BOARD OF DIRECTORS' REPORT
BOARD OF DIRECTORS’ REPORT
The Board of Directors of Sohar Power Company is pleased to submit their report together with the financial statements of the company for the 9 month period ended 30 September 2016.
On 29 March 2016, Sohar Power Company shareholders held their Annual Ordinary General Meeting where they elected Mr. Rodak Iqbal as director of the company.
Health & Safety
There has been no Loss Time Incident during the first 9 months of 2016. On 30 September 2016, Sohar Power has accumulated 1340 days without loss time accident.
Operations and Maintenance
The plant was operated reliably during the third quarter of the year, achieving reliability levels of 98.7% and 100% for power and water respectively.
The Company exported a net power production of 1082 GWh and delivered 11.8 million m3 of potable water to its customer.
The load factor of the power plant represented 83.7% of its maximum capability and 85.7% of the water plant maximum capability, confirming the sustained demand for water linked to the limited production capacity in the North Batinah governorate.
On 23 February 2016, some electrical issues caused the plant to trip, interrupting the supply of power and water to the networks. This unexpected situation was quickly overcome by the Company and its operator and the plant could be progressively restarted on the following day.
During the winter period ended on 31 March 2016, Sohar Power was able to undertake the required maintenance activities and completed its maintenance program.
The contractual year number 10 started on 01 April 2016, after completion of the annual performance tests requirements on natural gas, and successful demonstration of the availability of the contracted production capacity for both power and water to its customer.
On 25 April, some damages were discovered on one of the eight burners in a combustion chamber of a gas turbine (GT1). These damages resulted in consequential damages to some of the blades and vanes of the turbine. The unit remained unavailable during 36 days and returned to service on 31 May after successful completion of required repairs. Although the damages and repairs expenses can be expected to be covered by the Property Damage insurance subscribed by the company subject to the applicable insurance deductible amount of RO 0.29 million, the loss of revenue has also adversely impacted the financial performance of the company to the extent of RO 0.57 million during the first semester of 2016.
There is no significant event to report during the third quarter of the year 2016.
Revenues at the end of September 2016 amount to RO 51.1 million as against RO 46.5 million at the end of September 2015, increased mainly by additional revenues covering the increased gas price charged by Ministry of Oil and Gas during the period, which is a pass-through income and, as such, is financially neutral to the company. Besides, there was no derating in 2016 as compared to 2015 which resulted in higher revenues for the Company.
The Direct costs for the first 9 months have also increased from RO 32.8 million in 2015 to RO 36.0 million in 2016, reflecting mainly the increase in gas price.
The Company earned a net profit of RO 3.6 million during the period, which is higher than the net profit of similar period in 2015 by RO +1.9 million. This favorable variance is explained by the recovery in 2016 of the revenues lost in 2015, on account of operational incidents and the reduction in finance costs due to the reduction of the debt of the Company.
Installments of long term loans and swaps were settled on their due dates. An additional amount of RO 3.6 million was repaid to the lenders as cash sweep. The hedging deficit on Company's swap agreements, at the close of business at 30 September 2016 was RO 14.6 million, in comparison with valuations as of 31 December 2015 (RO 15.9 million). As per IAS 39, hedging deficit is calculated on each balance sheet date and it represents the notional loss, which the company may incur, if it opts to terminate the swap agreements on this date. However under the terms of loan agreements, the company is not permitted to terminate its swap agreements and, as such, the loss is considered to be notional.
In accordance with the decision made by the shareholders of the Company during the Annual Ordinary General Meeting held on 29 March 2016, the Company distributed during the month of April 2016 a Final Cash Dividend of 8.2% (8.2 Baiza per share) of the share capital for the financial year 2015, amounting to RO 1.812 million.
The Board of Directors has also resolved to distribute cash Dividend of 4.132% (4.132 Baiza per share) of the share capital for the period from 1 January 2016 to 30 June 2016, amounting to RO 0.913 million. This dividend has been distributed in August 2016 to the shareholders of the Company.
The term loan facilities agreements contain cash sweep prepayment which has started from 30 September 2015. As a consequence, aside from the 2016 interim dividend of RO 0.913 million mentioned above, no further amount will be available for distribution as dividend to shareholders until the full repayment of the loans.
There are no legal proceedings against the company as of 30 September 2016.
We expect the Company to operate safely and reliably until the end of the year.
Saif Abdullah Al Harthy
Chairman of the Board