Most of OPC-Rotem and OPC-Hadera power plants’ operations employees are employed under collective employment agreements.82
United States
As of December 31, 2021, CPV had a total of 104 employees. In general, CPV does not enter into employment contracts with its employees. All employees of CPV are “at-will” employees and are typically not physically present at the project companies facilities. Rather, day-to-day operations at the project facilities are performed by contractors who are employed directly by the applicable O&M service providers.
Shareholders’ Agreements
OPC-Rotem
OPC’s first power plant, OPC-Rotem, a combined cycle power plant with an installed capacity of 466 MW (based on OPC-Rotem’s generation license), commenced commercial operations in Mishor Rotem, Israel in July 2013. The power plant utilizes natural gas, with diesel oil and crude oil as backups. The OPC-Rotem plant was constructed for an aggregate cost of approximately $508 million.
Below are the key elements of OPC-Rotem business operations:
Sales of Electricity
OPC-Rotem has a PPA with the IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the IEC PPA (which was assigned by the IEC to the System Operator). The term of the IEC PPA is for 20 years after the power station’s COD (which was in 2013). According to the agreement, OPC-Rotem is entitled to operate in one of the following two ways (or a combination of both, subject to certain restrictions set in the agreement): (i) provide the entire net available capacity of its power station to the IEC or (ii) carve out energy and capacity for direct sales to private consumers. OPC-Rotem has allocated the entire capacity of the plant to private consumers since COD. As of December 31, 2023, OPC-Rotem supplies energy to dozens of private customers according to PPAs. OPC manages sales of electricity from the OPC-Rotem power plant in a manner that is intended to permit flexibility in the sale of electricity to its customers (for example, by means of suspending from time to time the sale of the electricity). OPC-Rotem has the option to sell the electricity to Noga in accordance with a PPA with the IEC. Under the IEC PPA, OPC-Rotem can also elect to revert back to supplying to the IEC instead of private customers, subject to twelve months’ advance notice.
Gas Supply Agreements
The power plants owned by OPC in Israel use natural gas as their primary fuel, with diesel fuel and fuel oil as backup. OPC-Rotem purchases natural gas from Tamar Group and Energean as described below.
OPC-Rotem purchases natural gas from the Tamar Group pursuant to a natural gas supply agreement that expires upon the earlier of June 2029 or the date on which OPC-Rotem consumes the entire contractual capacity. The EA’s generation component tariff is the base for the natural gas price linkage formula in the agreement between OPC-Rotem and the Tamar Group. The agreement includes a requirement to purchase minimum quantities (‘take or pay’) from Tamar Group. Commencing in March 2020, OPC-Rotem was required to purchase minimum amounts of gas pursuant to the agreement (referred to as the "take or pay obligation"). The agreement has been amended several times in the past several years and in 2022, OPC-Rotem exercised an option to reduce some of the quantities purchased under the Tamar agreement in connection with the gas supply agreement with Energean, as a result of which the quantity and purchase cost of natural gas from the Tamar Group has declined materially.
In December 2017, OPC-Rotem signed an agreement for the purchase of natural gas with Energean (the “OPC-Rotem Energean Agreement”). Pursuant to this agreement, OPC-Rotem has agreed to purchase from Energean 5.3 billion m3 of natural gas over a period of fifteen years (subject to adjustments based on their actual consumption of natural gas) or until the date of consumption of the full contractual quantity, commencing at the commercial operation date of the Energean natural gas reservoir. In 2019, the agreement between OPC-Rotem and Energean was amended to increase the daily and annual gas consumption from Energean, while keeping the same total contractual gas quantity. The supply period was shortened to ten years (and shorter if the total contractual quantity is supplied earlier). In August 2022, OPC-Rotem notified Energean regarding the increase of the contractual gas quantity under the original terms and conditions of the OPC-Rotem Energean Agreement, which increases the take or pay commitment under the agreements. In March 2023, Energean notified OPC-Rotem of the completion of the commissioning and commencement of commercial operation of gas supply.
In January 2023, Energean announced that the commissioning process is expected to be completed in February 2023. Energean informed OPC-Rotem of the completion of the commissioning process for the purposes of the OPC-Rotem agreement on March 25, 2023. Commercial operation of the Karish Reservoir began on March 26, 2023 and since that time OPC-Rotem has reduced purchases of quantities under the Tamar Agreements, and started acquiring a substantial portion of the gas also from Energean, and thereby reducing its gas acquisition costs. OPC is currently in touch with Energean in connection with its notices to OPC-Rotem.
Since the beginning of the War in Israel and up to November 12, 2023, supply of the natural gas from the Tamar reservoir was suspended. There was no change in the activities of the Karish reservoir of Energean as a result of the War. During the suspension period of the Tamar reservoir, OPC acquired natural gas mainly from Energean as well as under short‑term agreements and through transactions in the secondary market, such that there has been no significant change in OPC’s natural gas costs compared with the situation existing prior to the start of the War. A shortage or interruption in the supply of natural gas from the Karish reservoir (without compensatory agreements) could have a significant negative impact on OPC’s natural gas costs.
Maintenance
In December 2023, OPC-Rotem entered into a new maintenance agreement with Mitsubishi Power Europe Ltd. and a company operating on its behalf that will serve as a local contractor (together “Mitsubishi”) for a total estimated cost of approximately EUR 67 million to be paid over the term of the agreement, in accordance with a payment schedule set forth in the agreement (the “New Rotem Maintenance Agreement”). The New Rotem Maintenance Agreement is expected to replace OPC-Rotem’s existing maintenance agreement with Mitsubishi Heavy Industries Ltd. which is expected to expire in October 2025. The term of the New Rotem Maintenance Agreement is 12 years from the end of the term of the existing OPC-Rotem maintenance agreement, or the completion of the required maintenance work, and no later than 20 years from the end of the term of the existing OPC-Rotem maintenance agreement. As part of the New Rotem Maintenance Agreement, Mitsubishi provides to OPC-Rotem an undertaking to maintain a certain level of availability of the components relevant to the power plant and other parameters related to the performance of the relevant components in the power plant (including an undertaking regarding emissions). In addition, Mitsubishi provided OPC-Rotem a warranty in connection with some of the maintained components. As part of the New Rotem Maintenance Agreement, the timetable for maintenance work for the power plant was extended such that maintenance work will be executed in the power plant every 25,000 working hours (approximately three years). Alongside the signing of the New Rotem Maintenance Agreement, OPC-Rotem has undertaken to purchase new equipment for the power plant at the total cost of approximately EUR 8 million. OPC’s existing long-term service agreement with Mitsubishi includes timetables for performance of the maintenance work, including “major overhaul” maintenance, which is to be performed every six years. Regular maintenance work is scheduled to be completed approximately every two years. In accordance with the New Rotem Maintenance Agreement, the timetable for the execution of scheduled maintenance works in the power plant is approximately every three years. No planned material maintenance work took place in OPC-Rotem in 2023, although the power plant was shut down due to non-scheduled maintenance work for immaterial periods. The next regular maintenance work that is scheduled to take place in 2024 (spring), during which the plant’s operations are expected to be suspended for approximately 15 days. This schedule could change as a result of various factors including, among others, the scope of operation of the power plant, security developments in Israel, infrastructure constraints or rescheduled works with the maintenance contractor which could adversely affect the operations of OPC-Rotem and the OPC group.
Tzomet
Tzomet owns a natural gas-fired open-cycle power station in Israel with capacity of approximately 396 MW. The Tzomet plant is a “peaking” facility and all capacity will be sold to the IEC. OPC Israel owns 100% of the shares of Tzomet. The Tzomet plant’s total construction cost amounted to approximately NIS 1.4 billion (approximately $386 million) (excluding NIS 200 million in connection with the tax assessment relating to the land).
The Tzomet plant reached COD on June 22, 2023 and the EA has granted a permanent electricity generation license to Tzomet for a period of 20 years. The completion of the construction of the Tzomet power plant was initially scheduled for January 2023, but was delayed by the construction contractor as a result of COVID 19 and delays in the global supply chains of components and equipment required for the project.
Below are key elements of Tzomet business operations:
Sales of Electricity
As opposed to generation facilities with an integrated cycle that operate during most of the hours in the year, the Tzomet plant is an open-cycle power plant (peaker plant). Peaker plants are generally planned to operate for a short number of hours during the day, where there is a gap in the demand and supply of electricity, e.g., at peak demand times. They act as backup plants whose purpose is to provide availability in times of peak demand, such as when other generation facilities break down, or as supplements when solar energy is unavailable. Therefore, as opposed to OPC-Rotem and OPC-Hadera, which enter into PPAs to sell power to private customers, Tzomet sells all of its energy and capacity from its facilities to Noga (acting as a peaker plant) in accordance with the power purchase agreement based on an approved Tzomet tariff.
In January 2020, Tzomet entered into a PPA with the IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the Tzomet PPA. The term of the Tzomet PPA is for 20 years after the power station’s COD. According to the terms of the Tzomet PPA, (i) Tzomet will sell energy and capacity to the IEC and the IEC will provide Tzomet infrastructure and management services for the electricity system, including back-up services, (ii) all of the Tzomet plant’s capacity will be sold pursuant to a fixed availability arrangement, which require compliance with criteria set out in relevant regulation, (iii) the plant will be operated pursuant to the System Operator’s directives and (iv) Tzomet will be required to comply with certain availability requirements set out in its license and relevant regulation, and pay penalties for any non-compliance. Tzomet plant’s entire capacity is allocated to the System Operator pursuant to the terms of the Tzomet PPA. Under the establishment of the System Operator as part of the IEC Reform, in October 2020, Tzomet received notice that its PPA with the IEC has been re-assigned to Noga.
Gas Supply Agreement
In December 2019, Tzomet entered into an agreement with INGL for the transmission of natural gas to the Tzomet power plant. The agreement period is 15 years from piping of first gas (which started in December 2022), including a 5-year extension option, subject to advance notice, under terms and conditions that are customary in gas transmission agreements signed by INGL at that time. The agreement is subject to cancellation under certain conditions.
Under the agreement, partial connection fees were defined in respect of the connection planning and procurement. In addition, OPC has provided a corporate guarantee in connection with Tzomet’s obligations under the agreement.
Maintenance Agreement
In December 2019, Tzomet entered into a long-term maintenance agreement with PW Power Systems LLC (“PW”). The cost of the Tzomet maintenance agreement is part of the total estimated consideration of the agreement with the power plant’s construction contractor, of approximately $300 million. The consideration in respect of the maintenance work may increase in line with the maintenance work that will actually be required. Pursuant to the agreement, PW will provide maintenance work on the Tzomet plant generators, turbines, and additional equipment for a period of 20-years commencing on the date of commercial operation of the Tzomet plant. Since Tzomet’s COD and through the end of 2023, a number of maintenance works took place in the power plant, each of which was immaterial in scope.
Tariff Arrangements
Pursuant to the generation license, Tzomet is entitled to receive an availability tariff from the System Operator of between 5.7 and 6.5 agorot per kilowatt hour, subject to the number of ignitions. In addition, Tzomet is entitled to an electricity and gas tariff based on the generation and purchase cost and pursuant to the terms of the generation license and relevant EA regulation.
OPC-Hadera
OPC-Hadera operates a cogeneration power station in Israel, with capacity of approximately 144 MW. The cogeneration power plant reached its COD on July 1, 2020. OPC-Hadera holds a permanent license for generation of electricity using cogeneration technology and a supply license. The generation license has been granted by the EA for a period of 20 years which may be extended by an 80% stakeadditional 10 years. OPC-Hadera also holds the supply license which is in OPC-Rotem. effect for as long as OPC-Hadera holds a valid generation license. OPC-Hadera owns the Hadera Energy Center, which consists of boilers and a steam turbine. The Hadera Energy Center currently serves as back-up for the OPC-Hadera power plant’s supply of steam and its turbine is not currently operating and is not expected to operate with generation of more than 16MW. OPC Israel owns 100% of OPC-Hadera. The total consideration under the EPC contract for the project was approximately $185 million. OPC-Hadera power plant is “two‑fuels” generator of electricity (capable of using both natural gas and diesel oil, in its operations, subject to the required adjustments).
OPC-Hadera leases from Infinya the land on which the power generation plant is located for a period of 24 years and 11 months from December 2018.
Below are the key elements of OPC-Hadera business operations:
EPC Contract
In January 2016, OPC-Hadera entered into an EPC contract with an EPC contractor, IDOM, for the design, engineering, procurement and construction of the cogeneration power plant (as well as amendments to the agreement that were subsequently signed). The total consideration, following amendments made to the agreement in 2018, was estimated at NIS 639 million (approximately $185 million), payable upon achievement of certain milestones. The agreement contains a mechanism for the compensation of OPC-Hadera in the event that IDOM fails to meet its contractual obligations under the agreement.
On July 1, 2020, the commercial operation date of the Hadera power plant commenced after a delay in the completion of construction as a result of, among other things, components replaced or repaired. Payments under the insurance policies and/or compensation from the construction contractor were not received (except for amounts unilaterally offset by OPC against payments to the construction contractor in respect of the delay in operation, and non-compliance with the power plant’s performance). OPC-Hadera had filed an arbitration proceeding against the contractor. In December 2023, OPC-Hadera signed a settlement agreement the construction contractor, which provides for a settlement of the parties' claims and termination of related arbitration proceedings, and compensation payable by the construction contractor to OPC-Hadera of approximately $21 million. The net compensation payable to OPC-Hadera is approximately $7 million after offset of amounts payable by OPC-Hadera to the construction contractor.
Sales of Electricity and Steam
OPC-Hadera’s power plant supplies the electricity and steam needs of Infinya’s facility and provides electricity to private customers in Israel. It also sells electricity to the IEC. The power plant operates using natural gas as its energy source, and diesel oil and crude oil as backups. In order to benefit from the fixed arrangements for cogeneration electricity producers, each generation unit in a power plant must meet the minimum energy utilization conditions set forth in the Cogeneration Regulations, and if it does not meet them, other less favorable tariff arrangements will apply. OPC-Hadera is entitled, if it complies with the terms and conditions of the regulations arrangements, to sell to the System Operator up to 50% of the electrical energy generated during on-peak and mid-peak hours, based on an annual calculation, and up to 35 MW during off-peak hours based on an annual calculation, for a period of up to 18 years from the permanent license issue date, and at a tariff, the formula for calculation of which is fixed in advance and includes linkage mechanisms for the various parameters, including OPC-Hadera’s gas price (including taxes, the CPI and the exchange rate of the USD). Following the demand hours clusters revision resolution, which updated the demand hours clusters, the mid-peak demand hour cluster was canceled, and the off-peak hours were expanded in a way that might reduce the System Operator’s purchase obligation from OPC-Hadera. The annual tariff is set according to the actual amount of electricity provided during on-peak and off-peak hours. Notwithstanding the foregoing, the EA decided not to make changes regarding producers that use gas to generate electricity.
OPC-Hadera has entered into a PPA with Infinya for supply of all of Infinya’s electricity and steam needs for a period of 25 years starting in July 2020. The agreement provides a minimum quantity of steam to be purchased by Infinya (take or pay), which will be subject to adjustment. The tariff paid by Infinya for the electricity purchased by it for the agreement term is based on the DSM Tariff, with a discount on the generation component, plus a fixed payment in respect of the size of the connection.
In addition to this agreement, OPC-Hadera has entered into PPAs with additional private customers. These agreements are essentially similar to OPC-Rotem’s PPAs and include early termination and/or extension provisions (as the case may be).
Gas Supply Agreements
In 2012, Infinya entered into an agreement with the Tamar Group for the supply of natural gas, which has been assigned to OPC-Hadera. This gas supply agreement expires upon the earlier of April 2028 or the date on which OPC-Hadera consumes the entire contractual capacity. Both contracting parties have the option to extend the agreement, under certain conditions. The price of gas is linked to the weighted average of the generation component tariff published by the EA, and it is also subject to a price floor. According to the agreement, the gas shall be supplied on a firm basis, and includes a take or pay obligation, by OPC-Hadera. In June 2022, OPC-Hadera exercised an option to reduce the quantities by approximately 50%, with effect from March 2023.
In September 2016, OPC-Hadera entered into another gas supply agreement with the Tamar Group. OPC-Hadera exercised an early termination right in June 2022 and this supply agreement terminated in June 30, 2023.
In December 2017, OPC-Hadera signed an agreement for the purchase of natural gas from Energean (the “OPC-Hadera Energean Agreement” and, together with the OPC-Rotem Energean Agreement, the “Energean Agreements”). Pursuant to this agreement, OPC-Hadera has agreed to purchase from Energean 3.7 billion m3 of natural gas for a period of fifteen years (subject to adjustments based on their actual consumption of natural gas) or until the date of consumption of the full contractual quantity, commencing at the commercial operation date of the Energean natural gas reservoir. In 2019, this agreement was amended to increase the daily and annual gas consumption from Energean, while keeping the same total contractual gas quantity. The supply period was shortened to ten years (unless the total contractual quantity is supplied earlier). In August 2022, OPC-Hadera informed Energean of an increase of the contractual gas quantity under the original terms and conditions of the OPC-Hadera Energean Agreement, which increases the take or pay commitment under the agreements.
Energean informed OPC-Hadera of the completion of the commissioning process for the purposes of the OPC-Hadera gas supply agreement on February 28, 2023. Commercial operation of the Karish Reservoir began in March 2023, and since that time OPC-Hadera has reduced purchases of quantities under the Tamar Agreement, and started acquiring a substantial portion of the gas from Energean, and thereby reducing its gas acquisition costs.
Since the beginning of the War in Israel and up to November 12, 2023, supply of the natural gas from the Tamar reservoir was suspended. There was no change in the activities of the Karish reservoir that belongs to Energean as a result of the War. During the suspension period of the Tamar reservoir, OPC has acquired natural gas mainly from Energean as well as under short‑term agreements and by means of transactions in the secondary market, where in this period there has been no significant change in OPC’s natural gas costs compared with the situation existing prior to the start of the War. A shortage or interruption in the supply of natural gas from the Karish reservoir (without compensatory agreements) could have a significant negative impact on OPC’s natural gas costs.
Maintenance Agreement
In June 2016, OPC-Hadera entered into a maintenance agreement with General Electric International Ltd., or GEI, and GE Global Parts & Products GmbH pursuant to which these two companies will provide maintenance treatments for the two gas turbines of GEI, generators and auxiliary facilities of the OPC-Hadera plant for a period commencing on the date of commercial operation until the earlier of: (i) the date on which all of the covered units (as defined in the service agreement) have reached the end-date of their performance and (ii) 25 years from the date of signing the service agreement. The service agreement contains a guarantee of reliability and other obligations concerning the performance of the OPC-Hadera plant and indemnification to OPC-Hadera in the event of failure to meet the performance obligations. OPC-Hadera has undertaken to pay bonuses in the event of improvement in the performance of the plant as a result of the maintenance work, up to a cumulative ceiling for every inspection period. In 2023, planned and unplanned maintenance work was conducted in the power plant’s gas turbine over an aggregate period of approximately 40 days. During that maintenance work, the power plant continued to operate on a partial basis. In 2023, the performance and capacity of the power plant improved compared to 2022. Certain planned maintenance work is expected to take place in 2024 in one of the gas turbines and in the steam turbine, which will take approximately 35 days in total.
Kiryat Gat Power Plant
Kiryat Gat operates a combined cycle power station powered by conventional energy, with installed capacity of approximately 75 MW. The power plant began operations in November 2019, upon receiving generation and supply licenses awarded by the EA. The plant is located in Kiryat Gat area.
The Kiryat Gat Power Plant was acquired by OPC in March 2023, through a subsidiary for consideration of approximately NIS 870 million (approximately $242 million) (after working capital adjustments). The consideration was used to repay an approximately NIS 303 million (approximately $84 million) shareholder loan that was provided to the Gat Partnership by Dor Alon (for the purpose of early repayment of the former senior debt of the Kiryat Gat Power Plant, and the remaining balance of approximately NIS 567 million (approximately $158 million) was used to acquire all the rights in the Gat Partnership (out of the remaining balance, approximately NIS 300 million (approximately $83 million) was paid in December 2023 as a deferred consideration, subject to immaterial adjustments to consideration).
Below are the key elements of Kiryat Gat business operations:
Sales of Electricity
The Kiryat Gat has PPAs with private customers, including kibbutzim and academic institutions, and the remaining weighted average duration of those agreements is approximately 6 years, subject to early termination or extension arrangements set out in the agreements. Following completion of the transfer of the rights in the power plant to OPC, electricity supply agreements with most of the Gat Partnership’s customers were amended to extend electricity supply period.
In October 2016, the Kiryat Gat Power Plant and the IEC entered into an agreement for the purchase of capacity and energy and the provision of utility services (the “Gat PPA”). As part of the IEC Reform, the IEC’s obligations under an agreement with the IEC were assigned to Noga, as from December 2021, except with regard to certain provisions and obligations that concern the connection of the power plant to the grid and arrangements pertaining to measurement and metering, which will continue to apply between the IEC and the Kiryat Gat Power Plant. Pursuant to the Gat PPA, the Kiryat Gat Power Plant undertook to sell to the IEC energy and ancillary services, and the IEC undertook to sell to Kiryat Gat the utility services and power system operating services, including backup services, in accordance with the agreement, the law and regulations. The agreement remains in effect until the end of the period in which Kiryat Gat is permitted to sell electricity to private consumers as set forth in the supply license regarding the utility and system management services, and up to the end of the period in which the Kiryat Gat Power Plant may sell energy to the System Operator, as set forth in the generation license regarding the purchase of energy and the ancillary services, and in accordance with the Cogeneration Regulations’ provisions regarding the purchase of capacity and energy in the period during which the production unit does not meet the cogeneration terms and conditions. The agreement also includes provisions governing the connection of the power plant to the electrical grid, as well as provisions covering the design, construction, operation and maintenance of the Kiryat Gat Power Plant. In addition, Kiryat Gat undertook to meet the capacity and reliability requirements provided in its license and law and regulations, and to pay for any failure to comply with them.
Gas Supply Agreement
Kiryat Gat is party to a natural gas supply agreement with the Tamar, which sets forth conditions for the purchase of a minimum quantity of gas and other arrangements. The agreement includes additional provisions and arrangements customary in agreements for the purchase of natural gas, including with regard to maintenance, gas quality, force majeure, limitation of liability, early termination provisions under certain cases subject to conditions, assignments and a dispute resolution mechanism. In accordance with the relevant regulation, the Tamar may demand, based upon certain financial data or rating, guarantees according to the number of gas consumption days, in accordance with the contractual quantity set forth in the agreement. The agreement includes provisions regarding restrictions on secondary gas sale by the partnership to third parties.
Operating and maintenance agreement
On January 29, 2017, the Gat Partnership and Siemens Israel Ltd. (“Siemens”) entered into an operating and maintenance agreement in connection with the Kiryat Gat Power Plant (the “Gat Operating and Maintenance Agreement”). As part of the agreement, Siemens undertook to provide all operation and maintenance services to the Kiryat Gat Power Plant, at an estimated total cost of approximately NIS 207 million (approximately $57 million), which is paid over the term of the agreement, in accordance with a formula set in the agreement. The term of Kiryat Gat’s operating and maintenance agreement is 20 years or 170 thousand operating hours from the commercial operation date, whichever is earlier, subject to early termination provisions in the agreement.
After the commercial operation of the power plant, a dispute has arisen between the parties regarding the Gat Partnership’s right to receive a discount on the quarterly payment to Siemens, in accordance with the provisions of the Gat Operating and Maintenance Agreement. Kiryat Gat’s position is that a discount should apply to the payment, and Siemens disputes this position. The power plant qualifies for a discount application if it works on a partial operation regime solely for the production and sale of electricity. Siemens claims that the power plant switched to a full cogeneration regime and therefore does not qualify for a discount. The parties commenced an arbitration proceeding which is ongoing and there is no certainty that the decision would be favorable for Kiryat Gat. If it is ruled that Kiryat Gat is not entitled to a discount, it will be required to pay the difference in the payment amounts for previous periods in respect of maintenance and operation services provided to the power plant, and increase the payment amounts under the agreement going forward, i.e., without applying the discount.
Following acquisition in March 2023, the power plant’s activity was shut down due to non-scheduled maintenance work for a period which was immaterial to OPC group. The Kiryat Gat Power Plant is powered solely by natural gas.
Tariff arrangement
Kiryat Gat Power Plant’s revenues from sale of energy are linked to the generation component; therefore, its profitability is affected by changes in the generation component (revenues from provision of capacity are linked to the CPI). The power plant’s operating expenses include the costs of natural gas, fixed and variable expenses to the operation contractor, and general and administrative expenses.
Kiryat Gat operates under a tariff arrangement of a defined capacity and energy transaction for a facility that does not meet cogeneration conditions by virtue of EA resolutions. In accordance with the provisions of the Cogeneration Regulations, the EA set an arrangement for electricity producers which no longer meet the conditions required for a cogeneration facility. Such an arrangement (“a hedged availability transaction”) applies to the Kiryat Gat Power Plant. The power plant has a tariff approval awarded by the EA, which defines the capacity tariffs, to which the Kiryat Gat Power Plant is entitled from the System Operator. The capacity payment is capped.
Intra-Group Agreements
In March 2023, Intra-Group Agreements were signed between the Gat Partnership and certain OPC companies, in connection with the Kiryat Gat Power Plant’s current commercial activity (which include certain arrangements in relation to the Kiryat Gat financing agreement), including an agreement for the sale of the electricity the Kiryat Gat power plant will generate to the end consumers (through the sale of energy and capacity to a supplier), and including appropriate arrangements, according to the Financing Agreement), and regarding the purchase of natural gas by the Kiryat Gat power plant required for its operations from OPC companies, through OPC Natural Gas (which purchases natural gas from the OPC group companies’ existing gas agreements). Furthermore, OPC power plants entered into agreement with the Gat Partnership pursuant to which it committed to pay the Gat Partnership for production, energy, and capacity, under certain circumstances, as set forth in this agreement.
Gnrgy
Gnrgy (which is held via OPC Israel) was established in Israel in 2008 and operates in the field of charging electric vehicles (e-mobility) and the installation of charging stations for electric vehicles. OPC Israel owns 51% of Gnrgy. Gnrgy’s founder retains the remaining equity interest in Gnrgy and is party to a shareholders’ agreement with OPC, which among other things gives OPC an option to acquire a 100% interest in Gnrgy. In January 2024, OPC Israel entered into a separation agreement with the minority shareholder in Gnrgy, for further details about the agreement see, “Item 5 Operational Review and Prospects—Recent Developments—OPC.”
In July 2021, the EA granted virtual supply license to Gnrgy. The installation and operation of electric vehicle charging stations is not subject to obtaining a supply license pursuant to the Electricity Sector Law, Gnrgy therefore requested to cancel its license and the bank guarantee that was provided to the EA.
Projects Under Development and Construction in Israel
Overview
The following table sets forth summary operational information regarding OPC’s projects under development and construction in Israel.
Israel—Projects under Development and Construction (advanced)
Power plants / energy generation facilities | | | | | | | | | | Expected commercial operation date | | | | Total expected construction cost (in NIS million) |
Sorek 2 | | Under construction | | Approx, 87 | | On the premises of the Sorek B seawater desalination facility | | Natural gas—Cogeneration | | Second half of 2024(2) | | Onsite consumers and the System Operator | | 200 |
Energy generation facilities on the consumers’ premises | | Various stages of development/construction(3) | | The cumulative amount of the agreements is about approximately 127 MW. Construction works in respect of approximately 20 MW have been completed but commercial operations has not yet began, except for immaterial part of the projects in the operation stage; Approximately 25MW are under construction. The remaining capacity of (83MW) is under various development stages. (4) | | On the premises of consumers throughout Israel | | Natural gas, renewable energy (solar) and storage | | Gradually from the second half of 2023 and through the end of 2025, | | Yard consumers and the System Operator. | | An average of about 4 per MW (a total of about 480) |
(1) | As stipulated in the relevant generation license. |
(2) | Currently, certain actions and conditions associated with the construction and operation of the project have not been completed. Sorek 2 is taking measures to obtain adequate extensions. In addition, in the fourth quarter of 2023, the construction contractor of the Sorek 2 project delivered a force majeure notification due to outbreak of the War and Sorek 2 project delivered on its behalf a force majeure notification to the initiator of the desalination facility. The EA extended project completion dates due to the defense (security) such that an extension of two months was allowed for date of the financial closing. OPC is currently assessing the impact of such notification on the timeframe for the construction of the project. Completion of the construction and operation of the Sorek 2 generation facility are subject to fulfillment of conditions and factors that do not yet exist, including receipt of permits and reaching a financial closing. Ultimately, the date expected for completion of the construction and commencement of the operation could be delayed as a result of, among other things, a delay in completion of the construction work (including construction of the desalination facility), delays in receipt of the required permits, disruptions in arrival of equipment, force majeure events, the occurrence of risk factors to which OPC is exposed, including delays relating to the war or its consequences. Such delays could impact the project’s costs and could also trigger and increase in costs (beyond the expected cost indicated above) and/or could constitute non compliance with liabilities to third parties. |
(3) | The construction of several projects was completed and they are in different stages of testing and connection to the grid. The remaining projects are in various development stages with certain preconditions for execution of the projects for construction of facilities for generation of electricity on the customer’s premises (or any of them) had not yet been fulfilled, and the fulfillment thereof is subject to various factors, such as, licensing, permits, connection to infrastructures and construction. Due to the War, OPC delivered a force majeure notification to customers. The War and its impacts could have an adverse impact on the compliance with the expected dates for the commercial operation and the expected costs of the projects. |
(4) | Each facility with a capacity of up to 16 megawatts. |
Projects under development in Israel
Power plant/ energy generation facilities | | | | | | | | |
The Ramat Beka Solar Project | | Advanced Development | | Neot Hovav Local Industrial Council | | Photovoltaic in combination with storage | | In May 2023, OPC won the tender issued by ILA for planning and an option to purchase leasehold rights in land for the construction of renewable energy electricity generation facilities with a capacity about 245 MW with integration of storage of about 1,375 MWh in relation to three compounds in the Neot Hovav Industrial Regional Council. On February 5, 2024, the government authorized OPC to prepare on its behalf national infrastructure plans for photovoltaic electricity generation projects and to submit them to the National Committee for Planning and Building of National Infrastructures. The estimated construction cost of the project is in the range of NIS 1.93 to NIS 2.0 billion (approximately $532 million to $551 million). |
Hadera 2 | | Initial development | | Hadera, adjacent to the Hadera power plant | | Conventional with storage capability | | On December 27, 2021, the National Infrastructure Committee submitted National Infrastructure Plan (“NIP”) 20B for government approval under Section 76C (9) of the Planning and Building Law, 1965. In December 2022, a renewable option agreement was signed with Infinya Ltd., which awards Hadera 2 an annual option, which may be renewed for a period of up to 5 years, during which it will be allowed to lease the land adjacent to the Hadera Power plant for the project. On May 28, 2023, the Israeli government did not approve NIP 20B and returned it to the National Committee for Planning and Building of National Infrastructures for further discussion. Following this, OPC submitted a petition on behalf of Hadera 2 in respect of the government decision, which was summarily dismissed on July 19, 2023 on the grounds of failure to exhaust proceedings. OPC continues to promote NIP 20B and awaits recommencement of the above discussions. |
Intel Israel facilities | | Initial development | | Kiryat Gat | | Conventional | | On March 3, 2024, OPC Power Plants signed a non-binding memorandum of understanding with Intel Electronics (“Intel”), an OPC existing customer, pursuant to which OPC Israel will construct and operate a power plant, which will supply electricity to Intel’s facilities, including expansion of the facilities currently being constructed, for a period of 20 years from the operation date. |
Description of Projects Under Development and Construction
Construction of energy generation facilities on the premises of consumer
OPC has entered into agreements with several consumers for the installation and operation of generation facilities on the premises of consumers using gas-powered electricity generation installation, photovoltaic (solar) installations and setting up electricity storage installations for capacity of approximately 127 MW, as well as arrangements for the sale and supply of energy to consumers. Upon completion, OPC will operate the facilities and use them to generate electricity that will be supplied to the grid and/or to the consumers, in accordance with the different commercial arrangements agreed, for a period of approximately 15-20 years from the COD of the generation facilities. In general, the agreements with consumers are based on a discount to the generation component and a savings on the grid tariff, and other arrangements (which depend, in certain cases, on the nature of the project), which are related to the rights to the land and various arrangements related to the construction and operation of the facilities. The planned COD dates are in accordance with the conditions provided in the agreements, and no later than 48 months from the date of the relevant agreement. The total amount of OPC’s investment depends on the number of arrangements entered into and is expected to be an average of NIS 4 million (approximately $1 million) for every installed MW.
The arrangements with customers that have been entered into and those expected to be entered into provide for reduced tariffs for customers reflecting lower use of the infrastructure, and capacity payments to OPC. OPC has also signed construction agreements with construction constructors, equipment supply agreements, including for the supply of motors for the generation facilities, and maintenance agreements for some of the projects. Some PPAs with OPC-Rotem and OPC-Hadera have been extended in connection with such arrangements. OPC intends to sign construction and operation agreements with additional consumers regarding rights to land for construction and operation of an energy generation facility, and arrangements for the supply and sale of energy with private individuals, public entities, including government entities.
As of December 31, 2023, OPC’s investment in such generation facilities amounted to approximately NIS 119 million (approximately $33 million).
Sorek 2
In May 2020, Sorek 2 (a special-purpose company wholly-owned by OPC) signed an agreement with SMS IDE Ltd., which won a tender from the State of Israel for the construction, operation, maintenance and transfer of a seawater desalination facility on the Sorek B site (the “Desalination Facility”), whereby Sorek 2 is to supply equipment, construct, operate, and maintain a natural gas-powered energy generation facility on Sorek B site, with a production capacity of 87 MW (the “Sorek Generation Facility”), and supply the energy required for the Desalination Facility for a period that will end on the shorter of (i) 24 years and 11 months from the Desalination Facility’s commercial operation date or (ii) 27 years and 9 months from the date on which the franchise agreement is signed, being March 15, 2048. At the end of this period, ownership of the Sorek 2 Generation Facility will be transferred to the State of Israel. OPC estimates that construction of the plant would be completed and commercial operation date would be in the second half of 2024. Sorek 2’s engagement with IDE includes, among other things, Sorek 2’s undertakings to construct the facility by the later of: (i) 24 months of the date of approval of National Infrastructures Plan 36A (which was approved in December 2021) or (ii) within four months from the date on which the construction of the gas pipeline was completed, including obtaining the required permits, and the supply of gas to the power plant has started (a condition that has not yet been fulfilled) and an undertaking to supply energy at a specific scope and capacity to the Desalination Facility. The construction of the Sorek Generation Facility will be undertaken by Sorek 2 as an IPP contractor (subcontractor of the concessionaire) under the BOT (build, operate, transfer) agreement of the Desalination Facility, and in connection with this Sorek 2 has undertaken, among other things, to provide a performance guarantee and other guarantees in favor of IDE. The capacity that will be generated by the Sorek 2 generation facility, subject to the completion of its construction, shall be sold to the Desalination Facility and to another customer with a generation facility at its premises in accordance with a PPA with that customer, and the remaining capacity will be sold in accordance with applicable regulations. The Sorek Generation Facility is expected to be established under the framework of the Arrangement for High Voltage Producers Connected to the Grid that are Established without a Tender, and the capacity remaining beyond the consumption of the Desalination Facility is designated to be sold to the onsite consumer and the System Operator. This regulation applies to generation facilities in the transmission grid, that will be awarded a tariff approval until the earlier of (i) the grant of the entire quota of tariff approvals with an aggregate capacity of 500 MW or (ii) May 2024, in accordance with the deferral of the date that was set due to the war. To secure Sorek 2’s commitments under the Sorek B IPP agreement, OPC provided IDE with a guarantee that will remain valid throughout the term of the agreement. In connection with the project, Sorek 2 also entered into the equipment supply agreement (which was subsequently assigned to the construction contractor) for the supply of the gas turbine and related equipment (the “Equipment Supply Agreement”), and a maintenance agreement with General Electric (GE) group. OPC estimates that the construction cost of the Sorek 2 project, including its share in the Construction Agreement and the Equipment Supply Agreement, which constitute most of the cost (excluding the long term Maintenance Agreement), in the amount of approximately NIS 200 million (approximately $55 million).
Currently, certain actions and conditions associated with the construction and operation of the project have not been completed. Sorek 2 is taking measures to obtain adequate extensions. In addition, during the fourth quarter of 2023, the construction contractor of the Sorek 2 project delivered a force majeure notification due to outbreak of the War in Israel. The construction work, its completion the commercial operation date and the costs involved with the construction could be adversely impacted by the War, according to which delays are expected in the time frames due to, among other things, difficulties in the arrival of foreign work teams to the site, professionals’ departures, and the arrival of equipment to the site. Upon receipt of the notice, OPC delivered BHI’s notice to IDE and to the government, and clarified that due to the War it expects delays in time frames and in the completion of the construction work. Given that the War continues, other effects and/or damages may arise in the future due to War. OPC is collecting additional data about the event and its effects and maintains contact with the government and the contractor to assess the influences and their effects on the time frames for the construction of the project and the costs arising therefrom (which may increase). Sorek 2 is taking action to obtain adequate extensions, which have not yet been received. The EA extended project completion dates due to the defense (security) situation such that an extension of two months was allowed for date of the financial closing. OPC is currently assessing the impact of such notification on the timeframe for the construction of the project.
Hadera 2
In April 2017, OPC was authorized by the Israeli Government to seek authority for zoning of the land for a natural gas-fired power station on land owned by Infinya near the OPC-Hadera power plant. OPC Hadera Expansion Ltd. (“Hadera Expansion”), an OPC subsidiary, is party to an option agreement with Infinya to lease the relevant land, which was extended until the end of 2022. In December 2022, Hadera 2 and Infinya signed an agreement for extending the project’s land lease period to a 5-year period, at an average cost which is not material to OPC, and the provisions of the lease agreement that will apply if the option is exercised were revised.
These plots of lands would provide OPC with land that can be used with tenders but OPC would still require licenses to proceed with any projects on this land.
In addition, OPC may examine possibilities for expanding its electricity generation activities by means of construction of power plants and/or acquisition of power plants (including in renewable energy) in its existing and/or new geographies.
Ramat Beka Solar Project
In May 2023, an OPC subsidiary won a tender of the ILA to develop renewable energy electricity generation facilities using photovoltaic technology with an option to acquire lease rights for land in Israel for construction in three areas in Neot Hovav Industrial Local Council, with a total area of approximately 2,270 hectares. The total amount of the bid was approximately NIS 484 million (approximately $133 million). OPC announced that it intends to develop a project to generate electricity using photovoltaic technology in these three areas, with an estimated cumulative capacity of 245 megawatts and an estimated storage capacity of 1,375 megawatt hours. The total development cost for solar projects in the three areas is estimated by OPC to be between NIS 1,930 million (approximately $532 million) and NIS 2,000 million (approximately $551 million). Subject to completion of all development processes and obtaining required approvals, OPC estimates that the project will be ready for the construction stage in 2026. Pursuant to the terms of the tender, in the third quarter of 2023, 20% of the total consideration was paid in respect of an authorization and planning agreement. This amount will not be refunded in the event the project’s development and planning procedures fail to develop into an authorized plan and lease agreements are not signed. In February 2024, the government approved and provided the consent to advance development of the project.
Potential Expansions and Projects in Various Stages of Development
Rotem 2. In March 2014, OPC, through one of its subsidiaries, was awarded a tender published by the Israeli Land Authority to lease a 5.5 hectare plot of land adjacent to the OPC-Rotem site. The lease agreement was approved by the Israeli Land Authority in August 2018. In April 2017, OPC was authorized by the Israeli Government to seek zoning permissions for a gas fired power station on the land adjacent to OPC-Rotem. The agreement is valid for term of 49 years from the date of the tender win, with an option to an additional lease term of 49 years, subject to the terms and conditions of the agreement. In December 2021, the National Committee for Planning and Building of National Infrastructures rejected National Infrastructures Plan 94 that was advanced by OPC-Rotem, however it called on the initiator to examine the possibility of using other technologies on the site. OPC is examining the options, including advance of a power plant using “green technology” with reduced emissions and/or an electricity storage facility. In August 2022, OPC received from the Israeli Land Authority an extension of the period for completion of the construction work on the land in accordance with the lease agreement (free of charge), up until March 9, 2025, in consideration for the payment of an amount, which is immaterial to OPC.
Sorek tender. In February 2023, OPC received a notification that it successfully passed the preliminary screening stage in the tender for the execution of a PPP project for the financing, planning, construction, operation, maintenance and delivery to the government of a gas-fired dual-fuel power plant that is planned to be built in Sorek, with a capacity of 600-900 MW, with a future expansion option, as decided by the EA. In May 2023, the Reduction of Concentration Committee published its recommendation regarding OPC’s participation in the Sorek tender, if it does not win the Eshkol Power Plant, and in accordance with the committee’s agreement regarding the expansion of the activity of the group of corporations controlled by Mr. Idan Ofer in the field of electricity according to the terms and conditions of the Market Concentration Plan. On November 30, 2023, the tender documents were published, including the tender filing date, that was set for June 2024. In February 2024, the Israeli Electricity Authority published a hearing regarding the eligibility of the bidders in the Sorek tender for receipt of a production license from sectoral concentration and aggregate concentration aspects (having consulted the Concentration Committee and taking into account the possibility that a third party will win the Eshkol tender). In the hearing, it was decided in relation to OPC, among other things, that OPC Power Plants complies with the requirements of the Market Concentration Regulations regarding the capacity limit attributed to OPC, including after taking into account the additional future capacity of Sorek (which is planned to stand at 670 MW, in view of the discharge restriction until 2035). The hearing takes into account the future planned capacity using natural gas by the end of the decade which is 18,926 MW (including the coal-fired units that are expected to be converted into natural gas).
On February 21, 2024 the EA published a resolution regarding the “Regulation of the Activity of the Generation Unit in the Sorek Site”. In accordance with the resolution as part of the tender, one CCGT unit will be constructed with a capacity of 630-900 MW under ISO conditions, which will operate according to the Trade Rules in the covenants, and under a capacity tariff according to the winning bid in the tender. The license period and the period of entitlement to the tariff will be 24 years and 11 months. The reservation of availability on the grid will be for a capacity of 900 MW, subject to compliance with the terms of the covenant, in relation to the completion of financial closing on the required date, and subject to relevant discharge restriction. Through July 1, 2035, the discharge of electricity to the grid will be capped at 670 MW, and no capacity payments will be paid above the cap. The receipt of the generation license requires compliance with the concentration rules. Furthermore, as part of the resolution, remedies and compensation were set, pursuant to which the winning bidder will be entitled in respect of damage or delay, subject to the qualifications and conditions set out in the resolution.
OPC has participated in the past and will consider participating in future tenders, including the IEC tenders. However, there is no certainty that OPC will participate in such tenders or that it will be successful.
Power plant for Intel Israel facilities. In March 2024, a subsidiary of OPC entered into a non-binding memorandum of understanding (the “MoU”) with Intel, an existing customer of OPC, pursuant to which OPC’s subsidiary will construct and operate a power plant with a capacity of at least 450 MW (and OPC does not expect capacity to exceed 650 MW) (the “Project”). The Project will supply electricity to Intel’s facilities in Kiryat Gat, including an expansion of the facilities which is currently taking place, for a period of 20 years from the commercial operation date.
In accordance with the MoU, OPC’s subsidiary will hold exclusive project rights, and will bear its construction cost. The MoU includes provisions regarding promotion of the development and planning of the Project, acquisition of the rights to land, and collaboration of the parties to obtain the required permits in connection with the Project. The existing electricity supply agreement between the parties shall continue to apply in relation to Intel’s electricity requirements beyond the Project’s capacity, subject to adjustments and conditions. In addition, the MoU includes arrangements regarding the tariff that will be paid to OPC’s subsidiary, which is based on rates that reflect a discount to the generation component tariff (graduated and based on the Project’s characteristics) and other provisions that will be included in a detailed agreement that the parties are expected to enter into.
OPC estimates that the construction cost of the Project will be approximately $1.3 million to $1.4 million per MW, and that subject to the completion of the development and planning procedures, the Project is expected to reach the construction stage during 2026.
United States
OPC’s operations in the United States consist of the operations of CPV, which was acquired in January 2021 by an entity in which OPC indirectly holds a 70% interest (not including profit participation for employees of CPV) from Global Infrastructure Management, LLC. The consideration for the acquisition was $648 million in cash, subject to post-closing adjustments. Additional consideration was paid in the form of a $95 million vendor loan in respect of CPV’s 10% equity in the Three Rivers project, which loan has since been repaid.
CPV is engaged in the development, construction and management of renewable energy and natural gas-fired power plants in the United States. CPV was founded in 1999 and since the date of its establishment it has initiated and constructed power plants having an aggregate capacity of approximately 15 GW, of which approximately 5 GW consists of renewable energy and another approximately 10 GW consists of conventional, natural gas-fired power plants.
CPV holds rights in commercially operational power plants it developed and constructed over the past years (both conventional, natural gas-fired and renewable energy), as well as in renewable energy projects, carbon capture projects and gas-fired power plants under construction and in early development stages, with total capacity of approximately 9,000 MW.
Set out below is CPV’s holdings structure:
Below is a description of CPV’s main areas of operation:
Renewable Energy—OPC is engaged in the development, construction and management of renewable energy power plants (both solar and wind) in the United States through CPV Group. The CPV Group’s share of two operational power plants operated using wind energy is approximately 234 MW and one active solar power plant is 126 MWdc (which reached COD in November 2023) and its share in two solar energy projects under construction is 279 MWdc, both of which are in the construction stages, and approximately 114 MW in one wind project under construction. CPV Group manages and develops Renewable Energy activity via primarily CPV Renewable Power LP which was established specifically for that purpose. In January 2023, CPV, through a 100% owned subsidiary, entered into an agreement to acquire four operating wind-powered electricity power plants in Maine, United States, with an aggregate capacity of approximately 82 MW. The acquisition was completed in April 2023. The purchase price for the acquisition was $175 million, after adjustments, of which $100 million was financed with equity from CPV’s shareholders, including OPC, which contributed its portion (i.e., 70%) of such equity investment. CPV financed the remaining purchase price of $75 million with a loan facility with a five-year term.
Energy Transition—OPC is engaged in development, construction and management of power plants powered by conventional energy (natural gas) in the United States through the CPV Group, and holds rights in operational gas-fired power plants and gas-fired power plants under construction, which the CPV Group developed and built, with a total capacity of all six operating power plants of 5,303 MW (the CPV Group’s share is 1,416 MW), which are part of the Energy Transition. The operational power plants and the power plants under construction are held through subsidiaries and associates. The CPV Group’s conventional gas-fired activity is managed by CPV Power Holdings.
CPV Additional Activities — the CPV Group is engaged in the development of carbon capturing electricity generation projects and also provides asset and energy management services to power plants in the United States using different technologies for projects developed by CPV and third parties. Additionally, in early 2023, CPV Group established retail power supply activity through CPV Retail Energy. CPV provides asset management services for power plants with an overall capacity of approximately 6,170 MW (including 100 MW attributed to Maple Hill project) and energy management services for power plants with a total capacity of approximately 6,164 MW. During 2023, CPV Retail Energy executed contracts with approximately 200 commercial and industrial customers; CPV Retail Energy fixes the price of purchased power with hedging transactions.
CPV Group Strategy
The CPV Group’s strategy focuses on promoting energy transition in the United States through the following:
• Developing and operating renewable energy projects by optimizing the performance and returns of CPV’s operating renewable platform and developing and constructing new renewable projects focused in premium markets where renewable demand outstrips supply; and engaging in discussions with large renewable potential purchasers.
• Reducing carbon emissions for dispatchable electricity generation by developing conventional generation with carbon capture and storage, or using hydrogen instead of natural gas in order to significantly reduce emissions while maintaining grid reliability and continued operation of the CPV Group’s new and efficient natural gas power plants to supply electricity, balancing production in renewable energy while developing plans to further reduce carbon emissions.
•Vertical integration of the CPV Group’s businesses to drive innovation and efficiency by growing retail electric sales to commercial and industrial customers interested in reducing their carbon footprint by supplying from the CPV Group’s projects or the market, and developing and implementing ESG goals consistent with the CPV Group’s business strategy to drive alignment between financial goals and company values. CPV Group's retail activity serves smaller commercial and industrial customers interested in renewables and willing to pay premium prices.
Electricity generation and supply using conventional technologies and renewables
The table below sets forth an overview of CPV’s power plants that were in commercial operation as of December 31, 2023.
| | | | | | | | Year of commercial operation | | Type of project/ technology / client | | |
CPV Fairview, LLC (“Fairview”) | | Pennsylvania | | 1,050 | | 25% | | 2019 | | Gas-fired, combined cycle | | PJM MAAC |
CPV Towantic, LLC (“Towantic”) | | Connecticut | | 805 | | 26% | | 2018 | | Gas-fired (with dual fuel), Combined cycle | | ISO-NE CT |
CPV Maryland, LLC (“Maryland”) | | Maryland | | 745 | | 25% | | 2017 | | Gas-fired, Combined cycle | | PJM SW MAAC |
CPV Shore Holdings, LLC (“Shore”) | | New Jersey | | 725 | | 37.53% | | 2016 | | Gas-fired, Combined cycle | | PJM EMAAC |
CPV Valley Holdings, LLC (“Valley”) | | New York | | 720 | | 50% | | 2018 | | Gas-fired, Combined cycle | | NYISO Zone G |
CPV Three Rivers LLC (“Three Rivers”) | | Illinois | | 1,258 | | 10% | | 2023(1) | | Natural gas, combined cycle | | PJM |
Renewable Energy Projects |
CPV Keenan II Renewable Energy Company, LLC (“Keenan II”) | | Oklahoma | | 152 | | 100%(2) | | 2010 | | Wind | | SPP (Long-term PPA) |
CPV Mountain Wind(3) | | Maine | | 82 | | 100% | | Between 2008 and 2017 | | Wind (4 wind power plants) | | ISO-NE market |
CPV Maple Hill Solar LLC (“Maple Hill”) | | Pennsylvania | | 126 MWdc | | 100%(4) (subject to tax equity partner’s share) | | Second half of 2023 | | Solar | | PJM MAAC + PA SRECs |
(1) | Three Rivers power plant, which commenced commercial operation in July 2023, is entitled to receive capacity payments from June 2023. |
(2) | On April 7, 2021, CPV acquired 30% of the rights in Keenan II from its tax equity partner. |
(3) | In April 2023, CPV acquired all rights (100%) in four active wind power plants (the “Mountain Wind Project”). CPV received (indirectly, through a 100%-held corporation) all of the seller’s rights in the Mountain Wind Project in consideration for approximately NIS 625 million (approximately $ 175 million) (after adjustments). The purchase consideration was funded by way of capital injection by CPV’s investors at the total amount of approximately $ 100 million (of which OPC’s share is 70%), and the remaining balance was funded by a loan from a bank under a financing agreement. |
(4) | On May 12, 2023, CPV entered into an agreement with a “tax equity partner” for an investment in the project. According to the agreement, the tax equity partner’s investment in the project is predicated on the achievement of defined milestones, with part (20%) due at the time of completion of the construction works, and the remainder (80%) due at the commercial operation date, which was achieved on December 1, 2023. As all milestones were met, the tax equity partner completed its $82 million investment on December 15, 2023. The agreement gives the tax equity partner the option to sell its equity to CPV for a specified amount. |
Projects under Construction
The table below sets forth an overview of CPV’s projects under construction.
| | | | | | | | | | Projected date of commercial operation | | Type of project/ technology | | | | Expected construction cost for 100% of the project |
CPV Stagecoach Solar, LLC (“Stagecoach”) | | Georgia | | 102 MWdc | | 100% | | Q2 2022 | | | | Solar | | Approximately $52 million(1) | | Approximately $112 million(2) |
CPV Backbone Solar, LLC (“Backbone”) | | Maryland | | 179 MWdc | | 100% | | June 2023 | | Second half of 2025 | | Solar | | Approximately $130 million(3) | | Approximately $304 million(4) |
(1) | The CPV Group has signed a non-binding memorandum of understanding with a tax equity partner, whereby approximately $43 million of such amount is expected to be received on the project’s commercial operation date and the balance is expected to be received over a period of 10 years. The investment of the tax equity partner is subject to negotiations and signing of binding agreements. Regarding projects that are entitled to tax benefits of the type of Production Tax Credits (the “PTC”), CPV’s estimate with respect to the scope of the tax equity partner’s investment is based on the IRA and estimates with respect to tax equity partners, a tax benefit for every KW/hr of generation, and does not depend on the anticipated cost of the investment (i.e., does not depend of initiation fees and reimbursement of pre-construction development expenses). |
(2) | Includes financing costs under the financing agreement (see, “Item 5 Operating and Financial Review and Prospects—OPC’s Liquidity and Capital Resources—OPC’s Material Indebtedness—United States”). The project’s expected cost of investment is subject to changes. |
(3) | The project is located on a former coal mine and, therefore, it is expected to be entitled to higher tax benefits of 40% in accordance with the IRA. The CPV Group intends to sign an agreement with a tax equity partner in respect of approximately 40% of the cost of the project and use of the tax credits that are available to the project (subject to appropriate regulatory arrangements). |
(4) | Excludes development fees but includes financing costs under the financing agreement. CPV Group intends to provide the project with solar panels through its existing master agreement for the purchase of solar panels. The total cost of such project is expected to be approximately $330 million, approximately 40% of which is expected to be financed by a tax equity partner such that the net investment cost for CPV Group is estimated to be approximately $150 million. In addition, CPV Group is working to obtain a short term revolving financing facility for part of the remainder of the project cost. Customary collateral with a value of about $17 million is expected to be provided for purposes of the agreement covering connection to the network (grid) and the PPA as well as additional development expenses in the project. Construction of the project commenced in June 2023 and commercial operation in PJM is expected to be reached in the third quarter of 2025. |
Projects under Development
In addition to the projects summarized above, CPV has a number of carbon capture power generation projects with an aggregate capacity of approximately 5,300 MWdc, and renewable energy projects (solar and wind energy technologies) in various development stages, with an aggregate capacity of approximately 3,650 MWdc. Below is a summary of the scope of the development projects (in megawatts) in the United States:
| | | | | | | | | |
| | | | | | | | | |
Solar (1) | | | 1,550 | | | | 1,050 | | | | 2,600 | |
Wind (2) | | | 250 | | | | 1,000 | | | | 1,250 | |
Total renewable energy | | | 1,800 | | | | 2,050 | | | | 3,650 | |
| | | | | | | | | | | | |
Carbon capture projects (natural gas | | | | | | | | | | | | |
with reduced emissions) | | | 1,300 | | | | 4,000 | | | | 5,300 | |
*Out of the total of the development projects approximately 1,100 megawatts (of renewable energy) and about 4,650 megawatts (of which about 1,250 megawatts are renewable energy) are in the PJM market in an advanced stage and in an initial stage, respectively.
| (1) | The capacities in the solar technology projects in the advanced development stages and in the early development stages are about 1,200 MWac and about 850 MWac. |
| (2) | Includes the Rogue’s Wind project, with a capacity of 114 MW in Pennsylvania, which signed a long-term PPA agreement, the terms of which have been improved, and which project is in an advanced stage of development, the start date of which is expected to be in the first half of 2024. The expected cost of the investment in the project is estimated at about NIS 1.2 billion (about $0.3 billion), the investment of the tax equity partner is estimated at about NIS 0.5 billion (about $0.1 billion). |
The main development activities for a development project include, among other things, the following processes: securing of the rights in the project’s lands; licensing and permitting processes; obtaining permits and regulatory approvals, regulatory planning processes and public hearing; environmental surveys; engineering study and tests; equipment testing, insurance procurement and ensuring of interconnection to the relevant transmission grids (including filing a request for the interconnection agreement and execution of an interconnection agreement); signing of agreements with relevant investors or lenders with relevant investors or lenders and relevant suppliers (construction contractor, equipment and turbine contractors) and entering into a hedge agreement and PPAs, and RECs (based on the type of project) (certain activities of development may include provision of collateral and undertaking obligations towards third parties in connection with the advancement of the projects).
Carbon Capture Projects
CPV is developing four Energy Transition power plants with reduced emissions that are powered by natural gas based on use of advanced carbon capturing technologies in Michigan, Ohio, West Virginia and Texas. According to public research, carbon capture and storage are expected to be a market of approximately $35 billion by 2032. CPV Group’s share in such Energy Transition Projects is 70% for the projects in Texas, West Virginia, Michigan. In January 2024, the CPV Group acquired 100% of the equity interests in Project Oregon for approximately $2 million (with potentially up to $14 million of additional consideration payable upon the occurrence of financial closing). The projects are expected to capture up to 95% of the carbon emitted in the sites, and they will have gas turbines capable of transitioning to hydrogen. CPV believes the projects are located in areas where the burying of carbon is expected to be geologically and economically feasible.
The cost of construction of projects of such magnitude is estimated at a range of $2,000 to $2,500 per kilowatt. Should the projects be executed, they are expected to be eligible for tax benefits as set out in the law. The construction of the project, similarly to the project in Texas, is subject, among other things, to the completion of various development processes (including, among others, environmental, technological, and land development-related), licensing procedures, financing and receipt of the required relevant approvals, as well as the approval by OPC and CPV management bodies. CPV has commenced the licensing processes, performed surveys and acquired land rights for carbon capture projects in Texas and West Virginia.
There is no certainty that these projects under development will be completed as anticipated or at all, due to various factors, including factors not under CPV’s control, and their development is subject to, among other things, completion of the development processes, signing agreements, assurance of financing and receipt of various approvals and permits. Given the nature of CPV’s development projects, there is less certainty of completion of any particular development project as compared to OPC’s historic development projects. Rogue’s Wind project, which is in the advanced development stage, is included in the table above.
The IRA extends and expands the production tax credit available for carbon dioxide sequestration and/or use. For electricity generating facilities that install carbon capture technologies with the capacity to capture 75% or more or baseline carbon dioxide production, this production tax credit is available for the first 12 years after placement in service if the applicable electricity generation facility captures at least 18,750 metric tons of carbon dioxide per annum. The base credit amount is $17/metric ton of carbon dioxide that is captured and sequestered and $12/metric ton of carbon dioxide that is injected for enhanced oil recovery (EOR) or utilized in another production process. Like the Investment Tax Credits (the “ITC”) and PTC for renewable energy, the carbon capture PTC can be increased if the project meets relevant wage and apprenticeship requirements. The maximum credit for sequestered carbon dioxide is $85/metric ton and the maximum credit for EOR and other beneficial re-use is $60/metric ton. In addition, the tax credit is eligible for direct pay for up to the first five years for carbon capture equipment placed in service after December 31, 2022.
In relation to projects that are under development by the CPV Group, the IRA is expected to have a positive effect on benefits available under the law in respect of using carbon capturing technologies. The full effects of the IRA have not yet been clarified, and are expected to be clarified when detailed regulations are formulated.
The table below sets forth additional details regarding the CPV project (with a PPA) for which construction has not commenced.
| | | | | | | | Projected Year of construction start | | Projected date of commercial operation | | Type of project/ technology | | Activity area and electricity region | | | | Expected construction cost ($ millions) |
CPV Rogue’s Wind, LLC (“Rogue’s Wind”) | | Pennsylvania | | Approx. 114 MW | | 100%(1) | | Second half of 2024 | | First half of 2026(2) | | Wind | | PJM MAAC | | Approximately $135 million | | Approximately $377 million(3) |
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(1) | Upon consummation of an agreement with a “tax equity partner” CPV will have 100% of Class B rights. Class A rights are held by tax equity investors, who have excess tax benefits and dividend rights until a certain return (Tax Flip) is achieved. |
(2) | The expected date of operation for Rogue’s Wind may be delayed due to delays in connection with PJM’s interconnection process, including construction works or upgrade works (the project has been issued with interconnection agreement). Delays may affect Rogue Wind’s ability to meet certain schedule obligations with counterparties and may result in liquidated damages payments. |
(3) | Does not include development fees, but includes financing costs under the financing agreement. |
Management of Projects
CPV provides general asset management services to power plants in the United States using renewable energy and natural gas-fired energy, for a total volume, as of December 31, 2023, of 6,170 MW (4,885 MW for projects in which it has rights, and 1,285 MW for projects for third parties), by way of entering into asset management agreements. In addition to providing general asset management services, CPV also provides specific energy management services, for a total volume, as of December 31, 2023, of 6,164 MW (4,879 MW for projects in which it has rights, and 1,285 MW for projects for third parties), by entering into energy management agreements. Both categories of management agreements are usually for short to medium terms.
As of March 2024, the remaining average period of all asset management agreements (in projects in which the CPV Group has rights and in projects of third parties) is approximately 6.5 years, and the remaining average period of management agreements in projects in which the CPV Group has rights is approximately 6.5 years (all subject to the provisions of the relevant agreements regarding the option of early termination of the agreements or options for renewal for additional periods, as the case may be), and the remaining average period of all energy management agreements (in projects in which the CPV Group has rights and in projects of third parties) is approximately 3 years, and the remaining average period of all energy management agreements in projects in which the CPV Group has rights is approximately 2 years (and in any case, the asset management agreements and the energy management agreements are subject to the provisions of the relevant agreements in connection with early termination or renewal for additional periods). The asset management services and the energy management services are provided in exchange for a fixed annual payment, an incentive-based payment and reimbursement of certain expenses, including expenses relating to construction management services (work hours of the construction workers, expenses and expenses incurred by third parties). The asset management services include, inter alia: project management and general compliance with regulations; supervision of the project’s operation; management of the project’s debt and credit; management of agreements undertaken, licenses and contractual obligations; management of budgets and financial matters; project insurance, etc. Energy management services include more specific RTO/ISO-facing functions which include, inter alia: testing consulting re: RTO/ISO standards, communications with RTOs and ISOs, RTO/ISO project coordination; and the preparation of periodic required regulatory reports.
Customers of asset management services are primarily funds managed by private equity, and institutional and strategic investors that are in the business of investing, owning and divesting generation assets. Asset management and energy management services are primarily marketed through word-of-mouth marketing and inbound inquiries. CPV projects that sell their electricity and capacity to wholesale markets abide by the regulations applicable to the sale to those markets administered by the RTO/ISOs. Long-term PPAs and hedging agreements are marketed directly by CPV’s internal development team, which used a range of methods to connect with potential customers.
Retail Power Supply to Commercial and Industrial Consumers
In early 2023, CPV Group established a retail power supply activity through CPV Retail Energy. CPV Retail Energy relies on CPV’s decarbonization efforts and ESG trends by helping commercial and industrial businesses meet their sustainability goals through renewable and low carbon dispatchable energy solutions. During 2023, CPV Retail Energy executed contracts with approximately 200 commercial and industrial customers; CPV Retail Energy fixes the price of purchased power with hedging transactions. In connection with the retail power supply activity, a corporate guarantee was granted to guarantee CPV Retail Energy's obligations.
CPV Retail Energy offers customers the ability to procure renewable energy to help meet the customer’s energy transition goals and offers contract terms that range from one to five years (with the typical term being approximately two years). CPV Retail Energy utilizes a standard electricity supply agreement that allows customers to select whether standard cost components, such as energy or ancillary services, are fixed at a price or passed through at cost to the customer.
Description of CPV operations
CPV projects predominantly sell capacity and electricity in the PJM, NYISO and ISO-NE wholesale markets. Keenan (a consolidated subsidiary) is a party to a long term PPA with a utility company with respect to the entire revenue source of the project. Projects that are in development are expected to sell their energy, capacity and renewable energy credits in either the wholesale market or directly to customers through long-term purchase agreements.
Generally, each of the natural gas-fired project companies in the CPV Group entered into an agreement with all other owners of rights to the project (if any), for the establishment of a limited liability company. The agreement sets forth each partner’s rights and obligations with respect to the applicable project (each, an “LLC Agreement”). Each LLC Agreement contains standard provisions for agreements of this type restricting the transfer of rights, including terms and conditions for permissible transfers, minimum equity percentage transfer requirements and rights of first offer. CPV is often obliged to maintain at least a minimum ten percent equity ownership in a project company for up to five years after closing of construction financing. Each project company is governed by a board of directors selected by the partners. Certain material decisions typically require unanimous approval by all partners, including declaring insolvency, liquidation, sale of assets or merger, entering into or amending material agreements, incurring debt, initiating or settling litigation, engaging critical service providers, approving the annual budget or making expenditures exceeding the budget, and adopting hedging strategies and risk management policies.
All active natural gas-fired projects trade and participate in the sale of capacity, electricity and ancillary services in their respective ISO or RTO. Typically, CPV’s project companies conduct daily projections and planning for the next operating day. After making preparations in terms of purchasing adequate natural gas to support the expected electricity generation activity, as needed, bids are submitted to the Day-Ahead market. In addition, adjustments are made throughout the day for the actual operating day (the Real-Time market), which include purchases and sales of natural gas and optimizing generation output based on the Real-Time market price. In order to account for dynamic changes, natural gas projects enter into hedging agreements that are designed to set a fixed margin and reduce the impact of fluctuations in gas and electricity prices.
CPV enters into interconnection agreements at the project level with transmission providers or electric utilities to establish substations, necessary electrical interconnection, system upgrades associated transmission services for the project’s commercial operations. In addition, CPV enters into natural gas interconnection agreements for its natural gas projects that provide for the design, construction, ownership, operation and management of natural gas pipelines to supply the project facility’s demand.
At the developmental stage, CPV’s project companies typically enter into third-party agreements with various experts for the provision of certain specialized services. Examples of such agreements include: (i) consulting agreements with environmental firms for land survey and tests, data collection, records analysis, conduct permit application work, permit reviews and other support services to engage with permitting agencies or participation in meetings with stakeholders and public officials, (ii) service agreements with engineering firms to support engineering reviews in the areas of civil, mechanical and electrical, and preparation of drawings to support permit and applications, and (iii) consulting agreements with market consultants to support analysis related to power supply and demand and natural gas supply and demand.
The project companies typically enter into various intercompany agreements with other entities within CPV for the provision of general and project-level services. These intercompany agreements include asset management agreements and energy management agreements.
CPV Projects Key Contracts
Set forth below is a discussion of the key contracts for each of CPV’s project companies that are commercially operational or under construction.
Active projects
Fairview
Fairview is party to the following agreements.
| • | Gas Supply:a base contract for purchase and transmission of natural gas which provides for supply of natural gas at a quantity of up to 180,000 MMBtu per day at a price that is linked to market prices set forth in the agreement. Pursuant to the agreement, the gas supplier is responsible for transport of natural gas to the designated supply point and is permitted to transport ethane in lieu of natural gas for up to 25% of the agreed supply quantity. The agreement is valid up to May 31, 2025. |
| • | Maintenance: a maintenance agreement (MA) with its original equipment manufacturer, for the provision of maintenance services for the combustion turbines. In consideration for the maintenance services, Fairview pays a fixed and a variable amount as of the date stipulated in the agreement. The MA period is 25 years beginning in 2016 or ends earlier when specific milestones are reached on the basis of usage and wear and tear. Fairview has paid an average of approximately $9 million (all-in costs) each year for the past two years. |
| • | Operation: an agreement for operation and maintenance of the facility. The initial period of the agreement is three years from the completion date of construction of the facility and includes an extension/renewal clause for a period of one year, unless one of the parties gives notice of termination of the agreement in accordance with its provisions. The agreement is currently under the automatic annual one-year renewal option. Fairview has paid an average of approximately $5 million each year over the past two years. |
| • | Hedging: a hedge agreement on electricity margins of the Revenue Put Option (“RPO”). The RPO is intended to provide CPV a minimum margin for the term of the agreement. Calculation of the amount for the minimum margin is determined for each contractual year, with the actual netting dates taking place every three months in respect of the respective partial amount and an annual adjustment is made to calculate the total annual margin for the year. The RPO has an annual exercise price that covers an exercise period of a fiscal year. To calculate the gross margin pursuant to the agreement, specific parameters are taken into account, such as utilization, heat rate, the expected generation levels, forward prices for electricity and gas, gas transmission costs and other specific project costs. The RPO ends on May 31, 2025. |
| • | Management: A CPV entity served as the asset manager for Fairview until September 2022. In accordance with an inter-company management agreement, one of the other investors in the project replaced the CPV entity, in accordance with the terms of the agreement. This other investor of the project assumed the role of asset manager for Fairview starting at October 1, 2022 and the CPV entity will provide certain limited scope services to the other investor on behalf of Fairview. |
Towantic
Towantic is party to the following agreements:
| • | Gas Supply & Transmission: |
| • | an agreement for the guaranteed gas transmission of 2,500 MMBtu per day, at the AFT 1 Tariff. The agreement’s initial term ends on March 31, 2025. The agreement renews automatically for periods of one year each time, unless one of the parties terminates the agreement. |
| • | an agreement for the supply of gas, pursuant to which up to 125,000 MMBtus per day will be supplied at a price linked to market prices. The agreement has an initial term, which commenced on April 1, 2023, and ends on March 31, 2025. |
| • | Maintenance: a services agreement (CSA) with its original equipment manufacturer, for the provision of maintenance services for the combustion turbines. In consideration for the maintenance services, Towantic pays a fixed and a variable amount as of the date stipulated in the agreement. The agreement term is 20 years, beginning in 2016 or ends earlier when specific milestones are reached on the basis of usage and wear and tear. Towantic has paid an average of approximately $8 million (all-in costs) each year for the past two years. |
| • | Operation: an agreement for operation and maintenance of the facility, which commenced in May 2018. The consideration includes a fixed and variable amount, a performance-based bonus, and reimbursement for employment expenses, including payroll costs and taxes, subcontractor costs and other costs. In July 2021, the agreement was extended and the agreement term is from 2022 to 2024. The agreement includes an extension/renewal clause for a period of one year, unless one of the parties gives a termination notice in accordance with that provided in the agreement. Towantic has paid an average of approximately $5 million (all-in costs) each year for the past two years. |
Maryland
Maryland is party to the following agreements:
| • | Gas Supply: an agreement for the supply of firm natural gas, pursuant to which up to 132,000 MMBtu per day will be supplied at a price linked to market prices. The agreement is effective until October 31, 2024. |
| • | Gas Transmission: a natural gas transmission agreement for guaranteed capacity of up to 132,000 MMBtu/d. The agreement term is 20 years from May 31, 2016, with an option for Maryland to extend it by an additional 5 years. |
| • | Maintenance: a services agreement with its original equipment manufacturer for the provision of maintenance services for the combustion turbines. In consideration for the maintenance services, Maryland pays a fixed and a variable amount as of the date stipulated in the agreement. The agreement period is 20 years beginning in 2014 or ends earlier when specific milestones are reached on the basis of usage and wear and tear. Maryland has paid an average of approximately $6 million (all-in costs) each year for the past two years. |
| • | Operation: an agreement for operation and maintenance of the facility. The consideration includes fixed annual management fees, a performance-based bonus, and reimbursement of employment expenses, payroll costs and taxes, subcontractor costs and other costs. In March 2021, the agreement was extended to continue until July 23, 2028 and may be renewed for one-year periods, unless one of the parties gives a termination notice in accordance with agreement. Maryland has paid an average of approximately $4 million (all-in costs) each year for the past two years. |
| • | Engineering, Procurement and Construction Agreement. Maryland signed an Engineering, Procurement and Construction Agreement dated October 31, 2022, for the construction of a Black Start facility in the event of grid power outages around the Maryland’s site which is expected to commence operation during 2024. Total contract cost is approximately $30 million to be paid in accordance with a progress payment schedule incorporated into the agreement. Most of the consideration is financed through a financing agreement entered into by Maryland. |
Shore
Shore is party to the following agreements:
| • | Gas Supply: an agreement for supply of natural gas. Pursuant to the agreement, the gas supplier supplies 120,000 MMBtu of gas per day at a price linked to the market price. The agreement is effective through October 31, 2024. |
| • | Gas Transmission: two agreements with interstate pipeline companies for the use of 2 different pipeline systems, one of which was operational since 2015 and the second of which became operational in late 2021. Pursuant to the agreements, natural gas connection and transmission services are provided to Shore by means of a pipeline the start of which is an existing interstate pipe and allows for gas to reach the facility’s connection point. Shore paid a down payment to one of the pipeline companies for these services. The period of the gas transmission agreements are 15 years (until April 2030) for one interconnection, with an option to extend the agreement twice by ten years, and 20 years (until September 2041) for the other interconnection, with an option to extend annually. |
| • | Maintenance: an amended services agreement with its original equipment manufacturer for the provision of maintenance services for the turbines. In consideration for the maintenance services, Shore pays a fixed and a variable amount as of the date stipulated in the agreement. The agreement period is 20 years beginning in 2014 or ends earlier when specific milestones are reached on the basis of usage and wear and tear. Shore has paid an average of approximately $6 (all-in costs) million each year for the past two years. |
| • | Operation: an agreement for operation of the facility. The consideration includes fixed annual management fees, a performance-based bonus and reimbursement of employment expenses, including, payroll and taxes, subcontractor costs and other costs as provided in the agreement. The agreement includes an extension/renewal clause for a period of one year, unless one of the parties gives a termination notice in accordance with that provided in the agreement. The agreement is currently under the automatic annual one year renewal option. Shore has paid an average of approximately $4 million (all-in costs) each year over the past two years. |
Valley
Valley is party to the following agreements:
| • | Gas Supply: an agreement for the supply of natural gas of up to 127,200 MMBtu of natural gas per day at a price linked to the market price. Pursuant to the agreement, the supplier is responsible for transmission of natural gas to the designated supply point and the agreement is effective through October 31, 2025. |
| • | Gas Transmission: an agreement with an interstate pipeline company for the licensing, construction, operating and maintenance of a pipeline and measurement and regulating facilities, from the interstate pipeline system for transmission of natural gas up to the facility. The supplier provides 127,200 MMBtu per day of firm natural gas delivery at an agreed price during a period ending March 31, 2033, with an option to extend by up to three five-year additional periods. Valley signed an additional agreement for provision of transmission services (firm) of 35,000 MMBtu per day, for a period of 15 years ending on March 31, 2033, which can deliver gas from a different location into the firm transportation agreement referenced above. |
| • | Maintenance: an agreement with its original equipment manufacturer for maintenance services for the fire turbines. The consideration includes fixed and variable amounts. The agreement period is the earlier of: (i) 132,800 equivalent base load hours; or (ii) 29 years from 2015. Valley has paid an average of approximately $6 million (all-in costs) each year for the past two years. |
| • | Operation: an operation and maintenance agreement with one of the partners in the project. The consideration includes fixed annual management fees, an operation bonus, and reimbursement of certain costs set out in the agreement. The period of the agreement is five years from the completion date of construction of the facility, and the agreement may be renewed for additional three-year periods unless one of the parties gives a termination notice in accordance with the agreement. The agreement is currently under the automatic three year renewal option. Valley has paid an average of approximately $5 million (all-in costs) each year for the past two years. |
| • | Hedging: a hedge agreement on electricity margins of the RPO type. The RPO is intended to provide CPV a minimum margin for the duration of the agreement term. Calculation of the amount for the minimum margin is determined for each contractual year, with the actual netting dates taking place every three months with respect to the respective partial amount and an annual adjustment is made to calculate the total annual margin, which includes each year for the RPO an annual exercise price covering the exercise period or a fiscal year. To calculate the minimum gross margin, specific parameters are taken into account, such as utilization, heat rate, the expected generation levels, forward prices for electricity and gas, gas transport costs and other specific project costs. The RPO ended on May 31, 2023. |
Three Rivers
Three Rivers is party to the following agreements:
| • | Gas Supply: two agreements for the supply of natural gas. The agreements supply 139,500 MMBtu in natural gas per day to the facility, from the operation date of the facility for a period of five years, and a reduced quantity of 25,000 MMBtu per day from the fifth year of operation of the facility and up to the tenth year. The price of natural gas delivered under these agreements is linked to the day-ahead electricity prices in the PJM market. The agreements include an obligation to purchase such fixed volume of natural gas, with a right to resell surplus gas. |
| • | GSPA. Three Rivers entered into a Contract for Sale and Purchase of Natural Gas (GSPA) on December 15, 2022. The GSPA requires the supplier to provide gas supply of up to 200,000 MMBtu/day at a price indexed to market. The agreement had an initial term until January 31, 2023. The agreement is automatically renewed month-to-month unless one of the parties terminates by notification no less than 5 business days prior to the last day of the month. |
| • | Gas Interconnection: two connection agreements for transmission of gas, whereby each of them is sufficient for the full demand of the facility. |
One agreement is an interconnection agreement with an interstate pipeline company for transmission of natural gas. The agreement sets forth the responsibility of the parties in connection with the design, construction, ownership, operation and management of a pipeline as well as the connection and pressure equipment. Based on the agreement, Three Rivers will bear the costs of all the facilities.
The second agreement is an additional interconnection agreement with an interstate pipeline company for transmission of natural gas. As part of the agreement, the counterparty is responsible for the design and construction to connect to the existing pipeline. The counterparty to the agreement will remain the owner of these facilities and will operate them, and Three Rivers will bear the development and construction costs.
| • | Gas Transmission: an agreement for transmission of gas with an interstate pipeline company and its Canadian affiliate, for firm transmission of natural gas from Alberta, Canada to the facility. The agreements include capacity of 36.2 MMcf per day, at agreed prices. The agreement term is 11 years from the signing date of the agreement on November 1, 2020; the counterparty may extend the agreement for an additional year by means of prior notice of 12 months. |
| • | Equipment: an agreement for acquisition of equipment for the purchase of power generation equipment and ancillary services, with an international company specializing in design and manufacture of equipment, including that required for an electricity generation facility. The equipment includes two units, with each consisting of the following main components: a gas or combustion turbine; a steam generator for heat recovery; a steam turbine; a generator; a continuous control system for emissions and additional related equipment. The equipment supplier is responsible for supply and installation in accordance with the agreement. In addition, the supplier is to provide technical consulting services to Three Rivers in order to support the installation process, commissioning, inspections and operation of the equipment. Pursuant to the terms and conditions of the agreement, Three Rivers will pay the third party in installments based on reaching milestones. |
| • | EPC: an EPC agreement with an international engineering, acquisition and construction contractor. Pursuant to the agreement, the contractor will design and construct the required components of the facility, to integrate all the equipment required for the power plant. Three Rivers achieved substantial completion in July 2023 and will achieve final completion upon the satisfaction of a final performance test but no later than the maximum period set in the agreement. |
| • | Maintenance: a services agreement with its original equipment manufacturer for the provision of maintenance services for the combustion turbines. In consideration for the maintenance services. Three Rivers pays a fixed and a variable payment. The agreement period is 25 years beginning in 2020; or ends earlier when specific milestones are reached on the basis of usage and wear and tear. On average, Three Rivers is expected to pay approximately $6 million (all-in costs) each year. |
| • | Operation: an agreement for operation and maintenance of the facility. The consideration includes fixed annual management fees, a performance-based bonus, and reimbursement of employment expenses, payroll costs and taxes, subcontractor costs and other costs. The agreement period will commence during the construction period, and will continue for approximately 3 years from the construction completion date of the facility, which occurred in June 2023. On average, Three Rivers is expected to pay approximately $6 million (all-in costs) each year. |
Keenan
Keenan II is party to the following agreements:
| • | Equity Purchase Agreement: an agreement for the purchase of the 100% of the outstanding equity interests in Keenan. As a result of the acquisition in April 2021, CPV holds all of the rights to Keenan. |
| • | PPA: a wind power energy agreement for sale of renewable energy. Pursuant to the terms and conditions of the agreement, the purchaser is to receive all of the electricity generated by the wind farm, credits, certificates, similar rights or other environmental allotments. The consideration includes a fixed payment. The period of the agreement is 20 years, ending in 2030. The purchaser is permitted, with proper notice, to extend the agreement for another five-year period, and to acquire an option to purchase the project at the end of the agreement period or renewal period at its fair market value, as defined in the agreement and pursuant to the terms and conditions stipulated therein. |
| • | O&M Agreement: an agreement for the operation and maintenance of the wind farm which commenced in February 2016. The consideration includes fixed annual management fees and the agreement lasts for 15 years from the commencement date. On average, Keenan paid approximately $5 million each year for the past two years. |
| • | Operation: a master services agreement and an operations agreement with its original equipment manufacturer for the operation, maintenance and repair of the wind turbines. The consideration includes fixed annual fees, performance-based bonus (or liquidated damages) and reimbursement of expenses for additional work. The agreement expires in February 2031. Keenan has paid an average of approximately $6 million (all-in costs) each year for the past 2 years. |
CPV Mountain Wind
CPV Mountain Wind holds 100% in each of the four wind projects: (i) CPV Saddleback Ridge Wind, LLC; (ii) CPV Canton Mountain Wind, LLC; (iii) CPV Beaver Ridge Wind, LLC; and (iv) CPV Spruce Mountain Wind, LLC. CPV Mountain Wind is party to the following agreements:
| • | Maintenance: a master services agreement for the management and maintenance of the four wind facilities (Beaver Ridge, Canton Mountain, Saddleback Ridge, Spruce Mountain) entered into by Mountain Wind. Staff is shared between the four projects. At all projects except for Beaver Ridge, the services agreement applies only to work outside the scope of the turbine services which is performed by the original equipment manufacturers. At Beaver Ridge, where there is no agreement with the original equipment manufacturer, the agreement also covers the direct maintenance of the wind turbines. The agreement commenced on April 5, 2023 and has an initial two year term. Mountain Wind will pay approximately $3 million (all-in costs) per year. |
| • | Services Agreements and Operation Agreements: a master service agreement and an operation agreement with its original equipment manufacturer for the operation, maintenance, and repair of the wind turbines is entered by each of Mountain Wind Project with the exception of Beaver Ridge; maintenance at Beaver Ridge is performed under an agreement by a third-party provider. The agreements for Saddleback Ridge and Canton Mountain were entered in 2016 and both have 20 years terms with a sunset date of September 16, 2035. The agreement for Spruce Mountain was entered in December 2023 and has an 8-year term. The Beaver Ridge agreement was entered in April 2023 and has a 2-year term. On average, the four projects are expected to pay approximately $4 million (all-in costs) each year. |
| • | Other contracts: The projects are engaged in contracts to sell 100% of the electricity and RECs, under separate contracts (PPAs) with local utility companies and councils, generally for a period of the next 15 to 20 years from the acquisition of the projects by CPV, while most of the capacity is sold under separate contracts for the next 12 years from the acquisition of the projects by CPV (the periods of the contracts may change according to termination clauses determined in each agreement). |
Maple Hill
Maple Hill is party to the following agreements:
Tax Equity Partner. In May 2023, CPV entered into an investment agreement with a tax equity partner for approximately NIS 280 million (approximately $78 million) in the Maple Hill project. In consideration for its investment in the project corporation, the tax equity partner is expected to receive most of the project’s tax benefits, including Investment Tax Credit (ITC) at a higher rate of 40% (in accordance with the IRA), and participation in the distributable free cash flow from the project (at single digit rates and on a gradual basis as set out in the investment agreement). In addition, the tax equity partner is entitled to participate in the project’s loss for tax purposes; in the first few years, the tax equity partner’s share in such taxable income or loss for tax purposes is high. At the end of 6 years from the COD, the tax equity partner’s share in such taxable income decreases significantly, and CPV has the option to acquire the tax equity partner’s share in the project corporation within a certain period and in accordance with terms of the agreement. The agreement includes a standard guarantee provided by CPV, and an undertaking to indemnify the tax equity partner in connection with certain matters. Furthermore, the tax equity partner has certain veto rights, among other things, in respect of the creation of liens on the Maple Hill project corporation’s assets or the entry of the Maple Hill project corporation into additional material agreements. Some of the tax equity partner’s investment was made available upon the completion of the construction work, and the remaining amount was made available on the commercial operation date. In December 2023, the terms and conditions for the commercial operation of the project were fully met in accordance with the investment agreement with the tax equity partner in the project, and the tax equity partner completed its entire investment in the project in a total aggregate amount of approximately $82 million.
| • | Maintenance. An operating and maintenance agreement with a third-party service provider for services related to the ongoing operation and maintenance of the Maple Hill solar power generation facility. The agreement has an initial term of three years, commencing on the date that the service provider actually begins providing services, which occurred in November 2023 and can be renewed for 2 one-year terms unless one of the parties provides notice on non-renewal in accordance with the agreement. On average, Maple Hill is expected to pay approximately $0.4 million (all-in costs) each year. |
| • | SREC. An agreement with an international energy company for the sale of 100% of the SRECs generated in the project through 2027 to an international energy company. CPV provided collateral for its obligations under the agreement, which include delivery of SRECs generated by the project. |
| • | Virtual PPA. An agreement with a third party for the sale of 48% of the total generated electricity, where the electricity price calculation is performed based on financial netting between the parties for 10 years from the commercial date of operation. In accordance with the agreement, a net calculation will be made of the difference between the variable price that Maple Hill receives from the system operator and which is published (the spot price) and the fixed price set with a third party. CPV provided collateral for its obligations under the agreement which include making certain payments to the other party as part of the settlement of the virtual PPAs. The agreement includes an option to transition to a physical PPA with a fixed price on fulfillment of certain terms and conditions, which have yet to be met. |
Projects under Development or Construction
Stagecoach (under construction)
Stagecoach is party to the following agreements:
| • | Energy Sale Agreement (non-firm). In March 2022, Stagecoach entered into an agreement to sell 100% of non-firm energy to a utility company. The utility company is to receive all of the energy and ancillary services produced by Stagecoach. The agreement excludes tax attributes arising from the ownership of the solar project and any environmental attributes generated by Stagecoach. The consideration is based on the hourly avoided energy rate for each hour of generation up to a maximum energy output as defined in the agreement. The agreement is for a period of 30 years from the commercial operation date of Stagecoach. The agreement provides for sale to a global utility company of 100% of the project’s SRECs, as well as a hedge covering the entire electricity price of the quantity that shall be produced and sold to the utility company, at a fixed price, for a period of 20 years from the date of commercial operation of the project |
| • | Agreement to sell renewable solar energy credits. In April 2022, Stagecoach entered into an agreement with a global company to sell 100% of the renewable solar energy credits produced by the solar project, along with a full hedge of the electricity price of the energy that will be generated and sold under the agreement with the utility company, at a fixed price for 20 years from the commercial operation date. |
| • | EPC. In May 2022, Stagecoach signed an EPC agreement with an international contractor. Pursuant to the agreement, the contractor is to design, engineer, procure, install, construct, test, and commission the solar project on a turnkey, guaranteed-completion-date basis. The total consideration to be paid to the contractor is a fixed amount payable under a milestone schedule. |
| • | Operation and Maintenance Agreement. In August 2022, Stagecoach entered into an operating and maintenance agreement with a third-party service provider to provide services during the mobilization and operational period of the Stagecoach solar facility. The agreement is for an initial 3-year term starting on the date when the service provider actually started rendering operational period services, which is expected to commence in the first half of 2024. The term of the agreement may be renewed for a maximum of two one-year renewals, unless one of the parties delivers a notice of non-renewal in accordance with the terms of the agreement. |
Backbone
CPV is party to the following agreements:
| • | EPC. In June 2023, CPV Group entered into an EPC agreement with a construction contractor in respect of the construction of Backbone Project. In accordance with the agreement, the contractor is required to plan, purchase, install, build, test, and operate the solar project in full, on a turnkey basis. The total consideration in the EPC agreement was set at a fixed amount of approximately $175 million, which will be paid in accordance with the milestones set in the EPC agreement. |
| • | Renewable Solar Energy Credits. In 2023, Backbone entered into an agreement with a global company to sell 90% of the renewable solar energy credits (which are valid until 2035) produced by the solar project, along with a hedge of the electricity price of the energy that will be generated and sold to PJM, at a fixed price for 10 years from the commercial operation date. The balance of the project’s capacity (10%) will be used for supply to active customers, retail supply of electricity of the CPV Group or for sale in the market. |
Rogue’s Wind
CPV is party to the following agreements:
| • | Rogue’s Wind Energy Project. In April 2021, an agreement was signed for the sale of all the electricity, and the project’s environmental consideration (including RECs), benefits relating to availability and accompanying services). The agreement may be adjusted to updated factors of the project. The agreement was signed for a period of 10 years from the commercial operation date. The CPV Group provided as collateral for securing its liabilities under the agreement, including execution of certain payments to the other part upon reaching certain milestones (including commencement of activities) in the project will not be completed in accordance with a specific timetable. |
Potential Expansions and Projects in Various Stages of Development
United States
The development of projects takes a number of years, and there are number of entry barriers that developers are required to overcome, including: (i) ensuring that sufficient financing is in place for the project’s development and construction; (ii) obtaining permits or other regulatory approvals, including environmental impact survey and permits; (iii) obtaining land control and building permits; (iv) obtaining an interconnect agreement; and (v) for carbon capture projects, adequate storage or offtake for captured carbon.
The exit barriers include: (i) attractive conditions in the energy sector; (ii) identifying a purchaser with sufficient equity; (iii) receipt of the regulatory approvals required in connection with change in ownership.
Research and development activities are conducted in the U.S. energy sector on an ongoing basis with the aim of identifying alternative and more efficient energy generation technologies. Such alternatives include the generation of energy through various types of technologies, such as coal, oil, hydroelectric, nuclear, wind, solar and other types of renewable energy facilities; the alternatives also include improvements to traditional technologies and equipment, such as more efficient gas turbines. CPV believes that the ability to identify new projects in relevant energy markets, with price levels and liquidity that support new construction, is a significant success factor for development activities. In addition, for renewable energy projects, it is important that in the state or zone in which the CPV Group seeks to construct new projects, it is possible to generate additional revenue through the sale of RECs. For carbon capture projects, additional physical and technological factors supporting such projects must be proven feasible. The CPV Group believes that other factors affecting development include obtaining adequate control of the land; the ability to connect to the electrical grid at a strategic connection point and at low connection cost within reasonable time; obtaining permits for construction of new projects, including meeting all environmental requirements; and the ability to raise sufficient financing and capital for the construction of new projects.
CPV currently has renewable energy projects and natural gas-fired power plants in advanced stages of development.
OPC’s Material Customers
Israel
In Israel, OPC has several material customers characterized by high consumption rates in terms of their total production capacity. OPC’s revenues from electricity generation are highly sensitive to the consumption of material customers; therefore, if there is no demand for electricity by a material customer (such as, due to malfunctions, suspension or other factors) or payment default by such a customer, this could have a materially adverse impact on OPC’s revenues in Israel. As of 2023, the share of OPC’s two private customers in Israel that exceeds 10% of OPC’s consolidated revenues amounts to approximately 25.6% of OPC’s revenues. Each of OPC’s remaining customers does not exceed 10% of OPC’s revenues from electricity generation.
In May 2023, OPC-Rotem signed new PPAs with Oil Refineries Ltd. (“Bazan”) for the supply of the electricity to the Bazan group’s consumption facilities at a maximum quantity of 125 MW was renewed in May 2023. The electricity is supplied in consideration for a payment based on the ultra-high voltage load and time tariff, which is determined from time to time by the Israeli Electricity Authority, and net of a discount on the generation component according to the rates and arrangements set out in the agreement. The term of the agreement is ten years starting July 2023 (upon the expiry of the previous agreement), subject to early termination grounds and also tiered exit points starting 5 years after the supply commencement date, in accordance with the provisions agreed upon. The PPA includes other provisions, which are generally included in PPAs of this type, including, among other things, provisions regarding consumption in excess of the maximum quantity, an undertaking for capacity by the power plant, and supply of electricity from different sources. In addition, the agreement includes provisions regarding the supply of approximately 50 MW in electricity from generation facilities using renewable energy, in a gradual manner, as from January 2025, and in accordance with the dates that were set and “green certificates”, subject to ceilings and the terms and conditions that were agreed. The arrangements for the supply of electricity generated using renewable energy constitute part of OPC’s strategy to expand its activities in the field of renewable energy, and supply energy from renewable energy sources in Israel.
In January 2023, OPC-Rotem and another material customer extended their engagement for an additional period that will start at the end of the term of the existing agreement (including an option to extend the term in accordance with provisions that were set). As part of revising the engagement, certain provisions of the original PPA between the parties were revised, and the customer is expected to significantly increase the capacity it will acquire under PPA prices, as revised, over the next few years.
The entire capacity of the Tzomet power plant is allocated to the System Operator under a fixed capacity arrangement.
The capacity that will be generated by the Sorek 2 generation facility, subject to the completion of its construction shall be sold to the desalination facility and to another customer with a generation facility at its premises in accordance with the PPA with it, and the remaining capacity will be sold in accordance with applicable regulations.
In February 2024, OPC-Rotem entered into an agreement with Partner Communications Company Ltd. (“Partner Communications”) for the purpose of selling electricity to Partner Communications’ consumers, who are household consumers or small businesses (SMB) as decided between the parties. The agreement will allow the diversification of OPC’s customer mix. According to the agreement, OPC will supply electricity at maximum quantities and under the conditions as defined therein, to Partner Communications’ customers, who will enter into an agreement with OPC and Partner Communications for the supply of electricity by OPC. OPC is required to supply the electricity, and is entitled to payment from Partner Communications in accordance with the quantity of electricity that the consumers consume in accordance with the tariff set in the agreement. The agreement is not subject to an undertaking by Partner Communications to purchase a minimum quantity of electricity or to sign-on a minimum number of consumers. However, the agreement provides for an undertaking by Partner Communications not to sign-on or supply electricity to its customers from any source other than through OPC, so long as a certain number of its customers has not signed-on to OPC in accordance with the agreement. The agreement sets a maximum number of household electricity consumers that can be signed-on to OPC, and a maximum hourly consumption in relation to small- and medium-size businesses, or SMBs, unless it is agreed otherwise by Partner Communications and OPC. The agreement is effective from April 1, 2024 to March 31, 2030, subject to early termination provisions.
United States
The CPV Group’s projects mainly sell electricity and capacity to the PJM, NY-ISO and ISO-NE wholesale markets.
Keenan (a consolidated company in the renewable energy field) entered into a long-term PPA in 2010 for 20 years with a utility company in relation to the project’s sources of income. Similarly, the power plants of Mountain Wind (a consolidated subsidiary in the renewable energy field which completed the acquisition of four power plants in wind energy in 2023) entered into PPAs as discussed above.
The CPV Group’s projects under development are expected to sell their energy, capacity and RECs in the wholesale market or directly to consumers through long-term PPAs. Similarly, Mountain Wind (a consolidated subsidiary in the renewable energy field) entered into a series of PPAs, and Maple Hill has also entered into a PPA. In addition, one of the solar projects, Backbone, that is in the advanced development stages, with a total capacity of about 179 MWdc, received a connection agreement to the grid from PJM and signed a 10-year PPA agreement for 90% of the energy and SRECs. The remaining 10% of the project’s capacity is expected to be used to supply CPV Group’s retail energy customers or sold in the spot market.
OPC’s Raw Materials and Suppliers
Israel
OPC’s power facilities utilize natural gas as primary fuel, and diesel oil and crude oil as backups (except for Kiryat Gat which uses only natural gas). OPC’s active power plants acquire natural gas mainly the Karish Reservoir (which is held by Energean and which commenced commercial operations in March 2023) as described below and from the Tamar Group. In 2023, OPC started purchasing large quantities of natural gas from the Karish Reservoir. The Tamar Reservoir was shut down for a period of time as a result of the War. There were no changes to the activity of the Karish Reservoir due to the War. However, the Karish Reservoir was shut down for approximately 28 days due to planned maintenance and during this period was operating on a partial basis. In addition, the Leviathan Reservoir continues supplying gas to the Israeli economy. The continued operation of the Karish Reservoir and the Leviathan Reservoir is significantly affected by the scope of the War and the deterioration in security situation in Israel, especially in the north. While the Tamar Reservoir was shut down, OPC purchased natural gas mainly from Energean, and also through short-term agreements and occasional transactions in the secondary market. During this period there was no material change in OPC’s natural gas costs compared with prior to the War. Any natural gas shortage or disruption to the supply of natural gas from the Karish Reservoir (without activating compensating arrangements under covenant 125, as described below) may have a material adverse effect on OPC’s natural gas costs.
In connection with OPC’s on-site facilities, the required gas is expected to be purchased as part of the agreements in which OPC had engaged and/or will engage. The Sorek 2 facility is expected to purchase some of the natural gas required for its operation from the Leviathan Reservoir as part of its arrangements with the Desalination Facility. The remaining gas quantities that will be required for the operation of the generation facility are expected to be purchased through gas purchase agreements into which OPC has entered and/or will enter. From time to time, OPC may enter into additional gas sale and purchase agreements for its operations in the respective area of activity, and/or as an auxiliary part of the electricity and energy generation and supply activity. OPC is entitled to a refund for the incremental cost of using diesel for these periods.
OPC-Rotem, OPC-Hadera and the Tzomet power plants are dual-fuel electricity producers that can operate using both natural gas and diesel fuel subject to adjustments. In 2023, OPC-Rotem, OPC-Hadera and Tzomet had negligible operations in diesel fuel (only for periodic testing purposes). OPC-Hadera and Tzomet power plants are subject to “covenant 125” which deals with natural gas shortages in Israel, and which prescribes, among other things, that the System Operator has power to issue guidance on the use of diesel fuel in the electricity sector at times of gas shortages, and that according to such guidance of the System Operator, an electricity producer using diesel fuel shall be compensated in respect of the difference between the cost of production using diesel fuel and the cost of production using gas, which is known to the producer. OPC believes, based on past experience, that covenant 125 also applies to the OPC-Rotem power plant and disagrees with the EA’s position that this is not the case.
OPC-Rotem and OPC-Hadera have entered into gas supply agreements with the Tamar Group, composed of Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, Everest Infrastructures Limited Partnership and Tamar Petroleum Limited Partnership, or collectively the Tamar Group, for the purchase of natural gas. For further information on these agreements see “—OPC-Rotem” and “—OPC-Hadera.”
The price that OPC-Rotem pays to the Tamar Group for the natural gas supplied is based upon a base price in NIS set on the date of the agreement, indexed to changes in the EA’s generation component tariff, and partially indexed (30%) the U.S. Dollar representative exchange rate. The price that OPC-Hadera pays to the Tamar Group is based upon a base price in USD, fully indexed to changes in the EA’s generation component tariff. As a result, increases or decreases in the EA’s generation tariff have a related effect on OPC-Rotem’s and OPC-Hadera’s cost of sales and margins. In addition, the natural gas price formulas in OPC-Rotem’s and OPC-Hadera’s supply agreements are subject to a floor price mechanism, which is denominated in U.S. Dollars for both OPC-Rotem and OPC-Hadera.
OPC-Rotem and OPC-Hadera have also entered into agreements with Energean, which has the leases to the Karish and Tanin natural gas fields, for purchase of natural gas by them. According to the terms and conditions in the agreements, the total original basic quantity of natural gas, Rotem and Hadera were expected to purchase is approximately 5.3 BCM for Rotem and approximately 3.7 BCM for Hadera (the “Total Basic Contractual Quantity”). The agreements include, among other things, a take or pay mechanism, whereby OPC-Rotem and OPC-Hadera have undertook to pay for a minimum quantity of natural gas even if they have not used it. The price of the natural gas in the agreements with Energean is denominated in U.S. Dollars and is based on an agreed formula, which is linked to the electricity generation component and includes a minimum price.
OPC-Rotem and OPC-Hadera paid the minimum price during 2021 (excluding two months for OPC-Rotem and one month for OPC-Hadera). OPC-Hadera’s and OPC-Rotem’s gas prices were at the minimum price until January 2022 (OPC-Rotem) and February 2022 (OPC-Hadera), and were above the minimum price for the remainder of 2022. In 2023, the gas price in the OPC-Rotem Tamar agreement was equal to the minimum price over 8 months in total. For OPC-Rotem, the effect of changes in tariff on profit margins depends on the US/NIS exchange rate fluctuations. In 2023, OPC-Hadera’s gas price was higher than the minimum price. In addition, in 2024, if there will be no changes to the generation component, OPC-Hadera’s gas price is expected to be higher than the minimum price. For information on the risks associated with the impact of the EA’s generation tariff on OPC’s supply agreements with the Tamar Group, see “Item 3.D Risk Factors—Risks Related to OPC’s Israel Operations—OPC’s profitability depends on the EA’s electricity rates and tariff structure.”
Tzomet is also party to a gas supply agreement as described under “—Tzomet” above.
In addition, OPC is dependent on INGL which is the sole transmitter of natural gas in Israel. For example, in March 2013, an agreement was signed between the Gat Partnership and INGL for transmission of natural gas to the Gat Partnership’s facilities. The agreement was amended in November 2016 in order to allow the piping of gas to the power plant, as planned at the time. To this end, changes were made to the gas infrastructure and the commercial terms and conditions. The agreement includes provisions that are customary in agreements with INGL and is essentially similar to the agreements of OPC-Rotem, OPC-Hadera and Tzomet with INGL. The agreement term is 15 years from the gas piping date, including a 5-year extension option, subject to advance notice, under terms and conditions that are customary in gas transmission agreements signed by INGL at that time. Under the agreement, partial connection fees were defined in respect of the connection planning and procurement. Upon the completion of the purchase of the power plant by OPC, the Transmission Agreement was assigned to OPC. Pursuant to the agreement, Gat Partnership is required to provide a guarantee for the benefit of INGL or choose an alternative arrangement, and Gat Partnership has provided INGL a guarantee. As of December 2022, the piping to natural gas to Tzomet started.
United States
CPV’s project companies are party to gas supply, transmission and interconnection agreements as well as maintenance and operating agreements and management agreements, as described above and below.
Natural Gas-fired Projects
CPV’s project companies with natural gas-fired power plants purchase natural gas from third parties pursuant to gas sale and purchase agreements.
Services Agreements, Equipment Agreements and EPC Contracts
The operating companies of CPV projects mostly enter into long-term operating and maintenance agreements and services agreements with original equipment manufacturers and third-party suppliers for the maintenance and operation of the project facilities’ equipment. In connection with the projects under construction, CPV also enters into general purchase agreements and equipment supply agreements with original equipment manufacturers, as well as engineering and procurement contracts, including identifying and assembling special equipment in certain facilities.
In respect of the Renewable Energy operations, on March 10, 2022, CPV entered into a framework purchase agreement of solar panels for a total capacity of approximately 530 MWdc. According to the agreement, the solar panels are supplied based on purchase orders delivered by CPV during 2023-2024. CPV has paid a down payment for the purchase, to the solar panels supplier. CPV has a right of early termination on certain dates, for partial payments to the supplier based on the date of such early termination. The agreement further includes, among others, provisions regarding quantities, model, manner of delivery of the panels and termination. The overall cost of the agreement may total approximately $185 million (assuming purchase of the maximum quantity). The agreement is planned to be used for CPV’s solar projects in development stages with a total capacity of 530 megawatts. Since its execution, the agreement has been amended to, among other things, reallocate the total volume of panels among the CPV Group’s solar projects and increase the number of installment payments with respect thereto.
In 2023, the CPV Group started receiving deliveries of the solar panels. All panels that were allocated to Maple Hill and Stagecoach under the agreement have been delivered by the supplier. In addition, the solar panels allocated to Backbone under the agreement have been ordered with the corresponding deliveries set to be begin in the first half of 2024.
CPV Group receives credit from most of its suppliers for a period of approximately 30 days.
OPC’s Competition
Israel
Within Israel, OPC’s major competitors are the IEC and private power generators, such as Dorad Energy Ltd., Dalia, Rapac-Generation, Shikun & Binui Energy and the Edeltech Group, who, as a result of government initiatives encouraging investments in the Israeli power generation market, have constructed, and are constructing, power stations with significant capacity. In 2022, the energy effectively generated by the power plants owned by OPC-Rotem and OPC-Hadera was 4.08 TWh, constituting about 5.3% of the total energy generated in Israel, and about 10.8% of the energy generated by independent power producers in Israel during that year (including renewable energies).
In February 2021, the EA made a decision regarding the determination of an arrangement for suppliers that do not have means of generation and revised the standards for existing suppliers, in order to gradually open supply in the electricity sector to new suppliers and supply to household consumers. As part of the decision, the EA determines standards and tariffs that will apply to suppliers that do not have means of generation and that will allow them, subject to receipt of a supply license and provision of security, to purchase energy from the System Operator for their consumers. The pricing will be based on a component that is based on the SMP price and components that are impacted by, among other things, the consumption at peak demand hours. The arrangement for suppliers that do not have means of generation is limited to a quota that was provided in the principles of the arrangement and customers having a consecutive meter only (approximately 36,000 household customers and about 15,000 household industrial/commercial customers). In addition, for purposes of opening supply to competition, as part of the decision the EA revised the standards for suppliers regarding, among other things, the manner of assigning the consumers to a private supplier, the manner of concluding transactions, moving from one supplier to another and payments on the account.
In 2021, the possibility of operating in the supply of electricity was opened, even without means of generation (virtual supply). This led to the entry of new players who were not yet active in the Israeli electricity market, and who have received a supply license. In addition, due to gradual adoption of ESG standards, there is a significant gradual increase in demand for electricity from renewable sources, in addition to electricity from uninterrupted and reliable sources such as natural gas. From 2024, following the commencement of the implementation of the market model regulation in the distribution segment, virtual suppliers will also be allowed to sell electricity generated using renewable energies to end customers. In OPC’s opinion, this will further intensify the competition in the supply segment. As of March 2023, the main actors in the renewable energy supply segment are EDF Energies Israel Nouvelles Ltd., Meshek Energy Ltd., Shikun & Binui Energy Ltd., and Enlight Ltd.
From 2023, the electricity supply segment has included a retail channel, comprising the marketing of electricity to many end customers, the provision of services and ongoing management of customer accounts in an appropriate manner. At least regarding small customers (households and small businesses), players in this channel include mainly communications companies, utility companies, and other entities with experience and relative advantages in distribution to end customers (for example, Cellcom and Amisragas).
United States
CPV operates in a highly competitive market. Natural gas, solar, and wind projects account for over 90% of new capacity under construction in the U.S. with significant competition among independent power producers and renewable project developers. Independent power producers compete with CPV in selling electricity and capacity to the wholesale electrical grid. In addition, the competitors can also sell electricity to third-party customers by entering into PPAs. Despite the fact that CPV’s power plants are more efficient compared to the market average and hence they have lower costs compared to other conventional gas-fired power plants, competition posed by other production sources, and the use of other technologies may have an adverse effect on electricity prices and capacity, and as a result have a negative effect on CPV Group’s revenues. CPV believes that the CPV Group project’s share of the total capacity in their respective markets are not significant which allows for significant growth.
In addition, CPV’s other competitors in the U.S. energy market include generators of different technology types, such as coal, oil, hydroelectric, nuclear, wind, solar and other types of renewable energies. Some of the generators in different markets is owned and operated by supervised electricity companies, venture capital funds, banks and other financial entities.
The main competitors in the field of energy supply are local electric utility companies, independent power producers, and other suppliers that produce decentralized electricity off the grid and there may be a difference in terms of capabilities, energy sources, and nature of activity, depending, inter alia, on the relevant electricity market. Companies that compete with the CPV Group in the field of energy supply are independent power companies engaged in the generation of energy, and other suppliers engaged in supply of energy. CPV invests in developing new projects using a range of technologies in a range of markets while using various types of contracts in order to improve its ability to compete with existing producers and other competitors, and in order to diversify the risks. In addition, CPV has internal organizational capabilities in all key areas of external and government relations, commodities marketing and trade, finance, licensing, and operations that allow its strategy to develop rapidly and efficiently.
OPC’s Seasonality
Israel
Revenues from the sale of electricity are seasonal and impacted by the “Time of Use” (or “TAOZ”) tariffs published by the EA. As updated by the EA’s decision , the seasons are divided into three in accordance with the resolution of the Israeli Electricity Authority to update the demand hours clusters in 2023, as follows: (i) summer—June to September; (ii) winter—December, January and February; and (iii) transition season—March to May and October to November.
The following table provides a schedule of the weighted EA’s generation component rates for 2024 based on seasons and demand hours, published by the EA.
| | | | Weighted production rate (AGOROT per kWh) | |
| | | | | | | | | | | | | | |
Winter | | Off—peak | | | 19.66 | | | | 19.42 | | | | 19.16 | | | | 18.98 | |
| | Mid-peak | | | - | | | | - | | | | - | | | | - | |
| | On-peak | | | 73.75 | | | | 72.85 | | | | 71.87 | | | | 71.17 | |
Spring or Fall | | Off—peak | | | 18.87 | | | | 18.64 | | | | 18.38 | | | | 18.21 | |
| | Mid-peak | | | - | | | | - | | | | - | | | | - | |
| | On-peak | | | 29.54 | | | | 22.27 | | | | 21.97 | | | | 21.76 | |
Summer | | Off—peak | | | 23.07 | | | | 22.79 | | | | 22.49 | | | | 22.27 | |
| | Mid-peak | | | - | | | | - | | | | - | | | | - | |
| | On-peak | | | 118.5 | | | | 117.05 | | | | 115.48 | | | | 114.35 | |
Weighted Average Rate | | |
| 31.19 | | |
| 30.81 | | |
| 30.39 | | |
| 30.07 |
In general, tariffs in the summer and winter are higher than during transitional seasons. The cost of acquiring gas, which is the primary cost of OPC, is not influenced by the tariff seasonality.
For further information on the seasonality of tariffs in Israel, see “—Industry Overview—Overview of Israeli Electricity Generation Industry.”
The following table provides a summary of OPC’s revenues from the sale of electricity, by season (in NIS millions) for 2022 and 2023. These figures have not been audited or reviewed.
| | | | | | | |
Summer (2 months) | | | 338 | | Summer (4 months) | | | 982 | |
Winter (3 months) | | | 458 | | Winter (3 months) | | | 495 | |
Transitional Seasons (7 months) | | | 838 | | Spring and fall (5 months) | | | 688 | |
Total for the year | | | 1,634 | | Total for the year | | | 2,165 | |
United States
The revenues from generation of electricity are seasonal and are impacted by weather. In general, in natural gas-fueled power plants, profitability is higher during the highest and lowest temperatures of the year, which often coincides with summer and winter. In view of the effects of seasonality, generally, the preference is to conduct maintenance works in power plants, to the extent possible, during the autumn and spring, in which demand for electricity is relatively low. The profitability of renewable energy electricity production is subject to production volume, which varies based on wind and solar operations’ patterns as well as electricity price, which tends to be higher in winter unless the project is engaged in advance in a contract for a fixed price.
Forward Capacity Obligations: PJM and ISO-NE’s capacity markets include “bonuses” and “penalties” imposed based on operating performance of the facilities during pre-defined emergency events. If a facility is unavailable during the emergency event, penalties could have a material negative financial impact to the project.
OPC’s Property, Plants and Equipment
Israel
For summary operational information for OPC’s operating plants in Israel as of and for the year ended December 31, 2023, see “—Our Businesses—OPC—Operations Overview—OPC’s Description of Operations—Israel.”
OPC leases its principal executive offices in Israel. OPC owns all of its power generation facilities.
As of December 31, 2023, the consolidated net book value of OPC’s property, plant and equipment was $1,713 million.
The table below sets forth a summary of primary land plots owned or leased by OPC, or that OPC has right of use in, in which OPC operates (1 dunam = 1000m2).
| | | | | | |
Real estate held through Rotem |
Land on which the Rotem Power Plant was built | | Mishor Rotem | | Lease | | About 55 dunams |
Real estate held through Hadera |
Hadera Energy Center and the Hadera power plant (including emergency road) | | Hadera | | Rental | | About 30 dunams (Power Plant and Hadera Energy Center) |
Real estate (including options for land) held by Hadera for Hadera 2 |
Hadera Expansion—Land near the area of the Hadera Power Plant | | Hadera | | Rental option through the end of 2028 | | About 68 dunams |
Land Agreement of Rotem 2 |
Land near to space on which Rotem Power Plant was built | | Mishor Rotem | | Lease | | About 55 dunams |
Land held by Tzomet (through Tzomet HLH General Partner Ltd. and Tzomet Netiv Limited Partnership) |
Land on which Tzomet is situated | | Plugot Intersection | | Tzomet Netiv Limited Partnership—(by force of a development agreement with Israel Lands Authority)—Lease | | About 85 dunams |
Right-of-use of the land for Sorek 2 |
Land on which Sorek 2 is being constructed | | Sorek 2 Desalination Facility | | Right of use | | About 2 dunams |
Land held through Kiryat Gat |
Land on which Kiryat Gat is being constructed | | Kiryat Gat | | Ownership | | About 12 dunams |
United States
In general, the land on which the projects are situated (both the active projects and the projects under construction) is held in a number of ways—ownership, lease with use right, under a permit and licenses. In some cases, the facilities themselves are located on owned land, where there are easements in land surrounding the facility for purposes of interconnection and transmission. In addition to the project lands, CPV leases office space for use by the headquarters in Silver Spring, Maryland, Sugar Land, Texas, and in Braintree, Massachusetts pursuant to multi-year lease agreements.
CPV plants in commercial operation
| | | | The right in the property | | | | |
Conventional Energy Projects |
Shore |
Land on which the Shore power plant was constructed | | Middlesex County, New Jersey | | Ownership | | About 111,290 square meters (28 acres) | | N/A |
Maryland |
Land on which the Maryland power plant was constructed | | Charles County, Maryland | | Ownership / easements / licenses and permits / authority | | About 308,290 square meters (76 acres) | | N/A |
Valley |
Land on which the Valley power plant was constructed | | Wawayanda, Orange County, New York | | Substantive Ownership(1) / easements or permits | | About 121,406 square meters (30 acres) | | N/A |
Towantic |
Land on which the Towantic power plant was constructed | | New Haven County, Connecticut | | Ownership / easements | | About 107,242 square meters (26 acres) | | N/A |
Fairview |
| | | | | | | | |
Land on which the Fairview power plant was constructed | | Cambria County, Jackson Township, Pennsylvania | | Ownership / easements | | About 352,077 square meters (87 acres) | | N/A |
Three Rivers |
Land on which the Three Rivers power plant was constructed | | Grundy County, Illinois | | Ownership / easements | | About 485,623 square meters (120 acres) | | N/A |
Renewable Energy Projects |
Keenan II |
Land on which the Keenan II wind farm was constructed | | Woodward County, Oklahoma | | Contractual easements | | Rights to land and the equipment | | December 31, 2040 |
Mountain Wind |
Land on which the CPV Mountain Wind wind farms were constructed (information is aggregated for the four wind farms of Mountain Wind) | | Franklin, Oxford and Waldo Counties, Maine | | Contractual easements and leases | | Approx. 15,000,000 square meters (3,700 acres) | | Forty years (Thirty years for 20% of Spruce Mountain) Various 2046—2055 |
Maple Hill |
Land on which the Maple Hill power plant was constructed | | Cambria County, Jackson Township, Pennsylvania | | Ownership / easements | | About 3,063,470 square meters (757 acres, of which 11 acres are leased) | | With regard to the leased area December 1, 2058 |
Stagecoach |
Land on which the Stagecoach power plant is being built | | Macon County, Georgia | | Lease Agreement | | Approx. 2,541,426 m² (628 acres) | | May 22, 2042 with option to extend for an additional 20 years |
Land on which the Backbone power plant will be built | | Garrett County, Maryland | | Lease agreement | | Approximately 2,559 acres | | The earlier of March 31, 2025 or commencement of the operating period, plus an option to extend by five consecutive periods of seven years during operations. |
________________________________
| (1) | This land is held for the benefit of Valley, which is entitled to transfer it to its name. |
Insurance
OPC and its subsidiaries, including CPV, hold various insurance policies in order to reduce the damage for various risks, including “all-risks” insurance. OPC’s sites (similar to most private business activities in Israel) could be exposed to physical damage as a result of the War in Israel. The existing insurance policies maintained by OPC and its subsidiaries may not cover certain types of damages or may not cover the entire scope of damage caused (and such policies include deductibles and exceptions as customary in the areas of activity). In addition, OPC or CPV may not be able to obtain insurance on comparable terms in the future. Insurance policies for OPC-Rotem, OPC-Hadera will expire at the end of July 2024. Insurance policies for Tzomet will expire at the end of May 2024 and for Kiryat Gat—at the end of April 2024. OPC and its subsidiaries, including CPV, may be adversely affected if they incur losses that are not fully covered by their insurance policies.
Employees
Israel
As of December 31, 2023, in Israel, OPC had a total of 169 employees, of which 114 employees are in the OPC Israel division (including plant operation, corporate management, finance, commercial and other), and 55 are at OPC’s headquarters. Substantially all of OPC’s employees are employed on a full-time basis.
The table below sets forth breakdown of employees in Israel by main category of activity as of the dates indicated:
| | | |
| | | | | | | | | |
Number of employees by category of activity: | | | | | | | | | |
Headquarters | | | 55 | | | | 50 | | | | 34 | |
Plant operation, corporate management, finance, commercial and other | | | 114 | | | | 100 | | | | 86 | |
OPC Total (in Israel) | | | 169 | | | | 150 | | | | 120 | |
Most of OPC-Rotem and OPC-Hadera power plants’ operations employees are employed under collective employment agreements. OPC-Rotem is currently negotiating with its employees the engagement in a revised collective agreement to come into force immediately upon the end of the term of the said agreement. The term of the OPC-Rotem collective agreement ended on March 31, 2023, and a revised collective agreement was signed in respect of OPC-Rotem’s employees for a period of four years until March 31, 2027. Approximately 70 of the employees in OPC-Hadera are employed under a collective agreement which was signed in December 2022 and will be in effect through March 2026.
United States
As of December 31, 2023, CPV had a total of 150 employees. In general, CPV does not enter into employment contracts with its employees. All employees of CPV are “at-will” employees and are typically not physically present at the project companies facilities. Rather, day-to-day operations at the project facilities are performed by contractors who are employed directly by the applicable O&M service providers.
Shareholders’ Agreements
OPC Israel
A shareholders’ agreement withis in place between OPC and Veridis regarding OPC Israel. The shareholders’ agreement regarding OPC Israel includes customary terms and conditions, including, inter alia provisions regarding shareholder meetings, rights to appoint directors (such that OPC, as the minoritycontrolling shareholder, has the right to appoint the majority of OPC-Rotem. Thedirectors), shareholder rights in case of share allocation.
In addition, the shareholders’ agreement grants Veridis veto rights in connection with certain material decisions relating to OPC-Rotem,regarding OPC Israel, including: (a) a change in(i) changing the incorporation documents; (b) winding uppapers so as to adversely affect or change Veridis’ rights and obligations; (ii) liquidation; (iii) extraordinary transactions (as the term is defined by the Israeli Companies Law -1999) with related parties, with the exception of OPC-Rotem; (c) changethe exceptions set forth; (iv) entry into new substantial projects that are not included in rights attached to shares prejudicingOPC Israel’s area of activity; (v) restructuring or a shareholder; (d) transactions with affiliated parties; (e) change inmerger as a result of which OPC Israel is not the OPC-Rotem’s activity; (f) reorganization, merger, sale of material assets and such like; (g) pursuit of new projects; (h) changes in share capital, issue of bonds or allotment of various securities,surviving company, subject to the exceptions determinedexception set forth in the agreement; (i) changecase of accountants;a drag-along sale; (vi) appointing an independent auditor to OPC Israel or a material subsidiary thereof that is not one of the “Big Five” CPA firms; and (j) appointment(vii) approval of a transaction or project in which the planned investment amount is highly material, in accordance with criteria set forth, and dismissal of directors by Veridis.subject to exceptions.
