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His Majesty Sultan Qaboos Bin Said

CO NTE N T S
Pages
Chairmans Report

Mission and Vision

Management Discussion & Analysis

12

Operational Results of the Subsidiary Companies

16

Corporate Governance

24

Report and Consolidated Financial Statements

29

Chairmans Report
Dear Shareholder,

On behalf of the Board of Directors of the Electricity Holding Company SAOC (EHC), I am delighted to
present the Annual Report for the financial year ended 31 December 2007.
Financial Results
The consolidated financial results of Electricity Holding Company SAOC and its eight Subsidiaries
(EHC Group) display yet another year of good performance. Consolidated profit after tax stands at RO
48.8m compared to RO 35.9m earned in 2006, showing a remarkable growth of 36%. Earnings per
share in 2007 stand at RO 24.402 per share compared to RO 17.937 per share in 2006.
The standalone financial results of EHC has generated a net profit of RO 50.6m compared to RO
34.9m earned in 2006, a growth of 45% over that of 2006. The income comprises mainly of the
dividends received from the subsidiary companies related to 2006, besides the income generated
from the provision of accounting services to the subsidiaries. An amount of RO 12.5m included in the
current year results pertains to the profit on sale of all the shares of Al Rusail Power Company SAOC,
a subsidiary company.
Government Subsidy
During 2007, the Government of the Sultanate of Oman provided subsidy, to the relevant subsidiary
companies totalling RO 104m. The corresponding amount for the year 2006 was RO 108m. Subsidy
reflects the excess of economic cost of supply of electricity over the permitted tariff revenue.

Major Milestones
The year 2007 witnessed some major achievements for the EHC Group, them being:
i.

Completion of the privatization process of Al-Rusail Power Company SAOC (RPC) by way of
100% share sale to an investment group from the private sector.

ii.

Investment of RO 69.2m on capital expenditure, an increase of 20% over 2006.

iii.

Increase in the customer base from 500,081 to 520,748, registering a growth of 4% over 2006.

iv.

Electricity Sale to Customers increased by 6% from 9.4m MWh in 2006 to 10m MWh.

v.

Oman Power and Water Procurement Company SAOC (OPWP) became the first company in
the Sultanates electricity sector to obtain the ISO 9001:2000 Quality Management System
(QMS) certification.

vi.

OPWP also secured a long term local and foreign currency issuer rating of A2 from Moodys
Investors Service.

vii.

Several Corporate Initiatives like Balanced Score Card, Quality Management Systems (QMS)
to aid achievement of ISO 9001:2000, Enterprise Content Management System (ECMS) etc.
were launched.

viii.

Group-wide revision in the pay-scales of the staff has been initiated, which has been made
effective from January 2008.

ix.

Setting up of an Internal Audit department in EHC to provide group wide support to help
monitor controls and compliances.

Future
EHC executes the directives of the Government of Sultanate of Oman in respect of the privatization
of its subsidiary companies. Hence in accordance with the issued directives, EHC is studying the
privatization plan of Oman Electricity Transmission Company during 2008. EHC shall likewise enhance
its capabilities for increasing the efficiency and quality of the accounting services rendered to its
subsidiaries and is thereby studying the provision of new central services, administrative support and
is directing the subsidiaries to use the best administrative and technical systems. In this regard EHC
shall adopt a number of joint initiatives for raising the efficiency and performance of the subsidiary
companies.
On the other hand, EHC Group plans to invest RO 106m in Capital Expenditure projects during 2008
to meet the projected growth in the electricity demand of 10%, besides the projected increase in the
customer base by 5%.
It is noteworthy that on 1 January 2008, the Boards of Directors of EHC Group were reconstituted.
We take this opportunity to express our gratitude to the outgoing Members of the Boards of Directors
of EHC and all its subsidiaries for their dedicated and effective services all through the period of
formation of the Companies beginning from September 2004. We also sincerely appreciate the efforts
of the executive management and the staff of EHC and the subsidiaries for their dedicated services
and discharge of their duties.
Finally, on behalf of the Board of Directors, I express my sincere gratitude and appreciation to His
Majesty Sultan Qaboos Bin Said, whose vision and wise leadership have paved the path of development
and advancement of the electricity and related water sector of the Sultanate of Oman.
On Behalf of the Board of Director
Directors,

Mohammed Abdul
ulla
ul
lah Al
Al Ma
ah
hrouqi
Chairman
6

Mission and Vision

EHC is Committed to:


O

Implement the Governments policies and take necessary measures to achieve its objectives of
encouragement of participation of the private sector in electricity and related water sector
projects.

Implement the Governments policies regarding the financing of the electricity and related water
sector companies and safeguarding the Governments interest.

Providing central accounting services to the subsidiary companies within the electricity and
related water sector.

EHC operates on its Mission and Vision of:

Mission
To contribute to the development of Oman, maximising stakeholders interest
in the electricity and related water sector by adopting best business practices
and providing strategic leadership, with quality and efficient business support
to the subsidiaries.

Vision
Empower: Develop right skills in employees and subsidiaries and become an
employer of choice.

Excel: Excel and inspire excellence by improving all processes and delivering
high quality and efficient services.

Execute: Implement and achieve all the objectives of the government for the
sector.

Evolve: Lead sector transformation into commercial enterprises by being a


trusted and innovative partner.

Preface

on 19 October 2002. The Company commenced commercial business on 16 September 2003.


EHC holds the governments shares in the eight companies, engaged in the activities of generation,
transmission and distribution of electricity and related water. EHC in turn is owned by the Ministry of
Finance with the responsibility to implement the policies of the government assigned to it pursuant to
the provisions of the Sector Law.

Strategic Objectives
Y

Maintain inherent financial strength and maximize shareholder value.

Maximize financial performance and ensure adequate financial resources to support


subsidiaries.

Implement government policies in the sector.

Inspire confidence and maintain high satisfaction by provision of appropriate support to the
subsidiaries.

Create awareness and manage expectations.

Enhance asset management.

Establish information and performance management best practices.

Improve processes and manage risks.

Promote knowledge sharing and skills development across the group achieving synergies in
pursuing the strategic objectives.
Develop and implement human capital development policies for employees in the group,

including those affected by privatization.


Attract and retain employees by being the employer of choice.

10

Shareholding and Process Flow in EHC Group

SHAREHOLDING PATTERN

PROCESS FLOW
Generation &
Desalination

MOF

100%

Generation of Electricity &


Desalination of Water
Transmission & Dispatch

(GPDC)

EHC

(`WJPC)

OETC

OPWP, OETC

99.99%

0.01%

GPDC, WJPC
Providing
transmission
services

Power & Water Procurement

Distribution & Supply

OPWP
MEDC, MJEC, MZEC
MEDC

MJEC

MZEC

RAECO
RAECO
Generation,
Transmission,
Distribution: Rural
Areas

Distribute & Supply Electricity

End User

11

Board of Directors

H.E. Mohammed Abdullah Al Mahrouqi


Chairman

H.E. Dr. Abdulmalik Abdullah Al Hinai


Deputy Chairman

Mrs. Manal Mohammed Al Abdwani


Member

12

H.E Yahya Said Al-Jabri


Member

Mr. AbdulSalam Nasser Al Kharousi


Member

Management Discussion & Analysis


Privatization Process
The company has maintained, as its core objective, the strategic objective of privatization of the
electricity and related water sector, as envisaged by the Sector Law.
During the year, privatization of Al-Rusail Power Company SAOC (RPC) was completed, while the
transmission company, Oman Electricity Transmission Company SAOC has been identified as the
next company to be privatised. The process for privatisation of RPC, which started in late 2005, was
successfully concluded in January 2007, with the 100% sale of its shares to the winning consortium
of Suez-Tractabel S.A., Mubadala Development Corporation and National Trading Company LLC for a
net consideration of RO 48.5m.
Impact of Gonu
Some of the electricity sector companies suffered significant to moderate losses caused by the
Tropical cyclone Gonu during June 2007, causing damage to properties in the Al Sharqiya and Muscat
regions, with resultant effect on the financial performance of the group during the year; the combined
loss suffered by the group in the year 2007 was RO 5.7m. We acknowledge and place on record
our deep appreciation for the efforts of the management and staff of the group companies and the
various Government Agencies, who worked shoulder to shoulder, round the clock, to restore electricity
and related water production and distribution in the extremely adverse conditions of the cyclones
aftermath.
Initiatives and Achievements
A number of corporate initiatives were launched during the year, the important ones being:
1. Quality Management System (QMS): It defines the Organisations scope of work and its
policies consistent with the corporate vision, mission & objectives and outlines the business
processes to meet the requirements of ISO 9001:2000.
2. Enterprise Content Management System (ECMS): It is a comprehensive document control &
management system.
3. Balanced Score Card (BSC): A management system which enables an organisation to frame
its vision, strategy & translate them into action. BSC provides feedback on both the internal
business processes and external outcomes in order to continuously improve strategic
performance and results. Workshops were conducted to implement the BSC program across
the EHC Group.
Stakeholder Relationships
EHC continued its strive to provide central accounting and financial services to its eight subsidiary
companies. Besides the core accounting function, certain management and related advisory services
have been additionally incorporated under the domain of the services offered to the subsidiary
companies.
13

The Consolidated Financial Performance for the year 2007 demonstrated significant improvement in
the Results of the EHC Group, from RO 35.9m in the year 2006 to RO 48.8m in the year 2007.

Consolidated Financial Performance

350,000

326,598
301,072

300,000

265,199

277,794

Rial Omani 000

250,000
200,000

2006
2007

150,000
100,000
50,000

35,873

Revenue

Expenditure

48,804

Profit After Taxation

103,738

14

15,581

3,041

12,538
-

6,317

3,598

57,294

48,181

Rial Omani 000

107,500

153,508

144,449

Revenue represents the sale of electricity to domestic, commercial, government, agriculture &
fisheries, tourism and industrial customers within the distribution network owned by the companys
subsidiaries. Besides, revenue also includes bulk supply of desalinated water to the water department
and demineralised water to others.

The Consolidated Basic Earnings per Share (EPS) has gone up from RO 17.937 to RO 24.402, the
following chart reflects the subsidiary company-wise EPS during 2007 and 2006

13.310

12.866

0.210

2.810

9.680

13.070
2.602

8.150

0.00

0.902

3.148

2.696

10.000

7.879

21.708

20.240

10.350

20.000

Rial Omani

2006
2007

15.306

17.937

30.000

24.402

40.000

(10.000)
(20.000)
(30.000)

The Consolidated Assets and Liabilities position for the years 2007 and 2006 is given below

Rial Omani 000

200 9 ,33 0 0

7 42,99 8 4

200 2 , 6 8 6

731,44 3 2

155 9 , 8 0 7

133 5 , 5 0 8

14,371

20,820

7 7 8 ,11 0 6

777 7,, 799 0

The Consolidated Net Assets Value (NAV) per share remained the same in the year 2007 from that of
2006, inspite of sale of RPC. The individual NAV for each subsidiary company is depicted below

Rial Omani

2006
2007

15

Operational Results of the Subsidiary Companies


Al Ghubrah Power and Desalination Co. SAOC
Regulated business of combined generation of Electricity and Desalination of water
Al Ghubrah Power and Desalination Company SAOC (GPDC) achieved revenues of RO 52.2m for the
year ending Dec 31, 2007 which included RO 27.2m for electricity capacity and energy charges and
RO 25m for water capacity and energy charges. The revenues have gone up by 3.8% from that of 2006
levels of RO 50.3m. The Net profit of RO 7.6m reflects an increase of 48% partially due to savings
in costs on account of employment of operations and maintenance staff since April 2007 as against
the contract staff cost in 2006.

