His Majesty Sultan Qaboos bin Said

Transcription

1 His Majesty Sultan Qaboos bin Said

2

3 ANNUAL REPORT 2012 People Are The Heart Of Our Business POWERING THE ECONOMY Electricity Holding Company SAOC

4 ABOUT EHC GROUP The Electricity Holding Company SAOC (EHC) is a joint stock company that was registered in the Sultanate of Oman on 19 October The company commenced commercial operations on 16 September EHC holds the shares on behalf of the Government in nine companies engaged in the generation, transmission and distribution of electricity and related water services. Wadi Al Jizzi Power Company SAOC (WJPC) Majan Electricity Company SAOC (MJEC) Muscat Electricity Distribution Company SAOC (MEDC) Oman Power and Water Procurement Company SAOC (OPWP) Mazoon Electricity Company SAOC (MZEC) Oman Electricity Transmission Company SAOC (OETC) Al Gubrah Power & Water Desalination Company SAOC (GPDC) Rural Areas Electricity Company SAOC (RAEC) Dhofar Power Company SAOG (DPC) Rural Areas Elec. Co. (SAOC) Mazoon Elec. Co. (SAOC) Majan Elec. Co. (SAOC) Muscat Elec. Distribution Co. (SAOC) Salalah Concession Area Main Interconnected System (MIS) Rural System

5 CONTENTS About EHC Group 4 EHC Group Vision 6 EHC Group Mission 8 EHC Values 10 Board Members 12 Chairman s Report 14 CEO s Report 16 Operational & Financial Review 23 Financial Highlights 24 Group Business Performance Review 25 Subsidiaries Performance Highlights 27 Corporate Governance Report 30 Consolidated Financial Statements 37

6 THE EHC GROUP VISION We strive to develop and empower our human resources to deliver safe and sustainable electricity solutions to our customers.

7 The Sultan Qaboos Grand Mosque

8 THE EHC GROUP MISSION To provide electricity solutions by optimizing and utilizing its resources through implementing five critical strategies namely: Human Resource Development Health,Safety and Environment (HSE) Customer Service Asset Management Communication

9 Muttrah Corniche, Muscat

10 EHC GROUP VALUES TEAM WORK Building strong working relationships. Maintaining a collaborative work climate. Recognizing and celebrating success. Supporting career mobility. Rewarding appropriate team behavior. INTEGRITY Keeping commitments and promises. Representing the truth. Acting in the best interests of the customer, company, team and individual. Adhering to the company s ethics. Accurately representing own competencies. RESPECT Being sensitive to others time. Recognizing contributions made byothers. Supporting work/ life balance needs. Treating others impartially and with dignity. Practicing patience and active listening.

11 QUALITY Insisting on high quality. Making quality customer service a top priority. Striving for continuous improvement. Providing timely and constructive performance feedback. Recruiting and developing quality staff. CUSTOMER FOCUS Making customers a top priority. Considering long and short-term customer needs. Delivering on commitments to customers. Taking responsibility for improving customer service. PROFESSIONALISM Seeking and providing honest feedback. Developing skills. Considering organizational needs. Sharing expertise and experience. Supporting and mentoring others.

12 BOARD MEMBERS H.E. Mohammed Abdullah Al Mahrouqi CHAIRMAN H.E. Abdulmalik Abdullah Al Hinai VICE CHAIRMAN Mrs. Manal Mohammed Al Abdwani MEMBER Mr. Abdulsalam Nasser Al Kharousi MEMBER 12 Electricity Holding Company S.A.O.C

13 LEADERSHIP TEAM From left to right Mr. Micheal Lim EX. MANAGER IT Mr. Saleh Al-Rashdi VP GENERATION Mr. Hassan Abdawani DEPUTY CEO Mr. Omar Al-Wahaibi CEO Mr. Ibrahim Al-Suleimany EX. MANAGER HR Mr. Ali Al-Abri EX. MANAGER RISK MANAGEMENT Mr. Vishwanath CFO Mr. John Tan EX. MANAGER S&P Mrs. Suhaila Al-Farsi COMPANY SECRETARY

14 CHAIRMAN S Report THE YEAR S ACHIEVEMENTS ARE THE RESULT OF A WELL- DEFINED BUSINESS STRATEGY THAT HAS SHAPED THE COMPANY S SUCCESS OVER ITS SEVEN-YEAR EXISTENCE. Dear Shareholders, On behalf of the Board of Directors of the Electricity Holding Company SAOC ( EHC ), I am pleased to present the annual report for the EHC Group for financial year ended 31 December Operational Performance FY2012, the EHC Group has continued to grow strongly contributing to the overall economic development of the country. Compared to 2011, the number of customers has increased by 8.6% to 790,272, the electricity supplied has increased by 12.8% to 20,960 GWh and the Main interconnected system losses has marginally increased to 13.8% from 12.8%. The marginal increase in system loss in 2012 is mainly due to the manpower issues faced with the outsourced meter reading and billing contractors. Nevertheless, action has been taken to mediate the situation to improve the meter reading to billing cycle. The group companies have incurred capital expenditure of RO 242 million on network expansion compared to RO 286 million in EHC Group consisted of a staff strength of 2,696 as at 31 December 2012 of which 89% or 2,399 were Omani Nationals compared to 88% Omanisation in Financial Performance The gross operating revenue of the Group increased by 17.6% from RO million in 2011 to RO million in 2012, the net profit after tax increased by 36.0% from RO 62.3 million to RO 84.7 million, mainly due to increase in customers numbers and higher consumptions. 14 Electricity Holding Company S.A.O.C

