Jordan Petroleum Refinery Company (A Public Shareholding Limited Company) Amman -The Hashemite Kingdom of Jordan
55th Annual Report For the Year Ended 31st December, 2010
2010
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His Majesty King Abdullah II Bin Al Hussein
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His Royal Highness The Crown Prince Prince Hussein bin Abdullah II
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Jordan Petroleum Refinery Company
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55th Annual Report
Contents Company’s Vision & Mission.................................................................................... 9
Board of Directors.................................................................................................... 11 Chairman’s Statement.............................................................................................. 13 Historical Brief........................................................................................................ 16
Fourth Expansion Project.........................................................................................18
Analysis of Financial Position and Outcome of Activities........................................19 Achievements and Activities of the Company........................................................... 23
The Projects.............................................................................................................. 47 Geographical Locations of the Company................................................................. 52 The Company’s Organizational Chart………………………………………………..… 53 Other Explanatory Statements..................................................................................54
The Board’s Recommendations................................................................................ 55
Financial Statements for the Year Ending 31/12/2010 and the Auditor’s Report.....58
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Jordan Petroleum Refinery Company
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55th Annual Report
, Company s vision , Company s mission
To be a Vibrant, Integrated & Diversified Regional Energy Company admired for its Performance, Competitiveness & Quality of Products & Services.
• Meeting the demand for energy in an economically, environmentally, socially responsible and safe manner. • Focusing on the constant innovation, adopting advanced technology to enhance productivity and maximizing profitability. • Expanding the Company operations and diversifying our range of activities through different partnerships with reputable names to broaden Company marketing network regionally. • Developing the scientific and technical capabilities of the Company personnel, providing them with specialized training as well as incentives and rewards in order to realize optimum results and achievements. • Building value into the investments of the Company shareholders.
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Jordan Petroleum Refinery Company
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55th Annual Report
Board of Directors
Chairman
Mr. Walid Methcal Asfour Deputy Chairman
Eng.Omar Ashraf Al-Kurdi (Representative of The Social Security Corporation) Members
Mr.Wasef Yaqoub Azar Eng. Abed AlRahim Fathi Boucai Eng.Wael Akram Al Saqqa (Representative of the Pension Fund
of the Engineers Association)
Dr. Jamal Mohammad Salah (Representative of the Islamic
Development Bank- Jeddah)
Mr. Mohammad Majid Allan (Representative of Al Samaha Real Estate Co.) Mr. Mohammad Eid Bundokji Dr. Nabeeh Ahmad Salameh Eng. Naser Falah Madadhah Eng. Suleiman Abdel Razzaq Al-Daoud Mr. Naser Sultan Al-Shraidah* (Representative of The Social
Security Corporation until 24/10/2010)
Chief Executive Officer:
Eng. Abdel Karim Alawin Financial Auditors: Deloitte & Touch Company -Middle East /Jordan * Mr. Mohammad Madi was appointed as Representative of The Social Security Corporation as a successor to Mr. Nasser Shraideh on 07/02/2011
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Jordan Petroleum Refinery Company
Corporation Headquarter in Amman
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55th Annual Report
Chairman’s Statement
Dear Honored Shareholders I am pleased to welcome you all to the 56th General Meeting to discuss the Company’s achievements for the year 2010 and its future plans. The Company has continued to perform its duties to meet the needs of the Kingdom of various oil products under continued volatility of oil prices with an average price of $ (82) per barrel of oil during the year 2010, compared with $ (62) per barrel in 2009. This had an impact on the Company’s cash flow available to finance the crude oil and petroleum products purchases . Those are the two major components in the Company’s sales’ cost. By reviewing the financial statements of the Company in 2010, we notice that the value of the Company’s sales increased by 31% to be JD (2,379) billion, compared to JD (1,818) billion in 2009, and that is due to the increase in the prices of petroleum products. However, the Company achieved a JD 15,2 million as a net profit before tax compared to JD (13,2) million in 2009,with growth of 15%. In addition in line with the increase in crude oil prices. The Company’s total assets value increased to JD (795) million compared to JD (538) million in 2009 and that was mainly due to the increase in the accounts receivable to about JD (173) million, as well as the increase in the inventory value of crude oil and other oil products to JD (73) million.
Dear Honored Shareholders The Council of Ministers decided on 15/12/2009 to suspend an earlier decision which was taken on 1/9/2009 to grant the Refinery a 15 years exclusivity period to enable it to implement the fourth expansion project. The council formed a ministerial committee to prepare the grounds for granting the exclusivity and the procedures to solicit and select the best offer. The Committee was to submit its recommendations to the Council of Ministers within one month. All other prior decision related to granting exclusivity to the Refinery are to be cancelled. Meanwhile, while waiting for the Government decision, the Company had updated the study of the feasibility of the expansion project and called on a number of international financial institutions to for the purpose of selecting one of them as a financial adviser to assist the Company in choosing the best alternative to finance the expansion project. The Company tried to contact the former Prime Minister twice in 2010 to request a meeting with the Company’s board to discuss the expansion project, but no reply was received in this regard . After ten months of issuing the above mentioned resolution, the Council of Ministers issued the waited decision on 26/10/2010, which was contrary to the earlier government directive to the committee to study the grounds for granting exclusivity rights to the Refinery and to set procedures to attract a potential partner. A new resolution was taken to go back to an earlier government’s restructuring program for the oil sector emanating from the overall strategy for the energy sector (2007 - 2020). The decision also included the following: -
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Jordan Petroleum Refinery Company
1. The Petroleum Refinery Company to proceed with all the measures deemed appropriate concerning the implementation of the fourth expansion project leaving matters to the Company to determine the optimal configuration of the project and the way of funding in accordance with a license agreement to be prepared for this purpose. 2. Duly retender the “structuring of the oil market “ tender related to the ownership and operation of the marketing companies, and to participate in owning and operating the Logistics Company. The said tender was suspended earlier by the Council of Ministers’ decision which was adopted at its meeting held on 06/10/2009. The government continued to implement that policy by inviting companies interested in marketing and distribution of petroleum products. It set the date 17/4 of this year 2011 to distribute copies of the tender documents in order to select three marketing companies to buy and sell oil products in the Jordanian market. This is in line with the Government’s policy to liberalize the petroleum products market. Thus, the Government’s position could be an obstacle in the Company’s efforts to sell all the products produced at the current refining capacity, and it will not provide enough time for the Company to modernize its units to improve the quality of the products and to the recover the investment , which was estimated initially to be between (800 - 2000) million dollars depending on the size of the expansion. After a while, a new cabinet was formed. Several meetings with the Minister of Energy and Mineral Resources were held. The new minister pointed out the government’s position is to enable the Company to develop and implement the refinery expansion project and that the Ministry was willing to discuss the Company requirements in this regard . The cabinet did not last long ,and a new cabinet was formed on 09/02/2011 with a new Minister of Energy and Mineral Resources, who echoed the government’s position of enabling the Company, but the surprise was that the government’s approval in March 2011 for Cement companies to import fuel oil directly, rather than buy it from the refinery which may lead to a surplus in fuel oil and may force the Company to export it to world markets at a loss, as the fuel oil is about (30%) of the Company’s output because existing configuration of the refinery during the period of the concession demanded a production of fuel oil for use in electricity generation sector. The power generation sector had switched over to natural gas imported from Egypt. The Company was counting on the overall expansion’s implementation and part of its goals was to convert fuel oil into more valuable light oil products providing higher returns and sufficient profit margin. That was impeded by the government’s decisions not to grant exclusivity to the Company. The Company made its position clear in this regard to both the Prime Minister and the Minister of Energy and Mineral Resources and invited the Prime Minister to visit the Company and look at its current situation and its plans for future expansion.
Dear Shareholders Should the Refinery stop production due to constrains set by the Government, this will in turn stop an important national industry and it will terminate the jobs of thousands of workers. The constrains will also obstruct the opportunity to attract investments to develop this industry that has a good added value and provide a good return on investment and strategically important for its contribution to provide economic security which can not be done by marketing companies. As a result of the former government’s decisions , the Company has returned to square one as to the beginning of the concession’s expiry period. The Company’s management and your council have consistently pointed out, in every possible way, to the government and nongovernmental agencies the negative effects of those decisions, not only on the Company,
but on the national economy and on the Kingdom’s energy supply security.
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55th Annual Report
Dear Shareholders In the light of the government’s response to our orations and the clarity of its position from the Company and from petroleum products market future situation, all evidences point to the necessity of continuing the refinery as the primary security source of supplying the kingdom with energy, which makes the expansion of the refinery essential, as it is a very important strategic facility and an important national industry. The importance of its presence is for refining any oil imported by the government at preferential prices or what might be produced locally in the future, as well as to keep the Company in order to ensure not having disruption in the availability of petroleum products. This will also help in price stability against any fluctuations for consumers in cooperation with the government, and to ensure the preservation of the workforce in the Company. So the Company will spare no effort to speed up the steps for this project to secure the Company’s ability to keep pace with rapid changes in the oil products market in the Kingdom, which ensures a continuation of the Company and achieving competitive and profitable return to the shareholders.
Dear Shareholders I am pleased to inform you that, after reviewing the outcome of the Company’s performance and net profits for year 2010, the Board of Directors recommends to the General Assembly to approve the distribution of (30%) to shareholders dividend of the paid capital. In conclusion, I would like to express my thanks to our enlightened government looking forward to its cooperation and support to enable the Company achieve its mission as a strategic institution contributing in the energy supply security and to all the parties that cooperated with the Company, and specially, the Standards and Meteorology Corporation, the General Directorate of Civil Defense and all other official bodies. I would like also to express my thanks and appreciation to the Union of Petrol Filling Stations and to the owners of the filling stations themselves and to the gas distribution centers as well as the Jopetrol Lube Oil distribution centers for their continued cooperation with the Company. In addition, I would like to express my thanks and gratitude to members of the Board of Directors, The Company General Management and its employees, for their sincere efforts in serving the Company. I would like to seize this opportunity to express my deepest appreciation and gratitude for your support and trust in the management of the Company, hoping to continue in serving our Country under the patronage of His Majesty King Abdullah II, God bless him.
Walid Methcal Asfour Chairman of the Board of Directors
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Jordan Petroleum Refinery Company
Annual Report of the Board of Directors Jordan Petroleum Refinery Co. (A Public Shareholding Limited Company)
Dear Honored Shareholders The Board of Directors is pleased to present to you its fifty fifth annual report including the most important activities and achievements of the Company, the Company’s Financial Statements for the Year ended on 31st December 2010. A Historical Brief The idea of building a Refinery was first conceived by the Ministry of National Economy along with a Group of Jordanian businessmen in 1952.What prompted this idea, in addition to the Kingdom’s need for fuels, was the passage of Tapline through Jordan. The establishment of JPRC witnessed the following milestones: > On 30/06/1956, The Council of Ministers granted the go-ahead to set up a refinery in the Hashemite Kingdom of Jordan, and on 30/10/1957, The Council of Ministers approved the Company’s regulation and the Company was registered in the Ministry of Justice as a public Limited Company with a concession and with an issued share capital of four million Jordanian Dinars to which the Government contributed 250 thousand Jordanian Dinars. > On 16/11/1957, the Concession Agreement was signed between the Government’s represented by the Minister of National Economy, the late Mr. Khulusi Al Khairi, and Jordan Petroleum Refinery Company, represented by its then Chairman, the late Mr. Abdul Majeed Shoman. > On 10/2/1958, the concession agreement was endorsed by the Government and published in the Official Gazette (issue number 1373), on 03/03/1958. > On 8/9/1958, The Board of Directors awarded a tender to construct a refinery to an Italian Company, and on 9/10/1958 the agreement was signed to implement the project that included the construction and running of a refinery with a daily production capacity of (1000) tons per day at a cost of approximately (3) million Jordanian Dinars, also another tender was awarded to construct a pipeline of (8) inch diameter and a (43) kilometer long connecting the Refinery to the Tapline at a cost of (235000) Jordanian Dinars. > On 1/1/1961, the Company started producing different petroleum products. > On 2/2/1961 the Jordan Petroleum Refinery was officially inaugurated by His Majesty the late King Hussein Bin Talal.
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55th Annual Report
> Increased the Refinery’s capacity to (14000) tons per day through three expansion projects, which were completed in (1970, 1973 and 1982,) raising the capacity to (8700) ton per day and the through put was subsequently increased to (14000) tons per day in 1998 by the technical and engineering staff of the Refinery. > Construction and commissioning of lube-oil blending and packing plant in the year 1977 of (25000) tons per year capacity with the technical cooperation of Shell. > Construction and commissioning of LPG cylinders factory in 1976 capable of producing (100000) cylinders of (12.5) kg capacity per year. The plant incorporates LPG cylinders maintenance facilities. > Construction and commissioning of crude-oil unloading station to handle crude oil imported by road tankers in1986. The station is currently capable of handling (15000) tons per day. > Construction and commissioning of three LPG cylinders filling stations in Zarka, Amman, and Irbid in (1979 and 1989) capable of handling jointly (8400) cylinders per hour. The stations were later expanded to handle (15600) cylinders per hour. > Increasing the storage capacity of the Company facilities in phases to reach (1,581,725) Tons in 2010. Production, Import and Sales > Quantities of petroleum products imported by the Company during 2010 amounted to (1,737,493) tons against (1,075,061) tons in 2009, representing an increase of (662,432) tons or (61.62%). > Quantity of crude oil processed amounted to (3,482,526) tons in 2010 against (3,643,764) tons in 2009, representing a decrease of (161,238) tons or (4.4%). > The Company’s sales of petroleum products during 2010 amounted to (4,874,155) tons against (4,421,713) tons in 2009, representing an increase of (452,442) tons or (10.23%). The sale of petroleum products in 2010 compared with 2009 is as follows:-
Gasoline sales increased by
(4.3%)
Kerosene sales decreased by
(37.3%)
Diesel sales decreased by
(4.3%)
LPG sales decreased by
(8.4%)
Fuel Oil sales increased by
(67.9%)
Jet Fuel sales increased by
(10.1%)
Asphalt sales decreased by
(21.8%)
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Jordan Petroleum Refinery Company
Fourth Expansion Project The last expansion project for the refinery was completed in the early eighties of the last century. Consumption of oil products was doubled ever since. To meet the growing demands, the Company has resorted to increase the refining capacity during the nineties through revamps of the process units and to impor increased amounts of liquefied gas, gasoline and diesel. The expansion of the refinery has become a necessity not only to meet the growing demands of oil products, but also to help the Refinery to improve the quality of the products and to convert heavy fuel oil to high-value products for the local market such as jet fuel, diesel and gasoline since demand for heavy fuel oil is diminishing due to the use of Egyptian natural gas in the power plants. The Company has carried out a number of feasibility studies on the expansion project, which all showed that this expansion is economically feasible because the only alternative is to import products from world markets, paying the international prices added to it the delivery cost to the center of consumption, at the northern and central part of the Kingdom . After the government had granted the refinery exclusive period of fifteen years to enable it to attract a strategic partner for expansion project, the Cabinet decided on 15/12/2009 to suspend the decision of granting the exclusivity. The Cabinet formed a ministerial committee to develop recommendations to the Council of Ministers related to the grounds for granting exclusivity and the procedures to solicit and select the best offer, and to submit its recommendations to the Council of Ministers within one month from the decision’s issuance date and suspension of all decisions and actions that have been taken in this regard. On 26/10/2010 Council of Ministers decided under its resolution No. (2967) to go back to the government’s restructuring program of the oil sector emanating from the overall strategy for the energy sector (2007-2020). The decision also included the following: 1. The Petroleum Refinery Company to proceed with all the measures deemed appropriate concerning the implementation of the fourth expansion project leaving matters to the Company to determine the optimal configuration of the project and the way of funding in accordance with a license agreement to be prepared for this purpose. 2. Duly retender the “structuring of the oil market” tender related to the ownership and operation of the marketing companies, and to participate in owning and operating the Logistics Company. The said tender was suspended by earlier the Council of Ministers’ decision which was adopted at its meeting held on 06/10/2009. The government declining to grant exclusivity after almost a year and as a result of inconsistent five years, have led to difficulties in finding and attracting a partner to implement the expansion project, as well as the difficulty of investing in it in future under the current government guidelines and circumstances, the Company was forced to change its strategy regarding the expansion . So instead of adopting a comprehensive expansion project to meet the market needs of petroleum products until 2025 with an investment cost estimated at two billion dollars, it has been studying other alternatives for the expansion, whereby improving the quality of petroleum products and converting fuel oil into high-value products without increasing refining capacity.
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55th Annual Report
The proposed expansion require an investment between (800-1000) million dollars. Also, the Company has contacted several international financial institutions in preparation to select financial advisor. One of his tasks is considering the alternatives of financing this project and to advise the Company in this regard. Communication is currently going on with the Government to determine future arrangements which will enable the Company to implement this expansion and to continue providing oil products to the Kingdom to remain the major source in energy supply security.
Analysis of the Financial Position and Outcome of Activities in 2010 The volatility of crude oil prices continued during the year 2010, the average price per barrel of oil reached ($82) , compared with an average price of ($62) during the year 2009. The increase in the imported petroleum products and lube oils prices, resulted in an increase in the cost of sales. The Government continued fixing the price of LPG at JD (6.5) per cylinder during the whole year. In accordance with the arrangements that had been followed since 1983 until the expiry date of the concession on 2/3/2008, any excess or deficit achieved as a result of the Company’s activities is debited or credited to the Government account. The services agreement was signed between the Government and the Company on 25/2/2008 and the subsequent extensions to it confirm the continued subsidy of LPG at the expense of the treasury. The following is a concise analysis of the costs and income for the year 2010 as compared with 2009:-
1-Sales Comparing Company sales for 2010 with those for 2009 showed that the Company sales value increased from JD (1,818) million in 2009 to JD (2,379) million in 2010 representing an increase of JD (561) million. The increase in the sales value is due to increase in petroleum products selling prices in line with rising crude oil prices globally, in addition to the increase in sales volumes by 10.23%.
2-Crude Oil The actual cost of crude oil used in production increased from JD (1,181) million in 2009 to JD (1,442) million in 2010 representing an increase of JD (261) million due to higher crude oil prices by (32%) despite the decrease in quantities processed by (5.34%).
3-Imported Petroleum Products The cost of imported petroleum products increased from JD (495) million in 2009 to JD (879) million in 2010 representing an increase of JD (384) million.
4-Costs Industrial costs decreased from JD (58.4) million in 2009 to JD (52.5) million in 2010, representing a decrease of JD (5.9) million as a result of the decrease in salaries’ expenses and decrease in maintenance and spare parts expenses.
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Jordan Petroleum Refinery Company
As for the selling and distribution expenses, it decreased from JD (23.7) million in the year 2009 to JD (22.6) million in 2010, a decrease of JD (1.1) million, as a result of lower staff costs, raw materials and spare parts. Administrative expenses decreased from JD (9.4) million in 2009 to JD (7.2) million in 2010 representing a decrease of JD (2.2) million as a result of lower staff costs, consultancy, technical and legal fees. Bank interests on loans increased from JD (12.8) million to JD (21.2) million in 2010 an increase of JD (8.4) million due to the increase in the volume of credit facilities utilized due to the high burden of financing the purchases of crude oil and derivatives; in addition to the high value of accounts receivable and the debt balance of Ministry of Finance in 2010.
The Balance Sheet Comparing figures of the balance sheet for 2010 with 2009 shows that the balance sheet total figures increased from JD (538) million to JD (795) million, representing an increase of JD (257) million. Following is a concise analysis of the assets and liabilities items on 31/12/2010 as compared with 2009.
