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ChiĹ&#x;inău Heat and Electricity Supply Institutional and Financial Restructuring Study Phase 2 Final Report
Public Disclosure Authorized
October 2011 Submitted to the World Bank by: Economic Consulting Associates Jointly Financed by:
Economic Consulting Associates Limited 41 Lonsdale Road, London NW6 6RA, UK tel: +44 20 7604 4545, fax: +44 20 7604 4547 email: peter.robinson@eca-uk.com
Contents Acknowledgement The report was produced by a team of experts consisting of consultants from Economic Consulting Associates. The World Bank team consisted of Shinya Nishimura (Task Team Leader), Gary Stuggins, Pekka Kalevi Salminen, Claudia Ines Vasquez Suarez, Alexander Sharabaroff, Sandu Ghidirim (ECSS2), and Pedzisayi Makumbe (ECSSD). Valuable comments on the first phase draft report were received from Messrs. Maria Vagliasindi (Lead Economist, SEGEN), Alexander Berg (Program Manager, GCMCG) and Victor Loksha(Consultant, SEGES). The project team is grateful to the staff of the Ministry of Economy of Moldova and all other Moldovan counterparts for their cooperation. The study is jointly financed by the Energy Sector Management Assistance Program (ESMAP) and Public-Private Infrastructure Advisory Facility (PPIAF). ESMAP is a global knowledge and technical assistance partnership administered by the World Bank and sponsored by official bilateral donors - assists low- and middle-income countries, to provide modern energy services for poverty reduction and environmentally sustainable economic development. ESMAP is governed and funded by a Consultative Group (CG) comprised of official bilateral donors and multilateral institutions, representing Australia, Austria, Denmark, Finland, France, Germany, Iceland, the Netherlands, Norway, Sweden, the United Kingdom, and the World Bank Group. PPIAF is a multi-donor technical assistance facility aimed at helping developing countries improve the quality of their infrastructure through private sector involvement. For more information on the facility see the Web site: www. PPIAF.org. Disclaimer The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the World Bank, or its affiliated organizations, or to members of its board of executive directors for the countries they represent, or to ESMAP and PPIAF. The World Bank and ESMAP/PPIAF do not guarantee the accuracy of the data included in this publication and accept no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement of acceptance of such boundaries.
Phase 2 Final Report: ChiĹ&#x;inău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Contents
Contents Acronyms and abbreviations
iv
Executive summary
v
1
Vertical integration of Chişinău’s DH system
1
1.1
Government order on district heating system restructuring
1
1.2
Objectives for the sector and expected benefits
2
1.3
Legislative and regulatory framework
3
1.4
State acting as owner
4
1.5
Ownership structure
7
1.5.1
Municipal ownership
7
1.5.2
Conclusion on the termination of municipal ownership
8
1.5.3
Government ownership options
9
1.5.4
Subsidiary of CET-2
9
1.5.5
Holding company
10
1.5.6
Transfer of assets
11
1.5.7
Preferred option
11
1.6
Composition and responsibilities of the Board
12
1.7
Financial and accounting perspective
14
1.7.1
Profit and loss
15
1.7.2
Balance sheet
15
1.7.3
Securing a sustainable financial position
18
2
Case studies
19
2.1
Case study of the vertical integration of DH in Bălţi
19
2.1.1
History and basic information about CET-Nord
19
2.1.2
Legislative changes required for integration
19
2.1.3
Corporate governance of the vertically integrated company
19
2.1.4
Performance since vertical integration
20
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Contents
2.1.5
Revenue collection and disconnections
23
2.1.6
Conclusions for Chişinău
23
2.2
International experience on disconnections
23
2.2.1
Competition in district heating
23
2.2.2
Disconnections from the district heating network
24
2.2.3
Command and control measures
25
2.2.4
Economic incentives
25
2.2.5
Customer-focussed performance
26
2.2.6
Conclusions for Chişinău
27
A1
Pro-forma consolidated accounts
A2
Pro-forma combined accounts
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Contents
Tables Table 1: Pro Forma Consolidated Profit and Loss Statement
15
Table 2: Pro Forma Consolidated Balance Sheet
16
Table 3: Impairable value
17
Table 4: 2010 Consolidated Trade Payables
17
Table 5 CET-Nord key performance indicators 2001-2010
22
Figures Figure 1: Separation of ownership and policy functions
7
Figure 2: Government ownership structure options
9
Exchange rate Early 2011 exchange rate approximately 12 MDL/$ Rate used by ANRE in May 2010 tariff round: 12.5 MDL/$
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Acronyms and abbreviations
Acronyms and abbreviations AC
alternating current
ANRE
National Energy Regulatory Agency
CET
Moldovan for CHP – the firms in Chişinău are CET-1 and CET-2
CHP
combined heat and power (cogeneration plant)
DC
direct current
DH
district heat
DHCAN
District Heat in Candidate Countries
EC
Energy Community (Vienna, Austria)
ERRA
Energy Regulators Regional Association (Budapest, Hungary)
EU
European Union
GoM
Government of Moldova
HOB
heat only boiler
IMF
International Monetary Fund
kWh
kilowatt hour, basic unit of energy used in the electricity sector. Mega-, giga- and tera-watthours for thousands, millions and billions of kWh respectively.
MDL
Moldovan Lei
MoU
Memorandum of Understanding
OECD
Organisation for Economic Cooperation and Development
SIDA
Swedish International Development Cooperation Agency
SoE
state owned enterprise
TOR
terms of reference
US
United States - $ throughout is US dollar, c refers to US cents.
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Executive summary
Executive summary Vertical integration of Chişinău’s DH system The earlier Phase 1 report provided a detailed analytic assessment of the options available for debt and corporate restructuring of the District Heating system in the Municipality of Chişinău and identified the need for strategic longer-term investments to reduce the underlying cost structure in the sector and lay the basis for an efficient and sustainable district heat system in Moldova’s capital. At the workshop organised by the World Bank to discuss the issues raised in the report, a preference was indicated for the immediate vertical integration of Termocom and the CETs. Following the workshop, the Deputy Prime Minister issued an order establishing a Working Group which is required to elaborate and submit the Concept and Action Plan on corporate and financial restructuring, with a draft Government Decision to follow shortly afterwards (in 45 and 60 days respectively). This Phase 2 report is a contribution to the materials on which the working group will draw in order to complete its mandate. The first part of this Phase 2 report calls for clarity in the objectives to be pursued and the identification of the framework for the restructuring, which should orient the resulting state owned enterprise (SoE) to operate as a commercial business. Guided by the OECD Guidelines on Corporate Governance of State Owned Enterprises, we recommend that Government’s roles of owner and policy maker in the district heating sector should be clearly separated: R
The energy and economic policy making function should be implemented through policy directions being provided to ANRE, which over time should develop an incentive-based regulatory regime for the sector.
R
The ownership function should be implemented through strategic objectives being provided to a three person Stakeholder Executive Committee, constituted by the Ministry of Economy, and which draws on skills in the Corporate Governance Department and the Agency for Public Property.
R
This committee would inter alia would be empowered to make board appointments, monitor performance and hold the Board of Directors to account.
Professionalism and competence are to be the determining factors in the composition of the Board of Directors. The Board is to give direction to the internal management of the newly integrated company, including the relentless pursuance of the commercial objectives for the longer term benefit of the district heat customers and the wider Moldovan economy.
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Executive summary Noting previous governance failures and the lack of financial capacity of the Municipality, the report definitely rejects the continued ownership of Termocom by the Municipality of Chişinău. At a later stage, there may be private ownership but at this juncture, ownership should be transferred to Government, because it is only the Government which has the financial capacity and the unambiguous interest in the long term financial sustainability of Termocom to secure the governance, while also taking the other essential step of resolving the legacy debt issue. The report then considers various options for the structure of the district heating sector under Government ownership to best achieve the objectives of the vertical integration (subsidiary of CET-2, holding company and transfer of assets to a new corporate entity). The transfer of assets approach may have the largest short-term costs, but is the option reportedly preferred by key stakeholders, including the major creditor and potential private sector investors. Financial and accounting perspective Based on company accounts to 31 December 2010, pro-forma consolidated accounts have been produced for the amalgamation of Termocom and CET-2. The consolidated profit and loss account shows a small positive balance, as expected from the tariff-setting by ANRE. The report highlights the need for asset impairments to be taken into account in the consolidated balance sheet, and highlights the rapid growth in trade receivables from the population struggling to pay the higher tariffs which were applied in 2010 (from MDL 513.1 million to MDL 693.2 million). The Phase 1 report recommended that a working capital credit facility be set up, but in the continuing absence of this, the increase is being funded by a rise in trade payables. In other words, suppliers are continuing to fund Termocom’s cash flow requirements, a situation which cannot be sustained. Integration of Termocom and CET-2 will not, by itself, secure any of the reforms and improvements necessary to put the Chişinău district heat system onto a sustainable footing. A government-funded resolution of the historical debt issue remains the first priority in this regard, accompanied by the regulatory reforms identified in the Phase 1 report and the corporate governance reforms highlighted in this report. Case study of the vertical integration of the DH system of Bălţi The district heating (DH) system of Bălţi was vertically integrated in the year 2000 in response to a Government directive. The Law on Joint Stock Companies allows for the kind of restructuring of companies which took place, so no specific legal amendments were needed to make possible the vertical integration of the district heating system in Bălţi. The biggest issue at the time was that the amalgamation involved approximately 280 job losses. The legal framework does not preclude the inclusion of representatives of the business community of civil society on the Board of Directors of CET-Nord, but it would appear this has never been considered. The present Board is composed of three representatives of the Ministry of Economy and one each from the Ministry of Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Executive summary Finance and the State Property Agency. Board members are appointed for one year at a time and attend regular meetings, usually monthly but at least quarterly. Board members from the Ministry of Economy report that they spend on average 1-2 hours per week on CET-Nord matters. Over the post-integration period for which data is available (2001-2010), electricity production and revenues increased significantly while heat revenue growth was driven by tariff increases rather than heat delivered, which grew at an average of only 1% per year. Heat losses were reduced, and impressive revenue collection ratios were achieved, but it was only when heat tariffs were hiked significantly (by 40%) in 2007 that CET-Nord’s financial position moved from losses to a small positive level of profits. Efficiency improvements have been swamped in the tariffs by the dominance of gas procurement costs (70% in 2011). Disconnections are said to be CET-Nord’s biggest problem, but it seems that this refers to the disconnection of large industrial consumers, rather than domestic disconnections or connections overall. Households accounted for 75% of heat consumed in both 2001 and 2010. Total numbers of connections have been static at around 33,000, 98% of which are domestic connections. The overall increase in heat consumption over the period (from 153 th Gcal in 2001 to 178 th Gcal in 2010) is attributed to higher consumption by some categories of consumer, such as schools and hospitals. The conclusions from this case study for Chişinău are that the restructuring of the district heat system in the capital needs to be done purposefully, with full involvement and understanding of key players. The governance recommendations made above need to be followed to properly direct the integration process and ensure thereafter that there is a strong customer focus by the consolidated DH company. International experience of disconnections from DH systems Disconnections from a district heating network have the potential to become a vicious downward cycle which undermines the social benefits of shared system that should benefit from significant economies of scale. Low income domestic consumers would be particularly hard hit because they cannot afford the investments required for autonomous heating and are faced with the rising costs of the DH systems as more affluent customers disconnect. Governments, municipalities and DH companies have responded to disconnections in three main ways: R
Command and control measures, such as zoning laws which require all potential customers in designated areas to connect to the DH network.
R
Economic incentives, such as two-part tariffs biased towards energy charges even if cost reflectivity points to a different balance, or financial penalties for disconnecting.
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Executive summary R
Enhanced customer-focussed performance, which encourages customers to remain connected or new customers to join.
The third strategy is clearly the most sustainable in the long run, and is also a good complement to the others, for example strong performance by the DH company would blunt any consumer resistance there may be to command and control measures. In the report, examples of the different approaches are cited, these being drawn mainly from Eastern European countries. Noting that it would be inconsistent with Moldova’s commitments under the Energy Community Treaty to resort to severe command and control measures and heavy economic penalties to stop disconnections, it is recommended for Chişinău that the approach to the growing trend towards disconnections should be to work on improving the fundamentals and adopting a much more customer-oriented focus, in line with recommendations already made in this report. That said, the improvements that are needed in these areas will take time to achieve and in the short-run it may be necessary to tighten the provisions available to Termocom to discourage disconnections. This would be a temporary action, pending achieving the level of improvements which will make the bulk of disconnection applicants willing to remain Termocom customers.
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Vertical integration of Chişinău’s DH system
1
Vertical integration of Chişinău’s DH system
1.1 Government order on district heating system restructuring The Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study was divided in two phases. Phase 1 provided a detailed analytic assessment of the options available for debt and corporate restructuring and identified the need for strategic longer-term investments to reduce the underlying cost structure in the sector and lay the basis for an efficient and sustainable district heat system in Moldova’s capital. The Phase 1 report was presented at the Stakeholder Meeting organised by the World Bank on May 23, 2011. In respect of immediate restructuring options, the meeting was broadly in favour of the integration of Termocom with at least one of the cogeneration companies to create a vertically integrated district heat system in Chişinău. On June 1, 2011, Order no 108 was issued by the Deputy Prime Minister on elaboration of the Concept and Action Plan for the corporate and financial restructuring of the District Heating system in the Municipality of Chisinau. The order establishes a Working Group which is required to elaborate and submit, within 45 days, the Concept on corporate and financial restructuring of the District Heating system in the Municipality of Chisinau and the Action Plan for its implementation. A draft Government Decision is to be ready within 60 days. This Phase 2 report is a contribution to the materials on which the working group will draw in order to complete its mandate. The issues explored are areas which were identified during the workshop as requiring further research. This first section deals with different aspects of the proposed vertical integration of the district heating sector, while Section 2 provides a case study of vertical integration of the DH system of Bălţi and a summary of international experience of different strategies to counter disconnections from district heat systems. This first section should be read in the context of the Phase 1 report which highlighted three key recommendations for the future sustainability of the district heat sector: R
A government-sponsored resolution of Termocom’s acute long-term debt issues.