15 Strategic Direction During the year, the EHC group has established new Vision, Mission and Values to focus on the following key areas of activities to improve the people capabilities to ultimately strengthen our customer relationship by delivering higher level of customer value added services: 1. Human Resource Development 2. Health, Safety and Environment 3. Customer Service 4. Asset Management 5. Communication Major Project Development To continue meeting the economic development of the Sultanate of Oman and the customers demand for electricity and related water in the future, the following major initiatives are planned to achieve this: Sur Power Project Musandam IPP Al Ghubrah IWP Barka III Sohar II IWPP Acknowledgements On behalf of the Board members, I would like to express our sincere gratitude to His Majesty Sultan Qaboos Bin Said for his support to the electricity and related water sector and for his strong and wise leadership, which has paved the way for the ongoing development of Oman. I would like to take this opportunity to thank all our customers, suppliers and all others who have contributed to the success of the EHC Group. I also thank our CEO, Mr. Omar Al-Wahaibi and CEOs/GMs of the subsidiary companies, the management team of the Group and all staff of the EHC Group for their dedication and commitment to the continued growth and development of the Group. Mohammed Abdullah Al Mahrouqi Chairman of the Board of Directors Annual Report

16 A JOURNEY TO BUILD A BETTER FUTURE CEO S Report THE GROUP AIMS TO SIGNIFICANTLY BOOST THE PEOPLE CAPABILITIES IN THE SECTOR INTO DRIVING PRODUCTIVITY, INCREASING EFFICIENCY, BY ADOPTING INTERNATIONAL BEST PRACTICES AND STRENGTHENING OUR CUSTOMER RELATIONSHIP. Dear Shareholders, Through the evaluation of past experiences and people engagement, the Group has collectively developed a new Group Vision, Mission and Values to pave the direction and to commit to progress towards delivery of higher value added services to customers and to secure financial sustainability for the future of the sector. The Group strategies provide a roadmap towards business performance goals for the coming years. They have been established based on the following pillars: 1. Human Resource Development will continue to unfold and develop the talent and capability of the Omani work force to meet the future challenges and developments 2. Health, Safety and Environment will ensure we remain committed to leading safety practices and cultures across all of our businesses and continue driving improvements in processes, procedures and individual behaviors 3. Customer Service will continue to create new innovations and environment to improve the customer services, needs and expectations along with strengthening our customer service team to cultivate the client and customer relationship culture 4. Asset Management will improve the asset capability and reliability and continue to focus on minimizing risk and the associated maintenance cost. 5. Communication will ensure timely, transparent and positive communication with all stakeholders to foster a close and co-ordinal relationship 16 Electricity Holding Company S.A.O.C

17 WE VALUE PROFESSIONALS WHO ARE CUSTOMER FOCUSED, DELIVERING QUALITY THROUGH TEAMWORK THAT IS BASED ON RESPECT AND INTEGRITY. The key part of the journey is the implementation of our new operating model which defines that all parts of the group should work together to create a faster, less complex and more cooperative environment, thereby enhancing transparency, management accountability and enabling rapid corrective action where required. Challenges Ahead In 2013 we will continue laying down the foundation and program designed to unlock our full potential and capabilities. The key challenge is to turn our strategies into action and realize the desired benefits in the future. This challenge can only be overcome by the combination of our unique capabilities and talented management within the Group coming together to deliver the Group to the next phase of achievement. Nevertheless, I am confident that with the exceptional track record of the Group s Leadership in leading, growing and developing business will ensure successfull delivery of the strategic initiatives. Thank you I would like to thank the Group s Leadership Team for their commitment to the future development of the group and commitment to execute and ensure the success of the Group initiatives. I would also like to thank all our employees for their hard work, willingness to embrace changes and the remarkable effort and commitment towards achieving a successful Finally I would like to thank the Board of Directors for their support and guidance. Omar Al-Wahaibi CEO Annual Report

18 HUMAN RESOURCE DEVELOPMENT EHC Group has embarked on a new Leadership development program in To bring alive the new EHC Group Vision, we have focused on two key areas being the development and empowerment of our people. We firmly believe that the key factor that differentiates a successful organization from the others is the competitive edge that its people bring to the table. It is the contribution of our employees that will help the EHC Group translate our organizational vision into a reality and we wish to reinforce this further. leadership pipeline, we have launched the Ruwad program in 2012, which identifies high performing and high potential employees at every level, in all group companies, to groom them to become the future of EHC Group. 230 Interns hired during 2012 RO 3 million invested on Group employees training programs We are committed to our employees development and in 2012 have invested RO 3 million on the Group employees training programs, an amount that has grown by 34% during the seven years existence. We recognize and reward the employees through our Takreem program for their valuable contributions. As a part of our continued efforts to strengthen our leadership capabilities and development of a robust EHC Group aims to transform itself into an Employer of Choice and implement, not only the Ruwad program but also develop an integrated talent management framework and establish a training and development center to secure and nourish talent. Seventy six percent of EHC Group employees are between years of age and the strategic human resource initiatives will support and develop the employees into future leaders. EHC Group companies have supported the local development of talent by conducting training programs by having positioned 230 interns during the year. Age Profile of EHC Group Employees Investment in Employees (RO millions) CEO presents a Takreem award to an outstanding employee 18 Electricity Holding Company S.A.O.C

