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INDEX
1. Chairman’s Statement
2. Sector Overview
3. Technical Performance
4. Price Controls Review
5. Regulatory and Policy Issues
6. Financial Report
7. Licence Holders
8. Publications
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7
9
14
18
19
26
27
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1
The Regulation and Supervision Bureau (the Bureau) was established by Law
No.(2) 1998 issued by the Government of Abu Dhabi, to regulate and supervise the
water and electricity sector in the Emirate of Abu Dhabi. Law No.2 details the
Bureau's primary and general duties,general functions,power and licensing criteria.
ANNUAL REPORT 2002Regulation and Supervision BureauFor the Water & Electricity Sector in the Emirate of Abu Dhabi
Fo r the pe r i od 1 January 2002 - 31 December 2002
2
His Highness Sheikh Zayed Bin Sultan Al NahyanPresident of the UAE and Ruler of Abu Dhabi
3
His Highness Sheikh Khalifa Bin Zayed Al NahyanCrown Prince and Deputy Ruler of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces
4
His Highness Sheikh Diab Bin Zayed Al NahyanChairman of Abu Dhabi Water & Electricity Authority
5
This year has witnessed a number of successes throughout the water and electricity sector in theEmirate of Abu Dhabi.
Of particular importance have been the completion of the price controls for the period 1999 – 2002and the setting of the new price controls known as Price Control Two (PC2), for the 2003 – 2005period. Price controls are applicable to monopoly companies whose activities include: power andwater procurement, transmission, distribution and supply. They are essential to protect customers’interests in the absence of customer choice and market competition.
For electricity generation and desalinated water production a Request for Proposal (RfP) for thesale, refurbishment and expansion of assets at Umm Al Nar Power Company was issued this year. Itis anticipated that an award will be made during 2003.
Other developments, on the production side, include a small-scale trial of a reverse osmosis (RO)plant by two potential operators at a site adjacent to the Taweelah complex. Currently RO is not awidely used desalination technology in the Emirate of Abu Dhabi, but can offer benefits in termsof independent water production, in that it is not linked to electricity generation.
Network operational results from the transmission and two distribution companies over the yearhave shown a considerable improvement in network reliability. The Bureau welcomes thisimprovement.
Lastly we have continued to develop our customer representation role in liaison with the twodistribution companies with the objective of ensuring customer services and their delivery are of ahigh standard.
Welcome to the Bureau’s 2002 Annual Report.
Zaal Mohammed Zaal Al HameeriChairman
CHAIRMAN’S STATEMENT
6
ADWEA Abu Dhabi Water and Electricity Authority
ADWEC Abu Dhabi Water and Electricity Company
Production
AMPC Al Mirfa Power Company
ATPC Al Taweelah Power Company
BPC Bainounah Power Company
ECPC Emirates CMS Power Company
GTTPC Gulf Total Tractebel Power Company
UANPC Umm Al Nar Power Company
Transmission and Distribution
AADC Al Ain Distribution Company
ADDC Abu Dhabi Distribution Company
RASCO Remote Areas Services Company
TRANSCO Transmission & Dispatch Company
Other common terms
IWPP Independent Power and Water Producer
MIG Million Imperial Gallons
MIGD Million Imperial Gallons per Day
MW Mega Watts
MWh Mega Watt hours (Note: 1 unit of electricity equals 1 kilo Watt hour (kWh))
PC2 Price Control Two
Glossary of key termsused in this publication
7
SYSTEM DEMAND
Peak demand for electricity increased by 7.7 percent above the 2001 figure and was in line with expectations. Theannual system peak was 4,008 MW and occurred on 4 September 2002. Installed generation in the Emirate was morethan adequate to meet the sector power needs, especially as GTTPC completed the commissioning of its newgenerators during the period.
Annual system peak demand for electricity is expected to increase at an average of 7 percent per annum over thenext seven years.
Total water production increased by over 17 percent from the previous year, the highest year-on-year increase forthe last ten years. It should be noted that production is not necessarily a measure of demand, due to restrictions onthe transmission system supplying Al Ain and the continued use of timed supplies in some areas. However, thissignificant increase indicates that network constraints are reducing.
EMIRATES NATIONAL GRID
Following the completion of the Emirates National Grid (ENG) feasibility study by Electricity de France (EdF), theFederal Electricity and Water Ministry of the UAE has awarded a construction and supervision contract to EdF for acompletion of their proposals by 2005.
The project foresees the electrical connection of the four separate electricity authorities in the UAE, namely:ADWEA, via Transco (Abu Dhabi Emirate); DEWA (Dubai Electricity and Water Authority); SEWA (Sharjah Electricityand Water Authority) and FEWA. The latter authority embraces Fujairah, Ajman, Ras Al Khaimah and Umm AlQuwain, known as the Federal Electricity and Water Authority.
In addition the Union Water and Electricity Company (UWEC) are scheduled to connect to the FEWA network for thesupply of electricity at 400 kV. This development is discussed later. When completed, the interconnection isexpected to benefit all authorities through the achievement of improved levels of reliability and system stabilityand an overall reduction in required generation capacity. Additionally, the reduction of overall spinning reserverequirements should provide savings in operational and investment costs.