The agreements grant the shareholdersagreement provides for additional rights in the event of the sale of OPC Israel’s shares held by any of them selling OPC-Rotem shares,the parties, such as athe right of first refusal, the tag-along right, the drag-along right—all in accordance with the terms and tag-along rights. The agreement also permits OPCconditions set forth.
An amendment to terminate the shareholders’ loan agreement was signed as part of the Veridis transaction, such that OPC Israel provided to OPC-Rotem (whether directly or indirectly) NIS 400 million (approximately $118 million) for repayment purposes as stated above, and provisions were set regarding the repayment of the Shareholder Loans in the event that Veridis sells its sharesfuture, taking into account OPC-Rotem’s free cash flow in OPC-Rotem.accordance with provisions of the agreement.
CPV-related OPC Partnership Agreement
In October 2020, OPC signed a partnership agreement with three institutional investors in connection with the formation of OPC Power Ventures LP (“OPC Power”) (“Partnership”(the “Partnership”) and acquisition of CPV by the Partnership. OPC is the general partner and owns 70% of the Partnership interests. The limited partners of the Partnership are: OPC (70% interest; directly or through a subsidiary), Clal Insurance Group (12.75% interest), Migdal Insurance Group (12.75% interest) and a company from the PoalimHapoalim Capital Markets Group (4.5% interest) (together, these three investors, the “Financial Investors”). The percentages above do not include participation rights in the profits allocated to the CPV managers. The total investment commitments and shareholder loans of all the partners amount to $815$1,215 million, based on their respective ownership interests, representing commitments for acquisition consideration, as well as funding of additional investments in CPV for implementation of certain new projects being developed by CPV. In September 2021, the Financial Investors in the Partnership confirmed their participation in an additional undertaking to invest in developing and expanding CPV’s operations, each according to their proportional share, an additional investment of $400 million. In 2023, CPV and the Financial Investors invested in the equity of the Partnership OPC Power (both directly and indirectly) a total of approximately $150 million, and extended it approximately $45 million in loans, respectively, based on their stake in the Partnership. As of March 22, 2024, total investments in the Partnership’s equity and the outstanding balance of the loans (including accrued interest) amount to approximately $927 million, and approximately $339 million, respectively. In March 2023, CPV and the Financial Investors approved their participation in a facility for an additional investment commitment for backing guarantees that were or will be provided for the purpose of development and expansion of projects - each based on its proportionate share, as outlined above, for a total of approximately $75 million. In September 2023, after utilizing the entire investment commitment and the shareholder loans advanced, the facility was increased by $100 million, in accordance with each partner’s proportionate share (the CPV’s share in the facility is $70 million). As of March 22, 2024, the total balance of investment undertakings and shareholders’ loans advanced by all partners under the facility is estimated at approximately $100 million (excluding the guarantee facility).
The general partner of the Partnership, an entity wholly-owned by OPC, manages the ownership of CPV, with certain material actions (or actions which may involve a conflict of interest between the general partner and the limited partners) requiring approval of a majority or special majority (according to the specific action) of the institutional investors which are limited partners. The general partner is entitled to management fees and success fees subject to meeting certain achievements. There are limits on transfers of partnership interests, with OPC not permitted to sell its interest in the Partnership for a period of three years (except in the case of a public offering by the Partnership), tag along rights for the Financial Investors, drag along rights, and rights of first offer (ROFO) for OPC and the Financial Investors in the case of transfers by the other party. OPC and the Financial Investors have entered into put and call arrangements, with the Financial Investors being granted put options and OPC being granted a call option (if the put options are not exercised), with respect to their holdings in the Partnership. These options are exercisable after 10 years from the date of the CPV acquisition and to the extent that up to such time the Partnership rights are not traded on a recognized stock exchange.
CPV Projects
A description of the limited liability company agreements of the CPV projects in operation is included above under “—OPC’s Description of Operations—United States—Description of CPV Projects”.
Legal Proceedings
For a discussion of other significant legal proceedings to which OPC’s businesses are party, see Note 1718 to our financial statements included in this annual report.
Industry Overview
Overview of Israeli Electricity Generation Industry
Electricity generation and supply in Israel
In general, the Israeli electricity market is divided into four sectors: the (i) generation sector, (ii) transmission sector (transmitting electricity from generation facilities to switching stations and substations through the electricity transmission grid), (iii) distribution sector (transmitting electricity from substations to consumers through the distribution grid including high voltage and low voltage lines), and the supply sector (sale of electricity to private customers). None of the actions provided in the Electricity Sector Law shall be carried out except pursuant to a license, subject to legal restrictions, and in accordance with activity in each of the segments requiring a relevant license. As of December 31, 2022, the installed electricity production capacity in Israel (of the IEC and independent producers) was 17,434 MW excluding renewable energies, and approximately 4,800 MW of renewable energies, with actual generation constituting approximately 10.1% of total actual consumption in the economy in 2022. According to publications of the EA, the annual rate of increase in demand for electricity in 2023 is expected to be at less than 1%. According to the Electricity Sector Status Report, in 2022 the sectoral generation amounted to 76.9 TWh; in 2025, the annual generation forecast is expected to be 81.7 TWh. In 2023, the EA reviewed key points of progress in the renewable energy market, and stated that at the end of 2023 the rate of actual consumption of renewable energy in the Israeli economy was 12.5%; the rate of renewable energy installed capacity out of total capacity in Israel as of the end of 2023 was 24.4%.
The Israeli electricity market includes a number of key players: the EA, the IEC, Noga, the Ministry of Energy and Infrastructures (the “Ministry of Energy”), independent power producers and suppliers and electricity consumers.
The Ministry of Energy oversees of the energy and natural resources markets of Israel, including electricity, fuel, cooking gas, natural gas, energy conservation, oil and gas exploration, etc. The Ministry of Energy regulates the public and private entities involved in these fields. In addition, the Minister of Energy has powers under the Electricity Sector Law, including regarding licenses and policy setting on matters regulated under the Law. The EA reports to the Ministry of Energy and operates in accordance with its policy. The EA has the power to issue licenses in accordance with the Electricity Sector Law, to supervise license holders (including private license holders), to set tariffs and criteria for the level and quality of service required from an “essential service provider” license holder. Accordingly, the EA supervises both the IEC and Noga as well as independent power producers and suppliers. According to the Electricity Sector Law, the EA is authorized to determine the electricity tariffs in the market (including the generation component) based, among other things, on the IEC’s costs that are recognized by the EA.
The IEC supplies electricity to most of the customers in Israel in accordance with licenses granted to it under the Electricity Sector Law, and transmits and distributes almost all of the electricity in Israel. In general, the IEC is responsible for the installation and reading of the electricity meters of electricity consumers and generators and for transfer of the information to Noga and suppliers in accordance with the decisions of the EA. Noga is a government company, whose operations commenced in November 2021, and is in charge of the management of the electricity system in the generation and transmission segments, including constant balancing out between the supply of electricity and the demand for planning of the transmission system, including, among other things, drawing up a development plan for the transmission and generation segments. Pursuant to the Electricity Sector Law, the IEC and Noga are each defined as an “essential service provider” and as such, they are subject to the criteria and tariffs set by the EA. As of 2022, the IEC’s share amounted to 51.5% in the generation segment and 69% in the supply segment.
According to the Electricity Market Report, as of 2022, independent power producers (including OPC power plants), including those using renewable energy, active in Israel have an aggregate generation capacity of approximately 11,706 MW, constituting 53% of the total installed generation capacity in Israel. According to Electricity Market Report, at the end of 2025 (the end of the IEC Reform), the market share of the independent power producers, including renewable energies, is expected to amount to approximately 66% of the total installed capacity in the sector. In generation terms, in 2025 the market share of the independent power producers (including OPC power plants), and including renewable energies, is expected to amount to approximately 60% of the total generation in the market.
The generation component and changes in the IEC’s costs
In accordance with the Electricity Sector Law, the EA determines the tariffs, including the rate of the IEC electricity generation component, in accordance with the costs principle and the other considerations provided for in the Electricity Sector Law, as applied by the EA. The generation component is based on, inter alia, the IEC’s fuel costs, comprising mainly of the IEC’s gas and coal costs, the costs of purchasing electricity from independent producers, the IEC’s capital costs, and the EA’s policy on classification of costs to either the generation component and the IEC’s system costs or the recognition of such costs of the IEC. The generation component may also change based on the IEC’s other expenses and revenues and may also be affected by other factors, such as, sale of power plants as part of the IEC Reform.
Under the agreements with the private customers, OPC charges its customers the load and time tariff (the “DSM Tariff”), net of the generation component discount. Since the electricity price in the agreements between OPC-Rotem, OPC-Hadera and Kiryat Gat (and of the generation facilities) and their customers is impacted directly by the generation component (such that a decline in the generation component would generally decrease the profitability and vice versa) and the generation component is the linkage base for the natural gas price in accordance with the gas supply agreements of OPC in Israel (subject to a minimum price), OPC is exposed to changes in the generation component, including, among other things, changes in the generation costs and the energy acquisition costs of the IEC, including the price of coal and the IEC’s gas cost. In addition, OPC is exposed to changes in the methodology for determining the generation component and recognizing IEC costs by the EA. In general, an increase in the generation component has a positive effect on OPC’s results.
In Israel, the TAOZ tariffs are supervised (controlled) and published by the EA. Generally, the electricity tariffs in Israel in the summer and the winter are higher than those in the transition seasons. Acquisition of the gas, which constitutes the main cost in this business operations, is not impacted by seasonality of the TAOZ (or the demand hours’ brackets). The hourly demand brackets change the breakdown of OPC revenues over the quarters in such a manner that it increases the summer months (and mainly the third quarter) at the expense of the other quarters, and particularly the first and fourth quarters. The summer on-peak (August) high voltage tariff for 2023 indicates that the generation component in 2023 accounted for about 91% of TAOZ. In addition, the TAOZ includes system costs at the rate of 7% and public utilities at the rate of about 2%.
On January 1, 2023, an annual update of the tariff for 2023 came into effect for the IEC’s electricity consumers. In accordance with the resolution, the high cost of coal was the main reason for the increase in electricity tariffs. In accordance with the update, the generation component stood at NIS 0.312 per kWh, a 0.6% decrease compared to the generation component that applied in the last few months of 2022. On February 1, 2023, the EA resolution to revise the costs recognized to the IEC and Noga and the tariffs paid by electricity consumers came into effect. This came into effect after the Ministry of Finance signed, on January 23, 2023, orders that extend the reduction in the purchase tax and excise tax rates applicable to coal, such that the reduction shall be in effect through the end of 2023. Pursuant to the resolution, a further update to the generation component for 2023 came into effect, whereby the generation component was changed to NIS 0.3081 per kWh, approximately 1.2% decrease compared to the tariff set on January 1, 2023. At the beginning of March 2023, a hearing was published in connection with the revision of the costs recognized to the IEC and the tariffs paid by electricity consumers, following the decline in coal prices, and increase in other costs. The tariff of NIS 0.3081 which came into effect on April 1, 2023 was reduced by approximately 1.4% from the tariff set in February 2023 to NIS 0.3039.
An update to the hourly demand brackets, which became effective from January 2023, had a negative impact on our results from Israel activities and caused a change in the seasonality of our revenues, which resulted in a significant increase in our results during the summer period at the expense of the other months of the year (particularly the first quarter).
On February 1, 2024, an annual update of the tariff for 2024 came into effect for the IEC’s electricity consumers. According to the decision, the generation component was updated to NIS 0.3007 per KWh, a decline of 1.1%, mainly due to the excess proceeds expected from the sale of the Eshkol power plant, which led to a reduction in the generation segment. Furthermore, as part of the resolution regarding the updating of the tariff, and according to a decision about the designation of proceeds from the sale of Eshkol, the surplus proceeds from the sale will be first used to cover costs incurred during the War, including diesel fuel costs, and only then will the surplus proceeds be used to cover past one-off costs.
Updates in the demand hour clusters
On August 28, 2022, the EA also published a resolution amending the demand hour clusters in order to, according to the publication, adjust the structure of the DSM tariff, such that it integrates a significant portion of solar energy and storage. According to the published resolution, the following key revisions were set: (i) changing peak hours from the afternoon to the evening; (ii) increasing the number of months during which peak time applies in the summer to from two months to four months; (iii) increasing the difference between peak time and off-peak time; and (iv) defining a maximum of two clusters for each day of the year (without the mid-peak cluster that was in force until the resolution went into effect). Changing the hour categories in accordance with the decision is expected to increase the tariffs paid by the household consumers and decrease the tariffs paid by DSM tariff consumers.
In accordance with the resolution, the revised tariff structure came into force with the revision of the tariff for consumers for 2023. The resolution also stipulated that in view of the frequent changes in the sector and the need to reflect the appropriate sectoral cost, the hour clusters shall be updated more frequently, in accordance with actual changes.
The revision of the demand hour clusters had a negative effect on OPC’s results, mainly in view of the consumption profile of OPC’s customers (who are mostly industrial and commercial customers), which generally have low level of consumption fluctuations during the day compared to the sectoral consumption profile as reflected in the tariffs and regulations set as part of the revision for off-peak and on-peak hours. In addition, a change of the demand hour clusters changes the breakdown of OPC’s revenues and profits from its operations in Israel between the different quarters, such that revenues and profits in the summer (June-September), and mainly the third quarter, increase at the expense of the other quarters.
The IEC Reform and development of the private electricity market in Israel
The entrance of the independent power producers and suppliers has led to a significant decrease in the IEC’s market share in the sale of electricity to large electricity consumers (high and medium voltage consumers). The market share of independent producers in the generation and supply segments is expected continue to grow in coming years as a result of, inter alia, construction of power plants by independent producers (using natural gas and renewable energies), and as a result of the IEC Reform, which includes the sale of power plants and their transfer from the IEC to independent producers, and imposed limitations on the IEC with respect to construction of new power plants, as well as a result of opening the supply segment to competition, including providing licenses to suppliers without generation means and the resolution regarding smart meters installation rules.
The following table presents data on the share of independent power producers and the IEC in the electricity market, as well as renewable energy production in 2021 and 2022, as published by the EA.
| | | | | | |
| | | | | % of Total Installed Capacity in the Market | | | | | | % of Total Installed Capacity in the Market | |
IEC | | | 11,615 | | | | 54 | % | | | 10,527 | | | | 47 | % |
Independent power producers (without renewable energy) | | | 6,231 | | | | 29 | % | | | 6,907 | | | | 31 | % |
Renewable energy (independent power producers) | | | | | | | | | | | | | | | | |
Total in the market | | | 21,502 | | | | 100 | % | | | 22,233 | | | | 100 | % |
| | Energy generated (thousands of MWh) | | | % of total energy produced in Israel | | | Energy generated (thousands of MWh) | | | % of total energy produced in Israel | |
IEC | | | 38,223 | | | | 52 | % | | | 39,224 | | | | 51 | % |
Independent power producers (without renewable energy) | | | 30,077 | | | | 41 | % | | | 30,155 | | | | 39 | % |
Renewable energy (independent power producers) | | | | | | | | | | | | | | | | |
Total in the market | | | 73,975 | | | | 100 | % | | | 76,886 | | | | 100 | % |
Set forth below are data about the distribution of consumers between private suppliers and the default supplier (in accordance with the IEC’s data):
Pursuant to the IEC Reform, an 8-year plan was formed, under which the IEC was required, among other things, to sell certain generation sites (including the Eshkol, which is under a process of completing a sale to an independent producer)), and the system operation activities will be spun off from the IEC and executed by a separate government company. Accordingly, Noga started operating as an entity separate to the IEC in November 2021. The Reading power plant, was also supposed to be sold as part of the IEC Reform; a government taskforce was set up, which considered alternatives to such power plant in order to secure the supply of electricity to Gush Dan. A final decision as to the selected alternative is expected to be made in July 2024.
In May 2023, OPC submitted, through a joint special-purpose corporation, held in equal parts by OPC Power Plants and a corporation held by the Noy Fund ("OPC Eshkol"), a bid to purchase the Eshkol Power Plant as part of an IEC tender. In June 2023, OPC was notified that the Tenders Committee declared that an offer submitted by Eshkol Power Energies Ltd. is the winning offer in the Tender, and that OPC Eshkol was declared a "second qualifier" according to the tender documents. Since the winning bidder did not complete the signing of the acquisition agreement, in July 2023, the IEC announced the cancellation of the tender, and its decision to hold a new tender between the bidders that took part in the first bid (and which includes a minimum price of NIS 9 billion (approximately $2 billion) (the "Tender"). In August 2023, OPC Eshkol filed an administrative petition to the Tel Aviv Administrative Court. On September 14, 2023, the Administrative Court rejected the petition. OPC Eshkol did not submit a bid as part of the tender that took place on October 30, 2023.
Forecast of potential growth in natural gas in the Israeli electricity market
According to the hearings and resolutions of the EA, four gas-powered conventional generation units are expected to be constructed, including the unit that is expected to be constructed as part of the Sorek tender, with a capacity of up to 900 MW, the replaced generation unit in the Eshkol site with a capacity of up to 850 MW, and two conventional units with a capacity of up to 900 MW each.
The assessment as to the growth potential in natural gas generation units in the upcoming decade is conditional upon compliance with the renewable energy targets. According to external data available to OPC, OPC believes new natural gas generation capacity of 5,400 to 9,000 MW will be required between 2030 and 2040.
In September 2022, Noga published a long-term demand forecast for 2022-2050, according to which the demand is expected to increase by 3.1% per year by 2030 and 3.7% in 2030-2040, based mainly on growth forecasts in connection with the introduction of electric vehicles into Israel.
Virtual supply—Opening of the supply segment to suppliers without means of generation and to household consumers
In February 2021, the EA reached a resolution to regulate virtual supply license, which allows suppliers who do not have means of production to purchase energy from the System Operator to sell to their customers (the “Virtual Supply”). Suppliers who did not have means of production had been restricted by certain a quota set by the EA. In July 2021, OPC was awarded a virtual supply license. OPC began entering into virtual supply agreements with customers for a total capacity of 50 MW. OPC also entered into a virtual supply agreement with Noga. In March 2022, the EA removed all quotas that were set for virtual supply, and amended the tariff for acquisition of electricity from the System Operator.
Overview of United States Electricity Generation Industry
Overview
The electricity market in the United States, in which CPV operates, is the largest private electricity market in the world with installed capacity of approximately 1,300 gigawatts of generation facilities. The generation mix has changed significantly over the last several years. In 2016, natural gas overtook coal as the primary fuel source for electricity production in the United States, after coal comprised over 50% of the electricity supply since the 1980s. These changes have been driven by federal and state environmental policies, as well as the relative cost of the fuel sources and the advancement in technologies. These factors also have greatly contributed to the growth in renewable technologies over the last several years. Alongside the increasing demand for renewable energy, environmental goals of large commercial and industrial customers are driving demand for renewable energy.
The wholesale electric marketplace in the United States operates within the framework of several FERC-approved regional or state market operators, including RTO or ISO. RTO/ISOs are responsible for the day-to-day operation of the transmission system, the administration of the wholesale markets in the regions in which they operate, and for the long-term transmission planning and resource adequacy functions. In most cases the ISO’s and RTO’s powers are concentrated under a single entity. The RTOs and ISOs are supervised by FERC, except for ERCOT (the Texas electricity market). In addition to FERC, other state regulators regulate the sale and transmission of electricity, within each state, and the RTOs/ISOs, which are the key players in the wholesale electricity markets in the United States, in which the CPV Group operates, include other electricity producers and local utility companies, that serve both wholesale and retail customers. Most of the other electricity producers (especially producers that joined recently), and local electricity companies operating in these wholesale markets, are privately owned entities; however, those market players include a number of publicly held cooperatives, government utility companies and federal system administrators.
Each of the ISOs and RTOs operates energy markets and related services, and buyers and sellers can submit in those markets bids to sell or supply electricity and related services, such as capacity services, frequency stabilization, backup, etc. Some of the ISOs and RTOs also operate capacity markets. ISOs and RTOs operating in advanced markets use a demand-based electricity selling system, and a marginal price set by electricity producers to meet the regional consumption needs. In large parts of the United States, the electricity management system has a more traditional structure where the local electric utility company is in charge of load management and the production mix. The CPV Group operates mainly in advanced markets managed by ISOs or RTOs.
In addition to revenues from the sale of energy, related services and availability, manufacturers of renewable energy and manufacturers of low-carbon energies benefit from government mechanisms and incentives. Both U.S. federal and state governments offer incentives to suppliers in order to meet the renewable energy targets. A number of states require the local electric utility company to acquire a certain quantity of RECs in accordance with the total consumption of their consumers. In addition, there are federal tax incentives in connection with production of and investment in renewable energies and other low-carbon technologies, which also constitute a financial incentive to develop specific production technologies. Furthermore, each state has in place environmental protection regulations, which may provide incentives and encourage the closure of existing production facilities that use fossil fuels.
While each of the ISOs and RTOs has the same function on the federal level, there are significant differences between markets in terms of their structure and activity; those differences may affect the execution and the economic feasibility of new projects, and promote or delay investments in new projects.
The CPV Group operates mainly in advanced markets managed by ISOs or RTOs.
Market Developments
The increasing demand for renewable energy led to an unprecedented increase in interconnection applications by projects, and to an increase in interconnection survey applications by solar projects. These demands may affect the planning functions of ISOs or RTOs and utility and electric distribution companies, and lead to delays in interconnection approvals; the demand may also affect the process and pace of promoting the CPV Group’s projects under development. In addition, projects under construction and development are affected by disruptions or delays in supply chains. Some of the CPV’s projects under development or construction have signed certain agreements including PPAs and capacity agreements, as well as RECs, which include provisions relating to delays in commercial operation. If the delays are longer than certain periods, the other parties to the agreements may terminate the agreements, and the CPV Group’s compensation shall be limited to the collateral provided under the agreements. The amount of collateral provided in connection with development projects (including pre-construction) which were provided due to various needs and purposes in the execution stages may increase or decrease pursuant to the terms of applicable agreements in connection with certain milestones being reached for the development projects.
The transition in the United States to renewable energy and low-carbon emission generation has been accelerating in recent years. Hydroelectric generation has been a mainstay of the industry from its early days, and certain parts of the country have a significant resource base thereto. During the past decade there has been a significant decrease in the less efficient, less flexible coal fired generation, mainly due to introduction of carbon capture power plants but coal still constitutes more than 17% of the total electricity generation in the United States. While in recent years there has been a significant increase in the capacity of power plants powered by wind and solar energy, the build out of these facilities in the northeast has been slower than expected. A key factor driving the increase in renewable technologies are state policies supporting the decarbonization of the economy which includes energy, transportation, and heating. Twenty-three states (including Maryland, New York, New Jersey, Connecticut and Illinois, states in which the CPV Group operates), the District of Columbia and Puerto Rico have adopted mandatory generation targets using renewable energy to support state demand, and others have policy targets aimed at reducing CO2 emissions over time. Plans implemented by states for renewable energy development require local utility companies to acquire a certain rate of electricity from renewable sources through plans commonly referred to as RECs, which are tradable on a number of exchanges throughout the country.
Federal regulations require the reporting of greenhouse gas emissions under the federal Clean Air Act (“CAA”). Federal regulations also impose limits on CO2 emissions from new (commenced construction after January 8, 2014) or reconstructed (commenced reconstruction after June 8, 2014) combined-cycle power plants. States may also impose additional regulations or limitations on such emissions. For example, CPV’s conventional, natural gas-fired power plants in Connecticut, New York, New Jersey and Maryland are subject to the Regional Greenhouse Gas Initiative (“RGGI”), which requires CPV’s natural gas-fired plants to obtain, either through auctions or trading, greenhouse gas emission allowances to offset each facility’s emission of CO2. Pennsylvania may also adopt the RGGI regulation pending the outcome of legal proceedings challenging its implementation. Under RGGI, an independent market monitor provides oversight of the auctions for CO2 allowances, as well as activity on the secondary market, to ensure integrity of, and confidence in, the market. In 2023, the price of carbon dioxide allowances averaged $11.92 per allowance in the four quarterly RGGI auctions.
In addition, federal and state tax policies have incentivized investment in certain low or no carbon technologies through PTC, which provide a tax benefit for every kWh generated by renewables during a ten-year period and through ITC, which provide tax benefits based upon the amount of investment made in a renewable or a battery storage project; and tax credit for carbon emissions that either used or sequestered.
In 2022, the IRA was signed into law by President Biden. Among other things, this law awards significant tax benefits to renewable energies and technologies aimed at reducing carbon emissions. One of the IRA’s key objective is to increase the production of electricity using renewable energies and to increase regulatory stability in this sector. For more information on the IRA, see “Item 4.B Business Overview—Regulatory, Environmental and Compliance Matters—United States—The Inflation Reduction Act of 2022.”
For information on the PJM market, see “Item 4.B Business Overview—Regulatory, Environmental and Compliance Matters—United States—The PJM market.”
Regulatory, Environmental and Compliance Matters
Israel
The IEC generates and supplies most of the electricity in Israel in accordance with licenses granted by virtue of the Israeli Electrical Market Law, and distributes and supplies almost all of the electricity in Israel. In June 2020, the “System Operator”System Operator was granted a license to manage the Israeli electricity system (which was revised in November 2020), pursuant to which the Minister of Energy and the EA approved commencement of gradual activities of the System Operator in two stages. The System Operator’s Technological Planning and Development Unit is responsible for planning the transmission system and, among other things, preparing a development plan for the transmission and generation of electricity, determining criteria for development of the electricity system, formulating forecasts, engineering and statutory planning of the transmission system, and performing studies with respect to connection to generation facilities. The System Operators’ Market Statistic Unit is responsible for the current ongoing operation of the transmission system and is intended to, among other things, maintain a balance in levels of supply and demand in the electricity market, manage the transmission of energy from power stations to substations at the reliability and quality required (by passing through the power grids), timing and performing maintenance works in production units and in transmission systems, managing commerce in Israel under competitive, equal and optimal terms, including performing agreements to purchase available capacity and energy from private electricityindependent power producers and for planning and developing the transmission and distribution systems.
Pursuant to the Electricity Sector Law, the IEC and the System OperatorNoga are each defined as an “essential service provider” and as such they are subject to the standardscriteria and tariffs provided by the EA. In addition, the IEC was declared a monopoly by the Israeli Antitrust Authority in the electricity sector, in the field of power supply — electricity production and sale, transmission and distribution of electricity and providing backup services to electricity consumers and producers.
IEC Reform
Pursuant to the Israeli Government’s electricity sector reform, the IEC will bewas required to sell five of its power plants (currently remaining power plants are three) through a tender process over the 7 years, which is expected to reduce its market share to below 40%.years. The IEC will be permitted to build and operate two new gas-powered stations (through a subsidiary), but will not be authorized to construct any new stations or recombine existing stations. The IEC will also cease acting as the System Operator. Following the Israeli Government’s electricity sector reform, as part of which the IEC is expected to sell five of its sites, the Israel Competition Authority issued guiding principles for sector concentration consultation in such sale process. According to such principles, which are subject to change and review considering the relevant circumstances:
An entity may not hold more than 20% of the total planned installed capacity on the date of sale of all the sites being sold. The generation capacity of an entity’s related parties with generation licenses will be counted towards such entity’s capacity for purposes of this 20% limitation. In addition, the EA published proposed regulations in respect of maximum holdings in generation licenses which are not identical to the Competition Authority principles. The Competition Authority has stated that the relevant limit is 20% of 10,500 MW (which is the anticipated capacity in the market held by private players by 2023, excluding capacity of the IEC), while, the EA has proposed regulation whereby the relevant limit is 20% of 16,000 MW (including capacity of the IEC). OPC may be subject to a more restrictive interpretation. The MW currently attributable to OPC, including Oil Refineries Ltd., or ORL, and Israel Chemicals Ltd. as parties with generation licenses that are related to OPC, is approximately 1,480 MW; and
An entity holding a right to a fuel venture may not acquire any of the sites being sold.
OPC participated in the tenders of the Alon Tabor plant and Ramat Hovav plants — the first two plants that have been sold out of the five plants to be sold by the IEC — but was not the winning bidder.
Ministry of Energy and EA
The Israeli Ministry of Energy (“Ministry of Energy”) regulates the energy and natural resources markets of the State of Israel: electricity, fuel, cooking gas, natural gas, energy conservation, water, sewerage, oil exploration, minerals, scientific research of the land and water, etc. The Ministry of Energy regulates public and private entities involved in these fields, and operates to ensure the markets’ adequate supply under changing energy and infrastructure needs, while regulating the markets, protecting consumers and preserving the environment.
According to publications of the Ministrypolicy principles set by the Minister of Energy from November 2019, by the Ministryend of Energy’s multi-year goals include diversified energy resources2025, production units 5-6 at the Orot Rabin site in Hadera and ensuring reliability of supply during peacetime and emergency, developing effective and significantgeneration units 1-4 at the “Rutenberg” site in Ashkelon will be converted to natural gas and determining long-terms policies and appropriate regulationsthe use of coal will cease. In accordance with information published by the EA, the first combined cycle in “Orot Rabin” is expected to start operations in May 2024. After its operation, the two units are expected to be decommissioned (units 3-4 in “Orot Rabin”). In addition, the project for the conversion of the market’s electricity.coal-fired power plants started in the first unit in January 2024.
The Ministry of Energy’s main objectives in the electricity field are securing a reliable supply of electricity to the Israeli market, formulating development procedures to the electricity production sections, energy transmission and distribution, promoting policies to integrate renewable energies in electricity production in accordance with governmental decisions, formulating policies changing the market’s electricity structure, performing control and supervision of the implementation of the IEC’s and private producers’ development plans, performing control, supervision and enforcement of implementing safety regulations according to the Electricity Law, 5714-1954, and handling legislature in the electricity market fields, rules of performing electricity works and security in electricity. The main objectives of the Ministry of Energy in its workplan for 2019 included achieving an efficient and competitive electricity sector by focusing on the reform of the sector through the initiation of tenders for the sale of the IEC power plants and the transfer of system management activities from the IEC to the new System Operator.
Energy Sector Targets for 2050
In April 2021, the Ministry of Energy published the roadmap for a low-carbon energy sector by 2050. The Ministry of Energy has set four “primary targets” that will reflect the strategic goal of reducing emissions, and also supportive sectoral objectives which will help to achieve them. The “super target” is defined as a reduction of greenhouse gas emissions from the energy sector by 80%at least 85% compared to the 2015 reference year, by 2050. The targets and indices for the energy sector are presented by the Ministry of Energy in the following table.
| | | | | | | | |
Reducing greenhouse gas emissions in the energy sector | | Percentage reduction of greenhouse gas emissions compared with 2015 | | 0% | | 22% | | 80% |
Reducing greenhouse gas emissions in the electricity sector | | Percentage reduction of greenhouse gas emissions compared with 2015 | | 7.5% | | 30% | | 75%-85% |
Energy efficiency | | Average annual improvement in energy intensity (TW/NIS million) | | 0.7% | | Annual improvement of 1.3% in energy intensity | | Annual improvement of 1.3% in energy intensity |
Use of coal | | Percentage of coal in the electricity generation mix | | 30% | | 0% | | 0% |
Further to Government Decision No. 171 from July 2021 regarding a transition to a low carbon economy, in January 2024, the Government passed Government Resolution No. 1261 regarding the pricing of emissions of local pollutants and greenhouse gases, for the implementation of the principle that requires polluting entity to pay. As part of the resolution, the Minister of Finance will revise the Excise Tax on Fuel Order (Imposition of Excise Tax), 2004 (“the Excise Tax on Fuel Order”) and the Customs Tariff and Exemptions and Purchase Tax of Goods Order, 2017, to ensure a gradual charge to an entity for the external and environmental costs of carbon emissions, commencing from 2025, within the scope of the resolution. The Minister of Finance has yet not approved the Excise Tax on Fuel Order within the scope of the resolution. OPC believes that the amendment of the Excise Tax on Fuel Order pursuant to the government resolution (if advanced) would increase OPC’s costs of acquiring natural gas (renewable energy projects are not exposed to the natural gas costs), where this impact is expected to be offset, partly or fully, to the extent the costs deriving from the resolution are included in the generation component.
Main Targets | Indicator | 2018 | 2030 Target | 2050 Target |
Reducing greenhouse gas in the energy sector | Percentage reduction of greenhouse gas over 2015 | 0% | 22% | 80% |
Reducing greenhouse gas in the electricity sector | Percentage reduction of greenhouse gas over 2015 | 7.5% | 30% | 75%-85% |
Energy efficiency | Percentage of annual improvement in energy intensity (TW/NUS million) | 0.7% | Annual improvement of 1.3% in energy intensity | Annual improvement of 1.3% in energy intensity |
Use of coal | Percentage of coal in the electricity generation mix | 30% | 0% | 0% |
In September 2023, the Israeli Ministerial Legislation Committee approved the government Climate Bid, which specifies a strategic national net-zero target by 2050, and an interim target of a 30% reduction in greenhouse gas emissions by 2030. The law sets government implementation mechanisms, national plans, and transparency, monitoring and reporting duties to secure compliance with the targets. To the best of OPC’s knowledge, the law has not yet been passed and the final wording of the legislation is uncertain.
Closure of the IEC’s Coal-Fired Production Units
As of March 27, 2022, theThe IEC’s generation units run on coal, natural gas, fuel oil or diesel fuel as their secondary or primary fuel, as the case may be. The power plants operated by the independent electricity producers are powered by natural gas as primary fuel and diesel fuel as backup. Use of natural gas for power generation reduces air pollution and greenhouse gas emissions in the power generation process compared with the use of coal.
According to Government Decision 4080, by June 2022, the generation of electricity in units 1-4 will bewas stopped, subject to the existence of two cumulative conditions: (i) connection of a third gas reservoir (Karish and Tanin reservoir) to the national gas transmission system, (ii) commencement of operation of the first combined cycle with a capacity of 600 MW at the “Orot Rabin” site in Hadera. AsThe generation units of units 4-1 at the date of the report,Orot Rabin site has not yet terminated and there is no certainty regarding compliance with the conditions and the cessation of generation in units 1-4 at the Orot Rabin site.these units.
According to the policy principles set by the Minister of Energy from November 2019, untilby the end of 2025, production units 5-6 at the Orot Rabin site in Hadera and generation units 1-4 at the “Rotenberg”“Rutenberg” site in Ashkelon will be converted to natural gas and the use of coal will ceasecease. In accordance with information published by the EA, the first combined cycle in “Orot Rabin” is expected to start operations in May 2024. After its operation, the two units are expected to be decommissioned (3-4 in “Orot Rabin”). In addition, the project for the conversion of the coal-fired power plants started in the first unit in January 2024.
The EA
The EA, which is subordinated to the Ministry of Energy and operates in accordance with its policy, was established in January 2016, and replaced the Public Utility Authority or PUAE,(“PUAE”), which operated until that time by virtue of the Electricity Sector Law. The EA has the authority to grant licenses in accordance with the Electricity Sector Law, (licenses for facilities with a generation capacity higher than 100 MW also require the approval of the Minister of Energy), to supervise license holders, to set electricity tariffs and criteria for them, including the level and quality of services required from an “essential service provider” license holder, supply license holder, a transmission and distribution license holder, an electricity producer and a private electricityan independent power producer. Thus, the EA supervises both the IEC and private producers.
The Minister of Energy can dispute EA rulings and request a renewed discussion on specific rulings, except in the matter of the electricity tariffs, which the EA has full authority to set. In addition, the Minister of Energy has the authority to propose the appointment of some of the members of the EA board, as well as the authority to rule on electricity market policy on the subjects defined in the Electricity Sector Law.
According to the Electricity Sector Law, the EA may set the power rates in the market, based, among others, on the IEC costs that the EA elects to recognize, and yield on capital. The EA sets different rates for different electricity sectors. According to the Electricity Sector Law, the IEC shall charge customers in accordance with rates set by the EA and shall pay another license holder or a customer in accordance with the relevant rates. In addition, the EA sets the tariffs paid by private electricityindependent power producers to the IEC for various services provided by the IEC, including measurement and meter services, system services, and infrastructure services.
In 2021, the EA continued to publish, in accordance with the policy of the Minister and the government, resolutions intended to promote the construction of solar facilities, storage facilities, and installation of EV charging stations in the land divisions, approved the start of the System Operator’s activities, revised the covenants for promoting competition in the supply segment, established principles for installing smart meters, and approved virtual supply licenses. In addition, the EA published a hearing on the amendment of criteria for the purpose of applying the market model to private generation.
For further information on related EA tariffs, see “—Industry Overview— Overview of Israeli Electricity Generation Industry.” For further information on the effect of EA tariffs on OPC’s revenues and margins, see “Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of Operations—OPC— Sales—Revenue—EA Tariffs.”
Independent Power Producers (IPPs)
Activity by IPPs, including the construction of private power stations and the sale of electricity produced therein, is regulated by IPP Regulations and the Cogeneration Regulations, as well as the rules, decisions, and standards established by the EA. OPC-Rotem has a unique regulation by virtue of a tender, as detailed below.
According to the Electricity Sector Law, none of the actions set in the Electricity Sector Law shall be carried out by anyone other than a license holder. The Licenses Regulations include provisions and conditions in the matter of issuing licenses, rules for operating under such licenses and the obligations borne by license holders.
In order to obtain a production license, an applicant must file a request in accordance with the relevant regulations, and meet the threshold conditions. Among others, the manufacturer bears the burden to prove that the corporation requesting the license has a link to the land relevant to the facility. According to EA rulings, subject to meeting the terms (and with the approval of the Minister of Energy for licenses exceeding 100 MW), the developer is granted a conditional license and, upon completion of construction of the facility and successful compliance with acceptance tests, a generation license. The conditional license holder must meet certain milestones for constructing its facility as detailed in the conditional license, and must also prove financial closing. Only after meeting these milestones and the commercial operation of the facility, the developer is granted a generation license (or Permanent License) determined by the EA for the period determined in such license (for licenses exceeding 100 MW, the license must be approved by the Minister of Energy).
This model, which is based on receiving a conditional license followed by a permanent license (subject to meeting the regulatory and statutory milestones), is applicable to both the production of electricity using all types of technology, with the exception of facilities with an installed capacity under 16 MW, for which no license is required for their operation. A party requesting a supply license must demonstrate compliance with the shareholders’ equity requirements as provided by the EA as a condition for receipt of a supply license for suppliers without means of generation.
According to the 20202022 Electricity MarketSector Status Report, as of 2020,2022, IPPs (including OPC-Rotem and OPC-Hadera)OPC power plants), including those using renewable energy, active in Israel have an aggregate generation capacity of 8,329approximately 11,706 MW, constituting 42%53% of the total installed generation capacity in the country. The EA estimates that,According to the Electricity Sector Status Report for 2022, by the end of the IEC Reform period, the IEC’s market share will be about 45% of the independent power producers (including OPC-Rotem and OPC-Hadera), including renewable energies, is expected to amount to approximately 66% of the total installed conventional capacity in Israel, 33% of the installed capacity (including renewable energies) and 32% of gas-fired installed capacity.sector. In generation terms, according toin 2025, the 2018 lettermarket share of the chairman of the EA, the IEC’s market shareindependent power producers (including OPC-Rotem and OPC-Hadera), including renewable energies, is expected to drop below 40%amount to approximately 60% of the total generation in the market.
The regulatory arrangements applicable to IPPs were determined while distinguishing between the different generation technologies they use and the various levels of voltage they will be connected to (according to installed capacity). The following are the key electricity production technologies used by private producers in Israel:
| • | Conventional technology – —electricity generation using fossil fuel (natural gas, diesel oil or diesel oil)carbon). As of December 31, 2020,2022, the total installed capacity in this technology which is inprimarily held by the hands of independent producers, is about 5,480 megawatts. During 2021,6,607 MW. Gas-fired combined cycle generation facilities are planned to be operational during most hours over the Ramat Hovavyear. Conventional open cycle power plant transitioned fromplants (the “peaker power plants”) are generally planned to operate for a number of hours during the IECday; these power plants are operated when the demand for electricity exceeds the supply–- whether due to an independent producer. Therefore, according to OPC’s understanding, the installed capacitydemand peaks, as backup in case of malfunctions in other generation facilities, or as a supplement when solar energy is unavailable—whether in the hands of independent producers increased by an additional 1,195 megawatts. early morning hours or at night. |
| • | Cogeneration technology – —electricity generation using facilities that simultaneously generate both electrical energy and useful thermal energy (steam) from a single source of energy. Exercise of the quota of generatorsfor producers using this technology amounts to approximately 990 MW out of a total quota of 1,000 MW assigned under the current regulation. Licenses issued beyond that shall be subject to different regulation.is fully utilized. |
| • | Renewable energy – —generation of electric power the source of energy of which includes, inter alia, sun, wind, water or waste. In November 2020, the Israeli government updated the generation targets for renewable energy to 30% of the consumption up to 2030. As of the end of 2021,2022, the installed capacity of renewable energy generation facilities was 3,6564,795 MW. In recent years, there has been an uptick in the entrance of electricity producers and generation facilities that use renewable energies in to the electricity generation market, including solar energy, wind energy, and storage; that use the grid resources. As of the report date,In 2023, most of the renewable energy generation activities arewas sold to the System Operator or for producer’s own consumption and to the Onsite Producers.onsite consumers. |
| • | Pumped storage energy – —generation of electricity using an electrical pump connected to the power grid in order to pump water from a lower water reservoir to an upper water reservoir, while taking advantage of the height differences between them in order to power an electric turbine. The installed capacity of one of the production facilities (which is in operation) using this technology amounts to 644300 MW, outwith two additional facilities using this technology with capacity of a total quota ofapproximately 800 MW assigned to generation.under construction. |
| • | Energy storage – —this is possible through a range of technologies, including, among others, pumped storage, mechanical storage (for example compressed air) and chemical storage (for example batteries). In light of the Israeli government decision that provides a target for generation of electricity using renewable energies (mainly solar energy) at the rate of 30% out of the generation up to 2030, the EA estimates that the electricity sector in Israel will need to prepare for construction of facilities for energy storage. The use of this technology is currently negligible; however, it is expected to increase significantly in the upcoming years due to the need for storage facilities as a result of the anticipated increase in renewable energies.energies, due to, among other things, the renewable energies generation targets. In particular, based on study conducted by EA, publications, compliance with the target for renewable energies up to 2030 will require construction of storage facilities in the scopewith a capacity of about 2,700 to 5,300 MW,thousands of MWh, deriving from the readiness of the technology and the economic feasibility of its use. OPC takes steps to integrate energy storage. For example, OPC entered into a number of agreements for generation of electricity at the consumers’ premises, which allow OPC to build storage facilities as well as in the Ramat Beka Solar Project. |
According to the Electricity Sector Law, the IEC, as an essential service provider, is committed to purchasing electricity from IPPs at the rates and under the conditions set in the Electricity Sector Law and the regulations and standards promulgated thereunder (and, in relation to OPC-Rotem, by virtue of the tender and OPC-Rotem’s PPA with the IEC). In addition, the IEC is committed to connecting the IPPs facilities to the distribution and transmission grid and providing them with infrastructure services in order to allow IPPs to provide power to private customers and system administration service. In accordance with the EA’s resolution entitled “Principles for the Integration of the IEC into the Field of Energy Storage in the Transmission and Distribution Grid” of January 18, 2023, the IEC’s market share in the field of storage shall not exceed 15% of the market share of the private market. The deployment plan that will be filed by the IEC for the construction of storage facilities will be coordinated with the System Operator and approved by the EA in view of the purpose of the storage facilities it will build, for system-wide purposes. The facilities will be operated by the IEC under the directives of the System Operator, and its supervision and control.
Independent Electricity Suppliers
The electricity suppliers operate through supply licenses, by virtue of which they are allowed to sell–- to consumers or to suppliers–- electricity they generate or purchase, in accordance with the terms and conditions of the licenses and the regulations that apply to them. During 2023, following EA regulations in respect of the suppliers without means of production, the private activity in the supply segment expanded, including offers to sell electricity to household consumers. Further to the above, in February 2024, the EA published a hearing regarding the incorporation of basic meters in the competition in the supply segment; according to the EA, in order to remove barriers and promote competition in the supply segment, to allow household consumers to belong to independent suppliers regardless of the installation of a smart meter. Accordingly, the proposed resolution regulates the netting procedure of suppliers with the System Operator, and the latter’s netting with the IEC, such that a household consumer without a smart meter will be able to join the competitive supply segment, allowing private electricity suppliers to be able to sell electricity to consumers who own a basic meter, as part of the virtual supply activity.
Electricity Consumers
In recent years more so than in the past, due to the Israeli government’s targets with respect to renewable energies and the targets of the Minister of Energy for decentralized generation, the impact of electricity consumers on the market has strengthened. In recent years, there is a global trend of transition from generation of electricity using fossil fuels to generation using renewable energy technologies – this being due to, among other things, the increasing awareness of the climate change crisis, as well as in light of the decline in the construction costs of the renewable energy facilities, particularly the photovoltaic generation facilities. In addition, recently, including due to the introduction of electric vehicles, the status of the electricity consumers–- as active stakeholders–- has strengthened. OPC believes, the steps taken by the EA to open up the supply segment to competition, including decisions regarding installation of smart meters and licensing suppliers without means of production, increased the number of entities operating in the households consumption segment, and the scope of consumption associated with independent suppliers and in a manner that is expected to enhance the growing competition in this segment. For example, in June 2023, the EA approved a plan to expand the deployment of the smart meters, where an essential service provider shall complete the replacement of the meters of all Israeli consumers to smart meters by December 31, 2028. The deployment plan is expected to include the replacement of approximately 2.7 million meters, including the installation of smart meters with new connections. The number of smart meters in Israel in 2029 is expected to reach approximately 3.5 million. In February 2024 the EA published a hearing on the “incorporation of basic meters in the supply competition,” pursuant to which the supply of electricity to household consumers will be allowed also through a uniform meter, regardless of installation of a smart meter.
Market model for generation and storage facilities connected to or integrated into the distribution grid
In September 2022, the EA published a resolution on “market model for generation and storage facilities connected to or integrated into the distribution grid.” The resolution regulates the generation activity (using all different technologies) and storage facilities in the distribution grid, and determines their option to sell electricity directly to virtual suppliers as from January 2024. As a practical matter, the decision permits opening of the supply sector to competition while removing the quotas previously provided regarding this matter. The main principles of the resolution are: allowing the possibility of sale of energy from a generation facility to a private virtual supplier commencing from January 2024; allowing the possibility of transitioning from other existing regulations with respect to the generation facility under this regulation; and acceptance of a generation plan of high tension facilities by the distributor and provision of a load plan. Producers connected to the distribution grid may also sell to consumers (through virtual suppliers) as part of the market distribution model. OPC expects that, in the short term, the resolution reduces the economic viability of the virtual supply activity, compared to the conditions prior to the resolution, and in the long term, the resolution encourages increased competition in the supply segment while integrating generation facilities and storage facilities.
Regulatory Framework for Conventional IPPs
The regulatory framework for current and under construction conventional IPPs was set by the PUAE in 2008. An IPP may choose to allocate its generation capacity, as “permanently available capacity,” or PAC, or as “variable available capacity,” or VAC. PAC refers to capacity that is allocated to the IEC and is dispatched according to the IEC’s instructions. PAC receives a capacity payment for the capacity allocated to the IEC, as well as energy payment to cover the energy costs, in the event that the unit is dispatched. VAC refers to capacity that is allocated to private consumers, and sold according to an agreement between the IPP and a third party. Under VAC terms, IPP shall be entitled to receive availability payments for excess energy not sold to private customers. In addition, the IEC can purchase electricity allocated to it at variable availability, on a price quote basis. Within this regulatory framework, a private electricity producer can choose to allocate between 70% and 90% of their production capacity at high availability, and the rest at variable availability.
Upon the development of the electricity sector and the full utilization of EA Regulation 241 quotas, the EA published a follow-up arrangement for conventional producers, and implemented dispatch of IPPs according to the economic dispatch order. According to this regulation, the production units shall be dispatched in accordance with an economic dispatch principle and independent of PPAs between producers and customers, and shall apply to producers with an installed capacity higher than 16 MW and up to a total output of 1,224 MW. This regulation is referred to as “Regulation 914.”
In May 2017, the EA amended Regulation 914. Under the amendment, a higher tariff was adopted for production facilities that comply with certain flexible requirements. The amendment also offers open-cycle producers several alternatives including receiving surplus gas from the gas agreementsas part of other producers.Regulation 914. The total quota for new facilities pursuant to this arrangement was limited to 1,100 MW distributed across various plants (at least 450 MW and up to 700 MW for combined cycle facilities, at least 400 MW and up to 650 MW for flexible open cycle facilities). Furthermore, under the amendment the EA prohibits entry into bilateral transactions by open-cycle facilities and demands that combined-cycle facilities sell at least 15% of their capacity to private consumers. For example, Tzomet operates in accordance with Regulation 914. Finally, in order to grant IPPs sufficient time to reach financial closing, Regulation 914 was extended to apply to producers who will receive licenses no later than January 1, 2020.
In November 2018, the EA published a decision regarding the activity arrangement of natural gas generation facilities connected to the distribution network. Pursuant to this decision, generators under 16 MW are encouraged to construct power plants within customers’ facilities. These power plants will only be permitted to sell electricity to customers within the facility (and not other private customers) and the System Operator. In 2019, the EA announced a tender to establish and allot the capacity tariff for facilities connected to the distribution grid producing electricity with natural gas.
In March 2019, the EA published a decision regarding the establishment of generators connected to the high-voltage network without a tender process. This decision would permit the establishment of generation facilities that are connected to the transmission grid or integrated in the connection of a consumer connected to the transmission grid (excluding renewable energy) for a maximuman aggregate installed capacity of 500 MW and provided they receive tariff approval by May 1, 2024 as extended by EA resolution on November 29, 2023 which postponed the enddeadlines for construction of 2023.electricity generation facilities due to the security condition. These generation facilities will only be permitted to sell electricity to customers within the facility (and not other private customers) and to provide the rest of their available capacity to the System Operator, that will upload the capacity to the grid according to central upload system. The EA has stated that it intends to publish information on the tender process for construction of such generation facilities in the future.
In December 2021, the Electricity Sector Regulations (Promotion of Competition in the Generation Segment) (Temporary Order), 2021 were issued by the Minister of Energy after consultation with the Competition Commissioner. The Regulationsregulations were published under a temporary order and are in effect for three years, i.e. until November 30, 2024.years. The purpose of the regulations is to promote competition in the generation segment of the electricity sector. Pursuant to the regulations, a person will not be granted a generation license or approval in accordance with Sections 12 or 13 of the Electricity Sector Law upon existence of one of the following: (i) following the issuance, the person will hold generation licenses or connection commitment for gas-fired power plants the total capacity of which exceeds 20% of the planned capacity for this type of power plant. As of March 27, 2022, accordingplants. According to the appendix attached to the regulations - regulations—the planned capacity for 2024 for gas-fired power generation units is 16,700 MW; (ii) after the allocation, the person will hold generation licenses or connection commitment for more than one power plant using pumped storage technology; (iii) after the allocation, the person will hold generation licenses or connection commitment for wind-powered power plants where the total capacity exceeds 60% of the planned capacity for this type of power plant, which, according to the appendix, is 730 MW for 2024. Pursuant to the regulations, notwithstanding the above, the EA may grant such a generation license or approval on special grounds that shall be recorded (after consultation with the Israel Competition Authority) and for the benefit of the electricity sector. Furthermore, the EA may refrain from granting a generation license or from approving a connection to the grid if it believes that the allocation is likely to prevent or reduce competition in the electricity sector after taking into account additional considerations, including the impact of holdings of a person in other generation licenses that do not constitute a holding of a right as defined in the regulations, the impact of joint holdings in companies with a holder of other rights, as well as the impact of holdings of a person in holders of licenses that were granted under the Natural Gas Market Law. For the purpose of calculating the holdings in rights or a connection commitment, a person shall be viewed as a holder regarding the entire installed capacity of the generation license or the connection commitment. It is noted that theThe “planned capacity” of gas-fired power plants for 2024 in accordance with the regulations (16,700 MW) includes gas-fired generation facilities without distinguishing between an essential service provider (IEC)(the IEC), independent electricitypower producers and the relevant types of arrangements, as opposed to the “planned installed capacity” stated in the Sector Consulting Principles published by the Competition Commissioner (10,500 MW, and it does not include the capacity owned by the IEC), which preceded the regulations.
OPC-Rotem’s Regulatory Framework
OPC-Rotem operates according to a tender issued by the state of Israel in 2001 and, in accordance therewith, OPC-Rotem andsigned a PPA with the IEC executed the IEC PPA in 2009 (the “IEC PPA”), which stipulates OPC’s regulatory framework. This PPA will be assigned by the IEC to the System Operator. OPC-Rotem’s framework differs from the general regulatory framework for IPPs, as set by the PUAE and described above.
According to the IEC PPA, OPC-Rotem may sell electricity in one or more of the following ways:
| 1. | Capacity and Energy to the IEC: according to the IEC PPA, OPC-Rotem is obligated to allocate its full capacity to the IEC. In return, the IEC shall pay OPC-Rotem a monthly payment for each available MW, net, that was available to the IEC. In addition, when the IEC requests to dispatch OPC-Rotem, the IEC shall pay a variable payment based on the cost of fuel and the efficiency of the station. This payment will cover the variable cost deriving from the operation of the OPC-Rotem Power station and the generation of electricity. Subject to the provisions of the IEC PPA, in the event of ongoing failure in the supply of natural gas, OPC-Rotem is entitled to make OPC-Rotem power plant’s capacity available to the System Operator against reimbursement in respect of the cost of using diesel fuel (in respect of which Rotem pays an annual premium), and receipt of payment for capacity. The provision of capacity to the System Operator has a significantly lower economic viability than that of sale to consumers. |
| 2. | Sale of energy to end users: OPC-Rotem is allowed to inform the IEC, subject to the provision of advanced notice, that it is releasing itself in whole or in part from the allocation of capacity to the IEC, and extract (in whole or in part) the capacity allocated to the IEC, in order to sell electricity to private customers pursuant to the Electricity Sector Law. OPC-Rotem may, subject to 12-months’ advancedadvance notice, re-include the excluded capacity (in whole or in part) as capacity sold to the IEC. |
OPC-Rotem informed the IEC, as required by the IEC PPA, of the exclusion of the entire capacity of its power plant, in order to sell such capacity to private customers. Since July 2013, the entire capacity of OPC-Rotem has been allocated to private customers.
The IEC PPA includes a transmission and backup appendix, which requires the IEC to provide transmission and backup services to OPC-Rotem and its customers, for private transactions between OPC-Rotem and its customers, and the tariffs payable by OPC-Rotem to the IEC for these services. Moreover, upon entering a PPA between OPC-Rotem and an individual consumer, OPC-Rotem becomes the sole electricity provider for this customer, and the IEC is required to supply power to this customer when OPC-Rotem is unable to do so, in exchange for a payment by OPC-Rotem according to the tariffs set by the EA for this purpose. For further information on the risks associated with the indexation of the EA’s generation tariff and its potential impact on OPC-Rotem’s business, financial condition and results of operations, see “Item 3.D Risk Factors—Risks Related to OPC’s Israel operations—Operations—OPC’s profitability depends on the EA’s electricity rates.rates and tariff structure.”
In November 2017, OPC-Rotem applied to the EA to obtain a supply license for the sale of electricity to customers in Israel. In February 2018, the EA responded that OPC-Rotem needs a supply license to continue selling electricity to customers and that the license will not change the terms of the PPA between OPC-Rotem and the IEC. The EA also stated that it will consider OPC-Rotem’s supply license once the issue of electricity trade in the Israeli economy has been comprehensively dealt with. OPC-Rotem has not received a supply license to date and there is no assurance regarding the receipt of the license and its terms. If OPC-Rotem does not receive a supply license, it may adversely affect OPC-Rotem’s operations.
In February 2020, the EA publishedpursuant to the resolution made in Meeting 573 regarding deviationsdeviation from the consumption plan. Pursuant to the resolution, a supplier may not sell more to its consumers than the total capacity that is the object of all the engagements it has entered into with independent production license holders. Actual energy consumption at a rate higher than 3% of the installed capacity allocated to the supplier will trigger payment of an annual tariff reflecting the annual cost of the capacity the supplier used as a result of the deviation, as detailed in the resolution. In addition, the resolution stipulates a settlement of accounts mechanism due to a deviation from the daily consumption plan (surpluses and deficiencies), that will apply in addition to such annual tariff payment. The decision applies to OPC-Hadera and is expected to apply to OPC-Rotem after the complementary arrangements are set. AsOn February 19, 2023, the EA published a proposed resolution to apply criteria to OPC-Rotem as part of March 27, 2022,a move that was designed to unify the extentregulations that apply to OPC-Rotem and all other bilateral producers, including the application of the resolution’s effect on OPC-Rotem is uncertain,market model to OPC-Rotem. In February 2023, the EA published a proposed resolution for the application of criteria and it depends, among other things, on the final supplementarycomplementary arrangements to be determined.OPC-Rotem. In March 2024, the EA issued a resolution that addresses the application of certain standards to OPC-Rotem, including those regarding deviations from consumptions plans submitted by private electricity suppliers, and the award of a supply license to OPC-Rotem (if it applies for one and complies with the conditions for receipt thereof). The resolution will come into force on May 1, 2024. This resolution aligns in many respects the regulation applicable to OPC-Rotem with that applicable to generation facilities that are allowed to enter bilateral transactions, and will enable OPC-Rotem to operate in the energy market in a manner that is similar to that of other electricity generation facilities that are allowed to conduct bilateral transactions.
Regulatory Framework for Cogeneration IPPs
The regulatory framework for current and under construction cogeneration IPPs was established by the PUAE in its 2008 and 2016 decisions.decisions (“Cogeneration Regulations”). A cogeneration IPP can sell electricity in the following ways:
| 1. | At peak and shouldermid-peak times, one of the following shall apply: |
| a. | each year, the IPP may sell up to 70% of the total electrical energy, calculated annually, produced in its facility to the IEC—for up to 12 years from the date of the grant of the license; or |
| b. | each year, the IPP may sell up to 50% of the total electrical energy, calculated annually, produced in its facility to the IEC—for up to 18 years from the date of the grant of the license. |
| 2. | At low demand times, IPPs with units with an installed capacity of up to 175 MW, may sell electrical energy produced by it with a capacity of up to 35 MW, calculated annually or up to 20% of the produced power, inasmuch as the installed output of the unit is higher than 175 MW, all calculated on an annual basis. |
According to the regulations, if a cogeneration facility no longer qualifies as a “Cogeneration Production Unit,” other rate arrangements are applied to it, which are inferior to the rate arrangements applicable to cogeneration producers.
In December 2018,March 2019, the EA published a proposed decision for hearing regarding arrangements for high voltage generators that are established without a tender process.process which sets out regulatory principles applicable to generation facilities that are connected to the transmission grid or are integrated into a consumer connection that is connected to the transmission grid (excluding renewable energies) that will receive tariff approval up to December 31, 2023, subject to a maximum total quota of 500 MW (of which at least 250 MW will be allocated to generation facilities that are constructed on premises of desalinization facilities under a tender issued by the Accountant General in the Finance Ministry of Finance). This would also enableregulation enables the establishmentconstruction of generation facilities, such as generation facilities on the premises of desalination facilities, cogeneration facilities.facilities and facilities for independent generation. Such facilities will be allowed to supply the electricity generated by them directly to the onsite consumer and to transfer any surplus to the electrical grid—all in accordance with the Trade Rules. The Sorek 2 power plant is expected, among other things, to operate by virtue of this regulation, subject to the completion of its construction.
In January 2024, the EA published a hearing regarding regulation for conventional generation units, which regulates a quota and a tariff for the construction of generation facilities using conventional technology with a capacity of over 630 MW. According to the hearing, the capacity tariff for a generation facility in a site that does not have existing generation facilities, or after financial closing shall be determined at a later date, based, among other things, on the capacity tariff in the winning bid in the Sorek tender; and for an adjacent generation facility–- the tariff will be lower by 1.0 agorot from the said tariff. The tariff quota is limited to two generation units at most, with each unit having a capacity of 630–- 900 MW under ISO conditions (subject to a discharge restriction of 670 MW until 2035), and is conditional upon arriving to financial closing, no later than December 31, 2025. If a resolution is passed further to the hearing, OPC intends to promote the development activities of Hadera 2 in this framework, all subject to the completion of the planning procedures and receipt of government approval.
OPC-Hadera’s Regulatory Framework
In connection with construction of a cogeneration power station in Israel, OPC-Hadera reached its COD on July 1, 2020. In June 2020, the EA granted a permanent license to the OPC-Hadera power plant for generation of electricity using cogeneration technology having installed capacity of 144 MW and a supply license. The generation license is for a period of 20 years, as is the supply license so long as a valid generation license is held (the generation license may be extended by an additional 10 years).
In connection with above, OPC-Hadera must meet certain conditions before it will be subject to the regulatory framework for cogeneration IPPs and be considered a “Cogeneration Production Unit.” For example, OPC-Hadera will have to obtain a certain efficiency rate which will depend, in large part, upon the steam consumption of OPC-Hadera’s consumers. In circumstances where OPC-Hadera no longer satisfies such conditions and therefore no longer qualifies as a “Cogeneration Production Unit,” other rate arrangements, are applied to it, which are inferior to the rate arrangements applicable to cogeneration producers.
Tzomet’s Regulatory Framework
The Tzomet power plant is expected to be constructed pursuant to Regulation 914 and will beis subject to the conditions and limitations thereunder, see “—Regulatory Framework for Conventional IPPs.”
In September 2019, Tzomet received the results of an interconnection study performed by the System Operator. The study included a limitation on output of the power plant’s full capacity to the grid beyond a limited number of hours per year, up to completion of transmission projects by the IEC, which are expected to be completed by the end of 2023. In December 2019, the EA approved Tzomet’s tariff rates, which will be applicable upon completion of the power plant and receipt of a permanent generation license.license, which took place in June 2023. Given the limitation included in the interconnection study, Tzomet will bewas subject to a reduced availability tariff during 2023. See “Item 3.D Risk Factors—Risks Related to OPC’s Israel operations—Operations—OPC faces riskslimitations under Israeli law in connection with the expansion of its business.”
In January 2020, Tzomet entered into a PPA with the IEC, the government-owned electricity generation, transmission and distribution company in Israel, or the Tzomet PPA (in October 2020, OPC-Rotem received notice of assignment by the IEC to the System Operator which was subsequently reassigned to Noga). The term of the Tzomet PPA is for 20 years after the power station’s COD. According to the terms of the Tzomet PPA, (i) Tzomet will sell energy and available capacity to the IEC and the IEC will provide Tzomet infrastructure and management services for the electricity system, including back-up services (ii) all of the Tzomet plant’s capacity will be sold pursuant to a fixed availability arrangement, which will require compliance with criteria set out in Regulation 914, (iii) the plant will be operated pursuant to the System Operator’s directives and the System Operator will be permitted to disconnect supply of electricity to the grid if Tzomet does not comply with certain safety conditions and (iv) Tzomet will be required to comply with certain availability and credibility requirements set out in its license and Regulation 914, and pay penalties for any non-compliance. Once the Tzomet plant reaches its COD, itsplant’s entire capacity will beis allocated to the System Operator pursuant to the terms of the Tzomet PPA, and Tzomet will not be permitted to sign agreements with private customers unless the electricity trade rules are updated.
Tzomet License
In June 2023, the EA issued a permanent license to the Tzomet power plant for electricity generation using conventional technology at a capacity of 396 MW. The license is granted for 20 years, and may be extended by the EA upon the request of the license holder. The EA may, subject to approval of the Minister of Energy, alter the terms and conditions of the license, (a) if there is a change in the license holder’s ability to comply with the terms and conditions or to perform the actions and services covered by the license, which does not justify revoking the license; (b) there are changes in the electricity market; (c) to ensure competition in the electricity sector; (d) to ensure compliance with the level of service prescribed by the license; and (e) there are changes to be made to the facility or technology; (f) there are changes to be made to the facility or technology, which is the subject matter of the license.
In addition, the EA may cancel the license or attach conditions thereto before the end of its term, under certain circumstances that were set in the license. Restrictions are in place regarding changes to the generation facility, which is the subject matter of the license, including changes to the facility’s capacity, the facility’s model, its technology, including improvements to an existing facility.
Provisions were set regarding the emptying of each of the diesel fuel containers and the fuel refreshing capabilities of each of the diesel fuel containers, including emptying the bottom of the containers. The license may not be transferred, pledged or foreclosed without the advance approval of the EA.
The assets to which the license relates may not be sold, leased or pledged without first obtaining the approval of the EA. In addition, any change, restructuring, or transfer of control in Tzomet requires approval of the EA as specified in the license.
The license imposes additional obligations on Tzomet, including the provision of a lawful guarantee, regular and efficient operation in compliance with the license, compliance with a minimum equivalent operating capacity of 88% at all hours during the first year of operation and 92% at all hours during subsequent years, testing and compliance with insurance requirements, and restriction of activity, by way of an act or omission, that might restrict the competition in the electricity sector or have an adverse effect thereon.
Tzomet has not entered into a gas supply agreement yet, but has the option to engage with a gas supplier or have its gas supplied by the IEC.
Kiryat Gat’s Regulatory Framework
In November 2019, the Israeli Electricity Authority decided to issue an electricity supply license to Kiryat Gat. The validity of the supply license is twenty years, subject to Kiryat Gat holding a valid generation license.
The electricity supply license allows it to sell electricity to consumers which have a consecutive meter installed in their consumption location—at the higher of the following two amounts:
(a) 33% of electricity capacity sold by holders of private supply licenses to consumers; and
(b) the capacity that is the subject of the generation licenses held by the license holder less the capacity it allocated to the System Operator.
The license holder will enter into a contract agreement with a consumer for the provision of the service, which will be prepared in accordance with the guidelines specified in the license.
The EA may alter the terms and conditions of the license, add or detract therefrom, among other things, and without detracting from the provisions of the law, in cases that are similar to those listed above in relation to Kiryat Gat’s production license. In addition, the EA may cancel the license or attach conditions thereto before the end of its term, under certain circumstances that were set in the license. The license holder may contract with a consumer connected to the low voltage grid under an agreement that includes a commitment to meet the terms and conditions regarding the scope of consumption of the services, the payment amount or the terms of payment for a period not exceeding twelve months.
United States
The electricity market in the United States has both Federal oversight (wholesale sales of electricity and interstateinter-state transmission) and State oversight (retail sales of electricity and provision of distribution service to end users). The major players in the US electricity sector are RTO, FERC, and ISO, electricity producers (which are, in general, private entities) and electric utility companies and electricity distribution companies operating on behalf of the different consumers (such as private and commercial consumers). The primary federal regulator is the Federal Energy Regulatory Commission (FERC), alongside separate state-level Public Service Commission’s exercising oversight in their respective states. The wholesale electric marketplace in the United States operates within the framework of several FERC-approved regional or state market operators, including RTO or ISO. RTO/ISOs are responsible for the day-to-day operation of the transmission system, the administration of the wholesale markets in the regions in which they operate, and for the long-term transmission planning and resource adequacy functions.
FERC approval under the Federal Power Act may be required prior to a direct, or indirect upstream, change in ownership or control of voting interests, in any FERC jurisdictional public utility (including one of our U.S. project companies) or any public utility assets. FERC approval may also be required for individuals to serve as common officers or directors of public utilities or of a public utility and certain other companies that provide financing or equipment to public utilities. FERC also implements the requirements of the Public Utility Holding Company Act of 2005 applicable to “holding companies” having direct or indirect voting interests of 10% or more in companies that (among other activities) own or operate facilities used for the generation of electricity for sale, which includes renewable energy facilities. The regulations of some US states also contains similar provisions with respect to ownership or control of voting interests, directly or indirectly through subsidiaries, of a public utility. Accordingly, the acquisition of an interest that gives rise to ownership of a percentage equal to or greater than 10% of the share capital of OPC Energy or Kenon may be subject to prior FERC approval and such direct or indirect acquisition may also require approval state regulatory authorities in certain US states in which OPC’s US business operates.
The PJM market
The PJM Interconnection (PJM) is an RTO and ISO that operates a wholesale electricity market and serves as an administrator of the electric transmission system which covers parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia, serving more than 65 million residents. The PJM market is the largest among the RTOs with approximately 185195 gigawatts of installed capacity and peak demand of approximately 165 gigawatts.149 gigawatts in 2023 and its internal forecasts indicate a peak demand of approximately 150 GW for 2024. PJM oversees the operation of more than 150,000 kilometers of transmission lines. Sale of electricity in the organized PJM market is supervised and managed by PJM to assure supply of the electricity, based on price offers of the electricity generators.
The PJM is supervised by and receives its authority from the FERC and is financed by payments from participants in the market. PJM collects payments for capacity, electricity, transmission, accompanying services and other services required for operation of the electricity system from utilities and electric distribution companies acting on behalf of consumers (households, commerce and industry), and distributes the payments to the generators and transmitters, by means of a variety of market mechanisms, including purchase of capacity (Forward Capacity Market) and an electricity acquisition mechanism in the Day-Ahead and Real-Time markets. In general, the capacity price is determined in an annual tender for operations over one year three years in advance and is guaranteed without reference to the actual amount of electricity generated. For the supply year starting 2023/2024, the capacity tender on the PJM was postponed due to FERC’s procedure for assessing the fairness and reasonableness of the methodology and inputs used to determine the tender prices in PJM’s reserves capacity tender. The capacity tenders for 2023/2024 took place in June 2022; they are expected to be held every six months until the normal timelines for three-year forward tenders is renewed. Subsequently, the tenders are expected to continue as stated above. Payments for electricity are made for actual electricity generation and are determined on the basis of the marginal price in the market. A capacity auction for 2024/2025 was held in December 2022, and its results were published in February 2023. The 2025/2026 capacity auction is currently on hold pending FERC approval of PJM’s proposed capacity market rule revisions. PJM has tentatively scheduled the 2025/2026 capacity auction for July 2024 and the final schedule is expected to be determined once FERC has issued a decision in the matter.
Requests for network connections. The increasing demand for renewable energy in the PJM, MISO and SPP electricity markets, led to an increase in demand for connections to the grid and requests for connection surveys of projects to the grid. These demands cause overload and delays in processes for approving the connection, and may affect the procedure and pace of advancing the project. In April 2022, the Interconnection Process Reform in the PJM market was approved; the reform was designed to regulate the process of addressing the large backlog of interconnection applications by PJM. In November 2022, the reform was approved by the FERC (subject to conditions), and entered into effect in January 2023. In July 2023, FERC denied the request for rehearing of its order, and the order has been appealed to the U.S. Court of Appeals for the D.C. Circuit. Under the current protocol, PJM holds a comprehensive, three-phased interconnection analysis procedure that applies to all applicants who have filed an interconnection application within the relevant time frame. At the end of the three phases, there is a period during which entities are able to engage in interconnect agreements. However, projects that do not need grid upgrades are allowed to progress to the interconnect agreement phase after the first two stages.
CPV is of the opinion that the implementation of this reform may cause an up to two-year delay in the construction and commercial operation of certain projects in the PJM market, depending, among other things, on the costs of the required grid upgrades, and on how far they are in the interconnection process. The Maple Hill and Three Rivers projects are not expected to be impacted by the reform.
The NYISO market
The NYISO market has operated since 1999, and is one of the most advanced electricity markets in the United States and in the world. The NYISO market includes about 4041 gigawatts of installed capacity and more than 18,000 kilometers of transmission lines, serving about 20 million customers with a peak demand of 34about 32 gigawatts. The market is divided into 11 regions (zones). The pricing of the electricity and the capacity varies amongstamong the regions based on demand and available supply. The NYISO electricity market includes a Day-Ahead and Real-Time market for the sale of electricity and other ancillary services. In addition, the NYISO has operated a capacity market since 2003. Capacity prices are determined on a monthly basis, with up to six-month forward auctions. Capacity payments are guaranteed without reference to the amount of electricity actually generated. ForThe electricity prices are determined on the delivery year beginning 2022/23 there were no capacity auctions in the PJM market due tobasis of the marginal price on the market.
ISO–NE is the ISO responsible for managing the day-to-day operation of the New England transmission system, as well as administering the wholesale electricity and capacity markets in New England. ISO–NE was created in 1997 to operate the wholesale power market under the direction of the New England Power Pool (NEPOOL). In 2005, it became an independent RTO, assuming broader authority over the day-to-day operation of the power system, market administration, and transmission planning with direct control over the transmission rates and market rules. The ISO-NE managed footprint covers Connecticut, Massachusetts, New Hampshire, Rhode Island, Vermont, and most of Maine. It serves about 15 million residents with a generation scope of about 3133 gigawatts and peak demand of about 28 gigawatts. ISO-NE administers more than 14,000 kilometers of transmission lines ranging from 69kv to 345kv and including several tie lines to neighboring control areas NY, Quebec, and New Brunswick. ISO–NE is a non-profit FERC-regulated entity which operates pursuant to a tariff on file with FERC.
The markets in New England includeincludes a Day Ahead and Real Time Energy Market for the sale of electricity, a Forward Capacity Market of tenders for operations over one year three years in advance. New projects have the option of ensuring capacity for a longer period),period, and other ancillary services.
Regulation permits/licenses
In general, CPV’s facilities and operations are regulated under a variety of federal and state laws and regulations. For example, the construction and operation of CPV’s conventional natural gas-fired power plants are subject to permitting and emission limitations pursuant to the CAA and related state laws and regulations that implement the CAA, which laws and regulations and may be more stringentstricter than the provisions of the federal CAA depending on the state in which a plant is located. The CPV must typically obtainGroup is required to hold major source permits (usually from state(mostly issued by the environmental agencies)protection agencies in each state) before the commencement of the construction of such plants can be constructed.power plants. Depending on whether the air quality in thea certain region isand its being in attainmentline with national ambient air quality standards, CPV may be required to obtain emission reduction credit in order to offset potential emissions of each power plant (as it hasit’s the case in connection with respect to conventional natural gas-fired power plants that were or will be built by the CPV has or is constructingGroup in New York, New Jersey, Connecticut and Illinois) to obtain emission credits to offset each plant’s potential emissions.. Furthermore, the CPV will also typically beproject companies are generally required to obtain Title V Operating Permitsoperating permits in order to operate these plants, whichplants. Such permits will incorporate regulatory standards applicablethat apply to airair-polluting emissions for natural-gas firednatural gas-fired power plants and relevant terms and conditions fromthat are to be met under the constructionbuilding permits issued for such plants. Among theseThose standards are obligations to holdinclude technology-based pollution control limitations, and also include restrictions on allowed emissions of SO2 allowances and/or NOx allowances on an annual and/basis or on the basis of “ozone” season basis to offsetfor offsetting annual and/or ozone season emissions,emission, pursuant to federalthe Federal Acid Rain regulationsRegulations (which applies in all states to annual SO2 emissions from fossil-to-fuel fired power plants) and the Cross-State Air Pollution Rule, although the application of the latter regulation depends on the state a power plant is located in.Rule. Most of CPV’s conventional natural gas-fired power plants are subject to the Cross State Air Pollution Rule.Rule, which requires certain state in the eastern half the United States (“upwind” states) to improve air quality by reducing NOx and/or SO2 emissions of power plants that cross state lines and contribute to smog and soot pollution in the downwind states. In 2015, the United States Environmental Protection Agency ("EPA") revised its ozone gas standards and states were required to submit state implementation plans by 2018 to comply with the new, more stringent standards. In February 2023, EPA disapproved of 21 states’ submissions; each of these states had proposed taking no action to revise their existing plans. On March 15, 2023, EPA issued a federal implementation plan, called the “Good Neighbor Plan,” covering those 21 states. The Good Neighbor Plan imposes requirements on fossil fuel-fired plants in 22 states and industrial sources in 20 states. The plan establishes an allowance-based NOx emissions trading program for power plants in order to ensure that emissions from upwind states do not interfere with downwind states’ ability to achieve and maintain compliance with the 2015 ozone national ambient air quality standard. There have been numerous lawsuits filed challenging the Good Neighbor Plan and related EPA actions. As of January 24, 2024, the dateplan’s requirements for power plants are in effect in ten states that are not subject to judicial stays or interim final rules: Illinois, Indiana, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, Virginia, and Wisconsin. The Court is scheduled to hear arguments on petitions to postpone implementation of this report, 22 statesthe rule in February 2024 until the US, including certain states in whichlawsuits challenging the plan have been resolved. The emission limits enforced by the EPA’s Good Neighbor Plan exceed the emission rates of the CPV operates, have adopted legislative agendas and/or executive orders withGroup’s power plants, under such circumstances, the goal of achieving carbon neutrality or a 100% zero-emissions electricity supply inGood Neighbor Plan is not expected to materially impact the next 20CPV Group’s operations if it were to 30 years.be upheld.
Federal regulations require entities to report the reportingemission of greenhouse gasgases emissions under the Clean Air Act.Act (CAA). The CAA regulates emissions of air pollutants from various industrial sources, such as natural gas-fired power plants, including by requiring Title V Permits to Operate for such sources of air pollution emissions above certain thresholds. FederalFurthermore, federal regulations also impose limitsrestrictions on CO2carbon dioxide emissions from new (commencedcombined cycle plants (whose construction commenced after January 8, 2014) or reconstructed (commenced reconstruction after June 8, 2014) combined-cycle power plants. States may also impose additional regulations or limitations on such emissions. Furthermore, 23 states (including Maryland, New York, New Jersey, Connecticut and Illinois, states in which the CPV Group operates), the District of Columbia and Puerto Rico adopted legislative agendas and/or administrative orders in order to achieve carbon neutrality or 100% zero-emission electricity supply within the next 20-30 years. For example, CPV’s conventional natural gas-fired power plants in Connecticut, New York, New Jersey and Maryland are subject to the RGGI, which requires CPV’s conventional natural gas-fired plants to obtain, either through auctions or trading, greenhouse gas emission allowances to offset each facility’s emission of CO2. Pennsylvania is also expectedIn its Title V application process, Valley was required to apply the RGGI regulation in 2022, although the official date of implementation is not known as of the date of this report.address New York legislation on such matters. Under the RGGI, an independent market monitor provides oversight of the auctions for CO2 allowances, as well as activity on the secondary market, to ensure integrity of, and confidence in, the market. In 2021,2023, the minimum price that CO2carbon dioxide allowances could be sold for was $2.38$11.92 per allowance. A legal proceeding is outstanding in the state of Pennsylvania regarding whether the sale of carbon dioxide allowances pursuant to Pennsylvania’s carbon cap and trade budget program is an authorized “fee” or a “tax” that can only be imposed by the state legislature. On November 1, 2023 a Pennsylvania court ruled that the RGGI constitutes a tax that requires legislative processes in order to enter into effect. This decision cancels the Pennsylvania governor’s plan to impose RGGI by means of an administrative decision. The governor has appealed this ruling, and that appeal remains pending. Should RGGI be imposed and the court of Pennsylvania decide that the regulation applies, the power plants operating in Pennsylvania (including the Fairview power plant) would be required to purchase carbon dioxide allowances, as is the case for the Valley, Maryland, Shore, and Towantic power plants. The cost of acquiring the allowances in Pennsylvania is estimated at approximately $10 million per year (the CPV Group’s share), however, the CPV Group believes that the cost may result in an increase in electricity prices across PJM which potentially could at least partially offset the cost of purchasing the allowances.
CPV’s conventional natural gas-fired projects are also subject to regulation under the CWA and related state laws in connection with any discharges of wastewater and storm water from its facilities. The CWA prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits, including wastewater and stormwater permits under the National Pollutant Discharge Elimination System (“NPDES”). DischargesSystem. The discharge of wastewater tointo public treatment workswater sources may (depending on the wastewater source) be subject to federal standards although(depending on the primary authority regulatingsource of the wastewater). For discharges from a facility that are directed to a publicly owned treatment works, the main regulator that regulates such discharges is, typically the local municipalitygenerally, a municipal authority that operates system for treating the public wastewater treatment system.wastewater.
The projects of CPV are also subject, as applicable, to requirements under federal and state laws governing the management, disposal and release of hazardous and solid wastes and materials at or from its facilities, including the federal Resource Conservation and Recovery Act (“RCRA”) and the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)CERCLA (and equivalent state laws). RCRA requires owners and operators of facilities that generate and dispose of hazardous wastes atwaste in third-party locationssites to obtain facility identification numbers from the U.S. Environmental Protection Agency (“EPA”)EPA and to comply with the regulations governing thethat apply to storage and disposal of such wastes.waste. Facilities that store hazardous wasteswaste for periods longer than specified periods of time,those set in the regulations, or which treat or dispose of the hazardous waste on-sitein the facility’s site are required to obtainhold such a permit and operate in complianceaccordance with the provisions of RCRA Subtitle C permits. CPV facilities are operated so asin a manner whereby they are not required to not require RCRA Subtitle C permits.
CERCLA, authorizes the EPA to undertake environmental cleanup of releases of hazardous waste and pursue response actions against potentially responsible parties (“PRPs”) for such waste. CERCLA, alongtogether with similarother state laws, providesstipulate that personsthe current or previous owners, that currently or formerly owned or operated facilities wherein which hazardous substances have been released intowere discharged to the environment, or which transported wasteswaste containing hazardous substances to third-party disposal locations, maythird parties’ waste sites, might be held liable - toby the United States government, state agencies or private parties - for “response costs” incurredentities, in respect of response costs borne by such partiesentities to investigate and remediate contamination at such locations,treat pollution in the said sites, or maythat might be subject to orders to investigate and treat such pollution as issued by the EPA or state agencies (under state remediation statutes) to investigate and remediate such contamination. Responsible partiesregulations). Parties that were found liable under the CERCLA canmight also be found liable for natural resourceto damages caused by such releases. Liability pursuant to natural resources as a result of discharge of waste as stated above. Generally, parties that were found liable under the CERCLA and similar state laws are not covered by the defense claim whereby they acted in accordance with the applicable law. Furthermore, the liability generally applies “jointly and severally”; that is not subject to a defense that a person’s actions were taken in compliance with applicable law, and liability is typically “joint and several”, meaning that a responsiblesay, the liable party may be held liable for more than its equitableto a share of the response costs based solely on what it contributed to aamount that is larger than its share in the disposal of waste disposalin the relevant site.
The sites and operation of CPV’s renewable power projects in turn, are subject to a variety of federal environmental laws, including with respect to protection of threatened and endangered plant and animal species, such as the Endangered Species Act, (“ESA”), the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act. These laws and their state and local equivalents provide for significant civil and criminal penalties for unpermitted activities that result in harm to or harassment of certain protected animals and plants, including damage to their habitats. CPV’sThe CPV Group’s operations in areas where there are threatened or endangered species, or in areas where there are located,critical natural habitats, may require certain permits or where designated critical habitat exists, may be subject to increasedharsh restrictions limitations, or mitigation requirements arising from species protectionto take protective measures orin connection with these species. The CPV Group may also be prevented from developing a projectprojects in suchthese areas. CPV’s conventionalFurthermore, the CPV Group’s natural gas-fired projects are also subject to these natural resourcethe said laws although such statutes are typically more of an issue forto a lesser extent than wind and solar projects given the amount of land required for the development of such projects; the location of such projects; and in the case of wind, the greater likelihood of an impact on avian species and listed bat species.solar.
Projects that are obtainwere awarded federal funding, or which are required to obtain a federal permit or other discretionary approval (with somepermit (except for a number of exceptions) are subject to the National Environmental Protection Act (NEPA)(“NEPA”), whichthat requires federal agencies to evaluateassess the potential environmental impactsimpact of suchthose permits and approvals. For example, if, due to athe project’s impactsimpact on the ‘Waters of the U.S.’, it is required to waters ofhold an ‘Individual Section 404 Permit’ issued by the United States Army Corps of Engineers (the “ACOE”), which permits such an impact, then the project will be required to undergo an environmental impact survey under NEPA. The environmental impact survey might cause significant delays in the project’s development, depending on the project’s potential environmental impact. If a project is required to obtain an individual Section 404 permit from the U.S. Army Corps of Engineers (ACOE) to authorize such impacts, the project would be required to undergo environmental review pursuant to NEPA. Depending on the scope of potential impacts, the environmental review process can significantly delay project development. If a project requires a federal approval, the projectit will also be subject to the National Historic Preservation Act, (“NHPA”), which requires federal agencies to consider the effects on historic, cultural or archaeologically significant properties of federal projects as well as projects that they assist, fund, permit, license, or approve.on significant historic, cultural and archaeological resources. The CPV projectsGroup’s project companies may be subject to additionalother federal permits, orders,licensing arrangements, approvals and consultations requiredother requirements by other federal agencies under these and other statutes,various legislation, including the Advisory Council on Historic Preservation; the aforementioned ACOE (for impactsreferred to watersabove (in connection with the ‘Waters of the United States)U.S.’); the U.S.United States Fish and Wildlife Service in connection with potential impacts to threatened andeffects on endangered species, migratory birds, baldcertain species of eagle, and golden eagles, andnatural habitats that are critical and essential habits for such species and birds;those animals; and the federalFederal Bureau of Land Management (BLM)(“BLM”), forin connection with projects requiringthat require the use of federal landsland managed by BLM, and the EPA. State and/federal government. Local or local permittingstate regulations (including zoningdedicated regulations requiring entities to obtain conditional or special use permits to constructfor the purpose of building a project), including, for example, the New York Accelerated Renewable Energy and Community Benefit Act (applicable(that applies to siting and permitting large scalelarge-scale renewable energy projects in New York), may require a similar consultationsconsultation with applicable state-levelstate agencies and/or the preparation of a similar assessment ofconducting environmental impacts pursuant toimpact surveys in accordance with state law.laws.
CPV’s operations also are subject to a number of federal and state laws and regulations designed to protect the safety and health of workers, including the federalFederal Occupational Safety and Health Act, and equivalent state laws.
Permits/licenses required in connection with operational projects
As part of its activities, CPV is required to obtain and hold permits due to various federal, state and local legislation and regulations relating to power plant operations and environmental protection. Such permits are required both due to the activities of the power plants involving generation therein based on natural gas and the impact of the generation process on the air and water in the area of the facilities, as well as a result of construction of the renewable energy facilities (wind farms and solar fields) that could constitute environmental hazards and have a harmful impact on the area in which they are located. The main required permits/licenses (without distinction between different requirements of the various jurisdictions in which the power plants / facilities are located):
| 1. | CPV is required to hold permits in order to operate and/or construct the power plants, the purpose of which is prevention or reduction of air pollution. The power plants may also be required to hold permits for flowing water, waste-water and other waste into the local sewer systems or into other water sources in the United States. |
| 2. | Due to the height and location of the exhaust stacks and other components of the generation facilities, which could endanger the air traffic, the power plants are required to hold a permit for construction of the stacks and additional components in the generation facilities. This permit is issued by the Federal Aviation Authority (FAA). |
| 3. | RenewableElectricity production facilities using renewable energy facilities are frequentlyoften required to obtainhold coverage underin accordance with general permits applicable to the control of stormwaterflood water and, the discharge of dredged and fill materials to watersthe ‘Waters of the United States; dependingU.S.’ Depending on the sizearea of the area impacted, suchaffected site, these facilities may requirebe required to obtain individual permits from the ACOE forin respect of those effects; however, generally, it is possible to build projects in places that will not require such impacts, although usually projects can be sited to avoid this requirement. permits. |
| 4. | State orand local siting permits for renewable energy facilities (permit(the permit’s requirements will depend on the state and locality wherein which the project is situated)built and its location within the state). |
All of CPV’s active plants, as well as the plant under construction, hold relevant valid permits for their operational and/or construction activities. With respect to CPV Valley, it commenced operations in January 2018 under a combined Air State Facility and a pre-construction Prevention of Significant Deterioration permit (together, the “ASF Permit”), among other permits and approvals. Valley subsequently filed its Title V Air Permit Application on August 24, 2018, (which is required to replace the ASF Permit) and continued operations under the automatic permit extension provision in the State Administrative Procedure Act, which also extends the ASF Permit. The New York State Department of Environmental Conservation (“NYSDEC”) published notice on May 29, 2019 that the Title V application was complete. NYSDEC was required to make a final determination on CPV Valley’s Title V permit application within eighteen months after the application was deemed complete. Rather than making a final determination within that time frame, however, NYSDEC revoked its prior application completeness determination and issued a Notice of Incomplete Application on November 29, 2020. NYSDEC stated that CPV Valley was required to provide an assessment of how NYSDEC’s issuance of a Title V permit would be consistent with the Statewidestatewide greenhouse gas emissions reduction requirementslimits (including a 40% reduction in greenhouse gas emissions in New York by 2030, net zero (0) greenhouse gas emissions by 2050, and 100% zero-emissionzero emissions electric generationfrom electricity production by 2040), that were established in the New YorkNew-York Climate Leadership and Community Protection Act (the “CLCPA”) that was passed in July 2019. CPVDuring 2022, Valley is engagedwas in discussions with NYSDEC staff to identifydefine the scope of the information the NYSDEC seeksrequired under the CLCPA. CPV
In January 2023, March and April 2023, Valley submitted supplement filings of the Title V application. Valley received additional information requests from NYSDEC in May 2023 with respect to the supplemental filings and Valley submitted and conveyed responses to the additional requests. The NYSDEC has a period of time to request further information or to determine that the application is complete. After the application is deemed complete, the NYSDEC is required to complete the application process and make a final determination on Valley’s Title V permit application within 18 months. NYSDEC may not need the full 18 months to make a final determination on the application, however, this stage of the process has not begun. When Valley's application is considered complete (including a determination that an additional environmental review is not necessary), Valley expects that several procedural steps will be completed before the NYSDEC makes its final determination: (1) Publication of Valley's application and opening it to public written comments; (2) Public hearing, to provide verbal comments; (3) Performing an additional administrative review to determine whether any comment raises a substantive and significant issue that the NYSDEC should address; (4) An additional technical screening of the application; and (5) Coordination with the EPA. After completing these steps (which are currently partially completed), NYSDEC is required to perform one of three actions with respect to the application: (1) Approve the application and issue the Permit; (2) Approve the application while adding additional conditions to the Permit; or (3) Deny the application. If the NYSDEC takes alternative (2) or (3), Valley is eligible to submit an administrative appeal on NYSDEC's decision. If the appeal is submitted within the 30 day permitted period, the relevant directives to the SAPA (401) will continue to apply and allow Valley to operate until the completion of the administrative process and determination in the administrative appeal. If an adverse decision is made after the administrative appeals process, Valley may appeal NYSDEC's final decision to the New York Supreme Court. In such scenario, New York State law allows Valley to seek the court for an injunction allowing to continue its operation under Section 401 of the SAPA during the pendency of the court proceedings.
Valley can continue to operate under the ASF Permit until a final determination (after exhausting an appeal in case of rejection) is made regarding the Title V permit. ThereNYSDEC and Valley entered into a tolling agreement reserving Valley’s rights to appeal on the revocation of the completion of the application submission, which was extended from time to time, and is no certainty regarding receipt of a Title V permit or timing thereof. Ifnow in effect until March 31, 2024. Valley is coordinating with NYSDEC to further extend the NYSDEC rejectstolling agreement for another six months and expects the facility’s application for a Title V permit and such rejection is upheld if challenged, CPV Valley would notextension will be permittedauthorized prior to continue operation; alternatively, the NYSDEC may seek to include terms and conditions inMarch 31, 2024. Until the Title V permit thatis issued (if issued), the terms of the future financing agreements of Valley may be adversely affects CPV Valley’s operations or financial performance.affected by the permit receipt which has not been completed. As of March 12, 2024, there are no outstanding information requests from NYSDEC and Valley continues to wait for a determination on whether its application has been deemed complete.
A direct or indirect change in ownership or control of voting rights in a corporation that provides infrastructure services (“public utilities”) (including onepart of the CPV project companies in the U.S.) within the jurisdiction of the FERC,, or in any property used for infrastructure services, may be subject to FERC approval, pursuant to the Federal Power Act. Such approval may also be required for holding the position of officers or directors in corporations that provide infrastructure services or certain other companies that provide financing or equipment for infrastructure services. TheIn addition, the FERC also applies the requirements in the Public Utility Holding Company Act of 2005 to companies that directlydirect or indirectly hold at leastindirect holders of 10% or more of the voting rights in companies that, among other activities, own or operate facilities that generate electricity, for sale, including renewable energy facilities. There is similar state regulation in someseveral states that regulates ownership or control, directly or indirectly, through subsidiaries, of voting rights in corporations that provide infrastructure services. Therefore, the acquisition of 10% or more of the share capital of OPC, or Kenon may be subject to the FERC approval, and such direct or indirect acquisition may also be subject to the approval of state regulatory authorities in some U.S. states where the company has business operations.
Property taxes/community payments
In general, each CPV project company is subject to property taxes annually paid to the local jurisdiction in which it is located. In some cases (Shore, Maryland, Valley, Towantic, Maple Hill, Backbone and Towantic)Stagecoach), the projects have come to an arrangement for a long-term payment which replaces the regular assessment and taxation process or recognizes certain exemption provisions in relevant laws or regulations. The long-term payment arrangements run between 20 and 35 years from COD for each applicable project. In other cases (Fairview &and Keenan), the projects are subject to an annual assessment on the value of their taxable property and then pay property taxes at the relevant taxing jurisdiction rates.
In addition, certainCertain CPV project companies (Fairview and Valley) entered into agreements for the benefit of community purposes in their respective local communities. The long-term payments by virtue of such agreements fund community entities or reimburse the local community for the impact during construction. These payments are spread over periods of 20 to 30 years from COD.
Renewable energies
The Inflation Reduction Act of 2022
In 2022, the IRA was signed into law by President Biden. Among other things, this law awards significant tax benefits to renewable energies and technologies aimed at reducing carbon emissions. One of the IRA’s key objective is to increase the production of electricity using renewable energies and to increase regulatory stability in this sector. Following are key arrangements set forth in the IRA which may be relevant for the CPV Group’s activities:
The IRA includes a number of benefits available to renewable energy projects. The IRA extends the ITC and the PTC for renewable energy projects that commence construction before January 1, 2025. The base level for the investment tax credit is 6% and the base level for the production tax credit is 0.3 cents/kWh (adjusted for inflation). Projects that meet prevailing wage and registered apprenticeship requirements may be eligible for an investment tax credit of up to 30% or a production tax credit of up to 1.5 cents/kWh (adjusted for inflation). Bonus credit amounts, may be earned, increasing by 10% the PTC or 10 percentage points the ITC if the applicable project meets domestic steel, iron and manufactured products requirements. An additional bonus credit amounts may also be earned, increasing by 10% the PTC or 10 percentage points the ITC if the applicable project is located in specially designated energy communities, such as (i) brownfield sites, (ii) locations with above national average unemployment and oil, gas or and/or coal industry contributions to direct employment or local tax revenues above specified levels, and (iii) census tracts in or adjacent to those in which a coal mine has closed since December 31, 1999, or coal-fired power plant has closed since December 31, 2009. These tax credits are transferable to unrelated entities.
Electric generation projects placed in service after December 31, 2024, that emit zero or less greenhouse gases are eligible for a technology neutral ITC or PTC established under IRA, at the same credit levels as described above for the existing ITC and PTC and are also transferable to unrelated parties. These tax credits are subject to phase out, starting from the later of 2032 and when U.S. greenhouse gas emissions from electricity generation equal or are less than 25% of 2022 electricity generation emissions levels. Projects eligible for these tax credits will also be eligible to use 5-year accelerated depreciation for project assets.
The CPV Group is of the opinion that the IRA is expected to have a positive effect on renewable energy projects under development and construction, including Stagecoach, Backbone, and Rogue’s Wind; among other things, the IRA is expected to increase the tax credit amounts receivable compared to the amounts that were receivable prior to its enactment. Although some of the regulatory arrangements have not yet been finalized, some of the CPV Group’s renewable energy projects will be eligible to higher tax credit rates due to their location (for instance, in the sites of closed coal mines), including in the Maple Hill, Backbone, and Rogue’s Wind projects. The CPV Group is analyzing the impact of the IRA on Backbone and Rogue’s Wind, and the economic benefits that will arise from opting for ITC or PTC in respect of the project, as well as the project’s eligibility for an additional tax credit. The CPV Group opted for an ITC for Maple Hill at the rate of 40% in 2023 and currently plans to opt for a PTC for Stagecoach. The CPV will assess the economic feasibility of ITCs or PTCs for Backbone and Rogue’s Wind, taking into consideration the arrangements that will be set. In addition, the option of selling the tax credits is expected to increase CPV Group’s capability to realize some of the value of its renewable energy projects’ tax credits, and to improve the terms of investment.
Other Relevant Legislation
In November 2021, the US Congress approved a bipartisan infrastructure law, signed by the President of the US (hereinafter - the(the “Infrastructure Act”). The Infrastructure Act is the first part of legislation (which includes two parts) addressing many sectors of the US economy, including transportation, construction, and energy. A significant part of the Infrastructure Act addresses the expansion of transmission infrastructure, research and development of technologies, including carbon capture and use of hydrogen, reinforcement of the grid, and energy efficiency. However, there are several provisions within the legislation that provide funding opportunities through the Department of Energy to support the development of zero and low emitting generation projects. A second piece of relevant legislation, known as the Build Back Better (“BBB”) Act from an energy perspective focuses on tax incentives to support numerous zero and low carbon technologies. The BBB Act bill (the “BBB Act”) that passed the House of Representatives in November of 2021 was passed largely along a party line vote (one democrat and all republicans voting against) included refundable production and investment tax credits for the expansion of renewable energy production facilities, carbon capture technologies and hydrogen investments. The BBB Act remains in negotiations in the US Senate. As of the date of the report, thereThere is uncertainty regarding the enactment of the BBB Act as a singular piece of legislation or whether it can be passed at least in part incrementally through smaller limited scope standalone bills. If the energy provisions of the BBB Act are passed in separate bills, such legislation may have a significant effect on electricity demand by promoting low-carbon transport and a low-carbon economy while raising standards for electricity generation using clean energy.
In April 2021, PJM established an Interconnection Process Reform Task Force that includes PJM staff and PJM member stakeholders to study and propose reforms to PJM’s interconnection process to address, among other items, a large backlog of proposed projects awaiting the completion of their interconnection studies and its effect on the iterative cost-causation process that allocates network upgrade costs to a proposed project. PJM staff and management have proposed a new interconnection process framework as well as options for transitioning from the current process to the new framework. Each of these are expected to be voted on by the task force in the first quarter of 2022 with the corresponding PJM FERC tariff changes to be developed and filed for approval at FERC by the end of the 3rd quarter of 2022, and with the transition to the new system to start in the 4th quarter of 2022. Under the proposed process the interconnection study and cost allocation construct would shift to cluster/cycle group study process and the current first-in/first-out processing construct would shift to a first-ready/first-out processing. Under the transition proposal PJM will stop accepting new interconnection requests from the transition effective date until the new framework begins to be used—which under the different transition options under consideration could be from one year up to as long as four years. During the FERC review process and prior to implementation, PJM has stated that they will continue to work to complete existing interconnection requests. The exact impact on CPV’s projects is yet to be determined although some of CPV’s projects that are expected to operate in the PJM market may be delayed.
Qoros
Kenon holds a 12% interest in Qoros, a China-based automotive company. Kenon previously held a 50% stake in Qoros prior to the Majority Qoros Shareholder’s investment in Qoros, and was one of the founding members of the company.
In 2018, the The Majority Shareholder acquired 51% of Qoros from Kenon and Chery for RMB 3.315 billion, as part of a total investment of approximately RMB 6.63 billion by the Majority Shareholder, of which RMB 6.5 billion was ultimately invested in Qoros’ equity. As a result of this investment, Kenon and Chery had 24% and 25% stakes in Qoros, respectively. In April 2020, Kenon sold half of its remaining interest in Qoros (i.e. 12%) to the Majority Shareholder for a price of RMB1.56 billion (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the Majority Shareholder, and Kenon retains a put option to sell this interest to the Majority Shareholder for a price of RMB 1.56 billion (approximately $220 million). As a result, Kenon holds a 12% interest in Qoros, the Majority Shareholder holds 63% of Qoros and Chery holds 25%. Substantially all of Quantum’s interest in Qoros is pledged to secure Qoros’ RMB 1.2 billion loan facility.
In April 2021, Kenon’s subsidiary Quantum entered into an agreementa Sale Agreement with the Majority Qoros Shareholder to sell its remaining 12% interest in Qoros for RMB 1.56 billion (approximately $245$220 million). The agreement and Baoneng Group has provided that a depositguarantee of 5% was due July 30, 2021 and that the purchase price would be payable in installments through March 31, 2023. Neither the deposit nor the initial payment, due September 30, 2021, were paid, and we have not had any confirmation from the Majority Qoros Shareholder’s obligations under the Sale Agreement. The Majority Qoros Shareholder orhad not made any of the Baoneng Group as to whenrequired payments will be made or if payments will be made at all. Inunder the Sale Agreement, and in the fourth quarter of 2021, Quantum initiated arbitral proceedings against the Majority Qoros Shareholder and Baoneng Group with CIETAC. The proceedings are ongoing.
The agreement also provides that any payment delayed for more than 30 days isIn February 2024, CIETAC issued a final award, not subject to interest. In addition, as a resultany conditions, in favor of Quantum. The tribunal ruled that the Majority Qoros Shareholder and Baoneng Group are obligated to pay Quantum approximately RMB 1.9 billion (approximately $268 million), comprising the purchase price set forth in the Sale Agreement (as adjusted for inflation) of approximately RMB 1.7 billion (approximately $239 million), together with pre-award and post-award interest (which will accrue until payment of the award), legal fees and expenses. Kenon intends to seek to enforce this award against the Majority Qoros Shareholder and Baoneng Group since they have failed to perform their payment delay, Quantum currentlyobligations under the award. In connection with this arbitration, Kenon has the rightobtained a court order freezing assets of Baoneng Group at different rankings (primarily comprising equity interests in entities owning directly and indirectly listed and unlisted equity interests in various businesses). See “Item 3.D—Risks Related to exercise the put option it has over itsOur Strategy and Operations—We face risks in relation to our remaining shares.
Kenon had outstanding “back-to-back” guarantee obligations of approximately $16 million12% interest in Qoros, including risks relating to Chery in respect of guarantees that Chery has given in respect of 50%collection of the RMB 3 billion and 100% of the RMB 700 million loan facilities. In the fourth quarter of 2021, Chery paid the full amount of its guarantee obligations relating to these two loans. Chery had issued to Kenon demand notices to pay these guaranteed amounts. Kenon has paid the amount demanded by Chery, and does not have any remaining guarantee obligationsarbitration award in connection with respect to Qoros debt.this agreement.”
Substantially all of Quantum’s interests in Qoros are pledgedIn addition to secure Qoros’ RMB 1.2 billion loan facility. Althoughthe Sale Agreement, the Majority Qoros Shareholder was required to assume its pro rata share of pledgeQuantum’s obligations in lieu of Quantum’s, it has not yet provided such pledges, andrelating to Quantum’s pledge has not been released.of its remaining shares in Qoros. Baoneng Group has provided Kenon with a guarantee for a certain percentage, and up to all, of Quantum’s pledge obligations.
Kenon understands that Qoros continues to engage in discussions with the lenders and other relevant stakeholders relating to its other outstanding bank loans and resumption of operations, including manufacturing production which has been shut down since July 2021.
If Quantum exercises its put option, the Majority Shareholder will be required to assume the full pledge. The guarantee provided by Baoneng Group provides for a number of obligations, including the obligation for Baoneng Group to reimburse Kenon in the event Quantum’s shares are foreclosed. Currently, Baoneng Group is required to deposit an amount sufficient in escrow to ensure sufficient collateral to avoid the banks foreclosing the Qoros shares pledged by Quantum.guarantee. Baoneng Group has failed to do so after Kenon madecomply with the obligations of the guarantee and as a demand in the fourth quarter of 2021, and in November 2021,result, Kenon filed a claim against Baoneng Group at the Shenzhen Intermediate People’s Court relating to the breaches of the guarantee agreement by Baoneng Group, which was then transferred to the Majority Shareholder.Supreme People’s Court for trial. The court proceedings are ongoing. This litigation is not related to Kenon’s back-to-back guarantees to Chery. Kenon has obtained an order freezing certain assets of Baoneng Group in connection with the litigation pursuant to a court order. There is no assurance that Kenon will recover sufficient amountas to the outcome of assetsthese proceedings. See further details about the claim in “Item 3.D—Risks Related to coverOur Strategy and Operations—We face risks in relation to our remaining 12% interest in Qoros, including risks relating to collection of the losses resulting from the breacharbitration award in connection with this agreement.”
Qoros has been in default under certain loan facilities for a number of contract by Baoneng Group, however, and such failure to recover may affect Kenon’s ability to realize any valueyears, including its RMB 1.2 billion loan facility. The lenders under Qoros’ RMB 1.2 billion loan facility have obtained a court order in respect of Kenon’sa payment default by Qoros. See further details about the court order in “Item 3.D—Risks Related to Our Strategy and Operations—We face risks in relation to our remaining 12% interest in Qoros, including risks relating to collection of the arbitration award in connection with this agreement.”
There is no assurance as to the collection of the arbitration award and the outcome of legal proceedings described above or any value Kenon may realize in respect of its remaining shares in Qoros. Since April 2020, Kenon no longer accounts for Qoros pursuant to the equity method of accounting and in 2021, Kenon wrote down the value of Qoros to zero.
Qoros’ Description of Operations
Qoros is an automobile manufacturer in China.
Qoros’ platform has been designed to enable the efficient introduction of new models in the C- and D-segments. Qoros developed its vehicles in accordance with international standards of quality and safety, working in conjunction with global entities from both automotive and non-automotive industries. A significant portion of Qoros’ sales in 2021 and 2020 have been SUV vehicles.
The manufacturing production at Qoros has been shut down since July 2021.
Qoros’ Investment Agreement
In January 2018, the Majority Shareholder acquired 51% of Qoros from Kenon and Chery for RMB 3.315 billion (approximately $526 million), which was part of an investment structure to invest a total of approximately RMB 6.63 billion (approximately $1,053 million) by the Majority Shareholder. As a result of the 2018 investment, Kenon’s and Chery’s interests in Qoros were reduced to 24% and 25%, respectively. In April 2020, we sold half of our remaining interest in Qoros (i.e. 12%) to the Majority Shareholder for a price of RMB 1.56 billion (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the Majority Shareholder. As a result of the 2020 sale, Kenon holds a 12% interest in Qoros, the Majority Shareholder holds 63% and Chery holds 25%. For purposes of this section, references to Kenon include Quantum (Kenon’s wholly-owned subsidiary which owns Kenon’s interest in Qoros) and references to Chery include Wuhu Chery (the direct owner of Chery’s interest in Qoros).
The 2018 investment was made pursuant to an investment agreement among the Majority Shareholder, Quantum, Wuhu Chery and Qoros.
In connection with the 2018 investment, Kenon received initial cash proceeds of RMB 1.69 billion (approximately $260 million) and Chery received cash proceeds of RMB 1.625 billion (approximately $250 million). The investment was based on an RMB 6.5 billion pre-investment valuation of Qoros, excluding RMB 1.9 billion.
Guarantee Obligations and Equity Pledges
Kenon had outstanding “back-to-back” guarantee obligations of approximately $16 million to Chery in respect of guarantees that Chery has given in respect of 50% of the RMB 3 billion and 100% of the RMB 700 million loan facilities. In the fourth quarter of 2021, Chery paid the full amount of its guarantee obligations under these two loans. Kenon had total outstanding back-to-back guarantees to Chery of approximately $16 million in respect of these loans, and Chery had issued to Kenon demand notices to pay these guaranteed amounts. Kenon has paid the $16 million back-to-back guarantees to Chery, and Kenon does not have any additional credit guarantee obligations with respect to Qoros debt.
Quantum has pledged substantially all of its interests in Qoros to secure Qoros’ RMB 1.2 billion loan facility. Although the Majority Shareholder was required to assume its pro rata share of pledge obligations, it has not yet provided all such pledges. Baoneng Group has provided Kenon with a guarantee for a certain percentage, and up to all, of Quantum’s pledge obligations.
Kenon’s Put Option
Kenon has a put option over its remaining equity interest in Qoros. The investment agreement and the Qoros Joint Venture Agreement provide Kenon with the right to cause the Majority Shareholder to purchase up to 50% of its remaining interest in Qoros at the time of the 2018 investment for up to RMB 1.56 billion (approximately $220 million), subject to adjustments for inflation, during the three-year period beginning from the closing of the 2018 investment. The investment agreement further provided that from the third anniversary of the closing until April 2023, Kenon has the right to cause the Majority Shareholder to purchase up to all of its remaining equity interests in Qoros for up to a total of RMB 1.56 billion (approximately $220 million), subject to adjustment for inflation. Another company within the Baoneng Group guarantees this put option as it has granted a similar option. The put option requires six months’ notice for exercise (except as described below under “—Kenon’s Agreement to Sell its Remaining 12% Interest in Qoros to the Majority Shareholder”). The 2020 sale described below under “—Kenon’s 2020 Sale of 12% Interest in Qoros to the Majority Shareholder” was not made pursuant to this put option. See also“ “Item 3.D Risk Factors—Risks Related to Our Strategy and Operations— We face risks in relation to the agreement to sell all of Kenon’s remaining interest in Qoros.”
The investment agreement provides that any changes in the equity holdings of Qoros by Kenon, Chery or the Majority Shareholder, including as a result of the put option described above, will result in adjustments to the respective parties’ pro rata obligations of the Qoros bank guarantees and pledges described above according to their equity ownership in Qoros.
If Quantum exercises its put option, the Majority Shareholder will be required to assume the full pledge. The guarantee provides for a number of obligations, including the obligation for Baoneng Group to reimburse Kenon in the event Quantum’s shares are foreclosed. Currently, Baoneng Group is required to deposit an amount sufficient in escrow to ensure sufficient collateral to avoid the banks foreclosing the Qoros shares pledged by Quantum. Baoneng Group has failed to do so after Kenon made a demand in the fourth quarter of 2021, and in November 2021, Kenon filed a claim against Baoneng Group at the Shenzhen Intermediate People’s Court relating to the breaches of the guarantee agreement by the Majority Shareholder. The court proceedings are ongoing. This litigation is not related to Kenon’s back-to-back guarantees to Chery. Kenon has obtained an order freezing certain assets of Baoneng Group in connection with the litigation pursuant to a court order. There is no assurance that Kenon will recover sufficient amount of assets to cover the losses resulting from the breach of contract by Baoneng Group, however, and such failure to recover may affect Kenon’s ability to realize any value in respect of Kenon’s remaining shares in Qoros. The manufacturing production at Qoros has been shut down since July 2021. Since April 2020, Kenon no longer accounts for Qoros pursuant to the equity method of accounting and in 2021, Kenon wrote down the value of Qoros to zero.
Kenon’s 2020 Sale of 12% interest in Qoros to the Majority Shareholder
In April 2020, Kenon sold half of its remaining interest in Qoros (i.e. 12%) to the Majority Shareholder for a price of RMB 1.56 billion (approximately $220 million), which was based on the same post-investment valuation as the initial 2018 investment by the Majority Shareholder. As a result, Kenon holds a 12% interest in Qoros, the Majority Shareholder holds 63% and Chery holds 25%. The Majority Shareholder has agreed to assume its pro rata share of the pledge obligations with respect to the RMB 1.2 billion loan facility after which Kenon will also be proportionately released from its pledge obligations thereunder, subject to the Qoros bank lender consent. As a result of the initial investment in 2018 and the 2020 sale by Kenon, the Majority Shareholder is required to pledge additional shares or to provide other support acceptable to the lender banks. To date, the Majority Shareholder has not provided such pledges and Kenon has not been proportionately released by the bank lenders from these pledge obligations. However, following the 2020 sale to the Majority Shareholder, the Majority Shareholder has provided Kenon with a guarantee for a certain percentage, and up to all, of Quantum’s share of the pledge obligations.
Kenon’s Agreement to Sell its Remaining 12% Interest in Qoros to the Majority Shareholder
In April 2021, Kenon’s subsidiary Quantum entered into an agreement with the Majority Shareholder to sell its remaining 12% interest in Qoros for RMB 1.56 billion (approximately $241 million). The agreement provided that a deposit of 5% was due July 30, 2021 and that the purchase price would be payable in installments through March 31, 2023.
Neither the deposit nor the initial payment, due September 30, 2021, were paid, and we have not had any confirmation from the Majority Shareholder or the Baoneng Group as to when payments will be made or if payments will be made at all. In the fourth quarter of 2021, Quantum initiated arbitral proceedings against the Majority Shareholder and Baoneng Group with the CIETAC. The proceedings are ongoing.
The agreement also provides that any payment delayed for more than 30 days is subject to interest. In addition, as a result of the payment delay, Quantum currently has the right to exercise the put option it has over its remaining shares.
Substantially all of Quantum’s shares in Qoros remain pledged to Qoros’ lenders and any transfer of Kenon's remaining stake in Qoros would require a release of the pledge over Kenon's shares in Qoros as well as obtaining necessary regulatory approvals and registrations.
Kenon faces risks in connection with the sale agreement. See “Item 3.D Risk Factors—3.D—Risks Related to Our Strategy and Operations—We face risks in relation to the agreement to sell all of Kenon’sour remaining 12% interest in Qoros.Qoros, including risks relating to collection of the arbitration award in connection with this agreement.”
We previously had back to back guarantee obligations in respect of certain of Qoros’ Joint Venture Agreementdebt but we have previously settled these obligations and have no further guarantee obligations.
We are party to a joint venture agreement, or the Joint Venture Agreement, entered into on February 16, 2007, which has been amendedwith respect to reflect the Majority Shareholder’s 63%our and our joint venture partners’ interest in Qoros. The Joint Venture Agreement sets forth certain rights and obligations of each of Quantum, the wholly-owned subsidiary through which we own our equity interest in Qoros, Wuhu Chery and the Majority Qoros Shareholder with respect to Qoros.
The Joint Venture Agreement is governed by Chinese law. Under the Joint Venture Agreement, certain matters require the unanimous approval of Qoros’ board of directors, while other matters require a two-thirds or a simple majority board approval. Matters requiring unanimous approval of the Qoros board include amendments to Qoros’ articles of association, changes to Qoros’ share capital, the merger, division, termination or dissolution of Qoros, the sale or otherwise disposal of all or a material part of Qoros’ fixed assets for an amount equal or greater than RMB 200 million (approximately $29 million) and the issuance of debentures or the creation of third-party security interests over any of Qoros’ material fixed assets (other than those provided in connection with legitimate Qoros loans). Matters requiring approval by two-thirds of the board include the acquisition of majority equity interests in another entity for an amount exceeding 5% of Qoros’ net asset value, termination of any material partnership or joint venture contract, profit distribution plans, the sale or otherwise disposal of all or a material part of Qoros’ fixed assets for an amount equal or greater than RMB 60 million (approximately $9 million) but less than RMB 200 million (approximately $29 million), and capital expenditures and investments which are equal to or greater than the higher of $4 million or 10% of the approved annual budget.
Pursuant to the terms of the Joint Venture Agreement, we have the right to appoint two of Qoros’ nine directors, Wuhu Chery has the right to appoint two of Qoros’ directors and the Majority Shareholder has the right to appoint the remaining five of Qoros’ directors. If the Majority Shareholder’s stake in Qoros increases to 67% through a new investment in Qoros, the board of directors of Qoros will be further adjusted such that Qoros will have a six-member board of directors, of which the Majority Shareholder will have the right to appoint four directors, while Kenon and Wuhu Chery will each have the right to appoint one director. The Majority Shareholder has the right to nominate Qoros’ Chief Executive Officer and Chief Financial Officer. The nomination of Qoros’ Chief Executive Officer and Chief Financial Officer are each subject to the approval of Qoros’ board of directors by a simple majority vote. Quantum and Wuhu Chery each have the right to nominate one of Qoros’ deputy Chief Financial Officers. Such nominations by Quantum and Wuhu Chery are subject to the approval of Qoros’ board of directors by a simple majority vote.
The Joint Venture Agreement restricts transfers of interests in Qoros by the shareholders (other than transfers to affiliates). Quantum may transfer all of its interest in Qoros to any third-party, subject to the rights of first refusal discussed below. During the five-year period following the closing of the investment, Wuhu Chery and the Majority Shareholder may not transfer any or all their interests in Qoros to any third-party without consent of the other joint venture partners (except for assignments in relation to an initial public offering of Wuhu Chery’s interest in Qoros).
Subject to the lock-up restrictions set forth above, if any of the joint venture partners elects to sell any of its equity interest in Qoros to a third party (i.e., other than an affiliate), the other joint venture partners have the right to purchase all, but not less than all, of the equity interests to be transferred, subject to certain conditions relating to the minimum price for such sale. In the event that more than one joint venture partner elects to exercise its right of first refusal, the shareholders shall purchase the equity interest to be transferred in proportion to their respective interests in Qoros at such time.
The Joint Venture Agreement also reflects Kenon’s put option and the Majority Shareholder’s right to make further investments in Qoros.
The Joint Venture Agreement expires in 2042. The Joint Venture Agreement terminates prior to this date only (i) if the joint venture partners unanimously agree to dissolve Qoros (ii) in the event of any other reasons for dissolution specified in the Joint Venture Agreement and Articles of Association of Qoros or (iii) upon occurrence of any other termination event, as specified in PRC laws and regulations.
ZIM
Information in this report on ZIM is based on ZIM’s annual report on Form 20-F filed with the SEC on March 9, 2022.13, 2024.
Overview
ZIM is a global container liner shipping company with leadership positions in niche markets where ZIM believes itZIM has distinct competitive advantages that allow ZIM to maximize its market position and profitability. Founded in Israel in 1945, ZIM is one of the oldest shipping liners, with over 75nearly 80 years of experience, providing customers with innovative seaborne transportation and logistics services with a reputation for industry leading transit times, schedule reliability and service excellence.services.
