PROSPECTUS

Water Drives
Opportunity
Initial Public Offering of
54,442,640 Offer Shares
at a price of Bzs 116 per
Offer Share
(Comprising a Nominal Value of Bzs 100,
premium of Bzs 14 and Offer Expenses
of Bzs 2 per Offer Share)

Offer Opens 19 November 2017

Offer Closes 18 December 2017

www.mcdcoman.com

Financial Adviser & Issue Manager Legal Adviser Marketing Adviser Collecting Banks

‫أﻋﻤﺎل ﺑﻨﻮك اﺳﺘﺜﻤﺎر‬

investment banking Al Busaidy, Mansoor Jamal & Co.
His Majesty Sultan Qaboos Bin Said
 Muscat City Desalination Company S.A.O.G.
(under transformation)
P.O. Box 1935
P.C. 114, Muscat
Sultanate of Oman
Tel:+968 24130826; Fax:+968 24499819
www.mcdcoman.com

PROSPECTUS
Initial Public Offering of 54,442,640 Offer Shares of nominal value Bzs 100 each

OFFER PERIOD
Offer Opens on: 19 November 2017
Offer Closes on: 18 December 2017

OFFER PRICE
Bzs 116 per Offer Share
(Comprising a nominal value of Bzs 100, a premium of Bzs 14 and
Offer expenses of Bzs 2 per Offer Share)

FINANCIAL ADVISER & ISSUE MANAGER

bank muscat S.A.O.G.
P.O. Box 134, Postal Code 112, Ruwi, Sultanate of Oman
Tel: +968 2476 8888; Fax: +968 2479 8220
www.bankmuscat.com

COLLECTING BANKS
bank muscat S.A.O.G.
National Bank of Oman S.A.O.G.
Oman Arab Bank S.A.O.C.
Bank Dhofar S.A.O.G.
Bank Sohar S.A.O.G.
Ahli Bank S.A.O.G.

LEGAL ADVISER
Al Busaidy, Mansoor Jamal & Co.

The Capital Market Authority (the “CMA”) assumes no responsibility for the accuracy and adequacy of the
statements and information contained in this Prospectus nor will it have any liability for any damage or loss
resulting from the reliance upon or use of any part of the same by any person. This Prospectus has been
prepared in accordance with the requirements as prescribed by the CMA. This is an unofficial English language
translation of the original Prospectus prepared in the Arabic language and approved by the CMA in accordance
with Administrative Decision no. H/71/2017 dated 2nd November 2017.

2
Important notice to investors

The aim of this Prospectus is to present material information that may assist investors to make an appropriate
decision as to whether or not to invest in the shares of Muscat City Desalination Company S.A.O.G. (under
transformation) (the “Company”) offered hereunder (the “Offer Shares”).
This Prospectus includes all material information and data and does not contain any misleading information or
omit any material information that would have a positive or negative impact on the decision of whether or not to
invest in the Offer Shares.
The Company’s Board members are jointly and severally responsible for the integrity and adequacy of the
information contained in this Prospectus and confirm that to their knowledge appropriate due diligence has been
performed in the preparation of this Prospectus and further confirm that no material information has been omitted,
the omission of which would render this Prospectus misleading.
All investors should examine and carefully review this Prospectus in order to decide whether it would be appropriate
to invest in the Offer Shares by taking into consideration all the information contained in this Prospectus in its
proper context. Investors should not consider this Prospectus a recommendation by the Company to buy the
Offer Shares. Every investor is responsible for obtaining his or her own independent professional advice on an
investment in the Offer Shares and for conducting an independent valuation of the information and assumptions
contained herein using appropriate analysis or projections.
No person has been authorised to make any statements or provide information in relation to the Company or the
Offer Shares other than the persons whose names are indicated in this Prospectus. Where any person makes any
statement or provides information it should not be taken as authorised by the Company or the Financial Adviser
and Issue Manager.

3
 Additional points to be noted

References to documents
All summaries of documents referred to in this Prospectus may not provide a complete summary of such documents, and
statements in this Prospectus relating to such documents may not be exact reproductions of such documents or parts
thereof and should not be relied upon as being comprehensive statements in respect of such documents.

Scope of information
The information contained in this Prospectus is intended to provide to a prospective Applicant with adequate information
relating to the investment opportunity and background information on the IPO. However, this Prospectus does not
necessarily contain all the information that a prospective Applicant may consider material. The content of this Prospectus
is not to be construed as legal, business or tax advice. Each prospective Applicant should consult his own lawyer, financial
adviser or tax adviser for legal, financial or tax advice in relation to any subscription, purchase or proposed subscription
or purchase of the Offer Shares.

Investor due diligence

Prior to making any decision as to whether to subscribe for the Offer Shares, prospective Applicants should read this
Prospectus in its entirety. In making an investment decision, prospective Applicants must rely upon their own examination
of the terms of this Prospectus and the risks involved in making an investment.

Equity risk
All equity investments carry market risks to varying degrees. The value of any security can fall as well as rise depending
on the market conditions. Potential investors should read “Chapter XIII – Risk Factors and Methods of Mitigation” of this
Prospectus for an outline of important risk factors impacting the Company’s business and the industry it operates in.

Restrictions on distribution of this Prospectus

The distribution of this Prospectus and the Offer Shares may, in certain jurisdictions, be restricted by law or may be subject
to prior regulatory approvals. This Prospectus does not constitute an offer or an invitation by or on behalf of the Company
to any person in any jurisdiction outside Oman to subscribe to any of the Offer Shares where such offer or invitation would
be unlawful. This Prospectus may not be distributed in any jurisdiction where such distribution is, or may be, unlawful. The
Company, the Financial Adviser and Issue Manager and the Collecting Banks require persons into whose possession this
Prospectus comes, to inform themselves of and observe, all such restrictions. None of the Company, the Financial Adviser
and Issue Manager, or the Collecting Banks accept any legal responsibility for any violation of any such restrictions on the
sale, offer to sell or solicitation to subscribe for Offer Shares by any person, whether or not a prospective Applicant, in any
jurisdiction outside Oman where such sale, offer to sell or solicitation to subscribe would be unlawful.

Restrictions on use of information contained in this Prospectus

The information contained in this Prospectus may not be published, duplicated, copied or disclosed in whole or in part or
otherwise used for any purpose other than in connection with the Offer, without the prior written approval of the Company
and the Financial Adviser and Issue Manager.

Disclaimer of implied warranties

Save and except as required under applicable law and regulations, no representation or warranty, express or implied,
is given by the Company, the Financial Adviser and Issue Manager, or the Collecting Banks, or any of their respective
directors, managers, accountants, advisers, lawyers, employees or any other person as to the completeness of the contents
of this Prospectus; or of the projections included within; or of any other document or information supplied at any time in
connection with the Offer; or that any such document has remained unchanged after the issue thereof.

4
Selling Restrictions outside Oman

Kingdom of Bahrain
In relation to investors in the Kingdom of Bahrain, the securities, which are the subject of this Prospectus and related
offering documents may only be offered in registered form to existing account holders and accredited investors as
defined by the Central Bank of Bahrain in the Kingdom of Bahrain where such investors make a minimum investment of at
least US$100,000, or any equivalent amount in other currency or such other amount as the Central Bank of Bahrain may
determine.
This offer does not constitute an offer of securities in the Kingdom of Bahrain in terms of Article 81 of the Central Bank
and Financial Institutions Law 2006 (Decree Law No. 64 of 2006). This Prospectus and related offering documents have
not been and will not be registered as a prospectus with the Central Bank of Bahrain. Accordingly, no securities may be
offered, sold or made the subject of an invitation for subscription or purchase nor will this Prospectus or any other related
document or material be used in connection with any offer, sale or invitation to subscribe or purchase securities, whether
directly or indirectly, to persons in the Kingdom of Bahrain, other than to accredited investors for an offer outside Bahrain.
The Central Bank of Bahrain has not reviewed, approved or registered this Prospectus or related offering documents
and it has not in any way considered the merits of the securities to be offered for investment, whether in or outside the
Kingdom of Bahrain. Therefore, the Central Bank of Bahrain assumes no responsibility for the accuracy and completeness
of the statements and information contained in this document and expressly disclaims any liability whatsoever for any loss
howsoever arising from reliance upon the whole or any part of the content of this document.

State of Kuwait
This Prospectus has not been reviewed by the Capital Markets Authority of Kuwait and is not issued by a person licensed
by the Capital Markets Authority. Accordingly, this Prospectus may neither be circulated within the State of Kuwait nor
may any of the Offer Shares offered for subscription be sold, directly or indirectly, in the state of Kuwait. Moreover, no
invitation or offer to subscribe for any of the Offer Shares may be made to persons, including for the avoidance of doubt,
any legal entities, in the State of Kuwait. In the event that this Prospectus is forwarded to any person in the State of Kuwait,
it should be disregarded and no steps should be taken in reliance upon it. No person in the State of Kuwait may accept
or subscribe for, or purport to accept or subscribe for, the Offer Shares.

State of Qatar
The Offer Shares have not been and will not be offered, sold or delivered, at any time, directly or indirectly in the State of
Qatar in a manner that would constitute a public offering. No application has been or will be made for the Offer Shares
to be listed or traded on the Qatar Exchange or the QE Venture Market. This Prospectus has not been, and will not be,
reviewed or approved by or registered or filed with the Qatar Financial Markets Authority or Qatar Central Bank and may
not be publicly distributed. This Prospectus is intended for the original recipient only and must not be provided to any
other person. This Prospectus is not for general circulation in the State of Qatar and may not be reproduced or used for
any other purpose.

Kingdom of Saudi Arabia

This Prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the
Offers of Securities Regulations as issued by the Board of the Capital Market Authority of the Kingdom of Saudi Arabia
resolution number 2-11-2004 dated October 4, 2004 as amended by resolution number 1-28-2008 dated August 18,
2008 (the “KSA Regulations”).
This Prospectus is directed to “sophisticated investors”, as defined under Article 10 of the KSA Regulations (“Sophisticated
Investors”), for information purposes only. This Prospectus is not intended for distribution to, or use by anyone who is
not a Sophisticated Investor. Any person who is not a Sophisticated Investor should not act on this Prospectus or any of
its contents. This Prospectus also is not intended for distribution to, or use by, any person or entity in any jurisdiction or
country where such distribution would be contrary to law or regulation.
The Capital Market Authority of the Kingdom of Saudi Arabia does not make any representation as to the accuracy or
completeness of this Prospectus, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in

5
 reliance upon, any part of this Prospectus. Prospective purchasers of the securities offered hereby should conduct their
own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of
this Prospectus, you should consult an authorised financial adviser.

United Arab Emirates (excluding the Dubai International Financial Centre)

This Prospectus is strictly private and confidential and is being distributed to a limited number of investors and must not
be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose.
By receiving this Prospectus, the person or entity to whom it has been issued understands, acknowledges and agrees that
neither the Offer Shares nor this Prospectus have been approved by the UAE Central Bank, the UAE Ministry of Economy
and Planning, the UAE Securities and Commodities Authority or any other authorities in the United Arab Emirates. The
Financial Adviser and Issue Manager has not received authorisation or licensing from the UAE Central Bank, the UAE
Ministry of Economy and Planning, the UAE Securities and Commodities Authority or any other authorities in the United
Arab Emirates to market or sell the Offer Shares within the United Arab Emirates. No marketing or offer of the Offer Shares
has been or will be made from within the United Arab Emirates and no subscription to the Offer Shares may or will be
consummated within the United Arab Emirates. It should not be assumed that the Financial Adviser and Issue Manager is
a licensed broker, dealer or investment adviser under the laws applicable in the United Arab Emirates, or that it advises
individuals resident in the United Arab Emirates as to the appropriateness of investing in or purchasing or selling securities
or other financial products. The Offer Shares may not be offered or sold directly or indirectly to the public in the United
Arab Emirates. This Prospectus does not constitute a public offer of securities in the United Arab Emirates in accordance
with the UAE Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise.
Nothing contained in this Prospectus is intended to constitute investment, legal, tax, accounting or other professional
advice. This Prospectus is for your information only and nothing in this Prospectus is intended to endorse or recommend
a particular course of action. You should consult with an appropriate professional for specific advice rendered on the basis
of your situation.

Dubai International Financial Centre

This Prospectus is not intended to, and does not, constitute a financial promotion, an offer, a sale or delivery of shares
or other securities under the Dubai International Financial Centre (the “DIFC”) Markets Law (DIFC Law 12 of 2004, as
amended), Regulatory Law (DIFC Law 1 of 2004, as amended), under the Offered Securities Rules of the Dubai Financial
Services Authority (the “DFSA”) or otherwise. The Offer Shares are not intended for, are not being offered, distributed,
sold or publicly promoted or advertised, directly or indirectly, to, or for the account or benefit of, any person in the DIFC.
This Prospectus is not intended for distribution to any person in the DIFC and any such person that receives a copy of this
Prospectus should not act or rely on this Prospectus and should ignore the same. The DFSA has not approved the offer
of Offer Shares or this Prospectus nor taken steps to verify the information set out in it, and has no responsibility for it.

United States
The Offer Shares have not been, and will not be, registered under the US Securities Act of 1933, as amended (the “US
Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, US persons
(as such term is defined in Rule 902 under the US Securities Act (a “US Person”) except in certain transactions exempt from
the registration requirements of the US Securities Act. Terms used in this paragraph have the meanings given to them by
Regulation S under the US Securities Act.
The Financial Adviser and Issue Manager has agreed that it will not offer or sell the Offer Shares (i) as part of its distribution
at any time or (ii) otherwise until 40 days after the later of the commencement of the Offer and the closing date of the
Offer, within the United States or to, or for the account or benefit of, US Persons, and it will have sent to each dealer to
which it sells any Offer Shares during the distribution compliance period a confirmation or other notice setting out the
restrictions on offers and sales of the Offer Shares within the United States or to, or for the account or benefit of, US
Persons. Terms used in this paragraph have the meanings given to them by Regulation S.
The Offer Shares are being offered and sold outside of the United States to non US Persons in reliance on Regulation S.

United Kingdom
Investment in the Company is a controlled investment for the purposes of the financial promotion restriction under section
21 of the Financial Services and Markets Act 2000 (“FSMA”).

6
This Prospectus has not been approved under FSMA by an authorised person. This communication is exempt from the
general restriction under section 21 of FSMA on the communication of invitations or inducements to engage in investment
activity on the grounds that it is made only to, or directed only at, the following persons (“Relevant Persons”):
(a) “investment professionals” within the meaning of Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (“FPO”); or
(b) “high net worth companies, unincorporated associations etc.” within the meaning of Article 49 of the FPO,
or any other person to whom this Prospectus may lawfully be communicated.
Persons who are not Relevant Persons must not act, or rely, on this communication. the Company or the Financial Adviser
and Issue Manager will deal in the investments described in this Prospectus only with Relevant Persons.
An “investment professional” for the purposes of Article 19 of the FPO is a person who has professional experience in
matters relating to “investments”.
A “high net worth company”, or “unincorporated association etc.” for the purposes of Article 49 of the FPO is: (i) a body
corporate which has, or is a member of the same group as an undertaking which has, a called-up share capital or net
assets of at least £5million (or where the body corporate has more than 20 members or is a subsidiary undertaking of a
parent undertaking which has more than 20 members, at least £500,000); (ii) an unincorporated association or partnership
which has net assets of not less than £5 million; (iii) the trustee of a high value trust which has, or has had in the 12 months
before the date of this communication, an aggregate value of at least £10million; or (iv) any person (“A”) whilst acting
in the capacity of director, officer or employee of a person (“B”) falling within any of the above where A’s responsibilities
when acting in that capacity, involve him in B’s engaging in investment activity.

European Economic Area

In relation to each Member State of the European Economic Area that has implemented Directive 2003/71/EC (as
amended) (the “Prospectus Directive”) (each, a “Relevant Member State”), an offer to the public of Offer Shares may not
be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of Offer Shares
may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented
in that Relevant Member State:
(i) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(ii) to fewer than 150 natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive);
subject to obtaining the prior consent of the Financial Adviser & Issue Manager; or
(iii) in any other circumstances which do not require the publication by the Company of a prospectus within the meaning
of the Prospectus Directive,
provided that no such offer of Offer Shares shall result in a requirement for the publication by the Company or any
underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus
Directive in a Relevant Member State.
For the purposes of this provision, the expression “an offer to the public” in relation to Offer Shares in any Relevant
Member State means the communication in any form and by any means of sufficient information on the terms of the Offer
and any Offer Shares to be offered so as to enable an investor to decide to acquire any Offer Shares, as the same may be
varied in that member state by any measure implementing the Prospectus Directive in that member state.

7
 Forward-looking Statements

This Prospectus contains certain “forward-looking statements”. These forward-looking statements generally can be
identified by the use of forward-looking terminology, including terms such as “aim”, “anticipate”, “believe”, “expect”,
“estimate”, “goal”, “intend”, “objective”, “plan”, “project”, “shall”, “will”, “will continue”, “will pursue”, their negative,
or other words or phrases of similar import. Similarly, statements that describe the Company’s strategies, objectives,
plans or goals are also forward-looking statements. All forward-looking statements are subject to risks, uncertainties
and assumptions that could cause actual outcomes, including among other things, the Company’s results of operations,
financial condition, cash flows, liquidity, financial projections and growth to differ materially from those contemplated by
the relevant forward-looking statement.
Important factors that could cause actual results to differ materially from the Company’s expectations include but are not
limited to:
• inability to estimate future performance;
• inability to realise revenue forecasts after the expiration of the off-take obligations contained in the Project Documents;
• certain financing and/or operational and maintenance risks, which are inherent to the Company;
• change in monetary and/or interest policies of Oman, local and/or international inflation, local and/or international
interest rates;
• fluctuations in foreign exchange rates, equity prices or other rates or prices;
• the performance of the financial markets in Oman; and
• general political, economic and business conditions in Oman which may have an impact on the Company’s business
activities.
By their nature, certain market risk disclosures are only estimates and could be materially different from what actually
occurs in the future. As a result, actual future gains or losses could be materially different from those that have been
estimated. None of the Company or the Financial Adviser & Issue Manager or any of their respective affiliates has any
obligation to update or otherwise revise any statements in this Prospectus to reflect circumstances arising after the date
hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition or
differ in actuality.
The above list is not exhaustive and for a further discussion of factors that could cause actual results to differ, see
“Chapter XIII – Risk Factors and Methods of Mitigation” of this Prospectus. After listing on the MSM, the Company will
adhere to the disclosure rules and regulations issued by the CMA, which includes making timely disclosure regarding the
Company’s results of operations. The Company advises Applicants to track any information or announcements made by
it after listing through the MSM website at www.msm.gov.om in the event they subscribe for Offer Shares and become
Shareholders.

8
Presentation of Financial, Industry and Market Data

Financial Data
Unless stated otherwise, the financial data in this Prospectus is derived from the Company’s audited financial statements
or its unaudited interim financial statements, in each case prepared in accordance with IFRS. Copies of the 2013, 2014,
2015 and 2016 annual audited financial statements; March 2017 quarterly audited financial statements and June 2017 half
yearly unaudited financial statements are set out in "Chapter XXII –Historical Financial Statements” of this Prospectus. The
Company’s financial year commences on 1 January and ends on 31 December. In this Prospectus, any discrepancy in any
table between the total and the sum of the relevant amounts listed is due to rounding.

Currency of Presentation
In this Prospectus, all references to “OMR” and/or “Omani Rials” are to the legal currency for the time being of Oman,
all references to “US$” and/or “US Dollars” are to the lawful currency for the time being of the United States of America.
Conversions of amounts from Omani Rials to US Dollars in this Prospectus are solely for the convenience of the reader. The
Omani Rial has been pegged to the US Dollar since June 1986. Unless otherwise specified, for all periods presented in
“Chapter X – Description of the Company and Business Overview”, “Chapter XII – Project Cost and Sources of Financing”,
“Chapter XIV – Summary Future Financials” of this Prospectus, conversions of amounts between Omani Rials and US
Dollars have been made at an exchange rate of US$1.00 = OMR 0.3845.
The financial model uses a conversion rate of US$1.00 = OMR 0.3845 and, accordingly, conversion of amounts from
Omani Rials to US Dollars have been made at this exchange rate for all periods presented in this Prospectus.

Industry and Market Data

Unless stated otherwise, industry and market data used throughout this Prospectus has been obtained from third-party
industry publications and/or websites, including, without limitation OPWP. Although it is believed that industry data used
in this Prospectus is reliable, it has not been independently verified and therefore its accuracy and completeness is not
guaranteed and its reliability cannot be assured. Similarly, internal company reports, while believed to be reliable, have
not been verified by any independent sources. The extent to which the market and industry data used in this Prospectus
is meaningful depends on the reader’s familiarity with and understanding of the methodologies used in compiling such
data.
This Prospectus contains references to the water desalination capacities of the IWP and IWPP projects communicated by
OPWP. Unless stated otherwise, the stated water desalination capacities provided refer to the contracted capacity of such
projects at the time of their full commercial operation date.

9
 Table of contents

Chapter I Abbreviations and Definitions....................................................................................................................11

Chapter II Summary Information Relating to the Company........................................................................................17

Chapter III General Information on the Offer and the Company.................................................................................19

Chapter IV Summary of Expenses in Connection with the Offer..................................................................................22

Chapter V Purpose of the Offer and Use of Proceeds.................................................................................................23

Chapter VI Objects and Approvals...............................................................................................................................24

Chapter VII Shareholding Details..................................................................................................................................26

Chapter VIII Overview of the Omani Economy..............................................................................................................30

Chapter IX Regulatory Framework and Industry Overview...........................................................................................34

Chapter X Description of the Company and Business Overview.................................................................................38

Chapter XI Contractual Framework..............................................................................................................................49

Chapter XII Project Cost and Sources of Financing.......................................................................................................53

Chapter XIII Risk Factors and Methods of Mitigation.....................................................................................................59

Chapter XIV Summary Future Financials.........................................................................................................................66

Chapter XV Dividend Policy...........................................................................................................................................87

Chapter XVI Valuation and Price Justification.................................................................................................................88

Chapter XVII Related Party Transactions and Material Contracts....................................................................................94

Chapter XVIII Corporate Governance...............................................................................................................................95

Chapter XIX Rights and Liabilities of Shareholders.......................................................................................................106

Chapter XX Market Information...................................................................................................................................109

Chapter XXI Subscription Conditions and Procedures.................................................................................................112

Chapter XXII Historical Financial Statements.................................................................................................................118

Chapter XXIII Undertakings............................................................................................................................................255

10
 ha te e iations an efinitions

AER The Authority for Electricity Regulation of Oman.

AGM An annual general meeting of the Shareholders.
Applicant A person or entity who applies for the purchase of Offer Shares pursuant to the
terms of this Prospectus.
Application The application form used to apply for Offer Shares pursuant to the terms of this
Prospectus.
Application Money The amount to be paid by each Applicant at the time of submission of his/her
Application as specified in “Chapter XXI – Subscription Conditions and Procedures”
of this Prospectus.
Articles The articles of association of the Company, as registered with the Ministry of
Commerce & Industry.
Auditor KPMG
Authorised Share Capital The authorised share capital of the Company.
Baizas/Bzs Omani Baizas (Bzs 1,000 = OMR 1).
Basis of Allotment The basis on which the Offer Shares will be allotted to Applicants under the Offer
and which is described in “Chapter XXI – Subscription Conditions and Procedures”
of this Prospectus.
Board/Board of Directors The board of directors of the Company, elected and holding office in accordance
with the Articles and the CCL.
Board Election Rules Rules and conditions for the Election of Directors of Public Joint Stock Companies
and their Responsibilities (Ministerial Decision 137/2002) and amendments in
respect thereof.
BOO Build, own and operate.
BOOT Build, own, operate and transfer.
CAGUKL Cadagua Al Ghubrah UK Limited.
CAGUKL Offer Shares 15,555,040 Shares being offered for sale by CAGUKL in the IPO.
Capital Market Law The Capital Market Law of Oman issued by Royal Decree 80/98, as amended.
Category I Investors Omani and non-Omani individuals and juristic persons who apply for a minimum of
1,000 Offer Shares and in multiples of 100 Shares thereafter up to a maximum of
500,000 Offer Shares.
Category II Investors Omani and non-Omani individuals and juristic persons who apply for a minimum of
500,100 Offer Shares and in multiples of 100 Shares thereafter up to a maximum of
5,444,200 Offer Shares, or approx. 10 percent of the Offer.
CBO The Central Bank of Oman.
CCL The Commercial Companies Law of Oman issued by Royal Decree 4/74 (as
amended).
CEO The Chief Executive Officer of the Company
CFO The Chief Financial Officer of the Company.
Chairman The Chairman of the Board.
CMA The Capital Market Authority of Oman.

11
 CML Capital Market Law (Royal Decree 80/98).
COD The commercial operation date of the Plant, being 19 February 2016.
Code The CMA Code of Corporate Governance for public joint stock companies which
came into effect on 22 July 2016.
Collecting Banks bank muscat S.A.O.G., Bank Dhofar S.A.O.G., National Bank of Oman S.A.O.G.,
Oman Arab Bank S.A.O.C., Bank Sohar S.A.O.G., Ahli Bank S.A.O.G.
Commercial Register The commercial register maintained by the MoCI pursuant to the Commercial
Register Law issued by Royal Decree 3 of 1974.
Company Muscat City Desalination Company S.A.O.G. (under transformation).
CPI Omani Consumer Price Index.
CTA The Common Terms Agreement dated 25 July 2013 entered into between, the
Company and inter alia JBIC, Sumitomo Mitsui Banking Corporation, Brussels
Branch, Sumitomo Mitsui Banking Corporation Europe Limited and Oman Arab
Bank S.A.O.C.
DAF Dissolved Air Flotation.
Deputy Chairman The Deputy Chairman of the Board.
Desalination Licence The desalination licence of a special nature to desalinate water from the desalination
facility of a special nature identified in Schedule 1 of the Desalination Licence,
granted by AER to the Company that has been effective since 30 June 2016.
DSCR Debt Service Coverage Ratio.
DSRA Debt Service Reserve Account.
EBITDA Earnings before interest, taxes, depreciation and amortisation.
EBL The equity bridge loans made in favour of the Company by Sumitomo Mitsui
Banking Corporation and the Bank Of Tokyo-Mitsubishi UFJ, Ltd.
EBL Agreement means the equity bridge loan agreements dated 2 May 2013 (amended on 12
August 2013 and 12 September 2013) between: the Company, The Bank Of Tokyo-
Mitsubishi UFJ, Ltd. and Malakoff Corporation Berhad (Malakoff EBL Agreement);
the Company, Sumitomo Mitsui Banking Corporation and Sumitomo Corporation
(Sumitomo EBL Agreement); and the Company, Sumitomo Mitsui Banking
Corporation and Cadagua S.A. (Cadagua EBL Agreement).
ECA The Electrical Connection Agreement dated 11 February 2013 between OETC and
the Company.
EGM An extraordinary general meeting of the Shareholders.
EHC Electricity Holding Company S.A.O.C.
EPC Contract The turnkey Engineering, Procurement and Construction contract dated 10 April
2013 between the Company and the EPC Contractor.
EPCC / EPC Contractor/ IWT International Water Treatment L.L.C.
ESA The Electricity Supply Agreement dated 11 February 2013 between MEDC and the
Company.
Finance Documents As defined in the CTA.
Finance Parties As defined in the CTA.
Financial Adviser & Issue bank muscat S.A.O.G.
Manager
Financial Arrangements 25 July 2013.
Completed
12
Financial Year/FY The period of twelve months starting on 1 January and ending on 31 December of
that particular year.
GCC The Cooperation Council for the Arab States of the Gulf, comprising Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates.
GDP Gross domestic product.
Government The Government of Oman.
Grid Code The grid code issued pursuant to the Sector Law.
HSE Health, Safety, and the Environment.

IFRS International Financial Reporting Standards.

Independent Director As defined in the Code.
Information Centre Information centre of the MSM.
Interconnected Zone The Interconnected Zone includes the potable water demands of the Governorates
of Muscat, Al Batinah North, Al Batinah South, Buraymi, Ad Dakhiliyah, and Ad
Dhahirah which are served by PAEW, and the process water demand of the Sohar
Industrial Port area which is served by Majis Industrial Services Company S.A.O.C.
Investor Number The investor number issued by Muscat Clearing to investors holding investor
accounts with Muscat Clearing.
IPA / Independent market IPA Advisory Limited
advisor
IPO The initial public offering of the Offer Shares pursuant to the Offer.
IPP Independent Power Producer.
Issue Expenses The expenses incurred by the Company in relation to the IPO, which are indicated
in “Chapter IV– Summary of Expenses in Connection with the Offer”.
Issued and Paid-Up Share The issued and paid-up share capital of the Company.
Capital
IWP Independent Water Producer.
IWPP Independent Water and Power Producer.
JBIC Japan Bank for International Cooperation.
km 2
Square kilometres.
LD Liquidated Damages.
Lead Founder Malakoff International Limited.
Legal Adviser Al Busaidy, Mansoor Jamal & Co.
LIBOR London Interbank Offered Rate.
m Metres.
m2 Square metres.
m3 Cubic metres.
Malakoff Malakoff Corporation Berhad.
Management The senior management team of the Company.
MCM Million cubic metres
MECA The Ministry of Environment and Climate Affairs of Oman.
MEDC Muscat Electricity Distribution Co SAOC

13
 Memorandum The memorandum of association of the Company, as registered with the MoCI.
MENA The Middle East and North Africa.
MIGD Million imperial gallons per day.
Ministry of Commerce & The Ministry of Commerce & Industry.
Industry/MoCI
Ministry of Finance/MoF The Ministry of Finance.
Ministry of Housing/MoH The Ministry of Housing formerly known MHEW
Ministry of Housing Electricity The Ministry of Housing, Electricity and Water(amended by the RD 93/2007).
and Water/ MHEW
Ministry of Manpower/ The Ministry of Manpower.
MoM
Ministry of National Economy/ The Ministry of National Economy (abolished pursuant to Royal Decree 38/2011).
MONE
MIS The Main Interconnected System.
MODC Malakoff Oman Desalination Company Limited.
MODC Offer Shares 19,443,800 Shares being offered for sale by MODC in the IPO.
MSF Desalination Multi stage flash desalination.
MSM The Muscat Securities Market.
MSM Index The Muscat Securities Market Index.
Muscat Clearing Muscat Clearing and Depository Company S.A.O.C.
NCSI National Center for Statistics and Information of Oman.
Non-Executive Director As defined in the Code, a member of the Board who is not a full-time director
(employee director) and/or does not draw any fixed monthly or annual salary from
the Company.
O&M Agreement The Operation and Maintenance Agreement dated 27 September 2013 between
the Company and the Operator.
OCCI Oman Chamber of Commerce & Industry.
OETC Oman Electricity Transmission Company S.A.O.C.
Offer The offer for sale of 54,442,640 (Fifty four million four hundred forty two thousand
six hundred forty) existing Shares by the Selling Shareholders, each with a nominal
value of Bzs 100, as described in this Prospectus.
Offer Closing Date The closing date of the Offer, which is described in “Chapter XXI – Subscription
Conditions and Procedures” of this Prospectus.
Offer Expenses The expenses collected from each Applicant in connection with the Offer, as further
described in “Chapter IV – Summary of Expenses in Connection with the Offer” of
this Prospectus.
Offer Opening Date The opening date with respect to the Offer, which is described in “Chapter XXI –
Subscription Conditions and Procedures” of this Prospectus.
Offer Period The period between the Offer Opening Date and the Offer Closing Date inclusive of
both days and during which an Applicant can submit an Application.
Offer Price Bzs 116 per Share.
Offer Proceeds The proceeds of the Offer that will be available to the Selling Shareholders.
Offer Shares The Shares that are offered for subscription in the Offer.

14
OGM An ordinary general meeting of the Shareholders.
Oman The Sultanate of Oman.
Omani Rial/OMR Omani Rials, the lawful currency of Oman.
Operator Muscat City Desalination Operation and Maintenance Company L.L.C.
OPWP Oman Power and Water Procurement Company S.A.O.C.
P/E Price to earnings.
PAEW Public Authority for Electricity & Water of Oman.
Paid-Up Share Capital The paid-up share capital of the Company.
PDO Petroleum Development Oman L.L.C.
PFA The Project Founder’s Agreement dated 11 February 2013 between each of the
Project Founders and EHC, and as further amended from time to time.
Plant / Ghubrah IWP means the SWRO desalination plant constructed on the Site in accordance with the
specifications set out in the WPA.
PPI U.S. Producer Price Index published by the United States Department of Labor.
Project The development, ownership, financing, design, construction, maintenance and
operation of the Plant.
Project Documents As defined in the CTA (including, but not limited to, the WPA, the ESA, the ECA,
the Usufruct Agreements, the PFA, the SHA, the EPC Contract and the O&M
Agreement).
Project Founders/ Founders/ Malakoff International Limited, Sumitomo Corporation and Cadagua S.A.
Founder Members
Prospectus This prospectus
Qualifying Founder Sumitomo Corporation.
Repayment Date As defined in the CTA.
Reporting Accountants Deloitte & Touche (M.E.) & Co. LLC
RO Reverse Osmosis
ROP The Royal Oman Police.
S.A.O.C. Société-Anonyme-Omanaise-Closed, an Omani closed joint stock company.
S.A.O.G. Société-Anonyme-Omanaise-Générale, an Omani general public stock company.
Scheduled COD / SCOD The Scheduled Commercial Operation Date of the Plant under the WPA, being
12 October 2014.
Sector Law Royal Decree 78/2004, issued on 1 August 2004, as amended.
Security Documents As defined in the CTA.
Selling Shareholders MODC, SWMEC and CAGUKL.
Senior Facilities As defined in the CTA.
SHA The Shareholders’ Agreement dated 19 August 2013 between Malakoff International
Limited, Sumitomo Corporation and Cadagua S.A.
Share An ordinary share of the Company with a face value of Bzs 100.
Share Capital The share capital of the Company.
Shareholder A shareholder of the Company.
Site The area comprising 60,181 m2 as marked on the plan forming part of Krooki
number 1-05-038-06-132.
15
 SWMEC Summit Water Middle East Company.
SWMEC Offer Shares 19,443,800 Shares being offered for sale by SWMEC in the IPO.
SWRO Sea Water Reverse Osmosis.
System User The system user in accordance with the terms and conditions set out in the ECA.
Taking Over means the taking over of the Plant by the Company in accordance with the provisions
of EPC Contract.
TCM Thousand cubic metres
Temporary Areas The area comprising 16,142m2 on the plan forming part of Krooki number 1-05-
038-06-132.
Time for Completion means the date on or before which Taking Over of the Plant was to be attained,
being 12 October 2014 or as may be extended in accordance with EPC Contract.
Transfer Scheme The scheme determined, implemented and modified by the MOH, in accordance
with the provisions of the Sector Law, for the purposes of transfer of the relevant
assets and liabilities of MHEW to the substitute/successor entities pursuant to the
Sector Law.
Transmission System means a system owned or operated by OETC for the transport of electrical energy.

UAE United Arab Emirates.

UAS The Usufruct Agreement relating to the Site dated 11 February 2013 between the
Company and the MOH.
UATA The Usufruct Agreement relating to the Temporary Areas dated 11 February 2013
between the Company and the MOH.
US$/USD US Dollars, the lawful currency of the United States of America (USA).
Usufruct Agreements The UAS and the UATA.
Water Capacity Charge means the payment comprising the water capacity investment charge and the
water capacity fixed operation and maintenance charge for the Plant payable to
the Company by OPWP in accordance with the terms and conditions of the WPA.
Water Output Charge means the payment which comprises the water output operation and maintenance
charge and the electricity charge for the Plant payable to the Company by OPWP
and which is calculated in accordance with Schedule B of the WPA.
WPA The Water Purchase Agreement dated 11 February 2013 entered into between
OPWP and the Company.

16
Chapter II: Summary Information Relating to the Company

This summary highlights information contained elsewhere in this Prospectus. It does not contain all the information that
Applicants should consider before investing in the Offer Shares. All Applicants should read the entire Prospectus carefully,
including the financial statements of the Company set out in “Chapter XXII – Historical Financial Statements” of this
Prospectus. In addition, all Applicants should specifically read “Chapter XIII – Risk Factors and Methods of Mitigation”
of this Prospectus for more information about important risk factors that should be considered before applying for Offer
Shares.

Overview of the Company

The Company was incorporated with the commercial registration number 1163374 for an unlimited duration and registered
as an S.A.O.C. on 19 January 2013. At an EGM held on 27 October 2016, it was resolved to transform the Company into
an S.A.O.G. The legal and commercial name is Muscat City Desalination Company S.A.O.G. (under transformation) and
its registered office is located at Building No: 310, Street No: 3605, Complex No: 236, 18 November Street, North Al
Ghubrah, Muscat, Sultanate of Oman.
The Company’s core business activity is to develop, own and operate the Al Ghubrah Independent Water Plant, an SWRO
desalination plant with a contracted capacity of 191,000 m3/d (42 MIGD) located in North Ghubrah, Muscat Governorate,
Sultanate of Oman. The Plant has been in commercial operation since 19 February 2016.
The Company currently generates its revenues pursuant to a 20-year term WPA with OPWP, which is indirectly wholly-
owned by the Government. The desalinated water from the Plant is fully contracted to OPWP and is being used to meet
the growing water demand during the term of the WPA and beyond. As the largest desalination plant in Oman, the
contracted water capacity of the Plant represents almost 25 percent of the total contracted capacity in the Interconnected
Zone as per OPWP’s 7 year statement (2017-2023).
The Plant’s contracted water capacity is sold exclusively to OPWP in accordance with the terms of the WPA. Electricity
is supplied to the Company by MEDC pursuant to the ESA. The Company, as System User has entered into the ECA to
secure connection to the Transmission System over the contracted WPA period. The potable water is delivered to PAEW
reservoirs adjacent to the Plant. The Operator is a company controlled by the Project Founders.
The Plant has been established under a BOO scheme, which enables it to be operated beyond the WPA term of 20
years, either by extending the WPA (if agreed by OPWP), or by selling the potable water to a water market which may
exist at that time and/or to eligible customers. As at the date of this Prospectus, the Issued and Paid-Up Share Capital of
the Company is OMR 15,555,040. The Selling Shareholders of the Company are MODC, which owns 45 per cent of the
Company’s shares and, SWMEC which owns 45 per cent of the Company’s shares and CAGUKL which owns 10 per cent of
the Company’s shares. For a profile of each of the Selling Shareholders, please see “Chapter VII– Shareholding Details”
of this Prospectus.

1. Competitive Strengths
The Company’s competitive strengths include the following:
• Largest operating SWRO desalination plant at a single location in Oman;
• Well-established contractual framework with long term WPA, ensuring cash flow protection against adverse events
such as buyer risk events and force majeure;
• Stable and predictable cash flows, resilient to potential shocks in electricity prices and water demand during the term
of the WPA;
• Proven, long-term reliable SWRO desalination technology;
• Experienced Project Founders with an established track record being able to transfer skills and know-how;
• Fully operational Plant operated by experienced and skilled operational personnel respecting highest levels of
Omanisation requirements; and
• Continuous demand for water, ensuring opportunities for incremental growth in revenue after the expiry of the
current off-take contract.

17
 2. Risk Factors
The risk factors affecting the Company and the industry include the following:
• Limited operating history;
• Performance risk;
• Dependence on OPWP as the sole customer;
• No ownership of the land on which the Plant is situated;
• Limited experience complying with listed company obligations; and
• Dilution and Project Founders’ exit risk.
For further details in relation to the Company’s competitive strengths and risk factors, please see “Chapter X – Description
of the Company and Business Overview” and “Chapter XIII – Risk Factors and Methods of Mitigation” respectively of this
Prospectus.

18
Chapter III: General Information on the Offer and the Company
Name
Commercial registration number
Date of registration
Registered office
Principal place of business
Duration
Financial Year
Authorised share capital
Issued and paid-up share capital
Number of Shares offered for
subscription (Offer Shares)
Type of Shares offered for
subscription
Offer Price of the Offer Shares
Percentage of the total issued and
paid-up share capital on Offer
Names of Selling Shareholders and
number of Shares being sold
Purpose of the IPO
Persons eligible for the Offer
Shares
Persons prohibited from subscribing
to the Offer
Muscat City Desalination Company S.A.O.G. (under transformation).
1163374
19 January 2013
P.O. Box 1935, Postal Code 114, Muscat, Sultanate of Oman
Building No. 310, Street No. 3605, Complex 236, 18 November Street, North Al
Ghubrah, Muscat, Sultanate of Oman
Tel: +968 24130826; Fax: +968 24499819
Unlimited.
Commences on 1 January and ends on 31 December each year.
OMR 25,000,000 divided into 250,000,000 Shares with a nominal value of Bzs
100 per Share.
OMR 15,555,040 divided into 155,550,400 Shares with a nominal value of Bzs
100 per Share.
54,442,640 Shares, representing 35 percent of the Company’s total Issued and
Paid-Up Share Capital.
All the Shares issued by the Company and the entire equity capital of the
Company consists only of ordinary shares. Each single Share carries the right to
one vote at any general meeting, including any OGM or EGM.
Bzs 116 per Offer Share (comprising a nominal value of Bzs 100, a premium of
Bzs 14 and Offer Expenses of Bzs 2 per Offer Share).
35 percent of the Issued and Paid-Up Share Capital of the Company.
MODC: 19,443,800 Shares, representing 35.7 percent of the Offer Shares.
SWMEC: 19,443,800 Shares, representing 35.7 percent of the Offer Shares.
CAGUKL: 15,555,040 Shares, representing 28.6 percent of the Offer Shares.
The Company is undertaking the IPO to comply with the obligations stipulated
in the PFA.
The subscription will be open to Omani and non-Omani individuals and juristic
persons.
The following Applicants shall not be permitted to subscribe to the Offer:
• Sole proprietorship establishments: The owners of sole proprietorship
establishments may only submit Applications in their personal names.
• Trust accounts: Customers registered under trust accounts may only submit
Applications in their personal names.
• Multiple Applications: An Applicant may not submit more than one
Application.
• Joint Applications: Applicants may not submit applications in the name of
more than one individual (including on behalf of legal heirs).
All such Applications will be rejected without contacting the Applicant.
19
 Proposed allocation procedure
Minimum limit for subscription
by each Applicant
Maximum limit for subscription
by each Applicant
Offer Opening Date
Offer Closing Date
Nominal value of the Shares
Offer Expenses
Date of EGM for approval
of the IPO
Financial Adviser & Issue Manager
Collecting Banks
20
The allocation of the Offer Shares will be made as follows:
• Category I Investors: 35,387,716 Offer Shares, being 65 percent of the
Offer, on a pro-rata basis.
• Category II Investors: 19,054,924 Offer Shares, being 35 percent of the
Offer, on a pro-rata basis.
In accordance with Article 65 of the CCL, a minimum number of Offer Shares
may be distributed equally among subscribers, taking into consideration small
subscribers and the remaining Offer Shares shall be allocated on a pro-rata basis.
Any under-subscription in Category I Investors will be carried to Category II
Investors and vice versa, as described in “Chapter XXI – Subscription Conditions
and Procedures” of this Prospectus.
• Category I Investors: 1,000 Offer Shares and in multiples of 100 Shares
thereafter.
• Category II Investors: 500,100 Offer Shares and in multiples of 100 Shares
thereafter.
• Category I Investors: 500,000 Offer Shares.
• Category II Investors: 5,444,200 Offer Shares, representing approx. 10
percent of the Offer.
19 November 2017
18 December 2017
Bzs 100 per Share
Bzs 2 per Offer Share
27 October 2016
bank muscat S.A.O.G.
P.O. Box 134
Sultanate of Oman
Tel: +968 24768064; Fax: +968 2478 7764
URL: www.bankmuscat.com
bank muscat S.A.O.G.
P.O. Box 134, Postal Code 112, Ruwi, Sultanate of Oman.
Tel: +968 2476 8064; Fax: +968 2478 7764
www.bankmuscat.com
Bank Dhofar S.A.O.G.
P.O. Box 1507, Postal Code 112, Sultanate of Oman.
Tel: +968 2479 0466; Fax: +968 2478 4428
www.bankdhofar.com
National Bank of Oman S.A.O.G.
P.O. Box 751, Postal Code 112, Ruwi, Sultanate of Oman.
Tel: +968 2477 8757/8610; Fax: +968 2477 8993
www.nbo.co.om
Oman Arab Bank S.A.O.C.
P.O. Box 2010, Postal Code 112, Ruwi, Sultanate of Oman.
Tel: +968 2475 4663; Fax: +968 2412 5125
www.oman-arabbank.com

Auditors of the Company
Reporting accountants of the
Company
Legal Adviser
Communications consultants to the
Company
Independent market advisor
Bank Sohar S.A.O.G.
P.O. Box 44, Postal Code 114, Hai Al Mina, Sultanate of Oman.
Tel: +968 2476 1851; Fax: +968 2473 0344
www.banksohar.net
Ahli Bank S.A.O.G.
P.O. Box 545, Postal Code 116, Mina al Fahal, Sultanate of Oman.
Tel: +968 2457 7082; Fax: +968 2456 7841
www.ahlibank.om
KPMG
4th Floor, HSBC Bank Building, MBD
P.O. Box 641, P.C. 112, Sultanate of Oman.
Tel: +968 24709181; Fax: +968 24700839
www.kpmg.com
Deloitte & Touche (M.E.) & Co. LLC
Minaret Al Qurum Building, 6th Floor
Al Qurum Area
P.O. Box 258, Ruwi, Postal Code 112, Sultanate of Oman.
Tel: +968 22354300; Fax: +968 22354333
www.deloitte.com
Al Busaidy, Mansoor Jamal & Co
Barristers & Legal Consultants
P.O. Box 686, Postal Code 112, Ruwi, Sultanate of Oman.
Tel: +968 2481 4466; Fax: +968 2481 2256
www.amjoman.com
OHI Leo Burnett
P.O. Box 889, Postal Code100, Muscat, Sultanate of Oman.
Tel: +968 24636655
www.ohileoburnett.com
IPA Advisory Limited
74 Wigmore Street, London, W1U 2SQ, United Kingdom.
Tel: +44 (0) 20 7659 9888; Fax: +44 (0) 20 7935 3059
www.ipaadvisory.co.uk
21
 Chapter IV: Summary of Expenses in Connection with the Offer

The maximum expenses incurred by the Company in connection with the Offer are estimated at OMR 481,450 which
would equate to 7.6 per cent of the total proceeds of the Offer if all 54,442,640 Offer Shares are sold. The breakdown
of the maximum estimated expenses incurred by the Company in relation to the Offer is contained in the table below:

Estimated Expenses OMR

Financial Adviser & Issue Manager fees 228,700
Collecting Bank fees 40,000
CMA fees 8,700
Muscat Clearing fees 28,300
Independent market adviser fees (IPA Advisory Limited) 12,100
Legal fees 25,200
Accounting Adviser 38,450
Communications, advertising and publicity 75,000
Other contingency expenses 25,000
Total expenses in connection with the Offer 481,450
Offer Expenses of Bzs 2 per Offer Share collected 108,885
Difference between estimated total expenses incurred and Offer Expenses 372,565
of Bzs 2 per Offer Share collected
The above figures are indicative estimates only. The Offer Price includes an amount equal to the Offer Expenses of Bzs 2
per Offer Share, which will be used to meet part of the expenses incurred by the Company in relation to the Offer and any
excess shall be borne by or accrue to the Selling Shareholders. If all 54,442,640 Offer Shares are sold, total Offer Expenses
of Bzs 2 per Offer Share collected will equate to OMR 108,885.

22
Chapter V: Purpose of the Offer and Use of Proceeds

Purpose of the Offer

The Selling Shareholders are undertaking the IPO to comply with their obligations under the PFA, which require them,
amongst other things, to make 35 percent of the Shares available for public subscription and to list such Shares on the
MSM.
The Government has embarked upon an extensive program to enable international investors to participate in infrastructure
projects in Oman. It has also been the Government’s intention that Omani investors should be able to participate in
strategic projects of this nature. As part of the tendering process for the Project, each of the Project Founders entered
into the PFA with EHC on 11 February 2013, which required them to provide certain warranties and undertakings to EHC
in respect of the Company, for the purposes of entering into the WPA and undertaking the development, ownership and
operation of the Project.
The PFA requires the Project Founders, within four years from the incorporation of the Company, to offer 35 percent of the
Shares of the Company to the public. Accordingly, the Selling Shareholders are offering the Offer Shares, equivalent to 35
percent of the Issued and Paid-Up Share Capital of the Company. The Company has obtained the requisite approvals to
offer 35 percent of Issued and Paid-Up Share Capital, including approval from PAEW pursuant to Article 13 of the Sector
Law. The Company has also obtained the approval of AER to proceed with the sale of 35 percent of the Issued and Paid-
Up Share Capital through an IPO.

Use of the Proceeds of the Offer

The Offer Shares do not represent an issuance of new Shares. The Offer Shares represent the selling/divestment of a part
of the Shares currently held by the Selling Shareholders. The proceeds of the Offer (including the premium) shall therefore
accrue to the Selling Shareholders in the ratio of Shares offered. The Bzs 2 per Share collected towards the Issue Expenses
will cover a portion of the expenses incurred in relation to the IPO.

23
 Chapter VI: Objects and Approvals

Overview
The Company was incorporated and registered as an S.A.O.C. on the Commercial Register on 19 January 2013. At an
EGM held on 27 October 2016, it was resolved to convert the Company into an S.A.O.G.
The Company’s core business activity is to develop, finance, design, construct, operate, maintain, insure and own a
seawater desalination facility at Muscat in Oman. The Company is 100 percent owned by the Selling Shareholders and,
following this Offer, should the Offer be fully subscribed, the public will own 35 percent of the Company’s Issued and
Paid-Up Share Capital.
The Company presently holds the following permits and licences which are material to the on-going operation of its
business:

Ministry of Commerce & Industry: Commercial Registration

Commercial Registration Number : 1163374
Date of registration : 19 January 2013
Expiry date : 18 January 2018

Oman Chamber of Commerce & Industry: Membership

Expiry date : 18 January 2018

AER: Desalination License

Effective date : 30 June 2016
Expiry date : 29 June 2041

MECA: Environmental License

Final Environmental Approval
Granted on : 3 March 2016
Expiry date : 2 March 2018

Articles of Association
The principal objectives for which the Company is established are development, financing, procurement, construction,
ownership, operation and maintenance of seawater desalination plants at Ghubrah in the Governorate of Muscat, together
with all associated water extraction, pumping, storage and distribution systems and equipment and associated electrical
sub-systems and equipment and the delivery and sale of potable water by the Company in the Sultanate of Oman.
A copy of the Memorandum and Articles is available for perusal at the registered office of the Company during business
hours on any business day.

Resolutions Passed
At the EGM held on 27 October 2016, among other things, the following resolutions were passed in accordance with the
CCL:
(a) conversion of the Company from an S.A.O.C. to an S.A.O.G., in connection with which the Selling Shareholders will
offer to sell the Offer Shares for public subscription;
(b) approval of the amended Articles of the Company, in conformity with the requirements prescribed by the CMA;
(c) approval of the offer to the public of 35 percent of the Issued and Paid Up Share Capital
(d) approval of the sub-division of the Company’s shares from OMR 1 to 100 Baizas;

24
(e) authorize any two (2) of, the Board, the CEO, CFO, acting jointly, to carry out the following matters:
(i) to approve and sign on behalf of the Board of and the Company, this Prospectus and other documents relating
to the IPO;
(ii) to do all other acts, sign all documents and file and register any documents with any relevant authority and
obtain consents and approvals on behalf of the Company and the Selling Shareholders which may be deemed
appropriate or necessary in connection with the IPO including listing of the Offer Shares on the MSM.
(iii) to appoint the Reporting Accountants for the IPO; and
(iv) to appoint Collecting Banks for the IPO.
(f) appointment of bank muscat S.A.O.G. as Issue Manager for the IPO;
(g) appointment of Al Busaidy Mansoor Jamal & Co. as Legal Advisers for the IPO;
(h) appointment of OHI Leo Burnett as communications consultants for the IPO;
(i) to ratify all actions taken or delegated by the Board in relation to the IPO prior to the date of the EGM.

Continuing Obligations
In accordance with the CCL, all existing obligations of the Company, prior to its transformation to a public joint stock
company, shall continue in the transformed Company.

25
 Chapter VII: Shareholding Details

Equity Structure of the Company at Incorporation

The Company was incorporated with an initial Authorised Share Capital of OMR 25,000,000, divided into 25,000,000
ordinary shares with a face value of OMR 1 each, and an Issued and Paid-Up Share Capital of OMR 500,000, divided into
500,000 ordinary shares. The following table provides details of the Issued and Paid-up Share Capital of the Company, as
at the date of incorporation of the Company:

Name of Number of % Aggregate Nominal

Shareholder Shares Held of Total Value of Shares (OMR)
Malakoff International Limited 225,000 45.00 225,000
Sumitomo Corporation 225,000 45.00 225,000
Cadagua S.A. 50,000 10.00 50,000
Total 500,000 100.00 500,000
In year 2013, Malakoff International Limited transferred its shares to MODC, Sumitomo Corporation transferred its shares to
SWMEC and Cadagua S.A. transferred its shares to CAGUKL. The equity structure, after giving effect the aforementioned
shares transfer and the conversion of the EBL into equity is as follows:

Name of Number of % Aggregate Nominal

Shareholder Shares Held of Total Value of Shares (OMR)
MODC 6,999,768 45.00 6,999,768
SWMEC 6,999,768 45.00 6,999,768
CAGUKL 1,555,504 10.00 1,555,504
Total 15,555,040 100.00 15,555,040
The current equity structure, after giving effect to the stock-split in the nominal value of the Shares from OMR 1 to Baizas
100 is as follows:

Name of Number of % Aggregate Nominal

Shareholder Shares Held of Total Value of Shares (OMR)
MODC 69,997,680 45.00 6,999,768
SWMEC 69,997,680 45.00 6,999,768
CAGUKL 15,555,040 10.00 1,555,504
Total 155,550,400 100.00 15,555,040

26
The following diagram illustrates the shareholding structure of the Company following the IPO:

Shareholding Structure immediately prior to the IPO

Ferrovial S.A.

99.99%
Malaysia
Fincofer, S.L.
Malakoff
Corporation 99.99%
Berhad
Ferrovial
Agroman S.A.

