Abu Dhabi National Energy Company PJSC (TAQA) Annual Report 2015
FOCUSED ON OPERATIONAL EXCELLENCE
Contents
2 Business Overview 4 Chairman’s Letter 6 Chief Operating Officer’s Message 8 Board of Directors 10 Executive Management 12 Transformation Program 14 Market Overview 16 Operational Review – Power & Water 22 Operational Review – Oil & Gas 28 Financial Review 30 Health & Safety, Security & Environment 32 Community Relations 33 Corporate Governance 35 Shareholder & Bondholder Information 36 Financial Statements
POWER & WATER 17,410 MW
Gross power generation capacity
91,117GWh Gross power generation
917MIGD
Gross water desalination capacity
264,127 MIG Gross water desalination
To read more please go to page no. 16
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We are a leading global energy company, headquartered in Abu Dhabi, with operations in 11 markets around the world. We deliver long-term solutions to meet the energy needs of our partners, both now and in the future.
OIL & GAS 484.9 mmboe Proven and probable reserves
145.3 mboed
Total average daily production
4.6billion Nm
3
Underground gas storage capacity To read more please go to page no. 22
Annual Report 2015
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BUSINESS OVERVIEW TAQA marked a turning point in 2015 with significant progress made in advancing our transformation program and improving overall governance. 1
5
Power & Water
Oil & Gas
TAQA has a high-quality portfolio of modern power and water assets, delivering power safely and reliably to our customers around the world. In 2015, our combined units achieved record production of 91,117 GWh.
We own and operate oil and gas assets in five countries; both onshore and offshore, and conventional as well as unconventional. In 2015, we adopted a new approach to exploration and production to suit the current global oil price environment.
1
Oil & Gas North America
Power production
Oil & Gas production
During 2015 technical availability increased to 92.3%, leading to record production of Gross GWh. power generation 91,117
During 2015 we produced 145.3 mboed, consisting of 68.3 mbbld of crude oil, Production 11.0 mbbld of natural gas liquids and (mboepd) 395.5 mmcf/d of natural gas.
(GWh)
2P reserves mmboe 345.8 Average production mboed 79.5
13
14
15
Abu Dhabi National Energy Company PJSC (TAQA)
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Oil & Gas United Kingdom
145.3
158.9
142.3
75,124
77,458
82,723
91,117
2
14
2P reserves mmboe 108.4 Average production mboed 56.6 15
10
8
Power & Water Saudi Arabia Gross power generation capacity MW 250 Gross power production GWh 1,815 9
Power & Water Power plant and aluminum smelter Oman
Business Overview 3
Gross power generation capacity MW 1,000 11
Power & Water India Gross power generation capacity MW 250 100* Gross power production GWh 1,685 *Under construction
Power & Water UAE Gross power generation capacity MW 12,487 Gross power production GWh 64,324 Gross water desalination capacity MIGD 917 Gross water desalination MIG 264,127
2 3
4 6
8 11
10
7
9
6
Power & Water Morocco Gross power generation capacity MW 2,056 Gross power production GWh 15,574 3
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Oil & Gas The Netherlands 2P reserves mmboe 12.1 Average production mboed 9.1 Gas storage capacity million Nm3 4,600
Power & Water Ghana 4
Oil & Gas Iraq 2P entitlement reserves mmboe 18.7 5
Power & Water United States Gross power generation capacity MW 1,037 Gross power production GWh 6,524 Annual Report 2015
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Gross power generation capacity MW 330 Gross power production GWh 1,195
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CHAIRMAN'S LETTER Without question, we are a different company to the TAQA that existed two years ago, not just as regards to how we operate, but how we translate that into a longer-term vision for ourselves. H.E. Saeed Mubarak Al-Hajeri Chairman of the Board
TAQA marked a turning point in 2015 with significant progress made in advancing our strategy and improving overall governance. We have completed most of our major projects, ramped down activity levels, reduced costs, simplified the organizational structure and improved safety and operating efficiency. In our annual report for 2014, I noted that declining global commodity prices were significantly impacting the global industry, including TAQA. At the time, the outlook for lower prices was expected to be limited; but the general view now is that it is likely to continue for some time.
We have doubled the number of UAE nationals in corporate leadership roles to 61% and all headquarters business service functions are now led by nationals.
This change had a number of ramifications for us at TAQA. It has, for instance, made us look very closely at how we operate, and where capital can and should most effectively be applied. However, it has also helped us understand how we can best transform TAQA into a business that is positioned for the future. The way we have translated this understanding into action is unquestionably the outstanding success for the company over the past year. The transformation story relates not only to how we have realized savings, but it also reflects how we have changed our management structure and decision-making process, and how we have implemented process efficiencies across the board. As a result, half way through a two-year cost transformation program we are already ahead of the target we set for ourselves. Within this endeavor, we continue to place safety as our highest priority. Safety in itself is of course paramount for an industrial company like TAQA. But it is also essential to ensure efficient operations.
Abu Dhabi National Energy Company PJSC (TAQA)
Chairman's Letter 5
We reached a number of developmental landmarks in 2015. Notably, we started operations at four major projects, namely the Bergermeer gas storage facility in the Netherlands, the Takoradi T2 power plant in Ghana, the UK North Sea Cladhan oil field and the Fujairah F1 desalination plant expansion in the United Arab Emirates. We expect the Atrush project in the Kurdistan region of Iraq to produce first oil in 2016. In addition, at the end of the year we reached an agreement with ADNOC for evaluating technologies for exploring and developing unconventional, sour gas and mature reservoirs in Abu Dhabi. The agreement is expected to lead to the secondment of TAQA employees to ADNOC and possibly joint participation in unconventional exploration and production projects in Abu Dhabi. This is a landmark agreement for TAQA and through our North American business in particular, we have a wealth of experience that will be of immediate benefit to ADNOC. We are delighted to embark on this journey with ADNOC. This illustrates the contribution we make to Abu Dhabi, not just in terms of the power and water that we produce but also in being an enabler and partner for the future development of the emirate. Without question, we are a different company to the TAQA that existed two years ago, not just as regards to how we operate, but how we translate that into a long-term vision for ourselves. In this sense, looking ahead, our focus will be significantly more on operating income than on capital investment.
Annual Report 2015
The company’s Emiratization program is proving to be a real success. We have doubled the number of UAE nationals in corporate leadership roles to 61% and all headquarters business service functions are now led by UAE nationals, whereas two years ago these positions were all held by expatriates. This demonstrates our commitment to play a significant role in developing and enabling the UAE’s workforce. We are targeting a steady annual increase in Emiratization, with a goal of achieving 85% by 2020. On behalf of the Board, I would like to thank His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the United Arab Emirates, Supreme Commander of the UAE Armed Forces and Ruler of Abu Dhabi, and His Highness Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, Deputy Supreme Commander of the UAE Armed Forces and Chairman of the Abu Dhabi Executive Council, for their support of and significant contribution to TAQA and its future development. In addition, I would like to express our gratitude to His Highness Sheikh Hazza bin Zayed Al Nahyan, Vice Chairman of the Abu Dhabi Executive Council, for his significant support of TAQA, as well as to Dr Ahmed Mubarak Al Mazrouei, Secretary General of the Executive Council, for his tangible contribution to TAQA’s progress. Saeed Mubarak Al-Hajeri Chairman of the Board
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CHIEF OPERATING OFFICER’S MESSAGE TAQA had to transform itself in the new oil-price environment, and we have delivered a considerable amount towards our promise.
The combined cost transformation savings of AED 5.0 billion is a major step towards our financial resilience through 2016 and beyond, ensuring that we maintain our strong financial liquidity position. This will place us well as commodity markets improve.
Edward LaFehr Chief Operating Officer
In 2014 the senior leadership team at TAQA initiated a plan to streamline the company to a more self-sufficient and sustainable model. At the time, the company had high value assets on four continents and the price of oil was $100 per barrel. As the plan took shape the oil price declined markedly and by end-2014, a more radical approach was needed to tackle the unprecedented drop in revenue and profits. In January 2015, we launched our transformation program. While maintaining our commitment to safety and asset integrity, we set an initial target to achieve run-rate savings of AED 1.5 billion in operational and gross administrative costs by the end of 2016 and to deliver a 40% reduction of our capital investment by the end of 2015 relative to our 2014 cost base. This new cost structure was more appropriate to the economic conditions and would enable positive cash flow at a $50 oil price. TAQA had to transform itself in the new oil price environment, and we have delivered a considerable amount towards our promise.
As with all of the upstream Oil and Gas industry, our business was hit hard in 2015 with AED 7.0 billion lower revenues from our oil and gas businesses relative to 2014. The continued low commodity prices significantly contributed to the full-year 2015 loss of AED 1.8 billion, despite that we maintained free cash flow at AED 5.8 billion, representing a reduction of 11% from the previous year. The combined cost transformation savings of AED 5.0 billion, of which AED 3.3 billion was from the reduction in capital investment and the remaining AED 1.6 billion from cash cost savings, are a major step towards our financial resilience through 2016 and beyond, ensuring that we maintain our strong financial liquidity position. This will place us well as commodity markets improve.
A Positive Transformation TAQA is halfway through its two-year transformation program, and the results have been positive. Significant changes were made to our operating model; we shifted to a leaner team, redefined the role of our headquarters,
Abu Dhabi National Energy Company PJSC (TAQA)
Chief Operating 7 Officer’s Message
Right: Rocky Mountain House, Canada Below: Fujairah Power plant, UAE
put in place more efficient, and aligned decision-making processes. We consolidated our regional organizational structure that led to combining business units to create TAQA Europe and TAQA Africa, which has enabled significant cost and capability synergies. With our new operating philosophy and structure in place, we have reduced over 900 positions, or around 25% of our global workforce, since 2014. This was a necessary step as we curtailed or ceased activities, resulting in a 32% reduction in our global Oil & Gas workforce as well a 55% reduction in our headquarters workforce. In addition to reducing staff, we renegotiated and cut third-party contract spend, and streamlined our governance processes to be more transparent, with clearer roles, responsibilities and performance targets.
During the year, we completed four major projects including the 46-terawatt hour Bergermeer gas storage facility in the Netherlands, our expansion project in Ghana bringing our Takoradi power plant to 330 MW, the 30 MIGD expansion of the desalination facility at the Fujairah 1 plant in the UAE and first oil was achieved at Cladhan, a new field in the UK North Sea. Meanwhile, our Atrush project in the Kurdistan region of Iraq is on track for first oil in the second half of 2016. This is the largest and most challenging greenfield project in our young history. When on-stream, it will initially prod uce 30,000 barrels per day gross with further development phases in our inventory of new projects.
A Focus on Safety
We achieved one of our best global safety performances in 2015 in terms of the recordable injury rate (RIR). Our operating businesses delivered a 0.30 RIR which is our best ever result as a company. However, we all know that RIR or any other statistic in itself does not measure the degree to which all operations must focus on mitigating risk around every task, every project, and every day. Regrettably, an accident during commissioning of a hydro plant at our subsidiary company, HSPL in India, resulted in Record Production three fatalities. Any such accident is As part of our far-reaching transformation unacceptable and we must maintain a relentless program, we delivered strong operational and focus on protecting the health and safety of reliability performance. The Power and Water our people. As a result, we are investigating unit achieved record production of 91,117 the circumstances of this accident and will gigawatt hours (GWh), operating at topensure that key learnings are built into safety quartile benchmarks, with technical availability management and operating systems. exceeding 92.3%. The Oil and Gas unit saw Growth and Succession from Within continued strong performance with an average production for the year of 145,300 During the year, we implemented a barrels of oil equivalent per day - a modest philosophical and cultural change in our 8.6% decline in spite of the significant cut in approach to staffing. We rationalized capital expenditure. contractor and staffing levels and reduced As a result, TAQA’s operating costs and gross administrative costs are lower by 18% and 35%, respectively. Over the full year 2015, we saved AED1.6 billion in cash costs, far beyond our first year target of AED 550 million. Our capital investment of AED 3.0 billion was lower than 2014 by AED 3.3 billion, a 52% decrease, which continued a trend that has produced capex savings of AED 5.4 billion since 2013.
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management layers across the business, which has resulted in a newer, smaller, dynamic, and results-focused leadership. In our headquarters the proportion of our Emirati employees were expanded and elevated from within, increasing the number of UAE nationals in corporate leadership roles from 43% to 61%, and raising our corporate Emiratization rate from 28% a year ago to 44%. This is important not only in terms of our goal to develop and progress UAE Nationals through the organization, but also to maintain strong alignment with our UAE stakeholders.
2016 – the New Normal The low oil price and market volatility in 2015 is a reminder of just how vigilant management must be to ensure safe and reliable operations while striving for the lowest possible cost structure. When we started our streamlining process in 2014, we did so knowing that the safest and lowest cost operators in our industry always win. Our subsequent transformation program was designed to create a competitive and resilient company, one that is able to deliver shareholder value at low commodity prices, while maintaining strong safety and operational performance. We have achieved a considerable amount in the last twelve months and we will continue to push on in 2016. Our key objective for the upcoming year is to maintain our strong financial liquidity position of AED 12.6 billion. Given the industry environment, our team has stepped up to every challenge that it has faced. I want to thank all staff members at TAQA for their unwavering support and commitment. Edward LaFehr Chief Operating Officer
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BOARD OF DIRECTORS
H.E. Saeed Mubarak Al-Hajeri was elected Chairman of the Board in 2014. He is currently Executive Director, Information Technology Department at Abu Dhabi Investment Authority (ADIA). He has more than 20 years of experience in international finance. He was elected by the World Economic Forum in 2007 as one of the top 250 Young Global Leaders for his contribution to the public and financial sectors in the United Arab Emirates. He holds a Bachelor of Business Administration from Lewis & Clark College in the United States. He is a qualified Chartered Financial Analyst (CFA) and attended the Executive Education Program at Harvard Business School. H.E. Saeed Mubarak Al-Hajeri Chairman of the Board
H.E. Mohamed Butti Al Qubaisi was elected to the Board in 2014. He is Director of Exploration and Production at Abu Dhabi National Oil Company (ADNOC) and has worked at the company for more than three decades. He serves as Chairman of ZADCO, NDC and Al-Yasat Company for Petroleum Operation Ltd. He is also a Member of the Board of ADCO, ADMA-APCO, Al Hosn Gas, Al Dhafra petroleum and the Environment Agency – Abu Dhabi. He holds a bachelor’s degree in Petroleum Engineering from Louisiana Tech University, United States. H.E. Mohamed Butti Al Qubaisi TAQA Board Member
H.E. Salem Sultan Al-Dhaheri was elected to the Board in 2011. He is currently Deputy Director at Abu Dhabi Investment Authority (ADIA), having held various positions since joining the authority in 1993. He is also a Member of the Board of Directors and Member of the Audit Committee of several public and private companies. He is a member of the Illinois CPA Society, the American Institute of Certified Public Accountants, and the Institute of Leadership and Management in the United Kingdom. A Certified Public Accountant since 1994, he graduated with a Bachelor of Science degree in accounting from Metropolitan State College in Denver in the United States. H.E. Salem Sultan Al-Dhaheri TAQA Board Member
Abu Dhabi National Energy Company PJSC (TAQA)
Board of Directors 9
H.E. Abdulaziz Abdulrahman Al-Hemaidi was elected to the Board in 2011. He joined Abu Dhabi Water and Electricity Authority (ADWEA) in 1997 and has held a number of key positions, including Managing Director at Abu Dhabi Water and Electricity Company and Abu Dhabi Distribution Company. He is currently an Advisor at Al Ain Distribution Company. Before joining ADWEA, he held key positions at Abu Dhabi Health Services Company, Al Ain International Airport and the Privatisation Committee for the Water and Electricity Sector of the Emirate of Abu Dhabi. He is a civil engineering graduate from UAE University. H.E. Abdulaziz Abdulrahman Al-Hemaidi TAQA Board Member
H.E. Khaled Abdulla Al Mass was elected to the Board in 2014. He is Chairman of Imass Investment. He is also a Member of the Board of the Tourism Development & Investment Company (TDIC) and an original founding Board Member of the National Health Insurance Company (Daman). He has served as a Board Member in many companies specializing in a variety of different fields, including real estate, finance and investment. He holds a Bachelor of Science in management, from Marylhurst University, Oregon in the United States. H.E. Khaled Abdulla Al Mass TAQA Board Member
H.E. Mohammed Abdulrahman Al Qamzi was elected to the Board in 2014. He is Manager of Midstream Division, Investment Department at the International Petroleum Investment Company (IPIC). Prior to joining IPIC in 2011, he worked at the Abu Dhabi Securities Exchange (ADX). He is a board member of the Qatar Abu Dhabi Investment Company and Oasis International Energy. He holds a bachelor’s degree in finance from California State University in the United States. H.E. Mohammed Abdulrahman Al Qamzi TAQA Board Member
Mr. Ahmed Khalifa Al Mehairi was elected to the Board in 2014. He is a senior investment professional at the Direct Investments Department of the Abu Dhabi Investment Council (ADIC). Prior to joining ADIC in 2008, he worked in the Far East Department at the Abu Dhabi Investment Authority (ADIA). Mr. Al Mehairi is currently a Member of the Board of Directors at Etihad Airways, Al Dar Properties PJSC and Massar Solutions PJSC. Previously, he served as a Member of the Board of Directors at Sorouh Real Estate PJSC and Aseel Finance PJSC. Mr. Al Mehairi holds a Bachelor of Commerce degree in finance from John Molson School of Business, Concordia University, Montreal, Canada. Mr. Ahmed Khalifa Al Mehairi TAQA Board Member
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EXECUTIVE MANAGEMENT
Edward LaFehr joined TAQA in 2012 and was appointed Chief Operating Officer in February 2014. Mr LaFehr was previously President of the company’s North American business, its largest subsidiary. Prior to joining TAQA, Mr LaFehr was Senior Vice-President at Talisman Energy Inc, with responsibility for its Canadian business. Over a 32-year career in the energy industry, Mr LaFehr has also worked in the UK, Egypt and Trinidad & Tobago. He holds a Master of Science in geophysics from Stanford University and a Master of Science in Mineral economics from the Colorado School of Mines. He is a United States national. Edward LaFehr Chief Operating Officer Saeed Hamad Al Dhaheri is Executive Vice-President Business Support. He is responsible for the Group’s human resources, HSSE, IT, procurement and General Services functions. Mr. Al Dhaheri joined TAQA in 2014 from Abu Dhabi Media Company, where he led the business support functions which included human resources, procurement and administration functions. Mr Al Dhaheri has also served on the Board of Directors of United Printing & Publishing and previously held human resources leadership positions at Etihad Rail and Abu Dhabi Health Services Company – SEHA. He holds a Bachelor of Arts in international business from Eckerd College, Saint Petersburg in the United States and a master’s degree in human resources management from Abu Dhabi University in the United Arab Emirates. He is a United Arab Emirates national. Saeed Hamad Al Dhaheri Executive Vice-President, Business Support and Board Secretary Grant Gillon has over 15 years of experience in the energy sector and was appointed Chief Financial Officer in 2015, responsible for the global finance function including strategy and acquisitions and divestments. He previously held the position of Executive Vice-President Portfolio, overseeing TAQA’s oil and gas operations in Iraq and power assets in India and the United States. Prior to joining TAQA in 2012, he held various roles in the energy sector in industry and investment banking. Mr Gillon qualified as a Chartered Accountant with PricewaterhouseCoopers in London and holds a Bachelor of Engineering in aerospace engineering from Glasgow University. He is a United Kingdom national. Grant Gillon Chief Financial Officer
Abu Dhabi National Energy Company PJSC (TAQA)
Executive Management 11 Saeed Rashed Al Darei is Executive Vice-President Government Affairs and Corporate Communications. He directs the company’s public affairs and corporate communications activities including all high-level relations with the governments of all countries in which TAQA has operations. Mr. Al Darei is also responsible for the company’s investor relations and dealings with regulatory authorities related to its public listing on the Abu Dhabi Securities Exchange. Before joining TAQA in 2013, Mr. Al Darei held leadership positions at Abu Dhabi government entities including the Department of Social Services and Commercial Buildings (DSSCB), the Department of Municipalities and Agriculture (DMA), the Department of Transport (DoT), and the Department of Civil Service (DCS). Mr. Al Darei holds a bachelor’s degree in management, sociology and leadership from Gonzaga University in the United States. He is a United Arab Emirates national. Saeed Rashed Al Darei Executive Vice-President, Government Affairs and Corporate Communications
Ahmed Bin Abbood Al Adawi joined TAQA in 2010 and is Senior Vice-President of GCC and India, responsible for the company’s UAE-based power and water businesses and investments in Oman, Saudi Arabia and India. He began his career in the energy sector in 2002. Mr Al Adawi is a board member of several TAQA subsidiaries, including the Jubail Energy Company in Saudi Arabia and the Fujairah Asia Power Company PJSC in the UAE. He is a Certified Financial Analyst. He graduated with an MBA from London Business School and a Bachelor of Science degree in Electrical Engineering from University of Evansville in the United States. He is a United Arab Emirates national. Ahmed Bin Abbood Al Adawi Senior Vice-President of GCC and India
Vivek Gambhir joined TAQA in 2011 as Deputy General Counsel and was appointed Acting General Counsel in October 2015. Prior to joining TAQA, Mr Gambhir was in London for 12 years and was a partner at an international law firm where he headed their international power practice. Mr Gambhir has worked in a number of jurisdictions on various international assignments. Prior to London, Mr Gambhir was in Hong Kong before moving over from India. Mr Gambhir is a British national and holds qualification to practice law in England. Vivek Gambhir Acting General Counsel
Ahmed Al Sayegh joined TAQA in 2012 and is the Business Development Assistant to the Chief Operating Officer. He was previously Deputy Managing Director at TAQA. Mr Al Sayegh has held investment positions at the Abu Dhabi Investment Authority (ADIA) for more than 20 years. He has a bachelor’s degree in Finance from Concordia University, Portland, Oregon in the United States. He is a United Arab Emirates national. Ahmed Al Sayegh Assistant to the COO/ Business Development
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TRANSFORMATION PROGRAM We embarked on our Transformation Program in early 2015, well ahead of industry, in response to the rapidly declining commodity price environment. With the active buy-in and engagement of the organization, we quickly set upon identifying cost saving opportunities and areas in which we could positively streamline the business.
reductions over two years and a 40% decrease in capital expenditures, representing a ceiling of $1 billion.
Only one year after initiating our Transformation Program, we have achieved significantly more than we had hoped for. In 2015, we reduced cash costs by $480 million and reduced capital expenditure to $832 We set ourselves two aggressive goals relative million. The combined savings are a major step towards our financial resilience through 2016 to 2014: $400 million in run-rate cash cost
Cash costs reduced by $480 million (21%) in 2015
and beyond, ensuring that we maintain our strong financial liquidity position. These results are also a testament to the tremendous efforts throughout the entire organization. Our success in delivering our transformation program has created a more competitive and resilient company, one that is able to deliver shareholder value at low commodity prices, without affecting our safety or operational excellence.
Cash Costs* ($ million)
-480 (-21%)
• Scaled back and deferred discretionary projects across the Group
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13
1,854
• Merged European businesses and African businesses
Gross G&A reduced by $172 million (34%) in 2015
2,269
1,951
• Established low cost field operating model in Canada
2,334
• Lowered fuel costs and optimized maintenance and well work programs in North Sea
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Gross G&A ($ million)
-172
• Stopped all discretionary spending and travel
(-34%)
331
503
467
543
• Reduced compensation and benefits, including bonuses • Aligned organization and processes better to activities • Rationalized contractor and staffing levels
Headcount reduced by 950 (25%) since 2014
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Headcount (full-time employees)
15
-950
• Delayered senior and mid-management teams
(-25%)
2,766
3,716
• Increased Emiratization to 61% in senior management positions
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• Created broader roles and increased accountability
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331
• Headcount reduced by 32% in Oil and Gas, 55% in Headquarters
15
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* Cash Costs = Operating Expenses and Gross G&A Operating expenses exclude IFRIC12 construction costs as well as fuel costs Gross G&A was used for the transformation project as this was seen as a more accurate reflection of the total controllable costs
Abu Dhabi National Energy Company PJSC (TAQA)
Transformation Program 13
Capital Expenditure ($ million) 3,813
Capital expenditure reduced by $908 million (52%) in 2015 • Completed major capex projects in 2015 • Eliminated all discretionary projects
2,311
• Tightened governance and capital allocation process • Further 42% capex reduction targeted in 2016, significantly below industry average
-52%
832
1,740
-42%
482
PLANNED
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13
Capitalized Interest Domestic Power Europe
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15
Corporate & Other International Power Iraq
Power & Water M&A Oil & Gas M&A North America
Operating costs North America – costs $/boe
-21%
8.6
10.8
11.5
11.5
16
12
13
14
Operating costs UK – costs $/boe
13
30.3
34.5
36.5
43.5
-17%
12
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14
15
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Operating costs reduced in North America and UK by 21% and 17%, respectively, in 2015
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MARKET OVERVIEW The oil and gas sector has suffered a tough year, with prices tumbling and negative market sentiment permeating the entire sector. The oil and gas sector suffered a sharp decline halfway through 2014, which further continued throughout 2015. Performance of the sector mirrored the oil price, and despite several brief respites during the year, oil ended the year around the $37 a barrel, having opened at approximately $56. In particular, negative market sentiment intensified in the fourth quarter following OPEC’s decision to hold production at 32 million barrels a day (mmbbld) in December. This led to a steep decline in the commodity price, driven by underlying demand and supply imbalances, overproduction, a bearish trend in global inventories and demand growth concerns.
Crude oil A number of factors have been cited attributing to the 40% fall in oil prices over the course of 2015, with over-supply and a slowdown in demand growth in emerging markets being the primary ones. Efforts led by OPEC – and Saudi Arabia in particular – to maintain high production levels to defend long-term market share at the expense of near term prices have hit the industry hard. However, continued advances in technology and the switching of investment into more productive and lower breakeven plays have meant that North American shale production has proved much more resilient than expected. As a result, oil production in the US rose by 0.9 mmbbld over the course of 2015.
Overall, global supply also continued to grow during 2015. The IEA’s January 2016 oil market report put 2015 oil production at 94.47 mmbbld, representing a year-on-year growth of 1.67 mmbbld. On the demand side, OPEC’s 2015 global oil demand estimate was 92.92 mmbbld, up 1.54 mmb/d, leaving a supply overhang of 1.55 mmb/d. This over supply into the market has led to near-record levels of crude oil storage and helped exacerbate downward pressure on the oil price. US crude stocks reached 483 million barrels, up 95 million barrels year on year. Production amongst non-OPEC countries, according to the IEA, increased by 1.4 mmb/d to 57.6 mmb/d, representing 2.49% growth year on year.
Crude outlook Crude prices are likely to continue to be depressed in the short to medium term as the market looks to rebalance and clear excess supply. The major variable card right now is Iran and whether they will be able to deliver significant volumes (0.5-1.0 mmb/d) into the market quickly. The market will continue to watch whether the industry cost reductions seen in response to lower prices will be sustained and continue, and the extent to which any price rebound will trigger new drilling and additional supply growth.
Abu Dhabi National Energy Company PJSC (TAQA)
Above: Tern platform, UK Top right: Bergen concession, Netherlands Bottom right: Oil and Gas operations, Canada
Market Overview 15
1.55mmbbld Excess oil supply over demanded
22%
Fall in Henry Hub gas prices in 2015
Natural gas
Gas outlook
The natural gas market was also weak throughout the year. Prices weakened across all three main indices, with the North American Henry Hub spot price falling 22% during the year and ending at $2.34/mmBtu. AECO and NBP also declined 22.7% and 28.9% respectively in 2015.
Gas prices are likely to remain weak in North America for the foreseeable future although in the medium term rising LNG exports could lead to some tightening in supply and so boost prices. The Marcellus field in the United States Northeast continues to surprise with its ability to grow production. Marcellus production growth will displace gas from other supply basins now that it has recently become more interconnected with the North American market as pipelines have been constructed.
In North America, production remained plentiful throughout the year with major shale plays remaining strong and continuing production growth, outpacing demand. Combined with an unusually warmer winter, this resulted in gas prices remaining depressed, and despite a small but sharp increase in withdrawals in Q4, stockpiling was 16% higher than in 2014 and is now 13% above the five-year average. The end of the year saw the first shipments of LNG out of the US – a historic moment both for the country and for the global LNG business. Long-term continued growth in LNG exports could support North American gas prices but recent weaker global LNG prices are a concern for new projects hoping to be developed on the United States Gulf and west coast of Canada.
In Asia, we are already seeing LNG prices fall quite dramatically as Japan restarts their nuclear power plants and supplies from new projects in Australia swamp the Asia Pacific basin. This trend will continue for the next 2 to 3 years, as mega projects such as Gorgon, Wheatstone, Ichthys and Prelude come on-stream.
Crude oil $/bbl 140 120 100 80 60 40 20 0
2012
2011 Brent
2013
2014
2015
2013
2014
2015
WTI
Natural gas $/mmBtu 14 12 10 8 6 4 2 0
2011 Henry Hub
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2012 AECO
NBP
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OPERATIONAL REVIEW
18-23
POWER & WATER
12,487MW
2,056MW
1,037MW
1,000MW
250MW
330MW
UAE
United States
India
250MW Saudi Arabia
Abu Dhabi National Energy Company PJSC (TAQA)
Morocco
Oman
Ghana
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Annual Report 2015
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18 Operational Review Power & Water
TAQA’s power and water operations achieved record production in 2015. Power generation reached 91,117 GWh, an increase of 10.1% on the previous year. Technical availability increased to 92.3% as a result of strong performance in the UAE and Morocco. Overview TAQA’s power and water operations achieved record production in 2015. Power generation reached 91,117 GWh, an increase of 10.1% on the previous year. Technical availability increased to 92.3% as a result of strong performance in the UAE and Morocco. Our water desalination volumes totaled 264,127 million imperial gallons (MIG), a 1.5% increase compared to 2014. The on-time and safe commissioning of two major power and water projects marked significant milestones for TAQA’s power and water division in 2015. In Ghana, we commissioned 110 megawatt (MW) combined cycle expansion of the Takoradi T2 power plant in October, to bring the total capacity to 330 MW. T2, which accounts for 15% of Ghana’s installed capacity, is an essential component of the government’s plan to end frequent power outages that are slowing the country’s growth. The Fujairah F1 desalination plant expansion in the UAE was commissioned in December, increasing the plant’s capacity by 30% to 130 million imperial gallons per day. With more than half of the total output produced using the more energy-efficient and flexible reverse osmosis technology, the expansion will help the UAE address water challenges while reducing costs and conserving resources through fuel-gas savings.
