Touching Your l ives In An Extra Ordinary Way

a n n u a l r e p o r t 2 0 0 6

C O N T E N T S

Chairman’s Message 8 - 9 Company Profile 10 - 11• Objectives • Share Capital• Service AreaHighlights 12 Organization and Human Resources 13 - 14 • Organization Structure • Human resources • Human resource development Business Overview 15 - 20• Operational Statistics • Customers Services • New Connections • Electricity Imported Distribution System 21• Distribution System Assets • Operation and Maintenance Power Quality Indicators 22 Projects Highlights 23 - 24 • Projects Summary• Information System Health, Safety and Environment 25Social Responsibility 25Challenges and Future Outlook 26Corporate Governance Report 26 - 32

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SN Content Page 1 Company Highlights for 2006 12 2 Summary of MZEC and Its Contractors Staff 14 3 Internal and External Training & Participants 14 4 Summary of Customers, MWh Supplied and Revenue By Category 16 5 Villages Electrification and New Lines Added 19 6 Monthly Summary of Electricity Imported, Supplied, Billed and Losses 20 7 Equipments and Distribution Lines in MZEC Network 21 8 Distribution Business Outsourced Activities 21 9 Power Quality Indicators 22 10 Projects Completed and In Progress 23 11 Board of Directors 29 12 Audit Committee Meetings 29 13 Internal Tender Committee Meetings and Composition 31 14 Distribution of Shares 32

Figures SN Content Page 1 MZEC Licensed Areas 11 2 Company Organization Structure 13 3 MZEC Manpower, Direct Employees and Contractors Employees 14 4 Summer and Winter Profile 15 5 Maximum and Minimum Demand 16 6 MWh Supplied 17 7 Revenues Generated From Customers 17 8 Number of Customers 17 9 Connection Applications and Executed Connections 18 10 Electricity Imported and Supplied To Customers 20 11 SAIFI, SAIDI and CAIDI Indicators 22 12 MZEC (SAIFI, SAIDI and CAIDI) Indicators 22 13 Projects Completed and In Progress 23

Board of Directors

Management Team

Eng. Mohammed Bin Hamed Al BusaidiCustomers Services Manager

Eng. Abdullah Bin Said Al BadriGeneral Manager

Mr. Salim Bin Yasser Al SulaimaniAdministration & Finance Manager

Eng. Mohammed Bin Abdullah Al HajriDakhiliyah Distribution Manager

Eng. Mohammed Bin Rashid Al Qurri Sharqiya Distribution Manager

Eng. Naser Bin Khalid Al RashaidiSouth Batinah Distribution Manager

Eng.Majid Bin Nasser Al BusaidiPlanning & Projects Manager

Eng. Mubarak Bin Juma Al Araimi

Deputy Chairman

Dr. Zaid Bin Khamis Al SiyabiMember

Mr. Khalifa Bin Ali Al HosniMember

Mr. Haitham Bin Yousef Al ZadjaliMember

Eng. Hamed Bin Mohammed Al Mahruqy

Chairman

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Dear Shareholders,

It is my pleasure to submit the annual report of Mazoon Electricity Company SAOC highlighting the company’s performance during the year ended 31 December 2006.The year 2006 is considered to be the second operational year for the company under the established electricity supply industry new market structure.

During the year, the company continued building its organizational capabilities as per the statutory obligations. In this context, various policies, codes of practices, statements and working procedures were developed to comply with the license requirements. New connection charges and statement was developed as well as Health, Safety and Environment (HSE) policy, complaint handling procedures, customers with special needs code of practice and distribution system capability statement. The above were approved by the Authority for Electricity Regulation, Oman and were enforced.

Moreover, efforts were made in information technology to link the company’s head office with the regional offices and major agents to improve the customers’ services and facilitate the reporting needs.

As part of the recruitment plan, 34 employees were recruited to support the company operations and projects and the company is proud of its 98% Omanization.

FinancialA Glance at the company’s financial results indicates growth in the company’s revenue and in assets. The company has reported a net profit of R.O. 6.4 million during the year compared to R.O. 3.6 million for the period of 8 months ending December 2005. The company achieved total revenue of R.O. 80, 097, 000 out of which R.O. 35.017 million (43.72%) from sales of electricity and R.O.45.08 (56.28%) from Government subsidy. We are pleased to note that basic earnings per share have increased to R.O. 12.866 compared to R.O. 7.336 in 2005.

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OperationsThe distribution system peak demand has reached 842 MW with an increase of 6% from last year. This is attributed primarily to the 6677 new connections executed during the year.

