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KORPORATA ELEKTROENERGJITIKE

SHQIPTARE SH.A. – KESH

CONSOLIDATED FINANCIAL STATEMENTS

As at 31 December 2015

(with independent auditors’ report thereon)

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Contents

Page

Independent Auditors’ Report i-iv

Consolidated Financial Statements:

Consolidated Statement of Financial Position 1

Consolidated Statement of Profit or Loss and Other Comprehensive Income 2

Consolidated Statement of Changes in Equity 3

Consolidated Statement of Cash Flows 4

Notes to the Consolidated Financial Statements 5-34

KORPORATA ELEKTROENERGJITIKE SHQIPTARE SH.A. -KESH

Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31

December

(All Amounts are expressed in ‘000 LEK, unless otherwise stated)

2

The notes on pages 5 to 34 are an integral part of these consolidated financial statements.

Notes 2015

2014

Restated

Revenue 16 19,313,241 10,831,993

Other operating income 17 337,973 4,920,303

Raw materials and consumables used (92,816) (106,162)

Gross profit 19,558,398 15,646,134

Purchased energy 18 (10,546,322) (9,836,700)

Employee benefit expenses 19 (1,048,301) (1,031,550)

Depreciation and amortization 6 (2,363,705) (1,935,724)

Impairment loss 5.2.1 (495,469) (19,642,679)

Impairment losses on property, plant and

equipment 6

(313,040) -

Other expenses 20 (1,291,336) (1,487,247)

Results from operating activities 3,500,225 (18,287,766)

Finance income 21 483,481 339,908

Finance costs 21 (2,537,714) (4,187,575)

Net finance costs (2,054,233) (3,847,667)

Profit/(loss) before tax 1,445,992 (22,135,433)

Income tax expense 22 (648,946) (105,229)

Net profit/ (loss) for the year 797,046 (22,240,662)

Other comprehensive income for the year

Items that are not reclassified to profit or loss

Revaluation of property and equipment 6 12,774,034 -

12,774,034 -

Total comprehensive income/(loss) for the year 13,571,080 (22,240,662)


Consolidated Statement of Changes in Equity for the year ended 31 December

(Amounts in Lek thousand, unless otherwise stated)

3

Note

Share

Capital

Unregistered

capital

Legal

reserves

Other

reserves

Accumulated

losses Total

Balance at 1 January 2014, as previously

reported 20,040,097 (4,000) 2,022,217 52,003,121 12,700,040 86,761,475

Impact of change in accounting policy 26 - - - (2,332,582) 2,332,582 -

Impact of correction of errors 26 - - - - (754,374) (754,374)

Restated balance at 1 January 2014 20,040,097 (4,000) 2,022,217 49,670,539 14,278,248 86,007,101

Total comprehensive income for the year

(restated)

Loss for the yearTotal comprehensive income

for the year (restated)

- - - - (22,240,662) (22,240,662)

Transactions with owners

Appropriation of retained earnings - - 635,002 10,795,034 (11,430,036) -

Dividend paid 11.2 - - - - (1,270,004) (1,270,004)

Total transactions with owners - - 635,002 10,795,034 (12,700,040) (1,270,004)

Transfer of revaluation reserve - - - (788,861) 788,861 -

Restated balance at 31 December 2014 20,040,097 (4,000) 2,657,219 59,676,712 (19,873,593) 62,496,435

Total comprehensive income for the year

Profit for the year - - - - 797,046 797,046

Revaluation of property, plant and equipment 6 - - - 12,774,034 - 12,774,034

Total comprehensive income for the year - - - 12,774,034 797,046 13,571,080

Transactions with owners

Increase in share capital 11.1 134,125 - - - - 134,125

Dividend paid 11.2 - - - - - -

Total transactions with owners 134,125 - - - - 134,125

Transfer of revaluation reserve - - - (1,214,172) 1,214,172 -

Balance as at 31 December 2015 20,174,222 (4,000) 2,657,219 71,236,574 (17,862,375) 76,201,640



Consolidated Statement of Cash Flows for the year ended 31 December


4


Notes 2015 2014

Cash flows from operating activities

Profit/(loss) before tax 1,445,992 (22,135,433)

Adjustments for:

- Depreciation and amortization 6 2,363,705 1,935,724

- Impairment loss on trade receivables 9 495,469 19,653,430

- Impairment losses on property, plant and equipment 313,040 -

- Income from subsidies and grants 17 (6,260) (4,488)

- Interest income 21 (286,968) (339,908)

- Interest expense 21 2,222,655 2,579,445

- Change in fair value of borrowings 21 (196,513) 1,025,897

Change in:

- Inventories (61,962) 65,231

- Trade and other receivables (547,687) (9,516,440)

- Trade and other payables (3,104,282) 3,532,997

2,637,189 (3,203,545)

Proceeds from grants, net - 7,624

Interest paid (1,635,756) (2,241,431)

Income tax paid (208,211) (208,773)

Net cash from/(used in) operating activities 793,222 (5,646,125)

Cash flows from investing activities

Purchase of property, plant and equipment (2,247,843) (2,668,373)

Loans granted to third parties, net 1,284,410 490,595

Interest received 357,410 100,491

Net cash used in investing activities (606,023) (2,077,287)

Cash flows from financing activities

Proceeds from borrowings, net 1,277,786 3,479,899

Net cash from financing activities 1,277,786 3,479,899

Net increase/(decrease) in cash and cash equivalents 1,464,985 (4,243,513)

Cash and cash equivalents at 1 January (33,157,194) (28,913,681)

Cash and cash equivalents at 31 December 10 (31,692,209) (33,157,194)

KORPORATA ELEKTROENERGJITIKE SHQIPTARE SHA - KESH

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED

31 DECEMBER 2015


5

1. Reporting entity

Korporata Elektroenergjitike Shqiptare – KESH Sha and its subsidiaries (“KESH” or “the Group”) is a

Joint Stock Company established in the Republic of Albania. The Group was registered on 31 December

1994 based on Decision No. 74 of the Ministry of Finance, dated 2 November 1995. The Ministry of

Economic Development, Trade and Entrepreneurship of the Republic of Albania wholly owns the KESH’s

share capital as at 31 December 2015.

As at 31 December 2015, the Group owned the share capital of its subsidiaries, “KESH Security SHRSF”

Sha (“KESH Security”) and “Termocentrali Vlorë” Sha (“TEC Vlorë”). KESH Security was incorporated

on 7 April 2008 based on the Decision No. 14 of the Supervisory Council of the Group and is involved in

providing security services to the Group. Based on the Decision No. 15, dated 28 September 2015 of the

Supervisory Council of the Group and decision No. 2 of the General Assembly of Shareholders’, it was

decided to start the liquidation of KESH Security. The subsidiary is not material to the consolidated

financial statements of the Group.

TEC Vlorë was registered based on Court Decision No. 3862, dated 18 June 2007 as an entity which was

wholly controlled by KESH Sh.a. The main activity of TEC Vlorë is the generation of electricity from a

Thermo power plant (“TPP”). The Group completed the construction of the TPP in 2012 and since then,

the TPP has never been in a production phase due to a defect in the cooling system which requires additional

investment to be repaired.

Additionally, based on the law No. 43/2015, dated 30 April 2015 (the ”Law”), and the Decision No. 244,

dated 30 March 2016, of the Council of Ministers, KESH will exercise the power generation role and is

expected to bear the public service responsibility supplying the Universal Service Provider with the energy

provided from the generating units located on the Drin river cascade, according to a rational regime of

utilisation of generating capacities and the historical average production level, to meet the demand of end

tariff consumers subject to the Universal Service Supply.

As a result of the transitory period until the approval of the bylaws and regulations necessary for the

implementation of the Law, KESH complied for year ended 31 December 2015 and the first half of 2016

with the market model rules which were in force before the issuance of the Law, as required by clauses 4

and 5 of article 109 of the Law.

KESH currently consists of KESH Security, TEC Vlorë, the headquarters unit and three hydroelectric

generation units located on the Drini river cascade. The Group is domiciled in Albania. The address of its

registered office is in Blloku Vasil Shanto, P.O. Box 259/1, Tirana, Albania.

2. Basis of preparation

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards (IFRSs).

Details of the Group’s accounting policies, including changes during the year, are included in Note 4.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the

property, plant and equipment and borrowings, which are revalued at fair value.

(c) Changes in accounting policies

Except for the changes below, the Group has consistently applied the accounting policies set out in Note 4

to all periods presented in these consolidated financial statements.

The Group previously transferred the revaluation reserve of property, plant and equipment to retained

earnings on ultimate disposal of corresponding assets. During 2015 the Group changed the accounting

policy by transferring the revaluation reserve to retained earnings as the asset is used.

The Group has applied this change in accounting policy retrospectively and restated the comparative period

as at 1 January 2014 to reflect the transferred surplus amount. The summarized impacts on the Group’s

consolidated financial statements are presented in Note 26.



