Annual Report 2011

F I J I E L E C T R I C I T Y A U T H O R I T Y | A N N U A L R E P O R T 2 0 1 1 1

LETTER TO THE MINISTER

The Honourable Minister for Works, Transport & Public UtilitiesLevel 4, Nasilivata House Ratu Mara Road, Samabula, Suva

Dear Minister,

Annual Report 2011

I am pleased to present the Fiji Electricity Authoritys Annual Report for 2011. The report provides a detailed summary of FEAs performance in accordance with Section 25 of the Electricity Act Cap 180.

FEA made a financial profit of $51.9M after tax in 2011, which includes a net income tax benefit of $13.9M due to restating the Deferred Tax Liability and Future Income Tax Benefit to factor the reduction in corporate tax rate from 28% in 2011 to 20% in 2012.

Construction of the US$150M Nadarivatu Renewable Hydro Power Project progressed positively in 2011 and approximately 90 per cent of the construction work has been completed by the year end. The project is expected to be fully commissioned by the end of June 2012.

This project is a major step towards achieving the Authoritys renewable energy target of generating 90% of its energy through renewable resources by 2015.

The Authority continued to meet all its obligations and fulfill all its responsibilities whilst also continuing with the efficient operation of the power system.

On behalf of the Members of the Authority, I take this opportunity to thank the Government for its continued support and look forward to the same in 2012 and beyond.

Sincerely,

Nizam-ud-Dean Chairman

2 F I J I E L E C T R I C I T Y A U T H O R I T Y | A N N U A L R E P O R T 2 0 1 1

The Honourable Prime Minister, Commodore Josaia Voreqe Bainimarama, at the opening of the Rural Electrification Scheme at Waidina and Viria, Naitasiri. This

is FEA and Governments corporate social responsibility to ensure that the rural communities also receive electricity.


FEA recorded a profit after tax of $51.9M in 2011, which includes a net income tax benefit of $13.9M due to restating the Deferred Tax Liability and Future Income Tax Benefit to factor the reduction in corporate tax rate from 28% in 2011 to 20% in 2012. The profit after tax is equivalent to a Return on Shareholders Fund (ROSF) of 11%.

The profitability enabled FEA to carry out Capex works totalling $112M and repay matured bonds of $17M.

FEA met all the Financial Covenants signed with lenders for 2011. This ensured that Government being the sovereign Guarantor of the FEA Loans was not exposed.

FEA successfully negotiated the conversion of the US$30M loan (bridging finance for Nadarivatu Hydro Project) into a Fijian Dollar loan with ANZ bank in 2011 at favourable USD exchange rates resulting in a realized foreign exchange gain of around $1M. This contributed to the profit achieved for 2011.

FEAs gearing ratio at the end of December 2011 was 41.3% which is within the international benchmark for power utilities of not more than 45%.The gearing ratio has been maintained at this level despite the increase in Capital Expenditure (CAPEX) for the year.

The shareholder value of FEA increased from $419.9M as at the end of 2010 to $472.0M as at the end of 2011.

As a result of stringent cost control measures implemented by management throughout the year, FEA achieved a saving of $4.1M in its operating expenditure (OPEX) when compared to budget. This contributed to the profitability recorded for the year.

FEA was able to successfully negotiate a settlement of a major Insurance Claim for the repair of a 10MW Heavy Fuel Oil (HFO) generating plant in Kinoya for F$12.2M. As part of the settlement, FEA acquired 7 x 1.6MW new Diesel Generator sets at a cost of only F$2M.

FEA was able to renew its material, business interruption and sundry insurance policies at reasonable premiums despite the tough and volatile insurance market.

The Cabinet and the Commerce Commission approved Phase 3 of the Tariff Increase was implemented with effect from 1 April 2011.This affected the Commercial and Industrial Customers only.

Nadarivatu Hydro Project was 90% complete at the end of 2011 and the project is expected to be fully commissioned by June 2012.

The conversion of the 2x6 MW Industrial Diesel Oil (IDO) generating sets to run on cheaper Heavy Fuel Oil (HFO) at the Vuda Power Station was 66% complete and

is expected to be fully commisioned by the end of May 2012. This project is being carried out at a cost of F$9.2M with a payback period of 2 years and thereafter resulting in a reduction in fuel cost.

Completed the design of the single circuit new 33kV Vuda - Pineapple Corner overhead line and the design of the substation extension at Pineapple Corner Zone Substation in Lautoka.

FEA completed the design of the double circuit new 33kV Vuda - Waqadra overhead line and the design of the substation extensions at Waqadra & Vuda Zone Substations.

The following major zone sub-stations which will cater for future demand and improve the reliability of the power supply in the Nadi district and Suva-Nausori corridor were constructed and commissioned at a cost of around F$34M:

Kinoya Zone Substation in Suva

Qeleloa Zone Substation in Nadi

Komo Park Zone Substation in Suva and

Nausori Zone Substation

FEA completed the peer review of the design of the Wainisavulevu Weir Raising Project in 2011 and signed a contract with Sinohydro Corporation for the construction of this project. The total contract is in FJD currency and does not expose FEA to any foreign currency movements. FEA has obtained a F$20M loan from ANZ to fund this project. The total cost of the project is estimated to be around F$27M.

FEA spent $9.33M on rural, commercial/industrial and power system reinforcement projects. A total of 5922 domestic customers and commercial/industrial customers were approved for connection in 2011.

Upgrading of Power System Protection Scheme for the existing Monasavu Hydro Scheme was completed at a cost of around $2.3M in order to align with the state of art protection scheme installed for the Nadarivatu Hydro Power project.

FEA spent $1.2M to upgrade its old 11kV switchgear at Korolevu zone sub-station. This will ensure reliability of power supply to customers in that area which includes prominent hotels.

FEA carried out the review of the entire FEA Power System Electrical Protection facilities at a cost of $0.5M to ensure safe and reliable operation of the power system.

The peer review of the feasibility studies for the Wailoa

KEY OUTCOMES FOR 2011


Downstream Hydro Project was carried out and a preliminary report was submitted by the Consultant in December 2011. The final report is expected to be forwarded to FEA by June 2012. This will then determine the best way forward to develop this project.

Conducted a feasibility study to determine the viability of developing a Hydro Project in the upper Navua River. Preliminary Report has been received and the full report will be submitted to FEA by the consultant in June 2012.

Achieved around 17% reduction in unplanned power outage duration as compared to 2010.

Achieved a record high ICT up time system performance of 99.976%.

Fully complied with all the statutory requirements related to the Corporate Performance of FEA.

Completed the Project Design Document (PDD) for the Nadarivatu Hydro Project to obtain carbon credit and the Clean Development Mechanism (CDM) validation process is in progress and was 95% complete by the year end. This process will be fully completed in early 2012.

Fully complied with the Essential National Industries (ENI) Employment Decree by offering Employment Contract Terms and Conditions to employees who are no longer classified as workers under the decree and successfully negotiated two Collective Agreements (Staff and Trade Persons) for employees who are defined as workers under the decree and can join a Bargaining Unit (BU). All HR Policies and Procedures are now aligned to the ENI Employment Decree.

Completed a comprehensive review of the Organisations Top Business Risks and the implementation of the formulated strategies to mitigate the risks which has resulted in the improvement of the risk level of 13 top business risks by at least one level.

Reviewed the Board and Employee Code of Conduct and aligned the same to the Crimes Decree and the ENI Employment Decree.

Successfully reviewed all the consumer security deposits to ensure compliance with the Electricity Act and mitigate any potential future bad debts write off. The required increase in deposit have been equally spread over a period of 6 months from November 2011 to April 2012.

Successful dissemination of information regarding FEA operations utilising all forms of media, presentations to schools, settlements, communities and other organisations.

Obtained approval for the land use at Nubuiloa Repeater Station. This will improve the RT communications in

Vanua Levu and some dark spots in Viti Levu. This RT communication site is very essential to FEAs operations.

Achieved the following HSE Performance when compared to set targets:

Achieved Target

Fatality Nil Nil

Lost Time Injury Frequency (LTIF ) 4.8 5

Conducted a review of the Organization Structure of FEA and established the optimum organization structure.

Completed a comprehensive HR Development Plan and have started to implement retention strategies, training and succession planning. All positions in FEA now have two or three possible successors.

FEA was awarded the PRIZE level Recognition in the Fiji Business Excellence Awards. FEA is the only Organization in Fiji which applied for and received the PRIZE level in its first year.

FEA acquired way leaves, finalized the design and purchased land for the three zone substations in Vanua Levu to extend power supply to Dreketi. The orders for the purchase of materials for the 33kV transmission line from Labasa to Dreketi were placed with the suppliers by the year end. Tenders for the establishment of the three substations on turn-key basis was also completed by the end of the year. The cost of the Dreketi Electrification Scheme is $14.3M and is co-funded by FEA and Government on a 50-50 basis. This project supports Governments Look North policy and the scheme is expected to be completed in June 2013.