Reflecting the company’s over-arching ethos, our power and water portfolio strives for the highest health and safety standards and our aim is to achieve zero incidents. However, a major incident at our subsidiary company, HSPL, in India resulted in three fatalities. This regrettable event notwithstanding, the recordable injury rate in the power and water division recorded 0.07 injuries per 200,000 worked hours. We are committed to learn from the root cause investigation to ensure a similar occurrence can never happen again. In 2015 our businesses in Africa and the Middle East and Asia were consolidated to create two regional units. Revenues for the division for the year were AED 12.0 billion, resulting in an EBITDA of AED 6.7 billion. This is lower than 2014, which delivered revenues and EBITDA of AED 13.4 billion and AED 7.0 billion respectively. The decrease was primarily due to declines in revenues in Morocco and Ghana because of lower construction income as plant constructions were completed. However, operating expenses were cut back considerably as part of our transformation program.
Right: Taweelah power complex, UAE Far right: Fujairah power plant, UAE
Abu Dhabi National Energy Company PJSC (TAQA)
Operational Review 19 Power & Water
Power & Water locations
Our water desalination volumes totaled 264,127 MIG, a 1.5% increase compared to 2014. The reverse-osmosis (RO) expansion of Fujairah F1 added 30 MIGD. The application of RO technology at F1 helps the UAE address water challenges while reducing costs and conserving resources through fuel-gas savings.
GCC and India Our UAE operations delivered 64,324 GWh of electricity and desalinated 264,127 MIG of water, a 1.5% increase compared to 2014. The reverse-osmosis (RO) expansion of Fujairah F1 added 30 MIGD. The application of RO technology at F1 helps the UAE address water challenges while reducing costs and conserving resources through fuel-gas savings. The growth of our water business continues to be an important part of TAQA’s UAE revenue, contributing 33% as of the end of 2015. We are constantly looking at new solutions and technologies to help expand and connect our network across the UAE. Record production was achieved and major projects were completed despite cutbacks in capital expenditure and operating expenses. In India, we experienced a tragic accident at our Sorang hydro power project when an inlet-valve burst during commissioning in November. The accident resulted in three fatalities. An investigation to determine the exact cause of the accident is ongoing. The lignite-fired power plant in Neyveli produced 1,685 GWh meeting its technical availability target of 87%. The Jubail Energy Company cogeneration plant in Saudi Arabia reached a record high commercial availability at 99.87% for 2015. It produced 1,815 GWh and 4.1 million tons of steam through two gas-fired combined cycle turbines, while maintaining a clean lost-time injury track record for the year.
Annual Report 2015
92.3%
Global technical availability
30MIG
Additional daily desalination capacity at the Fujairah F1 plant
20 Operational Review Power & Water
Despite a challenging environment in the international commodities market with historically low aluminum prices, the Sohar Aluminum Smelter, in which TAQA holds a 40% stake, delivered solid financial performance generating an operating profit of $92 million in 2015. This was supported by a 2.5% increase of production year on year reaching 370 kilotons. The plant also received ISO14001 environment and OHSAS 18001 health and safety accreditations.
Africa In Morocco, 2015 marked the first full year of operations for the 700-megawatt Jorf Lasfar expansion. Jorf Lasfar is now the largest coal-fired power plant in the MENA region. Our two newest units, 5 and 6, performed strongly during the year, producing 5,214 GWh and achieving record technical availability of 95.2%. During 2015, units 1, 2, 3 and 4 produced 10,360 GWh.
Technical availability for these units was lower in 2015 compared to 2014, due to planned maintenance. Nevertheless, revenues and net profit improved significantly on a year-on-year basis. Meanwhile, in Ghana our Takoradi T2 power plant expansion successfully started commercial operations. This expansion together with the recovery of a prolonged outage at one of its units in 2014 increased plant production by 58.9% to reach 1,195 GWh with technical availability averaging 72.2% in 2015.
With the Jorf Lasfar expansion completed, the 2,056 MW plant is the largest coal-fired power plant in the MENA region.
Abu Dhabi National Energy Company PJSC (TAQA)
United States In the United States, TAQA has an 85% interest in a tolling agreement for the 832-megawatt Red Oak power plant in New Jersey. The plant generated 5,826 GWh in 2015, a 10.8% increase on 2014. TAQA also has a 50% interest in the Lakefield wind power project in Minnesota. We have started a disposal process which we expect to complete in 2016. Lakefield is the only wind power asset in our portfolio and the sale is in line with our strategy of selling non-core assets. In summary, the Power and Water business has been stable and growing, with potential for further safety and operational improvements in the year to come.
Operational Review 21 Power & Water
95.2%
Gross water desalination (MIG)
Gross power generation (GWh)
264,127
260,100
253,420
75,124
82,723
77,458
110MW
91,117
Technical availability of Jorf Lasfar units 5 and 6
Additional capacity at the Takoradi T2 Plant 13
14
15
Left: Jorf Lasfar power station, Morocco Above: Takoradi power plant, Ghana Right: Red Oak power plant, USA
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14
15
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OPERATIONAL REVIEW
24-29
OIL & GAS
2P reserves (mmboe)
345.8
108.4
12.1
18.7
North America
The Netherlands
United Kingdom
Iraq
Entitlement Reserves
Abu Dhabi National Energy Company PJSC (TAQA)
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Annual Report 2015
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24 Operational Review Oil & Gas
Left: Atrush central processing facility, Iraq Far Left: Eider platform, UK Far Right: PI5 platform, Netherlands
The focus for 2015 was on safety, reliability and operational efficiency. The implementation of TAQA’s transformation program has resulted in reduction of costs as well as capital expenditure with many projects delayed or cancelled due to market conditions. Overview
Europe
The Oil and Gas division has adapted a new approach for its exploration and production to reflect the current global oil price environment. The focus for 2015 was on safety, reliability and operational efficiency. The implementation of TAQA’s transformation program has resulted in reduction of costs as well as capital expenditure with many projects delayed or cancelled due to market conditions.
A major step in our European business this year was the successful integration of our UK and Netherlands units into a single business unit with greater scale, capability and efficiencies. Progress has been achieved in relation to organizational and management efficiency, whilst the new structure has benefited TAQA operations on both sides of the North Sea by creating pools of expertise and knowledge.
Despite the reduction of planned capital investment and our focus on cost efficiency in all aspects of our business, production volumes remained robust at 145,300 barrels of oil equivalent per day (boepd) in 2015, compared to a record 158,900 boepd in 2014. The businesses delivered AED 7.3 billion in revenues and EBITDA for the year was AED 2.9 billion, down 48% and 62% respectively, due to the fall of oil and natural gas prices.
The on-time and on-budget commissioning of Gas Storage Bergermeer in the Netherlands 13 in April was the first example of formal collaboration between UK and Dutch colleagues under the new TAQA Europe banner. Oil and gas production from the Netherlands averaged 9.1 thousand barrels Production of oil equivalent per day (mboed) compared (mboepd) to 8.0 mboed in 2014.
Abu Dhabi National Energy Company PJSC (TAQA)
484.9
522.3 14
13
15
145.3
158.9
75,124
612.4 142.3
We are always committed to ensuring the highest level of safety for our people. This is our most important company value, and together with our focus on sustainability, teamwork, excellence, trust and courage, the Oil and Gas division achieved its best ever safety performance in 2015. We reduced our recordable injury rate from 0.51 in 2014 to 0.4 per 200,000 hours in 2015. Our reportable spills decreased from 64 in 2014 to 52 in 2015.
75,124
Safety
In the UK North Sea, production was strong, averaging 56.6 mboed for the year. This was supported by a highly targeted well intervention program, which helped mitigate production decline in the face of lower capital expenditure. Furthermore, production performance was enhanced by a relentless focus on safety, reliability and operating efficiency. Overall, our operating cost per barrel was 17% lower compared to 2014 and we were cash flow neutral, which is a significant achievement. TAQA completed its Cladhan field development in which it has a 53% ownership stake in December, and initial production from this field averaged gross 10 mboed.
Reserves (mmboe)
14
15
Operational Review 25 Oil & Gas
54%
Reduction in Oil & Gas capital expenditure
10,000 boed initial gross production from Cladhan
We successfully integrated our UK and Netherlands units into a single unit with greater scale, capability and efficiencies.
Annual Report 2015
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26 Operational Review Oil & Gas
North America Our North American operations have removed management layers from the organization, improved accountability, and substantially reduced activities and costs. A new operating model has been implemented which is more integrated and efficient, allowing management to focus on safe operations and carefully selected strategic development activity. One of our biggest achievements was a 21% reduction in operating and administrative costs which led to a positive net cash flow. Our key aim in 2016 is to maintain our positive net cash flow through excellence in safety and operational efficiency. However, production levels were directly impacted due to restricted access to third-party pipeline capacity. This was a nationwide issue which is likely to continue in 2016. To help mitigate this we directed our volumes to available export capacity, and we have taken a more proactive approach in our hydrocarbon marketing strategy to widen our sales reach.
The team implemented a 38% reduction in G&A relative to plan. Drilling costs were reduced by more than 50% and delivery times almost halved through renegotiated supplier contracts and better planning and execution efficiencies. Despite the activity ramp up in the peak phase of construction, the Atrush team reduced its recordable injury rate by 39% from 1.22 in 2014 to 0.74 in 2015. The Atrush team completed 2.7 million man-hours of work in 2015 without incurring any lost time due to injuries and have accumulated 3.9 million man-hours and 671 days without any lost time injuries. Significant strides have also been made in terms of local employment, reaching 53% local national staff, with the aim of increasing this to 80% by 2024.
Overall, the Oil and Gas business has needed to adapt to the new, and clearly ongoing, low price conditions. The ongoing transformation of both our cost base as well as the management of operations Production for the year averaged 79.5 mboepd has positioned us well for the coming year. and capex declined from $433 million in 2014 to $121 million in 2015. During the year, we focused our drilling activity to the Upper Mannville unconventional liquids-rich gas play in Central Alberta, which has grown substantially over the past three years. We also completed and commissioned a new compressor station to increase our gas Oil & Gas locations output from this source. We also optimized hydraulic fracturing well completion technology to improve production rates. This has helped offset the the reduction in capital expenditure, pipeline curtailments and declining production from our mature fields.
Kurdistan region of Iraq Significant progress was achieved at our Atrush project in the Kurdistan region of Iraq. All wells required for Phase 1 oil production have been drilled and tested, and are awaiting tie-back to the 30 mboepd Phase 1 production facility, which is in an advanced stage of construction. Work has also begun on the export pipeline, and first oil is expected in 2016.
Far left: Atrush exploration block, Iraq Left: Oil and Gas operations, Canada Right: Underground gas storage operations, Netherlands
Abu Dhabi National Energy Company PJSC (TAQA)
Operational Review 27 Oil & Gas
We are committed to ensuring the highest level of safety and we delivered our best ever safety performance this year.
46 TWh
Capacity of Bergermeer gas storage facility
30 mboepd
Expected initial gross production from Atrush field
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FINANCIAL REVIEW Our ongoing transformation program, which was initiated in late 2014, in response to declining commodity prices, helped partially mitigate the impact of reduced revenues on the Company’s profitability and cash flow Entering 2015, the Group faced significant challenges from a low commodity price environment, which substantially reduced revenues and operating cash flows in the Oil and Gas businesses. In response to declining prices, the Company’s Transformation Program which had already been initiated in 2014, has achieved significant results to date. The Power and Water businesses continued to provide stable cash flows and profits which contribute positively to the Group’s financial results. In reaction to the low prices, TAQA reduced capital expenditure in order to preserve liquidity, and deferred or cancelled projects with marginal economics. Despite the lower capital expenditure, the Company successfully completed major projects in the Netherlands, Ghana, UK and UAE, which will contribute revenue and cash flow in 2016 and beyond.
The Company’s liquidity position remained strong, underpinning the successful refinancing of our $3.1 billion revolving credit facility on more attractive terms, as well as the reaffirmation of our credit ratings by Moody’s and Standard and Poor’s at A3 and A, respectively.
Income Statement Revenues and costs Total revenues for the Company were AED 19.3 billion in 2015, 29% lower than in 2014 when revenues amounted to AED 27.3 billion. Of this AED 8.0 billion decrease, AED 6.6 billion was driven by lower revenues from the Oil and Gas businesses. However, AED 1.6 billion in cash cost savings delivered through the Transformation Program in 2015 helped partially mitigate the impact of reduced revenues on the Company’s profitability and cash flow.
Abu Dhabi National Energy Company PJSC (TAQA)
EBITDA In 2015 EBITDA fell by 33% to AED 9.6 billion despite the mitigating effect of our Transformation Program. EBITDA for Oil and Gas businesses in 2015 fell to AED 2.9 billion from AED 7.7 billion in 2014, a reduction of 62%. EBITDA for the Power and Water businesses fell 3% to AED 6.7 billion in 2015 from AED 7.0 billion in 2014.
Impairment The Company recorded an after-tax impairment charge of AED 681 million on certain Oil and Gas and Power and Water assets in 2015.
Finance Costs We decreased our finance costs in 2015 by AED 214 million, partly as a result of our successful refinancing of our $3.1 billion revolving credit facility on improved terms.
Financial Review 29
Opex and net G&A reductions achieved in 2015
13
14
15
9,638
13,445
AED1.6bn
19,344
27,325
25,757
Capex reduction in 2015, amounting to AED 3.3 bn
EBITDA (AED million) 14,476
52%
Revenues (AED million)
13
14
15
Far right: Abu Dhabi sky line, UAE
Income Taxes In 2015, the Company recorded a credit for income taxes of AED 1.3 billion as a result of losses before tax as well as net favorable changes in government enacted tax rates in Canada and the UK.
Net Loss TAQA reported a net loss of AED 1.8 billion attributable to equity holders in 2015, compared to a net loss of AED 3.0 billion in 2014. The basic and diluted loss per share attributable to equity holders was AED 0.30 compared to a loss of AED 0.50 per share in 2014.
Net cash used in investing activities was AED 2.8 billion, which is a reduction from AED 5.4 billion in 2014. The key driver in the decrease was the delivery of capital expenditure reductions of AED 3.3 billion, or 52%, as part of the Transformation Program, partially offset by lower proceeds from divestments.
In August, TAQA was able to refinance $3.1 billion of its revolving credit facilities successfully, with improved terms. This ensured that TAQA’s liquidity position remained strong, with cash and undrawn credit facilities of AED 12.6 billion at year-end.
Balance Sheet
We remain determined to reduce our leverage and believe that our Transformation Program coupled with the expected recovery of oil and gas prices over the coming year will enable us to make progress on this front. In 2015 our debt metrics were negatively impacted by reduced EBITDA with net debt/EBITDA increasing to 7.4x from 5.0x and EBITDA/interest expense falling to 2.5x from 3.5x in 2014.
Cash flow statement
The Company’s total assets at the end of 2015 were AED 108.8 billion, versus AED 115.0 billion a year earlier. The decrease is primarily the result of reduced book value of the Company’s assets from depreciation, depletion and amortization, as well as impairments, which were not offset by new capital investments.
Net cash earned from operating activities in 2015 fell to AED 8.6 billion compared to AED 11.9 billion in 2014, which mainly reflects the significant decline in commodity prices.
TAQA’s total debt balance in 2015 reduced by AED 2.2 billion to AED 74.3 billion, mainly as a result of scheduled principal repayments on project financing.
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HEALTH & SAFETY, SECURITY & ENVIRONMENT Our safety performance continued to improve through 2015, helping to lay the foundation to take HSSE to the next level. 2015 HSSE Performance TAQA’s safety performance has continued to improve through 2015, and by the year-end the recordable injury rate was down 9% compared to 2014 in our established businesses. This is a significant result given the changes taking place across the group as a whole, which was driven by: • Committed leadership at all levels demonstrating safety as a priority • Implementation of improved systems, processes and procedures • All TAQA employees working relentlessly together to prevent incidents This result represents a recordable injury rate (RIR) improvement of 65%, from 0.85 in 2010 to 0.30 today.
Hydro Plant Incident - Sorang, India
65%
RIR improved by 65% since 2010
31,589
Trees planted By TAQA in India under the Greenbelt Development Program
TAQA’s group HSSE department maintains a corporate overview of the company’s regional HSSE teams by putting into place a robust governance and assurance structure. Our management system, the Commitment to Operational Excellence (COE), was published in 2015 along with TAQA’s 12 essential safety rules. This provides us with the next chapter in ensuring process safety is clearly on the agenda and helps us to prevent major accidents around the globe in the years to come. TAQA continued to transform its business in 2015, and the importance of relentlessly focusing on HSSE was highlighted by the company’s leadership across the entire network of operations. This paid off through an improved safety performance in our established businesses. We also laid the foundations of taking HSSE to the next level of performance in the future.
Abu Dhabi National Energy Company PJSC (TAQA)
TAQA has done much to improve safety in its established businesses. However, in Sorang a failure of a pipeline took place in the final stages of commissioning. This resulted in a release of high pressure water and the subsequent and tragic loss of three people. The cause of this incident is under investigation. We are committed to learn from the root cause investigation to ensure a similar occurrence can never happen again.
2015 HSSE Highlights Energized Safety Representatives – TAQA UK UK legislation requires that each offshore installation has an elected team of worker’s safety representatives. In 2014, an opportunity arose to improve the effectiveness of the elected safety representatives on TAQA’s five UK installations.
Health & Safety, 31 Security & Environment
UK legislation is designed to promote and protect the independence of the safety representatives, but sometimes prohibits operators from working closely with them. TAQA’s new program has helped overcome the potential disconnect between the company and representatives. This program has included planned platform area inspections and other activities, including training and support material developed by the representatives. Volunteers throughout the TAQA organization have also supported and created short videos called “scoobies”, which educate the representatives on different aspects of the business to help them perform their role. Representatives achieved over 1,600 separate recorded safety activities in 2015. Activities ranged from area inspections to the resolution of identified integrity issues. Every second Friday, representatives hold a video conference between all platforms and onshore, where they discuss and share their activities and experiences.
Environment India protection and Awareness – TAQA Neyveli, India TAQA’s power plant in Neyveli, India celebrated World Environment Day on 5 June 2015. This event promotes worldwide environment protection and awareness. The day also serves as an opportunity for individuals, families and organizations to do something commendable for the environment. TAQA’s power plant in Neyveli marked the day by taking an environmental protection pledge, and committed itself to a mass planting of trees on the land within the plant perimeter. By the end of 2015 they had planted and maintained 31,589 trees of various species, under the Greenbelt Development Program. This activity forms part of a program established in 2004 by TAQA Neyveli, and every year since tree saplings have been planted on World Environment Day.
Case Study In 2015, TAQA launched the new management system, the Commitment to Operational Excellence (COE) across TAQA globally.
This initiative by TAQA’s representatives has been hugely successful, changing the culture of the safety representative organization to become significantly more proactive. The program should see us become the leader of workforce safety representative engagement in 2016.
2013 Oil & Gas
2014
0.07
0.40
0.30
0.06
0.33
0.21
0.39
0.51
0.59
Recordable Injury Rate (per 200,000hrs.)
Total
2015
Power & Water
Annual Report 2015
2
6
55
61
64
66 2
50
48 2013 Oil & Gas
TAQA’s original management system was reviewed in 2014 as part of our continuous improvement process, and as a result was evolved into COE. Our COE is built around four focus areas; leadership, hazard and risk assessment, risk management and review and improvement. A gap analysis was completed against firstly, documented best practices within the industry and secondly, with a review on the causes of historical incidents, to identify areas for improvement. A key area identified for improvement was a stronger process safety requirement. Our findings resulted in the expansion of one element of the existing procedure and the addition of three new elements related to process safety. TAQA’s past rapid growth through acquisition meant that our businesses inherited different management systems. Trying to create a one-size fits all approach was a challenge, but we managed to achieve it by working closely together, involving our HSSE community across TAQA globally, and building the new system around high-level expectations. In 2015, we published the COE and began work on its implementation across TAQA’s businesses.
Reportable Spills
Total
Evolution of a world-class management system
2014
2015
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COMMUNITY RELATIONS We are committed to supporting the economic and social development of communities in which we operate.
TAQA has a strong commitment towards making a positive impact on the communities around the world where we operate. Apart from the employment opportunities we help to create and the skills we transfer, we focus our programs on the distinct areas of the community, health, education and the environment.
Community Our social responsibility programs once again covered a wide variety of causes. In the UK TAQA provided funding to the Foyer ‘Open Talent’ project, an initiative for identifying, coaching and promoting young people’s talents so they can live, learn and work independently. In Alberta the company provided essential support for the Shock Trauma Air Rescue Society (STARS). In Ghana, TAQA helped to increase physical security around the Ahantaman Girls School which was experiencing increasing incidents with intruders. In Morocco TAQA once again supported the Moussem of Moulay Abdellah cultural event in El Jadida, involving some 2,000 horsemen and attracting over 350,000 visitors. In Iraq, our corporate social responsibility program is carried out in partnership with the Kurdistan Regional Government. The program focuses on agriculture, vocational and educational training among women and youth. TAQA has supported the Chamankee women’s center by sponsoring skills programs and handicrafts which enable the women to make a sustainable living. During the annual United Way charity campaign, TAQA employees in North America raised funds for local community charities.
Health To help raise public awareness about cancer throughout Morocco, TAQA supported research and outreach being conducted by the Lalla Salma Foundation. Also in Morocco, the company helped to make possible 1,200 medical interventions by the Emergency Medical Assistance Service in El Jadida. In the UK TAQA staff raised funds for the employees’ selected charity of the year, cancer charity Friends of Anchor, and in the Netherlands staff raised money for the Make a Wish foundation, granting wishes for seriously ill children.
Education Our work on education in Ghana has made a significant impact on examination performance. TAQA’s partnership with the Shama Metropolitan Assembly through the sponsorship of the 2015 Basic Education Certificate Examinations resulted in the district being adjudged best performer with a 76% pass rate with distinction, compared to some 8% in 2012 and no distinctions in 2010. TAQA also sponsored mathematics and science competitions in the same district in 2015. In the UK TAQA has a long standing relationship with Greenpower, a national schools event which encourages young people to take an interest in science, technology, engineering and maths through designing, building and racing electric cars. TAQA is the sole sponsor of the Aberdeen leg of the competition, and their support in 2015 included six schools which might not have been able to participate otherwise.
Abu Dhabi National Energy Company PJSC (TAQA)
Environment Our environmental work in the community in 2015 ranged from supporting a national sanitation day clean up exercise in Ghana to providing a school in Morocco with an incinerator to improve waste management, as well as participation in a beach cleaning program in the municipalities of Sidi Bouzid and Sidi Abed, in Morocco. In the Netherlands, we have returned the area surrounding the Bergermeer gas storage well site to its original state. This involved sinking the wellsite underground and returning flowers and other plants excavated during construction to their original place by hand. More than 12,000 square meters of land near the facilities has been set aside as a nature reserve to ensure that the area retains its unique environment for years to come.
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CORPORATE GOVERNANCE
Board Committees Presently the Board has the following three committees each of which has been established by a written charter setting forth its scope and responsibilities: • Audit Committee • Nomination and Remuneration Committee • Executive Committee
As a public company, we continually strive for the highest standards of corporate governance.
Left: Ahamlaman girl's school, Ghana Middle left: Drought relief project, Iraq Middle right: Chamankee Women's Center, Iraq Bottom right: V.R.A hospital, Ghana
TAQA’s Corporate Governance Policy and Code of Business Ethics together form the backbone of the company’s governance practices and serve to define and reinforce the core values of TAQA as an organization.
Structure of Board TAQA’s Board of Directors comprises seven directors with a broad range of backgrounds, expertise and commercial experience. Each director is elected for a term of three years and at the end of that period, the Board may be reconstituted. The Board is independent of the management and is formed of nonexecutive and independent directors. At all times, at least one-third of the directors are to be independent and a majority of directors are to be nonexecutives who have technical skills and experience that will be of benefit to TAQA. Whenever directors are chosen, consideration is given to whether or not a director is able to dedicate adequate time and effort to his membership and that such membership is not in conflict with his or her other interests. The Board meets in person on a periodic basis pursuant to a formal schedule. New Board members were elected during the company’s Annual General Meeting which convened on 22 April 2014. At a meeting of the Board held on the same date, H.E. Saeed Mubarak Al-Hajeri was elected Chairman.
Annual Report 2015
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Audit Committee The basic duties of the Audit Committee are monitoring the integrity of the company’s financial statements and its reports (annual reports, semi-annual reports, and quarterly reports) and reviewing the financial and accounting policies and procedures of the company, as well as ensuring the independence of the company’s external auditor. It is also responsible for evaluating the integrity and quality of the company’s internal control policies and all the duties mentioned in Article (9) of Ministerial Resolution 518, and those indicated further below. 1. H.E. Salem Sultan Al Dhaheri (Chairman) Independent, non-executive member 2. H.E. Abdulaziz Abdulrahman Al Hemaidi Independent, non-executive member 3. H.E. Ahmed Khalifa Al Mehairi Independent, non-executive member The Committee convenes not less than once every three months and additionally whenever the need arises. The minutes of the Audit Committee meetings are signed by all the committee members present. The management provides the necessary information to the Audit Committee to enable it to discharge its functions. The establishment of the Audit Committee was approved by a resolution of the Board of Directors in a meeting held on 30 October 2007, and the Committee’s charter was adopted on 9 December 2007. The committee’s charter was last updated in 2015.
Nomination and Remuneration Committee The basic duties of the Nomination and Remuneration Committee are to regularly ensure the independence of the independent Board members, to review the remuneration matters related to the company, and to nominate members of the Board of Directors and determine their remuneration and all the basic duties included in Article (6) of Ministerial Resolution 518.
34 Corporate Governance
The Nomination and Remuneration Committee is comprised of: 1. H.E. Mohamed Butti Al Qubaisi (Chairman) Independent Non-Executive Member 2. H.E. Khaled Abdulla Al Mass Independent, Non-Executive Member 3. H.E. Mohammed Al Qamzi Independent, Non-Executive Member 4. M r. Saeed Hamad Al Dhaheri Executive, Non-voting member The establishment of the Nomination and Remuneration committee was approved by a resolution by the Board of Directors in a meeting held on 20 January 2008, and the committee’s charter was last updated in November 2015.
Executive Committee The Executive Committee acted as an advisor to the Board to review, assess and propose recommendations for the overall management, strategy, business and affairs of the company. The Executive Committee was comprised of: 1. H.E. Saeed Mubarak Al-Hajeri (Chairman)Independent, non-executive member 2. H.E. Abdulaziz Al Hemaidi Independent, non-executive member 3. H.E. Mohamed Butti Al Qubaisi Independent, non-executive member The establishment of the Executive Committee was approved by a resolution by the Board of Directors in a meeting held on 17 June 2014, and the committee’s charter was adopted on 17 June 2014. In December 2015, the Executive Committee was dissolved as its functions were being carried out by the Board.
Internal Controls The Company’s internal controls are processes designed to achieve the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting, and (iii) compliance with laws and regulations. There are two main components of the Company’s internal control system: a) The design, development and implementation of an effective internal control system, and b) The ongoing monitoring and review of the internal control system to test its fitness for purpose, and to confirm that the business is in compliance with it. The Company’s internal controls are contained in the policies, procedures and systems that have been adopted by the Company and that are managed and implemented through a multi-disciplinary group. Ultimate responsibility for the operation of an effective internal control framework rests with the Chief Operating Officer, who provides the leadership and direction to those within the organization with more direct responsibility for the specific aspects of the internal control system, and who has accountability to the Board for these matters. The Group Vice President of Assurance and Internal Control and Compliance Officer is responsible for overseeing the Internal Audit and the Internal Controls functions with a direct reporting line to the Audit Committee and is ultimately accountable to the Board. He is primarily and directly responsible for auditing the Company’s internal controls to confirm that they are adequate for their intended purpose, for identifying and reviewing any perceived shortfalls or weaknesses in the internal controls, and for testing compliance with the internal control framework. The Company’s Assurance and Internal Controls Group has responsibility for testing the adequacy of the internal control system and verifying compliance with its requirements. The Assurance and Internal Controls Group prepares annual audit plans pursuant to which it audits and reviews specific functions and activities within the Company and its subsidiaries. These annual audit plans are agreed with the Audit
Abu Dhabi National Energy Company PJSC (TAQA)
Committee. They are designed to prioritize potential areas of risk with a view to allocating the Group’s resources to those areas of most strategic importance to the Company, to ensure that all material functions and activities of the Company are periodically audited and reviewed, and to support the Company’s overall risk assessment procedures. The Assurance and Internal Controls Group has the responsibility for establishing an Enterprise Risk Management (ERM) framework across the Company that will ensure the identification, assessment, treatment and reporting of key business risks for 2016 onwards. The Company has implemented processes to assist in the identification of problems, including the Anti-Fraud Policy and the Whistleblower Policy, both of which provide a mechanism for anonymous reports to be made if improper actions are suspected. The General Counsel is responsible for addressing issues raised through these reporting mechanisms, with the response being tailored to the nature of an allegation. The response to all of these problems or potential problems is documented in writing, with any material matters brought to the attention of the Compliance Officer and the Audit Committee and, if appropriate, the Board.
Appointment of External Auditors and Fees Pursuant to Article (10) of Ministerial Resolution 518, the Board appoints an external auditor, based on the recommendation of the Audit Committee. At the General Assembly meeting held on 26 April 2015, and based on the recommendation of the Board of Directors, the shareholders appointed Ernst and Young (Abu Dhabi) as the Company’s external auditors for the fiscal year 2015.
35
SHAREHOLDER & BONDHOLDER INFORMATION Shareholder information TAQA share price performance 2015
Bondholder Information Long-term credit ratings
(AED) 1.0
Moody’s Investor Services
0.9
Standard & Poor’s
0.8
A (stable outlook)
A3 (stable outlook)
0.7
TAQA
De c-1 5
No v-1 5
Oc t-1 5
Sep -15
Aug -15
Jul15
Jan -15
0.3
Jun -15
Ernst & Young PO Box 136 Abu Dhabi United Arab Emirates
Ma y-1 5
Auditors
0.4 Apr -15
0.5
Ma r-1 5
Professional Advisors
Feb -15
0.6
ADX
ADX rebased to TAQA share price of AED 0.8 as at 1st of January 2015.