As of December 31, 2021,2023, ZIM operated a fleet of 118144 vessels and chartered-in 96.9%95% of its TEU capacity and 96.6%93.8% of the vessels in its fleet. For comparison, according to Alphaliner, ZIM’s competitors chartered-in on average approximately 50%44% of their fleets. In an effort to respond to increased demand for container shipping services globally, between January 1,fleets as of the end of 2023 (in accordance with the Alphaliner December 2023 Report). During 2021 and December 31, 2021, ZIM chartered-in an additional 29 vessels (net, not including vessels pending delivery). ZIM deployed these vessels in its newly launched as well as in its existing service lines across the globe. In addition, during 2021,2022 ZIM has chartered eight car carrier vessels and increased the volume and frequency of its car carrier services from the Far East to Israel and additional countries in Europe and the Mediterranean. In February and July 2021, ZIM and Seaspan Corporation entered into several strategic long-term charter agreements, including two strategic agreements with Seaspan for the long-term charter of ten 15,000 TEU and fifteen 7,000uniquely designed 7,700-class TEU liquifiedLNG (liquified natural gas (LNG dual-fuel) container vessels to serve ZIM’s Asia-US East Coast Trade and other global-niche trades, with the14 vessels expected to bealready delivered to ZIM between February 2023 and throughout 2024. Furthermore,ZIM. ZIM has also entered into a newan eight-year charter agreement with a shipping company that is an affiliate toof its largest shareholder, Kenon Holdings Ltd., according to which ZIM will charter three 7,0007,700-class TEU LNG dual fuel container vessels, expected to be delivered during the first and second quarters of 2024. During the second half of 2021, ZIM has completed the purchase transaction of eight secondhand vessels, ranging from 1,100 to 4,250 TEUs each, in several separate transactions, for an aggregated amount of $355 million. As of March 1, 2022, five of these vessels werewith one vessel delivered to ZIM out of the total eight purchased. See “—ZIM’s vessel fleet.”
InZIM. Furthermore, in February 2022 ZIM announced a new chartering agreement with Navios Maritime Partners L.P. for a total of 13 vessels (including five of which are secondhanded)secondhand), ranging from 3,500 to 5,300 TEUs. OnTEUs each, of which two newbuild vessels and all five secondhand vessels were delivered to ZIM, and in March 30, 2022 ZIM announced ZIM has entered into a new chartering agreement with MPC Container Ships ASAseven-year charter transaction for the 7-year charter of a total of six 5,500 TEU wide beam newbuild vessels for total charter hire considerationwith MPC Container Ships ASA and MPC Capital AG, of approximately $600 million. Thewhich three vessels are expectedwere already delivered to ZIM. ZIM expect the rest of the vessels to be delivered between Mayto ZIM during the remainder of 2024. See“—ZIM’s vessel fleet—Strategic Chartering Agreements”. During the second half of 2021 ZIM has completed the purchase of eight secondhand vessels, ranging from 1,100 to 4,250 TEU, in several separate transactions, for an aggregated amount of $355 million. In February 2024, ZIM completed the acquisition of an additional three secondhand 10,000 TEU vessels and two 8,500 vessels that ZIM already chartered by exercising an option to acquire them for approximately $129 million, so that on March 1, 2024, ZIM owned a total of 14 vessels of its operated fleet, including one vessel ZIM already previously owned prior to these acquisitions. See—“ZIM’s vessel fleet.”
As of December 31, 2023, ZIM chartered-in most of its capacity; in addition, 74.8% of its chartered-in vessels are under leases having a remaining charter duration of more than one year (or 81.9% in terms of TEU capacity). ZIM continues to adjust its operations in response to the effects of global and February 2024.regional geopolitical and economic events, including the Houthi attacks on the Red Sea, the Israel-Hamas and Russia-Ukraine wars, long terms effect of the COVID-19 pandemic and other recent geopolitical trends. ZIM’s fleet, mainly in terms of the size of its vessels, enables ZIM to optimize vessel deployment to match the needs of both mainlane and regional routes and to ensure high utilization of its vessels and specific trade advantages. ZIM’s operated vessels have capacities that range from less than 1,000 TEUs to 15,000 TEUs. Furthermore, ZIM operates a modern and specialized container fleet, which ZIM significantly increased during 2021, and its current container fleet capacity reaches approximately 885 thousand TEUs.
ZIM operates across five geographic trade zones that provide ZIM with a global footprint. These trade zones include (for the year ended December 31, 2021): (i) Transpacific (39%2023, of carried TEUs), (ii) Atlantic (18%: (1) Transpacific (38.4%), (iii)(2) Atlantic (13.1%), (3) Cross Suez (10%(11.8%), (iv)(4) Intra-Asia (27%(27.9%) and (v)(5) Latin America (6%(8.8%). Within these trade zones, ZIM strives to increase and sustain profitability by selectively competing in niche trade lanes where ZIM believes that the market is underserved and that ZIM has a competitive advantage versus its peers. These include both trade lanes where ZIM has an in-depth knowledge, long-established presence and outsized market position as well as new trade lanes into which ZIM is often driven by demand from its customers as they are not serviced in-full by its competitors. Several examples of niche trade lanes within ZIM’s geographic trade zones include: (i)(1) US East Coast & Gulf to Mediterranean lane (Atlantic trade zone) where ZIM maintains a 10%7.9% market share, (ii)(2) East Mediterranean & Black Sea to Far East lane (Cross Suez trade zone), 7%6.3% market share and (iii)(3) Far East (not including the Indian subcontinent) to US East Coast (Pacific trade zone), 9.5%11.2% market share, in each case according to the Port Import/Export Reporting Service (PIERS) and Container Trade Statistics (CTS)(“CTS”).
During 2023 and as at March 13, 2024, ZIM announced the following main newly launched services and service upgrades: (1) a new operational cooperation with MSC encompassing seven services, including three services on the southeast Asia-Oceana trade, two services from India to the East Mediterranean and Israel (currently rerouted), and two services from the East Mediterranean and Israel to North Europe; (2) two new independent services, ZIM Albatross (ZAT), connecting China and Southeast Asia to the west coast South America, and ZIM Gulf Toucan (ZGT), connecting South America to the Gulf of Mexico, and replacing previous services in cooperation with other carriers; (3) the relaunch of ZEX, ZIM eCommerce Xpress service, providing a premium, speedy China-US West Coast service; (4) the expansion of the ZXB service calling from Port Kelang to Baltimore and Boston to include direct calls to Mexico and Colombia; (5) the upscaling of ZIM’s vessels on its independently operated ZCP service line (as part of its agreement with the 2M Alliance) to 15,000 TEU LNG dual-fuel container vessels; and (6) the launch of an independent service connecting Asia to the US via Vancouver (ZPX).
In addition to containerized cargo, in an effort to respond to increased demand for car carrier services, and specifically to the increase in vehicle exports from China (and electric and hybrid cars in particular), ZIM also transports vehicles (such as cars, buses and trucks) via dedicated car carrier vessels westbound from Asia, and primarily from China, Japan, South Korea and India. Currently, ZIM charters 16 car carrier vessels and ZIM has expanded the volume and its range of services to include additional calls to ports in Europe, the Mediterranean and South America. Despite the uncertainty caused by the geopolitical situation, the outlook for the car carrier industry remains relatively positive thanks to modest fleet growth in 2023 and slight increase in demand for lighter vehicles. In 2024, car carrier fleet growth is estimated to be more robust, with an increase of 6.5% capacity by year end.
During 2021, ZIM expanded its services to include, among others: (i) the launch of a new express service line connecting South East Asia to Los Angeles (ZX2); (ii) a new e-commerce line connecting Taiwan and Central China to USWC (ZX3); (iii) a new joint Asia-USEC service line with 2M connecting South China, Vietnam and the USEC (ZSE); (iv) extension of our Africa lines with a new China-East Africa service (CEA) in cooperation with Hapag Lloyd and ONE; (v) a new service connecting Turkey to USEC and Gulf (ZCT) in cooperation with Hapag Lloyd; (vi) a new service connecting N. Europe and USEC (ZNE, currently suspended until further notice); (vii) A new service connecting Israel and Turkey to the Indian subcontinent (ZMI); (viii) a new independent pendulum service on the Asia-Mediterranean and Pacific North West (ZMP), planned to be launched in April 2022; and (ix) a new speedy e-commerce service from China and South East Asia to the US East Coast (ZXB).
As of December 31, 2021,2023, ZIM chartered-in mostoperated a global network of its capacity; in addition, 80.7% of ZIM’s chartered-in vessels are under leases having a remaining charter duration of67 weekly lines, calling at approximately 310 ports, delivering cargo to and from more than one year (or 81.6%90 countries. ZIM’s complex and sophisticated network of lines allows ZIM to be agile as it identifies markets in terms of TEU capacity).which to compete. Within its global network ZIM offers value-added and tailored services, including operating several logistics subsidiaries to provide complimentary services to its customers. ZIM continues to adjustdevelop its operationsnetwork of additional logistics companies in responseorder to provide comprehensive services to its customers. These subsidiaries, which ZIM operates, among others, in China, Vietnam, Canada, Brazil, India, Singapore, Hong Kong and the ongoing COVID-19 pandemic.U.S, are asset-light and provide services such as land transportation, custom brokerage, LCL, project cargo and air freight services. Out of ZIM’s fleet, mainlytotal volume in terms of the sizetwelve months ended December 31, 2023, approximately 18% of its vessels, enables it to optimize vessel deployment to match the needsTEUs carried utilized additional elements of both mainland and regional routes and to ensure high utilization of its vessels and specific trade advantages. The majority of ZIM’s operated vessels have capacities that range from less than 1,000 TEUs to almost 10,000 TEUs although in February 2021, ZIM entered into a long-term charter of ten 15,000 TEU liquified natural gas (LNG dual-fuel) container vessels, pursuant to its strategic agreement with Seaspan (See “—ZIM’s vessel fleet—Strategic Chartering Agreements”). Furthermore, ZIM operates a modern and specialized container fleet, which it significantly increased during 2021 to a capacity of nearly 1 million TEUs, which acts as an additional value-added service offering, attracting higher yields than standard cargos.land transportation.
As of December 31, 2021, ZIM chartered-in most of its capacity; in addition, 80.7% of ZIM’s chartered-in vessels are under leases having a remaining charter duration of more than one year (or 81.6% in terms of TEU capacity). ZIM continues to adjust its operations in response to the ongoing COVID-19 pandemic. ZIM’s fleet, mainly in terms of the size of its vessels, enables it to optimize vessel deployment to match the needs of both mainland and regional routes and to ensure high utilization of its vessels and specific trade advantages. The majority of ZIM’s operated vessels have capacities that range from less than 1,000 TEUs to almost 10,000 TEUs although in February 2021, ZIM entered into a long-term charter of ten 15,000 TEU liquified natural gas (LNG dual-fuel) container vessels, pursuant to its strategic agreement with Seaspan (See “—ZIM’s vessel fleet—Strategic Chartering Agreements”). Furthermore, ZIM operates a modern and specialized container fleet, which it significantly increased during 2021 to a capacity of nearly 1 million TEUs, which acts as an additional value-added service offering, attracting higher yields than standard cargos.
ZIM’s network is significantly enhanced by cooperation agreements with other leading container liner companies and alliances, allowing ZIM to maintain a high degree of agility while optimizing fleet utilization by sharing capacity, expanding its service offering and benefiting from cost savings. Such cooperation agreements include vessel sharing agreements (VSAs), slot purchase and slot swaps. ZIM’sOne of these cooperations is the strategic collaboration with the 2M Alliance, comprised of the two largest global carriers, (MaerskMaersk and MSC),MSC, who both announced the 2M Alliance will terminate in January 2025. ZIM’s agreement with the 2M Alliance which was launched in September 2018 and amended in February 2022, provides faster, wider and more efficient service in 4 trade lanes, 12 services and approximately 23,500 TEUs. Effective as of April 2022, the cooperation agreement with the 2M Alliance will be updated to cover Asia-U.S.Asia-US East Coast and the Asia-U.S.Asia-US Gulf Coast with 2two trade lanes, 8seven services and approximately 15,40015,500 weekly TEUs. Another example is ZIM’s new operational cooperation with MSC encompassing seven services on the southeast Asia-Oceana, India-East Mediterranean (currently rerouted) and East Mediterranean-North Europe trades, that ZIM entered into in September 2023. In addition to its collaboration with the 2M Alliance,these collaborations, ZIM also maintainsmaintain a number of partnerships with various global and regional liners in different trades. For example, in the Intra-Asia trade, ZIM partners with both global and regional liners in order to extend its services in the region.region (See“—ZIM’s operational partnerships”).
ZIM has a highly diverse and global customer base with approximately 36,00032,600 customers (which considers each of ZIM’sits customer entities separately, even if itincluding in instances where the entity is a subsidiary or branch of another customer)customer, or on a non-consolidated basis) using ZIM’sits services. In 2021,2023, ZIM’s 10 largest customers represented approximately 17%13% of its freight revenues and itsZIM’s 50 largest customers represented approximately 32%28% of its freight revenues. One of the key principles of ZIM’sits business is its customer-centric approach and ZIM strives to offer value-added services designed to attract and retain customers. ZIM’s strong reputation, high-quality service offering, and schedule reliability has generated a loyal customer base, with all9 of its 10 top 10 customers in 20212023 having a relationship with ZIM lasting longer than 10 years.
ZIM has focused on developing technologies to support its customers, including improvements in its digital capabilities to enhance both commercial and operational excellence. ZIM uses its technology and innovation to power new services, improve its customer experience and enhance its productivity and portfolio management. Several recent examples of ZIM’s digital services include: (i) ZIMonitor, which is an advanced tracking device that provides 24/7 online alerts to support high value cargo,cargo; (ii) eZIM, ZIM’sits easy-to-use online booking platform; (iii) eZQuote, a digital tool that allows customers the ability to receive instant quotes with a fixed price and guaranteed terms; (iv) Draft B/L, an online tool that allows export users to view, edit and approve their bill of lading online without speaking with a representative; and (v) ZIMGuard, an artificial intelligence-based internal tool designed to detect possible misdeclarations of dangerous cargo in real-time. Furthermore, ZIM has formed a number of partnerships and collaborations with third-party start-ups for the development of multiple engines of growth which are adjacent to ZIM’sits traditional container shipping business. These technological partnerships and initiatives include: (i) “ZKCyberStar”, a collaboration with Konfidas, an Israeli cyber-security consulting company, to provide bespoke cyber-security solutions, guidance, methodology and training to the maritime industry; (ii) “ZMark”“ZIMARK”, a new initiative in cooperation with Sodyo (in which ZIM made an additional investment in 2022), an early stage scanning technology company, aimed to provide visual identification solutions for the entire logistics sector (inventory management, asset tracking, fleet management, shipping, access control, etc.), whose This technology is extremely fast and is suitable for multiple types of media; (iii)(ii) ZIM’s investment in and partnership with WAVE, ana leading electronic B/Lbill of lading based on blockchain technology, to replace and secure original documents of title; (iv)(iii) ZIM’s investment in and partnership with Ladingo,Hoopo Systems Ltd. (“Hoopo”), a one-stop-shopprovider of cutting edge tracking solutions for Cross Border Shipments with all-in-one, easyunpowered assets, as well as its new agreement to use software and fully integrated service, making it easier, more affordable and risk free to import and export LCLs, FCLs or any large and bulky shipments; and (v)deploy Hoopo’s tracking devices on ZIM’s dry-van container fleet; (iv) Ship4wd, a digital freight forwarding platform offering an online, simple and reliable self-service end-to-endend to end shipping solution, that is initially targeting US & Canadian small and medium-sized businesses importing and exporting from China, Vietnamthe US, Canada, the far East and Israel.Israel; (v) its investment in Data Science Consulting Group (DSG), a leading technology company specializing in Artificial Intelligence based products, solutions and services, developer of e-volve, a holistic AI governance and decision management system, and ZIM’s co-creator of a center of excellence for the development of AI tools for the maritime shipping industry; and (vi) 40Seas, an innovative fintech company serving as a platform for cross-border trade financing, in which ZIM has made an equity investment in addition to extending an approximate $100 million credit facility, with an option subject to both parties’ agreement to increase this credit facility by up to $200 million. To support and enhance ZIM’s commercial partnerships and investments in technology companies, ZIM has formed a ZIM team of professionals that specializes in the ecosystem of investing and collaborating with early-stage technology companies, and function as a “corporate venture capital”, or CVC, dedicating a substantial part of their time to such CVC activities. The members of this CVC team support ZIM’s portfolio companies throughout the life cycles of their businesses, starting from identifying promising startups which are synergetic to ZIM’s business, conducting due diligence over potential investments, negotiating investment and commercial agreements with ZIM’s portfolio companies, and supporting them in additional investment and commercial transactions and in their operations, often by holding board membership positions in such companies.
Over the past three years ZIM has taken initiatives to reduce and avoid costs across its operating activities through various cost-control measures and equipment cost reduction (including, but not limited to, equipment interchanges such as swapping containers in surplus locations, street turns to reduce trucking of empty containers and domestic repositioning from inland ports).
ZIM is headquartered in Haifa, Israel. As of December 31, 2021,2023, ZIM had 5,931approximately 6,460 full-time employees worldwide (including contract workers). In 20212023 and 2020,2022, ZIM carried 3.483.28 million TEUs and 2.843.38 million TEUs, respectively, for its customers worldwide. During the same periods, ZIM’s revenues were $10,729$5,162 million and $3,992$12,562 million, its net income (loss) was $4,649$(2,688) million and $524$4,629 million and its Adjusted EBITDA was $6,597$1,049 million and $1,036$7,541 million, respectively.
ZIM’s services
With a global footprint of more than 200 offices and agencies in approximately 100more than 90 countries, ZIM offers both door-to-door and port-to-port transportation services for all types of customers, including end-users, consolidators and freight forwarders.
Comprehensive logistics solutions
ZIM offers its customers comprehensive logistics solutions to fit their transportation needs from door-to- door.door-to-door. ZIM’s wide range of transportation services, handled by its highly trained sea and shore crews and supported with personalized customer service and its unified information technology platform, allows ZIM to offer its customers higher quality and tailored services and solutions at any time around the world. During June 2021, similar to its peers, ZIM has experienced capacity shortages and long dwell time throughout the logistic chain. In June 2021, ZIM has extended its commercial cooperation with Alibaba for two more years and until 2023.
ZIM’s services and geographic trade zones
As of December 31, 2021,2023, ZIM operated a global network of 7067 weekly lines, calling at 304approximately 310 ports indelivering cargo to and from more than 90 countries. ZIM’s shipping lines are linked through hubs that strategically connect main lines and feeder lines, which provide regional transport services, creating a vast network with connections to and from smaller ports within the vicinity of main lines. ZIM has achieved leadership positions in specific markets by focusing on trades where itZIM has distinct competitive advantages and can attain and grow its overall profitability.
ZIM’s shipping lines are organized into geographic trade zones by trade. The table below illustrates ZIM’s primary geographic trade zones and the primary trades they cover, as well as the percentage of ZIM’sits total TEUs carried by geographic trade zone for the years ended December 31, 2021, 20202023, 2022 and 2019:2021:
| | | | | | |
Geographic trade zone (percentage of total TEUs carried for the period) | | | | | | | | | | | | |
Geographic trade zone
| | | | | | |
(percentage of total TEUs carried for the period) | | | | | | | | | | | | |
Pacific | | Transpacific | | | 39 | % | | | 40 | % | | | 36 | % | | Transpacific | | | 38 | % | | | 34 | % | | | 39 | % |
Cross-Suez | | Asia-Europe | | | 10 | % | | | 12 | % | | | 13 | % | | Asia-Europe | | | 12 | % | | | 13 | % | | | 10 | % |
Atlantic-Europe | | Atlantic | | | 18 | % | | | 21 | % | | | 21 | % | | Atlantic | | | 13 | % | | | 15 | % | | | 18 | % |
Intra-Asia | | Intra-Asia | | | 27 | % | | | 21 | % | | | 23 | % | | Intra-Asia | | | 28 | % | | | 31 | % | | | 27 | % |
Latin America | | Intra-America | | | | | | | | | | | | | | Intra-America | | | | | | | | | | | | |
| | | | | 100 | % | | | 100 | % | | | 100 | % | | | | | 100 | % | | | 100 | % | | | 100 | % |
Pacific geographic trade zone.
The Pacific geographic trade zone serves the Transpacific trade, which covers trade between Asia, including China, Korea, Southeast Asia, the Indian subcontinent, and the Caribbean, Central America, the Gulf of Mexico and the east coast and west coast of the United States and Canada. ZIM’s services within this geographic trade zone also connect to Intra-Asia and Intra-America regional feeder lines, which provide onward connections to additional ports.ports
Pacific Northwest service.
Based on information from PIERS,Piers, Port of Vancouver and Prince Rupert Port Authority, approximately 50%45% of all goods shipped to the United States are transported via ports located in the west coast of the United States and Canada. These include local discharge as well as delivery by train or trucks to their final destinations, mainly to the Midwestern United States and to the central and eastern parts of Canada. ZIM holds a position within the PNW, mostly via twothe Canadian gateways, thegateway Vancouver, and Prince Rupert ports, and also the Seattle port, which enable ZIM to serve the very large Canadian and U.S. Midwest markets quickly and efficiently, while also avoiding the highly congested ports of Long Beach and Oakland and using the similarly congested Los Angeles port only for ZIM’s ZEX, ZX2 and ZX3 services.efficiently. ZIM’s strategic relationships in these markets with Canadian National Railway Company (“CN”), a rail operator, and with the 2M Alliance have allowed itZIM to obtain competitive rates and provide consistent, high-quality service to its customers. In February 2022,Since July 2023, ZIM announcedhas started to charter slots from MSC to serve the Pacific Northwest, replacing its intention to launch an independent service line tolaunched after the Pacific Northwest trade, replacingtermination of the current cooperation commencing fromwith the 2M Alliance for this service in April 2022. In January 2024, ZIM launched a new independent line connecting Asia and the US through the Vancouver gateway (ZPX).
Pacific Southwest Coast services.
In response to the growing trend in eCommerce, ZIM launched during 2020 and 2021, ZIM launched three eCommerce Xpress high-speed services, focusing on e-Commerce between South China and Los Angeles, (ZEX,the ZEX, ZX2 and ZX3 lines). As a resultlines. ZIM suspended these lines because of current globalheavy port congestion due to COVID-19. In November 2023, ZIM relaunched ZEX as market conditions due to COVID-19, ZIM has been experiencing heavy congestion in USWC ports throughout 2021, causing disruption to these services’ schedules. For additional information on measures declared by the port of Los Angeles and the port of Long Beach, see “improved.
Item 3.D Risk factors—Risks Related to Our Interest in ZIM—Access to ports could be limited or unavailable, including due to congestion in terminals and inland supply chains, and ZIM may incur additional costs as a result thereof.131”
Asia-U.S. All-Water service.
With respect to the Asia-U.S. east coast trade, “all-water” refers to trade between Asia and the U.S. east coast and Gulf Coast using marine transportation only, via the Suez or Panama Canal. WithinIn accordance with its cooperation with the 2M, ZIM operates across eight services: six to USEC and two to the USGC. In January and February 2022, ZIM announced its intention to operate the joint servicesagreement with the 2M Alliance based on a slot exchange and vessel sharing agreement. Accordingly, as ofamended in February 2022 effective from April 2022, ZIM will solely operate twooperates one out of the sixfive joint Asia to USEC services (ZCP & ZSE)(ZCP) as well as three additional vesselsa vessel sharing agreement on one of two joint Asia to USGC services (ZGX). ZIM has deployed all 15,000 TEU LNG dual fuel vessels delivered to ZIM so far on the independently operated ZCP service, and intend to deploy the remainder expected to be delivered to ZIM during 2024 on this service as well (See, “—Strategic Chartering Agreements”).
As of December 31, 2021,2023, ZIM offered 1310 services in the Pacific geographic trade zone, which had an effective weekly capacity of 24,21724,657 TEUs and covered all major international shipping ports in the Transpacific trade. ZIM’s services in the Pacific geographic trade zone accounted for 54%45% of its freight revenues from containerized cargo for the year ended December 31, 2021.2023.
Cross-Suez geographic trade zone. zone.
The Cross-Suez geographic trade zone serves the Asia-Europe trade, which covers trade between Asia and Europe (including the Indian sub-continent) through the Suez Canal, primarily focusing on the Asia- BlackAsia-Black Sea/East Mediterranean Sea sub-trade, which is one of ZIM’sits key strategic zones. In previous years this trade was characterized by intense competition, and ZIM has undertaken several initiatives to help itZIM remain competitive within it. During 2021, cargo demand in this trade exceeded the available supply.
In September 2023, ZIM entered into a cooperation agreement with MSC covering seven services, including two services from the India subcontinent (ISC) to Israel and the East Mediterranean and two services from Israel and the East Mediterranean to N. Europe. These services replace ZIM’s cooperationprevious independent service (ZMI), which was initiated following the termination of two joint services with the 2M Alliance which began in March 2019 is a slot charter agreement on two services fromcovering Asia to the East Mediterranean and is expected to terminate effective as ofin April 2022.
In February 2022,response to the Yemeni Houthis’ attacks against vessels sailing in the Red Sea, ZIM has announcedtaken proactive measures by rerouting some of its vessels and restructuring its services on the launchIndian subcontinent to East Mediterranean trade, which also currently limits its access to the Suez Canal (See, “Item 3.D Risk Factors—Risks Related to our Interest in ZIM—Global economic downturns and geopolitical challenges throughout the world could have a material adverse effect on ZIM’s business, financial condition and results of an independent service line the Asia-Mediterranean trade replacingoperations,” and “Item 3.D Risk Factors—Risks Related to our Interest in ZIM—ZIM is incorporated and based in Israel and, therefore, ZIM’s results may be adversely affected by political, economic and military instability in Israel. Specifically, the current cooperation. In addition, ZIM terminated its slot purchase from MSC which beganwar between Israel and Hamas and the additional armed conflicts in October 2018 on two lines in India-East Mediterranean trade and replaced this cooperation with an independent service line on this trade in December 2021.the Middle East may adversely affect ZIM’s business”).
As of December 31, 2021,2023, ZIM offered fivetwo services in the Cross-Suez geographic trade zone (currently rerouted), which had an effective weekly capacity of 7,8883,940 TEUs and covered all major international shipping ports in the East Mediterranean, the Black Sea, China, East and Southeast Asia and India. The Cross-Suez geographic trade zone accounted for 13%12% of ZIM’sits freight revenues from containerized cargo for the year ended December 31, 2021.2023.
Atlantic-Europe geographic trade zone. zone.
The Atlantic-Europe geographic trade zone serves the Atlantic trade, which covers trade between North America and the Mediterranean, along with Intra-Europe/Mediterranean trade. ZIM’s services within this geographic trade zone also connect to Intra-Mediterranean and Intra-America regional feeder lines which provide onward connections to additional ports. Since 2014, ZIM has had a cooperation agreement with Hapag-Lloyd and other companies in its Atlantic services. In addition, ZIM has terminated its cooperation agreements with MSC in the Intra-Europe/Mediterranean trade and intends to replace this cooperation with an extension to North Europe on its recently launched ISC-Mediterranean independent service. ZIM also has aZIM’s new cooperation agreement with COSCO inMSC also includes two joint services from Israel and the Intra-Mediterranean trade.East Mediterranean to North Europe.
As of December 31, 2021,2023, ZIM offered 1310 services within this geographic trade zone, with an effective weekly capacity of 10,2328,707 TEUs, covering major international shipping ports in the East and West Mediterranean, the Black Sea, Northern Europe, the Caribbean, the Gulf of Mexico, and the east and west coasts of North America. The Atlantic-Europe geographic trade zone accounted for 10%16% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2021.2023.
Intra-Asia geographic trade zone.
The Intra-Asia and Asia-Africa geographic trade zone serves the Intra-Asia trade, which covers trades within regional ports in Asia, including ISC (Indian sub-continent), Africa and Australia. The Intra-Asia geographic trade zone accounted for 18% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2021.Oceana. ZIM’s services within this geographic trade zone feed into the global lines of the Pacific and Cross-Suez trades. This geographic trade zone is characterized by extensive structural changes that ZIM has made to respond to changes in trade and market conditions.
The Intra-Asia market is highly fragmented with many active carriers, all with relatively small market shares. Local shipping companies have a significant presence within this trade, which is primarily serviced by relatively small vessels. However, larger vessels that operate in the intercontinental trade also serve this trade and call at ports within the region. For example, ZIM has cooperationrecently upscaled its vessels on one of its Intra-Asia services calling India subcontinent ports to 10,000 TEUs. ZIM has operational agreements with several other shipping companies within this trade.
As of December 31, 2021,2023, ZIM offered 2927 services within this geographic trade zone with an effective weekly capacity of 17,48214,712 TEUs. The Intra-Asia geographic trade zone accounted for 16% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2023. ZIM’s services within this geographic trade zone cover major regional ports, including those in China, Korea, Thailand, Vietnam and other ports in Southeast Asia, India, Africa, Thailand, Vietnam, New Zealand and Australia, and connect to shipping lines within its Cross-Suez and Pacific geographic trade zones.
Latin America geographic trade zone.
The Latin America geographic trade zone consists of the Intra-America trade, which covers trade within regional ports in the Americas, as well as trade between the South American east coast and Asia and trade between the South American east coast and West Mediterranean. The regional services within this geographic trade zone are linked to ZIM’sits Pacific and Atlantic-Europe geographic trade zones. ZIM cooperates with other carriers within the regional services and,services: ZIM cooperates with Maersk via a vessel sharing agreement in the Asia-East Coast South America, and Mediterranean- EastZIM cooperates with other carriers on the Mediterranean-East Coast South America sub-trades mostly by slots purchase. In addition, ZIM replaced several joint services with its newly launched service, ZIM Gulf Toucan (ZGT), connecting South America to the Gulf of Mexico. ZIM also launched a second independent service, ZIM Albatross (ZAT), connecting China and Southeast Asia to the west coast of South America. These new services facilitated a significant growth in the scope of ZIM’s activities in the Latin America geographic trade zone during 2023.
As of December 31, 2021,2023, ZIM offered ten18 services within this geographic trade zone as well as a complementary feeder network with an effective weekly capacity of 3,4958,696 TEUs and operated between major regional ports, including ports in Brazil, Argentina, Uruguay, Mexico, the Caribbean, Central America, China, U.S. Gulf Coast, U.S. east coast and the West Mediterranean, and connect to ZIM’sits Pacific and Atlantic- EuropeAtlantic-Europe services. The Latin America geographic trade zone accounted for 5%11% of ZIM’s freight revenues from containerized cargo for the year ended December 31, 2021.
Types of cargo
The following table sets forth details of the types of cargo ZIM shipped during the yeartwelve months ended December 31, 20212023, as well as the related quantities and volume of containers (owned and leased).
| | | | | | | | | | | | | | | | |
Dry van containers | | Most general cargo, including commodities in bundles, cartons, boxes, loose cargo, bulk cargo and furniture | | | 1,923,428 | | | | 3,249,958 | | | Most general cargo, including commodities in bundles, cartons, boxes, loose cargo, bulk cargo and furniture | | | 1,824,378 | | | | 3,092,964 | |
Reefer containers | | Temperature controlled cargo, including pharmaceuticals, electronics and perishable cargo | | | 87,207 | | | | 172,706 | | | Temperature controlled cargo, including pharmaceuticals, electronics and perishable cargo | | | 100,510 | | | | 198,907 | |
Other specialized containers | | Heavy cargo and goods of excess height and/or width, such as machinery, vehicles and building | | | | | | | | | | Heavy cargo and goods of excess height and/or width, such as machinery, vehicles and building | | | | | | | | |
Total | | | | | 2,059,467 | | | | 3,481,415 | | | | | | 1,981,061 | | | | 3,362,619 | |
Transportation of Vehicles133
In addition to containerized cargo, ZIM also transports vehicles (such as cars, buses and trucks) via dedicated car carrier vessels westbound from Asia, and primarily from China, Japan, South Korea and India. During 2021, ZIM has chartered 8 car carrier vessels and expanded the volume and its range of services to include additional calls to ports in Europe and the Mediterranean.
ZIM’s vessel fleet
As of December 31, 2021,2023, ZIM’s fleet included 118144 vessels (110(128 container vessels and 816 vehicle transport vessels), of which 4nine vessels were owned by ZIM and 114135 vessels are chartered-in (including 106 vessels accounted as right-of-use assets under the lease accounting guidance of IFRS 16 and 4 vessels accounted under sale and leaseback refinancing agreements).chartered-in. As of December 31, 2021,2023, ZIM’s operating fleet (including both owned and chartered vessels) had a capacity of 426,725638,801 TEUs. The average size of ZIM’s vessels is approximately 3,8674,991 TEUs, compared to an industry average of 4,5284,689 TEUs.
During the second half of 2021 ZIM has completed the purchase transaction of eight secondhand vessels, ranging from 1,100 to 4,250 TEUs each, in several separate transactions, for an aggregated amount of $355 million. During$ 355 million with all purchased vessels delivered during 2021 and 2022. In February 2024, ZIM completed the second halfacquisition of 2021,an additional three 10,000 TEU vessels and two 8,500 TEU vessels that ZIM recognized a cost of $102 million in respect of three delivered vessels with the remaining vessels expectedalready chartered by exercising an option to be delivered by April 2022. Asacquire them, so as of March 1, 2022, 5 out of 8 purchased2024, following these purchases, in addition to one vessel already previously owned by us, ZIM owned 14 vessels were delivered to ZIM, andin its operated fleet. ZIM may purchase additional secondhandedsecondhand vessels if itZIM evaluates that such purchase is more suited to its needs than other available alternatives.
ZIM charters-in vessels under charter party agreements for varying periods. With the exception of certain vessels for which charter rates were set in connection with a restructuring arrangement ZIM undertook in 2014, ZIM’s charter rates are fixednegotiated and predetermined at the time of entry into the charter party agreement and depend upon market conditions existing at that time. As of December 31, 2021,2023, all of ZIM’s chartered vessels are under a “time charter,” which consistsvessel agreements consist of chartering-in the vessel capacity for a given period of time against a daily charter fee, with 110 vessels chartered while the crewing and technical operation of the vessel is handled by its owner, including 113 vessels chartered-in under a time charter from related parties, and 4 vessels chartered-in under a “bareboat charter,” which consists of chartering a vessel for a given period of time against a charter fee, with the operation of the vessel being handled by ZIM.parties. Subject to any restrictions in the applicable arrangement, ZIM determines the type and quantity of cargo to be carried as well as the ports of loading and discharging.
ZIM’s vessels operate worldwide within the trading limits imposed by its insurance terms. As of December 31, 2021,2023, the remaining average duration of ZIM’s charter party agreementschartered fleet was approximately 26.5 months.33 months, based on the earliest date of redelivery.
As of December 31, 2023, ZIM’s fleet iswas comprised of vessels of various sizes, ranging from less than 1,000 TEUs to 10,00015,000 TEUs, which allows for flexible deployment in terms of port access and is optimally suited for deployment in the sub-trades in which ZIM operates. In effort to respond to increased demand for container shipping services globally, between January 1, 2021 and December 31, 2021, ZIM chartered-in an additional 29 vessels (net, not including vessels pending delivery). ZIM deployed these vessels in both its newly launched and existing services across the globe. In addition, during 2021, ZIM has chartered 8 car carrier vessels and have expanded its car carrier services from the Far East to Israel and additional countries in Europe and the Mediterranean. As of March 1, 2022, ZIM’s fleet included 125 vessels (117 container vessels and 8 vehicle transport vessels), of which 6 vessels are owned by ZIM and 119 vessels are chartered-in (including 4 vessels accounted under sale and leaseback refinancing agreements), and had a capacity of 449,629 TEUs. Further, as of March 1, 2022, approximately 93 of ZIM’s chartered-in vessels are under long-term leases with a remaining charter duration of more than one year, as ZIM continues to actively manage its asset mix.
The following table provides summary information, as of December 31, 2021,2023, about ZIM’s fleet:
| | | | | | | | | | | | |
Vessels owned by ZIM | | | 4 | | | | 13,265 | | | | — | | | | 4 | |
Vessels chartered from parties related to ZIM | | | 10 | | | | 36,208 | | | | 1 | | | | 11 | |
Periods up to 1 year (from December 31, 2021) | | | 5 | | | | 15,548 | | | | | | | | 5 | |
Periods between 1 to 5 years (from December 31, 2021) | | | 5 | | | | 20,660 | | | | 1 | | | | 6 | |
Periods over 5 years (from December 31, 2021) | | | — | | | | — | | | | — | | | | — | |
Vessels chartered from third parties(2) | | | 96 | | | | 377,252 | | | | 7 | | | | 103 | |
Periods up to 1 year (from December 31, 2021) | | | 12 | | | | 60,417 | | | | 5 | | | | 17 | |
Periods between 1 to 5 years (from December 31, 2021) | | | 80 | | | | 293,770 | | | | 2 | | | | 82 | |
Periods over 5 years (from December 31, 2021) | | | 4 | | | | 23,065 | | | | | | | | 4 | |
Total(3) | | | 110 | | | | 426,725 | | | | 8 | | | | 118 | |
| | | | | | | | | | | | |
Vessels owned by ZIM | | | 9 | | | | 31,842 | | | | — | | | | 9 | |
Vessels chartered from parties related to ZIM | | | 1 | | | | 4,253 | | | | 2 | | | | 3 | |
Periods up to 1 year (from December 31, 2023) | | | 1 | | | | 4,253 | | | | 1 | | | | 2 | |
Periods between 1 to 5 years (from December 31, 2023) | | | — | | | | — | | | | 1 | | | | 1 | |
Periods over 5 years (from December 31, 2023) | | | — | | | | — | | | | — | | | | — | |
Vessels chartered from third parties | | | 118 | | | | 602,706 | | | | 14 | | | | 132 | |
Periods up to 1 year (from December 31, 2023) | | | 32 | | | | 105,526 | | | | — | | | | 32 | |
Periods between 1 to 5 years (from December 31, 2023) | | | 74 | | | | 355,584 | | | | 14 | | | | 88 | |
Periods over 5 years (from December 31, 2023) | | | 12 | | | | 141,596 | | | | — | | | | 12 | |
Total(1) | | | 128 | | | | 638,801 | | | | 16 | | | | 144 | |
_____________________________________
(1) | Includes 106 vessels accounted as right-of-use assets under the accounting guidance of IFRS 16.
|
(2) | Includes 96 vessels accounted as right-of-use assets under the accounting guidance of IFRS 16 and 4 vessels accounted under sale and leaseback refinancing agreements.
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(3) | Between January 1, 2022, and March 1, 2022, ZIM took ownership of additional two vessels (net, not including vessels pending delivery). For additional strategic charter agreements for vessels pending delivery, see “—ZIM’s vessel fleet—Strategic Chartering Agreements”.
|
(4) | Under ZIM’s time charters, the vessel owner is responsible for operational costs and technical management of the vessel, such as crew, maintenance and repairs including periodic drydocking, cleaning and painting and maintenance work required by regulations, and certain insurance costs. Transport expenses such as bunker and port canal costs are borne by ZIM. For some of the vessels that ZIM owns and for our vessels it charters under “bareboat” terms, ZIM provides its own operational and technical management services. ZIM’s operationalOperational management services include the chartering-in, sale and purchase of vessels and accounting services, while its technical management services include, among others, selecting, engaging, and training competent personnel to supervise the maintenance and general efficiency of itsZIM’s vessels; arranging and supervising the maintenance, drydockings, repairs, alterations and upkeep of itsthe vessels, in accordance with the standards developed by ZIM, the requirements and recommendations of each vessel’s classification society, and relevant international regulations and maintaining necessary certifications and ensuring that itsthe vessels comply with the law of their flag state. |
As of March 1, 2024, ZIM’s operated fleet included 150 vessels (134 container vessels and 16 vehicle transport vessels), of which 14 vessels are owned by ZIM and 136 vessels are chartered-in. ZIM’s owned and chartered container vessels had a capacity of 703,380 TEUs. As of March 1, 2023, this operated fleet included 24 new-build vessels out of a total of 46 new-build modern vessels long term chartered by us, with an additional 22 vessels expected to be delivered to us during 2024. Further, as of March 1, 2024, approximately 74.8 of ZIM’s chartered-in vessels (84.5% in terms of TEU capacity) are under long-term leases with a remaining charter duration of more than one year, as ZIM continues to actively manage its asset mix.
Strategic Chartering Agreements
Strategic Chartering AgreementLong term charter agreement for LNG-Fueled Vessels from Seaspan Corporation
In February 2021 ZIM and Seaspan Corporation entered into a strategic agreement with Seaspan for the long-term charter of ten 15,000 TEU liquified natural gas (LNG dual-fuel) container vessels, expected to be delivered between February 2023 and January 2024.vessels. Pursuant to the agreement, ZIM will charter the vessels for a period of 12 years and have secured anwith the option to later elect aextend it by additional charter period of 15 years to be applied to all chartered vessels. ZIM’s total cost during the term of the agreement will depend on the charter period and the initial payment ZIM selects to pay.periods. ZIM was further granted by Seaspan a right of first refusal to purchase the chartered vessels should Seaspan choose to sell them during the charter period, and an option to purchase the vessels at the end of the charter term. ZIM intends to deploy these vessels on its Asia-US East Coast Trade as an enhancement to its service on this strategic trade.
In addition, in July 2021 ZIM announced a second strategic agreement with Seaspan for the long-term charter with monetary valuefor a consideration in excess of $1.5 billion, of ten 7,000uniquely designed 7,700-class TEU LNG dual fuel container vessels with an option for additional 5five vessels, to serve across ZIM’s various global-niche trades, with vessels expected to be delivered during the fourth quarter of 2023 and throughout 2024.global niche trades. In September 2021 ZIM announced the exercise of an option granted to itZIM under this agreement to long-termlong term charter five additional 7,0007,700-class TEU LNG vessels, to be delivered during the third and fourth quarters of 2024, with this option valuedfor an additional consideration in excess of $750 million. Following the exercise of this option, the total vessels to be chartered under this second strategic agreement is fifteen.
To date, nine 15,000 TEU and five 8,420 TEU LNG dual fuel LNG container vessels have been delivered to ZIM announced that itwith the remaining vessels expected to be delivered during 2024. ZIM expects to incur, in annualized charter hire costs per vessel (in addition to down payments made on the delivery of each vessel), approximately $17 million in respect of the abovementioned 15,000 TEU vessels, and approximately $13 million in respect of the abovementioned 7,000 TEU vessels, over the term of the agreements, depending on the charter period elected.agreements.
Long-term charter agreement for LNG fueledLNG-fueled vessels from a shipping company affiliated with Kenon
In January 2022 ZIM entered into a new eight-year charter agreement with a shipping company that is affiliated with Kenon Holdings Ltd., its largest shareholder, according to which ZIM will charter three 7,0007,700-class TEU LNG dual-fuel container vessels to be deployed in its global-nicheglobal niche trades for a total consideration of approximately $400 million. The vessels will be constructed at Korean-based shipyard, Hyundai Samho Heavy Industries, with one 7,920 TEU LNG dual fuel vessel already delivered and the remaining vessels are scheduled to be delivered during the first and second quartershalf of 2024.
Charter agreement with Navios Maritime Holdings Inc.
In February 2022, ZIM and Navios Maritime Holdings Inc. entered into a charter agreement for the charter of thirteen container vessels comprising of five secondhand vessels and eight newbuild vessels of total charter hire consideration of approximately $870 million. The five secondhanded vesselssecondhand vessels’ capacity range from 3,500-4,3603,500 to 4,360 TEUs and are expected to bewere delivered induring the first and second quarter of 2022 and deployed across ZIM’s global network. TheToday two of the eight 5,300 TEU wide beam newbuilds are scheduled tohave been delivered and the rest will be delivered during the third quarter of 2023 through the fourth quarter of 2024 and are expected to be deployed in trades between Asia and Africa. The charter period of the secondhanded vessels is up to 4.5 years, whereas the charter duration of the newbuild vessels is up to 5.3approximately five years.
Charter agreement with MPC Container Ships ASA and MPC Capital AG
OnIn March 30, 2022 ZIM announced a new chartering agreement withand MPC Container Ships ASA for theand MPC Capital AG entered into a new charter ofagreement according to which ZIM will charter a total of six 5,500 TEU wide beam newbuild vessels for a period of seven years and a total charter hire consideration of approximately $600 million. The vessels will beare being constructed at a Korean-based shipyard HJ Shipbuilding & Construction (formally known as Hanjin Heavy Industries & Construction Co., and are scheduled). Three of these vessels have been delivered, with the remaining vessels to be delivered between May 2023 and Februarythroughout 2024. The vessels are expected to serve on ZIM’s expanded network of expedited services, as well as other regional services. The charter period of the vessels are 7 years.
ZIM’s containers
In addition to the vessels that itZIM owns and charters, ZIM owns and charters a significant number of shipping containers. As of December 31, 2021,2023, ZIM held 568,648508 thousand container units with a total capacity of 987,365approximately 885 thousand TEUs, of which 37%44% were owned by ZIM and 63%56% were leased (including 56%49% accounted as right-of-use assets). In some cases, the terms of theits leases provide that ZIM will have the option to purchase the container at the end of the lease term.
Container fleet management
ZIM aims to reposition empty containers in the most cost-efficient way in order to minimize its overall empty container moves and container fleet while meeting demand. Due to a natural imbalance in demand between trade areas, ZIM seeks to optimize its container fleet by repositioning empty containers at minimum cost in order to timely and efficiently meet its customers’ demands. ZIM’s global logistics team oversees the internal management of empty containers and equipment to support this optimization effort. In addition to repairing and maintaining ZIM’s container fleet, ZIM’sits logistics team continuously optimizes the flow of empty containers based on commercial demands and operational constraints. Below is a summary of ZIM’sits logistics initiatives relating to container fleet management:
| • | Slot swap agreements. ZIM enters into agreements with other carriers for the exchange of vessel space, or “slots.” Each carrier continues to operate“slots”, for repositioning of empty containers. Under these agreements, other carriers offer ZIM space on their own operated vessels, in exchange for space on its own line, while also having access to slots onvessels for the other carrier’s line.purpose of repositioning empty containers. ZIM currentlyhas greatly developed this type of cooperation. ZIM has slot swap agreements with 12 other carriers.15 carriers and exchange thousands of TEUs each year. |
| • | Slot sale agreements. ZIM sells slots on board its vessels to transport empty shipper-owned containers. |
| • | One-way container lease. ZIM uses leasing companies and other shipping liners’ empty containers to move cargo from locations with increased demand to over-supplied locations. ZIM is a global leader in one-way container volumes. |
| • | Equipment sub-leases. ZIM leases its equipment to other carriers and freight forwarders in order to reduce its container repositioning and evacuation costs. |
In January 2024, ZIM entered into an agreement with Hoopo to deploy Hoopo’s tracking device on ZIM’s dry-van container fleet, which offers its customers comprehensive tracking information including geofence alerts and open/close door notifications and more, while ensuring high reliability and durability combined with significant cost and energy efficiencies.
ZIM’s operational partnerships
ZIM is party to a large number of cooperation agreements with other shipping companies and alliances, which generally provide for the joint operation of shipping services by vessel sharing agreements, the exchange of capacity and the sale or purchase of slots on vessels operated by ZIM or other shipping companies. ZIM does not participate in any alliances, which are a type of vessel sharing agreement that involves joint operations of fleets of vessels and sharing of vessel space in multiple trades, although ZIM does partner with the 2M Alliance on two related trades,in a strategic cooperation as described below.
Strategic Cooperation Agreement with the 2M Alliance
In September 2018,April 2022 ZIM entered into a strategic operational cooperationamended and extended its agreement with the 2M Alliance to include the extension of its collaboration on the Asia-U.S. East Coast (USEC) and Asia-U.S. Gulf Coast (USGC) under a full slot exchange and vessel sharing agreement originally established in the Asia-USEC trade zone, which includes a joint network of five lines operated by ZIMSeptember 2018 and by the 2M Alliance. The term of the strategic cooperation is seven years.August 2019, respectively. The strategic cooperation originally includedon the creation ofAsia-USEC currently includes a joint network of five loops between Asia and USEC, out of which one is operated by ZIM (ZCP) and four are operated by the 2M Alliance. ZIM is currently in the process of upscaling its vessels on this service to 10 15,000 TEU LNG dual-fueled container vessels. In addition, ZIM and the 2M Alliance are permittedagreed to swap slots on all five loops under the agreement and ZIM maycould purchase additional slots in order to meet total demand in these trades. The strategic cooperation on the Asia-USGC currently includes two services, of which one is operated through a vessel sharing agreement, and one is operated by the 2M Alliance. ZIM has terminated its previous cooperation with the 2M Alliance established in March 2019 on the Asia—Mediterranean—and Asia - American Pacific Northwest and are currently serving the Asia-Mediterranean trade independently and the Asia-Pacific Northwest trade by a slot purchase from MSC and an independent service. Under its amended collaboration agreement with the 2M Alliance, ZIM or the 2M Alliance may terminate the agreement by providing a six-month prior written notice following the initial 12-month period from the effective date of the agreement (April 2022), and in any event, in accordance with the announcement made by the members of the 2M Alliance, the 2M Alliance will terminate in January 2025. This strategic cooperation with the 2M Alliance enables ZIM to provide its customers with improved port coverage and transit time, while generating cost efficiencies.
Operational Collaboration Agreement with MSC on Multiple Trades
In March 2019,July 2023 ZIM entered into a second strategic cooperationnew slot charter agreement with MSC on the 2M Alliance, which included a combination of vessel sharing, slot exchangeAsia-PNW trade. In September 2023, ZIM entered into new operational agreements with MSC, encompassing several trades and purchase, and covers two additional trade zones: Asia-East Mediterranean and Asia-American Pacific Northwest. Thisseven service lines. The cooperation agreement offers four dedicated lines with extensive port coverage and premium service levels. In August 2019, ZIM launched two new U.S.-Gulf Coast directscope includes services connecting the Indian Subcontinent with the 2M Alliance. AtEast Mediterranean (currently rerouted), the end of 2020, ZIM further upsizedEast Mediterranean with Northern Europe, and services connecting East Asia with Oceania. The joint services include a joint service by utilizing larger vessels on the Asia U.S. Gulf Coast service and the Asia-U.S. East Coast service and in June 2021, ZIM launched a new joint service line connecting from Yantian and Vietnam to U.S. South Atlantic ports via Panama Canal. In February 2022, ZIM announced its principal agreement with the 2M alliance to extend the existing collaboration agreement on the Asia-USEC and Asia-USGC under a full slot exchange and vessel sharing agreement, as well as to launch an independent pendulum service on the Asia-Mediterraneanslots swaps and Pacific Northwest trades, replacing its cooperation with the 2M Alliance on those trades effective asslot purchase arrangements. The agreements are in effect for a period of April, 2022. Under ZIM’s new collaboration agreement with the 2M, ZIM or the 2M Alliancetwo years, may not terminate the agreement during the first 18 months of the collaboration, butbe extended for additional periods and may terminate the agreementbe terminated by providing a six-month period prior written notice following the initial 12-month period fromprovided that such notice will not be given before 18 months after the effective date of the agreement, which is a shorter period compared to the original agreement terms.agreements.
The table below shows ZIM’s operational partners by geographic trade zone as of December 31, 2021:2023:
| | |
| | | | | | | | | | |
A.P. Moller-Maersk(1)
| | ✓(3) | | ✓(3)
| | ✓ | | | | ✓ |
Mediterranean Shipping Company(1)
| | ✓(3)
| | ✓(3)
| | | | ✓(4)
| | ✓ |
CMA CGM S.A. | | | | | | ✓ | | ✓ | | ✓ | | ✓ | | ✓ |
Evergreen Marine Corporation CMA CGM S.A.
| | | | | | ✓ | | | | |
Hapag-Lloyd AG(2)Evergreen Marine Corporation
| | | | | | ✓ | | ✓ | | ✓ |
China Ocean Shipping Company Hapag-Lloyd AG(2)
| | | | | | ✓ | | ✓ | | |
American President Lines Ltd. China Ocean Shipping Company (COSCO)
| | | | | | ✓ | | ✓ | | |
ONE
| | | | | | ✓ | | ✓ | | |
Orient Overseas Container Line Limited (OOCL) | | | | | | ✓ | | | | |
Yang Ming Marine Transport Corporation(2)
| | | | | | ✓ | | ✓ | | |
Hyundai Merchant Marine Co., Ltd.
| | | | | | ✓ | | | | |
Others
| | | | | | ✓ | | | | ✓ |
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(1) | ZIM’s cooperation with Maersk and MSC is under the 2M Alliance framework. However, in the Cross-Suez trade, Atlanticframework, except: (i) its collaboration agreements with MSC as of July and Latin America, ZIM also has aSeptember 2023 (as detailed above); (ii) its separate bilateral cooperation agreement with MSC as well as ain the Latin America; and (iii) its separate bilateral cooperation agreement with Maersk and in the Latin America and Intra AsiaIntra-Asia trades. |
(2) | With respect to the Atlantic-Europe trade, ZIM has a swap agreement with some of THE Alliance members:member Hapag-Lloyd, and Yang Ming, supporting ZIM loadings on THE Alliance service on this trade. ZIM also has a separate bilateral agreement inwith respect ofto the Atlantic-Europe trade with Hapag-Lloyd. Hapag-Lloyd in its standalone capacity. |
(3) | Cooperation to terminate effective as of April 2022.
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(4) | Cooperation terminated in February 2022.
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ZIM’s Customers
In 2021,2023, ZIM had more than 36,00032,600 customers using its services on(on a non-consolidated basis.basis) using ZIM’s service. ZIM’s customer base is well-diversified, and itZIM does not depend upon any single customer for a material portion of its revenue. For the twelve monthsyear ended December 31, 2021,2023, no single customer represented more than 5%2% of ZIM’sits revenues.
ZIM’s customers are divided into “end-users,” including exporters and importers, and “freight forwarders.” Exporters include a wide range of enterprises, from global manufacturers to small family-owned businesses that may ship just a few TEUs each year. Importers are usually the direct purchasers of goods from exporters, but may also comprise sales or distribution agents and may or may not receive the containerized goods at the final point of delivery. Freight forwarders are non-vessel operating common carriers that assemble cargo from customers for forwarding through a shipping company. End-users generally have long-term commitments that facilitate planning for future volumes, which results in high entry barriers for competing carriers due to customer loyalty. Freight forwarders have short-term contracts at renegotiated rates. As a result, entry barriers are low for competing carriers for this customer base.
During the last five years, end-users have constituted approximately 36%30% of ZIM’s customers in terms of TEUs carried, and the remainder of its customers were freight forwarders. ZIM’s contracts with its main customers are typically for a fixed term of one year on all trades. ZIM’s contracts with customers may be for a certain voyage or period of time and typically do not include exclusivity clauses in its favor.
For the years ended December 31, 2021, 20202023, 2022 and 2019,2021, ZIM’s five largest customers in the aggregate accounted for approximately 12%6%, 10%, and 9%12% of its freight revenues and related services, respectively, and 8%7%, 7%6% and 7%8% of ZIM’sits TEUs carried for each year.
Suppliers
Vessel owners
As of December 31, 2021,2023, ZIM has contractual agreements to charter-inchartered approximately 96.9%95.0% of its TEU capacity and 96.6%93.8% of the vessels in its fleet. Access to chartered-in vessels of varying capacities, as appropriate for each of the trades in which ZIM operates,operate, is necessary for the operation of its business. Although ZIM has increased the number of its chartered vessels during 2021 and have entered into strategic chartering agreements, charter rates are currently at significant elevated levels for all vessel sizes, with shortage of available vessels for hire. See “Item 3.D 3.D—Risk factors—Risks Related to Operating ZIM’s Vessel Fleet—Factors—ZIM charters-in most of its fleet, which makes it more sensitive to fluctuations in the charter market, and as a result of its dependency on the vessel charter market, the costs associated with chartering vessels are unpredictableunpredictable., and” ZIM may face difficulties in chartering or owning enough vessels, including large vessels, to support its growth strategy due to thea possible shortage of vessel supplyfor hire in the market.”future.
Port operators
ZIM has Terminal Services Agreements (TSAs) with terminal operators and contractual arrangements with other relevant vendors to conduct cargo operations in the various ports and terminals that itZIM uses around the world. Access to terminal facilities in each port is necessary for the operation of ZIM’sits business. Although ZIM believes it has been able to contract for sufficient capacity at appropriate terminal facilities in the past five years, the current highpossible increase in demand, and severe congestion in ports and terminals and other geopolitical and macroeconomic events may increase its costs and dependency on berthing windows in terminals. See “Item 3.D Risk factors—Risks RelatedThis dependency is especially critical for express or expediated services such as its ZEX service connecting China and southeast Asia to Our Interest in ZIM—Access to ports could be limited or unavailable, including due to congestion in terminalsthe U.S. west coast, where the speed of service and inland supply chains, and ZIM may incur additional costs asavoiding bottlenecks is a result thereof.”key factor for its customers.
Bunker suppliers
ZIM has contractual agreements to purchase approximately 90%80% of its annual bunker estimated requirements with suppliers at various ports around the world. ZIM has been able to secure sufficient bunker supply under contract or on a spot basis. For its strategic agreement with Shell and risks relating to the supply of LNG see “Item 3.D—Risk factors—Rising energy and bunker prices (including LNG) may have an adverse effect on its results of operations.”
Land transportation providers
ZIM has services agreements with third-party land transportation providers, including providers of rail, truck and river barge transport. ZIM has entered intois a party to a rail services agreement with CN for land transportationsome of its shipments destined for Canada and the Class-1 service providers to main inland locations in United States via Vancouver and Halifax, Canada.
ZIM’s Sustainability and Focus on ESG
Through itsZIM’s core value of sustainability, and in accordance with its codeCode of ethics,Ethics, ZIM aims to uphold and advance a set of principles regarding Ethical, Socialenvironmental, social and Environmental concerns.governance concerns, and with its supplier code of conduct ZIM aims to withhold a strong, secure and responsible supply chain. ZIM’s goal is to work resolutely to eliminate corruption risks, promote diversity among its teams and continuously reduce the environmental impact of its operations, both at sea and onshore. In particular, ZIM’sFurthermore, ZIM has elected to enter into long term charter transactions of LNG dual-fuel vessels to reduce pollutant emissions as a result of bunker consumption, and five of these vessels are also partly ready to be powered by Ammonia in full compliance with materials and waste treatment regulations, including full compliance with the IMO 2020 Regulations, and ZIM’s fuel consumption and CO2 emissions per TEU have decreased significantly in recent years. Furthermore, during 2021, ZIM has entered into strategic agreements with Seaspan for the long-term charter of tern 15,000 TEU and fifteen 7,000 TEU LNG dual-fueled vessels, and an eight-year charter of three 7,000 TEU LNG dual-fuel fromevent it will become a shipping company affiliated with its largest shareholder (See “ZIM—Strategic Chartering Agreements”).feasible “cleaner” fuel. In addition to actively working to reduce accidents and security risks in its operations, ZIM also endeavors to eliminate corruption risks as a member of the Maritime Anti-Corruption Network (MACN), with a vision of a maritime industry that enables fair trade. ZIM also fosters quality throughout the service chain, by selectively working with qualified partners to advance its business interests. Finally, ZIM promotes diversity among its teams, with a focus on developing high-quality training courses for all employees. ZIM has invested efforts and resources in promoting diversity in theits company, such as monitoring gender diversity of theits company on an annual basis, collaborating with nonprofit organization to increase the hiring of employees from diverse backgrounds and with disabilities, participating in special events to raise awareness to diversity and globally communicating its efforts, both internally and externally. As ZIM continues to grow, sustainability remains as itsa core value. ZIM expects ESG regulation will intensify in the future.
ZIM’s Competition
ZIM competes with a large number of global, regional and niche shipping companies to provide transport services to customers worldwide. In each of its key trades, ZIM competes primarily with global shipping companies. The market is significantly concentrated with the top three carriers –— A.P. Moller-Maersk Line, MSC and COSCO –CMA-CGM — accounting for approximately 46.5%46.7% of global capacity, and the remaining carriers together contributing 53.5%53.3% of global capacity as of February 2022,December 2023, according to Alphaliner. As of February 2022,December 2023, ZIM controlled approximately 1.7%2.1% of the global cargo shipping capacitycapacity and rankedranked 10th among shipping carriers globally in terms of TEU operated capacity, according to Alphaliner. See “Item 3.D Risk factors—The container shipping industry is highly competitive and competition may intensify even further, which could negatively affect ZIM’s market position and financial performance.”
In addition to the large global carriers, regional carriers generally focus on a number of smaller routes within a regional market and typically offer services to a wider range of ports within a particular market as compared to global carriers. Niche carriers are similar to regional carriers but tend to be even smaller in terms of capacity and the number and size of the markets in which they operate. Niche carriers often provide an intra-regional service, focusing on ports and services that are not served by global carriers.
ZIM’s Seasonality
ZIM’s business has historically been seasonal in nature. As a result, ZIM’s average freight rates have reflected fluctuations in demand for container shipping services, which affect the volume of cargo carried by ZIM’sits fleet and the freight rates which ZIM charges for the transport of such cargo. ZIM’s income from voyages and related services are typically higher in the third and fourth quarters than the first and second quarters due to increased shipping of consumer goods from manufacturing centers in Asia to North America in anticipation of the major holiday period in Western countries. The first quarter is affected by a decrease in consumer spending in Western countries after the holiday period and reduced manufacturing activities in China and Southeast Asia due to the Chinese New Year. However, operating expenses such as expenses related to cargo handling, charter hire of vessels, fuel and lubricant expenses and port expenses are generally not subject to adjustment on a seasonal basis. As a result, seasonality can have an adverse effect on ZIM’s business and results of operations.
Recently, as a result of the continuing volatility within the shipping industry, seasonality factors have not been as apparent as they have been in the past. As global trends that affect the shipping industry have changed rapidly in recent years, including trends resulting from the COVID-19 pandemic and other geopolitical events, it remains difficult to predict these trends and the extent to which seasonality will be a factor impacting ZIM’s results of operations in the future.
ZIM’s Legal Proceedings
For information on ZIM’s legal proceedings, see Note 27 to ZIM’s audited consolidated financial statements that have been incorporated by reference herein. In respect of the alleged patent infringement claim against ZIM, as disclosed in Note 27(h) to ZIM’s audited consolidated financial statements, in March 2022, the plaintiff voluntarily withdrew the claim and the proceeding has been terminated.
ZIM’s Regulatory Matters
Environmental and other regulations in the shipping industry
Government regulations and laws significantly affect the ownership and operation of ZIM’s vessels. ZIM is subject to international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which ZIM’s vessels operate or are registered relating to the protection of the environment. Such requirements are subject to ongoing developments and amendments and relate to, among other things, the storage, handling, emission, transportation and discharge of hazardous and non-hazardous substances, such as sulfur oxides, nitrogen oxides and the use of low-sulfur fuel or shore power voltage, and the remediation of contamination and liability for damages to natural resources. These laws and regulations include OPA 90, CERCLA, the CWA, the U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (CAA), and regulations adopted by the International Maritime Organization (IMO),IMO, including the International Convention for Prevention of Pollution from Ships (MARPOL), and the International Convention for Safety of Life at Sea (the SOLAS Convention), as well as regulations enacted by the European Union and other international, national and local regulatory bodies. Compliance with such requirements, where applicable, entails significant expense, including vessel modifications and implementation of certain operating procedures. If such costs are not covered by ZIM’s insurance policies, ZIM could be exposed to high costs in respect of environmental liability damages, administrative and civil penalties, criminal charges or sanctions, and could suffer substantive harm to its operations and goodwill to the extent that environmental damages are caused by its operations. ZIM instructs the crews of its vessels on environmental requirements and it operates in accordance with procedures that are intended to ensure compliance with such requirements. ZIM also insures its activities, where effective for ZIM to do so, in order to hedge its environmental risks.
In July 2021 the European Commission presented its ‘Fit for 55’ package, which includes, among others, a legislative proposal to apply the EU emissions Trading System (ETS) on maritime shipping. ETS are market-based “cap and trade” scheme in which entities trade emissions rights within an area under a cap placed on the quantity of specified pollutants. ZIM expects to incur additional expenses as a result if and when this proposal becomes effective, and ZIM may not be able to recover or minimize its additional costs by increasing its fees ZIM collects from its customers.
The European Union’s Emissions Trading System, or ETS, which entered into effect on January 1, 2024, sets a limit on the total amount of greenhouse gases that we as a shipping company are permitted to emit on route to or from European Union members’ ports. Such cap is expressed in emission allowances, where one allowance gives the right to emit one ton of carbon dioxide equivalent. Each year, ZIM will be required to surrender enough allowances to fully account for ZIM’s emissions, otherwise ZIM will be subject to heavy fines. The ETS Regulations require ZIM to purchase and surrender allowances equal to a percentage of ZIM’s emissions that gradually increases over time, from 40% of reported emissions in 2024 to 100% of reported emissions in 2026. ZIM anticipates it will be required to purchase allowances from the EU carbon market on an ongoing basis, which will increase ZIM’s operating costs. ZIM has taken measuresimplemented a New Emission Factor, or NEF, surcharge, intended to complypass on to customers the additional costs associated with compliance with the ETS Regulations, however there is no assurance that this surcharge will enable ZIM to mitigate the possible increase costs in full or at all. The IMO Ballast Water regulations.2020 Regulations, the ETS and any future air emissions regulations with which ZIM has taken measuresmust comply may cause ZIM to comply with the amendments of the IMO’s International Maritime Dangerous Goods (IMDG) code, and the amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL).incur substantial additional operating costs.
ZIM is alsohas been, and continues to be, subject to Israeli regulation regarding, amonginvestigations and party to legal proceedings relating to competition concerns. In recent years, a number of liner shipping companies, including ZIM, have been the subject of antitrust investigations in the U.S., the EU and other things, national securityjurisdictions into possible anti-competitive behavior. Furthermore, the spike in freight rates and related charges during 2020 and 2021 following the COVID-19 pandemic outbreak has resulted in increased scrutiny by governments and regulators around the world, including U.S. President Biden's administration and the mandatory provision of ZIM’s fleet, environmental and sea pollution,FMC in the U.S., and the Israeliministry of transportation in China. In the U.S., the Ocean Shipping Law (Seamen)Reform Act of 1973,2022 (OSRA) signed into law in June 2022 requires ZIM and all other carriers to immediately implement certain requirements in detention and demurrage invoices, which regulates matters concerning seamen,if not included will eliminate any obligation of the charged party to pay the charge, including certifying that all detention and demurrage invoices are issued in compliance with the FMC’s Interpretive Rule on Detention and Demurrage of May 18, 2020. These requirements in detention and demurrage invoices may affect ZIM’s ability to effectively collect these fees from ZIM’s customers, heighten the risk of civil litigation and adversely affect ZIM’s financial results. OSRA further mandates a series of rule-making projects by FMC, including: (i) defining prohibited practices by common carriers and other industry players when assessing detention and demurrage; (ii) defining what is an “unreasonable” refusal of cargo space, as well as unfair or unjustly discriminatory methods; (iii) defining what is “unreasonable refusal” to deal or negotiate with respect to vessel space, and (iv) authorizing the FMC to determine “essential terms” that are deemed by FMC necessary to be included in maritime shipping service. Subsequently, the FMC published in June 2023 a proposed rule that defines when it is unreasonable for a carrier to deny cargo space accommodations when those are available, and in February 2023 published a final rule that prohibits the collection of detention and demurrage from U.S. truckers and consignees on import. In addition to the FMC rulemaking projects, other new legislation initiatives have been introduced in Congress, which, if passed, could further restrict ZIM’s commercial position vis-à-vis supply chain providers and customers, create new regulatory (including environmental) requirements, as well as cancel or limit the applicable U.S. Shipping Act antitrust exemptions. Any new rule issued by the FMC addressing these topics or other legislative-related initiatives may have an adverse effect on ZIM’s business and financial results, including on ZIM’s ability to negotiate commercial terms with ZIM’s customers in ZIM’s favor and ZIM’s ability to collect ZIM’s fees in exchange for ZIM’s services. If ZIM is found to be in violation of the applicable regulation, ZIM could be subject to various sanctions, including monetary sanctions. Specifically, in September 2022, an FMC complaint was filed against ZIM claiming ZIM overcharged detention and demurrage fees in violation of the FMC’s interpretive Rule on Detention and Demurrage of May 18, 2020, and is currently in discovery stages.
ZIM’s operations involving the European Union are subject to EU competition rules, particularly Articles 101 and 102 of the Treaty on the Functioning of the European Union, as modified by the Treaty of Amsterdam and Lisbon. Article 101 generally prohibits and declares void any agreement or concerted actions among competitors that adversely affects competition. Article 102 prohibits the abuse of a dominant position held by one or more shipping companies. However, certain joint operation agreements in the shipping industry such as vessel sharing agreements and slot swap agreements are block exempted from certain prohibitions of Article 101 by Commission Regulation (EC) No 906/2009 as amended by Commission Regulation (EU) No 697/2014 and in effect until April 2024 (Consortia Block Exemption Regulation, or “CBER”). This regulation permits joint operation of services among competitors under certain conditions, with the exception of price fixing, capacity and sales limitation and allocation of markets and customers, under certain conditions. During 2022, the European Union launched a legal review of the CBER to decide whether to renew, modify or allow the CBER to lapse. A similar review was also initiated by the UK competition authority. In October 2023, the EU competition authority, or the DG Competition, announced its intention not to renew the CBER following its expected expiry in April 2024. Following the expiry of the CBER, operational agreements remain legally permitted if they fall within the conditions of Article 101 of Treaty on the Functioning of the European Union and are subject to a self-assessment. A similar decision was taken by the United Kingdom’s Competition and Markets Authority (CMA) not to enact a UK block exemption that will replace the CBER following the Brexit. Although ZIM currently does not believe the non-renewal of the block exemptions regulation in the EU and UK will have a material impact on its operations as currently conducted, the non-renewal is expected to increase legal costs, increase legal uncertainty and delay the implementation of operational cooperation agreements between carriers, thus potentially limiting ZIM’s ability to enter into cooperation arrangements with other carriers. In addition, the non-renewal or modification of the existing CBER may adversely affect the review and renewal processes of similar block exemptions regulations in other jurisdictions, and may contribute to the shortening of block exemption regulation effective periods in other jurisdictions. See Item 3.D “Risk Factors—ZIM is subject to competition and antitrust regulations in the countries where ZIM operates, has been subject to antitrust investigations by competition authorities in the past and may be subject to antitrust investigations in the future. Moreover, ZIM relies on applicable competition exemptions for operational agreement with other carriers, and the termsrevocation of these exemptions could negatively affect ZIM’s business.”
MARPOL Annex IV was amended effective as of November 1, 2022 and requires vessels to improve their eligibilityenergy efficiency and work procedures.greenhouse gas emissions (GHG). See “Item 3.D Risk Factors—Risks Related to Regulation—Regulations relating to ballast water discharge may adversely affect ZIM’s results of operation and financial condition.”
ZIM’s Special State Share
When the State of Israel sold 100% of its interest in ZIM in 2004 to IC, ZIM ceased to be a “mixed company” (as defined in the Israeli Government Companies Law, 5735-1975) and issued a Special State Share to the State of Israel whose terms were amended as part of the Company’sZIM’s 2014 debt restructuring. The objectives underlying the Special State Share are to (i) safeguard ZIM’s existence as an Israeli company, (ii) ensure ZIM’s operating ability and transport capacity so as to enable the State of Israel to effectively access a minimal fleet in a time of emergency or for national security purposes and (iii) prevent elementsparties hostile to the State of Israel or elementsparties liable to harm the State of Israel’s interest in ZIM or its foreign or security interests or its shipping relations with foreign countries, from having influence on ourits management. The key terms and conditions of the Special State Share include the following requirements:
ZIM must be, at all times, a company incorporated and registered in Israel, with its headquarters and principal and registered office domiciled in Israel.
Subject to certain exceptions, ZIM must maintain a minimal fleet of 11 seaworthy vessels that are fully owned by ZIM, either directly or indirectly through its subsidiaries, at least three of which must be capable of carrying general cargo. Subject to certain exceptions, any transfer of vessels in violation thereof shall be invalid unless approved in advance by the State of Israel pursuant to the mechanism set forth in ZIM’s amended and restated articles of association. Currently, as a result of waivers received from the State of Israel, ZIM owns fewer vessels than the minimum fleet requirement.
At least a majority of the members of ZIM’s board of directors, including the chairperson of the board and ZIM’s chief executive officer, must be Israeli citizens.
The State of Israel must provide prior written consent for any holding or transfer or issuance of shares that confers possession of 35% or more of ZIM’s issued share capital, or that provides control over ZIM, including as a result of a voting agreement.
Any transfer of shares that confers its owner with a holding of more than 24% but not more than 35% of ZIM’s issued share capital will require an advance notice to the State of Israel which will include full details regarding the proposed transferor and transferee, the percentage of shares to be held by the transferee after the transfer and relevant details regarding the transaction, including voting agreements and agreements for the appointment of directors (if any). If the State of Israel shall be of the opinion that the transfer of shares may possibly harm the security interests of the State of Israel or any of its vital interests or that it has not received the relevant information for the purpose of reaching its decision, the State of Israel shall be entitled to serve notice, within 30 days, that it objects to the transfer, giving reason for its objection. In such circumstances, the party requesting the transfer may initiate proceedings in connection with this matter with the competent court, which will consider and rule on the matter.
The State of Israel must consent in writing to any winding-up, merger or spin-off, except for certain mergers with subsidiaries that would not impact the Special State Share or the minimal fleet.
ZIM must provide governance, operational and financial information to the State of Israel similar to information that ZIM provides to its ordinary shareholders. In addition, ZIM must provide the State of Israel with particular information related to ZIM’s compliance with the terms of the Special State share and other information reasonably required to safeguard the State of Israel’s vital interests.
Any amendment, review or cancellation of the rights afforded to the State of Israel by the Special State Share must be approved in writing by the State of Israel prior to its effectiveness.
Other than the rights enumerated above, the Special State Share does not grant the State any voting or equity rights. The full provisions governing the rights of the Special State Share appear in ZIM’s amended and restated articles of association. ZIM reports to the State of Israel on an ongoing basis in accordance with the provisions of itsZIM’s amended and restated articles of association. Certain asset transfer or sale transactions that in ZIM’s opinion require approval, have received the approval of the State (either explicitly or implicitly by not objecting to ZIM’s request).
Kenon’s ownership of ZIM’s shares is subject to the terms and conditions of the Special State Share, which limit Kenon’s ability to transfer its equity interest in us to third parties. The holder of ZIM’s Special State Share has granted a permit or the Permit,(the “Permit”), to Kenon and Mr. Idan Ofer, individually and collectively referred to in this paragraph as a “Permitted Holder” of ZIM’s shares, pursuant to which the Permitted Holders may hold 24% or more of the means of control of ZIM (but no more than 35% of the means of control of ZIM), and only to the extent that this does not grant the Permitted Holders control in ZIM. The Permit further stipulates that it does not limit the Permitted Holder from distributing or transferring ZIM’s shares. However, the terms of the Permit provide that the transfer of the means of control of ZIM is limited in instances where the recipient is required to obtain the consent of the holder of ZIM’s Special State Share, or is required to notify the holder of ZIM’s Special State Share of its holding of ZIM’s ordinary shares pursuant to the terms of the Special State Share, unless such consent was obtained by the recipient or the State of Israel did not object to the notice provided by the recipient. In addition, the terms of the Permit provide that, if Mr. Idan Ofer’s holding interest in Kenon, directly or indirectly, falls below 36% or if Mr. Idan Ofer ceases to be the sole controlling shareholder of Kenon, then the shares held by Kenon will not grant Kenon any right in respect of its ordinary shares that would otherwise be granted to an ordinary shareholder holding more than 24% of ZIM’s ordinary shares (even if Kenon holds a greater percentage of ZIM’s ordinary shares), until or unless the State of Israel provides its consent, or does not object to, such decrease in holding interest or control in Kenon. “Control”,“Control,” for the purposes of the Permit, shall bear the meaning ascribed to it in the Permit with respect to certain provisions. Additionally, the State of Israel may revoke Kenon’s permit if there is a material change in the facts upon which the State of Israel’s consent was based, or upon a breach of the provisions of the Special State Share by Kenon, Mr. Idan Ofer, or ZIM. According to the Permit, the obligations of the Permitted Holder under the Permit will apply only for as long as the Permitted Holder holds more than 24% of ZIM’s shares.
Discontinued Operations — Inkia Business
Sale of the Inkia Business
Share Purchase Agreement
In November 2017, Kenon, through its subsidiaries Inkia and IC Power Distribution Holdings Pte. Ltd. (“ICPDH”), or ICPDH, entered into a share purchase agreement with Nautilus Inkia Holdings LLC which is an entity controlled by I Squared Capital, pursuant to which Inkia and ICPDH agreed to sell all of their interests in power generation and distribution companies in Latin America and the Caribbean (the “Inkia Business”). The sale was completed in December 2017.
The consideration for the sale was $1,332 million, consisting of (i) $935 million cash proceeds paid by the buyer, (ii) retained cash at Inkia of $222 million, and (iii) $175 million, which was deferred in the form of a Deferred Payment Obligation, which was repaid (prior to scheduled maturity) in October 2020. The consideration was subject to post-closing adjustments which were not significant. The buyer also assumed Inkia’s obligations under Inkia’s $600 million 5.875% Senior Unsecured Notes due 2027.
The consideration that Inkia received in the transaction was before estimated transaction costs, management compensation, advisor fees, other expenses and taxes, were in the aggregate approximately $263 million, of which $27 million comprised taxes to be paid upon payment of the $175 million Deferred Payment Obligation. The estimated tax payment includes taxes payable in connection with a restructuring of some of the companies remaining in the Kenon group, which is intended to simplify Kenon’s holding structure. As a result of this restructuring, Kenon now holds its interest in OPC directly. Kenon does not expect any further tax liability in relation to any future sales of its interest in OPC.
Use of Proceeds of Transaction
In January 2018, Kenon used a portion of the proceeds of the transaction to repay debt of IC Power ($43 million of net debt outstanding), and to repay its loan facility with IC ($240 million including accrued interest, and $3 million withholding tax).
In addition, in March 2018, Kenon distributed $665 million in cash to its shareholders.
Indemnification
In the share purchase agreement for the sale, the sellers, Inkia and ICPDH, gave representations and warranties in respect of the Inkia Business and the transaction. Subject to specified deductibles, caps and time limitations, the sellers agreed to indemnify the buyer and its successors, permitted assigns, and affiliates, and its officers, employees, directors, managers, members, partners, stockholders, heirs and personal representatives from and against any and all losses arising out of:
prior to their expiration in July 2019 (or December 2020 in the case of representations relating to environmental matters), a breach of any of the sellers’ representations and warranties (other than fundamental representations) up to a maximum amount of $176.55 million;
prior to their expiration upon the expiration of the statute of limitations applicable to breach of contract claims in New York, a breach of any of the sellers’ covenants or agreements set forth in the share purchase agreement;
prior to their expiration thirty days after the expiration of the applicable statute of limitations, certain tax liabilities for pre-closing periods and certain transfer taxes, breach of certain tax representations and the incurrence of certain capital gain taxes by the transferred companies in connection with the transaction; and
without limitation with respect to time, a breach of any of the sellers’ fundamental representations (including representations relating to due authorization, ownership title, and capitalization).
The sellers’ obligation to indemnify Nautilus Inkia Holdings LLC shall not exceed the base purchase price. The sellers’ indemnification obligations for any claims under the share purchase agreement that were agreed between the buyer and the sellers, or that were subject to a final non-appealable judgment, were supported by the following:
Kenon’s pledge of OPC shares representing 29% of OPC’s outstanding shares as of March 31, 2021, which pledge was agreed to expire on December 31, 2021; and
to the extent any obligations remain outstanding after the exercise of the above-described pledge (or payments of amounts equal to the value of the pledge), a corporate guarantee from Kenon which guarantee expires on December 31, 2021.
The indemnification obligations were previously also supported by a deferred payment agreement owing from the buyers to the sellers, which was, however, repaid in October 2020 (prior to scheduled maturity).
Pledge Agreement with respect to OPC Shares
In connection with the sale of the Inkia Business, IC Power (which was the holder of Kenon’s shares in OPC at the time of the sale) entered into a pledge agreement with the buyer of the Inkia Business (Nautilus Inkia Holdings LLC) to pledge OPC shares (at the time representing 25% of OPC’s outstanding shares) in favor of the buyer to secure the sellers’ indemnification obligations under the share purchase agreement for the sale. Following the salehad been secured by a pledge of the Inkia Business, IC Power transferred all of its shares in OPC, to Kenon. As a result, Kenon and the buyer entered into an amended pledge agreement, pursuant toall of which Kenon became the pledgor and assumed IC Power’s obligations under the pledge agreement. The pledge agreement was further amended in October 2020 in connection with the early repayment of the deferred payment agreement to increase the amount of pledged shares and the term of the pledge, and the pledged shares represented 29% of the outstanding shares of OPC as of February 27, 2022). Following the amendment of the pledge agreement in October 2020, Kenon had pledged 55 million shares of OPC. In accordance with the pledge agreement, 53.5 million shares of OPC werehave now been released from the pledge and 1.5 million shares of OPC remain pledged in light of an indemnity claim relating to a tax assessment claim in the amount of $11 million.
Side Letter Entered into in connection with the Repayment of the Deferred Payment Agreement
In October 2020, Kenon received the full amount of the deferred consideration amount (approximately $218 million (approximately $188 million net of taxes))parties have settled certain minor claims under the Deferred Payment Agreement prior to the due dateagreement for such payment (December 2021). In connection with the agreement with the buyer of the Inkia Business to repay the Deferred Payment Agreement prior to scheduled maturity,an immaterial amount and the parties agreed to increase the number of OPC shares pledgedhave released each other from 32,971,680 to 55,000,000 shares and to extend the OPC Pledge and the corporate guarantee by one year until December 31, 2021. In addition, Kenon entered into a side letter pursuant to which Kenon agreed that, until December 31, 2021, it would maintain at least $50 million in cash and cash equivalents, and agreed to restrictions on indebtedness at the Kenon level not to exceed $3 million, subject to certain exceptions. This letter terminated on December 31, 2021.
Kenon Guarantee
Pursuant to a guarantee agreement entered into in December 2017, Kenon had agreed to guarantee payment of Inkia’s and ICPDH’s payment obligationsfurther claims under the share purchase agreement relating to the sale of the Inkia Business, including all of their indemnification obligations, subject to certain conditions. The guarantee was only enforceable to the extent that there remain payment obligations under the share purchase agreement after the buyer had exhausted in full its rights under the OPC share pledge and the deferred payment agreement as described above. Following extension of the guarantee as part of the side letter in connection with the repayment of the Deferred Payment Agreement, the guarantee expired on December 31, 2021.agreement.
Claims Relating to the Inkia Business
Set forth below is a description of the investment treaty claims that are being or may be pursued by Kenon or its subsidiaries and the other claims related to of the Inkia Business to which Kenon or its subsidiaries have rights.subsidiaries.
The claims require funding for legal expenses and Kenon is considering its options with respect to meeting these funding needs, including potentially third-party funding for such claims in exchange for a portion of the awards or settlements (which it has done, as described below). Kenon may also sell its rights under or the rights to proceeds resulting from claims.
Bilateral Investment Treaty (“BIT”) Claims Relating to Peru
In June 2017 and November 2018, IC Power and Kenon respectively sent Notices of Dispute to the Republic of Peru under the Free Trade Agreement between Singapore and the Republic of Peru, or the FTA, relating to two disputes described below, based on events that occurred while Kenon, through IC Power, owned and operated their Peruvian subsidiaries Kallpa and Samay I, later sold as part of the Inkia sale. In AprilThe first concerned Secondary Frequency Regulation (or “SFR”) and the second concerned the use of the secondary and complementary transmission systems (“Transmission Tolls”). The claims are described in detail in prior disclosures.
On June 12, 2019, IC Power and Kenon notified the Republic of Peru of their intent to submit the disputes to arbitration pursuant to the FTA. In June 2019, IC Power and Kenon submitted the disputes to arbitration beforefiled a Request for Arbitration with the International Centre for Settlement of Investment Disputes. In June 2020,Disputes (“ICSID”) against Peru alleged breaches of the FTA. On October 4, 2023, an arbitration tribunal constituted by ICSID delivered a final award (the “Award”). The arbitration tribunal concluded that Peru's resolution relating to secondary frequency regulation breached Peru's obligations under Article 10.5 of the Free Trade Agreement. The tribunal dismissed the claim relating to transmission tolls. Pursuant to the Award, Peru has been ordered to pay Kenon and IC Power a total of $110.7 million in damages together with $5.5 million in fees and Kenon submitted a Memorialcosts and pre-award and post-award interest. In accordance with the Award, pre-award interest is payable on the Merits, claiming compensationAward from November 24, 2017 to the date of the Award at Peru’s cost of debt, and post-award interest is payable from the date of the Award at the same rate. Pursuant to Article 49 of the ICSID Convention, the parties have submitted requests seeking rectification of and/or supplementation to the Award relating to the Tribunal’s award of interest and costs. These requests do not impact the Tribunal’s principal award of damages. Pursuant to the ICSID Convention, Peru has 120 days from the date of any decision rendered in excess of $200 million. In February 2021, Peru submitted a Counter-Memorialconnection with the parties’ Article 49 requests to file an application to annul the Award on the Meritslimited grounds established by the ICSID Convention.
On November 14, 2023, Kenon and a Memorial on Jurisdiction. After a further exchange of written pleadings,IC Power filed an action in the final oral hearing was held virtually from 13 to 20 December 2021. There is no fixed deadlineU.S. District Court for the issuanceDistrict of Columbia seeking recognition of and the award. Set forth below is a summaryentry of judgment on the claims.Award in the United States.
IC Power and Kenon have entered into an agreement with a capital provider to provide capital for expenses in relation to the pursuit of their arbitration claims against the Republic of Peru and other costs. The obligations of Kenon and IC Power are secured by pledges relating to the agreement. Security has been provided relating to the obligations of Kenon and IC Power. The agreement contains certain representations and covenants by IC Power and the Kenon and events of default in event of breach of such representations and covenants.
In the event that Kenon or IC Power receivedreceives proceeds from a successful awardin connection with the Award or settlement of their claims,thereof, the capital provider will be entitled to be repaid the amount committed by the capital provider and to receive a portion of the claim proceeds.
Secondary Frequency Regulation Claim
The Secondary Frequency Regulation, or SFR, is a complementary service requiredcapital provider will be entitled to adjust power generation in orderbe repaid the amount committed by the capital provider (which to maintain the frequencydate has equaled $12 million) and to receive up to approximately 55% of the system in certain situations. In March 2014, OSINERGMIN (the mining and energy regulator in Peru) approved Technical Procedure 22, or PR 22, establishing thatnet claim proceeds, subject to the SFR would be provided through a firm and variable base provision. The firm base provisionterms of the SFR would have priority in the daily electricity dispatch to keep turbines permanently on to respond to frequency changes in the system. OSINERGMIN provided that the SFR service would be tendered through a bid.
Kallpa submitted a bid offering to provide the firm base provision of SFR. In April 2016, Kallpa was awarded the SFR firm base provision for three years, from August 2016 until July 2019 on an exclusive basis, independently of its declared generation costs, and in exchange for a reserve assignment price of zero, plus certain reimbursable costs.
In June 2016, OSINERGMIN issued a resolution that materially modified PR 22 (the “Resolution”). Under the Resolution, the firm base SFR provider can only render the SFR service when it is programmed in the daily electricity dispatch based on its declared generation costs. This retroactive amendment to PR 22 withdrew Kallpa’s exclusive right to provide the firm base SFR service that had been awarded to it in April 2016.agreement among Kenon, and IC Power suffered losses as a result.
Transmission Tolls Claim
Until July 2016,and the responsibility for the payment for the use of the secondary and complementary transmission systems was apportioned between generators based on the use of each transmission line. OSINERGMIN identified the generators that made use of particular transmission lines and proceeded to determine payment based on actual use (or the “relevance of use” requirement).
However, in July 2016, OSINERGMIN issued a resolution, referred to as the Transmission Toll Resolution, eliminating the “relevance of use” requirement, replacing it with a methodology that required each generation company to pay for a number of transmission lines, irrespective of the transmission lines the company actually uses. The change in methodology benefited the state-owned electricity companies, including Electroperu, to the detriment of Kenon and IC Power’s Peruvian subsidiaries, causing significant losses to Kenon and IC Power.
capital provider.
Entitlement to Payments in Respect of Certain Proceedings and Claims
As discussed below, certain of our subsidiaries are pursuing claims or are entitled to receive certain payments from the buyer of the Inkia Business in connection with certain claims held by companies within the Inkia Business or as a result of the resolution of, and/or a change in regulations or cash payments received relating to the transmission tolls claim or the SFR claim. These payments are subject to conditions and may be subject to deduction for taxes incurred as a result of the relevant payment.
Transmission Toll Regulation
In the event of certain changes in or revocation of regulation in Peru or a final court order relating to the Transmission Toll Resolution (described above under “—Bilateral Investment Treaty Claims Relating to Peru—Transmission Tolls Claim”) which change, revocation or order has the effect of increasing operating profits of Kallpa or Samay I (which are part of the Inkia Business) then the buyer of the Inkia Business is required to pay or cause to be paid to Inkia in cash 75% of an amount equal to 70% of the increase in operating profits of Kallpa and Samay I attributable directly and solely to the changes in regulation through December 31, 2024.
In addition, in the event of any cash payments made to Kallpa or Samay I as a result certain changes in regulation in Peru relating to the Transmission Toll Resolution or as a result certain claims being pursued in Peru in connection with this resolution, the buyer is required to pay or cause to be paid in cash 75% of an amount equal to 70% of such cash proceeds.
Secondary Frequency Regulation Claim
In the event of certain changes to or revocation of PR 22 (as described under “—Bilateral Investment Treaty Claims Relating to Peru—Secondary Frequency Regulation Claim”) which result in a cash payment to Kallpa or Samay I, the buyer is required to pay or cause to be paid in cash 75% of an amount equal to 70% of such cash proceeds.
C. | Organizational Structure |
The chart below represents a summary of our organizational structure, excluding intermediate holding companies, as of December 31, 2021.2023. This chart should be read in conjunction with the explanation of our ownership and organizational structure above.
D. | Property, Plants and Equipment |
For information on our property, plants and equipment, see “Item 4.B Business Overview.”
ITEM 4A.4A. | Unresolved Staff Comments |
Not Applicable.
ITEM 5.5. | Operating and Financial Review and Prospects |
This section should be read in conjunction with our audited consolidated financial statements, and the related notes thereto, for the years ended December 31, 2021, 20202023, 2022 and 2019,2021, included elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS.
The financial information below also includes certain non-IFRS measures used by us to evaluate our economic and financial performance. These measures are not identified as accounting measures under IFRS and therefore should not be considered as an alternative measure to evaluate our performance.
Certain information included in this discussion and analysis includes forward-looking statements that are subject to risks and uncertainties, and which may cause actual results to differ materially from those expressed or implied by such forward-looking statements. For further information on important factors that could cause our actual results to differ materially from the results described in the forward-looking statements contained in this discussion and analysis, see “Special Note Regarding Forward-Looking Statements” and “Item 3.D Risk Factors.”
Business Overview
For a discussion of our strategy, see “Item 4.B Business Overview.”
Overview of Financial Information Presented
As a holding company, Kenon’s results of operations primarily comprise the financial results of each of its businesses. The following table sets forth the method of accounting for our businesses for each of the two years ended December 31, 20212023 and our ownership percentage as of December 31, 2021:2023:
| | | | | | | Treatment in Consolidated Financial Statements |
OPC | | | 58.8 | %1 54.7% | | Consolidated | | Consolidated |
ZIM | | | 26 | %2 20.7% | | Equity | | Share in profits of associated company,companies, net of tax |
Qoros | | | 12 | %3
| | Fair value | | Long-term investment |
Other | | | | | | | | |
(1) | In January 2021, OPC issued 10,300,000 ordinary shares in a private placement for a total (gross) consideration of NIS 350 million (approximately $107 million). As a result of this share issuance, Kenon’s interest in OPC decreased from 62.1% to 58.2%. In September 2021, OPC issued rights to purchase approximately 13 million OPC shares to fund the development and expansion of OPC’s activity in the U.S., with investors purchasing approximately 99.7% of the total shares offered in the rights offering. The gross proceeds from the offering amounted to approximately NIS 329 million (approximately $102 million). Kenon exercised rights for the purchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to purchase these additional rights. As a result, Kenon holds approximately 58.8% of the outstanding shares of OPC.
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(2) | In February 2021, ZIM completed an initial public offering of its shares on the New York Stock Exchange and, as a result of the offering, our interest in ZIM decreased from 32% to 27.8%. Between September and November 2021, Kenon sold approximately 1.2 million ZIM shares for a total consideration of approximately $67 million. As a result of the sales, Kenon held a 26% interest in ZIM (25.6% on a fully diluted basis). During March 2022, Kenon completed a sale of 6 million ZIM shares for total consideration of $463 million. As a result of the sale, Kenon now holds a 20.7% interest in ZIM and remains the largest shareholder in ZIM.
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(3) | In April 2020, Kenon sold half of its interest in Qoros (i.e. 12%) to the Majority Shareholder. As a result, Kenon now has a 12% stake in Qoros and no longer accounts for Qoros under the equity method.
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The results of Qoros (until the 2020 sale) and ZIM are included in Kenon’s statements of profit and loss as share in profits of associated company,companies, net of tax, for the years set forth below, except as otherwise indicated.
The following tables set forth selected financial data for Kenon’s reportable segments for the periods presented:
| | | Year Ended December 31, 2023 | |
| | Year Ended December 31, 2021 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (in millions of USD, unless otherwise indicated) | | | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 437 | | | | 51 | | | | — | | | | — | | | | — | | | | 488 | | | | 619 | | | | 73 | | | | — | | | | — | | | | 692 | |
Depreciation and amortization | | | (44 | ) | | | (13 | ) | | | — | | | | — | | | | (1 | ) | | | (58 | ) | | | (66 | ) | | | (25 | ) | | | — | | | | — | | | | (91 | ) |
Financing income | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | 6 | | | | 6 | | | | — | | | | 27 | | | | 39 | |
Financing expenses | | | (119 | ) | | | (25 | ) | | | — | | | | — | | | | — | | | | (144 | ) | | | (48 | ) | | | (17 | ) | | | — | | | | (1 | ) | | | (66 | ) |
Losses related to Qoros | | | — | | | | — | | | | — | | | | (251 | ) | | | — | | | | (251 | ) | |
Share in (losses)/profit of associated companies | | | — | | | | (11 | ) | | | 1,261 | | | | — | | | | — | | | | 1,250 | | |
(Loss) / Profit before taxes | | | (57 | ) | | | (61 | ) | | | 1,261 | | | | (251 | ) | | | (12 | ) | | | 880 | | |
Income tax benefit/(expense) | | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) / Profit from continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets3 | | | 1,512 | | | | 431 | | | | — | | | | — | | | | 227 | | | | 2,170 | | |
Share in profit / (loss) of associated companies | | | | — | | | | 66 | | | | (266 | ) | | | — | | | | (200 | ) |
Losses related to ZIM | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
Profit / (Loss) before taxes | | | | 49 | | | | 17 | | | | (267 | ) | | | 15 | | | | (186 | ) |
Income tax (expense)/benefit | | | | | | | | | | | | | | | | | | | | | |
Profit / (Loss) from continuing operations | | | | | | | | | | | | | | | | | | | | | |
Segment assets(2) | | | | 1,673 | | | | 1,103 | | | | — | | | | 629 | | | | 3,405 | |
Investments in associated companies | | | — | | | | 545 | | | | 1,354 | | | | — | | | | — | | | | 1,899 | | | | — | | | | 703 | | | | — | | | | — | | | | 703 | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)
| Subsidiary of Kenon that owns Kenon’s equity holding in Qoros.
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(2) | Includes the results of Kenon’s, Qoros’ and IC Power’s holding company (including assets and liabilities) and general and administrative expenses. |
(3)(2)
| Excludes investments in associates. |
| | Year Ended December 31, 2020 | |
| | | | | | | | | | | | | | | |
| | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 386 | | | | — | | | | — | | | | — | | | | 386 | |
Depreciation and amortization | | | (34 | ) | | | — | | | | — | | | | — | | | | (34 | ) |
Financing income | | | — | | | | — | | | | — | | | | 14 | | | | 14 | |
Financing expenses | | | (50 | ) | | | — | | | | — | | | | (1 | ) | | | (51 | ) |
Gains related to Qoros | | | — | | | | 310 | | | | — | | | | — | | | | 310 | |
Share in (losses)/profit of associated companies | | | — | | | | (6 | ) | | | 167 | | | | — | | | | 161 | |
Write back of impairment of investment | | | — | | | | — | | | | 44 | | | | — | | | | 44 | |
(Loss) / Profit before taxes | | | (9 | ) | | | 304 | | | | 211 | | | | (5 | ) | | | 501 | |
Income tax expense | | | | | | | | | | | | | | | | | | | | |
(Loss) / Profit from continuing operations | | | | | | | | | | | | | | | | | | | | |
Segment assets3 | | | 1,724 | | | | 235 | | | | — | | | | 226 | 4 | | | 2,185 | |
Investments in associated companies | | | — | | | | — | | | | 297 | | | | — | | | | 297 | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 517 | | | | 57 | | | | — | | | | — | | | | 574 | |
Depreciation and amortization | | | (47 | ) | | | (16 | ) | | | — | | | | — | | | | (63 | ) |
Financing income | | | 10 | | | | 25 | | | | — | | | | 10 | | | | 45 | |
Financing expenses | | | (42 | ) | | | (7 | ) | | | — | | | | (1 | ) | | | (50 | ) |
Gains related to ZIM | | | — | | | | — | | | | (728 | ) | | | — | | | | (728 | ) |
Share in profit of associated companies | | | — | | | | 85 | | | | 1,033 | | | | — | | | | 1,118 | |
Losses related to ZIM | | | — | | | | — | | | | (728 | ) | | | — | | | | (728 | ) |
Profit / (Loss) before taxes | | | 24 | | | | 61 | | | | 305 | | | | (2 | ) | | | 388 | |
Income tax (expense)/benefit | | | | | | | | | | | | | | | | | | | | |
Profit / (Loss) from continuing operations | | | | | | | | | | | | | | | | | | | | |
Segment assets(2) | | | 1,504 | | | | 553 | | | | — | | | | 636 | | | | 2,693 | |
Investments in associated companies | | | — | | | | 652 | | | | 427 | | | | — | | | | 1,079 | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | |
________________________________
(1) | SubsidiaryIncludes the results of Kenon that owns Kenon’s, equityQoros’ and IC Power’s holding in Qoros. company (including assets and liabilities) and general and administrative expenses. |
(2) | Includes the results of Primus, as well as Kenon’s and IC Green’s holding company and general and administrative expenses.
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(3) | Excludes investments in associates. |
(4) | Includes Kenon’s, IC Green’s and IC Power’s holding company assets. |
(5) | Includes Kenon’s, IC Green’s and IC Power’s holding company liabilities.
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OPC
The following table sets forth summary financial information for OPC (including CPV) for the years ended December 31, 20212023 and 2020:2022:
| | | | | | |
| | | | | | |
Revenue | | | 488 | | | | 386 | |
Cost of Sales (excluding depreciation and amortization) | | | (337 | ) | | | (282 | ) |
Net Loss | | | (94 | ) | | | (13 | ) |
Adjusted EBITDA1 | | | 91 | | | | 75 | |
Proportionate share of EBITDA of associated companies1 | | | 106 | | | | — | |
Total Debt2 | | | 1,215 | | | | 921 | |
| | | | | | |
Revenue | | | 692 | | | | 574 | |
Cost of Sales (excluding depreciation and amortization) | | | (494 | ) | | | (417 | ) |
Net Profit | | | 47 | | | | 65 | |
Adjusted EBITDA(1) | | | 304 | | | | 250 | |
Total Debt(2) | | | 1,530 | | | | 1,163 | |
______________________________
(1) | OPC defines “EBITDA” for each period as net loss for the periodprofit/(loss) before depreciation and amortization, financing expenses, net, share of depreciation and amortization and financing expenses, net, included within share of profit of associated companies, net and income tax expense (benefit), and “Adjusted EBITDA” as EBITDA after adjustments in respect of changes in fair value of derivative financial instruments and items not in the ordinary course of OPC’s business and changes in net expenses, not in the ordinary course of business and/or of a non-recurring nature. EBITDA and Adjusted EBITDA are not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be considered as a substitute for each periodnet income or loss, cash flow from operations or other measures of operating performance or liquidity determined in accordance with IFRS. EBITDA and Adjusted EBITDA are not intended to represent funds available for dividends or other discretionary uses because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. EBITDA and Adjusted EBITDA present limitations that impair its use as a measure of OPC’s profitability since it does not take into consideration certain costs and expenses that result from its business that could have a significant effect on OPC’s net loss, for the period beforesuch as finance expenses, taxes and depreciation and amortization, financing expenses, net, income tax expense and share of losses of associated companies, net.amortization. |
EBITDA and Adjusted EBITDA are not recognized under IFRS or any other generally accepted accounting principles as a measure of financial performance and should not be considered as a substitute for net income or loss, cash flow from operations or other measures of operating performance or liquidity determined in accordance with IFRS. EBITDA and Adjusted EBITDA are not intended to represent funds available for dividends or other discretionary uses because those funds may be required for debt service, capital expenditures, working capital and other commitments and contingencies. EBITDA and Adjusted EBITDA present limitations that impair its use as a measure of OPC’s profitability since it does not take into consideration certain costs and expenses that result from its business that could have a significant effect on OPC’s net loss, such as finance expenses, taxes and depreciation and amortization.
(2) | Includes short-term and long-term debt. |
The following table sets forth a reconciliation of OPC’s net profitprofit/(loss) to its EBITDA, Adjusted EBITDA and proportionate share of net profit to share of EBITDA of its associated companies for the periods presented. Other companies may calculate EBITDA and Adjusted EBITDA differently, and therefore this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies:
| | | | | | |
| | | | | | |
Net loss for the period | | | (94 | ) | | | (13 | ) |
Depreciation and amortization | | | 57 | | | | 34 | |
Financing expenses, net | | | 141 | | | | 50 | |
Share in losses of associated companies, net | | | 11 | | | | — | |
Income tax (benefit)/expense | | | | | | | | |
Adjusted EBITDA | | | | | | | | |
| | | | | | | | |
Share in losses of associated companies, net | | | (11 | ) | | | — | |
Share of depreciation and amortization | | | 39 | | | | — | |
Share of financing expenses, net | | | 78 | | | | — | |
Proportionate share of EBITDA of associated companies | | | 106 | | | | — | |
| | | | | | |
Net profit/(loss) for the period | | | 47 | | | | 65 | |
Depreciation and amortization | | | 91 | | | | 63 | |
Financing expenses, net | | | 53 | | | | 14 | |
Share of depreciation and amortization and financing expenses, net, included within share of profit of associated companies, net | | | 91 | | | | 83 | |
Income tax expense/(benefit) | | | | | | | | |
EBITDA | | | | | | | | |
Changes in net expenses, not in the ordinary course of business and/or of a non-recurring nature | | | | | | | | |
Share of changes in fair value of derivative financial instruments | | | | | | | | |
Adjusted EBITDA | | | | | | | | |
(2) | Includes short-term and long-term debt.
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Qoros
In April 2020, we have reduced our interest in Qoros to 12%. Since that date, we no longer account for Qoros pursuant to the equity method of accounting. In 2021, we wrote down the value of Qoros to zero. We entered into an agreement to sell our remaining interest in Qoros to the Majority Qoros Shareholder and Baoneng Group has provided a guarantee of the Majority Qoros Shareholder’s obligations under the Sale Agreement. The Majority Qoros Shareholder had not made any of the required payments under the Sale Agreement, and Quantum initiated arbitral proceedings. The arbitration tribunal ruled that the Majority Qoros Shareholder and Baoneng Group are obligated to pay Quantum approximately RMB 1.9 billion (approximately $268 million), comprising the purchase price set forth in the Sale Agreement (as adjusted for inflation) of approximately RMB 1.7 billion (approximately $239 million), together with pre-award and post-award interest (which will accrue until payment of the award), legal fees and expenses. See “Item 4.B. Business Overview—Qoros” and “Item 3.D Risks Factors—Risks Related to Our Strategy and Operations—We face risks in relation to our remaining 12% interest in Qoros, including risks relating to collection of the arbitration award in connection with this agreement.”
ZIM
ZIM’s results of operations for the years ended December 31, 20212023 and 20202022 are reflected in Kenon’s share in profits of associated companies, net of tax.
Material Factors Affecting Results of Operations
OPC
Set forth below is a discussion of the material factors affecting the results of operations of OPC for the periods under review. OPC acquired CPV in January 2021. The discussion below refers to OPC without giving effect to CPV business except where expressly indicated.
Commencement of Operations of OPC-Hadera
On July 1, 2020, the OPC-Hadera plant reached COD, and commenced operations. This impacted revenue and cost of sales in the second half of 2020 and in 2021.
Acquisition of CPV
In January 2021, CPV Group LP, an entity in which OPC indirectly holds a 70% interest, acquired CPV from Global Infrastructure Management, LLC. CPV is engaged in the development, construction and management of renewable energy and conventional natural gas-fired power plants in the United States. The total consideration for the acquisition was $653 million (paid in cash), including post-closing adjustments based on closing date cash, working capital and debt. In addition, in respect of 17.5% of the rights to the Three Rivers project under construction, a vendor loan, in the amount of $95 million was granted to CPV Power Holdings, one of the CPV companies acquired. In February 2021, the vendor loan was reduced by $41 million as a result of the sale of 7.5% of the rights in the Three Rivers Project, and in October 2021, the balance of the vendor loan, in a total amount of $54.5 million was repaid in full.
OPC financed the acquisition through (i) available cash in the amount of approximately NIS 280 million (approximately $87 million); (ii) issuance of Series B bonds for proceeds of approximately NIS 250 million (approximately $78 million) (which was paid off in 2021); (iii) a public offering of 23,022,100 new ordinary shares for a total (gross) proceeds of NIS 737 million (approximately $217 million) (an offering in which Kenon participated) and, (iv) a private placement of OPC’s shares to institutional investors, for gross proceeds of approximately NIS 350 million (approximately $107 million).
Repayment of OPC-Rotem Financing Agreement
In January 2011, OPC-Rotem entered into a financing agreement with a consortium of lenders led by Bank Leumi Le-Israel Ltd., or Bank Leumi, for the financing of its power plant project. In October 2021, OPC-Rotem repaid the project financing debt in the amount NIS 1,292 million (approximately $400 million) (including early repayment fees). As part of the early repayment, OPC-Rotem recognized a one-off expense totaling NIS 244 million (approximately $75 million), in respect of an early repayment fee of approximately NIS 188 million (approximately $58 million), net of tax. OPC and the minority investor in OPC-Rotem extended to OPC-Rotem loans (pro rata to their ownership) to finance the early repayment totaling (principal) NIS 1,130 million (approximately $350 million). A significant portion of OPC’s portion of NIS 904 million (approximately $280 million) of this debt repayment was funded by the issuance of Series C debentures as described below.
Revenue – Revenue—EA Tariffs
In Israel, sales by IPPs are generally made on the basis of PPAs for the sale of energy to customers, with prices predominantly linked to the tariff issued by the EA and denominated in NIS. Changes in the electricity generation tariff have material effect on OPC’s results of operations.
The EA operates a “Time of Use” tariff, which provides different energy rates for different seasons (e.g., summer and winter) and different periods of time during the day. Within Israel, the price of energy varies by season and demand period. For further information on Israel’s seasonality and the related EA tariffs, see “Item 4.B Business Overview—Our Businesses—OPC—Industry Overview—Overview of Israeli Electricity Generation Industry.”
The EA’s rates have affected OPC’s revenues and income in the periods under review.
EA Tariffs
On January 2021,1, 2023, an annual update of the tariff for 2023 came into effect for the IEC’s electricity consumers with generation component decreasing to NIS 0.312 per kWh, an 0.6% decrease compared to the generation component tariff was decreasedthat applied in the last few months of 2022. On February 1, 2023, an additional update to the generation component for 2021 by approximately 5.7%, from NIS 267.8 per MWh to NIS 252.6 per MWh. In February 2022, the annual updates of the electricity tariffs for 2022 as published by the EA2023 entered into effect which included an increasewhereby the generation component is NIS 0.3081 per kWh, a decrease of 1.2% compared to the tariff set on January 1, 2023 due to extension of the EAexcise tax on fuel order, which calls for a decrease in the purchase tax and excise tax applicable to the coal. On April 1, 2023, an additional decision entered into effect that provided an update to the generation component to NIS 0.3039 per kilowatt hour—a decrease of about 1% compared with the tariff set in February 2023, following a 30% decline in coal prices compared to the price on which the latest tariff revision was based, and increase in other costs relating to the IEC. Therefore, the average generation component for 2022 was set at NIS 0.2927 per kilowatt hour.
On February 1, 2024, the annual update to the tariff for 2024 for electricity consumers entered into effect. Pursuant to the decision, the generation component was updated to NIS 0.3007 per kilowatt hour, a decrease of 1.1% compared with the generation component at the end of 2023—this being mainly due to the surplus receipts expected from sale of the Eshkol power plant, which led to a reduction in the generation sector. In addition, as respect of the decision on tariff update and pursuant to the decision on designation of the receipts from sale of Eshkol—the surplus receipts from the sale will first be used to cover expenses incurred during the War, including costs of diesel oil, with the remaining surplus receipts to be used to cover the non recurring past expenses. The results of OPC’s activities in Israel are materially impacted by changes in the electricity generation component tariff, by approximately 13.6% from NIS 252.6 per MWh to NIS 286.9 per MWh. On February 27, 2022, the EA issued a hearing on the update of the electricity tariff for 2022, where it was proposedsuch that the production component (subject to a final decision) be lowered to 27.64 agorot, which is an increase of approximately 9.4% from 2021, instead of an increase of approximately 13.6% mentioned above. This increase in the EAelectricity generation component is expected towill have a positive impact on OPC’s profitsresults, and vice versa.
Commencing from 2023, the EA revised the time of use (TOU) demand categories (brackets).
The change of the TOU categories will increase the tariffs paid by household consumers and reduce the tariffs paid by TAOZ consumers. The update to the hourly demand brackets, which became effective from January 2023, had a negative impact on our results from Israel activities and caused a change in 2022 compared with 2021.the seasonality of our revenues, which resulted in a significant increase in our results during the summer period at the expense of the other months of the year (particularly the first quarter).
For more discussion, see “Item 4.B Industry Overview—Overview of Israeli Electricity Generation Industry.”
Cost of Sales
OPC’s principal costs of sales are natural gas, transmission, distribution and system services costs, personnel, third-party services and maintenance costs.
Natural Gas
The prices at which OPC-Rotem and OPC-Hadera purchase their natural gas from their sole natural gas supplier, the Tamar Group, is predominantly indexed to changes in the EA’s generation component tariff, pursuant to the price formula set forth in OPC-Rotem’s and OPC-Hadera’s supply agreements with the Tamar Group. As a result, increases or decreases in this tariff have a related effect on OPC-Rotem’s and OPC-Hadera’s cost of sales and margins. Additionally, the natural gas price formula in OPC-Rotem’s and OPC-Hadera’s supply agreement is subject to a floor price mechanism.
In February 2022, the annual updates to electricity tariffs as published by the EA entered into effect, which included an increase of the EA’s generation component tariff by approximately 13.6%. On February 27, 2022, the EA issued a hearing on the update of the electricity tariffaddition, for 2022, where it was proposed that the production component (subject to a final decision) be lowered to 27.64 agorot, which is an increase of approximately 9.4% from 2021, instead of an increase of approximately 13.6% mentioned above. OPC-Hadera’s and OPC-Rotem’s gas prices were at the minimum price during 2021 and until January 2022 (OPC-Rotem) and February 2022 (OPC-Hadera), and are expected to be above the minimum price for the remainder of 2022. This increase in the EA generation component is expected to have a positive impact on OPC’s profits in 2022 compared with 2021. For OPC-Hadera, the effect on profit margins depends on the USD/NIS exchange rate fluctuations.
In 2023, the gas price in the OPC Tamar agreement was equal to the Minimum Price over 8 months in total. For OPC-Rotem, the effect of changes in tariff on profit margins depends on the USD/NIS exchange rate fluctuations. In 2023, OPC-Hadera’s gas price was higher than the minimum price. In addition, in 2024, if there will be no changes to the generation component, OPC-Hadera’s gas price is expected to be higher than the minimum price. Therefore, the increase in the EA generation component (see discussion above) had a positive impact on OPC’s profits in 2023. For information on the risks associated with the impact of the EA’s generation tariff on OPC’s supply agreements with the Tamar Group, see “Item 3.D Risk Factors—Risks Related to OPC’s Israel operations—Operations—OPC’s profitability depends on the EA’s electricity rates.rates and tariff structure.”
OPC’s costs for transmission, distribution and systems services vary primarilyIn respect of OPC-Rotem, according to the quantity of energy that OPC sells. These costs are passed on to its customers. OPC incurs personnel and third-party services costs in the operation of its plants. These costs are usually independentannual update of the volumesgeneration component for 2024, the price of energy produced by OPC’s plants. OPC incurs maintenance costsgas is expected to be above the Minimum Price in connection with the ongoing and periodic maintenance of its generation plants. These costs are usually correlated2024 (if there will be no changes to the volumes of energy produced andgeneration component). In addition, in 2024 if there will be no changes to the number of running hours of OPC’s plants.generation component, OPC-Hadera’s gas price is expected to be higher than the Minimum Price.
Maintenance Costs
OPC-Rotem: Under the existing maintenance agreement with Mitsubishi for the OPC-Rotem power plant, maintenance work for the OPC-Rotem power plant is scheduled every 12,000 work hours (about 18 months). As of March 27, 2022, theThe next maintenance is scheduled to be performed in April 2022,spring 2024, during which the power plant and related energy generation activity will be shut down for an estimated period of 2015 days. During the maintenance period scheduled for April 2022,spring 2024, the supply of electricity to the customers of the OPC-Rotem power plant will continue as usual, based on the covenants published by the EA and OPC-Rotem’s PPA with the IEC. The saidThis timetables could change as a result of various factors, among others, the scope of operation of the power plant or revision of the scheduled works with the maintenance contractor or the COVID-19 related delays. The power plant’s activities during maintenance will be suspended, which may adversely affect OPC’s operating results. The existing maintenance agreement with Mitsubishi expires in October 2025. In accordance with the New Rotem Maintenance Agreement, which OPC-Rotem and Mitsubishi entered into in December 2023, the timetable for the execution of scheduled maintenance works in the power plant was updated to approximately every 25,000 working hours, or estimated approximately every three years.
OPC-Hadera: Under the maintenance agreement with General Electric International Ltd., or GEI, and GE Global Parts & Products GmbH these two companies provide maintenance treatments for the two gas turbines of GEI, generators and auxiliary facilities of the OPC-Hadera plant for a period commencing on the date of commercial operation until the earlier of: (i) the date on which all of the covered units (as defined in the service agreement) have reached the end-date of their performance and (ii) 25 years from the date of signing the service agreement. The service agreement contains a guarantee of reliability and other obligations concerning the performance of the OPC-Hadera plant and indemnification to OPC-Hadera in the event of failure to meet the performance obligations. OPC-Hadera has undertaken to pay bonuses in the event of improvement in the performance of the plant as a result of the maintenance work, up to a cumulative ceiling for every inspection period.
Changes in Exchange Rates
Fluctuations in the exchange rates between currencies in which certain of OPC’s agreements are denominated (such as the U.S. Dollar) and the NIS, which is OPC’s functional and reporting currency, will generate either gains or losses on monetary assets and liabilities denominated in such currencies and can therefore affect OPC’s profitability. For example, the price of the natural gas paid by OPC-Hadera is denominated in dollars and, therefore, it has full exposure to changes in the currency exchange rate. In addition, the price set forth in the Energean Agreements is fully linked to the U.S. Dollar.
In addition, OPC’s activities in Israel are exposed to a change in the exchange rate of the dollar, directly and indirectly, due to the linkage of a significant part of its revenues to the generation tariff (which is impacted, in part, by changes in the exchange rate of the dollar), while on the other hand acquisitions of the natural gas, some of which are linked to the dollar exchange rate and/or are denominated based on the dollar exchange rate, are also linked to the generation tariff (which is impacted in part by changes in the dollar exchange rate) and include dollar floor prices. Therefore, the structure of OPC’s activities in Israel includes a partial natural (intrinsic) hedge—even though strengthening of the dollar increases the cost of the natural gas purchased by OPC, the structure of the revenues reduces the said exposure significantly. Generally the generation component is updated once a year, and accordingly timing differences are possible between the impact of a strengthening of the rate of the dollar on the current gas cost and its impact on the revenues and, in turn, on OPC’s gross margin. These timing differences could have a negative effect on OPC’s current profit and cash flows in the short run. In the medium term, strengthening of the dollar will lead to a certain increase in the generation tariff and, in turn, to an increase in OPC’s revenues corresponding to the increase in the gas costs, such that a strengthening of the dollar could adversely impact OPC’s profits.
In addition, from time to time OPC signs significant construction and maintenance contracts that are denominated in different currencies, particularly the dollar and the euro.
Furthermore, OPC is indirectly influenced by changes in the U.S. Dollar to NIS exchange rate, including as a result of the following factors (i) partly in view of itsOPC’s investment in CPV which operates in the US, (ii) the expected investment in CPV’s existing project backlog and (iii) as the IEC electricity tariff is partially linked to increases in fuel prices (mainly coal and gas) that are denominated in U.S. Dollars. In general, OPC believes that a decline in the exchange rate of the U.S. Dollar exchange rate may have a positive effect on OPC’s operating activities, and on the other hand an adverse effect on the investment in OPC’s activities. From time to time and based on the business considerations, OPC makes use of currency forwards. Nonetheless, the above does not provide full protection from such exposures, and OPC could incur costs due to hedging transactions.
In addition, Kenon’s functional currency is the U.S. Dollar, so Kenon reports OPC’s NIS-denominated results of operations and balance sheet items in U.S. Dollars, translating OPC’s results into U.S. Dollars at the average exchange rate (for results of operation) or rate in effect on the balance sheet date (for balance sheet items). Accordingly, changes in the USD/NIS exchange rate impact Kenon’s reported results for OPC.
In 2021,2023, the U.S. Dollar was weakerstronger versus the NIS as compared to 2020.2022.
Macroeconomic Environment
Macroeconomic trends, both globally and in Israel, led to an increase in prices, due to, among other things, geopolitical events, including the War in Israel, the war in Ukraine, which triggered a sharp increase in energy and electricity prices, continued disruption to the supply chain and the long-term effects of the COVID-19 pandemic. These and other factors led to a significant increase in inflation rates in the U.S. and Israel, and to an increase in interest rates particularly in 2022.
In 2023, in Israel and in the U.S. there was a moderation of the rates of inflation and stability of the interest rates. In the United States, the US Federal Reserve Bank kept the interest rate unchanged based on the US regulator’s estimates of three rate reductions of 0.25% during 2024, down to a rate of about 4.6%. In Israel, the Bank of Israel decided to reduce the interest rate to 4.5% in January 2024 and kept the rate unchanged from February 2024 and thereafter based on the Bank of Israel’s forecasts of the interest rate continuing to gradually decline in 2024 and at the end of the year be in the range of 3.75% to 4%.
