EXHIBIT 99.2
OPC Energy Ltd. Condensed Consolidated Interim Financial Statements As at September 30 2021 (Unaudited) |
OPC Energy Ltd.
Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
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2
Somekh Chaikin KPMG Millennium Tower 17 Ha’arba’a St., POB 609, Tel-Aviv 6100601 03-6848000 |
Introduction
We have reviewed the accompanying financial information of OPC Energy Ltd. (hereinafter – “the Company”) and its subsidiaries, including the condensed consolidated interim statement of financial position as at September 30, 2021 and the condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the nine-month and three-month periods then ended. The Board of Directors and management are responsible for preparing and presenting financial information for these interim periods in accordance with IAS 34, Interim Financial Reporting, and are also responsible for preparing financial information for these interim periods under Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970. Our responsibility is to express a conclusion regarding the financial information for these interim periods based on our review.
Scope of the Review
We conducted our review in accordance with Review Standard (Israel) 2410 - “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” of the Institute of Certified Public Accountants in Israel. A review of financial information for interim periods consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.A review is substantially smaller in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might have been identifiable in an audit.Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the aforementioned financial information was not prepared, in all material respects, in accordance with International Accounting Standard (IAS 34).
In addition to that mentioned in the previous paragraph, based on our review, nothing has come to our attention that causes us to believe that the aforementioned financial information does not comply, in all material respects, with the disclosure requirements of Section D of the Securities Regulations (Periodic and Immediate Reports), 1970.
Somekh Chaikin
Certified Public Accountants
November 25, 2021
KPMG Somekh Chaikin, an Israeli registered partnership 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.
3
OPC Energy Ltd.
September 30 | September 30 | December 31 | ||||||||||
2021 | 2020 | 2020 | ||||||||||
(Unaudited) | (Unaudited) | (Audited) | ||||||||||
NIS million | NIS million | NIS million | ||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 1,565 | 587 | 200 | |||||||||
Short term deposits | - | - | 1,607 | |||||||||
Short-term restricted deposits and cash | 125 | 56 | 207 | |||||||||
Trade receivables and accrued income | 177 | 114 | 153 | |||||||||
Other receivables and debit balances | 145 | 58 | 63 | |||||||||
Short-term derivative financial instruments | 1 | 2 | *- | |||||||||
Total current assets | 2,013 | 817 | 2,230 | |||||||||
Non‑current assets | ||||||||||||
Long-term restricted deposits and cash | 66 | 346 | 231 | |||||||||
Prepaid expenses and long-term receivables | 180 | 128 | 143 | |||||||||
Investments in associates | 1,851 | - | - | |||||||||
Deferred tax assets, net | 120 | 9 | 24 | |||||||||
Long-term derivative financial instruments | 31 | 4 | 1 | |||||||||
Property, plant & equipment | 3,278 | 2,512 | 2,665 | |||||||||
Right‑of‑use assets | 300 | 288 | 276 | |||||||||
Intangible assets | 673 | 4 | 5 | |||||||||
Total non‑current assets | 6,499 | 3,291 | 3,345 | |||||||||
Total assets | 8,512 | 4,108 | 5,575 |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
4
OPC Energy Ltd.
Condensed Consolidated Interim Statements of Financial Position
September 30 | September 30 | December 31 | ||||||||||
2021 | 2020 | 2020 | ||||||||||
(Unaudited) | (Unaudited) | (Audited) | ||||||||||
NIS million | NIS million | NIS million | ||||||||||
Current liabilities | ||||||||||||
Current maturities of long-term liabilities | 1,385 | 166 | 149 | |||||||||
Trade payables | 359 | 181 | 298 | |||||||||
Payables and credit balances | 73 | 41 | 96 | |||||||||
Short-term derivative financial instruments | 36 | 24 | 126 | |||||||||
Current maturities of lease liabilities | 57 | 53 | 45 | |||||||||
Current tax liabilities | 1 | 29 | - | |||||||||
Total current liabilities | 1,911 | 494 | 714 | |||||||||
Non‑current liabilities | ||||||||||||
Long-term loans from banking corporations and others | 1,745 | 1,833 | 1,851 | |||||||||
Debentures | 1,788 | 624 | 952 | |||||||||
Long-term lease liabilities | 42 | 15 | 14 | |||||||||
Long-term derivative financial instruments | - | 29 | 22 | |||||||||
Other long‑term liabilities | 77 | 2 | 2 | |||||||||
Liabilities for deferred taxes, net | 370 | 282 | 309 | |||||||||
Total non-current liabilities | 4,022 | 2,785 | 3,150 | |||||||||
Total liabilities | 5,933 | 3,279 | 3,864 | |||||||||
Equity | ||||||||||||
Share capital | 2 | 1 | 2 | |||||||||
Share premium | 2,081 | 636 | 1,714 | |||||||||
Capital reserves | 103 | 19 | (74 | ) | ||||||||
Retained earnings (loss) | (141 | ) | 105 | 28 | ||||||||
Total equity attributable to the Company’s shareholders | 2,045 | 761 | 1,670 | |||||||||
Non‑controlling interests | 534 | 68 | 41 | |||||||||
Total equity | 2,579 | 829 | 1,711 | |||||||||
Total liabilities and equity | 8,512 | 4,108 | 5,575 |
Yair Caspi | Giora Almogy | Tzahi Goshen | ||
Chairman of the Board of Directors | Chief Executive Officer | Chief Financial Officer |
Date the financial statements were approved: November 25, 2021
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
5
OPC Energy Ltd.
For the nine-month period | For the three-month period | For the year ended | ||||||||||||||||||
Ended September 30 | Ended September 30 | December 31 | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | ||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||
Revenues from sales and services | 1,148 | 978 | 430 | 401 | 1,325 | |||||||||||||||
Cost of sales and services (net of depreciation and amortization) | 777 | 702 | 262 | 289 | 968 | |||||||||||||||
Depreciation and amortization | 131 | 80 | 44 | 33 | 114 | |||||||||||||||
Gross profit | 240 | 196 | 124 | 79 | 243 | |||||||||||||||
General and administrative expenses | 142 | 38 | 39 | 12 | 52 | |||||||||||||||
Share in profits of associates | 23 | - | 75 | - | - | |||||||||||||||
Transaction expenses in respect of acquisition of the CPV Group | 2 | *4 | - | *4 | 42 | |||||||||||||||
Business development expenses | 4 | *6 | 2 | *- | 7 | |||||||||||||||
Other income (expenses), net | (40 | ) | 1 | (1 | ) | 1 | 1 | |||||||||||||
Operating profit | 75 | 149 | 157 | 64 | 143 | |||||||||||||||
Finance expenses | 138 | 86 | 54 | 37 | *132 | |||||||||||||||
Loss due to early repayment of loans and bonds | 244 | - | 244 | - | *41 | |||||||||||||||
Finance income | 19 | 3 | 10 | 1 | 1 | |||||||||||||||
Finance expenses, net | 363 | 83 | 288 | 36 | 172 | |||||||||||||||
Income (loss) before taxes on income | (288 | ) | 66 | (131 | ) | 28 | (29 | ) | ||||||||||||
Taxes on income (tax benefit) | (72 | ) | 26 | (25 | ) | 10 | 13 | |||||||||||||
Profit (loss) for the period | (216 | ) | 40 | (106 | ) | 18 | (42 | ) | ||||||||||||
Attributable to: | ||||||||||||||||||||
The Company’s shareholders | (169 | ) | 20 | (90 | ) | 10 | (57 | ) | ||||||||||||
Non‑controlling interests | (47 | ) | 20 | (16 | ) | 8 | 15 | |||||||||||||
Profit (loss) for the period | (216 | ) | 40 | (106 | ) | 18 | (42 | ) | ||||||||||||
Earnings per share attributable to the Company’s owners | ||||||||||||||||||||
Basic earnings (loss) per share (in NIS) | (0.90 | ) | 0.14 | (0.48 | ) | 0.08 | (0.37 | ) | ||||||||||||
Diluted earnings (loss) per share (in NIS) | (0.90 | ) | 0.14 | (0.48 | ) | 0.07 | (0.37 | ) |
(*) Reclassified, see Section 2D.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
6
OPC Energy Ltd.
For the nine-month period | For the three-month period | For the year ended | ||||||||||||||||||
Ended September 30 | Ended September 30 | December 31 | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | ||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||
Profit (loss) for the period | (216 | ) | 40 | (106 | ) | 18 | (42 | ) | ||||||||||||
Other comprehensive income (loss) items that, subsequent to initial recognition in comprehensive income, were or will be transferred to profit and loss | ||||||||||||||||||||
Effective portion of the change in the fair value of cash flow hedges | 34 | (52 | ) | 1 | (6 | ) | (156 | ) | ||||||||||||
Net change in fair value of derivative financial instruments used for hedging cash flows stated to the cost of the hedged item | 110 | 9 | 5 | 2 | 10 | |||||||||||||||
Net change in fair value of derivative financial instruments used to hedge cash flows transferred to profit and loss | (8 | ) | 16 | (4 | ) | 3 | 22 | |||||||||||||
Group’s share in other comprehensive income of associates, net of tax | 33 | - | 10 | - | - | |||||||||||||||
Foreign currency translation differences in respect of foreign operations | 26 | - | (17 | ) | - | - | ||||||||||||||
Tax on other comprehensive income items | (4 | ) | *- | (1 | ) | *- | 5 | |||||||||||||
Other comprehensive income (loss) for the period, net of tax | 191 | (27 | ) | (6 | ) | (1 | ) | (119 | ) | |||||||||||
Total comprehensive income (loss) for the period | (25 | ) | 13 | (112 | ) | 17 | (161 | ) | ||||||||||||
Attributable to: | ||||||||||||||||||||
The Company’s shareholders | 4 | (7 | ) | (94 | ) | 9 | (176 | ) | ||||||||||||
Non‑controlling interests | (29 | ) | 20 | (18 | ) | 8 | 15 | |||||||||||||
Comprehensive income (loss) for the period | (25 | ) | 13 | (112 | ) | 17 | (161 | ) |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
7
OPC Energy Ltd.
Attributable to the Company’s shareholders | ||||||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve from transactions with non-controlling interests and merger | Hedge fund | Foreign operation translation reserve | Capital reserve from transactions with shareholders | Capital reserve for share-based payment | Retained earnings (loss) | Total | Non‑controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
For the nine-month period | ||||||||||||||||||||||||||||||||||||||||||||
ended September 30 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Balance as at January 1 2021 | 2 | 1,714 | (25 | ) | (132 | ) | - | 78 | 5 | 28 | 1,670 | 41 | 1,711 | |||||||||||||||||||||||||||||||
Issuance of shares (less issuance expenses) | *- | 365 | - | - | - | - | - | - | 365 | - | 365 | |||||||||||||||||||||||||||||||||
Investments by holders of non-controlling interests in equity of subsidiary | - | - | - | - | - | - | - | - | - | 555 | 555 | |||||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | - | 6 | - | 6 | - | 6 | |||||||||||||||||||||||||||||||||
Exercise of shares issued to employees and officers | *- | 2 | - | - | - | - | (2 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Merger capital reserve in respect of transfer of ICG Energy | - | - | - | - | - | *- | - | - | *- | - | *- | |||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | (33 | ) | (33 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | - | - | - | 155 | 18 | - | - | - | 173 | 18 | 191 | |||||||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | - | (169 | ) | (169 | ) | (47 | ) | (216 | ) | |||||||||||||||||||||||||||||
Balance as at September 30 2021 | 2 | 2,081 | (25 | ) | 23 | 18 | 78 | 9 | (141 | ) | 2,045 | 534 | 2,579 |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
8
OPC Energy Ltd.
Condensed Consolidated Interim Statements of Changes in Equity (cont.)
Attributable to the Company’s shareholders | ||||||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve from transactions with non-controlling interests and merger | Hedge fund | Foreign operation translation reserve | Capital reserve from transactions with shareholders | Capital reserve for share-based payment | Retained earnings (loss) | Total | Non‑controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
For the nine-month period ended | ||||||||||||||||||||||||||||||||||||||||||||
September 30 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Balance as at January 1 2020 | 1 | 635 | (4 | ) | (13 | ) | - | 78 | 4 | 85 | 786 | 69 | 855 | |||||||||||||||||||||||||||||||
Acquisition of non-controlling interests | - | - | (21 | ) | - | - | - | - | - | (21 | ) | *- | (21 | ) | ||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | - | 3 | - | 3 | - | 3 | |||||||||||||||||||||||||||||||||
Exercise of shares issued to employees and officers | *- | 1 | - | - | - | - | (1 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Issuance of capital notes to non-controlling interests | - | - | - | - | - | - | - | - | - | 1 | 1 | |||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | (22 | ) | (22 | ) | |||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | (27 | ) | - | - | - | - | (27 | ) | - | (27 | ) | ||||||||||||||||||||||||||||||
Profit for the period | - | - | - | - | - | - | - | 20 | 20 | 20 | 40 | |||||||||||||||||||||||||||||||||
Balance as at September 30 2020 | 1 | 636 | (25 | ) | (40 | ) | - | 78 | 6 | 105 | 761 | 68 | 829 |
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
9
OPC Energy Ltd.
Condensed Consolidated Interim Statements of Changes in Equity (cont.)
Attributable to the Company’s shareholders | ||||||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve from transactions with non-controlling interests and merger | Hedge fund | Foreign operation translation reserve | Capital reserve from transactions with shareholders | Capital reserve for share-based payment | Retained earnings (loss) | Total | Non‑ controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
For the three-month period | ||||||||||||||||||||||||||||||||||||||||||||
ended September 30 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Balance as at July 1 2021 | 2 | 2,061 | (25 | ) | 15 | 30 | 78 | 7 | (51 | ) | 2,117 | 558 | 2,675 | |||||||||||||||||||||||||||||||
Issuance of shares (less issuance expenses) | *- | 19 | - | - | - | - | - | - | 19 | - | 19 | |||||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | - | 3 | - | 3 | - | 3 | |||||||||||||||||||||||||||||||||
Exercise of shares issued to employees and officers | *- | 1 | - | - | - | - | (1 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Investments by holders of non-controlling interests in equity of subsidiary | - | - | - | - | - | - | - | - | - | 19 | 19 | |||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | (25 | ) | (25 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | 8 | (12 | ) | - | - | - | (4 | ) | (2 | ) | (6 | ) | |||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | - | (90 | ) | (90 | ) | (16 | ) | (106 | ) | |||||||||||||||||||||||||||||
Balance as at September 30 2021 | 2 | 2,081 | (25 | ) | 23 | 18 | 78 | 9 | (141 | ) | 2,045 | 534 | 2,579 |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
10
OPC Energy Ltd.
Condensed Consolidated Interim Statements of Changes in Equity (cont.)
Attributable to the Company’s shareholders | ||||||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve from transactions with non-controlling interests and merger | Hedge fund | Foreign operation translation reserve | Capital reserve from transactions with shareholders | Capital reserve for share-based payment | Retained earnings (loss) | Total | Non‑ controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
For the three-month period ended | ||||||||||||||||||||||||||||||||||||||||||||
As at September 30 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Balance as at July 1 2020 | 1 | 635 | (25 | ) | (39 | ) | - | 78 | 6 | 95 | 751 | 59 | 810 | |||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | - | 1 | - | 1 | - | 1 | |||||||||||||||||||||||||||||||||
Exercise of shares issued to employees and officers | *- | 1 | - | - | - | - | (1 | ) | - | - | - | �� | - | |||||||||||||||||||||||||||||||
Issuance of capital notes to non-controlling interests | - | - | - | - | - | - | - | - | - | 1 | 1 | |||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | (1 | ) | - | - | - | - | (1 | ) | - | (1 | ) | ||||||||||||||||||||||||||||||
Profit for the period | - | - | - | - | - | - | - | 10 | 10 | 8 | 18 | |||||||||||||||||||||||||||||||||
Balance as at September 30 2020 | 1 | 636 | (25 | ) | (40 | ) | - | 78 | 6 | 105 | 761 | 68 | 829 |
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
11
OPC Energy Ltd.
Condensed Consolidated Interim Statements of Changes in Equity (cont.)
Attributable to the Company’s shareholders | ||||||||||||||||||||||||||||||||||||||||||||
Share capital | Share premium | Capital reserve from transactions with non-controlling interests and merger | Hedge fund | Foreign operation translation reserve | Capital reserve from transactions with shareholders | Capital reserve for share-based payment | Retained earnings (loss) | Total | Non‑ controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||||||||||||||||||||
(Audited) | ||||||||||||||||||||||||||||||||||||||||||||
For the year ended December 31 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Balance as at January 1 2020 | 1 | 635 | (4 | ) | (13 | ) | - | 78 | 4 | 85 | 786 | 69 | 855 | |||||||||||||||||||||||||||||||
Issuance of shares (less issuance expenses) | 1 | 1,077 | - | - | - | - | - | - | 1,078 | - | 1,078 | |||||||||||||||||||||||||||||||||
Acquisition of non-controlling interests | - | - | (21 | ) | - | - | - | - | - | (21 | ) | *- | (21 | ) | ||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | - | 3 | - | 3 | - | 3 | |||||||||||||||||||||||||||||||||
Exercise of shares issued to employees and officers | *- | 2 | - | - | - | - | (2 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Issuance of capital notes to non-controlling interests | - | - | - | - | - | - | - | - | - | *- | *- | |||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | (43 | ) | (43 | ) | |||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | - | - | - | (119 | ) | - | - | - | - | (119 | ) | - | (119 | ) | ||||||||||||||||||||||||||||||
Profit (loss) for the year | - | - | - | - | - | - | - | (57 | ) | (57 | ) | 15 | (42 | ) | ||||||||||||||||||||||||||||||
Balance as at December 31 2020 | 2 | 1,714 | (25 | ) | (132 | ) | - | 78 | 5 | 28 | 1,670 | 41 | 1,711 |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
12
OPC Energy Ltd.
