On behalf of the Board of Directors of Majan Electricity Company S.A.O.C (MJEC), I am pleased to present the thirteenth Annual Report and statement of accounts for the financial year ended 31st December 2017.
In 2017, despite slower economic growth and considering the introduction of Cost Reflective Tariff (CRT) wherein the demand growth was expected to decline, demand has shown an increasing trend. Compared to 2016, the number of customers has increased by 6.8% to 225,195 (2016: 210,901), the electricity supplied increased by 6.1% to 9,066 GWh (2016: 8,542 GWh) and the distribution losses have reduced by 0.6% to 9.3%. The peak load for the year was 1,298.4 MW, an increase of 5% over 2016: 1,232.5 MW.
MJEC achieved total revenue of RO 240.863 million in 2017, an increase of 3.9% compared with RO 231.685 million in 2016.
Revenue from sale of electricity for the year is RO 149.245 million, an increase of 16.8% in 2017 compared with RO 127.762 million in 2016. The significant growth in electricity revenue is due to the introduction of CRT to commercial, industrial and government consumers that consumes more than 150, 000 kWh.
Subsidy received from the MoF declined by 26.7% to RO 82.239 million from RO 112.127 million in 2016, the drop in subsidy mainly reflects higher tariff revenue growth due to introduction of CRT.
Operating costs stood at RO 207.112 million compared with RO 199.041 million in 2016. The increase in operating cost is mainly driven by higher energy procurement cost on account of demand growth.
The total comprehensive income for the year 2017 is RO 4.229 million RO 11.288 million in 2016 due to increased financing costs on conversion of short-term bridge loan to long-term debt as an outcome of balance sheet restructuring effected in 2016 and tax impact on account of tax law amendment effected vide Royal Decree 9/2017 imposing 10% withholding tax on interest payments and increase in tax rate from 12% to 15% resulting in higher deferred tax liability (one off adjustment).
Net cash generated from operating activities for the year 2017 is RO 4.744 million compared to RO 39.268 million in 2016 due to delayed subsidy payment and slower payment by CRT customers. The total current assets increased by 25% in 2017 to reach RO 85.111 million compared to RO 68.061 million in 2016. Current liabilities increased by 35.4% to RO 116.581 million from RO 86.091 million in 2016. The current ratio stood at 0.730 compared to 0.790 in 2016.
Total capital employed (equity and debt balance) as of 31 Dec 2017 stood at RO 326.667 million, an increase of 16% compared with RO 281.249 million in 2016. The debt to equity ratio as of 31 December 2017 being 1.22 compared with 0.91 in 2016.
During 2017, the Ministry of Finance (MoF) transferred their shareholding 8,500 shares (0.01%) to Nama Shared Services LLC (NSS, 0.005%) and Nama Institute for Competency Development LLC (NICD 0.005%), both subsidiaries of Electricity Holding Company S.A.O.C (Nama Holding). The share transfers were approved by the shareholders in the extraordinary general meeting convened on 14th November 2017.
The company has been assigned a credit rating of Baa2 (negative) (2016 Baa2 Stable) by Moody’s Investor Services, The negative outlook mirrors the negative outlook on the sovereign rating of Oman because of the strong credit linkages between MJEC and the sovereign.
The Board recommended a dividend of RO 0.060 per Share on 85,000,000 Ordinary Shares of RO 1 each for the year ended 31 December 2017. (Financial Year 2016: RO 0.050 per share on 85,000,000 Ordinary Shares of RO 1 each). Dividend as a percentage of net profit after tax, is 123.6% as compared to 37.7% in the Financial Year 2016.
The dividend on Ordinary Shares is subject to the approval of the shareholders at the Annual General Meeting (AGM) scheduled on 28 March, 2018.
During 2017, MJEC continued its focus on developing and upgrading its infrastructure and continued expanding the network in order to support the growth in the customer demand, improve existing services and ensure network security and reliability.
We ended 2017 with an outstanding achievement in total capital investments of RO. 53.77 million (RO. 52.67 Million in 2016), in load and non-load related assets associated with the 33, 11 kV and LT network as well as in non-network related investments. The investments covered all areas of MJEC authorized Governorates. The investment’s main objectives were compliance with the License Conditions, improved system reliability and benefited sustainable return on the assets.
