Annual Report

Annual Report 2017

Contents
Annual Report 2017
10 Chairman’s Message 68 Preservation of the Environment
12 Chief Executive Officer’s Message 74 Corporate Social Responsibility
22 Electric Power Generation 80 Description of the Company’s Important
26 National Grid SA Plans, Decisions, and Future Prospects
30 Dawiyat Company 86 Financial Results Summary
34 Saudi Company for Energy Procurement 110 Consolidated Financial Statements
38 Distribution and Customer Services Activity
42 Financial Activity
46 Human Resources Activity
50 Investment in Electricity Generating Projects
54 Shareholders
58 Innovation, Research and Development
64 Electricity Industries Localization
6 Annual Report 2017
 The Custodian of the Two Holy Mosques
King Salman bin Abdul Aziz Al-Saud

His Royal Highness

Prince Mohammad bin Salman bin Abdul Aziz Al-Saud
Crown Prince, Deputy Prime Minister
and Minister of Defense

Annual Report 2017 7

Board of Directors
Saudi Electricity Company
 Dr. Saleh bin Hussein Al-Awajji Mr. Sulaiman bin Abdullah Alkadi Eng. Isam bin Alwan Al-Bayat Mr. Saleh bin Saad Al-Mehanna
Chairman of the Board Vice Chairman of the Board Member of the Board Member of the Board

Dr. Saud bin Mohammed Al-Nemer Dr. Yousif bin Abdulaziz Al-Turki Eng. Abdulhamid bin Ahmed Al-Omair Mr. Abdulmajed Abdullah Al-Mubarak Eng. Ali Ahmed Al-Sweid
Member of the Board Member of the Board Member of the Board Member of the Board Member of the Board

Annual Report 2017 9

 Chairman’s Message
Lasting achievements... a statement confirming the Saudi Electricity Company’s impressive
status in 2017 and its outstanding achievements at the regional and international levels, which
have entitled it to earn a leading position among similar companies worldwide, and to achieve
the second place ranking between the 100 largest companies in the Kingdom.

During the past year, the company’s Board of Directors and its executive management strove
to drive the company towards implementing the strategic plans it adopted to keep up with the
economic and urban growth and its increasing demand for electrical power, and to take into
account, through these plans, our government’s visions led by the Custodian of the Two Holy
Mosques, King Salman bin Abdulaziz Al Saud, may God protect him, and its aspirations to make
the Kingdom one of the ten best world economies. The Board continued its efforts to implement
the initiatives of the National Transformation Program 2020, and the Kingdom’s Vision 2030,
motivated by its eagerness to ensure that the company’s future plans will be a strategic
component of these programs and initiatives.

The auditor and controller of the company’s figures and achievements in 2017, can observe the
considerable rates of growth and development in all of its functions and activities as well as its
global and regional position, and can also realize the magnitude of all its employees’ efforts to
achieve this stature. They can also perceive how the company managed to meet the needs of all
sectors for electrical energy with high efficiency and reliability, and how it managed to develop
electricity projects that will cope with the state’s plans to reduce fossil fuel reliance, and to
move towards the use of renewable sources of energy in electricity generation, as well as to
start the shift towards the use of smart grids in the transmission and distribution networks.
The past year saw an improvement in the electrical system’s performance, as the Company’s
assets increased by about SR 25 billion to reach SR 446 billion, thus contributing to the success
of the Saudi Electricity Company in becoming the Kingdom’s 2nd largest company, having been

10 Annual Report 2017

ranked 3rd in 2016. In addition, the company ranked 1st in the Arab world and 14th globally the company’s activities and contributed to the company’s winning many global awards, such
within its field, and the generation activity has increased the available power generation as the Best Main Businesses Award for Subscribers’ Services in the GCC Countries, the Digital
capacity to more than 56.588 GW, thus increasing the total generation capacity available in the Creativity Award for Optimum Operation in America, as well as the Scientific Excellence and
Kingdom to 79.07 GW, 2.5% more than the planned energy quantities for this year. The thermal Knowledge Exchange Award from the American Electric Power Research Institute.
efficiency of the electrical power generation improved and reached 36.8%, providing 12 million
barrels of oil equivalent and 31 million barrels of diesel, which directly contributed to the With this report, the Board of Directors of the Saudi Electricity Company, which I was honored
decrease in the costs of producing electricity and supporting the national economy. to preside over, will conclude its fifth session that started in 2015. On this occasion, we raise
our hands in thanks and gratitude to Almighty God for his support that led to the company’s
The Saudi Electricity Company continued its efforts to support the Kingdom’s plans to become management success. My colleagues and I would like to extend our sincere thanks and
a regional hub for the transmission of electrical energy in the region and worked diligently to appreciation to the Custodian of the Two Holy Mosques, King Salman bin Abdul Aziz, and his
provide all resources to help achieve this goal. It managed, during the past year, to increase Crown Prince His Royal Highness, Prince Mohammad bin Salman, may God protect them, for
the lengths of the power transmission network by 12%, and to increase the number of their unlimited support to the company which contributed to these achievements. Also I would
transformers by 7.4%, and to proceed with the implementation of electrical interconnection like to extend my thanks and praise to his Excellency the Minister of Energy, Industry and
projects with the Arab Republic of Egypt and the plans to link with other countries in Europe Mineral Resources, Engineer Khalid bin Abdulaziz Al-Falih for his interest, commitment and
and Africa, which will have a clear impact in the near future on the Saudi economy and the support of the Saudi Electricity Company, and to the company’s executives and its employees
Kingdom’s global status in the energy markets. for their distinguished efforts and actions, which contributed to the realization of its goals
and the privileged position it achieved, asking the Almighty God, Glory be to Him, to help the
Two of the company’s achievements which the Board is most proud of, are the delivery of the company’s new Board of Directors, at its sixth session to continue expanding, achieving and
electrical services to 9 million customers by the beginning of December 2017, and its success developing the electricity sector.
in delivering electrical services to approximately 492,000 new customers across the Kingdom,
which were provided by approximately 36,000 employees, 91% of which are Saudis, and
representing one of the highest localization percentages among companies in the Kingdom. Saleh bin Hussein Al-Awajji
Chairman of the Board for the 5th Session
Important achievements were also recorded in the development of human resources and in
the localization of the industries and capabilities associated with the electricity sector, as well
as the achievements and successes in many areas of the company’s activities, I cannot give a
full account of across these few lines, and which would not have been possible without God’s
grace first and then the efforts of this nation’s countrymen, from executives to employees of the
Saudi Electricity Company, who offered an impressive amount of distinguished work and great
achievements that were a major subject of discussion among a lot of experts and followers of

Annual Report 2017 11

 Chief Executive Officer’s Message
Based on the information and data presented in the annual report 2017, we can say that the
Saudi Electricity Company is moving steadily and powerfully towards achieving the goals and
visions of the Government of the Custodian of the Two Holy Mosques, may God protect him,
and is keeping up with the initiatives of the Kingdom’s Vision 2030 which focus on making
the Kingdom one of the most important global centers for electric power trade and a regional
center for the transfer and export of electricity to the world.

Multiple initiatives were undertaken by the Saudi Electricity Company during the past
year ensuring the accomplishment of our key goals as aligned with SEC’s strategic vision.
Relentless focus and determined effort resulted in significant achievements across several
company business lines. This is testament to the company’s determination to carry out many
projects that can lead to achieving its goals, which I believe firmly demonstrates SEC’s ability
to efficiently deploy its financial resources, translating electric infrastructure projects into
tangible reality.

This report demonstrates how SEC has harnessed its material and human resources by
adopting ‘orchestrated initiatives’ geared to align SEC with international best practice, which
was driven by execution of the company’s ‘Accelerated Strategic Transformation Program’
(ASTP), as launched in 2014. Significant accomplishments were achieved improving
operational efficiency of SEC’s generation plants, whilst simultaneously providing enhanced
solutions and customer centric services. Through the diversification of our power sources,
SEC has evolved into becoming the largest company in its field within the Middle East and
North Africa, and to reach 1st position in the Arab world and 14th leading electric utility
company globally.

12 Annual Report 2017

Through the unique figures we have achieved – which are the focus of this report – the The management and employees of Saudi Electricity Company are determined to continue the
shareholders, specialists and all concerned and notable individuals will be able to assess our implementation of development programs and the establishment of new projects to strengthen
achievements and capabilities aiming at providing a better future for the Kingdom’s electric the electrical system in the Kingdom, including, but not limited to planned projects extending
power. Of these figures, I mention: out to the year 2021:

•• The success of the Generation activity in adding new power generation capacities estimated •• Adding new generation capacities to the company’s stations by about 5,612 MW.
at 3,269 MW with a growth rate of 6% from the total capacity available at the end of 2016. •• Increasing the generation capacity within the Program for Private Sector Participation to
•• The ability of the National Grid to add 8,426 km-circular of overhead networks and ground cope with future loads, and adding capacities of about 11,895 MW.
cables to the existing networks, representing 11.9% of the existing networks. •• Adding transmission lines with a length of 13,151 km-circular and 166 transmission
•• The construction and expansion of 77 new transmission substations and addition of 3,827 stations.
circuit breakers. •• Delivering electrical services to approximately 1.8 million new customers.
•• The delivery of electrical services to approximately 492 thousand new customers and the •• Strengthening the distribution networks by adding 132,158 km-circular of distribution lines.
electrification of 41 new residential communities. •• Improving the employees’ efficiency and providing them with the necessary training to
•• The addition of overhead networks and underground cables for 69 KV and below, with a enable them to do their job efficiently and effectively, where the ratio of training days to
length of 37,014 km-circular and a growth rate of 6.4%. work days is 2.1%.
•• The addition of 28,478 distribution transformers for 69 KV and below, and a growth rate •• Increasing the localization rate to approximately 92%, God willing.
of 6.4%.
•• The success of Dawiyat Company in upgrading fiber optic networks’ lengths to more than We are determined, by God’s will, to continue the path of excellence and advancement of the
67 thousand km-circular. electrical services offered to our customers and to continue to strive for leadership in this
•• The commencement of Dawiyat’s fiber optic broadband initiative project in accordance with field, deriving our determination from Almighty God, Glory be to Him, and the support of the
the agreement signed with the Ministry of Communications and Information Technology, Custodian of the Two Holy Mosques King Salman bin Abdulaziz al-Saud, May God protect him,
connecting about 80,000 homes. and his Crown Prince, His Royal Highness Prince Mohammad bin Salman bin Abdulaziz, may
•• Increasing the company’s job localization rate to more than 91% and employing 1,285 God protect him, and the capabilities of the company’s distinguished employees having the
graduates from the company’s training institutes. ability to make a difference in the services we offer.
•• Increasing the company’s electricity production through the combined-cycle system from
8.3% in 2010 to 27% by the end of 2017, and decreasing the use of the simple-cycle system
from 50% in 2010 to 26.4% in 2017. Ziyad bin Mohammed Alshiha
Chief Executive Officer

Additionally, this report will present numerous figures and accomplishments the Company has
achieved, made possible through the contributions of its faithful employees.

Annual Report 2017 13

 Our Vision
We serve our customers and country by delivering
world-class power services.

14 Annual Report 2017

Annual Report 2017 15
 Our Mission
We power the Kingdom that energizes the world.

16 Annual Report 2017

Annual Report 2017 17
 ‫‪Our Values‬‬

‫مام‬
‫اال ْهتِ ْ‬
‫ِ‬ ‫الـتَ َـم ّـيـُز‬ ‫الـتـ ََط ّـور‬
‫اإلنسان محور اهتمامنا‬ ‫االلتزام بالتميز‬ ‫اإلصرار على التقدم‬
‫‪Human Focus‬‬ ‫‪Active Excellence‬‬ ‫‪Progressive Duty‬‬
‫التعاطف‪ ،‬واالهتمام‪ ،‬والدعم‬ ‫نهتم بالتميز‪ ،‬والدقة‪ ،‬والمرونة العالية‬ ‫التطلع لألمام‪ ،‬وروح القيادة‪ ،‬واإلحساس بمسؤوليتنا المجتمعية‬
‫‪We are Empathetic, Caring & Supportive‬‬ ‫‪We are Focused, Detailed & Agile‬‬ ‫‪We are Forward Looking, Public & Leading‬‬

‫‪18‬‬ ‫‪Annual Report 2017‬‬

Annual Report 2017 19
 Electric Power
Generation
Annual Report 2017

20 Annual Report 2017

Annual Report 2017 21
Electric Power
Generation Activity

Electric power generation is considered the company’s The generation activity’s plans focus on the operation and maintenance of the power plants,
and reinforcing their capacities to meet the growing demand for electricity. In this respect,
principal activity. Its mission is to provide sufficient power in 2017, the generation activity accomplished many notable achievements, including added
and power generating capacity using highly reliable and capacities of 3,269 MW, a 6% increase in total capacities available at the end of 2016.

high readiness production techniques to meet the growing The added capacities are distributed as follows (These capabilities have not been
demand for electricity. The company achieves this with commercially operational yet):

optimum use of resources and investing all capabilities

The Central sector:
towards reaching its main purpose, which is to reduce the •• 2 steam generation units in Power Plant 10 (115 MW capacity each), with a total added
cost of electricity production. capacity of 230 MW.
•• 2 steam generation units at Qassim Power Plant (129 MW capacity each), with a total

The transmitted power from generation stations is regarded as added capacity of 258 MW.

the main source of revenue from sales of electricity, equal to The Southern sector:
56% of the total of electricity power according to the operating •• 4 steam units in Al-Shuqaiq plant (660 MW capacity each) with a total added capacity of

method of the Saudi Electricity Company during 2017. 2,640 MW.

22 Annual Report 2017

 2.5% The total available
Increase in the amount of generation capacity
electric power produced of the generating
from the planned quantities stations reached

79,070
Gigawatts

Saving 12 million barrels of

oil equivalent and 31 million
Improving the efficiency
barrels of diesel fuel
of the generating
stations to 36.8%

Power Produced From Company Plants By Unit Type (Gigawatts) Generation Projects Completed During 2017:

206,045 The Central sector:

204,597
2016 2017
Connecting two steam generation units in Power Plant 10 project (the steam part), with a
total capacity of 230.2 MW.
84,975
95,367

Connecting two steam generation units from the Qassim conversion project to the
combined-cycle with a total capacity of 258 MW.
70,214
54,022

50,602
54,959

Operation of the wind energy project in Huraymila with a total capacity of 3 MW.

The Western sector:

Link a gas unit from building the Green Duba plant project with a total capacity of 141 MW.
254
249

The Southern sector:

Connect four steam generation units to Al-Shuqaiq steam project with a total capacity of
Combined
Steam

Diesel

Total

2,640 MW.
Gas

Annual Report 2017 23

 National Grid SA
• Additional overhead and underground cable
networks measuring about 8,426 km-circular
• 65 new transmission stations

24 Annual Report 2017

Annual Report 2017 25
The National Grid SA
This is a company wholly-owned by the Saudi Electricity Company. It was established Following is a review of the most significant achievements of the National Grid SA:
on 1/1/2012, with a structure that includes six main activities: operations and control, Transmission Networks:
maintenance, planning, engineering, projects, and technical services, in addition to two Added overhead networks and ground cables to the existing networks, measuring about
central departments. 8,426 km-circular, which represent 11.9% of the existing networks by the end of 2017, and
these are as follows:
Responsibilities of the National Grid SA: • Ultra-High Voltage 230/380 KV: adding 5,640.73 km-circular, of which 110.44 km-circular
The company is responsible for operating and maintaining the electrical grid of 110/380 KV, are underground cable networks and 5,530.29 km-circular are overhead networks.
continuing its reliability and stability to ensure transmission of electric power to load centers • High Voltage 132 KV: adding 1,609.46 km-circular, of which 355.62 km-circular are
across the Kingdom, and to enhance the electric grid with transmission substations and underground cable networks and 1,253.84 km-circular are overhead networks.
high voltage cable networks through different stages, including the operations of planning, • High Voltage 115 KV: adding 216.88 km-circular, of which 80.67 km-circular are
designing, implementing projects, and ensuring the development of programs and operations underground cable networks and 136.21 km-circular are overhead networks.
in different sectors. • High Voltage 110 KV: adding 958.77 km-circular, of which 145.57 km-circular are
underground cable networks and 813.2 km-circular are overhead networks.
The company’s mission is to run the electrical system, transmit electrical power from its
production sites to consumption centers, study the expected loads, develop plans to enhance Transmission Substations:
the electrical system to meet the expected demand, communicate with major customers and • Established 65 new transmission substations with 243 new transformers with a total
determine their needs and the best way to supply them with electricity. The company also capacity of 41,541 MVA.
cooperates with independent producers to sign purchase and energy exchange agreements • Enhanced 12 substations by adding 22 transformers with a net capacity of 4,671 MVA and
and to represent SEC as a prime buyer of independent producers. replacing 4 transformers with a total capacity of 80 MVA.
• Added 3,827 interrupters to the grid, of which 481 interrupters of voltage 230 KV or more
The plans and objectives of the company are dedicated to promoting the electricity supply, and 3,346 interrupters of voltage 132 KV and below.
reducing costs, and completing the national electric network. Based on these plans, • Enhanced existing substations with capacitors.
throughout 2017, the company accomplished several new projects as well as enhanced
ongoing projects aimed at improving and developing the transmission networks, as well as
increasing their efficiency.

26 Annual Report 2017

 Growth of the electric
power transmission 12%
network by 12%
Growth of the number of

9.5%
9.5%
transformers by

Growth of the number of

transmission stations by 7.4%

7.4%
Electric Power Transmission Network: Growth of the transformers’
14.9%
• The lengths of the transmission network reached 78,733 km-circular. capacity by 14.9%
• The addition of 5,640.73 km-circular of ultra-high voltage networks of 230/380 KV
•
The addition of 1,609.46 km-circular of high voltage networks of 132 KV.
•
The addition of 216.88 km-circular of high voltage networks of 115 KV.
•
• The addition of 958.77 km-circular of high voltage networks of 110 KV.
Transmission and Transformers Stations:
• The addition of 359 circuit breakers of voltage 230 KV or more.
• • The number of stations reached 942 stations.
The addition of 3,107 circuit breakers of voltage 132 KV and below.
• The addition of 65 transmission substations to the service.
• The enhancement of 12 existing substations.
• The capacity of transmission transformers reached 356.183 MVA.

Annual Report 2017 27

 Dawiyat Company
Massive Fiber Optic Network

28 Annual Report 2017

Annual Report 2017 29
Dawiyat Company
The company’s plans are to open channels of communication and understanding with several
ministries to provide telecommunications services, and the mutual marketing of services to
the business and individuals. Among the projects that have been accomplished to achieve this
are the following:
Dawiyat Company, wholly-owned by SEC, pursuant to the decision of the Board of Directors of • In the framework of an agreement with the Ministry of Communications and Information
Saudi Electricity Company No. 2/86/2009 on 08/05/1430 AH corresponding to 03/05/2009, Technology (MCIT), the company started implementing the broadband fiber optic
approving the establishment of a limited liability company. On 23/06/1430 AH corresponding to broadband initiative project. The project started and 80,000 homes were connected at the
16/06/2009, Dawiyat company has been established. Its structure includes technical activity, time of writing this report.
business activity, strategic planning and business development. • As per the requirements of the broadband deployment agreement signed with the
Ministry of Communications and Information Technology (MCIT), Dawiyat-2 company has
The tasks of Dawiyat Company: been established (Integrated Dawiyat-2 company for telecommunication and Information
Construction, rental, management and operation of the huge fiber optic networks owned by the Technology ) and is expected to be granted a license to provide data and fixed telephone
Saudi Electricity Company, which has a length of more than 67 thousand kilometers to provide services by the CITC to conduct its activities soon, and it will be capable to serve the last
telecommunications service, and provide data transmission services and the establishment of beneficiary as individuals or institutions where it will be able to provide ICT services
international portals and the passage of communications in their forms, according to licenses including data and fixed communications.
issued by the competent authorities. The company, in order to achieve its purposes, has to carry • Zain’s optical fiber rental was leased and more sites linked to the Zain network were
out all work related to its activities such as selling, buying, leasing of fixed and movable assets, connected.
including different communication networks of all kinds. • Signing a memorandum of understanding with the National Housing Company under
the auspices of the Ministry of Housing to provide telecommunications services for the
In order to achieve the Company’s objectives and to optimize the surplus assets and fiber Ministry’s projects.
optic networks and communications of the Saudi Electricity Company to contribute to the • Signing a commercial agreement with Atheeb to provide telecommunication services.
technical progress and the strengthening of the society and the knowledge economy, which • Signing several memorandums of understanding with telecommunications service
will necessarily increase the profitability of the shareholders of the Saudi Electricity Company, providers such as STC and Etihad Etisalat Mobily to exchange services and benefits.
a license to lease telecommunication facilities was obtained in 2016. Agreement on the • Signing a commercial agreement with the Mobile Telecommunications Company (Zain
deployment of fiber optic broadband was signed with the Ministry of Communications and Saudi Arabia) for the latter to lease and market the broadband network from the company
Information Technology (MCIT) in 2017, and more than 25% of the initiative was implemented. and provide the service to the last beneficiary.

30 Annual Report 2017

• The company has prepared the Reference Document for the Provision of Telecommunications and Information Technology Services to other telecom operators in the Kingdom at the
request of the Telecommunications Regulatory Authority.
• The company is currently building one of the largest information centers in the region at KAUST in Thul, where the facility is being built and equipped according to the latest international
standards to serve research centers and operators and provide content locally, regionally and globally.
• The company is working to expand regional and international access by connecting with the networks of telecommunications service providers in the neighboring countries where the
connection with the telecommunications service provider in the Hashemite Kingdom of Jordan has been completed and work is underway to connect with a number of service providers in
other countries.

Delivering electricity services

to 63,000 homes within
Extending 10,016 3 months.
km-circular of fibre lines.

Signing an agreement with the

Ministry of Communications and
Information Technology for fiber optic
delivery to 745 thousand homes.
Total length of fiber mesh
67,838 km-circular.
Annual Report 2017 31
 Saudi Company for
Energy Procurement
Principal Buyer

32 Annual Report 2017

Annual Report 2017 33
 Saudi Company for Energy
Procurement
Is a wholly-owned subsidiary of the Saudi Electricity Company and has
started its operations by obtaining the main buyer’s license from the
Electricity and Cogeneration Regulatory Authority under the Memorandum
of Association No. (1010608947) dated 31/5/2017 effective 6/7/2017.
The company has three organizational units: the trading sector, the
independent production and renewable energy sector, the fuel supply and
agreement sector, as well as the central administrations.

34 Annual Report 2017

The Saudi Company for Energy Procurement’s mission: Authorized Activities:

Building the capacity and trading of power, development • Introducing projects to generate electricity, purchase electricity and capacity.
• Entry into power purchase agreements and/or power conversion and/or
and establishment of new partnerships, renewable energy continuous sales.
projects, independent production and monitoring of their • Sale of bulk electricity to retail licensees or to major consumers for their own use.

implementation, the management of trade agreements for • Import and export of electrical energy to and from people outside the Kingdom.
• Access to base fuel and spare fuel for supply to licensees.
the sale and purchase of energy, the provision of fuel and • Providing information to the transport licensee.
the efficiency of its use, and the participation of regulators in • To play any role with respect to any balancing fund.

establishing and developing the electric power market. • Receipt of payments made by the licensee for services provided by the electrical
system.
• Purchasing the ancillary services necessary for maintaining stability of the
electrical system related to generation licensees.
• Acting as a counterparty in terms of successor over energy purchase agreements,
energy transfer agreements and ongoing sales agreements.
• Assist in the development of a market or markets for the trade of electricity and/or
system services in the Kingdom.

Annual Report 2017 35

 Distribution and
Customer Services
Activity
492 Thousand New Customers

36 Annual Report 2017

Annual Report 2017 37
Distribution and Customer
Services Activity

The main activity is to receive and distribute energy from transmission networks and to provide customers with reliable
electrical service, while improving the level of services provided to them. The activity generates and distributes electricity
consumption bills to customers and carries out its annual plans and programs to provide high quality services through the
use latest technology and easy access to the service.

The plans of the activity include a number of pillars, objectives and performance standards, including: raising the rates of delivery of electricity services to new customers in cities, villages
and communities, and continuous improvement of distribution networks to ensure their performance at the desired level, raising energy efficiency and facilitating the procedures of delivery
and simplification of electricity services, technologies, employee skills development in calculating customer consumption and billing reading, and continuous attention to raising the efficiency
and performance of frontline employees.

Distribution and Customer Services achieved a number of accomplishments during 2017, the most important of which are the following:
•• Adding new distribution transformers for 69 KV and below with 28,478 transformers, increasing by 5.9% of the total distribution transformers at the end of 2016, with a total capacity of
17,256 MVA, representing 7.2% of the total capacity at the end of 2016.
•• Addition of overhead networks and underground cables for 69 KV and below, with a length of 37,014 km-circular, and an increase of 6.4% of the total networks at the end of 2016.
•• The delivery of electrical service to 491,895 new customers.
•• Delivery of electricity to 41 new residential communities.

38 Annual Report 2017

 Delivery of electricity
services to 491,895 The number of customers reached 9,049,712.
new customers.

Delivering electricity
services to41 villages
and communities.

Distribution Network:

• The number of distribution transformers is 511,210.

• The capacity of distribution transformers is 254,300 MVA.
• Lengths of transmission networks and customer connections reached 615,307 km-circular.
• Adding 28,478 distribution transformers for 69 KV and below.
• The number of distribution transformers grew by 5.9%.
Delivering electricity services to
•
9,000,000
Transformers capacity growth of 7.2%.
th customer on
• Adding 37,014 km-circular of overhead networks and ground cables.
December 2nd, 2017.
• Distribution network growth of 6.4%.

The number of cities, Total of sold power reached

Distribution of Customers

The Eastern The Central The Western The Southern

villages and communities
with electricity services
288,656,430 MW.
Total
13,112.
Sector Sector Sector Sector reached
1,622,515 2,918,041 3,212,644 1,296,512 9,049,712

Annual Report 2017 39

 Financial Activity
Annual Report 2017

40 Annual Report 2017

Annual Report 2017 41
 Financial Activity
The Credit Rating
The company continues to receive investment grade credit ratings from international credit rating agencies, and has
maintained high credit ratings, evaluated by Standard & Poor’s (S&P), Fitch Group and Moody’s as (A-, A, A2) respectively.

The company’s rating by Standard & Poor’s is the same as the sovereign credit rating of the Kingdom of Saudi Arabia.
This indicates the soundness of the company’s strategic orientations, the success of its administrative and operational
policies and the management of its business – supported by the government – which have contributed to these ratings.
The company continues to implement its fiscal policy aimed at strengthening its financial position, working to manage
cash flows and providing what is needed for project disbursements and funding commitments from various domestic
and international sources.

42 Annual Report 2017

Highlights of the Company's Financial Achievements During the Year 2017: 2017. The full amount of instruments and royalties was transferred and deposited in the
accounts of the bearer of Sukuk on April 3, 2017, and the registration and incorporation of
1. The adoption of updated accounting policies for the purpose of preparing financial those instruments has been cancelled accordingly.
statements in accordance with International Financial Reporting Standards (IFRS). 8. The Saudi Electricity Company announced in the Saudi Stock Exchange (Tadawul) the
2. At the direction of the professional competent authorities aimed at meeting and achieving results of the special meeting of the Assembly of the Saudi Electricity Sukuk 3 worth
the objectives of the Kingdom’s Vision 2030, the 3,096,175,320 government-owned shares, SR 7 billion and ending in 2030, which was held on Wednesday evening of 07/08/1438
representing 74.31% of the company’s total capital, were listed in the portfolio of the Public AH, corresponding to 03/05/2017, in the company’s headquarters in Riyadh. After the
Investment Fund in the Securities Depository Center Company, on Sunday 26/12/1438 AH required quorum (97.5% attendance), the results of the votes on the Assembly’s agenda
corresponding to 17/09/2017. were as follows:
3. On Monday, 27/02/2017, the company received a letter from the Electricity & Cogeneration 9. In accordance with the Assembly’s decision, on May 10, 2017, the company purchased SR
Regulatory Authority issued on 27/02/2017, based on the Royal decree to cancel the 1,269 million worth of the total par value of the Sukuk (representing 18.13% of the total
electricity charge of 2% of the consumption value for the benefit of municipalities, as par value of the Sukuk as of May 3, 2017). The new purchase date was added also for May
well as to exempt the company from paying the actual amounts due to draw electricity 2022 for the remainder of the Sukuk, and extended for the second purchase date to May
from the value of consumption in favor of the municipalities. This Royal decree will 2024 and extended for the third purchase date to May 2026.
abolish the balance due to municipalities until the end of 2016 by reducing the current 10. A new profit margin of 1.35% has been applied to calculate the remaining periodic
requirements in the financial position list and to recognize it as non-recurrent income in distribution amounts for Sukuk that will not be purchased on May 10, 2017.
the comprehensive income list for the current financial year 2017 for SR 6.1 billion, and 11. The partial purchase of the third Sukuk release listed on the Saudi Stock Exchange
will reduce operational expenses by 2% of the value of depreciation per annum. (Tadawul) by the holders of Sukuk who wish to purchase their Sukuk by the company
4. The company signed a five-year joint international financing agreement ending on on the date of the first purchase, May 10, 2017. The number of Sukuk purchased by the
16/08/2022, with a value of US$ 1.75 billion (SR 6.56 billion), to be paid in a lump sum and company amounted to 126,931, with a par value of SR 10,000 per one Sukuk and a total
financed by several leading international banks. par value of SR 1,269 million, representing 18.13% of the total par value of the Sukuk at
5. Several long-term bilateral loan agreements were signed in 2017 from several local banks the date of issuance and worth SR 7 billion. The circulation of those purchased Sukuk has
with a total value of SR 6.3 billion. been discontinued and has been cancelled accordingly, thus making the total existing par
6. The amendment of the mutual local Murabaha financing agreement from several local value for release SR 5,730 million. The purchase price was deposited in the respective
banks signed on 19/09/2016 for seven years, where the loan value was increased from SR Sukuk campaign accounts on May 10, 2017.
5 billion to SR 8 billion.
7. The payment of the full value of the first tranche of global Islamic sukuk (500 million US
dollars), issued on April 4, 2012 and listed on the London Stock Exchange due on April 3,

Annual Report 2017 43

 Human Resources
Activity
Wealth of the Nation

44 Annual Report 2017

Annual Report 2017 45
Human Resources Activity
The company considers human resources crucial to bringing about the company’s desired growth and in upgrading its
production efficiency. Hence, it adopted specialized programs to select and upgrade staff’s competencies, as well as mapping
out their career paths, including improving and ensuring their technical competencies to take on all positions in the company.
To support these continuing efforts to develop human resources and to enhance staff’s competencies in order to achieve
greater performance efficiency, in 2017, 1,285 graduates of the training institutes were welcomed by the company, and (59)
university graduates were employed and enrolled in the professional development program (Taheel).

Consequently, in the jobs localization field, the company has attained a leading position among of 572 leading employees to design suitable and effective development plans based on
the companies operational in the Kingdom. By the end of 2017, local labor reached 91% of the their scores, and in this context, the application of total quality programs continued and the
36,432 employees in total. In the field of training and developing the skills and capabilities of number of groups formed during the year reached 321.
human resources staff, in 2017, the company implemented programs, which included staff
enrollment in internal and external courses. The total number of participants in these short In the area of creativity and recognition of the employees, 3,177 proposals were presented
developmental courses reached 50,394. Furthermore, various training programs continued during the year, and within the program of staff’s excellence, 2,302 employees received the
through the online self-education application “I-Learn.” By the end of 2017, the number of ‘Employee of Month’ award, and 310 employees received the ‘Employee of the Year’ award.
participants in these programs reached 5,660, which benefited 2,673 employees. Through the students’ summer training program, 556 students completed their summer
training in the company, and 1,439 students completed the cooperative training program.
In the Executive Leadership Development Center, the number of participants in the promising
leaders program (Targeted Talent) reached 123 employees. This program aims at preparing
employees who have exceptional leadership skills so that they may fill leading positions
within the company in the future. In addition, assessments were held with the participation

46 Annual Report 2017

 The number of employees in the
company reached 36,432.
59 university graduates were
employed and enrolled in the The localization percentage
professional development program.
increased to 91%.
34,904 employees 321 established
participated in the short improvement teams succeeded
developmental courses. in saving more than 80
million riyals.

21 students from the company 2,141 total of

earned their Master’s degree. on-the-job trainees by
the end of the year.

1,295 graduates of the 3,478 proposals presented by

Development of the Company’s Localization Percentage

100 company’s institutes are the employees under the program of

95
enrolled in the on-the-job staff’s excellence resulted in savings
training.
394 million riyals.
91.1
90
87.5 87.5 86.6 86.9
88.9
90.0
of
85.1
84.9 86.3
85 83.2 82.9
82.3
80.9
79.4
80 78.0
75.2
75 73.2

70

65

2000 2001 2002 2003 2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Annual Report 2017 47

 Investment
in Electricity
Generating Projects
Saving 200 Million Barrels of Oil Equivalent
per year by 2030

48 Annual Report 2017

Annual Report 2017 49
Program for Private Sector Participation
in Electricity Generating Projects

To keep pace with the economic developments in the Kingdom, which requires the provision of huge electric power, it was
necessary for the company to create a large number of power generating plants through direct investments by the company
itself and through participation of investments coming from the private sector as part of the company’s “Program for Private
Sector Participation in Electricity Projects” under the Independent Power Project (IPP), which was approved in 2007.

To support the program, the company signed contracts with international consulting firms There are projects for independent production under development and implementation
that have proven experience and knowledge in the technical, legal, and financial fields that as follows:
are related to the independent electric power production projects, with estimated investments • Rabigh-2 Plant Project in Makkah area with a capacity of 2,060 MW using the combined
in these projects amounting to more than SR 33 billion. Two projects were successfully natural gas cycle system. The company signed agreements with Aqua Power and Samsung
implemented: Rabigh-1 in Mecca with a capacity of 1,204 MW and Riyadh Project 11 in
and signed the energy purchase agreement by the end of 2013. The project will enter
Dharma, Riyadh, with a capacity of 1,729 MW that entered into commercial operation in 2013
commercial operation In the first quarter of 2018.
and Qurayyah project for independent production in the Eastern Province with a capacity of 3,927
• Saudi Electricity Company has also entered into a cogeneration partnership with Saudi
MW. It is considered the largest power plant for independent production in the world, having
Aramco to develop Al-Fadhili plant for double production (electricity and steam) with a
a combined-cycle system run by natural gas. The contracts were signed on 21/9/2011 and
entered commercial operation in 2016. capacity of 1,504 MW in 2017. The commercial operation of the plant will start in December
2019. God willing.

Investments of more than 33 billion riyals

50 Annual Report 2017

The following table shows the under construction and planned projects of the Program for Private Sector Participation in the Electricity Production (IPP):

Private Sector Investment in

Project Name Production Capacity (MW) Date of Completion
the Project’s Capital

Rabigh-2 Plant Project for independent production (project under construction) 2,060 50% 03/2018

Al-Fadhili Plant Project for dual production in cooperation with Saudi Aramco (project under
1504 40 % 12/2019
construction)

Jazan Plant Project for dual production in cooperation with Saudi Aramco, and the company will
3,800 - Under development
be the buyer of the power (projected)

Annual Report 2017 51

 Shareholders
Diligently Serving You

52 Annual Report 2017

Annual Report 2017 53
Shareholders
The company is committed to the rules and regulations of the Complying with the principles of
Capital Market Authority and has complied with the principles disclosure and transparency
of disclosure and transparency provided in Article (43) of
the listing and registration rules and Corporate Governance
Regulation issued by the Capital Market Authority. The company
Fulfilling the aspirations of
has worked to fulfill the aspirations of the shareholders, the shareholders
to promote their rights, and to facilitate their access to
information. It also attaches great importance to enhancing the
disclosure quality of financial statements and to the important
developments and essential changes, with a focus on timely Facilitating access to information
delivery to shareholders.

The company has made continuous efforts to enhance its effective ways of communication with
its shareholders and to motivate them to deposit their stock certificates in investment portfolios,
thus facilitating smooth profit deposits into their accounts, which are linked to their portfolios in
Enhancing the quality of disclosures
different banks during the first day of dividend disbursement. The company is keen on effectively
communicating with the concerned authorities of the Capital Market and to exchange relevant
information with the company’s investors and financial and investment institutions.

54 Annual Report 2017

Structure of the Company’s Share Capital:

Shareholders Number of Shares Ownership %

Public Investment Fund 3,096,175,320 74,31%

Saudi Arabian Oil Company (“Saudi Aramco”) 288,630,420 6,93%

Other Shareholders 781,788,075 18,76%

Total 4,166,593,815 100%

Performance of the Company’s Share:

The company’s share closed at the rate of SR 21.04 at the end of December, compared with SR 22.57 at the beginning of 2017, down by 7.27%.

Index 2016 2017 Percentage %

Quantity of traded shares 545,495,145 444,017,114 22.85%

Value of traded shares 9,974,128,676.30 10,320,382,030.81 3.35%

Number of transactions 174,406 212,242 17.82%

Closing price of share 22.57 21.04 7.27%

Annual Report 2017 55

 Innovation, Research
and Development
Technical Empowerment Arm of the Company

56 Annual Report 2017

Annual Report 2017 57
 Innovation, Research
and Development
The innovation, research and development sector seeks to generate multiple
benefits in the company’s key activities and to bring added value to the
company’s services. It strives to localize, build and develop the national cadres
and the scientific competencies through cooperation with universities and to
have these cadres become specialized in research and development for the
benefit of the company, as well as the use of international bodies and experts
to stay current with the latest developments and global experiences and their
localization. Among other things, the company aims to:

58 Annual Report 2017

In the area of generation: The stability and reliability of the electrical system, improving the electrical voltage, the
Improving the efficiency of fuel use, extending the useful life of assets and spare parts, treatment of the non-active capabilities and the modern techniques to control power,
developing the production capabilities of these assets, preserving the environment, and the quality of electrical power, solving the operational problems and improving turbine
supporting renewable energy. performance, optimizing software maintenance of turbine hot track components, automation
of the distribution network, optimizing the performance of cables, electrical transformers,

In the area of transmission: transmission and distribution lines, power-passing and selling services, load management
and control, grounding development in the stations, development of testing of gas-
Extending the useful life of the existing assets, increasing and improving the performance
insulated partitions, waste in the distribution networks, fuel and its properties, impact of
capabilities of these assets, optimizing the assets’ maintenance programs, increasing the
electromagnetic fields on humans and their measurement at the proximity with energy
reliability and stability of the electrical system, renewable energy integration with the electric
sources, and their compatibility with global standards, renewable energy, especially wind
network and its impact on the stability and reliability of the network and the advanced solutions
power, and the environmental impact of generating stations.
to achieve these goals.

