Dubai Electricity and Water Authority Consolidated ... · financial position of Dubai Electricity and Water Authority (“DEWA” or the “Authority”) and its subsidiaries (together,

Dubai Electricity and Water Authority

Consolidated financial statements for the year ended 31 December 2017

Dubai Electricity and Water Authority Consolidated financial statements for the year ended 31 December 2017 Page(s) Independent auditor’s report 1 – 6 Consolidated balance sheet 7 Consolidated statement of comprehensive income 8 Consolidated statement of changes in equity 9 – 10 Consolidated statement of cash flows 11 Notes to the consolidated financial statements 12 – 71

PricewaterhouseCoopers (Dubai Branch), License no. 102451 Emaar Square, Building 4, Level 8, P O Box 11987, Dubai - United Arab Emirates T: +971 (0)4 304 3100, F: +971 (0)4 346 9150, www.pwc.com/me Douglas O’Mahony, Paul Suddaby, Jacques Fakhoury and Mohamed ElBorno are registered as practising auditors with the UAE Ministry of Economy

Independent auditor’s report to the owner of Dubai Electricity and Water Authority

Our opinion In our opinion, the consolidated financial statements present fairly, in all material respects the consolidated financial position of Dubai Electricity and Water Authority (“DEWA” or the “Authority”) and its subsidiaries (together, the “Group”) as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited

The Group’s consolidated financial statements comprise:

the consolidated balance sheet as at 31 December 2017;

the consolidated statement of comprehensive income for the year then ended;

the consolidated statement of changes in equity for the year then ended;

the consolidated statement of cash flows for the year then ended; and

the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the ethical requirements that are relevant to our audit of the consolidated financial statements in the United Arab Emirates. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.

Our audit approach

Context

The context of our audit is set by the Group’s major activities in 2017. The most significant event of the last twelve months has been the adoption of International Financial Reporting Standards as its accounting framework by the Group. This has therefore become a new key audit matter for our audit in 2017 given the number of significant management estimates and judgements required to apply IFRS and the broad range of financial statement line items that are impacted.

Our other key audit matters continue to reflect the fact that the operations of the Group were largely unchanged from the prior year, whilst noting that the Group continued to grow its customer base and revenues.

Overview

Key Audit Matters First-time adoption of International Financial Reporting Standards; and

Accrual of unbilled electricity and water revenue.

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Independent auditor’s report to the owner of Dubai Electricity and Water Authority (continued)

Our audit approach (continued)

Overview (continued)

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

First-time adoption of International Financial Reporting Standards

Until 31 December 2016, the Group prepared its consolidated financial statements in accordance with what it termed DEWA Generally Accepted Accounting Principles (“DEWA GAAP”). Management decided to transition to International Financial Reporting Standards (“IFRS”) with effect from 1 January 2017 and adopt IFRS as its financial reporting framework. Accordingly, the Group followed the provisions of IFRS 1, “First-time Adoption of IFRS”, in preparing its opening IFRS consolidated balance sheet as at 1 January 2016. Management performed an exercise to identify differences between DEWA GAAP and IFRS and noted that certain accounting policies used in DEWA GAAP differed from IFRS for preparation and presentation of the consolidated financial statements. The major areas of such differences were :

Componentisation and assessment of useful life of property, plant and equipment;

Accounting for capital spares; and

Accounting for income earned on assets transferred from customers.

The resulting adjustments were recognised directly through retained earnings as of 1 January 2016 except for certain instances where permitted exemptions as set out by IFRS 1 were availed by the Group.

We obtained and reviewed the accounting memoranda prepared by the Group’s management setting out their preliminary assessments of the likely significant changes in the Group’s accounting policies occasioned by the proposed adoption and application of IFRS for each of the affected financial statement line items. With the support of our internal financial reporting accounting transition specialists, we met with management regularly to discuss their findings and proposed decisions to test both compliance of their proposals with IFRS and to ensure completeness in management’s analysis. The Group’s accounting memoranda were refined as a result of these meetings. The resulting policies and their application were deemed compliant with IFRS. Our audit procedures also included the following :

Assessing the reasonableness of the methodology used by management in determining the impact on changes in accounting policies in compliance with IFRS; and

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Our audit approach (continued) Key audit matters (continued)


First-time adoption of International Financial Reporting Standards (continued)

We focused on this area because of the risk of material misstatement in the adoption and application of IFRS on the consolidated financial statements given the size and complexity of the Group and the judgements and estimates required of management in this regard. Management’s considerations and impact of adoption and application of IFRS are set out in the Note 5 to the consolidated financial statements.

Testing management’s quantification of the relevant adjustments arising from the adoption of IFRS for the opening consolidated balance sheet and comparative information, including agreeing, on a sample basis, information used in computing the relevant adjustments to the underlying accounting records for accuracy and completeness.

We also considered the enhanced disclosure requirements of IFRS in the Group’s consolidated financial statements, and tested these to ensure compliance.

Accrual of unbilled electricity and water revenue

The Group’s electricity and water revenues include estimates of the value of electricity and water supplied to customers between the date of the last monthly meter reading and the year-end (‘unbilled revenue’). The value of unbilled electricity and water revenue of AED 705 million (2016: AED 724 million) is included within revenue and trade receivables. The method of estimating such revenues is complex and judgemental and requires estimates and assumptions to: 1. Estimate the volumes of electricity and water consumed by customers between their last meter reading and the year end. Management’s accrual for unbilled revenue at the year-end is based on the expected consumption pattern of customers based on historical experience; and 2. Assess the value to be applied to those volume estimates given the range of tariffs operated by the Group. Management applies a price per unit (which is dependent on a number of factors including the customer category) to the estimate of volume of electricity and water to be accrued at year end to arrive at the total estimated value of electricity and water revenue between the date of the last meter reading and the year-end.

For unbilled revenue, our procedures included performing a recalculation using actual data to allow us to set expectations as to the likely level of unbilled revenue and then to compare this with the management’s estimate, obtaining explanations for significant differences. We also obtained and tested management’s underlying assumptions and base reference data relating to volume and price used in determining the level of unbilled revenue, as follows: Volume We agreed the core volume data underlying the calculation of the estimated unbilled volumes into sales and other systems having performed testing of the key controls on these systems. We compared and analysed the estimated volumes determined by management with benchmarks that management had also calculated using other internal information and sought explanations for variances from that benchmark.

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Our audit approach (continued) Key audit matters (continued)


Accrual of unbilled electricity and water revenue (continued)

We focused on this area because of the complexities and uncertainties involved in arriving at the unbilled revenue figure as described above and because of the potentially material impact on the consolidated financial statements if errors were made in this calculation or if the assumptions used in estimating consumption patterns had been incorrectly applied. The management’s considerations around this judgement are set out in the critical accounting judgements in note 4 to the consolidated financial statements.

Price We tested the assumptions of price per unit by comparing the price applied in the estimation model with current data for each customer category. Finally, we assessed the overall consistency of the calculated unbilled revenue compared to the prior period based on our knowledge of the trends and the process. We also considered the adequacy of the Group’s disclosures in the consolidated financial statements relating to this area.

Other information

Management is responsible for the other information. The other information comprises the Directors’ Report (but does not include the consolidated financial statements and our auditor’s report thereon).

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.

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Independent auditor’s report to the owner of Dubai Electricity and Water Authority (continued) Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually 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 ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient 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.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.


The notes on pages 12 to 71 form an integral part of these consolidated financial statements. 8

Consolidated statement of comprehensive income Year ended 31 December Note 2017 2016 AED’000 AED’000 Revenue 20 21,602,330 20,604,954 Cost of sales 21 (12,748,324) (12,263,587) Gross profit 8,854,006 8,341,367 Administrative expenses 22 (2,205,853) (1,972,789) Other income 122,495 189,698 Operating profit 6,770,648 6,558,276 Finance income 24 230,376 130,164 Finance costs 24 (338,860) (464,935) Finance costs – net 24 (108,484) (334,771) Share of profit from investments in joint ventures 7 378 139 Profit for the year 6,662,542 6,223,644 Other comprehensive income: Items that will not be reclassified to profit or loss Remeasurements of retirement benefit obligations 16.1 (27,025) 19,659 Items that may be reclassified to profit or loss Reclassification of fair value changes on cash flow

hedges 22,989 2,979 Cash flow hedges (137,092) (34,405) Other comprehensive loss for the year (141,128) (11,767) Total comprehensive income for the year 6,521,414 6,211,877 Profit for the year attributable to - Government of Dubai 6,428,332 6,039,289 - Non-controlling interests 234,210 184,355 6,662,542 6,223,644 Total comprehensive income for the year

attributable to - Government of Dubai 6,340,698 6,042,921 - Non-controlling interests 180,716 168,956 6,521,414 6,211,877



Consolidated statement of changes in equity Attributable to the owner

Government of Dubai account

General reserve

Statutory reserve

Hedging reserve

Retained earnings Total

Non-controlling

interests Total

equity AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000

At 1 January 2016 31,682,576

35,129,126 150,150 3,677 - 66,965,529 893,721

67,859,250 Profit for the year - - - 6,039,289 6,039,289 184,355 6,223,644 Other comprehensive

income for the year - - - (16,027) 19,659 3,632 (15,399) (11,767) Total comprehensive

income for the year - - - (16,027) 6,058,948 6,042,921 168,956 6,211,877 Transfer to general reserve - 4,436,165 44,907 - (4,481,072) - - Transactions with owner Non-cash distribution* (Note 14) - - - - (1,077,876) (1,077,876) - (1,077,876) Capital contribution by non-controlling interests - - - - - - 2,450 2,450 Capital contribution by

Government of Dubai – value of land (net) 2,733,994 - - - - 2,733,994 - 2,733,994

Dividend paid (Note 29) -

- - - (500,000) (500,000) (195,000) (695,000)

At 31 December 2016 34,416,570 39,565,291 195,057 (12,350) - 74,164,568 870,127

75,034,695 *The Group transfers an amount to the Government of Dubai account, as an appropriation of retained earnings, which is equivalent to the amount

owed by the Government of Dubai to the Group with amounts owed to third parties assumed by the Government of Dubai (Note 14).



Consolidated statement of changes in equity (continued)

Attributable to the owner


General reserve

Statutory reserve

Hedging reserve

Retained earnings Total

Non-controlling

interests Total

equity AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000

At 1 January 2017 34,416,570 39,565,291 195,057 (12,350) - 74,164,568 870,127

75,034,695 Profit for the year - - - - 6,428,332 6,428,332 234,210 6,662,542 Other comprehensive

income - - - (60,609) (27,025) (87,634)

(53,494) (141,128) Total comprehensive income for the year - - - (60,609) 6,401,307

6,340,698 180,716 6,521,414

Transfer to reserve - 4,510,881 55,569 (4,566,450) - - Transactions with owner Non-cash distribution*

(Note 14) - - - - (834,857) (834,857) - (834,857) Capital contribution by non-controlling interests - - - - - - 19,364 19,364 Capital contribution by

Government of Dubai – value of land (net) 3,103,706 - - - - 3,103,706 - 3,103,706

Dividend paid (Note 29) - - - - (1,000,000) (1,000,000) (17,140)

(1,017,140)

At 31 December 2017 37,520,276 44,076,172 250,626 (72,959) -

81,774,115 1,053,067

82,827,182

*The Group transfers an amount to the Government of Dubai account, as an appropriation of retained earnings, which is equivalent to the amount owed by the Government of Dubai to the Group with amounts owed to third parties assumed by the Government of Dubai (Note 14).