< Current Assets and Liabilities Accounts receivable and other debit balances increased from JD (174) million in 2009 to JD (347) million in 2010, representing an increase of JD (173) million, which was mainly due to an increase in the debit balance of the Ministry of Finance by JD (122.7) million plus the increase in the debit balance of the Central Electricity Generating Company by JD (154.9) million representing an increase of JD (143) million more than in 2009 as a result of switching some of electricity generating stations to operate on fuel oil in 2010 due to reduced quantities of Egyptian gas in the second half of 2010. The inventory value increased from JD (283) million to JD (356) million, representing an increase of JD (73) million as a result of the higher stock quantity of crude oil and other products. The deferred tax assets value was JD (6.5) million compared to JD (6.2) million in 2009. The increase in current assets were offset by an increase in the banking facilities which increased from JD (186) million in 2009 to JD (427) million in 2010 representing an increase of JD (241) million, in addition to a higher creditors’ balances, which rose from JD(255) million in 2009 to JD (264) million in 2010, an increase of JD (9) million.
< Fixed Assets The book value for fixed assets increased from JD (277) million in 2009 to JD (315) million in 2010 representing an increase of JD (38) million while the accumulated asset depreciation had increased from JD (242.6) million to JD (248) million representing an increase of JD (5.4) million with a net increase in the net book value from JD (59) million in 2009 to JD (71) million in 2010 representing a increase of JD (12) million due to the constructions of LPG, gasoline and jet fuel storage tanks.
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55th Annual Report
< Shareholders Equity The statutory reserve account increased from JD (18) million in 2009 to JD (19.5) million in 2010 giving an increase of JD (1.5) million which is due to deducting (10%) of net profit as stated in the Company’s act No.(22) for the year 1997 .The change in fair value of Investments held for sale had increased from JD (4.5) million in 2009 to JD (4.7) million in 2010 representing an increase of JD (0.2) million as a result of the increase in the shares value owned by the Company, as stated in standard (39) of the International Accounting standards, although, the cost value for these shares is JD (338.047) only. Retained earnings had increased by JD (18.3) millions due to achieved earnings after 2009 dividends to be JD (8) million. As a result, the value of shareholders equity increased from JD (69.5) million in 2009 to JD (74.7) million in 2010 giving an increase of JD (5.2) million.
The effects of these changes on the financial position As a result of the above changes, the cash in hand decreased by JD (1.9) million reaching JD (8.8) million in 2010 compared with JD (10.7) million in 2009. The main reason for the drop in Monetary Fund and the rise in credit facilities utilized by JD (241) million was due to the increase in the debt balance of Ministry of Finance and other institution and government’s department and the debt balance of electricity generating Company by JD (173) million, in addition to the increase in the creditors’ accounts by JD (9) million,compared with an increase in inventory value by JD (73) million in addition to an increase in fixed assets by JD (12) million.
The effects of these changes on the financial position As a result of the above changes, the cash in hand decreased by JD (1.9) million reaching JD (8.8) million in 2010 compared with JD (10.7) million in 2009. The main reason for the drop in Monetary Fund and the rise in credit facilities utilized by JD (241) million was due to the increase in the debt balance of Ministry of Finance and other institution and government’s department and the debt balance of electricity generating Company by JD (173) million, in addition to the increase in the creditors’ accounts by JD (9) million, compared with an increase in inventory value by JD (73) million in addition to an increase in fixed assets by JD (12) million.
Risk Management The Company is following financial policies to manage the different risks within a specific strategy, the Company’s management monitors and controls the risks and proceed the optimal distribution strategy for every financial assets and financial liabilities. Risks include interest rates, market, credit and foreign exchange.
• Capital risk management The Company manages its capital to ensure their viability and to maximize the return to stakeholders through an optimal balance between property rights and debt.
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Jordan Petroleum Refinery Company
• Liquidity risk The Company manages liquidity risk by maintaining adequate reserves and the ongoing monitoring on the actual and estimated cash flows and the compatibility between the entitlement financial assets with financial liabilities.
• Credit risk The Company’s financial assets mainly consist of debtors and other receivables, and the available financial assets for sale and cash does not represent an important part for credit risk .The debtors are spread widely among the customers’ ratings and their geographical regions and also it is maintain strict credit monitoring by monitor each client’s credit limits separately on an ongoing basis. All the Company’s investments in shares are classified as financial assets available for sale.
• Market risk Market risks is a loss of value resulting from changes in market prices like a change in interest rates, foreign exchange rates, prices of equity instruments and therefore change the fair value of cash flows of financial instruments within and outside the balance sheet.
• Currency risk The main operations of the Company are in Jordanian Dinars and the U.S. dollar and the fact that the Jordanian dinar (currency of the Company) is linked to the U.S. dollar, the Company’s management believes that the risk of foreign currency is not physical.
• Interest rate risk The Company continuously manages the risks due to interest , and is assessing various options such as return and renewal of existing financial centers and alternative funding.
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55th Annual Report
Achievements and activities of the Company
1. IMPORTS A. Crude Oil Quantities of crude oil supplied to the Company during 2010 amounted to (3,482,526) tons against (3,631,197) tons in 2009, showing a decrease of (148, 67) tons or (4 %).
B. Petroleum Products The Company processes crude oil producing different petroleum products needed by the Kingdom and meeting the Jordanian Standard Specifications. The Company pursues a yearly production policy, which aims at striking the right balance between production and imports to meet the local demand, and to best serve the national economy. Petroleum products quantities imported during 2010 amounted to (1,737,493) tons against (1,075,061) tons in 2009, showing an increase of (662,432) tons or (61.62%). The following table shows the petroleum products quantities imported in 2010 compared with 2008 and 2009. Imported Products LPG Diesel Fuel Oil Gasoline Avgas MTBE Total
Percent Change 2009/2010
Quantities in tons 2008 195856 344352 90715 140631 1179 120365 893098
2009 235738 438821 230778 1037 168687 1075061
2010 222634 670446 307303 399935 1059 136116 1737493
-5.6% 52.8% 73.3% 2% -19.3% 61.6%
C- Base Oils The quantities of base oils imported by the Company during 2010 amounted to (13.093) tons against (20.765) tons in 2009, showing a decrease of (7.672) tons or (37%).
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Jordan Petroleum Refinery Company
2. PRODUCTION AND REFINING A. Different Petroleum Products. The Company maintained its past production policy which aims at realizing an optimal economic balance between crude oil refining operations and petroleum products imports to meet all the Kingdom’s needs with high economic efficiency. The Company’s production of petroleum products amounted to (3,349,763) tons in 2010 against (3,538,605) tons in 2009, showing a decrease of (188,842) tons or (5.3%). The following table and graph show development of the Company’s production of petroleum products during the years (20072010) in ton compared with the base year 1961: view of the Refinery Process units
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Product
1961
2007
2008
2009
2010
Percent Change 2009/2010
LPG
615
107253
120155
106489
84903
-20.3%
Gasoline
37179
678428
740488
756626
702899
- 7.1%
Jet Fuel
-
290517
298656
308212
342641
11.2%
Kerosene
39620
139065
104657
80989
84646
4.5%
Diesel
41209
1212689
1236206
1172852
903404
-23%
Fuel Oil
50605
1204750
1002416
919494
1080394
17.5%
Asphalt
11897
155425
167750
193268
150876
-22%
White Spirit
-
1189
-
675
-
-
Total
181125
3789316
3670328
3538605
3349763
-5.3%
55th Annual Report
1400 1200 LPG Gasoline
1000
Avtur
800
Kerosene
600
Diesel Fuel Oil Asphalt White Spirt
400 200 0
1961
2007
2008
2009
2010
B. Lubricating Oils (Jopetrol) The Company produces more than (100) different grades of lube oils of the highest quality under the trade name of (Jopetrol) to meet most of the local market requirements. All products comply with the Jordanian specifications, the American Petroleum Institute (API American Petroleum Institute) standards, the Society of Automobiles Engineers (SAE Society of Automotive Engineers) standards, European standards, and the American Army Military standards (Mil, Standard). The products are subjected to the most stringent quality control tests carried out in specialized modern laboratories.
Lube oils factory
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Jordan Petroleum Refinery Company
Jopetrol lube-oils maintained the ISO 9001:2000 quality management certificate where its quality system is periodically inspected by the Lloyds Register committee that originally awarded the certificate. The Jordanian Company for The Manufacturing of Lube Oils registered as a wholly-owned subsidiary of the Jordan Petroleum Refinery Company with a capital of (3) million dinars, paid (50%) on 28/5/2008 has not exercised their activities yet. Production in 2010 by blending and canning lubricant oil amounted to (15,308) tons against (17,046) tons in 2009, showing a decrease of (1,738) tons or (10 %). The following table and graph reflect the development in lube-oils production for the last four years compared with the initial production year 1977: -
Year
1977
2007
2008
2009
2010
Production
1191
16471
14055
17046
15308
Percent Change 2009/2010 -10%
18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1977
2007
2008
2009
2010
C. LPG Cylinders During 2010, the LPG cylinders factory repaired and painted (75,330) cylinders compared with (76,900) in 2009; also (86,988) valves were replaced in 2010 compared with (126,586) valves in 2009, and also (217,285) Cylinder capacity (12.5) kg were written off in 2010 compared with (30,046) cylinders in 2009.Write off
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55th Annual Report
was done as a result of not passing the technical examination at the filling stations in order to protect public safety and to implement the adopted resolution by the Commission from the Ministry of Energy and Mineral Resources, Civil Defense Jordan Institution for Standards and Metrology in addition to the Company to withdraw the cylinders which were not approved by the technical staff and replaced them with new ones. The Jordanian Company for The Manufacturing and Filling of Liquefied Petroleum Gas was registered as a wholly-owned subsidiary of the Jordan Petroleum Refinery Company with a capital of 4 million dinars, paid (50%) on 28/5/2008 has not exercised its activities yet.
D. Filling of Asphalt Drums The number of drums filled with asphalt in 2010 reached (1009) drums compared with (1624) drums for 2009. Total sales of asphalt drums in 2010 were (1055) drums.
3. Sales A. Petroleum Products Sales during 2010 reached (4,874,155) tons compared with (4,421,713) tons in 2009; this shows an increase of (452,442) tons representing a rate of (10.23%). The following table and graph show the development of sales for the last four years compared with the initial year of 1961 : -
Product
1961
2007
2008
2009
2010
LPG Gasoline Jet Fuel Kerosene Diesel Fuel Oil Asphalt White Spirit Total
673 39301 50824 98428 36179 11101 236506
335137 839641 296747 130659 1746054 1246820 154026 1146 4750230
321272 861177 297681 99633 1508376 1096251 167395 641 4352426
338553 1022515 318437 110654 1613536 823043 193785 1190 4421713
311977 1065405 350577 69355 1543479 1380905 151541 916 4874155
Percent Change 2009/2010 -8% 4.2% 10.3% -37.3% -4.3% 67.8% -21.8% -23% 10.23%
Note: (190,162) tons of fuel oil, fuel gas, and naphtha were used in the Refinery during 2010 for steam production and process operation shall be added to the above sales figures.
27
Jordan Petroleum Refinery Company
1800 LPG
1600
Gasoline
1400
Avtur
1200
Kerosene
1000
Deisel Fuel Oil Asphalt White sprit
800 600 400 200 0
1961
2007
2008
2009
2010
B. Lubricating Oils (Jopetrol) Sales during 2010 of various grades of lube oil under the trade mark of Jopetrol reached (15,628) tons compared with (17,332) tons for 2009 representing a decrease of (1,704) tons or (9.83 %). Despite the drop in domestic sales, it was offset by an increase in the quantities exported to Iraq. Lube oils were sold in containers of capacities ranging between (1/4) liter to (209) liters as well as in bulk to big consumers. The following table and graph show the development in lube-oil sales for the last four years compared with the initial production year 1977.
28
Year
1977
2007
2008
2009
2010
Sales
535
17665
13974
17332
15628
Percent Change
2009/2010 -9.83 %
55th Annual Report
Lub-Oil sales Ton. 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1977
2007
2008
2009
2010
C. LPG Cylinders Sales of (12.5) kg empty LPG cylinders during 2010 reached (102,153) compared with (100,997) for the 2009, showing an increase of (1156) cylinders or (1.14 %). Sales of (50) kg LPG cylinders in 2010 reached (82) cylinders compared with (187) in 2009. The estimated number of (12.5) kg LPG cylinders in circulation in the Kingdom during 2010 is (4.8) million cylinders. The number of imported LPG cylinders during 2010 reached (552,084) compared with (227,898) in 2009 in order to meet the increase in demand and to replace the scrapped ones.
29
Jordan Petroleum Refinery Company
4-Company’s Clients A-Petroleum Products The Company supplies all consumers’ centers in the Kingdom with their needs of fuels and lube oils. The Company keeps good relationships with its customers and always works on meeting their expectations and considers them as partners in its development. The clients are from various sectors of the society. They are government institutions, filling stations, LPG Distributors, air line companies headed by the Royal Jordanian Airlines, The Central Electrical Generating Co, The Cement Company, Arab Potash Co, and the Phosphate Mines Co.
B- Jopetrol Lube Oils The largest customers of Jopetrol lube oils are the Armed forces, Royal Jordanian Air Force, the Potash Co, the Phosphate Mining Co, Comedat Co, the mining Company to develop mining, Royal Jordanian airlines, Jordan Steel Company, the Directorate of Civil Defense, the Greater Amman Municipality, Aqaba Railway Corporation, Water Authority, Ministry of Public Works, and the Ports Corporation. Some of its customers are the Royal Scientific Society, the Specifications and Meteorology Corporation, and the Jordanian Universities.
lube oils
5. Distribution Of Petroleum Products The Company supplies petroleum products daily to all service stations and directly to some industries and other establishments.
30
55th Annual Report
A. Storage of Petroleum Products in the Kingdom Storage capacity in the Kingdom amounted (1,611,213) tons distributed as follows:Storage Capacity (ton)
Location
Refinery tanks/site: Zarqa-Irbid-Amman Aqaba stores tanks/old project Aqaba stores tanks/new project Fuel distribution stations Large companies Airports stations Total
854000 28000 183000 132715 402350 11148 1,611,213
B. Service Stations At the end of Year 2010, the number of service stations in the Kingdom reached (445) stations, capable of storing (132,715) tons of various fuels, including (11) stopped station plus (19) stations are for private use and have storage capacity of (1148) tons. The number of new stations that entered service in different parts of the Kingdom during 2010 was (5) stations in different regions of the Kingdom while the number of stations that were canceled during the year (6) stations. While the number of new stations expected to enter service during 2011 based on the number awarded permissions given in 2010 and previous years is (11). The number of LPG distribution centers in the Kingdom reached (916) in 2010. The following table shows the number of stations and gas distribution centers in each governorate of the Kingdom: Governorate
No. of Gas Stations 2010
No. of LPG distribution centers 2010
Amman Zarka Balqa Madaba Irbid Mafraq Jerash Ajloun Karak Ma’an Tafeela Aqaba Total
172 47 36 13 63 28 13 10 20 15 10 18 445
242 93 53 35 218 83 42 34 68 19 21 8 916
31
Jordan Petroleum Refinery Company
C. LPG filling The number of LPG cylinders of (12.5) Kg capacity filled in the Zarka, Irbid and Amman stations in 2010 reached (23) millions compared with (23.7) millions in 2009, showing a decrease of (0.7) million cylinders or (3%). Also (34237) cylinders of (50) Kg capacity were filled in 2010 compared with (58764) during 2009, with a decrease of (24527) cylinders or (42%). The average daily filling rate in the three LPG filling stations based on actual working hours during 2010 was (63244) cylinders of (12.5) kg and (94) of (50) kg cylinders.
D. Airports Stations The Company operates three refueling stations located in Queen Alia International Airport, Amman Civil Airport, and King Hussein International Airport in Aqaba. During 2010, the stations serviced (35399) flights and handled about (425,095) million liters compared with (381,304) million liters in 2009, an increase of (43791) million liters. The Company also refueled (9489) flights of Avgas. The Company imported quantities of avgas in 2010 which were supplied by Amman airport station to airplanes reaching (1,453,742) liters compared with (1,621,478) liters in year 2009, which is a decrease of (167,736) liters.
E. Aqaba Depots First: Old Depot in the Port Area (Old Project) This facility has storage capacity of (28000) tons. It received (22534) tons of fuels and base oil during 2010 compared with (28930) tons in 2009 with a decrease of
Side of the ware houses of Aqaba
32
55th Annual Report
(6396) tons or (22%). Sales from this depot reached (16467) tons in 2010 compared with (32654) tons in 2009 or a decrease (16187) tons or (49.5%) . Second: New Depot in the Industrial Area (New Project) This facility has storage capacity of (183000) tons. It received (4,317,528) tons during 2010 compared with (3,937,403) tons received in 2009, an increase of (380,125) tons or (9.6%). Total sales from this depot in 2010 was (4,198,179) tons compared to (4,045,729) tons in 2009, an increase of (152,450) tons, or (3.7%).
6. Transport Of Petroleum Products The fuel transport fleet of the Company consists of (54) tankers, (182) trailers and (266) semi trailers which are used for hauling fuels and LPG. The fuel quantities transported in 2010 by the Company’s fleet amounted to (1,189) million tons compared with (1,306) million tons in 2009. The number of trips undertaken in 2010 was (60,604) in which the total distance was (7.7) million kilometers compared with (65,373) trips in 2009 of a total distance of (9.4) million kilometers. In 2010, the Company boosted its transport capability by contracting local companies to transport (2.1) million tons of diesel, Jet Fuel and LPG compared with (1.9) million tons were transported by contractors in the previous year.
7. Tenders and Supplies The Company’s tenders and purchases are governed by “a supplies and works code” that sets the mechanisms for preparing the specifications and issuing the tenders and their evaluation. During 2010, the Company issued (162) tenders as follows: > (102) Tenders for supplying oil products, lubricant oils and spare parts. > (25) Tenders for transporting various petroleum products. > (28) Tenders for Construction work. > (7) Tenders for selling obsolete cylinders, scrap metals and equipments. The number of purchase orders issued in 2010 was (1770) for both foreign and local orders.