100% 99.95%
Japan Spain
Cayman
Malakoff Sumitomo Cadagua
International Ltd. Corporation S.A.

100% 100% 100%

BVI Cayman UK
Malakoff Oman Cadagua
Summit Water
Desalination Al Ghubrah
Middle East Co.
Co. Ltd. UK Ltd.

45% 45% 10%

Oman

Muscat City Desalination Company S.A.O.G. (under transformation)

After the completion of the Offer, and assuming that all of the Offer Shares are sold the Company’s Issued and Paid-Up
Share Capital will remain OMR 15,555,040 and will be held as follows:

Name of Number of % Aggregate Nominal

Shareholder Shares Held of Total Value of Shares (OMR)
MODC 50,553,880 32.50 5,055,388
SWMEC 50,553,880 32.50 5,055,388
Public 54,442,640 35.00 5,444,264
Total 155,550,400 100.00 15,555,040

27
 The following diagram illustrates the shareholding structure of the Company following the IPO:

Shareholding Structure following the IPO

Malaysia

Malakoff
Corporation
Berhad

100%
Japan
Cayman
Malakoff Sumitomo
International Ltd. Corporation

100% 100%
BVI Cayman
Malakoff Oman
Summit Water
Desalination Public
Middle East Co.
Co. Ltd.

32.5% 32.5% 35.00%

Oman

Muscat City Desalination Company S.A.O.G. (under transformation)

Brief profile of the Selling Shareholders:

• MODC
MODC is 100% owned by Malakoff International Limited which in turn is the wholly owned subsidiary of Malakoff.
Malakoff, headquartered in Kuala Lumpur and listed on the Bursa Malaysia stock exchange with a market capitalisation
of approximately US$2 billion, is the leading and largest IPP in Malaysia. Its core businesses include power generation,
water desalination and operation and maintenance services. Malakoff owns an effective water production capacity
of 444,800 m3/day in countries such as Saudi Arabia, Bahrain, Algeria and Oman; an effective power generation
capacity of 6,346 MW comprising seven power stations in Malaysia and 690MW effective power generation capacity
overseas that run on coal, gas and oil. In addition, Malakoff owns 50% of the participating interest in the Macarthur
Wind Farm which is the largest wind farm in the Southern Hemisphere.
In Saudi Arabia, Malakoff owns a stake in the Shuaibah IWPP which is one of the largest in the MENA region and the
first IWPP in the Kingdom of Saudi Arabia that delivers power and water to the cities of Makkah, Jeddah, Taif and
Al-Baha. In Bahrain, Malakoff owns a stake in the Hidd IWPP that supplies electricity and water to Bahrain’s Electricity
and Water Authority, while in Algeria, Malakoff owns a stake in the Souk Tleta IWP which supplies water to Algeria’s
national water company L’Algerienne Des Eaux and Algeria’s national oil and gas company, Sonatrach.
Major shareholders of Malakoff include the Employees Provident Fund, Pilgrims Fund, Retirement Fund Incorporated
and MMC Corporation Berhad that hold approximately 75% of the listed entity.
In line with its growth by expansion strategy, Malakoff has been actively looking to venture further in the fast growing
Middle East and North Africa region as well as the neighbouring South-East Asian markets.
Further information on Malakoff is available at its website, www.malakoff.com.my.

28
• SWMEC
SWMEC is 100% owned by Sumitomo Corporation and it is an overseas investment vehicle designated for water
projects in Middle East region.
Sumitomo Corporation is one of the leading general trading and investment firms in Japan developing a multifaceted
business on a global scale to respond to the diverse needs of customers. Sumitomo Corporation consists of five
business units incorporating Metal Products, Transportation and Construction, Media Network, Lifestyle Related
Goods and Services, Mineral Resources Energy, Chemical and Electronics and the Environment and Infrastructure.
With 70,900 employees in 130 bases in 66 countries worldwide, Sumitomo Corporation’s consolidated revenue
amounted to approx. JPY 4.0 trillion in FY2016. Sumitomo Corporation is listed on the Tokyo stock exchange with an
estimated market cap of JPY1.7 trillion.
Sumitomo Corporation is an active player in the water industry involved not only in seawater desalination, but also
in water supply and wastewater treatment projects. Sumitomo Corporation’s role in the water business includes
development, financing, equity participation as well as engineering, procurement and construction and O&M
aspects. Sumitomo Corporation successfully operates water projects with an effective water treatment capacity of
about 900,000m3/day in many countries around the world, including Oman, UK, Brazil, UAE, Kuwait, Bahrain, China
and Mexico.
Further information about Sumitomo Corporation is available at www.sumitomocorp.co.jp
• CAGUKL
Cadagua Al Ghubrah UK Ltd is an entity 100% owned by Cadagua S.A. Cadagua S.A. is a wholly owned subsidiary
of Ferrovial – the world’s leading private investor in transportation infrastructures , with a workforce of approximately
96,000 employees, operations in more than 15 countries, and a turnover of 10.759 billion euros in 2016.
Cadagua with more than 45 years of experience, is well known in Spain and abroad as a pioneer and leading
company in the field of engineering and construction of Water Treatment and Seawater Desalination Plants.
The main activities of Cadagua are the design, construction and operation of all types of different water treatment
plants, among which are the following: Seawater Desalination Plants and Brackish Water Desalination Plants, Drinking
Water Treatment Plants, Municipal Wastewater Treatment Plants and Industrial Wastewater Treatment Plants,
Industrial Water Treatment Plants and Demineralization Plants for Process and Boilers, Cooling Water Treatment
Plants in steel mills, including casting and/or rolling machines, Advanced Biosolid Treatments, Advanced Manure
Treatments, Sludge Thermal Drying, and Advanced Treatments – Tertiary Treatment.
The sewage treatment plants and 150 industrial water treatment installations amount to a total treatment capacity
of 9 million m3/day. Cadagua has successfully completed the design and construction of 115 water treatment and
desalination plants that produce 6.5 million m3/day. Currently desalination plants in operation phase produce an
effective capacity of ~700 TCM/day.
Cadagua has presence across KSA, Algeria, Chile, Portugal, Poland, UK, Cyprus, Tunisia, India, Morocco, UAE, Oman
and US.
Regarding Operation and Maintenance, the contracts total approximately 21 million equivalent population.
The services of Cadagua include everything from the design to the financing and operation of the water treatment
plant, namely; characterization study and treatability of water (laboratory/pilot plant), process selection and adequate
technology, process design, basic and detail engineering, mechanical, electrical and control engineering based on
the most recent computer assisted design technologies, equipment and material procurement, quality control and
inspections at the factory and on site, mechanical erection and pneumatic, electrical and control field installation,
start – up and commissioning, operation and maintenance services.
Further information about Ferrovial is available at www.ferrovial.com

29
 Chapter VIII: Overview of the Omani Economy

Location
Strategically positioned at the crossroads of Asia and Europe, Oman has historically been a centre of trade and commerce.
With a population of approximately 4.6 million as at August 2017, spread over a land area of 309,500 km2, Oman is a
country with stable political, economic and social systems. Oman is administratively divided into eleven governorates (Ad
Dakhiliyah, Ad Dhahirah, Al Batinah North, Al Batinah South, Al Buraimi, Al Wusta, Ash Sharqiyah North, Ash Sharqiyah
South, Dhofar, Muscat and Musandam), which are further divided into 61 provinces or wilayats. Oman’s capital city is
Muscat (in the Muscat Governorate), which is situated on the northeast coast of the country. The following map illustrates
the governorates of Oman and the key cities of Oman, being Muscat and Salalah:

Musandam
Musandam Governorate
(Sultanate of Oman)
Madha
(Sultanate of Oman)

Al
B
G at
ov in
er ah
Al Buraymi no N
ra ort
Governorate te h

Al Batinah South Muscat

Governorate Governorate

Adh Dhahira
Governorateh Ash Shrqiyyah North
Governorate

Ad Dakhliyyah
Ash Shrqiyyah South
Governorate
Governorate

Al Wusta
Governorate

Dhofar
Governorate

Salalah

Capital .............................

Willayah / Town ............

This map is not an authority on Administrative Boundaries.

30
Government
His Majesty Sultan Qaboos bin Said Al Said came to power in 1970 and is both the Head of State and Prime Minister.
As Prime Minister he presides over the Council of Ministers. The Council of Ministers assists His Majesty in framing and
implementing the general policies of Oman. The Basic Law, issued in November 1996 (Royal Decree 101/96), serves as
the basis of a constitution governing state affairs. The Basic Law establishes a bicameral system of elected representatives
with advisory powers and numerous civil liberties for the population. Members of each chamber serve in an advisory
capacity, although members of the lower chamber may also propose legislation.

International relations
Oman maintains strong relations with its neighbours, as well as a wide range of Western and other countries. Oman
has enjoyed political and economic stability over the past 40 years and is a member of various prominent international
organisations, including the United Nations, the International Monetary Fund, the International Bank for Reconstruction
and Development and the World Trade Organisation.
Regionally, Oman is a founding member of the GCC (alongside five other Arab Gulf states: Bahrain, Kuwait, Qatar, Saudi
Arabia and the United Arab Emirates). Oman is also a member of the GCC’s Permanent Petroleum Cooperation Committee
which is charged with preparing the long-term petroleum strategy of the GCC in accordance with its sustainability goals.

Key Economic and Social Indicators

The following table shows a selection of key economic and social statistics for Oman for the periods indicated:

Particulars 2012 2013 2014 2015 2016

GDP at market prices (OMR billions) 30.03 30.60 31.45 26.9 25.5*
Population (millions) 3.62 3.86 3.99 4.2 4.6
Per capita GDP at market prices (OMR) 8,231 7,935 7,882 6,493 5,774
Annual inflation 2.9% 1.1% 1.0% 0.1% 1.1%
MSM market capitalisation (OMR billions) 11.7 13.0 14.5 15.8 17.3
Sources: Ministry of National Economy, erstwhile NCSI
CBO Annual Reports
MSM Annual Statistical Bulletin
World Bank figures
* Provisional

Economy
Oman has a credit rating of “BB+” by Standard & Poor’s on 12 May 2017 and “Baa2” by Moody’s Investor Services on
28 July 2017. The Omani Rial is pegged to the US Dollar at a fixed exchange rate of US$1 = OMR 0.385.
Since the discovery of oil, its extraction and exportation has served as the backbone of Oman’s economy and is the
principal contributor to the Government’s revenues, exports and gross domestic product (“GDP”). Dubai Mercantile
Exchange’s Oman Crude Oil Futures Contract is now the third of three global crude oil benchmarks and sets the benchmark
export price for crude oil produced in Oman and Dubai. Oman is the world’s 21st largest producer of oil and the 26th
largest producer of gas, and held the world’s 24th largest proven oil reserves and 28th largest proven gas reserves,
according to The World Factbook published by the US Central Intelligence Agency. The Government continues to focus
on diversification of the economy in order to gradually reduce its dependence on oil and hydrocarbon revenues, which still
represents 34 percent of Oman’s GDP. The Government is committed to further non-oil industry growth into the future.

31
 The graph below displays annual oil production in Oman during the period from 2009 to 2016:

Crude Oil Production (million barrels)

400
368
358
344 344
350 336
316 323
297
300

250
2009 2010 2011 2012 2013 2014 2015 2016

(Source: Statistical Yearbook 2016 and January 2017 Monthly Statistical Bulletin, NCSI)

Public Finance
The data in this section is based on information gathered from publications of the NCSI, the Central Bank of Oman and
other public sources.
The Financial Affairs and Energy Resources Council (‘FAERC’) is responsible for Oman’s fiscal policy, including the
endorsement of the annual general state budget. A net fiscal deficit of OMR 5.3 billion was recorded in 2016 (preliminary),
compared to a net fiscal deficit of OMR 4.5 billion in 2015 (provisional). The higher deficit in 2016 was primarily driven by
a decline in Government’s revenues due to low oil prices.
In 2016, the Government recorded total revenues of OMR 7.4 billion (preliminary) compared to total revenues of OMR 8.9
billion in 2015; a decrease of 17 percent. In 2016, the Government recorded total net oil and gas revenues (after transfers
to reserve funds) of OMR 5.0 billion (preliminary) compared to net oil and gas revenues (after transfers to reserve funds) of
OMR 6.9 billion in 2015; a year-on-year decrease in net oil revenues of 27 percent. The decline in revenue was primarily
due to a decline in average oil prices from USD57/barrel in 2015 to USD 39/ barrel in 2016.
In 2016, the Government recorded total public expenditure of OMR 12.7 billion (preliminary) compared to total public
expenditure of OMR 13.4 billion in 2015 (provisional); a decrease of 6 percent. The decline in expenditure was on account
of reduced spending on subsidies, security and defense and cut expenditures by ministries and government units.
The Government’s total revenues have been budgeted to increase to OMR 8.7 billion in 2017 primarily on account of
the increase in oil revenue estimated at an average crude oil price of USD 45 per barrel for 2017. The Government
intends to continue to focus on cost rationalisation across ongoing and investment expenditure as well as subsidies and
has budgeted for total expenses of OMR 11.7 billion. The projected deficit for 2017 is OMR 3.0 billion proposed to be
financed by a mix of domestic borrowing, international borrowing and financing from reserves.

Development Plans
National program for enhancing economic diversification (Tanfeedh)
The Tanfeedh program is an initiative launched by the Government in 2016 aimed at creating and implementing initiatives
to diversify the Oman economy. The focus sectors include tourism, manufacturing, and logistics with an aim to improve
the investment climate in Oman and ease of doing business to attract local and foreign investment. The first phase of the
eight phase program has created 121 initiatives to be implemented from 2017. Initial estimates are that these initiatives
could increase GDP by more than OMR 1.7 billion, and could create more than 30,000 jobs for Omani nationals.
Privatisation
In order to reduce reliance on borrowing by the government, the government is continuing its plan to sell-off or privatise
certain assets. The initial steps being undertaken are to rationalise the holding of target assets, by transferring investments
to a number of newly-formed, sector-specific holding companies, or by transferring them to the ownership of the sovereign
wealth funds. With the privatisation program, the government is looking to maintain good levels of private investment to
spur economic growth.

Currency and Financial system

The Oman Rial is the official currency of Oman. It is divided into 1000 Baizas. From 1973 to 1986, the OMR was pegged to
USD at 1 Rial = 2.895 dollars. In 1986, the rate was changed to 1 Rial = 2.6008 dollars, which translates to approximately
1 USD = 0.384497 Rial. The Omani central bank buys USD at 0.384 Rial, and sells USD at 0.385 Rial.
32
The Central Bank of Oman (“Central Bank”) was established in December 1974 by the Banking Law 1974, as amended by
Royal Decree 114/2000 (‘Banking Law’), which sets out its functions and responsibilities. The Central Bank sets monetary
policy independently after consulting with the Government about its fiscal policy objectives. The Central Bank also
provides advice to the Government on economic policy. In addition to the formulation and implementation of monetary
policy, these include regulation and supervision of the banking system and the execution of foreign currency transactions
on behalf of the Government. The financial sector comprises commercial banks, Islamic banks, specialised banks, non-
bank finance and leasing companies and money exchange houses.
The Capital Market Authority was established by Royal Decree 80/98 issued on 9 November 1998, and commenced its
duties on 9 January 1999. The CMA is a Government entity with financial and administrative independence. The principal
role of the CMA is to supervise the capital market and insurance sectors in Oman and to develop the legal framework
governing the same (for example, promulgating the Code of Corporate Governance for companies listed on the Muscat
Securities Market). A number of entities are regulated by the CMA, including the Muscat Securities Market. The CMA also
aims to promote market efficiency for investors and raise awareness of investor rights and the importance of the capital
market.

33
 Chapter IX: Regulatory Framework and Industry Overview

The information in this section has been derived from AER’s website, PAEW’s website, OPWP’s 7-year statement (2017-
2023) issued in May 2017, OPWP’s website and other public sources.

Sector Overview
Oman has little rainfall and limited access to perennial surface water. Due to an increase in population, development of
cities and towns with sustained economic growth, the demand for water has increased substantially. As the traditional
sources of falaj systems were proving inadequate, the Government started setting up projects for providing desalinated
water. In Oman, potable water mostly originates from the sea with 85% of Oman’s tap water coming from sea water, which
is desalinated by desalination plants located throughout the country.
Until 1999, the power and related water activities were solely run by the Government through MHEW. In December
1999, the Council of Ministers approved the introduction of Government policy designed to facilitate the wholesale
restructuring of, and private sector participation in, the electricity and related water sector in Oman. The Government
began the process of preparing a new law to facilitate the restructuring and regulation of the electricity and related water
sector in Oman. As a result the Sector Law, came into force on 1 August 2004. The Sector Law provides the framework
for the industry structure of electricity and related water in Oman. It provides the outline for the transfer of relevant assets
and liabilities of the MHEW (subsequently split into the MoH and the PAEW) to a number of successor companies, being
the Transfer Scheme.
The distribution of all the electricity and related water activities as per the Transfer Scheme involves the setting up of the
OPWP and the EHC as well as the transfer of:
• Generation assets to RPC and Wadi Al-Jizzi Power Company S.A.O.C.;
• Generation and desalination assets to Al Ghubrah Power and Desalination Company S.A.O.C.;
• Transmission assets to OETC;
• Distribution and supply assets transferred to Majan Electricity Company S.A.O.C. and Muscat Electricity Distribution
Company S.A.O.C.;
• Certain generation, distribution and supply assets to Rural Areas Company S.A.O.C. (RAECO); and
• Establishing a single procurement company, OPWP as well as a holding company, EHC.
The Oman water system is divided into three regional systems:
• the MIS, which is the largest part of the system and covers the northern area of Oman operated by the PAEW and
Majis Industrial Services Co. (MISC);
• the Dhofar Water Network, located in the Dhofar Governornate and operated by Directorate General of Water
(DGW); and
• Ad Duqm and Musadam Zones operated by RAECO.
Under the MIS covering northern Oman, PAEW and MISC provide the water to the following geographic zones:
• The “Interconnected Zone” includes the potable water demands of the Governorates of Muscat, Al Batinah North, Al
Batinah South, Buraymi, Ad Dakhiliyah, and Ad Dhahirah which are served by PAEW, and the process water demand
of the Sohar Industrial Port area which is served by MISC. The existing principal sources of desalinated water for this
zone are Ghubrah Power and Desalination Plant, Barka I and Barka II Power and Desalination Plants, and Sohar I
Power and Desalination Plant and the Company’s plant.
• The “Sharqiyah Zone” includes the potable water demands of the Ash Sharqiyah North and Ash Sharqiyah South
Governorates excluding Masirah wilayat. The existing principal source of water for this zone is the Sur Desalination
Plant.

Oman Power and Water Procurement Company

OPWP is the single buyer of power and water for all IPP, IWPP and IWP projects within Oman. OPWP is responsible for
ensuring that there is sufficient electricity and water production capacity available at the lowest cost to meet the growing
demands in Oman. OPWP undertakes long-term generation planning and publishes an annual seven-year statement,
34
which identifies new IPP, IWPP and IWP projects to be competitively tendered and developed by private sector entities,
in order to meet the future power generation and water desalination requirements of Oman. These projects are critical
to the reliable and sustainable development of the power and water sector and the economic development of Oman.
OPWP was established under the Sector Law, Article 74 which specifies its functions and duties including but not limited
to:
• Securing production capacity and output to meet demand for electricity in the MIS and the Salalah System, in
coordination with RAECO;
• Securing production capacity and output to meet demand for desalinated water in Oman;
• Meeting requirements for new electricity and desalinated water capacity in Oman, with new projects to be designed,
constructed, financed, owned and operated by local and foreign investors; and
• The purchase, procurement, and management of production capacity and output, ancillary services and all goods
and other services on the basis of economic purchase.

Contracted Capacity

MIS – Interconnected Zone

OPWP’s portfolio of contracted capacity in the MIS – Interconnected Zone comprises long-term contracts with nine
plants in operation or under construction. As per OPWP’s 7 year statement (2017-2023), the total contracted capacity is
1,553,400m3/d or 337.3MIGD. Summary details of these plants and contractual arrangements are provided in the table
below:

Contract Contracted Plant Contract

Project Type Capacity Type Plant Owner Lead Developer Expiry
140,200m3/d Al Ghubrah Power and
Ghubrah IWPP PWPA MSF (Owned by EHC) 2018
(31 MIGD) Desalination Co. S.A.O.C.
193,200m3/d RO / ACWA Power Barka
Barka IWPP WPA AES Corporation 2018(2)
(42.5MIGD) MSF S.A.O.G.(1)
120,000 m3/d SMN Barka Power Co.
Barka II IWPP PWPA RO GDF SUEZ 2024
(26 MIGD) S.A.O.C.(3)
150,000 m3/d
Sohar IWPP PWPA MSF Sohar Power Co. S.A.O.G.(1) GDF SUEZ 2022
(33 MIGD)
Muscat City Desalination Malakoff
191,000 m3/d
Ghubrah II IWP WPA RO Co. S.A.O.G. (Under International 2034
(42 MIGD)
Transformation) Limited
200,000 m3/d Qurayyat Desalination
Qurayyat IWP(4) WPA RO Hyflux 2037
(44 MIGD) Co. S.A.O.C.
281,000 m3/d Barka Desalination
Barka IV IWP(5) WPA RO ITOCHU 2036
(62 MIGD) Co. S.A.O.C.
250,000 m3/d Myah Gulf Desalination
Sohar III IWP(6) WPA RO Valoriza Agua 2036
(55 MIGD) Co. S.A.O.C.
Qurayyat 8,000 m3/d
WPA RO Muscat L.L.C. AquaSwiss 2018
Temporary IWP(7) (1.8 MIGD)
Note 1: Denotes a company listed on the MSM.
Note 2: Contracts have been agreed to be extended to 2021 subject regulatory approvals.
Note 3: Denotes a company whose holding company is listed on the MSM.
Note 4: Under construction and expected date of completion is Q4 2017.
Note 5: Under construction and expected date of completion is Q2 2018.
Note 6: Under construction and expected date of completion is Q3 2018.
Note 7: The contract will be for two years, and allows for extension for another four years.

35
 In addition to the above sources that are under contract to OPWP, PAEW has its own sources of water available in the
Interconnected Zone that offset the need for water desalination capacity. These include:
1) Well fields in Muscat and other regional wells;
2) A mobile RO plant that is currently located at Ghubrah, with capacity of 23,000 m3/d (5 MIGD);
3) A contract for supply of 20,000 m3/d (4.4 MIGD) from the MISC RO plant in Sohar to 2017;
4) Al Masarrat well field which is expected to supply 10,000 m3/d beginning in 2018; and
5) The Wadi Dayqah surface water reservoir, which is expected to provide capacity of 67,000 m3/d (15 MIGD) beginning
in 2019.

MIS – Sharqiyah Zone

In the Sharqiyah Zone the supply sources available to meet water demand include existing water desalination plants, new
desalination plants under construction or procurement, and PAEW sources. They are described below.

Contract Contracted Plant Lead Contract

Project Type Capacity Type Plant Owner Developer Expiry
131,000m3/d Sharqiyah Desalination Veolia Middle
Sur II IWP WPA RO 2029
(29 MIGD) Company SAOG East
Aseelah Temporary 10,000m3/d
WPA RO Muscat Water LLC Aqua Swiss 2021
IWP (2.2 MIGD)
In addition to the capacity under contract to OPWP, PAEW has wells at several locations. They may be employed for water
supply to a limited degree when desalinated water capacity is not sufficient to meet demand.

Dhofar Water Network

Contract Contracted Plant Lead Contract

Project Type Capacity Type Plant Owner Developer Expiry
68,000m3/d Sembcorp Salalah Power Sembcorp
Salalah IWPP PWPA RO 2027
(15 MIGD) and Water Co. S.A.O.G. Utilities
In addition to above, DGW uses groundwater sources to meet the balance of demand. DGW estimates that groundwater
supplies have a total capacity of up to around 100,000 to 110,000 m3/d. DGW plans to utilize the desalination plants
production to meet the peak demand while using the wells capacity to meet the reserve requirements only. This is also
consistent with national policy to limit groundwater production in order to replenish aquifers.

Ad Duqm and Musandam Water Networks

The Ad Duqm Water Network is currently served by a 8,000 m3/d (1.7 MIGD) desalination plant owned by RAECO in Ad
Duqm town, and a number of local water sources. RAECO expects to expand the plant to produce an additional 4,000
m3/d (1 MIGD) in 2018.
The Musandam Water Network is currently served by small desalination plants: one in Kumzar (450 m3/d) that is owned
and operated by RAECO, three PAEW plants with combined capacity of about 3,500 m3/d, and wells.

Desalinated Water Requirements

According to OPWP, annual average water demand in the Interconnected Zone is projected to increase in the range of
5% to 7% per year, from 746 TCM/day in 2016 to a range of 1,065-1,197 TCM/day in 2023.

36
The annual water demand projections for the Interconnected Zone as estimated by OPWP in the period from 2016 to
2023, is shown in the table and graph below:

Water Demand Projections (2016 – 2023)

1,500

1,300
TCM/day

1,100

900

700
2016 2017 2018 2019 2020 2021 2022 2023

Base case peak demand High case peak demand

Base case annual average demand High case annual average demand

(Source: OPWP)

TCM/day 2016 2017 2018 2019 2020 2021 2022 2023

Peak Water Demand
Base Case Scenario 897 985 1,017 1,067 1,142 1,202 1,244 1,295
High Case Scenario 897 1,027 1,082 1,157 1,256 1,339 1,400 1,466
Annual Average Demand
Base scenario 746 816 838 877 939 989 1,024 1,065
High scenario 746 848 888 947 1,028 1,095 1,145 1,197

OPWP Procurement Activities

OPWP’s current and near-term procurement activities for water projects are summarized in the table below

Capacity Award
Project Network / Zone (MIGD) RFQ RFP Bids Due anticipated COD
Aseelah IWP Sharqiyah Zone 17.6 Completed Completed Completed Q2 2017 Q2 2020
Ghubrah III IWP Interconnected Zone 66 Q4 2017 Q2 2018 Q4 2018 Q1 2019 Q1 2022
North Batinah IWP Interconnected Zone 44 Q4 2017 Q2 2018 Q1 2019 Q2 2019 Q1 2022
Sharqiyah /
Mobile Water 22 TBD TBD TBD TBD TBD
Interconnected Zones
Dhofar Water
Salalah III IWP 22 Completed Completed Completed Q2 2017 Q1 2020
Network
Dhofar Water
Dhofar Water 2022 22 TBD TBD TBD TBD 2022
Network
Musandam Water
Khasab IWP 3.5 Completed Q2 2017 Q4 2017 Q4 2017 Q1 2021
Network
Currently on
Duqm IWP Duqm Water Network 13.2 Completed
hold

From 2019 to 2023, OPWP anticipates the following procurement action for the Interconnected Zone and Sharqiyah Zone:
New Main Interconnected and Sharqiyah Zones IWP(s). Additional desalination capacity may also be required for
operation in 2024 for the Interconnected Zone. Similarly, additional capacity for the Sharqiyah Zone may be required
around the same period. Such projects would imply procurement activities should start around 2019.
37
 Chapter X: Description of the Company and Business Overview

Overview
The Company’s core business activity is to develop, own and operate the Al Ghubrah Independent Water Project, an
SWRO plant with a contracted capacity of 191,000 m3/d (42 MIGD) located in North Ghubrah, Muscat Governorate,
Sultanate of Oman. The Plant has been in commercial operation since 19 February 2016.
The Company currently generates its revenues pursuant to a 20-year term WPA with OPWP, which is indirectly wholly-
owned by the Government. The desalinated water from the Plant is fully contracted to OPWP and used to meet the
growing water demand of the Interconnected Zone during the term of the WPA and beyond. As the largest desalination
plant in Oman, the contracted water capacity of the Plant represents approximately 24% of the operating capacity in the
Interconnected Zone as per OPWP’s 7 year statement (2017-2023).
Electricity is supplied to the Company by MEDC pursuant to the ESA. The Company, as System User has entered into the
ECA to secure connection to the Transmission System over the contracted WPA period. The potable water is delivered to
PAEW reservoirs adjacent to the Plant. The Operator is a company controlled by the Project Founders.
The following map displays the approximate location of the Plant:

The Company was incorporated with the commercial registration number 1163374 for an unlimited duration and registered
as an S.A.O.C. on 19 January 2013. At an EGM held on 27 October 2016, it was resolved to transform the Company into
an S.A.O.G. The legal and commercial name is Muscat City Desalination Company S.A.O.G. (under transformation) and its
registered office is located at P.O. Box 1935, Postal Code 114, North Ghubrah, Muscat Governorate, Sultanate of Oman.
As at the date of this Prospectus, the Issued and Paid-Up Share Capital of the Company is OMR 15,555,040 divided into
155,550,400 Shares of Bzs 100 each. The Selling Shareholders of the Company are MODC, which owns 45 per cent,
SWMEC, which owns 45 per cent, and CAGUKL, which owns 10 per cent. For a profile of each of the Selling Shareholders
and their contribution, please see “Chapter VII– Shareholding Details” and “Chapter XII– Project Cost and Sources of
Financing” of this Prospectus.

38
History and Background
The Government invited proposals for the development of an IWP (Tender No 31/2012) on the following basis:
• The IWP was proposed to be located at Al Ghubrah with a capacity of 191,000m3/d (42 MIGD).
• The Project involved the design, financing, construction, ownership, operation and maintenance of a reverse osmosis
water desalination facility, on a BOO basis, and the capacity of the Plant would be dedicated to, and sell the entirety
of its output to OPWP under the WPA.
Following a competitive bidding process run by OPWP in 2012, the Project Founders were awarded the contract to build
the Plant. The Project Founders incorporated the Company for the purpose of building and operating the Plant.
The Plant has been established under a BOO scheme, which enables it to be operated beyond the WPA term of 20 years
by extending the WPA (if agreed to by OPWP) or by selling water to potential customers should a merchant market exist
at that time. It should be noted that the expected useful life of the Plant can be extended up to 40 years, provided the
Plant is operated and maintained in accordance with good utility practice.
The PFA requires the Project Founders to float 35% of the Shares on the MSM through an IPO. At an EGM held on the
27th of October 2016, the Shareholders resolved to convert the Company into an S.A.O.G. pursuant to an IPO. The Plant’s
total capital cost as of the COD was OMR 102.91 million, which included EPC and non-EPC costs.
The table below summarises the main events of the Project’s implementation:

Date Event
3 March 2012 Request for Proposal issued by OPWP
24 July 2012 Bid submission by the Project Founders
10 November 2012 Declaration as “Preferred Bidder”
11 February 2013 Execution of WPA
18 September 2013 Financial Arrangement Completed
19 February 2016 COD achieved
12 October 2034 Expiry date of WPA
The EPC Contractor for the Project was IWT. The Plant is based on SWRO technology and is the largest operational
desalination plant in Oman. The SWRO technology employed at the Plant is a proven technology that has been
implemented globally on numerous projects.

Select Financial Data

The table below shows select financial data of the Company for the periods indicated:

As at, and for the year

Select Financial Data (OMR ‘000): ended, 31 December
2014 2015 2016
Revenue for the period - - 12,671
Profit (loss) after tax for the period (3,590) (494) 1,298
Total assets at the end of the period 91,497 113,861 110,702
Total liabilities at the end of the period 88,197 100,709 95,177
Cash and cash equivalents at the end of the period 7,586 5,718 10,467
Due to achievement of COD on 19 February 2016, the management of the Company is of the view that no meaningful
comparison can be given between the income statement data for the year ended 31 December 2016 and earlier
corresponding periods.
For the complete financial statements of the Company, please see “Chapter XXII– Historical Financial Statements” of this
Prospectus.

39
 Competitive Strengths

The Company’s competitive strengths include:

Largest operating SWRO desalination plant at a single location in Oman

The Company is the largest operating SWRO desalination plant in Oman, with an installed water capacity of 191,000 m3/d
(42 MIGD) which represents approximately 24% of the water demand in the Interconnected Zone as per OPWP’s 7 year
statement (2017-2023).

Current Operating Capacity in Interconnected Zone (2016)

Plant Operating Capacity (MIGD)

Ghubrah II IWP 42.0
Barka IWPP 42.5
Sohar IWPP 33.0
Ghubrah IWPP 31.0
Barka II IWPP 26.0
TOTAL 174.5

Well-established contractual framework with long term water purchase agreement, ensuring cash flow protection
against adverse events such as buyer risk events and force majeure.
The Project represents one of the eleven operational independent and government owned water/and or power production
projects in Oman. It benefits from a well-established contractual framework.
Oman has an outstanding track record of tendering of IWPs, IPPs and IWPPs in the private sector dating back more than
20 years. Oman is a pioneer of private power and water in the GCC and the proven contractual framework, enshrined in
the Sector Law, is well established. The first IPP in Oman began generating electricity in 1996 and Oman’s track record
of executing and complying with water (and power) purchase agreements since 1993/1994 makes Oman a preferred
destination for IWP/IPP/IWPP developers. The procurement, ownership and contractual framework template adopted for
the Project is similar to those adopted with the other IWPs, IPPs and IWPPs in Oman predating the Project.
The entire water output from the Company’s installed capacity is contracted with OPWP, through a single long-term 20
year WPA. Beyond the WPA period, the Company may extend its WPA with OPWP (if agreed by OPWP on such terms to
be negotiated) or sell water to other potential customers should a merchant market exist at that time. The extension will
depend on the condition of the Plant as well as on the evolution of the market regulations set by the AER.
The WPA provides for various buyer risk and force majeure events which outline the relief that the Company may be
entitled to receive should certain specified events occur that hinder the Company from performing its obligations under
the WPA, in accordance with and subject to the terms of the WPA. For a more detailed summary of the conditions required
to be fulfilled by the Company in order to receive relief from buyer risk and force majeure events, please refer to the
“Chapter XI- Contractual Framework” of this Prospectus.

Stable and predictable cash flows, resilient to potential shocks in electricity prices and water demand during the
term of the WPA
Under the WPA, the Company receives the Water Capacity Charges from OPWP for the demonstrated water capacity of
the Plant, initially set by the acceptance test and subsequently set by the Annual Performance Test. The Water Capacity
Charges are payable by OPWP regardless of whether the actual output of the Plant is dispatched by OPWP, and regardless
of whether the Company is instructed by OPWP to deliver water. This means that, subject to certain limited exceptions,
OPWP is obliged to pay Water Capacity Charges to the Company for 100 percent of the guaranteed contracted water
capacity of the Plant, irrespective of whether or not water is actually dispatched.

40
The Company’s revenues are based on:
1. Water Capacity Charges which further consist of the:
a) Water capacity investment charge, which includes debt service, equity returns, tax payments and connection
fees (capital component); and
b) Water capacity operation and maintenance charge, which includes manpower, maintenance, spare parts,
insurance, fixed general and administrative costs and connection fees (O&M component).
2. Water Output Charges which further consist of the:
a) Water output operation and maintenance charge for variable operation and maintenance costs to produce the
water output delivered; and
b) Electricity charge which is a virtual pass through for electricity costs to produce the water output delivered.
OPWP, a Government owned entity, as the off-taker and the contractual counterparty responsible to pay, is an entity with
a high credit rating and an excellent track record of timely payments. Accordingly, the Company has strong predictability
of stable cash flows that are sheltered from volatility of demand for water, given that the Company is mainly paid on an
availability basis.
The Company derives its financial security from the fact that the Water Capacity Charge is payable for each hour during
which the Plant is available, irrespective of how much water is actually dispatched, and is designed to cover fixed costs,
including fixed operating and maintenance costs, debt service, insurance costs, taxes, spare parts, connection fees and
return on capital.

Proven long-term reliable SWRO desalination technology

The Plant utilizes the SWRO process to desalinate seawater. The SWRO process extracts water from the incoming seawater
by pushing it under pressure through semipermeable RO membranes to produce pure and high quality water. The process
is a low temperature process where no heating is required and does not require any other input other than electricity to
drive pumps. The Plant also contains DAF as a pre-treatment system, designed to remove solids from seawater which
enables the Plant to operate at full capacity during unforeseen red tide algal blooms and other adverse events such as
oil contamination.

Experienced Project Founders with an established track record being able to transfer skills and know-how
The Company has the backing of the Project Founders with a proven track record of implementing large and complex
independent water and power plants globally and in the GCC. It should be noted that two of the Selling Shareholders viz.
MODC and SWMEC will remain Shareholders in the Company immediately after the IPO, with a collective holding of 65%:
– MODC is 100% owned by Malakoff International Limited, which in turn is wholly owned by Malakoff. Malakoff,
headquartered in Kuala Lumpur and listed on the Bursa Malaysia stock exchange with a market capitalisation of
approximately USD2 billion, is the leading and largest IPP in Malaysia. Its core businesses include power generation,
water desalination and operation and maintenance services. Malakoff owns an effective water production capacity
of 444,800 m3/day in countries such as Saudi Arabia, Bahrain, Algeria and Oman; an effective power generation
capacity of 6,346 MW comprising seven power stations in Malaysia and 690MW effective power generation capacity
overseas that run on coal, gas and oil. In addition, Malakoff owns 50% of the participating interest in the Macarthur
Wind Farm which is the largest wind farm in the Southern Hemisphere.
– SWMEC is 100% owned by Sumitomo Corporation and it is an overseas investment vehicle designated for water
projects in the Middle East region. Sumitomo Corporation is an active player in water industry involved not only in
seawater desalination, but also in water supply and wastewater treatment projects. Sumitomo Corporation’s role in
the water business includes development, financing, equity participation as well as engineering, procurement and
construction and O&M aspects. Sumitomo Corporation successfully operates water projects with an effective water
treatment capacity of about 900,000m3/day in many countries around the world, including Oman, UK, Brazil, UAE,
Kuwait, Bahrain, China and Mexico. With 70,900 employees in 130 bases in 66 countries worldwide, Sumitomo
Corporation’s consolidated revenue amounted to approx. JPY 4.0 trillion in FY2016. Sumitomo Corporation is listed
on the Tokyo stock exchange with an estimated market cap of JPY 1.7 trillion.
– CAGUKL is an entity 100% owned by Cadagua S.A. Cadagua S. A. is a wholly owned subsidiary of Ferrovial –
the world’s leading private investor in transportation infrastructures , with a workforce of approximately 96,000
employees, project experience in more than 15 countries, and a turnover of 10.759 billion euros in 2016. Cadagua
has successfully accomplished the design and construction of 115 water treatment and desalination plants that
produce 6.5 million m3/day.
41
 For further information in relation to the Project Sponsors, please see “Chapter VII – Shareholding Details” of this
Prospectus.

Fully operational Project

The Plant is completed and has been in full commercial operation since 19 February 2016, thereby eliminating any
construction risk. The existing operational Plant has achieved excellent performance parameters since COD with high
commercial reliability which evidences efficient plant operation.
The size of the Plant, along with the proven long-term reliable SWRO technology, brings the Plant to a competitive
position relative to other water plants in the Sultanate. Also, in terms of geography, the Company is strategically located
in the heart of Muscat city and thereby will remain the key water supply unit for the city. As per OPWP’s 7 year statement
(2017-2023) future demand is expected to grow faster than the supply over next few years making the Company a
particularly important Plant for Oman.

Experienced operator comprising of experienced and skilled operational personnel

The Company benefits from minimal operating risk as the Operator is a company controlled by the Project Founders,
creating an alignment of interests which ensures that the Plant is operated effectively. The Company has entered into
the O&M Agreement and so has largely insulated itself from major operating and maintenance risks. The Operator is
managed locally and benefits from the collective expertise of the Project Founders, who hold a long track record and
expertise in the industry and are well established in the region with a demonstrated track record of running similar power
and water plants.
The Operator also benefits from an experienced management team, which compliments and collaborates with
the Company’s Management. Therefore, collectively, the Plant benefits from extensive management expertise and
operational knowledge accumulated through decades of experience. The presence of such experienced professionals,
the Management and the Project Founders also contributes to the pursuit of good corporate governance and ensures
that the Project benefits from high standards. The management is strongly supported by a highly-trained Plant staff of
approximately 37 personnel employed by the Operator. The presence of such experienced professionals is important for
the present and future success of the Project.
For further details relating to the Management team of the Company, please see “Chapter XVIII – Corporate Governance”
of this Prospectus.

Continuous demand for water, with opportunities for incremental growth in revenue after the expiry of the current
off-take contract
Overall demand for water in Oman is expected to increase significantly according to OPWP, driven by economic
development, population growth, increasing personal income, capital investment, housing, infrastructure and industrial
spending and tourism developments. Peak demand for water are expected to grow from 897 TCM/day in 2016 to 2,025
TCM/day in 2034, when the Project’s WPA is due to expire. IPA anticipates that the capacity of existing plants and firm
new builds in the Interconnected Zone will not be sufficient to cover demand thereafter. Therefore, based on the results
of the IPA’s study, the Company is expected to remain economically useful in the post-WPA period.

Technology and Processes

Description of the Plant

The Plant is located to the west of the existing Ghubrah Power and Desalination Plant, Muscat Governorate, Sultanate of
Oman and was developed under a BOO scheme. The Plant has been in commercial operation since 19 February 2016.
The Plant has a capacity of 42 MIGD (191,000 m3/d) and comprises offshore passive screens, submerged seawater intake
and outfall pipelines, a DAF system, dual media filters for pre-treatment, a double pass SWRO system, post treatment
with carbon dioxide and a lime dosing remineralisation system plus chlorination and fluoridation, and all other auxiliary
systems.

42
The following pictures display the Plant’s water facility in operation:

Desalination process
The desalination process followed by the Plant is shown below:

Seawater Intake Seawater Dissolved Air Flotation DMF Feed Pump Dual Media Filter
Intake Pump (DAF) 8x14.3% 10x14.3% (DMF) 52x2%

Water PAEW Product

Reservoir Water Tank
High Pressure Cartridge Filter
RO Feed Pump 16x6.7%
Brine

Booster Pump

Outfall
Energy Recovery
Device

Seawater Intake
The process starts at the seawater intake where seawater is extracted via two pipelines which are laid under the sea bed
using four seawater intake pumps. Immersed but elevated passive screens with 5 mm slot size are installed at the off-shore
entry point of the pipeline to prevent passage of sediment, debris and aquatic life.
An air burst system is provided to periodically backwash the screens to maintain efficient screen performance. A
chlorination system is installed to prevent marine growth in the pipelines.
Seawater from the intake is then transferred to the downstream processes.

Pre-treatment System
The pre-treatment system is required to treat the seawater upstream to the RO system. This is accomplished by the DAF,
dual media filter and cartridge filter systems.
The DAF operation comprises of coagulation and flotation of the seawater particles and the seawater will be further
treated at the dual media filter system where the particles will be filtered through layers of sand and anthracite. The DAF
is bypassed during normal seawater conditions as the dual media filter system alone is sufficient to pre-treat the water.
The DAF is only operated during adverse seawater conditions such as during algal blooms and red-tide events.
43
 Seawater is finally treated at the cartridge filter where most particles sized above 5 micron will be filtered before being
fed to the RO system.

RO system

The RO system comprises of high pressure pumps, booster pumps, energy recovery devices and thin filmed RO
membranes. The RO process is energy intensive as it requires high pressure of up to 70 bar to overcome the osmosis
pressure in order to produce the product water. Energy recovery devices are installed to recover the energy in the high
pressure reject water to reduce the overall energy required to produce product water.
The initial design of the Project included a two-pass RO system, however, during the course of construction, the potable
water specification was revised due to a relaxation of the boron limits as per revised Omani regulatory standards which
resulted in the 2nd pass system no longer being required.

Post-treatment System
The water produced downstream from the RO system is still not suitable for consumption, therefore further treatment is
required to make it potable. Potabilization is achieved with the addition of carbon dioxide that is combined with crushed
and purified limestone to produce a balanced and buffered drinking water suitable for consumption. In addition, chlorine
is added for disinfection and fluoride to reduce tooth decay. Potable water is then transferred to the PAEW reservoirs
adjacent to the Plant.

Operation and Maintenance

The Plant is operated and maintained throughout the term of the WPA by the Operator. The Operator is primarily
responsible for HSE compliance, Plant availability and efficiency, meeting dispatch instructions and operational cost
control. The Operator is also responsible for ensuring adequate spare parts are available and that the staff is properly
qualified and trained.
44
Revenue Overview

During the term of the WPA

The WPA sets out the terms for the production and supply of water to OPWP during the term of the WPA. The WPA
imposes an obligation on the Company to operate and maintain the Plant at an agreed level of availability with respect to
the guaranteed contracted water capacity following the COD.
Since the COD, the Plant has had a contracted water desalination capacity of 191,000 m3/d (42 MIGD) and sells the water
to OPWP. In return, the Company receives a tariff covering Water Capacity Charges and Water Output Charges from
OPWP, described as follows:
• The Water Capacity Charges are payable for each hour during which the Plant is available, irrespective of how much
water is actually dispatched, and are designed to cover fixed costs, including fixed operating and maintenance costs,
debt service, insurance costs, taxes, spare parts, connection fees and return on capital.
• The Water Output Charges are designed to cover variable operating and maintenance costs and electricity charges,
and are payable according to the water output delivered under the WPA.
• The change in electricity charge being imposed by MEDC, with effect from 1st of January 2017, will not have a
financial impact on the Company as it has been agreed that this change in the electricity charge will be passed
through to OPWP.
Payments are denominated in Omani Rials. The Water Investment Charge is linked to the OMR-USD exchange rate. The
Water Capacity Operation and Maintenance Charges and Water Output Operation and Maintenance Charges are linked
to the OMR-USD exchange rate, the prescribed US PPI for inflation and the Omani CPI for agreed portions of the charge
rates. The WPA defines the OMR-USD exchange rate as the mid-rate of the OMR-USD spot rate as published by the CBO
in the foreign exchange rates indications on the last Omani business day of the relevant billing period.

Beyond the term of the WPA

The Management expects that the Plant will operate well beyond the term of the WPA, and the Plant will be well-placed
to meet the forecast long-term demand for desalinated water in the Interconnected Zone. After the expiry of the term of
the WPA, the WPA will either be extended or, if the water market in Oman is liberalised during this period, the desalinated
water produced by the Plant will be sold into a merchant market (e.g. into a wholesale water market and/or directly to
eligible customers). An internationally reputed consultant, IPA Advisory Limited (IPA), calculated this post-WPA asset
value, by means of a market-based assessment.
An independent study was conducted by IPA for the Issue Manager on behalf of the investors, to assess the evolution
of market structure and the value of the Company under various scenarios after the expiry of the WPA. IPA is a leading
independent advisory practice providing services in markets and transactions, regulation and policy, and financing and
private sector participation across the electricity, oil, gas, water and infrastructure sectors, with extensive international
experience across the UK, Europe, Middle East, Africa and Asia.
Demand for desalinated water is expected to continue to grow strongly in the Interconnected Zone. In 2016, peak
demand in the Interconnected Zone was 897 TCM/day. By 2035, the first year after the expiry of the Project’s WPA,
peak desalinated water demand is expected to have grown to 2,127 TCM/day. Whether the Plant stays online or closes
after the expiry of the WPA, IPA’s analysis anticipates that the capacity of existing plants and firm new builds in the
45
 Interconnected Zone will not be sufficient to cover demand thereafter. Therefore, IPA forecasts that the Plant will have
value after the WPA expires.
On 30 January 2014, OPWP announced its intention to introduce new power and water procurement arrangements for
the Interconnected Zone in order to maintain market transparency and increase competition. The proposals include the
introduction of a “spot market” for electricity, which is currently under development, and more flexible processes for
awarding new or extending existing WPAs, PPAs and P(W)PAs. Nevertheless, the single buyer approach has served Oman
well and the risks are well known and all projects have been bankable with regional and international banks alike, and
OPWP is expected to retain its role as the single buyer for electricity and desalinated water.
Under the single buyer approach, OPWP can be expected to use an “avoided cost” methodology when assessing the
merits of extending offtake agreements, leaving it indifferent between procuring capacity and services from new or
existing operators. Plans to introduce an electricity market suggest the potential evolution towards a liberalised market
approach which may also eventually extend to water. However, IPA results show that the post-WPA results of the Project
are expected to be identical for both approaches on both technical and commercial grounds.

IPA Desalinated Water Market Modelling

IPA used a version of its proprietary ECLIPSE™ modelling platform to forecast the dispatch and capacity developments in
the market for desalinated water (and linked electricity) in the MIS. This was used to establish market and contract pricing
for water and the dispatch profile for the Plant in the base case.
The key assumptions for the water market modelling are shown in the table below. IPA believes the case outlined below
provides a reasonable central outcome that can be used to assess the post-WPA value of the Project.

Parameter Assumption
Annual Demand 249 MCM in 2015, growing at just under 5.0% per annum to 2055
Peak Demand 819TCM/day in 2015, also growing at just under 5.0% per annum to 2055
Cost of New Build and Efficiency Total Investment Cost: USD 1,500 per m3/day (in real 2016 terms)
Electricity Consumption: 3.60 kWh/m3
Technical Lifetime for all New RO 40 years
Fuel costs 3.00USD/MMBtu (LHV) in 2015 rising by 3% per year in nominal terms
thereafter

Source: OPWP,IPA Advisory Report

In line with the goal stated in the draft ‘Oman Energy Master Plan 2040’ released in 2015 to develop more ‘cost competitive’
desalination technologies, IPA expects there to be a significant increase in new RO builds to meet the growing demand for
water. This policy has been clearly evidenced by OPWP’s recent strategy for procuring new standalone water desalination
capacity, starting with the Project in 2013 and continuing with the latest Barka and Sohar IWPs in 2016.
The financial outcome for the Project in the post-WPA period to the end of its technical lifetime was calculated identically
under both the single buyer and liberalised market approaches at , and is shown (in nominal terms assuming 2.0% annual
inflation) in the table below:

Cost Saving to Single Buyer / Market EBITDA

Year (in ‘000 USD)
2035 33,137
2040 36,586
2045 40,394
2050 44,599
2055 49,241
Total (1)
854,394
Average(1) 40,685

Source: IPA Advisory Report

Note: Totals and averages shown are based on results for all calendar years 2035-2055, inclusive.

46
Health, Safety and the Environment

The HSE Policy commits the Company and the Operator in creating a safe, secure and healthy working environment
and to the elimination of all work related incidents and injuries. The Operator has HSE policies in place to conduct all
its operations in a manner that protects the HSE of employees, sub-contractors and the public while complying with all
applicable legal and other requirements.
All employees and contractors shall perform their work strictly in accordance with the implemented HSE policy, which will
be carried out through the following practices:
• Communicating the HSE policy to all interested parties;
• Providing the necessary resources to prevent ill health and injury of all working personal and to minimize pollution
and environmental impact associated with activities;
• Ensuring our employees and contractors are provided with adequate training and supervision for the safe performance
of the work;
• Making all employees and contractors responsible and accountable for health, safety and environment in their daily
work activities;
• Establishing, maintaining, rehearsing and reviewing with concerned groups all emergency response plans to prevent
injury and accidental environmental impact while minimising any damage to company property and the community;
and
• Seeking continual improvement in HSE performance through periodic monitoring and reviewing of policy, objective
and targets.

Insurance
The Company maintains comprehensive insurance policies as per the international market standard for this type of project.
The following table sets out the insurance policies currently in effect in relation to the Project:

Policy Cover Level of cover

Property Damage All Risks Insurance
Business Interruption Insurance
During Operation period Limit USD 221.0 million any one
Any real or personal property which occurrence
are owned or which are in the care
of insured not limited to machinery,
plant, equipment, property in transit.
During Operation period
Covers loss or reduction in Gross Limit USD 32.4 million any one
Profit and increased cost of working occurrence
as a result of an interruption or
interference with the Insured Business
due to damage insured under the
Property Damage All Risks insurance.
The indemnity period is 15 months

Terrorism and Sabotage Insurance
Covers all risk of direct physical loss of USD 253.3 million per occurrence
or damage to all property, as a result and in the annual aggregate.
of an act of terrorism, in connection
with the construction, testing and
commissioning, start-up, ownership,
operation, use or maintenance of the
Plant as well as loss of revenue as a
result of business interruption. The
indemnity period is 15 months.

47
 Policy
Public/ Products Liability Insurance
Cover Level of cover
Covers legal liability to third parties USD 50.0 million per occurrence.
for death, bodily injury or loss
of or damage to their property
arising from activities in connection
with the construction, testing and
commissioning, start-up, ownership,
operation, use or maintenance of the
Plant.

Property
The site used for the Plant is owned by the MoH, which has granted the Company a usufruct right over the Site. The UAS
has a tenure of 25 years for its term commencing on 11 February 2013 which may be renewed for further 25 years.
Contractually, the MoH is obliged to give the right to possession of the Site, free and clear of any right adverse to the
usufruct right and to ensure that the Company has undisturbed use of the Site. In turn, the Company must use the Site
only for the purposes of the Project.

Risk Management and Control

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management
framework. The Board has delegated the responsibility of developing and monitoring the Company’s risk management
policies and procedures and its compliance with them to the Management.

Employees
Together, the Company and the Operator employ a total of forty three employees, of which thirty employees are Omani
citizens. The Project has achieved an overall Omanisation ratio of 70% as of 2016.

Litigation and Regulatory Proceedings

In order to produce the water which was to be sold to OPWP, the Company entered into the EPC Contract, pursuant to
which the EPC Contractor was contracted to design, construct and test the Plant so that it could be handed over to the
Company. The EPC Contract provided for a Time for Completion, by which time the EPC Contractor was required to have
achieved Taking Over. Taking Over was not achieved by the Time for Completion. The EPC Contract further provided
that the EPC Contractor was liable to pay delay LDs for any delay in achieving Taking Over by the Time for Completion,
subject to any adjustments which were granted in accordance with the EPC Contract. The amount of the EPC Contractor’s
liability for delay LDs was capped in that it was not to exceed 20% of the EPC Contract price. In accordance with the EPC
Contract, the Company had levied delay LDs against the EPC Contractor, in the amount of USD 43,095,600.
The EPC Contractor disputed whether or not it is obliged to pay delay LDs to the Company and had also sought
repayment of the USD 15,045,162 in LDs that the Company had already deducted. Consequently the Company and the
EPC Contractor entered into formal arbitration proceedings in the London Court of International Arbitration to resolve
the issue in October 2014. The arbitration progressed through the exchange of pleadings between parties setting out
their respective positions and to an evidentiary hearing in the presence of an arbitral tribunal in April 2016 to determine
the issues.
A final award was rendered in the arbitration on 4 November 2016. The EPC Contractor’s claims, including the request that
deducted LDs be repaid were dismissed in their entirety. The EPC Contractor was ordered to pay the Company’s costs of
the arbitration with interest, together with the tribunal’s costs. The Company has subsequently recovered outstanding LDs
and other costs from the EPC Contractor.
The deadline for the EPC Contractor to seek any correction of the Award from the arbitral tribunal, and the deadline for
the EPC Contractor to make an application to challenge or appeal the Award, expired in December 2016. No correction
was applied for and no challenge or appeal made. The Company does not need to enforce the Award via courts or any
other process, as the Award dismissed all claims by the EPC Contractor and requires no steps for enforcement.