AL TAWEELAH REVERSE OSMOSIS PILOT SCHEME
Part of the sector’s water expansion plan is to adopt new desalination technologies such as Reverse Osmosis, withthe prospects of providing dual economic benefits for both water and electricity production. Presently large scalewater desalination utilises conventional thermal processes such as Multi-Stage Flash (MSF) and Multi-EffectDistillation (MED) processes only. RO is a cold desalination process involving chemical pre-treatment and pumpingwater through membranes to remove high levels of salts and otherelements. The process utilises electricity rather than gas or oil and istherefore ideal for water production at times of light electricaldemand.
Although the Remote Areas Services Company (RASCO) owns smallerRO desalination plants at various locations on the Abu Dhabi mainlandand some isolated islands, a full-scale plant at Al Taweelah would bethe first Independent Water Producer (IWP) utilising ROtechnology in the Emirate.
Therefore, during 2002, a Request-for-Proposal (RfP) was issuedfor the establishment and operation of a small-scale reverseosmosis (RO) pilot scheme at the Al Taweelah site.
SECTOR OVERVIEW BY THE DIRECTOR GENERAL
8
Over a twelve month period two successful bidders were required to demonstrate the adequacy or otherwise oftheir pretreatment and membrane RO systems. Ultimately a 50 MIGD RO plant may be built at the site, which willtake its electricity supplies directly from the transmission system. It is expected to be the highest installedproduction capacity using such technology built in the Gulf area.
During 2002 the Bureau commissioned Hyder Consulting (UK) to investigate the water quality that is projected to beproduced by a large-scale RO plant and its impact on the existing system, as well as the compliance with the WaterQuality Regulations and World Health Organisation guidelines. The study also looked at corrosion factors that mighthave a negative influence on the assumed life of the transmission and distribution network.
UNION WATER AND ELECTRICITY COMPANY
The Union Water and Electricity Company (UWEC) has built a generation and desalinated plant in Fujairah funded bythe U.A.E Offsets Group. The first phase of the project is designed to produce 100 MIGD of desalinated water and620 MW of power. The plant is due for full-scale production during 2003.
The desalination plant is designed with a hybrid configuration of Multi-Stage Flash (MSF) and Reverse Osmosis (RO)processes, at roughly a two thirds: one third split, respectively.A water transmission pipeline with the capacity of 180 MIGD and approximately 185 km long is currently underconstruction to deliver water to the Al Ain region and surrounding locations.
The electricity output will be supplied to the Northern emirates of the UAE with the potential to connect to theEmirates National Grid at a later date.
TRANSMISSION SYSTEM ELECTRICITY SECURITY STANDARDS
Recent analysis of the electricity transmission network indicated that an n-1 network security criteria (whichprovides for immediate restoration of supplies after any one transmission line failure) was inadequate for the city ofAbu Dhabi. Therefore, Transco, following consultation with the Bureau, proposed in its 2002 planning statement, toincrease the security criteria to n-2 for tower lines carrying two circuits. In effect this caters for the immediaterestoration of supplies (from alternative sources) in the event of failure of a double circuit overhead transmissionline. The new criteria will only apply to circuits supplying the city of Abu Dhabi.
WATER TRANSMISSION
During 2002 the Bureau launched a consultation process to develop Key Performance Indictors (KPIs) applicable tothe water transmission system, comprising of trunk mains, pumping stations and reservoirs. Transco has agreed toreport on a wide range of indicators,including system availability, security of supply and water loss.
SPECIAL SUPPLY TERMS
During the year the Bureau issued a Consultation Document (CR/E03/003) regarding tariff clarifications, in order todevelop a range of customer-specific tariffs. The basis of the tariffs will reflect the actual customer connectionagreements and will be truly cost reflective; that is, they will not attract a government subsidy.
The sale of power or water will continue to be via the distribution companies. However, customers connecteddirectly to the transmission system will not pay the distribution cost component, thereby reducing their tariffcharges. Additionally, further savings are available for customers that can manage their demand away from theannual system peaks. A formal procedure for non-standard tariff arrangements will be published by the Bureauduring 2003.
9
ELECTRICITY
ELECTRICITY PRODUCTIONThe sector’s gross energy production in 2002 was 22,108,219 MWhs, which was 7.24 percent greater than theprevious year. Figure 1 shows the generation companies’ energy production for both 2002 and 2001 and highlightsthe significant increase in production that has occurred at the two Independent Water and Power Producers (IWPP)during 2002. Both ECPC and GTTPC have made available significant new generation capacity during the year tomeet increased demand.
The increase in demand reflects the levels of load growth which predominantly occurred in the agricultural andhousing sectors.
Smaller generation units in remote areas and islands, owned by RASCO produced in excess of 82,000MWhs. Themajor part of this production was from Dalma Island with generation in excess of 59,000 MWhs. Plans are in placeto gradually remove isolated generation sets, located on islands, by further network expansion.
ELECTRICITY TRANSMISSIONThe transmission system performance improved during 2002, when compared to the average performance of theprevious year, with total annual transmission system availability improving by 0.25 percent and the average timethat customers were interrupted due to a fault reduced by 43 percent. During 2002, TRANSCO implementedstrategies in the areas of maintenance scheduling and fault response which contributed to this improvement.Although the graphs (Figures 2 and 3) indicate a significant improvement over the previous year’s performance, the2001 figures are influenced by a single major outage on the Abu Dhabi Island. However, even when this is excluded,the overall trend in performance still shows an improvement.
