His Majesty Sultan Qaboos bin SaidPeople Are The Heart Of Our BusinessANNUAL REPORT 2012POWERING THE ECONOMYElectricity Holding Company SAOCRural SystemMain Interconnected System (MIS)Rural Areas Elec. Co. (SAOC)Mazoon Elec. Co. (SAOC)Majan Elec. Co. (SAOC)Muscat Elec. Distribution Co. (SAOC)Salalah Concession AreaAl Gubrah Power & WaterDesalination Company SAOCOman Electricity TransmissionCompany SAOCMuscat Electricity DistributionCompany SAOC Majan Electricity Company SAOCMazoon Electricity Company SAOC Rural Areas Electricity Company SAOCDhofar Power Company SAOGOman Power and WaterProcurement CompanySAOC(OPWP)(MJEC)(MEDC)(MZEC)(OETC)(RAEC)(DPC)Wadi Al Jizzi Power Company SAOC(WJPC)(GPDC)TheElectricityHoldingCompanySAOC(EHC)isajointstockcompanythat wasregisteredintheSultanateofOmanon19October2002.Thecompany commenced commercial operations on 16 September 2003.EHC holds the shares on behalf of the Government in nine companies engaged in the generation, transmission and distribution of electricity and related water services. ABOUT EHC GROUPCONTENTSAbout EHC Group4EHC Group Vision6EHC Group Mission8EHC Values10Board Members12Chairmans Report14CEOs Report16Operational & Financial Review23Financial Highlights24Group Business Performance Review25Subsidiaries Performance Highlights 27Corporate Governance Report30Consolidated Financial Statements37THE EHC GROUP VISIONWe strive to develop and empower our human resources to deliver safe and sustainable electricity solutions to our customers.The Sultan Qaboos Grand MosqueTHE EHC GROUP MISSIONTo provide electricity solutions by optimizing and utilizing its resources through implementing fve critical strategies namely:Human Resource DevelopmentHealth,Safety and Environment (HSE)Customer ServiceAsset ManagementCommunicationMuttrah Corniche, MuscatEHC GROUP VALUES Building strong working relationships. Maintaining a collaborative work climate. Recognizing and celebrating success. Supporting career mobility. Rewarding appropriate team behavior. Keeping commitments and promises. Representing the truth. Acting in the best interests of the customer, company, team and individual. Adhering to the companys ethics. Accurately representing own competencies. Being sensitive to others time. Recognizing contributions made byothers. Supporting work/ life balance needs. Treating others impartially and with dignity. Practicing patience and active listening.TEAM WORKINTEGRITYRESPECT Insisting on high quality. Making quality customer service a top priority. Striving for continuous improvement. Providing timely and constructive performance feedback. Recruiting and developing quality staf. Making customers a top priority. Considering long and short-term customer needs. Delivering on commitments to customers. Taking responsibility for improving customer service.QUALITY Seeking and providing honest feedback. Developing skills. Considering organizational needs. Sharing expertise and experience. Supporting and mentoring others.PROFESSIONALISMCUSTOMER FOCUSMr. Abdulsalam Nasser Al KharousiMEMBERH.E. Abdulmalik Abdullah Al HinaiVICE CHAIRMANMrs. Manal Mohammed Al AbdwaniMEMBERH.E. Mohammed Abdullah Al MahrouqiCHAIRMANElectricity Holding Company S.A.O.C 12BOARD MEMBERSMr. Omar Al-WahaibiCEOMrs. Suhaila Al-FarsiCOMPANY SECRETARYMr. Hassan AbdawaniDEPUTY CEOMr. Saleh Al-RashdiVP GENERATIONMr. John TanEX. MANAGER S&PFrom left to rightMr. Micheal LimEX. MANAGER ITMr. VishwanathCFOMr. Ali Al-AbriEX. MANAGER RISK MANAGEMENTMr. Ibrahim Al-SuleimanyEX. MANAGER HRLEADERSHIP TEAMDear Shareholders,OnbehalfoftheBoardofDirectorsoftheElectricityHoldingCompanySAOC(EHC),Iam pleased to present the annual report for the EHC Group for fnancial year ended 31 December 2012.Operational PerformanceFY2012, the EHC Group has continued to grow strongly contributing to the overall economic de-velopment of the country.Compared to 2011, the number of customers has increased by 8.6% to 790,272, the electricity supplied has increased by 12.8% to 20,960 GWh and the Main inter-connected system losses has marginally increased to 13.8% from 12.8%. The marginal increase in system loss in 2012 is mainly due to the manpower issues faced with the outsourced meter reading and billing contractors. Nevertheless, action has been taken to mediate the situation to improve the meter reading to billing cycle.The group companies have incurred capital expenditure of RO 242 million on network expan-sion compared to RO 286 million in 2011. EHC Group consisted of a staf strength of 2,696 as at 31 December 2012 of which 89% or 2,399 were Omani Nationals compared to 88% Omanisation in 2011.Financial PerformanceThe gross operating revenue of the Group increased by 17.6% from RO 560.3 million in 2011 to RO 659.1 million in 2012, the net proft after tax increased by 36.0% from RO 62.3 million to RO 84.7 million, mainly due to increase in customers numbers and higher consumptions. THEYEARSACHIEVEMENTS ARE THERESULTOFA WELL-DEFINED BUSINESS STRATEGY THATHASSHAPEDTHE COMPANYSSUCCESSOVER ITS SEVEN-YEAR EXISTENCE.Electricity Holding Company S.A.O.C 14CHAIRMANS ReportStrategic DirectionDuring the year, the EHC group has established new Vision, Mission and Values to focus on the following key areas of activities to improve the people capabilities to ultimately strengthen our customer relationship by delivering higher level of customer value added services:1.Human Resource Development2.Health, Safety and Environment 3.Customer Service4.Asset Management5.Communication Major Project DevelopmentTo continue meeting the economic development of the Sultanate of Oman and the customers demand for electricity and related water in the future, the following major initiatives are planned to achieve this:Sur Power ProjectMusandam IPPAl Ghubrah IWP Barka IIISohar II IWPPAcknowledgementsOn behalf of the Board members, I would like to express our sincere gratitude to His Majesty Sul-tan Qaboos Bin Said for his support to the electricity and related water sector and for his strong and wise leadership, which has paved the way for the ongoing development of Oman. Iwouldliketotakethisopportunitytothankallourcustomers,suppliersandallotherswho have contributed to the success of the EHC Group.I also thank our CEO, Mr. Omar Al-Wahaibi and CEOs/GMs of the subsidiary companies, the man-agement team of the Group and all staf of the EHC Group for their dedication and commitment to the continued growth and development of the Group. Mohammed Abdullah Al MahrouqiChairman of the Board of Directors15 Annual Report 2012Dear Shareholders,Through the evaluation of past experiences and people engagement, the Group has collectively developedanewGroupVision,MissionandValuestopavethedirectionandtocommitto progress towards delivery of higher value added services to customers and to secure fnancial sustainability for the future of the sector. TheGroupstrategiesprovidearoadmaptowardsbusinessperformancegoalsforthecoming years. They have been established based on the following pillars:1.Human Resource Development will continue to unfold and develop the talent and capability of the Omani work force to meet the future challenges and developments 2.Health,SafetyandEnvironmentwillensureweremaincommittedtoleading safetypracticesandculturesacrossallofourbusinessesandcontinuedriving improvements in processes, procedures and individual behaviors3.CustomerServicewillcontinuetocreatenewinnovationsandenvironmentto improve the customer services, needs and expectations along with strengthening our customer service team to cultivate the client and customer relationship culture4.Asset Management will improve the asset capability and reliability and continue to focus on minimizing risk and the associated maintenance cost.5.Communicationwillensuretimely,transparentandpositivecommunicationwith all stakeholders to foster a close and co-ordinal relationshipA JOURNEY TO BUILD A BETTER FUTURE THEGROUPAIMSTOSIGNIFICANTLY BOOST THE PEOPLE CAPABILITIES IN THE SECTOR INTODRIVINGPRODUCTIVITY, INCREASING EFFICIENCY, BY ADOPTING INTERNATIONALBESTPRACTICESAND STRENGTHENINGOURCUSTOMER RELATIONSHIP.Electricity Holding Company S.A.O.C 16CEOS ReportThe key part of the journey is the implementation of our new operating model which defnes that all parts of the group should work together to create a faster, less complex and more co-operativeenvironment,therebyenhancingtransparency,managementaccountabilityand enabling rapid corrective action where required.Challenges AheadIn 2013 we will continue laying down the foundation and program designed to unlock our full potential and capabilities. The key challenge is to turn our strategies into action and realize the desired benefts in the future.This challenge can only be overcome by the combination of our unique capabilities and talented management within the Group coming together to deliver the Group to the next phase of achievement.Nevertheless, I am confdent that with the exceptional track record of the Groups Leadership in leading, growing and developing business will ensure successfull delivery of the strategic initiatives. Thank youI would like to thank the Groups Leadership Team for their commitment to the future development of the group and commitment to execute and ensure the success of the Group initiatives.

