ANNUAL REPORT 2010 and financial statements 2009
ANNUAL REPORT 2010 and financial statements 2009
ANNUAL REPORT 2010 and financial statements 2009
TABLE OF CONTENTS Company Profile
5
Board of Directors
6
Chairman’s Message
7
Chief Executive Officer’s Statement
8
Electricity Division
9
Petroleum Division
19
Gas Division
23
Information Communication Technology
25
Human Resources Division
29
Corporate Services
37
Commercial Division
41
Finance Division
45
Financial Statements 2009
47
3
ANNUAL REPORT 2010 and financial statements 2009
COMPANY PROFILE Enemalta Corporation offers a broad range of services to both the industrial, commercial and domestic sectors in the energy field. Set up in 1977 the Corporation today undertakes a broad range of operations, incorporating the importation, storage and distribution of petroleum products, storage and bottling of liquefied petroleum gas as well as the generation and distribution of electricity to all sectors of Maltese society. Throughout the years, the Corporation has been instrumental in pioneering the usage of new technology to reach its corporate objectives whilst at the same time offering better products and services. Employing a workforce of nearly 2,000 people Enemalta plays a significant role in the economic development of the country, contributing towards the growth of both the industrial and commercial sectors by strengthening the island’s infrastructural base. The last few years have seen the Corporation extending and consolidating the electricity transmission system whilst upgrading its generation facilities. At the same time, Enemalta is bracing itself to face the challenges of globalisation and a fast developing new world economy. Today, the Corporation is becoming more focused on environmental considerations to create a safer and more sustainable habitat for the Maltese people.
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BOARD OF DIRECTORS William Spiteri Bailey (Chairman) David Xuereb (Deputy Chairman) Charles Ebejer (Director) Pauline Millo (Director) Angelica Micallef Trigona (Director) Paul Buttigieg (Director) Vivienne Galea Pace (Director) Simone Vella (Director)
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ANNUAL REPORT 2010 and financial statements 2009
Chairman’s Message The current year is proving to be a very uncertain one. The current uncertainty and turmoil in the neighbouring North African region is translating itself in great instability on the international price of oil. Even the past two years have also meant great challenges for the Corporation, again due to the steep rise in fuel prices to levels which had never been seen before. All this has placed great burdens on our country, which is totally dependent on fuel for our energy supply. In the past few years, the Corporation has taken steps to reduce this dependence. These include the investment in a 144KW extension in the Delimara Power Station, which will be in operation in 2012. This new extension will improve efficiency, consume less fuel, and considerably decrease emissions. In December 2010, we have also seen the signing of the contract for the laying of the Sicily-Malta 225MW Interconnector. This project will connect Malta to the international grid, providing the country with the possibility of purchasing energy from anywhere
connected to the grid, at favourable rates and totally free of emissions. It is envisaged that this project will be completed in 2013. Thanks to these projects Enemalta will decommission the Marsa Power Station which has served its purpose well for over 50 years. All this will help the Corporation to reach and go beyond the 20% reduction of emissions by 2020 as required by the European Union, providing Malta and its population with cleaner air from cleaner energy.
Enemalta is presently also going through a cost cutting and debt restructuring exercise to enable it to be able to face the challenges of the future. All the above may only be done with the coordination and goodwill of all. The Corporation’s backbone are its employees, and I have no doubt that all will be pulling the same rope to help it finalise successfully all the above projects, taking the Corporation into a different level, providing cleaner energy at a more sustainable cost.
Enemalta is also currently replacing all electricity meters with Smart Meters to enhance the services it can give to its consumers. This investment will also see Enemalta possibly offering differentiated rates for different times of the day, enabling a more efficient generation of energy to better and a more evenly distributed demand. Throughout the year, the Privatisation Unit has continued negotiation with the preferred bidder to commercialise the Petroleum Division. Once negotiations are finalised, Enemalta would be able to concentrate on its core activities, that of generating and distributing energy.
William Spiteri Bailey Chairman Enemalta Corporation
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Chief Executive Officer’s Statement Enemalta was in for another challenging year in 2010. Still recovering from the global recession, we also faced higher fuel prices and two nation wide power cuts, a result of an ageing Marsa plant which further highlighted the need for future investment. Despite several difficulties we worked relentlessly to achieve the three great milestones we set out in 2009: gain full development permit for the Delimara 144MW extension, conclude the Interconnector contract and a Corporationwide introduction of the SAP software. In May, permit for the 144 MW Delimara Power Station Extension was granted. Since then we have made real and measurable progress on the plant and its target date completion for the second quarter of 2012 is well within reach. This new plant will improve overall efficiency, reduce the amount of fuel consumed and considerably decrease emissions. This will give us the opportunity to sustain future tariffs while fully comply with all European Union legislations. After all we do have at heart the environment and we have taken a considerable amount of steps to ensure less emissions from our chimneys. Several trials on boilers 1 & 2 at Delimara Power Station were undertaken in order to achieve nitrogen oxides (NOx) emissions abatement. This resulted in individual and overall emissions levels making the plant more conformant to EU legislation. NOx levels went from 660 mg/Nm3 in 2009 to 420 mg/ Nm3 in 2010. Moreover, during the year we also started purchasing fuel with a lower sulphur content to be used at both Power Stations, decreasing from 1% to 0.7% sulphur. We have absolute confidence we are moving on the right tracks to significantly lower emissions and going beyond the 20% reduction by 2020. As testament to this
8
we made available all our data online and launched an emissions reporting system. This system is available on the Enemalta Website and it gives daily readings of emissions from each chimney, available as raw data or easy to read graphs. December was also a very important month for Enemalta as on the 14th of the month, together with the Ministry of Finance and the Department of Contracts, we signed the Interconnector contract with Nexans, a Norwegian company which is well renowned for the manufacturing of industrial cables, and which we are looking forward to be working with. This is a major project for the Corporation, connecting the local grid with the European one will mean Malta will be using energy which is produced by low carbon or carbon neutral generators. Sourcing electricity from new and diverse geographical locations also means the costs will be less driven by the price of fuel oil. In 2010 we also saw the roll out and implementation of the enterprise application software, SAP. This software combines all of the Corporation’s processes including: procurement, stores movement, works orders, financial transactions and many customer care functions. It has centralized all of the Corporation’s data and has become fundamental for the smooth running of operations. During the year we also managed to achieve other significant breakthroughs. We moved a step closer to the commercialization of our Gas Division. The new agreement with Liquigas limits our responsibility to the storage and bottling of Liquid Petroleum Gas, with the current plant scheduled to close down in mid 2012. We also inaugurated two new customer care offices, one in Xewkija, Gozo and one in Mosta, and the Smart Meters project was given a significant push
with more than 40,000 smart meters being installed in households so far. These surely are challenging times but they are also exciting ones. Investment will continue in the years ahead but this will be done whilst maintaining financial discipline. As we enter 2011, we will continue to drive improvements, while recognizing our biggest asset, our employees. In 2011 we will be unveiling a new corporate strategy which will also include a new mission statement; “We invest in cleaner, safer and sustainable energy solutions, whilst striving to meet and exceed our customers’ expectations by empowering our employees and providing them with development opportunities.” As we move forward we have to keep in mind the Corporation’s impact on the island’s economy. Critical targets have to be met, but this has to be done sensibly whilst keeping the best value for our customers in mind. Indeed, it is a very hard juggling act but we are relentlessly working to keep the balance. The challenges and hurdles we will face to make our long-term vision for Enemalta a reality are several, but I believe that with our combined technical expertise and sound knowledge of the business we will achieve our targets and more.
Ing. Karl V.A. Camilleri Chief Executive Officer Enemalta Corporation
ELECTRICITY DIVISION
9
Electricity Generation The archipelago of the Maltese Islands is supplied, for all its electrical power, from two Power Stations: that of Marsa and that of Delimara. The former is the older station which commenced power generation in the mid sixties and has a nominal total power output of 267MW and the latter is the newer Station which started production in the early nineties with a total power output of 304MW. Therefore the nominal total power output of both stations stands at 571Mw. The maximum load and power generated recorded so far were registered in the year 2007 - 434MW and in the year 2008 – 2312071 MWh respectively. Since 2008 a drop in power consumption was registered, there was a drop of 6% in 2009 and this year there was another drop of 2.5%, therefore, a total of 8.5% decrease from the year 2008. As for the yearly peak load recorded, which is registered during the summer months, again a drop was registered over these years. A 2% drop in 2008, 5% drop in 2009 and this year a drop of 1%, therefore, a total of 8% since 2007. This drop is not only registered in the Summer months but also in the Winter months. Since 2008 a drop of 5% in the winter of 2009 and another 8% for winter 2010. These trends are mainly attributed to the raise in tariffs. The consumer has become more conscious on wastage and is doing his best to reduce consumption. The introduction of subsidies by the Government on renewable sources of energy is also having an influence on the consumption of electricity. At the Power Station of Marsa efforts are made to leave the units shut down on cold stand by as much as possible. This is being carried out for two main reasons: first to reduce the working hours of its units and secondly to reduce the global emissions emitted by both stations. This is being done by increasingly utilising the Combined Cycle Gas Turbine (CCGT) at Delimara to meet load demand, moreover the CCGT is less polluting.
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Unfortunately, in 2010 the Stations experienced two main nation black outs and two other minor shut downs at Marsa. This was never experienced before and is attributed to factors which are not related to each other. The worst blackout for the Marsa Station was experienced in March and severe
damage was experienced on turbines 6 and 7. These turbines had to remain out of service for 14 weeks and 17 weeks respectively to repair the damage sustained. During this period turbine 5 was shut down to change over its breakers from the old Rayroll breakers to the new Siemens Breakers and Turbine 8
ANNUAL REPORT 2010 and financial statements 2009
was shut down to inspect its low pressure rotor. Consequently a total of 150Mw were on forced shut down simultaneously. Due to these unfortunate occurrences measures were taken to eliminate as much as possible such events. The two main measures which were introduced were firstly to improve the load shedding system and secondly to introduce the concept of spinning reserve. All the plant at Marsa were kept in good operating condition by means of regular inspections, overhauls and maintenance, and where applicable, salutatory inspections of pressure vessels, boilers and safety equipment were carried out. The same applies to the turbines and their auxiliaries, where extensive preventive maintenance was performed in order to prevent any forced shut downs during the year especially during the summer months. During 2010 other major works were carried out and thresholds were achieved including: ■ Change over of Turbine 5 to the new Siemens Switchgear ■ Replaced journal bearings on turbines 6 &7 ■ Rayroll switch gear was switched ‘Off’ and decommissioned ■ SCADA connected to the Siemens and South Wales Switchgear ■ The Bus Section circuit breaker which was damaged in Nov 2009 was repaired and placed back in service ■ Yearly calibration procedure carried out on the emission monitoring equipment ■ Turbine 8 inspection of low pressure Rotor ■ In August the sulphur content of the fuel burnt was reduced to 0.7%
■ Introduction of the new software SAP for purchasing and maintenance management Running maintenance at Marsa is increasing. Boiler tube leaks, condenser tube leaks and HPH tube leaks are occurring more frequently, implying an aging plant. Moreover, operation of the Marsa Station is becoming more difficult due to the debris that the sea water pumps are pumping from the Grand Harbor. This is mainly due to the heavy traffic of large passenger ships entering the harbor, dirtying and agitating the sea bed. The debris is blocking the condenser tubes. Worse still, a new phenomena is being noticed, a fine layer of mud is covering the tubes thus reducing the condenser efficiency and turbine capacity especially during the summer months. During 2010, Enemalta continued with its operating procedures of making better use of the combine cycle plant in preference to the steam units at Marsa Power Station. This policy is mostly carried out to reduce Carbon emissions and reduce the operating hours of the Marsa Power Station units. During 2010 various tests and alterations were carried out on the Steam units of Delimara Power Station in order to bring these units in line with the emission requirements of the Large Combustion Plant directive. During the year a trial with Low NOx atomizer tips was carried out on Boiler 2 which gave a significant improvement in NOx emission levels. Further modifications included an installation of a new design of burner swirlers which further improved the NOx levels. In fact, NOx levels on Boiler 2 decreased from over 650mg/Nm3 before the modifications to below 420mg/ Nm3. Similar modifications were carried out on Boiler 1 which also registered a significant
improvement in NOx emissions. Further tests with various fuel additives are also being planned in the first quarter of 2011 in order to ensure a lower level of NOx and Dust for all fuel bought in line with the current specification. The Combined cycle Gas turbines’ use of steam injection was introduced in January 2010 in order to reduce the NOx emissions from these units thus achieving the National Emissions Ceiling (NEC) limits. Further works were carried out on the units of Delimara Power Station in order to increase reliability and improve efficiency. Amongst the works carried out were:■ Major Inspection on Gas Turbine 3B ■ Maintenance on steam turbine 2. Works included the removal and inspection of the Generator rotor and a re-alignment of the front turbine bearing housing ■ Cleaning of Sea water entry culvert on Phase 2B units ■ Inspection and modification to Phase 2B steam turbine thrust bearing ■ Inspection, cleaning, blasting and painting of Diesel Oil Tanks 1 and 2 ■ Inspection of all chimneys at DPS ■ Installation of new Voltage Transformers on the 132KV switchgear Furthermore, improvements in the emissions monitoring system of the Delimara Power Station was carried out in order to minimize the possibility of damage to the system due to lightning strikes.
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GENERATING PLANT DATA 2010 Plant
Commissioned
Capacity MW
Running Hours
MWH Gen
% of System’s Requirements
971,655
45.98%
6,918
0.33%
771,720
36.52%
29,508
1.40%
333,312
15.77%
2,113,113
100.00%
Marsa Station (Steam) 1 - F Tosi
1966
10
2 - F Tosi
1966
10
1,662
3 - F Tosi
1970
30
7,658
4 - F Tosi
1970
30
6,131
5 - GE (1956)
1982*
30
6,034
6 - GE (1956)
1983*
30
4,480
7 - Ansaldo (1956)
1984*
30
5,366
8 - CA Parsons (1959)
1987*
60
5,982
Marsa Station (Gas) 9 - GEC Alsthom
1990
37
491
1 - BHEL
1991
60
8,330
2 - BHEL
1992
60
6,767
Delimara Station (Steam)
Delimara Station (Gas) 1 - John Brown
1995
37
384
2 - John Brown
1995
37
1,436
Delimara Station (CCGT) 1 - GT Nuovo Pignone
1999
37
5,198
2 - GT Nuovo Pignone
1999
37
4,065
3 - ST Nuovo Pignone
1999
36
6,077
* Refurbished Plant
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ANNUAL REPORT 2010 and financial statements 2009
ESTIMATES 2010 - Recurrent Expenditure Electricity units Generated in Mwh
2010
2011 (estimated)
Units Gen. Marsa Steam
971,655
1,029,590
Units Gen. Marsa GT
6,918
1,590
Units Gen. Delimara Steam
771,720
783,115
Units Gen. Delimara GT
29,508
8,250
Units Gen. Delimara CCGT
333,312
353,960
Total
2,113,113
2,176,505
Yearly % Increase
-2.5%
2.0%
Fuel Consumed in Mtons
2010
2011 (estimated)
HFO Marsa
306,071
323,118
LFO Marsa
2,802
641
HFO Delimara
207,987
208,375
LFO Delimara GT
10,575
3,069
LFO Delimara CCGT
69,650
72,608
Total HFO
514,058
531,493
Total LFO
83,027
76,318
ASSUMPTIONS
2010
2011 (estimated) MPS generating 46% of Total DPS Unit 1 shut down for 8 weeks DPS Unit 2 shut down for 8 weeks CCGT shut down for 9 weeks each DPS Unit 1 & 2 running with a Load Factor of 90% CCGT running with a Load factor of 65&
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SYSTEM GENERATION FIGURES Actual
Actual
2009
2010
966,151
971,655
5,900
6,918
836,970
771,720
Total Generating Capacity MWh Generated Marsa B Stn (Steam) MWh Generated Marsa B Stn (Gas) MWh Generated Delimara Stn (Steam) MWh Generated Delimara Stn (Gas)
15,756
29,508
MWh Generated Delimara Stn (CCGT)
342,863
333,312
2,167,640
2,113,113
121,705
116,221
2,045,935
1,996,892
System maximum demand (MW)
403
400
System maximum demand (MVar)
165
158
303,029
308,081
2,338
2,802
220,457
207,987
Gas Oil (Delimara)
5,541
10,575
Gas Oil (Delimara CCGT)
69,609
69,650
Steam Units Marsa
0.314
0.317
Steam Units Delimara
0.263
0.270
Gas Turbine Unit Marsa
0.396
0.404
Gas Turbine Unit Delimara
0.352
0.358
CCGT
0.203
0.209
Steam Units Marsa
78.49
79.07
Steam Units Delimara
92.40
85.20
Gas Turbine Unit Marsa
39.65
39.69
Gas Turbine Units Delimara
46.90
46.30
CCGT
70.00
65.40
Steam Units Marsa*
26.27
26.12
Steam Units Delimara*
31.86
31.12
Gas Turbine Unit Marsa
21.09
20.71
Gas Turbine Units Delimara
23.77
23.32
CCGT
39.28
38.19
Total MWh Generated Units consumed in Stations (MWh) Units sent out from Station busbars (MWh)
Fuel Consumption (Mtons) Heavy Fuel Oil (Marsa) Gas Oil (Marsa) Heavy Fuel Oil (Delimara)
Fuel Rates (Kg/Kwh)
Plant Capacity Factor %
Station Thermal Efficiency %
* Efficiency calculated on Net CV
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ANNUAL REPORT 2010 and financial statements 2009
PROJECTS SECTION The major task which was entrusted to the Project Section this year was the new Generation Plant at Delimara Power Station. Following the signing of the contract with BWSC in May 2009, design work started on the engineering of the plant with the basic engineering being completed by February 2010. Detailed engineering started soon afterwards. Production of the equipment had already started in 2009 and the Factory Acceptance Tests of various equipment, including the diesel engine gensets, started to be carried out in March 2010. Other Factory Acceptance Tests followed as soon as the major items of plant were completed. Due to the delay in the issuing of the construction permit, these items could not be shipped and therefore, had to be stored either at the Original Equipment Manufacturers or in other stores overseas, or, as in the case of the sea water piping, in containers on site. Following the Environmental Impact Assesment (EIA) submission in August 2009, the revised report in October 2009 and two public hearings in December 2009 and January 2010, the EIA for the new plant was approved and the Soil Investigation permit was granted in February. The works permitted under this permit were of reduced scope and
in order not to interfere with the works following the issue of the full construction permit, no excavation works were done. However, other preparatory work including rebar preparation and construction of site offices was also done. Following the public hearing in May 2010, the full construction permit was granted and excavation for the foundation of the plant was started in June 2010. Major excavation was virtually complete by late September and engine room foundations started to be laid soon afterwards. The 8 diesel engine gensets arrived on site in October 2010 and were immediately placed on the engine room floor. It was decided that the project team would be increased by three persons, a Project Director who was engaged in late July, a Cost Manager in October and a Planning/ Programme Manager in December. The engine room structure started to be erected in mid October and is expected to be substantially completed by end of Q1 2011. Construction work has also started on the abatement area and the Fuel Oil Treatment area. Construction work is now taking place in earnest and it is expected that all major equipment is to be placed on site by June 2011, when the site mechanical and electrical engineering works are expected to start.
Regulatory Permits Following the approval of the EIA by Malta Environment and Planning Authority (MEPA), the Integrated Pollution Prevention and Control (IPPC) application of the new plant is being processed with the first submission being made in February 2010. Following the second submission of questions by MEPA in September, it is expected to finalise the answers with the next submission of documentation being carried out early in 2011. In the meantime, another related application has also been submitted to the Malta Resources Authority (MRA) and is currently being processed. Drawing Office Projects Section The Drawing Office attached to the Projects section, carries out work associated with all Enemalta Corporation sections and in 2010 was also involved with both the electricity generation and distribution sections as well as with work associated with the privatisation of the Petroleum division.
DEVELOPMENT SECTION In 2010, the Development section commissioned a total of 21 new distribution substations, together with routine maintenance to 7 distributions centers and 104 substations.
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During 2010 the Development section laid more than 10km of 11kV cable and 46km of 33kV cables. 4.5km of 11kV cable were laid in trenches for the Smart City project together with a dedicated substation which will supply the whole are of Smart City. Three substations together with 5.7km of 11kV cable where also laid at Ta’ Barkat, to provide supply to a new sewage treatment plant which will treat around 70% of Malta’s sewage. Around 46km of 33 kV cables were also commissioned to be laid between Mosta and Mellie˙a, replacing the overhead lines which connected Mellie˙a distribution centre to Mosta. During December a new 11kV switchboard at Tarxien DC was placed in service. This comprised of a new 29-panel switchboard, a Substation Control System, and new protection relays on the 33kV switchgear. All this was done to improve supply reliability. One must also note that customers suffered a minimal interruption in supply during the change-over. The power transformer at Msiera˙ DC was replaced to increase the reliability of this distribution centre which supplies localities such as Sliema, San Ìwann, Msida and GΩira. On the 8th of August 2010, the Development section had to face quite a challenge after a fire broke out at the Óal Far Distribution Centre. Even though the fire was controlled, important equipment suffered extensive damage and an 11kV switchboard was rendered beyond repair. Technicians and engineers tried to distribute the load of affected localities onto different sources to bypass the damaged equipment. Unfortunately other faults occurred on other
16
parts of the network during this process complicating matters, but following the installation of an emergency 11kV switchboard, supply to all affected areas was restored within 42 hours. Commissioning of the SCADA system Two 132kV distribution centres and seven 33kV distribution centres are now remotely monitored and controlled by the SCADA (supervisory control and data acquisition) system. The two power stations are also connected to SCADA for the monitoring of the network cables connected to the stations. The data engineering was carried out by Enemalta engineers under the supervision and training of ABB of Sweden. The rest of the distribution centres will be connected by the end of July 2012. Currently the following are connected to the SCADA system: Marsa Power Station, Delimara Power Station, Marsa South DC, Mosta DC, St Venera DC, New Hospital DC, Freeport DC, Kirkop DC, Marsaskala DC, Valletta DC and Mellie˙a DC.
