Board of Directors’ Report
Dear Shareholders,
On behalf of the Board of Directors of United Power Company SAOG (UPC), I am glad to present you with
the Ninth Annual Report of the Company for the year ended 31 December 2003.
Manah Power Plant has been running smoothly and efficiently, and there is no particular event worthwhile to
mention.
The 5 generator sets of the project were operated without problem and showed the reliability and
performances expected for such high-technology machines.
The Plant’s operation and maintenance was efficiently performed by our contractor Sogex (Oman);
the long-term service agreement signed with General Electric (GE), the supplier of all our gas
turbines, showed also to be efficient and cost-effective.
The Company recorded in 2003, a net profit of Rials Omani 5.328 million. The underlying revenues and costs
are in line with the plan and reflect the decreasing schedule of the Phase I and ITF Capacity Charge. The
Directors of the Company have, therefore, recommended a final ordinary dividend of Rials Omani 2.267
million, which brings the total ordinary dividend for the year to 13% of the current share capital of the
Company.
The shares held by Tawoos LLC have been transferred to the Ministry of Defence Pension Fund,
and I welcome the participation in UPC of this prominent institution.
UPC complies and maintains high standards to the Code of Corporate Governance implemented by
the Capital Market Authority as described in the related attached section of this report.
I would like to thank all the personnel associated with the operation of our Manah Power Plant and staff of the
Company for their dedication and hard work.
On behalf of the Board of Directors, I would also like to take this opportunity to extend our gratitude to His
Majesty Sultan Qaboos Bin Said and His Government for their continued support and encouragement to the
private sector. May Allah protect them for all of us.
Murtadha Ahmed Sultan
Chairman of the Board
UNITED POWER COMPANY (SAOG)
Financial statements
31 December 2003
Registered office
Principal place of business
Office Block no: 2
Jawharat Al Shatti
P O Box 147
Postal Code 134
Sultanate of Oman
Manah
17 km South of Nizwa
Sultanate of Oman
UNITED POWER COMPANY (SAOG)
Financial statements
31 December 2003
Contents
Page
Report of the Auditors
1
Income statement
2
Balance sheet
3
Statement of changes in equity
4
Cash flow statement
5
Notes
6-19
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF
UNITED POWER COMPANY (SAOG)
We have audited the balance sheet of United Power Company (SAOG) (the “Company”) as at 31 December
2003 and the related statements of income, changes in equity and cash flows for the year then ended, as set
out on pages 2 to 19.
Respective responsibilities of the Board of Directors and the Auditors
These financial statements are the responsibility of the Company’s Board of Directors. Our responsibility is
to express an opinion on these financial statements based on our audit.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing as promulgated by the
International Federation of Accountants. Those Standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by the Board of Directors, as well as evaluating the overall financial statements presentation. We believe
that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion the financial statements present fairly, in all material respects, the financial position of
United Power Company (SAOG) as at 31 December 2003 and the results of its operations and its cash flows
for the year then ended in accordance with International Financial Reporting Standards as promulgated by
the International Accounting Standards Board, the Project Agreements, the minimum disclosure
requirements of the Capital Market Authority and comply, in all material respects, with the Commercial
Companies Law of 1974, as amended.
Without qualifying our audit report, we draw your attention to note 4 on page 7 which states that because of
the tariff structures agreed with the Government, net profits available for appropriation to the Shareholders
during the earlier years of operation will be significantly higher than the profits during the later years.
During the second half of the Project Life, in certain years, the Company would incur accounting losses and
during that period where profit is low or there are losses, the Company has planned to redeem the share
capital of the Company to compensate the Shareholders for the absence of dividends.
8 April 2004
KPMG
Page 2
UNITED POWER COMPANY (SAOG)
Income statement
for the year ended 31 December 2003
Note
Operating revenue
Operating costs
2003
RO’000
2002
RO’000
18,519
21,432
6
(3,972)
--------------------14,547
(4,410)
--------------------17,022
9
(6,654)
--------------------7,893
(6,628)
--------------------10,394
Net financing expenses
7
(2,210)
(2,710)
Other income
8
396
--------------------6,079
384
---------------------8,068
15
(751)
--------------------5,328
========
(755)
----------------------7,313
=========
Gross profit
Depreciation
Profit from operations
Profit before tax
Deferred taxation
Net profit for the year
Returns to the shareholders
Basic earnings per share
13
Interim dividend per ordinary share
13
Final dividend per ordinary share
13
Total dividend per ordinary share
13
Total dividend per preference share
13
The notes on pages 6 to 19 form part of these financial statements.
