Dubai Electricity and Water Authority Consolidated ...Mar 07, 2019 · consolidated financial position of Dubai Electricity and Water Authority (“DEWA” or the “Authority”)

Dubai Electricity and Water Authority

Consolidated financial statements for the year ended 31 December 2018

Dubai Electricity and Water Authority Consolidated financial statements for the year ended 31 December 2018 Page(s) Independent auditor’s report 1 – 4 Consolidated balance sheet 5 Consolidated statement of comprehensive income 6 Consolidated statement of changes in equity 7 – 8 Consolidated statement of cash flows 9 Notes to the consolidated financial statements 10 – 60

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 Patrick O’Mahony, Rami Sarhan, Jacques Fakhoury and Mohamed ElBorno are registered as practising auditors with the UAE Ministry of Economy (1)

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 2018, 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 2018; 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 2018. Our key audit matter 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 Matter 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) 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

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 723 million (2017: AED 705 million) is included within revenue and other receivables. The method of estimating such revenues is complex and judgemental and requires estimates and assumptions to: 1. Estimate the units 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 units 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. 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.

For unbilled revenue, our procedures included performing a recalculation using actual historical 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.

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.

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

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. 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.


The notes on pages 10 to 60 form an integral part of these consolidated financial statements. (6)

Consolidated statement of comprehensive income Year ended 31 December Note 2018 2017 AED’000 AED’000 Revenue 19 22,233,414 21,602,330 Cost of sales 20 (13,476,318) (12,748,324) Gross profit 8,757,096 8,854,006 Administrative expenses 21 (2,328,791) (2,216,129) Credit impairment losses 9 (30,967) 10,276 Other income 240,465 122,495 Operating profit 6,637,803 6,770,648 Finance income 23 310,906 230,376 Finance costs 23 (241,973) (338,860) Finance income/(costs) – net 23 68,933 (108,484) Share of (loss)/profit from investments in joint ventures 6.3 (5,062) 378 Profit for the year 6,701,674 6,662,542 Other comprehensive income: Items that will not be reclassified to profit or loss Remeasurements of retirement benefit obligations 15.1 (37,505) (27,025) Items that may be reclassified to profit or loss Hedging losses reclassified to profit or loss 10,280 22,989 Cash flow hedges 326,182 (137,092) Other comprehensive income/(loss) for the year 298,957 (141,128) Total comprehensive income for the year 7,000,631 6,521,414 Profit for the year attributable to - Government of Dubai 6,449,811 6,428,332 - Non-controlling interests 251,863 234,210 6,701,674 6,662,542 Total comprehensive income for the year

attributable to - Government of Dubai 6,593,751 6,340,698 - Non-controlling interests 406,880 180,716 7,000,631 6,521,414



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 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 13) - - - - (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 28) -

- - - (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 (Note 13).



Consolidated statement of changes in equity (continued)

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 AED’000 At 1 January 2018 37,520,276 44,076,172 250,626 (72,959) - 81,774,115 1,053,067 82,827,182 Changes on initial application of IFRS 9 - - - - (29,968) (29,968) - (29,968) Restated total equity at

1 January 2018 37,520,276 44,076,172 250,626 (72,959) (29,968) 81,744,147 1,053,067 82,797,214 Profit for the year - - - - 6,449,811 6,449,811 251,863 6,701,674 Other comprehensive

income - - - 181,445 (37,505) 143,940 155,017 298,957 Total comprehensive income for the year - - - 181,445 6,412,306 6,593,751 406,880 7,000,631 Transfer to reserve - 4,356,863 58,505 - (4,415,368) - - - Transactions with owner Non-cash distribution*

(Note 13) - - - - (966,970) (966,970) - (966,970) Capital contribution by non-controlling interests - - - - - - 2,450 2,450 Capital contribution by

Government of Dubai – value of land (net) 571,847 - - - - 571,847 - 571,847

Dividend paid (Note 28) - - - - (1,000,000) (1,000,000) (184,536) (1,184,536) At 31 December 2018 38,092,123 48,433,035 309,131 108,486 - 86,942,775 1,277,861 88,220,636

*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 (Note 13).



Consolidated statement of cash flows

Year ended 31 December Note 2018 2017

AED’000 AED’000 Net cash inflows from operating activities 24 10,656,100 12,537,878 Cash flows from investing activities Purchase of property, plant and equipment net of

movements in trade payables and other long term liabilities (5,976,880) (8,952,676)

Term deposits with original maturity of greater than three months 12 (387,049) (3,360,928)

Purchase of intangible assets 8 (33,197) (39,355) Interest received 283,269 125,500 Other financial assets at amortised cost 11 (63,674) (100,368) Proceeds from disposal of property, plant and

equipment 4,274 831 Net cash outflow from investing activities (6,173,257) (12,326,996) Cash flows from financing activities Repayments of borrowings (4,403,523) (397,478) Proceeds from borrowings 2,524,766 2,242,781 Interest paid (770,195) (627,213) Capital contribution from the non-controlling interest 2,450 2,000 Dividends paid to owner (1,000,000) (1,000,000) Dividends paid to non-controlling interests in

subsidiaries (124,536) (17,140) Net cash (outflow)/inflow from financing activities (3,771,038) 202,950 Movement in regulatory deferral account credit

balance 179,432 132,999 Net increase in cash and cash equivalents 891,237 546,831 Cash and cash equivalents at the beginning of the year 12 2,311,875 1,765,044 Cash and cash equivalents at the end of the year 12 3,203,112 2,311,875

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 572 million (2016: AED 3,104 million) (Note 7). - Conversion of borrowings into equity for a non-controlling interest in a subsidiary amounting to AED

Nil (2017: AED 17 million).

- During the year, non-cash distributions to the Government of Dubai amounted to AED 967 million (2017: AED 835 million).

