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4.

10 Related Party Transactions


4.10.1 Process Objectives
The objective of this procedure is to ensure that transactions with related parties are accounted for and disclosed per the provisions of international accounting standards.

4.10.2 Definitions a. Related Party: Parties are considered to be related if one party has the
ability to control the other party or to exercise significant influence or joint control over the other party in making financial and operating decisions. Related parties shall include: i. A natural person who directly or indirectly owns a material number of shares having the right to vote and the relatives of such a natural person up to the fourth degree. ii. The enterprise that owns a percentage of shares with voting rights that enable it to influence its transactions through one or more intermediaries. iii. Members of the Board of Directors and management such as executive directors in the entity or in the holding enterprise, and the relatives of such persons to the fourth degree. iv. The enterprise in which any of the person(s) referred to in (1), (2) or (3) above or their relatives up to the fourth degree that own directly or indirectly material percentage of the shares of the enterprise and having the power to influence the decisions of the company and to achieve its own interest. v. vi. vii. Subsidiary or affiliated entities. Funds allocated for the benefit of the enterprise employees. The external auditor and his partners.

b.Related Party Transaction: A transfer of resources, services or


obligations between related parties, regardless of whether a price is charged.

4.10.3 Scope
The scope of this procedure applies to all related party transactions.

4.10.4 Policy
a.Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence or joint control over the other party in making financial and operating decisions. Currently the Company identifies following entities as related party: viii. ix. x. xi. xii. xiii. ACWA Power Projects; Malakoff; TNB; TNB Remaco; SEPCO; SEC; PIF; and Others, as appropriate. b.All Related Party Transactions shall be approved or ratified by the EMO subject to nature and value of transaction involved with related party. EMO may approve related party transaction up to the limit assigned to him as per Share Holders Agreement.

xiv. xv.

c. Management of the Company shall evaluate whether a transaction is


arms length or as normal course of business. A transaction will be an arms length if transaction between two related parties is conducted as if they were unrelated, so that there is no possibility of a conflict of interest. d.Appropriate information shall be made available to the management for evaluation of the transaction. The information which may assist the management would be: i. ii. iii. iv. Value of the proposed transaction; Supporting of transaction; Proposed transaction parties; and Circumstance of transaction being entered. e.Where the related party transaction is considered not to be at arms length or normal course of business and depending on its materiality, the transaction shall be referred to the Board for approval. f. All expenses incurred on behalf of related party shall be recovered by the Company. The following shall be ensured for all transactions: i. Separate account for each related party; ii. Receivable shall be booked against respective party at time of payment; iii. Periodically issue statement of account to reconcile balance; and

iv.

Settle balances on regular basis to avoid long outstanding amounts. g.Reconciliation of related parties shall be done on quarterly basis and any discrepancy shall be immediately resolved. h.Any balance receivable or payable shall be settled with related party within reasonable period, preferably each quarter end. i. The company shall enter into contracts with related parties. The transactions with related parties shall be approved as per DAM. j. The transfer pricing mechanism shall be approved by the Board. k. In case the concerned related party is a Board Member, he shall abstain from voting on all resolutions presented before the Board relating to the transaction.

4.10.5 Process Responsibility


The Finance Manager shall be responsible for all transactions and processes relating to related party transactions.

4.10.6 Procedure Ref.


Contracts 1 2 Receive contract from Contracts Department. Receive details of the transaction and review the transaction to verify if the transaction is as per the contract. Check for the relevant approvals and inform Senior Accountant for creation of journal entries. Receive contract and details of transaction from Accountant and create necessary journal entries in Accounting System. Accountant Accountant

Process Description

Responsibilit y

Accountant

Senior Accountant

Reconciliation of Related Party Transactions 1 On a periodic basis, request for balance confirmation from the related party company. Receive balance confirmation and confirm back with the related party company. In case of any discrepancy, Accountant

Accountant

Ref.

Process Description
resolve the discrepancy.

Responsibilit y

Whenever ABC receives debit note from related party, review the detail along with the supporting documents. If explanation of any item is required, a send query to the concerned person of the related company. Upon clearance of all outstanding queries refer the debit note to Finance Manager. Prepare Related Party Reconciliation report and forward to Finance Manager. Review the Related Party Reconciliation report and recommend to EMO for evaluation and payment approval. Evaluate Related Party Reconciliation report and approve the payment. In case of irreconcilable differences in the balances, inform the Finance Manager. Review the reasons of differences and take appropriate action.

Senior Accountant

Senior Accountant

Finance Manager

EMO

Accountant

Finance Manager

4.10.7 Process KPI


a. b. Periodic reconciliations with related party. Timely and accurate reporting.

4.10.8 Forms and Templates

Name of Form

Template

Related Party Reconciliation Report

Related Party Reconciliation.xls