The report of the Auditors is set forth on page 1.
RO
RO
0.153
=========
0.065
=========
0.065
=========
0.130
=========
0.141
=========
0.210
=========
0.090
=========
0.080
=========
0.170
=========
0.186
=========
Page 3
UNITED POWER COMPANY (SAOG)
Balance sheet
as at 31 December 2003
2003
RO’000
2002
RO’000
9
75,715
---------------------
80,581
--------------------
10
11
12
366
7,435
4,974
--------------------12,775
--------------------88,490
========
373
3,663
9,861
--------------------13,897
--------------------94,478
========
34,869
4,764
5,474
2,398
607
--------------------48,112
---------------------
34,869
4,764
4,941
2,943
1,019
--------------------48,536
---------------------
Note
ASSETS
Non-current assets
Property, plant and equipment
Current assets
Fuel and spares stock
Trade and other receivables
Cash and bank balances
Total current assets
TOTAL ASSETS
EQUITY
Share capital
Share premium
Legal reserve
Proposed distribution
Retained earnings
TOTAL EQUITY
13
LIABILITIES
Non-current liabilities
Term loans
Deferred taxation
14
15
22,455
5,548
--------------------28,003
---------------------
29,902
4,797
--------------------34,699
---------------------
16
17
14
3,315
1,613
7,447
--------------------12,375
--------------------40,378
--------------------88,490
========
1.380
========
3,630
132
7,481
--------------------11,243
--------------------45,942
--------------------94,478
========
1.392
========
Total non-current liabilities
Current liabilities
Trade and other payables
Bank overdraft
Current maturities of term loans
Total current liabilities
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Net assets per share (RO)
19
The notes on pages 6 to 19 form part of these financial statements.
These financial statements were approved and authorised for issue by the Board of Directors on _______
2004 and were signed on its behalf by:
_______________________
Murtadha Sultan (Chairman)
The report of the Auditors is set forth on page 1.
________________________
Guy Richelle (Vice Chairman)
Page 4
UNITED POWER COMPANY (SAOG)
Statement of changes in equity
for the year ended 31 December 2003
Share
Share
capital premium
RO’000 RO’000
1 January 2003
Payment of 2002 final dividend
Net profit for the year
Transfer to legal reserve
Directors’ remuneration
Interim dividends for 2003
- preference shareholders
- ordinary shareholders
Final dividends for 2003
- preference shareholders
- ordinary shareholders
31 December 2003
1 January 2002
Payment of 2001 final dividend
Net profit for the year
Transfer to legal reserve
Directors’ remuneration
Interim dividends for 2002
- preference shareholders
- ordinary shareholders
Final dividends for 2002
- preference shareholders
- ordinary shareholders
31 December 2002
Legal
Proposed
reserve distribution
RO’000
RO’000
34,869
-
4,764
-
4,941
533
-
-
-
-
------------------34,869
=======
---------------4,764
======
34,869
-
Total
RO’000
1,019
5,328
(533)
(433)
48,536
(2,943)
5,328
(433)
-
(1,469)
(907)
(1,469)
(907)
---------------5,474
======
1,491
907
---------------2,398
======
(1,491)
(907)
---------------607
======
------------------48,112
=======
4,764
-
4,210
731
-
3,317
(3,317)
-
1,288
7,313
(731)
(594)
48,448
(3,317)
7,313
(594)
-
-
-
(2,059)
(1,255)
(2,059)
(1,255)
--------------------- --------------------- --------------------34,869
4,764
4,941
======== ======== ========
1,827
1,116
--------------------2,943
========
(1,827)
(1,116)
--------------------1,019
========
--------------------48,536
========
The notes on pages 6 to 19 form part of these financial statements.
The report of the Auditors is set forth on page 1.
2,943
(2,943)
-
Retained
earnings
RO’000
Page 5
UNITED POWER COMPANY (SAOG)
Cash flow statement
for the year ended 31 December 2003
2003
RO’000
2002
RO’000
14,899
(4,212)
--------------------10,687
(2,259)
--------------------8,428
---------------------
22,563
(4,624)
--------------------17,939
(2,710)
--------------------15,229
---------------------
(1,788)
2
--------------------(1,786)
---------------------
(73)
--------------------(73)
---------------------
(7,481)
(5,529)
--------------------(13,010)
--------------------(6,368)
(8,042)
(6,631)
--------------------(14,673)
--------------------483
9,729
--------------------3,361
========
9,246
--------------------9,729
========
4,974
(1,613)
--------------------3,361
========
9,861
(132)
--------------------9,729
========
Cash flows from operating activities
Cash receipt from MHEW and others
Cash paid to employees, Directors and suppliers
Cash generated from operations
Interest paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Proceeds from disposal of equipment
Net cash used in investing activities
Cash flows from financing activities
Repayment of long-term loans
Dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents at the end of the year comprise the following:
Cash and bank balances
Bank overdraft
The notes on pages 6 to 19 form part of these financial statements.