Dubai Electricity and Water Authority Notes to the consolidated financial statements for the year ended 31 December 2018

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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 of Dubai. 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 of Dubai, 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 “owner”). 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 tax other than Value Added Tax (“VAT”). The Group has either directly or indirectly the following subsidiaries domiciled in UAE:

Name of the entity

Percentage of beneficial

ownership % Principal business activities 2018 2017

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 and sale of potable water Hassyan Energy 1 Holdings LLC 100 100 Holding company Shuaa Energy 2 Holdings LLC 100 100 Holding company Jumeirah Energy International Capital Holding LLC


Jumeirah Energy International Silicon Valley LLC


Noor Energy 1 Holdings LLC 100 100 Holding company DEWA Sukuk 2013 Limited (DSL)

100 100 Investment company

Data Hub Integrated Solutions LLC

100 100 To provide services including IT, infrastructure, networking and computer system housing services

Digital DEWA LLC* 100 - Investment in Commercial, Industrial, Retail trade and Energy enterprises and management

Dubai Electricity and Water Authority Notes to the consolidated financial statements for the year ended 31 December 2018 (continued)

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1 Establishment and operations (continued)

Name of the entity

Percentage of beneficial

ownership % Principal business activities 2018 2017 Dubai Green Fund Investments LLC**

100 - To invest and manage commercial, industrial, retail trade and energy enterprises

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 60 Establish and provide full range of services for generation of electricity

Innogy 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

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

Istadama Carbon (L.L.C) **** 43 43 Holding company * This entity was incorporated on 14 February 2018 **This entity was incorporated on 20 February 2018 ***This entity was incorporated on 30 January 2018 **** 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. 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 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. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB).


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2 Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued) 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 financial assets and financial liabilities measured at fair value. 2.3 New and amended standards adopted by the Group During the year, the Group has adopted the following standards and amendments effective for the annual period beginning on 1 January 2018: (a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018); As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening equity and other reserves of the current year. The adoption of IFRS 9 has resulted in changes in the Group’s accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 ‘Financial Instruments: Disclosures’. The total impact of adopting IFRS 9 on the Group’s equity as at 1 January 2018 is as follows: AED’000

Closing equity as at 31 December 2017 82,827,182 Increase in provision for trade receivables (Note 9) (29,968) Opening equity as at 1 January 2018 82,797,214


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2 Summary of significant accounting policies (continued) 2.3 New and amended standards adopted by the Group (continued) (a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018) (continued);

Set out below are details of the specific IFRS 9 accounting policies applied in the current year and details of the disclosures relating to the impact of the adoption of IFRS 9 on the Group.

(i) Classification of financial assets

The Group classifies its financial assets in the following measurement categories: those to be measured at amortised cost; those to be measured subsequently at fair value through other comprehensive income (“FVOCI”); and those to be measured subsequently at fair value through profit or loss (“FVPL”).

Classification of financial assets depend on the Group’s business model for managing the financial assets and contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

The Group reclassifies debt investments when and only when its business model for managing those assets changes. (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (iii) Measurement 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 (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments: Debt instruments are those instruments that meet the definition of a financial liability form the issuer’s perspective, such as trade receivables or bank deposits. Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset.


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2 Summary of significant accounting policies (continued)

2.3 New and amended standards adopted by the Group (continued)

(a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018) (continued); Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories:

Cash flows characteristics

Business model for holding the assets

Classification and measurement

Solely payments of principal and interest (SPPI) Held to collect Amortised cost SPPI Held to collect and sell FVOCI SPPI Other FVPL Not SPPI Other FVPL

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of comprehensive income.

FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in statement of comprehensive income. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of statement of comprehensive income.

FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in statement of comprehensive income and presented net within other gains/(losses) in the period in which it arises.

Business model: The business model reflects how the Group manages its assets in order to generate cash flows. That is, whether the Group’s objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of assets. Factors considered by the Group in determining the business model for a group of assets include past experience on how the cash flows for these assets were collected, how the asset’s performance is internally evaluated and reported to key management personnel, how risks are assessed and managed and how managers are compensated.

SPPI: Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Group assesses whether the financial instruments’ cash flows represent solely payment of principal and interest (the “SPPI” test). In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or loss. The Group reclassifies debt investments when and only when its business model for managing those assets changes. The reclassification takes place from the start of the first reporting period following the change. Such changes are expected to be very infrequent and none occurred during the year.


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(a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018) (continued);

The Group performed a detailed analysis of its business models for managing financial assets and analysis of their cash flow characteristics.

Based on the above analysis, all financial assets of the Group have been reclassified to new categories under IFRS 9, as their previous categories under IAS 39 were ‘retired’, with no changes to their measurement basis. The Group holds these assets to collect contractual cash flows, and contractual cash flows of these financial assets comprise of solely payments of principal and interest:

Financial assets 31 December 2017 1 January 2018

IAS 39 AED ‘000

IAS 39 Classification

and measurement

IFRS 9 AED ‘000

IFRS 9 Classification

and measurement

Trade and other receivables (a) 6,426,052

Loans and receivables at

amortised cost 4,310,583 Amortised cost

Cash and bank balances (a) 11,255,799

Loans and receivables at

amortised cost 11,255,799 Amortised cost Short term investments (b) 402,915

Held-to-maturity at amortised cost 402,915 Amortised cost

Below notes explain above reclassifications:

a) Financial assets previously classified as loans and receivables are reclassified as financial assets measured at amortised cost.

b) Financial assets previously classified as held-to-maturity investments are reclassified as financial assets measured at amortised cost.

There were no changes to the classification and measurement of financial liabilities.

Equity instruments: Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. The Authority subsequently measures all equity investments at FVPL, except where the Group has elected, at initial recognition, to irrevocably designate an equity investment at FVOCI. When this election is used, fair value gains and losses are recognised in other comprehensive income and are not subsequently reclassified to the statement of comprehensive income, including on disposal.


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(a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018) (continued); Dividends, when representing a return on such investments, continue to be recognised in the statement of comprehensive income when the Group’s right to receive payments is established. (iv) Impairment of financial assets The Group assesses on a forward-looking basis the expected credit losses (“ECL”) associated with its debt instrument assets carried at amortised cost. The Group recognises a loss allowance for such losses at each reporting date. The measurement of ECL reflects:

An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;

The time value of resources; and Reasonable and supportable information that is available without undue cost or effort at the reporting

date about past events, current conditions and forecasts of future economic conditions. ECL measurement: IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarised below: A financial instrument that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and

has its credit risk continuously monitored by the Group; If a significant increase in credit risk since initial recognition is identified, the financial instrument is

moved to ‘Stage 2’ but is not yet deemed to be credit-impaired; If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’; Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime

expected credit losses that result from default events possible within the next 12 months. Instruments in Stages 2 or 3 have their ECL measured based on ECL on a lifetime basis; and

A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward- looking information.

The Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. The Group considers the credit risk on the investments in government bonds and bank deposits to be low at the reporting date, as these financial assets have low risk of default, the borrowers have strong capacity to meet their contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. Accordingly, the Group measures ECL on low credit risk assets at an amount equal to the portion of lifetime ECL that result from default events possible within the next 12 months. The Group applies the simplified approach to measure ECL for its trade receivables and contract assets, broken down to the following customer segments: nationals, expatriates, commercial and industrial customers, government related entities and others. For each of these segments, the management further analyses receivables based on observed historical loss rates. The loss rates are calculated for each monthly aging bucket and adjusted for any forward looking macroeconomic factors, if those can be determined without undue cost and effort. The lifetime ECL is measured using a provision matrix which is based on the expected loss rates calculated for aging buckets.


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2 Summary of significant accounting policies (continued) 2.3 New and amended standards adopted by the Group (continued) (a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018) (continued); (iv) Impairment of financial assets (continued) As a result of adopting impairment requirements of IFRS 9 for financial assets, the total re-measurement loss allowance of AED 29,968 thousand was recognised in opening equity at 1 January 2018. Write-off policy The Group writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include (i) financial asset has become more than 12 months overdue, (ii) ceasing enforcement activity and (iii) where the Group’s recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. The Group may write-off financial assets that are still subject to enforcement activity. The Group still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectation of full recovery. (v) Offsetting financial assets and financial liabilities Financial assets and liabilities are offset and the net amount reported in the balance sheet where the Group currently has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. (vi) Accounting policies applied until 31 December 2017 Classification Until 31 December 2017, the Group classified its financial assets in the following categories:

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

The classification depends on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluated this designation at the end of each reporting period. 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 advances to suppliers) and cash and bank balances. 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.


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2 Summary of significant accounting policies (continued) 2.3 New and amended standards adopted by the Group (continued) (a) IFRS 9, ‘Financial instruments’, (effective from 1 January 2018) (continued); (vi) Accounting policies applied until 31 December 2017 (continued)

Recognition and derecognition

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 are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Impairment

The Group assessed at the end of each reporting period whether there was objective evidence that a financial asset or group of financial assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was 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) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost was considered an indicator that the assets are impaired. Assets carried at amortised cost

For loans and receivables, the amount of the loss was measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that had not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset was reduced and the amount of the loss was recognised in statement of comprehensive income. If a loan or held-to-maturity investment had a variable interest rate, the discount rate for measuring any impairment loss was the current effective interest rate determined under the contract. As a practical expedient, the Group could 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 decreased and the decrease could 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 was recognised in consolidated statement of comprehensive income.

(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 has replaced 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 financial statements and has identified following areas that were affected:

- Accounting for free electricity and water supplied to staff – IFRS 15 requires DEWA to recognise revenue against free units of water and electricity provided to staff. - Accounting for connection and reconnection fees – Connection and reconnection fees are accounted for over the estimated useful life of the related property (for connection fees) and tenancy contracts (for reconnection fees).


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2 Summary of significant accounting policies (continued) 2.3 New and amended standards adopted by the Group (continued) (b) IFRS 15, ‘Revenue from Contracts with Customers’, (effective from 1 January 2018) (continued);

An impact assessment exercise was carried out to assess the impact of the above mentioned changes on the financial statements of the Group but no material adjustments were noted and hence no adjustments have been recorded in the financial statements. (c) Annual improvements to IFRS Standards 2015-2017 cycle. Amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly impact the current or future period.

2.4 New standards and interpretations not yet adopted by the Group

Certain new accounting standards and interpretations as detailed below, have been published that are not mandatory for the periods beginning 1 January 2018 and have not been early adopted by the Authority. The Group intends to adopt these standards, if applicable, when they become effective.

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'

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. The Group has set up a project team which has reviewed all of the Group’s leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of AED 13 million. The Group expects to recognise right-of-use assets of approximately AED 13 million on 1 January 2019, lease liabilities of AED 13 million. The Group expects that net profit will increase by approximately AED 635 thousand for 2019 as a result of adopting the new standard.


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2.4 New standards and interpretations not yet adopted by the Group (continued)

IFRS 16, ‘Leases’, (effective from 1 January 2019) (continued)

The Group’s activities as a lessor are not material and hence the Group does not expect any significant impact on the consolidated financial statements. However, some additional disclosures will be required from next year.

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. 2.5 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.

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.


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2 Summary of significant accounting policies (continued) 2.6 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. 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.


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2 Summary of significant accounting policies (continued) 2.6 Property, plant and equipment (continued) 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) critical to the plant operation and must be available at stand-by at all times, iii) 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. 2.7 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. 2.8 Leases (a) 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.


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2 Summary of significant accounting policies (continued) 2.8 Leases (continued)

(b) Finance leases

Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in finance lease liabilities. Each lease payment is allocated between the liability and finance costs. The finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

(c) 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.

2.9 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.

2.10 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.

2.11 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.


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3 Summary of significant accounting policies (continued) 2.11 Impairment of non-financial assets (continued) 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. 2.12 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. 2.13 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 fair value of a hedging derivative is classified as non-current asset or liability when the remaining hedged item is more than twelve months and as a current asset or liability when the remaining maturity of the hedged item is less than twelve months. 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.


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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. Trade receivables are impaired as per the policy explained in Notes 2.3 (a) and 9 to this financial statements which is in compliance with requirements of IFRS 9. The carrying amount of an asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income. 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 in the 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.


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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.


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2 Summary of significant accounting policies (continued) 2.19 Employee benefits (continued) 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. 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 on Pension and Social Security. The Group has no legal or constructive obligation to pay any further contributions. (b) Post employment benefit obligations for eligible expatriates The Group operates a defined benefit payment 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).