Description

Units

Electricity Generated

MWh

Water Generated

2007

000 CuM

Electricity Sold

MWh

Water Sold

000 CuM

2006

2,807,387

2,484,187

53,980

53,570

2,604,000

2,339,000

52,890

52,270

AL GHUBRAH POWER AND DESALINATION CO. SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
D
Depreciation
i i
Share holders

Cost of Sales
Admin Expenses
D
Depreciation
i i
Share holders

65%

66%

5%
4%
16%
20%
10%
16

14%

Wadi Al Jizzi Power Co. SAOC


Regulated business of generation of Electricity

Wadi Al-Jizzi Power Company SAOC achieved revenues of RO 13.7m for the year ending Dec 31, 2007
which included RO 6.3m for electricity capacity charges and RO 7.4m for electricity energy charges.
The corresponding total revenue in the year 2006 was RO 13.8m. The net profit is however higher due
to savings in gas consumption, transmission connection charges, contract fee for plant operations and
other direct costs.

Description

Units

2007

2006

Electricity Generated

MWh

1,009,314

1,053,943

Electricity Sold

MWh

997,500

1,043,176

WADI AL JIZZI POWER CO. SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Depreciation
Share holders

Cost of Sales
Admin Expenses
Depreciation
Share holders

62%

61%
7%

6%

10%

22%

21%
11%

17

Oman Power and Water Procurement Co. SAOC


Regulated business of Bulk Supply of electricity to Licensed Suppliers in consideration of a Bulk
Supply Tariff and secure adequate supplies of electricity. Bulk Supply of Desalinated water to the Water
Department and secure the sale of demineralised water to persons other than Water department.

Oman Power and Water Procurement Company SAOC (OPWP) achieved revenues of RO 214m for
the year ending Dec 31, 2007 compared to RO 200m in 2006. The revenues of 2007 included sale
of electricity amounting to RO144.6m and sale of water amounting to RO 55.3m compared to
corresponding amounts of RO 140m and RO 44m in 2006. The increase in profits is attributable to the
increase in volumes.
Description

Unit

2007

2006

Electricity Purchase

000 MWh

12,480

11,783

Water Purchase

000 CuM

84,203

82,104

RO 000

11,111

12,226

Subsidy (Salalah Business)

OMAN POWER AND WATER PROCUREMENT CO.SAOC

Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Share holders

Cost of Sales
Admin Expenses
Share holders

72%
777%
28%

22%
0% 1%

18

1% 1%

Oman Electricity Transmission Co. SAOC


The Company is a monopoly licensed provider of transmission services to the Main Interconnected
System in the north of Oman.

Description

Unit

Service Area
Regulated Units
Transmitted

Sq KM

2007
129,334

129,334

11,380

10,821

7.9

3.4

MW

2,582

2,444

000 MWh

Energy Loss
Maximum Demand
(Peak)

2006

Oman Electricity Transmission Company SAOC (OETC) earned revenues of RO 27.1m for the year
ending Dec 31, 2007 which corresponds to RO 26.5m for the year 2006. The decrease in the net profit
is mainly due to the increase in repairs and maintenance expenses, comprising primarily of cyclone
damages, transformer shifting expenses etc.

OMAN ELECTRICITY TRANSMISSION CO. SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Depreciation
Share holders

Cost of Sales
Admin Expenses
Depreciation
Share holders

19%

17%
18%

20%

37%
22%

41%

26%
19

Rural Areas Electricity Co. SAOC


To generate electricity and produce desalinated water; transmit, distribute and supply electricity
to customers in its Authorised Area extending throughout the Sultanate of Oman and includes the
Musandam, Al Sharqiyah, Al Wusta and Dhofar Regions (but excludes the Salalah Concession Area).
Description

Unit

2007

2006

Customers

Number

17,757

16,607

Electricity Generated

MWh

309,354

272,151

Electricity Sent out

MWh

289,175

252,490

Total Water Produced


(Sur desalination plant
disposed in 2007)

000 CuM

597

4,286

Internal Consumption
of Water

000 CuM

13

Water Sold

000 CuM

602

4,260

Rural Areas Electricity Company SAOC (RAECO) earned a total revenue of RO 25.9m for the year ending
Dec 31, 2007, comprising of Electricity Sales of RO 6.1m, Water Sales of RO 1.9m and Government
Subsidy of RO 17.9m. The Government Subsidy has gone up by 10% from 16.2m in 2006. Water sales
revenue during the year is lower than 2006 due to the sale of Sur Desalination plant. The Net loss for
the year stood at RO 1.4m as against a loss of RO 0.1m in 2006.

RURAL AREAS ELECTRICITY CO.SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Depreciation
Share holders

Cost of Sales
Admin Expenses
Depreciation
Share holders

73%

73%
14%

12%
1%
14%
20

1%
12%

Distribution Companies:

MUSCAT ELECTRICITY DISTRIBUTION CO. SAOC

MAJAN ELECTRICITY CO.SAOC

MAZOON ELECTRICITY CO. SAOC

Undertake to operate, maintain, develop and expand


the electricity distribution system in Oman.

Description

Service Area
Customers
Electricity Distributed
Energy Loss
Maximum Demand (peak)
Subsidy
Subsidy per KWh

Unit

Muscat

Majan

Mazoon

2007

2006

2007

2006

2007

2006

Sq KM

3,900

3,900

50,250

50,250

74,669

69,669

Number

176,114

168,711

118,836

113,853

208,077

200,792

MWh
%
MWh
RO million
RO

4,819,762 4,693,557 2,154,076 1,929,625 2,774,887 2,605,000


22

19

17

18

23

25

1,246

1,146

584

532

877

843

16

23

23

25

36

45

0.003

0.005

0.011

0.013

0.013

0.010

21

MUSCAT ELECTRICITY DISTRIBUTION CO. SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Commission
Depreciation
Share holders

Cost of Sales
Admin Expenses
Commission
Depreciation
Share holders

81%

80%

6%

8%

2%

2%

5%

6%
4%

6%

MAJAN ELECTRICITY CO.SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Commission
Depreciation
Share holders

Cost of Sales
Admin Expenses
Commission
Depreciation
Share holders

72%

71%

7%

9%

9%

9%

3%
7%

9
9%

4%

MAZOON ELECTRICITY CO. SAOC


Income allocation 2006

Income allocation 2007

Cost of Sales
Admin Expenses
Commission
Depreciation
Share holders

Cost of Sales
Admin Expenses
Commission
Depreciation
Share holders

70%

75%

9%

7%
2%

3%

8%
8%

22

9%
9%

23

Corporate Governance
Board of Directors:
The Board of Directors sets the overall policy direction, provides supervision and control to the
company. In order to maintain an effective and efficient oversight and control on the strategic, financial
and commercial compliance issues, the board reviews appropriate information provided on a timely
manner.

Incoming Board of directors with effect from 29 December 2007:


Name

Title

Position

H.E. Mohammed Abdullah


Al M
Mah
ahro
rouq
uqii

Chairman, Public Authority for Electricity


& Wa
Wate
terr

Chairman

H.E. Dr. Abdulmalik Abdullah Al Hinai

Undersecretary of Economic Affairs,


Ministry of National Economy

Deputy
Chairman

H.E Yahya Said Al-Jabri

Executive PresidentCapital Market Authority

Member

Mrs. Manal Mohammed Al Abdwani

Director General of Planning & Follow Up,


Ministry of Commerce & Industry

Member

Mr. AbdulSalam Nasser Al Kharousi

Director General of Budget & Contracts,


Ministry of Finance

Member

The Outgoing Board of Directors:


Name

Title

Position

H.E. Dr. Khamis Mubarak Al Alawi

Minister of Transportation & Telecommunications

Chairman

H.E. Dr. Abdulmalik Abdullah Al Hinai

Undersecretary of Economic Affairs,


Ministry of National Economy

Deputy
Chairman

H.E. Sayyid Mahmood Hilal Al-Busaidi*

Secretary General of Tender Board

Member

H.E. Yahya Said AlJabri*

Executive President Capital Market Authority

Member

Mr. Khalifa Shames Al Subhi

Director General of Budget & Contracts,


M
Min
inis
istr
try
y of F
Fin
inan
ance
ce

Member

Mrs. Manal Mohammed Al Abdwani

Director General of Planning & Follow Up,


Ministry of Commerce & Industry

Member

Mr. Talib Bin Salim Al Falahi **

Ex-Secretary General of Tender Board (Acting)

Member

* From May 2007


** Up to March 2007

24

Details of attendance and remuneration for the four Board meetings for the year 2007:

Name

Meetings
attended

H.E
E. D
Drr. K
Kha
hami
mis
s Mu
Muba
bara
rak
k Al A
Ala
lawi
wi

H.E. Dr. Abdulmalik Abdullah Al Hinai

H.E. Mohammed Abdullah Al Mahrouqi*

Sitting
fee per
meeting
RO
0

Bonus
paid RO

Total
Remuneration
RO

300/500

10,000

11,400

650

650

H.E
E. S
Say
ayyi
yid
d Ma
Mahm
hmoo
ood
d Hi
Hila
lall Al.Bus
Busai
aidi
di

2
200
00

5,000
000

5,400
400

H.E. Yahya Said Al-Jabri*

500

500

Mr. Khalifa Shames Al Subhi

200

5,000

5,600

Mrs. M
Manall Mohammed
h
d Al A
Abd
bdwanii

2
200
00/5
/500
00

5,000
000

6,100
100

Mr. Talib Bin Salim Al Falahi

200

5,000

5,200

Mr. AbdulSalam Nasser Al Kharousi*

500

500

30,000

35,350

Total
* From 29 December 2007
Internal Tender Committee

The Internal Tender Committee (ITC) comprises of nominated members from the Board of Directors
and from the management. The ITC is chaired by the Chairman of the Board of Directors. The ITC
approves all purchases above RO 15,000/- up to a limit of RO 250,000/-. For purchases valued at over
RO 250,000/-, the ITC refers to the Government Tender Board of Oman.
The Committees main task is to assist the Board in approving contracts in accordance with the
Financial Delegation of Authority. The following table shows the attendance details of members for the
nine meetings held by the ITC:
Members

Position

Meetings Attended

H.E. Dr. Khamis Bin Mubarak al Alawi**

Chairman

H.E.
E Sa
Sayy
yyid
id M
Mah
ahmo
mood
od H
Hil
ilal
al A
All-Bu
Busa
said
idi*
i*