48
Chapter XI: Contractual Framework

Project Founder’s Agreement

Electricity Holding Malakoff Sumitomo Cadagua

Company S.A.O.C International Ltd. Corporation S.A.

Malakoff Oman Summit Water Cadagua Al Ghubrah

Desalination Co. Ltd. Middle East Co. UK Ltd.

Shareholder’s Agreement

Oman Power & Water Purchase Electricity Connection Oman Electricity

Water Procurement Co. Agreement Agreement Transmission Co.

Finance
Lenders
Agreement
Electricity Supply Muscat Electricity
Agreement Distribution Co.
International Water EPC
Treatment LLC Contract

Muscat City Desalination O&M Usufruct

Ministry of Housing
O&M Co. LLC Agreement Agreement

The following table illustrates the key contracts relating to the Project and the relevant counter parties thereto:

Project Document Executing Parties Date of Execution Date of Expiry

PFA EHC and the Project Founders 11 February 2013 11 October 2034
WPA OPWP and the Company 11 February 2013 11 October 2034
ESA MEDC and the Company 11 February 2013 Not applicable
ECA OETC and the Company 11 February 2013 25 years from the date of its execution
UAS MoH and the Company 11 February 2013 25 years from the date of ratification of
the UAS by the Government, subject to
a further extension of 25 years at the
option of the Company
UATA MoH and the Company 11 February 2013 3 months after COD
O&M Agreement the Company and the 27 November 2013 11 October 2034
Operator
EPC Contract the Company and IWT 10 April 2013
SHA The Project Founders 19 August 2013

49
 Details of Key Documentation
• Project Founders’ Agreement
The PFA was executed between the Project Founders and EHC on 11 February 2013. The PFA sets out various
warranties and undertakings given by the Project Founders to EHC in respect of, amongst other things, listing
pursuant to a public offering and disposal of the Shares. The PFA contains restrictions on share disposals. However,
the Project Founders transferred their shares in the Company to the Selling Shareholders, following which the Selling
Shareholders acceded to the PFA.
The PFA provides for the procurement of the conversion of the Company to a listed S.A.O.G. from an unlisted
S.A.O.C., and the public offering of 35 percent of the Shares of the Company on the MSM. The PFA states that
the listing of the Offer Shares must occur during a period of four years from the date of the incorporation of the
Company, i.e. on or before 18 January 2017.
If all of the Offer Shares are not fully subscribed in the Offer, the Project Founders are required to continue offering
the remaining (i.e. unsold) Offer Shares for sale on an annual basis for a three year period following the initial listing
on the MSM. During this three year period, EHC will have an option to acquire the unsubscribed Offer Shares
according to the pricing mechanism set out in the PFA.
The PFA contains various undertakings given by the Project Founders, including, but not limited to: (i) compliance
with the listing and offer obligations contained in the PFA in relation to the IPO; (ii) adherence to the disposal of
Shares in the Company; (iii) Share retention obligations which require the Lead Founder to, directly or indirectly,
hold and maintain at least: (a) 35 percent of the Issued and Paid-up Shares of the Company until completion of the
IPO; and (b) 22.75 percent of the Issued and Paid-up Share Capital of the Company after completion of the IPO
and up to the third anniversary of COD; (iv) Share retention obligations which require the Qualifying Founder to,
directly or indirectly, hold and maintain at least: a) 20 percent of the Issued and Paid-up Shares of the Company until
completion of the IPO; and (b) 13 percent of the Issued and Paid-up Share Capital of the Company after completion
of the IPO and up to the third anniversary of COD;

• Water Purchase Agreement (WPA)

The WPA was executed between the Company and OPWP on 11 February 2013. The WPA details the terms agreed
between the Company and OPWP pursuant to which the Company shall undertake the Project.
The WPA sets out a number of obligations which the Company must adhere to during the construction and operating
periods of the Plant. Among other things, the Company must, acting as a reasonable and prudent operator, operate
and maintain the Plant in such manner so as to ensure that the Plant is capable of operating and maintaining water
production on a continuous and reliable basis.
Under the WPA, the Company is obliged to exclusively sell water output to OPWP and in return, receive from OPWP
Water Capacity and Water Output Charges. The Water Capacity Charges are designed to cover fixed costs such as
debt service, return on capital, tax payments as well as fixed costs to operate and maintain the Plant (e.g. manpower,
spare parts, maintenance and insurance) while the Water Output Charges compensate the Company for variable
operation and maintenance costs (e.g. chemicals, SWRO membranes, cartridge filters, consumables, spare parts)
and the electricity charges for the water output delivered.
The Water Capacity Charges are adjusted for scheduled unavailability, forced outages, derating of the Plant and also
take into consideration inflation as well as exchange rate movements while the Water Output Charges are adjusted
for changes in exchange rate, US PPI, Omani CPI. Electricity charges are calculated on the contracted specific power
consumption of the Plant.
The WPA sets out standard representations and warranties that the Company is required to provide.
The WPA provides for various buyer risk events and the relief that the Company will receive should certain specified
events occur that hinder the Company from performing its obligations under the WPA. If a relevant buyer risk event
is established in accordance with the terms set out in the WPA, the Company will not be liable for any failure to
perform or any delay in its performance and will continue to be entitled to be paid capacity charges during the
relevant period in accordance with the terms of the WPA. In the event that it is determined that a material adverse
change has occurred and such material adverse change was caused by a buyer risk event a buyer risk event or events
constitute a material adverse change, OPWP shall propose a mechanism to the Company in order to adjust the Water
Capacity Charges and/or the Water Output Charges, as appropriate, or reimburse the Company by some other
agreed reimbursement mechanism.

50
 The WPA also provides for relief to the Company if various force majeure events hinder the Company from performing
its obligations under the WPA. If it can be established that a force majeure event has occurred, or will occur, and
that it could not have been mitigated by the Company, acting as a reasonable and prudent operator, the Company
will be relieved from liability for any failure to perform its obligations under the WPA for the duration of the force
majeure event and the term of the WPA will be extended by the period for which the force majeure event hindered
the Company from performing its obligations. Furthermore, the Company shall be entitled to continued receipt of
capacity charges to the extent of its availability during the force majeure delay period.
Subject to certain force majeure, buyer risk events and termination provisions contained therein, the term of the WPA
commenced on 11 February 2013 and shall expire on 11 October 2034, being the date which falls 20 years after the
SCOD.

• Electricity Supply Agreement (ESA)

The ESA was entered into between MEDC and the Company on 11 February 2013 for the supply of electricity up to
a maximum of 40MVA in accordance with the Permitted Tariffs in the ESA for operating the Plant. Both MEDC and
the Company have the right to terminate the ESA by giving at least thirty days prior written notice to the other party.

• Electrical Connection Agreement (ECA)

The ECA was entered into between OETC, a wholly owned Government company established in 2003, and the
Company on 11 February 2013. The ECA sets out the terms and conditions upon and subject to which OETC and
the Company have agreed that the Company shall connect to the Transmission System. It establishes a framework
between OETC and the Company to provide for, among other things:
a. the payment by the Company to OETC of the connection fee; and
b. enforcement of the Grid Code as between OETC and the Company.
The ECA became effective from the date of its execution and shall remain in force for an initial period of 25 years (the
“Initial Term”) and will continue in force beyond the expiry of the Initial Term unless and until either party terminates
the ECA on six months prior notice to the other, provided that no such notice shall take effect before the expiry of
the Initial Term.

• Usufruct Agreements
The UAS and UATA were executed between the MoH and the Company on 11 February 2013. The UAS and UATA
constitute the usufruct agreements in relation to the Site and the Temporary Areas. The UAS has a term of 25 years
from the date of ratification of the UAS by the Government, subject to a further extension of 25 years at the option
of the Company. The Company is under an obligation to only use the Site for the stated purpose as described in the
UAS and the Temporary Areas for the purposes as described in the UATA.
In accordance with the UAS, MoH provided the Site to the Company free and clear of any right adverse to the
usufruct right so granted including, but not limited to, any third party claim that may be made relating to the Site.
MoH also ensures that the Company has undisturbed enjoyment of the Site throughout the term of the UAS.
Following the expiry of the UATA, the Company has restored and returned the Temporary Areas to the MoH and as
such the rights and obligations of the Company under the UATA have been completed.

• Operation and Maintenance Agreement (O&M Agreement)

The O&M Agreement was entered into between the Company and the Operator on 27 November 2013. It provides
for the provision of O&M services by the Operator in relation to the Plant. The O&M Agreement requires the
Operator to operate and maintain the Plant until 11 October 2034, being 20 years after the SCOD, provided that the
term of the O&M Agreement may be modified to reflect any extension of the term of the WPA as may be determined
between the Company and OPWP in accordance with the terms of the WPA. The O&M Agreement was amended on
21 October 2017 to revise the water capacity operation and maintenance charge due to non-requirement of second
pass Reverse Osmosis sub-system of the Plant and to provide clarity on the sharing of the savings on the electricity
consumption charges with the Operator.

51
 Under the O&M Agreement, the Operator is responsible for:
• operating the Plant during the operation period, in accordance with the scheduling requirements and the
dispatch instructions issued to the Company by OPWP from time to time;
• maintaining the Plant to ensure that the Plant operates at the requisite capacity;
• recruiting, employing and training sufficient staff to operate and maintain the Plant;
• programming and carrying out such performance tests as may be required by the Company or OPWP from time
to time and any additional performance tests as the Company or OPWP may propose in accordance with the
testing procedures and restrictions under the WPA;
• performing all operation and maintenance works and procure all resources and materials to comply with the
Omanisation Plan specified in the O&M Agreement;
• satisfying all of the Company’s operation and maintenance related obligations under the Project Agreements;
• affording all reasonable assistance and co-operation in relation to the performance of the Company’s obligations
under the Project Agreements;
• not undertaking any action or failing to take any action which would cause the Company to be in breach of any
of its obligations under the Project Agreements;
• The fees payable under the O&M Agreement consist of fixed and variable components.

• EPC Contract
The EPC Contract was executed between the Company and IWT on 10 April 2013. It established the terms upon
which IWT was to design, engineer, manufacture, supply, procure, transport, erect, construct, install, test and
commission the Plant and to warrant such works and remedy any defects or non-compliances therein.
In consideration of these works, the Company was to pay IWT the contract price in accordance with the milestone
payment schedule.
The EPC Contract sets out a number of obligations which IWT was obliged to comply with. Among other things, it
was ensured that the works and materials used in construction were free from charges or liens and defects in title,
design or workmanship and that the works would meet all environmental requirements and all applicable laws.
IWT was obliged to attain Taking Over of the Plant on or before the Time for Completion, matching SCOD. The
EPC Contract contains provisions for warranties as well as punch list items of the Works (as defined under the EPC
Contract) noted by the Company as requiring rectification by IWT within twenty-four months from Taking Over date.
As a result, IWT is responsible for carrying out at its cost all works of redesign, repair, reconstruction, rectification,
renewal and replacement for the purpose of making good of Defects (as defined under the EPC Contract) or damage
to the Plant or any part of the Works which may appear as a result of a Defect and for which IWT is responsible
pursuant to the terms of the EPC Contract.
The EPC Contract entitles the Company to deduct delay liquidated damages in the event that the date of Taking
Over of the Plant would not be achieved on or before Time for Completion due to causes attributable to the EPC
Contractor.

• Shareholders’ Agreement
The SHA was entered into among the Project Founders and the Company on 19 August 2013. The SHA sets out the
arrangements amongst the Shareholders under which the Company, supervised and supported by the Shareholders,
shall develop and implement the Project in accordance with the SHA and other Project Agreements.
The SHA also sets out certain provisions relating to the appointment, composition, quorum and voting requirements
in respect of the Board.
The SHA shall continue to be in force until terminated in accordance with its terms.

52
Chapter XII: Project Cost and Sources of Financing

Project Cost
The Company achieved COD on 19 February 2016. The total Project cost was approximately OMR 102.91 million
(US$267.63 million) as summarised below:

OMR (million)
Uses:
Construction costs (EPCC) 79.45
Non-EPCC costs 20.72
Repayment of term loans 2.74
Total 102.91
Sources:
Share Capital 0.50
Equity Bridge Loans and Equity Standby Facilities 21.16
Term Loans and Standby Facilities 81.25
Total 102.91

Equity Contributions
The Selling Shareholders initially provided equity for the Project, as shown below:

OMR
Selling Shareholder:
MODC 225,000
SWMEC 225,000
CAGUKL 50,000
Total 500,000

Equity Bridge Loans

On 2 May 2013, the Company, its shareholders at the time, and the EBL lenders entered into the EBL Agreement
(amended on 12 August 2013 and 12 September 2013), under which the Selling Shareholders arranged equity bridge
loans, as provided in the table below:

OMR
Selling Shareholder:
MODC 9,145,937
SWMEC 9,145,937
CAGUKL 2,032,430
Total 20,324,304
As further described in “Chapter VII– Shareholding Details” of this Prospectus, the Selling Shareholders approved the
conversion of the EBL into Share Capital of the Company in two tranches, increasing the Issued and Paid-Up Share Capital
to OMR 15,555,040 and number of Shares to 15,555,040.

53
 Equity Standby Facility
On 20 November 2015, the Selling Shareholders, under the Equity Subscription and Contribution Agreement provided
further equity loans via the equity standby facility, as provided in the table below:

Shareholder: OMR
MODC 376,664
SWMEC 376,664
CAGUKL 83,702
Total 837,030
The Equity Standby Facility is provided at 0% p.a. interest to the Company by the Selling Shareholders. The repayment
for Equity Standby Facility is based on the agreed payment waterfall mechanism.

Shareholders’ Loans I
MODC and SWMEC provided Shareholders’ Loans I to the Company for the period October 2015 till April 2016. Details
of Shareholders’ Loans I provided by MODC and SWMEC are set out below:

Shareholder: OMR
MODC 2,864,525
SWMEC 2,864,525
Total 5,729,050
The Shareholders’ Loans I bear an interest rate of 2% p.a. with effect from April 1, 2017. The repayment of principal
amounts for Shareholders’ Loan I is based on the agreed payment waterfall mechanism.

Shareholders’ Loans II
On July 12, 2017 Malakoff International Limited and Sumitomo Corporation provided Shareholders’ Loans II to the
Company. Details of Shareholders’ Loans II provided by Malakoff International Limited and Sumitomo Corporation are
set out below:

Shareholder: OMR
Malakoff International Limited 2,128,921
Sumitomo Corporation 2,128,921
Total 4,257,841
The Shareholders’ Loans II are provided at an interest rate of 2% p.a.. The repayment of principal amounts for Shareholders’
Loan II is based on the agreed payment waterfall mechanism.

Debt Financing
The Company has entered into financing agreements with a consortium of international banks and an export credit agency,
for an aggregate amount of approximately OMR 81.25 million (US$211.30million). Each of these financing agreements is
summarised below, all of which are subject to the terms of the CTA. The following table shows the currently outstanding
financing arrangements of the Company, with the amount outstanding after the repayments made up to 31 December
2016:

54
 Total Base Total Amount Total
Facility Drawn as at Outstanding as
Available 12 Jul 2017 at 12 Jul 2017
Type of Loan Lender(s) Currency Interest rate* (USD mn) (USD mn) (USD mn)
JBIC Term Facility JBIC US$ 4.30% 101.56 101.56 87.9

JBIC Standby JBIC US$ 4.30% 4.35 4.08 0.0

Facility
Commercial Term The Bank US$ 4.50% 101.56 101.56 88.4
Facility of Tokyo-
Mitsubushi UFJ
Ltd. / Sumitomo
Mitsui Banking
Corporation
Commercial The Bank US$ 4.50% 4.35 4.08 0.00
Standby Facility of Tokyo-
Mitsubushi UFJ
Ltd. / Sumitomo
Mitsui Banking
Corporation
Working Capital Oman Arab OMR 5.50% 3.00 0.00 0.00
Facility Bank
* The total effective interest rate (includes interest, swap payments and agency fees) for the latest quarter calculated as per CTA.

As of the date of this Prospectus, Senior Facilities are hedged in compliance with the CTA requirements. This further
improves the predictability of cash-flows available to shareholders.

No cash sweep mechanism for the Senior Facilities

The Finance Documents for the Senior Facilities do not impose any mandatory cash sweep mechanism in respect of
the Company’s accounts. This is unlike many of the listed power and water companies in Oman, which are subject to a
mandatory cash sweep mechanism under their financing arrangements.
The absence of a mandatory cash sweep mechanism in the Company’s financing arrangements means that the Company’s
ability to pay dividends will not be constrained in the same manner as if a cash sweep was imposed.

Base Debt Service Reserve Account

Under the terms of the Finance Documents, starting from COD, the Company is required to maintain a cash balance (or
Shareholders’ credit support) equivalent to four quarters of future debt service and interest payments in a separate bank
account pledged in favour of its lenders (Base DSRA). In addition, starting from the 12th anniversary of SCOD until the last
payment date of the senior loan, the Company is required to maintain a cash balance (or Shareholders’ credit support)
equivalent to the debt service and interest payments which will be outstanding for the last 6 month of JBIC Facilities in a
separate bank account pledged in favour of its lenders (Backstop DSRA).
The lenders are entitled to withdraw amounts from this account if the Company does not meet its obligations as defined
under the Finance Documents or in other events resulting in a situation of default on its obligations. As at the date of this
Prospectus, the Company provides the entire debt service reserve amount through Shareholders’ credit support.

Repayment Schedule (Senior Facilities)

The aggregate amount of drawdowns under the facilities is repayable in full in 76 quarterly instalments commencing from
12 July 2015 with the final instalment being due on 12 April 2034.

55
 The projected repayment schedule of the principal amounts of the Term Facilities can be summarised as follows:

Payable Payable Payable Payable Payable Payable Payable

during FY during FY during FY during FY during FY during FY after FY
2017* 2018 2019 2020 2021 2022 2022
In USD (000s) 25,618 7,865 8,078 8,291 8,619 9,007 132,003
In OMR (000s) 9,850 3,024 3,106 3,188 3,314 3,463 50,755
* In addition to scheduled repayments, the Company made a prepayment of Senior Facilities with the amount of OMR
6.5 million (USD 16.9 million) on July 12, 2017. This includes payment of OMR 9.1 million (USD 26.1 million) already made
till July 2017.
As at the date of this Prospectus, the Company has paid both principal (comprising 16.5% of the total Senior Facilities)
and interest in accordance with the terms and conditions of the Finance Documents.

Repayment Schedule (Shareholders’ Loans I, Shareholders’ Loans II and Standby Equity Facility)
The aggregate amount of drawdowns under various shareholder loans is repayable by an agreed payment waterfall
mechanism up to October 2034.
Based on current projections, the repayment schedule of the principal amounts under various Shareholder Loans can be
summarised as follows:

Payable Payable Payable Payable Payable Payable Payable

during FY during FY during FY during FY during FY during FY after FY
2017 2018 2019 2020 2021 2022 2022
In USD (000s) 4,114 0 0 0 0 1,896 22,642
In OMR (000s) 1,582 0 0 0 0 729 8,706

Sources of financing

Statement Value as on 12 July 2017 Value in case of cover of all

shares as on 12 July 2017
(Before the Offer) (After the Offer)
Amount (OMR Ratio Amount (OMR Ratio
000s) 000s)
Working capital facility - -
Commercial facility @ LIBOR + margin 1,776 1.85% 1,776 1.85%
JBIC facility @ LIBOR + margin 1,582 1.65% 1,582 1.65%
Total short term debt (1) 3,358 3.50% 3,358 3.50%
Commercial facility @ LIBOR + margin 32,222 33.58% 32,222 33.58%
JBIC facility @ LIBOR + margin 32,222 33.58% 32,222 33.58%
Standby equity facility 837 0.87% 837 0.87%
Shareholder Loans I 6,065 6.32% 6,065 6.32%
Shareholder Loans II 4,258 4.44% 4,258 4.44%
Total long term debt (2) 75,603 78.80% 75,603 78.80%
Total debt (1+2) 78,962 82.30% 78,962 82.30%
Share capital 15,555 16.21% 15,555 16.21%
Legal reserves(1) 1,439 1.50% 1,439 1.50%
Retained earnings(1) (13) (0.01)% (13) (0.01)%
Total equity (3) 16,981 17.70% 16,981 17.70%
Total financing sources (1+2+3) 95,943 100.00% 95,943 100.00%
Debt/equity ratio (times) 4.65 4.65
As on June 30, 2017
56
Payment Waterfall Mechanism

The Company and the Shareholders who have provided various loans have agreed on a payment waterfall mechanism.
From the cashflows available for distribution after meeting all of the senior debt servicing requirements, payments will be
made in the following order of priority:
(a) Interest on the Shareholders’ Loans I
(b) Interest on the Shareholders’ Loans II
(c) Dividends to all shareholders as per the company projections for FY2017 to FY2022 in the “Chapter XIV – Summary
Future Financials” and up to OMR 1.2 million thereafter
(d) Principal payments on the Shareholders’ Loans I
(e) Principal payments on the Standby Equity Facility
(f) Principal payments on the Shareholders’ Loans II
(g) Any additional cashflows to be distributed as further dividends to all shareholders

Key Financing Covenants

The key covenants under the CTA are summarised below:
Positive Covenants: The CTA contains frequently adopted positive covenants in relation to financing arrangements
of this type, including, but not limited to: construction, operation and maintenance; maintain spare parts; application
of proceeds; insurances; project documents; compliance with law; consents; taxes; accounting systems and auditors;
ranking of obligations; security; defend actions; corporate existence; principal place of business; notices; attendance at
meetings; notice of testing; environmental and social action plan; site security; hedging; working capital requirements;
good industry practice; budget; land; intellectual property; litigations and other proceedings; damage and destruction;
equity; design changes; invoice; reserved discretions; waiver of rights letter and transfer of shares.
Negative Covenants: The CTA contains frequently adopted negative covenants in relation to financing arrangements
of this type, including, but not limited to: indebtedness; loans and guarantees; disposals; project costs; new business;
documents; suspension and abandonment; no liquidation or merger; insurance and other claims; hedging; shares;
transactions with affiliates; material contracts; change in counterparties; variations to work; acceptance; capital costs;
working capital facility; illegal commissions; constitutional documents; delivery under the WPA; subsidiaries; accounts;
contract capacity; acquisition of assets; claims; design changes; restricted payments; arm’s length transaction; financial
year and subordinated loans.
Events of Default: The CTA contains frequently adopted events of default in relation to financing arrangements of this
type, including, but not limited to, failure to pay; misrepresentation; breach of finance documents; DSCR ratio (see below);
LLCR; consents; EPC performance security; cross default; insolvency and similar events; finance documents and project
documents; illegality; unsatisfied judgments; government intervention; commercial operation date; forecast funding shortfall;
abandonment; destruction; breach of equity subscription and contribution agreement; desalination license; insurance;
termination notice; environmental claims; right to project assets; material adverse effect; litigation; project interruption;
buyer privatization or transfer; moratorium; debt service reserve account; Ferrovial Agroman test and enforcement actions.
In accordance with covenants in the CTA for the term loan, the Company shall procure the provision to the lenders of
the annual audited financial statements of the Shareholders, its immediate stock holding companies and OPWP no later
than 180 days after the end of each financial year of each of them. The Company failed to submit the annual audited
financial statements for the most recent financial year of Cadagua S.A (one of the Shareholders), Cadagua Al Ghubrah UK
Limited (immediate stock holding company of Cadagua S.A.) and OPWP prior to the required submission date. Whilst this
constituted an event of default in accordance with the CTA, the Company has subsequently submitted the annual audit
financial reports of OPWP, Cadagua S.A. and Cadagua UK to the lenders and consequently, the lenders have granted
a written waiver dated 7 August 2017 confirming that they shall not exercise any rights or take actions stipulated in the
facilities agreement in relation to this breach of covenants against the Company.
Debt Service Coverage Ratio: Any fall in the DSCR, at any calculation date, below the ratio of 1.05 will constitute an
event of default under the CTA. The DSCR threshold for distribution of dividends has been set at 1.10 provided that
the projected DSCR ratio is forecasted to be above 1.20 for each of the next four quarters. The Company has received
waivers from its lenders with regards to DSCR covenant technical breaches in the past but does not anticipate any further
breaches going forward due to the prepayment of OMR 6.5 million made in July 2017 based on which the forecasted
DSCR is 1.2 and above.

57
 Security Package
Each term loan has been secured in favour of the lenders by a package of share and asset security granted by the
Company and the Project Founders. It includes the following agreements, which have each been duly registered where
necessary:
• a commercial mortgage secured on the Company’s assets, governed by Omani law;
• a legal mortgage secured on the Company’s rights, title and interest in the Usufruct Agreement and the related
movable and immovable property, governed by Omani law;
• a share charge over all of the Shares, governed by Omani law;
• a charge and assignment and security deed over the Company’s accounts, relevant agreements, land and other
assets, governed by English law.

58
Chapter XIII: Risk Factors and Methods of Mitigation

Prior to investing in Offer Shares, prospective Applicants should carefully consider the risk factors relating to the
Company’s business and industry described below, together with all other information contained in this Prospectus,
including the financial statements set out in “‎Chapter XXII – Historical Financial Statements” of this Prospectus,
before making any investment decision relating to the Offer Shares. These risks and uncertainties are not the only
issues that the Company faces; additional risks and uncertainties not presently known to the Company or that the
Company currently believes to be immaterial may also have a material adverse or beneficial effect on its financial
condition or business success. The occurrence of any or a combination of the following events could have a material
adverse or beneficial effect on the Company’s business, results of operations, financial condition and prospects and
cause the market price of the Shares to fall significantly and investors to lose all or part of their investment. Unless
otherwise stated in the relevant risk factors set out below, the Company is not in a position to specify or quantify
the financial or other risks mentioned herein.

Risks Relating to the Project

Limited operating history

The Plant commenced full commercial operation on 19 February 2016 and, consequently, the Plant has operated for
approximately 18 months as at the date of this Prospectus. Accordingly, prospective investors have limited information
with which to evaluate the operating performance of the Plant and its current or future prospects or financial results and
performance.
The business prospects and financial performance of the Company must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by projects with a limited operating history, including challenges in
planning and forecasting accurately due to limited historical data, which means the past results of the Company cannot
be relied on as an indication of future performance. Accordingly, the inability to successfully identify and address risks
and difficulties could have a material adverse effect on the business, results of operations and financial condition of the
Company, including the market price of the Offer Shares.

Operational risk
The Company faces various operational risks over the WPA term which could reduce the Plant’s availability and output
thus resulting in revenue shortfall and affecting the Company’s profit. The operational risks may prevent the Company
from performing its obligations under the WPA, which is currently its only source of revenue and, in certain extreme
situations such failure to perform could result in OPWP terminating the WPA.
The Company has the following arrangements to mitigate such risks:
– Prior to COD, the Plant underwent various acceptance tests and performance tests to ensure that it is capable of
delivering the required capacity.
– The Company has taken out insurance policies against property damage/machinery breakdown, business interruption,
terrorism and/or sabotage and public/products liability.
– The Company has taken into account in its summary projected financials, the anticipated outages, the equipment
needed for maintenance/repairs/replacements and the projected deterioration of equipment for the whole WPA
term.
– The Company has entered into the O&M agreement with the Operator, whose employees have experience of
managing similar plants internationally. Under the O&M Agreement, the Operator will ensure a stock of consumables,
spare parts and special tools are available to ensure continuous operation and minimal downtime for repairs.

Changes in Omani Tax Law

The Omani Tax Law Royal Decree 28/2009 (the “Tax Law”) has been amended by Royal Decree 9/2017. The major
amendments include:
• the corporate tax rate being raised from 12 percent to 15 percent effective for all financial years beginning on or after
the 1st of January 2017;

59
 • expanding the categories of payments made to foreign persons, which attract withholding tax to include payments
on account of : (i) fees for provision of services, (ii) dividends on shares, and (iii) interest.
As stated earlier, the Company has entered into financing agreements with a consortium of international banks and an
export credit agency, for an aggregate amount of approximately RO 81.25 million (US$211.30 million) which are subject
to the terms of the CTA. Clause 6 of the CTA provides that all payments to be made by the Company to any Secured
Finance Party or any other person on its behalf under any of the Finance Documents shall be made free and clear of and
without deduction or withholding for or on account of tax unless there is a mandatory withholding or deduction required
by law, then the Company shall “gross up” the payment so that the Secured Finance Party receives the same net amount
which it would have received and so retained had no such deduction or withholding been made or required to be made.
The changes introduced to the withholding tax provisions under Article 52 of the Tax Law will oblige the Company to
increase the quantum of each payment it makes to a Secured Finance Party in order to ensure that the Secured Finance
Party receives the same net amount which it would have received and so retained had no such deduction or withholding
been made or required to be made.
Additionally, dividend payments to foreign shareholders and the corporate taxes payable by MCDC will also be impacted
as a result of the changes introduced to withholding tax provisions under Article 52 of the Tax Law and corporate tax rate
being raised from 12 percent to 15 percent respectively.
Further, given that the Tax Law has only recently been amended in early 2017 and the scope and extent of the amendments
to Article 52 of the Tax Law have not been commented on by the local tax authorities (except for certain questions and
answers published on the official website of the Tax Secretariat of the Ministry of Finance) or tested before local courts,
there will remain uncertainty on whether payment obligations under hedging agreements, entered into by companies
in Oman, will fall under the category of payments of interest or as payment for services within the meaning of Article 52
of the Tax Law. If payment obligations under hedging agreements entered into by the Company are considered to be
subject to withholding tax under Article 52 of the Tax Law by the local tax authorities, then this may result in an increase
in the Company’s tax related costs.
The WPA provides that any change of law shall constitute a buyer risk event and change of law has been defined under
the WPA to include any amendment to or modification of applicable laws in force at the date on which the WPA came into
effect, which being 11th of February 2013. The WPA further provides that in the event that it is determined that a material
adverse change has occurred and such material adverse change was caused by a buyer risk event (in this case due to a
change of law), OPWP shall propose a mechanism to the Company in order to adjust the Water Capacity Charges and/or
the Water Output Charges, as appropriate, or reimburse the Company by some other agreed reimbursement mechanism.
This, in turn, will result in passing-through the effect of the changes in the withholding tax provisions in the Tax Law to
OPWP under the WPA. It may be noted that material adverse change, under the WPA, has been defined to include an
increase in the Company’s costs and/ or expenses incurred in undertaking the Project, the cumulative effect of which (net
of any benefits to the Company and after all Omani taxes) has had a negative value for the Company of an amount equal
to or in excess of Rials Omani two hundred and fifty thousand (OMR 250,000).
Based on its own analysis and that of its external advisors, the Company has notified to OPWP, in accordance with the
terms of the WPA, that the above mentioned changes to the Tax Law amount to a material adverse change i.e. an increase
in the Company’s costs incurred in undertaking the Project, the cumulative effect of which has had a negative value for
the Company of an amount in excess of Rials Omani two hundred and fifty thousand (OMR 250,000) under the WPA and
the Company expects to arrive at a mutually acceptable position with the OPWP. However, if the Company and OPWP
are unable to agree upon the occurrence of the material adverse change or the appropriate adjustment mechanism to
adjust the Water Capacity Charges and/or the Water Output Charges, within the timeline provided in of the WPA, then
either party shall be entitled to refer the matters in dispute to an expert for determination as provided under the terms
of the WPA.
Thus, all financial forecasts in this Prospectus, including dividend forecasts, assume that the Company would be in a
neutral position (the financial position in which it would have been in had the relevant buyer risk event due to change in
Tax Law not occurred). Any negative outcome of this matter for the Company could have a material adverse effect on the
financial condition of the Company, including the capacity of the Company to pay dividends.

Technology risks
The Plant was developed and designed based on the proven technologies and the equipment is supplied by reputable
international suppliers and as such the technology risk is considered low. However future developments in technology
may render the Plant outdated and uneconomical.
60
While the Company may integrate new technology into the Plant, the Company does not foresee any adverse impact of
new technology developments on its future operations during the term of the WPA. A substantive portion of the O&M risk
is transferred to the Operator under the O&M Agreement by the Company. Further operational risks are mitigated by the
fact that the Operator is incentivized to maintain the highest possible plant performance through a capped bonus/penalty
mechanism.

Performance Risk
The Company is required to carry out periodic performance tests to demonstrate the available Plant capacity. If the Plant
is unable to achieve the required targets, then the Company may no longer be eligible to receive the projected Water
Capacity Charges until such time as the Plant successfully achieves the targets in a subsequent performance test.
However, the Plant has successfully passed all of the tests required under the WPA prior to COD and all of the performance
tests since COD. It has also been operating satisfactorily since the most recent test.

Dispute with EPCC in relation to the delay in completion of the Project

As further described in “Chapter X – Description of the Company and Business Overview – Litigation and Regulatory
Proceedings” of this Prospectus, the EPC Contractor has disputed whether or not it is obliged to pay delay LDs to
the Company and has also sought repayment of the USD 15,045,162 in LDs that the Company has already deducted.
Consequently the Company and the EPC Contractor entered into formal arbitration proceedings to resolve the issue in
October 2014. The arbitration progressed through the exchange of pleadings between parties setting out their respective
positions and to an evidentiary hearing in the presence of an arbitral tribunal in April 2016 to determine the issues.
A final award was rendered in the arbitration on 4 November 2016. The EPC Contractor’s claims, including the request that
deducted LDs be repaid were dismissed in their entirety. The EPC Contractor was ordered to pay the Company’s costs of
the arbitration with interest, together with the tribunal’s costs. The Company has subsequently recovered outstanding LDs
and other costs from the EPC Contractor.
The deadline for the EPC Contractor to seek any correction of the Award from the arbitral tribunal, and the deadline for the
EPC Contractor to make an application to challenge or appeal the Award, expired in December 2016. No correction was
applied for and no challenge or appeal made. The Company does not need to enforce the Award via courts or any other
process, as the Award dismissed all claims by the EPC Contractor and requires no steps for enforcement.

Post WPA risk

The 20-year term of the WPA expires before the Plant reaches its expected useful life of 40 years. Consequently, a substantial
part of the value is expected to be realized beyond the WPA term. However, at that point of time, the Plant, as any other
plant with an expiring off-take agreement, will face new risks such as:
• Market risk (price and capacity)
• Competition from recent, more efficient technologies
• Regulatory risk
• Operational risk
• Customer credit risk
• Macro-economic risk
IPA, as the independent professional adviser, has evaluated the value of the Company for the period post WPA, taking the
risks of different market environments into account. Kindly refer to the section titled Revenue Overview in “‎Chapter X –
Description of the Company and Business Overview” for a summary of the IPA report.

Non Compliance with Deadline for Listing under PFA

The PFA states that the listing of the Offer Shares must occur during a period of four years from the date of incorporation
of the Company, i.e. on or before 18 January 2017. The Company sought and was granted an extension of this deadline up
to 31st March 2017. The company also addressed EHC on the completion of all the procedures required for the IPO under
the letter reference MCDC-IPO-EHC-006 dated 25 October 2017. In addition the founders of Muscat City Desalination
Company undertake their commitment to the PFA on the completion of the process of undertaking the IPO under letter
MCDC-CMA-002 and have proceeded to do so. The PFA does not provide for potential adverse action against, or penalties
to be levied on, the Company for failure to meet the deadline specified in the PFA.
Under the WPA, there are no consequences for failure to meet the deadline in the PFA, except that OPWP is entitled to
terminate the WPA if there is a repudiation by the Founders (or any of them) of the PFA. However, none of the Founders
have repudiated or expressed their intention to repudiate the PFA and all the Founders are committed to undertake the IPO.
61
 Increased operating and maintenance costs or capital expenditure may not be recovered under the WPA
Operating the Plant involves, among other things, general technical, legal, regulatory and other factors that may be
beyond the Company’s control. Although there are provisions within the WPA to protect the Company from changes in
law, other factors could make it more expensive for the Company to operate the Plant than projected, and could require
additional capital expenditures or could reduce revenues.
Additionally, similarly to any industrial installation, complications with engineering, design and implementation or
technology or equipment failure could result in reduced plant availability or production and/or higher-than-anticipated
capital expenditures and/or operating and maintenance costs.
The rates at which the capacity charges under the WPA were calculated and fixed for its 20-year term, subject to specified
escalations, and cost increases higher than those projected at the outset, may not be recovered. The Project could be
subject to changes in the operating cost structure over the 20-year term of the WPA, including on account of reasons
relating to (i) operations; (ii) maintenance, repair and overhaul of plant and equipment; (iii) environmental compliance; (iv)
utility services; and (v) insurance.
However, since the majority of the operating and maintenance costs are contracted for 20 years with the Operator, the risk
of increased O&M costs for the Plant remain limited.

Dependence on OPWP as the sole customer

The Company’s revenue is generated from the water capacity payments and the water output payments by a single buyer,
OPWP. OPWP is a Government entity and is credit rated at par with the Government. OPWP is also the sole purchaser of
all water produced from the other licensed water production operators in Oman. As such, OPWP does not currently face
any competition. If OPWP were to cease fulfilling its obligations under the WPA, the Company would not be able to sell
the Plant’s capacity and output to another purchaser. However, there can be no assurance that the Government will not
open the water market to competitors or allow bypass sales of water by providers of production capacity to persons other
than OPWP in the future.
In addition, no assurance can be made that OPWP’s role in the sector will not change in the future. The introduction of
competition in Oman or a change of OPWP’s role in the sector could have a material effect (adverse or beneficial) on the
business, operational results and financial condition of the Company, including the market price of the Offer Shares.
OPWP is entitled to terminate the WPA for default by the Company which, if not cured within agreed cure periods by the
Company, will give rise to such termination right. In such a case, the Company will lose its sole source of revenue. The
extension of the WPA at the expiry of its term is also dependent on the agreement of OPWP. Any termination of the WPA,
failure to extend the WPA at the expiry of its term, or failure to realise the forecasted revenues following termination or
expiry of the WPA could have a material adverse effect on the business, results of operations and financial condition of
the Company, including the market price of the Offer Shares.

No ownership of the land on which the Plant is situated

The site used for the Plant is owned by the Government (represented by the MoH) which, under the terms of the UAS,
has granted a usufruct right over the Site to the Company with a term of 25 years, which may be renewed for a further
term of 25 years. If the Company is in material breach of the terms of the UAS, for example the Company using the Site
for a purpose other than undertaking its activities, the MoH may, at its option, serve a notice on the Company requiring
the Company to remedy the breach within a period of six months from the date thereof. If the breach in respect of which
the MoH has served a notice is not remedied within six months of receiving the notice, the MoH shall be entitled to have
the activities of the Company suspended for such time as it considers appropriate. This, in turn, would have a material
adverse effect on the business, results of operations and financial condition of the Company, including the market price
of the Offer Shares.
If the MoH were to serve a notice of breach of the terms of the UAS to the Company, the Company will have a period of
six months to remedy such breach which the Company believes is a sufficient time period for it to remedy any breach.
Consequently, the risk of suspension of the Company’s activities by the MoH, as a result of breach of the UAS, remains
significantly mitigated.

Non-availability of skilled personnel

The Company depends to a significant degree on the continued services of key personnel, both employed by it and those
employed by the Operator. Their skills and experience are crucial elements to the success of the Company’s business.
The Company has a limited number of employees, as the labor-intensive operation and maintenance is outsourced to the
Operator.
62
The loss of any member of the Board or Management or the loss of any other key employees may result in a loss of
organisational focus, poor execution of operations, or an inability to identify and execute potential strategic initiatives
such as expansion of capacity. The occurrence of any of these events may have a material adverse effect on the business,
results of operations and financial condition of the Company, including the market price of the Offer Shares. However, if
the Company was exposed to a loss of senior executives and employees, it would be able to pool resources from and rely
on the support of the Project Founders.

Transactions with certain related parties

The Company has also engaged in transactions with certain related parties, and it may continue to do so in the future.
See “‎Chapter XVII– Related Party Transactions and Material Contracts” of this Prospectus. Conflicts of interest may arise
between the Company and such related parties, potentially resulting in the conclusion of transactions on terms not
determined by market forces. The Company has certain policies in place dealing with conflicts of interest and intends to
abide by applicable laws and regulations relating to transactions with related parties.

Government risk
The WPA provides protection against various political and economic risks including but not limited to war, hostilities,
belligerence, blockade, occurring in Oman; expropriation, requisition, confiscation, nationalisation, import restrictions
or closure of harbours, docks, facilities for the use of, or services to, shipping or navigation by any competent authority;
rationing or allocation (other than any such existing or applied as at the effective date of the WPA) where imposed by law
or otherwise by any competent authority and any Change of Law (as defined in the WPA).

Operations are subject to government regulation and licences

Regulations that apply to the Company’s business generally cover four areas: (i) corporate existence, and power and
authority to conduct its business; (ii) the conduct of water desalination; (iii) environmental regulation; and (iv) regulation
of health and safety. The Company is subject to a varied and complex body of laws and regulations that both public
officials and private parties may seek to enforce. The Company conducts its operation under the Desalination Licence and
several permits. The Desalination Licence and permits may be suspended, terminated or revoked if the Company does
not comply with them.
In addition, the laws and regulations to which the Company is subject to, impose requirements on the modification,
ownership and operation of the Plant. If the Company fails to comply with these requirements, this may prevent it from
modifying or operating the Plant, and the Company could be subject to civil or criminal liability, fines and the imposition
of clean-up obligations, including liens, to secure those obligations. The Company’s business could also be materially
adversely or beneficially affected by changes in existing law, the interpretation of existing laws or the adoption of new laws
applicable to the Company, albeit the Company benefits from change in law protection under the WPA. The imposition
of fines or penalties, or the revocation or suspension of the Desalination Licence or permits could have a material adverse
or beneficial effect on the business, results of operations and financial condition of the Company, including the market
price of the Offer Shares.

Adequate insurance may not be available to cover all potential losses

The Company is obligated under the Project Documents and the Finance Documents to maintain a certain minimum level
of insurance against certain risks. However, as a result of certain operating risks and other potential hazards associated
with the water desalination industry, the Company may from time to time become exposed to significant liabilities for
which it may not have adequate insurance coverage.
The Company maintains insurance for the Plant, including all risks property and machinery insurance, general third-party
liability insurance, and business interruption insurance, in amounts and with deductibles that the Company considers
appropriate. There can be no assurance that such insurance will be sufficient or effective under all circumstances and
against all hazards or liabilities to which the Company may be subject.
Further, if there are changes in the insurance markets or increases in insurance costs, the Company cannot provide
assurance that it will be able to pass through to OPWP for reimbursement under the WPA any insurance costs in excess
of those projected when the Company entered into the WPA. Moreover, the occurrence of a significant event that is
uninsured, such as a substantial business interruption could have a material adverse effect on the Company’s financial
position, results of operations and cash flows. In the event there is a total or partial loss of the Company’s assets, there can
be no assurances that the insurance proceeds received by the Company would not have an adverse effect on the financial
condition of the Company, including the market price of the Offer Shares.

63
 Depegging or adjustment in Omani Rial/US Dollar peg
The Company maintains its accounts, and reports its results, in Omani Rial and in USD. As at the date of this Prospectus,
the Omani Rial remains pegged to the US Dollar. However, there can be no assurance that the Omani Rial will not be
de-pegged in the future or that the existing peg will not be adjusted in a manner that adversely or beneficially affects the
Company. In the event that the Omani Rial is unpegged, the WPA provides for adjustment of the tariff linked to the USD
– OMR exchange rate. Any such de-pegging could have an adverse or beneficial effect on the financial condition of the
Company, including the market price of the Offer Shares.

Inflation could increase the Company’s costs and adversely affect its results of operations
Pursuant to the terms of the WPA, the Company’s revenues are compensated for indexation in respect of both USD and
OMR cost inflation. Hence, the risks of variation of USD/OMR cost inflation are largely mitigated by the revenues being
partially tied to an escalation formula based on a mix of US Dollar PPI and Omani Rial CPI indices.

Limited experience complying with listed company obligations

The Company has operated historically as an S.A.O.C. and, accordingly, some of its Management have limited experience
managing a publicly traded company and complying with laws pertaining to public companies. In particular, the significant
regulatory oversight and reporting obligations imposed on public companies will require substantial attention from the
Management and may divert its attention away from the day-to-day management of the business, which could have an
adverse effect on the Company’s business, financial condition and results of operations, including the market price of the
Offer Shares. The Company will ensure that sufficient management time and resources are available for both management
of business and the listing obligations.

Adverse changes in interest rate movements

The Company is funded substantially through long term loans therefore any changes in the interest rates could impact
its profitability.
The Company has entered into interest rate swap arrangements with banks, whereby it has effectively fixed the rate of
interest on 82% of its loans (by amount) over the entire loan period. This has been taken into account while setting the
water tariff and hence the Company is hedged to a large extent against interest rate fluctuations. Any deterioration in
the financial standing of the banks with whom the Company has entered into the swap arrangement could result in these
banks not being able to honour their swap commitments.

No existing market for the Offer Shares

Prior to the Offer, there has not been a public market for the Offer Shares. The Selling Shareholders cannot predict whether
investor interest in the Company will lead to the development of an active trading market on the MSM, or otherwise, or
how liquid any market that does develop might be. The Offer Price for the Offer Shares may not be indicative of prices
that will prevail in the open market following the Offer.

The market price of the Offer Shares may fluctuate widely in response to different factors
Following the Offer, the market price of the Offer Shares could be subject to significant fluctuations due to a change
in sentiment in the stock market regarding the Offer Shares or securities similar to them or in response to various facts
and events, including any regulatory changes affecting the Company’s operations, variations in its half yearly or yearly
operating results and its business developments or those of its competitors.
In addition, stock markets have from time to time experienced price and volume volatility, which, in addition to general
economic and political conditions, could adversely or beneficially affect the market price for the Offer Shares. The value
of the Offer Shares may go down as well as up, and the market price of the Offer Shares may not reflect the underlying
value of the Company’s business.

Dividend policy may not be fulfilled

Any payment of future dividends will be made taking into account the sufficiency of distributable reserves and liquidity in
order to ensure the Company’s operational needs and/or business growth are not limited by the unavailability of funds, as
well as the Company’s known contingencies and compliance with any funding facility covenants.
Dividend payments are not guaranteed and the Board may decide, in their absolute discretion, at any time and for any
reason, not to recommend dividends. Further, any dividend policy, to the extent implemented, will significantly restrict
the Company’s cash reserves and may adversely affect its ability to fund unexpected capital expenditures, as well as the
ability to make interest and principal repayments on its outstanding term loan facilities. As a result, the Company may be
required to borrow additional money or raise capital by issuing equity securities, which may not be possible on attractive
terms or at all.

64
Changes in accounting policy and IFRS
Any change in the accounting policies followed by the Company, which arises internally or as a result of any changes to
IFRS, could have a material impact on the financial results of the Company and its ability to declare and pay dividends.
Certain standards issued by the IFRS are to be effective for annual periods beginning on or after 1st January 2017. The
management of the Company will consider what impact these may have on the Company’s financial statements as they
arise.
The Company has entered into interest rate swaps to fix the interest rate on a major portion of the loans taken out.
Under current financial reporting standards and the accounting policy, the swaps are tested by the Company quarterly
for effectiveness. The swaps are considered to be effective and, consequently, the mark-to-market differences are being
taken to the statement of comprehensive income.

Dilution risk and Founders exit risk

In addition to the lock-in of pre-issue Share Capital as prescribed under the CCL, this is mitigated by contractual provisions
set out in the PFA, which are as follows:
• From the Effective Date up to but excluding the date on which the Project Founders complete the IPO, the Lead
Founder, is committed to retain directly or indirectly, hold and maintain at least 35 per cent of the Shares;
• From the Effective Date up to but excluding the date on which the Project Founders complete the IPO, the Qualifying
Founder is committed to retain directly or indirectly, hold and maintain at least 20 per cent of the Shares;
• From the date on which the Project Founders complete the IPO up to and including the third anniversary of the COD,
the Lead Founder is required to, directly or indirectly, hold and maintain at least 22.75 per cent of the Shares; and
• From the date on which the Project Founders complete the IPO up to and including the third anniversary of the COD,
the Qualifying Founder is required to, directly or indirectly, hold and maintain at least 13 per cent of the Shares, in
accordance with the terms set out in the PFA;
• The Shares are pledged to the lenders making them less liquid.

Breach of Covenants
The breach of covenants prevents the Company from distributing dividends to its shareholders. Whilst there were certain
instances of the Company of being in breach of its DSCR covenants in the past, there has been no breaches since April
2017 and to cure any future DSCR covenant breaches, the Board of Directors at their meeting held on 23 February 2017
resolved to approve prepayment up to OMR 7,500,00 to the lenders under the CTA in FY2017 and subsequently a
prepayment of OMR 6,500,000 was made on 12 July 2017. This prepayment has increased the DSCR going forward and
the DSCR is now higher than the threshold agreed with the lenders under the CTA to be able to pay dividends. Whilst the
Company does not expect to be in breach of any covenant and will be able to pay dividends in the future, however, in
case there is a breach in such event the Company would not be in a position to pay dividends to Shareholders.

65
 Chapter XIV: Summary Future Financials

MUSCAT CITY DESALINATION COMPANY SAOC

Financial projections for the years ending

31 December 2017 to 2022

66
Financial projections for the years ending
31 December 2017 to 2022

Page

Accountant’s report 68

Projected statement of profit or loss and other comprehensive income 69

Projected statement of financial position 70

Projected statement of changes in equity 71

Projected statement of cash flows 72

Notes to the financial projections 73 - 86

67
Projected statement of profit or loss and other comprehensive income
for the years ending 31 December 2017 to 31 December 2022

1
January 1 April
2017 to 2017 to
31 31
March December
Notes 2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000
(Audited)
Revenue 4.1 3,496 12,760 17,143 17,428 17,771 18,024 18,335
Operating cost 4.2 (1,538) (6,060) (8,277) (8,876) (9,233) (9,331) (9,610)
Gross profit 1,958 6,700 8,866 8,552 8,538 8,693 8,725
Administrative expenses 4.3 (219) (612) (838) (863) (889) (916) (927)
Depreciation (624) (1,925) (2,549) (2,549) (2,556) (2,549) (2,549)
Finance costs 4.4 (892) (2,594) (3,262) (3,151) (3,059) (2,910) (2,754)
Other income - 5 9 16 18 22 21
Profit before tax 223 1,574 2,226 2,005 2,052 2,340 2,516
Taxation 4.5 (1,268) (882) (1,031) (301) (308) (351) (853)
Profit for the period / year (1,045) 692 1,195 1,704 1,744 1,989 1,663
Other comprehensive income
that is or may be reclassified
to profit or loss
Changes in fair values of
derivative
financial instruments 4.11 280 93 126 279 126 130 136
Deferred tax on changes in fair
value of derivative financial
instruments 4.5 53 (14) (19) (42) (19) (20) (20)
Total comprehensive income
for the year (712) 771 1,302 1,941 1,851 2,099 1,779
Basic earnings per share
(in Bzs.) * 4.17 (7.0) 4.4 7.7 10.9 11.2 12.8 10.7

* The figures reflect change in nominal value (from 1 Rial to 100 Baizas per share) in in 2017 prior to the IPO.

