Post on 26-Mar-2020
OHAS 1800:
2007
ISO 14001:
2014ISO 9001: 2008
His Majesty Sultan Qaboos Bin Said
Board of Directors
Manal Mohammed Al AbdwaniChairperson
John R WrightDeputy of chairperson
Amal Al JabriMember
Haitham Abdullah ALKharusiMember
Mahmoud JalladMember
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01
02
08
03
Management Team
01
04
02
03
Yousuf bin Mohammed Al MahrooqiRegulatory, Compliance and Strategy Manager
Mansoor bin Talib Al HinaiChief Operations Officer, Supply
Juma bin Said Al ObaidaniQuality, Health, Safety, Security & Environment Manager
Abdullah bin Said Al BadriChief Executive Officer
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04
05
06
07
05
08
06
07
Saleh Al JabriCommunication & Sustainbility Manager
Ali bin Juma AL MashrafiCheif Operations Officer, Distribution
Mohammed Al YahayiSenior Manager of Shared Services
Mubarak Al Jahwari Human Resources Manager
Content
01 02
03 04
Chairperson’s Report Management report and analysis
Price Control Mechanism 2012-2014 Business Strategy4.1 Asset Management 21
4.1.1 PAS55 Asset Management 21
4.1.2 SCADA Project 21
4.1.3 Geographic Information System (GIS) 21
4.1.4 Projects 21
4.1.4.1 Major projects under implementation 21
4.2 Customer Services 22
4.2.1 Supply Business overview 2014 22
4.3 Distribution Loss 22
4.4 Human Resources 23
4.4.1 Staff& Omanisation 23
4.4.2 Recruitment 23
2.1 Financial Performance 15
2.2 Operational Performance 15
2.3 Tariff revenue 16
2.4 Subsidy 16
2.5 Receivables 17
Price Control Mechanism 2012-2014 19
Chairperson’s Report 11
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05Financials report and statements
Independent auditor’s report 32
Statement of financial position 34
Statement of profit or loss and
other comprehensive income 35
Statement of changes in equity 36
Statement of cash flows 37
Notes to the financial statements 38
4.4.3 Employees Turnover 24
4.4.4 Training and Development: 24
4.4.5 Improved Planning and alignment: 24
4.4.6 Training Execution 2014: 24
4.5 Quality Health, Safety, Security and Environment 25
4.5.1 2014 QHSSE Statistics Summary 25
4.5.2 QHSSE initiatives 25
4.5.3 MEDC Safety Rules & QHSSE Training 25
4.6 Communications 25
4.6.1 Internal Communication 26
4.6.2 External Communication and CSR 26
4.7 Board of Directors 26
4.7.1 Composition of the BOD 26
4.8 Committees 27
4.8.1 Internal Tender Committee (ITC) 27
4.8.2 Audit Committee Report to the Board for the
year 2014 27
4.8.3 Human Resources Committee (HRC) 28
4.9 Remuneration of the BOD and key management
personnel compensation 29
4.10 Non-Compliance by the company 29
4.11 Communication with Shareholders 29
4.12 Statutory Auditors 29
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Chairperson’sReport
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Dear Shareholders,
On behalf of the Board of Directors, it gives me great pleasure in presenting the Annual Report and Audited financial statements of Muscat Electricity Distribution Company SAOC (hereinafter “the Company") for the year ended 31st December 2014. This report contains the major achievements of the Company during 2014 in the development of its distribution and supply businesses to keep up with the growing demand for electricity and steady growth in customers at the Governorate of Muscat. Some changes took place on the organizational structure were approved in the past two years in order for the company to achieve its new strategy. Several projects are planned underneath the five strategies in order to achieve the ultimate vision of the company.
Business Growth and Financial Results
The number of customers showed a growth of 9 % in 2014 to reach 284,625 customer accounts as at the end of the year as compared to 261,480 at the beginning of the year. Similarly the regulated units sold to the customer have increased to 8,651 GWh (excluding Bulk Load) with a growth of 8 % compared to previous year.
Total revenue for the year was OMR 228 million (2013 OMR 209 million) comprising of revenue from sale of power OMR 148.8 million (OMR 136.8 million, 2013), other operating revenue of OMR 3.806 million with an decrease of around 11% from 2013 and government net subsidy of OMR 71.5 million (OMR 62.7 million, 2013). Gross revenue has increased by 9 % in 2014.
Net profit for the year was OMR 21.6 million (OMR 23.6 million, 2013) with 8.5% reduction of net profit from last year. In addition general administrative expenses for the year 2014 were at OMR 18.8 million, an increase of 10 % compared to 2013. The Company for the second time since the implementation of Losses Incentive Mechanism was able to achieve losses level below the target for the year. With 0.27% reduction from target losses level which was set by the Authority for Electricity Regulation, the company had achieved around 8.73%.
Capital Projects and Operating Expenses
Based on the expected level of operational and investment requirements, and in compliance with the license conditions and price control mechanism, the company's Board approved a consolidated budget of OMR 74.582 million (excluding 3.62 millions of sponsored projects) for the year 2014, that includes
OMR 54.19 million for capital projects and OMR 20.391 million to cover its operating and general expenses excluding pass-through cost, depreciation and finance cost. Net capital expenditure incurred (MEDC Project VOWD) for the year increased by 28% reaching OMR 51million compared to the year 2013 and resulting in cash outflow of OMR 47.5 million.
Asset Management
MEDC has made significant progress towards asset management certification during 2014. It met and exceeded the target for the certification gap analysis by achieving a score of 2.2 out of 4. A significant step forward was the launching of Maximo for network maintenance management with nearly 70 staff members in the departments of AM, DCC and zones fully trained as users in the use of the system and all are now regular users of it.
The SCADA project continued successfully and by year end almost all of the hardware had been delivered to Oman with the terminal equipment installed in approximately 105 out of 134 locations and their site acceptance testing completed in 96 of these locations. The Master system has been fully installed and site tested in the Backup Control Centre and with the telecommunications system installed the full end-to-end testing will take place for all completed primary substations. The project is currently scheduled to complete by the middle of 2015.
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Human Resources
Human Resources are the key drivers of the success of the company during 2014 and the company had given its entire focus on developing competent and professional workforce. Number of key initiatives were started to improve the overall staff experience by adopting Integrated Talent Management Framework. Furthermore, focus in On-Job training was one of the key pillars in developing the professional staff and will remain as one of the retaining factors for employees.
During 2014, the total workforce has increased by 13 people, which is represents 3% increase in comparison with 2013, by this, total staff number has reached 514 employees with 93% Omani workforce.
Customer Services
MEDC strives to meet and exceed the escalating customer demands, then set of initiatives to serve this objective were introduced. MEDC is changing the way of doing things to elevate customer service delivery by introducing a robust customer service blueprint, matching best practices in the utility industry worldwide. Not only the business dynamics that will be changed but also the customer services is revamping its core systems to address the existing business challenges by introducing a new billing system and meter reading system.
In 2014, the company aimed to measure its customers’ satisfaction levels from different aspects and uncover any improvement areas that might have, MEDC have performed then the first customer satisfaction survey -which will be held periodically- to keep an eye of the performance from customer view point; to enhance the service delivery levels. MEDC aspiration to successfully improve its services will dynamically continue across time.
Quality, Health, Safety, Security and Environment
During 2014 course, MEDC successfully was certificated against three international certifications as integrated management systems: OHSAS 18001: 2007, ISO 14001: 2014, & ISO 9001:2008.
Additionally, the company accords special attention to health, safety and environment through the implementation of on-job training and awareness programs. During the year 2014 the company has conducted trainings which had benefited the employees. The company aims at developing and improving HSE culture among its staff, contractors, and its service providers by ensuring the implementation of HSE regulations in all activities and operations.
Corporate Social Responsibility
Company believes that it is important to earn goodwill of the society in which it operates. Through its corporate social responsibility programs, company has participated in various events by providing sponsorship and supported various social and sports activities in the Governorate of Muscat. The company was a participant sponsor of Muscat Festival 2014. The company will play its part on national development and will continue to meet its social responsibility.
MEDC has managed Omanuna Amanah campaign throughout the year in several wellyiats in the Sultanate to promote the current legislations of handling the scrap and safe national infrastructure assets. Accordingly, the success of the campaign was presented in the “Sharing Conference 2014” which is organized by EHC for the second year.
During the year, the company had entered into Memorandum of Understanding with Ministry of Education to strengthen the relationships and to promote the energy efficiency and conservations with the students at schools.
Price Control (2015-2017)
During 2014, the Authority for Electricity Regulation, Oman (Authority) has initiated the fourth Price Control Review (PCRIV, 2015-2017) consultation process for Muscat Electricity Distribution Company (MEDC). As part of this process, MEDC has submitted a range of information on its forecasted demand and costs as well as responded to a range of narrative questionnaires on the various business polices and operations. The consultation process was concluded in November where the Authority has allowed MEDC amounts for its Capital Expenditures by RO 171.3 million and an amount of RO 67.1 million for its operating expenses.
The final price control proposal has also considers different aspects related to financial issues, system losses minimization targets, network security and customer service improvements
Corporate Governance
The company is committed to further uphold good corporate governance practices and is keen to apply the laws and regulations issued by the concerned authorities pertaining to joint-stock companies. In addition, the company aims to promote the efficiency, professionalism and transparency in all its operations and activities by developing
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and updating its own policies and systems. In this aspect, the company in coordination with the Electricity Holding Company has developed a set of regulations, controls, and rules which promote best corporate governance practices. The company has a dedicated internal audit team that reviews the company's operations and processes to ensure compliance with the relevant regulations and controls and submit periodic reports to the Internal Audit Committee of the Board of Directors.
Acknowledgements
On behalf of Board of Directors, we extend our sincere gratitude to His Majesty Sultan Qaboos Bin Said for his wise and able leadership and government of Sultanate of Oman for its support.
I would also like to thank the fellow board members, the executive management team and staff members for their contribution commitment and efforts. Acknowledgement is also due to contractors, suppliers
and service providers whose support and contribution helped the company to achieve company’s goals. Finally I would like to thank Public Authority for Electricity and Water, Authority for Electricity Regulation Oman, Electricity Holding Company and other sister companies for their continued support and cooperation.
For the Board of Directors
Manal Mohammed Al Abdawani
Chairperson
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Management report and
analysis
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2.1 Financial Performance
In 2014 the company witnessed a visible growth in electricity sales and related revenues. Total revenue has increased by 9% to OMR 228 million in 2014. Though, Earnings before Interest and Tax (EBIT) has diminished by 8% to reach OMR 26 million compared to 2013 which was OMR 28 million. Likewise, Profit after tax (PAT) has decreased by 8% to reach OMR 21.57 million compared with 2013 margin. In other hand, the Net Asset Value has increased sharply by
14% compared with 2013 which was OMR 146 million. Similarly, the CAPEX has augmented by OMR 57 million which is around 30% higher compared to the last year.