Chai
Ch
airm
rman
an

Mr. Talib Bin Salim Al Falahi***

Chairman

Mrs. Manal Bint Mohammed Al Abdwani**

Deputy Chairman

H.E. Mohammed Abdullah Al Mahrouqi**

Member

Mr. Khalifa Shamis Mohammed Al Subhi

Member

Mr.
M
r. H
Has
assa
san
n Mo
Moha
hamm
mmed
ed A
Abd
bdaw
awan
anii

Memb
Me
mber
er

Mr. Ali Abdullah Al Abri

Member

Mr. R.K. Mehta

Member

Mrs. Mariam Abdullah Al Subhi

Secretary

* With Effect from 19 May 2007


** Up to 26 March 2007
*** Up to 18 April 2007

25

Internal Audit Committee


The commitee ensures the development and improvement of the internal control environment, to ensure
the highest standard of work within the company, besides ensuring compliance with the governance
requirements and risk review, which may affect conducting of the companys business performance in
future.
The Committee assists the Board in reviewing reports and financial statements referred to the Board by
the Executive Management or by the companys External Auditor. In addition, the Committee provides
assurance to the Board regarding the efficiency of the internal audit and control environment by
reviewing the reports submitted by the Internal Auditors.
The Internal Audit Committee of the company comprises of the following Board Members:
Name

Title

Position

Meetings attended

H.E. Dr. Abdulmalik Al Hinai

Undersecretary of Economic Chairman


Affa
Af
fair
irs
s, M
Min
inis
istr
try
y of N
Nat
atio
iona
nall
Economy

Mrs. Manal Al Abdwani

Director General of Planning Member


& Fo
Foll
llow
ow U
Up
p, M
Min
inis
istr
try
y of
Commerce & Industry

Mr. Khalifa Al Subhi

Director General of Budge


g t
& Contracts, Ministry of
Finance
Head Internal Audit

Member

Secretary

Mr. Essam Mousa

Human Resources Committee


The Human Resources Committee (HR Committee) comprises of members nominated from the
management. This committee deliberates certain matters related to the policies and procedures
concerning the employees of EHC, and proposes matters for the Board of Directors to approve.
The Committees main responsibility is to assist the Board in establishing and developing the companys
human resource policies, including the human resource guide.
The HR Committee comprising of the following members had nine meetings during 2007:
Name

Title

Position

Mr. Al
Mr
Alii Ab
Abdu
dull
llah
ah A
All Ab
Abri
ri

Chairm
Chai
rman
ans
sA
Ass
ssis
ista
tant
nt;; Se
Secr
cret
etar
ary
y
to Board of Directors

Chairman

Mr. Hassan Mohammed Abdawani

Chief Executive Officer (Acting)

Member

Mr. R.K
M
K.M
Meht
hta

Finance Di
Fi
Director
t

Member
b

Mr. Saleh Faqir Al Raisi*

Human Resource Manager

Member

* Up to September 2007

26

Quality Management System


In order to incorporate Quality Management System (QMS) in all the activities of the company, a
committee has been set up, to study, evaluate and improvise the Quality policy consistent with the
corporate vision, mission and objectives, refine the System documentation, Record control and Quality
Manual, encourage customer orientation and thereby improve Business performance. The members
of QMS committee comprise of:
Name

Title

Position

Mr. Hassan Mohammed Abdawani

Chief Executive Officer (Acting)

Chairman

Mr. Punyabrata Sen

Head Strategic Management Unit

Manage
Mana
geme
ment
nt
Representative

Ms. Suhaila Naamat Al Farsi

Business Performance and Quality Analyst

Member

Management:
The previous year has witnessed some changes in the companys top management positions, as the
then Chief Executive Officer of the company resigned in February 2007. This position was held for a
brief period by H.E. Mohammed Abdullah Al-Mahrouqi, followed by the appointment of Eng. Hassan
Mohammed Jawad Al Abdwani as Chief Executive Officer (Acting) since September 2007. Such change
did not affect the companys performance.
The Management Team led by the Chief Executive Officer (Acting) is responsible for achieving the
strategic objectives of the company.
Executive Management Team
Currently, the Management team comprises of suitably qualified and experienced professionals
Eng. Hassan Abdwani

Chief Executive Officer (Acting)


Member Internal Tender Committee
Member HR Committee
Chairman Quality Management System

Mr. Ali Al Abri

Chairmans Assistant
Secretary to the Board of Directors
Member Internal Tender Committee
Chairman HR Committee
HR & Admin. Manager (Acting)

Mr. R.K. Mehta

Finance Director
Member Internal Tender Committee
Member HR Committee

Mr. Punyabrata Sen

Head Strategic Management Unit


Management Representative
Quality Management System

Mr. Ahmed Saleh Al Jahdhami

Director of Privatization and Re-structuring


Department
27

The Electricity Holding Company and its Subsidiaries have been active in providing employment
opportunities for Omanis and assisting in their training and development. The training plan of the
company aims at training Omani nationals in an organized and phased way.
The total staff strength in the EHC Group at the end of 2007 was at 1,634 as against 1,249 staff in
the year 2006. The new recruitment comprises of around 243 Omani nationals; the increase is largely
attributable to the absorption of the Operation and Maintenance contract staff by Al Ghubrah Power
and Desalination Company SAOC.
Development of Personal Balanced Score Cards for each staff member has been one of the key
initiatives, taken up by the company during 2007. Sector-wide revisions in the pay-scales of the staff
members have also been initiated.

Omanisation Percentage:

Omani

2006

2007

Expatriates

2006

28

2007
20
07

EHC

OPWP

MEDC

MJEC MZEC RAECO OETC

GPDC

WJPC

Total

52

33

260

171

266

194

97

33

52

1,158

78%

79%

95%

97%

98%

96%

90%

83%

78%

93 %

59

35

281

190

298

191

108

190

49

1,401

76%

80%

93%

93%

98%

95%

89%

61%

75%

86 %

15

14

11

15

91

22%

21%

5%

3%

2%

4%

10%

17%

22%

7%

1
19
9

21

1
15
5

11

1
14
4

121
12
1

18

2
233
33

24%

20%

7%

7%

2%

5%

12%

39%

25%

14 %

ELECTRICITY HOLDING
COMPANY SAOC AND ITS SUBSIDIARIES

Report and consolidated financial statements


for the year ended 31 December 2007

29

Pages
Independent auditors report

1-2

Consolidated balance sheet

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the consolidated financial statements

6-7

8 - 42

Deloitte & Touche (M.E.)


Muscat International Center
Location: MBD Area
P.O.Box 258, Ruwi
Postal Code 112
Sultanate of Oman
Tel: +968 2481 7775
Tel: +968 2481 5897
Fax: +968 2481 5581
www.deloitte.com

to the shareholders of
Electricity Holding Company SAOC

Report on the consolidated financial statements


We have audited the accompanying financial statements of Electricity Holding Company SAOC and its subsidiaries
(the Group) which comprise of the consolidated balance sheet as at 31 December 2007, and the consolidated
income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year
ended 31 December 2007, and a summary of significant accounting policies and other explanatory notes, as set
out on pages 3 to 42.

Managements responsibility for the financial statements


Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing
and maintaining internal control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the circumstances.

Auditors responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the
consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.

Independent auditors report


to the shareholders of
Electricity Holding Company SAOC (continued)

Basis of qualified opinion


As stated in note 3 of these consolidated financial statements, under IFRIC 4-Determining whether an arrangement
contains a lease, the power purchase agreement between Oman Power and Water Procurement Company SAOC
(OPWP) , a subsidiary and United Power Company SAOG (UPC) and other relevant power producing companies and
the arrangement between OPWP and Oman Electricity Transmission Company SAOC (OETC), a subsidiary related
to transmission facilities of UPC will be treated as a finance lease as per the provisions of IAS 17 Leases which
will result in the following:

Recognition of the property, plant and equipment related to the generation, interconnection and
transmission facilities at fair value.

Depreciation of these assets over their estimated useful lives.

Recognition of interest costs implicit in the leases.

In the opinion of the management, adoption of this interpretation will result in violation of the conditions in the
license issued by Authority for Electricity Regulation, Oman (AER) and other provisions of the Sector law. The
accounting of costs and determination of profits will also violate the license requirements and hence both OETC
and OPWP have not adopted this interpretation. The effect of such non-adoption of the interpretation on these
consolidated financial statements has not been quantified.

Qualified opinion
In our opinion, except for the effects of the matters described in the basis of qualified opinion paragraph, the
consolidated financial statements present fairly, in all material respects, the financial position of Electricity Holding
Company SAOC and its Subsidiaries (the Group) as of 31 December 2007, and of its financial performance
and cash flows for the year ended 31 December 2007 in accordance with International Financial Reporting
Standards.

Delo
loitte
itttte
e & Touc
ch
he (M
(M.E
E.)
Muscat, Sultanate of Oman
8 June 2008

Consolidated balance sheet


as at 31 December 2007
Notes

2007

2006

RO 000

RO 000

ASSETS
Non-current assets
Property, plant and equipment

690,096

698,357

Advance payments

41,336

44,627

731,432
,

742,984
,

Total non-current assets


Current assets
Inventories

23,361

24,666

Trade and other receivables

73,651

60,141

Other current assets

541

11,372

Bank deposits

10

3,700

7,000

Cash and cash equivalents

11

101,433

102,621

202,686

205,800

3,500

Total current assets

202,686

209,300

Total assets

934,118

952,284

Assets held for sale

12

EQUITY AND LIABILITIES


Capital and reserves
Share capital

13

2,000

2,000

Statutory reserve

14

1,886

2,017

General reserve

15

2,750

Retained earnings
Due to Ministry of Finance

Total equity

115,457

72,108

655,697

701,981

777,790

778,106

Non-current liabilities
Provision for staff benefits

1,341

1,089

Deferred tax liability

17

11,557

7,832

Deferred revenue

18

7,922

5,450

20,820

14,371

Total non-current liabilities


Current liabilities
Trade and other payables

19

114,861

128,140

Other current liabilities

20

20,128

29,761

Bank overdrafts

21

1,390

Provision for current tax

519

516

Total current liabilities

135,508
,

159,807
,

Total equity and liabilities

934,118

952,284

389

389

Net assets per sh


share (RO)

............
......
.....
...
. ........
Chairman

22

Director

Chief Executive Officer

Fina
n nce Director

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated income statement


for the year ended 31 December 2007

Notes

For the year ended

For the year ended

31 December 2007

31 December 2006

RO000

RO000

Continuing operations
Revenue

23

326,598

301,072

Operating costs

24

(258,146)

(233,379)

68,452

67,693

Gross profit
General and administrative expenses

25

(30,759)

(27,597)

Commission

27

(6,704)

(6,096)

30,989

34,000

22,378

5,697

(31)

(180)

53,336

39,517

(4,485)

(4,080)

48,851

35,437

(47)

436

48,804

35,873

24.402

17.937

Profit from operations


Other income

28

Finance charges
Profit before tax from continuing operations
Income tax charge

30

Profit after tax from continuing operations


Discontinued operations
(Loss) / profit after tax from discontinued operations

31

Profit for the year


Basic earnings per share (RO)

32

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of changes in equity


for the year ended 31 December 2007

Share

Statutory

General

Retained

Dues to

capital

reserve

reserve

earnings

MOF

RO 000

RO 000

RO 000

RO 000

RO 000

2,000

1,329

37,234

722,343

762,906

Profit for the year

35,873

35,873

Transfer to statutory reserve

688

(688)