ELECTRICITY DISTRIBUTION 11KV Distribution System During 2010, several high voltage deviations, reinforcement and maintenance works were carried out in various localities around Malta and Gozo. Such work is of absolute importance as the transmission and distribution networks are the arterial feeds by which electrical energy is conveyed to the customer. A number of substations and transformers were also commissioned to meet the evolving load demands. Low Voltage systems Services The Section continued to provide new services to general consumers and other entities applying for electricity supply. In 2010 a total of 4,232 new consumers were connected, meaning that by the end of the year a total of 262,744 consumers were connected to the system.
ANNUAL REPORT 2010 and financial statements 2009
Metering Revenue protection, meter replacements and inspections were carried out as in previous years. The pilot installation of 5000 Smart meters was completed, making way to the roll out of the Smart Meters Project. The Distribution section also carries out a number of inspections. In 2010 there was a total of 39,698 surprise inspections where 143 meters were found to be tampered with; 132 in Malta and 11 in Gozo.
Street Lighting System The Distribution section also takes care of street lighting around Malta and Gozo. In 2010 maintenance of undevolved lamps has been carried out with 34 new lamps being connected to the system.
Reinforcement and Maintenance A total of 59 new Low Voltage feeders have been installed reinforcing and enhancing the reliability of the Low Voltage System to the benefit of the customer. Scheduled and unscheduled maintenance has been carried out throughout the year; 9026 low voltage maintenance, 1348 on high voltage overhead line poles with a total route length of 77.9km.
LOW VOLTAGE MAINTENANCE BREAKDOWN MAINTENANCE
PROGRAMMED MAINTENANCE (SERVICE CABLE / BOX)
MALTA
5,154
2,719
GOZO
1,135
18
TOTAL
6,289
2,737
HIGH VOLTAGE OVERHEAD LINE MAINTENANCE NUMBER OF POLES
ROUTE LENGTH KM
MALTA
1,163
67.8
GOZO
185
10.08
TOTAL
1,348
77.9
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District Offices On the 14th March 2010 a new district office in Gozo was inaugurated. The Xewkija Office caters for the whole island of Gozo and houses customer care, storage facilities and will also, in the future, house a 33kV distribution centre. The ex-Mosta Distribution Centre has also been refurbished into the new Mosta District Office which was inaugurated on the 31st of August. The extension to the BuŠibba District Office to accommodate gang rooms has also been completed, while a new site accommodating the Valletta District Office is being explored and is awaiting further instructions from MEPA. Implementation of SAP This year the distribution centre has also been very busy introducing the SAP software. Being involved in CRM (customer relationship management), AMM (Automated Metering Management) and EAM (Enterprise Asset Management) many hours of training have been dedicated to learning these new processes. All involved have been cooperative and are gradually grasping the new business processes.
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Initiatives Automated Meter Reading Integration between meters issuing different types of communication from the Smart Meter is progressing with the assistance of the contractor providing the Smart Meters. Energy Efficiency Various trials with LED street lighting have been carried out, however so far there is no business case. We are also in the process of introducing energy efficient measures in the District Offices starting with energy efficient lighting.
PETROLEUM DIVISION
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Enemalta’s Petroleum Division used to programme the importation of all petroleum products including the Liquefied Petroleum Gas and Fuel Oils, however in June of the year under review the LPG importation was passed on to the private company Liquigas and thus records for the importation of this fuel extend only up to June 2010. Also, in preparation for the Privatisation of the Petroleum Division the programme for the importation of fuel and gasoil for the power stations was taken over by the Electricity Division. However, the importation and sales figures for these two types of fuel are still being reported here. The Petroleum Division also distributes fuels directly to all the service stations in Malta, part of the local industry (limited to thin fuel oil) and all government departments. Through the distribution service offered by the jobbers and hawkers, the Petroleum Division supplies the rest of the industry on the Maltese Islands with its liquid fuel requirements. Fuel distribution to the service stations and industry of Gozo is also performed via the service offered by the three Gozitan distributors who are also responsible to cross the channel and load their road-tanker fleets from Enemalta’s installations. As in previous years, the Division continued to offer excellent storage facilities to international oil companies at the Óas Saptan and Ras ÓanΩir complexes. As part of its responsibilities, the various installations at the 31st March 1979 installation in BirΩebbu©a, the Ras ÓanΩir and Wied Dalam Installations are kept regularly maintained whilst the one at Luqa International Airport runs to the highest international standards.
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Imports in Metric Tonnes Products
2009
2010
PERCENTAGE % Change
Gas Oil
84,014
98,608
-1.1
Diesel (EN590)
81,352
69,690
-14.3
Unleaded Petrol
71,326
69,250
-2.9
Jet A1
61,030
93,910
53.9
Fuel Oil
506,102
511,965
1.2
Avgas
108
55
-49
TOTAL
803,932
843,478
4.1
FUEL IMPORTS During the financial year under review 843,477 metric tonnes (MT) of liquid fuels, plus 11,530 metric tonnes of LPG (January to June), were imported for local consumption. The total quantity of fuel oil consumed at the two power stations accounted for around 61 % of the total imports. It is to be noted that in
comparing the ratio of each product to the total, the total fuel imported is not taking into account the amount of LPG imported during the first 6 months of the year. If one were to add the importation figure for LPG and Propane for the previous financial year to the financial year under review in order to be able to make a meaningful comparison with the previous year, the ratio of fuel oil imports over the total fuel imports would amount to 59%.
ANNUAL REPORT 2010 and financial statements 2009
SALES in Metric Tonnes Products
2009
Gas Oil (total)
This shows a drop of 2% over the previous year. Actually, the amount of fuel oil imported during 2010 was 1% more than that for 2009. The total liquid fuel imports for 2010 showed an increase of 4% over those of 2009. The table below shows a drastic increase in the importation figures for Jet A1 between the two financial years 2009 and 2010. This is due to the fact that in 2009 no Jet A1 imports were made between January and April as a large parcel had been received in late December 2008. In fact the sales figure for Jet A1 for 2009 was considerably more than the importation figure. This difference between the quantity of Jet A1 imported between 2009 and 2010 had an effect on the result shown for the trend of total fuel imported. Another product which showed a considerable drop in import quantity is Diesel. One however has to see this in the light of another drastic increase in the importation of Heating Gas Oil (HGO). This shows that the local industry switched from burning diesel to burning HGO. Adding the increase in the importation of HGO to that of Diesel, the importation figure for Diesel would be just 2469 MT, or 3%, less than that for 2009. This is in line with the percentage drop in the importation figure for unleaded petrol. These drops are attributed to the increase in price of the motor fuels.
SALES The sales of petroleum products during 2010 was that of 873,600 metric tonnes. As in the figures quoted for Fuel Imports, the sales made from January to June of LPG to Liquigas
2010 76,139
% Change 83,120
9.2
Gas Oil (MPS)
2,171
3,154
45.3
Gas Oil (DPS)
73,968
79,966
8.1
Diesel (EN590)
79,254
84,548
6.7
Unleaded Petrol
63,284
66,277
4.7
LRP
9,477
7,158
-24.5
Jet A1
88,805
99,006
11.5
Kerosene
1,081
666
-38.4
Fuel Oil (total)
502,204
518,871
3.3
Fuel Oil (MPS)
294,688
316,034
7.2
Fuel Oil (DPS)
207,516
202,837
-2.3
Thin Fuel Oil
4,929
5,057
2.6
HGO
7,609
8,815
15.8
Avgas
95
82
-13.7
TOTAL
832,877
873,600
4.9
are not being considered. This total sales figure for 2010 is 4.9 per cent higher than that of the previous financial year. This shows a reversal in the downward trend in the percentage differences on sales shown last year. This year is seeing an increase in the sales of both fuel oil and gasoil used for electricity generation. There is also an increase in the sales of diesel and unleaded petrol. After announcing that LRP was not going to be marketed after December 2010, the users of this product investigated the necessity of using it. Many of them discovered that they could have actually been running on
unleaded. This resulted in a drop of 24.5% in the sales of this product from 2009. The sales of Jet A1 have shown a considerable increase over the previous year of 11.5%. This is a reflection on the fact that tourism is again gaining lost ground. The sales of domestic kerosene have suffered from a drastic decrease in sales of almost 39%. However this decrease is only 415MT. This shows that the use of domestic kerosene is on a steady decline. This is mostly due to the fact that the industry is now shifting to HGO due to a more advantageous price.
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INSTALLATIONS 31st March 1979 Installation. Development works at this installation were kept to a minimum in view of the decision to close down this installation. However emphasis was made on the house keeping of the installation. Óas Saptan Installation The maintenance programme of this installation was maintained. This includes the storage area, tunnels shafts, plant and equipment. In respect of storage, the storage tanks available for lease have all been rented throughout the current year. Enemalta used the storage facilities of Jet A1 and Diesel at this installation to meet the 90 days security stocks directive. Ras ÓanÛir All tanks in use have now been converted to gas oil storage. Despite its age this installation is managing to maintain a basic level of performance.
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Wied Dalam The filtering / water separation station at Wied Dalam was successfully commissioned. This station enables Jet fuel to be pumped directly from Óas Saptan to Wied Dalam, thus by-passing BirΩebbu©a. This offers the advantage of shortening the supply chain to the airport. Luqa Aviation section The Aviation section of the Petroleum Division continued to maintain its high standard. This has been confirmed by the results obtained following inspections carried out by foreign airlines and other inspecting companies.
Gas Division
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The Gas Division became part of the Commercial Division in June 2010. During this period, another major step forward in the commercialisation process of the Division, took place. This involved a new agreement with Liquigas, under the approval of the Malta Resources Authority whereby the responsibility for the importation of LPG was passed onto the Italian company. This means that as of the 1st July 2010 the Corporation’s activities in this sector were limited to the storage and bottling of gas for Liquigas. Thanks to this agreement all operational costs of the Division are recovered from Liquigas by way of a fixed annual sum approved by MRA and paid on a monthly basis by Liquigas to Enemalta. This means that whilst no profits were allowed for the Division by MRA, the Division is now at break even.
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Investments in the Division were kept to a minimum in view that contractually the Qajjenza plant should close down in Q4 of 2012 once the new plant at Beng˙ajsa is commissioned and fully operational by Liquigas Malta Ltd. The only notable investment was the installation of a weight correcting machine which ensures that cylinders are all filled up between the allowable minimum and maximum thresholds. Maintenance to the plant, which is an ageing plant is on the increase. This includes maintenance to the filling equipment, the storage tanks and the general environment of the plant.
Information Communication Technology
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INTEGRATED UTILITIES BUSINESS SYSTEMS (IUBS)
Besides the implementation of SAP, the IUBS programme also includes two other major initiatives:
2010 was a key year for ICT at Enemalta, as it marked the implementation of the first phases of the IUBS programme throughout the Corporation. Under this programme, Enemalta Corporation and Water Services Corporations have replaced their legacy systems with SAP business management software – an Enterprise Resource Planning (ERP) solution that integrates and automates internal and external business processes and management information across all Departments and functions of the two organisations. The modules implemented in 2010 are:
■ The replacement of existing meters with an Automated Meter Management (AMM) system, often referred to as a “Smart Grid”. This will enable the Utilities to configure, operate and read meters in real time and will eventually lead to the elimination of estimate billing. It will also allow for the introduction of new and innovative service packages based on differential tariffs.
■ the core ERP system including financial/ accounting management and reporting, asset and inventory management, procurement management, project/task costing and accounting; ■ a new billing engine with integrated Customer Relationship Management (CRM); ■ data warehousing and business intelligence tools enabling collection, storage, analysis and controlled access to comprehensive management information. Although, throughout 2010, the focus has almost exclusively been on migration and cutover from legacy systems, the Corporation is gradually starting to make fuller use of the new SAP modules to automate and streamline a number of business processes, increase efficiency and improve governance and controls.
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The project is well under way, with over 40,000 meters replaced by the end of 2010. It is expected that the first meters will be fully commissioned and integrated to the billing system in early 2011. The meter replacement project is expected to be complete by the end of 2012.
■ The introduction of a Supervisory Control and Data Acquisition (SCADA) system and infrastructure to manage Enemalta’s electricity plant. This allows the Network Operations Centre to continuously monitor data from Enemalta’s Distribution Centres. This information forms the basis for network planning and for the operations engineers to plan short and long-term works, including maintenance works and network reinforcement projects. The SCADA system provides immediate indication of alarms and events that could result in the interruption of supply or damage to the equipment, unless timely remedial action is taken. It also permits remote operation of the switchgear in the Distribution centres.
The first phase of SCADA has been implemented in 2010 and the
system is operational for a number of distribution centres. The project includes major infrastructure works, with the commissioning of fiber optic connectivity and protection circuits at all Enemalta’s main sites. Completion is expected in 2012 with connection of all 18 distribution centres.
ICT ORGANISATION The ICT Department has been restructured and strengthened in 2010 in order to be better placed to deliver the objectives set in the 2010-2012 ICT Strategy and to provide support throughout the Corporation at a time of major changes to its information systems. ICT governance has been strengthened with the adoption of performance objectives directly tied to the ICT Strategy targets, the implementation of a new Information Security Policy and documented standards and procedures. It is our intention to continue to strengthen governance in 2011 with resources dedicated to business alignment, information systems architecture and security. A major focus of the ICT strategy remains the transformation of the business in order to ensure higher levels of customer centricity and operational and cost efficiency. With an industry standard ERP in place, the Corporation is now equipped with the tools it requires to drive this transformation and to adopt best practices. To this end the ICT Department has embarked upon a programme of continuous review of business processes throughout the Corporation, identifying issues, proposing solutions and
ANNUAL REPORT 2010 and financial statements 2009
improvements and implementing changes through information technology.
INFRASTRUCTURE, SYSTEMS AND OPERATIONS In order to make full use of its information systems, Enemalta requires a modern, resilient and efficient ICT infrastructure. Throughout 2010, the ICT Department has continued to expand its Wide Area Network to include new Corporation sites. The installation of structured cabling at new or refurbished sites has also continued at a steady pace. The ICT Department has also implemented a new Corporate data centralisation infrastructure to ensure higher levels of data integrity, security and availability. A number of key ICT infrastructure projects are scheduled for 2011: ■ the completion of a new secondary data centre in Delimara that will provide higher levels of resilience and business continuity; ■ the implementation of the first phase of the fiber connectivity project, linking four major sites. This connectivity is required for SCADA as well as linking the secondary data centre at Delimara with the one in Marsa;
requirements. This means that the ICT Department’s software development team is now able to shift its focus away from the maintenance of legacy systems and towards systems integration projects and the development of specialist technical applications required by the Corporation. In 2010, the team developed and implemented an on-line emissions system, which reports hourly emissions readings from power station chimneys. The Department has also developed a geographic mobile data collection system allowing Corporation personnel to track the asset and distribution network on the field. This system is integrated with SAP and is used to update and maintain asset and geographic information system records. These updates are particularly important for the installation and correct commissioning of Smart Meters in the AMM project. In 2011, the software development team will continue to focus on mobility solutions such as remote task management for Distribution personnel and meter reading solutions.
■ the implementation of server virtualisation at the data centres; ■ the implementation of new data storage facilities at the data centres. With the implementation of SAP business management software, Enemalta has a new system that caters for its major functional
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human resources Division
29
ANNUAL REPORT 2010 and financial statements 2009
During 2010, the HR Section continued performing its various activities such as administering sick leave, injury leave, staff redeployment, recruitment and selection, performance management, flexitime, contracts of employment and performance contracts, vacation leave, special paid and unpaid leave, as well as specific initiatives aimed at increasing employees’ development and skills. Two of these initiatives were the successful participation in the FHRD Annual Malta People Awards as well as the completion of a Succession Planning process for all of the Electricity Division.
recruited within various grades in line with Enemalta’s Capacity Building Exercises of 2009 and 2010, resulting from well over 600 interviews held. Furthermore, there were 38 employees who retired from employment, 9 resignations from employment and 1 employee who was medically boarded out. As a result of these changes, Enemalta has managed to maintain its levels of service to the Maltese economy yet reducing its overall headcount by 21. This is in line with Enemalta’s strategy of reducing costs yet still generating and providing electricity to every business and residential customer.
Sick Leave and Injury Leave The total number of days of sick leave and injury leave that employees took during 2010 amounted to the following: sick leave – 18,753 days (a reduction of 7% over 2009’s totals) and injury leave – 1,462 days. The necessary managerial action is being taken as regards sick leave, with over 150 letters sent to employees who regularly take sick leave.
Increments and Progressions In line with the conditions of employment regulated by employees’ employment or performance contracts, as well as the provisions of the collective agreement, during 2010 there were 265 increments awarded to employees and 71 progressions to higher salary scales.
Recruitments and Terminations During 2010 there were 27 new employees
Employee Contracts There were 20 new contracts signed by new
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employees engaged with the Corporation, and 12 performance agreements signed with employees who were successfully promoted to higher grades following the result of internal calls for applications. This is in line with Enemalta’s drive to offer employees the possibility of enhancing their career by offering opportunities for development and advancement. HR Management Apart from miscellaneous requests for assistance dealt with by the HR Coordinator and the Manager, Organisational Design and Planning, there were over 300 requests with whom official correspondence was exchanged. Such requests ranged from special paid leave, to unpaid leave, to study and exam leave, Time Off in Lieu and requests to change work schedules. Flexitime There were also 133 requests for flexitime requested and approved during 2010, with employees benefiting from such a concession applying and renewing their flexitime concession every three months.
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ANNUAL REPORT 2010 and financial statements 2009
Time Off in Lieu On the right is a summary of the Time Off In Lieu during 2010 that was approved by the HR Section. Through the application of such hours, the Corporation has not only provided a familyfriendly measure to employees, but has also reduced its overtime costs significantly.
Donation of Vacation Leave Following the implementation of this employee-solidarity scheme during 2009, during 2010 the HR Section serviced further requests for such donated vacation leave, summarised on the right.
Number of Applications for staggered Leave A 2009/20010
Number of hours Applied for
Number of hours taken
Exceeded no of hours (deduction from pay)
Number of hours paid back since not taken
41
785 hours
573 hours
4
212 hours
Number of Applications for staggered Leave A 2009/20010
Number of hours Applied for
Number of hours taken
Exceeded no of hours (deduction from pay)
Number of hours paid back since not taken
43
534 hours
440 hours
9 hours
94 hours
Number of Applications for staggered Leave A 2009/20010
Number of hours Applied for
Number of hours taken
Exceeded no of hours (deduction from pay)
Number of hours paid back since not taken
39
649 hours
552 hours
20 hours
97 hours
Number of Applications for staggered Leave A 2009/20010
Number of hours Applied for
Number of hours taken
Exceeded no of hours (deduction from pay)
Number of hours paid back since not taken
53
775 hours
737 hours
42 hours 15 mins
38 hours
Acknowledgments letters to doners
50 Letters
Letters to receivers
6 Letters
Rejected Letters
1 Letter
Amount of hours donated by people
2,654 hours
Amount of hours donated to people
1,384.5 hours
Current balance of hours in the Fund is
1,269.5 hours
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Sponsorships for studies In line with the Corporation’s emphasis on employee development, a number of sponsorships were also introduced and given to employees, ranging from Certificate/ Introductory level up to a Masters’ degree. Enemalta’s intention is to develop its’ human resources potential, thus keeping abreast of technological advancements that will enable it to increase efficiency in its operations. Teleworking Up to the end of 2010, there were 26 employees making use of the teleworking concession granted by Management. During 2010, the Teleworking Committee met 13 times discussing and examining in further detail the work carried out by the teleworkers. Whereas previously all teleworkers were females, towards the end of 2010 the first approval was given to a male teleworker. FHRD Malta People Awards During 2010, the HR Section was significantly involved in the participation of four FHRD Malta People Awards – Excellence in Technology, Performance and Reward, Equal Opportunities as well as Learning and Development. The first three entries were taken up by employees of the HR Section, who made a tremendous effort in their own time to be able to submit the requested written entries in line with the FHRD’s requirements. Following the subsequent assessment process and interviews, during the Awards ceremony held in December, Enemalta Corporation was proudly presented with awards in all four categories, coming a close second on the Overall Achievement Award. Such an achievement has not only made the individual
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employees proud, but is also a first for Malta as Enemalta Corporation has been recognised as the first Maltese organisation that has managed to win four awards during the same year. Vacation Leave During 2010, there were 250 employees who exceeded their vacation leave and in line with the provisions of the collective agreement, all cases were forwarded to the Policies and Industrial Relations Section for the necessary disciplinary measures. These cases exclude employees’ transfers of vacation leave from one year to the next that were approved, a further 160 cases. Succession Planning During 2010 the HR Section also embarked on an intensive succession planning exercise for all units within the Electricity Division. This exercise comprised in identifying the key critical positions within each unit, the person(s) filling such roles, as well as a detailed description of the requirements for anyone who would be required to fill such a post. Finally, the succession plan of each Division was summarised to give a holistic view of the key posts and the succession plan for each within the major areas of Enemalta’s Electricity Division. Job Evaluation During 2010 Enemalta also undertook a Job Evaluation exercise, with the scope of evaluating and analysing all jobs being carried out, with an intention of measuring the worth and value of each job and subsequently being able to compare each using the same method of valuation. Although this is an
ongoing exercise, a lot of jobs have since been evaluated, and it is intended that during 2011 this exercise will continue. Job Descriptions The HR Section has also started updating all Job Descriptions of the various grades within Enemalta’s organisation structure. The intention of this exercise is to ensure uniformity in all job descriptions, thereby providing the necessary details of the jobs carried out, skills and qualifications requirements required to perform each respective job. Interview Selection Training The Manager, Organisational Design and Planning has also introduced on-the-job training of specific personnel within the HR Section with the intention of enabling them to participate on Promotion Selection Boards in respect to both internal and external calls for applications. This training will be continued during 2011, with such personnel participating in further interview selection boards for various positions. Reform of the Workshop and Stores As part of Enemalta’s restructuring process, the Generation and Distribution Workshops as well as the Stores were restructured following negotiations and agreement reached with the General Workers’ Union. The HR Section was subsequently involved in the implementation of this reform, with the necessary internal calls, planning, scheduling of interviews, results and appointments processed by this Section. Subsequently, the respective upgrades were recorded and implemented within the Human Resources Management system.