In the area of distribution: 3 Engineering Scientific Chairs worth SR 15 million

Optimizing the efficiency of the assets, developing the billing and collection operations,
reducing the electrical waste and achieving the optimal rate according to international scientific
standards, improving the quality of the electrical service, developing control and monitoring of This phase also included the establishment of three scientific engineering chairs in three Saudi
the distribution network and adopting the use of smart meters and intelligent networks. Arabian universities for the amount of SR 15 million (SR 5 million per chair) carried out by scientific
institutions in the Kingdom in cooperation with the company. These are:
In the area of electrical loads:
Optimizing energy use, increasing the efficiency of energy use, improving the anticipation of •• Chair in “Load Management and Raising the Efficiency of Electrical Energy Use in the
Kingdom” and implemented by King Abdulaziz University (KAU).
the loads’ growth, developing and encouraging the various programs to achieve the optimum
•• Chair in “The Reliability and Security of the Electrical System” with King Saud University (KSU).
utilization of the existing assets, such as the programs for the: demand-side management,
•• Chair in “Electrical Protection and Control” with King Fahd University of Petroleum and
transfer of loads, generation distribution, etc.‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬
Minerals (KFUPM).

Research and Development Stages in the Company:

Phase II: Programs under implementation:
Phase I: Implemented Programs:
This phase began in the early part of the second half of 2012, and one of its most important
This phase began after the establishment of the company, specifically in April 2002, and the
features is the establishment of a special research and development department in the
number of research projects carried out up to the year 2012 was approximately 42 projects company. During this phase, 47 proposals for research projects required by the company’s
with a cost of more than SR 60 million. These projects included the following: stakeholders were examined, of which 10 were selected for signature and are currently
being implemented, as follows:

Annual Report 2017 59

 Phase III: Accompanying the Accelerated Strategic Transformation Programs:
Amount Research
Project name This phase started through incorporating research and development as one of the accelerated
(Saudi Riyals) Organization
strategic transformation initiatives. One of the most important characteristics of this phase is
Choice between best voltage and technology for
to develop a strategy that addresses the critical role of research and development in solving
the expansion of electrical transmission networks King Fahd
1 3,688,680.00 problems and technical barriers that prevent the company from achieving its goals at all levels.
(feasibility study for comparison between 765 KV University
and 380 KV or the constant current) Research will also play a key role in the technical enabling of the ambitious strategic plan of the
company. To achieve this strategy, work began on the establishment of centers of excellence
Evaluation of the technical and economic impacts
King Fahd in the areas needed by the company, providing these centers with the needed qualified human
2 of industrial iron furnaces on the electrical system 1,614,572.00
University resources, equipment and financial capabilities, fostering strategic relations with national
and solutions to mitigate them.
Assessment of the reliability of electricity supply universities, and linking these centers with global research organizations.
in five major cities in the Kingdom and the King Saud
3 1,152,941.00
recommended technical and economic options to University Research Centers of Excellence:
promote this Three research centers of excellence were established and work has started on three other
The impact of industrial loads on the distribution King Saud centers during 2016, and these are as follows:
4 1,576,471.00
network. University
King Saud 1- The Digital Simulation of the Electrical Network at Dhahran Techno-Valley:
5 Non-tripping of long overhead fallen line feeder 1,647,059.00
University The center represents an upward move towards setting the network’s special studies in the
Check cables, equipment and the causes of King Saud field of planning, operation and protection. The center will contribute to the development
6 1,764,705.88
malfunctions University of the company’s employees and university students in the electrical engineering field and
King Fahd research network. The center has a factory that contains 44 racks of digital processors,
7 Failure of power transformer due to corrosive sulfur 2,159,620.00 which makes it one of the largest simulation factories of an electric network in the world.
University
King Fahd The center includes simulation devices to control dynamic compensators and systems of
8 Infrastructure for advanced metering devices 1,054,591.00 continuous stream of power.
University
Effect of partial loading of units on hot parts and King Saud
9 835,294 2- Smart Grid Center at King Abdulaziz City for Science and Technology:
on the harmful emissions on the environment University
The Smart Grid Center was established by agreement between the Saudi Electricity Company
Effect of high temperatures in the Kingdom on the King Fahd
10 1,194,194.00 and King Abdulaziz City for Science and Technology, and it is funded equally between the two
performance of electronic meters University
sides. The most important advantage of this center is that it is synchronous with the company’s
Total 16,688,127.88
projects, in particular changing traditional meters to smart meters and transforming the
distribution network into an advanced, intelligent network that can be monitored and controlled
This phase also included the effort to register clean energy projects with the United Nations on
easily. It is hoped that this center will technically assist these projects. As well, and under the
the basis that the Saudi Electricity Company had 51% of the CES company for carbon emission
umbrella of this center, pilot projects for installing solar panels on schools and mosques with
activities and services, and this effort is being implemented.
smart grids are being developed and the possibility of their expansion is being studied. An
economic feasibility study is being prepared for the localization of some industries such as the

60 Annual Report 2017

manufacturing of Static VAR Compensators (SVC) after implementing them in remote villages It is currently embracing 12 innovative projects to address some of the technical and
to improve voltage. commercial challenges facing the company and three prototypes were manufactured from
innovations in cooperation with the French company EDF. In addition, the Saudi Electricity
3- The Center of Excellence for Fuel Research at King Abdullah University of Science and Company has given special attention to supporting national programs, where it gave the Badir
Technology in Thuwal: Program for Technology Incubators an integrated technical-based headquarters within the
A memorandum of understanding for research cooperation and establishment of the Center premises of the company in Dammam, and is large enough to encompass 100 entrepreneurs’
of Excellence with King Abdullah University of Science and Technology has been signed, and offices.
two fuel research projects are being awarded with the University in values exceeding US$2
million. This Center of Excellence is set to improve the efficiency of fuel combustion, improving Scientific Cooperation with Universities and Research Institutes in the Kingdom:
its characteristics, reducing environmental pollution and reducing the impact of fuel on the The company relies heavily on local universities and research institutes to localize specialized
components of the turbines hot tracks and increasing the life and efficiency of these ingredients research and engineering studies, and to minimize the need for foreigners as much as possible.
and improving their maintenance. Thus, and as a part of the strategic transformation programs, it continued consolidating its
strategic and sustainable relationship with universities to integrate the scientific and practical
4- Renewable Energy Center: aspects of learning in its work and thus achieve the national interest of the nation. Some of the
It was agreed with King Saud University to proceed with the solar concentration project to heat most important bodies with which cooperation is starting to take a practical approach are King
the sand and produce electricity as the pilot project and the heating tower has been built and Abdulaziz City for Science and Technology, King Saud University, King Abdulaziz University, King
the reflective mirrors has been installed. The turbine and heat exchanger manufacture is being Fahd University of Petroleum and Minerals, and King Abdullah Petroleum Studies and Research
completed and will be followed by the project expansion phase of about 10 MW to serve remote Center. The company will continue working to establish relationships with other bodies as well.
areas, which are served currently by transporting diesel fuel which is costly and polluting
the environment. Work is currently underway on the requirements of a research project International Scientific Cooperation:
through which geothermal energy is utilized for the purpose of air conditioning and electricity This cooperation is designed to access the latest global developments in electricity research,
generation. to put the company into the ranks of global power companies. In this regard, the following has
been achieved:
5- Center for Research on Energy Strategies and Regulations. •• Signing a membership agreement with the American Electric Power Research Institute (EPRI).
6- Center of Excellence for the Design and Selection of Overhead Lines. •• Signing a memorandum of understanding with Électricité de France (EDF) to establish a
smart meters’ factory.
Innovation Incubator Center: •• Signing a memorandum of understanding with a group encompassing institutions
A specialized innovation incubator was established and named “Innovation Incubator Center” specialized in electrical network simulation, most important of which are: the University of
backed by specialized administrative and technical staff, and overseen by a Steering Committee Manitoba, Manitoba Hydro, the RTDS factory, and some consultants to support the operation
for innovation, research and development tasked with drawing general strategies for innovation of the Simulation Center.
in the company to ensure that innovation is a major supporter of its strategic plan. Work is •• Coordination is underway for the signing of a memorandum of understanding with the
currently underway with the General Authority for Small and Medium Enterprises to have the Tokyo Electric Power Company and to cooperate with ELSEVIER for scientific publishing.
Incubator licensed as a specialized licensed Incubator in electrical energy. The company has
identified five areas to guide its innovations: Smart uses, energy efficiency, renewable energy,
reliability and system security, and safety and environment.
Annual Report 2017 61
 Electricity Industries
Localization
Increase Local Content and Localize Industries

62 Annual Report 2017

Annual Report 2017 63
Electricity Industries
The motivation equation will become as follows:
Price Differentiation = Bid Price (1 – Local Preference Ratio)

Localization
Local Preference Ratio = Local Factory Content Ratio x Ratio of Product Importance to the
Company

Third Initiative: Identifying Localization Opportunities for Materials Industries:

• Identify localization opportunities in materials industries and required spare parts, and
The company adopted a strategy to localize the electricity industries, which aims to increase attract investors and international companies to establish local factories.
local content and to localize industry, as well as to create added value for our national • Strengthen coordination and communication with government agencies, large companies
economy. The strategy includes three key initiatives: in the Kingdom, and the shared committees between the Kingdom and other pertinent
countries to localize the industry.
First Initiative: Set Policies and Mechanisms to Motivate the Contractors: • Support investors who wish to open factories for spare parts and materials that are not
Evaluate the offered and accepted proposals based on a motivational formula centred on the available locally.
following criteria: • Transparency, clarity and having the necessary information on investment opportunities
• The bid price (85 points), the percentage of labour localization (5 points), the percentage in manufacturing materials and spare parts are the biggest catalysts for every investor
of locally manufactured materials (10 points). who wants to invest in the electricity industries.

• Bid price + labour localization points + points for using locally manufactured products =
The company published a booklet – unique among local companies – dealing with
Total points.
“Investment Opportunities in the Materials and Spare Parts Industry”, which included
• The winning bid is the one with the highest points.
85 opportunities worth 52 billion Riyals over the next five years. It is available on the
company’s website.
Second Initiative: Set Policies and Mechanisms to Motivate Local Factories:
First stage: National products are given the priority over purchasing from foreign
The company aims to increase the number of local factories and to provide a local supply
counterparts by 10%.
base that helps us to increase the reliability of electric power and to create value added to
Second stage: Preference is given to local manufacturers according to the local content at
our economy, thus contributing to the introduction of industrial investment opportunities and
the factory. It is based on the following criteria:
initiating procedures for the establishment of some local factories, such as:
• Tender price.
• Local content at the plant.
• The importance of the product to the company.

64 Annual Report 2017

 With the efforts of the Saudi youth, we were able to localize the
Company Factory’s Specialty
manufacturing of some spare parts in the steam power plants, which
Bahra Cables Company Power transformers factory reduced the purchase prices by more than 60% in contrast to foreign
factories, as these spare parts were manufactured locally in the
Bahra Cables Company Electrical switches factory
company’s workshops, for example, at the Ghazlan Steam Station.
Al-Baeez Holding Company Overhead accessories factory This localizing helped the local factories in outperforming the foreign
factories in both price and import time.
Al-Khalifa Company Breakers factory

Hawaa Company Breakers factory The Saudi Electricity Company has signed also an agreement with the
Saudi National Maritime Transport Company to ship the materials and
Al-Fanar Company Pillar factory – Breakers
equipment used in electricity generation, transmission and distribution,
Founoun Overhead accessories factory as part of the localization of electrical industries’ strategy, and support
services maintained by the company, especially in the area of transport
Al-Tamimi Valves factory – Filters
and shipping, in order to support the added value of the Kingdom’s
economy and strengthen cooperation between national companies.
The contract includes the receipt, transfer, shipping of materials and
Save 2 billion Riyals a year equipment from various global factories and clearing customs ports

through the use of local aluminum in the Kingdom, besides moving them to delivery points on all Saudi
Electricity Company’s premises.

It also contributed to the increase in registration and rehabilitation of a number of local The company is exerting huge efforts to expand and strengthen the
factories, numbering upwards of 512 local factory. It also contributed to the localization localization of the industry sector in the Kingdom through cooperation
of raw materials industry by using aluminum cables instead of copper which is imported with government agencies and large corporations, for example, Saudi
from abroad, thus creating added value for the national economy through the use of local Aramco, SABIC, Saline Water Conversion Corporation, Ministry of
aluminum. With this strategy, the company was able to save SR 2 billion in yearly costs, and Defense and the Saudi Arabian General Investment Authority.
is expected to save SR 10 billion during the next five years due to the difference in price
between the two metals.

Annual Report 2017 65

 Preservation of
the Environment
• Environmental Compatibility
• Clean Energy
• Conservation of Natural Resources
• Awareness and Environmental Communication

66 Annual Report 2017

Annual Report 2017 67
Preservation of
the Environment
The Saudi Electricity Company (SEC) is the largest producer of electric power
Environmental Policy
in the Middle East. In spite of the significant challenges it is facing to meet the SEC recognizes the potential for its activities to impact up on the environment. We accept our

growing demand for electricity and the associated environmental effects at the
responsibility to minimize our impact on the environment and to comply with all applicable
environmental laws and regulations.
We understand that we have an obligation to prevent pollution, and to protect the environment and

local and regional levels, SEC is committed to reduce these effects as much as public health. this must be done in a manner that supports sustainable development and does not
compromise our obligation to provide for our customer's power needs.

possible and to comply with all environmental laws and regulations required to
in support of this we will work to continually improve our environmental performance. to achieve this we
will:
integrate environmental considerations into business and decision making processes.

reduce pollution, protect the environment and public health, while supporting recycling of resources and on waste minimization measures.
Promote clean energy and adopt best practical technologies and the most suitable options to minimlze

sustainable development without disrupting the company’s commitment to the adverse impacts on the environment which may result from SEC activities.

Monitor, measure, and assess the environmental pertormance of our facilities, processes, products, and services.

providing its customers with their energy needs.

Ensure that our employees are aware of, and engaged with, our environmental commitments and that
they have the necessary competency and equipment to operate in line with these obligations and
commitments.
Communicate our commitrnents to our contractors and suppliers, and work to ensure that they are
addressing these as part of their engagement with our organization.

The company’s environmental vision to “lead the way in protecting the

Educate, and engage with, our customers to increase their awareness of environmental issues and enable

Ensure that the necessary personnel, equipment, and procedures are in place to safely, promptly, and

environment at the level of the Kingdom” aligns with the Kingdom’s Vision 2030
and supports the government directives to diversify the national economy by
reducing the dependence on oil and preserving the environment. The company is
committed through its Accelerated Strategic Transformation Program to achieve
leadership in the field of environmental protection in the Kingdom of Saudi Arabia
through its environmental policy that addresses the diversification of clean
energy sources and the optimal use of resources, reusing, recycling, and waste www.se.com.sa
/ALKAHRABA /SEC_ALKAHRABA

reduction measures, as well as complying with all prevailing environmental laws

and regulations that contribute to the reduction of greenhouse gases.
The Saudi Electricity Company’s Environmental Policy

68 Annual Report 2017

Environmental Compatibility:
The company designed all of its projects to comply with the prevailing environmental
Saving of 15 million barrels of oil
regulations and standards, and to achieve compliance with environmental regulations and
legislations that contribute to improving the Kingdom’s environment. The company invests
Clean Energy:
huge sums to control and monitor emissions, such as using the Dry Low NOx (DLN) combustion
To enhance the reliance on clean electric power, the company has increased its production of
system, which reduces emissions of nitrogen oxide by up to 60%; the Electrostatic Precipitators
high-efficiency combined-cycle, which is based on the use of exhaust heat from gas turbine
in units operated by heavy fuel to reduce emissions of suspended residues by up to 99%; and
generating units as a thermal source for boilers instead of burning more fuel. The company’s
the modern technology to remove sulphur oxides from waste gases by using Seawater Flue
production from the combined-cycle increased from 8.3% in 2010 to 33% in 2017, while
Gas Desulfurization (FGD) to reduce the emission of air pollutant sulphur oxides by up to 90%,
the use of the simple-cycle decreased from 50% in 2010 to 29.4% in 2017. The amount of
the treatment of chemical wastewater to clean boilers, separating fuel residue from the water
total clean energy produced from the combined-cycle reached 8,721,976 MWH representing
tanks prior to sending it to the evaporation ponds; and controlling the degree of cooling water
approximately 4.3% of the total energy produced in 2017 and saving about 15 million barrels
drained into the sea, within the allowed limits. Also, few old generating units are replaced by
of oil and reducing carbon dioxide emissions equivalent of 7.3 million tons. The company is
more efficient units where 208 units were retired during the period from the year 2015 to 2017,
currently implementing projects to raise the generating capacities from the combined-cycle as
and 283 continuous monitors were installed and operated to monitor emissions from chimneys.
in the generation stations projects of Qassim, Duba, Hail, the 13th and 14th, and Waad Al Shamal.

In addition, the company monitors the level of compatibility with the prevailing environmental
The company also began to move towards the production of electricity from renewable energy
standards through the periodic inspection based on the company’s environmental inspection
sources such as solar power. The power plant at Farasan Island and the Al-Aflaj plant, and the
protocol that is compatible with ISO 19011: 2011, carried out by internationally accredited
thermal power plants projects integrated with solar energy as in Waad Al Shamal and Green
reviewers who identify cases of non-compliance with environmental requirements and the
Duba stations will generate 100 MW of solar energy. Since the announcement of the Kingdom
corrective actions and follow up their implementation.
of Saudi Arabia’s Vision 2030, the Saudi Electricity Company has been working closely with the
concerned authorities at the Ministry of Energy, Industry and Mineral resources to develop its
plans and initiatives geared toward implementing renewable energy projects with a capacity
of 9.5 gigawatts. In this context lies the Saudi Electricity Company’s two projects in Tayba and
Northern Qassim (under preparation and tender) to produce electricity by combined-cycle
methods merged with 360 MW of solar energy.

Selective Catalytic Seawater Flue Gas Electrostatic

Reduction (SCR) Desulfurization (FGD) Precipitator

Annual Report 2017 69

To benefit from the wind power resources of the Kingdom, the company implemented a project The Saudi Electricity Company also signed a partnership agreement with Petroleum
in the Huraymila region to produce 2,750 KW of wind power which will save 10,298 barrels of oil Chemicals & Mining Company PCMC (a subsidiary of Saudi Binladin Group) to establish the
per year and to reduce the CO2 emissions by 5,046 tons per year. The supply of clean energy to “Green Saudi Company for Carbon Services” which aims to develop and manage carbon
the company’s buildings started from the company’s building compound in the eastern District emissions reduction programs, clean development mechanism projects, and aid in the fight
of Dammam, which was fully supplied with solar power-generated electricity. against environmental pollution in accordance with international and regional protocols and
treaties, and domestic regulations in this regard.
The company is working toward building specialized national competencies in this area,
which can operate and manage these projects in the future, and to contribute in the selection
of the best techniques for solar energy projects during the construction of these projects,
where it sent a team of Saudi engineers and technicians from the company to conduct
modern technical and technological training in the United States of America and Europe in
preparation for the operation and management of solar power stations in the Kingdom.

Reduction in fuel consumption by 15% in 8 years

Conservation of Natural Resources:

The Saudi Electricity Company’s building in Dammam is fully powered by solar energy To reduce the consumption of natural resources, the company has taken many measures
to improve the efficiency of energy production, with fuel consumption decreasing from 2.01
barrels of oil/megawatt hour in 2009 to 1.71 barrels of oil/megawatt hour in 2017. The
company plans to increase the efficiency of energy production to 44.8% in 2030, which in
turn will contribute to the reduction in consumption, including the replacement of inefficient
generating units with a new generation of high-efficiency units, where 208 units were retired
from 2015 to 2017, and to complete the electricity interconnection project between the Kingdom
and the Arab Gulf states, which has contributed to the import and export of electric power
and decreased the revolving reserve in the network. The application of thermal insulation
imposed by the company in the new buildings also contributed to the reduction of waste in
energy consumption, as well as the application of programs to rationalize the electrical power
consumption at all of the company’s administrative locations through the use of technical
Farasan Island solar power project programs and modern technical solutions to control the operation of the service in the
company’s buildings like using timers and replacing the traditional light bulbs with LED bulbs.
70 Annual Report 2017
 Production of municipal waste reduced
by 30% over 5 years

Water consumption is also being checked at all of the company’s sites to ensure that it manages
its water consumption in terms of consumption measurement, installation of rationalization
methods, and reusing and recycling options for used water. Presently, the power plants treat and
reuse treated sanitary water in order to increase green areas. Power Plants 10 and 12 also use
treated sanitary water instead of non-renewable groundwater in electricity production. Programs
to reduce paper consumption and reduce the production of municipal waste from the company’s
facilities are also being implemented, with paper consumption decreasing from 533 sheets of The company understands the importance of cooperating with the community to support
paper per employee in 2011 to 287 sheets per employee in 2017, and with municipal waste their environmental programs and activities by: sponsoring important events such as the
production decreasing from 13,016 tons in 2012 to 8,674 tons in 2017. Gulf Environment Forum, which is supervised by the General Authority of Meteorology and
Environmental Protection; participating in environmental conferences through working
Transformer oils are recycled and the SF6 gas is withdrawn, stored and activated in order to papers; raising public awareness about the importance of maintaining the environment
reduce the waste of resources and reduce the production of hazardous waste. The company also and of rationing electricity consumption by printing guidelines on electricity bills and by
signed a memorandum of understanding with the municipality of Dammam for the production of distributing brochures and pamphlets via customer services offices; contributing to articles
electrical energy from waste rather than fossil fuels.
and publications in newspapers; giving lectures in schools; and participating in world
environmental events such as “Earth Hour” and “Earth Day.”
Environmental Awareness and Communication:
The company contributes to the dissemination and promotion of environmental awareness
among all employees, customers, contractors and suppliers. It enables its concerned employees
to attend qualification courses and obtain the highest international certificates in the field of
environmental protection, in addition to offering specialized courses and awareness-raising
programs in various environmental areas of the various activities and sectors of the company,
where 157 environmental courses and workshops were held during 2017, benefiting more than
2,200 employees.

On World Environment Day, the company celebrated this global occasion at all its major locations.
The celebration included submitting a number of working papers and hosting several prominent
environmental specialists and personalities in the Kingdom, along with the participation of private
companies at the accompanying exhibitions.
Annual Report 2017 71
 Corporate Social
Responsibility
We are Committed to Our Employees,
Customers, Partners and Society

72 Annual Report 2017

Annual Report 2017 73
Our Social Responsibility Coordinate with 27 organizations

3- Toward Our Partners and Customers:

Our responsibility for the generation, transmission, and distribution of electric power was a
We are committed to our employees, partners,
strong motivation to prove our capabilities that will help us build strategic relationships on
customers and the society. the basis of fairness and transparency. In this context, we communicate with our customers
and partners to ensure the sustainability of interaction, trust, and partnership. We also
Our strategies: motivate them to participate in the electricity industry’s issues and to follow up with its
development. We listen to their views and suggestions about the level of our performance in
1-Towards Employees:
order to enhance our position and public image.
•• Securing a suitable work environment, providing equal training and development
opportunities.
4- Social Activities:
•• Motivating excellence and innovation initiatives.
•• Implementing various programs and events, lectures, graduation ceremonies, and
•• Instilling the culture of quality in word and in deed.
honorary and private parties.
•• Embodying the values governed by the workplace codes of ethics, and involving
•• Promoting social communication with employees and their families through the
employees through e-mails and opinion polls in the programs, activities, and services
implementation of an internal communication plan.
provided to them.
•• Organizing sports, cultural and social activities at the company’s clubs, and providing
training opportunities for the employees’ children to learn the English language and
2- Toward Society:
computer skills in cooperation with specialized training institutes, and to offer them many
Effectively contributing to social and economic development by:
different sports activities.
•• Supporting social welfare activities and programs.
•• Interacting with the developmental and humanitarian issues and concerns of the society.
Important contributions:
•• Involving the community in the initiatives and leading the programs of rationalization of
•• Signing 27 strategic agreements and partnerships with several charities and
electric power consumption and dissemination of a culture of safety and security against
government agencies in support of sustainable social responsibility programs (training,
electricity consumption risks.
education, professions, health, and rehabilitation of people with special needs, solving
•• Supporting the research centers through adopting and supporting initiatives and
family problems).
research chairs, which would contribute to the rationalization of electric power
•• Signing two cooperation agreements with the Ministry of Education and the General
consumption, improving the electrical systems performance, preserving the environment,
Directorate of Civil Defense in the field of electrical safety.
and supporting renewable energy initiatives and projects.

74 Annual Report 2017

•• Establishing “Your Safety in Your Hand” campaign which lasted for five months then was •• Host and participate in a Ramadan Iftar for orphans with the participation of the company’s
transformed into a basic activity within the department’s activities which included all leaders. Five celebrations were held in all business areas where more than 400 orphans
traditional and electronic channels of communication. were invited.
•• Participation in the Civil Defense week of more than 13 wards in 13 cities and municipalities •• Sponsored numerous conferences and seminars in the areas of health, environment, safety
around the Kingdom as part of “Your Safety in Your Hand” campaign. and saving grace.
•• Participate in the GCC Traffic Week 2017 in all cities of the Kingdom as part of “Your Safety •• Implement more than 30 programs with the participation of the company’s employees to
in Your Hand” campaign. visit patients and to clean the environment.
•• Implement major internal and external awareness fairs under “Your Safety in Your Hand” •• Organize educational and training workshops to publicize the importance of volunteering
campaign. and community service coinciding with the International Youth Day.
•• Implement the campaign “For How Long” to raise awareness of the dangers of smoking •• Hosting the “Friends of Reading” group and workshops over three days under the name
(internal-external). “Friends of the Book”.
•• Contribute in organizing a companies’ marathon in cooperation with the General Sports •• Organize the Carnival of the “Pink Movement”, in cooperation with the Zahra Association,
Authority in all regions of the Kingdom and attend and get first place in all races as best which lasts for three days, coinciding with the World Breast Cancer Awareness Month.
group participant. •• Offering support through social media for several events (National Day, International Day of
•• Establish a team of electricity volunteers in all areas of business to carry out volunteer the Orphan, Autism, Breast Cancer, Alzheimer and others).
work within the plans of social responsibility. •• Hosting the children of martyrs of duty to participate in the company’s celebrations on the
•• Drafting, preparing and distributing a handbook for home electrical safety in four languages occasion of the National Day in all regions of the Kingdom.
(Arabic, English, Tagalog, Urdu), where more than (100,000) handbooks were distributed. •• Participate in the World Environment Day in collaboration with the Royal Saudi air force.
•• Issue and distribute more than 70 thousand copies of “Kahroob” magazine for kids to teach •• Present a series of working papers in several forums and specialized seminars in the field
them about electrical safety. of safety and environmental protection.
•• Implementation of the cycling marathon to raise awareness of the World Autism Day in Al- •• A group of volunteers from SEC participate with the Scouts in the 2017 Hajj season.
Bajiri neighborhood and hosting the Saudi Autism Society. •• Distribute electrical safety manuals in the 2017 Hajj season.
•• Hosting many associations in various areas in the company’s clubs throughout the Kingdom •• Share videos for Earth Hour Day.
to spend an entertaining, educational and cultural day. •• Participate in an awareness video for World Alzheimer’s Day.
•• Launch the program “Your Health Matters to Us” and participate in supervising it. •• Participate in the campaign “Your Awareness Protects You” in cooperation with IT.
•• Launch the program “Electricity Ambassadors” which includes visits to major private sector •• Participate in the national campaign in support of our brothers in Syria.
companies and specialized workshops to raise awareness of the importance of electricity •• Produced and directed a video and specialized designs for deployment across safety
and electrical safety and the optimal use of electrical energy. platforms for “Your Safety in Your Hand” campaign on social media.
•• Patient visits on holidays and presentation of gifts on behalf of the company’s employees. •• Organize the “Recycling” exhibition to preserve the environment.
•• Visit the Alzheimer’s patients in their homes during the holy month (Rifqa Initiative).

Annual Report 2017 75

76 Annual Report 2017
Annual Report 2017 77
 Description of the Company’s
Important Plans, Decisions, and
Future Prospects

78 Annual Report 2017

Annual Report 2017 79
2- Description of the Company’s Important Plans, During the last year, the Company founded the Saudi Company for Energy Procurement

Decisions, and Future Prospects: within the Saudi Electricity Company and the independent operator’s system entity has been
established within the National Grid SA (Ring Fenced).
A) Restructuring the Company’s Activities: The company will complete the remaining steps of its plan to restructure its activities in
To keep up with the Kingdom’s Vision 2030 and the National Transformation Program which coordination with the Ministry of Energy, Industry and Mineral Resources and the Electricity
aims at developing the Kingdom’s electricity industry and building a competitive electricity and Cogeneration Regulatory Authority according to the objectives and strategies that
market, the company made significant efforts during 2017 to achieve the objectives of
contribute to the development of the electricity market. This will play a major role in
this vision by examining many options and strategic plans to restructure its activities in
advancing the national economy and the comprehensive development plans in the Kingdom,
coordination with all the relevant authorities.
God’s willing.

The restructuring aims to improve the electricity system and work on achieving competition
B) Important Decisions:
between different energy providers in the Kingdom. This will be reflected in the quality of
service provided to customers in all walks of life, in all towns and villages in the Kingdom, • On Monday 20/02/2017 (corresponding to 23/05/1438 AH), the company’s Board of
and thereby increasing the investors’ and the private sector’s confidence in the viability of Directors approved the establishment of a limited liability company, fully owned by the
investment in the electricity sector. The most important challenges and opportunities facing Company, under the name of The Saudi Company for Energy Procurement.
the electricity sector in the Kingdom and which the company is focusing on are: • On Monday 27/02/2017, the company received a letter from the Electricity and
Cogeneration Regulatory Authority issued on 27/02/2017, based on the Royal Decree
• Meeting the growing demand for energy.
to cancel the electricity charge of 2% of the consumption value for the benefit of
• Sustainability and diversification of energy sources.
municipalities, as well as exempt the company from paying the actual amounts due to the
• Efficiency.
electricity charge of the value of consumption in favor of municipalities.

The restructuring plan of the company – monitored by the Ministry of Energy, Industry and • The Company paid the entire first tranche of Islamic International Sukuk (US $ 500 million)
Mineral Resources, Saudi Electricity Company, Electricity and Cogeneration Regulatory issued on 4 April 2012 and listed on the London Stock Exchange due on 3 April 2017.
Authority, Public Investment Fund and Ministry of Finance – aims at developing the electricity • The Company successfully completed the partial purchase of Saudi Electricity Sukuk 3 on
market in the Kingdom by creating competition in the economic operation of the electricity 10/05/2017.
system in a way that increases its operating efficiency, reduces costs and increases the
• Dawiyat Telecom, a wholly-owned subsidiary of Saudi Electricity Company, signed on
reliability of the network.
9/11/1438 AH corresponding to 1/8/2017 a framework agreement with the Ministry of
Communications and Information Technology to participate in the implementation of the
initiative to deploy broadband services in high-speed urban fiber optic technology.

80 Annual Report 2017

 • On Wednesday, 16/08/2017, the company signed a five-year international financing • Transmission lines with a length of 13,151 km-circular and 166 transmission stations
agreement ending on Tuesday 16/08/2022 with a total value of US $ 1.75 billion (SR 6.56 will be added.
billion) to be paid in a lump sum. • Deliver electricity service to about 1.8 million new customers by the end of 2021 bringing
• The company listed its shares owned by the government, 3,079,175,320 shares the total number of customers to 10.8 million.
representing 74.31% of the total capital of the company, in the portfolio of investment • Strengthen the distribution networks by adding 132,158 km of distribution lines.
fund in the Securities Depository Center Company, on Sunday, 26/12/1438 AH Through its development programs oriented towards increasing the employees’ efficiency

corresponding to 17/09/2017. and providing them with the necessary training to perform their jobs efficiently and
effectively, the company raised the ratio of training days to working days to 2.1% by the end
• In line with the vision of the Kingdom of Saudi Arabia 2030, the Public Investment Fund
of 2021. As part of the localization program and the company’s service to the community, the
(Fund) informed the company of its intention to share the vision of SoftBank Vision Fund
localization rate is expected to reach approximately 92%, God’s willing.
(SBVF) in developing a new solar plan 2030. As part of this plan, the Fund and SoftBank
Vision Fund (SBVF) signed a non-binding memorandum of understanding on Monday, D) Phase 2 of the Accelerated Strategic Transformation Program (NAMA):
3/2/1439 AH corresponding to 23/10/2017. In light of our expectations for the future condition of the electricity market and review
• As approved by the Council of Ministers in its meeting held on 12/12/2017, to start of external opportunities and internal performance, the company has decided to
the gradual adjustment of the prices of some energy products, the Electricity and launch the largest transformation program in SEC’s history as yet – the Accelerated
Cogeneration Regulatory Authority announced the amendment of the tariff for the Strategic Transformation Program (ASTP). This initiative will accelerate the company’s
transformation, both internally and externally, and set SEC on the path to becoming a
sale of electricity to some categories of subscribers and change in some segments of
world-class services company.
consumption. The Saudi company received a letter from the Ministry of Finance stating
that in accordance with Royal Decree No. 14006 dated 23/3/1439 AH, a fee will be paid to
The Transformation Program achieved many tangible results. The first phase has been
the State equivalent to the difference between the current and the new tariff which will
successfully completed and work started on the second phase named (NAMA). More than
apply from 1/1/2018. 1,000 employees have been and are currently actively supported by international experts and
consultants to manage the program’s detailed initiatives.
C) Future Plans and Expectations:
In light of the steady growth of the national economy and the expansion of all aspects of life in the
Kingdom, the company aims to meet this demand by reaching the following by the end of 2021:
• New generation capacities of about 5,612 MW will be added to the company’s stations.
• Within the private sector participation program to increase generation capacity to meet
future loads, about 11,895 MW capacity will be added.

Annual Report 2017 81

Reasons for Change: Smart Solutions:
The Kingdom is witnessing a great economic expansion, and SEC has managed to Leading the transformation to an intelligent and sustainable electricity system, establishing
successfully overcome all obstacles along the way. But the challenges are becoming more smart network infrastructure with self-interaction with events, and using smart meters.
difficult to overcome. Of all the challenges, four specific areas are worth highlighting:
Efficient:
First: As the Saudi economy continues to grow, so do the requirements to provide more Increase the efficiency and effectiveness of the basic work of generation, transmission and
power. To face this challenge, the company will require a large volume and speed of distribution, and operating according to the best global indicators.
investments which need to be managed properly.
Customer centric:
Second: The regulatory environment has become more complex. The company operates at An innovative and world-class service provider, applying the best customer service
the center of an integrated system of independent producers and companies that contribute methodology.
to saving energy, under the regulatory framework led by the Electricity and Cogeneration
Regulatory Authority which aims at establishing new benchmarks for the electricity sector in The total savings from the rapid strategic transformation program since its inception in the
the Kingdom. beginning of 2014 to date is 13.9 billion riyals, which is in line with the company’s strategic plan
and the National Transformation Program. The total savings achieved during 2017 amounted to
Third: The State has constantly provided SEC with financial support, but the company intends
about 2.87 billion riyals. The most prominent achievements in 2017 are:
to reduce its dependence on government funding as much as possible. SEC has enormous
• Increase revenues by SR 570 million by reclassifying consumption categories,
wealth and huge capabilities that must be invested in reducing operational costs and
assembling of meters, multiplication factors and others.
increasing productivity, while maintaining safety and quality standards.
• Save 1.6 billion riyals by switching from copper to aluminum cables.

Fourth: In light of the strong competition for talent that the company faces, it has become • Save 70 million riyals due to the suspension of printing and distribution of customers’
a challenge to recruit and retain the most qualified human resources. Attracting talented bills of less than 100 riyals per month.
employees and convincing them to stay with SEC is becoming increasingly competitive as • Save 56 million riyals after application of the new methodology for the collection of
other employers hunt for talent in the Kingdom. contracts.
• Save 323 million riyals through the implementation of Value Based Maintenance project.
We urgently need to meet these challenges, which serves as a motivation that will drive us
• Save 255 million riyals as a result of implementing the recommendations of
steadily forward until we achieve the company’s goal of transforming it into a world-class
improvement studies and suggestions form the Ibdaa program.
services facility able to compete on a local and global scale. Based on these requirements,
the Company has developed three strategic pillars to achieve its objectives, including the
second phase of the Accelerated Strategic Transformation Program (NAMA):

82 Annual Report 2017

Annual Report 2017 83
 Financial Results Summary

84 Annual Report 2017

Annual Report 2017 85
18- Summary of Financial Results:
The following is a statement on the balance sheet and income statement of the company and the following tables illustrate the asset details and liabilities, shareholders’ equity, income and
expenses, and net income for the fiscal year 2017, compared to the previous four financial years (More details can be found in the accompanying financial statements and their accompanying
explanations).