Consolidated statement of cash flows

Year ended 31 December Note 2017 2016

AED’000 AED’000 Net cash inflows from operating activities 12,537,879 11,480,508 Cash flows from investing activities Purchase of property, plant and equipment net of movements in trade payables and other long term liabilities (8,952,676) (5,708,904) Term deposits with original maturity of greater than three months (3,360,928) (4,872,582) Purchase of intangible assets (39,355) (16,774) Movement in held-to-maturity investments (100,368) - Proceeds from disposal of property, plant and equipment 831 6,116 Net cash outflow from investing activities (12,452,496) (10,592,114) Cash flows from financing activities Repayments of borrowings (397,478) (2,795,558) Proceeds from borrowings 2,242,781 1,172,576 Interest paid (627,213) (665,116) Interest received 125,499 86,100 Capital contribution from the non-controlling interest 2,000 2,450 Dividends paid to owner (1,000,000) (500,000) Dividends paid to non-controlling interests in

subsidiaries (17,140) (195,000) Net cash inflow / (outflow) from financing

activities 328,449 (2,894,548) Movement in regulatory deferral account credit balance 132,999 56,593 Net increase / (decrease) in cash and cash equivalents 546,831 (1,949,561) Cash and cash equivalents at the beginning of the

year 13 1,765,044 3,714,605 Cash and cash equivalents at the end of the year 13 2,311,875 1,765,044

Material non-cash transactions: - Transfer of land to the Group by the Land Department of the Government of Dubai recorded

through equity amounting to AED 3,104 million (2016: AED 2,734 million) (Note 8). - Conversion of borrowings into equity for a non-controlling interest in a subsidiary amounting

to AED 17 million (2016: Nil).

- During the year, non-cash distributions to the Government of Dubai amounted to AED 835 million (2016: AED 1,078 million).


Notes to the consolidated financial statements for the year ended 31 December 2017

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1 Establishment and operations Dubai Electricity and Water Authority (“DEWA” or the “Authority”) was incorporated on 1 January 1992 in the Emirate of Dubai by a Decree (the “Original Decree”) issued by H.H The Ruler of Dubai, effective 1 January 1992, as an independent public authority having the status of a body corporate, financially and administratively independent from the Government. In accordance with the Original Decree, all rights, property and assets of Dubai Electricity Company (the “DEC”) and Dubai Water Department (the “Department”) belonging to the Government, were vested in the Authority, and the Authority was held responsible for all liabilities and debts of the DEC and the Department, of any kind whatsoever. Together, the DEC and the Department formed DEWA from the effective date of the Original Decree. The Authority is wholly owned by the Government of Dubai. The principal activities of the Authority, in accordance with the Original Decree and Decree No. 13 of 1999 which amended some of the provisions of the Original Decree, comprise water desalination and distribution and the generation, transmission and distribution of electricity, throughout the Emirate of Dubai. The registered address of the Authority is P.O. Box 564, Dubai, United Arab Emirates (“UAE”). DEWA and its subsidiaries are collectively referred to as “the Group” The Group is domiciled in UAE and is not subject to income tax. The Group has either directly or indirectly the following subsidiaries domiciled in UAE:

Name of the entity

Percentage of beneficial

ownership % Principal business activities 2017 2016

Al Etihad Energy Services Company LLC

100 100 Implement energy efficiency measures in buildings.

Jumeriah Energy International Holdings LLC

100 100 Holding company

Jumeirah Energy International LLC


Mai Dubai LLC 100 100 Purification of potable water. Hassyan Energy 1 Holdings LLC


Shuaa Energy 2 Holdings LLC 100 100 Holding company Jumeirah Energy International Capital Holding LLC****

100 - Holding company

Jumeirah Energy International Silicon Valley LLC ***


Noor Energy 1 Holdings LLC*****



Notes to the consolidated financial statements for the year ended 31 December 2017 (continued)

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1 Establishment and operations (continued)

Name of the entity

Percentage of beneficial

ownership % Principal business activities 2017 2016 DEWA Sukuk 2013 Limited (DSL)

100 100 Investment company

Data Hub Integrated Solutions LLC**

100 - Established to provide services including IT, and infrastructure, networking and computer system housing services.

Utilities Management Company 85 85 Holding company Emirates Central Cooling Systems Corporation (EMPOWER)

70 70 Provision of district cooling services, management, maintenance of central cooling plants and related distribution networks.

Palm Utilities LLC 70 70 Establish and operate district cooling projects and provide air conditioning, ventilator and refrigeration services.

Palm District Cooling LLC 70 70 Establish and operate district cooling projects and provide air conditioning, ventilator and refrigeration services.

Empower Logstor LLC 67.9 67.9 Manufacturing of pre-insulated pipes, mainly for district cooling.

Shuaa Energy 2 P.S.C * 60 - Establish and provide full range of services for generation of electricity.

Innogy International Middle East LLC (formerly RWE Power International Middle East LLC)

51 51 Energy projects consultancy, desalination and sewage treatment plants operations and maintenance.

Shuaa Energy 1 P.S.C. 51 51 Establish and provide full range of services for generation of electricity.

Hassyan Energy Phase 1 P.S.C 51 51 Establish and provide full range of services for generation of electricity.

Istadama Carbon (L.L.C)******


* This entity was incorporated on 13 January 2017 ** This entity was incorporated on 10 January 2017 *** This entity was incorporated on 8 May 2017 **** This entity was incorporated on 17 October 2017 ***** This entity was incorporated on 17 October 2017 ****** The remaining balance of 57% is held by various parties. The Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity via management agreements and, accordingly, this entity is considered a subsidiary.



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2 Summary of significant accounting policies The principal accounting policies applied by the Group in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation These financial statements are the first annual consolidated financial statements of the Group which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS interpretations committee (IFRS IC) applicable to companies reporting under IFRS. Until 31 December 2016, the Group prepared its consolidated financial statements in accordance with the Group’s internationally acceptable accounting principles (“DEWA GAAP”). The Group applied the provisions of IFRS 1 “First-time Adoption of International Financial Reporting Standards” in preparing its opening consolidated balance sheet as of the date of transition, 1 January 2016. Refer to Note 5 for further information The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group’s financial statements are disclosed in Note 4. 2.2 Basis of measurement The financial statements have been prepared on a historical cost basis, except for derivative financial instruments which are measured at fair value. 2.3 New and amended standards not yet adopted by the Group Certain new accounting standards and interpretations as detailed below, have been published that are not mandatory for reporting periods beginning on and after 1 January 2017 and have not been early adopted by the Group. The Group intends to adopt these standards, if applicable, when they become effective. Management has carried out a detailed impact assessment exercise to assess the impact of new financial reporting requirements related to financial instruments and revenue recognition. Phase 1 of the exercise involved a qualitative diagnostic exercise to identify all the significant financial reporting areas impacted by the new standards. Phase 2 dealt with the quantification of the financial impact of these areas. This exercise was led by the Chief Financial Officer of the Group who reviewed and approved all of the key changes and revised accounting treatment recommended by the project team.



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2 Summary of significant accounting policies (continued) 2.3 New and amended standards not yet adopted by the Group (continued) (a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018); “IFRS 9 - Financial Instruments” (“IFRS 9”), addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The standard will be effective from 1 January 2018. The majority of the Group’s debt instruments that are currently classified as loans and receivables, comprising of trade and other receivables, term deposits and cash and cash equivalents, will satisfy the conditions for classification at amortised cost under IFRS 9 and hence there will be no change in the accounting for these assets. The other financial assets held by the Group include debt instruments currently classified as held-to-maturity and measured at amortised cost which meet the conditions for classification at amortised cost under IFRS 9. Accordingly, the Group does not expect the new standard to have a significant impact on the classification and measurement of its financial assets. There will be no impact on the Group’s accounting for financial liabilities as the requirements under IFRS 9 only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The derecognition rules of financial instruments has not changed under the new standard. The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. Based on assessments performed, that the Group’s current hedging relationships would qualify as continuing hedges upon the adoption of IFRS 9. Accordingly, the Group does not expect a significant impact on the accounting for its hedging relationships. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than incurred credit losses in accordance with the requirements of IAS 39. Based on impact assessments undertaken to date, the Group does not expect the impact to be more than 3% of the total trade receivables. 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 about its financial instruments particularly in the year of adoption of the new standard. IFRS 9 must be applied for financial years commencing on or after 1 January 2018. The Group will apply the new rules retrospectively from 1 January 2018, with the practical expedients permitted under the standard. Comparatives for the financial year ended 2017 will not be restated.



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2 Summary of significant accounting policies (continued) 2.3 New and amended standards not yet adopted by the Group (continued) (b) IFRS 15, ‘Revenue from Contracts with Customers’, (effective from 1 January 2018);

The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption. Management has assessed the impact of applying the new standard on the Group’s consolidated financial statements and has identified following areas that will be affected: - Accounting for free electricity and water supplied to staff – IFRS 15 requires the Group to recognise revenue against free units of water and electricity provided to staff. - Accounting for connection and reconnection fees – Connection and reconnection fees will have to be accounted for over the estimated useful life of the related property (for connection fees) and tenancy contracts (for reconnection fees). The total expected impact of the above mentioned areas is not expected to be more than 1% of the total revenues reported by the Group. The Group intends to adopt the standard using the modified retrospective approach which means that the cumulative impact of the adoption will be recognised in retained earnings as of 1 January 2018 and that comparatives will not be restated. (c) IFRS 16, ‘Leases’, (effective from 1 January 2019); The IASB has issued a new standard for the recognition of leases. This standard will replace: • IAS 17 - 'Leases' • IFRIC 4 - 'Whether an arrangement contains a lease' • SIC 15 - 'Operating leases - Incentives' • SIC-27 - 'Evaluating the substance of transactions involving the legal form of a lease' Under IAS 17, lessees are required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a 'right-of-use asset' for all lease contracts apart from an optional exemption for certain short-term or low value leases. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The mandatory date of adoption for the standard is 1 January 2019.



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2 Summary of significant accounting policies (continued) 2.3 New and amended standards not yet adopted by the Group (continued) (c) IFRS 16, ‘Leases’, (effective from 1 January 2019) (continued); The Group is in the process assessing the potential impact of the application of IFRS 16 on the amounts reported and disclosures made in these consolidated financial statements. There are no other new or amended standards that are not yet effective and that would be expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. 2.4 Basis of consolidation (a) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated balance sheet respectively. (b) Joint arrangements Investments in joint arrangements are classified as either joint operations or joint venture depending on the contractual rights and obligations of each investor rather than the legal structure of the joint arrangement. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures and joint operations. Joint ventures are accounted for using the equity method in these consolidated financial statements. Under the equity method of accounting, interest in a joint venture is initially recognised at cost and adjusted thereafter to recognise the Groups’s share of the post-acquisition profits or losses and movements in the consolidated statement of comprehensive income of the joint venture. Dividends received or receivable from joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.