TECHNICAL PERFORMANCE
MW
hrs
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
BPC UANPC ATPC GTTPC ECPC AMPC RASCO
2001
2002
Figure 1
98.05
98.1
98.15
98.2
98.25
98.3
98.35
98.4
98.45
98.5
98.55
2001 2002
Series1
Figure 2
0
20
40
60
80
100
120
140
160
180
200
2001 2002
Series1
Figure 3
2001 versus 2002 Electrical energy generated
Transmission System Availability Average Incident Duration
Avai
labi
lity
Min
utes
10
ELECTRICITY DISTRIBUTIONDistribution system performance for 2002 continued an improvement trend established over previous years. AADC’saverage minutes lost per customer reduced by 42 minutes to a total of 430. However, analysis of the number ofinterruptions experienced by customers showed a worsening trend with the average number increasing from 4 to 5.ADDC’s overall performance showed an 8 percent improvement in the number of interruptions experienced bycustomers, but little change in reduction in minutes lost per customer (Figure 4).
Analysis of interruption causes indicates that the majority were either due to faults on overhead lines or plannedoutages. (Figures 6 and 7)
Both distribution companies have initiatives in place to reduce the number and duration of faults which include adegree of automation and further investment in existing networks.
DISTRIBUTION SYSTEM SECURITY STANDARDSIn 2002 the Bureau approved both distribution companies’ security standards in accordance with Condition (25) oftheir licence. This will enable AADC and ADDC to plan, develop, operate and maintain their relevant distributionsystems in a structured and consistent manner in accordance with the security standard.
2001 2002
AADC
ADDC
Figure 4
0
1
2
3
4
5
6
2001 2002
AADCADDC
Figure 5
35%
23%
6%15%
21%
Figure 6
31%
31%11%
7%
20%
Figure 7
33KV OHL Faults 11KV Planed outages11KV OHL Faults33KV Planed outagesOthers
11KV Planed outages 11KV OHL Faults 11KV Cable Faults FusesOthers
AADC- Causes of interruptions ADDC- Causes of interruptions
Minutes Lost Per Customers Interruptions Per Customer
AADCADDC
AADCADDC
Min
utes
Inte
rrup
tion
s
11
WATER
WATER PRODUCTIONThe sector’s gross water production for 2002 was approximately 117,000 Million Imperial Gallons (MIG) which was anincrease of 17.2 percent over the previous year. Ground water extraction represented 6 percent of the total waterproduced in 2002 with the majority coming from wells supplying remote areas in the Al Ain region. However, wellwater extraction reduced in the Al Ain region by 30 percent on the previous year due to a desire to promote wellrefilling.
The significant increase in production was achieved through the commissioning of new desalination units at GulfTotal Tractebel Power Company (GTTPC), Emirates CMS Power Company (ECPC), Umm Al Nar Power Company(UANPC) and Al Mirfa Power Company (AMPC), which added another 83 MIGD to the existing production capacity.Figure 8 compares the 2001 and 2002 water output levels from the production companies.
The significant increase in customer demand for water occurred mainly in Government sponsored housingdevelopment schemes and agricultural activities, particularly in the farming and forestry sectors. Figure 9 showsthe estimated percentage contribution to the total demand made from each user category.
WATER TRANSMISSIONGenerally the performance of the water transmission system during the period met the expectations of distributioncompanies and water producers, with the exception of the water transmission capacity supplying Al Ain. Thisconstraint on the water supply to the Al Ain region hampers AADC’s ability to improve the quality of supply tocustomers and is planned to be addressed over the next two years.
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
BPC UNPC ATPC GTTPC ECPC AMPC RASCO
2001
2002
Figure 8
42%
3%4%14%
37%
Figure 9
Average share of demand categories
DomesticIslandsIndustrialParks & Forests Agricultural
Mill
ion
Gal
lons
2001 Versus 2002 Water production
12
WATER DISTRIBUTION AND SUPPLYPerformance of the water distribution systems showed a small improvement during 2002. Historically water demandhas been greater than production and transmission capacity. The sector has managed this lack of capability throughconstraining the water supplied to zoned sections of the network on a rotational, timed bases. As the productionand transmission capacity of the sector has improved, the need to constrain supply by this means has reduced andthe distribution companies are actively following strategies which minimise the areas that are subject to timedsupplies. Figures 10 and 11 show the main types and sources of supply to distribution company customers.
AADC made significant progress during 2002 in reducing the number of customers that are dependent on watertankers by almost fifty percent, despite operating in an environment of unprecedented growth in demand. Althoughthe company has approximately ninety percent of its customers connected to the network, timed supplies stillaffect a high proportion of customers. Given this situation the company has commenced a network improvementprogramme which is targeted at significantly reducing those customers on timed supplies, particularly in Al Ain City.
AADC did not report any supply interruptions above 24 hours. However, the water pressure in some areas fell belowthe minimum pressure requirements as defined within established Key Performance Indicators issued to thedistribution companies by the Bureau.
ADDC was subject to two major interruptions that caused a loss of supply to small numbers of customers for morethan 24 hours. Otherwise the minimum pressure requirements were met. The percentage of customers on timed-supplies in ADDC is relatively low and is the result of significant investment in networks carried out in recent yearsto upgrade the water distribution system.