19 HEALTH, SAFETY AND ENVIRONMENT The group accords special attention to health, safety and environment through the implementation of onjob training and awareness programs. The group aims at developing and improving HSE culture among its staff, contractors, and its service providers by ensuring the implementation of HSE regulations in all activities and operations. The HSE strategic goal is to be OHSAS certified by the end of The successful implementation of HSE policies and procedures will be facilitated through bestin-class IT systems. EHC Group companies focus on improving the working conditions of their employees and ensure a safe environment for contracted employees through policies, procedures, awareness programs and trainings. In February 2012, OETC achieved 10 million safe manhours; this is the first achievement of its kind in the Oman Electricity Sector. 5.9 Million Man-Hours without Lost Time Injury and ZERO LTI/Fatality incidents in 2012 across Generation Companies 5.5 Million Man-Hours without Lost Time Injury and TWO LTI incidents in 2012 across Transmission Company 6.1 Million Man-Hours without Lost Time Injury and TWO LTI incidents in 2012 across Rural Areas Companies 1 Fatality caused to an employee of a contractor for Majan MJEC staff participate in Safety Awareness exhibition Annual Report

20 CUSTOMER SERVICE During 2012, EHC group defined and agreed on the first customer service policy, which set the guidelines for managing customer relations and defining the priorities of customer service in the distribution companies. Based on this policy the 5 distribution companies devised and 95% established a customer Charter which details the initial commitment to provide excellent customer service for electricity customers The distribution companies improved in customer service by ensuring 95% efficiency in receiving customer calls and inquiries. In 2012 EHC Group are using customer satisfaction as one of its key performance indicators, and hence has been working consistently to collect customer feedback about their services and measure customer satisfaction on monthly basis. Recent statistics from surveys conducted 80% Efficiency at Customer Call Centers Customers say between good and excellent service by Distribution companies by the Distribution Companies show that more than 80% of surveyed customers have rated the distribution company services between good and excellent. A survey done in June 2012, by EHC through an external consultant, has shown that more than 70% of the surveyed customers are either happy or very happy with their e-portal experience, to access the Group Services. The same survey showed that more than 85% of the surveyed customers found the e-portal user-friendly. EHC group has also implemented a customer relation management system (CRM) to be able to understand and better analyze customer needs and requirements, and to record all customer interactions to make sure that customer requests and complaints are traced and resolved quickly and effectively. In 2012 EHC group with the help of the distribution companies conducted a comprehensive assessment of the customer service capabilities and potential areas of development in terms staff competencies, core business processes and systems and tools and developed a fully roadmap for customer service development that tackles all the aspects of customer service in the electricity sector. 85% EHC group is well aware of the importance of customer service development to ensure sustainable growth, hence the group created a strategic Customer Service Improvement program with the primary objectives of improving customer service in the electricity sector through the customer journey and life cycle. 70% Customers find portal userfriendly Customers are happy or very happy with E-Portal experience Launching of a new Customer Service outlet in Muscat City Centre for MEDC 20 Electricity Holding Company S.A.O.C

21 ASSET MANAGEMENT The Companies performed well against the initial Asset Management KPI s achieving between 80 and 100% of targets. The aim of the Group Asset Management strategy implementation program is to enhance the asset management systems of the six participating subsidiaries, MEDC, MJEC, MZEC, OETC, RAECO and DPC. Enabling them to be accredited to PAS 55/ISO certification, an international standard for asset management, by December 2015 in order to provide improved reliability of supply to EHC Group customers and progressively meet sector compliance obligations. The program is based around 3 key themes of work; The development of the technical asset management requirements such as policy, strategy and process design. Building the internal asset management people capability and capacity within the companies. Providing appropriate asset management IT based tools and techniques. The focus of 2012 was to establish a sound foundation for implementing best practice asset management systems and has initially focused on: Establishing the appropriate organization structure and accountabilities for asset management. Commence selecting and appointing staff to newly created asset management roles. Prepare comprehensive 3 year implementation plans based on previous PAS 55 gap analysis recommendations. Design appropriate asset hierarchies to support a future Computerized Maintenance Management System. Prepare an associated data quality improvement strategy and plan. Establishing the performance, condition and associated risk of key asset classes. We will introduce best practice lifecycle asset management to optimize performance, reduce cost and mitigate risk in order to improve reliability and meet our compliance obligations. Continued progress with adequately resourcing the asset management function and effective program and project management of the companies implementation plans will be essential in order to ensure that the group target completion date is achieved % Asset Management KPI s achieved Transformer at Buraimi Annual Report

22 COMMUNICATION The sustainability and success of the Group s strategy is highly dependent on how it is viewed by key stakeholders and communications function forms a critical part of building, maintaining and protecting such reputations. Effective corporate communications offers a framework for effective coordination of all internal and external communication. It is therefore critical that a message is transmitted in a coherent, credible and ethical manner. In order to ensure the establishment of best practices communication strategy and policy for EHC and group of companies, Group Communications and CSR Department has been formulated under EHC to oversee all the group initiatives/issues and provide direction and resources in the following strategic initiatives: 1. Knowledge Sharing: To encourage knowledge and best practice sharing within the EHC Group of companies. 2. Demand Side Management: a. To influence customer behavior with the objective of reducing average consumption per customer and the overall peak demand. b. To influence decision makers in the government to support policies to introduce new building codes and specification aiming at reducing electricity consumption. c. To influence decision makers in the government and big organizations to implement measure to reduce their organization electricity consumption. d. To demonstrate to the general public the support they are getting from the government that is making their life much more comfortable. 3. Communication Policy and Processes: a. Enable a streamlined and integrated communications approach to be implemented across EHC internal / external stakeholders b. Ensure the introduction of a practical and effective communications approach to seamlessly engage external stakeholders as a group and as individual subsidiaries 4. To utilize the IT toward applying best practice in communication. MJEC conduct an energy saving awareness session 22 Electricity Holding Company S.A.O.C