The report of the Auditors is set forth on page 1.
Page 6
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
1
Legal status and principal activities
United Power Company (SAOG) (the “Company”) is registered as a joint stock company in the
Sultanate of Oman. The Company has been established to undertake a project primarily to build,
own, operate and transfer (“BOOT”) to the Government of the Sultanate of Oman (the
“Government”) a power station at Manah, and to build, own and transfer (“BOT”) to the
Government interconnection and transmission facilities from Manah to Muscat. The Company may
also undertake activities related to the expansion of its primary objective. Accordingly, the
Company implemented the Phase II-Expansion Project (“Expansion Project”) during the year
ended 31 December 2000.
2
Duration of the Company
The original duration of the Company was for a period of twenty-five years commencing from
9 January 1995 being the date of its registration in the Commercial Register of the Ministry of
Commerce and Industry (“MOCI”). At an extra-ordinary general meeting held on 17 January 2000,
the duration of the Company was increased by five years thereby revising the duration of the
Company to thirty years commencing from 9 January 1995. The MOCI has approved the
extension to the Company's Life on 11 October 2000.
All the property, plant and equipment of the Company shall be transferred at RO 1 to the
Government automatically at the end of the Project Life, which, in accordance with
Supplemental Agreements for the Expansion Project, expires on 30 April 2020. (At the end
of the Project Life the value of the shares of the Company shall become nil).
3
Agreements
Agreements with the Government for project implementation, power purchase and land lease for
phase I (“Project Agreements”) were entered into on 27 June 1994 by the United Power Group
(the “Group”) comprising some of the Founder Shareholders. Under a Novation Agreement
entered into by the Company with the Group, the Company has assumed all rights, duties,
liabilities and obligations of the Group pursuant to the Project Agreements.
The Company has entered into a Management Agreement with Power Development Company
LLC, a related party, to provide full management and administrative services to the Company.
The Company has entered into an Operations & Maintenance Agreement with Sogex Oman LLC, a
Shareholder, for the operation and maintenance of the power station.
The Company has also entered into a Project Supervision Undertaking Agreement with Tractebel
SA (formerly Powerfin SA) for providing technical support to the Company’s operations.
Pursuant to the Project Agreements, the Company has, on 19 December 1999, entered into
Supplemental and Addendum Agreements with the Government for the expansion of the power
generation facilities. The above agreements have been amended and the duration of all the
agreements has now been extended upto 30 April 2020.
Page 7
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
3
Agreements (continued)
The Company has also entered into a Spare Parts Supply & Repair Contract with G E Energy
Products France SNC, formerly known as European Gas Turbines S.A., for phase I, the
manufacturer of the turbines, for supply of spares for annual maintenance, the replacement and
repair of defective parts, twenty-four hour technical assistance and delivery of major components
in emergency. The agreement is effective from 1 October 1996 and will expire on 31 December
2005. The Company has entered into a long-term service agreement with General Electric
International Inc. for the Expansion Project over the Company’s Project Life. The agreement is
effective from 3 December 2000.
4
Basis of preparation of financial statements
These financial statements have been prepared on the basis that the Company commenced full
generation and distribution of electricity on 15 October 1996. All costs incurred during the
construction period of the project were capitalised on 15 October 1996.
The Company commenced partial generation and distribution of electricity on 31 May 1996. On
15 October 1996 the entire construction of the power station and transmission facilities was
completed and from that date the Company commenced full generation and distribution of
electricity. The Ministry of Housing, Electricity and Water (“MHEW”) has determined 1 January
1997 as the “Commercial Operation Date” and has issued the Commercial Completion Certificate
on that date.
In the Addendum Agreements signed between the Company and the Government, it has been
agreed to adopt, for the purposes of calculating fixed capacity charges, a “notional tariff year”
commencing 1 October and ending 30 September. Invoices from the month of October 1999 have
been prepared on the above basis. The Government and the Company have acknowledged in the
Addendum Agreements that they have been unable to resolve the dispute relating to Commercial
Operations Date and have agreed to negotiate in good faith, the resolution of the dispute.