I would also like to thank all our employees for their hard work, willingness to embrace changes and the remarkable efort and commitment towards achieving a successful 2012.Finally I would like to thank the Board of Directors for their support and guidance.Omar Al-WahaibiCEOWE VALUE PROFESSIONALS WHO ARE CUSTOMER FOCUSED, DELIVERINGQUALITYTHROUGHTEAMWORKTHATISBASED ON RESPECT AND INTEGRITY.17 Annual Report 2012HUMAN RESOURCE DEVELOPMENTEHCGrouphasembarkedonanewLeadership developmentprogramin2012.Tobringalivethe newEHCGroupVision,wehavefocusedontwokey areasbeingthedevelopmentandempowermentof ourpeople.Wefrmlybelievethatthekeyfactorthat diferentiatesasuccessfulorganizationfromtheothers is the competitive edge that its people bring to the table. It is the contribution of our employees that will help the EHCGrouptranslateourorganizationalvisionintoa reality and we wish to reinforce this further.We are committed to our employees development and in 2012 have invested RO 3 million on the Group employees trainingprograms,anamountthathasgrownby34% duringthesevenyearsexistence.Werecognizeand reward the employees through our Takreem program for their valuable contributions.Asapartofourcontinuedefortstostrengthenour leadershipcapabilitiesanddevelopmentofarobust leadershippipeline,wehavelaunchedtheRuwad programin2012,whichidentifeshighperformingand highpotentialemployeesateverylevel,inallgroup companies, to groom them to become the future of EHC Group. EHCGroupaimstotransformitselfintoanEmployerof Choiceandimplement,notonlytheRuwadprogram butalsodevelopanintegratedtalentmanagement frameworkandestablishatraininganddevelopment center to secure and nourish talent. Seventy six percent of EHC Group employees are between 18-40 years of age and the strategic human resource initiatives will support and develop the employees into future leaders.EHCGroupcompanieshavesupportedthelocal development of talent by conducting training programs by having positioned 230 interns during the year. Interns hired during 2012RO 3million230investedonGroupemployees training programs CEO presents a Takreem award to an outstanding employeeElectricity Holding Company S.A.O.C 18HEALTH, SAFETY AND ENVIRONMENTThegroupaccordsspecialattentiontohealth,safety andenvironmentthroughtheimplementationofon-job training and awareness programs. The group aims at developingandimprovingHSEcultureamongitsstaf, contractors,anditsserviceprovidersbyensuringthe implementationofHSEregulationsinallactivitiesand operations. TheHSEstrategicgoalistobeOHSAScertifedbythe endof2017.ThesuccessfulimplementationofHSE policies and procedures will be facilitated through best-in-class IT systems.EHCGroupcompaniesfocusonimprovingthe workingconditionsoftheiremployeesandensurea safeenvironmentforcontractedemployeesthrough policies, procedures, awareness programs and trainings. InFebruary2012,OETCachieved10millionsafeman-hours;thisisthefrstachievementofitskindinthe Oman Electricity Sector.5.9Million6.1Million5.5Million1Fatality Man-HourswithoutLostTimeInjury andZEROLTI/Fatalityincidentsin 2012 across Generation Companies Man-HourswithoutLostTimeInjury and TWO LTI incidents in 2012 across Rural Areas CompaniesMan-HourswithoutLostTimeInjury and TWO LTI incidents in 2012 across Transmission Companycaused to an employee of a contractor for MajanMJEC staf participate in Safety Awareness exhibition19 Annual Report 2012During 2012, EHC group defned and agreed on the frst customerservicepolicy,whichsettheguidelinesfor managing customer relations and defning the priorities of customer service in the distribution companies. Based on this policy the 5 distribution companies devised and establishedacustomerCharterwhichdetailstheinitial commitmenttoprovideexcellentcustomerservicefor electricity customersThedistributioncompaniesimprovedincustomer service by ensuring 95% efciency in receiving customer calls and inquiries. In 2012 EHC Group are using customer satisfaction as one ofitskeyperformanceindicators,andhencehasbeen working consistently to collect customer feedback about theirservicesandmeasurecustomersatisfactionon monthly basis. Recent statistics from surveys conducted bytheDistributionCompaniesshowthatmorethan 80%ofsurveyedcustomershaveratedthedistribution company services between good and excellent.A survey done in June 2012, by EHC through an external consultant, has shown that more than 70% of the surveyed customersareeitherhappyorveryhappywiththeir e-portalexperience,toaccesstheGroupServices.The same survey showed that more than 85% of the surveyed customers found the e-portal user-friendly.EHCgrouphasalsoimplementedacustomerrelation managementsystem(CRM)tobeabletounderstand andbetteranalyzecustomerneedsandrequirements, andtorecordallcustomerinteractionstomakesure thatcustomerrequestsandcomplaintsaretracedand resolved quickly and efectively. In2012EHCgroupwiththehelpofthedistribution companiesconductedacomprehensiveassessmentof the customer service capabilities and potential areas of development in terms staf competencies, core business processesandsystemsandtoolsanddevelopedafully roadmap for customer service development that tackles alltheaspectsofcustomerserviceintheelectricity sector.EHC group is well aware of the importance of customer servicedevelopmenttoensuresustainablegrowth, hencethegroupcreatedastrategicCustomerService Improvementprogramwiththeprimaryobjectivesof improvingcustomerserviceintheelectricitysector through the customer journey and life cycle.CUSTOMER SERVICE95%70%Efciency at CustomerCall Centers85%Customersfndportaluser-friendlyCustomersarehappyor veryhappywithE-Portal experience Launching of a new Customer Service outlet in Muscat City Centre for MEDC80% Customerssaybetween good and excellent service by Distribution companiesElectricity Holding Company S.A.O.C 20TheaimoftheGroupAssetManagementstrategy implementationprogramistoenhancetheasset management systems of the six participating subsidiaries, MEDC,MJEC,MZEC,OETC,RAECOandDPC.Enabling themtobeaccreditedtoPAS55/ISOcertifcation, aninternationalstandardforassetmanagement,by December 2015 in order to provide improved reliability ofsupplytoEHCGroupcustomersandprogressively meet sector compliance obligations. The program is based around 3 key themes of work;Thedevelopmentofthetechnicalasset managementrequirementssuchaspolicy, strategy and process design.Buildingtheinternalassetmanagementpeople capability and capacity within the companies.Providing appropriate asset management IT based tools and techniques. The focus of 2012 was to establish a sound foundation forimplementingbestpracticeassetmanagement systems and has initially focused on: Establishing the appropriate organization structure and accountabilities for asset management.Commenceselectingandappointingstafto newly created asset management roles.Preparecomprehensive3yearimplementation plansbasedonpreviousPAS55gapanalysis recommendations.Design appropriate asset hierarchies to support a futureComputerizedMaintenanceManagement System.Prepareanassociateddataqualityimprovement strategy and plan. Establishingtheperformance,conditionand associated risk of key asset classes.Continuedprogresswithadequatelyresourcingthe asset management function and efective program and project management of the companies implementation plans will be essential in order to ensure that the group target completion date is achieved.ASSET MANAGEMENT80-100% Asset ManagementKPIs achievedThe Companies performed well against the initialAssetManagementKPIsachieving between 80 and 100% of targets.Wewillintroducebestpractice lifecycleassetmanagementtooptimize performance, reduce cost and mitigate risk inordertoimprovereliabilityandmeet our compliance obligations.Transformer at Buraimi21 Annual Report 2012The sustainability and success of the Groups strategy is highly dependent on how it is viewed by key stakeholders and communications function forms a critical part of building, maintaining and protecting such reputations.Efective corporate communications ofers a framework for efective coordination of all internal and external communication. It is therefore critical that a message is transmitted in a coherent, credible and ethical manner.InordertoensuretheestablishmentofbestpracticescommunicationstrategyandpolicyforEHCandgroupof companies, Group Communications and CSR Department has been formulated under EHC to oversee all the group initiatives/issues and provide direction and resources in the following strategic initiatives:1. Knowledge Sharing: To encourage knowledge and best practice sharing within the EHC Group of companies.2. Demand Side Management:a. To infuence customer behavior with the objective of reducing average consumption per customer and the overall peak demand.b. To infuence decision makers in the government to support policies to introduce new building codes and specifcation aiming at reducing electricity consumption.c. Toinfuencedecisionmakersinthegovernmentandbigorganizationstoimplementmeasuretoreduce their organization electricity consumption.d. Todemonstratetothegeneralpublicthesupporttheyaregettingfromthegovernmentthatismaking their life much more comfortable.3. Communication Policy and Processes:a. Enable a streamlined and integrated communications approach to be implemented across EHC internal / external stakeholdersb.Ensuretheintroductionofapracticalandefectivecommunicationsapproachtoseamlesslyengage external stakeholders as a group and as individual subsidiaries4. To utilize the IT toward applying best practice in communication.COMMUNICATION MJEC conduct an energy saving awareness sessionElectricity Holding Company S.A.O.C 2223 Annual Report 2012Key Financials20122011% ChangeEarning Before Interest and TaxRO 000s121,673 82,361 48%Net Proft After TaxRO 000s84,686 62,291 36%Operating Cash FlowRO 000s167,172 227,333 -26%Net Government SubsidyRO 000s199,225 153,444 30%Capital expenditureRO 000s238,656285,510 -16%Total AssetsRO 000s2,176,7081,933,90913%Total EquityRO 000s1,065,203 984,446 8%Key Ratios Earnings Per ShareRO42.34 31.15 36%Operating Cash fow per ShareRO 83.59113.67 -26%Net Assets Per ShareRO 532.60 492.22 8%Key Operations Electricity (MIS) Units GeneratedGWh3,354 3,691 -9%Units PurchasedGWh18,464 15,548 19%Units TransmittedGWh21,041 18,508 14%Units SoldGWh18,503 16,375 13%Distribution Loss%13.812.8 8%Max. Transmission system demandGWh4.44.011%Electricity (Rural*)Units GeneratedGWh1,518 1,840 -18%Units PurchasedGWh1,431 716 100%Units SoldGWh2,4572,138 15%System Loss% 16.7 15.5 8%Water Units GeneratedM CuM52.449.5 6%Units PurchasedM CuM118.098.620%Units SoldM CuM167.8147.8 13%Customers MISNumber695,345 641,137 8%Rural SystemNumber 94,92786,346 10%TotalNumber790,272727,483 9%Staf CountNumber 2,6962,639 2%* Rural System includes RAEC & Salalah systemsOperational HighlightsEnergy SoldIncrease by 13%Water SoldIncrease by 14%Customer NumbersIncrease by 9%Financial HighlightsNet Proft After TaxIncrease by 36%Operating RevenueIncrease by 19%Capital InvestmentDecrease by 7%OPERATIONAL & FINANCIAL OVERVIEWPower sales have increased by RO 33.3 million due to a 9% increase in customer numbers and a 13% growth in consumption.Net subsidy from Government has increased RO 45.7 million caused by increased purchase cost from commissioning of new plants and growth in business infrastructure.OperatingcostshigherbyRO59.1millionmainlydue toincreasedpowerandwaterprocurementtomeetthe increased demand through commissioning of new plants and temporary generation facilities.GeneralandAdministrativeexpenseshigherinlinewith growth in business operations and infationary