R
Substantial improvements in the sector’s efficiency to address affordability issues that could further threaten its sustainability; improvements may in particular require investment in new, modern, efficient cogeneration plant.
R
Reform of Termocom’s governance.
The justification for these recommendations is given in detail in the Phase 1 report. It is noted there that the integration of Termocom with one or both of the existing cogeneration companies would not by itself resolve the debt issues and would not Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Vertical integration of Chişinău’s DH system be a necessary step for efficiency improvements, although the report identified that integration may help improve dispatch efficiency. The report also noted that governance reforms might be achieved with or without integration and argued that a decision about integration would depend mainly on the policy emphasis of the government. In the light of the discussion during the Stakeholder Meeting, it is recognised that the process of integration would impose change at the ownership and board level and thereby help reduce the risk of governance reforms being undermined by any institutional resistance to change. An important benefit of integration, therefore, is that it maximises the opportunity for governance reform directed towards the necessary efficiency improvements. This section sets out analysis of various aspects of integration which may be helpful for the Working Group.
1.2 Objectives for the sector and expected benefits The process of restructuring and reform should be guided by clearly articulated policy objectives. Taking account of the DH objectives laid out in the Energy Strategy of Moldova, and the analysis in Phase 1, the objectives of the reforms may be stated as being to achieve: R
a financially sustainable district heating sector in Chişinău providing heat, co-generated electricity and heat-related services efficiently at attractive prices;
R
a sector that is responsive to customer needs;
R
a sector that attracts private sector capital in the form of both debt and equity to support major investments and reinforce financial discipline.
The third objective suggests that a premium is to be placed on the views of investors in deciding between alternative options. The expected benefits from pursuing the objectives are first and foremost for the district heating customers. They deserve to be able to buy heat at the lowest price commensurate with efficient provision of the service, to have reliable supplies on a sustainable basis and a company that is responsive to their needs and interests (for example responsive to requests for start and end dates of DH in each heating season). Sustained pursuit of the objectives should deliver these benefits, if not immediately then over the medium term. Benefits will also accrue to electricity consumers when the cross-subsidy from electricity to heat consumers is reduced through new investment and greater efficiency in the system. The private sector objective takes account of government’s constrained investment resources: the benefit of private sector investment in DH would be to release resources for investment elsewhere in the economy as well as
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Vertical integration of Chişinău’s DH system reinforcing financial discipline in the sector, curtailing the possibility of large-scale debts being accumulated in future.
1.3 Legislative and regulatory framework The Phase 1 report considered the broader legislative framework for the sector and noted that there is a lack of a framework Heat Law, although a new Heat Law cannot be regarded as an urgent necessity at present. Since the shares of Termocom are currently owned by the municipality, the transfer of ownership will require either an agreement between the government and the municipality for the transfer of shares or the issue of new shares. The Phase 1 report outlined a possible mechanism involving the transfer of government assets to Termocom (which would fund or form the means of repayment of long—term debt) in consideration of new and existing shares in the company. The precedent of the vertical integration of the district heat system of Bălţi, suggests that no legislative change will be necessary to facilitate or procure the share transactions (see Section 2.1.2 below). Although a full review of the legislative framework for state owned enterprises has not been carried out, as this was outside the terms of reference for this study, it would appear that the framework is adequate for the restructured heat sector to operate effectively. Whether any refinements are needed should be considered in relation to factors determining the ability of the resulting state-owned enterprise (SoE) to be governed and to operate as a commercial business: R
the rights and duties of directors of the SoE;
R
annual financial reporting;
R
access to commercial finance;
R
clarity in the relationships with state owned banks and other financial institutions;
R
separation of the roles of government as shareholder, as policy maker and as economic and market regulator;
R
clarity in obligations and responsibilities in terms of public services beyond generally accepted commercial norms (public service obligations);
R
non-exemption to laws and regulations generally applicable to commercial enterprises, including competition law and the rights of creditors.
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Vertical integration of Chişinău’s DH system
1.4 State acting as owner Of central importance to governance reform will be clarity in the Government’s participation in corporate governance as owner. Government’s role as policy maker needs to be distinguished from its role as owner. The essential principle here is that the policy and ownership functions of government with respect to state owned enterprises (SOEs) are to be kept separate. The policy functions of government apply both to state owned and private enterprises; in a regulated sector such as district heating, the policy is set by the responsible Ministry and is implemented by the regulatory agency. The ownership function for an SOE is simply the counterpart of the governance arrangements in a private corporate setting – owners appoint a Board of Directors and hold this Board accountable for the performance of the company. In a state owned enterprise setting, the Government in its ownership capacity similarly appoints a Board of Directors and holds it accountable for financial and commercial performance. The required functions are to: R
Establish and participate in well structured and transparent board nomination processes.
R
Ensure that remuneration schemes for board members foster the long term interest of the company and can attract and motivate qualified professionals.
R
Establish clear financial and commercial objectives for the business and a framework to monitor performance against those objectives.
R
Monitor financial and commercial performance on quarterly or annual basis as appropriate, ensuring the board is providing meaningful and high quality performance information.
R
Maintain continuous dialogue with auditors and relevant state control organs.
R
Operate on a transparent basis so that the government and interested parties more generally can see that the business is being governed in a professional and objective manner.
The individuals appointed by Government to carry out these tasks should have a balance of skills and experience in managing and setting strategic aims for large and complex businesses, monitoring business performance, selecting candidates for senior positions and working with government, regulators and other state bodies. For the district heating sector, corporate governance should facilitate professional and effective management of the SoE, focused on clear commercial and customeroriented objectives within an economic framework overseen by the economic regulator, ANRE. This has implications for: Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Vertical integration of Chişinău’s DH system R
the required skills and experience of the directors of the SoE;
R
the process for selection and appointment of directors;
R
the scope for the board of directors to have full operational autonomy to make commercial decisions in pursuit of defined commercial objectives;
R
the accountability of the board of directors for the decisions it makes;
R
the process and the grounds for removal of directors;
R
the scope and transparency of any intervention in the sector by the government to further its policy objectives.
The discussion below is informed by the ‘OECD Guidelines on Corporate Governance of State-Owned Enterprises’, in particular the principle that: “There should be a clear separation between the state’s ownership function and other state functions that may influence the conditions for state owned enterprises, particularly with regard to market regulation” To give effect to this principle, international best practice would be to establish a body, a ‘Shareholder Executive Committee’, made up of professional and experienced individuals to exercise its ownership rights and participate in corporate governance in furtherance of the defined commercial objectives of the SoE. In the context of the urgent issues in the district heating sector of Chişinău and the relatively small size of the country and hence the pool of people on which to draw, it would be most appropriate for the Shareholder Executive Committee to be simply a committee formed within the Ministry of Economy, with no separate institutional structure, but with the roles and orientation laid out in the OECD Guidelines. The group could be very small, composed of perhaps three individuals chosen for their experience in the governance of large and complex businesses. The committee is to be constituted by and meet within the Ministry, drawing on the expertise in existing relevant departments such as the Corporate Governance Department and the Agency for Private Property. Other than payment for the participation of any outside members chosen for their special expertise, there would not be any budgetary implications. As previously outlined, and reiterated here in more detail, the principles to guide the separation of policy and ownership roles of government are as follows: R
The Shareholder Executive is responsible for the normal ownership role activities in the realm of corporate governance, including making board appointments.
R
The government interventions in the sector in pursuit of wider policy objectives are made in the form of transparent directions addressed to ANRE, not to the SoE itself, for ANRE to effect through its economic regulatory framework for the SoE.
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Vertical integration of Chişinău’s DH system R
ANRE should be encouraged to develop an incentive-based regulatory regime, recognising the role of financial performance, reputational incentives and management incentives for SoEs, to create alignment between R
customer interests and, where appropriate, policy directions from Government, and
R
the commercial objectives of the SoE, the reporting of its performance and its management incentive arrangements
R
The Board of Directors, appointed by the Ministry of Economy, will be responsible for company resolutions, monitoring performance, appointing senior managers and holding them to account, determining remuneration and management incentive arrangements, maintaining a statement of defined commercial objectives for the SoE and making recommendations to the government on any matters relevant to the commercial objectives of the SoE.
R
Where appropriate, the government may require specified classes of actions by the Shareholder Executive Committee or the Board of Directors to be recommended for approval by ministers, but on the basis that ministers shall give reasons for any departure from the recommendations.
R
Mirroring reporting requirements of ANRE, the Shareholder Executive Committee should be required to publish annual reports on its activities.
The following diagram illustrates how a clear separation between the state’s ownership and policy functions would be maintained through the separate regimes of the economic regulator, ANRE, and the Shareholder Executive Committee.
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Vertical integration of Chişinău’s DH system Figure 1: Separation of ownership and policy functions
Government Energy and economic policy function
Ownership function Shareholder Executive
ANRE
Incentive‐based regulatory regime
Performance‐based governance regime
State‐owned enterprise The composition and responsibilities of the Board of Directors is the next element of governance to be described. This is done in Section 1.6 below, but first we consider different options for the ownership structure of the DH enterprise.
1.5 Ownership structure 1.5.1
Municipal ownership
The ownership of Termocom was transferred from the Government to the Municipality in October 1999. With the benefit of hindsight, this was a counterproductive move. Under the ownership of the Municipality of Chişinău, the main governance failure that arose was that heat tariffs were persistently set at levels well below those necessary for cost recovery, with the result that Termocom and upstream entities built up levels of debt large enough to be of national concern. The fact that the scale of the accumulated debts of the company has become too great for a resolution at a local level highlights an inherent accountability issue: Termocom is too big an enterprise for the Municipality to be realistically held accountable for its financial sustainability. The prospect of a State-backed resolution to the current debt crisis underlines the economic hazard. The Government should not be put in a position where it is forced to take on large liabilities due to governance weakness. An obvious immediate solution to this is for Government itself to be the owner and hence to ensure a governance framework that emphasizes
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Vertical integration of Chişinău’s DH system financial sustainability. A competent private owner, committed to financial profitability, would be another option. The immediate symptom of this governance failure has been addressed by giving ANRE responsibility for tariff setting. However, that does not solve the underlying governance issue. Other tensions between local policy objectives, for example relating to employment or enforcement of consumer debt, may in future displace financial management as a primary objective for the owners. This leads us to the conclusion that an important condition for longer term financial sustainability of Termocom will be an owner with the financial capacity to underwrite the company’s governance, thereby ensuring the owner has an unambiguous interest in the company’s long term financial management. The current debt crisis can be attributed to the fact that Termocom has not had that owner. One of the consequences of the debt crisis has been to undermine longer term governance of the whole sector. The debt issue has certainly dominated analysis of the sector, the relationships between the parties and the context for longer term planning and investment. Critically, however, the governance weakness is primarily sourced in Termocom, the principal customer for heat in the sector and the party with the relationship with consumers. It would be natural for Termocom to play a central role in the strategic development of the sector, as it is best placed to focus on the implications for tariff levels and service levels for its own customers. A governance weakness in Termocom is therefore liable to translate to a governance weakness in the entire sector and vice versa.
1.5.2
Conclusion on the termination of municipal ownership
The strong conclusion to be drawn from the above is that remedying the governance weakness in Termocom will require the transfer of Termocom to a more suitable owner. In the first instance, this will have to be the Government of Moldova – at a later stage the aim should be to bring in private sector participation. At this juncture, it is only the Government which has the financial capacity and the unambiguous interest in the long term financial sustainability of Termocom to secure the governance, while also taking the other essential step of resolving the legacy debt issue. It is recognised that the ownership transfer may not be the preferred route of the Municipality of Chişinău, but it is necessary for all parties to come to terms with the ‘facts of life’ however unpalatable these may be. Termocom’s net asset position is substantially negative. The only entity that can settle the very large legacy debts is the Government, and in current fiscal circumstances the only feasible route is an equity injection (in the form of tangible assets) which is used by the Government to acquire the ownership of the shares of the Termocom. The Municipality was abdicating its responsibilities as owner when it suppressed tariffs for a protracted period, and in so doing it in effect forfeited the ownership of the district heat network
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Vertical integration of Chişinău’s DH system
1.5.3
Government ownership options
There are many possible mechanisms for the transfer of ownership of Termocom to the government or a government-owned body. These would include the acquisition of existing shares or subscription to a sufficient number of new shares to acquire control1. In the case of an acquisition of existing shares, the valuation of those shares would be practically zero, given the substantial negative net asset position of the company. In the case of subscribing to new shares, consideration could take the form of a reduction in the level of debt payable to CET-2 or in the form of a transfer of assets. Such a transfer of assets could form part of the mechanism for the government-sponsored resolution of the outstanding long term debts to external parties. Some of these options were discussed in the Phase 1 report. There are also a number of possible ownership arrangements. The diagram below summarises four possible ones. Figure 2: Government ownership structure options ` Co‐owned
Subsidiary of CET‐2
Holding company
Transfer of assets
Government
Government
Government
Government
Shareholder Executive
Shareholder Executive
Shareholder Executive
Shareholder Executive
Termo com
CET‐2
CET‐2 Termo com
Newco
Newco Termo com
Termo com
CET‐2
CET‐2
The first option, a co-owned arrangement, was one of the options discussed in the Phase 1 report but attendees at the Stakeholder Meeting on May 23 2011 favoured the creation of a vertically integrated district heat system in Chişinău. The other arrangements in the diagram represent the three main corporate options for this integration.
1.5.4
Subsidiary of CET-2
This option would involve the transfer of Termocom’s shares or acquisition of new shares in Termocom by CET-2, possibly paid for through a reduction in the amounts payable to CET-2 by Termocom. The board of CET-2 would exercise board-level control of the vertically integrated group.