A) Balance Sheet: Numbers are in Thousands Saudi Riyals

IFRS SOCPA

Index 2017 2016 2015 2014 2013

Current Assets 38,627,705 44,101,740 38,747,458 41,207,820 36,923,281

Other Long-Term Assets 2,843,219 2,911,089 89,288,722 61,326,983 56,301,171

Net Fixed Assets 404,289,536 374,009,392 229,993,769 215,373,390 183,563,192

Total Assets 445,760,460 421,022,221 358,029,949 317,908,193 276,787,644

Current Liabilities 151,718,123 158,338,112 62,691,531 46,949,382 41,743,868

Long-Term Loans 85,003,765 69,450,875 57,207,444 52,360,618 36,741,452

Other Liabilities 136,729,165 127,635,437 177,781,847 159,355,697 142,026,011

Total Liabilities 373,451,053 355,424,424 297,680,822 258,665,697 220,511,331

Paid Share Capital 41,665,938 41,665,938 41,665,938 41,665,938 41,665,938

Reserves and Retained Earnings 30,643,469 23,931,859 18,683,189 17,576,558 14,610,375

Shareholders’ Equity 72,309,407 65,597,797 60,349,127 59,242,496 56,276,313

Total Liabilities and Shareholders’ Equity 445,760,460 421,022,221 358,029,949 317,908,193 276,787,644

• The financial statements for 2017 are prepared in accordance with International Financial Reporting Standards (IFRS) and the comparative year 2016 has been amended by international standards.
• The financial statements from 2013 to 2015 are prepared according to Saudi standards SOCPA.

86 Annual Report 2017

 Comparison of Assets, Liabilities, and Shareholders Equity
During the years 2013 – 2017
Numbers are in Thousands
Saudi Riyals

445,760,460
421,022,221

373,451,053
355,424,424
358,029,949
450,000,000

317,908,193

297,680,822
400,000,000
276,787,644

258,665,697
350,000,000
220,511,331

300,000,000

250,000,000

200,000,000

65,597,797

72,309,407
150,000,000 59,242,496

60,349,127
56,276,313

100,000,000

50,000,000

2013 2014 2015 2016 2017

Total assets Total liabilities Total Shareholders equity

Annual Report 2017 87

 Comparison of Current and Non-Current Assets with Total Assets
During the years 2013 – 2017
Numbers are in Thousands
Saudi Riyals

445,760,460
421,022,221

407,132,755
376,920,481
358,029,949
450,000,000

319,282,491
317,908,193
276,700,373
276,787,644

400,000,000

350,000,000
239,864,363

300,000,000

250,000,000

200,000,000

150,000,000

44,101,740
41,207,820

38,747,458

38,627,705
100,000,000
36,923,281

50,000,000

2013 2014 2015 2016 2017

Total current assets Total non-current assets Total assets

88 Annual Report 2017

 Revenues and Operating Expenses and Net Income
During the years 2013 – 2017
Numbers are in Thousands
Saudi Riyals

50,615,317
49,860,998
60,000,000

45,435,712
44,069,046
41,538,732

39,945,888
38,490,670
50,000,000

37,392,422
35,672,129

33,691,300

40,000,000

30,000,000

20,000,000

4,545,257

6,908,249
3,606,594
3,035,869

1,543,642
10,000,000

2013 2014 2015 2016 2017

Operating income Operating expenses Net profit (loss) for the period

Annual Report 2017 89

B) Income Statement: Numbers are in Thousands Saudi Riyals

IFRS SOCPA

Description 2017 2016 2015 2014 2013

Operating revenues 50,615,317 49,860,998 41,538,732 38,490,670 35,672,129

Cost of sales )43,995,312( )43,008,530( )38,953,467( )36,462,927( )33,030,721(

Gross profit 6,620,005 6,852,468 2,585,265 2,027,743 2,641,408

General and administrative expenses )1,440,400( )1,060,516( )992,421( )929,495( )660,579(

Total operating expenses )45,435,712( )44,069,046( )39,945,888( )37,392,422( )33,691,300(

Enhancing productivity of human resources program )2,829,155( )110,257(      

Exemption from municipal fees 6,119,546 0      

Other income - net 1,534,686 978,895      

Operating income 10,004,682 6,660,590 1,592,844 1,098,248 1,980,829

Reversal of provision for doubtful receivables 0 0 0 2,635,181 0

Deferred revenue(expenses) 0 0 201,513 )537,239( 729,186

Financing costs - net )2,752,144( )2,053,806( 0 0 0

Other revenue and expenses - net 0 0 )250,715( 410,404 325,854

Share in investment loss in registered companies in a

)108,876( )59,835(      
proprietary manner

Zakat and income tax expenses )235,413( )1,692(      

Net profit 6,908,249 4,545,257 1,543,642 3,606,594 3,035,869

• The financial statements for 2017 are prepared in accordance with International Financial Reporting Standards (IFRS) and the comparative year 2016 has been amended by international standards.
• The financial statements from 2013 to 2015 are prepared according to Saudi standards SOCPA.

90 Annual Report 2017

 Comparison of Current and Non-Current Liabilities, and Government Loans to the Total Liabilities
During the years 2013 – 2017
Numbers are in Thousands
Saudi Riyals

373,451,053
220,511,331

355,424,424
258,665,697
395,000,000

297,680,822
365,000,000
335,000,000
305,000,000

194,997,809
275,000,000

177,955,708

177,368,303
158,338,112
245,000,000

154,674,795

151,718,123
150,518,696

215,000,000
185,000,000
155,000,000

62,691,531
125,000,000
46,949,382
41,743,868

28,248,767

33,760,607

42,411,517

44,364,627
39,991,482
95,000,000
65,000,000
35,000,000
5,000,000

2013 2014 2015 2016 2017

Current liabilities Non-current liabilities Government loans Total liabilities

Annual Report 2017 91

19- Geographical Analysis of Company Revenue: Numbers are in Thousands Saudi Riyals
The following table shows a geographical analysis of the company’s sales by region(s) in which it operates:

Operating Areas
Year
Description Central Eastern Western Southern Total

2017 Revenues/sales 14,856,954 13,334,402 13,329,644 3,925,163 45,446,163

2016 Revenues/sales 14,719,470 13,208,190 13,499,899 3,893,911 45,321,470

20- Clarification of the Operating Results Compared to the Results of Previous Year: Numbers are in Thousands Saudi Riyals

Description 2017 2016 +/- Changes Change Percentage

Revenues/sales 50,615,317 49,860,998 754,319 2

Operating expenses )45,435,712( )44,069,046( )1,366,666( 3

Other revenues, net 1,534,686 978,895 555,791 57

Enhancing productivity of human

)2,829,155( )110,257( )2,718,898( 2,466
resources program

Exemption from municipality fees 6,119,546 0 6,119,546 100

Net operating revenue 10,004,682 6,660,590 3,344,092 50

Financing expenses, net )2,752,144( )2,053,806( )698,338( 34

Share in investment loss in registered

)108,876( )59,835( )49,041( 82
companies in a proprietary manner

Zakat and income tax expenses )235,413( )1,692( )233,721( 13,813

Net profit 6,908,249 4,545,257 2,362,992 52

92 Annual Report 2017

21- Clarification of Any Difference from the Accounting Standards adopted by the Saudi Organization for Certified Public Accountants:
The consolidated financial statements of the company have been prepared in accordance with the International Financial Reporting Standards adopted in Saudi Arabia and other standards
and issuances approved by the Saudi Organization of Certified Public Accountants.

22- Subsidiaries and Associates:

The company owns shares/quotas in the capital of each of the subsidiaries and associates. The Company also transferred its entire share in the ownership of the Water and Electricity
Company to the Government pursuant to the decision of the Council of Ministers No. 494 dated 5 Sha’ban 1438 AH (1 May 2017). Accordingly, with its share in the Water and Electricity
Company as of December 31, 2017, the following table shows the company’s share: as per the following table:

Subsidiaries and Place of Ownership

No. Place of activity Paid capital Activity
associates incorporation percentage

Gulf Cooperation Council Kingdom of Saudi USD1,407,000,000

1 Arab Gulf states Transferring power between member states 31.6%
Interconnection Authority Arabia

Water and Electricity Kingdom of Saudi Kingdom of Saudi Purchasing and selling of electricity and necessary fuel for
2 SR 30,000,000 50%
Company Arabia Arabia the achievement of its purposes

Kingdom of Saudi Kingdom of Saudi Providing service and support needed to sukuk and bonds
3 Electricity Sukuk Company SR 500,000 100%
Arabia Arabia issued by Saudi Electricity Company

Dawiyat Telecom Kingdom of Saudi Kingdom of Saudi Establishing, leasing, managing, and operating electricity and
4 SR 50,000,000 100%
Company Arabia Arabia fiber optic networks to provide telecommunication services

Transmitting electricity, operating, controlling, and

National Grid S.A. Kingdom of Saudi Kingdom of Saudi 100%
5 SR 10,000,000,000 maintaining power systems, and leasing line capacities of
Company Arabia Arabia
transmission networks

Dhuruma Electricity Kingdom of Saudi Kingdom of Saudi Developing, establishing, owning, operating, and maintaining
6 SR 4,000,000 50%
Company Arabia Arabia Dhuruma project for electricity production in Riyadh area

Hajr for Electricity Kingdom of Saudi Kingdom of Saudi Owning, generating, producing, transferring, and selling
7 SR 2,506,230,000 50%
Production Company Arabia Arabia electricity in Qurayyah project in the eastern region

Annual Report 2017 93

 Subsidiaries and Place of Ownership
No. Place of activity Paid capital Activity
associates incorporation percentage

Rabigh Electricity Kingdom of Saudi Kingdom of Saudi Developing, establishing, owning, operating, and maintaining
8 SR 923,750,000 20%
Company Arabia Arabia Rabigh project in Holy Mecca region

Al Mourjan for Electricity Kingdom of Saudi Kingdom of Saudi Developing, establishing, owning, operating, and maintaining
9 SR 10,000,000 50%
Production Company Arabia Arabia Rabigh-2 project in Holy Mecca region

Managing construction projects, setting detailed designs,

Saudi Electricity Company Kingdom of Saudi Kingdom of Saudi
10 SR 5,000,000 purchasing materials, and implementing projects in the 100%
for Project Development Arabia Arabia
power sector

Production of transformers, electrical generators and control

GCC Electrical Testing Kingdom of Saudi Kingdom of Saudi
11 SR 90,000,000 devices of power plants, high pressure cables and lines, and 25%
Laboratory Company Arabia Arabia
equipment selection devices

Cogeneration production activity for steam and metal-free

water for industrial use, generating, storing and sale of
Al-Fadhili Co-Generation Kingdom of Saudi Kingdom of Saudi
12 SR 1,500,000 electrical power, steam and metal-free water, and owning, 30%
Company Arabia Arabia
developing and funding the establishment and maintenance
of a cogeneration plant

Develop and manage carbon emission reduction systems,

programs, and Clean Development Mechanism (CDM)
projects in accordance with international and regional
Saudi Green Company for Kingdom of Saudi Kingdom of Saudi protocols, and related local regulations, for its benefit and for
13 SR 1,000,000 51%
Carbon Services Arabia Arabia the benefit of others and to run the activities of the business
of carbon emission reduction certificates issued by emission
reduction programs and registered it for its benefit or for
third parties in the global, regional and local markets.

94 Annual Report 2017

23- Shares and Debt Instruments Issued for Each Subsidiary and Investee:

No. Name of Subsidiary and investee Number of shares/ quotas Debt instruments

1 Gulf Cooperation Council Interconnection Authority 1,407,000 shares None

2 Water and Electricity Company 600,000 shares None

3 Electricity Sukuk Company 10,000 quotas None

4 Dawiyat Telecom Company 5,000,000 quotas None

5 National Grid S.A. Company 200,000,000 quotas None

6 Dhuruma Electricity Company 400,000 shares None

7 Hajr for Electricity Production Company 250,623,000 shares None

8 Rabigh Electricity Company 92,375,000 shares None

9 Al Mourjan for Electricity Production Company 1,000,000 shares None

10 Saudi Electricity Company for Project Development 100,000 quotas None

11 GCC Electrical Testing Laboratory Company 9,000,000 shares None

12 Al-Fadhili Co-Generation Company 150,000 quotas None

13 Saudi Green Company for Carbon Services 1,000,000 quotas None

24- Company’s Policy to Distribute Profits:

The annual net profits are distributed as follows:
1. 10% is withheld from the net profit to form a statutory reserve, but the Ordinary General Assembly has the right to stop this withholding when the mentioned reserve reaches 30% of
the capital.
2. The Ordinary General Assembly may decide to make other reserves, to the extent that it serves the interest of the Company or ensures the distribution of fixed profits as much as possible
to the shareholders. The Ordinary General Assembly may also deduct from the net profits amounts for the establishment of social institutions for the company’s employees or to assist the
existing institutions.
3. Subject to the provisions contained in paragraph (2) of the (second) clause of the Council of Ministers Resolution No. (169) dated 24/9/1430 AH, and the Council of Ministers Resolution No.
(327) dated 24/09/1430 AH, the rest will be distributed to shareholders of not less than 5% of the paid-up capital.

Annual Report 2017 95

4. Subject to the provisions of Article 20 of the Articles of Association of the Saudi Electricity Company and Article 76 of the Companies Law, the remuneration of the Board of Directors shall
be paid as decided by the General Assembly. The remuneration shall be commensurate with the number of meetings attended by the member.
5. The Company may distribute interim dividends to its shareholders semi-annually or quarterly after the General Assembly of the Company authorizes the Board of Directors to distribute
interim dividends under a resolution renewed annually.

During 2017, the company achieved a net profit of SR 6,908,249, after the deduction of Zakat and before the distribution of the Board of Directors’ bonuses. The Board of Directors proposes
the distribution of these profits, according to the company’s Articles of Association, as follows: Numbers are in Thousands Saudi Riyals

Percentages of the profit distributed during the year Total of profit

Percentage % %7 %7

Total 547,252 547,252

25- Description of any interest in the category of voting shares belonging to persons (other than members of the company’s management, senior executives and their relatives) who
have notified the company of such rights and any change in those rights during the last fiscal year.
The company registered the government-owned shares in the company’s capital, which are 3,096,175,320 shares, representing 74.31% of the total capital of the company, in the portfolio of
the Public Investment Fund of the Securities Depository Center Company, on Sunday 26/12/1438 AH corresponding to 17/09/2017. The following table shows the names and ownership of
shareholders who own 5% or more and any change in ownership during 2017:

Name The number of shares at the beginning of the year The number of shares at the end of the year Net change % change

The Government 3,096,175,320 0 -3,096,175,320 -100%

Public Investment Fund 33,062,230 3,129,237,550 3,096,175,320 92.6%

Saudi Aramco 288,630,420 288,630,420 0 0

96 Annual Report 2017

26- Description of any interest, contractual securities and subscription rights belonging to the Board of Directors and senior executives and their relatives in the shares or debt
instruments of the Company or any of its subsidiaries and any change in such interest or rights during the last financial year:
Description of any interest, contractual securities and subscription rights belonging to the members of the Board of Directors and their relatives in shares or debt instruments of the Company:

The beginning of the year The end of the year

Name Role Net change Change percentage
Number of Shares Debt instruments Number of Shares Debt instruments

Saleh Bin Hussein Al-Awajji Legal 1000 - - - 1000 100%

Sulaiman Bin Abdullah Alkadi Personal 1,050 - 1,050 - 0 0%

Isam Bin Alwan Al-Bayat Legal 1000 - - - 1000 100%

Legal 1000 - - - 1000 100%

Yousif Bin Abdulaziz Al-Turki
Personal 25,750 - - - 25,750 100%

Ali Bin Ahmed Al-Sweid Personal 1000 - - - 1000 100%

Saleh Bin Saad Al-Mehanna Legal 1000 - - - 1000 100%

Abdulhamid Bin Ahmed Al-Omair Legal 1000 - - - 1000 100%

Abdulmajed Bin Abdullah Al-Mubarak Legal 1000 - - - 1000 100%

Saud Bin Mohammed Al-Nemer Personal 1000 - - - 1000 100%

Description of any interest, contract securities and subscription rights of senior executives and their relatives in the Company’s shares or debt instruments:

The beginning of the year The end of the year

Name Net change Change percentage
Number of Shares Debt instruments Number of Shares Debt instruments

Osama Bin Abdul Wahab Khondana 2,250 - 2,250 - 0 0%

Annual Report 2017 97

27- Information Related to the Company’s Loans:
A) Commercial Long-Term Loans as of 31/12/2017
The following table shows details of the liabilities at the end of 2017 for the purpose of spending on capital projects: Numbers are in Thousands Saudi Riyals

Loans balance at the Loan Actual loan Loan balance at the

Total value of Loan Due
Statement beginning of the period withdrawals repayments end of the period as
basic loans date date
as of 01/01/2017 during the year during the year of 31/12/2017

Murabaha loan (I) in Saudi Riyals with the participation of a

6,000,000 2008 2020 1,909,092 - 545,455 1,363,637
number of entities

Murabaha loan (II) in Saudi Riyals with the participation of a

5,000,000 2010 2025 3,460,800 - 384,800 3,076,000
number of entities

Murabaha loan (III) in Saudi Riyals with the participation of a

8,000,000 2016 2023 5,000,000 3,000,000 - 8,000,000
number of entities

Direct loan from the Public Investment Fund 2,583,375 2009 2024 1,616,160 - 214,940 1,401,220

Direct loan from the Industrial and Commercial Bank of China 5,625,710 2016 2021 5,625,710 - - 5,625,710

Direct loan from Export/Import U.S. and Canadian Banks 4,057,417 2010 2021 1,596,684 - 362,710 1,233,974

Direct loan with the participation of a number entities in

3,709,125 2011 2024 2,206,558 - 309,127 1,897,431
Bpifrance Assurance Export

Loan with the participation of a number of entities and with the

5,251,120 2012 2026 4,375,714 - 437,555 3,938,159
guarantee and the participation of Korean Export Banks

Loan with the participation of a number of entities and with

the guarantee and the participation of Export Banks of Korea 7,240,715 2013 2028 7,101,725 - 603,307 6,498,418
and Japan

* Following the announcement of the Saudi Electricity Company published on the website of the Saudi Stock Exchange (Tadawul) dated 19/09/2016 regarding the receipt of a local Murabaha financing of SR 5 billion
for a period of seven years, the Company announced that on 26/03/2017, The Murabaha financing mentioned above was raised from SR 5 billion to SR 8 billion.
The company has short-term commercial loans for 12 months with several local banks used for operating expenses. The total balance of these loans reached SR 2,950,000,000 at the end of 2017 and is used as
revolving loan during the year. The total balance of loans at the end of 2017 amounted to SR 1,750,000,000.

98 Annual Report 2017

 Loans balance at the Loan Actual loan Loan balance at the
Total value of Loan Due
Statement beginning of the period withdrawals repayments end of the period as
basic loans date date
as of 01/01/2017 during the year during the year of 31/12/2017

Loan with the participation of a number of entities and with the

3,375,585 2016 2029 3,375,585 - - 3,375,585
guarantee and the participation of Export Bank of Korea (KEXIM)

Loan with the participation of a number of entities and with the

1,575,336 2016 2029 1,575,336 - - 1,575,336
guarantee of the Export Bank of Korea (KSURE)

Revolving loan (with the participation of a number of entities)

2,500,000 2015 2018 2,500,000 - - 2,500,000
“Riyal Tranche”

Revolving loan (with the participation of a number of entities)

5,251,120 2016 2019 5,251,120 - 562,544 4,688,576
“Dollar Tranche”

A bilateral loan with SABB Bank 1,500,000 2017 2020 - 1,500,000 - 1,500,000

A bilateral loan with NCB 1,300,000 2017 2021 - 1,300,000 - 1,300,000

A bilateral loan with Al Rajhi Bank 3,500,000 2017 2022 - 3,500,000 - 3,500,000

International syndicated loan 6,562,878 2017 2022 - 6,562,878 - 6,562,878

Commercial payment facilities

The Group signed several agreements with a number of commercial payment facilities in Saudi Riyals with a balance of SR 1,776,000,000 at the end of 2017.

Annual Report 2017 99

B) Statement of Sukuk Issues as of 31/12/2017: Numbers are in Thousands Saudi Riyals

Loan repayments Total value of the

Statement Issue size Issue date Due Date
during the year modified version

Local Sukuk (3rd issue) in Saudi Riyals 2030 With the right of early redemption
7,000,000 2010 1,269,310 5,730,690
in 2022, 2024, 2026

2054 With the right of early redemption

Local Sukuk (4th issue) in Saudi Riyals* 4,500,000 2014 No modification
- in 2024, 2034, 2044

Full payment was made

International Sukuk (USD 500 million) 500,000 2012 500,000 2017
on due date

International Sukuk (USD 1250 million) 1,250,000 2012 - No modification 2022

International Sukuk (USD 1000 million) 1,000,000 2013 - No modification 2023

International Sukuk (USD 1000 million) 1,000,000 2013 - No modification 2043

International Sukuk (USD 1500 million) 1,500,000 2014 - No modification 2024

International Sukuk (USD 1000 million) 1,000,000 2014 - No modification 2044

* In accordance with the decision of the Assembly of Saudi Electricity third Sukuk Campaign, which is worth SR 7,000,000,000 and ends in 2030

100 Annual Report 2017

C) Statement of the Governmental Loans as of 31/12/2017: Numbers are in Thousands Saudi Riyals

Loan balance at Loan Loan balance

Loan Recognized differences
Total value of Due the beginning withdrawals at the end of
Statement in Saudi Riyals Loan date repayments between received and
basic loans date of the year as of during the the year as of
during the year current values
1/1/2017 year 31/12/2016

Since
Governmental loan (due to settlement) 14,938,060 establishing - 14,938,060 - - 14,938,060 -
the company

Ministry of Finance Good loan from the

15,000,000 2010 2034 15,000,000 - - 15,000,000 )6,885,293(
government (1)

Ministry of Finance Good loan from the

51,100,000 2011 2036 38,325,000 - - 38,325,000 )22,490,742(
government (2)

Ministry of Finance Good loan from the

49,400,000 2014 2038 16,075,000 - - 16,075,000 )10,597,399(
government (3)

Total 130,438,060 84,338,060 - - 84,338,060 )39,973,434(

* Government loans to the company in the financial statements are reflected in real value in accordance with relevant accounting standards. The difference between the received and current values is recognized in
the item of long-term governmental debts.

28- Description of Classes and Numbers of Convertible Debt Bonds, Contractual Securities, and Subscription Bonds:
There were no convertible debt bonds, contractual securities, or subscription bonds issued or granted by the company within the financial year ended 31/12/2017.

29- Description of Conversion, Subscription, or Contractual Securities Rights:

There were no conversion or subscription rights through convertible debt bonds, or contractual securities, or subscription bonds, or other similar rights issued or granted by the company
during 2017.

Annual Report 2017 101

30- Description of any redemption, purchase or cancellation by the Company of any Attend  Not Attend x
redeemable debt instruments, the value of the listed securities purchased by the
Company and those purchased by its subsidiaries: Number and date of meetings
First: Saudi Electricity Company announced the results of the meeting of the Assembly of
Saudi Electricity Sukuk 3 worth SR 7,000,000,000 and ending in 2030, which was held at 1 2 3 4 5 6 7 8
7:30 pm on Wednesday 07/08/1438 AH corresponding to 03/05/2017 at the company’s Name
Total
headquarters in Granada Towers, Building A1, Saudi Arabia (Assembly). Building A1, Riyadh,

20/02

18/04

19/04

06/06

25/09

19/12
27/11

27/12
Saudi Arabia (Assembly). After the required quorum (97.5% attendance), the results of the
vote on the Assembly’s agenda were as follows:
• Approve the proposed amendments to the provisions and conditions of the Sukuk. Saleh Bin Hussein Al-Awajji
        8
• On May 10, 2017, the Company purchased SAR 1,269,310,000 of the total par value of the (chairman)

Sukuk (representing 18.13% of the total par value of the Sukuk as of May 3, 2017) and for Sulaiman Bin Abdullah Alkadi
        8
the remaining Sukuk, New date of the right of early purchase to be in 2022, 2024, 2026 AD. (Deputy Chairman of the Board)

• A new margin of 1.35% (instead of 0.95%) has been applied to calculate the remaining Isam Bin Alwan Al-Bayat
        8
(member)
periodic distribution amounts for instruments not purchased on 10 May 2017
Second: The full payment of the first tranche of the international Islamic Sukuk (US $ 500 Saleh Bin Saad Al-Mehanna
        8
million) issued on 4 April 2012 and listed on the London Stock Exchange due on 3 April 2017. (member)

Saud Bin Mohammed Al-Nemer

        8
31-Meetings of the Board of Directors and the List of Attendees: (member)
The Board of Directors of the company held (8) meetings during 2017. The following table Ali Bin Ahmed Al-Sweid
        8
contains the names of the Board of Directors’ members and the number of meetings (member)
attended by each member: Yousif Bin Abdulaziz Al-Turki
        8
(member)

Abdulmajed Bin Abdullah Al-Mubarak

        8
(member)

Abdulhamid Bin Ahmed Al-Omair         8

Date of the last meeting of the General Assembly: 03/05/2017

102 Annual Report 2017

32- Number of applications of the company for the register of shareholders and the dates 33- Description of Any Transaction between the Company and a Related Party:
and reasons for these applications: Transactions with Related Parties
The ultimate controlling party of the group is the government of Saudi Arabia, where the
Public Investment Fund, Saudi Aramco and the Saline Water Conversion Corporation
Number of applications Date Reasons are jointly controlled entities (as those referred to entities are under the final control of the
government of Saudi Arabia).
Here is a description of transaction with related parties:
31/01/2017 Company procedures

A) Electrical Energy Sales

    
28/02/2017 Company procedures
Year ending on

December 31 December 31
30/03/2017 Company procedures
2017 2016

Ultimate controlling party of the group 11,993,902 12,014,082

19/04/2017 Holding an assembly
Entities controlled by the ultimate controlling party
8 applications
of the group
19/04/2017 Profit distribution
Saudi Aramco 536,039 590,487

Saline Water Conversion Corporation 498,207 271,997

30/04/2017 Company procedures

Total 13,028,148 12,876,566

16/05/2017 Company procedures

14/09/2017 Company procedures

Annual Report 2017 103

B) Energy purchases and municipal fees 34- Information relating to any business or contracts to which the Company is a party
or which has the interest of a member of the Board of Directors of the Company or of its

Year ending on senior executives or of any person related to any of them:

During 2017, there are no contracts in which the Company is a party or in which there is an
31 December 31 December
interest of a member of the Board of Directors of the Company or of its senior executives or
2017 2016
of any person related to any of them.
Entities controlled by the ultimate controlling party
of the group 35- Statement of any arrangement or agreement whereby a member of the Board of
Saudi Aramco 10,058,436 11,240,906 Directors of the Company or a senior executive assignes any remuneration:
There are no arrangements or waiver agreement whereby a board member or a senior
Saline Water Conversion Corporation 538,586 530,324
executive assigned any remuneration.
Joint Operations
36- Shareholders Assignment of Rights in Profits:
Dhuruma Electricity Company 583,816 552,058 Based on the Council of Ministers’ Resolution No. 327, dated 24/9/1430 AH, the government

Rabigh Electricity Company 957,436 923,793 agreed to extend its assignment of its share of the profits distributed by Saudi Electricity
Company for another 10 years, starting on 30/12/1430 AH. During 2017, there were no
Hajr Electricity Production Company 805,241 795,913 arrangements or assignment agreements where any of the shareholders assigned his right

Al-Mourjan Electricity Production Company 132,512 - in the profits.

13,076,027 14,042,994

Municipality Fees

The ultimate controlling party of the group - 723,861

- 723,861

Total 13,076,027 14,766,855

104 Annual Report 2017

37- Accrued Official Payments: The company will deduct part of the salary to invest it optionally for the benefit of the
The following table explains obligatory payments made to official or regulatory bodies in the employee involved in the program. The company chooses suitable areas to invest the funds
government: of the program in accordance with the terms of Islamic investment in low risk portfolios, in a
manner that serves the interests of the employees involved.

In thousands of Saudi Riyals

Statement The company’s contribution is equivalent to 100% of the value of the employee’s monthly
2017 2016 subscription and records it in his account. The calculation of employee’s entitlement to the
company’s contribution is based on the program rules ranging from 10% upon completion
Customs fees 6,910 4,437
of the first year of subscription and up to 100% upon reaching the end of the 10th year of
Zakat and tax 14,947 22,449
participation. The amount payable to an employee from such contribution is calculated at the
General Organization for Social Insurance 1,012,111 1,034,926 end of the subscription based on legal regulations. The following table explains the changes
Municipality fees 0 723,861 in the contributions of participating employees and their entitlements from the company’s
Others 10,865 11,749 contributions during the year:

Total 1,044,533 1,797,422

Employee Employee entitlements from
Statement
Contributions contributions of the company

38- The investments or reserves established for the benefit of the Company’s employees: Balance at the beginning of the year 513,844,478 327,116,956

Savings Program: Net additions/withdrawals during 2017 38,496,831 23,064,147

The company founded an (optional) savings program designed to motivate employees, Balance at the end of the year 552,341,310 350,181,103
reinforce their loyalty to and association with the company, increase their performances,
as well as attract qualified Saudi staff, motivate them to stay with the company, and to help
Saudi employees to accumulate savings for retirement or at the end of their service.

Annual Report 2017 105

B) Loans Program: the financial reports prepared from the accounting records.
For the eighth year, the company continued its housing loans program that offers housing
loans to Saudi employees in accordance with the terms and conditions of the program to The Company has implemented an integrated financial
finance the acquisition, construction or completion of construction of houses compatible accounting system to record all financial transactions.
with the laws of Islamic Sharia (Murabaha), by financing its cost up to SR 1,200,000 with
repayment period of 20 years. The company participates in 70% of the funding costs. The It asserts that the audited records were set up correctly, noting that the Internal Audit
company can stop its contribution at the end of the employee’s service for whatever reason. management is an independent department associated with the Audit Committee and it
During 2017, a total of 235 employees benefitted from the program. carries out its functions in accordance with the Internal Audit Regulations approved by the
Board of Directors, which continuously examines the control system to ensure its efficiency
39- Accounting Records, Internal Control System, and the Ability of the Company to and effectiveness and conducts financial and operational audits to assess the company’s
Proceed with its Activity: operations.

The internal control system is prepared on a solid

The Audit Committee of the Board of Directors, reviews the remarks and findings submitted
foundation, which the Company pursues to implement to it by the external auditors, the internal auditor, and the results of their study of the

effectively in conjunction with the auditors’ observations efficiency and effectiveness of the company’s internal control procedures in order to draw
relevant recommendations for improvement and submits them to the Board of Directors.
following completion of the internal and external audit of It also continues looking into the recommendations that resulted from these reviews and
the system. The Internal Audit department follows up with focuses on the group of recommendations that have the direct and most important influence
on the internal control system. The internal control system, regardless of how effectively
the relevant parties to rectify the remarks cited among the it was designed and implemented, cannot provide absolute assurance to this effect. The
elements of audit findings and submits a periodic report company recognizes that no doubts are present about its ability to continue with its activity.

to the Audit Committee clarifying the procedures made

to correct the situation. The internal control system is
designed to manage risks, maintain the company’s assets
and provide reasonable assurance about the integrity of

106 Annual Report 2017

40- Report of the Chartered Accountant:
The Sixth Ordinary General Assembly, held on 19/04/2017, appointed KBMG Fozan & Co. as a Chartered accountant for the financial year ended on 31/12/2017. The report of the Company’s
accountant did not contain any remarks about the annual financial statements.

41- Recommendations of the Board of Directors in Relation to the Chartered Accountant of the Company:
The Board of Directors did not make any recommendation to replace the Chartered accountant since its appointment in the previous General Assembly.

Finally, the Board of Directors of the Saudi Electricity Company is pleased to extend its sincere thanks and appreciation
to all the company’s employees for their continuous and faithful efforts to achieve the company’s goals, protecting
its gains and interests, and raising its reputation and competitiveness. Asking God Almighty to bless all of these
efforts, and help the company to implement its plans and programs to support and promote the economic and social
development of the Kingdom and meet its electrical energy requirements.

Annual Report 2017 107

 Financial
Statements
Saudi Electricity Company

108 Annual Report 2017

Annual Report 2017 109
Saudi Electricity Company (A Saudi Joint-stock Company)
Consolidated financial statements and independent auditor’s report
For the year ended 31 December 2017

Index
111 Independent auditor’s report

114 Consolidated statement of financial position

117 Consolidated statement of profit and loss

118 Consolidated statement of comprehensive income

119 Consolidated statement of changes in equity

121 Consolidated statement of cash flows

124 Notes to the consolidated financial statements

110 Annual Report 2017

 KPMG Al Fozan & Partners
Key Audit Matters
Certified Public Accountants
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
KPMG Tower, Salahudeen Al Ayoubi Road
consolidated financial statements of the current year. These matters were addressed in the context of our audit of
P. O. Box 92876, Riyadh 11663, Kingdom of Saudi Arabia the consolidated financial statements taken as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Telephone :+966 11 874 8500, Fax : +966 11 874 8600
Provision for doubtful electricity receivables
Website: www.kpmg.com/sa
License No. 46/11/323 issued 11/3/1992 Refer to Note 17 of the accompanying notes to the consolidated financial statements.

Key audit matter How the matter was addressed in our audit

As at 31 December 2017, the balance of electricity Among other things, we performed the following
Independent Auditors’ Report receivables amounted to SR 30.7 billion. A provision procedures in relation to provision for doubtful
for doubtful electricity receivables as at the same date electricity receivables:
amounted to SR 1.2 billion, with a net increase in the • Assessed the design and implementation, and tested
To the Shareholders of Saudi Electricity Company
provision amount from 2016 by SR 9.6 million. the operational effectiveness of the key management
(A Saudi Joint-stock Company) Management is required to use assumptions and controls regarding electricity’ receivable balances
Riyadh, Kingdom of Saudi Arabia judgments in estimating the provision for doubtful which also includes provision for doubtful electricity
electricity receivables and therefore provision for receivables.
doubtful electricity receivables is considered one of the • Considered the past due significant balances of
Opinion key audit matters. electricity receivables for which provision has not
been recognized in accordance with the policy used
We have audited the consolidated financial statements of Saudi Electricity Company– A Saudi Joint-stock by the Group, and determined whether there are
Company (“the Company”) and its subsidiaries (collectively referred to as “the Group”) which comprise the indications of impairment.
consolidated statement of financial position as at 31 December 2017, the consolidated statements of income, other • Inspected a sample of receivables collected
comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant subsequent to the date of the financial statements,
accounting policies and other explanatory information. made inquiries from the management and inspected
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the any correspondences with major clients on
consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and expected dates for repayment to assess whether
its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards management’s estimates are reasonably supported.
(“IFRS”) as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by Saudi • Obtained a sample of electricity receivable balances
Organization for Certified Public Accountants (SOCPA). of which provision has been recognized during the
year to assess the reasonableness of estimates used
Basis for Opinion
by the management of the Group.
We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom
of Saudi Arabia. Our responsibilities under those standards are further described in the Auditors’ Responsibilities
for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in
accordance with the professional code of conduct and ethics that are endorsed in the Kingdom of Saudi Arabia that
are relevant to our audit of the consolidated financial statements, and we have fulfilled our other professional code
of conducts and ethical responsibilities in accordance with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.

Annual Report 2017 111

 Recognition of electricity sales Change in financial reporting framework

Refer to Note 42 of the accompanying notes to the consolidated financial statements. Refer to Note 7 of the accompanying notes to the consolidated financial statements.

Key audit matter How the matter was addressed in our audit Key audit matter How the matter was addressed in our audit

For the year ended 31 December 2017, the Group Among other things, we performed the following For all periods up to and including the year ended 31 We performed the following procedures in relation to
recognized total electricity sales of SR 45.4 billion. procedures in relation to recognition of electricity December 2016, the Group prepared and presented change in financial reporting framework:
Electricity sales is recognized upon the issuance of sales revenue: its statutory consolidated Financial Statements in • Considered the Group’s governance process around
invoices to consumers based on their consumption of • Assessed the design and implementation, and tested accordance with generally accepted accounting the adoption of IFRS as endorsed in the Kingdom
the electricity. the operational effectiveness of the key controls standards in the Kingdom of Saudi Arabia issued by of Saudi Arabia, especially, in relation to matters
Unbilled electricity revenue which has not been invoiced relevant to management controls over revenue SOCPA. requiring management to exercise its judgment;
up to the date of the consolidated financial statements recognition. For the financial periods commencing 1 January 2017, • Obtained an understanding of the analysis performed
is recorded in the consolidated financial statements • Performed analytical procedures, including gross the applicable regulations require the Group to prepare by management to identify all significant differences
using estimates, assumptions and internal policies that margin analysis, and obtained explanations relating and present its consolidated Financial Statements between previous reporting framework and IFRS as
are significantly based on the management experience, to significant differences compared to the previous in accordance with International Financial Reporting endorsed in the Kingdom of Saudi Arabia which can
which might have a significant impact on the calculation year. Standards as issued by the International Accounting impact the Group’s financial statements;
of unbilled revenue and on the financial statements • Inquired from the management representatives Standards Board and endorsed in the Kingdom of Saudi • Evaluated the results of management’s analysis and
taken as a whole. regarding fraud awareness and the existence of any Arabia and other standards and pronouncements that key decisions taken in respect of the transition using
Further, revenue is considered one of the significant actual fraud cases. are issued by SOCPA (IFRS as endorsed in the Kingdom our knowledge of the relevant requirements of the
indications for measuring the performance of the • Tested sample of journal entries of accounts relating of Saudi Arabia). IFRS as endorsed in the Kingdom of Saudi Arabia and
Group. Accordingly, there are inherent risks regarding to significant risk areas identified. Accordingly, the Group has prepared its Consolidated our understanding of the Group’s business and its
the possibility of revenue overstatements. • Assessed the reasonableness of the managements Financial Statements, for the year ended 31 December operations;
Therefore, given the significance of revenue and the estimates and assumptions in relation to the 2017, under IFRS as endorsed in the Kingdom of • Tested the transition adjustments by considering
inherent risks in overstating the revenue amount and revenue recognized during the year. Saudi Arabia using IFRS 1 - “First time Adoption of management’s gap analysis, the underlying
the existence of significant estimates relating to the International Financial Reporting Standards” (IFRS 1). financial information and the computation of these
calculation of unbilled revenue, revenue recognition is As part of this transition to IFRS as endorsed in the adjustments; and
considered one of the key audit matters. Kingdom of Saudi Arabia, the Group’s management • Evaluated the disclosures made in relation to the
performed a detailed gap analysis to identify differences transition to IFRS as endorsed in the Kingdom
between the previous reporting framework and IFRS as of Saudi Arabia by considering the relevant
endorsed in the Kingdom of Saudi Arabia, determined requirements of IFRS 1.
the transition adjustments in light of this gap analysis
and relevant requirements of IFRS 1, and assessed
the additional disclosures required in the financial
statements.
We considered this as a key audit matter as the
transitional adjustments due to the change in the
financial reporting framework and transition related
disclosures in the financial statements require
additional attention during our audit.