Accordingly, the differences between the Company and the Government relating to Fixed Capacity
Charges for the period prior to 1 October 1999 have not been resolved.
Under the Supplemental and Addendum Agreement to the power purchase agreement
(“Supplemental Agreement”), the operation date for the Expansion Project was 1 May 2000. The
MHEW issued an interim completion certificate for the first unit of the Expansion Project on
29 April 2000. The interim completion certificate for the second unit of the Expansion Project as
well as the commercial operations certificate for the Expansion Project were issued by the MHEW
on 19 May 2000. Accordingly, 19 May 2000 has been determined as the “Commercial Operation
date” for the Expansion Project. The Company has billed the MHEW from the respective
completion dates for the two units of the Expansion Project as per the Supplemental Agreement.
The tariff for electricity generated and supplied to MHEW has been structured in the Project
Agreements in such a way that the tariff rates are significantly higher during the initial years as
compared to the later period of the Project Life. The tariff for electricity to be generated and
supplied under the Supplemental Agreement has been structured so that the tariff is more
uniformly received over the Project Life. The Company’s gas turbines, interconnection and
transmission facilities, and plant buildings and ancillaries are being depreciated over a period of
fifteen and twenty years respectively on a straight line basis in accordance with the Project
Agreements.
Page 8
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
4
Basis of preparation of financial statements (continued)
Accordingly, while the combined tariff revenue for the Company after the first eight years of
operations will significantly reduce, the annual depreciation charges will remain constant. The net
profits available for appropriation to the Shareholders will be significantly higher during the first
half and will be lower during the second half of the Project Life. Based on the current projections,
the Company is expected to incur accounting losses during certain years. It is, however, not
possible to quantify the effect on the net profit for the year if revenue recognised was matched with
the depreciation charge. To provide a return to the Shareholders in the years where the profit is low
or there are losses, the Company has planned reduction of share capital during certain periods.
Consequent to the Expansion Project, the Company now expects to incur accounting losses only
during four years. If the Expansion Project had not been implemented, the Company would have
incurred accounting losses during the last ten years of its initial Project Life.
5
Principal accounting policies
(a)
Statement of compliance
These financial statements have been prepared in accordance with the International Financial
Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board
(“IASB”), interpretations issued by the International Financial Reporting Interpretations
Committee (“IFRIC”) of the IASB, Project Agreements, the minimum disclosure requirements of
the Capital Market Authority and the requirements of the Commercial Companies Law of 1974, as
amended.
(b)
Basis of preparation
These financial statements are presented in Rials Omani (“RO”) rounded off to the nearest
thousand. The financial statements have been prepared under the historical cost basis. The
accounting policies applied by the Company are consistent with those used in the previous year.
(c)
Operating revenue
Operating revenue comprises tariffs for fixed capacity charges for transmission facilities and
turbines, variable capacity charges and energy charges. Tariffs are calculated in accordance with
the Project Agreements. No revenue is recognised if there are significant uncertainties regarding
recovery of the consideration due and associated costs.
Tariff revenue has been accounted net of gas fuel costs, which are borne by the Government of the
Sultanate of Oman.
(d)
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line
basis over the term of the lease.
(e)
Net financing expense
Net financing expense comprises interest payable on borrowings and interest receivable on escrow
accounts.
Interest income is recognised in the income statement as it accrues. Interest expense is recognised
in the income statement as incurred.
Page 9
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
5
Principal accounting policies (continued)
(f)
Employee benefits
Contributions to defined contribution retirement plan for Omani employees, in accordance with
Oman Social Insurance Scheme, are recognised as expense in the income statement as incurred.
Provision for non-Omani employee terminal contributions, which is an unfunded defined benefit
retirement plan, is made in accordance with Omani Labour Laws and calculated on the basis of the
liability that would arise if the employment of all employees were terminated at the balance sheet
date.
(g)
Foreign currencies
Transactions in foreign currencies are translated to Rials Omani at the foreign exchange rate ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at
the balance sheet date are translated to Rials Omani at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in the income statement. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at historical cost,
are translated to Rials Omani at the foreign exchange rate ruling at the date of the transaction.
(h)
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and
impairment losses (refer accounting policy l). Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in the item of property, plant and equipment. All
other expenditure is recognised in the income statement as an expense as incurred.
Depreciation is charged to income statement. Capital work-in-progress is not depreciated. In
accordance with the Project Agreements, depreciation on property, plant and equipment is
calculated so as to write off their cost by equal instalments as follows:
Years
Gas turbines
Interconnection and transmission facilities (“ITF”)
Plant buildings and ancillaries
Other assets - furniture, equipment and motor vehicles
(i)
15
18 - 20
20
4
Trade and other receivables
Trade and other receivables are stated at their cost less impairment losses [accounting policy (l)].