impact.Taxexpenseincreasedduetoachangeinthetax regulationissuingclarifcationontheaccounting treatment of lease transactions refecting a restrospective impact since 2007.Gross Proft Margins increased due to the impact of new price control allowances, increase in power consumptions andcustomerbaseandefcienciesingenerating companies in the EHC Group.Signifcantdecrease,primarilyduetolowerrecoveryof receivables as a result of the manpower issues faced with theoutsourcedmeterreadingandbillingcontractors andahigheramountofpaymentsmadetocreditors,as compared to 2011.16% Average Growth18% Average Growth26% Average Growth14% Average GrowthElectricity Holding Company S.A.O.C 24FINANCIAL HIGHLIGHTSTotal Customer base has increased by 9% to 790,272. The Major increase is in domestic by 45,161, commer-cial by 14,246 and Government by 1,872. Power production in the group decreased by 12% to 4,872 GWh compared to 5,531 GWh in 2011. This is in line with plant retirement. Power procurement has increased by 22% over 2011 to19,894GWhinlinewiththegrowthindemand, essentially in the MIS region. Commissioning of new plantshasenhancedabilitytoprocure,namelySo-har II, Barka III and Salalah IWPP.Totalelectricitysuppliedreached20,960GWhin 2012 a 13% increase.ELECTRICITY SUPPLIED BY COMPANY (GWH)ELECTRICITY SUPPLIED (GWH)POWER GENERATION AND PROCUREMENT (GWH)CUSTOMER PER COMPANY Industrialcategoryrealisedthelargestgrowth,by 33% , domestic by 11% and commercial by 9%.GROUP BUSINESS PERFORMANCE REVIEW790,27220,960 GWh4,872 GWh19,894 GWh25 Annual Report 2012SUBSIDY (RO MILLIONS) SUBSIDY PER UNIT(RO / MWH)GOVERNMENT SUBSIDY (RO MILLIONS)9.87.78.09.47.1WATER DESALINATED AND PROCUREMENT (MCUM)DISTRIBUTION AND SYSTEM LOSS (%)SUBSIDY PER COMPANY (RO MILLIONS)WATER DESALINATION - During2012waterdesalinatedbythegroup companiesgrewby6%to52.4MCuMwhereas procurement grew by 20% to 118.0 MCuM. WATERPROCUREMENT -- DISTRIBUTION LOSS-MIS- RURAL AREAS SYSTEM LOSSNetGovernmentSubsidyhasincreasedby30% to RO 199.2 million compared to RO 153.4 million in2011duetohigherpurchasecost,growthin infrastructurealongwithanincreaseinvolume procured.118.0 MCuM13.8%16.7%RO 199.2 million52.4 MCuMElectricity Holding Company S.A.O.C 26GROUP BUSINESS PERFORMANCE REVIEWSUBSIDIARIES PERFORMANCE HIGHLIGHTS Activities:Electricity generationAnnual Highlights: Plant availability in summer at 100%.598GWhpowerdeliveredtothegridlowerby23%comparedto 2011. 843,144 man hours without Lost Time Incident.Wadi Al Jizzi Power Company SAOCActivities:Electricity generation and related water desalination.Annual Highlights: Overall plant availability is 85.6% which is 1% higher than 2011. 2,559GWhpowerdeliveredtothegrid,lowerby2%comparedto 2011. Water dispatched 49.8 million m3, higher by 6% compared to 2011.Total man-hours without lost time accident is3.15 million including 0.78 million attributed to on-site contractors.Al Gubrah Power & Water Desalination Company SAOCActivities:Electricity TransmissionAnnual Highlights:Total length of 220KV transmission circuits have increased from 835 circuit-KM in 2011 to 1,345 circuit-KM in 2012. Total length of 132KV transmission circuits increased from 2,970 circuit-KM in 2011 to 3,061 circuit-KM in 2012. Fivenewgridstationsconstructed(BlueCity, Yiti,AlQurum,Muttrahand Sohar PWR GS), additional transformers in Bousher, Seeb, Barka Main, Ibri & Dhank. Maximumtransmissionsystemdemandup8%(4,080MW)andregulated units transmitted up 14% (21,041GWh) as compared to 2011.Oman Electricity Transmission Company SAOC27 Annual Report 2012SUBSIDIARIES PERFORMANCE HIGHLIGHTS Contribution to Group proftActivities:DistributionandSupplyofelectricityandmaintenanceofdistribution networks in the wilayats of ASharqiya, Al-Dhakliyah and South Batinah region.Annual Highlights:23,864 new customers, an increase of 9% over 2011. System loss up to 15.31% from 14.26% in 2011. CAIDI increased to 67 minutes in 2012 from 60 minutes in 2011. Subsidy per unit is 15.51 in 2012 compared to 13.10 in 2011. Subsidy per customer is 279 in 2012 compared to 186 in 2011. Mazoon Electricity Company SAOC Activities:DistributionandSupplyofelectricityandmaintenanceofdistribution networks in the Muscat region.Annual Highlights: 18,322 new customers added to the network, an increase of 8.2 % over 2011. System loss performance of 12.86 %, increased marginaly from 2011 sys-tem loss of 11.76 %.CAIDI decreased to 45.3 minutes in 2012 from 46.7 in 2011. Subsidy per unit is 7.2 in 2012 compared to 4.29 in 2011.Muscat Electricity Distribution Company SAOC Majan Electricity Company SAOCContribution to Group proftActivities:Distribution and Supply of electricity and maintenance of distribution networksinthewilayatofADhahirah,GovernorateofBuraimiand North Batinah region.Annual Highlights: 12,022 new customers added to the network, an increase of 8.0% over 2011. System loss is 13.47% compared to 12.9% in 2011. CAIDI up from 50minutes to 52 minutes in 2012. Subsidy per unit is RO 8.9 in 2012 compared to RO 7.4 in 2011.Electricity Holding Company S.A.O.C 28SUBSIDIARIES PERFORMANCE HIGHLIGHTS Contribution to Group proftActivities:Electricity generation, distribution and supply activities in the Salalah Con-cession area.Annual Highlights:6,260newcustomersaddedtothesalalahnetworksa9%increaseover 2011. System loss is 16.4% compared to 17.3% in 2011. Regulated units sold are 1,897GWh and have increased by 14% over 2011.Dhofar Power Company SAOGContribution to Group proft Activities:Electricity generation, water desalination, and electricity distribution and supply activities in rural areas. Rural Areas Electricity Company SAOCAnnual Highlights: 2,727 new customer added to the network an increase of 12% over 2011. Net power generated and sent out has been increased from 513,039 MWh to 555,808 MWh an 8.3% increase over 2011. Desalinated water generation has increased from 1,413,080 m3 in2011 to 1,985,724 m3 in 2012 mainly due to Duqm Desalination Plant. OPWPs fnancial accounts continue to be materially afected by changes in the accounting treatment of its Power (and Water) Purchase Agreements in line with International Accounting Standards.Activities:Bulk purchase and sale of electricity and related water and supervision of the Salalah Concession Agreement.Oman Power and Water Procurement CompanySAOCAnnual Highlights: Successful commissioning of Salalah IWPP with a production capacity of 445 MW and desalination capacity of 15 MIGD. Early power from the Barka III IPP and Sohar II IPP has signifcantly contributed in meeting the peak demand of the summer 2012.FinalisationofcontractsanddeploymentoftemporarygenerationfortheMain Interconnected System (MIS) and Salalah Power System in order to meet all Loss of Load Hour obligations for the summer 2012. 29 Annual Report 2012The Electricity Holding Company (EHC) recognizes the important role that good corporate governance plays in the smooth and efcient functioning of the company, protecting its interests and enhancing shareholder value. In pur-suing the corporate objectives we are committed to the highest level of governance and strive to foster a culture that values ethical standards, personal and corporate integrity and respect for others.EHCs Corporate Governance Policy has been built on the philosophy and principles outlined in International form and the code of corporate governance issued by the Ministry of Commerce and Industry for SAOG companies, and it is being formally developed to be put in place and shared with EHCs subsidiaries. It is our view that governance is not just a matter for the Board; a good governance culture must be focused throughout the Group.Ministry of FinanceBoard of DirectorsChief Exceutive OfcerDeputy Chief Exceutive OfcerCompany SecretaryFunctional ReportingAdministrative ReportingInternal Audit CommitteeExceutiveHuman ResourcesVice PresidentGenerationExceutive Strategy& PlanningExceutiveInformation TechnologyChief Financial OfcerExceutive Risk ManagementHuman Resource CommitteeShareholderBODExceutivesThe following chart provides an overview on the EHC BoD and its Committees:BoDH.E Mohammed Abdullah Al MahrouqiH.E Dr. Abdulmalik Abdullah Al HinaiMr. Abdulsalam Nasser Al KharousiMrs. Manal Mohammed Al AbdwaniInternal Audit CommitteeH.E Dr. Abdulmalik Abdullah Al HinaiMr. Abdulsalam Nasser Al KharousiMrs. Manal Mohammed Al AbdwaniHuman Resource CommitteeH.E Dr. Abdulmalik Abdullah Al HinaiMrs. Manal Mohammed Al AbdwaniElectricity Holding Company S.A.O.C 30CORPORATE GOVERNANCE REPORTBoard of DirectorsThe BoD represents the shareholder (MOF) and is accountable to them for protecting their interest in accordance withtheSectorLawthroughefectivegovernanceofthebusiness. TheBoDhastheresponsibilityofoverseeing, counselinganddirectingthecorporatemanagerstoensurethattheinterestsoftheGovernmentareserved. The roles of the BoD of EHC for the Group in general are:EstablishingfortheGroup,aframeworkofprudentandefectivecontrolswhichenablerisktobeassessed and managed across the groupSettingstrategicdirectionsforthegroup,ensuringthattheadequatesharedresourcesareinplaceforthe Group to meet its objectives; andSetting the values and standards for the Group, ensuring that the obligations to its shareholders and other stakeholders are understood and met by all the Directors in the Group;Audit CommitteeThe Audit Committee is expected to ensure that adequate processes are in place to ensure compliance with regula-tory requirements, enhance the efectiveness of internal and external auditors through interacting with them and insulating them from the undue infuence of the management, and provide subject matter expertise to the Board on matters of governance and risk. Their objectives are to:Monitor the integrity of the fnancial statements of the company and any formal announcements relating to the companys fnancial performance, reviewing signifcant fnancial reporting judgments contained in them;Review the Companys internal fnancial controls, internal controls and risk management systems;Monitor and review the efectiveness of the Companys internal audit function;Review and monitor the external auditors independence and objectivity and the efectiveness of the audit process, taking into consideration relevant Capital Market Authority regulation, Commercial Companies Law and Sector Law; and any other related law; andAdoptpolicyontheengagementoftheexternalauditortosupplynon-auditservices,takingintoaccount relevant ethical guidance regarding the provision