112 Annual Report 2017

Other Information Auditors’ Responsibilities for the Audit of the Financial Statements

Management is responsible for the other information. The other information comprises the information included in the • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
annual report but does not include the consolidated financial statements and our auditors’ report thereon. The annual appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
report is expected to be made available to us after the date of this auditors’ report. Group’s internal control.
Our opinion on the consolidated financial statements does not cover the other information and we will not express any • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
form of assurance conclusion thereon. related disclosures made by the management.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
identified above when it becomes available and, in doing so, consider whether the other information is materially the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
to be materially misstated. exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated
When we read the annual report, if we conclude that there is a material misstatement therein, we are required to financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
communicate the matter to those charged with governance. audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
Management is responsible for the preparation and fair presentation of the consolidated financial statements in disclosures, and whether the consolidated financial statements represent the underlying transactions and events in
accordance with IFRS as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by a manner that achieves fair presentation.
SOCPA, Company’s By-laws and regulations and for such internal control as management determines is necessary to • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
fraud or error. supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to We communicate with those charged with governance regarding, among other matters, the planned scope and timing
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern of the audit and significant audit findings, including any significant deficiencies in internal control that we identify
basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic during our audit of Saudi Electricity Company (“the Company”) and its subsidiaries (“the Group”).
alternative but to do so. We also provide those charged with governance with a statement that we have complied with relevant ethical
Those Charged with Governance are responsible for overseeing the Group’s financial reporting process. requirements regarding independence, and communicate with them all relationships and other matters that may
Auditors’ Responsibilities for the Audit of the Financial Statements reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from significance in the audit of the consolidated financial statements of the current year and are therefore the key audit
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about
‘Reasonable assurance’ is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our
International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia will always detect a material report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually benefits of such communication.
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of these consolidated financial statements.
As part of an audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi
Arabia, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud For KPMG Al Fozan & Partners Date: 5 Ragab 1439 AH
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient Certified Public Accountants Corresponding to: 22 March 2018
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Abdullah Hamad Al Fozan
License No: 348

Annual Report 2017 113

SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of financial position as at 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Notes 31 December 2017 31 December 2016 1 January 2016

Assets

Non-current assets

Property, plant and equipment, net 10 404,289,536 374,009,392 331,716,685

Investment properties 11 535,144 538,595 538,595

Intangible assets, net 12 372,115 394,311 354,469

Equity accounted investees 13 1,529,472 1,570,338 1,607,223

Held-to-maturity investments 14 65,465 116,893 118,273

Available-for-sale financial assets 15 305,622 290,952 281,595

Deferred tax assets 36 35,401 - -

Total non-current assets 407,132,755 376,920,481 334,616,840

Current assets

Inventories, net 16 5,697,846 6,997,552 6,592,834

Electricity receivables, net 17 29,540,207 28,564,041 20,512,544

Loans and advances 18 1,497,630 3,290,970 4,974,034

Prepayments and other receivables 19 833,812 4,203,790 4,038,159

Cash and cash equivalents 20 1,058,210 1,045,387 1,848,367

Total current assets 38,627,705 44,101,740 37,965,938

Total assets 445,760,460 421,022,221 372,582,778

114 Annual Report 2017 The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of financial position as at 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Notes 31 December 2017 31 December 2016 1 January 2016

Equity and liabilities

Equity

Share capital 21 41,665,938 41,665,938 41,665,938

Statutory reserve 23 3,543,579 2,863,305 2,646,630

General reserve 23 696,294 569,506 557,898

Other reserves 24 106,897 (118,975) (507,211)

Retained earnings 25 26,296,699 20,618,023 16,836,693

Total equity 72,309,407 65,597,797 61,199,948

Liabilities

Non-current liabilities

Term loans 34 53,210,260 43,385,525 30,622,886

Sukuk 34 31,793,505 26,065,350 34,940,490

Government loans 34 44,364,627 42,411,517 39,991,482

Employees’ benefits obligation 26 7,602,894 6,080,262 6,594,911

Long term of deferred revenue 27 38,391,105 31,927,778 26,842,646

Deferred government grants 28 45,608,969 46,667,608 46,035,284

Derivative financial instruments 34 299,002 360,722 492,729

The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements Annual Report 2017 115
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of financial position as at 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Notes 31 December 2017 31 December 2016 1 January 2016

Asset retirement obligations 29 193,373 187,550 176,126

Deferred tax liability 36 269,195 - -

Total non-current liabilities 221,732,930 197,086,312 185,696,554

Current liabilities

Current portion of term loans 34 17,142,151 13,651,541 3,673,974

Sukuk 34 - 8,875,140 -

Trade payables 30 32,586,241 54,415,766 41,435,321

Accruals and other payables 31 7,530,262 6,832,304 7,012,457

Provision for other liabilities and charges 32 494,680 132,420 138,771

Customer refundable deposits 1,935,938 1,845,080 1,743,429

Government credit payables 33 80,550,577 58,099,049 58,098,794

Advance from customers 35 8,703,397 12,077,255 11,290,327

Current portion of deferred revenue 27 2,720,701 2,372,167 2,259,207

Derivative financial instruments 34 54,176 37,390 33,996

Total current liabilities 151,718,123 158,338,112 125,686,276

Total liabilities 373,451,053 355,424,424 311,382,830

Total equity and liabilities 445,760,460 421,022,221 372,582,778

116 Annual Report 2017 The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of profit or loss for the year ended 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Notes 31 December 2017 31 December 2016

Operating revenue 42 50,615,317 49,860,998

Cost of sales 43 (43,995,312) (43,008,530)

Gross profit 6,620,005 6,852,468

Other income, net 45 1,534,686 978,895

General and administrative expenses 44 (1,440,400) (1,060,516)

Human resource productivity improvements 26 (2,829,155) (110,257)

Exemption from municipal fees 46 6,119,546 -

Operating income for the year 10,004,682 6,660,590

Finance income 8,436 7,378

Finance expense (2,760,580) (2,061,184)

Finance costs, net 47 (2,752,144) (2,053,806)

Share of loss on investment accounted for using the equity method 13 (108,876) (59,835)

Profit for the year before zakat and tax 7,143,662 4,546,949

Zakat expenses 36 (4,875) (1,692)

Deferred tax expenses 36 (230,538) -

Net profit for the year 6,908,249 4,545,257

Earnings per share

(expressed in SR)

Basic and diluted earnings per share 40 1.66 1.09

The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements Annual Report 2017 117
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of comprehensive income for the year ended 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Notes 31 December 2017 31 December 2016

Net profit for the year 6,908,249 4,545,257

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss:

Change in fair value of available-for-sale financial assets 24 14,670 9,357

Cash flow hedges – Effective portion 24 41,678 124,971

Total items that may be reclassified to profit or loss 56,348 134,328

Items that will not be reclassified subsequently to profit or loss:

Re-measurement of employees benefits obligation 26 169,524 253,908

Total items that will not be reclassified to profit or loss 169,524 253,908

Other comprehensive income for the year 225,872 388,236

Total comprehensive income for the year 7,134,121 4,933,493

118 Annual Report 2017 The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of changes in equity as at 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Other reserves

Change in
Employees
Share Statutory General Fair value of fair value of Total other Retained Total
benefits
capital reserve reserve derivatives available for sale reserves earnings equity
obligation
financial assets

Balance at 1 January 2016 41,665,938 2,646,630 557,898 (516,176) - 8,965 (507,211) 16,836,693 61,199,948

Net profit for the year - - - - - - - 4,545,257 4,545,257

Other comprehensive income - - - 124,971 253,908 9,357 388,236 - 388,236

Total comprehensive income - - - 124,971 253,908 9,357 388,236 4,545,257 4,933,493

Transactions with contributors in their

capacity as owners

Dividends paid to shareholders relating to 2015 - - - - - - - (547,252) (547,252)

Transfer to statutory reserves - 216,675 - - - - - (216,675) -

Transfer to general reserves - - 11,608 - - - - - 11,608

Total transactions with contributors in their

- 216,675 11,608 - - - - (763,927) (535,644)
capacity as owners

Balance at 31 December 2016 41,665,938 2,863,305 569,506 (391,205) 253,908 18,322 (118,975) 20,618,023 65,597,797

Net profit for the year - - - - - - - 6,908,249 6,908,249

Other comprehensive income - - - 41,678 169,524 14,670 225,872 - 225,872

Total comprehensive income - - - 41,678 169,524 14,670 225,872 6,908,249 7,134,121

The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements Annual Report 2017 119
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of comprehensive income for the year ended 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

Other reserves

Change in
Employees
Share Statutory General Fair value of fair value of Total other Retained Total
benefits
capital reserve reserve derivatives available for sale reserves earnings equity
obligation
financial assets

Transactions with contributors in their

capacity as owners

Dividends paid to shareholders relating to 2016 - - - - - - - (547,252) (547,252)

Transfer to statutory reserves - 680,274 - - - - - (680,274) -

Transfer to general reserves - - 126,788 - - - - - 126,788

Disposal of equity in joint operations - - - - - - - (2,047) (2,047)

Total transactions with contributors in their

- 680,274 126,788 - - - - (1,229,573) (422,511)
capacity as owners

Balance at 31 December 2017 41,665,938 3,543,579 696,294 (349,527) 423,432 32,992 106,897 26,296,699 72,309,407

120 Annual Report 2017 The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of cash flows for the year ended 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

31 December 2017 31 December 2016

Cash flow from operating activities

Net profit for the year before zakat and income tax 7,143,662 4,546,949

Adjustments for:

Depreciation of property, plant and equipment 15,671,163 13,461,040

Amortization of intangible assets 97,368 16,284

Amortization of deferred government grant (1,058,639) (770,859)

Finance costs, net 2,752,144 2,053,875

Provision for doubtful debts 9,582 664,846

Provision for slow moving and obsolete inventory 303,707 (7,956)

Provision and other charges 364,777 -

Loss / (Gain) on disposal of property, plant and equipment 34,195 (5,904)

Exemption of municipality fees (6,119,546) -

Employee benefits obligation 3,382,792 913,638

Loss on sale of joint operation 327 -

Share of loss from associates using equity method 108,876 59,835

Cash flow after adjustment of non-cash items 22,690,408 20,931,748

The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements Annual Report 2017 121
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of changes in equity as at 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

31 December 2017 31 December 2016

Changes in working capital:

Inventories 875,287 (396,762)

Electricity receivables (1,010,748) (8,716,343)

Prepayments and other receivables 3,369,819 (162,241)

Loans and advances 1,784,415 1,672,739

Trade payables 6,937,273 12,980,445

Accruals and other payables 558,362 1,212,390

Customer refundable deposits 90,858 101,652

Advances from customers (3,373,858) 786,928

Deferred revenue 6,811,862 5,198,092

Net finance costs paid (3,245,235) (2,027,813)

Zakat paid (2,517) (6,505)

Employees benefits obligation paid (1,871,699) (1,308,871)

Net cash generated from operating activities 33,614,227 30,265,459

122 Annual Report 2017 The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company)
Consolidated statement of changes in equity as at 31 December 2017
(All amounts in thousands Saudi Riyals unless otherwise stated)

31 December 2017 31 December 2016

Cash flow from investing activities

Purchase of property, plant and equipment (43,143,262) (55,799,471)

Payments for investment in associated companies using equity method (68,010) (12,625)

Proceeds from sale of property, plant and equipment 49,846 51,629

Payments for intangible assets (75,405) (56,126)

Proceeds/(purchase) from/of held to maturity investments 51,428 (18,620)

Loan to an affiliate 8,925 -

Cash transferred on disposal of joint operations, net of cash received and retained earnings
(57,040) -
transferred

Net cash used in investing activities (43,233,518) (55,835,213)

Cash flow from financing activities

Proceeds from borrowings 18,750,313 28,286,714

Repayments of borrowings and sukuk (8,579,418) (2,983,711)

Dividends paid (538,781) (536,229)

Net cash generated from financing activities 9,632,114 24,766,774

Net change in cash and cash equivalents 12,823 (802,980)

Cash and cash equivalents at the beginning of the year 1,045,387 1,848,367

Cash and cash equivalents at end of the year 1,058,210 1,045,387

The accompanying notes from 1 to 51 form an integral part of these consolidated financial statements Annual Report 2017 123
SAUDI ELECTRICITY COMPANY (A Saudi Joint-stock Company) was made through the Council of Ministers’ Resolution Number 170 dated 12 Rajab 1421 AH
Notes to the consolidated financial statements for the year ended 31 December 2017 and was effective from 1 Sha’aban 1421 AH corresponding to 28 October 2000 whereby the

(All amounts in thousands Saudi Riyals unless otherwise stated) tariff on the highest bracket was set at a rate of 26 Halala per Kilowatts/hour.

1- Corporate information This was further amended by the Council of Ministers in its Decision (Number 333) dated 16
The Saudi Electricity Company was formed pursuant to the Council of Ministers’ Resolution Shawwal 1430 AH, corresponding to 5 October 2009, which granted the Board of Directors
Number 169 dated 11 Sha’ban 1419 AH corresponding to 29 November 1998, which of the Electricity and Co-generation Regulatory Authority the right to review and adjust the
reorganised the Electricity Sector in the Kingdom of Saudi Arabia by merging all local non-residential (commercial, industrial and governmental) electricity tariff and approve
companies that provided electricity services (10 joint stock companies that covered most of them as long as the change does not exceed 26 Halala for each kilowatt per hour, taking into
the geographical areas of the Kingdom), in addition to the projects of the General Electricity consideration, among other matters, the electrical consumption at peak times. This tariff was
Corporation, a governmental corporation belonging to the Ministry of Industry and Electricity implemented starting 19 Rajab 1431 AH, corresponding to 1 July 2010.
(11 operating projects that covered various areas in the north of the Kingdom) into the Holding
Company. On 17 of Rabi Awal 1437 AH corresponding to 28 December 2015, Council of Ministers issued
its resolution (number 95), increasing power products prices effective from 18 Rabi Awal
The Company was founded pursuant to the Royal Decree No. M/16 dated 6 Ramadan 1420 1437 AH corresponding to 29 December 2015, and increasing electricity consumption tariff
AH corresponding to 13 December 1999, in accordance with the Council of Ministers’ for all categories with the highest tranche of 32 Halala per Kilowatts/hour, which came into
Resolution Number 153, dated 5 Ramadan 1420 AH corresponding to 12 December 1999 effect from 1 Rabi Thani 1437 AH corresponding to 11 January 2016.
and the Minister of Commerce’s Resolution Number 2047 dated 30 Dhul-Hijjah 1420 AH
corresponding to 5 April 2000 as a Saudi Joint-stock company and registered in Riyadh On 24 of Rabi Awal 1439 AH corresponding to 12 December 2017, the Council of Ministers
under Commercial Registration Number 1010158683, dated 28 Muhurram1421 AH issued a resolution (166) to increase the prices of energy products and electricity
corresponding to 3 May 2000. consumption rates for some categories of subscribers and change after consumption
segments from 1 January 2018. According to Royal Decree No. 14006 dated 23 Rabi'al-Awwal
The Company’s principal main activities are generation, transmission and distribution of electric 1439 AH corresponding to 11 December 2017, the Holding Company shall pay a State fee
power. The Company is the major provider of electric power all over the Kingdom of Saudi equivalent to the difference between the previous tariff and the new tariff.
Arabia, serving governmental, industrial, agricultural, commercial and residential consumers.
According to the Holding Company's bylaws, the financial year begins on 1st January and
The Company is a tariff-regulated company of electricity. Electricity tariffs are determined by ends on 31st December of each Gregorian year.
the Council of Ministers based on recommendations from the Electricity and Co-generation
Regulatory Authority (the “Authority”) which was established on 13 November 2001 according Saudi Electricity Company will be referred to as (“Company”) or together with its subsidiaries
to Council of Ministers’ Resolution No. 169 dated 11 Sha’aban 1419 AH. The change on tariff and joint operations as (“Group”) throughout the financials.

124 Annual Report 2017

The address of its registered headquarter is located in Riyadh, Kingdom of Saudi Arabia. 3.1- Changes in accounting policies and disclosures
The standards and interpretations that are issued, but not yet effective, up to the date of
2- Basis of preparation issuance of the Group’s consolidated financial statements are disclosed below. The Group
The consolidated financial statements of the Group have been prepared in accordance with intends to adopt these standards, if applicable, when they become effective.
International Financial Reporting Standards ("IFRS") adopted in Saudi Arabia and other
standards and regulations adopted by the Saudi Organization of Certified Public Accountants. Standards issued but not yet applied
There are a number of new standards and amendments to the standards applicable to
For all periods up to and including the year ended 31 December 2016, the Group prepared annual periods beginning after 1 January 2018 and may be applied before that date; however,
its consolidated financial statements in accordance with the generally accepted accounting the Group has not early adopted the following new or revised standards in the preparation of
standards in Kingdom of Saudi Arabia issued by the Saudi Organization for Certified Public these consolidated financial statements.
Accountants (SOCPA), (previous Saudi accounting standards).
IFRS 9: Financial Instruments
Effective from 1 January 2017, the Board of Directors of Saudi Organization for Certified IFRS 9 Financial Instruments addresses the classification, measurement and de-recognition
Public Accountants decided to adopt the International Financial Reporting Standards, of financial assets and financial liabilities, introduces new rules for hedge accounting and a
which requires the Group to prepare and present the consolidated financial statements in new impairment model for financial assets. The standard does not need to be applied until 1
accordance with the International Financial Reporting Standards (IFRS) adopted in Saudi January 2018 but is available for early adoption. The Group elected not to early adopt IFRS 9.
Arabia and the other standards and guidelines approved by the Saudi Organization of
Certified Public Accountants. The consolidated financial statements have been prepared in The Group’s financial assets would appear to satisfy the conditions for classification as either
accordance with these standards. amortised cost or fair value through other comprehensive income or fair value through profit
or loss.
3- First time adoption of IFRS
The effect of the transition to IFRS on the statement of financial position as at 31 December The new impairment model requires the recognition of impairment provisions based on
2016 and the consolidated statement of income for the year ended 31 December 2016 is shown expected credit losses rather than only incurred credit losses as is the case under IAS 39.
in note 7, including the nature and outcome of significant changes resulting from the change in It applies to financial assets classified at amortised cost, debt instruments measured at
the accounting policies of the Group for the year ended 31 December 2016. These consolidated fair value through other comprehensive income, contract assets under IFRS 15 Revenue
financial statements should be read in conjunction with the annual consolidated financial from Contracts with Customers, lease receivables, loan commitments and certain financial
statements prepared in accordance with the previous accounting framework "Accounting guarantee contracts.
standards generally accepted” in the Kingdom of Saudi Arabia, issued by the Saudi Organization
for Certified Public Accountants (SOCPA) for the year ended December 31, 2016.

Annual Report 2017 125

Although the Group has not yet performed a detailed assessment of the impact of • The Group believes that the impairment losses are likely to increase and become more
impairment on the new model, it is likely to result in early recognition of credit losses. On volatile for assets that fall within the scope of the decline in value in IFRS 9
the basis of its initial assessment, the Group does not believe that the new classification
requirements, if applied at 31 December 2017, will have a material impact on their • The Group has not classified any financial liabilities at fair value through profit or loss and
calculation of trade receivables, loans and investments in debt securities and investments in the Group has no intention of doing so at the present time. The Group's initial assessment
equity securities that are managed on a fair value basis did not show any material effect if the requirements of IFRS 9 were applied in respect of
classification of financial liabilities as at 31 December 2017.
The new standard also introduces expanded disclosure requirements and changes in
presentation. These are expected to change the nature and extent of the Group’s disclosures IFRS 15: Revenue from contracts with customers
about its financial instruments. The International Accounting Standards Board (IASB) has issued a new standard for the
recognition of revenue IFRS 15 Revenue from contracts with customers”. This will replace IAS
IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early 18 Revenue which covers revenue arising from the sale of goods and the rendering of services
application permitted. Except for hedge accounting, retrospective application is required and IAS 11 Construction Contracts which covers revenue from construction contracts.
but providing comparative information is not compulsory. For hedge accounting, the
requirements are generally applied prospectively, with some limited exceptions. The new standard is based on the principle that revenue is recognised when control of a
goods or services transfers to a customer.
• The actual impact of the application of IFRS 9 on the Group's consolidated financial
statements for the year 2018 is not known and cannot be reliably estimated as it depends The standard permits either a full retrospective or a modified retrospective approach for
on the financial instruments held by the Group and the economic conditions at that time the adoption. The new standard is effective for first interim periods within annual reporting
as well as the accounting estimates and judgments that the Group will make in future. The periods beginning on or after 1 January 2018, and allows early adoption. The Group elected
new standard requires the Group to review its accounting procedures and internal controls not to early adopt IFRS 15.
relating to the financial instruments for which reports are being issued. These changes IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue
have not yet been finalised. However, the Group has made an initial assessment of the arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount
possible effects of the application of IFRS 9 on the basis of its positions as of 31 December that reflects the consideration to which an entity expects to be entitled in exchange for
2017 and the hedging relationships specified in 2017 in accordance with IAS 39. transferring goods or services to a customer.

• On the basis of its initial assessment, the Group does not believe that the new IFRS 16: Leases
classification requirements, if applied at 31 December 2017, will have a material impact The IASB has issued a new standard for the recognition of leases. This standard will replace
on their calculation of trade receivables, loans and investments in debt and equity IAS 17 “Leases”:
securities that are managed on a fair value basis.

126 Annual Report 2017

 • IFRIC 4 – ‘Whether an arrangement contains a lease’ These consolidated financial statements of the Group have been presented in Saudi Riyal,
• SIC 15 – ‘Operating leases – Incentives’ which also represents the functional and presentation currency. All values are shown to the
• SIC-27 – ‘Evaluating the substance of transactions involving the legal form of a lease’ nearest thousand SR unless otherwise stated.

Under IAS 17, lessees were required to make a distinction between a finance lease (on The Group's consolidated financial statements were approved on 20 March 2018
consolidated statement of financial position) and an operating lease (off consolidated corresponding to 3 Rajab 1439 AH.
statement of financial position).
5- Use of estimates, assumptions and judgements
IFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments The preparation of the Group’s consolidated financial statements in accordance with IFRS
and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional requires management to make judgments, estimates and assumptions that affect the
exemption of certain short-term leases and leases of low-value assets. reported amounts of revenues, costs, assets and liabilities, and the disclosure of contingent
liabilities, at the reporting date.
The mandatory date for adoption for the standard is 1 January 2019, and allows early
adoption. The Group elected not to early adopt IFRS 16. Estimates and judgements are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable
The Group is currently assessing the impact of the application of the standards and the under the circumstances.
amendments mentioned above.
Revisions to accounting estimates are recognised in the period in which the estimates are
4- Measurement basis revised or in the revision period and future periods if the changed estimates affect both
The consolidated financial statements have been prepared on a historical cost basis, except current and future periods.
for available-for-sale financial assets and financial liabilities that have been measured at
fair value. 5.1- Use of estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting
The Group is required to comply with the cost model for real estate, property, plant and estimates may, by definition, seldom equal the related actual results. The estimates and
equipment and intangible assets for a period of 3 years from the date of application of the assumptions that have a significant risk of causing a material adjustment to the carrying
International Financial Reporting Standards in accordance with the circular issued by the amounts of assets and liabilities within the next financial year are addressed below.
Capital Market Authority on 16 October 2016.

Annual Report 2017 127

Impairment of non-financial assets When some or all of the economic benefits required to settle a provision are expected to
At each reporting date, the Group reviews the carrying amounts of its assets to assess be recovered from a third party, the receivable is recognised as an asset if it is virtually
whether there is an indication that those assets may be impaired. If any such indication certain that reimbursement will be received and the amount of the receivable can be
exists, the Group makes an estimate of the asset’s recoverable amount. An asset’s measured reliably.
recoverable amount is the higher of an asset’s fair value less costs to sell and its value in
use. In assessing value in use, the estimated future cash flows attributable to the asset are Useful lives of property, plant and equipment
discounted to their present value using a pre-tax discount rate that reflects current market The Group’s management determines the estimated useful life of its property, plant and
assessments of the time value of money and the risks specific to the asset. In determining equipment for calculating depreciation. This estimate is determined after considering the
fair value less costs to sell, recent market transactions are taken into account. expected usage of the asset or physical wear and tear. The management at least annually
reviews the estimated useful lives and the depreciation method to ensure that the method
If the recoverable amount of an asset is estimated to be less than its carrying amount, the and periods of depreciation are consistent with the expected pattern of economic benefit of
carrying amount of the asset is reduced to its recoverable amount. An impairment loss is the assets.
recognised immediately in the consolidated statement of profit or loss.
Assumptions for employee benefits obligation
Where an impairment loss subsequently reverses, the carrying amount of the asset is Employee benefits obligation represent obligations that will be settled in the future and
increased to the revised estimate of its recoverable amount, but only to the extent that the require assumptions to project obligations. IAS 19 requires management to make further
increased carrying amount does not exceed the carrying amount that would have been assumptions regarding variables such as discount rates, rate of compensation increases,
determined had no impairment loss been recognised for the asset in prior years. A reversal of mortality rates, employment turnover and future healthcare costs. The Group’s management
an impairment loss is recognised immediately in the consolidated statement of profit or loss. use an external actuary for performing this calculation. Changes in key assumptions can
have a significant impact on the projected benefit obligation and/or periodic employees’
Provisions benefits costs incurred.
Provisions are recognised when the Group has a present obligation (legal or constructive) as
a result of a past event, it is probable that the Group will be required to settle the obligation, Asset retirement obligation (ARO)
and a reliable estimate can be made of the amount of the obligation. Significant estimates and assumptions are made in determining the provision for ARO as
there are numerous factors that will affect the ultimate amount payable. These factors
The amount recognised as a provision is the best estimate of the consideration required include estimates of the extent and costs of rehabilitation activities, technological changes,
to settle the present obligation at the reporting date, taking into account the risks and regulatory changes, cost increases as compared to the inflation rates and changes in
uncertainties surrounding the obligation. Where a provision is measured using the cash discount rates. These uncertainties may result in future actual expenditure differing from the
flows estimated to settle the present obligation, its carrying amount is the present value of amounts currently provided. The provision at the reporting date represents management’s
those cash flows. best estimate of the present value of the future costs.

128 Annual Report 2017

Zakat and tax Deferred tax liabilities relating to temporary taxable differences arising from investments
The Holding Company and its subsidiaries are subject to the legislation of the General Authority in subsidiaries, joint operations and associates are recognised, except when the Group has
of Zakat and Tax (”GAZT”). Accrual of Zakat is recognised in the consolidated statement of profit the ability to reverse these temporary differences. These temporary differences may not be
or loss. Additional zakat and tax liabilities, calculated by Authorities, if any, related to prior years reversed in the foreseeable future.
zakat declaration is recognised in the year in which final declaration is issued.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to
Foreign shareholders in the Group are subject to income tax. Tax expense, which includes the extent that it is no longer probable that sufficient taxable profit will be available to allow
current tax expense and deferred tax, is charged to the statement of profit or loss of the all or part of the deferred tax asset to be utilised.
company and its subsidiaries as per the legislation of the General Authority of Zakat and Tax.
Deferred tax is calculated on the basis of the tax rates expected to be applied in the period
Tax expense, which includes current tax expense and deferred tax, is charged to the in which the liability is settled or the asset is verified based on the applicable laws or
consolidated statement of profit or loss. substantially expected to be enacted at the reporting date. The deferred tax is charged or
recovered from the consolidated statement of profit or loss except in the case that it is
The current tax payable is calculated on the basis of the taxable profit for the year. The tax attributable to items carried or recovered directly from equity. In this case, deferred tax is
profit differs from the net profit presented in the consolidated statement of profit or loss treated directly in equity.
because it excludes taxable or deductible items of income or expense in subsequent years
and excludes items that are not taxable or non-deductible. The Group's liabilities are charged Assumptions for fair value financial derivatives
to the current tax using the applicable tax rates or substantially expected to be applied at the The Group uses the most observable market inputs when measuring the fair value of an
reporting date. asset or a liability. Fair values are classified in a fair value hierarchy based on the inputs used
in the valuation which are shown as follows:
Deferred tax is recognised in respect of temporary differences between the carrying amounts • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that
of assets and liabilities for the purposes of the financial report and tax amounts used for can be obtained at the measurement date.
tax purposes. Deferred tax liabilities are normally recognised for all taxable temporary • Level 2: Inputs other than quoted prices included within level 1 that are observable for the
differences. Deferred tax assets are recognised to the extent that it is probable that there will asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
be taxable profits that can be used against temporary differences that are deductible. These • Level 3: Inputs for the asset or liability that are not based on observable market data
assets and liabilities are not recognised in the event that temporary differences arise from (that is, unobservable inputs).
the initial recognition of goodwill or return to assets or liabilities in an ineffective operation
over tax or accounting profit except in the case of a business combination.

Annual Report 2017 129

5.2- Use of judgements in applying the Group’s accounting policies By analysing the substance of the current terms of the arrangements, the management
5.2.1- Joint operations - Independent Power Producers and Independent Water and Power Project considers that they do not meet the finance lease requirements in accordance with IAS 17
A joint operation is a joint arrangement whereby the parties that have joint control of the and should be classified as operating leases.
arrangement have rights to the assets and obligations for the liabilities relating to the
arrangement. Other items of property, plant and equipment
• The Group has established a number of short-term lease arrangements for the lease
Based on the Group’s control assessment, investments held in five different companies of different types of motor vehicles and computers in order to support its day to day
and WEC (one sold during 2017) are classified as joint operations. Based on management’s operations. It is highly improbable for the Group to renew the rental lease agreements for
judgement, the contractual arrangement establishes that the parties to the joint arrangement a period more than the initial 3-year agreement period.
share their interests in all assets relating to the arrangement. • Management considers the Group is not exposed to a majority of the risks and rewards
of ownership of the leased assets. Accordingly, in consideration of the facts and evidence,
Therefore, the Group recognises in relation to their interest in assets, liabilities, income and it is deemed appropriate to classify the motor vehicle and computers arrangement as an
expenses in the above mentioned joint operations. operating lease in accordance with the requirements of IAS 17.

5.2.2- Determining whether an arrangement contains a lease 6- Summary of significant accounting policies
Independent Power Producers 6.1- Basis of consolidation of financial statements
Over a period of time, the Group established a number of Independent Power Project 6.1.1- Subsidiaries
arrangements in order to develop, construct, own, operate and maintain electricity generation Subsidiaries are all entities over which the Group has control. Control is achieved when the
plants all over the Kingdom. A key input to these power plants is the fuel used in the turbines Group is exposed, or has rights, to variable returns from its involvement with the investee
for the production of electricity, this is provided to SEC at a subsidised rate that has been and has the ability to affect those returns through its power over the investee. Specifically,
agreed between the Group and Saudi Aramco (sole supplier of fuel in KSA) and is supplied to the Group controls an investee if and only if the Group has:
the power plants free of charge under Independent power projects arrangement.
• Power over the investee (i.e. existing rights that give it the current ability to direct the
Standard agreements are in place to govern Independent Power Projects. Under the terms relevant activities of the investee).
of the arrangements, Independent power projects will build and operate a power plants to • Exposure, or rights, to variable returns from its involvement with the investee.
generate electricity using fuel supplied by the Group. The Group will offtake all of the plants’ • The ability to use its power over the investee to affect its returns.
generated power.
Generally, there is a presumption that a majority of voting rights results in control. To support
this presumption and when the Group has less than a majority of the voting or similar

130 Annual Report 2017

rights of an investee, the Group considers all relevant facts and circumstances in assessing Details of subsidiaries are as follows:
whether it has power over an investee, including:
Country of
Equity in ordinary
• The contractual arrangement with the other vote holders of the investee; registration
Company Name shares % Main Activity
• Rights arising from other contractual arrangements; and and place of
31 December 2017
• The Group’s voting rights and potential voting rights. business

National Grid S.A. Company Kingdom of

Non-controlling interests are measured by their proportionate share of the identifiable net 100 Transmission
“Grid Company” Saudi Arabia
assets of the acquiree at the date of acquisition.
Kingdom of
The Group re-assesses whether or not it controls an investee if facts and circumstances Dawiyat Telecom Company 100 Telecom
Saudi Arabia
indicate that there are changes to one or more of the three elements of control. The
consolidation of a subsidiary is commenced when the Group obtains control over the Kingdom of
Electricity Sukuk Company 100 Finance
subsidiary and ceases when the Group loses control of the subsidiary. Subsidiaries are fully Saudi Arabia

consolidated from the date on which control is transferred to the Group and deconsolidated Saudi Electricity for Projects Kingdom of Project
100
from the date that control ceases. Development Co. Saudi Arabia Management

Saudi Electricity Global Sukuk

Cayman Islands 100 Finance
The share of profit or loss and net assets not controlled by the Group are presented Company
separately in the consolidated statement of income and within equity in the consolidated
Saudi Electricity Global Sukuk
statement of financial position. If the Group retains any interest in the former subsidiary, that Cayman Islands 100 Finance
Company - 2
interest is measured at fair value on the date that control ceases.
Saudi Electricity Global Sukuk
Cayman Islands 100 Finance
Company - 3
Inter-company transactions, balances and unrealised gains or losses on transactions between
Group companies are eliminated. When necessary, accounting policies of the subsidiaries have Saudi Power Purchase Kingdom of
100 Main Buyer
been changed to ensure consistency with the policies adopted by the Group. Company Saudi Arabia

Annual Report 2017 131

These consolidated financial statements include the assets, liabilities and results of operations On 25 Rajab 1437 AH (corresponding to 2 May 2016), Dawiyat Telecom Company
of the subsidiaries referred to in the table above. The percentage of voting rights owned by the obtained license no. 37-20-001 to provide type (B) services from the Telecommunication
Company in subsidiaries is not different from that of the ordinary shares held. The financial and Information Technology Authority. The license period is for 10 Years that ends on
year of the subsidiaries starts from the beginning of January and ends at the end of December 24/7/1447 AH.
of each calendar year. The following is a breakdown of the Saudi Electricity Company's
subsidiaries: Dawiyat Telecom Company main activity is the construction, leasing, managing and
operating of electric and fibre optics networks to provide telecommunication services
1. The National Grid S.A. is a limited liability company registererd in Riyadh, Kingdom of
Saudi Arabia under commercial registration numbered 1010306123 dated 29 Rabi Thani 3. Electricity Sukuk Company is a limited liability company established in Riyadh, Kingdom
1432 AH, (corresponding to 3 April 2011). NGS is wholly owned by Saudi Electricity of Saudi Arabia under commercial registration number 1010233775 dated 16 Jumad
Company. The Company is engaged in electricity transmission activities including Awal 1428 AH (corresponding to 2 June 2007), ESC is wholly owned by Saudi Electricity
operating, controlling and maintenance of the electricity transmission system and leasing Company.
of transmisson line capacity. The Company provides services to one customer (the Saudi
Electricity Company). The principal activity of Electricity Sukuk Company is to provide support services required
with respect to sukuks issued by the Holding Company, its subsidiaries and other related
National Grid company was formed as a part of the Company’s plan to split its main companies, after obtaining the required approval from relevant authorities.
activities into separate companies pursuant to the board of directors resolution no.
1/81/2008 dated 25 Dhul Hijjah 1429 AH corresponding to 23 December 2008 and Electricity Sukuk Company was incorporated to act as a trustee of special assets (Sukuk
resolution no. 1/86/2009 dated 7 Jumada Al Awal 1430 AH corresponding to 3 May 2009. assets) according to the agreements of transferring the sukuk assets between ESC
Accordingly, the Company’s board of directors agreed on 1 January 2012 to transfer all of (as a trustee or custodian), the Holding Company (as issuer) and SABB for financial
the Saudi Electricity Company tranmission activity’s assets and liabilities to National Grid instruments (as agent for the sukuk holders).
company at their net book value as of 1 January 2012.
4. Saudi Electricity for Projects Development Company was established in the Kingdom
2. Dawiyat Telecom Company is a limited liability company established in Riyadh, Kingdom of Saudi Arabia as a limited liability company. The company’s activity is to manage
of Saudi Arabia under commercial registration number 1010277672 dated 25 Dhul- construction projects, develop detailed designs, purchase materials, and execute projects
Hijjah 1430 AH (corresponding to 12 December 2009), in accordance with the Company’s in the energy sector.
articles of association dated 23 Jumad Thani 1430 AH (corresponding to 16 June 2009),
and is wholly owned by Saudi Electricity Company. 5. Saudi Electricity Global Sukuk Company was established in the Cayman Islands as a
limited liability company, The was established to provide the necessary services and
support for the issuance of international bonds and Sukuk.

132 Annual Report 2017

6. The Electric Company for International Sukuk-2 was established in the Cayman Islands
Country of
as a limited liability company. The company was established to provide the necessary
incorporation
services and support in the issuance of international bonds and Sukuk. Joint operations Ownership percentage in ordinary shares
and place of
business
7. The Electric Company for International Sukuk-3 was established in the Cayman Islands
31 December 31 December 1 January
as a limited liability company. The company was established to provide the necessary Independent Power Producers
2017 2016 2016
services and support in the issuance of international bonds and Sukuk.
Hajr for Electricity Kingdom of
50 50 50
8. The Group has established the Saudi Power Purchase Company, wholly owned by the Production Company Saudi Arabia
Saudi Electricity Company under Commercial Registration No. 1010608947 dated 31 Rabigh Electricity Kingdom of
20 20 20
May 2017. The main activity of the Company is to carry out the main buyer's activity in Company Saudi Arabia
accordance with the provisions of the license issued by the Electricity and Co-Generation Dhuruma Kingdom of
Regulatory Authority. The purchase and sale of electricity and the conclusion of the 50 50 50
Electricity Company Saudi Arabia
necessary agreements, which do not yet have any assets or liabilities and have not
Al Mourjan
engaged in any material transactions and therefore have no balances that have been Kingdom of
for Electricity 50 50 50
consolidated in the accompanying consolidated financial statements. Saudi Arabia
Production Co.