These inflation and interest trends have had a significant effect on the policies of the central banks and, in turn, on the general global macroeconomic environment, including in Israel and in the U.S., as well as on the business environment in which OPC operates.
The impacts on the business environment could be reflected in, among other things, the scope of the financing expenses (which increase as the interest rate increases), growth data and extent of the business activities in the economy (in Israel and the U.S.), the financial markets and the possibility of raising debt and equity, the prices of energy, electricity and natural gas, tariffs in the Israeli electricity sector, cost of construction of projects, among others. In addition, geopolitical tensions in Israel and worldwide may impact the macro-economic environment (including policy considerations of Bank of Israel with respect to war circumstances).
In Israel, 2023 was characterized by significant instability with respect to domestic policies and the geopolitical security situation. In the beginning of 2023, the Israeli Government began advancement of a plan for making changes in Israel’s judicial system—a step that impacted the stability of the State’s population and economy. In the fourth quarter of 2023, on October 7, 2023, the War in Israel broke out, which as at the date of this report is still underway. The War led to impacts and restrictions on the Israeli economy that included, among other things, reduction of economic activities, a large call for military reserves duty (soldiers), limitations on gatherings in work places and public areas, restrictions on carrying on classes in the educational system, etc. Most of the restrictions have been gradually relaxed according to the security (defense) situation in Israel and in the combat areas. For risk factors in connection with the War relating to OPC business operations, see “Item 3.D Risk Factors—Risks Related to Legal, Regulatory and Compliance Matters—We could be adversely affected by the War in Israel.”
In addition, the War has had external (consequential) impacts including, among others, interruptions in the marine routes to Israel due to attacks on supply ships and a significant cutback of the activities of the airline companies. These impacts could have an adverse impact on the arrival of equipment and foreign teams to Israel (including equipment and teams required for purposes of maintenance and construction of OPC’s activity sites in Israel) and the time schedules for their arrival.
Supplementary arrangements and granting of a supply license to OPC-Rotem
In February 2023, the Electricity Authority published a proposed decision that includes granting of a supplier license to Rotem with language (terms) similar to the existing suppliers along with imposition of covenants on Rotem, including covenants relating to a deviation from the consumption plans plus arrangements and covenants relating to this. A final decision had not yet been published and the arrangements included as part of the EA’s proposed decision had not yet entered into effect. OPC believes that arrangements proposed in the decision are expected to settle certain disputes between OPC-Rotem and the System Operator. In March 2024, the EA issued a resolution that addresses the application of certain standards to OPC-Rotem, including those regarding deviations from consumptions plans submitted by private electricity suppliers, and the award of a supply license to OPC-Rotem (if it applies for one and complies with the conditions for receipt thereof). For further details, see “Item 3D Risk Factors—Risks Related to OPC’s Israel Operations—OPC’s operations are significantly influenced by regulations.”
Availability and cost of financing
Generally, OPC’s activity in Israel is financed through project financing, credit facilities from banks and financial institutions and through its own capital. In particular, the operations of OPC-Hadera, Kiryat Gat and Tzomet are currently financed mainly through project financing received from banks and financial institutions on the basis of generally accepted arrangements in project financing, with adjustments for the relevant projects. For example, the Kiryat Gat financing agreement was signed, among other things, in connection with the acquisition of the Kiryat Gat Power Plant. Changes in the cost of financing and its availability and the amount of credit available in the bank and non-bank systems affect OPC’s operations as well as the energy sector and its profitability. An economic downturn in Israel and around the world, or a decline in the scope in the economic activity might impact the availability and costs of credit in the market, and accordingly have an adverse effect on OPC’s liquidity. The Israeli capital markets are also a source for raising funds to finance and expand OPC’s business activity, by issuing debentures and raising capital, and accordingly –OPC is affected by changes and accessibility to the capital market, by macroeconomic and other factors that affect the liquidity of the capital market as a whole, and by the energy sector in particular.
Changes in the CPI and changes in interest rates
A portion of the liabilities of OPC and of its subsidiaries is linked to the CPI, including OPC’s Debentures (Series B), and some of the loans of OPC-Hadera are linked to the CPI, such that changes in the CPI impact OPC’s finance expenses and its outstanding debt. Changes in the CPI may affect OPC in other aspects as well.
During 2023, the Israeli Consumer Price Index increased by approximately 3.3% and the US Consumer Price Index increased by approximately 3.1%.
As of December 31, 2023, OPC has derivatives, intended to hedge some of the risks related to changes in the Consumer Price Index in connection with the Hadera loans, that are partly linked to the Consumer Price Index, and that OPC chose to designate as accounting hedging.
In addition, OPC is generally exposed to changes in the CPI, directly and indirectly, mainly due to linkage of a significant part of its revenues to the generation component (which is impacted partly by a change in the CPI), and due to the fact the most of its availability revenues are linked to the CPI. On the other hand, purchases of the natural gas are partly linked to the generation tariff and include, as stated, floor prices. Therefore, the structure of OPC’s activities in Israel includes a partial natural (intrinsic) hedge—despite the fact that an increase in the CPI increases OPC’s costs (including financing costs) and investments, the structure of the revenues reduces the exposure, such that OPC’s profits could be positively affected by an increase in the CPI.
OPC has loans and liabilities bearing variable interest that are based on prime or SOFR plus a margin. An increase in the variable interest rates could cause an increase in OPC’s financing costs. In addition, an increase in the interest rates could trigger an increase in the financing costs in respect of new debt taken out by OPC (for purposes of refinancing and/or growth). Furthermore, an increase in the interest rates could impact the discount rates for projects (operating, under construction and in development) and could also lead to a lack of economic feasibility of continued development and/or acquisition of projects and a slowdown in OPC’s growth processes, along with an existence of signs of impairment of value of assets and/or recording of impairment losses in the financial statements. For example, Tzomet’s loans bear variable interest such that a change in the interest rate will impact Tzomet’s finance expenses and its outstanding debt after the commercial operation date. Until Tzomet’s commercial operation date, the finance expenses have been capitalized.
In order to reduce the exposure to changes in the interest rates in Israel, OPC makes use of mix of loans (including credit facilities) and debentures in such a manner that part of the loans and the debentures bear fixed interest and part of them bear variable interest.
Loans in connection with the active projects and a project under construction in the U.S. bear interest based on variable interest (mainly SOFR) and have exposure to changes in interest rates. CPV Group enters into hedge transactions in respect of the interest rates; however, those transactions do not fully mitigate the exposure.
Global trends in commodity and raw material prices and the supply chain
Natural gas is the main fuel in OPC’s commercially operational power plants in Israel and in the United States. Therefore, OPC is affected by changes in the natural gas market (including prices, availability, competition, demand, regulation) in each of the markets in which it operates. Furthermore, in recent years the introduction of renewable energies has been on the rise, in view of, among other things, the setting of targets by regulators, and the setting of incentives and ESG trends that affect the demand for renewable energies. Moreover, in recent years, there has been an increasing awareness among investors—mainly around the world but also in Israel—as well as among other stakeholders such as customers, employees, credit providers, etc., regarding the climate and environmental impacts of various activities. As part of this trend, existing and potential investors, and other stakeholders, take into account ESG considerations relating to environmental, social and corporate governance aspects, as part of their investment and business policies, including in relation to the provision of credit. This trend may manifest itself in various ways, including subjecting investments and/or provision of credit to compliance with ESG standards, investors’ implementing a policy of refraining from advancing debt or making investments in OPC, especially in the capital market, due to its natural gas activity; increase in finance costs; difficulty in recruiting employees, and more. In addition, the imposition of various regulatory provisions in this area, particularly regarding the environment, may cause the company to incur significant costs. These trends might have an adverse effect on OPC’s business and financial position, including loss of customers, impairment of some of its assets, increase in the price of its debt, and difficulty to raise capital.
In addition, OPC believes that the broad global trends that started as a result of the COVID-19 on the markets and factors relating to OPC’s business activities, such as an adverse impact on the supply chains, including global delays of the equipment supply dates along with an increase in the prices of raw materials and equipment and transport costs, an impact was visible on the construction, equipment and maintenance costs, as well as on the timetables for completion may potentially have long-term impact (including in connection with the costs and timing of completion of the construction projects). In 2023, the raw material prices were lower than in 2022 and the disruptions in the supply chain were not as severe comparing to previous period. Nonetheless, certain aspects of OPC’s activities are still being impacted by the disruptions in the supply chain, where regional conflicts affecting marine transport could trigger additional complications. These events could have a negative impact on OPC’s activities, particularly with respect to the construction costs of projects and maintenance activities, as well as on the timetables for their completion. There is no certainty with respect to the continuation of the trends and the scope of the impact thereof on OPC’s activities, if any at all.
Regulation
Electricity and energy activities are regulated and supervised by the relevant regulators in each country. Various legislative and regulatory processes in the countries OPC operates have a significant impact on OPC’s operations and results. For example, in Israel, OPC’s results are derived significantly from the generation component determined by the EA, and OPC’s activity in this field is affected by the provisions of the law relevant to this field, including the resolutions of the EA. The operations of the CPV Group in the electricity generation area in the U.S. (including using renewable energy and natural gas) are subject to the provisions of the US law, to compliance with the terms and conditions of the licenses granted to CPV’s projects and power plants, to obtaining approvals, and to local, state and federal regulatory arrangements (including in connection with the holding, acquisition and/or transfer of rights in OPC and/or in the CPV Group). In addition, regulatory processes affect the electrical grid and natural gas infrastructure (including connection to infrastructures). In recent years there has been a trend of developing incentives for renewable energies by regulators in OPC’s operating markets, which affect the projects under development and the competition in OPC’s business environment. These regulatory arrangements may also apply in the context of the encouragement of competition in this area. Changes in regulation, in the policies of governments and regulators or their approach to the interpretation of regulation may have different effects on the power plants owned by the Group or on the power plants that the Group intends to develop as well as on the viability in the construction of new power plants. Furthermore, the Group’s activities in Israel and the US are subject to and affected by legislation and regulation aimed at increasing environmental protection and mitigating damage from environmental hazards, including reducing emissions.
Activities in the U.S.
Electricity and natural gas prices
CPV’s results of operations are impacted to a significant extent by the electricity prices in effect in the areas in which the CPV’s power plants operate. The main factors impacting the electricity prices are demand for electricity, available generation capacity (supply) and the natural gas price in the area in which the power plant operates.
With respect to “energy transition” activities, the natural gas price is significant in the determination of the price of the electricity in most of the regions in which the power plants of the CPV Group operate that are powered by natural gas.
For the most part, in the existing production mix, over time, to the extent the natural‑gas prices are higher, the marginal energy prices will also be higher, and will have a positive impact on the energy margins of the CPV Group due to the high efficiency of the power plants it owns compared with other power plants operating in the relevant activity markets (the impact could be different among the projects taking into account their characteristics and the area (region) in which they are located).
Electricity prices
The following table summarizes the average electricity prices in each of the main regions in which the power plants in energy transition activities of the CPV Group are active (the prices are denominated in dollars per MWh)*:
| | Year Ended | |
Region | | | |
| | | | | | | | | |
| | | | | | | | | |
PJM West (Shore, Maryland) | | | 33.06 | | | | 73.09 | | | | (55 | )% |
PJM AEP Dayton (Fairview) | | | 30.81 | | | | 69.42 | | | | (56 | )% |
New York Zone G (Valley) | | | 33.27 | | | | 82.21 | | | | (60 | )% |
Mass Hub (Towantic) | | | 36.82 | | | | 85.56 | | | | (57 | )% |
PJM ComEd (Three Rivers) | | | 26.68 | | | | 60.40 | | | | (56 | )% |
*Based on Day‑Ahead prices as published by the relevant ISO. The actual gas prices of the power plants of the CPV Group could be significantly different.
The actual electricity prices of the power plants of the CPV Group could be higher or lower than the regional price shown in the above table due to the existence of a Power Basis (the difference between the power plant’s specific electricity price and the regional price). The Power Basis is a function of transport pressures, local cost of electricity generation, local demand for electricity, losses in the transmission lines and additional factors. The following table shows the average Power Basis data for each power plant (the prices are denominated in dollars per megawatt hour):
| | For the year ended December 31 | |
| | | | | | | | | |
| | | | | | | | | |
Shore | | | (8.32 | ) | | | (8.90 | ) | | | (6.45 | ) |
Maryland | | | 2.47 | | | | 5.27 | | | | 2.29 | |
Fairview | | | (1.90 | ) | | | (4.14 | ) | | | (4.03 | ) |
Valley | | | (1.41 | ) | | | (4.74 | ) | | | (2.04 | ) |
Towantic | | | (3.02 | ) | | | (4.11 | ) | | | (2.83 | ) |
Three Rivers | | | (1.18 | ) | | | (0.99 | ) | | | (0.44 | ) |
The decrease in the electricity prices in 2023 and in the fourth quarter of 2023 compared to the corresponding periods last year, corresponds to the trend of decreasing natural gas prices. The decline in the electricity prices was much more moderate than the decline in the natural gas prices due to the supply and demand trends impacting the CPV Group: an increase in the demand for electricity due to electrification (electricity) trends in transportation, real estate and industry, alongside a decline in the available capacity as a result of closure of old inefficient and polluting conventional power plants (mainly power plants powered by coal), on the one hand, and limited new supply of power plants due to a relatively slow rate of entry of renewable energies and a lack of construction of new conventional power plants, on the other hand.
Natural gas prices
Natural gas prices are impacted by a large number of variables, including demand in the industrial, residential and electricity sectors, production and supply of natural gas, natural‑gas production costs, changes in the pipeline infrastructure, international trade and the financial profile and the hedging profile of the natural‑gas customers and producers. The price for import of liquid natural gas impacts the natural gas and electricity prices, in the winter months in New England and New York, where high prices of liquid natural gas had a positive impact on the profits of the Fairview and Valley power plants during the winter months.
Set forth below are the average natural gas in each of the main markets in which the power plants of the CPV Group operate (the prices are denominated in dollars per MMBtu)*:
| | Year Ended | |
Region | | | |
| | | | | | | | | |
Texas Eastern M‑3 (Shore, Valley—70%) | | | 1.90 | | | | 6.80 | | | | (72 | )% |
Transco Zone 5 North (Maryland) | | | 2.74 | | | | 8.55 | | | | (68 | )% |
Texas Eastern M‑2 (Fairview) | | | 1.63 | | | | 5.53 | | | | (71 | )% |
Dominion South Pt (Valley—30%) | | | 1.63 | | | | 5.51 | | | | (70 | )% |
Algonquin City Gate (Towantic) | | | 2.94 | | | | 9.15 | | | | (68 | )% |
Chicago City Gate (Three Rivers) | | | N/A | | | | N/A | | | | N/A | |
| * | Source: The Day‑Ahead prices at gas Midpoints as reported in Platt’s Gas Daily. The actual gas prices of the power plants of the CPV Group could be significantly different. |
The natural gas prices in the U.S. started to rise in the second half of 2021 due to the recovery from the economic crisis that took place against the outbreak of COVID-19 and even more so as a result of the outbreak of the war between Russia and the Ukraine in the beginning of 2022. The natural gas prices remained high in 2022, while the generation levels of the natural gas were relatively low. At the end of December 2022, the natural gas prices fell sharply upon the rise in levels of generation of natural gas and the slowdown of the demand owing to the warm winter, and they remained at a significantly lower rate in 2023 compared with the prior year due to the relatively high inventory levels. In January and February 2024, the trend continued against the background of moderate winter weather and an increase in the inventory levels of natural gas. Some of the gas generators began giving notice of cutbacks in the scope of the generation in response to the low natural gas price, where there is no certainty regarding the continuation of this trend or its impact on the natural gas prices.
Electricity margin in the operating markets of the CPV Group (Spark Spread with Power Basis)
Electricity margins for the CPV Group’s Energy Transition business line is highly correlated with the Spark Spread, which is calculated as the difference between: 1) price of the electricity in the region plus or minus any Power Basis, and the result of 2) the price of the natural gas (used for generation of the electricity) in the relevant area (zone) applied to thermal conversion ratio (“Heat Rate”). The Spark Spread is calculated based on the following formula:
Spark Spread ($/MWh) = price of the electricity ($/MWh) +/-Power Basis ($MWh) – [the gas price ($/MMBtu) x Heat Rate (MMBtu/MWh)]
Set forth below are the average Spark Spread for each of the main markets in the power plants of the CPV Group are operating (the prices are denominated in dollars per megawatt/hour)*:
| | For the | |
| | Year Ended | |
Power Plant | | | |
| | | | | | | | | |
Shore | | | 19.95 | | | | 26.17 | | | | (24 | )% |
Maryland | | | 14.15 | | | | 14.10 | | | | – | |
Valley | | | 20.72 | | | | 37.96 | | | | (45 | )% |
Towantic | | | 17.71 | | | | 26.09 | | | | (32 | )% |
Fairview | | | 20.22 | | | | 33.48 | | | | (40 | )% |
Three Rivers | | | – | | | | – | | | | – | |
| * | Based on electricity prices as shown in the above table, with a discount for the thermal conversion ratio (heat rate) of 6.9 MMBtu/MWh for Maryland, Shore and Valley, and a thermal conversion ratio of 6.5 MMBtu/MWh for Three Rivers, Towantic and Fairview. The actual energy margins of the power plants of the CPV Group could be significantly different due to, among other things, the existence of Power Basis as described above. |
The decrease in the electricity margins (Spark Spread with Power Basis) in 2023 and in the fourth quarter of 2023 compared with the corresponding periods in the prior year, as shown by the above table, corresponds to the trend of a significant decrease in the natural gas prices along with a more moderate decline in the electricity prices.
The hedging of the electricity margins in the power plants of the CPV Group that are powered by natural gas is intended to reduce the fluctuations of the CPV Group’s electricity margin resulting from changes in the natural gas and electricity prices in the energy market.
Set forth below is the scope of the hedging for 2024 as at March 12, 2024 (the data presented in the tables below is on the basis of the rate of holdings of the CPV Group in the associated companies).
| 2024 |
| |
Expected generation (MWh) | 9,773,754 |
| |
Net scope of the hedged energy margin (% of the power plant’s capacity based on the expected generation) (1) | 50% |
| |
Net hedged energy margin (millions of $) | ≈ 74.9 |
| |
Net hedged energy margin (MWh/$) | 15.30 |
| |
Net market prices of energy margin (MWh/$) (2) | 16.49 |
(1) Pursuant to the policy for hedging electricity margins in general, the CPV Group seeks to hedge up to 50% of the scope of the expected generation. The actual hedge rate could ultimately be different. In general, the hedge is made for a period of 24 months and most of it is for a period of 12 months forward and, accordingly, as at December 31, 2023, the scope of the hedges made for 2025 is not material.
(2) The net energy margin is the energy margin (Spark Spread) plus/minus Power Basis less carbon tax and other variable costs. The market prices of the net hedged energy are based on future contracts for electricity and natural gas.
Capacity Revenues
Capacity is a component that is paid by regulatory bodies that manage demand and loads (system operators) for electricity generators, with respect to their ability to generate energy at the required times for purposes of reliability of the system. This revenue component is an additional component, separate from the component based on the energy prices (which is paid in respect of sale of the electricity). The payment component includes an entitlement to revenue for availability of the electricity, including provisions regarding bonus or penalty payments, which are governed by the tariffs determined by the FERC of every market. Accordingly, NY-ISO, PJM and ISO-NE publish mandatory public tenders for determination of the capacity tariffs.
Set forth below is the scope of the secured capacity revenues for 2024:
| 2024 |
| |
Scope of the secured capacity revenues (% of the power plant’s capacity) | 89% |
| |
Capacity payments (millions of $) | ≈ 56 |
The PJM market
In the PJM market, capacity payments vary between sub-zones in the market, as a function of local supply and demand and transmission capabilities. Below are the capacity rates in the sub-zones relevant to the projects of the CPV Group and in the general market (prices are denominated in USD for megawatt per day). Generally, the capacity prices have declined from period to period as illustrated in the table below:
Sub-zone | CPV power plants(1) | 2024/2025 | 2023/2024(2) | 2022/2023 | 2021/2022 |
PJM—RTO | -- | 28.92 | 34.13 | 50 | 140 |
PJM COMED | Three Rivers | 28.92 | 34.13 | - | - |
PJM MAAC | Fairview, Maryland, Maple Hill | 49.49 | 49.49 | 95.79 | 140 |
PJM EMAAC | Shore | 54.95 | 49.49 | 97.86 | 165.73 |
Source: PJM.
(1) The Three Rivers project, which is under construction, will be eligible for capacity payments as from its commercial operation date, subject to completion of construction.
(2) As stipulated in the capacity tenders which took place in June 2022.
In October 2023, PJM submitted to FERC changes in the format for the capacity market for the purpose of applying the changes to the tenders planned for July 2024 (for a one year period that starts in the middle of 2025). The proposed changes include changes in the modeling of risks, a recognition process for the source of the capacity, requirements for examination of generators, a ceiling for an annual penalty on the performance levels and a ceiling for recognized bids. In the estimation of the CPV Group, the proposed changes, if approved, are expected to have a positive impact on the capacity tariffs.
The NYISO market
Similar to the PJM market, in the NYISO market, capacity payments are made as part of a centralized capacity purchase mechanism. The NYISO market has a number of sub-markets, which may have different capacity requirements as a function of local supply and demand and transmission capacities. NYISO holds seasonal tenders every spring for the coming summer (May to October), and in the fall for the coming winter (November to April). In addition, monthly supplementary tenders are held for the unsold capacity in the seasonal tenders. The power plants are permitted to guarantee the capacity tariffs in the seasonal and monthly tenders or through bilateral sales.
Below are the capacity prices set in the seasonal tenders held on the NYISO market. The Valley power plant is located in Zone G (Lower Hudson Valley) and the actual capacity prices for Valley are affected by seasonal and monthly tenders and spot prices, with variable monthly capacity prices and bilateral agreements with energy suppliers on the market (prices are denominated in USD for megawatt per month).
Sub-zone | CPV power plants | Winter 2023/2024 | Summer 2023 | Winter 2022/2023 | Summer 2022 |
NYISO Rest of the Market | - | 127.25 | 153.26 | 39.23 | 110.87 |
Lower Hudson Valley | Valley | 128.9 | 164.35 | 43.43 | 151.63 |
Source: NYISO.
The ISO-NE market
Similar to the PJM market, in the ISO NE market capacity payments are made as part of a central mechanism for acquisition of capacity. In the ISO NE market, there are a number of submarkets, in which capacity requirements differ as a function of local supply and demand and transport capacity. ISO NE executes forward tenders for a period of one year, commencing from June 1, three years from the year of the tender. In addition, there are supplementary monthly and annual tenders for the balance of the capacity not sold in the forward tenders. The power plants are permitted to guarantee the capacity payments in the forward tenders, the supplementary tenders or through bilateral sales. Set forth below are the capacity payments determined in the sub regions that are relevant to the Towantic power plant (the prices are denominated in dollars per megawatt per day):
Sub-area | CPV power plants | 2027/2028 | 2026/2027 | 2025/2026 |
ISO-NE Rest of the market | Towantic | 117.70 | 85.15 | 85.15 |
The actual capacity payments for the Towantic power plant are impacted by forward tenders, supplemental annual tenders, monthly tenders with variable capacity prices in every month and bilateral agreements with the energy suppliers in the market.
Hedging
In general, with the current generation mix of less efficient units compared to those of CPV, the higher the gas prices—the higher the marginal energy prices, of the CPV Group facilities (the effect may vary between different projects due to their characteristics and location). This effect may be partially or fully offset by hedging plans in respect of some of the electricity and capacity margins, with the aim of moderating the volatility in the commodities market in general and the energy and natural gas prices in particular. In general, the CPV Group seeks to hedge up to 50% of the scope of the expected generation. Generally, the agreements are for time periods of up to 24 months (mostly for the next 12 months) for Energy Transition power plants for a portion of the output. During 2023, hedging agreements and future sale agreements were in place for the Energy Transition power plants.
The Inflation Reduction Act
In August 2022, the Inflation Reduction Act of 2022 was signed by the President of the U.S. and it became law which, among other things, grants significant tax credits for renewable energies and technologies for carbon capture, and one of the targets of the IRA is to lead to an increase of the generation of renewable energies and the regulatory stability in the area. The following are key arrangements set forth in the IRA that may be relevant for CPV Group’s activities.
CPV believes that the IRA is expected to have a positive impact on initiation, development and construction projects involving renewable energies and, among other things, on increasing the value of the tax credits that are expected to be received compared with the situation existing prior to passage of the IRA. In addition, the possibility of selling the tax benefits is expected to increase the CPV Group’s ability to realize part of the value of the tax credits of its renewable energy projects and to improve the investment conditions.
Regarding projects under development that include carbon capture technologies, CPV believes that the IRA is expected to have a positive impact due to the benefits it provides. The IRS published some of the arrangements relating to the manner of implementation of the IRA. Nonetheless, some of the impacts of the IRA and the manner of its application have not yet been fully clarified and they are expected to be clarified upon publication of detailed arrangements.
Projects for generation of electricity that start their activities after December 31, 2024, that emit zero or less greenhouse gases, are entitled to ITC or PTC neutral technology under the IRA, in accordance with the same credit levels described above for the existing ITC or PTC. These tax credits are expected to gradually decline commencing from the later of 2032 or when emissions of greenhouse gases in the U.S. from generation of electricity will be equal to or less than 25% of the emission levels from generation of electricity for 2022. Projects entitled to these tax credits will also be entitled to five-year accelerated depreciation for the project’s assets.
Natural gas with reduced emissions
The IRA includes a tax credit for electricity generation facilities having carbon capture capability at the rate of about 75% of the emission. The rate of the credit will be $60 per ton of carbon for carbon removed by injection into active oil wells (Enhanced Oil Recovery) and $85 per ton of carbon for carbon interred in a permanent manner. This benefit is granted as a direct payment during the first five years and as a tax credit during an additional seven years.
CPV believes that the IRA is expected to have a positive impact on initiation, development and construction projects involving renewable energies and, among other things, on increasing the value of the tax credits that are expected to be received compared with the situation existing prior to passage of the IRA. In addition, the possibility of selling the tax benefits is expected to increase the CPV Group’s ability to realize part of the value of the tax credits of its renewable energy projects and to improve the investment conditions.
Regarding projects under development that include carbon capture technologies, CPV believes that the IRA is expected to have a positive impact due to the benefits it provides. The IRS published some of the arrangements relating to the manner of implementation of the IRA. Nonetheless, some of the impacts of the IRA and the manner of its application have not yet been fully clarified and they are expected to be fully understood upon publication of all of the detailed arrangements.
Carbon capture projects
The IRA broadens the generation tax credits available for capture and/or use of carbon dioxide. For electricity generation facilities that install carbon capture technologies with the capability of capturing 75% or more of the generation base of the carbon dioxide, the said generation tax credit for the first 12 years after commencement of activities if the relevant electricity generation facility captures at least 18,750 metric tons of carbon dioxide per year. The amount of the base credit is $17 per metric ton of carbon dioxide captured and separated and $12 per metric ton of carbon dioxide invested in intensified restoration of fuel oil (EOR) or is used in another generation process. Similar to the ITC and PTC for renewable energies, PTC for carbon capture can be increased if the project meets the usual earnings and registration processes. The ceiling for the credit for separated carbon dioxide is $85 per metric ton and the ceiling for the EOR credit and other beneficial re uses (recycling) is $60 per metric ton. In addition, the tax credit permits direct payment up to the first five years on carbon capture equipment that is placed into service after December 31, 2022.
For projects of the CPV Group that are in the development stage, and that integrate technologies for carbon capture, the IRA is expected to have a positive impact in all that relating to the technological benefits for carbon capture provided in the IRA. The full impacts of the IRA have not yet been finally clarified, and they are expected to be clarified upon formulation of the detailed arrangements.
ZIM
Kenon had a 26%21% equity interest in ZIM as of December 31, 20212023 (following completion of ZIM’s IPO in February 2021 and share sales of approximately 1.2 million ZIM shares between September and November 2021). ZIM’s results of operations for the years ended December 31, 20212023 and 20202022 are reflected in Kenon’s share in losses/(profit) of associated companies, net of tax, pursuant to the equity method of accounting.
Market Volatility. The container shipping industry continues to be characterized in recent years by volatility in freight rates, charter rates and bunker prices, accompanied by significant uncertainties in the global trade (including furtherthe implications that might derive fromof the COVID-19 pandemic)War in Israel, the ongoing military conflicts between Israel and Hamas and Hezbollah and Russia and Ukraine, the rise of inflation in certain countries, or the continuing trade restrictions between the US and China). Current marketMarket conditions impact positively,during 2021 and 2022 was positive, resulting in the ZIM’s improved results of ZIM,and strengthened capital structure, mainly driven by increased freight rates. Following the peak levels reached during 2021 and the first quarter of 2022, freight rates have decreased in most trades throughout the remainder of the year 2022 and volumesduring 2023 as a result of reduced demand and increased capacity as well as the easing of both COVID-19 restrictions and congestion in ports, although some increases were demonstrated in certain trades partially offset bytowards the impactend of increased charter hire rates and bunker prices.2023, related to security concerns raised in the Red Sea.
Volume of cargo carried. The volume of cargo that ZIM carries affects its income and profitability from voyages and related services and varies significantly between voyages that depart from, or return to, a port of origin. The vast majority of the containers ZIM carries are either 20-20 or 40-foot40 foot containers. ZIM measures its performance in terms of the volume of cargo it carries in a certain period in 20-foot20 foot equivalent units carried, or TEUs carried. ZIM’s management uses TEUs carried as one of the key parameters to evaluate ZIM’s performance, used in real-time and take actions, to the extent possible, to improve performance.
Additionally, ZIM’s management monitors TEUs carried from a longer-term perspective, to deploy the right capacity to meet expected market demand. Although the volume of cargo that ZIM carries is principally a function of demand for container shipping services in each of its trade routes, it is also affected by factors such as ZIM’s:as:
local shipping agencies’ effectiveness in capturing such demand;
level of customer service, which affects itsZIM’s ability to retain and attract customers;
ability to effectively deploy capacity to meet such demand;
operating efficiency; and
ability to establish and operate existing and new services in markets where there is growing demand.
The volume of cargo that ZIM carries is also impacted by its participation in strategic alliances (in which we currently do not participate) and other cooperation agreements. In periods of increased demand and increased volume of cargo, ZIM adjusts capacity by chartering-in additional vessels and containers and/or purchasing additional slots from partners, to the extent feasible. During these periods, increased competition for additional vessels and containers may increase ZIM’sits costs. ZIM may deploy its capacity through additional vessels and containers in existing services, through new services that ZIM operates independently or through the exchange of capacity with vessels operated by other shipping companies or other cooperative agreements. In periods of decreased volumes of cargo, ZIM may adjust capacity to demand by electing to reduce its fleet size in order to reduce operating expenses mainly by redelivering chartered-in vessels and not renewing their charters, or by cancelling specific voyages (which are referred to as “blank sailings”). ZIM may also elect to close existing services within, or exit entirely from, less attractive trades. As a substantial portion of its fleet is chartered-in, ZIM retains a relatively high level of flexibility even though it is less so when it concerns vessels that are long-term chartered.
Freight rates. Freight rates are largely established by the freight market and ZIM has a limited influence over these rates. ZIM uses average freight rate per TEU as one of the key parameters of its performance. Average freight rate per TEU is calculated as revenues from containerized cargo during a certain period, divided by total TEUs carried during that period. Container shipping companies have generally experienced volatility in freight rates. Freight rates vary widely as a result of, among other factors:
cyclical demand for container shipping services relative to the supply of vessel and container capacity;
competition in specific trades;
costs of operation;
operation (including bunker, terminal and charter costs);
the particular dominant leg on which the cargo is transported;
average vessel size in specific trades;
the origin and destination points selected by the shipper; and
the type of cargo and container type.
As a result of some of these factors, including cyclical fluctuations in demand and supply, container shipping companies have experienced volatility in freight rates. For example, the comprehensive Shanghai (Export) Containerized Freight Index (SCFI) increased from 818 points on April 23, 2020, with the global outbreak of COVID-19, to 5,047 as of December 31, 2021. Since2021, but as of December 31, 2023, was 1,760. Freight rates have significantly declined in the middlesecond half of 2020, the industry has witnessed a sharp2022 and unprecedented increase in freight rates, reflecting the sudden demand surge triggered by the COVID-19 pandemic and the unprecedented supply chain disruptions.2023. Furthermore, rates within the charter market, through which ZIM sourceswe source most of itsour capacity, may also fluctuate significantly based upon changes in supply and demand for shipping services. The current severe shortage of vessels available for hire during 2021 and the first half of 2022 has resulted in increased charter rates and longer charter periods dictated by owners. Since September 2022, charter hire rates have been normalizing, with vessel availability for hire still low. In addition, according to Alphaliner, global container ship capacity has increasedis expected to increase by 4.5%9.9% in 2021,2024, with a vessel order book of 7.1 million TEU, while demand for shipping services is projected to increase only by 6.7%, therefore2.2%. Therefore, the increase in ship capacity is expected to be lessmore than the increase in demand for container shipping for a second consecutive year.
There are certain cargo segments whichtypes that require more expertise; for example, ZIM charges a premium over the base freight rate for handling specialized cargo, such as refrigerated, liquid, over-dimensional, or hazardous cargo, which require more complex handling and more costly equipment and are generally subject to greater risk of damage. ZIM believes that its commercial excellence and customer centric approach across itsZIM’s network of shipping agencies enable itZIM to recognize and attract customers who seek to transport such specialized types of cargo, which are less commoditized services and more profitable. ZIM intends to focus on growing the specialized cargo transportation portion of its business: the portion of dangerous and hazardous cargo out of ZIM’s total TEU carried grew by approximately 5% during 2021 compared to 2020,business and the portion of reefer cargo out of ZIM’sits total TEU carried grew by approximately 11%6% during 20212023 compared to 2020.2022. ZIM also charges a premium over the base freight rate for global land transportation services it provides. Further, from time to time ZIM imposes surcharges over the base freight rate, in part to minimize its exposure to certain market-related risks, such as fuel price adjustments, increased insurance premiums in war zones, exchange rate fluctuations, terminal handling charges and extraordinary events, although usually these surcharges are not sufficient to recover all of ZIM’s costs. Amounts received related to these adjustment surcharges are allocated to freight revenues.
Cargo handling expenses. Cargo handling expenses represent the most significant portion of ZIM’s operating expenses. Cargo handling expenses primarily include variable expenses relating to a single container, such as stevedoring and other terminal expenses, feeder services, storage costs, balancing expenses arising from repositioning containers with unutilized capacity on the non-dominantcounter-dominant leg, and expenses arising from inland transport of cargo. ZIM manages the container repositioning costs that arise from the imbalance between the volume of cargo carried in each direction using various methods, such as triangulating its land transportation activities and services. If ZIM is unable to successfully match requirements for container capacity with available capacity in nearby locations, it may incur balancing costs to reposition its containers in other areas where there is demand for capacity. Cargo handling accounted for 48.1%43.0%, 50.5%41.6%, and 50.6%48.1% of ZIM’s operating expenses and cost of services for the years ended December 31, 2021, 20202023, 2022 and 2019.2021.
Bunker expenses. FuelBunker expenses, in particular bunkermainly comprised of fuel expenses,and marine LNG consumption, represent a significant portion of ZIM’s operating expenses. As a result, changes in the price of bunker or in ZIM’s bunker consumption patterns can have a significant effect on itsZIM’s results of operations. Bunker price has historically been volatile, can fluctuate significantly and is subject to many economic and political factors that are beyond ZIM’s control. Bunker prices have decreased in 2023, following an increase in 2022, partially due to the military conflict between Russia and Ukraine. ZIM has entered into a sale and purchase agreement with Shell to supply LNG for its 15,000 TEU LNG dual fuel vessels, which have been relatively low during 2020,delivered, and they have increased during 2021.ZIM expects to rely on Shell and other LNG suppliers for the purchase and supply of LNG for the remaining of its LNG dual fuel fleet to be delivered. ZIM’s bunker fuel consumption is affected by various factors, including the number of vessels being deployed, vessel size, pro forma speed, vessel efficiency, weight of the cargo being transported and sea state. In 2021, ZIM’s bunker consumption per mile increased by approximately 1.8%, mainly as a result of increased vessels speed intended to recover voyage schedules due to delays caused by port congestion. ZIM’s fuel expenses, which consist primarily of bunker expenses, accounted for approximately28.3%, 30.1%, and 18.9%, 12.8% and 13.8% of its operating expenses and cost of services for the years ended December 31, 2021, 20202023, 2022 and 2019,2021, respectively.
Vessel charter portfolio. Most of ZIM’s capacity is chartered in. As of December 31, 2021,2023, ZIM chartered-in 114144 vessels, (including 106 vessels accounted as right-of-use assets under the lease accounting guidance of IFRS 16 and 4 vessels accounted under sale and leaseback refinancing agreements), which accounted for 96.9%95.0% of itsZIM’s TEU capacity and 96.6%93.8% of the vessels in ZIM’s fleet. Of such vessels, all are under a “time charter”,charter,” including three vessels chartered in from related parties, which consists of chartering-in the vessel capacity for a given period of time against a daily charter fee and 110 of which are with the owner handling the crewing and technical operation of the vessel, including 11 vessels chartered-in from related parties.vessel. Four of ZIM’s vessels arewere chartered-in under a “bareboat charter”,charter,” which consists of chartering a vessel for a given period of time against a charter fee, with ZIM handling the operation of the vessel.vessel but they were re-delivered to their owners during 2023, so currently none of ZIM’s vessels are chartered-in under a bareboat charter. Under these arrangements, both parties are committed for the charter period; however, vessels temporarily unavailable for service due to technical issues will qualify for relief from charges during such period (off hire). In February 2021,Further to the implementation of IFRS 16 (‘Leases’) on January 1, 2019, vessel charters with an expected term exceeding one year, are accounted through depreciation and interest expenses. Accordingly, the composition of our charter fleet in respect of expected term, affects the classification of our costs related to vessel charters. ZIM and Seaspan Corporation entered into strategic agreementsalso purchases “slot charters,” which involve the purchase of slots on board of another shipping company’s vessel. Generally, these rates are based primarily on demand for the long-term charter of ten 15,000 TEU and fifteen 7,000 TEU liquified natural gas (LNG dual-fuel container) vessels, to serve ZIM’s Asia-US East Coast Tradecapacity as well as other global-niche trades.the available supply of container ship capacity. As a result of macroeconomic conditions affecting trade flow between ports served by container shipping companies and economic conditions in the industries which use container shipping services, bareboat, time and slot charter rates can, and do, fluctuate significantly and are generally affected by similar factors that influence freight rates. ZIM’s results of operations may be affected by the composition of its general chartered-in vessels portfolio. Slots purchase and charter hire of vessels (other than those recognized as right-of-use-assets) accounted for 2.0%, 8.4%, and 13.6%, of its operating expenses and cost of services for the years ended December 31, 2023, 2022 and 2021, respectively.
EBITDA, Adjusted EBIT and Adjusted EBITDA
We present EBITDA and Adjusted EBITDA of OPC and Adjusted EBIT and Adjusted EBIT of ZIM. These are all is a non-IFRS financial measures, and are defined in this report where these figures are presented.
We present EBITDA, Adjusted EBIT and Adjusted EBITDA in this annual report because each is a key measure used by our businesses to evaluate their operating performance. Accordingly, we believe that EBITDA, Adjusted EBIT and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating the operating results of our businesses and comparing such operating results between periods on a consistent basis, in the same manner as our businesses.
Adoption of New Accounting Standards in 20222023
For information on the impact of the adoption of new accounting standards, see Note 3 to our financial statements included in this annual report.
Impairment Tests of ZIM
As a resultFor the purposes of improved conditions inKenon’s impairment assessment of its investment, ZIM is considered one CGU, which consists of all of ZIM’s operating assets. The recoverable amount is based on the container shipping markethigher of the value-in-use and operating conditions at ZIM throughout 2021,the fair value less cost of disposal (“FVLCOD”).
In December 2022, Kenon conducted anidentified indicators of impairment analysis in relation to its 26% equity investment in ZIM as of December 31, 2021 in accordance with IAS 28. The analysis28 as a result of a significant decrease in ZIM’s market capitalization towards the end of 2022. Therefore, the carrying value of Kenon’s investment in ZIM was tested for impairment in accordance with IAS 36.
Kenon assessed the fair value of ZIM to be its market value as at December 31, 2022 and also assessed that, based solely on publicly available information within the current volatile shipping industry, no reasonable VIU (value-in-use) calculation could be performed. As a result, Kenon concluded that the carryingrecoverable amount of its investment in ZIM was lower thanis the market value. ZIM is accounted for as an individual share making up the investment and that no premium is added to the fair value of ZIM. Kenon measures the recoverable amount based on FVLCOD (fair value less costs of disposal), measured at Level 1 fair value measurement under IFRS 13.
Given that market value is below carrying value, Kenon recognized an impairment of $929 million.
As of December 31, 2023, the carrying amount of ZIM had been reduced to zero after taking into account the equity accounted losses of ZIM and therefore, there were no assessment of further impairment indicators.of ZIM was necessary. Further, as of December 31, 2023, Kenon did not identify any objective evidence that the previously recognized impairment loss no longer exists or the previously assessed impairment amount may have decreased, and therefore, in accordance with IAS 36, no reversal of impairment was recognized.
Sale of ZIM shares
In March 2022, Kenon sold approximately 6 million ZIM shares for total consideration of approximately $463 million. As a result of the sale, Kenon recognized a gain on sale of approximately $205 million in its consolidated financial statements.
Recent Developments
Kenon
Capital reductionDividends
In March 2024, Kenon announced a dividend of approximately $200 million ($3.80 per share) relating to the year ending December 31, 2024 payable in April 2024.
OPC
Gnrgy Separation Agreement
On January 15, 2024, OPC Israel (which owns 51% in Gnrgy Ltd.) entered into a separation agreement (the “Separation Agreement”) with the minority shareholder in Gnrgy, who holds the remaining 49% interest in Gnrgy (the “Founder”). Pursuant to the Separation Agreement, OPC Israel has a first right to purchase all of the Founder’s shares in Gnrgy on the dates and terms set forth in the Separation Agreement. If OPC Israel (or a third party acting on its behalf) does not within the agreed period of time issue a notice to purchase the Founder’s shares in Gnrgy on the terms set forth in the Separation Agreement, the Founder would have the right to purchase OPC Israel’s shares in Gnrgy on the terms set in the Separation Agreement. If no such notice is delivered by the Founder (or a third party acting on its behalf) during the prescribed time period, the Separation Agreement would terminate, and the parties’ holdings in Gnrgy would remain unchanged. OPC also announced that OPC Israel has entered into a non-binding memorandum of understanding with a third party regarding a potential merger of operations between Gnrgy and the third party, whereby, among other things, OPC Israel would sell to the third party its shares in Gnrgy in exchange for shares in the third party (which is not expected to give OPC Israel control over the third party), and the third party would acquire all of the Founder’s shares in Gnrgy (the “Gnrgy Transaction”).
We will seek shareholder approval for a capital reduction at our forthcoming Annual General MeetingThe Gnrgy Transaction, including whether or not the parties proceed with the transaction, its structure and final conditions (if finalized) are subject to, among other things, the execution of binding agreements with the third party and the holders of rights in the third party, and to mutual due diligence to be held on or about May 19, 2022 (“2022 AGM”) to return share capital amounting to $10.25 per share ($552 millionconducted by the parties within a time period set forth in total) (“Capital Reduction”) to our shareholders, subject to and contingent upon the approvalmemorandum of the High Court of the Republic of Singapore.understanding. In connection with this transaction, OPC recognized an impairment loss in respect of goodwill recorded in connection with the 2022 AGM, we intend to publish on or about April 27, 2022acquisition of approximately NIS 23 million ($6 million).
Issuance of Bonds (Series D)
In January 2024, OPC issued a proxy and information statement,series of bonds at a par value of approximately NIS 200 million (approximately $53 million), with the proceeds of the issuance designated for OPC’s needs, including further informationfor recycling of an existing financial debt (Series D). The bonds are listed on the Capital Reduction. FollowingTASE, are not CPI-linked and bear annual interest of 6.2%. The principal and interest for Series D bonds will be repaid in unequal semi-annual payments (on March 25, and September 25), as set out in the amortization schedule, starting from March 25, 2026 in relation to the principal and September 25, 2024 in relation to interest.
In February 2024, OPC-Rotem entered into an agreement with Partner Communications for the purpose of selling electricity to Partner Communications’ consumers, who are household consumers or small businesses (SMB) as decided between the parties. The agreement will allow the diversification of OPC’s customer mix and production facilities.
According to the agreement, OPC will supply electricity at maximum quantities and under the conditions as defined therein, to Partner Communications’ customers, who will enter into an agreement with OPC and Partner Communications for the supply of electricity by OPC. Partner Communications will be required to maintain interfaces with the electricity consumers in connection with the sale of the electricity thereto, and will be entitled to the payments that it will collect from the electricity consumers in respect of the supply of the electricity. OPC is required to supply the electricity, and is entitled to payment from Partner Communications in accordance with the quantity of electricity that the consumers will consume in accordance with the tariff set in the agreement.
The agreement is not subject to an undertaking by Partner Communications to purchase a minimum quantity of electricity or to sign-on a minimum number of consumers. However, the agreement provides for an undertaking by Partner Communications not to sign-on or supply electricity to its customers from any source other than through OPC, so long as a certain number of its customers has not signed-on to OPC in accordance with the agreement. The agreement sets a maximum number of household electricity consumers that can be signed-on to OPC, and a maximum hourly consumption in relation to SMBs, unless it is agreed otherwise by Partner Communications and OPC. The agreement is effective from April 1, 2024 to March 31, 2030, subject to early termination provisions.
MOU for construction and operation of the power plant for Intel Israel
On March 3, 2024, a subsidiary of OPC entered into the non-binding MoU with Intel, an existing customer of OPC, pursuant to which OPC’s subsidiary will construct and operate a power plant with a capacity of at least 450 MW (and OPC does not expect capacity to exceed 650 MW) (the “Project”). The Project will supply electricity to Intel’s facilities in Kiryat Gat, including an expansion of the facilities which is currently taking place, for a period of 20 years from the commercial operation date. OPC estimates that the construction cost of the Project will be approximately $1.3 - $1.4 million per MW, and that subject to the completion of the Capital Reduction, our share capitaldevelopment and planning procedures, the Project is expected to be $50 million.reach the construction stage during 2026. For further details about the project, see “Item 4B—Business Overview—Our Businesses—OPC—OPC Description of Operations—Israel—Potential Expansions and Projects in Various Stages of Development.”
OPC-Rotem Supply License
In March 2024, OPC reported that the EA issued a resolution (the “Supply License Resolution”) regarding the hearing on complementary arrangements and the application of certain regulatory standards to OPC-Rotem (in which OPC has an 80% indirect stake). The Supply License Resolution addresses the application of certain standards to OPC-Rotem, including those regarding deviations from consumption plans submitted by private electricity suppliers, and the award of a supply license to OPC-Rotem (if it applies for one and complies with the conditions for receipt thereof). This is in light of the Israeli Electricity Authority’s stated intention to consolidate the regulation that applies to OPC-Rotem with the regulation applicable to other power producers entering into bilateral transactions with customers, thereby allowing OPC-Rotem to operate in the energy market in Israel in a manner that is similar to that of other electricity generation facilities that are allowed to conduct bilateral transactions. The Supply License Resolution will come into force on May 1, 2024.
Qoros
In February 2024, CIETAC issued a final award, not subject to any conditions, in favor of Kenon’s wholly-owned subsidiary Quantum. The tribunal ruled that the Majority Qoros Shareholder and Baoneng Group are obligated to pay Quantum approximately RMB 1.9 billion (approximately $268 million), comprising the purchase price set forth in the Sale Agreement (as adjusted for inflation) of approximately RMB 1.7 billion (approximately $239 million), together with pre-award and post-award interest (which will accrue until payment of the award), legal fees and expenses. Kenon intends to seek to enforce this award against the Majority Qoros Shareholder and Baoneng Group since they have failed to perform their payment obligations under the award. In connection with this arbitration, Kenon has obtained a court order freezing assets of Baoneng Group at different rankings (primarily comprising equity interests in entities owning directly and indirectly listed and unlisted equity interests in various businesses).
Any value that could be realized in respect of this award is subject to significant risks and uncertainties, including the risk that Quantum may be unable to enforce the award or otherwise collect the amounts awarded or otherwise owing to it, risks relating to any action that may be taken seeking to challenge the award or enforcement of the award, risks relating to the process for enforcement of judgments in this proceeding/jurisdiction, risks relating to the financial condition of the parties subject to the award, risks related to the value in respect of any frozen assets pursuant to court orders as well as the risk of competing claims and Kenon’s ability to realize any value in respect of such assets or otherwise in connection with the award, including the risk that Kenon does not realize any value from such assets or any value that is realized is less than amounts owed to Kenon and other risks and uncertainties which could impact Quantum’s ability to realize any value from this award.
See “Item 3.D—Risks Related to Our Strategy and Operations—We face risks in relation to our remaining 12% interest in Qoros, including risks relating to collection of the arbitration award in connection with this agreement.”
ZIM
OnIn February 2024, ZIM completed the acquisition of additional three 10,000 TEU vessels and two 8,500 TEU vessels that ZIM already chartered by exercising an option to acquire them, so as of March 9, 2022,1, 2024, ZIM owned 14 vessels in ZIM’s board of directors declared a cash dividend of approximately $2.04 billion, or $17.00 per ordinary share, resulting in a cumulative annual dividend amount of approximately 50% of 2021 net income, to be paid on April 4, 2022, to holders of the ordinary shares on March 23, 2022.operated fleet.
Our consolidated financial statements for the years ended December 31, 20212023 and 20202022 are comprised of OPC, and the results of theour associated companies (Qoros, until the 2020 sale of half (12%) of Kenon’s remaining interest in Qoros, and ZIM).companies.
For a comparison of Kenon’s operating results for the fiscal year ended December 31, 20202022 with the fiscal year ended December 31, 2019,2021, please see Item 5.A of Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2020.2022.
Kenon’s consolidated results of operations from its operating companies essentially comprise the consolidated results of OPC. Our share of the results of ZIM (and CPV’s associated companies) is reflected under results from associated companies.
Year Ended December 31, 20212023 Compared to Year Ended December 31, 20202022
The following tables set forth summary information regarding our operating segment results for the years ended December 31, 20212023 and 2020.2022.
| | Year Ended December 31, 2021 | |
| | | | | | | | | | | | | | | | | | |
| | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 437 | | | | 51 | | | | — | | | | — | | | | — | | | | 488 | |
Depreciation and amortization | | | (44 | ) | | | (13 | ) | | | — | | | | — | | | | (1 | ) | | | (58 | ) |
Financing income | | | 3 | | | | — | | | | — | | | | — | | | | — | | | | 3 | |
Financing expenses | | | (119 | ) | | | (25 | ) | | | — | | | | — | | | | — | | | | (144 | ) |
Losses related to Qoros | | | — | | | | — | | | | — | | | | (251 | ) | | | — | | | | (251 | ) |
Share in (losses)/profit of associated companies | | | — | | | | (11 | ) | | | 1,261 | | | | — | | | | — | | | | 1,250 | |
(Loss) / Profit before taxes | | | (57 | ) | | | (61 | ) | | | 1,261 | | | | (251 | ) | | | (12 | ) | | | 880 | |
Income tax benefit/(expense) | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) / Profit from continuing operations | | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets3 | | | 1,512 | | | | 431 | | | | — | | | | — | | | | 227 | | | | 2,170 | |
Investments in associated companies | | | — | | | | 545 | | | | 1,354 | | | | — | | | | — | | | | 1,899 | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2023 | |
| | | | | | | | | | | | | | | |
| | | |
| | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 619 | | | | 73 | | | | — | | | | — | | | | 692 | |
Depreciation and amortization | | | (66 | ) | | | (25 | ) | | | — | | | | — | | | | (91 | ) |
Financing income | | | 6 | | | | 6 | | | | — | | | | 27 | | | | 39 | |
Financing expenses | | | (48 | ) | | | (17 | ) | | | — | | | | (1 | ) | | | (66 | ) |
Share in profit/(loss) of associated companies | | | — | | | | 66 | | | | (266 | ) | | | — | | | | (200 | ) |
Losses related to ZIM | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
Profit / (Loss) before taxes | | | 49 | | | | 17 | | | | (267 | ) | | | 15 | | | | (186 | ) |
Income tax expense | | | | | | | | | | | | | | | | | | | | |
Profit / (Loss) from continuing operations | | | | | | | | | | | | | | | | | | | | |
Segment assets(2) | | | 1,673 | | | | 1,103 | | | | — | | | | 629 | | | | 3,405 | |
Investments in associated companies | | | | | | | | | | | | | | | | | | | | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | |
________________________________
(1) | Subsidiary of Kenon that owns Kenon’s equity holding in Qoros.
|
(2) | Includes the results of Kenon’s, Qoros’ and IC Power’s holding company (including assets and liabilities) and general and administrative expenses. |
(3) | Excludes investments in associates.
|
| | Year Ended December 31, 2020 | |
| | | | | | | | | | | | | | | |
| | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 386 | | | | — | | | | — | | | | — | | | | 386 | |
Depreciation and amortization | | | (34 | ) | | | — | | | | — | | | | — | | | | (34 | ) |
Financing income | | | — | | | | — | | | | — | | | | 14 | | | | 14 | |
Financing expenses | | | (50 | ) | | | — | | | | — | | | | (1 | ) | | | (51 | ) |
Gains related to Qoros | | | — | | | | 310 | | | | — | | | | — | | | | 310 | |
Share in (losses)/profit of associated companies | | | — | | | | (6 | ) | | | 167 | | | | — | | | | 161 | |
Write back of impairment of investment | | | — | | | | — | | | | 44 | | | | — | | | | 44 | |
(Loss) / Profit before taxes | | | (9 | ) | | | 304 | | | | 211 | | | | (5 | ) | | | 501 | |
Income tax expense | | | | | | | | | | | | | | | | | | | | |
(Loss) / Profit from continuing operations | | | | | | | | | | | | | | | | | | | | |
Segment assets3 | | | 1,724 | | | | 235 | | | | — | | | | 226 | 4 | | | 2,185 | |
Investments in associated companies | | | | | | | | | | | | | | | | | | | | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | |
(1) | Subsidiary of Kenon that owns Kenon’s equity holding in Qoros.
|
(2) | Excludes investments in associates. |
| | Year Ended December 31, 2022 | |
| | | | | | | | | | | | | | | |
| | | |
| | (in millions of USD, unless otherwise indicated) | |
Revenue | | | 517 | | | | 57 | | | | — | | | | — | | | | 574 | |
Depreciation and amortization | | | (47 | ) | | | (16 | ) | | | — | | | | — | | | | (63 | ) |
Financing income | | | 10 | | | | 25 | | | | — | | | | 10 | | | | 45 | |
| | | (42 | ) | | | (7 | ) | | | — | | | | (1 | ) | | | (50 | ) |
Gains related to ZIM | | | — | | | | — | | | | (728 | ) | | | — | | | | (728 | ) |
Share in profit of associated companies | | | — | | | | 85 | | | | 1,033 | | | | — | | | | 1,118 | |
Profit / (Loss) before taxes | | | 24 | | | | 61 | | | | 305 | | | | (2 | ) | | | 388 | |
Income tax expense | | | | | | | | | | | | | | | | | | | | |
Profit / (Loss) from continuing operations | | | | | | | | | | | | | | | | | | | | |
Segment assets(2) | | | 1,504 | | | | 553 | | | | — | | | | 636 | | | | 2,693 | |
Investments in associated companies | | | | | | | | | | | | | | | | | | | | |
Segment liabilities | | | | | | | | | | | | | | | | | | | | |
(1) | Includes the results of Primus, as well as Kenon’s, Qoros’ and IC Green’sPower’s holding company (including assets and liabilities) and general and administrative expenses. |
(3)(2) | Excludes investments in associates. |
(4) | Includes Kenon’s, IC Green’s and IC Power’s holding company assets.
|
(5) | Includes Kenon’s, IC Green’s and IC Power’s holding company liabilities
|
Currency fluctuations in the USD/NIS exchange rate on the translation of OPC’s results from NIS into USD did not have a significanthad an impact on the results of 20212023 versus 20202022 discussed below.
Revenues
Our revenues (primarily representing OPC’s revenues) increased by $102$118 million to $488$692 million for the year ended December 31, 20212023 from $386$574 million for the year ended December 31, 2020.2022.
The table below sets forth OPC’s revenue for 20212023 and 2020,2022, broken down by category.country.
| | For the year ended December 31, | |
| | | | | | |
| | | |
Israel | | | | | | |
Revenue from sale of energy to private customers | | | 299 | | | | 275 | |
Revenue from private customers in respect of infrastructures services | | | 92 | | | | 80 | |
Revenue from sale of surplus energy | | | 28 | | | | 15 | |
Revenue from sale of steam | | | 18 | | | | 16 | |
| | | 437 | | | | 386 | |
U.S. | | | | | | | | |
Revenue from sale of electricity and provision of services in the U.S. | | | 51 | | | | — | |
Total | | | 488 | | | | 386 | |
| | For the year ended December 31, | |
| | | | | | |
| | | |
Israel | | | 619 | | | | 517 | |
U.S. | | | 73 | | | | 57 | |
Total | | | 692 | | | | 574 | |
OPC’s revenue increased by $118 million in 2023 as compared to 2022. Set forth below is a discussion of significant changes in revenue between 2023 and 2022.
OPC’s revenue from the sale of electricity to private customers derivesis derived from electricity sold at the generation component tariffs, as published by the EA, with some discount. Accordingly, changes in the generation component tariffs generally affectsaffect the prices paid under PPAsPower Purchase Agreements by customers of OPC-Rotem and OPC-Hadera. The weighted-average generation component tariff for 2021, as published by the EA,in 2023 was NIS 0.252630.53 per kWKW hour, as compared towhich is approximately 4% higher than the weighted-average generation component tariff in 2022 of NIS 0.267829.27 per kW hour in 2020. OPC’s revenues from sale of steam are linked partly to the price of gas and partly to the Israeli CPI.KW hour.
Set forth below is a discussion of the changes in revenues by category between 2021 and 2020.the key components in revenue for 2023 as compared to 2022.
| • | Revenue from sale of energy to private customers in Israel— increasedIncreased by $24$25 million in 2021,2023 as compared to 2020. As OPC’s revenue is denominated in NIS, translation of its revenue into US Dollars had a positive impact of $18 million.2022. Excluding the impact of exchange rate fluctuations,translating OPC’s revenue from NIS to USD, such revenues increased by $6$57 million primarily as a result of (i) an $18increase of $49 million from an increase due to a full yearin customer consumption and (ii) an increase of commercial operation$24 million from the consolidation of results of the OPC-Hadera power plantKiryat Gat Power Plant which was consolidated starting in 2021 and (ii) a $14 million increase reflecting the commencement of virtual supply in 2021,Q2 2023, partially offset by (i)(iii) a $19decrease of $9 million decrease due toas a declineresult of the change in the generation component tariff and (ii) a $7 million decrease due to decline in energy consumption by OPC-Rotem’s customers.demand hour brackets; |
| • | Revenue from private customers in respect of infrastructure services— increasedIncreased by $12$36 million in 2021,2023 as compared to 2020. As OPC’s revenue is denominated in NIS, translation of its revenue into US Dollars had a positive impact of $5 million.2022. Excluding the impact of exchange rate fluctuations, thesetranslating OPC’s revenue from NIS to USD, such revenues increased by $7$45 million, primarily as a result of (i) a $7an increase of $26 million from an increase due to 2021 including a full yearin the infrastructure tariff, (ii) an increase of commercial operation$12 million from an increase in customer consumption and (iii) an increase of $8 million from the consolidation of results of the OPC-Hadera power plantKiryat Gat Power Plant beginning in 2021, (ii) a $4 million increase reflecting the commencement of virtual supply in 2021 and (ii) a $1 million increase due to a tariff increase for OPC-Rotem’s customers, partially offset by (i) a $2 million decrease due to a decline in infrastructure tariffs for 2021 and (ii) a $2 million decrease in sale of energy purchased for OPC-Rotem’s customers.Q2 2023; |
| • | Revenue from sale of surplus energy to the System Operator and to other suppliers— increasedIncreased by $13$16 million in 2021,2023 as compared to 2020. As OPC’s revenue is denominated in NIS, translation of its revenue into US Dollars had a positive impact of $2 million.2022. Excluding the impact of exchange rate fluctuations, thesetranslating OPC’s revenue from NIS to USD, such revenues increased by $11$18 million, primarily as a result of (i) an increase of $18 million from the commencement of commercial operations of Tzomet Power Plant in sale of energy to the System Operator from (i) the OPC-Hadera power plant of $10 millionJune 2023 and (ii) an increase of $4 million from the OPC-Rotem power plantconsolidation of $1 million.results of the Kiryat Gat Power Plant beginning in Q2 2023; |
| • | Revenue from sale of electricity and provision of servicescapacity payments— Increased by $16 million in the U.S. — which reflects revenue of CPV following the completion2023 as compared to 2022, primarily as a result of the acquisitioncommencement of CPVcommercial operations of Tzomet Power Plant in January 2021, which was $51June 2023; and |
| • | Other revenue— Increased by $5 million in 2021.
2023 as compared to 2022, primarily as a result of the commencement of commercial operations of Tzomet Power Plant in June 2023. |
Cost of Sales and Services (excluding Depreciation and Amortization)
Our cost of sales (representing OPC’s cost of sales) increased by $55$77 million to $337$494 million for the year ended December 31, 2021,2023, as compared to $282$417 million for the year ended December 31, 2020.2022.
The following table sets forth OPC’s cost of sales for 20212023 and 2020.2022.
| | For the year ended December 31, | |
| | | | | | |
| | | |
Israel | | | | | | |
Natural gas and diesel oil consumption | | | 153 | | | | 135 | |
Expenses for infrastructure services | | | 92 | | | | 80 | |
Expenses for acquisition of energy | | | 32 | | | | 36 | |
Gas transmission costs | | | 10 | | | | 10 | |
Operating expenses | | | 25 | | | | 21 | |
| | | 312 | | | | 282 | |
U.S. | | | | | | | | |
Operating costs and cost of services in the U.S. | | | 25 | | | | — | |
Total | | | 337 | | | | 282 | |
| | For the year ended December 31, | |
| | | | | | |
| | | |
Israel
| | | 453 | | | | 385 | |
U.S.
| | | 41 | | | | 32 | |
Total
| | | 494 | | | | 417 | |
| • | Natural gas and diesel oil consumption — increased by $18 million in 2021, as compared to 2020. As OPC’s cost of sales is denominated in NIS, translation of its cost of sales into US Dollars had a negative impact of $9 million. Excluding the impact of exchange rate fluctuations, OPC’s cost of sales increased by $9 million primarily as a result of increase in availability from (i) the OPC-Hadera power plant of $12 million and (ii) the OPC-Rotem power plant of $11 million, partially offset by (i) a $9 million decrease due to the decline in gas price as a result of a decline in foreign exchange rate of the dollar versus NIS and (ii) the receipt of $5 million compensation in respect of a delay in the commercial operation of the Karish reservoir.Set forth below is a discussion of significant changes in cost of sales between 2023 and 2022. |
| • | Expenses for infrastructure services — increased by $12 million in 2021, as compared to 2020. As OPC’s cost of sales is denominated in NIS, translation of its cost of sales into US Dollars had a negative impact of $5 million. Excluding the impact of exchange rate fluctuations, OPC’s cost of sales increased by $7 million primarily as a result of (i) a $7 million increase due to the full year of commercial operation of the OPC-Hadera power plant in 2021 and (ii) $4 million reflecting the commencement of virtual supply, partially offset by (i) a $4 million decrease due to a decline in infrastructure tariffs and (ii) decline in energy consumption by OPC-Rotem’s customers.
|
| • | Expenses for acquisition of energy — decreased by $4 million in 2021, as compared to 2020. As OPC’s cost of sales is denominated in NIS, translation of its cost of sales into US Dollars had a negative impact of $2 million. Excluding the impact of exchange rate fluctuations, OPC’s cost of sales decreased by $6 million primarily as a result of (i) a $17 million decrease due to decline in load reductions and increase in availability of the OPC-Rotem power plant and (ii) a $6 million decrease due to a decline in infrastructure tariffs and decline in energy consumption by OPC-Rotem’s customers, partially offset by (i) a $4 million increase due to additional downtime during the first full year of commercial operation of the OPC-Hadera power plant in 2021 and (ii) a $14 million increase reflecting the commencement of virtual supply in 2021.
|
| • | Operating costs and cost of services in the U.S. — which reflects CPV operating costs following the completion of the acquisition of CPV in January 2021, was $25 million in 2021.
|
136• Natural gas and diesel oil consumption in Israel—Increased by $23 million in 2023 as compared to 2022. Excluding the impact of translating these costs from NIS to USD, such costs increased by $37 million primarily due to (i) an increase of $11 million from the consolidation of results of the Kiryat Gat Power Plant beginning in Q2 2023, (ii) the commencement of commercial operations of Tzomet Power Plant in June 2023, (iii) an increase of $14 million due to an increase in the generation component and the USD/NIS exchange rate and (iv) an increase of $14 million as a result of an increase in the quantity of gas consumed, partially offset by (v) a decrease in gas expenses of $14 million as a result of the commencement of delivery of gas from Energean from Q2 2023;
•Expenses for infrastructure services in Israel—Increased by $36 million in 2023 as compared to 2022. Excluding the impact of translating these costs from NIS to USD, such costs increased by $45 million primarily as a result of (i) an increase of $26 million linked to the infrastructure tariff, (ii) an increase of $12 million due to an increase in customer consumption and (iii) an increase of $8 million from the consolidation of results of the Kiryat Gat Power Plant beginning in Q2 2023; and
•Operating expenses and other expenses—Increased by $20 million in 2023 as compared to 2022. Excluding the impact of translating these costs from NIS to USD, such costs increased by $22 million primarily as a result of (i) the commencement of commercial operations of Tzomet Power Plant in June 2023 and (ii) the consolidation of results of the Kiryat Gat Power Plant beginning in Q2 2023.
Depreciation and Amortization
Our depreciation and amortization expenses (representing OPC’s depreciation and amortization expenses) increased by $20$28 million to $53$91 million for the year ended December 31, 20212023 from $33$63 million for the year ended December 31, 2021. This reflects the completion of the acquisition of CPV in January 2021.2022.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist of payroll and related expenses, depreciation and amortization, and other expenses. Our selling, general and administrative expenses (excluding depreciation and amortization) increaseddecreased to $76$85 million for the year ended December 31, 2021,2023, as compared to $50$100 million for the year ended December 31, 2020.2022. This increasedecrease was primarily driven by an increasea decrease in OPC’s selling, general and administrative expenses.
OPC’s selling, general and administrative expenses increaseddecreased by $34$13 million, or 113%15%, to $64$73 million for the year ended December 31, 20212023 from $30$86 million for the year ended December 31, 2020 primarily reflecting the completion of the acquisition of CPV in January 2021.2022.
Financing Expenses, Net
Our financing expenses, net, increased by $104$22 million to $141$27 million for the year ended December 31, 2021,2023, as compared to $37$5 million for the year ended December 31, 2020.2022. This increase was primarily driven by ana increase in OPC’s financing expenses, net.
OPC’s financing expenses, net increased by approximately $91$39 million to $141$53 million in 20212023 from $50$14 million in 2020,2022, primarily as a result of (i) a $75 million expense due to (i) an early repayment of the OPC-Rotem project financing debt in October 2021 as described above, (ii) a $13 million increase in interest expenses in respect of debenturesexpense relating to loans for the Kiryat Gat Power Plant and the OPC-Hadera senior debt, (iii) a $12Mountain Wind project of $7 million and $4 million, respectively, and (ii) an increase in interest expenses due toexpense from the purchasecommencement of the remaining minority stake in a CPV subsidiary, and (iv) ancommercial operations of Tzomet Power Plant of $8 million, partially offset by an increase in interest expenses in respect of CPV loans (including an interest swap contract), partially offset by (i) a $4 million decrease in interest expenses in respect of the OPC-Rotem project financing debt as a result of early repayment in 2021 as mentioned above, (ii) a $12 million expense due to early repayment of Series A debentures in 2020 and (iii) $3 million income from the early debt repayment of a CPV subsidiary.deposits.
Share in Losses/(Profit)Profit/(Losses) of Associated Companies, Net of Tax
Our share in profitlosses of associated companies, net of tax increased to approximately $1,250$200 million for the year ended December 31, 2021,2023, compared to share of profit of associated companies, net of tax of approximately $161$1,118 million for the year ended December 31, 2020.2022. Set forth below is a discussion of losses/(profit) for our associated companies, net of tax.
Qoros
For the period from January 2020 until April 2020, Kenon accounted for Qoros as an associated company and included 12% of Qoros’ losses in Kenon’s results. As a result of the sale of Qoros shares to the Majority Shareholder completed in April 2020, Qoros is no longer accounted for as an associated company. Our share in Qoros’ comprehensive loss for the period from January to April 2020 was approximately $6 million.
ZIM
The following table sets forth summary information regarding the results (100%) of operations of ZIM, our equity-method business for the periods presented:
| | Year Ended December 31, 2021 | | | Year Ended December 31, 2020 | | | Year Ended December 31, 2023 | | | Year Ended December 31, 2022 | |
| | (in millions of USD) | | | (in millions of USD) | |
Revenue | | | 10,729 | | | | 3,992 | | | | 5,162 | | | | 12,562 | |
Operating expenses and cost of services | | | 3,906 | | | | 2,835 | | | | (3,885 | ) | | | 4,765 | |
Operating profit | | | 5,816 | | | | 772 | | |
Profit before taxes on income | | | 5,659 | | | | 541 | | |
Operating (loss)/profit | | | | (2,511 | ) | | | 6,136 | |
(Loss)/profit before taxes on income | | | | (2,816 | ) | | | 6,027 | |
Income tax expense | | | | | | | | | | | | | | | | |
Profit for the period | | | | | | | | | |
Adjusted EBITDA1 | | | 6,597 | | | | 1,036 | | |
(Loss)/profit for the period | | | | | | | | | |
Adjusted EBITDA(1) | | | | 1,049 | | | | 7,541 | |
Share of Kenon in total comprehensive income | | | 1,261 | | | | 167 | | | | (266 | ) | | | 1,024 | |
Book value of ZIM investment in Kenon’s books | | | 1,354 | | | | 297 | | | | — | | | | 427 | |
1.(1) | Adjusted EBITDA is a non-IFRS financial measure that ZIM defines as net profit adjusted to exclude financial expenses (income), net, income taxes, depreciation and amortization in order to reach EBITDA, and further adjusted to exclude impairments of assets, non-cash charter hire expenses, capital gains (losses) beyond the ordinary course of business and expenses related to contingencies. Adjusted EBITDA is a key measure used by ZIM’s management and board of directors to evaluate ZIM’s operating performance. Accordingly, ZIM believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating ZIM’s operating results and comparing its operating results between periods on a consistent basis, in the same manner as ZIM’s management and board of directors. The table below sets forth a reconciliation of ZIM’s net (loss)/profit, to EBITDA and Adjusted EBITDA for each of the periods indicated. |
| | Year Ended December 31, 2021 | | | Year Ended December 31, 2020 | |
| | (in millions of USD) | |
Net profit | | | 4,649 | | | | 524 | |
Financing expenses, net | | | 157 | | | | 181 | |
Income tax expense | | | 1,010 | | | | 17 | |
Depreciation and amortization | | | | | | | | |
EBITDA | | | | | | | | |
Non-cash charter hire expenses1 | | | (1 | ) | | | 1 | |
Asset impairment recovery | | | — | | | | (4 | ) |
Expenses related to contingencies | | | | | | | | |
Adjusted EBITDA | | | 6,597 | | | | 1,036 | |
1. | Mainly related to amortization of deferred charter hire costs, recorded in connection with the 2014 restructuring. Following the adoption of IFRS 16 on January 1, 2019, part of the adjustments are recorded as amortization of right-of-use assets.
|
| | Year Ended December 31, 2023 | | | Year Ended December 31, 2022 | |
| | (in millions of USD) | |
Net (loss)/profit for the period | | | (2,688 | ) | | | 4,629 | |
Depreciation and amortization | | | 1,472 | | | | 1,396 | |
Financing expenses, net | | | 305 | | | | 109 | |
Income tax (benefits)/expense | | | | | | | | |
EBITDA | | | | | | | | |
Impairment of assets | | | 2,063 | | | | - | |
Capital losses/(gains) beyond the ordinary course of business | | | 20 | | | | (1 | ) |
Expenses related to legal contingencies | | | 5 | | | | 10 | |
Adjusted EBITDA | | | | | | | | |
Pursuant to the equity method of accounting, our share in ZIM’s results of operations was a loss of approximately $266 million for the year ended December 31, 2023 and a profit of approximately $1,261 million and $167$1,033 million for the yearsyear ended December 31, 2021 and 2020.2022. Set forth below is a summarydiscussion of ZIM’s consolidated results for the year ended December 31, 20212023 and 2020:2022.
The number of TEUs carried for the year ended December 31, 2021 increased2023, decreased by 64099 thousand TEUs, or 22.5%2.9%, from 2,8413,380 thousand TEUs for the year ended December 31, 20202022, to 3,4813,281 thousand TEUs for the year ended December 31, 2021,2023, primarily driven by changes in the operated lines’ structure and capacitydue to shifting to slots purchase instead of vessel deployment in the Pacific North West and Intra Asia trades, which mainly included new expressin India—Mediterranean / North Europe sub-trades, along with the termination of services in the Pacific South West, South East Asia and Asia – Asia—Australia sub-trades, along withas well as due to a decrease in vessel utilization in the Atlantic trade zone, and in the dominant leg of the Pacific trade zone, as a result of weak consumers demand.
On the other hand, the above was partially offset by: (i) deploying larger vessels in the Pacific All Water sub-trade, (ii) launching new services in the Latin America trade zone, (iii) an increase in the number of voyages across most trades, as ports congestion was largely relieved during 2023, and (iv) an increase in vessel utilization due to strong customer demand. The above was partially offset byof the impactcounter-dominant leg of additional blank voyages across all sub-trades and mainly in the Pacific related to the port congestions. trade zone.
The average freight rate per TEU carried for the year ended December 31, 2021, increased2023 decreased by $1,557,$2,037, or 126.7%62.9%, from $1,229$3,240 for the year ended December 31, 20202022, to $2,786$1,203 for the year ended December 31, 2021.2023.
ZIM’s revenues increaseddecreased by $6.7 billion,$7,399 million, or 168.8%58.9%, from $4.0 billion$12,561.6 million for the year ended December 31, 20202022, to $10.7 billion$5,162.2 million for the year ended December 31, 2021,2023, primarily driven by (i) an increasea decrease of $6.2 billion$7,003.8 million in revenuesrevenue from containerized cargo, reflectingmainly due to the increasesdecrease in average freight rates and carried volume, (ii) an increasea decrease of $0.3 billion$485.7 million in income from demurrage, (iii)partially offset by an increase of $0.1 billion in income from related services and (iv) an increase of $52.1$226.1 million in income from non-containerized cargo.
138
cargo (mainly related to vehicle shipping services).
ZIM’s operating expenses and cost of services for the year ended December 31, 2021 increased by $1.1 billion,2023 decreased $879.4 million, or 37.8%(18.5%), from $2.8 billion$4,764.5 million for the year ended December 31, 20202022 to $3.9 billion$3,885.1 million for the year ended December 31, 2021,2023, primarily driven by (i) an increasea decrease of $0.4 billion (31.2%$335.9 million (23.4%) in bunker expenses, (ii) a decrease of $319.4 million (80.1%) in slot purchases and hire of vessels, (iii) a decrease of $310.1 million (15.7%) in cargo handling expenses, (ii) an increase of $0.4 billion (104.6%) in bunker expenses, (iii) an increase of $0.1 billion (50.1%) in agents’ salaries and commissions, andpartially offset by (iv) an increase of $0.1 billion (70.0%$141.7 million (39.5%) in related service and sundry.port expenses.
ZIM publishes its resultson the SEC’sSEC’s website at http://www.sec.gov. This website, and any information referenced therein, is not incorporated by reference herein.
CPV
As a result of the completion of the acquisition of CPV in January 2021, Kenon’s share of results in CPV’s associated companies was a lossprofit of approximately $11$66 million for the year ended December 31, 2021.2023 compared to approximately $85 million for the year ended December 31, 2022. The table below sets forth OPC’s share of profit of associated companies, net, which consists of five of the six operating plants in which CPV has interests, which are accounted for as associated companies.
| | | |
| | | | | | |
| | (in millions of USD) | |
Share in losses of associated companies, net | | | (11 | ) | | | — | |
| | | |
| | | | | | |
| | (in millions of USD) | |
Share in profits of associated companies, net | | | 66 | | | | 85 | |
The result for the year includes losses on changes in fair value of derivative financial instruments totaling $45 million. As at December 31, 2021,2023, OPC’s proportionate share of net debt (including interest payable) of CPV associated companies was $962 millionapproximately $839 million.
Set forth below is information regarding the revenues from electricity sales and availability and the rate of CPV's total revenue for associated companies (on a proportionate basis, based on the rate of CPV holdings):
Presentation method in the CPV's consolidated financial statements | | Revenues from electricity sales and availability (in $ million) | | | Rate of the total revenues of the group and included companies (proportionately according to the percentage of holding) * | |
Included and consolidated companies | | | 458 | | | | 40 | % |
*Rate of the total revenues in the consolidated plus the group's share in the revenues of cash and cash equivalents was $2 million.affiliated companies.
For further details of the performance of associated companies of CPV, refer to OPC’s immediate report published on the TASE on March 27, 202212, 2024 and the convenience English translations furnished by Kenon on Form 6-K on March 28, 2022.12, 2024. Such report published on the TASE is not incorporated by reference herein.
Income Tax Expenses
Our income tax expense for the year ended December 31, 20212023 was $5$25 million, the samecompared to $38 million for the year ended December 31, 2020.2022.
ProfitProfit/(loss) For the Year
As a result of the above, our profitloss for the year from continuing operations amounted to $875$211 million for the year ended December 31, 2021,2023, compared to $496a profit for the year of $350 million for the year ended December 31, 2020.2022.
B. | Liquidity and Capital Resources |
Kenon’s Liquidity and Capital Resources
As of December 31, 2021,2023, Kenon had approximately $231$634 million in cash on an unconsolidateda stand-alone basis and no material gross debt. FollowingKenon’s stand-alone cash position includes cash and cash equivalents and other treasury management instruments. Kenon seeks to generate attractive returns on its cash and cash equivalents, and seeks to use treasury products with credit ratings that are at least rated investment grade.
Kenon’s sources of liquidity include dividends from and sales of interests in its subsidiaries and associated companies. Accordingly, the distributiondividend policies of a dividend in January 2022, Kenon’s unconsolidated cash balance was be approximately $42 million. During March 2022, Kenon completed a sale of 6 million ZIM shares for total consideration of $463 million. As a result of the sale, Kenon now holds a 20.7% interest inand dividends paid by ZIM and remains the largest shareholder in ZIM.OPC impact Kenon’s liquidity.
As of November 2021, ZIM’s board of directorsZIM Dividends
ZIM has announced a dividend policy, which was recently amended in August 2022, to distribute a dividend to shareholders on a quarterly basis at a rate of approximately 20%30% of the net income derived during such fiscal quarter with respect to the first three fiscal quarters of the year, while the cumulative annual dividend amount to be distributed by ZIM (including the interim dividends paid during the first three fiscal quarters of the year) will total 30-50% of the annual net income (including with respect, and provided that such distribution would not be detrimental to 2021). During 2021, ZIM’s cash needs or to any plans approved by ZIM’s board of directors. ZIM has stated that any dividends would take into account various factors including, inter alia, ZIM’s profits, investment plan, financial position, the progress relating to ZIM’s strategy plan, the conditions prevailing in the market and additional factors it deems appropriate. While ZIM has indicated that it initially intends to distribute 30-50% of its annual net income, the actual payout ratio could be anywhere from 0% to 50% of its net income, and may fluctuate depending on its cash flow needs and such other factors.
ZIM paid a special cash dividenddividends of approximately $237$769 million, or $2.00$6.40 per ordinary share and a cash dividend of approximately $299 million, or $2.50 per ordinary share. on April 4, 2023.
In 2021,2023, Kenon received approximately $141$159 million in cash dividenddividends from ZIM.
OPC Dividends
139
In 2022 and 2023, OPC did not pay dividends to its shareholders. According to OPC’s dividend policy, a dividend will be distributed that is equal to at least 50% of OPC’s after-tax net income in the calendar year preceding the dividend distribution date. However, OPC has announced that in light of the growth strategy and expansion of operations targets adopted by OPC as well as the need to maintain OPC’s financial strength and adequate leveraging ratios, and noting the economic environment in which OPC operates, in March 2024, the board of OPC made a decision to suspend OPC’s dividend distribution policy (adopted in 2017) for a period of two years from the decision date. At the end of the suspension period, OPC's board will reconsider the applicability of the dividend distribution policy. OPC’s board has the power to assess and change this resolution at any time, and/or to decide the distribution of dividends, taking into account, among other things, relevant circumstances, provisions of law and the above considerations, all as OPC’s board will deem appropriate at its discretion. The financing arrangements of OPC’s group companies (including CPV) include restrictions on distributions by OPC’s investees.
Dividends Paid by Kenon
In 2021, we paid a dividend of approximately $189 million ($3.50 per share).
In 2022, we distributed approximately $552 million to shareholders ($10.25 per share).
OnIn 2023, we paid a dividend of approximately $150 million ($2.79 per share).
In March 9, 2022, ZIM’s2024, we announced a dividend of approximately $200 million ($3.80 per share) relating to the year ending December 31, 2024 payable in April 2024.
Share Repurchase Plan
In March 2023, Kenon’s board of directors declaredauthorized a cash dividendshare repurchase plan of up to $50 million. Through the end of 2023, Kenon repurchased approximately $2.04 billion, or $17.00 per ordinary share, resulting in a cumulative annual dividend amount of1.1 million shares for approximately 50% of 2021 net income, to be paid on April 4, 2022, to holders of the ordinary shares on March 23, 2022. Kenon expects to receive $503 million ($478 million net of tax).
Kenon will seek shareholder approval for a capital reduction at the 2022 AGM to return share capital amounting to $10.25 per share ($552 million in total) to its shareholders, subject to and contingent upon the approval of the High Court of the Republic of Singapore. In connection with the 2022 AGM,$28 million. Kenon intends to publish on or about April 27, 2022 a proxy and information statement, including further information oncontinue making repurchases under this plan. Repurchases under the Capital Reduction. Followingshare repurchase plan are subject to the completionauthority of the Capital Reduction, Kenon’s share capitalpurchase authorization which was renewed by shareholders at the 2023 AGM and which will, continue in force until the earlier of the date of the 2024 AGM or the date by which the 2024 AGM is expectedrequired by law to be $50 million.held. At this meeting, we intend to seek authorization to renew such authorization. The share repurchase plan may be suspended for periods, modified or discontinued at any time and may not be completed up to the full amount of the share repurchase plan.
Kenon’s Liquidity Requirements
Kenon’s liquidity requirements include investments in its businesses, including OPC, and other investments it may make, as well as holding company costs, as well as dividend payments. In 2023, Kenon used cash mainly for dividends and administrative expenses.
We believe that Kenon’s working capital (on a stand-alone basis) is sufficient for its present requirements.
Our principal needs for liquidity are expenses related to our day-to-day operations. We may also incur expenditures relatedrequire capital for investments that we choose to make in our existing businesses and potentially new acquisitions. For example, in 2022, Kenon made investments in our businesses, our back-to-back guarantees to Chery with respect to Qoros’ indebtedness and expenses we may incurOPC in connection with legal claimsan equity capital raise by OPC. OPC’s strategy contemplates continuing development of projects, particularly at CPV, and other rights we retained in connection with the sale of the Inkia Business. Our businesses are at various stages of development, ranging from early stage companies to established, cash generating businesses, and some of these businessespotentially further acquisitions which will require significant financing, via equity contributions or debt facilities, to further their development, execute their current business plans, and become or remain fully-funded.its development. We may, in furtherance of the development of our businesses, make further investments, via debt or equity financings, in our businesses and we may make investments in new businesses. See “Item 4.B—Information on the Company—Business Overview.”
The cash resources on Kenon’s balance sheet may not be sufficient to fund additional investments that we deem appropriate in our businesses or meet our guarantee obligations.businesses. As a result, Kenon may seek additional liquidity from its businesses (via dividends, loans or advances, or the repayment of loans or advances to us, which may be funded by sales of assets or minority interests in our businesses), or obtain external financing, which may result in dilution of shareholders (in the event of equity financing) or additional debt obligations for the company (in the event of debt financing).
Consolidated Cash Flow Statement
Set forth below is a discussion of our cash and cash equivalents and our cash flows as of and for the years ended December 31, 20212023 and 2020.2022.
Year Ended December 31, 20212023 Compared to Year Ended December 31, 20202022
Cash and cash equivalents increased to approximately $475$697 million for the year ended December 31, 2021,2023, as compared to approximately $286$535 million for the year ended December 31, 2020, primarily as a result of improved results in ZIM.2022. The following table sets forth our summary cash flows from our operating, investing and financing activities for the years ended December 31, 20212023 and 2020:2022:
| | | | | | |
| | | | | | | | | | | | |
| | (in millions of USD) | | | (in millions of USD) | |
| | | | | | | | | | | | |
Net cash flows provided by operating activities | | | | | | | | | | | | |
OPC | | | 119 | | | | 105 | | | | 135 | | | | 63 | |
Other | | | 121 | | | | (13 | ) | | | 142 | | | | 708 | |
Total | | | 240 | | | | 92 | | | | 277 | | | | 771 | |
Net cash flows used in investing activities | | | (205 | ) | | | (230 | ) | | | (432 | ) | | | (203 | ) |
Net cash flows provided by financing activities | | | 147 | | | | 256 | | |
Net cash flows provided by/(used in) financing activities | | | | 324 | | | | (494 | ) |
Net change in cash from continuing operations | | | 182 | | | | 118 | | | | 169 | | | | 74 | |
Net change in cash from discontinued operations | | | — | | | | 8 | | |
Cash—opening balance | | | 286 | | | | 147 | | | | 535 | | | | 475 | |
Effect of exchange rate fluctuations on balances of cash and cash equivalents | | | | | | | | | | | | | | | | |
Cash—closing balance | | | 475 | | | | 286 | | | | 697 | | | | 535 | |
Cash Flows Provided by Operating Activities
Net cash flows from operating activities increaseddecreased to $240$277 million for the year ended December 31, 20212023 compared to $92$771 million for the year ended December 31, 2020.2022. The increasedecrease is primarily driven by decrease in dividends received from associated companies andZIM, offset with an increase in OPC’s cash provided by operating activities as discussed below.
Cash flows provided by OPC’s operating activities increased to $119$135 million for the year ended December 31, 20212023 from $105$63 million for the year ended December 31, 2020,2022, primarily as a result of activities reflecting(i) an increase in income on a cash basis, in the completionamount of approximately $58 million, and (ii) an increase in OPC’s working capital, in the acquisitionamount of CPV.approximately $18 million.
Cash Flows Used in Investing Activities
Net cash flows used in our investing activities decreasedincreased to approximately $205$432 million for the year ended December 31, 2021,2023, compared to cash flows used in investing activities of approximately $230$203 million for the year ended December 31, 2020.2022. This decreaseincrease in cash flow used was primarily driven by Kenon’s receipt in 2020OPC’s acquisitions of (i) $218 million from the proceedsnew projects as discussed below. This is offset primarily by a release of early repayment of the deferred payment agreement relating to the sale of the Inkia Business and (ii) $220 million from the sale of 12% interest in Qoros, and (iii) OPC’s cash flow used in investing activitiesshort term deposit as describeddiscussed below.
Cash flows used in OPC’s investing activities decreasedincreased to $256$594 million for the year ended December 31, 20212023 from $644$329 million for the year ended December 31, 2020, primarily as2022. Most of the increase in the cash used in investing activities in the year ended December 31, 2023 stems from acquisition of the Kiryat Gat Power Plant, for a resultconsideration of approximately $151 million, and the Mountain Wind project, for a consideration of approximately $172 million. In addition, the investments in property, plant and equipment in the U.S. increased by approximately $111 million and OPC provided a subordinated loan to an associated company in the U.S., in the amount of approximately $24 million. The increase was partly offset by a release of short-term deposits, net, in the amount of about $517 million.approximately $34 million, which were deposited in 2022. In addition, the decrease derives fromthere was an increase of approximately $47 million, in respect of release of restricted cash,collateral, net, relating to hedging electricity margins in the CPV Group, and there was a decrease, in the amount of about $126approximately $32 million, a decrease in investments projectsin property, plant and equipment in Israel, mainly in connection with commercial operation of Tzomet at the amount of about $11 million, a receipt, in the amount of about $50 million, in respect of repayment of partnership capital mainly due to sale of partend of the holdingssecond quarter of CPV in the Three Rivers project. This decrease was partly offset by an increase deriving from acquisition of CPV, in the amount of about $656 million, investments in projects under construction in CPV, in the amount of about $90 million, and an increase, in the amount of about $6 million, relating to investments in associated companies, and acquisition of Gnrgy for a consideration of about $10 million.2023.
Cash Flows Provided by the Financing Activities
Net cash flows provided by financing activities of our consolidated businesses was approximately $147$324 million for the year ended December 31, 2021,2023, compared to cash flows provided byused in financing activities of approximately $256$494 million for the year ended December 31, 2020.2022. The net inflow in 20212023 was primarily driven by Kenon’s share repurchase of $28 million and dividend of $2.79 per share (an aggregate amount of approximately $150 million), paid on April 19, 2023, offset by OPC’s net inflow, as described below.
Cash flows provided by OPC’s financing activities decreasedincreased to $311$503 million for the year ended December 31, 2021,2023, as compared to $478$286 million used for the year ended December 31, 2020, primarily as a result2022. Most of the early repaymentincrease in the cash flows provided by financing activities stems from a receipt in the year ended December 31, 2023, in the amount of approximately $125 million, in respect of a swap of shares of transaction and investment with Veridis and long-term loans, in the amounts of approximately $124 million and approximately $74 million, for purposes of financing a transaction for acquisition of the full outstanding balanceKiryat Gat Power Plant and a transaction for acquisition of OPC-Rotem’sthe Mountain Wind project, financing debt in October 2021, payment of loans in CPV,respectively, taking out a long-term loan in the amount of about $173NIS 359 million including $76(approximately $99 million), in connection with the commercial operation of the Maple Hill project and for financing construction of projects in the renewable energy segment in the U.S., from an increase of approximately $33 million, in respectinvestments and loans from holders of repayment of a loan undernon-controlling interests (in the prior financing agreementCPV Group and Veridis), from short-term loans and credit agreements in the Keenan project,amount of approximately $57 million, and from a receipt, in respectthe amount of an early close out of an interest hedge transaction relating to this financing agreement, and about $55approximately $84 million, relating to repayment of the vendor loans relating to the CPV acquisition. In addition, in 2021, OPC acquired the balance of the rightsa commitment of the tax partner in the Keenan project forMaple Hill project. In the year ended December 31, 2023, OPC repaid a consideration of about $25 million, and there was a decline in issuance of debentures of approximately $41 million and issuance of shares of approximately $125 million. The decrease was partly offset by an increase of investments ofloan to the prior holders of non-controlling interests in CPV of approximately $255 million, loans from holders of non-controlling interests in OPC-Rotem of approximately $70 million, an increase in withdrawals from frameworks under financing agreements in Israel of approximately $30 million, and receipt of a long term loan under the new financing agreementrights in the Keenan project,Kiryat Gat Power Plant, in the amount of about $103approximately $84 million, there was an increase, in the amount of approximately $44 million, in 2021.OPC’s repayments to banks and others (mainly in respect of new loans taken out in Israel and the U.S., as detailed above, and in respect of the start of repayment of the senior debt in Tzomet commencing from the fourth quarter of 2023) and there was an increase of approximately $18 million in costs paid in advance in respect of loans (mainly relating to loans in the U.S.). Furthermore, in 2022, OPC raised approximately $225 million from an issuance of shares.
Kenon’s Commitments and Obligations
As of December 31, 2021,2023, Kenon had consolidated liabilities of $1.8$2 billion, primarily consisting of OPC liabilities.
Other than loans from subsidiaries at the Kenon level, we have no outstanding indebtedness or financial obligations and are not party to any credit facilities or other committed sources of external financing.
The following discussion sets forth the liquidity and capital resources of each of our businesses.
OPC’s Liquidity and Capital Resources
As of December 31, 2021, OPC had cash and cash equivalents of $243 million. OPC’s total outstanding consolidated indebtedness was $1,215 million as of December 31, 2021.
OPC’s principal sources of liquidity have traditionally consisted of cash flows from operating activities, short- and long-term borrowings under loan facilities, bond issuances and public and private equity offerings.
OPC’s principal needs for liquidity generally consist of capital expenditures related to the development and construction of generation projects (including OPC-Hadera, Tzomet and other projects OPC may pursue), capital expenditures relating to maintenance (e.g., maintenance and diesel inventory), working capital requirements (e.g., maintenance costs that extend the useful life of OPC’s plants) and other operating expenses. OPC believes that its liquidity is sufficient to cover its working capital needs in the ordinary course of OPC’s business.
OPC has financed the development of its projects and its acquisitions through equity and debt financing. Set forth below is an overview of equity issuances from 2019 to 2023 and a description of OPC’s loan facilities and bonds.
OPC’s Share Issuances from 2019 to 2023
In August 2017, OPC completed an initial public offering in Israel, and a listing on the TASE, resulting in net proceeds to OPC of approximately $100 million and Kenon retaining 75.8% stake.
In 2021 and 2022, OPC issued new shares in multiple offerings:
In January 2021, OPC issued 10,300,000 ordinary shares (representing approximately 5.5% of OPC’s issued and outstanding share capital at the time on a fully diluted basis) in a private placement for a total (gross) consideration of NIS 350 million (approximately $107 million).
In September 2021, OPC issued rights to purchase approximately 13 million OPC shares to fund the development and expansion of OPC’s activity in the U.S., with investors purchasing approximately 99.7% of the total shares offered in the rights offering. The gross proceeds from the offering amounted to approximately NIS 329 million (approximately $102 million). Kenon exercised rights for the purchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to purchase these additional rights.
In July 2022, OPC issued 9,443,800 ordinary shares of NIS0.01 par value per share to the public as part of the shelf offering. Gross issuance proceeds amounted to NIS 331 million (approximately $94 million). Kenon took part in the issuance and was issued 3,898,000 ordinary shares for a gross amount of NIS 136 million (approximately $39 million).
In September 2022, OPC offered 12,500,000 ordinary shares of NIS 0.01 par value per share to qualified investors as part of private offering. Gross issuance proceeds amounted to NIS 500 million (approximately $141 million).
During 2023, OPC did not issue any shares to the public.
As a result of these share issuances, Kenon’s interest in OPC is 54.7%.
OPC’s Cash and Material Indebtedness
As of December 31, 2021,2023, OPC had cash and cash equivalents of $243$278 million (excluding restricted cash)cash and including debt service reserves of $91 million), restricted cash of $21$17 million, (including debt service reserves of $14 million), and total outstanding consolidated indebtedness of $1,215$1,530 million, consisting of $43$170 million of short-term indebtedness, including the current portion of long-term indebtedness, and $1,172$1,360 million of long-term indebtedness.
Israel
As at March 21, 2024, OPC Israel entered into credit facilities with banks (which are used by all OPC group companies in Israel) for an aggregate amount of approximately $69 million, and other binding credit facilities for CPV Group for the purpose of providing guarantees (mainly letters of credit and bank guarantees) amounting to approximately $20 million, to finance the development activity of CPV Group. Furthermore, OPC provided guarantees in respect of binding credit facilities provided to CPV Group for the purpose of providing guarantees and letters of credit at the total amount of approximately $75 million. The undertakings under such agreements include customary obligations, including restrictions on pledges, compliance with financial ratios and maintaining liquidity in accordance with certain criteria, cross default provisions, restrictions on the distribution of dividends and payments to shareholders, restrictions on changes in OPC’s holdings in OPC Israel, changes in control in OPC-Hadera, and in OPC’s holdings in Tzomet and OPC-Rotem, restrictions on debt incurred by OPC Power Plants (except for immaterial amounts) and others. OPC has debt (comprising its debentures and project financing) with an aggregate amount of approximately NIS 3.6 billion (approximately $993 million), which is subject to cross-default provisions.
Furthermore, OPC Israel entered into non-binding credit facilities (for the use of all OPC group companies in Israel), which are mainly used for the purpose of letters of credit and bank guarantees (for example, to the EA, the System Operator, etc.).
The following table sets forth selected information regarding OPC’s principal outstanding short-term and long-term debt, as of December 31, 20212023 (excluding CPV):
| Outstanding Principal Amount as of December 31, 2021* ($ millions) | | Interest Rate ($ millions) | | | | | Outstanding Principal Amount as of December 31, 2023* ($ millions) | | Interest Rate ($ millions) | | | | |
| | | |
OPC-Hadera: | | | | | | | | | | | | | | |
Financing agreement1 | 224 | | 2.4%-3.9%, CPI linked (2/3 of the loan) 3.6%-5.4% (1/3 of the loan) | | September 2037 | | Quarterly principal payments to maturity, commencing 6 months following commercial operations of OPC-Hadera power plant | |
Financing agreement(1) | | 180 | | 2.4%-3.9%, CPI linked (2/3 of the loan) 3.6%-5.4% (1/3 of the loan) | | September 2037 | | Quarterly principal payments to maturity, commencing 6 months following commercial operations of OPC-Hadera power plant |
Tzomet: | | | | | | | | | | | | | | |
Financing agreement2 | 59 | | CPI or USD-linked with interest equal to prime plus margin of 0.5-1.5% - agreement includes provisions for conversion of interest from variable to CPI-linked debenture interest plus margin of 2-3% | | Earliest of 19 years from commercial operations date of Tzomet power plant and 23 years from the signing date, but no later than December 31, 2042 | | Quarterly principal payments to maturity, commencing close to the end of the first or second quarter following commercial operations of the Tzomet power plant | |
Financing agreement(2) | | 315 | | CPI or USD-linked with interest equal to prime plus margin of 0.5-1.5% - agreement includes provisions for conversion of interest from variable to CPI-linked debenture interest plus margin of 2-3% | | Earliest of 19 years from commercial operations date of Tzomet power plant and 23 years from the signing date, but no later than December 31, 2042 | | Quarterly principal payments to maturity, commencing close to the end of the first or second quarter following commercial operations of the Tzomet power plant |
Kiryat Gat | | | | | | | | |
Financing agreement(3) | | 121 | | Variable interest at a rate equal to the Prime interest rate of 0.65%; NIS government bond plus 2.3% | | May 2039 | | Quarterly repayment of principal and interest in accordance with amortization schedule |
OPC4: | | | | | | | | | | | | | | |
Bonds (Series B) 3 | 307 | | 2.75% (CPI-Linked) | | September 2028 | | Semi-annual principal payments commencing on September 30, 2020 | |
Bonds (Series C)4 | 274 | | 2.5% | | August 2030 | | 12 semi-annual payments (which repayment amounts vary, and range from 5% up to 16% of the total issued amount) commencing in February 2024 | |
Bonds (Series B)(4)(6) | | 271 | | 2.75% (CPI-Linked) | | September 2028 | | Semi-annual principal payments commencing on September 30, 2020 |
Bonds (Series C)(5)(6) | | 214 | | 2.5% | | August 2030 | | 12 semi-annual payments (which repayment amounts vary, and range from 5% up to 16% of the total issued amount) commencing in February 2024 |
| | | | | | | | | | | | | | |
__________________________________________
* | Includes interest payable, net of expenses. |
(1) | Represents NIS 698652 million converted into USD at the exchange rate for NIS into USD of NIS 3.113.627 to $1.00. All debt has been issued in NIS, of which 2/3 is linked to CPI and 1/3 is not linked to CPI. OPC-Hadera repaid the amount of about NIS 30 million of the principal of its loans. |
(2) | Represents NIS 1841,142 million converted into U.S. Dollars at the exchange rate for NIS into U.S. DollarsDollar of NIS 3.113.627 to $1.00. All debt has been issued in NIS, part of which is linked to CPI and partthe loan principal of which is not linked to CPI. Tzomet drew down about NIS 349 million from the long-term loans framework in accordance with its financing agreement. |
(3) | Represents NIS 438 million converted into U.S. Dollars at the exchange rate for NIS into U.S. Dollar of NIS 3.627 to $1.00. All debt has been issued in NIS, the loan principal of which is not linked to CPI. |
(4) | In April 2020, OPC completed an offering of NIS 400 million (approximately $113$ 113 million) of Series B bonds on the TASE, at an annual interest rate of 2.75%. In October 2020, OPC issued 555,555 units of NIS 1,000 Series B bonds, totaling gross proceeds of NIS 584 million ($171 million). The offering was an extension of the existing Series B bonds previously issued by OPC. The proceeds of the additional Series B issuance were used to redeem Series A bonds (NIS 313 million ($92(approximately $ 86 million)) and in part to fund the CPV acquisition. |
(4)(5) | In September 2021, OPC issued Series C debentures at a par value of NIS 851 million (approximately $266$ 266 million), bearing annual interest of 2.5%. The Series C bonds are repayable over 12 semi-annual payments (which repayment amounts vary, and range from 5% up to 16% of the total issued amount) commencing in February 2024 with the final payment in August 2030. OPC used the proceeds from the Series C bonds for the early repayment of project financing debt of OPC-Rotem as described below. |
(6) | As of December 31, 2023, the balance of interest payable in respect of the Series B and C debentures amounts to approximately NIS 14 million (approximately $ 4 million). |
The debt instruments to which OPC and its operating companies are party to require compliance with financial covenants. Under each of these debt instruments, the creditor has the right to accelerate the debt or restrict the company from declaring and paying dividends if, at the end of any applicable periodrelevant testing date the applicable entity is not in compliance with the defined financial covenants ratios.
The instruments governing a substantial portion of the indebtedness of OPC operating companies contain clauses that would prohibit these companies from paying dividends or making other distributions in the event that the relevant entity was in default on its obligations under the relevant instrument.
For further information on OPC’s financing arrangements, see Note 1415 to our financial statements included in this annual report.
OPC-Rotem Financing Agreement
In January 2011, OPC-Rotem entered into a financing agreement with a consortium of lenders led by Bank Leumi Le-Israel Ltd., or Bank Leumi, for the financing of its power plant project. In October 2021, OPC-Rotem repaid the project financing debt in the amount NIS 1,292 million (approximately $400 million) (including early repayment fees). As part of the early repayment, OPC-Rotem recognized a one-off expense totaling NIS 244 million (approximately $75 million), in respect of an early repayment fee of approximately NIS 188 million (approximately $58 million), net of tax. OPC and the minority investor in OPC-Rotem extended to OPC-Rotem loans (pro rata to their ownership) to finance the early repayment totaling (principal) NIS 1,130 million (approximately $350 million). A significant portion of OPC’s portion of NIS 904 million (approximately $280 million) was funded by the issuance of Series C debentures as described below.
OPC-Hadera Financing Agreement
In July 2016, OPC-Hadera entered into a NIS 1 billion (approximately $311$323 million) senior facility agreement with Israel Discount Bank Ltd. and Harel Company Ltd. to finance the construction of OPC-Hadera’s power plant in Hadera. Pursuant to the agreement, the lenders undertook to provide OPC-Hadera with financing in several facilities, (includingincluding a term loan facility, a standby facility, a debt service reserve amount, or DSRA, facility to finance the DSRA deposit, and a guarantee facility to facilitate the issuance of bank guarantees to be issued to third parties, a VAT facility (for the construction period only), a hedging facility (for the construction period only), and a working capital facility (for the operation period only)). In March 2020, the lenders under this agreement granted OPC-Hadera’s request to extend the COD under the agreement to June 2020.parties.
In December 2017, Israel Discount Bank Ltd. assigned 43.5% of its share in the long-term credit facility (including the facility for variances in construction and related costs) to Clal Pension and Femel Ltd. and Atudot Pension Fund for Salaried and Self-employed Ltd.
The loans under the facility agreement accrue interest at the rates specified in the relevant agreement. The loans willloan is to be repaid in quarterly installments according to repayment schedules specified in the agreement. The financing will maturematures 18 years after the commencement of repayments in accordance with the provisions of the agreement which will commencecommenced approximately half a year following the commencement of commercial operation of the OPC-Hadera plant.
In connection with theThe senior facility agreement is secured by liens were placed onover some of OPC-Hadera’s existing and future assets and on certain OPC and OPC-Hadera rights, in favor of Israel Discount Bank Ltd., as collateral agent on behalf of the lenders. The senior facility agreement also contains certain restrictions and limitations, including:
minimum projected DSCR, average projected DSCR (in relation to long-term loans at the commercial operation date of the power plant) and LLCR (at the commercial operation date of the power plant): 1.10 – 1.10—on the withdrawal dates the ratio must be at least 1.20;
maintenance of minimum amounts in the reserve accounts in accordance with the agreement; and
other non-financial covenants and limitations such as restrictions on dividend distributions, repayments of shareholder loans, asset sales, pledges investments and incurrence of debt as well as reporting obligations.
As of December 31, 2021, following the full investment of the project’s equity contribution,2023, OPC-Hadera has made drawings in the aggregate amount of NIS 698652 million (approximately $224$180 million) under the NIS 1 billion (approximately $311 million) loan agreement relating to the project.agreement.
Tzomet Financing Agreement
In December 2019, Tzomet entered into a NIS 1.4 billion (approximately $435$441 million) senior facility agreement with a syndicate of lenders led by Bank Hapoalim Ltd, or Bank Hapoalim, to finance the construction of Tzomet’s power plant. Pursuant to the agreement, the lenders undertook to provide Tzomet with financing in several facilities, (includingincluding a term loan facility, a standby facility, a DSRA facility to finance the DSRA deposit, and a guarantee facility to facilitate the issuance of bank guarantees to be issued to third parties, a VAT facility (for the construction period only), a hedging facility (for the construction and operating periods), and a working capital facility (for the operation period only)).parties.
The loans under the facility agreement accrue interest at the rates specified in the relevant agreement. The loans willare to be repaid in quarterly installments according to repayment schedules specified in the agreement. The financing will mature at the earliest of 19 years from the commencement of commercial operation of the Tzomet plant and 23 years from the signing date of the facility agreement, but no later than December 31, 2042, in accordance with the provisions of the agreement.
In connection with the facility agreement, OPC’s shares in Tzomet (including any shares that OPC acquires from the minority shareholders) certain OPC and Tzomet rights were pledged in favor of Bank Hapoalim, asthe collateral agent on behalf of the lenders. The facility agreement also contains certain restrictions and limitations, including:
minimum projected average debt service coverage ratio (ADSCR), average projected ADSCR and LLCR: 1.05 – 1.05—on the withdrawal dates, Tzomet is required to comply with a minimum contractual ADSCR (i.e., the lowest contractual ADSCR of all the contractual ADSCRs up to the date of final repayment) an average contractual ADSCR (i.e., the average contractual ADSCR of all the contractual ADSCRs up to the date of final repayment), and a contractual LLCR on the commencement date of the commercial operation of at least 1.3;
maintenance of minimum amounts in the reserve accounts in accordance with the agreement; and
other non-financial covenants and limitations such as restrictions on dividend distributions, repayments of shareholder loans, asset sales, pledge investments and incurrence of debt.
As of December 31, 2021,2023, Tzomet has made drawings in the aggregate amount of NIS 1841,142 million (approximately $59$315 million) under the facility agreement.
Kiryat Gat Financing Agreement
In March 2023, the Gat Partnership and Bank Leumi le-Israel B.M. (“Bank Leumi”) signed a financing agreement for a senior debt (project financing) to finance the acquisition of the Kiryat Gat Power Plant. As part of the financing agreement, Bank Leumi advanced to the Gat Partnership a long-term loan at the total amount of NIS 450 million (approximately $128 million). The loan is to be repaid in quarterly installments, starting from September 25, 2023, and the final repayment date is May 10, 2039 (subject to early repayment provisions).
The loan bears an annual interest equal to the Prime interest adjusted by a spread ranging from 0.4% to 0.9% per annum. The Kiryat Gat financing agreement contains provisions on converting the interest on the loan from a variable interest to a fixed and unlinked interest. The loan bears the unlinked government bond interest, as defined in the agreement, adjusted by a 2.05% to 2.55% spread.
The Kiryat Gat financing agreement is secured by all of the Gat Partnership’s assets and interests in it, including the real estate, bank accounts, insurances, and the Gat Partnership’s assets and rights in connection with the Project Agreements (as defined in the agreement). In addition, a lien was placed on the rights of the entities holding the Gat Partnership. On the completion date, OPC and Veridis, each in accordance with its proportionate (indirect) share in the Gat Partnership, as well as OPC Power Plants, gave a guarantee to pay all principal and accrued interest payments.
Distributions by the Gat Partnership is subject to a number of conditions described in the said loan agreement, including, among other things: compliance with the following covenants: historic debt service coverage ratio (“DSCR”) and Average Projected DSCR and loan life coverage ratio at a minimal rate of 1.15, the first quarterly principal and interest payment having been made, the provisions of the agreement having been complied with, and no more than four distributions may be carried out in a 12-month period.
In March 2023, the Gat Partnership, the entities holding the Gat Partnership, including OPC Power Plants, and Bank Leumi signed an equity subscription agreement, under which these entities and OPC Power Plants made certain undertakings (debt service and equity capital requirements, guarantees, meeting certain financial covenants) toward Bank Leumi in connection with the Gat Partnership's activity.
OPC Bonds (Series B)
In April 2020, OPC issued NIS 400 million (approximately $113 million) of bonds (Series B), which were listed on the TASE. The bonds bear annual interest at the rate of 2.75% and are repayable every six months, commencing on September 30, 2020 (on March 31 and September 30 of every calendar year) through September 30, 2028. In addition, an unequal portion of principal is repayable every six months. The principal and interest are linked to an increase in the Israeli consumer product index of March 2020 (as published on April 15, 2020). The bonds have received a rating of A3 from Midroog and A- from S&P Global Ratings Maalot Ltd.
In October 2020, OPC issued NIS 584 million ($171(approximately $171 million) of Series B bonds. The offering was an extension of the existing Series B bonds previously issued by OPC. The proceeds of the additional Series B issuance were used to redeem OPC’s Series A bonds (NIS 310 million ($90 million)) and in part to fund the CPV acquisition (approximately NIS 250 million (approximately $78 million)). The outstanding principal amount (net of expenses) as of December 31, 2021 is NIS 956 million (approximately $307 million).
The bonds are unsecured and the trust deed includes limitations on OPC’s ability to impose a floating lien on its assets and rights in favor of a third party.
The trust deed contains customary clauses for callinggiving bondholders the right to call for the immediate redemption of the bonds, including events of default, including insolvency, liquidation proceedings, receivership, stay of proceedings and creditors’ arrangements, certain types of restructuring, material downturn in the position of OPC. The bondholders’ right to call for immediate redemption also arises upon: (i) the occurrence of certain events of loss of control by Kenon; (ii) the call for immediate repayment of other debts (or guarantees) of OPC or of a consolidated subsidiary in certain predefined minimum amounts; (iii) a sale of one or more assets of the company which constitutes more than 50% of the value of company’s assets, in less than 12 consecutive months, or a change in the area of operation of OPC such that OPC’s main area of activity is not in the energy sector, including electricity generation in power plants and with renewable energy sources; (iv) a rating being discontinued over a certain period of time; (v) the company breaching its covenant obligations under the deed of trust and executes an extraordinary transaction with the controlling shareholders (as these terms are defined under the Israeli Companies Law-1999); (vi) the company’s financial reports containing a going concern notice addressing the company itself, for two consecutive quarters; and (vii) a suspension of trading for a certain time period if the bonds are listed for trade on the main list of the stock exchange.
The trust deed includes an undertaking by OPC to comply with covenants on the basis of itsOPC’s stand-alone financial statements: coverage ratio between net financial debt deducting financial debt of projects yet to produce EBITDA, and Adjusted EBITDA of no more than 13, minimum equity of NIS 250 million (approximately $71$69 million) and an equity-to-balance sheet ratio of at least 17%.
The trust deed also includes an undertaking by OPC to monitor the rating by a rating agency.
Furthermore, restrictions are imposed on distributions and payment of management fees to the controlling shareholder, including compliance with certain covenants and certain legal restrictions.
The terms of the bonds also provide for the possible raising of the interest rate in certain cases of lowering the rating and in certain cases of breach of financial covenants. The ability of OPC to expand the series of the bonds has been limited under certain circumstances, including maintaining the rating of the bonds at its level shortly prior to the expansion of the series and the lack of breach.
Additionally, should OPC raise additional bonds that are not secured (and as long as they are not secured), such bonds will not have preference over the bonds (Series B) upon liquidation. Should OPC raise additional bonds that are secured, these will not have preference over the bonds (Series B) upon liquidation, except with respect to the security.
OPC Bonds (Series C)
In September 2021, OPC issued a series of bonds at a par value of approximately NIS 851 million, with the proceeds of the issuance designated, among other things, for early repayment of OPC-Rotem’s financing (Series C). The bonds are listed on the TASE. The bonds are not CPI-linked and bear annual interest of 2.5%. The bonds are repayable in twelve semi-annual and unequal installments (on February 28 and August 31) as set out in the amortization schedule, starting on February 28, 2024 through August 31, 2030 (the first interest payment was due February 28, 2022). The bonds are rated A- by Maalot. The issuance expenses amounted to about NIS 9 million.
The bonds are unsecured and the trust deed includes limitations on OPC’s ability to impose a floating lien on its assets and rights in favor of a third party without fulfilling the conditions in the Bond C deed of trust. OPC has the right to make early repayment pursuant to the conditions in the trust certificate.
The Bonds C deed of trust (the “Bond C deed of trust”) includes customary causes for calling for the immediate repayment (subject to stipulated remediation periods), including as a result of, among others, events of default, liquidation proceedings, receivership, suspension of proceedings and creditors’ arrangements, merger under certain conditions without obtaining bondholders’ approval or statement by the survivor entity, material deterioration in the position of OPC, and failure to publish financial statements in a timely manner.
Furthermore, a bondholders’ right to call for immediate repayment arises, among others, upon the following circumstances: (i) the call for immediate repayment of another series of bonds (traded on the TASE or on the TACT Institutional system) issued by OPC; or of another financial debt (or a number of cumulative debts) of OPC and its consolidated companies (except in the case of a non-recourse debt), including forfeiture of a guarantee (that secures payment of a debt to a financial creditor) that OPC or investee companies made available to a creditor, in an amount not less than $75 million; (ii) upon breach of financial covenants on two consecutive review dates or on one review date; (iii) failure to obtain prior approval of the bondholders by special resolution in the case of an extraordinary transaction with a controlling shareholder, excluding transactions to which the Companies Regulations (Expedients in Transactions with an Interested Party), 2000 apply; (iv) if an asset or a number of assets of OPC are sold in an amount representing over 50% of the value of its assets according to OPC’s consolidated financial statements during a period of 12 consecutive months, or if a change is made to the main operations of OPC, except where the consideration of the sale is intended for the purchase of an asset or assets within OPC’s main area of operations (such as energy, including electricity generation in power plants and from renewable energies); (v) upon the ocurrenceoccurrence of certain events leading to a loss of control; (vi) if a rating is discontinued over a certain period of time (except due to reasons not under the control of OPC); (vii) if trading in the bonds is suspended for a certain period of time or if the bonds are delisted; (viii) if OPC ceases to be a reporting corporation; (ix) if the company’s financial reports contain a going concern notice addressing the company itself, for two consecutive quarters; (x) if OPC breaches its undertaking not to place a general floating charge on its current and future assets and rights, in favor of any third party, without the criteria set in the Bond C deed of trust being met; and (xi) distribution in breach of the provisions of the Bond C deed of trust.
Furthermore, the Bond C deed of trust includes an undertaking by OPC to comply with financial covenants and restrictions (including restrictions as to distribution, expansion of series without, among other things, maintaining the same rating of the bonds subsequent to such expansion, and provisions as to interest adjustment in the event of change in rating or non-compliance with financial covenants). The financial covenants include maintaining the ratio between net consolidated financial debt (less the financial debt designated for the construction of projects that have not yet started generating EBITDA) and Adjusted EBITDA at no more than 13 (and for the purpose of distribution as defined in the Bond C deed of trust - not more than 11), minimum equity (standalone) of NIS 1 billion (and for the purpose of distribution - NIS 1.4 billion), equity to asset ratio (standalone) of no less than 20% (and for the purpose of distribution - no less than 30%), and equity to (consolidated) balance sheet ratio of no less than 17%. As at December 31, 2021,2023, OPC met the following financial covenants: (i)covenants.
OPC Bonds (Series D)
In January 2024, OPC issued a series of bonds at a par value of approximately NIS 200 million (approximately $53 million), with the ratio betweenproceeds of the net consolidatedissuance designated for OPC’s needs, including for recycling of an existing financial debt less(Series D). The bonds are listed on the TASE, are not CPI-linked and bear annual interest of 6.2%. The principal and interest for Series D bonds will be repaid in unequal semi-annual payments (on March 25, and September 25), as set out in the amortization schedule, starting from March 25, 2026 in relation to the principal and September 25, 2024 in relation to interest.
The Bonds D deed of trust includes customary terms similar to Bond B and Bond C deeds of trust described above except, mainly, in relation to the payment schedule, the annual interest (6.2%) and the financial debt earmarkedcovenant of minimum equity (NIS 2 billion) and the purpose of distribution (NIS 2.4 billion).
Credit facility agreements and intra-group agreements in the segment
OPC’s companies in Israel engage from time to time in various intragroup agreements, including a master agreement for the constructionpurchase and sale of projects that have not yet started generating EBITDA,electricity or natural gas or agreements for assignment of customer agreements, subject to any applicable regulations. If such agreements are signed, they will be subject, among other things, to the approval of the financing entities, as the case may be), and the Adjusted EBITDA is 7.3; (ii) OPC’s equity amounts to NIS 2,270 million; (iii) OPC's equity to total assets ratio is 55%; and (iv) the equity to balance sheet (consolidated) ratio is 37%.if any other approvals are required by law.