To accommodate the above growth in system peak, the company has completed 24 projects devoted to the distribution system reinforcements and rehabilitations.

Moreover, the company completed 29 projects for electrifications of 33 villages with total investments of R.O. 4.43 million reflecting the company’s commitment to achieve the Government objectives in villages’ electrifications. Most of those projects were in Al Sharqiyah region.

Changes in the Board of DirectorsI am pleased to take this opportunity to extend thanks and appreciation on my behalf and on behalf of my colleagues on the Board of Directors, the General Manager and the company management and staff to Mr. Mubarak Bin Juma Al-Arimi for the role he played during as a member on the Board of Directors for two years, and I welcome at the same time, Mr. Abdullah Bin Salem Almkhini as a member to the Board of Directors and wish him every success.

Future OutlookLooking forward to 2007, the company will strengthen its organizational capabilities in human resources, corporate governance, IT infrastructure and compliance to the distribution and supply license obligations. The company is also keen to support the Government objectives for villages’ electrifications and will continue this program.

Emphasis will be made on more stringent measures for the technical and commercial losses management with an aim for realistic and achievable reductions to decrease the contribution of the Government subsidy.

Finally, I would like to express my gratitude to the Board of Directors, the management and MZEC employees for their contributions and efforts in the company’s second year of operations. Thanks are also due to our esteemed customers, agents, contractors and suppliers who work with us and we look forward to a closer and more fruitful co-operation between us to allow the company to achiev its goals and the Government objectives for restructuring the electricity supply industry in Oman under the wise leadership of His Majesty Sultan Qaboos Bin Said.

Eng. Hamed Bin Mohammed Al MahruqyChairman, Board of Directors

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Com

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file The Government’s strategy for restructuring the electricity and related water sector

in the country comes to keep abreast of developments taking place in terms of the increasing demand for electricity, to prepare this vital sector for privatization in the coming years, and to strengthen the role of the private sector in contributing to the management and implementation of large and basic service projects.

Restructuring electricity sector and regulating its activities in the country is concurrent with these developments and changes. The Royal Decree No. 78 / 2004 enacted the law for regulation and privatization of the electricity sector, and the transfer of all Governmental assets and liabilities associated with generating, purchasing, transporting and distributing electric power into the Electricity Holding Company and nine subsidiary companies according to their licensed activities. By Royal Decree No. 78 / 2004, Authority for Electricity Regulation, Oman was established to regulate this important sector. Mazoon Electricity Company is one of the companies 100% owned by the Electricity Holding Company and the Ministry of Finance.

The company is licensed to distribute and supply electricity to Al Dakhilyah, Al Sharqiyah and South Al Batinah Regions.

Objectives: 1. Achieving the Government objectives for restructuring the electricity supply industry by undertaking licensed activities. 2. Covering the widest geographical scope in Al Dakhilyah, Al Sharqiyah and South Al Batinah regions. 3. Developing and improving services provided to customers. 4. Promoting capable human resources and moving into the commercial working environment. 5. Strengthening the Company’s image within society.

Share Capital:The authorized, issued and paid up capital of the company is fixed at R.O. 500,000 divided into 500,000 shares, of R.O. 1 each. Service Area: The licensed areas are Al Dakhilyah, Al Sharqiyah and South Al Batinah.

Al Dakhilyah Region With its location and topography, Al Dakhilyah consists of the great plateau down from the mountain slopes of Jabal Al Akhdhar from the north in the direction of the desert southward, contacting most regions of the Sultanate. It adjoins Al Sharqiyah from the east, Al Dhahirah region from the west, Al Wusta region from the south and Muscat and Al Batinah from the North. It has a total population of about 235,187 Omanis and 29,896 expatriates, according to the 2003 census. Al Dakhilyah includes eight Willayats: Nizwa, Sumail, Bahla, Adam, Al Hamra, Manah, Izki and Bid Bid. Nizwa is the regional center and it is about 164 kilometers from Muscat. The company has 6 offices in Al Dakhilyah.

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Al Sharqiyah region represents the north eastern front of the Sultanate of Oman, overlooking the Arabian Sea from the east. It includes the interior side of the Hajar Mountains from the north, adjoining Rimal Al Sharqiyah from the south and Al Dakhilyah from the west. It has a population of about 264,090 Omanis and 48,618 expatriates, totaling 312,708 people, according to the 2003 Census. Al Sharqiyah region includes eleven Willayats: Sur, Ibra, Bidiya, Al Qabel, Al Mudhibi, Dema-w-Al Taein, Al Kamel & Al Wafi, Jaalan Bani Bu-Ali, Jaalan Bani Bu-Hassan, Wadi Bani Khalid and Masirah*. The company has 7 offices in Al Sharqiyah region.

