“Armenian Nuclear Power Plant” CJSC Annual Financial Statements and Independent Auditor’s Report For the Year Ended 31 December 2018 “Armenian Nuclear Power Plant” CJSC Annual Financial Statements and Independent Auditor’s Report For the Year Ended 31 December 2018 Contents 3 Independent auditor’s report 3 Statement of Comprehensive income 4 Statement of Financial Position 5 Statement of Cash Flows 6 Statement of Changes in Equity 7 Index to notes forming part of the financial statements 8 Notes forming part of the financial statements Country of incorporation: Republic of Armenia Legal form: Closed joint stock company Principal activities: Principal activities are disclosed in Note 1 Director: Movses Vardanyan 2 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 1 COMPANY OVERVIEW........................................................................................................................... 10 2 BASIS OF PREPARATION ....................................................................................................................... 11 3 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS ................................................................... 14 4 FINANCIAL INSTRUMENTS – RISK MANAGEMENT.................................................................................. 14 5 REVENUE ............................................................................................................................................. 18 6 COST OF SALES .................................................................................................................................... 18 7 ADMINISTRATIVE EXPENSES ................................................................................................................ 18 8 OTHER EXPENSES ................................................................................................................................. 18 9 FINANCE INCOME AND FINANCE EXPENSE ............................................................................................ 19 10 INCOME TAX ......................................................................................................................................... 19 11 PROPERTY, PLANT AND EQUIPMENT ..................................................................................................... 20 12 INTANGIBLE ASSETS ............................................................................................................................. 21 13 NON-CURRENT PREPAYMENTS ............................................................................................................. 22 14 INVENTORIES ....................................................................................................................................... 22 15 TRADE AND OTHER RECEIVABLES ........................................................................................................ 22 16 BANK DEPOSITS.................................................................................................................................... 22 17 CASH AND CASH EQUIVALENTS ............................................................................................................ 22 18 LOANS AND BORROWINGS .................................................................................................................... 23 19 DEFERRED TAX LIABILITIES ................................................................................................................. 24 20 GRANTS RELATED TO ASSETS ............................................................................................................... 25 21 PROVISIONS.......................................................................................................................................... 25 22 TRADE AND OTHER PAYABLES ............................................................................................................. 26 23 CAPITAL AND RESERVES ...................................................................................................................... 27 24 TRANSACTIONS WITH RELATED PARTIES .............................................................................................. 27 25 CONTINGENCIES ................................................................................................................................... 27 26 CAPITAL RISK MANAGEMENT ............................................................................................................... 28 27 SUMMARY OF ACCOUNTING POLICIES ................................................................................................. 28 28 CORRECTION OF PREVIOUS YEAR ERRORS ............................................................................................ 32 ANNEX A – IFRS 13 FAIR VALUE MEASUREMENT DISCLOSURES .................................................................... 