23 OPERATIONAL & FINANCIAL OVERVIEW Operational Highlights Energy Sold Increase by 13% Water Sold Increase by 14% Customer Numbers Increase by 9% Financial Highlights Net Profit After Tax Increase by 36% Operating Revenue Increase by 19% Capital Investment Decrease by 7% Key Financials % Change Earning Before Interest and Tax RO 000 s 121,673 82,361 48% Net Profit After Tax RO 000 s 84,686 62,291 36% Operating Cash Flow RO 000 s 167, ,333-26% Net Government Subsidy RO 000 s 199, ,444 30% Capital expenditure RO 000 s 238, ,510-16% Total Assets RO 000 s 2,176,708 1,933,909 13% Total Equity RO 000 s 1,065, ,446 8% Key Ratios Earnings Per Share RO % Operating Cash flow per Share RO % Net Assets Per Share RO % Key Operations Electricity (MIS) Units Generated GWh 3,354 3,691-9% Units Purchased GWh 18,464 15,548 19% Units Transmitted GWh 21,041 18,508 14% Units Sold GWh 18,503 16,375 13% Distribution Loss % % Max. Transmission system demand GWh % Electricity (Rural*) Units Generated GWh 1,518 1,840-18% Units Purchased GWh 1, % Units Sold GWh 2,457 2,138 15% System Loss % % Water Units Generated M CuM % Units Purchased M CuM % Units Sold M CuM % Customers MIS Number 695, ,137 8% Rural System Number 94,927 86,346 10% Total Number 790, ,483 9% Staff Count Number 2,696 2,639 2% * Rural System includes RAEC & Salalah systems Annual Report

24 FINANCIAL HIGHLIGHTS Total Revenue (increase RO 98.8 million) 16% Average Growth Power sales have increased by RO 33.3 million due to a 9% increase in customer numbers and a 13% growth in consumption. Net subsidy from Government has increased RO 45.7 million caused by increased purchase cost from commissioning of new plants and growth in business infrastructure. Total Expenses (increase RO 83.7 million) 18% Average Growth Operating costs higher by RO 59.1 million mainly due to increased power and water procurement to meet the increased demand through commissioning of new plants and temporary generation facilities. General and Administrative expenses higher in line with growth in business operations and inflationary impact. Tax expense increased due to a change in the tax regulation issuing clarification on the accounting treatment of lease transactions reflecting a restrospective impact since Profit after Tax (increase RO 22.4 million) 26% Average Growth Gross Profit Margins increased due to the impact of new price control allowances, increase in power consumptions and customer base and efficiencies in generating companies in the EHC Group. Operating Cash Flow (decrease RO 60.2 million) 14% Average Growth Significant decrease, primarily due to lower recovery of receivables as a result of the manpower issues faced with the outsourced meter reading and billing contractors and a higher amount of payments made to creditors, as compared to Electricity Holding Company S.A.O.C

25 CUSTOMERS - 790,272 Total Customer base has increased by 9% to 790,272. The Major increase is in domestic by 45,161, commercial by 14,246 and Government by 1,872. GROUP BUSINESS PERFORMANCE REVIEW CUSTOMER PER COMPANY ELECTRICITY SUPPLIED - 20,960 GWh Total electricity supplied reached 20,960 GWh in 2012 a 13% increase. ELECTRICITY SUPPLIED BY COMPANY (GWH) ELECTRICITY SUPPLIED (GWH) Industrial category realised the largest growth, by 33%, domestic by 11% and commercial by 9%. POWER GENERATED - 4,872 GWh Power production in the group decreased by 12% to 4,872 GWh compared to 5,531 GWh in This is in line with plant retirement. POWER GENERATION AND PROCUREMENT (GWH) POWERPROCUREMENT - 19,894 GWh Power procurement has increased by 22% over 2011 to 19,894 GWh in line with the growth in demand, essentially in the MIS region. Commissioning of new plants has enhanced ability to procure, namely Sohar II, Barka III and Salalah IWPP. Annual Report

26 GROUP BUSINESS PERFORMANCE REVIEW WATER DESALINATED AND PROCUREMENT (MCUM) WATER DESALINATION MCuM During 2012 water desalinated by the group companies grew by 6% to 52.4 MCuM whereas procurement grew by 20% to MCuM. WATER PROCUREMENT MCuM DISTRIBUTION AND SYSTEM LOSS (%) 13.8% - DISTRIBUTION LOSS-MIS 16.7% - RURAL AREAS SYSTEM LOSS GOVERNMENT SUBSIDY - RO million SUBSIDY PER COMPANY (RO MILLIONS) Net Government Subsidy has increased by 30% to RO million compared to RO million in 2011 due to higher purchase cost, growth in infrastructure along with an increase in volume procured. GOVERNMENT SUBSIDY (RO MILLIONS) SUBSIDY (RO MILLIONS) SUBSIDY PER UNIT(RO / MWH) 26 Electricity Holding Company S.A.O.C