The financial performance of MEDC in comparison to the previous year is as follows:
2.2 Operational Performance
In 2014 the customer base grew by 9% to 284,625 customers. In addition, the boost in the customer base steered to an increasing in the regulated units sold which has grown by 8% to 8,651 GWh (Excluding Bulk Load). For the second year on sequence, MEDC
has succeeded to lower the losses beyond the Authority’s sat target by 0.3% to reach 8.7%. Figures (3, 4, 5) show the Customer Accounts, Regulated Units distributed & Distribution System Losses respectively.
Financial Performance (RO Mn)
Revenue EBIT PAT CAPEX
250
200
150
100
50
0
209228
28
2013 2014
442426
57
22
Customer Accounts
239,870
261,480
284,625
2012
290,000
280,000
270,000
260,000
250,000
240,000
230,000
220,000
210,000
2013 2014
Regulated Units Distributed(Gwh)
7,541
8,023
8,651
2012
9,000
8,500
8,000
7,500
7,000
6,500
2013 2014
Distribution System Losses
12.86%
9.2%8.73%
2012
14%
12%
10%
8%
6%
4%
2%
0%
2013 2014
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2.3 Tariff revenue
The category wise energy consumption & sales revenue is tabulated as follows:
Table 1: Category wise Energy Consumption & Tariff Revenue
Category Customer No. Units Distributed (GWh) Revenue (OMR million )
2012 2013 2014 2012 2013 2014 2012 2013 2014
Domestic 183,176 199,742 216,795 3,591 3,857 4,189 44 47 52
Commercial 48,986 53,562 59,213 2,068 2,118 2,329 41 42.3 47
Government 7,495 7,732 8,042 1,318 1,442 1,615 34 37.5 42
Others 213 444 575 565 606 555 9 9.4 9
Regulated Units Distributed (GWh)
Domestic Commercial Government Others
4,500
4,000
3,500
3,000
2,500
1,500
1,000
500
0
2012 2013 2014
Domestic customers account for 48% of the total units billed and 35% of the sales revenue in 2014 which had increased comparing to 2013. The 2014 Tariff wise composition of RUD and Electricity Sale Revenue is shown in below Figures:
2.4 Subsidy
The following figures show the net subsidy received by the company in 2014. Net subsidy received during 2014 has increased by 14 % as compared to 2013. This significant increase is attributed to the increment of Purchase Cost which was by the same percentage.
Table 2: Subsidy and economical subsidy
Item 2013
OMR (‘000)2014
OMR (‘000)
Subsidy (Net) 62,680 71,476
Economic Cost 193,303 211,591
Subsidy % Economic Cost
32% 34%
Regulated Units Distributed (GWh), Tariff wise
Domestic
Commercial
Government
Others
48%
27%
19%
6%
Revenue (OMR Mn)
Domestic
Commercial
Government
Others
35%
31%
28%
6%
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
12
10
8
6
4
2
02012 2013
Year
2014
Subsidy OMR Mn
Net Subsidy 2014
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120
100
80
60
40
20
-
2012 2013 2014
Collection OMR Mn
94 96103
3437
41
Private Government
54
52
50
48
46
44
42
40
38
128127127126126125125124124123123
2012 2013
Year
RO M
ln
2014
Receivables & DSO
Receivables DSO
Day
s
2.5 Receivables
Receivables increased from OMR 47 million in 2013 to OMR 52 million in 2014, an increase of 10% approximately. Collections have increased to OMR 144 million in 2014, which is higher than 2013 by 8%.
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Price Control Mechanism
2012-2014
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The third Price Control took effect starting from 1st of January 2012 and has been ended in 31st of December 2014. The third period of the price control mechanism maintained the basic principle to determine the Maximum Allowed Revenue which the company is allowed to recover from its customers during each year of the controllable period, reflecting the efficient level of costs to provide certain output. The difference between the actual economic cost and actual regulated revenue received from the customers is recovered through the government subsidy.
During the third Price Control (2012- 2014) review, the Authority proposed separate controls for Distribution & Supply businesses. The Authority also introduced the Distribution Use of System Charges (DUoS) that would facilitate the full recovery of distribution business economic cost from Supply Business and provided conceptual frame work of the Distribution and Supply businesses.
In view of above, and to promote efficiency, the Authority maintained the system losses incentive
scheme and introduced the network security incentive scheme. Furthermore, the Authority imposed an efficiency factor of 2% annually from the notified values.
MEDC concluded the third Price Control period (2012- 2014) with an investment in its capital worth OMR 125 million. Furthermore, MEDC managed to meet the Regulator target to reduce system losses to reach up to 9% by 2014, where MEDC recorded a system losses percentage of 8.73 in 2014.
In addition, during 2014, the Authority for Electricity Regulation, Oman (Authority) has initiated the fourth Price Control Review (PCRIV) consultation process for Muscat Electricity Distribution Company (MEDC). As part of this process, MEDC has submitted a range of information on its forecasted demand and costs as well as other information. This information was presented through a Proforma spread sheet. In addition, MEDC has been asked to answer number of narrative questions on specific topics where the Authority requires more detailed information or clarifications.
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BusinessStrategy
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4.1 Asset Management
4.1.1 PAS55 Asset Management
During 2014, the company continued the working in the Asset management as part of the company strategy and the following key achievements were materialized this field:
• MEDC met and exceeded the target score of 2 out of 4 during the gap analysis in October by achieving a score of 2.2.
• The Asset Management Committee was established at the beginning of the year and met seven times during the year discussing various technical performance issues, approving documents as per of the AM system and planning the Annual technical seminar. The gap analysis audit highlighted the importance of the AMC to the correct functioning of the AM system in MEDC.
• MEDC’s Asset Management Policy was approved by the company’s board and published with some communication events around it and a quiz on it with all staff at the Annual Technical Seminar.
• The computerized maintenance management system, Maximo, was launched in early April with over 10,000 work orders entered into the system by year end. The system covers three main areas of MEDC work activities: the annual maintenance plan planned switching (outages) & interruptions on system to calculate CAIDI in real time.
• Nearly 70 relevant staff members in MEDC in the departments of AM, DCC and zones were fully trained in the use of Maximo and all are now regular users of the system.
• Asset Management Dept. organized the 2nd Annual Technical Seminar of MEDC in which discussed several areas of MEDC performances and resulted outcomes that shall be taken in companies New Year (2015) plans. Attendance was excellent with nearly 75% of staff from the networks business unit attending.
• The method to collect data and calculate the true CAIDI figure for MEDC was worked on throughout the year and great progress was made with the year end audit only highlighting minor items to correct in the CAIDI methodology. The target figure for the year was met and improved on and the final true figure for CAIDI for MEDC in 2014 was 90 minutes. This will be the starting point for further improvement in 2015.
• MEDC was highlighted in an audit by AUTHORITY’s consultants as having the most practical and value-for-money asset management systems and plans. All allowances requested in PCR4 for further development of AM activities was approved in the initial proposals by AUTHORITY.
4.1.2 SCADA Project
The year 2014 has witnessed rapid progress for MEDC SCADA project from approval of system components and system design. The approval of system design lead to successful completion of factory acceptance at PSI AG Germany and dispatch of the system to Oman. Backup control Centre (BCC) is selected to be at KOM 4 a premise which is highly secure and well-connected in terms of infrastructure. System is delivered, installed and powered at BCC in KOM4 in August and by September Site is made ready and led to Acceptance Test which is witnessed by MEDC and is conditionally accepted. SCADA Training programs for DCC Control engineers were conducted during the month of September.
On the front of Control Units (RTUs), 96 RTUs are installed and 60 of 96 RTUs locally commissioned successfully. GPRS Connectivity solution as backup communication carrier is achieved from Omantel and for 8 substations link is setup via GPRS to DCC/BCC. With this link set up, these 8 substations are rigorously tested and commissioned with DCC/BCC. Backbone for Telecom is revised and selected to have 1GB Based on MPLS-TP and fiber connectivity for Telecom is going to achieved with fibers from Oman Broadband Company.It is expected that DCC/BCC SCADA System shall go live from operational point of view by early by quarter 1 2015 .
4.1.3 Geographic Information System (GIS)
The GIS system contains all of the asset information as well as its location in the governorate. 2012/3 saw the completion of the field capture and population resulting in almost 90% data capture in the system. In 2014, an ongoing program of checking and verifying the quality of the data took place achieving the target of 10% of assets field checked and verified by the end of the year.
4.1.4 Projects
4.1.4.1 Major projects under implementation
During 2014 the company started number of projects with expected cost of 45.1 million. The table below shows the major projects under construction during 2014.
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Table 4: Major projects under implementation
No. ProjectApproved
Cash (Awarded)
1Construction Of 3x20 MVA, 33/11 KV Primary Substation at Saraya Bandar. (Sponsored)
3.8
2 Construction of 33/11kV PSS at Bait-Al-Falaj 2.1
3 Upgrading of Azaibha South-1 PSS 3.2
4 Construction of 33/11kV PSS at Khwair South 08 2.2
5 Upgrading of Al Khuwair south-3 PSS 1.2
6 Construction of 33/11kV PSS at Airport Height 04 2.0
7 Construction of 33/11kV PSS at Misfa 04 2.4
8 Upgrading of Al Khuwair North-1 PSS 1.6
9 Construction of 33/11kV PSS at Mubayallah South 07 2.1
10 Construction of 33/11kV PSS at Seih Dhabi 03 2.1
11 132/33 kV GSP at Ghala(Sheared with OETC) 0.8
12 132/33 kV Grid at Amarat, Mabella-2 (Sheared with OETC) 1.9
13 Construction of 33kV Switching station at Rusayl 3.2
14 Upgrading of Mawalleh south-01 & 02 PSS 1.3
15 Construction of 33/11kV PSS at Hail south 3 & AlKhouth 6 4.3
16 Construction of 33/11kV PSS at SQU 3 (Sponsored) 1.8
17 Construction of 33/11kV PSS at Jabel Seiffah (Sponsored) 5.5
18 Construction of 33/11kV PSS at Ghoubra North 02 2.0
19 Load shifting of Quram PSs 1.1
20 Laying of 11kv Cable interconnection for shifting the load from wadi adai PSS 0.5
Total 45.1
4.2 Customer Services
The year 2014 was a promising year to the Supply Team considering the Implementation and progress of Strategic projects aims to give a complete uplift to the Customer Service Delivery in the company. MEDC closely monitoring the progress, performance of new systems, analyzing customer feedback and also working with the vendors to develop the project to the expected level of service. Automated Meter Reading (AMR) Project is going through the planning/consultation phase as per the authority directives and EHC guidelines and related consultancy tender has been already floated. Customer Service Blue Print consultancy completed the resource mapping to bring specialization and more focus in the functional area. Renegotiation, close coordination and continuous improvement in MRBC services quality is a major achievement during the year 2014. With the coordinated efforts of MEDC’s Supply team, sustainable growth was demonstrated in other areas of operations,
improving the services, and ultimately aiming at Customer Satisfaction as a whole.
4.2.1 Supply Business overview 2014
We at MEDC believe that voice of the customer will help in understanding our customers’ needs. We have then, introduced a dedicated customer service improvement set of initiatives, to address all the aspects that could be important for our customers. We have introduced a state of the art meter reading system to manage and control the meter reading data management inside out, which will be reflected positively on the existing meter reading levels.