Completed 90% construction of grid extension in Rukuruku - Nauouo Rural Extension at Ovalau. This is expected to be completed in March 2012. The total cost of this project is $0.85M, of which $0.5M was funded by the Government and $0.35M was funded by FEA.

FEA commissioned the new ONLINE Syntel prepayment vending system in August 2011. The new vending system has proven to be a good and robust system. Combined with the existing APN mobile phone network all transactions done at any vending station is online to FEA prepayment server.

Completed and commissioned thirty one Rural Electrification schemes to provide electricity to 1720 customers at a cost of $5.6M which was fully funded by the Government.


Captain (N) Timoci Lesi Natuva, the Honourable Minister for Works, Transport and Public Utilities during one of his visits to the Nadarivatu Hydro Project site in 2011.


MEMBERS OF THE AUTHORITY

Nizam-ud-DeanChairman

Gardiner WhitesideDeputy Chairman

Isikeli VoceduaduaMember

Francis Bulewa KeanMember (Appointed

September 2011)

John LowMember (Resigned

November 2011)

Cama TuilomaMember (Resigned August

2011)

Hasmukh PatelEx-Officio Member


EXECUTIVE MANAGEMENT TEAM

Hasmukh PatelChief Executive Officer

Bobby NaimawiChief Financial Officer/

Board Secretary

Filipe NainocaGeneral Manager

Customer Services

Fatiaki GibsonProject Director -

Nadarivatu

Om Dutt SharmaGeneral Manager Network

Eparama TawakeGeneral Manager

Generation

Tuvitu DelairewaGeneral Manager

Commercial

John OConnorGeneral Manager Human

Resources

Anand NanjangudChief Information Officer

Saumen BandyopadhyayGeneral Manager System

Planning & Control


Construction of the Nadarivatu Hydro Power Project progressed positively in 2011 with 90% of work completed by the year end. The project is expected to be fully

commissioned in June 2012.


Overview

The Fiji Electricity Authority was established, incorporated and constituted under the provisions of the Electricity Act of 1966 and began operating from 1st August of that year. The Fiji Electricity Authority is committed in upholding the principles of good corporate governance to ensure that the Authority is directed and controlled in a responsible, professional and transparent manner with the purpose of safeguarding its day to day operations.

Board Of Directors

The Authority has adopted a system of management and control based on the appointment of Board of Directors and specific sub-committees of the Board having both pro-positive and advisory functions to ensure decisions are above Board and are made in the best interests of FEA.

The Board of Directors are vested with the broadest powers for the management of the company, responsible for approving the adequacy of the organizational, administrative and accounting structure as well as ensuring effective compliance with the companys policies and procedures.

Board Structure

The Board comprises of the Chairman, Deputy Chairman, Permanent Secretary for Finance, Permanent Secretary for Works, Transport & Public Utilities, CEO as an ex-officio member and three other non-executive members. Under the Electricity Act, the Minister for Works, Transport & Public Utilities appoints the Members of the Board.

The Members of the Board shall at all times conform to the Board Code of Conduct whilst discharging duties in their capacity as Board Members.

CORPORATE GOVERNANCE

Board Meetings

The FEA Board of Directors met 12 times during the year.

Director Number of Meetings Attended

Status

Nizam-ud-Dean 12 ChairmanGardiner Whiteside 12 Deputy Chairman

Isikeli Voceduadua 12 MemberJohn Low 3 Member - Resigned in November 2011Cama Tuiloma 8 Member - Resigned in August 2011Francis Kean 4 Member - Appointed in September 2011Hasmukh Patel 12 CEO & Ex-Officio Member


Board Sub-Committees

The following sub-committees of the Board assisted the Board in advisory functions:

Major Projects Sub-Committee

The key role of the sub-committee is to assist the Board in fulfilling its responsibilities by overseeing the delivery of any major infrastructure projects being constructed by the Authority in a timely, efficient and cost effective manner including making decisions in relation to the project as and when required.

The sub-committee met 11 times during the year.

Audit & Finance Sub-Committee

The key role of the sub-committee is to oversee the performance of the Internal Audit function, thus providing assurance on the effectiveness of the Authoritys internal control processes and oversee the financial reporting as well as discuss risk management practices.


HR Sub-Committee

The sub-committee is responsible for overseeing the compliance of corporate governance in relation to Human Resource matters. It provides advice to the Board regarding the development, implementation and effectiveness of Human Resource Policies and Strategies and Occupational Health & Safety Management.


Policy Based Corporate Governance

The Authority has also adopted a policy based on corporate governance to ensure that all employees are committed to the principles of corporate governance standards consistent with best practice, hence, the following policies were reviewed and approved in 2011 to strengthen corporate governance in FEA:

1) Whistleblower Policy

2) Gifts Policy and

3) Anti-Money Laundering Policy


FEA Board Chairman, Mr Nizam-ud-Dean, signing the contract with Sinohydro Corporation, the contractor of the Wainisavulevu Weir Raising Project. The project enhances FEAs renewable energy objective as it will increase the water storage at the weir by another 8 metres and will benefit two existing hydro schemes namely the Wainikasou and Monasavu hydro schemes. The project is estimated to cost around $27M and will be completed within two years.


FEA consolidated its journey towards achieving its long term objective of generating 90% of its total energy requirements through renewable energy resources by 2015 with the Nadarivatu Hydro Power Project around 90% complete at the

end of the year. The project is expected to be commissioned in mid 2012. FEA has borrowed around $200M to fund this project which it has to service and repay over the next 15 years.

The commissioning of the Nadarivatu Hydro Power Project in 2012 is in line with FEAs ten year power development plan which requires a total investment in the energy sector of around $1.5billion over a period of 10 years to meet the ever growing demand for electricity and importantly assist FEA and the nation mitigate the countrys dependence on the uncontrollable and exorbitant fuel price. In this regard, FEA is expected to invest substantially in the power generation and the transmission and distribution sector over the next 10 years.

FEA is firm in its resolve as it continues to explore and build energy capacity to ensure the reliability and the security of power supply to its customers in addition to ensuring the long term financial sustainability of the Company.

CHAIRMANS REPORT

2011 Profitability

FEA made a financial profit of $51.9 million after tax in 2011, largely due to the excellent perfomance from the Monasavu Hydro Scheme and stringent measures to control operational expenditures. This equates to a Return on Shareholder Funds (ROSF) of positive 11%.

The profitability of FEA for the period 2004 to 2011 is illustrated in the graph shown below:

FEA recorded an all time high fuel cost of $137.8 million in 2011 as compared to $126.8 million for 2010. This is equivalent to 77% of the total revenue for 2009. Had the tarrif increases in 2010 and 2011 not implemented then substantial losses could have resulted in 2011.

FEA implemented the final phase of

the tarrif increase to achieve an average 39.4 cents/unit from 1st April 2011. This tarrif is expected to assist implement FEAs ten year Power Development Plan (PDP) which requires a total investment in the energy sector in excess of $1.5 Billion.

FEA incurs significant non-commercial obligation (NCO) costs each year when supplying subsidised electricity to rural Viti Levu and to the whole of Vanua Levu and Ovalau. It is estimated that FEA incurred about $20 million of NCO costs when fulfilling its social obligations in 2011. Although the Public Enterprises Act requires the Government to reimburse the NCO costs to FEA, such costs are not refunded. Instead, the Government has accepted, via Cabinet decision CP2002 18th Meeting dated 10th September 2002, FEAs non-commercial contribution to social and community services through its electricity subsidies to be recognised as its annual dividend to the Government. Therefore the deemed dividend paid to the Government by FEA for 2011 is a notional adjustment to account for the NCO costs which would have resulted in an after-tax financial profit of $66.3 million and a ROSF of positive 13.6% for the year. The adjusted profitability numbers and ROSF are shown in the next column for the period 2004 to 2011.

FEA appreciates the support provided by the Government through granting duty concessions for its Renewable Energy Projects and guaranteeing FEAs borrowings. It is very important that

the Government continues to support FEA to ensure the long term financial sustainability of the organisation.

FINANCIAL STRENGTH

FEAs gearing ratio, as measured by Debt to Debt plus Capital and Reserves excluding cash-in-hand, was 41.32% as at 31st December 2011, well within the international benchmark for power utilities of about 45% despite incurring Capital Expenditure of around $112 million in 2011. The gearing is at the higher end and thus limits FEAs borrowing capability to fund other potential renewable energy projects and fulfil its ten year power development plan.