For the nine-month period | For the three-month period | For the year ended | ||||||||||||||||||
Ended September 30 | Ended September 30 | December 31 | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | ||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||
Profit (loss) for the period | (216 | ) | 40 | (106 | ) | 18 | (42 | ) | ||||||||||||
Adjustments: | ||||||||||||||||||||
Depreciation, amortization and diesel fuel consumption | 140 | 90 | 47 | 34 | 133 | |||||||||||||||
Finance expenses, net | 363 | 83 | 288 | 36 | 172 | |||||||||||||||
Taxes on income (tax benefit) | (72 | ) | 26 | (25 | ) | 10 | 13 | |||||||||||||
Share in profits of associates | (23 | ) | - | (75 | ) | - | - | |||||||||||||
Loss on repayment of other long‑term liabilities | 39 | - | - | - | - | |||||||||||||||
Gain on sale of a subsidiary | - | (1 | ) | - | (1 | ) | (1 | ) | ||||||||||||
Share-based compensation transactions | 6 | 3 | 3 | 1 | 3 | |||||||||||||||
237 | 241 | 132 | 98 | 278 | ||||||||||||||||
Changes in trade and other receivables | (28 | ) | 8 | (58 | ) | (27 | ) | (47 | ) | |||||||||||
Changes in suppliers, service providers and other payables | (9 | ) | 57 | (4 | ) | 57 | 131 | |||||||||||||
Changes in employee benefits | 34 | - | - | - | - | |||||||||||||||
(3 | ) | 65 | (62 | ) | 30 | 84 | ||||||||||||||
Dividends received from associates | 30 | - | 7 | - | - | |||||||||||||||
Income tax paid | (1 | ) | *- | *- | *- | *- | ||||||||||||||
Net cash from operating activities | 263 | 306 | 77 | 128 | 362 | |||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||
Interest received | *- | 1 | *- | *- | 1 | |||||||||||||||
Short-term restricted deposits and cash, net | 1,725 | 60 | *- | 1 | (1,696 | ) | ||||||||||||||
Withdrawals from long-term restricted cash | 95 | 66 | 6 | 59 | 134 | |||||||||||||||
Deposits to long-term restricted cash | (5 | ) | (147 | ) | *- | (63 | ) | (108 | ) | |||||||||||
Acquisition of a subsidiary, net of cash purchased | (2,140 | ) | - | - | - | - | ||||||||||||||
Acquisition of an associate | (26 | ) | - | *- | - | - | ||||||||||||||
Long-term loans and investment in an associate | (19 | ) | - | (2 | ) | - | - | |||||||||||||
Proceeds for repayment of partnership capital | 154 | - | 4 | - | - | |||||||||||||||
Deferred consideration from sale of a subsidiary net cash sold | *- | 1 | - | 1 | 1 | |||||||||||||||
Long-term advance payments prepaid expenses | (22 | ) | (188 | ) | (10 | ) | - | (199 | ) | |||||||||||
Purchase of property, plant and equipment | (492 | ) | (171 | ) | (195 | ) | (83 | ) | (255 | ) | ||||||||||
Refunds for right‑of‑use assets and property, plant, and equipment | 16 | - | 10 | - | - | |||||||||||||||
Deferred consideration for acquisition of a subsidiary | - | (47 | ) | - | - | (47 | ) | |||||||||||||
Purchase of intangible assets | (2 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||
Payment for derivative financial instruments | (9 | ) | (7 | ) | (5 | ) | (5 | ) | (19 | ) | ||||||||||
Proceeds for derivative financial instruments | 1 | - | *- | - | 5 | |||||||||||||||
Net cash used in investing activities | (724 | ) | (433 | ) | (193 | ) | (91 | ) | (2,184 | ) |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
13
OPC Energy Ltd.
Condensed Consolidated Interim Statements of Cash Flow (cont.)
For the nine-month period | For the three-month period | For the year ended | ||||||||||||||||||
Ended September 30 | Ended September 30 | December 31 | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | ||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Proceeds of share issuance, less issuance expenses | 365 | - | 19 | - | 1,078 | |||||||||||||||
Proceeds of debenture issuance, less issuance expenses | 842 | 396 | 842 | - | 974 | |||||||||||||||
Receipt of long-term loans from banking corporations and others | 767 | 201 | 525 | 112 | 251 | |||||||||||||||
Investments by holders of non-controlling interests in equity of subsidiary | 555 | - | 19 | - | *- | |||||||||||||||
Interest paid | (98 | ) | (60 | ) | (34 | ) | (24 | ) | (85 | ) | ||||||||||
Prepaid costs for loans taken | (12 | ) | (24 | ) | (6 | ) | (4 | ) | (30 | ) | ||||||||||
Dividend paid to non-controlling interests | (33 | ) | (22 | ) | (25 | ) | - | (43 | ) | |||||||||||
Payment of early repayment fees of debentures (Series A) | - | - | - | - | (38 | ) | ||||||||||||||
Repayment of long-term loans from banking corporations and others | (454 | ) | (103 | ) | (241 | ) | (34 | ) | (134 | ) | ||||||||||
Repayment of debentures | (19 | ) | (16 | ) | (9 | ) | - | (286 | ) | |||||||||||
Repayment of other long‑term liabilities | (94 | ) | - | - | - | - | ||||||||||||||
Acquisition of non-controlling interests | - | (26 | ) | - | - | (26 | ) | |||||||||||||
Payment for derivative financial instruments | (48 | ) | (16 | ) | (38 | ) | (5 | ) | (21 | ) | ||||||||||
Repayment of principal in respect of lease liabilities | (4 | ) | (1 | ) | (1 | ) | *- | (1 | ) | |||||||||||
Net cash provided by financing activities | 1,767 | 329 | 1,051 | 45 | 1,639 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 1,306 | 202 | 935 | 82 | (183 | ) | ||||||||||||||
Balance of cash and cash equivalents at beginning of period | 200 | 385 | 631 | 504 | 385 | |||||||||||||||
Effect of exchange rate fluctuations on cash and cash equivalent balances | 59 | - | (1 | ) | 1 | (2 | ) | |||||||||||||
Balance of cash and cash equivalents at end of period | 1,565 | 587 | 1,565 | 587 | 200 |
(*) Amount is less than NIS 1 million.
The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.
14
NOTE 1 - GENERAL
A. | The Reporting Entity |
OPC Energy Ltd. (hereinafter – “the Company”) was incorporated in Israel on February 2, 2010. The Company’s registered address is 121 Menachem Begin Blvd., Tel Aviv, Israel. The Company’s controlling shareholder is Kenon Holdings Ltd. (hereinafter - the “Parent Company”), a company incorporated in Singapore, the shares of which are dual-listed on the New York Stock Exchange (NYSE) and the Tel Aviv Stock Exchange (hereinafter - the “TASE”). The Company's interim consolidated financial statements as of September 30 2021 include those of the Company and its subsidiaries as well as interests in associates (hereinafter, collectively - the "Group").
The Company is a publicly-traded company whose securities are traded on the TASE. As at the date of the report (commencing from January 2021), the Group is engaged in two reportable segments: (1) generation and supply of electricity and energy in Israel; and (2) maintenance, development, construction and management of renewable energy and conventional (gas-fired) power plants in the United States. In these segments, the Group is engaged in generation and supply of electricity and energy to private customers, Israel Electric Corporation Ltd. (hereinafter – “the IEC”) and the system operator, in initiation, development, construction and operation of power plants and facilities for the generation of energy and provision of management services for power plants in the United States that are owned by third parties. The Group manages its operations in Israel mainly through a wholly owned subsidiary, OPC Israel Energy Ltd. (hereinafter - “OPC Israel”), and its operations in the United States under another operational roof through the CPV Group (as defined in Note 6).
In Israel, the Group operates the Rotem Power Plant through OPC. Rotem Ltd. (hereinafter – “Rotem”) (which is held by the OPC Israel (80%) and by another shareholder (20%)) uses conventional technology, and has an installed capacity of approximately 466 megawatts (MW); the Hadera Power Plant, which is through OPC Hadera Ltd. (hereinafter – “Hadera”), which is wholly owned by OPC Israel, uses cogeneration technology and has an installed capacity of 144 MW. Furthermore, Hadera holds the Energy Center (boilers and turbines on the site of Hadera Paper Ltd. (hereinafter - “Hadera Paper”), which serves as backup for the supply of steam. In addition, OPC Israel wholly owns Zomet Energy Ltd. (hereinafter – “Zomet”), which is working to construct a power plant powered by natural gas, using conventional technology in an open cycle (a peaker plant) having an installed capacity of approximately 396 MW, located in the vicinity of the Plugot Intersection, near Kiryat Gat. In addition, as from September 2021 the Company supplies 110 MW in electricity under the virtual supply license. Furthermore, the Company is working to construct and operate facilities for generation of energy on the consumer’s premises, which generate electricity using natural gas and renewable energy and enters into arrangements for supply and sale of energy to consumers; in addition, the Company entered into an agreement to supply the equipment to, construct, operate and maintain the Sorek B energy facility and to supply the energy required by the Sorek B desalination facility, as stated in Note 24A(10) to the Annual Financial Statements.
The Group’s activities in Israel are subject to regulation, including, among other things, the provisions of the Electricity Sector Law, 1996, and the regulations promulgated thereunder, resolutions of the Israeli Electricity Authority, the provisions of the Law for Minimizing Market Centralization and Promoting Economic Competition, 2013, the provisions of the Economic Competition Law, 1988 and the regulations promulgated thereunder, as well as regulation in connection with licensing of businesses, planning and construction, and environmental protection. The Israeli Electricity Authority is authorized to issue licenses under the Electricity Sector Law (licenses for facilities having a generation capacity in excess of 100 MW also require approval by the Minister of Energy), supervise the license holders (including supply licenses and private generation licenses), determine tariffs and set benchmarks for the level, nature and quality of the services that are required from a holder of a “Essential Service Provider” license. Accordingly, the Israeli Electricity Authority supervises both the IEC and private electricity generators.
The Group’s activity is subject to seasonal fluctuations as a result of changes in the energy demand management rate (hereinafter – “the TAOZ”), which is regulated and published by the Israeli Electricity Authority. The year is broken down into three seasons, as follows: summer (July and August), winter (December, January and February) and “transitional” (March through June and September through November), with a different tariff set for each season. The Company’s results are based on the generation component, which is part of the TAOZ, resulting in a seasonal effect.
15
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 1 - GENERAL (cont.)
A. | The Reporting Entity (cont.) |
In the United States, the Group operates - through the CPV Group, 70% of which is (indirectly) held by the Company - conventional power plants, power plants powered by natural gas (advanced generation combined cycle) and in the area of renewable energy. As at the approval date of the financial statements, CPV’s share of the natural gas-fired power plants is approximately 1,290 MW out of 4,045 MW (5 power plants), and in wind energy - CPV’s share is approximately 152 MW (one power plant).
In addition, the CPV Group holds rights to gas-fired and solar power plants that are under construction, with a capacity of approximately 1,258 MW and 126 MW, respectively (CPV’s share as at the approval date of the financial statements is approximately 126 MW and 126 MW, respectively). Furthermore, the CVP Group has a backlog of projects with various technologies under development with a total capacity of 7,092 to 7,492 MW.
electricity market in the United States is regulated both on the federal level (wholesale sale of electricity and interstate transmission) and state level (retail sale of electricity and distribution services to end consumers). The primary federal regulator is the Federal Energy Regulatory Commission (FERC), alongside state-level public service commissions exercising additional regulatory oversight. The electricity market in the United States operates under several regional or state market operators, known as Regional Transmission Organizations (RTO) or Independent System Operators (ISOs). The ISOs and RTOs are responsible for the day‑to‑day operation of the transmission system, the administration of the wholesale markets in their respective regions, and for the long-term transmission planning and resource adequacy functions.
The activity of the CPV Group is subject to, among other things, changes in federal and state legislation, federal and state energy regulations and federal and state environmental protection laws and regulations. These laws impact the ability of the facilities of the CPV Group to operate, the prices of the products they produce and the costs and charges involved in their production. Therefore, regulations, laws and decisions by the federal and state authorities, particularly public service committees, a federal energy regulatory committee and environmental protection authorities, have a direct and indirect impact on the CPV Group’s activity.
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.
B. Impacts of the Spread of the Coronavirus
Due to the spread of the coronavirus (COVID‑19) (hereinafter - “the coronavirus crisis”) in 2020 as well as during the reporting period and thereafter, movement restrictions and restrictions on business activity were imposed by the State of Israel and countries throughout the world. In addition, the said Coronavirus Crisis has caused, among other things, uncertainty and instability in the Israeli and global financial markets and economy.
The operation of the Company’s active power plants in Israel, as well as the construction of the Zomet power plant, have continued throughout the restriction period, due to their designation as “essential enterprises”, while safeguarding the work teams and taking precautionary measures in order to prevent outbreak and spread of the infection at the Company’s sites. The continuity of the construction work on the Zomet power plant or the renovation and maintenance work at the Rotem and Hadera power plants might be impacted by movement restrictions due to the Coronavirus Crisis, in light of the need for the arrival of equipment and foreign work teams. As at the financial statements approval date, the Coronavirus Crisis has not had a material impact on the Company’s results of operations and its activity in Israel.
16
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 1 - GENERAL (cont.)
B. Impacts of the Spread of the Coronavirus (cont.)
Spread of the virus and infections at the Company’s power plants and other sites, continuation of the Coronavirus Crisis for an extended period, a material impact of the Coronavirus Crisis on main suppliers (such as suppliers of natural gas, construction and maintenance contractors) or the Group’s main customers, or protracted movement restrictions, may adversely affect the Company’s activities and performance in Israel, as well as its ability to complete construction projects on time or at all and/or on its ability to execute future projects in Israel.
As of financial statements’ approval date, the pandemic continues causing business and economic uncertainty. During the reporting period, there was a trend of recovery in the volume of economic activity worldwide, including lifting of some of the movement restrictions, reopening of businesses and commerce. At the same time, as of the financial statements approval date, alongside high vaccination rates - due to the outbreak of new strains - the pandemic continues to spread significantly in Israel and other countries, and accordingly, movement restrictions and restrictions on activities have been imposed and may be imposed in the future on activities.
The spread of the Coronavirus has had a significant impact on economic activity in the USA and around the world. The activity of the CPV Group's power plants continued despite the Coronavirus Crisis, with adjustments being made as stated below. The Coronavirus Crisis resulted in a change in the work schedules and shifts of the employees of the CPV Group, a reduction of self‑initiated shutdowns for purposes of periodic maintenance, extension of the unplanned periodic maintenance period, adaptations on the part of the Group to employees working from home and other workplace adjustments. In addition, the Group was and continues to be required to make adjustments relating to information security at the power plants. Moreover, the Coronavirus Crisis affects the availability of suppliers and parties involved in the development and construction processes of the projects of the CPV Group.
It is noted that, as of the approval date of the financial statements, there is no certainty as to the duration of the Coronavirus Crisis, its scope and impact on the markets or parties relating to the CPV Group’s activity, and therefore - the CPV Group is unable to assess with any degree of certainty and completeness the impact of the Coronavirus Crisis. The outbreak of the virus and the (possible) spread thereof at the power plants of the CPV Group or restrictions on business activity in the areas in which it operates - as well as the measures that shall be taken worldwide as a result, impact on the economy and commodity markets in the U.S. in general, and on the prices of electricity and natural gas in particular – could impact CPV’s activity (even materially), thwart the completion of the project under construction (as detailed in Note 7A) and delay advancement of CPV’s projects under development, as well as impact the ability to execute its future projects.
17
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 2 – BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
A. Statement of compliance with International Financial Reporting Standards (IFRS)
The condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard 34 (hereinafter – “IAS 34”) - “Interim Financial Reporting” and do not include all of the information required in complete Annual Financial Statements. These statements should be read in conjunction with the financial statements for the year ended December 31 2020 (hereinafter – “the Annual Financial Statements”). In addition, these financial statements were prepared in accordance with the provisions of Section D of the Securities Regulations (Periodic and Immediate Reports) 1970.
The condensed consolidated interim financial statements were approved for publication by the Company’s Board of Directors on November 25, 2021.
B. Functional and presentation currency
The New Israeli Shekel (NIS) is the currency that represents the primary economic environment in which the Company operates. Accordingly, the NIS is the Company’s functional currency. The NIS also serves as the presentation currency in these financial statements. Currencies other than the NIS constitute foreign currency.
C. Use of estimates and judgments
In preparation of the condensed consolidated interim financial statements in accordance with the IFRS, the Company’s management is required to use judgment when making estimates, assessments and assumptions that affect implementation of the policies and the amounts of assets, liabilities, income and expenses. It is clarified that the actual results may differ from these estimates.
Management’s judgment, at the time of implementing the Group’s accounting policies and the main assumptions used in the estimates involving uncertainty, are consistent with those used in the Annual Financial Statements, except as stated below.
Allocation of acquisition costs:
the Group makes estimates with respect to allocation of excess cost to tangible and intangible assets and to liabilities. In addition, when determining the depreciation rates of the tangible and intangible assets and liabilities, the Group estimates the expected life of the asset or liability. These estimates are based on, among other things, an independent appraiser.
D. Reclassification
During the reporting period, the Company classified transaction expenses in respect of the CPV Group acquisition and expenses for an early repayment fee - which were previously stated under the business development expenses line item and under the finance expenses line item, respectively - to two separate line items in the income statement. Accordingly, the Company reclassified from the business development line items to the expenses in respect of the CPV Group acquisition a total of NIS 4 million for the nine- and three-month periods ended September 30, 2020. In addition, the Company reclassified from the finance expenses line item to the early repayment line item a total of NIS 41 million for the year ended December 31, 2020.
18
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
A. | Accounting Policy for New Transactions or Events |
1. | Basis of consolidation |
Business combinations
The Group applies the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control exists when the Group is exposed, or has rights to variable returns from its involvement with the acquiree and has the ability to affect those returns through its power over the acquiree. When testing for control, substantive rights held by the Group and others are taken into account. On acquisition date, the acquirer recognizes a contingent liability assumed in a business combination if there is a present obligation resulting from past events and its fair value can be reliably measured. The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree as well as equity interests issued by the Group. In addition, goodwill is not updated in respect of utilization of tax loss carryforwards that existed on the date of the business combination.
Costs associated with the acquisition incurred by the acquirer in respect of a business combination, such as: brokers’ commissions, consultants’ fees, legal fees, valuations and other fees and commissions relating to professional services or consulting services, except for those relating to issuance of debt or equity instruments in connection with the business combination, are recognized as expenses in the period in which the services were received.
Goodwill
The Group recognizes goodwill on acquisition date according to the fair value of the consideration transferred less the net amount of the identifiable assets acquired and the liabilities assumed. Goodwill is initially recognized as an asset based on its cost, and in subsequent periods, is measured at cost less accumulated impairment losses.