Currently we are launching our new billing system which will provide flexible billing solutions, In addition to enhancing the levels of accuracy provided to our customers. We have launched customer centric website to provide an easy customized service at customers’ fingertip, on the purpose of decreasing customers’ efforts processing any of their queries. We have also revamped and equipped our call center with a dynamic IVR (interactive voice response) to provide a personalized service 24/7. We are not only working on systems and technological solutions but also we are working on a radical organizational development in the supply side by introducing an integrated and progressive customer service blueprint, which will change the way we do things matching worldwide best practices in the utility industry and for sure meeting our escalating customers’ demands.
A customer satisfaction has been held this year to uncover the areas of improvements and put customer needs as our future plans, we have decided then to perform a periodical customer satisfaction survey to enhance the communication channel between customers and MEDC and also to inject customers’ requirements in our initiatives and/or plans. Our customer satisfaction is our ultimate objective and we will keep escalating and improving our service levels to meet and exceed their needs.
4.3 Distribution Loss
Distribution Loss Management is mainly an operational performance target of MEDC’s Supply Business and its functional departments in general. Authority for Electricity Regulation (Authority) has determined the following Annual losses targets for the Period Price Control II & III period for MEDC.
During the second consecutive year, MEDC could achieve Authority target for distribution Losses with the clear guidance and coordinated efforts of the task teams/working groups during the year 2014.
As part of Loss minimization initiatives and strategy, MEDC reconstituted the Central loss minimization team (CLMT) in 2014/sub-committees and working groups. CLMT headed by CEO to give strategic direction and plan for the execution team. Following are the key areas
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covered through LMT program during the year 2014;
• Monthly/Quarterly RUT validation at energy entry points with OETC/DISCOs
• Improvement in Meter Reading/Billing by OIFC
• Quick replacement of old age meters with new digital meters with the help of Contractors
• Conducted external consultancy study (SKM)on MEDC’s Assets & Networks on the internal governance of Technical & Non-Technical loss management.
• Conducted frequent inspections/investigations for the continuous average/abnormal billing cases to account/bill the energy consumption during 2014.
• Close monitoring and reviewing the Loss minimization initiatives to give strategic direction in Loss Localization Project and other leading KPIs in this relation and
• Auditing, due-diligence and validation of energy accounting.
Yearly reduction target set by Authority for MEDC is 1% for the year 2014. Non achievement or shortfall in target by 1% will attract a penalty of approx. RO 788,846 per annum. The company was able to achieve the set target by the regulator during last two
consecutive years (2013-2014). The yearly target for the year 2014 is 9% and the achieved level is 8.73%. It is worthwhile mentioning that the reduction of 0.44% from last year level of 9.17% was due to the collective effort additional contribution of the team members. Following table shows Year to date Comparison of Distribution Losses as reported in the Audited financial statements
During 2014, MEDC had conducted independent study/audit through leading consultants in different areas of Distribution Loss management and controls. Following are the reports/studies in this regard;
• KEMA Audit on Energy entry point s (RBS audit) –Final report dated July 2014
• SKM (Jacobs) Loss Study on MEDC’s Distribution Loss on Network & assets (Technical & Non-Technical) - Final report dated Nov 2014 and
• KEMA (DNV-GL) workshop to MEDC team regarding the international best practices on loss measurement, accounting and its minimization initiatives. Program was conducted during Dec 2014.
We are sure that the above pro-active steps to adapt the best practices in the industry and also to bring effectives for loss governance may become more fruitful from 2015 onwards to align the vision of Authority.
4.4 Human Resources
2014 was the second execution year of Business Plan 2013-2017 focused on 5 core strategic pillars where Human Resources strategy forms a foundation for other strategies. In the Human resources Pillar, the Company has focused on enhancing the Omani workforce by restructuring for a more efficient operating model, promoting within, providing development opportunities, sharing knowledge, and rewarding exceptional achievements. MEDC Human Resources strategy clearly supports the overall corporate vision of people empowerment. 2014 has been a year with significant contribution towards review, planning and preparations of implementation plan for Integrated Talent Management Framework in order to acquire the People Capability Maturity Model, Level 3 (PCMM Level 3). Some of the major milestones covered in this project include review and approval of competency framework, new comprehensive performance management systems which will be implemented in a phased manner.
4.4.1 Staff& Omanisation
Figure below reveal staff growth for the past two years reflecting commitment to maintain and exceed Omanisation Targets.
4.4.2 Recruitment
In 2014, (67) vacancies have been filled by internal and external candidates. In which, (43) positions created as new positions and (24) positions were created as replacement for employees who left the company or moved to another jobs within the company. Furthermore, (91%) of filled positions were occupied by Omani candidates, while (9%) of hired candidates were non-Omani.
Out of (67) candidates, total of (38) were external candidates and (29) were internal candidates as illustrated below;
600
500
400
300
200
100
0No. of Staff New Join Omanisation
Staff & Omanisation
94 96103
3437
41
2013 2014
501
60
514
37
467 477
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4.4.3 Employees Turnover
In contrast, MEDC has lost in 2014 total of (24) employees. That is, (88%) of them resigned to work somewhere else due to growth in the job market, (8%) passed away and one employee had retired.
YearNumber of Employees
Reason for termination
2014
21 Resignation
1 Retirement
2 Death
24 Total
4.4.4 Training and Development:
Training & Development function continued to support the Vision, Mission and Values of the company by providing focused development which played an essential role in improving performance and individual employees’ abilities to embark on higher responsibilities, support various implementation projects within a range of business functions including Quality Management certification, improved Asset management, enhanced customer centric culture
and SCADA implementation. HR actively obtained insight to ongoing corporate transformation and provided support in terms of people development, so advance technological implementation and enhanced efficiency objectives may be reached through providing comprehensive formal learning opportunities in form of short trainings, conferences and/or intensive trainings.
4.4.5 Improved Planning and alignment:
MEDC has improved its Personal Development planning approach by creating and utilizing the tool of Personal Development plan drawing the individuals’ attention to relevant Competencies and Personal Objectives driven from Key Performance Indicators of Departmental and ultimately organizational score cards.
The tool has been kept rather simple to avoid possible resistance from staff and ensure gradual implementation of the systematic approach of preparing development plan. In addition to keeping a focus on relevant formal development, it has also been emphasized on other activities like on- job assignments, mentoring and reading as part of overall personal development.
4.4.6 Training Execution 2014:
Below reflects standard training categories with engineering being highest focus area for formal training. This has been aimed to improve the competence of Distribution staff in order to operate the network efficiently and build capabilities to support a SCADA based operations. Other dominating categories include HSE as it is a constant priority for MEDC to provide learning in order to ensure both our employees, contractors, customer and general public’s safety.
Below table provides details of formal development offered to MEDC workforce; a target of 40 average development hours has been exceeded by approximately 13.7%
45
40
35
30
25
20
15
10
0External Internal
38
29
50
45
40
35
30
25
20
15
10
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In-House Public Local Overseas
ANNUAL REPORT | 25
Course Category : Training Opportunities
Training Days Hours
In- House 720 1699 10194
HSE 66 352 2112
Public Training Including English Language Proficiency
107 412 2472
Overseas Training 99 539 3234
Sub-Total 992 3002 18012
Scholarship 26 856 5136
Total: 1018 3858.00 23148
NOTE: Number of scholarships here excludes Certifications and PHD.
Total Hours- 6 Hours pr. Day 23148
Average Development Hours 45.48
MEDC in comparison to 42 average development hours in 2013 to 45.48 in 2014 increased its perfromance with regards to offering focused and specialized training within Engineering and functional competencies.
MEDC continued with an overall successful Scholarship program with majority part time students in addition to two fulltime students who acquired Post Graduate degree in Utility Engineering from Curtin Univeristy in Perth Australia. This has added to MEDC talent pool significantly as both their thesis focused on important initiatives that the company has emabrked on. Acquired knwoledge through active research is expected to benefit MEDC in its endeavours in addition to providing career progression to the indviduals.
4.5 Quality Health, Safety, Security and Environment (QHSSE)
This section highlights QHSSE performance during 2014 with challenge and achievements. The different steps in this division set the grounds for an effective implementation of the QHSSE management systems implementation within the company and paved the way for cultural safety changes toward a more stringent implementation of the QHSSE policies and regulations.
4.5.1 2014 QHSSE Statistics Summary
In 2014, regretfully one incident happened during April which resulted in one fatality within MEDC contractors.
4.5.2 QHSSE initiatives
QHSSE specifically within MEDC has accomplished efficaciously several initiatives during 2014. The most important achievement is that, MEDC had successfully been certificated against three international certifications as integrated management systems: OHSAS 18001, ISO 14001, & ISO 9001.
4.5.3 MEDC Safety Rules & QHSSE Training
QHSSE organized training sessions to utilize this reporting system which started by training QHSSE staff and followed by MEDC contractors in MEDC head office to enhance their knowledge and to efficiently start using this system for reporting all safety statistics
The company has executed a number of HSE training courses for its staff and the contactors staff. The following table illustrates the courses given to staff.
HSE Training Courses:
Course2014
No. Courses
No. Attendees
HSE Induction 5 58
Defensive Driving Awareness
5 58
Fire Extinguisher & Fire Warden
5 56
First Aid & CPR 5 56
Risk Assessment Awareness
5 46
4.6 Communications
Corporate communications is a key strength in any organization’s growth, both internally and externally. MEDC continues its focus on both aspects to benefit our employees and external stakeholders in providing a transparent and well informed medium of communication.
MEDC is focused on engaging all the internal and external through the relevant mediums, which include face to face meetings, email communication, newsletters, press releases, issuing magazines, radio channel engagement, TV interviews, interaction with MEDC outlets and other channels that present an opportunity for an enhanced engagement experience.
MEDC also aims to promote its own communication mediums through multiple internal communications ideas that help connecting its employees internally such as MEDC News, MEDC Face, MEDC Tube and MEDC Tweet.
1200
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| ANNUAL REPORT26
MEDC has also seen notable interaction with events organized in 2014 such as the Blood donation Campaign, the involvement with Al Rahma charity to maintain the air conditioner of the poor families and many other notable campaigns in the year.
4.6.1 Internal Communication
Internal communication aims at facilitating knowledge sharing among staff as well as enhancing the team spirit and strengthening the corporate culture within the organization. Facilitating knowledge within the employees in MEDC is also a key objective while utilizing internal communication.
Through 2014, MEDC aimed to enhance the experience of its employees through the following mediums:
• Conducting and analyzing the Employee Engagement Survey together with Nama Group of Companies
• Streamlining Group Communication and Sustainability
• Connecting employees through earlier mentioned mediums (MEDC News, MEDC Face, MEDC Tube and MEDC Tweet
4.6.2 External Communication and CSR
External communication aims to engage customers and other stakeholders in a two way focused approach to improve the MEDC experience. Customer interaction is highly regarded in this two way approach as the customer experience influences the company’s strategy, and therefore external communication must focus on engaging MEDC’s customers to better educate and showcase MEDC’s efforts for a reliable and efficient service experience.
This also includes the company’s CSR initiatives which aim to better the society through funding programs as well as engaging MEDC employees to participate in sustainability and benefiting society.