(j)
Fuel and spares stock
Fuel and spares stock is stated at the lower of cost and net realisable value. Cost is determined on
the first-in, first-out principle and includes all costs incurred in acquiring the inventories and
bringing them to their existing location and condition.
Page 10
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
5
Principal accounting policies (continued)
(k)
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and balances with banks. Bank overdrafts that
are repayable on demand and form an integral part of the Company’s cash management are
included as a component of cash and cash equivalents for the purpose of the statement of cash
flows.
(l)
Impairment
The carrying amounts of the Company’s assets, other than inventories [accounting policy (j)] and
deferred tax assets [accounting policy (q)], are reviewed at each balance sheet date to determine
whether there is any indication of impairment. If any such indication exists, the asset’s recoverable
amount is estimated. An impairment loss is recognised in the income statement whenever the
carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
The recoverable amount of the Company’s receivables is calculated as the present value of
expected future cash flows, discounted at the original interest rate inherent in the asset.
Receivables with a short duration are not discounted.
(m)
Dividends
Dividends on preference and ordinary shares are recognised as a liability in the period in which
they are declared.
(n)
Trade and other payables
Trade and other payables are stated at cost.
(o)
Provisions
A provision is recognised in the balance sheet when the Company has a legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will be
required to settle the obligation. If the effect is material, provisions are determined by discounting
the expected future cash flows at a pre-tax discount rate that reflects the current market
assessments of the time value of money and, where appropriate, the risks specific to the liability.
(p)
Preference share capital
Preference share capital is classified as equity as it is non-redeemable.
(q)
Income tax
Income tax on the profit or loss for the year comprises deferred taxation. Income tax is recognised
in the income statement except to the extent that it relates to items recognised directly to equity, in
which case it is recognised in equity.
Deferred tax is provided using the balance sheet liability method on all temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is calculated on the basis of the tax rates that are
expected to apply to the period when the asset is realised or the liability is settled. The tax value of
losses expected to be available for utilization against future taxable income is set off against the
deferred tax liability.
Page 11
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
5
Principal accounting policies (continued)
(q)
Income tax (continued)
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the unused tax losses and credits can be utilised. Deferred tax
assets are reduced to the extent that it is no longer probable that the related tax benefit will be
realised.
6
Operating costs
2003
RO’000
2002
RO’000
816
762
680
622
350
320
79
60
53
38
38
30
24
11
13
5
71
________
3,972
=========
Included in operating costs are employee related expenses as follows:
1,066
762
673
773
338
318
109
62
43
38
38
25
22
54
13
7
69
________
4,410
=========
Repair and maintenance expenses - plant
Operation and maintenance expense
Management fee
Insurance expense
Project supervision fees and costs
Salaries, wages and other benefits
Legal and professional fees
Escrow account charges and IFC fees
Rent expenses
Site security
Local Services
Meeting expenses
Repair and maintenance- general
Provision for doubtful debts
Telecommunication expenses
Utilities
Miscellaneous expenses
Wages and salaries
Other benefits
Increase in liability for unfunded defined benefit retirement plan
Contributions to defined contribution retirement plan
162
144
12
2
--------------------320
========
The number of employees at 31 December 2003 was 16 (2002: 16).
7
168
133
14
3
--------------------318
========
Net financing expenses
Interest expenses
Interest income
2,281
(71)
--------------------2,210
========
2,864
(154)
--------------------2,710
========
Page 12
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
8
Other income
2003
RO’000
2002
RO’000
Reversal of accruals
Exchange gain
Profit on sale of property, plant and equipment
385
378
9
6
2
----------------------------------------396
384
========
========
Reversal of accruals and other payables represent old liabilities which are no more payable.
Accordingly, these are reversed during the year.