South Al Batinah Al Batinah region lies to the north of Muscat, the capital. Al Batinah is considered a connecting link between the major parts of Oman and Governorate of Musandam, located in the extreme north, and UAE. It has a population of 653,000 or 28% of the total population of the Sultanate. It is considered one of the largest areas in terms of population and is divided into two parts: South Al Batinah and Al Batinah North. It enjoys a population density of 52.3 people per kilometer. South Al Batinah Willayats are Al Rustaq, Barka, Al Suwaiq, Al Musanah, Al Awabi, Nakhal, and Wadi Al Ma’awel. Al Batinah is confined between the foothills of the Hajar Mountains and the Gulf of Oman eastward. The coastal plain is about 25 km wide. The company has 5 offices in South Al Batinah. Figure (1) below illustrates the company’s licensed areas.

Figure (1): MZEC Licensed Areas

South Batinah Dakhiliyah Sharqiyah MZECArea Km2 6,399 31,900 36,400 74,699Customers 68,920 70,435 61,440 200,795Number of 33/11 kV Ss 42 38 55 135Number of 11/0.433 kV Ss 3227 2513 3129 8869Number of 33/11 kV TX 76 72 86 234Number of 11/0.433 kV TX 20 14 22 56

* Masirah is not covered by MZEC license

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SL# Description Units 2005 (8 months) 2006

General Data

1.01 Service Area Sq KM 74,669 74,669

1.02 Customers (Output) Number 194,118 200,795

1.03 Total (Output) MWh 1,944,385 2,606,890

1.04 Energy Loss % 16.90% 24.88%

1.05 Maximum Demand (Output) MW 793.6 842.55

1.06 Distribution Stations (Input) Number 135

1.07 Distribution Stations (Input) MVA 1958 2,101

1.08 Sub-Stations (Input) Number 8,897 8,869

1.09 Sub-Stations (Input) MVA 2594.5 2,714.49

1.1 Distribution Network 33KV Ckt KM 2630.8 2,687.53

1.11 Distribution Network 11KV Ckt KM 8118.8 7,548.61

1.12 Distribution Network 0.433 KV Ckt KM 8829.7 8,906.43

Ratios

2.01 Total MWh/Total Connection MWh/ Connection 10.017 12.98

2.02 Total Revenue/ MWh Supplied RO/MWh 13.045 30.73

2.03 Staff Costs/MWh Supplied RO/MWh 0.808 0.98

2.04 Staff Cost/System Peak MW RO/MW 1980.847 3,036.02

2.05 CAPEX/MWh Sold RO/MWh 25.191 4.14

2.06 MWh Supplied/Total Employees MWh/Employee 11,036.467 10,597.11

2.07 OPEX/MWh Sold RO/MWh 24.728 28.25

2.08 Average Staff Cost RO per staff /month 909.722 866.53

2.09 Profit Before Tax/Share RO/Share 8.832 14.13

2.10 Profit Before Tax/Employee RO/Employee 20,830.189 28,711.38

2.11 Profit Before Tax /MWh Sold RO/MWh 2.271 2.71

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Organization StuctureThe company’s structure is designed to fulfill and reflect the statutory obligations of the company. Several factors have contributed with various degrees in shaping the company organization structure such as licensed areas geography, new market structure obligations, new role of distribution department in managing 33 KV systems, continuation of outsourced services, concentration on core business with emphasis on specialization by separating distribution system management from the customers services.

Figure (2): Company Organization Structure

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Human Resources The Company is keen on ensuring a sufficient pool of trained staff to meets its operational needs. It recruits, train and supervise staff career development. The company also cares to improve the development of staff’s skill. MZEC has a workforce of 246 employees and over 1050 contractors’ employees for executing capital projects and supportg its operation.

The company has recruited 34 staff during 2006 as part of its plan, with emphasis on recruiting qualified Omanis for the job. During the year, Human Resources Manual was approved by the Board. Also, new salary structure was proposed to reflect the current market situation. The structure is in its final stage of approval by the Board.

Human Resource DevelopmentTraining and development activities covered a broad range, including formal courses, in-house training, participating in conferences and other activities. Total of 127 employees participated in 221 training programs.