The attached notes 1 to 4 form part of these financial projection

69
 o ecte statement o financial osition
as at 31 December 2017 to 31 December 2022

1 January
2017 to
31 March
Note 2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000
Audited
ASSETS
Non-current assets
Property, plant and equipment 96,489 94,564 92,015 89,466 86,910 84,361 81,812
Deferred tax asset 4.5 593 579 560 519 499 480 460
Total non-current assets 97,082 95,143 92,575 89,985 87,409 84,841 82,272
Current assets
Trade receivables 4.6 1,386 1,284 1,297 1,310 1,323 1,336 1,350
Cash and cash equivalents 4.7 10,446 1,777 1,946 1,951 1,918 1,953 1,305
Total current assets 11,832 3,061 3,243 3,261 3,241 3,289 2,655
Total assets 108,914 98,204 95,818 93,246 90,650 88,130 84,927
EQUITY AND LIABILITIES
Capital and reserves
Share capital 4.8 15,555 15,555 15,555 15,555 15,555 15,555 15,555
Legal reserve 4.9 1,438 1,507 1,627 1,797 1,971 2,170 2,336
Retained earnings - 623 247 330 449 738 734
Cumulative changes in fair values of
derivative financial instruments 4.11 (2,449) (2,370) (2,263) (2,026) (1,919) (1,809) (1,693)
Total equity 14,544 15,315 15,166 15,656 16,056 16,654 16,932
Non-current liabilities
Non-current portion of term loans 4.10 71,171 62,536 59,430 56,243 52,928 49,465 45,835
Non-current portion of fair value of
derivative financial instruments 4.11 2,758 2,669 2,548 2,281 2,161 2,036 1,906
Shareholders’ stand – by equity loans 4.13 837 753 753 753 753 753 753
Shareholders’ loans 4.14 6,007 8,683 8,683 8,683 8,683 8,683 7,954
Provision for decommissioning
obligation 4.12 1,073 1,073 1,073 1,073 1,073 1,073 1,073
Deferred tax liability 4.5 1,429 2,310 3,341 3,642 3,949 4,300 5,153
End of service benefits 22 22 22 22 22 22 22
Total non-current liabilities 83,297 78,046 75,850 72,697 69,569 66,332 62,696
Current liabilities
Current portion of term loans 4.10 3,442 3,024 3,106 3,188 3,314 3,462 3,630
Current portion of fair value of
derivative financial instruments 4.11 124 120 114 102 97 91 86
Accruals and other payables 4.15 2,541 1,699 1,582 1,603 1,614 1,591 1,583
Due to related parties 4.16 4,966 - - - - - -
Total current liabilities 11,073 4,843 4,802 4,893 5,025 5,144 5,299
Total liabilities 94,370 82,889 80,652 77,590 74,594 71,476 67,995
Total equity and liabilities 108,914 98,204 95,818 93,246 90,650 88,130 84,927
The financial projections were approved and authorized for issue by the Board of Directors on xx and signed on their
behalf by:

_______________________ _______________________
hie ec ti e fice hie inancial fice
The attached notes 1 to 4 part of these financial projections.
70
Projected statement of changes in equity
for the years ending 31 December 2017 to 31 December 2022

Cumulative
changes in
fair value of
derivative
Share Legal Retained financial
capital reserve earnings instruments Total
RO ’000 RO ’000 RO ’000 RO ’000 RO ’000
At 1 January 2017 15,555 883 1,600 (2,782) 15,256
Loss for the period - - (1,045) - (1,045)
Transfer to legal reserve - 555 (555) - -
Other comprehensive income net
of deferred tax - - - 333 333
At 1 April 2017 15,555 1,438 - (2,449) 14,544
Profit for the year - - 692 - 692
Transfer to legal reserve - 69 (69) - -
Other comprehensive income net
of deferred tax - - - 79 79
At 31 December 2017 15,555 1,507 623 (2,370) 15,315
Profit for the year - - 1,195 - 1,195
Transfer to legal reserve - 120 (120) - -
Other comprehensive income net
of deferred tax - - - 107 107
Dividends - - (1,451) - (1,451)
At 31 December 2018 15,555 1,627 247 (2,263) 15,166
Profit for the year - - 1,704 - 1,704
Transfer to legal reserve - 170 (170) - -
Other comprehensive income net
of deferred tax - - - 237 237
Dividends - - (1,451) - (1,451)
At 31 December 2019 15,555 1,797 330 (2,026) 15,656
Profit for the year - - 1,744 - 1,744
Transfer to legal reserve - 174 (174) - -
Other comprehensive income net
of deferred tax - - - 107 107
Dividends - - (1,451) - (1,451)
At 31 December 2020 15,555 1,971 449 (1,919) 16,056
Profit for the year - - 1,989 - 1,989
Transfer to legal reserve - 199 (199) - -
Other comprehensive income net
of deferred tax - - - 110 110
Dividends - - (1,501) - (1,501)
At 31 December 2021 15,555 2,170 738 (1,809) 16,654
Profit for the year - - 1,663 - 1,663
Transfer to legal reserve - 166 (166) - -
Other comprehensive income net
of deferred tax - - - 116 116
Dividends - - (1,501) - (1,501)
At 31 December 2022 15,555 2,336 734 (1,693) 16,932

The attached notes 1 to 4 form part of these financial projections.

71
 Projected statement of cash flows
for the years ending 31 December 2017 to 31 December 2022

1 April
1 January 2017 to
2017 to 31
31 March December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000 RO ‘000
Audited
OPERATING ACTIVITIES
Profit before income tax 223 1,574 2,226 2,005 2,052 2,340 2,516
Adjustments for:
Interest on shareholders’ loan 57 72 188 188 188 188 185
Finance charges - 2,522 3,074 2,963 2,871 2,722 2,569
Depreciation 624 1,925 2,549 2,549 2,556 2,549 2,549
Amortization of bank fees 19 - - - - -
End of service benefits 2 - - - - -
Interest income - (5) (9) (16) (18) (22) (21)
Cash flows from operating
activities before working capital
changes 925 6,088 8,028 7,689 7,649 7,777 7,798
Changes in working capital 57 (570) (114) 22 21 (15) 10
Trade and other payables (198) (4,970) - - - - -
Net cash generated from operating
activities 784 548 7,914 7,711 7,670 7,762 7,808
INVESTING ACTIVITIES
Purchase of fixed assets (7) - - - - - -
FINANCING ACTIVITIES
Shareholders’ loan draw down - 4,258 - - - - -
Proceeds from term loans (798) - - - - - -
Dividend payment - - (1,451) (1,451) (1,451) (1,501) (1,501)
Interest received - 5 9 16 18 22 21
Interest paid - (1,759) (2,269) (2,464) (2,551) (2,504) (2,426)
Swap paid - (876) (784) (475) (305) (204) (132)
Agency fee - (10) (38) (38) (38) (38) (38)
Principal repayment (798) (9, 052) (3,024) (3,106) (3,188) (3,314) (3,463)
Penalty on prepayment of ECA - (16) - - - -
Interest payment on shareholders’
loan - (100) (188) (188) (188) (188) (188)
Repayment of shareholders’ loan (1,583) - - - - -
Repayment of stand by equity - (84) - - - - (729)
Net cash from financing activities (798) (9,217) (7,745) (7,706) (7,703) (7,727) (8,456)
Net change in cash and cash
equivalents (21) (8,669) 169 5 (33) 35 (648)
Cash and cash equivalents at the
beginning of the year 10,467 10,446 1,777 1,946 1,951 1,198 1,953
Cash and cash equivalents at the
end of the year 10,446 1,777 1,946 1,951 1,918 1,953 1,305

The attached notes 1 to 4 form part of these financial projections.

72
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022

1. Legal status and principal activities

Muscat City Desalination Company SAOC (the “Company”) is a closed joint stock company registered in the
Sultanate of Oman. The Company was incorporated on 19 January 2013. The Company’s principal activity is the sale
of desalinated water. The Company commenced commercial production of potable water on 19 February 2016. The
Company is planning to list on the Muscat Securities Market during 2017 by way of an Initial Public Offering (“IPO”).
The Company has entered into the following significant agreements:
(i) Water Purchase Agreement
On 11 February 2013 the Company signed a long term Water Purchase Agreement with Oman Power and
Water Procurement Company SAOC for the supply of 42 million imperial gallons of water per day. The
agreement expires 20 years after the Scheduled Commercial Operation Date of 12 October 2014, subject to
any extension period or early termination arising under the terms of the agreement.
(ii) Engineering, Procurement and Construction Contract
The Company entered into an agreement for the construction of a desalination plant with a capacity of 42
million imperial gallons of water per day with International Water Treatment LLC on a turnkey basis.

2 Basis of preparation
These financial projections of the Company have been prepared by the Company’s management in accordance with
the accounting policies and key assumptions set out in notes 3 and 4 respectively.
The financial projections are intended to show a possible outcome based on the stated assumptions. Because of
the length of the period covered by the financial projections, the assumptions are necessarily more subjective than
would be appropriate for a profit forecast. The financial projections do not therefore constitute a forecast.
Since the financial projections relate to the future, actual results are likely to be different from the projected results
because events and circumstances do not occur as expected, and the differences may be material.
These financial projections are presented in Rial Omani (RO), rounded to the nearest thousand.

3 Significant accounting policies

The financial projections have been presented in accordance with International Financial Reporting Standards (IFRS).

Basis of accounting
The financial projections are prepared on the historical cost basis except for the fair valuation of derivative financial
instruments.
The following is a summary of significant accounting policies, which have been adopted and applied consistently in
the financial projections.

Revenue
Revenue comprises water capacity and water output charges calculated in accordance with the agreement with
Oman Power and Water Procurement Company SAOC for the sale of desalinated water.

Finance expenses
Finance costs comprise interest on borrowings. Borrowing costs, net of interest income, which are directly attributable
to the acquisition or construction of items of property, plant and equipment are capitalised as part of the cost of
property, plant and equipment. All other interest expenses are recognised as an expense in profit or loss using the
effective interest rate method.

Foreign currencies
The Omani Rial (RO) is the functional and presentation currency of the Company. Any currency other than the
functional currency is considered as a foreign currency. Transactions in foreign currencies are translated to Omani
Rials at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated to Omani Rials using the closing rate at the reporting date.

73
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

3 Significant accounting policies (continued)

Foreign currencies (continued)

Non-monetary assets and liabilities measured at historical cost are translated using the exchange rate at the date
of the transaction whereas those measured at fair value are translated using the exchange rate at the date when fair
value was determined. Any exchange difference on settlement of monetary items or on translation is recognised in
profit or loss.

Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses,
if any. Cost includes the amount of cash and cash equivalents paid or the fair value of other consideration given
to acquire an asset at the date of acquisition or construction. Expenditure incurred to replace a component of an
item of property, plant and equipment that is accounted for separately, including major inspection and overhaul
expenditure, is capitalised.
The cost of self-constructed assets includes the cost of materials, direct labour, borrowing costs and an appropriate
proportion of overheads. Gains and losses on disposal of property, plant and equipment are determined by reference
to their carrying amount and are taken into account in determining profit or loss. Repairs and renewals are charged
to the profit or loss when the expense is incurred.
The Company recognises in the carrying amount of property, plant and equipment the cost of major inspections and
the cost of replacing part of such an item when the cost is incurred, if it is probable that the future economic benefits
embodied in the item will flow to the Company and the cost of the item can be measured reliably. All other costs
are recognized as an expense as incurred.
Depreciation is calculated so as to write off the cost of property, plant and equipment, other than capital work-in-
progress, over their estimated economic useful lives, using the straight line method, from the date that the asset is
brought into use.
Where components of an item of property, plant and equipment have different useful lives, they are accounted for
as separate items (major components) of property, plant and equipment. Major repairs are depreciated over the
remaining useful life of the related asset, or up to the date of the next major repair, whichever is shorter.
The estimated useful lives for the current period are as follows:
Years
Civil and structural works.............................................................40
Plant and machinery....................................................................40
Pipelines......................................................................................40
Spares..........................................................................................40
Furniture, fixtures and office equipment.......................................4
Motor vehicles...............................................................................4
Management reassesses the useful lives and residual values for property, plant and equipment annually.
Capital work-in-progress is stated at cost less any impairment losses. When commissioned, capital work-in-progress
is transferred to the appropriate property, plant and equipment category and depreciated in accordance with
depreciation policies of the Company.

Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period by the weighted average number of
shares outstanding during the period.

74
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

3 Significant accounting policies (continued)

Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are
recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had been
recognised.

Employees’ end of service benefits

With respect to its Omani employees, the Company makes contributions to the Public Authority for Social Insurance
under Royal Decree 72/91 calculated as a percentage of the employees’ salaries. The Company’s obligations are
limited to these contributions, which are expensed when due.
Provision for non-Omani employee terminal benefits under an unfunded defined benefit retirement plan, is made in
accordance with Omani Labour Laws and is calculated by estimating the amount of future benefits that employees
have earned in return for their service in the current and prior periods.

Provisions
A provision is recognised in the statement of financial position when the Company has a legal or constructive
obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle
the obligation and the amount can be reliably estimated. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the
present obligation, the carrying amount is the present value of those cash flows.

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects. The balances representing a residual interest in the
net assets of the Company are also classified as equity.
75
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

3 Significant accounting policies (continued)

Non-derivative financial instruments

Non-derivative financial instruments comprise receivables, cash and cash equivalents, loans and trade and other
payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured at amortised cost using the effective interest rate method.

Derivative financial instruments

The Company holds derivative financial instruments to hedge its interest rate risk exposures. Derivatives are initially
recognised at fair value at the date the derivative contract is entered into and are subsequently measured at their
fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in which case the timing of the recognition
in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within
12 months. Other derivatives are presented as current assets or current liabilities.
Hedge accounting
The Company designates the hedging instrument as cash flow hedges. At the inception of the hedge relationship,
the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective
in offsetting changes in fair values or cash flows of the hedged item.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss,
as is any gain or loss on any hedging that exceeds 100% of the associated liability.
Amounts previously recognised in and accumulated in equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.

Income tax

Current tax
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Current tax is the expected tax
payable on the taxable income for the period, using the tax rates ruling at the reporting date.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis
of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax
effects on the temporary differences are disclosed under current or non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses can be utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.

76
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

3 Significant accounting policies (continued)

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank balances
with an original maturity of less than three months.

Segment reporting
An operating segment is a component of the Company that engages in activates from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other
components, whose operating results are reviewed regularly by the Chief Executive Officer (being the chief operating
decision maker) to make decisions about resources allocated to each segment and assess their performance, and for
which discrete financial information is available.
The Company’s only activity is the sale of desalinated water to OPWP, being the only customer, hence the chief
operating decision maker considers the business of the Company as one operating segment.
Water sales take place in the Sultanate of Oman.

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective, and have not been
applied in preparing these financial projections. None of these are expected to have any material effect on the
financial projections of the Company.

Significant accounting judgements and estimates

In the process of applying the Company’s accounting policies, management has used its judgement and made
estimates in determining the amounts recognized in the financial projections. Uncertainty about these assumptions
and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or
liabilities affected in future periods. The most significant use of accounting judgements and accounting estimates
are as follows:
Useful lives of property, plant and equipment
The estimation of the useful life of property, plant and equipment has a significant impact on the financial statements.
The useful life has been determined to be 40 years on the strength of an independent consultant’s report and the
comprehensive maintenance and replacement programme in place.
Impairment of property, plant and equipment
Property, plant and equipment is stated at cost. Management considers that there are no indications of impairment
considering that the plant has successfully started commercial operations and expects to comply with the requirement
of the WPA and sell potable water to OPWP.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot
be derived from active markets, they are determined using a variety of valuation techniques that include the use
of mathematical models. The inputs to these models are derived from observable market data where possible, but
where observable market data are not available, judgement is required to establish fair values.
Application of IFRIC 4 and IFRIC 12
Judgement is required to ascertain whether the WPA agreement with OPWP contains a lease as per IFRIC 4:
Determining Whether an Arrangement contains a Lease, or a service concession arrangement as per IFRIC 12:
Service Concession Arrangements. If the agreement contains a lease, judgement is then required to classify the
lease as an operating lease or a finance lease as per IAS 17: Leases. The lease has been classified as an operating
lease.

77
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions
The financial projections of the Company’s activities for the years 2017 to 2022 have been prepared by the
Company’s management in good faith and with due care and attention, based on assumptions, which they consider
appropriate. A careful effort has been made to estimate the future plant capacity utilisation and the related income
generated by the Company on the basis of existing facilities to arrive at the projected statement of profit or loss.
However, there can be no certainty as to the extent to which the actual results will match the projections or whether
the assumptions will remain valid.
The following is a summary of key assumptions:

4.1 Revenue
The Company’s revenue stream comprises water capacity investment charge, water capacity operation and
maintenance charge, water output operation and maintenance charge and electricity charges.
Details of projected revenue from the revenue stream mentioned above for the next five years are set out below:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Water capacity charge 2,287 7,383 9,847 9,913 10,009 10,050 10,122
Water output operation and
maintenance charge 591 2,051 2,783 2,867 2,961 3,042 3,133
Electricity charge 618 3,326 4,513 4,648 4,801 4,932 5,080
3,496 12,760 17,143 17,428 17,771 18,024 18,335
The Water Purchase Agreement provides that the Company will make available and sell to OPWP a guaranteed
water capacity, for which the Company will receive payment that will compensate for the investments made and the
operating costs.
The assumptions for the revenue stream are as follows:
i) Water capacity charge
Includes water capacity investment charge and water capacity operations and maintenance charge.
Water capacity investment charge
Water capacity charge is designed to cover the investment by the Company such as debt service, return on
capital and tax payments. This charge is calculated based on the water capacity investment charge rate and
adjusted for scheduled unavailability, forced outages and any derating of the plant.
Water capacity operation and maintenance charge
Water capacity operation and maintenance charge is designed to cover the fixed costs to operate and
maintain the plant. Similar to the water capacity investment charge, it is calculated based on the water capacity
operation and maintenance charge rate and adjusted for scheduled unavailability, forced outages and any
derating of the plant.
ii) Water output operation and maintenance charge
Water output operation and maintenance charge is designed to cover the variable operation and maintenance
costs to produce the water output delivered. The charge is calculated based on the water output and the
water capacity operation and maintenance charge rate.

78
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.1 Revenue (continued)
iii) Electricity charge
Electricity charge represents the amount which the Company receives in accordance with the Water Purchase
Agreement in respect of usage of electricity for the plant.
Electricity charge is calculated based on the output forecast, the specific power consumption and the electricity
cost.

4.2 Operating cost

Operating cost comprises operation and maintenance fixed and variable charges and the electricity charge. The
operating cost over the period is as follows:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Fixed operation and
maintenance charge 329 888 1,241 1,279 1,321 1,357 1,397
Variable operation and
maintenance charge 590 2,051 2,783 2,949 3,111 3,042 3,133
Electricity charge 619 3,121 4,253 4,648 4,801 4,932 5,080
1,538 6,060 8,277 8,876 9,233 9,331 9,610
The Company has applied the following assumptions to calculate the projected operating cost using the load
factors consistent with the revenue assumptions:
i) Fixed operation and maintenance charge
Fixed operation and maintenance cost is calculated based on the water capacity operation and maintenance
charge rate to the Operator. The charge is adjusted for scheduled unavailability, forced outages and any
derating of the plant.
ii) Variable operation and maintenance charges
Variable operation and maintenance charge is calculated based on the water output and water output
operation and maintenance charge to the Operator.
iii) Electricity charge
Electricity charge represents the payment due to the electricity provider in respect of usage of electricity for
the plant based on the Electricity Supply Agreement.

79
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.3 Administrative expenses
Administrative and general expenses are semi-variable in nature, and projected in line with the business plan of the
Company.

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Administrative expenses 219 612 838 863 889 916 927

4.4 Finance costs

Finance cost after considering the impact of hedging and future LIBOR is as follows:

Interest on term loans

(note 4.10) 542 1,929 2,317 2,483 2,547 2,493 2,408
Swap payments (note
4.11) 289 491 719 442 286 191 123
Agency fee - 29 38 38 38 38 38
Realized foreign
exchange loss 2 57 - - - - -
Bank charges - 16 - - - - -
Interest on Shareholders’
loans (note 4.14) 59 72 188 188 188 188 185
892 2,594 3,262 3,151 3,059 2,910 2,754

4.5 Income tax

The taxation charges comprise:
Projected statement of profit or loss and other comprehensive income:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Current tax - - - - - - -

Deferred tax relating to

origination and reversal of
temporary differences
Current year (356) (882) (1,031) (301) (308) (351) (853)
Prior year (911) - - - - - -
(1,268) (882) (1,031) (301) (308) (351) (853)

80
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.5 Income tax (continued)

Projected statement of financial position:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Deferred tax asset on
changes in fair values
of derivative financial
instruments 593 579 560 519 499 480 460
Deferred tax liability on
depreciation 1,429 2,310 3,341 3,642 3,949 4,300 5,153
The Company is liable to income tax at 15% of taxable income.

4.6 Trade receivables

Trade receivables represent amounts receivable from Oman Power and Water Procurement Company SAOC
(“OPWP”) for the last invoice as of the reporting date:
1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Trade receivables 1,386 1,284 1,297 1,310 1,323 1,336 1,350
Other receivables are not considered significant and are not projected in these financial projections.

4.7 Cash and cash equivalents

The balances in cash and cash equivalents with banks are as follows:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Cash and cash equivalents 10,446 1,777 1,946 1,951 1,918 1,953 1,305
In July 2017, there was a principal prepayment of RO 6.5 million of the term loans. Further, there was a payment of
RO 4.9 million to shareholders which was offset by a drawdown of RO 4.3 million as additional Shareholders’ loans.
From 2017 onwards, any net cash generated will be used for interest payment of the Shareholders’ loans, dividends
and repayments of Shareholders’ loans.

81
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.8 Share capital
The authorized share capital is currently 25 million ordinary shares of RO 1 each. Each share will be split into ten
before the initial public offering (IPO).The issued and fully-paid share capital of the Company is RO 15.6 million. The
founding shareholders of the Company are divesting a portion of their shareholding in the Company in accordance
with the regulatory requirements through an IPO of 54,442,640 ordinary shares with a nominal value of 100 baisas
per share. The issued and fully paid up share capital of the Company will remain unchanged during the period of the
financial projections. The IPO proceeds and related share issue expenses will accrue to the founding shareholders.
Thus the IPO is cash neutral for the Company.

4.9 Legal reserve

Article 106 of the Commercial Companies Law of 1974 requires that 10% of a Company’s net profit be transferred
to a non-distributable statutory reserve until the amount of the statutory reserve becomes equal to at least one-third
of the Company’s paid up share capital.
For the period ended 31 March 2017, the amount of RO 0.55 million were transferred from retained earnings to
legal reserve to completely offset retained earnings as on 31 March 2017 to comply with the legal opinions and
Fatwa (Edicts) issued by the Capital Market Authority.

4.10 Term loans

The movement of the long term loan during the projection period as per loan agreement schedule is as follows:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Term loans 75,902 60,801 57,613 54,344 50,903 47,292 50,754
Less: deferred finance
charges (1,289) (1,289) (1,289) (1,289) (1,289) (1,289) (1,289)
74,613 59,512 56,324 53,055 49,614 46,003 49,465
Less: current portion (3,442) (3,024) (3,106) (3,188) (3,314) (3,462) (3,630)
Term loans – non-current
portion 71,171 62,536 59,430 56,243 52,928 49,465 45,835

Facilities
On 25 July 2013, the Company entered into a long term financing agreement for loan facilities (“the term loans”)
in the aggregate maximum amount of RO 81.5 million (USD 211.8 million) with a consortium of international banks.

Drawn down
At 31 December 2016 RO 81.2 million (USD 211.3 million) had been drawn down (31 December 2015: RO 73 million
(USD 189.9 million) and the remaining undrawn amount had been cancelled.

Repayments
The term loans are due for repayment in 76 quarterly installments.

Interest
The term loans bear interest at three month USD Libor plus margin.

82
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.10 Term loans (continued)

Security
The term loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage over the
Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a charge has
been created over all of the Company’s shares.

Covenants
The facilities agreements contain certain covenants relating to liquidity. These include restrictions on the debt /
equity ratio, the debt service coverage ratio and the loan life cover ratio.

4.11 Derivative financial instruments

In accordance with the Common Terms Agreement, the Company is required to enter into interest rate hedging
agreements to cap the Company’s exposure to fluctuating interest rates. This requirement covers the term loans.
At 31 March 2017, a principal amount of RO 62.1 million (USD 161.5 million) was covered under this agreement for
the term loans.
The hedging agreements cap the Company’s exposure to fluctuating interest rates. The Company releases a portion
of the hedging arrangements in line with the repayment of the term loans.
The hedging arrangement obliges the Company to pay fixed interest at the rate of 2.86% per annum on a quarterly
basis for the term loans. These cash flow hedges are assessed as highly effective.
The classification of the fair value of the derivative financial instruments based on the remaining period to maturity
at the reporting date is as follows:

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Less than 1 year 124 120 114 102 97 91 86
1 to 5 years 2,758 2,669 2,548 2,281 2,161 2,036 1,906
Less: deferred tax asset (433) (419) (399) (357) (339) (318) (299)
Cumulative changes in fair
value 2,449 2,370 2,263 2,026 1,919 1,809 1,693

4.12 Provision for decommissioning obligation

The decommissioning obligation represents the present value of management’s best estimate of the future sacrifice
of the economic benefits that will be required to remove the facilities and restore the affected area at the Company’s
leased site. The estimate has been made on the basis of the independent calculation by a professional consultant
discounted at 3.82% to its present value, over the plant’s estimated useful life of 40 years.
The annual unwinding of discount is insignificant and therefore has not been recognized in the financial projections.

83
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.13 Shareholders’ stand-by equity loans

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Summit Water Middle
East Company 377 377 377 377 377 377 377
Malakoff Oman
Desalination
Company Limited 376 376 376 376 376 376 376
Cadagua Al Ghubrah UK
Limited 84 - - - - - -

837 753 753 753 753 753 753

Facilities
Shareholders’ stand-by equity loans were provided in November 2015.

Repayments
The Shareholders’ stand-by equity loans are due for repayment subject to the consent of the term loan lenders
which is dependent on cash flows.

Interest
The Shareholders’ stand-by equity loans are interest free.

Security
The Shareholders’ stand-by equity loans are unsecured.

4.14 Shareholders’ loans

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Summit Water Middle
East Company 2,865 4,203 4,203 4,203 4,203 4,203 3,838
Malakoff Oman
Desalination Company
Limited 2,864 4,202 4,202 4,202 4,202 4,202 3,838
Interest accrued 278 278 278 278 278 278 278
6,007 8,683 8,683 8,683 8,683 8,683 7,954

84
Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.14 Shareholders’ loans (continued)

Facilities
Shareholders’ loans were provided between October 2015 and April 2016. Additional loans of RO 4.3 million was
provided in July 2017.

Repayments
Shareholders’ loans are due for repayment subject to the consent of the term loan lenders which is dependent on
cash flows. The repayment of RO 1.6 million is expected in 2017.

Interest
Shareholders’ loans carry interest at the rate of 2% per annum.

Security
The Shareholders’ loans are unsecured.

4.15 Accruals and other payables

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Trade payables 1,751 1,133 1,033 1,068 1,102 1,104 1,125
Accrued interest 772 547 530 516 493 468 439
Others 18 19 19 19 19 19 19
2,541 1,699 1,582 1,603 1,614 1,591 1,583

4.16 Due to related parties

31 March 2017
RO
Sumitomo Corporation / Cadagua S.A. / Malakoff International Limited 4,966,259
This amount relates to initial project costs paid by the related parties which has not yet been reimbursed to the
related parties and has been capitalised under capital work-in-progress as it relates directly to the construction of
the plant.
In July 2017, RO 4.3 million was converted to shareholders’ loan and the rest of the amount will be paid to Sumitomo
Corporation and Cadagua S.A. in 2017.
The amount due to related parties is interest free.

85
 Notes to the financial projections
for the years ending 31 December 2017 to 31 December 2022 (continued)

4 Key assumptions (continued)

4.17 Basic earnings per share
Basic earnings per share are calculated by dividing the profit attributable to shareholders by the weighted average
number of ordinary shares in issue during the year.

1 January 1 April
2017 to 2017 to
31 March 31 December
2017 2017 2018 2019 2020 2021 2022
RO ‘000 RO ‘000 RO ’000 RO ’000 RO ’000 RO ’000 RO ‘000
Audited
Loss / profit for the period
/ year (1,045) 692 1,195 1,704 1,744 1,989 1,663
Weighted average
number of shares
outstanding during the
year (in ‘000s) 155,550 155,550 155,550 155,550 155,550 155,550 155,550
Basic earnings per share
(in Bzs.) (7.0) 4.4 7.7 10.9 11.2 12.8 10.7
The figures reflect the ten for one share split in 2017 prior to the IPO.

86
Chapter XV: Dividend Policy

Right to receive dividends

The Offer Shares rank equally with all other Shares for any rights to dividends that may be declared and paid in respect of
the financial year of the Company ending 31 December 2017 on a pari-passu basis, and any subsequent years. Following
the Offer, the Shareholders’ register of the Company maintained by Muscat Clearing will be amended to enable new
Shareholders to receive dividends declared.

Dividend Policy
The Management proposes to follow a reasonable dividend payout policy, subject to debt repayments, working capital
and operational expenditure obligations. The amount of annual dividends and the determination of whether to pay
dividends in any year may be affected by a number of other factors, including but not limited to the business prospects,
financial performance, free cash availability, covenants under the Finance Documents and the outlook for the sector.
The Company’s dividend policy is subject to restrictions contained in the CCL, its Articles and the covenants of the
facilities agreements. These are summarised as follows:
• In accordance with the CCL, in each financial year, 10 per cent. of the net profits after tax of every company organised
under Omani law must be transferred to a legal reserve until the reserve amounts to at least one-third of the Company’s
share capital. The legal reserve may not be distributed to shareholders by way of dividend. The CCL also requires a
proposed dividend payment to be approved by the passing of a shareholder resolution at an annual OGM, and that
a dividend must be paid out of net profits or out of optional reserves subject to the provisions of Article 106 of the
CCL.
• In accordance with the Articles, any profit remaining after the transfer to the legal reserve may be distributed to
shareholders or carried forward on the Board’s recommendation.
As per the terms of the facilities agreement, distribution of dividends will be subject to the Company meeting its lending
covenants as well as cashflows being available for distribution of dividends after making all necessary payments.
After the IPO, it is intended that Shareholders will receive a stream of cash flows (dividend stream) during the term of the
Project and for the post WPA period. Dividends are expected to be declared twice in a Financial Year subject to the CTA.
The following table shows the forecast of estimated dividends to be declared by the Company to its Shareholders, based
on the forecast set out in “Chapter XIV– Summary future financials” of this Prospectus.

Expected Dividend Total Dividends Dividend per share

Announcement Date (OMR millions) (Bzs)
February 2018 0.50 3.2
November 2018 0.95 6.1
May 2019 0.73 4.7
November 2019 0.73 4.7
May 2020 0.73 4.7
November 2020 0.73 4.7
May 2021 0.75 4.8
November 2021 0.75 4.8
May 2022 0.75 4.8
November 2022 0.75 4.8

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 Chapter XVI: Valuation and Price Justification

Overview
The pricing of the Company’s IPO is underpinned by various qualitative and quantitative factors that provide the Company
with competitive strengths and lay the basis for delivering steady cash flows to the shareholders. The key strengths of the
Company can be summarized into four groups. These are:
i. Well defined contractual framework
ii. Experienced project founders with an established track record
iii. Superior scale and technology
iv. Financial strength
Each of these are discussed and elaborated below.

Well-defined contractual framework

• Steady and reliable cash flows till 2034, even in a scenario of water demand volatility
The Company has entered into a 20-year WPA agreement (expires in 2034) with OPWP. OPWP is owned by the
Government of Oman and has a proven track record of contractual payments to similar utility companies in Oman.
With long term WPA, the Company has a well-established contractual framework ensuring cash flow protection
against adverse events such as potential shocks in water demand during the WPA period. Under the WPA, the
Company receives capacity charges from OPWP based on Plant availability irrespective of the quantity of water
dispatched. This makes the Company resilient to water demand fluctuations during the WPA period.
• Electricity supply and price risk is mitigated through the electricity supply agreement
The primary fuel used by the Company is electricity. Under the 25 year ESA entered into by the Company, MEDC is
responsible for procurement and delivery to the Plant all of its electricity requirements over the WPA period. In the
event that WPA is extended, the ESA will automatically be extended. Any increase in the price of electricity charged
by MEDC is passed straight through to OPWP.
• Long term license to operate the Plant
The Company has received a Desalination Licence of Special Nature (Regulated Activity) from AER for a period of 25
years which permits them to undertake the desalination activities including intake of the seawater and subsequent
desalination and transfer to PAEW. The Licence authorizes the Company to carry out desalination of water from the
Plant up to a maximum capacity of 42 MIGD (191,000 m3/day)
• Long term O&M contract with the Operator building upon O&M experience of the Founding Shareholders
The Company has entered into a 20-year O&M agreement with the Operator, which is owned and managed by the
Founding Shareholders and their shareholding in the Operator is in the same proportion as in the Company. By virtue
of this O&M Agreement, the Company has mitigated O&M risks, and expects to be able to meet OPWP’s availability
targets as well as prevent any unexpected plant breakdowns.
• Long term firm financing for the Project
The Company has entered into long term financing for the Project through Senior Facilities and loans from the
shareholders. A large portion of the senior financing is hedged as per the CTA and the loans from the shareholders
have been received at fixed interest rates ensuring minimum interest rate risk. The Finance Documents for the Senior
Facilities do not impose any mandatory cash sweep mechanism in respect of the Company’s accounts. This is unlike
many of the listed power and water companies in Oman, which are subject to a mandatory cash sweep mechanism
under their financing arrangements. For further information on the financing of the Company, please see “Chapter
XII – Project Cost and Sources of Financing” of this Prospectus.

Experienced project founders with an established track record

• Extensive experience and expertise of the project founders
The Company is backed by experienced Founders who have demonstrated their expertise in successfully implementing
independent water plants globally. The Founders are also the shareholders of the Operator to ensure that the Plant
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 is operated based on the Founders’ experience and expertise. The Founders are members of reputable international
business groups, namely Malakoff (based in Malaysia), Sumitomo Corporation (based in Japan) and Cadagua S.A.
(based in Spain)
– Malakoff International Limited is the wholly owned subsidiary of Malakoff which is the leading and largest IPP
in Malaysia. Its core businesses include power generation, water desalination and operation and maintenance
services. Malakoff owns an effective water production capacity of 444,800 m3/day in countries such as Saudi
Arabia, Bahrain, Algeria and Oman; an effective power generation capacity of 6,346 MW comprising seven power
stations in Malaysia and 690MW effective power generation capacity overseas that run on coal, gas and oil.
– Sumitomo Corporation is an active player in water industry involved not only in seawater desalination, but also
in water supply and wastewater treatment projects. Sumitomo Corporation’s role in the water business includes
development, financing, equity participation as well as engineering, procurement and construction and O&M
aspects. Sumitomo Corporation successfully operates water projects with an effective water treatment capacity
of about 900,000 m3/day in many countries around the world, including Oman, UK, Brazil, UAE, Kuwait, Bahrain,
China and Mexico.
– Cadagua S. A., is a wholly owned subsidiary of Ferrovial – the world’s leading private investor in transportation
infrastructures. Cadagua has successfully completed the design and construction of 115 water treatment and
desalination plants that produce 6.5 million m3/day. Cadagua has project experience in more than 25 countries
including Spain, Saudi Arabia, Algeria, Chile, Venezuela, Portugal, France, Poland, United Kingdom, Cyprus,
Tunisia, India, China, Morocco, United Arab Emirates and Oman.
– For further information on the Project Sponsors, please see “Chapter VII – Shareholding Details” of this Prospectus

Superior scale and technology

• Largest operating SWRO desalination plant in Oman at a single location
The contracted water capacity of the Plant is 191,000 m3/d (42 MIGD), which represents almost approx. 24% of
the total contracted capacity in the Interconnected Zone as per OPWP’s 7 year statement (2017-2023). The Plant is
strategically located in the heart of Muscat city and is thereby a key water supply unit for Muscat city.
• Proven long-term reliable SWRO desalination technology
The Plant has achieved excellent operating performance with efficient Plant operation since COD. The SWRO
process does not require any input but electricity to operate and the Plant contains DAF as a pre-treatment system,
designed to remove solids from seawater which enables the Plant to operate at full capacity during unforeseen red
tide algal blooms and other adverse events such as oil contamination.

Financial strength
The projected financial statements of the Company show a steady financial performance. This is underpinned by a well-
defined contractual framework for a Plant with superior scale and technology managed by experienced project founders
with an established track record.
The Company’s past and projected financials are provided below.

Key Financials 2015 2016 2017e 2018e 2019e 2020e 2021e 2022e
Operating Revenue (OMR mn) 0.0 12.7 16.3 17.1 17.4 17.8 18.0 18.3
Net Profit (OMR mn) (0.5) 1.3 (0.4) 1.2 1.7 1.7 2.0 1.7
EPS (Bzs) (3.2) 8.3 (2.6) 7.7 10.9 11.2 12.8 10.7
DPS (Bzs) 0.0 0.0 0.0 9.3 9.3 9.3 9.4 9.4
Total Assets (OMR mn) 113.9 110.4 98.2 95.8 93.2 90.7 88.1 84.9
Total Equity (OMR mn)* 16.7 18.0 17.7 17.4 17.7 18.0 18.5 18.6
Total Debt (OMR mn) 72.6 82.2 75.0 72.0 68.9 65.7 62.4 58.2
Debt Equity (times)* 4.3 4.6 4.2 4.1 3.9 3.7 3.4 3.1
Return on Equity (%)* (3.0) 7.2 (2.0) 6.9 9.6 9.7 10.8 8.9
Interest coverage ratio (times)* n.m. 1.09 1.52 1.68 1.64 1.67 1.8 1.91
* Excludes hedging reserve

89
 • Value in the post WPA period
As per IPA, which was appointed on behalf of the investors to ascertain the cash flows of the Company in the post
WPA period, there is expected to be significant value for the Company in the post-WPA period. This is because IPA
expects that the Plant’s useful life is 40 years which is longer than the WPA period and the capacity of existing plants
and firm new builds in the MIS will not be sufficient to cover demand thereafter. The base case expected average
annual EBITDA (based on 2016 prices) by IPA for the Company from the expiry of the WPA period to 2055 is OMR
8.7mn.

II. Offer Price

The Offer Price excluding issue expenses is based on two broad valuation methodologies that have been used in the past
for utility sector IPOs in Oman and take into consideration the current market conditions.

Valuation Methodologies
The methods used are as follows:
– Relative valuation; and
– Dividend discount model (DDM) valuation
These methods along with their advantages and disadvantages have been explained below:

Relative Valuation Method

Under this approach, the valuation is benchmarked against other listed comparable companies which have a similar
regulatory framework and represent a similar risk return profile i.e. operations, cash flows, capital structure, growth plans
etc. The relative valuation is generally based on current financial results or projections for the next 1 to 2 years. The
benchmarks which are frequently used for relative valuation in the utility sector in Oman include the dividend yield
method and the price to earnings multiple.

Advantages of Relative Valuation method Disadvantages of Relative Valuation method

– Based on publicly available information
– Market efficiency theoretically implies that trading
valuation should reflect all publicly available
information
– Can indicate the value of a company without reflecting –
a control premium
– Takes into consideration current market conditions
– It may sometimes be difficult to find a sample of
truly comparable companies. This is mitigated by the
presence of a number of listed utility companies in
Oman which have similar business and contracts
Valuation may be affected by thin trading, small
capitalization, ownership restrictions, limited
coverage etc
– External variables such as M&A activity and regulatory
scrutiny may affect stock prices

Dividend Discount Model (DDM) Valuation Method

The DDM method of valuation captures the value of a company based on estimated future cash flows, discounted to a
present value. This present value is then generally used to evaluate the attractiveness of an investment opportunity at a
given price.

Advantages of DDM method Disadvantages of DDM method

– DDM may be one of the most theoretically sound –
valuation methods
– Forward-looking analysis, based on cash flow (and,
therefore, potentially less influenced by accounting
rules), and likely takes account of all contractual
arrangements as well as expected operating strategy
– Potentially less influenced by volatile market –
conditions
– Allows valuation of the entire business in aggregate
or of each of its components separately
90
Valuation may be highly sensitive to underlying
assumptions for future cash flows particularly by
those relating to the post WPA period (mitigated by
the presence of long term contracts in place in the
case of the Company during the WPA period) and
discount rate;
In absence of long term contracts, the valuation
may depend on long-term projections, which may
be affected by technological, macroeconomic and
regulatory changes.
Relative valuation: Dividend yield
Dividend yield may be considered the primary relative valuation benchmark for the Company in view of its stable business
model with no identified expansion plans.

5 year Dividends 2018e 2019e 2020e 2021e 2022e Average

Dividends (OMR mn) 1.45 1.45 1.45 1.50 1.50 1.47
Dividends (Bzs per share) 9.3 9.3 9.3 9.6 9.6 9.5
Dividend yield at the Offer Price* 8.2% 8.2% 8.2% 8.5% 8.5% 8.3%
* Excludes 2 Bzs of offer expenses

Relative Valuation: Price to earnings multiple

The price to earnings multiple may be considered a secondary benchmark and has been presented for information. The
following table shows the projected P/E multiples for the period 2017-2021.

2018e 2019e 2020e 2021e 2022e

Projected Net Income per share (Bzs) 7.7 11.0 11.2 12.8 10.7
Implied P/E Multiple at the Offer Price* 14.8x 10.4x 10.2x 8.9x 10.7x
* Excludes 2 Bzs of offer expenses

Comparables
Peer companies for the Company in Oman comprise those with single or multiple locations independent power projects
(IPP), independent water and power projects (IWPP) and independent water projects (IWPs). Such companies share
identical business models which are dependent on concession agreements and contracts with various counterparties,
which serve as the underlying factor determining the strength of their cash flows. The following MSM-listed utilities
companies were considered as comparables for the Company.
– ACWA Power Barka SAOG (“ACWA”): Owns and operates an electricity generation (427 MW) and water desalination
plant, and associated gas interconnection facilities.
– Al Batinah Power Company SAOG (“ABPC”): Owns and operates the 744 MW Sohar 2 power plant in Sohar
– Al Kamil Power SAOG Company SAOG (“Al Kamil”): Owns and operate a 285 MW power plant in Sharqiya, Oman
– Al Suwadi Power Company SAOG (“ASPC”): Owns and operates the 744 MW Barka 3 power plant in Barka
– Phoenix Power Company SAOG (“PPC”): Owns, operates, and maintains electricity generating plant (2,000 MW) in
Sur, Oman.
– Sembcorp Salalah Power & Water Company SAOG (“Sembcorp”): Operates a power generation (489 MW) and
water desalination plant in Salalah, Oman
– Sharqiyah Desalination Company SAOG (“SDC”): Owns and operates 131,837 m3/day water desalination plant in
Sur
– SMN Power Holding SAOG (“SMN”): Owns and operates an electricity generating plant (665 MW) at Rusayl and an
electricity generation (678 MW) and a water desalination plant (120,000m3/day) at Barka.
– Sohar Power Company SAOG (“Sohar”): Owns, operates, and maintains electricity generating (585 MW) and water
desalination project in Sohar in Sultanate of Oman.

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 Company TTM Div Price to Book value Interest Debt P(W)PA Expiry
Yield(1) Earnings (Baiza)(3) coverage equity
multiple (2)
ratio(4) ratio(3)
ACWA 6.2% 14.4x 354 4.0x 1.3x 2021
ABPC 5.9% 20.4x 118 1.8x 2.2x 2028
Al Kamil(5) n.m. 11.3x 309 n.m. n.m. 2021
ASPC 6.5% 16.3x 122 1.9x 2.2x 2028
PPC 5.9% 10.8x 115 2.3x 2.2x 2029
Sembcorp 6.3% 17.3x 111 2.0x 2.0x 2027
SDC(6) n.m. n.m. 1832 1.3x 3.4x 2036
SMN (7)
4.5% 15.2x 177 2.2x 4.8x 2022 / 2024
Sohar (8)
n.m. 16.2x 129 1.8x 3.4x 2022
Average 5.9% 15.2x 363 2.2x 2.7x
MCDC(9) n.m 26.8x 109 1.2x 4.0x 2034
(1) TTM dividend yields based on company filings on the MSM website. Closing prices taken as of 23 October 2017
(2) TTM EPS used to calculate PE multiples
(3) As on June 30, 2017.
(4) TTM EBIT and finance cost used to calculate interest coverage ratio.
(5) The company is not paying dividends due to negotiations on the extension of PPA and ongoing dispute with tax authorities. The
company has negligible debt of less than OMR 1 mn
(6) The company is not paying dividends due to ongoing expansion of the plant. P/E multiples in excess of 50x are considered not
meaningful
(7) Gain on re-assessment of site restoration provision have been adjusted while calculating TTM finance cost and interest coverage
ratios
(8) The company is not paying dividends due to cash sweep under the debt facilities
(9) The company has not announced a dividends till June 30, 2017. There was a significant loan repayment as on July 12, 2017 and the
debt-equity ratio has been adjusted for this repayment. The debt in the debt to equity ratio excludes shareholders loans of OMR 10.3
mn. Debt equity ratio after including these shareholders loans is 4.7x

Applicability of DDM for valuing the Company

The Company has a business model with stable and reliable cash flows owing to the contractual framework discussed
earlier in this Chapter. This is expected to provide reliable projected dividend distributions to investors, which have been
used for discounting purpose. This approach is consistent with the IPO valuations of utility companies in Oman in the past
where projected dividends were discounted for DDM valuation.

Cashflows projections for the WPA and post WPA periods

– Owing to the contractual agreement with OPWP, the Company’s operating cashflows can be estimated with a fair
amount of certainty for the WPA period (i.e. till October 2034).
– For the post-WPA period cashflows, projections have been provided by IPA, an independent consultant, appointed
on behalf of potential investors. IPA’s estimates involve several assumptions including demand for water, available
capacities, off-take arrangements etc. in the post WPA period. IPA, drawing on its experience from more than 80
countries, has developed projected cash flows of the company under ten different scenarios.
– For the purpose of DDM valuation of the Company, the highest cash flows have been used as the optimistic case,
the lowest cash flows have been used as the pessimistic case and the base case is the same as provided by IPA as
the base case.
– The projections for capital expenditures have been considered based on Company estimates.

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DDM Valuation:

Valuation per share

The price per Share in Baizas based on projected dividend flows until FY 2055 under various scenarios is as follows:

Price per share Scenarios*

(Bzs) Optimistic Case Base Case Pessimistic Case
Discount rate
9% 278 242 206
10% 229 201 173
11% 191 169 147
12% 161 143 125
Note: Includes post WPA cash flows forecasted by IPA

* The same set of assumptions were taken for all the scenarios in the WPA period. In the post-WPA period, IPA has assumed the total
investment cost for construction of a new RO plant at USD 1,500/m3/day in the base case. IPA has assumed an increase by 20% in
the investment cost in optimistic case and a reduction of 20% in the pessimistic case.

Internal rate of return (IRR)

The IRR based on projected dividend flows under various scenarios is as follows.

Scenarios* Optimistic Case Base Case Pessimistic Case

Dividend IRR** 14.2% 13.5% 12.7%
* The same set of assumptions were taken for all the scenarios in the WPA period. In the post-WPA period, IPA has assumed the total
investment cost for construction of a new RO plant at USD 1,500/m3/day in the base case. IPA has assumed an increase by 20% in
the investment cost in optimistic case and a reduction of 20% in the pessimistic case.

** Excludes 2 Bzs of offer expenses

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 Chapter XVII: Related Party Transactions and Material Contracts

Related Party Transactions

Related party comprises the ultimate and intermediate shareholders, directors, key management personnel and any
business entities in which these parties have the ability control or exercise significant influence. The Company maintains
significant business. The terms and conditions of related party transactions are mutually agreed.
Significant related party transactions during the period are as follows:

2014 2015 2016

OMR OMR OMR
Share capital introduced 6,957,620 10,931,517 -
Mobilisation and delay fees to the Operator 1,042,885 912,500 122,500
Operation and maintenance cost to the Operator - - 3,203,367
Net receipts under Shareholders’ bridge loans 2,460,800 68,030 4,037,250
Key management compensation 202,517 202,517 198,402
Amount due to related parties
Sumitomo Corporation / Cadagua S.A./
4,966,259 4,966,259 4,966,259
Malakoff International Limited
This amount relates to initial projects costs paid by the related parties which has not yet been reimbursed to the related
parties and has been capitalised under capital work-in-progress as it relates directly to the construction of the plant. This
amount is interest free and there are no specific terms of repayment.

e mana ement enefits

Key management personnel are those persons having authority and responsibility for planning, directing and controlling
the activities of the Company, directly or indirectly. A sum of OMR 202,517 each was paid to key management personnel
during the years ended 31 December 2014 and 31 December 2015. A sum of OMR 198,402 was paid to key management
personnel during the year ended 31 December 2016.

94
Chapter XVIII: Corporate Governance

Certain sections of this Chapter summarise the issues relating to corporate governance based on the Articles, the CCL
and the rules and regulations issued by the CMA, in particular, the Code. The description provided in this Chapter is only
a summary and does not purport to give a complete overview of the Articles, nor of the relevant provisions of the CCL,
the Code or the CMA rules and regulations.

Overview
This section details the composition of the Board and the Management. It also highlights the corporate governance
practices that the Company has or will have in place.

Board
Current Board Composition
The current Board of Directors was elected on 14 March 2016 and 27 October 2016. Mr. Datuk Wira Azhar Bin Abdul
Hamid resigned as a director from the Board as on 4 October 2017 and the Board of Directors on 04 October 2017
resolved to appoint Mr. Ahmad Fuaad bin Mohd Kenali as a temporary director. The term of office the members shall
remain in force for a period of three years and until the third annual general meeting of the Company, which follows this
date. In the event that the date on which the third annual general meeting is held is more than three years following the
date on which the current Board was elected, then the term of the Board shall be extended up to the date of such annual
general meeting, pursuant to Article 95 of the CCL.
The current composition of the Board of Directors, in accordance with Article 18 of the Articles is as follows:

Executive/Non- Independent/Non-
Name Representing Executive Independent1
Habib Bin Husin MODC Non-Executive Non-Independent
Tamer Cankardes SWMEC Non-Executive Non-Independent
Takashi Ishizuka Personal capacity Non-Executive Non-Independent
Shinichi Hasegawa Personal capacity Non-Executive Non-Independent
Ruswati Othman Personal capacity Non-Executive Non-Independent
Ahmad Fuaad bin Mohd Kenali Personal capacity Non-Executive Non-Independent
Note 1: A director is deemed independent pursuant to the Code. The Company will ensure compliance with the Code within 2 months
from the date of listing of the Company.

Compliance with Applicable Laws

The Company was incorporated as an SAOC and is under transformation into an SAOG. Four out of its six directors are
independent directors in accordance with the definition of ‘independent directors’ contained in the directors nomination
form applicable for nominations to the board of directors of an SAOC published by the MOCI pursuant to the Rules and
Conditions of Election of Members of Board of Directors of Closed Joint Stock Companies and their Responsibilities
(Ministerial Decision 92/ 2003). However, all directors of the Company are non-Independent as per the definition of
Independent Director under the Code.
Within two months from the date of the Company’s listing on the MSM, MODC and SWMEC undertake to hold an OGM
to reconcile the composition of the board of directors to comply with the Code of Corporate Governance for public joint
stock companies issued in July 2015.
Following the appointment of two Independent Directors, The Board shall then be in compliance with applicable Code of
Corporate Governance for public joint stock companies and CCL requirements, including the requirement for Independent
Directors and Non-Executive Directors set out in the Code, which represents the interests of all Shareholders.

95
 Biographical Information of the Members of the Board

Name: Habib Bin Husin

Position: Chairman
Education: Mr. Habib holds a Bachelors Degree in Engineering (Electrical and Electronics)
from the University of Wales, United Kingdom. He attended and completed the
Harvard Senior Management Development and Finance Programmes in 2004 and
Harvard Finance Programme in 2005. Mr. Habib has also completed an advance
management programme at Wharton Business School, University of Pennsylvania in
Philadelphia, USA in 2009.
Experience: Mr. Habib bin Husin started his career in September 1983 as an Assistant Instrument
Maintenance Engineer at Tuanku Jaafar Power Station for Lembaga Letrik Negara
(now known as Tenaga Nasional Berhad). In September 1985, he was transferred to
Kapar Power Plant (Phases I and II) and was subsequently promoted to Instrument
Maintenance Engineer in 1987. He was awarded an Excellence in Career award in
1987 for exceptional effort and outstanding achievement. In September 1990, he
joined Sarawak Shell Berhad as Instrument Reliability Engineer before moving to
ICI Paints (Mal) Sdn Bhd (“ICI Paints”) as Works Engineer in August 1992. He was
also awarded a Silver Award from ICI Paints for exceptional effort and outstanding
achievement in 1996.
In July 1998, Mr. Habib joined Malakoff Berhad (“MB”) as Senior Manager,
Technical Audit Department. His role was to provide consultancy services on all
engineering and management matters pertaining to the operations of the Lumut
Power Plant and to conduct technical and safety due diligence from time to time
for new projects and proposed acquisitions. He was promoted to Assistant General
Manager, Business Organisation and Technical Services in January 2000. In addition
to the previous role, his scope of work was to oversee the business reorganisation
and strengthening the technical services group to enable the MB group to play an
effective role as an international power player.
In September 2001, Mr. Habib was appointed as General Manager, Projects in
Segari Ventures Sdn Bhd (“SEV”) and was promoted to Chief Operating Officer
in SEV in July 2004. He was made the Senior Vice President, Asset Management
Division in April 2006 overseeing all the assets held under the MB group. He was
promoted to Chief Operating Officer of Malakoff Corporation Berhad (“MCB”) in
October 2010 to oversee the Operation and Maintenance Division and the Asset
Management Division of MCB. Mr. Habib has been redesignated as the Executive
Vice President, Operations of MCB since August 2015.
List of Other Directorships: In addition to the Company, Mr. Habib is also a Board member of more than fifty
public or private limited companies, mainly the subsidiaries and associate companies
of MCB, amongst others, the owners and operators of power plants in Malaysia and
offshore investment holding companies as follows:
i) Tanjung Bin Power Sdn Bhd
ii) GB3 Sdn Bhd
iii) Prai Power Sdn Bhd
iv) Segari Energy Ventures Sdn Bhd
v) Tanjung Bin Energy Sdn Bhd
vi) Port Dickson Power Berhad
vii) Malakoff International Limited
viii) TJSB International Limited
ix) Malakoff Summit Hidd Holding Company Limited
x) Malakoff Wind Macarthur Holdings Pty. Limited

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Name: Tamer Cankardes
Position: Deputy Chairman
Education: Mr. Cankardes holds a Bachelors Degree in Mechanical Engineering and a Masters
Degree in Business Administration from Istanbul Technical University.
Experience: Mr. Cankardes has more than 18 years of professional experience in the field of
international power and water business development.
List of Other Directorships: Mr. Cankardes is not currently serving as a member of the board of directors of any
company other than the Company.

Name: Takashi Ishizuka

Position: Member
Education: Mr.Ishizuka holds a Bachelors Degree in Economics.
Experience: Mr.Ishizuka has more than 27 years of professional experience in the field of
international power and water business development.
List of Other Directorships: Mr.Ishizuka is not currently serving as a member of the board of directors of any
company other than the Company.