9
Property, plant and equipment
Cost
1 January 2003
Acquisitions
(Disposals)
31 December 2003
Depreciation
1 January 2003
Charge for the year
(Disposals)
31 December 2003
Gas
turbines
RO’000
ITF
RO’000
Plant
buildings
and
ancillaries
RO’000
52,993
307
--------------------53,300
---------------------
52,933
--------------------52,933
---------------------
14,525
3,566
--------------------18,091
---------------------
16,352
2,669
--------------------19,021
---------------------
Other
assets
RO’000
Capital
work-inprogress
RO’000
7,945
--------------------7,945
---------------------
294
21
(6)
--------------------309
---------------------
- 114,165
1,460
1,788
(6)
--------------------- --------------------1,460 115,947
--------------------- ---------------------
2,450
398
--------------------2,848
---------------------
257
21
(6)
--------------------272
---------------------
33,584
6,654
(6)
--------------------- --------------------40,232
--------------------- ---------------------
Total
RO’000
Carrying amount
31 December 2003
35,209
33,912
5,097
37
1,460
75,715
======== ========
======== ========
======== ========
31 December 2002
38,468
36,581
5,495
37
80,581
======== ========
======== ========
======== ========
Land on which the power station, buildings and ancillaries are constructed has been leased from
the Government for the period of the Project Life. Lease rent is paid at the rate of RO 1,000 per
annum. Capital work-in-progress represents certain components of the turbines, which were
installed during 2004.
10
Fuel and spares stock
Liquid fuel stock
Spares stock
2003
RO’000
2002
RO’000
312
312
54
61
----------------------------------------366
373
========
========
The Company, in accordance with the Project Agreements, is required to maintain a base stock of
liquid fuel for use in case of interruption in supply of gas fuel. Spares stock is for gas turbines and
ITF and is held for emergencies.
Page 13
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
11
Trade and other receivables
Tariff receivable from the MHEW
Less: Impairment losses
Other receivables and prepayments
12
2003
RO’000
2002
RO’000
8,618
(1,881)
--------------------6,737
698
--------------------7,435
========
4,979
(1,871)
-------------------3,108
555
-------------------3,663
========
Cash and bank balances
Escrow accounts
Current accounts
Dividend accounts
Cash in hand
4,917
8,014
40
1,608
11
236
6
3
---------------------------------------4,974
9,861
========
========
In accordance with the Project Agreements, the Company is required to maintain an escrow
account to which all receipts from the MHEW are transferred. In addition, other escrow accounts
are maintained for various disbursements. Interest is earned at the rates ranging between 1% and
1.5% per annum.
13
Equity
Share capital
At 31 December 2003, the Company’s authorised share capital comprised 15,965,760 ordinary
shares (2002: 15,965,760) and 23,948,640 preference shares (2002: 23,948,640) of RO 1 each
(2002: RO 1).
At 31 December 2003, the Company’s issued and paid-up share capital consists of 34,869,400
shares (2002: 34,869,400) of RO 1 each (2002: RO 1) analysed as follows:
Paid
Paid
Total
in cash
in kind
RO’000
%
RO’000
RO’000
Preference shares
Ordinary shares
20,922
60
19,884
1,038
13,947
40
13,947
-------------------------------------------------------------------------34,869
100
33,831
1,038
========
=====
========
========
Preference shareholders have the right to two votes per share at any general meeting of the
Company and are entitled to a dividend of up to 5% of the net profit of the Company prior to and
in addition to any dividend to the holders of ordinary shares. The holders of ordinary shares have
the right to one vote per share at any General Meeting of the Company.
Page 14
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
13
Equity (continued)
The Company’s preference shareholders at 31 December were as follows:
2003
2002
---------------------------------------------------------------------------------- -------------------------------------------------------------------% to
% to
2002
% to % to
Number
preference
total
Number preference total
of shares
shares
shares
of shares
shares shares
Tractebel SA, Belgium
National Trading Co. LLC
Tawoos LLC
Ministry of Defence,
Pension Fund
W J Towell & Co. LLC
The Zubair Corporation
International Finance
Corporation, USA
Tractebel Engineering Int.
SA, Belgium
11,091,437
1,906,689
-
53.0
9.1
-
31.7 11,091,437
5.5 1,906,689
- 1,906,689
1,906,689
1,906,689
1,906,689
9.1
9.1
9.1
5.5
5.5
5.5
1,854,753
8.9
5.3
53.0
9.1
9.1
31.7
5.5
5.5
1,906,689
1,906,689
9.1
9.1
5.5
5.5
1,854,753
8.9
5.3
348,694
1.7
1.0
348,694
1.7
1.0
--------------------------------------------------- --------------------------------------- ------------20,921,640
100.0
60.0 20,921,640
100.0 60.0
==========
=====
===== ==========
===== =====
None of the ordinary shareholders own more than 10% of the Company’s share capital.
The value of the shares shall become nil at the end of the Project Life.
Share premium
The premium of RO 0.800 per share on rights issue in the total amount of RO 4,764,000 has been
transferred to the share premium account.
Legal reserve
The Commercial Companies Law of 1974 requires that 10% of a company’s net profit be
transferred to a non-distributable legal reserve until the amount of legal reserve becomes equal to
one-third of the Company’s issued share capital.