The shareholder value of FEA was $472 million at the end of 2011 which increased from $414.7 million at the end of 2010 and $324.9 million at the end of 2002. FEAs total assets were worth $983 million, a substantial increase from

-21-18-15-12-9-6-30369

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2004 2005 2006 2007 2008 2009 2010 2011

After TaxAfter Tax

F$ m

illion

Before Tax

70

60

50

40

30

20

10

0

-10

-202004 2005 2006 2007 2008 2009 2010 2011

Account for NCOF$

milli

on

Before adjusting for NCO After adjusting for NCO


$925.6 million in 2010 and $456.7 million in 2002. This shows that FEA has added significant shareholder value over the last nine years since the implementation of organisational reforms.

FEA RESTRUCTURE

The restructure process for the Initial Public Offering (IPO) of the Fiji Electricity Authority with the intention to partially privatize the Company continued in 2011 with the Steering Committee overseeing the restructure meeting three times. The Steering Committee is made up of the consultant Minter Ellison, representatives from the Ministry of Public Enterprises, Ministry of Finance, Office of the Solicitor-General, Ministry of Works, Transport and Public Utilities and representatives from FEA. Apart from the Steering Committee, there are two other sub-committees established to oversee the review of the Electricity Act (1966) and drafting of the IPO prospectus. The objectives of the Electricity Act review are to:

1. Identify the appropriate laws to provide for the corporatization of FEA;

2. Separate out the regulatory and Commercial Functions of FEA with:

Governmenttoberesponsibleforallregulatory functions by a time no later than the date by which the partial privatization takes place; and

TheCorporatizedFEAshouldoperate commercially and statutory powers are to be incorporated to enable it to carry out its commercial functions;

3. Redundant provisions should be removed; and

4. The language of the 1966 Act should be modernized wherever practical.

The review of the Electricity Act is almost complete and preparations for a new Electricity Decree are underway to replace the old Electricity Act 1966.

The Sub-Committee responsible for the IPO prospectus has completed a draft and is awaiting the appointments of an Independent Accountant and Investment Advisor to review the long term financial projections of FEA and the structuring of shares to sell to the Public. The restructure of FEA is expected to be completed in 2012.

BUTONI WIND FARM

Butoni wind farm generated 4.98 million units of electricity in 2011. This is equivalent to a fuel cost savings of around $2.13 million in 2011.

14.0

12.0

10.0

8.0

6.0

4.0

2.0

-2.0

0

-4.0

2004 2005 2006 2007 2008 2009 2010 2011

Return on Shareholder Funds to Account for NCO

Before adjusting for NCO

Perce

nt (%

)

After adjusting for NCO

The wind turbines at the Butoni wind farm are able to be lowered during a

cyclone to avoid substantial damages

kilo

wat

t-ho

urs

8,000,000

7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

2007 2008 2009 2010 2011

Butoni Generation (KWh)


Statistics for the wind farm from the commencement of its operations in June 2007 are given below:

TotalGenerationOutput = 25.7millionunitsof electricity

TotalDieselFuelCostSavings = F$8.59million

TotalForeignExchangeSavings = F$5.8million

TotalDieselFuelSaved = 5404tonnesofdiesel

TotalEmissionReduction = 16,799tonnesof Carbon Dioxide

One of the main factors that affected the operation of the wind farm in 2011 was the low wind speed recorded.

PROGRESS ON RENEWABLE ENERGY PROJECTS

The construction of the 40MW Nadarivatu Renewable Hydro Power Project is progressing well with overall completion of 90% by year end and the scheme will be commissioned by the mid 2012. This would greatly assist FEA move towards achieving its renewable energy target of 90% from renewable energy sources by 2015. FEA has secured all the necessary funding essential to complete the Nadarivatu Hydro Power Project in 2012.

The Validation Process for carbon credits for the Nadarivatu Hydro project under the Clean Development Mechanism (CDM) is 90% complete and submission to the United Nations Framework Convention on Climate Change (UNFCCC) is envisaged by June 2012.

A full feasibility study for the Qaliwana Hydro Project has been

completed and discussions with interested Independent Power Producers to develop this potential energy source is ongoing. In addition, two further studies on the review of the Wailoa Downstream feasibility report and the feasibility study of the upper Navua River Hydro developments are currently in progress with the final reports expected in June 2012.

On completion of the these feasibility studies, FEA will prioritise the projects and then call for Expressions of Interest (EOI) from Independent Power Producers (IPP) to develop these projects and sell electricity to FEA. This approach will be taken due to the limitations on the borrowing capability of the Authority.

The Ministry of Finance approved the extension of the Government Guarantee via the Cabinet on 12th October 2010 to enable the funding of the current major projects, especially the funding of the Nadarivatu Hydro Power Project.

FEA awarded the tender for the construction of the Wainisavulevu Weir Raising Project to Sinohydro Corporation of China for a contractual sum of $20.5 million. The total cost of this project is $28 million of which FEA will fund $7.5 million using its own cash. Sinohydro has commenced the project by constructing the road and has mobilised on site. When completed, this project is expected to bring about improvements in the water storage capacity of the existing Wainikasou and Monasavu hydro schemes and will result in increased energy output from the two power stations.

FEA commenced a feasibility study to determine the viability of developing a Hydro Project in the region of the upper Navua River.


The FEA Board developed eight Key Performance Indicators (KPIs) for 2011 to enable the Government to measure the performance of the FEA Board. The KPIs were included as part of FEAs Statement of Corporate Intent (SCI) for 2011. The actual achievement of the KPIs is detailed below:

ACHIEVEMENT OF BOARD KEY PERFORMANCE INDICATORS

1 Achieve a ROSF of at least 2.5% provided the proposed average tariff of 39.4c/unit is implemented from 1st April 2011.

The audited ROSF as at end of December, 2011 is a positive 11%. This is due to the good rainfall received at the Monasavu catchment during the year which enabled more energy to be generated from hydro in addition to the final tariff increase of an average 39.4 cents/unit implemented from 1st April 2011. Further a net income tax benefit of $13.9M due to restating the Deferred Tax Liability and Future Income Tax Benefit to factor the reduction in corporate tax rate from 28% in 2011 to 20% in 2012 also contributed to the Profit after Tax. The generation mix as at end of December 2011 was 59.4% renewable and 40.6% thermal.

2 Fully comply with the following statutory requirements:

Submission of 2012 to 2014 Corporate Plan, SCI and EIRP by 30 September 2011

Submission of half year report for 2011 financial year by 1st August 2011

Submission of draft annual report and un-audited financial accounts for 2010 by 31 March 2011

Submission of the annual report and audited financial accounts for 2010 by 31 May 2011

Achieved. Submitted on 29th September, 2011

Achieved. Submitted on 27th July, 2011

Achieved. Submitted by 31st March, 2011

Achieved. Submitted by 31st May, 2011

3 Carry out feasibility studies for one major Renewable Energy Project

Achieved. A preliminary report of the feasibility study for the Upper Navua River was completed by the end of the year.

4 Ensure that Nadarivatu Hydro Project construction work is progressed on time and fully commissioned by the end of the year.

In progress. Work completed YTD December was 90% and commissioning has started at the Weir and Switchyard. It is envisaged that the first machine will be commissioned in May 2012 and the other to follow soon after.

5 Complete 100% of Government funded RE Projects as per the schedule by 31st December 2011.

Achieved. Completed all the 31 Government funded RE schemes as per schedule by 31st December 2011.

6 Finalise contract price with Contractor and Commence construction of Wainisavulevu weir raising project subject to availability of funds.

Achieved. Signed contract with Sinohydro Corporation in December 2011. Mobilsation work commenced in December together with the construction of road to the project site.

7 Execute the Monasavu Hydro Scheme Half-Life refurbishment program as per plan

The following work has progressed:a)Award Battery Tender Vuda and Cunningham. Technical evaluation completed & Management Approval received for award to CBS Power Solutions. Award letter sent. Business case approved on 1 Dec 2011. b)Award contract 132kV Current Transformer and Capacitive Voltage Transformer Tender awarded to DELSTAR.c)132kV Insulator replacement (50) 59 towers have been successfully completed, target for 2011 was 50 towers. d)Evaluate tender for New 11/132kV Wailoa Transformers Tender closed on 16th September, evaluation in progress.e)Completed 30% of structure refurbishment Vuda, Cunningham - Scope & Condition Report is being prepared for the replacement of tower bolts, tower washing, rust treatment and painting - Tender awarded to Linetech of New Zealand. f)Research 145 kV Isolators and control panel upgrade - Tender documentation research complete. g)Governor Upgrade from Analogue to Digital - Tender awarded to GE Energy and contract signed in October 2011. h)Monasavu Dam Instrumentation Upgrade - Tender awarded to Dam Watch New Zealand, contract signed in December 2011. i)Wailoa battery Charger Replacement - Tender awarded to North Power, New Zealand, contract signed in December 2011.