of non-audit services by the external audit frm.Human Resources CommitteeA Human Resources Committee (HR Committee) comprises of two BoD members and members nominated from the management.The HR Committee deliberates matters relating to: Develop and recommend to the BoD policies and procedures regarding selection of BoD Member candidates recommended by shareholders;Develop and annually review the Companys remuneration policy; Review and approve training and development plans recommended by the BoD of each subsidiary for BoD, CEO/GM and executive management;Develop, control, implement and annually revise the human resources and training policy including the fol-lowing:1.An executive remuneration and incentive policy;2.Remuneration of the CEO/GM; and3.Any executive incentive plan.31 Annual Report 2012CORPORATE GOVERNANCE REPORTIn electing Members of the BoD, the terms and conditions issued by the Minister of Commerce & Industry is being be followed taking into consideration the provisions of Article (95) of the Commercial Companies Law, and without prejudice to the contents of the Articles of Association. The Member of the BoD fulflls the following requirements: i.Not be less than 21 years old.ii.Not be a member of a public joint stock or closed company whose principal place of business is in the Sultanate of Oman and practicing similar activities.iii.Not have been declared bankrupt or dissolved unless such case is ceased to exist as per the provisions of the law.iv.Not have been convicted in a felony or criminal act unless rehabilitated.v.Not be unable to settle his debts & obligations to various lenders.vi.It is not permitted to combine the position of CEO/General Manager and the Chairman of the BoD.EHCisledbyastrongandexperiencedBoD.Themembersbringdiversityinexpertiseandperspectivetothe leadership of a complex, highly regulated, Electricity sector.EHC being unlisted joint stock company is guided by the provisions of Commercial Companies Law No. 4/1974 asamended from time to time and its article of association. By virtue of this, the table below lists the members of EHC BoD for 2012:Sl.Member NamePosition in the BOD1H.E. Mohammed Abdullah Al MahrouqiChairman2H.E. Abdulmalik Abdullah Al HinaiVice Chairman3Mr. Abdulsalam Nasser Al KharousiMember4Mrs. Manal Mohammed Al AbdwaniMemberH.E. Mohammed Abdullah Al Mahrouqi: MasterdegreeinInternationalBusinessAdministrationwhichheobtainedfromthe UniversityofBristolU.Kin1998.In1993hegraduatedfromtheEconomicsCollegeof KingSaudUniversity,KingdomofSaudiArabia.CurrentlytheChairmanofthePublic Authority for Electricity and Water. He has been holding the position since the establish-ment of this Authority in September 2007Electricity Holding Company S.A.O.C 32CORPORATE GOVERNANCE REPORTH.E. Abdulmalik Abdullah Al Hinai: Ph.D. in International Relations/Political Economy obtained from the London School of Economics and Political, Sciences (LSE) University of London, UK in 1999. He is currently Advisor to Ministry of Finance.Mr. Abdulsalam Nasser Al Kharousi:Master degree in Business Economic obtained from University of Hull in 2005.Currently, he is a Director General of Budget and Contracts in Ministry Of Finance.Mrs. Manal Mohammed Al Abdwani:Master degree in Business Administration with Distinction obtained from University of Lincloinshire and Humberside UK in 2003.Currently, she is a Director General Planning and Follow up in Ministry of Commerce & Industry.Her main responsibility is participat-ing in setting the strategies for the development of private sector and various economic sectors that are directly supervised by Ministry of Commerce and Industry. 33 Annual Report 2012CORPORATE GOVERNANCE REPORTMember NameMohammed Abdallah Al MahrouqiAbdulmalik Abdallah Al Hinai AbdulsalamNasser Al Kharousi ManalMohammed AbdwaniBoard of Director (BOD)BOD MeetingsDatesChairmanVice ChairmanMemberMember1st BOD Meeting 19-Feb-2012AttendedAttendedAttendedAttended2nd BOD Meeting 04-Mar-2012AttendedAttendedApologiesAttended3rd BOD Meeting 18-Apr-2012AttendedAttendedAttendedApologies4th BOD Meeting 28-May-2012AttendedAttendedAttendedAttended5th BOD Meeting 19-Dec-2012AttendedAttendedAttendedAttendedTotal Number of BOD Attended55 4 4Internal Audit Committee (IAC)IAC MeetingsDates ChairmanMemberMember 1st IAC Meeting 13-Feb-2012Attended Attended Attended2nd IAC Meeting 28-Feb-2012Attended Attended Attended3rd IAC Meeting 28-May-2012 Attended Attended Attended4th IAC Meeting 09-Sep-2012 Attended Apologies Attended5th IAC Meeting 01-Dec-2012 Attended Apologies AttendedTotal Number of IAC Attended 5 35Human Resource Committee (HRC)HRC MeetingsDates ChairmanMember 1st HRC Meeting21-Oct-2012Attended AttendedTotal Number of HRC Attended 117. Remuneration MattersSubject to the applicable law and subject to the approval of the shareholder, it is proposed to pay a yearly remu-neration to the members of the BoD out of the net profts of the fnancial year. Total sitting fees received for meet-ings of the BoD and any subcommittee shall not exceed RO 6,000 for each member as shown in the table below: MEMBERBOARD & COMMITTEE SITTING FEES 2011 BOARDAUDITHRITCGrand Total H.E. Mohammed Abdullah Al Mahrouqi 3,2504003,650 H.E. Dr Abdulmalik Abdullah Al Hinai 2,5002000 400 4,900 Mr. Abdul Salam Nasser Al Kharousi 2,0009002,900 Mrs. Manal Mohammed Abdawani 2,0001,500 3003,800 Grand Total 9,7504,400 700400 15,250 Electricity Holding Company S.A.O.C 34CORPORATE GOVERNANCE REPORTAnnual General Meeting (AGM) refers to the general meeting of the Company which is held annually. Article 120 of the Commercial Company Law mandates EHC to hold an AGM within three months of the end of each fnancial year. It is the policy of EHC that the gap between subsequent AGMs shall not be more than ffteen months.PursuanttoRoyalDecree78/2004,thecompanymaintainscloseliaisonwiththeMinistryofFinance(MOF),the shareholder,onvariouspolicyissues.Annually,thecompanycommunicatesitsannualreporttotheshareholder MOF.EHC was established by the Sector Law and, with the exception of DPC and DGC, has 99.99% ownership of the Sub-sidiaries. EHCs ownership of DPC is 98.74 % and DPC owns 100% of DGC.EHCs primary roles consist of:1.As a majority shareholder in the Subsidiaries, representing the ownership of the Government of the Sultanate of Oman, supporting and implementing the Governments privatization policy;2.As a service provider to the Subsidiaries, providing central accounting and fnancial support services pursuant to EHCs responsibilities under the Sector Law;3.As the holding company for the Group, developing and leading strategy for the Group.As part of its strategic role, EHC is responsible for promoting and developing the highest standards of corporate gov-ernance across the Group and this includes appointing each of the Subsidiary Boards in coordination with the MoF pursuant to the Sector Law and satisfying themselves that an appropriate governance structure is in place within EHC and its Subsidiaries.Percentage of EHC Shareholding35 Annual Report 2012CORPORATE GOVERNANCE REPORTThe company has not paid any penalty and no strictures have been imposed on the company by Ministry of Com-merce and Industry on any matter during the year.The BoD adopts fxed dividend payout policy that provides ample internal fnancial reserves to support the future capital investments. Since the company is fully owned by the Government of the Sultanate of Oman, represented by MOF, EHC directly reports to the shareholder through the MOF.Statutory auditors express an opinion on the fairness with which EHC presents, in all material respects, its fnancial positions the results of its operations, and its cash fows in line with internationally recognized Accounting Stand-ards. PriceWaterhouseCoopers(PWC)weretheStatutoryAuditorsofEHCduring2012.PwCisoneoftheworldslarg-est providers of assurance, tax, and business consulting services.It has been operating in Oman for over 30 years providing a broad spectrum of services to its clients ranging across Assurance, Business Advisory and Tax services.Board of DirectorsSubsidiaries Board of DirectorsCompany SecretaryCompany SecretaryInternal Audit CommitteeInternal Audit CommitteeInternal Tender CommitteeInternal Tender CommitteeHuman Resource CommitteeThe Governance structure adopted by the EHC BoD and its subsidiaries is represented in the following chart:Electricity Holding Company S.A.O.C 36CORPORATE GOVERNANCE REPORTCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012Report of the auditors38 Consolidated statement of comprehensive income39Consolidated statement of fnancial positions40Consolidated statement of changes in equity42Consolidated statement of cash fows43 Notes to the consolidated fnancial statements4537 Annual Report 2012Electricity Holding Company S.A.O.C 38Independent auditors report to the shareholder ofElectricity Holding Company SAOCReport on the consolidated fnancial statementsWehaveauditedtheaccompanyingconsolidatedfnancialstatementsofElectricityHoldingCompanySAOC(the company) and its subsidiaries (together the group) which comprise the consolidated statement of fnancial position as at 31 December 2012, and the consolidated statements of comprehensive income, changes in equity and cash fows for the year then ended, and a summary of signifcant accounting policies and other explanatory information. Directors responsibility for the fnancial statementsThe Directors of the company are responsible for the preparation and fair presentation of these consolidated fnan-cialstatementsinaccordancewithInternationalFinancialReportingStandardsandtheCommercialCompanies Law of 1974, as amended, and for such internal control as the management determines is necessary to enable the preparation of fnancial statements that are free from material misstatement, whether due to fraud or error.Auditors responsibility Our responsibility is to express an opinion on these fnancial statements based on our audit. We conducted our audit inaccordancewithInternationalStandardsonAuditing. Thosestandardsrequirethatwecomplywithethicalre-quirements and plan and perform the audit to obtain reasonable assurance about whether the fnancial statements are free from material misstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthef-nancial statements. The procedures selected depend on the auditors judgement, including the assessment of the risksofmaterialmisstatementofthefnancialstatements,whetherduetofraudorerror.Inmakingthoseriskas-sessments,theauditorconsidersinternalcontrolrelevanttotheentityspreparationandfairpresentationofthe fnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the efectiveness of the entitys internal control. An audit also includes evalu-atingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadeby management, as well as evaluating the overall presentation of the fnancial statements. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion.Opinion In our opinion, the accompanying consolidated fnancial statements present fairly, in all material respects, the fnan-cial position of the group as at 31 December 2012 and its fnancial performance and its cash fows for the year then endedinaccordancewithInternationalFinancialReportingStandardsandtherequirementsoftheCommercial Companies Law of 1974, as amended.10 March 2013Muscat, Sultanate of OmanChartered Accountants Licence No. MH/26 - Management Consultants Licence No. MA/161 - Commercial Register No. 5/30766/1PricewaterhouseCoopers LLPPO Box 3075, Ruwi 112Suites 204-210 Hatat HouseWadi Adai, MuscatSultanate of OmanTelephone +(968) 2455 9110Facsimile +(968) 2456 440820122011NoteRO 000RO 000Revenue 5659,133560,327Operating costs6(466,098)(407,002)Gross proft193,035153,325General and administrative expenses7(84,332)(76,623)Other income912,9705,659Proft from operations121,67382,361Finance income102,4612,492Finance costs11(17,181)(16,068)Proft before tax 106,95368,785Taxation12(22,267)(6,494)Proft for the year84,68662,291Attributable to: Owners of the parent84,68662,291Other comprehensive income for the year: Revaluation loss on hedge instruments131,215(2,135)Total comprehensive income for the year 85,90160,156Attributable to: Owners of the parent85,90160,156The notes on pages 45 to 74 form an integral part of these fnancial statementsReport of the Auditors - page 38.39 Annual Report 2012CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 201220122011NoteRO 000RO 000ASSETS Non-current assets Property, plant and equipment141,607,1121,457,362Goodwill7,0927,092Advance payments1521,26723,148Service concession receivables16 173,069 157,242Bank deposits19 48,31132,7691,856,8511,677,613Current assets Inventories1739,97437,855Trade and other receivables18146,828126,687Bank deposits1970,46131,031Cash and bank balances2062,59460,723319,857256,296 Total assets2,176,7081,933,909 EQUITY Capital and reserves Share capital212,0002,000Legal reserve2212,34212,342General reserve233,0003,000Hedge reserve13(1,860)(3,075)Retained earnings421,123336,989Shareholders funds25628,598633,190Total equity1,065,203984,446LIABILITIES Non-current liabilities Term loan26125,51286,586Finance lease liabilities2749,10253,360Trade and other payables288,13116,058Provision for decommissioning costs2943,34757,689Provision for employee benefts297,9837,040Continued on page 41.The notes on pages 45 to 74 form an integral part of these fnancial statementsReport of the Auditors - page 38.Electricity Holding Company S.A.O.C 40CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 201220122011NoteRO 000RO 000LIABILITIES (continued)Non-current liabilities (continued) Provision for major maintenance294,7034,192Deferred revenue31105,45895,875Hedging defcit138,94010,240Advance from Ministry of Finance3093,545100,025Deferred tax liability3251,30537,872498,026468,937Current liabilities Term loan2611,08610,354Short-term borrowings33305,000190,000Bank overdrafts349,67413,685Finance lease liabilities274,2583,830Trade and other payables28269,322256,511Current tax liability9,2221,766Provision for employee benefts293,6173,166Hedging defcit13 1,3001,214613,479480,526 Total liabilities 1,111,505949,463 Total equity and liabilities2,176,7081,933,909 The fnancial statements on pages 33 to 68 were approved by the Board of Directors on 23 February 2013 and were signed on their behalf by: H.E. Mohammed Abdullah Al MahrouqiH.E. Dr. Abdulmalik Abdullah Al HinaiOmar Khalfan Al WahaibiChairmanDirectorChief Executive OfcerReport of the Auditors - page 38.41 Annual Report 2012CONSOLIDATED BALANCE SHEET (continued)AS AT 31 DECEMBER 2012NoteShareLegal GeneralHedgeRetainedShareholdersTotalMinorityTotalcapitalreservereservereserveearningsfundsinterestequity RO 000RO 000 RO 000RO 000RO 000RO 000RO 000RO 000RO 000 At 1 January 20112,00012,3423,000(940)275,537633,190925,129-925,129Comprehensive income: Proft for the year----62,291-62,291-62,291Other comprehensive income: Fair value adjustment forinterestrate swap contracts---(2,135)--(2,135)-(2,135)Transactions with owners: Acquisition of minority interest----(332)-(332)-(332)Dividend paid----(507)-(507) -(507)At 31 December 20112,00012,3423,000(3,075)336,989633,190984,446 -984,446 At 1 January 20122,00012,3423,000(3,075)336,989633,190984,446 -984,446Comprehensive income: Proft for the year----84,686-84,686-84,686Other comprehensive income: Fair value adjustment for interestrate swap contracts---1,215--1,215-1,215Transactions with owners: Adjustment of receivable towards saleof Rusail Power Company SAOC -----(4,592)(4,592)-(4,592)Acquisition of minority interest-----(51)(51)-(51)Dividend paid -- - - (501)- (501)- (501)At 31 December 20122,00012,3423,000(1,860)421,123628,5981,065,203-1,065,203The notes on pages 45 to 74 form an integral part of these fnancial statementsReport of the Auditors - page 38. Electricity Holding Company S.A.O.C 42CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 201220122011RO 000RO 000Cash fows from operating activities Proft before tax106,95368,785Adjustments for: Depreciation on property, plant and equipment72,80066,832Loss on sale of property, plant and equipment32625Provision for/(write back of ) inventory obsolescence626(600)Provision for doubtful debts1,704851Provision for employee beneft expense1,8237,434Provision for major maintenance511545Interest expense17,18114,369Interest income(2,461)(2,492)Unwinding of decommissioning cost provisions1,2561,699Operating cash fows before working capital changes200,425158,048Payment of end of service benefts(358)Working capital changes: Inventories (2,745)(2,131)Trade and other receivables(26,436)7,428Advance payments1,881574Service concession receivable(15,827)(39,134)Deferred revenue9,58318,738Advance from Ministry of Finance(6,480)38,404Trade and other payables7,59246,112Cash generated from operations167,993227,681 Income tax paid(821)(348)Net cash generated from operatingactivities167,172227,333Cash fows from investing activities Purchase of property, plant and equipment (241,966)(285,510)Proceeds on sale of property, plant and equipment93279Investment in of bank deposits(54,972)(7,325)Interest received2,4612,492Interest paid(17,181) (14,369)Net cash used in investing activities(311,565)(304,433) Continued on page 44.The notes on pages 45 to 74 form an integral part of these fnancial statementsReport of the Auditors - page 38.43 Annual Report 2012CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 201220122011RO 000RO 000Cash fows from fnancing activities Short-term borrowings115,000114,000Term loan availed39,65717,183Settlement of fnance lease liabilities (3,830)(5,043)Minority interest acquisition adjustment(51)(332)Dividend paid(501)(507)Net cash generated from fnancingactivities150,275125,301 Net change in cash and cash equivalents5,88248,201Cash and cash equivalents at the beginning of the year47,038(1,163)Cash and cash equivalents at the end of the year52,92047,038 Cash and cash equivalents at the end of the year62,59460,723 Cash and bank balances(9,674)(13,685)Bank overdraft 52,92047,038The notes on pages 45 to 74 form an integral part of these fnancial statementsReport of the Auditors - page 38.Electricity Holding Company S.A.O.C 44CONSOLIDATED STATEMENT OF CASH FLOWS (continued)FOR THE YEAR ENDED 31 DECEMBER 2012Electricity Holding Company SAOC (the company or parent company) is a closed Omani joint stock company reg-istered under the Commercial Companies Law of Oman on 19 October 2002. TheestablishmentandoperationsofthecompanyaregovernedbytheprovisionsoftheLawfortheRegulation and Privatisation of the Electricity and Related Water Sector (the Sector Law) promulgated by Royal Decree 78/2004.The principal activities of the company comprise the management of Government investments in, and the Privatisa-tion of the Electricity and Related Water Sector in the Sultanate of Oman and provision of certain central services to its subsidiary companies. The subsidiary companies, other than Dhofar Power Company SAOC, (DPC) commenced their operations on 1 May 2005 (the transfer date) following the implementation of a decision of the Ministry of National Economy (the transfer scheme) issued pursuant to Royal Decree 78/2004.The principal activities of the subsidiaries are set out below: Subsidiary companyShareholding percentagePrincipal activities% Al Gubrah Power and Desalination Company SAOC (GPDC)99.99Electricity generation and related waterdesalination. Wadi Al Jizi Power Company SAOC (WJPC)99.99Electricity generation.Oman Electricity Transmission Company SAOC (OETC)99.99Electricity transmission. Oman Power and Water Procurement Company SAOC (OPWP)99.99Bulk purchase and sale of electricity and related water.Muscat Electricity Distribution Company SAOC (MEDC)99.99Distribution and Supply of electricity and maintenanceofdistribution networks in the Muscat region.Mazoon Electricity Company SAOC (MZEC)99.99Distribution and Supply of electricity and maintenanceof distribution networks in the wilayats of ASharqiya,Al-Dhakliyah and South Batinah region.Majan Electricity Company SAOC (MJEC)99.99Distribution and Supply of electricity and maintenanceof distribution networks in the wilayats of ADhahirah,and North Batinah region.Rural Areas Electricity Company SAOC (RAECO)99.99Electricity generation, water desalination, andelectricity distribution and supply activities in Musandam Governate, Alwusta Region, Masirah Island, Khuweima and Qroon area in Sharqiya Region, Aswad area inDahirah Region in the Dhofar Governate, the area outside Dhofar Power Company SAOC authorised area and in theDakhliya Region, the area outside Mazoon Electricity CoSAOC authorised area. Dhofar Power Company SAOC (DPC)98.74Generation, transmission, distribution and supply ofelectricity in the Salalah regionTheseconsolidatedfnancialstatementsrepresenttheresultsofoperationsofthecompanyandalltheabove subsidiaries (together the group).45 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012