31 DECEMBER 2015


6

2 Basis of preparation (continued)

(d) Functional and presentation currency

These consolidated financial statements are presented in Albanian Lek (Lek), which is the Group’s functional

currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

3. Use of estimates and judgments

In preparing these consolidated financial statements, management has made judgements, estimates and

assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets,

liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are

recognized prospectively.

(a) Judgments

The Group has elected to measure property, plant and equipment and borrowings at fair value. Further

information about judgments made in applying accounting policies that have the most significant effects

on the amounts recognized in the consolidated financial statements is included in accounting policy 4 (e).

(b) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a

material adjustment in the following periods is included in the following notes:

Note 4.j and 6.i – impairment test: key assumptions underlying recoverable amounts;

Note 5.1.1: Financial instruments measured at fair value;

Note 6: Fair Value measurement of non-financial assets;

Note 4.k and 5.2.1: Impairment policy and the write-off policy for financial assets; and

Note 22: Tax exposures.

Measurement of fair values

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for

both financial and non-financial assets and liabilities.

The Group has engaged independent appraisers to determine significant fair value measurements, including

Level 3 fair values of non-financial assets. The Management assesses the evidence obtained from third

parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in

the fair value hierarchy in which such valuations should be classified. The fair value of financial instruments

that are not traded in an active market is determined by using valuation techniques. The Group uses its

judgment to select a variety of methods and make assumptions that are mainly based on market conditions

existing at each reporting date. The Group uses discounted cash flow analysis for financial assets and

liabilities that were not traded in active markets. When measuring the fair value of an asset or a liability,

the Group uses observable market data as far as possible. Fair values are categorized into different levels

in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable

inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value

hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value

hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period

during which the change has occurred. Further information about the assumptions made in measuring fair

values is included in Notes 5.1 and 6.



31 DECEMBER 2015


7

4. Significant accounting policies

Except for the changes described in Note 2(b) the Group has consistently applied the following accounting

policies to all periods presented in these consolidated financial statements.

Certain comparative amounts in the consolidated statement of financial position have been reclassified or

represented, either as a result of a change in accounting policy (see Note 2 (b)) or the impact of correction

of errors in the prior years (see Note 26).

a. Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has

rights to, variable returns from its involvement with the entity and has the ability to affect those returns

through its power over the entity. The consolidated financial statements of subsidiaries are included in the

consolidated financial statements from the date on which control commences until the date on which control

ceases.

(ii) Transaction eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group

transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are

eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are

eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of

impairment.

b. Foreign currency

Transactions in foreign currencies are translated to the respective functional currencies at exchange rates at

the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated

to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that

are measured at fair value in a foreign currency are translated to the functional currency at the exchange

rate when the fair value was determined. Foreign currency differences are generally recognized in profit or

loss. Non-monetary items that are measured based on historical cost in a foreign currency are translated

using the exchange rate at the date of the transaction.

c. Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the

first-in, first-out method, 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 realizable value is the estimated selling price in the ordinary course of business, less the estimated costs

of completion and selling expenses.

d. Intangible assets

Intangible assets acquired by the Group are stated at cost less accumulated amortization and accumulated

impairment losses. Subsequent expenditure on intangible assets is capitalized only when it increases the

future economic benefits embodied in the specific asset to which it relates. All other expenditure is

expensed as incurred.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of

intangible assets. The estimated useful life is 5 years.



31 DECEMBER 2015


8

4. Significant accounting policies (continued)

e. Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are stated in the consolidated statement of financial position at their

revalued amounts, being the fair value at the date of revaluation, less accumulated depreciation and any

subsequent accumulated impairment losses.

Revaluations are performed with sufficient regularity such that the carrying amounts do not differ

significantly from those that would be determined using fair values at the end of each reporting period.

Any surplus arising on the revaluation is recognized in Other Comprehensive Income (‘OCI’) except to the

extent that the surplus reverses a previous revaluation deficit on the same asset recognized in profit or loss,

in which case the credit to that extent is recognized in profit or loss. Any deficit on revaluation is recognized

in profit or loss except to the extent that it reverses a previous revaluation surplus on the same asset, in which

case the debit to that extent is recognized in OCI. Therefore, revaluation increases and decreases cannot be

offset, even within a class of assets. The revaluation reserve is included in other reserves (Note 11.4) and is

transferred to retained earnings as the corresponding assets are used.

If significant parts of an item of property, plant and equipment have different useful lives, then they are

accounted for as separate items (major components) of property, plant and equipment.

Constructions in process are carried at cost, less any recognized impairment loss (if any) and are classified

to the appropriate categories of property, plant and equipment when completed and ready for intended use.

Cost includes all the expenditure directly attributable to the acquisition of the asset. This expenditure

includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the

Group's accounting policy.

Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.

Subsequent expenditure

Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated

with the expenditure will flow to the Group.

Depreciation

Depreciation is calculated to write off the revalued amounts of items of property, plant and equipment less

their estimated residual values using the straight-line method over their estimated useful lives, and is

recognized in profit or loss.

The estimated useful lives of property, plant and equipment for current and comparative periods are as

follows:

Buildings 8 - 100 years

Machinery and equipment 5 - 80 years

Transport vehicles 5 - 15 years

Furniture, fittings and equipment 2 – 4 years

Land and construction in process are not depreciated.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if

appropriate.



31 DECEMBER 2015


9


f. Financial instruments

Non-derivative financial assets

The Group initially recognizes financial, trade and other receivables and deposits on the date that they are

originated. All other financial assets are recognized initially on the trade date at which the Group becomes

a party to the contractual provisions of the instrument.

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset

expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction

in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any

interest in transferred financial assets that is created or retained by the Group is recognized as a separate

asset or liability.

Financial assets and liabilities are offset and the net amount is presented in the statement of financial

position when, and only when, the Group has a legal right to offset the amounts and intends either to settle

on a net basis or to realize the asset and settle the liability simultaneously.

Financial, trade and other receivables

Financial, trade and other receivables are financial assets with fixed or determinable payments that are not

quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable

transaction costs. Subsequent to initial recognition trade and other receivables are measured at amortized

cost using the effective interest method, less any impairment losses.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months

or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash

management are included as a component of cash and cash equivalents for the purpose of the statement of

cash flows.

Non-derivative financial liabilities

The Group initially recognizes financial liabilities on the trade date at which the Group becomes a party to

the contractual provisions of the instrument.

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled

or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position

when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net

basis or to realize the asset and settle the liability simultaneously.

The Group has the following non-derivative financial liabilities: borrowings, and trade and other payables.

Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition trade and other payables are measured at amortized cost using the

effective interest method, whereas borrowings are measured at fair value with changes in fair value

recognized in profit or loss.



31 DECEMBER 2015


10


g. Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive

obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be

required to settle the obligation. Provisions are determined by discounting the expected future cash flows

at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific

to the liability. The unwinding of the discount is recognized as finance cost.

h. Grants

Grants are recognized initially as deferred income when there is reasonable assurance that they will be

received and that the Group will comply with the conditions associated with the grant. Grants that

compensate the Group for expenses incurred are recognized in profit or loss on a systematic basis in the

same periods in which the expenses are recognized. Grants that compensate the Group for the cost of an

asset are recognized in profit or loss on a systematic basis over the useful life of the asset.

i. Share capital and dividends

Share capital

Ordinary shares are classified as equity. The share capital is recognized at par value.

Dividends

Dividend distribution to the Group’s shareholder is recognized as a liability in the Group’s consolidated

financial statements in the period in which the dividends are approved by the Group’s shareholder.

j. Impairment of non-financial assets

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets

are reviewed at each reporting date to determine whether there is any indication of impairment. If such

indication exists, then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit 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. For the purpose of impairment testing, assets that cannot be tested

individually are grouped together into the smallest group of assets that generates cash inflows from

continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-

generating unit, or ‘CGU’).

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated

recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in

respect of CGUs are allocated to reduce the carrying amounts of the assets in the unit (group of units) on a

pro rata basis.

Impairment losses 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 recognized.



31 DECEMBER 2015


11


k. Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to

determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective

evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss

event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor,

restructuring of an amount due to the Group on terms that the Group would not consider otherwise,

indications that a debtor or issuer will enter bankruptcy.

The Group considers evidence of impairment for receivables at both a specific asset and collective level.

All individually significant receivables are assessed for specific impairment. All individually significant

receivables found not to be specifically impaired are then collectively assessed for any impairment that has

been incurred but not yet identified. Receivables that are not individually significant are collectively

assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of

recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current

economic and credit conditions are such that the actual losses are likely to be greater or less than suggested

by historical trends.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference

between its carrying amount and the present value of the estimated future cash flows discounted at the

asset's original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance

account against receivables. When a subsequent event causes the amount of impairment loss to decrease,

the decrease in impairment loss is reversed through profit or loss.

l. Revenue recognition

The Group is involved in the sale of electricity as well as in performing related services.