8 Establish financial viability on the conversion of the two Vuda Wartsila Generating Sets from IDO to HFO operation and if positive seek Board approval, commence implementation and complete Project as per plan.

Board approval sought via Board Paper 5692 in February 2011, work is in progress at the Tank Farm according to plan with 66% of the work completed by the end of the year. Completion scheduled for May 2012.


AUGMENTATION OF THE TRANSMISSION GRID

The Qeleloa 33/11kV Zone Substation was commissioned in April 2011, followed by commissioning of Komo Park Zone 33/11kV Substation in May and Nausori Zone 33/11kV Substation in July 2011.

An Environment Impact Assessment (EIA) study for the construction of 132kV Wailoa Nacocolevu transmission line was successfully completed in June 2011.

The electrical protection system on the two critical 132 kV transmission lines from Wailoa to Vuda in the Western region and from Wailoa to Cunningham road in the Central region was upgraded to state-of-the-art transmission line protection systems.

Protection Review Study of the entire FEA power system was carried out to ensure safe and reliable system operation.

Review of the FEA Grid Code was undertaken to align the FEA Grid Code to international standards.

The 9.3 MW wood-fired co-generation plant of Tropik Woods at its Drasa mill continued to struggle with its perfomance and produced only 17.59GWh of energy in 2011 out of a contracted quantity of 38.8GWh per annum. FEA is working closely with Tropik Woods to ensure the plant is able to generate the deemed quantity of 38.8GWh annually.

FEA completed the review and compilation of the Power Development Plan up to 2020. The plan was presented to the key stakeholders of Government and showed the road map which will enable the achievement of FEAs target of 90% renewable energy by 2015.The plan incorporates both the generation and transmission capacity building over the next 10 years, and the associated investment level required.

TARIFF STUDY & POWER DEVELOPMENT PLAN

FEA implemented the final phase of the tarrif increase approved by the Fiji Commerce Commission and Cabinet to achieve an average 39.4 cents/unit from 1st April 2011. This tarrif will assist FEA implement its 2020 Power Development Plan.

A total investment in excess of F$1.5Billion will be required to develop the generation, transmission and distribution projects. Out of this, FEA will be required to invest around F$1.2 Billion while Independent Power Producers (IPPs) are required to contribute $350M to assist in the development of the power generation sector.

PRODUCTIVITY IMPROVEMENTS

FEA has achieved significant productivity improvements since 2000. The number of employees has been reduced by 31%, from 960 in 2000 to 661 in 2011, at a time when:

Numberofcustomersincreasedby33%,from117,315in2000 to 155,912 in 2011

Generation output increased by 60%, from 523 giga-watt-hours in 2000 to 837GWh in 2011;

Lengthofpowerlinesandundergroundcablesincreasedby 25%, from 7,124 km in 2000 to 8,943 km in 2011;

Total assets increased by 108%, from $473 million in2000 to $983 million in 2011;

Total shareholder funds increased by 49%, from $316million in 2000 to $472 million in 2011.

Protection Review Study of the entire FEA power system was carried out to ensure safe and reliable

system operation.


As a result, the following productivity improvements have been achieved between 2000 and 2011:

Customers per employee increased by 93%;

Generation output per employee increased by 135%;

Length of power lines and underground cables per employee increased by 82%; and

Assetvalueperemployeeincreasedby149%.

ACKNOWLEDGEMENT

I would like to convey my sincere appreciation and thanks to the fellow Board Members for their continuous support and contribution throughout the year. Their commitment and direction was instrumental in ensuring that FEA remained focused and on-track to achieve its strategic objectives. My special thanks to Mr Cama Tuiloma and Mr John Low, who left our Board in 2011, for their constructive contribution made to FEA during their term.

I would like to thank the Cabinet, especially the Hon. Minister for Works, Transport & Public Utilities and the Hon. Minister for Public Enterprises, for their invaluable support provided to FEA during the year.

I also record my sincere thanks to the Fiji Commerce Commission for their understanding of FEAs difficult position and approving the implementation of the tariff increases with the final phase implemented from 1st April 2011.

To our valued customers, we will continue to explore and implement ways in which we can further improve our services to meet or exceed their expectations.

To our Management Team and employees, I am highly appreciative of their efforts and contribution during the year. The level of dedication and commitment that they and our outsourced service providers showed throughout the year has enabled us to energise our nation under very challenging conditions.

Nizam-Ud-Dean Chairman


Work is in progress to convert 2x6MW Industrial Diesel Oil (IDO) generating sets to run on cheaper Heavy Fuel Oil (HFO) at the Vuda Power Station. The project is

expected to be completed by May 2012.


FEA performed admirably in 2011 recording a profit after tax of $51.9M. This was achieved partially due to the good rainfall received at the Monasavu catchment (which produced 425GWh of energy in 2011, above the long term average of 400GWh) and implementing the final phase of the tariff increase to achieve an average 39.4 cents per unit from 1st April 2011. The average cost of producing a unit of electricity from diesel was in excess of 40 cents per unit in 2011. The reduction of the Corporate Income Tax Rate from the current 28% in 2011 to 20% in 2012 required the Deferred Tax Liability and Future Income Tax Benefit carried on FEAs balance sheet to be re-instated. The Net Income Tax effect due to the adjustments was included in the Income Statement of FEA, resulting in a Net Income Tax Benefit of $13.9M.The positive financial performance enabled FEA to carry out capital expenditure (Capex) works totaling $112M and repay matured bonds amounting to $17M in 2011. The capex of $112M is one of the highest achieved in FEAs history, as it had to carry out critical capex that had been deferred from past years due to poor financial performance as a result of the low electricity tariff. These ageing assets pose a risk to the reliability and security of power supply to our customers

and need to be replaced and upgraded with urgency. FEA realized that if it prolonged the replacement and upgrade work of these key assets, then it was putting the entire power system at risk and therefore FEA commenced to carry out these critical capex with utmost priority in 2011.The next three years will bring a lot of challenges to the Authority. FEA envisages a total capex of around $183M and repay matured bonds and loans totaling $136.4M. This is a huge financial commitment and requires that FEA must make profits and generate surplus cash in order to have the ability to fund these CAPEX (averaging $60M annually) and repay matured bonds and loans when they fall due. The total bonds and loans maturing in 2012 are around $37M, as we plan to refinance 2 by $20M loans that are maturing in 2012. Therefore it is imperative that FEA continue to make Profit after Tax of at least $40M annually over the next three years to ensure it has the ability to fund critical capex and repay matured bonds and loans when they fall due. This will ensure the reliability and security of power supply to its customers and safeguard Government being the guarantor of the FEA loans.I thank the Chairman and the Board of Directors for their valuable guidance and constructive support throughout

the year.I wish to record my thanks and appreciation to my colleagues in the Executive Management team and to all the employees of our organisation and other external service providers for their continuing support, dedication and patience throughout 2011.I also record my sincere thanks and appreciation to the Prime Minister and his Cabinet Ministers, Permanent Secretaries and Government officials, the Reserve Bank of Fiji, the Fiji Commerce Commission, the Fiji Revenue & Customs Authority and Trade Union executives for their kind assistance, support and cooperation rendered in 2011. Their invaluable contribution made it easier for FEA to rise above the challenges faced during the year and perform exceptionally well. I look forward to their continued support in delivering increased value to our Shareholder and Stakeholders in the coming year.

Hasmukh Patel Chief Executive Officer

Despite the good profitability level achieved in 2011 of $51.9M post-tax, FEAs working capital is still vulnerable with a closing cash balance of around $3.4M at the end of 2011. This is equivalent to one weeks fuel cost at fuel prices prevailing in 2011. FEA is still faced with the mammoth task to build new energy capacity to cater for increased demand of electricity and maintaining existing assets which are considered its Golden Goose. Therefore it is imperative that FEA manages its business model diligently to ensure that it remains financially sustainable to meet its day to day operational obligations and achieve its long term objectives.

CHIEF EXECUTIVE OFFICERS REPORT


FEA places a very high importance on addressing the concerns of customers with urgency. FEA customer service representatives provide services to customers on a

daily basis at all major locations.