MEDC aimed to enhance the external communications in 2014 through the following mediums
External Campaigns
• Managing the “Omannuna Amana” National Campaign for the protection of vital services and public properties
• Leading a Business Scrap workshops in different willayahs (Musact, Nizwa, Ibra, Salalah, Al Buraimi & Sohar) which was main activities of the “Omannuna Amana” campaign.
• Organizing an educational campaign on illegal electricity connection
Customer Services Relation Campaigns
• Sponsorship of a book portfolio in coordination with MOE for Muscat Schools which includes electricity safety & conservation brochure.
• Signing a memorandum of understanding between MEDC & MOE for mutual cooperation.
• Coordination with Al Rahma charity to maintain the air conditioner of the poor families
• Coordinating the Knowledge Sharing Conference with the “Omanuna Amana” work paper
• Participate in the Injaz Oman program and the Shirkati project
4.7 Board of Directors
The approved corporate governance regulation contributed to setting a boundary between the main roles and functions of the Chairperson, directors, Chief Executive Officer, and employees of the company. The Board is responsible for overseeing how the management serves the interests of the company and its shareholders in the long run as well as key stakeholders. Through collective action, the Board manages the organization and ratifies and reviews the policies and strategies that support the goals to ensure the fulfillment of the company’s goals.
4.7.1 Composition of the BOD
The Board comprises of 5 members nominated by the Electricity Holding Company SAOC and Ministry of Finance pursuant to the article no 21 of the Articles of Association of the Company.
The board membership and number of meetings are illustrated in table below:
ANNUAL REPORT | 27
Table 5: Board composition and meetings
Name Position No. of meeting Attendance
Ms. Manal Mohammed Al Abdwani Chairperson
4
3
Mr. John R Wright Deputy Chairperson 4
Mr. Haitham Abdulla ALKarosi Member 4
Mr. Mahmoud Jallad Member 2
*Mr. Mustafa Ali Sulaiman Al Lawati Member 1
Ms. Amal Al Jabri Member 2
Mr. Mustafa has resigned from the new BOD (attending only one meeting), and Ms. Amal Jabri is in his place.
4.8 Committees
4.8.1 Internal Tender Committee (ITC)
The Board has approved during 2012 that the Internal Tender Committee’s composition to be from the Executive Management and chaired by the Company CEO. This decision has been executed based on the Power given to the Board on the Corporate Governance.
Table 6: Internal Tender Committee composition
Name Position No. of meeting Attendance
Mr. Abdullah Bin Said Al Badri Chairperson
34
25
Mr. Mansoor Bin Talib Al Hinai Deputy chairman 28
Mr. Ali Bin Juma AL Mashrafi Member 23
Mr. Mohammed Bin Humaid AL Yahyaei Member 29
Mr. Salim Bin Musallam Al-Rijabi Member 21
4.8.2 Audit Committee Report to the Board for the year 2014
The Members of the Audit Committee comprise 3 Non Executive Directors appointed from the Board. All of whom have Financial or Commercial experience at a Senior Management level.
The Committee met 5 times during the year ended December 31st 2014. Other attendees from time to time, at the invitation of the Committee, include other Board Members, the Chief Executive and other Members of the Management. Internal Audit are always in attendance. The External Auditor is present for the annual results discussion and is free to attend at any time. All of the Meetings were quorate.
The Audit Committee is responsible inter alia for ensuring the integrity of the Company’s Accounts and Financial Reporting Systems. The development of Risk Management processes and over viewing of these is also a key element.
In order to meet these responsibilities the following key functions are considered:-
• Approving the appointment of the External Auditors, ensuring their independence, and recommending
their appointment to the Board. Reviewing and agreeing their Audit Plan and confirming that they have full access to all required documents and individuals. Ensuring that, in the course of their Audit, they focus on any possible instances of financial fraud or fictitious Accounting practice. They also comment upon the effectiveness based on their Audit of the internal control systems. The Committee assesses annually the effectiveness of the External Auditor and reports on this to the Board of Directors.
• The Committee is responsible for over viewing the Internal Audit Function ensuring that it is adequately staffed with appropriately qualified individuals. It agrees the Internal Audit Plan for the year and requires Management to ensure availability on a timely basis of all relevant documentation.
• Any changes to the Internal Audit Plan during the course of the year are approved by the Audit Committee. Through the reports from Internal Audit the Committee satisfies itself as to the effectiveness of the internal control environment in the Company and the ability of Management to carry out remedial action required on an efficient and timely basis.
| ANNUAL REPORT28
• The Committee overseas the development of the Risk Register for the Company and recommends this to the Board for its approval. This is subject to regular review. This process is relatively new in our Company and we are on something of a learning curve although 2015 should see the Risk Register being fully developed and operational across the Company. At the same time a Risk Appetite Statement will be developed and recommended to the Board for its approval.
• Generally the Committee will ensure that the Policies & Procedures in respect of related party transactions are followed specifically and that the Company’s liquidity is managed carefully noting that up until now there is some stress in this regard given the strong emphasis on Debt financing as opposed to Equity. This is fully discussed with the Board.
Beyond carrying out the above responsibilities the Committee during the year has taken keen interest in the development of an in-house Internal Audit Team and recruits have been added to the Team during the year. This has been support through a partially outsourced arrangement with a leading Accounting firm. It’s hoped that the in-house Team will be able to take full responsibility for Internal Audit by meddle of 2015.
The effectiveness of our Internal Audit Function has improved steadily during 2014. This will be further enhanced with the recent appointment of an Internal Audit expert namely Mike Smith who has joined only in January. He brings a vast amount of expertise and will be instrumental in developing our in-house Internal Audit Team to appropriate standards during the course of his tenure”.
Table 7: Internal Audit Committee composition (new)
Name Position No. of meeting Attendance
Mr. John R Wright Chairperson
4
4
Mr. Haitham Abdulla ALKarosi Member 4
*Mr. Mustafa Ali Sulaiman Al Lawati Member 1
Ms. Amal Al Jabri Member 3
*Mr. Mustafa has resigned from the new BOD (attending only one meeting), and Ms. Amal Jabri is in his place.
4.8.3 Human Resources Committee (HRC)
The Human Resources Committee is responsible to ensure efficient and credible Human Resources practices and decisions within the company. The committee contributes towards policy and decision making in order to support the engagement, development and efficient management of company’s human resources.
The committee held two meetings and the attendance details are given below.
Table 8: Human Resources Committee composition
Name Position No. of meeting Attendance
Ms. Manal Mohammed Al Abdwani Chairperson
1
1
Mr. Hassan Mohammed Jawad Abdwani Deputy Chairperson 1
Mr. Mustafa Ali Sulaiman Al Lawati Member 1
Mr. Abdullah Said Al-Badri Member 1
NEW HRC _ First meeting held Thursday, July 03, 2014
Mr. Haitham Abdullah Al Kharousi Chairperson
NEW HRC _ First meeting held Thursday, July 03, 2014
Mr. Haitham Abdullah Al Kharousi Chairperson
2
2
Ms. Amal Humaid Al Jabri Deputy Chairperson 2
Mr. Mahmoud Jallad Member 2
Mr. Abdullah Said Al-Badri Member 2
Mr. Ali Juma Al Mashrafi Member 1
Mr. Mubarak Saif Al Jahwari Member 2
ANNUAL REPORT | 29
***Total 3 meetings were held in 2014. New BOD and HRC members attended 2 and previous HRC members attended 1.
4.9 Remuneration of the BOD and key management personnel compensation
The company paid OMR 568,932 towards remuneration of company’s staff which includes director’s remuneration of OMR 51,400 during the year 2014.
The table below shows the board remuneration paid during the year.
Table 9: Remuneration of the BOD
Details Amount(OMR)
Sitting fees paid for Board 21,400
Total Sitting fees 21,400
Bonus for the year 2014 30,000
Total Board Remuneration 51,400
4.10 Non-Compliance by the company
The Company for the first time and due to distribution system security standard noncompliance for some areas has been penalized for R.O 684,000.
4.11 Communication with Shareholders
Pursuant to a Royal Decree 78/2004 the company maintains close liaison with Electricity Holding Company and Ministry of Finance (MOF), the shareholders on various policy issues. The company’s Annual Report will be sent to the shareholders.
Distribution of Shareholding
Table 10: Company Shareholders
ShareholdersShareholding
OMR Percentage
Electricity Holding Company SAOC 499,950 99.99
Ministry of Finance 50 0.01
Total Share Capital 500,000 100.00
4.12 Statutory Auditors
M/s Deloitte were the Statutory Auditors of the Company during 2014.
Financials report andstatements
| ANNUAL REPORT30
ANNUAL REPORT | 31
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC
Report and financial statementsfor the year ended 31 December 2014
Pages
Independent auditor’s report 1 - 2
Statement of financial position 3
Statement of profit or loss and other comprehensive income 4
Statement of changes in equity 5
Statement of cash flows 6
Notes to the financial statements 7 - 41
| ANNUAL REPORT32
Independent auditor’s report to the shareholders of Muscat Electricity Distribution Company SAOC
Report on the financial statements
We have audited the accompanying financial statements of Muscat Electricity Distribution Company SAOC (the “Company”) which comprise the statement of financial position as at 31 December 2014, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 3 to 41.
Board of Director’s responsibility for the financial statements
The Board of Directors (the “Board”) is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the Commercial Companies Law of 1974, as amended and for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Deloitte &Touche (M.E) & Co. LLCMuscat International CenterLocation: MBD AreaP.O.Box 258, RuwiPostal Code 112Sultanate of Oman
Tel: +968 24817775Fax: +968 24815581www.deloitte.com
ANNUAL REPORT | 33
Independent auditor’s report to the shareholders of Muscat Electricity Distribution Company SAOC (continued)
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Muscat Electricity Distribution Company SAOC as of 31 December 2014 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Report on other legal and regulatory requirements
Also, in our opinion the financial statements comply, in all material respects, with the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended.
| ANNUAL REPORT34
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 3Statement of financial positionat 31 December 2014
Notes2014
RO ’0002013
RO ’000
ASSETS
Non-current assets
Property, plant and equipment 5 343,746 296,813
Current assets
Inventories 6 3,589 3,493
Trade and other receivables 7 61,537 51,909
Cash and cash equivalents 9 1,702 2,724
Total current assets 66,828 58,126
Total assets 410,574 354,939
EQUITY
Capital and reserves
Share capital 10 500 500
Legal reserve 11 167 167
General reserve 12 250 250
Retained earnings 73,632 53,367
Shareholder’s funds 13 91,791 91,791
Total equity 166,340 146,075
LIABILITIES
Non-current liabilities
Amounts due to holding company 14 34,500 34,500
Provisions 15 1,760 1,664
Deferred tax liability 16 11,747 10,010
Deferred revenue 17 34,116 29,179
Total non-current liabilities 82,123 75,353
Current liabilities
Trade and other payables 18 58,042 41,949
Other liabilities 8 5,185 9,996
Bank overdrafts 19 1,035 3,549
Provisions 15 754 738
Provision for current tax 20 1,279 1,488
Deferred revenue 17 816 791
Short-term borrowings 21 95,000 75,000
Total current liabilities 162,111 133,511
Total liabilities 244,234 208,864
Total equity and liabilities 410,574 354,939
ANNUAL REPORT | 35
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 4Statement of profit or loss and other comprehensive income for the year ended 31 December 2014
Notes 2014RO’000
2013RO’000
Revenue 22 225,721 204,829
Cost of sales 23 (182,718) (163,371)
Gross profit 43,003 41,458
General and administrative expenses 24 (19,270) (17,581)
Other income 26 2,272 4,428
Profit from operations 26,005 28,305
Finance income 27 56 58
Finance costs 28 (1,592) (1,375)
Profit before tax 24,469 26,988
Taxation 20 (2,904) (3,421)
Profit for the year and total comprehensive income 21,565 23,567
The accompanying notes form an integral part of these financial statements.