Other possible mechanisms would include the liquidation of the Termocom company and the transfer of its assets and business as a going concern to a new company. 1
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Vertical integration of Chişinău’s DH system The advantages and disadvantages of this option are: Advantages R
Could be relatively simple to effect because there would be no need for a new organisation to be established
R
The Board of CET-2 would be able to combine activities where it sees scope for greater efficiency or effectiveness, and keep activities separate where the costs of combining them do not exceed the benefits
Disadvantages R
Governance reforms may be more difficult to implement through a board that already exists
R
With two separate companies, accounting will involve allocation of shared costs where activities are combined
1.5.5
Holding company
This option would involve the transfer of Termocom’s shares or acquisition of new shares in Termocom to a new company (Newco), possibly paid for through a transfer of assets by the Government. In addition, the Government would need to transfer its existing shares in CET-2 to the new company. The board of Newco would exercise board-level control of the vertically integrated group. The advantages and disadvantages of this option are: Advantages R
Newco could be established in accordance with modern standards of corporate governance, along the lines envisaged in this report, reducing the risk of resistance from an existing board
R
New composition of the controlling Board would represent a ‘shake-up’
R
By managing the combined entities on a group basis, the Board of Newco would be able to combine activities where it sees scope for greater efficiency or effectiveness, and keep activities separate where the costs of combining them do not exceed the benefits
Disadvantages R
It would require the administrative effort involved in establishing a new company
R
With two separate operating companies, accounting will involve allocation of shared costs where activities are combined
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Vertical integration of Chişinău’s DH system
1.5.6
Transfer of assets
This option would involve the transfer of Termocom’s business, its assets and (some of) its liabilities to Newco, by agreement, legislation or by a liquidator of the existing Termocom company. Simultaneously, there would be a transfer of the business, assets and liabilities of CET-2 to Newco. The board of Newco would exercise boardlevel control of the vertically integrated company. The advantages and disadvantages of this option are: Advantages R
As with the holding company option, Newco could be established in accordance with modern standards of corporate governance, along the lines envisaged in this report, reducing the risk of resistance from an existing board
R
New composition of the controlling Board would represent a ‘shake-up’
R
Avoids the need for accounting for cost allocations of shared costs at the company level (but see below)
R
The board of Newco would be able to combine activities where it sees scope for greater efficiency or effectiveness, and keep activities separate in separate operating divisions of the company where the costs of combining them do not exceed the benefits.
R
We understand that a transfer of assets is the structure preferred by potential private investors who have been sounded out about possible interest in the district heating system of Chişinău. It is also the preferred option of the major creditor.
Disadvantages R
This would be the most complex option to put into effect, both legally and in accounting terms
R
There may be a need to maintain separate accounting of generation and heat distribution activities for disclosure and regulatory tariff setting purposes
R
The loss of full accounting separation may complicate possible future options, for example the acquisition of the heat distribution business by a CET-3
1.5.7
Preferred option
It is understood that the immediate transfer of assets is the structure preferred by potential private investors who have been sounded out about possible interest in the district heating system of Chişinău. Similarly, it is understood that the transfer of assets model is also the preferred option of the major creditor and other Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Vertical integration of Chişinău’s DH system stakeholders who believe that there will be merit in the medium term from a major shake-up in the district heating sector. The challenges are firstly to carry out the closure of CET-1. The plant at CET-1 should have been closed a long time ago. It is fit only for scrap or perhaps an industrial museum, but its closure will nonetheless require careful and sensitive planning as it must inevitably involve some loss of employment. The CET-1 site is very valuable, because it already has connections to all the networks (gas, water, electricity, district heat) that a future investor in district heat generation would require. The dismantling of CET-1 should therefore be done with an eye to the intention to attract a private investor to the site at some point in the future. The second challenge is to transfer the assets of CET-2 and Termocom so as to maximise those benefits while minimising the short-term direct and indirect disruption costs. Accounting is one of the functions to be considered for merger across the two companies, but it would be difficult to over-emphasize the importance of ensuring that accounting separation of the heat generation and heat distribution businesses is maintained in the vertically integrated enterprise. This is important both for effective management and for proper regulation of heat tariffs by ANRE. The necessary governance reforms are most likely to be implemented effectively with the creation of a new company and the appointment of a completely new Board. It is strongly recommended that the new company be established and the new Board appointed prior to any transfer of shares or assets.
1.6 Composition and responsibilities of the Board The two pivots in corporate governance are the Board of Directors and the body exercising the ownership function and holding the board to account, in this case a Shareholder Executive Committee. Adopting the transfer of assets option in the previous section, the relevant board would be the Board of Directors of the new company, Newco. The ‘OECD Guidelines on Corporate Governance of State-Owned Enterprises’ states that: “The boards of state-owned enterprises should have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.” The Shareholder Executive Committee would be responsible for board nominations, monitoring performance and maintaining appropriate remuneration and incentives for the board members. The OECD guidelines indicate that the Shareholder Executive Committee would: Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Vertical integration of Chişinău’s DH system R
establish well structured and transparent board nomination processes;
R
actively participate in the nomination of board members;
R
set up reporting systems for regular monitoring and assessment of performance;
R
maintain continuous dialogue with auditors and relevant state control organs;
R
ensure that remuneration schemes for board members foster the long term interest of the company and can attract and motivate qualified professionals.
The OECD guidelines for SoEs, which reflect generally accepted best practice for corporate governance more widely, have profound implications for the membership of both the Shareholder Executive Committee and the board of directors. They imply an emphasis on competence and experience to ensure that the members of both bodies are able to exercise their functions professionally. This will mean drawing at least some members from the small population of people who have proven experience and necessary track records in the management of commercial enterprises – in Moldova and outside Moldova Separation of the ownership and policy making functions in the government’s dealings with the SoE, as we strongly recommend in Section 1.4 above, means that the Shareholder Executive and the Board of Directors can both be focused on professional management and commercial objectives. In turn, this means that corporate governance can be safely modelled on what works for successful commercial enterprises anywhere in the world. Professionalism and competence are the guiding characteristics. The membership of the board of directors should be constructed to provide a balance of skills, experience and strength of characters who will: R
operate as an effective team, well-led, focused on the government’s commercial objectives for the enterprise;
R
reform and direct the internal management of the constituent businesses within the group towards those objectives;
R
work positively and effectively with the enterprise’s stakeholders, including employees, ANRE, customers, suppliers, other participants in the energy sector, the municipality, the Shareholder Executive and the government more widely;
R
welcome the invigorating effect and reputation-building potential of transparent performance reporting, demanding disclosure requirements, monitoring by the Shareholder Executive and scrutiny by the media and other interests in Moldova and outside the country;
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Vertical integration of Chişinău’s DH system R
pursue the enterprise’s commercial objectives relentlessly for the longer term benefit of its customers and the wider Moldovan economy.
In line with best practice, an appropriate composition of the Board of Directors is likely to include the following: R
A non-executive chairman, experienced in senior corporate positions, effective at coordinating and guiding the board members and the work of the board, encouraging the active involvement of individual board members in the strategic guidance of the enterprise and ensuring that the board is able to operate independently from and as a balance to the executive management of the enterprise.
R
Non-executive directors able to bring deep experience of business management in Moldova and outside Moldova to the benefit of the enterprise’s management.
R
The Chief Executive and other key members of the Executive Management Board.
Besides having some overlapping membership, the Executive Management Board falls under the main Board of Directors and would include: R
A chief executive, an effective leader of the executive management of the enterprise, accountable to the Board as a whole and responsive to the strategic guidance of the Board.
R
A chief financial officer, an executive position responsible for the integrity of the enterprise’s internal and external financial and performance reporting and for securing and aligning the group’s financial resources towards its strategic aims.
R
A chief operating officer, or possibly two, one each for cogeneration and heat distribution activities.
1.7 Financial and accounting perspective Since carrying out the field work for our Phase 1 report, the companies in the district heating sector have issued financial statements for the year ended 31 December 2010. We have taken the opportunity to prepare proforma accounts for the proposed integrated enterprise by consolidating the financial statements of the two operating companies, Termocom and CET-2. The following statements are summaries of our full consolidation, which we set out in detail in Annex A1.
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Vertical integration of Chişinău’s DH system
1.7.1
Profit and loss
The following table sets out a summarised pro forma consolidated profit and loss account for the proposed district heating group comprising Termocom and CET-2 (under a holding company). Table 1: Pro Forma Consolidated Profit and Loss Statement
Sales Cost of sales Gross profit (loss) Other operating income Business expenses General and administrative expenses Other operating expenses Operating profit (loss) Investing, financing and tax Net profit (loss)
2010 MDL million
2009 MDL million
1,757.2 (1,696.9) 60.4 47.5 (8.4) (36.9) (53.6) 8.9 (0.8) 8.2
1,457.3 (1,602.3) (145.1) 28.6 (8.7) (39.5) (42.5) (207.2) (0.8) (208.0)
The profit for the year in 2010 and the turnaround since 2009 reflects the transfer of tariff setting responsibility to ANRE for 2010 and the application of its methodology. The results are not markedly different to those projected by ANRE in the tariff calculations described and commented on in the Phase 1 report. It appears that Termocom has not made material provision for further doubtful debts, an issue highlighted in the Phase 1 report. The more interesting issues are in the balance sheets.
1.7.2
Balance sheet
The following table summarises the consolidated pro forma balance sheet.
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Vertical integration of Chişinău’s DH system Table 2: Pro Forma Consolidated Balance Sheet
2010 MDL million
2009 MDL million
Tangible and other long-term assets
1,790.6
1,823.6
Stocks of goods and materials Customer receivables: population Customers in litigation Adjustments for doubtful debts Other trade receivables Other short-term receivables Cash Total current assets
99.0 692.6 67.2 (55.7) 223.8 63.1 40.4 1,130.4
90.7 513.1 65.6 (55.7) 279.7 47.0 22.8 963.1
Total assets
2,921.1
2,786.8
Total equity
275.6
275.1
1,793.2 24.6 1,817.8
1,719.9 27.8 1,747.7
24.7 774.4 28.5 827.7
0.8 727.6 35.5 764.0
2,921.1
2,786.8
Long-term trade payables Other long-term liabilities Long term liabilities Short-term financial liabilities Short-term trade payables Other short-term liabilities Total short-term liabilities Total assets
The balance sheet shows a relatively small level of positive equity under the accounting basis used by the companies . However, we identified in the Phase 1 report two issues where there is evidence of material impairment: long term assets, where ANRE’s tariff setting methodology ascribes no return to assets acquired before 2003, rendering them substantially worthless in financial terms for the companies, and amounts receivable from the population, where the questions of affordability we raised in the Phase 1 report suggest there should be significant doubt over recoverability. As the table below shows, the potential impairable amount is very large in relation to the reported level of equity in the two companies. Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Vertical integration of Chişinău’s DH system Table 3: Impairable value
Zero-return assets Net from population Impairable value
Termocom
CET-2
Total
398.6 704.1 1,102.7
1,204.7
1,603.3 704.1 2,307.4
1,204.7
At present, Termocom is economically and in practical terms insolvent, while CET-2 generates relatively small profits. Combining two companies cannot by itself resolve the inherent insolvency problem in Termocom – the combined group will remain economically and in practical terms insolvent. The positive equity shown in the pro forma balance sheet very materially misstates the actual financial position of the group. The central problem the group will face is the accumulated trade payables, payable mainly to Moldovagaz and other companies in the Gazprom group (amounts payable to CET-1 in the table below are mirrored by amounts it in turn owes those same companies). Table 4: 2010 Consolidated Trade Payables
CET 1 Moldovagaz Chisinau gaz MoU parties Other creditors Trade payables
Long-term
Short-term
Total
148.7 1,235.6 9.5 1,393.7 399.5 1,793.2
380.1 113.9 249.9 743.9 30.5 774.4
528.8 1,349.4 259.4 2,137.6 430.0 2,567.6
Our Phase 1 report highlighted our conclusion that debt problem cannot be resolved within the district heating sector and that the only credible routes to resolve the legacy debt problem will require funding by the Government of Moldova. The 2010 accounts show that the outstanding amounts receivable from the population in Termocom have increased markedly, from MDL 513.1 million to MDL 693.2 million. We remarked in the Phase 1 report that these amounts were liable to increase with the increase in tariffs, and will need to be funded. This is because tariffs are set at levels that broadly cover costs, but do not cover the cost of funding working capital. The accounts show that the increase in receivables was funded by increases in trade payables. In Termocom’s own accounts, the increase in receivables was closely matched by increases in payables to CET-2 and CET-1. Suppliers are continuing to fund Termocom’s cash flow requirements, a situation that cannot be sustained.
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Vertical integration of Chişinău’s DH system
1.7.3
Securing a sustainable financial position
As already stressed, the debts are of a scale where Government has to intervene, and a debt-asset swap is the most feasible route to pursue. Once a transaction is agreed with the ultimate creditor, the reciprocal clearing of debts in the district heating chain would have to be effected. As well as the necessity of a government-funded resolution of the historical debt issue, we highlighted in our Phase 1 report a number of reforms in regulation and improvements in management that would be required to ensure that the district heating sector will be placed on a sustainable footing. We cannot overstate the fact that integration of Termocom and CET-2 will not, by itself, secure any of these reforms and improvements. They will only be secured by a combination of the regulatory reforms indentified in the Phase 1 report and the corporate governance reforms highlighted in this report.
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Case studies
2
Case studies
2.1 Case study of the vertical integration of DH in Bălţi 2.1.1
History and basic information about CET-Nord
At the behest of the Government of Moldova (GoM), the cogeneration plant CETNord was amalgamated with the district heat network company of the city of Bălţi in the year 2000. From that time, CET-Nord has been a vertically integrated district heating company, owned by GoM. The initial amalgamation involved some job losses. CET-Nord had 380 employees before integration, while the network company had around 500, making 880 in all. Approximately 280 jobs were lost during the integration, with the present number of employees of CET-Nord being around 580. Only some of the posts are full-time as there are a significant proportion of the jobs are part time or seasonal. This is because the plant only operates during the winter months. Unlike Termocom, CETNord does not supply hot water to its customers during the summer. The company has installed thermal capacity of 342 GCal/hr and electrical generation capacity of 24 MW. The fuel is natural gas, with oil as a back-up. The total population of Bălţi is around 150,000 people, the majority of whom have access to the district heat network.
2.1.2
Legislative changes required for integration
The main instruments defining the legal framework for cogeneration and district heating are the Energy Law, the Electricity Law, the Law on Joint Stock Companies and the Resolution of the Government on the National Energy Regulatory Agency. The Law on Joint Stock Companies allows for the kind of restructuring of companies which took place in 2000, so no specific legal amendments were needed to make possible the vertical integration of the district heating system in Bălţi. In such cases, a general meeting of shareholders is required by law, but with both companies being 100% state owned, a Government decision determines the outcome. In this case, the decision was recorded in Government of the Republic of Moldova decree no. 415 dated May 2, 2000, after which the companies were merged.