ANNUAL REPORT 2010 and financial statements 2009
HR Processes During 2010 the different processes of the HR Section were also mapped out onto flowcharts, thereby enabling this section to prepare itself for the upcoming job rotation policy that is expected to be implemented within Enemalta during 2011. These processes are also intended to ensure that any new entrant within the HR Section may familiarise himself/herself with the main processes carried out. Eventually, once the Employee Handbook is completed, these processes will also be included there, providing valuable information on HR processes for all employees. Future Projects Another project that the HR Section will be working on is Human Resources Planning, whereby it will perform detailed job evaluations, analysing each and every employee’s skills, abilities and qualifications. This analysis will enable Enemalta to have a detailed information base on employees’ different abilities, eventually assisting Management in making the best possible use of available human resources. Another project that will be driven by the HR Section is the automation of Overtime. This process was already designed during 2009 and 2010, and once the necessary approvals are obtained, the HR Section will be heavily involved in the implementation of this automation and its resulting effects on the processes of the Wages section. Yet another future project will be the implementation of the Generation, Distribution and Clerical reforms, once the respective negotiations are concluded.
The cascading down of the current Performance Appraisal to all employees, as well as the subsequent 360 degrees appraisal process, are also in the pipeline. Following the successful implementation of the performance appraisal process for all Professional Executives as well as Managers, it is the Management’s intention to implement the performance appraisal process for all employees. This project will be kicked off during 2011, with the necessary human resources already identified and being prepared for implementing of such an exercise.
actions of employees. Another important role that this office is responsible for is the designing of policies and their governance. During 2010, the Policy and Industrial Relations office dealt with several union issues; most importantly the job description reforms of a number of sections. These meetings consisted of a lot of disputes and heated arguments in which one needed to be very careful in order to resolve such issues and make decisions in a timely manner. The job description reforms that this office started working on this year were:
POLICY AND INDUSTRIAL RELATIONS
■ The Workshop reform – this has been finalised and signed
The Policy & Industrial Relations Office mainly liaises with trade unions and other government bodies regarding various issues. The office is also responsible for procedures and disciplinary
■ The Generation reform – this has been finalised but not yet signed ■ The Gas Division reform – this is in its starting phase
Statistics of Disciplinary Records for year 2010 Medical
Lateness
H&S
Exc VL
Insubordination
Others
Total
January
5
Nil
2
Nil
5
5
17
February
5
17
7
Nil
3
5
37
March
2
36
Nil
Nil
2
1
41
April
13
Nil
9
Nil
10
4
36
May
1
Nil
1
Nil
15
16
33
June
2
Nil
3
1
Nil
4
10
July
7
Nil
Nil
Nil
2
2
11
August
7
Nil
4
Nil
4
2
17
September
Nil
Nil
Nil
Nil
1
2
3
October
4
1
3
Nil
3
3
14
November
Nil
nil
6
Nil
1
3
10
December
*
*
*
*
*
*
*
Total
46
54
35
1
46
47
229
* To be submitted later on as per transmission from one program to another.
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■ The Professionals reform – this is also in its starting phase Disciplinary cases heard before the Disciplinary Committee As stipulated in the Collective Agreement, some offences must be heard before the Disciplinary Committe. During the year, 3 cases were heard before this Committee, the total number of meetings being 12. Policies This year the Policy Design Executive has resigned from this role and the office ended up with a vacant post in this field. For this reason, the Policy Governance Executive is acting as a Policy Design Executive and also as an Industrial Relation Executive since this post is also vacant. Several Policies have been issued and published and various queries have been received and answered by this office with regards to policies.
TRAINING AND LIFELONG LEARNING The Enemalta Training Centre has continued with its mission to provide customised training to various employees in different sections. The Training Centre’s major goal is to provide this training in a way which is easily understandable but which would still reach the approved level of competency. The year 2010 was the year in which the Training Centre carried out its third Training Needs Analysis (TNA) where all departments within the Corporation were asked to submit their employees’ training needs. The TNA was carried out by asking heads of sections to review their department’s
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needs and seek feedback from the professional and supervisory staff where training is required for their sections to meet the established objectives. The TNA has revealed that priority of training should be given to Health, Safety and Environmental subjects, trade refresher courses and computer training. In evaluating the TNA, it transpired that when prioritising the subjects over the three coming years, training in 42 subjects yearly will be provided. Every year it is estimated that an average of 2,500 people will be called for training at an average cost of €250,000 per year. In order to encourage employees to attend the Training Centre embarked on an informative campaign which was designed and produced by Enemalta employees depicting famous international figures with quotations promoting educational enhancement. These posters were installed throughout Enemalta premises promoting the importance of training and highlighting the fact that there is no distinction of who should attend. Enemalta promotes training to all and is committed to invest in its employees. One of the areas which was given most importance is computer training where Enemalta also drafted its computer training policy. This policy underlines Enemalta’s intentions to provide computer training for all its employees by providing both in-house training and outsourced training thus making computer education available even to those who work on a shift basis. The measures to train Enemalta employees in computer skills have proved to be a success story as those who were going to make use of computers in their daily work with the introduction of the Integrated Utility Business
Systems (IUBS) were already trained for the new applications. During the year another two phases of the implementation of the IUBS system were implemented with the assistance of the Training Centre which provided the logistics for training at its various facilities. Another important task entrusted to the Training Centre was to assist the EMS team in achieving the ISO14001 Certificate for the Environmental Management Systems (EMS). The Training Centre was also one of the main contributors in drawing up the EMS manual with regards to training. It is expected that in the coming months the quality certificate will be awarded. Enemalta Training Centre has expanded its training facilities by opening other training areas which are geographically located to make it easier for the employees. These new training areas are situated at the Marsa Customer Care building, Mosta District office and Gozo District office. Besides the physical resources that have been organised in various locations, the Training Centre has also organised evening classes in subjects which were on popular demand. These were provided free of charge and attendance was on a voluntary basis. At the end of the year the Training Centre has achieved recognition for the work it performed in the field of computer training when it was awarded the Foundation for Human Resources Development (FHRD) Award. The assessors sent by FHRD acknowledged the excellent level achieved in computer training, where the added value emanating from this training was proved to be of exceptional quality.
ANNUAL REPORT 2010 and financial statements 2009
WELFARE
its CSR agenda and invested on several projects throughout the year including: ■ Monitoring stations for Local Councils ■ Blood Drives at Marsa and Delimara Power Stations ■ Energy saving talks to Organisations ■ Remodernisation of the roads leading to the Marsa Power station
The Welfare Section is committed to provide high quality service to all employees of the Corporation and to treat them with respect and individual attention. This Section identifies and responds to the Corporation’s changing needs by providing guidance and problem resolution services. During 2010 the Welfare section implemented various programs and initiatives with the aim of improving communications and employee morale. These activities range from social activities like the Easter Egg Hunt, the Splash & Fun activity in summer and the Badger Karting activity, amongst other sports and religious activities. The year 2010 also saw the launch of a suggestion scheme called ‘Ag˙ti Idea’ where employees have the opportunity to submit ideas and suggestions which if implemented would be rewarded.
CSR (CORPORATE SOCIAL RESPONSIBILITY)
■ A new Gozo office which is built specifically with an ‘Access for All’ mentality with the help of the National Commission for Persons with Disability. ■ The relocation of the overhead lines from the Valletta Bastions to underground cables. ■ The installation of permanent reflectors at the Verdala Palace grounds, making the historical premise available for activities throughout the year. ■ Provision of flood lighting and covering of consumption costs for the Volleyball Marathon at Dar tal-Providenza. ■ Waiving of the application expense and consumption for a temporary supply for an event organised by O˙loq Tbissima and Puttinu Cares charitable foundations. ■ Supply extension at Foresta 2000 for the installation of CCTV cameras to monitor the area after an act of vandalism detroyed over 3000 trees.
Enemalta is committed to integrate environmental and social concern into its business decisions and enhance its communication with internal and external stakeholders. In 2010 the Corporation has been working hard on increasing its commitment to
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corporate services
37
ESTATE MANAGEMENT SECTION The Estate Management Section is responsible for the property management section and the projects sections. Property Management Section During this past year, work focused on the acquisition of various sites for substation building and the conclusion of other types of contracts relative to the substation premises. This Section also focused its efforts on the compilation of the Corporations’ Immovable Property Register. Projects Section This Section is in charge of certain refurbishment projects. During this past year, the refurbishment works on the fourth floor of the Administration Building continued – this is now in its final stages and is due to be finalised early next year. Other major projects included the refurbishment of the SCADA Control Room at the second floor of the Administration Building.
TRANSPORT SECTION During 2010 Enemalta Corporation continued to invest in upgrading its fleet of vehicles by procuring twenty five new Tower Ladders, all of which are equipped with air-conditioning and power steering amongst other safety features. Ten of these tower ladders will be delivered in 2011. Extensive training was provided to the Corporation’s technical personnel with regards to the use and maintenance of these vehicles.
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To ensure maximum safety on Enemalta vehicles, the transport section services an average of one hundred vehicles every three months. Preventive inspections are also carried out on all Tower Ladders. The Transport section is also responsible for the refueling of vehicles with unleaded petrol and diesel blended with 5% bio diesel. Two hundred and seventy (270) vehicles refuel from Marsa Power Station fuel pumps and consume a total of 140,00 liters of diesel and 190,000 litres of unleaded petrol annually. During this year, Calls for Tender have been prepared for the purchase of ten new cars to replace old cars, a Four post lift, Panel vans and Combivans. A tender has also been prepared for the hiring of light vehicles.
HEALTH AND SAFETY SECTION This section continued with its efforts in educating and promoting the ideal culture change in occupational Health & Safety (H&S) matters. It strives to ensure that the continuous development of its staff reaches all levels within the organisation. During the year a H&S Manual and Policy was introduced on the Corporation’s Portal. The Health & Safety section remained the main hub of the organisation, ensuring that local Occupational Health and Safety standards are kept at the desired levels and in line with Legislative EU Directives. Employees have full access to all related H&S services and consultations where the implementation and coordination of risk assessments in line with
statutory Legal obligations are of paramount importance in minimising unnecessary risks at the work place. Safety campaigns which included posters and safety information and the Corporation intranet gave employees more comprehensive information about H&S. Daily routine random inspections form part of the section’s core activities through the H&S Enforcement unit. This is reflected in the decrease of work-related injuries from the past years to date. Emergency response teams (ERT’s) remained active at both power plants and ensured first response to emergency calls in full collaboration with this section. This section, in liaison with the Corporation’s training centre, provided in-house lectures on various H & S subjects to all employees. Direct contact and sharing of experiences enhanced good relations with employees. The Marsa and Dellimara Power station clinics also form an integral part of this section where professional nurses provide services for employees. This includes a number of medical screening assessments, including VDU tests, as well as medical tests prior to confined space entry and on shift night workers, Audiometric testing, blood tests and others. Both clinics are furnished with an ambulance on a 24/7 basis. Medical group ‘Health Medical Organisation’ was appointed to provide professional medical advice and recommendations according to management’s request for the protection of workers and third parties.
ANNUAL REPORT 2010 and financial statements 2009
REGISTRY The Corporation’s ICT Department is currently working on an in house software to make the registry section more effective and of greater assistance to staff.
SECURITY The Security Guards compliment continued to be maintained. Security management, assistant chief security officers and security guards have continued to be given general and specialised training, both locally and abroad to keep them abreast with modern realities. This included Ports Facility Security Officer Certification. CCTV cameras continued to be installed where improved security was deemed necessary, with all cameras being monitored on a 24/7 basis. Assistance is also at times provided to the Police requesting information on incidents in the vicinity. The majority of Enemalta vehicles, both those owned and hired, are equipped with a vehicle satellite monitoring system to allow maximum usage of the Corporation’s assets.
LIBRARY AND ARCHIVES Enemalta Corporation’s Library and Archives Section was set up twelve years ago. One of its major aims is to collect, index, and catalogue all the Corporation’s reference material under one roof. Apart from the Corporation’s employees the Library and archives section is also available
to students and researchers from local institutions including the University of Malta and MCAST. Users during the out going year continued to increase considerably. Students visit the library in preparation of assignments and thesis writing in part fulfillment of their studies. A number of enquiries via email from Government institutions were also received. The Library and Archive section today houses more that 25,800 books, standards, reports, contracts and journals. This is a notable increase from the 2009 total of 25,180 publications. A considerable number of documents are stored on CDs, DVD’s and videos. A collection of thesis by various students and Enemata employees are also available at the library. The Melitensia section of the library was also expanded. A large collection of documents which were left at the Corradino Naval Power station way back in the seventies were saved and are now at the Library. Most of the documents were in a very bad state but with a degree of dedication these documents have now been preserved and are now available for further reference. The library also boasts a large collection of photographs, which includes ones dating back to the 19th century. Other photographs highlight important events which occurred in the history of energy within the Maltese islands during the last sixty years. More than 4,000 of these photographs are indexed, and catalogued. The Archives hold more than 80,000 files, some of which date back to the 1940’s. These files deal mainly with the administration and Electricity sector. Thousands of other files form part of the collection of the Gas Board Division.
The new archival law gives the opportunity to the Corporation to dispose of some of its files and documents after consultation with the National archivist and this practice is therefore under study. This Section maintains the exhibition area at Delimara Power Station and thus continues to collect energy related equipment from previous times. The library/Archives section’s mission statement is “PRESERVE TO SERVE”. This objective was once more achieved during the outgoing year.
FIRE PREVENTION SECTION The Corporation’s Fire Prevention Section is entrusted with the protection of Enemalta’s employees and property from fire and other calamities. The section’s personnel continuously provide advice on fire protection measures and ensure that fire hazards are diminished to the minimum acceptable levels. Personnel assigned to this specialised unit are expected to uphold high standards of integrity and strive for professionalism whilst continuously doing their utmost to improve both standard operating procedures and ensure that they are physically fit to tackle any emergencies that may arise. This section is equipped with a fire engine and a smaller rescue vehicle to ensure that emergency calls are tackled within the shortest time-span possible. Fire fighters from Enemalta’s Fire Prevention Section are expected to tackle any fire emergencies that arise.
39
The Fire prevention section also ensures that preventive maintenance is carried out periodically on all fixed fire fighting equipment in the various Enemalta installations. This section also takes care of installing the necessary fire service technology such as alarms and sprinkler systems. Personnel carry out inspections to ensure that Enemalta employees comply with the current Fire safety standards as directed by various European Regulations. Continuous staff development and training for employees is imperative so personnel can keep abreast to the various developments in the fire fighting realm. Recently all Fire Section employees attended advanced Hazmat (handling of chemical and Hazardous materials) specialised courses. The Corporation is constantly investing in this section, both from an HR perspective where two new employees recently joined this section and also in terms of investment in modern equipment.
REGULATORY AFFAIRS OFFICE During 2010, the work carried out by the Regulatory Affairs office staff was mainly related to the implementation of the Environment Management Sytsem (EMS). The Environment Management System, covers the combustion installations (Marsa and Delimara) and the electricity Distribution section. The implementation included the preparation and approval of several
40
EMS-related documents, such as the EMS Manual, the Management Procedures, the Standard Operating Procedures (SOP’s), the Environment Improvement Programme, and the Monitoring Plans. In addition an extensive EMS awareness training programme was planned and implemented which covered all employees, including workers, management and supervisory grade staff. Moreover, internal auditing programmes were implemented by those employees who were trained for this scope, apart from separate auditing exercises done by Consultants. The audit reports were used to rectify or improve the site operations to be compliant with the EMS obligations in order to achieve ISO 14001 certification. Finally, a management review was carried out in December with the assistance of the Sogesca consultants. A waste management programme was set up and implemented based on site requirements, legal regulations and other EMS obligations. This programme covered civil works related to site preparation for waste segregation and bunding as necessary, assisting in the preparation of the tender for waste transfer to authorised waste management facilities contractors, provision of appropriate bins and waste collection facilities around combustion installation points, administration buildings and the district offices. Hence, the work included appropriate waste separation at the designated sites by Enemalta employees and collection of the various waste streams by the contractor. To assist in the waste management programme, waste site coordinators were appointed for Marsa and Delimara installations.
Work related to REACH registration (Registration, Evaluation, Authorisation and Restriction of Chemical substances) was continued and finalised with respect to Gasoline (CAS 86290-81-5), Kerosene (CAS 8008-20-6), Diesel (CAS 68334-30-5), and Heavy Fuel Oil (CAS68476-33-5). Work was also carried out in assisting the Projects section in an application to MEPA for a variation to the IPPC permit of Delimara installation in relation to the new plant extension. In addition, various reports as per existing IPPC permits obligations for Marsa and Delimara were also submitted to MEPA on an ongoing basis. In relation to an IPPC obligation, an application for the public sewer discharge permit for Delimara was also finalised and submitted to the Water Services Corporation. The regulatory Office also assisted the Board of Management in the evaluation of the MRA licence for Enemalta and in the discussions with MRA in order to finalise the permit details.
commercial division
41
During 2010 there were two significant additions to the Commercial Division. To the already existing three Departments, namely, Procurement, Stores and Sales, there was the addition of a Contracts Section and the entire Gas Division.
PROCUREMENT This year has been the first year with the new operational system SAP which was introduced on 1st January 2010. In addition, an external factor effecting the Department during the year was the introduction by the Department of Contracts of revised public Procurement Regulations. These revised Regulations affected the way the Department operates and necessitated adaptation. The Procurement Manager retired by age during the year and was replaced after an internal call for applications. An organisational re-organisation took place and roles were defined to better reflect the different processes of the Department. The role of the four engineers of the Department was converted from that of tender evaluators to tendering officers. The engineers are now involved in the vetting of tender documents prior to publishing. In this way we aim to achieve a higher success rate of our tendering process. 35 tenders for a total value of €206 million were awarded and another 2,739 purchase orders for a total value of €12.3 million were issued. The two major projects awarded during 2010 were the Interconnector Project and the Kappara DC project. These two projects totalled a value of €192 million. The
42
greatest achievement for the Procurement department is that these tenders were awarded in time such that the €25 million grants from the European Regional Development Funds were secured making Malta one of the few EU, countries that managed to secure the allocated funds.
re-organisational change that will have to take place when the Marsa Power Station closes down. By that time, the plan is to have two main store locations: one Generation Store at Delimara and one Distribution Store at Marsa comprising of the current A11 Store and the General Store.
The centralised Procurement procedure that was implemented during the third quarter of 2009 was further enforced during 2010. SAP was a great asset in controlling all purchases.
SALES
STORES 2010 was the first complete year for the Stores Department since this took over the operations of the four major store locations of the Corporation, namely: the Generation Store at Marsa known as A11 Store, the Generation Store at Delimara, the General Stores at Marsa and the Corradino Stores. A new Stores Manager was also appointed during 2010. Further organisational changes during 2010 were focused on the A11 Stores. The Maintenance substore previously belonging to the Development Section was smoothly integrated into the A11 Stores in August while in November the operations of Consumable Stores were also integrated as part of the A11 operations. In this way optimisation of resources was obtained while retiring employees were not replaced. A new location was assigned to the A11 store. This is a large tunnel formerly the turbine hall of the 1950’s A-Station. This location was refurbished and started receiving cable drums in preparation for the closure of the Corradino Stores. The re-organisational works that were carried out during 2010 are in preparation for the major
The Sales Department is responsible for the non-consumption related sales of the Corporation, such as Distribution Centres, Substations and new services that due to their nature are not covered by standard rates. This Department ensures that all clients are billed within the parameters of the Electricity Supply Regulations. Up to the end of December 2010 there were 207 quotes sent to customers for a total value of €21,989,000. These were made up of: ■ 35 quotes for ‘Beyond Limit’ amounting to €432,000 ■ 16 quotes for ‘Outside Development Zone’ amounting to €72,800 ■ 42 quotes for substations amounting to €5,028,000 ■ 59 quotes for over 60 amps applications amounting to €1,048,000 ■ 53 quotes for shifting amounting to €2,495,000 ■ 2 quotes for Distribution Centre amounting to €12,913,000 Out of the above quotes there were 56 contracts concluded for a total value of €3.5 million.