The principal accounting policies applied in the preparation of these consolidated fnancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.(a) The fnancial statements are prepared in accordance with International Financial Reporting Standards (IFRS), and on the historical cost basis except for derivative fnancial instruments which are measured at fair value.(b) The preparation of consolidated fnancial statements in conformity with IFRS requires the use of certain criti-cal accounting estimates. It also requires management to exercise its judgement in the process of applying thegroupsaccountingpolicies.Theareasinvolvingahigherdegreeofjudgementorcomplexityorareas whereassumptionsandestimatesaresignifcanttotheconsolidatedfnancialstatementsaredisclosedin note 4.(c) As at 31 December 2012, the groups current liabilities exceeded its current assets by RO 293.622 million (2011 - RO 224.230 million). The parent companys management, on behalf of the group is in the process of obtain-ing long term credit facilities which will be drawn down, as required, in order to meet the groups on-going funding requirements. Accordingly, the net negative current assets position as at the year end is not consid-ered to have an impact on the going concern status. Hence these fnancial statements are prepared on a go-ing concern basis. (d) Standards, amendments and interpretations to existing standards that are not yet efective and have not been early adopted by the company:Anumberofnewstandards,amendmentsandinterpretationstoexistingstandardshavebeenpublishedand are mandatory for the annual accounting periods beginning on or after 1 January 2013 or later periods, but the Grouphasnotearlyadoptedthem.Noneoftheseisexpectedtohaveasignifcantefectontheconsolidated fnancial statements of the Group, except the following set out below:IAS 19 (Amendments), Employee benefts (efective on or after 1 January 2013);IAS 27 (Revised), Separate fnancial statemetns (efective on or after 1 January 2013);IFRS 9, Financial instruments (efective on or after 1 January 2015);IFRS 10, Consolidated fnancial statements (efective on or after 1 January 2013);IFRS 12, Disclosures of interests in other entities (efective on or after 1 January 2013); andIFRS 13, Fair value measurement (efective on or after 1 January 2013).SubsidiariesSubsidiaries are all entities over which the group has the power to govern the fnancial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and efect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.Subsidiaries are consolidated from the date on which control is transferred to the group. They are de-consolidated from the date the control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Electricity Holding Company S.A.O.C 46NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Identifable assets acquired and liabilities and contingent liabilities assumed in a business combination are meas-uredinitiallyattheirfairvaluesattheacquisitiondate,irrespectiveoftheextentofanyminorityinterest. The excess of the cost of acquisition over the fair value of the groups share of the identifable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary, the dif-ference is recognised directly in the consolidated statement of comprehensive income. Inter-company transac-tions, balances and unrealised gains and losses on transaction between group companies are eliminated.Transactions and minority interestsThe group treats transactions with non-controlling interest as transactions with equity owners of the group. For purchases from non-controlling interests, the diference between any consideration paid and the relevant share of the carrying value of net assets of the subsidiary acquired is recorded in equity. Gains or losses on the disposal to non-controlling interests are also recorded in equity.When the group ceases to have control or signifcant infuence, the retained interest in the entity is remeasured toitsfairvalue,withthechangeincarryingamountrecognisedinconsolidatedstatementofcomprehensive income. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest as an associate, joint venture or fnancial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassifed to consolidated statement of comprehensive income.Items included in the fnancial statements of the group are measured and presented using Rials Omani which is the currency of the Sultanate of Oman, being the economic environment in which the company operates (the functional currency). The fnancial statements are prepared in Rials Omani, rounded to the nearest thousand.Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities denominated in such foreign currencies are translated at the rates prevailing on the reporting date. Gains and losses from foreign currency transactions are dealt with in the consolidated statement of comprehensive income.Property, plant and equipment are stated at cost less accumulated depreciation and any identifed 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 benefts embodied within the part will fow to the group, and its cost can be measured reliably. All other repairs and maintenance expenditure is recognised in the consolidated statement of comprehensive income as an expense as and when incurred.DepreciationDepreciation is recognised in the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely re-fects the expected pattern of consumption of the future economic benefts embodied in the asset. 47 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012The principal estimated useful lives used for this purpose are:Assets YearsBuildings30Transmission and related assets20-60Finance lease assets13-20Distribution and related assets20-40Other plant and machinery3-60Decommissioning assets8-50Furniture, vehicles and equipment5-7Plant spares20Capital 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 depreci-ated in accordance with depreciation policies of the group.Goodwillrepresentstheexcessofthecostofanacquisitionoverthefairvalueofthegroupsshareofthenet identifableassetsoftheacquiredsubsidiaryatthedateofacquisition.Goodwillistestedannuallyforimpair-ment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.Financial assets and fnancial liabilities are recognised on the groups consolidated statement of fnancial position when the company and its subsidiaries become a party to the contractual provisions of the instrument.Non-derivative fnancial instruments Non-derivative fnancial instruments comprise trade and other receivables, bank deposits, cash and cash equiva-lents, loans and borrowings, and trade and other payables. Cash and cash equivalents comprise cash balances and call deposits and term deposits with original maturity not greater than three months from the date of place-ment. Bank overdrafts that are repayable on demand and form an integral part of the groups cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash fows. Non-derivativefnancialinstrumentsarerecognisedinitiallyatfairvalueplus,forinstrumentsnotatfairvalue through proft or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative fnancial instruments are measured at amortised cost using the efective interest rate method, less any impairment losses.Electricity Holding Company S.A.O.C 48NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Derivative fnancial instruments The group holds derivative fnancial instruments to hedge interest rate risk exposures. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the consolidated statement of comprehen-sive income when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.Cash fow hedgesChanges in the fair value of the derivative hedging instrument designated as a cash fow hedge are recognised directly in equity to the extent that the hedge is efective. To the extent that the hedge is inefective, changes in fair value are recognised in the statement of comprehensive income.Ifthehedginginstrumentnolongermeetsthecriteriaforhedgeaccounting,expiresorissold,terminatedor exercised,thenthehedgeaccountingisdiscontinuedprospectively.Anygainorlosspreviouslyrecognisedin equityremainsthereuntiltheforecasttransactionoccurs. Whenthehedgeditemisanon-fnancialasset,the amountrecognisedinequityistransferredtothecarryingamountoftheassetwhenitisrecognised.Inother cases, the amount recognised in equity is transferred to statement of comprehensive income in the same period that the hedged item afects proft or loss.Financial assetsFinancial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the fnancial asset, the estimated future cash fows of the investment have been impacted.For fnancial assets, objective evidence of impairment could include:signifcant fnancial difculty of the counterpartydefault or delinquency in paymentsit becoming probable that the borrower will enter bankruptcy or fnancial reorganization.Certain categories of fnancial assets, such as trade receivables that are assessed not to be impaired individually, are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the groups past experience of col-lecting 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 fnancial asset is reduced by the impairment loss directly for all fnancial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account.Whenatradereceivableisconsidereduncollectible,itisdirectlywrittenofasbad.Subsequentrecoveriesof amounts previously written of are credited to the consolidated statement of comprehensive income. 49 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Non-fnancial assetsThe carrying amounts of the groups non-fnancial assets other than inventories are reviewed at each reporting datetodeterminewhetherthereisanyindicationofimpairment.Ifanysuchindicationsexistthentheassets 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 fows are discounted to their present value using a pre-tax discount rate that refects current market assessments of the time value of money and the risks specifed to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognised. Inventories are stated at the lower of cost and net realizable value. Costs comprise purchase cost and where appli-cable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated principally using the weighted average method. Provision is made for slow moving and obsolete inventory items where necessary, based on managements assessment. Tradereceivablesareamountsduefromcustomersformerchandisesoldorservicesperformedintheordinary course of business. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the efective interest rate method, less provision for impairment.Cash and cash equivalents comprise cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignifcant risk of changes in value and have maturity of three months or less at the date of acquisition. Bank overdrafts that are repayable on demand and that form an integral part of the groups cash management is included as a component of cash and cash equivalents for the purpose of the statement of cash fows. In the consolidated statement of fnancial position, bank overdrafts are shown under current liabilities.Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of busi-ness from suppliers. Accounts payable are classifed 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 classifed as non-current liabilities.Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the efective interest rate method.Electricity Holding Company S.A.O.C 50NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are add-ed 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 specifc borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.All other borrowing costs are recognised in the consolidated statement of comprehensive income in the year in which they are incurred.Income tax is calculated as per the fscal regulations of the Sultanate of Oman.