18

2 Summary of significant accounting policies (continued) 2.4 Basis of consolidation (continued) (b) Joint arrangements (continued) The Group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in these consolidated financial statements under the appropriate headings. The financial statements of the joint ventures are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. Unrealised profits and losses resulting from transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. 2.5 Property, plant and equipment Property, plant and equipment, other than land and capital work in progress, are stated at historical cost less accumulated depreciation and any provisions for impairment. The initial cost of an asset comprises its purchase price or construction cost and any costs directly attributable to bringing the asset into operation. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. When parts of property, plant and equipment are significant in cost in comparison to the total cost of the item, and where such parts/components have a useful life different than other parts and are required to be replaced at different intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major overhaul is performed, the directly attributable cost of the overhaul is recognised in the carrying amount of the plant and equipment if the recognition criteria are satisfied. This is recorded as a separate component with a useful life generally equal to the time period up to the next scheduled major overhaul. Subsequent expenditure incurred to replace a component of an item of property, plant and equipment or to improve its operational performance, that is accounted for separately, is included in the asset’s carrying amount or recognised as a separate asset as appropriate when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced asset is subsequently derecognised.



19

2 Summary of significant accounting policies (continued) 2.5 Property, plant and equipment (continued) Expenditure on major inspection and overhauls of production plant is capitalised when it meets the asset recognition criteria and is depreciated over the period until the next major overhaul. All other repair and maintenance costs are charged to the consolidated statement of comprehensive income during the year in which they are incurred. Generation and desalination plants, supply lines and substation equipment are capitalised from the date these are available for use, after satisfactory completion of trial and reliability runs. Capital work in progress is stated at cost, less any impairment. When commissioned, capital work in progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with the Group’s policies. Land is stated at cost and is not depreciated. Depreciation on other assets is calculated using the straight line method at rates calculated to reduce the cost of assets to their estimated residual values over their estimated useful lives or in case of leased assets, the shorter term. The useful lives of property, plant and equipment are as follows: Years Buildings 10 to 30 Generation and desalination plants 10 to 38 Transmission and distribution networks 10 to 30 Other equipment and assets 2 to 20

The assets’ residual values and useful lives are reviewed, and adjusted, if appropriate, at each consolidated balance sheet date. The carrying amount of property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are included in the consolidated statement of comprehensive income and determined as the difference between the proceeds received and the asset’s carrying amount. Insurance spares acquired together with the plant or purchased subsequently but related to a particular plant and are; i) only expected to be used during emergency breakdown situations, ii) are critical to the plant operation and must be available at stand-by at all times, iii) are capitalised within property, plant and equipment and depreciated from purchase date over the remaining useful life of the plant in which it is to be utilised. These do not form part of inventory provided the capitalisation criteria for property, plant and equipment is met. Capital spares are spare parts that are regularly replaced, repaired or overhauled usually as part of a replacement programme and are; i) only expected to be used in connection with an item of property, plant and equipment; ii) expected to be used during more than one period. These are carried under capital work in progress until they are put to use.



20

2 Summary of significant accounting policies (continued) 2.6 Intangible assets

Intangible assets mainly include expenditure incurred on computer software by the Group. These are measured at cost upon initial recognition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is reflected in the consolidated statement of comprehensive income in the year in which the expenditure is incurred. The costs of acquired computer software are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised using the straight line method over their estimated useful lives (3 to 5 years). Costs directly associated with the development of computer software programmes that are expected to generate economic benefits over a period in excess of one year are also capitalised and amortised over their estimated useful lives. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. The residual values and useful lives of intangible assets are reviewed, and adjusted, if appropriate at each balance sheet date. Gains or losses arising from derecognising an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of comprehensive income when the asset is derecognised. 2.7 Leases Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. Upon determination that the arrangement contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. Operating leases Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight line basis over the period of the lease. 2.8 Inventories Inventories comprise consumables and repair spares, operating stock of fuel, pre-insulated pipes. Inventories are stated at the lower of cost and estimated net realisable value. Cost is determined using the weighted average method. Cost comprises of direct materials, and where applicable, direct labour and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less applicable selling expenses.



21

2 Summary of significant accounting policies (continued) 2.9 Borrowing costs Borrowing costs consists of interest and other costs that the Group incurs in connection with the borrowing of funds. General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. The Group has determined the substantial period to be greater than 1 year. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the year in which they are incurred. 2.10 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation/amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. In assessing the value-in-use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. The Group’s impairment calculation is based on detailed budgets and forecast calculations which are prepared separately for each of the Group’s cash-generating units (“CGU”) to which the individual asset is allocated. Impairment losses of continuing operations are recognised in the consolidated statement of comprehensive income in those expense categories consistent with the function of the impaired asset. 2.11 Financial instruments Financial assets and financial liabilities are recognised on the consolidated balance sheet when the Group becomes a party to the contractual provisions on the instrument.



22

2 Summary of significant accounting policies (continued) 2.12 Derivative financial instruments 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. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The 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). The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to the consolidated statement of comprehensive income within ‘other income’. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated statement of comprehensive income within ‘other income’. Amounts accumulated in equity are reclassified to profit or loss in the periods when the item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the ineffective portion is recognised in the consolidated statement of comprehensive income within ‘other income’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, contracts work-in-progress or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of contracts work in progress or in depreciation in the case of fixed assets. 2.13 Financial assets (a) Classification The Group classifies its financial assets in the following categories:

- loans and receivables; and - held-to-maturity investments.



23

2 Summary of significant accounting policies (continued) 2.13 Financial assets (continued) (a) Classification (continued) The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Group’s loans and receivables comprise of trade and other receivables (excluding prepayments and advance to suppliers (Note 2.14) and cash and bank balances (Note 2.15). Held-to-maturity assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has both the intention and ability to hold to maturity. Management determines the classification of investment securities held-to-maturity at their initial recognition and reassesses the appropriateness of that classification at the end of each reporting period. Loans and receivables and held-to-maturity financial assets are initially measured at fair value and carried at amortised cost less provision for impairment. The amortised cost is computed using the effective interest method. If collection of the amounts is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. (b) Recognition and derecognition At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Gains or losses arising from changes in the fair value are recognised for financial assets at fair value through profit or loss in profit or loss within other income or other expenses.

Regular purchases and sales of financial assets are recognised on trade-date, being the date on which the Group transfers substantial risks and rewards on the assets. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables and held-to-maturity investments are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.



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2 Summary of significant accounting policies (continued) 2.13 Financial assets (continued) (c) Impairment of financial assets 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 of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. As an objective evidence of impairment, the Group considers days past due for all customers. Corporate customers are further analysed based on the liquidity of their financial positions. Assets carried at amortised cost For loans and receivables and held-to-maturity investments, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in consolidated statement of comprehensive income. 2.14 Trade and other receivables Trade and other receivables comprise of trade receivables, due from related parties, advance to suppliers, prepayments, accrued revenue and others. Trade receivables are amounts due from customers for goods sold or services provided in the ordinary course of business. Trade receivables are recognised initially at fair value, which is the original invoice amount, and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. An estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. For significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical loss rates adjusted by the available security deposits.



25

2 Summary of significant accounting policies (continued) 2.14 Trade and other receivables (continued) The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the consolidated statement of comprehensive income within administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the consolidated statement of comprehensive income. 2.15 Cash and bank balances Cash and bank balances comprise of cash in hand, current and call accounts with the banks and other institutions and demand deposits held with banks. Term deposits with banks with remaining maturities greater than twelve months are disclosed as non-current assets. Bank overdrafts are shown within borrowings in current liabilities in the consolidated balance sheet. For the purposes of presentation in the statement of cash flows, cash and cash equivalents include cash in hand, deposits held at current and call accounts with banks, other short term highly liquid investments with original maturities of three months or less bank overdrafts. 2.16 Advance received for new connections and security deposits (a) Advances for new connections The Group receives amounts from customers for construction and installation of equipment. These amounts are classified as advances received for new connections until the construction or installation of the equipment is completed. On completion, these amounts are transferred from advances received for new connections to deferred revenue under liabilities. Management estimates the current portion of the advances for new connections based on historical experience and anticipated installations. The remaining amounts are classified as non-current liabilities. (b) Security deposits The Group receives security deposits against electricity and water connections from its customers. These deposits are refundable to the customers only at the time of disconnection. The Group classifies all amounts received as security deposits as current liabilities as these amounts are repayable to the customer on demand upon disconnection.



26

2 Summary of significant accounting policies (continued) 2.17 Deferred revenue Deferred revenue represents amounts received from customers upon completion of construction and installation of equipment. Deferred revenue is amortised and recognised in the consolidated statement of comprehensive income on a straight-line basis over the estimated useful life of the related equipment. 2.18 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires). 2.19 Employee benefits Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and accumulating leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current liability in the consolidated balance sheet. Post-employment obligations (a) Pension obligations for eligible UAE nationals The Group operates a defined benefit pension plan for eligible UAE nationals retired before 1 January 2003. The cost of providing pensions is charged to the consolidated statement of comprehensive income.



27

2 Summary of significant accounting policies (continued) 2.19 Employee benefits (continued) Post-employment obligations (continued) (a) Pension obligations for eligible UAE nationals (continued) Effective 1 January 2003, the Group joined the pension scheme operated by the Federal Pension General and Social Security Group which is a defined contribution plan. The Group’s contributions for eligible active UAE National employees are calculated as a percentage of the employees’ salaries and charged to the consolidated statement of comprehensive income, in accordance with the provisions of Federal Law No. 7 of 1999 relating to Pension and Social Security Law. The Group has no legal or constructive obligation to pay any further contributions. The Group operates a defined benefit pension plan for eligible expatriates in accordance with the Dubai Government Human Resource Management Law No.27 of 2006. The liability recognised in the consolidated balance sheet in respect of this defined benefit pension plan is the present value of the defined benefit obligation at the end of the reporting period. The defined benefit obligation is calculated annually by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used. The net interest cost is calculated by applying the discount rate to the balance of the defined benefit obligation. This cost is included in employee benefit expense in the consolidated statement of comprehensive income. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in retained earnings in the consolidated statement of changes in equity and in the consolidated balance sheet. 2.20 Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 to 60 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within twelve months after the reporting year. Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest rate method. Trade and other payables are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).



28

2 Summary of significant accounting policies (continued) 2.21 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, that has been reliably measured, and it is probable that an outflow of resources will be required to settle the obligation. Provisions are measured at the Group’s best estimate of the outflow of resources required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. 2.22 Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Group, on or before the end of the reporting period but not distributed at the end of the reporting period. Non-cash distributions are measured at the fair value of the assets to be distributed with fair value measurement recognised directly in equity. 2.23 Government of Dubai account Amounts contributed to the Authority by the Government of Dubai to finance the activities of the Authority are classified as equity. There is no contractual obligation for the Authority to pay these funds back to the Government of Dubai. Increases in the Government of Dubai account are generally additional contributions either monetary or non-monetary. Non-monetary contributions are measured at fair value. 2.24 General reserves General reserve represents surplus distributable profit of the Group. The transfer to general reserve is determined based on the profit for the year after deducting cash and non-cash distributions. 2.25 Statutory reserve As required by applicable law and articles of association of certain subsidiaries, 10% of the net profit for each period in those subsidiaries is transferred to a statutory reserve. Such transfers to reserves may cease when this reserve equals the issued capital. The reserve is not available for distribution except as stipulated by the law. 2.26 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable for services provided in the ordinary course of business, net of discounts and rebates. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates to recognise revenue on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.