33
Jordan Petroleum Refinery Company
8.Major Suppliers The Company through its Purchasing Department deals with large number of suppliers and Local agents representing more than (30) countries. The following table shows the major suppliers: Crude Oil
Petroleum Products
Base Oils
Additives
Chemicals
Vehicles Spare Parts
Reactors and heat exchangers
Aramco, Saudi Arabia
Aramco, Saudi Arabia
Luberef Aramco Saudi Arabia
Lubrizol (UAE)
Innospec, UK
Nissan Japan
ATB, Italy
Somo Iraq
Total, France
Shell. UK
Solvochem, Holland
Nalco, UAE
Renault France
KOCH, Italy
Naftomar, Greece
Total, France
Chevron, France
UOP, UK
Diesel Technique, UAE
UTON Romania
I.P.G, uwait
EXXON MOBIL, USA
AFTON U.K
GE Betz, Italy
United diesel, UAE
BORSIG Germany
Sabic, Saudi Arabia
Chemic, Italy
Bukke Have, Denmark
OLMI , Italy
Gulf Interstate
Chematek, Italy
Osaka, Japan
SICES GROUP IT, Italy
Sonatrach. Algeria
AFTON
HTP, Germany
B.B.ENERGY
Dow Chemical
Skania Sweeden
Trafigura, UAE Shell U.K
JOHNSON MATTHEY
SUDCHEMIE
ACERBI, Italy
ACERBI, Italy
METRA , Switzerland
9. Shareholders The number of shareholders on 31/12/2010 was (32144). The following table and graph show the distribution of shareholders according to their nationalities: Number of Shareholders
Percentage of shareholders %
Number of Shares
Percentage of number of shares
Jordanian Arab Foreign
28156 2709 1249
87.7 8.4 3.9
25,842,528 2,697,501 3,459,971
80.8% 8.4% 10.8%
Total
32114
100
32,000,000
100%
Nationality
34
55th Annual Report
, Shareholders Nationalition Foregin
Arab
Jordanian
The following table and graph show the distribution of the Company’s shares according to the shareholders’ categories Percentage of
Number of Shareholders
Number of Shares
31952
19,406,237
number of shares 60.6%
Social Security Corporation
1
6,525,000
20.4%
Service & Industrial Companies
5
2,881,955
9%
Banks
23
1,434,561
4.5%
Saving funds
70
1,075,385
3.4%
Other Public entities
34
241,695
0.7%
Insurance Companies
11
125,087
0.4%
1
85,385
0.3%
17
224,695
0.7%
32114
32,000,000
100%
Category Individuals
Jordan Investment Corporation Others Total Other Public Saving Funds
Insurance Companies
Jordan Investment Coporation Others
Bank Service & Industrial Companies
Social Security
Individuals
35
Jordan Petroleum Refinery Company
Shareholders Holding more than (5%) of the Company’s Shares for Years 2009 and 2010
Number of shares
Percentage Total Shares
2009
2010
2009
2010
Social Security Corporation
6,547,000
6,525,000
20.5%
20.4%
Islamic Development Bank Jeddah
2,000,000
2,000,000
6.3%
6.3%
Total
8,547,000
8,525,000
26.8%
26.7%
Name
Shares Activity in Amman Stock Exchange The number of shares transacted during 2010 in the stock exchange amounted to (7) million shares valued at JD (47) million executed through (19,030) transfer contracts at an average share price of (6.36) JD. The following table shows the activity movement of the Company’s shares in the stock exchange from 2007 to 2010:
Particulars
2007
2008
2009
2010
1,332,667
150,746,253
46,124,142
7,391,412
124,454,499
2,073,544,415
345,000,000
46,994,759
27,014
180,656
80,085
19,037
237,120,000
219,520,000
217,600,000
167,680,000
Closing price in (JD)
7.41
6.86
6.80
5.24
Average share price in (JD)
6.44
13.755
7.479
6.36
60,415
471/082
144,138
23,1
year Shares transacted Volume in (JD) Number of transactions Market value of shares (JD)
Circulation %
36
55th Annual Report
The following table shows the distribution of shareholdings ranges as on 31/12/2010:
Shareholders
Share Holding Range
Shares
Percentage
Number
%
Percentage
Number
%
1-100
14536
45.3
681,524
2.1
101-500
11884
37
3,173,352
10
501-1000
2760
8.6
2,174,868
6.8
1001-5000
2370
7.4
5,142,044
16
5001-10000
302
0.9
2,213,648
6.9
10001-20000000
262
0.8
18,614,564
58.2
32114
100
32,000,000
100
Total
The following table shows the dividends distributed during the last five years (2006-2009) and those recommended for 2010 :
Year
2006
2007
2008
2009
2010*
Percentage %
12
12
20
25
30
Dividend of one share (fills)
120
120
200
250
300
* Recommended for distribution for the year 2010.
37
Jordan Petroleum Refinery Company
The following table shows the net profits and shareholders Equity for the last five Years (2006-2009) and those recommended for distribution in 2010.
Net profits
Distributed profits (after discount of distribution tax)
Shareholders equity
JD
JD
JD
2006
6210137
3840000
59521538
2007
5949863
3840000
62073576
2008
9973938
6400000
65373696
2009
10854768
8000000
69514241
2010*
12975249
9600000
74706538
Year
* Recommended for distribution for the year 2010.
38
Mr. Wasef Yaqoub Azar
2
3
6
5
4
1965
Mr. Omar Ashraf Al Kurdi Representative of social security Corporation
1
Representative of the Engineering union of pension fund
Eng.Wael Akram Al Saqqa
Eng. Abed Al-Rahim Boucai
security Corporation
Representative of social
Mr. Naser Sultan Shreideh
1932
Mr. Walid Methcal Asfour chairman of the board Starting from 16/10/2010
1956
1959
1967
1936
of Birth
Name
#
Date
Jordan University
B.Sc in Architectural Engineering
B.Sc in Civil Engineering Fresno University USA
Yarmouk University
1980
1983
1995
1969
MA in Development Administration & Economics A.U.B, Lebanon
MA in Economics
1987
1958
Year
M.Sc in Electrical Engineering from Georgia University/ USA
Tennessee University USA
MA in Political Science & Economics.
Academic Degree
Graduation Brief Practical Experience
−Former Head of Engineering union −Member of several Public Shareholders Companies.
30/04/2007
30/04/2007
1/10/2007
− Former Minister of the Environment − Former Chairman of the Board of Petra’s Commissioners Region Authority − Former General Secretary of the Ministry of Planning −Member of Parliament −Member of a number of board of directors.
30/04/2007
01/10/2007
30/04/2007
Date of Joining the Board
−Former minister of Commerce and Industry −Chairman & member of board of directors for several banks & public corporations and companies. − Ex-director general for phosphate Mines Co.
−Former Minister of Commerce and Industry − Former Minister of Energy and Mineral Resources − Chairmanship and membership of the boards of several banks and companies −Former minister of Communications and Information Technology −Member of board of directors
A- The Chairman and Members of the Board of Directors
667
15700
-
600
1000
1150
-
-
-
-
-
-
Number Number of Shares of Held by Shares immediate Held family members
-
-
-
-
-
-
5000*
5000
5000*
5000
5000*
5000
12000
12000
12000*
12000
12000*
12000
Contracts, Projects and Transportation Contracting Remunera allowance and held by the tion during membership of company year 2009 committees for with Chair 2010 man and Members of Board
10. THE CURRICULUM VITAE OF THE CHAIRMAN, MEMBERS OF THE BOARD OF DIRECTORS AND THE EXECUTIVE MANAGEMENT OF THE COMPANY AND THEIR REMUNERATION DURING 2010
55th Annual Report
39
40
Dr. Nabeeh Ahmad Salameh
Eng. Naser Falah Madadhah
Eng. Suleiman Abdel Razzaq
10
11
12
1953
1944
1946
1935
1947
1953
of Birth
1960
2002
1980
1979
Ph.D. in Economics from Cairo
BA in Mechanical Engineering, University of Lawrence ,U.S.
Bachelor of Industrial Engineering University Massachusetts , U.S.
1979
1986
Year
BA in Law, Cairo University,
University of Kiel U.K
PhD in Economics
B.A in Business Administration, Arab University/ Beirut
Academic Degree
Graduation
* Remuneration is paid to the Social Security Corporation. ** Remuneration is paid to the Engineers Association pension fund. *** Remuneration is paid to the Islamic Development Bank /Jeddah
Mohammad Eid Bundokji
Starting from 1/6/2007
Dr. Jamal Mohammed Salah
Representative of Al-Samaha Real Eastate Co.
Mr. Mohammed Majid Allan
Name
9
8
7
#
Date
1/4/2009
-law professor -Former head of the Jordanian Arbitration before, and board member of several companies and institutions
- Chairman and General Manager of several companies.
-Former Chairman of the Board of Directors of the phosphate mines -Former adviser of the Prime Minister of the projects and tenders -Former Chairman of the Central Tenders Committee
1/4/2009
1/4/2009
1/4/2009
01/06/2007
- Former General Secretary of Ministry of Planning - An advisor of the Islamic Development, Bank-Jeddah -General Manager of Jordan Loan Guarantee corporation.
-Chairman of the Board of Directors of the Arab Potash -Former General Manager of Jordan Investment Corporation
30/04/2007
Asst. General director of Jordan Islamic Bank
Brief Practical Experience
Date of Joining the Board
118157
600
500
2500
-
100
10,000 (daughter)
-
250
-
-
-
Number Number of Shares of Held by Shares immediate Held family members
-
-
-
-
-
-
5000
5000
5000
5000
5000 ***
5000
12000
12000
12000
12000
12000 ***
12000
Contracts, Projects and Transportation Contracting Remunera allowance and held by the tion during membership of company year 2009 committees for with Chair 2010 man and Members of Board
Jordan Petroleum Refinery Company
Eng. Abdel Karim Alawin
Eng. Hani Ahmad Shawash
Mr. Ramzi Al Masri*
Eng. Zaid Al Kayed
Eng. Abdulla Khader
1
2
3
4
5
1952
1957
1959
1948
1955
Date of Birth
1981
1979
Bachelor of Mechanical Engineering-Egypt
1990
1982
Master of Engineering Refining and Petrokimoi- Romania
BA Accounting / University of Jordan CPA from Colorado, USA
1975
1978
BS in Chemical Engineering/I.I.T University/India BS / Mechanical Engineering University of Bratislava Slovakia
Graduation Year
Academic Degree
* Mr. Ramzi Al Masri resigned on 1/7/2010
Name
#
Executive Director of Transportation
Executive Director of distribution
Chief Financial Officer Secretary of the Board of Directors
Chief Executive Officer of the Refinery
Chief Executive Officer
Current Position
1979
1981
14/4/2005
9/7/2008
28/10/1978
Date of Appointment
B.The curriculum vitae for the Executive Chairman and Executive Directors of the Company
-
-
-
-
3000
Shares Held
-
-
-
-
N/A
Shares Held by Relatives
55th Annual Report
41
Jordan Petroleum Refinery Company
The following table shows the number of shares owned by Members of the Board as in 31/12/2010
Name Chairman of the Board Mr. Walid Methcal Asfour Representative of Social Security Corporation Mr. Omar Ashraf AL Kurdi/ Vice Chairman of the Board Mr. Naser Sultan Shreideh * Eng. Abed Al-Rahim Boucai Mr. Wasef Yaqoub Azar Representative of the Islamic Development Bank-Jeddah. Dr. Jamal Mohammad Salah
Number of shares owned personally 1150
1000
No. of shares owned by the organization he represents -
6525000
15700
-
600
-
-
2000000
Representative of the Engineering Union of Pension Fund Eng. Wael Akram Al Saqa
667
232058
Representative of Al Samaha Real Estate Co. Mr. Mohammed Majed Allan
100
2000
Mr. Mohammad Eid Bundokji
2500
-
Dr. Nabeeh Ahmad Salameh
500
-
Eng. Naser Falah Madadhah
600
-
118157
-
Eng. Suleiman Abdel Razzaq AlDaoud
* Mr Mohammad Madi was appointed as Representaive of the Social Secunty Corporation as a successor to Mr. Nassar Shraideh on 07/02/2011.
42
55th Annual Report
11. Administrative Affairs In support of the Company’s policy of providing a decent living environment for its employees and their families; which motivate them to contribute their best efforts and energies in work therefore the Company administration had decided during 2010 the following:-
>
Giving employees a reward rate of 45% of basic salary in conjunction with the Eid Al-Fitr to help them to bear the burdens and expenses of the feast.
>
On 2/3/2011 a collective work agreement with the union of workers was reached and agreed on the following:
1. Disbursement of salary of the Sixteenth month. 2. A pay raise by twenty dinars per month. 3. Increase the cost of living allowance to the employee by ten dinars per month. 4. Modified segments fund system of death, disability and compensation by increasing each segment by fifty Dinars. 5. Increase the number of university scholarships allocated to the employees’ children from five to ten grants per year. 6. Increase the engineers allowance by 5%.
Training & Development The Company continued developing the technical & management skills of its employees (132) training programs in 2010 benefiting (606) participants administered by the Training Department, were held either in-house at Abdul Majeed Shoman Training Center, or inside Jordan & abroad as shown briefly below:-
>
Implementation (105) training activities in technical administrative and financial in Jordan advantage (568) employees.(38) Employees attended (27) training courses & conferences abroad.
>
Training (21) delegates from the housing and working ministry, engineering union, and the Company training program for fresh graduates engineers and some business and finance graduates.
>
Continued cooperation with universities and colleges for training students to complete their undergraduate program requirements. (97) students had been trained during 2010.
>
Held (22) different training program in the areas of maintenance and operations and the establishment of occupational safety and awareness in quality management within the Center for Abdul Majeed Shoman Training Center of the Company benefited from (1104) employees.
43
Jordan Petroleum Refinery Company
Manpower 1-The total number of employees on 31/12/2010 was (3506) distributed as shown below Particulars
Numbers
%
Permanent Employees
2221
63.35
Annual Contracts
1075
30.66
Casual Laborers
23
0.66
Semi-Annual Contracts (3-6) months
187
5.33
2- The following table shows the numbers of staff and workers in the Company for the years 2009 and 2010 Number
2009
2010
Permanent Employees
2367
2221
Annual Contracts
798
1075
Workers, Casual laborers & temporary contracts
336
210
Total
3501
3506
Year
3- Distribution of Permanent & Annual Contract Employees by Rank as at 31/12/2010
Rank group
Special First Second Third Total
Permanent Employees
24 245 1692 260 2221
Annual Contracts
Workers, Casual Laborers & temporary contracts
Total
Percentage of permanent & contract employees to grand total (%)
4 15 455 601 1075
210 210
28 260 2147 1071 3506
0.8 7.4 61.3 30.5 100
Special Third
First
Second
44
55th Annual Report
4- The following table & graph show the distribution of Permanent Employees & Annual Contracts by Educational Qualifications as on 31/12/2010.
Educational Qualifications
Workers, Percentage of Permanent Annual casual laborers Permanent & Total Employees Contracts & temporary contract employees contracts to grand total (%)
Engineering graduates
113
78
-
191
5.4
University graduates
160
56
-
216
6.2
Intermediate diploma
284
110
-
394
11.2
General Secondary Certificate
371
191
-
562
16
Apprentice
263
96
-
359
10.2
Vocational Centers
86
7
-
93
2.7
Below general Secondary Certificate
944
537
210
1691
48.3
Total
2221
1075
210
3506
100
Engineering Graduates
University Graduates Intemediate Diploma
Below General Secondary Certificate
Vocational Centers
Apprentice
General Secondary Certificate
45
Jordan Petroleum Refinery Company
12. Safety and Environment Ever since its inception, the Company has been diligent for ensuring adequate safety of its staff , facilities and the environment under the motto (safety first). The Company aims to consolidate the concept of “safety culture” among its employees by ensuring that safety is everyone’s responsibility from the top management level to the lowest level, through the involvement of supervisors in decision-making in addition to establishing procedures for ensuring the safe operation of equipment and by providing personal protective equipment for the employees as required by the safety regulations in the Company. Department’s achievements during the year 2010: 1. The Company is working to provide safe working conditions for staff of the refinery by following proper operating procedures practiced in the petrochemical industries in the world. 2. The Company issued personal protective equipment to employees free of charge at the value of (130,711) Jordanian dinars in 2010. 3. Special attention to the safety of equipment and facilities in the refinery, brought considerable attention as a specialized global authorities such as TUV, RPI, UOP, and the Royal Scientific Society to carry out the periodic assessment on refinery’s equipment especially the LPG spheres. 4. The Company realizes the importance of the scientific training aspects and continued sending a large number of staff and engineers to training sessions, locally and internationally, in the field of safety and environment. 5. In-house training courses were held for staff working in the refinery, with regard to safety issues to improve their level of technical and scientific capability and to raise the level of safety in the Company. (25) Department Managers and Section Heads attended specialized safety courses held by (NEBOSH) and (IOSH). 6. As the Department of Safety and risk analysis contributed in the following activities during 2010: < Follow-up to the issuance of various work permits in the refinery / location, and set the conditions for implementing the actions required in the permits and ensure compliance to ensure the safety of work and workers. < Study and review the instructions and procedures for issuing personal protective equipment in the refinery. < Holding orientation sessions to introduce new employees and trainees on the most important items of safety rules and regulations in force in the Company through lectures and road shows in various locations in the refinery, in addition to distributing copies of the safety manuals to the new engineers in the Company. < Making daily rounds by supervisors to check safety in the refinery units and facilities and issue notices to prevent accidents that could affect the facility’s safety, staff or production process. (97) notices to prevent accidents and (38) for violation of safety were issued during the year 2010. Such notices were directed to relevant departments to correct the observed irregularities.
46
55th Annual Report
< Follow-up procedures and safety measures adopted at site during the con-
struction of new LPG storage tanks through safety supervisor who is available for the duration of work and through the commission on the follow-up project. < Check to ensure safety of all crude oil and other oil products tankers in Showair station and in the loading and unloading stations at the refinery .
13. Local Community Service The Company continued providing services to the local community by extending financial support for educational and religious institutions, charities, and local municipalities in the Kingdom through donation to support them in achieving their mission. In 2010, the Company donated JD (270,471) of which JD (259,620) were in cash for (42) institutions, the recurring constant donations including those approved by the board of directors were JD (10000) for every governmental university. In addition to the most important cash money donations to the following: Jordanian Dinars (JD) Hashemiya Municipality 55000 King Hussein Cancer Center 25000 Charities 12500 Jordanian Hashemite Charity Organization 15620 Charity campaign 15000 While the value of contributions provided by the Company during the 2010 amount (10851) dinars have been distributed to (7) different recipients.
14. Projects Completed Projects and Projects under Construction
First. Completed Projects 1. Works Related to the Refinery Units
>
Construction of four spherical tanks with a total capacity (8000) tons, cost JD (27) million.
>
Installation of equipment replacement for the hydrogen cracking unit at a total cost (7.145) million, as follows:
<
> > > > >
Paving and rehabilitation of the crude oil receiving station at the refinery. Constructing a hangar for chemicals storage in the warehouses. Linked the sewerage of blending and packaging factory of lube oils to the main network. Create additional space to store the gas cylinder in Salah al-Din gas station. The Construction of a concrete wall to separate the diesel tank number (188) and (189) from the water fire tank number (60). Preparing the foundation of the new heat exchanger for hydrogen-cracker unit and the civil works in the hydrogen unit for the installation of heat exchanger.
Second. Projects in Progress 1. Works Related to the Refinery Units
>
Continues to write off LPG cylinder, which are unsafe for circulation at an estimated cost (4) million for a total of (200,000) cylinders.
>
New facilities for gas cylinders factory to paint cylinders, at an estimated cost of JD (1,000,000).
>
Performing a periodic intensive inspection for rehabilitation of the spherical gas tanks at an estimated cost of JD (700,000).
>
Increase the capacity of the asphalt unit from (800) tons / day to (1,100) tons / day at a total cost of JD (650,000).
>
Purchase (62) gauges device to measure the liquid level and temperature and to install them on the tanks at an estimated cost of JD (500,000) .
>
Purchase and installation of a reactor for the Naphtha Hydrotreater unit at a total cost of JD (320,000).
> Supply automatic reverse cleaning system for Naphtha unit at total cost of JD (300,000).
>
48
Examination of crude oil tanks’ floor at the refinery at an estimated cost of JD (250,000).
55th Annual Report
> Modify the fire systems on the tanks at an estimated cost of JD (180,000). > The value of projects under construction amount of JD (575) thousand, and
the most important are : < Buy backup cyclone for Fluid Catalytic Cracking Unit under new designs. < Buy (3) tube bundles for heat exchangers number (301-E1 A, B, C & D) in the atmospheric distillation unit (3). < Purchase and install ten loading arms for the tanks’ loading facilities at the refinery. < Provide the laboratory with Fire-fighting system.
2. Projects Related to LPG Filling Stations, Factories, Airport Service Stations and Aqaba Depots
>
Construction of two gasoline storage tanks at South Aqaba Depot and two Jet fuel storage tanks at Queen Alia International Airport JPRC Station Project, at a total cost of JD (10.4) million.
>
Purchase and installation of a fire fighting water pump driven by diesel engine in addition to a pump to maintain network pressure at the Aqaba Depot in the main port, at an estimated cost of (200,000) dinars.
3. Construction Works
>
Construction of an evaporation pond (Evaporation pit) in the oil facilities south of Aqaba.
>
Maintenance of roads and yards, and expand the contractor tankers’ entrance to the loading area and develop the emergency road.
>
Create concrete sidewalks and pavements around the refining units in the refinery at an estimated cost of JD (28,000).
Third. Projects that shall be executed during 2011 1. Works Related to Refinery Units
> > > > >
Sulfur Recovery Unit Project, at an estimated cost of JD (12) million. Update transport fleet project at an estimated cost of JD (5) million. New steam boiler project at an estimated cost of JD (5.5) million. Purchase heat exchangers and spare tube bundles for the refinery at on estimated cost of JD (1) million. Buy two new gas compressors to replace the old ones at the Fluid Catalytic Cracking Unit at estimated cost of JD (1) million.