CUSTOMERS

Customer Service

The number of customer accounts increased by 3 per cent, from 151,410 in December 2010 to 155,912 in December 2011. The breakdown in customer accounts are made up of: Industrial 93 (0.06%); Commercial 14,563 (9.34%) and Domestic and Institutional 141,256 (90.6%). The increase in customer accounts was mostly in the Domestic sector recording a growth of 3% most of which were in remote rural areas as a result of the Rural Electrification extension programs. There was a significant decrease in demand for electricity by an overall 3.1 per cent, from 764.23 million units in 2010 to 740.87 million units in 2011. The main decrease in electricity consumption was in the Domestic sector, with demand decreasing by 6 per cent, from 232.5 million units in 2010 to 218.5 million units in 2011. Demand also fell by 3.6% in the Commercial sector with the only growth being in the Industrial (Maximum Demand) sector which grew by 1.6%. The reduction in electricity demand for the Domestic and Commercial sectors could be attributed to the increase in electricity tariff leading to increased energy use awareness and energy savings strategies implemented by customers in the two sectors. Energy savings promotional programs initiated by both FEA and Department of Energy also contributed to this reduction. The Government subsidy given for domestic customers who use less than 75 units per month also contributed to the reduction in consumption with customers reducing electricity consumption to meet Government subsidy requirements and thus take advantage of the subsidy offered. With the focus on improving power quality, excessive reactive kVar units billed increased from 5.7 million units in 2010 to 7.1 million units in 2011 an increase of around 24%.

Contact Centre

The Contact Centre continued its excellent performance in 2011. The Grade of Service (GOS) achieved for the year was 93.3% with Calls Abandoned at 4.1%. This was an excellent result in a challenging year where the Contact Centre was required to manage information flow to customers on the new tariff rates, disconnection and reconnection, upgrade in consumer security deposits, prepayment issues and unplanned and planned power shutdowns. Total calls received to 31st December 2011 was 367,149, an average of 30,595 calls a month. This was a decrease of 2.5% from 2010 when a total of 376,379 calls was received. The reduction in call volume was the result of a strategy to proactively disseminate information through community awareness in both print and radio media. With a concentrated and coordinated approach in 2012 it is anticipated that the call volume will continue to decrease. The focus continues to be on the quality of service delivered to the individual customers by Contact Centre Staff when answering the calls. This quality of service can be monitored by the introduction of technology such as call recording. The Contact Centre continues to operate 24hours, 7days a week with the

main Contact Centre in Suva closing at 9.00pm and services taken over by Contact Centre Staff at the National Control Centre in Vuda. Use of the emergency 913 number for non emergency calls continues to be a concern with a total of 21,063 calls received on this number of which only 2229 were genuine emergency calls.

For the 2011 Customer Services Survey, six survey questions were prepared and survey forms sent out to customers with their electricity bills. The forms were received and analysed.

Whilst FEA is pleased with the improvement in its overall customer satisfaction level, it wishes to continually improve its level of service to customers. Accordingly, it has put in place appropriate action plans to address the areas for improvement highlighted in the survey. In the meantime, FEA is also investigating how it could improve the reliability of customer survey in future years to obtain more consistent results.

Prepayment

Changes in the tariff structure including the introduction of the Government subsidy put substantial pressure on the Actaris Off Line prepayment system. By April 2011 it was clear that the system was not able to cope with the requirements of the new tariff structure and required to be replaced. An Expression of Interest was put out and Syntel, a South African based company, was selected to provide and implement the new system. The new ONLINE Syntel prepayment vending system was commissioned at the end of August 2011 and has proven to be a good robust system. Combined with the existing APN mobile phone network all transactions carried out at any vending station is online direct to FEA HQ main prepayment server. All issues with the old system have now been resolved. All rural electrification customers were metered using prepayment meters with installation of more than 2,382 prepayment meters in 2011.

Product Awareness

Media presentations on FEA services and safety issues continued to be the main focus in FEAs customer communication activities during the year. Customers and the general public were encouraged to report safety issues such as fallen power lines or low lying power lines and vegetation in the vicinity of power lines that were likely to affect them. Information on the electricity tariff and review of consumer security deposits, together with advice on how to save energy and reduce electricity bills, were provided during radio talk back shows and interviews on television, radio and print media. Information on projects currently undertaken by FEA, including Rural electrification projects, were also provided during these interviews and radio talk back shows. Presentations were also made to secondary schools and communities, especially communities who were being

REVIEW 0F 2011


electrified for the first time, to create awareness on energy savings and electrical safety and complete desired customer documentation. Training was also provided in these rural communities on how to use the new prepayment meters that would be installed. FEA also continued to use its billing network to maximize the dissemination exposure of its safety messages, by printing messages on the electricity bill itself and providing information bill inserts on how to calculate and read power bills and required consumer security deposits.

Demand Side Management

FEA continues to assist its customers become more energy efficient by providing technical advice and billing data to those customers who request for such data. In 2011, the Demand Side Management Team of FEA completed two energy audits, one for the Reserve Bank of Fiji and the other for Future Farms, a poultry farm in Ba. The report provided these two customers with an in-depth knowledge of their energy consumption and on how they could reduce their energy consumptions. FEA also visited several schools in the Central and Northern Divisions making presentations on Energy Savings and Electrical Safety.

An agreement was reached with the Ministry of Education for a study into the development of a teaching module on Electrical Safety and Energy Savings into the schools curriculum. The study would determine if the module could be introduced into primary and secondary schools.

FEAs Reactive Metering Policy was strictly monitored during 2011 with reactive energy metered for those customers using excessive reactive energy. Excessive reactive energy usage increased by around 24% in 2011 when compared to 2010.

Electricity Tariff

There was one electricity tariff increase for the year approved by Cabinet and the Fiji Commerce Commission. The increase came into effect on the 1st of April 2011 which affected the Commercial and Industrial categories only. As a result of the tariff increase in 2011, the average price per unit increased from 29.64 cents in December 2010 to 38.75 cents in December 2011, an increase of 30.7%. This brought about a significant increase in billed revenues which increased by 27.3% from $227.93M in 2010 to $290.21M in 2011.There were many challenges involved in the introduction of the new electricity tariff due to the complex nature of the new tariff and its application. The challenges were met and the new tariffs were implemented accurately and on time.

In view of the tarrif increases implemented in 2010 and on 1st April 2011, it was imperative that a review of all the consumer security deposits be carried out and analysed. The required deposits were compared with the actual deposits held and the additional deposits calculated. The additional deposits required were communicated to each customer via a letter inserted in their electricity bills. Customers who inquired

with our Contact Centre were also provided with this information. All customers were given the option of either paying by cash or provision of a bank guarantee of a sum equal to the required deposits. The new consumer deposits required was implemented in October 2011 with customers initially given 3 months to pay for the additional deposit. The three months was then extended to six months after feedback from customers that the time provided was too short.

EMPLOYEE, EMPLOYEE RELATIONS, TRAINING AND DEVELOPMENT AND HEALTH, SAFETY & ENVIRONMENT

FEA continues to recognize that its people are essentially the drivers of the business systems and processes and to achieve optimum performance, the effective management of people is vital. Successful Organizations recognize the critical importance of investing in their people and increasing their value to their organization. It is the quality people who provide companies with their competitive advantage.

One key factor in employee motivation and retention is the opportunity for employees to continue to grow and develop their job and career enhancing skills. While FEA recognizes that investment in its people through training and development is vital for employee retention and motivation, it is also important to ensure that any investment in training and development adds value to the employee but more importantly to the Authority and is aligned to the employees career development and the Authoritys succession planning.

The FEA has been listed as one of the Designated Corporations in accordance with the Essential National Industries and Designated Corporations Regulations 2011 which was gazetted on the 8th of September 2011. As a Designated Corporation, the Authority is required to fully comply with the requirement of the Essential National Industries (Employment) Decree 2011 which was gazetted on the 29th of July 2011.

The introduction and commencement of the Essential National Industries (Employment) Decree 2011 with effect from the 8th of September 2011 provided a major challenge and shift in the management of Employment and Industrial Relations in FEA with the focus shifting to the alignment of the terms and conditions of employment to ensure the viability and sustainability of the organization.

The FEA Board endorsed the Strategies and the Action Plans to ensure full compliance to the Decree and also focused on the Sustainability of the Organization. The successful implementation of the Action Plans also ensures the alignment of the FEAs Human Resources, Industrial Relation and People Strategies to the Essential National Industries (Decree) 2011, the privatization of FEA and the promotion and upkeep of employee rights.

FEA also recognizes that there is a current restructure of the Organization being undertaken by the Ministry of Public


Enterprise. Therefore, the strategies implemented in 2011 also focused at preparing FEA and its employees for the likely changes that would be brought about by the partial privatization of FEA.

FEA continued to aspire to be an agile and lean organization that is able to adopt quickly to Business challenges. Strategies were implemented to ensure the Right Sizing of FEA and determining the optimum staffing level of the organization but at the same time continuing to promote productivity through the implementation of a performance management system for all its employees. During the year, FEA also focused in building a disciplined workforce that is loyal and committed to ensuring compliance to policies, safety rules, respective manuals, procedures and other FEA administrative circulars.