United States
EachGenerally, each CPV active CPV project company and CPV Three Rivers has taken out senior debt underwith similar outlines - per-project, per-assetstructures, i.e., project, asset level financing at(other than financings of Maple Hill, Stagecoach and Backbone, which are arranged on a several project portfolio basis and the Mountain Wind financing, which is also arranged on the basis of the Mountain Wind portfolio of projects), on non-recourse terms.financing terms subject to specific terms and exceptions set for each project. On financial closing of each loan,financing (excluding Mountain Wind financing agreement, which was on acquisition) debt and equity capital iswere committed in an amount sufficient to cover the project’s projected capital costs during construction, along with ancillary credit facilities. The ancillary credit facilities are provided by a subset of the project’s lenders and in some cases by financial institutions who are not direct lenders to the relevant project and are comprised of letters of credit, which support collateral obligations under the financing arrangements and commercial arrangements, and a working capital revolver facility, which supports the project’s ancillary credit needs. The senior credit facilities are generally structured such that, subject to certain conditions precedent, they convertare converted from facilities to finance the construction phase (if relevant) to long-termterm facilities (term loans) with maturity dates generallyoften tied to the term of the commercial agreements anchoring projectedexpected operating cash flows of each project. For the gas-firedEnergy Transition projects, the term loans generally span the construction period plus 5-7 years after launch of commercial operation (a “mini-perm“miniperm financing”). The mini-permminiperm financing is repaid based on a combination of (I) project-specific scheduled(i) predetermined amounts on scheduled calendar quarter-endper project in accordance with set quarter end repayment dates, and (ii) and result-based metrics, which result in partial or full application of free cash flow to term loan repayment on such quarter-end dates (“cash sweeps”)(cash sweeps), which in the aggregate, result in partial repayment during the loan term, with a balance payable or refinanced upon final repayment date.
CPV seeks to take advantage of opportunities to recycle its credit according to market conditions and, in any case, prior to the scheduled final repayment date. The credit facilities in place during construction are sourced from a consortium of international lenders (10-20 for each gas-fired project, fewer for renewable energy projects with lower capital needs) and executed in the “Term Loan A” market, which is substantially comprised of commercial banks, investment banks, institutional lenders, insurance companies, international funds, and equipment suppliers’ credit affiliates. CPV project companies have refinanced loans for gas-fired projects on both the Term Loan A market and the Term Loan B market, which includes mainly institutional lenders, international funds, and a number of commercial bank.
While the credit facility terms and conditions have certain provisions specific to the project being financed, an overwhelming majority of the standard key terms and conditions (first lien security on assets and rights, covenants, events of default, equity cure rights, distribution restrictions, reserve requirements, etc.) are similar across the CPV project Term Loan A refinancing, while the Term Loan B market refinancing terms, aregenerally, may be slightly less restrictive,more flexible, as customary in this market.market considering the project and the market conditions. In each market and often within each project loan, lenders extended loans to CPV’sthe CPV Group’s projects either according to a credit margin based on the LIBOR,LIBOR/SOFR, variable base interest rate or fixed interest. Following June 30, 2023, LIBOR as a market reference rate was discontinued and replaced with SOFR, which was identified by the Alternative Reference Rates Committee (hereinafter “ARRC”) identified rate to represent best practices for use in certain new USD derivatives and other financial contracts. The debt facilities and interest rate-related agreements for CPV projects were amended to replace LIBOR with SOFR. To minimize exposure to potential interest rate risk, CPV executes interest rate hedges for the main exposure at each project level, whereby the Project CompaniesCPV project companies pay the major financial institutions fixed rate interest and receive variable interest payments for certain terms, according to the terms and conditions of the project and loan. For most of the existing LIBOR-based credit facilities, the credit agreements and interest rate hedging arrangements include market-standard provisions to accommodate the eventual replacement of LIBOR with SOFR as a benchmark interest rate. New variable rate credit facilities and future variable rate refinancings of CPV’s Project Companies’future debt bearing variable interest of the CPV Group project companies will have SOFR as their benchmark interest rate (with United States prime rate as an alternative, in a manner that corresponds to the existing credit facilities are anticipated to be SOFR-based (with a US Prime Rate alternative consistent with CPV’s Project Companies’ existing credit facilities). For potential credit facilities atof the CPV level, CPV may also consider Israeli Prime Rate-based indexing/pricing.
TheGroup project companies).The table below sets forth summaries of the key commercial terms of the senior credit facilities associated with each CPV project financing. The term loan commitment amounts are referenced as of the date noted and once drawn and repaid, may not be drawn again, while the ancillary credit facilities and working capital facilities are revolving in nature. The events of default consist of customary events of default, including, among others: breach of commitments and representations having a material adverse effect, failure of equity contributing party to fund during construction, nonpayment events, failure to adhere to certain covenants, various insolvency events, termination of the project’s activities or of significant parties in the project (as defined in the agreement), various events in connection with its regulatory status and maintenance of government approvals, certain changes in ownership of the project company, certain events in connection with the project, existence of legal proceedings in connection with the project, and the project not having the right to receive payments for its capacity and electricity – electricity—all of this in accordance with and subject to the terms, definitions and cure periods as stated in the relevant credit agreement.
| | | | Total Commitment (approximately in $millions) | | Total Outstanding/ Issued (approximately in $millions) as of Dec. 31, 20212023 | | | | | | |
Fairview | | March 24, 2017 | | 710 | | 6626251(1)
| | June 30, 20252 | | Fixed debt interest rate – 5.4% SOFR – 8.2% Weighted-average interest as at December 31, 2023: 5.6% | LIBOR plus margin of 2.50%–2.75%; fixed interest tranche of 5.78% (subject to replacement base interest rate) | Distribution is subject to the project company’s compliance with several terms and conditions, including compliance with a minimum debt service coverage ratio of 1.2 during the 4 quarters that preceded the distribution, compliance with reserve requirements (pursuant to the terms of the financing agreement), compliance with the debt balances target defined in the agreement, and that no ground for repayment or breach event exists (as defined in the financing agreement). |
Towantic | | March 11, 2016 | | 753 | | 5986553(2)
| | June 30, 20252 | | Fixed debt interest rate – 5.1% SOFR – 8.7% Weighted-average interest as at December 31, 2023: 5.9% | LIBOR plus margin of 2.75%–3.25% (subject to replacement base interest rate) | Similar to Fairview (see above) |
CPV Project | | Financial Closing Date | | Total Commitment (approximately in $millions) | | Total Outstanding/ Issued (approximately in $millions) as of Dec. 31, 2023 | | Maturity Date | | Annual interest | | Covenants |
Maryland | | August 8, 2014 | | 450 | | 3713504(3)
| | May 11, 2028 (Term Loan B)2 November 11, 20272 (Ancillary Facilities) | | LIBOR plus margin of 4% (Term Loan B) (agreement includes an alternate base rate)Fixed debt interest rate – 5.9%
LIBOR plus margin of 2.75% (Ancillary Facilities)
(subject to replacement baseSOFR – 8.9%
Weighted-average interest rate)as at December 31, 2023: 7.0% | | Historical debt service coverage ratio of 1:1 during the last 4 quarters. As of March 27, 2022, Maryland is currently in compliance with the covenant. Execution of aA distribution is conditional on the project company complying with several terms and conditions, including, compliance with a reserve requirements (as provided in the agreement), and that no ground for repayment or breach event exists in accordance with the financing agreement. |
CPV Shore | | December 2018 | 545 | 535 | | 5044255(4)
| | Dec. 27, 2025 (Term Loan) Dec. 27, 2023 (Ancillary Facilities)2(2) | Term Loan: LIBOR plus margin of 3.75% (subject to replacement base | Fixed debt interest rate) Ancillaries: 3.00% marginrate – 4.1%
SOFR – 9.1% Weighted-average interest as at December 31, 2023: 5.4% | | Historic rolling 4 quarter debt service coverage ratio of 1:1. CPV is currently in compliance with this covenant Distribution iscovenant. Distributions are subject to, among others, certain reserve requirements, and having no existing default or event of default. |
CPV Valley | | June 12, 2015 as amended in June 2023 | 680 | 470 | | 5723606(5)
| June 30, 2023 | LIBOR plus margin of 3.50%–3.75% (subjectExtended to replacement baseMay 31, 2026 | | SOFR – 10.8% Weighted-average interest rate)as at December 31, 2023: 10.8% | Distribution is | Distributions are subject to the project company meeting conditions, including compliance with a minimum debt service coverage ratio of 1.2 during the 4 quarters that preceded the distribution, compliance with reserve requirements (pursuant to the terms of the financing agreement), compliance with requirements for receipt of a certain permit, compliance with the debt balances target defined in the agreement, and that no ground for repayment or default event exists (as defined in the financing agreement). |
CPV Keenan II | | August 2021 | | 120 | | 1101047(6)
| | December 31, 2030 | LIBOR + margin 1%–1.375% (subject to replacement base | Fixed debt interest rate)rate – 2.0% SOFR – 6.5% Weighted-average interest as at December 31, 2023: 3.0% | Execution of a distribution is | Distributions are subject to the project company’s compliance with several terms and conditions, including compliance with a minimum debt service coverage ratio of 1.15 during the 4 quarters that preceded the distribution, and that no grounds for repayment or breach event exist (as defined in the financing agreement) |
CPV Three Rivers (under construction) | Aug. | August 21, 2020 | | 875 | | 7077508(7)
| | June 30, 20282(2) | LIBOR plus margin of 3.50%–4.00% (subject to replacement base | Fixed debt interest rate); Fixedrate – 4.6% SOFR – 9.1% Weighted-average interest tranche of 4.75%as at December 31, 2023: 5.3% | | Similar to Fairview (see above) |
1.Project | | Financial Closing Date | | Total Commitment (approximately in $millions) | | Total Outstanding/ Issued (approximately in $millions) as of Dec. 31, 2023 | | Maturity Date | | Annual interest | | Covenants |
Mountain Wind | | April 6, 2023 | | 92 | | 75(8) | | April 6, 2028 | | Fixed debt interest rate – 4.9% SOFR – 7.0% Weighted-average interest as at December 31, 2023: 5.4% | | Distributions aresubject to the project company’s compliance with several terms and conditions, including compliance with a minimum debt service coverage ratio of 1.20 during the preceding 12-month period that preceded the distribution, and that no grounds for repayment or breach event exist (as defined in the financing agreement). |
CPV Maple Hill, Stagecoach, CPV Backbone | | August 23, 2023 | | 370(9) | | 331 | | August 23, 2027 or a year after the conversion date of the third qualifying project | | Fixed debt interest rate – 6.4% SOFR – 7.9% Weighted-average interest as at December 31, 2023: 6.6% | | Each project is required to meet a projected minimum DSCR ratio(10) of 1.3, based on the stream of income from PPAs and green certificates, and 1.8 based on the stream of income from market sales |
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(1) | Consisting of Term Loan (Variable): $471$510 million, Term Loan (Fixed, 5.78%)(Fixed): $106$115 million, Ancillary Facilities (Working Capital Loan: $30 million;$30; Letters of Credit/LC Loans: approximately $55 million). |
2.(2) | The rate and scope of repayment of loan principal varies until final repayment, in accordance with integration of amortization and cash sweep repayment mechanisms (“mini perm” financing).
|
3. | Consisting of Term Loan (Variable): $521Loan: $655 million, Ancillary Facilities (Working Capital Loan: $0;$21; Letters of Credit/LC Loans: $77 million). |
4.(3) | Consisting of Term Loan (Variable): $327Loan: $350 million, Ancillary Facilities ($46(Working Capital Loan and Letters of Credit: $100 million). |
5.(4) | Consisting of Term Loan (Variable): $385Loan: $425 million, Ancillary Facilities ($119110 million) (reduced to $95 million as of November 2023). |
6.(5) | Consisting of Term Loan (Variable): $459Loan: $360 million, Ancillary Facilities (Working Capital Loan: $9 million;$10; Letters of Credit/LC Loans: $104 million (of which approximately $31 million was withdrawn re: debt service reserve as of December 31, 2021)). In April 2021, CPV Valley received certain concessions on the ancillary facilities in exchange for a $10 million aggregate capital commitment from the project sponsors ($5 million from CPV). The concessions waive the annual, mandatory full repayment of the working capital loans through June 29, 2022 and release $5 million of working capital capacity that is currently restricted due to the Title V permit matter. $100 million) |
7.(6) | Consisting of Term Loan: $104 million, Ancillary Facilities (Working Capital Loan and Letters of Credit: $16 million) |
(7) | Consisting of Term Loan (Variable): $98$650 million, Term Loan (Fixed): $100 million, Ancillary Facilities (Working Capital Loan: $0; Letters of Credit/LC Loans: $12($125 million). The amortization schedule of the term loan is based on the December 2030 maturity date, with a 100% cash sweep mechanism starting March 2027, so that the term loan is expected to be repaid in full by the December 2028 maturity date. |
8.(8) | Consisting of:of Term Loan (Variable): $547$19 million, Term Loan (Fixed, 4.5%)(Fixed): $100 million;$56 million, Ancillary Facilities (Working Capital Loan: $0; Letters of Credit/LC Loans: $60($17 million). |
(9) | Consisting of Total Financing Commitment: $181 million, Ancillary Facilities (Letters of Credit: $39 million, Bridge Loan $150 million). |
Qoros’ Liquidity(10) | The ratio between the free cash flow for debt service and the principal and interest payments for the relevant period. |
The $370 million financing agreement with Israeli banks. In August 2023, the CPV Group entered into a $370 million financing agreement with lenders including Israeli banking corporations for the purpose of financing the construction and Capital Resourcesinitial operating period of qualifying projects in the field of renewable energy in the United States. CPV’s Maple Hill and Stagecoach projects are qualifying projects, and CPV’s Backbone project is expected to meet the criteria set for a qualifying project during the first half of 2024.
Qoros’ cashThe total amount provided under the facility is $370 million, of which (i) $181 million is expected to be advanced for the financing of the projects’ construction and cash equivalents was RMB 5their initial commercial operating period, (ii) $39 million (approximately $0.1 million)is expected to be advanced for the provision of letters of credit to projects, and (iii) $150 million is expected to be advanced as a bridge loan to projects after engagement with a “tax equity partner”. The final repayment date is the earlier of December 31, 2021, compared to approximately RMB 10 million (approximately $2 million) asfour years after the Financial Closing Date (which would be August 23, 2027) or one year after the conversion date of December 31, 2020. Qoros’ principal sources of liquidity are cash inflows received fromthe third qualifying project based on the CPV Group’s assessment that Backbone achieving its conversion date in July 2025).
The financing activities, including long-term loans, short-term facilities and capital contributions (in the form of equity contributions or shareholder loans). Qoros’ RMB 3 billion syndicated credit facility, RMB 1.2 billion syndicated credit facility and its RMB 700 million credit facility are no longer availableagreement contains conditions for drawing, including minimum equity, meeting certain ratios and Qorosother conditions. The loans for construction may require additional financing, includingbe converted into loans to finance the renewal or refinancing of its working capital facilities, to fund its development and operations.initial commercial operating period if certain conditions are met.
Qoros has three majorThe loan under the financing agreement bears annual interest based on SOFR plus a margin for loans for financing of construction of 2% (and if such loans are converted to financing the initial operating period, a margin of 2.75%); and for bridge financing of 1.25%. The financing agreement provides for letters of credit facilities, being its RMB 3 billion, RMB 700 million and RMB 1.2 billion loan facilities. As of December 31, 2021, there were RMB 465 million, zero and RMB 660 million outstanding under these facilities, respectively. In 2021, Qoros did not make payments totaling approximately RMB 455 million ($71 million) which were dueto be issued subject to customary annual issuance fees. The financing agreement further provides for customary facility fees in respect of unutilized amounts. The three projects named above are pledged to secure the financing agreement, and a cross default provision is in place between the projects. CPV Group provided a guarantee to secure certain undertakings in connection with the financing agreement.
In accordance with the financing agreement, as of the date each project becomes a qualifying project, it is required on a forward basis to hedge the exposure to changes in the SOFR interest rate for at least 75% of such project’s forecasted amortizing loan balance over its RMB 3 billion, RMB 700approximate first 10 operating years. In August 2023, the CPV Group entered into a hedging agreement by executing interest rate swap contracts with lenders for an initial aggregate amount of approximately $101.3 million and RMB 1.2 billion loan facilities, and as a result, the lenders under these facilities accelerated these loans. These loans remain in default and accelerated.chose to apply cash flow hedge accounting rules.
Qoros has also taken loans and other advances from parties relatedLetters of Credit (LCs). During 2023, the CPV Group entered to several LC arrangements with banking institutions in an aggregate scope of approximately $95 million which are valid up to the Majority Shareholder with outstanding balancessecond half of 2024. Such LCs were used mainly for collaterals to development projects and the Valley hedging transaction. The LC’s are secured by collateral as at December 31, 2021 of RMB 5,978 billion (approximately $938 million)required by the issuing corporations (including a guarantee by CPV or cash deposit, as the case may be). Qoros is party to various short-term and working capital facilities.
These financial numbers are unaudited.
ZIM’s Liquidity and Capital Resources
ZIM operates in the capital-intensive container shipping industry. Its principal sources of liquidity are cash inflows received from operating activities, generally in the form of income from voyages and related services. ZIM’s principal needs for liquidity are operating expenses, expenditures related to debt service and capital expenditures. ZIM’s long-term capital needs generally result from its need to fund its growth strategy. ZIM’s ability to generate cash from operations depends on future operating performance which is dependent, to some extent, on general economic, financial, legislative, regulatory and other factors, many of which are beyond its control, as well as the other factors discussed in “Item 3.D Risk factors—Factors—Risks Related to ourOur Interest in ZIM.”
ZIM’s cash and cash equivalents were $1,543$922 million, $1,022 million and $570$1,543 million as of December 31, 20212023, 2022 and 2020,2021, respectively. In addition, ZIM’s short-term bank deposits were $2,123and other investment instruments amounted to $1,755 million, $3,589 million, and $56$2,307 million as of December 31, 2023, 2022, and 2021, and 2020, respectively.
During 2021, ZIM made early repayments of its Series 1 and Series 2 notes (Tranches C and D) in accordance with related excess cash mechanism, in a total amount of $434 million. These payments reflect a full settlement of such notes and resulted in the removal of all related provisions and limitations.
ZIM’s total outstanding indebtedness as of December 31, 20212023 consisted of $2,318$3,318 million in long-term debt and $1,024$1,693 million in current installments of long-term debt and short-term borrowings. ZIM’s long-term debt is mostly comprised of lease liabilities.liabilities, related to vessels and equipment.
The weighted average interest rate paid per annum as of December 31, 20212023 under all of ZIM’s indebtedness was 5.1%8.1%.
During the years ended December 31, 2023, 2022 and 2021, ZIM’s capital expenditures were $116 million, $346 million and $1,005 million, respectively. Such expenditures, which do not include additions of leased assets, were mainly related to investments in equipment and vessels, as well as in its information systems. ZIM’s projected capital expenditures for the next 12 months are aimed to support its ongoing operational needs.
For further information on the risks related to ZIM’s liquidity, see “Item 3.D Risk Factors—Risks Related to ourOur Interest in ZIM.” Its leverage may make it difficult for ZIM to operate its business, and ZIM may be unable to meet related obligations, which could adversely affect its business, financial condition, results of operations and liquidity.
C. | Research and Development, Patents and Licenses, Etc. |
For a description of Qoros’ research and development activities see “Not applicable.
Item 3.D Risk Factors—Risks Related to Our Interest in Qoros—Qoros faces certain risks relating to its business184,” “Item 4.B Business Overview—Our Businesses—Qoros—Qoros’ Description of Operations” and “Item 5.A Operating Results—Share In Losses of Associated Companies, Net of Tax—Qoros.”
The following key trends contain forward-looking statements and should be read in conjunction with “Special Note Regarding Forward-Looking Statements” and “Item 3.D Risk Factors.” For further information on the recent developments of Kenon and our businesses, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”
Trend InformationOPC
Israel
OPC’s revenue from the sale of electricity to private customers is derived from electricity sold at the generation component tariffs, as published by the EA, with some discount. Under the agreements with the private customers, OPC charges its customers generation component tariffs, as published by the EA, with some discount. In general, an increase or decrease in the generation component has a positive or negative, as applicable, effect on OPC’s results. On February 1, 2024, an annual update of the tariff for 2024 came into effect for the IEC’s electricity consumers. According to the decision, the generation component was updated to NIS 0.3007 per KWh, a decline of 1.1%.
Israel—In February 2022,2023, the EA published the electricity tariffstariff structure for 2022, which included an increaseconsumers was revised. The revision of the EA’s generation component tariff by approximately 13.6%. Such increase is expecteddemand hour clusters generally had a negative effect on OPC’s results, mainly in view of the consumption profile of OPC’s customers (who are mostly industrial and commercial customers), which generally have lower levels of consumption fluctuation during the day compared to be lowered to approximately 9.4%. This increaseretail or other users. In addition, a change of the demand hour clusters changes the breakdown of OPC’s revenues and profits from its operations in Israel between the different quarters, such that revenues and profits in the EA generation componentsummer (June-September), and mainly the third quarter, increase at the expense of the other quarters.
There is expecteda significant uncertainty as to have a positivethe development of the War (which started in October 2023 and as at the date of this report is still underway) and its impact on OPC’s profitsOPC and its operations, and there is also significant uncertainty as to the impact of the War on macroeconomic and financial factors in 2022 comparedIsrael, including the situation in the Israeli capital markets and the credit rating of the State of Israel and Israeli financial institutions (particularly the Israeli banking system) For example, in February 2024, the Moody’s rating agency downgraded the State of Israel’s credit rating to A2 from A1 with 2021. For further information, seea negative rating outlook and of Israeli financial institutions, particularly the Israeli banking system (against the background of the reduction of Israel’s rating, in February 2024 the international rating company “Moody’s” gave notice of a reduction of the credit rating of the five large banks in Israel to a level of A3 with a negative rating outlook)), which could adversely affect investments in the Israeli economy and trigger a removal of money and investments from Israel, increase the costs of the financing sources in Israel, cause a weakening of the exchange rate of the shekel against the other currencies (particularly the dollar), harm business activities and create instability in the Israeli capital markets (including increased volatility, falling prices of traded securities, and limited liquidity and accessibility). See, “Item 5. Operating and Financial Review and Prospects—Material Factors Affecting Results of3D Risk Factors—Risks Related to OPC’s Israel Operations—OPC—Sales—EA TariffsThe War may affect OPC Operations in Israel..”
United States—States
The energy sector in the United States is affected by global and domestic trends. Disruptions to the supply chain, government levies, exchange and interest rates and federal and state policies all affect the activity of the energy sector, as well as the pace and direction of the change trends to the energy infrastructures and the energy markets.
The price of natural gas is significant in setting the price of electricity in most territories where CPV has projects (the main fuel of the conventional natural gas-fired power plants of CPV).projects. The natural gas prices are drivenimpacted by numerous variables, including demand in the industrial, residential and electricity sectors, productivity and supply of the natural gas, supply basins, natural gas production costs, location and changes in the pipeline infrastructure, international trade and the financial profile and the hedging profile of natural gas customers and producers. The price of imported liquefied natural gas affects the natural gas prices during the winter in New England and New York, which has a direct effect on the Towantic and Valley power plants.
Accordingly, electricity and natural gas prices are key factors in the profitability of CPV, as well as capacity prices in the operating areas of the power plants of CPV. SeveralA number of variables affectimpact the profitability of conventionalthe natural gas-fired power plants of CPV Group, including the price of various fuels, the weather, load increase,increases, and unit capacity, which in aggregatecumulatively affect the gross margin and the profitability of CPV.CPV Group. Electricity prices inwithin the PJM market for the CPV’s Energy Transition projects were 86% higherapproximately 56% lower in 2021, respectively,2023, compared with 2020.to 2022. Electricity prices in the ISO-NE (NEPOOL Hub) and NYISO (Zone G) markets were 97%57% and 101% higher60% lower in 2021,2023, respectively, compared with 2020.to 2022. In 2021,2023, average Henry Hub natural gas prices were 92% higher62% lower compared with 2020.to 2022. The changes in in electricity prices stem mainly from the decrease in natural gas prices as evidenced by the northeast gas price premium in the following market areas.
| | | | | | | | | | | | | | | | |
PJM West (Shore, Maryland) | | $ | 36.31 | | | $ | 33.06 | | | $ | 68.74 | | | $ | 73.09 | |
PJM AD Hub (Fairview) | | $ | 31.30 | | | $ | 30.81 | | | $ | 64.70 | | | $ | 69.42 | |
NYISO Zone G (Valley) | | $ | 31.52 | | | $ | 33.27 | | | $ | 73.04 | | | $ | 82.21 | |
ISO-NE Mass Hub (Towantic) | | $ | 34.66 | | | $ | 36.82 | | | $ | 76.92 | | | $ | 85.56 | |
PJM ComEd (Three Rivers) | | $ | 26.31 | | | $ | 26.68 | | | $ | 52.30 | | | $ | 60.40 | |
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Natural gas prices in the U.S. started to rise in the second half of 2021 due to the recovery from the economic crisis associated with the economic recovery following the coronavirus and even more so as a result of the outbreak of the war between Russia and the Ukraine in the beginning of 2022. Prices remained high during 2022, while the production levels of the natural gas were low. Comparatively, at the end of December 2022 the natural gas prices fell sharply upon the rise in levels of production of natural gas and the slowdown of the demand owing to the warm winter (2022/2023), and remained at a very low rate during 2023 compared with last year against the background of relatively high inventory levels.
Zone | Q4 2021 | 2021 | Q4 2020 | 2020 |
PJM West (Shore, Maryland) | $54.39 | $38.92 | $23.05 | $20.95 |
PJM AD Hub (Fairview) | $51.88 | $38.35 | $22.52 | $20.95 |
NY-ISO Zone G (Valley) | $51.33 | $40.74 | $24.29 | $20.32 |
ISO-NE Mass Hub (Towantic) | $59.88 | $45.92 | $30.06 | $23.31 |
The average 24x7 powertrends in the Energy Transition segment are also influenced by reliability concerns and limited new conventional generation in certain areas.
The United States demand for electricity has started to increase after nearly a decade of limited or flat growth. In 2010 and 2020, total electricity consumption in the United States was 3.9 thousand TWh, whereas in 2022 it was 4.05 thousand TWh. The system operators in areas in which CPV Group primarily operates, PJM, NY-ISO and ISO-NE, are expecting between 0.5%-1.6% summer peak load growth over the next 10 years. PJM’s forecasted demand growth doubled year over year. Load growth is increased due to data centers and electrification of the economy. The higher load growth combined with fewer dispatchable resources is expected to affect the overall level of electricity prices are basedand capacity, and on day-ahead settlement prices as publishedthe instability in prices.
OPC businesses require significant capital investment to implement its growth strategy including development and construction of projects. Development of new projects in the field of electricity generation requires, for the most part, several years of work before external financing for construction can be secured, and financial robustness is needed in order to raise the required amounts of capital. OPC businesses may require additional debt and equity financing for their projects. Additional equity financing by OPC may involve Kenon participating in equity raises of OPC. Additional financing for CPV Group may involve equity financing at the respective ISOs.CPV Group level which would dilute OPC (to the extent OPC is not the investor), which would indirectly dilute Kenon’s interest in CPV.
ZIM
Total global container shipping demand totaled approximately 231.5233.6 million TEUsTEU in 20212023 (including inland transportation) according to Drewry Container Forecaster (Drewry) as of December 2021.2023. Global container demand has seen steady and resilient growth equaling a 6%5.5% CAGR since 2000 accordinglyaccording to Drewry, driven by multiple factors. These include economic drivers such as GDP growth, containerization and industrial production, as well as other non-economic drivers such as geopolitics, consumer preferences and demographic changes.
The breakout of the COVID-19 pandemic has led to the second crisis in the container shipping industry since 2000, (with the first crisis occurring during 2009 following the 2008 financial crisis). 2020 commenced with lockdowns and reduced exports from China, reduction of shipping capacity, however during the second half of 2020 manufacturing capacity increased, together with a spike in e-commerce and goods sales, and inventory restocking.
Following the supply chain disruption becamedisruptions experienced in 2021, which were a factor driving significant upgrades to freight rates, and carrier profits. COVID-19 outbreaks reduced port productivity, disrupted sailing schedules, effected ship crew, trucking and labor capacity.
supply chains have been normalizing since the second half of 2022, mainly due to a shift in consumer spending. According to Drewry, demand is expected to achieve an approximately 4.3%2.4% CAGR from 20212022 to 2025.2026.
See also “—Material Factors Affecting Results of Operation.”
E. | Critical Accounting Policies and Significant Estimates |
In preparing our financial statements, we make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our estimates and associated assumptions are reviewed on an ongoing basis and are based upon historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements:
allocation of acquisition costs; and
long-term investment (Qoros);
Recoverable amount of cash-generating unit that includes goodwill; and
Recoverable amount of cash-generating unit of investment in equity-accounted companies (ZIM).
For further information on the estimates, assumptions and judgments involved in our accounting policies and significant estimates, see Note 2 to Kenon’s financial statements included in this annual report.
F. | Disclosure of Registrant’s Action to Recover Erroneously Awarded Compensation |
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Not applicable.
ITEM 6.6. | Directors, Senior Management and Employees |
A. | Directors and Senior Management |
Board of Directors
The following table sets forth information regarding our board of directors:
| | | | | | Original Appointment Date | | | | |
Antoine Bonnier | | 40 | | Board Member | | 2016 | | | | 2024 |
Laurence N. Charney | | 76 | | Chairman of the Audit Committee, Compensation Committee Member, Board Member, ESG Committee Member | | 2014 | | 2023 | | 2024 |
Barak Cohen | | 42 | | Board Member | | 2018 | | 2023 | | 2024 |
Cyril Pierre-Jean Ducau | | 45 | | Chairman of the Board, Nominating and Corporate Governance Committee Chairman, ESG Committee Member | | 2014 | | 2023 | | 2024 |
N. Scott Fine | | 67 | | Audit Committee Member, Compensation Committee Chairman, Board Member | | 2014 | | 2023 | | 2024 |
Bill Foo | | 66 | | Board Member, Nominating and Corporate Governance Committee Member | | 2017 | | 2023 | | 2024 |
Aviad Kaufman | | 53 | | Compensation Committee Member, Board Member, Nominating and Corporate Governance Committee Member | | 2015 | | 2023 | | 2024 |
Robert L. Rosen1 | | 51 | | Board Member and CEO | | 2023 | | 2023 | | 2024 |
Arunava Sen | | 63 | | Board Member, Audit Committee Member, ESG Committee Chairman | | 2017 | | 2023 | | 2024 |
Tan Beng Tee2 | | 66 | | Board Member | | 2023 | | 2023 | | 2024 |
__________
Name | | | | | | Original Appointment Date | | | | |
Antoine Bonnier | | 39 | | Board Member | | 2016 | | 2021 | | 2022 |
Laurence N. Charney | | 75 | | Chairman of the Audit Committee, Compensation Committee Member, Board Member | | 2014 | | 2021 | | 2022 |
Barak Cohen | | 40 | | Board Member | | 2018 | | 2021 | | 2022 |
Cyril Pierre-Jean Ducau | | 43 | | Chairman of the Board, Nominating and Corporate Governance Committee Chairman | | 2014 | | 2021 | | 2022 |
N. Scott Fine | | 65 | | Audit Committee Member, Compensation Committee Chairman, Board Member | | 2014 | | 2021 | | 2022 |
Bill Foo | | 64 | | Board Member, Nominating and Corporate Governance Committee Member | | 2017 | | 2021 | | 2022 |
Aviad Kaufman | | 51 | | Compensation Committee Member, Board Member, Nominating and Corporate Governance Committee Member | | 2015 | | 2021 | | 2022 |
Arunava Sen | | 61 | | Board Member, Audit Committee Member | | 2017 | | 2021 | | 2022 |
1. Appointment effective from July 19, 2023
2. Appointment effective from August 30, 2023
Our constitutionConstitution provides that, unless otherwise determined by a general meeting, the minimum number of directors is five and the maximum number is 12.
Senior Management
| | | | |
Robert L. Rosen | | 4951 | | Chief Executive Officer & Director |
Mark HassonDeepa Joseph | | 4648 | | Chief Financial Officer |
Biographies
Directors
Antoine Bonnier. Mr. Bonnier is currently a Managing Directorthe Chief Executive Officer of Quantum Pacific (UK) LLP and serves as a member of the board of directors of Club Atletico de Madrid SAD, of CPVI, OPC, Cool Company Ltd and of OPC,Ekwateur SA, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. Mr. Bonnier was previously a member of the investment teamManaging Director of Quantum Pacific Advisory Limited from 2011 to 2012.(UK) LLP. Prior to joining Quantum Pacific Advisory Limited in 2011, Mr. Bonnier was an Associate in the Investment Banking Division of Morgan Stanley & Co. During his tenure there, from 2005 to 2011, he held various positions in the Capital Markets and Mergers and Acquisitions teams in London, Paris and Dubai. Mr. Bonnier graduated from ESCP Europe Business School and holds a Master of Science in Management.
Laurence N. Charney. Mr. Charney currently serves as the chairman of our audit committee. Mr. Charney retired from Ernst & Young LLP in June 2007, where, over the course of his more than 37-year career, he served as Senior Audit Partner, Practice Leader and Senior Advisor. Since his retirement from Ernst & Young, Mr. Charney has served as a business strategist and financial advisor to boards, senior management and investors of early stage ventures, private businesses and small to mid-cap public corporations across the consumer products, energy, high-tech/software, media/entertainment, and non-profit sectors. His most recent directorships also include board tenure with Marvel Entertainment, Inc. (through December 2009) and TG Therapeutics, Inc. (from March 2012 through the current date). Mr. Charney has recently joined the board of directors, as audit committee chair, of Apifiny Group Inc. (a private company in process of merging with a public company special acquisition corporation). Mr. Charney is a graduate of Hofstra University with a Bachelor’s degree in Business Administration (Accounting), and has also completed an Executive Master’s program at Columbia University. Mr. Charney maintains active membership with the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants.
Barak Cohen. Mr. Cohen is a Managing Director at Quantum Pacific (UK) LLP, and a board member of ZIM and of Qoros, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. In September 2018, Mr. Cohen was appointed to the board of directors of Kenon, having served as Co-CEO of Kenon till that time. Prior to serving as Kenon’s Co-CEO, Mr. Cohen served as Kenon’s Vice President of Business Development and Investor Relations from 2015 to September 2017. Prior to joining Kenon in 2015, Mr. Cohen worked in various capacities at IC since 2008 most recently as IC’s Senior Director of Business Development and Investor Relations. Prior to joining IC, Mr. Cohen held positions at Lehman Brothers (UK) and Ernst & Young (Israel). Mr. Cohen holds Bachelor’s degrees in Economics, summa cum laude, and Accounting & Management, magna cum laude, both from Tel Aviv University.
Cyril Pierre-Jean Ducau. Mr. Ducau is the Chief Executive Officer of Ansonia and the Chief Executive Officer of Eastern Pacific Shipping Pte Ltd, a leading shipping company based in Singapore. He is a member of the board of directors of Ansonia as well as other private companies, each of which may be associated with the same ultimate beneficiary, Mr. Idan Ofer. He is also currently the Chairman of Cool Company Ltd, a NYSE-listed shipping company and an independent director of the Singapore Maritime Foundation and of the Global Centre for Maritime Decarbonisation Limited, which were established by the Maritime and Port Authority of Singapore. He is also a member of the board of directors of Gard P&I (Bermuda) Ltd, a leading maritime insurer, and the Chairman of Cool Company Ltd, a public shipping company.insurer. He was previously Head of Business Development of Quantum Pacific Advisory Limited in London from 2008 to 2012 and acted as Director and then Chairman of Pacific Drilling SA untilbetween 2011 and 2018. Prior to joining Quantum Pacific Advisory Limited, in 2008, Mr. Ducau was Vice President in the Investment Banking Division of Morgan Stanley & Co. International Ltd. in London.London and, during his tenure there from 2000 to 2008, he held various positions in the Capital Markets, Leveraged Finance and Mergers and Acquisitions teams. Mr. Ducau graduated from ESCP Europe Business School (Paris, Oxford, Berlin) and holds a Master of Science in business administration and a Diplom Kaufmann.
N. Scott Fine. Mr. Fine is the Chief Executive Officer and an Executive Director of Cyclo Therapeutics, Inc., a biotechnology company focused on developing novel therapeutics based on cyclodextrin technologies. Mr. Fine has been involved in investment banking for over 35 years, working on a multitude of debt and equity financings, buy and sell side mergers and acquisitions, strategic advisory work and corporate restructurings. Much of his time has been focused on transactions in the healthcare and consumer products area, including time with The Tempo Group of Jakarta, Indonesia. Mr. Fine was the lead investment banker on the IPO of Keurig Green Mountain Coffee Roasters and Central European Distribution Corporation, or CEDC, a multi-billion-dollar alcohol company. He was also involved in an Equity Strategic Alliance between Research Medical and the Tempo Group. Mr. Fine continued his involvement with CEDC, serving as a director from 1996 until 2014, during which time he led the CEDC Board’s successful efforts in 2013 to restructure the company through a pre-packaged Chapter 11 process whereby CEDC was acquired by the Russian Standard alcohol group. Recently, Mr. Fine served as Vice Chairman and Chairman of the Restructuring Committee of Pacific Drilling SA from 2017 to 2018 where he successfully led the Independent Directors to a successful reorganization. He also served as Sole Director of Better Place Inc. from 2013 until 2015. In that role, Mr. Fine successfully managed the global wind down of the company in a timely and efficient manner which was approved by both the Delaware and Israeli courts. Mr. Fine devotes time to several non-profit organizations, including through his service on the Board of Trustees for the IWM American Air Museum in Britain. He and his wife, Cathy are also the Executive Producers of “The Concert for Newtown” with Peter Yarrow of Peter, Paul, and Mary. Mr. Fine has been a guest lecturer at Ohio State University’s Moritz School of Law and Fordham University Law School.
Bill Foo. Dr. Bill Foo is a director and corporate advisor of several private, listed and non-profit entities, including Mewah International Inc., CDL Hospitality Trusts, Tung Lok Restaurants (2000) Ltd., M&C REIT Management Ltd and chairing Investible Funds VCC as well as the Salvation Army organization.and James Cook University Singapore organizations. In May 2017, Dr. Foo was appointed to the board of directors of Kenon, having served as a director of IC Power between November 2015 and January 2018. Prior to his retirement, Dr. Foo worked in financial services for over 30 years, including serving as CEO of ANZ Singapore and South East Asia Head of Investment Banking for Schroders. Dr. Foo has also worked in various positions at Citibank and Bank of America and has been a director of several listed and government-related entities, including International Enterprise Singapore (Trade Agency), where he chaired the Audit Committee for several years. Dr. Foo has a Master’s Degree in Business Administration from McGill University and a Bachelor of Business Administration from Concordia University and an honorary Doctor of Commerce from James Cook University Australia.
Aviad Kaufman. Mr. Kaufman is the Chief Executive Officer of One Globe Business Advisory Ltd, the chairman of IC, and a board member of ICL Group Ltd., OPC and other private companies, each of which may be associated with Mr. Idan Ofer. From 2017 until July 2021, Mr. Kaufman served as the Chief Executive Officer of Quantum Pacific (UK) LLP and from 2008 until 2017 as Chief Financial Officer of Quantum Pacific (UK) LLP (and its predecessor Quantum Pacific Advisory Limited). From 2002 until 2007, Mr. Kaufman fulfilled different senior corporate finance roles at Amdocs Ltd. Previously, Mr. Kaufman held various consultancy positions with KPMG. Mr. Kaufman is a certified public accountant and holds a Bachelor’s degree in Accounting and Economics from the Hebrew University in Jerusalem (with distinction), and a Master’s of Business Administration in Finance from Tel Aviv University.
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Robert L. Rosen. Mr. Rosen has served as CEO of Kenon since September 2017 and also serves on the board of Kenon as an executive director and on the board of OPC as director. Prior to becoming CEO, Mr. Rosen served as General Counsel of Kenon upon joining Kenon in 2014. Prior to joining Kenon, Mr. Rosen spent 15 years in private practice with top tier law firms, including Linklaters LLP and Milbank LLP. Mr. Rosen is admitted to the Bar in the State of New York, holds a Bachelor’s degree with honors from Boston University and a JD and MBA, both from the University of Pittsburgh, where he graduated with high honors.
Arunava Sen. Mr. Sen is Director of Coromandel Advisors Pte Ltd, a Singapore-based company that provides strategic and transactional advice to global investors in the infrastructure and clean energy sectors. In May 2017, Mr. Sen was appointed to the board of directors of Kenon, having served as a director of IC Power between November 2015 and January 2018. Between August 2010 and February 2015, Mr. Sen was CEO and Managing Director of Lanco Power International Pte Ltd, a Singapore-registered company focused on the development of power projects globally. Previously, Mr. Sen held several senior roles at Globeleq Ltd, a Houston-based power investment company, including COO, CEO—Latin America and CEO—Asia. In 1999, Mr. Sen cofounded and was COO of Hart Energy International, a Houston-based company that developed and invested in power businesses in Latin America and the Caribbean. Mr. Sen currently serves on the investment committeescommittee of SUSI Asia Energy Transition Fund and Armstrong SE Asia Clean Energy Fund. A qualified Chartered Accountant, Mr. Sen holds a B.Com. degree from the University of Calcutta and an M.S. degree in Finance from The American University in Washington, DC.
Tan Beng Tee. Ms. Tan is the Executive Director of the Singapore Maritime Foundation. She started her career in the public service and spent the next 40 years with the statutory boards under the Ministry of Trade and Industry (Trade Development Board and International Enterprise Singapore) and the Ministry of Transport (Maritime and Port Authority of Singapore). From 2012 to 2020, Ms. Tan was the Assistant Chief Executive (Development) of MPA. She remains at MPA as Senior Advisor. Prior to joining MPA in 2004, Ms. Tan was Director at the International Enterprise Singapore (now merged into Enterprise Singapore). For her service in developing Singapore as an International Maritime Centre, Ms. Tan received the Public Administration Medal (Silver) in 1997, (Silver)(Bar) in 2012, and (Gold) in 2020. From the industry, Ms. Tan received a Lifetime Achievement Award from Lloyd's List in 2008, and Seatrade in 2018. Ms. Tan serves on the boards of the Singapore Chamber of Maritime Arbitration and the National University of Singapore’s Centre for Maritime Studies. She also serves on the committees of the Nanyang Technological University’s College of Civil and Environmental Engineering, the Singapore Maritime Academy at Singapore Polytechnic, Singapore War Risk Mutual and on the Marine Insurance Committee of the General Insurance Association. Ms. Tan holds a degree in Business Administration from the National University of Singapore and a Diploma in Shipping from the Norad Fellowship in Oslo, Norway.
Senior Management
Robert Rosen.Deepa Joseph. Mr. Rosen has served as CEO of Kenon since September 2017 and is a board member of OPC. Prior to becoming CEO, Mr. Rosen served as General Counsel of Kenon upon joiningMs. Joseph joined Kenon in 2014. Prior to joining Kenon, Mr. Rosen spent 15 years in private practice with top tier law firms, including Linklaters LLPJune 2023 and Milbank LLP. Mr. Rosen is admitted to the Bar in the State of New York, holds a Bachelor’s degree with honors from Boston University and a JD and MBA, both from the University of Pittsburgh, where he graduated with high honors.
Mark Hasson. Mr. Hasson has served as Chief Financial Officer at Kenon since October 2017.from September 2023. Ms. Joseph also serves as Chief Financial Officer of Ansonia. Prior to joining Kenon in 2017, Mr. HassonAnsonia, Ms. Joseph served in various senior finance positions from 2012 to 2023 in SingaporeEastern Pacific Shipping Pte. Ltd. and Australia. He holds a Bachelor’s degree in Finance and Accounting fromQuantum Pacific Shipping Services Pte. Ltd, each of which may be associated with the University of Cape Town in South Africa andsame ultimate beneficiary, Mr. Idan Ofer. She is a Chartered Accountant (Institute of Singapore Chartered AccountantsAccountants). She holds a Masters in EnglandBusiness Administration (specializing in Accountancy) from Nanyang Business School, Singapore and Wales).Bachelors in Science (Mathematics) from Mahatma Gandhi University, India.
We pay our directors compensation for serving as directors, including per meeting fees.
For the year ended December 31, 2021,2023, the aggregate compensation accrued (comprising remuneration and the aggregate fair market value of equity awards granted) for our directors and executive officers was approximately $2$3 million.
For further information on Kenon’s Share Incentive Plan 2014 and Share Option Plan 2014, see “Item 6.E Share Ownership.”
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the NYSE’s rules for domestic U.S. issuers, provided that we disclose which requirements we are not following and describe the equivalent home country requirement.
Nonetheless, we have elected to applygenerally follow the corporate governance rules of the NYSE that are applicable to U.S. domestic registrants that are not “controlled” companies.
Board of Directors
Our constitutionConstitution gives our board of directors general powers to manage our business. The board of directors, which consists of eightten directors, oversees and provides policy guidance on our strategic and business planning processes, oversees the conduct of our business by senior management and is principally responsible for the succession planning for our key executives. Cyril Pierre-Jean Ducau serves as our Chairman.
Director Independence
Pursuant to the NYSE’s listing standards, listed companies are required to have a majority of independent directors. Under the NYSE’s listing standards, (i) a director employed by us or that has, or had, certain relationships with us during the last three years, cannot be deemed to be an independent director, and (ii) directors will qualify as independent only if our board of directors affirmatively determines that they have no material relationship with us, either directly or as a partner, shareholder or officer of an organization that has a relationship with us. Ownership of a significant amount of our shares, by itself, does not constitute a material relationship.
Although we are permitted to follow home country practice in lieu of the requirement to have a board of directors comprised of a majority of independent directors according to NYSE listing standards, we have determined that we are in compliance with this requirement and that all of our board of directors is independent according to the NYSE’s listing standards. Our board of directors has affirmatively determined that each of Antoine Bonnier, Arunava Sen, Aviad Kaufman, Barak Cohen, Bill Foo, Cyril Pierre-Jean Ducau, Laurence N. Charney and N. Scott Fine, representing all of our eight directors, are currently “independent directors” as defined under the applicable rules and regulations of the NYSE.requirement.
Election and Removal of Directors
See “Item 10.B Constitution.”
Service Contracts
None of our board members have service contracts with us or any of our businesses providing for benefits upon termination of employment.
Indemnifications and Limitations on Liability
For information on the indemnification and limitations on liability of our directors, see “Item 10.B Constitution.”
Committees of our Board of Directors
We have established threefour committees, which report regularly to our board of directors on matters relating to the specific areas of risk the committees oversee: the audit committee, the nominating and corporate governance committee, the compensation committee and the compensationESG committee. Although we are permitted to follow home country practices with respect to our establishment of the nominating and corporate governance and compensation committees, we have determined that we are in compliance with the NYSE’s requirements in these respects.
Audit Committee
We have established an audit committee to review and discuss with management significant financial, legal and regulatory risks and the steps management takes to monitor, control and report such exposures; our audit committee also oversees the periodic enterprise-wide risk evaluations conducted by management. Specifically, our audit committee oversees the process concerning:
the quality and integrity of our financial statements and internal controls;
the compensation, qualifications, evaluation and independence of, and making a recommendation to our board for recommendation to the annual general meeting for appointment of, our independent registered public accounting firm;
the performance of our internal audit function;
our compliance with legal and regulatory requirements; and
review of related party transactions.
All three members of our audit committee, Laurence N. Charney, N. Scott Fine and Arunava Sen, are independent directors. Our board of directors has determined that Laurence N. Charney is an audit committee financial expert, as defined under the applicable rules of the SEC, and that each of our audit committee members has the requisite financial sophistication as defined under the applicable rules and regulations of each of the SEC and the NYSE. Our audit committee operates under a written charter that satisfies the applicable standards of each of the SEC and the NYSE.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee oversees the management of risks associated with board governance, director independence and conflicts of interest. Specifically, our nominating and corporate governance committee is responsible for identifying qualified candidates to become directors, recommending to the board of directors candidates for all directorships, overseeing the annual evaluation of the board of directors and its committees and taking a leadership role in shaping our corporate governance.
Our nominating and corporate governance committee considers candidates for directordirectors who are recommended by its members, by other board members and members of our management, as well as those identified by any third-party search firms retained by it to assist in identifying and evaluating possible candidates. The nominating and corporate governance committee also considers recommendations for director candidates submitted by our shareholders. The nominating and corporate governance committee evaluates and recommends to the board of directors qualified candidates for election, re-election or appointment to the board, as applicable.
When evaluating director candidates, the nominating and corporate governance committee seeks to ensure that the board of directors has the requisite skills, experience and expertise and that its members consist of persons with appropriately diverse and independent backgrounds. The nominating and corporate governance committee considers all aspects of a candidate’s qualifications in the context of our needs, including: personal and professional integrity, ethics and values; experience and expertise as an officer in corporate management; diversity considerations; experience in the industry of any of our portfolio businesses and international business and familiarity with our operations; experience as a board member of another publicly traded company; practical and mature business judgment; the extent to which a candidate would fill a present need on the board of directors; and the other ongoing commitments and obligations of the candidate. The nominating and corporate governance committee does not have any minimum criteria for director candidates. Consideration of new director candidates will typically involve a series of internal discussions, review of information concerning candidates and interviews with selected candidates.
As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a nominating and corporate governance committee comprised entirely of independent directors. Nonetheless, we have determined that all three members of our nominating and corporate governance committee, Cyril Pierre-Jean Ducau, Bill Foo and Aviad Kaufman are independent directors as defined under the applicable rules of the NYSE.
The members of our nominating and corporate governance committee are Cyril Pierre-Jean Ducau, Bill Foo and Aviad Kaufman.
Our nominating and corporate governance committee operates under a written charter that satisfies the applicable standards of the NYSE for foreign private issuers.
Compensation Committee
Our compensation committee assists our board in reviewing and approving the compensation structure of our directors and officers, including all forms of compensation to be provided to our directors and officers. The compensation committee is responsible for, among other things:
reviewing and determining the compensation package for our Chief Executive Officer and other senior executives;
reviewing and making recommendations to our board with respect to the compensation of our non-employee directors;
reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other senior executives, including evaluating their performance in light of such goals and objectives; and
reviewing periodically and approving and administering stock options plans, long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans for all employees, including reviewing and approving the granting of options and other incentive awards.
As a foreign private issuer, we are permitted to follow home country practice in lieu of the requirement to have a compensation committee comprised entirely of independent directors. Nonetheless, we have determined that all threeThe members of our compensation committee are N. Scott Fine, Laurence N. Charney and Aviad KaufmanKaufman.
ESG Committee
We have established an ESG committee to carry out the responsibilities delegated by the board of directors regarding the oversight of Kenon’s risks, opportunities, strategies, goals, and policies and procedures related to environmental, social, and governance. Specifically, our ESG committee’s responsibilities include: monitoring and advising the board of directors on our risks and opportunities related to ESG matters; reviewing and discussing with management our goals, strategies, and policies and procedures to address ESG risks and opportunities; reviewing and advising the board of directors on our performance related to the ESG goals, strategies, and policies and procedures; reviewing and approving policies and procedures used to prepare ESG-related statements and disclosures, including statements and disclosures to be furnished or filed with the SEC; monitoring disclosure requirements under applicable laws, regulations and stock exchange rules and overseeing our plans and processes to comply with such disclosure requirements; overseeing our ESG-related engagement efforts with shareholders, other key stakeholders and reviewing and advising the board of directors on ESG-related shareholder proposals; reviewing our government relations strategies and activities, including any political activities and contributions and lobbying activities; and reviewing our charitable programs and community investment activities.
The members of our ESG committee are independent directors as defined under the applicable rules of the NYSE.Arunava Sen, Cyril Pierre-Jean Ducau, Laurence N. Charney and Robert L. Rosen. Our compensationESG committee operates under a written charter that satisfies the applicable standards of the NYSE.charter.
Code of Ethics and Ethical Guidelines
Our board of directors has adopted a code of ethics that describes our commitment to, and requirements in connection with, ethical issues relevant to business practices and personal conduct.
As of December 31, 2021,2023, we and our consolidated subsidiaries employed 228325 individuals, respectively, as follows:
Company | | | |
OPC1(1) | | | 222319 | |
Kenon | | | | |
Total | | | | |
________________________________________
(1) | In January 2021, an entity in which OPC holds a 70% interest, completed the acquisition of CPV. This table includes CPV’s employees.
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OPC
As of December 31, 2021,2023, OPC employed 222319 employees (including 104150 CPV employees, reflecting the acquisition of CPV in January 2021)employees). For further information on OPC’s employees, see “Item 4.B Business Overview—Our Businesses—OPC—OPC’s Description of Operations—Employees.”
ZIM
As of December 31, 2021,2023, ZIM employed 5,9316,460 employees worldwide (including contract workers), including 770860 employees based in Israel.
A significant number of ZIM’s Israeli employees are unionized and ZIM is party to numerous collective agreements with respect to its employees. For further information on the risks related to ZIM’s unionized employees, see “Item 3.D Risk Factors—Risks Related to the Industries in Whichwhich Our Businesses Operate—Our businesses may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.”
Interests of our Directors and our Employees
Kenon has established the Share Incentive Plan 2014 and the Share Option Plan 2014 for its directors and management. The Share Incentive Plan 2014 and the Share Option Plan 2014 provide grants of Kenon’s shares, and stock options in respect of Kenon’s shares, respectively, to management and directors of Kenon, or to officers of Kenon’s subsidiaries or associated companies, pursuant to awards, which may be granted by Kenon from time to time. The total number of shares underlying awards which may be granted under the Share Incentive Plan 2014 or delivered pursuant to the exercise of options granted under the Share Option Plan 2014 shall not, in the aggregate, exceed 3% of the total issued shares (excluding treasury shares) of Kenon. Kenon granted awards of shares to directors and certain members of its management under the Share Incentive Plan 2014 in 2021,2023, with a value of $0.2 million.$229 thousand.
Equity Awards to Certain Executive Officers—Subsidiaries and Associated Companies
Kenon’s subsidiaries and associated companies may, from time to time, adopt equity compensation arrangements for officers and directors of the relevant entity. Kenon expects any such arrangements to be on customary terms and within customary limits (in terms of dilution).
ITEM 7.7. | Major Shareholders and Related Party Transactions |
The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 30, 2022,26, 2024, by each person or entity beneficially owning 5% or more of our ordinary shares, based upon the 53,884,43652,776,671 ordinary shares outstanding as of such date, which represents our entire issued and outstanding share capital as of such date. The information set out below is based on public filings with the SEC as of March 30, 2022.26, 2024.
As of March 30, 2022, 53,880,88022, 2024, 52,775,030 of our shares (99.99%) were held by one holder of record in the United States, Cede & Co., as nominee for the Depository Trust Company, which indirectly holds our shares traded on the NYSE and the TASE. Such numbers are not representative of the portion of our shares held in the United States nor are they representative of the number of beneficial holders residing in the United States. Our remaining shares were held by 76 shareholders of record as of that date.
All of our ordinary shares have the same voting rights.
Beneficial Owner (Name/Address) | | | | | Percentage of Ordinary Shares | |
Ansonia Holdings Singapore B.V.1 | | | 32,497,569 | | | | 60.3 | % |
Gilad Altshuler2 | | | 3,340,668 | | | | 6.2 | % |
Harel Insurance Investments & Financial Services Ltd.3 | | | 3,090,402 | | | | 5.7 | % |
Laurence N. Charney | | | 47,650 | 4 | | | * | 5 |
Bill Foo | | | 14,108 | 4 | | | * | 5 |
Arunava Sen | | | 14,108 | 4 | | | * | 5 |
Directors and Senior Management (Executive Officers)6 | | | — | | | | * | 5 |
Beneficial Owner | | | | | Percentage of Ordinary Shares | |
Ansonia Holdings Singapore B.V.(1) | | | 32,497,569 | | | | 61.6 | % |
Gilad Altshuler(2) | | | 3,475,486 | | | | 6.6 | % |
Directors and Senior Management (Executive Officers) | | | — | | | | * | (3) |
______________________________________
(1) | Based solely on the Schedule 13-D/A (Amendment No. 5) filed by Ansonia Holdings Singapore B.V. with the SEC on July 7, 2021. A discretionary trust, in which Mr. Idan Ofer is the beneficiary, indirectly holds 100% of Ansonia Holdings Singapore B.V. |
(2) | Based solely on the Schedule 13-G13-G/A filed by Gilad Altshuler with the SEC on February 14, 2022.12, 2024. According to the Schedule 13-G, the 3,340,6683,475,486 ordinary shares consists of (i) 2,975,8433,325,657 ordinary shares by provident and pension funds managed by Altshuler Shaham Provident & Pension Funds Ltd., a majority-owned, indirect subsidiary of Altshuler-Shaham Ltd., (ii) 350,825143,829 ordinary shares held by mutual funds managed by Altshuler Shaham Mutual Funds Management Ltd., also a majority-owned subsidiary of Altshuler-Shaham Ltd, and (iii) 14,0006,000 ordinary shares held by hedge funds managed by Altshuler Shaham Owl, Limited Partnership, an affiliate of Altshuler-Shaham Ltd. |
(3) | Based solely upon the Schedule 13-G/A (Amendment No. 2) filed by Harel Insurance Investments & Financial Services Ltd. (“Harel”) with the SEC on January 31, 2022. According to the Schedule 13-G/A, all of the ordinary shares reported are held for members of the public through, among others, provident funds and/or mutual funds and/or pension funds and/or insurance policies and/or exchange traded funds, which are managed by subsidiaries of Harel, which subsidiaries operate under independent management and make independent voting and investment decisions.
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(4)(3) | Based solely on Exhibit 99.3 to the Form 6-K furnished by Kenon with the SEC on May 12, 2021.
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(5) | Owns less than 1% of Kenon’s ordinary shares. |
(6) | Excludes shares held by Laurence N. Charney, Bill Foo and Arunava Sen.
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Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that such person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
We are not aware of any arrangement that may, at a subsequent date, result in a change of our control.
B. | Related Party Transactions |
Kenon
Pursuant to its charter, the audit committee must review and approve all related party transactions. The audit committee has a written policy with respect to the approval of related party transactions. In addition, we have undertaken that, for so long as we are listed on the NYSE, to the extent that we or our subsidiaries will enter into transactions with related parties, such transactions will be considered and approved by us or our wholly-owned subsidiaries in a manner that is consistent with customary practices followed by companies incorporated in Delaware and shall be reviewed in accordance with the requirements of Delaware law.
We are party to several related party transactions with certain of our affiliates. Set forth below is a summary of these transactions. For further information, see Note 27 to our financial statements included in this annual report.
OPC
Sales of Electricity and Gas
OPC-Rotem sells electricity through PPAs to some entities that are considered to be related parties, including the ORL Group. OPC-Rotem recorded revenues fromGroup which was considered a related parties in the amountparty for a portion of $76 million in2023 but is no longer considered a related party during the year ended December 31, 2021.2023.
OPC-Rotem and OPC-Hadera Financing Agreements
OPC-Rotem and OPC-Hadera have entered into financing agreements for the financing of their power plant projects, see “Item 5.B Liquidity and Capital Resources—OPC’s Liquidity and Capital Resources—OPC’s Material Indebtedness—OPC-Hadera Financing Agreement” and “Item 5.B Liquidity and Capital Resources—OPC’s Liquidity and Capital Resources—OPC’s Material Indebtedness—OPC-Rotem Financing Agreement.” One of the lenders under both of these agreements is a financial institution that is an OPC related party.
ZIM
Vessels chartered-in from interested and related parties
ZIM has been chartering in vessels from corporations affiliated with Kenon and/or its controlling shareholders. Yair Caspi, Yoav Sebba and Barak Cohen, who serve on ZIM’s Board of Directors, also serve as either employees, officers or directors in Kenon or in other entities affiliated with Kenon. All such charters were approved as non-extraordinary transactions within the meaning of such term in the Companies Law (i.e., transactions conducted in the ordinary course of business, on market terms and which do not have a material impact on ZIM’s assets, liabilities or profits). The aggregate amount paid in connection with these charters during the year ended December 31, 2023 was $42.7 million.
C. | Interests of Experts and Counsel |
Not applicable.
ITEM 8.8. | Financial Information |
A. | Consolidated Statements and Other Financial Information |
For information on the financial statements filed as a part of this annual report, see “Item 18. Financial Statements.” For information on our legal proceedings, see “Item 4.B Business Overview” and Note 20 to our financial statements included in this annual report. For information on our dividend policy, see “Item 10.B Constitution.”
For information on any significant changes that may have occurred since the date of our annual financial statements, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”
ITEM 9.9. | The Offer and Listing |
A. | Offer and Listing Details. |
Kenon’s ordinary shares are listed on the TASE (trading symbol: KEN), our primary host market, and the NYSE (trading symbol: KEN), our principal market outside our host market.
Not applicable.
Our ordinary shares are listed on each of the NYSE and the TASE under the symbol “KEN.”
Not applicable.
Not applicable.
Not applicable.
ITEM 10.10. | Additional Information |
Not applicable.
The following description of our constitutionConstitution is a summary and is qualified by reference to the constitution,Constitution, a copy of which has been filed with the SEC. Subject to the provisions of the Singapore Companies Act and any other written law and its constitution,Constitution, the Company has full capacity to carry on or undertake any business or activity, do any act or enter into any transaction.
New Shares
Under Singapore law, new shares may be issued only with the prior approval of our shareholders in a general meeting. General approval may be sought from our shareholders in a general meeting for the issue of shares. Approval, if granted, will lapse at the earliest of:
the conclusion of the next annual general meeting;
the expiration of the period within which the next annual general meeting is required by law to be held (i.e., within six months after our financial year end, being December 31); or
the subsequent revocation or modification of approval by our shareholders acting at a duly convened general meeting.
Our shareholders have provided such general authority to issue new shares until the conclusion of our 20212024 annual general meeting. Subject to this and the provisions of the Singapore Companies Act and our constitution,Constitution, all new shares are under the control of the directors who may allot and issue new shares to such persons on such terms and conditions and with the rights and restrictions as they may think fit to impose.
Preference Shares
Our constitutionConstitution provides that we may issue shares of a different class with preferential, deferred or other special rights, privileges or conditions as our board of directors may determine. Under the Singapore Companies Act, our preference shareholders will have the right to attend any general meeting insofar as the circumstances set forth below apply and on a poll at such general meeting, to have at least one vote for every preference share held:
upon any resolution concerning the winding-up of our company under section 160 of the Insolvency, Restructuring and Dissolution Act 2018; and
upon any resolution which varies the rights attached to such preference shares.
We may, subject to the prior approval in a general meeting of our shareholders, issue preference shares which are, or at our option, subject to redemption provided that such preference shares may not be redeemed out of capital unless:
all the directors have made a solvency statement in relation to such redemption; and
we have lodged a copy of the statement with the Singapore Registrar of Companies.
Further, the shares must be fully paid-up before they are redeemed.
Transfer of Ordinary Shares
Subject to applicable securities laws in relevant jurisdictions and our constitution,Constitution, our ordinary shares are freely transferable. Shares may be transferred by a duly signed instrument of transfer in any usual or common form or in a form acceptable to our directors. The directors may decline to register any transfer unless, among other things, evidence of payment of any stamp duty payable with respect to the transfer is provided together with other evidence of ownership and title as the directors may require. We will replace lost or destroyed certificates for shares upon notice to us and upon, among other things, the applicant furnishing evidence and indemnity as the directors may require and the payment of all applicable fees.
Election and Re-election of Directors
Under our constitution,Constitution, our shareholders by ordinary resolution, or our board of directors, may appoint any person to be a director as an additional director or to fill a casual vacancy, provided that any person so appointed by our board of directors shall hold office only until the next annual general meeting, and shall then be eligible for re-election.
Our constitutionConstitution provides that, subject to the Singapore Companies Act, no person other than a director retiring at a general meeting is eligible for appointment as a director at any general meeting, without the recommendation of the Board for election, unless (a)(i) in the case of a member or members who in aggregate hold(s) more than fifty percent50% of the total number of our issued and paid-up shares (excluding treasury shares), not less than ten days, or (b)(ii) in the case of a member or members who in aggregate hold(s) more than five percent5% of the total number of our issued and paid-up shares (excluding treasury shares), not less than 120 days, before the date of the notice provided to members in connection with the general meeting, a written notice signed by such member or members (other than the person to be proposed for appointment) who (i)(iii) are qualified to attend and vote at the meeting for which such notice is given, and (ii)(iv) have held shares representing the prescribed threshold in (a)(i) or (b)(ii) above, for a continuous period of at least one year prior to the date on which such notice is given, is lodged at our registered office. Such a notice must also include the consent of the person nominated.
Shareholders’ Meetings
We are required to hold an annual general meeting each year. Annual general meetings must be held within six months after our financial year end, being December 31. The directors may convene an extraordinary general meeting whenever they think fit and they must do so upon the written request of shareholders representing not less than one-tenth of the paid-up shares as at the date of deposit carries the right to vote at general meetings (disregarding paid-up shares held as treasury shares). In addition, two or more shareholders holding not less than one-tenth of our total number of issued shares (excluding our treasury shares) may call a meeting of our shareholders. The Singapore Companies Act requires not less than:
14 days’ written notice to be given by Kenon of a general meeting to pass an ordinary resolution; and
21 days’ written notice to be given by Kenon of a general meeting to pass a special resolution,
to every member and the auditors of Kenon. Our constitutionConstitution further provides that in computing the notice period, both the day on which the notice is served, or deemed to be served, and the day for which the notice is given shall be excluded.
Unless otherwise required by law or by our constitution,Constitution, voting at general meetings is by ordinary resolution, requiring the affirmative vote of a simple majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the resolution. An ordinary resolution suffices, for example, for appointments of directors. A special resolution, requiring an affirmative vote of not less than three-fourths of the shares present in person or represented by proxy at the meeting and entitled to vote on the resolution, is necessary for certain matters under Singapore law, such as an alteration of our constitution.Constitution.
Voting Rights
Voting at any meeting of shareholders is by a show of hands unless a poll is duly demanded before or on the declaration of the result of the show of hands. If voting is by a show of hands, every shareholder who is entitled to vote and who is present in person or by proxy at the meeting has one vote. On a poll, every shareholder who is present in person or by proxy or by attorney, or in the case of a corporation, by a representative, has one vote for every share held by him or which he represents.
Dividends
We have no current plans to pay annual or semi-annual cash dividends. However, we may, in the event that we divest a portion of, or our entire equity interest in, any of our businesses, distribute such cash proceeds or declare a distribution-in-kind of shares in our investee companies. Any dividends would be limited by the amount of available distributable reserves, which, under Singapore law, will be assessed on the basis of Kenon’s standalone unconsolidatedstand-alone accounts (which will be based upon the SFRS). Under Singapore law, it is also possible to effect a capital reduction exercise to return cash and/or assets to our shareholders. The completion of a capital reduction exercise may require the approval of the Singapore Courts, and we may not be successful in our attempts to obtain such approval.
Additionally, because we are a holding company, our ability to pay cash dividends, or declare a distribution-in-kind of the ordinary shares of any of our businesses, may be limited by restrictions on our ability to obtain sufficient funds through dividends from our businesses, including restrictions under the terms of the agreements governing the indebtedness of our businesses. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, contractual restrictions, our overall financial condition, available distributable reserves and any other factors deemed relevant by our board of directors. Generally, a final dividend is declared out of profits disclosed by the accounts presented to the annual general meeting, and requires approval of our shareholders. However, our board of directors can declare interim dividends without approval of our shareholders.
Bonus Issues
In a general meeting, our shareholders may, upon the recommendation of the directors, capitalize any reserves or profits and distribute them as fully paid bonus shares to the shareholders in proportion to their shareholdings.
Takeovers
The Singapore Code on Take-overs and Mergers, the Singapore Companies Act and the Securities and Futures Act 2001 regulate, among other things, the acquisition of ordinary shares of Singapore-incorporated public companies. Any person acquiring an interest, whether by a series of transactions over a period of time or not, either on his own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if such person holds, either on his own or together with parties acting in concert with such person, between 30% and 50% (both amounts inclusive) of our voting shares, and if such person (or parties acting in concert with such person) acquires additional voting shares representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities Industry Council in Singapore, extend a mandatory takeover offer for the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and Mergers.
“Parties acting in concert” comprise individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), cooperate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Certain persons are presumed (unless the presumption is rebutted) to be acting in concert with each other. They include:
a company and its related companies, the associated companies of any of the company and its related companies, companies whose associated companies include any of these companies and any person who has provided financial assistance (other than a bank in the ordinary course of business) to any of the foregoing for the purchase of voting rights;
a company and its directors (including their close relatives, related trusts and companies controlled by any of the directors, their close relatives and related trusts);
a company and its pension funds and employee share schemes;
a person and any investment company, unit trust or other fund whose investment such person manages on a discretionary basis but only in respect of the investment account which such person manages;
a financial or other professional adviser, including a stockbroker, and its clients in respect of shares held by the adviser and persons controlling, controlled by or under the same control as the adviser;
directors of a company (including their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for the company may be imminent;
an individual and such person’s close relatives, related trusts, any person who is accustomed to act in accordance with such person’s instructions and companies controlled by the individual, such person’s close relatives, related trusts or any person who is accustomed to act in accordance with such person’s instructions and any person who has provided financial assistance (other than a bank in the ordinary course of business) to any of the foregoing for the purchase of voting rights.
Subject to certain exceptions, a mandatory takeover offer must be in cash or be accompanied by a cash alternative at not less than the highest price paid by the offeror or parties acting in concert with the offeror during the offer period and within the six months preceding the acquisition of shares that triggered the mandatory offer obligation.
Under the Singapore Code on Take-overs and Mergers, where effective control of a company is acquired or consolidated by a person, or persons acting in concert, a general offer to all other shareholders is normally required. An offeror must treat all shareholders of the same class in an offeree company equally. A fundamental requirement is that shareholders in the company subject to the takeover offer must be given sufficient information, advice and time to consider and decide on the offer. These legal requirements may impede or delay a takeover of our company by a third-party.third party.
In October 2014, the Securities Industry Council of Singapore waived application of the Singapore Code on Take-overs and Mergers to Kenon, subject to certain conditions. Pursuant to the waiver, for as long as Kenon is not listed on a securities exchange in Singapore, and except in the case of a tender offer (within the meaning of U.S. securities laws) where the offeror relies on a Tier 1 exemption to avoid full compliance with U.S. tender offer regulations, the Singapore Code on Take-overs and Mergers shall not apply to Kenon.
Insofar as the Singapore Code on Take-overs and Mergers applies to Kenon, the Singapore Code on Take-overs and Mergers generally provides that the board of directors of Kenon should bring the offer to the shareholders of Kenon in accordance with the Singapore Code on Take-overs and Mergers and refrain from an action which will deny the shareholders from the possibility to decide on the offer.
Liquidation or Other Return of Capital
On a winding-up or other return of capital, subject to any special rights attaching to any other class of shares, holders of ordinary shares will be entitled to participate in any surplus assets in proportion to their shareholdings.
Limitations on Rights to Hold or Vote Ordinary Shares
Except as discussed above under “—Takeovers,” there are no limitations imposed by the laws of Singapore or by our constitutionConstitution on the right of non-resident shareholders to hold or vote ordinary shares.
Limitations of Liability and Indemnification Matters
Our constitutionConstitution currently provides that, subject to the provisions of the Singapore Companies Act and every other act applicable to Kenon, every director, secretary or other officer of our company or our subsidiaries and affiliates shall be entitled to be indemnified by our company against all costs, interest, charges, losses, expenses and liabilities incurred by him or her in the execution and discharge of his or her duties (and where he serves at our request as a director, officer, employee or agent of any of our subsidiaries or affiliates) or in relation thereto and in particular and without prejudice to the generality of the foregoing, no director, secretary or other officer of our company shall be liable for the acts, receipts, neglects or defaults of any other director or officer or for joining in any receipt or other act for conformity or for any loss or expense happening to our company through the insufficiency or deficiency of title to any property acquired by order of the directors for or on behalf of our company or for the insufficiency or deficiency of any security in or upon which any of the moneys of our company shall be invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects shall be deposited or left or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his or her office or in relation thereto unless the same shall happen through his or her own negligence, willful default, breach of duty or breach of trust.
The limitation of liability and indemnification provisions in our constitutionConstitution may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our shareholders. A shareholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act of 1933, or the Securities Act, may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
Comparison of Shareholder Rights
We are incorporated under the laws of Singapore. The following discussion summarizes material differences between the rights of holders of our ordinary shares and the rights of holders of the common stock of a typical corporation incorporated under the laws of the state of Delaware which result from differences in governing documents and the laws of Singapore and Delaware.
This discussion does not purport to be a complete statement of the rights of holders of our ordinary shares under applicable law in Singapore and our constitutionConstitution or the rights of holders of the common stock of a typical corporation under applicable Delaware law and a typical certificate of incorporation and bylaws.
Delaware | | Singapore—Kenon Holdings Ltd. |
Board of Directors |
A typical certificate of incorporation and bylaws would provide that the number of directors on the board of directors will be fixed from time to time by a vote of the majority of the authorized directors. Under Delaware law, a board of directors can be divided into classes and cumulative voting in the election of directors is only permitted if expressly authorized in a corporation’s certificate of incorporation. | | The constitution of companies will typically state the minimum and maximum number of directors as well as provide that the number of directors may be increased or reduced by shareholders via ordinary resolution passed at a general meeting, provided that the number of directors following such increase or reduction is within the maximum and minimum number of directors provided in the constitution and the Singapore Companies Act, respectively. Our constitutionConstitution provides that, unless otherwise determined by a general meeting, the minimum number of directors is five and the maximum number is 12. |
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Limitation on Personal Liability of Directors |
A typical certificate of incorporation provides for the elimination of personal monetary liability of directors for breach of fiduciary duties as directors to the fullest extent permissible under the laws of Delaware, except for liability (i) for any breach of a director’s loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (relating to the liability of directors for unlawful payment of a dividend or an unlawful stock purchase or redemption) or (iv) for any transaction from which the director derived an improper personal benefit. A typical certificate of incorporation would also provide that if the Delaware General Corporation Law is amended so as to allow further elimination of, or limitations on, director liability, then the liability of directors will be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. | | Pursuant to the Singapore Companies Act, any provision (whether in the constitution, contract or otherwise) purporting to exempt or indemnify a director (to any extent) from any liability attaching in connection with any negligence, default, breach of duty or breach of trust in relation to Kenon will be void except as permitted under the Singapore Companies Act. Nevertheless, a director can be released by the shareholders of Kenon for breaches of duty to Kenon, except in the case of fraud, illegality, insolvency and oppression or disregard of minority interests.
Our constitutionConstitution currently provides that, subject to the provisions of the Singapore Companies Act and every other act for the time being in force concerning companies and affecting Kenon, every director, auditor, secretary or other officer of Kenon and its subsidiaries and affiliates shall be entitled to be indemnified by Kenon against all liabilities incurred by him in the execution and discharge of his duties and where he serves at the request of Kenon as a director, officer, employee or agent of any subsidiary or affiliate of Kenon or in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of Kenon, and in which judgment is given in his favor (or the proceedings otherwise disposed of without any finding or admission of any material breach of duty on his part) or in which he is acquitted, or in connection with an application under statute in respect of such act or omission in which relief is granted to him by the court. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Interested Shareholders |
Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in specified corporate transactions (such as mergers, stock and asset sales, and loans) with an “interested stockholder” for three years following the time that the stockholder becomes an interested stockholder. Subject to specified exceptions, an “interested stockholder” is a person or group that owns 15% or more of the corporation’s outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of conversion or exchange rights, and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of 15% or more of the voting stock at any time within the previous three years.
A Delaware corporation may elect to “opt out” of, and not be governed by, Section 203 through a provision in either its original certificate of incorporation, or an amendment to its original certificate or bylaws that was approved by majority stockholder vote. With a limited exception, this amendment would not become effective until 12 months following its adoption. | | There are no comparable provisions in Singapore with respect to public companies which are not listed on the Singapore Exchange Securities Trading Limited. |
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Removal of Directors |
A typical certificate of incorporation and bylaws provide that, subject to the rights of holders of any preferred stock, directors may be removed at any time by the affirmative vote of the holders of at least a majority, or in some instances a supermajority, of the voting power of all of the then outstanding shares entitled to vote generally in the election of directors, voting together as a single class. A certificate of incorporation could also provide that such a right is only exercisable when a director is being removed for cause (removal of a director only for cause is the default rule in the case of a classified board). | | According to the Singapore Companies Act, directors of a public company may be removed before expiration of their term of office with or without cause by ordinary resolution (i.e., a resolution which is passed by a simple majority of those shareholders present and voting in person or by proxy). Notice of the intention to move such a resolution has to be given to Kenon not less than 28 days before the meeting at which it is moved. Kenon shall then give notice of such resolution to its shareholders not less than 14 days before the meeting. Where any director removed in this manner was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove such director will not take effect until such director’s successor has been appointed.
Our constitutionConstitution provides that Kenon may by ordinary resolution of which special notice has been given, remove any director before the expiration of his period of office, notwithstanding anything in our constitutionConstitution or in any agreement between Kenon and such director and appoint another person in place of the director so removed. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Filling Vacancies on the Board of Directors |
A typical certificate of incorporation and bylaws provide that, subject to the rights of the holders of any preferred stock, any vacancy, whether arising through death, resignation, retirement, disqualification, removal, an increase in the number of directors or any other reason, may be filled by a majority vote of the remaining directors, even if such directors remaining in office constitute less than a quorum, or by the sole remaining director. Any newly elected director usually holds office for the remainder of the full term expiring at the annual meeting of stockholders at which the term of the class of directors to which the newly elected director has been elected expires. | | The constitution of a Singapore company typically provides that the directors have the power to appoint any person to be a director, either to fill a vacancy or as an addition to the existing directors, but so that the total number of directors will not at any time exceed the maximum number fixed in the constitution. Any newly elected director shall hold office until the next following annual general meeting, where such director will then be eligible for re-election. Our constitutionConstitution provides that the shareholders may by ordinary resolution, or the directors may, appoint any person to be a director as an additional director or to fill a vacancy provided that any person so appointed by the directors will only hold office until the next annual general meeting, and will then be eligible for re-election. |
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Amendment of Governing Documents |
Under the Delaware General Corporation Law, amendments to a corporation’s certificate of incorporation require the approval of stockholders holding a majority of the outstanding shares entitled to vote on the amendment. If a class vote on the amendment is required by the Delaware General Corporation Law, a majority of the outstanding stock of the class is required, unless a greater proportion is specified in the certificate of incorporation or by other provisions of the Delaware General Corporation Law. Under the Delaware General Corporation Law, the board of directors may amend bylaws if so authorized in the charter. The stockholders of a Delaware corporation also have the power to amend bylaws. | | Our constitutionConstitution may be altered by special resolution (i.e., a resolution passed by at least a three-fourths majority of the shares entitled to vote, present in person or by proxy at a meeting for which not less than 21 days’ written notice is given). The board of directors has no right to amend the constitution. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Meetings of Shareholders |
Annual and Special Meetings
Typical bylaws provide that annual meetings of stockholders are to be held on a date and at a time fixed by the board of directors. Under the Delaware General Corporation Law, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the certificate of incorporation or the bylaws.
Quorum Requirements
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation or bylaws can specify the number of shares which constitute the quorum required to conduct business at a meeting, provided that in no event shall a quorum consist of less than one-third of the shares entitled to vote at a meeting. | | Annual General Meetings
All companies are required to hold an annual general meeting once every calendar year. The first annual general meeting was required to be held within 18 months of Kenon’s incorporation and subsequently, annual general meetings must be held within six months after Kenon’s financial year end.
Extraordinary General Meetings
Any general meeting other than the annual general meeting is called an “extraordinary general meeting.”meeting”. Two or more members (shareholders) holding not less than 10% of the total number of issued shares (excluding treasury shares) may call an extraordinary general meeting. In addition, the constitution usually also provides that general meetings may be convened in accordance with the Singapore Companies Act by the directors.
Notwithstanding anything in the constitution, the directors are required to convene a general meeting if required to do so by requisition (i.e., written notice to directors requiring that a meeting be called) by shareholder(s) holding not less than 10% of the total number of paid-up shares of Kenon carrying voting rights.
Our constitutionConstitution provides that the directors may, whenever they think fit, convene an extraordinary general meeting.
Quorum Requirements
Our constitutionConstitution provides that shareholders entitled to vote holding 33 and 1/3 percent3% of our issued and paid-up shares, present in person or by proxy at a meeting, shall be a quorum. In the event a quorum is not present, the meeting (i) (if not requisitioned by shareholders) may be adjourned for one week.week; and (ii) (if requisitioned by shareholders) shall be dissolved. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Indemnification of Officers, Directors and Employers |
Under the Delaware General Corporation Law, subject to specified limitations in the case of derivative suits brought by a corporation’s stockholders in its name, a corporation may indemnify any person who is made a party to any third-party action, suit or proceeding on account of being a director, officer, employee or agent of the corporation (or was serving at the request of the corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise) against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding through, among other things, a majority vote of a quorum consisting of directors who were not parties to the suit or proceeding, if the person:
• acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or, in some circumstances, at least not opposed to its best interests; and
• in a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Delaware corporate law permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification may be made in respect of any claim, issue or matter as to which the person is adjudged to be liable to the corporation unless the Delaware Court of Chancery or the court in which the action or suit was brought determines upon application that the person is fairly and reasonably entitled to indemnity for the expenses which the court deems to be proper.
To the extent a director, officer, employee or agent is successful in the defense of such an action, suit or proceeding, the corporation is required by Delaware corporate law to indemnify such person for expenses (including attorneys’ fees) actually and reasonably incurred thereby. Expenses (including attorneys’ fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of that person to repay the amount if it is ultimately determined that that person is not entitled to be so indemnified. | | The Singapore Companies Act specifically provides that Kenon is allowed to:
• purchase and maintain for any officer insurance against any liability attaching to such officer in respect of any negligence, default, breach of duty or breach of trust in relation to Kenon;
• indemnify such officer against liability incurred by a director to a person other than Kenon except when the indemnity is against (i) any liability of the director to pay a fine in criminal proceedings or a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising); or (ii) any liability incurred by the officer (1) in defending criminal proceedings in which he is convicted, (2) in defending civil proceedings brought by Kenon or a related company of Kenon in which judgment is given against him or (3) in connection with an application for relief under specified sections of the Singapore Companies Act in which the court refuses to grant him relief.relief;
• indemnify any auditor against any liability incurred or to be incurred by such auditor in defending any proceedings (whether civil or criminal) in which judgment is given in such auditor’s favor or in which such auditor is acquitted; or
• indemnify any auditor against any liability incurred by such auditor in connection with any application under specified sections of the Singapore Companies Act in which relief is granted to such auditor by a court.
In cases where, inter alia, an officer is sued by Kenon, the Singapore Companies Act gives the court the power to relieve directors either wholly or partially from the consequences of their negligence, default, breach of duty or breach of trust. However, Singapore case law has indicated that such relief will not be granted to a director who has benefited as a result of his or her breach of trust. In order for relief to be obtained, it must be shown that (i) the director acted reasonably; (ii) the director acted honestly; and (iii) it is fair, having regard to all the circumstances of the case including those connected with such director’s appointment, to excuse the director.
Our constitutionConstitution currently provides that, subject to the provisions of the Singapore Companies Act and every other act for the time being in force concerning companies and affecting Kenon, every director, auditor, secretary or other officer of Kenon and its subsidiaries and affiliates shall be entitled to be indemnified by Kenon against all liabilities incurred by him in the execution and discharge of his duties and where he serves at the request of Kenon as a director, officer, employee or agent of any subsidiary or affiliate of Kenon or in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of Kenon, and in which judgment is given in his favor (or the proceedings otherwise disposed of without any finding or admission of any material breach of duty on his part) or in which he is acquitted, or in connection with an application under statute in respect of such act or omission in which relief is granted to him by the court. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Shareholder Approval of Business Combinations |
Generally, under the Delaware General Corporation Law, completion of a merger, consolidation, or the sale, lease or exchange of substantially all of a corporation’s assets or dissolution requires approval by the board of directors and by a majority (unless the certificate of incorporation requires a higher percentage) of outstanding stock of the corporation entitled to vote.
The Delaware General Corporation Law also requires a special vote of stockholders in connection with a business combination with an “interested stockholder” as defined in section 203 of the Delaware General Corporation Law. For further information on such provisions, see “—Interested Shareholders” above. | | The Singapore Companies Act mandates that specified corporate actions require approval by the shareholders in a general meeting, notably:
• notwithstanding anything in Kenon’s constitution,our Constitution, directors are not permitted to carry into effect any proposals for disposing of the whole or substantially the whole of Kenon’s undertaking or property unless those proposals have been approved by shareholders in a general meeting;
• subject to the constitution of each amalgamating company, an amalgamation proposal must be approved by the shareholders of each amalgamating company via special resolution at a general meeting; and
• notwithstanding anything in Kenon’s constitution,our Constitution, the directors may not, without the prior approval of shareholders, issue shares, including shares being issued in connection with corporate actions. |
Shareholder Action Without a Meeting |
Under the Delaware General Corporation Law, unless otherwise provided in a corporation’s certificate of incorporation, any action that may be taken at a meeting of stockholders may be taken without a meeting, without prior notice and without a vote if the holders of outstanding stock, having not less than the minimum number of votes that would be necessary to authorize such action, consent in writing. It is not uncommon for a corporation’s certificate of incorporation to prohibit such action. | | There are no equivalent provisions under the Singapore Companies Act in respect of passing shareholders’ resolutions by written means that apply to public companies listed on a securities exchange. |
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Shareholder Suits |
Under the Delaware General Corporation Law, a stockholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation. An individual also may commence a class action suit on behalf of himself or herself and other similarly situated stockholders where the requirements for maintaining a class action under the Delaware General Corporation Law have been met. A person may institute and maintain such a suit only if such person was a stockholder at the time of the transaction which is the subject of the suit or his or her shares thereafter devolved upon him or her by operation of law. Additionally, under Delaware case law, the plaintiff generally must be a stockholder not only at the time of the transaction which is the subject of the suit, but also through the duration of the derivative suit. Delaware Law also requires that the derivative plaintiff make a demand on the directors of the corporation to assert the corporate claim before the suit may be prosecuted by the derivative plaintiff, unless such demand would be futile. | | Derivative actions
The Singapore Companies Act has a provision which provides a mechanism enabling any registered shareholder to apply to the court for leavepermission to bring a derivative action on behalf of the company.
In addition to registered shareholders, courts are given the discretion to allow such persons as they deem proper to apply as well (e.g., beneficial owners of shares or individual directors).
This provision of the Singapore Companies Act is primarily used by minority shareholders to bring an action in the name and on behalf of the company or intervene in an action to which the company is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.
Class actions
The concept of class action suits, which allows individual shareholders to bring an action seeking to represent the class or classes of shareholders, generally does not exist in Singapore. However, it is possible as a matter of procedure for a number of shareholders to lead an action and establish liability on behalf of themselves and other shareholders who join in or who are made parties to the action.
Further, there are certain circumstances in which shareholders may file and prove their claims for compensation in the event that Kenon has been convicted of a criminal offense or has a court order for the payment of a civil penalty made against it.
Additionally, for as long as Kenon is listed in the U.S. or in Israel, Kenon has undertaken not to claim that it is not subject to any derivative/class action that may be filed against it in the U.S. or Israel, as applicable, solely on the basis that it is a Singapore company. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Dividends or Other Distributions; Repurchases and Redemptions |
The Delaware General Corporation Law permits a corporation to declare and pay dividends out of statutory surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets.
Under the Delaware General Corporation Law, any corporation may purchase or redeem its own shares, except that generally it may not purchase or redeem these shares if the capital of the corporation is impaired at the time or would become impaired as a result of the redemption. A corporation may, however, purchase or redeem out of capital shares that are entitled upon any distribution of its assets to a preference over another class or series of its shares if the shares are to be retired and the capital reduced. | | The Singapore Companies Act provides that no dividends can be paid to shareholders except out of profits.
The Singapore Companies Act does not provide a definition on when profits are deemed to be available for the purpose of paying dividends and this is accordingly governed by case law. Our constitutionConstitution provides that no dividend can be paid otherwise than out of profits of Kenon.
Acquisition of a company’s own shares
The Singapore Companies Act generally prohibits a company from acquiring its own shares subject to certain exceptions. Any contract or transaction by which a company acquires or transfers its own shares is void. However, provided that it is expressly permitted to do so by its constitution and subject to the special conditions of each permitted acquisition contained in the Singapore Companies Act, Kenon may:
• redeem redeemable preference shares (the redemption of these shares will not reduce the capital of Kenon). Preference shares may be redeemed out of capital if all the directors make a solvency statement in relation to such redemption in accordance with the Singapore Companies Act;
• whether listed (on an approved exchange in Singapore or any securities exchange outside Singapore) or not, make an off-market purchase of its own shares in accordance with an equal access scheme authorized in advance at a general meeting;
• whether listed on a securities exchange (in Singapore or outside Singapore) or not, make a selective off-market purchase of its own shares in accordance with an agreement authorized in advance at a general meeting by a special resolution where persons whose shares are to be acquired and their associated persons have abstained from voting; and
• whether listed (on an approved exchange in Singapore or any securities exchange outside Singapore) or not, make an acquisitiona purchase of its own shares under a contingent purchase contract which has been authorized in advance at a general meeting by a special resolution.
Kenon may also purchase its own shares by an order of a Singapore court.
The total number of ordinary shares that may be acquired by Kenon in a relevant period may not exceed 20% of the total number of ordinary shares in that class as of the date of the resolution pursuant to the relevant share repurchase provisions under the Singapore Companies Act. Where, however, Kenon has reduced its share capital by a special resolution or a Singapore court made an order to such effect, the total number of ordinary shares shall be taken to be the total number of ordinary shares in that class as altered by the special resolution or the order of the court. Payment must be made out of Kenon’s distributable profits or capital, provided that Kenon is solvent. Such payment may include any expenses (including brokerage or commission) incurred directly in the purchase or acquisition by Kenon of its ordinary shares.
Financial assistance for the acquisition of shares
Kenon may not give financial assistance to any person whether directly or indirectly for the purpose of:
• the acquisition or proposed acquisition of shares in Kenon or units of such shares; or
• the acquisition or proposed acquisition of shares in its holding company or ultimate holding company, as the case may be, or units of such shares.
Financial assistance may take the form of a loan, the giving of a guarantee, the provision of security, the release of an obligation, the release of a debt or otherwise.
However, Kenon may provide financial assistance for the acquisition of its shares or shares in its holding company if it complies with the requirements (including, where applicable, approval by the board of directors or by the passing of a special resolution by its shareholders) set out in the Singapore Companies Act. Our constitutionConstitution provides that subject to the provisions of the Singapore Companies Act, we may purchase or otherwise acquire our own shares upon such terms and subject to such conditions as we may deem fit. These shares may be held as treasury shares or cancelled as provided in the Singapore Companies Act or dealt with in such manner as may be permitted under the Singapore Companies Act. On cancellation of the shares, the rights and privileges attached to those shares will expire. |
Delaware | | Singapore—Kenon Holdings Ltd. |
Transactions with Officers and Directors |
Under the Delaware General Corporation Law, some contracts or transactions in which one or more of a corporation’s directors has an interest are not void or voidable because of such interest provided that some conditions, such as obtaining the required approval and fulfilling the requirements of good faith and full disclosure, are met. Under the Delaware General Corporation Law, either (a)(i) the stockholders or the board of directors must approve in good faith any such contract or transaction after full disclosure of the material facts or (b)(ii) the contract or transaction must have been “fair” as to the corporation at the time it was approved. If board approval is sought, the contract or transaction must be approved in good faith by a majority of disinterested directors after full disclosure of material facts, even though less than a majority of a quorum. | | Under the Singapore Companies Act, the chief executive officer and directors are not prohibited from dealing with Kenon, but where they have an interest in a transaction with Kenon, that interest must be disclosed to the board of directors. In particular, the chief executive officer and every director who is in any way, whether directly or indirectly, interested in a transaction or proposed transaction with Kenon must, as soon as practicable after the relevant facts have come to such officer or director’s knowledge, declare the nature of such officer or director’s interest at a board of directors’ meeting or send a written notice to Kenon containing details on the nature, character and extent of his interest in the transaction or proposed transaction with Kenon.
In addition, a director or chief executive officer who holds any office or possesses any property which, directly or indirectly, duties or interests might be created in conflict with such officer’s duties or interests as director or chief executive officer, is required to declare the fact and the nature, character and extent of the conflict at a meeting of directors or send a written notice to Kenon containing details on the nature, character and extent of the conflict.
The Singapore Companies Act extends the scope of this statutory duty of a director or chief executive officer to disclose any interests by pronouncing that an interest of a member of the director’s or, as the case may be, the chief executive officer’s family (including spouse, son, adopted son, step-son, daughter, adopted daughter and step-daughter) will be treated as an interest of the director.
There is however no requirement for disclosure where the interest of the director or chief executive officer (as the case may be) consists only of being a member or creditor of a corporation which is interested in the transaction or proposed transaction with Kenon if the interest may properly be regarded as immaterial. Where the transaction or proposed transaction relates to any loan to Kenon, no disclosure need be made where the director or chief executive officer has only guaranteed or joined in guaranteeing the repayment of such loan, unless the constitution provides otherwise.
Further, where the proposed transaction is to be made with or for the benefit of a related corporation (i.e., the holding company, subsidiary or subsidiary of a common holding company) no disclosure need be made of the fact that the director or chief executive officer is also a director or chief executive officer of that corporation, unless the constitution provides otherwise.
Subject to specified exceptions, including a loan to a director for expenditure in defending criminal or civil proceedings, etc. or in connection with an investigation, or an action proposed to be taken by a regulatory authority in connection with any alleged negligence, default, breach of duty or breach of trust by him in relation to Kenon, the Singapore Companies Act prohibits Kenon from: (i) making a loan or quasi-loan to its directors or to directors of a related corporation (each, a “relevant director”); (ii) giving a guarantee or security in connection with a loan or quasi-loan made to a relevant director by any other person; (iii) entering into a credit transaction as creditor for the benefit of a relevant director; (iv) giving a guarantee or security in connection with such credit transaction entered into by any person for the benefit of a relevant director; (v) taking part in an arrangement where another person enters into any of the transactions in (i) to (iv) above or (vi) below and such person obtains a benefit from Kenon or a related corporation; or (vi) arranging for the assignment to Kenon or assumption by Kenon of any rights, obligations or liabilities under a transaction in (i) to (v) above. Kenon is also prohibited from entering into the transactions in (i) to (vi) above with or for the benefit of a relevant director’s spouse or children (whether adopted or naturally or step-children). |
Delaware | | Singapore—Kenon Holdings Ltd. |
Dissenters’ Rights |
Under the Delaware General Corporation Law, a stockholder of a corporation participating in some types of major corporate transactions may, under varying circumstances, be entitled to appraisal rights pursuant to which the stockholder may receive cash in the amount of the fair market value of his or her shares in lieu of the consideration he or she would otherwise receive in the transaction. | | There are no equivalent provisions under the Singapore Companies Act. |
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Cumulative Voting |
Under the Delaware General Corporation Law, a corporation may adopt in its bylaws that its directors shall be elected by cumulative voting. When directors are elected by cumulative voting, a stockholder has the number of votes equal to the number of shares held by such stockholder times the number of directors nominated for election. The stockholder may cast all of such votes for one director or among the directors in any proportion. | | There is no equivalent provision under the Singapore Companies Act in respect of companies incorporated in Singapore. |
Anti-Takeover Measures |
Under the Delaware General Corporation Law, the certificate of incorporation of a corporation may give the board the right to issue new classes of preferred stock with voting, conversion, dividend distribution, and other rights to be determined by the board at the time of issuance, which could prevent a takeover attempt and thereby preclude shareholders from realizing a potential premium over the market value of their sharesshares.
In addition, Delaware law does not prohibit a corporation from adopting a stockholder rights plan, or “poison pill,” which could prevent a takeover attempt and also preclude shareholders from realizing a potential premium over the market value of their shares. | | The constitution of a Singapore company typically provides that the company may allot and issue new shares of a different class with preferential, deferred, qualified or other special rights as its board of directors may determine with the prior approval of the company’s shareholders in a general meeting. Our constitutionConstitution provides that our shareholders may grant to our board the general authority to issue such preference shares until the next general meeting. For further information, see “Item 3.D Risk Factors—Risks Relating to Our Ordinary Shares—Our directors have general authority to allot and issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by our board of directors in its sole discretion, which may dilute our existing shareholders. We may also issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to our existing shareholders” and “—Preference Shares.”
Singapore law does not generally prohibit a corporation from adopting “poison pill” arrangements which could prevent a takeover attempt and also preclude shareholders from realizing a potential premium over the market value of their shares.
However, under the Singapore Code on Take-overs and Mergers, if, in the course of an offer, or even before the date of the offer announcement, the board of the offeree company has reason to believe that a bona fide offer is imminent, the board must not, except pursuant to a contract entered into earlier, take any action, without the approval of shareholders at a general meeting, on the affairs of the offeree company that could effectively result in any bona fide offer being frustrated or the shareholders being denied an opportunity to decide on its merits.
For further information on the Singapore Code on Take-overs and Mergers, see “—Takeovers.” |
For information concerning our material contracts, see “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.”
There are currently no exchange control restrictions in effect in Singapore.
The following summary of the United States federal income tax and Singapore tax considerations of ownership and disposition of our ordinary shares is based upon laws, regulations, decrees, rulings, income tax conventions (treaties), administrative practice and judicial decisions in effect at the date of this annual report. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may be retroactive and could affect the tax consequences to holders of our ordinary shares. This summary does not purport to be a legal opinion or to address all tax aspects that may be relevant to a holder of our ordinary shares. Each prospective holder should consult its tax adviser as to the particular tax considerations to such holder of the ownership and disposition of our ordinary shares, including the applicability and effect of any other tax laws or tax treaties, of pending or proposed changes in applicable tax laws as of the date of this annual report, and of any actual changes in applicable tax laws after such date.
U.S. Federal Income Tax Considerations
The following summarizes certain U.S. federal income tax considerations of owning and disposing of our ordinary shares. This summary applies only to U.S. Holders (defined below) that hold our ordinary shares as capital assets for U.S. federal income tax purposes (generally, property held for investment) and that have the U.S. Dollar as its functional currency.
This summary is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder and on judicial and administrative interpretations of the Code and the Treasury regulations, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect and that could affect the tax considerations described below. This summary does not purport to be a complete description of the U.S. federal income tax consequences of the transactions described in this annual report,ownership and disposition of our ordinary shares, nor does it address the application of estate, gift or other non-income U.S. federal tax considerations or any state, local or foreign tax considerations. Moreover, this summary does not address all the tax considerations that may be relevant to holders of our ordinary shares in light of its particular circumstances, including theany alternative minimum tax, the Medicare tax on certain investment income and special rules that apply to certain holders such as (but not limited to):
persons that are not U.S. Holders;
persons that are subject to alternative minimum taxes;
insurance companies;
cooperatives;
regulated investment companies;
real estate investment trusts;
banks and other financial institutions;
broker-dealers;
broker-dealers;
pass-through entities;
persons that hold our ordinary shares through partnerships (or other entities or arrangements classified as partnerships for U.S. federal income tax purposes);
persons that acquire our ordinary shares through any employee share option or otherwise as compensation;
persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock or 10% or more of the total value of shares of all classes of our stock;
traders in securities that elect to apply a mark-to-market method of accounting;
investors that will hold our ordinary shares as part of a “hedge,” “straddle,” “conversion,” “constructive sale” or other integrated transaction for U.S. federal income tax purposes;
investors that have a functional currency other than the U.S. dollar;Dollar; and
individuals who receive our ordinary shares upon the exercise of compensatory options or otherwise as compensation.
Moreover, no advance rulings have been or will be sought from the U.S. Internal Revenue Service, or IRS, regarding any matter discussed in this annual report, and counsel to Kenon has not rendered any opinion with respect to any of the U.S. federal income tax considerations relating to the transactions addressed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspectsconsiderations set forth below.
HOLDERS AND PROSPECTIVE INVESTORS SHOULD CONSULT ITSTHEIR TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO ITS PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of the United States or any state thereof or the District of Columbia;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust that (i) is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust orand (ii) that has otherwise validly elected to be treated as a U.S. person under the Code.
If a partnership (or other entity or arrangement taxable as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ordinary shares, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ordinary shares and its partners should consult itstheir tax advisors regarding an investment in our ordinary shares.
Taxation of Dividends and Other Distributions on the Ordinary Shares
Subject to the discussion set forth below under “—“—Passive Foreign Investment Company,” the gross amount of any distribution made to a U.S. Holder with respect to our ordinary shares, including the amount of any non-U.S. taxes withheld from the distribution, will generally be includible in income as dividend income on the day on which the distribution is actually or constructively received by a U.S. Holder as dividend income to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. A distribution in excess of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), including the amount of any non-U.S. taxes withheld from the distribution, will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted basis in our ordinary shares and as a capital gain to the extent it exceeds the U.S. Holder’s basis.adjusted basis in our ordinary shares. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles; therefore, U.S. Holders should expect that aggregate amount of distributions will generally be treated as dividends for U.S. federal income tax purposes. Dividends received on our ordinary shares will not be eligible for the dividends-received deduction generally allowed to corporations in respect of dividends received from U.S. corporations.
Distributions treated as dividends that are received by individuals and other non-corporate U.S. Holders from “qualified foreign corporations” generally qualify for a reduced maximum tax rate so long as certain holding period and other requirements are met. Dividends paid on our ordinary shares should qualify for the reduced rate if we are treated as a “qualified foreign corporation.” For this purpose, a qualified foreign corporation means any foreign corporation provided that: (i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a PFIC (as discussed below), (ii) certain holding period requirements are met and (iii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules or (B) the stock with respect to which such dividend was paid is readily tradable on an established securities market in the United States. The United States does not currently have a comprehensive income tax treaty with Singapore. However, the ordinary shares should be considered to be readily tradable on established securities markets in the United States if they are listed on the NYSE. Therefore,As discussed below under “—Passive Foreign Investment Company,” however, although we expectbelieve that our ordinary shares should generallywe were not a PFIC for the taxable year ended December 31, 2023, we likely were treated as a PFIC for the taxable year ended December 31, 2022 and could again be considered to be readily tradable on an established securities market in the United States, and we expect thattreated as a PFIC for foreseeable future taxable years. Therefore, dividends with respect to suchour ordinary shares shouldmay not qualify for the reduced rate. U.S. Holders should consult itstheir tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares.
DividendsFor U.S. foreign tax credit purposes, dividends on our ordinary shares received by a U.S. Holder will generally be treated as foreign source income for U.S. foreign tax credit purposes.purposes and will generally constitute passive category income. The rules with respect to foreign tax credits are complex and their application depends in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders should consult itstheir tax advisors regarding the availability of the foreign tax credit in light of its particular circumstances.
Taxation of Dispositions of the Ordinary Shares
Subject to the discussion below under “—“—Passive Foreign Investment Company,” a U.S. Holder will generally recognize gain or loss upon the sale or other taxable disposition of our ordinary shares in an amount equal to the difference between the amount realized on such sale or other taxable disposition and such U.S. Holder’s adjusted tax basis in our ordinary shares. Such gain or loss will generally be long-term capital gain (taxable at a reduced rate for non-corporate U.S. Holders) or loss if, on the date of sale or disposition, the U.S. Holder’s holding period in such ordinary shares were held by such U.S. Holder for more thanexceeds one year. The deductibility of capital losses is subject to significant limitations. Any
For foreign tax credit purposes, any gain or loss recognized by a U.S. Holder will generally be treated as U.S. source gain or loss, as the case may be, for foreign tax credit purposes, which will generally limit the availability of foreign tax credits. U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit in light of its particular circumstances.
The amount realized on a sale or other taxable disposition of our ordinary shares in exchange for foreign currency will generally equal the U.S. Dollar value of the foreign currency at the spot exchange rate in effect on the date of sale or other taxable disposition or, if the ordinary shares are traded on an established securities market (such as the NYSE or the TASE), in the case of a cash method or electing accrual method U.S. Holder of our ordinary shares, the settlement date. A U.S. Holder will have a tax basis in the foreign currency received equal to the U.S. Dollar amount realized. Any gain or loss realized by a U.S. Holder on a subsequent conversion or other disposition of the foreign currency will be foreign currency gain or loss, which is treated as ordinary income or loss and U.S. source ordinary income or loss for foreign tax credit purposes.
Passive Foreign Investment Company
In general, a non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes, for any taxable year if either (i) 75% or more of its gross income for such year is passive income or (ii) 50% or more of the value of its assets (based(generally based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. For this purpose,purposes of these tests, “passive income” generally includes, among other items, dividends, interest and certain rents and royalties, and net gains from the sale or exchange of property that gives rise to such income. In addition, cash is generally categorized as a passive asset, and our goodwill and other unbooked intangibles will be taken into account and generally treated as passive or non-passive assets. Wedepending on the income such assets produce or are held to produce. Moreover, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the shares.
We do notBased upon our current and projected income and assets (including unbooked goodwill), taking into account our proportionate share of the income and assets of other corporations in which we own, directly or indirectly, 25% or more (by value) of the stock, and the market price of our ordinary shares, we believe that we were not treated as a PFIC for the taxable year ended December 31, 2021, but, based on current business plans and financial expectations,2023. Although we expectbelieve that we will bewere not a PFIC for the taxable year ended December 31, 2023, we were likely treated as a PFIC for the taxable year ended December 31, 2022. Additionally, depending upon the composition of our currentincome and assets and the market price of our ordinary shares during 2024 and subsequent taxable years, we could again be classified as a PFIC for the taxable year ending December 31, 20222024 and for foreseeable future taxable years. Our statusWhether we are, or will be, classified as a PFIC, however, is a factual determination made annually that will depend, in any year depends onpart, upon composition of our assetsincome and activitiesassets in that year. The saleFurthermore, because there are uncertainties in the application of the Inkia Business,relevant rules, it is possible that the investment in Qoros by the Majority Shareholder in Qoros in 2018 (which reducedIRS may challenge our equity interest in Qoros to 24%), the saleclassification of halfcertain income or assets as non-passive, or our valuation of our then remaining interest in Qoros to the Majority Shareholder in Qoros in April 2020 (which reduced our equity interest in Qoros to 12%)goodwill and the saleother unbooked intangibles, each of all of our remaining interest in Qoros to the Majority Shareholder in Qoros in April 2021 (which will eliminate our equity interest in Qoros) eachwhich may increase the valuelikelihood of our assets that produce, or are held for the production of, passive income and/or our passive income and result in us becomingbeing classified as a PFIC for ourthe current and any future,or subsequent taxable year. Similarly, after ZIM completed its initial public offering in February 2021 (which reduced our equity interest in ZIM to 28%) and after we completed sales of our ZIM shares between September and November 2021 (which reduced our equity interest in ZIM to 26%) and in March 2022 (which reduced our equity interest in ZIM to approximately 20%), our equity interest in ZIM fell below 25%. The reduction in our equity interest in ZIM to below 25% limits our ability to treat our proportionate share of ZIM’s businesses and earnings as directly owned, which is likely to increase the value of our assets that produce, or are held for the production of, passive income and/or our passive income, and results in us becoming a PFIC for our current, and any foreseeable future taxable years. The determination of PFIC status, however, is factual in nature and generally cannot be made until the close of the taxable year. Thus, there can be no assurance that we will not be considered a PFIC for any taxable year.
Further, if we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares and any subsidiary we own is also classified as a PFIC (a “Subsidiary PFIC”), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of each such subsidiary a lower tier PFIC, for purposes of the application of these rules. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of the securities are made. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of ordinary shares.rules. U.S. Holders should consult itstheir tax advisors regarding the application of the PFIC rules to any subsidiary we own.
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, we will generally continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which the holder holds our ordinary shares.shares, even if we do not meet the threshold requirements for PFIC status for any such succeeding years. However, if we cease to meet the threshold requirements for PFIC status, provided that the U.S. Holder has not made a QEF Election or a Mark-to-Market Election, as described below, such holder may avoid some of the adverse effects of the PFIC regimerules described below by making a “deemed sale” election with respect to our ordinary shares held by such U.S. Holder. If such election is made, the U.S. Holder will be deemed to have sold our ordinary shares it holds on the last day of the last taxable year in which we were classified as a PFIC at its fair market value and any gain from such deemed sale will be taxed under the PFIC rules described above.below. After the deemed sale election, so long as we do not become classified as a PFIC in a subsequent taxable year, the ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and the U.S. Holder will not be subject to the PFIC rules described abovebelow with respect to any “excess distribution” received from us or any gain from an actual sale or other disposition of the ordinary shares. The rules dealing with deemed sale elections are very complex. U.S. Holders of our ordinary shares should consult itstheir tax advisors as to the possibility and consequences of making a deemed sale election if we cease to be classified as a PFIC and such election becomes available.
If a U.S. Holder owns our ordinary shares during any taxable year that we are a PFIC, such U.S. Holder may be subject to certain reporting obligations with respect to our ordinary shares, including annual reporting on IRS Form 8621 regarding distributions received on, and any gain realized on the disposition of, our ordinary shares. U.S. Holders should consult its their tax advisoradvisors regarding our PFIC status and the U.S. federal income tax consequences of owning and disposing of our ordinary shares if we are, or become, classified as a PFIC, including the possibility of making a QEF Election, Mark-to-Market Election or deemed sale election.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules (including the applicability and advisability of a QEF Election and Mark-to-Market Election) and how the PFIC rules may affect the U.S. federal income tax consequences of the ownership, and disposition of our ordinary shares.
Default PFIC Rules
If we are classified as a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the ownership, and disposition of our ordinary shares will depend on whether such U.S. Holder makes a “qualified electing fund” or “QEF” election (a “QEF Election”)QEF Election or makes a mark-to-market election (a “Mark-to-Market Election”) with respect to our ordinary shares. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election (a “Non-Electing U.S. Holder”) will be taxable as described below.
AIf we are classified as a PFIC for any taxable year during which a Non-Electing U.S. Holder holds our ordinary shares, the holder will generally be subject to the PFIC rules with respect to (i) any excess distribution that we makemade to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ordinary shares), and (ii) any gain realized on the sale or other disposition of our ordinary shares. In addition, dividends paid in respect of our ordinary shares would not be eligible for the lower tax rate described under “—“—Taxation of Dividends and Other Distributions on the Ordinary Shares” above. U.S. Holders should consult its tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
Under the PFIC rules:
the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares;
the amount allocated to the taxable year of the excess distribution, or sale or other disposition, and to any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year; and
the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
QEF Election
A U.S. Holder that makes a QEF Election for the first tax year in which its holding period of its ordinary shares begins will generally will not be subject to the adverse PFIC rules discussed above with respect to its ordinary shares. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a)(i) our net capital gain, which will be taxed as long-term capital gain to such U.S. Holder, and (b)(ii) our ordinary earnings, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a)(i) net long-term capital gain over (b)(ii) net short-term capital loss, and “ordinary earnings” are the excess of (a)(i) “earnings and profits” over (b)(ii) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us.Holder. However, for any tax year in which we are a PFIC and have no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely QEF Election generally (a)(i) may receive a tax-free distribution from us to the extent that such distribution represents “earnings and profits” that were previously included in income by the U.S. Holder because of such QEF Election and (b)(ii) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of ordinary shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” for purposes of avoiding the default PFIC rules discussed above if such QEF Election is made for the first year in the U.S. Holder’s holding period for the ordinary shares in which we were a PFIC. The QEF Election is made on a shareholder-by-shareholder basis and, once made, can only be revoked with the consent of the IRS. A U.S. Holder generally makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return for the year to which the election relates.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, we cease to be a PFIC, the QEF Election will remain in effect (although itthe QEF rules described above will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which we qualify as a PFIC.
In order to comply with the requirements of a QEF Election, a U.S. Holder must receive a PFIC annual information statementAnnual Information Statement from us. If we determineus for each year for which we are treated as a PFIC for our 2022 taxable year, we will endeavor to provide U.S. Holders such information as the IRS may require, including a PFIC annual information statement, in order to enable U.S. Holders to make a QEF Election and will endeavor to cause each direct and indirect subsidiary that we control that is a PFIC to provide such information with respect to such subsidiary.PFIC. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future, or of the required information to be provided. Weand we have not determined if we will provide U.S. Holders such information for any subsequent taxable year.year for which we may be treated as a PFIC.
If we do not provide the required information with regard to us or any of our Subsidiary PFICs for any taxable year, U.S. Holders will not be able to make or maintain a QEF Election for such entity and will continue to be subject to the PFIC rules discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a Mark-to-Market Election with respect to such stock. A Mark-to-Market Election may be made with respect to our ordinary shares, provided they are actively traded, defined for this purpose as being traded on a “qualified exchange,” other than in de minimis quantities, on at least 15 days during each calendar quarter. We anticipate that our ordinary shares should qualify as being actively traded, but no assurances may be given in this regard. If a U.S. Holder of our ordinary shares makes this election with respect to our ordinary shares, the U.S. Holder will generally (i) include as ordinary income for each taxable year that we are classified as a PFIC the excess, if any, of the fair market value of oursuch ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares and (ii) deduct as an ordinary loss in each such taxable year the excess, if any, of the adjusted tax basis of oursuch ordinary shares over the fair market value of such ordinary shares held at the end of the taxable year, but such deduction will only be allowed to the extent of the net amount previously included in income as a result of the Mark-to-Market Election. The U.S. Holder’s adjusted tax basis in our ordinary shares would be adjusted to reflect any income or loss resulting from the Mark-to-Market Election. If a U.S. Holder makes a Mark-to-Market Election in respect of our ordinary shares and we cease to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. In addition, any gain such U.S. Holder recognizes upon the sale or other taxable disposition of our ordinary shares in a year when we are classified as a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the Mark-to-Market Election. If a U.S. Holder makes a Mark-to-Market Election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during any period that such corporation is not classified as a PFIC. In the case of a U.S. Holder who has held our ordinary shares during any taxable year in respect of which we were classified as a PFIC and continues to hold such ordinary shares (or any portion thereof) and has not previously made a Mark-to-Market Election, and who is considering making a Mark-to-Market Election, special tax rules may apply relating to purging the PFIC taint of such ordinary shares. Because a Mark-to-Market Election cannot technically be made for any Subsidiary PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. A timely Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the securities cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Foreign Financial Asset Reporting
A U.S. Holder may be required to report information relating to an interest in our ordinary shares, generally by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with the U.S. Holder’s federal income tax return. A U.S. Holder may also be subject to significant penalties if the U.S. Holder is required to report such information and fails to do so. U.S. Holders should consult their tax advisors regarding information reporting obligations, if any, with respect to ownership and disposition of our ordinary shares.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS SET OUT ABOVE IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO YOUR PARTICULAR CIRCUMSTANCE AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF OUR ORDINARY SHARES.
Material Singapore Tax Considerations
The following discussion is a summary of Singapore income tax, goods and services tax, or GST, stamp duty and estate duty considerations relevant to the ownership and disposition of our ordinary shares by an investor who is not tax resident or domiciled in Singapore and who does not carry on business or otherwise have a presence in Singapore. The statements made herein regarding taxation are general in nature and based upon certain aspects of the current tax laws of Singapore and administrative guidelines issued by the relevant authorities in force as of the date hereof and are subject to any changes in such laws or administrative guidelines or the interpretation of such laws or guidelines occurring after such date, which changes could be made on a retrospective basis. The statements made herein do not purport to be a comprehensive or exhaustive description of all of the tax considerations that may be relevant to a decision to own or dispose of our ordinary shares and do not purport to deal with the tax considerations applicable to all categories of investors, some of which (such as dealers in securities) may be subject to special rules. Prospective shareholders should consult its tax advisers as to the Singapore or other tax considerations of the ownership or disposal of our ordinary shares, taking into account its own particular circumstances. The statements below are based upon the assumption that Kenon is a tax resident in Singapore for Singapore income tax purposes. It is emphasized that neither Kenon nor any other persons involved in this annual report accepts responsibility for any tax effects or liabilities resulting from the holding or disposal of our ordinary shares.
Income Taxation Under Singapore Law
Dividends or Other Distributions with Respect to Ordinary Shares
Under the one-tier corporate tax system which currently applies to all Singapore tax resident companies, tax on corporate profits is final, and dividends paid by a Singapore tax resident company are not subject to withholding tax and will be tax exempt in the hands of a shareholder, whether or not the shareholder is a company or an individual and whether or not the shareholder is a Singapore tax resident.
Capital Gains upon Disposition of Ordinary Shares
Under current Singapore tax laws, there is no tax on capital gains. There are no specific laws or regulations which deal with the characterization of whether a gain is income or capital in nature. Gains arising from the disposal of our ordinary shares may be construed to be of an income nature and subject to Singapore income tax, if they arise from activities which the Inland Revenue Authority of Singapore regards as the carrying on of a trade or business in Singapore. However, under Singapore tax laws and subject to certain exceptions, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and December 31, 2027 are generally not taxable if immediately prior to the date of the relevant disposal, the investing company has held at least 20% of the ordinary shares in the investee company for a continuous period of at least 24 months (“safe harbor rule”).
Goods and Services Tax
The issue or transfer of ownership of our ordinary shares should be exempt from Singapore GST. Hence, the holders would not incur any GST on the subscription or subsequent transfer of the shares.
Stamp Duty
Where our ordinary shares evidenced in certificated forms are acquired in Singapore, stamp duty is payable on the instrument of their transfer at the rate of 0.2% of the consideration for or market value of our ordinary shares, whichever is higher.
Where an instrument of transfer is executed outside Singapore or no instrument of transfer is executed, no stamp duty is payable on the acquisition of our ordinary shares. However, stamp duty may be payable if the instrument of transfer is executed outside Singapore and is received in Singapore. The stamp duty is borne by the purchaser unless there is an agreement to the contrary.
On the basis that any transfer instruments in respect of our ordinary shares traded on the NYSE and the TASE are executed outside Singapore through our transfer agent and share registrar in the United States for registration in our branch share register maintained in the United States (without any transfer instruments being received in Singapore), no stamp duty should be payable in Singapore on such transfers.
Tax Treaties Regarding Withholding Taxes
There is no comprehensive avoidance of double taxation agreement between the United States and Singapore which applies to withholding taxes on dividends or capital gains.
F. | Dividends and Paying Agents |
Not applicable.
Not applicable.
Our SEC filings are available to you on the SEC’s website at http://www.sec.gov. This site contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this report.registration statement. We also make available on our website free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. We maintain a corporate website at http://www.kenon-holdings.com. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report on Form 20-F. We have included our website address in this annual report solely as an inactive textual reference.
As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, for so long as we are listed on the NYSE, or any other U.S. exchange, and are registered with the SEC, we will file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm. We also submit to the SEC on Form 6-K the interim financial information that we publish.
Not applicable.
J. | Annual Report to Security Holder |
Not applicable.