T +971 (0) 2 627 7522 F +971 (0) 2 627 3383
Registrars National Bank of Abu Dhabi PO Box 2993 T +971 (0) 2 611 1111 F +971 (0) 2 627 5738
Bond maturity schedule Issue size US$1000 million US$750 million US$500 million US$750 million US$500 million US$500 million US$750 million MYR 650 million US$1250 million US$750 million EUR 180 million US$0.913 million
Annual Report 2015
Maturity
Coupon
October 2016 March 2017 October 2017 January 2018 August 2018 September 2019 December 2021 March 2022 January 2023 May 2024 May 2024 October 2036
5.875% 4.125% 6.165% 2.500% 7.250% 6.250% 5.875% 4.650% 3.625% 3.875% 2.875% 6.500%
taqaglobal.com
Contact details Mailing address: Abu Dhabi National Energy Company PJSC “TAQA” PO Box 55224 Abu Dhabi United Arab Emirates T +971 (0) 2 691 4900 F +971 (0) 2 642 2555 www.taqaglobal.com For information on investor relations email:
[email protected]
36 Financial Statements
FINANCIAL STATEMENTS Report of the board of directors and Consolidated financial statements 31 December 2015 37 Board Report 38 Independent Auditor’s Report 39 Consolidated Income Statement 40 Consolidated Statement of Comprehensive Income 41 Consolidated Statement of Financial Position 42 Consolidated Statement of Changes in Equity 44 Consolidated Statement of Cash Flows 46 Notes to the Consolidated Financial Statements
Abu Dhabi National Energy Company PJSC (TAQA)
37
ABU DHABI NATIONAL ENERGY COMPANY PJSC (“TAQA”) BOARD REPORT
On behalf of the Board of Directors of Abu Dhabi National Energy Company PJSC (“TAQA” or the “Company”), I am pleased to present the financial statements of TAQA for the year ended 31 December 2015. TAQA was established pursuant to Emiri Decree No. 16 of 2005 as a public joint stock company with Abu Dhabi Water and Electricity Authority (“ADWEA”) as its founding shareholder holding a 52.4% equity interest. Accordingly, the Company is a subsidiary of ADWEA. Despite strong production volumes, the drop in commodity prices reduced revenues to AED 19.3 billion and EBITDA to AED 9.6 billion, compared to AED 27.3 billion and AED 14.5 billion respectively for the full year 2014. Supported by the Company’s transformation program, TAQA maintained the level of free cash flow at AED 5.8 billion, representing a reduction of 11% from 2014. The Company took a Pre-tax impairment charge of AED 835 million for the year, which led to an annual net loss of AED 1.8 billion. In 2014, the Company recorded a net loss of AED 3 billion. As a consequence, TAQA is not paying a dividend for 2015. In terms of liquidity, TAQA holds AED 3.4 billion in cash and cash equivalents and maintains healthy liquidity of AED 12.6 billion including AED 9.2 billion of undrawn credit facilities and 3.4 billion of cash and cash equivalents. in August TAQA reduced funding costs by refinancing a $3.1 billion revolving credit facility at improved terms. The Company expects to apply a similar strategy to refinance future maturities at competitive terms. In 2015, TAQA launched a transformation program to build on earlier changes already made to streamline the business. While maintaining a strong commitment to safety and asset integrity, the Company set a target
Annual Report 2015
to save AED 1.5 billion in operational and administrative costs over two years and reducing capital investment by 40% in 2015. Halfway through this two-year transformation program, TAQA has made significant changes to its operating model by shifting to a leaner team, redefining the role of the headquarters and putting in place a more efficient, and aligned decision-making processes. The Company has also enabled capability synergies and further significant cost savings by consolidating its European and African businesses. During 2015, the transformation program had helped eliminate more than AED 1.6 billion in costs and reduce capital spend by 52%, or AED 3.3 billion, compared to 2014. In total, the transformation program has helped eliminate more than AED 5.0 billion in capital expenditure and cash costs during 2015.
expansion in Ghana and Fujairah water desalination plant in the UAE. The Atrush project in the Kurdistan region of Iraq is on track for first oil in the second half of 2016. During 2015, TAQA increased the number of UAE nationals in corporate leadership roles from 43% to 61%, and raised the corporate Emiratization rate from 28% a year ago to 44%. This achievement demonstrates the Company’s commitment to play an active role in developing and enabling the UAE’s workforce. TAQA plans to target a steady annual increase in Emiratization, with a goal of achieving 85% by 2020. The Company’s transformation program and the continuous support from Abu Dhabi government has improved TAQA’s resilience and ensured that it is better placed to take on challenges facing the Company in 2016 and beyond.
Our cash flow in the power and water business remains robust and underpins the Group performance. TAQA realised record gross power production of 91,117 gigawatt hours (GWh) and 264,127 million imperial gallons (MIG) of water. The Company’s oil and gas businesses delivered revenues of AED 7.3 billion, a 6.6 billion or 47% drop compared to 2014. Despite a 58% reduction in oil and gas capital expenditure over the past two years, 2015 production remained robust at 145.3 thousand barrels of oil equivalent per day (mboepd), down 8.6% from a record 158.9 mboepd in 2014. A disciplined and focused approach to costs helped reduce net G&A and operational expenditures per barrel by 21% in North America and 18% in the UK North Sea. During the year, the Company commissioned major projects including the new North Sea Cladhan field, the Takoradi power plant
taqaglobal.com
Saeed Mubarak Al–Hajeri Chairman of the Board Abu Dhabi National Energy Company PJSC “TAQA”
38 Financial Statements
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Abu Dhabi National Energy Company PJSC (“TAQA”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2015 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and in compliance with the applicable provisions of the UAE Federal Law No. (2) of 2015, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF ABU DHABI NATIONAL ENERGY COMPANY PJSC (“TAQA”)
on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
iii) the Company has maintained proper books of account; iv) the financial information included in the Directors’ report is consistent with the books of account and records of the Company; v) based on the information that has been made available to us, the Company has not purchased or invested in any shares or stocks during the year ended 31 December 2015; vi) note 37 reflects the disclosures relating to related party transactions and the terms under which they were conducted; vii) note 8 reflects the disclosure relating to social contributions made during the year; and
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2015 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.
viii) based on the information that has been made available to us nothing has come to our attention which causes us to believe that the Company has contravened, during the financial year ended 31 December 2015, any of the applicable provisions of the UAE Federal Law No. (2) of 2015 or of its Articles of Association which would materially affect its activities or its financial position as at 31 December 2015.
Report on Other Legal and Regulatory Requirements
Signed by
Opinion
Further, as required by the UAE Federal Law No. (2) of 2015, we report that: i) we have obtained all the information and explanations we considered necessary for the purposes of our audit; ii) the consolidated financial statements have been prepared and comply, in all material respects, with the applicable provisions of the UAE Federal Law No. (2) of 2015, and the Articles of Association of the Company;
Abu Dhabi National Energy Company PJSC (TAQA)
Anthony O’Sullivan Partner Ernst & Young Registration No. 687
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015
Notes
Revenues Revenue from oil and gas Revenue from electricity and water Fuel revenue Gas storage revenue Other operating revenue
4.1 4.2 4.3 4.4
Cost of sales Operating expenses Depreciation, depletion and amortisation Dry hole expenses Provisions for impairment
39
2015 AED million
2014 AED million
6,291 9,685 2,269 261 838
12,066 10,435 2,726 312 1,786
19,344
27,325
(9,120) (6,541) (17) (835)
(11,905) (6,942) (640) (3,837)
(16,513)
(23,324)
2,831 (713) (4,635) (138) 64 104 23 21 27 3
4,001 (1,098) (4,849) (243) 142 123 31 167 17 22
(2,413) 1,299
(1,687) (602)
Loss for the year
(1,114)
(2,289)
Attributable to: Equity holders of the parent Non-controlling interests
(1,800) 686
(3,010) 721
(1,114)
(2,289)
(0.30)
(0.50)
5 6 14 7
Gross profit Administrative and other expenses Finance costs Changes in fair values of derivatives and fair value hedges Net foreign exchange gains Share of results of associates Share of results of a joint venture Gain on sale of land and oil and gas assets Interest income Other gains Loss before tax Income tax credit (expense)
8 9.1
16 17 12 9.2
10
Loss for the year Basic and diluted loss per share attributable to equity holders of the parent (AED)
The attached notes 1 to 42 form part of these consolidated financial statements.
Annual Report 2015
taqaglobal.com
11
40 Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015
2015 AED million
Loss for the year Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods: Changes in fair values of derivative instruments in cash flow hedges – net Reclassification adjustment for ineffective cash flow hedges Share of other comprehensive income of associates (note 16) Exchange differences arising on translation of overseas operations Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Changes in fair value relating to investment carried at FVOCI Remeasurement gains (losses) on defined benefit plans Net other comprehensive income (loss) not to be reclassified to profit or loss in subsequent periods Other comprehensive income (loss) for the year Total comprehensive loss for the year Attributable to: Equity holders of the parent Non-controlling interests
The attached notes 1 to 42 form part of these consolidated financial statements.
Abu Dhabi National Energy Company PJSC (TAQA)
2014 AED million
(1,114)
(2,289)
636 – 34 (364)
(656) (42) 37 (254)
306
(915)
– 9
(79) (24)
9
(103)
315
(1,018)
(799)
(3,307)
(1,775) 976
(3,758) 451
(799)
(3,307)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015
Assets Non-current assets Property, plant and equipment Operating financial assets Intangible assets Investment in associates Investment in joint venture Advance and loans to associates Deferred tax assets Other assets
41
Notes
2015 AED million
2014 AED million
12 13 14 16 17 18 10 19
74,850 9,758 9,956 421 – 702 1,183 167
79,824 10,147 10,532 726 151 398 547 238
97,037
102,563
2,835 256 2 4,489 3,568
2,963 228 475 5,157 3,652
11,150
12,475
Current assets Inventories Operating financial assets Advance and loans to associates Accounts receivable and prepayments Cash and short-term deposits
20 13 18 21 22
Assets classified as held for sale
23
Total assets Equity and liabilities Equity attributable to equity holders of the parent Issued capital Contributed capital Other reserves Accumulated losses Foreign currency translation reserve Cumulative changes in fair value of derivatives in cash flow hedges
24 24 25 25 25
Non-controlling interests Loans from non-controlling interest shareholders in subsidiaries
26 27
Total equity Non-current liabilities Interest bearing loans and borrowings Islamic loans Deferred tax liabilities Asset retirement obligations Advances and loans from related parties Loans from non-controlling interest shareholders in subsidiaries Other liabilities
29 30 10 31 32 33
Current liabilities Accounts payable, accruals and other liabilities Interest bearing loans and borrowings Islamic loans Amounts due to ADWEA and other related parties Income tax payable Bank overdrafts
34 29 30 35 22
580
–
11,730
12,475
108,767
115,038
6,066 25 3,546 (2,382) (1,812) (2,604)
6,066 25 3,485 (530) (1,448) (2,984)
2,839
4,614
4,035 457
3,581 589
4,492
4,170
7,331
8,784
66,734 1,639 2,570 13,396 280 301 4,414
72,380 1,918 3,643 13,143 285 260 4,921
89,334
96,550
5,129 5,772 156 153 761 131
6,425 2,059 148 97 853 122
12,102
9,704
Total liabilities
101,436
106,254
Total equity and liabilities
108,767
115,038
Chairman of the Board of Directors
Annual Report 2015
Chairman of the Audit Committee
taqaglobal.com
Chief Operating Officer
Chief Financial Officer
42 Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015
Attributable to owners of the parent
Issued capital AED million
Balance at 1 January 2014 (Loss) profit for the year Other comprehensive income (loss) for the year Total comprehensive income (loss) for the year Transfer to retained earnings (note 24 (iii) and note 25.1) Transfer to legal reserve Cancellation of loans from ADWEA (note 25.2) Transfer of cumulative loss on investment carried at FVOCI to retained earnings Dividends declared to subsidiaries’ non-controlling interests Cancellation of treasury shares (note 24(ii)) Repayment of loans Balance at 31 December 2014 (Loss) profit for the year Other comprehensive income (loss) for the year Total comprehensive income (loss) for the year Transfer to legal reserve Dividends declared to subsidiaries’ non-controlling interests Repayment of loans Balance at 31 December 2015
6,225 – – – – – – – – (159) –
(293) – – – – – –
Equity contributed capital AED million
Other reserves AED million
325 – –
4,290 – –
– (300) – –
Retained (losses) earnings AED million
(1,375) (3,010) (24)
– (750) 79 –
(3,034) 1,050 (79) 2,919
– – (134) –
(11) – – –
– – 293 –
– – – –
6,066 – –
– – –
25 – –
3,485 – –
(530) (1,800) 9
– – – –
– – – –
– – – –
– 61 – –
(1,791) (61) – –
6,066
–
25
3,546
(2,382)
The attached notes 1 to 42 form part of these consolidated financial statements.
Abu Dhabi National Energy Company PJSC (TAQA)
Treasury shares AED million
43
Attributable to owners of the parent
Foreign currency translation reserve AED million
Cumulative changes in fair value of investment carried at FVOCI AED million
Cumulative changes in fair value of derivative for cash flow hedges AED million
Total AED million
Non-controlling interests AED million
Loans from non-controlling interest shareholders in subsidiaries AED million
Loan from ADWEA AED million
642 – –
2,624 – –
12,314 (2,289) (1,018)
– – – (2,611)
(3,307) – – 358
– – – (13)
– (515) – (66)
(1,194) – (254)
68 – (79)
(2,593) – (391)
5,453 (3,010) (748)
3,595 721 (270)
(254) – – –
(79) – – –
(391) – – –
(3,758) – – 2,919
451 – – 50
– – – –
– (515) – –
– – – (53)
– – – –
11 – – –
(1,448) – (364)
– – –
(364) – – –
– – – –
(1,812)
–
– – – – (2,984) – 380 380 – – – (2,604)
– – – – 4,614 (1,800) 25
3,581 686 290
(1,775) – – – 2,839
976 – (522) – 4,035
The attached notes 1 to 42 form part of these consolidated financial statements.
Annual Report 2015
taqaglobal.com
Total equity AED million
589 – –
– – –
8,784 (1,114) 315
– – – (132)
– – – –
(799) – (522) (132)
457
–
7,331
44 Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015
Notes
Operating activities Loss before tax Adjustments for: Depreciation, depletion and amortisation Amortisation of deferred expenditure Release of onerous contracts provision Employee benefit obligations, net Gain on exchange – loans and borrowings and operating financial assets Provisions for impairment Dry hole expenses Exploration and evaluation costs derecognised during the year Gain on sale of land oil and gas assets Interest expense and notional interest Accretion expense Share of results of associates Share of results of a joint venture Unrealised losses on fair valuation of derivatives and fair value hedges Interest income Other non-cash adjustments Construction costs Revenue from operating financial assets Working capital changes: Inventories Account receivables and prepayments and other assets Amount due to ADWEA and other related parties Accounts payables, accruals and other liabilities Income tax paid Asset retirement obligations payments Cash received from service concession arrangements Net cash from operating activities
The attached notes 1 to 42 form part of these consolidated financial statements.
Abu Dhabi National Energy Company PJSC (TAQA)
2015 AED million
2014 AED million
(2,413)
(1,687)
5 13
6,541 57 (87) (9) (268) 835 17 42 (21) 3,940 695 (104) (23) 162 (27) – 130 (1,634)
6,942 68 (84) (16) (81) 3,837 640 84 (167) 4,167 682 (123) (31) 154 (17) 10 404 (1,954)
31 13
127 623 56 (1,086) (439) (156) 1,635
(258) 198 (53) (1,493) (693) (132) 1,491
6
7 14 14 12 9 9 16 17 9
8,593
11,888
CONSOLIDATED STATEMENT OF CASH FLOWS CONTINUED FOR THE YEAR ENDED 31 DECEMBER 2015
45
Notes
2015 AED million
2014 AED million
Investing activities Proceeds from sale of non-core assets Proceeds from insurance claims Purchase of property, plant and equipment Construction costs paid Dividends received from investment carried at FVOCI Proceeds from disposal of investment carried at FVOCI Proceeds from disposal of an associate Return of capital/additions of investment carried at FVOCI Dividend received from associates Dividend received from joint ventures Loan repayment by associates Purchase of intangible assets Interest received Acquisition of other assets
34 – (2,840) (130) – – – – 9 28 169 (77) 27 (9)
298 58 (5,333) (404) 4 493 13 9 16 25 108 (597) 17 (58)
Net cash used in investing activities
(2,789)
(5,351)
Financing activities Interest bearing loans and borrowings received Repayment of islamic loans Repayment of interest bearing loans and borrowings Interest paid Dividend paid to non-controlling interest shareholders Loans received from non-controlling interest shareholders in subsidiaries Repayment of loans from non-controlling interest shareholders Receipt of loans from ADWEA Repayment of loans from ADWEA
6,961 (147) (8,247) (3,894) (519) 41 (136) – (5)
4,897 (145) (6,930) (4,290) (613) 75 (71) 195 –
Net cash used in financing activities
(5,946)
(6,882) (345) (71) 3,946 3,530
Net decrease in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at 1 January
22
(142) 49 3,530
Cash and cash equivalents at 31 December
22
3,437
The attached notes 1 to 42 form part of these consolidated financial statements.
Annual Report 2015
taqaglobal.com
46 Financial Statements
1 Corporate Information
Abu Dhabi National Energy Company PJSC (“TAQA” or the “Company”) was established on 21 June 2005 pursuant to the provisions of Emiri Decree number 16/2005 as a public joint stock company with Abu Dhabi Water and Electricity Authority (“ADWEA”) as its founding shareholder and 100% owner. During the period from 23 July 2005 to 1 August 2005, 24.9% of TAQA’s shares were offered to the public on the Abu Dhabi Securities Exchange through an Initial Public Offering (IPO) and 24.1% were offered through a private offering with the remaining 51% interest holding in the Company retained by ADWEA and, accordingly, the Company is a subsidiary of ADWEA. Following the issuance of mandatory convertible bonds and conversion of the bonds into ordinary shares during the third quarter of 2008, ADWEA’s holding increased to 52.38%. Public ownership increased to 25.95% and the balance of 21.67% is held by the Farmers’ Fund. The Company continues to be a subsidiary of ADWEA which was established pursuant to the provisions of Law 2 of 1998, concerning the regulation of the Water and Electricity Sector. The principal activity of TAQA is to own and invest in companies engaged in power generation, water desalination and exploration, development, production and storage of oil and gas, supplemented by developing alternative and technologydriven energy initiatives in addition to other investments as considered appropriate to meet its objectives. TAQA’s registered head office is P O Box 55224, Abu Dhabi, United Arab Emirates. The consolidated financial statements of TAQA and its subsidiaries (the “Group”) for the year ended 31 December 2015 include the financial statements of TAQA and all its subsidiaries. Details of the major operating subsidiaries are provided in note 38 to the consolidated financial statements. Information on other related party relationships of the Group are provided in note 37. The consolidated financial statements of the Group were authorised for issuance by the Board of Directors on 30 March 2016.
2.1 Basis of preparation
The consolidated financial statements of TAQA have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and the applicable requirements of the UAE Federal Law No. (2) of 2015. The Federal Law No. (2) of 2015, concerning commercial companies has come into effect
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
from 1 July 2015, replacing the existing Federal Law No. 8 of 1984. The Company is currently assessing the impact of the new law and expects to be fully compliant on or before the end of grace period on 30 June 2016. The consolidated financial statements are prepared on a historical cost basis, except for investment carried at FVOCI financial assets and derivative financial instruments that have been measured at fair value. The carrying values of recognised assets and liabilities that are designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over the an investee, including: •
The contractual arrangement with the other vote holders of an investee
•
Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary The consolidated financial statements have begins when the Group obtains control over been presented in United Arab Emirates the subsidiary and ceases when the Group Dirhams (AED), which is also the functional loses control of the subsidiary. Assets, currency and presentation currency of the liabilities, income and expenses of a subsidiary parent Company. All values are rounded to the acquired or disposed of during the year are nearest million (AED million) except when included in the statement of comprehensive otherwise indicated. income from the date the Group gains control until the date the Group ceases to control the 2.2 Fundamental accounting concept subsidiary. During the year, the Group incurred a loss of The financial statements of subsidiaries are AED 1,114 million, and as at 31 December prepared for the same reporting year as the 2015 accumulated losses of the Group are AED 2,382 million. As at 31 December 2015, parent company, using consistent accounting the current liabilities of the Group exceeds its policies. All intra-group assets and liabilities, equity, income, expenses and cash flows current assets by AED 372 million. The consolidated financial statements have been relating to transactions between members of the Group are eliminated in full on prepared on a going concern basis. The consolidation. Group has sufficient short to medium term liquidity to meet ongoing commitments and Total comprehensive income within a therefore it is concluded that adequate subsidiary is attributed to the equity holders support is available to evidence that the of the parent of the Group and to the going concern assumption is appropriate for non-controlling interests, even if that results the preparation of the 2015 Financial in the non-controlling interests having a Statements. deficit balance.
2.3 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and each of its subsidiaries as at 31 December 2015.
•
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
Specifically, the Group controls an investee if and only if the Group has:
2.4 Changes in accounting policies and disclosures
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS effective as of 1 January 2015:
•
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
•
Exposure, or rights, to variable returns from New and amended standards its involvement with the investee, and
•
The ability to use its power over the investee to affect its returns
Abu Dhabi National Energy Company PJSC (TAQA)
and interpretations
The following amendments to IFRS are effective as of the beginning of the year:
47
•
IAS 19 Defined Benefit Plans: Employee Contributions – Amendments to IAS 19
Operating lease commitments – Subsidiaries as lessor
As mentioned above the Group’s domestic subsidiaries have entered into PWPAs. Under the PWPAs, the subsidiaries receive payment for the provision of power and water capacity, whether or not the offtaker (ADWEC) requests power or water output (“capacity payments”), and for the variable costs of production (“energy and water payments”). • Annual Improvements 2011–2013 Cycle The Group has determined the PWPAs are –– IFRS 3 Business Combinations lease arrangements and that, based on the –– IFRS 13 Fair Value Measurement contractual arrangements in place, –– IAS 40 Investment Property management considers that the Group retains the principal risks and rewards of Adoption of the above amended IFRS and ownership of the plants and so accounts for improvements to IFRS did not have any the PWPAs as operating leases. When there significant impact on the consolidated are amendments to the PWPAs, management financial statements of the Group. reconsiders whether the Group continues to 2.5 Significant accounting judgements, retain the principal risks and rewards of ownership of the plants. estimates and assumptions The preparation of the Group’s consolidated Power and Water Purchase Agreements financial statements requires management to As mentioned above, management does not make judgements, estimates and assumptions consider the domestic subsidiaries’ PWPAs to that affect the reported amounts of revenues, fall within the scope of IFRIC 12 Service expenses, assets and liabilities, and the Concession Arrangement. Based on accompanying disclosures, and the disclosure management’s estimate of the useful life and of contingent liabilities, at the end of the residual value of the assets, the offtaker is not reporting period. Uncertainty about these determined to control any significant residual assumptions and estimates could result in interest in the property at the end of the outcomes that require a material adjustment concession term through ownership, to the carrying amount of assets or liabilities beneficial entitlement or otherwise. The affected in future periods. classification of the PWPA as an operating Judgements lease is based on the judgement applied by In the process of applying the Group’s management which considers that the Group accounting policies, management has made retains the principal risks and rewards of the following judgements which have the ownership of the plants, based on most significant effect on the amounts management’s estimate of the useful life and recognised in the consolidated financial residual value of the assets. An estimate of statements: the useful life of the asset and residual value is made and reviewed annually. The effects Service concession arrangements of changes in useful life are recognised Some of the Group’s foreign subsidiaries prospectively, over the remaining life of have entered into power purchase the asset. agreements (“PPA”) with offtakers in countries where they are operating. Impairment of non-financial assets Management has determined these Indicators of impairment arrangements to be service concession Management determines at each reporting arrangements under IFRIC 12 Service date whether there are any indicators of Concession Arrangements by applying the impairment relating to the Group’s property, requirements of the interpretation to the plant and equipment, intangible assets facts and circumstances in each location. including exploration and evaluation assets or The Group’s domestic (United Arab Emirates) goodwill. A broad range of internal and subsidiaries have entered into long term external factors is considered as part of the Power and Water Purchase Agreements indicator review process. (“PWPA”) with Abu Dhabi Water and Acquisition accounting Electricity Company (ADWEC). Management does not consider the PWPA to When the Group makes an acquisition, significant judgement is required to fall within the scope of IFRIC Interpretation determine whether the transaction or other 12 Service Concession Arrangements. event constitutes a business or represents •
Annual Improvements 2010–2012 Cycle –– IFRS 3 Business Combinations –– IFRS 8 Operating Segments –– IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets –– IAS 24 Related Party Disclosures
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only an asset or group of assets that do not constitute a business. The conclusion whether an acquired set of assets and activities is a business or not can lead to significantly different accounting results.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Acquisitions of business and associates
Accounting for the acquisition of a business and for associates requires an estimate of fair value to be made for most assets and liabilities of the acquired business. Determining the fair value of assets acquired and liabilities assumed requires judgement by management and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, the useful lives of licenses and other assets and market multiples. The Group’s management uses all available information to make these fair value determinations. The Group has, if necessary, up to one year after the acquisition closing date to complete these fair value determinations and finalise the acquisition accounting.
Reserves base – Oil and gas assets
Oil and gas development and production properties are depreciated on a unit of production basis at a rate calculated by reference to proved and probable reserves and incorporating the estimated future cost of developing and extracting those reserves. Proved and probable oil and gas reserves are determined using estimates of oil in place, recovery factors and future oil prices. Future development costs are estimated using assumptions as to number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities, and other capital costs. The volume of estimated oil and gas reserves is also a key determinant in assessing whether the carrying value of any of the Group’s development and production assets has been impaired.
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2.5 Significant accounting judgements, estimates and assumptions Continued Impairment of accounts receivable An estimate of the collectible amount of accounts receivable is made when collection of the full amount is no longer probable. Any difference between the amounts actually collected in future periods and the amounts expected to be recovered will be recognised in the consolidated income statement.
Impairment of inventories
Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed and a provision applied according to the inventory type. In determining net realisable value, raw materials held for use in the production of inventories and not written down below cost if the finished product in which they will be incorporated are expected to be sold at or above cost.
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived based on quoted prices from active markets, their fair value is determined using valuation techniques including discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re– measured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor.
Impairment testing of non–financial assets The Group’s impairment testing for non– financial assets is based on calculating the recoverable amount of each cash generating unit or group of cash generating units being
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED tested. Recoverable amount is the higher of value in use and fair value less costs to sell. Value in use for relevant cash generating units is derived from projected cash flows as approved by management and do not include restructuring activities that the group is not yet committed to or significant future investments that will enhance the asset base of the cash generating unit being tested. Fair value less cost to sell for relevant cash generating units is generally derived from discounted cash flow models using market based inputs and assumptions. Recoverable amount is most sensitive to price assumptions, foreign exchange rate assumptions and discount rates used in the cash flow models. The key assumptions used to determine the recoverable amount are further explained in notes 7 and 15 to the consolidated financial statements, which relate to impairment charges and impairment testing.
Estimation of oil and gas reserves
Oil and gas reserves and resources used for accounting purposes are estimated using internationally accepted methods and standards. The Group’s annual oil and gas reserves and resources review process includes an external audit process conducted by appropriately qualified parties; except with reference to prospective resources (PR) at TAQA Atrush. PR at Atrush has been estimated based on work performed by internal expert. All reserve estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions. Changes in oil and gas reserves are an important indication of impairment or reversal of impairment and may result in subsequent impairment charges or reversals as well as affecting the unit–of– production depreciation charge in the consolidated income statement.
Provision for decommissioning
Decommissioning costs will be incurred by the Group at the end of the operating life of certain of the Group’s facilities and properties. The ultimate decommissioning costs or asset retirement obligations are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at production sites. The expected
Abu Dhabi National Energy Company PJSC (TAQA)
timing of expenditure can also change, for example in response to changes in laws and regulations or their interpretation, and/or due to changes in commodity prices. As a result, there could be significant adjustments to the provisions established which would affect future financial results.
Income taxes
The Group recognises the net future tax benefit to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make significant assumptions related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the reporting date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.
2.6 Summary of significant accounting policies Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non–controlling interest in the acquiree. For each business combination, the acquirer measures the non–controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in
49
the acquiree is remeasured to fair value at the acquisition date through the consolidated income statement.
In the absence of a principal market, in the most advantageous market for the asset or liability Goodwill is initially measured at cost being the The principal or the most advantageous excess of the aggregate of the consideration market must be accessible to by the Group. transferred and the amount recognised for The fair value of an asset or a liability is non–controlling interests, and any previous measured using the assumptions that market interest held, over the net identifiable assets participants would use when pricing the asset acquired and liabilities assumed. If the fair or liability, assuming that market participants value of the net assets acquired is in excess of act in their economic best interest. the aggregate consideration transferred, the A fair value measurement of a non–financial Group re–assesses whether it has correctly asset takes into account a market identified all of the assets acquired and all of participant’s ability to generate economic the liabilities assumed and reviews the benefits by using the asset in its highest and procedures used to measure the amounts to best use or by selling it to another market be recognised at the acquisition date. If the re–assessment still results in an excess of the participant that would use the asset in its highest and best use. fair value of the net assets acquired over the aggregate consideration transferred, the The Group uses valuation techniques that are difference is recognised as a gain in the appropriate in the circumstances and for consolidated income statement. which sufficient data are available to measure After initial recognition, goodwill is measured fair value, maximising the use of relevant observable inputs and minimising the use of at cost less any accumulated impairment losses. For the purpose of impairment testing, unobservable inputs. goodwill acquired in a business combination All assets and liabilities for which fair value is is, from the acquisition date, allocated to each measured or disclosed in the financial of the Group’s cash–generating units or statements are categorised within the fair group of cash generating units that are value hierarchy, described as follows, based expected to benefit from the combination, on the lowest level input that is significant to irrespective of whether other assets or the fair value measurement as a whole: liabilities of the acquiree are assigned to those • Level 1 – Quoted (unadjusted) market units. prices in active markets for identical assets Where goodwill forms part of a cash– or liabilities generating unit or group of cash generating units and part of the operation within that • Level 2 – Valuation techniques for which unit is disposed of, the goodwill associated the lowest level input that is significant to with the operation disposed of is included in the fair value measurement is directly or the carrying amount of the operation when indirectly observable determining the gain or loss on disposal of the • Level 3 – Valuation techniques for which operation. Goodwill disposed of in this the lowest level input that is significant to circumstance is measured based on the the fair value measurement is relative values of the operation disposed of unobservable and the portion of the cash–generating unit For assets and liabilities that are recognised in or group of cash generating units retained, the financial statements at fair value on a except when the Group determines that recurring basis, the Group determines some other method better reflects the whether transfers have occurred between goodwill associated with the operation Levels in the hierarchy by re–assessing disposed of. categorisation (based on the lowest level Fair value measurement input that is significant to the fair value The Group measures financial instruments, measurement as a whole) at the end of each such as, derivatives, and non–financial assets, reporting period. For the purpose of fair value at fair value at each reporting date. disclosures, the Group has determined Fair value is the price that would be received classes of assets and liabilities on the basis of to sell an asset or paid to transfer a liability in the nature, characteristics and risks of the an orderly transaction between market asset or liability and the level of the fair value participants at the measurement date. hierarchy as explained above. The fair value measurement is based on Current versus non-current the presumption that the transaction to classification sell the asset or transfer the liability takes place either: The Group presents assets and liabilities in the statement of financial position based • In the principal market for the asset or on current and non–current classification. liability, or
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•
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As asset is current when it is: •
Expected to be realised or intended to be sold or consumed in the normal operating cycle
•
Held primarily for the purpose of trading
•
Expected to be realised within twelve months after the reporting period, or
Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non–current. A liability is current when: •
•
It is expected to be settled in the normal operating cycle
•
It is held primarily for the purpose of trading
•
It is due to be settled within twelve months after the reporting period, or
There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non– current. Deferred tax assets and liabilities are classified as non–current assets and liabilities. •
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured regardless of when payment is made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding sales taxes, royalties, and other similar levies as applicable.