Independent Water and Power Projects

6.1.2- Joint-operations
A joint arrangement is an arrangement in which two or more parties have joint control. Joint Water and Kingdom of
- 50 50
operations are divided into joint ventures or projects based on relevant rights and obligations. Electricity Co. Saudi Arabia
Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the 1. Pursuant to the Board of Directors’ Resolution No. 4/95/2010 dated 12 Ramadan 1431 AH
parties sharing control. corresponding to 22 August 2010. The Group established Hajr for Electricity Production
Company with a share capital of SR 2 million. During 2011, a new partner was admitted
Based on the valuation of the Group's control, investments held in four different companies and the capital was increased by SR 8 million to become SR 10 million, fully paid. The
and a water and electricity production company are classified as joint operations. Based on Group ’s share became 50% of total shareholder’s equity, furthermore during 2015, the
the management's judgment, the contractual arrangement provides that the parties share Group contributed in the capital increase of Hajr for Electricity Production Company
all the assets in the order. The following is a breakdown of Saudi Electricity Company's –according to its ownership percentage- by an amount of SR 1,248 million which was
joint operations:

Annual Report 2017 133

 transferred from loan extended previously. The Group’s share in Hajr for Electricity Company” pursuant to the Supreme Economic Council’s Decision No. 5/23 dated 23
Production Company capital became SR 1,253 million. Rabi Awal 1423 AH which encourages the participation of the private sector in the
water desalination project. The Group’s share at inception amounting to SR 15 million
2. Pursuant to the Board of Directors’ Resolution No. 06/76/2008 dated 26 Jumad Awal was paid in full and consists of 300,000 share representing 50% of the investee’s share
1429 AH corresponding to 3 June 2008, the Group established Rabigh Electricity capital. The Holding Company transferred its entire share in the ownership of the Water
Company with a share capital of SR 2 million. During 2009, Rabigh Electricity Company and Electricity Company to the Government pursuant to the decision of the Council of
increased its capital from SR 2 million to SR 10 million by admission of new partners and Ministers No. 494 of 5 Sha'ban 1438 AH corresponding to 1 May 2017. Accordingly, the
the Group’s share became 20% of the partners’ shareholding. Holding Company did not perform the relative consolidation of its share in the Water and
Electricity Company as at 31 December 2017.
During 2013, the Group contributed in the capital increase of Rabigh Electricity Company
–according to a signed partner’s agreement- by an amount of SR 183 million which 6.1.3- Equity-accounted investees
was transferred from loan extended previously. The Group’s share in Rabigh Electricity Companies in which the Company has the ability to exercise significant influence over
Company capital became SR 185 million. operating and financial policies and joint operation are recorded in the consolidated financial
statements using the equity method of accounting. The shares in associates and joint
3. Pursuant to the Board of Directors’ Resolution No. 4/88/2009 dated 18 Ramadan 1430 AH ventures are recognised using the equity method of accounting and are initially recognised
corresponding to 8 September 2009, the Group established Dhuruma Electricity Company at cost, which includes transaction costs. After initial recognition, the consolidated financial
(a closed Joint-stock company) with a share capital of SR 2 million. During 2011, a new statements include the Group's share of profit or loss and other comprehensive income of
partner has been admitted and the capital has been increased by SR 2 million to become the investee companies using the equity method until the date that such significant influence
SR 4 million. The Group’s share represents 50% of the investee’s share capital. or joint control ceases.

4. Pursuant to the Board of Directors’ Resolution No. 4/107/2012 dated 27 Rabi Awal 1433 AH Significant influence is the power to participate in the investee’s financial and operating
corresponding to 19 February 2012, the Group established Al Mourjan for Electricity policy decisions, but is not control or joint control over those policies.
Production Company (a closed Joint-stock company) with a share capital of SR 2 million.
During 2013, a new partner was admitted and the capital was increased to SR 10 million.
The Group’s share represents 50% of the investee’s share capital.

5. The Group entered into a partnership agreement with Saline Water Conversion
Corporation to establish a limited liability company in the name of “Water and Electricity

134 Annual Report 2017

 B) Transactions and balances
Country of
Equity-accounted Foreign currencies are initially recorded at functional currency spot rates at the date the
registration % Ownership
investees transaction first qualifies for recognition. Monetary assets and liabilities denominated in
and activity
foreign currencies are translated at the functional currency spot rates of exchange at the
31 December 31 December 1 January
reporting date.
2017 2016 2016

Gulf Cooperation Differences arising on translation of monetary items are recognised in the consolidated
Kingdom of
Council Interconnection 31.6 31.6 31.6 statement of profit or loss.
Saudi Arabia
Authortiy

Laboratory Company to Non-monetary items that are measured at historical cost in a foreign currency are translated
Kingdom of
Inspect Electrical 25 25 - using the spot exchange rates at the dates of the initial transactions.
Saudi Arabia
Equipment

Al Fadhly Co- Foreign exchange differences resulting from the translation of deferred cash flow hedges
Kingdom of
Generation 30 30 - are recognised to the extent that the hedge is effective in the other comprehensive income
Saudi Arabia
Company statement.

Green Saudi Company Kingdom of

51 - - 6.3- Property, plant and equipment
for Carbon Services Saudi Arabia
Property, plant and equipment (except land and projects under construction) are stated
at cost, net of accumulated depreciation and accumulated impairment losses, if any.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the
Land and projects under construction are carried at cost less any losses resulting from
Group’s carrying amount is reduced to nil and recognition of further losses is continued
the accumulated impairment in value, if any. The cost includes all amounts necessary to
when the Group has incurred legal or constructive obligations or made payments on behalf
bring the asset to the present condition and location to be ready for its intended use by
of an investee.
the management. Such costs include the cost of replacing part of the property, plant and
equipment and borrowing costs for long-term construction projects (qualifying assets), if
6.2- Foreign currencies
the recognition criteria are met, and costs incurred during the commissioning period, net of
A) Functional and presentation currency
proceeds from sale of trial production.
Items included in the consolidated financial statements of each of the Group’s entities are
measured using the currency of the primary economic environment in which each respective
entity operates (the “functional currency”). The consolidated financial statements are
presented in Saudi Riyals, which is the functional and presentation currency.

Annual Report 2017 135

When parts of property, plant and equipment are significant in cost in comparison to the total An item of property, plant and equipment and any significant component initially recognised
cost of the item, and where such parts/ components have a useful life different from the other is derecognised upon disposal or when no future economic benefits are expected from its
parts and required to be replaced at different intervals, the Group shall recognise such parts as use or disposal. Gains and losses on disposal of retired, sold or otherwise derecognised
individual components of the asset with specific useful lives and depreciate them accordingly. property, plant and equipment are determined by comparing the proceeds with the carrying
Likewise, when a major overhaul (planned or unplanned) is performed, its directly attributable amount of the asset, and are recognised within ‘‘Other Income, net’’ in the consolidated
cost is recognised in the carrying amount of property, plant and equipment if the recognition statement of profit or loss.
criteria are satisfied. The useful life of a major overhaul is generally equal to the period up
to the next scheduled overhaul. The carrying amount of the replaced part is derecognised. If An asset’s carrying amount is written-down immediately to its recoverable amount if the
the next major overhaul occurs prior to the planned date, any existing net book value of the asset’s carrying amount is greater than its estimated recoverable amount.
previous major overhaul is expensed immediately. All other repair and maintenance costs are
recognised in the consolidated statement of profit or loss as incurred. 6.4- Investment properties
Investment properties are lands held for purposes other than for use in Group’s operating
Depreciation is calculated from the date the item of property, plant and equipment is activities. The Group holds investment properties for rental income and/or capital
available for their intended use or in respect of self-constructed assets from the date such appreciation purposes. Investment properties are measured in accordance with the cost
assets are completed and ready for the intended use. Depreciation on assets is calculated on model and as these properties are land, they are not depreciated.
a straight-line basis over the useful life of the asset as follows:
Investment properties are derecognised when they are sold or when they become occupied
Buildings 10 – 40 years by the owner or if they are not held to increase their value.

Machinery and equipment 5 – 30 years

6.5- Intangible assets
Transmission and distribution network 5 – 40 years
Intangible assets acquired separately are measured at cost upon initial recognition. Following
Capital spare parts 10 – 25 years initial recognition, intangible assets are carried at cost less any accumulated amortisation
Vehicles and heavy equipment 5 – 15 years and accumulated impairment losses, if any.
Others 5 – 25 years
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible

Land and capital work in progress are not considered for depreciation. assets with finite lives are amortised over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The

The assets’ residual values, useful lives and methods of depreciation are reviewed, and amortisation period and the amortisation method for an intangible asset with a finite useful

adjusted prospectively if appropriate, at the end of each year.

136 Annual Report 2017

life are reviewed at least at each financial year-end. Changes in the expected useful life or generating unit, “CGU”). Non-financial assets other than goodwill that have been fully or
the expected pattern of consumption of future economic benefits embodied in the asset, partially impaired are reviewed for possible reversal of all or part of the impairment loss at
are accounted for by changing the amortisation period or method, as appropriate, and are the end of each reporting period.
treated as changes in accounting estimates. The amortisation expense on intangible assets
with finite lives is recognised in the consolidated statement of profit or loss in the expense Intangible assets that have an indefinite useful life are not subject to amortisation and are
category consistent with the function of the intangible asset. Amortisation of intangible instead tested annually for impairment. Assets subject to amortisation/depreciation are
assets is calculated on a straight-line basis over the useful life of the asset as follows: reviewed for impairment whenever events or change in circumstances indicate that the
carrying amount may not be recoverable.
Software 10 years
6.7- Financial instruments
Right-of-use pipeline 20 years
6.7.1- Financial assets

The useful life of an intangible asset with a definite life is reviewed regularly to determine
Classifications
whether there is any indication that its current life assessment continues to be supportable.
The Group classifies its financial assets in the following categories:
If not, the change in the useful life assessment is made on a prospective basis. Intangible
• Financial assets at fair value through profit or loss.
assets with indefinite useful lives are not amortised, but are tested for impairment annually
• Loans and receivables.
and whenever there is an indication that the intangible asset may be impaired either
• Available-for-sale financial assets.
individually or at the aggregated cash generating unit level.
• Held-to-maturity investments.

Gains or losses arising from derecognising an intangible asset are measured as the
The classification depends on the purpose for which the investments were acquired.
difference between the net disposal proceeds and the carrying amount of the asset and are
Management determines the classification of its investments at initial recognition and, in the
recognised in the consolidated statement of profit or loss when the asset is derecognised.
case of assets classified as held-to-maturity, re-evaluates this designation at the end of each
reporting period.
6.6- Impairment of non-financial assets
An impairment loss is recognised for the amount by which the asset’s carrying amount
A) Financial assets at fair value through statement of profit or loss
exceeds its recoverable amount. The recoverable amount is the highest of an asset’s fair
Financial assets at fair value through statement of profit or loss are initially recognised at
value less cost of disposal and value in use. For the purpose of assessing impairment, assets
fair value. After initial recognition, gains and losses arising from changes in fair values are
are grouped at the lowest levels for which there are separately identifiable cash inflows
included in the consolidated statement of profit or loss in the period in which they arise.
which are largely independent of the cash inflows from other assets or group of assets (cash
Interest earned and dividends received are included in "other income" in the consolidated
statement of profit or loss.

Annual Report 2017 137

B) Loans and receivables Measurement
Loans and receivables are non-derivative financial assets with fixed or determinable Available-for-sale financial assets and financial assets at fair value through profit or loss are
payments that are not quoted in an active market. They are included in current assets, subsequently carried at fair value. Gains or losses arising from changes in the fair value are
except for maturities greater than 12 months after the end of the reporting period, recognised as follows:
these are classified as non-current assets. The Group’s loans and receivables comprise
‘electricity receivables’, ‘loans and advances’ and ‘prepayments and other receivables’ in the • For ‘financial assets at fair value through profit or loss, the change in fair value is
consolidated statement of financial position. classified in the consolidated statement of profit or loss within other income or other
expenses;
C) Available-for-sale financial assets • For available-for-sale financial assets, the change in fair value is classified in
Available-for-sale financial assets are non-derivatives that are either designated in this consolidated statement of other comprehensive income.
category or not classified in any of the other categories. They are included in non-current
assets unless the investment matures or management intends to dispose off it within 12 Dividends on financial assets at fair value through profit or loss and available-for-sale equity
months of the end of the reporting period. instruments, are recognised in the consolidated statement of profit or loss as part of other
income.
D) Held-to-maturity Details on how the fair value of financial instruments is determined are disclosed in note 49.3.
Held-to-maturity investments are non-derivative financial assets with fixed or determinable
payments and fixed maturity that an entity has the positive intention and ability to hold to Impairment of financial assets
maturity. This asset class includes the Sukuk held by the Group. The Group assesses at the end of each reporting period whether there is objective evidence
that a financial asset or Group of financial assets is impaired. A financial asset or a Group
Recognition and de-recognition of financial assets is impaired, and impairment losses are incurred only if there is objective
Regular way purchases and sales of financial assets are recognised on trade-date, the date evidence of impairment as a result of one or more events that occurred after the initial
on which the Group commits to purchase or sell the asset. Financial assets are derecognised recognition of the asset (a ‘loss event’ or ‘loss events’). The loss has an impact on the
when the rights to receive cash flows from the financial assets have expired or have been estimated future cash flows of the financial asset or Group of financial assets that can be
transferred and the Group has transferred substantially all the risks and rewards of ownership. reliably estimated.

When securities classified as available-for-sale are sold, the accumulated fair value In the case of equity investments classified as available-for-sale, a significant or prolonged
adjustments recognised in other comprehensive income (if any), are reclassified to the decline in the fair value of the security below its cost is considered an indicator that the
consolidated statement of profit or loss as gains and losses from investment securities. assets are impaired.

138 Annual Report 2017

If there is an objective evidence of impairment for available-for-sale financial assets, the 6.7.2- Financial liabilities
cumulative loss – measured as the difference between the acquisition cost and the current The Group classifies non-derivative primary liabilities in the following categories: financial
fair value, less any impairment loss on that financial asset previously recognised in the liabilities at fair value through profit or loss and other financial liabilities.
consolidated statement of profit or loss – is removed from equity and recognised in the
consolidated statement of profit or loss. After initial recognition, the Group measures financial liabilities (other than financial liabilities
which are measured at fair value through profit or loss) at amortised cost. Amortised cost
For loans and receivables and held-to-maturity, the amount of the loss is measured as the is the amount at which the debt was measured at initial recognition minus repayments, plus
difference between the asset’s carrying amount and the present value of estimated future interest calculated using the effective interest method. The adjustments are calculated using
cash flows (excluding future credit losses that have not been incurred) discounted at the the effective interest method. The difference between the proceeds (net of transaction cost)
financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the redemption value is recognised in the consolidated statement of profit or loss over
and the amount of the loss is recognised in the consolidated statement of profit or loss. the period of the loan or borrowing.

If a loan has a variable interest rate, the discount rate for measuring any impairment loss is Loans, sukuks and government loans is derecognised when the obligation under the liability
the current effective interest rate determined under the contract. As a practical expedient, is discharged or cancelled, or expires. When an existing financial liability is replaced by
the Group may measure impairment on the basis of an instrument’s fair value using an another from the same lender on substantially different terms, or the terms of an existing
observable market price. liability are substantially modified, such an exchange or modification is treated as the de-
recognition of the original liability and the recognition of a new liability. The difference in the
If, in a subsequent period, the amount of the impairment loss decreases and the decrease respective carrying amounts is recognised in the consolidated statement of profit or loss.
can be related objectively to an event occurring after the impairment was recognised (such
as an improvement in the debtor’s credit rating), the reversal of the previously recognised 6.7.3- Derivative financial instruments and hedging activities
impairment loss is recognised in the consolidated statement of profit or loss. Derivatives are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently re-measured at their fair value at the end of each reporting date.
If the fair value of a debt instrument classified as available-for-sale increases in a The method of recognising the resulting gain or loss depends on whether the derivative is
subsequent period and the increase can be objectively related to an event occurring after designated as a hedging instrument, and if so, the nature of the item being hedged.
the impairment loss was recognised in the consolidated statement of profit or loss, the
impairment loss is reversed through the consolidated statement of profit or loss. The Group designates certain derivatives as hedges of a particular risk associated with a
recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

Annual Report 2017 139

The Group documents at the inception of the hedging transaction the relationship between 6.8- Employees benefits
hedging instruments and hedged items, as well as its risk management objectives and Short-term obligations
strategy for undertaking various hedging transactions. The Group also documents its Short-term benefits are those amounts expected to be settled wholly within 12 months of the
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives end of the period in which the employees render the service that gives rise to the benefits.
that are used in hedging transactions have been and will continue to be highly effective in
offsetting changes in fair values or cash flows of hedged items. Liabilities for wages and salaries, including non-monetary benefits and accumulating leaves
and benefits-in-kind that are expected to be settled wholly within twelve months after
The full fair value of a hedging derivative is classified as a non-current asset or liability when the end of the period in which the employees render the related service are recognised in
the remaining hedged item is more than 12 months, and as a current asset or liability when respect of employees’ services up to the end of the reporting period and are measured at the
the remaining maturity of the hedged item is less than 12 months. Trading derivatives are amounts expected to be paid when the liabilities are settled. The liabilities are presented as
classified as a current asset or liability. current employee benefit obligations under “accruals and other payables” in the consolidated
statement of financial position.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify Post-employment obligation
as cash flow hedges is recognised in the consolidated statement of other comprehensive The Group provides end of service benefits to its employees in accordance with the
income. The gain or loss relating to the ineffective portion is recognised immediately in the requirements of articles 87 and 88 of the Saudi Arabia Labour and Workmen Law. The
consolidated statement of profit or loss within ‘Other income / expense- net’. entitlement to these benefits, is based upon the employees’ basic salary and length of
service, subject to the completion of a minimum service period. The expected costs of these
Amounts accumulated in equity are reclassified to consolidated statement of profit or loss benefits are recognised over the service period.
in the periods when the hedged item affects profit or loss. The gain or loss relating to the
effective portion of interest rate swaps hedging variable rate borrowings is recognised in the The employee benefits obligation plans are not funded. Accordingly, valuations of the
consolidated statement of profit or loss within ‘Finance income/cost’. obligations under those plans are carried out by an independent actuary based on the
projected unit credit method and the liability is recorded based on an actuarial valuation.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing in equity at that time remains The liability recognised in the consolidated statement of financial position in respect of
in equity and is recognised when the forecast transaction is ultimately recognised in the defined benefit pension plans is the present value of the defined benefit obligation at the end
consolidated statement of profit or loss. When a forecast transaction is no longer expected to of the reporting period. The defined benefit obligation is calculated annually by independent
occur, the cumulative gain or loss that was reported in equity is immediately transferred to actuaries using the projected unit credit method.
the consolidated statement of profit or loss within ‘Other income / (expense) - net’.

140 Annual Report 2017

The present value of the defined benefit obligation is determined by discounting the of an offer to encourage retirement, termination benefits are measured based on the number
estimated future cash outflows using interest rates of high-quality United States government of employees expected to accept the offer. Benefits that occur more than 12 months after the
bonds that are denominated in the currency in which the benefits will be paid, and that have end of the reporting period are discounted at their present value. 
terms to maturity approximating to the terms of the related pension obligation.
6.9- Asset retirement obligation
Past-service costs are recognised immediately in the consolidated statement of profit or loss. The Group records the present value of estimated costs of legal decommissioning obligations
required to restore the site to its original condition in the period in which the obligation
The interest cost is calculated by applying the discount rate to the balance of the defined is incurred. The nature of these activities includes dismantling and removing structures,
benefit obligation. This cost is included in employee benefit expense in the consolidated dismantling operating facilities, closure of plant and waste sites, restoration, reclamation and
statement of profit or loss. Actuarial gains and losses arising from experience adjustments re-vegetation of affected areas.
and changes in actuarial assumptions are charged or credited in other comprehensive
income in the period in which they arise. The obligation generally arises when the asset is installed or the ground/environment is
disturbed at the location. When the liability is initially recognised, the present value of the
Defined contribution plan estimated costs is capitalised by increasing the carrying amount of the related property,
The Company operates the defined contribution plan, the savings plan. The Company's plant and equipment to the extent that it was incurred as a result of the development /
contribution to the contribution plans identified as an expense is recognised in the construction of the asset.
consolidated statement of profit or loss when the related service is provided. The share of
the company will only be paid at the written request of the employee to terminate the plan Over time, the discounted liability is increased for the change in present value based on the
or upon retirement, death or full disability of the employee in accordance with the approved discount rates that reflect current market assessments and the risks specific to the liability.
regulations. The assets of the plan are accounted for in accordance with the Company's The periodic unwinding of the discount is recognised in the consolidated statement of profit
accounting policies where the liabilities and assets of the plan were offset. or loss as part of financial charges.

Termination Benefits 6.10- Government grants

The Group shall pay termination benefits upon the termination of the employee's services Government grants are assistance by government in the form of transfers of resources to an
before the date of normal retirement, or when the employee accepts the voluntary entity in return for past or future compliance with certain conditions relating to the operating
termination of his services. The Group recognises termination benefits at the earlier of when; activities of the entity. In the particular case of SEC, the Company is tariff-regulated. They
A) The Group can no longer withdraw the offer; or exclude those forms of government assistance which cannot reasonably have a value placed
B) The Group recognises restructuring costs and includes termination benefits in the event upon them and transactions with government which cannot be distinguished from the normal
trading transactions of the entity.

Annual Report 2017 141

Government grants, including non-monetary grants at fair value, shall be recognised 6.11- Provisions
provided that there is a reasonable assurance that: Provisions are recognised when the Group has a present obligation (legal or constructive)
1. The Group will comply with the conditions attaching to them; and as a result of a past event, it is probable that an outflow of resources embodying economic
2. The grants will be received. benefits will be required to settle the obligation and a reliable estimate can be made of the
3. Receipt of a grant does not of itself provide conclusive evidence that the conditions amount of the obligation. Provisions are not recognised for future operating losses.
attaching to the grant have been or will be fulfilled.
4. The manner in which a grant is received does not affect the accounting method to be Where there are a number of similar obligations, the likelihood that an outflow will be
adopted in regard to the grant. Thus a grant is accounted for in the same manner whether required in settlement is determined by considering the class of obligations as a whole.
it is received in cash or as a reduction of a liability to the government. A provision is recognised even if the likelihood of an outflow with respect to any one item
5. Grants received against specific expenses are recognised in the consolidated statement included in the same class of obligations may be small.
of income in the same period in which its relevant expenses are recognised. The Group
assesses the relationship between the grant and the relevant expenses upon recognition. Provisions are measured at the present value of management’s best estimate of the
6. A provision of the estimated-results obligations is provided if it seems probable to pay expenditure required to settle the present obligation at the end of the reporting period. The
the grant that was recognised previously. discount rate used to determine the present value is a pre-zakat rate that reflects current
7. Government grants related to depreciable assets are recognised in the consolidated market assessments of the time value of money and the risks specific to liability. The
statement of income over the periods and on the basis of the percentages used to increase in the provision due to the passage of time is recognised as interest expense.
recognise the depreciation expenses of the underlying assets.
8. Government grants related to non-depreciable assets which require the attainment of 6.12- Deferred revenue
certain obligations are recognised in the consolidated statement of income over the Deferred revenue relates to electricity service connection tariffs received from consumers
periods where the cost of achievement of obligations are incurred. which are deferred and recognised on a straight-line basis over the average useful lives of
9. However, grants relating to non-depreciable assets that are unconditional of the the equipment used in serving the consumers, estimated between 20 to 30 years.
attainment of some obligations are recognised in the consolidated statement of profit and
loss at their nominal values in the same period. 6.13- Zakat
10. The accounting treatment of below-market interest rate loans are recognised as: the The Holding Company and its subsidiaries are subject to Zakat according to the regulations of
difference between the nominal value of the loan and its fair value is recognised within the General Authority for Zakat and Income in the Kingdom of Saudi Arabia ("the Authority").
non-current liabilities in the consolidated statement of financial position as a deferred Zakat is recognised in the consolidated statement of profit or loss of the Group. Additional
government grant. Zakat liabilities, calculated by the Authority, if any, relating to the prior years zakat declaration
is recognised in the year in which final declaration is issued.

142 Annual Report 2017

6.14- Income tax and withholding tax Deferred tax liabilities relating to temporary taxable differences arising from investments in
Foreign shareholders in the Group are subject to income tax. Tax expense, which includes subsidiaries, joint operations and associates are recognised except when the Group has the
current tax expense and deferred tax, is charged to the statement of profit or loss of the ability to reverse these temporary differences and these temporary differences may not be
company and its subsidiaries as per the legislation of the General Authority of Zakat and Tax. reversed in the foreseeable future.

The Group deducts taxes on certain transactions with non-resident entities in the Kingdom of The carrying amount of deferred tax assets is reviewed at each reporting date and adjusted
Saudi Arabia according to the Saudi Income Tax Law. to the extent that it is probable that there will be sufficient taxable profits allowing the
recovery of the asset or part thereof.
The share of the foreign shareholders is taxed on its share in the profits of the company
invested directly and indirectly in accordance with the requirements of the General Authority Deferred tax is calculated on the basis of the tax rates expected to be applied in the period in
for Zakat and Income. which the liability is settled or the asset is verified based on the applicable laws or substantially
expected at the reporting date. Deferred tax is charged or recovered from the consolidated
The current tax payable is calculated on the basis of the taxable profit for the year. The statement of profit or loss except in the case that it is attributable to items carried or recovered
tax profit differs from the net profit presented in the consolidated statement of profit or directly from equity. In this case, deferred tax is treated directly in equity.
loss because it excludes taxable or deductible items of income or expense in subsequent
years and excludes items that are not taxable or non-deductible. The liability is charged to 6.16- Statutory reserve
the Group for the current tax using the applicable tax rates or substantially expected to be In accordance with the Holding Company's Articles of Association, which have been amended
applied at the reporting date. in accordance with the new corporate regulations adopted by the Extraordinary General
Assembly on 19 April 2017 corresponding to 22 Rajab 1438 AH, the Holding Company is
6.15- Deferred tax required to transfer 10% of the net consolidated income to the statutory reserve until this
Deferred tax is recognised in respect of temporary differences between the carrying amounts reserve reaches 30% of the capital.
of assets and liabilities for the purposes of the financial report and tax amounts used for
tax purposes. Deferred tax liabilities are normally recognised for all taxable temporary 6.17- Revenue recognition
differences. Deferred tax assets are recognised to the extent that they are likely to have Revenue is measured at the fair value of the consideration received or receivable, and
taxable profits that can be used for temporary differences that can be deducted. These assets represents amounts receivable by the Group. The Group recognises revenue when the
and liabilities are not recognised in the event that temporary differences arise from the initial amount of revenue can be reliably measured and when it is probable that future economic
recognition of goodwill or return to assets or liabilities in an ineffective operation on tax or benefits will flow to the Group.
accounting profit except in the case of a merger.

Annual Report 2017 143

The Group is a rate regulated entity therefore the amount of revenue arising on a transaction 6.18- Dividend income
is pre-determined and fixed by Electricity and Co-generation Regulatory Authority (‘ECRA’) for Dividend income is recognised when the right to receive payment is established.
the period.
6.19- Borrowing costs
Types of revenue relate to the group are detailed as follows: General and specific borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a substantial period
Revenue from electricity sales of time to get ready for their intended use or sale, are added to the cost of those assets,
Revenue from electricity sales is recognised when customers are invoiced for their electricity until such time as the assets are substantially ready for their intended use or sale. To the
consumption measured in kilowatt hours. Unbilled revenue due to energy consumed is extent that the Group borrows funds generally and uses them for the purpose of obtaining
recognised as at the reporting date in the consolidated statement of profit or loss. a qualifying asset, the Group shall determine the amount of borrowing costs eligible
for capitalisation by applying a capitalisation rate to the expenditures on that asset. The
Revenue from meter reading, maintenance and bills preparation tariff capitalisation rate shall be the weighted average of the borrowing costs applicable to the
Revenue from meter reading, maintenance and bills preparation tariff represents the borrowings of the Group that are outstanding during the year, other than borrowings made
monthly fixed tariff based on the capacity of the meter used by the consumers, and specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs
is recognised over the period the service is provided. Revenue from meter reading, that the Group capitalises during a period shall not exceed the amount of borrowing costs it
maintenance and bills preparation tariff that is not billed as at the reporting date is incurred during that year.
recognised in the consolidated statement of profit or loss.
All other borrowing costs are recognised in the consolidated statement of profit or loss in the
Revenue from electricity connection tariff year in which they are incurred.
Electricity service connection tariff received from consumers is deferred and recognised
on a straight-line basis over the average useful lives of the equipment used in serving the 6.20- Leases
subscribers. Leases of assets or properties where the Group, as lessee, has substantially all the risks
and rewards of ownership are classified as finance leases. Finance leases are capitalised at
Revenue of transmission system the lease’s inception at the fair value of the leased property or, if lower, the present value of
Revenue from transmission system comprises of fees for use of transmission networks, and the minimum lease payments. The corresponding rental obligations, net of finance charges,
is recognised when bills are issued to licensed co-generation and power providers. Revenue are included in other short-term and long-term payables. Each lease payment is allocated
is measured based on the fees approved by Electricity and Co-generation Regulatory between the liability and finance cost. The finance cost is charged to the consolidated
Authority according to capacity and quantities of power transmitted. statement of profit or loss over the lease period so as to produce a constant periodic rate of

144 Annual Report 2017

interest on the remaining balance of the liability for each period. The assets and properties 6.23- Offsetting of financial instruments
acquired under finance leases are depreciated over the shorter of the asset’s useful life and Financial assets and financial liabilities are offset and the net amount presented in the
the lease term if there is no reasonable certainty that the Group will obtain ownership at the consolidated statement of financial position when, and only when, the Group currently has a
end of the lease term. legally enforceable right to set off the amounts and it intends either to settle them on a net
basis or to realise the assets and settle the liability simultaneously.
Leases in which a significant portion of the risks and rewards of ownership are not
transferred to the Group as lessee are classified as operating leases. Payments made under 6.24- Fair value
operating leases (net of any incentives received from the lessor) are charged to consolidated Fair value is the price that may be received against the sale of an asset or the conversion
statement of profit or loss on a straight-line basis over the period of the lease. of an obligation in an organized transaction between the market participants on the
measurement date. The fair value measurement is based on the assumption that the
6.21- Dividend distribution transaction for the sale of the asset or the transfer of the obligation can occur either:
Dividend distribution to the Holding Company’s shareholders is recognised as a liability in the
Group’s financial statements in the period in which the dividends are approved by the Holding 1. In the primary market of the asset or obligation or
Company’s shareholders. 2. In the absence of the primary market, in the most appropriate markets for the asset or
liability.
6.22- Segment reporting
An operating segment is one of the Group components which carries out operating activities The Group uses appropriate valuation techniques with surrounding conditions for which
through which it can earn revenues or incur expenses (including revenues and expenses sufficient data are available to measure fair value, maximizing the use of appropriate inputs
related to transactions with other components of the same Group), where its operating that can be monitored and minimizing the use of inputs that cannot be monitored to the
results are regularly reviewed by the entity’s operating decision maker regarding the greatest extent possible.
resources that will be allocated to the segment and to evaluate its performance and which
have separate financial information available. The measurement of the fair value of a non-financial asset takes into account the ability of
the market participant to generate economic benefits by using the asset at its maximum and
An operating segment may carry out activities from which it has not earned revenues yet. For best use or by selling it to another market participant who may use the asset at its maximum
example, pre-operating transactions can be considered as operating segments before they and best use.
earn revenues.

Annual Report 2017 145

All assets and liabilities whose fair values ​​are measured or disclosed in the consolidated Subsequent to initial recognition, inventories are to be measured at the lower of cost and net
financial statements are classified in the fair value hierarchy. This is described as follows, realisable value.
based on the lowest input level that is important for the overall measurement:
Net realisable value is the estimated selling price in the ordinary course of business, less
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. applicable variable selling expenses.
Level 2: Evaluation techniques where the lowest entry level is important for measuring fair
value directly or indirectly. 7- First time adoption of IFRS
Level 3: Evaluation techniques where the lowest input level cannot be monitored is important As explained in note 2, for all periods up to and including the year ended 31 December 2016,
for fair value measurement. Saudi Electricity Company and its subsidiaries have prepared their financial statements in
  accordance with the accounting standards issued by the Saudi Organization for Certified
For assets and liabilities that are measured in the financial statements at fair value on a Public Accountants (SOCPA).
recurring basis, the Group determines whether transfers have been made between hierarchy
levels by reassessing the classification (based on the lowest input level that is significant for From 1 January 2017, the Group will be required to prepare its first consolidated financial
the overall measurement) at the end of each reporting period. statements in accordance with the requirements of International Financial Reporting
Standards (IFRS) adopted in the Kingdom of Saudi Arabia and other standards and
6.25- Inventories publications issued by SOCPA.
Inventories include material and supplies for generation, transmission and distribution
business, fuel inventory and other materials. In order to prepare its first set of IFRS, consolidated financial statements for the year ending
31 December 2017, management has prepared an opening IFRS, as endorsed by SOCPA,
Inventories are initially measured at cost which comprises costs of purchase, costs of compliant statement of financial position as at 1 January 2016, the Group’s date of transition
conversion and other costs incurred in bringing the inventories to their present location and to IFRS, which represents the date of the Group’s transition to the International Financial
condition. Reporting Standards adopted in Saudi Arabia and the standards and other publications
issued by the Saudi Organisation of Certified Public Accountants.
The Group uses the weighted average cost method to value its inventories. Under the
weighted average cost formula, the cost of each item is determined from the weighted This note explains the material adjustments made by the Group to restate consolidated
average of the cost of similar items at the beginning of a period and the cost of similar items statement of financial position, consolidated statement of profit or loss, equity and cash flows
purchased or produced during the period. to comply with the requirements of IFRS; and the exemption applied in adopting IFRS as
allowed under IFRS 1 “First time adoption of International Financial Reporting Standards”.

146 Annual Report 2017

The summary of significant accounting policies included in Note 6 have been applied in Instruments” and IAS 20 “Accounting for government grants and disclosure of government
the preparation of the consolidated financial statements for the year ended 31 December assistance” prospectively on government loans existing at the date of transition to IFRS and
2017, together with the comparative period data for the year ended 31 December 2016. In may not recognise the benefit of the below market rate loan as a government loan.
preparing the financial statements, the Group’s opening statement of financial position was
prepared as at 1 January 2016 (“Date of Transition”). Accordingly, the Group has prepared Consequently, considering that the Company did not recognise and measure government
these consolidated annual financial statements in conformity with the International Financial merger loan at a below-market rate of interest on a basis consistent with IFRS requirements,
Reporting Standards (IFRS) applicable at the end of the relevant reporting periods covered by it uses its carrying amount of the said loans (under its formal Saudi Accounting Standards)
these consolidated financial statements. at the date of transition to IFRS as the carrying amount of the loan in the opening IFRS
statement of financial position.
7.1- Exemption applied
IFRS 1 allows first-time adopters certain exemptions from the retrospective application of The Group shall apply the requirements of IFRS 9 to the merger loan after the date of
certain requirements under IFRS. transition to IFRS. The Holding Company will start the implementation of IFRS 9 from the
beginning of its effective date.
The Group has applied the following exemption:
Deemed cost – IFRS 1 provides an optional exemption for a rate regulated entity to use the
carrying amount of property, plant and equipment (“PPE”) and intangible assets at the date of
transition as deemed cost on the date of transition when the carrying amount includes costs
that do not qualify for capitalisation in accordance with IFRS. This exemption is only available
to items of PPE and intangible assets that are only used in rate regulated operations as
defined by IFRS 1. The Group has taken this exemption, and has used the carrying amount of
the PPE and intangible assets under the previous GAAP as deemed cost on transition date.

In applying this choice, which was made by Saudi Electricity Company has performed test for
impairment and determined that no asset were impaired.