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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 from contracts with customers The Group recognises revenue when the obligations from contracts with customers are satisfied, the transaction price is determined 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. (a) Supply of electricity and water Revenue from the supply of electricity and water is recognised on the basis of electricity and water supplied during the period on an accruals basis with reference to 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.


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2.26 Revenue from contracts with customers (continued)

(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 5.

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.


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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 cash flow 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. 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 2018 and 2017 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.


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3 Financial risk management (continued) 3.1 Financial risk factors (continued) (a) Market risk (continued) (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 27). The table below shows the exposure of Group’s variable and fixed rate borrowings: 31 December 2018 2017 AED’000 AED’000 Variable rate borrowings 5,449,867 3,777,825 Fixed rate borrowings 5,889,152 9,469,516 11,339,019 13,247,341

(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. (i) 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 and accrued revenue of AED 5,204 million (2017: AED 4,425 million), an amount of AED 2,086 million (1 January 2018: AED 1,834 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.

(ii) 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.


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

(b) Credit risk (continued) (ii) Other financial assets (continued) The Group limits its credit risks with regard to bank deposits by dealing only with reputable banks. Other financial assets at amortised cost 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. Cash and bank balances including term deposits are held with banks, financial institutions and other government agencies having credit rating as detailed below: 31 December As determined by Moody’s 2018 2017 AED’000 AED’000 A 11,559,301 7,822,613 B 927,230 1,501,017 Unrated (including cash in hand) 65,789 1,932,169 12,552,320 11,255,799

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.


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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 2018 Borrowings* 1,101,794 6,130,635 9,228,659 16,461,088 11,339,019 Trade and other

payables** 11,769,908 - - 11,769,908 11,769,908 Other long term

liabilities ** - 368,487 145,917 514,404 474,647 12,871,702 6,499,122 9,374,576 28,745,400 23,583,574

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

payables** 9,148,760 - - 9,148,760 9,148,760 Other long term

liabilities ** - 154,784 309,569 464,353 441,432 14,112,006 905,195 8,436,653 23,453,854 22,837,533

* These do not include deferred borrowing costs. ** These do not include advances for new connections, deferred revenue and retirement benefits obligations 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.

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 27). 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).


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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 (a) 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 increase in revenue by AED 38 million (AED 2017: AED 36 million) and profit by AED 12 million (2017: AED 11 million). The application of a 5% decrease to management estimate of total units for all customer categories, in isolation would result in the decrease in revenue by AED 38 million (2017: AED 36 million) and profit by AED 12 million (2017: AED 11 million). 4.2 Critical accounting judgements (b) 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. (c) 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 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. (d) 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, Shuaa Energy 2 P.S.C and Noor Energy 1 P.S.C for construction of power plant 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.


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4 Critical accounting estimates and judgements (continued)

4.2 Critical accounting judgements (continued)

(e) Determination of control over certain subsidiaries (continued) 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 consolidated 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. 5 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. 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.


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5 Segment information (continued)

Year ended 31 December 2018

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 14,963,017 4,583,104 2,029,681 1,436,050 (778,438) 22,233,414

Year ended 31 December 2017


Water AED’000

District cooling

AED’000 Others

AED’000


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


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5 Segment information (continued) Segment assets At 31 December 2018


Water AED’000

District cooling AED’000

Others AED’000


AED’000 Total

AED’000

Property, plant and

equipment 49,552,337 13,883,698 5,200,364 31,492,122 - 100,128,521 Trade receivables 3,178,329 1,158,895 89,303 221,551 (201,151) 4,446,927 Capital expenditure 6,064,318 662,372 225,776 1,572,776 - 8,525,242 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 30,077,859

- 95,711,262 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 3,195,901 - 8,702,744


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6 Interests in other entities

6.1 Material subsidiaries The Group’s principal subsidiaries are set out in Note 1. 6.2 Non-controlling interest

The summarised financial information for EMPOWER group, a subsidiary with a material non-controlling interest before inter-company eliminations is as follows:

2018 2017

Non-controlling interests (EMPOWER group) 30% 30%

Summarised balance sheet

31 December 2018 2017 AED’000 AED’000 Non-current Assets 5,667,191 5,477,554 Liabilities (411,632) (902,861) 5,255,559 4,574,693 Current Assets 233,199 786,991 Liabilities (1,783,312) (1,861,419) (1,550,113) (1,074,428)

Summarised statement of comprehensive income 2018 2017 AED’000 AED’000 Revenue 2,029,644 1,959,114 Profit for the year 804,249 770,791 Total comprehensive income 804,249 770,791 Total comprehensive income allocated to non-controlling interests 237,273 229,701

Dividends paid to non-controlling interests 180,000 15,000 Summarised cash flows 2018 2017 AED’000 AED’000 Net cash generated from operations 1,035,207 1,069,413 Net cash used in investing activities (156,171) (372,597) Net cash used in financing activities (1,362,051) (421,426) Net (decrease)/increase in cash and cash equivalents (483,015) 275,390 Cash and cash equivalents, as at 1 January 536,963 261,573 Cash and cash equivalents, as at 31 December 53,948 536,963


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6 Interests in other entities (continued) 6.3 Investments accounted for using the equity method The entities listed below have share capital solely consisting of ordinary shares, which are held directly by the Group.

Name of the entity Country of

incorporation Effective % of

holding Carrying value

2018 2017 2018 2017 % % AED’000 AED’000 Dubai Carbon Centre of Excellence UAE

35.84 35.84 1,271 1,084

Ducab HV Cable Systems UAE 25 25 6,279 11,528 All joint ventures are accounted for using the equity method of accounting and are immaterial to the Group individually. Movement of investments in joint ventures

2018 2017 AED’000 AED’000 At 1 January 12,612 12,234 Share of results from joint ventures (5,062) 378 At 31 December 7,550 12,612

During the year, the Group recognised its share of loss from joint ventures amounting to AED 5 million (2017: profit of AED 378 thousand). No investments in joint ventures were impaired during 2018 and 2017.


