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Annual Report 2006

AL GHUBRAH POWER & DESALINATION COMPANY SAOC

ANNUAL REPORT 2006

Annual Report 2006

His Majesty Sultan Qaboos Bin Said

Annual Report 2006

Restructuring the business such that it becomes an effective, safe and autonomous organization sufficiently well equipped to operate the Ghubrah Power and water production facility through to 2010. mission

is to take the business through major change processes from 2007 to 2010 whilst maintaining and enhancing business credibility and operational safety .

Annual Report 2006

Table of Contents

Subject

Page No

Report of Board of Directors Corporate Governance Management Report Auditor Report

.7 .9 ...11 ...16

Annual Report 2006

List of Tables & Figures

Page NO.

Table: 1

The following table details the composition of BOD Members & record of attendance The following table details the composition of IAC Members & record of attendance The following table details the composition of ITC Members & record of attendance Generation Statistics for Year 2006 Generation Profile for Maximum & Minimum Generation Day Generation Statistic of water for Year -06 The Organization Structure Revenue distribution between Power,Water & Fuel Total Cost Gas Cost vs cost recovery

.9 ...10 ...10 ...12 ...12 ...13 ...13 ...14 ...15 ...15

Table: 2

Table: 3

Figure: 1 Figure: 2 Figure: 3 Figure: 4 Figure: 5 Figure: 6 Figure: 7

Annual Report 2006

Board of Directors
Eng.Omar Khalfan Al Wahaibi Chairman of the Board of Directors Eng.Nabil Abdullah Al Ghassani Vice Chairman of the Board of Directors

Mr.Hamed Jaber Al Mahrooqi Member of the Board of Directors

Dr. Ali Hamed Al Ghafri Member of the Board of Directors

Mr. Abdulaziz Mohammed Al Kharousi Member of the Board of Directors

Annual Report 2006

1- Report of Board of Directors

Dear Shareholders, On behalf of the board of directors, I have pleasure in presenting the annual report for the year ended 31 December 2006, together with the audited statement of accounts for Al Ghubrah Power and Desalination Company SAOC. (GPDC) In responding to the need to improve the health and safety issues on site, the company has re-defined the success criteria in the 2007 business plan, placing Health and Safety on a par with Financial Performance. Operation Management: During 2006, the company operated and managed the assets, and liabilities, as per the principles defined in the Sector Law. It should be noted that the operational and maintenance activities during 2006 were undertaken by the use of contracted out services, which will be replaced by the company employees in 2007. Financial Position: For the year ended 2006 the companys accounts followed the International Accounting Standards and the International Financial Reporting Interpretations Committee (IFRIC) The net book value of the company assets as at end of the year is R.O 122 Million, the gross profit was R.O 6.237 Million and net profit after tax was R.O 5.175 Million, giving a return of R.O 10.350 per share. Plant Performance: The Company produced a generation total of 2.48 Million MWH for the year ended 31 December 2006. With a total water production of 53.5 Million cubic meters of water. The average availability for power units during summer period was 90% and during winter period 70 %. With the average availability for Desalination units 95 % during summer and 80 % during winter. Throughout the operating year, the management of the company followed the generation and desalination license granted by Omans Electricity Regulatory Authority. In accordance with the Sector Law, the company continued during 2006 with the Power and Water Purchase Agreement (PWPA), The Electrical Connection Agreement, and The Operations Records Agreement with other successor companies. The company further intends, in the next year of business, to enter into a Natural Gas Sales agreement with the Ministry of Oil &Gas (MOG), A Usufruct agreement for granting of usufruct rights, and A Water Connection Agreement, with the MHEW.

Annual Report 2006

Company Establishment/Governance: The establishment of the company was facilitated according to the Commercial Companies Law and the company operated during the year in accordance with the conditions of commercial registration, the companies Memorandum & Articles of Association, as well as Corporate Banking, Financial Arrangements and Import License. Thanks and Appreciation The BOD appreciates the support and trust of the shareholders and also appreciates the hard work and dedication of the management and employees who contributed to the reorganisation and enhancement of the company. I also would like to thank H.E. The Chairman of the BOD of the EHC for his support and guidance during this second commercial year of operation. Finally, I would like to convey our extreme thanks and appreciation to His Majesty Sultan Qaboos Bin Said and his Government for their untiring commitment and support to the development of the electricity and water sector in Oman.

Omar bin Khalfan Al-Wehaibi Chairman

Annual Report 2006

2. Corporate Governance Report The code of corporate governance deals with the way companies are led and managed, the role of the board of directors and a frame work of internal controls. The company has adopted a set of business principles and corporate conduct based on best practice. Good governance is reflected in the leadership, management and day to day operations of the company by the Board of Directors, the management and the employees of the company.