WATER QUALITYThe quality of potable water provided to customers during the year generally complied with the Water QualityRegulations. Also there were no incidences of bacterial contamination. Overall compliance figures for SamplingFrequency performance indicators were 74.2 percent and a Prescribed Concentration or Value performanceindicator of 99.87 percent. These results indicate a general improvement in the water quality performance of thesector over previous years. (Figures 12 and 13)
Continuos 4%
Intermit tent 85%
Tanker 11%
Figure 10
Continuos 72%
Tanker 1 % Intermittent 27%
Figure 11
0102030405060708090
100
BP
C
UA
N
AT
PC
GT
TP
C
EC
PC
AA
DC
AD
DC
AM
PC
TRA
NS
CO
Figure 12
90
88
92
94
96
98
100
BP
C
UA
N
AT
PC
GT
TP
C
EC
PC
AA
DC
AD
DC
AM
PC
TRA
NS
CO
Figure 13
AADC - Type of Supply to customers ADDC - Type of Supply to customers
Compliance with Water Quality Regulations SamplingFrequecy Measure
Compliance with Water Quality Regulations PrescribedConcentration or Value
Production Transmission Distribution
Perc
enta
ge
Perc
enta
ge
13
OTHER TECHNICAL ISSUES
METERINGDuring 2002, the Bureau supported a review of metering technology including calibration standards and testprocedures and commenced discussions with the distribution businesses on appropriate upgrading of testing facilitiesfor both electricity and water metering.
The Bureau also supported new technology trials of non-moving part water meters in both distribution companies tohelp determine the potential suitability of this technology for future use in the Emirate of Abu Dhabi. Thisapproach of trialing new technology metering equipment will continue in 2003 with an investigation of the use ofelectronic electricity meters for revenue metering where currently only electromechanical devices are used.
HEALTH AND SAFETYOn 30 November 2002, a maintenance team from ADDC was involved in switching to isolate a high voltagesubstation. During this procedure an electrical flashover occurred which caused fatal injuries to one employeeand serious burns to three others. The Bureau immediately imposed a ban in relation to certain operationson the type of switchgear involved in the incident. An investigation by ADDC, in consultation with the Bureau,as to the causes of this incident has been undertaken.
During the year a major safety initiative commenced involving training and authorisation of operational staffon the basics of safety awareness and safe working practices; competency certificates were issued tosuccessful candidates at the end of the programme. The majority of operation and maintenance staff havebeen trained and the programme will be further extended to all staff during subsequent years. Contractorswill be required to conduct similar safety training for their employees.
ENVIRONMENTThe Bureau has a general duty under Law No (2) to carry out its functions in a manner that ensures meeting nationaland international environmental standards as they affect the water and electricity sector. In 2002, the Bureaureceived environmental policy statements from all the licenced operators as required by their licence and in 2003will be supporting each licenced operator in reviewing their policies and evaluating their environmental practicesagainst relevant national and international standards. There have been no major environmental incidents reportedto the Bureau during the period.
14
During the year, the Bureau reviewed the price controls which have applied to ADWEC, TRANSCO, ADDC and AADCsince 1999, and issued proposals for new controls to take effect for the three years starting 1 January 2003 (knownas PC2).
The price controls limit the amount of revenue which the companies concerned can recover from their customersor, in the case of the distribution companies, from the government in the form of a subsidy.
The Bureau conducted a thorough, open and transparent process in resetting the price controls. The process beganin February 2002 with the publication of a consultation paper setting out the issues to be addressed, followed byfurther consultation papers in May 2002. Draft and Final Proposals were published in September and November 2002respectively.
During the course of the year, the Bureau sought details from the companies of their forecasts of demand and costs.This included information on historical and projected operating expenditure, assets, investment plans, and demandforecasts.
The Final Proposals for the revised price controls, published in November 2002, are shown below.
Bureau’s Final Proposals for Revised Price Controls for 2003-2005
ADWEC
MAR = PWPA Costs + Fuel Costs + A + Q - K
TRANSCO (separate water and electricity price controls)
MAR = a + (b x Peak Demand) + (c x Metered Units Transmitted) + A + Q - K
ADDC & AADC (separate water and electricity price controls)
MAR = Purchase Costs + Transmission Charges + DSR + Q - K
DSR = a + (b x Number of Customers) + (c x Metered Units Distributed)
Where:
A for ADWEC means its maximum allowed procurement cost;
A for TRANSCO means its allowed ancillary services costs;
a is the notified value for the fixed amount (co-efficient of revenue driver 1);
b is the notified value for the co-efficient of revenue driver 2;
c is the notified value for the co-efficient of revenue driver 3;
DSR is the allowed distribution and supply revenue for ADDC and AADC;
K is the correction factor adjusting any over or under-recovery in the preceding year; and
Q is the revenue adjustment for performance under the Performance Incentive Scheme (PIS)
in the previous year.
As with the initial price controls (PC1), the PC2 price controls are, for the most part, of a CPI-X type and in theform of a cap on Maximum Allowed Revenues (MARs). Broadly speaking, this constrains changes in the companies’overall revenue to changes in the UAE Consumer Price Index (CPI) less an amount X. The X factor is set to take intoaccount factors such as expected efficiency improvements and smoothing of revenue profiles over the years.
PRICE CONTROLS REVIEW
15
The Bureau proposed that some existing features of the controls should be retained. In particular:
• The scope of the controls continue to be revenue recovered in respect of licensed activities. (For ADWEC, there is a slightly different treatment of certain income streams, such as liquidated damages).
• MARs in respect of “own costs” will continue to be determined by “revenue drivers” set to reflect the cost structure of the companies, and to provide desirable incentives.
•The existing “pass-through” items in the controls of ADWEC, ADDC and AADC are retained. Most of ADWEC’scosts represent PWPA and fuel costs, which are constrained by competition required for new production capacity and ADWEC’s economic purchase licence obligation. For the distribution companies, the water andelectricity purchase costs and transmission charges paid to ADWEC and Transco respectively are treated aspass-through items. In essence they are costs over which the distribution companies have no direct controland are regulated elsewhere.