To test for impairment, 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 tested for impairment each year, or more frequently if there are indications of a possible impairment of the unit, as stated. Where the recoverable amount of a cash‑generating unit is lower than the carrying mount of that cash‑generating unit, the impairment loss is first allocated to the reduction of the carrying amount of any goodwill attributed to that cash‑generating unit. Thereafter, the balance of the impairment loss, if any, is allocated to other assets of the cash‑generating unit, pro rata to their carrying amounts. A goodwill impairment loss is not reversed in subsequent periods.
Investment in associates
Associates are entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is the power to participate in making decisions relating to the financial and operational policies of the investee company. In testing for significant influence, potential voting rights that are currently exercisable or convertible into shares of the investee are taken into account.
Investments in associates are accounted for using the equity method and are initially recognized at cost. The investment cost includes transaction costs. Transaction costs that are directly attributable to an expected acquisition of an associate are recognized as an asset under the deferred expenses line item in the statement of financial position. These costs are added to the investment cost on the acquisition date. The consolidated financial statements include the Group’s share of the income and expenses in profit or loss and of other comprehensive income of associates, 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. Where the Group disposes of part of an investment that is an associate that includes foreign operations while maintaining significant influence, the proportionate part of the cumulative amount of the exchange rate differences is reclassified to the statement of income.
19
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. | Accounting Policy for New Transactions or Events (cont.) |
2. | Foreign currency |
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to NIS at exchange rates in effect at the reporting date. The income and expenses of foreign operations are translated to NIS at exchange rates in effect at the transaction dates. Foreign exchange differences are recognized in other comprehensive income and are presented in equity in the foreign operations translation reserve (hereinafter – “translation reserve”). When the foreign operation is not a wholly-owned subsidiary of the Company, the pro rata share of the foreign operation translation difference is allocated to the non-controlling interests.
Generally, foreign exchange rate differentials from loans received from or provided to a foreign operation, including foreign operations that are subsidiaries, are recognized in profit or loss in the consolidated financial statements.
When the settlement of loans received from or provided to a foreign operation is neither planned nor likely in the foreseeable future, gains and losses from foreign exchange rate differentials arising from these monetary items are included in the investment in the foreign operation, net, and are recognized in other comprehensive income and stated in equity under the translation reserve.
3. | Share-based compensation transactions |
The fair value of the amount due to employees in respect of the cash-settled rights to participate in CPV Group’s earnings, is recognized as an expense against a corresponding increase in the liability, over the period in which unconditional entitlement 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 as a general and administrative expense in profit and loss.
B. | New Standards and Amendments to New Standards that Have Yet to Be Adopted |
1. Amendment to IAS 1 - “Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current”
The Amendment replaces certain classification requirements of current or non-current liabilities. For example, pursuant to the amendment, a liability will be classified as non‑current if an entity has the right to defer the payment for a period of at least 12 months after the reporting period, which is “substantive” and exists at the end of the reporting period. A right exists as at the reporting date only if an entity is in compliance with the conditions for deferment of the payment as at that date. In addition, the amendment clarifies that a conversion right of a liability will affect its classification as current or non‑current, unless the conversion component is capital-based.
The Amendment will become effective for reporting periods commencing on January 1 2023. Early application is permissible. The Amendment is to be applied retrospectively, including adjustment of the comparative data.
The Group has yet to begin examining the ramifications of the amendment’s application for the financial statements.
20
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 3 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
2. Amendment to IAS 16 - “Property, Plant, and Equipment: Proceeds before Intended Use”
The amendment revokes the requirement whereby in calculating costs that are directly attributable to property, plant and equipment, the net proceeds from the sale of any items produced in the process (such as samples produced at the time of testing the equipment) should be deducted from the costs of testing the proper functioning of the asset. Rather, the said proceeds are to be recognized in profit and loss in accordance with the relevant standards and the cost of the items sold is to be measured pursuant to the measurement requirements of IAS 2 - “Inventory”.
The amendment will enter into effect for reporting periods commencing on January 1 2022 or thereafter. Early application is permissible. The amendment is to be applied retrospectively, including revision of the comparative data, but only for items of property, plant and equipment that were brought to the location and status required for them to be able to function in the manner contemplated by management after the earliest reporting period presented on first-time application of the amendment. The cumulative effect of the amendment will adjust the opening balance of the retained earnings of the earliest reporting period presented.
The Group has considered the potential effect of the application of the standard and is of the opinion that such application is not expected to have a material effect on the financial statements.
3. Amendment to IAS 12, Income Tax: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The amendment reduces the applicability of the exemption from recognition of deferred taxes as a result of temporary differences created on the date of initial recognition of assets and/or liabilities, such that the said exemption will not apply to transactions that give rise to equal and offsetting temporary differences. As a result, entities will be required to recognize a deferred tax asset or liability in respect of such temporary differences on the date of initial recognition of transactions that give rise to equal and offsetting temporary differences, such as lease transactions and provisions for dissolution and rehabilitation.
The amendment will be applied as of the annual reporting period starting on January 1 2023, by adjusting the opening balance of the retained earnings or as an adjustment to another capital line item in the period in which the amendment was adopted. Early application is permissible.
The Group has not yet begun to examine the effects of the amendment on the financial statements.
21
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 4 – FINANCIAL INSTRUMENTS
Financial instruments measured at fair value for disclosure purposes only
The carrying amounts of certain financial assets and financial liabilities, including short‑term and long‑term deposits, cash and cash equivalents, restricted cash, trade receivables, other receivables, derivative financial instruments, trade payables and other payables, and some of the Group’s long-term loans are the same as or approximate to their fair values.
The fair values of the other financial assets and financial liabilities, together with the carrying amounts stated in the statement of financial position, are as follows:
Fair value
As at September 30 2021 | ||||||||
Carrying amount (*) | Fair value | |||||||
NIS million | NIS million | |||||||
Loans from banking corporations and others (Level 2) | 2,601 | 2,746 | ||||||
Debentures (Level 1) | 1,811 | 1,953 | ||||||
4,412 | 4,699 |
As at September 30 2020 | ||||||||
Carrying amount (*) | Fair value | |||||||
NIS million | NIS million | |||||||
Loans from banking corporations and others (Level 2) | 1,960 | 2,238 | ||||||
Debentures (Level 1) | 667 | 725 | ||||||
2,627 | 2,963 |
As at December 31 2020 | ||||||||
Carrying amount (*) | Fair value | |||||||
NIS million | NIS million | |||||||
Loans from banking corporations and others (Level 2) | 1,980 | 2,360 | ||||||
Debentures (Level 1) | 980 | 1,056 | ||||||
2,960 | 3,416 |
(*) Includes current maturities and interest payable.
Derivative financial instruments are measured at fair value, using the Level 2 valuation method. The fair value is measured using the discounted future cash flows method, on the basis of observable inputs.
The Group enters into transactions in derivative financial instruments in order to hedge foreign currency risks and risks of changes in the CPI. Derivative financial instruments are recorded based on their fair value. The fair value of the derivative financial instruments is based on prices, rates and interest rates that are received from banks, brokers and through accepted trading software. The fair value of the derivative financial instruments is estimated on the basis of the data received, using valuation and pricing techniques that are characteristic of the various instruments in the different markets. The fair value measurement of long-term derivative financial instruments is estimated by discounting the cash flows arising from them, based on the terms and conditions and term to maturity of each instrument and using market interest rates for similar instruments as at the measurement date. Changes in the economic assumptions and the valuation techniques could materially affect the fair value of the instruments.
In addition, in the reporting period, the following loans were added to the Group: loans used to acquire the CPV Group, a loan that was consolidated for the first time as part of the business combination, as well as a loan obtained under Keenan’s new financing agreement. These loans are the same or approximate to their fair value in light of the variable interest rates on some of the loans.
22
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 4 - FINANCIAL INSTRUMENTS (cont.)
Set forth below are data regarding the representative foreign exchange rates of the US dollar (hereinafter - “USD”) and the euro (hereinafter - “EUR”) and the Consumer Price Index (hereinafter - “CPI”):
CPI (points) | The USD/NIS exchange rate | The EUR/NIS exchange rate | ||||||||||
September 30 2021 | 102.4 | 3.229 | 3.736 | |||||||||
September 30 2020 | 100.2 | 3.441 | 4.026 | |||||||||
December 31 2020 | 100.2 | 3.215 | 3.944 | |||||||||
Changes during the 9-month period ended on: | ||||||||||||
September 30 2021 | 2.2 | % | 0.4 | % | (5.3 | )% | ||||||
September 30 2020 | (0.6 | )% | (0.4 | )% | 3.8 | % | ||||||
Changes during the 3-month period ended on: | ||||||||||||
September 30 2021 | 0.8 | % | (1.0 | )% | (3.6 | )% | ||||||
September 30 2020 | 0.1 | % | (0.7 | )% | 3.7 | % | ||||||
Changes during the year ended on: | ||||||||||||
December 31 2020 | (0.6 | )% | (7.0 | )% | 1.7 | % |
NOTE 5 - REVENUES FROM SALES AND SERVICES
Disaggregation of revenues from sales:
For the nine-month period | For the three-month period | For the year ended | ||||||||||||||||||
ended September 30 | ended September 30 | December 31 | ||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | ||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | ||||||||||||||||
Revenues from sale of electricity | 1,042 | 935 | 382 | 387 | 1,269 | |||||||||||||||
Revenues from sale of steam | 42 | 43 | 14 | 14 | 56 | |||||||||||||||
Revenues from provision of services | 64 | - | 34 | - | - | |||||||||||||||
1,148 | 978 | 430 | 401 | 1,325 |
23
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 6 – SUBSIDIARIES
Business combination that occurred during the reporting period
Further to that which is stated in Note 25L to the annual financial statements, on January 25 2021, the acquisition of 70% of the rights and holdings in the CPV Group (hereinafter – “the Transaction Completion Date”) was completed. The acquisition was executed through a limited partnership, CPV Group LP (hereinafter – “the Acquirer”), which is held, indirectly, by the Company (approximately 70% by the limited partner). The acquired CPV Group entities are: CPV Power Holdings LP (hereinafter – “CPVPH”); Competitive Power Ventures Inc. (hereinafter – “CPVI”); and CPV Renewable Energy Company Inc. (hereinafter – “CPVREC”) (CPVPH, CPVI and CPVREC will be jointly referred to hereinafter as – the “CPV Group”).
The CPV Group is engaged in the development, construction and management of power plants using renewable energy and conventional energy (power plants powered by natural gas of the advanced‑generation combined‑cycle type) in the United States through subsidiaries and associates. The CPV Group holds rights in active power plants that it developed and constructed – 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 US-based power plants using a range of technologies and fuel types, by means of signing asset‑management agreements, usually for short to medium terms.
On the Transaction Completion Date, in accordance with the mechanism for determination of the consideration as defined in the acquisition agreement, the Acquirer paid the Sellers a consideration that was set at the total amount of about USD 648 million (constituting an acquisition price of USD 630 million with certain adjustments to working capital, the cash balance and debt balance), and approximately USD 5 million for a deposit in the same amount, which remains in the CPV Group. In May 2021, the consideration for the CPV Group acquisition transaction was adjusted, as a result of which the Sellers paid CPV Group an immaterial amount. It is noted that, in respect of 17.5% of the rights to the Three Rivers project under construction (hereinafter – the “Project under Construction”), a sellers’ loan, in the amount of USD 95 million (hereinafter – the “Seller’s Loan”) was granted to CPVH. The Seller’s Loan is for a period of up to two years from the Transaction Completion Date, bears an annual interest of 4.5%, which is to be paid quarterly and secured by a lien on shares of the holding company that owns the rights to the Project under Construction and rights pursuant to the management agreement of the Project under Construction. For details regarding changes in the holdings in the Project under Construction and in the Seller’s Loan in the reporting period – see Note 7A.
The Company partially hedged its exposure to changes in the cash flows from payments in dollars in connection with the agreement for acquisition of the CPV Group by means of forward transactions and dollar deposits. The Company chose to designate the forward transactions as an accounting hedge. On the Transaction Completion Date, the Company recorded an amount of approximately NIS 103 million that was accrued in a hedge capital reserve to the investment cost in the CPV Group. This cost was recorded under the goodwill line item and increased the acquisition cost by approximately USD 32 million.
The contribution of the CPV Group to the Group’s income and loss from the acquisition date until September 30 2021 amounted to NIS 123 million and NIS 84 million, respectively. Management estimates that had the acquisition taken place as early as January 1 2021, the revenue amount in the consolidated statement of income for the nine‑month period ended September 30 2021 would have been NIS 1,163 million and the consolidated loss for that period would have been NIS 209 million.
Determination of fair value of assets and liabilities identifiable as of the acquisition date:
The acquisition of the CPV Group was accounted for according to the provisions of IFRS 3 - “Business Combinations”. Thus, on the Transaction Completion Date, the Company included the net assets of the CPV Group in accordance with the fair value.
24
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 6 – SUBSIDIARIES (cont.)
Business combination that occurred during the reporting period (cont.)
Set forth below is the fair value of the identifiable assets and liabilities acquired:
In NIS million (translated) | In USD million | |||||||
Cash and cash equivalents | 94 | 29 | ||||||
Trade and other receivables | 50 | 15 | ||||||
Long-term restricted deposits and cash | 2 | 1 | ||||||
Investments in associates | 1,944 | 595 | ||||||
Property, plant & equipment | 162 | 50 | ||||||
Right‑of‑use assets | 34 | 10 | ||||||
Intangible assets | 361 | 111 | ||||||
Trade and other payables | (19 | ) | (6 | ) | ||||
Derivative financial instruments | (39 | ) | (12 | ) | ||||
Loans and borrowings | (550 | ) | (169 | ) | ||||
Lease liabilities | (34 | ) | (10 | ) | ||||
Other long‑term liabilities | (92 | ) | (28 | ) | ||||
Deferred tax liabilities | (18 | ) | (5 | ) | ||||
Net identifiable assets | 1,895 | 581 |
The aggregate cash flows accrued to the Group as a result of the acquisition transaction:
In NIS million (translated) | In USD million | |||||||
Cash and other cash equivalents paid | 2,131 | 653 | ||||||
Hedging costs | 103 | 32 | ||||||
Cash and other cash equivalents acquired | (94 | ) | (29 | ) | ||||
2,140 | 656 |
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. The Group expects that part of the goodwill will be allowed as a deduction for tax purposes. Due to the acquisition, goodwill was recognized as follows:
In NIS million (translated) | In USD million | |||||||
Consideration paid | 2,131 | 653 | ||||||
Plus hedging costs | 103 | 32 | ||||||
Less fair value of the identifiable assets, net | (1,895 | ) | (581 | ) | ||||
Goodwill | 339 | 104 |
25
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 6 – SUBSIDIARIES (cont.)
Business combination that occurred during the reporting period (cont.)
Costs relating to the business combination
In the reporting period and in 2020, the Group incurred legal expenses and due diligence costs attributable to the acquisition totaling approximately NIS 2 million and NIS 42 million, respectively. These costs were recorded in the statement of income in the said periods under the “Transaction expenses in respect of acquisition of the CPV Group” line item.
The Project Companies of the CPV Group:
The CPV Group holds rights in active power plants and in power plants under construction and under development – both in the conventional and renewable energy areas, through subsidiaries and associates. Set forth below are details regarding the main projects held through the subsidiaries of the CPV Group. For details relating to major projects held by associates of the CPV Group – see Note 7. For information about the main agreements of the subsidiaries of the CPV Group – see Note 9K.
Entity | Year of commercial operation | Technology | Capacity (MW) | Ownership stake as of September 30 2021* | Power plant location | |||||
CPV Keenan II Renewable Energy Company, LLC (hereinafter - "Keenan") | 2010 | Wind | 152 | 100% | Oklahoma | |||||
CPV Maple Hill, LLC (hereinafter - "Maple Hill") | Under construction. Commercial operation is expected begin in the second half of 2022. | Solar | 126 | 100% | Pennsylvania | |||||
CPV Rogue's Wind, LLC (hereinafter - "Rogue's Wind") | Towards construction. Commercial operation is expected begin in the second half of 2023. | Wind | 114 | 100% | Pennsylvania |
(*) The holding rate is that of the CPV Group, which is a subsidiary of the Company and indirectly held by the Company (70%).
26
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 - ASSOCIATES
A. | Condensed information regarding associates |
General information
The Company, through CPV Group, holds interests in active power plants and power plants under construction, both in the conventional and renewable energy areas. Below are the main details in respect of the active projects and project under construction of the CPV Group’s associates:
Entity | Year of commercial operation | Capacity (MW) | Ownership stake as of September 30 2021* | Power plant location | ||||
CPV Fairview, LLC (hereinafter - "Fairview") | 2019 | 1,050 | 25.0% | Pennsylvania | ||||
CPV Maryland, LLC (hereinafter - "Maryland") | 2017 | 745 | 25.0% | Maryland | ||||
CPV Shore Holdings, LLC (hereinafter - "Shore") | 2016 | 725 | 37.5% | New Jersey | ||||
CPV Towantic, LLC (hereinafter - "Towantic") | 2018 | 805 | 26.0% | Connecticut | ||||
CPV Valley Holdings, LLC (hereinafter - "Valley") | 2018 | 720 | 50.0% | New York | ||||
CPV Three Rivers, LLC (hereinafter - "Three Rivers") (1) | Project under construction | 1,258 | 10.0% | Illinois |
(*) The holding rate is that of the CPV Group, which is an indirectly held by the Company (70%).
(1) | Three Rivers is a project under construction, the commercial operation date of which is expected to be in the second quarter of 2023 and the total construction cost (in respect of 100% of the project) is expected to amount to approximately NIS 4,175 million (approximately USD 1,293 million). |
Further to what is stated regarding the purchase of CPV Group in Note 25L to the Annual Financial Statements, on February 3 2021 the sale of 7.5% of the Three Rivers project was closed in consideration for USD 41 million (which were used to partly repay the seller’s loans). As a result of the sale, the CPV Group did not record any gain or loss. The Seller’s Loan continued to stand with respect to the amount of approximately USD 54 million (approximately NIS 176 million) in connection with the consideration for 10% of the rights in Three Rivers held by the CPV Group, pursuant to the terms and conditions stated in Note 6 until its full repayment, which took place in October 2021, subsequent to balance sheet date.
The Company accounts for its holdings in Three Rivers using the equity method, since the Company has significant influence due to its representation on Three Rivers’ Board of Directors.