| ANNUAL REPORT36
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ANNUAL REPORT | 37
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 6Statement of cash flowsfor the year ended 31 December 2014
2014RO’000
2013RO’000
Cash flows from operating activities
Profit before tax 24,469 26,988
Adjustments for:
Depreciation 11,372 10,258
Write off of trade and other receivables - (712)
Profit on retirement of property, plant and equipment (13) -
Reversal of decommissioning obligation - (2,574)
Provision for doubtful debts 541 1,045
Provision for employee benefits 112 239
Revenue on customer contributed assets (1,689) (973)
Deferred revenue amortised (816) (835)
Operating cash flows before employee working capital changes
33,976 33,436
Working capital changes due to:
Inventories (96) (736)
Trade and other receivables (10,169) (1,831)
Other current assets - 5,056
Trade and other payables 16,093 (13,724)
Other current liabilities (4,811) 9,996
Cash flows generated from operating activities 34,993 32,197
Income tax paid (1,376) (2,633)
Net cash from operating activities 33,617 29,564
Cash flows from investing activities
Purchase of property, plant and equipment (56,616) (39,477)
Deferred revenue 5,778 3,736
Proceeds from sale of property, plant and equipment 13 -
Net cash used in investing activities (50,825) (35,741)
Cash flows from financing activities
Net short-term borrowings 20,000 10,000
Bank overdraft repaid (2,514) (1,104)
Dividends paid (1,300) (1,000)
Net cash from financing activities 16,186 7,896
Net change in cash and cash equivalents (1,022) 1,719
Cash and cash equivalents at the beginning of the year
2,724 1,005
Cash and cash equivalents at the end of the year 1,702 2,724
The accompanying notes form an integral part of these financial statements.
| ANNUAL REPORT38
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 7Notes to the financial statementsfor the year ended 31 December 2014
1. General
Muscat Electricity Distribution Company SAOC (the “Company”) is a closely held Omani joint stock company registered under the Commercial Companies Law of Oman.
The establishment and operations of the Company are governed by the provisions of the Law for the Regulation and Privatisation of the Electricity and Related Water Sector (the “Sector Law”) promulgated by Royal Decree 78/2004.
The Company is primarily undertaking regulated distribution and supply of electricity in the Muscat region under a license issued by the Authority for Electricity Regulation, Oman (AER).
The Company commenced its operations on 1 May 2005 (the “Transfer Date”) following the implementation of a decision of the Ministry of National Economy (the “Transfer Scheme”) issued pursuant to Royal Decree 78/2004.
Muscat Electricity Distribution Company SAOC is a 99.99% subsidiary of Electricity Holding Company SAOC (the “Holding company”), a company registered in the Sultanate of Oman and 0.01% is held by the Ministry of Finance, of the Government of Sultanate of Oman.
ANNUAL REPORT | 39
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 8Notes to the financial statementsfor the year ended 31 December 2014 (continued)
2. Adoption of new and revised International Financial Reporting Standards (IFRS)
2.1 New and revised IFRSs applied with no material effect on the financial statements
The following new and revised IFRSs, which became effective for annual periods beginning on or after 1 January 2014, have been adopted in these financial statements. The application of these revised and new IFRSs have not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements.
• Amendments to IAS 32 Financial Instruments: Presentation relating to application guidance on the offsetting of financial assets and financial liabilities.
• Amendments to IAS 36 recoverable amount disclosures: The amendments restrict the requirements to disclose the recoverable amount of an asset or CGU to the period in which an impairment loss has been recognised or reversed. They also expand and clarify the disclosure requirements applicable when an asset or CGU’s recoverable amount has been determined on the basis of fair value less costs of disposal.
• Amendments to IAS 39 Financial Instruments: Recognition and Measurement, Novation of Derivatives and
Continuation of Hedge Accounting. The amendment allows the continuation of hedge accounting when a derivative is novated to a clearing counterparty and certain conditions are met.
• Amendments to IFRS 10, IFRS 12 and IAS 27 – Guidance on Investment Entities on 31 October 2012, the IASB published a standard on investment entities, which amends IFRS 10, IFRS 12, and IAS 27 and introduces the concept of an investment entity in IFRSs.
• IFRIC 21 Levies – addresses the issue of when to recognise a liability to pay a levy.
| ANNUAL REPORT40
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 9Notes to the financial statementsfor the year ended 31 December 2014 (continued)
2 Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)
2.2 New and revised IFRSs in issue but not yet effective and not early adopted
New and revised IFRSs
Amendments to IFRS 7 Financial Instruments: Disclosures relating to disclosures about the initial application of IFRS 9.
IFRS 7 Financial Instruments: Additional hedge accounting disclosures (and consequential amendments) resulting from the introduction of the hedge accounting chapter in IFRS 9.
IFRS 9 Financial Instruments (2009) issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 Financial Instruments (2010) revised in October 2010 includes the requirements for the classification and measurement of financial liabilities, and carrying over the existing derecognition requirements from IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 Financial Instruments (2013) was revised in November 2013 to incorporate a hedge accounting chapter and permit the early application of the requirements for presenting in other comprehensive income the own credit gains or losses on financial liabilities designated under the fair value option without early applying the other requirements of IFRS 9.
Finalised version of IFRS 9 (IFRS 9 Financial Instruments (2014)) was issued in July 2014 incorporating requirements for classification and measurement, impairment, general hedge accounting and derecognition.
IFRS 9 (2009) and IFRS 9 (2010) were superseded by IFRS 9 (2013) and IFRS 9 (2010) also superseded IFRS 9 (2009). IFRS 9 (2014) supersedes all previous versions of the standard. The various standards also permit various transitional options. Accordingly, entities can effectively choose which parts of IFRS 9 they apply, meaning they can choose to apply: (1) the classification and measurement requirements for financial assets: (2) the classification and measurement requirements for both financial assets and financial liabilities: (3) the classification and measurement requirements and the hedge accounting requirements provided that the relevant date of the initial application is before 1 February 2015.
Effective for annual periodsbeginning on or after
When IFRS 9 is first applied
When IFRS 9 is first applied
1 January 2018
ANNUAL REPORT | 41
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 10Notes to the financial statementsfor the year ended 31 December 2014 (continued)
2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)
2.2 New and revised IFRSs in issue but not yet effective and not early adopted (continued)
New and revised IFRSs
IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:
• Step 1: Identify the contract(s) with a customer.
• Step 2: Identify the performance obligations in the contract.
• Step 3: Determine the transaction price.
• Step 4: Allocate the transaction price to the performance obligations in the contract.
• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Under IFRS 15, an entity recognises when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.
Annual Improvements to IFRSs 2012 - 2014 Cycle that include amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34.
Amendments to IAS 16 and IAS 38 to clarify the acceptable methods of depreciation and amortization.
Amendments to IFRS 11 to clarify accounting for acquisitions of Interests in Joint Operations.
Amendments to IAS 16 and IAS 41 require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16.
Effective for annual periodsbeginning on or after
1 January 2017
1 July 2016
1 January 2016
1 January 2016
1 January 2016
| ANNUAL REPORT42
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 11Notes to the financial statementsfor the year ended 31 December 2014 (continued)
2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)
2.2 New and revised IFRSs in issue but not yet effective and not early adopted (continued)
New and revised IFRSs
Amendments to IFRS 10 and IAS 28 clarify that the recognition of the gain or loss on the sale or contribution of assets between an investor and its associate or joint venture depends on whether the assets sold or contributed constitute a business.
Amendments to IAS 27 allow an entity to account for investments in subsidiaries, joint ventures and associates either at cost, in accordance with IAS 39/IFRS 9 or using the equity method in an entity’s separate financial statements.
Amendments to IFRS 10, IFRS 12 and IAS 28 clarifying certain aspects of applying the consolidation exception for investment entities.
Amendments to IAS 1 to address perceived impediments to preparers exercising their judgment in presenting their financial reports.
Annual Improvements to IFRSs 2010 - 2012 Cycle that includes amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38 and IAS 24.
Annual Improvements to IFRSs 2011 - 2013 Cycle that includes amendments to IFRS 1, IFRS 3, IFRS 13 and IAS 40.
Amendments to IAS 19 Employee Benefits clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.
Effective for annual periodsbeginning on or after
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 July 2014
1 July 2014
1 July 2014
The directors anticipate that the adoption of the above standards and interpretations in future periods will have no material impact on the financial statements of the Company in the period of initial application.
ANNUAL REPORT | 43
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 12Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies
Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards, (IFRS) and the requirements of the Commercial Companies Law of 1974 as amended.
Basis of preparation
These financial statements are prepared on the historical cost basis except for certain financial instrument which are initially recognised at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for leasing transactions that are within the scope of IAS 17 and decommissioning provision within the scope of IAS 37.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.
As at 31 December 2014, the Company’s current liabilities exceeded its current assets by RO 95.283 million (2013 – RO 75.385 million). The Holding company has confirmed that it will provide the necessary financial support to enable the Company to continue to operate as a going concern for the foreseeable future and to discharge its liabilities to other parties, as they fall due. Accordingly the financial statements are prepared on a going concern basis.
| ANNUAL REPORT44
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 13Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Revenue
Revenue represents the sale of electricity to the Government, commercial and residential customers within the Company’s distribution network, revenue recognised in respect to customer contributed assets in accordance with IFRIC 18 and other electricity related revenue. Total revenue in excess / (deficit) of the maximum allowed by the regulatory formula in accordance with the licensing requirements is deferred to the subsequent year and is shown as other current liabilities / (other current assets).
Other income includes meter connection fees, tender fees, fines and application of deferred revenue on customer contributions and is accounted on an accrual basis.
Cost of sales
Electricity purchases
The bulk supply tariff represents the purchase cost of electricity from Oman Power and Water Procurement Company SAOC, a related party.
Transmission use of system charges
The transmission use of system charges represent the charges payable to Oman Electricity Transmission Company SAOC, a related party, for the transmission of electricity generated by the generation companies into the Company’s distribution network.
Transmission connection charges
The transmission connection charges represent the charges payable to Oman Electricity Transmission Company SAOC, a related party, for connections to the transmission system to cover the capital cost of the connection assets and ancillary assets and the ongoing cost of maintaining the connection assets. Such assets are single user assets, solely required to connect an individual user to the transmission system, which are not and would not normally be used by any other connected party.
ANNUAL REPORT | 45
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 14Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Finance income and costs
Finance income and costs are accounted for on accrual basis.