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7 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 8) - - - - - (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 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 2018 Opening net book amount 33,797,434 23,886,063 37,669,965 357,800 15,985,459 111,696,721 Additions 572,174 888,907 1,039,586 128,069 7,734,263 10,362,999 Reversal of impairment - - - - 80,294 80,294 Transfers 680,203 406,254 4,630,538 179,511 (5,896,506) - Transfers to intangible assets (Note 8) - - - - (11,654) (11,654) Disposals, net - - (3,602) (282) - (3,884) Depreciation charge (245,172) (1,682,487) (1,999,211) (177,229) - (4,104,099) Closing net book amount 34,804,639 23,498,737 41,337,276 487,869 17,891,856 118,020,377 At 31 December 2018 Cost 37,765,795 40,433,203 59,547,160 2,136,350 17,891,856 157,774,364 Accumulated depreciation (2,961,156) (16,934,466) (18,209,884) (1,648,481) - (39,753,987) Net book amount 34,804,639 23,498,737 41,337,276 487,869 17,891,856 118,020,377


Notes to the consolidated financial statements for the year ended 31 December 2018 (continued)

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7 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 2018 is AED 140 million (2017: AED 147 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 7,147 million (2017: AED 6,655 million) (Note 14).

(d) Capital work in progress mainly comprises construction of additional electricity generation, water desalination facilities, 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 6.50% (2017: 5.72%) for the Authority. The amount on general borrowings capitalised using this weighted average interest rate is AED 312 million (2017: AED 263 million). The amount of interest capitalised for specific borrowings is AED 171 million (2017: AED 74 million).

(f) During the year, the Group received land from the Land Department of the Government of Dubai amounting to AED 572 million (2017: AED 3,104 million).

(g) During the year, the Group has adjusted the gross carrying value of property, plant and equipment and

accumulated depreciation by AED 50 million to reflect transfers made in the prior years at book value. This has not impacted the net book value of property, plant and equipment as at 31 December 2018.

(h) Depreciation is allocated as detailed below: 2018 2017 AED’000 AED’000 Cost of sales

- Generation and desalination expenditure (Note 20.1) 1,785,208 1,684,584 - Transmission and distribution expenditure (Note 20.2) 2,148,593 1,864,142

Administrative expenses (Note 21) 170,298 130,440 4,104,099 3,679,166



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8 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 7) 19,760 Amortisation (Note 21) (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 2018 Opening net book amount 79,757 Additions 33,197 Transfer from property, plant and equipment (Note 7) 11,654 Amortisation (Note 21) (41,460) Closing net book amount 83,148 At 31 December 2018 Cost 236,058 Accumulated amortisation (152,910) Net book amount 83,148

Amortisation expense of AED 41 million (2017: AED 28 million) is included in administrative expenses (Note 21).



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9 Trade and other receivables At 31 December 2018 2017 AED’000 AED’000 Trade receivables 4,446,927 3,702,887 Accrued revenue 756,924 721,667 Less: provision for impairment of receivables (235,492) (174,557) Trade receivables and accrued revenue – net 4,968,359 4,249,997 Advance to suppliers 1,937,866 1,320,226 Prepayments 68,047 64,430 Other receivables and advances 1,038,269 839,312 Less: provision for impairment (47,913) (47,913) 7,964,628 6,426,052 Less: non-current portion (2,698,159)

(2,274,304)

Current portion 5,266,469 4,151,748

Total accrued revenue amounting to AED 757 million (2017: AED 722 million) includes AED 723 million (2017: 705 million) recognised by the Authority.

The Group holds trade receivables with the objective to collect the contractual cash flows and therefore measures these receivables subsequently at amortised cost using the effective interest rate method. Information about methods and assumptions used in determining the impairment loss has been explained in Note 2.3 (a)(iv).

The Group considers the credit risk on the outstanding balances from Government customers to be low at the reporting date, as these financial assets have low risk of default, the counterparties have strong capacity to meet their contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the counterparties to fulfil its contractual cash flow obligations.

Total trade receivable and accrued revenue balance excluding Government customers as at 31 December 2018 amounts to AED 2,086 million (1 January 2018: AED 1,834 million).

To measure the expected credit losses, trade receivables and accrued revenue have been grouped together based on its shared credit risk characteristics and the days past due. Accrued revenue have substantially the same risk characteristics as the trade receivables and therefore concluded that the expected loss rates for trade receivables and accrued revenue are a reasonable approximation of the loss rates for the contract assets.

On that basis, the loss allowance as at 31 December 2018 and 1 January 2018 (on adoption of IFRS 9) was determined as follows for trade receivables and accrued revenue:

31 December 2018 Current

More than 30 days

past due

More than 60 days

past due

More than 120 days past due

More than 360 days past due Total

Expected loss rate 3.10% 2.82% 15.94% 40.12% 73.07% Gross carrying amount trade receivables (AED’000)

1,467,317

251,162

94,330

97,474 176,145 2,086,428

Loss allowance (AED’000) 45,572 7,071 15,036 39,104 128,709 235,492

1 January 2018 Expected loss rate 3.12% 2% 13.51% 44.80% 72.61% Gross carrying amount trade receivables (AED’000)

1,288,487

225,138

85,772

80,726

154,257

1,834,380

Loss allowance (AED’000) 40,255 4,505 11,590 36,168 112,007 204,525



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9 Trade and other receivables (continued)

Impairment of trade receivables: The movement in the provision for impairment of trade receivables is as follows: 2018 2017 AED’000 AED’000 At the 1 January 174,557 184,833 Changes on initial adoption of IFRS 9 (Note 2.3 (a)) 29,968 - Restated balance 204,525 184,833 Charge / (reversal) for the year 30,967 (10,276) At the end of the year 235,492 174,557 Less: specific provision (128,709) (92,950) Collective provision 106,783 81,607

Impairment of other receivables: As at 31 December 2018, other receivables and advances amounting to AED 990 million (2017: AED 791 million) are not impaired and amounts of AED 48 million (2017: AED 48 million) are impaired and fully provided for. 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 receivables 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. 10 Inventories At 31 December 2018 2017 AED’000 AED’000 Consumables and others 371,094 321,815 Less: provision for slow moving and obsolete inventory (149,655) (139,258) 221,439 182,557 Fuel 1,028,090 989,819 1,249,529 1,172,376



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

2018 2017 AED’000 AED’000 At 1 January 139,258 135,508 Charge for the year (Note 21) 10,397 3,750 At 31 December 149,655 139,258