Revenue from sales of electricity to the Distribution System Operator (“OSHEE”) is recognized based on

the actual quantity of energy delivered, measured at the delivery point and, deducting transmission losses.

Revenue represents the value of fixed or determinable consideration that has been received or is receivable.

Revenue is stated at amounts invoiced to customers and excludes value added tax, returns, rebates and

discounts.

m. Finance income and expenses

Finance income comprises interest income on funds invested and net foreign exchange gains. Interest

income is recognized as it accrues in profit or loss, using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

Finance costs comprise interest expense on borrowings and are recognized in profit or loss using the

effective interest method.



31 DECEMBER 2015


12


n. Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in

profit or loss except to the extent that it relates to items recognized directly in equity or in other

comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax

rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of

previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts

of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in

a transaction that is not a business combination and that affects neither accounting, nor taxable profit or

loss.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the

Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and

liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they

reverse, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax

liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or

on different tax entities, and they intend to settle current tax liabilities and assets on a net basis or their tax

assets and liabilities will be realized simultaneously.

Additional taxes that arise from the distribution of dividends by the Group are recognized at the same time

as the liability to pay the related dividend is recognized.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences

to the extent that it is probable that future taxable profits will be available against which it can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer

probable that the related tax benefit will be realized.

o. Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are

classified as operating leases. Payments made under operating leases (net of any incentives received from

the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

p. Employee benefits

Social, pension and health funds

The Group is obliged by the current Albanian legislation to make fixed contributions on behalf of the

employees in a social fund operated by the Government. All payments/liabilities are recognized as an

expense in the period to which they relate.

Termination benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of

those benefits and when the Group recognizes costs for a restructuring. If benefits are not expected to be

settled wholly within 12 months of the reporting date, then they are discounted.



31 DECEMBER 2015


13


q. New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year

ended 31 December 2015, and have not been early applied in preparing these consolidated financial

statements. Those that may be relevant to the Group are set out below:

IFRS 15 Revenue from Contracts with Customers

IFRS 15, Revenue from Contracts with Customers (effective for the periods beginning on or after 1 January

2017, with early adoption permitted). It replaces existing revenue recognition guidance standard, including

IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The new

standard introduces the core principle that revenue must be recognised when the goods or services are

transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must

be separately recognised, and any discounts or rebates on the contract price must generally be allocated to

the separate elements. When the consideration varies for any reason, minimum amounts must be recognised

if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be

capitalised and amortised over the period when the benefits of the contract are consumed. The Group is

assessing the potential impact on its consolidated financial statements resulting from application of IFRS

15.

IFRS 9 Financial Instruments

IFRS 9, published in July 2014, 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 calculation impairment on financial

assets, and the new general hedge accounting requirements. It also carries forward the guidance on

recognition and derecognition 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. The Group has started the

process of evaluating the potential impact on its consolidated financial statements resulting from the

application of IFRS 9.

The following new or amended standards are not expected to have a significant impact on the Group’s

consolidated financial statements:

Effective for annual reporting periods beginning on or after 1 January 2016

IFRS 14 Regulatory Deferral Accounts

Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations

Amendments to IFRS 10, 12 and IAS 28: Investment entities- applying the consolidation exception

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and

Amortisation

Amendments to IAS 1: Disclosure initiative

Amendments to IAS 16 and IAS 41: Bearer Plants

Amendments to IAS 19: Defined Benefit Plans: Employee Contributions

Amendments to IAS 27: Equity method in separate financial statements;


Amendments to IAS 7: Disclosure Initiative

Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses


IFRS 16 Leases

The effective date has not yet been determined, but early adoption is permitted for:

Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate

or joint venture.



31 DECEMBER 2015


14

5. Financial instruments - Fair values and risk management

5.1 Accounting, classifications and fair values

The Group has not disclosed the fair values for financial instruments such as short-term trade receivables

and payables, because their carrying amounts are a reasonable approximation of fair values.

5.1.1 Financial instruments measured at fair value

The Group is a party to long-term borrowings measured at fair value through profit or loss and management

has performed analysis to determine their fair values. The following table shows the carrying amounts and

fair values of long-term borrowings as at 31 December 2015 and 2014:

31 December 2015 31 December 2014

Carrying

amount

Fair value

(level 3)

Carrying

amount

Fair value

(level 3)

Non-current borrowings (Note 12) 31,346,020 31,346,020 34,236,324 34,236,324

The fair value is estimated as the present value of future cash flows, discounted at the interest rates for

similar borrowings at the reporting date. The interest rates used to discount future cash flows at 31

December 2015, are in the range of 2.51% to 4.27% (2014: 3.14% and 3.73%).

Management concluded that there is no publicly available market data that can be used without significant

adjustments in determining the appropriate fair values of the long-term borrowings. A number of risks and

circumstances influence the determination of the fair values of these financial instruments, including the

amount of the financial instrument, maturity, credit rating, type of interest, currency, purpose of the loan,

guarantees, the economic environment in which the parties to the financial instruments operate, and own

risk of nonperformance.

Due to the lack of directly observable market data related to the risks and circumstances of these financial

instruments, the fair values above can only be regarded as reasonable approximations to the fair values and

meet the criteria for classification in the third level of the fair value hierarchy. Although the Group considers

that the estimated fair values are correct, the use of different methodologies and assumptions may result in

different fair values.

5.1.2 Financial instruments not measured at fair value

The fair value of cash and cash equivalents, trade and other receivables and payables is deemed to

approximate their carrying amount as they are short-term non-interest bearing instruments.

The fair value of long-term financial receivables is determined using valuation techniques. The fair value

is estimated as the present value of future cash flows, discounted at the market interest rate at the reporting

date. The Group is in the process of calculating the fair value of these financial instruments, however, at

the date of the approval of these consolidated financial statements such calculations were not finalized.

5.2 Financial risk management

The Group has exposure to the following risks arising from financial instruments:

credit risk;

market risk; and

liquidity risk.

The risk management function within the Group is carried out in respect of financial risks (credit, market,

currency, liquidity and interest rate), operational risks (such as environmental risk) and legal risks. The

primary objectives of the financial risk management function are to establish risk limits, and then ensure

that exposure to risks stays within these limits. The operational and legal risk management functions are

intended to ensure proper functioning of internal policies and procedures to minimize operational and legal

risks.



31 DECEMBER 2015


15

5. Financial Instruments - Fair values and risk management (continued)

5.2 Financial risk management (continued)

Current developments

The Group management performs regular monitoring over all positions of assets and liabilities, income

and expenses, as well as the international markets developments. Based on this, the management analyses

profitability, liquidity and the cost of funds and seeks to implement adequate measures in respect to credit,

market (primarily energy prices and interest rate) and liquidity risk, thus limiting the possible negative

effects from external uncertainties. In this way the Group responds to the challenges of the market

environment, maintaining a stable capital.

5.2.1 Credit risk

The Group is exposed to credit risk, which is the risk that one party to a financial instrument will cause a

financial loss for the other party by failing to discharge an obligation. The main exposure of the Group to

credit risk arises due to financial, trade and other receivables.

The Group’s maximum exposure to credit risk by category of financial instrument and by counterparty is

as follows:

2015

Cash and cash

equivalents

Trade and

other

receivables

Financial

receivables Total

Cash at banks and in transit (Note 10) 1,260,073 - - 1,260,073

OSHEE (state-controlled) - 51,201,445 11,225,370 62,426,815

OST (state-controlled) - 801,730 10,240,603 11,042,333

Employees - 39,469 15,976 55,445

Other entities - 1,520,129 608,482 2,128,611

Total maximum exposure to credit risk 1,260,073 53,562,773 22,090,431 76,913,277

2014

Cash and cash

equivalents

Trade and

other

receivables

Financial

receivables Total

Cash at banks and in transit (Note 10) 854,077 - - 854,077

OSHEE (state-controlled) - 58,433,053 10,887,537 69,320,590

OST (state-controlled) - 587,072 12,456,639 13,043,711

Employees - 37,913 23,203 61,116

Other entities - 2,292,171 934,144 3,226,315

Total maximum exposure to credit risk 854,077 61,350,209 24,301,523 86,505,809

Credit risk management

The Group is exposed to credit risks in its daily business, because it is possible that its counterparty will

fail to meet their financial obligations. The credit risk arising from financial receivables related to funds

originally borrowed from the Group from various institutions (Note 7) is managed and monitored on the

basis of sub-lending agreements with the beneficiaries of the projects financed with these funds. These

projects include conditions and capital commitments which help the Group in the monitoring and

minimization of the credit risk. These commitments are analyzed and monitored on a regular basis as

required from the original borrowing contract.