• There will continue to be separate controls for each of the electricity and water businesses of TRANSCO, ADDC and AADC (and a single control for ADWEC).
• For the distribution companies, the controls continue to encompass both the distribution and supplyactivities of the relevant business.
PC2 new features:
• A new term included in TRANSCO’s price controls allows the pass-through of the costs of ancillary servicessubject to the existing economic purchasing obligation.
• TRANSCO’s “units transmitted” revenue drivers for electricity and water have been redefined to refer onlyto units transmitted through exit meters compliant with the Metering and Data Exchange Code (MDEC).
• The definitions of all revenue drivers have been reviewed and where necessary amended to remove anyambiguity that may have existed in the previous definitions.
• The relative weights given to the different revenue drivers have been revised.
• The CPI is defined solely in terms of UAE inflation (some of the initial price controls used both UAE and US CPI).
• The distribution companies’ price controls have been extended in scope to include the distribution and supply businesses inherited from RASCO with effect from 1 January 2001.
• A Performance Incentive Scheme (PIS), represented by a new term “Q” in the price control formulae,has been introduced to additionally link MARs to certain aspects of each company’s performance. Otherindicators will be monitored over the next price control period, with a possible financial adjustment madein respect of particularly good or poor performance at the 2005 Price Controls Review.
• The revised price controls include a provisional allowance for future capital expenditure (as well as aprovisional allowance for past capital expenditure, which was not financed during PC1). Actual capitalexpenditure over 2003 - 2005 will be reviewed at the 2005 Price Controls Review against the Bureau’s efficiency criteria, and appropriate adjustments made at that time.
16
The co-efficients of the revenue drivers (a, b, and c) for PC2 are summarised below:
Notified Values for PC2 - Final ProposalsA or a b c
ADWEC Procurement 10.72 AED mTRANSCO Electricity 522.77 AED m 44.28 AED/kW 1.05 fils/kWhTRANSCO Water 347.75 AED m 305.57 AED/TIG 0.44 AED/TIGADDC Electricity 442.01 AED m 761.40 AED / customer 0.45 fils/kWhADDC Water 197.56 AED m 382.74 AED / customer 0.69 AED/TIGAADC Electricity 235.68 AED m 1,028.83 AED / customer 0.57 fils/kWhAADC Water 92.74 AED m 586.50 AED / customer 1.75 AED/TIG
For all companies, X has been set to zero, which means that the co-efficients on the revenue drivers will stayconstant in real terms throughout the PC2 period.
The effect of the Final Proposals on the unit costs of electricity and water is shown graphically below. (Note thatthe figures show only the effect on unit costs which are attributable to the resetting of the price controls. Theyexclude the effect of changes in the purchase price of water and electricity (i.e. BST costs), which accountsfor the majority of the sector costs).
0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006
0
2
4
6
8
10
12
14
1998 1999 2000 2001 2002 2003 2004 2005 2006
Total Electricity MAR Unit Cost of Network & Procurement Businesses in 2003 prices
Total Water MAR Unit Cost of Network & Procurement Businesses in 2003 prices
fils
/kW
hAE
D/T
IG
17
The solid lines in the above figures represent the MARs per unit under the initial price controls and revised pricecontrols as per the Final Proposals.
The revised price controls include a provisional allowance for future capital expenditure as well as a provisionalallowance for past capital expenditure, as the latter was not financed during PC1. Without adjustment, this wouldlead to a distortion in unit cost trends over time. The dotted lines in the above figures therefore show adjustedMARs per unit in the two price control periods had capital expenditure during the first control period been financedwithin the initial price controls.
It can be seen that in terms of price-controlled costs only, the revised price controls would continue the downwardtrend of sector unit costs seen since the Bureau first implemented price controls in 1999.
2002 BULK SUPPLY TARIFFS (BSTS)The water and electricity Bulk Supply Tariffs (BSTs) are calculated and published by ADWEC each year, followingapproval by the Bureau. The BST is the instrument through which ADWEC recovers, from the distribution companies,its costs for electricity and water purchases from the generation and desalination companies, fuel costs and its ownoverhead costs (which are subject to price controls set by the Bureau). There are separate BSTs for water andelectricity, each of which comprises an energy charge or system marginal price (SMP) and a demand charge.
The average unit charge for electricity under the BST for 2002 (8.46 fils/kWh) is about 11 per cent lower than thatin 2001 (9.50 fils/kWh). However, the average unit charge for water in 2002 (10.62 AED/TIG) is about 1.5 per centhigher than the previous year (10.46 AED/TIG). In general, two factors have contributed to these year-on-yearvariations. Firstly, the basis of cost allocation between water and electricity has been modified for certaincalculations, transferring costs from electricity to water. Secondly, the 2002 BST rates were adjusted downward forover-recoveries of BST revenue by ADWEC during the previous year.
Also during the year, the Bureau reviewed in detail the various methodologies used by ADWEC for the constructionof the BST and the possibility of further refining them for the 2003 BST. Issues include improving the price signalsthat the BST rates send to customers about the costs of their consumption by adjusting the demand chargecomponent.
18
LICENCE HOLDERS’ FEES
The Bureau’s annual expenditure against the 2002 projected budget fell short of expectations by AED 517,149. Aswith previous years this excess will be refunded to licence holders through a reduction of their payable fees; in thiscase applicable to 2004.