11 Other financial assets at amortised cost At 31 December 2018 2017 AED’000 AED’000 Current National bonds 466,589 402,915

Other financial assets at amortised cost represent investment in UAE National Bonds amounting to AED 467 million (2017: AED 403 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 403 million (2017: AED 303 million of investments matured and out of which AED 317 million were reinvested. The Group made an additional investment of AED 150 million (2017: AED 100 million). Due to the short term nature of National bonds, their carrying amount is considered to be the same as their fair value. 12 Cash and bank balances At 31 December 2018 2017 AED’000 AED’000 Term deposits with banks 10,510,840 10,174,970 Current and call accounts with banks and other institutions 2,039,100

1,079,141

Cash on hand 2,380 1,688 12,552,320 11,255,799

Term deposits with original maturity greater than three months, but not more than twelve months, amounting to AED 9,328 million (2017: AED 8,941 million) are classified in cash and bank balances but excluded from cash and cash equivalents for the purpose of the statement of cash flows. Current and call accounts with banks and other institutions include AED 634 million (2017: AED 367 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.



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12 Cash and bank balances (continued) Cash and cash equivalents also includes AED 487 million (2017: AED 368 million) of cash collected by local banks and government collection agencies on behalf of the Group. For the purpose of the statement of cash flow, cash and cash equivalents comprise the following:

At 31 December 2018 2017 AED’000 AED’000

Cash and bank balances 12,552,320 11,255,799 Less: term deposits (maturity greater than 3 months but less than

12 months) (9,327,759) (8,940,710) Bank overdrafts (Note 14) (21,449) (3,214) Cash and cash equivalents 3,203,112 2,311,875

13 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. 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.



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14 Borrowings At 31 December 2018 2017 AED’000 AED’000 Non-current GMTN (i) 5,502,275 5,502,970 Others 5,791,079 3,785,509 11,293,354 9,288,479

Current Sukuk bond (ii) - 3,424,976 Bank overdrafts (Note 12) 21,449 3,214 Others 24,216 530,672 45,665 3,958,862 11,339,019 13,247,341

Borrowings are denominated in the following currencies: At 31 December 2018 2017 AED’000 AED’000 US Dollars 11,146,451 13,077,498 UAE Dirham 192,568 169,843 11,339,019 13,247,341

The Group has secured borrowings amounting to AED 5,377 million (2017: AED 6,536 million) and unsecured borrowings amounting to AED 5,962 million (2017: AED 6,711 million). Borrowings are secured by pledge of assets (refer Note 7), 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 2015. On 21 October 2010, DEWA issued notes amounting to USD 0.5 billion (AED 1.836 billion) which was repaid in 2016 and USD 1.5 billion (AED 5.51 billion) is repayable in 2020. The notes carry a fixed interest rate of 7.375% per annum and are listed on the London Stock Exchange. The fair value of the GMTN as at 31 December 2018 was AED 5,881 million (2017: AED 6,187). Fair value was determined by reference to published price quotations in an active market (classified as level 1 in the fair value hierarchy).



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14 Borrowings (continued)

(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 Sukuk was repaid on 5 March 2018.

The carrying value of the Sukuk bond is offset by an amount of AED Nil (2017: AED 242 million) which represents an investment made by the Group in its own debt instruments. (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 2018, the outstanding loan amount was AED Nil (2017: AED 1,030 million).

Shuaa Energy 1 P.S.C has an equity bridge loan of AED Nil (2017: AED 73 million) carrying an interest rate of one-month LIBOR+0.70% (2017: one-month LIBOR+0.70%) per annum. The entire of the loan is repayable on 1 April 2018. The equity bridge loan amounting AED 73 million was subordinated by the shareholder, ACWA power solar limited on 29 march 2018. Shuaa Energy 1 P.S.C has a commercial facility from a syndicate of banks amounting to AED 533 million (2017: AED 550 million) carrying an interest rate of LIBOR+1.35% per annum (which is set to increase upto 2.5% untill 2040 revisable 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 430 million (2017: AED 445 million) carrying an interest rate of LIBOR+1.35% per annum. 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 211 million (2017: AED 201 million) carrying a fixed interest rate of 2.965% per annum. The loan is repayable in quarterly instalments beginning from 1 April 2022 upto 31 March 2047. Shuaa Energy 2 P.S.C has an equity bridge loan of AED 140 (2017: AED 134 million) carrying an interest rate of one-month LIBOR+1.08% per annum. The loan is repayable on 31 March 2022.

Shuaa Energy 2 P.S.C has a commercial facility from a syndicate of banks amounting AED 318 million (2017: Nil) carrying an interest rate of one-month LIBOR+1.75% per annum. The loan is repayable on quarterly instalments beginning from 30 September 2020.

Shuaa Energy 2 P.S.C has an Islamic facility from a syndicate of banks amounting AED 198 million (2017: Nil) carrying an interest rate of one-month LIBOR+1.75% per annum. The loan is repayable on quarterly instalments beginning from 30 September 2020. Mai Dubai LLC has a term loan amounting to AED 142 million (2017: AED 167 million) carrying an interest rate of three month EIBOR+2% per annum and repayable in 32 equal quarterly instalments commenced from 31 March 2018 with the maturity date of 31 March 2026. Early repayment has been made subsequent to the year-end to settle the loan.

Mai Dubai LLC has a bank overdraft amounting to AED 21 million (2017: AED 3 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.