Staff Numbers

2011 was a very challenging year for FEA in terms of its human capital. Twenty two (22) very experienced employees with an average of more than 25 years experience in the electricity industry retired from FEA. In addition, thirty two employees resigned from the Authority, the majority of whom migrated overseas. Ten employees were terminated by the Authority due to breaches of policies and procedures. While we started the year with 673 employees, we ended the year with a total of 661 employees.

Recognizing the risks of the competitiveness of the overseas market for our engineers and technical staff and that we were in no position to compete with these markets and to ensure we build capacity, FEA reintroduced the apprentice scheme and recruited 10 new apprentices earlier in the year. Furthermore, FEA engaged technically qualified attachees from the National Employment Centre to build capacity and have readily available experienced staff to mitigate the risk of migration. These attachees are engaged for a maximum period of 6 months and should they perform exceptionally and live the values of FEA, then they are absorbed into the workforce provided a suitable position becomes vacant.

The performance of employees of FEA continued to be assessed based on the Performance Management System the Authority had arrived at and signed Agreements with the three Unions. The Performance Management System replaced the COLA and annual merit increments. The Board and the Management of FEA acknowledge and wish to thank the three Unions representing the FEA employees, namely the Fiji Electricity Workers Association, Electrical Trades Union and the Construction, Energy and Timber Workers Union of Fiji for their support in the achievement of this milestone.

Staff Training

In 2011, the FEA Training & Development Framework was implemented with the main focus on Mandatory Authorization and Refresher Training including Contractor Management and Safety Awareness Training. Training on the Power Development Plan and electrical protection of the power system was carried out by the Power Research Development Consultants.

The Mandatory training conducted included Live Line Refresher Training for the FEA Live Line team in the 33kV/11kV category by Glove & Barrier Energy Services Pty Ltd and the 132kV category by Bill Matthews Consultant, Defensive Driving Course by LTA, First Aid & CPR Course by Red Cross, Induction Training for new recruits by FEA and Dog Training by the Fiji Police for Meter Reading Attendants.

Other external Training conducted included Project Management Fundamentals for the Nadarivatu Hydro Project Civil and Network Engineers, Team Leader Training, Professional Business Writing Skills and Corporate Governance Training. The Customer Service Skills Workshop was also carried out for all FEA employees by Human Resources Development South Pacific and FICAC facilitated workshop on Anti-Corruption and Risk Management Workshop. The IT Power Consultant also conducted the Clean Development Mechanism Training for the Generation

One key factor in employee motivation and retention is the opportunity for employees to continue to grow and develop job and career enhancing skills


teams manning the FEA Renewable Stations and on the job training at the Nadarivatu Hydro Project.

Ten new apprentices were recruited in the Plant Maintenance trade, Electrical Fitter Mechanic trade and Telecommunication Technician level for the Central, Western and Northern regions. Eight trainee Cable Jointers completed their training and were offered work contracts including upgrade to fully fledged Cable Jointers.

The Training Department and ICT team also participated in workshops on Industry Standards Advisory Committee for the Fiji Qualifications Framework on Electrical Fitter, Mechanical and Telecommunications Trades and SPC In Country Consultations on the Pacific Register of Qualifications and Standards.

The FEA Training Centre was issued a Certificate of Recognition to operate legally as a Training Provider in Fiji by the Fiji Higher Education Commission on 17 May 2011 with the Recognition No. of the Institution as RCN 0067/10.

The Training team submitted and won the BIDS for the Pacific Power Association Training for the Pacific Region Utilities in OHS, Generation, Network Operation and Maintenance and this programme is scheduled to be conducted in early 2012.

Internal advertisement for Sponsorship of employees to pursue Advanced Diploma in Electrical/Mechanical Engineering and Bachelor of Engineering degree courses in Electrical & Mechanical Engineering were also

carried out and FEA Management team will finalise the successful applicants in 2012.

FEA continued to support and engage industrial student attachments from the various institutions of Fiji in 2011.

Apart from the above training programmes, staff also continued with their own development programmes in the various areas of their interest which include Diplomas, Advanced Diplomas, Degrees and Post Graduate studies.

Employee Development and Succession Planning

In 2011, the FEA Board approved a comprehensive FEA Training and Development Framework that will ensure that all training and development programmes for all employees are aligned to the achievement of the full competencies for each employee appointed to respective position, employee career development plans and the Authoritys succession plans.

The FEA Training and Development Framework also clearly identified likely successors to all critical positions from the Permanent Tradesperson, Team Leader, General Manager to the Chief Executive Officer level. Training and development plans for all the identified possible successors for each position have been implemented to ensure that these employees are ready to replace the post holders should they decide to leave FEA.

Inculcating FEA Values

FEA continued to place great importance in inculcating its core values in all its employees. The Human Resources Policy and Procedures Manual was reviewed after the implementation of the ENI Decree to ensure alignment to the provisions of the Decree. The Employee Code of Conduct was also reviewed and amended accordingly to reflect changes in the Crimes Decree and ENI Decree which was approved by the Board.

Furthermore during 2011, FEA continued to reinforce discipline within the organization and during the year 10 employees were terminated for serious breaches of FEA policies and procedures. FEA continued to reinforce the Governments policy regarding zero tolerance on fraudulent activities.

Industrial Relations

FEA continued to have a cordial relationship with the three Unions in the first half of the year. Towards the second half of the year, FEAs Industrial Relations was focused on ensuring compliance with the requirements of the Essential National Industries (Employment) Decree 2011. The implementation of the ENI Decree 2011 also brought about the termination of old outstanding issues relating to the terms and conditions of employment with one of the Unions.

In line with the provisions of the ENI Decree 2011 there was a noticeable reduction in the number of eligible employees who could become members of a Bargaining Unit.

FEA is totally focused on a continuous improvement culture to achieve the ultimate goal, which is SAFE PRODUCTION, ZERO INCIDENTS


At the end of the year, the Fiji Electricity Workers Association (FEWA) was registered as a Bargaining Unit which represented two categories of employees in the Staff and the Tradeperson Categories.

FEA and the FEWA Bargaining Unit have also signed two Collective Agreements for the respective employee categories and this have been registered with the office of the Registrar of Trade Unions.

To ensure compliance with the ENI Decree 2011, FEA offered contract terms and conditions of employment to all the employees who were no longer defined as a Worker in accordance with the ENI Decree 2011 and all these employees accepted and signed their contracts of employment by the end of 2011.

Health, Safety and Environment (HSE)

FEA is committed to supporting a total Health, Safety and Environment improvement culture where all employees have the necessary tools, methods and personal attributes to actively care for the safety of themselves, their co-workers and members of the public.

This commitment and drive, led by the Board and the Executive Management, ensures that FEA continues to achieve best practice in terms of its safety results. FEA is totally focused on a continuous improvement culture to achieve the ultimate goal, which is

SAFE PRODUCTION, ZERO INCIDENTS.

Consolidation and embedding of the Fleet Policy manual continued with all FEA drivers to help them perform their driving safely and professionally in order to protect themselves, other employees and members of the public from risks arising out of fleet operations. Transport Committee sittings were conducted on a monthly basis to hear all motor vehicle related accident cases including complaints from members of the public. A total of fifty seven (57) drivers appeared before the Committee which included twenty five (25) windscreen and twelve (12) third party cases. Of the twenty FEA driver initiated accident cases, one (1) was a major accident which accounted for 31% of accident costs in this category while the remaining nineteen (19) were relatively minor accidents stemming from momentary driver loss of attention. Total accident costs for 2011 were the lowest over the past five years with accident numbers on a downward trend.

Defensive Driver Training continued to be conducted for authorized FEA drivers in 2011.

FEA Contractor HSE Management System Training and Refreshers were conducted with new and existing FEA Network Contractors to ensure they met minimum legislative requirements and complied with FEAs policies and standards. Contractor worksite

inductions were carried out on the field for all network contract works awarded.

Workplace audits were conducted by HSE Officers at all locations and identified corrective / improvement actions required. A total of one thousand, one hundred and forty-nine (1,149) Safety Visits were carried out to address Safety Issues and raise the safety profile.

Internally, a rigorous hazard identif- -ication and corrective improvement action register continued to be maintained and monitored. A total of one thousand four hundred and sixty five (1,465) corrective actions were identified in 2011 against nine hundred and fifty (950) in 2010. Of these corrective actions, one thousand and eighty (1080) were completed with three hundred and eighty five (385) pending.

A centralised electronic data-base was developed by the HSE team and rolled out across all FEA locations. Employees were given hands on training to enable them to register HSE issues and monitor associated corrective/improvement actions.

