Collection of information from operating units as basis for analysis of and conclusions on IFRS issues facing SN Power

Ref

Topics

1.0

Fixed assets (IAS 16)

1.1

Q

Please describe the nature and extent of fixed assets in your business and different categories you find it natural to divide them into etc (please attach any specifications you may have available).

A

Answer and reference to attachments:

Plant and Equipment ( Vehicles, Furniture, IT equipment ) + Construction in Progress.

Full registers are available for each category

1.2

Q

Please describe to which degree you in your fixed assets register are able to categorize fixed assets into groups of assets at a more detailed level than the groups presented in the SN Power group accounts (attached). Also please describe how these groups correspond to the groups described under 1.1 (please attach any specifications you may have available).

A

Answer and reference to attachments:

We can work towards harmonising the categories required as the construction projects move to a completion phase.

1.3

Q

Please describe how you would consider the useful life of the different categories of assets described under 1.1 (please attach any specification you may have).

A

Answer and reference to attachments:

Vehicles 5 years

I.T  3 years

Furniture 7 years

Construction projects TBA prior to commissioning

1.4

Q

Please describe the nature and extent of day to day maintenance you perform at different groups of assets.

A

Answer and reference to attachments:

NA until projects commissioned

1.5

Q

Please describe the nature and extent of periodic maintenance you perform at different categories of assets. Periodic maintenance is defined as maintenance performed more seldom than every year at the same asset. Please, also describe which main parts of fixed assets you replace during the useful life of different groups of assets.

A

Answer and reference to attachments:

NA until projects commissioned

1.6

Q

Please describe, if any, the nature and extent of agreements with third parties taking care of maintenance of your fixed assets.

A

Answer and reference to attachments:

NA until projects commissioned

2.0

Leases (IAS 17)

2.1

Q

Please describe whether you are part of any agreements whereby you in return of a payment or a series of payments, conveys the right to use an asset for an agreed period of time. Please describe the nature and extent of any such arrangements including terms, duration and size of payments. If you are involved in more than five such arrangements, please describe the five agreements largest in terms of amount of payments under the agreement.

Please specify whether any of the agreements involve:

• transfer of ownership of the asset to you by the end of the agreement
• an option to buy the asset at a price expected to be substantially lower than the market price of the asset at the point of time as the option becomes exercisable
• a lease period that  is for the major part of the economic life of the asset (> 75%)
• at the inception of the lease, that  the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset (> 80 %)
• an asset that is of a specialised nature

Please disregard immaterial contracts.

A

Answer and reference to attachments:

None

2.2

Q

Please describe today’s accounting treatment of agreements mentioned under 2.1.

A

Answer and reference to attachments:

3.0

Financial instruments in energy markets (IAS 39)

3.1

Q

Please describe in general how you sell your production. Do you enter into both financial and physical contracts? If any financial contracts, please describe nature and extent.

(Whereas a physical contract is a contract where you deliver the underlying (the power), and a financial contract is a contract whereas no power is delivered, but the contract is settled net in cash with reference to some market price.)

A

Answer and reference to attachments:

Delivery of underlying power.

3.2

Q

Please describe the energy markets in your country. Is there an active market for trade of electric energy or for contracts to buy or sell power? Does it exist a power exchange in your country? Please describe the main characteristics of the market mechanisms.

A

Answer and reference to attachments:

Refer to SNPower Chile commentaries.

3.3

Q

Do you involve in any contracts to buy power? Please describe nature and extent of any such contracts and the rationale for entering into such contracts.

A

Answer and reference to attachments:

No

3.4

Q

Is there any volumetric flexibility or any other options in contracts that you enter into? Please describe nature and extent of any such contracts.

A

Answer and reference to attachments:

No we will sell contracted amounts.

3.5

Q

Do you enter into any contracts whereas the price under the contract is linked to any index, foreign currency, interest or prices of goods other than power itself? If so, please describe the nature and extent of such contracts.

A

Answer and reference to attachments:

HLH prices are tied to “Node” which is average market spot price forecast for following 48 months. HLH pricing reflects Node less 4%. Energy node price relates to the average price of existing supply contracts whereas capacity node prices are adjusted based on factors including exchange rate, CPI and PPI.

3.6

Q

Do you enter into any contracts to buy or sell power where price or volume is not fixed at the date you enter into the agreement, and whereas such contracts are not covered by question 3.4 and 3.5? If yes, please describe the nature and extent of such contracts.

A

Answer and reference to attachments:

No

3.7

Q

Do you enter into any physical contracts to buy or sell power whereas there is an option according to the contract to settle the contract net in cash instead of delivering the power? If yes, please describe the nature and extent of such contracts.

A

Answer and reference to attachments:

No

3.8

Q

Have you entered into any physical contracts where you under the contract period have agreed with your counterparty to settle the contract net in cash instead of delivering the power, even though such a net settlement was not part of the original contract?

A

Answer and reference to attachments:

No

4.0

Financial instruments in finance (IAS 39)

4.1

Q

Do you enter into any contracts to swap interests and/or currencies, or any forward currency contracts? If yes, please describe the nature and extent of such contracts.

A

Answer and reference to attachments:

Interest rate swap with Grupo Santander as attached.