Basic earnings per share
Basic earnings per share is calculated as follows:
Net profit for the year (RO’000)
Number of shares outstanding at 31 December (’000)
Basic earnings per share (RO)
2003
2002
5,328
========
34,869
========
0.153
========
7,313
========
34,869
========
0.210
========
Page 15
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
13
Equity (continued)
Dividends per ordinary share
Dividends per ordinary share is calculated as follows:
Dividends for ordinary
shareholders (RO’000)
Number of ordinary shares
outstanding at 31 December (’000)
Dividends per ordinary share (RO)
2003
--------------------------------------------------------Interim Final
Total
2002
------------------------------------------------------------Interim
Final
Total
907
907
1,814
======== ======= =======
1,255
=======
1,116
2,371
======= =======
13,947 13,947 13,947
======== ======= =======
0.065 0.065
0.130
======== ======= =======
13,947
=======
0.090
=======
13,947 13,947
======= =======
0.080
0.170
======= =======
Dividends per preference share
Dividends per preference share is calculated as follows:
Dividends for preference shares (RO’000)
Number of preference shares outstanding at 31 December (’000)
Dividends per preference share (RO)
14
2003
2002
2,960
========
20,922
========
0.141
========
3,886
========
20,922
========
0.186
========
Long-term loans
Total
RO’000
IFC Loan “A”
IFC Loan “B”
IFC Loan “C”
Export Credits:
ECGD
COFACE
COFACE Phase II
Bank Muscat
Commercial loan
31 December 2003
31 December 2002
Payable
Payable
within between 1
one year and 5 years
RO’000
RO’000
Payable Effective average
between 5 rate during
and 10 years
the year
RO’000
%
2,409
2,169
469
482
2,169
469
1,927
-
-
3.88
3.38
3.38
2,887
4,416
14,941
1,966
645
--------------------29,902
========
37,383
========
1,041
1,472
1,111
655
48
--------------------7,447
========
7,481
========
1,846
2,944
8,496
1,311
367
--------------------16,891
========
20,825
========
5,334
230
--------------------5,564
========
9,077
========
8.28
8.26
6.28
10.00
2.95
Page 16
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
14
Long-term loans (continued)
All the above loans are denominated in US Dollars and secured pari-passu by registered mortgages
over property, plant and equipment of the Company.
International Finance Corporation (“IFC”) loan “A” is repayable in twenty-four equal semi annual
instalments. IFC loan “B” is repayable in sixteen equal semi-annual instalments. The balance in
IFC loan “C”, as at 31 December 1999, is repayable in ten equal semi-annual instalments.
COFACE loan is repayable in twenty equal semi annual instalments. ECGD loan is repayable in
twenty equal semi-annual instalments. Loan from Bank Muscat is repayable in twenty equal semi
annual instalments. The repayments commenced on 1 June 1997.
In December 1999, the Company entered into a Buyer Credit Agreement with COFACE
(“COFACE Loan Phase II”) to part finance the Expansion Project with a facility in the amount of
approximately RO 20.6 million (US$ 53.2 million). The loan comprises principal amount,
insurance premium due to COFACE and interest due to COFACE on drawdowns till the
Commercial Operation Date. The total loan obtained is in the amount of approximately RO 20.6
million (US$ 53.2 million). The loan is repayable in twenty semi-annual instalments beginning
1 December 2000.
The Company also entered into a commercial loan facility agreement with a commercial bank in
the amount of approximately RO 900,000 (US$ 2.3 million) to part finance the Expansion Project.
The loan is repayable in twenty semi-annual instalments beginning 1 December 2000.
The loan agreements contain certain restrictive covenants, which include, amongst others,
maintenance of certain debt equity ratios, certain restrictions on the transfer of shares, payment of
dividends, disposal of property, plant and equipment and incurrence of additional debt.
The Company has fixed the rate of interest on its IFC loan “A” and “B” facilities through interest
rate capping arrangement. The Company has entered into an Interest Rate Cap Transaction with
JP Morgan on 11 October 1994. This Agreement is effective from 28 November 1994 and valid
up to 28 September 2008. Through this Agreement, the Company has fixed its floating rate
interest borrowings from IFC loan “A” and “B” to a cap rate of 7.75%. This fixed rate excludes
the applicable margins on the facilities. At the commencement of this capping agreement the
notional amount agreed was US$ 21.5 million, which reached the maximum notional amount of
US$ 60 million on 30 September 1996, and thereafter has reduced. At 31 December 2003, the
Company has interest rate capping on the notional amount of US$ 11.9 million (equivalent to
approximately RO 4,572,000). The Company paid an up front fee in the amount of
US$ 2.8 million.