The enhanced asset management system and investments in reliability projects resulted in improving Customer Average Interruption Duration Index (CAIDI) to a reasonable level of 44.1 minutes (for planned and unplanned interruption). CAIDI has improved by 24% compared to 57.9 minutes in 2016. This is evidence that our investments are producing the tangible results we expected.
MJEC distribution and supply losses reduced to 9.3 % compared to 9.9% in 2016 which is still short of the target 8.5%. This reduction has effectively contributed to reducing the Distribution Losses in the Main Interconnected System (MIS). This achievement is a positive step forward to achieving sustainable losses reductions in future years.
MJEC in its journey to improve the customer service, has made improvements in processes, redefined supply organization structure, enhanced performance monitoring and adaptation of new technology with an objective to provide superior customer service.
In 2017 several improvements were taken up to improve the customer service like establishment of several customer touch points, technology embraced initiatives like implementation of Automated Metering technology for all CRT customers, e-billing, e-payments.
MJEC in coordination with Nama Holding has also rolled out customer satisfaction index (CSI) survey for gathering customers' feedback and responding to their requirements.
Health, Safety & Environment
The company placed immense efforts into improving the health, safety, security and environment for public, customer, contractors and staff resulted in zero Lost Time Injury (LTI) and zero fatality in 2017.
MJEC has to date achieved 389 consecutive calendar days without a lost time injury (LTI). Further, AER HSE audit report issued in last quarter of 2016 highlighted the need for further improvement in HSE compliance and MJEC is committed to ensure such compliance.
Proactive involvement in regulatory activities is one of our highest priorities. The utility business is fundamentally dependent on this economic regulation. The company is focusing its efforts on operating within the parameters of the price control determination whilst improving operational efficiency aimed at benefitting from the incentive mechanism.
We believe the need to retain and attract valuable staff in all areas of the company is fundamental to the success of any organization. MJEC continues to focus on providing a healthy and motivated environment that meets the need of our staff and allows them to maximize their contribution to the company. Along with NAMA group human resources development strategies, in 2017 MJEC continued completing the Personal Development Plan and completing the competency assessment of employees from managerial level to grade 7. MJEC ended the year with a total of 396 employees with an Omanization level of 94.6% which is an integral component in the country’s Omanization plan regarding the orientation and induction of Omanis to the private sector, corporate culture and work environment.
The company recognizes that corporate governance practices are fundamental to the smooth and effective functioning of the organization and its ability to protect the rights of shareholders and stakeholders and enhance stakeholders’ value. As a company regulated by the AER, we continued to respond to the requirement of the Regulator and other stakeholders.
We are confident that the company will continue its growth in 2018 both financially and operationally. In order to accomplish the vision and achieve its strategic objectives MJEC will:
- Introduce technological customer service improvements by implementing e-solutions such as prepaid meters, e-payments and e-billing.
- Continue developing key competencies of MJEC staff such as leadership development under RUWAD program, Competency development program and technical training.
- Embed a positive HSE Culture in both its staff and contractors.
- Improve the financial performance through cost efficiency, revenue optimization and subsidy management.
- Ensure effective capital investments to secure network security and reliability standards.
- Support the privatization initiatives directive by the MoF through Nama Holding
- Further improve communication and engagement with customers and stakeholders
- Manage the potential increase in the amount of distributed generation connected to the system such as Solar PV
- Continue MJEC journey for loss minimization
BOD members, management and staff of the Company express their sincere gratitude to His Majesty Sultan Qaboos Bin Said for his vision, guidance and leadership and to His Majesty’s government for their continuing support.
I would also like to thank the fellow the BOD Members, the Executive Management team and staff for their contribution, commitment and efforts. Acknowledgement is also due to contractors, suppliers and service providers whose support and contribution helped us to achieve the Company’s goals.
Finally, I would like to thank the Authority for Electricity Regulation (AER), Public Authority for Electricity and Water (DIAM), Electricity Holding Company S.A.O.C (Nama Holding) and other sister companies for their continued support and cooperation.
Abdullah Mohamed Al-Hashimi