5.0

Employee benefits (IAS 19)

5.1

Q

Do you offer any of your employees any post-employment benefits? If yes, please describe the nature and extent of such benefits. If such plans exist, please describe whether you are obliged to grant a certain amount known up-front with no risk of future return on the assets (a defined contribution plan), or whether you guarantee the employees a future payment at a certain level, whereas you have the risk for the future return on the assets (a defined benefit plan).

A

Answer and reference to attachments:

Employees contribute to Pension funds from their Gross salary. The company has no risk of future return on the assets.

5.2

Q

If you have any post-employment benefits, how are these treated under the current local GAAP reporting?

A

Answer and reference to attachments:

NA

6.0

Income Taxes (IAS 12)

6.1

Q

Please describe the authorities’ taxation of profits in the hydropower business in your country. Which income taxes exist, at which tax rates and how is the taxable income calculated?

A

Answer and reference to attachments:

Corporate tax rate is 17%.

Taxable income is derived by adjusting pre tax EBIT by ‘rejected’ expenses.

6.2

Q

Describe whether there is any link between the taxable profit and the profit recognised in the local statutory accounts (if local statutory accounts exist), i.e. that depreciations for tax purposes is decided by the size of the depreciations in the local statutory accounts.

A

Answer and reference to attachments:

HLH and HLC accounts are to reflect full tax effect accounting entries to recognise timing differences between book and tax.

7.0

Government Grants (IAS 20)

7.1

Q

Have your business during the building of the plant or during the operation of the plant, received any contributions or grants from the local authorities or government? If, yes, please describe the nature and extent of such grants.

A

Answer and reference to attachments:

No

7.2

Q

If there exist (or have existed) any contributions or grants as described under 7.1, please describe how such grants are (or have been) accounted for under the local GAAP reporting.

A

Answer and reference to attachments:

NA

8.0

Borrowing costs (IAS 23)

8.1

Q

Please describe whether you during the building of any of the plants have had loans (other than regular accounts payable) related to the building of the plant. Have any such costs been capitalised as part of the cost of the plant? If yes, please describe the extent of such loans and capitalisations.

A

Answer and reference to attachments:

Yes. Construction interest on USD160m of loan capital will be capitalised within the HLH entity.

9.0

Water rights (IAS 16 / IAS 38 / IAS 37 / IAS 39 / IAS 17)

Q

Please describe how the water rights exploited in the hydropower production have been acquired and what kind of compensation that has been given to the landlord; i.e. cash up-front, yearly cash payments or delivery of power. Please describe under which (if any) conditions different compensations are given; are any of the compensations dependent on the (size of the) production, for how long is the compensation to given, and which rights do we have in the waterfalls (time-limited versus everlasting) etc.

A

Answer and reference to attachments:

Everlasting water rights for HLH and HLC have been acquired for cash. There are no further obligations.

10.0

Concessions to exploit water rights (IAS 16 / IAS 38 / IAS 37/ IAS 39 / IAS 17)

10.1

Q

Please describe whether you have to give any considerations to the government and / or the local authorities in order to exploit water rights for the purpose of hydropower production (in addition to any considerations given as described under 9.0). Please describe the nature and extent of any such considerations; i.e. cash up-front, yearly cash payments or delivery of power.

A

Answer and reference to attachments:

As above.

10.2

Q

Please describe whether any concessions to exploit water rights for the purpose of hydropower production are time limited. If yes, please describe under which conditions the concession expires; what happens to the fixed assets and the water rights? Are they removed or handed over to the government / local authorities, and if handed over to the authorities, is there any compensation involved? Please describe!

A

Answer and reference to attachments:

The rights are everlasting.

10.3

Q

Does your entity as part of the hydropower production receive any kind of (green) certificates (as a result of power production not resulting in any CO2 generation)? If yes, please describe under which terms and conditions you receive such certificates, and how you plan or expect to dispose over such certificates.

A

Answer and reference to attachments:

HLH have been accredited under the Kyoto Clean Development Mechanism (“CDM”). As  such, work is in process to find suitable platforms in order to commercialise the Certified Emission Reduction units (“CER’s”) once production commences.

11.0

Other contracts

11.1

Q

Please describe whether there exist any contracts with third parties (other than employees) that are not described under the other questions in this questionnaire. If such contracts exist, please describe the nature and extent of such contracts.

Please disregard immaterial contracts.

A

Answer and reference to attachments:

NA

11.2

Q

Please describe whether you have any other obligations to government and / or local authorities than those described above, and from which events any such obligations have occurred.

A

Answer and reference to attachments:

NA

12.0

Other IFRS issues

12.1

Q

Please describe whether, based on your knowledge of the business and of IFRS, there are any other issues that need to be addressed regarding proper accounting under IFRS for your entity.

A

Answer and reference to attachments:

NA

13.0

Local IFRS implementation and competencies

13.1

Q

If your local entity already has started any work with regard to implementation of IFRS, please describe the extent, plans and status of any such work.

A

Answer and reference to attachments:

HLH currently report statutory results under IFRS

13.1

Q

Please describe the IFRS competencies among the staff in your entity with regard to formal qualifications / certifications, as well as practical experience. Please also describe your considerations of the actual level of competencies versus expected needs.

A

Answer and reference to attachments:

Whilst we believe we are on top of the issues, we would be happy to get involved in any update sessions you may have to ensure SNP’s requirements are met.