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14 Borrowings (continued) (iii) Other loans (continued)

Hassyan Energy Phase 1 P.S.C has a commercial facility of AED 3,370 million (2017: AED 1,870 million) from a syndicate of banks carrying an interest rate of LIBOR+2.1% per annum. The loan is repayable beginning from 31 August 2021 upto 28 February 2041. Hassyan Energy Phase 1 P.S.C has a mezzanine facility of AED 176 million (2017: AED 98 million) carrying a fixed rate interest of 6.5% per annum. The loan is repayable beginning from 31 May 2041 upto 29 February 2048. At 31 December 2018, the Group had available AED 12.95 billion (2017: AED 12.5 billion) of undrawn borrowing facilities from various lenders. The Group has complied with the financial covenants of its borrowing facilities during the 2018 and 2017 reporting periods. The fair values of other loans are not materially different to their carrying amounts since the interest payable on these borrowings is close to current market rates. 15 Retirement benefits obligations At 31 December 2018 2017 AED’000 AED’000 Provision for employees’ end of service benefits (Note 15.1) 882,356 762,713 Provision for pension (Note 15.2) 87,235 91,134 969,591 853,847 Less: non-current portion (959,071) (845,658) Current portion (Note 17) 10,520 8,189

The charge for the year included within the employee benefit expense in the consolidated statement of comprehensive income includes current service cost and interest cost. Actuarial loss during the year is recognised in other comprehensive income. 15.1 Provision for employees’ end of service benefits

In 2018 and 2017, 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 3.20% per annum (2017: 2.6% per annum); Discount rate used to determine the present value of the obligation was 3.7% per annum (2017: 3.1%

per annum); and The average rate of mortality and withdrawal is not significantly different from the trends noted at the

valuation date.



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15 Retirement benefit obligations (continued) 15.1 Provision for employees’ end of service benefits (continued) 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 38 million (2017: AED 27 million) in other comprehensive income. Movements in the provision for end of service benefits are analysed below: 2018 2017 AED’000 AED’000 At 1 January 762,713 653,293 Charge for the year (Note 22) 118,307 111,951 Re-measurements 37,505 27,025 Payments made during the year (36,169) (29,556) At 31 December 882,356 762,713

The provision made during the year for end of service benefits and recognised in the consolidated statement of comprehensive income is analysed as follows: 2018 2017 AED’000 AED’000 Current service cost 88,125 92,826 Interest cost 30,182 19,125 118,307 111,951

The employee profile of the Group is as detailed below: 2018 2017 Average age (years) 40.05 40.50 Average past service (years) 10.00 9.00 Average entry age (years) 30.01 30.69



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15 Retirement benefit obligations (continued)

15.2 Provision for pension

15.2.1 Provision for pensions (for eligible UAE national employees who retired before 1 January 2003)

The movements in the provision for pensions are analysed below: 2018 2017 AED’000 AED’000

At 1 January 82,945 35,115 Charge for the year (Note 22) 1,535 52,918 Pensions paid (7,765) (5,088) At 31 December 76,715 82,945 15.2.2 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: 2018 2017 AED’000 AED’000

At 1 January 8,189 8,475 Charge for the year (Note 22) 92,801 83,816 Pensions paid (90,470) (84,102) At 31 December 10,520 8,189

16 Other long term liabilities 2018 2017 AED’000 AED’000 Deferred revenue 17,362,904 15,071,566 Advances for new connections 8,352,245 7,604,898 Retentions payable 474,647 441,432 26,189,796 23,117,896



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17 Trade and other payables At 31 December 2018 2017 AED’000 AED’000 Consumers’ security deposits 3,034,177 2,707,094 Capital projects payables 3,552,383 1,794,890 Trade payables 1,655,846 1,515,705 Retentions payable 1,181,724 1,161,371 Advances for new connections 928,027 844,989 Deferred revenue 600,000 519,709 Accrual for staff benefits 127,284 114,767 Retirement benefit obligations (Note 15) 10,520 8,189 Other payables 2,218,494 1,854,933 13,308,455 10,521,647

18 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. Related party transactions The material transactions and balances with related parties are disclosed below, except as disclosed in Note 7 and Note 9 in these consolidated financial statements:

(a) 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.



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18 Related party transactions and balances (continued) Related party transactions: (continued) (b) 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 incurred fuel costs amounting to AED 6,798 million (2017: AED 6,723 million) from various entities. During the year, the Group incurred water costs amounting to AED 36 million (2017: AED 38 million) from an entity under common control. During the year, the Group contributed an amount of AED 35 million (2017: AED 65 million) to organisations managed by the Group for purposes of promotion of clean energy and water conservation. (c) 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 12 are on deposit with such banks. (d) Compensation to key management personnel

2018 2017 AED’000 AED’000 Salaries and short term employee benefits 69,320 67,016 Post-employment benefits 3,078 4,066 72,398 71,082

(e) Board members’ interests Other than remuneration paid to key management personnel, the Board members of the Authority had no beneficial interest in DEWA or its subsidiaries during 2017 and 2018. Related party balances At 31 December 2018 2017 AED’000 AED’000 Due from related parties Joint ventures 526 508

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 2018 and 2017 in respect of amounts owed by related parties. These balances are included in trade and other receivables.



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19 Revenue

2018 2017 AED’000 AED’000 Sale of electricity 14,324,855 14,118,331 Sale of water 4,442,828 4,310,422 District cooling 2,029,681 1,959,082 Others 1,436,050 1,214,495 22,233,414 21,602,330

Others include:

- Handling fees amounting to AED 54 million (2017: AED 52 million) represents amounts paid by an government related entities to the Group for providing collection services.

- Amortisation of deferred revenue amounted to AED 631 million (2017: AED 563 million).

19.1 Disaggregation of revenue

Electricity Water District cooling

charges Others Timing of revenue

recognition 2018

AED’000 2017

AED’000 2018

AED’000 2017

AED’000 2018

AED’000 2017

AED’000 2018

AED’000 2017

AED’000 Products and services transferred

-at a point in time 14,324,855 14,118,331 4,442,828 4,310,422 2,029,681 1,959,082 804,794 651,698 -over time - - - - - - 631,256 562,797 14,324,855 14,118,331 4,442,828 4,310,422 2,029,681 1,959,082 1,436,050 1,214,495

20 Cost of sales

2018 2017 AED’000 AED’000 Generation and desalination expenditures (Note 20.1) 9,828,157 9,418,559 Transmission and distribution expenditures (Note 20.2) 3,605,115 3,291,434 Purchase of power and water 43,046 38,331 13,476,318 12,748,324

20.1 Generation and desalination expenditures

2018 2017 AED’000 AED’000 Fuel costs 6,798,343 6,723,273 Depreciation (Note 7) 1,785,208 1,684,584 Employee benefit expenses (Note 22) 490,035 497,220 Repairs and maintenance 338,871 325,680 Others 415,700 187,802 9,828,157 9,418,559