Dividends paid

(311)

(311)

Adjustment (Note 2)

(20,362)

(20,362)

2,000

2,017

72,108

701,981

778,106

Profit for the year

48,804

48,804

Transfer to statutory reserve

36

(36)

a subsidiary (Note 28)

(167)

(2,164)

(2,331)

Transfer to general reserve

2,750

(2,750)

Dividends paid

(505)

(505)

Adjustment (Note 2)

(46,284)

(46,284)

2,000

1,886

2,750

115,457

655,697

777,790

Balance at 1 January 2006

Balance at 1 January 2007

Total
RO 000

Adjustment due to sale of


Al Rusail Power Company SAOC,

Balance at 31 December 2007

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of cash flows


for the year ended 31 December 2007
For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

53,283

40,012

38,017

43,097

(12,538)

24

214

1,211

Operating activities
Profit before tax
Adjustments for:
Depreciation on property, plant and equipment
Profit on sale of investment in a subsidiary
Loss on sale of property, plant and equipment
Loss on retirement of property, plant and equipment
Depreciation reversal on restatement of asset value

(16)

Inventory adjustments

229

24

(686)

(157)

Provision for inventory obsolescence


Write back of provision for Income tax
Capital work-in-progress expensed
Provision for impaired debts
Net transfer to provision for staff benefits
Interest received
Interest paid

(1)

261

1,575

2,865

261

574

(6,317)

(3,594)

25

Deferred revenue

2,472

2,530

Advance payments amortized

3,291
,

1,544
,

80,830

87,377

Operating cash flows before working capital movement


(Increase)/decrease in working capital due to:
Inventories

(1,471)

(2,966)

(11,898)

(6,305)

10,831

11,372

Trade and other payables

37,502

12,359

Other current liabilities

(9,633)

17,651

106,161

119,488

(372)

(1,303)

105,789
,

118,185
,

Trade and other receivables


Other current assets

Cash generated from operations


Income tax paid
Net cash from operating activities
Investing activities
Gross proceeds on sale of a subsidiary (Note 29)

48,510

(69,223)

(58,766)

Disposal of property, plant and equipment

1,574

834

Disposal of assets held for sale

3,500

Bank deposits with a maturity of more than three months

3,300

(7,000)

Interest received

6,317

3,594

(6,022)

(61,338)

Purchase of property, plant and equipment

Net cash used in investing activities

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of cash flows


for the year ended 31 December 2007 (continued)

For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

Financing activities
Repayment of Due to Ministry of Finance

(92,886)

(153)

Advance to Ministry of Finance

(5,996)

Decrease in bank overdrafts

(1,390)

(16,090)

(25)

(7)

(505)

(311)

(100,955)

(16,408)

(1,188)

40,439

Cash and cash equivalents at the beginning of the year

102,621

62,182

Cash and cash equivalents at the end of the year

101,433

102,621

Restatement of Due to MOF

Interest paid
Dividend paid
Net cash used in financing activities
Net changes in cash and cash equivalents

The net cash flow generated from operating activities of the discontinued operation was RO 53 thousand
(2006-RO 495 thousand).
The accompanying notes form an integral part of these consolidated financial statements.

Notes to the consolidated financial statements


for the year ended 31 December 2007
1

Legal status and principal activities

Electricity Holding Company SAOC (the company) is a closed Omani joint stock company registered under the
Commercial Companies Law of Oman on 19 October 2002. The company commenced business on 16 September
2003.
The establishment and operations of the Electricity Holding Company are governed by the provisions of the Law
for the Regulation and Privatisation of the Electricity and Related Water Sector (the Sector Law) promulgated by
Royal Decree 78/2004.
The principal activities of the company comprise the management of Government investments in, and the
Privatization of, the Electricity and Related Water Sector in the Sultanate of Oman and provision of certain central
services to its subsidiary companies. The registered office of the company is at P.O. Box 850, Mina Al Fahal, PC
116, Sultanate of Oman.
The subsidiary companies commenced their operations on 1st May 2005 (the Transfer Date) following the
implementation of a decision of the Ministry of National Economy (the Transfer Scheme) issued pursuant to
Royal Decree 78/2004.
The principal activities of the subsidiaries are set out below:
Subsidiary company

Shareholding
percentage

Principal activities

%
Al Ghubrah Power and
Desalination Company SAOC

99.99

Electricity Generation and related


Water Desalination.

Wadi Al Jizzi Power Company SAOC

99.99

Electricity Generation.

Oman Electricity Transmission


Company SAOC

99.99

Electricity Transmission.

Oman Power and Water Procurement


Company SAOC

99.99

Bulk purchase and sale of Electricity


and Related Water.

Muscat Electricity Distribution


Company SAOC

99.99

Distribution of electricity and


maintenance of distribution
networks in the Muscat region.

Mazoon Electricity Company SAOC

99.99

Distribution of electricity and


maintenance of distribution
networks in the wilayats of
ASharqiyah, Al-Dhakliyah and South
Batinah region.

Majan Electricity Company SAOC

99.99

Distribution of electricity and


maintenance of distribution
networks in the wilayats
of ADhahirah,and North
Batinah region.

Legal status and principal activities (continued)

Subsidiary company

Shareholding
percentage

Principal activities

%
Rural Areas Electricity Company SAOC

99.99

Electricity

Generation,

Desalination,

and

Water
Electricity

Distribution activities in Musandam


Governorate, Al Wusta Region, Masirah
Island, Khuweima and Qroon Area in
Sharqiyah Region, Aswad Area in
Dhahirah

Region

in

the

Dhofar

Governorate, the Area outside Dhofar


Power

Company

SAOC

(DPC)

authorised Area and in the Dhakhliyah


Region, the area outside Mazoon
Electricity Co SAOC authorised Area.
On 31 January 2007, the company along with Ministry of Finance (MOF) sold its entire shareholding (99.99%)
in Al-Rusail Power Company SAOC (RPC), a subsidiary to SMN Power Holding Co. Ltd., Guy Richelle and Jean
Francois Roberge (Buyers) (Note 28).
These consolidated financial statements represent the results of operations of the company and that of all the
above subsidiaries for the year 2007 (the Group) and that of Al Rusail Power Company SAOC for the month of
January 2007.
2

Due to Ministry of Finance

Following the implementation of a decision of the Ministry of National Economy issued pursuant to Royal
Decree 78/2004 (the Sector Law) and in accordance with the transfer scheme, the company and through it,
its subsidiaries received the following assets and liabilities from the Ministry of Housing, Electricity and Water
(MHEW) on 1 May 2005 (Transfer Date):
RO 000
Property, plant and equipment (net)

662,615

Plant spares

8,314

Investment in subsidiaries

4,500

Advance payments

47,840

Trade and other receivables (net)

32,506

Inventories (net)

23,711

Cash and cash equivalents

11

Total assets

779,497

Trade and other payables

(54,794)

Deferred revenue
Due to Ministry of Finance as on 1 May 2005

(2,360)
722,343

Due to Ministry of Finance (continued)

RO 000
Movement during the year 2006 due to restatement of
values required as of Transfer date of 1 May 2005 on
account of:
Oman Electricity Transmission Company SAOC
Accruals wrongly credited to Due to EHC, now corrected
(1,720)
Rural Areas Electricity Company SAOC
Assets transferred to Dhofar Power Company SAOG

(8,672)

Impairment of Sur Desalination Plant (held for sale)

(1,032)

Claim on Dhofar Power Company SAOG, relating to the period


prior to 1 May 2005, now written off

(1,179)

Removal of assets pertaining to MHEW, wrongly included as on


1 May 2005
Adjustments to carrying value of Diesel Generators received from MHEW
Part funding of Sur Desalination Plant by MHEW

(18)
(8,487)
746
(18,642)

Due to Ministry of Finance as on 31 December 2006

701,981

Amount repaid during the year

(46,131)

Restatement of certain assets in Rural Areas Electricity Company SAOC,


taken over from MHEW on 1 May 2005
Due to Ministry of Finance as on 31 December 2007

(153)
655,697

Adoption of new and revised International Financial Reporting Standards (IFRS)

For the year ended 31 December 2007, the Group has adopted all of the new and revised standards and
interpretations issued by the International Accounting Standards Board (IASB) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for year
beginning on 1 January 2007 except IFRIC 4 Determining whether an arrangement contains a lease and
consequently IAS 17-Leases.
The adoption of relevant standards and interpretations has not resulted in changes to the company and its
subsidiaries accounting policies and has not affected the amounts reported for the current year.

10

Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)

Under IFRIC 4-Determining whether an arrangement contains a lease, the power purchase agreement between
Oman Power and Water Procurement Company SAOC (OPWP) and United Power Company SAOG (UPC) and the
arrangement between OPWP and Oman Electricity Transmission Company SAOC (OETC) related to transmission
facilities of UPC will be treated as a finance lease as per the provisions of IAS 17 Leases which will result in
the following:

Recognition of the property, plant and equipment related to the generation, interconnection and
transmission facilities at fair value.

Depreciation of these assets over their estimated useful lives.

Recognition of interest costs implicit in the leases.

The management believes that adoption of IFRIC 4 interpretation will result in recognition of costs, associated
with relevant agreements on a profile inconsistent with the cost recovery mechanism provided for in the licence
issued by the Authority for Electricity Regulation, Oman (AER) and recognition of fixed assets which relates to
production of power and related desalinated water, transmission and distribution activities, which are prohibited
under the licence issued to OPWP by AER and the provisions of the Sector Law. The management is thus of the
opinion that adoption of IFRIC 4 and IAS 17 will result in inappropriate reporting of the costs and profits of the
company and hence has not adopted these.

At the date of authorization of these financial statements, the following standards and interpretations were in
issue but not yet effective:
Effective for annual periods
beginning on or after
IFRIC 11: IFRS 2: Group and Treasury Share Transactions

1 March 2007

IFRIC 12: Service Concession Arrangements

1 January 2008

IFRIC 14: IAS 19-The Limit on a Defined Benefit Asset


Minimum Funding Requirements and their Interaction

1 January 2008

IFRIC 13: Customer Loyalty Programs

1 July 2008

IFRS

2: (Revised) Share-based Payment

1 January 2009

IFRS

8: Operating Segments

1 January 2009

IAS

1: (Revised) Presentation of Financial Statements

1 January 2009

IAS

23: (Revised) Borrowing Costs

1 January 2009

IAS

32: (Revised) Financial Instruments: Presentation

1 January 2009

IFRS

3: (Revised) Business Combinations

1 July 2009

IAS

27: (Revised) Consolidated and Separate Financial Statements

1 July 2009

IAS

28: (Revised) Investments in Associates

1 July 2009

IAS

31: (Revised) Interests in Joint Ventures

1 July 2009

The management anticipates that the adoption of the above standards and interpretations in future periods will
have no material impact on the financial statements of the Group.

11

Summary of significant accounting policies

Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board.

Basis of accounting

These consolidated financial statements are presented in Rial Omani (RO) which is the currency in which majority
of transactions are denominated and are rounded off to the nearest thousand.