Board of Directors The board comprises of five non executive members appointed by the Council of Ministers. The Board hold six meetings in 2006. The date of the Board meeting were 1/03/06,19/03/06,23/05/06,27/06/06,27/08/06 and 14/11/06.
Name of Directors Eng.Omar Khalfan AL-Wahaibi Eng.Nabil Abdullah AL-Ghassani Vice Chairman Dr.Ali Hamed AL-Ghafri Member Hamed Jaber AL-Mahrooqi Member Abdulaziz Mohammed AL-Kharosi Member 6/6 6/6 6/6 6/6 Designation Chairman Meeting Attendance 6/6

Table1. The following table details the composition of Board of Directors Members & record of attendance

The Board of Directors responsibilities are: Review the strategic plans. Review the effectiveness of internal controls Approval of business plans and budgets Approval of interim and annual financial statements. Approval of policies and procedures.

Committees of the Board of Directors:The Board has formed Internal Audit Committee & Internal Tender Committee in the first meeting held on 17/04/05. Internal Audit Committee The Internal Audit Committee comprises a chairman and two Directors. The committee met six times time on 15/01/06,7/02/06,4/04/06,6/05/06,21/05/06 and 7/06/06.

Annual Report 2006

Name of committee member Hamed Jaber AL-Mahrooqi Dr.Ali Hamed AL-Ghafri

Designation Chairman Member

Committee Meeting Attendance 6/6 6/6 5/6

Abdulaziz Mohammed AL-Kharosi Member

Table2. The following table details the composition of Internal Audit Committee Members & record of attendance

The Internal Audit Committees duties and responsibilities are: - Review quarterly and annual financial statements. - Considering external audit fees and terms of engagement. - Oversight of all audit activities and internal control evaluation - Conduct any special investigations and report to the Board.

Internal Tender Committee The Tender Committee comprises a chairman and three Directors. The committee met thirteen times. The Tender Committees responsibilities to oversee the procurement and contracting requirements of values between RO 15,000 to RO 250,000.

Name of committee member Dr.Ali Hamed AL-Ghafri Eng.Nabil Abdullah Al-Ghassani

Designation Chairman Member

Committee Meeting Attendance 12/13 12/13 12/13 12/13

Hamed Jaber AL-Mahrooqi Member Abdulaziz Mohammed AL-Kharosi Member

Table3. The following table details the composition of Internal Tender Committee Members & record of attendance

Remuneration of Directors The details of sitting fees which are paid to the Board and committees members are shown below: -Board sitting fees is R.O 300 for Chairman and R.O 200 for other member. - Internal audit committee and internal tender committee sitting fees is R.O 150 for each member. The total remuneration paid to the Directors, Internal Audit Committee members and Internal Tender Committee for 2006 was R.O 11400.

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Annual Report 2006

3-Management Report: Operational & Organisational Highlights The twelve month period reviewed in this report, concluding December 31, 2006, was one of responding to major re- organisational changes, and was compounded by past practices which are no longer suitable in meeting the needs of the industry, Management have defined these as being inherited and have addressed them in the business plan for 2007 2010. The approach adopted is one of risk management whereby the risks are identified and controlled, before they are allowed to impact the business. The change process initially includes a transition phase which sees the facility transfer from contractor dependence to self management by the end of 2007. The business plan is based on the intention by the shareholders to ultimately sell the business to an interested party (i.e. an IPWP) Clearly this is the priority for management and forms the basis of the objectives of the business plan, in detailing this we have identified 5 success criteria, which it is believed will ensure the company will emerge as an attractive proposition to prospective bidders, these are HSE, Cost, Timing, Teamwork & Quality. After undergoing a detailed site risk assessment we have established a risk repository based on the above, whereby the most significant risks to the success criteria of the business are tested for the possibility of occurance and magnitude of impact should they occur, these risks have then been crystalised on to the RACI chart such that they are visible to everyone, especially management, with each person clearly shown as being responsible for his actions and who in turn can then be evaluated against their input and performance. Bringing about change to an established workforce is always one of the most difficult challenges for any management organisation, Management believe that by re-educating, developing and training employees by involving them directly in the business, they will be equipped to operate in the new sector alongside IPWPs and hence will benefit from the opportunities for employment and professional development available to them. Power Generation Al Ghubrah proved to be a reliable provider of service to its customers. At the year end, the contract reliability was in excess of 80%. Al Ghubrah plant generated 2484 GWH during the twelve month period of 2006. The net power exported on to the grid during the period was 2339 GWH. During the critical summer season of 2006, the plant performed close to the maximum capacity, providing reliable power to the national grid and achieving in excess of 88% availability during the peak season, the statistics for 2006 are shown bellow:-

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Annual Report 2006

Generation Statistics For Year-2006 Power


300

Elect Energy Gen Elect Energy Delivered Load factor

250

200 G-Wh

150

100

50

0
8 71 38 9 74 38 7 77 38 8 80 38 8 83 38 9 86 38 9 89 38 0 93 38 1 96 38 1 99 38 2 02 39 2 05 39

Figure 1: Generation Statistics for Year 2006

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Annual Report 2006

The highest power generation figure was recorded on10th July 2006 at 9355MW with the lowest generation figure being recorded on 22 December at 3646MW.