2.1.3
Corporate governance of the vertically integrated company
From a governance standpoint, CET-Nord falls under the Ministry of Economy. The Board of Directors of CET-Nord is composed of five people, three from the Ministry of Economy, one from the Ministry of Finance and one from the State Property Agency. The board members have always been drawn exclusively from government structures. The legal framework does not mandate that all the board members should be from government and does not preclude the inclusion of representatives of the business community or civil society. It would appear that the idea of Phase 2 Final Report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
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Case studies appointing someone from outside of government to be a board member has simply never been considered. Since the state is the sole owner of the company, in the appointment of Board members there is no need of a special general meeting of the shareholders. Board members are appointed by the Ministry of Economy for a period of one year at a time, during which no delegation is allowed. If no significant decisions have to be adopted at a meeting, it can take place provided that 3 members of the 5 are present at the meeting. However, if there is a serious decision to be taken at the meeting and someone is not able to attend, then the meeting will be postponed for everyone to be present. Board meetings take place normally every month, but not less than once in a quarter. The meetings are normally held in Chişinău. At these meetings various issues related to the company are discussed, particularly investments and preparation for the cold season. Written reports are not prepared for the Board, except for the standard financial reports on a quarterly and annual basis. Board members from the Ministry of Economy report that they spend on average 1-2 hours per week on CET-Nord matters.
2.1.4
Performance since vertical integration
Table 5 gives time series of a number of key performance indicators over the first full nine years of the vertical integration period. The table shows a number of important trends and achievements: R
electricity supplied to the network grew significantly over the period by an annual average of 5.8%;
R
this was made possible by a higher load factor being achieved (this rose from less than 50% to over 70% over the period, measuring the load factor over the winter months only);
R
with electricity tariffs increasing by 14.6% per year, electricity revenue grew by 24% per year, increasing its share in total revenues from 23% to 30%;
R
by contrast, heat supplied grew by only 1% per year, but with tariffs rising by 14.2%, billable heat revenues grew by nearly 16% per year;
R
collection of heat tariff revenues improved markedly from 68% to over 100% (ie collection of arrears as well as current revenues) over the period 2004-2006, and has been in the range of 84%-96% since then;
R
heat losses were reduced from 26% to as low as 20% but increased again to 22% in 2010;
R
despite the achievements of collection rates above 100% and reduced heat losses in the network, it was only in 2007, when tariffs were
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Case studies increased in one year by a massive 40%, that the financial position of CET-Nord moved from overall losses to small positive profitability. The last point needs further elaboration. During the period up to 2005, Moldova was importing gas at sub-economic prices. When the import price was raised significantly over the years from 2006 onwards, it became imperative to increase electricity and heat tariffs to keep pace. In 2008, ANRE was given responsibility for tariff-setting for CET-Nord and since then tariffs in Bălţi have moved towards full cost recovery levels. The management of CET-Nord feel that they have made some significant improvements in efficiency over the last decade, but that these fail to be noticeable for the consumer because of the dominance of the gas price in determining the overall cost-recovery tariff. Gas procurement costs constituted 66% of total costs in 2010 and 70% in 2011.
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Case studies
Table 5 CET-Nord key performance indicators 2001-2010
Electricity production Own consumption Supply of electricity to the network Heat production Own consumption Supply of heat to network Losses of heat ‐ absolute Losses of heat ‐ proportional Heat delivered to customes Prime cost of 1 kilowatt hour Prime cost of 1 Gkal Proceeds from the sale of electricity Proceeds from the sale of heat Total proceeds from sales Tariff 1 kilowatt hour Tariff 1 Gkal (Losses) profit Collections of heat revenues % collections
Units GWh GWh GWh th Gcal th Gcal th Gcal th Gcal % th Gcal bani/kWh MDL/GCal th MDL th MDL th MDL bani/kWh MDL/GCal th MDL th MDL Units
2001 44.4 12.9 31.5 217.4 11.3 206.1 53.2 25.8% 152.9 38.3 302.2 12,129 41,489 53,618 38.6 292.5 -4,792 28,317 68.2% 2001
2002 40.6 13.0 27.6 210.1 11.6 198.5 59.0 29.7% 139.5 44.4 376.8 10,659 40,078 50,737 38.6 286.0 -14,762 38,147 95.0% 2002
2003 52.5 13.7 38.8 255.3 9.3 246.0 60.9 24.8% 185.1 41.8 329.5 14,944 52,921 67,864 38.6 286.0 -7,903 50,303 96.0% 2003
2004 57.7 12.6 45.1 238.7 9.2 229.5 59.0 25.7% 170.5 42.3 338.7 17,392 49,571 66,963 38.6 292.5 -7,781 53,619 107.0% 2004
2005 67.8 12.2 55.5 247.5 14.0 233.4 48.9 20.9% 184.6 37.6 314.6 21,835 55,189 77,024 39.5 299.0 -1,586 59,881 108.5% 2005
2006 2007 2008 2009 2010 74.7 67.7 67.4 66.5 70.0 12.8 12.3 12.2 13.0 12.9 61.8 55.4 55.2 53.5 57.1 242.8 208.2 211.3 221.3 239.9 19.3 13.9 11.4 14.7 11.5 223.5 194.2 199.8 206.5 228.4 45.5 38.5 39.5 39.2 50.4 20.4% 19.8% 19.8% 19.0% 22.1% 178.0 155.8 160.3 167.3 178.0 49.3 65.6 89.0 101.1 98.4 367.8 486.4 667.7 798.7 852.3 24,964 38,435 52,537 56,998 64,009 53,228 71,639 107,441 131,511 148,257 78,192 110,074 159,979 188,508 212,266 40.4 61.3 92.8 106.6 111.1 299.0 419.5 653.3 786.0 848.5 -15,391 1,003 4,145 7,805 4,279 58,951 59,946 96,345 110,590 142,858 110.8% 83.5% 89.7% 84.1% 96.4% 2006 2007 2008 2009 2010
AAG 5.8% -0.4% 7.8% -0.1% 2.7% -0.2% -4.1% 1.0% 12.6% 12.5% 24.0% 15.9% 18.0% 14.6% 14.2% 16.8% AAG
Note: AAG = average annual growth (calcuated with a regression formula)
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2.1.5
Revenue collection and disconnections
Despite average incomes being lower than in Chişinău and the heat tariffs being higher (848.5 MDL/GCal in Bălţi vs 727.2 MDL/GCal in Chişinău in 2010), CETNord has been able to achieve high revenue collection rates, over 96% in 2010. These collection rates apply to the connected customers, of course. Some of those disconnecting may be doing so because of inability to pay heat bills, which are considerably higher now in real terms than they were a decade ago. Disconnections are said to be CET-Nord’s biggest problem, but it seems that this refers to the disconnection of large industrial consumers, rather than domestic disconnections or connections overall. Households accounted for 75% of heat consumed in both 2001 and 2010, but within the remaining 25% there was a change in composition with large industry being substituted by commercial consumers and small industries, including households registering as enterprises. In terms of total numbers of connections, there were 33,190 in 2001 and 33,615 in 2010, of which 32,785 and 33,241respectively were domestic consumers. With numbers of connections almost static over the nine year period, the overall increase in heat consumption from 153 th Gcal in 2001 to 178 th Gcal in 2010 (see Table 5) is attributed to higher consumption by some categories of consumer, such as schools and hospitals.
2.1.6
Conclusions for Chişinău
The restructuring of the district heat system in Chişinău needs to be done purposefully, with full involvement and understanding of key players. Clear objectives need to be spelt out by Government as the owner as well as the policy maker. A properly constituted Board needs to be appointed at an early stage to direct the integration process. Particular attention is to be paid to the needs of any staff who may be made redundant by corporate consolidation. To reduce the risk of further customer disconnections from the Termocom network, customer focus needs to be made central in everything the newly integrated company does going forward.
2.2 International experience on disconnections2 2.2.1
Competition in district heating
As noted in the Phase 1 report (Section 4.2.3), under the influence of the competition-oriented energy policies of the European Union, many countries with
2 This section draws on a number of sources including International Energy Agency (2004): Coming in from the Cold – Improving DH Policy in Transitional Economies; OECD, DHCAN Project – District Heating in Candidate Countries (2003): Towards a Modern Customer-Driven District Heating System in Debrecen BRE and Euroheat and Power, Watford, U.K. and Brussels and other DHCAN reports; Oxera Consulting Ltd (2011): Assessment of DH market regimes in 8 countries, Fortum; Pilot Co-Project of ERRA and Fortum (2011) Benchmarking District Heating in Hungary, Poland, Lithuania, Estonia and Finland Executive Summary Report
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Case studies district heating are moving towards competition in the generation of heat. The idea is to provide a framework that encourages producers to compete to supply heat to the company or companies operating the network and distributing heat to final customers. A much more widespread, indeed all but universal, form of competition relates to the choice consumers have over the source they will use to obtain the heat they require. They can choose between obtaining heat from the shared district heating system or can opt out, and obtain heat from other sources. Consumers pursuing the ‘autonomous heating’ route typically have to make significant investments in equipment, such as, in a domestic setting, a gas-fired boiler and the associated pipework for a self-contained central heating system within their apartment or house. The size of such investments is such that when a consumer who is presently obtaining heat from the DH network decides to disconnect and install an autonomous heating system, the decision is one which is not readily reversed and thus has long-term consequences. From a social benefit-cost viewpoint, the socially optimum situation is one in which all consumers within an economic distance of the DH network are supplied from the shared system. This is because there are significant economies of scale in the production, transmission and distribution of heat. On the production side, unit costs of heat tend to be lower from a large heat source, particularly a cogeneration plant where the heat is produced as a by-product of electricity generation and would otherwise be wasted. On the transmission and distribution side, the per unit capital, operating and maintenance costs are much lower if the number of customers being served by each part of the network is maximised. In particularly, to minimise the burden on individual consumers, the costs of the losses in the network need to be shared amongst as many customers as possible.
2.2.2
Disconnections from the district heating network
If customers are free to choose between heat sources and a significant number of them choose to disconnect at some point in time, the DH company can easily get into a vicious downward cycle. When customers start disconnecting, a precedent is created and further momentum will be given to the disconnection trend when service declines due to declining revenues and/or the heat tariff is increased to try to cover the costs which can no longer be spread over the original customer base. The social benefit of a shared DH network will thereby be undermined and ultimately may disappear altogether. Low income domestic consumers are particularly hard hit because they cannot afford the investments required for autonomous heating and are faced with the rising costs of the DH system as more affluent customers disconnect. To prevent this happening, governments, municipalities and district heating companies have adopted a number of strategies, which for analytical purposes can be grouped into three main categories: R
Command and control measures
R
Economic incentives
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Case studies R
Enhanced customer-focussed performance
These approaches apply equally to strategies to increase the number of new connections. Discussion of each of these approaches is presented in the sections which follow.
2.2.3
Command and control measures
In a range of different countries, laws require customers to remain connected to the district heat network, or at least require that disconnection applications be scrutinised by the DH company, which is given the power to refuse the application. Zoning requirements, that is geographically specified areas within which all buildings are required to be connected to the district heating system are very common. Countries as diverse as Denmark, Estonia, Latvia, Lithuania, Norway and Switzerland have established the legal basis for DH zoning. There are clearly major advantages to command and control approaches. Debrecen in Hungary provides a good example. Designated district heated zones were fixed by the local municipality law in 1999. The law covered both new customers, who were not allowed to choose an alternative heating method, and existing customers, who were not allowed to disconnect. It is reported that the zoning law not only improved the economic stability of the district heating company, but also reduced air pollution in the city.
2.2.4
Economic incentives
When customers wish to disconnect in apartment blocks with vertical pipe systems, the disconnected customer will continue to receive some heat from the DH system. To avoid this ‘free rider’ heat imposing a cost on other consumers, a charge is often levied. In principle, this could be set at a level which is well above what is justified by the amount of heat that will continue to be delivered in order to provide a disincentive to disconnection. In the case of Termocom, the increase in the charge to disconnected customers still benefiting from vertical pipes is considered by many in Chişinău as a deliberate disconnection disincentive, whereas the increase from the pervious level of 5% of the heat bill for those disconnected is actually based on studies by the Academy of Science of Moldova3. Where consumer-level control of heat is possible within a DH system, two-part tariffs are common and can be structured to discourage disconnections. Two-part tariffs which are set to recover capital costs may have a high fixed charge and a relatively small energy charge. This structure gives consumers very little flexibility and control over their heating bill and this may encourage some to opt for autonomous heating. On the other hand, if the major part of the DH bill is based on the energy charge and not the capital charge, consumers can reduce their bill by saving energy, and in this situation the consumer will not be motivated to disconnect. For example, if the air temperature is 5 degrees, the Academy estimates that those disconnecting should pay 10.3% of their previous level of payment. 3
Phase II report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
Economic Consulting Associates, October 2011
25
Case studies Fötáv is the DH company in Budapest. Its two-part tariff has a 70% fixed charge and a 30% variable charge. This leads to a situation where customers who need little heat or use an apartment only occasionally would want to disconnect. However, in Budapest, such consumers are obliged to remain connected because disconnection can take place only if the whole block votes for it. By contrast, two part tariffs in Poland have a relatively low capacity charge and have greater reliance on the energy charge to generate the revenue needed within the DH sector. This is the outcome of an amendment made in 2000 to the 1997 Energy Law which stipulated that the fixed production, transmission and distribution costs in district heating systems may constitute no more than 30% of total heat charges, even if the actual fixed costs constitute a higher share of required revenues.
