E.P.C. revenue drops by 82 per cent

The Electric Power Corporation (E.P.C.) revenue dropped by more that 80 per cent from 2012 to 2013.

According to the Corporation’s Annual Report for the Financial Year ending 2013, its General Manager Tologata Tile Tuimaleali’ifano reports that E.P.C. made a net profit of $369,998tala.

“The Corporation has successfully ended this financial year with a recorded net profit… in spite of the many challenges it faced throughout the year,” Tologata reports.

“The recorded net profit at the end of this financial year 2012-2013 is $0.37 million compared to $2.07 [sic] ($2,081,000) million, restated, in the previous financial year.

“A reduction on the basic tariff rates by three per cent in August 2012 for all its consumers was implemented together with an added approved discount of two per cent discount on all prepayment meter unit purchased and advance payments of electricity bills by consumers using induction meters.”

The General Manager reports that during this financial year, the Corporation continued to be aggressive in the implementation of cost cutting measures.

“Electricity Sales of $90.8 million represents 88.60 per cent of total income for this financial year, a decrease of 1.0 per cent compared to $91.7 million in 2011/2012,” the report reads.

“Imported diesel fuel of $63.4 million accounted for the majority of Total Expenditure for this financial year or 69.81 per cent against the Total Electricity Sales of $90.8 million.

“To conclude we were able to achieve our objectives set out for this financial year and in doing so, we are able to confidently strive towards further developments in the improvement of service.”

Despite this concluding remark a number of issues were raised in the Audit Report of the Corporation.

The Audit of E.P.C. was conducted by the Controller and Chief Auditor Fuimaono C.G. Afele.

One of the issues raised by Fuimaono was that electricity sales for the year were down by $4,680,265 tala year-on-year.

Despite this drop in sales, the compensation for Directors and executive management increased by 20 per cent from $135,344 in 2012 to $171,343 in 2013.

The Directors of the Corporation during the financial period were Board Chairman Fa'aolesa Katopau T Ainu'u, Board Members Ulumalautea Papali'i John Ryan, Fanene Mark Betham, Fiu Peni Asi, Leiataua Daryll Clarke, Fiu Taligi and Ale Vena Ale, and Lavea Tupaimatuna lulai Lavea, as an ex-offificio.

The Auditor reports that while Director’s fee's of $47,000 were paid in the 2012-2013 Financial Year – an increase of $31,327 on the fee's paid for the 2011-2012 Financial Year, Board expenses were down by $50,605 tala.

“Directors appointed from Government Corporations and Ministries do not receive a Director's fee except for sitting allowances,” the report reads.

“Government regulations specify that Director's fee's are $542 per meeting and the sitting allowances are $250 per meeting.”

Moreover Director’s sitting allowances increased by 73 per cent from $2,218 paid to each Director in 2102, to $8,400 each in 2013.

Catering for Board Meetings also increased significantly from $7,904 in 2012 to $26,207 in 2003.

The Chief Auditor further reported that the Corporation’s activities expose it to a variety of financial risks.

“(Such as) market risk, including currency risk, fairvalue interest rate risk, cash flow interest rate risk and price risk, credit risk and liquidity risk,” Fuimaono reports.

“TheCorporation’s overall risk management programme focuses on the unpredictability of financial markets andseeks to minimise potential adverseeffects on the Corporation's financial performance.

“Risk management is carried out by management under policies approved by the Board of Directors.

“TheBoard provides written principles for overall risk management, as well as written policies covering specificareas, such as foreign exchange risk, interest rate risk, and credit risk, use of non-derivative financialinstruments, and investment of excess liquidity.”

Looking at some of the more specific risks, the Chief Auditor says E.P.C. has significant credit risk exposure to a single counterparty - that is an opposite party in a financial transaction.

“The Corporation definescounterparties as having similar characteristics if they are related entities,” the report reads.

“Concentration of credit risk isdefined as counterparty revenue exceeding five per cent of gross revenues.”

“Included in electricity sales of $90,779,315… are revenues of $8,170,138…or nine per cent of total revenues relating to a single counterparty.

“The carrying amount of financial assets recorded in the financial statements, which is net of impairmentlosses, represents the Corporation's maximum exposure to credit risk without taking account of the value ofany collateral obtained.”

In regards to capital risk management Fuimaono says the Corporation's policies in respect of capital management are reviewed regularly by the board of directors.

“Consistent with others in the industry the Corporation monitors capital on the basis of the gearing ratio,” he reports.

“The Corporation has a target gearing ratio of 20 per cent to 45 per cent determined as the proportion of net debt-to-equity (D.T.E.).”

Investopedia defines “gearing ratio” as a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds.

“Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds,” the site says.

However, despite thisnet D.T.E. target, E.P.C.’s net D.T.E. ratio spiked 22 per cent reaching 96 per cent in the reported financial year.

Accounting Explained says the D.T.E. ratio is the ratio of total liabilities of a business to its shareholders' equity.

“It is a leverage ratio and it measures the degree to which the assets of the business are financed by the debts and the shareholders' equity of a business,” according to the site.

“Both total liabilities and shareholders' equity figures in the above formula can be obtained from the balance sheet of a business.

“A variation of the above formula uses only the interest bearing long-term liabilities in the numerator.”

The site says that lower values of D.T.E. ratio are favourable indicating less risk.

“Higher D.T.E. ratio is unfavourable because it means that the business relies more on external lenders thus it is at higher risk, especially at higher interest rates,” it says.

“A D.T.E. ratio of 1.00 means that half of the assets of a business are financed by debts and half by shareholders' equity.

“A value higher than 1.00 means that more assets are financed by debt that those financed by money of shareholders' and vice versa.

“An increasing trend in of D.T.E. ratio is also alarming because it means that the percentage of assets of a business which are financed by the debts is increasing.”

What this means for E.P.C. is that at a D.T.E. ratio of 96 per cent, almost all of its assets are financed by debt.

Fuiumaono also noted that the Corporation has alsmost $6 million tala worth of contingent liabilities.

According to Investopediaa contingent liability is one where the outcome of an existing situation is uncertain, and this uncertainty will be resolved by a future event.

There is a dispute between EPC and the Ministry of Revenue (M.O.R.) on outstanding invoices relating tocustoms import duty totaling1.9 Million Tala from the last financial year, 2012.

“Discussion and negotiationsbetween E.P.C. and M.O.R. continued in 2013 and the issue was then referred to both party legal officers fortheir legal positions and advice however a resolution has still not been reached,” the Chief Auditorreports.

“There are two legal claims against the Corporation by George Meredith & Associates (G.M.A.) at an amount of $3 million and LiueniManu'a at an amount of $1 million which the Corporation is vigorously opposing theseclaims.”

The full report is available to read on the Samoan Parliament’s website at http://www. parliament.gov.ws/new/.