29

2 Summary of significant accounting policies (continued) 2.26 Revenue recognition (continued) (a) Supply of electricity, water and district cooling services Revenue from the supply of electricity, water and district cooling services is recognised on the basis of electricity and water supplied and district cooling services provided during the period on an accruals basis with reference to the meter readings. A management estimate is included for the value of units supplied to customers between the date of their last meter reading and the accounting period end. The estimate is calculated using historical consumption patterns and is included in trade and other receivables as accrued revenue. (b) Meter rental Meter rental income is recognised on a time proportion basis over the period during which the meter is provided to the customer. (c) Interest income

Interest income is recognised on a time-proportion basis using the effective interest rate method. (d) Dividends Dividends are recognised as other income when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits. (e) Amortisation of deferred revenue Deferred revenue is amortised and recognised as income on a straight line basis over the estimate useful life of the related equipment. Refer Note 2.16 and 2.17. (f) Other services Revenue from other services is recognised in the accounting period in which the services are rendered. 2.27 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. For further detail, please refer to Note 6.



30

2 Summary of significant accounting policies (continued) 2.28 Foreign currency translations (a) Functional and presentation currency The Group’s consolidated financial statements are presented in UAE Dirhams (AED), which is also the Authority’s functional currency. Subsidiaries and joint ventures determine their own functional currency and items included in the financial statements of these companies are measured using that functional currency.

(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income.

2.29 Regulatory deferral account credit balance

Regulatory deferral account credit balance arises on account of amounts billed to and collected from customers as fuel surcharge in excess of amounts to be billed to customers. The Group has been allowed by the Supreme Council of Energy (the “regulator”) to bill the increase in fuel prices considering 2010 as the base year. This balance is initially measured and subsequently carried at an amount billed to the customer. The deferral account credit balance is deferred and adjusted against the next increase in tariff approved by the regulator. Regulatory deferral account credit balance is not described as a liability for the purposes of the Group’s consolidated financial statements and is disclosed as a separate line item in the consolidated balance sheet.

3 Financial risk management 3.1 Financial risk factors The Group’s activities potentially expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and fair value interest rate risk), credit risk and liquidity risk. These risks are evaluated by management on an ongoing basis to assess and manage critical exposures. The Group’s liquidity and market risks are managed as part of the Group’s treasury activities. Treasury operations are conducted within a framework of established policies and procedures.



31

3 Financial risk management (continued) 3.1 Financial risk factors (continued) The Board of the Directors have overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies 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 and systems are reviewed regularly to reflect changes in market conditions and products offered. The Group, through its management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Board of Directors review and agree policies for managing each of these risks which are summarised below.

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group’s treasury department monitors the foreign currency exposures on a regular basis.

The majority of the Group’s transactions are denominated is AED, or in currencies AED is pegged with. The Group has certain transactions in foreign currencies, mainly in Euros. However, the foreign currency exposure arising out of foreign currency denominated balances as at 31 December 2017 and 2016 are not material. (ii) Price risk

The Group has no exposure to equity securities price risk as the Group holds no such investments. The Group is not exposed to commodity price risk as inventory held for resale is insignificant. (iii) Cash flow and fair value interest rate risk

The Group’s interest rate risk arises from long term borrowings. The Group is exposed to cash flow interest rate risk on its variable rate borrowings. The Group is not exposed to the fair value interest rate risk as fixed rate borrowings of the Group are carried at amortised cost in these consolidated financial statements.

The variable rate borrowings of the Group are based on LIBOR and EIBOR. The Group has entered into interest rate swaps to mitigate the risk of variable rate borrowings (refer Note 28). The table below shows the exposure of Group’s variable and fixed rate borrowings: 2017 2016 AED’000 AED’000 Variable rate borrowings 3,777,825 2,341,104 Fixed rate borrowings 9,469,516 9,115,421 13,247,341 11,456,525



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3 Financial risk management (continued) 3.1 Financial risk factors (b) Credit risk

Credit risk represents the loss that would be recognised if customers or counter parties fail to perform as contracted. The billing and collection department monitors credit risk for trade receivables by obtaining security deposits as collateral from customers, other than government entities on initial connection.

Other receivables are monitored on a regular basis by the finance department to identify any impairment. Trade and other receivables

The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the consolidated balance sheet are net of provision for impairment of receivables.

The Group has a wide customer base in the Emirate of Dubai and services commercial, industrial and governmental organisations as well as residential customers including UAE nationals and expatriates. Out of the total trade receivables of AED 3,702 million (2016: AED 3,654 million), an amount of AED 1,884 million (2016: AED 1,931 million) is due from customers other than government entities and is considered subject to credit risk. Carrying amount of trade and other receivables best represent the maximum exposure to credit risk at the end of each reporting period presented.

The Group taking into consideration the exposure to the customer, when appropriate, manages credit risk by requesting additional deposits, and implementing payment plans for customers in arrears.

Due to large and diversified customer base, concentration of credit risk on few customers is limited.

Other financial assets

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and bank balances, held-to-maturity investments and other receivables, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.

The Group limits its credit risks with regard to bank deposits by dealing only with reputable banks.

Held-to-maturity investments include investments in UAE National bonds which are unrated.

Balances due from related parties and other receivables are held with reputed counter parties which management do not expect any loss from their non-performance. Where non-performance is identified a provision is made.



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3 Financial risk management (continued) 3.1 Financial risk factors (continued) Other financial assets (continued) Cash and bank balances including term deposits are held with banks, financial institutions and other government agencies having credit rating as detailed below: As determined by Moody’s 2017 2016 AED’000 AED’000 Above A 7,822,613 4,456,343 Below A 1,501,017 2,029,237 Unrated (including cash in hand) 1,932,169 874,554 11,255,799 7,360,134

All other financial assets are unrated. (c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents, deemed adequate by management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The Group monitors its risk of shortage of funds using cash flow budgeting in which it considers both the cash outflows as well as their sources of funding. Summarised below is the maturity profile of financial liabilities based on the remaining years at the end of the reporting year to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows representing principal amounts.



34

3 Financial risk management (continued) 3.1 Financial risk factors (continued) (c) Liquidity risk (continued)

Less than 1 year

AED’000

1 to 2 years

AED’000

Over 2 years

AED’000 Total

AED’000

Carrying amount

AED’000 31 December 2017 Borrowings* 4,963,246 750,411 8,127,084 13,840,741 13,247,341 Trade and other

payables** 9,144,634 - 4,126 9,148,760 9,156,949 Other long term

liabilities ** - 154,784 309,569 464,353 441,432 14,107,880 905,195 8,440,779 23,453,854 22,837,533

31 December 2016 Borrowings* 790,699 4,183,850 6,635,152 11,609,701 11,456,525 Trade and other


liabilities ** - 101,487 281,424 382,911 359,874 9,698,704 4,285,337 7,011,186 20,995,227 20,819,014 1 January 2016 Borrowings* 3,219,229 516,516 10,614,281 14,350,026 13,064,638 Trade and other


liabilities ** - 94,259 271,777 366,036 355,036 10,492,611 610,775 10,948,497 22,051,883 20,755,495

* These do not include deferred borrowing costs. ** These do not include advances for new connections, retirement benefits obligations and deferred revenue as these are non-financial liabilities. 3.2 Capital risk management The Group monitors and responds pragmatically to market conditions and business developments both locally and internationally, and ensures adequate funds are available to meet the needs of its businesses and support sound value enhancement objectives. The Group’s strategic focus is the active management of the business portfolio in order to deal with its debt service obligations and to enhance the value of the owner’s equity.



35

3 Financial risk management (continued) 3.3 Fair value estimation All financial assets and liabilities, are initially measured at cost, which is the fair value of the consideration given and received respectively. These financial assets and liabilities are subsequently measured at amortised cost. The carrying value of financial assets and financial liabilities approximates their fair value except derivatives which are the only financial instruments which are carried at fair value and fall into level 2 of the fair value hierarchy (Note 28). To provide an indication about the reliability of the inputs used in determining fair value disclosed in these financial statements, the Group has classified its financial instruments into three levels described below: a. Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); b. 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 2); and c. Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). 4 Critical accounting estimates and judgements The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of asset or liability affected in future periods. 4.1 Critical accounting estimates

Revenue recognition – unread electricity, water and district cooling meters

Revenue for electricity, water supply and cooling services includes an assessment of electricity, water and cooling services supplied to customers between the date of the last meter reading and the year end (unread). Unread electricity, water and cooling services supplied is estimated by using historical consumption patterns of respective customer categories. Management applies judgement to the measurement of the estimated electricity, water and cooling units supplied to customers and the valuation such units consumed. The application of a 5% increase to management estimate of total units for all customer categories, in isolation would result in the revenue and profit increasing by AED 35 million (2016: AED 37 million). The application of a 5% decrease to management estimate of total units for all customer categories, in isolation would result in the revenue and profit decreasing by AED 35 million (2016: AED 37 million).



36

4 Critical accounting estimates and judgements (continued) 4.2 Critical accounting judgements Component parts of property, plant and equipment The Group’s assets, classified within property, plant and equipment, are depreciated on a straight-line basis over their useful lives. When determining the useful life of an asset, it is broken down into significant component parts such that each significant component part is depreciated separately. Judgement is required in ascertaining the significant components of a larger asset, and while defining the significance of a component, management considers quantitative materiality of the component part as well as qualitative factors such as difference in useful life as compared to related asset, its pattern of consumption and its replacement cycle/maintenance schedule. Useful life and residual values of property, plant and equipment The Group determines the estimated useful lives and residual values of its property, plant and equipment. This review is performed by engineers of various divisions of different entities with reference to the estimated period over which the assets are expected to be available for use. The estimated useful lives and residual values of property, plant and equipment are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and tear and technical or commercial obsolescence on the use of these assets. Determination of control over certain subsidiaries The Group has entered into various agreements to establish Shuaa Energy 1 P.S.C, Hassyan Energy Phase 1 P.S.C and Shuaa Energy 2 P.S.C for construction and generation of electricity from renewable and non-renewable sources. To determine control over these entities, the Group considers the purpose and design of these entities along with the fact that whether it has the power to govern the financial and operational strategy of the respective entity and whether a significant portion of the entity's activities are carried on the behalf of the Group. Management has therefore concluded that the relevant activities of these entities are pre-determined and directed via contractual arrangements in the normal course of business and consequently has consolidated the results of these entities in these financial statements. The Group will continue to evaluate these circumstances at each balance sheet date to determine whether this judgement continues to be valid. If the Group determines that it no longer has control over any of these entities, it will be de-consolidate the entities and account for these entities using the equity method from the date that control is deemed to cease.



37

5 First time adoption of IFRS For all years up to and including the year ended 31 December 2016, the Group prepared its consolidated financial statements in accordance with the Group’s internationally acceptable accounting principles (‘DEWA GAAP’). As noted in note 2.1, these consolidated financial statements are the Group’s first consolidated financial statements prepared in accordance with IFRS. Accordingly, the Group has adopted IFRS for the preparation of its consolidated financial statements for the year beginning 1 January 2017, as well as for presenting the relevant comparative year data. In compliance with requirements of IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’, the Group’s opening consolidated balance sheet was prepared as at 1 January 2016 after incorporating required adjustments to reflect the transition to IFRS from the previous DEWA GAAP. Certain optional exemptions and mandatory exceptions have been availed by the Group in preparing these consolidated financial statements in accordance with IFRS 1 from full retrospective application of IFRS as follows:

- The Group has elected to take the exemption available in IFRS 1 and has not applied the requirements of IFRS 3 ‘Business Combinations’ retrospectively, to past business combinations;

- The Group has applied the requirements of IAS 23 ‘Borrowing costs’ for capitalisation of borrowing costs prospectively from the date of transition to IFRS. Borrowing costs incurred before the adoption date have not been capitalised into the carrying amounts of qualifying assets;

- The Group has elected to apply IFRS 14 ‘Regulatory deferral accounts’ and will continue to apply its previous GAAP accounting policies for the recognition and measurement of regulatory deferral accounts on first-time adoption; and

- The Group has applied IFRIC 18 ‘Transfers of Assets from Customers’ prospectively from the date of transition to IFRS.