Name: Shinichi Hasegawa

Position: Member
Education: Mr.Hasegawa holds a Bachelors Degree in Chemical Engineering from Tokyo
Institute of Technology.
Experience: Mr.Hasegawa has more than 26 years of experience in the field of water, renewable
energy, oil & gas and other infrastructure business development.
List of Other Directorships: i) Director, Eastern Water Co., Limited (Hong Kong)
ii) Director, InterChina Water Investments Co., Ltd. (Republic of the Marshall
Islands)
iii) Managing Director, Summit Water Limited (UK)
iv) Managing Director, Sumisho Osaka Gas Water UK Limited (UK)
v) Director, Aguas de Reuso Del Tenorio S.A. DE C.V.(Mexico)
vi) Director, Concesionaria De Aguas Residuales De Juarez S.A. De C.V. (Mexico)
vii) Director, Soluciones Especializadas En Tratamiento De Agua, S.A. De C.V.
(Mexico)
viii) Managing Director, Summit Global Management V B.V. (Netherlands)

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 Name: Ruswati Othman
Position: Member
Education: Madam Ruswati holds a Bachelor of Science Degree in Chemistry from University
of Bradford, United Kingdom and a Master Degree in Business Administration
(majoring in Accounting and Finance) from University of Massachusetts, Boston,
USA. She has also completed the Advance Management Program at Wharton
Business School, University of Pennsylvania, Philadelphia, USA.
Experience: Madam Ruswati started her career as Sales Executive in the Chemical Division of
Behn Meyer & Co. in August 1984. She joined Southern Bank Berhad as a Class A
Officer in April 1989 and was appointed as Assistant Manager, Corporate Planning
and Investment at Melewar Corporation Berhad in May 1990. Among others, she
was involved in the setting up of an international food chain and a highway project
for the group.
In May 1994, Madam Ruswati joined Malakoff Berhad (“MB”) as Business
Development Manager and was subsequently promoted to Senior Manager of
Corporate Finance in 1995. She was appointed as Assistant General Manager,
Corporate Finance and Risk Management of MB in 1997 and promoted to General
Manager and Head, Corporate Finance and Risk Management Department of MB in
2000. Since November 2004, Madam Ruswati has been promoted to the position of
Chief Financial Officer/Senior Vice President, Group Finance and Accounts Division
of MB then Malakoff Corporation Berhad (“MCB”).
Her current responsibilities include managing MCB Group Accounts and Treasury
Department and Corporate and Project Finance Department. She oversees the
overall accounting and reporting functions in the MCB Group and heads the team
for corporate finance exercises such as equity and debt financing, as well as mergers
and acquisitions and project finance exercises for companies within the MCB Group.
List of Other Directorships: Madam Ruswati is current serving as a member of the Board of the following
companies mostly the subsidiaries and associate companies of Malakoff:
i) Tanjung Bin Energy Issuer Sdn Bhd
ii) Hypergantic Sdn Bhd
iii) MESB Project Management Sdn Bhd
iv) Pacific Goldtree Sdn Bhd
v) Skyfirst Power Sdn Bhd
vi) Kapar Energy Ventures Sdn Bhd (Alternate Director)
vii) Malakoff Gulf Limited
viii) Malakoff Oman Desalination Company Limited
ix) Malakoff Technical (Dhofar) Limited
x) Malakoff Capital (L) Limited
xi) Spring Assets Limited
xii) Hidd Power Company B.S.C (c)
xiii) PT. Teknik Janakuasa
xiv) Tlemcen Desalination Company Investment SAS
xv) Oman Technical Partners Limited
xvi) Istipintar Sdn Bhd

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 Name: Mr. Ahmad Fuaad bin Mohd Kenali
Position: Member
Education: Mr. Ahmad Fuaad obtained a degree in Computerised Accountancy from the
University of East Anglia, United Kingdom and a Business and Technology Education
Council (BTEC) National Diploma in Business and Finance, United Kingdom. He is a
Fellow of the Association of Chartered Certified Accountants (ACCA) and a member
of Malaysian Institute of Certified Public Accountants (MICPA) and the Malaysian
Institute of Accountants since year 2000.
Experience: Mr. Ahmad Fuaad is the Chief Executive Office of Malakoff Corporation Berhad
since 1 October 2017. He began his career with Arthur Andersen & Co in 1994.
In 2001, he left practice to take up the position of Executive Director of Finance
at Petaling Garden Berhad. In 2008, he rejoined practice as a Partner/Executive
Director in Ernst & Young, Kuala Lumpur and was with the firm until 2010 when he
joined Astro Malaysia Holdings Berhad as the Chief Financial Officer from August
2010 to July 2013.
He was the Chief Executive Officer of Proton Holdings Berhad ("PHB") since 1 April
2016 and board member of the PHB Group until 30 September 2017. Prior to his
appointment in PHB, he was the Chief Operating Officer - Finance & Corporate and
Chief Financial Officer of DRB-HICOM Berhad from August 2013 to March 2016.
Mr. Ahmad Fuaad was a board member of key subsidiaries of the DRB-HICOM
Berhad Group such as Pos Malaysia Berhad, Bank Muamalat Malaysia Berhad,
Edaran Otomobil Nasional Berhad, Horsedale Development Berhad, Glenmarie
Properties Sdn Bhd and Alam Flora Sdn Bhd.
List of Other Directorships: Mr. Ahmad Fuaad is currently a member of the Board of the following companies
related to Malakoff Corporation Berhad:
i) GB3 Sdn Bhd
ii) Tanjung Bin Power Sdn Bhd
iii) Teknik Janakuasa Sdn Bhd
iv) Malakoff International Limited
v) Tuah Utama Sdn Bhd
vi) Malakoff Power Berhad
vii) Malakoff AlDjazair Desal Sdn Bhd
viii) Malakoff Engineering Sdn Bhd
ix) Tunas Pancar Sdn Bhd
x) Kapar Energy Ventures Sdn Bhd
xi) Lekir Bulk Terminal Sdn Bhd
xii) Tlemcen Desalination Investment Company SAS (Chairman)
xiii) Malakoff Summit Hidd Holding Company Limited
xiv) Malaysian Shoaiba Consortium Sdn Bhd

Appointment of the Board

The Board will be elected by the general meeting of the Shareholders by direct secret ballot. Each Shareholder shall
have a number of votes equal to that of the Shares held by him. A Shareholder shall have the right to use the entirety of
his votes in support of one nominee or divide his Shares among other nominees of his choice through the voting card.
It follows from that that the total number of votes given to the nominees by one Shareholder must not exceed the total
number of Shares owned by him. The proposed Directors who receive the most votes in the ballot shall be declared
elected.
Subject to Article 95 of the CCL and the Board Election Rules, and without prejudice to the Articles, nominees to the
membership of the Board must:
• be of good conduct and sound reputation;
• be at least 25 years old;
• not be unable to settle their indebtedness to the Company;
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 • not be declared insolvent or bankrupt unless the state of insolvency or bankruptcy has ceased pursuant to the law;
• not be convicted of a felony or dishonourable crime unless rehabilitated in accordance with law;
• not be a member or a representative of a juristic person in more than four public joint stock companies based in
Oman once appointed to the Board in question;
• be authorised to nominate himself for Board membership by the juristic person if he is nominated in such capacity;
• not be Chairman of more than two public joint stock companies with their principal place of business in Oman;
• not be a member of the board of directors of a public or closed joint stock company, which is based in Oman and
which is carrying out similar objects to that of the Company;
• present an acknowledgement which contains a statement of the number of Shares held by the nominee in the
Company if he is a Shareholder and that he will not dispose of them to the extent that he will be deprived of his status
as a Shareholder, throughout the term of his office; and
• not participate in the management of a competing business except with the approval of the general meeting and
such approval shall be renewed annually.
Without any prejudice to the regulations of the CCL mentioned above, the following conditions will be fulfilled while
forming the Board:
• all Non-Executive Directors;
• a minimum of one-third of the total Board (subject to a minimum of two) will be composed of Independent Directors
in accordance with the rules and conditions issued by the CMA as have been set out in the Code, from time to time;
and
• a juristic Shareholder will not be represented by more than one representative on the Board.
If a member of the Board ceases to meet any of the conditions necessary for membership of the Board, he/she must
inform the Board and his/her place will be considered vacant from the date of receipt of that information; otherwise, his/
her membership will terminate from the date the Company finds out this information, without prejudice to his/her liability
in accordance with law, and his/her place will be filled in accordance with the provisions of Article 98 of the CCL.
The Board of Directors will elect a Chairman and a Deputy Chairman from its members. The Deputy Chairman will officiate
as Chairman when the latter is absent. The Chairman of the Board of Directors must implement the resolutions of the
Board of Directors and must conduct the regular business of the Company under the supervision and control of the Board
of Directors in accordance with the authority specified in the Articles and the Company’s internal regulations.

Role of the Board

The primary role of the Board of Directors is to supervise and monitor the Company’s Management within a framework
of prudent and effective controls that enable risk to be properly assessed and managed and to fulfil its statutory and
regulatory obligations under applicable law and regulations.

Powers of the Board

The Board has full authority to perform all acts required to manage the Company in accordance with its objectives and with
the primary objective of creating value for the Shareholders. This authority is not limited or restricted except as provided
by applicable law, by the Articles or by a resolution of the Shareholders. The day-to-day management of the Company is
performed by the Company’s Management, as described in subsequent paragraphs contained in this Chapter.
Some of the principal functions of the Board include:
• to approve the Company’s commercial and financial policies, together with its estimated budget, with a view to
achieving the objects of the Company and to maintain and promote the rights of its Shareholders;
• to develop, review and update necessary plans from time to time in order to put into operation the Company’s
objectives and carry out its activities in light of the purpose underlying its establishment;
• to supervise the performance of the executive management and to ensure that the work proceeds in a manner which
achieves the Company’s objectives in light of the purpose underlying its establishment;
• to appoint the chief executive officer, chief financial officer of the Company head of internal audit unit or compliance
officer (if any) as well as determining their rights and responsibilities;
• to approve the actual annual and quarterly financial statements related to the Company’s business and work results
as submitted by the executive management to the Board quarterly, in a way which reflects the true financial position
of the Company;
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• to include in the annual report presented to the annual OGM of the Shareholders the reasons which justify the ability
of the Company to pursue its specified activities and the achievement of its objectives;
• to appoint a secretary to the Board in its first meeting and to hold four meetings per annum provided that the interval
between two consecutive meetings may not exceed four months; and
• to include in the financial statements a full statement of all amounts which a Director may have received during the
course of each year, including money paid to Directors in their capacity as employees of the Company.
The Board must not perform the following acts unless expressly authorised to do so by the Articles or by a resolution of
the Shareholders at a general meeting:
• make donations, except donations required by the business wherever they are small and customary amounts;
• sell all or a substantial part of the Company’s assets;
• pledge or mortgage the assets of the Company, except to secure debts of the Company incurred in the ordinary
course of the Company’s business; or
• guarantee debts of third parties, except guarantees made in the ordinary course of business for the sake of achieving
the Company’s objectives.
The Company will be bound by all acts performed by its Board, its Chairman, its CEO and all other senior management
(if any), as long as they act in the name of the Company and within the scope of their powers.
The Board, in cases other than the distribution of dividends and approving the balance sheet, profit and loss account, and
reports of the audit committee and auditors, may pass resolutions without the need to convene a meeting of the Board
of Directors if all members of the Board approve the same in writing.
Pursuant to Article 107 of the CCL, Article 64 of the CML and Article 301 of the Executive Regulations, it is not permitted
for any member of the Board or senior management to utilise the information that reaches them in the capacity of their
positions or jobs to gain any benefit for themselves or their minor children or for any of their relatives to the fourth degree
as a result of transactions in the Shares. It is also not permitted for any member of the Board or senior management who
has a direct or indirect interest in any authority that is involved in activities which are aimed at influencing the price of
Shares issued by the Company.
This restriction is explained in the chapter relating to “Insider Trading” regulations contained in the Executive Regulations,
which:
• define who an insider is (as any person who is in a position to have access to undisclosed material information
and includes directors, executive management and any person who may have obtained such information as a
consequence of his employment or family relationships or otherwise); and
• impose reporting obligations on issuers with respect to the list of directors, executive management and their spouses
and relatives of the first degree and any amendments in such list.
Insider trading is punishable by fines and imprisonment under the CCL, the CML and the Executive Regulations.
A member of the Board or senior management or other related party of the Company must not have any direct or indirect
interest in the transactions or contracts concluded by the Company for its account, except those concluded in accordance
with the rules and regulations of the CMA.
The members of the Board will be liable to the Company, the Shareholders and third parties for damages caused by their
acts in violation of applicable law and their acts which fall beyond the scope of their powers, or by any fraud or negligence
in the performance of their duties or by their failure to act prudently under certain circumstances.
A lawsuit may not be instituted against the members of the Board or their heirs regarding the works they have done while
discharging their duties, unless the case is filed within five years from the earlier of (i) the date of the act or omission
forming the basis of the complaint; or (ii) the date of the general meeting at which the Board submitted the accounts of
the Company for the period including the act or the shortcoming which is the reason for the complaint. This period will
not apply to suits filed by the CMA.

Remuneration of the Board

The OGM will determine the annual remuneration and sitting fees of the Chairman and the members of the Board at not
more than 5 percent of the net annual profits of the Company after providing for taxation and deducting the legal and
optional reserves in accordance with Article 106 of the CCL and setting aside or distributing the dividends to Shareholders
at not less than 5 percent of the net profits. The maximum total over-all limit on the entire remuneration and sitting fees
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 paid by the Company will be OMR 200,000; with a sub-ceiling of OMR 10,000 as a sitting fee for each Director per annum.
In the event the Company makes losses or insufficient profit to the extent that setting aside or distributing dividends to
the Shareholders is not possible, remuneration and sitting fees will be determined in accordance with the rules issued by
the CMA. The remuneration will be distributed amongst the members of the Board in such proportions and manner as
they, by agreement, may determine, failing which the remuneration will be divided equally among the Board. A member
of the Board will be eligible for compensation for his services if he is assigned a job or travels or does something related
to the Company’s affairs.

Board Committee
In order to assist the Board in performing its obligations, the Board may form committees to advise it and make
recommendations on certain matters. The Board has constituted an audit committee comprising 3 directors. The Board
may establish other committees from time to time.

Audit Committee
The members of the audit committee are:
• Ruswati Othman, chairman
• Shinichi Hasegawa, member
• Takashi Ishizuka, member
The role of the audit committee involves:
• Considering the name of the auditor in the context of their independence (particularly with reference to any other
non-audit services), fee and terms of engagement, and recommending the auditors to the board for appointment.
• Reviewing the audit plan and results of the audit.
• Implementing appropriate systems to check financial fraud and ensure the fairness of financial statements.
• Oversight of the internal audit function.
• Oversight of the adequacy of the internal control systems.
• Oversight of financial statements in general including the review of annual and quarterly financial statements before
issue, qualifications contained in draft financial statements, and discussions of accounting principles therein and
changes in accounting standards adopted by the Company.
• Serving as a channel of communication for the Board with the external and internal auditors.
• Reviewing risk management policies.
• Reviewing proposed related party transactions and making suitable recommendations to the Board.
Following the IPO, the audit committee shall comprise at least three directors, the majority of whom shall be from
the Board’s Independent Directors. In all cases, the chairperson of the audit committee shall be selected from out of
the Independent Directors of the audit committee. At least one of the members of the audit committee should have
financial and accounting expertise. The audit committee will also be responsible for recommending the appointment and
remuneration of a suitably qualified and experienced person for the position of internal audit manager of the Company.
Such person will be charged with responsibility for the following:
• Developing the internal audit strategy for the Company.
• Auditing operations and financial statements of the Company.
• Ensuring the Company’s compliance with laws and regulations applicable to the Company.
• Preparing periodic reports to the Board with respect to the adequacy and effectiveness of the Company’s system of
internal administrative, accounting and financing controls and on other issues on which the internal audit manager is
requested to report by the audit committee of the Board.

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Senior Management Team
The current composition of the Management is as follows:

Name Position
Subrina Thiagarajah Chief Executive Officer
Tomotaka Inoue Chief Financial Officer

Biographical Information of the Senior Management Team

Name: Subrina Thiagarajah

Position: hie ec ti e fice
Education: Ms. Thiagarajah holds a Bachelors Degree in Chemical Engineering from the
University Technology Malaysia.
Year of Joining: 2016
Experience: Ms. Thiagarajah started her career in Malakoff in 1994 as a Project Executive in the
Technical Services and quality assurance department. Her career which spans 23
years in Malakoff had her working her way up the ladder learning all aspects of the
power and water industry both in Malaysia and internationally.
Prior to her assignment, Ms. Thiagarajah was the Vice President Commercial, Asset
Management Division. Her duties mainly focused on asset management, commercial
negotiations and contractual management of the key project agreements with
the relevant utilities, government authorities and operations and maintenance
contractors, where Malakoff’s operating assets were located.
Ms. Thiagarajah was also involved in the commercial review and negotiations for
Malakoff’s business development initiatives in power and water projects in Asia and
the Middle East region. Her most recent portfolio of achievements includes being
the Project Director for the Ghubrah Independent Water Plant in Oman and the
Commercial Lead of the 1000MW coal fired power plant in Malaysia.

Name: Tomotaka Inoue

Position: CFO
Education: Mr. Inoue holds a Bachelor Degree in Agriculture from the Faculty of Agriculture in
Kyoto University, Japan and a Master Degree in Global Environmental Studies from
the Graduate School of Global Environmental Studies in Kyoto University, Japan.
Year of Joining: 2017
Experience: Mr. Inoue started his career in Sumitomo Corporation in 2006 in Power & Water
Investment Dept. His career which spans 11 years in Sumitomo had his working
his way up the ladder learning various aspects of water industries internationally as
well as finance and accounting fields. During his experience in accounting dept, Mr.
Inoue acquired the U.S. CPA license in Washington State (Number: 32314) in 2014.
Prior to his assignment to MCDC, Mr. Inoue was the Project Development Manager
in Water Infrastructure Dept, and working for the valuation and accounting & tax
due diligence for the merger and acquisition of the water companies internationally
over the last 4 years.
The operation and maintenance activities are defined under the terms of the O&M Agreement entered into between
the Company and the Operator. The services, involving around 37 experienced employees, are being provided by the
Operator.
Brief details of the key members of the Operator who are active in operation and maintenance activities for the Project
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 are set out below:

Name Position
Mr. Joseba Gallastegui General Manager
Mr. Mahmoud Nasser Al Mawali Maintenance Manager

Biographical Information

Name: Joseba Gallastegui

Position: General Manager
Year of Joining: 2014
Education: Bachelor of Science Degree (Biochemistry Specialty) from Bask Country University
(UPV/EAJ) – Spain
Experience: Mr. Gallastegui has over 25 years of experience in water sector under different areas
wastewater, drinking water and in particular RO processes. He has progressed while
performing different roles along his career starting from Process Field Technician,
Plant Manager, O&M Regional Manager, O&M Project Engineer and Project
Manager (construction contract) and reaching till the position of General Manager.
This experience has provided to Mr. Gallastegui an overall and comprehensive
knowledge of complete business cycle related to the management of water
installations.
He took up the position of General Manager on July 2014, participating in
developing of all the company procedures as well as commissioning of the O&M
activities from the start-up of the installation.

Name: Mahmoud Nasser Al Mawali

Position: Maintenance Manager
Year of Joining: 2014
Education: Bachelor Degree in process Operation & Maintenance from Caledonian College of
Engineering.
Diploma of Oil And Gas Engineering from Higher Collage of Technology.
Experience: Mr. Al Mawali has over 9 years of experience in maintenance area. He was previously
leading a team of technicians in Mukhaizna oil field for Occidental of Oman for 8
years and his area of responsibility included managing the maintenance process.
He has also worked as Commissioning Engineer with General Electric Company
(GE) in Oman, carrying out commissioning activities on Surface Pumping Systems
throughout different oil fields in Oman.

Internal Regulations
In accordance with the provisions set out in Article 68 of the CCL, the Company is required to adopt internal regulations
for regulating its management, business and personnel affairs through its Board of Directors, within one year from the
date of registration of the transformation of the Company as an S.A.O.G. Accordingly, the Company shall implement
corporate governance processes that meet the CMA’s requirements for an S.A.O.G. as required by the CCL and by the
CMA’s regulations. These regulations shall cover at least the following, separately from the rules and regulations of the
CMA:
• Organisational structure of the Company, including the responsibilities related to the various posts within the
Company and the reporting structure/procedures;
• Specifying the extent of authority vested in each post with regard to approval of financial expenditure;
• Specifying the allowance for meetings, remuneration and other privileges as prescribed in respect of the members
of the Board of Directors and Board committees, and the basis for their calculation;
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• Policies related to procurement and other transactions concerning the Company (works and procurement manual)
and service contracts;
• The minimum level of information required to be submitted to the Board of Directors;
• Authorities, duties and responsibilities relevant to executive management and Board committees;
• Policies related to human resources including salaries, appointment, development, training, promotions and
termination of services etc., and covering other relevant aspects;
• Investment policies;
• Policies in relation to related party transactions;
• Policies and procedures for disclosure of material information in a transparent and timely manner to the CMA and
the MSM including procedures to classify/ identify material information and the determination of the right to access
such information by officers of the Company; and
• Any other regulations that the Board may deem necessary to achieve an adequate level of corporate governance.

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 Chapter XIX: Rights and Liabilities of Shareholders

Shareholders’ liabilities
The liability of a Shareholder will be limited to payment of the nominal value of the Shares for which the Shareholder has
subscribed. The Shareholder will not be liable for the debts of the Company except to the limit of the nominal value of
the Shares subscribed.

Shareholders’ rights
All the Shares enjoy equal and inherent rights in accordance with the CCL. These rights include the following:
• the right to receive dividends declared by the general meeting of the Shareholders;
• preferential rights to subscribe for any new Shares;
• the right to share in the distribution of the proceeds of the Company’s surplus assets on liquidation;
• the right to transfer Shares in accordance with applicable law;
• the right to access the Company’s balance sheet, profit and loss account and Shareholders’ register;
• the right to be invited to attend the general meeting and vote in such meetings personally or by proxy (each
Shareholder will have one vote for each Share owned);
• the right to apply for annulment of any resolution made by the general meeting or the Board of Directors, if such
resolution(s) are contrary to applicable law or the Articles or the internal regulations of the Company, in accordance
with Article 10 of the Articles and Article 8 of the CML, provided that Shareholders who own at least 5% of the
Company’s issued share capital shall have the right to submit such an application to the CMA;
• the right to institute legal proceedings on behalf of the Shareholders or the Company against the Board or the
auditors of the Company; and
• the right to approach the CMA (provided that the move is supported by Shareholders who own at least 5 percent
of the Shares), to request the CMA to exercise its authority to suspend resolutions of the general meeting which are
made in favour of a certain category of Shareholders or against a certain category of Shareholders, or in the interest
of the members of the Board of Directors or others.

Reports and statements

The Board shall prepare unaudited quarterly financial statements for the first, second and third quarter of each Financial
Year. It shall also prepare an annual report within two months from the end of each Financial Year, comprising the audited
balance sheet, profit and loss statement, cash flow statement, changes in shareholder’s equity, report of the Board of
Directors, report on the discussions held by the Board and their analysis and report on the organisation and management
of the Company. These statements should be disclosed at least two weeks prior to the OGM through the electronic
transmission system on the MSM website.
The unaudited quarterly financial statements of the Company shall be forwarded to the Information Centre within thirty
days from the end of each quarter or any other legal period prescribed by the disclosure rules and conditions issued
by the CMA though the private electronic transmission system of the Information Centre. The said Information Centre
shall also be provided with two copies duly endorsed by the Board. The Company shall also have it published within the
aforementioned period.
The CMA has also issued a Circular No. E/5/2014 dated the 29th of May 2014 to all public joint stock companies advising
them to disclose their initial quarterly results within 15 days from the end of each quarter, on the basis of such results
being approved by the executive management and prior to approval by the board. The Company will comply with the
provisions of this circular.

Annual General Meeting and Ordinary General Meetings

The AGM of the Company shall be held, each year during the first three (3) months following the end of the Financial Year,
at such venue, day and time as incorporated in the notice of the meeting.
The Board shall extend an invitation to the Shareholders to attend the AGM within three months from the date of end of
the Company’s Financial Year. The AGM shall be responsible for the deliberation of the following:
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• to study and approve of the report of the Board of Directors;
• to study and approve of the report on the management and organization of the Company;
• to review the auditor’s report and approval of the balance sheet and profit and loss statement of the Company;
• to study and approve the corporate governance report;
• to review the report on declaration of dividend. However, such dividend shall be distributed only from the net profit
generated or from the Special Reserves Accounts subject always to the provisions set out in Article 106 of the CCL;
• to review the report on the sitting allowance for the meetings of the members of Board and committees constituted
under it for the forthcoming Financial Year and approve the same;
• to review the annual remuneration (if any) of the members of the Board of Directors for the Financial Year;
• to consider and approve transactions (if any) entered into by the Company with related parties during the previous
Financial Year (if any);
• to make a note of any expected transactions with the related parties during the next Financial Year (if any);
• to appoint auditors for the next financial year and fix their fees, taking into consideration the provisions laid down in
the law for such appointment;
• to elect members to the Board in case of expiry of the term of office of one or more of them or in the case of a
vacancy that has arisen on the Board;
• to approve the assessment standards of the Board of Directors; and
• to appoint an independent body to assess the Board of Directors.
The Board shall establish the agenda of the OGM. If the OGM is convened by the auditors, the agenda shall then be
established by them. The Board, or the auditors if necessary, shall include in the agenda any proposal put forward by
Shareholders who represent more than 10 percent of the Issued and Paid Up Share Capital of the Company provided that
such proposal is submitted for inclusion in the agenda at least one month before the date of the meeting.
The resolutions of the OGM shall not be valid unless the meeting is attended by Shareholders or their proxies who
represent at least half of the Issued and Paid Up Share Capital of the Company. If such a quorum is not formed, a second
meeting shall be called to discuss the same agenda. The second OGM shall be notified to the Shareholders in the same
manner as the first meeting, at least one week prior to the date set for the second OGM. The resolution of the meeting
shall be valid regardless of the number of shares represented, provided that such meeting is held within one month from
the date of the first meeting. The resolution of the OGM shall be adopted by simple majority of votes cast.

Extraordinary General Meetings

An EGM will be convened to decide on issues such as:
• a reduction or increase in the Authorised Share Capital;
• the dissolution, liquidation or merger of the Company;
• sale of the Company’s business or its disposal in any form or manner;
• an amendment to the Articles;
• the issue of negotiable bonds by public subscription or private placement; and
• the transformation or change of the legal form of the Company into another legal form.
The resolutions of the EGM shall not be valid unless the meeting is attended by Shareholders or proxies representing at
least three quarters of the Company’s Issued and Paid-Up Share Capital. Failing such a quorum, a second meeting shall
be convened to discuss the same agenda. The Shareholders shall be notified of the second EGM in the same manner as
the first EGM, at least two weeks prior to the date set for the second meeting.
The resolutions of the second EGM shall be valid if the meeting is attended by Shareholders or proxies representing more
than half of the Company’s Issued and Paid Up Share Capital, provided such meeting is held within six weeks of the date
of the first EGM.
The resolutions of the EGM shall be adopted by a majority of three quarters of the votes cast in respect of a resolution,
provided such resolution must always receive votes in favour representing more than fifty percent of the Company’s Issued
and Paid-Up Share Capital.

107
 Any shareholder or any interested party may refer to the Primary Commercial Court within five years from the date on
which the meeting was held, to decide on nullification of any decision if taken during a general meeting in violation of the
CCL, the provisions of the Articles, the company’s internal regulations, or through deceit or misuse of authority.

Lock-up Period - Exemption from the applicability of Article 77 of the CCL

Article 77 of the CCL restricts the founders of a public joint stock company from disposing of their shares in such company,
before it has published two balance sheets for two consecutive financial years, starting from the date of commencement
of actual production or actual business by the company. However, Article 17(a) of the Sector Law exempts the founders
of a licensed entity from the restriction imposed by Article 77 of the CCL and allows them to offer their shares in such
company for sale, even if the licensed entity has not published two balance sheets for two consecutive financial years.

General restrictions on transfer of ownership of the Shares

The shareholding of each Shareholder may not exceed the maximum limit prescribed and provided for in the Articles, the
CCL and the Capital Market Law respectively, unless the necessary approvals are secured.
Any person whose shareholding, along with his minor children’s shareholding, reaches 10 percent or more of the Company’s
Issued and Paid-Up Share Capital, is required to advise the CMA of the same in writing. Further, the Shareholder must
inform the CMA in writing of any transaction or dealing which leads to any further increase in this percentage immediately
after it happens.
No single person or related person up to the second degree may hold 25 percent or more of the shares of a public joint
stock company, save in accordance with the rules issued by the CMA on the subject.

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Chapter XX: Market Information

Background
The MSM was established on 21 June 1988 by Royal Decree 53/88 and is the only stock exchange in Oman. Subsequently,
on 9 November 1998, Royal Decree 80/98 promulgating the Capital Market Law established the CMA as regulator of
the MSM. The MSM is a governmental entity subject to the supervision of the CMA. The CMA has issued a new Code of
Corporate Governance for companies listed on the MSM, which came into effect on 22 July 2016.
The MSM Index was established in 1992 with a base date of June 1990. The number of companies included in the index
sample has increased over time, and currently stands at 30 companies.

Listing Requirements
Prior to applying for listing on the MSM, a company is required to obtain the approval of the CMA and the Director
General of the MSM. The applicant is required to submit a listing application to the MSM within one month from the date
of registration along with the following documents and information:
• certificate of commercial registration;
• list of authorised signatories and specimens of their signatures;
• copies of the company’s Memorandum and Articles;
• the prospectus relating to the offering;
• an attested copy of the minutes of the constitutive general meeting; and
• any additional requirements of the CMA.

Reporting Requirements
Each listed company must, amongst other things:
• disclose its initial unaudited quarterly financial results immediately following the approval of such results by the
executive management of the Company (and prior to approval by the Board), which must occur within 15 days from
the end of the relevant quarter;
• prepare quarterly unaudited financial statements for the first, second and third quarters of the Financial Year in the
prescribed form within 30 days from the end of the quarter (45 days for those with subsidiaries) and disclose the same
immediately after approval by the Board;
• the quarterly unaudited financial statements referred to in the previous paragraph should include total sales or
revenues, sales costs or total expenses, net profit after deduction of tax and any other items required by CMA;
• prepare annual audited financial statements in accordance with IFRS and file the same with the CMA within two
months from the end of the financial year or 14 days prior to the general meeting of the company;
• immediately inform the CMA in the event of, amongst other things: a change of name or address; amendment to its
memorandum and/or articles of association of the company; a change of any director or member of the management
team of the company, giving reasons; closure of any branch or termination of dealing with any agent; change of
external auditor of the company; any attachment or mortgage on the company’s assets; any unexpected losses
affecting the financial position of the company, giving reasons; and any proceedings instituted by or against the
company that may have a material impact on the financial position of the company.

Clearance and Settlement

Muscat Clearing is responsible for maintaining shareholder records and providing custody services for securities and
investment funds listed on the MSM, bonds and sukuks traded on the MSM, and other securities issued by the Government.
All transactions in the MSM are settled on a book-entry clearing basis on T+3.

Settlement Method
The MSM has adopted a multilateral netting system under which transactions are cleared and settled on a net basis by a
broker. After the clearing of the transactions by the MSM, the transfers of securities ownership is done through the book-
entry system which is operated by the MSM.

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 Settlement Procedure
At the end of each trading session, the amount of securities and money to be delivered and/or paid on the settlement
day is determined through the netting process and reflected in the Muscat Clearing settlement report. Transactions are
finally settled on T+3 in the way of delivery against payment. Ownership of purchased securities are transferred among
investors’ trading accounts and the cash settlement is done among brokers through the designated settlement bank.

Trading
Trading in securities is carried out on the MSM over five working days per week, excluding official holidays, and for three
hours a day.
The MSM has an electronic trading system which:
• automatically blocks purchase orders which exceed the limits of the broker’s bank guarantee or reach the limit of the
special order provided by law; and
• enables all companies and entities whose securities are listed in the MSM, and their registrars, to view the register of
their own shares.
Before an investor can trade in securities on the MSM, the investor needs to apply for and obtain an Investor Number,
the issuance of which automatically triggers the creation of an investor account for the custody of securities traded in the
MSM. Individual investors who seek to trade securities on the MSM need to maintain an investor account with Muscat
Clearing and a trading account with an accredited (CMA licensed) broker.
Trades in all securities are settled in dematerialised form.
The shareholder’s Investor Number identifies the investor account at Muscat Clearing used to transfer shares to and from
the account each time the investor buys or sells shares. When the investor intends to sell shares, he is required to transfer
the quantities of shares to his broker’s trading account.
The process of securities trading starts when an investor formally requests his broker to purchase or sell a security,
according to specific conditions.
An investor is responsible for all costs associated with trading securities and is required to pay, upon request of his broker,
all the amounts necessary to cover his transactions, in particular the purchasing price and commissions or other fees
required by the MSM.

Trading System
The MSM operates on an automated screen-based and order-driven trading system which matches buying and selling
orders of the investors. Investors can place their orders with the MSM accredited brokers, who enter these orders into the
trading system. Then, the system automatically matches buy and sell orders of a particular security based on the price
and quantity requirements.
The trading system also generates and displays details of current and historical trading activity, including prices, volumes
traded and outstanding buy and sell orders.
An off-market trading mechanism also exists, known as the ‘special order’ process.

Trading Sessions
Trading sessions take place from Sunday to Thursday (except public holidays in Oman) as follows:

Time
Pre-Opening Session 09:00 to 10:00
Trading Session 10:00 to 13:00
Closing 13:00

Suspension of Trading
The MSM may temporarily suspend trading of any listed security if there is information or rumour that may affect the price
of the security or in case the company restructures its capital or splits its shares. Trading of the securities of any company
shall also be suspended if the company is dissolved or liquidated. In certain circumstances the company may request a
suspension of trading.

110
Trading Performance
The table below shows the number of listed companies, the number of traded shares, the value of traded shares and the
number of executed transactions as at 31 December for each of the years indicated.

2014 2015 2016

Number of listed companies 119 119 119
Number of traded shares (millions) 6,202 5,734 4,633
Value of traded shares (OMR millions) 2,270 1,390 959
Number of executed transactions (thousands) 414 262 201
Market capitalisation (OMR millions) 14,560 15,779 17,288
Source: MSM Annual Statistics Data

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 Chapter XXI: Subscription Conditions and Procedures

Offer Structure

Category I Investors Category II Investors

No. of Offer Shares 35,387,716 19,054,924
Percentage of Offer Shares 65% 35%
Basis of Allotment Pro-rata Pro-rata
Minimum Subscription 1,000 Shares and thereafter in 500,100 Shares and thereafter in
multiples of 100 Shares multiples of 100 Shares
Maximum Subscription 500,000 5,444,200
Terms of Payment of Application Money 100% on application 100% on application

Eligibility for the Subscription of Offer Shares

The Offer will be open to Omani and non-Omani individuals and juristic persons. All GCC individuals and juristic persons
are treated as Omani individuals and juristic persons for the purpose of owning shares in Omani companies.
No single person or related person up to a second degree can hold 25 percent or more of the shares of a public joint stock
company, except with the explicit approval of the CMA.

Prohibitions with Regard to the Applications for Subscription

In accordance with the Capital Market Law, the following persons shall not be permitted to subscribe to the Offer:
• Sole proprietorship establishments: The owners of sole proprietorship establishments may only submit Applications
in their personal names.
• Trust accounts: Customers registered under trust accounts may only submit Applications in their personal names.
• Multiple Applications: An Applicant may not submit more than one Application.
• Joint Applications: Applicants may not submit applications in the name of more than one individual (including on
behalf of legal heirs).
All such Applications will be rejected without contacting the Applicant.

Subscription on Behalf of Minor Children

• For the purpose of this Offer, any person under 18 years of age on the date of submission of an Application will be
defined as a minor.
• Only a father may subscribe on behalf of his minor children.
• If an Application is made on behalf of a minor by any person other than the minor’s father, the person submitting the
Application will be required to attach a valid Shariah (Legal) Power of Attorney issued by the competent authorities
authorising him or her to deal in the funds of the minor through sale, purchase and investment.

Applicant’s Number with Muscat Clearing

• Any Applicant who subscribes for the Offer Shares must have an account and Investor Number with the Muscat
Clearing. Any Applicant may apply to obtain an Investor Number and open an account by completing the
Muscat Clearing application form. This may be obtained from the Muscat Clearing’s Head Office or its website at
www.mcd.gov.om, or from brokerage companies licensed by the MSM. The completed form may be submitted by
an Applicant through any of the following channels:
• At the head office of the Muscat Clearing, at P.O. Box 952, Postal Code 112, Ruwi, Muscat, Sultanate of Oman.
• At the branch of the MSM based in Salalah, Oman, Tel:+968 23299822, Fax:+968 23299833.
• At the office of any brokerage company licensed by the MSM.
• By sending a facsimile to Muscat Clearing at +968 24817491.
112 • By opening an account through the MCD website at www.mcd.gov.om
• In order to open an account with the Muscat Clearing, a juristic person will be required to furnish a copy of its
constitutional documents, in the form prescribed by the Muscat Clearing, along with a completed Muscat Clearing
application form in order to open an account and receive an Investor Number.
• Applicants who already hold accounts with the Muscat Clearing are advised, before the Offer, to confirm their details
as noted in the Application. Applicants may update their particulars through any of the channels mentioned above.
• All correspondence including allocation notices and dividend cheques will be sent to Applicant’s address as recorded
at the Muscat Clearing. Applicants should ensure that their addresses as provided to the Muscat Clearing are correct
and kept up-to-date.
• Each Applicant should secure from the Muscat Clearing its Investor Number as the Investor Number will be required
in order to complete the Application. Each Applicant is responsible for ensuring that the Investor Number set out in
their Application is correct. Applications not bearing the correct Investor Number will be rejected without contacting
the Applicant.
• For more information on these procedures, Applicants should contact the Muscat Clearing:
Muscat Clearing & Depository Co. S.A.O.C.
P.O. Box 952, Postal Code 112, Ruwi, Muscat, Sultanate of Oman
Tel: +968 2482 2222; Fax: +968 2481 7491
www.mcd.gov.om

Offer Period
The Offer Period will commence on 19 November 2017 and end on 18 December 2017 with the end of the official
working hours of the Collecting Banks.

Allocation in Case of Oversubscription

In case of oversubscription, the Offer shall be split among the eligible investor groups, in the following portions:
Category I Investors: 35,387,716 Offer Shares, being 65 percent of the Offer, for individuals and juristic persons applying
for a maximum of 500,000 Offer Shares. Distribution of Offer Shares shall be on a pro-rata basis.
Category II Investors: 19,054,924 Offer Shares, being 35 percent of the Offer, for individuals and juristic persons applying
for 500,100 Offer Shares or more. Distribution of Offer Shares shall be on a pro-rata basis.
In accordance with Article 65 of the CCL, a minimum number of Offer Shares may with the approval of the CMA be
distributed equally among subscribers, taking into consideration small subscribers and the remaining Offer Shares shall
be allocated on a pro-rata basis.

Allocation in Case of Undersubscription

Any undersubscription in any category shall be carried to the other category. The final allocation on the above basis will
be decided by the Financial Adviser and Issue Manager and Muscat Clearing in consultation with the CMA.
In case of undersubscription, the Offer Shares to the extent of undersubscription will (a) be allotted disproportionately
from out of CAGUKL Offer Shares so as to procure that all of CAGUKL Offer Shares are divested prior to the divestment
of MODC Offer Shares and SWMEC Offer Shares; (b) be available to EHC as per its share option under the PFA. In case
the EHC does not exercise its share option, the Selling Shareholders are required to re-offer the unsubscribed Offer Shares
annually thereafter for three consecutive years. During such period of time, the EHC’s share option will remain in force.

Minimum Limit of Public Subscription

The minimum number of Offer Shares for Category I Investors will be 1,000 Offer Shares and in multiples of 100 Offer
Shares thereafter. For Category II Investors, it will be 500,100 Offer Shares and in multiples of 100 Offer Shares thereafter.

Maximum Limit of Public Subscription

The maximum number of Offer Shares that can be applied for by a Category I Investor is 500,000 Offer Shares. The
maximum limit for a Category II investor is approx. 10 percent of the total Offer size which equates to 5,444,200 Offer
Shares. It is not permissible for any Applicant to subscribe for more than this amount.
For the purpose of calculation of this percentage, the application for the subscription of the father (or guardian) shall be
aggregated with the applications submitted on behalf of the minor children. If the volume of the Offer Shares subscribed

113
 exceeds the said percentage, the Offer Shares registered under each application shall be reduced proportionately before
making the allotment.
None of the Company and the Financial Adviser and Issue Manager is liable for any changes in applicable laws or regulations
that occur after the date of this Prospectus. Applicants are advised to make their own independent investigations to
ensure that their Applications comply with prevailing laws and regulations.

Terms of Payment
• The Selling Shareholders will open an escrow account entitled the “MCDC IPO” account with each of the Collecting
Banks for the collection of the Application Money.
• This account will be managed by each Collecting Bank, which, after allotment and refunds, will transfer the balances
in such account to the Issue Manager.
• Each Applicant can pay by cash, draw a cheque or demand draft or instruct an account transfer for the amount
payable at the time of submission of the Application and/or on allocation.

Particulars of the Bank Account of the Investor

• Each Applicant is required to furnish the particulars of the Applicant’s bank account (registered in the name of the
Applicant). The Applicant must not use the bank account number of any other person except in the case of minor
children only.
• If the bank account of the Applicant is registered with a bank other than one of the Collecting Banks, the Applicant
will be required to submit a document to confirm the details of the bank account particulars as provided in the
Application. This can be done by submitting any document from the bank of the Applicant that states the account
number and name of the account holder. Documents that may be accepted include account statements or a letter
or any document issued by the bank confirming this information. The Applicant is responsible for ensuring that the
evidence submitted is legible and contains the required information. The Applicant is not obliged to submit any
evidence with regard to the accuracy of its bank account if it is subscribing through the Collecting Bank where it
maintains its account. In this case, the bank will be required to verify and confirm the correctness of the Applicant’s
account through its own system and procedures or through the evidence submitted to it by the Applicant.
• All Category II Investors who have an account with a bank will be required to submit a document to confirm the details
of the bank account particulars as provided in the Application. This can be done by submitting any document from
the bank of the Applicant that states the account number and name of the account holder. Documents that may be
accepted include account statements or a letter or any document issued by the bank confirming this information. The
Applicant is responsible for ensuring that the evidence submitted is legible and contains the required information.
• In accordance with the instructions of the CMA, the details of the bank account will be listed in the records of the
Muscat Clearing for transferring any refund as well as for crediting the dividends distributed by the companies listed
on the MSM. For Applicants who already have bank accounts registered with the Muscat Clearing, the account
mentioned in the Application will be used for the transfer of refunds only.
• Any Application containing the bank account number of a person other than the Applicant will be rejected, with the
exception of Applications made on behalf of minors that contain the bank accounts particulars of their fathers.

Documentation Required
• Submission of a document confirming the accuracy of the bank account number provided in the Application is only
required where the bank account is registered with a bank that is not the Collecting Bank.
• A copy of a valid power of attorney duly endorsed by the competent legal authorities must be included in the event
the subscription is on behalf of another person (with the exception of a subscription made by a father on behalf of
his minor children).
• In case of applications by juristic persons (non-individuals) which are signed by a person in his or her capacity as an
authorised signatory, a copy of adequate and valid documentation should be attached.

Mode of Application
• The Applicant will be responsible for furnishing all particulars and will ensure the correctness and validity of the
information set out in the Application. The Applicant will be required, before completing the Application, to carefully
read this Prospectus, including the conditions and procedures governing the subscription.
114
• The Applicant will be required to fill in the Application and furnish copies of all particulars as noted on the Application.
• The Applicant will be required to submit the Application to one of the Collecting Banks, together with the Application
Money and the documents in support of the Application.
• Cheque or demand draft for the Application Money will be in favour of “MCDC IPO”.

Banks Receiving the Applications

Applications will be accepted by any one of the Collecting Banks during official bank hours only. The Collecting Bank
receiving the subscription is required to accept the Application after confirmation of compliance with the procedures set
out in this Prospectus. The Collecting Bank must instruct the Applicants to comply and fulfil any requirements set out in
the Application.
Applicants must submit an Application to one of the Collecting Banks on or before the Offer Closing Date. The Collecting
Bank shall refuse any Application received after the official working hours on the Offer Closing Date.

Payment into Escrow Account

• All Investors will, with the submission of the Application, pay the Application Money by cash, or draw a cheque or
demand draft or instruct an account transfer for the amount payable at the time of submission of the Application
and/or on allocation in favour of “MCDC IPO”.
• Where an Investor has been allocated fewer Offer Shares than indicated in the Application or at a price lower than
the price at which the Application Money was calculated, the excess amount, if any, paid on Application, will be
refunded to the Investor from the escrow account of “MCDC IPO”.

Acceptance of the Applications

The Collecting Banks will not accept Applications in the following circumstances:
• If the Application does not bear the signature of the Applicant.
• If the Application Money is not paid by the Applicant in accordance with the conditions set out in this Prospectus.
• If the Application Money is paid by cheque and the cheque is dishonoured for any reason whatsoever.
• If the Application does not include the Applicant’s Investor Number registered with Muscat Clearing.
• If the Application is submitted in joint names.
• If the Applicant is a sole proprietorship.
• If the Investor Number furnished in the Application is incorrect.
• If the Applicant submits more than one Application in the same name, all of them will be rejected.
• If the supporting documents are not enclosed with the Application.
• If the Application does not contain all the particulars of the bank account of the Applicant.
• If the particulars of the bank account provided in the Application are found to be incorrect or not relevant to the
Applicant, with the exception of Applications submitted in the names of minor children, who are allowed to make
use of the particulars of the bank accounts held by their fathers.
• If the power of attorney is not attached to the Application in respect of an Applicant who subscribes on behalf of
another person (with the exception of fathers who subscribe on behalf of their minor children).
• If the Application does not comply with the legal requirements as provided for in this Prospectus.
If the Collecting Bank receives an Application that does not comply with the procedures set out in this Prospectus, due
effort will be taken to contact the Applicant so that the mistake may be corrected. If the Applicant does not rectify the
Application within a specified period, the Collecting Bank will return the Application together with the Application Money
to the Applicant.

Refusal of Applications
The Financial Adviser and Issue Manager may reject any Application under any of the conditions referred to above,
subject to securing the approval of the CMA and submission of a comprehensive report furnishing the details of the
Applications that are rejected and the reasons behind the rejections.

115
 Enquiry and Complaints
Any Applicant who intends to seek clarification or file complaints with regard to issues related to the allotment or rejection
of Applications or refund of the Application Money in excess of the subscription, may contact the branch of the Collecting
Bank where the subscription was made. In case there is no response from the Collecting Bank, the Applicant may contact
the person whose details are set out below:

Bank Contact Name Postal Address Contact Details

bank muscat S.A.O.G.
Bank Dhofar S.A.O.G.
National Bank of Oman
S.A.O.G.
Oman Arab Bank S.A.O.C.
Bank Sohar S.A.O.G.
Ahli Bank S.A.O.G.
If the Collecting Bank fails to resolve the complaint with the Applicant, it will refer the subject matter to the Financial
Adviser and Issue Manager and keep the Applicant informed of the progress and development in respect of the subject
matter of the dispute.
Hamid Said Hashmat P.O. 134, P.C. 112, Ruwi,
Sultanate of Oman
Ali Redha I. Al Lawati P.O. 1507, P.C. 112, Ruwi,
Sultanate of Oman
Hussain Ali Abdullah P.O. 751, P.C. 112, Ruwi,
Al Lawati Sultanate of Oman
Marwan Al Khouli P.O. 2010, P.C. 112, Ruwi,
Sultanate of Oman
Ali Abdul Hossain P.O. 44, P.C. 114,
Mohamed Sultanate of Oman
Amin Al Balushi P.O. 545, P.C. 116,
Sultanate of Oman
Tel: +968 2476 7990
Fax: +968 2478 7764
Email: hamids@bankmuscat.com
Tel: +968 2479 0466 (Ext. 422)
Fax: +968 2479 1131
Email: ibo@bankdhofar.com
Tel: +968 2477 8757
Fax: +968 2477 8993
Email: hallawati@nbo.co.om
Tel: +968 24754500
Fax: +968 24125128
Email: marwan.alkhouli@oman-
arabbank.com
Tel: +968 9661 0101
Fax: +968 2476 1886
Email: ali.mohamed @banksohar.net
Tel: +968 2457 7830
Fax: +968 2456 7841
Email: amin.albalushi@ahlibank.om

Allotment Letters and Refund of Money

The Financial Adviser and Issue Manager will arrange to allot the Offer Shares to Applicants within 15 days after the end
of the Offer Period after receiving the approval of the CMA on the Basis of Allotment. The Financial Adviser and Issue
Manager will also refund the excess money to eligible Applicants within 15 days after the end of the Offer Period and
after receiving the approval of the CMA. The Financial Adviser and Issue Manager will arrange to send allotment letters
to Applicants who have been allotted Shares through Muscat Clearing to their addresses registered with Muscat Clearing.

Proposed Timetable
The following table shows the expected time schedule for completion of the subscription procedures:

Procedure Date
Commencement of subscription 19 November 2017
Closing of subscription 18 December 2017
Due date for the Financial Adviser and Issue Manager to receive the subscription data and final 26 December 2017
registers from the Collecting Banks
Notification to the CMA of the outcome of the subscription and the proposed allotment 28 December 2017
Approval of the CMA of the proposed allotment 31 December 2017
Muscat Clearing to commence refund and dispatch of the notices regarding allotment 1 January 2018
Listing of the Offer Shares with MSM 2 January 2018

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Listing and Trading of the Offer Shares
The Offer Shares will be listed with MSM in accordance with the laws and procedures in force on the date the application
is made for the listing and registration. The above listing date is an estimated date and the exact date will be published
on the MSM website.

Responsibilities and Obligations
The Financial Adviser and Issue Manager, the Collecting Banks and the Company must abide by the responsibilities and
obligations set out by the directives and regulations issued by the CMA. The Financial Adviser and Issue Manager and
the Collecting Banks must also abide by any other responsibilities that are provided for in the agreements entered into
among them and the Company and the Selling Shareholders.
The parties concerned will be required to take remedial measures with regard to any liability arising from any negligence
committed in the performance of the functions and responsibilities assigned to them. The Financial Adviser and Issue
Manager will be the entity responsible before the regulatory authorities for taking suitable steps and measures for
redressing such liability.

117
 Chapter XXII: Historical Financial Statements

Audited Financial Statements for the Year Ended 31 December 2013 119

Audited Financial Statements for the Year Ended 31 December 2014 140

Audited Financial Statements for the Year Ended 31 December 2015 168

Audited Financial Statements for the Year Ended 31 December 2016 193

Audited Financial Statements for the Quarter Ended 31 March 2017 222

Unaudited Financial Statements for the Six Months Ended 30 June 2017 250

118
MUSCAT CITY DESALINATION COMPANY S.A.O.C.

Report and financial statements

for the period since incorporation on
19 January 2013 to 31 December 2013

119
 Report and financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013

Page

Independent auditor’s report 121 – 122

Statement of financial position 123

Statement of profit or loss and other comprehensive income 124

Statement of changes in equity 125

Statement of cash flows 126

Notes to the financial statements

127 – 139

120
 tatement o financial osition as at ecem e

Notes 2013
Assets OMR
Non-current assets
Plant and equipment 5 36,440,698
Non-current portion of fair value of derivative financial instruments 10 2,355,722
Total non-current assets 38,796,420
Current assets
Prepayments and other receivables 6 24,195
Cash and cash equivalents 7 12,113,973
Total current assets 12,138,168
Total assets 50,934,588
EQUITY AND LIABILITIES
Capital and reserves
Share capital 8 500,000
Cumulative changes in fair values of derivative financial instruments 10 2,315,364
Total equity 2,815,364
Non-current liabilities
Non-current portion of term loans 9 15,541,451
Current liabilities
Current portion of fair value of derivative financial instruments 10 40,358
Equity bridge loans 11 20,324,298
Accruals and other payables 12 7,146,858
Amount due to related parties 13 5,066,259
Total current liabilities 32,577,773
Total liabilities 48,119,224
Total equity and liabilities 50,934,588

_____________________ _____________________
Chief Executive Officer Chief Financial Officer

The accompanying notes form an integral part of these financial statements.

123
 Statement of profit or loss and other comprehensive income
for the period since incorporation on 19 January 2013 to 31 December 2013

For the period since

incorporation on
19 January 2013 to 31
Notes December 2013
OMR
Other comprehensive income
Changes in fair values of derivative financial instruments 10 2,315,364
Total other comprehensive income for the period 2,315,364

The accompanying notes form an integral part of these financial statements.

124
Statement of changes in equity
for the period since incorporation on 19 January 2013 to 31 December 2013

Cumulative
changes in
fair values of
derivative financial
Share capital instruments Total
OMR OMR OMR
Share capital introduced during the period 500,000 - 500,000
Other comprehensive income - 2,315,364 2,315,364
At 31 December 2013 500,000 2,315,364 2,815,364

The accompanying notes form an integral part of these financial statements.

125
 Statement of cash flows
for the period since incorporation on 19 January 2013 to 31 December 2013

2013
OMR
Operating activities
Adjustment for:
Depreciation 9,355
Cash flows from operating activities before working capital changes 9,355
Change in accruals and other payables 7,146,858
Change in prepayments and other receivables (24,195)
Net cash from operating activities 7,132,018
Investing activities
Additions to plant and equipment (36,450,053)
Net cash used in investing activities (36,450,053)
Financing activities
Share capital introduced during the period 500,000
Amount due to related parties 5,066,259
Proceeds from equity bridge loans 20,324,298
Net proceeds from Term loans 15,541,451
Net cash from financing activities 41,432,008
Net change in cash and cash equivalents 12,113,973
Cash and equivalents at the beginning of the period -
Cash and cash equivalents at the end of the period 12,113,973

The accompanying notes form an integral part of these financial statements.

126
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013

1. Legal status and principal activities

Muscat City Desalination Company S.A.O.C. (the “Company”) is a closed joint stock company registered in the
Sultanate of Oman. The Company was incorporated on 19 January 2013. The Company’s principal activity is the sale
of desalinated water. The Company is expected to commence commercial production of potable water in October
2014.

1.1 Key Agreements

Water Purchase Agreement

On 11 February 2013 the Company signed a long term Water Purchase Agreement with Oman Power and Water
Procurement Company S.A.O.C. for the supply of 42 million imperial gallons of water per day. The agreement
expires 20 years after the Scheduled Commercial Operation Date.
Construction Agreement
The Company has entered into an agreement for the construction of a desalination plant with a capacity of 42
million imperial gallons of water per day with International Water Treatment L.L.C. on a turnkey basis.

2 Adoption of new and revised International Financial Reporting Standards (IFRSs)

For the period since incorporation on 19 January 2013 to 31 December 2013, the Company has adopted all the
standards and interpretations issued by the International Accounting Standards Board (IASB) and the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective
for the period beginning on 19 January 2013.