Oil and gas
Revenue from the sale of oil and gas is recognised when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. This generally occurs when the product is physically transferred into a delivery mechanism such as a vessel or a pipeline. Lifting or offtake arrangements for oil and gas produced by certain of the Group’s jointly owned assets are such that each participant may not receive and sell its precise share of the overall production in each period. The resulting imbalance between cumulative production entitlement and cumulative sales attributable to each participant at a reporting date represents ‘underlift’ or ‘overlift’. Underlift and overlift are valued at market value and included within current assets and current liabilities respectively. Movements during an accounting period are adjusted through cost of sales such that gross profit is recognised on an entitlements basis.
50 Financial Statements
2.6 Summary of significant accounting policies Continued Gas storage
The income from gas storage is recognised when the service is provided and accepted by customers.
Power and water and fuel revenue
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED Interest income
Interest income is recognised as the interest accrues using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability.
The revenue recognition of the Group’s power Taxes and water business is as follows: Current income tax Current income tax assets and liabilities for (i) Where the Group determines that the the current and prior periods are measured at PWPA/PPA meets the financial asset the amount expected to be recovered from or model requirements for service concession arrangements, consideration paid to taxation authorities. The tax rates and tax laws used to compute the amount are receivable is allocated by reference to those that are enacted or substantively the relative fair values of the services enacted at the reporting date, in the countries delivered. Construction revenue is where the Group operates and generates recognised commensurate with taxable income. completion of construction when the outcome of the contract can be Current income tax relating to items estimated reliably by reference to the recognised directly in equity is recognised in stage of completion, operating revenue equity and not in the consolidated income is recognised as the service is provided statement. and finance revenue is recognised using the effective interest rate method on the Management periodically evaluates positions taken in tax returns with respect to situations financial asset. in which applicable tax regulations are subject (ii) Where the Group determines that the to interpretation and establishes provisions PWPA/PPA contains an operating lease, where appropriate. capacity payments are recognised as operating lease rental revenue on a Deferred income tax systematic basis to the extent that Deferred income tax is provided using the capacity has been made available to the liability method on temporary differences offtaker during the year. Those between the tax bases of assets and liabilities payments, which are not included as and their carrying amounts for financial capacity payments (e.g. fuel revenue), reporting purposes at the reporting date. are recognised as revenue in accordance Deferred income tax liabilities are recognised with the contractual terms of the for all taxable temporary differences, except: PWPA/PPA. • when the deferred income tax liability (iii) Energy and water payments are arises from the initial recognition of recognised as revenue when the goodwill or an asset or liability in a contracted power and water is delivered transaction that is not a business to the offtaker. combination and, at the time of the transaction, affects neither the accounting (iv) Fuel revenue represents profit nor taxable profit or loss; and reimbursements from the offtakers in the power and water subsidiaries at • in respect of taxable temporary market prices for fuel consumed in differences associated with investments in power generation in accordance with the subsidiaries, associates and interests in terms of the power and water purchase joint ventures, when the timing of the agreements and the power purchase reversal of the temporary differences can agreements. Fuel revenue is recognised be controlled and it is probable that the as and when fuel is consumed in the temporary differences will not reverse in production of power and water. the foreseeable future. Liquidated damages Deferred income tax assets are recognised Liquidated damages in respect of loss of for all deductible temporary differences, the revenue due to late commissioning are carry forward of unused tax credits and any included in revenue net of liquidated damages unused tax losses. Deferred tax assets are payable to the offtaker when the right to recognized to the extent that it is probable receive the liquidated damages is established. that taxable profit will be available against which the deductible temporary differences,
Abu Dhabi National Energy Company PJSC (TAQA)
and the carry forward of unused tax credits and unused tax losses can be utilised except: –– when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred income tax asset to be recovered. •
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underling transaction either in other comprehensive income or directly in equity. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Foreign currency translation
Functional currency is the currency of the primary economic environment in which an entity operates. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and has elected to recycle the gain or loss that arises from using this method.
51
i) Transactions and balances
Investments in associates and joint ventures
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Where there has been a change recognized directly in other comprehensive income or An associate is an entity over which the Group equity of the associate or joint venture, the has significant influence. Significant influence Group recognizes its share of any changes is the power to participate in the financial and and discloses this, when applicable, in the operating policy decisions of the investee, but consolidated statement of comprehensive Monetary assets and liabilities denominated income or the consolidated statement of is not control or joint control over those in foreign currencies are retranslated at the changes in equity, as appropriate. Unrealized policies. A joint venture is a type of joint functional currency rate of exchange ruling at gains and losses resulting from transactions arrangement whereby the parties that have the reporting date. between the Group and the associate or joint joint control of the arrangement have rights All differences are taken to the consolidated venture are eliminated to the extent of the to the net assets of the joint arrangement. income statement with the exception of all interest in the associate or joint venture. Joint control is the contractually agreed monetary items that provide an effective sharing of control of an arrangement, which The aggregate of the Group’s share of profit hedge of a net investment in a foreign exists only when decisions about the relevant or loss of an associate or a joint venture operation. These are recognised in other activities require unanimous consent of the is included in the consolidated income comprehensive income until the disposal of parties sharing control. The considerations statement. This is the profit attributable the net investment, at which time they are made in determining significant influence or to equity holders of the associate or joint reclassified to the consolidated income joint control are similar to those necessary to venture and therefore is the profit after statement. Tax charges and credits determine control over subsidiaries. The tax and non-controlling interests of the attributable to exchange differences on those results and assets and liabilities of associates joint venture. monetary items are also recorded in other or joint ventures are incorporated in these The financial statements of the associate comprehensive income. consolidated financial statements using the or joint venture are prepared for the same equity method of accounting, except when Non monetary items that are measured at reporting period as the Group. Adjustments the investment, or a portion thereof, is historical cost in a foreign currency are are made where necessary to bring the classified as held for sale, in which case it is translated using the exchange rates accounting policies into line with those accounted for in accordance with IFRS 5. approximating as at the dates of the initial of the Group. The Group determines at transactions. Non monetary items measured An investment in an associate or a joint each reporting date whether there is any at fair value in a foreign currency are venture is accounted for using the equity objective evidence that the investment in translated using the exchange rates method from the date on which the investee the associate or joint venture is impaired. approximating at the date when the fair value becomes an associate or a joint venture. On If this is the case the Group calculates the was determined. The gain or loss arising on acquisition of the investment in an associate amount of the impairment as the difference retranslation of non-monetary items is or joint venture, any excess of the cost over between the recoverable amount of the treated in line with the recognition of gain or the Group’s share of the net fair value of the associate or joint venture and its carrying loss on change in fair value of the item (i.e., identifiable assets and liabilities of the value then recognises the loss in the translation differences on items whose fair investee is recognised as goodwill, which is consolidated income statement. value gain or loss is recognised in other included within the carrying amount of the The Group discontinues the use of the equity comprehensive income or profit or loss is also investment. Any excess of the Group’s share method from the date when the investment recognised in other comprehensive income or of the net fair value of the identifiable assets profit or loss, respectively). and liabilities over the cost of the investment, ceases to be an associate or a joint venture, after reassessment, is recognised immediately or when the investment is classified as held ii) Group companies for sale. When the Group retains an interest in the consolidated income statement in the On consolidation, the assets and liabilities of in the former associate or joint venture and period in which the investment is acquired. foreign operations are translated into AED at the retained asset is a financial asset, the Under the equity method, the investment in the rate of exchange prevailing at the Group measures and recognises the retained an associate or a joint venture is initially reporting date and their income statements investment at its fair value. Any difference recognised at cost. The carrying amount of are translated at the weighted average between the carrying amount of the the investment is adjusted to recognise exchange rates for the year. The exchange associate or joint venture upon loss changes in the Group’s share of net assets of differences arising on the translation are of significant influence or joint control the associate or joint venture since the recognised in other comprehensive income. and the fair value of the retained investment acquisition date. The consolidated income On disposal of a foreign operation, the and proceeds from disposal is recognised statement reflects the Group’s share of the deferred cumulative amount recognised in in profit or loss. The Group continues to use results of the operations of the associate or equity relating to that particular foreign the equity method when an investment joint venture. When the Group’s share of operation is recognised in the consolidated losses of an associate or joint venture exceeds in an associate becomes an investment income statement. in a joint venture or an investment in a joint the Group’s interest in that associate or joint venture becomes an associate. There is no Any goodwill arising on the acquisition of a venture (which includes any long-term remeasurement to fair value upon such foreign operation and any fair value interests that, in substance, form part of the changes in ownership interests. adjustments to the carrying amounts of Group’s net investment in the associate or assets and liabilities arising on the acquisition joint venture), the Group discontinues are treated as assets and liabilities of the recognising its share of further losses. foreign operation and translated at the spot Additional losses are recognised only to the rate of exchange at the reporting date. extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of transaction.
52 Financial Statements
2.6 Summary of significant accounting policies Continued Interests in joint operations
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED Group as a lessee
Finance leases, which transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the A joint operation is a joint arrangement lease at the fair value of the leased property whereby parties that have joint control of the or, if lower, at the present value of the arrangement have rights to the assets, and minimum lease payments. Lease payments obligations for the liabilities, relating to the are apportioned between the finance charges arrangement. Joint control is the contractually and reduction of the lease liability so as to agreed sharing of control of an arrangement, achieve a constant rate of interest on the which exists only when decisions about the remaining balance of the liability. Finance relevant activities require unanimous consent charges are reflected in the consolidated of the parties sharing control. income statement. Leased assets are When a group entity undertakes its activities depreciated over the useful life of the asset. However, if there is no reasonable certainty under joint operations, the Group as a joint that the Group will obtain ownership by the operator recognises in relation to its interest end of the lease term, the asset is depreciated in a joint operation: over the shorter of the estimated useful life of • Its assets, including its share of any assets the asset and the lease term. held jointly. Operating lease payments are recognised as • Its liabilities, including its share of any an expense in the consolidated income liabilities incurred jointly. statement on a straight line basis over the lease term. • Its revenue from the sale of its share of the output arising from the joint operation.
Group as a lessor – Operating leases
Its expenses, including its share of any expenses incurred jointly. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.
Oil and gas joint ventures
Group as a lessor – Finance leases
•
Its share of the revenue from the sale of the output by the joint operation.
•
Certain of the Group’s activities in the oil and gas segment are conducted through joint operations where the venturers have a direct ownership interest in and jointly control the underlying assets of the venture. The Group accounts for its share of the jointly controlled assets, any liabilities it has incurred, its share of any liabilities jointly incurred with other ventures, income from the sale or use of its share of the joint venture’s output, together with its share of the expenses incurred by the joint venture, and any expenses it incurs in relation to its interest in the joint venture.
Leases where the Group transfers substantially all the risks and benefits of ownership of the asset are classified as financial leases. The amounts due from the lessee are recorded in the statement of financial position as financial assets and are carried at the amount of the net investment in the lease after making provision for bad and doubtful debts.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of Leases acquisition. Following initial recognition, The determination of whether an arrangement is, or contains a lease is based on intangible assets are carried at cost less any accumulated amortisation and any the substance of the arrangement at accumulated impairment losses. Internally inception date. The arrangement is assessed for whether the fulfilment of the arrangement generated intangible assets, excluding capitalised development costs, are not is dependent on the use of a specific asset or capitalised and the related expenditure is assets or the arrangement conveys a right to use the asset or assets, even if that right is not reflected in the consolidated income statement in the year in which the explicitly specified in an arrangement. expenditure is incurred.
Abu Dhabi National Energy Company PJSC (TAQA)
The useful lives of intangible assets are assessed to be either finite or indefinite. Amortisation for intangible assets with finite lives is calculated on a straight-line basis as follows: Tolling agreement Connection rights Computer software
14 years 34 – 40 years 3 years
The amortisation period and the amortisation method for intangible assets with finite useful lives are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement in the expense category consistent with the function of the intangible asset. Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised. Accounting policies relating to intangible assets arising from oil and gas exploration and evaluation expenditure are explained below under oil and natural gas exploration, evaluation and development expenditure.
Oil and natural gas exploration, evaluation and development expenditure Exploration & evaluation costs – capitalisation
Pre-license costs and geological and geophysical exploration costs incurred prior to obtaining the rights to explore are recognised in the consolidated income statement when incurred. Exploration licences are recognised as an exploration and evaluation (“E&E”) asset. The cost of that licence includes the directly attributable costs of its acquisition. Examples of such costs may include non-refundable taxes and professional and legal costs incurred in
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obtaining the licence. Costs incurred after the rights to explore have been obtained, such as geological and geophysical costs, drilling costs, appraisal and development study costs and other directly attributable costs of exploration and evaluation activity, including technical and administrative costs for each exploration asset, are capitalised as intangible E&E assets. E&E costs are not amortised prior to the conclusion of appraisal activities.
The assets’ residual values, useful lives and of the replaced asset (or asset part) which is methods of depreciation are reviewed, and immediately written off. Inspection costs adjusted if appropriate, at each reporting date. associated with major maintenance programs are capitalised when the recognition criteria The cost of spare parts held as essential for are met and amortised over the period to the the continuity of operations and which are next inspection. Day to day servicing and designated as strategic spares are maintenance costs are expensed as incurred. depreciated on a straight line basis over their
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estimated operating life. Spare parts used for Property, plant and equipment – capital normal repairs and maintenance are expensed work in progress when issued. Capital work in progress is included in At completion of appraisal activities if An item of property, plant and equipment is property, plant and machinery at cost on the technical feasibility is demonstrated and derecognised upon disposal or when no future basis of the percentage completed at the commercial reserves are discovered then, economic benefits are expected from its use or reporting date. The capital work in progress is following development sanction, the carrying disposal. Any gain or loss arising on transferred to the appropriate asset category value of the relevant E&E asset is reclassified derecognition of the asset (calculated as the and depreciated in accordance with the above as a development and production (“D&P”) difference between the net disposal proceeds policies when construction of the asset is asset. This category reclassification is only and the carrying amount of the asset) is completed and commissioned. performed after the carrying value of the included in the consolidated income statement relevant E&E asset has been assessed for Government grants in the year the asset is derecognised. impairment, and where appropriate, its Government grants are recognised where carrying value adjusted. If commercial there is reasonable assurance that the grant Property, plant and equipment – oil and reserves are not discovered at the completion gas properties will be received and all attached conditions of appraisal activity of each asset and it is not Oil and gas properties in the development and will be complied with. When the grant relates expected to derive any future economic to an expense item, it is recognised as income production phase (“D&P” assets) and other benefits, the E&E asset is written off to the over the period necessary to match the grant related assets are stated at cost, less consolidated income statement. on a systematic basis to the costs that it is accumulated depreciation and accumulated intended to compensate. When the grant impairment losses (net of reversal of Development costs relates to an asset, it is recognised as a previously recognised impairment losses, if Expenditure on the construction, installation reduction to the carrying amount of the any). The initial cost of an asset comprises its or completion of infrastructure facilities such purchase price or construction cost, any costs asset. as platforms, pipelines and the drilling of directly attributable to bringing the asset into Borrowing costs development wells, including unsuccessful operation and the initial estimate of the Borrowing costs directly attributable to the development or delineation wells, is decommissioning obligation. The purchase acquisition, construction or production of an capitalised within oil and gas properties. price or construction cost is the aggregate asset that necessarily takes a substantial amount paid and the fair value of any other Property, plant and equipment period of time to get ready for its intended consideration given to acquire the asset. Property, plant and equipment – general use or sale are capitalised as part of the cost Property, plant and equipment is stated at of the respective assets. All other borrowing Oil and gas properties are depreciated on a cost less accumulated depreciation and unit-of-production basis over the proved and costs are expensed in the period they occur. accumulated impairment losses, if any. When probable (“2P”) reserves of the field Borrowing costs consist of interest and other significant parts of property, plant and costs that an entity incurs in connection with concerned. The unit-of-production rate for equipment are required to be replaced in the borrowing of funds. the amortisation of field development costs intervals, the Group recognises such parts as takes into account expenditures incurred to Initial spares fee individual assets with specific useful lives and date, together with estimated future The fee paid for initial spares to be provided depreciation, respectively. Likewise, when a development expenditure. Depreciation on oil under a long-term maintenance contract is major inspection is performed, its cost is and gas properties does not commence until capitalised and amortised over the equivalent recognised in the carrying amount of the the commencement of production from the operating hours of the related power plant and equipment as a replacement if the property. generating equipment. recognition criteria are satisfied. Day to day servicing and maintenance costs are Property, plant and equipment – major Non-current assets and disposal recognised in the consolidated income maintenance and repairs groups held for sale statement as incurred. The present value of Expenditure on major maintenance refits or The Group classifies non-current assets and the expected cost for the decommissioning repairs comprises the cost of replacement disposal groups as held for sale if their obligation of an asset at the end of its useful assets or parts of assets, inspection costs and carrying amounts will be recovered principally life is included in the cost of the respective overhaul costs. Where an asset or part of an through sale rather than through continuing asset if the recognition criteria for a provision asset that was separately depreciated and is use. Non-current assets and disposal groups are met. now written off is replaced and it is probable classified as held for sale are measured at the that future economic benefits associated lower of their carrying amount and fair value Depreciation is calculated on a straight line less costs to sell if their carrying amount will basis over the estimated useful lives of assets with the item will flow to the group, the expenditure is capitalised. Where an asset or be recovered principally through a sale (except for oil and gas properties) as follows: part of an asset was not separately transaction rather than continuing use. Building, equipment, considered as a component, the replacement plant and machinery 20 to 40 years value is used to estimate the carrying amount
54 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
2.6 Summary of significant accounting policies Continued
whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the The criteria for held for sale classification is asset’s or cash-generating unit’s recoverable regarded as met only when the sale is highly amount. A previously recognised impairment probable and the asset or disposal group is loss is reversed only if there has been a available for immediate sale in its present change in the assumptions used to determine condition. Actions required to complete the the asset’s recoverable amount since the last sale should indicate that it is unlikely that impairment loss was recognised. The reversal significant changes to the sale will be made or is limited so that the carrying amount of the that the sale will be withdrawn. Management asset does not exceed its recoverable must be committed to the sale expected amount, nor exceed the carrying amount that within one year from the date of classification. would have been determined, net of Property, plant and equipment and intangible depreciation, had no impairment loss been assets are not depreciated or amortised once recognised for the asset in prior years. Such classified as held for sale. Assets and liabilities reversal is recognised in the consolidated classified as held for sale are presented income statement. separately as current items in the statement The following criteria are also applied in of financial position. assessing impairment of specific assets:
Inventories
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
•
Impairment of non-financial assets
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In the case of VIU calculations, assumptions are also made regarding the cash flows from each asset’s ultimate disposal. In determining fair value less costs of disposal, recent appropriate market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing operations are recognised in the consolidated income statement in those expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine
Goodwill
Inventories of fuel for the purpose of powering electricity generation facilities are valued at the lower of cost, determined on the basis of weighted average cost, and net realisable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Inventories of oil and oil products, which represent production from oil and gas facilities of the Group which are tanked at storage facilities awaiting sale, are valued at market value.
Service concessions
The Group accounts for service concession arrangements under IFRIC 12 when the following conditions are met: the grantor (usually a government entity) controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and
Goodwill is tested for impairment on an annual basis at the reporting date. Impairment is determined for goodwill by assessing the recoverable amount of the group of cash generating units, to which the goodwill is allocated. When the recoverable amount of the group of cash¬ generating units is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Where applicable, for the purposes of testing goodwill for impairment, any of the related deferred tax liabilities recognised on acquisition that, led to the creation of goodwill, and remain at the reporting date as estimated by the management are treated as part of the relevant group of cash generating units.
the grantor (usually a government entity) controls – through ownership, beneficial entitlement or otherwise – any significant residual interest in the infrastructure at the end of the term of the arrangement. In view of the above, concession infrastructure that does not meet the requirements of IFRIC 12 is presented as property, plant and equipment. Under IFRIC 12, the operator’s rights over the plant operated under concession arrangements are accounted for based on the party primarily responsible for payment:
Exploration & evaluation (E&E) costs
•
An impairment review is performed if and when facts and circumstances indicate that the carrying amount of an E&E asset may exceed its recoverable amount. For the purpose of E&E asset impairment testing, cash generating units are grouped at the operating segment level. An impairment test performed in the E&E phase therefore involves grouping all E&E assets within the relevant segment with the development & production (D&P) assets belonging to the same segment. The combined segment carrying amount is compared to the combined segment recoverable amount and any resulting impairment loss identified within the E&E asset is written off to the consolidated income statement. The recoverable amount of the segment is determined as the higher of its fair value less costs to sell and its value in use.
Abu Dhabi National Energy Company PJSC (TAQA)
•
the “intangible asset model” is applied when users have primary responsibility to pay for the concession services; and
the “financial asset model” is applied when the grantor has the primary responsibility to pay the operator for the concession services. Where the grantor guarantees the amounts that will be paid over the term of the contract (e.g. via a guaranteed internal rate of return), the financial asset model is used to account for the concession infrastructure, since the grantor is primarily responsible for payment. The financial asset model is used to account for Build, Operate and Transfer (BOT) contracts entered into with the grantor. The Group recognises financial assets from service concession arrangements in the consolidated statement of financial position as operating financial assets. •
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Pursuant to these principles: •
•
infrastructure to which the operator is given access by the grantor of the concession at no consideration is not recognised in the consolidated statement of financial position; start-up capital expenditure is recognised as follows: –– under the intangible asset model, the fair value of construction and other work on the infrastructure represents the cost of intangible asset and should be recognised when the infrastructure is built provided that this work is expected to generate future economic benefits, –– under the financial asset model, the amount receivable from the grantor is recognised at the time the infrastructure is built, at the fair value of the construction and other work carried out, –– when the grantor has a payment obligation for only part of the investment, the cost is recognised in receivables for the amount guaranteed by the grantor, with the balance included in intangible assets.
Financial instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost less impairment loss (except for debt investments that are designated as at fair value through profit or loss on initial recognition): •
the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All other financial assets are subsequently measured at fair value. •
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments measured subsequently at amortised cost. Interest income is recognised in profit or loss in the consolidated income statement.
Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group can make an irrevocable election (on an instrument-byinstrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading.
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A financial asset is held for trading if: •
it has been acquired principally for the purpose of selling it in the near term; or
•
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and
•
has evidence of a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the cumulative changes in fair value relating to investment carried at FVOCI. The cumulative gain or loss is not reclassified to profit or loss on disposal of the investments. •
The Group has designated all investments in equity instruments that are not held for trading as at FVTOCI on initial application of IFRS 9.
Financial assets at fair value through profit or loss (FVTPL) Investments in equity instruments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (FVTOCI) on initial recognition (see above). Debt instruments that do not meet the amortised cost criteria (see above) are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The Group has not designated any debt instrument as at FVTPL.
56 Financial Statements
2.6 Summary of significant accounting policies Continued Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. The foreign exchange component forms part of its fair value gain or loss. Therefore: •
for financial assets that are classified as at FVTPL, the foreign exchange component is recognised in profit or loss; and
•
for financial assets that designated as at FVTOCI, any foreign exchange component is recognised in other comprehensive income.
Impairment of financial assets
Financial assets that are measured at amortised cost are assessed for impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: •
significant financial difficulty of the issuer or counterparty; or
•
breach of contract, such as a default or delinquency in interest or principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. •
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED The amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows reflecting the amount of collateral and guarantee, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity instruments Classification as debt or equity
Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVTPL. However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, financial guarantee contracts issued by the Group, and commitments issued by the Group to provide a loan at below-market interest rate are measured in accordance with the specific accounting policies set out below.
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: •
it has been acquired principally for the purpose of repurchasing it in the near term; or
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.
•
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
On derecognition of a financial asset that is classified as FVTOCI, the cumulative gain or loss previously accumulated in the cumulative changes in fair value relating to investment carried at FVOCI is not reclassified to profit or loss, but is reclassified to retained earnings.
it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument. A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:
Abu Dhabi National Energy Company PJSC (TAQA)
•
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•
such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
capitalised as part of costs of an asset is included in the finance costs in the consolidated income statement.
The effective interest method is a method of calculating the amortised cost of a financial • the financial liability forms part of a group of liability and of allocating interest expense financial assets or financial liabilities or both, over the relevant period. The effective which is managed and its performance is interest rate is the rate that exactly discounts evaluated on a fair value basis, in estimated future cash payments (including all accordance with the Group’s documented fees and points paid or received that form an risk management or investment strategy, integral part of the effective interest rate, and information about the grouping is transaction costs and other premiums or provided internally on that basis; or discounts) through the expected life of the financial liability, or (where appropriate) a • it forms part of a contract containing one shorter period, to the net carrying amount on or more embedded derivatives, and the initial recognition. entire combined contract is designated as at FVTPL in accordance with IFRS 9. Foreign exchange gains and losses Financial liabilities at FVTPL are stated at fair For financial liabilities that are denominated in value. Any gains or losses arising on a foreign currency and are measured at remeasurement of held-for-trading financial amortised cost at the end of each reporting liabilities are recognised in profit or loss. Such period, the foreign exchange gains and losses gains or losses that are recognised in profit or are determined based on the amortised cost loss incorporate any interest paid on the of the instruments and are recognised in the financial liabilities and are included in the consolidated statement of comprehensive ‘other gains and losses’ line item in the income. consolidated statement of comprehensive The fair value of financial liabilities income. denominated in a foreign currency is However, for non-held-for-trading financial determined in that foreign currency and liabilities that are designated as at FVTPL, the translated at the spot rate at the end of the amount of change in the fair value of the reporting period. For financial liabilities that financial liability that is attributable to are measured as at FVTPL, the foreign changes in the credit risk of that liability is exchange component forms part of the fair recognised in other comprehensive income, value gains or losses and is recognised in unless the recognition of the effects of profit or loss. changes in the liability’s credit risk in other comprehensive income would create or Derecognition of financial liabilities enlarge an accounting mismatch in profit or The Group derecognises financial liabilities loss. The remaining amount of change in the when, and only when, the Group’s obligations fair value of liability is recognised in profit or are discharged, cancelled or they expire. The loss. Changes in fair value attributable to a difference between the carrying amount of financial liability’s credit risk that are the financial liability derecognised and the recognised in other comprehensive income consideration paid and payable, including any are not subsequently reclassified to profit or non-cash assets transferred or liabilities loss. assumed, is recognised in profit or loss.
Financial liabilities at FVTPL
Gains or losses on financial guarantee contracts and loan commitments issued by the Group that are designated by the Group as at fair value through profit or loss are recognised in profit or loss. Fair value is determined in the manner described in note 39.
Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held-fortrading and are not designated as at FVTPL are measured at amortised cost at the end of subsequent accounting periods. The carrying amounts of financial liabilities that are subsequently measured at amortised cost are determined based on the effective interest method. Interest expense that is not Annual Report 2015
Derivative financial instruments and hedge accounting
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are disclosed in note 39. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or
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loss depends on the nature of the hedge relationship.
Embedded derivatives
Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 (e.g. financial liabilities) are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
Hedge accounting
The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk. Note 39 sets out details of the fair values of the derivative instruments used for hedging purposes.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the consolidated statement of comprehensive income relating to the hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
2.6 Summary of significant accounting policies Continued
delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements fall within the exemption from IAS 32 and IFRS 9, which is known as the accumulated under the heading of changes in ‘normal purchase or sale exemption’. These fair values of derivative instruments in cash contracts are accounted for as executory flow hedges. The gain or loss relating to the contracts. The Group recognises such ineffective portion is recognised immediately contracts in its statement of financial position in profit or loss, and is included in changes in only when one of the parties meets its fair values of derivatives and fair value hedges obligation under the contract to deliver either line item. cash or a non-financial asset. Amounts previously recognised in other Treasury shares comprehensive income and accumulated in Own equity instruments which are reacquired equity are reclassified to profit or loss in the (treasury shares) are recognised at cost and periods when the hedged item is recognised deducted from equity. No gain or loss is in profit or loss, in the same line of the recognised in the consolidated income consolidated statement of comprehensive statement on the purchase, sale, issue or income as the recognised hedged item. cancellation of the Group’s own equity However, when the hedged forecast instruments. Any difference between the transaction results in the recognition of a carrying amount and the consideration, if non-financial asset or a non-financial liability, re-issued, is recognised in other reserves. the gains and losses previously recognised in other comprehensive income and Pensions and other postaccumulated in equity are transferred from employment benefits equity and included in the initial measurement Employees’ end of service benefits of the cost of the non-financial asset or The Group provides end of service benefits to non-financial liability. certain employees. The entitlement to these benefits is usually based upon the employees’ Hedge accounting is discontinued when the Group revokes the hedging relationship, when length of service and the completion of a minimum service period and year, the the hedging instrument expires or is sold, terminated, or exercised, or when it no longer expected costs of these benefits are accrued over the years of employment. With respect qualifies for hedge accounting. Any gain or to its UAE national employees, the Group loss recognised in other comprehensive makes contributions to the Abu Dhabi income and accumulated in equity at that time remains in equity and is recognised when Retirement Pensions and Benefits Fund calculated as a percentage of the employees’ the forecast transaction is ultimately salaries. Where the Group’s obligations are recognised in profit or loss. When a forecast limited to these contributions made to transaction is no longer expected to occur, pension and benefit funds, these the gain or loss accumulated in equity is contributions are expensed on a monthly recognised immediately in profit or loss. basis and paid when due.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated under the heading of foreign currency translation reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ’other gains and losses’ line item. Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign currency translation reserve are reclassified to profit or loss on the disposal of the foreign operation.