The CPV Group owns additional associates that hold rights to projects under development and in which the investment amounts to non-material amounts.
During the reporting period, the Group received dividends from associates totaling NIS 30 million.
27
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
B. | Condensed financial information on financial position as at September 30, 2021 and results of operations for the periods commencing on the completion date of the acquisition of the CPV Group, January 25, 2021, until September 30 2021, and for the three-month period ended September 30, 2021: |
Fairview | Maryland | Shore | Towantic | Valley | Three Rivers | |||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
As at September 30 2021 | ||||||||||||||||||||||||
Current assets | 445 | 159 | 102 | 114 | 91 | 5 | ||||||||||||||||||
Non-current assets | 3,214 | 2,201 | 3,438 | 3,053 | 2,334 | 2,836 | ||||||||||||||||||
Total assets | 3,659 | 2,360 | 3,540 | 3,167 | 2,425 | 2,841 | ||||||||||||||||||
Current liabilities | 413 | 81 | 85 | 275 | 242 | 94 | ||||||||||||||||||
Non-current liabilities | 1,976 | 1,270 | 2,272 | 1,801 | 1,792 | 2,034 | ||||||||||||||||||
Total liabilities | 2,389 | 1,351 | 2,357 | 2,076 | 2,034 | 2,128 | ||||||||||||||||||
Net assets | 1,270 | 1,009 | 1,183 | 1,091 | 391 | 713 | ||||||||||||||||||
Holding rate | 25.0 | % | 25.0 | % | 37.5 | % | 26.0 | % | 50.0 | % | 10.0 | % | ||||||||||||
Company's share | 318 | 252 | 444 | 284 | 195 | 180 | ||||||||||||||||||
Fair value adjustments made on acquisition date | 265 | (48 | ) | (184 | ) | 87 | (4 | ) | 27 | |||||||||||||||
Carrying amount of investment | 583 | 204 | 260 | 371 | 191 | 207 | ||||||||||||||||||
Results for the period ranging from January 25 2021 to September 30 2021 | ||||||||||||||||||||||||
Operating income | 517 | 374 | 391 | 678 | 416 | - | ||||||||||||||||||
Net change in fair value of derivative financial instruments | 71 | (19 | ) | 103 | (47 | ) | (175 | ) | 1 | |||||||||||||||
Total income | 588 | 355 | 494 | 631 | 241 | 1 | ||||||||||||||||||
Operating expenses | (396 | ) | (313 | ) | (331 | ) | (474 | ) | (362 | ) | (24 | ) | ||||||||||||
Operating profit (loss) | 192 | 42 | 163 | 157 | (121 | ) | (23 | ) | ||||||||||||||||
Finance expenses, net | (57 | ) | (55 | ) | (47 | ) | (52 | ) | (61 | ) | 1 | |||||||||||||
Net profit (loss) * | 135 | (13 | ) | 116 | 105 | (182 | ) | (22 | ) | |||||||||||||||
Other comprehensive income * | 22 | 89 | 16 | 22 | 8 | 48 | ||||||||||||||||||
Comprehensive income (loss) | 157 | 76 | 132 | 127 | (174 | ) | 26 | |||||||||||||||||
Holding rate | 25.0 | % | 25.0 | % | 37.5 | % | 26.0 | % | 50.0 | % | 10.0 | % | ||||||||||||
Company’s share in profit (loss) | 33 | (3 | ) | 44 | 27 | (91 | ) | (2 | ) | |||||||||||||||
Company's share in other comprehensive income | 6 | 22 | 6 | 6 | 4 | 5 | ||||||||||||||||||
Reductions of profit and loss in respect of adjustments to fair value made on the acquisition date | (3 | ) | 7 | 9 | *- | 2 | - | |||||||||||||||||
Share in the profits (losses) of consolidated companies | 30 | 4 | 53 | 27 | (89 | ) | (2 | ) | ||||||||||||||||
Group's share in other comprehensive income of associates | 6 | 22 | 6 | 6 | 4 | 5 | ||||||||||||||||||
Depreciation and amortization | 61 | 39 | 76 | 64 | 42 | - |
(*) It should be noted that the associates are entities which are transparent for tax purpose and therefore their results do not reflect the tax effect.
28
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
B. | Condensed financial information on financial position as at September 30, 2021 and results of operations for the periods commencing on the completion date of the acquisition of the CPV Group, January 25, 2021, until September 30 2021, and for the three-month period ended September 30, 2021 (cont.): |
Fairview | Maryland | Shore | Towantic | Valley | Three Rivers | |||||||||||||||||||
NIS million | NIS million | NIS million | NIS million | NIS million | NIS million | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Results for the three-month period ended September 30 2021 | ||||||||||||||||||||||||
Operating income | 232 | 178 | 166 | 245 | 154 | - | ||||||||||||||||||
Net change in fair value of derivative financial instruments | 123 | (1 | ) | 87 | (28 | ) | (27 | ) | - | |||||||||||||||
Total income | 355 | 177 | 253 | 217 | 127 | - | ||||||||||||||||||
Operating expenses | (170 | ) | (135 | ) | (143 | ) | (166 | ) | (142 | ) | (9 | ) | ||||||||||||
Operating profit (loss) | 185 | 42 | 110 | 51 | (15 | ) | (9 | ) | ||||||||||||||||
Finance expenses, net | (20 | ) | (18 | ) | (16 | ) | (18 | ) | (19 | ) | 1 | |||||||||||||
Net profit (loss) * | 165 | 24 | 94 | 33 | (34 | ) | (8 | ) | ||||||||||||||||
Other comprehensive income (loss)* | 1 | 53 | - | 1 | (1 | ) | 2 | |||||||||||||||||
Comprehensive income (loss) | 166 | 77 | 94 | 34 | (35 | ) | (6 | ) | ||||||||||||||||
Holding rate | 25.0 | % | 25.0 | % | 37.5 | % | 26.0 | % | 50.0 | % | 10.0 | % | ||||||||||||
Company’s share in profit (loss) | 41 | 6 | 36 | 8 | (18 | ) | (1 | ) | ||||||||||||||||
The Company's share in other comprehensive income (loss) | 1 | 13 | - | 1 | (1 | ) | - | |||||||||||||||||
Reductions of profit and loss in respect of adjustments to fair value made on the acquisition date | (1 | ) | - | 3 | (1 | ) | 1 | - | ||||||||||||||||
Share in the profits (losses) of consolidated companies | 40 | 6 | 39 | 7 | (17 | ) | (1 | ) | ||||||||||||||||
Group's share in other comprehensive income of associates | 1 | 13 | - | 1 | (1 | ) | - | |||||||||||||||||
Depreciation and amortization | 22 | 15 | 28 | 23 | 15 | - |
(*) It should be noted that the associates are entities which are transparent for tax purpose and therefore their results do not reflect the tax effect.
29
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
C. | Loans of the Project Companies in the CPV Group: |
Each CPV associate (hereinafter - the “Project Companies”) has taken out senior debt under similar outlines - per-project, per-asset financing, at non-recourse terms. On financial closing of each loan, debt and equity capital is 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 are comprised of letter of credit (LC) facilities, 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 transform from facilities to finance the construction phase to long‑term facilities (term loans) with maturity dates generally tied to the term of the commercial agreements anchoring projected operating cash flows of each project. For the gas-fired projects, the term loans generally span the construction period plus 5-7 years after launch of commercial operation (hereinafter – “mini‑perm financing”). The mini‑perm financing is repaid based on a combination of repayment dates and result-based metrics, which in the aggregate, result in partial repayment during the loan term, with a balance payable or refinanced upon final repayment date.
The CPV Group 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. As a rule, the credit facilities in place during construction are sourced from a consortium of international lenders (10 to 20 for each gas-fired project, fewer for renewable energy projects with lower capital needs) on 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. The Project Companies have refinanced loans for certain gas-fired projects in both the Term Loan A market and the Term Loan B market, which includes mainly institutional lenders, international funds, and a number of commercial banks.
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, covenants, events of default, equity cure rights, distribution restrictions, reserve requirements, etc.) are similar across the Project Companies Term Loan A refinancing, while the Term Loan B market refinancing terms are slightly less restrictive, as customary in this market. In each market and often within each project loan, lenders extended loans to CPV’s projects either according to a credit spread based on the LIBOR variable base interest rate or fixed interest. To minimize exposure to potential interest rate risk, the Project Companies execute interest rate hedges for the main exposure at each project level, whereby the 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 the LIBOR-based loans, the credit agreements and interest rate hedging arrangements include market-standard provisions to accommodate the eventual replacement of LIBOR as a benchmark interest rate.
Set forth below is a summary the main commercial terms and conditions of the key senior debt facilities of the CPV Group’s Project Companies. The balances are presented in millions of dollars, represent 100% of the outstanding debt of each Project Company, including payable interest, and include fair value adjustments that were made on the acquisition date of the CPV Group. The loan amounts under the term loans are presented as at the date noted, and to the extent they are withdrawn and repaid, they may not be withdrawn again.
It is noted that the main financing agreements include, among other things, non-standard terms and conditions that are customary in agreements for projects of this type, provisions regarding mandatory prepayments, various grounds for repayment, fees and commissions in respect of credit facilities, annual fees and commissions relating to the issuance of LC and additional customary terms and conditions. In addition, as part of the financing agreements, collateral have been provided and liens were placed on all the project assets. It is further noted that as at the financial statements approval date, there are no grounds for calling any of the financing agreements for immediate repayment.
30
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
C. Loans of the Project Companies in the CPV Group: (cont.):
Borrower | Date of completion / restructuring of financing agreement | Linkage basis | Mechanisms and interest rates for term loan / ancillary facilities | Repayment dates and final repayment | Covenants and distribution restrictions | Grounds for calling for immediate repayment | Outstanding debt as at September 30 2021 |
Fairview | From March 2017 (as amended in February 2020). | USD | • Variable interest - LIBOR plus a spread ranging from 2.50% to 2.75% per year. • Fixed interest - at a rate of 5.78% per year. | The final repayment date is June 30 2025. 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 (“mini‑perm” financing). | Execution of a 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). | The main grounds for calling for immediate repayment or breach events are as follows: the financing agreement includes grounds for repayment that are standard in agreements of this type, including, inter alia – breach of representations and commitments that have a material adverse effect, non‑payment events, non‑compliance with certain obligations, various insolvency events, winding down 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 holding government approvals, certain changes in ownership of the project, 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 capacity and electricity – all in accordance with and subject to the terms and conditions, definitions and periods detailed in the financing agreement. | NIS 2,116 million (approximately USD 655 million). |
Towantic | From March 2016 (as amended in July 2019). | USD | LIBOR interest plus a spread ranging from 3.25% to 3.75%. | The final repayment date is June 30 2025. 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 (“mini‑perm” financing). | NIS 1,906 million (approximately USD 590 million). | ||
Shore | Term Loan B credit from December 2018. | USD | LIBOR rate plus a 3.75% spread per term loan and a spread of 3% for ancillary credit facilities. | Final repayment date of loans and ancillary credit facilities: Term loan - December 27 2025; ancillary credit facilities - December 27 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 (“mini‑perm” financing). | Historical debt service coverage ratio of 1:1 during the last 4 quarters. Execution of a distribution is conditional on the Project Company’s compliance with a number of conditions, including compliance with reserve requirements (as provided in the agreement), and that no grounds for repayment or breach event exists in accordance with the financing agreement. | NIS 1,598 million (approximately USD 495 million). |
31
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
C. Loans of the Project Companies in the CPV Group: (cont.):
Borrower | Date of completion / restructuring of financing agreement | Linkage basis | Mechanism and interest rate for term loan / ancillary facilities | Date of principal repayment | Financial covenants and distribution restrictions | Grounds for calling for immediate repayment | Outstanding debt as at September 30 2021 |
Maryland | Term Loan B credit from May 2021 | USD | Interest on loan: LIBOR plus spread of 4%. Interest on ancillary facilities: LIBOR plus spread of 2.75%. | The final repayment date of the term loan will be May 2028 and the ancillary facilities - in November 2027. 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 (“mini‑perm” financing). | Term loan B facility, historical debt service coverage ratio of 1:1 during the last 4 quarters. Execution of a distribution is conditional on the Project Company’s compliance with a number of conditions, including compliance with reserve requirements (as provided in the agreement), and that no grounds for repayment or breach event exists in accordance with the financing agreement. | The main grounds for calling for immediate repayment or breach events are as follows: the financing agreement includes grounds for repayment that are standard in agreements of this type, including, inter alia – breach of representations and commitments that have a material adverse effect, non‑payment events, non‑compliance with certain obligations, various insolvency events, winding down 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 holding government approvals, certain changes in ownership of the project, 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 capacity and electricity (as the case may be) – all in accordance with and subject to the terms and conditions, definitions and periods detailed in the financing agreement. Furthermore, for projects under construction, the grounds for calling for immediate repayment is failure on behalf of the equity investors to inject funds during the course of construction. | NIS 1,257 million (approximately USD 389 million) |
Valley | From June 2015 (as amended in April 2021) | USD | LIBOR interest plus a spread ranging from 3.50% to 3.75%. | The final repayment date 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 (“mini‑perm” financing). In April 2021 certain expedients were granted in connection with the ancillary credit facilities in exchange for a commitment by the investors in the project to provide a total of USD 10 million in own capital (a USD 5 million commitment was provided in April 2021 by each member of the CPV Group and the other investor. The withdrawals are granted as shareholder loans, carrying annual interest of 5%). The expedients pertain to a waiver of the annual repayment obligation of the working capital loans and release of USD 5 million in restricted working capital due to a regulatory permit, as stated in Section 17 to the 2020 Periodic Report. | Execution of a 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 requirements of obtaining a certain permit as stated in Section 17.8 to the 2020 Periodic Report, 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). | NIS 1,866 million (approximately USD 578 million) (Not including the said shareholder loans) |
32
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
C. Loans of the Project Companies in the CPV Group: (cont.):
Borrower | Date of completion / restructuring of financing agreement | Linkage basis | Mechanism and interest rate for term loan / ancillary facilities | Date of principal repayment | Financial covenants and distribution restrictions | Grounds for calling for immediate repayment | Outstanding debt as at September 30 2021 |
Three Rivers | From August 2020 | USD | • Variable interest - LIBOR plus a spread ranging from 3.5% to 4% per year. • Fixed interest - at a rate of 4.75% per year. | The final repayment date is June 30 2028. 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 (“mini-perm” financing”). | Execution of a distribution is subject to the Project Company complying with a number of conditions, including compliance with terms and conditions for conversion of the loan from a construction loan to an operating loan, and after the conversion - 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 grounds for repayment or breach event exist (as defined in the financing agreement). | The main grounds for calling for immediate repayment or breach events are as follows: the financing agreement includes grounds for repayment that are standard in agreements of this type, including, inter alia – breach of representations and commitments that have a material adverse effect, failure of the own capital investors to inject funds during the construction phase, non‑payment events, non‑compliance with certain obligations, various insolvency events, winding down 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 holding government approvals, certain changes in ownership of the project, 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 capacity and electricity – all in accordance with and subject to the terms and conditions, definitions and amendment periods of the financing agreement. | NIS 2,032 million (approximately USD 629 million). |
33
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
D. | Main agreements of the Project Companies in the CPV Group: |
1. | Partnership agreements in the Project Companies: |
As a rule, each of the 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, hereinafter - an “LLC Agreement”). Most LLC Agreements contain customary 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, inter alia, declaring insolvency, liquidation, sale of assets or merger, entering into or amending material agreements, taking on 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. The Project Companies of the CPV Group do not have employees. All the Project Companies of the CPV Group are operated by means of a series of agreements, inter alia as detailed in this section below.
2. | Natural gas projects activity: |
All active conventional projects trade and participate in the sale of capacity, electricity and ancillary services in their respective ISO or RTO. Typically, every day the Project Companies conduct the process of forecasting 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, offers are submitted to the Day-Ahead market. In addition, revisions are made throughout the day for actual operations occurring that day (the real-time market), which include purchases and sales of natural gas and optimizing generation output based on the real-time market price. Natural gas projects have hedging plans that are designed to set a fixed margin for electricity and reduce the impact of fluctuations in gas and electricity prices.
3. | RPO agreements: |
Fairview, Maryland and Valley entered into economic hedging agreements on the electricity margins of the revenue put option (hereinafter - “RPO”) type. The RPO is intended to provide the companies a minimum margin from the sale of electricity on the market for the duration of the agreement. Calculation of the amount of the minimum margin is determined on the basis of a contractual year where the actual settlement dates take place every three months in respect of a partial amount and an annual adjustment is made to the calculation of the total annual margin each year. For purposes of calculating the minimum margin, the agreement makes use of specific parameters, such as utilization, expected generation levels, electricity and gas prices and other specific operating costs for the project. The RPO periods are until May 31 2025 for Fairview, until February 28 2022 for Maryland and until May 31 2023 for Valley.
4. | Property management agreements: |
Each of the Project Companies of the CPV Group entered into an asset management agreement with CPVI (a related party), whereby CPVI provides construction and asset management services. The consideration includes a fixed annual payment, a performance‑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 terms of the agreements are as follows:
Fairview – seven years from the construction completion date of the power plant, and the agreement may be extended by an additional year. One of the other investors in the project has the right to replace CPVI as the asset manager under an asset management agreement – this being after one year of commercial operation, in coordination with CPVI and after CPVI agrees that the partner has the appropriate capabilities to manage the asset.
Towantic – ten years commencing on the construction completion date of the power plant, which may be extended for an additional period of three years.
Maryland – until December 31 2028.
Shore – until December 31 2030.
Valley – five years commencing on the construction completion date of the power plant, which may be extended by an additional period of three years.
Three Rivers - ten years after completion of the construction of the power plant, where the agreement may be renewed for an additional year.
34
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
D. | Main agreements of the Project Companies in the CPV Group (cont.): |
5. | Other main agreements of the Project Companies in the CPV Group: |
The Project Companies entered into the following main agreements: It is noted that with respect to the asset‑management agreements and energy‑management agreements of CPV Group companies (including third parties), the said agreements include provisions regarding early termination of the agreements under terms and conditions provided therein. In addition, additional agreements provide the possibility of early termination under the circumstances stipulated therein.