These consolidated financial statements have been prepared on the historical cost basis as modified by
measurement of certain financial instruments at fair value.

Basis of consolidation

These consolidated financial statements incorporate the financial statements of the company and entities
controlled by the company (its subsidiaries). Control is achieved where the company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed off during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies in line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Minority interest has not been disclosed separately on the face of the consolidated financial statements as the
sole shareholder of the holding company, being the Ministry of Finance of the Government of Oman, is also the
minority shareholder in all the subsidiaries.

Property, plant and equipment

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

12

Summary of significant accounting policies (continued)

Property, plant and equipment (continued)

Subsequent expenditure

Expenditure incurred to replace a component of an item of property, plant and equipment including major inspection
and overhaul expenditure is capitalised. Other subsequent expenditure is capitalised only when it increases
the future economic benefits embodied in the item of property, plant and equipment. All other maintenance
expenditure is recognised in the consolidated income statement as an expense as and when incurred.

Depreciation

Depreciation is calculated so as to write off the cost of property, plant and equipment (other than capital work in
progress) on a straight line basis over the expected useful economic life of the asset concerned.

The principal estimated useful lives used for this purpose are:

Assets

Buildings

Years

30

Generation assets

25-30

Transmission and related assets

30-60

Distribution and related assets

20-40

Other plant and machinery

12-60

Furniture, vehicles and equipment

05-07

Plant spares

20

Property, plant and equipment include plant spares, which are depreciated over their estimated economic useful
life. Inventory spares with a unit cost of RO 5,000 or greater are recorded as plant spares and included in property,
plant and equipment at the time of their purchase and are transferred to the appropriate asset category upon
issue.

Capital work in progress

Capital work in progress is stated at cost. When commissioned, capital work in progress is transferred to the
appropriate property, plant and equipment category and depreciated in accordance with depreciation policies of
the Group.

13

Summary of significant accounting policies (continued)

Impairment
At each consolidated balance sheet date, the Group reviews the carrying amounts of its assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if
any).
The loss arising on impairment of an asset is determined as the difference between the recoverable amount and
the carrying amount of the asset and is recognized immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is
increased to the revised estimate of its recoverable amount and the increase is recognized as income immediately,
provided that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the asset (cash-generating unit) earlier.

Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise purchase cost and where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their
present location and condition. Cost is calculated principally using the weighted average method. Provision is
made for slow moving and obsolete inventory items on criteria determined by the Group.

Provision for staff benefits


Provision for end of service indemnity for non-Omani employees is made generally in accordance with the Oman
Labour Law unless specified higher in the contract of employment or the Human resource policy and is based on
current remuneration and cumulative years of service at the balance sheet date.
End of service benefit for Omani employees are contributed in accordance with the terms of the Social Securities
Law 1991 and Civil Service Employees Pension Fund Law for direct hires by the company and employees transferred
from MHEW respectively.

Provisions
Provision is recognised in the consolidated balance sheet when the Group has a legal or constructive obligation as
a result of a past event and it is probable that it will result in an outflow of economic benefit that can be reasonably
estimated.

Deferred revenue
Deferred revenue shown under non-current liabilities represents customer contributions towards the cost of
property, plant and equipment. These contributions are deferred over the life of the relevant property, plant and
equipment.

14

Summary of significant accounting policies (continued)

Taxation

Income tax is calculated as per the fiscal regulations of the Sultanate of Oman.
Current tax is the expected tax payable on the taxable income for the year, using the tax rates ruling on the
consolidated balance sheet date.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Deferred tax is calculated on the basis of the tax rates that are expected to apply to the year when the asset is
realised or the liability is settled. The tax effects on the temporary differences are disclosed under non-current
liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that
it is no longer probable that the related tax benefit will be realized.
However, for the purposes of deferred tax, it is assumed that carrying amount of assets and liabilities is equal to
the carrying amounts used for income tax purposes on the Transfer Date.

Revenue

Revenue represents the sale of electricity to the Government, commercial and residential customers within the
Groups distribution network, sale of desalinated water to Public Authority for Electricity and Water (PAEW) and
Majis Industrial Services Company SAOC (MISC) and transmission connection charges.
Revenue also includes the funding received from Ministry of Finance (MOF) in respect of cost relating to the
Salalah business of Oman Power and Water Procurement Company SAOC, a subsidiary.
Total revenue in excess of the maximum allowed by the regulatory formula in accordance with the licensing
requirements is deferred to subsequent year and is shown as other current liability. This is applicable to Distribution
and Supply Companies, Oman Electricity Transmission Company SAOC, Oman Power and Water Procurement
Company SAOC and Rural Areas Electricity Company SAOC.
Other revenue includes meter connection fees, tender fees, bank interest, fines and application of deferred revenue
on customer contributions and is accounted on accrual basis.
Interest income is accounted on accrual basis by reference to the amount outstanding and the applicable interest
rates.

15

Summary of significant accounting policies (continued)

Government subsidy

The Government of the Sultanate of Oman has funded the excess of economic costs over customer and other
revenue within the Electricity and Related Water Sector. This funding is included in revenue. The Group companies
account for subsidy when the right to receive the subsidy is established. This is applicable to Distribution and
Supply Companies and Rural Areas Electricity Company SAOC.

Power purchase cost

Oman Power and Water Procurement Company SAOC, a subsidiary has made fixed capacity contractual payments
to United Power Company for its Manah Power Plant. Such payments are recognised in the income statement
on a straight line basis over the period of the contract, which is representative of the time pattern of the users
benefit. Fixed capacity payments in respect of other Independent Power and Water Projects, are recognised in
the consolidated income statement based on actual payments made which is representative of the time pattern
of the users benefit.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added
to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the profit or loss in the year in which they are incurred.

Foreign currency translation

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 currencies are translated at the rates
prevailing on the balance sheet date. Gains and losses from foreign currency transactions are dealt with in the
consolidated income statement.

Cash and cash equivalents

For the purposes of the statement of cash flows, the Group considers all bank and cash balances with an original
maturity of less than three months from the date of placement to be cash and cash equivalents.

16

Summary of significant accounting policies (continued)

Financial instruments
Financial assets and financial liabilities are recognised on the Groups consolidated balance sheet when the
company and its subsidiaries become a party to the contractual provisions of the instrument.

Financial assets
The principal financial assets are advances, trade and other receivables, bank balances and cash. These are stated
at their nominal values less any allowance for estimated impaired debts.
Advances and receivables are non-derivative financial assets with fixed or determinable payments and are not
quoted in an active market. They are included in current assets, except for maturities greater than 12 months after
the balance sheet date, which are classified as non-current assets.
Financial liabilities
The principal financial liabilities are dues to Ministry of Finance, trade and other payables and bank borrowings.
Trade and other payables are stated at their nominal values.
Bank borrowings are initially measured at fair value, net of transaction costs. They are subsequently measured at
amortised cost using effective interest method, with interest expense recognised on an effective yield basis.
Share capital is stated at the net proceeds received.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are
impaired where there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets, objective evidence of impairment could include:

significant financial difficulty of the counterparty or

default or delinquency in payments.

For certain categories of financial asset, 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 companys past experience of
collecting payments, an increase in the number of delayed payments in the portfolio past the credit period as well
as observable changes in national or local economic conditions that correlate with default on receivables.

17

Summary of significant accounting policies (continued)

Impairment of financial assets (continued)

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with
the exception of trade receivables, where the carrying amount is reduced through the use of a provision account.
When a trade receivable is considered uncollectible, it is directly written off as bad after appropriate approvals.
Subsequent recoveries of amounts previously written off are credited to a revenue account, bad debts
recovered.

Financial risk management

Overview

The Groups activities and its use of financial instruments exposes it to a variety of financial risks being:

Credit risk

Liquidity risk

Market risk

The Groups overall risk management programme focuses on the unpredictability of financial markets and seeks
to minimise potential adverse effects on the Groups financial performance. The Group uses derivative financial
instruments to hedge certain foreign currency fluctuation risk exposures.

Credit risk management is carried out by the respective Group companies and Liquidity and Market risk by the
Group treasury department of the company under policies approved by the Board of Directors. Group treasury
identifies, evaluates and hedges financial risks in close co-operation with the company and its subsidiaries. The
Board provides written principles for overall risk management, as well as written policies covering specific areas,
such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non
derivative financial instruments, and investment of excess liquidity.

(i)

Credit risk

Credit risk is the risk of financial loss to the Group, if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. The credit risk of the Group is primarily attributable to trade and other
receivables and investment in bank deposits.

18

Summary of significant accounting policies (continued)

Trade and other receivables


The Groups exposure to credit risk on trade and other receivables is influenced mainly by the individual characteristics
of each customer. The Group has established credit policies and procedures that are considered appropriate and
commensurate with the nature and size of receivables. Trade receivables primarily represent amount due from
Oman Investments and Finance Company SAOG (OIFC), Oman National Engineering and Investment Company
SAOG (ONEIC), local companies, which are sub-contracted to provide customer meter reading, billing and collection
services; Public Authority for Electricity and Water, Majis Industrial Services Company SAOC (MISC) and dues from
Government customers and other private customers. Management do not consider that there is any significant
exposure from this concentration of credit risk. Other receivables are short term in nature, primarily advances to
suppliers of goods and services and prepaid expenditures.

Investments
The Group limits its exposure to credit risk on its investments by only investing in liquid securities and only with
counterparties which have a good credit rating. Given good credit ratings and liquidity, management does not
expect any counterparty to fail to meet its obligations.

Investment in bank deposits and bank balances


The companys banks accounts are placed with reputed financial institutions.

(ii)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Groups
approach to managing liquidity is to ensure, as far as possible that it will have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
companys credit worthiness.
Typically the Group plans that it has sufficient cash on demand to meet expected operational expenses covering
a period of at least 30 days, including the servicing of financial obligations. This excludes the potential impact of
extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group has
access to credit facilities.

(iii)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, affect the
Groupss income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.

19

Summary of significant accounting policies (continued)

Price risk
The permitted tariff (prices) for generation, transmission, supply and connection of electricity and water by the
relevant Group companies are determined either by long term agreements with the customer of the respective
companies or the Permitted Tariff Regulations issued by the Authority for Electricity Regulation, Oman (AER).

Foreign currency risk


The Groups functional and presentation currency is Rial Omani and the Groups performance is substantially
independent of changes in foreign currency rates. The Group has transactional currency exposures. Group uses
forward currency contracts to eliminate major transactional exposures.
There are no significant financial instruments denominated in foreign currency and consequently, foreign currency
risk is not significant.

Interest rate risk


The Group has short term bank deposits, which are interest bearing and exposed to changes in market interest
rates. The Group adopts a policy of ensuring that all its deposits and borrowing are on a fixed rate basis.

Capital management
The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going concern
and benefit other stakeholders.
The Boards policy is to maintain a strong capital base so as to maintain creditor and market confidence and to
sustain future development of the business.
The Group is confident of improving on the current level of profitability by enhancing top line growth and prudent
cost management. The Group is not subject to externally imposed capital requirements.