49
Jordan Petroleum Refinery Company
50
>
Modify part of current water fire-fighting network at estimated on cost of JD (750,000) .
>
CCTV system for the refinery and south of Aqaba locations at an estimated cost of JD (700,000).
>
Update circuit breakers in the main electricity switching stations (3KV) at the refinery at an estimated cost of JD (600,000).
>
Installation of the SCADA system for the control of modern protection units (Siemens Relays) at an estimated cost JD (500,000).
>
Purchase the required equipment for fire fighting on the entire floating surface tanks according to the recommendations of the “Wiliams Fire” Company at an estimated cost of JD (500,000).
>
Buy (3) tanks, mobile storage for foam material capacity (18000) liters each at an estimated cost of JD (400,000) .
>
Purchase two new pumps for the water fire-fighting instead of old pumps at the refinery at estimated cost of JD (400,000).
>
Purchase and installation of new steam generator and super heater for the Asphalt unit at an estimated cost of JD (400,000).
> >
Buying a rescue and rapid intervention car at estimated cost JD (400,000). Connect the fire-fighting water network to the Water Authority line at an estimated cost JD (370,000).
>
Extinguishing systems on the loading pallets in the refinery and on the oil’s facilities south of Aqaba, at an estimated cost of JD (350,000).
>
Replace the upper parts of the distillation towers NO. (301-V1, 01-C, 21-101) at an estimated cost of JD (300,000).
>
Buy tubes for the two steam boilers No. A/B at an estimated cost of JD (250,000).
>
Replace the steam heating with electricity heating which is the most feasible for loading lines at the refinery - East Rail at an estimated cost of JD (200,000).
>
Modify the heating system of all facilities at the refinery east of rail using hot water instead of steam at an estimated cost of JD (200,000).
>
The use of specialize body in operational safety systems to work on a system similar to what is practiced in the international refineries and provide a mechanical equipment safety system in the areas of maintenance ,inspection and operation at an estimated cost of JD ( 200,000).
>
In addition to a number of isolated projects, at an estimated cost JD (2.2) million.
55th Annual Report
2. Works Related to Lube Oils factory
>
Supply and installation of automatic line for packaging lube oils in plastic bottles capacity (1) liter, at an estimated cost of JD (400,000). 3. Construction Works
>
Rehabilitation of a 28 acres parking yard for the incoming empty tankers at an estimated cost of JD (700,000).
>
Maintenance and replacement of the concrete pavements in some units at the Refinery, at an estimated cost of JD (650,000).
>
Fire proofing for the structures of some air cooled condensers at the refinery and the lower part of the spherical gas tank in the gas cylinder filling station at Abu Alanda in Amman at estimated cost of JD (500,000).
4. In addition to a number of other projects at an estimated cost of JD (2,158) million, and the most important are
> > > >
Modifications of the oily water drainage systems . Re-paving of the loading’s yards at the south Aqaba oil Depot. Improve the refinery’s entrance. Constructing a road for fire trucks in the eastern bushes and preparing parking yard for the staff
>
Expanding the hanger of the blending and packing lube oils factory at the eastern side for a new hanger for storing lubes additives .
>
Protection measures for the control rooms at the process units.
51
Jordan Petroleum Refinery Company
Azraq
, Ma an
Al-Mafraq
Tafelah
Kerak
Aqaba
Irbid
Zarqa
Amman
Location
Geographical distribution locations for the Company’s activities, investment cost and number of employees as of 31/12/2010
52
Number of employees Contracted Contracted daily Contract Workers workers 3 – 6 Months 43 1 7 7 2 14 2 11 1 5 7 1 13 32 3 94 111 5 241 118 5 452 13 5 58 3 48 14 4 3 37 1 5 603 31 9 39 28 6
Value of Fixed assets (JD)
Permanent
5,985,747 80,530 218,117 265,704 96,498 3,100,279 1,115,100 391,090 13,535,106 2,643,758 1,055,746 15,105,719 43,593,394 187,119,993 11,493,375 1,667,095 1,848,152 17,373,374 905 115,804 7,414,837 732,749 227,766,384 11,324,322
158 34 7 3 3 4 61 24 9 98 401 1012 446 22 43 4 9 64 1 1601 91
4,690
5
2
-
-
22,721 11,351,733 30,028,418
3 1 100 108
1 42 177
28 7
6 3
231,319
7
-
-
-
40,266 683,654 30,983,657 84,710
115 5
1 178 6
7 -
3 -
Total
84,710
5
6
-
-
Distribution and Marketing / Lands
8,328
-
-
-
-
Total
8,328
-
-
-
-
956,810
-
10
3
-
Total , Ma an Land
956,810
-
10
3
-
103,860
-
-
-
-
Total Azraq Land Total Grand Total
103,860 75,268 75,268 314,924,144
2221
1075
187
23
Description General Administration Departments Petroleum Products Marketing Dept./Offices Musdar Station Um Al-Heeran Station Marka Station Gardenz station –Tla›aAlali Ameriah Station Khan Alzabeeb Station Distribution/Maintenance Queen Alia International Airport Station Amman Civil Airport Station LPG activities/Amman LPG Filling Station Total Refinery’s Site Transportation Loading Cylinders Factory LPG activities/Zarka LPG Filling Station Petroleum Products Marketing Dept./Zarka Office Petroleum Products Marketing /Site’s Station Lube Oils Manufacturing and Marketing Petroleum Products Marketing / AlRemal Station Total Distribution and Marketing / LPG activities Distribution and Marketing/Irbid Office & Maintenance Center Financial /Accounting Medical Services Total Distribution and Marketing / Aqaba warehouses Distribution and Marketing / King Hussein International Airport Gas Station Residential area Information Technology Department Total Distribution and Marketing / Kerak Station
Distribution and Marketing / Buildings and Lands/Mfraq Station
53 Information Systems CIO
Executive Director Human Resources
Human Resources
Medical Services
Chief Financial Officer Executive Director Marketing & Distribution
Stations Maintenance
LPG Business
Executive Director Transport
Process Development & Quality Control Group Inspection, E& HS Group
Strategic Planning & Research Dep.
Legal & Risk Mang. Dep.
Chief Executive Officer
Chairman of The Board
Board Of Directors
Inspection
Maintenance Group
Executive Director Refinery
Planification Methods
General Turnaround
Jordan Petroleum Refinery Co. Ltd. Organization Chart
Internal Audit & Control Dep.
General Accounting Cash Mang. Financial Planning Budget & Control Petroleum Products Business
Airport Serv. Business Logistics & Storage ( Aqaba Depots)
Lube Oil Business Movement Dep. Workshop Dep.
Purchasing
Laboratory &QC Process Development
Fire Fighting Safety & Risk Analysis Environment
Electric & Instrumentation
Maintenance By Area
Workshop & Factory Maintenance
Engineering Group
Training Center
Operations Group
Operation1
Administrative Services
Stores Civil Engineering Refinery Projects & Eng. Operation 3 Operation 2
Movements & Loading
55th Annual Report
Jordan Petroleum Refinery Company
Other Explanatory Notes
> The total capital investment for Company’s activities in 2010 was JD (35,105,107). > The Company owns as of 31/12/2010 the following subsidiary companies:
- The Jordanian Company for the Manufacturing and Filling of LPG with a total capital of JD (4) million 50% paid. - The Jordanian Company for the Manufacturing of Lube oils with a total capital of JD (3) million 50% paid. > Fees for the financial auditors Deloitte & Touch Company were JD (52,000). > There were no unusual activities outside the main Company’s activities in 2010.
Declaration of the Board of Directors 1- The Board of Directors of Jordan Petroleum Refinery Co.lares that there were no substantial matters that would affect the sustainability of the Company for the upcoming financial years that were not disclosed. 2- Members of the board of directors mentioned below declare their full responsibility for the accuracy and complete information and accounts in the report.
Name
Chairman of the Board
Vice chairman
Member
Mr.Walid Asfour
Eng.Omar Al-Kurdi
Mr.Wasef Azar
Member
Member
Member
Dr. Jamal Salah
Eng.Abed AlRahim Boucai
Naser Shreideh
Member
Member
Eng. Wael Al Saqqa
Mohammed Allan
Member Eng. Suleiman Abdel Razzaq Al-Daoud
Member
Member
Member
Mohammad Eid Bundokji
Nabeeh Ahmad Salameh
Naser Falah Madadhah
Signature
Name Signature
Name Signature
Name Signature
3- The mentioned below declare that they take the full responsibility for the accuracy and complete information and accounts in the report.
Name Signature
54
Chairman of Board of Directors
Chief Executive Officer
Chief Financial Officer
Walid Asfour
Eng. Abdel karim Alawin
Mohammad Al-Kour
55th Annual Report
The Recommendations of the Board of Directors 1- To adopt the Company’s financial statements for the year ended on 31/12/2010 and the Board of Directors Report, future plans and to exonerate the members of the Board of Directors. 2- To approve the allocation of JD (1,523,750) to statuary reserves. 3- To declare (30%) dividend (300) fills per share payable to shareholders registered in Company’s register on the date of convening of the general meeting in which this resolution is adopted. 4- To select (10) members of the Board of Directors. 5- To select the Company’s auditors for the fiscal year 2011. 6- To consider any other issues proposed by the General Assembly and falls within the scope of the General Meeting.
55
Jordan Petroleum Refinery Company
56
55th Annual Report
JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY) AMMAN - JORDAN
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2010 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT
TABLE OF CONTENTS
Page Independent Auditor’s Report
1-4
Consolidated Statement of Financial Position
5
Consolidated Statement of Income
6
Consolidated Statement of Comprehensive Income
7
Consolidated Statement of Changes in Shareholders’ Equity
8
Consolidated Statement of Cash Flows
9
Notes to Consolidated Financial Statements
10 - 54
57
Jordan Petroleum Refinery Company
Independent Auditor’s Report AM / 7609 To the Shareholders of Jordan Petroleum Refinery Company Amman - Jordan
We have audited the accompanying consolidated financial statements of Jordan Petroleum Refinery Company (a Public Shareholding Limited Company), which comprise of the consolidated statement of financial position as of December 31, 2010, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in shareholders› equity, and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. We have previously audited the consolidated financial statements of the Company for the year 2009, and issued our qualified report thereon dated March 30, 2010. 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 for such internal control as management determines necessary to enable the preparation of the 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. Except for what is stated in paragraphs (1) and (2) below, 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 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 on the auditor’s 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 Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’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.
58
55th Annual Report
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis of Qualified Opinion 1. As stated in Notes (2) and (32) to the consolidated financial statements, the Company’s concession period ended on March 2, 2008. Accordingly, the Company signed a settlement agreement with the Jordanian Government on February 25, 2008, concerning the expiry of the concession, which was approved by its General Assembly in its extraordinary meeting dated March 22, 2008. Moreover, no final settlement has been reached regarding the provision for doubtful debts and provision for slow-moving and spoiled inventory. The recoveries from these two provisions’ balances outstanding as of the concession expiry date should be credited to the Government. In addition, the Government requires that any new or additional provisions should be agreed on with the Government according to the Ministry of Finance letter dated November 15, 2009 concerning the settlement of pending financial issues between the Government and the Company provided that these provisions are reviewed quarterly. Furthermore, the Ministry of Finance has been informed of the outstanding provisions amounts and balances with the Government as of December 31, 2010 as per the Company’s Letter No. 2/23/25/7/3365 dated March 27, 2011. No approval by the Ministry of Finance on these balances and provisions has been received as of December 31, 2010 as informed by management. Additionally, we were unable to verify these balances and the effect of not reaching a final settelment concering these balances through performing alternative audit procedures. 2. We did not receive a confirmation letter from the Ministry of Finance for the following accounts as of December 31, 2010. Moreover, we could not verfiy the Ministry of Finance’s approval of these balances through performing alternative audit procedures: December 31, 2010 JD Ministry of Finance account receivables (Note 5)
51,911,650
Minstry of Energy and Mineral Resources – Provision for constructing alternative fuel tanks (Note 11e)
25,478,162
Settlement of targeted net income (Note 22)
11,689,596
Subsidy for crude oil derivatives charged to the Ministry of Finance (Note 19)
87,917,823
Ministry of Finance – Refining Iraqi oil (Note 19)
17,916,474
Ministry of Finance – Surplus in differences of pricing oil derivatives (Note 19)
43,200,297
59
Jordan Petroleum Refinery Company
Qualified Opinion In our opinion, except for the effect of any adjustments that might have been determined to be necessary had we been able to verify the financial impact of the settlement agreement with the Government regarding the provisions mentioned in paragraph (1) above, and the impact of not being able to verify the balances of the Ministry of Finance and its approvals of the balances mentioned in paragraph (2) above, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Jordan Petroleum Refinery Company as of December 31, 2010, its consolidated financial performance, and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Paragraphs Without further qualifying our opinion, we draw attention to the following: a. As stated in Notes (2) and (22) to the consolidated financial statements, and according to the Board of Directors’ resolution No. 132/2009 dated November 15, 2009 and the approval of the Prime Ministry in its meeting held on November 24, 2009, it was agreed to settle the relationship between the Government and Jordan Petroleum Refinery Company for the year 2009 through achieving an annual income of JD 7.5 million after tax excluding the profit of the Oil Factory and the surplus from refining Iraqi oil, provided that the Government approval is obtained to record any new provisions or to increase the existing provisions. Furthermore, the Company has prepared the financial statements for the year ended December 31, 2010 on the basis of a targeted income of JD 7.5 million after tax in addition to the profit of the Oil Factory and the Company’s share from refining Iraqi oil. This resulted in a surplus for the Government of JD 11,689,596 according to these agreements. b.As stated in Notes (2) and (11) to the consolidated financial statements, the Ministry of Energy and Mineral Resources and the Ministry of Finance, through the Pricing Committee’s resolutions, have adjusted the prices of some petroleum derivatives which resulted in reducing the Company’s share of revenue according to the IPP prices compared to what the Company should have received according to the previously approved arrangements adopted since June 2009 and as such considering the surplus payable to the Ministry of Finance. However, the Company’s management considers that this procedure is contradicting with the Service Agreement signed between the Company by which the Government granted its approval to the Company to carryout its activities on a commercial basis. This treatment resulted in reduction of the Company’s realized profits by approximately JD 12.8 million for the year ended December 31, 2010 (JD 23.6 million for the year ended December 31, 2009) as informed by management. Report on Legal Requirements The Company maintains proper accounting records, and the accompanying consolidated financial statements are in agreement therewith and with the financial statements presented in the Board of Directors’ report. We recommend that the General
60
55th Annual Report
Assembly of Shareholders take into consideration the effect of what is mentioned in paragraphs (1) and (2) and paragraphs (a) and (b) above when approving these consolidated financial statements. The accompanying consolidated financial statements are a translation of the original consolidated financial statements in the Arabic language to which reference should be made.
Amman - Jordan March 31, 2011
Deloitte & Touche (M.E.) - Jordan
61
Jordan Petroleum Refinery Company
JORDAN PETROLEUM REFINERY COMPANY AMMAN
CONSOLIDATED December 31, Note
ASSETS
2010
2009
JD
JD
Current Assets: Cash and bank balances
8,823,903
10,711,632
Accounts receivable and other debit balances
5
347,287,738
174,018,117
Crude oil, finished oil products and supplies
6
356,241,732
283,341,112
712,353,373
468,070,861
Total Current Assets Deferred tax assets
7
6,538,177
6,206,955
Available-for-sale investments
8
5,194,438
4,969,520
6,953,325
3,827,801
Property plant and equipment
307,970,819
273,564,172
Less: Accumulated depreciation
248,130,474
242,563,497
59,840,345
31,000,675
3,879,962
24,164,770
70,673,632
58,993,246
794,759,620
538,240,582
Property plant and equipment: Lands
Net Book Value of Property Plant and Equipment Projects under construction Total Property Plant and Equipment
9
TOTAL ASSETS
Contra Accounts Crude oil & strategic inventory derivatives
14
156,787,303
156,787,303
Death, disability, and indemnity fund
30
25,691,414
25,983,164
Board of Directors Chairman THE ACCOMPANYING NOTES CONSTITUTE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS AND SHOULD BE READ WITH THEM.
62
55th Annual Report
(A PUBLIC SHAREHOLDING LIMITED COMPANY) JORDAN
BALANCE SHEETS December 31, Note
LIABILITIES
2010
2009
JD
JD
Current Liabilities: Due to banks
10
427,424,551
185,682,246
Accounts payable and other credit balances
11
264,740,456
255,173,804
Provision for income tax
12
4,551,887
3,904,317
696,716,894
444,760,367
Total Current Liabilities Long - Term Liabilities: Due to death, disability, and indemnity fund
30
22,601,314
23,099,530
Deferred tax liabilities
7
169,972
162,102
Provision for staff end-of-service indemnity
13
564,902
704,342
23,336,188
23,965,974
32,000,000
32,000,000
19,537,287
18,013,537
104,816
104,816
Total Long-Term Liabilities SHAREHOLDERS’ EQUITY Authorized, subscribed and paid-up capital (32,000,000 shares at JD one per share) Statutory reserve
15
Voluntary reserve Cumulative change in fair value - net
16
4,686,419
4,469,371
Retained earnings
17
18,378,016
14,926,517
74,706,538
69,514,241
794,759,620
538,240,582
Total Shareholders’ Equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
Contra Accounts Ministry of Finance-funding of strategic inventory
14
156,787,303
156,787,303
Provision for death, disability, and indemnity fund
30
25,691,414
25,983,164
Chief Executive Officer
63
Jordan Petroleum Refinery Company
JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY) AMMAN - JORDAN
CONSOLIDATED STATEMENTS OF INCOME For the Year Ended December 31, Note Sales
18
Cost of sales
19
Gross Income from Sales Add: Operating income and other income Provisions no longer needed
2010
2009
JD
JD
2,379,207,154
1,818,083,819
(2,296,533,882) (1,763,233,865) 82,673,272
54,849,954
20
3,303,424
4,202,226
21
-
4,777,488
85,976,696
63,829,668
Gross Income Less: Selling and distribution expenses
23
(22,647,807)
(23,736,149)
General and administrative expenses
24
(7,237,714)
(9,392,179)
(21,294,363)
(12,735,696)
-
(5,000,000)
Bank interest and commissions Provision for lawsuits
29c
Provision for doubtful debts
5
(1,415,806)
-
Provision for the disposal of gas cylinders
11
(6,241,537)
-
Settlement of expenses for the year 2008 with the Government
25
-
(3,000,000)
Settlement of targeted net income with the Government (surplus) subsidy
22
(11,689,596)
3,666,853
26
(212,375)
(428,524)
15,237,498
13,203,973
(2,262,249)
(2,349,205)
12,975,249
10,854,768
Other expenses Income before Tax Income tax expense
12
Income for the Year Weighted Average Number of Shares
27
32,000,000
32,000,000
Earnings per Share
27
0.405
0.339
Board of Directors Chairman
Chief Executive Officer
THE ACCOMPANYING NOTES CONSTITUTE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS AND SHOULD BE READ WITH THEM.