2.2.5
Customer-focussed performance
The third approach to obviating disconnections is for the district heating company to continuous work at delivering a cost effective, customer-oriented shared district heating service that out-performs autonomous heating systems. In principle, this is clearly a superior strategy as it does not depend on measures to be taken to force customers to behave in a certain way, but in practice the approaches are not mutually exclusive. The use of zoning or other measures which have some degree of coercion will not be socially acceptable unless these are accompanied by satisfactory performance from the DH company. In this regard, it is significant that in the first example from Hungary given above in Section 2.2.3, the municipal zoning law was introduced in Debrecen at a time when a range of other measures were being taken, which over a few years resulted in significantly improved efficiency and lowered costs. Other examples of customer focussed performance by DH companies leading to low disconnection rates are: R
Estonian cities, where it is estimated that district heating has price competitiveness of between 20% and 40% as compared with available alternatives (individual gas or pellet boilers or electrical heating) and the market share of district heating is over 80%.
R
Vilnius in Lithuania, where the improved performance brought about through the 2002 concession agreement with the French operator Dalkia resulted in disconnections ceasing and new connections increasing at 2% per year.
R
Sofia and Pernik in Bulgaria improved service provision under a $34m World Bank project and over a 5 year period increased connection rates from 85% to 96% and 63% to 85% respectively (exceeding the planned targets by a wide margin).
R
In Budapest, Hungary, the strategy used by the district heating company to keep buildings/institutions maintained by local authorities as DH customers is to sign agreements with the boroughs to carry out
Phase II report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
Economic Consulting Associates, October 2011
26
Case studies energy saving analyses for the buildings supplied with district heating. These studies provide good solutions for reducing the operational costs of investments financed by the boroughs, and at the same time ensure these buildings remain within the district heating system for the longterm.
2.2.6
Conclusions for Chişinău
Compounding a growing trend in Chişinău in recent years, the present situation is one in which there would appear to be many heat consumers who would like to disconnect from the Termocom network and opt for autonomous, gas-based autonomous heating. This would have adverse consequences for the company and for the remaining customers, a large proportion of whom are low income households unable to access alterative sources of heat. It would be inconsistent with Moldova’s commitments under the Energy Community Treaty to resort to severe command and control measures and heavy economic penalties to stop disconnections. The approach should rather be to work on improving the fundamentals and adopting a much more customer-oriented focus, in line with the orientation discussed in Section 1 of this report. That said, the improvements that are needed in these areas will take time to achieve and in the short-run it may be necessary to tighten the provisions available to Termocom to discourage disconnections, pending achieving the level of improvements which will make the bulk of disconnection applicants willing to remain Termocom customers. In this regard, it is important to note that autonomous heating is universally regarded as being more expensive than Termocom supplied heat, so there is already an incentive, or at least a perceived incentive, for Termocom customers to remain connected. The prime motivations for disconnection are dissatisfaction with the quality of service received from Termocom and a desire to have direct control over heat received. These are both areas which Termocom can address: improving efficiency and customer focus should be key short-run goals during the period in which the vertical integration is taking place. Consumer level control over their own heating will take longer as it requires investment, but the Maria Drăgan pilot project has shown what can be achieved.
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27
Pro-forma consolidated accounts
A1
Pro-forma consolidated accounts
Annex contents: R
Company accounts for the year to 31 December 2010 – from Annex I/1
R
Consolidated adjustments for the year to 31 December 2010 – from Annex I/9
R
Pro-forma Consolidated DH Group accounts for the year to 31 December 2010 – from Annex I/15
It should be noted that our working assumption, and recommendation, is that the vertical integration would involve TERMOCOM and CET-2 only: CET-1 would remain a separate company. The new combined group would still have amounts payable to CET-1 (MDL 528.9m as shown in Note 2 on Annex I/19). Broadly, this amount is similar is scale to other amounts payable in turn by CET-1 to Moldovagaz and Chişinău Gaz, although, from the more detailed returns in respect of 2009, the amounts payable to Moldovagaz and Chişinău Gas appear to be slightly smaller. There would appear to be no reason why the adjustments, by themselves, would have any substantive implications for CET-1 or why its legal position should in any way be affected.
Phase II report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
Economic Consulting Associates, October 2011
Annex I: Pro Forma Consolidated Accounts
Termocom
Moldova Lei
Accounts for the year to 31 December 2010 Note LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total
2010
030
5,545,312 (2,906,424) 2,638,888
4,065,092 (1,468,662) 2,596,430
040
33,839,625
35,556,804
1,345,145,030
1,278,802,234
090
(832,506,748) 546,477,907
(767,700,000) 546,659,038
100
72,010
72,010
72,010
72,010
010 020
Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total
2009
050 060 070 080
Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
110 120 130 140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
549,188,805
549,327,478
190
24,043,539
21,921,409
282,301
315,248
25,352,534 49,678,374
25,342,578 47,579,235
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total
200 210 220 230 240 250
1
859,646,708 (55,683,060)
731,080,338 35% incr. in due from population (55,683,060) No change
11,949,311 5,056,216 16,920,869 52,183 624,045 24,148,190 862,714,462
6,204,423 2,532,515 9,853,361 77,762 532,888 25,986,545 720,584,772
440
43,198 25,989,492 8 23,253 26,055,951
6,398 17,784,829 418 41,722 17,833,367
Other current assets
450
1,058,140
847,182
TOTAL CURRENT ASSETS
460
939,506,927
786,844,556
470
1,488,695,732
1,336,172,034
Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
TOTAL ASSETS
260 270 280 290 300 310 320 330 340 350
360 370 380 390
400 410 420 430
Annex I/1
Annex I: Pro Forma Consolidated Accounts
Termocom
Moldova Lei
Accounts for the year to 31 December 2010 Note EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total
6,929,630 78 130,682,201 137,611,909
6,929,630 78 130,682,201 137,611,909
(5,637,062) (1,671,738,611) 23,648
(1,671,738,611)
610
(1,677,352,025)
(1,671,738,611)
620
72,393,594
72,630,091
640
72,393,594
72,630,091
650
(1,199,704,565)
(1,416,961,629)
520
530 540 550 560
570 580 590 600
630
LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total
5,701,531
660 670 680
5,701,531
690
700 710
13,749,570
9,452,491
760
1,001,236,307 1,014,985,877
1,001,236,307 1,010,688,798
770
1,014,985,877
1,016,390,329
820
712,688 712,688
805,615 805,615
830
1,654,821,026
1,489,125,139
4,611,428 1,659,432,454
3,477,186 1,492,602,325
5,381,507 20,072 2,745,355 838,593
4,155,921 3,654 2,064,062 10,902,813
720 730 740
2
TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total
TOTAL LIABILITIES
(35,875) 44,534,982
510
TOTAL EQUITY
TOTAL SHORT TERM LIABILITIES
(35,875) 267,641,957
500
Secondary Capital Differences from revaluation of long term assets Grants Total
Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total
32,449,897 12,120,960 Reclassification as per IFRS
490
Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total
Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total
2009
32,449,897 235,227,935
480
Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total
Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total
2010
750
780 790 800 810
3
840 850 860
870 880 890 900 910 920
223,106,975
930 940 960
4,283,751 13,269,278
3,101,969 243,335,394
970
1,673,414,420
1,736,743,334
980
1,488,695,732
1,336,172,034
950
Annex I/2
Annex I: Pro Forma Consolidated Accounts
Termocom
Moldova Lei
Accounts for the year to 31 December 2010 PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010 020 030
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
MOVEMENTS IN CAPITAL Share Capital and additional Share Capital Supplementary Capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) Correction of results in previous periods Retained earnings (uncovered loss) of previous periods Net profit (loss) for period Profit utilised in period Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL
050 060 070 080
100 110
130
150
010 020
2010
2009
1,060,430,832 (1,038,628,767) 21,802,065
795,432,029 (1,010,431,663) (214,999,634)
30,158,379 (7,932,223) (12,465,787) (31,682,773) (120,339)
22,998,730 (7,913,947) (15,989,027) (30,547,695) (246,451,573)
767,188 (623,201) 23,648
(150,171) 740,604 (245,861,140)
23,648
(245,861,140)
23,648
(245,861,140)
1 January 2010
Profits
33% increase
Other
31 December 2010
32,449,897 12,120,960
223,106,975
32,449,897 235,227,935
(35,875) 44,534,982
223,106,975
(35,875) 267,641,957
030 040 050
060 070 080 090
6,929,630 78 130,682,201 137,611,909
6,929,630 78 130,682,201 137,611,909
100 110
(5,637,062)
(5,637,062) (1,671,738,611) 23,648
(5,637,062)
(1,677,352,025)
(1,671,738,611) 23,648
120 130 140
(1,671,738,611)
23,648
150
72,630,091
(236,497)
72,393,594
170
72,630,091
(236,497)
72,393,594
180
(1,416,961,629)
160
Annex I/3
23,648
217,233,416
(1,199,704,565)
Annex I: Pro Forma Consolidated Accounts
Termocom
Moldova Lei
Accounts for the year to 31 December 2010 2010 CASH FLOW STATEMENT Operating activities Proceeds from sales Cash payments to suppliers Cash payments to and for employees Interest Payment Income tax Other cash receipts Other cash payments Net cash from operating activities Investing activities Proceeds from the output of long term assets Paying money to purchase long term assets Interest earned Dividends received including foreign Other receipts (payments) of funds Net cash from investing activities Financing activities Proceeds from loans and borrowings Payments of loans and borrowings Payment of dividends including dividends paid to non-residents Proceeds from the issue of own shares Paying money to repurchase its own shares Other receipts (payments) of funds Net cash from financing activities Net cash flows before exceptional items Exceptional receipts (payments) Net total Exchange differences favorable (unfavorable) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
010 020 030 040 050 060 070 080
969,637,615 (858,664,384) (86,034,200) (289,617) (4,093,302) 3,917,426 (10,259,874) 14,213,664
090 100 110 120 121 130 140
150 160
(5,738,148)
170 171 180 190 200 210
(5,738,148)
220
8,475,516
230 240 250 260 270
8,475,516 (252,932) 17,833,367 26,055,951
Note 1 Population Other Customers in litigation Trade receivables
692,602,850 99,890,191 67,153,667 859,646,708
513,089,000 152,425,338 65,566,000 731,080,338
Retelele Electrice Apa Canal CET 1 CET 2 Moldovagaz Chisinau gaz Other creditors Other long term liabilities
45,960,397 19,336,270 148,700,376 458,746,732 57,749,467 9,064,338 261,678,726 1,001,236,307
45,960,397 19,336,270 148,700,376 458,746,732 57,749,467 9,064,338 261,678,726 1,001,236,307
Retelele Electrice Apa Canal CET 1 CET 2 Moldovagaz Chisinau gaz Other creditors Trade payables
11,088,908 334,981 380,115,419 1,093,559,268 113,870,874 44,095,739 11,755,837 1,654,821,026
7,727,421 66,426 339,080,866 957,966,259 125,015,870 60,716,694 (1,448,397) 1,489,125,139
35% increase
Note 2
Note 3
Annex I/4
41,034,553 increase 135,593,009 increase
165,695,887 increase
Annex I: Pro Forma Consolidated Accounts
CET-2
Moldova Lei
Accounts for the year to 31 December 2010 Note LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total
010 020
Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
2010
030
423,654
040
82,533,886
2009
752,014 (298,001) 454,013
84,721,077
050 060
1,588,942,368
070 080 090
1,240,739,024
(400,059,144) 1,273,604,301
100
260,000
260,000
1,232,703,244
1,166,587,689
1,232,963,244
1,166,847,689
110 120
1
130 140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
2,474,125,922
2,440,906,003
190
48,957,017
42,645,003
298,843
250
1,241 60,645 49,317,746
358,482 27,556 239 69,097 43,100,377
260
445,116,537
377,383,087
1,466,267 833,505
168,555
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total
200 210 220 230 240
2
270 280 290 300 310 320
162,329 14,687 586,429 448,179,754
80,603 554,910 378,187,155
60,146 14,303,583 54
80,213 4,883,299 55
440
14,363,783
4,963,567
Other current assets
450
276,018
176,078
TOTAL CURRENT ASSETS
460
512,137,301
426,427,177
470
2,986,263,223
2,867,333,180
Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
TOTAL ASSETS
330 340 350
360 370 380 390
400 410 420 430
Annex I/5
Annex I: Pro Forma Consolidated Accounts
CET-2
Moldova Lei