Fairview
Fairview entered into a base contract for the purchase of natural gas (GSPA) at a quantity of up to 180,000 MMBtu per day at market price, as provided in the agreement. Pursuant to the agreement, the gas supplier is responsible for transporting natural gas to the designated supply point and is permitted to supply ethane in place of natural gas up to a rate of 25% of the agreed supply quantity. The agreement commenced upon the commercial operation of the power plant and ends on May 31 2025.
Fairview entered into a service agreement with its original equipment manufacturer, for the supply of spare parts and maintenance services for the combustion turbines. The agreement went into effect on December 27, 2016 (hereinafter - the “Effective Date”) and ends on the earlier of: (a) 25 years from the Effective Date; or (b) when specific milestones are reached on the basis of use and wear and tear. Fairview pays a fixed and a variable amount as of the date of the commercial operation.
Fairview entered into an agreement for operation and maintenance of the power plant. The agreement period is three years from the construction completion date of the power plant; the agreement includes an extension/renewal clause for a period of one year, unless one of the parties gives notice of termination of the agreement based on its terms.
Fairview signed an energy management agreement (EMA) with CPV Energy and Marketing Services, LLC (hereinafter - “CEMS”), a related company of the CPV Group, to receive consulting services regarding formulation of energy management plans, risk management and performance strategy. The agreement terminates on December 31 2025, and has two extension options of five years each.
Towantic
Towantic entered into an interruptible service agreement for gas transmission. The agreement allows, but does not require Towantic to transmit gas from Iroquois to Algonquin Gas Transmission at interruptible transmission rates. In addition, Towantic entered into a service agreement pursuant to which Towantic is guaranteed gas transmission of 2,500 MMBtu per day, at the AFT 1 tariff. The agreement entered into effect on August 1 2018 and terminates on March 31 2022; it is automatically renewed for periods of one year, unless one of the parties terminates the agreement.
Towantic signed an agreement for the supply of natural gas with a North American company. Pursuant to the agreement, up to 115,000 MMBtu per day will be supplied at market prices. The supply period terminates on March 31 2023.
Towantic entered into a maintenance agreement 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 period is 20 years.
Towantic entered into an agreement for the operation and maintenance (O&M) of the power plant. The consideration includes a fixed and variable amount, a performance‑based bonus, and reimburses for employment expenses, including payroll costs and taxes, subcontractor costs and other costs. In July 2021, the agreement was extended and the agreement term spans 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 entered into an energy management agreement (EMA) for consulting regarding formulation of energy management plans, risk management and performance strategy with CEMS, for a period ending on March 31 2026, with two 5-year extensions.
35
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
D. | Main agreements of the Project Companies in the CPV Group (cont.): |
5. | Other main agreements of the Project Companies in the CPV Group (cont.): |
Maryland
Maryland has entered into an agreement to purchase natural gas, with a North American company, in the amount of up to 132,000 MMBtu per day at market price, until October 31, 2022.
Maryland entered into a natural gas transmission agreement for guaranteed daily capacity in respect of predetermined quantities of gas. The agreement period is 20 years, which commenced on May 31 2016, with an option for Maryland to extend it by an additional 5 years. The annual payment under the agreement is approx. USD 5 million.
Maryland entered into a service agreement with its original equipment manufacturer. Maryland may acquire additional services under the agreement, as needed. The payments under the agreement consist of minimum annual fixed payments, variable quarterly payments based on operating parameters of the defined equipment, and fixed quarterly management fees. In addition to the minimum annual payment, the remaining payments increase by 2.5% every year. The agreement ends on the earlier of: (a) the date on which the equipment reaches a defined milestone; or (b) 25 years from the signing date on – August 8 2014.
Maryland entered into an agreement for the operation and maintenance of the power plant. The consideration includes fixed annual management fees, a performance‑based bonus, and reimburses for employment expenses, payroll costs and taxes, subcontractor costs and other costs.
Maryland entered into an energy management agreement (EMA) with CEMS for advising on setting up plans for energy management, risk management and performance strategy with CEMS, for a period ending December 31 2025, each with two 5-year extension periods.
Shore
Shore entered into an agreement for the purchase of natural gas, according to which the gas supplier is to supply 120,000 MMBtu of gas per day at a price linked to the market price. The agreement period is until October 31 2022.
Shore entered into several agreements with an inter‑state pipeline company (a service agreement, an interconnect agreement, a construction agreement and an operating agreement). 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 inter‑state pipe and reaches the facility’s connection point. Shore paid a down payment to the supplier for said services. The period of the gas transmission agreement is 15 years (up to April 2030), and there is an option to extend the agreements twice by ten years. The annual payment under the agreement is approx. USD 6 million.
Shore entered into an agreement with an interstate gas pipeline company for connection of a second unilateral gas pipeline to serve the power plant. According to the provisions of the agreement, the interstate pipeline company will work to construct, install, own, operate and maintain the pipeline leading to the power plant. The pipeline was completed and became operational in September 2021.
On December 22 2017, Shore entered into an amended service agreement with its original equipment manufacturer. Shore may acquire additional services under the agreement, as needed. The consideration consists of a fixed minimum annual payment, variable quarterly payments based on operating parameters of the defined equipment, and quarterly management fees. In addition to the minimum annual payment, the remaining payments increase by 2.5% every year. The agreement ends on the earlier of: (a) the date on which the equipment reaches a defined milestone; or (b) 20 years from the signing date.
Shore entered into an agreement for the operation and maintenance of the power plant; 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 is valid until July 2023 and 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.
Shore entered into an energy management agreement (EMA) with CEMS for advising on setting up plans for energy management, risk management and performance strategy with CEMS, for a period ending on December 31 2025, each with two 5-year extension periods.
36
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
D. | Main agreements of the Project Companies in the CPV Group (cont.): |
5. | Other main agreements of the Project Companies in the CPV Group (cont.): |
Valley
Valley entered into an agreement for the supply of natural gas of up to 127,200 MMBtu 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. The agreement period was extended until October 31 2025.
Valley signed an agreement with an inter‑state pipeline company for the licensing, construction, operation and maintenance of a pipe and measurement and regulating facilities, from the inter‑state pipeline system for transmission of natural gas up to the power plant. The supplier provides 127,200 MMBtu per day of firm natural gas delivery at an agreed price during a period ending March 31 2033. In addition, Valley signed an agreement for provision of transmission services (firm) of 35,000 MMBtu per day, for a period of 15 years ending on March 31, 2033. The annual payment under the agreement is approx. USD 21 million.
Valley entered into an agreement with its original equipment manufacturer, for maintenance services for the combustion turbines. The consideration includes fixed and variable amounts from the initial activation date of the turbines. The agreement period is the earlier of: (a) 132,800 equivalent base load hours; or (b) 29 years from June 9 2015.
Valley entered into an operation and maintenance agreement (O&M) of the power plant with a partner in the project. The consideration includes fixed annual management fees, an operation bonus, and reimbursement of certain costs as provided to the agreement. The agreement period is five years from the construction completion date of the power plant, and the agreement may be renewed for an additional three years.
Valley entered into an energy management agreement for the provision of management services in connection with fuels, electricity management, risk management and additional defined services. The consideration includes a fixed monthly payment and reimbursement of certain costs. The period of the agreement is up to October 31, 2022 and Valley may extend the agreement.
Three Rivers
Three Rivers entered into two agreements for the supply of natural gas. The agreements supply 139,500 MMBtu per day to the power plant from the power plant’s activation date for a period of five years, and a reduced quantity of 25,000 MMBtu per day from the fifth year of operation of the power plant and up to the tenth year. The price of natural gas delivered under these agreements is linked to the day-ahead electricity price at the connection point to the grid in the ComEd region within PJM. The agreements include an obligation to purchase a minimum amount/quantity of natural gas (TOP), and Three Rivers has the right to resell any excess gas.
Three Rivers entered into two connection agreements (for the transmission of gas), each sufficient to fulfil the entire demand of the power plant. One agreement is an interconnect agreement with an inter‑state 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 connection and pressure equipment. Based on the agreement, Three Rivers will bear the costs of all the said facilities, which are included in expected construction cost in the above table. The second agreement is an additional interconnect agreement with an inter‑state pipeline company for transmission of natural gas. Under the agreement, the counterparty is responsible for the design and construction 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, which are included in the construction cost.
Three Rivers entered into an agreement for the transmission of gas with an inter‑state pipeline company and its Canadian affiliate, for firm transmission of natural gas from Alberta, Canada to the power plant. The agreements include capacity of 36.2 MMcf per day, at agreed prices. The agreement period is 11 years from the signing date of the agreement on November 1 2020; the counterparty may extend the agreement by an additional year with a prior notice of 12 months.
37
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
D. | Main agreements of the Project Companies in the CPV Group (cont.): |
5. | Other main agreements of the Project Companies in the CPV Group (cont.): |
Three Rivers (cont.)
Three Rivers entered into an agreement for the acquisition of electricity generation equipment (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 said equipment includes two units, with each consisting of the following main components: a gas or combustion turbine; a heat recovery steam generator; a steam turbine; a generator; a continuous control system for emissions and additional related equipment. The equipment supplier is responsible for delivery and installation in accordance with the provisions of 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 all the equipment. Pursuant to the terms and conditions of the agreement, Three Rivers will pay the other party in instalments based on reaching milestones.
Three Rivers entered into a construction, engineering, acquisition and building agreement with an international engineering, acquisition and construction contractor. Pursuant to the agreement, the contractor will design and construct the required components of the power plant, to integrate all the equipment required for the power plant.
Three Rivers entered into a service agreement with its original equipment manufacturer, for maintenance services for the combustion turbines. The consideration includes a fixed and a variable amount as of the commercial operation date. The agreement went into effect on August 21 2020 (hereinafter - the “Effective Date”) and ends on the earlier of: (a) 25 years from the Effective Date; or (b) when specific milestones are reached based on use and wear and tear.
Three Rivers entered into an agreement for the operation and maintenance of the power plant. The consideration includes fixed annual management fees, a performance‑based bonus, and reimburses for employment expenses, payroll costs and taxes, subcontractor costs and other costs. The period of the agreement will commence during the construction period, and will run up to about 3 years from the date of completion of construction of the power plant.
38
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
E. | Attachment of financial statements |
The Group attaches to these condensed consolidated interim financial statements the condensed interim financial statements of Valley (hereinafter - “material associate”).
The functional currency and the presentation currency of the material associate is the US dollar. For details regarding the changes in the currency exchange rate of the dollar in the reporting period – see Note 4.
The financial statements of the material associate are drawn up in accordance with US GAAP, which vary, in some respects, from IFRS. Set forth below are the adjustments to comprehensive income, total assets, total liabilities and Partnership’s equity to reflect those differences.
1) Statement of Financial Position:
As at September 30 2021 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Property, plant & equipment | A,C,D | 817,610 | (190,924 | ) | 626,686 | |||||||||||
Intangible assets | D | 10,413 | (10,413 | ) | - | |||||||||||
Other assets | 124,171 | - | 124,171 | |||||||||||||
Total assets | 952,194 | (201,337 | ) | 750,857 | ||||||||||||
Accounts payable and deferred expenses | A | 38,000 | (1,134 | ) | 36,866 | |||||||||||
Other liabilities | 593,067 | - | 593,067 | |||||||||||||
Total liabilities | 631,067 | (1,134 | ) | 629,933 | ||||||||||||
Partners’ equity | A,C | 321,127 | (200,203 | ) | 120,924 | |||||||||||
Total liabilities and equity | 952,194 | (201,337 | ) | 750,857 |
39
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
E. | Attachment of financial statements (cont.) |
1) Statement of Financial Position (cont.):
As at September 30 2020 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Property, plant & equipment | A,D | 842,651 | 18,989 | 861,640 | ||||||||||||
Intangible assets | D | 10,679 | (10,679 | ) | - | |||||||||||
Other assets | 191,658 | - | 191,658 | |||||||||||||
Total assets | 1,044,988 | 8,310 | 1,053,298 | |||||||||||||
Accounts payable and deferred expenses | A | 15,584 | (1,512 | ) | 14,072 | |||||||||||
Other liabilities | 621,481 | - | 621,481 | |||||||||||||
Total liabilities | 637,065 | (1,512 | ) | 635,553 | ||||||||||||
Partners’ equity | A | 407,923 | 9,822 | 417,745 | ||||||||||||
Total liabilities and equity | 1,044,988 | 8,310 | 1,053,298 |
As at December 31 2020 | ||||||||||||||||
(Audited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Property, plant & equipment | A,D | 836,428 | 20,479 | 856,907 | ||||||||||||
Intangible assets | D | 10,657 | (10,657 | ) | - | |||||||||||
Other assets | 175,692 | - | 175,692 | |||||||||||||
Total assets | 1,022,777 | 9,822 | 1,032,599 | |||||||||||||
Accounts payable and deferred expenses | A | 19,140 | (1,228 | ) | 17,912 | |||||||||||
Other liabilities | 618,057 | - | 618,057 | |||||||||||||
Total liabilities | 637,197 | (1,228 | ) | 635,969 | ||||||||||||
Partners’ equity | A | 385,580 | 11,050 | 396,630 | ||||||||||||
Total liabilities and equity | 1,022,777 | 9,822 | 1,032,599 |
40
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
E. | Attachment of financial statements (cont.) |
2) Statements of income and other comprehensive income:
For the nine-month period ended September 30 2021 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Revenues | 85,287 | - | 85,287 | |||||||||||||
Operating expenses | A | 112,204 | (3,451 | ) | 108,753 | |||||||||||
Depreciation and amortization | C | 19,289 | (4,599 | ) | 14,690 | |||||||||||
Impairment of property, plant & equipment | C | - | 219,302 | 219,302 | ||||||||||||
Operating loss | (46,206 | ) | (211,252 | ) | (257,458 | ) | ||||||||||
Finance expenses | B | 24,001 | (3,255 | ) | 20,746 | |||||||||||
Loss for the period | (70,207 | ) | (207,997 | ) | (278,204 | ) | ||||||||||
Other comprehensive income - interest rate swaps | B | 5,754 | (3,255 | ) | 2,499 | |||||||||||
Comprehensive loss for the period | (64,453 | ) | (211,252 | ) | (275,705 | ) |
For the nine-month period ended September 30 2020 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Revenues | 111,146 | - | 111,146 | |||||||||||||
Operating expenses | A | 100,852 | (4,010 | ) | 96,842 | |||||||||||
Operating profit | 10,294 | 4,010 | 14,304 | |||||||||||||
Loss on sale of assets | 12 | - | 12 | |||||||||||||
Finance expenses | B | 28,358 | 18 | 28,376 | ||||||||||||
Loss for the period | (18,076 | ) | 3,992 | (14,084 | ) | |||||||||||
Other comprehensive loss - interest rate swaps | (7,263 | ) | - | (7,263 | ) | |||||||||||
Comprehensive loss for the period | (25,339 | ) | 3,992 | (21,347 | ) |
41
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
E. | Attachment of financial statements (cont.) |
2) Statements of income and other comprehensive income (cont.):
For the three-month period ended September 30 2021 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Revenues | 39,197 | - | 39,197 | |||||||||||||
Operating expenses | A | 40,182 | (1,135 | ) | 39,047 | |||||||||||
Depreciation and amortization | C | 6,427 | (1,677 | ) | 4,750 | |||||||||||
Operating loss | (7,412 | ) | 2,812 | (4,600 | ) | |||||||||||
Finance expenses | B | 7,766 | (1,840 | ) | 5,926 | |||||||||||
Loss for the period | (15,178 | ) | 4,652 | (10,526 | ) | |||||||||||
Other comprehensive income (loss) - interest rate swaps | B | 1,671 | (1,840 | ) | (169 | ) | ||||||||||
Comprehensive loss for the period | (13,507 | ) | 2,812 | (10,695 | ) |
For the three-month period ended September 30 2020 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Revenues | 35,847 | - | 35,847 | |||||||||||||
Operating expenses | A | 36,593 | (1,511 | ) | 35,082 | |||||||||||
Operating profit (loss) | (746 | ) | 1,511 | 765 | ||||||||||||
Finance expenses | 8,380 | - | 8,380 | |||||||||||||
Loss for the period | (9,126 | ) | 1,511 | (7,615 | ) | |||||||||||
Other comprehensive income - interest rate swaps | 1,986 | - | 1,986 | |||||||||||||
Comprehensive loss for the period | (7,140 | ) | 1,511 | (5,629 | ) |
3) Adjustment to equity and comprehensive income:
As at September 30 2021 | As at September 30 2020 | As at December 31 2020 | ||||||||||||||
(Unaudited) | (Unaudited) | (Audited) | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Partners’ equity from the Partnership balance sheet according to US GAAP | 321,127 | 407,923 | 385,580 | |||||||||||||
IFRS adjustments: | ||||||||||||||||
Costs of periodic maintenance at the power plant | A | 14,501 | 9,822 | 11,050 | ||||||||||||
Impairment of property, plant & equipment | C | (214,704 | ) | - | - | |||||||||||
Partners’ equity after adjustments to IFRS | 120,924 | 417,745 | 396,630 |
42
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
E. | Attachment of financial statements (cont.) |
4) Material adjustments to the statement of cash flows:
For the nine-month period ended September 30 2021 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Loss for the period | A,B,C | (70,207 | ) | (207,997 | ) | (278,204 | ) | |||||||||
Net cash from operating activities | 17,847 | - | 17,847 | |||||||||||||
Net cash from investing activities | E | (324 | ) | 3,213 | 2,889 | |||||||||||
Net cash used in financing activities | (20,570 | ) | - | (20,570 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (3,047 | ) | 3,213 | 166 | ||||||||||||
Balance of cash and cash equivalents at beginning of period | E | 89 | 335 | 424 | ||||||||||||
Restricted cash balance at beginning of period | E | 87,700 | (87,700 | ) | - | |||||||||||
Balance of cash and cash equivalents at end of period | E | 98 | 492 | 590 | ||||||||||||
Restricted cash balance at end of period | E | 84,644 | (84,644 | ) | - |
For the nine-month period ended September 30 2020 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Loss for the period | A,B,C | (18,076 | ) | 3,992 | (14,084 | ) | ||||||||||
Net cash from operating activities | 2,489 | - | 2,489 | |||||||||||||
Net cash from investing activities | E | (5,013 | ) | 27,347 | 22,334 | |||||||||||
Net cash used in financing activities | (24,555 | ) | - | (24,555 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (27,079 | ) | 27,347 | 268 | ||||||||||||
Balance of cash and cash equivalents at beginning of period | E | 22 | 1,295 | 1,317 | ||||||||||||
Restricted cash balance at beginning of period | E | 114,562 | (114,562 | ) | - | |||||||||||
Balance of cash and cash equivalents at end of period | E | 93 | 1,491 | 1,584 | ||||||||||||
Restricted cash balance at end of period | E | 87,412 | (87,412 | ) | - |
43
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
E. | Attachment of financial statements (cont.) |
4) Material adjustments to the statement of cash flows (cont.)