Table (3): Internal and External Training & Participants

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Course In Oman Overseas

Management and Professional development related 15 3 Safety 11 4

Information Technology related 6 0 Administrative 27 11

Finance 1 2 Scientific/Technology related 80 14 Other courses/Seminars 44 3 Total 184 37

2005 2006 MZEC

EmployeesContractors’ Employees

MZEC Employees

Contractors’ Employees

M F M+F M F M+F

Omani 203 6 682 226 15 735

Expatriate 3 0 365 5 0 315

Total 206 6 1047 231 15 1050

Figure (3)Table (2)

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Operational StatisticsDue to the nature of the geographic areas in the company’s licensed areas, which is characterized by very high temperature in summer and moderate during winter, the demand varies between these two seasons. The demand profile is in line with the climate changes during the year. Figure (4) and (5) give an overview of the daily and monthly electricity demand profile for the licensed areas of the company.

Figure (4): Summer and Winter Profile

Summer peak day (16th July 2006) – Demand profile analysis.

• The maximum demand on MZEC Network recorded on 16th July 2006 was 842.55 MW. The demand peaked at 15:00 when the humidity was 28% and temperature reached 49 degree centigrade. This is because of additional A / C load during the period 13:00 – 16:00. • Lowest load during this day was 440.65 MW at 18:00. • Average demand during this day was 622.3 MW

Winter minimum day (25th February 2006) – Demand profile analysis.

• The demand on the system is very low during the night and reaches its minimum point of 113.6 at period 03:00 – 04:00. This is mainly due to no A/C load during winter.• Peak demand during this day 241.8 MW at 19:00.• Average demand was 170.18 MW.

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Figure (5): Maximum and Minimum Demand

During last year the company average load was 365.13 MW with load factor of 43.33%. Average temperature in the company licensed areas was 30.1 degree centigrade and average humidity was 52%.

Customers Services

Electricity supplied to Customer and Revenues.The Company purchases electricity from Oman Power and Water Procurement Company (OPWP) and distributes it to its 200,795 customers in 25 Willayats. 79% of the company customers are residential, 15% Commercial. Government and other categories (Industrial, Agricultural/Fisheries and Hotels/Tourism) account for 6%.

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Table (4): Summary of customers, MWh Supplied and Revenues by Category

Category No of Customers MWh Supplied Revenues RO MWh/Customer Revenue /Customer

2005 2006 2005 2006 2005 2006 2005 2006 2005 2006

Residential 154,361 159,716 1,332,074.18 1,765,174 14,011,947 18,564,972 8.63 11.05 90.774 116.24

Commercial 28,941 29,790 241,291.90 305,747 4,354,398 6,079,375 8.34 10.26 150.458 204.07

Government 9,297 9,698 292,853.00 402,602 5,897,797 7,912,028 31.5 41.51 634.376 815.84

Others 1,519 1,591 78,166 133,367 1,104,197 2,003,028 51.5 83.83 726.9236 1258.97

Total 194,118 200,795 1,944,385 2,606,890 25,368,339 34,559,403 10 12.98 130.685 172.11

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iew Highest Revenue per customer generated from industrial customers (69.5 %) followed

by Hotels/Tourism categories (22.5 %). Highest MWh supplied (1,765,174 MWh) to residential customers account for 67.71% from total MWh supplied during the year.

Figure (6)

Revenues Generated from Customers

Figure (7) MWh Supplied

Figure (8) Number of Customers

Table (4) gives details about the electricity supplied and the revenues generated from different customer categories.

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New ConnectionsDue to the local expansion and to large number of projects completed during the year, the total number of customers increased to 200,795 with a growth of 3.44% compared

to last year. The company received more than 7,200 connection applications and executed more than 84% of them. The following chart summarizes connection applications and executed connections as well as aggregated and regional monthly average connections.

Figure: (9): Connection Applications and Executed Connections

Connection charges and statements were prepared by the company and approved by AER, Oman in October 2006. The new statement was prepared in accordance with conditions 29 and 30 of the license.