Current tax is the expected tax payable on the taxable income for the year, using the tax rates ruling at the report-ing date. Deferredtaxisprovidedusingtheliabilitymethod,providingfortemporarydiferencesbetweenthecarrying amounts of assets and liabilities for fnancial 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 efects on the temporary diferences 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 profts will be avail-able 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 beneft will be realised. Deferred tax assets and liabilities are ofset as there is a legally enforceable right to set of these in Oman.Current and deferred tax is recognised as an expense or beneft in the consolidated statement of comprehensive income except when they relate to items credited or debited directly to equity, in which case the tax is also rec-ognised directly in equity.End of service benefts are accrued in accordance with the terms of employment of the companys employees at the statement of fnancial position date, having regard to the requirements of the Oman Labour Law 2003 as amended. Employee entitlements to annual leave and leave encashments are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by employees up to the state-ment of fnancial position date. These accruals are included in current liabilities, while that relating to end of service benefts is disclosed as a non-current liability.Gratuity for Omani employees who transferred from Ministry of Housing, Electricity and Water on the transfer date is contributed in accordance with the terms of the Social Securities Law 1991 and Civil Service Employees Pension Fund Law.Contributions to a defned contribution retirement plan for Omani employees in accordance with the Omani Social Insurance Law 1991, are recognised as an expense in the statement of comprehensive income as incurred.51 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Gratuity for Omani employees who transferred from the Ministry of Housing, Electricity and Water on 1 May 2005 iscalculatedbasedonthetermsexpectedtobeagreedwiththeGovernment.Anaccrualforthisliabilityhas been made and is classifed as a non-current liability in the consolidated balance sheet.ContributionstoadefnedcontributionretirementplanforOmaniemployeesinaccordancewiththeOmani Social Insurance Law 1991, are recognised as an expense in the statement of comprehensive income as incurred.Provisions are recognised in the consolidated statement of fnancial position when the group has a legal or con-structive obligation as a result of a past event and it is probable that it will result in an outfow of economic ben-eft that can be reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to settle the present ob-ligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash fows estimated to settle the present obligation, its carrying amount is the present value of those cash fows. A provision for decommissioning costs is recognised when there is a present obligation as a result of activities undertakenpursuanttotheusufructagreements,itisprobablethatanoutfowofeconomicbeneftswillbe requiredtosettletheobligation,andtheamountofprovisioncanbemeasuredreliably. Theestimatedfuture obligations include the costs of removing the facilities and restoring the afected areas.Theprovisionforfuturedecommissioningcostsisabestestimateofthepresentvalueoftheexpenditurere-quired to settle the decommissioning obligation at the reporting date based on the current requirements as per the usufruct agreements. Future decommissioning costs are reviewed annually and any changes in the estimate are refected in the present value of the decommissioning provision at each reporting date. The initial estimate of the decommissioning provision is capitalised into the cost of the asset and depreciated over the usufruct term. Changesintheestimateoftheprovisionfordecommissioningistreatedinthesamemanner,exceptthatthe unwinding of the efect of the provision is recognised as a fnance cost rather than being capitalised into the cost of the related asset.Revenue represents the sale of electricity to the government, commercial and residential customers within the groups distribution network, sale of desalinated water, transmission connection charges and subsidy from gov-ernment. Revenue also includes the funding received from the Ministry of Finance (MOF) in respect of costs relating to the Salalah business of Oman Power and Water Procurement Company SAOC, a subsidiary.Electricity Holding Company S.A.O.C 52NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Revenue is recognised to the extent of maximum allowed revenue (MAR) by the regulatory formula in accord-ance with the licensing requirements. Actual regulated revenue in excess of MAR is deferred to the subsequent year and is shown under trade and other payables. Revenue also includes meter connection fees, tender fees, fnes and application of deferred revenue on contribu-tions and is accounted for on an accrual basis.Revenue from services rendered is recognised in the consolidated statement of comprehensive income in pro-portion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.The Government of the Sultanate of Oman funds the excess of economic costs over customer and other revenue withintheElectricityandRelated WaterSector. Thisfundingisincludedinrevenue. Thegrouprecognisesthe subsidy when the right to receive the subsidy is established. Deferred revenue represents Government project funding towards the cost of property, plant and equipment. These contributions are deferred over the life of the relevant property, plant and equipment.From 1 July 2011 customer contributions other than assets funded by government for the use of the public at large are recognised in accordance with IFRIC 18 Transfers of assets from customers and are not deferred. Operating leasesLeases in which a signifcant portion of the risks and rewards of ownership are retained by the lessor are classifed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease.Finance leasesLeases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classifed as fnance leases. Finance leases are capitalised at the leases commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.Each lease payment is allocated between the liability and fnance charges. The interest element of the fnance costischargedtothestatementofcomprehensiveincomeovertheleaseperiodsoastoproduceaconstant periodic rate of interest on the remaining balance of the liability for each period.53 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Grants from government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all related conditions.Government grants relating to costs are deferred and recognised in the consolidated statement of comprehen-sive income over the period necessary to match them with the costs that they are intended to compensate.Governmentgrantsrelatingtoconstructionofassetsareincludedindeferredrevenuewithinnon-currentli-abilities and are credited to consolidated statement of comprehensive income on a straight line basis over the expected useful lives of related assets.The groups activities expose it to a variety of fnancial risks including market risk (including foreign exchange risk and interst rate risk), liquidity risk and credit risk. However, the groups overall risk management programme fo-cuses on the unpredictability of fnancial markets and seeks to minimise potential adverse efects on the groups fnancial performance.Credit, liquidity and market risk management is carried out by the groups management under policies approved by the board of directors. The board provides principles for overall risk management, as well as policies covering specifc areas, such as forign exchange risk, interst rate risk, credit risk, use of derivative fnancial instruments and non-derivative fnancial instruments, and investment of excess liquidity. (a) Market risk(i) Foreign currency riskForeignexchangeriskariseswhenfuturecommercialtransactionsorrecognisedassetsorliabilitiesarede-nominated in a currency that is not the entitys functional currency. The group is exposed to foreign exchange risk arising from currency exposures primarily with respect to the US Dollar. The Rial Omani is pegged to the US Dollar. Since most of the foreign currency transactions are in US dollar or other currencies linked to the US dollar, management believes that the exchange rate fuctuations would have an insignifcant impact on the pre-tax proft. (ii) Interest rate riskBank depositsThe group has deposits which are interest bearing and are exposed to changes in market interest rates. The group carries out periodic analysis and monitors the market interest rate fuctuations taking into consideration the groups needs in order to manage interest rate risk.Electricity Holding Company S.A.O.C 54NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012 (a)Market risk (continued)(ii) Interest rate risk (continued)A 1% increase or decrease in interest rate on bank deposits would have increased/decreased the proft, by the amounts shown below:20122011RO 000RO 000 Change in bank deposits interest