ITEM 11.11. | Quantitative and Qualitative Disclosures about Market Risk |
Our multinational operations expose us to a variety of market risks, which embody the potential for changes in the fair value of the financial instruments or the cash flows deriving from them. Our risk management policies and those of each of our businesses seek to limit the adverse effects of these market risks on the financial performance of each of our businesses and, consequently, on our consolidated financial performance. Each of our businesses bear responsibility for the establishment and oversight of their financial risk management framework and have adopted individualized risk management policies to address those risks specific to their operations.
Our primary market risk exposures are to:
currency risk, as a result of changes in the rates of exchange of various foreign currencies (in particular, the Euro and the New Israeli Shekel) in relation to the U.S. Dollar, our functional currency and the currency against which we measure our exposure;
index risk, as a result of changes in the Consumer Price Index;
interest rate risk, as a result of changes in the market interest rates affecting certain of our businesses’ issuance of debt and related financial instruments; and
price risk, as a result of changes in market prices, such as the price of certain commodities (e.g., natural gas and heavy fuel oil).
For further information on our market risks and the sensitivity analyses of these risks, see Note 28—Financial Instruments to our financial statements included in this annual report.
ITEM 12.12. | Description of Securities Other than Equity Securities |
Not applicable.
Not applicable.
Not applicable.
D. | American Depositary Shares |
Not applicable.
PART II
ITEM 13.13. | Defaults, Dividend Arrearages and Delinquencies |
None.
ITEM 14.14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
ITEM 15.15. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this annual report, as required by Rule 13a-15(b) under the Exchange Act. Based upon this evaluation, our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in by the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. These rules define internal control over financial reporting as a process designed by, or under the supervision of, a company’s chief executive officer and chief financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
In January 2021, our subsidiary OPC completed the acquisition of CPV. Management considered the facts and circumstances of the material business combination, and has excluded CPV in its assessment of internal control over financial reporting as of December 31, 2021, as permitted by the SEC.
Our management has assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2021.2023. This assessment was performed under the direction and supervision of our chief executive officer and chief financial officer, and based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that as of December 31, 2021,2023, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 20212023 has been audited by our independent registered public accounting firm and their report thereon is included elsewhere in this annual report.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2021,2023, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In January 2021, our subsidiary OPC completed the acquisition of CPV. Management considered the facts and circumstances of the material business combination, and has excluded CPV in its assessment of internal control over financial reporting as of December 31, 2021, as permitted by the SEC.
Inherent Limitations of Disclosure Controls and Procedures in Internal Control over Financial Reporting
It should be noted that any system of controls, however well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Projections regarding the effectiveness of a system of controls in future periods are subject to the risk that such controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures.
ITEM 16.16. | [RESERVED]RESERVED |
ITEM 16A.16A. | Audit Committee Financial Expert |
Our board of directors has determined that Mr. Laurence N. Charney is an “audit committee financial expert” as defined in Item 16A of Form 20-F under the Exchange Act. Our board of directors has also determined that Mr. Laurence N. Charney satisfies the NYSE’s listed company “independence” requirements.
ITEM 16B.16B. | Code of Ethics |
We have adopted a Code of Ethics that applies to all our employees, officers and directors, including our chief executive officer and our chief financial officer. Our Code of ConductEthics is available on our website at www.kenon-holdings.com.www.kenon-holdings.com.
ITEM 16C.16C. | Principal Accountant Fees and Services |
KPMG LLP, a member firm of KPMG International, is our independent registered public accounting firm for the audits of the years ending December 31, 20212023 and 2020.2022.
Our audit committee charter requires that all audit and non-audit services provided by our independent auditors are pre-approved by our audit committee. In particular, pursuant to our audit committee charter, the chairman of the audit committee shall pre-approve all audit services to be provided to Kenon, whether provided by our independent registered public accounting firm or other firms, and all other services (review, attest and non-audit) to be provided to Kenon by the independent registered public accounting firm. Any decision of the chairman of the audit committee to pre-approve audit or non-audit services shall be presented to the audit committee.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMG LLP, and other member firms within the KPMG network, for the years ended December 31, 20212023 and 20202022 for Kenon and its consolidated entities. The figures below have been updated from Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 20202023 and in accordance with Section 14(a) of the Exchange Act.
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| | (in thousands of USD) | | | (in thousands of USD) | |
Audit Fees1 | | | 3,054 | | | | 1,351 | | |
Audit Fees(1) | | | | 5,030 | | | | 3,960 | |
Audit-Related Fees | | | 3 | | | | 14 | | | | 2 | | | | 2 | |
Tax Fees2 | | | | | | | | | |
Tax Fees(2) | | | | | | | | | |
Total | | | | | | | | | | | | | | | | |
___________________________
(1) | Includes fees billed or accrued for professional services rendered by the principal accountant, and member firms in their respective network, for the audit of our annual financial statements, and those of our consolidated subsidiaries, as well as additional services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, except for those not required by statute or regulation. |
(2) | Tax fees consist of fees for professional services rendered during the fiscal year by the principal accountant mainly for tax compliance and assistance with tax audits and appeals. |
ITEM 16D.16D. | Exemptions from the Listing Standards for Audit Committees |
None.
ITEM 16E.16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.In March 2023, Kenon announced a $50 million share repurchase plan. Repurchases under the share repurchase plan are subject to the authority of the share purchase authorization which was renewed by shareholders at the 2023 AGM and which will, continue in force until the earlier of the date of the 2024 AGM or the date by which the 2024 AGM is required by law to be held. At this meeting, we intend to seek authorization to renew such authorization. The plan has no expiration date. Kenon has purchased a total of 1.1 million shares for a total purchase price of approximately $28 million under the program. Our share repurchase plan may be suspended for periods, modified or discontinued at any time and may not be completed up to the full amount of the share repurchase plan.
The table below is a summary of our repurchases in 2023, which were all conducted in the open market pursuant to such share repurchase plan. From January 1, 2024 to the date of this annual report, no shares have been repurchased.
Period | | (a) Total number of shares purchased | | | (b) Average price paid per share | | | (c) Total number of shares purchased as part of publicly announced plans or programs | | | (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs | |
January 1 - 31, 2023 | | | | | | | | | | | | |
February 1 - 28, 2023 | | | | | | | | | | | | |
March 1 - 31, 2023 | | | | | | | | | | | $ | 50,000,000 | |
April 1 - 30, 2023 | | | 96,187 | | | $ | 27.29 | | | | 96,187 | | | $ | 47,374,943 | |
May 1 - 31, 2023 | | | 143,876 | | | $ | 28.41 | | | | 240,063 | | | $ | 43,287,235 | |
June 1 - 30, 2023 | | | 305,521 | | | $ | 25.31 | | | | 545,584 | | | $ | 35,553,697 | |
July 1 - 31, 2023 | | | 275,800 | | | $ | 24.68 | | | | 821,384 | | | $ | 28,747,399 | |
August 1 - 31, 2023 | | | 120,404 | | | $ | 25.51 | | | | 941,788 | | | $ | 25,676,202 | |
September 1 - 30, 2023 | | | 22,725 | | | $ | 23.45 | | | | 964,513 | | | $ | 25,143,213 | |
October 1 - 31, 2023 | | | 92,468 | | | $ | 20.22 | | | | 1,056,981 | | | $ | 23,273,305 | |
November 1 - 30, 2023 | | | 71,587 | | | $ | 19.62 | | | | 1,128,568 | | | $ | 21,868,789 | |
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ITEM 16F.16F. | Change in Registrant’s Certifying Accountant |
None.
ITEM 16G.16G. | Corporate Governance |
There are no significant differences between Kenon’s corporate governance practices and those followed by domestic companies under the listing standards of the NYSE.
ITEM 16H.16H. | Mine Safety Disclosure |
Not applicable.
ITEM 1716I. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspection |
Not applicable.
.ITEM 16J. | Insider Trading Policies |
Not applicable.
The Company recognizes that the threat of cybersecurity breaches may create significant risks for the Company. Accordingly, the Company is committed to an ongoing and comprehensive program to protect all Company data, as well as data in our supply chain, from cybersecurity threats. As a foundation to this approach, Kenon maintains a comprehensive set of cybersecurity policies and standards. These policies and standards were developed in collaboration with a wide range of disciplines, such as information technology, cybersecurity, legal, compliance and business. The Company’s cybersecurity strategy and policies are regularly re-assessed to ensure they identify and proactively address the constant changes in the global threat environment. The Company’s decision makers are regularly kept up to date on cybersecurity trends, and ongoing collaboration with stakeholders throughout the business help ensure continued awareness and visibility of future needs.
Our cybersecurity program includes three key components: training and awareness, the implementation of sophisticated and protective technologies, and an incident response framework in the event of a cybersecurity incident. The Company also has in place policies and procedures governing the specific responsibilities at the employee, management, and board of directors levels to ensure cybersecurity risks are properly assessed, identified, reported, and managed on an ongoing basis. Among other requirements to adhere to as set forth in our cybersecurity policy, our employees must exercise professional judgment and care when storing intellectual property or other sensitive information on electric or computing devices, and are required to seek consent from management or directors when accessing or sharing confidential information. Management must ensure that our employees are provided with adequate resources and training to fully understand the guidelines and expectations for cybersecurity. Management may also assist with IT security investigations, document any violations of the policy or cybersecurity, and may engage our third-party IT representative if unaware of the best course of action in dealing with any IT-related matter. The Board of Directors are responsible for reviewing the policy periodically and to oversee the implementation of the measures to observe its effectiveness. The Board must also keep apprised of applicable legislation, regulations, and principles to guide the objectives set forth in our policy.
Cybersecurity risks and threats, including as a result of any previous cybersecurity incidents, have not materially impacted us to date. However, we recognize the evolving risks posed by cybersecurity risks and cannot provide any assurances that we will not be subject to a material cybersecurity incident in the future. See Item 3.D Risk Factors for a discussion of cybersecurity risks.
ITEM 17. | Financial Statements |
Not applicable.
ITEM 18.18. | Financial Statements |
The financial statements and the related notes required by this Item 18 are included in this annual report beginning on page F-1. See Exhibit 15.4 of this annual report on Form 20-F for the consolidated financial statements of ZIM, incorporated by reference in this annual report on Form 20-F.
Index to Exhibits
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| Gas Sale and Purchase Agreement, dated as of November 25, 2012, among Noble Energy Mediterranean Ltd., Delek Drilling Limited Partnership, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited Partnership, Dor Gas Exploration Limited Partnership, and O.P.C. Rotem Ltd. (Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to IC Power Pte. Ltd.’s Form F-1, filed on November 2, 2015) (1) |
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| Purchase and Sale Agreement, dated as of October 9, 2020, by and among GIP II CPV Intermediate Holdings Partnership, L.P., GIP II CPV Intermediate Holdings Partnership 2, L.P., CPV Power Holdings GP, LLC, CPV Group LP and OPC US Inc.(2) (Incorporated by reference to Exhibit 4.10 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2020, filed on April 19, 2021) |
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| Senior Facilities Agreement, dated as of July 4, 2016, among Advanced Integrated Energy Ltd., as borrower, Israel Discount Bank Ltd. and Harel Insurance Company Ltd, as arrangers, Israel Discount Bank Ltd. as senior agent and security agent, and certain other entities, as senior lenders (Incorporated by reference to Exhibit 4.16 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2018, filed on April 8, 2019)(2) |
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| Share Purchase Agreement, dated November 24, 2017, among Inkia Energy, Ltd., IC Power Distribution Holdings, PTE. LTD., Nautilus Inkia Holdings LLC, Nautilus Distribution Holdings LLC and Nautilus Isthmus Holdings LLC (Incorporated by reference to Exhibit 4.14 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2017, filed on April 9, 2018) |
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| Qoros Automobile Company Limited Investment Agreement, dated May 23, 2017, as amended, among Hangzhou Chengmao Investment Co., Ltd., Wuhu Chery Automobile Investment Company Limited, Quantum (2007) LLC and Qoros Automobile Company Limited (Incorporated by reference to Exhibit 4.17 to Kenon’s Annual Report on Form 20-F for the fiscal year ended December 31, 2017, filed on April 9, 2018) |
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101.INS* |
| Inline XBRL Instance Document |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
| Inline XBRL for the cover page of this Annual Report on Form 20-F, included in the Exhibit 101 Inline XBRL Document Set. |
_______________________________
(1) | Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act. Omitted information has been filed separately with the SEC. |
(2) | Portions of this exhibit have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed.
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Kenon Holdings Ltd. and subsidiaries
Consolidated Financial Statements
As at December 31, 20212023 and 20202022 and for the three years ended December 31, 20212023
Kenon Holdings Ltd.
Consolidated Financial Statements
as at December 31, 20212023 and 20202022 and for the three years ended December 31, 20212023
Contents
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| KPMG LLP 12 Marina View #15-01 Asia Square Tower 2 Singapore 018961 | Telephone | +65 +65 6213 3388
Fax +65 6225 0984 Internet kpmg.com.sg |
16 Raffles Quay #22-00
| Fax
| +65 6225 0984
|
Hong Leong Building
| Internet
| www.kpmg.com.sg
|
Singapore 048581
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Kenon Holdings Ltd.:
Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statementstatements of financial position of Kenon Holdings Ltd. and subsidiaries (the Company) as of December 31, 20212023 and 2020,2022, the related consolidated statements of profit and loss, other comprehensive income, changes in equity, and cash flows for each of the years in the three year period ended December 31, 2021,2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the years in the three-yearthree‑year period ended December 31, 2021,2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 31, 202226, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. | KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. | |
Kenon Holdings Ltd. |
Independent auditors’ report |
Year ended December 31, 2023 |
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.it relates.
| KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
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F - 1
EvaluationImpairment assessments of fair value of the identified assets acquired and liabilities assumedgoodwill arising from CPV Group
As discussed in Notes 2.D.13.G and 10.A.1.i.13.C to the consolidated financial statements, on January 25 2021, the Company acquired 70%carrying amount of the rights and holdings incash generating unit (CGU) to which goodwill is allocated is reviewed at each reporting date for impairment. As of December 31, 2023, the Group’s goodwill assigned to the renewable energies segment arising from CPV Power Holdings LP; Competitive Power Ventures Inc.; and CPVGroup amounted to $126 million (Renewable Energy CGU). The Company estimates the recoverable amount of the Renewable Energy Company Inc. throughCGU based on discounted expected future cash flows. An impairment loss is recognized if the limited partnership, CPV Group LP (“the CPV Group”). The faircarrying value of the identified assets acquired and liabilities assumed of $580 million included property, plant, and equipment, investments in associated companies and intangible assets of the CPV Group. The valuation technique used for measuring the fair values of the property, plant and equipment, investments in associated companies and intangible assets on the transaction completion date is the income approach, a present value technique to convert future amounts to a single current amount using relevant discount rates.
Renewable Energy CGU exceeds its estimated recoverable amount.
We identified the evaluation of the transaction completion date fair valuesimpairment assessments of the property, plant and equipment, investments in associated companies and intangible assets of the CPV Groupgoodwill as a critical audit matter. ASpecifically, a high degree of auditor judgement was required in evaluating the discount rates used to estimate the fair values of these assets. Minor changes to the discount rates could have had a significant effect on the Company’s evaluation of the transaction completion date fair values. Additionally, the audit effort to evaluate the discount rates to determine the recoverable amount of the Renewable Energy CGU. Additionally, the audit effort associated with evaluating the discount rates required involvement of valuation professionals with specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls relating to the impairment assessment of Renewable Energy CGU, including the control related to the Company’s process in the determination ofevaluating the discount rates to estimateused in the fair values of the property, plant and equipment, investments in associated companies and intangible assets.discounted cashflows. In addition, we involved valuation professionals with specialized skills and knowledge who assistedto assist us in evaluating suchthe discount rates by comparing suchthem against an independently developed range of discount rates used by the Company against discount rate ranges that were independently developed utilizingusing inputs from publicly available market data for comparable entities.information.
KPMG LLP
Public Accountants and
Chartered Accountants
We have served as the Company’s auditor since 2015.
Singapore
March 26, 2024
F - 2
| KPMG LLP
| Telephone
| +65 6213 3388
|
16 Raffles Quay #22-00
| Fax
| +65 6225 0984
|
Hong Leong Building
| Internet
| www.kpmg.com.sg
|
Singapore 048581
| | |
| KPMG LLP 12 Marina View #15-01 Asia Square Tower 2 Singapore 018961 | Telephone +65 6213 3388 Fax +65 6225 0984 Internet kpmg.com.sg |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Kenon Holdings Ltd:Ltd.:
Opinion on Internal Control Over Financial Reporting
We have audited Kenon Holdings Ltd.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021,2023, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 20212023 and 2020,2022, the related consolidated statements of profit and loss, other comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021,2023, and the related notes (collectively, the consolidated financial statements), and our report dated March 31, 202226, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
| KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. | |
Kenon Holdings Ltd. |
Independent auditors’ report |
Year ended December 31, 2023 |
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG LLP
Public Accountants and
Chartered Accountants
Singapore
March 26, 2024
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Financial Position as at December 31, 20212023 and 2020
| | | | | As at December 31, | |
| | | | | 2021 | | | 2020 | |
| | Note | | | $ Thousands | |
| | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | | 5 | | | | 474,544 | | | | 286,184 | |
Short-term deposits and restricted cash | | 6 | | | | 229 | | | | 564,247 | |
Trade receivables | | | | | | 62,643 | | | | 47,948 | |
Short-term derivative instruments | | | | | | 798 | | | | 114 | |
Other current assets | | 7 | | | | 43,379 | | | | 21,295 | |
Total current assets | | | | | | 581,593 | | | | 919,788 | |
| | | | | | | | | | | |
Non-current assets | | | | | | | | | | | |
Investment in ZIM (associated company) | | 8 | | | | 1,354,212 | | | | 297,148 | |
Investment in OPC's associated companies | | 8 | | | | 545,242 | | | | 0 | |
Long-term investment (Qoros) | | 9.5 | | | | 0 | | | | 235,218 | |
Long-term restricted cash | | | | | | 21,463 | | | | 71,954 | |
Long-term derivative instruments | | 28.D.1 | | | | 11,637 | | | | 165 | |
Deferred taxes, net | | 23.C.2 | | | | 49,275 | | | | 7,374 | |
Property, plant and equipment, net | | 11 | | | | 1,125,820 | | | | 818,561 | |
Intangible assets, net | | 12 | | | | 224,282 | | | | 1,452 | |
Long-term prepaid expenses and other non-current assets | | 13 | | | | 57,266 | | | | 44,649 | |
Right-of-use assets, net | | 16 | | | | 97,883 | | | | 86,024 | |
Total non-current assets | | | | | | 3,487,080 | | | | 1,562,545 | |
| | | | | | | | | | | |
Total assets | | | | | | 4,068,673 | | | | 2,482,333 | |
The accompanying notes are an integral part of the consolidated financial statements.2022
| | | | | As at December 31, | |
| | | | | 2023 | | | 2022 | |
| | Note | | | $ Thousands | |
| | | | | | | | | |
Current assets | | | | | | | | | |
Cash and cash equivalents | | 5 | | | | 696,838 | | | | 535,171 | |
Short-term deposits and restricted cash | | 6 | | | | 532 | | | | 45,990 | |
Trade receivables | | | | | | 67,994 | | | | 73,900 | |
Short-term derivative instruments | | | | | | 3,177 | | | | 2,918 | |
Other investments | | 7 | | | | 215,797 | | | | 344,780 | |
Other current assets | | 8 | | | | 111,703 | | | | 58,956 | |
Total current assets | | | | | | 1,096,041 | | | | 1,061,715 | |
| | | | | | | | | | | |
Non-current assets | | | | | | | | | | | |
Investment in ZIM (associated company) | | 9 | | | | - | | | | 427,059 | |
Investment in OPC’s associated companies | | 9 | | | | 703,156 | | | | 652,358 | |
Long-term restricted cash | | | | | | 16,237 | | | | 15,146 | |
Long-term derivative instruments | | | | | | 14,178 | | | | 16,077 | |
Deferred taxes | | 24.C.2 | | | | 15,862 | | | | 6,382 | |
Property, plant and equipment, net | | 12 | | | | 1,714,825 | | | | 1,222,421 | |
Intangible assets, net | | 13 | | | | 321,284 | | | | 220,795 | |
Long-term prepaid expenses and other non-current assets | | 14 | | | | 52,342 | | | | 23,323 | * |
Right-of-use assets, net | | 17 | | | | 174,515 | | | | 126,784 | * |
Total non-current assets | | | | | | 3,012,399 | | | | 2,710,345 | |
| | | | | | | | | | | |
Total assets | | | | | | 4,108,440 | | | | 3,772,060 | |
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Financial Position as at December 31, 2021 and 2020, continued
| | | | | As at December 31, | |
| | | | | 2021 | | | 2020 | |
| | Note | | | $ Thousands | |
Current liabilities | | | | | | | | | |
Current maturities of loans from banks and others | | 14 | | | | 38,311 | | | | 46,471 | |
Trade and other payables | | 15 | | | | 171,537 | | | | 128,242 | |
Dividend payable | | 18.D | | | | 188,607 | | | | 0 | |
Short-term derivative instruments | | 28.D.1 | | | | 8,688 | | | | 39,131 | |
Current tax liabilities | | | | | | 34 | | | | 9 | |
Deferred taxes | | 23.C.2 | | | | 21,117 | | | | 0 | |
Current maturities of lease liabilities | | | | | | 18,991 | | | | 14,084 | |
Total current liabilities | | | | | | 447,285 | | | | 227,937 | |
| | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | |
Long-term loans from banks and others | | 14 | | | | 596,489 | | | | 575,688 | |
Debentures | | 14 | | | | 575,314 | | | | 296,146 | |
Deferred taxes, net | | 23.C.2 | | | | 125,339 | | | | 94,336 | |
Other non-current liabilities | | | | | | 28,817 | | | | 816 | |
Long-term derivative instruments | | | | | | 192 | | | | 6,956 | |
Long-term lease liabilities | | | | | | 14,951 | | | | 4,446 | |
Total non-current liabilities | | | | | | 1,341,102 | | | | 978,388 | |
| | | | | | | | | | | |
Total liabilities | | | | | | 1,788,387 | | | | 1,206,325 | |
| | | | | | | | | | | |
Equity | | 18 | | | | | | | | | |
Share capital | | | | | | 602,450 | | | | 602,450 | |
Translation reserve | | | | | | 25,680 | | | | 15,896 | |
Capital reserve | | | | | | 25,783 | | | | (11,343 | ) |
Accumulated profit | | | | | | 1,139,775 | | | | 459,820 | |
Equity attributable to owners of the Company | | | | | | 1,793,688 | | | | 1,066,823 | |
Non-controlling interests | | | | | | 486,598 | | | | 209,185 | |
Total equity | | | | | | 2,280,286 | | | | 1,276,008 | |
| | | | | | | | | | | |
Total liabilities and equity | | | | | | 4,068,673 | | | | 2,482,333 | |
_____________________________
| _____________________________
| _____________________________
|
Cyril Pierre-Jean Ducau
Chairman of Board of Directors
| Robert L. Rosen
CEO
| Mark Hasson
CFO
|
Approval date of the consolidated financial statements: March 31, 2022
* Reclassified
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiariesConsolidated Statements of Profit & Loss for the years endedFinancial Position as at December 31, 2021, 20202023 and 20192022, continued
| | | | | For the year ended December 31, | |
| | | | | 2021 | | | 2020 | | | 2019 | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | |
Revenue | | 19 | | | | 487,763 | | | | 386,470 | | | | 373,473 | |
Cost of sales and services (excluding depreciation and amortization) | | 20 | | | | (336,298 | ) | | | (282,086 | ) | | | (256,036 | ) |
Depreciation and amortization | | | | | | (53,116 | ) | | | (33,135 | ) | | | (31,141 | ) |
Gross profit | | | | | | 98,349 | | | | 71,249 | | | | 86,296 | |
Selling, general and administrative expenses | | 21 | | | | (75,727 | ) | | | (49,957 | ) | | | (36,436 | ) |
Other (expenses)/income | | | | | | (81 | ) | | | 1,721 | | | | 6,114 | |
Operating profit | | | | | | 22,541 | | | | 23,013 | | | | 55,974 | |
Financing expenses | | 22 | | | | (144,295 | ) | | | (51,174 | ) | | | (29,946 | ) |
Financing income | | 22 | | | | 2,934 | | | | 14,291 | | | | 17,679 | |
Financing expenses, net | | | | | | (141,361 | ) | | | (36,883 | ) | | | (12,267 | ) |
| | | | | | | | | | | | | | | |
(Losses)/gains related to Qoros | | 9 | | | | (251,483 | ) | | | 309,918 | | | | (7,813 | ) |
(Losses)/gains related to ZIM | | 8.B.a | | | | (204 | ) | | | 43,505 | | | | 0 | |
Share in profit/(losses) of associated companies, net | | | | | | | | | | | | | | | |
- ZIM | | 8.A.2 | | | | 1,260,993 | | | | 167,142 | | | | (4,374 | ) |
- OPC's associated companies | | 8.A.2 | | | | (10,844 | ) | | | 0 | | | | 0 | |
- Qoros | | 8.A.2 | | | | 0 | | | | (6,248 | ) | | | (37,056 | ) |
Profit/(loss) before income taxes | | | | | | 879,642 | | | | 500,447 | | | | (5,536 | ) |
Income tax expense | | 23 | | | | (4,325 | ) | | | (4,698 | ) | | | (16,675 | ) |
Profit/(loss) for the year from continuing operations | | | | | | 875,317 | | | | 495,749 | | | | (22,211 | ) |
Gain/(loss) for the year from discontinued operations | | 25 | | | | | | | | | | | | | |
-Recovery of retained claims, net | | | | | | 0 | | | | 8,476 | | | | 25,666 | |
-Other | | | | | | 0 | | | | 0 | | | | (1,013 | ) |
| | | | | | 0 | | | | 8,476 | | | | 24,653 | |
Profit for the year | | | | | | 875,317 | | | | 504,225 | | | | 2,442 | |
| | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | |
Kenon’s shareholders | | | | | | 930,273 | | | | 507,106 | | | | (13,359 | ) |
Non-controlling interests | | | | | | (54,956 | ) | | | (2,881 | ) | | | 15,801 | |
Profit for the year | | | | | | 875,317 | | | | 504,225 | | | | 2,442 | |
| | | | | | | | | | | | | | | |
Basic/diluted profit/(loss) per share attributable to Kenon’s shareholders (in dollars): | | 24 | | | | | | | | | | | | | |
Basic/diluted profit/(loss) per share | | | | | | 17.27 | | | | 9.41 | | | | (0.25 | ) |
Basic/diluted profit/(loss) per share from continuing operations | | | | | | 17.27 | | | | 9.25 | | | | (0.71 | ) |
Basic/diluted profit per share from discontinued operations | | | | | | 0 | | | | 0.16 | | | | 0.46 | |
| | | | | As at December 31, | |
| | | | | 2023 | | | 2022 | |
| | Note | | | $ Thousands | |
Current liabilities | | | | | | | | | |
Current maturities of loans from banks and others | | 15 | | | | 169,627 | | | | 39,262 | |
Trade and other payables | | 16 | | | | 181,898 | | | | 133,415 | |
Short-term derivative instruments | | | | | | 2,311 | | | | 889 | |
Current tax liabilities | | | | | | - | | | | 653 | |
Deferred taxes | | 24.C.2 | | | | - | | | | 1,285 | |
Current maturities of lease liabilities | | | | | | 4,963 | | | | 17,474 | |
Total current liabilities | | | | | | 358,799 | | | | 192,978 | |
| | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | |
Long-term loans from banks and others | | 15 | | | | 906,243 | | | | 610,434 | |
Debentures | | 15 | | | | 454,163 | | | | 513,375 | |
Deferred taxes | | 24.C.2 | | | | 136,590 | | | | 97,800 | |
Other non-current liabilities | | 16 | | | | 109,882 | | | | 41,388 | |
Long-term derivative instruments | | | | | | 15,996 | | | | 10 | |
Long-term lease liabilities | | | | | | 56,543 | | | | 20,157 | |
Total non-current liabilities | | | | | | 1,679,417 | | | | 1,283,164 | |
| | | | | | | | | | | |
Total liabilities | | | | | | 2,038,216 | | | | 1,476,142 | |
| | | | | | | | | | | |
Equity | | 19 | | | | | | | | | |
Share capital | | | | | | 50,134 | | | | 50,134 | |
Translation reserve | | | | | | (3,658 | ) | | | 1,206 | |
Capital reserve | | | | | | 69,792 | | | | 42,553 | |
Accumulated profit | | | | | | 1,087,041 | | | | 1,504,592 | |
Equity attributable to owners of the Company | | | | | | 1,203,309 | | | | 1,598,485 | |
Non-controlling interests | | | | | | 866,915 | | | | 697,433 | |
Total equity | | | | | | 2,070,224 | | | | 2,295,918 | |
| | | | | | | | | | | |
Total liabilities and equity | | | | | | 4,108,440 | | | | 3,772,060 | |
____________________________ Cyril Pierre-Jean Ducau Chairman of Board of Directors | ____________________________ Robert L. Rosen CEO | ____________________________ Deepa Joseph CFO |
The accompanying notes are an integral partApproval date of the consolidated financial statements.statements: March 26, 2024
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
| | For the year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
| | | | | | | | | |
Profit for the year | | | 875,317 | | | | 504,225 | | | | 2,442 | |
| | | | | | | | | | | | |
Items that are or will be subsequently reclassified to profit or loss | | | | | | | | | | | | |
Foreign currency translation differences in respect of foreign operations | | | 17,489 | | | | 36,354 | | | | 22,523 | |
Reclassification of foreign currency and capital reserve differences on loss of significant influence | | | 0 | | | | (23,425 | ) | | | 0 | |
Group’s share in other comprehensive income of associated companies | | | 12,360 | | | | 1,873 | | | | (3,201 | ) |
Effective portion of change in the fair value of cash-flow hedges | | | 8,772 | | | | (45,322 | ) | | | (8,309 | ) |
Change in fair value of derivative financial instruments used for hedging cash flows recorded to the cost of the hedged item | | | 37,173 | | | | 3,067 | | | | 1,351 | |
Change in fair value of derivatives used to hedge cash flows transferred to the statement of profit & loss | | | (2,121 | ) | | | 6,300 | | | | 2,743 | |
Income taxes in respect of components of other comprehensive income | | | (423 | ) | | | 1,346 | | | | 252 | |
Total other comprehensive income for the year | | | 73,250 | | | | (19,807 | ) | | | 15,359 | |
Total comprehensive income for the year | | | 948,567 | | | | 484,418 | | | | 17,801 | |
| | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | |
Kenon’s shareholders | | | 969,862 | | | | 486,165 | | | | (2,353 | ) |
Non-controlling interests | | | (21,295 | ) | | | (1,747 | ) | | | 20,154 | |
Total comprehensive income for the year | | | 948,567 | | | | 484,418 | | | | 17,801 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | Non- | | | | |
| | | | | | | | | | | | | | | | | | | | controlling | | | | |
| | | | | Attributable to the owners of the Company | | | interests | | | Total | |
| | | | | Share | | | Translation | | | Capital | | | Accumulated | | | | | | | | | | |
| | | | | Capital | | | reserve | | | reserve | | | profit | | | Total | | | | | | | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2021 | | | | | | 602,450 | | | | 15,896 | | | | (11,343 | ) | | | 459,820 | | | | 1,066,823 | | | | 209,185 | | | | 1,276,008 | |
Transactions with owners, recognised directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by and distributions to owners | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based payment transactions | | | | | | 0 | | | | 0 | | | | 7,371 | | | | 0 | | | | 7,371 | | | | 1,187 | | | | 8,558 | |
Dividends declared | | 18.D | | | | 0 | | | | 0 | | | | 0 | | | | (288,811 | ) | | | (288,811 | ) | | | (10,214 | ) | | | (299,025 | ) |
Total contributions by and distributions to owners | | | | | | 0 | | | | 0 | | | | 7,371 | | | | (288,811 | ) | | | (281,440 | ) | | | (9,027 | ) | | | (290,467 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in ownership interests in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dilution in investment in subsidiary | | 10.A.1.o | | | | 0 | | | | 0 | | | | 0 | | | | 38,443 | | | | 38,443 | | | | 103,891 | | | | 142,334 | |
Non-controlling interests in respect of business combinations | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 6,769 | | | | 6,769 | |
Investments from holders of non-controlling interests in equity of subsidiary | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 197,075 | | | | 197,075 | |
Total changes in ownership interests in subsidiaries | | | | | | 0 | | | | 0 | | | | 0 | | | | 38,443 | | | | 38,443 | | | | 307,735 | | | | 346,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net profit for the year | | | | | | 0 | | | | 0 | | | | 0 | | | | 930,273 | | | | 930,273 | | | | (54,956 | ) | | | 875,317 | |
Other comprehensive income for the year, net of tax | | | | | | 0 | | | | 9,784 | | | | 29,755 | | | | 50 | | | | 39,589 | | | | 33,661 | | | | 73,250 | |
Total comprehensive income for the year | | | | | | 0 | | | | 9,784 | | | | 29,755 | | | | 930,323 | | | | 969,862 | | | | (21,295 | ) | | | 948,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | 602,450 | | | | 25,680 | | | | 25,783 | | | | 1,139,775 | | | | 1,793,688 | | | | 486,598 | | | | 2,280,286 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | Non- | | | | |
| | | | | | | | | | | | | | | | | | | | controlling | | | | |
| | | | | Attributable to the owners of the Company | | | interests | | | Total | |
| | | | | Share | | | Translation | | | Capital | | | Accumulated | | | | | | | | | | |
| | | | | Capital | | | reserve | | | reserve | | | profit | | | Total | | | | | | | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2020 | | | | | | 602,450 | | | | 17,889 | | | | 13,962 | | | | (10,949 | ) | | | 623,352 | | | | 88,436 | | | | 711,788 | |
Transactions with owners, recognised directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by and distributions to owners | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based payment transactions | | | | | | 0 | | | | 0 | | | | 874 | | | | 0 | | | | 874 | | | | 236 | | | | 1,110 | |
Dividends declared and paid | | 18.D | | | | 0 | | | | 0 | | | | 0 | | | | (120,133 | ) | | | (120,133 | ) | | | (12,412 | ) | | | (132,545 | ) |
Total contributions by and distributions to owners | | | | | | 0 | | | | 0 | | | | 874 | | | | (120,133 | ) | | | (119,259 | ) | | | (12,176 | ) | | | (131,435 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in ownership interests in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dilution in investment in subsidiary | | 10.A.1.o | | | | 0 | | | | 0 | | | | 0 | | | | 80,674 | | | | 80,674 | | | | 136,170 | | | | 216,844 | |
Acquisition of non-controlling interests without a change in control | | | | | | 0 | | | | 0 | | | | (4,109 | ) | | | 0 | | | | (4,109 | ) | | | (1,498 | ) | | | (5,607 | ) |
Total changes in ownership interests in subsidiaries | | | | | | 0 | | | | 0 | | | | (4,109 | ) | | | 80,674 | | | | 76,565 | | | | 134,672 | | | | 211,237 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net profit for the year | | | | | | 0 | | | | 0 | | | | 0 | | | | 507,106 | | | | 507,106 | | | | (2,881 | ) | | | 504,225 | |
Other comprehensive income for the year, net of tax | | | | | | | | | | (1,993 | ) | | | (22,070 | ) | | | 3,122 | | | | (20,941 | ) | | | 1,134 | | | | (19,807 | ) |
Total comprehensive income for the year | | | | | | 0 | | | | (1,993 | ) | | | (22,070 | ) | | | 510,228 | | | | 486,165 | | | | (1,747 | ) | | | 484,418 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | | | | | 602,450 | | | | 15,896 | | | | (11,343 | ) | | | 459,820 | | | | 1,066,823 | | | | 209,185 | | | | 1,276,008 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
| | | | | Attributable to the owners of the Company | | | | | | Total | |
| | | | | Share | | | Translation | | | Capital | | | Accumulated | | | | | | | | | | |
| | | | | Capital | | | reserve | | | reserve | | | profit/(loss) | | | Total | | | | | | | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2019 | | | | | | 602,450 | | | | 802 | | | | 16,854 | | | | 28,917 | | | | 649,023 | | | | 66,695 | | | | 715,718 | |
Transactions with owners, recognised directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by and distributions to owners | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based payment transactions | | | | | | 0 | | | | 0 | | | | 1,222 | | | | 0 | | | | 1,222 | | | | 324 | | | | 1,546 | |
Dividends declared and paid | | 18.D | | | | 0 | | | | 0 | | | | 0 | | | | (65,169 | ) | | | (65,169 | ) | | | (33,123 | ) | | | (98,292 | ) |
Total contributions by and distributions to owners | | | | | | 0 | | | | 0 | | | | 1,222 | | | | (65,169 | ) | | | (63,947 | ) | | | (32,799 | ) | | | (96,746 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in ownership interests in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sale of subsidiary | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 299 | | | | 299 | |
Dilution in investment in subsidiary | | 10.A.1.o | | | | 0 | | | | 0 | | | | 0 | | | | 41,863 | | | | 41,863 | | | | 34,537 | | | | 76,400 | |
Acquisition of non-controlling interests without a change in control | | | | | | 0 | | | | 0 | | | | (1,234 | ) | | | 0 | | | | (1,234 | ) | | | (450 | ) | | | (1,684 | ) |
Total changes in ownership interests in subsidiaries | | | | | | 0 | | | | 0 | | | | (1,234 | ) | | | 41,863 | | | | 40,629 | | | | 34,386 | | | | 75,015 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net profit for the year | | | | | | 0 | | | | 0 | | | | 0 | | | | (13,359 | ) | | | (13,359 | ) | | | 15,801 | | | | 2,442 | |
Other comprehensive income for the year, net of tax | | | | | | 0 | | | | 17,087 | | | | (2,880 | ) | | | (3,201 | ) | | | 11,006 | | | | 4,353 | | | | 15,359 | |
Total comprehensive income for the year | | | | | | 0 | | | | 17,087 | | | | (2,880 | ) | | | (16,560 | ) | | | (2,353 | ) | | | 20,154 | | | | 17,801 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 | | | | | | 602,450 | | | | 17,889 | | | | 13,962 | | | | (10,949 | ) | | | 623,352 | | | | 88,436 | | | | 711,788 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2021, 2020 and 2019
| | | | | For the year ended December 31, | |
| | | | | 2021 | | | 2020 | | | 2019 | |
| | Note | | | $Thousands | |
| | | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | | | |
Profit for the year | | | | | | 875,317 | | | | 504,225 | | | | 2,442 | |
Adjustments: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | 57,640 | | | | 34,171 | | | | 32,092 | |
Financing expenses, net | | 22 | | | | 141,361 | | | | 36,883 | | | | 12,267 | |
Share in (profit)/losses of associated companies, net | | 8.A.2 | | | | (1,250,149 | ) | | | (160,894 | ) | | | 41,430 | |
Gains on disposal of property, plant and equipment, net | | | | | | 0 | | | | (1,551 | ) | | | (492 | ) |
Net change in fair value of derivative financial instruments | | | | | | 0 | | | | 0 | | | | 352 | |
Losses/(gains) related to Qoros | | 9 | | | | 251,483 | | | | (309,918 | ) | | | 7,813 | |
Losses/(gains) related to ZIM | | 8.B.a | | | | 204 | | | | (43,505 | ) | | | 0 | |
Recovery of retained claims | | 25 | | | | 0 | | | | (9,923 | ) | | | (30,000 | ) |
Share-based payments | | | | | | 18,369 | | | | 1,110 | | | | 1,546 | |
Income taxes | | 23 | | | | 4,325 | | | | 6,145 | | | | 22,022 | |
| | | | | | 98,550 | | | | 56,743 | | | | 89,472 | |
Change in trade and other receivables | | | | | | (1,171 | ) | | | (9,669 | ) | | | 4,338 | |
Change in trade and other payables | | | | | | (429 | ) | | | 45,061 | | | | (5,968 | ) |
Cash generated from operating activities | | | | | | 96,950 | | | | 92,135 | | | | 87,842 | |
Dividends received from associated companies | | | | | | 143,964 | | | | 0 | | | | 0 | |
Income taxes (paid)/refunded, net | | | | | | (385 | ) | | | 61 | | | | (2,453 | ) |
Net cash provided by operating activities | | | | | | 240,529 | | | | 92,196 | | | | 85,389 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Profit & Loss for the years ended December 31, 2023, 2022 and 2021
| | | | | For the year ended December 31, | |
| | | | | 2023 | | | 2022 | | | 2021 | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | |
Revenue | | 20 | | | | 691,796 | | | | 573,957 | | | | 487,763 | |
Cost of sales and services (excluding depreciation and amortization) | | 21 | | | | (494,312 | ) | | | (417,261 | ) | | | (336,298 | ) |
Depreciation and amortization | | | | | | (78,025 | ) | | | (56,853 | ) | | | (53,116 | ) |
Gross profit | | | | | | 119,459 | | | | 99,843 | | | | 98,349 | |
Selling, general and administrative expenses | | 22 | | | | (84,715 | ) | | | (99,936 | ) | | | (75,727 | ) |
Other income/(expense), net | | | | | | 7,819 | | | | 2,918 | | | | (81 | ) |
Operating profit | | | | | | 42,563 | | | | 2,825 | | | | 22,541 | |
Financing expenses | | 23 | | | | (66,333 | ) | | | (50,397 | ) | | | (144,295 | ) |
Financing income | | 23 | | | | 39,361 | | | | 44,686 | | | | 2,934 | |
Financing expenses, net | | | | | | (26,972 | ) | | | (5,711 | ) | | | (141,361 | ) |
| | | | | | | | | | | | | | | |
Losses related to Qoros | | 10 | | | | - | | | | - | | | | (251,483 | ) |
Losses related to ZIM | | 9.B.a | | | | (860 | ) | | | (727,650 | ) | | | (204 | ) |
Share in (losses)/profit of associated companies, net | | | | | | | | | | | | | | | |
- ZIM | | 9.A.2 | | | | (266,046 | ) | | | 1,033,026 | | | | 1,260,993 | |
- OPC’s associated companies | | 9.A.2 | | | | 65,566 | | | | 85,149 | | | | (10,844 | ) |
(Loss)/profit before income taxes | | | | | | (185,749 | ) | | | 387,639 | | | | 879,642 | |
Income tax expense | | 24 | | | | (25,199 | ) | | | (37,980 | ) | | | (4,325 | ) |
(Loss)/profit for the year | | | | | | (210,948 | ) | | | 349,659 | | | | 875,317 | |
| | | | | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | | | | |
Kenon’s shareholders | | | | | | (235,978 | ) | | | 312,652 | | | | 930,273 | |
Non-controlling interests | | | | | | 25,030 | | | | 37,007 | | | | (54,956 | ) |
(Loss)/profit for the year | | | | | | (210,948 | ) | | | 349,659 | | | | 875,317 | |
| | | | | | | | | | | | | | | |
Basic/diluted (loss)/profit per share attributable to Kenon’s shareholders (in dollars): | | 25 | | | | | | | | | | | | | |
Basic/diluted (loss)/profit per share | | | | | | (4.42 | ) | | | 5.80 | | | | 17.27 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiariesConsolidated Statements of Cash Flows, continuedOther Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
| | For the year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
| | | | | | | | | |
(Loss)/Profit for the year | | | (210,948 | ) | | | 349,659 | | | | 875,317 | |
| | | | | | | | | | | | |
Items that are or will be subsequently reclassified to profit or loss | | | | | | | | | | | | |
Foreign currency translation differences in respect of foreign operations | | | (10,068 | ) | | | (40,694 | ) | | | 17,489 | |
Group’s share in other comprehensive income of associated companies | | | (15,905 | ) | | | 13,611 | | | | 12,360 | |
Effective portion of change in the fair value of cash-flow hedges | | | (11,027 | ) | | | 14,774 | | | | 8,772 | |
Change in fair value of other investments at FVOCI | | | 6,773 | | | | (2,100 | ) | | | - | |
Change in fair value of derivative financial instruments used for hedging cash flows recorded to the cost of the hedged item | | | (1,433 | ) | | | (1,043 | ) | | | 37,173 | |
Change in fair value of derivatives financial instruments used to hedge cash flows transferred to the statement of profit & loss | | | (5,474 | ) | | | (4,125 | ) | | | (2,121 | ) |
Income taxes in respect of components of other comprehensive income | | | 1,552 | | | | (2,658 | ) | | | (423 | ) |
Total other comprehensive income for the year | | | (35,582 | ) | | | (22,235 | ) | | | 73,250 | |
Total comprehensive income for the year | | | (246,530 | ) | | | 327,424 | | | | 948,567 | |
| | | | | | | | | | | | |
Attributable to: | | | | | | | | | | | | |
Kenon’s shareholders | | | (246,936 | ) | | | 290,985 | | | | 969,862 | |
Non-controlling interests | | | 406 | | | | 36,439 | | | | (21,295 | ) |
Total comprehensive income for the year | | | (246,530 | ) | | | 327,424 | | | | 948,567 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 20202023, 2022 and 20192021
| | | | | For the year ended December 31, | |
| | | | | 2021 | | | 2020 | | | 2019 | |
| | Note | | | $ Thousands | |
Cash flows from investing activities | | | | | | | | | | | | |
Short-term deposits and restricted cash, net | | | | | | 558,247 | | | | (501,618 | ) | | | 19,554 | |
Investment in long-term deposits, net | | | | | | 51,692 | | | | 6,997 | | | | (28,085 | ) |
Long-term advance deposits and prepaid expenses | | | | | | (6,976 | ) | | | (57,591 | ) | | | 0 | |
Long term loan to an associate | | | | | | (5,000 | ) | | | 0 | | | | 0 | |
Proceeds from sale of subsidiary, net of cash disposed off | | | | | | 0 | | | | 407 | | | | 880 | |
Acquisition of subsidiary, less cash acquired | | 10.A.1.i | | | | (659,169 | ) | | | 0 | | | | 0 | |
Acquisition of associated company, less cash acquired | | | | | | (8,566 | ) | | | 0 | | | | 0 | |
Acquisition of property, plant and equipment | | | | | | (231,235 | ) | | | (74,456 | ) | | | (34,141 | ) |
Acquisition of intangible assets | | | | | | (1,452 | ) | | | (368 | ) | | | (258 | ) |
Proceeds from sale of property, plant and equipment and intangible assets | | | | | | 0 | | | | 546 | | | | 0 | |
Reimbursement of right-of use asset | | | | | | 4,823 | | | | 0 | | | | 0 | |
Interest received | | | | | | 269 | | | | 709 | | | | 2,469 | |
Income tax paid | | | | | | 0 | | | | (32,332 | ) | | | (5,629 | ) |
Deferred consideration in respect of acquisition of subsidiary | | | | | | 0 | | | | (13,632 | ) | | | 0 | |
Payment of transactions in derivatives, net | | | | | | (5,635 | ) | | | (3,963 | ) | | | (929 | ) |
Proceeds from sale of and distribution from associated companies | | | | | | 46,729 | | | | 0 | | | | 0 | |
Proceeds from deferred payment | | | | | | 0 | | | | 217,810 | | | | 0 | |
Proceeds from sales of interest in ZIM | | 8.B.a.5 | | | | 67,087 | | | | 0 | | | | 0 | |
Proceeds from sale of interest in Qoros | | 9.3 | | | | 0 | | | | 219,723 | | | | 0 | |
(Payment)/recovery of financial guarantee | | 9.6.d, 9.6.e | | | | (16,265 | ) | | | 6,265 | | | | 10,963 | |
Recovery of retained claims | | 25 | | | | 0 | | | | 9,923 | | | | 30,196 | |
Net cash used in investing activities | | | | | | (205,451 | ) | | | (221,580 | ) | | | (4,980 | ) |
| | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | |
Dividends paid to holders of non-controlling interests | | | | | | (10,214 | ) | | | (12,412 | ) | | | (33,123 | ) |
Dividends paid | | | | | | (100,209 | ) | | | (120,115 | ) | | | (65,169 | ) |
Investments of holders of non-controlling interests in the capital of a subsidiary | | | | | | 197,076 | | | | 32 | | | | 0 | |
Costs paid in advance in respect of taking out of loans | | | | | | (4,991 | ) | | | (8,556 | ) | | | (1,833 | ) |
Payment of early redemption commission with respect to the debentures | | 14.B | | | | (75,820 | ) | | | (11,202 | ) | | | 0 | |
Payment in respect of derivative financial instruments, net | | | | | | (13,933 | ) | | | 0 | | | | 0 | |
Proceeds from issuance of share capital by a subsidiary to non-controlling interests, net of issuance expenses | | 10.A.1.o, 10.A.1.p | | | | 142,334 | | | | 216,844 | | | | 76,400 | |
Proceeds from long-term loans | | | | | | 343,126 | | | | 73,236 | | | | 0 | |
Proceeds from issuance of debentures, net of issuance expenses | | 14.E | | | | 262,750 | | | | 280,874 | | | | 0 | |
Repayment of long-term loans, debentures and lease liabilities | | | | | | (562,016 | ) | | | (130,210 | ) | | | (28,235 | ) |
Short-term credit from banks and others, net | | | | | | 0 | | | | (134 | ) | | | 139 | |
Acquisition of non-controlling interests | | | | | | 0 | | | | (7,558 | ) | | | (413 | ) |
Interest paid | | | | | | (31,523 | ) | | | (24,989 | ) | | | (21,414 | ) |
Net cash provided by/(used in) financing activities | | | | | | 146,580 | | | | 255,810 | | | | (73,648 | ) |
| | | | | | | | | | | | | | | |
Increase in cash and cash equivalents | | | | | | 181,658 | | | | 126,426 | | | | 6,761 | |
Cash and cash equivalents at beginning of the year | | | | | | 286,184 | | | | 147,153 | | | | 131,123 | |
Effect of exchange rate fluctuations on balances of cash and cash equivalents | | | | | | 6,702 | | | | 12,605 | | | | 9,269 | |
Cash and cash equivalents at end of the year | | | | | | 474,544 | | | | 286,184 | | | | 147,153 | |
| | | | | | | | | | | | | | | | | | | | Non- | | | | |
| | | | | | | | | | | | | | | | | | | | controlling | | | | |
| | | | | Attributable to the owners of the Company | | | interests | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Share | | | Translation | | | Capital | | | Accumulated | | | | | | | | | | |
| | | | | Capital | | | reserve | | | reserve | | | profit | | | Total | | | | | | | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2023 | | | | | | 50,134 | | | | 1,206 | | | | 42,553 | | | | 1,504,592 | | | | 1,598,485 | | | | 697,433 | | | | 2,295,918 | |
Transactions with owners, recognised directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by and distributions to owners | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend declared and paid | | 19.D | | | | - | | | | - | | | | - | | | | (150,365 | ) | | | (150,365 | ) | | | - | | | | (150,365 | ) |
Share-based payment transactions | | | | | | - | | | | - | | | | 4,753 | | | | - | | | | 4,753 | | | | 1,386 | | | | 6,139 | |
Own shares acquired | | 19.G | | | | - | | | | - | | | | - | | | | (28,130 | ) | | | (28,130 | ) | | | - | | | | (28,130 | ) |
Total contributions by and distributions to owners | | | | | | - | | | | - | | | | 4,753 | | | | (178,495 | ) | | | (173,742 | ) | | | 1,386 | | | | (172,356 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in ownership interests in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of shares of subsidiary from holders of rights not conferring control | | 11.A.2 | | | | - | | | | - | | | | 25,502 | | | | - | | | | 25,502 | | | | 103,812 | | | | 129,314 | |
Investments from holders of non-controlling interests in equity of subsidiary | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 63,878 | | | | 63,878 | |
Total changes in ownership interests in subsidiaries | | | | | | - | | | | - | | | | 25,502 | | | | - | | | | 25,502 | | | | 167,690 | | | | 193,192 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss)/profit for the year | | | | | | - | | | | - | | | | - | | | | (235,978 | ) | | | (235,978 | ) | | | 25,030 | | | | (210,948 | ) |
Other comprehensive income for the year, net of tax | | | | | | - | | | | (4,864 | ) | | | (3,016 | ) | | | (3,078 | ) | | | (10,958 | ) | | | (24,624 | ) | | | (35,582 | ) |
Total comprehensive income for the year | | | | | | - | | | | (4,864 | ) | | | (3,016 | ) | | | (239,056 | ) | | | (246,936 | ) | | | 406 | | | | (246,530 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2023 | | | | | | 50,134 | | | | (3,658 | ) | | | 69,792 | | | | 1,087,041 | | | | 1,203,309 | | | | 866,915 | | | | 2,070,224 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2023, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | Non- | | | | |
| | | | | | | | | | | | | | | | | | | | controlling | | | | |
| | | | | Attributable to the owners of the Company | | | interests | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Share | | | Translation | | | Capital | | | Accumulated | | | | | | | | | | |
| | | | | Capital | | | reserve | | | reserve | | | profit | | | Total | | | | | | | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | | | | | | 602,450 | | | | 25,680 | | | | 25,783 | | | | 1,139,775 | | | | 1,793,688 | | | | 486,598 | | | | 2,280,286 | |
Transactions with owners, recognised directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by and distributions to owners | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash distribution to owners of the Company | | 19.F | | | | (552,316 | ) | | | - | | | | - | | | | - | | | | (552,316 | ) | | | - | | | | (552,316 | ) |
Share-based payment transactions | | | | | | - | | | | | | | | 8,502 | | | | | | | | 8,502 | | | | 2,104 | | | | 10,606 | |
Total contributions by and distributions to owners | | | | | | (552,316 | ) | | | - | | | | 8,502 | | | | - | | | | (543,814 | ) | | | 2,104 | | | | (541,710 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in ownership interests in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dilution in investment in subsidiary | | | | | | - | | | | - | | | | - | | | | 57,585 | | | | 57,585 | | | | 135,567 | | | | 193,152 | |
Acquisition of subsidiary with non-controlling interest | | | | | | - | | | | - | | | | 41 | | | | - | | | | 41 | | | | - | | | | 41 | |
Investments from holders of non-controlling interests in equity of subsidiary | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 36,725 | | | | 36,725 | |
Total changes in ownership interests in subsidiaries | | | | | | - | | | | - | | | | 41 | | | | 57,585 | | | | 57,626 | | | | 172,292 | | | | 229,918 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net profit for the year | | | | | | - | | | | - | | | | - | | | | 312,652 | | | | 312,652 | | | | 37,007 | | | | 349,659 | |
Other comprehensive income for the year, net of tax | | | | | | - | | | | (24,474 | ) | | | 8,227 | | | | (5,420 | ) | | | (21,667 | ) | | | (568 | ) | | | (22,235 | ) |
Total comprehensive income for the year | | | | | | - | | | | (24,474 | ) | | | 8,227 | | | | 307,232 | | | | 290,985 | | | | 36,439 | | | | 327,424 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 | | | | | | 50,134 | | | | 1,206 | | | | 42,553 | | | | 1,504,592 | | | | 1,598,485 | | | | 697,433 | | | | 2,295,918 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2023, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | Non- | | | | |
| | | | | | | | | | | | | | | | | | | | controlling | | | | |
| | | | | Attributable to the owners of the Company | | | interests | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Share | | | Translation | | | Capital | | | Accumulated | | | | | | | | | | |
| | | | | Capital | | | reserve | | | reserve | | | profit | | | Total | | | | | | | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2021 | | | | | | 602,450 | | | | 15,896 | | | | (11,343 | ) | | | 459,820 | | | | 1,066,823 | | | | 209,185 | | | | 1,276,008 | |
Transactions with owners, recognised directly in equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by and distributions to owners | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based payment transactions | | | | | | - | | | | - | | | | 7,371 | | | | - | | | | 7,371 | | | | 1,187 | | | | 8,558 | |
Dividends declared | | 19.D | | | | - | | | | - | | | | - | | | | (288,811 | ) | | | (288,811 | ) | | | (10,214 | ) | | | (299,025 | ) |
Total contributions by and distributions to owners | | | | | | - | | | | - | | | | 7,371 | | | | (288,811 | ) | | | (281,440 | ) | | | (9,027 | ) | | | (290,467 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in ownership interests in subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dilution in investment in subsidiary | | 11.A.7 | | | | - | | | | - | | | | - | | | | 38,443 | | | | 38,443 | | | | 103,891 | | | | 142,334 | |
Non-controlling interests in respect of business combinations | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 6,769 | | | | 6,769 | |
Investments from holders of non-controlling interests in equity of subsidiary | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 197,075 | | | | 197,075 | |
Total changes in ownership interests in subsidiaries | | | | | | - | | | | - | | | | - | | | | 38,443 | | | | 38,443 | | | | 307,735 | | | | 346,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income for the year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net profit for the year | | | | | | - | | | | - | | | | - | | | | 930,273 | | | | 930,273 | | | | (54,956 | ) | | | 875,317 | |
Other comprehensive income for the year, net of tax | | | | | | - | | | | 9,784 | | | | 29,755 | | | | 50 | | | | 39,589 | | | | 33,661 | | | | 73,250 | |
Total comprehensive income for the year | | | | | | - | | | | 9,784 | | | | 29,755 | | | | 930,323 | | | | 969,862 | | | | (21,295 | ) | | | 948,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | | | | | 602,450 | | | | 25,680 | | | | 25,783 | | | | 1,139,775 | | | | 1,793,688 | | | | 486,598 | | | | 2,280,286 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2023, 2022 and 2021
| | | | | For the year ended December 31, | |
| | | | | 2023 | | | 2022 | | | 2021 | |
| | Note | | | $ Thousands | |
| | | | | | | | | | | | |
Cash flows from operating activities | | | | | | | | | | | | |
(Loss)/Profit for the year | | | | | | (210,948 | ) | | | 349,659 | | | | 875,317 | |
Adjustments: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | 90,939 | | | | 62,876 | | | | 57,640 | |
Financing expenses, net | | 23 | | | | 26,972 | | | | 5,711 | | | | 141,361 | |
Share in losses/(profit) of associated companies, net | | 9.A.2 | | | | 200,480 | | | | (1,118,175 | ) | | | (1,250,149 | ) |
Losses related to Qoros | | 10 | | | | - | | | | - | | | | 251,483 | |
Losses related to ZIM | | 9.B.a | | | | 860 | | | | 727,650 | | | | 204 | |
Share-based payments | | | | | | (1,547 | ) | | | 18,855 | | | | 18,369 | |
Other expenses, net | | | | | | 4,461 | | | | - | | | | - | |
Income taxes | | | | | | 25,199 | | | | 37,980 | | | | 4,325 | |
| | | | | | 136,416 | | | | 84,556 | | | | 98,550 | |
Change in trade and other receivables | | | | | | (2,932 | ) | | | (28,819 | ) | | | (1,171 | ) |
Change in trade and other payables | | | | | | (9,514 | ) | | | (10,100 | ) | | | (429 | ) |
Cash generated from operating activities | | | | | | 123,970 | | | | 45,637 | | | | 96,950 | |
Dividends received from associated companies, net | | | | | | 154,672 | | | | 727,309 | | | | 143,964 | |
Income taxes paid, net | | | | | | (1,854 | ) | | | (1,565 | ) | | | (385 | ) |
Net cash provided by operating activities | | | | | | 276,788 | | | | 771,381 | | | | 240,529 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd. and subsidiaries
Consolidated Statements of Cash Flows, continued
For the years ended December 31, 2023, 2022 and 2021
| | | | | For the year ended December 31, | |
| | | | | 2023 | | | 2022 | | | 2021 | |
| | Note | | | $ Thousands | |
Cash flows from investing activities | | | | | | | | | | | | |
Short-term deposits and restricted cash, net | | | | | | 49,827 | | | | (46,266 | ) | | | 558,247 | |
Short-term collaterals deposits, net | | | | | | 29,864 | | | | (19,180 | ) | | | - | |
Investment in long-term deposits, net | | | | | | 154 | | | | 12,750 | | | | 51,692 | |
Investments in associated companies, less cash acquired | | | | | | (7,619 | ) | | | (2,932 | ) | | | (8,566 | ) |
Acquisition of subsidiary, less cash acquired | | 11.A.4 | | | | (327,108 | ) | | | - | | | | (659,169 | ) |
Acquisition of property, plant and equipment, intangible assets and payment of long-term advance deposits and prepaid expenses | | | | | | (332,117 | ) | | | (281,286 | ) | | | (239,663 | ) |
Proceeds from sales of interest in ZIM | | 9.B.a.4 | | | | - | | | | 463,549 | | | | 67,087 | |
Proceeds from distribution from associated companies | | | | | | 3,000 | | | | 4,444 | | | | 46,729 | |
Proceeds from sale of subsidiary, net of cash disposed off | | | | | | 2,000 | | | | - | | | | - | |
Proceeds from sale of other investments | | | | | | 193,698 | | | | 308,829 | | | | - | |
Purchase of other investments | | | | | | (50,000 | ) | | | (650,777 | ) | | | - | |
Long-term loan to an associate | | | | | | (23,950 | ) | | | - | | | | (5,000 | ) |
Reimbursement in respect of right-of-use asset | | | | | | - | | | | - | | | | 4,823 | |
Interest received | | | | | | 27,968 | | | | 6,082 | | | | 269 | |
Proceeds from/(payment of) transactions in derivatives, net | | | | | | 2,047 | | | | 1,349 | | | | (5,635 | ) |
Payment of financial guarantee | | 10.6 | | | | - | | | | - | | | | (16,265 | ) |
Net cash used in investing activities | | | | | | (432,236 | ) | | | (203,438 | ) | | | (205,451 | ) |
| | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | |
Repayment of long-term loans, debentures and lease liabilities | | | | | | (167,769 | ) | | | (55,762 | ) | | | (562,016 | ) |
Short-term credit from banks and others, net | | | | | | 62,187 | | | | - | | | | - | |
Proceeds from Veridis transaction | | 11.A.2 | | | | 129,181 | | | | - | | | | - | |
Proceeds from issuance of share capital by a subsidiary to non-controlling interests, net of issuance expenses | | | | | | - | | | | 193,148 | | | | 142,334 | |
Investments from holders of non-controlling interests in equity of subsidiary | | | | | | 63,878 | | | | 36,725 | | | | 197,076 | |
Tax Equity Investment | | 18.A.4.d | | | | 82,405 | | | | - | | | | - | |
Receipt of long-term loans | | | | | | 391,447 | | | | 102,331 | | | | 343,126 | |
Proceeds from/(payment of) derivative financial instruments, net | | | | | | 2,385 | | | | (923 | ) | | | (13,933 | ) |
Repurchase of own shares | | | | | | (28,130 | ) | | | - | | | | - | |
Costs paid in advance in respect of taking out of loans | | | | | | (19,508 | ) | | | (2,845 | ) | | | (4,991 | ) |
Cash distribution and dividends paid | | 19.D, 19.F | | | | (150,362 | ) | | | (740,922 | ) | | | (100,209 | ) |
Dividends paid to holders of non-controlling interests | | | | | | - | | | | - | | | | (10,214 | ) |
Payment of early redemption commission with respect to the debentures | | 15.1.B | | | | - | | | | - | | | | (75,820 | ) |
Proceeds from issuance of debentures, less issuance expenses | | 15.2 | | | | - | | | | - | | | | 262,750 | |
Interest paid | | | | | | (41,135 | ) | | | (25,428 | ) | | | (31,523 | ) |
Net cash provided by/(used in) financing activities | | | | | | 324,579 | | | | (493,676 | ) | | | 146,580 | |
| | | | | | | | | | | | | | | |
Increase in cash and cash equivalents | | | | | | 169,131 | | | | 74,267 | | | | 181,658 | |
Cash and cash equivalents at beginning of the year | | | | | | 535,171 | | | | 474,544 | | | | 286,184 | |
Effect of exchange rate fluctuations on balances of cash and cash equivalents | | | | | | (7,464 | ) | | | (13,640 | ) | | | 6,702 | |
Cash and cash equivalents at end of the year | | | | | | 696,838 | | | | 535,171 | | | | 474,544 | |
The accompanying notes are an integral part of the consolidated financial statements.
Kenon Holdings Ltd.
Notes to the consolidated financial statements
Note 1 – Financial Reporting Principles and Accounting Policies
Kenon Holdings Ltd. (the “Company” or “Kenon”) was incorporated on March 7, 2014 in the Republic of Singapore under the Singapore Companies Act. Our principal place of business is located at 1 Temasek Avenue #37-02B, Millenia Tower, Singapore 039192.
The Company is a holding company and was incorporated to receive investments spun-off from their former parent company, Israel Corporation Ltd. (“IC”). The Company serves as the holding company of several businesses (together referred to as the “Group”).
Kenon shares are traded on New York Stock Exchange (“NYSE”) and on Tel Aviv Stock Exchange (“TASE”) (NYSE and TASE: KEN).
In these consolidated financial statements -
1. Subsidiaries – Companiescompanies whose financial statements are fully consolidated with those of Kenon, directly or indirectly.
2. Associates – Companiescompanies in which Kenon has significant influence and Kenon’s investment is stated, directly or indirectly, on the equity basis.
3. Investee companies – subsidiaries and/or associated companies and/or long-term investment (Qoros).
4. Related parties – within the meaning thereof in International Accounting Standard (“IAS”) 24 Related Parties.
Note 2 – Basis of Preparation of the Financial Statements
| A. | Declaration of compliance with International Financial Reporting Standards (IFRS) |
The consolidated financial statements were prepared by management of the Group in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were approved for issuance by the Company’s Board of Directors on March 31, 2022.26, 2024.
| B. | Functional and presentation currency |
These consolidated financial statements are presented in US dollars (“$”), which is Kenon’s functional currency, and have been rounded to the nearest thousands, except where otherwise indicated. The US dollar is the currency that represents the principal economic environment in which Kenon operates.
The consolidated financial statements were prepared on the historical cost basis, with the exception of the following assets and liabilities:
| • | Deferred tax assets and liabilities |
| • | Assets and liabilities in respect of employee benefits |
| • | Investments in associated companies |
| • | Long-term investment (Qoros) |
For additional information regarding measurement of these assets and liabilities – see Note 3 SignificantMaterial Accounting Policies.
Note 2 – Basis of Preparation of the Financial Statements (Cont’d)
| D. | Use of estimates and judgment |
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of 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 accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
| 1. | Allocation of acquisition costs |
The Group makes estimates with respect to allocation of excess consideration to tangible and intangible assets and to liabilities. The Group has considered the report from a qualified external valuer to establish the appropriate valuation techniques and inputs for this assessment. The valuation technique used for measuring the fair values of the material assets: property, plant and equipment, investment in associated companies, and intangible assets is the income approach, a present value technique to convert future amounts to a single current amount using relevant discount rates. The respective discount rates are estimates and require judgment and minor changes to the discount rates could have had a significant effect on the Group’s evaluation of the transaction completion date fair values of the material assets. Refer to Note 10.A.1.i11.A.1.1, Note 11.A.5 and Note 11.A.6 for further details.
In addition, in determining the depreciation rates of the tangible, intangible assets and liabilities, the Group estimates the expected life of the asset or liability.
| 2. | Long-term investment (Qoros) |
Following the sale of half of the Group’s remaining interest in Qoros (i.e. 12%) as described in Note 9.3,10.3, as atof December 31, 2020, the Group owned a 12% interest in Qoros. The long-term investment (Qoros) was a combination of the Group’s remaining 12% interest in Qoros and the non-current portion of the put option (as described in Note 9.2)10.2). The long-term investment (Qoros) was determined using a combination of market comparison technique based on market multiples derived from the quoted prices of comparable companies adjusted for various considerations, and the binomial model. Fair value measurement of the long-term investment (Qoros) took into account the underlying asset’s price volatility.
In April 2021, Quantum entered into an agreement to sell its remaining 12% equity interest in Qoros. As a result, Kenon accounted for the fair value of the long-term investment (Qoros) based on the present value of the expected cash flows. Refer to Note 9.510.5 for further details.
3. | Recoverable amount of cash-generating unit that includes goodwill |
The calculation of the recoverable amount of cash-generating units to which goodwill balances are allocated is based, among other things, on the projected expected cash flows and discount rate. For further information, see Note 13.C and Note 13.D.
4. | Recoverable amount of cash-generating unit of investment in equity-accounted companies (ZIM) |
The carrying amounts of investments in equity-accounted companies are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the investments is estimated. For further information, see Note 9.B.a.5.
E. | Israel Hamas War (“the War”) |
On October 7, 2023, the War broke out in Israel. The War has led to consequences and restrictions that have affected the Israeli economy, which include, among other things, a decline in business activity, extensive recruitment of reservists, restrictions on gatherings in workplaces and public spaces, restrictions on the activity of the education system, which also includes a uncertainty as to the War’s impact on macroeconomic factors in Israel and on the financial position of the State of Israel, including potential adverse effects on the credit rating of the State of Israel and Israeli financial institutions.
There is a significant uncertainty as to the development of the War, its scope and duration. There is also significant uncertainty as to the impact of the War on macroeconomic and financial factors in Israel, including the situation in the Israeli capital market. Therefore, at this stage, it is not possible to assess the effect that the War will have on OPC, nor is it possible to assess the magnitude of the War’s effect on OPC and its results of operations, if any, in the short and medium term.
Note 3 – Significant- Material Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements, unless otherwise stated.
A. | First-time application of new accounting standards, amendments and interpretations |
The Group has adopted a few new standards which are effective from January 1, 2021 but they2023, including those listed below. These new standards and amendments do not have a material effect on the Group’s consolidated financial statements.
Amendments to IAS 1 and IFRS Practice Statement 2
The amendments require the disclosure of ‘material’, rather than ‘significant’, accounting policies. The amendments also provide guidance on the application of materiality to disclosure of accounting policies, assisting entities to provide useful, entity-specific accounting policy information that users need to understand other information in the financial statements.
The Group has reviewed the accounting policies and made updates to the information disclosed below to be in line with the amendments.
B. | Basis for consolidation/combination |
The Group accounts for all business combinations according to the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and asssetsassets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
The acquisition date is the date on which the Group obtains control over an acquiree. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control.
The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred less the net amount of the fair value of identifiable assets acquired less the fair value of liabilities assumed. Goodwill is initially recognized as an asset based on its cost, and is measured in succeeding periods based on its cost less accrued losses from impairment of value.
Note 3 – Significant Accounting Policies (Cont’d)
For purposes of examining impairment of value, goodwill is allocated to each of the Group’s cash‑generating units that is expected to benefit from the synergy of the business combination. Cash‑generating units to which goodwill was allocated are examined for purposes of assessment of impairment of their value every year or more frequently where there are signs indicating a possible impairment of value of the unit, as stated. Where the recoverable amount of a cash‑generating unit is less than the carrying value in the books of that cash‑generating unit, the loss from impairment of value is allocated first to reduction of the carrying value in the books of any goodwill attributed to that cash‑generating unit. Thereafter, the balance of the loss from impairment of value, if any, is allocated to other assets of the cash‑generating unit, in proportion to their carrying values in the books. A loss from impairment of value of goodwill is not reversed in subsequent periods.
If the Group pays a bargain price for the acquisition (meaning including negative goodwill), it recognizes the resulting gain in profit or loss on the acquisition date.
The Group recognizes contingent consideration at fair value at the acquisition date. The contingent consideration that meets the definition of a financial instrument that is not classified as equity will be measured at fair value through profit or loss; contingent consideration classified as equity shall not be remeasured and its subsequent settlement shall be accounted for within equity.
Note 3 - Material Accounting Policies (Cont’d)
Furthermore, goodwill is not adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination.
Costs associated with acquisitions that were incurred by the acquirer in the business combination such as: finder’s fees, advisory, legal, valuation and other professional or consulting fees are expensed in the period the services are received.
(2) Subsidiaries | Subsidiaries |
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date when control ceased. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company.
(3)(3) | Non-Controlling Interest (“NCI”) |
NCI comprises the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent company, and they include additional components such as: share-based payments that will be settled with equity instruments of the subsidiaries and options for shares of subsidiaries.
NCIs are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Measurement of non-controlling interests on the date of the business combination
Non-controlling interests, which are instruments that convey a present ownership right and that grant to their holder a share in the net assets in a case of liquidation, are measured on the date of the business combination at fair value or based on their relative share in the identified assets and liabilities of the entity acquired, on the basis of every transaction separately.
Transactions with NCI, while retaining control
Transactions with NCI while retaining control are accounted for as equity transactions. Any difference between the consideration paid or received and the change in NCI is included directly in equity.
Allocation of comprehensive income to the shareholders
Profit or loss and any part of other comprehensive income are allocated to the owners of the Group and the NCI. Total comprehensive income is allocated to the owners of the Group and the NCI even if the result is a negative balance of NCI.
Furthermore, when the holding interest in the subsidiary changes, while retaining control, the Group re-attributes the accumulated amounts that were recognized in other comprehensive income to the owners of the Group and the NCI.
Cash flows deriving from transactions with holders of NCI while retaining control are classified under “financing activities” in the statement of cash flows.
Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of thesubsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Note 3 – Significant Accounting Policies (Cont’d)
| (4)(4) | Investments in equity-accounted investees |
Associates are entities in which the Group has the ability to exercise significant influence, but not control, over the financial and operating policies. In assessing significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account.
Joint-ventures are arrangements in which the Group has joint control, whereby the Group has the rights to assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Associates and joint-venture are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group’s share of the income and expenses in profit or loss and of other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
Note 3 - Material Accounting Policies (Cont’d)
The Group’s share of post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to zero. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, after the equity investment was reduced to zero, according to its economic interest in the long-term interests, after the equity interests were reduced to zero. When the group’s share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests that, in substance, form part of the entity’s net investment in the associate, the recognition of further losses is discontinued except to the extent that the Group has an obligation to support the investee or has made payments on behalf of the investee.
(5)Loss of significant influence
The Group discontinues applying the equity method from the date it loses significant influence in an associate and it accounts for the retained investment as a financial asset, as relevant.
On the date of losing significant influence, the Group measures at fair value any retained interest it has in the former associate. The Group recognizes in profit or loss any difference between the sum of the fair value of the retained interest and any proceeds received from the partial disposal of the investment in the associate or joint venture, and the carrying amount of the investment on that date.
Amounts recognized in equity through other comprehensive income with respect to such associates are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself disposed the related assets or liabilities.
| (6) | Change in interest held in equity accounted investees while retaining significant influence
|
When the Group increases its interest in an equity accounted investee while retaining significant influence, it implements the acquisition method only with respect to the additional interest obtained whereas the previous interest remains the same.
When there is a decrease in the interest in an equity accounted investee while retaining significant influence, the Group derecognizes a proportionate part of its investment and recognizes in profit or loss a gain or loss from the sale under other income or other expenses.
Furthermore, on the same date, a proportionate part of the amounts recognized in equity through other comprehensive income with respect to the same equity accounted investee are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the associate had itself realized the same assets or liabilities.
| (7) | Intra-group transactions
|
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.
| (8) | Reorganizations under common control transactions
|
Common control transactions that involve the setup of a new group company and the combination of entities under common control are recorded using the book values of the parent company.
Note 3 – Significant Accounting Policies (Cont’d)
| (1) | Foreign currency transactions
|
Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items measured at historical cost would be reported using the exchange rate at the date of the transaction.
Foreign currency differences are generally recognized in profit or loss, except for differences relating to qualifying cash flow hedges to the extent the hedge is effective which are recognized in other comprehensive income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated into US dollars at average exchange rates over the relevant period.
Foreign operation translation differences are recognized in other comprehensive income.
When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation difference is allocated to the NCI.
When a foreign operation is disposed of such that control or significant influence is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.
Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income is reattributed to NCI.
When the Group disposes of only part of its investment in an associate that includes a foreign operation, while retaining significant influence, the proportionate part of the cumulative amount of the translation difference is reclassified to profit or loss.
Generally, foreign currency differences from a monetary item receivable from or payable to a foreign operation, including foreign operations that are subsidiaries, are recognized in profit or loss in the consolidated financial statements.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and are presented within equity in the translation reserve.
D. | Cash and Cash Equivalents
|
In the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and are subject to an insignificant risk of changes in their fair value.
Note 3 – Significant Accounting Policies (Cont’d)
| a) | Classification and measurement of financial assets and financial liabilities |
Initial recognition and measurement
The Group initially recognizes trade receivables and other investments on the date that they are originated. All other financial assets and financial liabilities are initially recognized on the date on which the Group becomes a party to the contractual provisions of the instrument. As a rule, a financial asset, other than a trade receivable without a significant financing component, or a financial liability, is initially measured at fair value with the addition, for a financial asset or a financial liability that are not presented at fair value through profit or loss, of transaction costs that can be directly attributed to the acquisition or the issuance of the financial asset or the financial liability. Trade receivables that do not contain a significant financing component are initially measured at the transaction price. Trade receivables originating in contract assets are initially measured at the carrying amount of the contract assets on the date of reclassification from contract assets to receivables.
Financial assets - classification and subsequent measurement
On initial recognition, financial assets are classified as measured at amortized cost; fair value through other comprehensive income;income (“FVOCI”); or fair value through profit or loss. As at reporting date, the Group only holds financial assets measured at amortized cost and fair value through profit or loss.loss (“FVTPL”).
Financial assets are not reclassified in subsequent periods, unless, and only to the extent that the Group changes its business model for the management of financial assets, in which case the affected financial assets are reclassified at the beginning of the reporting period following the change in the business model.
A financial asset is measured at amortized cost if it meets the two following cumulative conditions and is not designated for measurement at fair value through profit or loss:FVTPL:
| - | The objective of the entity'sentity’s business model is to hold the financial asset to collect the contractual cash flows; and |
| - | The contractual terms of the financial asset create entitlement on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
| - | It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and |
| - | Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
The Group has balances of trade and other receivables and deposits that are held under a business model the objective of which is collection of the contractual cash flows. The contractual cash flows in respect of such financial assets comprise solely payments of principal and interest that reflects consideration for the time-value of the money and the credit risk. Accordingly, such financial assets are measured at amortized cost.
Note 3 - Material Accounting Policies (Cont’d)
In subsequent periods, thesefinancial assets at amortized cost are measured at amortized cost, using the effective interest method and net of impairment losses. Interest income, currency exchange gains or losses and impairment are recognized in profit or loss. Any gains or losses on derecognition are also recognized in profit or loss.
Debt investments measured at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
All financial assets not classified as measured at amortisedamortized cost or fair value through other comprehensive incomeFVOCI as described above are measured at fair value through profit or loss.FVTPL. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortisedamortized cost or at fair value through other comprehensive incomeFVOCI as at fair value through profit or lossFVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. In subsequent periods, these assets are measured at fair value. Net gains and losses are recognized in profit or loss.
Financial assets: Business model assessment
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
| • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;
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• | how the performance of the portfolio is evaluated and reported to the Group’s management; |
• | the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; |
• | how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and |
• | the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. |
Note 3 – Significant Accounting Policies (Cont’d)
• how the performance of the portfolio is evaluated and reported to the Group’s management;
• the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
• how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and
• the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.
Non-derivative financial assets: Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
•contingent events that would change the amount or timing of cash flows; •terms that may adjust the contractual coupon rate, including variable rate features;
•prepayment and extension features; and
• terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).
| contingent events that would change the amount or timing of cash flows; |
• | terms that may adjust the contractual coupon rate, including variable rate features; |
• | prepayment and extension features; and |
• | terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features). |
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a significant discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
Note 3 - Material Accounting Policies (Cont’d)
Derecognition of financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
If the Group enters into transactions whereby it transfers assets recognisedrecognized in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized.
Financial liabilities –- Initial classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or at fair value through profit or loss.FVTPL. Financial liabilities are classified as measured at fair value through profit or lossFVTPL if it is held for trading or it is designated as such on initial recognition, and are measured at fair value, and any net gains and losses, including any interest expenses, are recognized in profit or loss. Other financial liabilities are initially measured at fair value less directly attributable transaction costs. They are measured at amortized cost in subsequent periods, using the effective interest method. Interest expenses and currency exchange gains and losses are recognized in profit or loss. Any gains or losses on derecognition are also recognized in profit or loss.
Note 3 – Significant Accounting Policies (Cont’d)
Derecognition of financial liabilities
Financial liabilities are derecognized when the contractual obligation of the Group expires or when it is discharged or canceled. Additionally, a significant amendment of the terms of an existing financial liability, or an exchange of debt instruments having substantially different terms, between an existing borrower and lender, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value.
The difference between the carrying amount of the extinguished financial liability and the consideration paid (including any other non-cash assets transferred or liabilities assumed), is recognized in profit or loss.
Offset
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Financial assets, contract assets and receivables on a lease
The Group creates a provision for expected credit losses in respect of:
- | -
| Contract assets (as defined in IFRS 15); |
- | -
| Financial assets measured at amortized cost; |
- | -Debt investments;
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- | Lease receivables. |
Simplified approach
The Group applies the simplified approach to provide for ECLsexpected credit losses (“ECLs”) for all trade receivables (including lease receivables) and contract assets. The simplified approach requires the loss allowance to be measured at an amount equal to lifetime ECLs.
General approach
The Group applies the general approach to provide for ECLs on all other financial instruments and financial guarantees. Under the general approach, the loss allowance is measured at an amount equal to the 12-month ECLs at initial recognition.
At each reporting date, the Group assess whether the credit risk of a financial instrument has increased significantly since initial recognition. When credit risk has increased significantly since initial recognition, loss allowance is measured at an amount equal to lifetime ECLs.
Note 3 - Material Accounting Policies (Cont’d)
In assessing whether the credit risk of a financial asset has significantly increased since initial recognition and in assessing expected credit losses, the Group takes into consideration information that is reasonable and verifiable, relevant and attainable at no excessive cost or effort. Such information comprises quantitative and qualitative information, as well as an analysis, based on the past experience of the Group and the reported credit assessment, and contains forward-looking information.
If credit risk has not increased significantly since initial recognition or if the credit quality of the financial instruments improves such that there is no longer a significant increase in credit risk since initial recognition, loss allowance is measured at an amount equal to 12-month ECLs.
The Group assumes that the credit risk of a financial asset has increased significantly since initial recognition whenever contractual payments are more than 30 days in arrears.
The Group considers a financial asset to be in default if:
| - | It is not probable that the borrower will fully meet its payment obligations to the Company, and the Company has no right to perform actions such as the realization of collaterals (if any); or |
| - | The contractual payments in respect of the financial asset are more than 90 days in arrears. |
The Group considers a contract asset to be in default when the customer is unlikely to pay its contractual obligations to the Group in full, without recourse by the Group to actions such as realizing security.
The Group considers a debt instrument as having a low credit risk if its credit risk coincides with the global structured definition of “investment rating”.
Note 3 – Significant Accounting Policies (Cont’d)
The credit lossesECLs expected over the life of the instrument are expected credit lossesECLs arising from all potential default events throughout the life of the financial instrument.
Expected credit lossesECLs in a 12-month period are the portion of the expected credit lossesECLs arising from potential default events during the period of 12 months from the reporting date.
The maximum period that is taken into account in assessing the expected credit lossesECLs is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of expected credit lossesECLs
Expected credit lossesECLs represent a probability-weighted estimate of credit losses. Credit losses are measured at the present value of the difference between the cash flows to which the Group is entitled under the contract and the cash flows that the Group expects to receive.
Expected credit losses are discounted at the effective interest rate of the financial asset.
The Group’s credit risk exposure for trade receivables and contract asset are set out in Note 28 Financial Instruments.
Financial assets impaired by credit risk
At each reporting date, the Group assesses whether financial assets that are measured at amortized cost and debt instruments that are measured at fair value through other comprehensive incomeFVOCI have become impaired by credit risk. A financial asset is impaired by credit risk upon the occurrence of one or more of the events (i.e. significant financial difficulty of the debtor) that adversely affect the future cash flows estimated for such financial asset.
Presentation of impairment and allowance for ECLs in the statement of financial position
A provision for expected credit lossesECLs in respect of a financial asset that is measured at amortized cost is presented as a reduction of the gross carrying amount of the financial asset.
Note 3 - Material Accounting Policies (Cont’d)
For debt investments at FVOCI, loss allowances are charged to profit or loss and recognized in OCI. Loss allowances are presented under financing expenses.
Impairment losses in respect of trade and other receivables, including contract assets and lease receivables, are presented separately in the statements of profit or loss and other comprehensive income. Impairment losses in respect of other financial assets are presented under financing expenses.
Derivative financial instruments, including hedge accounting
The Group holds derivative financial instruments.
Derivatives are recognized initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in profit or loss.
The Group designates certain derivative financial instruments as hedging instruments in qualifying hedging relationships. At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Hedge accounting
As of December 31, 20212023 and 2020,2022, hedge relationships designated for hedge accounting under IAS 39 qualify for hedge accounting under IFRS 9, and are therefore deemed as continuing hedge relationships.
Hedges directly affected by interest rate benchmark reform
Phase 1 amendments: Prior to interest rate benchmark reform - when there is uncertainty arising from Interest rate benchmark reform
For the purpose of evaluating whether there is an economic relationship between the hedged item(s) and the hedging instrument(s), the Group assumes that the benchmark interest rate is not altered as a result of interest rate benchmark reform. For a cash flow hedge of a forecast transaction, the Group assumes that the benchmark interest rate will not be altered as a result of interest rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. In determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur, the Group assumes that the interest rate benchmark cash flows designated as a hedge will not be altered as a result of interest rate benchmark reform.
The Group will cease to apply the specific policy for assessing the economic relationship between the hedged item and the hedging instrument (i) to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the contractual cash flows of the respective item or instrument or (ii) when the hedging relationship is discontinued. For its highly probable assessment of the hedged item, the Group will no longer apply the specific policy when the uncertainty arising from interest rate benchmark reform about the timing and the amount of the interest rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued.
Note 3 - Material Accounting Policies (Cont’d)
Phase 2 amendments: Replacement of benchmark interest rates - when there is no longer uncertainty arising from interest rate benchmark reform
When the basis for determining the contractual cash flows of the hedged item or the hedging instrument changes as a result of interest rate benchmark reform and therefore there is no longer uncertainty arising about the cash flows of the hedged item or the hedging instrument, the Group amends the hedge documentation of that hedging relationship to reflect the change(s) required by interest rate benchmark reform. A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if the following conditions are met:
| - | the change is necessary as a direct consequence of the reform; and |
| - | the new basis for determining the contractual cash flows is economically equivalent to the previous basis - i.e. the basis immediately before the change. |
For this purpose, the hedge designation is amended only to make one or more of the following changes:
| - | designating an alternative benchmark rate as the hedged risk; |
| - | updating the description of hedged item, including the description of the designated portion of the cash flows or fair value being hedged; or |
| - | updating the description of the hedging instrument. |
The Group amends the description of the hedging instrument only if the following conditions are met:
| - | it makes a change required by interest rate benchmark reform by using an approach other than changing the basis for determining the contractual cash flows of the hedging instrument; |
| - | it chosen approach is economically equivalent to changing the basis for determining the contractual cash flows of the original hedging instrument; and |
| - | the original hedging instrument is not derecognized |
The Group also amends the formal hedge documentation by the end of the reporting period during which a change required by interest rate benchmark reform is made to the hedged risk, hedged item or hedging instrument. These amendments in the formal hedge documentation do not constitute the discontinuation of the hedging relationship or the designation of a new hedging relationship.
If changes are made in addition to those changes required by interest rate benchmark reform described above, then the Group first considers whether those additional changes result in the discontinuation of the hedge accounting relationship. If the additional changes do not result in discontinuation of the hedge accounting relationship, then the Group amends the formal hedge documentation for changes required by interest rate benchmark reform as mentioned above.
When the interest rate benchmark on which the hedged future cash flows had been based is changed as required by interest rate benchmark reform, for the purpose of determining whether the hedged future cash flows are expected to occur, the Group deems that the hedging reserve recognized in OCI for that hedging relationship is based on the alternative benchmark rate on which the hedged future cash flows will be based.
Cash flow hedges
The Group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI and accumulated in the hedging reservereserve. The effective portion of changes in equity.the fair value of the derivative that is recognized in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Group designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts (‘forward points’) is separately accounted for as a cost of hedging and recognized in a cost of hedging reserve within equity. When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in equitythe hedging reserve and the cost of hedging reserve is retainedincluded directly in OCIthe initial cost of the non-financial item when it is recognized.
Note 3 - Material Accounting Policies (Cont’d)
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged item affectsexpected future cash flows affect profit or loss.
If the hedging instrumenthedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve and the cost of hedging reserve remains in equity until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item’s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the forecast transaction ishedged future cash flows are no longer expected to occur, then the amountamounts that have been accumulated in equity isthe hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
Note 3 – Significant Accounting Policies (Cont’d)
Financial guarantees
The Group irrevocably elects on a contract by contract basis, whether to account for a financial guarantee in accordance with IFRS 9 or IFRS 4.9.
The Group considers a financial guarantee to be in default when the debtor of the loan is unlikely to pay its credit obligations to the creditor.
When the Group elects to account for financial guarantees in accordance with IFRS 9, they are initially measured at fair value. Subsequently, they are measured at the higher of the loss allowance determined in accordance with IFRS 9 and the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15.
When the Group elects to account for financial guarantees in accordance with IFRS 4, a provision is measured in accordance with IAS 37 when the financial guarantees become probable of being exercised.
| F.D. | Property, plant and equipment, net |
| (1) | Recognition and measurement |
Items of property, plant and equipment comprise mainly power station structures, power distribution facilities and related offices. These items are measured at historical cost less accumulated depreciation and accumulated impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
• | •
| The cost of materials and direct labor; |
• | •
| Any other costs directly attributable to bringing the assets to a working condition for their intended use; |
• | •
| Spare parts, servicing equipment and stand-by equipment; |
• | • | When the Group has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and |
• | •
| Capitalized borrowing costs. |
If significant parts of an item of property, plant and equipment items have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss in the year the asset is derecognized.
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group, and its cost can be measured reliably.
Note 3 - Material Accounting Policies (Cont’d)
Depreciation is calculated to reduce the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Leasehold improvements are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Diesel oil and spare parts are expensed off when they are used or consumed. Depreciation methods, useful lives and residual values are reviewed by management of the Group at each reporting date and adjusted if appropriate.
The following useful lives shown on an average basis are applied across the Group:
| | Years | |
Roads, buildings and leasehold improvementsland (*) | | 323 – 30
|
Facilities, machinery and equipment
| 5 – 30
|
Wind turbinesPower plants
| | 3523 – 40
| |
ComputersMaintenance work
| | 31.5 – 15 years
| |
Office furniture and equipmentBack up diesel fuel
| 3 – 16
|
Othersby consumption
| 5 – 15
|
* The shorter of the lease term and useful lifeFreehold land is not depreciated.
Note 3 – Significant Accounting Policies (Cont’d)
| G.E.
| Intangible assets, net |
| (1) | Recognition and measurement |
| |
Goodwill | Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment; and any impairment loss is allocated to the carrying amount of the equity investee as a whole. |
Customer relationships
| Intangible assets acquired as part of a business combination and are recognized separately from goodwill if the assets are separable or arise from contractual or other legal rights and their fair value can be measured reliably. Customer relationships are measured at cost less accumulated amortization and any accumulated impairment losses.
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| |
Other intangible assets | Other intangible assets, including licenses, patents and trademarks, which are acquired by the Group having finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses. |
Amortization is calculated to charge to expense the cost of intangible assets less their estimated residual values using the straight-line method over their useful lives, and is generally recognized in profit or loss. Goodwill is not amortized.
The estimated useful lives for current and comparative year are as follows:
| • | Power purchase agreement | 10 years |
Amortization methods and useful lives are reviewed by management of the Group at each reporting date and adjusted if appropriate.
| (3) | Subsequent expenditure |
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill is expensed as incurred.
H. | Service Concession arrangements
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The Group has examined the characteristics, conditions and terms currently in effect under its electric energy distribution license and the guidelines established by IFRIC 12. On the basis of such analysis, the Group concluded that its license is outside the scope of IFRIC 12, primarily because the grantor does not control any significant residual interest in the infrastructure at the end of the term of the arrangement and the possibility of renewal.
The Group accounts for the assets acquired or constructed in connection with the Concessions in accordance with IAS 16 Property, plant and equipment.
Note 3 – Significant- Material Accounting Policies (Cont’d)
Definition of a lease
The Group assesses whether a contract is or contains a lease by assessing if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. For lease contracts that include components that are not lease components, such as services or maintenance which relate to the lease component, the Group elected to treat the lease component separately.
As a lessee
The Group recognizes right-of-use assets and lease liabilities for most leases –- i.e. these leases are on-balance sheet. However, the Group has elected not to recognize right-of-use assets and lease liabilities for some leases of low-value assets. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognized.
Depreciation of right-of-use asset
Subsequent to the commencement date of the lease, a right-of-use asset is measured using the cost method, less accumulated depreciation and accrued losses from decline in value and is adjusted in respect of re‑measurements of the liability in respect of the lease. The depreciation is calculated on the “straight‑line” basis over the useful life or the contractual lease period –- whichever is shorter.
| | Years | |
Land | | 19 – 49 |
Pressure regulation and management system facility
| 24
|
OfficesOthers
| | 3 – 912 - 16
| |
Specific and non-specific borrowing costs are capitalized to qualifying assets throughout the period required for completion and construction until they are ready for their intended use. Non-specific borrowing costs are capitalized in the same manner to the same investment in qualifying assets, or portion thereof, which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit sources which were not specifically capitalized. Foreign currency differences from credit in foreign currency are capitalized if they are considered an adjustment of interest costs. Other borrowing costs are expensed as incurred. Income earned on the temporary investment of specific credit received for investing in a qualifying asset is deducted from the borrowing costs eligible for capitalization.
Note 3 – Significant Accounting Policies (Cont’d)
K.G. | Impairment of non-financial assets |
At each reporting date, management of the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment, and whenever impairment indicators exist.
For impairment testing, assets are grouped together into smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Goodwill arising from a business combination is allocated to CGUs or group of CGUs that are expected to benefit from these synergies of the combination.
Note 3 - Material Accounting Policies (Cont’d)
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, 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 or CGU.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an assessment is performed at each reporting date for any indications that these losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and 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.
| (1) | Short-term employee benefits
|
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.
| (2) | Bonus plans transactions
|
The Group’s senior executives receive remuneration in the form of share-appreciations rights, which can only be settled in cash (cash-settled transactions). The cost of cash-settled transactions is measured initially at the grant date and is recognized as an expense with a corresponding increase in liabilities over the period that the employees become unconditionally entitled to payment. With respect to grants made to senior executives of OPC Energy Ltd (“OPC”), this benefit is calculated by determining the present value of the settlement (execution) price set forth in the plan. The liability is re-measured at each reporting date and at the settlement date based on the formulas described above. Any changes in the liability are recognized as operating expenses in profit or loss.
Severance pay is charged to income statement when there is a clear obligation to pay termination of employees before they reach the customary age of retirement according to a formal, detailed plan, without any reasonable chance of cancellation. The benefits given to employees upon voluntary retirement are charged when the Group proposes a plan to the employees encouraging voluntary retirement, it is expected that the proposal will be accepted and the number of employee acceptances can be estimated reliably.
The calculation of defined benefit obligation is performed at the end of each reporting period by a qualified actuary using the projected unit credit method. Remeasurements of the defined benefit liability, which comprise actuarial gains and losses and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI. Interest expense and other expenses related to defined benefit plan are recognized in profit or loss.
Note 3 – Significant Accounting Policies (Cont’d)
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
| (5) | Share-based compensation plans
|
Qualifying employees are awarded grants of the Group’s shares under the Group’s 2014 Share Incentive Plan (“Share Incentive Plan”). The fair value of the grants are recognized as an employee compensation expense, with a corresponding increase in equity over the service period – the period that the employee must remain employed to receive the benefit of the award. At each balance sheet date, the Group revises its estimates of the number of grants that are expected to vest. It recognises the impact of the revision of original estimates in employee expenses and in a corresponding adjustment to equity over the remaining vesting period.
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of 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.
The Group recognizes revenue when the customer obtains control over the promised goods or services. The revenue is measured according to the amount of the consideration to which the Group expects to be entitled in exchange for the goods or services promised to the customer.
Revenues from the sale of electricity and steam are recognized in the period in which the sale takes place in accordance with the price set in the electricity sale agreements and the quantities of electricity supplied. Furthermore, the Group’s revenues include revenues from the provision of asset management services to power plants and recognized in accordance to the service provision rate.
When setting the transaction price, the Group takes into consideration fixed amounts and amounts that may vary as a result of discounts, credits, price concessions, penalties, claims and disputes and contract modifications that the consideration in their respect has not yet been agreed by the parties.
The Group includes variable consideration, or part of it, in the transaction price only when it is highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been subsequently resolved. At the end of each reporting period and if necessary, the Group revises the amount of the variable consideration included in the transaction price.
The Group recognizes compensation paid to customers in respect of delays in the commercial operation date of the power plant on payment date within long-term prepaid expenses, and amortizes them throughout the term of the contract, from the date of commercial operation of the power plant, against a decrease in revenue from contracts with customers.
When another party is involved in providing goods or services to a customer, the Group shall determine whether the nature of its promise is a performance obligation to provide the specified or services itself (i.e., the Group is a principal) or to arrange for those services to be provided by the other party (i.e., the Group is an agent), and therefore recognizes the revenue as the net fee amount.
The Group is a principal if it controls the specified service before that service is transferred to a customer. Indicators that the Group controls the specified service before it is transferred to the customer include the following: The Group is primarily responsible for fulfilling the promise to provide the specified service; the entity bears a risk before the specified service has been transferred to a customer; and the Group has discretion in establishing the price for the specified service.
Note 3 – Significant- Material Accounting Policies (Cont’d)
Government grants related to distribution projects are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recorded at the value of the grant received and any difference between this value and the actual construction cost is recognized in profit or loss of the year in which the asset is released.
Government grants related to distribution assets are deducted from the related assets. They are recognized in statement of income on a systematic basic over the useful life of the related asset reducing the depreciation expense.
P. | Deposits received from consumers
|
Deposits received from consumers, plus interest accrued and less any outstanding debt for past services, are refundable to the users when they cease using the electric energy service rendered by the Group. The Group has classified these deposits as current liabilities since the Group does not have legal rights to defer these payments in a period that exceed a year. However, the Group does not anticipate making significant payments in the next year.
Costs from energy purchases either acquired in the spot market or from contracts with suppliers are recorded on an accrual basis according to the energy actually delivered. Purchases of electric energy, including those which have not yet been billed as of the reporting date, are recorded based on estimates of the energy supplied at the prices prevailing in the spot market or agreed-upon in the respective purchase agreements, as the case may be.
R. | Financing income and expenses
|
Financing income includes income from interest on amounts invested and gains from exchange rate differences. Interest income is recognized as accrued, using the effective interest method.
Financing expenses include interest on loans received, commitment fees on borrowings, and changes in the fair value of derivatives financial instruments presented at fair value through profit or loss, and exchange rate losses. Borrowing costs, which are not capitalized, are recorded in the income statement using the effective interest method.
In the statements of cash flows, interest received is presented as part of cash flows from investing activities. Dividends received are presented as part of cash flows from operating activities. Interest paid and dividends paid are presented as part of cash flows from financing activities. Accordingly, financing costs that were capitalized to qualifying assets are presented together with interest paid as part of cash flows from financing activities. Gains and losses from exchange rate differences and gains and losses from derivative financial instruments are reported on a net basis as financing income or expenses, based on the fluctuations on the rate of exchange and their position (net gain or loss).
The Group’s finance income and finance costs include:
| • | The net gain or loss on the disposal of held-for-sale financial assets;
|
| • | The net gain or loss on financial assets at fair value through profit or loss;
|
| • | The foreign currency gain or loss on financial assets and financial liabilities;
|
| • | The fair value loss on contingent consideration classified as financial liability;
|
| • | Impairment losses recognized on financial assets (other than trade receivables);
|
| • | The net gain or loss on hedging instruments that are recognized in profit or loss; and
|
| • | The reclassification of net gains previously recognized in OCI.
|
Interest income or expense is recognized using the effective interest method.
Note 3 – Significant Accounting Policies (Cont’d)
Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
(ii) Deferred tax
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; |
| • | Temporary differences related to investments in subsidiaries and associates where the Group is able to control the timing of the reversal of the temporary differences and it is not probable that they will reverse it in the foreseeable future; and |
| • | Taxable temporary differences arising on the initial recognition of goodwill. |
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. 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; such reductions are reversed when the probability of future taxable profit improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
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, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Management of the Group regularly reviews its deferred tax assets for recoverability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income, projected future pre-tax and taxable income and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified.
Management believes the Group’s tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The Group believes that its liabilities for unrecognized tax benefits, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows.
(iii) Uncertain tax positions
A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will have to use its economic resources to pay the obligation.
Note 3 – Significant- Material Accounting Policies (Cont’d)
T.J. | Earnings perAgreements with the tax equity partner
|
Government grants related to distribution projects are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.
CPV Group entered into an agreement with an entity that has a federal tax liability in the USA (hereinafter - the “Tax Equity Partner”) for the purpose of financing the construction and operation of a photovoltaic project in the USA within a partnership owned and controlled by the Group (hereinafter - the “Project”). The project’s tax benefits include an Investment Tax Credit (“ITC”), and a proportionate share in the taxable income of the partnership (hereinafter - the “Tax Benefits”).
Future amounts that will be paid to the Tax Equity Partner out of the free cash flow for distribution constitute a financial liability, which is measured using an amortized cost model in accordance with the effective interest method. The tax credit is accounted for as a government grant, which is related to the acquisition of assets in accordance with the provisions of IAS 20. The Group opted to present the tax credit as a deferred income, under the other long-term liabilities line item, which will be amortized on a straight line basis over the useful life of the photovoltaic facilities. The amounts attributed to the Tax Equity Partner’s right to receive a proportionate share of the taxable income of the partnership are recognized as a non-financial liability, which is carried to profit and loss over a period of 5 years. Refer to Note 8, Note 16 and Note 18.4.d further information.
K. | Operating segment and geographic information |
The Group presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings per share are calculated by dividing income or loss allocable to the Group’s ordinary equity holders by the weighted-average number of ordinary shares outstanding during the period. The diluted earnings per share are determined by adjusting the income or loss allocable to ordinary equity holders and the weighted-average number of ordinary shares outstanding for the effect of all potentially dilutive ordinary shares including options for shares granted to employees.
U. | Share capital – ordinary shares
|
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity.
V.
| Discontinued operations
|
A discontinued operation is a component of the Group´s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
| •
| Represents a separate major line of business or geographic area of operations,
|
| • | Is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or
|
| •
| Is a subsidiary acquired exclusively with a view to re-sell.
|
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.
The changes in each cash flow based on operating, investing and financing activities are reported in Note 25 Discontinued Operations.
W.
| Operating segment and geographic information
|
The Company'sCompany’s CEO and CFO are considered to be the Group'sGroup’s chief operating decision maker ("CODM"(“CODM”). As atof December 31, 2021,2023, based on the internal financial information provided to the CODM, the Group has determined that it has fourthree reportable segments, which are OPC Israel,Power Plants, CPV Group, ZIM and Quantum.ZIM. These segments are based on the different services offered in different geographical locations and also based on how they are managed. Comparative information has been restated.
The following summary describes the Group’s reportable segments:
| 1. | OPC IsraelPower Plants – OPC IsraelPower Plants Ltd. (“OPC Israel”Power Plants”) (formerly OPC Israel Energy Ltd.) is a wholly owned subsidiary of OPC Energy Ltd. (“OPC”), which generates and supply electricity and energy in Israel. |
| 2. | CPV Group – CPV Group LP (“CPV Group”) is a limited partnership owned by OPC, which generates and supply electricity and energy in the United States. |
| 3. | ZIM – ZIM Integrated Shipping Services, Ltd., an associated company, is an Israeli global container shipping company. |
| 4. | Quantum – Quantum (2007) LLC is a wholly owned subsidiary of Kenon which holds Kenon’s interest in Qoros Automotive Co. Ltd. (“Qoros”). Qoros is a China-based automotive company that is jointly-owned by Quantum together with Baoneng Group and Wuhu Chery Automobile Investment Co., Ltd., (“Wuhu Chery”).
|
In addition to the segments detailed above, the Group has other activities, such as investment holding categorized as Others.
TheApart from ZIM, the CODM evaluates the operating segments performance based on Adjusted EBITDA. Adjusted EBITDA is defined as the net income (loss) excluding depreciation and amortization, financing income, financing expenses, income taxes and other items.
The CODM evaluates segment assets based on total assets and segment liabilities based on total liabilities.
The CODM evaluates the operating segment performance of ZIM based on share of results and dividends received.
The accounting policies used in the determination of the segment amounts are the same as those used in the preparation of the Group'sGroup’s consolidated financial statements, Inter-segment pricing is determined based on transaction prices occurring in the ordinary course of business.
In determining the information to be presented on a geographical basis, revenue is based on the geographic location of the customer and non-current assets are based on the geographic location of the assets.
Note 3 – Significant- Material Accounting Policies (Cont’d)
Inventories are measured at the lower of cost or net realizable value. The cost of raw material inventories is determined using the first in, first out (FIFO) method. The cost of inventories of finished goods is determined on the basis of average cost, including materials, labor and the attributable share of production overheads, based on normal capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs required for the sale.
Y. | Transactions with controlling shareholders
|
Assets, liabilities and benefits with respect to which a transaction is executed with the controlling shareholders are measured at fair value on the transaction date. The Group records the difference between the fair value and the consideration in equity.
Z.
| New standards and interpretations not yet adopted |
A number of new standards andand-- amendments to standards and interpretations are effective for annual periods beginning after January 1, 20212023 and have not been applied in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements:
| -a) | Classification of Liabilities as Current or Non-current (Amendments to IAS 1), |
| -b) | Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) |
| c) | Lease Liability in a Sale or Contribution of Assets between an Investor and its Associate or Joint VentureLeaseback (Amendments to IFRS 10 and16) |
| d) | Lack of Exchangeability (Amendments to IAS 28).21) |
Note 4 – Determination of Fair Value
| A. | Derivatives and Long-term investment (Qoros) |
See Note 28 Financial Instruments.
| B. | Non-derivative financial liabilities |
Non-derivative financial liabilities are measured at their respective fair values, at initial recognition and for disclosure purposes, at each reporting date. Fair value for disclosure purposes, is determined based on the quoted trading price in the market for traded debentures, whereas for non-traded loans, debentures and other financial liabilities is determined by discounting the future cash flows in respect of the principal and interest component using the market interest rate as atof the date of the report.
C. | Fair value of equity-accounted investments (ZIM) |
The fair value of equity-accounted investments may be accounted for based on:
| 1. | the investment as a whole; or |
| 2. | each individual share making up the investment. |
In determining the fair value of equity-accounted investments, the Group has elected to account for as an individual share making up the investment and that no premium is added to the fair value of equity-accounted investments.
Note 5 – Cash and Cash Equivalents
| | As at December 31, | | | As at December 31, | |
| | 2021 | | | 2020 | | | 2023 | | | 2022 | |
| | $ Thousands | | | $ Thousands | |
Cash in banks | | 425,017 | | 255,750 | | |
Cash and cash equivalents in banks | | | 537,478 | | 361,580 | |
Time deposits | | | 49,527 | | | 30,434 | | | | 159,360 | | | 173,591 | |
| | | 474,544 | | | 286,184 | | | | 696,838 | | | 535,171 | |
The Group held cash and cash equivalents which are of investment grade based on Standard and Poor’s Ratings.
Note 6 – Short-Term Deposits and Restricted Cash
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Short-term deposits with bank and others | | | - | | | | 35,662 | |
Short-term restricted cash | | | 532 | | | | 10,328 | |
| | | 532 | | | | 45,990 | |
The Group held short-term deposits and restricted cash which are of investment grade based on Standard and Poor’s Ratings.
Note 7 – Other Investments
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Debt investments - at FVOCI | | | 215,797 | | | | 344,780 | |
The Group held debt investments at FVOCI which are of investment grade based on Standard and Poor’s Ratings and have stated interest rates of 0.25% to 7.625% (2022: 0.26% to 5.94%) with an average maturity of 2 years (2022: 2 years). These debt investments are expected to be realized within the next 12 months.
Information about the Group’s exposure to credit and market risks, and fair value measurement, is included in Note 28 Financial Instruments.
Note 8 – Other Current Assets
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Short-term deposits and restricted cash (1) | | | 229 | | | | 564,247 | |
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Advances to suppliers | | | - | | | | 1,219 | |
Prepaid expenses | | | 12,909 | | | | 10,004 | |
Input tax receivable | | | 8,291 | | | | 4,660 | |
Grant receivable (1) | | | 74,522 | | | | - | |
Deposits in connection with projects under construction (2) | | | 3,755 | | | | 35,475 | |
Others | | | 12,226 | | | | 7,598 | |
| | | 111,703 | | | | 58,956 | |
| (1) | A significant portion ofSee Note 18.A.4.d for more information.
|
| (2) | Collateral provided to secure a hedging agreement in CPV Valley amounting to $20 million and collaterals provided in connection with renewable energy projects under development in the balanceUnited States amounting to $15 million in 2020 was used to pay for2022 were released during the acquisition of CPV in January 2021. For further details, refer to Note 10.a.1.i.year. |
Note 7 – Other Current Assets
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Advances to suppliers | | | 459 | | | | 876 | |
Inventories | | | 1,706 | | | | 0 | |
Prepaid expenses | | | 6,639 | | | | 4,061 | |
Government institutions | | | 5,029 | | | | 3,192 | |
Indemnification asset (1) | | | 9,047 | | | | 9,047 | |
Deposits in connection with projects under construction | | | 16,398 | | | | 0 | |
Others | | | 4,101 | | | | 4,119 | |
| | | 43,379 | | | | 21,295 | |
| (1) | Relates to compensation receivable from OPC Hadera contractor as a result of the delay in the construction of the Hadera Power Plant. Please refer to Note 17.A.f for further details.
|
Note 89 – Investment in Associated Companies
A. | Condensed information regarding significant associated companies |
1. | Condensed financial information with respect to the statement of financial position |
| | | | | | CPV | | CPV | | CPV | | CPV | | CPV | | CPV | | | | | CPV | | CPV | | CPV | | CPV | | CPV | | CPV | |
| | ZIM | | Fairview | | Maryland | | Shore | | Towantic | | Valley | | Three Rivers | | | ZIM | | Fairview | | Maryland | | Shore | | Towantic | | Valley | | Three Rivers | |
| | As at December 31, | | | As at December 31, | |
| | 2021 | | 2020 | | 2021 | | 2021 | | 2021 | | 2021 | | 2021 | | 2021 | | | 2023 | | 2022 | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| | $ Thousands | | | $ Thousands | |
Principal place of business | | International | | US | | US | | US | | US | | US | | US | | | International | | US | | US | | US | | US | | US | | US | |
Proportion of ownership interest | | 26% | | | 32% | | | 25% | | | 25% | | | 37.5% | | | 26% | | | 50% | | | 10% | | | | 21% | | | | 21% | | | | 25% | | | | 25% | | | 25% | | | | 25% | | | | 37.5% | | | | 37.5% | | | | 26% | | | | 26% | | | 50% | | | | 50% | | | | 10% | | | | 10% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets | | 5,084,865 | | 1,201,628 | | 107,380 | | 26,649 | | 45,538 | | 38,558 | | 35,783 | | 2,997 | | | 2,571,400 | | 4,271,600 | | 44,500 | | 98,942 | | 46,586 | | 73,985 | | 54,014 | | 92,808 | | 74,591 | | 86,698 | | 48,015 | | 59,191 | | 52,425 | | 32,626 | |
Non-current assets | | 4,756,973 | | 1,622,613 | | 986,321 | | 669,668 | | 1,039,153 | | 952,997 | | 705,501 | | 949,385 | | | 5,774,600 | | 7,353,700 | | 911,763 | | 938,869 | | 650,720 | | 654,720 | | 935,750 | | 983,576 | | 880,572 | | 936,268 | | 673,339 | | 678,540 | | 1,393,984 | | 1,338,392 | |
Current liabilities | | (2,756,595 | ) | | (1,151,510 | ) | | (136,136 | ) | | (37,067 | ) | | (7,904 | ) | | (124,247 | ) | | (85,176 | ) | | (20,921 | ) | | (2,518,100 | ) | | (2,662,200 | ) | | (64,909 | ) | | (166,468 | ) | | (64,155 | ) | | (73,883 | ) | | (64,360 | ) | | (53,619 | ) | | (201,226 | ) | | (133,746 | ) | | (105,317 | ) | | (542,176 | ) | | (120,546 | ) | | (47,939 | ) |
Non-current liabilities | | | (2,485,714 | ) | | | (1,398,276 | ) | | | (591,169 | ) | | | (356,838 | ) | | | (727,037 | ) | | | (538,750 | ) | | | (537,310 | ) | | | (708,402 | ) | | | (3,369,900 | ) | | | (3,067,200 | ) | | | (344,274 | ) | | | (400,309 | ) | | | (314,069 | ) | | | (320,518 | ) | | | (645,995 | ) | | | (649,860 | ) | | | (222,946 | ) | | | (490,610 | ) | | | (371,771 | ) | | | (6,450 | ) | | | (711,571 | ) | | | (820,943 | ) |
Total net assets | | | 4,599,529 | | | 274,455 | | | 366,396 | | | 302,412 | | | 349,750 | | | 328,558 | | | 118,798 | | | 223,059 | | | | 2,458,000 | | | 5,895,900 | | | 547,080 | | | 471,034 | | | 319,082 | | | 334,304 | | | 279,409 | | | 372,905 | | | 530,991 | | | 398,610 | | | 244,266 | | | 189,105 | | | 614,292 | | | 502,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Group's share of net assets | | 1,182,810 | | 85,525 | | 91,599 | | 75,603 | | 131,261 | | 85,425 | | 59,399 | | 56,021 | | |
Group’s share of net assets | | | 507,019 | | 1,217,797 | | 136,770 | | 117,759 | | 79,771 | | 83,576 | | 104,862 | | 139,951 | | 138,058 | | 103,639 | | 122,133 | | 94,553 | | 62,370 | | 60,609 | |
Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Write back of assets and investment | | 0 | | 43,505 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | |
Excess cost | | | 171,402 | | | 168,118 | | | 81,678 | | | (14,854 | ) | | | (56,330 | ) | | | 26,799 | | | (1,223 | ) | | | 8,379 | | | 150,884 | | 138,071 | | 79,018 | | 80,414 | | (13,943 | ) | | (14,396 | ) | | (48,999 | ) | | (52,777 | ) | | 26,561 | | 26,615 | | (503 | ) | | (806 | ) | | 8,368 | | 8,379 | |
Total impairment loss | | | (928,809 | ) | | (928,809 | ) | | - | | - | | - | | - | | - | | - | | - | | - | | - | | - | | - | | - | |
Unrecognised losses* | | | | 270,906 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book value of investment | | | 1,354,212 | | | 297,148 | | | 173,277 | | | 60,749 | | | 74,931 | | | 112,224 | | | 58,176 | | | 64,400 | | | | - | | | 427,059 | | | 215,788 | | | 198,173 | | | 65,828 | | | 69,180 | | | 55,863 | | | 87,174 | | | 164,619 | | | 130,254 | | | 121,630 | | | 93,747 | | | 70,738 | | | 68,988 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in associated companies | | | 1,354,212 | | | 297,148 | | | 173,277 | | | 60,749 | | | 74,931 | | | 112,224 | | | 58,176 | | | 64,400 | | | | - | | | 427,059 | | | 215,788 | | | 198,173 | | | 65,828 | | | 69,180 | | | 55,863 | | | 87,174 | | | 164,619 | | | 130,254 | | | 121,630 | | | 93,747 | | | 70,738 | | | 68,988 | |
As atof December 31, 2021,2023, the Group also has interests in a number of individually immaterial associates.
* As of December 31, 2023, additional share of losses of $271 million were unrecognized as the carrying amount of ZIM has been reduced to zero.