33 9 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 1 Company overview “Armenian Nuclear Power Plant” CJSC (the “Company”) was established through reorganization of the Armenian Nuclear Power Plant SPE CJSC of the Republic of Armenia Ministry of Energy and Fuel based on the decree N 492 dated 14 October 1994. The Company was registered in Armavir regional division of the State register of legal entities of the Republic of Armenia on 29 July 1996 in accordance with the legislation of the Republic of Armenia. 100% of the Company shares belong to the Government of the Republic of Armenia. The Company operates under the following licenses: • License for production of electrical energy and capacity, issued on 21 June 1999 by the Energy Commission of the Republic of Armenia; valid through 10 June 2019 • License for exploitation of the nuclear plant, issued by the State Committee for Nuclear Safety Regulation under the Government of the Republic of Armenia issued on 1 April 2011; valid through 1 April 2021. • License for import of radioactive materials, issued by the State Committee for Nuclear Safety Regulation under the Government of the Republic of Armenia issued on 7 September 2006; valid through 7 September 2026. • License for use of radioactive materials, issued by the State Committee for Nuclear Safety Regulation under the Government of the Republic of Armenia issued on 4 May 2006; valid through 4 May 2026. The Company’s activities, including tariff policy, are regulated by the Public Services Regulatory Commission of the Republic of Armenia. According to the Government Decree N 98 dated 4 April 1996, the Company is considered as a nuclear plant operator and is acting in accordance with the international agreements related to nuclear energy ratified by the Republic of Armenia. According to the charter the Company’s main activities are secure and effective exploitation of nuclear power objects, electricity production, sale and export. The Company’s production facilities include two power units. According to the USSR Council of Ministers decree two power blocks have been deactivated in 1989 due to safety reasons. In 1993 the Government of the Republic of Armenia made a resolution on resuming the operations of the nuclear power plant. A framework for resuming the operations of the power units of the plant was elaborated, and details of necessary activities to increase the security of the N2 power unit. On 5 November 1995 the N2 power unit has resumed its operation. Currently, two projects are being implemented by the Company: • N2 unit Lifetime Extension Project, according to the agreement signed between the Government of the Republic of Armenia and the Russian Federation (RF) Government on 5 February 2015. • Power Sector Financial Recovery Program, financed by IBRD, loan agreement 8615-AM, signed on 16 May 2016. The objective of the program is to support the efforts of the Republic of Armenia to maintain adequate and reliable electricity supply through improvement of the financial standing of the state-owned power generation companies and the private power distribution company. Number of employees of the Company as of 31 December 2018 is 1,768 (31 December 2017: 1,803). The Company’s legal address is 0910, Metsamor, Armavir marz Republic of Armenia. 10 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 2 Basis of Preparation The principal accounting policies applied in the preparation of these financial statements are set in note 27. These policies have been consistently applied for all periods presented, unless otherwise set forth herein. The financial statements are presented in AMD, which represents also the functional currency. All the amounts are rounded to the nearest thousand unless otherwise is stated. These financial statements have been prepared and presented in accordance with International Financial Reporting Standards and Standard Interpretations (hereinafter – IFRSs). The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates and judgements. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in Note 3. Basis for measurement The financial statements are prepared on the historical cost basis. (For the details please refer the accounting policies of the separate financial statements accounts). Changes in accounting policies a) New standards, interpretations and amendments effective from 1 January 2018. • IFRS 9 Financial Instruments • IFRS 15 - Revenue from Contracts with Customers • IFRIC 22 Foreign Currency Transactions and Advance Consideration Among the above IFRS 15 - Revenue from Contracts with Customers and IFRIC 22 Foreign Currency Transactions and Advance Consideration did not have significant effect on the Company’s financial statements. As a result of adoption of IFRS 9 reclassification changes have been applied in the accounting policies retrospectively. There have been no differences in the carrying amounts of financial assets and financial liabilities as a result of applying IFRS 9 as of 1 January 2018. Carrying value per New IAS 39 and IFRS 9 Financial assets at 1 Previous classification classification per January 2018 per IAS39 IFRS 9 ‘000 AMD Measured at Cash and cash equivalents Loans and receivables amortized cost 173,455 Measured at Trade receivables Loans and receivables amortized cost 3,291,173 Measured at Bank deposits Loans and receivables