Accounts for the year to 31 December 2010 Note EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total
370,549,590
370,549,590
530
24,311,997 645,161,028
24,311,997 607,488,372
669,473,025
631,800,369
423,753,612 8,143,379
423,749,153 37,881,002
610
431,896,991
461,630,155
620
4,988,243
4,992,542
640
4,988,243
4,992,542
650
1,476,907,849
1,468,972,656
660
10,845,748
12,622,363
10,845,748
12,622,363
760
1,250,713,772 1,250,713,772
1,177,441,343 1,177,441,343
770
1,261,559,520
1,190,063,706
780
24,000,000
540 550 560
570 580 590 600
630
LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total
670 680 690
700 710 720 730 740
3
TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total
TOTAL LIABILITIES
520
510
TOTAL EQUITY
TOTAL SHORT TERM LIABILITIES
370,549,590
500
Secondary Capital Differences from revaluation of long term assets Grants Total
Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total
370,549,590
490
Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total
Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total
2009
480
Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total
Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total
2010
750
790 800 810
4
820
24,000,000
830
213,135,849
196,462,157
860
5,001,030 218,136,879
196,462,157
870
2,705,703
1,276,040
739,386 1,766,918 96,331
589,137 9,521,259
960
350,637 5,658,975
448,225 11,834,661
970
247,795,854
208,296,818
980
2,986,263,223
2,867,333,180
840 850
880 890 900 910 920 930 940 950
Annex I/6
Annex I: Pro Forma Consolidated Accounts
CET-2
Moldova Lei
Accounts for the year to 31 December 2010 PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010 020 030
2010
2009
1,180,693,710 (1,142,120,608) 38,573,102
1,137,665,533 (1,067,749,061) 69,916,472
17,359,853 (482,531) (24,482,165) (21,930,327) 9,037,932
5,589,428 (745,142) (23,496,816) (11,972,089) 39,291,853
(901,621) 10,599 8,146,910
96,773 (1,438,838) 37,949,788
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120 130
8,146,910
37,949,788
Expenditure (savings) income tax Net profit (net loss)
140
(3,531) 8,143,379
(68,786) 37,881,002
1 January 2010
Profits
MOVEMENTS IN CAPITAL Share Capital and additional Share Capital Supplementary Capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) Correction of results in previous periods Retained earnings (uncovered loss) of previous periods Net profit (loss) for period Profit utilised in period Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL
050 060 070 080
100 110
150
Other
31 December 2010
370,549,590
370,549,590
050
370,549,590
370,549,590
060
24,311,997 607,488,372
37,672,656
24,311,997 645,161,028
631,800,369
37,672,656
669,473,025
010 020 030 040
070 080 090
100
423,749,153 37,881,002
8,143,379
4,459 (37,881,002)
423,753,612 8,143,379
140
461,630,155
8,143,379
(37,876,543)
431,896,991
150
4,992,542
(4,299)
4,988,243
170
4,992,542
(4,299)
4,988,243
180
1,468,972,656
(208,186)
1,476,907,849
110 120 130
160
Annex I/7
8,143,379
Annex I: Pro Forma Consolidated Accounts
CET-2
Moldova Lei
Accounts for the year to 31 December 2010 2010 CASH FLOW STATEMENT Operating activities Proceeds from sales Cash payments to suppliers Cash payments to and for employees Interest Payment Income tax Other cash receipts Other cash payments Net cash from operating activities Investing activities Proceeds from the output of long term assets Paying money to purchase long term assets Interest earned Dividends received including foreign Other receipts (payments) of funds Net cash from investing activities Financing activities Proceeds from loans and borrowings Payments of loans and borrowings Payment of dividends including dividends paid to non-residents Proceeds from the issue of own shares Paying money to repurchase its own shares Other receipts (payments) of funds Net cash from financing activities Net cash flows before exceptional items Exceptional receipts (payments) Net total Exchange differences favorable (unfavorable) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
010 020 030
1,140,317,752 (1,065,870,698) (40,840,443)
040 050 060 070 080
(62,202) 17,452,951 (46,276,889) 4,720,471
090 100
(14,286,702)
110 120 121 130 140
(14,286,702)
150
70,000,000 51,056,496
160 170 171 180 190 210
22,982 18,966,486
220
9,400,255
200
230 240 250 260 270
9,400,255 (39) 4,963,567 14,363,783
Note 1 Long term receivable from Termocom Lease Long term trade receivables
1,232,669,144 34,100 1,232,703,244
Note 2 CET-1 SA Damalio SRL RED Union Fenosa SA ICS R & R SRL RED Northwest SA Red Star SC FT SRL Termocom to him in the procedure plan Other receivables Short-term trade receivables
1,230,436 171,237 104,060,333 209,397 18,014,233 142,979 321,238,412 49,510 445,116,537
Note 3 Apa Canal Chisinau SA Chisinau Gaz SRL Material Reserves Agency State Ecological Inspectorate Moldova-Gaz SA Other long term liabilities
23,021,681 407,655 47,115,281 2,349,996 1,177,819,159 1,250,713,772
Note 4 Water Canal Chisinau SA Chisnau Gaz SRL Energoreparatii Energo Rotor SRL Horus Policontract SRL Policontract SRL TehEnergo-Grup SRL Vec SRL Other liabilities Trade payables
1,661,174 205,813,184 246,215 374,259 3,712,845 105,057 105,058 528,035 190,808 300,011 213,036,646
Annex I/8
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2010 LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
Termocom
CET-2
030
5,545,312 (2,906,424) 2,638,888
423,654
3,062,542
040
33,839,625
82,533,886
116,373,511
010 020
Adjustments
Consolidated
050 060
1,345,145,030
070 080 090
(832,506,748) 546,477,907
1,240,739,024
1,787,216,931
100
72,010
260,000
332,010
110 120 130
1,232,703,244
(1,232,669,144)
34,100
72,010
1,232,963,244
(1,232,669,144)
366,110
(1,232,669,144)
1,790,645,583
140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
549,188,805
2,474,125,922
190
24,043,539
48,957,017
73,000,556
282,301
298,843
581,144
25,352,534 49,678,374
1,241 60,645 49,317,746
1,241 25,413,179 98,996,120
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
200 210 220 230 240 250
260 270
859,646,708 (55,683,060)
445,116,537
11,949,311 5,056,216 16,920,869 52,183 624,045 24,148,190 862,714,462
1,466,267 833,505
(321,238,412)
983,524,833 (55,683,060)
280 290 300 310 320 330 340 350
162,329 14,687 586,429 448,179,754
(321,238,412)
13,415,578 5,889,721 16,920,869 214,512 638,732 24,734,619 989,655,804
360 370 380 390
60,146 14,303,583 54
440
43,198 25,989,492 8 23,253 26,055,951
14,363,783
103,344 40,293,075 62 23,253 40,419,734
Other current assets
450
1,058,140
276,018
1,334,158
TOTAL CURRENT ASSETS
460
939,506,927
512,137,301
(321,238,412)
1,130,405,816
470
1,488,695,732
2,986,263,223
(1,553,907,556)
2,921,051,399
TOTAL ASSETS
400 410 420 430
Annex I/9
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2010 EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL EQUITY LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total TOTAL SHORT TERM LIABILITIES TOTAL LIABILITIES
480 490
Termocom
CET-2
32,449,897 235,227,935
370,549,590
Adjustments
Consolidated
402,999,487 235,227,935
500 510 520
(35,875) 267,641,957
(35,875) 638,191,547
370,549,590
6,929,630 78 130,682,201 137,611,909
669,473,025
(5,637,062) (1,671,738,611) 23,648
423,753,612 8,143,379
(5,637,062) (1,247,984,999) 8,167,027
610
(1,677,352,025)
431,896,991
(1,245,455,034)
620
72,393,594
4,988,243
77,381,837
640
72,393,594
4,988,243
77,381,837
650
(1,199,704,565)
1,476,907,849
530 540 550 560
570 580 590
24,311,997 645,161,028 (1,601,556) (1,601,556)
31,241,627 645,161,106 129,080,645 805,483,378
600
630
660
(1,601,556)
275,601,728
10,845,748
10,845,748
10,845,748
10,845,748
670 680 690
700 710 720
13,749,570
13,749,570
730 740 760
1,001,236,307 1,014,985,877
1,250,713,772 1,250,713,772
(458,746,732) (458,746,732)
1,793,203,347 1,806,952,917
770
1,014,985,877
1,261,559,520
(458,746,732)
1,817,798,665
750
780
24,000,000
24,000,000
712,688 24,712,688
790 800 820
712,688 712,688
24,000,000
830
1,654,821,026
213,135,849
(1,093,559,268)
774,397,607
4,611,428 1,659,432,454
5,001,030 218,136,879
(1,093,559,268)
9,612,458 784,010,065
5,381,507 20,072 2,745,355 838,593
2,705,703
810
840 850 860
870 880 890 900 910
739,386 1,766,918 96,331
8,087,210 20,072 3,484,741 2,605,511 96,331
4,634,388 18,928,253
920 930 940 960
4,283,751 13,269,278
350,637 5,658,975
970
1,673,414,420
247,795,854
(1,093,559,268)
827,651,006
980
1,488,695,732
2,986,263,223
(1,553,907,556)
2,921,051,399
950
Annex I/10
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2010 PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010 020 030
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
050 060 070 080
100 110
130
150
Annex I/11
Termocom
CET-2
Adjustments
Consolidated
1,060,430,832 (1,038,628,767) 21,802,065
1,180,693,710 (1,142,120,608) 38,573,102
(483,890,228) 483,890,228
1,757,234,314 (1,696,859,147) 60,375,167
30,158,379 (7,932,223) (12,465,787) (31,682,773) (120,339)
17,359,853 (482,531) (24,482,165) (21,930,327) 9,037,932
47,518,232 (8,414,754) (36,947,952) (53,613,100) 8,917,593
767,188 (623,201) 23,648
(901,621) 10,599 8,146,910
(134,433) (612,602) 8,170,558
23,648
8,146,910
8,170,558
23,648
(3,531) 8,143,379
(3,531) 8,167,027
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2010 CASH FLOW STATEMENT Operating activities Proceeds from sales Cash payments to suppliers Cash payments to and for employees Interest Payment Income tax Other cash receipts Other cash payments Net cash from operating activities Investing activities Proceeds from the output of long term assets Paying money to purchase long term assets Interest earned Dividends received including foreign Other receipts (payments) of funds Net cash from investing activities Financing activities Proceeds from loans and borrowings Payments of loans and borrowings Payment of dividends including dividends paid to non-residents Proceeds from the issue of own shares Paying money to repurchase its own shares Other receipts (payments) of funds Net cash from financing activities Net cash flows before exceptional items Exceptional receipts (payments) Net total Exchange differences favorable (unfavorable) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
Termocom
CET-2
Adjustments
Consolidated
969,637,615 (858,664,384) (86,034,200) (289,617) (4,093,302) 3,917,426 (10,259,874) 14,213,664
1,140,317,752 (1,065,870,698) (40,840,443)
(348,297,219) 348,297,219
(62,202) 17,452,951 (46,276,889) 4,720,471
1,761,658,148 (1,576,237,863) (126,874,643) (289,617) (4,155,504) 21,370,377 (56,536,763) 18,934,135
(14,286,702)
(14,286,702)
(14,286,702)
(14,286,702)
(5,738,148)
70,000,000 51,056,496
70,000,000 45,318,348
210
(5,738,148)
22,982 121,079,478
22,982 115,341,330
220
8,475,516
111,513,247
119,988,763
8,475,516 (252,932) 17,833,367 26,055,951
111,513,247 (39) 4,963,567 116,476,775
119,988,763 (252,971) 22,796,934 142,532,726
010 020 030 040 050 060 070 080
090 100 110 120 121 130 140
150 160 170 171 180 190 200
230 240 250 260 270
Annex I/12
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2009 LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
Termocom
CET-2
030
4,065,092 (1,468,662) 2,596,430
752,014 (298,001) 454,013
040
35,556,804
84,721,077
120,277,881
1,278,802,234
1,588,942,368
2,867,744,602
090
(767,700,000) 546,659,038
(400,059,144) 1,273,604,301
(1,167,759,144) 1,820,263,339
100
72,010
260,000
332,010
010 020
Adjustments
Consolidated
4,817,106 (1,766,663) 3,050,443
050 060 070 080
110 120 130
1,166,587,689
(1,166,587,689)
72,010
1,166,847,689
(1,166,587,689)
332,010
(1,166,587,689)
1,823,645,792
140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
549,327,478
2,440,906,003
190
21,921,409
42,645,003
64,566,412
315,248
358,482 27,556 239 69,097 43,100,377
673,730 27,556 239 25,411,675 90,679,612
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
200 210 220 230 240 250
260 270
25,342,578 47,579,235
731,080,338 (55,683,060)
377,383,087
6,204,423 2,532,515 9,853,361 77,762 532,888 25,986,545 720,584,772
168,555
(250,125,302)
858,338,123 (55,683,060)
280 290 300 310 320 330 340 350
80,603 554,910 378,187,155
(250,125,302)
6,372,978 2,532,515 9,853,361 77,762 613,491 26,541,455 848,646,625
360 370 380 390
80,213 4,883,299 55
440
6,398 17,784,829 418 41,722 17,833,367
4,963,567
86,611 22,668,128 473 41,722 22,796,934
Other current assets
450
847,182
176,078
1,023,260
TOTAL CURRENT ASSETS
460
786,844,556
426,427,177
(250,125,302)
963,146,431
470
1,336,172,034
2,867,333,180
(1,416,712,991)
2,786,792,223
TOTAL ASSETS
400 410 420 430
Annex I/13
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2009 EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL EQUITY LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total TOTAL SHORT TERM LIABILITIES TOTAL LIABILITIES
480 490
Termocom
CET-2
32,449,897 12,120,960
370,549,590
Adjustments
Consolidated
223,106,975
402,999,487 235,227,935
223,106,975
(35,875) 638,191,547
500 510 520
(35,875) 44,534,982
370,549,590
6,929,630 78 130,682,201 137,611,909
24,311,997 607,488,372 631,800,369
31,241,627 607,488,450 130,682,201 769,412,278
(1,671,738,611)
423,749,153 37,881,002
(1,247,989,458) 37,881,002
610
(1,671,738,611)
461,630,155
(1,210,108,456)
620
72,630,091
4,992,542
77,622,633
640
72,630,091
4,992,542
77,622,633
650
(1,416,961,629)
1,468,972,656
660
5,701,531
12,622,363
18,323,894
5,701,531
12,622,363
18,323,894
530 540 550 560
570 580 590 600
630
223,106,975
275,118,002
670 680 690
700 710 720
9,452,491
9,452,491
730 740 760
1,001,236,307 1,010,688,798
1,177,441,343 1,177,441,343
(458,746,732) (458,746,732)
1,719,930,918 1,729,383,409
770
1,016,390,329