HSE committees continue to fulfill an important role by performing their functions effectively. A total of thirty five (35) near misses, incidents and accidents were investigated by the HSE team and recommendations tabled and registered as corrective/improvement actions.

FEA is totally focused on a continuous improvement culture to achieve the ultimate goal, which is SAFE PRODUCTION, ZERO INCIDENTS


Because of the inherent dangers in dealing with electricity, extensive education and training is essential to ensure the safety of FEA workers and the public at large.


PRODUCTION

Water Management

The storage level of the Monasavu lake at the beginning of 2011 was 738 metres above mean sea level (AMSL), which was 23 metres above the minimum safe operating level of 715 metres.

Above-average rainfall during the months of January, February, May, October, November and December 2011 helped increase the storage level to 741 metres AMSL at the end of the year.

Total rainfall in 2011 was 4,925mm compared with 5,072 mm in 2010. The lowest ever rainfall recorded is 3,540 mm in 2004.

In 2011, the FEA renewable power stations generated 489 Giga Watt-hours (GWh) of electricity, thermal power stations 340 GWh and Independent Power Producers (IPP) 36 GWh.

The average generation mix for 2011 was 55 per cent hydro, 40 per cent diesel and heavy fuel oil, 1 per cent wind with the other 4 per cent provided by the Independent Power Producers (IPPs), namely Tropik Wood Industries Limited and Fiji Sugar Corporation. In comparison, 48 per cent was generated from hydro in 2010, 34 per cent from diesel, 15 per cent heavy fuel oil, 1 per cent from wind with the other 2 per cent from Tropik Woods and Fiji Sugar Corporation.

The Monasavu Dam has been instrumental in providing renewable source of energy to Fiji since 1983 and has contributed to the successful development of our economy.

0Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

OtherFEA ThermalFEA Hydro

2011 MONTHLY GENERATION MIX (GWH)

10

20

30

40

50

60

70

80

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

100

90

80

70

60

50

40

30

20

10

0

HYDRO-THERMAL GENERATION MIX

Hydro & IPP

Perce

nt (%

)

Thermal

1200

1000

800

600

400

200

0Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 RAINFALL COMPARED WITH PAST YEARS

2011 Average past 28 years

Rainf

all (m

m)


Butoni wind farm generated 4.97 million units of electricity in 2011 while Tropik Woods 9.3 MW wood-fired co-generation plant at its Drasa timber mill continued to suffer frequent breakdowns and managed to produce 17.59 million units of electricity compared to 4.71 million units in 2010. Tropik Wood is expected to sell some 38.8 million units of electricity per annum to FEA. FEA replaced the short fall in supply from Tropik Wood by burning expensive thermal fuel.

Power System Reliability

Three internationally accepted performance indicators are used each year to measure FEAs power system reliability:

Theaveragetotallengthoftimethatacustomeriswithoutpower over a year is measured by the System Average Interruption Duration Index (SAIDI). This has improved by 20 per cent, from 794 minutes in 2010 to 637 minutes in 2011.

The average number of times that a customers powersupply is interrupted in a year is measured by the System Average Interruption Frequency Index (SAIFI). This index improved from 15 times in 2010 to 13 times in 2011.

The average time that a customer iswithout powerperinterruption is measured by the Customer Average Interruption Duration Index (CAIDI). This index improved from 53 minutes in 2010 to 49 minutes in 2011.

The main reasons for the power interruptions that occurred in 2011 were:

Planned maintenance works on overhead lines andunderground cables (29 percent)

Natural disasters e.g. flood, lightning, cyclone, etc. (29percent)

Faultsonpowerlinehardwares(37percent)and

Vegetationinterferingwithpowerlines(5percent)

FEA needs to spend substantially to reinforce its power system

in order to improve the reliability of power supply to be in line with best performing international utility benchmarks of similar size.

The initiatives FEA is currently pursuing include:

Live-line maintenance of its power lines at all voltagelevels;

Effectivevegetationmanagementprogram;

Useofappropriatetechnologytodetectdefects thatcanbe fixed on time and equipment that can restore power supply quickly; and

Ensuring that adequate supply capacity is available tomeet the demand for electricity at all times.

FINANCIAL PERFORMANCE

Profitability

FEA made a financial profit of $51.9 million after tax in 2011, which includes a net income tax benefit of $13.9M due to re-stating the Deferred Tax Liability and Future Income Tax Benefit to factor the reduction in corporate tax rate from 28% in 2011 to 20% in 2012. This profit equates to a Return on Shareholder Funds (ROSF) of positive 11%.

This result was achieved partially due to the good rainfall received at the Monasavu Dam which produced 425GWh of energy, above the long term average of 400GWh and implementing the final phase of the tariff increase resulting in a tarrif of average 39.4 cents/unit from 1st April 2011. Relatively, the average cost of producing a unit of electricity from diesel was in excess of 40 cents/unit in 2011.

Earnings before interest, tax, depreciation and amortization (EBITDA) for 2011 were $93.9 million. This provided an EBITDA net interest coverage ratio of 3.89 times.

Revenue from electricity sales for 2011 was $288.8 million compared to $226.9 million in 2010, an increase of $61.9 million. This was a result of the impact of the electricity tariff increase for the entire year 2011.

2010

2011

2009

750

745

740

735

730

725

720

715

710

705

700

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

MONASAVU DAM STORAGE LEVEL

Dam

Leve

l in m

etre

s abo

ve M

SL


Other operating revenue of $16.8 million in 2011 was higher by $12.2 million compared to the $4.6 million earned in 2010.The increase is due to the insurance payment of $10.9 million for the Business Interruption and Material Damages for the Kinoya Generator set damaged in 2011.

The total operating expenses of FEA excluding fuel costs, depreciation and amortisation was $73.7 million. This has increased by $15.9 million when compared with the $57.8 million incurred in 2010. This is due to the increase in repairs and maintenance cost for transmission lines and generator assets in 2011.

The net thermal fuel cost increased substantially by $11.1 million in 2011, from $126.8 million in 2010 to $137.9 million in 2011. This was largely due to substantial increases in the prices of IDO and HFO fuels as compared to 2011. The thermal fuel cost accounted for 57% of FEAs total operating expenses of $242 million in 2011 compared with 59% in 2010.

Depreciation expense increased by $1.08 million in 2011 due to depreciation for additional assets transferred from capital

work in progress to the Fixed Assets Register in 2011. This includes the two power stations namely the Wainikasou & Nagado Power Stations acquired by FEA from Sustainable Energy Limited in 2010.

Net financing costs decreased by $0.4 million in 2011, from $11.3 million in 2010 to $10.9 million in 2011. This is due to the repayment of matured bonds of $17 million in July 2011. Interest costs amounting to $13.1 million were capitalised to the capital projects in 2011, compared with $13.2 million for 2010.

The additional borrowings for 2011 include new bonds amounting to $5.5 million and a $20 million loan from a commercial bank. The Fiji Government provides a financial guarantee for all of FEA borrowings.

Electricity generated from the thermal power stations decreased significantly by 75GWh in 2011. This was due to the good rainfall received at the Monasavu dam and dampening of the electricity demand due to the implementation of the tarrif increase.

The total hydro generation increased from 414GWh in 2010 to 456GWh in 2011 largely due to the good rainfall received in Monasavu. The Wailoa hydro power station generated 425GWh in 2011, higher than the 383GWh that was recorded in 2010. Total quantity of IDO fuel burnt in 2011 was 53,238 tonnes and HFO fuel burnt was 17,648 tonnes, aggregating to 70,886 tonnes. In comparison, the total quantity of IDO fuel burnt in 2010 was 60,113 tonnes and HFO was 27,483 tonnes, aggregating to 87,596 tonnes. The decrease in the total thermal fuel burnt for 2011 was due to maximising hydro generation from Monasavu as a result of the good rainfall received in 2011.

The average price of IDO fuel was $2,079 per tonne in 2011 (against a budget price $1,900 per tonne) compared to $1,539 per tonne in 2010. The IDO price peaked at $2,235 per tonne in May 2011.The average price for HFO was $1,542 per tonne in 2011 (against a budget price $1,500 per tonne) compared with $1,244 per tonne in 2010.

2003 2004 2005 2006 2007 2008 2009 2010 2011

250

300

200

150

100

50

-

ELECTRICITY SALES REVENUE

F$ m

illion

90

80

70

60

50

40

30

20

10

-

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

TOTAL IDO AND HFO FUEL USAGE

Tonn

es (0

00)

2003 2004 2005 2006 2007 2008 2009 2010 2011

800

700

600

500

400

300

200

100

-

ELECTRICITY SALES VOLUME

GWH

Residential Commercial Industrial

IDO

Residential Commercial Industrial

HFO


Financial Strength

FEAs gearing ratio, as measured by Debt to Debt plus Capital and Reserves excluding cash-in-hand, was 41.3% as at 31st December 2011, well within the international benchmark for power utilities of about 45% despite incurring Capital Expenditure of $112 million in 2011.