amortized cost 8,948,517 Measured at Other financial assets Loans and receivables amortized cost 41,804 11 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Carrying value per New IAS 39 and IFRS 9 Financial liabilities at 1 Previous classification classification per January 2018 per IAS39 IFRS 9 ‘000 AMD Measured at amortized Measured at Loans and borrowings cost amortized cost 33,337,853 Measured at amortized Measured at Trade payables cost amortized cost 6,878,698 12 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 b) New standards, interpretations and amendments published, not yet effective Pronouncement Nature of the pending change in accounting Date by which Date Company Impact of initial policy on adoption of the pronouncement application of plans to apply application on the IFRS is the financial required pronouncement statements initially IFRS 16 Leases (2017) Under IFRS 16 a lessee recognizes a right-of-use assets and a lease liability. The right-of-use assets January 2019 is treated similarly to other non-financial assets Material impact is and depreciated accordingly and the liability Early adoption January 2019 not envisaged accrues interest. The lease liability is initially permitted measured at the present value of lease payments payable over the lease term. IFRIC 23 Uncertainty over The interpretation addresses how to determine Income Tax Treatments the taxable profit(loss), tax bases, unused tax January 2019 losses, unused tax credits and tax rates, when Material impact is Early adoption January 2019 there is uncertainty over treatment under IAS 12, not envisaged Income Tax for the purpose of accounting for permitted income taxes. 13 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 3 Significant accounting estimates and judgements Management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRSs. Actual results may differ from those estimates. The Company makes certain judgements, estimates and assumptions related to the future periods. The judgements, assumptions and estimates are regularly revised based on the historical. Meanwhile, the actual outcomes may differ from the estimates and assumptions. The estimates and assumptions that contain significant risk, as they may lead to significant adjustments of carrying amounts of assets and liabilities, are presented below. • Useful life of property, plant and equipment (Note 27) • Estimate of the Provision on plant exploitation/decommissioning of the nuclear power plant and provision on storage of used nuclear fuel (Note 21) Measurement of fair values Number of assets and liabilities included require measurement and/or disclosure of fair values in the Company’s financial statements. The fair value measurement of the Company's financial and non-financial assets and liabilities utilizes market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorized into different levels based on how observable the inputs used in the valuation technique utilized are (the 'fair value hierarchy'): - Level 1: Quoted prices in active markets for identical items (unadjusted) - Level 2: Observable direct or indirect inputs other than Level 1 inputs - Level 3: Unobservable inputs (i.e. not derived from market data). The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognized in the period they occur. 4 Financial instruments – risk management The Company activities are exposed to a variety of financial risks: • Credit risk • fair value interest rate risk, cash flow interest rate risk • foreign currency risk • liquidity risk The Company may be exposed to risks arising from its use of financial instruments as it is typical to all other business activities. This note describes the Company's objectives, policy, risk management processes and their measurement methods. These financial statements present quantitative information on the aforementioned risks. Significant changes have not been reported in relation to the risks arising from the financial instruments, the Company's objectives, policy, risk management processes and their measurement methods (unless otherwise is mentioned). 14 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 (а) The main financial instruments The main financial instruments of the Company, from which financial instruments risks arise, are as follows: • Trade receivables • Bank deposits • Cash and cash equivalents • Other financial assets • Loans and borrowings • Trade payables (b) Financial instruments by categories Financial assets Measured at amortized cost 31.12.2018 31.12.2017 AMD’000 AMD’000 Bank deposits 8,133,963 8,948,517 Trade receivables 2,852,214 3,291,173 Cash and cash equivalents 133,277 173,455 Other financial assets 41,804 41,804 11,161,258 12,454,949 Measured at amortized cost Financial liabilities 2018 2017 AMD’000 AMD’000 Loans and borrowings 75,625,874 33,337,853 Trade payables 6,546,117 6,878,698 82,171,991 40,216,551 (c) Financial instruments not measured at fair value Financial instruments not measured at fair value include cash and cash equivalents, trade receivables, bank deposits, cash and cash equivalents, loans and borrowings, trade and other