,700 6,700 6,700

7,397 7,397 7,397

d) Capital management

The Company’s objectives when managing capital are:

• to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns

for shareholders and benefits for other stakeholders; and

• to provide an adequate return to shareholders and sustain future development of the business.

The Company has complied with externally imposed capital requirements as stipulated in the Commercial

Companies Law, 1974 (as amended) and by the CMA.

To provide a return to the shareholders in the years where the profit is low or there are losses, the Company

has also planned reduction of share capital during certain periods.

At the Extraordinary General Meeting held on 21 March 2012, the shareholders resolved to reduce the share

capital in three phases during the next three years subsequent to the meeting. The reduction per phase

would be in the range of 5% to 10% of the original share capital of RO 34.87 million, but would be subject to

maintaining a minimum capital of RO 5 million. During the year, a capital reduction of RO 1.743 million was

effected in December 2013 (2012 – RO 3.487 million was effected in December 2012).

22 COMPARATIVES

Certain comparative figures have been reclassified to conform to the presentation adopted in these financial

statements.


67

Year

201

3G

as

turb

ines

Bal

ance

o

f p

lant

Pla

nt

spar

esIT

F

Pla

nt

bui

ldin

gs

and

an

cilla

ries

Oth

er a

sset

sTo

tal

RO

‘000

RO

‘000

RO

‘000

RO

‘000

RO

‘000

RO

‘000

RO

‘000

Co

st

At

31 D

ecem

ber

201

2 18

,945

26,0

325,

391

49,9

947,

453

126

107,

941

Ad

diti

ons

dur

ing

the

year

-

--

--

11

At

31 D

ecem

ber

201

318

,945

26,0

325,

391

49,9

947,

453

127

107,

942

Dep

reci

atio

n

At

31 D

ecem

ber

201

217

,232

18,4

754,

407

40,4

486,

038

117

86,7

17

Cha

rge

for

the

year

683

1,30

223

22,

496

373

75,

093

At

31 D

ecem

ber

201

317

,915

19,7

774,

639

42,9

446,

411

124

91,8

10

Net

bo

ok

valu

e

At

31 D

ecem

ber

201

31,

030

6,25

575

27,

050

1,04

23

16,1

32

At

31 D

ecem

ber

201

21,

713

7,55

798

49,

546

1,41

59

21,2

24

7 PROPERTY, PLANT AND EQUIPMENT (continued)

68

7 PROPERTY, PLANT AND EQUIPMENT (continued) Ye

ar 2

012

Gas

tu

rbin

esB

alan

ce

of

pla

ntP

lant

sp

ares

ITF

Pla

nt

bui

ldin

gs

and

an

cilla

ries

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er a

sset

sTo

tal

RO

‘000

RO

‘000

RO

‘000

RO

‘000

RO

‘000

RO

‘000

RO

‘000

Co

st

At

31 D

ecem

ber

201

1 18

,945

26,0

325,

391

49,9

947,

453

122

107,

937

Ad

diti

ons

dur

ing

the

year

-

--

--

44

At

31 D

ecem

ber

201

218

,945

26,0

325,

391

49,9

947,

453

126

107,

941

Dep

reci

atio

n

At

31 D

ecem

ber

201

116

,549

17,1

724,

106

37,9

525,

665

108

81,5

52

Cha

rge

for

the

year

683

1,30

330

12,

496

373

95,

165

At

31 D

ecem

ber

201

217

,232

18,4

754,

407

40,4

486,

038

117

86,7

17

Net

bo

ok

valu

e

At

31 D

ecem

ber

201

21,

713

7,55

798

49,

546

1,41

59

21,2

24

At

31 D

ecem

ber

201

12,

396

8,86

01,

285

12,0

421,

788

1426

,385


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