27 SUBSIDIARIES PERFORMANCE HIGHLIGHTS Wadi Al Jizzi Power Company SAOC Contribution to Group profit 1.3% Activities: Electricity generation Annual Highlights: Plant availability in summer at 100%. 598 GWh power delivered to the grid lower by 23% compared to ,144 man hours without Lost Time Incident. Al Gubrah Power & Water Desalination Company SAOC Contribution to Group profit 7.4% Activities: Electricity generation and related water desalination. Annual Highlights: Overall plant availability is 85.6% which is 1% higher than ,559 GWh power delivered to the grid,lower by 2% compared to Water dispatched 49.8 million m3, higher by 6% compared to Total man-hours without lost time accident is 3.15 million including 0.78 million attributed to on-site contractors. Oman Electricity Transmission Company SAOC Contribution to Group profit 32.6% Activities: Electricity Transmission Annual Highlights: Total length of 220KV transmission circuits have increased from 835 circuit-km in 2011 to 1,345 circuit-km in Total length of 132KV transmission circuits increased from 2,970 circuit-km in 2011 to 3,061 circuit-km in Five new grid stations constructed (Blue City, Yiti, Al Qurum, Muttrah and Sohar PWR GS), additional transformers in Bousher, Seeb, Barka Main, Ibri & Dhank. Maximum transmission system demand up 8% (4,080MW) and regulated units transmitted up 14% (21,041GWh) as compared to Annual Report

28 SUBSIDIARIES PERFORMANCE HIGHLIGHTS Muscat Electricity Distribution Company SAOC Contribution to Group profit 25.2% Activities: Distribution and Supply of electricity and maintenance of distribution networks in the Muscat region. Annual Highlights: 18,322 new customers added to the network, an increase of 8.2 % over System loss performance of %, increased marginaly from 2011 system loss of %. CAIDI decreased to 45.3 minutes in 2012 from 46.7 in Subsidy per unit is 7.2 in 2012 compared to 4.29 in Mazoon Electricity Company SAOC Contribution to Group profit 25.6% Activities: Distribution and Supply of electricity and maintenance of distribution networks in the wilayats of A Sharqiya, Al-Dhakliyah and South Batinah region. Annual Highlights: 23,864 new customers, an increase of 9% over System loss up to 15.31% from 14.26% in CAIDI increased to 67 minutes in 2012 from 60 minutes in Subsidy per unit is in 2012 compared to in Subsidy per customer is 279 in 2012 compared to 186 in Majan Electricity Company SAOC Contribution to Group profit 15.1% Activities: Distribution and Supply of electricity and maintenance of distribution networks in the wilayat of A Dhahirah, Governorate of Buraimi and North Batinah region. Annual Highlights: 12,022 new customers added to the network, an increase of 8.0% over System loss is 13.47% compared to 12.9% in CAIDI up from 50 minutes to 52 minutes in Subsidy per unit is RO 8.9 in 2012 compared to RO 7.4 in CAIDI is Customer Average Interuption Duration Index 28 Electricity Holding Company S.A.O.C

29 SUBSIDIARIES PERFORMANCE HIGHLIGHTS Rural Areas Electricity Company SAOC Contribution to Group profit -1.0% Activities: Electricity generation, water desalination, and electricity distribution and supply activities in rural areas. Annual Highlights: 2,727 new customer added to the network an increase of 12% over Net power generated and sent out has been increased from 513,039 MWh to 555,808 MWh an 8.3% increase over Desalinated water generation has increased from 1,413,080 m3 in 2011 to 1,985,724 m3 in 2012 mainly due to Duqm Desalination Plant. Dhofar Power Company SAOG Contribution to Group profit 5.9% Activities: Electricity generation, distribution and supply activities in the Salalah Concession area. Annual Highlights: 6,260 new customers added to the salalah networks a 9% increase over System loss is 16.4% compared to 17.3% in Regulated units sold are 1,897GWh and have increased by 14% over Oman Power and Water Procurement Company SAOC Contribution to Group profit -9.5% OPWP s financial accounts continue to be materially affected by changes in the accounting treatment of its Power (and Water) Purchase Agreements in line with International Accounting Standards. Activities: Bulk purchase and sale of electricity and related water and supervision of the Salalah Concession Agreement. Annual Highlights: Successful commissioning of Salalah IWPP with a production capacity of 445 MW and desalination capacity of 15 MIGD. Early power from the Barka III IPP and Sohar II IPP has significantly contributed in meeting the peak demand of the summer Finalisation of contracts and deployment of temporary generation for the Main Interconnected System (MIS) and Salalah Power System in order to meet all Loss of Load Hour obligations for the summer Annual Report