The Bureau confirms that the net surplus for the previous three operating years (1999 - 2001 inclusive) of AED1,083,091 was returned to licence holders via a reduction in their 2003 licence fees.
INTERNAL ISSUES
The Bureau Board of Directors held nine meetings during the year. The membership is as follows:-
Zaal Mohammed Zaal Al HameeriChairman
Nick CarterDirector General
Ibrahim MubaydeenMember
Staff changes included the appointment of Mr. Sameh Nemer as Compliance and Operations Director and theappointment of an External Relations Officer, and Business Analyst.
Other issues included the installation and commissioning of a dedicated Bureau network server, LAN and WANconfiguration, including an upgrade of software licences and hardware peripherals.
LICENCE ISSUES
No new licences were issued during the period. However, the following licence specific documents were issued.
Licence Modifications:
ED/L02/009 20 May 2002 Umm Al Nar Power CompanyIncrease in capacity of water desalination from to a maximum of 160 million imperial gallons per day.
Consents:
ED/L03/002 04 August 2002 Al Taweelah Power CompanySale of Sodium Hypochlorite Solution to TRANSCO.
ED/L03/003 25 September 2002 Emirates CMS Power CompanyIssued under Article (127) of Law No (2) of 1998. Applies to the transfer of the open discharge channel from Taweelah A2 to the Taweelah Shared Facilities Company.
REGULATORY AND POLICY ISSUES
19
BALANCE SHEET
20
21
BALANCE SHEET31 December 2002
2002 2001Notes AED AED
ASSETS EMPLOYEDVEHICLES AND EQUIPMENT 3 384,144 85,152ADVANCE TO EMPLOYEES 262,500 -
CURRENT ASSETSPrepayments and other receivables 4 545,615 387,817Bank balances and cash 5 866,217 1,083,091
1,411,832 1,470,908
CURRENT LIABILITIESAccounts payable and accruals 6 1,109,376 1,271,747
NET CURRENT ASSETS 302,456 199,161
949,100 284,313FUNDS EMPLOYEDAccumulated surplus 605,500 96,982
NON-CURRENT LIABILITYEmployees’ end of service benefits 7 343,600 187,331
949,100 284,313
Zaal Mohammed Zaal Al Hameeri Nick CarterCHAIRMAN DIRECTOR GENERAL
STATEMENTS OF FUNDING AND EXPENDITURE AND ACCUMULATED SURPLUSYear ended 31 December 2002
2002 2001Notes AED AED
STATEMENT OF FUNDING AND EXPENDITURE
FUNDINGLicence fees 9 6,594,994 4,413,020Other income 119,442 25,372
6,714,436 4,438,392
EXPENDITURESalaries and staff related costs 5,167,467 3,624,043Depreciation 3 118,551 114,799Others 919,900 788,097
6,205,918 4,526,939
NET SURPLUS / (DEFICIT) FOR THE YEAR 508,518 (88,547)STATEMENT OF ACCUMULATED SURPLUS
Balance at 1 January 96,982 185,529Net surplus (deficit) for the year 508,518 (88,547)
Balance at 31 December 605,500 96,982
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STATEMENT OF CASH FLOWS Year ended 31 December 2002
2002 2001Notes AED AED
OPERATING ACTIVITIESNet surplus / (deficit) for the year 508,518 (88,547)Adjustments for:
Provision for end of service benefit 185,964 110,541Depreciation 118,551 114,799Net (gain) / loss on sale of vehicles and equipment (80,862) 15,051
Operating surplus before working capital changes 732,171 151,844Prepayments and other receivables (157,798) (92,612)Accounts payable and accruals (162,371) 848,637
Cash from operations 412,002 907,869Advance to employees (262,500) -Employees’ end of service benefit paid (29,695) (67,484)
Net cash from operating activities 119,807 840,385
INVESTING ACTIVITIESPurchase of plant and equipment (430,154) (46,745)Proceeds from disposal of vehicle and equipment 93,473 3,800
Net cash used in investing activities (336,681) (42,945)
(DECREASE) INCREASE IN CASH AND CASH EQUIVILANTS (216,874) 797,440
Cash and cash equivalents at the beginning of the year 1,083,091 285,651
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 866,217 1,083,091
Cash and cash equivalents comprise:
Bank balances and cash 517,149 936,800Bank deposit 5 349,068 146,291
866,217 1,083,091
NOTES TO THE FINANCIAL STATEMENTS31 December 2002
1. ACTIVITIES
The Bureau for the Water and Electricity Sector in the Emirate of Abu Dhabi was established under Law no. (2) of1998 to regulate the water and electricity sector in the Emirate of Abu Dhabi.
The Bureau is funded by the payment of license fees by those entities awarded licenses and is a not-for-profitorganisation.
The total number of employees at 31 December 2002 was 15 (2001: 13). The Bureau’s registered office is at P OBox 32800, Abu Dhabi, United Arab Emirates.
The financial statements of the Regulation and Supervision Bureau (“the Bureau”) for the year ended 31 December2002 were authorised for issue by the management on 22 September 2003.
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2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The financial statements have been prepared in accordance with Standards issued, or adopted, by the InternationalAccounting Standards Board (IASB) and interpretations issued by the International Financial Reporting InterpretationsCommittee of IASB.
The significant accounting policies adopted are as follows:
Accounting convention
The financial statements are prepared under the historical cost convention. The accounting policies are consistentwith those used in previous year.
The financial statements have been presented in UAE Dirhams (AED).