31 DECEMBER 2015


16



5.2.1 Credit risk (continued)

Credit risks concentration

The Group is exposed to concentrations of credit risk. The management monitors the concentration of

credit risk but encounters difficulties in applying best practice management policies on the Group’s

exposure to such risk due to lack of diversification of the clients’ portfolio. Under the current market

model, the Group is obliged to supply OSHEE with the energy necessary to meet the demand of end

tariff consumers. Under such circumstances, the diversification measures are difficult to apply and

OSHEE represents the main concentration.

At 31 December 2015 the balances receivable from OSHEE, represent 81% of the total maximum

exposure to credit risk (2014: 80%).

Impairment

At 31 December 2015 and 2014, the ageing of financial, trade and other receivables that were not

impaired was as follows: 2015 2014

Trade and

other

receivables

Financial

receivables Total

Trade and

other

receivables

Financial

receivables Total

Not past due 2,921,184 22,090,431 25,011,615 1,950,563 24,301,523 26,252,086

Past due but not

impaired 50,641,589 - 50,641,589 59,399,646 - 59,399,646

- Up to 6 months 7,466,685 - 7,466,685 4,498,896 - 4,498,896

- 6-12 months 5,847,501 - 5,847,501 3,206,669 - 3,206,669

- More than 12 months 37,327,403 - 37,327,403 51,694,081 - 51,694,081

53,562,773 22,090,431 75,653,204 61,350,209 24,301,523 85,651,732

Past due but not impaired receivables at 31 December 2015 and 2014, relate mainly to amounts

receivable from OSHEE, a state-owned entity, for sales made in 2015 and in previous years. Certain

actions were taken by OSHEE and the Albanian Government to improve the collection rates and reduce

losses in the distribution network. Management expects the improved performance of OSHEE and the

involvement of the Government, in its capacity as owner of both entities to continue in 2016, resulting

in an increased collection of the amounts due. Furthermore, based on a loan agreement signed by the

Albanian Government and IBRD, OSHEE opened a Revenue Escrow Account to deposit monthly

revenues, to pay for purchased energy in accordance with an agreed schedule. While the minimum

monthly payment is defined in such schedule, OSHEE has the obligation to fully repay amounts due to

the Group. The greatest uncertainty in estimating the impairment allowance is the time when the old

receivables that are due from more than one year will be repaid. The Group believes that the data

available continues to indicate that its exposure to OSHEE was not impaired at 31 December 2015.

Receivables for which the Group determines that it is probable that it will be unable to collect all

amounts due according to the contractual terms of the agreement(s) are impaired.

The Group establishes an allowance for impairment losses that represents its estimate of incurred losses

in its portfolio. The main components of this allowance are a specific loss component that relates to

individually significant exposures, and a collective loss allowance established by the Group for

homogeneous assets in respect of losses that have been incurred but have not been identified on

receivables subject to individual assessment for impairment.



31 DECEMBER 2015


17



5.2.1 Credit risk (continued)

Impairment (continued)

The movements in the allowance for impairment in respect of trade and other receivables during the

year was as follows:

2015 2014

Balance at 1 January 42,735,534 23,092,854

Impairment loss recognised:

Households - 17,574,517

Excise tax receivable 495,469 -

Other trade receivables - 24,452

Receivables related to SHKEE - 862,121

Receivables related Jacobsen case - 168,173

Other receivables - 1,013,417

495,469 19,642,680

Balance at 31 December 43,231,003 42,735,534

At 31 December 2015 and 2014, an impairment allowance of Lek 40,667,371 thousand related to

receivable balances from household customers for unpaid electricity bills originating before the spin-

off from KESH of OSHEE, which the Group does not expect to collect. The remainder of impairment

allowance as at 31 December 2015 and 2014 is related to several long-standing receivable balances

with no indication of being collected.

Write-off policy

The Group writes off a receivable balance (and any related allowances for impairment losses) when the

management determines that the receivables are uncollectible. This determination is reached after

considering information such as significant efforts have been taken to recover the amount, and there

are no other possibilities for the collection of the outstanding balances.

5.2.2 Market risk

Market risk is the risk of loss that results from changes in domestic market prices (electricity sale prices),

foreign exchange rates, interest rates and equity prices. The level of market risk to which the Group is

exposed at a point in time varies depending on market conditions, expectations of future price or market

rate movements and the composition of the Group’s physical asset and contract portfolios.

Currency risk

Exchange rate risk derives from the fact that the Group’s revenues and most of its loans and receivables

are denominated in LEK, while a substantial part of the Group’s borrowings and trade payables for

imports of energy are denominated in foreign currencies (including EUR, USD, CHF, YEN, and KRW).

The risk is that the functional currency value of cash flows arising from repayment of borrowings and

related interest and from payments for imports of energy will vary as a result of movements in exchange

rates, which may significantly impact the profit of the Group.

For the purpose of optimizing financing costs, in certain cases, the Group has borrowed funds in foreign

currencies, mainly in USD, EUR and YEN.



31 DECEMBER 2015


18



5.2.2 Market risk (continued)

Currency risk (continued)

The table below includes only monetary assets and liabilities and summarizes the Group’s exposure to

foreign currency exchange rate risk at the reporting date:

2015 2014

Monetary financial

assets

Monetary financial liabilities

Net balance position

Monetary financial

assets

Monetary financial liabilities

Net balance position

Lek 50,497,085 (48,660,224) 1,836,861 53,299,134 (51,314,010) 1,985,124

EUR 16,975,486 (33,118,276) (16,142,790) 23,895,653 (40,021,812) (16,126,159)

USD 1,799,342 (6,178,281) (4,378,939) 1,695,796 (6,290,824) (4,595,028)

KRW 2,714,241 (2,455,618) 258,623 2,815,969 (2,502,575) 313,394

CHF 1,124,312 (3,032,877) (1,908,565) 1,304,559 (2,845,706) (1,541,147)

YEN 2,870,803 (2,817,710) 53,093 2,614,752 (3,362,722) (747,970)

XDR 932,008 - 932,008 879,946 - 879,946

Total 76,913,277 (96,262,986) (19,349,709) 86,505,809 (106,337,649) (19,831,840)

The significant exchange rates used to translate the monetary assets and liabilities denominated in foreign

currencies at 31 December 2015 and 2014 are as follows:

In Lek: 2015 2014

EUR 137.28 140.14

USD 125.79 115.23

CHF 126.74 116.52

100 YEN 104.50 96.49

The management of currency risk is supplemented by monitoring the sensitivity of the Group’s financial

assets and liabilities to various standard and non-standard foreign exchange rate scenarios. Standard

scenarios that are considered on a regular basis include a 100 basis point (bp) parallel fall or rise in all

exchange rates.

An analysis of the Group’s sensitivity to an increase or decrease in the value of Lek against foreign

currencies (assuming no asymmetrical movement and a constant statement of financial position) is as

follows:

2015 2014

100 bp 100 bp 100 bp 100 bp

increase decrease increase Decrease

Estimated Profit (loss) effect (211,866) 211,866 (218,170) 218,170

Interest rate risk

In the normal course of business the Group borrows to finance its operations. The Group is exposed to

interest rate risk because the fair value of fixed rate borrowings and the cash flows associated with floating

rate borrowings will fluctuate with changes in interest rates. Note 12 details the interest rates on the

Group’s borrowings.



31 DECEMBER 2015


19



5.2.2 Market risk (continued)

Interest rate risk (continued)

The interest rate profile of the Group’s interest-bearing financial instruments as reported to the

management of the Group is as follows:

2015 2014

Fixed-rate instruments

Borrowings (31,319,552) (65,954,128)

Total fixed-rate instruments (31,319,552) (65,954,128)

Variable-rate instruments

Financial receivables 22,090,431 24,301,523

Borrowings (44,166,949) (17,668,375)

Total variable-rate instruments (22,076,518) 6,633,148

A reasonable possible change of 100 basis points in interest rates at the reporting date would have

increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all

variables, in particular foreign currency exchange rates, remain constant.

2015 2014

100 bp 100 bp 100 bp 100 bp

increase Decrease increase Decrease

Estimated Profit (loss) effect (220,765) 220,765 66,331 (66,331)

Other market price risk – energy prices

Under the current market model, the Group exercises both functions of Power Generation and Wholesale

Public Supplier (“WPS”). In its role of WPS, the Group is required to supply OSHEE with the quantity

of energy that is necessary to meet the end tariff customers’ demand, at prices regulated by the Albanian

Energy Regulatory Entity (“ERE”), giving rise to price risk. The wholesale price approved by ERE

during 2015 was Lek 3.0 per kWh (2014: Lek 2.20 per kWh).

In addition, in its role of WPS the Group is required to acquire the energy produced by local independent

hydropower producers at regulated prices, which gives rise to additional price risk. The prices of energy

sold by local independent hydropower producers as approved by ERE during 2015 varied between Lek

7.64 per kWh to Lek 8.32 per KWh (2014: Lek 7.77 per kWh to Lek 9.30 per kWh).