Use of estimates
The preparation of the financial statements requires management to make estimates and assumptions that affect
the reported amount of financial assets and liabilities at the date of the consolidated financial statements and the
resultant provisions and changes in fair value for the period. Such estimates are necessarily based on assumptions
about several factors involving varying, and possibly significant, degrees of judgment and uncertainty and actual
results may differ from managements estimates resulting in future changes in estimated assets and liabilities.

20

Summary of significant accounting policies (continued)

Use of estimates (continued)

The following are the significant estimates used in the preparation of the consolidated financial statements:

(i) Depreciation

Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of
useful lives is based on managements assessment of various factors such as the operating cycles, the maintenance
programs, and normal wear and tear using its best estimates.

(ii) Provision for inventory obsolescence

Provision for inventory obsolescence is based on managements assessment of various factors such as usability,
the maintenance programs, and normal wear and tear using its best estimates.

(iii) Provision for impaired debts

Provision for impaired debts is based on managements best estimates of recoverability of the amounts due along
with the number of days for which such debts are due.

(iv) Deferred revenue

Revenue from customer contributions towards the cost of network connection related property, plant and equipment
are deferred over the useful life of those property, plant and equipment based on managements assessment of
various factors such as the usability and normal wear and tear, using its best estimates.

21

22

26,332

200,868

(43,181)

2,832

1,256

239,961

(4,654)

(7,427)

3,285

412

248,345

Generation
assets
RO 000

166,901

(154)

4,466

150

162,439

37,870

10,304

114,265

Transmission
and related
assets
RO 000

313,014

(672)

8,803

30,984

273,899

(1,619)

2,439

22,288

250,791

Distribution
and related
assets
RO 000

38,303

(31)

4,900

1,531

31,903

6,429

1,407

24,067

Other plant
and
machinery
RO 000

4,816

(178)

31

1,603

3,360

(163)

1,224

2,299

Furniture,
vehicles and
equipment
RO 000

11,500

(2,651)

(4,294)

4,275

14,170

(35)

(4,701)

7,988

10,918

Plant
spares
RO 000

800,178

(48,460)

69,223

779,415

(4,654)

(9,587)

58,766

734,890

Total
RO 000

Included under Disposals/adjustments in the cost of property, plant and equipment is an amount of RO 830 thousand at cost (net book value of RO 818
thousand), (2006 Nil) that were destroyed by tropical cyclone Gonu in June 2007.

38,444

(208)

Disposals / adjustments (1,385)

31 December 2007

2,346

(19,084)

Transfers

2,140

27,284

Additions

22,054

31,629

3,121

1,712

17,221

Buildings
RO 000

1 January 2007

Assets held for sale (Note 12)

(48,443)

Transfers

(343)

13,431

Additions

Disposals / adjustments

66,984

Capital
work-inprogress
RO 000

Property, plant and equipment

1 January 2006

Cost

23

Charge for the year

Transfers

Disposals / adjustments

1 January 2007

Charge for the year

Transfers

Disposals / adjustments

31 December 2007

31,629

31 December 2006

20,472

23,678

2,654

(37)

1,109

1,582

978

604

RO 000

Buildings
RO 000

197,003

152,412

48,456

(8,700)

389

13,809

42,958

(1,154)

9,518

122

20,161

14,311

RO 000

Generation
assets
RO 000

157,116

157,746

9,155

(6)

3,838

5,323

3,444

1,879

RO 000

Transmission
and related
assets
RO 000

247,931

270,779

42,235

(54)

16,321

25,968

(35)

15,661

10,342

RO 000

Distribution
and related
assets
RO 000

29,581

34,449

3,854

(3)

58

1,477

2,322

53

1,339

930

RO 000

Other plant
and
machinery
RO 000

2,348

3,098

1,718

(75)

781

1,012

(48)

589

471

RO 000

Furniture,
vehicles and
equipment
RO 000

12,277

9,490

2,010

(118)

(447)

682

1,893

650

(175)

925

493

RO 000

Plant
spares
RO 000

698,357

690,096

110,082

(8,993)

38,017

81,058

(1,154)

10,085

43,097

29,030

RO 000

Total
RO 000

During the year, the relevant subsidiary companies undertook a comprehensive count of their inventories during which exercise, excess / shortages of
plant spares were found and have been appropriately dealt with in the consolidated income statement.

Rights to the land on which the power plant, substation buildings, transmission and distribution networks are constructed were transferred from
MHEW as part of the transfer scheme and are subject to Usufruct Agreements between the MHEW and the respective subsidiary companies.

38,444

31 December 2007

Net book value

(Note 12)

Assets held for sale

1 January 2006

Depreciation

RO 000

Capital
work-inprogress
RO 000

Property, plant and equipment (continued)

Accumulated

Advance payments
2007

2006

RO 000

RO 000

For generation facilities

18,847

20,232

For interconnection and transmission facilities

22,489

24,395

41,336

44,627

Advance payments pertain to fixed capacity payments made to United Power Company SAOG in respect of power
purchases from Manah Power Plant. The tariff in respect of fixed capacity contractual payments for Phase I
comprising plant and interconnection transmission facilities has been structured in such a way that the tariff
rates are significantly higher during initial years as compared to the later period of the contract. Fixed capacity
contractual payments are recognised as an expense in the income statement on a straight line basis, over the
period of the contract, which is representative of the time pattern of the users benefit.
Advance payments represent total cumulative payments made to date reduced by total cumulative charges to date
recognised in the income statement on a straight-line basis.

Inventories

Fuel
Chemicals
General spares
Provision for inventory obsolescence
Goods in transit

2007

2006

RO 000

RO 000

3,023

4,882

146

300

43,613

45,819

(23,421)

(26,766)

431

23,361

24,666

During the year, relevant subsidiary companies undertook a comprehensive count of their inventories, during
which exercise, excess/shortages were found in general spares and have been appropriately dealt with in the
consolidated income statement.

24

Trade and other receivables

2007
RO 000

2006
RO 000

Amounts due from Government debtors

36,634

35,116

Amounts due from OIFC and ONEIC

14,486

13,707

Amount due from PAEW

25,483

21,028

Amount due from MISC

989

4,365

4,872

370

(20,342)

(18,767)

61,985

55,956

Due from Ministry of Finance

5,996

Prepayments

2,596

593

142

2,932

3,592

73,651

60,141

Amount due from Private customers (frozen)


Amount due from other private customers
Provision for impaired debts

Net trade receivables

Income tax advance


Other receivables

Up to 31 December 2007, subsidiary companies, which have supply of electricity as their activity (Licensed
Suppliers), had agreements with Oman Investments and Finance Company SAOG (OIFC) and Oman National
Engineering and Investment Company SAOG (ONEIC) and whereby the monthly customer meter reading, billing
and collection function for private and government customers was outsourced to OIFC and ONEIC. The Licensed
Suppliers had also assigned all amounts due from private customers to OIFC and ONEIC and paid a commission
under the above agreements based on the customer category and the amounts assigned. This arrangement has
been modified effective from 1 January 2008.
The provision for impaired debts substantially relates to government debts yet to be received, taken over from
MHEW as part of the transfer scheme and frozen accounts of private customers.
Due from Ministry of Finance represents the excess amount paid to Ministry of Finance on disbursement of sale
consideration of Al Rusail Power Company SAOC.

25

Other current assets

Other current assets represent short fall of revenue in maximum allowed revenue as per price control formula,
which is accrued during the year.

2007

2006

RO 000

RO 000

11,372

36

11,372

11,408

11,372

Less: Subsidy received during the year

(10,867)

Subsidy receivable as on 31 December

541

11,372

2007

2006

RO 000

RO 000

3,700

7,000

3,700

7,000

Subsidy receivable as on 1 January


Subsidy receivable for the year

10 Bank deposits

Bank deposit with maturity of greater than three months from


the value date of the deposit

Bank deposits are with commercial banks in Oman denominated in Rial Omani (2006 US Dollars), short term in
nature, with effective interest rates ranging from 4.2% to 4.5% (2006 5.1% to 5.4%) per annum.
11 Cash and cash equivalents

Cash on hand
Bank current accounts

2007

2006

RO 000

RO 000

34

22

58,830

10,964

42,569

91,635

101,433

102,621

Bank deposits with a maturity of three months or less from the


value date of the deposit

Bank deposits are with commercial banks in Oman denominated in Rial Omani (2006 US Dollars), short term in
nature, with effective interest rates ranging from 3.8% to 4.5% (2006 5.1% to 5.4%) per annum.

Included in bank current account is an amount of RO 3 thousand (2006-RO 3 thousand) relating to funds of the
Distribution Code Review Panel, held by Muscat Electricity Distribution Company, a subsidiary in the capacity of
it being a member of the Panel (Note 19).

26

12

Assets held for sale

On 7 January 2006, the Government of the Sultanate of Oman decided to sell the Sur Desalination Plant comprising
of 2 Diesel Generator sets and 3 Reverse Osmosis units belonging to Rural Areas Electricity Company SAOC
(RAECO), a subsidiary. Consequently these have been classified as assets held for sale in the consolidated financial
statements and have been stated at the net realizable value of RO 3,500 thousand. The results of operations of
the Sur Desalination Plant have been disclosed as discontinued operations (Note 31). The resulting impairment
loss of RO 1,032 thousand has been charged to the Government through Dues to MOF (Note 2).
On 15 January 2007, the Sur Desalination plant with its ancillary assets and the obligations under the water
purchase agreement with MHEW were transferred to Al Sharqiyah Desalination Company for RO 3,500 thousand
under an Asset Sale agreement.

13

Share capital

The companys authorised issued and paid-up capital consists of 2,000,000 shares of RO 1 each. The shares are
fully owned by the Ministry of Finance, Government of the Sultanate of Oman.

Ministry of Finance

14

Percentage of
Shareholding

Number of
shares

2007
RO000

2006
RO000

100%

2,000,000

2,000

2,000

Statutory reserve

In accordance with the Commercial Companies Law of 1974 (as amended), 10% of the net profit after deduction
of taxes should be transferred to a non-distributable statutory reserve each year until the amount of such statutory
reserve has reached a minimum of one-third of the companys issued share capital. Accordingly, the company and
all except one of its subsidiaries has achieved the amount required for the statutory reserve. This reserve is not
available for distribution to shareholders as dividend.

15

General reserve

In accordance with the Groups accounting policy, an amount not exceeding 20% of the profit after transfer to
statutory reserve should be transferred to a general reserve until the balance of the general reserve reaches one
half of the share capital. Accordingly, the company and all except one of its subsidiaries have achieved the amount
so required.

27

16

Proposed dividend

The Board of Directors of the company at their meeting held on 08 June 2008 have proposed a cash dividend
of RO 0.250 per share aggregating RO 500,000 on the companys existing share capital. (For the year ended 31
December 2006, of RO 0.250 per share aggregating RO 500,000 was proposed and paid as dividend. Dividend
paid by subsidiaries to the minority shareholders (MOF) @ 0.01% amounted to RO 5,000). This dividend is subject
to the approval of the companys shareholders in the Annual General Meeting.