Fair value
The estimates of fair value of fixed interest rate borrowings has been determined by the
Management based on discounting the relevant cash flows using current interest rates for similar
instruments. At 31 December 2003, the fixed interest rate borrowing facilities were in the amount
of approximately RO 25.6 million and at that date the fair value of fixed interest rate borrowings
was approximately RO 24.6 million.
Page 17
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
15
Deferred taxation
2003
RO’000
2002
RO’000
1 January
Deferred tax charge for the year
4,797
4,042
751
755
------------------------------------31 December
5,548
4,797
=======
=======
In accordance with the Project Agreements, the Company is exempt from income tax up to 2004.
Provision for deferred income tax relating to accelerated tax depreciation has been established in
these financial statements at the tax rate of 12% (2002: 12%).
16
Trade and other payables
Accruals and other payables
Interest payable
Retention payable
Amount due to related parties
Contract payable
Directors’ remuneration payable
2,552
2,806
182
231
147
155
115
9
84
153
235
276
---------------------------------------3,315
3,630
=======
=======
As of 31 December 2003, an amount of approximately RO 407,000 is due to shareholders of the
Company as dividend payable but not collected. Accordingly, this amount has been transferred to
the Investors Trust Fund established by Capital Market Authority on 7 February 2004.
Included in accruals and other payables is liability towards unfunded defined benefit retirement
plan as follows:
1 January
Expense recognised in the income statement
Paid during the year
31 December
17
59
12
(13)
----------------58
=======
47
13
(1)
-------------------59
=======
Bank overdraft
The Company has a US Dollar denominated overdraft facility with a commercial bank in the
amount of RO 5.4 million (US $ 14 million). The facility is unsecured and interest is charged at
rates ranging between 3.13% and 3.44% (2002: between 3.8% and 4.1%) per annum.
18
Related party transactions
The Company has a related party relationship with entities over which certain Directors exercise
significant influence. The Company also has a related party relationship with its Directors.
Page 18
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
18
Related party transactions (continued)
Prices and terms for these transactions, which are entered into in the normal course of business, are
on terms and conditions, which the Directors consider, are comparable with those that could be
obtained from unrelated third parties. The volume of related party transactions were as follows:
Management fee
Project supervision fee and other costs
Interest and fees on IFC loans
Other expenses
Directors’ remuneration
Directors’ meeting fees
19
2003
RO’000
2002
RO’000
680
350
288
50
=======
673
338
478
39
=======
433
6
-=====
594
5
=====
Net assets per share
Net assets per share is calculated by dividing the net assets at the year end by the number of shares
outstanding as follows:
2003
2002
Net assets (RO’000)
Number of shares outstanding at 31 December (’000)
Net assets per share (RO)
20
48,112
========
34,869
========
1.380
========
48,536
========
34,869
========
1.392
========
Commitments
Operating lease commitments
Land on which the power station, buildings and ancillaries are constructed has been leased from
the Government for the period of the Project Life. At 31 December 2003, future minimum lease
commitments under non-cancellable operating leases are as follows:
Within one year
Between one and five years
After five years
Other commitments
Letter of credit
2003
RO’000
2002
RO’000
1
4
11
========
1
4
12
========
193
========
193
=======
Page 19
UNITED POWER COMPANY (SAOG)
Notes
(forming part of the financial statements)
21
Financial instruments
Exposure to interest rate, credit and currency risks arises in the normal course of the Company’s
business.
Interest rate risk
The Company's long-term borrowings are on fixed as well as floating interest rate basis. The
Company manages its exposure to floating interest rate risk by ensuring that these long-term
borrowings are subject to an interest rate capping.
The Company's short-term borrowings are on floating interest rate basis. The Company is exposed
to interest rate risk due to fluctuation in market interest rate.
Credit risk
The entire tariff receivables represent amounts due from MHEW in respect of power supplied by
the Company under the terms of the Project Agreements and accordingly credit risk is minimised.
Foreign currency risk
The Company manages foreign currency risk by entering into foreign currency transactions in
United States Dollars only. The Rial Omani is currently pegged to the United States Dollar.
Fair value
The Board of Directors considers that the fair values of all financial assets and liabilities are not
significantly different from their carrying amounts.
22
Comparative figures
Certain comparative figures have been reclassified, wherever required, to conform to the
presentation adopted in these financial statements.