The shareholder value of FEA was $472 million at the end of 2011 which increased from $414.7 million at the end of 2010 and $324.9 million at the end of 2002. FEAs total assets were worth $983 million, a substantial increase from $925.6 million in 2010 and $456.7 million in 2002. This shows that FEA has added significant shareholder value over the last nine years since the implementation of organisational reforms.

Capital Expenditure & Funding

FEA incurred a total of $112M on capital projects in 2011, compared with $84M in 2010. This is one of the highest ever in its history and was made possible through the good cash flows generated and borrowed funds. The Capex of $112M was made up of the Nadarivatu Hydro Project ($76M),

Network Augmentation Project ($5.5M), HFO Conversion Project at Vuda ($6.4M), purchase of 7x1.6MW Cummings Generator sets ($5.8M), Rural and Urban Reticulation works carried out in 2011 ($12M), Protection Upgrade works ($2M), replacement of motor vehicles ($2M) and other assets aquired in 2011 of $2M.

FEA has acquired the necessary funding essential to complete the Nadarivatu Hydro Project in 2012 and no more loans will be required to complete the project. All the debt covenants imposed by lenders were satisfactorily met in 2011. This is essential to ensure that Government being the sovereign guarantor of the FEA loans is not exposed.

FEA has a total debt portfolio of around $359M as at 31 December 2011. This has to be serviced and repaid over the next 15 years. Around $82M of the total debt is due in 2012, $35M in 2013 and $20M in 2014 in addition to a CAPEX plan of $60M annually for the period 2012 to 2014 as shown in the table below.

2012 2013 2014 $M $M $MDebt 37 35 20

CAPEX 60 60 60

Total Cash 97 95 80 As shown in the table above, FEAs financial perfomance over the next 3 years will be critical in determining how successfully it can fund the above committments. It will have to keep aside cash surpus of at least $80M a year and this means that FEA has to record good levels of profits to generate the necessary cash reserves required. It is envisaged that FEA has to make a profit after tax of at least $40M annually over the next 3 years to achieve the above plans. Therefore it is imperative that FEA adopt a business model that will achieve the desired profiability level to ensure that it remains financially sustainable.

In view of FEAs huge capital expenditure plan, the Ministry of Finance has approved the extension of the Government guarantee facility to the end of December 2012. The

Completed the Project Design Document (PDD) for the Nadarivatu Hydro Project to obtain carbon credit and the Clean Development Mechanism (CDM) validation process is in progress and is 95% complete. This process will be fully completed by Q-2 2012. Shown here is the newly constructed weir (dam) at Nadarivatu.

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Government guarantee was initially approved by Cabinet in October 2010 of an increase of $101M to cater for the funding requirements of FEA.

FEA obtained a new loan of $20M to fund the local component of the Nadarivatu Hydro Project. Further, it raised $5.5M in bonds to fund other smaller critical capital projects. It successfully negotiated with the Reserve Bank of Fiji to convert an existing foreign exchange loan of US$30M into a Fijian Dollar loan in 2011. This USD loan was fully converted into a FJD loan by December 2011 resulting in a realised foreign currency gain of around $1M. This conversion has eliminated any future foreign currency exposure attached to this loan.

FEAs Power Development Plan for 2010 to 2020 has identified some Generation, Transmission and Distribution Projects that have to be developed to meet the ever increasing demand of electricity which is growing rapidly over the years. The total investment required will be in excess of $1.5 Billion over the next 10 years. FEAs contribution is estimated to be around F$1.2 Billion with around $0.3 Billion coming from private investors interested in developing the power generation sector.

Internal Audit and Risk Management

The Board approved Internal Audit Charter governs the roles and responsibilities of the Internal Audit Department. The Internal Audit reports to the FEA Board through the Board Audit & Finance Sub-Committee. Internal Audit has greatly assisted the management in identifying opportunities to streamline existing processes and mitigating any deficiencies, thus creating a strong internal control environment.

The Authority has adopted a risk based internal audit which involves identifying, assessing and mitigating risks. In addition, recommendations made in the internal/external audit reports were implemented to improve the internal control processes. As a result of timely audits and investigations, a number of staff members were disciplined to reinforce values of the Authority.

Moreover, FEA continued its emphasis on the application and implementation of best practice risk management strategies across its business. An annual review of the FEAs Top Business Risks was undertaken which indicated that the risk levels for 16 out of the 21 Top Business risks improved by one level whereas 5 business risks have remained at the same level.

FEA also continued with the external Riscore Programme at its major critical sites namely Wailoa Power Station, Kinoya Power Station, Labasa Power Station, Vuda Power Station and the National Control Centre in its quest to manage the risks at these critical power facilities. All the five stations increased their Riscore scores where the improvement in scores for the five sites ranged from 8% to 10%.

In September 2011, FEA renewed its main insurance programme for another year after the insurers were satisfied with FEAs business operations, including the level of maintenance of the assets and the controls that are in place to minimize or mitigate the risks.

POWER DEVELOPMENT PROGRAMME

FEAs Power Generation Projects

The construction of the 40MW Nadarivatu Renewable Hydro Power Project is progressing well with overall completion of 90% by year end.

This would greatly assist FEA to move towards achieving its renewable energy target of 90% from renewable energy sources by 2015.

The Validation Process for carbon credits for the project under the Clean Development Mechanism (CDM) is 90% complete with the relevant processes completed and submission to the UNFCCC is envisaged in June 2012.

A full feasibility study for the Qaliwana Hydro Project has been completed and discussions with interested Independent Power Producers to develop this potential hydro project are ongoing. In addition, two further studies on the review of the Wailoa Downstream feasibility and the feasibility study of the Upper Navua River Hydro development are currently in progress with the final reports expected in June 2012.

The Wainisavulevu Weir Raising Project has commenced construction in December 2011. The project is expected to be completed in January 2014.

Augmentation of the Transmission Grid

The Qeleloa 33/11 kV Zone Substation was commissioned in April 2011, followed by commissioning of Komo Park Zone 33/11 kV Substation in May and Nausori Zone 33/11 kV Substation in July 2011.

An Environment Impact Assessment (EIA) study for the construction of 132kV Wailoa Nacocolevu transmission line was successfully completed in June 2011.

The electrical protection system on the two critical 132 kV transmission lines from Wailoa to Vuda in the Western region and from Wailoa to Cunningham in the Central region was upgraded to state of the art transmission line protection systems.

A Protection Review Study of the entire FEA power system was carried out to ensure safe and reliable system operation.

Review of the FEA Grid Code was undertaken to align the FEA Grid Code to international standards.

Transmission

The 132 kV Transmission Line Insulators were replaced on fifty-nine (59) transmission towers. Refurbishment works were completed on the 132kV circuit breakers at both ends of the Vuda Wailoa and the Wailoa Cunningham transmission lines.

The design of the dual circuit 33kV sub-transmission network from Vuda to Waqadra and single circuit from Vuda to Pineapple Corner in the Western Region was completed by the FEA in 2011.

33 kV Sub-transmission Development in the North

Design of a 33kV power line from Cawaira power station in Labasa to Dreketi and the Land acquisitions for the zone substations at Wailevu, Seaqaqa and Dreketi were completed in 2011. Orders were placed for the procurement of power poles, conductors and other line hardware by the end of the year.

On completion of the project, the power will be transmitted from Cawaira Power Station to Seaqaqa and Dreketi at 33kV. The 33kV sub-transmission voltage will be stepped down at Seaqaqa and Dreketi zone substations to 11kV and power will then be supplied to the customers via the 11kV/415V


FEA completed the $34M Major Network Augmentation Project with the full commissioning of the Nausori and Kinoya Zone sub-stations.


distribution network that already exists in Seaqaqa or will be constructed as part of this project in Dreketi.

The total estimated cost of the project is $14.3 Million and this cost is being equally shared between the Government and FEA. The Government paid $3.5 Million towards the project in 2011 with the remaining payment to be made in 2012.

Rural & Urban Projects

At the end of 2011, a total sum of $9,326,141 was authorized for rural, commercial/industrial, system reinforcement projects and contract works. Of this amount $6,076,803 was authorized for construction of thirty (31) rural electrification projects. $2,402,255 was authorized for construction of forty-six (46) commercial/industrial projects while $468,293 was authorized for nine (9) distribution system reinforcement schemes and $378,790 was utilized for six (6) contract jobs.

INFORMATION & COMMUNICAT

Documents

Annual Report 2011