Normal purchase or sale exemption
Contracts that are entered into and continue to be held for the purpose of the receipt or
Defined benefit pension plan
The cost of defined benefit pension plans and other post employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. The cost of providing benefits under defined benefit plans is determined using the projected unit credit method. Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Abu Dhabi National Energy Company PJSC (TAQA)
Past service costs are recognised in profit or loss on the earlier of: •
The date of the plan amendment or curtailment; and
The date that the Group recognises related restructuring costs Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation in consolidated statement of profit or loss by function: •
•
Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements;
•
Net interest expense or income
Cash and short-term deposits
Cash and short-term deposits in the consolidated statement of financial position comprise cash at banks and on hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.
Provisions General
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects the time value of money and where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Asset retirement obligations/ decommissioning liability
Certain subsidiaries have legal obligations in respect of site restoration and abandonment of their power generation and water desalination assets and oil and gas properties at the end of their useful lives
59
(decommissioning costs). The Group records a provision for the site restoration and abandonment based upon estimated costs at the end of their useful lives. Accordingly, a corresponding asset is recognised in property, plant and equipment. Decommissioning costs are recorded at the present value of expected costs to settle the obligations using estimated cash flows and are recognised as part of the cost of each specific asset. The cash flows are discounted at a rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the consolidated income statement as a finance cost. The estimated future costs of the asset retirement obligation are reviewed annually and adjusted as appropriate. Changes to provisions based on revised costs estimates or discount rate applied charges are added to or deducted from the cost of the relevant asset.
•
IFRS 14 Regulatory Deferral Accounts
•
Power and Water Segment – U.A.E
•
IFRS 15 Revenue from Contracts with Customers
•
Power Segment – Others
IFRS 16 Leases
•
Oil and Gas Segment – North America
•
Amendments to IAS 1: Disclosure Initiative
•
Oil and Gas Segment – Europe
•
Amendments to IFRS 10, 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
•
Oil and Gas Segment – Atrush
•
•
•
Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests
•
Amendments to IAS 7: Statement of Cash Flows
•
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
Production bonuses
The Group’s production sharing contract contains a legal obligation for production bonuses to be paid to the Kurdistan Regional Government when certain production targets are achieved. The Group records a provision for these bonuses when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. This is assessed based on the Group’s share of proved and probable reserves under the production sharing contract.
Contingencies
From time to time the Group receives claims in the ordinary course of business. Liabilities and contingencies in connection with these matters are periodically assessed based upon the latest information available, usually with the assistance of lawyers and other specialists. A liability is accrued only if an adverse outcome is more likely than not and the amount of the loss can be reasonably estimated. If one of these conditions is not met, the claim is disclosed as a contingent liability, if material. The actual outcome of a claim may differ from the estimated liability and consequently may affect the financial performance and position of the Group.
2.7 Standards issued but not yet effective
The following new standards / amendments to standards which were issued up to the date of the issuance of these consolidated financial statements and are not yet effective for the year ended 31 December 2015 have not been applied while preparing these consolidated financial statements:
Annual Report 2015
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
•
Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants
•
Amendments to IAS 27: Equity Method in Separate Financial Statements
Improvements to IFRSs
The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards. The following amendments have not been adopted as they become effective for annual periods beginning on or after 1 January 2016. •
IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
•
IFRS 7 Financial Instruments : Disclosures
•
IAS 19 Employee Benefits
•
IAS 34 Interim Financial Reporting
3 Operating segmental information
During the year, a review of the Group’s operating segments identified that the operating structure disclosed in 2014 was no longer appropriate. The resulting changes to the Group’s management reporting in 2015 have decreased the number of operating segments. For management reporting purposes, the Group is organised into business units based on their geography, products and services, and has five reportable operating segments as follows:
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Power and Water Segment – U.A.E
This segment is engaged in generation of electricity and production of desalinated water for supply in UAE.
Power Segment – Others
This segment is engaged in generation of electricity in Morocco, India, Ghana, Saudi Arabia and North America.
Oil and Gas Segment – North America
This segment is engaged in Upstream and Midstream oil and gas activities in Canada and the United States.
Oil and Gas Segment – Europe
This segment is engaged primarily in Upstream oil and gas activities in the United Kingdom, and Upstream and Midstream oil and gas activities in the Netherlands.
Oil and Gas Segment – Atrush
This segment is engaged primarily in Upstream oil and gas activities in Kurdistan, Iraq. No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss. Group financing cost and income except for the subsidiaries with project financing arrangements and interest income is managed on a group basis and is not allocated to operating segments. Investment in certain associates with activities other than power and water generation and oil and gas and available for sale investments are managed on a group basis and are therefore not allocated to operating segments. Interest bearing loans and borrowings and Islamic loans except for the subsidiaries with project financing arrangements and bank overdrafts are managed on a group basis and are not allocated to operating segments.
60 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
3 Operating segmental information continued The following table presents revenue and profit information for the Group’s operating segments: Power and water generation – UAE AED million
Year ended 31 December 2015: Revenue from external customers Operating expenses Administrative and other expenses Share of results of associates Share of results of a joint venture Earnings before interest, tax, depreciation and amortisation (EBITDA) Provision for impairment Dry hole expenses Depreciation, depletion and amortisation Earnings before interest and tax (EBIT)
Power generation – others AED million
7,038 (1,644) (146) – –
5,002 (3,399) (111) 8 –
5,248
1,500
– – (1,818) 3,430
(350) – (66) 1,084
5,327 (3,027) (57) – –
6 – (30) – –
– – (160) 96 23
2,243
(24)
(41)
9,638
(485) (17) (2,682)
– – –
– – (24)
(835) (17) (6,541)
– – – – – – –
(1,580) – 36 1 27 2 155
(4,635) (138) 64 21 27 3 1,299
178
(1,130)
(110)
(24)
(1,424)
(1,114)
7,042 (1,525) (131) – –
6,363 (4,595) (192) 9 –
4,304 (1,629) (294) – –
9,608 (4,156) (108) – –
8 – (47) – –
– – (326) 114 31
27,325 (11,905) (1,098) 123 31
5,386
1,585
2,381
5,344
(39)
(181)
14,476
(1,787) (59) (2,094)
(2,050) (581) (3,005)
– – –
– – (16)
– – (1,759) 3,627
– – (68) 1,517
Finance costs Changes in fair value of derivatives and fair value hedges Net foreign exchange gains (losses) Gain from sale of land and oil and gas assets Interest income Other income Income tax (expense) credit
(2,210) 42 4 – – 3 –
(424) (309) 23 – – (25) (252)
Profit (loss) for the year
1,466
530
(65)
19,344 (9,120) (713) 104 23
(24)
1,396
Abu Dhabi National Energy Company PJSC (TAQA)
Consolidated AED million
(941)
Year ended 31 December 2014: Revenue from external customers Operating expenses Administrative and other expenses Share of results of associates Share of results of a joint venture
Earnings before interest and tax (EBIT)
– – (1,951)
Adjustments, eliminations and unallocated AED million
(534) 8 25 – – – 1,332
Profit (loss) for the year
Provision for impairment Dry hole expenses Depreciation, depletion and amortisation
712
Oil and gas – Atrush AED million
(121) – 7 20 – – 203
(354) (146) (15) – – – (391)
Earnings before interest, tax, depreciation and amortisation (EBITDA)
1,971 (1,050) (209) – –
Oil and gas – Europe AED million
(1,239)
(2,046) – 11 – – 1 –
Finance costs Changes in fair value of derivatives and fair value hedges Net foreign exchange gains (losses) Gain from sale of land and oil and gas assets Interest income Other income Income tax (expense) credit
Oil and gas – North America AED million
2,245
(3,837) (640) (6,942)
(1,559)
(292)
(39)
(197)
(139) – 43 167 – – (279)
(483) 24 29 – – 18 (361)
– – (1) – – – –
(1,593) – 44 – 17 26 290
(4,849) (243) 142 167 17 22 (602)
3,057
(1,767)
(1,065)
(40)
(1,413)
(2,289)
Financial Statements 61
Power and water generation – UAE AED million
Power generation – others AED million
Oil and gas – North America AED million
Oil and gas – Europe AED million
– – – – 48,597
91 – 2 10,014 4,926
– – – – 21,646
Segment assets
48,597
15,033
Liabilities
39,310
8,739
– – – – 49,990
Segment assets Liabilities
At 31 December 2015 Investment in associates Assets classified as held for sale Advance and loans to associates Operating financial assets Other assets
At 31 December 2014 Investment in associates Investment in joint venture Advance and loans to associates Operating financial assets Other assets
Oil and gas – Atrush AED million
Adjustments, eliminations and unallocated AED million
Consolidated AED million
– – – – 17,820
– – – – 3,604
330 580 702 – 455
421 580 704 10,014 97,048
21,646
17,820
3,604
2,067
108,767
3,862
12,364
290
36,871
101,436
82 – 8 10,375 5,580
– – – – 23,966
– – – – 19,918
– – – – 3,080
644 151 865 – 379
726 151 873 10,375 102,913
49,990
16,045
23,966
19,918
3,080
2,039
115,038
41,692
9,614
6,696
13,708
241
34,303
106,254
1,740 – 72 (485) (17)
308 – 34 – –
2 – – – –
2,959 130 111 (835) (17)
3,663 – 160 (2,050) (581)
– – 371 – –
18 – 10 – –
5,996 404 597 (3,837) (640)
Other disclosures Year ended December 2015 Additions to property, plant and equipment Construction costs relating to operating financial assets Additions to intangible assets Provision for impairment Dry hole expenses
334 – – – –
60 130 – (350) –
Year ended December 2014 Additions to property, plant and equipment Construction costs relating to operating financial assets Additions to intangible assets Provision for impairment Dry hole expenses
790 – – – –
49 404 – – –
515 – 5 – – 1,476 – 56 (1,787) (59)
•
Inter-segment transactions are on an arm’s–length basis in a manner similar to transactions with third parties.
•
Inter-segment revenues are eliminated on consolidation.
•
Construction costs represent expenditure incurred on Jorf 5&6 and Takoradi expansion in Morocco and Ghana respectively (note 5).
Geographical information
The following tables present revenue, certain asset information relating to the Group based on geographical location of the subsidiaries: UAE AED million
North America AED million
Europe AED million
Africa AED million
Others AED million
Total AED million
Revenue Year ended 31 December 2015
7,038
2,820
5,327
3,727
432
19,344
Year ended 31 December 2014
7,042
5,540
9,608
4,713
422
27,325
42,887
21,888
18,378
9,452
2,126
94,731
44,475
23,969
18,446
9,859
3,992
100,741
Non-current assets At 31 December 2015 At 31 December 2014
Non-current assets for this purpose consist operating financial assets, property, plant and equipment, intangible assets and other assets.
Other information
The following table provides information relating to the Group’s major customers which contribute more than 10% towards the Group’s revenue. Power and water generation – UAE AED million
Power generation – others AED million
Oil and gas Europe AED million
Oil and gas North America AED million
Total AED million
Year ended 31 December 2015 Customer 1 Customer 2 Customer 3
6,979 – –
– 3,112 –
– – 3,070
– – 496
6,979 3,112 3,566
Total
6,979
3,112
3,070
496
13,657
Year ended 31 December 2014 Customer 1 Customer 2 Customer 3
6,983 – –
– 3,652 –
– – 5,677
– – 1,014
6,983 3,652 6,691
Total
6,983
3,652
5,677
1,014
17,326
Annual Report 2015
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62 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
4 Revenues 4.1 Revenue from oil and gas Gross oil and gas revenue Less: royalties
4.2 Revenue from electricity and water Operating lease revenue Revenue from operating financial assets (note 13) Sale of electricity Energy payments and other related revenue
2015 AED million
2014 AED million
6,516 (225)
12,847 (781)
6,291
12,066
2015 AED million
2014 AED million
5,730 1,634 849 1,472
5,751 1,954 1,235 1,495
9,685
10,435
Revenue from operating financial assets includes revenue in relation to the power plant expansion of JLEC 5&6 of AED 64 million (2014: AED 300 million) and TICO of AED 70 million (2014: AED 117 million).
4.3 Fuel revenue
Fuel revenue represents reimbursements from the offtakers of the power and water subsidiaries for fuel consumed in power generation in accordance with the terms of the power and water purchase agreements and the power purchase agreements. Fuel revenue is further analysed as follows: Backup fuel in domestic subsidiaries reimbursed by ADWEC (note 37) Reimbursement of coal and other fuel costs in foreign power subsidiaries
4.4 Other operating revenue Net processing income Tariff income Gas trading Others
5 Operating expenses Staff costs Repairs, maintenance and consumables used Fuel expenses Construction costs Charges by operating and maintenance contractors Oil and gas operating costs Gas purchases for trading Transportation costs Gas storage expenses Exploration and evaluation assets written off (note 14) Others
2015 AED million
2014 AED million
46 2,223
28 2,698
2,269
2,726
2015 AED million
2014 AED million
388 122 182 146
451 95 891 349
838
1,786
2015 AED million
2014 AED million
316 2,997 2,708 130 1,463 966 195 120 104 42 79
382 3,829 3,599 404 1,412 848 749 163 228 84 207
9,120
11,905
Construction costs include costs in relation to Jorf 5&6 of AED 61 million (2014: AED 291 million) and the Takoradi power plant expansion of AED 69 million (2014: AED 113 million).
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 63
6 Depreciation, depletion and amortisation Depreciation of property, plant and equipment and depletion of oil and gas assets (note 12) Amortisation of initial spares fees (note 19) Amortisation of intangible assets (note 14) Recovery of intangible asset amortisation
7 Provisions for impairment Provision for impairment on property, plant and equipment (note (i)) Impairment charge relating to goodwill (note 15)
2015 AED million
2014 AED million
6,400 13 128 –
6,824 12 133 (27)
6,541
6,942
2015 AED million
2014 AED million
835 –
1,134 2,703
835
3,837
(i) Provision for impairment on property, plant and equipment
2015: During the year ended 31 December 2015, the following impairment charges have been recognised a) Pre-tax impairment charge of AED 485 million (post tax: AED 331 million) was recognised in the consolidated income statement, representing the write down of certain gas storage assets in the Netherlands to their recoverable amounts. These assets are included in the oil and gas – Europe segment. b) Pre-tax impairment charge of AED 350 million (post tax: AED 350 million) was recognised in the consolidated income statement, representing the write down of a hydro-electric power plant located in India to its recoverable amount. This asset is included in the power generation – Other segment. The recoverable amounts for these assets were based on their fair value less costs of disposal (“FVLCD”). In determining FVLCD, appropriate discounted cash flow valuation models were used, incorporating market based assumptions. The key assumptions for the FVLCD calculations are outlined in note 15 to the consolidated financial statements. The recoverable amount of the oil and gas – North America segment, oil and gas – Atrush Segment and for majority of the assets in the oil and gas – Europe segment was determined using the value in use approach. No impairment has been recognised. See note 15 for further details. 2014: During the year ended 31 December 2014, a pre-tax impairment charge of AED 1,114 million (post tax: AED 555 million) was recognised in the consolidated income statement, representing the write down of certain oil and gas assets located in the UK North Sea to their recoverable amounts. These assets are included in the oil and gas – Europe segment. In addition, a pre-tax impairment charge of AED 20 million (post tax: AED 9 million) was recognised in the consolidated income statement, representing the write down of certain oil and gas assets located in the Netherlands to their recoverable amounts. These assets are included in the oil and gas – Europe. The recoverable amounts were based on their fair value less costs of disposal (“FVLCD”). In determining FVLCD, appropriate discounted cash flow valuation models were used, incorporating market based assumptions. The key assumptions for the FVLCD calculations are outlined in note 15 to the consolidated financial statements. The fair value measurement was categorised as a Level 3 fair value based on the inputs to the valuation models. The write-down resulted primarily from the recent significant decline in oil prices. The recoverable amount of the oil and gas – North America segment was determined using the Value in Use model. No impairment has been recognised. See note 15 for further details.
8 Administrative and other expenses Salaries and related expenses Professional fees and business development expenses Corporate social contributions Others
2014 AED million
725 139 1 302
1,016 278 4 458
1,167
1,756
(454)
Recoveries
713
Total
Annual Report 2015
2015 AED million
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(658) 1,098
64 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
9 Finance costs and interest income 9.1 Finance costs Finance costs relating to bonds and notes Finance costs relating to interest bearing loans and borrowings and Islamic loans Finance costs on loan from ADWEA (note 37) Notional interest expense on loan from ADWEA and ADPC (note 32) Interest expense on interest rate swaps Asset retirement obligations accretion expense (note 31) Other accretion expense
9.2 Interest income Interest income on loan to associate (note 37) Interest income on short-term deposits
2015 AED million
2014 AED million
1,737 890 – 2 1,311 692 3
1,831 864 21 2 1,449 667 15
4,635
4,849
2015 AED million
2014 AED million
4 23
4 13
27
17
2015 AED million
2014 AED million
10 Income tax
The major components of income tax expense for the years ended 31 December 2015 and 2014 are: Consolidated income statement Current income tax: Current income tax charge Adjustment in respect to income tax of previous years Deferred income tax: Relating to origination and reversal of temporary differences
(1,656)
(365)
Income tax expense reported in the consolidated income statement
(1,299)
602
351 6
1,915 (948)
Incorporated within deferred income tax expense above are exchange differences on deferred foreign tax liabilities and assets which are recognised in the consolidated statement of comprehensive income and are classified within income tax as they are considered to be part of the tax expense of the Group. In 2015, these differences amounted to deferred income tax benefit of AED 17 million (2014: AED 4 million). The reconciliation between tax expense and the product of accounting profit multiplied by the applicable statutory tax rate for the years ended 31 December 2015 and 2014 is as follows: 2015 AED million
2014 AED million
Loss before tax Non-taxable (loss) income (including income in non-taxable jurisdictions)
(2,413) (265)
(1,687) 3,300
Total taxable (loss) profit
(2,678)
1,613
Applicable tax credit (charge) at statutory rates – weighted average of 35% (2014: 4%) Adjustment in respect to income tax of previous years Withholding taxes Tax incentives Special production taxes on upstream activities Others Income tax credit (expense) reported in the consolidated income statement
Abu Dhabi National Energy Company PJSC (TAQA)
940 (6) (11) 64 37 275 1,299
(71) 41 (107) 94 (43) (516) (602)
Financial Statements 65
Deferred tax
Deferred income tax at 31 December relates to the following: Consolidated statement of financial position 2015 AED million
Deferred tax assets: Temporary difference on property, plant and equipment Temporary difference arising on asset retirement obligations Tax losses Others Deferred tax liabilities: Temporary difference on property, plant and equipment Temporary difference arising on asset retirement obligations Tax losses Others
Consolidated income statement
2014 AED million
(4,987) 5,019 442 709
(182) 14 633 82
1,183
547
2015 AED million
2014 AED million
(4,805) 5,004 (191) 627
(374) 1 345 82
635
54
3,418 1,442 (455) (1,835)
9,971 (5,416) (344) (568)
(6,430) 4,859 60 490
(868) (463) 1,253 (234)
2,570
3,643
(1,021)
(312)
Based on the latest available forecast of future profits, the Group has determined AED 638 million of tax losses (2014: AED 843 million) are unlikely to be utilised in the foreseeable future. Hence no deferred tax benefit has been recognised, though these losses remain available for offset against future taxable profits. At 31 December 2015, there were no amounts unrecognised in respect of deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain subsidiaries (2014: nil). The Group has determined that undistributed profits of certain subsidiaries will be distributed in the foreseeable future and recognised the applicable tax liability.
11 Basic and diluted losses per share
Basic loss per share amounts are calculated by dividing loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted loss per share amounts are calculated by dividing the loss attributable to ordinary shareholders of the Parent by the weighted average number of ordinary shares outstanding during the year, adjusted for the effects of dilutive instruments. The following reflects the loss and shares data used in the earnings per share computations: 2015
2014
(1,800)
(3,010)
Weighted average number of ordinary shares issued (million)
6,066
6,066
Basic loss per share (AED)
(0.30)
(0.50)
Loss for the year attributable to owners of the parent (AED million)
No figure for diluted loss per share has been presented as the Company has not issued any instruments which would have an impact on earnings per share when exercised. The weighted average number of shares take into account the treasury shares as at year end.
Annual Report 2015
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66 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
12 Property, plant and equipment Capital work in progress AED million
2015 Cost: At 1 January 2015 Additions Disposals of assets Transfers (note 14) Exchange adjustment
4,497 447 – (2,901) (210)
At 31 December 2015
1,833
Depreciation and depletion: At 1 January 2015 Charge for the year (note 6) On sale of assets Exchange adjustment
– – – –
At 31 December 2015
Building, equipment, plant and machinery AED million
56,487 162 (11) 2,447 (499) 58,586 13,839 1,835 (7) (368)
Oil and gas assets AED million
60,581 2,349 (42) 590 (568) 62,910 23,810 4,557 (33) (99)
Plant spares AED million
336 1 – – – 337 95 8 – –
Total AED million
121,901 2,959 (53) 136 (1,277) 123,666 37,744 6,400 (40) (467)
–
15,299
28,235
103
43,637
Impairment: At 1 January 2015 Impairment charge during the year (note 7) Exchange adjustment
– 350 3
– 247 7
4,333 238 1
– – –
4,333 835 11
At 31 December 2015
353
254
4,572
–
5,179
At 31 December 2015
1,480
43,033
30,103
234
74,850
2014 Cost: At 1 January 2014 Additions Disposals of assets Transfers (note 14) Exchange adjustment
3,818 1,170 – (190) (301)
56,233 569 (58) 260 (517)
56,060 4,244 (180) 785 (328)
322 13 – 1 –
116,433 5,996 (238) 856 (1,146)
At 31 December 2014
4,497
56,487
60,581
336
121,901
Net carrying amount:
Depreciation and depletion: At 1 January 2014 Charge for the year (note 6) On sale of assets Exchange adjustment
– – – –
12,325 1,953 (7) (432)
19,163 4,863 (67) (149)
87 8 – –
31,575 6,824 (74) (581)
At 31 December 2014
–
13,839
23,810
95
37,744
Impairment: At 1 January 2014 Impairment charge during the year (note 7) Exchange adjustment
– – –
– – –
3,204 1,134 (5)
– – –
3,204 1,134 (5)
At 31 December 2014
–
–
4,333
–
4,333
Net carrying amount: At 31 December 2014
4,497
42,648
32,438
241
79,824
Capital work in progress additions include capitalised borrowing costs of AED 105 million (2014: AED 167 million). During the year ended 31 December 2015, TAQA North sold various non–core oil and gas assets for proceeds of AED 34 million (2014: AED 298 million). The gain on sale of assets of AED 21 million (2014: AED 167 million) included, no goodwill written off (2014: Goodwill written off of AED 14 million). Property, plant and equipment with a carrying amount of AED 42,171 million (2014: AED 43,546 million) are pledged as security for the related loans.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 67
13 Operating financial assets
2015 AED million
2014 AED million
The movement in operating financial assets is as follows: At 1 January Transferred from receivables Recognised during the year (note 4.2) Consideration received during the year Exchange losses recognised in the consolidated income statement
10,375 43 1,634 (1,635) (403)
10,319 57 1,954 (1,491) (464)
At 31 December
10,014
10,375
9,758 256
10,147 228
10,014
10,375
Analysed in the consolidated statement of financial position as follows: Non current portion Current portion
TAQA manages three concession contracts as defined by IFRIC 12, mainly covering electricity generation. The foreign subsidiaries, namely TAQA Morocco (formerly Jorf Lasfar Energy Company SCA (Jorf Lasfar)), TAQA Neyveli Power Company Pvt Ltd (Neyveli) and Takoradi International Company (Takoradi), have entered into power purchase agreements (PPA) with offtakers in the countries where they are operating. Under the PPA the foreign subsidiaries undertake to make available, and the offtakers undertake to purchase, the available net capacity of the plant for a period of time in accordance with various agreed terms and conditions as specified in the PPA as follows:
Jorf Lasfar:
The subsidiary has the right of possession for the site and the plant units for a period of 30 years ending in September 2027. After the 30 year period, the ownership of the site and the plants will be transferred to the offtaker. During 2009, Office National de l’Electricité (“ONE”), TAQA Morocco (formerly Jorf Lasfar Energy Company) and TAQA signed a strategic partnership agreement to extend the capacity of JLEC by two new units of an approximate gross capacity of 350 MW each. As per this agreement, TAQA Morocco or an affiliate will build, own, and operate the new units 5 and 6 under a 30–year power purchase agreement with ONE.
Neyveli
The subsidiary has a 30 year PPA with the offtaker ending in December 2032. On the expiry date of the PPA, the offtaker has the option to acquire the plant at a price equal to 50% of the terminal value as defined in the PPA.
Takoradi:
The subsidiary had originally signed a 25 year PPA with the offtaker ending in March 2024. On expiry date of the PPA, the plant is to be transferred to the offtaker at a nominal amount. During 2012, construction works began in relation to an expansion project at the Takoradi power plant. The expansion project will increase the existing 220 MW capacity to 330 MW. As a result of the expansion the PPA term has been extended to 2039. Operating financial assets with a carrying amount of AED 9,513 million (2014: AED 10,375 million) are pledged as security for the related borrowings in the subsidiaries.
Annual Report 2015
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68 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
14 Intangible assets
Exploration and evaluation assets AED million
Tolling agreement AED million
Connection rights AED million
Goodwill AED million
Computer software AED million
2015 Cost: At 1 January 2015 Additions Transfers to oil and gas assets (note 12) Dry hole expenses written off Derecognised during the year (note 5) Exchange adjustment
3,147 104 (155) (17) (42) (11)
836 – – – – –
1,388 – – – – –
9,569 – – – – (112)
231 7 19 – – (1)
At 31 December 2015
Total AED million
15,171 111 (136) (17) (42) (124)
3,026
836
1,388
9,457
256
14,963
Amortisation: At 1 January 2015 Amortisation for the year (note 6)
– –
365 61
342 38
– –
166 29
873 128
At 31 December 2015
–
426
380
–
195
1,001
Impairment: At 1 January 2015 and at 31 December 2015 Net book value before fair value adjustment:
–
–
–
4,301
–
4,301
3,026
410
1,008
5,156
61
9,661
–
295
–
–
–
295
3,026
705
1,008
5,156
61
9,956
9,727 – (14) – – – (144)
203 28 – – – – –
16,326 597 (22) (856) (640) (84) (150)
At 31 December 2015 Fair value adjustment on effective fair value hedges (note 39.2(iv)) Net book value after fair value adjustment: At 31 December 2015 2014 Cost: At 1 January 2014 Additions Sale of assets Transfers to oil and gas assets (note 12) Dry hole expenses written off Derecognised during the year (note 5) Exchange adjustment
4,172 569 (8) (856) (640) (84) (6)
836 – – – – – –
1,388
At 31 December 2014
– – – – –
3,147
836
1,388
9,569
231
15,171
Amortisation: At 1 January 2014 Amortisation for the year (note 6)
– –
304 61
304 38
– –
132 34
740 133
At 31 December 2014
–
365
342
–
166
873
Impairment: At 1 January 2014 Impairment charge during the year (note 7)
– –
– –
– –
1,598 2,703
– –
1,598 2,703
At 31 December 2014
–
–
–
4,301
–
4,301
3,147
471
1,046
5,268
65
9,997
–
535
–
–
–
535
3,147
1,006
1,046
5,268
65
10,532
Net book value before fair value adjustment: At 31 December 2014 Fair value adjustment on effective fair value hedges (note 39.2(iv)) Net book value after fair value adjustment: At 31 December 2014
Exploration and evaluation assets
On 12 March 2013, the Kurdistan Regional Government exercised its option of Government Participation in the Atrush block which could potentially reduce TAQA’s interest in the block from 53.2% to a minimum of 39.9%. The mechanism by which this will be achieved is still currently being negotiated including the settlement of outstanding petroleum costs owed to the contractors by the Government for its participating interest share is currently being negotiated. An amount of AED 305 million is held in a receivables account for reimbursement of petroleum costs. The transaction is expected to be finalised during the year 2016. During the year ended 31 December 2014, TAQA Atrush successfully completed appraisal activities on phase 1 of the Atrush block which is currently under construction. As a result of this and the year reserves evaluation, exploration and evaluation assets in the amount of AED 137 million (2014: AED 760 million) were reclassified to development and production assets.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 69
Impairment testing of Exploration and evaluation assets
In 2015, the exploration and evaluation assets in the oil and gas Atrush segment was tested for impairment due to existence of triggering events as stated in IFRS 6 on exploration and evaluation assets. The recoverable amount for the assets is based on their VIU. In determining VIU, appropriate discounted cash flow valuation model is used, incorporating market based assumptions. The key assumptions for the oil and gas asset VIU calculations are outlined in Note 15 together with the approach management has taken in determining the value to ascribe to each. The valuation models are life of asset models and therefore no extrapolation assumptions have been necessary or applied. The fair value measurements were categorised as Level 3 fair values based on the inputs to the valuation models. The VIU was calculated after considering an agreement with a related party whereby, at the request of TAQA, the related party agrees to offer to purchase all the oil and gas assets Oil and gas– Atrush segment at an agreed price. Please refer to note 15 for details.
Tolling Agreement
As part of the acquisition of BE Red Oak Holding LLC on 31 December 2008, the Group acquired a fuel conversion services, capacity and ancillary services purchase agreement (“Tolling Agreement”) for an amount of AED 836 million (US $227.5 million). Under the terms of the Tolling Agreement, the Group is entitled to the economic rights (revenue from sale of electricity, capacity payments and any other ancillary services) of a power plant located in New Jersey, USA and the Group is obligated to supply the fuel and also make certain fixed and variable payments to the operator.