Vehicles and equipment
Vehicles and equipment is stated at cost less accumulated depreciation and any impairment in value.
Depreciation is calculated on a straight line basis over the estimated useful lives of the assets as follows:
Motor vehicles over 3 yearsSoftware over 3 yearsOffice equipment and furniture over 5 years
The carrying values of vehicles and equipment are reviewed for impairment when events or changes incircumstances indicate the carrying value may not be recoverable. If any such indication exists and where thecarrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.
Funding
Licence fees funding from the licensees in respect of the current year is accounted for in the Statement of Fundingand Expenditure based on the amount of the cash expenditure incurred during the year. Any funding received inexcess of the cash expenditure is deferred and included in accounts payable and accruals.
Accounts payable and accruals
Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by thesupplier or not.
Provisions
Provisions are recognised when the Bureau has an obligation (legal or constructive) arising from a past event, andthe cost to settle the obligation are both probable and able to be reliably measured.
Employees’ end of service benefits
The Bureau provides end of service benefits to its expatriate employees. The entitlement to these benefits isusually based upon the employees’ length of service and completion of a minimum service period. The expectedcosts of these benefits are accrued over the period of employment.
With respect to its national employees, the company makes contributions to Abu Dhabi Retirement Pension andBenefit Fund calculated as a percentage of the employees’ salaries. The company’s obligations are limited to thesecontributions, which are expensed when due.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assetsand liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balancesheet date. All differences are taken to the statement of funding and expenditure.
Financial instruments
Financial instruments comprise other receivables, bank balances and cash, payables and accruals. The fair values offinancial instruments are based on estimated fair values using such methods as the net present value of future cashflows.
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3. VEHICLES AND EQUIPMENTOffice
equipmentMotor and
vehicles Software furniture TotalAED AED AED AED
Cost:At 1 January 2002 260,000 35,217 67,309 362,526Additions 150,000 47,234 232,920 430,154Disposals (260,000) - (19,118) (279,118)
At 31 December 2002 150,000 82,451 281,111 513,562
Depreciation:At 1 January 2002 233,864 27,955 15,555 277,374Charge for the year 69,886 12,322 36,343 118,551Relating to disposals (260,000) - (6,507) (266,507)
At 31 December 2002 43,750 40,277 45,391 129,418
Net carrying amountAt 31 December 2002 106,250 42,174 235,720 384,144
At 31 December 2001 26,136 7,262 51,754 85,152
4. PREPAYMENTS AND OTHER RECEIVABLES2002 2001AED AED
Prepaid expenses 523,327 372,940Other receivables 22,288 14,877
545,615 387,817
5. BANK BALANCES AND CASH
Included in bank balances and cash are bank deposits of AED 349,068 (2001: AED 146,291) with a commercial bank inthe United Arab Emirates. These deposits are maintained to cover the employees’ end of service benefits amountingto AED 343,600 (2001: AED 187,331) and are denominated in U.A.E. Dirhams with an effective interest rate of 2%(2001: 2%).
6. ACCOUNTS PAYABLE AND ACCRUALS2002 2001AED AED
Accounts payable 127,542 44,774Accrued expenses 115,617 126,879Due to related parties (note 8) - 17,003Deferred funding 866,217 1,083,091
1,109,376 1,271,747
Accounts payable are normally settled within 30 days of the date of purchase.
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7. EMPLOYEES’ END OF SERVICE BENEFITS
Movement recognised in the balance sheet:2002 2001AED AED
Balance at 1 January 187,331 144,274Provided during the year 185,964 110,541Paid during the year (29,695) (67,484)
Balance at 31 December 343,600 187,331
8. RELATED PARTY TRANSACTIONS
These represent transactions with related parties, ie. the Abu Dhabi Water and Electricity Authority (ADWEA)and senior management of the Bureau. Pricing policies and terms of these transactions are approved by theBureau’s management.
Transactions with related parties included in the statement of funding and expenditure are as follows:
2002 2001AED AED
Hire of motor vehicle - 53,400Licence fees (note 9) 6,594,994 4,413,020
Amount due to a related party is disclosed in note 6 above. ADWEA has also provided to the Bureau, at nocost, certain general and administrative services.
9. LICENCE FEES2002 2001AED AED
Licence fees received during the year 6,348,120 5,210,460Add: deferred income at beginning of the year 1,083,091 285,651Less: deferred income at end of the year 836,217 1,083,091
6,594,994 4,413,020
10. EXPENDITURE COMMITMENTS
Capital expenditure commitmentsEstimated capital expenditure contracted for at the balance Sheet date but not provided for:
2002 2001AED AED
Software and consultancy study 887,570 -
11. FAIR VALUES
The fair values of the Bureau’s financial assets and liabilities are not materially different from their carryingvalues at the balance sheet date.
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Al Mirfa Power Company (AMPC)Operates two power stations at Al Mirfa and Madinat Zayed with a total licensed capacity of 380 MW.Water production is at the Al Mirfa station only, with a licenced capacity of 38.7 MIGD.
Al Taweelah Power Company (ATPC) Operates two power stations at Al Taweelah complex with a total licensed capacity of 1,220 MW and103 MIGD for both B and B2 extension plants.
Bainounah Power Company (BPC)Operates two power stations at Mina (Abu Dhabi) and Al Ain. Total licenced capacity 1,001 MW andwater production of 16 MIGD.
Emirates CMS Power Company (ECPC)Located at the old Taweelah A2 site, with licensed water capacities of 50 MIGD and electricity of 763 MW.