1,190,063,706
(458,746,732)
1,747,707,303
750
780 790 800 820
805,615 805,615
830
1,489,125,139
196,462,157
(957,966,259)
727,621,037
3,477,186 1,492,602,325
196,462,157
(957,966,259)
3,477,186 731,098,223
810
805,615 805,615
840 850 860
870 880 890 900
4,155,921 3,654 2,064,062 10,902,813
1,276,040
5,431,961 3,654 2,653,199 20,424,072
589,137 9,521,259
910 920 930
223,106,975
(223,106,975)
940 960
3,101,969 243,335,394
448,225 11,834,661
(223,106,975)
3,550,194 32,063,080
970
1,736,743,334
208,296,818
(1,181,073,234)
763,966,918
980
1,336,172,034
2,867,333,180
(1,416,712,991)
2,786,792,223
950
Annex I/14
Annex I: Pro Forma Consolidated Accounts
Consolidation adjustments
Moldova Lei
Accounts for the year to 31 December 2009 PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010 020 030
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
050 060 070 080
100 110
130
150
Annex I/15
2010
2010
2010
2010
795,432,029 (1,010,431,663) (214,999,634)
1,137,665,533 (1,067,749,061) 69,916,472
(475,837,584) 475,837,584
1,457,259,978 (1,602,343,140) (145,083,162)
22,998,730 (7,913,947) (15,989,027) (30,547,695) (246,451,573)
5,589,428 (745,142) (23,496,816) (11,972,089) 39,291,853
28,588,158 (8,659,089) (39,485,843) (42,519,784) (207,159,720)
(150,171) 740,604 (245,861,140)
96,773 (1,438,838) 37,949,788
(53,398) (698,234) (207,911,352)
(245,861,140)
37,949,788
(207,911,352)
(245,861,140)
(68,786) 37,881,002
(68,786) (207,980,138)
Annex I: Pro Forma Consolidated Accounts
Proforma Consolidated DH Group
Moldova Lei
Accounts for the year to 31 December 2010 Note LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total
2010
030
3,062,542
4,817,106 (1,766,663) 3,050,443
040
116,373,511
120,277,881
010 020
Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total
2009
050 060
2,867,744,602
070 080
Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
090
1,787,216,931
(1,167,759,144) 1,820,263,339
100
332,010
332,010
110 120 130
34,100
140 150 160
366,110
332,010
Other long term assets
170
TOTAL LONG TERM ASSETS
180
1,790,645,583
1,823,645,792
190
73,000,556
64,566,412
581,144 1,241 25,413,179 98,996,120
673,730 27,556 239 25,411,675 90,679,612
983,524,833 (55,683,060)
858,338,123 (55,683,060)
13,415,578 5,889,721 16,920,869 214,512 638,732 24,734,619 989,655,804
6,372,978 2,532,515 9,853,361 77,762 613,491 26,541,455 848,646,625
440
103,344 40,293,075 62 23,253 40,419,734
86,611 22,668,128 473 41,722 22,796,934
Other current assets
450
1,334,158
1,023,260
TOTAL CURRENT ASSETS
460
1,130,405,816
963,146,431
470
2,921,051,399
2,786,792,223
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
TOTAL ASSETS
200 210 220 230 240 250
1
260 270 280 290 300 310 320 330 340 350
360 370 380 390
400 410 420 430
Annex I/16
Annex I: Pro Forma Consolidated Accounts
Proforma Consolidated DH Group
Moldova Lei
Accounts for the year to 31 December 2010 Note EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total
480
520
189,811,948
540 550 560
7,683,421
570 580 590
8,407,943
600 610
8,407,943
7,683,421
620
77,381,837
77,622,633
640
77,381,837
77,622,633
650
275,601,728
275,118,002
660
10,845,748
18,323,894
10,845,748
18,323,894
13,749,570
9,452,491
760
1,793,203,347 1,806,952,917
1,719,930,918 1,729,383,409
770
1,817,798,665
1,747,707,303
780
24,000,000
630
LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total
670 680 690
700 710 720 730 740
2
TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total
TOTAL LIABILITIES
189,811,948
530
TOTAL EQUITY
TOTAL SHORT TERM LIABILITIES
189,811,948
510
Secondary Capital Differences from revaluation of long term assets Grants Total
Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total
189,811,948
500
Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total
Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total
2009
490
Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total
Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total
2010
750
790 800 820
712,688 24,712,688
805,615 805,615
830
774,397,607
727,621,037
9,612,458 784,010,065
3,477,186 731,098,223
8,087,210 20,072 3,484,741 2,605,511 96,331
5,431,961 3,654 2,653,199 20,424,072
960
4,634,388 18,928,253
3,550,194 32,063,080
970
827,651,006
763,966,918
980
2,921,051,399
2,786,792,223
810
2
840 850 860
870 880 890 900 910 920 930 940 950
Annex I/17
Annex I: Pro Forma Consolidated Accounts
Proforma Consolidated DH Group
Moldova Lei
Accounts for the year to 31 December 2010 PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010 020 030
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
MOVEMENTS IN CAPITAL Share Capital and additional Share Capital Supplementary Capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) Correction of results in previous periods Retained earnings (uncovered loss) of previous periods Net profit (loss) for period Profit utilised in period Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL
050 060 070 080
100 110
130
150
010
2009
2009
1,757,234,314 (1,696,859,147) 60,375,167
1,457,259,978 (1,602,343,140) (145,083,162)
47,518,232 (8,414,754) (36,947,952) (53,613,100) 8,917,593
28,588,158 (8,659,089) (39,485,843) (42,519,784) (207,159,720)
(134,433) (612,602) 8,170,558
(53,398) (698,234) (207,911,352)
120 8,170,678
240 (207,911,112)
(3,531) 8,167,147
(68,786) (207,979,898)
1 January 2010
Profits
Other
31 December 2010
189,811,948
189,811,948
189,811,948
189,811,948
020 030 040 050
060 070 080 090
100
7,683,421
(7,683,421)
110 120
8,167,147
240,796
8,407,943
8,167,147
(7,442,625)
8,407,943
130 140
7,683,421
150
77,622,633
(240,796)
77,381,837
170
77,622,633
(240,796)
77,381,837
180
275,118,002
(7,683,421)
275,601,728
160
Annex I/18
8,167,147
Annex I: Pro Forma Consolidated Accounts
Proforma Consolidated DH Group
Moldova Lei
Accounts for the year to 31 December 2010 2010 CASH FLOW STATEMENT Operating activities Proceeds from sales Cash payments to suppliers Cash payments to and for employees Interest Payment Income tax Other cash receipts Other cash payments Net cash from operating activities Investing activities Proceeds from the output of long term assets Paying money to purchase long term assets Interest earned Dividends received including foreign Other receipts (payments) of funds Net cash from investing activities Financing activities Proceeds from loans and borrowings Payments of loans and borrowings Payment of dividends including dividends paid to non-residents Proceeds from the issue of own shares Paying money to repurchase its own shares Other receipts (payments) of funds Net cash from financing activities Net cash flows before exceptional items Exceptional receipts (payments) Net total Exchange differences favorable (unfavorable) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
010 020 030 040 050 060 070 080
1,761,658,148 (1,576,237,863) (126,874,643) (289,617) (4,155,504) 21,370,377 (56,536,763) 18,934,135
090 100
(14,286,702)
110 120 121 130 140
(14,286,702)
150
70,000,000 45,318,348
160 170 171 180 190 210
22,982 115,341,330
220
119,988,763
200
230 240 250 260 270
Note 1
119,988,763 (252,971) 22,796,934 142,532,726
2010 Population Customers in litigation CET 1 Retelele Electrice Other receivables Short-term trade receivables
Note 2
CET 1 Moldovagaz Chisinau gaz Payable to MoU parties Retelele Electrice Apa Canal Material Reserves Agency State Ecological Inspectorate Other creditors Trade payables
Annex I/19
692,602,850 67,153,667 1,230,436 122,074,566 100,463,314 983,524,833
513,089,000 65,566,000
2010 Long-term
2010 Short-term
2010 Total
148,700,376 1,235,568,626 9,471,993 1,393,740,995 45,960,397 42,357,951 47,115,281 2,349,996 261,678,726 1,793,203,347
380,115,419 113,870,874 249,908,923 743,895,216 11,088,908 1,996,155
528,815,795 1,349,439,500 259,380,916 2,137,636,211 57,049,305 44,354,106 47,115,281 2,349,996 278,996,851 2,567,501,751
152,425,338
17,318,125 774,298,404
Pro-forma combined accounts
A2
Pro-forma combined accounts
Annex contents: R
Company accounts for CET-1 the year to 31 December 2010 – from Annex II/1
R
Combination adjustments for the year to 31 December 2010 – from Annex II/4
R
Notional Combined accounts for DH Group + CET-1 for the year to 31 December 2010 – from Annex I/10
It should be noted that this annex is provided for information only and does not form an integral part of this report. It presents notional, proforma combined accounts for a combination of entities that does not form part of our recommendations.
Phase II report: Chişinău Heat & Electricity Supply Institutional & Financial Restructuring Study
Economic Consulting Associates, October 2011
Annex I: Pro Forma Consolidated Accounts
CET-1
Moldova Lei
Accounts for the year to 31 December 2010 Note LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total
010 020 030
Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
2010
040
2009
521,506 (491,634) 29,872
376,626 (339,441) 37,185
8,204,011
8,118,933
688,111,372
682,244,328
(130,925,365) 565,390,018
(112,494,439) 577,868,822
148,700,376
148,700,376
148,700,376
148,700,376
050 060 070 080 090
100 110 120
1
130 140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
714,120,266
726,606,383
190
12,800,852
10,240,112
266,384
209,599
250
5,404 88,751 13,161,391
5,404 59,683 10,514,798
260
407,710,107
367,261,742
492,511 158,683
542,526 153,030
122,449 248,998 26,750 408,759,498
100,167 383,673 49,593 368,490,731
48,849 844,070 67
45,081 118,920
440
892,986
164,001
Other current assets
450
532,283
49,147
TOTAL CURRENT ASSETS
460
423,346,158
379,218,677
470
1,137,466,424
1,105,825,060
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
TOTAL ASSETS
200 210 220 230 240
2
270 280 290 300 310 320 330 340 350
360 370 380 390
400 410 420 430
Annex I/1
Annex I: Pro Forma Consolidated Accounts
CET-1
Moldova Lei
Accounts for the year to 31 December 2010 Note EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total
77,370,160
77,370,160
530
13,085,618
11,533,000
281,670,315 294,755,933
252,360,000 263,893,000
(45,955) 258,945,312 8,384,045
289,997,664
610
267,283,402
289,997,664
620
1,866,936
1,866,936
640
1,866,936
1,866,936
650
641,276,431
633,127,760
660
27,450,000
540 550 560
570 580 590 600
630
LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total
670 680 690
27,450,000
700 710 720 730 740
3
TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total
TOTAL LIABILITIES
520
510
TOTAL EQUITY
TOTAL SHORT TERM LIABILITIES
77,370,160
500
Secondary Capital Differences from revaluation of long term assets Grants Total
Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total
77,370,160
490
Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total
Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total
2009
480
Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total
Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total
2010
760
36,011,444 36,011,444
36,011,444 36,011,444
770
63,461,444
36,011,444
428,928,294
431,167,743
860
428,928,294
431,167,743
870
2,108,491 1,554 549,277 493,227 51,262 32,605
1,745,250 1,089 442,996 2,729,806 37,329 32,605
960
563,839 3,800,255
529,038 5,518,113
970
432,728,549
436,685,856
980
1,137,466,424
1,105,825,060
750
780 790 800 810 820
4
830 840 850
880 890 900 910 920 930 940 950
Annex I/2
Annex I: Pro Forma Consolidated Accounts
CET-1
Moldova Lei
Accounts for the year to 31 December 2010 PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010 020 030
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
MOVEMENTS IN CAPITAL Share Capital and additional Share Capital Supplementary Capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) Correction of results in previous periods Retained earnings (uncovered loss) of previous periods Net profit (loss) for period Profit utilised in period Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL
050 060 070 080
100 110
130
150
2010
2009
235,113,462 (192,356,823) 42,756,639
302,642,675 (269,405,710) 33,236,965
6,414,497 (63,435) (9,416,908) (31,240,327) 8,450,466
3,584,413 (5,601,990) (1,992,088) 29,227,300
(63,245) (3,176) 8,384,045
286,991 1,533,786 31,048,077
8,384,045
4,276 31,052,353
8,384,045
31,052,353
1 January 2010
Profits
Other
31 December 2010
77,370,160
77,370,160
050
77,370,160
77,370,160
060
11,533,000
1,552,618
13,085,618
252,360,000 263,893,000
29,310,315 30,862,933
281,670,315 294,755,933
010 020 030 040
070 080 090
23
100 110
289,997,664
(45,978) (31,052,352)
(45,955) 258,945,312 8,384,045
(31,098,330)
267,283,402
8,384,045
120 130 140
289,997,664
8,384,068
150
1,866,936
1,866,936
170
1,866,936
1,866,936
180
633,127,760
160
Annex I/3
39,247,001
(31,098,330)
641,276,431
Annex II: Pro Forma Combined Accounts
Combination adjustments
Moldova Lei
Accounts for the year to 31 December 2010 LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
DH Group
CET-1
030
3,062,542
521,506 (491,634) 29,872
3,092,414
040
116,373,511
8,204,011
124,577,522
010 020
Adjustments
Combined
050 060
688,111,372
070 080 090
1,787,216,931
100
332,010
(130,925,365) 565,390,018
2,352,606,949
332,010
110 120 130
34,100
148,700,376
(148,700,376)
34,100
366,110
148,700,376
(148,700,376)
366,110
(148,700,376)
2,356,065,473
140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
1,790,645,583
714,120,266
190
73,000,556
12,800,852
85,801,408
581,144
266,384
847,528
1,241 25,413,179 98,996,120
5,404 88,751 13,161,391
6,645 25,501,930 112,157,511
983,524,833 (55,683,060)
407,710,107
13,415,578 5,889,721 16,920,869 214,512 638,732 24,734,619 989,655,804
492,511 158,683
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
200 210 220 230 240 250