- The Group has applied Hedge accounting effective of 1 January 2016 only if the hedge relationship meets all the hedge accounting criteria under IAS 39.



38

5 First time adoption of IFRS (continued) The Authority has analysed the impact of transition from DEWA GAAP to IFRS on its equity at 1 January 2016 and 31 December 2016, on its statement of comprehensive income for the year ended 31 December 2016 and its on cash flows which is summarised below:

Reconciliation of equity as at 31 December 2016

Note


General reserve

Hedging reserve

Statutory reserve

Retained earnings

Non-controlling

interests

Total AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 Balance as per DEWA GAAP 34,416,570 38,114,500 (12,350) 195,057 - 870,127 75,583,904

IFRS adoption adjustments

- Impact due to componentisation of property, plant and equipment and change in useful life

A

- - -

- 1,113,527

-

1,113,527

- Provision for impairment of trade receivables

B - - -

- (74,274)

-

(74,274)

- Capitalisation of borrowing costs

C - - -

- 194,244

-

194,244

- Reversal of depreciation on capital spares

D - - -

- 459,068

-

459,068

- Deferral of income on assets transferred from customers

E - - -

- (434,979)

-

(434,979)

- Others, net F - - - - 193,205 - 193,205

Total adjustment to equity - - - - 1,450,791 - 1,450,791

Transfer to general reserve - 1,450,791 - - (1,450,791) - -

Balance as per IFRS 34,416,570 39,565,291 (12,350) 195,057 - 870,127 75,034,695



39

5 First time adoption of IFRS (continued) Reconciliation of equity as at 1 January 2016

Note


General reserve

Statutory

reserve

Hedging reserve

Retained earnings

Non-controlling

interests Total AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 Balance as per DEWA GAAP

31,682,576 33,321,766

150,150

- - 890,188 66,044,680 IFRS adoption adjustments

- Impact due to

componentisation of property, plant and equipment and change in useful life

A

- -

-

- 1,217,843 - 1,217,843 - Provision for impairment

of trade receivables B

- -

-

- (71,818) - (71,818) - Reversal of depreciation

on capital spares D

- -

-

- 466,699 - 466,699 - Others, net F - - - 3,677 194,636 3,533 201,846 Total adjustment to equity - - - - 1,807,360 - 1,814,570 Transfer to general reserve - 1,807,360 - 3,677 (1,807,360) 3,533 - Balance as per IFRS 31,682,576 35,129,126 150,150 3,677 - 893,721 67,859,250



40

5 First time adoption of IFRS (continued) Reconciliation of total comprehensive income:

Note For the year ended 31

December 2016 AED’ 000 Total comprehensive income under DEWA GAAP 6,580,213 IFRS adoption adjustments - Componentisation of property, plant and equipment A (104,316) - Provision for impairment of trade receivables B (2,456) - Capitalisation of borrowing costs C 194,244 - Reversal of depreciation on capital spares D (7,631) - Deferral of income on assets transferred from

customers E

(434,979) - Others, net F (1,431) Total adjustment to consolidated income statement (356,569) Net income under IFRS 6,223,644 Other comprehensive income under IFRS

- Cash flow hedges (31,426) - Remeasurements of retirement benefit

obligations 19,659 Total comprehensive income under IFRS 6,211,877

The impact of adoption of IFRS on the cash flow statement is detailed below: Year ended 31 December 2016

Balance as per DEWA GAAP

Balance as per IFRS Difference

Net cash generated from operating activities 11,502,362 11,480,538 (21,824) Net cash used in investing activities (10,468,825) (10,503,594) (34,769) Net cash used in financing activities (2,983,098) (2,983,098) - Movement in regulatory deferral credit balance - 56,593 56,593

Total (1,949,561) (1,949,561) -



41

5 First time adoption of IFRS (continued) Notes to the reconciliation of equity as at 31 December 2016 and 1 January 2016 and total comprehensive income for the year ended 31 December 2016 are given below: A. Componentisation of property, plant and equipment Under IFRS, individually significant components of property, plant and equipment should be determined and their useful lives should be identified separately. As part of the adoption of IFRS, the Group has applied this policy of assets componentisation and accounted for its impact on the useful lives, which resulted in a positive impact on retained earnings and an increase in the net book value of property, plant and equipment as at 1 January 2016. There was an increase in the depreciation expense for the year ended 31 December 2016 as certain assets were fully depreciated before the adoption date but their useful lives were extended which resulted in a higher depreciation charge arising in 2016. B. Provision for impairment of trade receivables The Group has a large portfolio of trade receivables from residential and commercial customers. IAS 39 requires the Group to estimate the amount of impaired assets within this portfolio where the default has happened but has not been reported. The management has developed a detailed collective impairment model which analyses the ageing of the trade receivables portfolio to identify average historical loss rates applicable to each ageing bucket and a provision for impairment has been calculated based on these loss rates. C. Capitalisation of borrowing costs DEWA GAAP did not require capitalisation of borrowing costs related to general borrowings in the carrying amounts of qualifying assets. The Group has elected to take the exemption available to it under IFRS 1 for capitalisation of borrowing costs in the carrying amounts of its property, plant and equipment and has only capitalised borrowing costs incurred on general borrowings after the transition date. D. Reversal of depreciation on capital spares Under DEWA GAAP, certain capital spares was being depreciated from the date of their purchase instead of date these spares are put to use. The accumulated depreciation recorded for these capital spares has been reversed at the transition date and for the year ended 31 December 2016. Future depreciation will be charged on these items when they are commissioned and ready for use (refer Note 2.5).



42

5 First time adoption of IFRS (continued) E. Deferral of income on assets transferred from customers Under DEWA GAAP, a margin was recognised as other income for assets constructed by the Group for customers. IFRIC 18 requires the Group to defer the amount received from the customer as deferred revenue and amortise it over the useful life of the asset constructed. IFRS 1 allows this requirement to be applied prospectively as mentioned in the exemptions listed above. Accordingly, the Group has reversed any margin recognised for such transactions for the year ended 31 December 2016 and transferred this amount to deferred revenue. A portion of the deferred revenue has been released to the consolidated statement of comprehensive income for the year ended 31 December 2016 based on the useful life of the related assets. F. Others Other IFRS adoption adjustments include fair valuation adjustments for long term trade receivables, adjustments relating to the application of hedge accounting and impairment of other receivables. The impact of IFRS adoption adjustments in other areas is considered immaterial. In addition to the above IFRS adoption adjustments, certain items in the consolidated balance sheet and consolidated statement of comprehensive income have been reclassified to meet the presentation and disclosure requirements in accordance with IFRS, which have not resulted in any additional impact on equity or net income for comparative figures. 6 Segment information The chief operating and strategic decision-makers have been identified as the Board of Directors of the Group that make all the strategic decisions related to Group’s activities. The Board reviews the Group’s internal reporting in order to assess the performance and allocate its resources based on which the operating segments have been determined. For the Board of Directors, the Group is currently organised into three major operating segments. Electricity – The Group is engaged in the generation, transmission and distribution of electricity to residential, commercial, industrial and government customers in the Emirate of Dubai. Water – The Group is engaged in the de-salination, transmission and distribution of water to residential, commercial, industrial and government related customers in the Emirate of Dubai.



43

6 Segment information (continued) Central cooling services – The Group is engaged in the provision of district cooling, maintenance of central cooling plants and manufacturing and sale of insulated pipes. All of the Group’s revenues, profits and assets relate to its operations in Dubai. The Group has no operations outside of the Emirate of Dubai. Income from sources other than the above operating segments is included under “Others” segment which is in line with the reports provided to the Board of Directors. The Board of Directors assesses the performance of the operating segments based on the net results. Segment revenue, expense and results include transfers between operating segments which are eliminated on consolidation.



44

6 Segment information (continued)

Year ended 31 December 2017

Electricity AED’000

Water AED’000

District cooling

AED’000 Others

AED’000

Eliminations/adjustments

AED’000

Consolidated

AED’000 Segment sales: Sales to external customers 14,770,987 4,443,006 1,959,082 1,286,770 (857,515) 21,602,330

Year ended 31 December 2016


Water AED’000

District cooling

AED’000 Others

AED’000

Eliminations/ adjustments

AED’000

Consolidated

AED’000 Segment sales: Sales to external customers 14,154,037 4,336,476 1,846,175 978,334 (710,068) 20,604,954



45

6 Segment information (continued) Segment assets At 31 December 2017


Water AED’000

District cooling

AED’000 Others

AED’000


AED’000 Total

AED’000

Property, plant and

equipment 47,101,229 13,299,504 5,232,670 30,096,513 - 95,729,916 Trade receivables 2,814,376 915,988 76,360 79,348 (183,185) 3,702,887 Capital expenditure 3,931,303 936,194 639,346 3,268,637 - 8,775,480

At 31 December 2016


Water AED’000

District cooling

AED’000 Others

AED’000


AED’000 Total

AED’000 Property, plant and

equipment 45,555,529 13,538,108 4,826,477 26,797,427

- 90,717,541 Trade receivables 2,742,466 808,485 154,471 73,141 (132,784) 3,645,779 Capital expenditure 4,428,700 540,343 588,740 3,248,400 - 8,806,183



46

6 Segment information (continued) At 1 January 2016


Water AED’000

District cooling

AED’000 Others

AED’000


AED’000 Total

AED’000

Property, plant and

equipment 43,539,373 13,922,161 4,453,372 23,503,943 - 85,418,849 Trade receivables 2,575,160 793,840 193,413 30,199 (124,662) 3,467,950 Capital expenditure 3,168,596 867,187 178,954 1,057,192 - 5,271,929

The profits of the Group are reported to the CODM for the Group as a whole. The various expenses which are included in the measurement of profit for the Group are disclosed in the respective notes to the consolidated financial statements.