Loan from the government – First time adopter shall classify all government loans as a
financial liability or an equity instrument in accordance with IAS 32 "Financial Instruments:
- presentation and disclosure" and shall apply the requirements of IFRS 9 "Financial

Annual Report 2017 147

7.2- Adjustment of the consolidated statement of financial position between the generally accepted accounting standards in Saudi Arabia (Saudi Arabian Standards) and the International
Financial Reporting Standards (IFRS) as of 1 January 2016 (date of transition to IFRS):

31 December 2015 Effects of transition to 1 January 2016

  Note
SOCPA IFRS IFRS

Assets

Non-current assets

Property, plant and equipment, net 7.3.1 315,512,112 16,204,573 331,716,685

Investment property 7.3.2 - 538,595 538,595

Intangible assets, net 7.3.3 197,892 156,577 354,469

Equity-accounted investees 7.3.4 3,572,487 (1,965,264) 1,607,223

Held-to-maturity investments 7.3.4 - 118,273 118,273

Available-for-sale financial assets 7.3.5 - 281,595 281,595

Total non-current assets 319,282,491 15,334,349 334,616,840

Current assets

Inventories, net 7.3.6 (a) 6,495,066 97,768 6,592,834

Electricity receivables, net 7.3.6 (a) 20,512,384 160 20,512,544

Loans and advances 7.3.8 - 4,974,034 4,974,034

Prepayments and other receivables 7.3.9 8,841,894 (4,803,735) 4,038,159

Loans to associated companies 7.3.7 859,885 (859,885) -

Cash and cash equivalents 7.3.6 (a) & 7.3.10 2,038,229 (189,862) 1,848,367

Total current assets 38,747,458 (781,520) 37,965,938

Total assets 358,029,949 14,552,829 372,582,778

148 Annual Report 2017

 31 December 2015 Effects of transition to 1 January 2016
  Note
SOCPA IFRS IFRS

Equity and liability

Equity

Share capital 41,665,938 - 41,665,938

Statutory reserve 7.3.6 (c) 2,629,210 17,420 2,646,630

General reserve 557,898 - 557,898

Other reserves 7.3.19 - (507,211) (507,211)

Cash flows hedging contracts 7.3.19 (550,186) 550,186 -

Retained earnings 7.3.20 16,046,267 790,426 16,836,693

Total equity 60,349,127 850,821 61,199,948

Liabilities

Non-current liabilities

Long-term loans 7.3.6 (b) 22,266,954 8,355,932 30,622,886

Sukuk 34,940,490 - 34,940,490

Government loans 39,991,482 - 39,991,482

Government payables 7.3.15 100,445,372 (100,445,372) -

Employee benefits obligation 7.3.10 6,019,260 575,651 6,594,911

Long term of deferred revenue 7.3.11 29,370,073 (2,527,427) 26,842,646

Deferred government grant 7.3.12 - 46,035,284 46,035,284

Customer refundable deposits 7.3.14 1,743,429 (1,743,429) -

Annual Report 2017 149

 31 December 2015 Effects of transition to 1 January 2016
  Note
SOCPA IFRS IFRS

Provision for cash flow hedging contracts 7.3.13 212,231 (212,231) -

Derivative financial instruments 7.3.13 - 492,729 492,729

Asset retirement obligation 7.3.6 (b) - 176,126 176,126

Total non-current liabilities 234,989,291 (49,292,737) 185,696,554

Current liabilities

Trade payables 7.3.16 52,460,414 (11,025,093) 41,435,321

Accruals and other payables 7.3.17 6,883,995 128,462 7,012,457

Provisions for other liabilities and charges 7.3.17 - 138,771 138,771

Short-term loans 7.3.6 (b) 3,347,122 326,852 3,673,974

Customer refundable deposits 7.3.14 - 1,743,429 1,743,429

Government payable 7.3.18 - 58,098,794 58,098,794

Advance from customers 7.3.16 - 11,290,327 11,290,327

Current portion of deferred revenue 7.3.11 - 2,259,207 2,259,207

Derivative financial instruments 7.3.6 (b) - 33,996 33,996

Total current liabilities 62,691,531 62,994,745 125,686,276

Total liabilities 297,680,822 13,702,008 311,382,830

Total equity and liabilities 358,029,949 14,552,829 372,582,778

150 Annual Report 2017

7.3- Notes to the reconciliation of opening statement of financial position as 7.3.3- Intangible assets
at 1 January 2016 The group have reclassified SR 156.34 million representing net book value of intangible
7.3.1- Property, plant and equipment assets from property, plant and equipment to intangible assets. Furthermore, the Group’s
Adjustments in property, plant and equipment mainly relate to: share in joint operations (these operations were previously accounted for using equity
method according to these Saudi standards) amounting to SR 0.23 million.
Under IFRS where parts of an item of property, plant and equipment are significant and
have different useful lives, they are accounted for as separate items (major components) of 7.3.4- Equity-accounted investees
property, plant and equipment, and depreciated separately. Under SOCPA, all investments were classified according to the Saudi standards as ‘equity-
accounted investees and others’. Under IFRS, the Group has designated such investments
The Group has recognised property, plant and equipment in respect of its share of assets of as ‘available for sale financial assets’ and ‘held to maturity investments’ based on the
entities under joint operations, which were previously accounted for under the equity method. characteristics of the investments.

The adjustments in property, plant and equipment are summarised in the table below: Particulars 1 January 2016

IFRS reclassifications:
Particulars 1 January 2016
Held-to-maturity investments* (210,273)
Impact of PPE componentisation that resulted in a decrease in
5,589,648 Available-for-sale financial assets (272,630)
accumulated depreciation.
IFRS adjustment:
Group share of fixed assets of entities under joint operations. (7.3.6 (a)) 11,309,864
Elimination of investments previously accounted for using the equity
Reclassifications of items: (1,482,361)
method accounted
- Investment property (note 7.3.2) (538,595)
Total (1,965,264)
- Intangible assets (note 7.3.3) (156,344)

Total 16,204,573 *The balance of held-to maturity investments related to the saving fund has been reclassified to
employee benefit liabilities of SR 92 million.

7.3.2- Investment property

Under IFRS, land held for rental purposes or for capital appreciation is required to be
classified as investment property. Accordingly, re-classified SR 538.6 million from property,
plant and equipment to investment property.

Annual Report 2017 151

7.3.5- Available-for-sale financial assets
Trade and other receivables 160
Under IFRS, unquoted equity investments that are classified as available for sale financial
Prepayments and other receivables 137,741
assets are required to be carried at fair value with fair value change being recognised in
other comprehensive income. Previously, carried these investments at cost. Loans and advances 4,058

Cash and cash equivalents 192,849

According to previous adjustments in effects of transition IFRS are summarised in the table Total 11,742,672
below:

B) Interest in joint operations’ liabilities

Particulars 1 January 2016 The Group’s interest in liabilities owed by joint operations are as follows:
Reclassification from 'equity-accounted investees and others' 272,630

Fair value adjustment to available-for-sale financial assets (“AFS”) 8,965 Particulars 1 January 2016

Total 281,595 Long-term loans 8,355,932

Employee benefits obligations 2,559

7.3.6- Group’s interest in assets and liabilities of joint operations Derivative financial instruments 280,498
Under IFRS, the Group’s investment in Independent Power Producers (IPPs) are classified
Asset retirement obligation 176,126
as joint operations and require a line by line consolidation of the Group share of all incomes
Trade payables 265,203
and expenditures and statement of financial position assets and liabilities. Historically, these
investments were accounted for using the equity method. The changes to each line item Provision for other obligations and charges 267,233
affected are shown below. Short-term loans 326,852

Derivative financial instruments at fair value* 33,996

A) Interest in joint operations’ assets
Total 9,708,399
The Group’s interest in assets held by joint operations are as follows:

* corresponding to the Group’s interest in joint operations’ derivative financial instruments SR 418
Particulars 1 January 2016 million net of elimination entries SR 138 million.
Property, plant and equipment, net 11,309,864

Intangible assets , net 232

Inventories, net 97,768

152 Annual Report 2017

C) Interest in joint operations’ equity 7.3.9- Prepayments and other receivables
The Group’s interest in the equity of entities under joint operations are as follows:
Particulars 1 January 2016
Particulars 1 January 2016
Reclassifications
Statutory reserve 17,420
Reclassification to loans and advances (4,941,476)
Other reserves * 34,010
IFRS adjustment
Retained earnings ** (62,713)
Group's interest in joint operations' assets (note 7.3.6) 137,741
Total (11,283)
Total (4,803,735)

* corresponding to the Group’s interest from other comprehensive income reserves in joint operations
The IFRS adjustments are summarised in the table below:
amounted by SR 475 million net of elimination entries amounted by SR 441 million
** corresponding to the Group’s interest from retained earnings in joint operations amounted by SR 298
7.3.10- Employee benefit obligations
million net of elimination entries SR 360 million.
Under IFRS, employee end of service benefits are classified as a defined benefit obligation,
7.3.7- Loans to associated companies which are required to be calculated using actuarial valuations. Historically, the Group
At the date of transition to IFRS, loans to associated companies amounting to SR 860 million calculated this obligation in accordance with Saudi labour law without considering expected
were reclassified from ‘loans to associated companies’ to ‘loans and advances’. future service period of employees, salary increments and discount rates. The Group made
an actuarial assessment by the actuary on 1 January 2016, which resulted in additional
7.3.8- Loans and advance payments liability as described below:
The adjustments are summarised in the table below:
Particulars 1 January 2016
Particulars 1 January 2016 Re-measurement of end of service benefits obligation in accordance
1,047,803
Reclassifications with IAS 19
Reclassification of loans to associated companies (note 7.3.7) 859,885 Reclassification of the assets of the Savings fund to employee benefit
Reclassification of prepayments and other receivables (note 7.3.9) 4,941,476 obligations for the following balances:

Group’s interest in ‘joint operations’ assets (7.3.6) 4,058 Held to maturity investments (92,000)

Elimination Balances with banks (382,711)

Elimination of intercompany loans (831,385) Group’s interest in joint operations’ liabilities (note 7.3.6) 2,559

Total 4,974,034 Total 575,651

Annual Report 2017 153

7.3.11- Deferred revenue
Group’s interest in joint operations’ liabilities (note 7.3.6) 418,177
The adjustment of SR 268.2 million represents the elimination of deferred income relating
Reversal of previously recognised fair value movement in cash flow
to electrical equipment transferred to the Group by Joint Operation entities (IPPs) without (137,679)
hedges (note 7.3.6)
consideration. In addition, the reclassification of long-term deferred revenue to short-term
deferred revenue of SR 2.3 billion. Total 492,729

7.3.12- Deferred government grant 7.3.14- Customers refundable deposits

Deferred government grant were previously recognised as part of long-term government An amount of SR 1.74 billion pertaining to customer refundable deposits payable on demand
payables and amortised over the respective government loan period. Under IFRS, the has been reclassified from non-current liabilities to current liabilities under ‘customer
deferred government grant is amortised over the life of the related assets for which the loans refundable deposits’.
are used.
7.3.15- Long term government payables
The adjustments to deferred government grant are summarised in the table below: Long term government payables have been reclassified based on the nature of the balance:
• Fuel payables and others amounting to SR 58.1 billion was reclassified to current
Particulars 1 January 2016 liabilities.
• Deferred income of SR 42.35 billion relating to government loans was reclassified to
Description
deferred government grant (note 7.3.12).
Reclassification of long-term government payables to deferred
42,346,578
government grant
7.3.16- Trade payables
Adjustment in amortisation 3,688,706 An amount of SR 11.29 billion related to advances from electricity service connection
Total 46,035,284 projects has been reclassified from ‘trade payables’ to ‘advances from customers’ given
the difference in nature, liquidity and timing of the liability. In addition, an amount of SR
7.3.13- Derivative financial instruments liabilities 265 million has been added to trade payables representing the Group’s interest in joint
Below are the adjustments to this category at the date of transition: operations’ liabilities (note 7.3.6).

Particulars 1 January 2016 7.3.17- Accruals and other payables

The IFRS adjustments are summarised in the table below:
Reclassified from provisions for cash flow hedging contracts 212,231

154 Annual Report 2017

 7.3.20- Retained earnings
Particulars 1 January 2016

Group’s interest in joint operations’ liabilities (note 7.3.6) 267,233

Particulars 1 January 2016
Reclassification to provisions for other liabilities and charges (138,771)
IFRS adjustments affecting the retained earnings:
Accruals and other payables as at 1 January 2016 128,462
Componentisation of property, plant and equipment (note 7.3.1) 5,589,648

Amortisation of deferred government grants (note 7.3.12) (3,688,706)

7.3.18- Government payable
Under IFRS, the Group’s SR 58.1 billion payable to the government requires to be included Employee benefits obligation (note 7.3.10) (1,047,803)
in current liabilities as there are no specified repayment terms. Previously, these were Elimination of retained earnings pertaining to joint operations (note (62,713)
classified as non-current liabilities (note 7.3.15). 7.3.6 c) *

Total 790,426
7.3.19- Other reserves
At the date of transition to IFRS, ‘other comprehensive income’ has been adjusted by the * corresponding to the Group’s interest in joint operations’ retained earnings SR 298 million net of
following: elimination entries SR 360 million.

Particulars 1 January 2016

Reclassification of the effective portion of the floating-to-fixed interest

rate swap contracts (previously under SOCPA, this amount was (550,186)
classified as equity within ‘provision for cash flows hedging contracts’)

Fair value change of available-for-sale financial instruments

8,965
(previously, these investments were measured at cost)

Group's interest in joint operations (441,625)

Excluding cash flow hedges that were recorded in accordance with

475,635
the equity method in the books of the Holding company

Other comprehensive income reserves as at 1 January 2016 (507,211)

Annual Report 2017 155

7.4- Reconciliation of SOCPA to IFRS consolidated statement of financial position as at 31 December 2016

31 December 2016 Effects of transition to 31 December 2016

  Notes
SOCPA IFRS IFRS

Assets

Non-current assets

Property and equipment, net 7.5.1 354,394,105 19,615,287 374,009,392

Investment properties - 538,595 538,595

Intangible assets, net 7.5.2 181,810 212,501 394,311

Equity-accounted investees 7.5.3 3,674,338 (2,104,000) 1,570,338

Held-to-maturity investments - 116,893 116,893

Available-for-sale financial assets 7.5.4 - 290,952 290,952

Total non-current assets 358,250,253 18,670,228 376,920,481

Current assets

Inventories, net 7.5.5 (a) 6,930,273 67,279 6,997,552

Electricity receivables, net 28,564,041 - 28,564,041

Loans and advances* 7.5.6 583,838 2,707,132 3,290,970

Prepayments and other receivables 7.5.7 7,420,224 (3,216,434) 4,203,790

7.5.5 (a)
Cash and cash equivalents 1,222,146 (176,759) 1,045,387
& 7.5.9

Total current assets 44,720,522 (618,782) 44,101,740

Total assets 402,970,775 18,051,446 421,022,221

156 Annual Report 2017

 31 December 2016 Effects of transition to 31 December 2016
  Notes
SOCPA IFRS IFRS

Equity and liability

Equity

Share capital 41,665,938 - 41,665,938

Statutory reserve 7.5.5 (c) 2,839,668 23,637 2,863,305

General reserve 569,506 - 569,506

Other comprehensive income reserve 7.5.16 - (118,975) (118,975)

Cash flow hedging contracts reserve 7.5.16 (443,698) 443,698 -

Retained earnings 7.5.17 17,392,209 3,225,814 20,618,023

Total equity 62,023,623 3,574,174 65,597,797

Liabilities

Non-current liabilities

Long-term loans 7.5.18 34,985,615 8,399,910 43,385,525

Sukuk 26,065,350 - 26,065,350

Government loans 42,411,517 - 42,411,517

Employee benefits obligation 7.5.9 5,723,895 356,367 6,080,262

Long term of deferred revenue (non current) 7.5.10 35,064,467 (3,136,689) 31,927,778

Deferred government grant 7.5.11 - 46,667,608 46,667,608

Derivative financial instruments 7.5.12 - 360,722 360,722

Asset retirement obligation 7.5.5 (b) - 187,550 187,550

Annual Report 2017 157

 31 December 2016 Effects of transition to 31 December 2016
  Notes
SOCPA IFRS IFRS

Customer refundable deposits 7.5.13 1,845,081 (1,845,081) -

Long term Government payables 7.5.8 100,025,591 (100,025,591) -

Provision for cash flows hedging contracts 7.5.12 122,049 (122,049) -

Total non-current liabilities 246,243,565 (49,157,253) 197,086,312

Current liabilities

Trade payables 7.5.14 66,385,773 (11,970,007) 54,415,766

Accruals and other payables 7.5.15 6,833,806 (1,502) 6,832,304

Provision for other liabilities and charges 7.5.15 - 132,420 132,420

Short-term loans 7.5.5 (b) 12,608,868 1,042,673 13,651,541

Sukuk 8,875,140 - 8,875,140

Customer refundable deposits 7.5.13 - 1,845,080 1,845,080

Government credit payables 7.5.8 - 58,099,049 58,099,049

Advance from customers 7.5.14 - 12,077,255 12,077,255

Short-term deferred revenue 7.5.10 - 2,372,167 2,372,167

Derivative financial instruments 7.5.5 (b) - 37,390 37,390

Total current liabilities 94,703,587 63,634,525 158,338,112

Total liabilities 340,947,152 14,477,272 355,424,424

Total equity and liabilities 402,970,775 18,051,446 421,022,221

158 Annual Report 2017

7.5- Notes to the reconciliation of SOCPA to IFRS consolidated statement of financial
Adjustments in intangible assets are summarised in the table below: 31 December 2016
position as at 31 December 2016
Reclassification from property, plant and equipment at the transition
156,334
date
7.5.1- Property, plant and equipment
At 31 December 2016, the following IFRS transition adjustments were recorded: Reclassification from property, plant and equipment during the year 55,934

Group's interest in joint operations' assets (note 7.5.5/a) 233

At transition date 31 December 2016 Total 212,501
Opening balance sheet adjustment (note 7.3.1) 16,204,573

Changes during the year 7.5.3- Equity-accounted investees

The following transition adjustments were recorded:
Decrease in depreciation as a result of the fully depreciated
assets and componentisation 4,153,454
of property, plant and equipment Particulars 31 December 2016

Group's interest in joint operations' assets (12,666) Opening balance sheet adjustment (note 7.3.4) 1,965,264

Non- capitalisation expenses (880,949) IFRS adjustment:

Capitalisation of additional borrowing costs 219,275 Reversal of movements for the year in equity-accounted investees
138,736
which are classified as joint operations under IFRS.
Reclassification to intangible assets (55,924)
Total 2,104,000
Change in the net book value of the disposed assets as a result
(12,476)
of the fully depreciated assets and componentisation of assets
* The balance of held-to-maturity investments relating to the savings fund has been reclassified to
Total 19,615,287 employees’ benefits obligation of SR 112 million.

7.5.2- Intangible assets

In addition to the reclassification of SR 156.6 million of items as at the date of transition, an
additional amount of SR 55.9 million was reclassified from property, plant and equipment to
intangible assets during the year. Additional intangible assets were added for SR 233 million
relating to the Group’s interest in joint operations assets.

Annual Report 2017 159

7.5.4- Available-for-sale financial assets
Particulars 31 December 2016
At 31 December 2016, the following IFRS transition adjustments were recorded:
Long-term loans 8,542,671

Employee benefits obligations 2,993

Particulars 31 December 2016
Derivative financial instruments * 238,673
Opening balances adjustments (note 7.3.5) 281,595
Asset retirement obligation 187,550
Change in fair value of Available for sale financial assets at year-
9,357
end 2016 Trade payables ** 107,249

Total 290,952 Provision for other obligations and charges 130,917

Current portion from loan non current 1,042,673

7.5.5- Group’s interest in joint operations’ assets and liabilities (previously accounted for Current portion from derivative financial instruments 37,390
using the equity method under SOCPA)
Total 10,290,116

A) Interest in joint operations’ assets * This amount represents the Group's interest in joint operations derivatives amounting to SR 341 million
The Group’s interest in joint operations’ assets are as follows: less elimination entries for SR 102 million.
** This amount represents the Group's interest in joint operations trade payables amounting to SR 399

Particulars 31 December 2016 million less elimination entries of SR 292 million.

Property, plant and equipment, net 11,297,198

C) Interest in joint operations’ equity
Intangible assets, net 233
The Group’s interest in joint operations’ equity are as follows:
Inventories, net 67,279

Loans and advances 6,419 Particulars 31 December 2016

Prepayments and other receivables 49,942 Statutory reserve 23,637
Cash and cash equivalents 264,017 Other comprehensive income* 52,493
Total 11,685,088 Retained earnings ** (67,584)

Total 8,546
B) Interest in joint operations’ liabilities
The Group’s interest in joint operations’ liabilities are as follows: *corresponding to the Group’s interest in joint operations’ other comprehensive income reserves SR 423
million net of elimination entries SR 371 million.
**corresponding to the Group’s interest in joint operations’ retained earnings SR 396 million net of
elimination entries SR 464 million.
160 Annual Report 2017
7.5.6- Loans and advances 7.5.8- Long term government payables
At 31 December 2016, the following IFRS transition adjustments were recorded: Long term government payables have been reclassified based on the nature of the balance:

Particulars 31 December 2016 1. Fuel payables and others amounting to SR 58 billion was reclassified to current liabilities.
2. Deferred income of SR 42 billion relating to government loans was reclassified to deferred
Reclassification:
government grant (note 7.3.12).
Reclassification from ‘prepayments and other receivables’ 3,266,376

Group’s interest in joint operations assets (previously accounted for 6,419 7.5.9- Employee benefits obligation
using the equity method under SOCPA) (note 7.5.5/a) The following IFRS transition adjustments were recorded:
Elimination entry:

Group’s intercompany loans (565,663) Particulars 31 December 2016

Total 2,707,132 Opening balance sheet adjustments 1,047,803

Transaction cost recorded during the year as a result of the (120,153)

7.5.7- Prepayments and other receivables actuarial valuation of the employee benefit obligation
At 31 December 2016, the following IFRS transition adjustments were recorded: Financing costs related to end of service benefits in accordance 232,408
with IAS 19
Particulars 31 December 2016
Re-measurement of post-employment benefit liability for the year (253,908)
Reclassification: according to IAS 19
Reclassification to 'loans and advances' (3,266,376) Group’s interest in joint operations’ liabilities (note 7.5.5/b) 2,993
IFRS adjustment: Reclassification of the assets of the Savings fund to employee
Group’s interest in joint operations assets (note 7.5.5/a) 49,942 benefit obligations for the following balances:

Total (3,216,434) Held to maturity investments (112,000)

Balances with banks (440,776)

Total 356,367

Annual Report 2017 161

7.5.10- Deferred revenue
Particulars 31 December 2016
At 31 December 2016, the following IFRS transition adjustments were recorded:
Balance as of 31 December 2016 under SOCPA 122,049

Group’s interest in joint operations’ liabilities (7.5.5 b)* 238,673

Particulars 31 December 2016
Total 360,722
Elimination of the deferred revenue related to the electrical
(781,716)
equipment granted by joint operations
*corresponding to the Group’s interest in joint operations’ derivative financial instruments SR 341 million
17,194 net of elimination entries of SR102 million.
Settlement during the year
(2,372,167)

Reclassification of short-term deferred revenue 7.5.13- Customer refundable deposits

Total (3,136,689) At 31 December 2016, an amount of SR 1.845 million pertaining to the 'on demand customer
refundable deposits' have been reclassified from non-current to current liabilities.

The adjustment represents elimination of deferred revenue SAR 782 million related to
7.5.14- Trade payables
electrical equipment and transferred to the group from joint operations without consideration
An amount of SR 12.08 billion relating to advances from electricity service connection
as well as the reclassification of deferred long-term to short-term revenue of SAR 2.4 billion.
projects has been reclassified from ‘trade payables’ to ‘advances from customers. In addition,
the Group’s interest in joint operations’ liabilities of SR 107.2 million has been added to trade
7.5.11- Deferred government grant
payables.
At 31 December 2016, the following IFRS transition adjustments were recorded:

7.5.15- Accruals and other payables

Particulars 31 December 2016
At 31 December 2016, the following IFRS transition adjustments were recorded:
Reclassification from long-term government payable at year-end 41,926,542

Amortisation adjustment at the transition date 3,688,706 Particulars 31 December 2016

Reversal of the amortisation determined under SOCPA 1,823,217 Reclassification to provision for other liabilities and charges (132,420)
Amortisation adjustment during the year under IFRS (770,857) Share of the group in the liabilities of joint operations 130,918
Total 46,667,608 Total (1,502)

7.5.12- Derivative financial instruments 7.5.16- Other reserves

At 31 December 2016, the following adjustments were recorded: At 31 December 2016, adjustments were made to other consolidated income statement as
follows:

162 Annual Report 2017

 Particulars 31 December 2016 Amortisation of deferred revenue on a daily basis (17,194)

Reclassification of the effective portion of the floating-to-fixed Difference in the capital gain recognised further to the disposal
(443,698)
interest rate swap contracts of fixed assets resulting from the change in net book value of
(12,476)
Gain on re-measurement of post-employment obligations for the the disposed assets due to the fully depreciated assets and
253,908 componentisation of property, plant and equipment
year in accordance with IAS 19

Fair value change of available-for-sale financial instruments 18,322 Additional finance cost expensed under IFRS (1,461,178)

Group's interest in joint operations' (note 7.5.5/c)* 52,493 Employee benefits obligation based on the actuarial valuation (112,255)

Other comprehensive income reserves at 31 December 2016 (118,975) Elimination of income pertaining to joint operations (note 7.5.5/c) * (67,584)

Total adjustments to IFRS 3,225,814

*corresponding to the Group’s interest in joint operations’ other comprehensive income reserves SR 371
million net of elimination entries SR 424 million. *corresponding to the Group’s interest in joint operations’ retained earnings SR 397 million net of
elimination entries SR 464 million.

7.5.17- Retained earnings

The following IFRS transition adjustments were recorded: 7.5.18- Loans – non-current
The following transition adjustments were recorded:

Particulars 31 December 2016

Particulars 31 December 2016
IFRS adjustments affecting the retained earnings:
Reclassification:
Fully depreciated assets and componentisation of property, plant
5,589,648
and equipment Group’s interest in joint operations’ liabilities (note 7.5.5/b) 8,542,671

Amortisation of deferred government grants (3,688,706) Transaction costs related to loans (142,761)

Employee benefits obligation (1,047,803) Total 8,399,910

Decrease in depreciation as a result of the fully depreciated assets

4,153,454
and componentisation of property, plant and equipment

Non-capitalised expenses (880,949)

Amortisation of government grants on the useful lives of the

770,857
underlying assets

Annual Report 2017 163

7.6- Reconciliation of SOCPA to IFRS consolidated statement of profit or loss for the year ended 31 December 2016

Effects of transition to
Note  SOCPA IFRS
IFRS

Revenue 7.8.1 49,914,757 (53,759) 49,860,998

Cost of sales 7.8.2 (46,907,873) 3,899,343 (43,008,530)

Gross profit 3,006,884 3,845,584 6,852,468

Other income, net 7.8.4 251,824 727,071 978,895

General and administrative expenses 7.8.3 (984,032) (76,484) (1,060,516)

Human resource productivity improvements - (110,257) - (110,257)

Operating income for the year 2,164,419 4,496,171 6,660,590

Finance income - 7,378 7,378

Finance costs - (2,061,184) (2,061,184)

Finance costs, net 7.8.5 - (2,053,806) (2,053,806)

Share of loss of equity-accounted investees - (59,835) - (59,835)

Profit for the year before zakat 2,104,584 2,442,365 4,546,949

Zakat 7.8.6 - (1,692) (1,692)

Profit for the year 2,104,584 2,440,673 4,545,257

164 Annual Report 2017

7.7- Reconciliation of SOCPA to IFRS statement of other comprehensive income for the year ended 31 December 2016

31 December 2016 Effects of transition to 31 December 2016

  Notes
SOCPA IFRS IFRS

Net profit for the year 2,104,584 2,440,673 4,545,257

Other comprehensive income:

Items that can be reclassified subsequently to consolidated profit or loss:

Change in fair value of available-for-sale

24 - 9,357 9,357
Investments

Cash flow hedges 24 - 124,971 124,971

- 134,328 134,328

Items that will not be reclassified to the consolidated statement of income:

Re-measurement of employee benefits 24 - 253,908 253,908

- 253,908 253,908

Total other comprehensive income for the year 388,236 388,236

Total comprehensive income for the year 2,104,584 2,828,909 4,933,493

Notes to the reconciliation of SOCPA to IFRS consolidated other comprehensive income as at 31 December 2016

7.7.1- Revenue
The following IFRS transition adjustments were recorded:

Particulars 31 December 2016

Elimination of the Group’s interest in deferred revenue related to electrical facilities granted by joint operations (36,565)

Change in amortisation basis of deferred revenue (17,194)

Total (53,759)

Annual Report 2017 165

7.7.2- Cost of sales 7.7.3- General and administrative expenses
The following IFRS transition adjustments were recorded: The following IFRS transition adjustments were recorded:

Particulars 31 December 2016 Particulars 31 December 2016

Impact of changes in depreciation expense relating to useful lives Impact of changes in depreciation expense relating to useful lives
4,042,071 111,382
and componentisation adjustments and componentisation adjustments

Costs for the year that are ineligible for capitalisation under IFRS (722,376) Costs for the year that are not eligible for capitalisation under IFRS (158,573)

Decrease in service cost for the post-employment benefit liability Decrease in service cost for the post-employment benefit liability
94,925 25,228
for the year for the year

Effect on cost of sales from the reversal of equity accounting of Group's share of investments’ results that are classified as joint
(84,094)
investments in joint operations that were recorded using the equity operations
(103,162)
method under SOCPA (share of profits from these investments was Board of directors remuneration expensed (932)
netted off against cost of sales under SOCPA)
Reclassification 30,505
Elimination of the Group’s share in the income of joint operations 599,699
Total (76,484)
Reclassification (11,814)

Total 3,899,343 7.7.4- Other income / (expense) - net

The following transition adjustments for other income / (expense) were recorded:

Particulars 31 December 2016

Amortisation of government grants under IFRS 770,857

Difference in the gain on disposal of property, plant and equipment

(12,476)
resulting from change in book value

Group's share of investments’ results that are classified as joint

(12,550)
operations

Reclassification (18,760)

Total 727,071

166 Annual Report 2017

7.7.5- Finance costs production and delivery of electricity to the consumer. The Group's revenues are currently
The following IFRS transition adjustments were recorded: realized from the sale of energy to the final consumer according to the official rate set for the
system. All operations are carried out within the Kingdom.
  31 December 2016

Finance expense incurred by the Group which were ineligible for The main actions of each activity are as follows:
(1,461,178) Generation: Generating and saving electricity.
capitalisation
Transmission: Transmission of power from generation plants using the transmission
Group's share of investments’ results that are classified as joint
(367,667) network to the distribution network and operation of the electricity transmission and
operations under IFRS
maintenance system.
Interest on employee end of service benefits (232,408) Distribution and Subscriber Services: Receiving and distributing power from transmission
Less: Finance income recorded under IFRS 7,378 networks to subscribers. Issuance and distribution of bills of consumption and collection.
Reclassification 69
The Group is currently working on implementing an integrated plan to separate the main
Total (2,053,806)
activities into independent companies and to develop internal selling prices. Accordingly, the
revenues and expenses of each company will be determined separately upon completion of
7.7.6- Zakat
the separation process to measure the performance of each activity and the results of its
The IFRS to Zakat is related to the Group’s share in the results of the joint operations during
operations independently as part of this plan, for the transfer of electricity and the adoption
the year.
of the basis of its dealing agreements by the Board of Directors. The National Electricity
Transmission Company has started its operations related to the transport activity on 1
8- Seasonal changes
January 2012.
The Group's activity and revenues are affected by seasonal weather conditions during the
year. The Group's revenues are significantly reduced during the winter months due to lower
power consumption and increased revenues during the summer months due to the increase
in electricity consumption due to higher temperatures. These changes are reflected in the
financial results of the Group during the year.

9- Sectoral information and future structure of the Group's activities

The main operating activities of the Group are divided into generation, transmission,
distribution and subscriber services which are complementary to each other in the

Annual Report 2017 167

The Group’s consolidated financial statements in the following table include the generation, distribution and customer services as well as the head office, where procedures are still under
way to separate the generation and distribution activities up to the date of preparation of these consolidated financial statements.
As at and for the year ended 31 December 2017

Saudi Electricity National Grid Intercompany

Joint Operations Other subsidiaries Total
Company Company transactions

Revenue

External customers 50,630,008 - - 28,581 (43,272) 50,615,317

Between sectors - 10,760,554 2,113,837 - (12,874,391) -

Total revenue 50,630,008 10,760,554 2,113,837 28,581 (12,917,663) 50,615,317

Cost of sales

Fuel (9,026,790) - - - - (9,026,790)

Purchased energy (9,169,645) - (965,644) - 2,113,838 (8,021,451)

Operating and maintenance costs (20,321,852) (1,837,466) (271,626) (10,352) 10,769,128 (11,672,168)

Depreciation - Operation and Maintenance (9,703,273) (5,305,100) (309,802) - 43,272 (15,274,903)

Total cost of sales (48,221,560) (7,142,566) (1,547,072) (10,352) 12,926,238 (43,995,312)

General and administrative expenses (699,792) (266,447) (59,409) (18,492) - (1,044,140)

Depreciation - general and administrative (396,260) - - (396,260)

Total general and administrative expenses (1,096,052) (266,447) (59,409) (18,492) - (1,440,400)

Non - operating income / expenses, net 2,489,547 4,133 158,580 624 (1,118,198) 1,534,686

Exemption from municipal fees 6,119,546 - - - - 6,119,546

Productivity Improvement Program (2,629,268) (198,996) - (891) - (2,829,155)

Finance cost, net (2,339,749) (1,142,136) (381,665) 1,783 1,109,623 (2,752,144)

Share in loss of investments in equity-accounted

(108,876) - - - - (108,876)
companies

168 Annual Report 2017

 Saudi Electricity National Grid Intercompany
Joint Operations Other subsidiaries Total
Company Company transactions

Zakat expenses - - (4,875) - - (4,875)

Deferred tax expense (202,178) - (28,360) - - (230,538)

Net income for the year 4,641,418 2,014,542 251,036 1,253 - 6,908,249

As at December 2017

Projects under construction 42,698,136 36,136,075 1,120,452 - - 79,954,663

Property, plant and equipment 196,572,965 117,374,557 10,387,351 - - 324,334,873

Total property, plant and equipment 239,271,101 153,510,632 11,507,803 - - 404,289,536

Total assets 424,862,410 140,784,669 12,919,061 283,406 (133,089,086) 445,760,460

Total liabilities 359,962,634 123,758,118 11,154,417 162,573 (121,586,689) 373,451,053

As at and for the year ended 31 December 2017

Saudi Electricity National Grid Intercompany

Joint Operations Other subsidiaries Total
Company Company transactions

Revenue

External customers 49,842,751 - - 56,343 (38,096) 49,860,998

Between sectors - 8,420,375 2,507,180 - (10,927,555) -

Total revenue 49,842,751 8,420,375 2,507,180 56,343 (10,965,651) 49,860,998

Cost of Sales

Fuel (9,989,313) (9,989,313)

Purchased energy (8,487,090) - (1,450,094) - 2,507,180 (7,430,004)

Operating and maintenance costs (18,843,418) (1,809,661) (273,785) (16,903) 8,475,373 (12,468,394)

Depreciation - Operation and Maintenance (8,001,119) (4,870,998) (248,702) - - (13,120,819)

Total cost of sales (45,320,940) (6,680,659) (1,972,581) (16,903) 10,982,553 (43,008,530)

Annual Report 2017 169

 Saudi Electricity National Grid Intercompany
Joint Operations Other subsidiaries Total
Company Company transactions

General and administrative expenses (515,071) (140,844) (55,559) (8,821) - (720,295)

Depreciation - general and administrative (340,221) - - - - (340,221)

Total general and administrative expenses (855,292) (140,844) (55,559) (8,821) (1,060,516)

Non - operating income / expenses, net 2,598,868 6,912 (5,604) (229) (1,621,052) 978,895

 Exemption from municipal fees - - - - - -

Productivity Improvement Program (103,414) (6,843) - - - (110,257)

Finance costs, net (1,665,165) (1,629,430) (366,584) 3,223 1,604,150 (2,053,806)

Share in loss of investments in equity-accounted

(59,835) - - - - (59,835)
companies

Zakat expenses - - (1,692) - - (1,692)

Net income for the year 4,436,973 (30,489) 105,160 33,613 - 4,545,257

As at December 2016

Projects under construction 42,811,013 43,118,335 2,392,773 - - 88,322,121

Property, plant and equipment 180,161,618 96,621,224 8,904,429 - - 285,687,271

Total property, plant and equipment 222,972,631 139,739,559 11,297,202 - 374,009,392

Total assets 402,480,341 115,536,536 12,759,229 267,508 (110,021,393) 421,022,221

Total liabilities 342,125,217 100,543,250 11,250,094 153,539 (98,647,676) 355,424,424

170 Annual Report 2017

10- Property, plant and equipment, net

Machinery Transmission Vehicles Construction

Capital
Land Buildings and and distribution and heavy Others work in Total
spare parts
equipment network equipment progress

Cost:

At 1 January 2016 2,630,034 24,994,163 156,751,087 4,970,488 229,816,379 1,614,466 7,439,894 86,978,170 515,194,681

Additions* 479,900 11,513,951 8,819,715 330,846 31,226,401 176,363 1,971,837 53,698,660 108,217,673

Transfer from work in progress - - - - - - - (52,354,709) (52,354,709)

Disposals (600) (13,005) (363,748) (180) (280,479) (15,590) (19,167) (692,769)

At 31 December 2016 3,109,334 36,495,109 165,207,054 5,301,154 260,762,301 1,775,239 9,392,564 88,322,121 570,364,876

Additions* 392,299 6,772,119 11,782,370 541,372 30,647,636 146,150 4,120,860 43,761,224 98,164,030

Transfer from work in progress - - - - - - - (52,128,682) (52,128,682)

Reclassification (4,823) 93,767 (262) 7,307 (1,310) (511) (94,168) - -

Disposals - (63,575) (2,182,518) (9,966) (269,246) (98,252) (45,212) - (2,668,769)

At 31 December 2017 3,496,810 43,297,420 174,806,644 5,839,867 291,139,381 1,822,626 13,374,044 79,954,663 613,731,455

Accumulated depreciation

At 1 January 2016 - 14,055,485 63,298,209 2,495,888 99,153,164 1,211,875 3,263,375 - 183,477,996

Depreciation for the year - 1,258,406 4,444,209 127,154 6,803,542 105,166 722,563 - 13,461,040

Disposals - (12,964) (351,388) (180) (194,427) (15,563) (9,030) - (583,552)

Annual Report 2017 171

 Machinery Transmission Vehicles Construction
Capital
Land Buildings and and distribution and heavy Others work in Total
spare parts
equipment network equipment progress

At 31 December 2016 - 15,300,927 67,391,030 2,622,862 105,762,279 1,301,478 3,976,908 - 196,355,484

Depreciation for the year - 1,375,744 5,785,930 181,493 7,572,338 138,768 616,890 - 15,671,163

Reclassification - 8,464 (262) - (388) (465) (7,349) - -

Disposals - (57,476) (2,128,939) (8,632) (246,475) (98,238) (44,968) - (2,584,728)

As at 31 December 2017 16,627,659 71,047,759 2,795,723 113,087,754 1,341,543 4,541,481 - 209,441,919

Net book value

As at 1 January 2016 2,630,034 10,938,678 93,452,878 2,474,600 130,663,215 402,591 4,176,519 86,978,170 331,716,685

As at 31 December 2016 3,109,334 21,194,182 97,816,024 2,678,292 155,000,022 473,761 5,415,656 88,322,121 374,009,392

As at 31 December 2017 3,496,810 26,669,761 103,758,885 3,044,144 178,051,627 481,083 8,832,563 79,954,663 404,289,536

As of 31 December 2017, property, plant and equipment represent for depreciated assets with an original cost of SR 57.9 billion which are fully depreciated but still in use. Management
doesn’t expect substantial future economic benefits from these assets.