For the three-month period ended September 30 2021 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Loss for the period | A,B,C | (15,178 | ) | 4,652 | (10,526 | ) | ||||||||||
Net cash from operating activities | 19,623 | - | 19,623 | |||||||||||||
Net cash from investing activities | E | (69 | ) | 13,187 | 13,118 | |||||||||||
Net cash used in financing activities | (32,279 | ) | - | (32,279 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (12,725 | ) | 13,187 | 462 | ||||||||||||
Balance of cash and cash equivalents at beginning of period | E | 88 | 40 | 128 | ||||||||||||
Restricted cash balance at beginning of period | E | 97,379 | (97,379 | ) | - | |||||||||||
Balance of cash and cash equivalents at end of period | E | 98 | 492 | 590 | ||||||||||||
Restricted cash balance at end of period | E | 84,644 | (84,644 | ) | - |
For the three-month period ended September 30 2020 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
US GAAP | Adjustments | IFRS | ||||||||||||||
In USD thousand | In USD thousand | In USD thousand | ||||||||||||||
Loss for the period | A,B,C | (9,126 | ) | 1,511 | (7,615 | ) | ||||||||||
Net cash used in operating activities | (6,302 | ) | - | (6,302 | ) | |||||||||||
Net cash from investing activities | E | (666 | ) | 16,303 | 15,637 | |||||||||||
Net cash used in financing activities | (8,800 | ) | - | (8,800 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (15,768 | ) | 16,303 | 535 | ||||||||||||
Balance of cash and cash equivalents at beginning of period | E | 64 | 986 | 1,050 | ||||||||||||
Restricted cash balance at beginning of period | E | 103,209 | (103,209 | ) | - | |||||||||||
Balance of cash and cash equivalents at end of period | E | 93 | 1,491 | 1,584 | ||||||||||||
Restricted cash balance at end of period | E | 87,412 | (87,412 | ) | - |
44
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 7 – ASSOCIATES (cont.)
5) Explanations for the main differences between US GAAP and IFRS:
A. | Maintenance costs under the Long Term Control Plan (LTCP) agreement: under IFRS, variable payments which were paid in accordance with the milestones as set in the LTCP agreement are capitalized to the cost of property, plant and equipment and depreciated over the period from the date on which maintenance work was carried out until the date on which maintenance work is due to take place again. Under US GAAP, the said payments are recognized on payment date within current expenses in the statement of income. |
B. | Hedge effectiveness of interest rate swaps: in accordance with IFRS 9 - Financial Instruments - Valley recognizes the adjustments relating to the ineffective portion of its gain or loss on the hedging instrument used to hedge its cash flows. Under US GAAP, in accordance with ASU 2017-12 there is no ineffective portion. |
C. | Property, plant and equipment: during the course of the first quarter of 2021, there were indications for impairment that require testing the items for impairment in accordance with both sets of standards: IFRS and US GAAP. Pursuant to IAS 36 the carrying amount exceeded the recoverable amount (the discounted cash flows that Valley expects to generate from the asset), and consequently an impairment loss was recognized during the first quarter of 2021. In accordance with ASC 360, the non-discounted cash flows that Valley expects to generate from the asset exceed the carrying amount, and therefore no impairment loss was recognized in accordance with US GAAP. |
D. | Intangible assets: intangible assets that fall within the scope of ASC 350: Intangibles - Goodwill and Others - are defined as property, plant and equipment in accordance with IAS 16. |
E. | Restricted Cash: The difference is due to a difference in the presentation of restricted cash in the cash flow statements between IFRS and US GAAP. |
45
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 8 – SEGMENT REPORTING
As a result of acquisition of the CPV Group in January 2021 (as stated in Note 6), which is engaged in development, construction and management of renewable energy and conventional (advanced-generation, gas-fired combined‑cycle power plants) in the United States, as of the first quarter of 2021 the Group presents two geographic activity segments that constitute strategic business units of the Group. These strategic business units include products and services and are managed separately for resource allocation and evaluation of performance purposes due to the fact that they are located in different geographic regions. For each strategic business unit, the chief operating decision maker regularly reviews the internal managerial reports. In addition, the segment’s results are based on the Company’s profit (loss) before depreciation and amortization, changes of the fair value of derivative financial instruments, net finance expenses or income, and income taxes attributed to the Group’s reportable segments, as well as net of non-recurring income (expenses) (hereinafter - “Adjusted EBITDA”). The data of associates in this note are included by way of proportionate consolidation according to the CPV Group's holding rate. The information on subsidiaries in this note is presented in full without adjustment to the holding rate. The adjustment column adjusts the results to the income statement mainly as a result of presenting the data of associates. Set forth below is a brief description of the business activities of each of the Group’s operating segments:
• | Israel – the holding, generation and supply of electricity and energy in Israel segment. In this operating segment, the Group is engaged in the generation and supply of electricity and energy to private customers, the Israel Electric Corporation and system operator, as well as in the initiation, development, construction and operation of power plants and electricity generation facilities. |
• | United States – Development, construction and management of renewable energy and conventional (gas-fired) power plants in the United States. In this operating segment, the Company is engaged in the holding, development, construction and management of renewable energy and conventional (gas-fired) power plants in the United States and in the holding of rights in operational and under-construction renewable energy and conventional power plants. Furthermore, the Company is engaged in provision of management services to power plants in the United States that are owned by the Group and by third parties. |
The Company manages its operations in Israel under a single operational roof, mainly through OPC Israel, and its operations in the United States under another operational roof through the CPV Group.
For the nine-month period ended September 30 2021 | ||||||||||||||||
Israel | USA | Adjustments | Consolidated - total | |||||||||||||
(Unaudited) | ||||||||||||||||
NIS million | ||||||||||||||||
Revenues from sales and services | 1,025 | 829 | (706 | ) | 1,148 | |||||||||||
Adjusted EBITDA for the period | 269 | 219 | (21 | ) | 467 | |||||||||||
Depreciation and amortization | (105 | ) | (122 | ) | 91 | (136 | ) | |||||||||
Finance expenses, net | (331 | ) | (112 | ) | 80 | (363 | ) | |||||||||
Loss from revaluation of financial instruments | - | (48 | ) | 48 | - | |||||||||||
Reductions of profit and loss in respect of adjustments to fair value made on the acquisition date | - | 16 | (16 | ) | - | |||||||||||
Share in losses of associates | - | - | (214 | ) | (214 | ) | ||||||||||
Non-recurring expenses | (1 | ) | (41 | ) | - | (42 | ) | |||||||||
(437 | ) | (307 | ) | (11 | ) | (755 | ) | |||||||||
Loss before taxes on income | (168 | ) | �� | (88 | ) | (32 | ) | (288 | ) | |||||||
Tax benefit | (41 | ) | (31 | ) | - | (72 | ) | |||||||||
Net loss | (127 | ) | (57 | ) | (32 | ) | (216 | ) |
46
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 8 – SEGMENT REPORTING (cont.)
For the three-month period ended September 30 2021 | ||||||||||||||||
Israel | USA | Adjustments | Consolidated - total | |||||||||||||
(Unaudited) | ||||||||||||||||
NIS million | ||||||||||||||||
Revenues from sales and services | 375 | 403 | (348 | ) | 430 | |||||||||||
Adjusted EBITDA for the period | 122 | 108 | (8 | ) | 222 | |||||||||||
Depreciation and amortization | (35 | ) | (44 | ) | 33 | (46 | ) | |||||||||
Finance expenses, net | (271 | ) | (45 | ) | 28 | (288 | ) | |||||||||
Loss from revaluation of financial instruments | - | 42 | (42 | ) | - | |||||||||||
Reductions of profit and loss in respect of adjustments to fair value made on the acquisition date | - | 3 | (3 | ) | - | |||||||||||
Share in losses of associates | - | - | (18 | ) | (18 | ) | ||||||||||
Non-recurring expenses | (1 | ) | - | - | (1 | ) | ||||||||||
(307 | ) | (44 | ) | (2 | ) | (353 | ) | |||||||||
Income (loss) before taxes on income | (185 | ) | 64 | (10 | ) | (131 | ) | |||||||||
Taxes on income (tax benefit) | (44 | ) | 19 | - | (25 | ) | ||||||||||
Net income (loss) | (141 | ) | 45 | (10 | ) | (106 | ) |
NOTE 9 – ADDITIONAL INFORMATION
A. | General |
1. | In December 2020, the Israeli Electricity Authority published a decision that entered into effect on January 1, 2021, regarding the update of the 2021 tariffs, whereby the rate of the generation component was reduced by approximately 5.7% - from NIS 267.8 per MWh to NIS 252.6 per MWh. A decrease in the generation component, as stated, has an adverse effect on the Company’s profits in 2021 compared with 2020. |
2. | In the nine‑month periods ended September 30, 2021 and September 30, 2020, the Group purchased property, plant and equipment other than for cash, in the amounts of approximately NIS 87 million and approximately NIS 5 million, respectively. |
B. | The Company |
1. | Equity compensation plan |
A. Allotment to the Chairman of the Board of Directors
In January 2021, the Company’s Board of Directors approved (after approval by the Company’s Compensation Committee) the service and employment terms and conditions of Mr. Yair Caspi as Chairman of the Company’s Board of Directors, which include, inter alia, the allocation of 367,252 options. In February 2021, the General Meeting of the Company’s shareholders approved Mr. Yair Caspi’s service terms and conditions in accordance with the approval of the Board of Directors. In March 2021, the TASE approved to list for trading 367,252 shares, that will arise from exercise of the options, and the options were issued to Mr. Caspi shortly thereafter, on March 10, 2021.
47
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
B. | The Company (cont.) |
1. | Equity compensation plan (cont.) |
A. Allotment to the Chairman of the Board of Directors (cont.)
The options are non‑marketable, each exercisable into one ordinary share of the Company, for a total of 367,252 ordinary shares of the Company of NIS 0.01 par value each. The options were issued in accordance with the Company’s option plan, as stated in Note 17B to the Annual Financial Statements, and under the Capital Track (with a trustee), in accordance with Section 102 of the Income Tax Ordinance, in four equal tranches. The vesting terms and conditions and the expiration dates of the Options are as follows:
Tranche No. | Vesting terms and conditions | Expiration date |
Tranche 1 | After 12 months will have elapsed from the allotment date | After 36 months will have elapsed from the vesting date |
Tranche 2 | After 24 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
Tranche 3 | After 36 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
Tranche 4 | After 48 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
The exercise price of each allocated option is NIS 32.78 (non-linked). The exercise price is subject to certain adjustments (including in respect of distribution of dividends, issuance of rights, etc.).
The average fair value of the options on approval date of the allocation by the Board of Directors, using the Black and Scholes model, was NIS 13.07 per option. The calculation is based on the monthly standard deviation of 38.8%, an annual risk‑free interest rate for the period of 0.2% to 0.4%, an expected life of 4 to 6 years and share price of a Company’s stock on January 10 2021, which was NIS 36.01.
The cost of the benefit implicit in the offered securities, which is based on the fair value as at the date of their issuance, amounted to approximately NIS 5 million. This amount will be recorded in profit and loss over the vesting period of each tranche.
48
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
B. | The Company (cont.) |
1. | Equity compensation plan (cont.) |
B. Allotment to the CEO
In April 2021, the Company’s Board of Directors approved (after approval by the Company’s Compensation Committee) changes to the service and employment terms of Mr. Giora Almogy as the Company’s CEO. Further to discussions with the Company’s shareholders and entities advising them, in June 2021 the Company’s Compensation Committee and Board of Directors approved an amendment to the changes in the CEO’s terms of service. The said amendment was approved by the General Meeting of the Company’s shareholders in June 2021; it includes, among other things, the allocation of 1,252,832 options.
The options are non‑marketable, each exercisable into one ordinary share of the Company, for a total of 1,252,832 ordinary shares of the Company of NIS 0.01 par value each. The options shall be allocated in four equal tranches in accordance with the Company’s revised compensation policy under the capital gains track (with a trustee) in accordance with Section 102 of the Income Tax Ordinance. The vesting terms and conditions and the expiration dates of the Options are as follows:
Tranche No. | Vesting terms and conditions | Expiration date |
Tranche 1 | After 12 months will have elapsed from the allotment date | After 36 months will have elapsed from the vesting date |
Tranche 2 | After 24 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
Tranche 3 | After 36 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
Tranche 4 | After 48 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
The exercise price of each allocated option is NIS 34.46 (non-linked). The exercise price is subject to certain adjustments (including in respect of distribution of dividends, issuance of rights, etc.).
The average fair value of the options on the date of approval of the allotment by the Board of Directors, using the Black and Scholes model, is NIS 9.54 per option. The calculation is based on a monthly standard deviation of 35%, an annual risk‑free interest rate for the period of 0.35% to 0.59% an expected life of 4 to 6 years and a closing price of the share on the last trading day prior to the date of the decision of the Board of Directors of NIS 33.05.
The cost of the benefit implicit in the offered securities, which is based on the fair value as at the date of their issuance, amounted to about NIS 12 million. This amount will be recorded in profit and loss over the vesting period of each tranche.
49
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
B. | The Company (cont.) |
1. | Equity compensation plan (cont.) |
C. Allotment to officers
In August 2021, the Compensation Committee, authorized by the Board of Directors, approved a private placement to two officers, amounting to 662,944 options convertible into 662,944 ordinary shares of NIS 0.01 par value each of the Company (hereinafter - "Offered Securities"). The Offered Securities were allocated under the capital gains track (with a trustee) in accordance with Section 102 of the Income Tax Ordinance, at four equal tranches. The vesting terms and conditions and the expiration dates of the Options are as follows:
Tranche No. | Vesting terms and conditions | Expiration date |
Tranche 1 | After 12 months will have elapsed from the allotment date | After 36 months will have elapsed from the vesting date |
Tranche 2 | After 24 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
Tranche 3 | After 36 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
Tranche 4 | After 48 months will have elapsed from the allotment date | After 24 months will have elapsed from the vesting date |
The exercise price of each allocated option is NIS 30.24 (non-linked). The exercise price is subject to certain adjustments (including in respect of distribution of dividends, issuance of rights, etc.). The average fair value of the options on approval date of the allocation by the Board of Directors, using the Black and Scholes model, was NIS 8.23 per option. The calculation is based on the monthly standard deviation of 34.59%, an annual risk‑free interest rate for the period of 0.24% to 0.55%, an expected life of 4 to 6 years and share price of a Company’s stock on August 19 2021, which was NIS 28.98.
The cost of the benefit implicit in the offered securities, which is based on the fair value as at the date of their issuance, amounted to approximately NIS 5 million. This amount will be recorded in profit and loss over the vesting period of each tranche.
D. Additional changes in the reporting period and subsequently
Further to what is stated in Note 17B(2) to the Annual Financial Statements, during the reported period and subsequent to the financial statements date, the Company issued 110,849 ordinary Company shares of NIS 0.01 par value, and 208,714 ordinary Company shares of NIS 0.01 par value, respectively, to Group officers, following net exercise notices relating to 217,760 options and 359,148 options, respectively. The weighted average price per share on the exercise date of the options was NIS 32.48.
During and subsequent to the reporting date, the Company issued a total of 52,082 ordinary shares of NIS 0.01 par value each and a total of 2,661 ordinary Company shares of NIS 0.01 par value each, respectively, to Group officers in view of the vesting of the tranches of the RSUs awarded to them as part of an equity-based compensation plan to Company’s employees as described in Note 17B to the Annual Financial Statements.
2. | In January 2021, the Company issued Altshuler Shaham Ltd. (hereinafter – “Altshuler”) and entities managed by Altshuler (hereinafter, jointly in this section – “the Offerees”), 10,300,000 ordinary shares of NIS 0.01 par value each. The price of the shares issued to the Offerees is NIS 34 per ordinary share, which was determined in negotiations between the Company and the Offerees, and the gross proceeds from the issuance amounted to about NIS 350 million. The issuance expenses amounted to about NIS 4 million. |
50
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
B. | The Company (cont.) |
3. | Changes in the Company’s material guarantees: |
A. | Further to that stated in Note 15D(3) to the Annual Financial Statements regarding a capital injection agreement of Zomet in the reporting period, in light of the provision of the balance of the shareholders’ equity to Zomet, the bank guarantee provided by the Company - in the amount of approximately NIS 85 million - was cancelled, and the deposit, in the amount of approximately NIS 43 million, which served as collateral for the said guarantee, was released. |
B. | Further to that stated in Note 24A(3) to the Annual Financial Statements regarding a compromise agreement in respect of the amount of development levies payable to the Shafir Regional Council, in the reporting period, the guarantee, in the amount of approximately NIS 21 million, expired. |
C. | Further to that stated in Note 15D(2) to the Annual Financial Statements regarding Hadera’s financing agreement, in the reporting period, a bank guarantee in the amount of approximately NIS 50 million, which was provided by the Company in favor of the lenders, was cancelled, and the collateral, in the amount of approximately NIS 25 million, that was provided in respect of the guarantee, was released. |
D. | In June 2021, the Company provided a NIS 2 million bank guarantee in favor of the Electricity Authority as required in order to obtain a virtual supply license, and in July 2021 the Company provided a NIS 35 million bank guarantee in favor of the system operator for the purpose of an application to allocate certain customers to the virtual supply activity. For further details regarding the virtual supply activity and the virtual supply license, see Note 9B6. |
E. | Further to what is stated in Note 23D to the Annual Financial Statements, in June 2021 pledged deposits totalling NIS 38 million were released; the said deposits served as a collateral in respect of guarantees provided by the Company in favor of the IEC. |
4. | In January 2021, a subsidiary of the Parent Company transferred to the Company, at no consideration, all its shares and rights (100%) in IC Green Energy Inc. (previously Primus Green Energy Inc.), a company incorporated in New Jersey, USA (hereinafter - “ICG Energy”), which previously owned a renewable energy operation. |
During 2005-2020, ICG Energy recorded net operating losses for tax purposes, which as at December 31, 2020 amounted to approximately USD 108 million, and utilizable tax credits in the amount of approximately USD 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 the Company’s control and, therefore, the Company did not recognize deferred tax assets in respect thereof.