64
55th Annual Report JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY) AMMAN - JORDAN
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Year Ended December 31,
Income for the year Change in fair value of available-for-sale investments Comprehensive Income for the Year
Board of Directors Chairman
2010
2009
JD
JD
12,975,249
10,854,768
217,048
845,710
13,192,297
11,700,478
Chief Executive Officer
65
66 -
Dividends paid to shareholders
18,013,537
-
(1,159,933)
1,363,250
0
-
-
17,810,220
19,537,287
-
1,523,750
0
-
-
18,013,537
JD
104,816
-
-
-
0
-
-
104,816
104,816
-
-
0
-
-
104,816
JD
Reserve
Voluntary
4,469,371
-
-
-
845,710
845,710
-
3,623,661
4,686,419
-
217,048
217,048
-
4,469,371
JD
Value - Net
Change in Fair
14,926,517
(6,400,000)
-
(1,363,250)
10,854,768
-
10,854,768
11,834,999
18,378,016
(8,000,000)
(1,523,750)
12,975,249
-
12,975,249
14,926,517
JD
Earnings *
Retained
69,514,241
(6,400,000)
(1,159,933)
0
11,700,478
845,710
10,854,768
65,373,696
74,706,538
(8,000,000)
0
13,192,297
217,048
12,975,249
69,514,241
JD
Total
* The retained earnings balance includes an amount of JD 6,538,177 as of December 31, 2010 resulting from deferred tax assets (JD 6,206,955 as of December 31, 2009). ** The Company’s General Assembly decided in its ordinary meeting held on May 5, 2010 to distribute dividends of 25% of the nominal value of the share, equivalent to JD 0.250 per share for a total amount of JD 8,000,000 as dividends to shareholders for the year 2009.
32,000,000
-
Appropriation to the Ministry of Finance - settlement of excess earnings
Balance - End of the Year
-
Appropriation to statutory reserve
0
-
Change in fair value of available - for - sale investments
Comprehensive Income for the Year
-
32,000,000
Balance - beginning of the year
Income for the year
32,000,000
-
Dividends paid to shareholders **
Balance - End of the Year
-
Appropriation to statutory reserve
0
-
Change in fair value of available - for - sale investments
Comprehensive Income for the Year
-
32,000,000
JD
Reserve
Capital
Income for the year
Balance - beginning of the year
Year 2010
Statutory
Paid-up
Cumulative
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY) AMMAN - JORDAN
Jordan Petroleum Refinery Company
55th Annual Report JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY) AMMAN - JORDAN
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2010 CASH FLOWS FROM OPERATING ACTIVITIES:
2009
JD
JD
15,237,498
13,203,973
-
5,000,000
6,569,569
7,907,726
11,689,596
(3,666,853)
-
(4,777,488)
38,519
130,843
Gas cylinders replacement provision
6,241,537
76,896
Provisions for doubtful debts
1,415,806
-
41,192,525
17,875,097
(186,375,023)
73,028,070
(72,900,620)
(37,641,183)
Income before tax Adjustments for: Lawsuits provision Depreciation of property plant and equipment Settlement of income with the Government Provisions no longer needed Staff end-of-service indemnity provision
Net Cash Flows from Operations before Changes in Working Capital (Increase) decrease in accounts receivable and other debit balances (Increase) in crude oil, finished oil products and supplies (Decrease) increase in due to death, disability and indemnity fund
(498,216)
5,277,530
Increase in accounts payable and other credit balances
1,717,585
34,628,780
(216,863,749)
93,168,294
(1,945,901)
(3,720,225)
(177,959)
(138,703)
(218,987,609)
89,309,366
(4,245,246)
(11,347,788)
52,886
673,517
(14,057,595)
(21,625,939)
(18,249,955)
(32,300,210)
241,742,305
(47,761,876)
(6,392,470)
(5,362,706)
235,349,835
(53,124,582)
(1,887,729)
3,884,574
Net Cash Flows (used in) from Operating Activities before Income Tax and Paid Provisions Income tax paid Staff indemnity paid Net Cash Flows (used in) from Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES: (Acquisition) of property plant and equipment Proceeds from selling property plant and equipment Projects under construction - net Net Cash Flows (used in) Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in due to banks Dividends paid to shareholders Net Cash Flows from (used in) Financing Activities Net (Decrease) Increase in Cash Cash and bank balances - beginning of the year
10,711,632
6,827,058
Cash and Bank Balances - End of the Year
8,823,903
10,711,632
67
Jordan Petroleum Refinery Company
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55th Annual Report
JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY)
AMMAN - JORDAN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
69
Jordan Petroleum Refinery Company
JORDAN PETROLEUM REFINERY COMPANY (A PUBLIC SHAREHOLDING LIMITED COMPANY) AMMAN - JORDAN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General The Company was established on July 8, 1956 with a capital of JD 4 million. In 1968, the Company doubled its capital to JD 8 million, and in 1976, the capital was increased to JD 32 million. In addition to the main units of refining and producing hydrocarbon products, the Company owns four factories for the production of lube-oils, LPG cylinders, containers, and asphalt drums. The accompanying consolidated financial statements include the operations of the main refining units and those of the subsidiary factories. In addition to the refining and production of hydrocarbon products, the Company transports and distributes the products to distribution stations all over the Kingdom. It is also responsible for the maintenance of these stations and the marketing of lube-oils. According to the settlement agreement signed with the Jordanian government, dated February 25, 2008 concerning the termination of the concession, the Company has to segregate some of the Company’s activities through establishing new companies wholly or partially owned by Jordan Petroleum Refinery Company after the expiry of the concession agreement on March 2, 2008. During the year ended December 31, 2008, the Company established two subsidiary companies wholly owned by Jordan Petroleum Refinery Company, namely: Jordan Liquid Gas Manufacturing and Packing Company and Jordan Lube-oil Manufacturing Company. These two companies have been founded in preparation of the segregation of the activities of gas packing and lubeoil manufacturing. Moreover, none of these companies has conducted any commercial activities yet. Additionally, Jordan Petroleum Refinery Company is still in the process of segregating the Company’s other activities. The Board of Directors approved the accompanying consolidated financial statements by its resolution No. (43) in its meeting held on March 28, 2011, and these financial statements are subject to the approval of the General Assembly of Shareholders.
2. The Concession Agreement On February 10, 1958, Law No. (19) of the Year 1958 was issued to ratify the concession agreement signed between the Government and the Company on November 16, 1957. According to this agreement, the Government granted the Company a concession for fifty years, giving it the exclusive right to establish and invest in facilities for
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55th Annual Report
the refining and processing of petroleum and hydrocarbon products and derivatives thereof; to engage in the storage, distribution and selling of these products; to own and lease lands; and other rights. Furthermore, the Company is exempted from all fees and customs duties that would otherwise be charged on goods and materials imported for the Company’s operations. In accordance with the concession agreement, the Government has the right to determine and monitor the prices of oil, crude oil and products supplied for local consumption. Furthermore, the Company shall submit to the Government a detailed statement of production costs. In consultation with the Company, the Government shall specify sales prices and make, every now and then, amendments there to as necessary. However, profit including income tax shall neither exceed 16% nor be lower than 7.5% of the nominal value of the Company’s shares (taken on the basis of accounting periods of five years each). The last period started in the year 2006 and ended on March 2, 2008, the date on which the concession agreement expired. The Company together with the Ministry of Finance settled the excess earnings for the period ending in the year 2005 according to the concession agreement. The differences of JD 3.6 million have been settled from the statutory reserve in accordance with the Ministry of Finance Letter No. 18/4/10494 dated October 31, 2006. Moreover, the concession agreement expired on March 2, 2008. Accordingly, the Company signed a settlement agreement with the Government dated February 25, 2008, concerning the expiry of the concession agreement, which was approved by the Company’s General Assembly in its extraordinary meeting dated March 22, 2008. Moreover, the financial effect of some items in this agreement has not been determined nor reflected in the accompanying consolidated financial statements as stated in (Note 32). Additionally, no final settlement has been reached regarding the provision for doubtful debts and provision for slow-moving and spoiled inventory. During the year 2009, the Company transferred an amount of JD 1,159,933 from the statutory reserve to the account of the Ministry of Finance to settle the excess earnings for the period from the beginning of the year 2006 to the expiry of the concession dated March 2, 2008. The Ministry of Energy and Mineral Resources and Ministry of Finance, through the Pricing Committee’s resolutions, adjusted the prices of some petroleum products. This resulted in a reduction in the Company’s share of revenue according to IPP prices compared to what the Company should have received according to the previously approved arrangements over a seven-month period starting June 2009. Moreover, the surplus is considered payable to the Ministry of Finance, contrary to what it is stated in item 4-2 of the service agreement signed between the Company and Government, which states that approval should be granted to the Company to carryout its activities on a commercial basis so that the local market petroleum derivatives prices are made according to the pricing mechanisms approved by the Governmental Petroleum Derivatives Pricing Committee based on international prices (IPP).This treatment resulted in reduction of the Company’s realized profits of approximately JD (12.8) million for the year ended December 31, 2010 JD (23.6) million for the year ended December 31, 2009. According to Jordan Petroleum Refinery Company’s Board of Directors’ resolution
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Jordan Petroleum Refinery Company
No. 132/2009 dated November 15, 2009, the letter of the Minister of Finance No. (18/4/25741) dated November 15, 2009 was approved to settle the outstanding financial issues between the Company and both the Ministry of Finance and Ministry of Energy and Mineral Resources on the following bases: 1. Through the petroleum derivatives pricing mechanisms, an annual profit of JD (7.5) million after tax will be achieved from refining and distribution activities taking into consideration that the change in the Company’s expenses is within the normal ratios. 2. The Lube - Oil Factory income shall be excluded from the profit referred to in item (1) above provided that it is subject to income tax. 3. The Company shall be granted an amount of (10) cents / barrel from the surplus realized by the Government as additional income from refining the Iraqi crude oil. This consideration is calculated based on the quantity of the barrels received by the Company provided that this income is subjected to income tax. 4. Agreement shall be made between the Government’s representatives and Chairman of the Audit Committee, ensuing from the Company’s Board of Directors, concerning any new provisions or the increase of the outstanding provisions. These provisions shall be reviewed quarterly. According to the Prime Ministry’s resolution in its meeting held on November 24, 2009, the above items have been approved to settle the financial relationship between the Government and Jordan Petroleum Refinery Company for the year 2009. Consequently, the Company has prepared the consolidated financial statements for the year ended December 31, 2010 on the basis of a targeted income of JD (7.5) million. This resulted in a surplus to the Government of JD (11,689,596) according to this settlement a subsidy of JD (3,666,853) for the year 2009.
3. Significant Accounting Policies Basis of preparation of the consolidated financial statements - The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and related interpretations. - The consolidated financial statements are stated in Jordanian Dinar. - The accounting policies adopted this year are consistent with those applied in the year ended December 31, 2009, except for what is stated in note (4-A). - The details of significant accounting policies are as follows: a. Basis of Consolidation of the Financial Statements The consolidated financial statements include the financial statements of the Company, its subsidiaries, and entities under its control. Moreover, control is achieved
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55th Annual Report when the Company has the ability to control the financial and operating policies of the subsidiary company to obtain benefits from its activities. Transactions, balances, revenues, and expenses between the Company and its subsidiaries are eliminated. - The financial statements of the subsidiary companies are prepared for the same fiscal year of the Company through adopting the same accounting policies of the Company. If the accounting policies adopted by the subsidiary differ from those adopted by the Company, the necessary adjustments to the subsidiary company’s financial statements are made so that its accounting policies match those of the Company. As of December 31, 2010, the Company owns the following subsidiaries:
Capital
Ownership
Investment Balance as of December 31, 2010
JD
%
JD
Jordan Liquid Gas Manufacturing and Packing Company (paid 50%)
4,000,000
100
Jordan Lube-oil Manufacturing Company (paid 50%)
3,000,000
100
Company’s Name
Location
Establishment Date
2,000,000
Amman
May 28, 2008
1,500,000
Amman
May 28, 2008
b. The crude oil and finished products price is determined according to the lower of cost or net realizable value. Cost is determined according to the weighted average method. Finished and under process products at the subsidiaries, lube-oil and cylinders factories are stated at the lower of cost, following the weighted average method, or net realizable value. Raw materials, spare parts and supplies are stated at the lower of cost, following the weighted average method, or net realizable value. A provision is taken for slow moving-inventory items. c. Available-for-Sale Investments These represent financial assets that the Company does not intend to classify as trading financial assets or held to maturity.
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Jordan Petroleum Refinery Company
Available-for-sale investments are stated at cost, plus acquisition expenses when acquired, and are revalued at fair value subsequently. Changes in the fair value of investments are recorded in a separate account within the statement of comprehensive income and shareholders’ equity. In case any of these investments is sold wholly or partially, or impaired, then the recorded gain or loss therefrom is transferred from shareholders’ equity to the consolidated statement of income. The impairment loss previously recorded in the consolidated statement of income can be recovered if it becomes objectively evident that the increase in fair value occurred in a period subsequent to the recording of the impairment loss. Moreover, the impairment loss of debt instruments can be recovered through the consolidated statement of income, while the impairment loss in the Company’s shares can be recovered through the cumulative change in fair value. d. Fair Value Fair value represents the closing market price of financial assets and derivatives on the date of the consolidated financial statements. In case declared market prices do not exist, active trading of some financial assets and derivatives is not available, or the market is inactive, fair value is estimated by one of several methods including the following: - Comparison with the present market value of a very similar financial instrument. - Analysis of future cash flows and discounting expected cash flows at a rate used for a similar financial instrument. - Adoption of options pricing models. The evaluation methods aim at obtaining a fair value that reflects market expectations and considers market factors and any expected risks or benefits upon valuing financial instruments. Furthermore, financial instruments the fair value of which cannot be reliably measured are stated at cost net of any impairment in their value. e. Accounts receivable are stated at net realizable value. Moreover, a provision for doubtful debts is computed according to management’s estimates, and the recoverable amounts. f. Property plant and equipment Property plant and equipment are stated at cost net of accumulated depreciation and impairment, and depreciated (except for land), when ready for use, according to the straight-line method over their expected operating lives at annual rates as follows:
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55th Annual Report
%
Buildings
2–4
Machinery and production equipment
9 – 11
Machinery and support services equipment
5 – 15
Tanks and pipes
5 – 15
Machinery, electric equipment, and machines
10 – 15
Products haulage units
10 – 11
Vehicles
15
Furniture and office equipment
10 – 15
Library and training equipment
10
Distribution stations assets
10 – 15
Other property plant and equipment
7 – 11
Computer hardware
40
- When the recoverable amount of any fixed asset becomes less than its net book value, its value is reduced to the recoverable amount and the impairment loss is charged to the consolidated statement of income. - The productive lives of property plant and equipment are revalued at the end of every year. If revaluation differs from previous estimates, the change is recorded in subsequent years, being a change in estimate. - Property plant and equipment are eliminated when disposed of or when no future benefits are expected from their use or disposal. g. A provision for income tax is taken through estimating the expected tax liabilities. The realized differences in estimated income tax are recorded in the consolidated statement of income when paid upon reaching a final settlement with the Income and Sales Tax Department. h. Deferred taxes are taxes expected to be paid or recovered due to temporary timing differences between the value of the assets or liabilities in the consolidated financial statements and the value on the basis of which tax is calculated. Furthermore, deferred taxes are calculated using the liability method in the consolidated financial statements according to the tax rates expected to be applied at the time of settlement of the income tax liability or the recognition of the deferred tax assets. - On the consolidated financial statements date, the balance of deferred tax assets and liabilities is reviewed and reduced in case it is expected that the Company would not benefit in whole or in part from the deferred tax assets, or the tax liability is settled or no longer needed.
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Jordan Petroleum Refinery Company
i. Provisions are recognized when the Company has liabilities at the date of the consolidated statement of financial position arising from previous events, settlement of these liabilities is probable, and their value can be reliably measured. j. Revenue from fuel sales is recognized upon delivery of fuel to the customer and issuance of the invoice. k. Interest is charged to the consolidated statement of income on the accrual basis. l. Transactions in foreign currencies are recorded in Jordanian Dinars at the exchange rates prevailing at the dates of the transactions. Assets and liabilities denominated in foreign currencies are translated to Jordanian Dinars at the average exchange rates published by the Central Bank of Jordan at year-end. The resulting exchange gains or losses are taken to the consolidated statement of income. m. A provision for the replacement of damaged gas cylinders is taken based on technical studies that estimate the number of cylinders intended to be destroyed every year. n. The Company adopts the self-insurance policy for vehicles. A provision is taken against vehicles accidents equivalent to the value of the comprehensive insurance premiums of the vehicles and their cargo. o. A provision for slow-moving, idle, and spoiled goods is taken based on technical studies performed by the Company’s specialized committees. p. A provision for end-of-service indemnity is booked for any legal or contractual obligations related to end-of-service indemnity, death and disability at the end of the employees’ services according to the accumulated service terms at the date of the consolidated statement of financial position and the Company’s internal regulations. q. Accounting Estimates Preparation of the accompanying consolidated financial statements and the application of accounting polices require the Company’s management to estimate and assess some items affecting financial assets and liabilities and to disclose contingent liabilities. These estimates and assumptions also affect revenues, expenses, provisions, and changes in the fair value within the statement of comprehensive income and shareholders’ equity and require the Company’s management to estimate and assess the amounts and timing of future cash flows. The aforementioned estimates and assumptions are based on multiple factors with varying degrees of assessment and uncertainty. Moreover, the actual results may differ from the estimates due to the changes resulting from the conditions and circumstances of those estimates in the future.
76
55th Annual Report The Company’s management believes that the estimates in the consolidated financial statements are reasonable. The details are as follows: - A provision for doubtful debts and slow-moving and spoiled inventory items is taken on the basis and estimates approved by management in conformity with International Financial Reporting Standards (IFRSs). - Income tax expense for the year is accounted for in accordance with the prevailing laws, regulations, and International Financial Reporting Standards. - Management periodically reassesses the economic useful lives of tangible assets for the purpose of calculating annual depreciation based on the general condition of these assets and the assessment of their expected useful economic lives in the future. Impairment loss (if any) is charged to the consolidated statement of income. - A provision for cylinders expected to be scrapped and replaced in the future is taken on the basis and assumptions approved by the Company’s management according to International Financial Reporting Standards. - A provision is booked for any legal or contractual obligations related to end-ofservice indemnity and death and disability according to the Company’s internal regulations. - Management frequently reviews financial assets stated at cost to estimate any decline in their value. Impairment loss (if any) is charged to the consolidated statement of income. - A provision for lawsuits raised against the Company is taken based on an approved legal study prepared by the Company’s legal consultants. According to the study, probable future risks are identified. This study is reviewed periodically. - Fair value hierarchy: The Company is required to determine and disclose the level in the fair value hierarchy into which the fair value measurements are categorised in their entirety, segregating fair value measurements in accordance with the levels defined in IFRS. Differentiating between Level 2 and Level 3 fair value measurements, i.e., assessing whether inputs are observable and whether the unobservable inputs are significant, may require judgement and a careful analysis of the inputs used to measure fair value, including consideration of factors specific to the asset or liability.
77
Jordan Petroleum Refinery Company
4. Application of new and revised International Financial Reporting Standards (IFRSs) 4.A New and revised IFRSs applied with no material effect on the financial statements: The following new and revised IFRSs have also been adopted in these financial statements. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. Amendments to IFRS 1: First-time Adoption of International Financial Reporting Standards – Additional Exemptions for First-time Adopters Amendments to IFRS 2: Share-based Payment – Cash-settled Share-based Payment Transactions
Amendments to IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (as part of Improvements to IFRSs issued in 2008)
The amendments clarify the scope of IFRS 2, as well as the accounting for cash-settled share-based payment transactions in the separate (or individual) financial statements of an entity receiving the goods or services when another entity or shareholder has the obligation to settle the award. The amendments clarify that all the assets and liabilities of a subsidiary should be classified as held for sale when the Company is committed to a sale plan involving loss of control of that subsidiary, regardless of whether the Company will retain a non-controlling interest in the subsidiary after the sale.
Amendments to IAS 39: Financial Instruments: Recognition and Measurement – Eligible Hedged Items
The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options.
IFRIC 17: Distributions of Non-cash Assets to Owners
The Interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.
IFRIC 18: Transfers of Assets from Customers
Improvements to IFRSs issued in 2009: Amendments to IAS 1: Presentation of Financial Statements (as part of Improvements to IFRSs issued in 2009)
78
The amendments provide two exemptions when adopting IFRSs for the first time relating to oil and gas assets, and the determination as to whether an arrangement contains a lease.