* Additions to projects under construction include capitalised interest of SR 2.9 billion during 31 December 2017 (31 December 2016: SR 2.7 billion). The capitalisation rate for the year ended 31 December 2017 was
3.6% (31 December 2016: 3%).

Land includes plots of land with a book value of SAR 25 million, which title deeds are not transferred to the Group yet.

For IFRS transition adjustment details, please refer note 7.

172 Annual Report 2017

Net book value of the Group’s property, plant and equipment other than construction work in progress is allocated to the main activities as follows:

Generation Transmission Distribution General property Joint operations Total

As at 1 January 2016

Land 131,737 593,698 219,007 1,685,592 - 2,630,034

Buildings 5,388,331 3,441,080 269,373 1,253,272 586,622 10,938,678

Machinery and equipment 81,230,106 2,354,228 314,383 569,044 8,985,117 93,452,878

Capital spare parts 1,697,752 528,333 135,938 66 112,511 2,474,600

Transmission and distribution network - 65,873,264 64,789,951 - - 130,663,215

Vehicles and heavy equipment - 209 - 402,107 275 402,591

Others 2,637,626 417,181 408,825 703,719 9,168 4,176,519

Net book value- net 91,085,552 73,207,993 66,137,477 4,613,800 9,693,693 244,738,515

As at 31 December 2016

Land 131,137 593,698 219,007 2,165,492 - 3,109,334

Buildings 12,611,255 6,305,174 298,996 1,405,011 573,746 21,194,182

Machinery and equipment 84,830,789 3,830,827 383,845 559,248 8,211,315 97,816,024

Capital spare parts 1,894,064 539,005 135,553 55 109,615 2,678,292

Transmission and distribution network - 84,295,912 70,704,110 - - 155,000,022

Vehicles and heavy equipment - 591 - 464,652 8,518 473,761

Others 2,839,884 1,056,017 440,217 1,078,303 1,235 5,415,656

Net book value - net 102,307,129 96,621,224 72,181,728 5,672,761 8,904,429 285,687,271

Annual Report 2017 173

 Generation Transmission Distribution General property Joint operations Total

As at 31 December 2017

Land 131,137 591,303 219,018 2,555,352 - 3,496,810

Buildings 16,802,675 7,326,388 330,906 1,555,372 654,420 26,669,761

Machinery and equipment 88,634,201 4,425,848 490,058 591,468 9,617,310 103,758,885

Capital spare parts 2,070,230 563,455 296,012 38 114,409 3,044,144

Transmission and distribution network - 103,597,454 74,454,173 - - 178,051,627

Vehicles and heavy equipment - 531 8,334 472,023 195 481,083

Others 2,705,049 869,578 424,695 4,832,224 1,017 8,832,563

Net book value - net 110,343,292 117,374,557 76,223,196 10,006,477 10,387,351 324,334,873

Projects representing construction work in progress are allocated to main activities as follows:

Generation Transmission Distribution General property Joint operations Total

At 1 January 2016 28,398,909 43,279,938 12,915,402 767,750 1,616,171 86,978,170

Additions 13,023,771 23,582,147 12,002,714 1,612,715 776,602 50,997,949

Borrowing costs capitalised 650,343 1,746,359 168,629 135,380 - 2,700,711

Transfers (16,939,522) (25,490,109) (8,889,238) (1,035,840) - (52,354,709)

At 31 December 2016 25,133,501 43,118,335 16,197,507 1,480,005 2,392,773 88,322,121

Additions 7,742,869 19,401,007 10,245,751 3,099,567 383,156 40,872,350

Borrowing costs capitalised 790,782 1,349,272 603,630 54,520 90,670 2,888,874

Transfers (13,957,690) (27,732,539) (7,509,873) (1,182,434) (1,746,146) (52,128,682)

As at 31 December 2017 19,709,462 36,136,075 19,537,015 3,451,658 1,120,453 79,954,663

* The capitalisation rate of borrowing cost for the year ended 31 December 2017 was 3.6% (31 December 2016: 3%)

174 Annual Report 2017

11- Investment properties
The carrying value of investment property is SR 535 million as at 31 December 2017 (31 December 2016: SR 539 million, 1 January 2016: SR 539 million). Management performed an
independent valuation for investment properties as at 31 December 2016 and determined the fair value of investment properties at SR 1.4 billion. Management believes that the fair value at
31 December 2017 does not differ materially from its fair value as at 31 December 2016.

An independent valuation of the Group’s land classified as investment properties was performed by an independent valuer M/S Medad Valuation Advisory Int. Co Limited – Ahmed Mohammed
Albabtain License no. 11000112 (Licensed by Saudi Authority for Accredited Valuers) to determine the fair value of the land at 31 December 2016.

The following table sets out the valuation techniques used in the determination of fair value of investment properties, as well as the key unobservable inputs used in the valuation models.

The fair value measurement information in accordance with IFRS 13 as at 31 December 2016 which was completed during the first quarter of 2017, is given below.

  Fair value measurements as at 31 December 2016

  Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3)

Fair-value measurements - Land - 1,398,402 -

Valuation techniques used to derive Level 2 fair values:

Level 2 fair values of land have been generally derived using the sales comparison approach. Sales prices of comparable properties are used. The most significant input into this valuation
approach is price per square meter.

The real estate appraisal mechanism used to evaluate real estate investments is in line with the International Assessment Standards Board and the Saudi Authority for Accredited Valuers.

Annual Report 2017 175

12- Intangible assets, net
Amortisation charge for the year amounting to SR 97 million (31 December 2016: SR 16 million) was charged to the consolidated statement of profit or loss.

Pipeline right-of-use Software Work in process Total

Cost:

Balance at 1 January 2016 178,086 161,247 156,143 495,476

Additions - - 56,125 56,125

Balance at 31 December 2016 178,086 161,247 212,268 551,601

Additions - 74,072 1,100 75,172

Transfers from projects under implementation - 100,506 (100,506) -

Balance at 31 December 2017 178,086 335,825 112,862 626,773

Accumulated amortisation:

Balance at 1 January 2016 35,617 105,390 - 141,007

Amortisation for the year - 16,283 - 16,283

Balance at 31 December 2016 35,617 121,673 - 157,290

Amortisation for the year 44,522 52,846 - 97,368

Balance at 31 December 2017 80,139 174,519 - 254,658

Net book value:

At 1 January 2016 142,469 55,857 156,143 354,469

At 31 December 2016 142,469 39,574 212,268 394,311

At 31 December 2017 97,947 161,306 112,862 372,115

176 Annual Report 2017

13- Equity-accounted investees capital. The Group’s share represents 25% of authorize share capital amounting to SR 22.5
The balances related to these investments are as follows: million which was fully paid as at 31 December 2016. During 2017, the authorised share capital
was fully paid amounting to SR 360 million. The share of the Group amounted to SR 90 million
31 December 2017 31 December 2016 1 January 2016 as at 31 December 2017. The company has not yet started its operations. Net book value of

GCC Inter-Connection investment represents the group share after pre operating losses.
1,443,797 1,548,721 1,607,223
Authority
Al Fadhly Co-Generation Company:
Gulf Laboratory for
Pursuant to the Board of Directors’ resolution no. 5/143/2016 dated 17 Dhul-Hijjah 1437 H
Electrical 84,867 21,167 -
corresponding to 20 September 2016, Al Fadhly Co-Generation Company was established
Equipment Diagnoses
for dual production with a share capital of SR 1.5 million. The Group’s share represents
Al Fadhly Co- 30% of the share capital. This company has not started its operations yet. Net book value of
298 450 -
Generation Company investment represents the Group’s share after pre operating losses.
Green Saudi Company
for Carbon 510 - - Green Saudi Company for Carbon Services:
Services The Group participated in the establishment of Green Saudi Company for Carbon Services
1,529,472 1,570,338 1,607,223 which is a limited liability company with a capital of SR 1 million. The Group’s share
amounted to SR 510 thousand representing 51% of the share capital of the Company.

GCC Inter-Connection Authority:

The Holding Company has participated in the capital of the electrical interconnection of the
GCC countries in order to enhance the utilization of the transmission and distribution of
electric power among the member countries. The total value of participation at the date of
incorporation was US $ 484.8 million, equivalent to SR 1.8 billion.
Equity-accounted investees – continued

Gulf Laboratory for Electrical Equipment Diagnoses:

Pursuant to ministerial resolution no (38) dated 10 Safar 1437 H (corresponding to 10
November 2016), Gulf Laboratory for Electrical Equipment Company (closed Joint-stock
company) was established with an authorised share capital of SR 360 million. The shareholders
of Gulf Laboratory for Electrical Equipment Company paid SR 90 million of the authorised share

Annual Report 2017 177

Movement in equity-accounted investees during the year is as follows:

GCC Gulf Laboratory for

Al Fadhly Co-Generation Green Saudi Company for
Inter-Connection Electrical Equipment Total
Company Carbon Services
Authority Diagnoses

Balance at 1 January 2016 1,607,223 - - - 1,607,223

Additions - 22,500 450 - 22,950

Share in net losses (58,502) (1,333) - - (59,835)

Balance at 31 December 2016 1,548,721 21,167 450 - 1,570,338

Additions - 67,500 - 510 68,010

Share in net losses (104,924) (3,800) (152) (108,876)

Balance at 31 December 2017 1,443,797 84,867 298 510 1,529,472

The following table represents the financial information relating to the Group’s investment in the Electricity Interconnection Authority of the GCC States:

31 December 2017 31 December 2016 1 January 2016

Current assets 711,165 692,010 431,690

Non-current assets 3,867,109 4,052,914 4,236,878

Current liabilities 73,838 36,011 37,334

Non-current liabilities 36,068 31,969 26,636

Equity 4,468,368 4,676,944 4,604,598

178 Annual Report 2017

 Fair value information in accordance with IFRS 13 is set out in Note 49.3.
31 December 2017 31 December 2016

Operating income 149,393 142,024

15-Available-for-sale financial assets
Cost of sales (358,350) (376,275)

Gross loss (208,957) (234,251) 31 December 2017 31 December 2016 1 January 2016
General and administrative expenses (18,799) (18,491) Shuaiba Water and
148,293 133,415 134,463
Operating loss for the year (227,756) (252,742) Electricity Company

Other income, net 11,854 16,358 Shuquiq Water and

99,875 99,160 87,925
Electricity Company
Financing income 7,785 15,165
Jubail Water and Power
Loss for the year before Zakat (208,117) (221,219) 41,926 43,193 43,060
Company

* Financial information related to other equity accounted investees is not disclosed as those investments Shuaibah Expansion
15,528 15,184 16,147
are not material to the Group. Holdings

Total 305,622 290,952 281,595

14- Held-to-maturity investments

Fair value information in accordance with IFRS 13 is set out in Note 49.3.
31 December 2017 31 December 2016 1 January 2016

Saudi British Bank’s 16- Inventories, net

20,000 70,000 70,000
Sukuk

Sadara Company for 31 December 2017 31 December 2016 1 January 2016

Basic Services’ Sukuk 25,000 25,000 25,000 Generation plant

2,928,391 2,951,572 3,200,217
“Sadara” materials and supplies

Arabian Aramco Total Distribution network

2,339,742 2,818,450 2,567,466
Services Company’s 20,465 21,893 23,273 materials and supplies
Sukuk “Satorp” Transmission network
342,189 326,070 371,156
65,465 116,893 118,273 materials and supplies

Fuel and oil 809,751 949,775 441,135

Annual Report 2017 179

 Others 66,878 437,083 506,214 Total electricity
28,185,469 26,963,718 18,913,329
Total 6,486,951 7,482,950 7,086,188 consumers’ receivable

Less: Provision for Less: provision for

(1,160,365) (1,150,783) (485,937)
slow moving (789,105) (485,398) (493,354) doubtful receivables (a)

inventories (a) Add: Unbilled revenues 2,515,103 2,751,106 2,085,152

5,697,846 6,997,552 6,592,834 29,540,207 28,564,041 20,512,544

The movement of provision for slow-moving inventories during the year is as follows: The movement in the provision for doubtful receivables during the year is as follow:

31 December 2017 31 December 2016 31 December 2017 31 December 2016

Balance at the beginning of the year 485,398 493,354 Balance at the beginning of the year 1,150,783 485,937

Charge / (reversed) for the year 303,707 (7,956) Charge for the year 269,083 664,846

Balance at the end of the year 789,105 485,398 Reverse during the year (259,501) -

Balance at the end of the year 1,160,365 1,150,783

17- Electricity receivables, net
Fair value information in accordance with IFRS 13 is set out in Note 49.3.
31 December 2017 31 December 2016 1 January 2016

Electricity consumers’ receivable 18- Loans and advances

Governmental institutions 18,788,803 16,857,157 10,063,733

31 December 2017 31 December 2016 1 January 2016
Commercial and
  4,834,047 4,401,333 4,260,106 Loans to affiliate
residential
Jubail Water and Power 9,250 18,175 28,500
Electricity service
Company
connection projects 2,136,277 3,944,833 3,046,281
receivables Advances to:

Due from related parties 2,426,342 1,760,395 1,543,209 Contractors and 1,467,567 3,243,006 4,920,037
suppliers

Employees 20,813 29,789 25,497

1,497,630 3,290,970 4,974,034

180 Annual Report 2017
19- Prepayments and other receivables 21- Share capital
The Company’s share capital is divided into 4,166,593,815 shares of SR 41,665,938,150 with
31 December 2017 31 December 2016 1 January 2016 a nominal value of SR 10 per share. The ownership of the shares owned by the Government

Other Government of Saudi Arabia in the Company’s share capital of 74.31% was transferred to the Public
- 2,982,382 2,875,434 Investment Fund by Royal Decree No. 47995 dated 19 Shawwal 1438 AH (13 July 2017).
receivables

Prepaid and other expenses 290,129 414,105 242,611

22- Transactions with owners, recognised directly in equity
Fuel supplies to In accordance with the Group’s articles of association, dividends of at least 5% of paid in
independent power 174,406 325,376 267,777 capital, net of reserves, should be distributed to shareholders, with due care to the provisions
producers (IPPs) of the Council of Ministers’ Resolution No.169 dated 11 Sha’aban 1419 AH, whereby the
Insurance claims and other Government has waived its share in the distributed dividends for a period of ten years from
170,529 220,332 285,041
claims the date of the Company’s formation, provided that dividends do not exceed 10% of the par
Other receivables, net 256,002 318,849 427,512 value of the shares. In cases where the distribution exceeds 10% of the shares’ par value,
the Government’s share shall be treated similar to the share of other shareholders. The
891,066 4,261,044 4,098,375
Government has agreed to extend this waiver for another ten years based on the Council of
Less: Provision for other
(57,254) (57,254) (60,216) Ministers’ Resolution No. 327 dated 24 Ramadan 1430 AH corresponding to 13 September
doubtful receivables
2009 to extend a Government’s waiver for its share of the profits distributed by the company
833,812 4,203,790 4,038,159 for ten more years.

20- Cash and cash equivalents The Board of Directors, at its meeting held on April 19, 2017, approved a dividend of 7% cash
dividends for the year 2016 for individuals contributing SR 547 million representing SR 0.7
31 December 2017 31 December 2016 1 January 2016 per share (2015: SR 547 million).
Cash on hand 32,826 3,659 4,084
The Board of Directors, at its meeting held on 20 March 2018 corresponding to 3 Rajab 1439 AH,
Cash at banks 732,563 712,017 1,689,158
recommended distributing cash dividends for the year 2017 to individual shareholders for
Short-term bank deposits 292,821 329,711 155,125
the amount of SR 547 million at 0.70 Saudi Riyals per share representing 7% of the nominal
1,058,210 1,045,387 1,848,367 value of the share. The distribution of profits for the current year requires the approval of the
Company’s General Assembly.

Annual Report 2017 181

23- Reserves
Revaluation of
Statutory reserves 14,670 - - 14,670
available for sale
In accordance with the Company’s Articles of Association, which have been amended in
Remeasurement
accordance with the new corporate regulations and approved by the Extraordinary General
gains on defined - - 169,524 169,524
Assembly on 19 April 2017, the Company is required to transfer each year 10% of its net
benefit plans
profits to form a statutory reserve until the reserve reaches 30% of the capital. The statutory
reserve is not available for distribution. Cash flow hedge fair
- 41,678 - 41,678
value gain/(loss)

General reserve At 31 December 2017 32,992 (349,527) 423,432 106,897

General reserve consists of the balances of the reserves that were reflected in the
consolidated financial statements of the Saudi Consolidated Electricity Company at the date *The reserve represents the fair value of derivative financial instruments, net of deferred tax, designated
of the consolidation (note 1), in additions to the collections of surcharge from individuals as cash flow hedges.

subsequent to 31 December 2001.

25- Retained earnings
24- Other reserves Movements in retained earnings were as follows:

Derivative financial Employee 31 December 2017 31 December 2016

Available for
  instruments at fair benefits Total Balance at the beginning of the year 20,618,023 16,836,693
sale assets
value* obligation Net profit of the year 6,908,249 4,545,257
At 1 January 2016 8,965 (516,176) - (507,211) Transfer to statutory reserve (680,274) (216,675)
Revaluation of Disposal of equity in joint operations (2,047) -
9,357 - - 9,357
available for sale
Dividends (547,252) (547,252)
Remeasurement
Balance at the end of the year 26,296,699 20,618,023
of gains on defined - - 253,908 253,908
benefit plans

Cash flow hedge fair

- 124,971 - 124,971
value gain/(loss)

At 31 December 2016 18,322 (391,205) 253,908 (118,975)

182 Annual Report 2017

26- Employee benefits obligation The economic assumptions for the valuations are shown in the table below:

31 December 2017 31 December 2016 1 January 2016 31 December 2017 31 December 2016 1 January 2016

Employees’ end of 4,859,499 5,467,696 6,060,444 Gross discount rate 3.55% 3.70% 3.20%
service benefits Price inflation 2.65% 2.90% 2.00%
Employees’ savings 479,013 461,066 400,933 Salary inflation 4.65% 4.90% 4.00%
fund
Net discount rate (1.05%) (1.14%) (0.77%)
Human resources 2,264,382 151,500 133,534
productivity
Sensitivity Analysis:
improvement program

7,602,894 6,080,262 6,594,911 Impact on defined benefit obligations 2017

1% Increase 1% Decrease

Payroll inflation (525,666) 447,411

26.1- Employee end of services benefits
The Group carried out an actuarial valuation for employees’ end of service benefits, using the Discount rate 447,810 (526,117)

projected unit credit method, of its liability as at 31 December 2017, 31 December 2016 and 1
January 2016 arising from the end of service benefits. Impact on defined benefit obligations 2016

1% Increase 1% Decrease
The key demographic assumptions for the valuations are shown in the table below:
Payroll inflation (595,454) 516,497

Discount rate 515,574 (606,735)

Withdrawal rate 6.25% per annum

58 years and 3 months (Gregorian calendar) / 60 years (Hijri calendar). The assumptions used in the sensitivity analysis includes the impact on the consolidated statement
Assumed
Employees older than the normal retired age are assumed to retire of profit or loss and the consolidated statement of other comprehensive income in relation to end of
retirement age
immediately on valuation date. services benefits.

The Group based the pre-retirement mortality on the life table for
Pre-retirement
Saudi Arabia, sourced from the World Health Organisation’s Global
mortality
Health Observatory Data Repository.

Annual Report 2017 183

The reconciliation of the defined benefit obligation for the year ended 31 December 2017 and 2016:

  Statement of profit or loss Re-measurement Cash movements Total

As at 1 January 2016 6,060,444

Current service cost 439,924 - - 439,924

Interest cost 232,408 - - 232,408

Loss from change in economic assumptions - (220,317) - (220,317)

Experience loss - (33,591) - (33,591)

Benefit payments - - (1,011,172) (1,011,172)

Total movement during the year 672,332 (253,908) (1,011,172) (592,748)

As at 31 December 2016 5,467,696

Current service cost 421,581 - - 421,581

Interest cost 182,361 - - 182,361

Gain from change in economic assumptions - 153,986 - 153,986

Loss from change in demographic assumptions - (77,504) - (77,504)

Experience loss - (246,006) - (246,006)

Benefit payments - - (1,042,615) (1,042,615)

Total movement during the year 603,942 (169,524) (1,042,615) (608,197)

As at 31 December 2017 4,859,499

26.2- Employees savings fund

In accordance with Article 145 of the Labor Law, and in line with the Board of Directors’ meeting held on 23 Safar 1429H (corresponding to March 2008), the Savings Plan Program was
applied to encourage Saudi employees in the Company to save and invest their savings in areas that are more beneficial to them to secure their future and as an incentive for them to
continue working with the Company. 

184 Annual Report 2017

Participation in the Fund is restricted to Saudi employees only and is optional for the 26.3- Human resources productivity improvement program
employee who wishes to contribute a monthly minimum of 1% to a maximum of 10% of their
basic salary. 31 December 2017 31 December 2016 1 January 2016

Special payment offer 1,645,875 - -

31 December 2017 31 December 2016
Mowama offer 618,507 151,500 133,534
Balance at the beginning of the year 461,066 400,933
2,264,382 151,500 133,534
Charge for the year 130,758 131,049

Paid during the year (112,811) (70,916) The Company is committed to improve the productivity of human resources by increasing
Balance at the end of the year 479,013 461,066 employees’ efficiency and reducing the total costs of human resources, which will positively
affect the performance of the Company in the future (human resources productivity

The following are the liabilities balances of the saving fund: improvement program). Eligible Saudi employees who meet the applicable terms and
conditions can enroll in this program. As at 31 December 2017, the liability balance reached

31 December 2017 31 December 2016 1 January 2016 at SR 2,264 million (2016: SR 151 million) related to this program.

Contribution of the
533,819 495,660 418,948 The Company has carried out actuarial valuations for both aforementioned program as
Company
at 31 December 2017. The assumptions made by the actuarial expert are consistent with
Employee underlying assumptions regarding the assessment of end of service benefits’ actuarial
556,998 518,182 456,696
contribution valuation. However, following are the additional assumptions for the purposes of the above
Total liabilities 1,090,817 1,013,842 875,644 mentioned program:

The following are the assets of the saving fund: Special payment offer:
• 50% of the withdrawals are as a result of eligible employees accepting the special offer
31 December 2017 31 December 2016 1 January 2016 and thereby ending employment with the Group.
• Each eligible employee is equally likely to receive a benefit offer in any given year. 
Balances and
499,804 440,776 382,711 • Based on past experience, an assumption that 48% of eligible employees will choose
deposits with bank
Option 1 and 52% of eligible employees will choose Option 2. 
Investments in Sukuk 112,000 112,000 92,000
• In the medium-term, healthcare cost inflation will be in line with (or equal to) the general
Total assets of the price inflation.
611,804 552,776 474,711
fund

Annual Report 2017 185

 • All benefits under the plan will cease upon death or reaching age 60, whichever comes first.
31 December 2017 31 December 2016 1 January 2016
• Mortgages underlying the instalment support benefit will never mature prior to the
Current portion 2,720,701 2,372,167 2,259,207
employee reaching age 60.
• We have assumed that the family structure and attaching medical costs for all of the SEC Non-current portion 38,391,105 31,927,778 26,842,646
employees in 2017 will on average be representative of that of the Mowama recipients.
Moreover, the average monthly medical cost to the Group, per member of the Mowama, Deferred revenue represents amounts collected for delivery of power supply to completed
projects. Where they are amortised on a straight-line basis based on the average useful life
was set equal to the average monthly medical cost per the Group employee.
of the equipment used.

Productivity of human resources movement are shown in the table below:

28- Deferred government grant
31 December 2017 31 December 2016 Deferred government grants amounting to SR 45.6 billion as at 31 December 2017 (31
December 2016: SR 46.7 billion and 1 January 2016: SR 46 billion) representing the
Balance at the beginning of the year 151,500 133,534
difference between the loan amounts received from the Government and the discounted
Increase during the year:
present value of these loans (note 34).
Special payment offer 2,200,287 -

Mowana 628,868 110,257 31 December 2017 31 December 2016 1 January 2016

Total increase during the year 2,829,155 110,257 Balance at the
46,667,608 46,035,284 -
Paid during the year (716,273) (92,291) beginning of the year

Balance at the end of the year 2,264,382 151,500 Recognised at the date
- - 46,035,284
of transition to IFRS
27- Deferred revenue Government grants
- 1,403,183 -
during the year
31 December 2017 31 December 2016
Amortisation through
Balance at the beginning of the year 34,299,945 29,101,853 (1,058,639) (770,859) -
the income statement
Collected from electricity service 9,403,005 7,457,299 Balance at the end of
connection projects 45,608,969 46,667,608 46,035,284
the year
Recognised during the year (2,591,144) (2,259,207)

Balance at the end of the year 41,111,806 34,299,945

186 Annual Report 2017

29- Asset retirement obligations

31 December 2017 31 December 2016

Balance at the beginning of the year 187,550 176,126

Unwinding of discount 5,823 11,424

Balance at the end of the year 193,373 187,550

The balance of the asset retirement obligation is stated at the present value of the future obligation after taking into consideration the discount factor.

30- Trade Payables

31 December 2017 31 December 2016 1 January 2016

Saudi Aramco costs of fuel 87,933,523 83,651,364 73,668,251

Transferred to Government payable (a) (79,652,087) (57,200,552) (57,200,552)

8,281,436 26,450,812 16,467,699

Saline Water Conversion Corporation – payable 11,088,845 10,430,862 10,049,688

Municipality fees - 6,119,546 5,390,308

Contractors and retention payables 4,944,406 4,978,278 3,726,369

Purchased power payable 5,230,656 3,750,696 2,608,003

Account receivable 1,022,807 120,086 459,653

Others (b) 2,018,091 2,565,486 2,733,601

32,586,241 54,415,766 41,435,321

A) This amount represents payable relating to fuel for the period from 5 April 2000 to 31 December 2016, which was transferred from Saudi Aramco account to government accounts (note 33).
B) Other payables include amounts of SR 1.1 billion (2016: SR 1.1 billion) are still under settlement between the Group and the government relating to the pre-consolidation accounts referred
to in note 1.

Annual Report 2017 187

31- Accruals and other payables

31 December 2017 31 December 2016 1 January 2016

Accrued expenses 6,016,041 5,278,779 5,411,137

Accrued employees’ benefits 483,325 761,050 746,073

Dividends payable 405,608 397,137 385,183

Accrued interest expenses 556,946 299,922 266,483

Shareholder's payable 1,332 1,359 1,317

Other payables 67,010 94,057 202,264

7,530,262 6,832,304 7,012,457

32- Provision for other liabilities and charges

SAR

At 1 January 2016 138,771

Charge for the year 1,692

Paid /reversed during year (8,043)

At 31 December 2016 132,420

Charge for the year 364,777

Paid /reversed during year (2,517)

At 31 December 2017 494,680

The balance mainly represent the provision for a lawsuit against the Group relating to land acquisition from their owners for public usage.

188 Annual Report 2017

33- Government Payables
The government payable includes SR 79.7 billion representing the amount payable for fuel for the period from 5 April 2000 to 31 December 2016 (2016: SR 57.2 billion for the period from
5 April 2000 to 31 December 2012) pursuant to the ministerial minutes of the meeting and resolutions which resolved to transfer the Group's liability to Saudi Arabian Oil Company (“Saudi
Aramco”) to the account of the Ministry of Finance according to specific procedures and approvals, the latest was before the end of 2017. Government payable also includes SR 0.9 billion
related to assets transferred by the Royal Commission for Jubail and Yanbu.

34- Financial liabilities

34.1- Financial liabilities other than interest bearing

31 December 2017 31 December 2016 1 January 2016

Derivative financial instruments

Derivative financial instruments at fair value 353,178 398,112 526,725

353,178 398,112 526,725

Other financial liabilities carried at amortized cost, other than interest

bearing loans

Trade payables* 32,586,241 48,296,220 36,045,013

Accruals and other payables 7,530,262 6,832,304 7,012,457

Government payables 80,550,577 58,099,049 58,098,794

Total other financial liabilities carried at amortized cost, other than interest
120,667,080 113,227,573 101,156,264
bearing loans

Total financial liabilities other than interest bearing 121,020,258 113,625,685 101,682,989

*This excludes municipality fee payable amounting to SR Nil (31 December 2016: SR 6.1 billion and 1 January: SR 5.4 billion).

Annual Report 2017 189

34.2- Interest bearing liabilities
Classification of borrowings as appearing on the consolidated statement of financial position as of 1 January 2016 is as follows:

Term Loans Sukuk Government loans Total

Non-current 30,622,886 34,940,490 39,991,482 105,554,858

Current 3,673,974 - - 3,673,974

34,296,860 34,940,490 39,991,482 109,228,832

Classification of borrowings as appearing on the consolidated statement of financial position as of 31 December 2016 is as follows:

Term Loans Sukuk Government loans Total

Non-current 43,385,525 26,065,350 42,411,517 111,862,392

Current 13,651,541 8,875,140 - 22,526,681

57,037,066 34,940,490 42,411,517 134,389,073

Classification of borrowings as appearing on the consolidated statement of financial position as of 31 December 2017 is as follows:

Term Loans Sukuk Government loans Total

Non-current 53,210,260 31,793,505 44,364,627 129,368,392

Current 17,142,151 - - 17,142,151

70,352,411 31,793,505 44,364,627 146,510,543

190 Annual Report 2017

Movements in borrowings during the year are as follows:

Term loans Sukuk Government loans Total

As at 1 January 2016 34,296,860 34,940,490 39,991,482 109,228,832

Proceeds from new borrowings 25,866,678 - 2,000,000 27,866,678

Repayments (2,983,711) - - (2,983,711)

Additions to deferred costs (142,761) - - (142,761)

Difference between instalments

- - (1,403,180) (1,403,180)
received and present value

Unwinding of discount of government

- - 1,823,215 1,823,215
loans

As at 31 December 2016 57,037,066 34,940,490 42,411,517 134,389,073

Proceeds from new borrowings 19,019,649 19,019,649

Repayments (5,434,968) (3,144,450) - (8,579,418)

Additions to deferred costs (269,336) (2,535) - (271,871)

Difference between instalments

- - -
received and present value

Unwinding of discount of government

- 1,953,110 1,953,110
loans

As at 31 December 2017 70,352,411 31,793,505 44,364,627 146,510,543

Annual Report 2017 191

34.2.1- Term loans

Non-current: 31 December 2017 31 December 2016 1 January 2016

Saudi Electricity Company 44,617,391 34,842,854 22,266,954

Joint operations 8,592,869 8,542,671 8,355,932

53,210,260 43,385,525 30,622,886

Current: 31 December 2017 31 December 2016 1 January 2016

Saudi Electricity Company 16,678,618 12,608,868 3,347,122

Joint operations 463,533 1,042,673 326,852

17,142,151 13,651,541 3,673,974

192 Annual Report 2017

The following are the term loans:

Loan Maturity Principal 31 December 31 December

1 January 2016
currency date amount 2017 2016

Domestic Bank 1 SAR 2020 6,000,000 1,363,637 1,909,092 2,454,546

Domestic Bank 2 SAR 2025 5,000,000 3,076,000 3,460,800 3,845,600

Domestic Bank 3* SAR 2023 8,000,000 8,000,000 5,000,000 -

Domestic Bank 4 SAR 2020 1,500,000 1,500,000 - -

Domestic Bank 5 SAR 2021 1,300,000 1,300,000 - -

Domestic Bank 6 SAR 2022 3,500,000 3,500,000 - -

Direct loan from the Public Investment Fund SAR 2024 2,583,375 1,401,220 1,616,160 1,831,097

International syndicated loan 1 USD 2021 4,057,417 1,233,974 1,596,684 1,959,475

International Bank 2 USD 2024 3,709,125 1,897,431 2,206,558 2,515,733

International syndicated loan 3 USD 2026 5,251,120 3,938,159 4,375,714 4,813,240

International syndicated loan 4 USD 2028 7,240,715 6,498,418 7,101,725 7,194,384

International Bank 5 USD 2021 5,625,710 5,625,710 5,625,710 -

International syndicated loan 6 USD 2029 3,375,585 3,375,585 3,375,585 -

International syndicated loan 7 USD 2029 1,575,336 1,575,336 1,575,335 -

International syndicated loan 8 USD 2022 6,562,878 6,562,878 - -

Total value 65,281,261 50,848,348 37,843,363 24,614,075

Less: The current portion of long-term loans and advances - (5,964,188) (2,857,748) (2,347,122)

Less: The unmatched portion of the prepaid fee and other fees - (266,769) (142,761) -

Non-current portion of long-term loans - 44,617,391 34,842,854 22,266,953

* Following the announcement of the Saudi Electricity Company published on the website of the Saudi Stock Exchange (Tadawul) dated 19 September 2016 regarding the receipt of a local Murabaha financing of SR 5
billion for a period of seven years, the Company announced that on 26 March 2017, The Murabaha financing mentioned above was raised from SR 5 billion to SR 8 billion.

Annual Report 2017 193

The following are short-term loans:

Loan currency Principal amount 31 December 2017 31 December 2016 1 January 2016

Domestic revolving bank loan 1 SAR 700,000 500,000 500,000 -

Domestic revolving bank loan 2 SAR 2,500,000 2,500,000 2,500,000 1,000,000

Domestic bank facilities 3 SAR 1,000,000 - 1,000,000 -

Domestic bank facilities 4 SAR 500,000 500,000 500,000 -

Domestic bank facilities 5 SAR 750,000 750,000 - -

International commercial payment facilities 1 SAR 1,000,000 873,581 - -

International commercial payment facilities 2 SAR 1,000,000 902,273 - -

International commercial payment facilities 3 SAR 375,000 - - -

International commercial payment facilities 4 SAR 937,500 - - -

Joint international revolving loan 1 USD 5,251,120 4,688,576 5,251,120 -

Total short term loans 14,013,620 10,714,430 9,751,120 1,000,000

Total short term loans and current portion of long term loans - 16,678,618 12,608,868 3,347,122

194 Annual Report 2017

Bank loans for joint operations:
The Group’s share in bank loans for joint operations is as follows:

Loan currency 31 December 2017 31 December 2016 1 January 2016

Islamic facility SAR 1,769,529 1,769,529 1,799,616

US EXIM facility USD 807,286 770,584 843,988

Commercial facility USD 794,379 720,308 498,689

Hermes covered facility USD 180,693 180,693 197,906

KEXIM direct facility USD 160,432 160,432 163,160

KEXIM covered facility USD 131,247 131,247 133,478

Islamic syndicated facilities SAR 1,136,367 1,166,723 1,073,489

Syndicated commercial facilities USD 913,760 938,170 928,963

US Exim USD 479,083 532,131 585,179

Murabaha facility SAR - 696,925 696,925

Istisna-Ijara facility SAR 1,194,515 946,500 464,500

Wakala-Ijara facility SAR 1,064,190 1,026,428 936,354

Sponsors loan SAR 50,001 - -

Korea Export Insurance Corporation facility USD 234,108 231,342 274,842

Procurement facility SAR 456,917 485,109 276,890

Others SAR - - 14,000

Total 9,372,507 9,756,121 8,887,979

Less: Current portion of long term loans and borrowings (463,533) (1,042,673) (326,852)

Less: Unamortised portion of upfront and other fees (316,105) (170,777) (205,195)

Non-current portion of long term loans and borrowings 8,592,869 8,542,671 8,355,932

Annual Report 2017 195

34.2.2- Sukuk
  Percentage
The outstanding Sukuk as of 31 December 2017 are as follows:
  90% 60% 30%

Local sukuk   First purchase date Second purchase date Third purchase date

Sukuk 3 2022 2024 2026

Total issued   Percentage
Issue Date of issue Par value Maturity date
amount
  95% 60% 30%
SR 10
Sukuk 3 10 May 2010 SR 5.73 Billion 2030   First purchase date Second purchase date Third purchase date
Thousand
Sukuk 4 2024 2034 2044
30 January
Sukuk 4 SR 1 Million SR 4.5 Billion 2054
2014
The Group repurchased SR 1.27 billion during second quarter of 2017, out of total Sukuk 3
issue of SR 7 billion. The remaining balance has been rescheduled until it is fully purchased
The above Sukuk have been, issued at par value with no discount or premium. The Sukuk
before May 2022.
bear a rate of return at SIBOR plus a margin payable quarterly from the net income received
from the Sukuk assets held by the Sukuk custodian “Electricity Sukuk Company”, a wholly
Global sukuk
owned subsidiary by Group.
C. During April 2012 the Group issued a global sukuk amounting to SR 6.6 billion equivalent to
approximately (US$ 1.75 billion). The issuance consists of two tranches of sukuk certificates.
The Company has undertaken to purchase these Sukuk from Sukuk holders at dates
The first tranche amounting to US$ 0.5 billion maturing after 5 years with fixed rate of
specified in prospectus. At each purchase date, the Group shall pay an amount of 5% to
2.665%, the second tranche amounting to US$ 1.25 billion maturing after 10 years with fixed
10% of the aggregate face value of the Sukuk as bonus to the Sukuk holders. The purchase
rate of 4.211%. The Group has repaid SR 1.9 billion (US $ 0.5 billion) during the first quarter
price is determined by multiplying Sukuk’s par value at the percentage shown against the
of 2017, representing the repayment of the first type of these Sukuk.
purchase date, as follows:
D. During April 2013 the Group also issued a global sukuk amounting SR 7.5 billion
equivalent to (US$ 2 billion). The issuance consists of two types of sukuk certificates. The
first type amounting to SR 3.75 billion (US$ 1 billion) matures after 10 years with a fixed
rate of 3.473%. The second type amounting to SR 3.75 billion (US$ 1 billion) matures after
30 years with a fixed rate of 5.06%.
E. During April 2014 the Group also issued a global sukuk amounting to SR 9.4 billion

196 Annual Report 2017

 equivalent to (US$ 2.5 billion). The issuance consists of two types of sukuk certificates. The B. The Council of Ministers approved in its meeting held on Monday 12 Jumad Awal 1431H
first with a value of SR 5.6 billion (US $ 1.5 billion), after 10 years with a fixed interest rate corresponding to 26 April 2010 to grant the Group a loan amounting to SR 15 billion
of 4% and the second with a value of 3.75 billion Saudi Riyals (US $ 1 billion) is due after repayable over 25 years. The loan will be paid to the Group within 2 years in accordance
30 years with a fixed rate of 5.5%. with an agreement made for this purpose between the Ministry of Finance and the Group.
This loan was fully drawn as at 31 December 2017 (31 December 2016: fully withdrawn, 1
34.2.3- Government loans January 2016: fully withdrawn). The Group has recognised the amount received from the
A. Pursuant to the Council of Ministers’ resolution number 169 dated 11 Sha’ban 1419H, the government loan above, discounted at current value.
net dues of the Government to the Group and the net dues of the Group to the Government C. The Council of Ministers approved in its meeting held on Monday 11 Rajab 1432H
were determined in accordance with rules and procedures stipulated for in the minutes corresponding to 13 June 2011 to grant the Group a loan amounting to SR 51.1 billion
of meetings signed by the Minister of Industry and Electricity and the Minister of Finance repayable over 25 years. The loan has no interest charge and will be paid to the Group
and National Economy dated 27 Jumad Thani 1418H corresponding to 29 October 1997. within 5 years in accordance with an agreement made for this purpose between the
The net difference payable to the Government by the Group, as determined at the Group of Ministry of Finance and the Group. The amount of SR 38.3 billion was withdrawn from the
the business day preceding the issuance of the Royal Decree for the incorporation of the loan as at 31 December 2017 (31 December 2016: SR 38.3 billion, 1 January 2016: SR 38.3
Group, is a non-interest bearing long term loan with a grace period of twenty five years billion). The Group has recognised the amount received from the above government loan,
starting from the date of the announcement of the incorporation of the Group. The loan is discounted at current value.
to be revisited later, subject to the financial condition of the Government and the Group. The However, the loan agreement provides that the loan amount will be reduced by proceeds
minutes of the meeting held on 21 Rajab 1422H corresponding to 8 October 2001 between collected by the Group due to any increase in the residential sector tariff. In light of the
the Minister of Industry and Electricity and the Minister of Finance and National Economy latest tariff amendments (note 1), the Group is currently determining the effect on the loan
in which the initial amount of the Government loan was determined, states that the final maturity or future payments not drawn yet.
settlement of Government accounts will be subject to the reconciliation for the claims of the D. The Council of Ministers approved in its meeting held on Monday 9 Jumad Awal 1435H
Group from Government entities, and the loan amount shall be adjusted accordingly. During corresponding to 10 March 2014 to grant the Group a loan amounting to SR 49.4 billion
2005, the Group finalised the amount due which included the claims of the Group and the repayable over 25 years. The loan is interest free and will be paid to the Group within 5
amounts due to the Government and the agreement was signed between the Minister of years in accordance with an agreement made for this purpose between the Ministry of
Water and Electricity and the Minister of Finance on 15 Rajab 1426H corresponding to 19 Finance and the Group. An amount of SR 16.1 billion from this loan has been drawn as at
August 2005 which brought the balance of Government loan amounted to SR 14.9 billion. 31 December 2017 (31 December 2016: 16.1 billion, 1 January 2016: SR 14.1 billion). The
The Group is working with negotiators to find suitable alternatives to deal with the balances Group has recognised the amount received from the Government loan above discounted to
of these loans in order to enhance the financial position of the Group and its important role its present value.
in providing energy in all sectors of the country.