Standards and Interpretations in issue but not yet effective

At the date of authorisation of these financial statements, the following new and revised Standards and Interpretations
were in issue but not yet effective:

Effective for annual periods

beginning on or after
New IFRS and relevant amendments
IFRS 9: Financial Instruments (as revised in 2010 to include requirements for the January 2015
classification and measurement of financial liabilities and incorporate existing
derecognition requirements)
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure January 2014
of Interests in Other Entities and IAS 27 Separate Financial Statements, to
provide ‘investment entities’ (as defined) an exemption from the consolidation
of particular subsidiaries.
IAS 32: Financial instruments: presentation, Offsetting Financial Assets and January 2014
Financial Liabilities: to clarify certain aspects because of diversity in application
of the requirements on offsetting.
IAS 36: Impairment of assets, Recoverable Amount Disclosures for Non- January 2014
Financial Assets to reduce the circumstances in which the recoverable amount
of assets or cash-generating units is required to be disclosed, clarify the
disclosures required, and to introduce an explicit requirement to disclose the
discount rate used.
IAS 39: Financial Instruments: Recognition and Measurement, Novation of January 2014
Derivatives and Continuation of Hedge Accounting to clarify that there is no
need to discontinue hedge accounting if a hedging derivative is novated,
provided certain criteria are met.

127
 Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

2 Adoption of new and revised International Financial Reporting Standards (IFRSs)

Effective for annual

periods
beginning on or after
New Interpretations and amendments to Interpretations
IFRIC 21 – Levies January 2014
The directors anticipate that the adoption of the above standards and interpretations in future periods will have no
material impact on the financial statements of the Company in the period of initial application.

3 Summary of significant accounting policies

Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as promulgated by the International Accounting Standards Board and the requirements of the Commercial
Companies Law of 1974, as amended.

Basis of preparation
The financial statements have been prepared under the historical cost convention except for certain financial assets
and liabilities measured at fair value.
The accounting records are maintained in Omani Rial (OMR) which is the functional and reporting currency for these
financial statements.
The significant accounting policies adopted by the Company are as follows:

Foreign currencies
The Omani Rial (OMR) is the functional and presentation currency of the Company. Any currency other than the
functional currency is considered as a foreign currency. Transactions in foreign currencies are translated to Omani
Rials at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated to Omani Rials using the closing rate at the reporting date.
Non-monetary assets and liabilities measured at historical cost are translated using the exchange rate at the date
of the transaction whereas those measured at fair value are translated using the exchange rate at the date when fair
value was determined. An exchange difference on settlement of monetary items or on translation is recognised in
profit or loss.

Plant and equipment

Recognition and measurement

Items of plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Cost
includes the amount of cash and cash equivalents paid or the fair value of other consideration given to acquire an
asset at the date of acquisition or construction. Expenditure incurred to replace a component of an item of plant
and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised.
The cost of self-constructed assets includes the cost of materials, direct labour, borrowing costs and an appropriate
proportion of overheads. Gains and losses on disposal of plant and equipment are determined by reference to their
carrying amount and are taken into account in determining profit or loss. Repairs and renewals are charged to the
profit or loss when the expense is incurred.
Subsequent costs
The Company recognises in the carrying amount of plant and equipment the cost of major inspections and the
cost of replacing part of such an item when the cost is incurred, if it is probable that the future economic benefits
embodied in the item will flow to the Company and the cost of the item can be measured reliably. All other costs
are recognized as an expense as incurred.
128
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

3 Summary of significant accounting policies (continued)

Plant and equipment (continued)

Depreciation
Depreciation is calculated so as to write off the cost of plant and equipment, other than capital work-in-progress,
over their estimated economic useful lives, using the straight line method, from the date that the asset is brought
into use.
Where components of an item of plant and equipment have different useful lives, they are accounted for as separate
items (major components) of plant and equipment. Major repairs are depreciated over the remaining useful life of
the related asset, or up to the date of the next major repair, whichever is shorter.
The estimated useful lives for the current period are as follows:
Years
Furniture and fixtures...........................................................................................4
Office equipment.................................................................................................4
Motor vehicles......................................................................................................4
Management reassesses the useful lives and residual values for plant and equipment annually.
Capital work-in-progress
Capital work-in-progress is stated at cost less any impairment losses. When commissioned, capital work-in-progress
is transferred to the appropriate plant and equipment category and depreciated in accordance with depreciation
policies of the Company.

Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the
weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.

Impairment

Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are
recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.

129
 Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

3 Summary of significant accounting policies (continued)

Impairment (continued)
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.

Employees’ end of service benefits

With respect to its Omani employees, the Company makes contributions to the Public Authority for Social Insurance
under Royal Decree 72/91 calculated as a percentage of the employees’ salaries. The Company’s obligations are
limited to these contributions, which are expensed when due.
The Company does not provide end of service benefits to its expatriate employees on secondment from the
shareholders.

Provisions
A provision is recognised in the statement of financial position when the Company has a legal or constructive
obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle
the obligation and the amount can be reliably estimated. The amount recognized as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the
present obligation, the carrying amount is the present value of those cash flows.

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.

Revenue
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net
of returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is no continuing management involvement with the goods,
and the amount of revenue can be measured reliably.

Finance expenses
Finance costs comprise interest on borrowings. Borrowing costs, net of interest income, which are directly attributable
to the acquisition or construction of items of plant and equipment are capitalised as part of the cost of plant and
equipment. All other interest expenses are recognised as an expense in profit or loss using the effective interest
rate method.

Non-derivative financial instruments

Non-derivative financial instruments comprise receivables, cash and cash equivalents, loans and trade and other
payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured at amortised cost using the effective interest rate method.
130
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

3 Summary of significant accounting policies (continued)

Derivative financial instruments

The Company holds derivative financial instruments to hedge its interest rate risk exposures. Derivatives are initially
recognised at fair value at the date the derivative contract is entered into and are subsequently measured at their
fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in which case the timing of the recognition
in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within
12 months. Other derivatives are presented as current assets or current liabilities.
Hedge accounting
The Company designates the hedging instrument as cash flow hedges. At the inception of the hedge relationship,
the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective
in offsetting changes in fair values or cash flows of the hedged item.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Amounts previously recognised in and accumulated in equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.

Income tax

Current tax
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Current tax is the expected tax
payable on the taxable income for the year, using the tax rates ruling at the reporting date.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis
of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax
effects on the temporary differences are disclosed under non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it
is no longer probable that the related tax benefit will be realised.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank balances
with an original maturity of less than three months.

4 Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in note 3, management is required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.

131
 Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

4 Critical accounting judgements and key sources of estimation uncertainty (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
the revision and in future periods, if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following is the key assumption concerning the future at the reporting date that has a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Impairment of plant and equipment
Capital work-in-progress is stated at cost. Management considers that no impairment has occurred.

5 Plant and equipment

Furniture and Office Motor Capital work-

fixtures equipment vehicles in- progress Total
OMR OMR OMR OMR OMR
Cost
Additions 12,070 9,901 38,734 36,389,348 36,450,053
31 December 2013 12,070 9,901 38,734 36,389,348 36,450,053
Depreciation
Depreciation for the period 2,429 1,859 5,067 - 9,355
31 December 2013 2,429 1,859 5,067 - 9,355
Carrying value
31 December 2013 9,641 8,042 33,667 36,389,348 36,440,698
The land on which the plant is being constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rental is paid at the rate of OMR 15,045
per annum.

6 Prepayments and other receivables

2013
OMR
Prepayments 16,928
Deposits 500
Amount due from related parties (note 13) 6,767
24,195

7 Cash and cash equivalents

Cash in hand 31
Cash at bank 48,332
Short term deposits 12,065,610
12,113,973
The short term deposits are denominated in USD and are with Sumitomo Mitsui Banking Corporation Limited
in London with maturities of less than one month from the reporting date. These deposits yield interest at an
insignificant rate.

132
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

8 Share capital

Authorised
Share capital 2013
OMR
25,000,000 shares of OMR 1 each 25,000,000

Issued and
fully paid
2013
OMR
500,000 shares of OMR 1 each 500,000
During the period the Company issued share capital in the amount of OMR 500,000 comprising 500,000 shares of
OMR 1 each.

Statutory reserve
Article 154 of the Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to
a non-distributable statutory reserve until the amount of the statutory reserve becomes equal to at least one-third of
the company’s paid up share capital. No amount has been transferred to the legal reserve during the year.

9 Term loans

2013
OMR
Term loans 17,092,326
Less: deferred finance charges (1,550,875)
15,541,451

Facilities
On 25 July 2013, the Company entered into a long term finance agreement for loan facilities (the “Term loans”) in
the aggregate maximum amount of OMR 81.5 million (USD 211.8 million) with a consortium of international banks.

Facilities drawdown
Total drawdowns from the Term loans facilities up to 31 December 2013 amount to OMR 17,092,326 (USD
44,453,384). The drawdown period expires 90 days after the Commercial Operation Date as defined by the Common
Terms Agreement dated 25 July 2013 between the Company and the Lenders.

Facility repayments
The Term loans are due for repayment in 76 quarterly instalments commencing from July 2015.

Interest
The Term loans bear interest at three month USD Libor plus margin. The effective interest rate for 2013 was 2.07%.

Security
The Term loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage over the
Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a charge has
been created over all of the Company’s shares.

133
 Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

9 Term loans (continued)

Covenants
The facilities agreements contain certain covenants relating to liquidity. These include restrictions on the debt /
equity ratio, the debt service coverage ratio and the loan life cover ratio.

10. Derivative financial instruments

In accordance with the Common Terms Agreement, the Company is required to enter into interest rate hedging
agreements to cap the Company’s exposure to fluctuating interest rates. This requirement covers both the Term
loans and the Equity bridge loans.
As at the reporting date, a principal amount of approximately OMR 17,946,943 (USD 46,676,054) was covered
under this agreement for the Term loans and OMR 19,196,977 (USD 49,927,119) for the equity bridge loans.
The hedging agreements cap the Company’s exposure to fluctuating interest rates for the period of construction of
the plant. Thereafter the Company releases a portion of the hedging arrangements in line with the repayment of the
Term loans and Equity bridge loans.
The hedging arrangement obliges the Company to pay fixed interest at the rate of 2.86% per annum on a quarterly
basis for the Term loans and 0.62% per annum on a quarterly basis for the Equity bridge loans. These cash flow
hedges were assessed as highly effective and as at 31 December 2013, an unrealised gain of OMR 2,315,364 (USD
6,021,753) relating to the hedging arrangements is included in equity.
The classification of the fair values of the derivative financial instruments based on the remaining period to maturity
from the reporting date is as follows:

2013
OMR
Less than 1 year (40,358)
1 to 5 years -
More than 5 years 2,355,722
Total more than 1 year 2,355,722
Cumulative changes in fair value 2,315,364
The table below shows the fair values of the interest rate swaps, which are equivalent to the market values, together
with the notional amounts analysed by the term to maturity.

Notional amounts by
term to maturity
More than
Notional 1 - 12 1 up to 5 More than
Fair value amount months years 5 years
31 December 2013 OMR OMR OMR OMR OMR
Term loans 2,355,722 17,946,943 - - 17,946,943
Equity bridge loans (40,358) 19,196,977 19,196,977 - -
2,315,364 37,143,920 19,196,977 - 17,946,943

134
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

11 Equity bridge loans

2013
OMR
Equity bridge loans 20,324,298

Facilities
On 2 May 2013, the Company entered into medium term finance agreements for loan facilities (the “Equity bridge
loans”) in the aggregate maximum amount of OMR 21.1 million (USD 55.0 million) with two international banks.

Facilities drawdown
Total drawdowns from the Equity bridge loans facilities up to 31 December 2013 amount to OMR 20,324,298 (USD
52,859,031). The drawdown period expires in May 2014.

Facility repayments
The Equity bridge loans are due for repayment on the earlier of the Commercial Operation Date or 12 January 2015.

Interest
The Equity bridge loans bear interest at three month USD Libor plus margin. The effective interest rate for 2013 was
1.43%.

Security
The Equity bridge loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage
over the Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a
charge has been created over all of the Company’s shares.

12 Accruals and other payables

2013
OMR

Accruals 1,971,007
Other payables 5,175,851
7,146,858
Other payables comprise amounts due to International Water Treatment L.L.C. for construction of the plant.

135
 Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

13 Related party transactions

Related parties comprise the ultimate and intermediate shareholders, directors, key management personnel and
any business entities in which these parties have the ability to control or exercise significant influence.
Significant related party transactions during the period are as follows:

For the period since

incorporation on
19 January 2013 to
31 December 2013
OMR
Share capital introduced 500,000
Key management compensation 152,848

2013
Amount due from related parties (note 6) OMR
Sumitomo Corporation 3,153
Cadagua S.A. 692
Malakoff International Limited 2,922
6,767

Amount due to related parties

Sumitomo Corporation \ Cadagua S.A. \ Malakoff International Limited 5,066,259
This amount relates to initial project costs paid by the related parties which has not yet been reimbursed to the
related parties and has been capitalised under capital work-in-progress as it relates directly to the construction of
the plant.
The amount due from and the amount due to related parties is interest free and there are no specific terms of
repayment.

14 Income tax
The tax rate applicable to the Company is 12% on all profits above OMR 30,000.
Deferred tax arises on account of tax losses and temporary differences between the tax base of assets and liabilities
and their carrying values in the statement of financial position.

15 Financial instruments
This note presents information on the risks arising from the Company’s use of financial instruments, namely; credit
risk, liquidity risk and market risk to which the Company is exposed, its objectives, policies and processes for
measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are
included throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework.
Risk management policies and systems are reviewed regularly to ensure that they reflect any changes in market
conditions and the Company’s activities. The Company, through its induction and training program, aims to develop
a disciplined and constructive control environment in which all employees understand their roles and obligations.

136
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

15 Financial instruments (continued)

Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s deposits with banks.
The exposure to credit risk is monitored on an on-going basis and therefore the Company considers the credit risk
to be minimal.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:

2013
OMR
Cash at bank and deposits 12,113,942
Deposits 500
Amount due from related parties 6,767
12,121,209

Liquidity risk
Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they fall due. The
Company’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 Company’s reputation.
The Company uses cash flow forecasting methods which assist it in monitoring cash flow requirements and optimizing
its cash flow cycle. The Company ensures that it has sufficient cash available to meets its expected operational
expenses, including the servicing of financial obligations.
The maturities of Company’s undiscounted financial liabilities at the reporting date are shown below:

Carrying Less than 6 6 to 12 1 to 5 More than

31 December 2013 amount months months years 5 years
OMR OMR OMR OMR OMR
Non derivative financial liabilities
Term loans 17,092,326 - - 11,309,170 5,783,156
Equity bridge loans 20,324,298 - 20,324,298 - -
Due to related parties 5,066,259 5,066,259 - - -
Accruals and other payables 7,146,858 7,146,858 - - -
49,629,741 12,213,117 20,324,298 11,309,170 5,783,156

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Company’s income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.
Currency risk
The Company is not exposed to foreign currency risk on its bank deposits designated in USD as the Omani Rial is
pegged to the US Dollar and has remained unchanged since 1986.

137
 Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

15 Financial instruments (continued)

Market risk (continued)

Interest rate risk

The Company’s interest rate risk arises principally from medium and long term borrowings. Borrowings issued at
variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company’s policy is to maintain approximately 100 % of its borrowings
in fixed rate or hedged instruments.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased/ (decreased) equity by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant.

100 bp 100 bp
31 December 2013 increase decrease
OMR OMR
Unhedged portion of the Equity bridge loans 11,273 (2,255)
Fair value of derivative financial instruments 6,274,790 (5,609,093)

Capital risk management

The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor and creditor confidence
and to sustain future development of the business.
The Company is not subject to externally imposed capital requirements except those under the Commercial
Companies Law of 1974, as amended.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain the capital structure, the Company may adjust the amount of dividends paid to shareholders,
return capital to shareholders or issue new shares.

Fair value
Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of Term loans, Equity
bridge loans and payables. Derivatives consist of interest rate swap arrangements.
The fair values of financial instruments are not materially different from their carrying values.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique.
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data

2013
Level 2
OMR
Interest rate swaps 37,143,920
138
Notes to the financial statements
for the period since incorporation on 19 January 2013 to 31 December 2013 (continued)

15 Financial instruments (continued)

Fair value hierarchy (continued)

The Company had no financial instruments in level 1 or level 3. During the period ended 31 December 2013, there
were no transfers of financial instruments between the levels for fair value measurement.

16 Contingencies and commitments

Capital commitments
The Company has entered into an agreement for the construction of the desalination plant with International Water
Treatment L.L.C. on a turnkey basis for an amount of OMR 82.9 million (USD 215.5 million).  At 31 December 2013,
the total outstanding capital commitments in this regard amounted to OMR 51.9 million (USD 134.9 million).

Lease commitments
At 31 December 2013, future minimum lease commitments under non-cancellable operating leases are as follows:

2013
OMR
Less than one year 15,045
Between one and five years 60,180
More than five years 255,765
330,990

17 Accounting period
The financial statements represent the results of operations of the Company since incorporation on 19 January 2013
to 31 December 2013.
As this is the first period of the Company’s operations, comparative figures as required by IAS 1 have not been
presented in these financial statements.

18 Approval of financial statements

The financial statements were approved by the management and authorised for issue on 30 January 2014.

139
 MUSCAT CITY DESALINATION COMPANY S.A.O.C.

Report and financial statements

for the year ended 31 December 2014

140
Report and financial statements
for the year ended 31 December 2014

Page

Directors’ report 142 – 143

Independent auditor’s report 144 – 145

Statement of financial position 146

Statement of profit or loss and other comprehensive income 147

Statement of changes in equity 148

Statement of cash flows 149

Notes to the financial statements 150 – 167

141
142
143
 tatement o financial osition
as at 31 December 2014

Notes 2014 2013

Assets OMR OMR
Non-current assets
Plant and equipment 5 79,560,113 36,440,698
Non-current portion of fair value of derivative financial instruments 10 - 2,355,722
Total non-current assets 79,560,113 38,796,420
Current assets
Trade and other receivables 6 4,350,923 24,195
Cash and cash equivalents 7 7,585,577 12,113,973
Total current assets 11,936,500 12,138,168
Total assets 91,496,613 50,934,588
EQUITY AND LIABILITIES
Capital and reserves
Share capital 8 7,457,620 500,000
Legal reserve 8 2,435,167 -
Accumulated losses (3,589,633) -
Cumulative changes in fair values of derivative financial instruments 10 (3,003,668) 2,315,364
Total equity 3,299,486 2,815,364
Non-current liabilities
Non-current portion of term loans 9 47,816,363 15,541,451
Non-current portion of fair value of derivative financial instruments 10 3,693,609 -
End of service benefits 17 15,765 -
Total non-current liabilities 51,525,737 15,541,451
Current liabilities
Current portion of term loans 9 3,829,500 -
Current portion of fair value of derivative financial instruments 10 60,059 40,358
Equity bridge loans 11 10,931,511 20,324,298
Shareholders’ bridge loans 12 2,460,800 -
Accruals and other payables 13 14,423,261 7,146,858
Amount due to related parties 14 4,966,259 5,066,259
Total current liabilities 36,671,390 32,577,773
Total liabilities 88,197,127 48,119,224
Total equity and liabilities 91,496,613 50,934,588

_____________________ _____________________
hie ec ti e fice hie inancial fice
The accompanying notes form an integral part of these financial statements.
146
Statement of profit or loss and other comprehensive income
for the year ended 31 December 2014

Period since
incorporation on
31 December 19 January 2013 to
Notes 2014 31 December 2013
OMR OMR
Delay liquidated damages 15 (2,839,633) -
Over-hedged portion of changes in fair values of
derivative financial instruments 10 (750,000) -
Total loss for the year / period (3,589,633) -
Other comprehensive income
Changes in fair values of derivative financial
instruments 10 (5,319,032) 2,315,364
Total other comprehensive income for the year / period (5,319,032) 2,315,364

The accompanying notes form an integral part of these financial statements.

147
 Statement of changes in equity
for the year ended 31 December 2014

Cumulative
changes in
fair values
of derivative
Accumulated financial
Share capital Legal reserve losses instruments Total
OMR OMR OMR OMR OMR
Share capital introduced
during the period 500,000 - - - 500,000
Other comprehensive income - - - 2,315,364 2,315,364
At 31 December 2013 500,000 - - 2,315,364 2,815,364
Share premium - 2,435,167 - - 2,435,167
Share capital introduced
during the year 6,957,620 - - - 6,957,620
Loss for the year - - (3,589,633) - (3,589,633)
Other comprehensive income - - - (5,319,032) (5,319,032)
At 31 December 2014 7,457,620 2,435,167 (3,589,633) (3,003,668) 3,299,486

The accompanying notes form an integral part of these financial statements.

148
Statement of cash flows
for the year ended 31 December 2014

Period since
incorporation on
31 December 19 January 2013 to
2014 31 December 2013
OMR OMR
Operating activities
Total loss for the year / period (3,589,633) -
Adjustment for:
Over-hedged portion of changes in fair values of derivative
financial instruments 750,000
Depreciation 15,175 9,355
Cash flows from operating activities before working capital changes (2,824,458) 9,355
Change in accruals and other payables 7,292,168 7,146,858
Change in prepayments and other receivables (4,326,728) (24,195)
Net cash from operating activities 140,982 7,132,018
Investing activities
Additions to plant and equipment (43,134,590) (36,450,053)
Net cash used in investing activities (43,134,590) (36,450,053)
Financing activities
Share capital introduced during the year / period 9,392,787 500,000
Amount due to related parties (100,000) 5,066,259
(Repayment)/proceeds from equity bridge loans (9,392,787) 20,324,298
Proceeds from shareholders’ bridge loans 2,460,800 -
Net proceeds from term loans 36,104,412 15,541,451
Net cash from financing activities 38,465,212 41,432,008
Net change in cash and cash equivalents (4,528,396) 12,113,973
Cash and equivalents at the beginning of the year / period 12,113,973 -
Cash and cash equivalents at the end of the year / period 7,585,577 12,113,973

The accompanying notes form an integral part of these financial statements.

149
 Notes to the financial statements
for the year ended 31 December 2014

1. Legal status and principal activities

Muscat City Desalination Company S.A.O.C. (the “Company”) is a closed joint stock company registered in the
Sultanate of Oman. The Company was incorporated on 19 January 2013. The Company’s principal activity is the
sale of desalinated water. The Company is now expected to commence commercial production of potable water in
the summer of 2015.

1.1 Key agreements

Water Purchase Agreement

On 11 February 2013 the Company signed a long term Water Purchase Agreement with Oman Power and Water
Procurement Company S.A.O.C. for the supply of 42 million imperial gallons of water per day. The agreement
expires 20 years after the Scheduled Commercial Operation Date of 12 October 2014, subject to any extension
period or early termination arising under the terms of the agreement.

Engineering, Procurement and Construction Contract

The Company entered into an agreement for the construction of a desalination plant with a capacity of 42 million
imperial gallons of water per day with International Water Treatment L.L.C. on a turnkey basis.

2 Adoption of new and revised International Financial Reporting Standards (IFRSs)

For the year ended 31 December 2014, the Company has adopted all the new and revised standards and
interpretations issued by the International Accounting Standards Board (IASB) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the
period beginning on 1 January 2014.

2.1 New and revised IFRSs applied with no material effect on the financial statements
The following new and revised IFRSs, which became effective for annual periods beginning on or after 1 January
2014, have been adopted in these financial statements. The application of these new and revised IFRSs has not had
any material impact on the amounts reported for the current and prior years but may affect the accounting for future
transactions or arrangements.

Amendments to IAS 32 Financial Presentation relating to application guidance on the offsetting of

Instruments: financial assets and financial liabilities.

Amendments to IAS 36 recoverable
amount disclosures:
The amendments restrict the requirements to disclose the recoverable
amount of an asset or CGU to the period in which an impairment loss
has been recognised or reversed. They also expand and clarify the
disclosure requirements applicable when an asset or CGU’s recoverable
amount has been determined on the basis of fair value less costs of
disposal.

Amendments to IAS 39 Financial
Instruments: Recognition and
Measurement, Novation of
Derivatives and Continuation of
Hedge Accounting:
The amendment allows the continuation of hedge accounting when a
derivative is novated to a clearing counterparty and certain conditions
are met.

Amendments to IFRS 10, IFRS 12 and On 31 October 2012, the IASB published a standard on investment
IAS 27 – Guidance on Investment entities, which amends IFRS 10, IFRS 12, and IAS 27 and introduces the
Entities: concept of an investment entity in IFRSs.

150
Notes to the financial statements
for the year ended 31 December 2014 (continued)

2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)

2.2 New and revised IFRSs in issue but not yet effective and not early adopted
At the date of authorisation of these consolidated financial statements, the following new and revised Standards and
Interpretations were in issue, but not yet effective:

New and revised IFRSs Effective for annual periods

beginning on or after

Amendments to IFRS 7 Financial Instruments: Disclosures relating to When IFRS 9 is first applied
disclosures about the initial application of IFRS 9.

IFRS 7 Financial Instruments: Additional hedge accounting disclosures When IFRS 9 is first applied
(and consequential amendments) resulting from the introduction of
the hedge accounting chapter in IFRS 9.

IFRS 9 Financial Instruments (2009) issued in November 2009 1 January 2018

introduces new requirements for the classification and measurement
of financial assets. IFRS 9 Financial Instruments (2010) revised in
October 2010 includes the requirements for the classification and
measurement of financial liabilities, and for carrying over the existing
derecognition requirements from IAS 39 Financial Instruments:
Recognition and Measurement.
IFRS 9 Financial Instruments (2013) was revised in November 2013
to incorporate a hedge accounting chapter and permit the early
application of the requirements for presenting in other comprehensive
income the own credit gains or losses on financial liabilities
designated under the fair value option without early applying the
other requirements of IFRS 9.

A finalised version of IFRS 9 (IFRS 9 Financial Instruments (2014))

was issued in July 2014 incorporating requirements for classification
and measurement, impairment, general hedge accounting and
derecognition.
IFRS 9 (2009) and IFRS 9 (2010) were superseded by IFRS 9 (2013) and
IFRS 9 (2010) also superseded IFRS 9 (2009). IFRS 9 (2014) supersedes
all previous versions of the standard. The various standards also permit
various transitional options. Accordingly, entities can effectively choose
which parts of IFRS 9 they apply, meaning they can choose to apply: (1)
the classification and measurement requirements for financial assets:
(2) the classification and measurement requirements for both financial
assets and financial liabilities: (3) the classification and measurement
requirements and the hedge accounting requirements provided that
the relevant date of the initial application is before 1 February 2015.

151
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)

2.2 New and revised IFRSs in issue but not yet effective and not early adopted (continued)

New and revised IFRSs Effective for annual periods

beginning on or after

IFRS 15 Revenue from Contracts with Customers January 2017

In May 2014, IFRS 15 was issued which established a single comprehensive
model for entities to use in accounting for revenue arising from contracts
with customers. IFRS 15 will supersede the current revenue recognition
guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the
related interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Specifically, the standard introduces a
5-step approach to revenue recognition:
• Step 1: Identify the contract(s) with a customer.
• Step 2: Identify the performance obligations in the contract.
• Step 3: Determine the transaction price.
• Step 4: Allocate the transaction price to the performance obligations in
the contract.
• Step 5: Recognise revenue when (or as) the entity satisfies a performance
obligation.
Under IFRS 15, an entity recognises when (or as) a performance obligation is
satisfied, i.e. when ‘control’ of the goods or services underlying the particular
performance obligation is transferred to the customer. Far more prescriptive
guidance has been added in IFRS 15 to deal with specific scenarios.
Furthermore, extensive disclosures are required by IFRS 15.

Annual Improvements to IFRSs 2012 - 2014 Cycle, that include amendments 1 July 2016
to IFRS 5, IFRS 7, IAS 19 and IAS 34.

Amendments to IAS 16 and IAS 38 to clarify the acceptable methods of 1 January 2016
depreciation and amortisation.

Amendments to IFRS 11 to clarify accounting for acquisitions of Interests in 1 January 2016

Joint Operations.

Amendments to IAS 16 and IAS 41 to require biological assets that meet 1 January 2016
the definition of a bearer plant to be accounted for as property, plant and
equipment in accordance with IAS 16.

152
Notes to the financial statements
for the year ended 31 December 2014 (continued)

2. Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)

2.2 New and revised IFRSs in issue but not yet effective and not early adopted (continued)

New and revised IFRSs Effective for annual periods

beginning on or after

Amendments to IFRS 10 and IAS 28 to clarify that the recognition of the 1 January 2016
gain or loss on the sale or contribution of assets between an investor and its
associate or joint venture depends on whether the assets sold or contributed
constitute a business.

Amendments to IAS 27 to allow an entity to account for investments in 1 January 2016

subsidiaries, joint ventures and associates either at cost, in accordance with
IAS 39/IFRS 9 or using the equity method in an entity’s separate financial
statements.

Amendments to IFRS 10, IFRS 12 and IAS 28 to clarify certain aspects of 1 January 2016
applying the consolidation exception for investment entities.

Amendments to IAS 1 to address perceived impediments to preparers 1 January 2016

exercising their judgment in presenting their financial reports.

Annual Improvements to IFRSs 2010 - 2012 Cycle, that includes amendments 1 July 2014
to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38 and IAS 24.

Annual Improvements to IFRSs 2011 - 2013 Cycle, that includes amendments 1 July 2014
to IFRS 1, IFRS 3, IFRS 13 and IAS 40.

Amendments to IAS 19 Employee Benefits to clarify the requirements that 1 July 2014
relate to how contributions from employees or third parties that are linked to
service should be attributed to periods of service.

The directors anticipate that the adoption of the above standards and interpretations in future periods will have no
material impact on the financial statements of the Company in the period of initial application.

3 Summary of significant accounting policies

Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as promulgated by the International Accounting Standards Board and the requirements of the Commercial
Companies Law of 1974, as amended.

Basis of preparation
The financial statements have been prepared under the historical cost convention except for certain financial assets
and liabilities measured at fair value.
The accounting records are maintained in Omani Rial (OMR) which is the functional and reporting currency for these
financial statements.
The significant accounting policies adopted by the Company are as follows:

153
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

3 Summary of significant accounting policies (continued)

Foreign currencies
The Omani Rial (OMR) is the functional and presentation currency of the Company. Any currency other than the
functional currency is considered as a foreign currency. Transactions in foreign currencies are translated to Omani
Rials at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated to Omani Rials using the closing rate at the reporting date.
Non-monetary assets and liabilities measured at historical cost are translated using the exchange rate at the date
of the transaction whereas those measured at fair value are translated using the exchange rate at the date when fair
value was determined. An exchange difference on settlement of monetary items or on translation is recognised in
profit or loss.

Plant and equipment

Recognition and measurement

Items of plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Cost
includes the amount of cash and cash equivalents paid or the fair value of other consideration given to acquire an
asset at the date of acquisition or construction. Expenditure incurred to replace a component of an item of plant
and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised.
The cost of self-constructed assets includes the cost of materials, direct labour, borrowing costs and an appropriate
proportion of overheads. Gains and losses on disposal of plant and equipment are determined by reference to their
carrying amount and are taken into account in determining profit or loss. Repairs and renewals are charged to the
profit or loss when the expense is incurred.
Subsequent costs
The Company recognises in the carrying amount of plant and equipment the cost of major inspections and the
cost of replacing part of such an item when the cost is incurred, if it is probable that the future economic benefits
embodied in the item will flow to the Company and the cost of the item can be measured reliably. All other costs
are recognized as an expense as incurred.

Depreciation
Depreciation is calculated so as to write off the cost of plant and equipment, other than capital work-in-progress,
over their estimated economic useful lives, using the straight line method, from the date that the asset is brought
into use.
Where components of an item of plant and equipment have different useful lives, they are accounted for as separate
items (major components) of plant and equipment. Major repairs are depreciated over the remaining useful life of
the related asset, or up to the date of the next major repair, whichever is shorter.
The estimated useful lives for the current period are as follows:
Years
Furniture and fixtures............................................................................... 4
Office equipment..................................................................................... 4
Motor vehicles.......................................................................................... 4
Management reassesses the useful lives and residual values for plant and equipment annually.
Capital work-in-progress
Capital work-in-progress is stated at cost less any impairment losses. When commissioned, capital work-in-progress
is transferred to the appropriate plant and equipment category and depreciated in accordance with depreciation
policies of the Company.

154
Notes to the financial statements
for the year ended 31 December 2014 (continued)

3 Summary of significant accounting policies (continued)

Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the
weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.

Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are
recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.

Employees’ end of service benefits

With respect to its Omani employees, the Company makes contributions to the Public Authority for Social Insurance
under Royal Decree 72/91 calculated as a percentage of the employees’ salaries. The Company’s obligations are
limited to these contributions, which are expensed when due.
The Company provides end of service benefits to its expatriate employees on secondment from the shareholders.

Provisions
A provision is recognized in the statement of financial position when the Company has a legal or constructive
obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle
the obligation and the amount can be reliably estimated. The amount recognized as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the
present obligation, the carrying amount is the present value of those cash flows.
155
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

3 Summary of significant accounting policies (continued)

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.

Revenue
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net
of returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is no continuing management involvement with the goods,
and the amount of revenue can be measured reliably.

Finance expenses
Finance costs comprise interest on borrowings. Borrowing costs, net of interest income, which are directly attributable
to the acquisition or construction of items of plant and equipment are capitalised as part of the cost of plant and
equipment. All other interest expenses are recognised as an expense in profit or loss using the effective interest
rate method.

Non-derivative financial instruments

Non-derivative financial instruments comprise receivables, cash and cash equivalents, loans and trade and other
payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured at amortised cost using the effective interest rate method.

Derivative financial instruments

The Company holds derivative financial instruments to hedge its interest rate risk exposures. Derivatives are initially
recognised at fair value at the date the derivative contract is entered into and are subsequently measured at their
fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as
a hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the
hedge relationship.
A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within
12 months. Other derivatives are presented as current assets or current liabilities.
Hedge accounting
The Company designates the hedging instrument as cash flow hedges. At the inception of the hedge relationship,
the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective
in offsetting changes in fair values or cash flows of the hedged item.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss,
as is any gain or loss on any hedging that exceeds 100% of the associated liability.
Amounts previously recognised in and accumulated in equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss.

156
Notes to the financial statements
for the year ended 31 December 2014 (continued)

3 Summary of significant accounting policies (continued)

Derivative financial instruments (continued)

Cash flow hedges (continued)

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.

Income tax

Current tax
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Current tax is the expected tax
payable on the taxable income for the year, using the tax rates ruling at the reporting date.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis
of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax
effects on the temporary differences are disclosed under non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses can be utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank balances
with an original maturity of less than three months.

Delay liquidated damages

Delay liquidated damages payable to Oman Power and Water Procurement Company S.A.O.C. (the “Off-taker”)
are recognised in profit or loss. Delay liquidated damages receivable from International Water Treatment L.L.C. (the
“EPC Contractor”) are held in the balance sheet pending the outcome of the arbitration proceedings.

4 Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in note 3, management is required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
the revision and in future periods, if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following is the key assumption concerning the future at the reporting date that has a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Impairment of plant and equipment
Capital work-in-progress is stated at cost. Management considers that no impairment has occurred.

157
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

5 Plant and equipment

Furniture Capital
and Office Motor work-in-
fixtures equipment vehicles progress Total
OMR OMR OMR OMR OMR
Cost
Additions in period 12,070 9,901 38,734 36,389,348 36,450,053
31 December 2013 12,070 9,901 38,734 36,389,348 36,450,053
Additions in year - - - 43,134,590 43,134,590
31 December 2014 12,070 9,901 38,734 79,523,938 79,584,643
Depreciation
Depreciation for the period 2,429 1,859 5,067 - 9,355
31 December 2013 2,429 1,859 5,067 - 9,355
Depreciation for the year 3,017 2,475 9,683 - 15,175
31 December 2014 5,446 4,334 14,750 - 24,530
Carrying value
31 December 2014 6,624 5,567 23,984 79,523,938 79,560,113
31 December 2013 9,641 8,042 33,667 36,389,348 36,440,698
The land on which the plant is being constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rental is paid at the rate of OMR 15,045
per annum.

6 Trade and other receivables

2014 2013
OMR OMR
Prepayments 16,928 16,928
Deposits 500 500
Other receivables 4,333,495 -
Amount due from related parties (note 14) - 6,767
4,350,923 24,195
Other receivables relate to the receivables from the EPC Contractor as delay liquidated damages (Note 15).

7 Cash and cash equivalents

2014 2013
OMR OMR
Cash in hand 137 31
Cash at bank 48,087 48,332
Short term deposits 7,537,353 12,065,610
7,585,577 12,113,973
The short term deposits are denominated in USD and are with Sumitomo Mitsui Banking Corporation Limited
in London with maturities of less than one month from the reporting date. These deposits yield interest at an
insignificant rate.
158
Notes to the financial statements
for the year ended 31 December 2014 (continued)

8 Share capital

Authorised
Share capital 2014 2013
OMR OMR
25,000,000 shares of OMR 1 each 25,000,000 25,000,000

Issued and fully paid

2014 2013
OMR OMR
Shares of OMR 1 each 7,457,620 500,000
During the year the Company issued share capital in the amount of OMR 9,392,787 comprising 6,957,620 shares of
OMR 1 each at a premium of OMR 0.350 per share.

Share premium
The premium on the issue of share capital during the year amounted to OMR 2,435,167. This amount was transferred
to the legal reserve.

Shareholders
The Shareholders of the Company are:

% holding Country of incorporation

2014 2013
Summit Water Middle East Company 45 45 Cayman Islands
Malakoff Oman Desalination Company Limited 45 45 British Virgin Islands
Cadagua Al Ghubrah UK Limited 10 10 United Kingdom
100 100

Legal reserve
Article 154 of the Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to
a non-distributable statutory reserve until the amount of the statutory reserve becomes equal to at least one-third
of the company’s paid up share capital.
The Company has used the share premium received on the issue of share capital during the year to partly fulfil this
requirement.

2014 2013
OMR OMR
Legal reserve 2,435,167 -

9 Term loans
Term loans 53,196,738 17,092,326
Less: deferred finance charges (1,550,875) (1,550,875)
51,645,863 15,541,451
Less: current portion of term loans (3,829,500) -
Non-current portion of term loans 47,816,363 15,541,451

Facilities
On 25 July 2013, the Company entered into a long term financing agreement for loan facilities (the “Term loans”) in
the aggregate maximum amount of OMR 81.5 million (USD 211.8 million) with a consortium of international banks.
159
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

9 Term loans (continued)

Facilities drawn down

Total drawdowns from the Term loans facilities up to 31 December 2014 amount to OMR 53,196,738 (USD
138,353,023) (2013: OMR 17,092,326 (USD 44,453,384)). The drawdown period expires on 31 December 2015,
unless amended, as defined by the Common Terms Agreement dated 25 July 2013 between the Company and the
Lenders.

Facility repayments
The Term loans are due for repayment in 76 quarterly instalments commencing from July 2015.

Interest
The Term loans bear interest at three month USD Libor plus margin. The effective interest rate for 2014 was 4.95%
(2013: 4.55%).

Security
The Term loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage over the
Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a charge has
been created over all of the Company’s shares.

Covenants
The facilities agreements contain certain covenants relating to liquidity. These include restrictions on the debt /
equity ratio, the debt service coverage ratio and the loan life cover ratio.

10 Derivative financial instruments

In accordance with the Common Terms Agreement, the Company is required to enter into interest rate hedging
agreements to cap the Company’s exposure to fluctuating interest rates. This requirement covers both the Term
loans and the Equity bridge loans.
As at the reporting date, a principal amount of approximately OMR 66,387,970 (USD 172,660,520) (2013: OMR
17,946,943 (USD 46,676,054)) was covered under this agreement for the Term loans. The commitment for the Equity
bridge loans expired during the year (2013: OMR 19,196,977 (USD 49,927,119)).
The hedging agreements cap the Company’s exposure to fluctuating interest rates for the period of construction
of the plant. Thereafter the Company releases a portion of the hedging arrangements in line with the repayment of
the Term loans.
The hedging arrangement obliges the Company to pay fixed interest at the rate of 2.86% per annum on a quarterly
basis for the Term loans. These cash flow hedges were assessed as highly effective as at 31 December 2014 (31
December 2013: highly effective). However, due to the delay to the construction of the plant, at 31 December
2014 the cash flow hedges exceeded 100% of the value of the Term Loans. Consequently OMR 750,000 (USD
1,950,585) has been included in profit and loss account as over-hedged portion of the fair value of derivative
financial instruments.
The remaining portion of the fair value movement of OMR 5,319,032 (USD 13,833,633) has been included in other
comprehensive income.

160
Notes to the financial statements
for the year ended 31 December 2014 (continued)

10 Derivative financial instruments (continued)

The classification of the fair values of the derivative financial instruments based on the remaining period to maturity
from the reporting date is as follows:

2014 2013
OMR OMR
Less than 1 year (60,059) (40,358)
1 to 5 years (790,147) -
More than 5 years (2,903,462) 2,355,722
Total more than 1 year (3,693,609) 2,355,722
Cumulative changes in fair value (3,753,668) 2,315,364
The table below shows the fair values of the interest rate swaps, which are equivalent to the market values, together
with the notional amounts analysed by the term to maturity.

Notional amounts by
term to maturity
More than
Notional 1 - 12 1 up to 5 More than
Fair value amount months years 5 years
31 December 2014 OMR OMR OMR OMR OMR
Term loans 3,753,668 66,387,970 1,062,208 13,974,668 51,351,094
31 December 2013

Term loans 2,355,722 17,946,943 - - 17,946,943

Equity bridge loans (40,358) 19,196,977 19,196,977 - -
2,315,364 37,143,920 19,196,977 - 17,946,943

11 Equity bridge loans

2014 2013
OMR OMR
Opening balance 20,324,298 -
(Repayment) / drawdowns (9,392,787) 20,324,298
Closing balance 10,931,511 20,324,298

Facilities
On 2 May 2013, the Company entered into medium term finance agreements for loan facilities (the “Equity bridge
loans”) in the aggregate maximum amount of OMR 21.1 million (USD 55.0 million) with two international banks.

Facilities drawdown
The drawdown period expired in May 2014.

Facility repayments
The Equity bridge loans are due for repayment on 13 January 2015. During the year the Company made a
prepayment of OMR 9,392,787 (USD 22,428,575) of the Equity bridge loans.
161
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

11 Equity bridge loans (continued)

Interest
The Equity bridge loans bear interest at three month USD Libor plus margin. On 14 October 2014 the responsibility
for the future payment of interest on the Equity bridge loans was transferred to the Company’s shareholders. The
effective interest rate for 2014 was 1.76% (2013: 1.76%).

Security
The Equity bridge loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage
over the Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a
charge has been created over all of the Company’s shares.

12 Shareholders’ bridge loans

2014 2013
OMR OMR
Opening balance - -
Drawdowns 2,460,800 -
Closing balance 2,460,800 -

Facilities
On 29 December 2014, the Company entered into short term financing agreements for loan facilities (the
“Shareholders’ bridge loans”) in the aggregate maximum amount of OMR 2,460,800 (USD 6,400,000) with Summit
Water Middle East Company and Malakoff Oman Desalination Company Limited.

Facilities drawdown
During 2014, the full amount of OMR 2,460,800 (USD 6,400,000) was drawn down. The drawdown period has
expired.

Facilities repayments
The Shareholders’ bridge loans are due for repayment subject to the Term Loan Lenders’ consent which is likely to
be given in the first quarter of 2015.

Interest
The Shareholders’ bridge loans are interest free.

Security
The Shareholders’ bridge loans are unsecured.

13 Accruals and other payables

2014 2013
OMR OMR
Accruals 4,310,438 1,971,007
Other payables 10,112,823 5,175,851
14,423,261 7,146,858
Other payables comprise amounts due to International Water Treatment L.L.C. for construction of the plant and
delay liquidated damages.

162
Notes to the financial statements
for the year ended 31 December 2014 (continued)

14 Related party transactions

Related parties comprise the ultimate and intermediate shareholders, directors, key management personnel and
any business entities in which these parties have the ability to control or exercise significant influence.
Significant related party transactions during the period are as follows:

2014 2013
OMR OMR
Share capital introduced 6,957,620 500,000
Key management compensation 202,517 152,848

2014 2013
Amount due from related parties (note 6) OMR OMR
Sumitomo Corporation - 3,153
Cadagua S.A. - 692
Malakoff International Limited - 2,922
- 6,767

Amount due to related parties

Sumitomo Corporation / Cadagua S.A. / Malakoff International Limited 4,966,259 5,066,259
This amount relates to initial project costs paid by the related parties which has not yet been reimbursed to the
related parties and has been capitalised under capital work-in-progress as it relates directly to the construction of
the plant.
The amount due to related parties is interest free and there are no specific terms of repayment.

15 Delay liquidated damages

2014 2013
OMR OMR
Delay liquidated damages payable to the Off-taker, including interest (2,839,633) -

16 Income tax
The tax rate applicable to the Company is 12% on all profits above OMR 30,000.
Deferred tax arises on account of tax losses and temporary differences between the tax base of assets and liabilities
and their carrying values in the statement of financial position.
Tax assessments have not been completed by the Oman taxation authorities for the year 2013. The Management
believes that the tax assessed, if any, in respect of the unassessed tax year would not be material to the financial
position of the Company at the reporting date.

163
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

17 End of service benefits

2014 2013
OMR OMR
At 1 January - -
Provided during the year 15,765 -
At 31 December 15,765 -

18 Financial instruments
This note presents information on the risks arising from the Company’s use of financial instruments, namely; credit
risk, liquidity risk and market risk to which the Company is exposed, its objectives, policies and processes for
measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are
included throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework.
Risk management policies and systems are reviewed regularly to ensure that they reflect any changes in market
conditions and the Company’s activities. The Company, through its induction and training program, aims to develop
a disciplined and constructive control environment in which all employees understand their roles and obligations.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s deposits with banks.
The exposure to credit risk is monitored on an on-going basis and therefore the Company considers the credit risk
to be minimal.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:

2014 2013
OMR OMR
Cash at bank and deposits 7,585,440 12,113,942
Deposits 500 500
Other receivables 4,333,495 -
Amount due from related parties - 6,767
11,919,435 12,121,209

Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’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 Company’s reputation.
The Company uses cash flow forecasting methods which assist it in monitoring cash flow requirements and optimising
its cash flow cycle. The Company ensures that it has sufficient cash available to meets its expected operational
expenses, including the servicing of financial obligations.

164
Notes to the financial statements
for the year ended 31 December 2014 (continued)

18 Financial instruments (continued)

Liquidity risk (continued)

The maturities of Company’s undiscounted financial liabilities at the reporting date are shown below:

Carrying Less than 6 6 to 12 1 to 5 More than

31 December 2014 amount months months years 5 years
OMR OMR OMR OMR OMR
Non derivative financial liabilities
Term loans 53,196,738 1,869,200 1,960,300 12,605,904 36,761,334
Equity bridge loans 10,931,511 10,931,511 - - -
Shareholders’ bridge loans 2,460,800 2,460,800 - - -
Due to related parties 4,966,259 4,966,259
Accruals and other payables 14,423,261 14,423,261 - - -
85,978,569 34,651,031 1,960,300 12,605,904 36,761,334

31 December 2013

Non derivative financial liabilities

Term loans 17,092,326 - - 11,309,170 5,783,156

Equity bridge loans 20,324,298 - 20,324,298 - -
Due to related parties 5,066,259 5,066,259 - - -
Accruals and other payables 7,146,858 7,146,858 - - -
49,629,741 12,213,117 20,324,298 11,309,170 5,783,156

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Company’s income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.
Currency risk
The Company is not exposed to foreign currency risk on its bank deposits designated in USD as the Omani Rial is
pegged to the US Dollar and has remained unchanged since 1986.
Interest rate risk
The Company’s interest rate risk arises principally from medium and long term borrowings. Borrowings issued at
variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company’s policy is to maintain approximately 100% of its borrowings
in fixed rate or hedged instruments.
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased / (decreased) equity by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant.

165
 Notes to the financial statements
for the year ended 31 December 2014 (continued)

18 Financial instruments (continued)

Market risk (continued)

100 bp 100 bp
31 December 2014 increase decrease
OMR OMR
Fair value of derivative financial instruments 9,823,691 (4,058,027)

31 December 2013
Unhedged portion of the Equity bridge loans 11,273 (2,255)
Fair value of derivative financial instruments 6,274,790 (5,609,093)

Capital risk management

The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor and creditor confidence
and to sustain future development of the business.
The Company is not subject to externally imposed capital requirements except those under the Commercial
Companies Law of 1974, as amended.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain the capital structure, the Company may adjust the amount of dividends paid to shareholders,
return capital to shareholders or issue new shares.

Fair value
Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of Term loans, Equity
bridge loans and payables. Derivatives consist of interest rate swap arrangements.
The fair values of financial instruments are not materially different from their carrying values.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique.
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data

2014 2013
Level 2 Level 2
OMR OMR
Interest rate swaps 66,387,970 37,143,920
The Company had no financial instruments in level 1 or level 3. During the year ended 31 December 2014, there
were no transfers of financial instruments between the levels for fair value measurement.

166
Notes to the financial statements
for the year ended 31 December 2014 (continued)

19 Contingencies and commitments

Capital commitments
The Company has entered into an agreement for the construction of the desalination plant with International Water
Treatment L.L.C. on a turnkey basis for an amount of OMR 82.9 million (USD 215.5 million).  At 31 December 2014,
the total outstanding capital commitments in this regard amounted to OMR 19.2 million (USD 49.9 million) (2013:
OMR 51.9 million (USD 134.9 million)).

Lease commitments
The land on which the plant is being constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rental is paid at the rate of OMR 15,045
per annum.
At 31 December 2014, future minimum lease commitments under non-cancellable operating leases are as follows:

2014 2013
OMR OMR
Less than one year 15,045 15,045
Between one and five years 60,180 60,180
More than five years 270,810 285,855
346,035 361,080
International Water Treatment L.L.C. (“EPC Contractor”), commenced arbitration proceedings against the Company
in the London Court of Arbitration on 2 October 2014 by filing a Request for Arbitration in which it sought to
challenge the enforceability of the liquidated damages provisions in the EPC Contract on the basis that they amount
to a ‘penalty’. The EPC Contractor also claims that, failing the Company’s ability to provide the EPC Contractor
with an extension of time, the EPC Contractor is entitled to complete the works within a reasonable period of time.
However, the EPC Contractor has failed to particularise the grounds on which it bases its claims in the arbitration.
Separately the EPC Contractor is seeking to delay the starting date of the delay liquidated damages and has
presented a claim for extension of time. This claim has been robustly rejected by the Company.
The Company filed a Response to the Request for Arbitration on 30 October 2014, defending its position as to the
enforceability of the liquidated damages clause and requiring the EPC Contractor to further particularise its claims.
No provision for any change to the contractual position has been reflected in these financial statements.

20 Approval of financial statements

The financial statements were approved by the management and authorised for issue on 29 January 2015.

167
 MUSCAT CITY DESALINATION COMPANY S.A.O.C.

Report and financial statements

For the year ended 31 December 2015

168
Report and financial statements
for the year ended 31 December 2015

Page

Directors’ report 170 – 171

Independent auditor’s report 172 – 173

Statement of financial position 174

Statement of profit or loss and other comprehensive income 175

Statement of changes in equity 176

Statement of cash flows 177

Notes to the financial statements 178 – 192

169
170
171
 tatement o financial osition
as at 31 December 2015

Notes 2015 2014

Assets OMR OMR
Non-current assets
Plant and equipment 5 95,423,183 79,560,113
Deferred tax 16 489,270 -
Total non-current assets 95,912,453 79,560,113
Current assets
Trade and other receivables 6 12,230,766 4,350,923
Cash and cash equivalents 7 5,717,908 7,585,577
Total current assets 17,948,674 11,936,500
Total assets 113,861,127 91,496,613
EQUITY AND LIABILITIES
Capital and reserves
Share capital 8 15,555,040 7,457,620
Legal reserve 8 5,185,013 2,435,167
Share premium reserve 8 84,251 -
Accumulated losses (4,083,917) (3,589,633)
Cumulative changes in fair values of derivative financial instruments 10 (3,587,983) (3,003,668)
Total equity 13,152,404 3,299,486
Non-current liabilities
Non-current portion of term loans 9 67,240,808 47,816,363
Non-current portion of fair value of derivative financial instruments 10 3,914,571 3,693,609
End of service benefits 17 19,065 15,765
Total non-current liabilities 71,174,444 51,525,737
Current liabilities
Current portion of term loans 9 2,843,896 3,829,500
Current portion of fair value of derivative financial instruments 10 162,682 60,059
Equity bridge loans 11 - 10,931,511
Shareholders’ bridge loans 12 2,528,830 2,460,800
Accruals and other payables 13 19,032,612 14,423,261
Amount due to related parties 14 4,966,259 4,966,259
Total current liabilities 29,534,279 36,671,390
Total liabilities 100,708,723 88,197,127
Total equity and liabilities 113,861,127 91,496,613
The financial statements on pages 174 to 192 were approved by the Board of Directors on 28 January 2016 and were
signed on their behalf by:

_____________________ _____________________
e t hai man hie inancial fice
The report of the Independent Auditor is set forth on page 172 and 173.
174
Statement of profit or loss and other comprehensive income
for the year ended 31 December 2015

Notes 2015 2014

OMR OMR

Delay liquidated damages 15 (1,244,284) (2,839,633)

Over-hedged portion of changes in fair values

of derivative financial instruments 10 750,000 (750,000)

Total loss for the year (494,284) (3,589,633)

Other comprehensive income that are or may be reclassified

to profit or loss

Changes in fair values of derivative financial instruments 10 (323,585) (5,319,032)

Rectification of over-hedged portion of changes in fair values of derivative

financial instruments 10 (750,000) -

Deferred tax on changes in fair values of derivative financial instruments 16 489,270 -

Other comprehensive loss for the year (584,315) (5,319,032)

Total comprehensive loss for the year (1,078,599) (8,908,665)

The attached notes on pages 178 to 192 notes form an integral part of these financial statements.
The report of the Independent Auditor is set forth on page 172 and 173.