Foreign currency
Items included in the Company’s financial statements are measured using Rials Omani which is the currency of the Sultanate of Oman, being the economic environment in which the Company operates (the functional currency). The financial statements are prepared in Rials Omani, rounded to the nearest thousand.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss. Borrowing costs which are directly attributable to the acquisition of items of property, plant and equipment, are capitalised.
Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and equipment is capitalised if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. All other maintenance expenditure is recognised in the profit or loss as an expense as and when incurred.
| ANNUAL REPORT46
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 15Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)Property, plant and equipment (continued)
Depreciation
Depreciation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
The principal estimated useful lives used for this purpose are:
Assets Years
Buildings 30
Electricity distribution works 25 - 50
Substations, lines and cables 25 - 50
Other plant and machinery 20 - 50
Furniture, fixtures and vehicles 5 - 7
Plant spares 20
Capital work-in-progress
Capital work-in-progress is stated at cost. When the underlying asset is ready for use in its intended condition and location, work-in-progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with depreciation policies of the Company.
Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining operating profits.
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s statement of financial position when the Company becomes a party to the contractual provisions of the instrument.
Non-derivative financial instruments
Non-derivative financial instruments comprise, trade and other receivables, receivables from related parties, cash and cash equivalents, loans and borrowings, and trade and other payables. Cash and cash equivalents comprise cash balances, call deposits and term deposits with original maturity not greater than three months.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.
Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest rate method, less any impairment losses.
ANNUAL REPORT | 47
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 16Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Impairment
Financial assets
Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
For financial assets, objective evidence of impairment could include:
• significant financial difficulty of the counterparty;
• default or delinquency in payments; or
• it becomes probable that the borrower will enter bankruptcy or financial reorganisation.
Certain categories of financial assets, such as trade receivables that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period as well as observable changes in national or local economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account.
When a trade receivable is considered uncollectible, it is directly written off after obtaining appropriate approvals. Subsequent recoveries of amounts previously written off are credited to the profit or loss.
Non-financial assets
The carrying amounts of the Company’s non-financial assets other than inventories are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indications exist then the asset’s recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or cash generating unit exceeds its value in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. For the purposes of assessing impairment, assets are grouped at the lowest levels for which these are separately identifiable cash flows (cash generating units).
| ANNUAL REPORT48
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 17Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise purchase costs and where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated principally using the weighted average method. Provision is made for slow moving and obsolete inventory items where necessary, based on management’s assessment.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently are stated at amortised cost using the effective interest rate method less impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in profit or loss within “General and administrative expenses”. Subsequent recoveries of amounts previously written off are credited against general and administrative expenses in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amount of cash, which are subject to an insignificant risk of changes in value and have maturity of three months or less at the date of acquisition.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to the Company.
ANNUAL REPORT | 49
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 18Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the profit or loss in the year in which they are incurred.
Customer contributions
Effective from 1 July 2009, the Company has adopted IFRIC 18, whereby customer contributions towards the cost of property, plant and equipment have been recognised in the profit or loss in accordance with the provisions of IFRIC 18.
Taxation
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman.
Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially at the reporting date, and any adjustment to income tax payable in respect of previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis of the tax rates that are expected to apply to the year when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantially enacted by the reporting date. The tax effects on the temporary differences are disclosed under non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. The carrying amount of deferred tax assets is reviewed at reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax is recognised as an expense or benefit in profit or loss except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity.
| ANNUAL REPORT50
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 19Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages, salaries and annual leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of employee benefits are measured at their nominal value using the current remuneration.
Provision for employee benefits is accrued having regard to the requirements of the Oman Labour Law 2003 as amended or in accordance with the terms and conditions of the employment contract with the employees, whichever is higher. Employee entitlements to annual leave are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by employees up to the reporting date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.
End of service benefit for Omani employees are contributed in accordance with the terms of the Social Securities Law 1991 and Civil Service Employees Pension Fund Law. Gratuity for Omani employees who transferred from the Ministry of Housing, Electricity and Water on 1 May 2005 is calculated based on the terms expected to be agreed between the Holding company and the Government. An accrual has been made and is classified as a non-current liability in the statement of financial position.
Provisions
Provisions are 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 it will result in an outflow of economic benefit that can be reliably estimated.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Where some or all of the economic benefits required to settle a provision are expected to be recovered from third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
ANNUAL REPORT | 08ANNUAL REPORT | 51
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 20Notes to the financial statementsfor the year ended 31 December 2014 (continued)
3. Summary of significant accounting policies (continued)
Provision for decommissioning
A provision for decommissioning is recognised when there is a present obligation as a result of activities undertaken pursuant to the Usufruct agreements, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of provision can be measured reliably. The estimated future obligations include the costs of removing the facilities and restoring the affected areas.
In the previous year management decided to derecognise provision for decommissioning cost, as the eventuality of incurring decommissioning costs by the Company appears to be remote at present, given the present set of circumstances, and will become a liability if and when a notice to this effect is issued by the government of Sultanate of Oman or its representative to the Company. Further, since the eventual outflow of resources embodying economic benefits to settle the obligation of decommissioning cost is remote rather than a possibility, the Company is in view that the obligation need not be disclosed as a contingent liability.
Government subsidy
The Government of the Sultanate of Oman has funded the excess of economic costs over customer and other revenue within the Electricity and Related Water Sector. This funding is included in revenue. The Company recognises the subsidy when the right to receive the subsidy is established.
Government grants
Grants from the Government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to construction of assets are included in deferred revenue within non-current liabilities and are credited to profit or loss on a straight line basis over the expected useful lives of related assets.
| ANNUAL REPORT52
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 21Notes to the financial statementsfor the year ended 31 December 2014 (continued)
4. Critical accounting estimates
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas requiring a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are set out below:
Depreciation
Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best estimates.
Allowance for doubtful debts
Allowance for doubtful debts is based on management’s best estimates of recoverability of the amounts due along with the number of days for which such debts are outstanding.
Taxation
The Company has considered revenue arising from customer contributed assets recognised under IFRIC 18, ‘Transfers of assets from customers’ as taxable income based on management discussions with the tax authorities.
Revenue recognition
Due to the occurrence of unforeseen events, a certain portion of the Company’s revenue is estimated rather than based on actual billing. Detailed computations were made on the basis of pre-determined billing patterns and unit usage related criteria in order to arrive at the estimated revenue from those customers where the Company is unable to obtain meter readings. If the actual meter readings for such customers differ from the estimates, the Company’s revenue for the period would impacted to the extent of such differences.
5. Property, plant and equipment
The Company’s property, plant and equipment are constructed on lands leased from the Ministry of Housing, Government of Sultanate of Oman.
ANNUAL REPORT | 53
MU
SCAT
ELE
CTR
ICIT
Y D
ISTR
IBU
TIO
N C
OM
PAN
Y SA
OC
22
Not
es to
the
finan
cial
sta
tem
ents
fo
r th
e ye
ar e
nded
31
Dec
embe
r 20
14 (c
ontin
ued)
5.
Pro
perty
, pla
nt a
nd e
quip
men
t (co
ntin
ued)
Cap
ital
wor
k-in
-pr
ogre
ss
RO ’0
00
Build
ings
RO ’0
00
Elec
trici
ty
dist
ribut
ion
wor
ks
RO ’0
00
Line
s an
d ca
bles
RO ’0
00
Subs
tatio
n as
sets
RO ’0
00
Oth
er
plan
t and
m
achi
nery
RO ’0
00
Furn
iture
, fix
ture
s an
d ve
hicl
es
RO ’0
00
Plan
t
spar
es
RO ’0
00
Dec
omm
i-ss
ioni
ng a
sset
s
RO ’0
00
Tota
l
RO ’0
00
Cos
t
At 1
Jan
uary
201
439
,651
22,9
1510
5,20
710
6,66
078
,928
3,82
33,
932
382
-36
1,49
8
Addi
tions
40,4
6054
13,2
642,
609
882
487
549
--
58,3
05
Tran
sfer
s(1
6,11
8)12
66,
569
4,51
94,
305
467
132
--
-
Dis
posa
ls-
--
--
-(2
8)-
-(2
8)
At 3
1 D
ecem
ber
2014
63,9
9323
,095
125,
040
113,
788
84,1
154,
777
4,58
538
2-
419,
775
Dep
reci
atio
n
At 1
Jan
uary
201
4-
3,91
527
,966
11,4
7917
,336
1,11
72,
797
75-
64,6
85
Cha
rge
for
the
year
-79
74,
401
2,50
52,
952
215
483
19-
11,3
72
Dis
posa
ls-
--
--
-(2
8)-
(28)
At 3
1 D
ecem
ber
2014
-4,
712
32,3
6713
,984
20,2
881,
332
3,25
294
-76
,029
Net
boo
k va
lue
At 3
1 D
ecem
ber
2014
63,9
9318
,383
92,6
7399
,804
63,8
273,
445
1,33
328
8-
343,
746
| ANNUAL REPORT54
MU
SCAT
ELE
CTR
ICIT
Y D
ISTR
IBU
TIO
N C
OM
PAN
Y SA
OC
23
Not
es to
the
finan
cial
sta
tem
ents
fo
r th
e ye
ar e
nded
31
Dec
embe
r 20
14 (c
ontin
ued)
5.
Pro
perty
, pla
nt a
nd e
quip
men
t (co
ntin
ued)
Cap
ital
wor
k-in
-pr
ogre
ss
RO ’0
00
Build
ings
RO ’0
00
Elec
trici
ty
dist
ribut
ion
wor
ks
RO ’0
00
Line
s an
d ca
bles
RO ’0
00
Subs
tatio
n
asse
ts
RO ’0
00
Oth
er
plan
t and
m
achi
nery
RO ’0
00
Furn
iture
, fix
ture
s an
d ve
hicl
es
RO ’0
00
Plan
t
spar
es
RO ’0
00
Dec
omm
i-ss
ioni
ng a
sset
s
RO ’0
00
Tota
l
RO ’0
00
Cos
t
At 1
Jan
uary
201
342
,792
20,1
0087
,495
94,8
5468
,664
3,27
13,
502
382
3,46
932
4,52
9
Addi
tions
24,1
2138
14,0
331,
101
583
132
442
--
40,4
50
Tran
sfer
s(2
7,26
2)2,
777
3,67
910
,705
9,68
142
0-
--
-
Adju
stm
ents
(Not
e 15
)-
--
--
--
-(3
,469
)(3
,469
)
Dis
posa
ls-
--
--
-(1
2)-
-(1
2)
At 3
1 D
ecem
ber
2013
39,6
5122
,915
105,
207
106,
660
78,9
283,
823
3,93
238
2-
361,
498
Dep
reci
atio
n
At 1
Jan
uary
201
3-
3,12
324
,254
9,15
914
,610
952
2,28
556
818
55,2
57
Cha
rge
for
the
year
-79
23,
712
2,32
02,
726
165
524
19-
10,2
58
Adju
stm
ents
--
--
--
--
(818
)(8
18)
Dis
posa
ls-
--
--
-(1
2)-
-(1
2)
At 3
1 D
ecem
ber
2013
-3,
915
27,9
6611
,479
17,3
361,
117
2,79
775
-64
,685
Net
boo
k va
lue
At 3
1 D
ecem
ber
2013
39,6
5119
,000
77,2
4195
,181
61,5
922,
706
1,13
530
7-
296,
813
ANNUAL REPORT | 55
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 24Notes to the financial statementsfor the year ended 31 December 2014 (continued)
6. Inventories
2014RO ’000
2013RO ’000
General spares 3,630 3,534
Provision for inventory obsolescence (41) (41)
3,589 3,493
There is no movement in provision for inventory obsolescence for the current and prior year.