30 CORPORATE GOVERNANCE REPORT 1. EHC s Philosophy on Code of Governance The Electricity Holding Company (EHC) recognizes the important role that good corporate governance plays in the smooth and efficient functioning of the company, protecting its interests and enhancing shareholder value. In pursuing the corporate objectives we are committed to the highest level of governance and strive to foster a culture that values ethical standards, personal and corporate integrity and respect for others. EHC s 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 EHC s 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. 2. Organizational Structure: Shareholder Ministry of Finance Functional Reporting Board of Directors BOD Company Secretary Internal Audit Committee Human Resource Committee Exceutives Administrative Reporting Chief Exceutive Officer Deputy Chief Exceutive Officer Vice President Generation Exceutive Human Resources Exceutive Strategy & Planning Exceutive Information Technology Chief Financial Officer Exceutive Risk Management 3. Role of the Board of Directors (BoD)and the Board Committees The following chart provides an overview on the EHC BoD and its Committees: BoD Internal Audit Committee Human Resource Committee H.E Mohammed Abdullah Al Mahrouqi H.E Dr. Abdulmalik Abdullah Al Hinai Mr. Abdulsalam Nasser Al Kharousi Mrs. Manal Mohammed Al Abdwani H.E Dr. Abdulmalik Abdullah Al Hinai Mr. Abdulsalam Nasser Al Kharousi Mrs. Manal Mohammed Al Abdwani H.E Dr. Abdulmalik Abdullah Al Hinai Mrs. Manal Mohammed Al Abdwani 30 Electricity Holding Company S.A.O.C

31 CORPORATE GOVERNANCE REPORT Board of Directors The BoD represents the shareholder (MOF) and is accountable to them for protecting their interest in accordance with the Sector Law through effective governance of the business. The BoD has the responsibility of overseeing, counseling and directing the corporate managers to ensure that the interests of the Government are served. The roles of the BoD of EHC for the Group in general are: Establishing for the Group, a framework of prudent and effective controls which enable risk to be assessed and managed across the group Setting strategic directions for the group, ensuring that the adequate shared resources are in place for the Group to meet its objectives; and Setting the values and standards for the Group, ensuring that the obligations to its shareholders and other stakeholders are understood and met by all the Directors in the Group; Audit Committee The Audit Committee is expected to ensure that adequate processes are in place to ensure compliance with regulatory requirements, enhance the effectiveness of internal and external auditors through interacting with them and insulating them from the undue influence of the management, and provide subject matter expertise to the Board on matters of governance and risk. Their objectives are to: Monitor the integrity of the financial statements of the company and any formal announcements relating to the company s financial performance, reviewing significant financial reporting judgments contained in them; Review the Company s internal financial controls, internal controls and risk management systems; Monitor and review the effectiveness of the Company s internal audit function; Review and monitor the external auditor s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant Capital Market Authority regulation, Commercial Companies Law and Sector Law; and any other related law; and Adopt policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm. Human Resources Committee A Human Resources Committee (HR Committee) comprises of two BoD members and members nominated from the management. The HR Committee deliberates matters relating to: Develop and recommend to the BoD policies and procedures regarding selection of BoD Member candidates recommended by shareholders; Develop and annually review the Company s remuneration policy; Review and approve training and development plans recommended by the BoD of each subsidiary for BoD, CEO/GM and executive management; Develop, control, implement and annually revise the human resources and training policy including the following: 1. An executive remuneration and incentive policy; 2. Remuneration of the CEO/GM; and 3. Any executive incentive plan. Annual Report

32 CORPORATE GOVERNANCE REPORT 4. Board Composition EHC being unlisted joint stock company is guided by the provisions of Commercial Companies Law No. 4/1974 as amended from time to time and its article of association. By virtue of this, the table below lists the members of EHC BoD for 2012: Sl. Member Name Position in the BOD 1 H.E. Mohammed Abdullah Al Mahrouqi Chairman 2 H.E. Abdulmalik Abdullah Al Hinai Vice Chairman 3 Mr. Abdulsalam Nasser Al Kharousi Member 4 Mrs. Manal Mohammed Al Abdwani Member 5. Qualification and Election of the Board Members In electing Members of the BoD, the terms and conditions issued by the Minister of Commerce & Industry is being be followed taking into consideration the provisions of Article (95) of the Commercial Companies Law, and without prejudice to the contents of the Articles of Association. The Member of the BoD fulfills the following requirements: i. Not be less than 21 years old. ii. Not be a member of a public joint stock or closed company whose principal place of business is in the Sultanate of Oman and practicing similar activities. iii. Not have been declared bankrupt or dissolved unless such case is ceased to exist as per the provisions of the law. iv. Not have been convicted in a felony or criminal act unless rehabilitated. v. Not be unable to settle his debts & obligations to various lenders. vi. It is not permitted to combine the position of CEO/General Manager and the Chairman of the BoD. EHC is led by a strong and experienced BoD. The members bring diversity in expertise and perspective to the leadership of a complex, highly regulated, Electricity sector. H.E. Mohammed Abdullah Al Mahrouqi: Master degree in International Business Administration which he obtained from the University of Bristol U.K in In 1993 he graduated from the Economics College of King Saud University, Kingdom of Saudi Arabia. Currently the Chairman of the Public Authority for Electricity and Water. He has been holding the position since the establishment of this Authority in September Electricity Holding Company S.A.O.C

33 CORPORATE GOVERNANCE REPORT H.E. Abdulmalik Abdullah Al Hinai: Ph.D. in International Relations/Political Economy obtained from the London School of Economics and Political, Sciences (LSE) University of London, UK in He is currently Advisor to Ministry of Finance. Mr. Abdulsalam Nasser Al Kharousi: Master degree in Business Economic obtained from University of Hull in 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 Currently, she is a Director General Planning and Follow up in Ministry of Commerce & Industry. Her main responsibility is participating in setting the strategies for the development of private sector and various economic sectors that are directly supervised by Ministry of Commerce and Industry. Annual Report