ANNUAL REPORT 2010 and financial statements 2009
In addition, this section is also involved in the drafting of service contracts to third party consultants and service providers. During 2010 eight service agreements were drafted for an approximate annual value of â‚Ź1 million. As of the last quarter of 2010, the Sales Department started also handling Power Purchase Agreements for renewable energy installations. Since taking over this role, 16 Power Purchase Agreement letters were sent, out of which 10 agreements were concluded during 2010.
CONTRACTS A Contracts Section was created as a separate section within the Division. This Section is headed by a newly appointed Head of Accounts and is responsible for the upkeep of all contracts in use by the various sections of the Corporation. It has now been established, as a procedure, that each contract entered into by the Corporation is filed at this section, which in addition files also any bank guarantees associated with such contracts. The role of the section is to notify end users in ample time when contracts are about to expire in order to keep contracts up to date and all contracted services are covered by valid contracts at all times.
43
FINANCE DIVISION
45
Finance Structure The Finance Department within the Corporation has undergone a complete restutcturing with a view to consolidate the structure and improve the general level of the Finance Division. This was in response to changing work practices mainly due to the introduction of SAP and the need to increase the level of sophistication throughout the whole sphere of processes . This pardigm shift in the whole set-up introduced flexibility and at the same time rigour in the management and control of processes and reporting.
SAP Implementation On 4th January 2010 the Corporation launched its integrated business platform encapsulating its core processes. The introduction of SAP as a fundamental business tool brought about radical changes in the way daily business transactions are conducted. The Corporation moved away from stand-alone systems, which required a high volume of administrative work, to a more cohesive and integrated IT platform. With the introduction of Business Intelligence as part of SAP implementation, decisions are made on a real time basis since information is available in a web-based format to the various key users within each Departmental set-up. Whereas, information used to be collected using traditional and time consuming channels, SAP has provided a very effective and efficient tool for data analysis which can be used for the daily operational activities of each section including, but not limited to, CRM, Procurement and EAM. The immediate benefits of an integrated business tool are internal system controls which ensure that transactions are processed using pre-defined validations which are meant to ensure data
46
integrity throughout the whole system. In addition, reporting to the various stakeholders such the National Statistics Office, Malta Resource Authority and others is even more facilitated since information is made readily available on Business Intelligence. Therefore, with SAP the Corporation is better able to meet its reporting requirements requested by various regulatory bodies.
Launching of Standard Operation Procedures In line with the requirements of good accounting practice and procedures a set of Standard Operating Procedures (SOPs) has been launched within the Finance Department. SOPs relate to quality management systems and are designed to help organizations ensure they meet the needs of customers and stakeholders. These SOP manuals are made available to key internal and external users and are intended to serve as a solid foundation for any reviews the Corporation might be subjected to and also for reference material for new recruits. They document each process within the Finance Department thereby providing better understanding of each core activity together with any sub-processes and dependencies. As a result of this, non-financial staff can understand better the requirements and impact of each business transaction entered into by the Corporation or its delegates.
Financial Risk Management A Risk Management function was introduced within the Finance Division. We felt the need to have specialised personnel fully dedicated towards this function. Having qualified
managers and financial analysts monitoring and managing risk is important given the volatilitility in the oil and FX market. The set-up of the Risk Management Committee is aimed at applying prudent hedging strategies in order to mitigate as much as possible the Corporation’s financial risks. Given that financial markets are often characterised by high volatility, this in turn creates a lot of uncertainty in the markets and therefore price fluctuations should be constantly monitored. Enemalta’s risk management function primarily centres on oil prices and FOREX rates. Throughout the meetings, various decisions are taken and the right hedging targets are set. Hedging decisions are established upon a complete assessment of the various significant variables and fundamentals affecting the markets and also based on market outlooks published by different esteemed banks. Rather than adopting zero cost collar structures, in 2010 Enemalta hedged 100% of its fuel exposure using a swap structure, locking its price at an average level of $81.80/ bbl. This swap structure has proven to provide an element of stability in devising Enemalta’s tariff model. Also by locking in prices through swaps, Enemalta gains greater control over its inherent variable fuel costs. As opposed to collars, Enemalta also achieves complete price protection from any increase in crude oil prices.
Financial Statements
47
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Pages Directors’ report
1-4
Independent auditor’s report
5-6
Statement of financial position
7-8
Income statement
9
Statements of comprehensive income
9
Statement of changes in equity
10
Statement of cash flows
11
Notes to the financial statements
12 - 65
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Directors’ report The directors present their report and the audited financial statements for the year ended 31 December 2009. Principal activities The Corporation’s principal activities, which are unchanged since last year, are the generation, transmission and distribution of electricity and the distribution of petroleum and gas products in Malta. Review of the business and results Review of financial performance The income statement of the Corporation is set out on page 9. The Corporation registered a loss after tax of €45,213,000 for the 12 month period ended 31 December 2009, compared to a loss of €46,601,000 reported in the previous 15 month period ended 31 December 2008. Despite this continuous trend of negative results, tough but necessary measures were taken through tariff revisions in the latter part of 2008 to bring to an end the undesirable impact of fuel price increases on the operations and finances of the Corporation that impacted both 2009 and 2008 results. Electricity generation, distribution and supply The Electricity division reported an operating loss of €29,429,000 (12 months), an increase of €9,220,000 over the loss of €20,209,000 (15 months) in the previous period. Despite the change in the tariff structure, the division registered significant losses brought about by fuel prices and hedging losses. Hedging losses reported for the 12 months ending 31 December 2009 amounted to €49,503,000 compared to overall gains registered for the 15 months ending 31 December 2008 of €3,065,000. Brent crude oil in July 2008 rose to a historical record high of $146/bbl, which then collapsed to $39.55/bbl in February 2009. The main factor supporting this downfall was the considerable demand-side weakness resulting in persisting inventory surplus. All this contributed to a 36% fall in Brent crude, to an average level of $63/bbl compared to an average level of $98/bbl in 2008. During the course of 2009, Enemalta hedged its fuel exposure using zero cost collar structures. Such structures combine the sale of a Put Option, fixing a floor level, and the purchase of a Call Option, fixing a cap level, against no premium cost. Enemalta records a hedging gain whenever the market rises above the agreed fixed cap level and incurs a loss whenever the market level falls below the floor price. Rather than adopting the same hedging structures, that is zero cost collars, in 2010 Enemalta hedged 100% of its fuel exposure using a swap structure at a fixed average rate of $81.80/bbl. This swap structure has proven to provide an element of stability in devising the tariff model. By locking in prices through swaps, Enemalta gains greater control over its inherent variable fuel costs. As opposed to collars, Enemalta also achieves complete price protection from any increase in crude oil prices. Given these factors, Enemalta deems that swap structures are an attractive alternative to zero cost collars. ICE Brent in 2010 increased by 28% to an average level of $80/bbl compared to an average level of $63/bbl in 2009. This average increase is the result of a positive demand shock during 2010 that has accelerated the thinning of excess inventories, as well as the start of contraction in global upstream spare capacity. In 2010 Enemalta has experienced the second strongest demand growth over the past 30 years and the second highest annual price average ever.
1
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Directors’ report - continued Review of the business and results - continued Review of financial performance - continued For the first four months of 2011 Enemalta has recorded a hedging gain of USD 26,668,094. For 2011 Enemalta adopted the same swap mechanism fixing 63% of its cost at an average level of $79/bbl. Throughout 2011 oil prices oscillated between a minimum of $93.50/bbl reaching levels exceeding $126.00/bbl due to political instability and violent protests in the Middle East and North Africa. By the end of April 2011 Enemalta’s oil hedging portfolio was in-the-money by €44,542,646. Supply of Petroleum and Gas products The Petroleum division reported operating profit of €511,000 for 2009 (12 months) as compared to a loss of €11,956,000 in 2008 (15 months). This was mainly due to the non occurrence of the one off charge in 2008 related to the impairment of leasehold land and buildings and operational assets of €7,719,000. Although when considered on a proportional basis the volume of fuel sales decreased in 2009, operating costs were reduced which contributed to achieve better results. The Gas division remained loss making, with a decreased operating loss of €2,387,000 (12 months) compared to a loss of €5,429,000 in 2008 (15 months). This significantly lower loss was the result of improved purchasing costs of liquefied petroleum gas and commissions to distributions. Operations were impacted with the 27 November 2008 agreements signed by the Corporation, Gasco Energy Limited and Liquigas Malta Limited for the commercialisation of the Gas Division. These agreements included the transfer of the gas distribution business from the Corporation to Liquigas Malta Limited which became into effect as from February 2009. Review of financial position During the period under review, the Corporation stepped up its investment programme in late 2008, through a number of significant infrastructural projects related to the upgrade of its generation, distribution and administrative assets. The final contract for the new Delimara Power Station extension project was signed on 26 May 2009. As at 31 December 2009, costs directly relating to this project totalled €39.5 million. The Corporation, jointly with Water Services Corporation, implemented a substantial part of the Integrated Utilities Business Systems. The revenue cycle new integrated IT systems were commissioned as from 1 January 2010. During 2009 the Corporation commenced the implementation of the SCADA monitoring and control system for its high voltage network. It also commenced the implementation of the Automated Metering Management system which is expected to be fully deployed over a four year period. These infrastructural projects were financed through bank financing and internal sources of net cash flows. Operational losses noted above and net movements in working capital were largely financed by external borrowings. In fact external borrowings increased from €424.5 million as at 31 December 2008 to €526.5 million as at 31 December 2009. These borrowings have been sanctioned by local banks. Government interest The Corporation did not modify in any way the structure of Government interest and Permanent capital contribution during the year.
2
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Directors’ report - continued Directors The directors of the Corporation who held office during the year were: Ing. A. J. Tranter (Chairman) Mr. E. Gatt Baldacchino (Deputy Chairman) Mr. W. Spiteri Bailey Mr. F. Xerri de Caro Mr. J. Cutajar Ing. S. Pule Ms. V. Galea Pace Ms. S. Vella Mr. P. Buttigieg On 24 June 2010, Mr. F. Xerri de Caro resigned from his post of director. On 28 February 2011 Mr. J Cutajar and Ing S. Pule terminated their tenure as directors. As a result of this resignation and these terminations, the following directors were appointed on 1 March 2011 in their stead: Mr. D. Xuereb (Deputy Chairman) Ms. P. Millo Mr. C. Ebejer Ms. A. Micallef Trigona On 31 May 2010 Ing. A.J. Tranter ended his tenure as Chairman. On 1 June 2010 Mr. E. Gatt Baldacchino was appointed as Acting Chairman and ended his tenure on 31 December 2010. On 1 January 2011, William Spiteri Bailey was appointed as Acting Chairman in his stead. Statement of directors’ responsibilities for the financial statements The directors are required by the Enemalta Act to prepare financial statements which give a true and fair view of the state of affairs of the Corporation as at the end of each reporting period and of the profit or loss for that period. Although the Enemalta Act does not specify the accounting framework to be used by the Corporation in the preparation of its financial statements, the directors have drawn up these financial statements in accordance with International Financial Reporting Standards as adopted by the EU, as prescribed by the Maltese Companies Act, 1995. In preparing the financial statements, the directors are responsible for: • • • •
ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the EU; selecting and applying appropriate accounting policies; making accounting estimates that are reasonable in the circumstances; ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Corporation will continue in business as a going concern.
3
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Directors’ report - continued Statement of directors’ responsibilities for the financial statements - continued The directors are also responsible for designing, implementing and maintaining internal control as the directors determine is necessary to enable the preparation and the fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error, and that comply with the Enemalta Act. They are also responsible for safeguarding the assets of the Corporation and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The financial statements of Enemalta Corporation for the year ended 31 December 2009 are included in the Annual Report 2009, which is published in hard-copy printed form and are made available on the Corporation’s website. The directors are responsible for the maintenance and integrity of the Annual Report on the website in view of their responsibility for the controls over, and the security of, the website. Access to information published on the Corporation’s website is available in other countries and jurisdictions, where legislation governing the preparation and dissemination of financial statements may differ from requirements or practice in Malta. Auditors PricewaterhouseCoopers have indicated their willingness to continue in office.
On behalf of the board
Mr. W. Spiteri Bailey Acting Chairman
Mr. D. Xuereb Deputy Chairman
Central Administration Building Church Wharf Marsa Malta 7 July 2011
4
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Independent auditor’s report in accordance with section 22(2) of the Enemalta Act To the Stakeholders of Enemalta Corporation Report on the Financial Statements We have audited the accompanying financial statements of Enemalta Corporation on pages 7 to 65 which comprise the statement of financial position as at 31 December 2009 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. Directors’ Responsibility for the Financial Statements As explained more comprehensively in the Statement of directors’ responsibilities for the financial statements on page 3, the directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the requirements of the Enemalta Act, and for such internal control as the directors determine is necessary to enable the preparation of 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 financial statements based on our audit in accordance with section 22(2) of the Enemalta Act. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements • •
give a true and fair view of the financial position of the Corporation as at 31 December 2009, and of its financial performance and its cash flows for the year then ended in accordance with IFRS as adopted by the EU; and have been properly prepared in accordance with the requirements of the Enemalta Act.
5
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Independent auditor’s report - continued Emphasis of matter Without qualifying our opinion, we draw attention to: •
Note 4 to the financial statements that highlights the uncertainty in the estimation of accrued income from electricity for the financial year ended 31 December 2009. This matter is considered to be of fundamental importance to the users’ understanding of the financial statements because of its nature and the significance to the Corporation’s results.
•
Note 30 to the financial statements that explains how, in the opinion of the directors, the requirements of IAS 24, “Related Party Disclosures”, have been addressed within the parameters available in the Corporation’s billing systems.
Report on Other Legal and Regulatory Requirements We also have responsibilities to report to you if, in our opinion: • • • • •
The information given in the directors’ report is not consistent with the financial statements. Adequate accounting records have not been kept, or that returns adequate for our audit have not been received from branches not visited by us. The financial statements are not in agreement with the accounting records and returns. We have not received all the information and explanations we require for our audit. Certain disclosures of directors’ remuneration specified by law are not made in the financial statements, giving the required particulars in our report
We have nothing to report to you in respect of these responsibilities.
167 Merchants Street Valletta Malta
Simon Flynn Partner 7 July 2011
6
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Statement of financial position As at 31 December 2009 €’000
2008 €’000
3,863 416,854 21,257
1,348 384,230 21,434
441,974
407,012
65,723 193,853 6,852 17,864
99,555 182,391 11,402 14,788
Total current assets
284,292
308,136
Total assets
726,266
715,148
Notes ASSETS Non-current assets Intangible assets Property, plant and equipment Investment property
5 6 7
Total non-current assets
Current assets Inventories Trade and other receivables Derivative financial instruments Cash and cash equivalents
10 11 9 12
7
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Statement of financial position - continued As at 31 December 2009 €’000
Notes
2008 €’000
GOVERNMENT FUNDS AND LIABILITIES Government interest and reserves Government interest Permanent capital contribution Revenue reserve
13 13
Hedging reserve
14
134,782 64,086 (116,391)
134,782 64,086 (71,178)
82,477 2,851
127,690 (58,953)
85,328
68,737
233 1,066 310,618 8,363 -
651 1,066 292,191 10,692 4,493
320,280
309,093
100,223 215,846 2,329 2,260
141,082 132,316 2,329 61,591
Total current liabilities
320,658
337,318
Total liabilities
640,938
646,411
Total Government funds and liabilities
726,266
715,148
Non-current liabilities Deferred taxation Other provisions Bank borrowings Other borrowings Derivative financial instruments
15 16 17 18 9
Total non-current liabilities Current liabilities Trade and other payables Bank borrowings Other borrowings Derivative financial instruments
19 17 18 9
The notes on pages 12 to 65 are an integral part of these financial statements. The financial statements on pages 7 to 65 were authorised for issue by the Board of Directors on 7 July 2011 and were signed on its behalf by:
Mr. W. Spiteri Bailey Acting Chairman
Mr. D. Xuereb Deputy Chairman
8
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Income statement Year ended 31 December 2009 (12 months)
Period from 1 October 2007 to 31 December 2008 (15 months)
€’000
€’000
Notes
Revenue Cost of sales
20 21
470,947 (463,205)
681,961 (662,960)
Gross profit Transmission and distribution costs Administrative expenses Other operating income
21 21 23
7,742 (23,237) (26,446) 10,636
19,001 (29,909) (37,559) 10,873
(31,305)
(37,594)
Operating loss Share of results of equity-accounted jointly-controlled entity Finance costs - net
8 24
(25) (15,774)
(21,753)
Loss before tax Income tax credit
25
(47,104) 1,891
(59,347) 12,746
(45,213)
(46,601)
Loss for the year/period
Statement of comprehensive income Year ended 31 December 2009 (12 months)
Period from 1 October 2007 to 31 December 2008 (15 months)
€’000
€’000
Note Comprehensive income Loss for the year/period Other comprehensive income Cash flow hedges net of deferred tax
14
Total comprehensive income for the year/period
(45,213)
(46,601)
61,804
(57,534)
16,591
(104,135)
The notes on pages 12 to 65 are an integral part of these financial statements.
9
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Statement of changes in equity Government interest €’000
Permanent capital contribution €’000
134,782
45,875
(6,366)
-
-
(46,601)
-
-
-
-
(46,601)
-
18,211
(18,211)
-
18,211
(64,812)
(57,534)
(104,135)
Balance at 31 December 2008
134,782
64,086
(71,178)
(58,953)
68,737
Balance as at 1 January 2009
134,782
64,086
(71,178)
(58,953)
68,737
-
-
(45,213)
-
-
-
-
134,782
64,086
Notes
Balance at 1 October 2007 Comprehensive income Loss for the period Other comprehensive income Cash flow hedges, net of deferred tax
14
Total comprehensive income
Revenue reserve €’000
-
Hedging reserve €’000
(1,419)
-
Total €’000
172,872
(46,601)
(57,534)
(57,534)
(57,534)
(104,135)
Transaction with owners Transfer to Permanent capital contribution in relation to 2007
13
Total recognised income/ (expense)
Comprehensive income Loss for the year Other comprehensive income Cash flow hedges, net of deferred tax Total comprehensive income Balance at 31 December 2009
14
-
-
-
-
(45,213)
61,804
61,804
(45,213)
61,804
16,591
(116,391)
2,851
85,328
The notes on pages 12 to 65 are an integral part of these financial statements.
10
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Statement of cash flows Year ended 31 December (12 months)
Period from 1 October 2007 to 31 December (15 months)
2009 €’000
2008 €’000
Notes
Cash flows used in operating activities Cash used in operations Finance income Finance costs Income tax paid
(39,201) 94 (14,712) (62)
(55,940) 1,957 (23,710) (62)
Net cash used in operating activities
(53,881)
(77,755)
Cash flows used in investing activities Purchase of property, plant and equipment Investment in jointly-controlled entity
(44,975) (25)
(23,963) -
Net cash used in investing activities
(45,000)
(23,963)
Cash flows from financing activities Proceeds from bank loans Repayments of bank loans
124,742 (14,131)
145,000 (111,035)
Net cash from financing activities
110,611
33,965
11,730
(67,753)
(101,771)
(34,018)
(90,041)
(101,771)
27
Net movement in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period
12
The notes on pages 12 to 65 are an integral part of these financial statements.
11
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
Notes to the financial statements 1.
Developments in connection with the Corporation’s going concern assumption At 31 December 2009 the Corporation had net current liabilities of €36.3 million (2008: €29.2 million). The board has taken cognisance of the overall losses and of the negative cash flows of the Corporation in the past years, despite the results incurred after the financial period being reported upon (i.e. in the year ended 31 December 2010). This overall negative performance has substantially eroded the Corporation’s revenue reserve. In assessing the Corporation’s ability to operate as a going concern, the directors have taken into consideration the expected net future operating cash flows of the Corporation, its commitments related to the repayment of current borrowings and committed and contracted future capital investments in electricity generation and supply. The timing of the latter is conditioned by onerous emissions commitments that Malta has with the EU. The Corporation continues with its efforts to reduce costs and pursue its strategy to generate revenues that meet its operational expenditure. In this respect, it announced a further revision to its electricity tariff structure, as from 1 January 2010, aimed at providing a revenue structure that will absorb its running expenditure and service its capital employed. The Corporation is confident that the financial challenges that it faces will be counteracted by the increase in revenue emanating from the new electricity tariffs. This is evidenced in the 2010 books of accounts which shows a reversal of the negative trends experienced between 2007 and 2009. The impact of the commercialisation of the Corporation’s non-strategic divisions should also positively improve its cash flows. Letter of support from Government of Malta In addition, the Corporation has obtained a letter of support from the Government of Malta, whereby the Government has committed that should the steps taken by the Corporation to meet its present and forecast financial commitments not prove to be sufficient, it will support it in meeting any resultant shortfall such that the Corporation will at all times be in a position to meet its liabilities as and when they fall due. Assessment of going concern After considering the above, and having made an appropriate assessment of going concern, the directors, at the time of approving these financial statements, have determined that there is reasonable expectation that the Corporation has adequate resources to continue operating for the foreseeable future. For this reason, these accounts have been prepared on a going concern basis which assumes that the Corporation will continue in operational existence for the foreseeable future and will meet its financial obligations as and when they fall due.