Note 9 – Investment in Associated Companies (Cont’d)
2. | Condensed financial information with respect to results of operations |
| | | | | CPV | | | CPV | | | CPV | | | CPV | | | CPV | | | CPV | |
| | ZIM** | | | Fairview | | | Maryland | | | Shore | | | Towantic | | | Valley | | | Three Rivers | |
| | For the year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue | | | 5,162,200 | | | | 12,561,600 | | | | 10,728,698 | | | | 273,763 | | | | 373,967 | | | | 199,030 | | | | 238,800 | | | | 243,710 | | | | 170,292 | | | | 134,805 | | | | 261,386 | | | | 189,985 | | | | 395,779 | | | | 494,665 | | | | 258,292 | | | | 239,165 | | | | 405,548 | | | | 139,473 | | | | 145,380 | | | | (2,722 | ) | | | 174 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss/income* | | | (2,695,600 | ) | | | 4,619,400 | | | | 4,640,305 | | | | 106,110 | | | | 98,907 | | | | 9,666 | | | | 23,956 | | | | 33,249 | | | | 5,420 | | | | (74,767 | ) | | | 6,853 | | | | 16,247 | | | | 163,651 | | | | 47,436 | | | | 18,520 | | | | 32,527 | | | | 69,138 | | | | (58,793 | ) | | | 603 | | | | (7,934 | ) | | | (9,281 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income * | | | 12,300 | | | | (41,200 | ) | | | (3,462 | ) | | | (17,066 | ) | | | 15,730 | | | | 11,192 | | | | (25,678 | ) | | | 6,419 | | | | 10,983 | | | | (18,728 | ) | | | 16,301 | | | | 7,779 | | | | (31,270 | ) | | | 22,616 | | | | 11,140 | | | | 22,637 | | | | 1,178 | | | | 3,710 | | | | (12,310 | ) | | | 53,814 | | | | 19,361 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | (2,683,300 | ) | | | 4,578,200 | | | | 4,636,843 | | | | 89,044 | | | | 114,637 | | | | 20,858 | | | | (1,722 | ) | | | 39,668 | | | | 16,403 | | | | (93,495 | ) | | | 23,154 | | | | 24,026 | | | | 132,381 | | | | 70,052 | | | | 29,660 | | | | 55,164 | | | | 70,316 | | | | (55,083 | ) | | | (11,707 | ) | | | 45,880 | | | | 10,080 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kenon’s share of comprehensive income | | | (279,236 | ) | | | 1,023,567 | | | | 1,258,913 | | | | 22,261 | | | | 28,659 | | | | 5,214 | | | | (431 | ) | | | 9,917 | | | | 4,101 | | | | (35,089 | ) | | | 8,690 | | | | 9,017 | | | | 34,419 | | | | 18,214 | | | | 7,711 | | | | 27,582 | | | | 35,158 | | | | (27,542 | ) | | | (1,171 | ) | | | 4,588 | | | | 1,008 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments | | | 13,190 | | | | 558 | | | | 1,116 | | | | (1,928 | ) | | | (1,267 | ) | | | (1,249 | ) | | | 453 | | | | 458 | | | | 2,354 | | | | 3,777 | | | | 3,554 | | | | 3,644 | | | | (54 | ) | | | (184 | ) | | | 50 | | | | 301 | | | | 413 | | | | 681 | | | | (11 | ) | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kenon’s share of comprehensive income presented in the books | | | (266,046 | ) | | | 1,024,125 | | | | 1,260,029 | | | | 20,333 | | | | 27,392 | | | | 3,965 | | | | 22 | | | | 10,375 | | | | 6,455 | | | | (31,312 | ) | | | 12,244 | | | | 12,661 | | | | 34,365 | | | | 18,030 | | | | 7,761 | | | | 27,883 | | | | 35,571 | | | | (26,861 | ) | | | (1,182 | ) | | | 4,588 | | | | 1,008 | |
* | Excludes portion attributable to non-controlling interest. |
** | As of December 31, 2023, additional share of losses of $271 million were unrecognized as the carrying amount of ZIM has been reduced to zero. |
Note 89 – Investment in Associated Companies (Cont’d)
2.B. | Condensed financial information with respect to results of operations
|
| | | | | | | | | | | | | | | | | | | | | | | | | | CPV | | | | | | | |
| | ZIM | | | CPV Fairview | | | CPV Maryland | | | CPV Shore | | | CPV Towantic | | | CPV Valley | | | Three Rivers | | | Qoros* | |
| | For the year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | | | 2021 | | | 2021 | | | 2021 | | | 2021 | | | 2021 | | | 2021 | | | | 2020*** | | | 2019 | |
| | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue | | | 10,728,698 | | | | 3,991,696 | | | | 3,299,761 | | | | 199,030 | | | | 170,292 | | | | 189,985 | | | | 258,292 | | | | 139,473 | | | | 174 | | | | 23,852 | | | | 349,832 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income / loss** | | | 4,640,305 | | | | 517,961 | | | | (18,149 | ) | | | 9,666 | | | | 5,420 | | | | 16,247 | | | | 18,520 | | | | (58,793 | ) | | | (9,281 | ) | | | (52,089 | ) | | | (312,007 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income ** | | | (3,462 | ) | | | 5,854 | | | | (9,999 | ) | | | 11,192 | | | | 10,983 | | | | 7,779 | | | | 11,140 | | | | 3,710 | | | | 19,361 | | | | (3 | ) | | | (8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | 4,636,843 | | | | 523,815 | | | | (28,148 | ) | | | 20,858 | | | | 16,403 | | | | 24,026 | | | | 29,660 | | | | (55,083 | ) | | | 10,080 | | | | (52,092 | ) | | | (312,015 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kenon’s share of comprehensive income | | | 1,258,913 | | | | 167,621 | | | | (9,007 | ) | | | 5,214 | | | | 4,101 | | | | 9,017 | | | | 7,711 | | | | (27,542 | ) | | | 1,008 | | | | (6,251 | ) | | | (37,442 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments | | | 1,116 | | | | 1,394 | | | | 1,432 | | | | (1,249 | ) | | | 2,354 | | | | 3,644 | | | | 50 | | | | 681 | | | | 0 | | | | 3 | | | | 386 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kenon’s share of comprehensive income presented in the books | | | 1,260,029 | | | | 169,015 | | | | (7,575 | ) | | | 3,965 | | | | 6,455 | | | | 12,661 | | | | 7,761 | | | | (26,861 | ) | | | 1,008 | | | | (6,248 | ) | | | (37,056 | ) |
* | The depreciation and amortization, interest income, interest expense and income tax expenses recorded by Qoros during 2020 were approximately $13 million, $1 million, $18 million and $NaN thousand (2019: $172 million, $6 million, $49 million and $33 thousand) respectively.
|
** | Excludes portion attributable to non-controlling interest.
|
*** | The 2020 equity accounted results reflect Kenon’s share of losses in Qoros until the completion date of the sale, i.e. April 29, 2020. Subsequent to that, Qoros was reclassified as to Long-term investment (Qoros). Refer to Note 9 for further details.
|
Note 8 – Investment in Associated Companies (Cont’d)
| 1.a. | The container shipping industry is characterized in recent years by volatility in freight rates, charter rates and bunker prices, accompanied by significant uncertainties in the global trade (including further implications from COVID-19, or the recent conflict between Russia and Ukraine). Current market conditions are impacted positively by increased freight rates and trade volumes.ZIM
|
| 1. | Financial position As of December 31, 2023, ZIM’s total equity amounted to $2.5 billion (2022: $5.9 billion) and its working capital amounted to $53 million (2022: $1.6 billion). During the year ended December 31, 2023, ZIM recorded operating loss of $2.5 billion (2022: operating profit of $6.1 billion; 2021: operating profit of $5.8 billion) and net loss of $2.7 billion (2022: net profit of $4.6 billion; 2021: net profit of $4.6 billion). |
In view of the aforementioned business environment and in order to constantly improve ZIM’s results of operations and liquidity position, ZIM continues to optimize its network by entering into new partnerships and cooperation agreements and by upgrading its customer’s offerings, whilst seeking operational excellence and cost efficiencies. In addition, ZIM continues to explore options which may contribute to strengthen its capital and operational structure. | | | For the year ended | |
| | | December 31 | |
| | | 2023 | | | 2022 | | | 2021 | |
| Note | | $ Thousands | | | $ Thousands | | | $ Thousands | |
Gain on dilution from ZIM IPO | 9.B.a.2 | | | - | | | | - | | | | 9,724 | |
Loss on dilution from ZIM options exercised | 9.B.a.3 | | | (860 | ) | | | (3,475 | ) | | | (39,438 | ) |
Gain on sale of ZIM shares | 9.B.a.4 | | | - | | | | 204,634 | | | | 29,510 | |
(Impairment)/write back of ZIM investment | 9.B.a.5 | | | - | | | | (928,809 | ) | | | - | |
| | | | (860 | ) | | | (727,650 | ) | | | (204 | ) |
| 2. | Financial positionInitial public offering
In February 2021, ZIM completed its initial public offering (“IPO”) of 15,000,000 ordinary shares (including shares issued upon the exercise of the underwriters’ option), for gross consideration of $225 million (before deducting underwriting discounts and commissions or other offering expenses). ZIM’s ordinary shares began trading on the NYSE on January 28, 2021. Prior to the IPO, ZIM obtained waivers from its notes holders, subject to the completion of ZIM’s IPO, by which certain requirements and limitations in respect of repurchase of debt, incurrences of debt, vessel financing, reporting requirements and dividend distributions, were relieved or removed. As a result of the IPO, Kenon’s interest in ZIM was diluted from 32% to 28%. Following the IPO, Kenon recognized a gain on dilution of $10 million in its consolidated financial statements in 2021. |
As of December 31, 2021, ZIM’s total equity amounted to $4.6 billion (2020: $274 million) and its working capital amounted to $2.3 billion (2020: $50 million). During the year ended December 31, 2021, ZIM recorded operating profit of $5.8 billion (2020: $722 million; 2019: $153 million) and net profit of $4.6 billion (2020: $524 million; 2019: $(13) million).
| | | For the year ended | |
| | | December 31 | |
| | 2021 | | | 2020 | |
| Note | | $ Thousands | | | $ Thousands | |
Gain on dilution from ZIM IPO | 8.B.a.3 | | | 9,724 | | | | 0 | |
Loss on dilution from ZIM options exercised | 8.B.a.4 | | | (39,438 | ) | | | 0 | |
Gain on sale of ZIM shares | 8.B.a.5 | | | 29,510 | | | | 0 | |
Write back of impairment of investment | 8.B.a.9 | | | - | | | | 43,505 | |
| | | | (204 | ) | | | 43,505 | |
| 3.
| Initial public offering
|
In February 2021, ZIM completed its initial public offering (“IPO”) of 15,000,000 ordinary shares (including shares issued upon the exercise of the underwriters’ option), for gross consideration of $225 million (before deducting underwriting discounts and commissions or other offering expenses). ZIM’s ordinary shares began trading on the NYSE on January 28, 2021.
Prior to the IPO, ZIM obtained waivers from its notes holders, subject to the completion of ZIM’s IPO, by which certain requirements and limitations in respect of repurchase of debt, incurrences of debt, vessel financing, reporting requirements and dividend distributions, were relieved or removed.
As a result of the IPO, Kenon’s interest in ZIM was diluted from 32% to 28%. Following the IPO, Kenon recognized a gain on dilution of $10 million in its consolidated financial statements in 2021.
In August 2021, ZIM issued approximately 4 million shares as a result of options being exercised. As a result of the issuance, Kenon recognized a loss on dilution of approximately $27 million in its consolidated financial statements.
In December 2021, ZIM issued approximately 1.2 million shares as a result of options being exercised. As a result of the issuance, Kenon recognized a loss on dilution of approximately $13 million in its consolidated financial statements.
In 2023, ZIM issued approximately 137 thousand (2022: 407 thousand; 2021: 5.2 million) shares as a result of options being exercised. As a result of the issuance, Kenon recognized a loss on dilution of approximately $1 million (2022: $3 million, 2021: $39 million) in its consolidated financial statements.
| 5.4. | Sales of ZIM shares Between September and November 2021, Kenon sold approximately 1.2 million ZIM shares at an average price of $58 per share for a total consideration of approximately $67 million. As a result, Kenon recognized a gain on sale of approximately $30 million in its consolidated financial statements. As of December 31, 2021, as a result of the sales of ZIM shares and the issuance of new shares described in Note 9.B.a.3, Kenon’s interest in ZIM reduced from 28% to 26%. In March 2022, Kenon sold approximately 6 million ZIM shares at an average price of $77 per share for total consideration of approximately $463 million. As a result of the sale, Kenon recognized a gain on sale of approximately $205 million in its consolidated financial statements. As of December 31, 2023 and 2022, as a result of the sales of ZIM shares and the issuance of new shares described in Note 9.B.a.3, Kenon’s interest in ZIM reduced from 26% to 21%. |
Between September and November 2021, Kenon sold approximately 1.2 million ZIM shares at an average price of $58 per share for a total consideration of approximately $67 million. As a result, Kenon recognized a gain on sale of approximately $30 million in its consolidated financial statements. As at December 31, 2021, as a result of the sales of ZIM shares and the issuance of new shares described in Note 8.B.a.4, Kenon’s interest in ZIM reduced from 28% to 26%.
Note 89 – Investment in Associated Companies (Cont’d)
| 6.5. | Notes repurchaseImpairment assessment
For the purposes of Kenon’s impairment assessment of its investment, ZIM is considered one CGU, which consists of all of ZIM’s operating assets. The recoverable amount is based on the higher of the value-in-use and the fair value less cost of disposal (“FVLCOD”). Year Ended December 31, 2023 As of December 31, 2023, the carrying amount of ZIM has been reduced to zero after taking into account the equity accounted losses of ZIM and therefore, no assessment of further impairment of ZIM was necessary. Further, as of December 31, 2023, Kenon did not identify any objective evidence that the previously recognized impairment loss no longer exists or the previously assessed impairment amount may have decreased, and therefore, in accordance with IAS 36, no reversal of impairment was recognized. Year Ended December 31, 2022 Kenon identified indicators of impairment in accordance with IAS 28 as a result of a significant decrease in ZIM’s market capitalization towards the end of 2022. Therefore, the carrying value of Kenon’s investment in ZIM was tested for impairment in accordance with IAS 36. Kenon assessed the fair value of ZIM to be its market value as of December 31, 2022 and also assessed that, based solely on publicly available information within the current volatile shipping industry, no reasonable VIU calculation could be performed. As a result, Kenon concluded that the recoverable amount of its investment in ZIM is the market value. ZIM is accounted for as an individual share making up the investment and therefore no premium is added to the fair value of ZIM. Kenon measures the recoverable amount based on FVLCOD, measured at Level 1 fair value measurement under IFRS 13. Given that market value is below carrying value Kenon recognized an impairment of $929 million. Year Ended December 31, 2021 Kenon did not identify any objective evidence that its net investment in ZIM was impaired as of 31 December 31, 2021 and therefore, in accordance with IAS 28, no assessment of the recoverable amount of ZIM was performed. |
C. | OPC’s associated companies |
In June 2020, ZIM completed an early and full repayment of its Tranche A loans of amount $13 million. Following such repayment, certain financial covenants, such as “Total leverage ratio” and “Fixed charge cover ratio”, as well as restrictions related to assets previously securing such loans, were removed.
In September 2020, ZIM launched a tender offer to repurchase, at its own discretion, some of its notes of Tranches C and D (Series 1 and 2 Notes) up to an amount of $60 million (including related costs). In October 2020, ZIM completed the repurchase of Tranche C notes with an aggregated face value of $58 million for a total consideration (including related costs) of $47 million, resulting in a gain from repurchase of debt of $6 million.
In March 2021, ZIM made an early repayment of $85 million of its Series 1 notes (Tranche C). In June 2021, ZIM made an additional early repayment in respect of its Series 1 and Series 2 notes (Tranches C and D), of aggregate amount $349 million. This reflects a full settlement of the outstanding indebtedness related to such notes and resulted in the removal of related provisions and limitations. | | | | | | Ownership interest as at December 31 | |
| | Note | | Main location of company’s activities | | 2023 | | | 2022 | |
CPV Valley Holdings, LLC | | 9.C.1 | | New York | | | 50 | % | | | 50 | % |
CPV, Three Rivers, LLC | | | | Illinois | | | 10 | % | | | 10 | % |
CPV Fairview, LLC | | | | Pennsylvania | | | 25 | % | | | 25 | % |
CPV Maryland, LLC | | | | Maryland | | | 25 | % | | | 25 | % |
CPV Shore Holdings, LLC | | | | New Jersey | | | 38 | % | | | 38 | % |
CPV Towantic, LLC | | | | Connecticut | | | 26 | % | | | 26 | % |
In May 2021, ZIM’s board of directors approved a dividend of approximately $2 per share (an aggregate amount of approximately $237 million), to ZIM’s shareholders of record as of the close of trading on August 25, 2021, paid on September 15, 2021. Kenon’s share was $61 million (net of taxes).
In November 2021, ZIM’s board of directors approved an additional dividend of $2.50 per share (an aggregate amount of approximately $299 million), to ZIM’s shareholders of record as of the close of trading on December 16, 2021, paid on December 27, 2021. Kenon’s share was $73 million (net of taxes).
In 2019, ZIM entered into a revolving arrangement with a financial institution, subject to periodical renewals, for the recurring sale, meeting the criteria of “true sale”, of portion of receivables, designated by ZIM. According to this arrangement, an agreed portion of each designated receivable is sold to the financial institution in consideration of cash in the amount of the portion sold (limited to an aggregated amount of $100 million), net of the related fees. The collection of receivables previously sold, enables the recurring utilization of the above-mentioned limit. The true sale of the receivables under this arrangement meets the conditions for derecognition of financial assets as prescribed in IFRS 9.
As at December 31, 2021, 0 amounts with withdrawn under this facility (2020: $2 million). Further to this arrangement, ZIM is required to comply with a minimum balance of cash (as determined in the agreement) in the amount of $125 million, as well as with other requirements customarily applied in such arrangements. As at December 31, 2021, ZIM complies with its financial covenants. ZIM’s liquidity amounts to $3.6 billion.
Subsequent to year end, the agreement was renewed to expire in February 2023.
For the purpose of IAS 28, Kenon did not identify any objective evidence that its net investment in ZIM was impaired as at 31 December 31, 2021.
Due to an improvement in ZIM’s financial performance in 2020, Kenon, independently from ZIM, appointed a third-party to perform a valuation of its 32% equity investment in ZIM in accordance with IAS 28 and IAS 36. For the year ended December 31, 2020, Kenon concluded that the carrying amount of the investment in ZIM is lower than the recoverable amount, and therefore, an impairment reversal was recognized. In 2016, Kenon recognized an impairment loss of $72 million in relation to its carrying value of ZIM. In 2017, Kenon recorded an impairment write-back of $28 million. Based on the valuation described above, in 2020, Kenon recorded a write back of impairment of $44 million in the consolidated statements of profit and loss, and after accounting for its share of profits in ZIM for the year, resulted in a carrying value in ZIM as at December 31, 2020 of $297 million.
Note 8 – Investment in Associated Companies (Cont’d)
For the purposes of Kenon’s impairment assessment of the Group’s investment, ZIM is considered one CGU, which consists of all of ZIM’s operating assets. The recoverable amount is based on the higher of the value-in-use and the fair value less cost of disposal (“FVLCOD”). The valuation is predominantly based on publicly available information and earnings of ZIM over the 12-month period to December 31, 2020. The valuation approach was based on the equity method, recognizing the cost of investment share of profits in ZIM, and subsequently to assess a maintainable level of earnings to form a view on the appropriate valuation range as at December 31, 2020.
The following data points and benchmarks were considered by the independent valuer:
| 1) | An implied EV/EBITDA range of 5.5x to 6.5x based on LTM EBITDA multiples of comparable companies as of latest publicly available financial information;
|
| 2) | An estimated sustainable EBITDA computed based on the average EBITDA of the last three years; and
|
| 3) | Costs of disposal of 2% of EV.
|
The independent valuer arrived at a range of equity valued between $430 million and $585 million after adjustments for Net Debt. The fair value measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique used.
The holders of ordinary shares of ZIM are entitled to receive dividends when declared and are entitled to one vote per share at meetings of ZIM. All shares rank equally with regard to the ZIM's residual assets, except as disclosed below.
In the framework of the process of privatizing ZIM, all the State of Israel’s holdings in ZIM (about 48.6%) were acquired by IC pursuant to an agreement from February 5, 2004. As part of the process, ZIM allotted to the State of Israel a Special State Share so that it could protect the vital interests of the State.
On July 14, 2014 the State of Israel and ZIM reached a settlement agreement (the “Settlement Agreement”) that was validated as a judgment by the Supreme Court. The Settlement Agreement provides, inter alia, the following arrangement shall apply: the State’s consent is required to any transfer of the shares in ZIM which confers on the holder a holding of 35% and more of the ZIM’s share capital. In addition, any transfer of shares which confers on the holders a holding exceeding 24% but not exceeding 35%, shall require prior notice to the State. To the extent the State determines that the transfer involves a potential damage to the State’s security or any of its vital interests or if the State did not receive the relevant information in order to formulate a decision regarding the transfer, the State shall be entitled to inform, within 30 days, that it objects to the transfer, and it will be required to reason its objection. In such an event, the transferor shall be entitled to approach a competent court on this matter.
Kenon’s ownership of ZIM’s shares is subject to the terms and conditions of the Special State Share, which limit Kenon’s ability to transfer its equity interest in us to third parties. The holder of ZIM’s Special State Share has granted a permit, or the Permit, to Kenon and Mr. Idan Ofer, individually and collectively referred to in this paragraph as a “Permitted Holder” of ZIM’s shares, pursuant to which the Permitted Holders may hold 24% or more of the means of control of ZIM (but no more than 35% of the means of control of ZIM), and only to the extent that this does not grant the Permitted Holders control in ZIM. The Permit further stipulates that it does not limit the Permitted Holder from distributing or transferring ZIM’s shares. However, the terms of the Permit provide that the transfer of the means of control of ZIM is limited in instances where the recipient is required to obtain the consent of the holder of ZIM’s Special State Share, or is required to notify the holder of ZIM’s Special State Share of its holding of ZIM’s ordinary shares pursuant to the terms of the Special State Share, unless such consent was obtained by the recipient or the State of Israel did not object to the notice provided by the recipient. In addition, the terms of the Permit provide that, if Idan Ofer’s holding interest in Kenon, directly or indirectly, falls below 36% or if Idan Ofer ceases to be the sole controlling shareholder of Kenon, then the shares held by Kenon will not grant Kenon any right in respect of its ordinary shares that would otherwise be granted to an ordinary shareholder holding more than 24% of ZIM’s ordinary shares (even if Kenon holds a greater percentage of ZIM’s ordinary shares), until or unless the State of Israel provides its consent, or does not object to, such decrease in holding interest or control in Kenon. “Control”, for the purposes of the Permit, shall bear the meaning ascribed to it in the Permit with respect to certain provisions. Additionally, the State of Israel may revoke Kenon’s permit if there is a material change in the facts upon which the State of Israel’s consent was based, or upon a breach of the provisions of the Special State Share by Kenon, Mr. Ofer, or ZIM. According to the Permit, the obligations of the Permitted Holder under the Permit will apply only for as long as the Permitted Holder holds more than 24% of ZIM’s shares.
Note 8 – Investment in Associated Companies (Cont’d)
| b. | OPC’s associated companies
|
| 1. | CPV Three Rivers, LLC (“CPV Three Rivers”)
|
CPV Three Rivers is a project under construction in Illinois, United States. The commercial operation date is expected to be in Q2 2023, and the total construction cost (in respect of 100% of the project) is expected to be approximately $1,293 million.
In respect of an interest of 17.5% in the rights to the Three Rivers construction project (the “Construction Project”), a Sellers’ Loan in the amount of $95 million (the “Sellers’ Loan”) was provided to the CPV Group. The Seller’s Loan was granted for a period of up to two years from the Transaction Completion Date, bore interest at an annual rate of 4.5%, to be paid quarterly and was secured by a lien on shares of the holding company that owns the rights in the project under construction and rights pursuant to the management agreement of the project under construction.
On February 3, 2021, the transaction for sale of 7.5% of the rights in the Construction Project was completed for a consideration of approximately $41 million which was served for repayment as part of the Sellers’ Loan. No gain or loss was recognized on the sale. The remaining 10% equity interest continued to be subject to the Sellers’ Loan of approximately $55 million, which was repaid in October 2021.
Loans
As at December 31, 2021, CPV Three Rivers has outstanding debt of approximately $707 million. The final repayment date is June 30, 2028, and the rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The variable interest is set at LIBOR plus a spread ranging from 3.5% to 4% per year, and the fixed interest is at an annual rate of 4.75%. As a result of the loan, CPV Three Rivers is subject to certain covenants and distribution restrictions.
| 2. | CPV Fairview, LLC (“CPV Fairview”)
|
CPV Fairview is a power plant in Pennsylvania, United States using natural gas and combined cycle technology whose commercial operations started in 2019.
Loans
As at December 31, 2021, CPV Fairview has outstanding debt of approximately $662 million. The final repayment date is June 30, 2025, and the rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The variable interest is set at LIBOR plus a spread ranging from 2.5% to 2.75% per year, and the fixed interest is at an annual rate of 5.78%. As a result of the loan, CPV Fairview is subject to certain covenants and distribution restrictions.
| 3. | CPV Maryland, LLC (“CPV Maryland”)
|
CPV Maryland is a power plant in Maryland, United States using natural gas and combined cycle technology whose commercial operations started in 2017.
Loans
As at December 31, 2021, CPV Maryland has outstanding debt of approximately $371million. The final repayment dates of the loan and ancillary credit facilities are May 2028 and November 2027, respectively. The rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The loans are subject to interest rates of LIBOR plus 4% per term loan and LIBOR plus 2.75% for ancillary credit facilities. As a result of the loan, CPV Maryland is subject to certain covenants and distribution restrictions.
| 4. | CPV Shore Holdings, LLC (“CPV Shore”)
|
CPV Shore is a power plant in New Jersey, United States using natural gas and combined cycle technology whose commercial operations started in 2016.
Loans
As at December 31, 2021, CPV Shore has outstanding debt of approximately $504 million. The final repayment date of the loans and ancillary credit facilities are December 27, 2025 and December 27, 2023, respectively. The rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The loans are subject to interest rates of LIBOR plus 3.75% per term loan and LIBOR plus 3% for ancillary credit facilities. As a result of the loan, CPV Shore is subject to certain covenants and distribution restrictions.
Note 8 – Investment in Associated Companies (Cont’d)
| 5. | CPV Towantic, LLC (“CPV Towantic”)
|
CPV Towantic is a power plant in Connecticut, United States using natural gas/dual-fuel and combined cycle technology whose commercial operations started in 2018.
Loans
As at December 31, 2021, CPV Towantic has outstanding debt of approximately $598 million. The final repayment date is June 30, 2025, and the rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The debt is subject to interest of LIBOR plus a spread ranging from 2.75% to 3.25%. As a result of the loan, CPV Towantic is subject to certain covenants and distribution restrictions.
| 6. | CPV Valley Holdings, LLC (“CPV Valley”) CPV Valley’s financial statements as of December 31, 2022 included a disclosure of circumstances related to CPV Valley’s ability to repay its liabilities under its credit agreement of over $400 million at the repayment date of the liabilities, i.e. June 30, 2023. During 2023, CPV Valley’s financing agreement was amended and extended to May 31, 2026. On the signing date of the new financing agreement, CPV Valley repaid $55 million of the financing arrangement, of which shareholders’ loans of $17 million were extended to CPV Valley from OPC. Subsequently, the total loan amount under the new financing agreement is $415 million. |
CPV Valley is a power plant in New York, United States using natural gas/dual-fuel and combined cycle technology whose commercial operations started in 2018.F - 35
Loans
As at December 31, 2021, CPV Valley has outstanding debt of approximately $578 million. The final repayment date of the loan is June 30, 2023. The rate and scope of the repayment of the loan principal varies until the final repayment, in accordance with a combination of amortization and cash sweep repayment mechanisms. The loan is subject to interest rate of LIBOR plus spread ranging from 3.5% to 3.75%. As a result of the loan, CPV Valley is subject to certain covenants and distribution restrictions.
In April 2021 some expedients were received for the ancillary credit facilities in exchange for a commitment to provide equity in the cumulative amount of $10 million from the investors in the project (a commitment of $5 million was provided in April 2021 by CPV Valley and the other investor. The withdrawals are provided as shareholder loans bearing annual interest at a rate of 5%). The expedients pertain to a waiver of the annual repayment obligation of the working capital loans and release of $5 million in restricted working capital due to a regulatory permit.
Note 910 – Long-term investment (Qoros)
| | | | | For the year ended December 31, | |
| | | | | 2021 | | | 2020 | | | 2019 | |
| | Note | | | $ Thousands | |
Fair value (loss)/gain on remaining 12% interest in Qoros | | 9.3, 9.5 | | | | (235,218 | ) | | | 154,475 | | | | 0 | |
(Payment)/recovery of financial guarantee | | 9.6.d, 9.6.e | | | | (16,265 | ) | | | 6,195 | | | | 11,144 | |
Gain on sale of 12% interest in Qoros | | 9.3 | | | | 0 | | | | 152,610 | | | | 0 | |
Fair value loss on put option | | 9.2, 9.3 | | | | 0 | | | | (3,362 | ) | | | (18,957 | ) |
| | | | | | (251,483 | ) | | | 309,918 | | | | (7,813 | ) |
| | | | | For the year ended December 31, | |
| | | | | 2023 | | | 2022 | | | 2021 | |
| | Note | | | $ Thousands | |
Fair value loss on remaining 12% interest in Qoros | | | 10.3, 10.5 | | | | - | | | | - | | | | (235,218 | ) |
Payment of financial guarantee | | | 10.6 | | | | - | | | | - | | | | (16,265 | ) |
| | | | | | | - | | | | - | | | | (251,483 | ) |
| 1. | As atof December 31, 2021,2023, the Group holds a 12% (2022: 12%) equity interest in Qoros through a wholly-owned and controlled company, Quantum (2007) LLC (“Quantum”). Chery Automobiles Limited (“Chery”), a Chinese automobile manufacturer, holds a 25% (2022: 25%) equity interest and the remaining 63% (2022: 63%) interest is held by an entity related to the Baoneng Group (“New Qoros Investor” or “New Strategic Partner”). |
| 2. | Qoros introduced a New Strategic Partner In January 2018, the New Qoros Investor purchased 51% of Qoros from Kenon and Chery for RMB 3.315 billion (approximately $504 million), resulting in Kenon’s and Chery’s interest in Qoros dropping from 50% each to 24% and 25%, respectively. This was part of an investment structure (“Investment Agreement”) to invest a total of approximately RMB 6.63 billion (approximately $1,002 million) by the New Qoros Investor. The Investment Agreement provided Kenon with a put option over its remaining equity interest in Qoros. |
In January 2018, the New Qoros Investor purchased 51% of Qoros from Kenon and Chery for RMB 3.315 billion (approximately $504 million), resulting in Kenon’s and Chery’s interest in Qoros dropping from 50% each to 24% and 25%, respectively. This was part of an investment structure (“Investment Agreement”) to invest a total of approximately RMB 6.63 billion (approximately $1,002 million) by the New Qoros Investor. The Investment Agreement provided Kenon with a put option over its remaining equity interest in Qoros which was initially valued at approximately $90 million.
The value of the put option was reduced by approximately $19 million to approximately $71 million as a result of the fair value assessment as at December 31, 2019.
Note 9 – Long-term investment (Qoros) (Cont’d)
| 3. | Kenon sells down from 24% to 12% |
In January 2019, Kenon, on behalf of its wholly owned subsidiary Quantum (2007) LLC, announced that it had entered into an agreement to sell half (12%) of its remaining interest (24%) in Qoros to the New Qoros Investor for RMB1,560 million (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the New Qoros Investor. In April 2020, Kenon completed the sale of this half of its remaining interest in Qoros and received payment of RMB1,560 million (approximately $220 million).
In January 2019, Kenon, on behalf of its wholly owned subsidiary Quantum (2007) LLC, announced that it had entered into an agreement to sell half (12%) of its remaining interest (24%) in Qoros to the New Qoros Investor for RMB1,560 million (approximately $220 million), which was based on the same post-investment valuation as the initial investment by the New Qoros Investor. In April 2020, Kenon completed the sale of this half of its remaining interest in Qoros and received payment of RMB1,560 million (approximately $220 million). Kenon recognized a gain of approximately $153 million from the sale of its 12% interest in Qoros and the derecognition of the current portion of the put option pertaining to the 12% interest sold.
As a result of the sale, Kenon lost significant influence over Qoros and ceased equity accounting. Since April 29, 2020, the remaining 12% interest in Qoros was accounted for on a fair value basis through profit and loss and, together with the non-current portion of the put option pertaining to the remaining 12% interest (see Note 9.2), was reclassified in the statement of financial position as a long-term investment (Qoros). Upon reclassification, Kenon immediately recognized a fair value gain of approximately $139 million and the long-term investment (Qoros) was initially measured at a combined fair value of approximately $220 million. By the end of 2020, primarily due to the appreciation of RMB against the USD, the fair value of the long-term investment (Qoros) increased by approximately $15 million to $235 million.
In 2020 up until the completion date of the sale and prior to the reclass detailed above, the aggregate current and non-current put option fair value was reduced by approximately $3 million to $68 million.
The sale was not made pursuant to the put option described above in Note 9.2. As part of the sale agreement, the New Qoros Investor assumed its pro-rata share of guarantees of Kenon and Chery based on the change to its equity ownership.
Subsequent to the sale, the remaining 12% interest in Qoros was accounted for on a fair value basis through profit and loss and, together with the non-current portion of the put option pertaining to the remaining 12% interest (see Note 10.2), was reclassified in the statement of financial position as a long-term investment (Qoros).
| 4. | Agreement to sell remaining 12% interest In April 2021, Quantum entered into an agreement with the New Qoros Investor to sell all of its remaining 12% interest in Qoros. The total purchase price is RMB1.56 billion (approximately $245 million). To date, the New Qoros Investor has failed to make any of the required payments under this agreement. In the fourth quarter of 2021, Kenon started arbitration proceedings against the New Qoros Investor for breach of the agreement and Kenon also started litigation proceedings against the New Qoros Investor with regards to the New Qoros Investor’s obligations to Kenon’s pledged shares in relation to Qoros’ RMB 1.2 billion loan (as described below). As of December 31, 2023, the court proceedings are still ongoing. As a result of the payment delay, Quantum had exercised the Put Option it has to sell its remaining shares to the New Qoros Investor. |
| 5. | Fair value assessment In September 2021, in light of the events described above, Kenon performed an assessment of the fair value of the long-term investment (Qoros) under IFRS 13 Fair value measurement. Kenon concluded that the fair value of the long-term investment (Qoros) is zero. Therefore, in 2021 Kenon recognized a fair value loss of $235 million in its consolidated financial statements for the year ended 2021. There were no significant changes in circumstances in 2023 as compared to 2021, therefore, management has assessed that there is no change in fair value of Qoros. |
In April 2021, Quantum entered into an agreement with the New Qoros Investor to sell all of its remaining 12% interest in Qoros. The key terms of the agreement are set forth below.
The total purchase price is RMB1.56 billion (approximately $245 million), which is the same valuation as the previous sales by Quantum to the New Qoros Investor. The deal is subject to certain conditions, including a release of the share pledge (refer to Note 9.6.c) over the shares to be sold (substantially all of which have been pledged to Qoros’ lending banks), and necessary regulatory approvals.
The Baoneng Group guaranteed the obligations of the New Qoros Investor under this agreement. The purchase price was to be paid over time according to a payment schedule.
The first and second payments, including the deposit, were to be paid into a designated account set up in the name of the New Qoros Investor over which Quantum is a joint signatory to, of which the deposit was due July 31, 2021. According to the agreement, the transfer of these payments to Quantum would occur by the end of Q2 2022. To date, the New Qoros Investor has failed to make any of the required payments under this agreement.
In the fourth quarter of 2021, Kenon started arbitration proceedings against the New Qoros Investor for breach of the agreement and Kenon also started litigation proceedings against the New Qoros Investor with regards to the New Qoros Investor’s obligations to Kenon’s pledged shares in relation to Qoros’ RMB 1.2 billion loan (as described below). The outcomes of these legal proceedings and any related awards are uncertain.
As a result of the payment delay, Quantum currently has the right to exercise the Put Option it has to sell its remaining shares to the New Qoros Investor.
Note 910 – Long-term investment (Qoros) (Cont’d)
| 5.6. | Fair value assessment
|
In September 2021, in light of the events described above, Kenon performed an assessment of the fair value of the long-term investment (Qoros) under IFRS 13 Fair value measurement. Kenon concluded that the fair value of the long-term investment (Qoros) is zero. Therefore, in 2021 Kenon recognized a fair value loss of $235 million in its consolidated financial statements for the year ended 2021.
| 6. | Financial Guarantees Provision and Releases |
| a. | In July 2012, Chery provided a guarantee toFollowing completion of the banks,transaction in 2019 as described in Note 10.3, the amount of RMB1.5 billion (approximately $242 million), in relation to an agreement with the banks to provideNew Qoros a loan, in the amount of RMB3 billion (approximately $482 million). In November 2015, Kenon provided back-to-back guarantees to Chery of RMB750 million (approximately $115 million) in respect of this loan thereby committing to pay half of every amount Chery may be required to payInvestor assumed its proportionate obligations with respect to the guarantee.Qoros loans. As a result of this and repayments by Qoros in relation to its loans, Chery’s obligations under the loan guarantees were reduced. As of December 31, 2020, Kenon’s back-to-back guarantee obligations to Chery were reduced to approximately $16 million.
|
| b. | On May 12, 2015, Qoros signed a loan agreement withIn the Export-Import Bankfourth quarter of China, and China Construction Bank Co., LTD, Suzhou Branch, for an2021, Chery paid the full amount of RMB700its guarantee obligations. Kenon paid $16 million (approximately $108 million) (the “Facility”). This Facility was guaranteed byto Chery and pledged with Qoros’ 90 vehicle patents with an appraisal valuerecognized a corresponding $16 million expense in its consolidated statements of minimum RMB3.1 billion (approximately $500 million).profit and loss. Following this payment, Kenon provided back-to-back guarantees to Chery of RMB350 million (approximately $54 million) thereby committing to pay half of every amount Chery may be required to paydoes not have any remaining guarantee obligations with respect to the guarantee.Qoros debt.
|
| c. | On JulyAs of December 31, 2014,2023, Kenon has pledged substantially all of its interests in orderQoros to secure additional funding for Qoros of approximatelyQoros’ RMB 1.2 billion (approximately $200 million) IC pledgedloan facility. The New Qoros Investor was required to assume its pro rata share of pledge obligations. It has not yet provided all such pledges but has provided Kenon with a portionguarantee in respect of its shares (including dividends derived therefrom) in Qoros, in proportion to itspro rata share, in Qoros’s capital, in favor of the Chinese bank providing Qoros with such financing. Simultaneously, the subsidiary of Chery that holds Chery’s rights in Qoros also pledged a proportionate part of its rights in Qoros. Such financing agreement includes, inter alia, covenants, events of immediate payment and/or early payment for violations and/or events specified in the agreement. The pledge agreement includes, inter alia, provisions concerning the ratio of securities and the pledging of further securities in certain circumstances, including pledges of up to all, of Quantum’s shares in Qoros (or cash), provisions regarding events that would entitle the Chinese Bank to enforce the pledge certain representations and covenants, and provisions regarding the registration and approval of the pledge. As part of the spin-off described in Note 1.A, the shares pledged by IC were transferred to Kenon.obligations.
|
| d.7. | In 2017, Kenon provided cash collateralRestrictions
Qoros has restrictions with respect to Chery that was used to fund shareholder loans on behalfdistribution of Chery for a total amountdividends and sale of RMB 244 million,assets deriving from legal and pledged a portionregulatory restrictions, restrictions under the joint venture agreement and the Articles of Kenon’s equity interests in Qoros to Chery. The agreements for this guaranteeAssociation and pledge provide that in the event that Chery’s obligations under its guarantees are reduced, including through guarantee releases, Kenon is entitled to the proportionate returnrestrictions stemming from Chery of the RMB 244 million funding provided on Chery’s behalf and/or a release of the equity pledged to Chery.credit received. |
Note 11 – Subsidiaries
As at December 31, 2018, Kenon’s back-to-back guarantee exposure to Chery was approximately $44 million however, following the New Qoros Investor’s investment into Qoros (refer to Note 9.2), Kenon assessed that the likelihood of future cash payments in relation to the guarantees was not probable. As a result, all provisions related to financial guarantees were released in 2018.OPC Energy Ltd.
Following completion of the transaction in 2019, the New Qoros Investor assumed its proportionate obligations with respect to the Qoros loans. As a result of this and repayments by Qoros in relation to its loans, Chery’s obligations under the loan guarantees were reduced. As a result, Kenon received $11 million from Chery. As at December 31, 2019, Kenon’s back-to-back guarantee obligations to Chery were reduced to approximately $23 million.
In April 2020, Kenon received an additional $6 million from Chery following repayments by Qoros in relation to its loans. This brought the total cash received from Chery to RMB 244 million (approximately $36 million) in connection with these repayments. As at December 31, 2020, Kenon’s back-to-back guarantee obligations to Chery were reduced to approximately $16 million.
Note 9 – Long-term investment (Qoros) (Cont’d)
| e. | Qoros had been in discussions with lenders on rescheduling loan repayments on its long-term loans. Such a rescheduling has not been agreed. In 2021, Qoros did not make payments totaling approximately RMB 455 million ($71 million) which were due in respect of its RMB 3 billion, RMB 1.2 billion and RMB 0.7 billion loan facilities, and as a result, the lenders under these facilities accelerated these loans. These loans remain in default.
|
In the fourth quarter of 2021, Chery paid the full amount of its guarantee obligations under the RMB 3 billion and RMB 700 million loan facilities. As discussed above, Kenon had back-to-back guarantee obligations of approximately $16 million to Chery in respect of guarantees Chery had given for these two loans. Kenon paid the $16 million to Chery and recognized a corresponding $16 million expense in its consolidated statements of profit and loss. Following this payment, Kenon does not have any remaining guarantee obligations with respect to Qoros debt.
As at December 31, 2021, as described in Note 9.6.c, Kenon has pledged substantially all of its interests in Qoros to secure Qoros’ RMB 1.2 billion loan facility. The New Qoros Investor was required to assume its pro rata share of pledge obligations. It has not yet provided all such pledges but has provided Kenon with a guarantee in respect of its pro rata share, and up to all, of Quantum's pledge obligations.
Qoros continues to engage in discussions with the lenders and other relevant stakeholders relating to its other outstanding bank loans and resumption of manufacturing production which was shut down earlier this year.
Qoros has restrictions with respect to distribution of dividends and sale of assets deriving from legal and regulatory restrictions, restrictions under the joint venture agreement and the Articles of Association and restrictions stemming from credit received.
Note 10 – Subsidiaries
OPC is a publicly-traded company whose securities are listed on the TASE. OPC is engaged in twothree reportable segments: (i) generation and supply of electricity and energy (electricity, steam and charging services for electric vehicles) in Israel to private customers, Israel Electric Company (“IEC”) and Noga – The Israel Independent System Operator Ltd. (“System Operator” or “Noga’), including initiation, development, construction and operation of power plants and facilities for energy generation; and (ii) generation and supply of electricity and energy in the United States, including maintenance, development, construction and management of renewable energy and conventional (gas-fired) power plants in the United States, and power plants owned by third parties. OPC manages most of its operations in Israel through OPC Israel, and its operations in the United States through CPV Group, of which 70% is indirectly held by OPC.
In October 2020, OPC signed an agreement to acquire the CPV Group (as described in Note 10.A.1.i), which is engaged in the area of generation of electricity in the United States (including through the use of renewable energy). The transaction was completed in January 2021. | i. | generation and supply of electricity and energy (electricity, steam and charging services for electric vehicles) in Israel to private customers, Israel Electric Company (“IEC”) and Noga – The Israel Independent System Operator Ltd. (“System Operator” or “Noga’), including initiation, development, construction and operation of power plants and facilities for energy generation; |
| ii. | generation and supply of electricity and energy in the United States using renewable energy, including development, construction and management of renewable energy power plants; and |
| iii. | generation and supply of electricity and energy in the United States using conventional (natural gas) power plants, including development, construction and management of conventional energy power plants in the United States. |
SeasonalityMaterial subsidiaries
OPC’s activities in Israel are subject to seasonal fluctuations as a result of changes in the official Time of Use of Electricity Tariff (“TAOZ”), which is regulated and published by the Israeli Electricity Authority (“IEA”). The year is broken down into 3 seasons: “summer” (July and August), “winter” (December through February), and “transitional” (March through June and September through November), with a different tariff set for each season. OPC’s results are based on the generation component, which is part of the TAOZ, resulting in a seasonal effect.
The revenues of the CPV Group from electricity generation are seasonal and impacted by variable demand, gas prices and electricity prices, as well as the weather. In general, with respect to power plants powered by natural gas, there is higher profitability in seasons where temperatures are at their highest or lowest - usually during summer and winter. Similarly, the profitability of renewable energy production is subject to production volume, which varies based on wind and solar constructions, as well as its electricity price, which tends to be higher in winter, unless there is a fixed contractual price for the project.
Impact of COVID-19 and conflict between Russia and Ukraine
The COVID-19 outbreak has led to quarantines, cancellation of events and travel, businesses and school shutdowns and restrictions, and alongside the conflict between Russia and Ukraine, supply chain interruptions, global economic and financial market instability. During the reporting period, high global demand for raw materials, transportation and shipping services were impacted by the spread of COVID-19 and the conflict, causing limited production capabilites, transportation and shipping restrictions, resulting in a significant increase in the cost of raw materials, production and supply chain, and an increase in the cost of maritime transport. This resulted in global delays in delivery dates for equipment alongside increased prices of raw materials and equipment used for construction and maintenance of OPC’s facilities and power plants. This also affected the construction and maintenance costs of OPC’s projects in the markets of activity and schedules for their completion. As of reporting date, there is no certainty as to the duration or scope of the COVID-19 impact, therefore OPC is unable to assess with full certainty its impact on its businesses.
OPC’s active power plants in Israel, as well as the construction of the Tzomet power plant have continued throughout the restriction period, due to their designation as “essential enterprises”. It is noted that the continuity of construction works at the Tzomet and Sorek power plants and the generation facilities is affected by COVID-19, due, among other things, to restrictions on movement and infection. Delays in completing projects under construction and in schedules may affect the ability of the projects to fulfill its obligations to third parties, thus adversely affecting the Company's activity in Israel. In addition, the rehauling and maintenance works at the Rotem and Hadera power plants may be affected by restrictions on movement and spread of infection due to Covid-19.
The outbreak of COVID-19 has had a significant impact on economic activity in the United States. The CPV Group’s power plants remained active during the COVID-19 crisis. COVID-19 resulted in a change in the work schedules and shifts of the employees, a reduction of self-initiated shutdowns for purposes of periodic maintenance, extension of the unplanned periodic maintenance period, and employees working from home.
As at December 31, 2021, COVID-19 is assessed to not have a significant impact on OPC’s results and activities.
Note 10 – Subsidiaries (Cont’d)
Material subsidiaries
Set forth below are details regarding OPC’s material subsidiaries:
| | | | | | Ownership interest as at December 31 |
| | Note | | Main location of company's activities | | 2023 | | | 2022 |
OPC Power Plants Ltd. | | 11.A.1 | | Israel | | 80 | % | | | 100 | % |
OPC Holdings Israel Ltd. | | 11.A.2 | | Israel | | 80 | % | | | - | |
CPV Group LP | | 11.A.3 | | USA | | 70 | % | | | 70 | % |
| | | | | Ownership interest as at December 31 |
| Note | | Main location of company's activities | | 2021 | | 2020 |
OPC Israel Energy Ltd. | 10.A.1.a | | Israel | | 100% | | 100% |
OPC Rotem Ltd. | 10.A.1.b | | Israel | | 80% | | 80% |
OPC Hadera Ltd. | 10.A.1.c | | Israel | | 100% | | 100% |
Tzomet Energy Ltd. | 10.A.1.d | | Israel | | 100% | | 100% |
OPC Sorek 2 Ltd. | 10.A.1.e | | Israel | | 100% | | 100% |
Gnrgy Ltd. | 10.A.1.f | | Israel | | 51% | | 0 |
ICG Energy, Inc | 10.A.1.g | | USA | | 100% | | 0 |
OPC Power Ventures LP | 10.A.1.h | | USA | | 70% | | 0 |
CPV Group LP* | 10.A.1.i | | USA | | 100% | | 0 |
CPV Keenan II Renewable Energy Company, LLC* | 10.A.1.j | | USA | | 100% | | 0 |
CPV Maple Hill, LLC* | 10.A.1.k | | USA | | 100% | | 0 |
CPV Rogue's Wind, LLC* | 10.A.1.l | | USA | | 100% | | 0 |
*This represents the interest held by OPC Power Ventures LP
| a.1. | OPC Israel EnergyPower Plants Ltd. (“OPC Israel”Power Plants”) |
OPC IsraelPower Plants, directly holds most of OPC’s businesses in Israel, such as OPC’s interests in OPC Rotem Ltd. (“OPC Rotem”), OPC Hadera Ltd. (“OPC Hadera”), Tzomet andEnergy Ltd. (“OPC Tzomet”), OPC Sorek 2 (all defined below).
| b. | OPC Rotem Ltd. (“OPC Rotem”)
|
OPC Rotem operates the RotemSorek 2”) and OPC Gat Power Plant located(“Gat Partnership”). These businesses are mainly engaged in the Rotem Plain. Its operations commenced on July 6, 2013,generation and OPC Rotem has a license which allows it to produce and sell electricity for a periodsupply of 30 years from that date. The Rotem power plant operates using conventional technology in an integrated cycle and has generation capacity of about 466 megawatts (“MW”). The remaining 20% is held by Veridis Power Plants Ltd. (“Veridis”).
In October 2020, planned maintenance work continued for 13 days, during which the Rotem power plant was shut down. As at publication date, the next maintenance is planned to be in April 2022, during which the activities of the Rotem Power Plant and the related energy generation activities will be discontinued for a period of 20 days.
| c. | OPC Hadera Ltd. (“OPC Hadera”)
|
OPC Hadera holds a permanent power generation license using cogeneration technology for the Hadera Power Plant (i.e. generating both electricity and steam), with 144MW installed capacity, and a supply license. The generation license has a validity of 20 years, and may be extended for an additional 10 years subject to approval. In addition, OPC Hadera owns the Energy Center (boilers and turbines on the premises of Infinya Ltd. (formerly known as Hadera Paper Mills Ltd.) (“Infinya”)). The Energy Center operates as a back-up for the supply of steam.
OPC Hadera supplies all the electricity and steam needs of Infinya, which is located adjacent to the Hadera Power Plant, for a period of 25 years, through the Hadera Power Plant and Energy Center, which serves as a back-up for the supply of steam. In addition, the Hadera Power Plant also supplies electricityenergy, mainly to private customers and to the System operator. Operator, and in the development, construction and operation in Israel of power plants and energy generation facilities powered using natural gas and renewable energy.
Note 11 – Subsidiaries (Cont’d)
| 1.1 | OPC Gat Power Plant (“Gat Partnership”) On March 30, 2023, the transaction between OPC Power Plants, together with Dor Alon Energy in Israel (1988) Ltd. (“Dor Alon”), and Dor Alon Gas Power Plants Limited Partnership (the “Seller”) for purchase of the rights in a power plant located in Kiryat Gat Industrial Zone (“Gat Partnership”) was completed, and all rights in the Gat Partnership were transferred to OPC. The transaction was completed for a consideration of NIS 870 million (approximately $242 million), after adjustments to working capital. Consideration of NIS 270 million (approximately $75 million) were paid to acquire all the rights in the Gat Partnership, and consideration of NIS 303 million (approximately $84 million) were used to repay the shareholders’ loan. The remaining consideration of NIS 300 million (approximately $83 million) represents a deferred consideration that was paid in 2023.
Determination of provisional fair value of identified assets and liabilities
The acquisition of the Gat Partnership was accounted for according to the provisions of IFRS 3 - “Business Combinations”. On the Transaction Completion Date, OPC included the net assets of the Gat Partnership in accordance with their fair value.
As of the approval date of the financial statements, OPC has yet to complete the attribution of acquisition cost to the identifiable assets and liabilities. As a result, some of the fair value data are provisional and there may be changes that will affect the data included below. Set forth below is the fair value of the identifiable assets and liabilities acquired (according to provisional amounts): |
| | $ Million | |
Cash and cash equivalents | | | 1 | |
Trade and other receivables | | | 6 | |
Property, plant, and equipment - facilities and electricity generation and supply license (1) | | | 172 | |
Property, plant, and equipment - land owned by the Gat Partnership (2) | | | 23 | |
Trade and other payables | | | (7 | ) |
Loans from former right holders (3) | | | (84 | ) |
Deferred tax liabilities | | | (19 | ) |
Identifiable assets, net | | | 92 | |
Goodwill (4) | | | 61 | |
Total consideration (5) | | | 153 | |
| (1) | The Group applied IFRS 3 and allocate the fair value of the facilities and the electricity supply license to a single asset. The fair value was determined by an independent appraiser using the income approach, the MultiPeriod Excess Earning Method. The valuation methodology included several key assumptions that constituted the basis for cash flow forecasts, including, among other things, electricity and gas prices, and nominal post-tax discount rate of 8%-8.75%. The said assets are amortized over 27 years from the acquisition date, considering an expected residual value at the end of the assets’ useful life. |
| (2) | The fair value of the land was determined by an external and independent land appraiser using the discounted cash flow technique (the discount rate used is 8%). |
| (3) | The loans were repaid immediately after the acquisition date. |
| (4) | The goodwill arising as part of the business combination reflects the synergy between the activity of the Gat Partnership and the Rotem Power Plant. |
| (5) | The consideration includes a cash payment of NIS 270 million (approximately $75 million) plus deferred consideration, whose present value is estimated at NIS 285 million (approximately $79 million). |
| | The aggregate cash flows that were used by the Group as a result of the acquisition transaction: |
| | $ Million | |
Cash and other cash equivalents paid (excluding consideration used to repay shareholders’ loan) | | | 152 | |
Cash and other cash equivalents acquired | | | (1 | ) |
| | | 151 | |
Note 11 – Subsidiaries (Cont’d)
2. | OPC Holdings Israel Ltd. (“OPC Holdings Israel”) In May 2022, OPC had entered into an agreement with Veridis Power Plants (“Veridis”) to form OPC Holdings Israel Ltd. (“OPC Holdings Israel”), which will hold and operate all of OPC’s business activities in the energy and electricity generation and supply sectors in Israel (“Veridis Transaction”).
Upon completion of the Veridis Transaction in 2023, OPC transferred to OPC Holdings Israel, among other things, its 80% interest in OPC Rotem, its interest in Gnrgy Ltd., as well as other operations in Israel including OPC Hadera, OPC Tzomet, OPC Sorek, energy generation facilities on consumers’ premises and virtual electricity supply activities, and Veridis transferred its 20% interests in OPC Rotem to OPC Holdings Israel. In addition, Veridis invested approximately NIS 452 million (approximately $129 million) in cash in OPC Holdings Israel (after adjustments to the original transaction amount which totaled NIS 425 million (approximately $125 million)), of which approximately NIS 400 million (approximately $118 million) was used by OPC Rotem to repay a portion of the shareholders’ loans provided to OPC Rotem in 2021 by OPC and Veridis.
As a result of the Veridis Transaction, OPC holds 80% and Veridis holds the remaining 20% of OPC Holdings Israel, which holds 100% of the business activities in the energy and electricity generation and supply sectors in Israel transferred by OPC.
The Veridis transaction is accounted for in accordance with the provisions of IFRS 10 – “Consolidated Financial Statements”. Accordingly, all differences between the cash received from Veridis as stated above and the increase in the non-controlling interests were recognized in capital reserve from transactions with non-controlling interests. |
3. | CPV Group LP (“CPV Group”) CPV Group is engaged in the development, construction and management of power plants using renewable energy and conventional energy (power plants running on natural gas of the advanced‑generation combined‑cycle type) in the United States. The CPV Group holds rights in active power plants that it initiated and developed – both in the area of conventional energy and in the area of renewable energy. In addition, through an asset management group the CPV Group is engaged in provision of management services to power plants in the United States using a range of technologies and fuel types, by means of signing asset‑management agreements, usually for short to medium periods. Refer to Note 9.C for further details on associates of CPV Group. |
4. | OPC Power Ventures LP (“OPC Power”) In October 2020, OPC signed a partnership agreement (the “Partnership Agreement” and the “Partnership”, where applicable) with three financial entities to form OPC Power, whereby the limited partners in the Partnership are OPC which holds a 70% interest, Clal Insurance Group which holds a 12.75% interest, Migdal Insurance Group which holds a 12.75% interest, and a corporation from Poalim Capital Markets which holds a 4.5% interest.
The General Partner of the Partnership, a wholly-owned company of OPC, will manage the Partnership’s business as its General Partner, with certain material actions (or which may involve a conflict of interest between the General Partner and the limited partners), requiring approval of a majority a of special majority (according to the specific action) of the institutional investors which are limited partners. The General Partner is entitled to management fees and success fees subject to meeting certain achievements. OPC also entered into an agreement with entities from the Migdal Insurance Group with respect to their holdings in the Partnership, whereby OPC granted said entities a put option, and they granted OPC a call option (to the extent that the put option is not exercised), which is exercisable after 10 years in certain circumstances. The total investment undertakings and provision of shareholders’ loans provided by all partners under the Partnership Agreement pro rata to the holdings discussed above is $1,215 million. The amount is designated for acquisition of all the rights in the CPV Group and for financing additional investments. |
Note 11 – Subsidiaries (Cont’d)
| In 2021, OPC and the holders of the non-controlling interests provided OPC Power in partnership capital and loans of approximately $657 million and $204 million respectively. The loans are denominated in dollars and bear interest at an annual rate of 7%. The loan principal is repayable at any time, but not later than January 2028. The accrued interest is to be paid on a quarterly basis. To the extent the payment made by OPC Power is lower than the amount of the accrued interest, the payment in respect of the balance will be postponed to the next quarter, but not later than January 2028. In January 2021, the loans and rights of OPC Power were subsequently transferred to ICG Energy, Inc. OPC Power holds 99.99% of the CPV Group, and the remaining interest is held by the General Partner of the Partnership. In 2022, the Limited Partners in the Partnership provided OPC Power with equity investments totaling $122 million (NIS 409 million) and provided it with loans for a total amount of $38 million (NIS 127 million), respectively, each in accordance with its proportionate share. As December 31, 2022, total investments in the Partnership’s equity and the outstanding balance of the loans (including accrued interest) amount to $779 million (approximately NIS 2,741 million), and $271 million (approximately NIS 953 million), respectively. In 2023, OPC and non-controlling interests made equity investments in the partnership OPC Power Ventures LP (both directly and indirectly) of NIS 565 million (approximately $150 million), and extended NIS 175 million (approximately $45 million) in loans, based on their stake in the partnership. In September 2023, after utilizing the entire investment commitment and shareholder loans in July 2023, the facility was increased by $100 million (OPC’s share in the facility is $70 million). |
5. | Acquisition of CPV Group On January 25, 2021 (“Transaction Completion Date”), the Group acquired 70% of the rights and holdings in CPV Power Holdings LP; Competitive Power Ventures Inc.; and CPV Renewable Energy Company Inc through the limited partnership, CPV Group LP (the “Buyer”). For the year ended December 31, 2021, the Group’s consolidated results comprised results of the CPV Group from Transaction Completion Date through to year end.
On the Transaction Completion Date, in accordance with the mechanism for determination of the consideration as defined in the acquisition agreement, the Buyer paid the sellers approximately $648 million, and about $5 million for a deposit which remains in the CPV Group. OPC partially hedged its exposure to changes in the cash flows from payments in US dollars in connection with the agreement for acquisition of the CPV Group by means of forward transactions and dollar deposits. OPC chose to designate the forward transactions as an accounting hedge. On the Transaction Completion Date, OPC recorded an amount of approximately NIS 103 million (approximately $32 million) that was accrued in a hedge capital reserve to the investment cost in the CPV Group. The contribution of the CPV Group to the Group’s revenue and consolidated loss from the acquisition date until December 31, 2021 amounted to $51 million and $47 million, respectively. Following the acquisition of CPV Group, the fair value of identifiable assets and liabilities as of the acquisition date had been determined to be $580 million. Accordingly, goodwill of $105 million (including goodwill arising from hedging) was recognized, which reflects the potential of future activities of CPV Group in the market in which it operates. |
6. | Acquisition of Mountain Wind Power Plant In January 2023, CPV Group through its 100% owned subsidiary entered into an agreement to acquire all rights in four operating wind-powered electricity power plants in Maine, United States, with an aggregate capacity of 81.5 MW.
On April 5, 2023, the transaction was completed and CPV Group received all rights in the Mountain Wind Project for consideration of $175 million. |
Note 11 – Subsidiaries (Cont’d)
| Determination of fair value of identified assets and liabilities The acquisition of the Mountain Wind Project was accounted for according to the provisions of IFRS 3 - “Business Combinations”. On the Transaction Completion Date, OPC included the net assets of the Mountain Wind Project in accordance with their fair value. Set forth below is the fair value of the identifiable assets and liabilities acquired: |
| | $ Million | |
Trade and other receivables | | | 4 | |
Property, plant, and equipment (1) | | | 127 | |
Intangible assets (1) | | | 26 | |
Trade and other payables | | | (1 | ) |
Liabilities in respect of evacuation and removal | | | (2 | ) |
Identifiable assets, net | | | 154 | |
Goodwill (2) | | | 21 | |
Total consideration | | | 175 | |
| (1) | The fair value was determined using the discounted cash flow method. The valuation methodology included a number of key assumptions that constituted the basis for cash flow forecasts, including, among other things, electricity and gas prices, and nominal post-tax discount rate of 5.75% - 6.25%. Intangible assets are amortized over 13 to 17 years, and property, plant, and equipment items are depreciated over 20 to 29 years. |
| (2) | The goodwill in the transaction reflects the business potential of the Group’s entry into the renewable energies market in New England, USA. CPV Group expects that the entire amount of the goodwill will be deductible for tax purposes. |
7. | Issuances of new shares by OPC |
In December 2020February 2021, OPC issued to Altshuler Shaham Ltd. and between January and May 2021, some componentsentities managed by Altschuler Shalam (collectively, the “Offerees”), 10,300,000 ordinary shares of NIS 0.01 par value each. The price of the Hadera Power Plant gas turbinesshares issued to the Offerees was NIS 34 per ordinary share, and the gross proceeds from the issuance was about NIS 350 million (approximately $106 million). The issuance expenses were replacedabout NIS 4 million (approximately $1 million). Accordingly, the Group recognized $63 million in non-controlling interests and refurbished, and over November and December 2021, maintenance works were done on$42 million in accumulated profits arising from changes in the steam turbine. In 2021, there were 74 days which the Hadera Power Plant did not operate in full capacity.Group’s proportionate share of OPC.
Additional maintenance work is expectedIn July 2022, OPC issued to be performed on the steam turbinepublic 9,443,800 ordinary shares of NIS0.01 par value each. The issuance was carried out by way of uniform offering with a quantity range, and a tender for the unit price and quantity. Gross issuance proceeds amounted to NIS 331 million (approximately $94 million), and issuance expenses were approximately NIS 9 million (approximately $2 million). Kenon took part in May 2022. During the additional work,issuance, and was issued 3,898,000 ordinary shares for a gross amount of $39 million.
In September 2022, OPC issued to qualified investors 12,500,000 ordinary shares of NIS 0.01 par value each. Gross issuance proceeds amounted to NIS 500 million (approximately $141 million), and issuance expenses were approximately NIS 6 million (approximately $1 million). Kenon did not take part in the Hadera Power Plant will shut downissuance.
Following completion of the share issuances in 2022, Kenon registered a decrease of 4% in equity interest in OPC from 59% to 55%. Accordingly, the Group recognized $136 million in non-controlling interests and $58 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
Note 11 – Subsidiaries (Cont’d)
In September 2021, OPC issued rights to purchase 13,174,419 ordinary OPC shares of NIS 0.01 per value each (hereinafter - the “Rights”), in connection with the development and expansion of OPC’s activity in the USA. The Rights were offered such that each holder of ordinary shares of OPC who held 43 ordinary shares was entitled to purchase one right unit comprising of three shares at a price of NIS 75 (NIS 25 per share). Through the deadline for exercising the rights, notices of exercise were received for the purchase of 13,141,040 ordinary shares (constituting approximately 50 days. It is noted that any impact99.7% of the total shares offered in the rights offering). The gross proceeds from COVID-19 as described above may delay the additional work.exercised rights amounted to approximately NIS 329 million (approximately $102 million).
In October 2021, Kenon exercised rights for the Hadera Power Plant was connectedpurchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to Infinya by waypurchase these additional rights. As a result, Kenon then held approximately 58.8% of a direct electricity line.the outstanding shares of OPC. Accordingly, the Group recognized $41 million in non-controlling interests and $60 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
Following completion of the share issuance as described in Note 11.7 and the above rights issuances in 2021, Kenon registered a decrease in equity interest in OPC from 59% to 55%. Accordingly, the Group recognized $104 million in non-controlling interests and $38 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
Following the growth strategy adopted by OPC and the expansion of operation targets in recent years, taking into account OPC’s financial strength, from March 2024, OPC’s dividend distribution policy will be suspended for two years. After the said suspension period, the Board of Directors will discuss the possible resumption of the dividend distribution policy and its applicability to the circumstances, if any.
Note 11 – Subsidiaries (Cont’d)
B. | The following table summarizes the information relating to the Group’s subsidiary in 2023, 2022 and 2021 that has material NCI: |
| | As at and for the year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | OPC Energy Ltd. | | | OPC Energy Ltd. | | | OPC Energy Ltd. | |
| | $ Thousands | |
NCI percentage * | | | 59.88 | % | | | 56.20 | % | | | 53.14 | % |
Current assets | | | 460,810 | | | | 419,636 | | | | 346,380 | |
Non-current assets | | | 3,018,434 | | | | 2,289,101 | | | | 2,141,744 | |
Current liabilities | | | (353,735 | ) | | | (184,418 | ) | | | (230,518 | ) |
Non-current liabilities | | | (1,679,847 | ) | | | (1,283,445 | ) | | | (1,341,962 | ) |
Net assets | | | 1,445,662 | | | | 1,240,874 | | | | 915,644 | |
Carrying amount of NCI | | | 865,676 | | | | 697,433 | | | | 486,598 | |
| | | | | | | | | | | | |
Revenue | | | 691,796 | | | | 573,957 | | | | 487,763 | |
Profit/(loss) after tax | | | 46,955 | | | | 65,352 | | | | (93,898 | ) |
Other comprehensive income | | | (38,017 | ) | | | (11,249 | ) | | | 74,219 | |
Profit/(loss) attributable to NCI | | | 25,030 | | | | 37,007 | | | | (54,022 | ) |
OCI attributable to NCI | | | (24,624 | ) | | | (568 | ) | | | 33,661 | |
Cash flows from operating activities | | | 134,973 | | | | 62,538 | | | | 119,264 | |
Cash flows used in investing activities | | | (594,303 | ) | | | (328,610 | ) | | | (256,200 | ) |
Cash flows from financing activites excluding dividends paid to NCI | | | 503,245 | | | | 285,898 | | | | 311,160 | |
Dividends paid to NCI | | | - | | | | - | | | | (10,214 | ) |
Effect of changes in the exchange rate on cash and cash equivalents | | | (7,435 | ) | | | (13,545 | ) | | | 6,717 | |
Net increase/(decrease) in cash and cash equivalents | | | 36,480 | | | | 6,281 | | | | 170,727 | |
* The NCI percentage represents the effective NCI of the Group
Note 12 – Property, Plant and Equipment, Net
| | Roads, buildings and leasehold improvements | | | Facilities, machinery and equipment | | | Wind turbines | | | Office furniture and equipment | | | Assets under construction | | | Other | | | Total | |
| | $ Thousands | |
Cost | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | | | 83,956 | | | | 792,275 | | | | 29,844 | | | | 414 | | | | 409,780 | | | | 48,142 | | | | 1,364,411 | |
Additions | | | 3,442 | | | | 18,657 | | | | 191 | | | | (8 | ) | | | 185,938 | | | | 46,025 | | | | 254,245 | |
Disposals | | | (160 | ) | | | (13,007 | ) | | | (43 | ) | | | - | | | | (1,969 | ) | | | (12,769 | ) | | | (27,948 | ) |
Reclassification | | | - | | | | - | | | | - | | | | - | | | | 3 | | | | (3 | ) | | | - | |
Differences in translation reserves | | | (9,633 | ) | | | (75,558 | ) | | | - | | | | - | | | | (41,164 | ) | | | (6,016 | ) | | | (132,371 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 | | | 77,605 | | | | 722,367 | | | | 29,992 | | | | 406 | | | | 552,588 | | | | 75,379 | | | | 1,458,337 | |
Additions | | | 2,915 | | | | 3,977 | | | | - | | | | 5 | | | | 269,502 | | | | 34,800 | | | | 311,199 | |
Disposals | | | (590 | ) | | | (3,841 | ) | | | - | | | | - | | | | (11,235 | ) | | | (39,960 | ) | | | (55,626 | ) |
Reclassification | | | 9,316 | | | | 334,132 | | | | 160,666 | | | | - | | | | (504,114 | ) | | | - | | | | - | |
Acquisitions through business combination | | | 23,667 | | | | 159,036 | | | | 126,200 | | | | - | | | | - | | | | 6,307 | | | | 315,210 | |
Differences in translation reserves | | | (1,584 | ) | | | (13,265 | ) | | | - | | | | - | | | | (16,371 | ) | | | (1,308 | ) | | | (32,528 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2023 | | | 111,329 | | | | 1,202,406 | | | | 316,858 | | | | 411 | | | | 290,370 | | | | 75,218 | | | | 1,996,592 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | | | 18,148 | | | | 219,637 | | | | 563 | | | | 243 | | | | - | | | | - | | | | 238,591 | |
Additions | | | 3,864 | | | | 37,057 | | | | 1,109 | | | | 80 | | | | - | | | | - | | | | 42,110 | |
Disposals | | | (10 | ) | | | (13,007 | ) | | | (21 | ) | | | (8 | ) | | | - | | | | - | | | | (13,046 | ) |
Differences in translation reserves | | | (3,557 | ) | | | (28,182 | ) | | | - | | | | - | | | | - | | | | - | | | | (31,739 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2022 | | | 18,445 | | | | 215,505 | | | | 1,651 | | | | 315 | | | | - | | | | - | | | | 235,916 | |
Additions | | | 3,993 | | | | 47,661 | | | | 5,007 | | | | 81 | | | | - | | | | - | | | | 56,742 | |
Disposals | | | (235 | ) | | | (4,426 | ) | | | - | | | | - | | | | - | | | | - | | | | (4,661 | ) |
Differences in translation reserves | | | (471 | ) | | | (5,759 | ) | | | - | | | | - | | | | - | | | | - | | | | (6,230 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2023 | | | 21,732 | | | | 252,981 | | | | 6,658 | | | | 396 | | | | - | | | | - | | | | 281,767 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Carrying amounts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At January 1, 2022 | | | 65,808 | | | | 572,638 | | | | 29,281 | | | | 171 | | | | 409,780 | | | | 48,142 | | | | 1,125,820 | |
At December 31, 2022 | | | 59,160 | | | | 506,862 | | | | 28,341 | | | | 91 | | | | 552,588 | | | | 75,379 | | | | 1,222,421 | |
At December 31, 2023 | | | 89,597 | | | | 949,425 | | | | 310,200 | | | | 15 | | | | 290,370 | | | | 75,218 | | | | 1,714,825 | |
Note 12 – Property, Plant and Equipment, Net (Cont’d)
B. | The amount of borrowing costs capitalized in 2023 was approximately $22 million (2022: $16 million). |
C. | Fixed assets purchased on credit in 2023 was approximately $31 million (2022: $47 million). |
D. | The composition of depreciation expenses from continuing operations is as follows: |
| |
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Depreciation and amortization included in gross profit | | | 78,025 | | | | 56,853 | |
Depreciation and amortization charged to selling, general and administrative expenses | | | 12,914 | | | | 6,023 | |
Depreciation and amortization from continuing operations | | | 90,939 | | | | 62,876 | |
Note 13 – Intangible Assets, Net
| | Goodwill* | | | PPA** | | | Others | | | Total | |
| | $ Thousands | |
Cost | | | | | | | | | | | | |
Balance as at January 1, 2022 | | | 140,212 | | | | 110,446 | | | | 7,470 | | | | 258,128 | |
Additions | | | - | | | | - | | | | 10,799 | | | | 10,799 | |
Translation differences | | | (1,599 | ) | | | - | | | | (1,316 | ) | | | (2,915 | ) |
| | | | | | | | | | | | | | | | |
Balance as at December 31, 2022 | | | 138,613 | | | | 110,446 | | | | 16,953 | | | | 266,012 | |
Additions | | | - | | | | - | | | | 13,738 | | | | 13,738 | |
Acquisitions through business combination | | | 80,761 | | | | 25,968 | | | | - | | | | 106,729 | |
Impairment | | | (6,196 | ) | | | - | | | | - | | | | (6,196 | ) |
Translation differences | | | 559 | | | | - | | | | (225 | ) | | | 334 | |
| | | | | | | | | | | | | | | | |
Balance as at December 31, 2023 | | | 213,737 | | | | 136,414 | | | | 30,466 | | | | 380,617 | |
| | | | | | | | | | | | | | | | |
Amortization | | | | | | | | | | | | | | | | |
Balance as at January 1, 2022 | | | 21,455 | | | | 10,947 | | | | 1,444 | | | | 33,846 | |
Amortization for the year | | | - | | | | 10,569 | | | | 991 | | | | 11,560 | |
Translation differences | | | - | | | | - | | | | (189 | ) | | | (189 | ) |
| | | | | | | | | | | | | | | | |
Balance as at December 31, 2022 | | | 21,455 | | | | 21,516 | | | | 2,246 | | | | 45,217 | |
Amortization for the year | | | - | | | | 11,115 | | | | 3,036 | | | | 14,151 | |
Translation differences | | | - | | | | - | | | | (35 | ) | | | (35 | ) |
| | | | | | | | | | | | | | | | |
Balance as at December 31, 2023 | | | 21,455 | | | | 32,631 | | | | 5,247 | | | | 59,333 | |
| | | | | | | | | | | | | | | | |
Carrying value | | | | | | | | | | | | | | | | |
As at January 1, 2022 | | | 118,757 | | | | 99,499 | | | | 6,026 | | | | 224,282 | |
As at December 31, 2022 | | | 117,158 | | | | 88,930 | | | | 14,707 | | | | 220,795 | |
As at December 31, 2023 | | | 192,282 | | | | 103,783 | | | | 25,219 | | | | 321,284 | |
* | Relates mainly to goodwill arising from the acquisition of CPV Group of $105 million and Gat Power Plants of $61 million. Refer to Note 11.A.5 for further information. |
** Relates to the power purchase agreement from the acquisition of CPV Keenan, which is part of the CPV Group.
Note 13 – Intangible Assets, Net (Cont’d)
B. | The total carrying amounts of intangible assets with a finite useful life and with an indefinite useful life or not yet available for use |
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Intangible assets with a finite useful life | | | 128,998 | | | | 103,637 | |
Intangible assets with an indefinite useful life or not yet available for use | | | 192,286 | | | | 117,158 | |
| | | 321,284 | | | | 220,795 | |
C. | Impairment testing of goodwill arising from CPV Group |
As part of the acquisition of the CPV Group as described in Note 11.A.5, on the acquisition date, OPC recognized goodwill of $105 million, which reflects the future growth potential of the CPV Group’s operations. In 2022, OPC reallocated the goodwill to the renewable energies segment in the United States, since it believes that this allocation reflects fairly the nature of the goodwill that had arisen from the acquisition., especially through renewable energy, which OPC recognizes as a cash-generating unit. In 2023, subsequent to the acquisition of mountain wind power plant as detailed in Note 11.6, the goodwill assigned to the renewable energies segment in the United States has been increased to $126 million.
OPC conducted an impairment test as of December 31, 2023 for the goodwill recognized as part of the acquisition of CPV Group as well as acquisition of Mountain Wind Power Plant as detailed in Note 11.6. OPC has considered the report from a qualified external valuer regarding the recoverable amount of the cash-generating unit based on FVLCOD, estimated by an independent external appraiser. Projects under commercial operation and projects under construction were estimated by discounting expected future cash flows before tax by applying the discount rate, which is represented by the weighted average cost of capital (“WACC”) after tax. Projects under development were estimated at cost.
Below are the main assumptions used in the valuation:
| 1. | Forecast years - represents the period spanning from January 1, 2024 to December 31, 2054, based on the estimate of the economic life of the power plants and their value as at the end of the forecast period. |
| 2. | Market prices and capacity - market prices (electricity, capacity, RECs, etc.) are based on PPAs and market forecasts received from external and independent information sources, taking into account the relevant area and market for each project and the relevant regulation. |
| 3. | Estimated construction costs of the projects, and entitlement to tax benefits in respect of projects under construction (ITC or production tax credit, as applicable). |
| 4. | The annual long-term inflation rate of 2.2% equals the derived 10-year inflation rate as of the estimate date. |
| 5. | The WACC - calculated for each material project separately, and ranges between 6% (project with PPAs for sale of the entire capacity) and 7.25%. |
OPC used a relevant discount rate reflecting the specific risks associated with the future cash flow of a cash-generating unit.
As of December 31, 2023, the recoverable amount of the cash-generating unit of the CPV Group, which is relating to the renewable energies segment in the United States exceeds its book value and therefore, no impairment has been recognized. The fair value measurement was classified at Level 3 due to the use of input that is not based on observable market inputs in the assessment model.
As of the report date, in accordance with management’s assessments regarding future industry trends, which are based on external and internal sources, OPC has not identified any key assumptions in which possible likely changes may occur, which would cause the CPV Group’s recoverable amount to decrease below its carrying amount.
D. | Impairment testing of goodwill arising from Gat Power Plant |
As of December 31, 2023, goodwill of $61 million, which arose as part of the acquisition of the Gat Power Plant reflects the synergy between the activities of the power plants in Israel, whose business model is based on sale to private customers (OPC Rotem, OPC Hadera and Gat Power Plant).
The annual impairment testing of goodwill as of December 31, 2023, was carried out at the level of the cash-generating unit comprising the three power plants (hereinafter - the “Cash-Generating Unit”), since this is the lowest level at which goodwill is subject to monitoring for internal reporting purposes.
Note 1013 – SubsidiariesIntangible Assets, Net (Cont’d)
The recoverable amount of the Cash-Generating Unit is determined as follows:
| d.1. | Tzomet Energy Ltd. (“For the OPC Tzomet”)Rotem Power Plant - based on fair value less cost to sell
|
| 2. | For the OPC Hadera and Gat Power Plant - according to their carrying amounts |
Set forth below are the key assumptions used in determining OPC TzometRotem’s fair value:
| 1. | EBITDA for 2023 at of NIS 391 million (approximately $108 million) |
| 2. | An EV/EBITDA multiple of 11.4, based on the OPC’s experience in transactions carried out in the Israeli market in the field of power plants. |
The fair value measurement was classified at Level 3 due to the use of significant input that is not based on observable market inputs in the construction stages of a conventional open-cycle power plant (a peaker plant) with a capacity of about 396 MW (“Tzomet power plant”). The Tzomet power plant is located near the Plugot Intersection, in the area of Kiryat Gat. As at year end, the investment in the Tzomet power plant amounts to about NIS 869 million (approximately $279 million).valuation model.
Tariff approvalAs of December 31, 2023, the recoverable amount of the Cash-Generating Unit exceeds its book value and therefore, no impairment has been recognized. OPC determines that a potential reasonable change in the key assumptions used in determining the recoverable amount of the Cash-Generating Unit as of December 31, 2023, would not have caused a material impairment loss.
Note 14 – Long-Term Prepaid Expenses and Other Non-Current Assets
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Deferred expenses, net (1) | | | 7,786 | | | | 5,349 | * |
Loan to associated company (2) | | | 30,138 | | | | 5,100 | |
Contract costs | | | 6,347 | | | | 4,337 | |
Other non-current assets | | | 8,071 | | | | 8,537 | |
| | | 52,342 | | | | 23,323 | * |
| (1) | Relates to deferred expenses, net for OPC’s connection fees to the gas transmission network and the electricity grid. |
| (2) | Mainly relates to loan to CPV Valley with SOFR-based interest plus a weighted average interest margin of approximately 5.75%, with the final repayment date on May 31, 2026. |
Note 15 – Loans and Debentures
The following are the contractual conditions of the Group’s interest-bearing loans and credit, which are measured based on amortized cost. Additional information regarding the Group’s exposure to interest risks, foreign currency and liquidity risk is provided in Note 28, in connection with financial instruments.
| | As at December 31 | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Current liabilities | | | | | | |
Current maturities of long-term liabilities: | | | | | | |
Loans from banks and others | | | 107,739 | | | | 26,113 | |
Non-convertible debentures | | | 52,980 | | | | 9,497 | |
Others | | | 8,908 | | | | 3,652 | |
| | | 169,627 | | | | 39,262 | |
| | | | | | | | |
Non-current liabilities | | | | | | | | |
Loans from banks and others | | | 906,243 | | | | 610,434 | |
Non-convertible debentures | | | 454,163 | | | | 513,375 | |
| | | 1,360,406 | | | | 1,123,809 | |
| | | | | | | | |
Total | | | 1,530,033 | | | | 1,163,071 | |
Note 15 – Loans and Debentures (Cont’d)
A.1 | Classification based on currencies and interest rates |
| |
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Debentures (1) | | | | | | |
In shekels(1) | | | 507,143 | | | | 522,872 | |
| | | | | | | | |
Loans from banks and others (2) | | | | | | | | |
In shekels | | | 1,022,890 | | | | 640,199 | |
| | | | | | | | |
| | | 1,530,033 | | | | 1,163,071 | |
| 1. | Annual interest rates between 2.5% to 2.75%. |
| 2. | Hadera: Annual interest between 2.4% to 3.9% (for the linked loans) and between 3.6% to 5.4% (for the unlinked loans); Tzomet: Annual interest of prime plus 0.55%; and Gat: Annual interest of prime interest plus spread between 0.4% to 0.9%. |
| As of December 31, 2023 and 2022, all loans and debentures relate to liabilities incurred by OPC and its subsidiaries. |
A.2 | Reconciliation of movements of liabilities to cash flows arising from financing activities |
| |
| | Financial liabilities (including interest payable) | |
| | Loans and credit | | | Loans from holders of interests that do not confer financial control | | | Debentures | | | Financial instruments designated for hedging | |
| | $ Thousands | |
| | | | | | | | | | | | |
Balance as at January 1, 2023 | | | 516,195 | | | | 124,152 | | | | 526,771 | | | | (16,087 | ) |
Changes as a result of cash flows from financing activities | | | | | | | | | | | | | | | | |
Payment in respect of derivative financial instruments, net | | | - | | | | - | | | | - | | | | 2,385 | |
Receipt of loans | | | 405,460 | | | | 30,357 | | | | - | | | | - | |
Repayment of debentures and loans | | | (123,237 | ) | | | (33,389 | ) | | | (8,451 | ) | | | - | |
Interest paid | | | (30,270 | ) | | | (593 | ) | | | (6,133 | ) | | | - | |
| | | | | | | | | | | | | | | | |
Net cash provided by/(used in) financing activities | | | 251,953 | | | | (3,625 | ) | | | (14,584 | ) | | | 2,385 | |
| | | | | | | | | | | | | | | | |
Effect of changes in foreign currency exchange rates | | | (533 | ) | | | 2,218 | | | | - | | | | (241 | ) |
Interest and CPI expenses | | | 51,180 | | | | 7,179 | | | | 21,658 | | | | (3,027 | ) |
Changes in fair value, application of hedge accounting and other | | | 10,179 | | | | (463 | ) | | | (7,061 | ) | | | 2,065 | |
Business combination | | | 83,385 | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Balance as at December 31, 2023 | | | 912,359 | | | | 129,461 | | | | 526,784 | | | | (14,905 | ) |
Note 15 – Loans and Debentures (Cont’d)
| | Financial liabilities (including interest payable) | |
| | Loans and credit | | | Loans from holders of interests that do not confer financial control | | | Debentures | | | Financial instruments designated for hedging | |
| | $ Thousands | |
| | | | | | | | | | | | |
Balance as at January 1, 2022 | | | 488,455 | | | | 139,838 | | | | 586,600 | | | | (8,305 | ) |
Changes as a result of cash flows from financing activities | | | | | | | | | | | | | | | | |
Payment in respect of derivative financial instruments, net | | | - | | | | - | | | | - | | | | (923 | ) |
Receipt of loans | | | 88,651 | | | | 13,680 | | | | - | | | | - | |
Repayment of debentures and loans | | | (21,601 | ) | | | (25,617 | ) | | | (5,972 | ) | | | - | |
Interest paid | | | (11,058 | ) | | | (2,094 | ) | | | (11,889 | ) | | | - | |
Prepaid costs for loans taken | | | (2,845 | ) | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | |
Net cash provided by/(used in) financing activities | | | 53,147 | | | | (14,031 | ) | | | (17,861 | ) | | | (923 | ) |
| | | | | | | | | | | | | | | | |
Effect of changes in foreign currency exchange rates | | | (51,435 | ) | | | (8,419 | ) | | | (68,696 | ) | | | 967 | |
Interest and CPI expenses | | | 27,444 | | | | 6,764 | | | | 26,728 | | | | - | |
Changes in fair value, application of hedge accounting and other | | | (1,416 | ) | | | - | | | | - | | | | (7,826 | ) |
| | | | | | | | | | | | | | | | |
Balance as at December 31, 2022 | | | 516,195 | | | | 124,152 | | | | 526,771 | | | | (16,087 | ) |
1. | Long-term loans from banks and others |
A. | Gat Financing Agreement |
In March 2023, the Gat Partnership and Bank Leumi le-Israel B.M. (“Bank Leumi”) signed a financing agreement for a senior debt (project financing) to finance the construction of the Gat Power Plant. As part of the financing agreement, Bank Leumi advanced to the Gat Partnership a long-term loan at the total amount of NIS 450 million (approximately $128 million). The loan will be repaid in quarterly installments, starting from September 25, 2023, and the final repayment date is May 10, 2039 (subject to the stipulated early repayment provisions).
The loan will bear an annual interest equal to the Prime interest adjusted by a spread ranging from 0.4% to 0.9% per annum. The Gat Financing Agreement contains provisions on converting the interest on the said loan from a variable interest to a fixed and unlinked interest. The loan will bear the unlinked government bond interest, as defined in the agreement, adjusted by a 2.05% to 2.55% spread.
To secure the Gat Financing Agreement, there are collateral on all of the Gat Partnership’s assets and rights in it, including the real estate, bank accounts, insurances, the Gat Partnership’s assets and rights in connection with the Project Agreements (as defined in the agreement). In Apriladdition, a lien was placed on the rights of the entities holding the Gat Partnership. On the Completion Date, OPC and Veridis, each in accordance with its proportionate (indirect) share in the Gat Partnership, as well as OPC Power Plants, made a guarantee to pay all principal and accrued interest payments, in connection with the completion of the registration of the collateral and the payment of the deferred consideration balance under the circumstances and subject to the terms set in the said letter of guarantee.
Distributions by the Gat Partnership is subject to a number of conditions described in the said loan agreement, including, among other things: compliance with the following financial covenants: Historic debt service coverage ratio (“DSCR”) and Average Projected DSCR and loan life coverage ratio at a minimal rate of 1.15, a first quarterly principal and interest payment will be made, the provisions of the agreement will be complied with, and no more than four distributions will be carried out in a 12-month period.
Note 15 – Loans and Debentures (Cont’d)
In March 2023, the Gat Partnership, the entities holding the Gat Partnership, including OPC Power Plants, and Bank Leumi signed an equity subscription agreement, under which the said entities and OPC Power Plants made certain undertakings (debt service and equity capital requirements, guarantees, meeting certain financial covenants) toward Bank Leumi in connection with the Gat Partnership's activity.
B. | OPC Rotem financing agreement |
The power plant project of OPC Rotem was financed by the project financing method (hereinafter – “Rotem Financing Agreement”) with a consortium of lenders led by Bank Leumi Le-Israel Ltd. (hereinafter respectively – “Rotem’s Lenders” and “Bank Leumi”).
In October 2021, the early repayment of the full outstanding balance of OPC Rotem’s project financing of amount NIS 1,292 million (approximately $400 million) (including early repayment fees as described below) was completed. A debt service reserve and restricted cash of amount NIS 125 million (approximately $39 million) were also released. As part of the early repayment, OPC Rotem recognized a one-off expense totaling NIS 244 million (approximately $75 million) in 2021, in respect of an early repayment fee of approximately NIS 188 million (approximately $58 million), net of tax.
In proportion to their interests in OPC Rotem, OPC and Veridis extended to OPC Rotem loans for the financing of the early repayment of amounts NIS 904 million (approximately $291 million) and NIS 226 million (approximately $72 million), respectively, totaling NIS 1,130 million (approximately $363 million) (hereinafter - the “Shareholders’ Loans”). The Shareholders’ Loans bear annual interest at the higher of 2.65% or interest in accordance with Section 3(J) of the Israel Income Tax Ordinance, whichever is higher. The Shareholders’ Loans shall be repaid in quarterly unequal payments in accordance with the mechanism set in the Shareholders’ Loans agreement, and in any case no later than October 2031. A significant portion of OPC’s portion of NIS 904 million (approximately $280 million), was funded by the issuance of Series C debentures as described in Note 15.2.B.
C. | OPC Hadera financing agreement |
In July 2016, Hadera entered into a financing agreement for the senior debt (hereinafter – “the Hadera Financing Agreement”) with a consortium of lenders (hereinafter – “Hadera’s Lenders”), headed by Israel Discount Bank Ltd. (hereinafter – “Bank Discount”) and Harel Insurance Company Ltd. (hereinafter – “Harel”) to finance the construction of the Hadera Power Plant, whereby the lenders undertook to provide Hadera credit facilities, mostly linked to the CPI, in the amount of NIS 1,006 million (approximately $323 million) in several facilities (some of which are alternates): (1) a long‑term credit facility (including a facility for changes in construction and related costs); (2) a working capital facility; (3) a debt service reserves account and a VAT facility; (4) a guarantees facility; and (5) a hedge facility.
Some of the loans in the Hadera Financing Agreement are linked to the CPI and some are unlinked. The loans bear interest rates between 2.4% and 3.9% on the CPI-linked loans, and between 3.6% and 5.4% on the unlinked loans, and are repaid in quarterly installments up to 2037 and commenced from the first quarter of 2020.
In addition, OPC Hadera undertook, commencing from the commercial operation date, to provide a debt service reserve in an amount equal to the amount of the debt payments for two successive quarters (as of December 31, 2021, NIS 30 million (approximately $10 million)), and an owner’s guarantee fund of NIS 15 million (approximately $5 million).
D. | OPC Tzomet financing agreement |
In December 2019, a financing agreement for the senior debt (project financing) was signed between OPC Tzomet receivedand a conditional license forsyndicate of financing entities led by Bank Hapoalim Ltd. (hereinafter – “Bank Hapoalim”, and together with the other financing entities hereinafter – “Tzomet’s Lenders”), to finance construction of the Tzomet power plant. In December 2019, OPC Tzomet received tariff approval from the IEA for the power plant. Under the tariff approval, the commercial operation date is expected to be 36 months from the completion of financial closing as described above. Subject to completion of the power plant and receipt of a permanent generation license, OPC Tzomet will be entitled to tariffs in respect of sale of availability and energy to the System Operator for a period of twelve months commencing from the date of receipt of the permanent generation license. It is noted that the connection study OPC Tzomet received included approval of a reduced availability tariff in 2023, pursuant to the decision of the IEA.(hereinafter – “Tzomet Financing Agreement”).
LeaseUnder the Tzomet Financing Agreement, Tzomet’s Lenders undertook to provide OPC Tzomet a long‑term loan facility, a standby facility, a working capital facility, a debt service reserve, a VAT facility, third‑party guarantees and a hedge facility, in the aggregate amount of NIS 1,372 million (approximately $441 million). Part of the amounts under these facilities will be CPI-linked and part of the amounts will be USD-linked. The loans accrue interest at the rates set out in the Tzomet Financing Agreement.
Note 15 – Loans and Debentures (Cont’d)
As part of the Tzomet Financing Agreement, terms were provided with reference to conversion of interest on the long-term loans from variable interest to CPI linked interest. Such a conversion will take place in three cases: (a) automatically at the end of 6 years after the signing date of the Tzomet Financing Agreement; (b) at OPC Tzomet’s request during the first 6 years commencing from the signing date of the Tzomet Financing Agreement; (c) at Bank Hapoalim’s request, in certain cases, during the first 6 years commencing from the signing date of the Tzomet Financing Agreement. In addition, OPC Tzomet has the right to make early repayment of the loans within 6 years after the signing date of the Tzomet Financing Agreement, subject to a one time reduced payment (and without payment of an early repayment penalty), and provided that up to the time of the early repayment, the loans were not converted into loans bearing fixed interest linked to the CPI. The Tzomet Financing Agreement also includes certain restrictions with respect to distributions and repayment of shareholders’ loans.
As of December 31, 2023, OPC Tzomet and OPC were in compliance with all the covenants in accordance with the Tzomet Financing Agreement. The loans are to be repaid quarterly, which will begin shortly before the end of the first or second quarter after the commencement date of the commercial operation up to the date of the final payment, which will take place on the earlier of the end of 19 years from the commencement date of the commercial operation or 23 years from the signing date of the Tzomet Financing Agreement (however not later than December 31, 2042).
E. | CPV Keenan financing agreement |
In August 2021, CPV Keenan and a number of financial entities entered into a $120 million financing agreement (hereinafter - the “Keenan Financing Agreement”), comprising a loan of approximately NIS 335 million (approximately $104 million) and ancillary credit facilities (working capital and letters of credit) of approximately NIS 52 million (approximately $16 million).
The loan and the ancillary credit facilities in the Keenan Financing Agreement shall be repaid in installments over the term of the agreement; the final repayment date is December 31, 2030. The loan and the ancillary credit facilities in the Keenan Financing Agreement shall carry an annual interest of SOFR + 1.28%. (LIBOR + 1% - 1.375% through July 2023). CPV Group hedged approximately 70% of its exposure to changes in the SOFR interest through an interest swap, that was designated to hedge an accounting cash flow with the weighted interest of approximately 3.37%.
As part of the Keenan Financing Agreement, collateral and pledges on the project’s assets held by CPV Keenan were provided in favor of the lenders. The Keenan Financing Agreement includes a number of restrictions, such as compliance with a minimum debt service coverage ratio of 1.15 during the 4 quarters that preceded the distribution, and a condition whereby no grounds for repayment or breach event exists (as defined in the financing agreement).
The Keenan Financing Agreement includes grounds for calling for immediate repayment as customary in agreements of this type, including, among others – breach of representations and covenants that have a material adverse effect, non-payment events, non-compliance with certain obligations, various insolvency events, termination of the activities of the project or termination of significant parties in the project (as defined in the agreement), occurrence of certain events relating to the regulatory status of the project and maintaining of government approvals, certain changes in the project’s ownership, certain events in connection with the project, existence of legal proceedings relating to the project, and a situation wherein the project is not entitled to receive payments for electricity – all in accordance with and subject to the terms and conditions, definitions and cure periods detailed in the financing agreement.
F. | Mountain Wind Financing Agreement |
On April 6, 2023, a CPV Group and a banking corporation entered into a financing agreement that includes: (1) a term loan of $75 million that was used to fund part of the purchase consideration of the Mountain Wind Project (hereinafter - the “Loan”); and (2) ancillary credit facilities for working capital of $17 million for the current credit needs of the Mountain Wind Project (hereinafter jointly with the Loan - the “Credit Facilities”).
The Loan and Credit Facilities was pledged on the assets of the Mountain Wind Project and its rights and has a term of 5 years. The Loan bears annual interest of SOFR plus a fixed margin and a variable margin of between 1.63% and 1.75% over the term of the loan, of which the interest will be paid at least every quarter. CPV Group hedged the exposure to changes in variable SOFR interest by entering into an interest rate swap in respect of 75% of the balance of the Loan and opted to apply cash flow hedge accounting rules. The weighted interest as of the report date is approximately 5.4%.
Note 15 – Loans and Debentures (Cont’d)
G. | Financing Agreement for Construction in the US Renewable Energies Segment |
On August 24, 2023, certain entities in CPV group have entered into a financing agreement of $370 million for the purpose of financing the construction and initial operating period of qualifying projects in the field of renewable energy in the United States, of which a total of approximately $59 million were withdrawn by CPV Group as at December 31, 2023. Subsequent to the reporting period, an additional drawdown of approximately $93 million were withdrawn by CPV Group. CPV Group hedged the exposure to changes in variable SOFR interest by entering into an interest rate swap in respect of 75% of the balance of the loan and opted to apply cash flow hedge accounting rules.
H. | OPC Power – Shareholder Loans |
During the reporting period, OPC and non-controlling interests invested in the equity of the partnership OPC Power (both directly and indirectly) a total of approximately NIS 565 million (approximately $150 million) and extended by approximately NIS 175 million (approximately $45 million) in loans, based on their stake in the partnership. The loans are denominated in US Dollars and bear an annual interest rate of 7%. The loan principal will be repayable at any time as will be agreed on between the parties, but no later than January 2028. After utilizing the entire investment commitment and shareholder loans in July 2023, the facility was increased by $100 million (OPC’s share in the facility is $70 million).
In April 2020, OPC issued debentures (Series B) with a par value of NIS 400 million (approximately $113 million), which were listed on the TASE. As a result, approximately $111 million representing the par value, net of issuance cost is recognized as debentures. The debentures are linked to the Israeli consumer price index and bear annual interest at the rate of 2.75%. The principal and interest of the debentures (Series B) are repayable every six months, commencing on March 31, 2021 (on March 31 and September 30 of every calendar year) through September 30, 2028.
In October 2020, OPC issued additional Series B debentures of par value NIS 556 million (approximately $162 million) (the “Expansion of Series B”). The gross proceeds of the issuance amount to approximately NIS 584 million (approximately $171 million) and the issuance costs were approximately NIS 7 million (approximately $2 million).
A trust certificate was signed between OPC and Reznik Paz Nevo Trusts Ltd. in April 2020, which details customary grounds for calling the debentures for immediate repayment (subject to cure periods), including insolvency events, liquidation proceedings, receivership, a stay of proceedings and creditors’ arrangements, certain structural changes, a significant worsening in OPC’s financial position, etc. The trust certificate also includes a commitment of OPC Tzomet landto comply with certain financial covenants and restrictions.
On December 31, 2023, OPC meets the said financial covenants.
In September 2021, OPC issued Series C debentures at a par value of NIS 851 million (approximately $266 million), with the proceeds designated primarily for the early repayment of OPC Rotem’s financing (refer to Note 15.1.B). The debentures are listed on the TASE, are not CPI-linked and bear annual interest of 2.5%. The debentures shall be repaid in twelve semi-annual and unequal installments (on February 28 and August 31) as set out in the amortization schedule, starting on February 28, 2024 through August 31, 2030 (the first interest payment is due on February 28, 2022). The issuance expenses amounted to about NIS 9 million (approximately $3 million). OPC is required to comply with certain financial covenants and restrictions.
On December 31, 2023, OPC meets the said financial covenants.
Note 16 – Trade and Other Payables
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
| | | | | | |
Trade Payables | | | 70,661 | | | | 95,036 | |
Liability to tax equity partner (1) | | | 74,466 | | | | - | |
Accrued expenses and other payables | | | 8,256 | | | | 10,833 | |
Government institutions | | | 1,204 | | | | 2,083 | |
Employees and payroll institutions | | | 14,573 | | | | 14,491 | |
Interest payable | | | 4,984 | | | | 4,472 | |
Others | | | 7,754 | | | | 6,500 | |
| | | 181,898 | | | | 133,415 | |
1. See Note 18.A.4.d for more information.
Other non-current liabilities include approximately $79 million deferred income in respect to ITC grant. Refer to Note 18.A.4.d for more information.
Note 17 – Right-Of-Use Assets, Net, Lease Liabilities and Long-term Deferred Expenses
| A) | The Group leases the following items: |
In Israel, the leases are typically entered into with government institutions for the construction and operation of OPC Power Plants’s power plants. They typically run for a period of more than 20 years, with an option for renewal. In the United States, the leases are typically entered into with private companies or individuals for the development, construction and operation of the CPV Group’s power plants.
| ii) | OPC gas transmission infrastructure |
The lease for the gas Pressure Regulation and Measurement Station (“PRMS”) relates to the facility at OPC Hadera’s power plant. For further details, please refer to Note 18.B.
The leases range from 3 to 9 years, with options to extend.
The total for low-value items on short-term leases are not material. Accordingly, the Group has not recognized right-of-use assets and lease liabilities for these leases.
| | As at December 31, 2023 | |
| | Balance at beginning of year | | | Depreciation charge for the year | | | Adjustments | | | Balance at end of year | |
| | $ Thousands | |
| | | | | | | | | | | | |
Land | | | 76,963 | | | | (3,770 | ) | | | 18,300 | | | | 91,493 | |
PRMS facility | | | 13,977 | | | | (1,209 | ) | | | 1,766 | | | | 14,534 | |
Offices | | | 8,353 | | | | (2,538 | ) | | | 5,135 | | | | 10,950 | |
Long-term deferred expenses | | | 27,491 | | | | (1,246 | ) | | | 31,293 | | | | 57,538 | |
| | | 126,784 | | | | (8,763 | ) | | | 56,494 | | | | 174,515 | |
Note 17 – Right-Of-Use Assets, Net, Lease Liabilities and Long-term Deferred Expenses (Cont’d)
| | As at December 31, 2022 | |
| | Balance at beginning of year | | | Depreciation charge for the year | | | Adjustments | | | Balance at end of year | |
| | $ Thousands | |
| | | | | | | | | | | | |
Land | | | 81,355 | | | | (3,484 | ) | | | (908 | ) | | | 76,963 | |
PRMS facility | | | 6,239 | | | | (660 | ) | | | 8,398 | | | | 13,977 | |
Offices | | | 10,282 | | | | (2,142 | ) | | | 213 | | | | 8,353 | |
Long-term deferred expenses | | | 33,459 | | | | (1,129 | ) | | | (4,839 | ) | | | 27,491 | * |
| | | 131,335 | | | | (7,415 | ) | | | 2,864 | | | | 126,784 | * |
| C) | Amounts recognized in the consolidated statements of profit & loss and cash flows |
| | As at December 31, | | | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | | | $ Thousands | |
| | | | | | |
Interest expenses in respect of lease liability | | | 689 | | | | 572 | |
| | | | | | | | |
Total cash outflow for leases | | | 2,692 | | | | 2,572 | |
| i) | Lease of OPC Tzomet land |
In January 2020, Israel Lands Authority (“ILA”) approved allotment of an area measuring about 8.5 hectares for the construction of the Tzomet Power Plant (hereinafter in this Section – the “Land”). ILA signed a development agreement with Kibbutz Netiv Halamed Heh (hereinafter – the “Kibbutz”) in connection with the Land, which is valid up to November 5, 2024 (hereinafter – the “Development Agreement”), which after fulfillmentfulfilment of its conditions a lease agreement will be signed for a period of 24 years and 11 months from approval of the transaction, i.e. up to November 4, 2044. Tzomet Netiv Limited Partnership (“Joint Company’) own the rights in the Land, and the composition is as follows i) General Partner of the Tzomet Netiv Limited Partnership holds 1%, in which the Kibbutz and OPC Tzomet hold 26% and 74% respectively, ii) Limited partners hold 99%, where the Kibbutz (26%) and OPC Tzomet (73%) hold rights as limited partners.
In February 2020, an updated lease agreement was also signed whereby the Joint Company, as the owner of the Land, will lease the Land to OPC Tzomet, for the benefit of the project.
In January 2020, a financial specification was received from ILA in respect of the capitalization fees, whereby value of the Land (not including development expenses) of about NIS 207 million (approximately $60 million) (not including VAT) was set (hereinafter – “the Initial Assessment”). OPC Tzomet, on behalf of the Joint Company, arranged payment of the Initial Assessment in January 2020 at the rate of 75% of amount of the Initial Assessment and provided through OPC, the balance, at the rate of 25% as a bank guarantee in favor of ILA. In January 2021, a final assessment was received from ILA where the value of the usage fees in the land for a period of 25 years, to construct a power plant with a capacity of 396 megawattsMW was NIS 200 million (approximately $62 million) (the “Final Assessment”). In March 2021, a reimbursement of NIS 7 million (approximately $2 million), which included linkage differences and interest in respect of the difference between capitalized fees paid and the Final Assessment amount, was received. In addition, the bank guarantee was also reduced by the amount of 25%25% of said difference.
In February 2021,January 2023, a decision was made regarding the Joint Company submitted a legalinitial appeal, regardingwhereby the amount of the Final Assessment amount, which the ILA dismissed in August 2021. In November 2021, the Joint Companywas reduced to NIS 154 million (approximately $44 million), excluding VAT. OPC Tzomet filed an assessor objection.
appeal on the said decision. As atof December 31, 2021,2023, the amounts paid in respect of the land, including the amount of the Final Assessment was classified in the consolidated statement of financial position under “Right‑of‑“Right of use assets, net”. The unpaid balance of the Initial Asssesment of approximately NIS 52 million (approximately $17 million) was classified in the consolidated statement of financial position as at December 31, 2021 as current maturities of lease liabilities.
Note 10 – Subsidiaries (Cont’d)
| e. | OPC Sorek 2 Ltd. (“OPC Sorek 2”)
|
In May 2020, OPC Sorek 2 signed an agreement with SMS IDE Ltd., which won a tender of the State of Israel for construction, operation, maintenance and transfer of a seawater desalination facility on the “Sorek B” site (the “Sorek B Desalination Facility”), where OPC Sorek 2 will construct, operate and maintain an energy generation facility (“Sorek B Generation Facility) with a generation capacity of upamounted to 99 MW on the premises of the Sorek 2 Desalination Facility, and will supply the energy required for the Sorek B Desalination Facility for a period of 25 years after the operation date of the Sorek B Desalination Facility. At the end of the aforesaid period, ownership of the Sorek B Generation Facility will be transferred to the State of Israel. OPC undertook to construct the Sorek B Generation Facility within 24 months from the date of approval of the National Infrastructure Plan (approved in November 2021), and to supply energy at a specific scope of capacity to the Sorek B Desalination Facility.
Establishment of the Sorek B Generation Facility is contingent on, among other things, completion of the planning and/or licensing processes and receipt of approval with respect to the ability to output electricity from the site, which as at the submission date of the report had not yet been received.
In OPC’s estimation, the financial closing of the Sorek B Generation Facility is expected to be reached at the end of 2023, and the total cost of the project is expected to be approximately NIS 200 million (approximately $62$55 million).
In April 2021, OPC entered into an agreement to purchase an interest in Gnrgy, whose business focuses on e-mobility charging stations. Pursuant to the purchase agreement, in May 2021 OPC acquired a 27% interest for a consideration of NIS 25 million (approximately $8 million), and in December 2021 acquired a further 24% interest for a consideration of NIS 42 million (approximately $14 million), of which NIS 13 mllion (approximately $4 million) was paid in installments bearing a 5% additional annual interest. As at year end, OPC held a 51% interest in Gnrgy.
Gnrgy's founder retained the remaining interests in Gnrgy and entered into a shareholders’ agreement with OPC, which among other things gave OPC an option to acquire a 100% interest in Gnrgy (the “Purchase Option”). The exercise price of the Purchase Option will be derived from the fair value of Gnrgy on the exercise date, assuming an agreed‑to rate, but no less than a price based on the value of the original transaction. The exercise period of the Purchase Option will be the period of time determined after approval of the financial statements for each of the years 2024 through 2026. To the extent the entire exercise period of the Purchase Option passes without OPC exercising the Purchase Option, and on the assumption that no capital investments have been made in Gnrgy so as to dilute the founder’s share and subject to additional conditions stipulated in the shareholders’ agreement, the founder has an option to acquire shares of Gnrgy from OPC such that after the acquisition, he will hold 2% more than OPC in Gnrgy’s share capital, and will once again become the controlling shareholder of Gnrgy. In addition, to the extent OPC does not exercise the Purchase Option within the first period for exercise of the Purchase Option, and the founder will hold less than 15% of Gnrgy’s share capital, the founder will have an option to require OPC purchase his shares based on the fair value that will be determined in accordance with that stated in the shareholders’ agreement at a discount rate as provided in the agreement.
In July 2021, Gnrgy received a virtual supply license.
| g. | ICG Energy, Inc (“ICGE”)
|
In January 2021, IC Green transferred its interest in ICGE to OPC at zero consideration. Refer to Note 10.A.2 for further details. As at December 31, 2021, ICGE, which is held directly by OPC, holds OPC’s businesses in the United States.
During 2005-2020, ICGE recorded net operating losses for tax purposes, which as at December 31, 2020 amounted to approximately $108 million, and utilizable tax credits in the amount of approximately $1.7 million, which may be offset for tax purposes in the United States against future income in the United States, subject to complying with the conditions of the law, some of which are not under OPC’s control and, therefore, OPC did not recognize deferred tax assets in respect thereof. OPC coordinates its operations in the United States (including following the acquisition of CPV Group, as set out in Note 10.A.1.i) under ICGE. Among other things, the said transfer will allow tax savings with respect to profits, if any, from the business activities in the United States.
Note 10 – Subsidiaries (Cont’d)
In addition, in January 2021, following the transfer of ICGE, OPC transferred its rights and loans in OPC Power to ICGE in respect of a loan in the amount of NIS 472 million (approximately $152 million), and capital notes issued by ICGE to OPC of amount NIS 1,188 million (approximately $382 million). The loan is denominated in shekels and bears annual interest at a rate of 7%. The loan principal will be repayable at any time that will be agreed on between the parties, but no later than January 2028. Accrued interest is payable on a quarterly basis. To the extent the payment made by ICGE is lower than the amount of the accrued interest, the payment in respect of the balance will be postponed to the next quarter, but not later than January 2028. The capital notes are repayable only after 5 years will have elapsed from their issuance date; they are denominated in shekels and are to be repaid based on the decision of ICGE.
| h. | OPC Power Ventures LP (“OPC Power”)
|
In October 2020, OPC signed a partnership agreement (the “Partnership Agreement” and the “Partnership”, where applicable) with three financial entities to form OPC Power, whereby the limited partners in the Partnership are OPC which holds about 70% interest, Clal Insurance Group which hold 12.75% interest, Migdal Insurance Group which hold 12.75% interest, and a corporation from Poalim Capital Markets which hold 4.5% interest.
The General Partner of the Partnership, a wholly-owned company of OPC, will manage the Partnership’s business as its General Partner, with certain material actions (or which may involve a conflict of interest between the General Partner and the limited partners), requiring approval of a majority of special majority (according to the specific action) of the institutional investors which are limited partners. The General Partner is entitled to management fees and success fees subject to meeting certain achievements.
OPC also entered into an agreement with entities from the Migdal Insurance Group with respect to their holdings in the Partnership, whereby OPC granted said entities a put option, and they granted OPC a call option (to the extent that the put option is not exercised), which is exercisable after 10 years in certain circumstances.
The total investment undertakings and provision of shareholders’ loans provided by all partners under the Partnership Agreement pro rata to the holdings discussed above is $1,215 million. The amount is designated for acquisition of all the rights in the CPV Group and for financing additional investments.
In 2021, OPC and the holders of the non-controlling interests provided OPC Power in partnership capital and loans of approximately $657 million and $204 million respectively. The loans are denominated in dollars and bear interest at an annual rate of 7%. The loan principal is repayable at any time, but not later than January 2028. The accrued interest is to be paid on a quarterly basis. To the extent the payment made by OPC Power is lower than the amount of the accrued interest, the payment in respect of the balance will be postponed to the next quarter, but not later than January 2028. As mentioned above, in January 2021, the loans and rights of OPC Power were subsequently transferred to ICG Energy, Inc. OPC Power holds 99.99% of the CPV Group, and the remaining interest is held by the General Partner of the Partnership.
| i. | CPV Group LP (“CPV Group”)
|
The CPV Group is engaged in the development, construction and management of power plants using renewable energy and conventional energy (power plants running on natural gas of the advanced‑generation combined‑cycle type) in the United States. The CPV Group holds rights in active power plants that it initiated and developed – both in the area of conventional energy and in the area of renewable energy. In addition, through an asset management group the CPV Group is engaged in provision of management services to power plants in the United States using a range of technologies and fuel types, by means of signing asset‑management agreements, usually for short/medium periods.
Acquisition of CPV Group
On January 25, 2021 (“Transaction completion date”), the Group acquired 70% of the rights and holdings in CPV Power Holdings LP; Competitive Power Ventures Inc.; and CPV Renewable Energy Company Inc through the limited partnership, CPV Group LP (the “Buyer”). For the year ended December 31, 2021, Kenon’s consolidated results comprised results of the CPV Group from Transaction completion date through to period end.
Note 10 – Subsidiaries (Cont’d)
On the Transaction Completion Date, in accordance with the mechanism for determination of the consideration as defined in the acquisition agreement, the Buyer paid the Sellers approximately $648 million, and about $5 million for a deposit which remains in the CPV Group. In May 2021, the consideration for the acquisition of the CPV Group was adjusted slightly, as a result of which the sellers paid the CPV Group an immaterial amount. For further details relating to the Seller’s Loan provided in relation to Three Rivers, refer to Note 8.B.b.1.
OPC bore legal expenses and costs of a due diligence examination attributable to the acquisition, which were included in selling, general and administrative expenses in the consolidated statements of profit and loss, in the amount of about NIS 44 million (approximately $13 million), of which about NIS 2 million (approximately $1 million) were incurred in 2021.
Business combination
OPC partially hedged its exposure to changes in the cash flows from payments in dollars in connection with the acquisition agreement by means of forward transactions and dollar deposits. OPC chose to designate the forward transactions as an accounting hedge. On the completion date of the transaction, OPC recorded the amount of about NIS 103 million (approximately $32 million) that was accrued in a hedge capital reserve to the cost of the investment in the CPV Group. This cost was recorded in the “goodwill” category and increased the cost of the acquisition by about $32 million.
The contribution of the CPV Group to the Group’s revenue and consolidated loss from the acquisition date until December 31, 2021 amounted to $51 million and $47 million, respectively. Management estimates that had the acquisition took place on January 1, 2021, the consolidated revenue for the year ended December 31, 2021 would have been $492 million and the consolidated profit for the year would have been $883 million.
Determination of fair value of identified assets and liabilities:
On the Transaction Completion Date, OPC included the CPV Group’s net assets at fair value. Presented below is the fair value of the identified assets acquired and liabilities assumed:
| | $ | |
| | Millions
| |
| | | | |
Cash and cash equivalents
| | | 29 | |
Trade and other receivables
| | | 15 | |
Long-term restricted deposits and cash
| | | 1 | |
Investments in associated companies
| | | 595 | |
Property, plant and equipment
| | | 50 | |
Right-of-use assets
| | | 10 | |
Intangible assets
| | | 111 | |
Trade and other payables
| | | (6 | )
|
Derivative financial instruments
| | | (12 | )
|
Loans and credit
| | | (169 | )
|
Lease liabilities
| | | (10 | )
|
Other long-term liabilities
| | | (28 | )
|
Liabilities for deferred taxes
| | | (6 | )
|
Identified assets, net
| | | 580 | |
Combined cash flows as a result of the acquisition:
| | $
| |
| | Millions
| |
| | | | |
Cash and cash equivalents paid
| | | 653 | |
Hedging costs paid
| | | 32 | |
Cash and cash equivalents acquired
| | | (29 | )
|
| | | 656 | |
Note 10 – Subsidiaries (Cont’d)
Goodwill
Goodwill created as part of the business combination reflects the potential of future activities of the CPV Group in the market in which it operates. OPC expects that part of the goodwill will be tax deductible. Due to the acquisition, goodwill was recognized as follows:
| | $
| |
| | Millions
| |
| | | | |
Consideration transferred
| | | 653 | |
Add: Hedging costs
| | | 32 | |
Less: fair value of identified assets, net
| | | (580 | )
|
Goodwill
| | | 105 | |
| j. | CPV Keenan II Renewable Energy Company, LLC (“CPV Keenan”)
|
CPV Keenan owns a wind energy power plant with a capacity of 152 MW, located in Oklahoma, United States. In April 2021, the CPV Group signed an agreement for purchase of the remaining rights from the tax equity partner in CPV Keenan for a consideration of approximately $25 million. As a result of the transaction, a $12 million loss was recognized in Financing expenses.
| k. | CPV Maple Hill Solar, LLC (“CPV Maple Hill”)
|
CPV Maple Hill is in the construction stages of a solar energy power plant with a capacity of 126 MW located in Pennsylvania, United States. In May 2021, a commencement order for the construction work on CPV Maple Hill (hereinafter – “the Project”) was issued. As at December 31, 2021, the aggregate cost of the investment in the Project is estimated at about $178 million and the Project’s commercial operation date is expected to be in the second half of 2022.
| l. | CPV Rogue’s Wind, LLC (“CPV Rogue’s Wind”)
|
CPV Rogue’s Wind is currently in the advanced development stage of developing a wind energy power plant with a capacity of 114 MW, located in Pennsylvania, United States. Construction of the power plant is expected to commence in the second half of 2022. In April 2021, the CPV Group signed a power purchase agreement for sale of all the energy, availability (capacity) and Renewable Energy Certificates (RECs) of CPV Rogue’s Wind (hereinafter - “the Project”). As at December 31, 2021, the aggregate cost of the investment in the Project is estimated at about $200 to $205 million and the Project’s commercial operation date is expected to be in the second half of 2023.
In 2019, OPC Rotem distributed dividends, and OPC’s share of the dividends was NIS 190 million (approximately $54 million). In the same year, OPC distributed dividends on aggregate of approximately NIS 236 million (approximately $92 million), and Kenon’s share of the dividends were approximately $48 million.
In 2020, OPC Rotem distributed dividends and OPC’s share of the dividends was NIS 170 million (approximately $50 million).
In 2021, OPC Rotem distributed dividends and OPC’s share of the dividends was NIS 132 million (approximately $41 million).
| n. | Issuances of new shares by OPC
|
In June 2019, OPC issued 5,179,147 new ordinary shares at a price of NIS 23.17 per share to three external institutional entities. Total cash consideration of approximately NIS 120 million (approximately $33 million) was received. As a result of the share issuance, Kenon registered a decrease of 3% in equity interests of OPC from 76% to 73%. Accordingly, the Group recognised $14 million in non-controlling interests and $19 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
Note 10 – Subsidiaries (Cont’d)
In September 2019, OPC issued 5,849,093 new ordinary shares at a price of NIS 26.5 per share to four external institutional entities. Total cash consideration of approximately NIS 155 million (approximately $44 million) was received. As a result of the share issuance, Kenon registered a decrease of 3% in equity interests of OPC from 73% to 70%. Accordingly, in 2019 the Group recognised $20 million in non-controlling interests and $24 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
In October 2020, OPC published a shelf offer report for issuance of ordinary shares of NIS 0.01 par value each to the public through a uniform offer with a range of quantities by means of a tender on the price per unit and the quantity. Kenon submitted bids for participation in the tender at prices not less than the uniform price determined in the tender, and as part of the issuance it was issued 10,700,200 shares for a consideration of approximately $101 million. A total of 23,022,100 shares were issued to the public. The gross proceeds from the issuance amount to approximately NIS 737 million (approximately $217 million) and the issuance expenses amounted to approximately NIS 5 million (approximately $1 million).
In addition, in October 2020, OPC completed a private offer of 11,713,521 ordinary shares to institutional entities from the Clal group and Phoenix group. The price per ordinary share with respect to each of the offerees was NIS 29.88, which was determined through negotiations between the offerees. The gross proceeds from the issuance amount to approximately NIS 350 million (approximately $103 million) and the issuance expenses amount to approximately NIS 5 million (approximately $1 million). Following completion of the share issuances in 2020, as at December 31, 2020 Kenon registered a decrease of 8% in equity interest in OPC from 70% to 62%. Accordingly, in 2020 the Group recognised $136 million in non-controlling interests and $182 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
In February 2021, OPC issued to Altshuler Shaham Ltd. and entities managed by Altschuler Shalam (collectively, the “Offerees”), 10,300,000 ordinary shares of NIS 0.01 par value each. The price of the shares issued to the Offerees was NIS 34 per ordinary share, and the gross proceeds from the issuance was about NIS 350 million (approximately $106 million). The issuance expenses were about NIS 4 million (approximately $1 million). Accordingly, the Group recognized $63 million in non-controlling interests and $42 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
In September 2021, OPC issued rights to purchase 13,174,419 ordinary OPC shares of NIS 0.01 per value each (hereinafter - the “Rights”), in connection with the development and expansion of OPC’s activity in the USA. The rights were offered such that each holder of ordinary shares of OPC who held 43 ordinary shares was entitled to purchase one right unit comprising of three shares at a price of NIS 75 (NIS 25 per share). Through the deadline for exercising the rights, notices of exercise were received for the purchase of 13,141,040 ordinary shares (constituting approximately 99.7% of the total shares offered in the rights offering). The gross proceeds from the exercised rights amounted to approximately NIS 329 million (approximately $102 million).