34 CORPORATE GOVERNANCE REPORT 6. Details of attendance for the BoD and Committees meetings during 2012 Member Name Mohammed Abdallah Al Mahrouqi Abdulmalik Abdallah Al Hinai Abdulsalam Nasser Al Kharousi Manal Mohammed Abdwani Board of Director (BOD) BOD Meetings Dates Chairman Vice Chairman Member Member 1st BOD Meeting 19-Feb-2012 Attended Attended Attended Attended 2nd BOD Meeting 04-Mar-2012 Attended Attended Apologies Attended 3rd BOD Meeting 18-Apr-2012 Attended Attended Attended Apologies 4th BOD Meeting 28-May-2012 Attended Attended Attended Attended 5th BOD Meeting 19-Dec-2012 Attended Attended Attended Attended Total Number of BOD Attended Internal Audit Committee (IAC) IAC Meetings Dates Chairman Member Member 1st IAC Meeting 13-Feb-2012 Attended Attended Attended 2nd IAC Meeting 28-Feb-2012 Attended Attended Attended 3rd IAC Meeting 28-May-2012 Attended Attended Attended 4th IAC Meeting 09-Sep-2012 Attended Apologies Attended 5th IAC Meeting 01-Dec-2012 Attended Apologies Attended Total Number of IAC Attended Human Resource Committee (HRC) HRC Meetings Dates Chairman Member 1st HRC Meeting 21-Oct-2012 Attended Attended Total Number of HRC Attended Remuneration Matters Subject to the applicable law and subject to the approval of the shareholder, it is proposed to pay a yearly remuneration to the members of the BoD out of the net profits of the financial year. Total sitting fees received for meetings of the BoD and any subcommittee shall not exceed RO 6,000 for each member as shown in the table below: MEMBER BOARD & COMMITTEE SITTING FEES 2011 BOARD AUDIT HR ITC Grand Total H.E. Mohammed Abdullah Al Mahrouqi 3, ,650 H.E. Dr Abdulmalik Abdullah Al Hinai 2, ,900 Mr. Abdul Salam Nasser Al Kharousi 2, ,900 Mrs. Manal Mohammed Abdawani 2,000 1, ,800 Grand Total 9,750 4, , Electricity Holding Company S.A.O.C

35 CORPORATE GOVERNANCE REPORT 8. General meetings of shareholders Annual General Meeting (AGM) refers to the general meeting of the Company which is held annually. Article 120 of the Commercial Company Law mandates EHC to hold an AGM within three months of the end of each financial year. It is the policy of EHC that the gap between subsequent AGM s shall not be more than fifteen months. 9. Communications with the Shareholders and Investors Pursuant to Royal Decree 78/2004, the company maintains close liaison with the Ministry of Finance (MOF), the shareholder, on various policy issues. Annually, the company communicates its annual report to the shareholder MOF. 10. Governance between EHC and its Subsidiaries EHC was established by the Sector Law and, with the exception of DPC and DGC, has 99.99% ownership of the Subsidiaries. EHC s ownership of DPC is % and DPC owns 100% of DGC. EHC s 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 Government s privatization policy; 2. As a service provider to the Subsidiaries, providing central accounting and financial support services pursuant to EHC s responsibilities under the Sector Law; 3. As the holding company for the Group, developing and leading strategy for the Group. As part of its strategic role, EHC is responsible for promoting and developing the highest standards of corporate governance across the Group and this includes appointing each of the Subsidiary Boards in coordination with the MoF pursuant to the Sector Law and satisfying themselves that an appropriate governance structure is in place within EHC and its Subsidiaries. Percentage of EHC Shareholding Annual Report

36 CORPORATE GOVERNANCE REPORT The Governance structure adopted by the EHC BoD and its subsidiaries is represented in the following chart: Company Secretary Board of Directors Internal Audit Committee Internal Tender Committee Human Resource Committee Company Secretary Subsidiaries Board of Directors Internal Audit Committee Internal Tender Committee 11. Non Compliance by the Company The company has not paid any penalty and no strictures have been imposed on the company by Ministry of Commerce and Industry on any matter during the year. 12. Dividend Policy The BoD adopts fixed dividend payout policy that provides ample internal financial reserves to support the future capital investments. 13. Distribution of Shareholding Since the company is fully owned by the Government of the Sultanate of Oman, represented by MOF, EHC directly reports to the shareholder through the MOF. 14. Statutory Auditors Statutory auditors express an opinion on the fairness with which EHC presents, in all material respects, its financial positions the results of its operations, and its cash flows in line with internationally recognized Accounting Standards. PriceWaterhouseCoopers (PWC) were the Statutory Auditors of EHC during PwC is one of the world s largest providers of assurance, tax, and business consulting services. It has been operating in Oman for over 30 years providing a broad spectrum of services to its clients ranging across Assurance, Business Advisory and Tax services. 36 Electricity Holding Company S.A.O.C

37 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 Report of the auditors 38 Consolidated statement of comprehensive income 39 Consolidated statement of financial positions 40 Consolidated statement of changes in equity 42 Consolidated statement of cash flows 43 Notes to the consolidated financial statements 45 Annual Report