As the Group is unable to meet the demand for electricity in Albania with own production from its

hydropower plants, it is dependent on the wholesale local and regional energy markets for electricity

prices, which have been volatile in recent years. The outlook for 2016 continued to be difficult to predict

due in part to the uncertain economic environment and the impact of geopolitical events. The price of

electricity in the local markets is particularly important to the Group given that it sells only electricity.

To manage this risk, the Group optimises its asset and contract portfolio through an approach based on

extensive analysis of supply and demand position and continuous assessment of the local markets in

which it operate. The policy is not to hedge a proportion of the exposure.

The Group is exposed to energy price risk in its energy procurement and downstream activities because

the cost of procuring electricity to serve its downstream customers varies with wholesale commodity

prices. The risk is primarily that market prices for energy will fluctuate between the time that sales prices

are fixed or tariffs are set and the time at which the corresponding procurement cost is fixed, thereby

potentially reducing expected margins or making sales unprofitable.

The climate instability as well as the hydrological risk inherent with KESH operations, particularly with

the uncertainties of future generation regimes and the possibility to trade any surplus energy, hampers

the calculation of reliable forecasts to support investment decisions leading to potentially lower than

expected returns.



31 DECEMBER 2015


20



5.2.3 Liquidity risk

Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations

associated with financial liabilities. The Group is exposed to daily calls on its available cash resources,

mainly in order to settle its operating expenses incurred on its ordinary activity as well as to repay its

debt. On the other hand, the Group faces substantial delays in settlement of credit sales made to OSHEE.

Management monitors monthly rolling forecasts of the Group’s cash flows. Additionally, during 2015

the Group has prepared a schedule for the restructuring of its bank overdrafts for the purpose of

optimizing liquidity risk management.

The process of liquidity management adopted by the management includes setting limits to units for

expenditures related to daily activities such as services, supplies, investments, deferring suppliers’

payments, rescheduling agreements between parties, scheduling debt payments and ensuring they are

covered.

The table below shows the remaining contractual maturities of financial liabilities at the reporting date

by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual

discounted cash flows. When the amount payable is not fixed, the amount disclosed is determined by

reference to the conditions existing at the reporting date. Foreign currency payments are translated

using the spot exchange rate at the reporting date.

Up to one year One to five

years Over five

years Total

2015

Trade and other payables 19,966,341 - 810,146 20,776,487

Borrowings 44,140,481 15,722,384 15,623,636 75,486,501

Total 64,106,822 15,722,384 16,433,782 96,262,988

Up to one year

One to five

years

Over five

years Total

2014

Trade and other payables 21,905,000 - 810,146 22,715,146

Borrowings 49,386,179 17,794,581 16,441,743 83,622,503

Total 71,291,179 17,794,581 17,251,889 106,337,649

5.3 Management of capital

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a

going concern in order to provide returns for the shareholder and benefits for other stakeholders and to

maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the

capital structure, the Group may adjust the amount of dividends paid to shareholder, return capital to

shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This

ratio is calculated as total liabilities divided by total capital under management. The Group considers

total capital under management to be equal to the equity as shown in the consolidated statement of

financial position.



31 DECEMBER 2015


21

6. Property, Plant and Equipment

Land Buildings

Machinery

and

equipment

Transport

vehicles

Furniture,

fittings and

equipment

Construction

in progress Total

Cost or evaluation

As at 1 January 2014 1,165,632 87,403,309 22,916,361 268,803 88,075 1,569,481 113,411,661

Additions - 29,778 518,402 - 57,695 2,105,694 2,711,569

Disposal - - (69,509) (2,584) (1,483) - (73,576)

As at 31 December 2014 1,165,632 87,433,087 23,365,254 266,219 144,287 3,675,175 116,049,654

Revaluation 01 January 2015 115,509 (346,310) 24,709,471 (167,891) (70,527) - 24,240,252

Additions 57,044 77,081 236,211 134,100 35,825 1,792,534 2,332,795

Disposal - - (881) - (73) - (954)

Transfers - 507,876 (73,598) (1,152) 22,367 (727,660) (272,167)

As at 31 December 2015 1,338,185 87,671,734 48,236,457 231,276 131,879 4,740,049 142,349,580

Accumulated depreciation

As at 1 January 2014 - (27,788,767) (4,708,117) (127,925) (59,077) - (32,683,886)

Charge for the year - (1,013,919) (851,314) (47,725) (22,766) - (1,935,724)

Disposal - - 26,617 1,545 2,231 - 30,393

As at 31 December 2014 - (28,802,686) (5,532,814) (174,105) (79,612) - (34,589,217)

Revaluation 01 January 2015 - (589,713) (11,433,301) 167,393 76,363 - (11,779,258)

Charge for the period - (1,003,579) (1,308,576) (28,520) (23,030) - (2,363,705)

Disposal - - 604 - 20 - 624

Transfer - - 273,455 320 (1,608) - 272,167

As at 31 December 2015 - (30,395,978) (18,000,632) (34,912) (27,867) - (48,459,389)

Carrying amount

As at 1 January 2014 1,165,632 59,614,542 18,208,244 140,878 28,998 1,569,481 80,727,775

As at 31 December 2014 1,165,632 58,630,401 17,832,440 92,114 64,675 3,675,175 81,460,437

As at 31 December 2015 1,338,185 57,275,756 30,235,825 196,364 104,012 4,740,049 93,890,191

If the cost model had been used, the carrying amounts representing the deemed cost upon IFRS transition of property, plant and equipment as at 31 December 2015

would be Lek 38,959 million (2014: Lek 38,089 million). The revalued amounts include a revaluation surplus which is not available for distribution to the shareholder.



31 DECEMBER 2015


22

6. Property, plant and equipment (continued)

(i) Measurement of fair value - Fair value hierarchy

In 2015, the Group revalued its property, plant and equipment at fair value, which resulted in a net

increase of Lek 12,460,994 thousand composed of a revaluation surplus of Lek 12,774,034 thousand

recognized as an increase in revaluation reserves and a revaluation decrease of Lek 313,040 recognized

as an impairment loss in profit or loss.

Property, plant and equipment related to TEC Vlorë, with a carrying amount of Lek 10,692,163 thousand

as at 31 December 2015 (2014: Lek 11,273,429 thousand), were not part of the revaluation process and

were not revalued during 2015.

The fair value of property, plant and equipment was determined by a group of six external experts

appointed by the Ministry of Economic Development, Tourism, Commerce and Entrepreneurship. The

group of experts comprised three certified real estate property valuers and three certified public

accountants. Their report is dated 25 February 2016, whilst the effective date of revaluation of property,

plant and equipment of the Group was 1 January 2015. The revaluation was performed in accordance

with International Valuation Standards.

Level 3 fair value

The fair values of the Group’s property, plant and equipment are categorized into Level 3 of the fair

value hierarchy. The significant inputs and assumptions are developed in close consultation with

management.

The following table shows the valuation technique used in measuring the fair value of property, plant

and equipment as well as the significant unobservable inputs used.

Assets Valuation technique Significant unobservable inputs

Buildings Depreciated Replacement

Cost:

There is no market or

comparable evidence for these

properties.

Market prices were modified to reflect the

following:

• The level of market transactions when

the market activity is low or the price for

an identical property is difficult to

obtain.

• Specific condition of each property

(construction, position, electrical

installations).

Machinery and

equipment

Depreciated Replacement

Cost:

There is no market or

comparable evidence for these

assets.

The determination of the fair value is

highly subjective, due to the following:

• The price for an identical asset is

difficult to obtain due to lack of market

activity, and the specialized nature of the

assets.

• Specific condition of each asset,

including projected life cycles, which

can change as a result of changes in the

market.

Changes in the assumptions made for these

unobservable inputs, if any, may lead to

significant adjustments in the next

financial year.

Land, transport

vehicles, furniture

fittings and

equipment

Direct Comparison Market prices were modified to reflect the

following:

• The level of market transactions when

the market activity is low or the price for

an identical asset is difficult to obtain.

Specific condition of each asset.



31 DECEMBER 2015


23

6. Property, plant and equipment (continued)

(ii) Impairment test

As described above, the fair value of the majority of the property, plant and equipment of the Group, due

to their specialized nature, was determined based on the depreciated replacement costs. For this purpose,

the Group carried out an impairment test for its property and equipment which were subject to revaluation

and estimated their recoverable amount as at 1 January 2015. Property, plant and equipment of TEC Vlorë

were not tested for impairment in 2015.

For the purposes of the impairment test management allocated all of the assets being tested to one cash

generating unit (“CGU”) comprised of the three hydropower plants located on the Drini river cascade, as

they use the same water resource and are managed together to optimise total power production.