2.
Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.1 Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and with the requirements of the Enemalta Act. They have been prepared under the historical cost convention, except as modified by the fair valuation of derivative financial instruments. Unless otherwise stated, all financial information presented has been rounded to the nearest thousand. The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. It also requires directors to exercise their judgment in the process of applying the Corporation’s accounting policies (see Note 4 - Critical accounting estimates and judgments). Standards, interpretations and amendments to published standards effective in 2009 During the current year, the Corporation adopted new standards, amendments and interpretations to existing standards that are mandatory for the Corporation’s accounting period beginning on 1 January 2009. The adoption of these revisions to the requirements of IFRSs as adopted by the EU did not result in substantial changes to the Corporation’s accounting policies. IAS 1 (revised), Presentation of financial statements, IFRS 8, Operating Segments and IFRS 7 ‘Financial instruments - Disclosures’ (amendment), were effective for periods beginning on or after 1 January 2009, but did not have any impact on the classification and measurement of the Corporation’s elements of the financial statements. IAS 1 (revised) requires ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income, IFRS 7 (amendment) requires enhanced disclosures about fair value measurement, while IFRS 8 requires the disclosure of segments as reported for internal purposes. In accordance with the respective transition provisions of these standards, comparative information has been represented in respect of the disclosures required by IAS 1 (revised). Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements but are mandatory for the Corporation’s accounting periods beginning after 1 January 2009. The Corporation has not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the Corporation’s directors are of the opinion that there are no requirements that will have a possible significant impact on the Corporation’s financial statements in the period of initial application. In 2009, the International Accounting Standards Board (“IASB”) published a revised IAS 24, Related Party Disclosures. This standard is effective for financial years commencing on 1 January 2011. Government-related entities are now defined as entities that are controlled, jointly controlled or significantly influenced by Government. The amendment introduces an exemption from all of the disclosure requirements of IAS 24 for transactions between Government-related entities and Government, and all other Government-related entities. Those disclosures are replaced with a requirement to disclose: (a) the name of the Government and the nature of its relationship; and (b) (i) the nature and amount of any individually-significant transactions with Government and other Government-related entities; and (ii) the extent of any collectively-significant transactions qualitatively or quantitatively. The new disclosures are intended to provide more meaningful information about the nature of an entity’s relationship with Government and material transactions.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.2 Foreign currency translation (a) Functional and presentation currency Items included in these financial statements are measured using the currency of the primary economic environment in which the Corporation operates (‘the functional currency’). The euro is the Corporation’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement except where deferred in equity as qualifying cash flow hedges. The Corporation enters into foreign exchange forward contracts in order to manage its exposure to fluctuations in foreign currency rates on specific transactions. Further information is disclosed in Note 2.7. All foreign exchange gains and losses are presented in the income statement within cost of sales. 2.3 Property, plant and equipment The Corporation operates a number of owned assets and other assets, whose legal title has not been passed to it as at year-end. The non-owned operating assets are being utilised by the Corporation at no cost, and are not recognised in the financial statements. Owned property, plant and equipment comprising land, buildings and infrastructural improvements, power stations, electricity transmission and distribution equipment, gas bottling and distribution equipment, and plant, equipment, furniture and fittings are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of self-constructed capital assets undertaken by the Corporation includes direct materials and direct labour costs directly attributable to bring the assets to a working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Self-constructed assets with respect to transmission and distribution are transferred from work-in-progress upon commissioning. Assets in the course of construction relate to uncommissioned major capital projects undertaken by the Corporation. These assets are not depreciated. Borrowing costs which are incurred for the purpose of acquiring or constructing a qualifying asset are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the asset is substantially complete, and is suspended if the development of the asset is suspended. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Corporation and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.3 Property, plant and equipment - continued Land is not depreciated as it is deemed to have an indefinite life. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful life. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Corporation will obtain ownership by the end of the lease term. The rates of depreciation used for the current and comparative periods are as follows: % Land, buildings and improvements Power stations Electricity transmission and distribution equipment Gas bottling and distribution equipment Plant, equipment, furniture and fittings
1–4 2 – 10 2 – 10 10 4 – 25
A charge equivalent to half a year’s depreciation is provided for during the period in which an asset is first brought into use, and half a year’s depreciation is charged during the period in which an asset is disposed of or scrapped. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting period. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with the carrying amount, and are recognised within ‘other operating income/expense’ in the income statement. An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount (Note 2.6). 2.4 Investment property Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Corporation, is classified as investment property. Investment property also includes property, if any, that is being constructed or developed for future use as investment property, when such identification is made. Investment property is measured initially at its historical cost, including related transaction costs and borrowing costs. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Borrowing costs are incurred for the purpose of acquiring or constructing a qualifying investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway. Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended. The Corporation adopts the cost model under IAS 40 - Investment property, whereby investment property is stated in the statement of financial position at cost less accumulated depreciation and impairment charges. Repairs and maintenance expenses, if any, are recognised as an expense. Subsequent expenditure that increases the value of property is capitalised if it extends the useful life.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.4 Investment property - continued Depreciation is calculated on the straight-line method to write off the cost of the assets to their residual value over their estimated useful live. The cost of properties held on long-term leases are amortised over the period of the respective leases and included within depreciation charge for the period. Freehold land is not depreciated. An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount (Note 2.6). Property that is under construction or development for future use as investment property is brought within the scope of IAS 40. Such property was previously classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property at the carrying amount. There were no effects, on the Corporation’s investment property, of the adoption of this amendment. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its carrying amount at the date of reclassification becomes its cost for accounting purposes or subsequent recording. If an item of property, plant and equipment becomes an investment property because its use has changed, the carrying amount at the date of reclassification becomes its cost for accounting purposes or subsequent reporting. Where an investment property undergoes a change in use, evidenced by commencement of development with a view to sale, the property is transferred to inventories. A property’s deemed cost for subsequent accounting as inventories is its carrying value at the date of change in use. The fair value of these properties is disclosed in the financial statements and is based on active market prices and in certain instances backed by professional valuations, taking into consideration the nature, location or condition of the specific asset. The fair value of investment property reflects, among other factors, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. These valuations are reviewed annually by the directors. 2.5 Intangible assets Emission rights Emission rights represents the right of the owner of an electricity generating facility, which in the course of its operation emits greenhouse gases to an equivalent of one ton of electricity generating carbon dioxide, during a calendar year. Emission rights are allocated by the competent authority to the Corporation for no consideration in accordance with the National Allocation Plan for Malta 2008-2012. The Corporation is responsible for determining and reporting the amount of greenhouse gases produced by its facilities in the calendar year and this amount is verified yearly by an authorized entity. The Corporation recognises emission rights granted by the competent authority as an intangible asset at fair value at the date of the grant. Verified emission rights utilised are credited against this asset. The unutilised emission credits held at year end are measured at fair value. The changes in fair value of the emission rights held are recognized directly in profit or loss.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.5 Intangible assets - continued Emission rights - continued At each reporting date, the Corporation assesses whether there is any indication that emission rights may be impaired. Where an indicator of impairment exists, the Corporation reviews the recoverable amounts of the cash generating units, to which the emission rights were allocated, to determine whether such amounts continue to exceed the assets' carrying values. Any identified impairment of emission rights is recognized directly in profit or loss. 2.6 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 2.7 Derivative financial instruments Derivative financial instruments, including forward foreign exchange contracts, interest rate swap agreements, commodity swaps, and commodity options (combined written and purchased options together with other options) and other derivative financial instruments, are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Corporation designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges). The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the reporting date. Fair values of commodity options and commodity swaps are mainly based on dealer quotes obtained at the reporting date from the Corporation’s counterparties. The fair value of interest rate swaps is mainly based on the present value of the estimated future cash flows. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The full fair value of hedging derivatives is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.7 Derivative financial instruments - continued On the date a derivative contract is entered into, the Corporation designates certain derivatives as a hedge of a future cash flow attributable to a recognised asset or liability or a forecast transaction (cash flow hedge). Hedge accounting is used for derivatives designated in this way provided certain criteria are met. In accordance with the requirements of IAS 39, the criteria for a derivative instrument to be accounted for as a cash flow hedge include: •
formal documentation of the hedging instrument, hedged item, hedging objective, strategy and relationship is prepared before hedge accounting is applied;
•
the hedge is documented showing that it is expected to be highly effective in offsetting the risk in the hedged item throughout the reporting period; and
•
the hedge is effective on an ongoing basis.
Accordingly, the Corporation documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Corporation also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. (a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (c) Derivatives that do not qualify for hedge accounting Certain derivative transactions, while providing effective economic hedges under the Corporation’s risk management policies, do not qualify for hedge accounting under the specific rules in IAS 39 and are therefore treated as derivatives held for trading. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognised immediately in the income statement.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.7 Derivative financial instruments - continued (c) Derivatives that do not qualify for hedge accounting - continued The fair value of derivative instruments used for hedging purposes are disclosed in Note 9. Movements in the hedging reserve in equity are shown in Note 14. 2.8 Investment in jointly-controlled entities Jointly-controlled entities are all entities over which the Corporation has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in jointly-controlled entities are accounted for by the equity method of accounting and are initially recognised at cost. The Corporation’s investment in jointly-controlled entities includes (if any) goodwill identified on acquisition net of any accumulated impairment loss. See Note 2.6 for the impairment of non-financial assets including goodwill. The Corporation’s share of its jointly-controlled entity’s post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Corporation’s share of losses in a jointly-controlled entity equals or exceeds its interest in the jointly-controlled entity, including any other unsecured receivables, the Corporation does not recognise further losses, unless it has incurred obligations or made payments on behalf of the jointly-controlled entity. Unrealised gains on transactions between the Corporation and its jointly-controlled entities are eliminated to the extent of the Corporation’s interest in the jointly-controlled entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the jointly-controlled entity have been changed where necessary to ensure consistency with the policies adopted by the Corporation. 2.9 Financial assets 2.9.1 Classification The Corporation’s financial assets, which have not been referred to in Note 2.7, are classified as loans and receivables originated by the Corporation in accordance with the requirements of IAS 39. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Corporation provides money, goods or services directly to a debtor with no intention of trading the asset. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Corporation’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the statement of financial position (Note 2.11 and 2.12).
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.9 Financial assets - continued 2.9.2 Recognition and measurement The Corporation recognises a financial instrument in its statement of financial position when it becomes a party to the contractual provisions of the instrument. Loans and receivables are initially recognised at fair value plus transaction costs. All regular way transactions in assets classified in the loans and receivables category are accounted for using settlement date accounting, i.e. on the date an asset is delivered to or by the entity. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Amortised cost is the initial measurement amount adjusted for the amortisation of any difference between the initial and maturity amounts using the effective interest method. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Corporation has transferred substantially all risks and rewards of ownership or has not retained control of the financial asset. The Corporation assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. Impairment testing of trade and other receivables is described in Note 2.11. 2.9.3 Impairment The Corporation assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The Corporation first assesses whether objective evidence of impairment exists. The criteria that the Corporation uses to determine that there is objective evidence of an impairment loss include: • • •
significant financial difficulty of the issuer or obligor; a breach of contract, such as a default or delinquency in interest or principal payments; and it becomes probable that the borrower will enter bankruptcy or other financial reorganisation.
Assets carried at amortised cost For financial assets carried at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. Impairment testing of trade receivables is described in Note 2.11.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.10 Inventories Inventories are stated at the lower of cost and net realisable value and include transport and handling costs. Cost is determined by the weighted average method. Included in other inventory is work-in-progress, which comprises design costs, raw materials, direct labour and other direct costs and excludes related overheads. This inventory represents trenching and cable works-in-progress as at year end. 2.11 Trade and other receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as noncurrent assets. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the receivable, probability that the receivable will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within ‘administrative expenses’. When a receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against ‘administrative expenses’ in the income statement. 2.12 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within bank borrowings in current liabilities in the statement of financial position. 2.13 Trade and other payables Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.14 Financial liabilities The Corporation recognises a financial liability in its statement of financial position when it becomes a party to the contractual provisions of the instrument. Financial liabilities are recognised initially at fair value, being the fair value of consideration received, net of transaction costs that are directly attributable to the acquisition or the issue of the financial liability. These liabilities are subsequently measured at amortised cost. The Corporation derecognises a financial liability from its statement of financial position when the obligation specified in the contract or arrangement is discharged, is cancelled or expires.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.15 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Corporation has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. 2.16 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 2.17 Current and deferred tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Under this method the Corporation is required to make a provision for deferred income taxes on the deprecation on property, plant and equipment, fair valuation of derivative contracts and provisions on the difference between the carrying values for financial reporting purposes and their tax base. Deferred tax on unutilised tax credit arising from unabsorbed capital allowances are recognised to the extent that they net-off temporary differences arising from property, plant and equipment. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available such that realisation of the related tax benefit is probable. 2.18 Revenue recognition The Corporation’s revenue represents the invoiced value of electricity supply, petroleum and gas products, and related services provided to the local market. Revenue is shown net of value-added tax, returns, rebates and discounts. All Corporation sales are based on separate tariff structures for electricity, petroleum and gas products established by the Corporation after obtaining approval from the Malta Resources Authority.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.18 Revenue recognition - continued The Corporation recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Corporation’s activities as described below: (a) Sales of electricity supply Revenue from electricity sales includes monies received from the local electricity market, comprising the estimated value of electricity units supplied to customers not yet billed at year end. (b) Sale of petroleum and gas products Sale of petroleum and gas products are recognised when the Corporation has delivered products to the wholesaler, which has accepted the products and collectability of the related trade and other receivables is reasonably assured. (c) Rental income Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. (d) Interest income Interest income is recognised using the effective interest method. (e) Dividend income Dividend income is recognised when the right to receive payment is established. (f) Other operating income Other operating income mainly consists of electricity-related services and installations as well as revenue from petroleum storage facilities provided by the Corporation. This income is recognised when the service is supplied or installation is energised. Sales of other products and services are recognised when goods and services are delivered and title has passed along with the risks and rewards of ownership. Other income includes the release of deferred income relating to payments made by clients for commissioned trenching and cable works. This systematic release is based on the estimated life of the related capitalised assets. 2.19 Government grants Grants that compensate the Corporation for expenses incurred are recognised in the income statement on a systematic basis in the same reporting periods in which the expenses are incurred. This compensation is disclosed in the same reporting line as the related expense. Government grants are recognised in the statement of financial position initially as deferred income when there is reasonable assurance that they will be received and that the Corporation will comply with the conditions attaching to them.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.19 Government grants - continued Grants that compensate the Corporation for the cost of an asset are recognised in the income statement on a systematic basis over the useful life of the asset to match the depreciation charge. Capital grants are recorded as deferred income and released to the income statement over the estimated life of the related assets. 2.20 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Assets leased out under operating leases are included in investment property in the statement of financial position. 2.21 Government funds Investments made in the Corporation by the Government of Malta are treated as part of equity for accounting purposes. Government interest represents the value of assets vested by the Government of Malta in the Corporation over the years since its incorporation. The original investment relates to the value of assets originally vested in the Malta Electricity Board by the Government of Malta under the Electricity Act of 1963 which have been subsequently transferred to the Corporation in 1977 upon the enactment of the Enemalta Act. Permanent capital contribution originally represented the value of financial investments made by the Government of Malta in the Corporation over the years since its incorporation. In accordance with Section 18(2) of the Enemalta Act, the distribution of the Revenue reserve is subject to such direction as the Minister responsible for the Corporation, after consultation with the Minister of Finance, may give from time to time. 2.22 Provisions Provisions are recognised when the Corporation has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The Corporation recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.
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ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
2.
Summary of significant accounting policies - continued 2.23 Borrowing costs Borrowing costs which are incurred for the purpose of acquiring or constructing qualifying property, plant and equipment or investment property are capitalised as part of its cost. Borrowing costs are capitalised while acquisition or construction is actively underway, during the period of time that is required to complete and prepare the asset for its intended use. Capitalisation of borrowing costs is ceased once the asset is substantially complete and is suspended if the development of the asset is suspended. All other borrowing costs are expensed. Borrowing costs are recognised for all interest-bearing instruments on an accrual basis using the effective interest method. Interest costs include the effect of amortising any difference between initial net proceeds and redemption value in respect of the Corporation’s interest-bearing borrowings. 2.24 Segment reporting The Corporation determines and presents operating segments based on the information that internally is provided to the board of directors, which is the Corporation’s chief operating decision maker in accordance with the requirements of IFRS 8 ‘Operating Segments’. An operating segment is a component of the Corporation that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Corporation’s other components, and for which discrete financial information is available. An operating segment’s operating results are reviewed regularly by the board of directors to make decisions about resources to be allocated to the segment and to assess its performance executing the function of the chief operating decision maker.
3.
Financial risk management 3.1 Financial risk factors As the national energy utility provider, the Corporation’s activities potentially expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Corporation’s overall risk management, focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Corporation’s financial performance. The Corporation’s board of directors provides principles for overall risk management, as well as policies covering risks referred to above (and specific areas such as investment of excess liquidity). The general hedging guidelines regarding currency, interest rate and fuel price risks are set by the Risk Management Committee. This Committee, together with the Finance Department, is responsible for the implementation of the hedging policies. In order to manage exposures to risks arising from fluctuations in currency exchange rates and fluctuations in prices on the crude oil and fuel products markets, the Corporation makes use of derivative financial instruments. These instruments mainly comprise foreign currency forward contracts together with fuel hedging instruments. The respective derivative transactions are concluded only with first rate counterparties. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities which are denominated in a currency that is not the respective entity’s functional currency. The Corporation is exposed to foreign exchange arising from various currency exposures, primarily with respect to the US dollar. The Corporation is in a net payer position from its operating business particularly in view of a significant portion of purchases of fuel denominated in this currency.
25
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management 3.1
Financial risk factors - continued
(a) Market risk - continued (i) Foreign exchange risk - continued The Corporation’s main risk exposures reflecting the carrying amount of receivables and payables denominated in foreign currencies at the end of the reporting periods were as follows: 31 December 2009 USD €’000
GBP €’000
31 December 2008 USD €’000
GBP €’000
Trade receivables Trade payables
3,413 (25,621)
44 (156)
3,286 (67,244)
45 (71)
Gross statement of financial position exposure
(22,208)
(112)
(63,958)
(26)
Available funds in foreign currency Net exposure
1,238 (20,970)
(112)
769 (63,189)
(26)
The expected future cash flows in individual major currencies usually over the coming twelve months are budgeted and analysed, and the Corporation hedges the respective net currency exposure in major currencies, within certain pre-established parameters, by entering into forward foreign exchange contracts. These contracts represent commitments to purchase foreign currency amounts covering the net exposure at a pre-established exchange rate. In accordance with the requirements of IAS 39, the Corporation designates forecast transactions amounting to the net exposure in individual currencies as hedged items. These forecast transactions, qualifying as highly probable, would typically include the Corporation’s purchases of petroleum products. These expenses are routinely denominated in US dollar. The Corporation is also exposed to an insignificant amount denominated in UK sterling and accordingly management does not consider this exposure to be material. As at 31 December 2009, the Corporation forecasts net payments denominated in US dollar which are equivalent to the notional amounts of outstanding derivatives and are principally reflected as financial liabilities of the Corporation. These exposures were hedged as at the end of the reporting period, in accordance with the policy parameters referred to previously, through the use of derivative contracts having a notional amount of €129,430,000 (2008: €108,087,000). In view of the offsetting of the Corporation’s hedge items and the derivative contracts, disclosure of sensitivity analysis attributable to a reasonable shift in exchange rates was not deemed necessary as at 31 December 2009. (ii) Cash flow and fair value interest rate risk The Corporation’s significant instruments which are subject to fixed interest rates comprise bank borrowings (Note 17). In this respect, the Corporation is potentially exposed to fair value interest rate risk in view of the fixed interest nature of these instruments, which are however measured at amortised cost.