17

Deferred tax liability

Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax
rate of 12%. The net deferred tax liability / (assets) in the consolidated balance sheet and the net deferred tax
charge in the consolidated income statement are attributable to the following items:
Balance at
1 January 2007
RO 000

Charge
for the year
RO 000

Balance at
31 December 2007
RO 000

Provision for inventory obsolescence

(172)

16

(156)

Provision for impaired debts

(343)

(234)

(577)

(3,071)

(4,019)

(7,090)

(3,586)

(4,237)

(7,823)

11,418

8,200

19,618

7,832

3,963

11,795

Assets

Accumulated tax losses

Liability
Accelerated tax depreciation

Reversal due to sale of RPC


Assets
Provision for inventory obsolescence

28

Accumulated tax losses

30

Liability
Accelerated tax depreciation

(296)
11,557

18

Deferred revenue

Deferred revenue shown under non-current liabilities represents customer contributions towards the cost of
property, plant and equipment. These contributions are deferred over the life of the relevant property, plant and
equipment.

28

19

Trade and other payables


2007

2006

RO 000

RO 000

Trade payables

4,947

5,675

Due to Ministry of Finance

8,411

51,334

Accrued expenses

60,187

46,416

Creditors for capital projects

38,602

23,639

2,714

1,076

114,861

128,140

Other payables

Included under Due to Ministry of Finance is an amount of Nil (2006-RO 47,674 thousand) being the amount
funded to the company to meet certain liabilities of the Group, related prior to the transfer date. This amount is
repayable on demand and does not carry any interest.
Included in other payables is an amount of RO 3 thousand (2006-RO 3 thousand) relating to funds of the Distribution
Code Review Panel, held by Muscat Electricity Distribution Company SAOC, a subsidiary in the capacity of it being
a member of the Panel (Note 11).

20

Other current liabilities

Other current liabilities represent revenue in excess of maximum allowed as per price control formula deferred to
subsequent year.

Revenue in excess of maximum allowed as per price


control formula on 1 January

2007

2006

RO 000

RO 000

29,761

7,727

20,119

29,761

49,889

37,488

(29,761)

(7,727)

20,128

29,761

Add: Revenue in excess of maximum allowed


as per price control formula for the year (Note 23)
Interest on excess revenue billed over maximum
allowed revenue under the price control formula

Less: Reversal of Revenue in excess of maximum


allowed as per price control formula during the year (Note 23)
Revenue in excess of maximum allowed as
per price control formula on 31 December

29

21

Bank overdrafts

Bank overdrafts

2007

2006

RO 000

RO 000

1,390

The Group has credit facilities with BankMuscat SAOG including overdrafts to finance the working capital
requirements. Bank overdrafts are repayable on demand or within one year from the date of the Credit Facilities
Agreement.

22

Net assets per share

Net assets (RO 000)


Number of shares at year end (000)
Net assets per share (RO)

2007

2006

777,790

778,106

2,000

2,000

389

389

Net assets per share is calculated by dividing the shareholders equity at the year end by the number of shares
outstanding.

23

Revenue
For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

115,564

104,485

Electricity sales to Government

37,944

39,964

Water sales to PAEW and MISC

57,294

48,181

103,738

107,500

11,110

12,226

150

94

2,452

1,280

328,252

313,730

(338)

29,761

7,727

(10,867)

11,372

(20,119)

(29,761)

(91)

(1,996)

326,598

301,072

Electricity sales to private customers

Government subsidy
Net funding from MOF for Salalah concession
Transmission connection charges
Other operating income

Less: Adjustment for rectification of prior years revenue


in excess of maximum allowed as per price control formula
Add: Previous year revenue in excess of maximum allowed
as per price control formula reversed (Note 20)
(Less) / add: Subsidy (received) / receivable during the year
Less: Revenue in excess of maximum allowed as per price
control formula, deferred to next year (Note 20)
Less: Revenue from discontinued operations (Note 31)

30

23

Revenue (continued)

During the year, Rural Areas Electricity Company (RAECO), a subsidiary of the company has reviewed activities
of the Meter Reading, Billing & Collection (MRBC) Contractor, ONEIC and identified possibilities of customers
not billed for energy consumption, particularly in 2007. Most of these customers are in remote and sparsely
populated areas. RAECO is in the process of discussion with ONEIC to determine and recover the unbilled energy
consumption as accurately and practically possible. (Considering the past average consumption pattern of such
customers, the unbilled revenue is estimated approximately at RO 500,000.) Pending resolution of this matter,
no revenue recognition for unbilled energy consumption by the above customers has been done in these financial
statements.

24

Operating costs
For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

133,125

94,207

Gas and diesel consumption

51,732

66,815

Depreciation

36,570

41,796

Payments to Dhofar Power Company SAOG

8,202

8,570

Contract fee for plant operation and maintenance

3,835

7,059

Staff costs

2,473

Spares and consumable expenses

8,513

7,149

Maintenance and repairs expenses

9,845

5,284

188

354

Inter connection and transmission facilities charges

1,657

726

Other direct costs

2,135

2,651

258,275

234,611

(129)

(1,232)

258,146

233,379

Power and water purchase costs

Chemicals consumption

Less: Operating cost of discontinued operations (Note 31)

Included under spares and consumable expenses is an amount of RO 575 thousand (2006-RO 2,428 thousand) on
account of net shortage of general and plant spares written off based on a comprehensive count of general and
plant spares undertaken by the relevant subsidiary companies during the year.
Included in spares and consumable expenses an amount of RO 1,801 thousand (2006-Nil) and maintenance and
repairs expenses is an amount of RO 1,926 thousand (2006-Nil), incurred on account of materials utilised for
repair work on the damages caused by tropical cyclone (Gonu) in June 2007 (Note 26).

31

25

General and administrative expenses


For the year ended
31 December 2007
RO 000

For the year ended


31 December 2006
RO 000

14,592

12,621

Service expenses

8,316

6,794

Depreciation

1,447

1,301

341

246

1,575

3,016

Inventory obsolescence charge

114

599

Loss on sale of property, plant and equipment

130

214

4,259

3,075

30,774

27,866

(15)

(269)

30,759

27,597

Staff costs

Directors remuneration (including bonus) and sitting fees


Provision for impaired debts

Other expenses

Less: General and administrative expenses of


discontinued operations (Note 31)

Included in other expenses is an amount of Nil (2006-RO 1,213 thousand) relating to Usufruct charges for the 8
months period for 2005.

Other expenses stated above, include a net sum of RO 1,972 thousand (2006-Nil) incurred on account of damages
to property, plant and equipment caused by the tropical cyclone Gonu in June 2007 of which RO 818 thousand is
towards write-off of the net book value of property, plant and equipment destroyed, RO 1,284 thousand towards
bonus, overtime and sundry expenses for staff working on repair works (Note 26) and a credit for insurance claim
of RO 130 thousand received from insurance company covering part of the losses caused by Gonu.

26

Impact of Tropical Cyclone GONU

Tropical cyclone Gonu which struck the Sultanate of Oman on 6 June 2007, caused significant adverse effect on
four of the subsidiary companies financial position.
The total effect in the income statement for Gonu related damages (net of insurance claims received) of the
Group is:
For the year ended
31 December 2007
RO 000

For the year ended


31 December 2006
RO 000

Operating costs (Note 24)

3,727

General and administrative expenses (Note 25)

1,972

5,699

32

27

Commission

For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

Billing commission

2,302

2,156

Factoring commission

4,402

3,940

6,704

6,096

Commission represents the billing and factoring commission paid to OIFC and ONEIC for undertaking customer
meter reading, billing and collection services, and factoring of private customers debts.

28

Other income

For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

6,317

3,594

12,538

Penalties and fines

797

213

Sale of forms and tenders

204

92

Sale of scrap

240

109

Write back of provision for inventory obsolescence

748

753

26

1,508

936

22,378

5,697

Interest on bank accounts


Profit on sale of investment in a subsidiary (Note 29)

Profit on sale of property, plant and equipment


Other revenues

Included under other revenues is an amount of RO 346 thousand (2006 RO 673 thousand) pertaining to net
excess in inventories based on a comprehensive count of general spares and plant spares undertaken by the
company during the year.

29

Disposal of investment in a subsidiary

The company along with Ministry of Finance (MOF) entered into a Share Sale and Purchase Agreement (SPA) on
6 December 2006 with SMN Power Holding Company Limited (SMN) to sell their entire share holding in Al Rusail
Power Company SAOC (RPC). The sale was completed on 31 January 2007 for an aggregate consideration of RO
50 million paid by SMN, subject to adjustments under the provisions of the SPA. The final adjusted consideration
determined by the Completion Accounts of RPC was RO 48.5 million. Accordingly EHC paid back the differential
amount of RO 1.5 million due to SMN on 17 July 2007. Out of the net consideration of RO 48.5 million, RO 35.5
million is towards settlement of Due to EHC in the books of RPC and balance RO 13.0 million is towards sale of
the companys investment in RPC.

33

29

Disposal of investment in a subsidiary (continued)


For the year ended
31 December 2007
RO 000

For the year ended


31 December 2006
RO 000

Trade receivables

2,809

Inventories

3,234

Book value of net assets sold


Current assets
Cash and cash equivalents

Non current assets


Property, plant and equipment

36,674

(4,026)

(141)

(9)

(238)

(167)

Retained earnings

(2,164)

Net assets disposed off

35,974

Gain on disposal

12,538

48,512

(2)

48,510

(35,472)

Current liabilities
Trade payables
Provision for current tax
Non-current liabilities
Provision for staff benefits
Deferred tax liabilities
Reserves and Surplus
Statutory reserve

Less: Cash and cash equivalents balances disposed off


Gross proceeds on sale of a subsidiary
Less: Amount paid towards settlement of Due to EHC
Net consideration received in cash and cash equivalents

34

13,038

30

Income tax charge

Income tax is provided as per the provisions of the Law of Income Tax on Companies in Oman after adjusting
the items which are non-assessable or disallowed. The tax rate applicable to the company and all its subsidiaries
is 12%. The deferred tax on all temporary differences have been calculated and dealt with in the consolidated
income statement.

For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

516

512

3,963

3,627

4,479

4,139

(59)

4,485

4,080

For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

91

1,996

(129)

(1,232)

(15)

(269)

(59)

(Loss) / profit after tax from discontinued operations

(47)

436

Cash flow from discontinued operation

(53)

495

Tax charge for the year comprises:


Current tax
Deferred tax (Note 17)

Add / (less) : Income tax charge on discontinued


operations (Note 31)
Income tax charge during the year

31

Discontinued operations

Revenue
Operating cost
General and administrative expenses
Income tax charge

Discontinued operation represents operations relating to Sur desalination plant which was transferred to Al
Sharqiyah Desalination Company on 15 January 2007 (Note 12). The General and administrative expenses have
been apportioned to the discontinued operation in the ratio of revenue therefrom to the total revenue of the
REACO, a subsidiary.

35

32

Basic earnings per share


For the year ended

For the year ended

31 December 2007

31 December 2006

48,804

35,873

2,000

2,000

24.402

17.937

Profit for the year (RO 000)


Number of shares at the year end (000)
Earnings per share (RO)

The par value of each share is RO 1. The earnings per share is calculated by dividing the profit after tax for the
year by the number of shares outstanding at the year end.