The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from ‘customers’ and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit being recognised as revenue in accordance with IAS 18 Revenue. IAS 1, IAS 23, IAS 27, IAS 32 and IAS 39. SMEs IFRS, IFRS 2, IFRS 3, IFRS7 and IFRS 8. The amendments to IAS 1 clarify that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. This amendment has had no effect on the amounts reported in current and prior years as the Company has not previously issued instruments of this nature.
55th Annual Report
IFRS 3 (revised in 2008): Business Combinations
IAS 27 (revised in 2008): Consolidated and Separate Financial Statements
IAS 28 (revised in 2008): Investments in Associates
IFRS 3 (2008) has been applied in the current year prospectively to business combinations for which the acquisition date is on or after 1 January 2010 in accordance with the relevant transitional provisions. The application of IAS 27(2008) has not resulted in changes in the Company’s accounting policies. The principle adopted under IAS 27 that a loss of control is recognized as a disposal and re-acquisition of any retained interest at fair value is extended by consequential amendments to IAS 28. As part of Improvements to IFRSs issued in 2010, IAS 28(2008) has been amended to clarify that the amendments to IAS 28 regarding transactions where the investor loses significant influence over an associate should be applied prospectively.
4.B New and revised IFRSs issued but not yet effective The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective: Amendments to IFRS 1: Limited Exemption from Comparative IFRS 7 Disclosure for First-time Adopters
Effective for annual periods beginning on or after 1 July 2011.
Amendments to IFRS 7: Disclosures – Transfers of Financial Assets
Effective for annual periods beginning on or after 1 July 2011.
IFRS 9 (as amended in 2010): Financial Instruments
Effective for annual periods beginning on or after 1 January 2013.
IAS 24 (revised in 2009): Related Party Disclosures
Effective for annual periods beginning on or after 1 January 2011.
Amendments to IAS 32: Classification of Rights Issues
Effective for annual periods beginning on or after 1 February 2011.
Amendments to IFRIC 14: Prepayments of a Minimum Funding Requirement IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments
Effective for annual periods beginning on or after 1 January 2011. Effective for annual periods beginning on or after 1 July 2011.
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Jordan Petroleum Refinery Company
IFRS 9 Financial Instruments issued in November 2009 and amended in October 2010
>
IFRS 9 Financial Instruments issued in November 2009 and amended in October 2010 introduces new requirements for the classification and measurement of financial assets and financial liabilities and for derecognition.
>
IFRS 9 requires all recognised financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at a mortised cost or fair value. Specifically, debt investments held within a business model with the objective to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding, are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.
> The most significant effect of IFRS 9 regarding the classification and measure-
ment of financial liabilities relates to the accounting for changes in fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was recognised in profit or loss.
IFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted. The Company’s management expects to apply IFRS 9 to the Company’s consolidated financial statements during the year 2011 and the application of the new Standard will not have a significant impact on amounts reported in respect of the Company’s financial assets and financial liabilities. However, it is not practical to provide a reasonable estimate of that effect until a detailed review has been completed. The amendments to IFRS 7: Disclosures – Transfers of Financial Assets increase The amendments to IFRS 7 titled Disclosures – Transfers of Financial Assets increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency about risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period.
80
55th Annual Report The directors do not anticipate that these amendments to IFRS 7 will have a significant effect on the Company’s disclosures regarding transfers of trade receivables previously affected. However, if the Company enters into other types of transfers of financial assets in the future, disclosures regarding those transfers may be affected.
IAS 24: Related Party Disclosures (as revised in 2009) modifies the definition of a related party and simplifies disclosures for government-related entities. The disclosure exemptions introduced in IAS 24 (as revised in 2009) do not affect the Company because the Company is not a government-related entity. However, disclosures regarding related party transactions and balances in these financial statements may be affected when the revised version of the Standard is applied in future accounting periods because some counterparties that did not previously meet the definition of a related party may come within the scope of the Standard.
The amendments to IAS 32: Classification of Rights Issues The amendments to IAS 32 titled Classification of Rights Issues address the classification of certain rights issues denominated in a foreign currency as either an equity instrument or as a financial liability. To date, the Company has not entered into any arrangements that would fall within the scope of the amendments. However, if the Company does enter into any rights issues within the scope of the amendments in future accounting periods, the amendments to IAS 32 will have an impact on the classification of those rights issues.
IFRIC 19: Extinguishing Financial Liability with Equity Instruments IFRIC 19 provides guidance regarding the accounting for the extinguishment of a financial liability by the issue of equity instruments. To date, the Company has not entered into transactions of this nature. However, if the Company does enter into any such transactions in the future, IFRIC 19 will affect the required accounting. In particular, under IFRIC 19, equity instruments issued under such arrangements will be measured at their fair value, and any difference between the carrying amount of the financial liability extinguished and the fair value of equity instruments issued will be recognised in profit or loss.
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Jordan Petroleum Refinery Company
5. Accounts Receivable and Other Debit Balances
This item consists of the following:
December 31,
Governmental institutions and departments-fuel* Ministry of Finance ** Fuel customers Other receivables Employees receivable Advances against staff end-of-service indemnity Total Receivables Checks under collection *** Letters of credit deposits and purchase orders Prepaid expenses Other debit balances (refundable deposits and other) Less: Provision for doubtful debts ****
2010 JD 218,984,941 51,911,650 17,884,435 18,621,192 1,290,180
2009 JD 74,780,821 39,975,755 17,106,995 9,790,973 1,104,462
418,608
493,392
309,111,006 42,086,873 1,518,783 1,166,321
143,252,398 33,513,589 1,205,053 1,226,547
40,677
40,646
353,923,660 (6,635,922) 347,287,738
179,238,233 (5,220,116) 174,018,117
* The item “Governmental institutions and departments - fuel” includes amounts due from the following governmental institutions and departments: December 31,
Royal Jordanian Jordanian Armed Forces and other security agencies Central Electricity Generating Company Water Authority Ministry of Health King Hussein Medical Center Ministry of Public Works Greater Amman Municipality Other governmental institutions
2010
2009
JD
JD
18,443,588
24,375,032
28,722,637
26,249,610
154,966,083 754,597 1,729,868 4,293,878 731,901 1,453,768
12,542,659 1,644,740 2,207,356 2,201,297 549,256 2,697,975
7,888,621
2,312,896
218,984,941
74,780,821
** This item includes advance payments to the government amounting to JD (4.95) million, on the account of the surplus from importing Iraqi oil. According to the Ministry of Energy and Mineral Resources letter No. 9/2/2/4113 dated October 6, 2009, the Company has been requested to calculate the gain from the discount given to the government from improting Iraqi oil since September 2008 up to date and record it to the Government’s account. *** The maturity dates of checks under collection extend to January 30, 2011.
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55th Annual Report
**** The movement on the provision for doubtful debts is as follows: December 31,
Balance – beginning of the year Provision for the year Less: Debts written-off Balance – End of the Year
2010 JD 5,220,116 1,422,883 (7,077) 6,635,922
2009 JD 5,220,116 5,220,116
The Company has adopted a policy of dealing with only credit worthy counterparties as a means of mitigating the risk of financial loss from defaults. The following are the accounts receivable due but not impaired: December 31,
1 day – 89 days days – 119 days 90 120 days – 179 days 180 days – 365 days More than one year Total
6.
2010 JD 188,262,401 44,022,859 58,060,194 5,129,891 13,635,661 309,111,006
2009 JD 98,726,188 19,858,142 2,559,070 12,702,232 9,406,766 143,252,398
Crude Oil, Finished Oil Products, and Supplies
This item consists of the following:
December 31, 2010 JD
2009 JD
153,239,507
101,433,990
Crude oil and materials under process
76,174,120
42,575,768
Raw materials, spare parts, and other supplies
48,704,206
47,258,613
Finished petroleum products and Lube oil
-
Goods in transit
100,483,377
114,443,676
Provision for slow-moving and spoiled inventory
(22,359,478)
(22,370,935)
356,241,732
283,341,112
The movement on the provision for slow-moving and spoiled inventory items is as follows:
Balance – beginning of the year Less: Items written-off Balance – End of the Year
2010 JD 22,370,935 (11,457) 22,359,478
2009 JD 22,480,094 (109,159) 22,370,935
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Jordan Petroleum Refinery Company
For the Year Ended December 31, 2010 Balance Beginning of Additions the Year
Description
Provision for staff endof-service indemnities
Transferred to Deferred Tax the Statement Assets as of of Income December 31, During the 2009 Year
Amounts Released
Year - End Balance
Deferred Taxes
JD
JD
JD
564,902
79,086
(19,522)
98,608
JD
JD
704,342
38,519 (177,959)
JD
JD
Provision for doubtful debts
5,220,116
1,422,883
(7,077)
6,635,922
929,029
198,213
730,816
Gas cylinders replacement provision
6,421,849
6,241,537 (5,131,789)
7,531,597
1,054,424
155,365
899,059
Provision for employees vacations
1,750,983
90,809
1,742,198
243,908
(1,230)
245,138
Provision for slow-mov- 22,370,935 ing and spoiled items
-
(11,457) 22,359,478
3,130,326
(1,604)
3,131,930
Provision for lawsuits
-
7,867,170
1,101,404
-
1,101,404
7,793,748 (5,427,876) 46,701,267
6,538,177
331,222
6,206,955
7,867,170 44,335,395
(99,594)
-
For the Year Ended December 31, 2010
Additions
Amounts Released
Year-End Balance
Deferred Taxes
Deferred Tax Liabilities as of December 31, 2009
JD
JD
JD
JD
JD
JD
4,631,473
224,918
-
4,856,391
169,972
162,102
4,631,473
224,918
0
4,856,391
169,972
162,102
Balance Beginning of Items Resulting in Deferred the Year Tax Liabilities
Cumulative change in fair value
8.
Available-for-Sale Investments
This item consists of the following:
2010
2009
JD
JD
626347
2,586,813
2,611,867
47300
2,057,550
1,712,733
192388
246,257
302,691
Jordan Paper and Cardboard Factories Company
33300
19,314
37,296
Public Mining Company
37500
260,625
281,250
Palestine Development and Investment Company
28060
23,879
23,683
5,194,438
4,969,520
Listed Shares: Jordan Electricity Company Arab Potash Company Jordan Dubai Islamic Bank
84
December 31,
No. of Shares
1,209,808 17,574,073 72,659,922 33,321,130 41,367,623 16,359,142 31,799,390 28,031,556 1,764,617 3,260,371 2,175,622 1,427,017 561,111 213,031 846,958 295,089 87,882 (642,378) - (25,255) - (1,154,444) (48,445) - (90,556) 90,556 3,827,801 19,749,695 74,086,939 33,882,241 41,580,654 17,090,289 31,799,390 27,262,757 1,804,054
Balance - beginning of the year Additions Disposals Transfers Balance - End of the Year
2,583,690
651,437
380,549
5,610 4,610,244 10 10 - 15
20,242 16,659,629 1,031 786,336 - (56,266) 1,510 21,273 17,391,209
24,708 20,374,375 2,175 1,693,095 - (66,017) 26,883 22,001,453
4,520 3,798,276
Computers
827,816
Total Excluding Land and Projects under Construction JD 273,564,172 1,119,722 (1,055,478) 34,342,403 307,970,819
JD 301,556,743 18,302,841 (1,055,478) 0 318,804,106
Total
3,879,962
59,840,345
70,673,632
- 242,563,497 242,563,497 - 6,569,569 6,569,569 - (1,002,592) (1,002,592) 0 248,130,474 248,130,474
Projects under Construction *** JD 24,164,770 14,057,595 (34,342,403) 3,879,962
31,000,675
58,993,246
- 235,935,913 235,935,913 - 7,907,726 7,907,726 - (1,280,142) (1,280,142) 0 0 0 242,563,497 242,563,497 0 1,101,201 24,164,770 7 - 11 40 -
186,383 2,193,747 - 815,606 - (17,120) 186,383 2,992,233
186,383 3,325,117 2,538,831 266,788,036 270,536,675 - 785,437 23,757,319 8,087,417 35,105,107 - (17,120) (2,131,380) (1,311,281) (4,085,039) 0 0 186,383 4,093,434 24,164,770 273,564,172 301,556,743
0
186,383 2,992,233 - 863,579 - (105,515) 186,383 3,750,297
JD JD 186,383 4,093,434 - 277,011 - (105,515) - 313,183 186,383 4,578,113
Other Fixed Assets
* Property plant and equipment include fully depreciated assets amounting to JD (218,015,204) as of December 31, 2010 JD (191,425,381) as of December 31, 2009). ** Additions to land consist mainly of the Company›s acquisition of a plot of land during the year 2010 on which a fuel distribution station is built at an amount of JD (3,125,524). *** Additions to projects under construction consist mainly of construction projects for aircraft fuel tanks.
Accumulated Depreciation : Balance - beginning of the year - 11,989,957 69,345,009 31,498,634 38,802,085 10,945,076 25,510,215 27,433,157 1,351,779 Additions - 643,537 885,595 402,642 980,403 812,366 2,311,439 178,506 90,265 Disposals - (9,527) - (1,154,444) (42,785) Transfers (55) - (15,092) 15,092 (1,455) Balance - End of the Year 0 12,633,439 70,230,604 31,901,276 39,782,488 11,732,823 27,821,654 26,472,311 1,397,804 Net Book Value as of December 31, 2009 3,827,801 7,116,256 3,856,335 1,980,965 1,798,166 5,357,466 3,977,736 790,446 406,250 Annual Depreciation Rate % 2-4 9 - 11 5 - 15 5 - 15 10 - 15 10 - 11 15 10 - 15
4,122,027 1,666,976 33,237,810 5,504,923
21,273 17,391,209 1,090 770,678 - (442,792) 22,363 17,719,095
Office Library Distribution Furniture and and Training Stations Fixtures Equipment Assets JD JD JD 1,804,054 26,883 22,001,453 64,052 1,638 (30,244) - (485,720) 1,837,862 26,883 21,517,371
6,953,325 7,062,321
Vehicles
JD JD JD JD 41,580,654 17,090,289 31,799,390 27,262,757 8,799 669,142 84,890 - (7,592) - (426,407) 32,005,254 357,196 22,918 73,594,707 18,109,035 31,822,308 26,921,240
Tanks and Electrical Products and Loading Pipelines Supplies Equipment Units
- 12,633,439 70,230,604 31,901,276 39,782,488 11,732,823 27,821,654 26,472,311 1,397,804 - 707,463 730,352 322,459 574,409 878,881 1,416,964 214,092 89,602 - (7,592) - (416,600) (30,093) 0 13,340,902 70,960,956 32,223,735 40,356,897 12,604,112 29,238,618 26,269,803 1,457,313
JD JD 3,827,801 19,749,695 3,125,524 5,720 - 647,808 6,953,325 20,403,223
Buildings
Supporting Machinery and Equipment JD 33,882,241 8,470 33,890,711
Cost : Balance - beginning of the year Additions Disposals Transfers Balance - End of the Year Accumulated Depreciation : Balance - beginning of the year Additions Disposals Balance - End of the Year Net Book Value as of December 31, 2010
Lands **
Production Machinery and Equipment JD 74,086,939 996,044 75,082,983
This item consists of the followings:
9. Property Plant and Equipment
55th Annual Report
85
Jordan Petroleum Refinery Company
10. Due to Banks
This item represents overdraft current accounts granted by several local banks to finance the Company’s activities at interest rates ranging from 5.2% to 7% against the Company’s guarantee.
11.
Accounts Payable and Other Credit Balances
This item consists of the following:
December 31,
Suppliers against drafts and purchase orders Accounts payable and other credit balances Provision for vehicles self insurance (a) Provision for replacing gas cylinders (f) Provision for financing cylinders boxes (b) Provision for occupational accidents indemnity Deferred revenues Provision for lawsuits and other (Note 29 c) Surpluses and derivatives pricing differences funds (c) Accrued bonuses Provision for employees vacations Municipalities fees (d) Provisions for sales taxes on oil derivatives (d) Provisions for constructing alternative fuel tanks (e) Retentions from contractors
86
2010
2009
JD
JD
187,870,839 21,332,220 4,658,063
137,934,731 51,040,426 4,659,678
7,531,597
6,421,849
2,255,415 1,731,237 25,588 7,867,170 44,692 1,742,198 250,319 3,320,121 25,478,162 632,835
2,255,415 1,488,335 25,588 7,867,170 31,460,714 545,106 1,750,983 9,284,201 439,608
264,740,456
255,173,804
a-
The Company adopts a self-insurance scheme on vehicles, and a provision is taken for the assessed comprehensive insurance premiums on vehicles and their cargo to meet any liabilities that might arise against the Company due to vehicles accidents.
b-
According to the Council of Ministers’ resolution No. 58/1/1/4941 dated April 9, 2006, the additional commission on gas cylinders has been raised to 50 fils instead of 25 fils provided that the commission proceeds are collected in an account maintained by the Company for financing safety boxes to be distributed to gas distributors. Deduction of this commission has been stopped after the adoption of pricing mechanisms of oil derivatives subject to international prices IPP.
c-
This item includes the amounts arising from pricing differences of the gas cylinders and petroleum derivatives between total cost including taxes, fees, and transportation fees and actual selling prices and the rounding-up of fractions effective March 2, 2008. These differences are considered right to the Government according to the Ministry of Energy and Mineral Resources Letter No. 9/4/1/719 dated February 16, 2009 and the Ministry of Finance Letter No. 18/4/9952 dated April 29, 2009.
55th Annual Report
Consequently, the Company was obliged, effective March 2008 to record the result of the rounding-up of the prices to the favor of the Ministry of Finance. Additionally, the Government has claimed the differences on the pricing of the petroleum derivatives effective December 14, 2008 according to the resolution of the Petroleum Derivatives Pricing Committee, in its meeting held on December 13, 2008, provided that the pricing surplus is recorded as a deposit under liabilities within the consolidated financial statements of the Company. The transaction on the funds arising from pricing differences of derivatives and surpluses was as follows:
e-
JD
JD
31,460,714
19,648,313
Differences of pricing oil derivatives during the year
43,200,297
79,430,753
(74,661,011)
(67,618,352)
Balance – End of the Year
2009
Balance – beginning of the year
Paid to the Ministry of Finance during the year
d-
2010
-
31,460,714
According to the Prime Ministry’s resolution No. 58/1/2444 dated February 7, 2008, the pricing mechanism of oil derivatives according to international prices during the year 2008 included municipalities’ fees of 6% of the ex-refinery price excluding lube oil as per the Municipalities Law No. (14) for the Year 2007 instead of one fils per liter applied during the concession period. The pricing mechanism of oil derivative for municipalities fees was ceased effective the beginning of the year 2010, and replaced with a special sales tax according to Regulations No. (4) for the Year 2010, amending Special Tax Regulations. During the year 2010, the pricing mechanism of oil derivatives according to the international prices included special sales tax on oil derivatives at 6% of ex-refinery prices excluding fuel oil, AVTUR, and AFKAZ. Moreover, the special sales tax on fuel (both types) was raised as stated in the pricing mechanism of oil derivatives letter dated June 18, 2010, to become between 18% and 24%. According to the resolution of the Prime Ministry in its letter No. 12/11/4/2439 dated February 7, 2008, it was agreed to apply a general sales tax on unleaded fuel as follows starting February 8, 2008: 1. To adjust the exemption on the unleaded fuel Octane (90) according to Article (22/c) of the General Sales Tax Law No. (6) for the Year 1994 and its amendments to become 12% subject to a general sales tax rate of 4%. 2. To cancel the exemption on unleaded fuel Octane (95) according to Article (22/c) of the General Sales Tax Law mentioned above and be subject to a general tax rate of 16%. According to the resolution of the Council of Ministers in its meeting held on January 11, 2011, it was decided to grant exemption on diesel and kerosene from the special sales tax and to decrease the special tax on unleaded fuel octane (90) to become 12% instead of 18% effective January 12, 2011. According to the letter of his Excellency the Prime Minister No. 58/11/1/5930 dated
87
Jordan Petroleum Refinery Company
March 24, 2010, an amount of JD (34) per ton was added to the price of unleaded fuel (both types) within the pricing mechanism of oil derivatives starting April 16, 2010. Moreover, the related proceeds are recorded in a special account maintained by the Company for the Government represented by the Ministry of Energy and Mineral Resources to build tanks for the storage of crude oil or oil derivatives at an average of (70) thousand tons in Aqaba. f- The movement on the provision for replacing gas cylinders is as follows: 2010
2009
JD
JD
Balance – beginning of the year
6,421,849
9,344,953
Provision taken during the year *
6,241,537
76,896
(5,131,789)
(3,000,000)
7,531,597
6,421,849
Write-off during the year ** Balance – End of the Year
* The provision for replacing gas cylinders is taken according to technical studies prepared by management. During the year 2010, a provision of JD (6,241,537) was booked to meet the revenue from the disposal and repair of cylinders mentioned in IPP pricing which amounted to JD (20) for each ton of gas. ** According to the decision of the Cylinders Write-off Committee, around 224 thousand damaged cylinders were written-off at an approximate amount of JD (5,131,789).