47

7 Interests in other entities 7.1 Material subsidiaries The summarised financial information for EMPOWER group, a subsidiary with a material non-controlling interest before inter-company eliminations is as follows: 2017 2016 Non-controlling interests (EMPOWER group) 30% 30%

Summarised balance sheet 31 December 1 January 2017 2016 2016 AED’000 AED’000 AED ‘000 Non-current Assets 5,477,554 5,302,793 5,059,159 Liabilities (902,861) (1,351,592)

(1,730,284) 4,574,693 3,951,201 3,328,875 Current Assets 786,991 527,293 855,568 Liabilities (1,861,419) (1,799,882) (1,467,133) (1,074,428) (1,272,589) (611,565)

Summarised statement of comprehensive income Year ended 31 December 2017 2016 AED’000 AED’000 Revenue 1,959,114 1,845,859 Profit for the period 770,791 631,303 Total comprehensive income 770,791 631,303 Total comprehensive income allocated to non-controlling interests 229,701 185,078

Dividends paid to non-controlling interests 15,000 195,000



48

7 Interests in other entities (continued) 7.1 Material subsidiaries (continued) Summarised cash flows Year ended 31 December 2017 2016 AED’000 AED’000 Net cash generated from operations 1,069,413 974,453 Net cash generated (used in) / from investing activities (372,597) 44,582 Net cash used in financing activities (421,426) (869,024) Net increase in cash and cash equivalents 275,390 150,011 Cash and cash equivalents, as at 1 January 261,573 111,562 Cash and cash equivalents, as at 31 December 536,963 261,573

7.2 Joint ventures The following table outlines the Group’s investments in joint ventures. All joint ventures are accounted for under equity method of accounting and are immaterial to the Group individually. Movement of investments in joint ventures

2017 2016 AED’000 AED’000 At the beginning of the year 12,234 12,095 Share of profit from joint ventures 378 139 At the end of the year 12,612 12,234

During the year, the Group recognised its share of profit from joint ventures amounting to AED 378 thousand (2016: AED 139 thousand).

No investments in joint ventures were impaired during 2017 and 2016.



49

7 Interests in other entities (continued) 7.2 Joint ventures (continued) The entities listed below have share capital solely consisting of ordinary shares, which are held directly by the Group. The Group has either directly or indirectly the following joint ventures:

Name of the entity Country of

incorporation Effective % of

holding Carrying value

2017 2016 2017 2016 % % AED’000 AED’000 Dubai Carbon Centre of Excellence UAE

35.84 35.84 1,084 1,123

Ducab HV Cable Systems UAE

25 25 11,528 11,111



50

8 Property, plant and equipment

Land and buildings

Generation and desalination plants

Transmission and distribution

networks Other equipment

and assets Capital work

in progress Total AED’000 AED’000 AED’000 AED’000 AED’000 AED’000

Year ended 31 December 2017 Opening net book amount 30,472,908 23,556,053 36,328,653 359,905 12,536,218 103,253,737 Additions 3,103,706 241,534 449,341 61,112 8,316,052 12,171,745 Reversal of impairment - 53,529 - - - 53,529 Transfers 448,037 1,713,306 2,600,602 85,106 (4,847,051) - Transfers to intangible assets (Note 9) - - - - - (19,760) (19,760) Disposals, net - (78,497) (3,455) (1,412) - (83,364) Depreciation charge (227,217) (1,599,862) (1,705,176) (146,911) - (3,679,166) Closing net book amount 33,797,434 23,886,063 37,669,965 357,800 15,985,459 111,696,721 At 31 December 2017 Cost or valuation 36,513,418 39,138,039 53,881,256 1,841,738 15,985,459 147,359,910 Accumulated depreciation (2,715,984) (15,251,976) (16,211,291) (1,483,938) - (35,663,189) Net book amount 33,797,434 23,886,063 37,669,965 357,800 15,985,459 111,696,721

Year ended 31 December 2016 Opening net book amount 26,880,920 23,865,417 34,398,009 274,141 10,168,184 95,586,671 Additions 2,737,484 14,740 1,306,882 69,655 7,055,614 11,184,375 Transfers 1,187,322 1,036,728 2,257,782 195,573 (4,677,405) - Transfers to intangible assets (Note 9) - - - - (10,178) (10,178) Disposals, net - - (5,664) (66) - (5,730) Depreciation charge (332,818) (1,360,832) (1,628,356) (179,398) - (3,501,404) Closing net book amount 30,472,908 23,556,053 36,328,653 359,905 12,536,218 103,253,737 At 31 December 2016 Cost or valuation 32,962,254 38,827,626 50,835,542 1,741,122 12,536,218 136,902,762 Accumulated depreciation (2,489,346) (15,271,573) (14,506,889) (1,381,217) - (33,649,025) Net book amount 30,472,908 22,556,053 36,328,653 359,905 12,536,218 103,253,737

Dubai Electricity and Water Authority Notes to the consolidated financial statements for the year ended 31 December 2017 (continued)

51

8 Property, plant and equipment (continued) (a) The Group has engaged in a joint operation pertaining to the Emirates National Grid

Corporation (“ENGC”). The Group’s share in the carrying amount of ENGC’s assets as at 31 December 2017 is AED 147 million (2016: AED 155 million) and is included under transmission and distribution networks.

(b) During 2008, by way of a Decree issued by H.H. The Ruler of Dubai, all existing land held by the Authority was transferred to the Authority. As a result, the Authority has capitalised this land on the basis of valuations obtained from the Land Department of Dubai which has been treated as a capital contribution by the Government of Dubai.

(c) The carrying value of property, plant and equipment, pledged as collateral on borrowings, amounts to AED 6,655 million (2016: AED 4,711 million) (Note 15).

(d) Capital work in progress mainly comprises construction of additional electricity generation, water desalination facilities, intangible assets, distribution networks and district cooling facilities.

(e) The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to general borrowings during the year which amounts to 5.72% (2016: 5.82%) for the Authority. The amount capitalised using this weighted average interest rate is AED 336 million (2016: AED 206 million). The amount of interest capitalised for specific borrowings is AED 74 million (2016 : AED 13 million).

(f) During the year, the Group received land from the Land Department of the Government of Dubai amounting to AED 3,104 million (2016: AED 2,734 million).

(g) Depreciation is allocated as detailed below:

2017 2016 AED’000 AED’000 Cost of sales

- Generation and desalination expenditure 1,684,584 1,576,171 - Transmission and distribution expenditure 1,864,142 1,784,941

Administrative expenses 130,440 140,292 3,679,166 3,501,404


52

9 Intangible assets

Computer software

AED’000

Year ended 31 December 2017 Opening net book amount 48,675 Additions 39,355 Transfer from property, plant and equipment (Note 8) 19,760 Amortisation (Note 22) (28,033) Closing net book amount 79,757

At 31 December 2017 Cost 191,207 Accumulated amortisation (111,450) Net book amount 79,757

Year ended 31 December 2016 Opening net book amount 41,291 Additions 16,774 Transfer from property, plant and equipment (Note 8) 10,178 Amortisation (Note 22) (19,568) Closing net book amount 48,675 At 31 December 2016 Cost 132,091 Accumulated amortisation (83,416) Net book amount 48,675

Amortisation expense of AED 28 million (2016: AED 20 million) is included in administrative expenses (Note 22).


53

10 Trade and other receivables At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED ‘000 Trade receivables 3,702,887 3,654,779 3,467,950 Accrued revenue 721,667 738,234 721,769 Less: provision for impairment of

receivables (174,557) (184,833) (186,121) Trade receivables and accrued

revenue – net 4,249,997 4,208,100 4,003,598 Advance to suppliers 1,320,226 1,086,015 1,121,225 Prepayments 64,430 27,592 29,436 Other receivables and advances 839,312 594,494 554,662 Less: provision for impairment (47,913) (47,913)

(47,913) 6,426,052 5,868,288 5,661,008 Less: non-current portion (2,274,304)

(1,777,688) (1,620,940)

Current portion 4,151,748 4,090,600 4,040,068 As at 31 December 2017, trade receivables of AED 866 million (2016 AED 949 million) were fully performing. Trade receivables of AED 2,744 million (2016: AED 2,587 million) were past due but not impaired. These balances relate to a number of customers. Trade receivables amounting to AED 93 million (2016: AED 110 million) were past due and impaired. The ageing analysis of trade receivables along with the respective provision for impairment is as follows: At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Fully performing – up to 30 days 865,926 948,628 910,101 Past due but not impaired Past due - 1 to 6 months 1,220,596 1,233,843 1,221,309 Past due - 6 to 12 months 732,774 700,833 668,472 Past due - above 12 months 790,641 652,366 553,765 Past due and impaired Impaired receivables more than 12 months 92,950 110,109

114,303

3,702,887 3,645,779 3,467,950

As at 31 December 2017, other receivables amounting to AED 791 million (2016: AED 555 million) are not impaired. Other receivables amounting to AED 48 million (2016: AED 48 million) are impaired and fully provided for.


54

10 Trade and other receivables (continued) Impairment of trade receivables: The movement in the provision for impairment of trade receivables is as follows: 2017 2016 AED’000 AED’000 At 1 January 184,833 186,121 Reversal for the year (Note 22) (10,276) (1,288) At 31 December 174,557 184,833 Less: specific provision (92,950) (110,109) Collective provision 81,607 74,724

Impairment of other receivables: The provision for other receivables amounted to AED 48 million (2016: AED 48 million). The carrying amount of the Group’s trade and other receivables is primarily denominated in AED and approximates its fair value. The Group supplies electricity and water to a diversified customer base and the standard credit period applied to all customers is 14 days from the date of the invoice. The Group entered into an agreement in 2011 with certain affiliates allowing them to settle their outstanding balances in fixed instalments on a monthly basis irrespective of their monthly consumption. Accordingly, certain affiliates settle their invoices in arrears of more than 12 months. Therefore, the Group applies discounting based on one-year Emirates Interbank Offered Rate (EIBOR) while recognising trade receivable from these customers. At each reporting date, the trade receivables which are expected to be collected after twelve months from the reporting date are classified as non-current receivables. 11 Inventories At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED ‘000 Consumables and others 321,815 336,809 346,879 Less: provision for slow moving and obsolete inventory (139,258) (135,508)

(124,874) 182,557 201,301 222,005 Fuel 989,819 944,840 906,034 1,172,376 1,146,141 1,128,039


55

11 Inventories (continued) Movements in the provision for slow moving and obsolete inventories were as follows:

2017 2016 AED’000 AED’000 At 1 January 135,508 124,874 Charge for the year (Note 22) 3,750 10,634 At 31 December 139,258 135,508

The inventories utilised during the year and recognised as cost of sales amounted to AED 35 million (2016: AED 83 million).

12 Held-to-maturity investments At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Current National bonds 402,915 302,547 302,500

Held-to-maturity investment represent investment in UAE National Bonds amounting to AED 403 million (2016: AED 303 million, 2015: 303 million), which have a maturity of 12 months from the date of purchase. National Bonds carry an interest rate ranging from 2.23% to 2.75% per annum. During the year, AED 303 million of investments matured and were reinvested. In addition, the Group made an additional investment of AED 100 million (2016: Nil). 13 Cash and bank balances At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED ‘000 Term deposits with banks 10,174,970 5,615,855 3,667,382 Current and call accounts with

banks and other institutions 1,079,141

1,743,075

770,671

Cash on hand 1,688 1,204 818 11,255,799 7,360,134 4,438,871

Term deposits with original maturity greater than three months, but not more than twelve months, amounting to AED 8,940 million (2016: AED 5,579 million) are classified in cash and bank balances but excluded from cash and cash equivalents for the purpose of the cash flow.