The recoverable amount was based on value in use, determined by discounting the future cash flows to be

generated from the continuing use of the CGU.

The key assumptions used in the estimation of value in use are set out below:

In percent 2015

Discount rate 7.6

Terminal growth rate 1.0

Budgeted EBITDA annual growth rate (average of next five years) 38.0

The discount rate was a post-tax measure based on the estimated weighted average cost of capital.

The cash flow projections included specific estimates for five years and a terminal growth rate thereafter.

The terminal growth rate was determined based on management’s estimate of the long-term compound

annual EBITDA growth rate within the normal production capacities of the Group.

Projected EBITDA was based on the following key assumptions, which represent management best

estimates and are in accordance with the provisions of the Law No. 43/2015, dated 30 April 2015, “On the

Power Sector” and the Decision No. 244, dated 30 March 2016 of the Council of Ministers on the

establishment of the public service obligation:

Starting from 1 January 2018, the energy generated by KESH will be traded in the free market using

future prices based on current management expectations of the future trend of local and regional energy

market prices ;

Starting from 1 July 2016 the Wholesale Public Supplier function will be transferred to OSHEE and

KESH will not have the obligation to acquire the energy produced by local independent hydropower

producers; and

The production level will be constant and is estimated based on the average long-term historical

production level of the CGU being tested;

The values assigned to the key assumptions represent management’s assessment of the future trend in the

power sector and have been based on historical data and future developments from both external and

internal sources.

The estimated recoverable amount of the CGU exceeded its carrying amount by approximately Lek 76

billion and, as a result no impairment was identified.

(iii) Security

There were no assets pledged as collateral as at 31 December 2015 and 31 December 2014.

(iv) Construction in progress

Construction in progress represents the construction of assets not yet completed for the safeguard of the

hydroelectric plants.



31 DECEMBER 2015


24

7. Financial receivables

2015 2014

Non-current receivables

Loans to third parties 16,619,549 18,967,445

Loans to employees 8,749 14,999

16,628,298 18,982,444

Current receivables

Loans to third parties 5,454,907 5,310,875

Loans to employees 7,226 8,204

5,462,133 5,319,079

22,090,431 24,301,523

Loans to third parties represent funds originally borrowed by the Group from various institutions and

sub-lent to the following entities:

- Operatori i Sistemit të Transmetimit (“OST”) Sh.a. in the amount of Lek 10,240,603 thousand (2014:

Lek 12,449,050 thousand);

- OSHEE in the amount of Lek 11,225,370 thousand (2014: Lek 10,887,536 thousand);

Loans to OST and OSHEE were sub-lent as a result of their spin-off from KESH and have maturities

and average nominal interest rates which are determined based on the agreements with original

lenders (Note 12); and

- Elektroprivreda Crne Gore AD Nikšić (“EPCG”) in the amount of Lek 608,483 thousand (2014: Lek

941,734 thousand), under the terms of the “Transmission line Tirana-Podgorica” project. The loan

is interest-bearing and yields interest rate of 0.75% per annum for Portion I, EURIBOR+0.65% per

annum for Portion II and a fixed interest rate to be equal to aggregate of KfW effective funding costs

in the Euro capital market for maturities plus a margin of 0.65% per annum. Upon disbursement in

full of the Portion II, KESH has the option to request for the remaining term a change-over from the

variable interest rate to a fixed interest rate.

8. Inventories

2015 2014

Combustibles 1,143,073 1,119,068

Raw and other materials 1,288,478 1,250,521

Total 2,431,551 2,369,589

9. Trade and other receivables

2015 2014

Trade receivables 92,778,563 100,027,717

Other receivables 4,015,213 4,058,026

96,793,776 104,085,743

Allowance for impairment (43,231,003) (42,735,534)

53,562,773 61,350,209

Information about the Group’s exposure to credit and market risks, and impairment losses for trade and

other receivables is included in Note 5.2.1.

During the year ended 31 December 2015 the Group recognized impairment losses of Lek 495,469

thousand (2014: Lek 19,642,680 thousand) in respect of non-recoverable receivable balances (Note

5.2.1).

All of the Group’s receivables are pledged as collateral for borrowings received from banks.



31 DECEMBER 2015


25

9. Trade receivables and other receivables (continued)

Trade receivables are further detailed as follows:

2015 2014

Trade receivables

Households 40,667,371 40,667,371

OSHEE 51,201,445 58,433,053

OST 801,730 587,072

Other trade receivables 108,017 340,221

92,778,563 100,027,717


52,086,740 59,335,894

Other receivables

Receivables related to Shërbimi i Kontrollit të Energjisë

Elektrike (“SHKEE”) 862,121 862,121

Tax Authorities – Excise tax 825,782 825,782

Tax Authorities – Other 330,445 330,445

Receivables related “Jacobsen” case 168,173 168,173

Receivables from employees 39,469 37,913

Other receivables 1,789,223 1,833,592

4,015,213 4,058,026


1,476,033 2,014,315

Total 53,562,773 61,350,209

As at 31 December 2014 trade receivables from OSHEE included an amount disputed by the latter of

Lek 19,595,834 thousand representing receivables for certain sales of energy and late payment penalties

which were subsequently reconciled between the parties in 2015 and are considered to be settled in the

near future.

10. Cash and cash equivalents

2015 2014

Cash at banks 1,204,596 832,428

Cash on hand 442 628

Cash in transit 55,035 21,021

Cash and cash equivalents in the statement of financial

position 1,260,073 854,077

Bank overdrafts (32,952,282) (34,011,271)

Cash and cash equivalents in the statement of cash flows (31,692,209) (33,157,194)

Cash in transit consist of certain borrowing disbursements net of repayments made in December 2015

and reflected in the bank accounts of the Group in January 2016.



31 DECEMBER 2015


26

11. Equity

11.1 Share capital

The total number of ordinary shares at 31 December 2015 was 20,174,222 shares (2014: 20,040,097

shares) with a par value of Lek 1,000 per share. All issued shares are fully paid.

Registrations of unregistered capital based on the decisions of the Shareholder are detailed as follows:

Decision

Number

Decision Date Registration

Date

Share

capital

Unregistered

capital

As at 1 January 2014 20,040,097 (4,000)

Capital increase - -

As at 31 December 2014 20,040,097 (4,000)

Capital increase 544/1

11 February

2015

23 March

2015 117,012 -

Capital increase 2549/1

16 April

2015

8 May

2015 17,113

As at 31 December 2014 20,174,222 (4,000)

Capital increases during 2015 consist of in kind contributions in property, plant and equipment.

11.2 Dividends

In accordance with Law No. 9901, dated 14 April 2008, based on decision 5870/1, dated 30 July 2015

the Ministry approved the consolidated financial statements for the year ended 31 December 2014. No

dividend was distributed in 2015 (2014: Lek 1,270,004 thousand) as the Group resulted with a net loss

for the year in 2014.

11.3 Legal reserves

Legal reserves of Lek 2,657,219 thousand (2014: Lek 2,657,219 thousand) represent the appropriation

of a portion of retained earnings in accordance with Law No. 9901, dated 14 April 2008, “On

entrepreneurs and commercial companies” which requires that at least 5% of the profit, but not more

than 10% of the subscribed capital is kept as legal reserves. As at 31 December 2015, legal reserves

represented 13% of the subscribed capital of the Group (2014:13%).

11.4 Other reserves

Other reserves comprise revaluation reserves and other reserves as follows:

Revaluation

reserves

Other

reserves Total

Balance at 1 January 2014, as previously reported 46,492,562 5,510,559 52,003,121

Transfer of revaluation reserve (2,332,582) - (2,332,582)

Restated balance at 1 January 2014 44,159,980 5,510,559 49,670,539

Transfer of revaluation reserve (788,861) - (788,861)

Allocation of retained earnings - 10,795,034 10,795,034

Restated balance at 31 December 2014 43,371,119 16,305,593 59,676,712

Transfer of revaluation reserve 12,774,034 - 12,774,034

Revaluation of property, plant and equipment (1,214,172) - (1,214,172)

Balance at 31 December 2015 54,930,981 16,305,593 71,236,574

Revaluation reserves represent the revaluation surplus derived from the independent valuation of

property, plant, and equipment carried out as at 1 January 2015 (see Note 6) less any amounts

subsequently transferred to retained earnings.

Other reserves are created from the appropriation of prior years’ retained earnings based on, and can

only be utilized upon the decision of the Shareholder.



31 DECEMBER 2015


27

12. Borrowings

2015 2014

Non-current

Borrowings from banks 15,849,705 18,649,845

Government loans 15,496,315 15,586,479

31,346,020 34,236,324

Current

Borrowings from banks 39,501,706 45,745,353

Government loans 4,638,775 3,640,826

44,140,481 49,386,179

Total 75,486,501 83,622,503

As at 31 December 2015, borrowings amounting to Lek 42,534,219 thousand (2014: Lek 49,611,232

thousand) bear interest rates below market rates and have maturities ranging from 2016 to 2044. The

Group has recognized the borrowings at fair value at initial recognition and has subsequently measured

them at fair value. During 2015, changes in fair value of borrowings of Lek 196,513 thousand (2014:

Lek (1,025,897) thousand) were recognized as finance income/(costs) in profit or loss.