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Region Wilayat Villages Electrified in 2006

New Lines Added

Cost

33KV 11KV 0.433 KV

Sharqiyah

Jaalan B B Ali

Al Sulbah 0 2.9 2 85,140.000

Al Luwaiah 0 1 2.4 39,539.000

Quraishaa 0 7.1 1.7 68,640.000

Saih Al Ramath & Saih Al Rahbah

0 10.8 3.5 118,800.000

Saih Al Ula 0 0 2.4 35,008.600

Wadi Hasid & Qarhat Al Add

0 12 6.4 123,542.100

Al litaq 0 0.6 1.4

Ras AlJifin 0 3 2.6 134,134.000

Al Kamil & Al Wafi

Al Salil 0 0.5 1.2

Dedu 0 2.1 0.6 16,716.000

Al Mazra 0 3.6 0.4

Al Mudhaibi

Al Zahirah 0 24 17.5 264,871.200

Aliya & Al Ain 0 10 2 97,148.350

Al Baidha North 0 12 2.5 242,550.000

Baradh 171,380.000

Al Gizaa 62 80 39

Al Ghaidhranah 0 40 19 1,740,780.500

Nafas 0 20 16.5 59,643.000

Wadi Bani Khalid

Quraishaa, Wadi Al Maleh, Saih Al Khitan, Wadi Suhail

20.2 10.4 9.8 420,420.000

Qaseera 0 4.3 1.3 44,196.900

Dubaha & Al Raki 0 14 5.6 212,326.400

Al Quf, Al Qahf & Rahbat 0 4.6 2.3 80,808.080

Dima & Tayeen Mazra Al Sus 0 18 0.24 60,060.000

Sur

Wadi Bani Jaber & Wadi Al Munkal (left Out)

0 6.6 4.5 113,113.000

Al Aygah 0 1.2 0 49,949.000

DakhiliyahIzki Qadhbat 0 16.5 5.8 146,543.650

Adam & Bahla Scattered Houses 0 9 1.8 64,528.200

South Batinah

Rustaq

Nabas 0 5 1 42,969.157

Al Maydah, Al Hameitayn & Al Kahaf

0 12 1.2 83,330.825

Lisab & Al Wadiyah Al Ulwiyah 0 8.3 0.7 66,709.523

Al AwabiAl Suwaib 0 3 0.3 25,016.871

Al Mahdooth 0 0.7 0.4 25,044.800

Total 33 82.2 343.2 156.04 4,632,909.156

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Figure (10): Electricity Imported and Supplied To Customers (MWh)

The company purchaseed (imported) energy from Oman Power and Water Procurement Company (OPWP) as per the power purchase agreement at the source, the amount of energy imported depends on demand. The illustration below shows that energy purchased (imported) differs from supplied due to transmission and distribution losses. Highest electricity distributed was in July while lowest was in January.

Table (6): Monthly Summary of Electricity Imported, Supplied, Billed and Losses.

With exclusion of transmission system losses, the distribution aggregated losses was 24.88%. This is the difference between the energy measured at entry point of the system and the exit point at customers’ meter (billed).

2005 (8 months) 2006

MonthBought (from PWP)

Transmission System Losses

Loss %

At(Bulk

Supply Points)

(Billed) Bought (from PWP)

Transmission System Losses

Loss %At (Bulk Supply Points)

(Billed)

Jan 142,920 9,064 6.34 133,856 110,869Feb 149,764 8,613 5.75 141,151 111,792

March 191,836 9,992 5.21 181,844 124,180April 300,872 22,992 7.64 277,880 155,935May 345,952 18,552 5.36 327,400 217,970 420,651 18,753 4.46 401,898 222,352Jun 397,316 14,853 3.74 382,463 255,965 432,365 20,124 4.65 412,241 306,737July 405,446 17,613 4.34 387,833 307,381 467,842 23,290 4.98 444,552 299,357Aug 409,943 50,578 12.34 359,365 259,571 418,317 21,123 5.05 397,194 295,378Sep 323,605 14,284 4.41 309,321 297,355 398,446 22,227 5.58 376,219 314,102Oct 261,755 11,388 4.35 250,367 237,114 352,519 14,431 4.09 338,088 259,602Nov 189,145 9,592 5.07 179,553 207,595 230,951 11,165 4.83 219,786 224,253Dec 148,842 5,413 3.64 143,429 161,434 154,520 9,058 5.86 145,462 182,333Total 2482004 142,273 5.73 2,339,731 1,944,385 3,661,003 190,832 5.21% 3,470,171 2,606,890

Losses 16.90%   24.88%

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Distribution System AssetsThe distribution system of Mazoon Electricity Company consists of the following voltage levels 33 KV, 11 KV & 0.433 KV. Those voltage categories are working on various 3311/ KV primary substations, 110.433/ kV distribution substations and 330.433/ KV substations. The following table shows the categories in sizes & number of substations.

Table (7): Equipments and Distribution Lines in MZEC Network

Operation and Maintenance Some distribution business activities are outsourced to the private sector. The following table shows cost of outsourced operation and maintenance activities.