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13 Cash and bank balances (continued) Current and call accounts with banks and other institutions include AED 367 million (2016: AED 518 million) in foreign currencies. The majority of these balances are denominated in USD. These balances are held for settlement of existing and anticipated liabilities denominated in foreign currencies. Cash and cash equivalents also includes AED 368 million (2016: AED 346 million) of cash collected by local banks and government collection agencies on behalf of the Group. For the purpose of the cash flow statement, cash and cash equivalents comprise the following:

At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED ‘000

Cash and bank balances 11,255,799 7,360,134 4,438,871 Term deposits (maturity greater

than 3 months but less than 12 months) (8,940,710) (5,579,782) (707,200)

Bank overdrafts (Note 15) (3,214) (15,308) (17,066) Cash and cash equivalents 2,311,875 1,765,044 3,714,605

14 Equity a) Government of Dubai account The Government of Dubai account represents amounts contributed by the Government of Dubai as an owner of the Group since the incorporation of the Group. b) General reserve The general reserve represents surplus distributable profits earned by the Group. c) Hedge reserve The hedging reserve represents the fair value of derivatives which are part of effective cash flow hedging relationships at year end. As the derivatives are held for hedging purposes as defined by IAS 39, their fair value movements are retained in other comprehensive income instead of being charged to the income statement during the year. The fair value movements will be charged to the consolidated statement of comprehensive income in the same period as the corresponding hedged transaction.


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14 Equity (continued) d) Statutory reserve As required by applicable law and articles of association of certain subsidiaries, 10% of the net profit for each period in those subsidiaries is transferred to a statutory reserve. Such transfers to reserves may cease when this reserve equals the issued capital. The reserve is not available for distribution except as stipulated by the law. e) Non-cash distributions Non-cash distributions represents amounts transferred to the Government of Dubai, as an appropriation of retained earnings, which is equivalent to the amount owed by the Government of Dubai to the Group together with amounts owed by third parties assumed by the Government of Dubai. 15 Borrowings At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Non-current GMTN (i) 5,502,970 5,494,265 5,503,475 Sukuk bond (ii) - 3,424,507 3,419,335 Others 3,785,509 2,040,795 1,311,418 9,288,479 10,959,567 10,234,228

Current Sukuk bond (ii) 3,424,976 - - GMTN (i) - - 1,821,500 Bank overdrafts (Note 13) 3,214 15,308 17,066 Others 530,672 481,650 991,844 3,958,862 496,958

2,830,410

13,247,341 11,456,525 13,064,638 Borrowings are denominated in the following currencies: At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 US Dollars 13,077,498 11,411,214 13,047,572 UAE Dirham 169,843 45,311 17,066 13,247,341 11,456,525 13,064,638


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15 Borrowings (continued) The Group has the following facilities: At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Secured 6,536,163 4,607,195 3,458,551 Unsecured 6,711,178 6,849,330 9,606,087 13,247,341 11,456,525 13,064,638

Borrowings are secured by pledge of assets (refer Note 8), corporate guarantees, government guarantees and letter of undertakings. (i) GMTN In 2010, DEWA set up a Global Medium Term Note programme for an amount of USD 3 billion (AED 11.02 billion). On 22 April 2010, DEWA issued notes amounting to USD 1 billion (AED 3.673 billion) which was repaid in 2016. On 21 October 2010, DEWA issued notes amounting to USD 0.5 billion (AED 1.836 billion) which was repaid in 2017 and USD 1.5 billion (AED 5.51 billion) is repayable in 2020. The notes carry a fixed interest rate and are listed on the London Stock Exchange. The carrying amount of the of the Group’s borrowings approximates its fair value. Fair value was determined by reference to published price quotations in an active market (classified as level 1 in the fair value hierarchy). (ii) Sukuk bond On 5 March 2013, the Group received an amount of AED 3.7 billion (USD 1 billion) from Dewa Sukuk 2013 Limited (“DSL”), a structured entity funded through trust certificates that are listed on Nasdaq Dubai. The trust certificates were issued by way of a Shari’a compliant Ijara (sale and leaseback of certain fixed assets owned by the Group aggregating to AED 3.7 billion) agreement between the Group and DSL. The carrying amount of the of the Group’s borrowings approximates its fair value. Fair value was determined by reference to published price quotations in an active market (classified as level 1 in the fair value hierarchy). The carrying value of the Sukuk bond is offset by an amount of AED 242 million (2016: AED 242 million) which represents an investment made by the Group in its own debt instruments. During the year, the Group obtained short term loans amounting to Nil (2016: Nil). No loans were repaid during the year (2016:AED 2,601 million). The short term loans carried an interest rate of LIBOR plus a fixed margin.


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15 Borrowings (continued)

(iii) Other loans

On 24 December 2013, EMPOWER obtained a syndicated loan facility amounting to USD 600 million, with a tenure of 6 years. The loan is a conventional loan facility which carries an interest rate at LIBOR plus a fixed margin. At 31 December 2017, the outstanding loan amount was AED 1,030 million (2016: AED 1,030 million). Shuaa Energy 1 P.S.C has an equity bridge loan of AED 73 million (2016: AED 90 million) carrying an interest rate of one-month LIBOR+0.70% per annum. The entire of the loan is repayable on 1 April 2018. Shuaa Energy 1 P.S.C has a commercial facility from a syndicate of banks amounting to AED 550 million (2016 : AED 149 million) carrying an interest rate of LIBOR+1.35% (which is set to increase upto 2.5% till 2040 revised once in 5 years). The loan in repayable in bi-annual instalments beginning from september 2017 upto 31 march 2040. Shuaa Energy 1 P.S.C has an Istisna-Ijara facility amounting AED 445 million (2016: AED 124 million) carrying an interest rate of LIBOR+1.35%. The facility in repayable in bi-annual instalments beginning from september 2017 upto 31 march 2040. Shuaa Energy 2 P.S.C has an equity bridge loan of AED 201 million (2016: Nil) carrying a fixed interest rate of 2.965%. The loan is repayable in quarterly instalments beginning 1 april 2022 upto 31 march 2047. Shuaa Energy 2 P.S.C has an equity bridge loan of AED 134 million (2016: Nil) carrying an interest rate of one-month LIBOR+1.08% per annum. The loan is repayable on 31 March 2022. Mai Dubai LLC has a term loan amounting to AED 167 million (2016: AED 30 million) carrying an interest rate of three month EIBOR+2% per annum and repayable in 32 equal quarterly instalments commencing 31 March 2018 with the maturity date of 31 March 2026. Mai Dubai LLC has a bank overdraft amounting to AED 3 million (2016: AED 12 million) carrying an interest rate of one month EIBOR+2% per annum. The overdraft facility is required to be settled on or before the last repayment instalment of the term loan described above. Hassyan Energy Phase 1 P.S.C has a commercial facility of AED 1,870 million (2016: AED 871 million) from a syndicate of banks carrying an interest rate of LIBOR+2.1% per annum. The loan is repayable beginning 31 August 2021 upto 28 February 2041. Hassyan Energy Phase 1 P.S.C has a mezzanine facility of AED 98 million (2016: AED 44 million) carrying an interest rate of 6.5% per annum. The loan is repayable beginning 31 May 2041 upto 29 February 2048. At 31 December 2017, the Group had available AED 12.5 billion (2016: AED 12.06 billion) of undrawn borrowing facilities from various lenders. The Group has complied with the financial covenants of its borrowing facilities during the 2017, 2016 and 2015 reporting period.


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16 Retirement benefits obligations At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Consolidated balance sheet Provision for employees’ end of service benefits (Note 16.1) 762,713 653,293 604,611

Provision for pension (Note 16.2) 91,134 43,590 38,178 853,847 696,883 642,789 Less: non-current portion (845,658) (688,408) (639,149) Current portion (Note 18) 8,189 8,475 3,640

The charge for the year included within employee benefit expense in the consolidated statement of comprehensive income includes current service cost and interest cost. Actuarial gains and losses during the year are recognised in other comprehensive income. 16.1 Provision for employees’ end of service benefits In 2017 and 2016, an actuarial valuation was performed using the projected unit credit method to ascertain the present value of the obligation relating to the end of service benefits payable to expatriate employees in accordance with the Dubai Government Human Resources Management Law No. 27 of 2006. Under this method, an assessment has been made of an employee’s expected service life with the Group and the expected basic salary at the date of leaving service. The obligation for end of service benefits is not funded. The principal actuarial assumptions used were as follows: • Expected salary increase of 2.6% per annum (2016: 2.6% per annum); • Discount rate used to determine the present value of the obligation was 3.1% per annum

(2016: 2.9% per annum); and • The average rate of mortality and withdrawal is not significantly different from the trends

noted at the valuation date. The rate used for discounting the employees’ end of service benefits should be based on market yields on high quality corporate bonds. In countries where there is no deep market for such bonds, the market yields on government bonds should be used. In the UAE, there is no deep market for corporate bonds and no market for government bonds and, therefore, the discount rate has been estimated using the US AA-rated corporate bond market as a proxy. As a result, the Group has recognised an actuarial loss of AED 27 million (2016: gain of AED 20 million) in other comprehensive income.


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16 Retirement benefits obligations (continued) 16.1 Provision for employees’ end of service benefits (continued) Movements in the provision for end of service benefits are analysed below: 2017 2016

AED’000 AED’000 At 1 January 653,293 604,611 Charge for the year (Note 23) 111,951 109,379 Re-measurements 27,025 (19,659) Payments made during the year (29,556) (41,038) At 31 December 762,713 653,293

The provision made during the year for end of service benefits and recognised in the consolidated statement of comprehensive income is analysed as follows:

2017 2016

AED’000 AED’000 Current service cost 92,826 87,991 Interest cost 19,125 21,388 111,951 109,379

The employee profile of the Group is as detailed below:

2017 2016

Average age (years) 40.50 36.61 Average past service (years) 9 8 Average entry age (years) 30.69 28.57


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16 Retirement benefits obligations (continued) 16.2 Provision for pension 16.2.1 Provision for pensions (for eligible UAE national employees who retired on or before

31 December 2002)

The movements in the provision for pensions are analysed below: At 31 December

2017 2016 AED’000 AED’000

At the beginning of the year 35,115 34,539 Charge for the year (Note 23) 52,918 2,860 Pensions paid (5,088) (2,284) At the end of the year 82,945 35,115

16.2.2 Provision for pensions (for eligible UAE national employees from 1 January 2003) Effective 1 January 2003, the Group joined a defined contribution plan operated by the Federal Pension General and Social Security Group for its active eligible UAE national employees in accordance with the provision of Federal Law No. 7 of 1999 relating to Pension and Social Security Law. The movements in the provision for pensions are analysed below: At 31 December

2017 2016 AED’000 AED’000

At the beginning of the year 8,475 3,639 Charge for the year (Note 23) 83,816 80,226 Pensions paid (84,102) (75,390) At the end of the year 8,189 8,475

17 Other long term liabilities At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Deferred revenue 15,071,566 12,887,253 9,662,708 Advances for new connections 7,604,898 6,976,538 6,869,044 Retentions payable 441,432 359,874 355,036 23,117,896 20,223,665 16,886,788


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18 Trade and other payables At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 Consumers’ security deposits 2,707,094 2,418,811 2,118,991 Capital projects payables 1,794,890 2,602,470 1,371,375 Trade payables 1,515,705 1,118,669 1,169,143 Retentions payable 1,161,371 1,128,652 1,119,064 Advances for new connections 844,989 775,171 763,228 Deferred revenue 519,709 562,797 470,215 Accrual for staff benefits 114,767 103,485 87,969 Retirement benefit obligations (Note 16) 8,189 8,475

3,640

Other payables 1,854,933 1,630,528 1,465,639

10,521,647 10,349,058 8,569,264 Other payables mainly consists of provision for bonus and other accruals. 19 Related party transactions and balances The Group transacts with its owner, subsidiaries, joint ventures and entities controlled, jointly controlled or significantly influenced by the owner within the scope of its ordinary business activities. Since the Group is wholly owned by the Government of Dubai, these entities are jointly referred to as ‘government related entities’. The Group applies the exemption relating to government related entities under IAS 24 ‘Related Parties’ and only discloses transactions and balances with government related entities which are individually or collectively significant. To determine significance, the Group considers various qualitative and quantitative factors including whether transactions with related parties are conducted in the ordinary course of business. Key management personnel and entities controlled by them are also related to the Group. Key management personnel of the Group comprise the directors and executive vice presidents (EVPs) of the Authority and directors of the subsidiaries.