175
 Statement of changes in equity
for the year ended 31 December 2015

Cumulative
changes
in fair
values of
derivative
Share Share Legal Accumulated financial
capital premium reserve losses instruments Total
OMR OMR OMR OMR OMR OMR

At 1 January 2014 500,000 - - - 2,315,364 2,815,364

Share premium - - 2,435,167 - - 2,435,167
Share capital introduced during
the year 6,957,620 - - - - 6,957,620
Loss for the year - - - (3,589,633) - (3,589,633)
Other comprehensive loss - - - - (5,319,032) (5,319,032)
At 31 December 2014 7,457,620 - 2,435,167 (3,589,633) (3,003,668) 3,299,486
At 1 January 2015 7,457,620 - 2,435,167 (3,589,633) (3,003,668) 3,299,486
Share premium - 84,251 2,749,846 - - 2,834,097
Share capital introduced
during the year 8,097,420 - - - - 8,097,420
Loss for the year - - - (494,284) - (494,284)
Other comprehensive loss net
of deferred tax - - - - (584,315) (584,315)
At 31 December 2015 15,555,040 84,251 5,185,013 (4,083,917) (3,587,983) 13,152,404

The attached notes on pages 178 to 192 notes form an integral part of these financial statements.
The report of the Independent Auditor is set forth on page 172 and 173.
176
Statement of cash flows
for the year ended 31 December 2015

2015 2014
OMR OMR
Operating activities
Net loss for the year (494,284) (3,589,633)
Adjustment for:
Over-hedged portion of changes in fair values of derivative financial instruments (750,000) 750,000
Delay liquidated damages 1,244,284 -
Depreciation - 15,175
Cash flows from operating activities before working capital changes - (2,824,458)
Change in accruals and other payables (9,926,804) 7,292,168
Change in prepayments and other receivables 8,884,755 (4,326,728)
Change in end of service benefits 3,300 -
Net cash (used in) / from operating activities (1,038,749) 140,982
Investing activities
Additions to plant and equipment (19,335,797) (43,134,590)
Net cash used in investing activities (19,335,797) (43,134,590)
Financing activities
Share capital introduced during the year 10,931,517 9,392,787
Amount due to related parties - (100,000)
Repayment of equity bridge loans (10,931,511) (9,392,787)
Proceeds from shareholders’ bridge loans 68,030 2,460,800
Net proceeds from term loans 18,438,841 36,104,412
Net cash from financing activities 18,506,877 38,465,212
Net change in cash and cash equivalents (1,867,669) (4,528,396)
Cash and equivalents at the beginning of the year 7,585,577 12,113,973
Cash and cash equivalents at the end of the year 5,717,908 7,585,577

The attached notes on pages 178 to 192 notes form an integral part of these financial statements.
177
 Notes to the financial statements
for the year ended 31 December 2015

1. Legal status and principal activities

Muscat City Desalination Company S.A.O.C. (the “Company”) is a closed joint stock company registered in the
Sultanate of Oman. The Company was incorporated on 19 January 2013.  The Company’s principal activity is the
sale of desalinated water. The Company is now expected to commence commercial production of potable water in
the first quarter of 2016.

1.1 Key agreements

Water Purchase Agreement

On 11 February 2013 the Company signed a long term Water Purchase Agreement with Oman Power and Water
Procurement Company S.A.O.C. for the supply of 42 million imperial gallons of water per day. The agreement
expires 20 years after the Scheduled Commercial Operation Date of 12 October 2014, subject to any extension
period or early termination arising under the terms of the agreement.

Engineering, Procurement and Construction Contract

The Company entered into an agreement for the construction of a desalination plant with a capacity of 42 million
imperial gallons of water per day with International Water Treatment L.L.C. (“the EPC Contractor”) on a turnkey
basis.

2 New standards and interpretation not yet effective

A number of relevant new standards and amendments to standards are effective for annual periods beginning after
1 January 2015.
IFRS 9, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes
revised guidance on the classification and measurement of financial instruments, including a new expected credit
loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It
also carries forward the guidance on recognition and de-recognition of financial instruments from IAS 39. IFRS 9 is
effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
IFRS 15 - Revenue from Contracts with Customers. IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including
IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for
annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
IFRS 16 – replaces the existing guidance in IAS 17 and will be effective from 1 January 2019 and deals with
recognition, measurement and classification of leases.
The Company is assessing the potential impact on its financial statements resulting from the application these new
of IFRSs.

3 Summary of significant accounting policies

Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as promulgated by the International Accounting Standards Board and the requirements of the Commercial
Companies Law of 1974, as amended.

Basis of preparation
The financial statements have been prepared under the historical cost convention except for certain financial assets
and liabilities measured at fair value.

178 178
Notes to the financial statements
for the year ended 31 December 2015 (continued)

3 Summary of significant accounting policies (continued)

Basis of preparation (continued)

The accounting records are maintained in Omani Rial (OMR) which is the functional and reporting currency for these
financial statements.
Following are the significant accounting policies applied by the Company consistently to all the periods presented.

Foreign currencies
The Omani Rial (OMR) is the functional and presentation currency of the Company. Any currency other than the
functional currency is considered as a foreign currency. Transactions in foreign currencies are translated to Omani
Rials at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated to Omani Rials using the closing rate at the reporting date.
Non-monetary assets and liabilities measured at historical cost are translated using the exchange rate at the date
of the transaction whereas those measured at fair value are translated using the exchange rate at the date when fair
value was determined. An exchange difference on settlement of monetary items or on translation is recognised in
profit or loss.

Plant and equipment

Recognition and measurement

Items of plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Cost
includes the amount of cash and cash equivalents paid or the fair value of other consideration given to acquire an
asset at the date of acquisition or construction. Expenditure incurred to replace a component of an item of plant
and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised.
The cost of self-constructed assets includes the cost of materials, direct labour, borrowing costs and an appropriate
proportion of overheads. Gains and losses on disposal of plant and equipment are determined by reference to their
carrying amount and are taken into account in determining profit or loss. Repairs and renewals are charged to the
profit or loss when the expense is incurred.
Subsequent costs
The Company recognises in the carrying amount of plant and equipment the cost of major inspections and the cost
of replacing part of such an item when the cost is incurred, if it is probable
that the future economic benefits embodied in the item will flow to the Company and the cost of the item can be
measured reliably. All other costs are recognized as an expense as incurred.
Depreciation
Depreciation is calculated so as to write off the cost of plant and equipment, other than capital work-in-progress,
over their estimated economic useful lives, using the straight line method, from the date that the asset is brought
into use.
Where components of an item of plant and equipment have different useful lives, they are accounted for as separate
items (major components) of plant and equipment. Major repairs are depreciated over the remaining useful life of
the related asset, or up to the date of the next major repair, whichever is shorter.
The estimated useful lives for the current period are as follows:
Years
Furniture and fixtures............................................................................... 4
Office equipment..................................................................................... 4
Motor vehicles.......................................................................................... 4
Management reassesses the useful lives and residual values for plant and equipment annually.

179
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

3 Summary of significant accounting policies (continued)

Plant and equipment (continued)

Capital work-in-progress
Capital work-in-progress is stated at cost less any impairment losses. When commissioned, capital work-in-progress
is transferred to the appropriate plant and equipment category and depreciated in accordance with depreciation
policies of the Company.

Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the
weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.

Impairment

Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are
recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.

Employees’ end of service benefits

With respect to its Omani employees, the Company makes contributions to the Public Authority for Social Insurance
under Royal Decree 72/91 calculated as a percentage of the employees’ salaries. The Company’s obligations are
limited to these contributions, which are expensed when due.

180
Notes to the financial statements
for the year ended 31 December 2015 (continued)

3 Summary of significant accounting policies (continued)

Employees’ end of service benefits (continued)

Provision for non-Omani employee terminal benefits under an unfunded defined benefit retirement plan, is made
in accordance with Omani Labor Laws and is calculated by estimating the amount of future benefits that employees
have earned in return for their service in the current and prior periods.

Provisions
A provision is recognised in the statement of financial position when the Company has a legal or constructive
obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle
the obligation and the amount can be reliably estimated. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the
present obligation, the carrying amount is the present value of those cash flows.

Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.

Revenue
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net
of returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and
possible return of goods can be estimated reliably, there is no continuing management involvement with the goods,
and the amount of revenue can be measured reliably.

Finance expenses
Finance costs comprise interest on borrowings. Borrowing costs, net of interest income, which are directly attributable
to the acquisition or construction of items of plant and equipment are capitalised as part of the cost of plant and
equipment. All other interest expenses are recognised as an expense in profit or loss using the effective interest
rate method.

Non-derivative financial instruments

Non-derivative financial instruments comprise receivables, cash and cash equivalents, loans and trade and other
payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured at amortised cost using the effective interest rate method.

Derivative financial instruments

The Company holds derivative financial instruments to hedge its interest rate risk exposures. Derivatives are initially
recognised at fair value at the date the derivative contract is entered into and are subsequently measured at their
fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in which case the timing of the recognition
in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within
12 months. Other derivatives are presented as current assets or current liabilities.

181
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

3 Summary of significant accounting policies (continued)

Hedge accounting
The Company designates the hedging instrument as cash flow hedges. At the inception of the hedge relationship,
the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective
in offsetting changes in fair values or cash flows of the hedged item.

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss,
as is any gain or loss on any hedging that exceeds 100% of the associated liability.
Amounts previously recognised in and accumulated in equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.

Income tax

Current tax
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Current tax is the expected tax
payable on the taxable income for the year, using the tax rates ruling at the reporting date.

Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis
of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax
effects on the temporary differences are disclosed under non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses can be utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank balances
with an original maturity of less than three months.

Delay liquidated damages

Delay liquidated damages payable, which do not meet the requirements under IAS 16 to be recognised in capital
work-in-progress are recognized in the profit and loss account. Delay liquidated damages receivable are recognised
when they are determined to be virtually certain of recovery. Delay liquidated damages receivable from the EPC
Contractor have three elements. The first is to compensate the Company for the delay liquidated damages payable
to Oman Power and Water Procurement Company S.A.O.C. and the second element is to compensate the Company
for the operating days lost due to the construction delay. Both of these elements are recognised in the profit and
loss account. The third element is to compensate the Company for the additional costs incurred in completing the
construction of the plant. This element is taken to capital work-in-progress

4 Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in note 3, management is required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.

182
Notes to the financial statements
for the year ended 31 December 2015 (continued)

4 Critical accounting judgements and key sources of estimation uncertainty (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
the revision and in future periods, if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following is the key assumption concerning the future at the reporting date that has a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment of plant and equipment

Capital work-in-progress is stated at cost. Management considers that there are no indications of impairment
considering the budgets and the agreement for the purchase of water.

5 Plant and equipment

Furniture and Office Motor Capital work-

fixtures equipment vehicles in- progress Total
OMR OMR OMR OMR OMR
Cost
1 January 2015 12,070 9,901 38,734 79,523,938 79,584,643
Additions 2,654 - - 15,877,400 15,880,054
31 December 2015 14,724 9,901 38,734 95,401,338 95,464,697
Depreciation
1 January 2015 5,446 4,334 14,750 - 24,530
Charge for the year 4,813 2,487 9,684 - 16,984
31 December 2015 10,259 6,821 24,434 - 41,514
Carrying value
31 December 2015 4,465 3,080 14,300 95,401,338 95,423,183
31 December 2014 6,624 5,567 23,984 79,523,938 79,560,113
The land on which the plant is being constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rental is paid at the rate of OMR 15,045
per annum.
Management have tested capital work-in-progress for impairment as at 31 December 2015. The test indicated that
capital work-in-progress is not impaired at that date.

6 Trade and other receivables

2015 2014
OMR OMR
Prepayments 11,588 16,928
Deposits 48,500 500
Other receivables 12,170,678 4,333,495
12,230,766 4,350,923
Other receivables relate to the receivables from the EPC Contractor on account of delay liquidated damages and
interest accrued thereon, net of recoveries (notes 15 and 19).

183
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

7 Cash and cash equivalents

2015 2014
OMR OMR
Cash in hand 94 137
Cash at bank 54,898 48,087
Short term deposits 5,662,916 7,537,353
5,717,908 7,585,577
The short term deposits are denominated in USD and are with Sumitomo Mitsui Banking Corporation Limited
in London with maturities of less than one month from the reporting date. These deposits yield interest at an
insignificant rate.

8 Share capital

Authorised
Share capital 2015 2014
OMR OMR
25,000,000 ordinary shares of OMR 1 each 25,000,000 25,000,000

Issued and fully paid

2015 2014
OMR OMR
Shares of OMR 1 each 15,555,040 7,457,620
During the year the Company issued share capital in the amount of OMR 10,931,517 comprising 8,097,420 shares
of OMR 1 each at a premium of OMR 0.350 per share.

Share premium 2015 2014

OMR OMR
Share premium for the year 2,834,097 2,435,167
Transferred to legal reserve (2,749,846) (2,435,167)
31 December 84,251 -

Shareholders
The Shareholders of the Company are:

% holding Country of incorporation

2015 2014
Summit Water Middle East Company 45 45 Cayman Islands
Malakoff Oman Desalination Company Limited 45 45 British Virgin Islands
Cadagua Al Ghubrah UK Limited 10 10 United Kingdom
100 100

184
Notes to the financial statements
for the year ended 31 December 2015 (continued)

8 Share capital (continued)

Legal reserve
Article 154 of the Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to
a non-distributable statutory reserve until the amount of the statutory reserve becomes equal to at least one-third
of the company’s paid up share capital.
The Company has used the share premium received on the issue of share capital during the year to completely fulfil
this requirement.

2015 2014
OMR OMR
1 January 2,435,167 -
Transfer from share premium 2,749,846 2,435,167
31 December 5,185,013 2,435,167

9 Term loans

Term loans 71,635,579 53,196,738

Less: deferred finance charges (1,550,875) (1,550,875)
70,084,704 51,645,863
Less: current portion of term loans (2,843,896) (3,829,500)
Non-current portion of term loans 67,240,808 47,816,363

Facilities
On 25 July 2013, the Company entered into a long term financing agreement for loan facilities (the “Term loans”) in
the aggregate maximum amount of OMR 81.5 million (USD 211.8 million) with a consortium of international banks.

Facilities drawn down

Total drawdowns from the Term loans facilities up to 31 December 2015 amount to OMR 73,014,032 (USD
189,893,450) (2014: OMR 53,196,738 (USD 138,353,023)). The drawdown period expires on 31 May 2016, unless
amended, as defined by the Common Terms Agreement dated 25 July 2013 between the Company and the Lenders.

Facility repayments
The Term loans are due for repayment in 76 quarterly instalments. The first and second repayments of OMR 685,670
and OMR 692,783 were paid in July 2015 and October 2015, respectively.

Interest
The Term loans bear interest at three month USD Libor plus margin. The effective interest rate for 2015 was 4.69%
(2014: 4.95%).

Security
The Term loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage over the
Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a charge has
been created over all of the Company’s shares.

Covenants
The facilities agreements contain certain covenants relating to liquidity. These include restrictions on the debt /
equity ratio, the debt service coverage ratio and the loan life cover ratio.

185
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

10. Derivative financial instruments

In accordance with the Common Terms Agreement, the Company is required to enter into interest rate hedging
agreements to cap the Company’s exposure to fluctuating interest rates. This requirement covers the Term loans
and covered the Equity bridge loans.
As at the reporting date, a principal amount of approximately OMR 65,339,259 (USD 169,933,054) (2014: OMR
66,387,970 (USD 172,660,520)) was covered under this agreement for the Term loans.
The hedging agreements cap the Company’s exposure to fluctuating interest rates for the period of construction
of the plant. Thereafter the Company releases a portion of the hedging arrangements in line with the repayment of
the Term loans.
The hedging arrangement obliges the Company to pay fixed interest at the rate of 2.86% per annum on a quarterly
basis for the Term loans. These cash flow hedges were assessed as highly effective as at 31 December 2015 (31
December 2014: highly effective).
The fair value movement of OMR 323,585 (USD 841,573) has been included in other comprehensive income, net
of deferred tax.
The classification of the fair values of the derivative financial instruments based on the remaining period to maturity
from the reporting date is as follows:

2015 2014
OMR OMR
Less than 1 year (162,682) (60,059)
1 to 5 years (879,056) (790,147)
More than 5 years (3,035,515) (2,903,462)
Total more than 1 year (3,914,571) (3,693,609)
Cumulative changes in fair value (4,077,253) (3,753,668)

Cumulative changes in fair value are recognised as follows:

Cumulative changes in fair value 4,077,253 3,753,668

Related deferred tax asset (489,270) -
Cumulative changes in fair value, net of deferred tax (3,587,983) (3,753,668)
During 2014, a portion of the hedge was erroneously considered ineffective and accordingly an amount of OMR
750,000 was charged to the statement of comprehensive income. In 2015 the amount was rectified and recharged
to cumulative changes in fair values of derivative financial instruments under equity. Furthermore, the Company has
recognised a deferred tax asset of OMR 489,270 (2014: nil) on the cumulative changes in fair values of derivative
financial instruments under equity at the rate of 12%.
The table below shows the fair values of the interest rate swaps, which are equivalent to the market values, together
with the notional amounts analysed by the term to maturity.

Notional amounts by term to maturity

Notional 1 - 12 More than More than
Fair value amount months 1 up to 5 years 5 years
31 December 2015 OMR OMR OMR OMR OMR
Term loans 4,077,253 65,339,259 2,607,036 14,087,144 48,645,079
31 December 2014
Term loans 3,753,668 66,387,970 1,062,208 13,974,668 51,351,094

186
Notes to the financial statements
for the year ended 31 December 2015 (continued)

11 Equity bridge loans

2015 2014
OMR OMR
1 January 10,931,511 20,324,298
Repayment (10,931,511) (9,392,787)
31 December - 10,931,511
The Equity bridge loans were due and repaid on 13 January 2015.

12 Shareholders’ bridge loans

2015 2014
OMR OMR
Summit Water Middle East Company 1,222,564 1,230,400
Malakoff Oman Desalination Company Limited 1,222,564 1,230,400
Cadagua Al Ghubrah UK Limited 83,702 -
2,528,830 2,460,800

Facilities
On 29 December 2014, the Company entered into short term financing agreements for loan facilities (the
“Shareholders’ bridge loans”) in the aggregate maximum amount of OMR 2,460,800 (USD 6,400,000) with Summit
Water Middle East Company and Malakoff Oman Desalination Company Limited. These loans were repaid in January
2015. Further Shareholders’ bridge loans of OMR 1,691,800 (USD 4,400,000) and OMR 837,030 (USD 2,176,932)
were provided in October 2015 and November 2015, respectively, by the shareholders.

Facilities drawdown
During 2015, the full amount of OMR 2,528,830 (USD 6,576,932) was drawn down. The drawdown period has
expired.

Facilities repayments
The Shareholders’ bridge loans are due for repayment subject to the Term loan Lenders’ consent which is likely to
be given after the plant enters commercial operation.

Interest
The Shareholders’ bridge loans are interest free.

Security
The Shareholders’ bridge loans are unsecured.

13 Accruals and other payables

2015 2014
OMR OMR
Accruals and other payables 1,656,824 11,583,628
Delay liquidated damages 17,375,788 2,839,633
19,032,612 14,423,261

187
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

13 Accruals and other payables (continued)

Accruals and other payables include an amount of OMR 612,500 (USD 1,592,978) (2014: OMR 202,500 (USD
526,658)), due to Muscat City Desalination Operation and Maintenance Company L.L.C., a related party.
Delay liquidated damages represent delay liquidated damages and interest accrued thereon payable to Oman
Power and Water Procurement Company S.A.O.C. due to the delay in meeting the Commercial Operation Date
(note 15).

14 Related party transactions

Related parties comprise the ultimate and intermediate shareholders, directors, key management personnel and
any business entities in which these parties have the ability to control or exercise significant influence. The Company
maintains significant balances with these related parties which arise in the normal course of business. The terms and
conditions of related party transactions are mutually agreed.
Significant related party transactions during the period are as follows:

2015 2014
OMR OMR
Share capital introduced 10,931,517 6,957,620
Mobilisation and delay fees to Muscat City Desalination Operation and
Maintenance Company L.L.C. 912,500 1,042,885
Net receipts under Shareholders’ bridge loans 68,030 2,460,800
Key management compensation 202,517 202,517

Amount due to related parties

Sumitomo Corporation / Cadagua S.A. / Malakoff International Limited 4,966,259 4,966,259
This amount relates to initial project costs paid by the related parties which has not yet been reimbursed to the
related parties and has been capitalised under capital work-in-progress as it relates directly to the construction of
the plant.
The amount due to related parties is interest free and there are no specific terms of repayment.

15 Delay liquidated damages

2015 2014
OMR OMR
Delay liquidated damages receivables (note 6 and note 19) 13,097,531 -
Interest income on delay liquidated damages receivables (note 6 and note 19) 194,340 -
Delay liquidated damages payable (note 13) (14,315,000) (2,835,000)
Interest expense on delay liquidated damages payable (note 13) (221,155) (4,633)
(1,244,284) (2,839,633)

16 Income tax
The Company is liable to income tax at the rate of 12% (2014: 12%) on taxable profits in excess of OMR 30,000. With
effect from 1 January 2016 the Company’s income tax rate is expected to increase to 15%, which will affect the
determination of future income tax liabilities and the valuation of deferred tax assets and liabilities. No provision for
income tax has been made for the year ended 31 December 2015 in view of the losses for the year.
188
Notes to the financial statements
for the year ended 31 December 2015 (continued)

16 Income tax (continued)

The Company’s income tax assessments for the years 2013 to 2014 have not been finalised by the Secretariat
General for Taxation at the Ministry of Finance. The management believes that additional taxes, if any, that may
become payable on finalisation of the assessment in respect of these open years would not be material to the
Company’s financial position as at 31 December 2015.
Deferred tax arises on account of tax losses and temporary differences between the tax base of assets and liabilities
and their carrying values in the statement of financial position. No deferred tax asset on losses has been recognised
as the management does not consider it probable that sufficient taxable income will arise prior to their expiry to
obtain the benefits therefrom.
During the year the Company recognised a deferred tax asset of OMR 489,270 on cumulative changes in fair values
of derivative financial instruments (note 10).

17 End of service benefits

2015 2014
OMR OMR
1 January 15,765 -
Provided during the year 7,169 15,765
Paid during the year (3,869) -
31 December 19,065 15,765

18 Financial instruments
This note presents information on the risks arising from the Company’s use of financial instruments, namely; credit
risk, liquidity risk and market risk to which the Company is exposed, its objectives, policies and processes for
measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are
included throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework.
Risk management policies and systems are reviewed regularly to ensure that they reflect any changes in market
conditions and the Company’s activities. The Company, through its induction and training program, aims to develop
a disciplined and constructive control environment in which all employees understand their roles and obligations.

Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s deposits with banks.
The exposure to credit risk is monitored on an on-going basis and therefore the Company considers the credit risk
to be minimal.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:

2015 2014
OMR OMR
Cash at bank and deposits 5,717,814 7,585,440
Deposits 48,500 500
Other receivables 12,170,678 4,333,495
17,936,992 11,919,435

189
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

18 Financial instruments (continued)

Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall
due. The Company’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 Company’s reputation.
The Company uses cash flow forecasting methods which assist it in monitoring cash flow requirements and optimising
its cash flow cycle. The Company ensures that it has sufficient cash available to meets its expected operational
expenses, including the servicing of financial obligations.
The maturities of Company’s undiscounted financial liabilities at the reporting date are shown below:

Carrying Less than 6 6 to 12 1 to 5 More than

31 December 2015 amount months months Years 5 years
OMR OMR OMR OMR OMR
Non derivative financial liabilities
Term loans 71,635,579 1,392,378 1,451,518 12,080,901 56,710,782
Shareholders’ bridge loans 2,528,830 - 2,528,830 - -
Due to related parties 4,966,259 4,966,259 - - -
Accruals and other payables 19,032,612 19,032,612 - - -
98,163,280 25,391,249 3,980,348 12,080,901 56,710,782

31 December 2014
Non derivative financial liabilities
Term loans 53,196,738 1,869,200 1,960,300 12,605,904 36,761,334
Equity bridge loans 10,931,511 10,931,511 - - -
Shareholders’ bridge loans 2,460,800 2,460,800 - - -
Due to related parties 4,966,259 4,966,259
Accruals and other payables 14,423,261 14,423,261 - - -
85,978,569 34,651,031 1,960,300 12,605,904 36,761,334

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Company’s income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk
The Company is not exposed to foreign currency risk on its bank deposits designated in USD as the Omani Rial is
effectively pegged to the US Dollar and the US Dollar exchange rate has remained unchanged since 1986.

Interest rate risk

The Company’s interest rate risk arises principally from medium and long term borrowings. Borrowings issued at
variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company’s policy is to maintain approximately 100% of its borrowings
in fixed rate or hedged instruments.

190
Notes to the financial statements
for the year ended 31 December 2015 (continued)

18 Financial instruments (continued)

Market risk (continued)

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates at the reporting date would have increased / (decreased) equity by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant.

100 bp 100 bp
31 December 2015 increase decrease
OMR OMR
Fair value of derivative financial instruments 5,598,426 (5,541,757)
31 December 2014
Fair value of derivative financial instruments 9,823,691 (4,058,027)

Capital risk management

The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor and creditor confidence
and to sustain future development of the business.
The Company is not subject to externally imposed capital requirements except those under the Commercial
Companies Law of 1974, as amended.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain the capital structure, the Company may adjust the amount of dividends paid to shareholders,
return capital to shareholders or issue new shares.

Fair value
Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of Term loans,
Shareholders’ bridge loans and payables. Derivatives consist of interest rate swap arrangements.
The fair values of financial instruments are not materially different from their carrying values.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique.
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data

2015 2014
Level 2 Level 2
OMR OMR
Interest rate swaps 65,339,259 66,387,970

The Company had no financial instruments in level 1 or level 3. During the year ended 31 December 2015, there
were no transfers of financial instruments between the levels for fair value measurement.
191
 Notes to the financial statements
for the year ended 31 December 2015 (continued)

19 Contingencies and commitments

Capital commitments
The Company has entered into an agreement for the construction of the desalination plant with International Water
Treatment L.L.C. on a turnkey basis for an amount of OMR 82.9 million (USD 215.5 million). At 31 December 2015,
the total outstanding capital commitments in this regard amounted to OMR 2.0 million (USD 5.1 million) (2014: OMR
19.2 million (USD 49.9 million)).

Lease commitments
The land on which the plant is being constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rental is paid at the rate of OMR 15,045
per annum.
At 31 December 2015, future minimum lease commitments under non-cancellable operating leases are as follows:

2015 2014
OMR OMR
Less than one year 15,045 15,045
Between one and five years 60,180 60,180
More than five years 255,765 270,810
330,990 346,035

Contingencies
International Water Treatment L.L.C. (“EPC Contractor”), commenced arbitration proceedings against the Company
in the London Court of Arbitration on 2 October 2014 by filing a Request for Arbitration in which it sought to
challenge the enforceability of the liquidated damages provisions in the EPC Contract on the basis that they amount
to a ‘penalty’. The EPC Contractor also claims that, failing the Company’s ability to provide the EPC Contractor with
an extension of time, the EPC Contractor is entitled to complete the works within a reasonable period of time. The
Company and the EPC Contractor have exchanged pleadings and witness statements and a hearing has been set
for April 2016.
Separately the EPC Contractor is seeking to delay the starting date of the delay liquidated damages and has
presented a claim for extension of time. This claim has been robustly rejected by the Company.
No provision for any change to the contractual position has been reflected in these financial statements.

20 Approval of financial statements

The financial statements were approved by the management and authorised for issue on 28 January 2016.

192
MUSCAT CITY DESALINATION COMPANY S.A.O.C.

Report and financial statements

For the year ended 31 December 2016

193
 Report and financial statements for the year ended 31 December 2016

Page

Directors’ report 195 – 196

Independent auditors’ report 197 – 198

Statement of financial position 199

Statement of profit or loss and other comprehensive income 200

Statement of changes in equity 201

Statement of cash flows 202

Notes to the financial statements 203 – 221

194
195
196
 tatement o financial osition
as at 31 December

Notes 2016 2015

Assets OMR OMR
Non-current assets
Property, plant and equipment 5 97,106,304 95,423,183
Deferred tax 21 1,419,528 489,270
Total non-current assets 98,525,832 95,912,453
Current assets
Trade and other receivables 6 1,441,601 12,230,766
Cash and cash equivalents 7 10,466,554 5,717,908
Total current assets 11,908,155 17,948,674
Total assets 110,433,987 113,861,127
EQUITY AND LIABILITIES
Capital and reserves
Share capital 8 15,555,040 15,555,040
Legal reserve 8 883,186 5,185,013
Share premium reserve 8 - 84,251
Retained earnings / (accumulated losses) 1,600,333 (4,083,917)
Cumulative changes in fair values of derivative financial instruments 10 (2,781,873) (3,587,983)
Total equity 15,256,686 13,152,404
Non-current liabilities
Non-current portion of term loans 9 71,968,693 67,240,808
Non-current portion of fair value of derivative financial instruments 10 3,027,657 3,914,571
Provision for decommissioning obligation 11 1,072,755 -
Deferred tax 21 1,040,182 -
Shareholders’ bridge loans 14 5,949,997 -
End of service benefits 12 19,385 19,065
Total non-current liabilities 83,078,669 71,174,444
Current liabilities
Current portion of term loans 9 3,423,156 2,843,896
Current portion of fair value of derivative financial instruments 10 133,562 162,682
Shareholders’ stand – by equity loans 13 837,030 837,030
Shareholders’ bridge loans 14 - 1,691,800
Accruals and other payables 15 2,738,625 19,032,612
Amount due to related parties 16 4,966,259 4,966,259
Total current liabilities 12,098,632 29,534,279
Total liabilities 95,177,301 100,708,723
Total equity and liabilities 110,433,987 113,861,127
The financial statements on pages 199 to 221 were approved by the Board of Directors on 31 January 2017 and were
signed on their behalf by:

_____________________ _____________________
hie ec ti e fice hie inancial fice
The report of the Independent Auditors is set forth on page 197 and 198.
199
 Statement of profit or loss and other comprehensive income
for the year ended 31 December

Notes 2016 2015

OMR OMR
Revenue 12,670,953 -
Operating cost 17 (6,001,251) -
Gross profit 6,669,702 -
Administrative expenses 18 (908,952) -
Depreciation 5 (2,154,908) -
Delay liquidated damages 19 988,344 (1,244,284)
Finance costs 20 (3,296,014) -
Over-hedged portion of changes in fair values of derivative
financial instruments 10 - 750,000
Net profit / (loss) for the year 1,298,172 (494,284)
Other comprehensive income that is or be may reclassified
to profit or loss
Changes in fair values of derivative financial instruments 10 916,034 (323,585)
Rectification of over-hedged portion of changes in fair values of derivative
financial instruments 10 - (750,000)
Deferred tax on changes in fair values of derivative financial instruments (109,924) 489,270
Other comprehensive income / (loss) for the year 806,110 (584,315)
Total comprehensive income / (loss) for the year 2,104,282 (1,078,599)
Earnings / (loss) per share – basic and diluted 22 0.08 (0.03)

The attached notes on pages 203 to 221 notes form an integral part of these financial statements.
The report of the Independent Auditors is set forth on page 197 and 198.
200
Statement of changes in equity
for the year ended 31 December 2016

Cumulative
changes in
(Accumulated fair values
losses) / of derivative
Share Share Legal retained financial
capital premium reserve earnings instruments Total
OMR OMR OMR OMR OMR OMR
At 1 January 2015 7,457,620 - 2,435,167 (3,589,633) (3,003,668) 3,299,486
Share premium - 84,251 2,749,846 - - 2,834,097
Share capital introduced
during the period 8,097,420 - - - - 8,097,420
Loss for the year - - - (494,284) - (494,284)
Other comprehensive loss
net of deferred tax - - - - (584,315) (584,315)
At 31 December 2015 15,555,040 84,251 5,185,013 (4,083,917) (3,587,983) 13,152,404
At 1 January 2016 15,555,040 84,251 5,185,013 (4,083,917) (3,587,983) 13,152,404
Transactions with owners,
recognised directly in
equity
Transfer to legal reserve - (84,251) 84,251 - - -
Transfer to accumulated
losses - - (4,515,895) 4,515,895 - -
Profit for the year - - - 1,298,172 - 1,298,172
Transfer to legal reserve - - 129,817 (129,817) - -
Other comprehensive loss
net of deferred tax - - - - 806,110 806,110
At 31 December 2016 15,555,040 - 883,186 1,600,333 (2,781,873) 15,256,686

The attached notes on pages 203 to 221 notes form an integral part of these financial statements.
The report of the Independent Auditors is set forth on page 197 and 198.
201
 Statement of cash flows
for the year ended 31 December

2016 2015
OMR OMR
Operating activities
Net profit / (loss) for the year 1,298,172 (494,284)
Adjustment for:
Over-hedged portion of changes in fair values of derivative financial instruments - (750,000)
Delay liquidated damages - 1,244,284
Depreciation 2,156,855 -
Provision for end of service benefits 10,701 7,169
Interest accrued on Shareholders’ bridge loans 190,768 -
Amortisation of deferred finance cost 242,715 -
Cash flows from operating activities before working capital changes 3,899,211 7,169
Change in accruals and other payables (16,293,987) (9,926,804)
Change in trade and other receivables 10,789,165 8,884,755
Net cash used in operations (1,605,611) (1,034,880)
End of service benefits paid (10,381) (3,869)
Net cash used in operating activities (1,615,992) (1,038,749)
Investing activities
Additions to property, plant and equipment (2,737,042) (19,335,797)
Net cash used in investing activities (2,737,042) (19,335,797)
Financing activities
Share capital introduced during the period - 10,931,517
Repayment of equity bridge loans - (10,931,511)
Proceeds from Shareholders’ bridge loans 4,037,250 68,030
Net proceeds from term loans 5,064,430 18,438,841
Net cash from financing activities 9,101,680 18,506,877
Net change in cash and cash equivalents 4,748,646 (1,867,669)
Cash and equivalents at the beginning of the year 5,717,908 7,585,577
Cash and cash equivalents at the end of the year 10,466,554 5,717,908

The attached notes on pages 203 to 221 notes form an integral part of these financial statements.
The report of the Independent Auditors is set forth on page 197 and 198.
202
Notes to the financial statements
for the year ended 31 December 2016

1. Legal status and principal activities

Muscat City Desalination Company SAOC (the “Company”) is a closed joint stock company registered in the
Sultanate of Oman. The Company was incorporated on 19 January 2013.  The Company’s principal activity is the
sale of desalinated water. The Company commenced commercial production of potable water on 19 February 2016.
The Company is planning to list on the Muscat Securities Market during 2017 by way of an Initial Public Offering
(“IPO”).

1.1 Key agreements

Water Purchase Agreement

On 11 February 2013 the Company signed a long term Water Purchase Agreement with Oman Power and Water
Procurement Company SAOC for the supply of 42 million imperial gallons of water per day. The agreement expires
20 years after the Scheduled Commercial Operation Date of 12 October 2014, subject to any extension period or
early termination arising under the terms of the agreement.

Engineering, Procurement and Construction Contract

The Company entered into an agreement for the construction of a desalination plant with a capacity of 42 million
imperial gallons of water per day with International Water Treatment LLC (“the EPC Contractor”) on a turnkey basis.

2 New standards and interpretation not yet effective

A number of relevant new standards and amendments to standards are effective for annual periods beginning after
1 January 2016.
IFRS 9 Financial Instruments, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments,
including a new expected credit loss model for calculating impairment on financial assets, and the new general
hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of financial
instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with
early adoption permitted.
IFRS 15 Revenue from Contracts with Customers establishes a comprehensive framework for determining whether,
how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18
Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual
reporting periods beginning on or after 1 January 2018, with early adoption permitted.
IFRS 16 Leases replaces the existing guidance in IAS 17 Leases and will be effective from 1 January 2019 and deals
with recognition, measurement and classification of leases.
The Company is assessing the potential impact on its financial statements resulting from the application these new
IFRSs.

3 Summary of significant accounting policies

Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as promulgated by the International Accounting Standards Board and the requirements of the Commercial
Companies Law of 1974, as amended.

Basis of preparation
These financial statements have been prepared under the historical cost convention except for certain financial
assets and liabilities measured at fair value.
The accounting records are maintained in Omani Rial which is the functional and reporting currency for these
financial statements.

203
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

3 Summary of significant accounting policies (continued)

Basis of preparation (continued)

Following are the significant accounting policies applied by the Company consistently to all the periods presented.

Foreign currencies
The Omani Rial (OMR) is the functional and presentation currency of the Company. Any currency other than the
functional currency is considered as a foreign currency. Transactions in foreign currencies are translated to Omani
Rials at the rates of exchange prevailing on the date of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated to Omani Rials using the closing rate at the reporting date.
Non-monetary assets and liabilities measured at historical cost are translated using the exchange rate at the date
of the transaction whereas those measured at fair value are translated using the exchange rate at the date when fair
value was determined. An exchange difference on settlement of monetary items or on translation is recognised in
profit or loss.

Property, plant and equipment

Recognition and measurement
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses,
if any. Cost includes the amount of cash and cash equivalents paid or the fair value of other consideration given
to acquire an asset at the date of acquisition or construction. Expenditure incurred to replace a component of an
item of property, plant and equipment that is accounted for separately, including major inspection and overhaul
expenditure, is capitalised.
The cost of self-constructed assets includes the cost of materials, direct labour, borrowing costs and an appropriate
proportion of overheads. Gains and losses on disposal of property, plant and equipment are determined by reference
to their carrying amount and are taken into account in determining profit or loss. Repairs and renewals are charged
to profit or loss when the expense is incurred.

Subsequent costs
The Company recognises in the carrying amount of property, plant and equipment the cost of major inspections and
the cost of replacing part of such an item when the cost is incurred, if it is probable that the future economic benefits
embodied in the item will flow to the Company and the cost of the item can be measured reliably. All other costs
are recognized as an expense as incurred.

Depreciation
Depreciation is calculated so as to write off the cost of property, plant and equipment, other than capital work-in-
progress, over their estimated economic useful lives, using the straight line method, from the date that the asset is
brought into use.
Where components of an item of property, plant and equipment have different useful lives, they are accounted for
as separate items (major components) of property, plant and equipment. Major repairs are depreciated over the
remaining useful life of the related asset, or up to the date of the next major repair, whichever is shorter.
The estimated useful lives for the current period are as follows:
Years
Civil and structural works........................................................................ 40
Plant and machinery............................................................................... 40
Pipelines ................................................................................................ 40
Decommissioning asset.......................................................................... 40
Spares..................................................................................................... 40
Furniture, fixtures and office equipment.................................................. 4
Motor vehicles.......................................................................................... 4

204
Notes to the financial statements
for the year ended 31 December 2016 (continued)

3 Summary of significant accounting policies (continued)

Property, plant and equipment (continued)

Management reassesses the useful lives and residual values for property, plant and equipment annually.

Capital work-in-progress
Capital work-in-progress is stated at cost less any impairment losses. When commissioned, capital work-in-progress
is transferred to the appropriate property, plant and equipment category and depreciated in accordance with
depreciation policies of the Company.

Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period by the weighted average number of
shares outstanding during the period.

Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are
recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss.

Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
Notes to the financial statements for the year ended 31 December 2016
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.

Employees’ end of service benefits

With respect to its Omani employees, the Company makes contributions to the Public Authority for Social Insurance
under Royal Decree 72/91 calculated as a percentage of the employees’ salaries. The Company’s obligations are
limited to these contributions, which are expensed when due.

205
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

3 Summary of significant accounting policies (continued)

Employees’ end of service benefits (continued)

Provision for non-Omani employee terminal benefits under an unfunded defined benefit retirement plan, is made in
accordance with Omani Labour Laws and is calculated by estimating the amount of future benefits that employees
have earned in return for their service in the current and prior periods.

Provisions
A provision is recognised in the statement of financial position when the Company has a legal or constructive
obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle
the obligation and the amount can be reliably estimated. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the
present obligation, the carrying amount is the present value of those cash flows.

Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects. The balances representing a residual interest in the
net assets of the Company are also classified as equity.

Revenue
Revenue comprises water capacity and water output charges calculated in accordance with the agreement with
Oman Power and Water Procurement Company SAOC for sale of desalinated water.

Finance expenses
Finance costs comprise interest on borrowings. Borrowing costs, net of interest income, which are directly attributable
to the acquisition or construction of items of property, plant and equipment are capitalised as part of the cost of
property, plant and equipment. All other interest expenses are recognised as an expense in profit or loss using the
effective interest rate method.

Non-derivative financial instruments

Non-derivative financial instruments comprise receivables, cash and cash equivalents, loans and trade and other
payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at
fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-
derivative financial instruments are measured at amortised cost using the effective interest rate method.

Derivative financial instruments

The Company holds derivative financial instruments to hedge its interest rate risk exposures. Derivatives are initially
recognised at fair value at the date the derivative contract is entered into and are subsequently measured at their
fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in which case the timing of the recognition
in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within
12 months. Other derivatives are presented as current assets or current liabilities.

Hedge accounting
The Company designates the hedging instrument as cash flow hedges. At the inception of the hedge relationship,
the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective
in offsetting changes in fair values or cash flows of the hedged item.
206
Notes to the financial statements
for the year ended 31 December 2016 (continued)

3 Summary of significant accounting policies (continued)

Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss,
as is any gain or loss on any hedging that exceeds 100% of the associated liability.
Amounts previously recognised in and accumulated in equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.

Income tax
Current tax
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Current tax is the expected tax
payable on the taxable income for the period, using the tax rates ruling at the reporting date.

Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis
of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax
effects on the temporary differences are disclosed under current or non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses can be utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank balances
with an original maturity of less than three months.

Delay liquidated damages

Delay liquidated damages payable, which do not meet the requirements under IAS 16 to be recognised in capital
work-in-progress are recognized in the profit and loss account. Delay liquidated damages receivable are recognised
when they are determined to be virtually certain of recovery. Delay liquidated damages receivable from the EPC
Contractor have three elements. The first is to compensate the Company for the delay liquidated damages payable
to Oman Power and Water Procurement Company SAOC and the second element is to compensate the Company
for the operating days lost due to the construction delay. Both of these elements are recognised in the profit and
loss account. The third element is to compensate the Company for the additional costs incurred in completing the
construction of the plant. This element is taken to capital work-in-progress.

Segment reporting
An operating segment is a component of the Company that engages in activates from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other
components, whose operating results are reviewed regularly by the Chief Executive Officer (being the chief operating
decision maker) to make decisions about resources allocated to each segment and assess their performance, and for
which discrete financial information is available.
The Company’s only activity is the sale of desalinated water to OPWP, being the only customer, hence the chief
operating decision maker considers the business of the Company as one operating segment.
Water sales take place in the Sultanate of Oman.

207
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

4 Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in note 3, management is required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
the revision and in future periods, if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future at the reporting date that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment of property, plant and equipment

Property, plant and equipment is stated at cost. Management considers that there are no indications of impairment
considering that the plant has successfully started commercial operations and expects to comply with the requirement
of the WPA and sell potable water to OPWP.

Useful life of property, plant and equipment

The estimation of the useful life of the property, plant and equipment has a significant impact on the financial
statements. The useful life has been determined to be 40 years on the strength of an independent consultant’s
report and the comprehensive maintenance and replacement programme in place.

Provision for decommissioning

The expected cost of decommissioning has been determined on the basis of a study by an independent consultant
and discounted over 40 years using a discount factor of 3.82%.

Application of IFRIC 4 and IFRIC 12

Judgement is required to ascertain whether the WPA agreement with OPWP contains a lease as per IFRIC 4:
Determining Whether an Arrangement contains a Lease, or a service concession arrangement as per IFRIC 12:
Service Concession Arrangements. If the agreement contains a lease, judgement is required to classify the lease
as an operating lease or a finance lease as per IAS 17: Leases. The lease has been classified as an operating lease.

208
 5 Property, plant and equipment

Furniture,
Civil and fixtures Capital
structural Plant and Decommissioning & office Motor work-in-
works machinery Pipelines asset Spares equipment vehicles progress Total
OMR OMR OMR OMR OMR OMR OMR OMR OMR
Cost

1 January 2016 - - - - - 24,625 38,734 95,401,338 95,464,697
Notes to the financial statements

Additions - - - 1,072,755 - 1,114 - 2,766,107 3,839,976

Transfers 31,325,719 46,357,456 19,908,264 - 576,006 - - (98,167,445) -
31 December
2016 31,325,719 46,357,456 19,908,264 1,072,755 576,006 25,739 38,734 - 99,304,673
for the year ended 31 December 2016 (continued)

Depreciation

1 January 2016 - - - - - 17,080 24,434 - 41,514

Charge for the
year 676,220 1,000,705 429,754 23,157 12,434 4,902 9,683 - 2,156,855
31 December
2016 676,220 1,000,705 429,754 23,157 12,434 21,982 34,117 2,198,369
Carrying value
31 December
2016 30,649,499 45,356,751 19,478,510 1,049,598 563,572 3,757 4,617 - 97,106,304

209
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

5 Property, plant and equipment (continued)

Furniture,
fixtures
& office Capital work-
equipment Motor vehicles in- progress Total
OMR OMR OMR OMR
Cost
1 January 2015 21,971 38,734 79,523,938 79,584,643
Additions 2,654 - 15,877,400 15,880,054
31 December 2015 24,625 38,734 95,401,338 95,464,697
Depreciation
1 January 2015 9,780 14,750 - 24,530
Charge for the year 7,300 9,684 - 16,984
31 December 2015 17,080 24,434 - 41,514
Carrying value
31 December 2015 7,545 14,300 95,401,338 95,423,183
The land on which the plant is constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rentals are paid at the rate of OMR 15,045
per annum.
Depreciation of OMR 1,947 and finance costs of OMR 441,292 during the construction period were capitalised into
the cost of property, plant and equipment during the year.

6 Trade and other receivables

2016 2015
OMR OMR
Trade debtors 1,397,244 -
Prepayments 42,857 11,588
Deposits 1,500 48,500
Liquidated damages receivable - 12,170,678
1,441,601 12,230,766
During the year, the arbitration Tribunal delivered its award in favour of the Company and, accordingly, the full
amount of liquidated damages receivable was settled (notes 19 and 23).

7 Cash and cash equivalents

2016 2015
OMR OMR
Cash in hand 227 94
Cash at bank 1,007,242 54,898
Short term deposits 9,459,085 5,662,916
10,466,554 5,717,908
210
Notes to the financial statements
for the year ended 31 December 2016 (continued)

7 Cash and cash equivalents (continued)

The short term deposits are denominated in US Dollars and are with Sumitomo Mitsui Banking Corporation Limited
in London with maturities of less than one month from the reporting date. These deposits yield interest at an
insignificant rate.

8 Share capital

Authorised
Share capital 2016 2015
OMR OMR
25,000,000 ordinary shares of OMR 1 each 25,000,000 25,000,000

Issued and fully paid

Shares of OMR 1 each 15,555,040 15,555,040

Shareholders
The Shareholders of the Company are:

% holding Country of incorporation

2016 2015
Summit Water Middle East Company 45 45 Cayman Islands
Malakoff Oman Desalination Company Limited 45 45 British Virgin Islands
Cadagua Al Ghubrah UK Limited 10 10 United Kingdom
100 100

Share premium reserve 2016 2015

OMR OMR
At 1 January 84,251 -
Share premium for the year - 2,834,097
Transfer to legal reserve (84,251) (2,749,846)
At 31 December - 84,251

Legal reserve
Article 154 of the Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to
a non-distributable statutory reserve until the amount of the statutory reserve becomes equal to at least one-third
of the company’s paid up share capital.
The Company had used the share premium received on the issue of share capital during 2015 to completely fulfil
this requirement. However during 2016, the Company transferred some of the legal reserve to offset accumulated
losses. A further transfer of OMR 129,817 to legal reserve has been made on the net profit of the Company for the
year.

211
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

9 Term loans

2016 2015
OMR OMR
Term loans 76,700,009 71,635,579
Less: deferred finance charges (1,308,160) (1,550,875)
75,391,849 70,084,704
Less: current portion of term loans (3,423,156) (2,843,896)
Non-current portion of term loans 71,968,693 67,240,808

Facilities
On 25 July 2013, the Company entered into a long term financing agreement for loan facilities (“the term loans”) in
the aggregate maximum amount of OMR 81,451,616 (USD 211,837,752) with a consortium of international banks.

Facilities drawn down

At 31 December 2016, OMR 81,244,505 (USD 211,299,102) had been drawn down (31 December 2015:
OMR 73,014,032 (USD 189,893,450)) and the remaining undrawn amount has been cancelled.

Facilities repayments
The term loans are due for repayment in 76 quarterly instalments. Four instalments of OMR 3,166,043 were paid
during the year.

Interest
The term loans bear interest at three month USD Libor plus margin. The effective interest rate for 2016 to date was
4.71% (31 December 2015: 4.69%).

Security
The term loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage over the
Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a charge has
been created over all of the Company’s shares.

Covenants
The facilities agreements contain certain covenants relating to liquidity. These include restrictions on the debt /
equity ratio, the debt service coverage ratio and the loan life cover ratio. For the interest period of 12 October 2016,
the Company was in breach of debt service coverage ratio and the waiver for same was obtained from the lenders.

10 Derivative financial instruments

In accordance with the Common Terms Agreement, the Company is required to enter into interest rate hedging
agreements to cap the Company’s exposure to fluctuating interest rates. This requirement covers the term loans.
As at the reporting date, a principal amount of approximately OMR 62,733,622 (USD 163,156,365) (31 December
2015: OMR 65,339,259 (USD 169,933,054)) was covered under this agreement for the term loans.
The hedging agreements cap the Company’s exposure to fluctuating interest rates. The Company releases a portion
of the hedging arrangements in line with the repayment of the term loans.
The hedging arrangement obliges the Company to pay fixed interest at the rate of 2.86% per annum on a quarterly
basis for the term loans. These cash flow hedges were assessed as highly effective as at 31 December 2016 (31
December 2015: highly effective).
The fair value movement of OMR 916,034 (31 December 2015: OMR 323,585) has been included in other
comprehensive income, net of deferred tax.

212
Notes to the financial statements
for the year ended 31 December 2016 (continued)

10 Derivative financial instruments (continued)

The classification of the fair values of the derivative financial instruments based on the remaining period to maturity
from the reporting date is as follows:

2016 2015
OMR OMR
Less than 1 year (133,562) (162,682)
1 to 5 years (717,843) (879,056)
More than 5 years (2,309,814) (3,035,515)
Total more than 1 year (3,027,657) (3,914,571)
Cumulative changes in fair value (3,161,219) (4,077,253)

Cumulative changes in fair value are recognised as follows:

Cumulative changes in fair value (3,161,219) (4,077,253)

Related deferred tax asset 379,346 489,270
Cumulative changes in fair value, net of deferred tax (2,781,873) (3,587,983)
The table below shows the fair values of the interest rate swaps, which are equivalent to the market values, together
with the notional amounts analysed by the term to maturity.

Notional amounts by term to maturity

More than
Notional 1 - 12 1 up to 5 More than
Fair value amount months years 5 years
31 December 2016 OMR OMR OMR OMR OMR
Interest rate swaps 3,161,219 62,733,622 2,650,053 14,245,423 45,838,146
31 December 2015
Interest rate swaps 4,077,253 65,339,259 2,607,036 14,087,144 48,645,079
During 2014, a portion of the hedge was erroneously considered ineffective and accordingly an amount of OMR
750,000 was charged to the statement of comprehensive income. In 2015 the amount was rectified and recharged
to cumulative changes in fair values of derivative financial instruments under equity.

11 Provision for decommissioning obligation

The decommissioning cost represents the present value of management’s best estimate of the future cost to remove
the facilities and restore the affected area at the Company’s leased site to its original condition. The estimate has
been made on the basis of an independent report by a professional consultant, discounted at 3.82% to its present
value, over the plant’s estimated useful life of 40 years.

12 End of service benefits

2016 2015
OMR OMR
1 January 19,065 15,765
Provided during year 10,701 7,169
Paid during the year (10,381) (3,869)
31 December 19,385 19,065
213
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

13 Shareholders’ stand – by equity loans

2016 2015
OMR OMR
Summit Water Middle East Company 376,664 376,664
Malakoff Oman Desalination Company Limited 376,664 376,664
Cadagua Al Ghubrah UK Limited 83,702 83,702
837,030 837,030

Facilities
The Shareholders’ stand – by equity loans of OMR 837,030 (USD 2,176,932) were provided in November 2015.

Facilities repayments
The Shareholders’ stand – by equity loans are due for repayment subject to the consent of the term loan lenders
which is dependent on cash flows.

Interest
The Shareholders’ stand – by equity loans are interest free.

Security
The Shareholders’ stand – by equity loans are unsecured.

14 Shareholders’ bridge loans

2016 2015
OMR OMR
Summit Water Middle East Company 2,864,525 845,900
Malakoff Oman Desalination Company Limited 2,864,525 845,900
Interest accrued 220,947 -
5,949,997 1,691,800

Facilities
The Shareholders’ bridge loans of OMR 1,691,800 (USD 4,400,000) were provided in October 2015. Further
Shareholders’ bridge loans of OMR 4,037,250 (USD 10,500,000) were provided during the year ended 31 December
2016.

Facilities repayments
The Shareholders’ bridge loans are due for repayment subject to the consent of the term loan lenders which is
dependent on cash flows. As at 31 December 2016, the loans are classified as non-current as the Company does
not foresee repayment of the loans within one year from the date of the financial statements.

Interest
The Shareholders’ bridge loans carry interest at the rate of 4% per annum.

Security
The Shareholders’ bridge loans are unsecured.

214
Notes to the financial statements
for the year ended 31 December 2016 (continued)

15 Accruals and other payables

2016 2015
OMR OMR
Accruals and other payables 2,738,625 1,656,824
Liquidated damages payable - 17,375,788
2,738,625 19,032,612
Accruals and other payables include an amount of OMR 660,719 (31 December 2015: OMR 612,500), due to Muscat
City Desalination Operation and Maintenance Company LLC, a related party.
Liquidated damages payable were due to Oman Power and Water Procurement Company SAOC due to the delay
in meeting the Commercial Operation Date. The payables were fully settled during the year (note 19 and 23).