Gulf Total Tracetebel Power Company (GTTPC)Licensed capacities of 84.8 MIGD of desalinated water and 1,431 MW of electricity.
Shuweihat CMS International Power Company (SCIPCo)The company has a licence to produce 1,500 MW of electricity and 100 MIGD of desalinated water. Production is scheduled to begin in mid 2004
Umm Al Nar Power Company (UANPC)The available desalination capacity is 160 MIGD of water and a licensed capacity of 1,335 MW. Thislatter figure includes 120 MW of generation at Baniyas Power Station.
Transmission & Despatch Company (TRANSCO) The company is responsible for all transmission voltages at 400,220 and 132kV including despatch ofgeneration units, water storage and the bulk movement of water throughout the Emirate.
Abu Dhabi Water & Electricity Company (ADWEC)ADWEC is the single buyer of water and electricity output and capacity from producers under variouspower and water purchase agreements (PWPA) and charges the distribution companies for water andelectricity, delivered by TRANSCO under a Bulk Supply Tariff (BST).
Al Ain Distribution Company (AADC)Distributes and sells water and electricity to around 80,000 customers in the Municipality area of Al Ain
Abu Dhabi Distribution Company (ADDC)Distributes and sells water and electricity to around 190,000 customers in the Municipality area of AbuDhabi.
Abu Dhabi Company for Servicing Remote Areas (RASCO)Licensed to generate, desalinate, transmit, distribute and sell electricity and water in remote areas,not connected to either of the distribution networks.
(MW= Mega Watts, MIGD = Million Imperial Gallons per Day)
LICENCE HOLDERS
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Regulations Issues
Ph relaxation in newly installed Water Pipelines for AADC & ADDC (ED/R02/002)A revision to an existing relaxation so as to harmonise practices in both distribution companies. Applies to pH levelsin water leaving new pipelines and allows under certain conditions for the companies to accept a pH value of 9.5instead of 9.2 as prescribed in the Water Quality Regulations. The relaxation only applies during the commissioningof newly installed concrete lined pipes, and does not compromise the quality of water that is ultimately supplied tocustomers.
Revision of Sampling Frequencies, Schedule II of the Water Quality Regulations(ED/R01/001)After consultation with sector participants, the Bureau revised the Sampling Frequencies included in Schedule II ofthe Water Quality Regulations to reflect both international standards and local operational experience gained fromthe sector’s performance in its first year under the regulations.
Consultation Papers
Price Control Reviews
2002 Price Controls Review: First consultation paper for PC2 (CR/E02/001)(February 2002)This paper set out for consultation the issues that the Bureau intended to consider during the course of the 2002Price Controls Review.
2002 Price Controls Review: Second consultation paper for PC2 (CR/E02/009)(May. 2002)Further consultation on the Bureau’s then-current thinking regarding the 2002 Price Controls Review, in light of theresponses received to the First Consultation Paper.
2002 Price Controls Review: Performance Incentive Scheme (CR/E02/008)In association with the Second Consultation Paper, the Bureau published a paper detailing a Performance IncentiveScheme (PIS) to be incorporated within the future price controls.
2002 Price Controls Review: Draft Proposals for PC2 (CR/E02/010)(September 2002)The third draft proposals for the revised price controls for AADC, ADDC, ADWEC and TRANSCO for 2003 - 2005.
2002 Price Controls Review: Final Proposals for PC2 (CR/E02/011)(November 2002)This paper provided consultation on the Bureau’s Final Proposals for revised price controls for AADC, ADDC, ADWECand TRANSCO for 2003 – 2005. At the same time the Bureau issued to each company the proposed licencemodifications necessary to give effect to the Final Proposals.
PUBLICATIONS
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Charges for Electricity Supply by ADDC to ADCO (CR/E03/002)This consultation paper set out the Bureau’s proposed methodology to determine charges for the supply ofelectricity to the Abu Dhabi Oil Company (ADCO) via the transmission system of TRANSCO.
Market Share Regarding Desalination and Generation Licences in the Emirate of AbuDhabi (CR/L01/004)Sector generation and desalination licences, issued by the Bureau, contain conditions as to market share inproduction facilities. Through the issue of this paper the Bureau sought to clarify the relevant condition and defineits policy on market dominance.
Tariff Classifications – Electricity and Water Sector (CR/E03/003)This paper established the broad principles which the Bureau intended to apply in overseeing the development ofnon-standard tariffs in the sector.
Street Works and Access Regulations 2002, draft (CD/R01/002)Under Article (68) of Law No (2), licenced transmission and distribution operators have a duty to comply withcertain street works and access requirements. During 2002 the Bureau developed these Regulations and issued aconsultation document; with the aim of providing practical guidance on such activities.
Supply Terms for the sale of Distilled Water to Takreer at Umm Al Nar (CR/E03/001)Provided the Bureau’s view on the appropriate supply terms for the sale of distillate water by ADDC to Takreer atthe Umm Al Nar site.
Water Supply (Water Fittings) Regulations, draft (CR/R03/002)The purpose of the proposed regulations is to stipulate technical specifications and establish installation standardsrelating to the water connection arrangement between a distribution companies network and their customers.
Water Transmission System Key Performance Indicators (EP/T03/001)The Bureau in consultation with TRANSCO developed a range of KPIs for the water transmission system.
OTHER CONSULTATION PAPERS
WebsiteCopies, in pdf format, of consultation documents, regulationsand licences are available on the bureau websitewww.rsb.gov.ae
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