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20.2 Transmission and distribution expenditures

2018 2017 AED’000 AED’000 Depreciation (Note 7) 2,148,593 1,864,142 Employee benefit expenses (Note 22) 1,269,805 1,283,219 Repairs and maintenance 143,495 126,394 Others 43,222 17,679 3,605,115 3,291,434

21 Administrative expenses

2018 2017 AED’000 AED’000 Employee benefit expenses (Note 22) 1,439,524 1,418,743 Repairs and maintenance 305,783 181,187 Depreciation (Note 7) 170,298 130,440 Insurance 43,358 41,110 Amortisation (Note 8) 41,460 28,033 Provision for slow moving and obsolete inventory (Note 10) 10,397 3,750 Others 317,971 412,866

2,328,791 2,216,129

Others include the reversal of an impairment of property, plant and equipment amounting to AED 80 million (2017: AED 53 million) relating to a subsidiary.

22 Employee benefit expenses

2018 2017 AED’000 AED’000 Salaries 2,219,897 2,072,422 Bonus 213,670 191,894 Retirement benefit obligations (Note 15) 212,643 248,685 Other benefits 553,154 686,181 3,199,364 3,199,182

Employee benefit expenses are allocated as detailed below:

2018 2017 AED’000 AED’000 Cost of sales

- Generation and desalination expenditure (Note 20.1) 490,035 497,220 - Transmission and distribution expenditure (Note 20.2) 1,269,805 1,283,219

Administrative expenses (Note 21) 1,439,524 1,418,743 3,199,364 3,199,182



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23 Finance income/(costs) – net

2018 2017 AED’000 AED’000 Finance costs Interest on bank and other borrowings (708,478) (660,575) Amortisation of borrowing costs (16,286) (14,852) (724,764) (675,427) Amounts capitalised (Note 7) 482,791 336,567 (241,973) (338,860)

Finance income Amortisation of financial liabilities 1,666 15,056 Interest income on short term bank deposits 270,653 188,704 Reversal of fair value adjustment for trade receivables 38,587 26,616 310,906 230,376 Finance income/(costs) – net 68,933 (108,484)



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24 Net cash generated from operating activities

Note 2018 2017 AED’000 AED’000

Cash flows from operating activities Profit for the year 6,701,674 6,662,542 Adjustment to reconcile profit to net cash provided by

operating activities: Depreciation 7 4,104,099 3,679,166 Amortisation 8 41,460 28,033 Provision for slow moving and obsolete items 10 10,397 3,750 Reversal of impairment of property, plant and equipment 21 (80,294) (53,529) Impairment/(reversal) of trade and other receivables 9 30,967 (10,276) Deferred income (631,256) (562,797) Retirement benefit obligations – gratuity 15 118,307 111,951 Retirement benefit obligations – pensions 15 94,336 136,734 Fair value adjustment 65,142 50,084 Share of loss/(profit) from investment in joint ventures 6 5,062 (378) Gain on sale of property, plant and equipment (390) (796) Gain on derivative financial instruments (2,314) - Assets written off - 83,329 Finance (income)/costs - net 23 (68,933) 108,484 10,388,257 10,236,297 Payment for retirement benefit obligations – gratuity 15 (36,169) (29,556) Payment for retirement benefit obligations – pension 15 (98,235) (89,190) Working capital adjustments: Inventories before movement in provision (87,550) (29,985) Trade and other receivables before provision for impairment (2,643,424) (1,342,611) Trade and other payables 3,133,221 3,792,923 Net cash generated from operations 10,656,100 12,537,878

25 Commitments

At 31 December 2018 2017 AED’000 AED’000

Future commitments including capital expenditure 33,041,638 19,935,578



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26 Financial instruments by category Financial assets

At 31 December 2018 2017

AED’000 AED’000 At fair value through profit or loss Derivative financial instruments (Note 27) 202,830 22,097 At amortised cost Trade and other receivables (excluding prepayments and advance to suppliers) (Note 9) 5,958,715 5,041,396 National bonds (Note 11) 466,589 402,915 Cash and bank balances (Note 12) 12,552,320 11,255,799 18,977,624 16,700,110

Financial liabilities

At 31 December 2018 2017

AED’000 AED’000 At fair value through profit or loss Derivative financial instruments (Note 27) 2,374 160,417 At amortised cost Trade and other payables * (Note 17) 11,769,908 9,148,760 Other long term liabilities* (Note 16) 474,647 441,432 Borrowings (Note 14) 11,339,019 13,247,341 23,583,574 22,837,533

* These do not include advances for new connections, deferred revenue and retirement benefit obligations as these are non-financial liabilities. 27 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. Net unrealised profit of AED 336 million (2017: loss of AED 114 million) relating to these hedging instruments is included in other comprehensive income.



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27 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 2018: Interest payments on floating rate loans

Interest rate swap 5,583,247 202,830 2,374

2017:

Interest payments on floating rate loans

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

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

31 December 2018 Level 1

AED’000 Level 2

AED’000 Level 3

AED’000 Total

AED’000 Assets measured at fair value Derivative financial instruments - 202,830 - 202,830 Liabilities measured at fair value Derivative financial instruments - 2,374 - 2,374 31 December 2017 Assets measured at fair value Derivative financial instruments - 22,097 - 22,097 Liabilities measured at fair value Derivative financial instruments - 160,417 - 160,417 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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28 Dividends The Group declared a dividend amounting to AED 1 billion in respect of the year ended 31 December 2017 (2016: AED 1 billion) and was approved by the Board of Directors at their annual meeting on 5 February 2018. During the year, EMPOWER declared and paid a dividend of AED 180 million (2017: AED 15 million) to the non-controlling interest.

29 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 528 million as at 31 December 2018 (2017: AED 348 million) in excess of the actual increase in fuel costs incurred since 2010.

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: 2018 2017 AED’000 AED’000 At 1 January 348,188 215,189 Excess collected during the year 179,432 132,999 At 31 December 527,620 348,188

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

Documents

Dubai Electricity and Water Authority Consolidated ...Mar 07, 2019 · consolidated financial position of Dubai Electricity and Water Authority (“DEWA” or the “Authority”)