income1,187601BorrowingsThe group has short-term interest bearing liabilities, which expose the group to interest rate risk. At the reporting date the groups interest bearing fnancial instruments was as below:20122011RO 000RO 000Term loan136,59896,940Short term borrowings305,000190,000Bank overdrafts9,674 13,685448,572300,625A1%increaseordecreaseininterestratesoninterestbearingliabilitieswouldhavedecreased/increasedthe proft, by the amounts shown below 20122011RO 000RO 000 Term loan1,116883Short term borrowings2,7701,330Bank overdrafts33 1753,9192,388(b) Liquidity risk Prudentliquidityriskmanagementimpliesmaintainingsufcientcashandtheavailabilityoffundingfromanad-equate amount of committed credit facilities. The management maintains fexibility in funding by maintaining avail-abilityundercommittedcreditlines. Themanagementmonitorsthegroupsliquiditybyforecastingtheexpected cash fows. The table below analyses the groups fnancial liabilities and net-settled derivative fnancial liabilities that will be set-tled on a net basis into relevantmaturity grouping based on the remaining period at the reporting date to the con-tractualmaturitiesdate. Theamountsdisclosedinthetablearethecontractualundiscountedcashfows.Balances due within twelve months equal their carrying balances, as the impact of discounting is not signifcant.55 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012(b) Liquidity risk (continued)The following are the contractual undiscounted cash fows associated with fnancial liabilities:At 31 December 2012CarryingTotalLess1 yearMoreamountcontractualthantothancash fows 1 year5 years5 years RO 000RO 000RO 000RO 000RO 000Non-interest bearing Tradeand other payables277,453277,453269,3228,131- Interest bearing Term loan136,598166,84611,086101,31724,195Short term borrowings305,000305,000305,000--Bank overdrafts9,6749,6749,674--Finance lease liabilities53,36089,86411,55943,58334,722504,632571,384337,319144,90058,917At 31 December 2010CarryingTotal Less1 year Moreamountcontractualthantothancash fows 1 year5 years5 yearsRO 000RO 000RO 000RO 000RO 000Non-interest bearing Tradeand other payables272,569272,569256,51116,058 - Interest bearing Term loan96,940125,60715,23161,64448,732Short term borrowings190,000190,000190,000--Bank overdrafts13,68513,68513,685--Finance lease liabilities57,190101,58811,72545,05044,813357,815430,880230,641106,69493,545The following are the contractual undiscounted cash fows associated with derivatives that are cash fows hedges:Electricity Holding Company S.A.O.C 56NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012(b) Liquidity risk (continued)NegativeNationalLess1 yearMorefairamountthantothanvalue1 year5 years5 yearsRO 000RO 000RO 000RO 000RO 000Notional amount by term to maturityInterest rate swaps: 31 December 201210,24062,8547,97941,17913,696 31 December 201111,45470,3047,45142,34020,513(c) Credit risk Credit risk is the risk of fnancial loss to the group, if a customer or counterparty to a fnancial instrument fails to meet its contractual obligations. The credit risk of the group is primarily attributable to trade and other receiva-bles, service concession receivables, investment in bank deposits and bank balances. Trade and other receivables The groups exposure to credit risk on trade and other receivables is infuenced mainly by the individual charac-teristics of each customer. The group has established credit policies and procedures that are considered appro-priate and commensurate with the nature and size of receivables. Trade receivables primarily represent amounts due from government and private customers. The exposure to credit risk for trade and service concession receivables at the reporting date by type of customer is as below:20122011RO 000RO 000 Government customers (including service concession receivable)2,26,747209,699Other private customers59,59947,607286,346257,306 57 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012(c) Credit risk (continued)The age of trade receivables and related impairment loss at the reporting date is as below: 31 December 201231 December 2011GrossImpairmentPastGrossImpairmentPastdue butdue butnot impairednot impairedRO 000RO 000RO 000RO 000RO 000RO 000Not past due46,785--38,687--Less than 1 month 12,564(204)-11,535(130)11,4051 month to 3 months28,907(640)28,26723,546(276)23,2703 months to 1 year 14,243(1,176)13,06718,525(928)17,5971 year to 5 years183,847(6,290)177,557165,013(5,738)159,275286,346(8,310)218,891257,306(7,072)211,547 Investment in bank deposits and bank balances The group manages credit risk on bank balances by placing balances with reputed fnancial institutions with a minimum credit rating of Baa. The carrying amount of fnancial assets represents the maximum credit exposure. The exposure to credit risk at the reporting date is on account of:20122011RO 000RO 000Service concession receivable173,069157,242Trade receivables (gross)113,277100,064Other receivables21,77216,070Bank deposits118,77263,800Cash and bank balances 62,59460,723489,484397,899 The groups objectives when managing capital are to safeguard the groups ability to continue as a going con-cern, and to provide an adequate return to shareholders. The groups policy is to maintain a strong capital base so as to maintain creditor and market confdence and to sustain future development of the business. The capital structure of the group comprises share capital, reserves, retained earnings, hedge reserves and shareholders funds. The group sets the amount of capital in proportion to risk. The group manages the capital structure and makes ad-justments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. Electricity Holding Company S.A.O.C 58NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012The carrying amounts of fnancial assets and liabilities with a maturity of less than one year are assumed to ap-proximate to their fair values. The fair value of interest rate swap is determined using the mark to market valua-tions available at the reporting date. The fair value of long term loans is considered to approximate to their fair values as they are obtained at market interest rates.ReceivablesThe fair value of non-current trade and other receivables and service concession receivables is estimated as the present value of future cash fows, discounted at the market rate of interest at the reporting date.DerivativesTechniques, such as estimated discounted cash fows, are used to determine fair value for the interest rate swap. The fair value is calculated as the present value of the estimated future cash fows.ThepreparationofconsolidatedfnancialstatementsinconformitywithIFRSrequirestheuseofcertaincriti-calaccountingestimates.Italsorequiresmanagementtoexerciseitsjudgmentintheprocessofapplyingthe groups accounting policies. The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by defnition, seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.The areas requiring a higher degree of judgement or complexity, or areas where assumptions and estimates are signifcant to the fnancial statements are set out below: DepreciationDepreciation is charged so as to write of the cost of assets over their estimated useful lives.The calculation of useful lives is based on managements assessment of various factors such as the operating cycles, the mainte-nance programs, and normal wear and tear using its best estimates.Provision for inventory obsolescenceProvision for inventory obsolescence is based on managements assessment of various factors such as usability, the maintenance programs, and normal wear and tear using its best estimates.Allowance for doubtful debts Allowancefordoubtfuldebtsisbasedonmanagementsbestestimatesofrecoverabilityoftheamountsdue along with the number of days for which such debts are due.Provision for decommissioning costsUpon expiry of the Usufruct agreement, the group will have a legal requirement to remove the facilities and re-store the afected area. The group has estimated the costs of decommissioning the relevant facilities. In addition, the discount rate used in the calculation is subject to estimation. The discount rate and risk rate used in the provision for decommission-ing cost calculation are based on managements best estimates.59 Annual Report 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012Derivative fair valuationThe group holds Interest Rate Swaps (IRS) which are over-the-counter derivative instruments and are not quoted in an active market. Fair values of such instruments are provided by the issuer using valuation techniques (mod-els).Modelsuseobservabledata,totheextentpracticable.However,areassuchascreditrisk(bothownand counterparty),volatilitiesandcorrelationsrequireestimatestobemade.Changesinassumptionsaboutthese factors could afect the reported fair value of fnancial instruments.TaxationThe group has considered revenue arising from customer contributed assets recognised under IFRIC 18, Trans-fers of assets from customers as taxable income based on management discussions with the tax authorities. AccordingtotheguidancereleasedbytheOmantaxationauthorities,thecompanyhasconsideredtheIFRIC 18 revenue as taxable income from 2010 to 2012. Government sponsored projects have been treated as govern-ment grants, and removed from taxation calculations with efect from 2007.Deferred taxationThe group makes provision for deferred tax liability during the term of the power purchase agreement, arising primarily from accelerated tax depreciation and accumulated tax losses.Based on the executive regulations for the treatment of fnance leases issued by the Oman Taxation Authorities on28January2012,themanagementhasconsideredadoptionofIFRIC4andIAS17retrospectivelyfromthe year 2007 for tax purposes.The retrospective adoption of the above change in lease classifcation from operat-ing lease to fnance lease resulted in additional deferred tax charge in these fnancial statements and the corre-sponding efect of liability in the statement of fnancial position. 20122011RO 000RO 000Electricity sales311,574278,234Water sales90,70984,225Government subsidy204,101142,996Funding for operation of Salalah concession48,19734,408Other operating revenue 9,42810,016664,009549,879Adjustment as per price control methodology(4,876)10,448659,133560,327Electricity Holding Company S.A.O.C 60NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012 20122011RO 000RO 000Energy and water purchases 353,770292,621Depreciation and amortisation69,22