payables. Carrying amounts of cash and cash equivalents, trade receivables, deposits, cash and cash equivalents, loans and borrowings, trade and other payables equal their fair value. Annex A details the fair value hierarchy, valuation techniques, and significant non-observable inputs related to the fair value of loans and borrowings that are included in the fair value hierarchy at Level 3. Common goals, policy and processes General management of the Company's operations is carried out by the Board of Directors (except the matters reserved for the Shareholders General Meeting). The main goal of the Board of Directors is to establish a policy that will reduce the risk as much as possible, without having impact on its competitiveness and flexibility. Details of this policy are presented below. 15 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Credit risk Credit risk is the risk the Company may incur financial losses resulted from the third parties’ failure to discharge their obligations toward the Company. The only customer of the company is “Electronic Networks of Armenia” CJSC, which does not have credit risk because the receivable is paid within a month following the occurrence of the debt. Credit risk also arises from cash and cash equivalents and deposits held in banks. The company places its funds only in the largest Armenian banks. Market risk Market risk arises from the Company's interest rate, trading and foreign currency financial instruments. Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change of interest rate (interest rate risk), foreign exchange rate (foreign currency risk) or other market factors (other market factors' risk). Fair value and cash flow related interest rate risk Fair value risk arises from floating rate long term borrowings as presented in Note 18. Foreign currency risk Currency risk arises when the transactions are not expresses in the functional currency. For assets and liabilities denominated in other currencies, the Company refers to the rates published by the Central Bank of Republic of Armenia as at the reporting date which is presented below (currency unit value expressed in AMD). 2018 2017 AMD’000 AMD’000 1 USD 483.75 484.1 1 EUR 553.65 580.1 The structure of foreign currency financial assets and financial liabilities of the Company by currencies as at 2018 and 2017, 31 December is as follows: USD 31.12.2018 31.12.2017 Financial assets AMD’000 AMD’000 Cash and cash equivalents 616 490 Total financial assets 616 490 Financial liabilities Loans and borrowings 69,212,831 29,353,164 Trade and other payables 6,454,798 6,626,312 Total financial liabilities 75,667,629 35,979,476 Net position (75,667,013) (35,978,986) As of the reporting date, the 10% appreciation of the US Dollar against the AMD will result in net assets and year-end (decrease)/increase of the Company's net profit by AMD 7,566,701 thousand (2017: AMD 3,597,899 thousand). 16 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Liquidity risk Liquidity risk arises on Company’s current capital management, financial expense and settlement of principal amounts of debt instruments. Liquidity risk is the risk that the Company will encounter difficulty on settlement of financial liabilities within the set deadlines. According to the Company's policy, the Company shall have sufficient cash to settle the liabilities. In this regard, it strives to maintain sufficient liquid funds to repay the obligations. Sufficiency of liquid funds is also ensured through use of unutilized loan funds as defined in the lending agreements. The following table presents the remaining contractual maturities (undiscounted contractual cash flows) of financial liabilities Total Less than 3 months More than 5 undiscounted Carrying 3 months to 1 year 1-5 years years liabilities value AMD’000 AMD’000 AMD’000 AMD’000 AMD’000 AMD’000 31 December 2018 Loans and borrowings 858,236 1,201,896 36,075,035 52,693,182 90,828,349 75,625,874 Trade payables 91,319 6,454,798 - - 6,546,117 6,546,117 949,555 7,656,694 36,075,035 52,693,182 97,374,466 82,171,991 Total Less than 3 months to More than 5 undiscounted 3 months 1 year 1-5 years years liabilities Carrying value AMD’000 AMD’000 AMD’000 AMD’000 AMD’000 AMD’000 31 December 2017 Loans and borrowings 503,744 547,415 12,706,672 31,539,536 45,297,367 33,337,853 Trade payables 101,954 - 6,776,744 - 6,878,698 6,878,698 605,698 547,415 19,483,416 31,539,536 52,176,065 40,216,551 17 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 5 Revenue 2018 2017 AMD’000 AMD’000 Provision of capacity 12,765,801 13,373,731 Sale of electricity 4,671,536 13,817,867 17,437,337 27,191,598 As at 31 December 2018 the tariff for produced electricity comprised AMD 1.96 for each kWt/h (31 December 2017: AMD 5.65), and the tariff for provision of capacity comprised AMD 4,632 per each kWT of capacity (31 December 2017: AMD 3,598). 