26
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued (ii) Cash flow and fair value interest rate risk - continued The Corporation’s interest rate risk principally arises from bank borrowings issued at variable rates (Note 17). The Corporation’s borrowings mainly consist of facilities subject to variable interest rates which are principally based on reference rates. Management monitors the impact of changes in market interest rates on amounts reported in profit or loss in respect of these instruments. Significant exposure to cash flow interest rate risk arises in respect of interest payments relating to syndicated borrowings amounting to €151.3 million (2008: €151.3 million) that are subject to interest at floating rates linked to EURIBOR. In prior years, the Corporation entered into an interestrate swap agreement which provided a cash flow hedging relationship in respect of variability of future floating interest payments. Accordingly, this hedging instrument has been designated as a cash flow hedge of the interest rate risk, i.e. volatility in floating interest amounts. This agreement expired in July 2009 and consequently as at the reporting date, the Corporation did not have any hedging arrangements with respect to the exposure of interest rate risk. Based on the analysis referred to above, management considers the potential impact on profit or loss of a defined interest rate shift that is reasonably possible at the end of the reporting period. As at 31 December 2009, an increase of 100 basis points would have increased the loss for the Corporation by €4,185,000, whereas a decrease of 25 basis points would have decreased the loss by €1,046,000. As at 31 December 2008, an increase/decrease of 100 basis points would have increased/decreased the loss for the period by €3,079,000, respectively which principally takes into account the impact of this shift on the interest amounts arising on variable interest borrowings as at year end, including the effects of cash flow hedges in this respect. (iii) Price risk During the financial year ended 31 December 2009, fuel expenses amounted to €292.9 million (2008: €512.0 million) as disclosed in Note 21 to the financial statements and accounted for approximately 57% (2008: 69%) of the total operating expenses of the Corporation. Fluctuations in crude oil, fuel and other fuel product prices may have a significant effect on the Corporation’s results. Different hedging instruments with regard to the crude oil and fuel products markets are used to limit the fuel price risk. As at 31 December 2009, these instruments mainly comprise commodity swaps, whereas as at 31 December 2008, they mainly comprised combined purchased call and written put options. As at 31 December 2009, the notional amounts of the hedging derivatives outstanding amounted to approximately USD357.0 million (2008: USD403.0 million) in view of the prevailing market and trading conditions (refer to Note 9). Commodity swaps are contractual arrangements under which the Corporation and a counterparty agree to swap the notional quantity of a commodity at a predetermined price during a set period of time. Such contracts are typically settled on a net basis by comparing the contracted swap price to the reference market price applicable during the set period; settlements are effected by either party, usually on a monthly basis, for an amount equivalent to this difference multiplied by the notional quantity of the commodity.
27
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued (iii) Price risk - continued Commodity options are contractual arrangements under which the writer (seller) grants the purchaser the right, but not the obligation, either to notionally buy (a call option) or sell (a put option) the notional quantity of a commodity at a predetermined price (strike price) during a set period of time. Such contracts are typically settled on a net basis by comparing the strike price to the reference market price applicable during the set period. Combined purchased call and written put options represent the combination of a purchase of a call option by the Corporation and the simultaneous sale of a put option to the same derivative counterparty. These combination options substantially amount to a collar arrangement with a floor and a cap (fluctuation band) whereby settlements are effected by either party, usually on a monthly basis, if and only if, the reference market price for the particular month during the set period does not fall within the band. As at 31 December 2009, the Corporation held outstanding derivatives to significantly hedge its fuel requirements for 2010. As disclosed in more detail in Note 9, these outstanding derivatives mainly comprised a swap structure at a fixed average rate of $81.80 per barrel. Disclosure of sensitivity analysis for price risk attributable to a reasonable shift in the price of fuel products as at the end of 31 December 2009, reflecting how the results for the period and equity would have been affected by applying the change in the relevant risk variable to the risk exposures in existence at that date, was deemed necessary in view of the nature, terms and notional amounts of these outstanding fuel derivative hedging instruments. At 31 December 2009, if the price of brent crude oil had increased/decreased by 10% as at that date with all other variables held constant, loss for the year would have been â‚Ź28,551,000 lower/â‚Ź31,470,000 higher, mainly as a result of the fair value gains/losses on the above mentioned fuel derivatives. Notwithstanding these sensitivities to fuel price movements, this swap structure has been entered into so as to provide the Corporation with an element of stability over its inherent variable fuel costs, which therefore enabled the Corporation to devise the tariff model for 2010 by reference to a relatively fixed fuel cost price. Accordingly, the risk of gains or losses on the outstanding derivative contracts, arising from fuel price movements, is mitigated through the establishment of electricity tariffs that are determined by reference to the average fuel rate of $81.80 per barrel which the Corporation has locked into. Disclosure of sensitivity analysis for price risk attributable to a reasonable shift in the price of fuel products as at the end of 31 December 2008, was not deemed necessary in view of the nature and terms of the outstanding fuel derivative hedging instruments as at 31 December 2008 (Note 9). A reasonable possible shift in the price of fuel products would not have had a material impact on the fair valuation of the derivative contracts as at the end of the reporting period in view of the prevailing market prices at 31 December 2008, and the level of contracted fluctuation bands on strike prices, which were significantly higher than such prevailing market prices.
(b) Credit risk Credit risk principally arises from cash and cash equivalents and credit exposures to customers, including outstanding receivables and committed transactions. The Corporation’s exposures to credit risk as at the end of the reporting periods are analysed as follows:
28
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued (b) Credit risk - continued
Loans and receivables category: Trade and other receivables (Note 11) Cash and cash equivalents (Note 12)
Financial instruments held for hedging: Derivative financial instruments (Note 9)
2009 €’000
2008 €’000
193,853 17,864
182,391 14,788
211,717
197,179
6,852
11,402
218,569
208,581
The maximum exposure to credit risk at the reporting date in respect of the financial assets mentioned above is equivalent to their carrying amount as disclosed in the respective notes to the financial statements. The Corporation has no significant past due or impaired financial assets with the exception of the amounts disclosed in respect of trade and other receivables. The Corporation does not have any significant renegotiated financial asset which would otherwise be past due or impaired and holds no collateral in respect of exposures relating to trade and other receivables. Trade and other receivables The Corporation’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Corporation considers that it is not exposed to major concentrations of credit risk in the event of non-performance of a single customer. The Corporation manages credit limits and exposures actively in a practicable manner such that past due amounts receivable from customers are within controlled parameters. However, the Corporation’s policy is generally to provide for any receivable balance that is outstanding for over one year. Actions taken to mitigate the risk of default typically include formally notifying the clients through set policies and the suspension of electricity supply in certain cases. The credit quality of the Corporation’s trade, in the case of electricity revenue, and other receivables which are not impaired or past due, reflects the nature of these assets which are principally debts in respect of transactions with customers for whom there is no recent history of default. Management does not expect any losses from non-performance by these customers. At 31 December 2009 and 2008 no significant individual trade or other receivable that would otherwise be past due or impaired have been renegotiated. The Corporation’s receivables include significant amounts due from related parties that are owned, controlled, or form part of the Government of Malta. The Corporation’s credit control function monitors related party exposures at individual entity level on a regular basis and ensures timely performance of these assets in the context of overall Corporation liquidity management. The Corporation assesses the credit quality of these related parties taking into account financial position, performance and other factors (including support from Government) and management does not expect any losses from non-performance or default.
29
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued (b) Credit risk - continued Trade and other receivables - continued The ageing of trade receivables and impaired balances at the end of the reporting period was as follows:
Current Within one year Over one year
Gross 2009 €’000
Impaired 2009 €’000
Gross 2008 €’000
Impaired 2008 €’000
109,476 67,496 15,173
(6,844) (6,721) (15,173)
86,247 78,965 12,112
(5,987) (8,493) (12,112)
192,145
(28,738)
177,324
(26,592)
As at 31 December 2009, trade receivables amounting to €60,775,000 (2008: €70,472,000) were past due but not impaired. These relate to a number of customers for whom there is no significant recent history of default. Categorisation of receivables as past due is determined by the Corporation on the basis of the nature of the credit terms in place and credit arrangements actually utilised in managing exposures with customers. As at 31 December 2009, the Corporation had trade receivables amounting to €28,738,000 (2008: €26,592,000) which were impaired and the amount of the provisions in this respect are equivalent to these amounts. The individually impaired receivables mainly relate to a significant number of independent customers which are not meeting repayment obligations. The movement in provisions for impairment of trade receivables is analysed as follows: 2009 €’000
2008 €’000
At beginning of year/period Increase in impairment provisions
26,592 2,146
24,300 2,292
At end of year/period
28,738
26,592
The movements in these provisions are disclosed in Note 11 and are included in ‘administrative expenses’ in the Corporation’s income statement.
Cash and cash equivalents The Corporation principally banks with local and foreign financial institutions which have high quality credit standing or rating.
30
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued Derivative financial instruments Credit risk arising from derivative financial instruments lies in the insolvency of the contracting party and as a consequence, in the amount of the sum, on balance, of positive market values vis-à-vis the respective derivative counterparties. Foreign exchange derivative transactions are concluded with first rate local banking institutions only, while fuel derivative contracts are entered into with foreign financial institutions which have high quality credit standing or rating. The Corporation’s main foreign derivative counterparties as at the end of the reporting periods have an external good credit rating as determined by major rating agencies. (c) Liquidity risk The Corporation is exposed to liquidity risk in relation to meeting future obligations associated with its financial liabilities, which comprise principally borrowings (Note 17) and trade and other payables (Note 19). Prudent liquidity risk management includes maintaining sufficient cash and committed credit lines to ensure the availability of an adequate amount of funding to meet the Corporation’s obligations. Management monitors liquidity risk by reviewing expected cash flows, and ensures that liquid resources and facilities that are expected to be required over the coming year are in place. Based on the results of the Corporation’s budgeting process, management prepares a liquidity plan covering the subsequent twelve month period that reflects the anticipated liquidity position over the period and ensures that pre-established net liquidity levels are met at all times during the period under review. This process is performed and monitored by the Corporation’s treasury function and the plan is reviewed on an ongoing basis. The overall liquidity requirements of the Corporation involve maintaining available net liquidity equivalent to a number of weeks’ cash outflows from operations depending on seasonality and expected volatility. The risk is actively managed by taking cognisance of the matching of operational cash inflows and outflows including those arising from expected maturities of financial instruments, the collection of receivables, the Corporation’s committed bank borrowing facilities and other financing that it can access as referred to previously. The Corporation will meet the contractual cash outflows arising from financial liabilities disclosed below, extending beyond the subsequent twelve month period, through operating cash flows and other financing cash inflows. The table below presents the cash flows payable by the Corporation under non-derivative financial liabilities based on the remaining contractual maturities at the end of the reporting period. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances, as the impact of discounting is not significant.
31
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued (c) Liquidity risk - continued
At 31 December 2009 Bank and other borrowings Trade and other payables
At 31 December 2008 Bank and other borrowings Trade and other payables
Carrying amount €’000
Contractual cash flows €’000
Within one year €’000
1-2 years €’000
2-5 years €’000
Over 5 years €’000
537,156 100,223
582,817 100,223
227,426 100,223
36,733 -
107,236 -
211,422 -
637,379
683,040
327,649
36,733
107,236
211,422
437,528 141,082
504,618 141,082
144,894 141,082
25,440 -
80,317 -
253,967 -
578,610
645,700
285,976
25,440
80,317
253,967
The table below analyses the Corporation’s principal derivative financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at 31 December 2009 and 2008 to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. 0-3 months €’000 At 31 December 2009 Fuel derivatives At 31 December 2008 Fuel derivatives
(4,167)
-
3-6 months €’000
6 - 12 months €’000
Over 12 months €’000
(4,253)
(14,315)
-
(22,645)
(45,579)
(69,693)
Total €’000 (22,735)
(137,917)
The Corporation’s derivatives that will be settled on a gross basis consist principally of forward foreign exchange contracts (Note 9). The table below analyses the Corporation’s derivative financial liabilities that will be settled on a gross basis into relevant maturity groupings based on the remaining period at 31 December 2009 and 2008 to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Within 3 months €’000 At 31 December 2009: Foreign exchange derivatives - Outflows - Inflows
3-6 months €’000
6 - 12 months €’000
(3,170) 3,138
(1,758) 1,743
-
(4,928) 4,881
(32)
(15)
-
(47)
Total €’000
32
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.1 Financial risk factors - continued (c) Liquidity risk - continued
3months €’000
6 - 12 months €’000
Total €’000
(11,516) 10,809
(7,724) 7,219
(15,366) 14,465
(34,606) 32,493
(707)
(505)
(901)
(2,113)
Within 3 months €’000 At 31 December 2008 Foreign exchange derivatives: - Outflows - Inflows
3.2 Capital risk management The Corporation’s objectives when managing capital are to safeguard the Corporation’s ability to continue as a going concern in order to provide returns to the Government of Malta (in accordance with the provisions of the Enemalta Act) and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Corporation may seek further funding. The Corporation monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (as shown in the statement of financial position) less cash and cash equivalents, less Government guaranteed loans. Total capital is calculated as equity as shown in the statement of financial position plus net debt. The Corporation’s gearing ratio as at 31 December 2009 and 2008 was as follows:
2009 €’000 Total borrowings Less: cash and cash equivalents Less: Government guaranteed loans
2008 €’000
537,156 (17,864) (494,646)
437,528 (14,788) (326,647)
Net debt
24,646
96,093
Total equity
85,328
68,737
Total capital
109,974
164,830
22%
58%
Gearing
33
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.2 Capital risk management - continued The directors, together with the Government of Malta, are constantly reviewing the adequacy of the capital level in the context of operational developments and changes in the international business environment and expected reported results of the Corporation on the basis of management’s budgets and forecasts. Furthermore, the present electricity tariff structure (as per January 2010) review mechanism (which incorporates an ROCE of 8.4%) allows the Corporation to invest in the necessary capital expenditure programme without risking its financial capital base. The monitoring process takes cognisance of the Corporation’s intentions to continue with the ongoing reforms (refer to Note 1) that are required to ensure that the operational results and cash flows are such that the capital base is safeguarded and restored to more adequate levels and availability of liquidity resources managed in the manner outlined. 3.3 Fair values of financial instruments Fair values of instruments not carried at fair value At 31 December 2009 and 2008 the carrying amounts of cash at bank, trade and other receivables, trade and other payables and short-term borrowings reflected in the financial statements are reasonable estimates of fair value in view of the nature of these instruments or the relatively short period of time between the origination of the instruments and their expected realisation. The fair value of receivables from Government of Malta which are short-term or repayable on demand is equivalent to their carrying amount. The fair value of non-current financial instruments for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Corporation for similar financial instruments. The fair value of the Corporation’s non-current floating interest rate bank borrowings at the end of the reporting period is not significantly different from the carrying amounts. Fair values estimation in relation to financial instruments carried at fair value The Corporation’s financial instruments which are carried at fair value include derivative financial instruments designated as hedging instruments (Note 9). The Corporation is required to disclose fair value measurements by level of the following fair value measurement hierarchy for financial instruments that are measured in the statement of financial position at fair value: • Quoted prices (unadjusted) in active markets for identical assets (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset either directly i.e. as prices, or indirectly i.e. derived from prices (level 2). • Inputs for the asset that are not based on observable market data i.e. unobservable inputs (level 3).
34
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
3.
Financial risk management - continued 3.3 Fair values of financial instruments - continued
At 31 December 2009 Level 2 Derivative financial instruments 4.
Assets €’000 6,852
Liabilities €’000 (2,260)
Critical accounting estimates and judgements Estimates and judgements are continually evaluated and based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. The Corporation makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. These estimates and assumptions present a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The Corporation’s directors and management also make judgements, apart from those involving estimations, in the process of applying the entity's accounting policies that may have a significant effect on the amounts recognised in the financial statements. 4.1 Electricity revenue and related accounts receivable Every utility provider expects to suffer technical losses, i.e. losses of electricity units generated that cannot be sold for reasons intrinsic to power distribution. However, the amount of losses that the Corporation continues to experience remain at a level that cannot be attributed solely to technical losses according to industry norms. A portion of these losses is likely to be attributable to nontechnical losses which mainly include, errors in billing due to wrong estimations and theft, Persistent attempts to curb theft have been made over the years, and continue to be undertaken. Until the end of 2009, the Corporation shared a billing and debt management system with Water Services Corporation, who also administered the system. The system that was in place until 31 December 2009 lacked the capability to provide sufficiently detailed and timely management information. These limitations hindered the Corporation's management in exercising full control over revenue accounting. This state of affairs was further exacerbated with the implementation of changes in tariffs during 2009. While alternative controls, such as more detailed review processes applied to certain major consumers, were exercised by the Corporation wherever practicable, the scope for these alternative measures was limited in relation to the large number of smaller customers. Similarly, data limitations within the system led to delays in exercising effective debt control. Management considers that, except where unforeseen customer failures occur, adequate provisions for debt impairment are maintained (Note 3.1 (b)). To reduce non-technical losses referred to above, the Corporation together with Water Services Corporation, implemented a state-of-the-art Integrated Utilities Business System to support and improve each Corporation’s management of revenue and receivables, with the necessary improvements in functionality and reporting tools. In 2009, both Corporations set-up a jointly controlled entity, specifically incorporated to act as a service organisation (Automated Revenue Management Services Limited – ‘ARMS’) with the objective of administering the revenue cycle within this newly implemented integrated IT system. This system was commissioned as from 1 January 2010. During 2009, the Corporation also embarked on an extensive program of introducing an Automated Metering Management system with the aim of further controlling the non-technical losses.
35
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
4.
Critical accounting estimates and judgements - continued 4.1 Electricity revenue and accounts receivable - continued The directors of ARMS commissioned an independent assurance report on the entity’s controls in accordance with ISAE 3402, Assurance reports on controls at a third party service organisation. The scope of this engagement was to provide reasonable assurance that the entity’s controls were operating effectively throughout the period from 1 January 2010 to 31 December 2010. This report identified a number of exceptions indicating that pre-determined control objectives were not necessarily satisfied during the relevant period. The Corporation estimates the unbilled element of electricity consumption for the year with reference to actual bills issued after the year end, which in 2010 were extracted from the new system referred to above. This process requires certain assumptions to be made for bills that have not yet been issued in relation to units consumed during the year/period. The estimated revenue portion included in accrued income is disclosed in Note 11 and amounted to €73.0 million as at 31 December 2009 (2008: €132.0 million). Notwithstanding the system and control limitations that were identified in the above-mentioned third party assurance report, the directors have concluded that the estimate of accrued income included within these financial statements is a reasonable one. This assertion considers a number of factors, including the comparability of the volume of units billed with prior years’ experience and units generated, the passage of time and developments subsequent to the year end, including the proportion of bills that have since been settled. At the same time, the directors draw attention to the sensitivity of this estimate and the inherent estimation uncertainty, which is influenced by the matters described above. The estimate of accrued income is considered to be critical to the financial statements on the basis of there being significant risk of a material adjustment to the carrying amount within the next financial year. This estimation process requires certain assumptions to be made for bills that had not yet been issued in relation to units consumed during the year. These assumptions include the proration of bills issued after the end of the reporting period by apportioning the element of consumption attributable to 2009 with reference to average consumption trends. In a similar manner, consumption for meters for which no actual reading was made after the end of the reporting period was estimated to be consistent with past consumption patterns by the same customers. Therefore, this estimate is inherently subject to the risk of fluctuations in actual consumption when compared to past consumption trends. These assumptions in the estimation process impact the degree of accuracy when comparing total units billed to those generated. As mentioned above, despite the system and control limitations, the directors believe that the comparability of the volume of units billed with units generated, and with prior years’ experience of unbilled units, is a key indicator that revenue from electricity, including accrued income, is reasonable. Management considers that a fluctuation of 1% in unbilled units is an appropriate benchmark for the purposes of applying sensitivity. A fluctuation of 1% in the proportion of units bills to units generated, assuming that all other variables, including the average revenue per unit billed, are kept constant, would result in an increase or decrease of €2.6 million (2008: €3.2 million for a fifteen month period) in the Corporation’s revenue from electricity. 4.2 Impairment testing IFRSs require management to test for impairment if events or changes in circumstances indicate that the carrying amount of a non-financial asset having a finite useful life may not be recoverable. For the purposes of assessing impairment, non-financial assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
36
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
4.
Critical accounting estimates and judgements - continued 4.2 Impairment testing - continued The Corporation also assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets or cash-generating units can be supported by the net present value of future cash flows derived from such assets or cash-generating units using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, in particular those derived from the Corporation’s cash-generating units, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of growth in EBITDA; developments in regulated markets and Government decisions; long-term growth rates; and the selection of discount rates to reflect the risks involved. Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Corporation’s impairment evaluation and hence results. 4.3 Estimation of useful life The useful lives and residual values of the Corporation’s property, plant and equipment are determined by the directors at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events that may impact their life such as changes in technology, innovation and related regulations. Assessment of matters referred to above In the opinion of the directors, except as disclosed in Note 4.1 above, the accounting estimates and judgements made in the course of preparing these financial statements, which have been highlighted above, are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1. Moreover the directors draw attention to assumptions and estimates relating to the review of the carrying amount of derivatives (Note 9).
5.
Intangible assets In 2008 an emission trading scheme was introduced in the EU. The following table summarizes the movements in the quantity (in thousand tons) and book value of emission rights and credits held by the Corporation during 2009 and 2008: 2009 Emission rights and credits for own use
Granted emission rights at 1 January Emission rights and credits granted Emissions rights and credits utilised Fair value adjustment Granted emission rights at 31 December
In thousand tons 89 2,121 (1,897) 313
2008
€’000
In thousand tons
1,348 32,055 (28,665) (875) 3,863
2,108 (2,019) 89
€’000 1,348 1,348
The movement for the year is recognised in profit or loss within cost of sales.
37
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
6.