Connection rights
The intangible assets arose from the transfer, made by the Company’s subsidiaries Emirates CMS Power Company, Shuweihat CMS International Power Company, Arabian Power Company and Taweelah Asia Power Company during the years ended 31 December 2002, 2005, 2006 and 2008 respectively, of certain assets to a related party in accordance with the terms of individual agreements and represent the acquisition cost of the right of connection to the transmission systems at the connection sites for a period of 38, 33, 37 and 40 years respectively. The connection rights cost are being amortised on a straight line basis over 38, 33, 37 and 40 years respectively, being the expected period of benefit.
15 Impairment testing of goodwill
The Group performs goodwill impairment testing on an annual basis, at the reporting date, and when there are indicators of impairment. Goodwill is allocated to groups of cash–generating units (CGUs), as follows: •
Power generation assets – others
•
Oil and gas assets – Europe (UK and Netherlands)
Oil and gas assets – North America The carrying amount of goodwill is allocated to each of the cash generating units as summarised below: •
Oil and gas – Europe AED million
Oil and gas – North America AED million
Power generation assets – other AED million
Total AED million
2015 At 1 January 2015 Exchange adjustment
2,597 (126)
2,569 –
102 –
5,268 (126)
At 31 December 2015
2,471
2,569
102
5,142
2014 At 1 January 2014 Impairment charge during the year (note 7) Sale of assets Exchange adjustment
3,657 (916) – (144)
4,370 (1,787) (14) –
102 – – –
8,129 (2,703) (14) (144)
At 31 December 2014
2,597
2,569
102
5,268
Oil and gas assets 2015
In 2015, the recoverable amount for all the oil and gas assets in the North America and Atrush segment and majority of the assets in the Europe segment is based on their value in use (VIU). In determining VIU, appropriate discounted cash flow valuation model is used, incorporating market based assumptions. The key assumptions for the oil and gas asset VIU calculations are outlined below together with the approach management has taken in determining the value to ascribe to each. The valuation models are life of asset models and therefore no extrapolation assumptions have been necessary or applied. The fair value measurements were categorised as Level 3 fair values based on the inputs to the valuation models. As a result of the impairment analysis, management has recognised an impairment charge as follows:
Oil and gas assets – North America Oil and gas assets – Europe
Annual Report 2015
taqaglobal.com
2015 AED million
2014 AED million
– –
1,787 916
–
2,703
70 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
15 Impairment testing of goodwill Continued In 2015, the VIU was calculated after considering an agreement with a related party whereby, at the request of TAQA, the related party agrees to purchase all the oil and gas assets in the North America and Atrush segment and majority of the assets in the Europe segment at an agreed price. As a result of this agreement, the VIU was calculated as below: a) North America: VIU was AED 19,687 million pre -tax whilst the fair value less costs of disposal (FVLCD) of these assets was calculated as AED 12,409 million pre tax b) Atrush: VIU was AED 3,502 million pre -tax whilst the FVLCD of these assets was calculated as AED 2,491 million pre tax c) Europe: VIU was AED 6,445 million pre -tax whilst the FVLCD of these assets was calculated as AED 2,148 million pre tax
2014
In 2014, the recoverable amount for oil and gas assets was based on either their FVLCD or in the case of the Oil and gas assets– North America their VIU. In determining the FVLCD and VIU discounted cash flow valuation model was used, incorporating market based assumptions. The key assumptions for the oil and gas asset VIU calculations are outlined below together with the approach management has taken in determining the value to ascribe to each. The valuation models are life of asset models and therefore no extrapolation assumptions have been necessary or applied. The fair value measurements were categorised as Level 3 fair values based on the inputs to the valuation models. In 2014, the VIU was calculated after considering an agreement with a related party whereby, at the request of TAQA, the related party agrees to offer to purchase certain oil and gas assets of the segment at an agreed price. As a result of this agreement, the VIU of these oil and gas assets was calculated as AED 20,202 million pre-tax whilst the FVLDC of these assets was calculated as AED 13,587 million pre-tax. The calculation of both FVLCD and VIU for oil and gas assets is based upon the following key assumptions: •
Reserve and resource volumes;
•
Inflation rates;
•
Contingent resources valuation;
•
Cash flows relating to gas storage;
•
Discount rates;
•
Foreign exchange rates; and
• Commodity prices. In the case of VIU calculations, assumptions are also made regarding the cash flows from each asset’s ultimate disposal.
Reserve and resource volumes
Reserve and resource volumes form the basis of the production profiles within the discounted cash flow models. The Group’s annual oil and gas reserves (proved, probable and possible) and resources review process includes an external audit process conducted by appropriately qualified parties; except with reference to prospective resources (PR) at TAQA Atrush. PR at Atrush has been estimated based on work performed by internal expert. Where significant, the contingent resources within a segment are also reviewed and reported on. The data generated for each field and location takes into consideration the development plans approved by senior management and reasonable assumptions that an external party would apply in appraising the assets.
Inflation rates
Estimates are obtained from published indices for the countries from which products and services are originated, as well as data relating to specific commodities. Forecast figures are used if data is publicly available.
Contingent resources valuation
Contingent resources are valued internally and calibrated for reasonability with reference to any precedent transactions and/ or publicly available comparable market data, using methods consistent with those applied to resource valuations.
Cash flows relating to gas storage
Cash flows relating to gas storage are based on assumptions on delivery capacity, injection capacity, working volumes and expected availability. The assumptions have been approved by management and in most cases validated by third party consultants and are supported by nonbinding expressions of interests on demand for working volumes.
Discount rates
Discount rates used reflect the estimated weighted average cost of capital rates for potential acquirer group companies developed for each of the locations. A post tax discount rate ranging from 7.5% to 13% (2014: 7.0% to 13%) was used to calculate the recoverable amounts at the reporting date.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 71
Foreign exchange rates and commodity prices
A summary of the key assumptions are provided below: WTI (US$/bbl) AECO gas (CAD$/mmbtu) Brent (US$/bbl) Summer/Winter gas spread (Euro/MWh)(2) US$/CAD$ US$/Euro US$/GBP
2016
2017
2018
2019
2020
2021(1)
45 2.58 45 1.75 0.75 1.16 1.54
60 3.05 58 1.60 0.75 1.16 1.54
70 3.50 72 1.65 0.75 1.16 1.54
80 4.00 80 2.00 0.75 1.16 1.54
81 4.50 82 3.00 0.75 1.16 1.54
83 4.50 85 3.00 0.75 1.16 1.54
(1) Prices are escalated at 2.1% thereafter, except for (2), below (2) After this period, prices are held flat
Power and water assets
The recoverable amount for power and water assets is based on value in use (‘VIU’). In determining VIU discounted cash flow valuation model was used, incorporating market based assumptions. The key assumptions for VIU calculations are outlined below together with the approach management has taken in determining the value to ascribe to each. The valuation models are life of asset models and therefore no extrapolation assumptions have been necessary or applied. The fair value measurements were categorised as Level 3 fair values based on the inputs to the valuation models. Management believes it is appropriate to use cash flow forecasts over such periods due to the long term power and water purchase agreements associated with the facilities. The future cash flows are discounted using a pre-tax rate ranging from 7% to 14% (2014: 7% to 14%). The calculation of VIU for power and water generation assets is most sensitive to the following assumptions: •
Inflation rates;
•
Discount rates.
Inflation rates
Estimates are obtained from published indices for the countries from which products and services are originated. Forecast figures are used if data is publicly available.
Discount rates
Discount rates used represent the current market assessment of the risks specific to the assets, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates.
Sensitivity to changes in assumptions
In 2015, the recoverable amount for all the oil and gas assets in the North America and Atrush segment and majority of the assets in the Europe segment is based on their value in use (VIU). The VIU was calculated after considering an agreement with a related party whereby, at the request of TAQA, the related party agrees to purchase all the oil and gas assets in the North America and Atrush segment and majority of the assets in the Europe segment at an agreed price. In view of the said agreement, the impairment test are not particularly sensitive to changes in assumptions. Hence the sensitivity disclosures have not been presented.
Annual Report 2015
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
72 Financial Statements
16 Investment in associates
The Group has the following investments in associates:
Massar Solutions PJSC Jubail Energy Company Sohar Aluminium Company LLC
Country of incorporation and operation
2015
2014
UAE Saudi Arabia Oman
49.0% 25.0% 40.0%
49.0% 25.0% 40.0%
Ownership
(i) Massar Solution PJSC (formerly Al Wathba Company for Central Services PJSC) is mainly involved in the leasing and management of vehicles and equipment. During the year ended 31 December 2015, the Group decided to divest its investment in an associate, Massar Solutions PJSC (note 23). (ii) Jubail Energy Company (“Jubail”) is involved in the generation of electricity. (iii) Sohar Aluminium Company LLC (“Sohar”) is involved in the construction, ownership and operation of an aluminium smelter and an associated combined cycle power plant. The Group’s associates are accounted for using the equity method and the reporting dates of the associates are identical to TAQA. The following table analyses the carrying amount and share of profit and other comprehensive income of TAQA’s associates. 2015 AED million
2014 AED million
Carrying amount of investments
421
726
Group’s share of the associates’: Profit for the year Other comprehensive income
104 34
123 37
Total comprehensive income
138
160
Share of associates’ hedging commitments at the reporting date is as follows: Share of associates’ notional amount Associate
Share of associates’ derivative liabilities
Fixed leg on instrument
2015 AED million
2014 AED million
2015 AED million
2014 AED million
2015
2014
709 41
776 53
17 2
49 4
4.74% to 4.88% 4.57%
4.74% to 4.88% 4.57%
19
53
Sohar (note a) Jubail (note b)
a) In order for Sohar to reduce its exposure to interest rates fluctuations on loans from banks, the associate has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans. The derivative instruments are entered into for the purpose of a cash flow hedge. b) In order for Jubail to reduce its exposure to interest rates fluctuations on loans from banks, the Company’s associate has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans.
17 Investment in joint venture
The Group has the following investments in joint venture:
LWP Lessee, LLC
Principal activity
Country of in corporation and operation
2015
2014
Wind Power
U.S.A
50.0%
50.0%
Ownership
The Group’s joint venture is accounted for using the equity method and the reporting dates of the joint ventures are identical to TAQA. The following table analyses the carrying amount and share of profit of the Group’s joint ventures. During the year ended 31 December 2015, the Group decided to divest its investment in LWP Lessee LLC (Lakefield) joint venture (note 23). Carrying amount of investment in joint ventures Share of joint ventures’ profit for the year
Abu Dhabi National Energy Company PJSC (TAQA)
2015 AED million
2014 AED million
–
151
23
31
Financial Statements 73
18 Advance and loans to associates Mezzanine loan – non-current Advance – non-current/current Others – current
Analysed in the consolidated statement of financial position as follows: Non current portion Current portion
2015 AED million
2014 AED million
397 305 2
398 467 8
704
873
2015 AED million
2014 AED million
702 2
398 475
704
873
The balances above mainly arise from the loans and advances made to Sohar Aluminium Company LLC in previous years. An amount of AED 162 million (2014: AED 103 million) was repaid, in relation to the advance, during the year. The mezzanine loan is interest bearing at a rate equal to the lowest rate of interest payable on Sohar’s Senior Debt less a discount of 5bp, as approved by its shareholders. As at 31 December 2014, advance to Sohar was expected to be received in twelve months, accordingly it was classified as current asset. During the year ended 31 December 2015, the management assessed the timing of the recoverability of the advance to Sohar, in view of the current commodity price environment and reclassified an amount of AED 305 million as non-current asset as it now expects to receive it after 2020.
19 Other assets Deferred expenditure Initial spares fee (note (i)) Derivatives in effective hedges – interest rate swaps (note 39.1) Derivatives in effective hedges – forward foreign exchange contracts (note 39.1) Others
(i) Initial spares fee: Cost: Balance at 1 January and 31 December Amortisation: At 1 January Charge for the year (note 6) At 31 December Net carrying amount at 31 December
2015 AED million
2014 AED million
108 18 – 19 22
122 31 3 31 51
167
238
2015 AED million
2014 AED million
146
146
(115) (13) (128)
(103) (12) (115)
18
31
2015 AED million
2014 AED million
1,629 1,433
1,726 1,427
3,062
3,153
20 Inventories Fuel and crude oil Spare parts and consumables
(227)
Provision for slow moving and obsolete items
(190)
2,835
2,963
The cost of inventories recognised as an expense in the consolidated income statement is AED 2,217 million (2014: AED 3,747 million). Inventories with a carrying amount of AED 2,718 million (2014: AED 2,833 million) are pledged as security for loans of the UAE domestic subsidiaries and certain foreign subsidiaries in the power business. Movements in the provision for slow moving and obsolete items are as follows: 2015 AED million
2014 AED million
At 1 January Provision movement
190 37
180 10
At 31 December
227
190
Annual Report 2015
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74 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
21 Accounts receivable and prepayments
2015 AED million
2014 AED million
1,255 1,316 457 52 40 44 62 26 535 8 694
1,272 1,308 993 113 186 24 71 37 435 5 713
4,489
5,157
Trade receivables (note (i)) Amounts due from related parties (note (ii)) Accrued revenue Advances to O&M contractors Crude stock underlift Deposits Advances to suppliers Prepaid insurance Income tax prepaid Derivatives in effective hedges – forward foreign exchange contracts (note 39.1) Other receivables
(i) Trade receivables
As at 31 December 2015, trade receivables at nominal value of AED 14 million (2014: AED 16 million) were impaired and fully provided for. Trade receivables are non-interest bearing and are recoverable within 30 – 90 working days. Movements in the provision for impairment of receivables are as follows: 2015 AED million
2014 AED million
At 1 January Provision movement
16 (2)
17 (1)
At 31 December
14
16
As at 31 December, the ageing analysis of trade receivables is as follows: Past due but not impaired
2015 2014
Total AED million
Neither past due nor impaired AED million
< 30 days AED million
30 – 60 days AED million
60 – 90 days AED million
90 – 120 days AED million
>120 days AED million
1,255 1,272
527 749
248 264
303 216
54 1
64 1
59 41
Subsequent to the reporting date, the Group collected AED 35 million (2014: AED 7 million) of balances past due for more than 120 days.
(ii) Amounts due from related parties
2015 AED million
2014 AED million
1,311 5
1,302 6
1,316
1,308
Abu Dhabi Water and Electricity Company (ADWEC) Others
The amounts due from ADWEC, a fellow subsidiary of ADWEA, in respect of available capacity and supply of water and electricity, are payable within 30 – 90 working days. As at 31 December 2015, amounts due from related parties at nominal value of AED 14 million (2014: AED 14 million) were impaired and fully provided for. As at 31 December, the ageing analysis of receivable from related parties is as follows: Past due but not impaired
2015 2014
Total AED million
Neither past due nor impaired AED million
< 30 days AED million
30 – 60 days AED million
60 – 90 days AED million
90 – 120 days AED million
>120 days AED million
1,316 1,308
1,066 912
– –
239 352
– 1
– 1
11 42
Trade receivables and amounts due from related parties net of provisions are expected, on the basis of past experience, to be fully recoverable.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 75
22 Cash and cash equivalents
2015 AED million
2014 AED million
Cash at banks and on hand Short term deposits
3,540 28
3,291 361
Bank overdrafts
3,568 (131)
3,652 (122)
3,437
3,530
Short term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Bank overdrafts carry interest at floating rates and are secured by guarantees from certain shareholders of the subsidiaries. At 31 December 2015, the Group had available AED 9,187 million (2014: AED 11,471 million) of undrawn committed borrowing facilities in respect of which all conditions precedent have been met.
23 Assets classified as held for sale LWP Lessee LLC (Lakefield) joint venture
During the year ended 31 December 2015, the Group decided to divest its investment in LWP Lessee LLC (Lakefield) joint venture. Accordingly, the Lakefield investment with a carrying value of AED 148 million has been reclassified as assets held for sale in the consolidated financial statements in accordance with IFRS 5 (“Non-Current Assets Held For Sale And Discontinued Operations”). The consideration for the sale of the assets is expected to be higher than the carrying amount.
Massar Solutions PJSC
During the year ended 31 December 2015, the Group decided to divest its investment in an associate, Massar Solutions PJSC. Accordingly, the Massar investment with a carrying value of AED 432 million has been reclassified as assets held for sale in the consolidated financial statements in accordance with IFRS 5 (“Non Current Assets Held For Sale And Discontinued Operations”). The consideration for the sale of the assets is expected to be higher than the carrying amount.
24 Share capital (i) Issued capital
2015 AED million
2014 AED million
Opening balance at 1 January Cancellation of treasury shares (See note 24 (ii))
6,066 –
6,225 (159)
Closing balance at 31 December
6,066
6,066
2015 AED million
2014 AED million
(ii) Treasury shares Opening balance at 1 January Cancellation of treasury shares
– –
Closing balance at 31 December
–
293 (293) –
On 4 February 2014, the Board approved the cancellation of 158,713,000 treasury shares. The articles of association were amended and approved by the shareholders at their extraordinary general meeting held on 22 April 2014 to reflect the new number of issued and outstanding shares of the company. The cancellation of the AED 293 million treasury shares was recorded against share capital (AED 159 million) and other reserves (AED 134 million).
(iii) Contributed capital
2015 AED million
2014 AED million
Opening balance at 1 January Transfer to retained earnings
25 –
325 (300)
Closing balance at 31 December
25
25
The transfer to retained earnings represents the excess of fair value over the consideration paid for an investment carried at FVOCI transferred from Abu Dhabi Water & Electricity Authority during 2010. The investment was disposed of during 2012 and as such a profit was realised and the contributed capital has been transferred to retained earnings.
Annual Report 2015
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76 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
25 Reserves 25.1 Other reserves
Statutory reserve AED million
Legal reserve AED million
General reserve AED million
750 – (750)
Total AED million
Balance at 1 January 2014 Cancellation of treasury shares (note 24(ii)) Transfers during the year
2,812 (134) –
728 – 79
4,290 (134) (671)
Balance at 31 December 2014 Transfers during the year
2,678 –
807 61
– –
3,485 61
Balance at 31 December 2015
2,678
868
–
3,546
Statutory reserve
As required by the UAE Federal Law No. (2) of 2015 and the articles of association of the Company and its subsidiaries, 10% of the consolidated profit for the year is transferred to the statutory reserve. The Company and its subsidiaries may resolve to discontinue such transfers when the reserve equals 50% of the share capital. The reserve is not available for distribution.
Legal reserve – subsidiaries
In accordance with the Articles of Association of certain domestic subsidiaries, 10% of the profit for the year is transferred to a legal reserve. The subsidiaries may resolve to discontinue such annual transfers when the reserve totals 50% of their share capital or in accordance with a resolution taken to this effect by the shareholders at the Annual General Meeting upon the recommendation of the Board of Directors of these subsidiaries. This reserve may only be used for the purposes recommended by the Board of Directors and approved by the shareholders of the subsidiaries.
General reserve
The Group has established a general reserve to enhance the capital base of the Company. This reserve may only be used for the purposes recommended by the Board of Directors and approved by the shareholders of the Company. During the prior year, the Board of Directors approved the transfer of the general reserve to retained earnings of AED 750 million.
25.2 Retained (losses) earnings Cancellation of loans from ADWEA
In 2014, TAQA’s parent company, ADWEA issued a resolution to waive all existing loan agreements and related interest payable to ADWEA from TAQA, free of costs. An amount of AED 2,919 million was transferred directly to retained earnings from loans from ADWEA (note 28) and accrued interest.
25.3 Foreign currency translation reserve
The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations.
26 Non–controlling interests Relating to Abu Dhabi Water and Electricity Authority (ADWEA) Relating to non–controlling interest shareholdings in subsidiaries
2015 AED million
2014 AED million
512 3,523
477 3,104
4,035
3,581
ADWEA is treated as a non–controlling interest in these consolidated financial statements due to its 10% equity interest in eight domestic subsidiaries of TAQA (refer to note 38 for details). Financial information of subsidiaries that have material non–controlling interests are provided below: Proportion of equity interests held by non–controlling interests
Gulf Total Tractebel Power Company PJSC Arabian Power Company PJSC Shuweihat CMS International Power Company PJSC Taweelah Asia Power Company PJSC Emirates SembCorp Water and Power Company PJSC Fujairah Asia Power Company PJSC Ruwais Power Company PJSC Emirates CMS Power Company PJSC
Abu Dhabi National Energy Company PJSC (TAQA)
Country of incorporation and operation
2015
2014
UAE UAE UAE UAE UAE UAE UAE UAE
46.0% 46.0% 46.0% 46.0% 46.0% 46.0% 46.0% 46.0%
46.0% 46.0% 46.0% 46.0% 46.0% 46.0% 46.0% 46.0%
Financial Statements 77
All of the Group’s subsidiaries that have material non–controlling interest are similar in nature. Therefore the following disclosures have been provided on an aggregated basis: 2015 AED million
2014 AED million
Revenue Profit Other comprehensive income (loss)
7,038 1,396 627
7,042 1,466 (572)
Total comprehensive income
2,023
894
Profit allocated to non-controlling interests Other comprehensive income allocated to non-controlling interests Non-current assets Current assets Non-current liabilities Current liabilities
642 288 42,926 5,095 (35,707) (3,846)
674 (263) 44,460 5,196 (38,055) (3,848)
Total equity
8,468
7,753
Equity attributable to parent Equity attributable to non-controlling interests
4,573 3,895
4,187 3,566
Cash flows from operating activities Cash flows used in investing activities Cash flows used in financing activities
8,468
7,753
5,338 (376) (4,972)
3,331 (537) (2,707)
Net (decrease) increase in cash and cash equivalents
(10)
Dividends paid to non-controlling interests
399
379
2015 AED million
2014 AED million
233 163 59 2
252 195 110 32
457
589
87
27 Loans from non–controlling interest shareholders in subsidiaries S2 Offshore Holding Company Fujairah F2 CV Asia Gulf Power Holding Shuweihat Limited Partnership
The above loans are interest free, with no repayment terms and are unsecured and are subject to terms of repayment as resolved by the Board of Directors of the subsidiaries. Accordingly they have been treated as equity.
28 Loan from Abu Dhabi water and electricity authority (ADWEA) Movement in the loan balance during the year is as follows:
2015 AED million
At 1 January Cancellation of loan (note 25.2) Repaid during the year
– – –
At 31 December
–
2014 AED million
2,624 (2,611) (13) –
The above loans were interest free, with no repayment terms and were unsecured and were subject to terms of repayment as resolved by the Board of Directors of TAQA. Accordingly they were treated as equity.
Annual Report 2015
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78 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
29 Interest bearing loans and borrowings 2015 AED million
2014 AED million
5,896 14,409 14,283 2,965 34,953
5,309 14,479 14,268 2,963 37,420
72,506
74,439
2015 AED million
2014 AED million
66,734 5,772
72,380 2,059
72,506
74,439
2015 AED million
2014 AED million
5,894 6,963 7,116 4,437 3,365 45,508
2,099 5,863 8,607 7,063 4,382 47,243
73,283
75,257
2015 AED million
2014 AED million
– 5,896
1,688 3,621
5,896
5,309
Revolving credit facilities (note i) Abu Dhabi National Energy Company Global Medium Term notes (note ii) Abu Dhabi National Energy Company bonds (note iii) Ruwais Power Company bond (note iv) Term loans (note v)
Disclosed in the consolidated statement of financial position as follows: Non–current liabilities Current liabilities
The Group’s interest bearing loans and borrowings (before deducting prepaid finance costs) are repayable as follows: Within 1 year Between 1 – 2 years Between 2 – 3 years Between 3 – 4 years Between 4 – 5 years After 5 years
(i) Revolving credit facilities Non–current liabilities US$0.8 billion facility, net of transaction costs (note a) US$3.1 billion facility, net of transaction costs (note b)
a) TAQA North is the borrower of a US$800 million 3 year revolving facility with TAQA providing a parent guarantee. At 31 December 2015, no amount (2014: AED 1,688 million) was availed under this credit facility. b) On 12 August 2015, TAQA refinanced all existing tranches of its revolving credit facilities with a US$ 3.1 billion, 5 year multicurrency revolving credit facility with a syndicate of 15 banks. Amounts borrowed under revolving credit facility carry interest of LIBOR or EURIBOR plus a margin.
(ii) Abu Dhabi National Energy Company Global Medium Term Notes
Abu Dhabi National Energy Company global medium term notes are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligations of TAQA. The following table summarises the terms of the notes payable:
US$500,000,000, net of transaction costs US$500,000,000, net of discount and transaction costs US$500,000,000, net of discount and transaction costs US$750,000,000, net of discount and transaction costs Euro 180,000,000, net of discount and transaction costs US$750,000,000, net of discount and transaction costs US$750,000,000, net of discount and transaction costs Total
Issue rate %
Effective interest rate %
Repayment date
2015 AED million
2014 AED million
100% 99.85% 99.20% 99.50% 97.62% 99.52% 99.37%
6.18% 7.29% 6.40% 4.32% 3.1% 6.00% 4.02%
October 2017 August 2018 September2019 March 2017 May 2024 December 2021 May 2024
1,836 1,835 1,827 2,748 700 2,737 2,726
1,836 1,834 1,825 2,743 781 2,735 2,725
14,409
14,479
The notes liability is stated net of discount and transaction costs incurred in connection with the notes arrangements, amounting to AED 83 million as of 31 December 2015 (2014: AED 102 million), which are amortised to the consolidated income statement over the repayment period of the notes using the effective interest rate method. Interest on the US dollar notes is payable semi–annually. Accrued interest is included under accruals and other liabilities.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 79
(iii) Abu Dhabi National Energy Company Bonds
In 2006, TAQA issued long term fixed interest rate bonds at a discount. The bonds are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligation of the Company. The following table summarises the terms of the bond payable: Issue rate %
Effective interest rate %
Repayment date
2015 AED million
2014 AED million
99.485%
5.98%
October 2016
3,669
3,665
3,669
3,665
3,314 2,744 4,556
3,313 2,738 4,552
Total non–current
10,614
10,603
Total
14,283
14,268
Current liabilities US$1,000,000,000, net of discount and transaction costs Total current Non-current liabilities US$1,500,000,000, net of discount and transaction costs US$750,000,000 net of discount and transaction costs US$1,250,000,000 net of discount and transaction costs
99.049% 99.48% 99.40%
6.60% 2.71% 3.75%
October 2036 January 2018 January 2023
The bonds liability is stated net of discount and transaction costs incurred in connection with the bond arrangements, amounting to AED 84 million as of 31 December 2015 (2014: AED 99 million), which are amortised in the consolidated income statement over the repayment period of the bond using the effective interest rate method. Interest on the US dollar bonds is payable semi-annually. Accrued interest is included under accruals and other liabilities.
(iv) Ruwais Power Company Bond
In 2013, Ruwais Power Company, a subsidiary of the Group, issued a long term fixed interest rate bond of US $825 million (AED 3,030 million). The bond is recorded at amortised cost using the effective interest rate and is secured by a number of security documents including the subsidiary’s contractual rights, cash deposits, other assets and guarantees. The bond carries a coupon of 6% with maturity in August 2036.
Non-current liability US$825,000,000 bond net of discount and transaction costs
Issue rate %
Effective interest rate %
Repayment date
2015 AED million
2014 AED million
6.0%
6.18%
August 2036
2,965
2,963
The bond liability is stated net of transaction costs incurred in connection with the bond arrangement, amounting to AED 65 million as of 31 December 2015 (2014: AED 67 million), which are amortised in the consolidated income statement over the repayment period of the bond using the effective interest rate method. Interest on the bonds is payable semi-annually.
(v) Term loans
Term loans which are shown at amortised cost are in respect of the following subsidiaries: Abu Dhabi National Energy Company PJSC (TAQA) Emirates CMS Power Company PJSC (ECPC) Gulf Total Tractebel Power Company PJSC (GTTPC) Shuweihat CMS Power Company PJSC (SCIPCO) Arabian Power Company PJSC (APC) Taweelah Asia Power Company PJSC (TAPCO) Emirates SembCorp Water and Power Company PJSC (ESWPC) Fujairah Asia Power Company PJSC (FAPCO) Ruwais Power Company PJSC (RPC) TAQA Morocco (formerly Jorf Lasfar Energy Company S.A.) Jorf Lasfar Energy Company 5&6 S.A. TAQA Neyveli Power Company Private Limited Himachal Sorang Power Limited Takoradi International Company
Annual Report 2015
taqaglobal.com
2015 AED million
2014 AED million
620 512 3,238 1,829 1,980 5,225 3,610 6,852 4,822 1,643 3,124 – 375 1,123
623 608 3,386 2,055 2,165 5,620 3,757 7,135 4,953 1,969 3,643 14 375 1,117
34,953
37,420
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
80 Financial Statements
29 Interest bearing loans and borrowings Continued Abu Dhabi National Energy Company PJSC (TAQA): Non–current Term loan
Effective interest rate %
Maturity
JPYLIBOR + 0.60%
2019
2015 AED million
2014 AED million
620
623
On 17 April 2014, TAQA signed a JPY 20.4 billion (AED 735 million) Samurai term loan facility agreement. The five-year loan was arranged at a rate of 60 basis points over Japanese Yen LIBOR. The term loan is unsecured, with the outstanding amount to be paid at the maturity date as one bullet payment. Term loan is stated net of prepaid finance cost of AED 1 million (2014: AED 1 million). The loan is fully hedged into US Dollars (note 39).
Emirates CMS Power Company PJSC (ECPC): Effective interest rate %
Maturity
Current Term loan (1)
LIBOR + 1.30%
Non–current Term loan (1)
LIBOR + 1.30%
2015 AED million
2014 AED million
2016
94
96
2020
418
512
512
608
Total
The term loan facility (1) is repayable in half yearly instalments until June 2020 in accordance with an agreed upon instalment schedule. Term loan (1) is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of ECPC, a pledge of shares in the company by both shareholders and a pledge of equity interest in Taweelah Shared Facilities Company LLC. Term loan (1) is also subject to various covenants as stipulated in the loan facility agreement. Term loan (1) is stated net of prepaid finance cost of AED 8 million (2014: AED 11 million). Under the terms of its loan facility agreement, ECPC is required to enter into interest rate swap agreements to mitigate its interest rate exposure (note 39).