Transfer of ICG Energy to the Company was approved by the Company’s Board of Directors and Audit Committee as a transaction that is only for the Company’s benefit, pursuant to Section 1(2) of the Companies Regulations (Expedients in Transactions with an Interested Party), 2000.
In addition, in January 2021, after the transfer of ICG Energy to the Company, the Company transferred its rights and loans in the limited partnership, OPC Power Ventures LP (hereinafter – “OPC Power”) (for details regarding OPC Power and the rights of the Company therein – see Note 25M to the Annual Financial Statements and Note 9J below) to ICG Energy in respect of a loan in the amount of approximately NIS 472 million, and capital notes issued by ICG Energy to the Company, in the amount of approximately NIS 1,188 million. The loan is denominated in shekels, is not linked to the CPI and bears interest at the annual 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 ICG Energy 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, are not linked to the CPI, and are to be repaid based on the decision of ICG Energy.
Transfer of the shares of ICG Energy to the Company will allow the Company to manage its activities in the United States under ICG Energy. Among other things, the said transfer (subject to compliance with the conditions) will allow tax savings with respect to profits, if any, from the business activities in the United States.
5. | Further to that which is stated in Note 25K to the Annual Financial Statements, as at the approval date of the financial statements, the Company entered into several agreements, including for the construction and operation of facilities for energy generation on the consumer’s premises by means of natural gas and renewable energy (hereinafter – “the Generation Facilities”) with a total of approximately 90 MW. At as the date of approval of the financial reports, the Company has construction and supply agreements covering motors for the Generation Facilities, with an aggregate capacity of approximately 58 MW. |
51
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
B. | The Company (cont.) |
6. | In February 2021 the Israeli Electricity Authority reached a resolution on regulation for suppliers that do not have means of production, and amended the criteria applicable to existing suppliers, so as to open to new suppliers the supply segment in the electricity sector, and to gradually supply to domestic consumers. As part of the resolution, the Israeli Electricity Authority sets criteria and tariffs that will apply to suppliers who do not have means of production, and which allow them to purchase energy for their customers from the system operator, subject to receipt of supply license and the provision of a collateral. Pricing will be based on the SMP (half-hour system marginal price) mechanism and components which are affected, among other things, by peak-time consumption. Regulation to suppliers who do not have means of production is limited to a quota set in the regulation principles and to customers who have continuous meters (36,000 domestic consumers and 15,000 industrial/commercial consumers). Furthermore, as part of the said resolution, and in order to open the supply segment to competition, the Israeli Electricity Authority amended the criteria to suppliers regarding the manner of allocating consumers to private suppliers, the termination of transactions, the transition from one supplier to another and the payment of bills. In May 2021, the Israeli Electricity Authority published draft for public comment of the license for suppliers under virtual supply (hereinafter - the “Virtual Supply License”) and the revised timetable for opening the supply segment to competition; according to the said timetable, the said activity started on September 1, 2021. Further to the application submitted by the Company, in July 2021 the Company received a Virtual Supply License. Further to the above, as from September 2021, the Company attributed 110 MW in receivables to virtual supply. |
7. | In August 2021, the Company entered into additional credit facilities for various periods not exceeding three years from banking entities, totalling approximately NIS 125 million, which were not utilized as of the financial statements' approval date. As of the financial statements approval date, the Company’s balance of unutilized facilities is NIS 600 million. |
8. | In September 2021, the Company issued Series C debentures at a par value of NIS 851 million, with the proceeds of the issuance designated, among other things, for early repayment of Rotem’s financing, as outlined in Note 10A. 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 instalments (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 debentures were rated A- by Maalot. The issuance expenses amounted to about NIS 9 million. |
The Deed of Trust includes generally acceptable causes to call for immediate repayment of the debentures (subject to stipulated remediation periods), including insolvency events, liquidation proceedings, receivership, suspension of proceedings and debt arrangements, merger under certain conditions without obtaining debenture holders’ approval, material deterioration in the condition of the Company, failure to publish financial statements in a timely manner, etc. Furthermore, a right to call for immediate repayment was established under the following circumstances: (1) In case of a call for immediate repayment of another series of debentures (marketable on the TASE or on the TACT Institutional system) that the Company has issued; or of another financial debt (or a number of cumulative debts) of the Company and of consolidated companies (except for the case of having to make immediate repayment of a non-recourse debt), including forfeiture of a guarantee (that secure payment of a debt to financial creditor) that the Company or investee companies made available to a creditor, in an amount not less than USD 75 million. (2) Upon breach of financial covenants on two consecutive review dates; (3) In the case described in Subsection 2 (and even without waiting for the second review date) if the Company has carried out an extraordinary transaction with a controlling shareholder, excluding transactions to which the Companies Regulations (Expedients in Transactions with an Interested Party), 2000 apply, without obtaining prior approval of the debenture holders by special resolution; (4) If an asset or a number of assets of the Company are sold in an amount representing over 50% of the value of the Company’s assets according to the Company’s consolidated financial statements during a period of 12 consecutive months, or if a change is made to the main operations of the Company, except where the consideration of the sale is intended for the purchase of an asset or assets within the Company’s main area of operations (the “main operations of the Company” - the field of energy, including electricity generation in power plants and from renewable energies); (5) Upon the concurrence of certain events leading to loss of control; (6) If rating is discontinued over a certain period of time; (7) If trading in the debentures is suspended for a certain period of time or if the debentures are delisted; (8) If the Company ceases being a reporting corporation; (9) In the event that a “going concern” emphasis-of-matter paragraph is included in the Company’s financial statements solely in respect of the Company, for a period of two consecutive quarters; (10) If the Company 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 Deed of Trust being met; (11) Distribution in breach of the provisions of the Deed of Trust. All in accordance with the terms set out in the Deed of Trust signed between the Company and Reznick Paz Nevo Trusts Ltd. in September 2021.
52
OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
B. | The Company (cont.) |
8. | (cont.) |
Furthermore, the Deed of Trust includes an undertaking on behalf of the Company to comply with financial covenants and restrictions (including restrictions as to distribution, expansion of series, 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 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 of the Company (separate) 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 of September 30 2021: (1) The Company’s equity is NIS 2,045 million; (2) the Company's equity to asset ratio is 52%; (3) 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 is 7.8; (4) equity to balance sheet (consolidated) ratio is 30%.
In addition, the Deed of Trust includes an undertaking not to create a floating charge on the Company’s assets and rights, both current and future, in favor of any third party without fulfilment of one of the terms and conditions stipulated in the Deed of Trust; everything shall be according to the terms stipulated in the Deed of Trust (it is clarified that the Company and/or its investees will be entitled to create a fixed and/or floating lien on any of their assets, without fulfilment of any of the said terms and conditions).
The terms of the debentures also include an option to increase the interest rate under certain instances of changes in rating and in certain cases of failure to comply with financial covenants (in accordance with thresholds set in the Deed of Trust). The Company’s ability to expand the series of debentures is subject to certain restrictions, including maintaining the rating of the debentures as it stood prior to such expansion and non-breach of financial covenants.
9. | In September 2021 the Company issued rights to purchase 13,174,419 ordinary Company shares (hereinafter - the “Rights”), in connection with the development and expansion of the Company's activity in the USA. The rights were offered such that each holder of ordinary shares of the Company who held, as of the effective date, 43 ordinary shares, was entitled to purchase one right unit composed of three shares at a price of NIS 75 (NIS 25 per share). Through the deadline for exercising the rights (subsequent to the financial statements date in October 2021), notices of exercise were received for the purchase of 13,141,040 ordinary shares of the Company. It should be noted that the Parent Company exercised the rights it was entitled to purchase as part of the issuance of rights. The proceeds from the exercised rights amounted to NIS 328.5 million (gross). The issuance expenses amounted to about NIS 0.5 million. |
C. | Zomet |
1. | Further to that which is stated in Note 11A to the Annual Financial Statements regarding land on which the Zomet power plant is being constructed, in January 2021, a final assessment was provided by the Israel Lands Authority (hereinafter – “ILA”) in respect of the land, whereby the value of the usage fees for the land, for a period of 25 years, in respect of the construction of a power plant with a capacity of 396 MW, amounts to NIS 200 million (hereinafter – the “Final Assessment”). It is noted that in February 2021, the Joint Company submitted a legal appeal of the amount of the Final Assessment and it intends to submit an appraiser’s appeal in accordance with ILA’s procedures. In March 2021, a refund was received, in the amount of about NIS 7 million, including linkage differences and interest, in respect of the difference between the capitalization fees effectively paid and the Final Assessment amount. |
In August 2021, Zomet was notified of the rejection of its legal appeal by ILA and as of the financial statements approval date, Zomet intends to continue the appeals proceedings on the assessment and in this context, submitted an appraiser’s appeal in November 2021.
2. | Further to that which is stated in Note 24A(3) to the Annual Financial Statements regarding a compromise agreement in respect of the amount of the development levies payable to the Shafir Regional Council (hereinafter – the “Council”), in February 2021 the legal procedure came to an end by means of a compromise. As part of the compromise, the Council agreed to reduce the amount of the development levies to NIS 20 million. In March 2021, Zomet paid the regional council - in addition to the NIS 13 million already paid in 2019, as stated above - an additional amount of approximately NIS 7 million; the latter amount includes levies in respect of a built‑up area of 11,600 square meters, which has not yet been built, and Zomet has the right to construct the power plant with no additional payment of levies. |
3. | Further to that which is stated in Note 25F to the Annual Financial Statements regarding a gas transmission agreement in Zomet, in January 2021, Israel Natural Gas Lines Ltd. revised the budget for the total connection fees to approximately NIS 32 million. |
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
C. | Zomet (cont.) |
4. | During the reporting period and subsequently, Zomet made withdrawals of approximately NIS 262 million and NIS 57 million, respectively, from the long‑term loans facility. For more information about Zomet’s long-term loan facility, see Note15D3 to the Annual Financial Statements. |
5. | In May 2021, the construction contractor of Zomet gave a "force majeure” notice due to the security events. Zomet rejected those claims. |
D. | Hadera |
1. | In October 2021 the Hadera power plant was connected to Hadera Paper Ltd. by way of a direct electricity line. It should be noted that, in December 2020 and from January to May 2021, pre-scheduled replacement and renovation work of certain components was performed on the gas turbines in the Hadera Power Plant. In this context, in January 2021, replacement and renovation work in one of the gas turbines was completed, and in May 2021, replacement and renovation work on the second gas turbine was completed. Accordingly, in the first half of 2021, there were about 65 days of maintenance during which the Hadera Power Plant functioned in partial capacity. Following the replacement and renovation work, the gas turbines function as expected from such turbines. |
Due to maintenance works in the steam turbine, in November 2021, the Hadera Power Plant was shut down for 10 days. In addition, in March 2022, additional maintenance work is expected to be performed on the steam turbine, for a period estimated at 60 days.
2. | Further to what is stated in Note 25D to the Annual Financial Statements, in May 2021 Hadera received from the construction contractor notice of dispute before instigation of proceedings; in his notice, the construction contractor claims, inter alia, that Hadera does not have any grounds for charging the amounts specified in the agreement in respect of compensation (capped at the amount set in the construction agreement) due to the delay in the delivery of the power plant (hereinafter - “LDs”) and due to non-compliance with conditions set out in the agreement in connection with the performance of the power plant (including by way of offsetting). In addition, the construction contractor claims he is entitled to consideration of EUR 7 million and that he may renew the guarantee provided in a reduced amount. It should be noted that in June 2021, the bank guarantee provided by the construction contractor (in the original amount, without reduction), was extended through May 31 2022, without derogating from the Contractor’s claims as per his claims. |
In September 2021, the construction contractor started an arbitration procedure against Hadera in the International Court of Arbitration (ICC), after the period of negotiations prior to instigating arbitration procedures, as set out in Hadera’s construction agreement, has elapsed. The contractor’s claims are similar in nature to the claims described above, including a claim for payments totalling USD 14 million (as stated in Note 25D to the Annual Financial Statements) for meeting milestones (that 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 totalling EUR 7 million in respect of work; a claim by the construction contractor to the effect that it may reduce the amount of guarantees it provided in favor of Hadera, as well as certain declarative remedies.
Hadera disputes the claims of the construction contractor (except in respect of an insignificant amount out of said claim, relative to EUR 7 million), and his claims were rejected by it even prior to receiving the Contractor’s said notice. It is 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 USD 36 million (which includes the offset payments as described in Note 25D to the Annual Financial Statements). As of the report date, the Company filed a response to the construction contractor’s application, and a counter-application to the Arbitration Institution. It should be noted that, at the same time, the parties are holding negotiations in an attempt to formulate a compromise, although at this point, the formulation of a compromise remains uncertain.
3. | Further to that which is stated in Note 25G of the Annual Financial Statements regarding the Group’s agreements with Energean Israel Limited (hereinafter - “Energean”), subsequent to the report date, in November 2021 Energean sent Rotem and Hadera an updated notice that (following previous revisions) due to force majeure events, alleged by Energean, "initial gas" from the Karish Reservoir is expected in mid-2022. |
It should be noted that the agreements with Energean stipulate limited compensation for such delays; the amount of compensation as per the said agreements depends on the reason for the delay, and the compensation cap is lower if the delay is caused by a force majeure event (in accordance with the terms and conditions stipulated in the Agreement).
As of the report approval date, Rotem and to Hadera were paid the reduced compensation amount in respect of the delay in commercial operation - NIS 9 million (approximately USD 3 million) and NIS 7 million (approximately USD 2 million), respectively. The said amount was offset from the cost of the sales. As of the financial statements approval date, as aforesaid, Energean claims that the delay stems from a force majeure; Rotem and Hadera have informed Energean they are rejecting its claims and that they reserve the rights in connection with the delay in accordance with their agreements with Energean.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
E. | Rotem |
1. | Further to that stated in Note 25C to the Annual Financial Statements regarding an agreement to purchase power from Rotem, on March 17, 2021, Rotem received a letter from the IEC (as the system operator), which includes the open issues between the parties and their positions regarding these issues as viewed by the IEC. In this regard, the IEC raises contentions regarding past accounting in respect of the energy purchase cost for Rotem customers in a case of a load reduction of the power plant by the system operator, and collection differences due to non‑transfer of meter data in 2013 through 2015, in amounts that are immaterial to Rotem. In addition, the 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 Rotem during performance of tests. Rotem’s position regarding the matters raised by the IEC differs, and talks are being held between the parties. As at the financial statements approval date, the open matters, as stated, had not yet been resolved and there is no certainty that the parties will reach an agreement. To the extent the open matters are not resolved, the parties may resort to legal proceedings. |
2. | Further to that which is stated in Note 25J to the Annual Financial Statements regarding applicability of the decision of the Israeli Electricity Authority with respect to deviations from Rotem’s consumption plans, in May 2021, the IEC notified Rotem that, according to its approach, Rotem’s sale of energy to end‑consumers in excess of the power plant’s generation capacity deviates from the provisions of the electricity purchase agreement between it and the IEC (as stated in Note 25C to the Annual Financial Statements). Rotem’s position regarding the power purchase agreement is different, and in any event, according to Rotem’s position, the matter is expected to be impacted by supplementary arrangements that are to be determined further to the decision of the Israeli Electricity Authority, as stated in Note 25J to the Annual Financial Statements. |
3. | During the reporting period, Rotem distributed a dividend in the amount of NIS 165 million. The share of the OPC Israel and of the holder of non-controlling interests amounts to NIS 132 million and NIS 33 million, respectively. |
4. | For up-to-date information about the agreement between Energean and Rotem, as described in Note 25G to the Annual Financial Statements, see Note 9D3. |
5. | Further to what is stated in Note 25G to the Annual Financial Statements, 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. |
F. | AGS Rotem |
Further to that stated in Note 24A(6) to the Annual Financial Statements, in January 2021, the Subcommittee for Comments and Objections of the National Planning and Building Committee of the National Infrastructures Committee held a discussion regarding comments and objections with respect to NIP 94. The objections to the plan were rejected, and AGS Rotem Ltd. was requested to make technical revisions to the provisions of the plan, which were made in the beginning of March 2021. Approval of NIP 94 (if approved) is subject to final approval by the National Infrastructures Committee in accordance with the above decision of the National Committee and the National Infrastructures Committee, and approval to proceed with validation by the government of Israel.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
G. | OPC Hadera Expansion |
Further to what is stated in Note 24A9 to the Annual Financial Statements regarding the environmental impact survey of OPC Hadera Expansion Ltd. (hereinafter - “Hadera Expansion”), in February 2021 National Infrastructure Plan 20B was submitted for review by the District Committees and the Committee for Public Scrutiny; in May and June 2021 two discussions were held which were attended by an investigator appointed for that purpose by the National Infrastructures Committee (hereinafter – the “Committee”). In November 2021, subsequent to the report date, a subcommittee of the Committee for Public Scrutiny published a decision whereby if the plenary (full) Committee will decide that the plan complies with the principles provided by the National Committee and that based on all of the considerations it should be submitted for Government approval, the Committee is deciding to recommend to the plenary Committee to adopt the recommendations of the investigator and to submit the plan for Government approval subject to supplementations and technical revisions to the plan documents.
Furthermore, subsequent to the report date, in October 2021, Hadera Expansion informed Hadera Paper of the extension of the option period through 2022.
H. | OPC Sorek 2 Ltd. |
In June 2021, a number of agreements were entered into in connection with the construction of the Sorek 2 project, as follows:
Construction and equipment supply agreements
OPC Sorek Ltd. (hereinafter - “Sorek 2") has contracted with BHI CO Ltd. a South Korean-owned corporation that will serve as the project’s construction contractor (hereinafter - the “Construction Contractor”) entered into a “lump sum turn-key” EPC agreement, where under the Construction Contractor will build a gas-fired energy generation facility with an installed capacity of up to 87 MW, all in accordance with the milestones, terms and dates set in relation to each of the agreement’s components (hereinafter - the “Construction Agreement”). An IDE group corporation is also a party to the Construction Agreement (in its capacity as the commissioning party), under which systems are supplied to the desalination facility, for which the said corporation is required to pay. Sorek 2’s share in the amount payable to the Construction Contractor is estimated at USD 42 million; this amount also includes the amount payable for the purchase of the gas turbines. The amount payable under the agreement shall be paid in US dollars, euros and shekels. It should be noted that the agreement sets, inter alia, mechanisms for agreed and capped 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.