Property, plant and equipment Land, buildings & infrastructural improvements €’000 At 1 October 2007 Cost Accumulated depreciation and impairment charges Net book amount Period ended 31 December 2008 Opening net book amount Additions Disposals Depreciation charge Depreciation released on disposal Other movements Transfer to investment property (Note 7) Impairment charge Recharges to related party Closing net book amount At 31 December 2008 Cost Accumulated depreciation and impairment charges Net book amount Year ended 31 December 2009 Opening net book amount Additions Disposals Depreciation charge Depreciation released on disposal Other movements Recharges to related party Closing net book amount At 31 December 2009 Cost Accumulated depreciation and impairment charges Net book amount
Electricity transmission Power & distribution stations equipment €’000 €’000
Gas Plant, Assets bottling & equipment, in the distribution furniture course of equipment & fittings construction €’000 €’000 €’000
Total €’000
180,697
369,390
223,245
16,858
37,039
-
827,229
(24,713)
(233,115)
(119,369)
(14,004)
(27,412)
-
(418,613)
155,984
136,275
103,876
2,854
9,627
-
408,616
155,984 4,143 (2,635)
136,275 289 (18,979)
103,876 15,739 (12,246)
2,854 881 (1,542) (548)
9,627 1,412 (1,613)
2,712
-
1,542 -
-
-
-
-
139,773
120,297
107,369
3,187
174,840
372,391
238,984
(35,067)
(252,094)
139,773
139,773 1,544 (1,893)
(10,000) (7,719) -
-
5,845 -
408,616 28,309 (1,542) (36,021) 1,542 2,712
(1,667)
(10,000) (7,719) (1,667)
9,426
4,178
384,230
16,197
38,451
4,178
845,041
(131,615)
(13,010)
(29,025)
120,297
107,369
3,187
9,426
4,178
384,230
120,297 194 (15,501)
107,369 8,589 (10,170)
3,187 (13,142) (668)
9,426 2,174 (49) (1,214)
4,178 60,164 -
384,230 72,665 (13,191) (29,446)
-
(460,811)
-
383 -
-
12,155 -
-
139,424
105,373
105,788
1,532
10,337
54,400
416,854
176,384
372,968
247,573
3,055
40,576
54,400
894,956
(36,960)
(267,595)
(141,785)
(1,523)
(30,239)
139,424
105,373
105,788
1,532
10,337
(9,942)
54,400
12,155 383 (9,942)
(478,102) 416,854
38
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
6.
Property, plant and equipment - continued Together with the carrying amounts of property, plant and equipment noted in the tables above, the Corporation makes use of certain assets at no cost, and for which legal title has not been passed to the Corporation, as at year end. These assets include the land on which the power station at Delimara is built. Between 2004 and 2007 the Government of Malta transferred various properties to the Corporation. During 2008, the Government of Malta transferred to the Corporation immovable properties for a total contract value of €6,878,000 to be utilised for purposes determined by the Corporation within its operations. These properties have been classified under land and buildings and investment property. Property, plant and equipment includes land and property held by title of temporary leasehold since 2004 but which the Corporation had been occupying since its incorporation. These include petroleum storage facilities at Has-Saptan and Kordin. The cost of these assets at the contract date, determined by the Corporation on the basis of their estimated fair value for commercial use, amounted to €93,600,000. In determining the fair value of these assets and other operational property related to the Petroleum division as at 2008 year end, the Corporation has taken cognisance of plans for the future commercialisation of the division's activities and the information presently available in respect of the ongoing Petroleum division commercialisation negotiation process (Note 31). The property's recoverable amount at 31 December 2008 amounted to €90,700,000 and represented its value in use based on the discounted estimated net cash flows (applying an appropriate discount rate based on the Corporation’s cost of capital) to be received by the Corporation from the commercialisation of the Petroleum division. This resulted in an impairment charge of €7,719,000 (Note 21) which has been recognised in the income statement for the financial period ended 31 December 2008, under administrative expenses. As at 31 December 2008, the Corporation transferred land at Benghajsa with a carrying value of €10.0 million to investment property due to a change in intended use as a result of the commercialisation of the Gas division, referred to below. The directors confirm that adequate assessment of the values of the transferred properties has been made and are of the opinion that the carrying amount of land and buildings as at 31 December 2009 does not differ materially from that which would be determined using fair values. On 27 November 2008, a number of agreements were signed by the Corporation, Gasco Energy Limited and Liquigas Malta Limited for the commercialisation of the Gas Division. These agreements included the transfer of the gas distribution business from the Corporation to Liquigas Malta Limited which became into effect as from February 2009. Consequently the related gas bottling equipment was transferred by the Corporation to Liquigas Malta Limited together with the related cylinder deposit liability in accordance with the provisions of the above noted agreements. The charge for depreciation included in the income statement is as follows:
Cost of sales Distribution costs Administration expenses
2009 €’000
2008 €’000
16,268 10,629 2,549
19,819 12,676 3,526
29,446
36,021
39
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
6.
Property, plant and equipment - continued The existing Petroleum division operational site at Birzebbugia should become available for disposal as operations are relocated to other sites belonging to the Corporation in the foreseeable future. The Corporation will be assessing the potential decommissioning and rehabilitation costs through technical assessments once the commercialization process is finalised (Note 29). Based on information available to date, the directors are of the opinion that the related potential financial impact would not be material. The Corporation will operate the Qajjenza plant until site closure. Any related decommissioning costs will, contractually, not be borne by the Corporation, in accordance with the commercialisation agreements. As disclosed in Note 29 on contingent liabilities, following Malta’s accession to the European Union, a number of European Union Directives came into effect that will impact the Corporation. Compliance with these directives had both an operational and financial impact on the Corporation. Such compliance may possibly result in the impairment of items of existing plant and equipment but this impact is not expected to be material. These Directives particularly impact the operation of the Marsa Power Station since use of some assets at this plant are limited to 20,000 hours as from 1 January 2008 or the year 2015 whichever is the earlier. To this effect the net book value of such assets is being depreciated on a time-of-use basis. The Corporation estimates that the Marsa Power Station will be operational until 2013 and will exceed the allocated 20,000 hours, which started to be utilised as from 1 January 2008. The directors are of the opinion that any potential penalties imposed by the EU Commission in connection with this breach will not be borne by the Corporation. As explained in more detail in Note 29, the Corporation has not provided for costs related to the dismantling of tangible assets and environmental reinstatement of land or of the seabed at the end of the electricity production activities. Assets in the course of construction During 2009, the Corporation stepped up its investment programme which commenced in 2008, through a number of significant infrastructural projects related to the upgrade of its generation, distribution and administrative assets. The Corporation continued implementing the Generation and Transmission Plans for the period 2006 - 2015. The final contract for the new Delimara Power Station extension project was signed on 26 May 2009. As at 31 December 2009, costs directly relating to this project totalled €39.5 million. The Corporation, jointly with Water Services Corporation, implemented a substantial part of the Integrated Utilities Business Systems. The revenue cycle new integrated IT systems were commissioned as from 1 January 2010 (Note 4). The allocated share of this project costs to date amounting to €9.9 million have been recharged to Water Services Corporation. The Enterprise Asset Management System was commissioned during 2010. During 2009 as part of the Integrated Utilities Business Systems project, the Corporation commenced the implementation of the SCADA monitoring and control system for its high voltage network. The Corporation also commenced the implementation of the Automated Metering Management system which is expected to be fully deployed over a 4 year period. Assets in the course of construction include borrowing costs amounting to €607,000 (2008: €Nil).
40
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
7.
Investment property
2009 €’000
2008 €’000
Opening net book amount Additions Transfer from property, plant and equipment (Note 6) Depreciation charge
21,434 (177)
7,247 4,200 10,000 (13)
Closing net book amount
21,257
21,434
2009 €’000
2008 €’000
Cost Accumulated depreciation
21,465 (208)
21,465 (31)
Net book amount
21,257
21,434
With the exception of the San Lucian petroleum facility, the directors are of the opinion that the carrying amount of investment property as at 31 December 2009 and 2008 does not differ materially from that which would be determined using fair values. The San Lucian petroleum facility, located in Birzebbugia, is operated by third parties under the terms of a rental agreement expiring in 2013. Income arising from the rental of this property amounts to €79,000 (2008: €79,000). The directors have assessed the fair value of this investment and determined that the value is significantly higher than the carrying amount. However, the directors have opted not to disclose the value of this investment in view of the commercialisation process of the petroleum business. As at 31 December 2008, the Corporation transferred land at Benghajsa with a carrying value of €10.0 million due to a change in intended use of the same land as a result of the commercialisation of the Gas division. Under the terms of the respective agreements, as from February 2009 the Corporation sub-let this land to Gasco Energy Limited for a period of 33 years after which the land title and the plant will revert to the Corporation. The following amounts have been recognised in the income statement with respect to property leased over to third parties:
Rental income Direct operating expenses arising from investment property that generate rental income
2009 €’000
2008 €’000
195
79
(241)
(86)
41
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
8.
Investment in jointly-controlled entities Equity investment Details of the cost of the investment and the accounting for the share of gains or losses of the jointly-controlled entity are as follows: 2009 €’000 Year/period ended 31 December Opening net book amount Additions Share of results of jointly-controlled entity
2008 €’000
25 (25)
Closing net book amount
-
-
At 31 December Cost Accumulated share of results of jointly-controlled entity
-
25 (25)
Net book amount
-
-
-
Investment in jointly-controlled entity represents the following:
Company
Automated Revenue Management Services (ARMS) Limited
Registered office
Class of shares held
Percentage of shares held 2009 2008
Water Services Corporation Building Triq Hal Qormi Luqa, Malta
Ordinary shares
50%
-
In determining the impact of equity accounting for the investment in the jointly-controlled entity, reference was made to the financial statements of this entity. The following financial information available to the Corporation relates to the investment that is classified as an jointly-controlled entity as at the reporting date:
Assets €’000 2009
626
Liabilities €’000 (854)
Revenue €’000 175
Loss €’000 (278)
The Corporation has recognised its share of losses equivalent to its investment as at 31 December 2009, in accordance with its accounting policy on jointly-controlled entities, as it has not guaranteed obligations or made advances on behalf of its jointly-controlled entity.
42
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
9.
Derivative financial instruments The fair values of derivative financial instruments held for hedging at the end of the reporting year/period are as follows:
At 31 December 2009
Fair values Assets Liabilities €’000 €’000
Foreign exchange derivatives - currency forwards
5,098
(47)
Fuel price hedging derivatives - combined bought call and written put options - commodity swaps
1,754
(1,107) (1,106)
Total recognised derivative assets/(liabilities)
6,852
(2,260)
-
(445)
Foreign exchange derivatives - currency forwards
8,007
(2,113)
Fuel price hedging derivatives - combined written put and bought put options - combined bought call and written put options - combined bought call, written call and written put options
3,395 -
(51,840) (11,686)
11,402
(66,084)
At 31 December 2008 Interest rate derivative - interest-rate swap
Total recognised derivative assets/(liabilities)
The above are included in the statement of financial position under the following classifications:
Derivatives financial assets Current Derivatives financial liabilities Non-current Current
2009 €’000
2008 €’000
6,852
11,402
(2,260)
(4,493) (61,591)
(2,260)
(66,084)
43
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
9.
Derivative financial instruments - continued (a) Interest rate derivatives In 2005, the Corporation restructured its combined currency and interest rate swap. The currency swap was early settled by exchanging the notionals at the pre-established rate and the pay-fixed receive-floating interest rate swap was modified such that the floating leg was based on Euribor. Accordingly, the variable interest amounts were determined by reference to the euro notional amount based on the applicable Euribor rate rather than the six-month USD Libor. The interest rate applicable on the fixed leg of the interest rate swap was 3.725% on the principal adjusted to 4.225% if Libor was 4% on the day of calculation. The contract matured on 22 July 2009. Gains and losses recognised in the hedging reserve in equity (Note 14) on the interest rate swap contract as of 31 December 2008 were released to the income statement over the period until maturity of the contract. (b) Foreign exchange derivatives The currency forward contracts outstanding as at 31 December 2009 have a notional value of USD192.8 million (2008: USD153.0 million) with an average contracted rate of €1:USD1.4878 (2008: €1:USD1.4566). The related fair value of outstanding forward contracts as at year end amounted to a net asset of €5.0 million (2008: net asset of €5.9 million). These contracts mature within a period of two to twelve months from the end of the reporting period and within the same period of time the forecast transactions designated as items being hedged by these contracts are expected to affect the income statement. (c) Fuel price hedging derivatives The terms and approximate notional amounts of the commodity swaps and the combined fuel price options held for hedging purposes outstanding at 31 December 2009 are as follows: Commodity swaps:
Contract cover
Period to 30 September 2010 Period to 31 December 2010
Notional amount
Range of fixed prices
USD57,126,339 USD56,806,388
$81.30 - $81.50 $80.90 - $81.20
Fair value Assets €’000 440 1,314 1,754
Combined bought call and written put options:
Contract cover
Notional amount
Strike price range Call Put
Period to 31 December 2010
USD48,000,000
$125 - $75
Fair value Liabilities €’000 (1,107)
44
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
9.
Derivative financial instruments - continued (c) Fuel price hedging derivatives - continued Commodity swaps: Contract cover
Notional amount
Fair value Liabilities €’000
Range of fixed prices
Period to 31 March 2010 USD59,957,550 Period to 30 June 2010 USD57,774,675 Period to 31 December 2010 USD77,262,000
$79.50 - $81.65 $80.95 - $81.70 $81.50
(907) (184) (15) (1,106)
The terms and approximate notional amounts of the combined bought call and written put fuel price options held for hedging purposes outstanding at 31 December 2008 are as follows: Combined written put and bought put options: Contract cover
Notional amount
Period to 30 June 2009
USD24,960,000
Fair value Assets €’000
Strike price range Put Put $105
$130
3,395
Strike price range Call Put
Fair value Liabilities €’000
Combined bought call and written put options:
Contract cover
Notional amount
Period to 30 June 2009 USD85,440,000 Period to 31 December 2009 USD121,536,000 Period to 31 December 2010 USD48,000,000
$140 - $165 $93 - $140 $125
$105 - $130 $80 - $115 $75
(17,891) (29,457) (4,492) (51,840)
Combined bought call, written call and written put options:
Contract cover
Notional amount
Period to 31 December 2009 USD122,688,000
Strike price range Call Call $120
$140
Put $82
Fair value Liabilities €’000 (11,686)
These fuel hedging derivative contracts would typically have monthly exercise or settlement dates and upon monthly net cash settlements, amounts recognised in equity in respect of these contracts would be released to the income statement as the forecast hedged transactions would simultaneously affect the results of the Corporation.
45
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
10.
Inventories
Petroleum products Liquefied petroleum gas products Consumable spare parts Work-in-progress Other consumables
2009 €’000
2008 €’000
41,658 550 17,712 4,322 1,481
73,082 748 20,887 3,189 1,649
65,723
99,555
The cost of inventories recognised as expense is disclosed in Note 21. During the current financial year, an increase in provisions for obsolescence of inventories amounting to €371,000 (2008: increase of €109,000) has been reflected in these financial statements. These amounts have been included within cost of sales in profit or loss. Provisions for obsolescence of inventories are as follows:
At 31 December 11.
2009 €000
2008 €000
3,270
2,899
2009 €’000
2008 €’000
163,407 25,928 4,518
150,732 26,847 4,812
193,853
182,391
Trade and other receivables
Current Trade and related receivables Other receivables and Government contributions Prepayments and accrued income
Trade and related receivables are stated net of provisions for impairment as follows:
Trade and related receivables Other receivables
2009 €’000
2008 €’000
28,738 3,216
26,592 2,716
31,954
29,308
Government contributions classified under other receivables include a net amount of €11.3 million (2008: €11.3 million) due by the Government of Malta in respect of compensation payable to the Corporation in fulfilment of Government social obligations (Note 20).
46
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
11.
Trade and other receivables - continued Trade and related receivables include an amount of €73.0 million (2008: €132.0 million) relating to accrued income in respect of electricity units supplied to customers not yet billed at the period end. This estimate represents 28% (2008: 41%), of the supply of electricity for the period. This respective estimation process, which involved reference to bills issued from the new revenue system described in Note 4, requires due caution due to the system limitations and required certain assumptions to be made for bills that had not yet been issued in relation to units consumed during the year. In 2009, prepayments and accrued income include advances made by the Corporation to Government amounting to €1.0 million to finance expropriation of parcels of land which are presently being occupied by the Corporation. This property will be transferred to the Corporation when legal title is fully acquired by Government.
12.
Cash and cash equivalents For the purposes of the statement of cash flows, the year/period end cash and cash equivalents comprise the following: 2009 €’000 Cash at bank and in hand Bank overdrafts (Note17)
13.
2008 €’000
17,864 (107,905)
14,788 (116,559)
(90,041)
(101,771)
Government interest and permanent capital contribution Government interest represents the value of assets vested by the Government of Malta in the Corporation over the years and amounts to €134,782,000 (2008: €134,782,000) plus a Permanent capital contribution of €64,086,000 (2008: €64,086,000). Government interest of €10,161,000 (2008: €10,161,000) and Permanent capital contribution of €1,223,000 (2008: €1,223,000) bear interest at 6% (2008: 6%) per annum (Note 24). For the financial period ended 31 December 2008, the Minister responsible for the Enemalta Corporation, approved the transfer of €18,211,000 from the Revenue reserve to the Permanent capital contribution reserve. This transfer was made in respect of 2007 transactions and shall not be subject to interest.
47
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
14.
Hedging reserve The changes in fair values of hedging instruments qualifying as cash flow hedges are recorded in a separate category of equity in the hedging reserve as shown below:
Currency forwards €’000 At 1 October 2007 Gross amounts of (losses)/gains Deferred income taxes
Movement - 31 December 2008 Gains/(losses) from changes in fair value Deferred income taxes (Note 15)
Transferred to inventories Transferred to income statement
At 31 December 2008 Gross amounts of gains/(losses)
Movement - 31 December 2009 Gains/(losses) from changes in fair value Deferred income taxes (Note 15)
At 31 December 2009 Gross amounts of gains/(losses) Deferred income taxes
Commodity derivatives €’000
Total €’000
(3,405) 1,190
808 (284)
419 (147)
(2,178) 759
(2,215)
524
272
(1,419)
9,945 (1,190)
269 284
(59,040) 147
(48,826) (759)
8,755
553
(58,893)
(49,585)
(1,388) (1,974)
(1,522)
(3,065)
(1,388) (6,561)
(3,362)
(1,522)
(3,065)
(7,949)
3,178
(445)
(61,686)
(58,953)
3,178
(445)
(61,686)
(58,953)
1,874 (1,696)
(711) -
11,724 161
12,887 (1,535)
(711)
11,885
11,352
178 Transferred to inventories Transferred to income statement
Interest rate swap €’000
(207) -
1,156
49,503
(207) 50,659
(207)
1,156
49,503
50,452
4,845 (1,696)
-
(459) 161
4,386 (1,535)
3,149
-
(298)
2,851
48
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
14.
Hedging reserve - continued The net fair value gains at 31 December 2009 on open forward foreign exchange contracts which hedge anticipated future foreign currency transactions will be transferred from the hedging reserve to inventory and for the income statement when the forecast transactions occur, up to twelve months from the reporting period date. The net fair value losses at 31 December 2009 on open commodity derivative contracts which hedge anticipated fuel transactions will be transferred from the hedging reserve to the income statement when the forecast transactions occur, up to twelve months from the reporting period date.
15.
Deferred taxation
The movement on deferred taxation is as follows: 2009 €’000 At beginning of year/period Credit to the income statement (Note 25) Tax effect of re-measurement of derivatives (Note 14) At end of year/period
651 (1,953) 1,535 233
2008 €’000 12,700 (12,808) 759 651
Deferred taxes are calculated on all temporary differences under the liability method and are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted by the end of the reporting period. The principal tax rate used is 35% (2008: 35%). Deferred income tax assets and liabilities are offset when the taxes concerned relate to the same fiscal authority. The following amounts are offset in the statement of financial position: 2009 €’000 Deferred tax assets Deferred tax liabilities Net reporting date amount
(49,056) 49,289 233
2008 €’000 (41,944) 42,595 651
The directors are confident that the deferred taxation recognised in the financial statements will be realised in the foreseeable future through trading operations conducted by the Corporation. Deferred taxation is principally composed of deferred tax assets and liabilities which are to be recovered and settled after more than twelve months.
49
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
15.
Deferred taxation - continued Deferred tax assets and liabilities, and the deferred tax debited to equity are attributable to the following items:
Liabilities/(assets)
Property, Unabsorbed plant and, capital Derivative equipment Provisions allowances instruments €’000 €’000 €’000 €’000
At 1 October 2007 Debit to other comprehensive income Credit to income statement
42,595
At 31 December 2008
42,595
At 1 January 2009 Debit to other comprehensive income Debit/(credit) to income statement
42,595
At 31 December 2009
-
(4,886)
Total €’000
(24,250)
(759)
12,700
(12,808)
759 -
759 (12,808)
(4,886)
(37,058)
-
651
(4,886)
(37,058)
-
651
1,535
1,535
-
-
-
-
5,159
4,886
(11,998)
-
47,754
-
(49,056)
1,535
(1,953) 233
At 31 December 2009, the Corporation had unrecognised and recognised deferred tax assets amounting to €22,132,000 (2008: €30,011,000) and €233,000 (2008: €651,000) respectively, consisting of unutilised tax credits and temporary differences arising from: Unrecognised 2009 2008 €’000 €’000 Unutilised tax credits arising from: Unabsorbed capital allowances Deductible temporary differences arising on: Tax losses Provisions Re-measurement of derivative instruments Taxable temporary differences arising on: Property, plant and equipment
-
-
31,821 31,413 -
13,607 17,461 58,953
63,234
(4,274) 85,747
Recognised 2009 2008 €’000 €’000
140,161 (4,386)
105,880 13,960 -
(136,439)
(121,700)
(664)
(1,860)
Deferred tax assets are recognised for unabsorbed capital allowances and tax losses carried forward, provisions and re-measurement of derivative instruments to the extent that realisation of the related tax benefit through future taxable profits is probable.