Annual Report 2017 197

34.3- Derivative financial instruments 36- Zakat and income tax
The Group has interest rate hedging contracts with several banks to hedge the fluctuations in 36.1- Charge for the year
interest rates on loans for an amount of SR 7.98 billion on 31 December 2017 (31 December
2016: SR 9.76 billion) which includes a US Dollar portion representing approximately 15% of Zakat and tax for the year is as follows:
the notional amount. The hedging contracts are based on the swap between the Group and
the banks of fixed rates against floating rates on the original loan amounts every six months. 31 December 2017 31 December 2016

Zakat for the year 4,875 1,692

All derivatives as at 31 December 2017 are classified as cash flow hedges. Derivatives
Income tax for the year - -
are classified as non-current or current assets and as non-current or current liabilities,
depending on the expiration date of the financial instruments. Deferred tax for the year 230,538 -

235,413 1,692
The fair values of the derivative financial instruments are summarised in the table below: Deferred tax has been charged as follows:

31 December 2017 31 December 2016 1 January 2016 31 December 2017 31 December 2016
Derivative financial Consolidated statement of profit and loss 230,538 -
instruments at fair value: Consolidated statement of
3,256 -
Current 54,176 37,390 33,996 comprehensive income
Non-current 299,002 360,722 492,729

353,178 398,112 526,725 During the year ended December 31, 2017 pursuant to the Royal Order A/136, all the shares
in Kingdom resident companies held by Saudi Arabian Oil Company (Saudi Aramco) are
subject to income tax law rather than zakat effective January 1, 2017. Accordingly, income tax
35- Advance from customers
has been recognised for Saudi Aramco’s owned interest in the Group.
The amount represents payments received from customers in advance against the service to
be delivered. These advances will be amortised once services provided.

198 Annual Report 2017

36.1.1- Reconciliation between tax expense and accounting profit at applicable tax rate is 36.2- Zakat
as follows: Zakat base for the year is calculated as follows:

31 December 2017 31 December 2017 31 December 2016

Profit before Zakat and tax 7,143,662 Profit for the year before zakat and tax* 7,143,662 2,104,584

Profit subject to income tax (2017: 6.93%, 2016: Nil) 495,056 Less: Zakat adjustments (14,374,632) (12,232,662)

Income tax at applicable tax rate (20%) 99,011 Net adjusted loss (7,230,970) (10,128,078)

Tax effect of:

Difference between accounting and tax depreciation (259,587) Share capital 41,665,938 41,665,938

Loss on sale of property, plant and equipment 474 Net adjusted loss (7,230,970) (10,128,078)

Provisions 31,055 Retained reserves 3,313,836 3,187,108

Interest on loans in excess of allowed limit 38,262 Opening retained earnings 20,618,023 16,046,267

deferred tax impact on property, plant and equipment 255,936 Retained allowances 5,783,940 6,695,230

deferred tax impact on provision (53,758) Long term loans and sukuk 102,145,916 73,659,833

deferred tax impact from Joint operations 28,360 Government loans and deferred grants 89,973,596 94,165,670

139,753 Contractors accruals and others 4,978,278 4,035,770

Unrecognised negative income tax arising due to tax losses 90,785 261,248,557 229,327,738

Tax expense as per consolidated statement of profit or loss 230,538 Deduct:

Fixed assets and construction work in

(240,696,027) (228,756,645)
progress, net

Difference on depreciation of fixed assets

(112,948,575) (99,786,057)
for previous years

Long term investments (3,346,599) (3,673,692)

Material and spare parts inventories (4,558,277) (5,932,537)

Zakat base (100,300,921) (108,821,193)

Annual Report 2017 199

There is no Zakat payable on the proportion of the Saudi partners in the group (93.07%) The deferred tax for Saudi Electricity Company is as follows:
because of the adjusted loss and Zakat base is negative. The net deferred tax liability from joint operations is equivalent to SAR 28.3 million
recognised on assets and liabilities.
*Comparative figures have been presented for Zakat calculation for the year ended 31 December 2016
based on the financial statements prepared in accordance with the previous Saudi accounting standards.
Component wise movement of deferred tax is as follows:

The Company has filed the zakat returns until 2008; the Company also submitted zakat
For the year ended
declarations for the years 2009 to 2016, which are still under review by the General Authority
for Zakat and Income tax. A claim of SR 375 million has been received for the years 2009- 31 December 2017 31 December 2016

2014 by the Company. The Company does not expect that this claim will result in any future Balance at the beginning of the year - -
obligations. Income / (expense) during the year (230,538) -
recognised in profit or loss on temporary
36.3 Deferred tax differences

Income / (expense) during the year (3,256) -

Consolidated Financial Statements recognised in the consolidated statement of
31 December 31 December 1 January comprehensive income on revaluation of cash
2017 2016 2016 flow hedges
Property, plant and equipment 255,936 - - Balance at the end of the year (233,794) -
Provisions (53,758) - -
37- Contingent liabilities
Deferred tax expense (benefit) 202,178 - -
37.1- Contingencies
Consolidated Income statement 1. There is disagreement between the Group and Saudi Aramco over the supply of light oil
31 December 31 December 1 January rather than heavy oil to one of the stations, as per the Group's requirements, resulting in
a cumulative difference of SR 2.9 billion (31 December 2016: SAR 2.6 billion, 1 January
2017 2016 2016
2016: SR 2 billion) was not recorded as a liability in the Group's records. In addition, the
Property, plant and equipment 255,936 - -
Group is not expecting any claim as a result of this disagreement.
Provisions (53,758) - - 2. Saudi Aramco has also a claim for the settlement of its share in the annual dividends
Deferred tax expense (benefit) 202,178 - - since inception to 31 December 2016, estimated at SR 3.1 billion. The Group believes
that Saudi Aramco has no right for this claim during the first 20 years of its formation

200 Annual Report 2017

 since it is a wholly owned government agency and accordingly, is governed by the the commercial tariff. However, Saudi Aramco has objected to this tariff and is settling the
Council of Ministers’ resolution no. 169 dated 11 Sha’aban 1419 AH (corresponding to 30 electricity supplied to these properties based on the industrial tariff.
November 1998) and Council of Ministers’ resolution no. 327 dated 24 Ramadan 1430 AH
(corresponding to 14 September 2009) on extending the Government’s waiver of its rights The Council of Ministers has issued the resolution number 114 on 10 Rabi Thani 1430 AH
in the profits distributed by the Saudi Electricity Company for another ten years. corresponding to 5 April 2009 to end this dispute and to charge Saudi Aramco on the basis
3. The Group provided guarantees to some commercial banks for their share of the
of the residential and commercial tariff instead of the industrial tariff. The Electricity and
financing loan granted to some of the investee companies. The value of the guarantee is
Co-generation Regulatory Authority (“the regulator”) will have to specify the residential and
US $ 17.6 million as at 31 December 2017, equivalent to SR 66.2 million (31 December
commercial enterprises of Saudi Aramco. Accordingly, the Group, Saudi Aramco and the
2016: US $ 18 million equivalent to SR 68 million, 1 January 2016: US $ 15 million
regulator held several meetings to settle this matter where the regulator has specified the
equivalent to SR 56 million).
disputed residential and commercial enterprises of Saudi Aramco.

37.2- Commitments
The following table represents the minimum payments for operating lease contracts: The Group has executed the regulator decree number 49/432 dated 8 Jumad Awal 1432 AH
corresponding to 11 April 2011 classifying Saudi Aramco electricity consumption tariff

31 December 31 December 1 January starting from 1 January 2012. Accordingly, the disputed residential and commercial
2017 2016 2016 enterprises mentioned above were identified, and the agreed upon tariff were applied on
Saudi Aramco’s consumption. Further, the Group has also completed the calculation of the
Within one year 2,731,034 2,384,503 2,290,212
previous years’ consumption since date of inception up to 31 December 2011 according to
Later than one year but not later
10,856,569 10,677,150 9,091,525 regulator decree mentioned above and has submitted the invoices to Saudi Aramco with
than five years
total amount of SR 729 million. During 2013, the Group has completed the reconciliation
Later than five years 30,771,013 33,389,853 28,845,949
procedures with Saudi Aramco for these revenues and recognised them in the consolidated
44,358,616 46,451,506 40,227,686 statement of profit or loss. The Group is currently following up with Saudi Aramco to collect
this amount.
38- Settlement of disputes with Saudi Aramco At the beginning of 2018, the dispute between the Group and Saudi Aramco over the crude oil
The Group provides electricity power to governmental agencies, ministries and Saudi handling fees claimed by Saudi Aramco was resolved. The total amount outstanding from the
Aramco. The tariffs applied are approved by the Council of Ministers and are similar to the inception of the Group on 5 April 2000 to 3 December 2017 amounted to approximately SR
tariffs applied to other consumers, except for the tariff used for Saline Water Conversion 5.1 billion (31 December 2016: SAR 4.7 billion, 1 January 2016: SAR 4.4 billion).
Corporation (SWCC) which is in accordance with a Government resolution. As for the
residential property of Saudi Aramco, the Group believes that these should be charged

Annual Report 2017 201

39- Capital commitments
For the year ended
These comprise the unexecuted portion – as of the date of consolidated statement of
31 December 2017 31 December 2016
financial position - of capital contracts conducted by the Group for the erection and
installation of power plants and other assets amounting to SR 52.71 billion (31 December Profit for the year (thousands Saudi Riyal) 788,703 4,545,257

2016: SR 81.02 billion, 1 January 2016: SR 88.55 billion). Weighted average number of ordinary
4,166,593,815 4,166,593,815
shares in issue “share”
40- Earnings per share Basic and diluted earnings per share (SR) 0.19 1.09
Basic earnings per share is calculated by dividing the profit attributable to equity holders of
the Holding Company by the weighted average number of ordinary shares in issue during
41- Related-party transactions
the year. Diluted earnings per share is calculated by dividing the profit for the year by the
The Group is ultimately controlled by the Government of the Kingdom of Saudi Arabia
adjusted weighted average number of ordinary shares outstanding during the year, to
for which the Public Investment Fund, Saudi Aramco and the General Corporation for
assume conversion of all dilutive potential shares into ordinary shares.
Desalination of Saline Water Conversion Corporation are companies under common control
(all companies ultimately controlled by the Government of the Kingdom of Saudi Arabia).
The diluted earnings per share are equal to the basic earnings per share for the year ended
31 December 2017 and 31 December 2016 as there are no financial instruments with a
Following transactions were carried out with related parties:
dilutive effect on basic earnings per share.

A) Sales of electricity
For the year ended

31 December 2017 31 December 2016 For the year ended

Profit for the year (thousands Saudi Riyal) 6,908,249 4,545,257 31 December 2017 31 December 2016
Weighted average number of ordinary shares Sales of electricity:  
4,166,593,815 4,166,593,815
in issue “share”
Group’s ultimate controlling party 11,993,902 12,014,082
Basic and diluted earnings per share (SR) 1.66 1.09
Entities under control of the Group’s
ultimate controlling party
For the purposes of comparison, the following is the profitability of the share after excluding
Saudi Aramco 536,039 590,487
the effect of the exemption from indebtedness of municipal fees 6.1 billion riyals:
Saline Water Conversion Corporation 498,207 271,997

Total 13,028,148 12,876,566

202 Annual Report 2017

B) Purchases of energy and municipality fees

For the year ended

  31 December 2017 31 December 2016

Purchases of energy

Entities under control of the Group’s ultimate controlling party:

Aramco 10,058,436 11,240,906

Saline Water Conversion Corporation 538,586 530,324

Joint operations:

Dhuruma Electricity Company 583,816 552,058

Rabigh Electricity Company 957,436 923,793

Hajr for Electricity Production Company 805,241 795,913

Al Mourjan for Electricity Production Company 132,512 -

  13,076,027 14,042,994

Municipality fees:

Group ultimate controlling party - 723,861

Total 13,076,027 14,766,855

Annual Report 2017 203

The Group purchases fuel from Saudi Aramco and power from Saline Water Conversion Corporation at rates stipulated for in the respective governmental resolutions.

C) Year-end balances arising from sales of electricity/purchases of energy/municipality fees

Due from related parties: 31 December 2017 31 December 2016 1 January 2016

Entities under control of the Group ultimate controlling party

Saudi Aramco 1,496,038 1,320,944 1,315,669

Saline Water Conversion Corporation 930,304 439,451 227,540

Total due from related parties 2,426,342 1,760,395 1,543,209

Due to related parties:

Group ultimate controlling party

Governmental payable 80,550,577 58,099,049 58,098,794

Municipality fees - 6,119,546 5,390,308

80,550,577 64,218,595 63,489,102

Entities under control of the Group’s

ultimate controlling party

Saudi Aramco 87,933,523 83,651,364 73,668,251

Transferred to Government payables (79,652,087) (57,200,552) (57,200,552)

Net payable to Saudi Aramco 8,281,436 26,450,812 16,467,699

Saline Water Conversion Corporation 11,088,845 10,430,862 10,049,688

19,370,281 36,881,674 26,517,387

204 Annual Report 2017

D) Loans and advances from related parties
  31 December 2017 31 December 2016

Salaries and allowances 11,589 10,986

31 December 31 December 1 January
Annual and periodic benefits 10,062 7,732
2017 2016 2016
End of service benefits 9,485 -
Group ultimate controlling party
Total 31,136 18,718
Government Loan 44,364,627 42,411,517 39,991,482

Deferred government grant 45,608,969 46,667,608 46,035,284

42- Operating revenue
Public investment fund loan 1,401,173 1,616,160 1,831,096

91,374,769 90,695,285 87,857,862

For the year ended

31 December 2017 31 December 2016

The balances of loans due to the Public Investment Fund are balances resulting from loans
Electricity sales 45,446,163 45,321,470
obtained prior to the transfer of shares of the Government of Saudi Arabia to the Fund.
Electricity service connection
2,591,144 2,259,207
E) Loans and advances to related parties tariffs

Meter reading, maintenance

1,248,960 1,186,350
  31 December 31 December 1 January and bills preparation tariffs
2017 2016 2016 Transmission system revenues 1,096,084 602,017
Loans to an associated company Other operational revenue 232,966 491,954
Jubail Water and Power Company 9,250 18,175 28,500 50,615,317 49,860,998

F) Compensation of key management personnel of the Group

Key management consists of Board members and executive management. The compensation
paid or earned by key management official are illustrated below:

Annual Report 2017 205

43- Cost of sales 45- Other income, net

For the year ended For the year ended

31 December 2017 31 December 2016 31 December 2017 31 December 2016

Depreciation of operation and Amortisation of government grants 1,058,639 770,859

15,274,903 13,120,819
maintenance assets Penalties and fines 286,756 99,334
Operation and maintenance Dividend income 41,485 26,905
11,672,168 12,468,394
expenses
Sale of tender documents 1,700 7,465
Fuel 9,026,790 9,989,313
(Loss) / Gain on disposal of (34,195) 6,904
Purchased energy 8,021,451 7,430,004 property, plant and equipment, net
43,995,312 43,008,530 Others, net 180,301 67,428

1,534,686 978,895
44- General and administrative expenses

46- Exemption from indebtedness of municipal fees

For the year ended
Based on the royal decree to cancel the electricity charge of 2% of the value of consumption
31 December 2017 31 December 2016 for the municipalities, as well as exempting the group from paying the actual amounts due to
Employee expenses 437,692 451,954 draw electricity from the value of consumption for the municipalities, the group reversed the
outstanding balance in favour of the municipalities of SR 6.1 billion as at 31 December 2016
Depreciation – Operations and
396,260 340,221 from current liabilities to other income in the consolidated statement of profit or loss for the
maintenance
current year.
Materials 43,074 53,787

Communication fee 137,063 40,644

Others 426,311 173,910

1,440,400 1,060,516

206 Annual Report 2017

47- Finance costs, net

31 December 2017 31 December 2016

Finance expense, net

- Bank borrowings 3,508,160 2,694,848

- Government loans 1,953,110 1,823,215

- Less: Capitalised interest (2,888,874) (2,700,711)

Total 2,572,396 1,817,352

Unwinding of discount on employees’ benefits obligations 182,361 232,408

Unwinding of discount on asset retirement obligation 5,823 11,424

Total finance expenses’ 2,760,580 2,061,184

Finance income

Interest income (8,436) (7,378)

Net finance costs 2,752,144 2,053,806

48- Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue in order to provide returns for shareholders and benefits for other stakeholders and to maintain
an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Government has waived its share in the distributed dividends for a period of ten years from the date of the Group’s formation, provided
that dividends do not exceed 10% of the par value of the shares. In cases where the distribution exceeds 10% of the shares’ par value, the Government’s share shall be treated similar to
the share of other shareholders. The Government has agreed to extend this waiver for another ten years based on the Council of Ministers’ Resolution No. 327 dated 24 Ramadan 1430 AH.
Additionally, the Group benefits from non-interest bearing long-term loans.

The Group monitors capital based on the debt ratio. This ratio is calculated on the basis of net adjusted debt divided by adjusted equity and adjusted net debt. Net debt is calculated as total loans
(including "short term", "long term" and "sukuk" loans as described in the consolidated statement of financial position) less cash and cash equivalents. Adjusted equity is recognised as "equity" as
stated in the consolidated statement of financial position plus net adjusted debt.
 

Annual Report 2017 207

The Group’s strategy is to maintain the debt to equity ratio within 50% to 70%. The gearing ratios as at 31 December were as follows:

  31 December 2017 31 December 2016 1 January 2016

Total Borrowings 102,145,916 91,977,556 69,237,350

Less: cash and cash equivalents (1,058,210) (1,045,387) (1,848,367)

Adjusted net debt 101,087,706 90,932,169 67,388,983

Total equity 72,309,407 65,597,797 61,199,948

Adjusted equity and net debt 173,397,113 156,529,966 128,588,931

Adjusted debt to equity ratio 58% 58% 52%

49- Financial risk management

49.1- Financial risk factors
The Group’s activities expose it to market risk (foreign currency exchange risk, interest rate risk and price risk), credit risk and liquidity risk.

The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The
Group uses derivative financial instruments to hedge certain risk exposures.

208 Annual Report 2017

The Group's financial instruments are as follows:

1 January 2016

Financial assets as per the statement of financial position Loans and receivables Available for sale Held to maturity Total

Financial assets measured at fair value

Available-for-sale financial assets - 281,595 - 281,595

Financial assets not measured at fair value

Held-to-maturity investments - - 118,273 118,273

Cash and cash equivalents 1,848,367 - - 1,848,367

Electricity receivables, net 20,512,544 - - 20,512,544

Loans and advances 53,997 - - 53,997

Other receivables 3,794,558 - - 3,794,558

Total 26,209,466 281,595 118,273 26,609,334

31 December 2016

Financial assets as per the statement of financial position Loans and receivables Available for sale Held to maturity Total

Financial assets measured at fair value

Available-for-sale financial assets - 290,952 - 290,952

Financial assets not measured at fair value

Held-to-maturity investments - - 116,893 116,893

Cash and cash equivalents 1,045,387 - - 1,045,387

Electricity receivables, net 28,564,041 - - 28,564,041

Loans and advances 47,964 - - 47,964

Other receivables 3,788,699 - - 3,788,699

Total 33,446,091 290,952 116,893 33,853,936

Annual Report 2017 209

 31 December 2017

Financial assets as per the statement of financial position Loans and receivables Available for sale Held to maturity Total

Financial assets measured at fair value

Available-for-sale financial assets - 305,622 - 305,622

Financial assets not measured at fair value

Held-to-maturity investments - - 65,465 65,465

Cash and cash equivalents 1,058,210 - - 1,058,210

Electricity receivables, net 29,540,207 - - 29,540,207

Loans and advances 30,063 - - 30,063

Other receivables 542,706 - - 542,706

Total 31,171,186 305,622 65,465 31,542,273

1 January 2016
Other financial liabilities at
Financial liabilities as per the statement of financial position Derivatives used for hedging Total
amortised cost
Financial liabilities measured at fair value
Derivative financial instruments 526,725 - 526,725
Financial liabilities not measured at fair value
Loans - 34,296,860 34,296,860
Sukuk - 34,940,490 34,940,490
Government loans - 39,991,482 39,991,482
Trade payables - 36,045,013 36,045,013
Accruals and other payables - 7,012,457 7,012,457
Government payable - 58,098,794 58,098,794
Total 526,725 210,385,096 210,911,821

210 Annual Report 2017

 31 December 2016
Liabilities as per the statement of financial position Derivatives used for hedging Other financial liabilities at amortised cost Total
Financial liabilities measured at fair value
Derivative financial instruments 398,112 - 398,112
Financial liabilities not measured at fair value
Loans - 57,037,066 57,037,066
Sukuk - 34,940,490 34,940,490
Government loans - 42,411,517 42,411,517
Trade payables - 48,296,220 48,296,220
Accruals and other payables - 6,832,303 6,832,303
Government payable - 58,099,049 58,099,049
Total 398,112 247,616,645 248,014,757

31 December 2017

Liabilities as per the statement of financial position Derivatives used for hedging Other financial liabilities at amortised cost Total

Financial liabilities measured at fair value

Derivative financial instruments 353,178 - 353,178

Financial liabilities not measured at fair value

Loans - 70,352,411 70,352,411

Sukuk - 31,793,505 31,793,505

Government loans - 44,364,627 44,364,627

Trade payables - 32,586,241 32,586,241

Accruals and other payables - 7,530,262 7,530,262

Government payable - 80,550,577 80,550,577

Total 353,178 267,177,623 267,530,801

Annual Report 2017 211

49.2- Risk management framework B) Interest rate risk
The Board of Directors has overall responsibility for the establishment and oversight of the Interest rate risk is the risk that either future cash flows or fair value of a financial
Group’s risk management framework. The Group’s risk management policies and procedures instrument will fluctuate because of changes in market interest rates.
are established to identify and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies The Group’s interest rate risk arises from its borrowings. Borrowings issued at variable
and systems are reviewed regularly to reflect changes in market conditions and the Group’s rates expose the Group to change in cash flow due to change in interest rates. The group
activities. The Group, through its training and management framework standards and enters into interest rate swaps in order to hedge the interest rate risk and these swaps are
procedures, aims to develop a disciplined and constructive control environment in which all designated as derivative financial liability in the financial position.
employees understand their roles and obligations.
31 December 2017 31 December 2016 1 January 2016
49.2.1- Market risk
Variable interest rate
Market risk is the risk that the fair value or future cash flows of a financial instrument will 79,346,676 66,940,382 43,837,384
borrowings
fluctuate because of changes in market prices. Market risk consists of three types of risk:
Fixed interest rate
• Foreign currency risk 22,799,240 25,037,174 25,399,966
borrowings
• Interest rate risk
• Other price risk.
Interest rate sensitivity
A reasonably possible change of 100 basis points in interest rates at the reporting date
A) Foreign currency risk
would have increased (decreased) equity and profit or loss by the amount shown below. The
Currency risk arises when future commercial transactions or recognised assets or liabilities
analysis assumes that all other variables remain constant.
are denominated in a currency that is not the entity’s functional currency.

Foreign currency risk is linked to the change in value in the functional currency due to
the difference in the underlying foreign currency of the relevant transaction. The Group's
functional currency is the Saudi Riyal, which is pegged to the US Dollar with a fixed exchange
rate of 3.75 Saudi Riyals against the US Dollar. Except for US Dollar, most of the significant
transaction are not subject to foreign currency risk. The financial assets in US Dollar
amounted to USD 66.7 million (31 December 2016: 19.5 million, 1 January 2016: USD 102
million), while the financial liabilities in US Dollar amounted to USD 16.5 billion (31 December
2016: USD 15.8 billion, 1 Jan 2016 USD 11.8 billion).

212 Annual Report 2017

 C) Other price risk
Profit or loss Equity
Other price risk is the risk that the fair value or future cash flows of a financial instrument
100 bp 100 bp 100 bp 100 bp
  will fluctuate because of changes in the market prices (other than those arise from currency
increase decrease increase decrease
and interest rate risk). The group exposed to the fair value risk due to changes in the prices of
Effect in thousands
the available for sales financial assets owned by the Group, where the risk to which the group
of Saudi riyals
exposed is not significant, as the available for sale financial assets includes investments in
31 December 2016 unquoted equity securities.
Loans at variable-rates (578,343) 578,343 - -

Interest rate swaps - - 3,981 (3,981) 49.2.2- Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial
Cash-flow sensitivity (net) (578,343) 578,343 3,981 (3,981)
institutions, as well as credit exposures to sales. Customers are not independently rated. The
Group assesses the credit quality of the subscribers taking into account its past experience
Profit or loss Equity
and other factors.
100 bp 100 bp 100 bp 100 bp
 
increase decrease increase decrease
Sales are settled in cash, SADAD or using major credit cards.
Effect in thousands
of Saudi riyals

31 December 2017

Loans at variable-rates (707,431) 707,431 - -

Interest rate swaps - - 3,352 (3,352)

Cash-flow sensitivity (net) (707,431) 707,431 3,352 (3,352)

Annual Report 2017 213

The credit quality of financial assets that are neither past due nor impaired is as follows:

31 December 2017

More than 3 months and More than 6 months and

Less than 3 months More than a year Total
less than 6 months less than a year

Electricity receivables 10,434,417 4,288,583 2,478,766 13,498,806 30,700,572

31 December 2016

More than 3 months and More than 6 months and

Less than 3 months More than a year Total
less than 6 months less than a year

Electricity receivables 12,134,445 4,332,558 4,803,630 8,444,191 29,714,824

1 January 2016

More than 3 months and More than 6 months and

Less than 3 months More than a year Total
less than 6 months less than a year

Electricity receivables 8,318,973 3,206,580 4,010,155 5,462,773 20,998,481

214 Annual Report 2017

Management believes that trade receivables that are neither past due nor impaired are all Risk limits are set based on a pre-identified credit limits on a customer by customer basis in
related to existing subscribers with no defaults in the past. accordance with limits set by the board. The utilisation of credit limits is regularly monitored.
Sales are settled in cash, SADAD or using major credit cards.
The Company believes that it is able to collect receivables that exceed the year because
it mainly represents government receivables at 81% of total outstanding debts for more 49.2.3- Liquidity risk
than one year. According to the Company's policy, no provision for doubtful debts is Liquidity risk is the risk that the Company will encounter difficulties in raising funds to meet
taken to government entities. The Company’s also believes that it is able to collect non- obligations associated with financial instruments.
governmental receivables through the Company’s ability to stop providing services to
those who are late in paying their indebtedness in addition to their legal follow-up with the The objective of liquidity risk management is to ensure that the Group has enough funding
competent authorities. Non-government receivables account for 19% of total outstanding facilities available to meet its current and future obligations. The Company aims to maintain
receivables for more than one year. adequate flexibility in financing by keeping appropriate credit facilities available.

Provision for non-government receivables has been calculated in accordance with the The Group expects to meet its future financial obligations through cash receipts from
Company's applicable policy. receivables and through facilities and bank loans.

Cash and cash equivalent are placed with commercial bank having investment grade credit The table below analyses the Group’s non-derivative financial liabilities into relevant maturity
rating. groupings based on the remaining period at the consolidated statement of financial position
On 31 December 2017, 31 December 2016 and 1 January 2016, there are no collateral date to the contractual maturity date noting all current financial liabilities fall within a
financial instruments held. maturity period of one year or less. Derivative financial liabilities are included in the analysis
Loans are secured by promissory notes signed by the Group for the nominal value of the loan if their contractual maturities are essential for an understanding of the timing of the cash
plus the interest payments and/or murabaha margin. flows. The amounts disclosed in the table are the contractual undiscounted cash flows.

Each Group entity is responsible for managing and analysing the credit risk for each of their Current liabilities include SR 113 billion of government liabilities which the Company
new clients before standard payment and delivery terms and conditions are offered. manages based on their liquidity position in coordination with government entities.

Credit risk arises from cash and cash equivalents and deposits with banks and financial
institutions, as well as credit exposures to sales. Customers are not independently rated. The
Group assesses the credit quality of the subscribers taking into account its past experience
and other factors.

Annual Report 2017 215

 31 December 2017

Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total

Non-derivative financial liabilities:

Loans 17,142,151 9,558,892 27,540,129 16,111,239 70,352,411

Sukuk - - 10,418,190 21,375,315 31,793,505

Government loans - - - 44,364,627 44,364,627

Trade payable 32,586,241 - - - 32,586,241

Accrued expenses and other liabilities 7,530,262 - - - 7,530,262

Government payable 80,550,577 - - - 80,550,577

Derivative financial instruments 54,176 30,994 92,982 175,026 353,178

Total 137,863,407 9,589,886 38,051,301 82,026,207 267,530,801

31 December 2016

Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total

Non-derivative financial liabilities:

Loans 13,651,541 5,912,092 19,960,648 17,512,785 57,037,066

Sukuk 8,875,140 - - 26,065,350 34,940,490

Government loans - - - 42,411,517 42,411,517

Trade payable 48,296,220 - - - 48,296,220

Accrued expenses and other liabilities 6,832,304 - - - 6,832,304

Government payable 58,099,049 - - - 58,099,049

Derivative financial instruments 37,390 25,655 76,965 258,102 398,112

Total 135,791,644 5,937,747 20,037,613 86,247,754 248,014,758

216 Annual Report 2017

 1 January 2016

Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total

Non-derivative financial liabilities:

Loans 3,673,974 4,126,342 12,104,539 14,392,005 34,296,860

Sukuk - 8,875,140 - 26,065,350 34,940,490

Government loans - - - 39,991,482 39,991,482

Trade payable 36,045,013 - - - 36,045,013

Accrued expenses and other liabilities 7,012,457 - - - 7,012,457

Government payable 58,098,794 - - - 58,098,794

Derivative financial instruments 33,996 - 74,552 418,177 526,725

Total 104,864,234 13,001,482 12,179,091 80,867,014 210,911,821

49.3- Fair-value measurement

The Group measures its financial instruments at fair value at reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either.

• In the principal market for the asset or liability.

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming the market participants act in their
economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.

Annual Report 2017 217

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either, directly (that is, as prices) or indirectly (that is, derived from prices);
Level 3: Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs).

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the lowest input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The following table presents the group’s financial assets and liabilities that are measured at fair value:

1 January 2016 Level 1 Level 2 Level 3 Total

Assets

Available-for-sale financial assets - - 281,595 281,595

Total assets - - 281,595 281,595

Liabilities

Derivatives used for hedging - 526,725 - 526,725

Financial instruments liabilities - 526,725 - 526,725

31 December 2016 Level 1 Level 2 Level 3 Total

Assets

Available-for-sale financial assets - - 290,952 290,952

Total assets - - 290,952 290,952

Liabilities

Derivatives used for hedging - 398,112 - 398,112

Financial instruments liabilities - 398,112 - 398,112

218 Annual Report 2017

  31 December 2017 Level 1 Level 2 Level 3 Total

Assets

Available-for-sale financial assets - - 305,622 305,622

Total assets - - 305,622 305,622

Liabilities

Derivatives used for hedging - 353,178 - 353,178

Financial instruments liabilities 353,178 353,178

Valuation techniques used to derive level 2 fair-value

Interest rate swaps are fair valued using the mark-to-market value (or fair value) of the interest rate swap technique. The effects of discounting are generally insignificant for Level 2
derivatives.

The fair value is calculated as the present value of the estimated future cash flows. Estimates of future floating-rate cash flows are based on quoted swap rates, futures prices and interbank
borrowing rates. Estimated cash flows are discounted using a yield curve constructed from similar sources and which reflects the relevant benchmark interbank rate used by market
participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of the Group and of the counterparty;
this is calculated based on credit spreads derived from current default swap or bond prices.

Fair value measurements using significant unobservable inputs (Level 3)

The Group has four available-for-sale financial assets i.e.
• 8% Stake in Shuaiba Water and Electricity Company.
• 8% Stake in Shuqaiq Water and Electricity Company.
• 5% Stake in Jubail Water and Power Company.
• 8% Stake in Shuaibah Expansion Holdings Company.

Annual Report 2017 219

The fair valuation of these four investments is carried out using the dividend valuation
31 December 2017 31 December 2016 1 January 2016
model (DVM).
Opening balance 290,952 281,595 272,630

In accordance with this methodology, the expected future dividends from the investments Revaluation 14,670 9,357 8,965

are projected (the historical dividend pay-out pattern is used as a basis for future projections Closing balance 305,622 290,952 281,595
over the investment horizon), and discounted using the cost of equity as the relevant discount
rate to ascertain the fair value of these investments. Fair value of financial assets and liabilities measured at amortised cost
The fair value of the financial assets and liabilities approximates their carrying amount.
Unrealized gross profit for the year ended 31 December 2017 included in other  
comprehensive income ("change in fair value of available-for-sale financial assets") for 50- Non-cash transactions
available-for-sale securities amounted to SR 14.7 million (SR 2016: 9.4 million). Primary non-cash transaction during the year ended 31 December 2017 are as follows:

As at 31 December 2017, projected dividends and cost of equity are the main input variables • Investment and financing transactions that do not require the use of cash and cash
for the utilised model for the fair valuation of available-for-sale financial assets. An increase/ equivalents are excluded from the statement of cash flows;
decrease of 5% in the cost of equity will lead to an increase/decrease of SR 12.7 million (31 • The value of the exclusion of municipal fees, which is the result of the decision of the Council
December 2016: SR 12.2 million) in the fair valuation of Available for sale financial assets. of Ministers to cancel the fees at SR 6.1 billion; and
The risk reduction rate in 2017 was 9.9% (2016: 10%). • The trade payable amounting to SR 22.5 billion has been transferred to government payable.
The balance represents payable to Saudi Aramco for the purchase of fuel (note 33).
A 5% increase / decrease in expected profits will result in an increase / decrease of SR 15.2
(31 December 2016: SR 14.5 million) in the fair valuation of available for sale financial assets. 51- Subsequent events
On 18 January 2018, the Company signed a joint international bridge financing agreement
There has been no transfers between level 1, level 2 and level 3 fair values during 2017. with eight leading international banks including Citibank, Bank of Tokyo, Mitsubishi UFJ
Limited, Abu Dhabi First Bank, Hong Kong and Shanghai Banking Services Limited, Mizuho
Movement in level 3 fair value financial instruments represented in available for sale Bank Limited, Sumitomo Mitsui Banking and Standard Chartered Bank amounted by US $ 2.6
financial assets during the year is as follows: billion (SR 9.75 billion) payable in one lump sum within a year.

220 Annual Report 2017

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