The Saudi Electricity Company was established pursuant to Resolution Number 169 of the Council of Ministers of 11 Sha'ban 1419H, corresponding to November 29, 1998, which reorganized the electricity sector in the Kingdom of Saudi Arabia by merging all local companies that provided electricity services ( 10 joint stock companies covering most of the geographical areas of the Kingdom), in addition to the projects of the General Electricity Corporation, a public company belonging to the Ministry of Industry and Electricity (11 operational projects covering different areas in the north of the Kingdom Kingdom covered) in the company. 14006 dated 23 Rabi 'al-Awwal 1439 H, corresponding to December 11, 2017, the Saudi Electricity Company will pay a state fee equal to the difference between the previous and the new tariff.
Effect of changes in accounting policies as a result of application of new standards
Regarding the letter received from the Minister of Energy, Chairman of the Ministerial Committee for the Restructuring of the Electricity Sector and the Saudi Electricity Company No. 2057, dated AH, corresponding to November 15, 2020: the government contribution has been canceled with effect from January 1, 2021 , with the aim of the Ministerial Committee to Restructure the Electricity Sector in Saudi Arabia and to approve the organization of Saudi Electricity Company's revenues (note 40).
New standards and amendments issued but not yet effective
Amendments to IFRS 3 and IAS 16 and 37, in addition to the annual amendments to IFRSs (2018-2020 cycle) (amendments effective on or after 1 st January 2022)
The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted in the Kingdom of Saudi Arabia and other standards and statements issued by the Saudi Organization of Certified Public Accountants. The preparation of the Group's consolidated financial statements in accordance with IFRS approved in the Kingdom of Saudi Arabia and other standards and statements issued by the Saudi Organization for Certified Public Accountants requires management to make judgments, estimates and assumptions that affect the reported amounts of income , costs, assets and liabilities as well as information on contingent liabilities on the reporting date.
Use of estimates and assumptions
Equity-accounted investees
After initial recognition, the consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of investee companies using the equity method until the date on which such significant or joint influence control ceases. Differences arising from the translation of monetary items are recognized in the consolidated profit and loss account.
Cash and cash equivalents
Foreign currencies are initially recorded at functional currency rates on the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange rates on the reporting date.
Property, plant and equipment
Non-monetary items measured at historical cost in foreign currency are translated at the spot rate on the date of the first transactions. The residual values, useful lives and depreciation methods of the property, plant and equipment are reviewed and adjusted prospectively, if applicable, at the end of each year.
Leases As a lessee
At the first measurement of operational leasing contracts: The Group recognizes leasing services from operational leasing contracts as income either linearly or on another systematic basis. The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of "other income".
Intangible assets
Investment properties are land and buildings held for purposes other than their use in the Group's operating activities. Investment properties are no longer recognized on the balance sheet when they are sold or when they are put into use by the owner or when they are not held to increase their value.
Impairment of non-financial assets
- Financial assets
- Recognition and initial measurement
- Classification and subsequent measurement
- Financial assets – continued
- Classification and subsequent measurement - continued
- De-recognition
- Offsetting
- Financial assets – continued .5 Impairment of financial asset
- Impairment of financial asset - continued
- Financial liabilities
- Derivative financial instruments and hedging activities
Credit losses are measured as the present value of all cash shortfalls (ie the difference between the cash flows owed to the entity in accordance with the contract and the cash flows the Group expects to receive). The difference between the proceeds (net of transaction costs) and the settlement value is recognized in the consolidated statement of income over the period of the loan or borrowing.
Employees’ benefits Short-term obligations
The liability recognized in the consolidated statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period. The periodic settlement of the discount is recognized in the consolidated statement of income as part of financial costs.
Government grants
When the liability is first recognised, the present value of the estimated costs is capitalized by increasing the accounting value of the associated property, plant and equipment to the extent incurred as a result of the development/construction of the asset. The public grant is recognized by the group, which is due to compensate for already incurred expenses or losses, which represents the coverage of the gap in the actual and estimated operating income or for the purpose of providing immediate financial support to the group without future costs associated with it in the group's consolidated income statement.
Provisions
The grant is recognized in the consolidated statement of income even if there are no specific conditions related to the Group's operating activities other than the requirement that the Group operate in certain regions or industrial sectors.
Deferred revenue
Zakat
Income tax and withholding tax
Dividend distribution to the company's shareholders is recognized as a liability in the consolidated accounts in the period when the dividend is approved by the company's shareholders.
Statutory reserve
Revenue recognition
Electricity service connections received from consumers are deferred and recognized on a straight-line basis over the average useful life of the equipment used to serve the subscribers. The revenue recognition policy is to recognize revenue from such electricity connection fee over the useful life of the equipment used to serve the subscribers.
Dividend income from investments
Such connection fee is received from a customer once at the time the customer applies for electricity connection. The electricity connection fee does not represent a separately identifiable component of the contract to provide continuous access to the supply of electricity to the customer and it is part of the aforementioned bundle of services provided to the customer.
Borrowing costs
Transmission system revenue consists of fees for the use of transmission networks and is recognized over the time that invoices are issued to recognized cogeneration and electricity suppliers. Revenues are measured based on fees approved by the Electricity and Cogeneration Regulatory Agency, based on capacity and amounts of energy transferred.