12.
Provision for Income Tax The movement on the provision for income tax was as follows: December 31, 2010
2009
JD
JD
Balance – beginning of the year
3,904,317
5,386,655
Add : Income tax expense for the year
2,593,471
2,237,887
(1,945,901)
(3,720,225)
4,551,887
3,904,317
Less : Income tax paid Balance - End of the Year
Income tax expense for the year shown in the consolidated statement of income represents the following:
Income tax for the year Less : Deferred tax assets for the year Amortization of deferred tax assets for the year
88
2010 JD 2,593,471 (353,578) 22,356 2,262,249
2009 JD 2,237,887 (691,873) 803,191 2,349,205
55th Annual Report
-
- -
13.
The Company filed its income tax return for the year 2009 and paid the declared income tax. Moreover, the Sales and Income Tax Department reviewed the Company’s records for the year 2008 and issued its assessment thereon. However, the Company objected the estimate of the Sales and Income Tax Department. In the opinion of the Company’s management and its tax advisor, the provisions taken in the consolidated financial statements are adequate to meet tax obligations. The income tax rate on the Company become 14% starting January 1, 2010 (15% for the year 2009). According to the New Income Tax Law effective January 1, 2010, a rate of 14% has been used for calculating deferred taxes as of December 31, 2010.
Staff end-of-Service Indemnity The movement on the provision for staff end-of-service indemnity is as follows:
Balance-beginning of the year Additions during the year Paid during the year Balance-End of the Year
14.
15.
2010
2009
JD
JD
704,342
712,202
38,519
130,843
(177,959)
(138,703)
564,902
704,342
Ministry of Finance - Funding of Strategic Inventory
a.
This item represents an interest-free fund granted to the Company by the Ministry of Finance to finance the strategic inventory.
b.
The concession agreement with the Government expired on March 2, 2008. Consequently, the Company, during the year 2008, entered into an agreement with the Government to evaluate the strategic inventory and fix its quantity and value as of the expiry date of the concession on March 2, 2008. Accordingly, the strategic inventory has been stated as an off-consolidated statement of financial position based on the quantities and prices as of that date.
Statutory Reserve a. In accordance with Article (186) of the Companies Law No. (22) for the Year 1997 and its amendments, the last of which was Law No. (17) for the Year 2003: - 10% of net income shall be allocated to the statutory reserve every year. The allocation shall not be stopped before the total allocated amount is equivalent to one quarter of the Company’s authorized capital. However, upon approval of the General Assembly of the Company, this allocation can continue until the statutory reserve equal the Company’s capital.
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Jordan Petroleum Refinery Company
16.
Cumulative Change in Fair Value - Net
This item consists of the following: December 31, 2010
2009
JD
JD
Cumulative change in the fair value of available-for-sale investments
4,856,391
4,631,473
Less: Deferred tax liabilities
(169,972)
(162,102)
4,686,419
4,469,371
17.
Retained Earnings The General Assembly of the Company decided in its ordinary meeting held on May 5, 2010, to approve the distribution of 25% of the nominal value of shares at (250) fils per share equivalent to JD (8) million. The Board of Directors recommended the distribution of cash dividends 30% of capital to shareholders, equivalent to JD (9.6) million, which is subject to the General Assembly of Shareholders approval.
18.
Sales This item consists of the following: December 31, 2010
2009
JD
JD
2,395,259,577
1,745,677,967
143,925,142
143,539,943
Lube oil factory sales
23,319,804
24,561,644
Transportation fleet proceeds
22,356,174
22,184,913
(205,653,543)
(117,880,648)
2,379,207,154
1,818,083,819
Refinery and distribution sales Gas cylinders packing sales
Less: Sales Tax and Special Tax
90
(69,639,687) 125,185,825
43,200,297 2,134,085,435
242,605 41,275 18,257 3,498 305,635 497,713 194,327,799 194,825,512 194,825,512
Gas Cylinders Packing JD 14,735 192,078 (14,735) 192,078
(18,278,136) 17,916,474
15,434,837 661,369 2,495,075 7,467,060 3,750,858 29,809,199 1,457,868,091 100,194,713 685,396,340 2,243,459,144 (152,212,344) 2,091,246,800
Refinery and Distribution JD 42,377,781 1,461,725,212 (76,044,101) 1,428,058,892
16,495,071
-
1,132,570 70,891 126,695 109,825 275,667 1,715,648 16,282,957 1,239,277 17,522,234 (1,027,163) 16,495,071
2010 Lube Oil Factory JD 183,252 14,499,341 (115,284) 14,567,309
20,767,551
-
6,461,596 402,894 83,665 518,364 10,596,597 2,628,369 76,066 20,767,551 20,767,551 20,767,551 20,767,551
0
Transportation Fleet JD
- The average cost per crude oil barrel amounted to USD (82) for the year 2010 (USD (62) for the year 2009).
Subsidy for oil derivatives charged to the Ministry of Finance account Ministry of Finance- surplus / refining Iraqi oil Surplus in differences from pricing oil derivatives recorded to the Ministry of Finance account
Production Expenses: Salaries and other employees benefits Company’s contribution to death and disability fund Depreciation of property plant and equipment Materials, spare parts and other supplies Paid fuel delivery rental Fuel for vehicles Other production expenses Total Production Expenses Total Production Costs Add: Petroleum finished products and oil -beginning of the year Purchases of finished products during the year Total Goods Available for Sale Less: Petroleum finished products and oil – end of the year
Crude oil and materials in process - beginning of the year Purchases of crude oil and raw materials used in production Crude oil and materials in process - End of the Year
Raw Materials:
This item consists of the following:
19. Cost of Sales
43,200,297 2,296,533,882
(87,917,823) 17,916,474
23,271,608 1,135,154 2,746,710 8,113,506 10,596,597 2,628,369 4,106,089 52,598,033 1,495,416,312 101,433,990 879,724,139 2,476,574,441 (153,239,507) 2,323,334,934
JD 42,575,768 1,476,416,631 (76,174,120) 1,442,818,279
Total
79,430,753 1,763,233,865
(42,930,067) 19,644,496
22,362,681 3,877,523 3,276,568 9,511,449 10,043,501 3,985,752 5,309,866 58,367,340 1,239,677,585 73,641,643 495,203,445 1,808,522,673 (101,433,990) 1,707,088,683
JD 40,219,224 1,183,666,789 (42,575,768) 1,181,310,245
Total
2009
55th Annual Report
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Jordan Petroleum Refinery Company
20.
Operating Income and Other Income
This item consists of the following:
Scrap sales Income from foreign exchange Income from the Ports Corporation * Dividends income Other income
2010
2009
JD
JD
44,841
246,196
756,189
756,694
1,200,000
1,438,830
83,836
94,919
1,218,558
1,665,587
3,303,424
4,202,226
* This item represents fees of JD (1,200,000) due to Jordan Petroleum Refinery Company resulting from the use of the service of the Company’s employees during the year 2010 by the Ports Corporation JD (1,438,830) during the year 2009.
21.
Provisions No Longer Needed
This item consists of the following: 2010
2009
JD
JD
Provision for replacement of gas cylinders *
-
3,000,000
Provision for stamps fees and fines **
-
1,777,488
-
4,777,488
* According to the Company’s Board of Directors’ resolution No. (51) dated February 23, 2010, it was approved to reverse JD 3 million of the Gas cylinders replacement provision, representing the amount in excess of the Company’s needs due to the actual calculation on December 31, 2009. **According to the Ministry of Finance resolution No. 18/4/14965 dated June 30, 2009, it was approved to exempt the Company from 50% of the fines on revenue stamps fees not fully paid during the year 2008. The remaining amount has been taken to the consolidated statement of income.
92
22.
Settlement of Targeted Net Income with the Government
According to Jordan Petroleum Refinery Company’s Board of Directors’ resolution No. 132/2009 dated November 15, 2009, the letter of His Excellency the Minster of Finance No. (18/4/25741) dated November 15, 2009 was approved to settle the outstanding financial issues between the Company and both Ministry of Finance and the Ministry of Energy and Mineral Resources on the following basis:
55th Annual Report
1.
Through the petroleum derivatives pricing mechanisms, an annual profit of JD (7.5) million after tax will be achieved from the refining and distribution activities taking into consideration that the change in the Company’s expenses is within the normal ratios. The Lube-Oil Factory income shall be excluded for the profit referred to in item (1) above. The Company shall be granted an amount of 10 cents / barrel from the surplus realized for the Government as additional income from refining the Iraqi crude oil. This consideration is calculated based on the quantity of the barrels received by the Company provided that this income shall be subjected to income tax. Agreement shall be made between the Government’s representatives and Chairman of the Audit Committee ensuing from the Company’s Board of Directors, concerning any new provisions or the increase in the outstanding provisions. These provisions shall be reviewed quarterly. According to the Prime Ministry’s resolution in its meeting held on November 24, 2009, the above items have been approved to settle the financial relationship between the Government and Jordan Petroleum Refinery Company for the year 2009. The settlement details of the year 2010 and 2009 income are as follows:
2. 3.
4.
2010
2009
JD
JD
Income before tax for the year
26,927,094
9,965,644
Less: Lube Oil Factory income after tax
(5,255,473)
(3,520,203)
(219,776)
(263,089)
The Company targeted income after tax
(7,500,000)
(7,500,000)
Income tax for the year
(2,262,249)
(2,349,205)
Surplus to (subsidy from) the Government
11,689,596
(3,666,853)
The Company’s share from the surplus after tax from Iraqi crude oil refining activity
23.
Selling and Distribution Expenses
This item consists of the following:
Salaries and other employees benefits
2010
2009
JD
JD
13,322,890
11,514,113
816,794
2,078,951
Depreciation of property plant and equipment
2,865,324
3,719,549
Raw materials, spare parts and other supplies
Company’s contribution to the Death and Disability Fund
1,320,372
2,815,288
Insurance fees
847,678
885,250
Fees, taxes and stamps
347,200
336,572
3,127,549
2,386,426
22,647,807
23,736,149
Other selling and distributing expenses
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Jordan Petroleum Refinery Company
24.
General and Administrative Expenses
This item consists of the following:
Salaries and other employee benefits Company’s contribution to the Death and Disability Fund Donations and in kind contributions Postage and telephone Stationery and printing Depreciation of property plant and equipment Staff end-of-service indemnity provision Technical and legal consultations Advertisements Maintenance and repairs Rents Cars expenses Subscriptions Insurance premiums Water and electricity Professional fees Other general and administrative expenses
25.
2010 JD 3,839,509
2009 JD 4,605,935
151,242
574,168
270,471 136,267 142,205 957,535 38,519 428,198 107,229 189,886 129,415 19,138 42,377 76,107 85,920 52,000 571,696 7,237,714
251,499 188,662 145,172 911,609 130,843 855,352 213,133 205,487 127,733 34,647 22,312 75,491 92,315 48,200 909,621 9,392,179
Settlement of Expenses for the Year 2008 According to the Prime Ministry’s resolution in its meeting held on November 24, 2009, it was approved to settle the financial relationship between the Government and Jordan Petroleum Refinery Company for the year 2008 through transferring JD (3) million by the Company to the Ministry of Finance as final settlement for the year 2008 income.
26.
Other Expenses – Net
This item consists of the following: 2010 JD 152,375
2009 JD 136,325
Provision for scientific research and vocational training
-
136,325
Provision for Technical and Vocational Education and Training Support Fund fees
-
95,874
60,000
60,000
212,375
428,524
Additional universities fees
Board of Directors’ remunerations
94
55th Annual Report
27.
Earnings per Share
Earnings per share are calculated by dividing net income for the year by the weighted average number of shares during the year as follows: 2010
2009
JD
JD
Income for the year
12,975,249
10,854,768
Weighted average number of shares
32,000,000
32,000,000
0.405
0.339
Earnings per Share
28.
Fair Value Hierarchy
The following table analyzes the financial instruments recorded at fair value according to the evaluation method at different levels defined as follows: - Level 1: Quoted prices (unadjusted) for identical assets and liabilities. - Level 2: Information not included in level (1) advertised prices mentioned for the asset or liability, either directly (e:g. prices) or indirectly (i.e. derived from prices); - Level 3: Information on the asset or liability not based on those observed from the market (unobservable inputs).
December 31, 2010
Level 1
Level 2
Level 3
Total
JD
JD
JD
JD
5,194,438
-
-
5,194,438
5,194,438
-
-
5,194,438
Financial instruments: Available-for-sale investments
29.
Contingent Liabilities and Financial Commitments a.
As of the consolidated statement of financial position date, the Company was contingently liable and financially committed as follows: December 31, 2010
2009
JD
JD
393,356,037
278,120,842
Letters of guarantee
2,588,074
484,335
Contracts for projects under construction
6,951,032
15,203,092
Letters of credit and bills of lading
b.
The number of gas cylinders in circulation is estimated to be (4.8) million cylinder. According to pertinent regulations, the Company will be charged with the value of replacing damaged cylinders. As a result, the Company
95
Jordan Petroleum Refinery Company
is building a gradual provision for the damaged cylinders to be replaced in the future. The provision balance is included in «accounts payable and other credit balances» (Note 11). c.
On July 12, 2006, and during the concession period, an accident occurred to a gas ship tanker that resulted in legal claims being filed claiming compensations at Aqaba Court of First Instance against the Company and the ship tanker›s captain by the four deceased persons’ heirs, the Ports Corporation, and the Jordanian Armed Forces. On March 11, 2009, the said court issued its verdict by holding both parties responsible, detaining the tanker, and disallowing it from traveling. The verdict was appealed at M’ain Appellate Court, which issued its final verdict on June 1, 2009, endorsing the Court of First Instance verdict, thus rendering it irrevocable. The ship owner filed an arbitration case in London claiming USD (28) million as compensation. Moreover, the Company presented its arguments on the unavailability of an arbitration agreement and the non-specialization, successively. Additionally, the ship owner filed a marine attachment lawsuit at South New York Court. In its turn, the Company granted power of attorney to international legal offices in New York and London to follow up on the attachment case and arbitration case. This resulted in the lifting off of the attachment on the Company’s funds in New York. Consequently, the above court cancelled the previous attachment decision dated October 19, 2009. At the end of the year 2009, the arbitration case in London was seized based on both parties’consents due to ongoing negotiations aimed at reconciliation between the two parties. An agreement for settlement with all parties to the accident of the Ship Ben Gas was signed at the beginning of 2011, resulting in the payment of around JD (1.6) million. Some of the cases have been dropped and some are still under settlement. Additionally, the lawsuit is at the point of ceasing the related arbitration procedures, and has not been dropped yet, and it is being followed up by the Company’s legal advisor. In light of the above, and based on the legal consultants’ opinion, the Company’s management believes that no additional provisions are needed concerning this case. Adjustment of the provision balance will be made when the need arises. There are lawsuits in courts raised against the Company claiming amounts estimated at JD (2,782,650) as of December 31, 2010. Some of the current lawsuits originated in prior years and have been filed against both the Government and the Company. The contingent liabilities arising from unsettled lawsuits have been estimated, and provisions have been taken in accounts payable and other credit balances. Based on the opinion of the Company’s management and its legal consultant, provisions booked in the accompanying consolidated financial statements concerning this matter are sufficient. d. According to the Customs Duties Law No. (20) for the year 1998, the Company’s purchases from petroleum products have been subjected to customs duties, and its sales, to sales tax in accordance with the General Sales Tax Law No. (6) for the year 1994 and its related amendments. As a result, the Company has raised its objection to the related governmental parties. In accordance with the Ministry of Finance Letter No. 18/4/2927 dated March 23, 2004,
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30.
the financial relationship between the Government and the Company entails that the Company should transfer the surplus in its earnings (net of both costs and shareholders’ dividends) to the Ministry of Finance. Consequently, the amounts claimed from the Company by the Department of Customs Duties, representing customs fees and sales tax on petroleum products imported by the Company for the years from 1999 until December 31, 2003, have been transferred to the General Treasury account through the weekly payments made by the Jordan Petroleum Refinery Company to the Ministry of Finance. According to the Minster of Finance’s letter No. 12/1/37/11772 dated October 30, 2005, collection of customs duties has been postponed according to the documents directly submitted by the Company and will be applied starting from the beginning of the year 2008 when due. As per the Minster of Finance’s letter No. 12/1/27/1781 dated January 27, 2008, collection of customs duties was postponed until the expiry of the concession period on March 2, 2008. Moreover, the Company’s imports from crude oil and fuel derivatives have been exempted from customs duties until December 31, 2011 according to the Prime Minister’s letter No. 12/11/4/4175 dated March 3, 2011. According to the Prime Minister’s letter No. 12/11/4/2439 dated February 7, 2008, it was agreed to impose general sales tax on unleaded fuel as stated below effective from February 8, 2008: 1. Adjust the exemption on unleaded fuel octane (90) issued according to Article (22/c) of the General Sales Tax No. (6) for the year 1994 and its amendment to become 12% subject to the general sales tax rate of 4%. 2. Cancel the exemption on unleaded fuel octane (95) according to Article (22/c) of the General Sales Tax Law mentioned above subject to the general sales tax rate of 16%. According to the recommendation of the Minister of Finance, the Ministers Council, in its meeting held on March 1, 2011, decided according to Article (149/c) of the Customs Law No. (20) for the year 1998, to approve exempting the imports of the Jordan Petroleum Refinery Company from crude oil derivatives from customs fees (unified fees) for the period from January 1, 2011 to December 31, 2011.
Death, Disability and Indemnity Fund
The Company’s liabilities for this fund are estimated at JD (25,691,414)on the assumption that the services of the Company’s employees are terminated all at the same time JD (25,983,164) as of December 31, 2009). During the year 2007, a net amount of JD 6,116,931 was transferred to the Fund, and the Company’s liabilities net balance as of December 31, 2007 became JD (14,604,217). According to the Board of Directors’ resolution No. (132) dated September 9, 2008, it was agreed to borrow JD (3) million from the Fund at a rate of 7.5%. Consequently, the net balance due to the Fund became JD (17,822,000) as of December 31, 2008. According to the Board of Directors’ resolution No. (7) dated April 14, 2009, it was approved to adjust the Death and Disability Fund Regulations through an increase of JD (100) per bracket and record such adjustment as an obligation to the Fund. Accordingly, the amount due to the Fund has become JD (22,601,314) as of December 31, 2010.
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Moreover, the Fund’s assets and liabilities of JD (25,691,414) have been recorded off-consolidated statement of financial position. Moreover, the Fund has special regulations whereby the Company’s employees, since the Fund’s establishment in the year 1987, have been co-financing this fund through monthly contributions. According to the Fund’s regulations, the Company pays its dues relating to any deficit that may arise upon settlement of these
debts annually. 31.