In October 2021, Kenon exercised rights for the purchase of approximately 8 million shares for total consideration of approximately NIS 206 million (approximately $64 million), which included its pro rata share and additional rights it purchased during the rights trading period plus the cost to purchase these additional rights. As a result, Kenon now holds approximately 58.8% of the outstanding shares of OPC. Accordingly, the Group recognized $41 million in non-controlling interests and $60 million in accumulated profits arising from changes in the Group’s proportionate share of OPC.
2. IC Green Energy Ltd (“IC Green”)
In 2020, IC Green acquired the remaining interests of ICG Energy, Inc (“ICGE”) (formerly known as Primus Green Energy Inc.), and held 100% interest in ICGE. In August 2020, ICGE sold substantially all of its assets to a third party, Bluescape Clean Fuels LLC for $1.6 million. In January 2021, IC Green transferred its interest in ICGE to OPC for zero consideration.
Note 10 – Subsidiaries (Cont’d)
| B. | The following table summarizes the information relating to the Group’s subsidiary in 2021, 2020 and 2019 that has material NCI:
|
| | As at and for the year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | OPC Energy Ltd. | | | OPC Energy Ltd. | | | OPC Energy Ltd. | |
| | $ Thousands | |
NCI percentage * | | | 53.14 | % | | | 39.09 | % | | | 35.31 | % |
Current assets | | | 346,380 | | | | 693,913 | | | | 204,128 | |
Non-current assets | | | 2,141,744 | | | | 1,040,400 | | | | 807,133 | |
Current liabilities | | | (230,518 | ) | | | (221,975 | ) | | | (100,313 | ) |
Non-current liabilities | | | (1,341,962 | ) | | | (980,028 | ) | | | (663,328 | ) |
Net assets | | | 915,644 | | | | 532,310 | | | | 247,620 | |
Carrying amount of NCI | | | 486,598 | | | | 208,080 | | | | 87,435 | |
| | | | | | | | | | | | |
Revenue | | | 487,763 | | | | 385,625 | | | | 373,142 | |
(Loss)/profit after tax | | | (93,898 | ) | | | (12,583 | ) | | | 34,366 | |
Other comprehensive income | | | 74,219 | | | | (2,979 | ) | | | 15,569 | |
(Loss)/profit attributable to NCI | | | (54,022 | ) | | | (2,567 | ) | | | 16,433 | |
OCI attributable to NCI | | | 33,661 | | | | (616 | ) | | | 4,353 | |
Cash flows from operating activities | | | 119,264 | | | | 104,898 | | | | 109,254 | |
Cash flows from investing activities | | | (256,200 | ) | | | (643,942 | ) | | | (41,123 | ) |
Cash flows from financing activites excluding dividends paid to NCI | | | 311,160 | | | | 489,919 | | | | (40,539 | ) |
Dividends paid to NCI | | | (10,214 | ) | | | (12,412 | ) | | | (13,501 | ) |
Effect of changes in the exchange rate on cash and cash equivalents | | | 6,717 | | | | 12,566 | | | | 9,202 | |
Net increase/(decrease) in cash and cash equivalents | | | 170,727 | | | | (48,971 | ) | | | 23,293 | |
* The NCI percentage represents the effective NCI of the Group
Note 11 – Property, Plant and Equipment, Net
| | As at December 31, 2021 | |
| | Balance at beginning of year | | | Additions | | | Disposals | | | Reclassification | | | Acquisitions as part of a business | | | Differences in translation reserves | | | Balance at end of year | |
| | $ Thousands | |
Cost | | | | | | | | | | | | | | | | | | | | | |
Roads, buildings and leasehold improvements | | | 72,222 | | | | 5,709 | | | | (453 | ) | | | 2,242 | | | | 1,682 | | | | 2,554 | | | | 83,956 | |
Facilities, machinery and equipment | | | 763,828 | | | | 2,527 | | | | 0 | | | | 0 | | | | 0 | | | | 25,920 | | | | 792,275 | |
Wind turbines | | | 0 | | | | 894 | | | | (972 | ) | | | 0 | | | | 29,922 | | | | 0 | | | | 29,844 | |
Computers | | | 763 | | | | 0 | | | | 0 | | | | (763 | ) | | | 0 | | | | 0 | | | | 0 | |
Office furniture and equipment | | | 1,132 | | | | 240 | | | | (150 | ) | | | (808 | ) | | | 0 | | | | 0 | | | | 414 | |
Assets under construction | | | 127,116 | | | | 252,096 | | | | 0 | | | | 0 | | | | 18,990 | | | | 11,578 | | | | 409,780 | |
Other | | | 43,840 | | | | 5,761 | | | | (1,885 | ) | | | (671 | ) | | | 0 | | | | 1,097 | | | | 48,142 | |
| | | 1,008,901 | | | | 267,227 | | | | (3,460 | ) | | | 0 | | | | 50,594 | | | | 41,149 | | | | 1,364,411 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Roads, buildings and leasehold improvements | | | 12,799 | | | | 3,453 | | | | (240 | ) | | | 1,585 | | | | 0 | | | | 551 | | | | 18,148 | |
Facilities, machinery and equipment | | | 175,633 | | | | 36,620 | | | | 0 | | | | 0 | | | | 0 | | | | 7,384 | | | | 219,637 | |
Wind turbines | | | 0 | | | | 634 | | | | (71 | ) | | | 0 | | | | 0 | | | | 0 | | | | 563 | |
Computers | | | 511 | | | | 0 | | | | 0 | | | | (511 | ) | | | 0 | | | | 0 | | | | 0 | |
Office furniture and equipment | | | 757 | | | | 71 | | | | (151 | ) | | | (434 | ) | | | 0 | | | | 0 | | | | 243 | |
Other | | | 640 | | | | 0 | | | | 0 | | | | (640 | ) | | | 0 | | | | 0 | | | | 0 | |
| | | 190,340 | | | | 40,778 | | | | (462 | ) | | | 0 | | | | 0 | | | | 7,935 | | | | 238,591 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as at December 31, 2021 | | | 818,561 | | | | 226,449 | | | | (2,998 | ) | | | 0 | | | | 50,594 | | | | 33,214 | | | | 1,125,820 | |
Note 11 – Property, Plant and Equipment, Net (Cont’d)
| | As at December 31, 2020 | |
| | Balance at beginning of year | | | Additions* | | | Disposals | | | Reclassification | | | Differences in translation reserves | | | Balance at end of year | |
| | $ Thousands | |
Cost | | | | | | | | | | | | | | | | | | |
Roads, buildings and leasehold improvements | | | 41,952 | | | | 193 | | | | 0 | | | | 26,000 | | | | 4,077 | | | | 72,222 | |
Facilities, machinery and equipment | | | 499,948 | | | | 4,902 | | | | (4,170 | ) | | | 208,931 | | | | 54,217 | | | | 763,828 | |
Computers | | | 654 | | | | 179 | | | | (63 | ) | | | 0 | | | | (7 | ) | | | 763 | |
Office furniture and equipment | | | 1,047 | | | | 60 | | | | (6 | ) | | | 0 | | | | 31 | | | | 1,132 | |
Assets under construction | | | 239,934 | | | | 113,434 | | | | 0 | | | | (234,931 | ) | | | 8,679 | | | | 127,116 | |
Other | | | 36,255 | | | | 16,309 | | | | (9,565 | ) | | | 0 | | | | 841 | | | | 43,840 | |
| | | 819,790 | | | | 135,077 | | | | (13,804 | ) | | | 0 | | | | 67,838 | | | | 1,008,901 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation | | | | | | | | | | | | | | | | | | | | | | | | |
Roads, buildings and leasehold improvements | | | 9,883 | | | | 2,114 | | | | 0 | | | | 0 | | | | 802 | | | | 12,799 | |
Facilities, machinery and equipment | | | 140,626 | | | | 29,341 | | | | (4,170 | ) | | | 0 | | | | 9,836 | | | | 175,633 | |
Computers | | | 410 | | | | 140 | | | | (63 | ) | | | 0 | | | | 24 | | | | 511 | |
Office furniture and equipment | | | 722 | | | | 29 | | | | (6 | ) | | | 0 | | | | 12 | | | | 757 | |
Other | | | 507 | | | | 95 | | | | 0 | | | | 0 | | | | 38 | | | | 640 | |
| | | 152,148 | | | | 31,719 | | | | (4,239 | ) | | | 0 | | | | 10,712 | | | | 190,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as at December 31, 2020 | | | 667,642 | | | | 103,358 | | | | (9,565 | ) | | | 0 | | | | 57,126 | | | | 818,561 | |
* | Additions in respect of assets under construction are presented net of agreed compensation from the construction contractor. Refer to Note 17.A.f for further details.
|
Note 11 – Property, Plant and Equipment, Net (Cont’d)
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Roads, buildings and leasehold improvements | | | 65,808 | | | | 59,423 | |
Facilities, machinery and equipment | | | 572,638 | | | | 588,195 | |
Wind turbines | | | 29,281 | | | | 0 | |
Computers | | | 0 | | | | 252 | |
Office furniture and equipment | | | 171 | | | | 375 | |
Assets under construction | | | 409,780 | | | | 127,116 | |
Other | | | 48,142 | | | | 43,200 | |
| | | 1,125,820 | | | | 818,561 | |
C. | When there is any indication of impairment, the Group’s entities perform impairment tests for their long-lived assets using fair values less cost to sell based on independent appraisals or value in use estimations, with assumptions based on past experience and current sector forecasts, described below:
|
| • | Discount rate is a post-tax measure based on the characteristics of each CGU.
|
| • | Cash flow projections include specific estimates for around five years and a terminal growth rate thereafter. The terminal growth rate is determined based on management’s estimate of long-term inflation.
|
| • | Existing power purchase agreements (“PPAs”) signed and existing number of customers.
|
| • | The production mix of each country was determined using specifically-developed internal forecast models that consider factors such as prices and availability of commodities, forecast demand of electricity, planned construction or the commissioning of new capacity in the country’s various technologies.
|
| • | The distribution business profits were determined using specifically-developed internal forecast models that consider factors such as forecasted demand, fuel prices, energy purchases, collection rates, percentage of losses, quality service improvement, among others.
|
| • | Fuel prices have been calculated based on existing supply contracts and on estimated future prices including a price differential adjustment specific to every product according to local characteristics.
|
| • | Assumptions for energy sale and purchase prices and output of generation facilities are made based on complex specifically-developed internal forecast models for each country.
|
| • | Demand – Demand forecast has taken into consideration the most probably economic performance as well as growth forecasts of different sources.
|
| • | Technical performance – The forecast takes into consideration that the power plants have an appropriate preventive maintenance that permits their proper functioning and the distribution businesss has the required capital expenditure to expand and perform properly in order to reach the targeted quality levels.
|
D. | The amount of borrowing costs capitalized in 2021 was approximately $7 million (2020: $9 million).
|
E. | Fixed assets purchased on credit in 2021 was approximately $39 million (2020: $32 million).
|
F. | The composition of depreciation expenses from continuing operations is as follows:
|
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Depreciation and amortization included in gross profit | | | 53,116 | | | | 33,135 | |
Depreciation and amortization charged to selling, general and administrative expenses | | | 4,524 | | | | 1,036 | |
Depreciation and amortization from continuing operations | | | 57,640 | | | | 34,171 | |
Note 12 – Intangible Assets, Net
| | Goodwill | | | PPA* | | | Others | | | Total | |
| | $ Thousands | |
Cost | | | | | | | | | | | | |
Balance as at January 1, 2021 | | | 21,596 | | | | 0 | | | | 2,372 | | | | 23,968 | |
Acquisitions as part of business combinations | | | 118,458 | | | | 110,446 | | | | 3,410 | | | | 232,314 | |
Acquisitions – self development | | | 0 | | | | 0 | | | | 1,451 | | | | 1,451 | |
Disposals | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Translation differences | | | 158 | | | | 0 | | | | 237 | | | | 395 | |
| | | 140,212 | | | | 110,446 | | | | 7,470 | | | | 258,128 | |
| | | | | | | | | | | | | | | | |
Amortization | | | | | | | | | | | | | | | | |
Balance as at January 1, 2021 | | | 21,455 | | | | 0 | | | | 1,061 | | | | 22,516 | |
Amortization for the year | | | 0 | | | | 10,947 | | | | 339 | | | | 11,286 | |
Disposals | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Translation differences | | | 0 | | | | 0 | | | | 44 | | | | 44 | |
Balance as at December 31, 2021 | | | 21,455 | | | | 10,947 | | | | 1,444 | | | | 33,846 | |
| | | | | | | | | | | | | | | | |
Carrying value | | | | | | | | | | | | | | | | |
As at January 1, 2021 | | | 141 | | | | 0 | | | | 1,311 | | | | 1,452 | |
As at December 31, 2021 | | | 118,757 | | | | 99,499 | | | | 6,026 | | | | 224,282 | |
*Relates to the acquisition of CPV Keenan, which is part of the CPV Group. Refer to Note 10.A.1.i for further information.
| | Goodwill | | | Others | | | Total | |
| | $ Thousands | |
Cost | | | | | | | | | |
Balance as at January 1, 2020 | | | 21,586 | | | | 1854 | | | | 23,440 | |
Acquisitions – self development | | | 0 | | | | 368 | | | | 368 | |
Disposals | | | 0 | | | | (3 | ) | | | (3 | ) |
Translation differences | | | 10 | | | | 153 | | | | 163 | |
| | | 21,596 | | | | 2,372 | | | | 23,968 | |
| | | | | | | | | | | | |
Amortization | | | | | | | | | | | | |
Balance as at January 1, 2020 | | | 21,455 | | | | 752 | | | | 22,207 | |
Amortization for the year | | | 0 | | | | 249 | | | | 249 | |
Disposals | | | 0 | | | | (3 | ) | | | (3 | ) |
Translation differences | | | 0 | | | | 63 | | | | 63 | |
Balance as at December 31, 2020 | | | 21,455 | | | | 1,061 | | | | 22,516 | |
| | | | | | | | | | | | |
Carrying value | | | | | | | | | | | | |
As at January 1, 2020 | | | 131 | | | | 1,102 | | | | 1,233 | |
Note 12 – Intangible Assets, Net (Cont’d)
| B. | The total carrying amounts of intangible assets with a finite useful life and with an indefinite useful life or not yet available for use
|
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Intangible assets with a finite useful life | | | 105,525 | | | | 1,311 | |
Intangible assets with an indefinite useful life or not yet available for use | | | 118,757 | | | | 141 | |
| | | 224,282 | | | | 1,452 | |
| C. | Impairment testing of a cash-generating unit
|
As part of the acquisition of the CPV Group as described in Note 10.A.1.i, on the acquisition date, OPC recognized goodwill of $105 million, which reflects the potential of future activities of CPV Group in the market in which it operates. Goodwill was attributed in full to CPV Group, which is a cash-generating unit.
OPC conducted an annual impairment test as of December 31, 2021. OPC has considered the report from a qualified external valuer regarding the recoverable amount of the cash-generating unit based on discounted expected future cash flows provided by OPC. Projects under commercial operation and projects under construction were estimated by discounting expected future cash flows before tax and the weighted average cost of capital (WACC) after tax. Projects under development were estimated at cost.
Below are the main assumptions used in the valuation:
1. | Forecast years - represents the period spanning from January 1, 2022 to December 31, 2054, based on the estimate of the economic life of the power plants and their value as at the end of the forecast period.
|
2. | Market prices and capacity - market prices (electricity, gas, capacity, etc.) were provided by an external independent appraiser, the cash flow forecasts were made for each power plant separately, taking into account the relevant electricity market (NYISO, ISO-NE, PJM and SPP) and the relevant regulation.
|
3. | The annual inflation rate of 2.6% equals the derived 10-year inflation rate as of the estimate date.
|
4. | The WACC - calculated for each material project separately, and ranges between 4.75 % (project with agreements for sale of the entire capacity) and 8.5%.
|
OPC used a relevant discount rate reflecting the specific risks associated with the future cash flow of a cash-generating unit.
As of December 31, 2021, the recoverable amount of the cash-generating unit of the CPV Group exceeds its book value and therefore, no impairment has been recognized for them. The fair value measurement was classified at Level 3 due to the use of input that is not based on observable market inputs in the assessment model.
As of the report date, in accordance with management's assessments regarding future industry trends, which are based on external and internal sources, OPC has not identified any key assumptions in which possible likely changes may occur, which would cause the CPV Group's recoverable amount to decrease below its carrying amount.
Note 13 – Long-Term Prepaid Expenses and Other Non-Current Assets
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Deferred expenses, net (1) | | | 42,840 | | | | 26,776 | |
Contract costs | | | 5,119 | | | | 5,036 | |
Other non-current assets | | | 9,307 | | | | 12,837 | |
| | | 57,266 | | | | 44,649 | |
| (1) | Relates to deferred expenses, net for OPC’s connection fees to the gas transmission network and the electricity grid.
|
Note 14 – Loans and Debentures
Following are the contractual conditions of the Group’s interest-bearing loans and credit, which are measured based on amortized cost. Additional information regarding the Group’s exposure to interest risks, foreign currency and liquidity risk is provided in Note 28, in connection with financial instruments.
| | | | | | |
| | As at December 31 | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Current liabilities | | | | | | |
Current maturities of long-term liabilities: | | | | | | |
Loans from banks and others | | | 21,861 | | | | 39,702 | |
Non-convertible debentures | | | 7,125 | | | | 6,769 | |
Others | | | 9,325 | | | | 0 | |
| | | 38,311 | | | | 46,471 | |
| | | | | | | | |
Non-current liabilities | | | | | | | | |
Loans from banks and others | | | 596,489 | | | | 575,688 | |
Non-convertible debentures | | | 575,314 | | | | 296,146 | |
| | | 1,171,803 | | | | 871,834 | |
| | | | | | | | |
Total | | | 1,210,114 | | | | 918,305 | |
Note 14 – Loans and Debentures (Cont’d)
A.1 Classification based on currencies and interest rates
| | Weighted-average interest rate December 31 | | | As at December 31, | |
| | 2021 | | | 2021 | | | 2020 | |
| | % | | | $ Thousands | |
| | | | | | | | | |
Debentures | | | | | | | | | |
In shekels | | 2.50% - 2.75% | | | | 582,439 | | | | 302,915 | |
| | | | | | | | | | | |
Loans from banks and others | | | | | | | | | | | |
In shekels | | 4.70% | | | | 627,675 | | | | 615,390 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | 1,210,114 | | | | 918,305 | |
As at December 31, 2021 and December 31, 2020, all loans and debentures relate to liabilities incurred by OPC and its subsidiaries.
A.2Reconciliation of movements of liabilities to cash flows arising from financing activities
| | Financial liabilities (including interest payable) | |
| | Loans and credit | | | Loans from holders of interests that do not confer financial control | | | Debentures | | | Lease liabilities | | | Financial instruments designated for hedging | | | Other liabilities | | | Total | |
| | $ Thousands | |
| | | | | | | | | | | | | | | | | | | | | |
Balance as at January 1, 2021 | | | 615,403 | | | | 439 | | | | 304,701 | | | | 18,605 | | | | 11,014 | | | | 0 | | | | 950,162 | |
Acquisitions as part of business combinations | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes as a result of cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment in respect of derivative financial instruments | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (13,933 | ) | | | 0 | | | | (13,933 | ) |
Proceeds from issuance of debentures less issuance expenses | | | 0 | | | | 0 | | | | 262,750 | | | | 0 | | | | 0 | | | | 0 | | | | 262,750 | |
Receipt of long-term loans from banks | | | 211,738 | | | | 131,388 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 343,126 | |
Repayment of loans, debentures and lease liabilities | | | (601,474 | ) | | | 0 | | | | (5,876 | ) | | | (1,991 | ) | | | 0 | | | | (28,495 | ) | | | (637,836 | ) |
Interest paid | | | (25,095 | ) | | | 0 | | | | (6,093 | ) | | | (335 | ) | | | 0 | | | | 0 | | | | (31,523 | ) |
Costs paid in advance in respect of taking out loans | | | (4,991 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (4,991 | ) |
Net cash (used in)/provided by financing activities | | | (419,822 | ) | | | 131,388 | | | | 250,781 | | | | (2,326 | ) | | | (13,933 | ) | | | (28,495 | ) | | | (82,407 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes due to gain of control in subsidiaries | | | 172,163 | | | | 0 | | | | 0 | | | | 10,542 | | | | 12,176 | | | | 28,729 | | | | 223,610 | |
Effect of changes in foreign exchange rates | | | (10,820 | ) | | | 2,497 | | | | 17,993 | | | | 1,627 | | | | (487 | ) | | | (176 | ) | | | 32,274 | |
Changes in fair value | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (13,726 | ) | | | 15,119 | | | | 1,393 | |
Interest in the period | | | 38,803 | | | | 4,275 | | | | 13,125 | | | | 507 | | | | 0 | | | | 246 | | | | 56,956 | |
Other changes and additions during the year | | | 71,088 | | | | 1,239 | | | | 0 | | | | 5,085 | | | | (3,349 | ) | | | 13,394 | | | | 87,457 | |
Balance as at December 31, 2021 | | | 488,455 | | | | 139,838 | | | | 586,600 | | | | 34,040 | | | | (8,305 | ) | | | 28,817 | | | | 1,269,445 | |
Note 14 – Loans and Debentures (Cont’d)
| | Financial liabilities (including interest payable) | |
| | Loans and credit | | | Loans from holders of interests that do not confer financial control | | | Debentures | | | Lease liabilities | | | Financial instruments designated for hedging | | | Total | |
| | $ Thousands | |
Balance as at January 1, 2020 | | | 540,281 | | | | 439 | | | | 81,847 | | | | 5,385 | | | | 4,225 | | | | 632,177 | |
Changes as a result of cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Payment in respect of derivative financial instruments | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (6,105 | ) | | | (6,105 | ) |
Proceeds from issuance of debentures less issuance expenses | | | 0 | | | | 0 | | | | 280,874 | | | | 0 | | | | 0 | | | | 280,874 | |
Receipt of long-term loans from banks | | | 73,236 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 73,236 | |
Repayment of loans and debentures | | | (39,067 | ) | | | 0 | | | | (84,487 | ) | | | 0 | | | | 0 | | | | (123,554 | ) |
Interest paid | | | (21,210 | ) | | | 0 | | | | (3,630 | ) | | | (149 | ) | | | 0 | | | | (24,989 | ) |
Payment of principal of lease liabilities | | | 0 | | | | 0 | | | | 0 | | | | (551 | ) | | | 0 | | | | (551 | ) |
Costs paid in advance in respect of taking out loans | | | (8,556 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (8,556 | ) |
Net cash provided by/(used in) financing activities | | | 4,403 | | | | 0 | | | | 192,757 | | | | (700 | ) | | | (6,105 | ) | | | 190,355 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Effect of changes in foreign exchange rates | | | 42,607 | | | | 0 | | | | 23,795 | | | | 1,581 | | | | 749 | | | | 68,732 | |
Changes in fair value | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 12,145 | | | | 12,145 | |
Interest in the period | | | 21,301 | | | | 0 | | | | 5,473 | | | | 292 | | | | 0 | | | | 27,066 | |
Other changes and additions during the year | | | 6,811 | | | | 0 | | | | 829 | | | | 12,047 | | | | 0 | | | | 19,687 | |
Balance as at December 31, 2020 | | | 615,403 | | | | 439 | | | | 304,701 | | | | 18,605 | | | | 11,014 | | | | 950,162 | |
Long-term loans from banks and others
OPC Rotem financing agreement
The power plant project of OPC Rotem was financed by the project financing method (hereinafter – “Rotem Financing Agreement”) with a consortium of lenders led by Bank Leumi Le-Israel Ltd. (hereinafter respectively – “Rotem’s Lenders” and “Bank Leumi”).
The loans (which were linked to the CPI) bore fixed interest rates between 4.9% and 5.4% and were repaid quarterly basis commencing from the fourth quarter of 2013. The Rotem Financing Agreement also provides certain restrictions with respect to distribution of a dividend. In addition, under the Rotem Financing Agreement, OPC Rotem undertook to hold certain funds that were classified under restricted cash in the statement of financial position, and OPC and Veridis also provided bank and corporate guarantees in favor of lenders in the consortium.
In October 2021, the early repayment of the full outstanding balance of OPC Rotem’s project financing of amount NIS 1,292 million (approximately $400 million) (including early repayment fees as described below) was completed. A debt service reserve and restricted cash of amount NIS 125 million (approximately $39 million) were also released. As part of the early repayment, OPC Rotem recognized a one-off expense totaling NIS 244 million (approximately $75 million) in 2021, in respect of an early repayment fee of approximately NIS 188 million (approximately $58 million), net of tax. In light of this early repayment, OPC also executed an early close-out of a CPI SWAP contract, which yielded NIS 13 million (approximately $4 million) for OPC.
In proportion to their interests in OPC Rotem, OPC and Veridis extended to OPC Rotem loans for the financing of the early repayment of amounts NIS 904 million (approximately $291 million) and NIS 226 million (approximately $72 million), respectively, totaling NIS 1,130 million (approximately $363 million) (hereinafter - the “Shareholders’ Loans”). The Shareholders' Loans bear annual interest at the higher of 2.65% or interest in accordance with Section 3(J) of the Israel Income Tax Ordinance, whichever is higher. The Shareholders’ Loans shall be repaid in quarterly unequal payments in accordance with the mechanism set in the Shareholders’ Loans agreement, and in any case no later than October 2031. A significant portion of OPC’s portion of NIS 904 million (approximately $280 million), was funded by the issuance of Series C debentures as described in Note 14.E.
Note 14 – Loans and Debentures (Cont’d)
Hadera financing agreement
In July 2016, Hadera entered into a financing agreement for the senior debt (hereinafter – “the Hadera Financing Agreement”) with a consortium of lenders (hereinafter – “Hadera’s Lenders”), headed by Israel Discount Bank Ltd. (hereinafter – “Bank Discount”) and Harel Insurance Company Ltd. (hereinafter – “Harel”) to finance the construction of the Hadera Power Plant, whereby the lenders undertook to provide Hadera credit facilities, mostly linked to the CPI, in the amount of NIS 1,006 million (approximately $323 million) in several facilities (some of which are alternates): (1) a long‑term credit facility (including a facility for changes in construction and related costs); (2) a working capital facility; (3) a debt service reserves account and a VAT facility; (4) a guarantees facility; and (5) a hedge facility.
Some of the loans in the Hadera Financing Agreement are linked to the CPI and some are unlinked. The loans bear interest rates between 2.4% and 3.9% on the CPI-linked loans, and between 3.6% and 5.4% on the unlinked loans, and are repaid in quarterly installements up to 2037, and commenced from the first quarter of 2020.
In addition, OPC Hadera undertook, commencing from the commercial operation date, to provide a debt service reserve in an amount equal to the amount of the debt payments for two successive quarters (as at December 31, 2021, NIS 30 million (approximately $10 million)), and an owner’s guarantee fund of NIS 15 million (approximately $5 million).
As at December 31, 2021, OPC Hadera and OPC were in compliance with all of the covenants pursuant to the Hadera Financing Agreement. OPC Hadera has a guarantee facility in the amount of NIS 60 million (approximately $19 million) of which (NIS 26 million (approximately $8 million) has been used, a hedge facility in the amount of NIS 68 million (approximately $22 million) (of which an insignificant amount has been used), and a working capital facility of NIS 30 million (approximately $10 million) which has not been used.
Tzomet financing agreement
In December 2019, a financing agreement for the senior debt (project financing) was signed between OPC Tzomet and a syndicate of financing entities led by Bank Hapoalim Ltd. (hereinafter – “Bank Hapoalim”, and together with the other financing entities hereinafter – “Tzomet’s Lenders”), to finance construction of the Tzomet power plant (hereinafter – “Tzomet Financing Agreement”).
Under the Tzomet Financing Agreement, Tzomet’s Lenders undertook to provide OPC Tzomet a long‑term loan facility, a standby facility, a working capital facility, a debt service reserve, a VAT facility, third‑party guarantees and a hedge facility, in the aggregate amount of NIS 1.372 billion (approximately $441 million). Part of the amounts under these facilities will be CPI-linked and part of the amounts will be USD-linked. The loans accrue interest at the rates set out in the Tzomet Financing Agreement.
As part of the Tzomet Financing Agreement, terms were provided with reference to conversion of interest on the long term loans from variable interest to CPI linked interest. Such a conversion will take place in three cases: (a) automatically at the end of 6 years after the signing date of the Tzomet Financing Agreement; (b) at OPC Tzomet’s request during the first 6 years commencing from the signing date of the Tzomet Financing Agreement; (c) at Bank Hapoalim’s request, in certain cases, during the first 6 years commencing from the signing date of the Tzomet Financing Agreement. In addition, OPC Tzomet has the right to make early repayment of the loans within 6 years after the signing date of the Tzomet Financing Agreement, subject to a one time reduced payment (and without payment of an early repayment penalty), and provided that up to the time of the early repayment, the loans were not converted into loans bearing fixed interest linked to the CPI. The Tzomet Financing Agreement also includes certain restrictions with respect to distributions and repayment of shareholders’ loans.
As at December 31, 2021, OPC Tzomet and OPC were in compliance with all the covenants in accordance with the Tzomet Financing Agreement. The loans are to be repaid quarterly, which will begin shortly before the end of the first or second quarter after the commencement date of the commercial operation up to the date of the final payment, which will take place on the earlier of the end of 19 years from the commencement date of the commercial operation or 23 years from the signing date of the Tzomet Financing Agreement (however not later than December 31, 2042).
As of December 31, 2021 withdrawals totalling NIS 349 million (approximately $112 million) were made from the long-term loans facility. The loans bear annual interest at the rate of prime plus 0.95%. Subsequent to year end, OPC Tzomet withdrew NIS 156 million (approximately $50 million) from the facility.
OPC Tzomet equity subscription agreement
In December 2019, an equity subscription agreement (hereinafter – “Tzomet’s Equity Subscription Agreement”) was signed. As part of the said agreement, OPC undertook certain commitments to the Lenders in connection with OPC Tzomet and its activities, including investment of shareholders’ equity in OPC Tzomet of about NIS 293 million (approximately $94 million). As at December 31, 2021, OPC had provided OPC Tzomet with the amount of equity that it had undertaken.
Note 14 – Loans and Debentures (Cont’d)
Short-term loans
In December 2019, OPC signed a facility agreement for taking out short‑term credit with a bank, for purposes of payment of the Initial Assessment of OPC Tzomet (as stated in Note 10.A.1.d), up to the end of March 2020. In January 2020, OPC withdrew a loan of NIS 169 million (approximately $53 million) for the payment of the Initial Assessment. The Loan was repaid in April 2020.
In March 2020, OPC took a loan from Bank Mizrahi Tafahot Ltd. (“Bank Mizrahi”), a related party of the Group, of amount NIS 50 million (approximately $16 million). The loan bore interest at the annual rate of prime plus 1.25% and was repaid in May 2020.
Hedge agreement
In June 2019, OPC entered into a hedge agreement with Bank Hapoalim Ltd. for hedge of 80% of the exposure to the CPI with respect to the principal of loans from financial institutions, in exchange for payment of additional interest at the annual rate of between 1.7% and 1.76% (hereinafter – “the CPI Transactions”). OPC chose to designate the CPI Transactions as an “accounting hedge”.
In 2020 and 2021, due to changes in the inflationary expectations and in light of the changes in the projected interest rates, OPC recorded an increase in the assets and liabilities, respectively, following revaluation of the financial derivative in respect of the CPI Transactions (hereinafter – “the Derivative”), in the amount of NIS 43 (approximately $13 million) million and NIS 42 million (approximately $13 million), respectively, which was recorded as part of other comprehensive income. OPC deposits collaterals to secure its liabilities to the bank in connection with the Derivative. As at the date of the report, the collateral amounted to about NIS 35 million (approximately $11 million). The value of the Derivative was calculated by means of discounting the linked shekel cash flows expected to be received less the discounted fixed shekel cash flows payable. An adjustment was made to this valuation for the credit risks of the parties.
Note 14 – Loans and Debentures (Cont’d)
Series A Debentures
In May 2017, OPC issued debentures (Series A). The par value of the debentures was NIS 320 million (approximately $85 million), bore annual interest at the rate of 4.95% and were repayable, principal and interest, every six months, commencing on June 30, 2018 (on June 30 and December 30 of every calendar year) through December 30, 2030.
Subsequent to the additional issuance of Series B debentures in October 2020 as described below, OPC made early redemption of its Series A debentures. As a result of the early redemption, the debt service reserve of approximately NIS 67 million (approximately $19 million) was released. The total amount of full early redemption, in respect of principal, interest and compensation, amounted to approximately NIS 313 million (approximately $92 million). The compensation component of approximately NIS 41 million (approximately $12 million) was recorded in the consolidated statements of profit & loss in 2020, under Financing expenses.
Series B Debentures
In April 2020, OPC issued debentures (Series B) with a par value of NIS400 million (approximately $113 million), which were listed on the TASE. As a result, approximately $111 million representing the par value, net of issuance cost is recognised as debentures. The debentures are linked to the Israeli consumer price index and bear annual interest at the rate of 2.75%. The principal and interest of the debentures (Series B) are repayable every six months, commencing on March 31, 2021 (on March 31 and September 30 of every calendar year) through September 30, 2028.
In October 2020, OPC issued additional Series B debentures of par value NIS 556 million (approximately $162 million) (the “Expansion of Series B”). The gross proceeds of the issuance amount to approximately NIS 584 million (approximately $171 million) and the issuance costs were approximately NIS 7 million (approximately $2 million).
A trust certificate was signed between OPC and Reznik Paz Nevo Trusts Ltd. in April 2020, which details customary grounds for calling the debentures for immediate repayment (subject to cure periods), including insolvency events, liquidation proceedings, receivership, a stay of proceedings and creditors’ arrangements, certain structural changes, a significant worsening in OPC’s financial position, etc. The trust certificate also includes a commitment of OPC to comply with certain financial covenants and restrictions as follows: As at December 31, 2021, OPC’s shareholders’ equity was NIS 2,270 million (approximately $730 million) (minimum required is NIS 250 million, and for purposes of a distribution, NIS 350 million); the ratio of OPC’s shareholders’ equity to OPC’s total assets was 55% (minimum required is 17%, and for purposes of distribution, 27%); the ratio of the net consolidated financial debt less the financial debt designated for construction of projects that have not yet commenced producing EBITDA and the EBITDA is 7.3 (maximum allowed is 13, and for purposes of a distribution, 11).
Series C Debentures
In September 2021, OPC issued Series C debentures at a par value of NIS 851 million (approximately $266 million), with the proceeds designated primarily for the early repayment of OPC Rotem’s financing (refer to Note 14.B). The debentures are listed on the TASE, are not CPI-linked and bear annual interest of 2.5%. The debentures shall be repaid in twelve semi-annual and unequal installments (on February 28 and August 31) as set out in the amortization schedule, starting on February 28, 2024 through August 31, 2030 (the first interest payment is due on February 28, 2022). The issuance expenses amounted to about NIS 9 million (approximately $3 million).
OPC is required to comply with certain financial covenants and restrictions as follows: As at December 31, 2021, OPC’s shareholders’ equity was NIS 2,270 million (approximately $730 million) (minimum required is NIS 1 billion, and for purposes of a distribution, NIS 1.4 billion); the ratio of OPC’s shareholders’ equity to OPC’s total assets was 55% (minimum required is 20%, and for purposes of distribution, 30%); the ratio of the net consolidated financial debt less the financial debt designated for construction of projects that have not yet commenced producing EBITDA and Adjusted EBITDA is 7.3 (maximum allowed is 13, and for purposes of a distribution, 11); equity to consolidated balance sheet ratio of 37% (minimum required is 17%.
Note 14 – Loans and Debentures (Cont’d)
Keenan financing agreement
In August 2021, CPV Keenan and a number of financial entities entered into a $120 million financing agreement (hereinafter - the “Keenan Financing Agreement”). Concurrently with the closing of the Keenan Financing Agreement, CPV Keenan repaid its former financing agreement entered into in 2014 (as of the repayment date, the outstanding principal was approximately $67 million). No financial penalties were imposed on the early repayment of the former financing agreement. The previous annual interest rate was LIBOR plus a 2.25%-2.75% spread on the Term Loan, and a 1% spread on the ancillary credit facilities.
The loan and the ancillary credit facilities in the Keenan Financing Agreement shall be repaid in installments over the term of the agreement; the final repayment date is December 31, 2030. The loan and the ancillary credit facilities in the Keenan Financing Agreement shall carry an annual interest of LIBOR + 1% to 1.375%. As part of the Keenan Financing Agreement, collateral and pledges on the project's assets held by CPV Keenan were provided in favor of the lenders.
It should be noted that the Keenan Financing Agreement includes, among other things, and as customary in agreements of this type, provisions regarding mandatory prepayments, fees in respect of credit facilities, annual fees relating to the issuance of LC and additional customary terms and conditions, including hedging of the base interest rate in respect of 70% of the loan.
As part of the Keenan Financing Agreement, collateral and pledges on the project's assets held by CPV Keenan were provided in favor of the lenders. The Keenan Financing Agreement includes a number of restrictions, such as compliance with a minimum debt service coverage ratio of 1.15 during the 4 quarters that preceded the distribution, and a condition whereby no grounds for repayment or breach event exists (as defined in the financing agreement).
The Keenan Financing Agreement includes grounds for calling for immediate repayment as customary in agreements of this type, including, among others – breach of representations and covenants that have a material adverse effect, non payment events, non compliance with certain obligations, various insolvency events, termination of the activities of the project or termination of significant parties in the project (as defined in the agreement), occurrence of certain events relating to the regulatory status of the project and maintaining of government approvals, certain changes in the project’s ownership, certain events in connection with the project, existence of legal proceedings relating to the project, and a situation wherein the project is not entitled to receive payments for electricity – all in accordance with and subject to the terms and conditions, definitions and cure periods detailed in the financing agreement.
Completion of the Keenan Financing Agreement generated the CPV Group approximately $26 million in cash (after making payments in respect of: repayment of CPV Keenan's previous outstanding loan balance, transaction costs, early closing of an interest rate hedging transaction of approximately $11 million, and additional costs). Similarly, in light of the repayment of CPV Keenan’s previous financing, in the reporting period, the Group recognized a gain on derecognition of financial liability of $3 million under Financing income.
G. OPC Power
Shareholder loans
In 2021, OPC (through a wholly-owned subsidiary) and non-controlling interests provided loans to OPC Power in the amounts of $143 million and $61 million, respectively. Subsequent to year end, OPC (through a wholly owned subsidiary) and non-contorlling interests provided additional loans to OPC Power in the amounts of $8 million and $4 million, respectively. Refer to Note 10.A.1.h for further details. The loans bear annual interest at a rate of 7%. The loan principal will be repayable at any time as will be agreed on between the parties, but no later than January 2028. Accrued interest is payable on a quarterly basis. To the extent that payment made by OPC Power is lower than the amount of the accrued interest, payment in respect of the balance will be postponed to the following quarter – but not later than January 2028.
Note 15 – Trade and Other Payables
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
| | | | | | |
Trade Payables | | | 136,505 | | | | 92,542 | |
Accrued expenses and other payables | | | 11,479 | | | | 21,870 | |
Government institutions | | | 2,459 | | | | 3,144 | |
Employees and payroll institutions | | | 11,625 | | | | 5,940 | |
Interest payable | | | 5,213 | | | | 2,314 | |
Others | | | 4,256 | | | | 2,432 | |
| | | 171,537 | | | | 128,242 | |
Note 1617 – Right-Of-Use Assets, Net, and Lease Liabilities and Long-term Deferred Expenses (Cont’d)
| A) | The Group leases the following items:
|
In Israel, the leases are typically entered into with government institutions for the construction and operation of OPC Israel’s power plants. They typically run for a period of more than 20 years, with an option for renewal. In the United States, the leases are typically entered into with private companies or individuals for the development, construction and operation of the CPV Group’s power plants.
| ii) | OPC gas transmission infrastructurePurchase of leasehold rights in land
|
The leaseOn May 10, 2023, OPC (through OPC Power Plants Ltd.) won the tender issued by Israel Lands Administration (hereinafter - “ILA”) for planning and an option to purchase leasehold rights in land for the gas Pressure Regulationconstruction of renewable energy electricity generation facilities using photovoltaic technology in combination with storage in relation to three compounds in the Neot Hovav Industrial Local Council, with a total area of approximately 227 hectares. The amount of total bid submitted by OPC for all three compounds, in aggregate, was approximately NIS 484 million (approximately $133 million).
Upon notice by the ILA, a planning authorization agreement will be signed between the winning bidder and Measurement Station (“PRMS”) relatesthe ILA for a period of 3 years. In August 2023, consideration equivalent to 20% of the facility at OPC Hadera’s power plant. For further details, please referbid amount for each compound was paid. Upon authorizing a new outline plan, a lease agreement will be signed for a period of 24 years and 11 months, to Note 17.B.construct and operate the project(s), of which consideration of the remaining 80% of the bid amount per compound will be set against. As of the approval date of the report, it is uncertain that approvals, consents, or actions required for the completion of the project(s) will be completed with respect to any of the compounds.
| iii) | OfficesBackbone lease of land
|
In 2023, an agreement for the lease of land for the Backbone project was entered into force. The leases range from 3 to 10term of the agreement is 37 years, with optionsan option to extend.extend the term by five further periods of seven years each. Lease liability and right-of-use asset of NIS 122 million (approximately $33 million) were recognized.
The total for low-value items on short-term leases are not material. Accordingly, the Group has not recognized right-of-use assets and lease liabilities for these leases.
| | As at December 31, 2021 | |
| | Balance at beginning of year | | | Depreciation charge for the year | | | Adjustments | | | Balance at end of year | |
| | $ Thousands | |
| | | | | | | | | | | | |
Land | | | 77,011 | | | | (3,375 | ) | | | 7,719 | | | | 81,355 | |
PRMS facility | | | 6,514 | | | | (480 | ) | | | 205 | | | | 6,239 | |
Offices | | | 2,499 | | | | (1,716 | ) | | | 9,499 | | | | 10,282 | |
Others | | | 0 | | | | 0 | | | | 7 | | | | 7 | |
| | | 86,024 | | | | (5,571 | ) | | | 17,430 | | | | 97,883 | |
| | As at December 31, 2020 | |
| | Balance at beginning of year | | | Depreciation charge for the year | | | Adjustments | | | Balance at end of year | |
| | $ Thousands | |
| | | | | | | | | | | | |
Land | | | 6,853 | | | | (2,141 | ) | | | 72,299 | | | | 77,011 | |
PRMS facility | | | 6,506 | | | | (449 | ) | | | 457 | | | | 6,514 | |
Offices | | | 3,305 | | | | (500 | ) | | | (306 | ) | | | 2,499 | |
Others | | | 459 | | | | 0 | | | | (459 | ) | | | 0 | |
| | | 17,123 | | | | (3,090 | ) | | | 71,991 | | | | 86,024 | |
| C) | Amounts recognized in the consolidated statements of profit & loss and cash flows
|
| | As at December 31, | | | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | | | $ Thousands | |
| | | | | | |
Interest expenses in respect of lease liability | | | 550 | | | | 149 | |
| | | | | | | | |
Total cash outflow for leases | | | 1,993 | | | | 551 | |
Note 1718 – Contingent Liabilities Commitments and ConcessionsCommitments
| a.1. | Local CouncilOPC Rotem Power Purchase Agreement
In 2014 (commencing in August), letters were exchanged between OPC Rotem and IEC regarding the tariff to be paid by OPC Rotem to IEC in respect of Shafir development levieselectricity that it had purchased from the electric grid, in connection with sale of electricity to private customers, where the electricity generation in the power plant was insufficient to meet the electricity needs of such customers. It is OPC Rotem’s position that the applicable tariff is the “ex-post” tariff, whereas according to IEC in the aforesaid exchange of letters, the applicable tariff is the TAOZ tariff, and based on part of the correspondences even a tariff that is 25% higher than the TAOZ tariff (and some of the correspondences also raise allegations of default of the PPA with IEC). In order to avoid a specific dispute, Rotem paid IEC the TAOZ tariff for the aforesaid purchase of electricity and commencing from that date, it pays IEC the TAOZ tariff on the purchase of electricity from IEC for sale to private customers. IEC raised contentions regarding past accountings in respect of the acquisition cost of energy for OPC Rotem’s customers in a case of a load reduction of the plant by the System Operator, and collection differences due to non-transfer of meter data in the years 2013 through 2015. In addition, IEC stated its position with respect to additional matters in the arrangement between the parties relating to the acquisition price of surplus energy and the acquisition cost of energy by OPC Rotem during performance of tests. OPC Rotem’s position regarding the matters referred to by IEC, based on its legal advisors, is different and talks are being held between the parties. In March 2022, OPC Rotem and the IEC signed a settlement agreement regarding past accounting in respect of the acquisition cost of energy for OPC Rotem’s customers in a case of a load reduction of the plant by Noga, and collection differences due to non-transfer of meter data between 2013 and 2015. As part of the settlement, OPC Rotem paid a total of approximately $2 million (approximately NIS 5.5 million) to the IEC. Subsequent to this, the System Operator contacted OPC Rotem with a claim that OPC Rotem had transmitted excess energy without coordinating the transmission with the System Operator, to which OPC Rotem disputes the claim. As of December 31, 2023, in OPC Rotem’s estimation, it is more likely than not that OPC Rotem will not pay any additional amounts in respect of the period ended December 31, 2023. Therefore, no provision was included in the financial statements. |
Note 18 – Contingent Liabilities and Commitments (Cont’d)
| 2. | Construction agreements |
| | |
| a. | OPC Hadera In January 2016, an agreement was signed between OPC Hadera and SerIDOM Servicios Integrados IDOM, S.A.U (“IDOM”), for the design, engineering, procurement and construction of a cogeneration power plant, in consideration of about approximately $185 million (approximately NIS 639 million) (as amended several times as part of change orders, including an amendment made in 2019 and described below), which is payable on the basis of the progress of the construction and compliance with milestones (hereinafter – “the Hadera Construction Agreement”). IDOM has provided bank guarantees and a corporate guarantee of its parent company to secure the said obligations, and OPC has provided a corporate guarantee to IDOM, in the amount of $10.5 million, to secure part of OPC Hadera’s liabilities. In addition, as part of an addendum to OPC Hadera’s construction agreement which was signed in October 2018, the parties agreed to waiver of past claims up to the signing date of the addendum. In accordance with the construction agreement, OPC Hadera is entitled to certain compensation from IDOM in respect of the delay in completion of the construction of the Hadera Power Plant or compensation (limited to the amount of the limit set in the Agreement) in the event of failure to comply with the terms set out in the Agreement with regard to the Power Plant performance. The said compensation is capped by the amounts specified in the construction agreement, and up to an aggregate of $36 million. According to the Construction Agreement, OPC Hadera has a contractual right to deduct any amount due to it under the Construction Agreement, including for the foregoing compensation, from any amounts that it owes to the construction contractor. In 2022, OPC Hadera deducted a total of $14 million from amounts payable to the construction contractor in respect of the final milestones. In December 2023, Hadera and the Construction Contractor signed a settlement agreement, according to which, among other things, in exchange for the withdrawal from, and full and final settlement of, the parties' claims in connection with the disputes between Hadera and the Construction Contractor that are the subject of the arbitration proceeding, the Contractor will pay Hadera compensation in the amount of approx. NIS 74 million (approximately $21 million) (hereinafter - the "Compensation Amount"). It is clarified that the Compensation Amount includes the amounts offset by Hadera for the Construction Contractor totaling approximately $14 million, as mentioned above, such that the net balance of the Compensation Amount is approximately NIS 25 million (approximately $7 million). In addition, following the payment of the remaining Compensation Amount, the contractor's guarantees were released in accordance with the terms and conditions stipulated in the settlement agreement, and the Construction Contractor is entitled to a final acceptance certificate of the power plant under the construction agreement. Upon the signing of the settlement agreement, the arbitration proceeding between the parties also concluded. As a result of the signing of the settlement agreement with the Construction Contractor, as of December 31, 2023, Hadera recognized in its statement of income approximately NIS 41 million (approximately $11 million) income before tax and the remaining of approximately NIS 33 million (approximately $9 million) against property, plant and equipment. |
In December 2019, an arrangement was signed between OPC Tzomet and the Local Council of Shafir, whereby OPC Tzomet received an initial calculation of the development levies in respect of the Tzomet project, in the amount of NIS 28 million (approximately $8 million) (not including VAT) (hereinafter – the “Calculation of the Levies”). In January 2020, the Council sent OPC Tzomet a charge notification in respect of the Calculation of the Levies, in the amount of NIS 37 million (approximately $11 million), of which NIS 13 million (approximately $4 million), which was not in dispute, was paid in December 2019. In March 2020, OPC Tzomet filed an administrative petition against the Council in respect of the amount in dispute, as stated. As part of its response to the petition, it was recognized that an error of about NIS 2 million was made, resulting in an agreement to reduce the bank guarantee deposited by OPC Tzomet in favor of the Council of NIS 21 million (approximately $7 million).
In 2021, as part of a settlement arrangement, OPC Tzomet paid the council NIS 20 million (approximately $6 million) for the levies. The levies paid include levies for a built-up area of 11,600 square meters which has not yet been built, and OPC Tzomet has the right to construct it with no further levies required. Following the settlement in 2021, the guarantee described above also expired.
| b. | Oil Refineries Ltd. (now known as “Bazan”) gas purchase claim
|
In January 2018, a request was filed with the Tel Aviv-Jaffa District Court to approve a derivative claim by a shareholder of Bazan against former and current directors of Bazan, Israel Chemicals Ltd., OPC Rotem, OPC Hadera and IC (collectively the "Group Companies"), over: (1) a transaction of the Group Companies for the purchase of natural gas from Tamar Partners, (2) transactions of the Group Companies for the purchase of natural gas from Energean Israel Ltd. (“Energean”) and (3) transaction for sale of surplus gas to Bazan.
In August 2018, the Group Companies submitted their response to the claim filed. OPC rejected the contentions appearing in the claim and requested summary dismissal of the claim. Evidentiary hearings were held in the second half of 2021, after which an order was issued for summations and dates were set for submitting them in the second and third quarters of 2022.
In OPC’s estimation, based on advice from its legal advisors, it is more likely than not that the claim will not be accepted by the Court and, accordingly, no provision has been included in the financial statements in respect of the claim as at December 31, 2021.
| c. | Bazan electricity purchase claim
|
In November 2017, a request was filed with the Tel Aviv-Jaffa District Court to approve a derivative claim on behalf of Bazan. The request is based on the petitioner's contention that the undertaking in the electricity purchase transaction between Bazan and OPC Rotem is an extraordinary interested party transaction that did not receive the approval of the general assembly of Bazan shareholders on the relevant dates. The respondents to the request include Bazan, OPC Rotem, the Israel Corporation Ltd. and the members of Bazan's Board of Directors at the time of entering into the electricity purchase transaction. The requested remedies include remedies such as an injunction and financial remedies.
In July 2018, OPC Rotem submitted its response to the request. Bazan’s request for summary judgement was denied. Negotiations are being held for entering into a compromise agreement that will settle a lawsuit against Rotem and others, which - as of the financial statements approval date - is subject to signing the agreement and obtaining approvals.
Note 17 – Contingent Liabilities, Commitments and Concessions (Cont’d)
| d. | IEC power purchase agreement
|
In 2014 (commencing in August), letters were exchanged between OPC Rotem and IEC regarding the tariff to be paid by OPC Rotem to IEC in respect of electricity that it had purchased from the electric grid, in connection with sale of electricity to private customers, where the electricity generation in the power plant was insufficient to meet the electricity needs of such customers.
It is OPC Rotem’s position that the applicable tariff is the “ex-post” tariff, whereas according to IEC in the aforesaid exchange of letters, the applicable tariff is the TAOZ tariff, and based on part of the correspondences even a tariff that is 25% higher than the TAOZ tariff (and some of the correspondences also raise allegations of default of the PPA with IEC). In order to avoid a specific dispute, Rotem paid IEC the TAOZ tariff for the aforesaid purchase of electricity and commencing from that date, it pays IEC the TAOZ tariff on the purchase of electricity from IEC for sale to private customers.
IEC raised contentions regarding past accountings in respect of the acquisition cost of energy for OPC Rotem’s customers in a case of a load reduction of the plant by the System Operator, and collection differences due to non‑transfer of meter data in the years 2013 through 2015. In addition, IEC stated its position with respect to additional matters in the arrangement between the parties relating to the acquisition price of surplus energy and the acquisition cost of energy by OPC Rotem during performance of tests. OPC Rotem’s position regarding the matters referred to by IEC, based on its legal advisors, is different and talks are being held between the parties. As at December 31, 2021, the open matters had not yet been resolved and there is no certainty regarding formulation of consents between the parties. In OPC Rotem’s estimation, it is more likely than not that OPC Rotem will not pay any additional amounts in respect of the period ended December 31, 2021. Therefore, no provision was included in the financial statements.
| e. | Impact on OPC Rotem from amendment of standards in connection with Deviations from Consumption Plans
|
In February 2020, the IEA published its Decision from Meeting 573, held on January 27, 2020, regarding Amendment of Standards in connection with Deviations from the Consumption Plans (hereinafter – the “Resolution”). Pursuant to the resolution, a supplier is not permitted to sell to its consumers more than the amount of the capacity that is the subject of all the undertakings it has entered into with holders of private generation licenses. In addition, the IEA indicated that it is expected that the supplier will enter into private transactions with consumers in a scope that permits it to supply all their consumption from energy that is generated by private generators over the entire year. Actual consumption of energy at a rate in excess of 3% from the installed capacity allocated to the supplier will trigger payment of an annual tariff that reflects the annual cost of the capacity the supplier used as a result of the deviation, as detailed in the resolution (“Annual Payment in respect of Deviation from the Capacity”). In addition, the resolution provides a settlement mechanism in respect of a deviation from the daily consumption plan (surpluses and deficiencies), which will apply concurrent with the annual payment in respect of a deviation from the capacity. Application of the resolution commenced from September 1, 2020. The resolution will apply to OPC Rotem after the complementary arrangements for OPC Rotem are set.
In May 2021, IEC notified OPC Rotem that according to its approach, sale of energy by OPC Rotem to end‑consumers in excess of the power plant’s generation capacity deviates from the provisions of the PPA between them (as described above). OPC Rotem’s position regarding the electricity acquisition agreement is different, and the matter is expected to be impacted by supplementary arrangements subject to the decision of the IEA.
As at filing date, the extent of the resolution’s effect on OPC Rotem is uncertain, and it depends, among other things, on the final supplementary arrangements to be determined.Note 17 – Contingent Liabilities, Commitments and Concessions (Cont’d)
| f. | Construction agreement between OPC Hadera and IDOM Servicios Integrados
|
In January 2016, an agreement was signed between OPC Hadera and SerIDOM Servicios Integrados IDOM, S.A.U (“IDOM”), for the design, engineering, procurement and construction of a cogeneration power plant, in consideration of about NIS 639 million (approximately $185 million) (as amended several times as part of change orders, including an amendment made in 2019 and described below), which is payable on the basis of the progress of the construction and compliance with milestones (hereinafter – “the Hadera Construction Agreement”). IDOM has provided bank guarantees and a corporate guarantee of its parent company to secure the said obligations, and OPC has provided a corporate guarantee to IDOM, in the amount of $10.5 million, to secure part of OPC Hadera’s liabilities. In addition, as part of an addendum to OPC Hadera’s construction agreement which was signed in October 2018, the parties agreed to waiver of past claims up to the signing date of the addendum.
In accordance with the construction agreement, OPC Hadera is entitled to certain compensation from IDOM in respect of the delay in completion of the construction of the Hadera Power Plant, and to compensation in a case of non-compliance with conditions in connection with the plant’s performance. In OPC Hadera’s estimation, as at year end the amount of compensation due to it for delay in deliver of the power plant is about NIS 76 million (approximately $23 million).
In July 2020, upon completion of the Hadera Power Plant, a request was received from IDOM for payment of the two final milestones of amount NIS 48 million (approximately $15 million). The two final milestone payments were paid by means of an offset against the balance of compensation. In OPC Hadera’s estimation, while IDOM has contentions regarding the final settlement, OPC Hadera has an unconditional contractual right to receive the compensation for the delay in the delivery of the power plant as stated and it is more likely than not that its position will be accepted, hence, no provision has been included in the financial statements.
In May 2021 a notice letter of a dispute was received from IDOM alleging that OPC Hadera does not have grounds for charging them the amounts specified in the construction agreement for the delay (“LDs”) and the performance of the power plant (including by way of offsetting), and that IDOM is entitled to additional consideration of EUR 7 million (approximately $8 million). It is noted that in June 2021, the bank guarantee provided by IDOM was extended until May 2022.
In September 2021, IDOM started an arbitration procedure against OPC Hadera in the International Court of Arbitration, including a claim for payments totaling $14 million for meeting milestones (that OPC Hadera has unilaterally offset against LDs), net of any compensation in respect of LDs which the construction contractor may be required to pay as a result of the arbitration process; additional consideration totaling EUR 7 million (approximately $8 million) in respect of work; a claim by IDOM to the effect that it may reduce the amount of guarantees it provided in favor of OPC Hadera, as well as certain declarative remedies.
OPC Hadera disputes the claims of IDOM (except in respect of an insignificant amount out of said claim, relative to EUR 7 million (approximately $8 million)), and the claims were rejected even prior to receiving IDOM’s said notice. It is OPC Hadera’s position, according to the power plant’s construction agreement and based on the position of its legal counsel, that it is entitled to LDs and damages (limited to an amount up to the maximum specified in the construction agreement) for non-compliance with conditions set out in the agreement in connection with the performance of the power plant. The total amount in respect of all of the above grounds for compensation is capped at $36 million (which includes the offset payments described above). As at December 31, 2021, Hadera recognized an asset receivable in respect of compensation from the construction contractor of the Hadera Power Plant of NIS 28 million (approximately $9 million) due to said delay. This is recognized as a reduction against Property, plant and equipment, net.
As of the report date, OPC Hadera has filed a counter claim. Concurrently, the parties are holding negotiations to reach a compromise, but at this point the outcome remains uncertain.
In November 2021, OPC received a refund from their insurance company for IDOM of NIS 7 million (approximately $2 million) with respect to a claim filed by IDOM. As at year end, the amount was recorded under trade and other payables, and the refund was transferred to IDOM subsequent to year end in January 2022.Note 17 – Contingent Liabilities, Commitments and Concessions (Cont’d)
| g. | Construction agreement between OPC Tzomet and PW Power Systems LLC
|
In September 2018, OPC Tzomet signed a planning, procurement and construction agreement (hereinafter – “the Agreement”) with PW Power Systems LLC (hereinafter – “Tzomet Construction“Construction Contractor” or “PWPS”), for construction of the Tzomet project. The Agreement is a “lump‑“lump sum turnkey” agreement wherein the Tzomet Construction Contractor committed to construct the Tzomet project in accordance with the technical and engineering specifications determined and includes various undertakings of the contractor.
In OPC Tzomet’s estimation, based on the work specifications, the aggregate consideration that will be paid in the framework of the Agreement is about $300 million, and it will be paid based on the milestones provided. Pursuant to the Agreement, the Tzomet Construction Contractor undertook to complete the construction work of the Tzomet project, including the acceptance tests by January 2023. The commercial operation period of OPC Tzomet Power Plant commenced on June 22, 2023.
Note 18 – Contingent Liabilities and Commitments (Cont’d)
The continuity of construction has been affected by COVID-19 due to the need to transport equipment and foreign crews to the site. The construction work of the Tzomet Power Plant is expected to be completed in the first quarter of 2023. | It is noted that, according to the Construction Contractor, the continuity of construction work was affected, inter alia, by the COVID-19 Crisis, in light of the need for equipment and foreign work teams to arrive, and by delays in the global supply chains of components and equipment required for the project. As of December 31, 2023, OPC Tzomet is holding discussions with the Construction Contractor. |
| h.c. | GasOPC Sorek 2
In May 2020, OPC Sorek 2 signed an agreement with EnergeanSMS IDE Ltd., which won a tender of the State of Israel for construction, operation, maintenance and transfer of a seawater desalination facility on the “Sorek B” site (the “Sorek B Desalination Facility”), where OPC Sorek 2 will construct, operate and maintain an energy generation facility (“Sorek B Generation Facility”) with a generation capacity of about 87 MW on the premises of the Sorek 2 Desalination Facility, and will supply the energy required for the Sorek B Desalination Facility for a period of 25 years after the operation date of the Sorek B Desalination Facility. At the end of the aforesaid period, ownership of the Sorek B Generation Facility will be transferred to the State of Israel. OPC undertook to construct the Sorek B Generation Facility within 24 months from the date of approval of the National Infrastructure Plan (approved in November 2021), and to supply energy at a specific scope of capacity to the Sorek B Desalination Facility. OPC Sorek 2’s share of the amount payable to the construction contractor is estimated at approximately $42 million. The construction agreement includes provisions of capped agreed compensation in respect of delays, non-compliance with execution and availability requirements. The agreement also sets the scope of liability and requirements for provision of guarantees in the different stages of the project. As a result of the outbreak of the War, Construction Contractor served OPC Sorek 2 with a force majeure notice and OPC Sorek 2 served on its behalf a force majeure notice to IDE. |
| 3. | Agreements for the acquisition of natural gas |
In 2020, Energean Israel Ltd. (“Energean”) notified OPC that “force majeure” events happened during the year, in accordance with the clauses pursuant to the agreements, and that the flow of the first gas from the Karish reservoir is expected to take place during the second half of 2021. OPC rejected the contentions that a “force majeure” event is involved. | a. | OPC Rotem and OPC Hadera In November 2021, Energean sent OPC Rotem and OPC Hadera an update notification whereby due to their claimed force majeure event, the first gas from the Karish Reservoir is expected in the middle of 2022.
Due to the delay in supply of the gas from the Karish reservoir, OPC Rotem and OPC Hadera will be required to acquire the quantity of gas it had planned to acquire from Energean for purposes of operation of the power plants at present gas prices, which is higher than the price stipulated in the Energean agreement. The delays in the commercial operation date of Energean, and in turn, a delay in supply of the gas from the Karish reservoir, will have an unfavorable impact on OPC’s profits. In the agreements with Energean, compensation for delays had been provided, the amount of which depends on the reasons for the delay, where the limit with respect to the compensation in a case where the damages caused is “force majeure” is lower. It is noted that the damages that will be caused to OPC stemming from a delay could exceed the amount of the said compensation.
In 2021, OPC Rotem and OPC Hadera received reduced compensation of NIS 9 million (approximately $3 million) and NIS 7 million (approximately $2 million), respectively. OPC continues to reject those claims.
OPC Rotem and OPC Hadera has an agreement with Tamar Group in connection to the supply of natural gas to the power plants. Both OPC Rotem and OPC Hadera undertook to continue to consume all the gas required for its power plants from Tamar Group (including quantities exceeding the minimum quantities) up to the completion date of the commissioning of the Karish Reservoir, except for a limited consumption of gas during the commissioning period of the Karish Reservoir. In December 2017, OPC Rotem, OPC Hadera, Israel Chemicals Ltd. and Bazan Ltd., engaged in agreements with Energean Israel Ltd. (hereinafter – “Energean”), which has holdings in the Karish Reservoir, for the purchase natural gas. In 2020, Energean notified OPC that “force majeure” events happened during the year, in accordance with the clauses pursuant to the agreements, and that the flow of the first gas from the Karish reservoir is expected to take place during the second half of 2021. OPC rejected the contentions that a “force majeure” event is involved. Due to the delay in supply of the gas from the Karish Reservoir, OPC Rotem and OPC Hadera will be required to acquire the quantity of gas it had planned to acquire from Energean for purposes of operation of the power plants at present gas prices, which is higher than the price stipulated in the Energean agreement. The delays in the commercial operation date of Energean, and in turn, a delay in supply of the gas from the Karish Reservoir, will have an unfavorable impact on OPC’s profits. In the agreements with Energean, compensation for delays had been provided, the amount of which depends on the reasons for the delay, where the limit with respect to the compensation in a case where the damages caused is “force majeure” is lower. It is noted that the damages that will be caused to OPC stemming from a delay could exceed the amount of the said compensation. In 2021, OPC Rotem and OPC Hadera received reduced compensation of approximately $3 million (approximately NIS 9 million) and approximately $2 million (approximately NIS 7 million), respectively. In May 2022, an amendment to the Energean Agreements was signed, which set out, among other things, arrangements pertaining to bringing forward the reduction of the quantities of gas supplied by OPC Rotem and OPC Hadera. |
Note 1718 – Contingent Liabilities and Commitments and Concessions (Cont’d)
| | Energean issued OPC Hadera with a notice regarding the completion of the commissioning in relation to the OPC Hadera agreement and OPC Rotem agreement on February 28, 2023 and March 25, 2023 respectively. On March 26, 2023, Energean issued OPC Rotem with a notice in relation to commencement of commercial operation. OPC Rotem and OPC Hadera recognized contractual financial amount in respect of a netting arrangement by bringing forward of the reduction notice. The total amount of NIS 18 million (approximately $5 million) was offset from cost of goods sold. |
| 4. | Other contingent liabilities |
| i.a. | Bazan electricity purchase claim In November 2017, a request was filed with the Tel Aviv-Jaffa District Court to approve a derivative claim on behalf of Bazan. The request is based on the petitioner's contention that the undertaking in the electricity purchase transaction between Bazan and OPC Rotem is an extraordinary interested party transaction that did not receive the approval of the general assembly of Bazan shareholders on the relevant dates. The respondents to the request include Bazan, OPC Rotem, the Israel Corporation Ltd. and the members of Bazan's Board of Directors at the time of entering into the electricity purchase transaction. The requested remedies include remedies such as an injunction and financial remedies. In July 2018, OPC Rotem submitted its response to the request. Bazan’s request for summary judgement was denied. Negotiations are being held for entering into a compromise agreement that will settle a lawsuit against Rotem and others, which was filed in July 2022. In February 2023 the court handed down a judgment that approved the settlement agreement and OPC Rotem paid NIS 2 million (approximately $523 thousand), representing its share as set out in the settlement agreement. |
| b. | Oil Refineries Ltd. (now known as “Bazan”) gas purchase claim In January 2018, a request was filed with the Tel Aviv-Jaffa District Court to approve a derivative claim by a shareholder of Bazan against former and current directors of Bazan, Israel Chemicals Ltd., OPC Rotem, OPC Hadera and IC (collectively the "Group Companies"), over: (1) a transaction of the Group Companies for the purchase of natural gas from Tamar Partners, (2) transactions of the Group Companies for the purchase of natural gas from Energean Israel Ltd. (“Energean”) and (3) transaction for sale of surplus gas to Bazan. In August 2018, the Group Companies submitted their response to the claim filed. OPC rejected the contentions appearing in the claim and requested summary dismissal of the claim. Evidentiary hearings were held in the second half of 2021, after which summations were submitted in November 2022. In November 2023, the Court dismissed the entire motion. |
| c. | Inkia Energy Limited (liquidated in 2019) |
As part of the sale described in Note 25,In December 2017, Kenon, through its wholly-owned subsidiary Inkia Energy Limited (“Inkia”), sold its Latin American and Caribbean power business to an infrastructure private equity firm, I Squared Capital (“ISQ”). Inkia agreed to indemnify the buyer and its successors, permitted assigns, and affiliates against certain losses arising from a breach of Inkia’s representations and warranties and certain tax matters, subject to certain time and monetary limits depending on the particular indemnity obligation. These indemnification obligations were supported by (a) a three-year pledge of shares of OPC which represented 25% of OPC’s outstanding shares, (b) a deferral of $175 million of the sale price in the form of a four-year $175 million Deferred Payment Agreement, accruing interest at 8% per year and payable in-kind, and (c) a three-year corporate guarantee from Kenon for all of the Inkia’s indemnification obligations, all of the foregoing periods running from the closing date of December 31, 2017. In December 2018, the indemnification commitment was assigned by Inkia to a fellow wholly owned subsidiary of Kenon.
In October 2020, as part of an early repayment of the deferred payment agreement where Kenon received $218 million ($188 million net of taxes), Kenon agreed to increase the number of OPC shares pledged to the buyer of the Inkia business to 55,000,000 shares and to extend the pledge of OPC shares and the corporate guarantee from Kenon for all of Inkia’s indemnification obligations until December 31, 2021.
Subsequent to year end, in accordance with the agreement, 53,500,000 shares were released from pledge, and 1,500,000 shares of OPC remain pledged in light of an indemnity claim relating to a tax assessment claim in the amount of $11 million.
In October 2020, as part of an early repayment of the deferred payment agreement where Kenon received $218 million ($188 million net of taxes), Kenon agreed to increase the number of OPC shares pledged to the buyer of the Inkia business to 55,000,000 shares and to extend the pledge of OPC shares and the corporate guarantee from Kenon for all of Inkia’s indemnification obligations until December 31, 2021.
Note 18 – Contingent Liabilities and Commitments (Cont’d)
| | B.In March 2022, 53,500,000 shares were released from pledge, and 1,500,000 shares of OPC remain pledged in light of an indemnity claim relating to a tax assessment claim in the amount of $11 million.
In August 2023, all of OPC shares that were previously pledged as part of the Inkia sale were released as part of a settlement agreement. |
| d. | Tax equity partner agreement in Maple Hill On May 12, 2023, CPV Group entered into an investment agreement with a tax equity partner totaling approximately $82 million in the Maple Hill project (hereinafter - the “Project”). Pursuant to the Agreement, the tax equity partner’s investment in the Project shall be provided in part (20%) on the date of completion of the construction works (Mechanical Completion) and the remainder (80%) on the Commercial Operation Date In consideration for its investment in the project corporation, the tax equity partner is expected to receive most of the project’s tax benefits, including Investment Tax Credit (“ITC”) at a higher rate of 40%, and participation in the distributable free cash flow from the project. In addition, the tax equity partner is entitled to participate in the project's loss for tax purposes. In December 2023, the terms and conditions for the commercial operation of the project were fully met in accordance with the tax equity investment agreement in the project, and the tax equity partner completed its entire investment in the project. Immediately prior to the completion of the advancement of the tax equity partner’s investment, CPV Group and a third party entered into an agreement for the sale of the ITC grant in consideration for approximately $75 million, which constitute approximately 95% of its nominal value. As of December 31, 2023, CPV Group recognized the sale amount under “other current assets” financial caption, and an undertaking to transfer the sale amount to the tax equity partner under “trade and other payables” financial caption. |
OPC entered into long-term service maintenance contracts for its operating power plants. The number of maintenance hours and price are specified in the agreements.
OPC entered into long-term infrastructure contracts for use of PRMS at its operating power plants. The price is specified in the agreements.
OPC entered into long-term PPAs with its customers (of which some included construction of generation facilities) for sale of electricity and gas. The supply quantity, period and pricing are specified in the agreements. OPC has also entered into long-term PPAs with its suppliers for purchase of electricity and gas. The minimum purchase quantity, period and pricing are specified in the agreements.
OPC entered into long-term construction agreements for constructing its power plants. The price, technical and engineering specifications, and work milestones are specified in the agreements. For more information relating to the construction of the Tzomet power plant, refer to 17.A.g. | a. | OPC Power Plants OPC entered into long-term service maintenance contracts for its operating power plants. The number of maintenance hours and price are specified in the agreements. OPC entered into long-term infrastructure contracts with Israel National Gas Lines Ltd. (“INGL”) for use of PRMS at its operating power plants. The price is specified in the agreements. OPC entered into long-term PPAs with its customers (of which some included construction of generation facilities) for sale of electricity and gas. The supply quantity, period and pricing are specified in the agreements. OPC has also entered into long-term PPAs with its suppliers for purchase of electricity and gas. The minimum purchase quantity, period and pricing are specified in the agreements. OPC entered into long-term construction agreements for constructing its power plants. The price, technical and engineering specifications, and work milestones are specified in the agreements. For more information relating to the construction of the Tzomet power plant, refer to 18.A.2.b. |
| b. | CPV Group In June 2023, CPV Group entered into an Engineering, Procurement and Construction ("EPC”) agreement with a construction contractor in respect of the Backbone project. As of the approval date of the financial statements, the total consideration in the EPC agreement was set at a fixed amount of NIS 650 million (approximately $175 million), which will be paid in accordance with the milestones set in the EPC agreement. |
Note 1819 – Share Capital and Reserves
| | | |
| | 2021 | | | 2020 | |
Authorised and in issue at January, 1 | | | 53,871 | | | | 53,858 | |
Issued for share plan | | | 8 | | | | 13 | |
Authorised and in issue at December. 31 | | | 53,879 | | | | 53,871 | |
| | Company | |
| | No. of shares | |
| | ('000) | |
| | 2023 | | | 2022 | |
Authorised and in issue at January, 1 | | | 53,887 | | | | 53,879 | |
Share repurchase and cancelled | | | (1,128 | ) | | | - | |
Issued for share plan | | | 7 | | | | 8 | |
Authorised and in issue at December. 31 | | | 52,766 | | | | 53,887 | |
All shares rank equally with regardsregard to the Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. All issued shares are fully paid with no par value.
The capital structure of the Company comprises of issued capital and accumulated profits and the capital structure is managed to ensure that the Company will be able to continue to operate as a going concern. The Company is not subjected to externally imposed capital requirement.requirements.
In 2021, 7,958 (2020: 12,661)2023, 7,259 (2022: 8,037) ordinary shares were granted under the Share Incentive Plan to key management at an average price of $29.41 (2020: $21.09)$31.62 (2022: $47.22) per share.
The translation reserve includes all the foreign currency differences stemming from translation of financial statements of foreign activities as well as from translation of items defined as investments in foreign activities commencing from January 1, 2007 (the date IC first adopted IFRS).
The capital reserve reflects the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (ie(i.e. the portion that is offset by the change in the cash flow hedge reserve).
In 2021, approximately 4.7 million share options of ZIM were exercised, resulting in a proportionate share of increase in capital reserve attributable to owners of the Company of $5.4 million. Approximately 250 thousand share options of OPC were exercised, resulting in an increase in capital reserve attributable to owners of the Company of $1.6 million.
In November 2019, Kenon’s board of directors approved a cash dividend of $1.21 per share (an aggregate amount of approximately $65 million), to Kenon’s shareholders of record as of the close of trading on November 18, 2019, paid on November 26, 2019.
In October 2020, Kenon’s shareholders approved a cash dividend of $2.23 per share (an aggregate amount of approximately $120 million), to Kenon’s shareholders of record as of the close of trading on November 3, 2020, paid on November 10, 2020.
In April 2021, Kenon’s board of directors approved a cash dividend of $1.86 per share (an aggregate amount of approximately $100 million), to Kenon’s shareholders of record as of the close of trading on April 29, 2021, paid on May 6, 2021.
In November 2021, Kenon’s board of directors approved a cash dividend of $3.50 per share (an aggregate amount of approximately $189 million), to Kenon’s shareholders of record as of the close of trading on January 19, 2022, paid subsequent to year end on January 27, 2022.
In March 2023, Kenon’s board of directors approved a cash dividend of $2.79 per share (an aggregate amount of approximately $150 million), payable to Kenon’s shareholders of record as of the close of trading on April 10, 2023, paid on April 19, 2023.
Note 1819 – Share Capital and Reserves (Cont’d)
Kenon has established a Share Incentive Plan for its directors and management. The plan provides grants of Kenon shares, as well as stock options in respect of Kenon’s shares, to directors and officers of the Company pursuant to awards, which may be granted by Kenon from time to time, representing up to 3% of the total issued shares (excluding treasury shares) of Kenon. During 2021, 20202023, 2022 and 2019,2021, Kenon granted awards of shares to certain members of its management. Such shares are vested upon the satisfaction of certain conditions, including the recipient’s continued employment in a specified capacity and Kenon’s listing on each of the NYSE and the TASE. The fair value of the shares granted in 20212023 is $234$229 thousand (2020:(2022: $267 thousand, 2019: $5202021: $234 thousand) and was determined based on the fair value of Kenon’s shares on the grant date. Kenon recognized $258$296 thousand as general and administrative expenses in 2021 (2020: $3502023 (2022: $292 thousand, 2019: $5112021: $258 thousand).
Note 19 – Revenue
In May 2022 and June 2022, Kenon received shareholder approval at its annual general meeting and approval of the High Court of the Republic of Singapore, respectively, for a capital reduction to return share capital amounting to $10.25 per share ($552 million in total) to Kenon’s shareholders of record as of the close of trading on June 27, 2022, paid on July 5, 2022.
| | For the Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Revenue from sale of electricity | | | 445,000 | | | | 369,421 | | | | 356,648 | |
Revenue from sale of steam | | | 17,648 | | | | 16,204 | | | | 16,494 | |
Revenue from provision of services | | | 25,115 | | | | 0 | | | | 0 | |
Others | | | 0 | | | | 845 | | | | 331 | |
| | | 487,763 | | | | 386,470 | | | | 373,473 | |
In 2023, the Company repurchased approximately 1.1 million of its own shares out of accumulated profit for approximately $28 million under the ongoing share repurchase plan. These shares were cancelled during the year ended December 31, 2023.
Note 20 – Revenue
| | For the Year Ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
Revenue from sale of electricity and infrastructure services in Israel | | | 593,941 | | | | 486,680 | | | | 419,395 | |
Revenue from sale of electricity in US | | | 36,959 | | | | 25,780 | | | | 25,605 | |
Revenue from sale of steam in Israel | | | 16,006 | | | | 18,476 | | | | 17,648 | |
Revenue from provision of services and other revenue in US | | | 36,007 | | | | 31,509 | | | | 25,115 | |
Other revenue in Israel | | | 8,883 | | | | 11,512 | | | | - | |
| | | 691,796 | | | | 573,957 | | | | 487,763 | |
Note 21 – Cost of Sales and Services (excluding Depreciation and Amortization)
| | For the Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Fuels | | | 153,122 | | | | 135,706 | | | | 138,502 | |
Electricity and infrastructure services | | | 133,502 | | | | 125,782 | | | | 101,085 | |
Salaries and related expenses | | | 21,095 | | | | 7,244 | | | | 6,661 | |
Generation and operating expenses and outsourcing | | | 16,798 | | | | 8,625 | | | | 6,326 | |
Insurance | | | 4,989 | | | | 3,503 | | | | 2,360 | |
Others | | | 6,792 | | | | 1,226 | | | | 1,102 | |
| | | 336,298 | | | | 282,086 | | | | 256,036 | |
| | For the Year Ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
Fuels | | | 178,663 | | | | 155,760 | | | | 153,122 | |
Electricity and infrastructure services | | | 130,199 | | | | 93,804 | | | | 92,086 | |
Salaries and related expenses | | | 10,033 | | | | 9,661 | | | | 8,259 | |
Generation and operating expenses and outsourcing | | | 82,166 | | | | 88,055 | | | | 31,729 | |
Insurance | | | 11,040 | | | | 9,440 | | | | 9,997 | |
Cost in respect of sale of renewable energy | | | 13,455 | | | | 8,757 | | | | 7,988 | |
Cost in respect of provision of services revenue and other costs | | | 27,683 | | | | 23,856 | | | | 16,499 | |
Others | | | 41,073 | | | | 27,928 | | | | 16,618 | |
| | | 494,312 | | | | 417,261 | | | | 336,298 | |
Note 2122 – Selling, General and Administrative Expenses
| | For the Year Ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
Payroll and related expenses (1) | | | 26,877 | | | | 46,660 | | | | 41,930 | |
Depreciation and amortization | | | 4,212 | | | | 3,259 | | | | 2,623 | |
Professional fees | | | 18,190 | | | | 15,798 | | | | 16,069 | |
Business development expenses | | | 15,607 | | | | 15,186 | | | | 1,566 | |
Expenses in respect of acquisition of CPV Group | | | - | | | | - | | | | 752 | |
Office maintenance | | | 6,524 | | | | 4,581 | | | | 3,022 | |
Other expenses | | | 13,305 | | | | 14,452 | | | | 9,765 | |
| | | 84,715 | | | | 99,936 | | | | 75,727 | |
| | For the Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Payroll and related expenses (1) | | | 41,930 | | | | 11,360 | | | | 10,853 | |
Depreciation and amortization | | | 2,623 | | | | 1,023 | | | | 951 | |
Professional fees | | | 16,069 | | | | 8,386 | | | | 12,806 | |
Business development expenses | | | 1,566 | | | | 1,998 | | | | 1,947 | |
Expenses in respect of acquisition of CPV Group | | | 752 | | | | 12,227 | | | | 0 | |
Other expenses | | | 12,787 | | | | 14,963 | | | | 9,879 | |
| | | 75,727 | | | | 49,957 | | | | 36,436 | |
(1) A portion of this relates to profit sharing for CPV Group employees
The fair value of the CPV Group’s Profit-Sharing Plan is recognized as an expense, against a corresponding increase in liability, over the period in which the unconditional right to payment is achieved. The liability is remeasured at each reporting date until the settlement date. Any change in the fair value of the liability is recognized in the consolidated statements of profit and loss. In 2021,2023, the CPV Group recorded expenses in the amount of approximately NIS 5089 million (approximately $15$24 million) (2022: NIS 46 million (approximately $13 million)).
Note 2223 – Financing Income (Expenses),Expenses, Net
| | For the Year Ended December 31, | | | For the Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | | | 2023 | | 2022 | | 2021 | |
| | $ Thousands | | | $ Thousands | |
| | | | | | | | | | | | | | |
Interest income from bank deposits | | 167 | | 780 | | 2,545 | | | 36,754 | | 12,108 | | 167 | |
Amount reclassified to consolidated statements of profit & loss from capital reserve in respect of cash flow hedges | | | 6 | | 4,125 | | 2,121 | |
Net change in exchange rates | | | 700 | | 28,453 | | - | |
Net change in fair value of derivative financial instruments | | 443 | | 0 | | 0 | | | - | | - | | 443 | |
Interest income from deferred payment | | 0 | | 13,511 | | 15,134 | | |
Amount reclassified to consolidated statements of profit & loss from capital reserve in respect of cash flow hedges | | 2,121 | | 0 | | 0 | | |
Net change in the fair value of financial assets held for trade and available for sale | | | 422 | | - | | - | |
Other income | | | 203 | | | 0 | | | 0 | | | | 1,479 | | | - | | | 203 | |
Financing income | | | 2,934 | | | 14,291 | | | 17,679 | | | | 39,361 | | | 44,686 | | | 2,934 | |
| | | | | | | | | | | | | | |
Interest expenses to banks and others | | (51,924 | ) | | (24,402 | ) | | (22,420 | ) | | (52,306 | ) | | (47,542 | ) | | (51,924 | ) |
Amount reclassified to consolidated statements of profit & loss from capital reserve in respect of cash flow hedges | | 0 | | (6,300 | ) | | (2,743 | ) | | (1,563 | ) | | - | | - | |
Impairment loss on debt securities at FVOCI | | | (642 | ) | | (732 | ) | | - | |
Net change in fair value of financial assets held for trade | | | - | | (45 | ) | | - | |
Net change in exchange rates | | (5,997 | ) | | (5,645 | ) | | (2,328 | ) | | - | | - | | (5,997 | ) |
Net change in fair value of derivative financial instruments | | 0 | | (1,569 | ) | | (1,657 | ) | | - | | (291 | ) | | - | |
Early repayment fee (Note 14.B, Note 14.E) | | (84,196 | ) | | (11,852 | ) | | 0 | | |
Early repayment fee (Note 15.B, Note 15.E) | | | - | | - | | (84,196 | ) |
Other expenses | | | (2,178 | ) | | | (1,406 | ) | | | (798 | ) | | | (11,822 | ) | | | (1,787 | ) | | | (2,178 | ) |
Financing expenses | | | (144,295 | ) | | | (51,174 | ) | | | (29,946 | ) | | | (66,333 | ) | | | (50,397 | ) | | | (144,295 | ) |
Net financing expenses | | | (141,361 | ) | | | (36,883 | ) | | | (12,267 | ) | | | (26,972 | ) | | | (5,711 | ) | | | (141,361 | ) |
Note 2324 – Income Taxes
A. | Components of the Income Taxes |
| | For the Year Ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
Current taxes on income | | | | | | | | | |
In respect of current year | | | 11,049 | | | | 39,559 | | | | 6,892 | |
Deferred tax expense/(income) | | | | | | | | | | | | |
Creation and reversal of temporary differences | | | 14,150 | | | | (1,579 | ) | | | (2,567 | ) |
Total tax expense on income | | | 25,199 | | | | 37,980 | | | | 4,325 | |
| | For the Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Current taxes on income | | | | | | | | | |
In respect of current year | | | 28,009 | | | | 734 | | | | 2,569 | |
In respect of prior years | | | 0 | | | | 1 | | | | (18 | ) |
Deferred tax (income)/expense | | | | | | | | | | | | |
Creation and reversal of temporary differences | | | (23,684 | ) | | | 3,963 | | | | 14,124 | |
Total tax expense on income | | | 4,325 | | | | 4,698 | | | | 16,675 | |
No previously unrecognized tax benefits were used in 2019, 20202023, 2022 or 2021 to reduce our current tax expense.
B. | Reconciliation between the theoretical tax expense (benefit) on the pre-tax income (loss) and the actual income tax expenses |
| | For the Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Profit/(loss) from continuing operations before income taxes | | | 879,642 | | | | 500,447 | | | | (5,536 | ) |
Statutory tax rate | | | 17.00 | % | | | 17.00 | % | | | 17.00 | % |
Tax computed at the statutory tax rate | | | 149,539 | | | | 85,076 | | | | (941 | ) |
| | | | | | | | | | | | |
Increase (decrease) in tax in respect of: | | | | | | | | | | | | |
Elimination of tax calculated in respect of the Group’s share in losses of associated companies | | | (190,539 | ) | | | (27,353 | ) | | | 7,043 | |
Different tax rate applicable to subsidiaries operating overseas | | | (9,297 | ) | | | | | | | | |
Income subject to tax at a different tax rate | | | 0 | | | | 441 | | | | 5,960 | |
Non-deductible expenses | | | 44,851 | | | | 1,028 | | | | 5,408 | |
Exempt income | | | (23,937 | ) | | | (61,415 | ) | | | (4,714 | ) |
Taxes in respect of prior years | | | (361 | ) | | | 1 | | | | (18 | ) |
Tax in respect of foreign dividend | | | 28,172 | | | | 0 | | | | 0 | |
Share of non-controlling interests in entities transparent for tax purposes | | | 5,528 | | | | 0 | | | | 0 | |
Tax losses and other tax benefits for the period regarding which deferred taxes were not recorded | | | 95 | | | | 7,647 | | | | 3,946 | |
Other differences | | | 274 | | | | (727 | ) | | | (9 | ) |
Tax expense on income included in the statement of profit and loss | | | 4,325 | | | | 4,698 | | | | 16,675 | |
F - 73
| | For the Year Ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
(Loss)/Profit from continuing operations before income taxes | | | (185,749 | ) | | | 387,639 | | | | 879,642 | |
Statutory tax rate | | | 17.00 | % | | | 17.00 | % | | | 17.00 | % |
Tax computed at the statutory tax rate | | | (31,577 | ) | | | 65,899 | | | | 149,539 | |
| | | | | | | | | | | | |
(Decrease) increase in tax in respect of: | | | | | | | | | | | | |
Elimination of tax calculated in respect of the Group’s share in profit of associated companies | | | 72,258 | | | | (45,464 | ) | | | (190,539 | ) |
Different tax rate applicable to subsidiaries operating overseas | | | 4,371 | | | | 6,429 | | | | (9,297 | ) |
Income subject to tax at a different tax rate | | | 178 | | | | 116 | | | | - | |
Non-deductible expenses | | | (2,826 | ) | | | 158,811 | | | | 44,851 | |
Exempt income | | | (26,862 | ) | | | (164,822 | ) | | | (23,937 | ) |
Taxes in respect of prior years | | | 522 | | | | (739 | ) | | | (361 | ) |
Tax in respect of foreign dividend | | | 6,665 | | | | 18,447 | | | | 28,172 | |
Share of non-controlling interests in entities transparent for tax purposes | | | - | | | | (1,082 | ) | | | 5,528 | |
Tax losses and other tax benefits for the period regarding which deferred taxes were not recorded | | | 608 | | | | 511 | | | | 95 | |
Other differences | | | 1,862 | | | | (126 | ) | | | 274 | |
Tax expense on income included in the statement of profit and loss | | | 25,199 | | | | 37,980 | | | | 4,325 | |
Note 23 – Income Taxes (Cont’d)
C. | Deferred tax assets and liabilities |
1. | Deferred tax assets and liabilities recognized The deferred taxes are calculated based on the tax rate expected to apply at the time of the reversal as detailed below. Deferred taxes in respect of subsidiaries were calculated based on the tax rates relevant for each country. |
The deferred taxes are calculated based on the tax rate expected to apply at the time of the reversal as detailed below. Deferred taxes in respect of subsidiaries were calculated based on the tax rates relevant for each country.F - 63
Note 24 – Income Taxes (Cont’d)
The deferred tax assets and liabilities are derived from the following items:
| | Property plant and equipment | | | Carryforward of losses and deductions for tax purposes | | | Financial instruments | | | Other* | | | Total | |
| | $ thousands | |
Balance of deferred tax asset (liability) as at January 1, 2020 | | | (82,805 | ) | | | 2,518 | | | | 141 | | | | 2,099 | | | | (78,047 | ) |
Changes recorded on the statement of profit and loss | | | (6,230 | ) | | | (951 | ) | | | 212 | | | | 3,006 | | | | (3,963 | ) |
Changes recorded in other comprehensive income | | | 0 | | | | 0 | | | | 1,346 | | | | 0 | | | | 1,346 | |
Translation differences | | | (6,639 | ) | | | 124 | | | | 117 | | | | 100 | | | | (6,298 | ) |
Balance of deferred tax asset (liability) as at December 31, 2020 | | | (95,674 | ) | | | 1,691 | | | | 1,816 | | | | 5,205 | | | | (86,962 | ) |
Changes recorded on the statement of profit and loss | | | (23,591 | ) | | | 106,643 | | | | 49 | | | | (80,662 | ) | | | 2,439 | |
Changes recorded in other comprehensive income | | | 0 | | | | 0 | | | | (423 | ) | | | (2,847 | ) | | | (3,270 | ) |
Change as a result of business combinations | | | (4,050 | ) | | | 2,882 | | | | (232 | ) | | | (5,350 | ) | | | (6,750 | ) |
Translation differences | | | (3,915 | ) | | | 1,126 | | | | 50 | | | | 101 | | | | (2,638 | ) |
Balance of deferred tax asset (liability) as at December 31, 2021 | | | (127,230 | ) | | | 112,342 | | | | 1,260 | | | | (83,553 | ) | | | (97,181 | ) |
| | Property plant and equipment | | | Carryforward of losses and deductions for tax purposes | | | Financial instruments | | | Other* | | | Total | |
| | $ Thousands | |
Balance of deferred tax (liability) asset as at January 1, 2022 | | | (127,230 | ) | | | 112,342 | | | | 1,260 | | | | (83,553 | ) | | | (97,181 | ) |
Changes recorded on the statement of profit and loss | | | (20,103 | ) | | | 8,116 | | | | (235 | ) | | | 13,801 | | | | 1,579 | |
Changes recorded in other comprehensive income | | | - | | | | - | | | | (2,657 | ) | | | (4,439 | ) | | | (7,096 | ) |
Translation differences | | | 14,615 | | | | (4,370 | ) | | | (103 | ) | | | (147 | ) | | | 9,995 | |
Balance of deferred tax (liability) asset as at December 31, 2022 | | | (132,718 | ) | | | 116,088 | | | | (1,735 | ) | | | (74,338 | ) | | | (92,703 | ) |
Changes recorded on the statement of profit and loss | | | (9,626 | ) | | | 6,054 | | | | 24 | | | | (10,601 | ) | | | (14,149 | ) |
Changes recorded in other comprehensive income | | | - | | | | - | | | | 354 | | | | 2,851 | | | | 3,205 | |
Changes recorded from business combinations | | | (18,468 | ) | | | - | | | | - | | | | - | | | | (18,468 | ) |
Translation differences | | | 3,313 | | | | (1,364 | ) | | | 7 | | | | (569 | ) | | | 1,387 | |
Balance of deferred tax (liability) asset as at December 31, 2023 | | | (157,499 | ) | | | 120,778 | | | | (1,350 | ) | | | (82,657 | ) | | | (120,728 | ) |
* | This amount includes deferred tax arising from intangibles, undistributed profits, non-monetary items, associated companies and trade receivables distribution. |
2. | The deferred taxes are presented in the statements of financial position as follows: |
| | As at December 31, | | | As at December 31, | |
| | 2021 | | | 2020 | | | 2023 | | 2022 | |
| | $ Thousands | | | $ Thousands | |
As part of non-current assets | | 49,275 | | 7,374 | | | 15,862 | | 6,382 | |
As part of current liabilities | | (21,117 | ) | | 0 | | | - | | (1,285 | ) |
As part of non-current liabilities | | | (125,339 | ) | | | (94,336 | ) | | | (136,590 | ) | | | (97,800 | ) |
| | | (97,181 | ) | | | (86,962 | ) | | | (120,728 | ) | | | (92,703 | ) |
Income tax rate in Israel is 23% for the years ended December 31, 2021, 20202023, 2022 and 2019.2021. The tax rate applicable to US companies are (i) federal corporate tax of 21% and (ii) state tax ranging from 6%4% to 11.5%. According to the provisions of the tax treaty between Israel and the United States, interest payments are subject to withholding tax of 17.5%, and dividend payments are subject to withholding tax of 12.5%. In Singapore, the corporate tax rate is 17%. Dividends received by Kenon from ZIM, an associated company incorporated in Israel, ZIM, is subject to a withholding tax rate of 5%.
Note 23 – Income Taxes (Cont’d)
On January 4, 2016, Amendment 216 to the Income Tax Ordinance (New Version) – 1961 (hereinafter – “the Ordinance”) was passed in the Knesset. As part of the amendment, OPC’s and Hadera’s income tax rate was reduced by 1.5% to a rate of 25% as from 2016. Furthermore, on December 22, 2016 the Knesset plenum passed the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) – 2016, by which, inter alia, the corporate tax rate would be reduced from 25% to 23% in two steps. The first step will be to a rate of 24% as from January 2017 and the second step will be to a rate of 23% as from January 2018.
As a result of reducing the tax rate to 23%, the deferred tax balance as at December 31, 2021 and 2020 were calculated according to the new tax rates specified in the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the years 2017 and 2018), at the tax rate expected to apply on the reversal date.
Note 24 – Income Taxes (Cont’d)
3. | Tax and deferred tax balances not recorded |
UnrecognisedUnrecognized deferred tax assets
| | As at December 31, | |
| | 2021 | | | 2020 | |
| | $ Thousands | |
Losses for tax purposes | | | 167,758 | | | | 54,985 | |
Deductible temporary differences | | | 0 | | | | 1,971 | |
| | | 167,758 | | | | 56,956 | |
| | As at December 31, | |
| | 2023 | | | 2022 | |
| | $ Thousands | |
Losses for tax purposes | | | 130,147 | | | | 153,907 | |
According to IsraeliIn Israel, as of December 31, 2023, the Group has tax law, there is no time limit on the utilizationloss carryforwards of approximately NIS 650 million (approximately $179 million). OPC did not recognize a deferred tax asset in respect of approximately NIS 150 million (approximately $41 million) in tax losses, and the utilization of the deductible temporary differences. Deferred tax assets were not recognized for these items, since it isdoes not expectedexpect that there will be an expected foreseeable taxable income in the future, against which the tax benefits can be utilized.
In the United States, as of December 31, 2021,2023, the Group hadhas tax loss carryforwards of approximately $470 million at the federal level. In respect of net operating losses for tax purposes, the Group has tax losses of $89 million, which nomay be offset for tax purposes in the United States against future income, subject to complying with the conditions of the law, some of which are not under the OPC’s control and, therefore, OPC did not recognize deferred taxes have been created, as detailed below:tax assets in respect thereof. These losses will expire in 2027-2037.
• | Net operating losses for tax purposes of $108 million, which may be offset for tax purposes in the United States against future income, subject to complying with the conditions of the law, some of which are not under the OPC’s control and, therefore, OPC did not recognize deferred tax assets in respect thereof. These losses will expire in 2027-2037.
|
• | $2 million in tax credits, offsettable for tax purposes in the United States against future profits in the United States, are subject to complying with the conditions of the law, some of which are not under the OPC’s control and, therefore, OPC did not recognize deferred tax assets. These losses will expire in 2027-2037.
|
UnrecognisedUnrecognized deferred tax liabilities
The tax effect on taxable temporary differences of $112$5 million (2020: $nil)(2022: $32 million) has not been recorded as this arises from undistributed profits of the Group’s associated companies which the Group does not expect to incur.
Singapore does not impose taxes on disposal gains, which are considered to be capital in nature, but imposes tax on income and gains of a trading nature. As such, whenever a gain is realized on the disposal of an asset, the practice of the IRASInland Revenue Authority of Singapore is to rely upon a set of commonly-applied rules in determining the question of capital (not taxable) or revenue (taxable). Under Singapore tax laws, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and December 31, 2027 are generally not taxable if, immediately prior to the date of such disposal, the divesting company has held at least 20% of the ordinary shares in the investee company for a continuous period of at least 24 months.
Note 2425 – Earnings per Share
Data used in calculation of the basic / diluted earnings per share
A. | Profit/(Loss)/Profit allocated to the holders of the ordinary shareholders
|
| | For the year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Profit/(loss) for the year attributable to Kenon’s shareholders | | | 930,273 | | | | 507,106 | | | | (13,359 | ) |
Profit for the year from discontinued operations (after tax) attributable to Kenon’s shareholders | | | 0 | | | | 8,476 | | | | 24,653 | |
Profit/(loss) for the year from continuing operations attributable to Kenon’s shareholders | | | 930,273 | | | | 498,630 | | | | (38,012 | ) |
| | For the year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
(Loss)/Profit for the year attributable to Kenon’s shareholders | | | (235,978 | ) | | | 312,652 | | | | 930,273 | |
B. | Number of ordinary shares |
| | For the year ended December 31 | |
| | 2021 | | | 2020 | | | 2019 | |
| | Thousands | |
Weighted Average number of shares used in calculation of basic/diluted earnings per share | | | 53,879 | | | | 53,870 | | | | 53,856 | |
| | For the year ended December 31 | |
| | 2023 | | | 2022 | | | 2021 | |
| | Thousands | |
Weighted Average number of shares used in calculation of basic/diluted earnings per share | | | 53,360 | | | | 53,885 | | | | 53,879 | |
Note 25 – Discontinued Operations
| (a) | I.C. Power (Latin America businesses)
|
In December 2017, Kenon, through its wholly-owned subsidiary Inkia Energy Limited (“Inkia”), sold its Latin American and Caribbean power business to an infrastructure private equity firm, I Squared Capital (“ISQ”). As a result, the Latin American and Caribbean businesses were classified as discontinued operations.
Kenon’s subsidiaries are entitled to receive payments in connection with certain claims held by companies within Inkia’s businesses. In 2019, one of Kenon’s subsidiaries received a favorable award in a commercial arbitration proceeding relating to retained claims from the sale of the Inkia business. $25 million, net of taxes, was recognized in discontinued operations. In 2020, following the completion of a tax review related to the sale, Kenon recognized income of $8 million, net of taxes.
Set forth below are the results attributable to the discontinued operations
| | Year ended December 31, 2021 | | | Year ended December 31, 2020 | | | Year ended December 31, 2019 | |
| | $Thousands | |
Recovery of retained claims | | | 0 | | | | 9,923 | | | | 30,000 | |
Income taxes | | | 0 | | | | (1,447 | ) | | | (5,347 | ) |
Profit after income taxes | | | 0 | | | | 8,476 | | | | 24,653 | |
| | | | | | | | | | | | |
Net cash flows provided by investing activities | | | 0 | | | | 8,476 | | | | 24,567 | |
Note 26 – Segment, Customer and Geographic Information
Financial information of the reportable segments is set forth in the following tables:
| | OPC Israel | | | CPV Group | | | ZIM | | | Quantum | | | Others | | | Total | |
| | $ Thousands | |
2021 | | | | | | | | | | | | | | | | | | |
Revenue | | | 437,043 | | | | 50,720 | | | | 0 | | | | 0 | | | | 0 | | | | 487,763 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/profit before taxes | | | (57,040 | ) | | | (60,709 | ) | | | 1,260,789 | | | | (251,483 | ) | | | (11,915 | ) | | | 879,642 | |
Income tax benefit/(expense) | | | 10,155 | | | | 13,696 | | | | 0 | | | | 0 | | | | (28,176 | ) | | | (4,325 | ) |
(Loss)/profit from continuing operations | | | (46,885 | ) | | | (47,013 | ) | | | 1,260,789 | | | | (251,483 | ) | | | (40,091 | ) | | | 875,317 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 44,296 | | | | 13,102 | | | | 0 | | | | 0 | | | | 242 | | | | 57,640 | |
Financing income | | | (2,730 | ) | | | (37 | ) | | | 0 | | | | 0 | | | | (167 | ) | | | (2,934 | ) |
Financing expenses | | | 119,392 | | | | 24,640 | | | | 0 | | | | 0 | | | | 263 | | | | 144,295 | |
Other items: | | | | | | | | | | | | | | | | | | | | | | | | |
Losses related to Qoros | | | 0 | | | | 0 | | | | 0 | | | | 251,483 | | | | 0 | | | | 251,483 | |
Losses related to ZIM | | | 0 | | | | 0 | | | | 204 | | | | 0 | | | | 0 | | | | 204 | |
Share in losses/(profit) of associated companies | | | 419 | | | | 10,425 | | | | (1,260,993 | ) | | | 0 | | | | 0 | | | | (1,250,149 | ) |
| | | 161,377 | | | | 48,130 | | | | (1,260,789 | ) | | | 251,483 | | | | 338 | | | | (799,461 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | 104,337 | | | | (12,579 | ) | | | 0 | | | | 0 | | | | (11,577 | ) | | | 80,181 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,511,408 | | | | 431,474 | | | | 0 | | | | 0 | | | | 226,337 | | | | 2,169,219 | |
Investments in associated companies | | | 0 | | | | 545,242 | | | | 1,354,212 | | | | 0 | | | | 0 | | | | 1,899,454 | |
| | | | | | | | | | | | | | | | | | | | | | | 4,068,673 | |
Segment liabilities | | | 1,354,476 | | | | 218,004 | | | | 0 | | | | 0 | | | | 215,907 | | | | 1,788,387 | |
| | OPC Israel | | | CPV Group | | | ZIM | | | Quantum | | | Others | | | Total | |
| | $ Thousands | |
2020 | | | | | | | | | | | | | | | | | | |
Revenue | | | 385,625 | | | | 0 | | | | 0 | | | | 0 | | | | 845 | | | | 386,470 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/profit before taxes | | | (8,620 | ) | | | 0 | | | | 210,647 | | | | 303,669 | | | | (5,249 | ) | | | 500,447 | |
Income tax expense | | | (3,963 | ) | | | 0 | | | | 0 | | | | 0 | | | | (735 | ) | | | (4,698 | ) |
(Loss)/profit from continuing operations | | | (12,583 | ) | | | 0 | | | | 210,647 | | | | 303,669 | | | | (5,984 | ) | | | 495,749 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 33,981 | | | | 0 | | | | 0 | | | | 0 | | | | 190 | | | | 34,171 | |
Financing income | | | (354 | ) | | | 0 | | | | 0 | | | | 0 | | | | (13,937 | ) | | | (14,291 | ) |
Financing expenses | | | 50,349 | | | | 0 | | | | 0 | | | | 1 | | | | 824 | | | | 51,174 | |
Other items: | | | | | | | | | | | | | | | | | | | - | | | | | |
Net gains related to Qoros | | | 0 | | | | 0 | | | | 0 | | | | (309,918 | ) | | | 0 | | | | (309,918 | ) |
Write back of impairment of investment | | | 0 | | | | 0 | | | | (43,505 | ) | | | 0 | | | | 0 | | | | (43,505 | ) |
Share in losses/(profit) of associated companies | | | 0 | | | | 0 | | | | (167,142 | ) | | | 6,248 | | | | 0 | | | | (160,894 | ) |
| | | 83,976 | | | | 0 | | | | (210,647 | ) | | | (303,669 | ) | | | (12,923 | ) | | | (443,263 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | 75,356 | | | | 0 | | | | 0 | | | | 0 | | | | (18,172 | ) | | | 57,184 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,723,967 | | | | 0 | | | | 0 | | | | 235,220 | | | | 225,998 | | | | 2,185,185 | |
Investments in associated companies | | | 0 | | | | 0 | | | | 297,148 | | | | 0 | | | | 0 | | | | 297,148 | |
| | | | | | | | | | | | | | | | | | | | | | | 2,482,333 | |
Segment liabilities | | | 1,200,363 | | | | 0 | | | | 0 | | | | 0 | | | | 5,962 | | | | 1,206,325 | |
| | OPC Israel | | | CPV Group | | | ZIM | | | Others | | | Total | |
| | $ Thousands | |
2023 | | | | | | | | | | | | | | | |
Revenue | | | 618,830 | | | | 72,966 | | | | - | | | | - | | | | 691,796 | |
| | | | | | | | | | | | | | | | | | | | |
Profit/(loss) before taxes | | | 48,750 | | | | 16,515 | | | | (266,906 | ) | | | 15,892 | | | | (185,749 | ) |
Income tax expense | | | (14,174 | ) | | | (4,136 | ) | | | - | | | | (6,889 | ) | | | (25,199 | ) |
Profit/(loss) from continuing operations | | | 34,576 | | | | 12,379 | | | | (266,906 | ) | | | 9,003 | | | | (210,948 | ) |
| | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 65,659 | | | | 25,056 | | | | - | | | | 224 | | | | 90,939 | |
Financing income | | | (6,038 | ) | | | (5,641 | ) | | | - | | | | (27,682 | ) | | | (39,361 | ) |
Financing expenses | | | 48,182 | | | | 16,790 | | | | - | | | | 1,361 | | | | 66,333 | |
Other items: | | | | | | | | | | | | | | | | | | | | |
Losses related to ZIM | | | - | | | | - | | | | 860 | | | | - | | | | 860 | |
Share in profit of CPV excluding share of depreciation and amortization and financing expenses, net | | | - | | | | 156,636 | | | | - | | | | - | | | | 156,636 | |
Changes in net expenses, not in the ordinary course of business and/or of a non-recurring nature | | | - | | | | 4,878 | | | | - | | | | - | | | | 4,878 | |
Share of changes in fair value of derivative financial instruments | | | - | | | | (2,168 | ) | | | - | | | | - | | | | (2,168 | ) |
Share in (profit)/loss of associated companies | | | - | | | | (65,566 | ) | | | 266,046 | | | | - | | | | 200,480 | |
| | | 107,803 | | | | 129,985 | | | | 266,906 | | | | (26,097 | ) | | | 478,597 | |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | 156,553 | | | | 146,500 | | | | - | | | | (10,205 | ) | | | 292,848 | |
| | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,673,149 | | | | 1,102,939 | | | | - | | | | 629,196 | | | | 3,405,284 | |
Investments in associated companies | | | - | | | | 703,156 | | | | - | | | | - | | | | 703,156 | |
| | | | | | | | | | | | | | | | | | | 4,108,440 | |
Segment liabilities | | | 1,423,624 | | | | 609,958 | | | | - | | | | 4,634 | | | | 2,038,216 | |
Note 26 – Segment, Customer and Geographic Information (Cont’d)
| | OPC Israel | | | CPV Group | | | ZIM | | | Others | | | Total | |
| | $ Thousands | |
2022 | | | | | | | | | | | | | | | | | | | | |
Revenue | | | 516,668 | | | | 57,289 | | | | - | | | | - | | | | 573,957 | |
| | | | | | | | | | | | | | | | | | | | |
Profit before taxes | | | 23,728 | | | | 61,039 | | | | 305,376 | | | | (2,504 | ) | | | 387,639 | |
Income tax expense | | | (9,522 | ) | | | (9,892 | ) | | | - | | | | (18,566 | ) | | | (37,980 | ) |
Profit/(loss) from continuing operations | | | 14,206 | | | | 51,147 | | | | 305,376 | | | | (21,070 | ) | | | 349,659 | |
| | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 47,134 | | | | 15,519 | | | | - | | | | 223 | | | | 62,876 | |
Financing income | | | (10,301 | ) | | | (25,197 | ) | | | - | | | | (9,188 | ) | | | (44,686 | ) |
Financing expenses | | | 42,062 | | | | 7,521 | | | | - | | | | 814 | | | | 50,397 | |
Other items: | | | | | | | | | | | | | | | | | | | | |
Losses related to ZIM | | | - | | | | - | | | | 727,650 | | | | - | | | | 727,650 | |
Share in profit of CPV excluding share of depreciation and amortization and financing expenses, net | | | - | | | | 167,862 | | | | - | | | | - | | | | 167,862 | |
Changes in net expenses, not in the ordinary course of business and/or of a non-recurring nature | | | - | | | | 2,978 | | | | - | | | | - | | | | 2,978 | |
Share of changes in fair value of derivative financial instruments | | | - | | | | 2,383 | | | | - | | | | - | | | | 2,383 | |
Share in profit of associated companies | | | - | | | | (85,149 | ) | | | (1,033,026 | ) | | | - | | | | (1,118,175 | ) |
| | | 78,895 | | | | 85,917 | | | | (305,376 | ) | | | (8,151 | ) | | | (148,715 | ) |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | 102,623 | | | | 146,956 | | | | - | | | | (10,655 | ) | | | 238,924 | |
| | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,503,811 | | | | 552,569 | | | | - | | | | 636,263 | | | | 2,692,643 | |
Investments in associated companies | | | - | | | | 652,358 | | | | 427,059 | | | | - | | | | 1,079,417 | |
| | | | | | | | | | | | | | | | | | | 3,772,060 | |
Segment liabilities | | | 1,226,395 | | | | 241,468 | | | | - | | | | 8,279 | | | | 1,476,142 | |
Note 26 – Segment, Customer and Geographic Information (Cont’d)
| | OPC Israel | | | Quantum | | | ZIM | | | Others | | | Total | |
| | $ Thousands | |
2019 | | | | | | | | | | | | | | | |
Revenue | | | 373,142 | | | | 0 | | | | 0 | | | | 331 | | | | 373,473 | |
| | | | | | | | | | | | | | | | | | | | |
Profit/(loss) before taxes | | | 48,513 | | | | (44,626 | ) | | | (4,375 | ) | | | (5,048 | ) | | | (5,536 | ) |
Income Taxes | | | (14,147 | ) | | | 0 | | | | 0 | | | | (2,528 | ) | | | (16,675 | ) |
Profit/(loss) from continuing operations | | | 34,366 | | | | (44,626 | ) | | | (4,375 | ) | | | (7,576 | ) | | | (22,211 | ) |
| | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 31,141 | | | | 0 | | | | 0 | | | | 951 | | | | 32,092 | |
Financing income | | | (1,930 | ) | | | (242 | ) | | | 0 | | | | (15,507 | ) | | | (17,679 | ) |
Financing expenses | | | 28,065 | | | | 0 | | | | 0 | | | | 1,881 | | | | 29,946 | |
Other items: | | | | | | | | | | | | | | | | | | | | |
Net losses related to Qoros | | | 0 | | | | 7,813 | | | | 0 | | | | 0 | | | | 7,813 | |
Share in losses of associated companies | | | 0 | | | | 37,055 | | | | 4,375 | | | | 0 | | | | 41,430 | |
| | | 57,276 | | | | 44,626 | | | | 4,375 | | | | (12,675 | ) | | | 93,602 | |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | 105,789 | | | | 0 | | | | 0 | | | | (17,723 | ) | | | 88,066 | |
| | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,000,329 | | | | 71,580 | | | | 0 | | | | 247,155 | | | | 1,319,064 | |
Investments in associated companies | | | 0 | | | | 105,040 | | | | 84,270 | | | | 0 | | | | 189,310 | |
| | | | | | | | | | | | | | | | | | | 1,508,374 | |
Segment liabilities | | | 761,866 | | | | 0 | | | | 0 | | | | 34,720 | | | | 796,586 | |
| | OPC Israel | | | CPV Group | | | ZIM | | | Others | | | Total | |
| | $ Thousands | |
2021 | | | | | | | | | | | | | | | |
Revenue | | | 437,043 | | | | 50,720 | | | | - | | | | - | | | | 487,763 | |
| | | | | | | | | | | | | | | | | | | | |
(Loss)/profit before taxes | | | (57,040 | ) | | | (60,709 | ) | | | 1,260,789 | | | | (263,398 | ) | | | 879,642 | |
Income tax benefit/(expense) | | | 10,155 | | | | 13,696 | | | | - | | | | (28,176 | ) | | | (4,325 | ) |
(Loss)/profit from continuing operations | | | (46,885 | ) | | | (47,013 | ) | | | 1,260,789 | | | | (291,574 | ) | | | 875,317 | |
| | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 44,296 | | | | 13,102 | | | | - | | | | 242 | | | | 57,640 | |
Financing income | | | (2,730 | ) | | | (37 | ) | | | - | | | | (167 | ) | | | (2,934 | ) |
Financing expenses | | | 119,392 | | | | 24,640 | | | | - | | | | 263 | | | | 144,295 | |
Other items: | | | | | | | | | | | | | | | | | | | | |
Losses related to Qoros | | | - | | | | - | | | | - | | | | 251,483 | | | | 251,483 | |
Losses related to ZIM | | | - | | | | - | | | | 204 | | | | - | | | | 204 | |
Share in profit of CPV excluding share of depreciation and amortization and financing expenses, net | | | - | | | | 105,668 | | | | - | | | | - | | | | 105,668 | |
Changes in net expenses, not in the ordinary course of business and/or of a non-recurring nature | | | - | | | | 929 | | | | - | | | | - | | | | 929 | |
Share of changes in fair value of derivative financial instruments | | | - | | | | 44,901 | | | | - | | | | - | | | | 44,901 | |
Share in losses/(profit) of associated companies | | | 419 | | | | 10,425 | | | | (1,260,993 | ) | | | - | | | | (1,250,149 | ) |
| | | 161,377 | | | | 199,628 | | | | (1,260,789 | ) | | | 251,821 | | | | (647,963 | ) |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | 104,337 | | | | 138,919 | | | | - | | | | (11,577 | ) | | | 231,679 | |
| | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 1,481,149 | | | | 431,474 | | | | - | | | | 226,337 | | | | 2,138,960 | |
Investments in associated companies | | | - | | | | 545,242 | | | | 1,354,212 | | | | - | | | | 1,899,454 | |
| | | | | | | | | | | | | | | | | | | 4,038,414 | |
Segment liabilities | | | 1,324,217 | | | | 218,004 | | | | - | | | | 215,907 | | | | 1,758,128 | |
A. | Customer and Geographic Information |
Major customers
Following is information on the total sales of the Group to material customers and the percentage of the Group’s total revenues (in $Thousands)$ Thousands):
| | 2021 | | | 2020 | | | 2019 | |
Customer | | Total revenues | | | Percentage of revenues of the Group | | | Total revenues | | | Percentage of revenues of the Group | | | Total revenues | | | Percentage of revenues of the Group | |
| | | | | | | | | | | | | | | | | | |
Customer 1 | | | 93,959 | | | | 19.26 | % | | | 86,896 | | | | 22.48 | % | | | 80,861 | | | | 21.65 | % |
Customer 2 | | | 70,801 | | | | 14.52 | % | | | 74,694 | | | | 19.33 | % | | | 76,653 | | | | 20.52 | % |
Customer 3 | | | 0 | * | | | 0 | * | | | 0 | * | | | 0 | * | | | 56,393 | | | | 15.10 | % |
Customer 4 | | | 0 | * | | | 0 | * | | | 0 | * | | | 0 | * | | | 48,724 | | | | 13.05 | % |
Customer 5 | | | 0 | * | | | 0 | * | | | 0 | * | | | 0 | * | | | 39,904 | | | | 10.68 | % |
| | 2023 | | | 2022 | | | 2021 | |
Customer | | Total revenues | | | Percentage of revenues of the Group | | | Total revenues | | | Percentage of revenues of the Group | | | Total revenues | | | Percentage of revenues of the Group | |
| | | | | | | | | | | | | | | | | | |
Customer 1 | | | 99,945 | | | | 14.45 | % | | | 107,081 | | | | 18.66 | % | | | 93,959 | | | | 19.26 | % |
Customer 2 | | | 79,000 | | | | 11.42 | % | | | 73,518 | | | | 12.81 | % | | | 70,801 | | | | 14.52 | % |
Customer 3 | | | 71,013 | | | | 10.27 | % | | | - | * | | | - | * | | | - | * | | | - | * |
* Represents an amount less than 10% of the revenues.
Note 26 – Segment, Customer and Geographic Information (Cont’d)
Information based on geographic areas
The Group’s geographic revenues are as follows:
| | For the year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | $ Thousands | |
Israel | | | 437,043 | | | | 385,625 | | | | 373,142 | |
United States | | | 50,720 | | | | 0 | | | | 0 | |
Others | | | 0 | | | | 845 | | | | 331 | |
Total revenue | | | 487,763 | | | | 386,470 | | | | 373,473 | |
| | For the year ended December 31, | |
| | 2023 | | | 2022 | | | 2021 | |
| | $ Thousands | |
Israel | | | 618,830 | | | | 516,668 | | | | 437,043 | |
United States | | | 72,966 | | | | 57,289 | | | | 50,720 | |
Total revenue | | | 691,796 | | | | 573,957 | | | | 487,763 | |
The Group’s non-current assets* based on the basis of geographic location:
| | As at December 31, | | | As at December 31, | |
| | 2021 | | | 2020 | | | 2023 | | 2022 | |
| | $ Thousands | | | $ Thousands | |
Israel | | 1,039,505 | | 820,012 | | | 1,290,652 | | 1,050,386 | |
United States | | 310,426 | | 0 | | | 745,442 | | 392,734 | |
Others | | | 171 | | | 1 | | | | 15 | | | 96 | |
Total non-current assets | | | 1,350,102 | | | 820,013 | | | | 2,036,109 | | | 1,443,216 | |
* Composed of property, plant and equipment and intangible assets.
Seasonality
OPC’s activity in Israel is subject to seasonal fluctuations as a result of changes in the Electricity Authority’s published regulated Time of Use Electricity Tariff (hereinafter – "the TAOZ"). The year is divided into 3 seasons, as follows: Summer (July and August), Winter (December, January and February) and Transition (March through June and September through November). For each season a different tariff is set. The results of OPC are based on the generation component which is part of the TAOZ.
OPC’s activity in the US (through the CPV Group) from generation of electricity are seasonal and are impacted by variable demand, gas and electricity prices, as well as the weather. In general, with respect to power plants running on natural gas, there is higher profitability in periods of the year where the temperatures are the highest or lowest, which are usually in summer and in winter, respectively. Similarly, the profitability of renewable energy production is subject to production volume, which varies based on wind and solar constructions, as well as its electricity price, which tends to be higher in winter, unless there is a fixed contractual price for the project.