Table (8)

Table (8): Distribution Business Outsourced Activities

The above outsourced services were reviewed thoroughly and new tenders were floated and designed with an aim to reflect MZEC licensed duties and responsibilities.

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SB D SH MZEC SB D SH MZECNumber of 3311/ kV Ss 42 54 41 137 42 38 55 135

Number of 110.433/ kV Ss 2862 2886 3101 8849 3227 2513 3129 8869

Number of 3311/ kV TX 74 85 74 233 76 72 86 234

Number of 330.433/ kV TX 12 18 18 48 20 14 22 56

33 kV line (km) OH 2,391.90 944.66 632.54 968.52 2,545.72

Cable 238.90 68.69 22.91 50.21 141.81

11 kV line (km) OH 2,637.00 2,193.48 2,285.48 2,668.58 7,147.54

Cable 481.80 97.71 144.67 158.70 401.08

 0.433 kV line (km)  

  OH   8,088.70   3,845.18     2,005.39     2,464.49     8,315.06 

Cable 741.00      166.00        226.87        198.80        591.67 

2005 2006

SN Contract TypeMonthly Cost RO

Annual CostMonthly Cost RO

Annual Cost

RO RO

1 Emergency and Maintenance of 11 KV & LT Networks 103,747.00 829,976.00 105,447.21 1,265,366.50

2 Maintenance of 33 KV Networks 13,616.90 108,935.20 12,766.90 153,202.80

3 Live Line washing for 33 & 11KV networks

21,470.60 171,764.80 21,470.60 257,647.20

4 AC maintenance system at indoor s/s

475.00 3,800.00 475.00 5,700.00

5 Cleaning for 3311/ KV S/S

862.00 6,896.00 3,261.50 39,138.00

6 Total 140,171.50 1,121,372.00 143,421.21 1,721,054.50

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SAIFI SAIDI CAIDI

Region South Batinah Dakhilyah Sharqiyah MZEC

2005 2006 2005 2006 2005 2006 2005 2006

SAIFI Interrruption/1000 Customers 4.34 1.15 4.93 1.13 6.75 1.31 5.36 1.2

SAIDI Minutes Lost / 1000 Customers (Year)   361 105 343 116 548 162 421 128

CAIDI Minutes / Interruption   83 91 69 102 81 124 78 107

interruption / 100Km per year   10 25 10 23 13 24 11 24

Minutes Lost / km (Lines 33&11 KV)  8 23 7 23 11 30 9 25

SAIFI, SAIDI and CAIDI are the internationally accepted power quality indicators.• SAIFI indicates the system Average Interruption Frequency Index.• SAIDI indicates System Average Interruptions Duration Index.• CAIDI indicates Customer Average Interruption Duration Index.

Table (9): Power Quality Indicators for (33 / 11) KV

Figure (11): Regional SAIFI, SAIDI and CAIDI Indicators

Figure (12): MZEC (SAIFI, SAIDI and CAIDI) Indicators

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Projects Summary • The company executed 53 distribution network projects for villages’ electrification and reinforcement during 2006 and 31 projects are still under progress transferred to 2007. Following table and figure gives details of these projects.

• Load Related Capital Expenditure (CAPEX): is expenditure related to expand and/or upgrade the company distribution system for accommodation of new loads such as village’s electrification and reinforcement projects. The company invested RO. 10.60 million in such load related projects during the year including projects in progress.

• Non- Load Related Capital Expenditure (CAPEX): is expenditure required to maintain and/or replace the company distribution system or supporting facilities and systems such as IT projects, GIS, vehicles and other assets. • Largest electrification project executed in the year was (tender No. 35 / 2005), electrical distribution works (433V, 11 KV, 33 KV Networks) at Giza Area in

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Completed in 2006 In Progress 2006

No of Projects

Cost RONo of

Projects Cost RO

Electrifications

29 4,431,566 11 1,308,153.18

Reinforcement 24 2,631,241 20 5,317,051.08

Total  53 7,062,807 31 6,625,204

Table (10): Projects Completed and In Progress

Figure (13): Projects Completed and In Progress in 2006

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s • Largest electrification project executed in the year was (tender No. 35 / 2005), electrical distribution works (433V, 11 KV, 33 KV Networks) at Giza Area in Mudhibi at Sharqiyah Region with total cost of RO. 1, 740,780.500• Largest reinforcement project partially commissioned is (tender No. 24 / 2003), Rustaq 132 / 33 KV System with total cost of RO. 2,626,494.200

Limitation of contractors and sharp increase in some major materials prices, have contributed in delaying the completion of many projects.