Related Parties Balances
The details of the balances and transactions with related parties are as follows: Balances As of December 31, 2010
2009
JD
JD
Ministry of Finance account receivable
51,911,650
39,975,755
Ministry of Finance – strategic inventory
156,787,303
156,787,303
4,949,411
5,728,633
Ministry of Finance – Refining Iraqi Oil Ministry of Finance – Differences in Oil derivatives pricing Ministry of Energy and Mineral Resources–Provision for constructing alternative fuel tanks
25,478,162
31,460,714 -
Transaction for the Year 2010
2009
JD
JD
Subsidy for crude oil derivatives charged to the Ministry of Finance
87,917,823
42,930,067
Ministry of Finance – Settlement of targeted net income
(11,689,596)
3,666,853
Ministry of Finance – Refining Iraqi crude oil
(17,916,474)
(19,644,496)
Ministry of Finance – Surplus in differences of pricing oil derivatives
(43,200,297)
(79,430,753)
Moreover, executive management and members of the Board of Directors’ salaries and remunerations amounted to JD (466, 327) for the year 2010 (JD 557,411 for the year 2009).
32. Settlement Agreement with the Government Relating to the Expiry of the Concession Granted to the Company In light of the expiry of the Company’s concession and the necessity to settle all related issues including financial settlement and determination of the Company’s future after the concession expiry, and in reference to the Prime Minister’s Letter No. 58/11/1833 dated January 28, 2008 on conducting the concession termination bargains, the Company signed a settlement agreement with the Government relating
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to the expiry of the concession agreement on February 25, 2008. The details are as follows: a.
The Company shall be granted part of the distribution activity (one of the four companies to be licensed) representing 25% of the market share as a minimum provided that this Company is separate from but owned by Jordan Petroleum Refinery Company (JPRCO) and that all the conditions will be applied on the other three distributing companies according to a licence agreement for this purpose. Moreover, the Company’s assets shall include the (five) gas stations owned by JPRCO.
b.
One logistics company shall be set up in Jordan whereby the Government’s share in this company is 51%, and JPRCO’s share is 49% upon its establishment. Moreover, this company shall operate on the basis of the free system of using the logistical facilities (This company is not entitled to trade in or import fuel derivatives). The Government and JPRCO shall be obliged to sell part of their shares in this company according to the Government’s program for restructuring the oil sector by opening it up for competition, and separating and evaluating assets as follows: 1. JPRCO shall be obliged to sell 29% of the logistics company’s capital to the operator (private sector) so that its share becomes 20% of the logistics company’s capital. Furthermore, the Government shall be obliged to sell 31% of the logistics company’s capital to the operator so that its share becomes 20% of the logistics company’s capital and the operator’s share becomes 60% of the logistics company’s capital. 2. All JPRCO’s facilities and assets in the new location in Aqaba / Southern Area, erected on a plot of land with an area of 251,820 dunums rented to JPRCO by Aqaba Special Economic Zone Authority / Aqaba Development Company, shall be separated, and so shall all the facilities and assets of JPRCO in Queen Alia International Airport, King Hussein Airport, and Maraka Civil Airport from the facilities and assets of JPRCO. These facilities and assets in Aqaba and the airports shall be considered part of the logistics company’s facilities and assets. 3. 51% of the logistical assets transferred to the logistics company shall be charged to the Government for the benefit of JPRCO (as per item 2 above). This percentage is considered the Government’s share in the logistics company upon its establishment. 4. All shares mentioned in item (1) above, including the option to sell the remaining Government’s share, shall be sold according to the Government’s program for restructuring the oil sector and establishing and licensing the logistics company. Moreover, JPRCO shall be obliged to sell its share, mentioned in item (1) above which represents 29% of the logistics company’s capital, at the same time the Government sells its share of 31% of the logistics company’s capital through competitive bidding offered by the Government for selling 60% to the operator (new buyer from the private sector). Moreover, both the Government and JPRCO shall receive the value of their sold shares according to the sale value charged to the operator (private sector).
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Jordan Petroleum Refinery Company
5.
6.
7.
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The Government and JPRCO shall comply with all the requirements for establishing the logistics company and its tasks. The logistics company shall be responsible for securing future storage capacities to serve the distribution companies in all parts of the Kingdom during its licence term and ensure the availability of the necessary storage capacity for the strategic inventory. The logistics company is considered the legal successor of JPRCO in connection with the rights and obligations on the executed tenders relating to the facilities mentioned in item (2) above, and shall charge the Government to the favor of JPRCO the equivalent of 51% of the tender’s value and 49% of the tenders value to JPRCO. Settlement of the working employees’ rights and addressing their conditions are performed according to the pertinent laws and regulations in effect.
c.
JPRCO’s ownership of the constructions, facilities, equipment, and accessories on the Company’s premises in Aqaba / old site / phosphate pavement shall be retained by JPRCO. Moreover, the request of Aqaba Special Economic Zone Authority (ASEZA) / Aqaba Development Company relating to the ownership of the site and what is constructed on it shall be left to JPRCO to deal with. In its Letter No. th b/b/11870 dated July 1, 2007, addressed to the Prime Minister, ASEZA requested reconsideration of the resolution of the Council of Ministers concerning ownership of these facilities for the purpose of selling them to the logistics company in order to enable Aqaba Development Company to translocate the main port facilities and equipment to the new site in the southern coast. JPRCO shall manage these facilities according to the free usage regulations to empower the distribution companies to supply the ships with fuel until the logistics company makes available new facilities to enable the distribution companies to supply ships with fuel.
d.
JPRCO’s ownership of the petrol derivatives haulage facilities at the Refinery / Zarqa shall be retained as these facilities cannot be technically separated. Moreover, JPRCO shall manage these facilities according to the free usage regulations for a transitional period provided that the necessary improvements and upgrading of these facilities are executed in accordance with the international requirements until the logistics company is empowered to build its own haulage facilities. After the transitional period, work of these facilities shall be limited for JPRCO’s purposes.
e.
JPRCO’s ownership of the liquid petrol gas containering facilities in Zarqa, Amman, and Irbid shall be retained provided that a company independent from and owned by JPRCO is established for the management of these facilities. Moreover, the Government shall be entitled to open the liquid petrol gas market for competition effective from the expiry date of the concession.
f.
JPRCO shall make available the storage capacities in excess of its needs in Zarqa, for the benefit of the logistics company, on a commercial basis for a transitional period until the logistics company sets up its own storage and haulage facilities.
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g.
JPRCO shall continue to store its crude oil in tanks No’s. 70, 15, and 71 with an approximate capacity of 68,000 tons allocated to store crude oil on JPRCO’s site (new site in Aqaba). The facilities and assets of the site shall be handed over to the logistics company without paying the logistics company any additional costs aside from the current costs estimated at JD 1.5/ton/ month for utilizing the above-mention tanks. JPRCO shall continue to use these tanks as arranged until alternative storage capacities are made available by Aqaba Development Company / Integrated Oil Port Project.
h.
Approval of the financial settlement relating to the expiry of the concession according to the report of the financial specialist hired by the Government is as follows: Description
Final Status
The balance of profit appropriations to the statutory reserve of JD (1.383) million
Government’s right
Value of the cumulative change in investments (shares)
Government’s right. The value is determined upon the concession expiry date
Value of interest paid on the bridge loan of JD 30 million
Agreement on retaining it for JPRCO
Value of distributed profits (16%) on the difference between capital of JD (32) million and actual paid-in Agreement on retaining it for JPRCO capital of JD 30.566 million for the period (1981 – 2007) Strategic inventory
Government’s right according to actual valuation upon the concession expiry date
Operating stock
Government’s right of evaluating it according to the prevailing international prices on the concession expiry date.
Provision for doubtful debts
Recoveries of these debts shall be paid to Government
Provision for staff end-of-service indemnity Provision for employees vacations
This relates to the Company’s employees who will be transferred to the other companies This relates to the Company’s employees who will be transferred to the other companies
Provision for gas cylinders
This shall be the right of the party that will take responsibility of replacing the citizens gas cylinders
Provision for slow-moving and spoiled inventory items
An independent study shall be conducted to evaluate slow-moving and spoiled inventory items. The difference shall be recovered from Government.
Capital projects
Agreement on retaining it for JPRCO.
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The above amounts have been estimated in light of and at the date of the financial report. The final amount of the above items shall be adopted according to JPRCO’s consolidated financial statements at the date of the expiry of the concession, and the final financial settlements shall be prepared accordingly. j.
JPRCO shall make available the petrol derivatives needed by the kingdom until the logistics company, the distribution companies, and the new liquid petrol gas companies commence their operations according to the “Agreement on Petrol Derivatives Distribution, Storage, Import, and Availability”.
k.
The distribution / marketing companies shall be obliged to purchase 75% of the Refinery’s production of light petrol derivatives. Moreover, fuel oil shall be exclusively sold by JPRCO until the completion of its expansion project and operating it commercially no later than the year 2011 extendible for a year upon both parties approval. This shall be considered cancelled in case JPRCO does not complete its program for commencing the execution of the expansion project through attracting a strategic partner and/ or a financial partner and / or increasing capital no later than December 31, 2008 or any extension approved by both parties. In accordance with the resolution of the Prime Ministry No. 58/11/1/2634 dated March 2, 2008, it was agreed to: 1. Approve the settlement agreement signed on February 25, 2008 between the representatives of the Government (the Minister of Finance and the Minister of Energy and Mineral Resources) and JPRCO’s representative (JPRCO’s Chairman of the Board of Directors) concerning termination of JPRCO’s concession including the financial settlement stated in the agreement. 2. Approve the import, storage, insurance, and distribution services of the petrol derivatives agreement signed on February 25, 2008 between the Government’s representative (Minister of Energy and Mineral Resources) and JPRCO’s representative (JPRCO’s Chairman of the Board of Directors). 3. Commence work on the above-mentioned agreements effective from the expiry of the concession. These agreements shall be considered cancelled in case JPRCO’s General Assembly does not approve them. Moreover, the resolution of the Council of Ministers No. 4487 dated June 5, 2007 shall be effective for separating and owning the logistics, distribution, and liquid petrol gas facilities belonging to JPRCO. Its assets shall be relocated to the new companies which shall be licensed according to the Government’s plan for restructuring the oil sector. 4. Complete the necessary procedures for signing the licensing agreement with JPRCO in light of the above settlement. According to JPRCO General Assembly’s resolution in its extraordinary meeting held on March 22, 2008, it was agreed to:
a.
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Approve the settlement agreement with the Government on the termination of
55th Annual Report
the concession on February 25, 2008. b.
Approve the segregation of the Company’s activities through establishing companies wholly or partially owned by JPRCO and authorizing the Board of Directors to do all what is necessary in this regard.
c.
Amend the Company’s internal regulations to comply with the Company’s legal status given the expiry of the concession. During the year ended December 31, 2008, the Company established two subsidiaries wholly-owned by Jordan Petroleum Refinery Company, namely: Jordan Liquid Gas Manufacturing and Packing Company and Jordan Lubeoil Manufacturing Company in preparation of segregating the activities of gas packing and lube-oil manufacturing. Moreover, these two companies have not yet conducted any commercial activities. Additionally, the Company is still in the process of segregating the Company’s other activities.
33. Risk Management The Company adopts financial policies for managing the various risks within a specific strategy. Moreover, the Company’s management controls and monitors risks and performs the optimal strategic allocation of financial assets and financial liabilities. Risks include interest rate risk, market risk, credit risk, and foreign currency risk. a. Capital Risk Management The Company manages its capital to ensure its ability to continue as a going concern and maximize the return to stakeholders through achieving an optimal balance between equity and debt. Moreover, no change in the Company’s overall policy has occurred since the year 2009. b. Liquidity Risk Liquidity risk, also known as funding risk, represents the difficulty that the Company will encounter in making available the necessary funds to fulfill its obligations. Moreover, the Company manages its liquidity risk through keeping adequate reserves, continuously monitoring the expected and actual cash flows, and matching the maturities of financial assets and financial liabilities. c. Credit Risk Credit risk relates to the other party’s inability to meet its contractual obligations leading to the incurrence of losses by the Company. Moreover, the Company adopts a policy of dealing with creditworthy parties in order to mitigate the financial losses arising from defaults. The Company’s financial assets consisting mainly of accounts receivable, available-for-sale financial investments, and cash and cash equivalents do not represent important concentrations of the credit risk. Furthermore, the debtors are wide spread among the clients’ categories and their geographic areas. Strict credit control is maintained over the credit limits granted to each customer separately on a continuous basis. All of the Company’s investments are classified as available-for-sale financial assets.
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The risk of investment in shares relates to the change in the value of the financial instrument as a result of the changes in the closing prices of shares. The change in the financial market index whereby the above securities are traded as of the consolidated financial statements date represents a 5% increase or 5% decrease. The following is the impact of the change on the Company’s shareholders’ equity. December 31,
5% Increase 5% (Decrease)
2010
2009
JD
JD
259,722
248,476
(259,722)
(248,476)
d.
Market Risk Market risk is the loss in value resulting from the change in market prices such as interest rate, foreign currency exchange rate, and equity instruments prices, and consequently, the change in the fair value of the financial instruments cash flows on-and off-the statement of financial position.
1.
Currencies Risk The Company’s major transactions are in Jordanian Dinar and US Dollar. The following are the book values of the Company’s financial assets and financial liabilities denominated in foreign currencies as of December 31, 2010 and
December 31,
Assets - US Dollar Liabilities - US Dollar
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2010
2009
JD
JD
5,240,246
12,358,057
188,030,104
198,958,605
Currency risk relates to the changes in the prices of currencies in connection with foreign currency payments. As the Jordanian Dinar is pegged to the US Dollar, the Company’s management believes that the foreign currency risk is immaterial.
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2.
Interest Rate Risk Interest rate risk is the risk of change in the value of the financial instrument due to changes in market interest rates. Moreover, the Company continuously manages its exposure to interest rate risk and considers the various scenarios such as refinancing, renewal of the present positions, and alternative financing. The below-mentioned sensitivity analysis is determined according to the exposure to interest rate risk related to the lending banks as of the consolidated financial statements date. Moreover, the analysis has been prepared assuming that the liability amount at the consolidated financial statements date was outstanding during the whole year. An increase or decrease of half a percentage point (0.5%) is used, representing the evaluation of the Company’s management of the potential and acceptable change at market interest rates: 2010
2009
JD
JD
0.5% Increase
2,137,123
928,411
0.5% Decrease
(2,137,123)
(928,411)
34. Sectorial & Geographical Distribution
Information on geographical and sectorial distribution: -
The Company is organized, for management purposes, into four major business sectors.
-
Refining: This sector separates the components of imported lube-oil into a set of varied oil products according to international specifications.
-
Distribution: Distribution links the production activity and refining activity on one hand, and all customers in the various areas of the Kingdom, on the other. Moreover, distribution fulfills customers demands on the Company’s petroleum derivatives and gas.
-
Manufacturing of Lube-oil: This sector includes the manufacturing and production of several types of oil required in the local market.
-
Manufacturing and Packing of gas cylinders: This sector includes manufacturing, repairing, and maintaining gas cylinders.
All of the Company’s assets, liabilities, and operations are inside the kingdom of Jordan.
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Jordan Petroleum Refinery Company
The following are the Company’s activities distributed according to activity type: Total Refining & Distribution
JD Income before tax
Manufacturing & Packing of Liquid Gas
JD
Manufacturing of Lube Oil
JD
Transportation Fleet
JD
Others
December 31,
JD 192,533
2010
2009
JD
JD
7,600,859
(255,532)
6,111,014
1,588,624
15,237,498
13,203,973
765,097,196
696,350
16,820,571
3,235,127
8,910,376 794,759,620 538,240,582
(708,152,777)
(1,190,749)
(10,709,556)
-
- 720,053,082 468,726,341
Other Information Total sector›s assets Total sector›s liabilities
35. Future Expansion Plan The Board of Directors approved the fourth stage of expansion at an estimated cost of USD (1) billion in order for the Company to continue its operations and to obtain offers from a strategic partner to finance this project. During the year 2008, two offers have been received from two joint venturers. The offers were submitted provided that certain privileges are obtained from the Government. However, the Government did not agree on this matter as it contradicts the Government’s strategy to liberate the energy sector. This led to the withdrawal of important members from the two joint ventures. Consequently, the Company’s Board of Directors decided to inform the two joint ventures of the termination of negotiations in order to allow other investors who expressed their willingness to enter as partners. In addition, an alternative plan has been made to execute the project’s expansion through raising capital by the Company itself and secure the necessary funding in case efforts to attract the strategic partner fail. On April 5, 2009, a Memorandum of Understanding was signed with an investor interested in entering as a strategic partner with the Company for (3) months. During this period, the investor would study the Company’s status and discuss related matters with the Government in preparation of submitting his technical and financial offer. On July 2, 2009, the Company received a financial, technical, and legal offer from the above investor within the grace period according to the Memoradum of Understanding signed on April 5, 2009. The offer included raising the Refinery’s refining capacity to 150,000 barrels per day. The project costs are estimated at USD (2.1) billion. Moreover, the expansion project shall be financed through the investor’s subscriptions in the Company’s new shares and through obtaining the necessary funding from local and international funding resources.
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The offer included a set of requirments from the Government to ensure the success of the 4th expansion project and to secure the necessary funding. Additionally, the Board of Direcotrs decided not to accept this offer in light of the issuance of the Council of Ministers’ resolution No. 5954 dated September 1, 2009 which includes approval for the Jordan Petroleum Refinery Company to invite the companies that have submitted their offers and expressed their interest in strategically partnering with the Company to execute the 4th expansion project on the basis of an exclusive period of 15 years at maximum of which 5 years are for executing the Refinery’s expansion project. This is followed by (10) exclusive years after executing the 4th expansion project provided that this limited period is granted according to the agreement which shall be made between the Government and the Company according to the terms and criteria to be agreed on at that time so as to enable the Company to negotiate and attract the interested investors accordingly. Consequenlty, the financial consultant “ Citigroup” sent expression-of- interest letters to 12 investors to confirm their interest in entering as strategic partners. Their final replies were due on October 30, 2009. The deadline has been extended to November 27, 2009 due to the inadequacy of the period upon the investors’ request. On December 15, 2009, the Council of Ministers resolved to suspend implementation of resolution No. (5954) and to form a ministerial committee to study the Refinery’s measures to attract the partner and the exclusivity granting conditions. Moreover, the Ministerial Committee decided to appoint a financial , legal, and technical consultant to advise the Ministry of Finance and Ministry of Energy concering the exclusivity agreement and related negotiations. The Council of Ministers, in its meeting held on October 26, 2010, decided to continue the work in the government program related to restructuring the oil sector ensuing from the comprehensive strategy for the energy sector (2007 – 2020) and the acceptance of the following: 1.
To let JPRCO take the appropriate steps related to the expansion proejcet No. 4 and grant it freedom to determine the optimal structure for its project and funding method according to a special agreement to be made for this purpose.
2.
To continue the work of the tender for restructuring the oil market concerning the acquisition and operation of marketing companies and to participate in owning and operating the logistic company that was suspended according to the decision of the Council of Ministers taken in its meeting held on October 6, 2009 provided that the tender is reoffered properly. During the 2010, the Company updated the technical studies for the expansion project including several alternatives depending on the available funding for different alternatives. During September 2010, the Company approached several financing companies to obtain information on whether they are interested to work as financial consultants for the expansion project. Withdrawal of the Government to grant exclusivity after approximately one year, and the instability of the Government’s decisions for more than five years, hindered the attraction of a partner to implement the expansion and made it difficult to invest in the Company in the future given the circumstances and
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disposition of the current Government directions. Accordingly, the Company had to change its strategies relating to expansion. Instead of building an expansion project that meets all the kingdom’s needs from oil derivative until the year 2025 at an investment cost of approximately USD (2) billion, expansion alternatives have been studied whereby the quality of oil products is improved and fuel oil is transformed to high value products without increasing refinery energy. This type of expansion requires an investment cost of between USD (800) million and USD one billion.
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