33

Related parties

Related parties comprise the shareholders, directors, key management personnel and business entities in which
they have the ability to control or exercise significant influence in financial and operating decisions. For the
purpose of IAS 24, the Government of the Sultanate of Oman being the sole shareholder of the company is not
considered as a related party.
The company maintains balances with these related parties which arise in the normal course of business from the
commercial transactions and are entered into at terms and conditions which is considered to be comparable with
those adopted for arms length transactions with third parties. Outstanding balances at year end are unsecured
and settlement occurs in cash.
No expenses have been recognized in the year for bad or doubtful debts in respect of amounts owed by related
parties.

Key management benefits


Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Group, directly or indirectly, including any Director (whether executive or otherwise).
The compensation for key managerial personnel during the year is as follows:
For the year ended

For the year ended

31 December 2007

31 December 2006

RO 000

RO 000

1,981

1,295

Post employment benefits

308

93

Directors remuneration (including bonus) and sitting fees

341

246

2,630

1,634

Short term benefits

36

34

Contingencies and operational commitments

(a)

Contingent assets

Transmission & Distribution-Extension and Enhancement allowance


The Government has fixed Transmission and Distribution-Extension and Enhancement (T&DEE) allowance based
on the actual value of work executed by Dhofar Power Company SAOG (DPC). Accordingly, the Government has
been making payments of T&DEE allowance, determined on the basis of estimated value, at a monthly rate of RO
88 thousand. However, DPC had accrued the T&DEE allowance at a rate of RO 107 thousand per month based on
the contracted value of T&DEE work.
In accordance with the provisions of Concession Agreement, the matter was referred to a Legal Expert for
determination of the T&DEE allowance. The Expert has determined in favour of DPC on 24 August 2005. Based
on the Experts determination, OPWP has paid to DPC its claim amount of RO 676 thousand as well as continued
to pay the higher allowance of RO 107 thousand during the year and has claimed the same, as pass through
cost, from MOF. However, the Government has notified to DPC that it intends to challenge the ruling of the
Expert through the process of arbitration. The cumulative amount paid to DPC on account of increased (T&DEE)
allowance till 31 December 2007 stands at RO 898 thousand.
(i)

Oman Power and Water Procurement Company SAOC (OPWP), a subsidiary has certain claims from Dhofar
Power Company (DPC) in respect of DPCs certain non-compliance with the Salalah Concession Agreement.
These claims are as follows:

For 2003
During 2004, OPWP notified Dhofar Power Company (DPC), its claim for penalties on it of approximately RO 1.1
million in respect of certain non-compliance with the Concession Agreement by DPC during the year 2003.
In accordance with the provisions of the Concession Agreement, the parties referred the issues in this regard to
an independent Expert. The Expert determined in favour of DPC on 14 July 2005. OPWP has notified DPC that it
intends to challenge the ruling of the Expert through the process of arbitration.

For 2004
In 2005, OPWP has claimed RO 1.9 million, as penalties from DPC for certain non-compliance with the concession
agreement during 2004. DPC has disputed the claim. OPWP is evaluating its options of pursuing the matter
further.

For 2005
In March 2006, OPWP has claimed from DPC RO 0.4 million as penalties for certain non-compliance with the
concession agreement during 2005. DPC has disputed the claim. OPWP is evaluating its options of pursuing the
matter further.

37

34

Contingencies and operational commitments (continued)

(a)

Contingent assets (continued)

For 2006
OPWP is yet to receive the System Performance Report for the year 2006, which may identify any non-compliance
with the concession agreement leading to claims by the company on DPC.
All receipts and payments related to DPC are pass through transactions to Ministry of Finance.
(ii)

Liquidated damages
The company has claimed liquidated damages of RO 2.2 million, from Sohar Power Company SAOC (SPC)
for delay in achieving Commercial Operation Date (COD) and RO 1.1 million for early power delay claims.
While SPC has contested the claim, it has not yet exercised its option of Experts determination in this
matter.

(iii)

In accordance with the terms of the Billing and Collection Contract with OIFC, the subsidiary company
Muscat Electricity Distribution Company SAOC (MEDC) has a pending claim of RO 717 thousand against
the contractor, towards penalty for meters not read during the contract period. No income and asset
has been recognized in the books for this amount as it is disputed by the contractor and currently under
review by both parties.

(iv)

The management of the RAECO is currently pursuing arbitration proceedings against an Operation and
Maintenance (O&M) Contractor, claiming compensation for a total amount of RO 1,598 thousand for
damages due to their improper performance of the O&M contract, leading to failure of power generating
unit at Salalah Power Station in June 2000. The contractor has disputed the claim of RAECO.

(b)

Contingent liabilities

Claims against the Group not acknowledged as debts

2007

2006

RO 000

RO 000

3,931

72

(i)

The company has received a notice of claim in the amount of RO 1,350 thousand from SMN Power
Holding Company Limited (buyers of Al Rusail Power Company SAOC (RPC), an erstwhile subsidiary of
the company). Under the terms of the Share Sale and Purchase Agreement (SPA), this claim may impact
the consideration due to the company for the sale of RPC. The company believes that there is no merit in
the claim and has thus repudiated the same.

(ii)

For the year 2007, an amount of RO 1,253 thousand has been claimed against OPWP by DPC on account
of increased Transmission and Distribution System Operating Cost Allowance. The matter is under dispute
with DPC and hence no provision has been made for this amount in these financial statements.
All receipts and payments related to DPC are pass through transactions to Ministry of Finance.

38

34

Contingencies and operational commitments (continued)

(b)

Contingent liabilities (continued)

(iii)

The management of the subsidiary company, Al Ghubrah Power and Desalination Company SAOC (GPDC)
is currently pursuing arbitration proceedings against the erstwhile Operation and Maintenance (O&M
contractor) claiming compensation for damages resulting from their improper performance of the O&M
contract, leading to excessive deterioration of some plant and equipment. The contractor is claiming RO
4,227 thousand of which RO 3,855 thousand is towards their contract fee invoices raised on the company
and provided for in the books, The additional sum of RO 372 thousand claimed by the contractor is
towards their invoices for supply of miscellaneous material and services, which are disputed by the
company and covered under the arbitration proceedings, provision for which is not required since the
management believes that the same is not tenable.

GPDC will secure a bank guarantee before releasing the above payment of RO 3,855 thousand.
(iv)

A contractor of the subsidiary company Oman Electricity Transmission Company SAOC (OETC) has
claimed payment of RO 90 thousand on account of additional work carried out. The management of
OETC believes that the claim is not tenable as the work carried out was required as per contracted terms.
No provision for this amount has therefore been made in the books of accounts.

(v)

During the year Billing and Collection contractor (OIFC) of subsidiary company Muscat Electricity
Distribution Company SAOC, has sought refund of net excess amount of RO 718 thousand remitted by
them with respect to customers whose accounts were Frozen or were to be Frozen. MEDC is yet to verify
these figures. If agreed the amount ultimately will increase the Amount due from private customers
(frozen) and reduce the Amounts due from OIFC to that extent, this would also increase the corresponding
provision for impaired debts.

(vi)

The claims against the subsidiary company Mazoon Electricity Company SAOC (MZEC), regarding certain
litigations in progress against the company relating to disputes with a contractor amounting to RO 148
thousand and with an ex-employee. The legal advisors of MZEC have advised that these claims do not have
any merit and be contested. No provision has been made in the books as the company does not consider
these claims to result in any material loss.

(c)

Commitments

2007

2006

RO 000

RO 000O

2,344

801

44,752

11,709

Operational commitments
Letters of credit
Capital commitments
Contracted but not provided for

39

35

Financial risks

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at
the balance sheet date is on account of:
2007

2006

RO 000

RO 000

Trade receivables

82,327

74,723

Other receivables

11,666

4,185

541

11,372

3,700

7,000

101,433

102,621

199,667

199,901

Other current assets


Bank deposit with a maturity of greater than three
months from the value date of the deposit
Cash and cash equivalents

The exposure to credit risk for trade receivables at the balance sheet date by type of customer is:
2007

2006

RO 000

RO 000

36,634

35,116

Oman Investments and Finance Company SAOG

7,246

6,939

Oman National Engineering and Investment Company SAOG

7,240

6,768

Private customers (frozen)

4,365

4,872

370

Public Authority for Electricity and Water

25,483

21,028

Majis Industrial Services Company SAOC

989

82,327

74,723

Government customers

Other private customers

The age of trade receivables and related impairment loss at the balance sheet date is:
31 December 2007

31 December 2006

Gross

Impairment

Gross

Impairment

RO 000

RO 000

RO 000

RO 000

Not past due

35,509

21,551

Past due 1-365 days

22,682

26,719

3,740

995

8,765

2,143

20,396

19,347

17,688

16,624

82,327

20,342

74,723

18,767

1-2 years
More than 2 years

There is no impairment assessed for other receivables.

40

35

Financial risks (continued)

The movement in provision for impairment for receivables is as follows:

Brought forward balance

2007

2006

RO 000

RO 000

18,767

15,902

1,575

3,016

(151)

20,342

18,767

Charge for the year (Note 25)


Write back during the year
Carried forward balance

The provision account in respect of trade receivables is used to record impairment losses unless the relevant Group
companies are satisfied that no recovery of the amount owing is possible. At that point the amount considered
irrecoverable is directly written off in the trade receivables account.

Liquidity risk

The following are the contractual maturities of financial liabilities, including interest payments:

Carrying

1-365

1-2

More than

amount

days

years

2 years

RO 000

RO 000

RO 000

RO 000

106,450

106,450

8,411

8,411

114,861

114,861

Carrying

1-365

1-2

More than

amount

days

years

2 years

RO 000

RO 000

RO 000

RO 000

Trade and other payables

76,806

76,806

Due to Ministry of Finance

51,334

51,334

1,390

1,390

129,530

129,530

31 December 2007
Trade and other payables
Due to Ministry of Finance

31 December 2006

Bank overdrafts

41

35

Financial risks (continued)

Interest rate risk

At the balance sheet date the interest rate risk profile of the companys interest bearing financial instruments was:

2007

2006

RO 000

RO 000

3,700

7,000

42,569

91,635

46,269

98,635

Fixed rate assets related instruments


Bank deposit with a maturity of greater than three months from the
value date of the deposit
Bank deposit with a maturity of three months or less from the
value date of the deposit (included in cash and cash equivalents)

Fair value sensitivity analysis for fixed rate instruments

The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss.
Therefore a change in interest rates at the balance sheet date would not affect profit or loss.
Fair value of financial assets and liabilities
The carrying value of the financial assets and liabilities as recorded in the consolidated balance sheet approximates
to their fair value.

36

Approval of the consolidated financial statements

The consolidated financial statements were approved by the Board of Directors of the company and authorised
for issue in their meeting held on 8 June 2008.

37

Comparative figures

Certain comparative figures have been reclassified wherever required to conform to current years presentation.
The comparative figures in the consolidated income statement and consolidated cash flow statement include the
results of operations of the Al Rusail Power Company SAOC (RPC), a subsidiary for the 12 month period ended
31 December 2006 and are not comparable to the current year presentation which includes results of operations
only for the month of January 2007 of RPC (Note 1).

42