Information SystemsThe company has embarked during the year on an ambitious program of building an advanced digital information infrastructure and system, with the aim of improving efficiency and enhancing quality of services. As part of this program, Mazoon has completed the “Creation and Development of Personal Geodatabase based on Mazoon Electrical Distribution Data Model”. The GIS system resulted in building a solid AM/FM/GIS platform that covered the:

• Creation, development, and implementation of an electric distribution data model based on ArcFM• Data collection, conversion, and migration for a specified pilot area Mazoon seeks to carry out the Enterprise GIS Project to consolidate and integrate key asset information for the electrical distribution network and to establish a basic GIS capability. This «Enterprise GIS» is seen as a foundation system and an integral component in Mazoon’s long-term information infrastructure and business modernization strategy.

The system to be developed in this project will be focused on the most important GIS components that are needed to establish the following:

• Foundation of core technology• Integrated facility database• Integration with selected other business systems currently under development• Implementation of selected application software• Extended computing infrastructure• Staff capacity building• Systems administration• Workflow refinements to support the effective maintenance and use of GIS technology at Mazoon

Moreover, in-house software was developed for Projects Management, Control Center reporting, budget reporting, others. The company also made an on-line link with the meter reading, billing and collection agency as part of enhancing customers accounts administration. The use of the ETAP network modeling software has allowed the company in preparing, approving and distributing the system capability statement as per license condition 32.

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In line with company’s license conditions 7 and 17, the company has prepared HSE policy and initiated implementation of the HSE policy with special focus on Personal Protective Equipment and HSE awareness.

In view of the widespread activities of the company ranging from switching electrical equipment low and high voltages, removing and installing transformers, climbing poles, stringing, connecting customers, massive number of km driven in three regions and the number of contractors working under its supervision, remarkably Mazoon has secured a good LTI record. Emphasis and achievements were in the areas of investment in PPE, staff training and awareness, substations security, etc.

Assets vandalism in distribution system is of concern. The issue is reported to shareholders as well as the Authority. Collaborative efforts are needed to overcome challenges.

The authority has conducted audit on substations security and the company has worked on various projects for compliance with the Authority’s directives and the HSE policy requirements.

The company seeks to participate actively in society through contributions, which enhance its presence and preserve its good reputation in the community. This is done through the sponsorship of events and occasions aimed at achieving sustainable development and serving the community. To fulfill its mission, the Company has participated in sponsoring scientific and social events aimed at strengthening ties with society, and increasing the link with customers.

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1. Understanding of the new regulatory framework and staff training developments.

2. System losses management and reduction to an acceptable limit with stringent measures on technical and non technical losses.

3. Continuation in building the required capabilities for the company for meeting its obligations and license requirements.

4. Compliance to the Company Distribution and Supply license requirements as well as the new electricity structure obligations.

5. To support Government policy in villages’ electrifications with transparent plans and prioritizations.

6. Streamlining the internal process for customers extensions and (Supplier/ Contractor) invoicing management to reduce time and cost.

Company Philosophy Mazoon Electricity Company SAOC believes that setting the highest standards of corporate governance, as envisioned by Capital Market Authority (CMA) in the code of Corporate Governance (code), is not a matter of mere compliances milestone but a useful mechanism to restructure the core ethical system of functioning at top management, keeping in view the interest of the shareholder. The mandatory disclosure requirement as spelt out in the code aims to enhances the degree of transparency in sharing corporate objective in the midst of challenges and adversities. MZEC’s governance system has been fully impartial governing policies on continuous basis.

Board of DirectorsComposition of the Board. The Board comprises of 5 members pursuant to Article No (15) of the Articles of Association of the company. Composition of the Board is as under:-

Eng. Hamad Bin Mohammed Al Mahruqy• Chairman (Non executive/Independent Director)• Attended 4 Board meetings• ITC Chairman• Member of other company BOD (Nil)• Attended AGM and extraordinary general meeting

Eng. Mubarak Bin Juma Al Araimi• Deputy Chairman (Non executive/Independent Director)• Attended 3 Meetings out of 4• Committees Membership (Nil) • Member of other company BOD (Yes)

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Mr. Khalifa Bin Ali Al Hosni• Board Member (Non executive/Independent Director)• Attended 4 Board Meetings• Audit Committee Chairman• Member of other company BOD (Yes)• Attended AGM and extraordinary general meeting