Bank borrowings are secured by the guarantees from the Government of Albania and by the Group’s

receivables (see Note 9).

The average nominal interest rates at the reporting date were as follows:

2015 EUR USD CHF YEN KRW Lek

Bank borrowings 1.75% 1.92% 0.00% 2.40% 2.50% 4.72%

Government loans 0.56% 1.51% 0.46% - - -

2014 EUR USD CHF YEN KRW Lek

Bank borrowings 1.57% 1.38% 0.00% 2.40% 2.50% 4.64%

Government loans 0.58% 1.20% 0.49% - - -

Breach of loan covenant

Loans from the European Bank for Reconstruction and Development (“EBRD”) amounting to Lek

4,017,865 thousand (2014: 6,557,276 thousand) and repayable between 2016 and 2027 contain financial

covenants stating that during the loan repayment period, the Group is required to maintain adequate

financial ratios, as follows:

Debt service coverage ratio as an indicator for coverage of debt (net income plus depreciation in

respect of interest and principal due on credits), and

Debt over EBITDA ratio as an indicator for a Group’s ability to pay off its incurred debt.

During 2015 and 2014 the Group did not comply with the following covenants from EBRD loans:

2015 2014

Required Actual Required Actual

Loan agreement between KESH and EBRD

Operation no. 33833, July 2004

- Debt service coverage ratio min.1.25 0.23 min.1.25 (0.12)


Operation no. 36112, October 2006


- Debt over EBITDA max.5.50 9.63 max.5.50 (2.73)


Operation no. 23830, September 2002




31 DECEMBER 2015


28

13. Grants

2015 2014

Balance at 1 January 141,816 138,680

Received during the year - 9,183

Adjustments and reclassifications (222) (1,559)

Released during the year (6,260) (4,488)

Balance at 31 December 135,334 141,816

Grants relate to costs and assets and can be direct grants from the government or grants from donors to

the Albanian government related to the Group’s activities.

14. Trade and other payables

2015 2014

Non-current

Other payables 810,146 810,146

810,146 810,146

Current

Trade payables 4,582,167 7,668,080

Tax Authorities – payables from tax audits 3,152,720 3,450,243

Tax Authorities – VAT Payable 2,635,174 2,484,252

Balances with OSHEE 1,879,720 1,879,720

Dividend payable 1,834,700 1,834,700

Income tax payable 2,162,951 1,785,466

Payables for compensation of flood cases 754,374 754,374

Payables related to SHKEE 236,928 236,928

Payables to personnel 58,790 59,363

Tax Authorities – other payables 236,629 237,057

Other payables 2,432,197 2,269,191

19,966,350 22,659,374

Total 20,776,496 23,469,520

Payables from tax audits amounting Lek 3,152,720 thousand (2014: Lek 3,450,243 thousand) consist of

tax liabilities, penalties and late payment interest resulting from tax audits.

Balances with OSHEE relate to certain disputed amounts arising from the spin-off of OSHEE from

KESH and which the parties are in the process of seeking clarification on the accounting implications

and ownership related to these balances.

15. Deferred tax liabilities

Deferred tax is calculated based on the enacted tax rate of 15% (2014: 15%).

Movement in deferred tax liabilities balances during the year are as follows:

2015 At 1 January Recognized in

profit or loss

At 31 December

Borrowings 605,633 29,477 635,110

Total 605,633 29,477 635,110

2014 At 1 January Recognized in

profit or loss

At 31 December

Borrowings 506,345 99,288 605,633

Total 506,345 99,288 605,633



31 DECEMBER 2015


29

16. Revenue

2015 2014

Electricity 19,311,870 10,813,134

Service rendered 179 714

Other 1,192 18,145

Total 19,313,241 10,831,993

The increase in revenue from electricity sales is due to higher quantity of energy sold following the

increase in quantity of internally generated energy by the Group during 2015. As showed in Note 18,

own production of KESH in 2015 was 4,451,975 MWh resulting 31% higher than in 2014.

17. Other operating income

2015 2014

Trade payables written off 230,470 -

Income from changes in prices from regulator 63,234 -

Late payment penalties 8,889 4,874,190

Grants 6,260 4,488

Other 29,120 41,625

Total 337,973 4,920,303

Late payment penalties of Lek 4,874,190 thousand in 2014 represent penalties charged to OSHEE for

non-payment of electricity invoices ranging from 2010 to 2014, calculated at the monthly average rate

of one-year Treasury Bills + 3%. Such penalties are disputed by OSHEE and the parties at the date of

release of these consolidated financial statements are in process of reconciling the amounts. In 2015, late

payment penalties relate mainly to penalties applied for contractual delays of suppliers.

Income from trade payables written off is related to certain payables to CEZ Trade Albania Shpk, an

entity part of CEZ Group, for contractual obligations under court dispute. Subsequently, following the

agreement between the Albanian Government and CEZ Group for the amicable settlement of all of the

disagreements with CEZ Group, CEZ Trade Albania Shpk withdrew its claims towards KESH and the

court case was closed.

18. Purchased energy

2015 2014

Locally generated energy 7,790,209 8,138,026

Imported energy 1,672,172 976,232

Energy purchased from licensed traders 829,137 506,479

Energy purchased from separated HPP 238,564 204,540

Compensation for imbalances 16,240 11,423

10,546,322 9,836,700

The quantity of energy supplied by source of generation was as follows:

2015 2014

(in MWh) (in MWh)

(unaudited) (unaudited)

Internally generated and supplied 4,451,975 3,408,555

Locally generated energy 1,001,192 919,010

Imported energy 246,116 136,560

Energy purchased from licensed traders 129,184 69,360

Energy purchased from separated HEC 31,242 32,726

Compensation for imbalances 11,392 11,423

5,871,101 4,577,634



31 DECEMBER 2015


30

19. Employee benefit expenses

2015 2014

Salaries 709,792 693,532

Other 205,015 201,918

Social & health contribution 133,494 136,100

Total 1,048,301 1,031,550

The number of employees at 31 December 2015 was 975 (31 December 2014: 997).

20. Other operating expenses

Expenses by category are composed as follows:

2015 2014

Bailiff services 507,467 182,045

Insurance premiums 260,043 265,406

Fines and penalties 98,646 653,101

Experts services 73,709 77,528

Bank charges 63,485 122,673

Maintenance expenses 61,080 43,802

Business trip per diem expenses 20,308 17,252

Hired services 5,954 6,357

Telephone and postage 5,777 6,113

Taxes, fees and similar 4,623 4,863

Provision for legal cases 4,009 10,751

Other 186,235 97,356

Total 1,291,336 1,487,247

21. Net finance costs

2015 2014

Finance income

Interest income 286,968 339,908

Change in fair value of borrowings 196,513 -

483,481 339,908

Finance costs

Interest expense on bank borrowings (2,222,655) (2,579,445)

Change in fair value of borrowings - (1,025,897)

Foreign exchange loss, net (315,059) (582,233)

(2,537,714) (4,187,575)

Net finance cost (2,054,233) (3,847,667)

22. Income tax expense

The Group determines taxation at the end of the year in accordance with the Albanian tax legislation. In

2015, the corporate tax rate on profit was equal to 15% (2014: 15%) of taxable income.

2015 2014

Current tax 619,469 5,941

Deferred income tax (Note 15) 29,477 99,288

Total 648,946 105,229



31 DECEMBER 2015


31

22 Income tax expenses (continued)

The following is a reconciliation of income taxes calculated at the applicable tax rate to income tax

expense:

Tax rate 2015 Tax rate 2014

Profit/ (loss) before income tax 1,445,992 (22,135,433)

Tax calculated at the tax rate of 15% 15.0% 216,899 15.0% (3,320,315)

Tax effect of non-deductible expenses 22.6% 326,831 (14.8%) 3,279,371

Tax effect of non-taxable income (2.1%) (29,758) - -

Change in recognized deductible

temporary differences 8.4% 29,477 (0.4%) 99,288

Current year losses for which no

deferred tax asset is recognized 2.0% - (0.2%) 46,885

Recognition of tax effect of previously

unrecognised tax losses 7.3% 105,497 - -

Tax charge 44.9% 648,946 (0.5%) 105,229

Tax exposures

In determining the amount of current and deferred tax the Group takes into account the impact of

uncertain tax positions and whether additional taxes and interest may be due. The Group believes that

its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors,

including interpretations of tax law and prior experience. This assessment relies on estimates and

assumptions and may involve a series of judgments about future events. New information may become

available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities;

such changes to tax liabilities will impact tax expense in the period that such a determination is made.