Segments reporting
In the absence of a primary market, in the most appropriate markets for the asset or liability. Determining the fair value of a non-financial asset takes into account the market participant's ability to generate economic benefits by making maximum and optimal use of the asset or by selling it to another market participant who can use the asset his best. maximum and optimal use.
Inventories
Fair value is the price that could be received against the sale of an asset or the conversion of a liability in an organized transaction between market participants at the measurement date. All assets and liabilities whose fair values are measured or disclosed in the consolidated financial statements are classified in the fair value hierarchy.
Contingent liabilities
The Group classifies a financial instrument as a capital instrument based on the content of the concluded contracts and the definition of a capital instrument. The main business activities of the Group are divided into production, transmission, distribution and subscription services, which complement each other in the production and supply of electricity to customers.
8 Segment reporting and future structure of the group's activities – continued For the year ended 31 December 2019 – in million WOUND.
Land includes land with a book value of SAR 36 million, for which title deeds have not yet been transferred to the Group. During the year, the Group reassessed the residual value of all real estate, machinery and equipment except for land and certain other assets, including fully depreciated assets, resulting in the calculation of the residual value of these items at a rate of 1.8% (note 5.1). ).
Employee end of services benefits
The Group performed an actuarial valuation for employee severance benefits using the projected credit unit method for its liabilities as of December 31, 2020 and December 31, 2019, arising from end-of-service benefits. Participation in the fund is limited to Saudi employees only and is optional for employees who wish to contribute a minimum of 1% to a maximum of 10% of their basic salary monthly.
Human resources productivity improvement program
In accordance with Article 145 of the Labor Law and in accordance with the board meeting held on 23 Safar 1429H (corresponding to xx March 2008), the savings plan program was used to encourage Saudi employees in the company to save and invest their savings in areas that are more beneficial for them to secure their future and as an incentive for them to continue working with the company.
Human resources productivity improvement program - continued - Each employee entitled to a special offer is likely to receive the offer in any year;
This includes a government subsidy Dawiyat (subsidiary) received from the Ministry of Communications and Information Technology of SAR 1.1 billion (2019: SAR 576 million) to implement the fiber optic network. This amount represents the fuel liability for the period from April 5, 2000 to December 31, 2017, which was transferred from Saudi Aramco's account to the government accounts, and an amount of SAR 6.8 billion was transferred from the purchase liability energy (Independent Power Producer fuel claim).
Financial liabilities other than interest bearing
The balance mainly includes the provision for legal action against the Company regarding compensation claims, in addition to the balance of Zakat provisions. Debt to the state per 31 December 2020 is NIL and as of 31 December 2019 is SAR 92.4 billion in addition to an amount of SAR 18 billion leading to a total amount of SAR 110.3 billion representing the amount payable for fuel for the period from 5 April 2000 to December 31, 2020 according to the ministerial minutes of the meeting and decisions that decided to transfer the group's responsibility to the Saudi Arabian Oil Company (“Saudi Aramco”) to the account of the Ministry of Finance according to specific procedures and approvals and that the last one was at the end of 2020.
Interest bearing liabilities
During April 2013, the Group also issued a global Sukuk amounting to SAR 7.5 billion equivalent to ($2 billion). The loan will be reviewed later, depending on the financial situation of the Government and the Group.
Zakat
The Group submitted the Zakat declaration for the year ended December 31, 2019 to the authorities within the statutory period. Based on the approval, the company will start filing Zakat return from the year ending December 31, 2020.
Deferred tax
The company has filed zakat returns up to 2008; the company also submitted zakat returns for the years 2009 to 2016, which are still being reviewed by the General Authority for Zakat and Income Tax. The company has submitted a request to submit a consolidated zakat statement for Saudi Electricity Company and its subsidiaries, which has been approved by the authority.
Value Added Tax
The Board of Directors has overall responsibility for establishing and overseeing the Group's risk management framework. In addition, the Group documents at hedge inception and on an ongoing basis whether the hedging instrument is highly effective in offsetting changes in the fair value or cash flows of the hedged item attributable to the hedged risk when the hedging relationships meet all of the following requirements regarding the effectiveness of hedging. there is an economic relationship between the hedged item and the hedging instrument; the effect of credit risk does not dominate the changes in value arising from this economic relationship; and. the hedging ratio of the hedging ratio is equal to that resulting from the amount of the hedged item that the Group actually hedges and the amount of the hedging instrument that the company actually uses to hedge that amount of the hedged item.
Liquidity risk is the risk that the company will encounter problems in collecting funds to settle obligations from financial instruments. The aim of liquidity risk management is to ensure that the Group has sufficient funds available to meet current and future obligations.
The Company aims to maintain sufficient flexibility in financing by keeping adequate credit facilities available. The group expects to meet its future financial obligations through cash income from receivables and through facilities and bank loans.
In the absence of a principal market, the most advantageous market for the asset or liability. The fair value of an asset or liability is determined based on the assumptions that market participants would use in pricing the asset or liability, assuming that market participants are acting in their economic interests.
As of December 31, 2020, the main input variables for the model for the fair valuation of financial assets at other comprehensive income are the expected dividends and the cost of equity. A 5% increase/decrease in expected income will result in an increase/decrease of SAR 17.4 million (December 31, 2019: increase of SAR 16.3 million) in the fair valuation of financial assets through the other components of the overall result.