Generation Profile for Max-Min Generation Day


Load prof ile for M ax Gen day Load prof ile for min Gen day

450 400 350 300 250 200 150 100 50 -

MWh

Figure 2: Generation Profile for Maximum & Minimum Generation Day

01 .0 0 03 .0 0 05 .0 0 07 .0 0 09 .0 0 11 .0 0 13 .0 0 15 .0 0 17 .0 0 19 .0 0 21 .0 0 23 .0 0

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Annual Report 2006

Water production During 2006 GPDCo continued to fulfil the expectations of reliable, safe and quality potable water. The delivered potable water amounted to 52.27 million cubic meters. The statistics for 2006 water production are illustrated bellow:
water Cap A vailable

Generation Statistics For Year-2006 Water 5500000

Water delivered Lo ad facto r

100 95 90 85

5000000

4500000

4000000 80 3500000 75 3000000 70 65 60


38 93 0 38 86 9 38 80 8 39 02 2 38 74 9 38 77 7 38 83 8 38 89 9 38 96 1 38 99 1 39 05 2

2500000

2000000
38 71 8

Figure 3. Generation Statistics of Water for Year 2006

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Annual Report 2006

Organisation & Human Resource:

Board of Directors Internal Audit Committee


GM PA

Internal Tender Committee General Manager


Dy GM

Purchase/Procurement Management

Company Administration

Financial Managemen Plant Manager

Information Technology

Planning Managemen

Commercial Management

Maintenance Management
Figure4. Organisation Structure

Safety Management

Operations Management

During 2006, The Board of directors approved the re-organisation of the company as proposed by the management and as shown above, the re-organisation was proposed in order to allow direct managerial control of the operation and maintenance functions of the business, and included for a Safety Management function. During the period reviewed in this report, the company GPDCo employed 30 staff of which 26 were Omanis; achieving 86.66% Omanisation. The operation and maintenance contractor employed 276 staff of which 212 were technical staff and 64 were administrative. In this organisation the contractor achieved an Omanisation level of approximately 50%. Revenue Gubrah Power & Desalination Co. SAOC was formed on 1 May 2005 prior to this there was no meaningful data to ascertain the commercial performance of the company in financial terms.

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Annual Report 2006

During the period from 1st January 2006 to December 31st 2006 the company earned total revenue of RO50.335 M with electricity contributing 45% of that figure and water 55%.
Revenue detail for Year-2006
6,000,000 Revenue for Pow er Revenue for w ater revenue for Gas Total revenue

5,000,000

4,000,000 RO

3,000,000

2,000,000

1,000,000

Ja n06 Ju n06 Ju l-0 6 06 Se p06 06 Fe b06 ov -0 6 N Au g06 M ay M ar Ap rec -0 6 D ct -0 6 O 06

Figure 5. Revenue Distribution between power, water& fuel

Net profit and EPS


The total revenue of the Company was RO 50.335M, with 45% contributed by electricity activities and 55% contributed by desalination activities. The company earned a net profit of RO 5.175M giving a basic earnings per share of RO 10.350 on a share capital of RO500, 000. The net profit ratio was 10.3%. The company operations are financed by an interest free loan from the Electricity Holding Company SAOC. Of the total operating costs, natural gas constitutes 60%.
Ot her co st s- 3 %

D ep r eciat io n- 2 2 %

St af f co st s- 1%

Sp ar es- 6 %

Gas co st s- 6 0 %

O&M - 8 %

Gas co sts

O &M

S pa re s

Staff co sts

D e pre c ia t io n

O t he r c o s t s

Figure 6. Total Cost

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Annual Report 2006

Gas Cost vs Cost recovery Gas cost recovery is a pass through cost but due to inefficiencies of plant and meters there is a shortfall in the recovery as shown above. The management have undertaken a study to identify where these losses exist and under what operating regime the losses are more pronounced, there are indications that the contractor may have been operating the plant outside the fuel efficient (co-generation) design. The management are also evaluating the way in which the fuel efficiencies are managed when converting gas energy in to electrical power and energy used in water production.

Gas Reco very

Detail of Gas recovery Losses for the Year-2006

M OG Invo ice %age lo ss wrt reco very co st

3,000,000

50 45

2,500,000

40 35 30

2,000,000 RO

1,500,000

25 20

1,000,000

15 10 5

500,000

6 6 6 6 6 6 6 06 06 06 06 06 -0 -0 -0 -0 -0 -0 nbr- 0 ctulgar un ov ec ay ep J u O Ja J Fe M Ap S N D A M

Figure 7. Details of gas recovery losses for the year 2006

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Max Gen day with 9355 MWh on 1/07/06

Annual Report 2006

4-Auditor Report

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