50
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
16.
Other provisions
At beginning and end of year/period 17.
2009 €’000
2008 €’000
1,066
1,066
Bank borrowings 2009 €’000
2008 €’000
Non-current Bank loans
310,618
292,191
Current Bank overdrafts Bank loans
107,905 107,941
116,559 15,757
Current bank borrowings
215,846
132,316
Total bank borrowings
526,464
424,507
The Corporation’s banking facilities as at 31 December 2009 amounted to €587,955,000 (2008: €437,972,000). Bank borrowings to the extent of €494,646,000 (2008: €326,647,000) are guaranteed by the Government of Malta. The remaining borrowings are made available on an unsecured basis. All bank loans are term loans with scheduled repayments. The carrying amounts of the Corporation’s bank borrowings are all denominated in euro. The interest rate exposure of the bank borrowings of the Corporation was as follows:
Total bank borrowings: At fixed rates At floating rates: - subject to variable interest rate linked to bank's base rate - computed on a margin over the 1 or 6 month Euribor rate
2009 €’000
2008 €’000
56,250
45,000
358,689 111,525
269,507 110,000
470,214
379,507
526,464
424,507
The weighted average effective interest rates at the end of the reporting period are as follows: 2009 Bank overdrafts Bank loans
4.0% 2.9%
2008 3.8% 3.4%
51
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
18.
Other borrowings
Government loans Non-current Current
2009 €’000
2008 €’000
8,363 2,329
10,692 2,329
10,692
13,021
Other borrowings relate to funds advanced by the Government of Malta to the Corporation. These loans are unsecured, interest free and the Corporation has reached an understanding with the Government to settle this balance in a systematic manner over the next 5 years.
19.
Trade and other payables
Current Trade and capital payables Deposits and guarantees Other payables Indirect taxation, excise duty and social security contribution Accruals and deferred income
2009 €’000
2008 €’000
49,910 6,351 1,553
93,663 13,193 975
12,738
8,949
29,671
24,302
100,223
141,082
Deposits on open work orders in respect of cables and trench works relating to the national electricity distribution network amounted to €6,224,000 (2008: €6,854,000). As at 31 December 2009 deferred income includes an amount of €7,059,000 representing the net concession gains from the agreements relating to the commercialisation of the Gas Division which became into effect as from February 2009. This deferred income is being released to the income statement on a systematic basis in line with the related unwinding of the sub-lease on land at Benghajsa.
52
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
20.
Segmental information Management has determined the operating segments based on the reports reviewed by the board of directors that are used to make strategic decisions. The board of directors considers the Corporation’s business mainly from a productive and commercial perspective as geographically operations are primarily carried out on the local market. The Corporation’s productive and commercial operations are segregated primarily into the generation, transmission and distribution of electricity disclosed under the electricity segment and the storage and distribution of petroleum products disclosed under the petroleum and gas segments respectively. The board of directors assesses the performance of the operating segments based on operating results. This measurement basis includes the effects of non-recurring expenditure from the operating segments such as restructuring costs, legal expenses and impairments and non-recurring events. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the treasury function, which manages the cash position of the Corporation. Inter-segmental sales represent mainly the sale of petroleum products to other business segments. These inter-segmental transfers are made at cost. The revenue from external parties reported to the board of directors is measured in a manner consistent with that in the income statement. The amounts provided to the board of directors with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset. Segment assets consist primarily of land, buildings and infrastructural improvements, investment property, power stations, plant, distribution and bottling equipment, intangible assets, inventories, trade and other receivables and cash and cash equivalents. Derivatives and taxation are not considered to be segment assets but rather is managed by the treasury function. The amounts provided to the board of directors with respect to total liabilities are measured in a manner consistent with that of the financial statements. The allocation of liabilities is based on the operations of the segment. Segment liabilities comprise trade, capital and other payables and exclude tax, borrowings and derivatives. The Corporation’s interest-bearing liabilities and taxation are not considered to be segment liabilities but rather are managed by the treasury function.
53
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
20.
Segmental information - continued
Electricity €’000
Petroleum €’000
Gas €’000
Corporation €’000
Year ended 31 December 2009 Total revenue Less: inter-segmental revenue
256,297 -
372,864 (169,376)
11,162 -
640,323 (169,376)
Revenue from external customers
256,297
203,488
11,162
470,947
Results for reportable segments Finance costs Share of results of equity-accounted jointly-controlled entity
(29,429)
(2,387)
(31,305) (15,774)
511
(25)
Loss before tax Tax credit
(47,104) 1,891
Loss for the year
(45,213)
Segment assets Elimination of divisional balances Total assets Segment liabilities Elimination of divisional balances
1,928,314 (1,355,665) 572,649 1,627,092 (1,579,003) 48,089
402,245 (264,881)
21,419 (5,166)
137,364
16,253
66,740 (21,354)
33,147 (25,355)
45,386
7,792
2,351,978 (1,625,712) 726,266 1,726,979 (1,625,712)
Unallocated liabilities
101,267 539,671
Total liabilities
640,938
Capital expenditure Depreciation - property, plant and equipment Depreciation - investment property Increase in provision for impairment of trade and other receivables
71,960
696
9
72,665
26,657 -
2,074 10
715 167
29,446 177
2,000
646
-
2,646
54
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
20.
Segmental information - continued Electricity €’000
Petroleum €’000
Gas €’000
Corporation €’000
Period ended 31 December 2008 Total revenue Less: inter-segmental revenue
319,700 -
700,586 (355,378)
17,053 -
1,037,339 (355,378)
Revenue from external customers
319,700
345,208
17,053
681,961
Results for reportable segments Financial costs
(20,209) -
(11,956) -
(5,429) -
(37,594) (21,753)
Loss before tax Tax credit
(59,347) 12,746
Loss for the period
(46,601)
Segment assets Elimination of divisional balances Total assets Segment liabilities Elimination of divisional balances
1,602,913 (1,070,280) 532,633 1,361,436 (1,309,486) 51,950
443,706 (279,881)
18,690 -
163,825
18,690
103,540 (16,840)
27,333 (23,835)
86,700
3,498
2,065,309 (1,350,161) 715,148 1,492,309 (1,350,161)
Unallocated liabilities
142,148 504,263
Total liabilities
646,411
Capital expenditure Depreciation - property, plant and equipment Depreciation - investment property Impairment of property, plant and equipment Increase in provision for impairment of trade and other receivables
26,647
712
950
28,309
32,360 -
2,735 13
926 -
36,021 13
-
7,719
-
7,719
1,456
836
-
2,292
Information about major customers The Corporation does not have any particular major customer, as it largely derives revenue from a significant number of consumers availing of its services. Accordingly, the Corporation has not identified any relevant disclosures in respect of reliance on major customers.
55
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
21.
Expenses by nature Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000 Employee benefit expense (Note 22) Depreciation of property, plant and equipment (Note 6) Impairment of property, plant and equipment (Note 6) Depreciation of investment property (Note 7) Net purchases of petroleum and gas products include: - opening inventory of petroleum and gas products - purchases of petroleum products - compensation for fuel costs (see note below) - closing inventory of petroleum and gas products Fair value loss/(gain) on derivative instruments: - commodity agreements: cash flow hedge Maintenance expenses Duty on products sold Increase in provision for impairment of trade and other receivables (Note 11) Impaired receivables Emission rights Other expenses Total cost of sales, transmission and distribution costs and administrative expenses
36,641 29,446 177
45,576 36,021 7,719 13
73,830 261,257 (42,208)
51,859 604,563 (70,700) (73,830)
49,503 7,390 80,889
(3,065) 8,493 103,912
2,646 359 (2,515) 15,473
2,292 365 (1,348) 18,558
512,888
730,428
In 2008, the Government of Malta, in fulfilment of its social obligations, compensated the Corporation for fuel cost increases that were not reflected in the electricity tariffs applied during the period for an amount of €70.7 million. This assistance was classified against the respective expense category and included in net purchases disclosed above. Auditor’s fees Fees charged by the auditor for services rendered during the reporting periods ended 31 December 2009 and 2008 relate to the following: Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000 Annual statutory audit Other assurance services Tax advisory and other related services Other non-audit services
105 70 3 207
105 65 3 148
385
321
56
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
22.
Employee benefit expense Year ended 31 December 2009 (12 months) €’000
Period from 1 October 2007 to 31 December 2008 (15 months) €’000
Wages and salaries Social security costs
35,840 2,402
44,933 2,973
Capitalised labour costs
38,242 (1,601)
47,906 (2,330)
36,641
45,576
Salaries amounting to €76,000 (2008: €137,000) incurred in relation to works carried out for street lighting maintenance are included above. Wages, salaries and social security costs, other than those relating to capital works, are allocated as follows: Year ended 31 December 2009 (12 months) €’000
Period from 1 October 2007 to 31 December 2008 (15 months) €’000
17,330 8,884 10,427
21,492 11,496 12,588
36,641
45,576
Cost of sales Transmission and distribution costs Administrative expenses
The average number of persons employed by the Corporation during the year/period amounted to 1,664 (2008: 1,671). The average number of persons remunerated by the Corporation are the following:
Electricity Petroleum Gas Administration
2009
2008
1,149 154 36 297
1,178 157 40 277
1,636
1,652
Directors’ remuneration is included within administrative expenses.
57
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
23.
Other operating income Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000 Services and installations Storage fees Other
24.
7,879 2,153 604
8,546 2,022 305
10,636
10,873
Finance costs - net Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000 Bank loans and overdrafts Government interest and Permanent Government contribution Finance and other charges
Interest income Net fair value (loss)/gain on derivative instruments: - interest-rate swap: cash flow hedge, transfer from equity
(13,053)
(20,983)
(815) (844)
(1,019) (1,708)
(14,712)
(23,710)
94
435
(1,156)
1,522
(15,774)
(21,753)
Borrowing costs incurred during the year amounting to €607,000 (2008: €Nil) have been capitalised within assets in course of construction (Note 6) and are excluded from the above charge to profit or loss. These finance costs have a net capitalisation rate of 4% (2008: Nil) and represent the costs of borrowings utilised to finance these assets.
58
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
25.
Income tax credit Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000
Current tax expense Deferred tax credit (Note 15)
62 (1,953)
62 (12,808)
Income tax credit
(1,891)
(12,746)
The tax impacts, which are entirely attributable to deferred taxation, relating to components of other comprehensive income and accordingly presented directly in equity are as follows: 2009 Before tax €’000 Cash flow hedges
4,386
Tax charge €’000
2008 Net of tax €’000
Before tax €’000
Tax credit €’000
Net of tax €’000
2,851
-
-
-
(1,535)
The tax on the Corporation’s loss before tax differs from the theoretical amount that would arise using the basic tax rate as follows: Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000 Loss before tax
(47,104)
(59,347)
Tax on loss at 35%
(16,486)
(20,772)
12,754
5,007
Tax effect of: Movement in unrecognised deferred tax Over provision in unrecognised deferred tax related to prior years Expenses not deductible for tax purposes Emission rights Income taxed at different rates Other Income tax credit
2,306 1,107 (880) (26) (666)
2,702 (472) (83) 872
(1,891)
(12,746)
59
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
26.
Directors’ emoluments
Salaries and other emoluments
Year ended 31 December 2009 (12 months) €’000
Period from 1 October 2007 to 31 December 2008 (15 months) €’000
74
60
The Corporation has paid insurance premia of €14,000 (2008: €13,000) in respect of directors and officers liability in favour of the Corporation’s directors. 27.
Cash used in operations Reconciliation of operating loss to cash used in operations: Year Period from ended 1 October 2007 to 31 December 31 December 2009 2008 (12 months) (15 months) €’000 €’000 Operating loss Adjustments for: Emission rights (Note 5) Depreciation on property, plant and equipment (Note 6) Impairment of property, plant and equipment (Note 6) Depreciation on investment property (Note 7) Net movement in contribution by Government of Malta Increase in provision for impairment of trade and other receivables (Note 11) Release of deferred income
(31,305)
(37,594)
(2,515) 29,446 177 -
(1,348) 36,021 7,719 13 3,543
2,646 (221)
2,292 (164)
Change in working capital: Inventories Trade and other receivables Trade and other payables
33,242 (16,437) (54,234)
(23,802) (68,114) 25,494
Cash used in operations
(39,201)
(55,940)
60
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
28.
Commitments Capital commitments At the year/period end, the Corporation had the following capital commitments in respect of property, plant and equipment: 2009 2008 €’000 €’000 Authorised but not contracted Contracted but not yet incurred
14,775 141,039
30,322 46,824
155,814
77,146
Operating maintenance agreement The future minimum payments payable under the Corporation’s material non-cancellable operating maintenance agreement is as follows:
Not later than 1 year Later than 1 year and not later than 5 years
29.
2009 €’000
2008 €’000
3,174 -
2,844 2,901
3,174
5,745
2009 €’000
2008 €’000
17,069
8,011
Contingencies a) Letters of credit
Letters of credit
At 31 December 2009, letters of credit were issued by the Corporation’s bankers in favour of various third parties in respect of the supply of petroleum products and capital expenditure. b) Legal and other claims At 31 December 2009, the Corporation had contingent liabilities arising in the normal course of business in respect of claims made by third parties, for the supply of both operational and capital expenditure, against the Corporation for value which cannot be determined in a reliable manner. Contingent liabilities are also present from claims made by Corporation employees for compensation due to injuries incurred during the discharge of their duties, the value of which is not considered material.
61
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
29.
Contingencies - continued b) Legal and other claims - continued The Corporation has received claims of ₏7.9 million from the Government of Malta in respect of the cost of pensions and gratuities paid to employees who had in the past accepted permanent employment with the Corporation. These claims relate to the cost of the pensions and gratuities accruing from the date of acceptance of the employment of the respective employees to 31 December 2009. The claims will increase with the passage of time as more pension rights accrue to these employees. The Corporation has rebutted these claims and discussions are underway with Government to establish whether the amounts are in fact due. On the basis of these discussions, and based on representations received, the directors strongly believe that the issue will be settled in a manner that is not financially detrimental to the Corporation’s cash flow. Legal proceedings have been instituted against the Corporation and the Government of Malta by employees formerly employed by the Malta Electricity Board for pensionable rights equivalent to Government employees employed before 1979. The Corporation has legally rebutted these claims and, on the basis of information currently available, the directors do not feel that there is the need to provide for a liability in this respect. Moreover, should this liability arise, it is also unclear how much of this would accrue to the Corporation and how much will be borne by the Government. The Corporation has not disclosed additional information relating to this contingent liability, in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, on the grounds that the disclosure may be seriously prejudicial to the outcome of the court case. Legal proceedings have been instituted against the Corporation and the Malta Resources Authority for the damages related to allegedly denying a private operator the opportunity to conduct petroleum operations Malta International Airport. The case is also being pursued by Office of Fair Competition on the basis of a breach of Competition Law. c) Obligations relating to compliance with laws and regulations The Corporation is continuously assessing the operational and financial impact of compliance with laws and regulations. Generally, environmental compliance results in additional costs being incurred and this may also lead to the possible impairment of existing plant and equipment. Presently, various options of how to comply with these requirements are being considered by the Corporation particularly in respect of future generation plans where the Corporation is committed to comply with specific Directives. The Corporation is also committed to comply with EU Directives regarding fuel quality and emission ceilings as these are determined. With regards to the existing plants at Birzebbugia, steps are being taken for their relocation, decommissioning, and restoration in line with the Government’s strategy for the commercialisation of the Petroleum divisions. These negotiations are being led by the Privatisation Unit of the Government of Malta. The final plans in this respect have not yet been approved. The directors are not yet aware of any material financial impact that these may have on the Corporation or whether any eventual financial impact will be borne by Government as part of the commercialisation process that it is leading. Accordingly, at this stage, no provision for such costs has been made in these financial statements.
62
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
29.
Contingencies - continued d) Site dismantling and reinstatement costs Site dismantling and reinstatement costs refer to costs that will be incurred when electricity generation, gas and petroleum storage and filling plants are relocated, and to the physical activities related to the removal of debris and reinstatement of sites. According to IFRSs as adopted by the EU, the estimated costs of dismantling, asset removal and site reinstatement that will be incurred when the facilities are vacated should be allocated to a specific provision raised which are attached to the assets to which they refer. The estimation of future dismantling and reinstatement costs is a complex process, and to date, except for the Qajjenza site (Note 6), there is no indication as to whether such costs will be borne by the Corporation or will be recovered from the acquirer or concessionaire of the respective sites. Consequently, the Corporation did not recognise any liabilities with respect to obligations concerning dismantling of tangible assets and environmental reinstatement of land and of the seabed at the end of the production activities.
30.
Related party transactions The Corporation is owned and controlled by the Government of Malta. The directors consider that the following significant transactions with Government should be disclosed:
Revenue Compensation with respect to LPG social obligations Cost of sales Compensation with respect to electricity fuel cost social obligations Compensation for operational licence Finance costs Permanent Government contribution
2009 €’000
2008 €’000
578
6,115
1,333
70,700 1,734
(815)
(1,019)
Balances with Government relating to:
Assets Trade and other receivables Contributions relating to electricity fuel cost social obligations Dues in respect of ex-Malta Drydocks Corporation and Malta Shipyard Limited balances Advances to the Lands Department Liabilities Government loan classified as other borrowings Trade and other payables Excise duty payable Social security and employee contributions
2009 €’000
2008 €’000
11,300
11,300
7,185 1,000
9,513 -
(10,692)
(13,021)
(10,056) (662)
(8,425) (962)
63
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
30.
Related party transactions - continued
Government guarantees in relation to the borrowings (Note 17)
2009 €’000
2008 €’000
494,646
326,647
IAS 24 “Related Party Disclosures”, paragraph 8 states that knowledge of related party transactions, outstanding balances and relationships may affect assessments of an entity's operations by users of financial statements, including assessments of the risks and opportunities facing the entity. The Corporation makes supplies in its ordinary course of business to the Government of Malta, its departments and agencies, public sector Corporations, Local Councils and other entities owned and/or controlled by Government. The Corporation enters into such transactions on an arm’s length basis in the same manner as with all its other customers. Preparing, compiling and verifying all the financial information needed to present the detailed information in respect of these supplies presently required by IAS 24 from the billing system adopted by the Corporation up to 31 December 2009 would entail undue effort and expense. Apart from the difficulty of determining which entities are controlled or significantly influenced by the state, the directors are of the opinion that the disclosure of routine transactions with state-controlled entities carried out at an arm’s length basis does not materially enhance the proper understanding of the profit or loss and financial position of the Corporation. Furthermore, they believe that the cost of meeting the requirements of IAS 24 is not offset by the benefit of increased information for users of the Corporation’s financial statements. Accordingly, after taking cognisance of the matters referred to above, the directors are of the opinion that the information disclosed at the beginning of this note adequately addresses the requirements of IAS 24. In November 2009, the International Accounting Standards Board (“IASB”) published a revised IAS 24, Related Party Disclosures. This standard is effective for financial years commencing on 1 January 2011. Government-related entities are now defined as entities that are controlled, jointly controlled or significantly influenced by Government. The amendment introduces an exemption from all of the disclosure requirements of IAS 24 for transactions between Government-related entities and Government, and all other Government-related entities. Those disclosures are replaced with a requirement to disclose: (a) the name of the Government and the nature of the relationship between Government and the entity; and (b) (i) the nature and amount of any individually-significant transactions with Government and other Government-related entities; and (ii) the extent of any collectively-significant transactions qualitatively or quantitatively. The new disclosures are intended to provide more meaningful information about the nature of an entity’s relationship with Government and material transactions.
64
ENEMALTA CORPORATION Annual Report and Financial Statements - 31 December 2009
31.
Events after the reporting date The following are the material events that impacted the Corporation after the reporting date: • The commercialization of the Petroleum Division entered the final stages of adjudication. An initial call for Expression of Interest was issued on 10 April 2007 and after the bid evaluation process was concluded, the Privatisation Unit is currently negotiating with one preferred bidder. • On 14 December 2010, the Corporation signed an agreement with Nexans Norway AS for the supply, installation and commissioning of a sub-sea electricity interconnector link between Malta to Sicily. The estimated cost for the electricity interconnector is €200.0 million. It is expected that this project will be in operation in 2013. • On 14 December 2010, the Corporation entered into a €50.0 million loan agreement with HSBC (Malta) Bank plc to part finance the construction of Interconnector link to the European Grid. • The European Energy Programme for Recovery was established by the European Commission that will contribute to economic recovery, the security of energy supply and the reduction of greenhouse gas emissions of member states. As part of this programme the Commission has allocated a total of €20.0 million towards the financing of a sub-sea electricity interconnector between Malta and Sicily as well as a further €5.0 million for the extension of the high voltage distribution infrastructure at Kappara in Malta. • On 1 February 2011, the Corporation extended its long-term maintenance agreement with Nuovo Pignone S.p.a. for the maintenance services with respect to electricity generating plant and equipment for a period of seven years until 2018 for a total contracted value of USD24.2 million.
32.
Statutory information Enemalta Corporation is a body corporate established in Malta by virtue of Act XVI of 1977 Chapter 272.
33.
Comparative information Certain comparative figures disclosed in the main components of these financial statements have been reclassified to conform with the current year’s presentation format for the purpose of fairer presentation.
65