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19 Related party transactions and balances (continued) Related party transactions: The material transactions and balances with related parties as are disclosed below, except as disclosed in Note 8 and Note 10 in these consolidated financial statements:

Sale of electricity and water In common with many other entities, the Group deals in the normal course of business with various Government entities in Dubai. The rates applied for these sales are at par with other customers of a similar nature. Certain quantities of electricity and water sold to UAE nationals. The Group calculates the value of these quantities supplied at base rate and these amounts are settled by the Government of Dubai. Purchase of goods and services In the normal course of business, the Group purchases fuel from entities owned by the Government of Dubai. During the year, the Group purchased fuel amounting to AED 6,766 million (2016: AED 6,589 million) from various entities. During the year, the Group purchased water amounting to AED 38 million (2016: AED 23 million) from an entity under common control. During the year, the Group contributed an amount of AED 65 million (2016: AED 45 million) to organisations managed by the Group for purposes of promotion of clean energy and water conservation. Transactions with banks owned by Government of Dubai DEWA transacts with various banks and financial institutions which are wholly or partially controlled by the Government of Dubai. All of the Group’s transactions with such banks are on normal commercial terms. A portion of the cash and bank balances as disclosed in note 13 are on deposit with such banks.

Compensation to key management personnel At 31 December 2017 2016 AED’000 AED’000 Salaries and short term employee benefits 67,016 63,647 Post-employment benefits 4,066 4,010 71,082 67,657

Board members’ interests Other than remuneration paid to key management personnel, Board members of the Authority had no beneficial interest in DEWA or its subsidiaries during 2016 and 2017.


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19 Related party transactions and balances (continued) Related party balances: At 31 December At 1 January

2017 2016 2016 AED’000 AED’000 AED’000 Due from related parties Joint ventures 508 527 523

The amounts outstanding at year end are unsecured, interest free, payable on demand and will be settled in cash. No impairment charge has been recognised during 2017 and 2016 in respect of amounts owed by related parties. These balances are included in trade and other receivables. 20 Revenue 2017 2016

AED’000 AED’000 Sale of electricity 14,118,331 13,561,563 Sale of water 4,310,422 4,218,882 District cooling 1,959,082 1,846,175 Others 1,214,495 978,334 21,602,330 20,604,954

Others include:

- Handling fees amounting to AED 52 million (2016: AED 52 million) represents amounts paid by an affiliate to the Group for providing collection services.

- Amortisation of deferred revenue amounted to AED 562 million (2016: AED 470 million).

21 Cost of sales 2017 2016 AED’000 AED’000

Generation and desalination expenditures (Note 21.1) 9,418,559 9,162,729 Transmission and distribution expenditures (Note 21.2) 3,291,434 3,077,922 Purchase of water 38,331 22,936 12,748,324 12,263,587


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21 Cost of sales (continued) 21.1 Generation and desalination expenditures 2017 2016 AED’000 AED’000

Fuel costs 6,723,273 6,589,035 Depreciation (Note 8) 1,684,584 1,576,171 Employee benefit expenses (Note 23) 497,220 471,885 Repairs and maintenance 325,680 262,231 Others 187,802 263,407 9,418,559 9,162,729

21.2 Transmission and distribution expenditures 2017 2016 AED’000 AED’000

Depreciation (Note 8) 1,864,142 1,784,941 Employee benefit expenses (Note 23) 1,283,219 1,167,361 Repairs and maintenance 126,394 101,129 Others 17,679 24,491 3,291,434 3,077,922

22 Administrative expenses 2017 2016 AED’000 AED’000

Employee benefit expenses (Note 23) 1,418,743 1,248,432 Repairs and maintenance 181,187 137,991 Depreciation (Note 8) 130,440 140,292 Insurance 41,110 44,528 Amortisation (Note 9) 28,033 19,568 Reversal of provision for impairment of receivables (Note 10) (10,276) (1,288) Provision for slow moving and obsolete inventory (Note 11) 3,750 10,634 Others 412,866 372,632

2,205,853 1,972,789 Others comprise mainly reversal of an impairment of property, plant and equipment amounting to AED 53 million (2016: Nil) relating to a subsidiary.


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23 Employee benefit expenses

2017 2016

AED’000 AED’000 Salaries 2,072,422 1,948,228 Bonus 191,894 175,392 Retirement benefit obligations (Note 16) 248,685 192,465 Other benefits 686,181 571,593 3,199,182 2,887,678

Employee benefit expenses are allocated as detailed below:

2017 2016 AED’000 AED’000 Cost of sales

- Generation and desalination expenditure 497,220 471,885 - Transmission and distribution expenditure 1,283,219 1,167,361

Administrative expenses 1,418,743 1,248,432 3,199,182 2,887,678

24 Finance costs – net

2017 2016

AED’000 AED’000 Finance costs Interest on bank and other borrowings (660,575) (660,592) Amortisation of borrowing costs (14,852) (10,963) (675,427) (671,555) Amounts capitalised (Note 8) 336,567 206,620 (338,860) (464,935) Finance income Amortisation of financial liabilities 15,056 12,036 Interest income on short term bank deposits 188,704 100,948 Reversal of fair value adjustment for trade receivables 26,616 17,180 230,376 130,164 Finance costs – net (108,484) (334,771)


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25 Net cash generated from operating activities

Year ended 31 December

Note 2017 2016 AED’000 AED’000

Cash flows from operating activities Profit for the year 6,662,542 6,223,644 Adjustment to reconcile profit to net cash provided by

operating activities: Depreciation 8 3,679,166 3,501,404 Amortisation 9 28,034 19,568 Provision for slow moving and obsolete items 11 3,750 10,634 Reversal of impairment of property, plant and equipment 22 (53,529) - Impairment of trade and other receivables 10 (10,276) (1,288) Deferred income (562,797) (470,215) Retirement benefit obligations – gratuity 16 111,951 109,379 Retirement benefit obligations – pensions 136,734 83,086 Fair value adjustment 50,084 34,414 Share of profit from investment in joint ventures 7 (378) (139) Gain on sale of property, plant and equipment (796) (386) Assets written off 83,329 - Finance costs - net 24 108,484 334,771 10,236,298 9,844,872 Payment for retirement benefit obligations – gratuity (29,556) (41,038) Payment for retirement benefit obligations – pension (89,190) (77,673) Working capital adjustments: Inventories before movement in provision (29,985) (28,736) Trade and other receivables before provision for impairment (1,342,611) (1,286,301) Trade and other payables 3,792,923 3,069,384

Net cash generated from operations 12,537,879 11,480,508


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26 Commitments

At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000

Future commitments including capital expenditure 19,935,578 17,281,886 11,288,433

27 Financial instruments by category Financial assets

At 31 December At 1 January 2017 2016 2016

AED’000 AED’000 AED’000 Loans and receivables – amortised cost Trade and other receivables (excluding prepayments and advance to suppliers) (Note 10) 5,041,396 4,754,681 4,510,347 Cash and bank balances (Note 13) 11,255,799 7,360,134

4,438,871 16,297,195 12,114,815 8,949,218 Held-to-maturity – amortised cost Bonds (Note 12) 402,915 302,547 302,500

Financial Liabilities

At 31 December At 1 January 2017 2016 2016

AED’000 AED’000 AED’000 Other liabilities – amortised cost Trade and other payables * (Note 18) 9,156,949 9,011,090 7,335,821 Borrowings (Note 15) 13,247,341 11,456,525 13,064,638 22,404,290 20,467,615 20,400,459

* These do not include advances for new connections and deferred revenue as these are non-financial liabilities. 28 Derivative financial instruments

The Group is exposed to interest rate movements on various borrowings maturing between 2017 and 2042. Some of the Group’s subsidiaries have entered into a series of interest rate swaps for the duration of the borrowings to mitigate the risk of variation in future interest rates. These interest rate swaps were designated as cash flow hedges and were assessed to be highly effective. An amount of net unrealised loss of AED 114 million (2016: AED 31 million) relating to these hedging instruments is included in other comprehensive income.


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28 Derivative financial instruments (continued) The tables below show a summary of the hedged items, the hedging instruments and their fair values. The notional amounts indicate the amount outstanding at the year end.

Description of the hedged item Hedging instrument

Notional amount

Positive fair value

Negative fair value

AED’000 AED’000 AED’000 2017: Interest payments on floating rate loans

Interest rate swap 2,817,223 22,097 160,417

2016:

Interest payments on floating rate loans

Interest rate swap 1,644,486 21,187 45,403

The following table presents the Group’s derivative assets and liabilities that are measured at fair value:

31 December 2017

Level 1 AED’000

Level 2 AED’000

Level 3 AED’000

Total AED’000

Assets measured at fair value Derivative financial instruments - 22,097 - 22,097

Liabilities measured at fair value Derivative financial instruments - 160,417 - 160,417

31 December 2016

Assets measured at fair value Derivative financial instruments - 21,187 - 21,187

Liabilities measured at fair value Derivative financial instruments - 45,403 - 45,403 Interest rate swaps were measured primarily using valuations provided by the financial institutions based on the observable spot exchange rates and the yield curves of the respective swap contracts and were categorised in Level 2 hierarchy.


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29 Cash dividend The Group had declared a dividend amounting to AED 1 billion in respect of the year ended 31 December 2016 (2015: AED 500 million) and was approved by the Board of Directors at their annual meeting on 4 February 2017. The dividend was paid on 6 February 2017. During the year, EMPOWER declared and paid a dividend of AED 15 million (2016: AED 195 million) to the non-controlling interest.

30 Regulatory deferral account credit balance The prices that can be charged to customers for electricity and water by the Group are subject to oversight and/or approval by the Supreme Council of Energy hence the Group is subject to rate regulation. The Supreme Council of Energy through its notification issued in 2010 has allowed the Group to recover the additional costs it incurs due to the escalation in fuel prices considering 2010 as the base year from its customers.

The Supreme Council of Energy is also controlled by Government of Dubai and it is a related party of the Group.

The Group has collected AED 158 million in excess of the actual increase in fuel costs incurred since 2010 upto the transition date. This amount was being carried as a credit balance in the Group’s consolidated balance sheet under DEWA GAAP.

On the transition date, the Group has elected to apply the requirements of IFRS 14 – ‘Regulatory Deferral Accounts’ and will continue to apply its current accounting policy for recognition, measurement and derecognition of this regulatory deferral account balance. The movement in regulatory deferral account credit balance is detailed below: At 31 December At 1 January 2017 2016 2016 AED’000 AED’000 AED’000 At 1 January 215,189 158,596 83,095 Excess collected during the year 132,999 56,593 75,501 At 31 December 348,188 215,189 158,596

There was no charge to the consolidated statement of comprehensive income in this regard.

Documents

Dubai Electricity and Water Authority Consolidated ... · financial position of Dubai Electricity and Water Authority (“DEWA” or the “Authority”) and its subsidiaries (together,