Gulf Total Tractebel Power Company PJSC (GTTPC): Effective interest rate %
Maturity
Current Term loan
LIBOR + 0.65%
2016
Non–current Term loan
LIBOR + (0.65% – 0.95%)
2017 – 2029
Total
2015 AED million
2014 AED million
172
149
3,066
3,237
3,238
3,386
The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of GTTPC, a pledge of shares in the company by both shareholders and a pledge of equity interest in Taweelah Shared Facilities Company LLC. The term loan is also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its Facility Agreement, GTTPC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39). The term loan above is stated net of prepaid finance cost of AED 19 million (2014: AED 21 million).
Shuweihat CMS Power Company PJSC (SCIPCO): Effective interest rate %
Maturity
Current Term loan
LIBOR + 1.65%
Non–current Term loan
LIBOR + (1.65% – 1.75%)
Total
2015 AED million
2014 AED million
2016
239
225
2021
1,590
1,830
1,829
2,055
The amount of the conventional term loan facility is US$1,035 million (AED 3,802 million) and is repayable in 35 semi–annual instalments starting from December 2004 in accordance with an agreed upon instalment schedule. The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of SCIPCO. The term loan is also subject to various covenants as stipulated in the loan facility agreement.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 81
Under the terms of its loan facility agreement, SCIPCO is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39). The term loan is stated net of prepaid finance costs of AED 11 million (2014: AED 15 million).
Arabian Power Company PJSC (APC): Effective interest rate %
Maturity
Current Term loan
LIBOR + 1.30%
2016
Non-current Term loan
LIBOR + (1.30% – 1.65%)
2017 – 2023
Total
2015 AED million
2014 AED million
200
185
1,780
1,980
1,980
2,165
During 2003, APC obtained loan facilities from a syndicate of banks to finance the acquisition, refurbishment and extension of the UAN power and desalination plant. The term loan facility is US $855 million (AED 3,140 million) and was fully drawn at 31 December 2008. The term loan facility is repayable from January 2009 in accordance with an agreed upon repayment schedule with the last repayment due on 21 July 2023. The loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of APC and a pledge of the shares in the company by both shareholders. The loan is also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, APC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39). The term loan is stated net of prepaid finance costs of AED 19 million (2014: AED 21 million).
Taweelah Asia Power Company PJSC (TAPCO):
Current Term loan (1) Term loan (2) Non-current Term loan (1) Term loan (2)
Effective interest rate %
Maturity
LIBOR + 0.85% LIBOR + 0.825%
2016 2016
LIBOR + 0.85% LIBOR + 0.825%
Total
2017 – 2025 2017 – 2025
2015 AED million
2014 AED million
182 241
170 225
423
395
2,071 2,731
2,250 2,975
4,802
5,225
5,225
5,620
During 2005, TAPCO obtained loan facilities from a syndicate of banks to finance the acquisition, refurbishment and extension of the Taweelah B power and water desalination plant. The term loan facility (1) amounting to US $911 million (AED 3,346 million) was fully drawn during 2008. Term loan facility (1) is stated net of prepaid finance cost of AED 26 million (2014: AED 29 million). The term loan facility (2) amounting to US$1,200 million (AED 4,407 million) was fully drawn during 2008. Term loan facility (2) is stated net of prepaid finance cost of AED 24 million (2014: AED 26 million). The loans are secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of TAPCO and a pledge of shares in the company by both shareholders. The loans are also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, TAPCO is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39).
Annual Report 2015
taqaglobal.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
82 Financial Statements
29 Interest bearing loans and borrowings Continued Emirates SembCorp Water and Power Company PJSC (ESWPC): Effective interest rate %
Maturity
Current Term loan
LIBOR + 0.85%
2016
Non-current Term loan
LIBOR + (0.85% – 1.2%)
2017 – 2029
Total
2015 AED million
2014 AED million
169
147
3,441
3,610
3,610
3,757
During 2006, ESWPC obtained loan facilities from a syndicate of banks to finance the acquisition and extension of the Fujairah Power and Desalination Plant. The amount of the term loan facility is US$1,270 million (AED 4,667 million). The term loan is repayable from February 2010 in accordance with an agreed upon repayment schedule with the last repayment on 31 January 2029. The term loan is stated net of prepaid finance costs of AED 27 million (2014: AED 29 million). The loans are secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of the ESWPC and a pledge of shares in the company by both shareholders. The loans are also subject to various covenants as stipulated in the loan facility agreements. Under the terms of its loan facility agreement, ESWPC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39).
Fujairah Asia Power Company PJSC (FAPCO):
Current Term loan (1) Term loan (2) Non–current Term loan (1) Term loan (2)
Effective interest rate %
Maturity
LIBOR + 0.60% LIBOR + 0.50%
2016 2016
LIBOR + 0.60% LIBOR + 0.50%
2017 – 2030 2017 – 2030
2015 AED million
2014 AED million
100 151
113 170
251
283
2,638 3,963
2,741 4,111
6,601
6,852
6,852
7,135
During 2007, the Company obtained loan facilities from a syndicate of banks (term loan facilities (1) and (2)) to finance the construction of the Fujairah F2 power production and water desalination plant. The term loan facility (1) is AED 3,144 million was fully drawn down in 2011. The term loan is repayable from 28 January 2011 in accordance with an agreed upon repayment schedule with the last repayment due on 28 July 2030. Term loan (1) is stated net of prepaid finance cost of AED 35 million (2014: AED 37 million). The term loan facility (2) is AED 4,716 million was fully drawn down in 2011. The term loan is repayable from 28 January 2011, in accordance with an agreed upon repayment schedule, with the last repayment due on 28 July 2030. Term loan (2) is stated net of prepaid finance cost of AED 47 million (2014: AED 51 million). The loans are secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of FAPCO. The loans are also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, FAPCO is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39).
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 83
Ruwais Power Company PJSC (RPC): Effective interest rate %
Maturity
Current Interest bearing term loans
LIBOR + (1.9 % – 2.35%)
2016
Non–current Interest bearing term loans
LIBOR + (1.9 % – 2.5%)
2017 – 2031
2015 AED million
2014 AED million
154
136
4,668
4,817
4,822
4,953
During 2009, the Company obtained term loans facility of US$2,025 million with a stand-by facility of US$67 million (respectively AED 7,437 million and AED 246 million), of which US$2,205 million (AED 7,437 million) was drawn at 31 December 2011. The stand-by facility was cancelled in 2012. The loans are repayable starting February 2012 in accordance with an agreed upon repayment schedule with the last repayment on 31 August 2031. The loans carry interest at a variable rate of LIBOR plus a margin ranging from 1.9% and 2.5% per annum. The term loans are stated net of prepaid finance costs of AED 163 million (2014: AED 174 million). The loans are secured by a number of security documents including a commercial mortgage over all assets of the Company. The loans are also subject to various covenants as stipulated in the loan facility agreement. Under the terms of the loan facility agreement, the Company is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39).
TAQA Morocco (formerly Jorf Lasfar Energy Company S.A.): Effective interest rate %
Maturity
Current Term loan
5.80%
2016
Non–current Term loan
5.80%
2017 – 2027
Total
2015 AED million
2014 AED million
147
162
1,496
1,807
1,643
1,969
During the year ended 31 December 2009, TAQA’s wholly owned subsidiary TAQA Morocco availed an 18 year loan with a syndicate of banks of MAD 7,400 million (AED 3,440 million) with a yearly variable interest rate capped at 6.75%. The principal and interest are to be paid quarterly with the final instalment maturing on 31 March 2027. At 31 December 2015, MAD 4,451 million (AED 1,643 million) (2014: MAD 4,874 million AED 1,969 million) was outstanding on this loan. The term loan is secured by a number of security documents including the subsidiary’s contractual rights, cash deposits, other assets and guarantees from the Moroccan Government and TAQA.
Jorf Lasfar Energy Company 5&6 S.A. (JLEC 5&6): Effective interest rate %
Maturity
Current Term loan
LIBOR + (3.92% – 7.00%)
2016
Non–current Term loan
LIBOR + (3.92% – 7.00%)
2017 – 2028
Total
2015 AED million
2014 AED million
242
254
2,882
3,389
3,124
3,643
During the year ended 31 December 2012, JLEC 5&6 secured multi-currency debt facilities totalling approximately US$1.4 billion equivalent (AED 5.1 billion) with several lenders. These facilities are comprised of a US $216.0 million term facility, Euro term facilities totalling EUR 456.2 million, and Moroccan Dirham facilities totalling MAD 5,450 million. The Moroccan Dirham facilities consist of a MAD 4.5 billion term loan facility, MAD 700 million medium-term VAT facility and MAD 250 million working capital facility that is renewable annually. Interest is payable semi-annually on amounts borrowed under all term loans and the VAT facility, and quarterly under the working capital facility. The USD and EUR term loan facilities and the MAD working capital facility carry interest at applicable reference interest rates plus margins. The MAD term loan and VAT facility are fixed rate loans. Loan principal drawn under the term loan facilities is repayable semi-annually according to repayment schedules specified in each loan facility, through the final scheduled repayment date of 31 May 2028. The loans are secured by a number of security documents including security assignments/pledges over the subsidiary’s contractual rights, cash deposits, accounts receivable, and other assets, as well as pledges over the shares of JLEC 5&6 and its offshore shareholder, TAQA Power Ventures B.V. and guarantees from the Moroccan government and TAQA. At 31 December 2015, US$850 million (AED 3,124 million) (2014: US$992 million (AED 3,643 million) was outstanding on this loan. Under the terms of its loan facility agreement, JLEC 5&6 is required to enter into interest rate swap agreements and foreign exchange swap agreements to hedge its interest cost exposure against fluctuations in interest rates and foreign exchange exposure against fluctuations in foreign exchange rates (note 39).
Annual Report 2015
taqaglobal.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
84 Financial Statements
29 Interest bearing loans and borrowings Continued TAQA Neyveli Power Company Private Limited:
Term loan
Effective interest rate %
Maturity
9.39%
2015
2015 AED million
2014 AED million
–
14
During 2014, the Company’s subsidiary TAQA Neyveli Power Company has term loans amounting to AED 14 million. The loan has been fuly repaid in the current year. The loan carried a variable interest rate at a stipulated spread below the respective Prime Lending Rates (PLR) of the lending banks. The term loan is secured by a number of security documents including a commercial mortgage over all assets of the subsidiary.
Himachal Sorang Power Limited (HSPL): Effective interest rate %
Maturity
Current Term loan
12.73%
2016
Non–current Term loan
12.73%
2017 – 2025
2015 AED million
2014 AED million
12
13
363
362
375
375
Total
HSPL has term loans amounting to AED 375 million (INR 6,754 million) (2014: AED 375 million (INR 6,471 million)) with principal to be repaid quarterly commencing from 1 April 2013 with the final instalment maturing on 1 January 2025. The term loan is secured by a number of security documents including a first mortgage over all assets of the subsidiary.
Takoradi International Company (TICO): Non–current Term loan
Effective interest rate %
Maturity
LIBOR + (4.25% – 4.35%)
2027
2015 AED million
2014 AED million
1,123
1,117
During the year ended 31 December 2012, TICO secured debt facilities worth US$330 million (AED 1,211 million). Amounts borrowed under these facilities carry interest of 6 month LIBOR plus of 4.35% for the International Finance Corporation facility and 4.25% for the Development Finance Institution facility. The term loan are secured by a number of security documents including the subsidiary’s contractual rights, cash deposits, other assets and guarantees. Under the terms of its loan facility agreement, TICO is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 39).
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 85
30 Islamic loans
Islamic loans are with respect to the following subsidiaries: Shuweihat CMS Power Company PJSC Emirates CMS Power Company PJSC Arabian Power Company PJSC Abu Dhabi National Energy Company PJSC Disclosed in the consolidated statement of financial position as follows: Non–current liabilities Current liabilities
2015 AED million
2014 AED million
462 200 579 554
518 236 633 679
1,795
2,066
1,639 156
1,918 148
1,795
2,066
2015 AED million
2014 AED million
158 169 181 205 192 903
150 158 169 181 205 1,220
1,808
2,083
2015 AED million
2014 AED million
60
56
402
462
462
518
The Group’s Islamic loans (before deducting prepaid finance costs) are repayable as follows: Within 1 year Between 1 – 2 years Between 2 – 3 years Between 3 – 4 years Between 4 – 5 years After 5 years
(i) Shuweihat CMS Power Company PJSC Effective rental rate %
Maturity
Current Islamic Ijara loan
LIBOR + 1.65%
2016
Non–current Islamic Ijara loan
LIBOR + (1.65% – 1.75%)
2017 – 2021
Total
The Islamic Ijara loan is secured by an assignation of identified parts of the plant and equipment purchased under the Islamic financing arrangement, and is repayable in thirty five semi-annual instalments starting from December 2004. The Islamic Ijara loan is stated net of prepaid finance costs of AED 5 million (2014: AED 7 million). Under the terms of its loan facility agreements, the subsidiaries are required to enter into rental rate swap agreements to hedge their rental cost exposure against fluctuations in rental rates (note 39).
(ii) Emirates CMS Power Company PJSC Effective rental rate %
Maturity
Current Islamic Ijara loan
LIBOR + 1.30%
2016
Non–current Islamic Ijara loan
LIBOR + 1.30%
2017 – 2020
Total
2015 AED million
2014 AED million
37
38
163
198
200
236
The Islamic Ijara loan is secured by an assignment of identified parts of the plant and equipment purchased under the Islamic financing arrangement, and is repayable in thirty three semi annual instalments commencing from 30 June 2004. A fluctuating profit charge is paid under the Islamic financing agreement, which is based on LIBOR plus a margin. Under the terms of its loan facility agreements, the subsidiaries are required to enter into rental rate swap agreements to hedge their rental cost exposure against fluctuations in rental rates (note 39). The Islamic Ijara loan is stated net of prepaid finance costs of AED 3 million (2014: AED 3 million).
Annual Report 2015
taqaglobal.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
86 Financial Statements
30 Islamic loans Continued (iii) Arabian Power Company PJSC
Effective rental rate %
Maturity
Current Muqawala
LIBOR + 1.30%
2016
Non-current Muqawala
LIBOR + (1.30% – 1.65%)
2017 – 2023
Total
2015 AED million
2014 AED million
59
54
520
579
579
633
The Muqawala loan is in respect of the procurement and manufacturing of certain generation assets under an Islamic loan facility agreement dated 2 July 2003. The facility of US$250 million (AED 918 million) is repayable in thirty semi annual instalments commencing from January 2009. The Muqawala loan is stated net of prepaid finance costs of AED 6 million (2014: AED 6 million). Under the terms of its loan facility agreements, the subsidiaries are required to enter into rental rate swap agreements to hedge their rental cost exposure against fluctuations in rental rates (note 39).
(iv) Abu Dhabi National Energy Company PJSC Non-current Islamic Sukuk loan
Effective rental rate %
Maturity
4.71%
2020
2015 AED million
2014 AED million
554
679
In November 2011, TAQA established a MYR 3.5 billion (AED 3.7 billion) Sukuk programme. During the year ended 31 December 2012, an amount of MYR 650 million (AED 790 million) was issued under the programme. The Group has entered into a cross currency rate swap arrangement to hedge the Group’s exposure against fluctuation in currency rates. The 10 year Sukuk was raised with a profit of 4.65% with a full swapped rate to US Dollars of 5.3% (note 39.1(ii)). The loan is stated net of discount and transaction costs incurred in connection with the loan arrangements, amounting to AED 2 million (2014: AED 3 million), which are amortised to the consolidated income statement over the repayment period of the notes using effective interest rate method.
31 Asset retirement obligations
As part of the land lease agreements between ADWEA and the Company’s domestic subsidiaries, the subsidiaries have a legal obligation to remove the power and water desalination plants at the end of the plants’ useful lives, or before if the subsidiaries became unable to continue their operations to that date, and to restore the land. The subsidiaries shall at their sole cost and expense dismantle, demobilise, safeguard and transport the assets, eliminate soil and ground water contamination, fill all excavation and return the surface to grade of the designated areas. The fair value of the ARO liability has been calculated using an expected present value technique. This technique reflects assumptions such as costs, plant useful life, inflation and profit margin that third parties would consider to assume the settlement of the obligation. In addition, the Company’s foreign subsidiaries involved in the oil and gas sector make provision for the future cost of decommissioning oil and gas properties and facilities at the end of their economic lives. The economic life and the timing of the decommissioning liabilities are dependent on Government legislation, commodity prices and the future production profiles of the respective assets. In addition, the costs of decommissioning are subject to inflationary/ deflationary pressures in the cost of third party service provision. 2015 AED million
2014 AED million
ARO liability at 1 January Utilised during the year (Reversal) provided during the year Accretion expense (note 9.1) Revision in estimated cash flows Exchange adjustment
13,238 (156) (13) 692 41 (356)
12,316 (132) 12 667 465 (90)
ARO liability at 31 December
13,446
13,238
Disclosed in the consolidated statement of financial position as follows: Current liabilities (note 34) Non-current liabilities
50 13,396
95 13,143
13,446
13,238
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 87
32 Advances and loans from related parties
2015 AED million
2014 AED million
42 238
40 245
280
285
2015 AED million
2014 AED million
Balance at 1 January Notional interest expense (note 9.1)
40 2
38 2
Balance at 31 December
42
40
Loans from related parties (note (i)) Advances from related parties
(i) Movements in the loan balances during the year were as follows:
Loans from related parties as at 31 December 2015 and 31 December 2014 are from the Abu Dhabi Power Corporation (“ADPC”). During 2005, the Company’s subsidiary was granted a loan amounting to AED 70 million by a fellow subsidiary of the Company. The loan is interest free and unsecured and is due for payment in full in June 2025. On inception, the Company’s management measured the loan at its fair value of AED 24 million. The difference of AED 46 million between the loan amount of AED 70 million and its fair value has been treated as an equity contribution from the ultimate holding company.
33 Other liabilities Provisions recognised on onerous contract (note i) Negative fair value of derivatives – interest rate swaps (note 39.1) Negative fair value of derivatives – forward exchange contracts (note 39.1) Negative fair value of derivatives – cross currency interest rate swaps (note 39.1) Employee benefits obligations Others
2015 AED million
2014 AED million
13 3,704 64 451 54 128
14 4,300 57 333 78 139
4,414
4,921
(i) Provisions relate mainly to certain onerous contracts in relation to market conditions recognised at fair value at the date of acquisition of Pioneer Canada Limited in 2007. The current portion of the provisions amounting to AED 10 million (2014: AED 81 million) is shown under accounts payable, accruals and other liabilities (note 34). Movement in total provision recognised on onerous contract during the year is as follows: 2015 AED million
Balance at 1 January Release to consolidated income statement during the year Accretion expense Revision in estimates Exchange adjustment Balance at 31 December
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2014 AED million
95 (87) 6 19 (10)
174 (84) 15 – (10)
23
95
88 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
34 Accounts payable, accruals and other liabilities Trade payables Payable to joint venture partners Accrued interest expenses Accrual for operating costs Payable for capital expenditure Provisions recognised on onerous contract (note 33) Negative fair value of derivatives – interest rate swaps (note 39.1) Negative fair value of derivatives – cross currency interest rate swaps (note 39.1) Negative fair value of derivatives – forward exchange contracts (note 39.1) Negative fair value of derivatives – futures and forward contracts (note 39.1) Asset retirement obligations (note 31) Dividends payable to non-controlling interests Crude stock overlift Others
2015 AED million
2014 AED million
596 192 1,102 900 510 10 711 26 34 90 50 89 75 744
864 172 962 1,263 1,074 81 813 8 18 197 95 86 22 770
5,129
6,425
2015 AED million
2014 AED million
58 95
29 68
153
97
Terms and conditions of the above liabilities: •
Trade payables are non-interest bearing and are normally settled between 30 to 60 day terms.
•
Payables to joint venture partners are non-interest bearing and have an average term of 60 days.
•
Interest payable is normally settled throughout the financial year in accordance with the terms of the loans.
35 Amounts due to ADWEA and other related parties Amounts due to fellow subsidiaries – ADWEC & ADPC Others
36 Commitments and contingencies (i) Capital expenditure commitments
The authorised capital expenditure contracted for at 31 December 2015 but not provided for amounted to AED 1,903 million (2014: AED 3,603 million).
(ii) Operating lease commitments Group as a lessor:
Future capacity payments to be received by the Group under power and water purchase agreements (“PWPA”) based on projected plant availability as at 31 December are as follows: Within one year After one year but not more than five years More than five years
2015 AED million
2014 AED million
5,650 22,797 49,974
5,753 21,915 55,281
78,421
82,949
2015 AED million
2014 AED million
309 1,314 472
345 1,172 774
2,095
2,291
Group as a lessee:
Future minimum payments under non-cancellable operating leases as at 31 December are as follows: Within one year After one year but not more than five years More than five years
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 89
Joint Venture:
The Group’s joint venture has future minimum rentals payable under a non-cancellable operating lease as at 31 December 2015 amounting to AED 1,623 million (31 December 2014: AED 1,708 million), of which the Group’s share is AED 811 million (31 December 2014: AED 854 million).
Associates:
Sohar Aluminium Company LLC, one of the Group’s associates, has future minimum rentals payable under a non-cancellable operating lease as at 31 December 2015 amounting to AED 918 million (2014: AED 1,460 million), of which the Group’s share is AED 367 million (2014: AED 584 million).
(iii) Other commitments
a) As at the reporting date TAQA North has entered into contractual commitments, mainly pipeline usage and commitments, under which they are committed to spend AED 333 million prior to 31 December 2016 (31 December 2014: AED 442 million).
(iv) Contingencies
a) As a result of acquisitions made in prior periods, there are contingent liabilities arising from (a) tax assessments or proposed assessments and (b) certain other disputes, all of which are being contested. Pursuant to the Purchase and Sale Agreements between TAQA and the sellers, the sellers have provided TAQA and its subsidiaries with indemnity obligations with respect to such contingent liabilities for the periods prior to date of the respective acquisitions. b) TAQA GEN X LLC (“GENX”) is the owner by assignment of a Fuel Conversion Services, Capacity and Ancillary Services Purchase Agreement dated as of September 17, 1999 (the “Tolling Agreement”) by and between AES Red Oak, L.L.C. (“AES”) and Williams Energy Marketing & Trading Company, as well as other ancillary rights and agreements. GENX entered into an Energy Management Agreement (“EMA”) and an International Swap & Derivatives Master Agreement (“ISDA”) both dated 28 December 2010 with Morgan Stanley Capital Group Inc. to manage the energy products under the Tolling Agreement and ancillary rights and agreements. The Group guaranteed the obligations of GENX to Morgan Stanley Capital Group Inc. under the EMA and ISDA agreement. Payments under this guarantee shall not exceed US$100 million (AED 367 million) (31 December 2014: US$100 million) over the life of the EMA. No payments have been made to date (31 December 2014: nil). c) TAQA Bratani Ltd. has entered into decommissioning deeds for certain North Sea Assets acquired by it, pursuant to which it may be required to provide financial security to the former owners of the assets, either by means of (a) placing monies in trust or procuring the issuance of letters of credit in an amount equal to its share of the net decommissioning costs of the subject fields plus an allowance for uncertainty; or (b) procuring a guarantee from a holding company or affiliate which satisfies a minimum credit rating threshold; or (c) providing security in such other form as may be agreed by parties to the deeds. TAQA Bratani Ltd. initially provided TAQA’s (“parent company”) guarantee, but in the interim the parent company’s credit rating was reduced to below the minimum credit rating specified in the deeds. The Group has previously been in good faith discussions with the other parties to the deeds regarding whether and to what extent the Group will be required to replace or supplement some or all of the parent guarantee with other acceptable credit support but no outcomes were concluded, and the parent guarantee remains in place. However, since that time, the U.K. Government has introduced a legislative framework that is designed to allow security arrangements for North Sea decommissioning obligations to be made on a post-tax basis, to the extent parties to the decommissioning deeds adopt modified decommissioning deeds, and the Group would expect that if or when the discussions with counter-parties resume, it would most likely be on that basis. If the Group was required to replace the parent guarantee in its entirety, the amount it would have to procure through the issuance of letters of credit or other collateral, could be in excess of US$1.0 billion. In respect of certain other North Sea Assets acquired by members of the Group, the Group is able to meet the security arrangements for decommissioning obligations by way of provision of a parent company guarantee, so long as the Group continues in majority – ownership of the Government of Abu Dhabi. d) In addition to the above, there are certain guarantees and letters of credit arising in the ordinary course of business to which TAQA and certain other subsidiaries are parties. These do not create any material additional obligations other than what is disclosed in the consolidated statement of financial position as at period end.
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90 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
37 Related party transactions and balances
As stated in note 1 to the financial statements, the Group is a subsidiary of ADWEA, which is wholly owned by the Government of Abu Dhabi and as such the Group is a government related entity as defined by IAS 24 Amended. The Group is therefore exempt from disclosing certain information relating to transactions and balances with entities related to the same government.
Collectively but not individually significant transactions
All domestic power and water production is acquired by ADWEC (a fellow subsidiary of the Group) under long term PWPAs. Natural gas fuel is supplied by ADWEC to the domestic subsidiaries at no cost in accordance with the terms of the PWPAs. The following table provides a summary of significant related party transactions included in the consolidated income statement during the year: Fellow subsidiary (Abu Dhabi Water and Electricity Company): Sale of electricity and water Fuel revenue (note 4.3) Other revenue Others: Interest income on loan to associate (note 9.2) Interest expense on loan from ADWEA (note 9.1) Notional interest expense on loan from ADWEA and ADPC (note 9.1) Insurance claim from ADNIC Government entities Licensing fees Fuel expense Finance cost Insurance fees
2015 AED million
2014 AED million
6,979 46 4
6,893 28 62
4 – (2) –
4 (21) (2) 60
14 85 51 31
14 13 53 30
2015 AED million
2014 AED million
702
398
1,316 2 367 –
1,308 475 308 90
42 238 150
40 245 154
58 95 91
29 68 92
325
342
Balances with related parties and governmental agencies
Balances with related parties that are disclosed in the consolidated statement of financial position as follows: Non-current assets: Advance and loans to associates (note 18) Accounts receivable Amounts due from fellow subsidiaries (note 21) Loan to an associate (note 18) Bank balance with government owned bank Short-term deposit held with government owned bank Non-current liabilities: Loan from a fellow subsidiary – ADPC (note 32) Advances from a fellow subsidiary (note 32) Bank loans with government owned bank Current liabilities: Amounts due to fellow subsidiaries – ADWEC & ADPC (note 35) Amounts due to ADWEA and other related parties (note 35) Overdraft with government owned bank At 31 December, the Company had available undrawn bank facilities with government owned entities
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made on terms approved by the management. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2015, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2014: nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Other transactions Arrangement to purchase assets
As detailed in note 15, an agreement has been executed with a related party whereby, at the request of TAQA, the related party agrees to purchase all the oil and gas assets in the North America and Atrush segment and majority of the assets in the Europe segment at an agreed price.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 91
Compensation of key management personnel
For certain subsidiaries, key management personnel are provided by operation and maintenance companies under contractual agreements with the subsidiaries. The remuneration of senior key management personnel of the Group during the year was as follows: Short-term benefits Post-employment benefits
2015 AED million
2014 AED million
23 3
28 2
26
30
38 Subsidiaries
The consolidated financial statements include the financial statements of TAQA and all its subsidiaries. The Group’s major operating subsidiaries are listed below: Percentage holding Country of incorporation
Domestic Subsidiaries Emirates CMS Power Company PJSC (ECPC) Gulf Total Tractebel Power Company PJSC (GTTPC) Arabian Power Company PJSC (APC) Shuweihat CMS International Power Company PJSC (SCIPCO) Taweelah Asia Power Company PJSC (TAPCO) Emirates Semb Corp Water and Power Company PJSC (ESWPC) Fujairah Asia Power Company PJSC (FAPCO) Ruwais Power Company PJSC (RPC) Taweelah Shared Facilities Company LLC (TSFC)* Shuweihat Shared Facilities Company LLC (SSFC)*
UAE UAE UAE UAE UAE UAE UAE UAE UAE UAE
31 December 2015
31 December 2014
54% 54% 54% 54% 54% 54% 54% 54% 48% 38%
54% 54% 54% 54% 54% 54% 54% 54% 48% 38%
The consolidated financial statements include the financial statements of TAQA and all its subsidiaries. The Group’s major operating subsidiaries are listed below: Foreign Subsidiaries TAQA GEN XLP TAQA Bratani Limited TAQA Energy B.V. TAQA North Ltd. TAQA Atrush B.V. TAQA Morocco (formerly Jorf Lasfar Energy Company, S.A) Jorf Lasfar Energy Company 5&6 S.A. Takoradi International Company TAQA Neyveli Power Company Private Ltd. Himachal Sorang Power Limited
Delaware, USA UK Netherlands Canada Netherlands Morocco Morocco Cayman Islands India India
85% 100% 100% 100% 100% 85.79% 90.62% 90% 100% 100%
85% 100% 100% 100% 100% 85.79% 90.62% 90% 100% 100%
* These entities are treated as subsidiaries even though TAQA’s holding in these entities are below 50% due to the Group’s control through the direct holding in these subsidiaries by two of the Group’s subsidiaries being above 50%, thus enabling TAQA to have the ability to exercise control in the Board.
Further details on the main subsidiaries are as follows:
Domestic subsidiaries Emirates CMS Power Company PJSC (ECPC)
Emirates CMS Power Company PJSC (”ECPC”) is a private joint stock company registered and incorporated in the United Arab Emirates (“UAE”) and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. ECPC is 60% owned by Emirates Power Company PJSC, a 90% owned subsidiary of Abu Dhabi National Energy Company PJSC (“TAQA”) and 40% owned by CMS Generation Taweelah Limited. ECPC has a management operation and maintenance agreement with Taweelah A2 Operating Company whereby the latter has undertaken to manage the day-to-day operations and maintain ECPC’s plant. The ECPC has entered into a power and water purchase agreement (“PWPA”) with Abu Dhabi Water and Electricity Company (“ADWEC”), a related party (a wholly-owned subsidiary of ADWEA). Under the PWPA, ECPC undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until October 2021 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by ECPC at the end of the PWPA term.