Sorek 2 also entered into an agreement for the supply of a gas turbine to the energy generation facility with companies of the General Electric group (hereinafter jointly - “GE”). As part of the agreement, GE has undertaken, inter alia, to supply the turbine and related equipment, to provide support to the Construction Contractor, as well as commissioning and testing the equipment, all in accordance to the terms, milestones and dates agreed between the parties (hereinafter - “the Equipment Supply Agreement”). Pursuant to the agreement between the parties, once the limited notice to proceed (LNTP) was issued and the first payment to GE was made the Equipment Supply Agreement was assigned to the Construction Contractor in the aforesaid Construction Agreement.
Subsequently, in July 2021, an agreement was signed that regulates the decision-making process and the assignment of responsibility between Sorek 2 and the said corporation of the IDE Group in connection with the Construction Agreement; except for cases provided for in the Agreement, the arrangements are mainly derived from each party’s part in the Construction Agreement and the joint decision mechanism. To secure Sorek 2’s undertakings under this agreement, the Company provided a capped corporate guarantee. In September 2021, Sorek 2 issued a construction commencement order to the construction contractor.
As of the financial statements approval date, the Company estimates that the construction cost of the Sorek 2 project, including the Company's share in the Construction Agreement and the said Equipment Supply Agreement - which constitute the bulk of said cost - at approximately NIS 200 million.
Maintenance agreement
Sorek 2 and GE entered into a long-term agreement for the maintenance of the turbine and its related equipment; the term of the agreement is 16 years with an option to renew by 25 years, in return for up to approximately USD 29 million (which will vary in accordance with the term of the agreement), subject to the milestones set in the agreement (hereinafter - the “Maintenance Agreement”). The Maintenance Agreement includes provisions regarding agreed and capped compensation in respect of execution and meeting timetables for servicing, and regarding GE’s responsibility for its equipment and services. The Maintenance Agreement includes guarantees provided by the Parent Company to secure each of the parties’ undertakings. It should be noted that the above agreements will require, among other things, the approval of the Water Desalination Administration, in accordance with and as required pursuant to the concession agreement signed between IDE and the State of Israel in connection with the desalination facility and the project.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
I. | Gnrgy |
In April 2021, the Company entered into an agreement for the purchase of Gnrgy Ltd. (hereinafter - “Gnrgy”) which operates in the field of charging electric vehicles (e-mobility) and building electric vehicles charging points.
Gnrgy was established in Israel in 2008 and is engaged in charging of electric vehicles (e‑mobility). Gnrgy offers and develops a number of solutions, along with charging and energy management services. As at the approval date of the financial statements, Gnrgy’s activities are concentrated in Israel. The solutions advanced by Gnrgy include: (1) public charging network – Gnrgy owns a public charging network deployed nationwide. Gnrgy intends to continue expanding the said public charging network with emphasis on quick charging posts in strategic locations; (2) sale and installation of charging posts, including by means of master agreements with the leading vehicle importers; (3) charging and energy management services for condominiums and holistic charging services for the business sector and vehicle fleets based on Gnrgy’s technological developments.
As part of the agreement (including the said amendment), the Company will acquire shares subject to fulfillment of conditions precedent, on dates and in amounts as follows – shares of Gnrgy constituting 51% of Gnrgy’s share capital in exchange for a consideration totaling approximately NIS 67 million, as follows:
1. | On the Transaction Completion Date, in May 2021, the Company invested approximately NIS 19.8 million in Gnrgy against issuance of Gnrgy shares to the Company. In addition, the Company acquired from Mr. Ran Eloya, the Company’s founder and the party who, until the Transaction Completion Date, wholly-owned Gnrgy’s shares (hereinafter – “the Developer”), in exchange for a consideration of NIS 5.2 million, such that upon completion of the transaction, the Company holds approximately 27% of Gnrgy’s share capital and the Developer will holds approximately 73% of its share capital. |
2. | During a period ending on December 15, 2021, the Company is to invest in Gnrgy an additional amount of about NIS 29 million, against issuance of additional Gnrgy shares. In addition, on December 15, 2021 the Company is to acquire additional shares from the Developer, in exchange for an aggregate consideration of NIS 13 million (part of which is expected to be paid in instalments that will bear interest at the annual rate of 5%), in such a manner that upon completion of acquisition of the additional shares, as stated, the Company will hold about 51% of Gnrgy’s share capital and the Developer will hold about 49% of its share capital (hereinafter - the “Additional Closing”). |
Concurrent with the share purchase agreement, a shareholders’ agreement was signed that governs the relationship between the Company and the Developer following the completion of the transaction (hereinafter – “the Shareholders’ Agreement”). As part of the Shareholders’ Agreement, the Company is granted an option to acquire the balance of the Developer’s shares and to wholly own Gnrgy’s share capital (hereinafter – “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 the Company exercising the Purchase Option, and on the assumption that no capital investments have been made in Gnrgy so as to dilute the Developer’s share and subject to additional conditions stipulated in the Shareholders’ Agreement, the Developer has an option to acquire shares of Gnrgy from the Company such that after the acquisition, he will hold 2% more than the Company in Gnrgy’s share capital, and will once again become the controlling shareholder of Gnrgy. In addition, to the extent the Company did not exercise the Purchase Option within the first period for exercise of the Purchase Option, and the Developer will hold less than 15% of Gnrgy’s share capital, the Developer will have an option to require the Company 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. The Company will be permitted to pay the consideration for the said put option of the Developer and, under certain circumstances, part of the consideration for exercise of the Purchase Option of the Company, by means of issuance of shares of the Company to the Developer. In addition, the Shareholders’ Agreement determines, among other things, the rights of the shareholders in connection with appointment of directors to Gnrgy’s Board of Directors, the voting power (rights) of each of them will reflect the rates of ownership of the parties in Gnrgy’s share capital (except with respect to the period up to the Additional Closing during which the representatives appointed by each of the parties (the Company, on the one hand, and the Developer, on the other hand) will have equal voting power (50%) on Gnrgy’s Board of Directors).
The said Transaction Completion Date for the acquisition of Gnrgy’s shares was in May 2021, after the conditions precedent have been met (including obtaining the Competition Authority’s exemption from the merger notice requirement). Accordingly, as of the report date the Company hold 27% of Gnrgy’s share capital. The Company includes Gnrgy’s in its activity in Israel.
In July 2021, Gnrgy received a Virtual Supply License. For more information about the regulation, see Note 9B6.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
J. | OPC Power Ventures LP |
OPC Power is a special-purpose partnership, the purpose of which is to acquire the CPV Group through CPV Group LP and to make additional investments in the Acquirer and the CPV Group. For additional details regarding OPC Power – see Note 25M to the Annual Financial Statements.
During the reported period, the Company and non-controlling interest invested in the Partnership's capital a total of USD 581 million (NIS 1,850 million) and provided it with loans at the total amount of USD 180 million (NIS 574 million), in accordance with their proportionate share in the partnership. The loans are denominated in USD 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. Accrued interest is payable on a quarterly basis. To the extent the 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.
It is noted that upon transfer of ICG Energy to the Company (as described in Note 9B4), the Company transferred all the loans and rights of OPC Power to ICG Energy.
Total investment undertakings and the provision of the shareholder loans by all partners (after approval of participation in a further investment undertaking by all financial investors) is USD 1,215 million. The said amount is designated for acquisition of all the rights in the CPV Group and for financing additional investments in order to execute certain backlog projects of the CPV Group over the coming years and for acquisitions in the CPV Group’s area of activity. During and subsequent to the reporting period, a total of USD 761 million and a total of USD 100 million, respectively, were injected into the partnership in the form of investments and shareholder loans.
K. | The CPV Group |
1. | Partnership agreements in the Project Companies |
For details regarding partners’ agreements in the active projects of the CPV Group – see Note 7.
2. | Management agreements |
CPV Group is engaged in provision of management services to power plants in the United States with respect to a variety of technologies and fuel types – this being in an overall scope, as at the financial statements approval date, of approximately 7,521 MW (approximately 5,455 MW for projects in which it holds equity rights, as stated in Section 7 above, and approximately 2,097 MW for projects for third parties) by means of signing asset management agreements and energy management agreements, usually for short to medium periods. As of the financial statements approval date, the average remaining period of all the management agreements (in projects wherein CPV holds equity rights and projects of third parties) is about 4 years, with the average remaining period in the management agreements for projects in which CPV holds equity rights being about 6 years (all subject to the provisions of the relevant agreements regarding the option of early termination of the agreements or options to renew them for additional periods, as applicable). The management services are provided in exchange for annual management fees and incentive payment. The management services include, inter alia: project management and compliance with regulations; supervision of the project’s operation; management of the energy generated - including optimization and management of exposures; 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.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
K. | The CPV Group (cont.) |
3. | Main agreements of Keenan: |
A. | Keenan entered into a wind power energy agreement for the sale of renewable energy. Pursuant to the terms and conditions of the agreement, the acquirer is to receive all of the power generated by the wind farm, credits, certificates, similar rights or other environmental allotments. The consideration includes a fixed payment. The agreement term is 20 years, ending in 2030. The acquirer is permitted, under certain circumstances, 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 at its market value, as defined in the agreement and pursuant to the terms and conditions stipulated therein. The annual income for the project in respect of the agreement totals approx. USD 27 million. |
B. | Keenan entered into a service agreement and an operation agreement with its original equipment manufacturer for the operation, maintenance and repair of the power plant. The consideration includes fixed annual fees, a performance-based bonus and reimbursement of expenses. The agreements expire in February 2031. In the past two calendar years, Keenan paid approximately USD 6 million annually under these agreements. |
C. | Keenan entered into an asset management agreement with CPVI. The management services include: management of the project documents; negotiating additional project agreements; compliance and control; management of financial documents; financing; bookkeeping payments; taxes; budgets; insurance; government permits and regulation, etc. The consideration includes a fixed monthly payment and reimbursement of expenses. The agreement period is up to March 31, 2025, with an option for Keenan, under certain circumstances, to terminate the agreement early. |
D. | In August 2021, Keenan and a number of financial entities entered into a NIS 387 million (approx. USD 120 million) financing agreement, comprising a NIS 333 million (approx. USD 104 million) loan term and ancillary credit facilities (working capital and LC) totalling NIS 53 million (approx. USD 16 million) (hereinafter - the “Keenan Financing Agreement”). Concurrently with the closing of the financing agreement, Keenan repaid its former financing agreement entered into in 2014 (as of the repayment date, the outstanding principal was approximately NIS 207 million). 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 instalments 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%.
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 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 power – 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 NIS 85 million (approximately USD 26 million) in cash (after making payments in respect of: repayment of Keenan's previous outstanding loan balance, transaction costs, early closing of an interest rate hedging transaction and additional costs). Similarly, in light of the repayment of Keenan’s previous financing, in the reporting period, the Group recognized a profit of NIS 10 million (USD 3 million) under finance income.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
K. | The CPV Group (cont.) |
4. | Main agreements of Maple Hill: |
CPV Maple Hill Solar LLC (hereinafter – “Maple Hill”) entered into a transaction for the sale of renewable energy certificates (SRECs) for a period of 5 years.
In May 2021, a construction commencement order was issued to the project’s Construction Contractor.
Set forth below are details of the material agreements of the Maple Hill project:
A. | Maple Hill entered into an agreement for the purchase of solar panels with an international supplier. The consideration includes payment of a fixed price (as amended and is likely to be amended from time to time, as per the agreement) for the purchase of the solar modules, plus the delivery cost to the power plant. |
B. | Maple Hill signed an agreement for the purchase of a transformer with an international supplier. The consideration includes payment of a fixed price for the purchase of the transformer, supply, installation and order. |
C. | Maple Hill signed a construction, procurement and engineering agreement with an international contractor. Pursuant to the agreement, the contractor is to plan and construct the required components for the power plant in order to integrate all the required equipment into the power plant. |
D. | Maple Hill entered into an asset management agreement with CPVI, for construction and asset management services. The consideration includes a fixed annual payment and reimbursement of expenses. The agreement includes reimbursement of expenses incurred by CPVI in connection with construction management services, including work hours of the CPVI team, expenses and amounts paid to third parties. The agreement term is up to ten years from the power plant’s completion date, and may be extended by an additional year. |
E. | Maple hill entered into an agreement with a third party, whereby financial netting will be carried out between the parties, based on 48% of the quantity of electricity generated by Maple's power plant for a period of 10 years from the activation date. Under the agreement, the netting will be based in the difference between the published spot price Maple receives from the system operator and the fixed price set with the third party. The above agreement includes an option to transition to a physical PPA agreement with a fixed price if certain conditions precedent are met; the conditions have yet to be met as of the report date. The said agreement meets the definition of a derivative under IFRS 9, but is subject to conditions precedent that have yet to be met as of the report date. |
F. | Maple Hill entered into an energy management services agreement with CEMS (of the CPV Group). The consideration includes a fixed annual payment and reimbursement of expenses in connection with the services rendered under the Agreement. The term of the agreement is ten years from the date on which it comes into force, and it may be extended by one year. |
As of the report date, the expected investment cost in Maple Hill is estimated at approximately NIS 575 million (approximately USD 178 million), including development fees for the CPV Group. It is noted that the Construction Agreement and the equipment purchase agreement constitute the bulk of the aforesaid cost.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 9 – ADDITIONAL INFORMATION (cont.)
K. | The CPV Group (cont.) |
5. | Main agreements of Rogue’s Wind: |
In April 2021, the CPV Group signed an agreement for the sale of all electricity, availability and Renewable Energy Certificates (REC) of the “Rogue’s Wind” wind energy project. The Agreement was signed for a period of 10 years commencing from the commercial operation date and it is expected to generate annual income for the Project estimated at approximately USD 15 million. The CPV Group provided approximately NIS 28 million (approximately USD 8.5 million) as collateral to secure its obligations under the agreement.
As of the report date, the expected investment cost in Rougue's Wind is estimated at approximately NIS 830 million (approximately USD 257 million), including development fees to the CPV Group.
6. | In April 2021, the CPV Group signed an agreement for the purchase of the remaining rights (30%) in Keenan from the tax equity partner in consideration for NIS 82 million (app. USD 25 million); the rights were classified into other long-term liabilities. As a result of the transaction, the CPV Group recognized a NIS 39 million loss under the “other expenses” item in the statement of income. Upon the acquisition, the CPV Group holds all of the rights to the Company. |
7. | In April 2021 CPV Group LP, the partnership (hereinafter in this note - the “Partnership”), allocated 6.5% of the rights to participate in the Partnership’s earnings in favor of allocations to CPV Group’s employees (hereinafter in this note - the “Offerees”) as part of a long-term equity-based compensation, and in accordance to arrangements set in the partnership agreement (hereinafter - the “CPV Group’s Compensation Plan”). The Offerees’ participation rights relate to earnings and appreciation net of repayment of investment amounts to investors and subject to vesting periods that may be accelerated in certain cases, such as merger, sale of activities, termination of employment under certain circumstances, etc. The award letters given to the Offerees stipulate, among other things, events upon the occurrence of which the Partnership will buy the Offerees’ rights. Included in that stated above, subject to the vesting as, as stated, the Offerees will be entitled to require the Partnership to acquire their rights on exercise dates that fall after three and five years from the grant date at the rates and under the conditions defined, and in certain cases of sale of rights in the Partnership by the Company (including a change in control). In addition, the Partnership is entitled to acquire rights of the Offerees under certain circumstances, such as conclusion of the transaction and passage of five years. |
The fair value of the CPV Group’s Compensation Plan is recognized as an expense, against a corresponding increase in the liability, over the period in which unconditional entitlement 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 as a general and administrative expense in profit and loss. During the reporting period, the CPV Group recorded expenses in the amount of approximately NIS 34 million.
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OPC Energy Ltd.
Notes to the Condensed Consolidated Interim Financial Statements as at September 30, 2021 (Unaudited)
NOTE 10 – EVENTS SUBSEQUENT TO THE REPORT DATE
A. | In October 2021, full early repayment was made of the entire outstanding loan balance of Rotem’s project financing in the amount of NIS 1,292 million (including an early repayment fee); in addition, a debt service reserve and restricted additional cash of Rotem in the total amount of NIS 125 million were released (for further details regarding the debt service reserve, see Note 15D to the Annual Financial Statements). Rotem recognized a one-off expense, in the income statement, totalling NIS 244 million during the third quarter of 2021, in respect of an early repayment fee (approximately NIS 188 million, net of tax), despite the repayment being completed subsequent to the reporting date. Furthermore, in October 2021, in light of the early repayment of Rotem's credit balance, the Company carried out an early closing of an interest swap contract (as outlined in Note 22D to the Annual Financial Statements) As of the report date, the outstanding loan balance of Rotem’s project financing is classified under current liabilities. The Company and the other shareholder extended to Rotem shareholder loans for the financing of a portion of the early repayment amount, totalling NIS 1,130 million according to their share in Rotem’s shares (hereinafter - the “Shareholder Loans”). The Shareholder Loans are not linked and bear annual interest (reflecting market terms) of 2.65% or interest in accordance with Section 3(J) to the Income Tax Ordinance, the higher of the two. The loans shall be repaid in quarterly unequal payments in accordance with the mechanism set in the Shareholder Loans agreement, and in any case no later than October 2031. |
B. | In October 2021, the CPV Group entered into agreements to acquire the full rights in two solar projects under development, with a total capacity of approximately 458 MWdc - in Kentucky (approximately 98 MWdc) and Illinois (approximately 360 MWdc) in the United States (hereinafter - the “Acquisition" and the “Projects", respectively). While signing of the agreements, the acquisition of the rights in the Projects was completed by the CPV Group. |
In exchange for the Acquisition of the rights in the projects, on the Acquisition completion date, the seller was paid a total of approximately USD 9 million; the transaction includes a contingent consideration, which - together with the amount paid on completion date - may reach approximately USD 46 million. The contingent consideration will be paid in installments, subject to meeting the Projects’ development milestones. Upon the Projects’ acquisition, the Projects were added to the CPV Group’s solar-powered projects under development.
As of report date, the projects carry land rights and have submitted grid connection requests; the CPV Group estimates that, subject to the completion of the various development phases - including securing the funds needed for construction, the Projects are expected to reach the construction phase in the second half of 2023. The projects are located in the PJM market.
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