38 Independent auditor s report to the shareholder of Electricity Holding Company SAOC PricewaterhouseCoopers LLP PO Box 3075, Ruwi 112 Suites Hatat House Wadi Adai, Muscat Sultanate of Oman Telephone +(968) Facsimile +(968) Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Electricity Holding Company SAOC (the company) and its subsidiaries (together the group) which comprise the consolidated statement of financial position as at 31 December 2012, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors responsibility for the financial statements The Directors of the company are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the Commercial Companies Law of 1974, as amended, and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 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 about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity 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. Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the group as at 31 December 2012 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Commercial Companies Law of 1974, as amended. 10 March 2013 Muscat, Sultanate of Oman Chartered Accountants Licence No. MH/26 - Management Consultants Licence No. MA/161 - Commercial Register No. 5/30766/1 38 Electricity Holding Company S.A.O.C

39 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER Note RO 000 RO 000 Revenue 5 659, ,327 Operating costs 6 (466,098) (407,002) Gross profit 193, ,325 General and administrative expenses 7 (84,332) (76,623) Other income 9 12,970 5,659 Profit from operations 121,673 82,361 Finance income 10 2,461 2,492 Finance costs 11 (17,181) (16,068) Profit before tax 106,953 68,785 Taxation 12 (22,267) (6,494) Profit for the year 84,686 62,291 Attributable to: Owners of the parent 84,686 62,291 Other comprehensive income for the year: Revaluation loss on hedge instruments 13 1,215 (2,135) Total comprehensive income for the year 85,901 60,156 Attributable to: Owners of the parent 85,901 60,156 The notes on pages 45 to 74 form an integral part of these financial statements Report of the Auditors - page 38. Annual Report

40 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 ASSETS Non-current assets Note RO 000 RO 000 Property, plant and equipment 14 1,607,112 1,457,362 Goodwill 7,092 7,092 Advance payments 15 21,267 23,148 Service concession receivables , ,242 Bank deposits 19 48,311 32,769 Current assets 1,856,851 1,677,613 Inventories 17 39,974 37,855 Trade and other receivables , ,687 Bank deposits 19 70,461 31,031 Cash and bank balances 20 62,594 60, , ,296 Total assets 2,176,708 1,933,909 EQUITY Capital and reserves Share capital 21 2,000 2,000 Legal reserve 22 12,342 12,342 General reserve 23 3,000 3,000 Hedge reserve 13 (1,860) (3,075) Retained earnings 421, ,989 Shareholders funds , ,190 Total equity 1,065, ,446 LIABILITIES Non-current liabilities Term loan ,512 86,586 Finance lease liabilities 27 49,102 53,360 Trade and other payables 28 8,131 16,058 Provision for decommissioning costs 29 43,347 57,689 Provision for employee benefits 29 7,983 7,040 Continued on page 41. The notes on pages 45 to 74 form an integral part of these financial statements Report of the Auditors - page Electricity Holding Company S.A.O.C

41 CONSOLIDATED BALANCE SHEET (continued) AS AT 31 DECEMBER Note RO 000 RO 000 LIABILITIES (continued) Non-current liabilities (continued) Provision for major maintenance 29 4,703 4,192 Deferred revenue ,458 95,875 Hedging deficit 13 8,940 10,240 Advance from Ministry of Finance 30 93, ,025 Deferred tax liability 32 51,305 37, , ,937 Current liabilities Term loan 26 11,086 10,354 Short-term borrowings , ,000 Bank overdrafts 34 9,674 13,685 Finance lease liabilities 27 4,258 3,830 Trade and other payables , ,511 Current tax liability 9,222 1,766 Provision for employee benefits 29 3,617 3,166 Hedging deficit 13 1,300 1, , ,526 Total liabilities 1,111, ,463 Total equity and liabilities 2,176,708 1,933,909 The financial statements on pages 33 to 68 were approved by the Board of Directors on 23 February 2013 and were signed on their behalf by: H.E. Mohammed Abdullah Al Mahrouqi H.E. Dr. Abdulmalik Abdullah Al Hinai Omar Khalfan Al Wahaibi Chairman Director Chief Executive Officer Report of the Auditors - page 38. Annual Report

42 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 Note Share Legal General Hedge Retained Shareholders Total Minority Total capital reserve reserve reserve earnings funds interest equity RO 000 RO 000 RO 000 RO 000 RO 000 RO 000 RO 000 RO 000 RO 000 At 1 January ,000 12,342 3,000 (940) 275, , , ,129 Comprehensive income: Profit for the year ,291-62,291-62,291 Other comprehensive income: Fair value adjustment for interest rate swap contracts (2,135) - - (2,135) - (2,135) Transactions with owners: Acquisition of minority interest (332) - (332) - (332) Dividend paid (507) - (507) - (507) At 31 December ,000 12,342 3,000 (3,075) 336, , , ,446 At 1 January ,000 12,342 3,000 (3,075) 336, , , ,446 Comprehensive income: Profit for the year ,686-84,686-84,686 Other comprehensive income: Fair value adjustment for interest rate swap contracts , ,215-1,215 Transactions with owners: Adjustment of receivable towards sale of Rusail Power Company SAOC (4,592) (4,592) - (4,592) Acquisition of minority interest (51) (51) - (51) Dividend paid (501) - (501) - (501) At 31 December ,000 12,342 3,000 (1,860) 421, ,598 1,065,203-1,065,203 The notes on pages 45 to 74 form an integral part of these financial statements Report of the Auditors - page Electricity Holding Company S.A.O.C