7. Trade and other receivables
2014RO ’000
2013RO ’000
Amounts due from government customers 14,405 13,610
Amounts due from private customers 37,360 33,562
Allowance for doubtful debts (6,410) (6,314)
Net trade receivables 45,355 40,858
Amounts due from related parties (Note 29) 207 200
Prepayments 563 915
Receivable from Government Ministry (Note 29) 5,274 4,062
Other receivables 10,138 5,874
61,537 51,909
Movement in allowance for doubtful accounts
At beginning of the year 6,314 5,981
Bad debts written off (445) (712)
Allowance for doubtful debts 541 1,045
At end of the year 6,410 6,314
The allowance for doubtful debts substantially relates to government and private customers.
Management believes that the other receivables classes within trade and other receivables do not contain impaired assets
The aging of trade receivables has been disclosed in Note 32.
| ANNUAL REPORT56
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 25Notes to the financial statementsfor the year ended 31 December 2014 (continued)
8. Other current assets and liabilities
Other current assets represent revenue receivable on account of short of actual regulated revenue over maximum allowed as per price control formula.
Other liabilities represent revenue in excess of maximum allowed as per price control formula deferred to the subsequent year.
9. Cash and cash equivalents
At beginning of the year 2014RO ’000
2013RO ’000
Cash at bank 1,698 2,721
Cash on hand 4 3
1,702 2,724
10. Share capital
The Company’s authorised, issued and paid-up share capital consists of 500,000 shares of RO 1 each. The details of the shareholders are as follows:
Percentage ofshareholding
Number ofshares issued
2014RO ’000
2013RO ’000
Electricity Holding Company SAOC
99.99% 499,950 499,950 499,950
Ministry of Finance 0.01% 50 50 50
100.00% 500,000 500,000 500,000
11. Legal reserve
Article 106 of the Commercial Companies Law of 1974, as amended requires that 10% of a Company’s net profit be transferred to a non-distributable legal reserve until the amount of the legal reserve becomes equal to at least one-third of the Company’s paid-up share capital. At 31 December 2014, legal reserve was equivalent to one-third of the Company’s share capital and hence no further transfer was made during the year.
ANNUAL REPORT | 57
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 26Notes to the financial statementsfor the year ended 31 December 2014 (continued)
12. General reserve
In accordance with the Company’s policy, an amount not exceeding 20% of the profit after transfer to legal reserve should be transferred to a general reserve until the balance of the general reserve reaches one half of the share capital.
13. Shareholder’s funds
Following the implementation of a decision of the Sector Law and in accordance with the transfer scheme, the Electricity Holding Company SAOC (holding company) received certain assets and liabilities from the Ministry of Housing, Electricity and Water (MHEW) on the transfer date (1 May 2005).
Subsequently, part of the assets and liabilities were transferred to the Company. The value of the net assets transferred is represented in the books as shareholder’s funds and there is no contractual obligation to repay this amount and there are no fixed repayment terms.
14. Amount due to holding company
Amounts due to holding company, represent the interest free loans provided to the Company for capital expenditure projects. The loans do not have a fixed repayment terms and are unsecured.
It is, therefore, impracticable to determine the fair value of the loan and is carried at cost and classified as long-term.
15. Provisions
2014RO ’000
2013RO ’000
Non-current
Employee benefits 1,760 1,664
Decommissioning obligation - -
1,760 1,664
Current
Employee benefits 754 738
Movement in provision for employee benefits
At beginning of the year 2,402 2,163
Charge / (payment) for the year 112 239
At the end of the year 2,514 2,402
| ANNUAL REPORT58
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 27Notes to the financial statementsfor the year ended 31 December 2014 (continued)
15. Provisions (continued)
Movement in provision for decommissioning costs
2014RO ’000
2013RO ’000
At beginning of the year - 5,225
Reversal during the year - (5,225)
At the end of the year - -
In 2013 management decided to derecognise provision for decommissioning cost, as the eventuality of incurring decommissioning costs by the Company appears to be remote at present, given the present set of circumstances, and will become a liability if and when a notice to this effect is issued by the Government of Sultanate of Oman or its representative to the Company.
16. Deferred tax liability
Deferred income taxes are calculated on all temporary differences using a principal tax rate of 12%. The net deferred tax liability in the statement of financial position and the net deferred tax charge to the profit or loss are attributable to the following items:
At 1 January 2014
RO ’000
Charge / (credit) for the year
RO ’000
At 31 December 2014
RO ’000
Deductible temporary difference arising on:
Provision for inventory obsolescence (5) - (5)
Allowance for doubtful debts (758) (11) (769)
Decommissioning asset - - -
(763) (11) (774)
Taxable temporary difference arising on:
Accelerated tax depreciation 10,773 1,748 12,521
10,010 1,737 11,747
ANNUAL REPORT | 59
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 28Notes to the financial statementsfor the year ended 31 December 2014 (continued)
16. Deferred tax liability (continued)
At 1 January 2013
RO ’000
Charge / (credit) for the year
RO ’000
At 31 December 2013
RO ’000
Deductible temporary difference arising on:
Provision for inventory obsolescence (5) - (5)
Allowance for doubtful debts (718) (40) (758)
Decommissioning asset (308) 308 -
(1,031) 268 (763)
Taxable temporary difference arising on:
Accelerated tax depreciation 9,063 1,710 10,773
8,032 1,978 10,010
17. Deferred revenue
Deferred revenue represents Government project funding towards the cost of property, plant and equipment and customer contributed assets before 1 July 2009. These contributions are deferred over the life of the relevant property, plant and equipment. From 1 July 2009 customer contributions other than assets funded by government for the use of the public at large are recognised in accordance with IFRIC 18 ‘Transfers of assets from customers’ and are not deferred.
2014RO ’000
2013RO ’000
Non-current
Deferred revenue 34,116 29,179
Current
Deferred revenue 816 791
18. Trade and other payables
2014RO ’000
2013RO ’000
Trade payables 27,741 20,641
Amount due to related parties (Note 29) 13,849 7,510
Advance from Ministry of Finance (Note 29) 4,546 3,305
Other payables 11,906 10,493
58,042 41,949
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MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 29Notes to the financial statementsfor the year ended 31 December 2014 (continued)
19. Bank overdrafts
The Company has credit facilities with Bank Muscat SAOG including overdrafts to finance the working capital requirements and to support its other operational requirements. Bank overdrafts are repayable on demand and carry interest at commercial rates.
20. Taxation
Income tax is provided as per the provisions of the “Law of Income Tax on Companies” in the Sultanate of Oman after adjusting for items which are non-assessable or disallowed. The tax rate applicable to the Company is 12%. The deferred tax on all temporary differences have been calculated and dealt with in the profit or loss.
The taxation charge for the year comprises:
2014RO ’000
2013RO ’000
Deferred tax for the current year (Note 16) 1,737 1,978
Current tax for the prior year (55) 162
Current tax for the current year 1,222 1,281
Total 2,904 3,421
The Company is liable to income tax in accordance with the income tax law of the Sultanate of Oman at the enacted tax rate of 12% on taxable income in excess of RO 30,000.
The following is a reconciliation of income taxes calculated on accounting profits at the applicable tax rate with the income tax expense for the year: The reconciliation of the accounting profit at the applicable rate of 12% (2013 - 12%) after the basic exemption of RO 30,000 with the taxation charge in the financial statements is as follows:
2014RO ’000
2013RO ’000
Accounting profit before tax 24,469 26,988
Tax on accounting profit before tax at 12% 2,933 3,235
Add tax effect of:
Additional tax incurred for prior year - 162
Tax effect of permanent difference 26 24
Deferred tax on tax losses of prior years, expired
in the current year (55) -
Tax charge for the year 2,904 3,421
ANNUAL REPORT | 61
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 30Notes to the financial statementsfor the year ended 31 December 2014 (continued)
20. Taxation (continued)
Movement in current tax provision is as under:
2014RO ’000
2013RO ’000
Tax payable at beginning of the year 1,488 2,678
Current tax charges 1,167 1,443
Tax paid (1,376) (2,633)
Tax payable at end of the year 1,279 1,488
Tax assessments for the years 2009 to 2013 are pending for assessment by Oman taxation authorities. The Management of the Company believes that additional taxes, if any, related to the open tax year would not be significant to the Company’s financial position as at 31 December 2014.
21. Short term borrowings
2014RO ’000
2013RO ’000
Short-term borrowings 95,000 75,000
Short term borrowings represents (a) short-term loan facility of RO 35 million that has been arranged and sanctioned during 2011 to finance capital expenditure and procurement of assets (including repayment of existing loan for capital expenditure) and drawn during the year 2012 and renewed up to June 2015, (b) Short-term loan facility of RO 60 million, on which the Company has drawn additional 20 million (RO 7.87 million and RO 12.13 million in dual currency loan equivalent to USD 31.50 million) in the current year (drawn RO 30 million in 2012 and RO 10 million in 2013) and renewed up to June 2015, that has been arranged and sanctioned to finance capital expenditure and procurement of assets. These borrowings are secured by letter of guarantee given by Electricity Holding Company SAOC and is expected to be re-financed through long-term credit facilities to be arranged in due course.
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MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 31Notes to the financial statementsfor the year ended 31 December 2014 (continued)
22. Revenue
2014RO ’000
2013RO ’000
Electricity sales to private customers 106,779 98,814
Electricity sales to government customers 41,759 37,479
Government subsidy received 66,739 76,551
Revenue from customer contributed assets 1,689 973
Other operating income 4,017 4,884
220,983 218,701
Add / less: previous year revenue in excess of maximum allowed as per price control formula, reversed during the year
9,996 (5,056)
Add / less: release of system loss / (profit) penalty (gain) for the previous year
(589) 1,180
Add: release of DSSS network system penalty for the previous year 516
Less: revenue in excess of maximum allowed as per the price control formula deferred to next year
(5,185) (9,996)
225,721 204,829
23. Cost of sales
2014RO ’000
2013RO ’000
Purchase of electricity (Note 29) 135,529 118,641
Transmission use of system charge (Note 29) 26,476 25,763
Depreciation 10,889 9,735
Transmission connection charges (Note 29) 6,051 5,861
Repairs and maintenance expenses 1,952 1,880
Spares and consumable expenses 879 749
Other direct costs 942 742
182,718 163,371
ANNUAL REPORT | 63
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 32Notes to the financial statementsfor the year ended 31 December 2014 (continued)
24. General and administrative expenses
2014RO ’000
2013RO ’000
Employee benefit expenses (Note 25) 10,271 9,118
Service expenses 3,748 3,325
Commission 3,269 2,824
Allowance for doubtful debts (Note 7) 541 1,045
Depreciation 483 523
Directors remuneration and sitting fees (Note 29) 51 42
Other expenses 907 704
19,270 17,581
Commission represents amount paid to Oman Investment and Finance Company SAOG for undertaking customer meter reading and billing services and provision of collection facilities.