16 Related party transactions

Related parties comprise the shareholders, directors, key management personnel and any business entities in which
these parties have the ability to control or exercise significant influence. The Company maintains significant balances
with these related parties which arise in the normal course of business. The terms and conditions of related party
transactions are mutually agreed.
Significant related party transactions during the period are as follows:

2016 2015
OMR OMR
Share capital introduced - 10,931,517
Mobilisation and delay fees to Muscat City Desalination
Operation and Maintenance Company LLC 122,500 912,500
Operation and maintenance cost to Muscat City Desalination
Operation and Maintenance Company LLC 3,203,367 -
Net receipts under Shareholders’ bridge loans 4,037,250 68,030
Key management compensation 198,402 202,517
Amount due to related parties
Sumitomo Corporation / Cadagua S.A. / Malakoff International Limited 4,966,259 4,966,259
This amount relates to initial project costs paid by the related parties which has not yet been reimbursed to the
related parties and has been capitalised under capital work-in-progress as it relates directly to the construction of
the plant.
The amount due to related parties is interest free and there are no specific terms of repayment.

17 Operating cost

2016 2015
OMR OMR
Operation and maintenance cost (note 16) 3,203,367 -
Electricity charges 2,797,884 -
6,001,251 -

215
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

18 Administrative expenses

2016 2015
OMR OMR
Salaries 253,923 -
Arbitration cost 212,653 -
Insurance 198,808 -
Legal and professional expenses 76,477
Others 167,091 -
908,952 -

19 Delay liquidated damages

2016 2015
OMR OMR
Delay liquidated damages receivable (note 6 and note 23) - 13,097,531
Interest income on delay liquidated damages receivable (note 6 and note 23) 221,218 194,340
Delay liquidated damages payable (note 15) (175,000) (14,315,000)
Interest expense on delay liquidated damages payable (note 15) 225,789 (221,155)
Delay liquidated damages relief 716,337 -
988,344 (1,244,284)

20 Finance cost

2016 2015
OMR OMR
Interest expense on term loans and interest swaps 2,922,640 -
Amortisation of deferred finance cost 242,715 -
Interest expense on Shareholders’ bridge loan 190,768 -
Interest income on term deposits (45,222) -
Exchange gain (14,887) -
3,296,014 -

21 Income tax
The Company is liable to income tax at the rate of 12% (31 December 2015: 12%) on taxable profits in excess of
OMR 30,000. The effective tax rate for the Company for the period is nil (31 December 2015: nil). No provision for
income tax has been made for the period ended 31 December 2016 in view of the taxable losses for the period.
The Company’s income tax assessments for the years 2013 to 2015 have not been finalised by the Secretariat
General for Taxation at the Ministry of Finance. The management believes that additional taxes, if any, that may
become payable on finalisation of the assessment in respect of these open years would not be material to the
Company’s financial position as at 31 December 2016.
Tax rates are expected to increase to 15% during 2017.

216
Notes to the financial statements
for the year ended 31 December 2016 (continued)

21 Income tax (continued)

a) Recognised in the statement of comprehensive income

2016 2015
OMR OMR
Deferred tax
– Current year 155,931 -
– Prior year (155,931) -
- -

b) Tax reconciliation
The reconciliation of income tax expense is as follows:

2016 2015
OMR OMR
Profit / (loss) for the year 1,298,172 (494,284)
Income tax at standard rate 155,781 -
Non-deductible expenses 150 -
Prior year deferred tax (155,931) -
- -

c) Deferred tax asset and liabilities represent origination and reversal of temporary differences and comprise:

Recognised Asset /
Asset / in profit or (liability)
(liability) as loss / other as at 31
at 1 January comprehensive December
2016 income 2016
OMR OMR OMR
Property, plant and equipment – Deferred tax liability: - (1,040,182) (1,040,182)
Carried forward tax losses - 911,451 911,451
Provision for decommissioning obligation - 128,731 128,731
Change in fair value of derivative financial instrument
(through other comprehensive income) 489,270 (109,924) 379,346
Deferred tax assets 489,270 930,258 1,419,528
Deferred tax arises on account of tax losses and temporary differences between the tax base of assets and liabilities
and their carrying values in the statement of financial position. A deferred tax asset of OMR 339,121 on losses has
not been recognised as management does not consider it probable that sufficient taxable income may arise prior to
their expiry to obtain the benefits therefrom.

217
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

22 Earnings per share

2016 2015
Profit / (loss) for the year (OMR) 1,298,172 (494,284)
Weighted average number of shares outstanding during the period 15,555,040 15,288,823
Earnings /(loss) per share (basic and diluted) (OMR) 0.08 (0.03)

23 Contingencies and commitments

Capital commitments
The Company entered into an agreement for the construction of the desalination plant with International Water
Treatment LLC on a turnkey basis for an amount of OMR 82.9 million (USD 215.5 million).  At 31 December 2016,
the total outstanding capital commitments amounted to nil (31 December 2015: OMR 2.0 million (USD 5.1 million)).

Lease commitments
The land which the plant occupies has been leased from the Government of the Sultanate of Oman (represented
by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be extended by an
additional 25 years at the request of the Company. Lease rental is paid at the rate of OMR 15,045 per annum.
At 31 December 2016, future minimum lease commitments under non-cancellable operating leases are as follows:

2016 2015
OMR OMR
Less than one year 15,045 15,045
Between one and five years 60,180 60,180
More than five years 240,720 255,765
315,945 330,990

Contingencies
International Water Treatment LLC (“EPC Contractor”) commenced arbitration proceedings against the Company in
the London Court of Arbitration on 2 October 2014 by filing a Request for Arbitration in which it sought to challenge
the enforceability of the liquidated damages provisions in the EPC Contract on the basis that they amount to a
‘penalty’. The EPC Contractor also claimed that failing the Company’s ability to provide the EPC Contractor with
an extension of time, the EPC Contractor was entitled to complete the works within a reasonable period of time.
Separately, the EPC Contractor sought to delay the starting date of the delay liquidated damages and presented a
claim for extension of time. This claim was robustly rejected by the Company.
On 4 November 2016, the Arbitration Tribunal delivered its award. All of the claims brought by the EPC Contractor
were dismissed. The Company subsequently recovered all of the outstanding delay liquidated damages due from
the EPC Contractor, together with interest. The Tribunal also awarded the Company a substantial portion of the
costs of defending the arbitration.
On 30 November 2016, the Company paid all of the delay liquidated damages due to Oman Power and Water
Procurement Co. SAOC.

24 Financial instruments
This note presents information on the risks arising from the Company’s use of financial instruments, namely; credit
risk, liquidity risk and market risk to which the Company is exposed, its objectives, policies and processes for
measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are
included throughout these financial statements.

218
Notes to the financial statements
for the year ended 31 December 2016 (continued)

24 Financial instruments (continued)

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework.
Risk management policies and systems are reviewed regularly to ensure that they reflect any changes in market
conditions and the Company’s activities. The Company, through its induction and training program, aims to develop
a disciplined and constructive control environment in which all employees understand their roles and obligations.

Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s deposits with banks.
The exposure to credit risk is monitored on an on-going basis and therefore the Company considers the credit risk
to be minimal.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:

2016 2015
OMR OMR
Cash at bank and deposits 10,466,327 5,717,814
Trade and other receivables 1,398,744 12,219,178
11,865,071 17,936,992
The exposure to credit risk for trade and other receivables at the reporting date by type of customer is:

2016 2015
OMR OMR
Oman Power and Water Procurement Co. SOAC 1,397,244 -
International Water Treatment LLC - 12,170,677
Others 1,500 48,500
1,398,744 12,219,178
Trade and other receivables at the end of the reporting period are not overdue or impaired.
Cash at bank and deposits with the bank are placed with financial institutions with a credit rating of at least BAA2.

Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall
due. The Company’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 Company’s reputation.
The Company uses cash flow forecasting methods which assist it in monitoring cash flow requirements and optimising
its cash flow cycle. The Company ensures that it has sufficient cash available to meet its expected operational
expenses, including the servicing of financial obligations.

219
 Notes to the financial statements
for the year ended 31 December 2016 (continued)

24 Financial instruments (continued)

The maturities of Company’s undiscounted financial liabilities at the reporting date are shown below:

Carrying Less than 6 6 to 12 1 to 5 More than

31 December 2016 amount months months Years 5 years
OMR OMR OMR OMR OMR
Non derivative financial liabilities
Term loans 76,700,009 1,575,332 1,847,824 13,846,506 59,430,347
Shareholders’ standby equity loans 837,030 - 837,030 - -
Shareholders’ bridge loans 5,949,997 - - 5,949,997 -
Due to related parties 4,966,259 - 4,966,259 - -
Accruals and other payables 2,738,625 2,738,625 - - -
91,191,920 4,313,957 7,651,113 19,796,503 59,430,347

Carrying Less than 6 6 to 12 1 to 5 More than

31 December 2015 amount months months Years 5 years
OMR OMR OMR OMR OMR
Non derivative financial liabilities
Term loans 71,635,579 1,392,378 1,451,518 12,080,901 56,710,782
Shareholders’ standby equity
loans 837,030 - 837,030 - -
Shareholders’ bridge loans 1,691,800 - 1,691,800 - -
Due to related parties 4,966,259 4,966,259 - - -
Accruals and other payables 19,032,612 19,032,612 - - -
98,163,280 25,391,249 3,980,348 12,080,901 56,710,782

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Company’s income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk
The Company is not exposed to foreign currency risk on its bank deposits designated in US Dollars as the Omani
Rial is effectively pegged to the US Dollar and the US Dollar exchange rate has remained unchanged since 1986.

Interest rate risk

The Company’s interest rate risk arises principally from medium and long term borrowings. Borrowings issued at
variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company’s policy is to maintain approximately 100% of its borrowings
in fixed rate or hedged instruments.

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates at the reporting date would have increased / (decreased) equity by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant.

220
Notes to the financial statements
for the year ended 31 December 2016 (continued)

24 Financial instruments (continued)

Market risk (continued)

100 bp 100 bp
31 December 2016 increase decrease
OMR OMR
Fair value of derivative financial instruments 5,019,899 (5,019,899)
31 December 2015
Fair value of derivative financial instruments 5,598,426 (5,541,757)

Capital risk management

The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor and creditor confidence
and to sustain future development of the business.
The Company is not subject to externally imposed capital requirements except those under the Commercial
Companies Law of 1974, as amended.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain the capital structure, the Company may adjust the amount of dividends paid to shareholders,
return capital to shareholders or issue new shares.

Fair value
Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of term loans,
Shareholders’ bridge loans, Shareholders’ stand – by equity loans and payables. Derivatives consist of interest rate
swap arrangements. The fair values of financial instruments are not materially different from their carrying values.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique.
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data

2016 2015
OMR OMR
Interest rate swaps – Level 2 62,733,622 65,339,259

The Company had no financial instruments in level 1 or level 3. During the year ended 31 December 2016, there
were no transfers of financial instruments between the levels for fair value measurement.

25 Approval of financial statements

The financial statements were approved by the management and authorised for issue on 31 January 2017.

221
 MUSCAT CITY DESALINATION COMPANY SAOC

Report and financial statements

for the three month period ended 31 March 2017

222
Report and financial statements
for the three month period ended 31 March 2017

Page

Independent auditors’ report 224 – 226

Statement of financial position 227

Statement of profit or loss and other comprehensive income 228

Statement of changes in equity 229

Statement of cash flows 230

Notes to the financial statements 231 – 249

223
 tatement o financial osition
as at

31 March 31 December
Notes 2017 2016
Assets RO RO
Non-current assets
Property, plant and equipment 5 96,489,050 97,106,304
Deferred tax 21 593,161 1,419,528
Total non-current assets 97,082,211 98,525,832
Current assets
Trade and other receivables 6 1,385,955 1,441,601
Cash and cash equivalents 7 10,445,994 10,466,554
Total current assets 11,831,949 11,908,155
Total assets 108,914,160 110,433,987
EQUITY AND LIABILITIES
Capital and reserves
Share capital 8 15,555,040 15,555,040
Legal reserve 8 1,439,003 883,186
Retained earnings - 1,600,333
Cumulative changes in fair values of derivative financial instruments 10 (2,449,398) (2,781,873)
Total equity 14,544,645 15,256,686
Non-current liabilities
Non-current portion of term loans 9 71,171,097 71,968,693
Non-current portion of fair value of derivative financial instruments 10 2,757,878 3,027,657
Provision for decommissioning obligation 11 1,072,755 1,072,755
Deferred tax 21 1,428,633 1,040,182
Shareholders’ bridge loans 13 6,007,287 5,949,997
End of service benefits 12 22,125 19,385
Total non-current liabilities 82,459,775 83,078,669
Current liabilities
Current portion of term loans 9 3,441,842 3,423,156
Current portion of fair value of derivative financial instruments 10 123,767 133,562
Shareholders’ stand – by equity loans 14 837,030 837,030
Accruals and other payables 15 2,540,842 2,738,625
Amount due to related parties 16 4,966,259 4,966,259
Total current liabilities 11,909,740 12,098,632
Total liabilities 94,369,515 95,177,301
Total equity and liabilities 108,914,160 110,433,987
The financial statements on pages 227 to 249 were approved by the Board of Directors on 4 October, 2017 and were
th

signed on their behalf by:

_____________________ _____________________
hie ec ti e fice hie inancial fice
The report of the Independent Auditors is set forth on pages 224 – 226.
227
 Statement of profit or loss and other comprehensive income
for three month period ended 31 March

Audited Unaudited
Notes 2017 2016
RO RO
Revenue 3,496,178 1,648,173
Operating costs 17 (1,538,233) (800,050)
Gross profit 1,957,945 848,123
Administrative expenses 18 (218,189) (456,944)
Depreciation 5 (623,864) (283,368)
Delay liquidated damages 19 - (179,595)
Finance costs 20 (892,689) (564,994)
Net profit / (loss) for the period before tax 223,203 (636,778)
Income tax 21 (1,267,719) -
Net loss for the period (1,044,516) (636,778)
Other comprehensive income that is or be may
reclassified to profit or loss
Changes in fair values of derivative financial instruments 10 279,574 (2,783,339)
Deferred tax on changes in fair values of derivative financial instruments 52,901 334,001
Other comprehensive income / (loss) for the period 332,475 (2,449,338)
Total comprehensive loss for the period (712,041) (3,086,116)
Loss per share – basic and diluted 22 (0.07) (0.04)

The attached notes on pages 231 to 249 notes form an integral part of these financial statements.
The report of the Independent Auditors is set forth on pages 224 – 226.
228
Statement of changes in equity
for the three month period ended 31 March

Cumulative
changes in
(Accumulated fair values
losses) / of derivative
Share Legal retained financial
Share capital premium reserve earnings instruments Total
RO RO RO RO RO RO
At 1 January 2016 15,555,040 84,251 5,185,013 (4,083,917) (3,587,983) 13,152,404
Total Comprehensive loss
Loss for the period - - - (636,778) - (636,778)
Other comprehensive loss net
of deferred tax - - - - (2,449,338) (2,449,338)
At 31 March 2016 – Unaudited 15,555,040 84,251 5,185,013 (4,720,695) (6,037,321) 10,066,288

At 1 January 2017 15,555,040 - 883,186 1,600,333 (2,781,873) 15,256,686

Total Comprehensive income
Loss for the period - - - (1,044,516) - (1,044,516)
Transfer to legal reserve - - 555,817 (555,817) - -
Other comprehensive income
net of deferred tax - - - - 332,475 332,475
At 31 March 2017 15,555,040 - 1,439,003 - (2,449,398) 14,544,645

The attached notes on pages 231 to 249 notes form an integral part of these financial statements.
The report of the Independent Auditors is set forth on pages 224 – 226.

229
 Statement of cash flows
for the three month period ended 31 March

Audited Unaudited
2017 2016
Note RO RO
Operating activities
Net profit / (loss) for the period before tax 223,203 (636,778)
Adjustment for:
Depreciation 5 623,864 285,315
Provision for end of service benefits 12 2,740 -
Interest on Shareholders’ bridge loans 20 57,290 -
Amortisation of deferred finance cost 20 18,912 185,979
Cash flows from operating activities before working capital changes 926,009 (165,484)
Change in accruals and other payables (197,783) 1,844,244
Change in trade and other receivables 55,646 295,457
Net cash from operating activities 783,872 1,974,217
Investing activities
Additions to property, plant and equipment 5 (6,610) (3,839,436)
Net cash used in investing activities (6,610) (3,839,436)
Financing activities
Proceeds from Shareholders’ bridge loans - 2,114,750
Net repayment of term loans (797,822) (690,649)
Net cash (used in) / generated from financing activities (797,822) 1,424,101
Net change in cash and cash equivalents (20,560) (441,118)
Cash and equivalents at the beginning of the period 10,466,554 5,717,908
Cash and cash equivalents at the end of the period 7 10,445,994 5,276,790

The attached notes on pages 231 to 249 notes form an integral part of these financial statements.
The report of the Independent Auditors is set forth on pages 224 – 226.
230
Notes to the financial statements
for the period ended 31 March 2017

1. Legal status and principal activities

Muscat City Desalination Company SAOC (the “Company”) is a closed joint stock company registered in the
Sultanate of Oman. The Company was incorporated on 19 January 2013.  The Company’s principal activity is the
sale of desalinated water. The Company commenced commercial production of potable water on 19 February 2016.
The Company is planning to list on the Muscat Securities Market during 2017 by way of an Initial Public Offering
(“IPO”).

1.1 Key agreements

Water Purchase Agreement

On 11 February 2013 the Company signed a long term Water Purchase Agreement (WPA) with Oman Power and
Water Procurement Company SAOC for the supply of 42 million imperial gallons of water per day. The agreement
expires 20 years after the Scheduled Commercial Operation Date of 12 October 2014, subject to any extension
period or early termination arising under the terms of the agreement.

Engineering, Procurement and Construction Contract

The Company entered into an agreement for the construction of a desalination plant with a capacity of 42 million
imperial gallons of water per day with International Water Treatment LLC (“the EPC Contractor”) on a turnkey basis
which was completed during 2016.

2 New standards and interpretation not yet effective

A number of relevant new standards and amendments to standards are effective for annual periods beginning after
1 January 2017.
• IFRS 9 Financial Instruments, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments,
including a new expected credit loss model for calculating impairment on financial assets, and the new general
hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of
financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January
2018, with early adoption permitted.
• IFRS 15 Revenue from Contracts with Customers establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance,
including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15
is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
• IFRS 16 Leases replaces the existing guidance in IAS 17 Leases and will be effective from 1 January 2019 and
deals with recognition, measurement and classification of leases.
The Company is assessing the potential impact on its financial statements resulting from the application these new
IFRSs.

3 Summary of significant accounting policies

Statement of compliance
The special purpose financial statements (hereinafter financial statements) have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards
Board and the requirements of the Commercial Companies Law of 1974, as amended.

Basis of preparation
These special purpose financial statements (“the financial statements”) have been prepared solely for submission
to the Capital Market Authority and inclusion in a prospectus for a planned future Initial Public Offering, and may
not be suitable for any other purpose. These financial statements have been prepared under the historical cost
convention except for certain financial assets and liabilities measured at fair value.

231
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

3 Summary of significant accounting policies (continued)

Functional and presentation currency

The accounting records are maintained in Omani Rial which is the functional and presentation currency for these
financial statements.
Following are the significant accounting policies applied by the Company consistently to all the periods presented.

Foreign currencies
Any currency other than the functional currency is considered as a foreign currency. Transactions in foreign currencies
are translated to Omani Rials at the rates of exchange prevailing on the date of the transactions. Monetary assets
and liabilities denominated in foreign currencies are translated to Omani Rials using the exchange rate at the
reporting date.
Non-monetary assets and liabilities measured at historical cost are translated using the exchange rate at the date
of the transaction whereas those measured at fair value are translated using the exchange rate at the date when
fair value was determined. An exchange difference on settlement of monetary items or on translation is generaly
recognised in profit or loss.

Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses,
if any. Cost includes the amount of cash and cash equivalents paid or the fair value of other consideration given
to acquire an asset at the date of acquisition or construction. Expenditure incurred to replace a component of an
item of property, plant and equipment that is accounted for separately, including major inspection and overhaul
expenditure, is capitalised.
The cost of self-constructed assets includes the cost of materials, direct labour, borrowing costs and an appropriate
proportion of overheads. Gains and losses on disposal of property, plant and equipment are determined by reference
to their carrying amount and are taken into account in determining profit or loss. Repairs and renewals are charged
to profit or loss when the expense is incurred.

Subsequent costs
The Company recognises in the carrying amount of property, plant and equipment the cost of major inspections and
the cost of replacing part of such an item when the cost is incurred, if it is probable that the future economic benefits
embodied in the item will flow to the Company and the cost of the item can be measured reliably. All other costs
are recognized as an expense as incurred.

Depreciation
Depreciation is calculated so as to write off the cost of property, plant and equipment, other than capital work-in-
progress, over their estimated economic useful lives, using the straight line method, from the date that the asset is
brought into use.
Where components of an item of property, plant and equipment have different useful lives, they are accounted for
as separate items (major components) of property, plant and equipment. Major repairs are depreciated over the
remaining useful life of the related asset, or up to the date of the next major repair, whichever is shorter.
The estimated useful lives for the current period are as follows:
Years
Civil and structural works........................................................................ 40
Plant and machinery............................................................................... 40
Pipelines ................................................................................................ 40
Decommissioning asset.......................................................................... 40
Spares..................................................................................................... 40
Furniture, fixtures and office equipment.................................................. 4
232 Motor vehicles.......................................................................................... 4
Notes to the financial statements
for the period ended 31 March 2017 (continued)

3 Summary of significant accounting policies (continued)

Property, plant and equipment (continued)

The useful depreciation method, lives and residual values of property, plant and equipment are assessed by the
management at reporting date and adjusted if appropriate.

Capital work-in-progress
Capital work-in-progress is stated at cost less any impairment losses. When commissioned, capital work-in-progress
is transferred to the appropriate property, plant and equipment category and depreciated in accordance with
depreciation policies of the Company.

Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period by the weighted average number of
shares outstanding during the period.

Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between
its carrying amount, and the present value of the estimated future cash flows discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are
recognised in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognised. For financial assets measured at amortised cost the reversal is recognised in profit or loss.

Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.

Employees’ end of service benefits

With respect to its Omani employees, the Company makes contributions to the Public Authority for Social Insurance
under Royal Decree 72/91 calculated as a percentage of the employees’ salaries. The Company’s obligations are
limited to these contributions, which are expensed when due.
Provision for non-Omani employee terminal benefits under an unfunded defined benefit retirement plan, is made in
accordance with Omani Labour Laws and is calculated by estimating the amount of future benefits that employees
have earned in return for their service in the current and prior periods.
233
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

3 Summary of significant accounting policies (continued)

Provisions
A provision is recognised in the statement of financial position when the Company has a legal or constructive
obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle
the obligation and the amount can be reliably estimated. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. When a provision is measured using the cash flow estimated to settle the
present obligation, the carrying amount is the present value of those cash flows.

Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.

Revenue
Revenue comprises water capacity and water output charges calculated in accordance with the agreement with
Oman Power and Water Procurement Company SAOC for sale of desalinated water. Revenue is recognised when
water passes through the flow meter installed in the Company premises.

Finance expenses
Finance costs comprise interest on borrowings. Borrowing costs, net of interest income, which are directly attributable
to the acquisition or construction of qualifying assets such as items of property, plant and equipment are capitalised
as part of the cost of property, plant and equipment. All other interest expenses are recognised as an expense in
profit or loss using the effective interest rate method.

Financial instruments

I) Non-derivative financial instruments

Non-derivative financial instruments comprise receivables, cash and cash equivalents, loans and trade and other
payables and amount due to related parties.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through
profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured at amortised cost using the effective interest rate method.

II) Derivative financial instruments

The Company holds derivative financial instruments to hedge its interest rate risk exposures. Derivatives are initially
recognised at fair value at the date the derivative contract is entered into and are subsequently measured at their
fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as
a hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the
hedge relationship.
A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is
recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 month and it is not expected to be realised or settled within
12 month. Other derivatives are presented as current assets or current liabilities.

Hedge accounting
The Company designates the hedging instrument as cash flow hedges. At the inception of the hedge relationship,
the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective
in offsetting changes in fair values or cash flows of the hedged item.

234
Notes to the financial statements
for the period ended 31 March 2017 (continued)

3 Summary of significant accounting policies (continued)

Financial instruments (continued)

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss,
as is any gain or loss on any hedging that exceeds 100% of the associated liability.
Amounts previously recognised in and accumulated in equity are reclassified to profit or loss in the periods when the
hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.

Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it
relates to a business combination, or items recognised directly in equity or in OCI.

Current tax
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman. Current tax is the expected tax
payable on the taxable income for the period, using the tax rates ruling at the reporting date.

Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on the basis
of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax
effects on the temporary differences are disclosed under current or non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the unused tax losses can be utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash in hand and bank balances
with an original maturity of less than three month.

Segment reporting
An operating segment is a component of the Company that engages in activities from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other
components, whose operating results are reviewed regularly by the Chief Executive Officer (being the chief operating
decision maker) to make decisions about resources allocated to each segment and assess their performance, and for
which discrete financial information is available.
The Company’s only activity is the sale of desalinated water to OPWP, being the only customer, hence the chief
operating decision maker considers the business of the Company as one operating segment.
Water sales take place in the Sultanate of Oman.

Leases
At inception of an arrangement, the Company determines whether the arrangement is or contains a lease.
At inception or on reassessment of an arrangement that contains a lease, the Company 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. If the Company concludes for a finance lease that it is impracticable to separate the
payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying
asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is
recognised using the Company’s incremental borrowing rate. 235
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

3 Summary of significant accounting policies (continued)

Leases (continued)

Leased assets
Leases of property, plant and equipment that transfer to the Company substantially all of the risks and rewards of
ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower
of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets
are accounted for in accordance with the accounting policy applicable to that asset.
Assets held under other leases are classified as operating leases and are not recognised in the Company’s statement
of financial position.

Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the
lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the
lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the
reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to
produce a constant periodic rate of interest on the remaining balance of the liability.

4 Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in note 3, management is required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of
the revision and in future periods, if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future at the reporting date that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment of property, plant and equipment

Property, plant and equipment is stated at cost. Management considers that there are no indications of impairment
considering that the plant has successfully started commercial operations and expects to comply with the requirement
of the WPA and sell potable water to OPWP.

Useful life of property, plant and equipment

The estimation of the useful life of the property, plant and equipment has a significant impact on the financial
statements. The useful life has been determined to be 40 years on the strength of an independent consultant’s
report and the comprehensive maintenance and replacement programme in place.

Provision for decommissioning

The expected cost of decommissioning has been determined on the basis of a study by an independent consultant
and discounted over 40 years using a discount factor of 3.82%.

Application of IFRIC 4 and IFRIC 12

Judgement is required to ascertain whether the WPA agreement with OPWP contains a lease as per IFRIC 4:
Determining Whether an Arrangement contains a Lease, or a service concession arrangement as per IFRIC 12:
Service Concession Arrangements. If the agreement contains a lease, judgement is required to classify the lease
as an operating lease or a finance lease as per IAS 17: Leases. The lease has been classified as an operating
lease.
236
 5 Property, plant and equipment

Furniture,
Civil and fixtures
structural Plant and Decommissioning & office Motor
works machinery Pipelines asset Spares equipment vehicles Total
RO RO RO RO RO RO RO RO
Cost
1 January 2017 31,325,719 46,357,456 19,908,264 1,072,755 576,006 25,739 38,734 99,304,673
Additions - 6,610 - - - - - 6,610
Notes to the financial statements

31 March 2017 31,325,719 46,364,066 19,908,264 1,072,755 576,006 25,739 38,734 99,311,283
Depreciation
1 January 2017 676,220 1,000,705 429,754 23,157 12,434 21,982 34,117 2,198,369
Charge for the period 195,785 289,738 124,427 6,705 3,600 1,188 2,421 623,864
for the period ended 31 March 2017 (continued)

31 March 2017 872,005 1,290,443 554,181 29,862 16,034 23,170 36,538 2,822,233
Carrying value
31 March 2017 30,453,714 45,073,623 19,354,083 1,042,893 559,972 2,569 2,196 96,489,050

Furniture,
Civil and fixtures Capital
structural Plant and Decommissioning & office Motor work-in-
works machinery Pipelines asset Spares equipment vehicles progress Total
RO RO RO RO RO RO RO RO RO
Cost
1 January 2016 - - - 24,625 38,734 95,401,338 95,464,697
Additions - - - 1,072,755 - 1,114 2,766,107 3,839,976
Transfers 31,325,719 46,357,456 19,908,264 - 576,006 - (98,167,445) -
31 December 2016 31,325,719 46,357,456 19,908,264 1,072,755 576,006 25,739 38,734 - 99,304,673
Depreciation
1 January 2016 - - - - 17,080 24,434 - 41,514
Charge for the year 676,220 1,000,705 429,754 23,157 12,434 4,902 9,683 - 2,156,855
31 December 2016 676,220 1,000,705 429,754 23,157 12,434 21,982 34,117 - 2,198,369
Carrying value -
31 December 2016 30,649,499 45,356,751 19,478,510 1,049,598 563,572 3,757 4,617 - 97,106,304

237
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

5 Property, plant and equipment (continued)

The land on which the plant is constructed has been leased from the Government of the Sultanate of Oman
(represented by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be
extended by an additional 25 years at the request of the Company. Lease rentals are paid at the rate of RO 15,045
per annum.

6 Trade and other receivables

31 March 31 December
2017 2016
RO RO
Trade receivables 1,168,023 1,397,244
Prepayments 216,432 42,857
Deposits 1,500 1,500
1,385,955 1,441,601

7 Cash and cash equivalents

Cash in hand 29 227

Cash at bank 937,279 1,007,242
Short term deposits 9,508,686 9,459,085
10,445,994 10,466,554
The short term deposits are denominated in US Dollars and are with Sumitomo Mitsui Banking Corporation Limited
in London with maturities of less than one month. These deposits yield interest at an insignificant rate.

8 Capital and reserves

Authorised
31 March 31 December
Share capital 2017 2016
RO RO
25,000,000 ordinary shares of RO 1 each 25,000,000 25,000,000

Issued and fully paid

15,555,040 shares of RO 1 each 15,555,040 15,555,040

Shareholders
The Shareholders of the Company are:

% holding Country of incorporation

2017 2016
Summit Water Middle East Company 45 45 Cayman Islands
Malakoff Oman Desalination Company Limited 45 45 British Virgin Islands
Cadagua Al Ghubrah UK Limited 10 10 United Kingdom
100 100

238
Notes to the financial statements
for the period ended 31 March 2017 (continued)

8 Capital and reserves (continued)

Legal reserve
Article 154 of the Commercial Companies Law of 1974 requires that 10% of a company’s net profit be transferred to
a non-distributable statutory reserve until the amount of the statutory reserve becomes equal to at least one-third
of the company’s paid up share capital.
The Company had used the share premium received on the issue of share capital during 2014 and 2015 to fulfil this
requirement.
During the year ended 31 December 2016 an amount of RO 4,515,895 was transferred from legal reserve to offset
accumulated losses in accordance with the legal opinions and Fatwas (Edicts) issued by the Capital Market Authority.
However, for the period ending 31 March 2017, the amounts of RO 555,817 were transferred back from retained
earnings to legal reserves so as at completely offset retained earnings as on 31 March 2017 to comply with the legal
opinions and Fatwa (Edicts) issued by the Capital Market Authority.

9 Term loans

31 March 31 December
2017 2016
RO RO
Term loans 75,902,187 76,700,009
Less: deferred finance charges (1,289,248) (1,308,160)
74,612,939 75,391,849
Less: current portion of term loans (3,441,842) (3,423,156)
Non-current portion of term loans 71,171,097 71,968,693

Facilities
On 25 July 2013, the Company entered into a long term financing agreement for loan facilities (“the term loans”)
in the aggregate maximum amount of RO 81,451,616 (USD 211,837,752) with a consortium of international banks.

Facilities drawn down

At 31 March 2017, RO 81,244,505 (USD 211,299,102) had been drawn down (31 December 2016: 81,244,505 (USD
211,299,102)) and the remaining undrawn amount has been cancelled.

Facilities repayments
The term loans are due for repayment in 76 quarterly instalments. One instalment of RO 797,822 was paid during
the period.

Interest
The term loans bear interest at three month USD Libor plus margin. The effective interest rate for the period was
4.38% (31 December 2016: 4.71%).

Security
The term loans are secured by a commercial mortgage over the Company’s assets and a legal mortgage over the
Company’s rights, title and interest in the Usufruct Agreement dated 11 February 2013. In addition, a
charge has been created over all of the Company’s shares.

Covenants
The facilities agreements contain certain covenants relating to liquidity. These include restrictions on the debt /
equity ratio, the debt service coverage ratio and the loan life cover ratio. For the 3 month interest period ending
on 12 January 2017, the Company was in breach of the debt service coverage ratio requirement; a waiver from this
requirement was obtained from the lenders.
239
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

10 Derivative financial instruments

In accordance with the Common Terms Agreement, the Company is required to enter into interest rate hedging
agreements to cap the Company’s exposure to fluctuating interest rates. This requirement covers the term loans.
As at the reporting date, a principal amount of approximately RO 62,084,703 (USD 161,468,668) (31 December
2016: RO 62,733,622 (USD 163,156,365)) was covered under this agreement for the term loans.
The hedging agreements cap the Company’s exposure to fluctuating interest rates. The Company releases a portion
of the hedging arrangements in line with the repayment of the term loans.
The hedging arrangement obliges the Company to pay fixed interest at the rate of 2.86% per annum on a quarterly
basis for the term loans. These cash flow hedges were assessed as highly effective as at 31 March 2017 (For the year
ended 31 December 2016: highly effective).
The fair value movement of RO 332,475 (31 March 2016: RO 2,449,338) has been included in other comprehensive
income, net of deferred tax.
The classification of the fair values of the derivative financial instruments based on the remaining period to maturity
from the reporting date is as follows:

31 March 31 December
2017 2016
RO RO
Less than 1 year (123,767) (133,562)
1 to 5 years (663,324) (717,843)
More than 5 years (2,094,554) (2,309,814)
Total more than 1 year (2,757,878) (3,027,657)
Cumulative changes in fair value (2,881,645) (3,161,219)

Cumulative changes in fair value are recognised as follows:

Cumulative changes in fair value (2,881,645) (3,161,219)

Related deferred tax asset 432,247 379,346
Cumulative changes in fair value, net of deferred tax (2,449,398) (2,781,873)
The table below shows the fair values of the interest rate swaps, which are equivalent to the market values, together
with the notional amounts analysed by the term to maturity.

Notional amounts by term to maturity

More than
Notional 1 - 12 1 up to 5 More than
Fair value amount month years 5 years
31 March 2017 RO RO RO RO RO
Interest rate swaps 2,881,645 62,084,703 2,666,468 14,291,247 45,126,988
31 December 2016
Interest rate swaps 3,161,219 62,733,622 2,650,053 14,245,423 45,838,146

240
Notes to the financial statements
for the period ended 31 March 2017 (continued)

11 Provision for decommissioning obligation

The decommissioning cost represents the present value of management’s best estimate of the future cost to remove
the facilities and restore the affected area at the Company’s leased site to its original condition. The estimate has
been made on the basis of an independent report by a professional consultant, discounted at 3.82% to its present
value, over the plant’s estimated useful life of 40 years.

12 End of service benefits

31 March 31 December
2017 2016
RO RO
1 January 19,385 19,065
Provided during the period / year 2,740 10,701
Paid during the period / year - (10,381)
Closing provision 22,125 19,385

13 Shareholders’ bridge loans

Summit Water Middle East Company 2,864,525 2,864,525

Malakoff Oman Desalination Company Limited 2,864,525 2,864,525
Interest accrued 278,237 220,947
6,007,287 5,949,997

Facilities
The Shareholders’ bridge loans of RO 1,691,800 (USD 4,400,000) were provided in October 2015. Further
Shareholders’ bridge loans of RO 4,037,250 (USD 10,500,000) were provided during the year ended 31 December
2016.

Facilities repayments
The Shareholders’ bridge loans are due for repayment subject to the consent of the term loan lenders which is
dependent on cash flows. As at 31 March 2017, the loans are classified as non-current as the Company does not
foresee repayment of the loans within one year from the date of the financial statements.

Interest
The Shareholders’ bridge loans carry interest at the rate of 4% per annum.

Security
The Shareholders’ bridge loans are unsecured.

14 Shareholders’ stand – by equity loans

Summit Water Middle East Company 376,664 376,664

Malakoff Oman Desalination Company Limited 376,664 376,664
Cadagua Al Ghubrah UK Limited 83,702 83,702
837,030 837,030

241
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

14 Shareholders’ stand – by equity loans (continued)

Facilities
The Shareholders’ stand – by equity loans of RO 837,030 (USD 2,176,932) were provided in November 2015.

Facilities repayments
The Shareholders’ stand – by equity loans are due for repayment on demand subject to the consent of the term loan
lenders which is dependent on cash flows.

Interest
The Shareholders’ stand – by equity loans are interest free.

Security
The Shareholders’ stand – by equity loans are unsecured.

15 Accruals and other payables

31 March 31 December
2017 2016
RO RO
Accruals and other payables 2,540,842 2,738,625
Accruals and other payables include an amount of RO 583,418 (31 December 2016: RO 612,500), due to Muscat
City Desalination Operation and Maintenance Company LLC, a related party.

16 Related party transactions

Related parties comprise the shareholders, directors, key management personnel and any business entities in which
these parties have the ability to control or exercise significant influence. The Company maintains significant balances
with these related parties which arise in the normal course of business. The terms and conditions of related party
transactions are mutually agreed.
Significant related party transactions during the period are as follows:

Audited
31 March Unaudited
2017 31 March 2016
RO RO
Mobilisation and delay fees to Muscat City Desalination Operation and
Maintenance Company LLC - 122,500
Operation and maintenance cost to Muscat City Desalination Operation
and Maintenance Company LLC 919,019 373,009

242
Notes to the financial statements
for the period ended 31 March 2017 (continued)

16 Related party transactions (continued)

Audited
31 March Unaudited
2017 31 March 2016
RO RO
Net receipts under Shareholders’ bridge loans - 2,114,750
Interest expense on Shareholders’ bridge loans 57,291 -
Key management compensation 72,307 55,582
Amount due to related parties
31 March 31 December
2017 2016
RO RO
Sumitomo Corporation / Cadagua S.A. / Malakoff International Limited 4,966,259 4,966,259
This amount relates to initial project costs paid by the related parties which has not yet been reimbursed to the
related parties and has been capitalised under capital work-in-progress as it relates directly to the construction of
the plant.
The amount due to related parties is interest free and there are no specific terms of repayment. For additional
disclosure of related party balance and transaction refer note 13, 14 and 15.

17 Operating costs

Audited
31 March Unaudited
2017 31 March 2016
RO RO
Operation and maintenance cost (note 16) 919,019 373,009
Electricity charges 619,214 427,041
1,538,233 800,050

18 Administrative expenses

Employee costs 102,788 32,107

Arbitration cost - 394,648
Insurance 60,187 -
Legal and professional expenses 15,580 800
Others 39,634 29,389
218,189 456,944

243
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

19 Liquidated damages (net)

Audited 31 Unaudited
March 31 March
2017 2016
RO RO
Interest income on delay liquidated damages receivable - (64,003)
Delay liquidated damages payable - 175,000
Interest expense on delay liquidated damages payable - 68,598
- 179,595

20 Finance costs (net)

Interest expense on term loans and interest swaps 830,613 379,447

Amortisation of deferred finance cost 18,912 185,979
Interest expense on Shareholders’ bridge loan 57,290 -
Interest income on term deposits (17,095) -
Exchange gain / (loss) – net 2,969 (432)
892,689 564,994

21 Income tax
The Company is liable to income tax at the rate of 15% (31 March 2016: 12%). The effective tax rate for the Company
for the period is nil (31 March 2016: nil). No provision for income tax has been made for the period ended 31 March
2017 in view of the taxable losses for the period.

a) Recognised in the statement of comprehensive income

Deferred tax
– Current year 356,268 -
– Prior year 911,7451 -
1,267,719 -

b) Tax reconciliation
The reconciliation of income tax expense is as follows:

Profit / (loss) for the Period 223,203 (636,778)

Income tax at standard rate 33,480 -
Non-deductible expenses 8,641 -
Effect of change in tax rate 314,147
Prior period deferred tax 911,451 -
1,267,719 -

244
Notes to the financial statements
for the period ended 31 March 2017 (continued)

21 Income tax (continued)

c) Deferred tax asset and liabilities represent origination and reversal of temporary differences and comprise:

Recognised
in profit or
loss and other Asset / (liability)
Asset / (liability) as comprehensive as at 31 March
at 1 January 2016 income 2017
RO RO RO
Property, plant and equipment – Deferred
tax liability: (1,040,182) (388,451) (1,428,633)
Carried forward tax losses 911,451 (911,451) -

Provision for decommissioning obligation 128,731 32,183 160,914

Change in fair value of derivative financial
instrument (through other comprehensive
income) 379,346 52,901 432,247
Deferred tax assets 1,419,528 (826,367) 593,161
Deferred tax arises on account of tax losses and temporary differences between the tax base of assets and liabilities
and their carrying values in the statement of financial position. No deferred tax asset on losses has been recognised
as management does not consider it probable that sufficient taxable income may arise prior to their expiry to obtain
the benefits therefrom.
As at 31 December 2016, based on the best estimates available deferred tax asset on losses in the amount of RO
911,451 was recognised. At the end of the current period the management revisited the estimates and, accordingly,
fully reversed the deferred tax asset as management does not consider it probable that sufficient taxable income
may arise prior to their expiry to obtain the benefits therefrom.

22 Earnings per share

Audited
31 March Unaudited
2017 31 March 2016
Loss for the period (RO) (1,044,516) (636,778)
Weighted average number of shares outstanding during the period 15,555,040 15,555,040
Loss per share (basic and diluted) (0.07) (0.04)

245
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

23 Lease commitments
The land which the plant occupies has been leased from the Government of the Sultanate of Oman (represented
by the Ministry of Housing) for a period of 25 years from 11 February 2013. The lease term can be extended by an
additional 25 years at the request of the Company. Lease rental is paid at the rate of RO 15,045 per annum.
At 31 March 2017, future minimum lease commitments under non-cancellable operating leases are as follows:

31 March 31 December
2017 2016
RO RO
Less than one year 15,045 15,045
Between one and five years 60,180 60,180
More than five years 225,675 240,720
300,900 315,945

24 Financial instruments
This note presents information on the risks arising from the Company’s use of financial instruments, namely; credit
risk, liquidity risk and market risk to which the Company is exposed, its objectives, policies and processes for
measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are
included throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework.
Risk management policies and systems are reviewed regularly to ensure that they reflect any changes in market
conditions and the Company’s activities. The Company, through its induction and training program, aims to develop
a disciplined and constructive control environment in which all employees understand their roles and obligations.

Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s deposits with banks.
The exposure to credit risk is monitored on an on-going basis and therefore the Company considers the credit risk
to be minimal.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit
risk at the reporting date was:

31 March 31 December
2017 2016
RO RO
Cash at bank and deposits 10,445,965 10,466,327
Trade and other receivables 1,169,523 1,398,744
11,615,488 11,865,071
The exposure to credit risk for trade receivables at the reporting date by type of customer is:

Oman Power and Water Procurement Co. SOAC 1,168,023 1,397,244

Trade and other receivables at the end of the reporting period are not overdue or impaired. Cash at bank and
deposits with the bank are placed with financial institutions with a credit rating of at least BAA2.

246
Notes to the financial statements
for the period ended 31 March 2017 (continued)

24 Financial instruments (continued)

Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall
due. The Company’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 Company’s reputation.
The Company uses cash flow forecasting methods which assist it in monitoring cash flow requirements and optimising
its cash flow cycle. The Company ensures that it has sufficient cash available to meet its expected operational
expenses, including the servicing of financial obligations.
The maturities of Company’s financial liabilities after adding back deferred finance charges at the reporting date are
shown below:

Carrying Less than 1 1 to 5 More than

31 March 2017 amount Total year Years 5 years
Contractual Cash flows
RO RO RO RO RO
Non derivative financial liabilities
Term loans 75,902,187 110,139,926 6,763,711 26,191,852 77,184,363
Shareholders’ stand – by
equity loans 837,030 837,030 837,030 - -
Shareholders’ bridge loans 6,007,287 6,923,935 - 6,923,935 -
Due to related parties 4,966,259 4,966,259 4,966,259 - -
Accruals and other payables 2,540,842 2,540,842 2,540,842 - -
90,253,605 125,407,992 15,107,842 33,115,787 77,184,363
Liquidity risk (continued)

Carrying Less than 1 1 to 5 More than

31 December 2016 amount Total year Years 5 years
Contractual Cash flows
RO RO RO RO RO
Non derivative financial liabilities
Term loans 76,700,009 111,768,360 6,747,947 26,205,313 78,815,100
Shareholders’ stand – by equity
loans 837,030 837,030 837,030 - -
Shareholders’ bridge loans 5,949,997 6,866,645 - 6,866,645 -
Due to related parties 4,966,259 4,966,259 4,966,259 - -
Accruals and other payables 2,738,625 2,738,625 2,738,625 - -
91,191,920 127,176,919 15,289,861 33,071,958 78,815,100

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Company’s income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return.
247
 Notes to the financial statements
for the period ended 31 March 2017 (continued)

24 Financial instruments (continued)

Market risk (continued)

Currency risk
The Company is not exposed to foreign currency risk on its bank deposits designated in US Dollars as the Omani
Rial is effectively pegged to the US Dollar and the US Dollar exchange rate has remained unchanged since 1986.

Interest rate risk

The Company’s interest rate risk arises principally from medium and long term borrowings. Borrowings issued at
variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the
Company to fair value interest rate risk. The Company’s policy is to maintain approximately 100% of its borrowings
in fixed rate or hedged instruments.

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates at the reporting date would have increased / (decreased) equity by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant.

100 bp 100 bp
31 March 2017 increase decrease
RO RO
Fair value of derivative financial instruments 4,879,388 (4,879,388)
31 December 2016
Fair value of derivative financial instruments 5,019,899 (5,019,899)

Capital risk management

The Board of Directors’ policy is to maintain a strong capital base so as to maintain investor and creditor confidence
and to sustain future development of the business.
The Company is not subject to externally imposed capital requirements except those under the Commercial
Companies Law of 1974, as amended.
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain the capital structure, the Company may adjust the amount of dividends paid to shareholders,
return capital to shareholders or issue new shares.

Fair value
Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of term loans,
Shareholders’ bridge loans, Shareholders’ stand – by equity loans and payables. Derivatives consist of interest rate
swap arrangements. The fair values of financial instruments are not materially different from their carrying values.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique.
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly

248
Notes to the financial statements
for the period ended 31 March 2017 (continued)

24 Financial instruments (continued)

Fair value hierarchy (continued)

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data

31 March 31 December
2017 2016
RO RO
Interest rate swaps – Level 2 62,084,703 62,733,622

The Company had no financial instruments in level 1 or level 3. During the period ended 31 March 2017, there were
no transfers of financial instruments between the levels for fair value measurement.

25 Approval of financial statements

The financial statements were approved by the management and authorised for issue on 30 May 2017.

249
 MUSCAT CITY DESALINATION COMPANY SAOC

Financial statements
for the six month period ended 30 June 2017

250
Financial statements
for the six month period ended 30 June 2017

Page

Statement of financial position 252

Statement of profit or loss and other comprehensive income 253

Statement of cash flows 254

251
 Statement of financial position
as at 30 June 2017

Unaudited
Unaudited 30 31 December
June 2017 2016
Assets RO RO
Non-current assets
Property, plant and equipment 95,871,119 97,106,304
Deferred tax 678,908 1,419,528
Total non-current assets 96,550,027 98,525,832
Current assets
Trade and other receivables 1,657,220 1,441,601
Cash and cash equivalents 10,876,691 10,466,554
Total current assets 12,533,911 11,908,155
Total assets 109,083,938 110,433,987
EQUITY AND LIABILITIES
Capital and reserves
Share capital 15,555,040 15,555,040
Legal reserve 1,439,004 883,186
Retained earnings (12,922) 1,600,333
Cumulative changes in fair values of derivative financial instruments (2,935,301) (2,781,873)
Total equity 14,045,821 15,256,686
Non-current liabilities
Non-current portion of term loans 70,391,375 71,968,693
Non-current portion of fair value of derivative financial instruments 3,302,387 3,027,657
Provision for decommissioning obligation 1,072,755 1,072,755
Deferred tax 1,687,267 1,040,182
Shareholders’ bridge loans 6,065,214 5,949,997
End of service benefits 7,438 19,385
Total non-current liabilities 82,526,436 83,078,669
Current liabilities
Current portion of term loans 3,462,965 3,423,156
Current portion of fair value of derivative financial instruments 150,909 133,562
Shareholders’ stand – by equity loans 837,030 837,030
Accruals and other payables 3,094,518 2,738,625
Amount due to related parties 4,966,259 4,966,259
Total current liabilities 12,511,681 12,098,632
Total liabilities 95,038,117 95,177,301
Total equity and liabilities 109,083,938 110,433,987

252
Statement of profit or loss and other comprehensive income
for six month period ended 30 June 2017

Unaudited Unaudited
2017 2016
RO RO
Revenue 7,601,172 5,315,491
Operating costs (3,631,500) (2,488,679)
Gross profit 3,969,672 2,826,812
Administrative expenses (471,207) (223,157)
Depreciation (1,246,584) (907,205)
Delay liquidated damages - (175,000)
Arbitration cost - (523,460)
Finance costs (1,782,966) (1,429,968)
Net profit / (loss) for the period before tax 468,915 (431,978)
Income tax (1,526,353) -
Net loss for the period (1,057,438) (431,978)
Other comprehensive income that is or be may reclassified to profit or loss
Changes in fair values of derivative financial instruments (292,077) (4,412,840)
Deferred tax on changes in fair values of derivative financial instruments 138,649 529,541
Other comprehensive income / (loss) for the period (153,428) (3,883,299)
Total comprehensive loss for the period (1,210,866) (4,315,277)

253
 Statement of cash flows
for the six month period ended 30 June

Unaudited Unaudited
2017 2016
RO RO
Operating activities
Net profit / (loss) for the period before tax 468,915 (431,978)
Adjustment for:
Depreciation 1,246,584 907,205
Provision for end of service benefits 4,458 3,999
Interest on Shareholders’ bridge loans 115,218 73,640
Amortization of deferred finance cost 37,824 204,891
Cash flows from operating activities before working capital changes 1,872,999 757,757
Change in accruals and other payables 459,164 (1,031,903)
Change in trade and other receivables (215,619) 660,446
Net cash from operating activities 2,116,544 (371,457)
Investing activities
Additions to property, plant and equipment (11,399) (3,839,436)
Net cash used in investing activities (11,399) (3,839,436)
Financing activities
Provision for end of service benefits (4,458) (3,999)
Interest on Shareholders’ bridge loans (115,218) (73,640)
Proceeds from Shareholders’ bridge loans - 4,037,250
Net repayment of term loans (1,575,332) 6,874,069
Net cash (used in) / generated from financing activities (1,695,008) 10,833,680
Net change in cash and cash equivalents (410,137) 7,380,544
Cash and equivalents at the beginning of the period 10,466,554 5,717,908
Cash and cash equivalents at the end of the period 10,876,691 13,098,452

254
Chapter XXIII: Undertakings

(1) Muscat City Desalination Company S.A.O.G. (under transformation)

The Board of Directors of Muscat City Desalination Company S.A.O.G. (under transformation) jointly and severally hereby
confirm that:
• The information provided in this Prospectus is true and complete.
• Due diligence has been taken to ensure that no material information has been omitted, the omission of which would
render this Prospectus misleading.
• All the provisions set out in the Capital Market Law, the CCL, and the rules and regulations issued pursuant to them
have been complied with.
On behalf of the Board of Directors (Authorised Signatories):

Name Signature

Mr. Habib Bin Husin Sd/-

Mr. Tamer Cankardes Sd/-

255
 (2) Issue Manager

Pursuant to our responsibilities under Article 3 of the Capital Market Law, Article 13 of the Executive Regulations of the
Capital Market Law, issued under CMA Decision No. 1/2009 (as amended), and the directives issued by the CMA, we have
reviewed all the relevant documents and other material required for the preparation of this Prospectus pertaining to the
issue of the shares of Muscat City Desalination Company S.A.O.G. (under transformation).
The Board of Directors of Muscat City Desalination Company S.A.O.G. (under transformation) bear the responsibility with
regard to the correctness of the information provided in this Prospectus, and they have confirmed that they have not
omitted any material information from it, the omission of which would render this Prospectus misleading.
We confirm that we have undertaken the due diligence required by our profession with regard to this Prospectus which
was prepared under our supervision and, based on the reviews and discussions with the Company, its directors, officers
and other related parties, we confirm the following:
• We have undertaken reasonable due diligence to ensure the information given to us by the Company and included
in this Prospectus conforms with the facts in the documents and other material of the Offer.
• To the best of our knowledge and from the information available from the Company, the Company has not omitted
any material information, the omission of which would render this Prospectus misleading.
• This Prospectus and the Offer to which it relates, conforms with all the rules and terms of disclosure stipulated in
the Capital Market Law, the Executive Regulations of the Capital Market Law, the prospectus models applied by the
CMA, the CCL and the directives and decisions issued in this regard.
• The information contained in this Prospectus in the Arabic language (and the unofficial translation into the English
language) is true, sound and adequate to assist the investor to take the decision as to whether or not to invest in the
securities offered.

Financial Adviser and Issue Manager

Sd/-

........................................................................
bank muscat S.A.O.G.

256
(3) Legal Adviser

The legal adviser whose name appears below, hereby confirms that all the procedures taken for the offering of the
securities as described in this Prospectus are in line with the laws and legislations related to the Company’s business and
the CCL, the CML and the regulations and directives issued pursuant to them, the requirements and rules for the issue of
shares issued by the CMA, the Articles of the Company, and the resolutions of the general meeting and Board of Directors
of the Company. The Company has obtained all the consents and approvals of the official authorities required to carry out
the activities described in this Prospectus.

Legal Adviser

Sd/-

........................................................................
Al Busaidy, Mansoor Jamal & Co.

257
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P.O. Box 1935, P.C. 114, Muscat, Sultanate of Oman. Tel:+968 24130826; Fax:+968 24499819
www.mcdcoman.com