Dr. Zaid Bin Khamis Al Siyabi • Board Member (Non executive/Independent Director)• Attended 4 Board Meetings• Member of Audit Committee• Member of other company BOD (Yes)• Attended AGM

Mr. Haitham Bin Yousef Al Zadjali• Board Member (Non executive/Independent Director)• Attended 4 Board Meetings• Member of Audit Committee• Member of other company BOD (Yes)

The Board convened 4 meetings during the year and appointed Board Secretary and Internal Auditor for the company. The extraordinary general meeting was held on 16 July 2006 to amend some articles in the Articles of Association of the company to be in line with the amendments in Oman Commercial Companies Law and these amendments were approved.

Functions of Board of Directors.• Approval of business plan, financial policies, investment strategies, action plans, internal regulations and implementation guidelines.

• Review of the operational and financial performance of the company and also the performance of company’s trading and other investments at periodic intervals.

• Approval of financial statements and other reports and submission to shareholders and other authorities as prescribed by the laws of the country.

• Fixing up authority levels and delegation of power to the executive management.

• Implementation of a transparent disclosure policy, including all transactions with directors and the related parties and monitor its compliance.

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• Ensure compliance with the laws of the country through proper internal control systems.

• Nomination of sub-committees, specifying their roles, responsibilities and powers.

• Selection of General Manager and other key executives and evaluation of their functions.

• All other matters specifically not delegated to the committees and executive management.

Number of Meetings Held and Dates of Meetings.

Table (11): Board of Directors

Type No Dates

Board meetings 4 25 June 2006, 16 July 2006,

12 September 2006, 9 Dec. 2006.

Annual General Meeting 1 27 September 2006

Extraordinary General Meeting 1 16 July 2006

Audit Committee.Terms of Reference The Audit Committee has been set up pursuant to Article (54) of the Articles of Association and its terms of reference include all matters specified under that article.

Composition of the Audit Committee The Audit Committee comprises of the following three directors of the Company. All members of the Audit Committee are independent and non executives.

Table (12): Audit Committee Meetings Name of Members Period No. of Meetings Held No. of Meetings Attended. Mr. Khalifa Bin Ali Al Hosni Full Year 4 4 Chairman of the Committee Dr. Zaid Bin Khamis Al Siyabi Full Year 4 4 Member Mr. Haitham Bin Yousef Al Zadjali Full Year 4 4 Member

Dates of these meetings were:30th May 2006 29th August 20065th June 2006 3rd December 2006

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Internal Tender CommitteeAs per the Government tender law, the Board has established the Internal Tender Committee and identified its primary functions. The Internal Tender Committee consists of four members and is chaired by the Board of Directors chairman or his deputy.Internal Tender Committee conducted 18 meetings on the following dates in 2006.

8th January 17th January 30th January 20th February 7th March 31st March9th April 15th May 29th May19th June 3rd July 25th July8th August 29th August 11th September 2nd October 22nd November 20th December

Table (13): Internal Tender Committee Meetings and Composition

Member Position Meetings Held Meetings AttendedEng. Hamad Bin Chairman 18 12Mohammed Al Mahruqy (Chairman BOD) Eng. Mubarak Bin Juma Acting Chairman 18 6Al Araimi(Deputy Chairman BOD) Eng. Abdullah Bin Said Al Badri Member 18 17Mr. Salim Bin Yasser Al Suliemani Member 18 15Eng. Mohammed Bin Hamad Al Busaidi Member 18 16

Remuneration MattersThe Company has paid remuneration of R. O. 26,200 to the Directors, Audit Committee members and Internal Tender Committee Chairman for the year 2006.

Details of Non Compliance by the company.The Company has not paid any penalty and no strictures have been imposed on the company by Muscat Securities Market/Capital Market Authority or any statutory authority, on any matter related to capital market during the year.

Communications with the Shareholders and Investors

Since MZEC is part of the newly established electricity supply industry market structure, pursuant to Royal Decree 78 / 2004, the company is maintaining close liaison with the Electricity Holding Company (EHC) as Major shareholder on various policy issues as well as transitional matters. The company’s annual report will be sent to the shareholders, EHC and Ministry of Finance (MOF).

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Table (14): Distribution of Shares

Shareholders Total Shares % Share Capital

Electricity Holding Company SAOC 499,950 99.99%

Ministry of Finance 50 0.01%

Total 500,000 100%

The Statutory AuditorsDeloitte & Touche was appointed as the Statutory Auditors of the Company.

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