23. Related Parties

As at 31 December 2015 and 2014 the Group was controlled by the Ministry of Development, Economy,

Tourism, Trade and Entrepreneurship (‘MZHETTS’), of the Republic of Albania, which owned 100%

of the Group’s shares.

The following transactions were carried out with related parties:

2015 2014

(a) Sales of services

OSHEE 15,704,045 10,129,994

OST 346,854 241,826

16,050,899 10,371,820

(b) Purchases of goods and services

Lanabregas Sha 238,564 204,540

OST 16,241 11,423

Other state-controlled entities 4,178 4,929

258,983 220,892

(c) Key management compensation

Salaries and other short-term employee benefits 42,845 45,984

Supervisory board 2,059 2,036

44,904 48,020

(d) Arising from activity

Receivables from related parties:

OSSHE (Note 9) 51,201,445 58,433,053

OST (Note 9) 801,730 587,072

Tax authorities - Excise tax (Note 9), net of

impairment (Note 5.2.1) 330,313 825,782

Tax authorities - Other (Note 9) 330,445 330,445

52,663,933 60,176,352



31 DECEMBER 2015


32

23. Related Parties (continued)

Payables to related parties:

Balances with OSHEE (Note 14) 1,879,720 1,879,720

OST 32,620 76,487

Tax Authorities - payables from tax audits (Note 14) 3,152,720 3,450,243

Tax authorities - VAT payables (Note 14) 2,635,174 2,484,252

Tax authorities - Income taxes (Note 14) 2,162,951 1,785,466

Tax authorities - other taxes payable (Note 14) 236,629 237,057

10,099,814 9,913,225

(e) Loans to related parties

OSHEE (Note 7) 11,225,370 10,887,536

OST (Note 7) 10,240,603 12,449,050

21,465,973 23,336,586

(f) Loans from related parties

Ministry of Finance (Note 12) 20,135,090 19,227,305

20,135,090 19,227,305

(g) Dividends payable

Ministry of Finance (Note 14) 1,834,700 1,834,700

1,834,700 1,834,700

Following the transfer of control in CEZ Shpërndarje (former name of OSHEE) from ČEZ, a.s., to the

Albanian Regulator of Energy in January 2013, CEZ Shpërndarje is classified as a state-controlled entity.

Subsequently, based on the Law No. 114/2014, dated 31 July 2014 “On the approval of the amicable

settlement agreement between the Republic of Albania and ČEZ, a. s.”, the ownership of 76% of the

shares in CEZ Shpërndarje was transferred from ČEZ, a. s. to the sole shareholder of KESH.

As described in note 24, based on decision no. 317, dated 27 April 2016 of the Council of Ministers, the

Group ownership was transferred from MZHETTS to the Ministry of Energy and Industry (“MEI”) and

registered at the National Registration Center as at 24 May 2016.

24. Commitment and Contingencies

Commitments

As at 31 December 2015, the Group has entered into capital commitments of Lek 2,084,207 thousand

(2014: Lek 2,838,343 thousand), relating to projects for the safeguard the hydroelectric dams on the Drin

river cascades. These commitments are expected to be paid over a period of two years.

Contingencies

In the normal course of business the Group is presented with legal claims and litigation; the Group’s

management is of the opinion that no material losses will be incurred in relation to other legal claims

outstanding as at 31 December 2015.

In addition, the Group’s tax books and records for the financial year ended 31 December 2015 have not

been inspected by the local tax authorities. Consequentially, the Group’s tax liabilities may not be

considered finalized. Additional taxes that may arise in the event of tax audit cannot be determined with

any reasonable accuracy.

Operating Leases

The Group leases various offices and warehouses under non-cancellable operating lease agreements.

The leases have varying terms, escalation clauses and renewal rights. The Group mainly enters into one-

year leasing contracts, renewable annually. As at 31 December 2015, minimum lease payments of less

than one year amount to Lek 5,954 thousand (2014: Lek 6,357 thousand).



31 DECEMBER 2015


33

25. Events after the reporting date

Laws and regulations

A new law introducing the energy market model in Albania was approved by the Parliament, law No.

43/2015, dated 30 April 2015 “On the power sector”. The main impact of the new law on the activities

of the Group is that the Wholesale Public Supplier function, which is a current sub-division of the Group

is expected to be transferred to OSHEE. However, the time framework of changes brought about the

new law are still to be determined as further implementation rules and bylaws are expected to be issued.

Based on Council of Ministers decision no. 244, dated 30 March 2016, “On the conditions for approval

of the public service obligation, applicable for licenced entities in the energy sector and which operate

in the generation, transmission, and distribution and supply of energy” will act as a Temporary Energy

Market Model, based on which the Group will bear the public service responsibility supplying the

Universal Service Provider with the energy provided from the generating units located in Drin Cascade,

based on a rational regime of utilisation of generating capacities and historical average production level

which shall be used for the coverage of final consumers demand.

Based on this Temporary Market Model OSHEE will continue to purchase the energy from renewable

resources as per current law in force and contract agreement approved by ERE. While, starting from 1

July 2016 KESH Sha is not expected to bear the obligation to import energy for the compensation in

demand from the tariff customers and purchase the energy from small HPP’s as per requirements of law

no. 138/ 2013, dated 17 December 2013 “On renewable energy resources”. Furthermore, actual energy

purchase agreements from small and private HPP’s are going to be transferred to OSHEE as per new

law requirements.

Based on decision no. 317, dated 27 April 2016 “On appointing the Public Authority representing the

Government as a Shareholder of entities in the energy sector”, the Group sole Shareholder is the Ministry

of Energy and Industry, which will not act as a Shareholder for the other entities in the sector.

Additionally, the members of the Supervisory Council of the Group will act as the governing body only

for the KESH Sha.

Restructuring

Based on the decision no. 4, “For restructuring of short term borrowings of KESH Sha”, dated 14 June

2016 the Supervisory Council approved a draft borrowing agreement with the European Bank for

Reconstruction and Development (“EBRD”). The Ministry of Finance and the Ministry of Economy and

Industry have negotiated with EBRD to secure a long term borrowing contract with preferential terms

and conditions implying a longer maturity of 15 years and interest rate 6 months EURIBOR + 1%. The

purpose of the borrowing will be to settle the current short-term borrowings with second tier local banks

obtained from the Group during 2015 in order to meet its liquidity needs and improve its profitability

and debt ratios.

26. Restatement

(a) Correction of errors

During 2015 the Group discovered that certain amounts payable arising as a result of decisions of the

Council of Ministers issued during 2010 and 2011 related natural flood cases in Shkodra had erroneously

not been recognized as a consequence of which, trade and other payables had been understated. The

error has been corrected by restating each of the affected financial statement line items for the prior

period.

(b) Changes in accounting policies

Changes in accounting policies are described in Note 2(c).

KORPORATA ELEKTROENERGJITIKE SHQIPTARE SHA -KESH


31 DECEMBER 2015


34

26. Restatement (continued)

The following tables summarise the impacts on the Group’s consolidated financial statements:

(i) Statement of financial position

31 December 2014

As previously

reported

Correction

of error

(a)

Changes in

accounting

policies

(b)

As restated

Total assets 170,335,907 - - 170,335,907

Equity

Other reserves 62,786,821 - (3,110,109) 59,676,712

Accumulated (losses) (22,229,328) (754,374) 3,110,109 (19,873,593)

Others 22,693,316 - - 22,693,316

Total equity attributable to the

owners 63,250,809 (754,374) - 62,496,435

Trade and other payables 23,469,520 754,374 - 24,223,894

Others 74,738,151 - - 74,738,151

Total liabilities 107,085,098 754,374 - 107,839,472

1 January 2014

As previously

reported

Correction

of error

(a)

Changes in

accounting

policies

(b)

As restated

Total assets 184,969,146 - - 184,969,146

Equity

Other reserves 52,003,121 - (2,332,582) 49,670,539

Accumulated (losses) 12,700,040 (754,374) 2,332,582 14,278,248

Others 22,058,314 - - 22,058,314

Total equity attributable to the

owners 86,761,475 (754,374) - 86,007,101

Trade and other payables 18,996,350 754,374 - 19,750,724

Others 79,211,321 - - 88,088,748

Total liabilities 98,207,671 754,374 - 98,962,045

(ii) Statement of profit or loss and OCI

31 December 2014

As previously

reported

Correction

of error

(a)

Changes in

accounting

policies

(b) As restated

(Loss)/profit before tax (22,135,433) - - (22,135,433)

Income tax expense (105,229) - - (105,229)

Net (loss)/ profit for the year (22,240,662) - - (22,240,662)

Other comprehensive income for

the year - - - -

Total comprehensive

(loss)/income for the year (22,240,662) - - (22,240,662)

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