25. Employee benefit expenses
2014RO ’000
2013RO ’000
Wages and salaries 6,831 6,300
End of service benefits (Note 15) 112 239
Other allowances and benefits 3,328 2,579
10,271 9,118
26. Other income
2014RO ’000
2013RO ’000
Penalties and fines 835 22
Amortisation of deferred revenue 816 835
Sale of forms and tenders 216 64
Reversal of decommissioning obligation - 2,574
Others 405 933
2,272 4,428
| ANNUAL REPORT64
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 33Notes to the financial statementsfor the year ended 31 December 2014 (continued)
27. Finance income
2014RO ’000
2013RO ’000
Interest income 54 58
Foreign exchange gain 2 -
56 58
Interest income is earned on call deposits at commercial rates of interest.
28. Finance costs
2014RO ’000
2013RO ’000
Interest on short-term loans 1,410 1,187
Bank charges 180 149
Interest on bank overdraft 2 39
1,592 1,375
29. Related parties
Related parties comprise the shareholders, directors, key management personnel and business entities in which they have the ability to control or exercise significant influence in financial and operating decisions (other related parties).
The Company maintains balances with these related parties which arise in the normal course of business. Outstanding balances at year end are unsecured and settlement occurs in cash.
ANNUAL REPORT | 65
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 34Notes to the financial statementsfor the year ended 31 December 2014 (continued)
29. Related parties (continued)
Following is the summary of significant transactions with related parties during the year:
(i) Transactions with related parties
2014RO ’000
2013RO ’000
Expenses
Bulk supply tariff to Oman Power and Water Procurement Company SAOC (Note 23)
135,529 118,641
Transmission connection charges to Oman Electricity Transmission Company SAOC (Note 23)
6,044 5,861
Transmission connection charges to Al-Ghubra Power and Desalination Company SAOC (Note 23)
7 -
Transmission use of system charges to Oman Electricity Transmission Company SAOC (Note 23)
26,476 25,763
Accounting service charges to Electricity Holding Company SAOC 155 175
168,211 150,440
(ii) Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise). The compensation for key management personnel during the year is as follows:
2014RO ’000
2013RO ’000
Short term employee benefits 454 482
Post-employment benefits 63 63
Directors remuneration and sitting fees (Note 24) 51 42
568 587
(iii) Amount due to related parties as at 31 December (Note 18)
2014RO ’000
2013RO ’000
Oman Power and Water Procurement Company SAOC 10,112 2,757
Oman Electricity Transmission Company SAOC 3,150 3,954
Electricity Holding Company SAOC 443 724
Mazoon Electricity Company SAOC 22 22
Al-Ghubra Power and Desalination Company SAOC 7 -
Majan Electricity Company SAOC - 13
Rural Areas Electricity Company SAOC 115 40
13,849 7,510
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MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 35Notes to the financial statementsfor the year ended 31 December 2014 (continued)
29. Related parties (continued)
(iv) Amount due from related parties as at 31 December (Note 7)
2014RO ’000
2013RO ’000
Majan Electricity Company SAOC 6 12
Oman Electricity Transmission Company SAOC 194 177
Mazoon Electricity Company SAOC 5 8
Rural Areas Electricity Company SAOC 2 3
207 200
These balances represent costs incurred by the Company on behalf of other entities of the group.
2014RO ’000
2013RO ’000
Amount due to Holding company (Note 14) 34,500 34,500
(v) Balances with the Government of Sultanate of Oman
Receivable from Government Ministry (Note 7) 5,274 4,062
Advance from Ministry of Finance (Note 18) 4,546 3,305
30. Proposed dividend
The Board of Directors of the Company at their meeting held on 18 February 2015 have proposed a cash dividend of RO 3 per share aggregating RO 1,500,000 on the Company’s existing share capital (for the year ended 31 December 2013, dividend of RO 2.6 per share aggregating RO 1,300,000 was proposed and paid as dividend during the year). This dividend is subject to the approval of the Company’s shareholders in the Annual General Meeting.
31. Contingent and operational commitments
2014RO ’000
2013RO ’000
Capital commitments 19,295 18,680
Operating lease commitments
Not more than 1 year 378 333
More than 1 year but not more than 5 years 141 677
519 1,010
ANNUAL REPORT | 67
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 36Notes to the financial statementsfor the year ended 31 December 2014 (continued)
32. Financial risk management
The Company’s activities expose it to a variety of financial risks: market risk (including price risk, foreign currency risk and interest rate risk), liquidity risk and credit risk. However, the Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance.
Credit risk management is carried out by the Company and liquidity risk and market risk by the holding company’s treasury department under oversight of the Board of Directors. Overall risk management is carried out by covering specific areas, such as market risks, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
Financial risk factorsMarket risk
Price risk
The permitted tariff (prices) for distribution of electricity is determined either by long term agreements with the customer or under the Permitted Tariff Regulations issued by the Public Authority for Electricity and Water (PAEW). Hence, the Company is not subject to significant price risk.
Cash flow and fair value interest rate risk
The Company has call deposits which are interest bearing and are exposed to changes in market interest rates. The Company carries out periodic analysis and monitors the market interest rates fluctuations taking into consideration the Company’s needs.
At the reporting date the interest rate risk profile of the Company’s interest bearing financial instruments were:
2014RO ’000
2013RO ’000
Short-term borrowings 95,000 75,000
Bank overdrafts 1,035 3,549
96,035 78,549
The interest rate on the Company’s overdraft facilities and borrowings is subject to change as and when renewed.
| ANNUAL REPORT68
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 37Notes to the financial statementsfor the year ended 31 December 2014 (continued)
32. Financial risk management (continued)
Financial risk factors (continued)
A 1% increase in interest rates at the reporting date would have decreased profits, on an annual basis, by the amounts shown below.
2014RO ’000
2013RO ’000
Interest expense 960 785
The bank borrowings are at fixed interest rate. These borrowings are carried at amortised cost.
Foreign currency risk
Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. The Company is exposed to foreign exchange risk arising from currency exposures primarily with respect to the US Dollar. The Rial Omani is pegged to the US Dollar. Since most of the foreign currency transactions are in US Dollars or other currencies linked to the US Dollar, management believes that the exchange rate fluctuations would have an insignificant impact on the pre-tax profit.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding from an adequate amount of committed credit facilities. The management maintains flexibility in funding by maintaining availability under committed credit lines.
The table below analyses the Company’s financial liabilities that will be settled on a net basis into relevant maturity grouping based on the remaining period at the reporting date to the contractual maturities date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances, as the impact of discounting is not significant.
ANNUAL REPORT | 69
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 38Notes to the financial statementsfor the year ended 31 December 2014 (continued)
32. Financial risk management (continued)
Financial risk factors (continued)
Liquidity risk (continued)
31 December 2014
CarryingamountRO’000
Less than 1 monthRO’000
1 to 3 monthsRO’000
3 months to 1 yearRO’000
1 year to 5 yearsRO’000
Non-interest bearing:
Trade and other payables 37,708 746 4,652 32,310 -
Due to related parties 13,849 286 13,387 176 -
Amount due to Holding Company 34,500 - - - 34,500
Interest bearing:
Bank overdrafts 1,035 1,035 - - -
Short-term borrowings 95,000 - - 95,000 -
182,092 2,067 18,039 127,486 34,500
31 December 2013
Non-interest bearing:
Trade and other payables 30,342 817 3,695 25,830 -
Due to related parties 7,510 904 6,606 - -
Amount due to Holding Company 34,500 - - - 34,500
Interest bearing:
Bank overdrafts 3,549 3,549 - - -
Short-term borrowings 75,000 - - 75,000 -
150,901 5,270 10,301 100,830 34,500
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. The credit risk of the Company is primarily attributable to trade and other receivables, bank deposits and bank balances.
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MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 39Notes to the financial statementsfor the year ended 31 December 2014 (continued)
32. Financial risk management (continued)
Financial risk factors (continued)
Trade and other receivables
The Company’s exposure to credit risk on trade and other receivables is influenced mainly by the individual characteristics of each customer. The Company has established credit policies and procedures that are considered appropriate and commensurate with the nature and size of receivables. Trade receivables primarily represent amount due from government and private customers. The Company has a significant concentration of credit risk as below:
The exposure to credit risk for trade receivables at the reporting date by type of customer is:
2014RO ’000
2013RO ’000
Government customers 14,405 13,610
Private customers 37,360 33,562
51,765 47,172
The age of trade receivables and related impairment loss at the reporting date is:
31 December 2014 31 December 2013
Gross
RO’000
Impairment
RO’000
Past ue but not
impaired
RO’000
Gross
RO’000
Impairment
RO’000
Past ue but not
impaired
RO’000
Not past due 15,456 - - 13,927 - -
30 days to 1 year 29,296 1,650 27,646 27,626 1,322 26,304
More than 1 to 2 years
3,263 2,408 855 3,096 2,942 154
More than 2 years 3,750 2,352 1,398 2,523 2,050 473
51,765 6,410 29,899 47,172 6,314 26,931
Included in the Company’s trade receivables are debtors with a carrying amount of RO 29.899 million (2013: RO 26.931 million) which are past due at the reporting date for which the Company has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable.
ANNUAL REPORT | 71
MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 40Notes to the financial statementsfor the year ended 31 December 2014 (continued)
32. Financial risk management (continued)
Financial risk factors (continued)
Trade receivables are due one month from the date of invoicing.
Investment in bank deposits and bank balances
The Company’s banks accounts and deposits are placed with financial institutions with a minimum credit rating of P-1 (Moody’s Investors Service).
The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at the reporting date is on account of:
2014RO ’000
2013RO ’000
Trade receivables 51,765 47,172
Other receivables 10,138 5,874
Amount due from related parties 207 200
Cash at bank 1,698 2,721
63,808 55,967
Categories of financial instruments
Financial assets
Cash and cash equivalents 1,702 2,724
Trade and other receivables 51,765 47,172
Financial Liabilities
Liabilities held at amortised cost 182,092 150,901
Fair value of financial assets and liabilities
The Management of the Company believes that the fair value of financial assets and liabilities are not significantly different from their carrying values in the financial statements.
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MUSCAT ELECTRICITY DISTRIBUTION COMPANY SAOC 41Notes to the financial statementsfor the year ended 31 December 2014 (continued)
32. Financial risk management (continued)
Capital risk management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to provide an adequate return to shareholders.
The Board’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain future development of the business. The capital structure of the Company comprises share capital, reserves, retained earnings and shareholders’ funds. The Company is not subject to external imposed capital requirements.
The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.
Fair value estimation
The carrying amounts of financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. The fair value of the amount due to Holding company cannot be estimated reliably as it does not carry interest and has no fixed repayment terms.
33. Approval of financial statements
The financial statements were approved by the Board and authorised for issue on
18 February 2015.
ANNUAL REPORT | 73