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92 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
38 Subsidiaries Continued Gulf Total Tractebel Power Company PJSC (GTTPC)
Gulf Total Tractebel Power Company PJSC (“GTTPC”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. GTTPC is 60% owned by Gulf Power Company, a 90% owned subsidiary of TAQA and 40% owned by Total Tractebel Emirates Power Company. GTTPC has a management operation and maintenance agreement with Total Tractebel Emirates O & M Company, whereby the latter has undertaken to manage the day–to–day operations and maintain the GTTPC plant. Further, GTTPC has entered into a power and water purchase agreement with ADWEC. Under the agreement, GTTPC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until May 2023 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by GTTPC at the end of the PWPA term. Following completion of the A10 extension project, the PWPA was amended resulting in an extension to the term by an additional six years until April 2029. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant and its A10 extension will be retained by the Company at the end of the PWPA term.
Arabian Power Company PJSC (APC)
Arabian Power Company PJSC (“APC”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. APC is 60% owned by Arabian United Power Company, a 90% owned subsidiary of TAQA and 40% owned by ITM Investment Company Limited. APC has a management operation and maintenance agreement with ITM O & M Company Limited, whereby the latter has undertaken to manage the day–to–day operations and maintain APC’s plant. Further, APC has entered into a PWPA with ADWEC. Under the PWPA, APC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until July 2027 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by APC at the end of the PWPA term.
Shuweihat CMS International Power Company PJSC (SCIPCO)
Shuweihat CMS International Power Company PJSC (“SCIPCO”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. SCIPCO is 60% owned by Al Shuweihat Power Company, a 90% subsidiary of TAQA and 40% owned by Shuweihat Limited. SCIPCO has a management operation and maintenance agreement with Shuweihat O & M Limited Partnership, whereby the latter has undertaken to manage the day–to–day operations and maintain SCIPCO’s plant. Further, SCIPCO has entered into a PWPA with ADWEC. Under the agreement, SCIPCO undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until June 2025 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by SCIPCO at the end of the PWPA term.
Taweelah Asia Power Company PJSC (TAPCO)
Taweelah Asia Power Company PJSC (“TAPCO”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. TAPCO is 60% owned by Taweelah United Power Company, a 90% subsidiary of TAQA and 40% owned by Asia Gulf Power Holding Company Limited. TAPCO has a management operation and maintenance agreement with Asia Gulf Power Service Company Limited, whereby the latter has undertaken to manage the day–to–day operations and maintain TAPCO’s plant. Further, TAPCO has entered into a PWPA with ADWEC. Under the PWPA, TAPCO undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until March 2028 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by TAPCO at the end of the PWPA term.
Emirates SembCorp Water and Power Company PJSC (ESWPC)
Emirates SembCorp Water & Power Company PJSC (“ESWPC”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water. ESWPC is 60% owned by Union Power Holding Company, a 90% subsidiary of TAQA and 40% owned by SembCorp Gulf Holding Company Limited. ESWPC has a management operation and maintenance agreement with SembCorp Gulf O & M Company Limited, whereby the latter has undertaken to manage the day–to–day operations and maintain ESWPC’s plant. Further, ESWPC has entered into a PWPA with ADWEC. Under the PWPA, ESWPC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until January 2029 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by ESWPC at the end of the PWPA term.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 93
Fujairah Asia Power Company PJSC (FAPCO)
Fujairah Asia Power Company PJSC (“FAPCO”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water for supply into the UAE grid. FAPCO is 60% owned by Fujairah Water and Electricity Company, a 90% subsidiary of TAQA and 40% owned by Fujairah F2 CV. During the year, the principal activities of the Company were to develop, finance, design and construct a power generation and desalination plant (the “Plant”). FAPCO has a management operation and maintenance agreement with Fujairah F2 O & M Company Ltd, whereby the latter has undertaken to manage the day–to–day operations and maintain the Company’s plant until 2030. FAPCO has entered into a power and water purchase agreement (“PWPA”) with Abu Dhabi Water and Electricity Company (“ADWEC”), a related party and a wholly–owned subsidiary of ADWEA. Under the PWPA, the Company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until July 2030 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by FAPCO at the end of the PWPA term.
Ruwais Power Company PJSC (RPC)
Ruwais Power Company PJSC (“RPC”) is a private joint stock company registered and incorporated in the UAE and is engaged in the generation of electricity and the production of desalinated water. RPC is 60% owned by Ruwais Power Holding Company, a 90% subsidiary of TAQA and 40% owned by Shuweihat 2 Holding Company Limited. During the year, the principal activities of RPC were to develop, finance, design and construct a power generation and desalination plant (the “Plant”). In 2008, RPC entered into a turnkey agreement with third party contractors for the engineering, procurement and construction of the Plant in Ruwais for an amount of US$2.2 billion. RPC has a management operation and maintenance agreement with S2 Operation and Maintenance Company W.L.L, whereby the latter has undertaken to manage the day–to–day operations and maintain the Company’s plant. In July 2008, RPC has entered into a power and water purchase agreement (“PWPA”) with Abu Dhabi Water and Electricity Company (“ADWEC”), a related party, (a wholly–owned subsidiary of ADWEA). Under the PWPA, RPC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until August 2031 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by RPC at the end of the PWPA term.
Foreign operating subsidiaries TAQA GEN X LP
TAQA GEN X limited partnership was incorporated during 2008 and is a 85% subsidiary of TAQA. During the fourth quarter of 2008, TAQA GEN X acquired 100% holding in BE Red Oak holding LLC, a company which holds a contractual interest in a tolling agreement for a combined cycle generation facility with a design electric generation capacity of approximately 764 MW located in Sayreville, New Jersey which facility is owned by AES Red Oak. The Tolling Agreement is defined as certain Fuel Conversion Services, Capacity and Ancillary Services Purchase Agreement dated 17 September 1999 between BE Red Oak and AES Red Oak, as amended. The acquisition was completed on 31 December 2008.
TAQA Bratani Limited and TAQA Bratani LNS Limited
TAQA Bratani Limited and TAQA Bratani LNS Limited were incorporated in 2006 to oversee TAQA’s investments in the UK. In 2006, TAQA Bratani Limited and TAQA Bratani LNS Limited acquired the working interests of Talisman Energy Inc. in the Brae area of the UKCS (UK Continental Shelf). The interests in the Brae asset area includes part ownership of platforms, pipelines and offshore facilities, together with a large number of contracts which were entered into as part of the acquisition (mainly processing, tariffing and supply contracts). Control was transferred to the subsidiary on 31 December 2007. On 1 December 2008, TAQA Bratani Limited acquired a business from the UK subsidiaries of Shell UK Limited and Esso Exploration and Production UK Limited comprising a package of upstream assets in the Northern North Sea together with related infrastructure, personnel and processes. On 1 June 2013, TAQA Bratani completed the acquisition of certain UK North Sea oil and gas assets from a subsidiary of BP plc under a Sale and Purchase Agreement. This comprised of a package of assets in the Central North Sea in addition to additional stake in the Brae assets and infrastructures.
TAQA Energy B.V.
In January 2007, TAQA, through its wholly owned subsidiary TAQA Europa B.V., acquired BP Nederland Energie B.V. (subsequently renamed TAQA Energy B.V.) from Amoco Netherlands Petroleum Company (“Amoco”). TAQA Energy is involved in the exploration, production and transportation of oil and natural gas in the Netherlands. TAQA Energy is also involved in the peak gas business through the Alkmaar Piek Gas Installatie (“PGI”). In October 2009, TAQA Energy completed the acquisition of all issued and outstanding interest in DSM Energie Holding B.V. (“DSM Energy”) from the Netherlands based Royal DSM N.V. TAQA Energy took control of the company which includes new and existing licenses in the North Sea.
TAQA NORTH Ltd.
TAQA NORTH, formerly Northrock Resources Limited (“Northrock”) is a Calgary–based oil and gas exploration company with operations in Alberta, British Columbia, Saskatchewan, Ontario and the Northwest Territories in Canada and in Montana, North Dakota and Wyoming in the United States. Northrock was acquired by TAQA in August 2007 from Pogo Producing Company and amalgamated with TAQA NORTH. TAQA NORTH subsequently entered into agreements to acquire Pioneer Canada Ltd. (“Pioneer”), a subsidiary of US–based Pioneer Natural Resources Company, and Calgary–based PrimeWest Energy Trust (“PrimeWest”). The former transaction closed on 27 November 2007 and the latter on 16 January 2008.
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94 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
38 Subsidiaries Continued TAQA Morocco (formerly Jorf Lasfar Energy Company, SCA) and Jorf Lasfar Energy Company 5&6 S.A. (JLEC 5&6)
TAQA Morocco was incorporated in Morocco as a société en commandite par actions (which is similar to a limited partnership) in January 1997. TAQA Morocco was established to operate two existing power generation units at Jorf Lasfar, each having 330 MW gross capacity (“units 1 and 2”), and to construct and operate two units of 348 MW gross capacity each (“units 3 and 4”) at the same site. Through the power purchase agreement (“PPA”), TAQA Morocco sells net electricity production generated by these four units to Morocco’s state-owned “Office National de Electricite” (“ONE”) for a period of thirty years from financial close of the Jorf Lasfar project, which occurred in September 1997. As of May 2007, the operating company, TAQA Morocco, became a wholly owned subsidiary of TAQA. During December 2013, TAQA Morocco issued new shares through a private placement by Moroccan institutional investors and an initial public offering on the Casablanca Stock Exchange. TAQA retained 85.79% of the ownership interest in TAQA Morocco. In December of 2010, TAQA Morocco formed a subsidiary called Jorf Lasfar Energy Company 5&6 S.A., which was established to construct, own, and operate two units of approximately 350 MW gross capacity each (“units 5 and 6”) adjacent to the existing TAQA Morocco project. TAQA effectively owns 90.62% of Jorf Lasfar Energy Company 5&6 S.A, through TAQA Morocco and other affiliated companies.
Takoradi International Company (TICO)
TICO is the Ghana Branch of a Cayman Islands limited liability company. The company is authorised to develop, design, finance, construct, commission, complete, own, operate, and maintain a power generation plant to be located adjacent to the existing power station in Aboadze, near Takoradi, within the TTPP complex. As of May 2007, TAQA Generation, a wholly owned subsidiary of TAQA acquired a 90% interest in TICO.
TAQA Neyveli Power Company Private Ltd. (TNPCPL)
TNPCPL was incorporated on 17 November 1993, principally for the purposes of owning and operating the 250 MW lignite thermal power plant facility located in Neyveli, Tamil Nadu, Republic of India. TNPCPL sells the entire capacity of the power plant to TANGEDCO, the local state government owned utility, under a 30-year power purchase agreement. The plant was developed and constructed by SCECPL and commenced commercial operations in December 2002. The plant is operated by CMS (India) Operation and Maintenance Company Private Limited under a 30-year operation and maintenance agreement. As of May 2007, the operating company, TNPCPL, became an indirect wholly owned subsidiary of TAQA.
TAQA Atrush B.V
TAQA Atrush B.V. was incorporated in 2012 to acquire a 53.2% interest in the Atrush oil block in the Kurdistan region of Iraq from General Exploration Partners Inc, an affiliate of Aspect Energy International LLC.. The acquisition completed in December 2012 and TAQA Atrush B.V. also became the operator. Currently, the field development plan for phase one of the project has been approved and the construction of 30,000 barrels per day production facility is in progress. The current plan is to do a multi-phase development for the whole block.
Himachal Sorang Power Limited (HSPL)
TAQA acquired HSPL in December 2012, the developer and operator of a 100 megawatt (MW) hydroelectric plant in the northern Indian state of Himachal Pradesh. Construction of the Sorang hydroelectric project is still in progress and the plant is expected to begin operations in 2014. It will be powered by the Sorang Khad, a river originating in the Himalayas, and will supply electricity to the northern states of India, a region currently facing power shortages. It uses run-of-the-river technology to convert the river’s natural water flow to electricity, eliminating the need for a reservoir.
Other subsidiaries O&M Companies
As part of the acquisition of Jorf Lasfar, SCECPL and TICO as described above, TAQA also acquired the related operating and maintenance companies.
Taweelah Shared Facilities Company LLC (TSFC)
TAQA acquired a controlling interest in Taweelah Shared Facilities Company LLC through its subsidiaries Taweelah Asia Power Company PJSC, Emirates CMS Power Company PJSC and Gulf Total Tractebel Power Company PJSC.TSFC is a closely held private company incorporated in United Arab Emirates which maintains shared utility facilities in Al Taweelah complex for the supply and discharge of sea water and provides other related services to TAQA subsidiaries.
Shuweihat Shared Facilities Company LLC (SSFC)
TAQA acquired a controlling interest in Shuweihat Shared Facilities Company LLC through its subsidiaries Ruwais Power Company PJSC and Shuweihat CMS International Power Company PJSC.SSFC is a closely held private company incorporated in United Arab Emirates which maintains shared utility facilities in Shuweihat complex for the supply and discharge of sea water and provides other related services to TAQA subsidiaries.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 95
39 Financial instruments 39.1 Hedging activities
Notional amount 2015 AED million
Cash flow hedges Assets Interest rate swaps (note 19) Forward foreign exchange contracts (notes 19 and 21)
Current 2015 AED million
– 226
Liabilities Cross currency interest rate swap (notes 33 and 34) Interest rate swaps (notes 33 and 34) Forward foreign exchange contracts (notes 33 and 34)
1,179 30,159 748
Fair value hedges Liabilities Futures and forward contracts (note 34)
Non-current 2015 AED million
Current 2014 AED million
Non-current AED million
– 8
– 19
– 5
3 31
8
19
5
34
26 711 34
451 3,704 64
8 813 18
333 4,300 57
771
4,219
839
4,690
90
–
197
–
(i) Interest Rate Swaps – Cash flow hedge
In order to reduce their exposure to interest rate fluctuations on variable interest bearing loans and borrowings (note 29) and Islamic loans (note 30) certain subsidiaries have entered into interest rate swap arrangements with counter-party banks for a notional amount that matches the outstanding interest bearing loans and borrowings and Islamic loans. The derivative instruments were designated as cash flow hedges. The following table summarises certain information relating to the derivatives for each subsidiary as of 31 December 2015 and 31 December 2014: Notional amount Subsidiary
ECPC GTTPC SCIPCO APC TAPCO ESWPC FAPCO RPC JLEC 5&6 TICO
Fix leg on instrument
Derivative assets
Derivative liabilities
Fix leg on instrument
2015 AED million
2014 AED million
2015 AED million
2014 AED million
2014 AED million
2015
2014
618 2,932 2,307 2,069 4,474 3,638 6,241 4,985 2,087 808
729 3,066 2,594 2,258 4,235 3,786 5,442 5,127 2,553 932
47 212 146 253 514 526 1,391 1,210 108 8
66 259 255 307 639 631 1,511 1,293 152 –
– – – – – – – – – 3
2.78% to 4.76% 2.89% to 5.20% 5.04% to 6.35% 4.60% to 4.89% 0.81% to 5.28% 3.62% to 5.85% 0.53% to 5.72% 4.62% to 5.40% 1.92% to 2.12% 2.20% to 2.31%
6.31% to 6.33% 2.89% to 5.20 % 5.04% to 6.35% 4.60% to 4.89% 5.28% 3.62% to 5.85% 5.65% to 5.72% 4.62% to 5.4% 1.92% to 2.12% 2.20% to 2.31%
30,159
30,722
4,415
5,113
3
(ii) Cross currency Swaps – Cash flow hedges
During 2012, the Group entered into a cross currency rate swap agreement to hedge the Group’s exposure on the Malaysian Ringgit Sukuk issued during the year (note 30 (iv)). Under the terms of the cross currency rate swap, TAQA is required to pay a fixed rate of 5.3% per annum on an initial exchange amount of US$ 215 million and receive a fixed rate of 4.65% per annum on an amount of MYR 650 million. The derivative instrument had a negative fair value of AED 362 million at 31 December 2015 (2014: negative fair value AED 229 million), which was included within other liabilities in the consolidated financial position. In April 2010, the Group entered into interest rate swap agreements with a group of banks to hedge the changes in fair value of US$ 1 billion Global Medium Term Notes (AED 3.7 billion) attributable to movements in the LIBOR rate component. Under the swap agreement, the Group receives a fixed rate of interest of 6.6% and pays a variable rate equal to LIBOR plus margin on a notional amount. The swap has been designated as fair value hedge. During April 2014, the Group entered into a cross currency interest rate swap agreement with Mitsubishi UFJ Securities International plc to hedge the Group’s exposure on the Samurai term loan facility issued during the period (note 29 (v)). Under the terms of the cross currency interest rate swap, TAQA is required to pay a variable rate equal to LIBOR plus margin on an initial exchange amount of US$200 million and receive a variable rate equal to JPY LIBOR plus margin on an amount of JPY 20 billion. The swap has been designated as a cash flow hedge and the effective portion of gain and losses is recorded in equity. The derivative instrument had a negative fair value of AED 115 million as at 31 December 2015 (2014: negative fair value of AED 112 million), which is included within other liabilities in the consolidated statement of financial position.
Annual Report 2015
taqaglobal.com
96 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
39.1 Hedging activities Continued (iii) Forward Foreign Exchange Contracts Shuweihat CMS International Power Company PJSC (SCIPCO)
SCIPCO uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The outstanding forward foreign exchange commitment at 31 December 2015 amounted to AED 366 million (2014: AED 184 million). The derivative instruments which are entered into for the purpose of cash flow hedge had a negative fair value of AED 22 million at 31 December 2015 (2014: AED 10 million). An amount of AED 10 million representing the non-current derivative liability (2014: AED 6 million), has been included within other liabilities (note 33) and the current portion amounting to AED 12 million is included within accruals and other liabilities (note 34) (2014: AED 4 million).
Fujairah Asia Power Company PJSC (FAPCO)
FAPCO uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The notional amount outstanding at 31 December 2015 was AED 226 million (2014: AED 318 million). The derivative instrument had a positive fair value of AED 27 million (2014: AED 36 million) as of 31 December 2015. An amount of AED 19 million (2014: AED 31 million), representing the non-current portion of the derivative asset has been included within other assets (note 19) and the current portion amounting to AED 8 million (2014: AED 5 million) is included within accounts receivable and prepayments (note 21).
Ruwais Power Company PJSC (RPC)
RPC uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The notional amount outstanding at 31 December 2015 was AED 265 million (2014: AED 330 million). The derivative instrument had a negative fair value of AED 74 million (2014: AED 65 million) as of 31 December 2015. An amount of AED 53 million (2014: AED 51 million), representing the non-current portion of the derivative liability has been included within other liabilities (note 33) and the current portion amounting to AED 21 million (2014: AED 14 million) is included within accounts payable, accruals and other liabilities (note 34).
Emirates CMS Power Company PJSC (ECPC)
During the year ended 31 December 2015, ECPC entered into forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuation relating to schedule maintenance cost payments to an overseas suppliers. The notional amount outstanding at 31 December 2015 was AED 117 million. The derivative instrument had a negative fair value of AED 2 million as of 31 December 2015. An amount of AED 1 million, representing the non-current portion of the derivative liability has been included with other liabilities (note 33) and the current portion amounting to AED 1 million is included within accounts payable, accruals and other liabilities (note 34).
39.2 Hedging activities – Fair Value hedges (iv) Other
TAQA GEN X LLC, a subsidiary of TAQA utilises derivative instruments, which include futures and forwards as a hedging strategy to manage the exposure in the fair value of the underlying Tolling Agreement. Forward and future transactions are contracts for delayed delivery of commodity instruments in which the counterpart agrees to make or take delivery at a specified price. As at 31 December 2015, the net fair value of exchange-traded derivative instruments was AED 90 million shown under accruals and other liabilities) (2014: AED 197 million). The net realised and unrealised gains recognised in the consolidated income statement relating to such instruments are AED 94 million for the year ended 31 December 2015 (2014: losses of AED 558 million). As at 1 January 2014, following the early adoption of IFRS 9, TAQA GEN X LLC designated a new hedge relationship. The Tolling Agreement recognised as an intangible at acquisition was adjusted for the change in fair value for movements in the designated hedge risk in a fair value hedge relationship. The changes in the fair value of the Tolling Agreement attributable to the hedged risk (note 14), for the year ended 31 December 2015 was a loss of AED 240 million (2014: gain of AED 249 million) which was recognised in the consolidated income statement.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 97
39.3 Fair values
The fair values of the financial instruments of the Group are not materially different from their carrying values at the reporting date except for certain fixed interest borrowings and operating financial assets. Set out below is a comparison of the carrying amounts and fair values of fixed interest borrowings and operating financial assets: Carrying amount
Operating financial assets Interest bearing loans and borrowings (note i)
Fair value
2015 AED million
2014 AED million
2015 AED million
2014 AED million
10,014 31,657
10,375 31,711
10,110 33,472
10,427 35,142
(i) Interest bearing loans and borrowings relates to the Abu Dhabi National Energy Company Global Medium Term notes, Abu Dhabi National Energy Company bonds and the Ruwais Power Company bond. The fair value of operating financial assets is estimated by discounting the expected future cash flows using appropriate interest rates for assets with similar terms, credit risk and remaining maturities. The fair value of the interest bearing loans and borrowings is based on price quotations at the reporting date.
39.4 Fair value hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: O ther techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. 2015 Financial assets measured at fair value Forward foreign exchange contracts Financial assets disclosed at fair value Operating financial assets Financial liabilities measured at fair value Interest rate swaps – hedged Forward foreign exchange contracts Cross currency interest rate swaps Futures and forward contracts Financial liabilities disclosed at fair value Interest bearing loans and borrowings
31 December AED million
Level 1 AED million
Level 2 AED million
Level 3 AED million
27
–
27
–
10,110
–
–
10,110
4,415 98 477 90
– – – –
4,415 98 477 90
– – – –
33,472
33,472
–
–
2 36
– –
– 36
2 –
10,427
–
–
10,427
5,113 75 341 197
– – – –
5,113 75 341 197
– – – –
35,142
35,142
–
–
2014 Financial assets measured at fair value Investment carried at FVOCI Forward foreign exchange contracts Financial assets disclosed at fair value Operating financial assets Financial liabilities measured at fair value Interest rate swaps – hedged Forward foreign exchange contracts Cross currency interest rate swaps Futures and forward contracts Financial liabilities disclosed at fair value Interest bearing loans and borrowings
There have been no transfers between categories within the fair value hierarchy during the year. The fair values of the financial assets and financial liabilities measured at fair value included in the Level 2 category above, have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis. The models incorporate various inputs including foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying commodities. Investment carried at FVOCI are categorised within Level 3 of the fair value hierarchy. During the year ended 31 December 2015 and 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.
Annual Report 2015
taqaglobal.com
98 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
40 Financial risk management objectives and policies Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations and short-term deposits with floating interest rates. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. To manage this, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 31 December 2015, after taking into account the effect of interest rate swaps, approximately 84% of the Group’s borrowings are at a fixed rate of interest (2014: 84%).
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings and deposits, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before tax and equity is affected as follows: Effect on profit before tax AED million
2015 +15 increase in basis point –15 decrease in basis point 2014 +15 increase in basis point –15 decrease in basis point
Effect on equity AED million
(17) 17
210 (215)
(18) 18
222 (223)
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to risk of changes in foreign exchange rates relates primarily to the operating activities (when revenue or expense are denominated in a difference currency from the functional currencies of the subsidiaries), carrying values of assets and liabilities in Canadian Dollars, Euros, Moroccan Dirhams and Indian rupees and the Group’s net investment in foreign subsidiaries. The Group hedges part of its net exposure to fluctuations on the translation into AED of its foreign operations by holding certain borrowings in foreign currencies, primarily in Euros. The following table demonstrates the sensitivity to a reasonably possible change in the Euro, GBP, CAD, Moroccan Dirham and Indian rupees exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (due to changes in foreign currency translation reserve). The Group’s exposure to foreign currency changes for all other currencies is not material. Increase/ decrease in Euro, GBP, Moroccan Dirham, Indian rupees CHF and CAD rates
2015 2014
+5% –5% +5% –5%
Effect on profit before tax AED million
(47) 47 (43) 43
Effect on equity AED million
162 (162) (1,022) 1,018
The movement in equity arises from changes in Euro borrowings in the hedge of net investments in the Netherlands. These movements will partly offset the translation of the Netherland’s operations net assets into AED.
Commodity price risk
TAQA GEN X LLC, a subsidiary of TAQA is affected by the volatility of certain commodities. Its operating activities require the ongoing purchase of gas and sale of electricity. Due to volatility in the prices of these commodities, the subsidiary’s management has developed and enacted a risk management strategy regarding commodity price risk and its mitigation. The Group mitigates the commodity price risks using forward commodity contracts.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 99
The following table shows the effect of price changes on the fair value of the forward commodity contracts on the profit before tax: Change in year end price
2015
+10% –10% +10% –10%
2014
Effect on profit before tax AED million
(71) 71 (87) 87
The Board of Directors of TAQA approved a commodity hedging policy in the summer of 2010, which authorised management to enter into financial derivative contracts to manage the Group’s exposure to commodity price volatility. TAQA North, a subsidiary of TAQA, developed and enacted a risk management strategy regarding commodity price risk and implemented a hedging programme using zero cost collar and swap contracts to mitigate the risk of crude oil and natural gas price volatility. During the periods ended 31 December 2014, TAQA North had hedging programmes in place throughout the year, however the derivative contracts were fully expired at year end and therefore no derivatives were outstanding. The Group also enters into physical commodity contracts in the normal course of business. These contracts are not derivatives and are treated as executory contracts, which are recognised and measured at cost when the transactions occur.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and other financial instruments.
Trade and other receivables
Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit limits are established for all customers based on internal rating criteria. Credit quality of the customer is assessed based on an extensive credit rating scorecard. Outstanding customer receivables are regularly monitored and any shipments to major customers are generally covered by letters of credit or other form of credit insurance. The Group’s largest 2 customers account for approximately 72% of outstanding trade receivables and amounts due from related parties at 31 December 2015 (2014: 79%). The requirement for impairment is analysed at each reporting date on an individual basis for major costumers. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actually incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 21. The Group does not hold collateral as security.
Other financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Group’s treasury in accordance with the Group’s policy. Investments of surplus funds are made only with reputable banks and financial institutions. The Group’s maximum exposure to credit risk for the components of the statement of financial position at 31 December 2015 and 2014 is the carrying amounts as illustrated in note 21 except for derivative financial instruments. The Group’s maximum exposure for derivative instruments is disclosed in note 39 and in the liquidity table below, respectively.
Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and other borrowings. The Group’s policy is that the amount of borrowings that mature in the next 12 month period should not cause the current ratio to be less than 90%. During 2015, 3% of the Group’s debt will mature in less than one year (2014: 3%) based on the carrying value of borrowings reflected in the consolidated financial statements.
Annual Report 2015
taqaglobal.com
100 Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 CONTINUED
40 Financial risk management objectives and policies Continued The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2015 and 2014 based on contractual undiscounted payments: At 31 December 2015 Trade and other payables Bank overdrafts Interest bearing loans, borrowings Interest bearing loans, borrowings and Islamic loans Advances and loans from related parties Loans from non-controlling interest shareholders in subsidiaries Amounts due to ADWEA and other related parties Derivative financial instruments Total
< 1 year AED million
1-5 years AED million
> 5 years AED million
Total AED million
3,309 131
– –
– –
3,309 131
6,052 – 9 153 1,468
22,628 210 46 – 4,950
46,411 70 570 – 2,909
75,091 280 625 153 9,327
11,122
27,834
49,960
88,916
At 31 December 2014 Trade and other payables Bank overdrafts Interest bearing loans, borrowings and Islamic loans Advances and loans from related parties Loans from non-controlling interest shareholders in subsidiaries Amounts due to ADWEA and other related parties Derivative financial instruments
3,617 122 2,249 – 6 97 1,468
– – 26,628 215 31 – 5,228
– – 48,463 70 466 – 3,283
3,617 122 77,340 285 503 97 9,979
Total
7,559
32,102
52,282
91,943
The disclosed financial derivative instruments in the above table are the gross undiscounted cash flows. However, those amounts may be settled gross or net. The following table shows the corresponding reconciliation of those amounts to their carrying amounts. < 1 year AED million
At 31 December 2015 Inflows Outflows
1 – 5 years AED million
> 5 years AED million
Total AED million
672 (1,468)
2,151 (4,950)
1,284 (2,909)
4,107 (9,327)
Net
(796)
(2,799)
(1,625)
(5,220)
Discounted at the applicable interbank rates
(785)
(2,598)
(1,331)
(4,714)
661 (1,468)
2,366 (5,228)
1,516 (3,283)
4,543 (9,979)
Net
(807)
(2,862)
(1,767)
(5,436)
Discounted at the applicable interbank rates
(743)
(2,585)
(1,379)
(4,707)
At 31 December 2014 Inflows Outflows
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. There are no regulatory imposed requirements on the level of share capital which the Group has not met. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December 2015 and 31 December 2014. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group’s policy is to keep the gearing ratio within a range to meet the business needs of the Group. The Group includes within net debt, interest bearing loans and borrowings, Islamic loans, less cash and cash equivalents. Capital includes total equity including non-controlling interests less total cumulative changes in fair value of derivatives.
Abu Dhabi National Energy Company PJSC (TAQA)
Financial Statements 101
2015 AED million
2014 AED million
Interest bearing loans and borrowings Islamic loans Less cash and cash equivalents
72,506 1,795 (3,437)
74,439 2,066 (3,530)
Net debt
70,864
72,975
7,331 4,624
8,784 5,293
Equity Less cumulative changes in fair value of derivatives Total capital
11,955
14,077
Capital and net debt
82,819
87,052
86%
84%
Gearing ratio
41 Events after the reporting date a) On 16 March 2016 the UK Government announced a number of changes in the UK oil and gas taxation regime which are designed to reduce the burden of taxation and incentivise further investment. The principal changes impacting TAQA’s UK business comprised of effective abolishment of Petroleum Revenue Tax be reducing this from 35% to 0%, a reduction in the rate of Supplementary Charge to Corporation Tax from 20% to 10%. TAQA expects to recognise the financial statement impacts of these changes in Q1 2016. The changes to rate of Supplementary Charge to Corporation Tax is yet to be subsequently enacted into law but the changes to the rate of Petroleum Revenue Tax have been subsequently substantially enacted. As the changes have only just been announced, it is too early to quantify the impact of the changes on balance sheet deferred tax accounts.
42 Comparative information
Certain comparative numbers were reclassified to conform to the current year presentation. Such reclassifications as discussed below have no effect on the previously reported profit or the equity of the Group.
Consolidated income statement:
–– Revenue of AED 1,063 million has been reclassified from fuel revenue to revenue from electricity and water.
Annual Report 2015
taqaglobal.com
