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 6 month period ended 30 June 2017.
Health & Safety
There has been no Loss Time Incident during the first semester of 2017 and the Health and Safety performance has been excellent. On 30 June 2017, Sohar Power has accumulated 1,613 days without loss time accident.
Operations and Maintenance
The plant was operated reliably during the first semester of the year, achieving reliability levels of 98.1% and 99.5% for power and water respectively.
The Company exported a net power production of 1,593GWh and delivered 22.1 million m3 of potable water to its customer.
The load factor of the power plant represented 62.7% of its maximum capability and 81.3% of the water plant maximum capability, confirming the sustained demand for water linked to the limited production capacity in the North Batinah governorate, despite the usual lower demand for power and water during winter.
The required maintenance activities were safely and successfully executed and are expected to contribute to reliable operations during the summer period.
The annual performance tests on fuel gas and fuel oil for the Contract Year starting on 01 April 2017 were undertaken and successfully demonstrated the availability of the Guaranteed Capacity to its customer.
Revenues at the end of June 2017 amount to RO 31.4 million as against RO 32.6 million at the end of June 2016, decreased mainly due to reduced tariff rate in 2017 and due to lower revenue from fuel on account of lower consumption.
The Direct costs for the first 6 months have also decreased from RO 26.8 million in 2016 to RO 25.2 million in 2017, reflecting mainly lower fuel cost due to lower load factor.
Despite the good operational performance, the Company recorded a net loss of RO 0.5 million during the period, compared to a net profit of RO 1.9 million in 2016. This unfavorable variance is due to the adverse impact of the changes in Income Tax law effective from 27 February 2017, whereby the income tax rate has increased from 12% to 15% and the company had to reassess its deferred tax liability accordingly.
Long term loans were repaid and swaps were settled on their due dates. An additional amount of RO 0.8 million was repaid to the lenders under the cash sweep mechanism in place since 2015. The hedging deficit on Company's swap agreements, at the close of business at 30 June 2017 was RO 9.8 million, in comparison with valuations as of 31 December 2016 (RO 10.6 million). As per IAS 39, hedging deficit is calculated on each balance sheet date and it represents the 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.
The term loan facilities agreement contains mandatory cash sweep prepayment provisions effective since 30 September 2015, consisting in accelerating the repayment of the term loan during the duration of the contract with our customer. As a consequence, no further amount will be available for distribution as dividend to shareholders until the full repayment of the loans, unless the debt can be restructured.
We expect the Company to operate safely, reliably and deliver continuous supply of power and water to its customer during the summer period.
Saif Abdullah Al Harthy
Chairman of the Board