260 270
(380,115,419)
1,011,119,521 (55,683,060)
280 290 300 310 320 330 340 350
122,449 248,998 26,750 408,759,498
(380,115,419)
13,908,089 6,048,404 16,920,869 336,961 887,730 24,761,369 1,018,299,883
360 370 380 390
48,849 844,070 67
440
103,344 40,293,075 62 23,253 40,419,734
892,986
152,193 41,137,145 129 23,253 41,312,720
Other current assets
450
1,334,158
532,283
1,866,441
TOTAL CURRENT ASSETS
460
1,130,405,816
423,346,158
(380,115,419)
1,173,636,555
470
2,921,051,399
1,137,466,424
(528,815,795)
3,529,702,028
TOTAL ASSETS
400 410 420 430
Annex II/4
Annex II: Pro Forma Combined Accounts
Combination adjustments
Moldova Lei
Accounts for the year to 31 December 2010 EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL EQUITY LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total TOTAL SHORT TERM LIABILITIES TOTAL LIABILITIES
DH Group
CET-1
189,811,948
77,370,160
267,182,108
189,811,948
77,370,160
267,182,108
13,085,618
13,085,618
281,670,315 294,755,933
281,670,315 294,755,933
8,407,943
(45,955) 258,945,312 8,384,045
(45,955) 258,945,312 16,791,988
610
8,407,943
267,283,402
275,691,345
620
77,381,837
1,866,936
79,248,773
640
77,381,837
1,866,936
79,248,773
650
275,601,728
641,276,431
916,878,159
660
10,845,748
27,450,000
38,295,748
10,845,748
27,450,000
38,295,748
480
Adjustments
Combined
490 500 510 520
530 540 550 560
570 580 590 600
630
670 680 690
700 710 720
13,749,570
13,749,570
730 740 760
1,793,203,347 1,806,952,917
36,011,444 36,011,444
(148,700,376) (148,700,376)
1,680,514,415 1,694,263,985
770
1,817,798,665
63,461,444
(148,700,376)
1,732,559,733
780
24,000,000
24,000,000
820
712,688 24,712,688
712,688 24,712,688
830
774,397,607
428,928,294
(380,115,419)
823,210,482
9,612,458 784,010,065
428,928,294
(380,115,419)
9,612,458 832,822,940
750
790 800 810
840 850 860
8,087,210 20,072 3,484,741 2,605,511 96,331
2,108,491 1,554 549,277 493,227 51,262 32,605
10,195,701 21,626 4,034,018 3,098,738 147,593 32,605
960
4,634,388 18,928,253
563,839 3,800,255
5,198,227 22,728,508
970
827,651,006
432,728,549
(380,115,419)
880,264,136
980
2,921,051,399
1,137,466,424
(528,815,795)
3,529,702,028
870 880 890 900 910 920 930 940 950
Annex II/5
Annex II: Pro Forma Combined Accounts
Combination adjustments
Moldova Lei
Accounts for the year to 31 December 2010 DH Group
CET-1
Adjustments
Combined
1,757,234,314 (1,696,859,147) 60,375,167
235,113,462 (192,356,823) 42,756,639
(86,578,357) 86,578,357
1,905,769,419 (1,802,637,613) 103,131,806
47,518,232 (8,414,754) (36,947,952) (53,613,100) 8,917,593
6,414,497 (63,435) (9,416,908) (31,240,327) 8,450,466
53,932,729 (8,478,189) (46,364,860) (84,853,427) 17,368,059
(134,433) (612,602) 8,170,558
(63,245) (3,176) 8,384,045
(197,678) (615,778) 16,554,603
120 8,170,678
8,384,045
120 16,554,723
(3,531) 8,167,147
8,384,045
(3,531) 16,551,192
PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
020 030
050 060 070 080
100 110
130
150
Annex II/6
Annex II: Pro Forma Combined Accounts
Combination adjustments
Moldova Lei
Accounts for the year to 31 December 2009 LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
DH Group
CET-1
4,817,106 (1,766,663) 3,050,443
376,626 (339,441) 37,185
5,193,732 (2,106,104) 3,087,628
120,277,881
8,118,933
128,396,814
2,867,744,602
682,244,328
3,549,988,930
090
(1,167,759,144) 1,820,263,339
(112,494,439) 577,868,822
(1,280,253,583) 2,398,132,161
100
332,010
010 020 030
040
Adjustments
Combined
050 060 070 080
332,010
110 120 130
148,700,376
(148,700,376)
332,010
148,700,376
(148,700,376)
332,010
(148,700,376)
2,401,551,799
140 150 160
Other long term assets
170
TOTAL LONG TERM ASSETS
180
1,823,645,792
726,606,383
190
64,566,412
10,240,112
74,806,524
673,730 27,556 239 25,411,675 90,679,612
209,599
883,329 27,556 5,643 25,471,358 101,194,410
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
200 210 220 230 240 250
260 270
5,404 59,683 10,514,798
858,338,123 (55,683,060)
367,261,742
6,372,978 2,532,515 9,853,361 77,762 613,491 26,541,455 848,646,625
542,526 153,030
(339,080,624)
886,519,241 (55,683,060)
280 290 300 310 320 330 340 350
100,167 383,673 49,593 368,490,731
(339,080,624)
6,915,504 2,685,545 9,853,361 177,929 997,164 26,591,048 878,056,732
360 370 380 390
45,081 118,920
440
86,611 22,668,128 473 41,722 22,796,934
164,001
131,692 22,787,048 473 41,722 22,960,935
Other current assets
450
1,023,260
49,147
1,072,407
TOTAL CURRENT ASSETS
460
963,146,431
379,218,677
(339,080,624)
1,003,284,484
470
2,786,792,223
1,105,825,060
(487,781,000)
3,404,836,283
TOTAL ASSETS
400 410 420 430
Annex II/7
Annex II: Pro Forma Combined Accounts
Combination adjustments
Moldova Lei
Accounts for the year to 31 December 2009 EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL EQUITY LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total TOTAL SHORT TERM LIABILITIES TOTAL LIABILITIES
480
DH Group
CET-1
Adjustments
Combined
189,811,948
77,370,160
267,182,108
189,811,948
77,370,160
267,182,108
11,533,000
11,533,000
252,360,000 263,893,000
252,360,000 263,893,000
289,997,664
7,683,421 289,997,664
490 500 510 520
530 540 550 560
7,683,421
570 580 590 600 610
7,683,421
289,997,664
297,681,085
620
77,622,633
1,866,936
79,489,569
640
77,622,633
1,866,936
79,489,569
650
275,118,002
633,127,760
908,245,762
660
18,323,894
18,323,894
18,323,894
18,323,894
9,452,491
9,452,491
630
670 680 690
700 710 720 730 740 760
1,719,930,918 1,729,383,409
36,011,444 36,011,444
(148,700,376) (148,700,376)
1,607,241,986 1,616,694,477
770
1,747,707,303
36,011,444
(148,700,376)
1,635,018,371
750
780 790 800 820
805,615 805,615
830
727,621,037
431,167,743
(339,080,624)
819,708,156
3,477,186 731,098,223
431,167,743
(339,080,624)
3,477,186 823,185,342
810
805,615 805,615
840 850 860
5,431,961 3,654 2,653,199 20,424,072
1,745,250 1,089 442,996 2,729,806 37,329 32,605
7,177,211 4,743 3,096,195 23,153,878 37,329 32,605
960
3,550,194 32,063,080
529,038 5,518,113
4,079,232 37,581,193
970
763,966,918
436,685,856
(339,080,624)
861,572,150
980
2,786,792,223
1,105,825,060
(487,781,000)
3,404,836,283
870 880 890 900 910 920 930 940 950
Annex II/8
Annex II: Pro Forma Combined Accounts
Combination adjustments
Moldova Lei
Accounts for the year to 31 December 2009 DH Group
CET-1
Adjustments
Combined
1,457,259,978 (1,602,343,140) (145,083,162)
302,642,675 (269,405,710) 33,236,965
(126,582,686) 126,582,686
1,633,319,967 (1,745,166,164) (111,846,197)
28,588,158 (8,659,089) (39,485,843) (42,519,784) (207,159,720)
3,584,413 (5,601,990) (1,992,088) 29,227,300
32,172,571 (8,659,089) (45,087,833) (44,511,872) (177,932,420)
(53,398) (698,234) (207,911,352)
286,991 1,533,786 31,048,077
233,593 835,552 (176,863,275)
240 (207,911,112)
4,276 31,052,353
4,276 4,276
8,792 (176,854,483)
(68,786) (207,979,898)
31,052,353
4,276
(68,786) (176,923,269)
PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
020 030
050 060 070 080
100 110
130
150
Annex II/9
Annex II: Pro Forma Combined Accounts
Notional Combined DH Group + CET-1
Moldova Lei
Accounts for the year to 31 December 2010 Note LONG TERM ASSETS Intangible assets Intangible assets Amortization of intangible assets Total
2010
010 020
Long-term tangible assets Active materials in progress Land Fixed assets Natural Resources Depreciation and depletion of long-term tangible assets Total
030
3,092,414
040
124,577,522
2009
5,193,732 (2,106,104) 3,087,628
128,396,814
050 060
3,549,988,930
070 080
Long term financial assets Long-term investments unrelated parties Long-term investments in related parties Change the value of long-term investments Long-term trade receivables Deferred income tax assets Advances Total
090
2,352,606,949
(1,280,253,583) 2,398,132,161
100
332,010
332,010
110 120 130
34,100
140 150 160
366,110
332,010
Other long term assets
170
TOTAL LONG TERM ASSETS
180
2,356,065,473
2,401,551,799
190
85,801,408
74,806,524
847,528 6,645 25,501,930 112,157,511
883,329 27,556 5,643 25,471,358 101,194,410
1,011,119,521 (55,683,060)
886,519,241 (55,683,060)
13,908,089 6,048,404 16,920,869 336,961 887,730 24,761,369 1,018,299,883
6,915,504 2,685,545 9,853,361 177,929 997,164 26,591,048 878,056,732
440
152,193 41,137,145 129 23,253 41,312,720
131,692 22,787,048 473 41,722 22,960,935
Other current assets
450
1,866,441
1,072,407
TOTAL CURRENT ASSETS
460
1,173,636,555
1,003,284,484
470
3,529,702,028
3,404,836,283
CURRENT ASSETS Stocks of goods and materials Materials Growth and fattening animals Items of small value and short duration Production in progress Products Commodities Total Short-term receivables Short-term trade receivables Adjustments on doubtful receivables Short-term receivables related parties Short-term advances Short-term receivables on settlements with the budget Claims accrued Short-term receivables of staff Short-term receivables calculated on income Other short-term debt Total Short-term investments Short-term investments in unrelated parties Short-term investments in related parties Decline in value of short-term investments Total Cash House Current accounts in local currency Current accounts in foreign currency Other funds Total
TOTAL ASSETS
200 210 220 230 240 250
1
260 270 280 290 300 310 320 330 340 350
360 370 380 390
400 410 420 430
Annex II/10
Annex II: Pro Forma Combined Accounts
Notional Combined DH Group + CET-1
Moldova Lei
Accounts for the year to 31 December 2010 Note EQUITY Share capital Share capital Supplementary capital Capital paid Capital withdrawn Total
480
520
820,837,398
820,837,398
530 540 550 560
7,918,795
570 580 590
16,791,988
600 610
16,791,988
7,918,795
620
79,248,773
79,489,569
640
79,248,773
79,489,569
650
916,878,159
908,245,762
660
38,295,748
18,323,894
38,295,748
18,323,894
13,749,570
9,452,491
760
1,680,514,415 1,694,263,985
1,607,241,986 1,616,694,477
770
1,732,559,733
1,635,018,371
780
24,000,000
630
TOTAL EQUITY LONG-TERM DEBT Long term financial liabilities Long term bank loans Long term borrowings Other long-term financial liabilities Total
670 680 690
700 710 720 730 740
2
TOTAL LONG TERM DEBT SHORT TERM LIABILITIES Short-term financial liabilities Short term bank loans Short-term borrowings Current share of long-term debt Other short-term financial liabilities Total
TOTAL SHORT TERM LIABILITIES
820,837,398
510
Secondary Capital Differences from revaluation of long term assets Grants Total
Calculated short-term debt Wages owed to On personal debt to other operations Insurance liabilities Debt settlement with the budget Preliminary Debt Extra payments owed to Amounts owed by the founders and other participants Preliminary expenses and payments related provisions Other short-term debt Total
820,837,398
500
Retained earnings (uncovered loss) The correction results in previous periods Retained earnings (uncovered loss) of previous years Net profit (net loss) of period Profit used for the reporting year Total
Short-term commercial debt Short-term trade payables Amounts owed to related parties Advances received Total
2009
490
Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total
Calculated long-term debt Long-term lease liabilities Anticipated revenue long term Grants and Revenues Advances received Deferred income tax liabilities Long-term trade payables Total
2010
750
790 800 820
712,688 24,712,688
805,615 805,615
830
823,210,482
819,708,156
9,612,458 832,822,940
3,477,186 823,185,342
10,195,701 21,626 4,034,018 3,098,738 147,593 32,605
7,177,211 4,743 3,096,195 23,153,878 37,329 32,605
960
5,198,227 22,728,508
4,079,232 37,581,193
970
880,264,136
861,572,150
810
2
840 850 860
870 880 890 900 910 920 930 940 950
Annex II/11
Annex II: Pro Forma Combined Accounts
Notional Combined DH Group + CET-1
Moldova Lei
Accounts for the year to 31 December 2010 TOTAL LIABILITIES
980
3,529,702,028
3,404,836,283
2009
2009
PROFIT AND LOSS STATEMENT Revenue from sales Cost of sales Gross profit (total loss)
010
Other operating income Business expenses General and administrative expenses Other operating expenses Result from operating activities: Profit (loss)
040
Result from investing activities: Profit (loss) Result from financing activities: Profit (loss) Result from financial and economic activities: Profit (loss)
090
Exceptional result: profit (loss) Profit (loss) before taxation reporting period
120
Expenditure (savings) income tax Net profit (net loss)
140
MOVEMENTS IN CAPITAL Share Capital and additional Share Capital Supplementary Capital Capital paid Capital withdrawn Total Reserves Reserves established by legislation Reserves provided for by statute Other reserves Total Retained earnings (uncovered loss) Correction of results in previous periods Retained earnings (uncovered loss) of previous periods Net profit (loss) for period Profit utilised in period Total Secondary Capital Differences from revaluation of long term assets Grants Total TOTAL
020 030
050 060 070 080
100 110
130
150
010
1,905,769,419 (1,802,637,613) 103,131,806
1,633,319,967 (1,745,166,164) (111,846,197)
53,932,729 (8,478,189) (46,364,860) (84,853,427) 17,368,059
32,172,571 (8,659,089) (45,087,833) (44,511,872) (177,932,420)
(197,678) (615,778) 16,554,603
233,593 835,552 (176,863,275)
120 16,554,723
240 (176,863,035)
(3,531) 16,551,192
(68,786) (176,931,821)
1 January 2010
Profits
Other
31 December 2010
820,837,398
820,837,398
820,837,398
820,837,398
020 030 040 050
060 070 080 090
100
7,918,795
(7,918,795)
110 120
16,551,192
240,796
16,791,988
16,551,192
(7,677,999)
16,791,988
130 140
7,918,795
150
79,489,569
(240,796)
79,248,773
170
79,489,569
(240,796)
79,248,773
180
908,245,762
(7,918,795)
916,878,159
160
Annex II/12
16,551,192