6 Cost of Sales 2018 2017 AMD’000 AMD’000 Nuclear fuel 7,049,188 9,800,360 Depreciation and amortization 4,207,057 3,964,526 Employee remuneration 6,382,447 6,345,806 Cost of materials used 1,133,622 1,171,339 Repair and maintenance 780,438 1,023,137 Gas and Electricity 491,708 532,076 Other 218,089 302,861 20,262,549 23,140,105 7 Administrative expenses 2018 2017 AMD’000 AMD’000 Employee remuneration 1,130,025 1,057,006 Depreciation and amortization 182,762 174,615 Mandatory payments 51,695 52,440 Travel expenses 51,036 46,824 Insurance 29,891 36,277 Post and communication 24,810 22,378 Representative expenses 9,403 23,148 Other 115,724 77,729 1,595,346 1,490,417 8 Other expenses 2018 2017 AMD’000 AMD’000 Taxes and tax penalties 187,591 516,239 Labor union expenses 114,990 113,778 Membership fees 113,950 101,822 Employee remuneration 53,910 76,852 Depreciation and amortization 57,659 46,328 Impairment of property, plant and equipment - 6,497,546 Other penalties - 126,086 Other 59,674 55,315 587,774 7,533,966 18 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 9 Finance income and finance expense 2018 2017 AMD’000 AMD’000 Interest income from bank deposits 1,274,341 415,176 Finance income on forgiving of trade payable - 156,929 Total financial income 1,274,341 572,105 Interest expense - loans from RA Ministry of Finance (175,194) (140,675) Finance expense from interest accretion of provision (136,150) (102,362) Finance expense from interest accretion of trade payable (106,097) (15,157) Total finance expense (417,441) (258,194) 856,900 313,911 10 Income tax 2018 2017 AMD’000 AMD’000 Tax reimbursement on temporary differences (Note 19) (445,240) (1,310,852) Income tax expense/reimbursement - 885,400 Total income tax recovery (445,240) (425,452) A 20% income tax rate is applied on the Company’s taxable profit (2017 - 20%). Reconciliation of effective tax rate is as follows: 2018 2017 Effective tax Effective tax AMD’000 rate (%) AMD’000 rate (%) Loss before taxation (3,638,078) (4,107,793) Tax reimbursement at 20% tax rate (727,616) 20.0% (821,559) 20.0% Non-deductible expenses, net 324,918 (9.0%) 396,107 (9.6%) Unrecognized deferred tax asset on tax loss 163,786 (4.5%) - - Impact of tax legislation change (206,328) 5.7% - - Income tax reimbursement (445,240) 12.2% (425,452) 10.4% 19 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 11 Property, plant and equipment Structures Machinery and Transmission and Construction AMD’000 Land Buildings constructions lines equipment Other in progress Total Cost Balance as of 1 January 2017 7,612,620 11,622,057 11,198,033 9,611,313 54,200,411 3,207,593 19,164,865 116,616,892 Additions - 15,736 1,813 17,308 227,962 2,697,195 14,531,894 17,491,908 Disposals/write off - - - - (194,215) (43,695) - (237,910) Internal movements - 9,003 3,832 (156,681) (2,430,241) 2,574,153 (66) - Reclassification from inventories and intangible assets - - - - (10,477) 166,667 (28,333) 127,857 Balance as of 31 December 2017 7,612,620 11,646,796 11,203,678 9,471,940 51,793,440 8,601,913 33,668,360 133,998,747 Additions - 87,399 18,460 70 5,255,351 8,091,590 36,688,143 50,141,013 Disposals/write-offs - - - - (26,153) (31,518) - (57,671) Reclassification to inventories - - (195,396) (195,396) Internal movements - 402,498 (870,062) (315,541) 6,704,897 589,028 (6,510,820) - Balance as of 31 December 2018 7,612,620 12,136,693 10,352,076 9,156,469 63,727,535 17,251,013 63,650,287 183,886,693 Accumulated depreciation Balance as of 1 January 2017 - 5,666,223 5,065,444 5,520,466 27,819,012 2,086,516 172,969 46,330,630 Charge for the year - 650,855 508,146 370,587 2,255,514 314,253 - 4,099,355 Impairment - 1,070,817 768,896 897,318 3,501,522 258,993 - 6,497,546 Disposals/write-offs - - - - (194,034) (42,364) - (236,398) Internal movements - (11,892) (3,832) 80,604 1,593,086 (1,657,966) - - Reclassifications from/(to) intangible assets - - - - (6,809) 49,091 - 42,282 Balance as of 31 December 2017 - 7,376,003 6,338,654 6,868,975 34,968,291 1,008,523 172,969 56,733,415 Charge for the year - 534,918 567,211 369,319 2,529,936 401,779 - 4,403,163 Disposals/write-offs - - - - (18,762) (28,700) - (47,462) Internal movements - (3,809) (357,975) (1,065,296) (3,325,823) 4,752,903 - - Balance as of 31 December 2018 - 7,907,112 6,547,890 6,172,998 34,153,642 6,134,505 172,969 61,089,116 Carrying amount As of 1 January 2017 7,612,620 5,955,834 6,132,589 4,090,847 26,381,399 1,121,077 18,991,896 70,286,262 As of 31 December 2017 7,612,620 4,270,793 4,865,024 2,602,965 16,825,149 7,593,390 33,495,391 77,265,332 As of 31 December 2018 7,612,620 4,229,581 3,804,186 2,983,471 29,573,893 11,116,508 63,477,318 122,797,577 20 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Construction in progress includes the cost of works implemented in the framework of the N2 Power Unit Lifetime Extension project, at the amount of AMD 50,501,483 thousand, which includes design and survey works, comprehensive examination, project management, assessment of the residual lives of the systems and components of the power unit and also certain equipment at the amount of drams 1,777,226 thousand. On 27 March 2014 the Government of the Republic of Armenia ratified the project for extension of the exploitation period of the N2 power unit of the nuclear power plant for 10 years. As described in Note 1 an agreement has been signed by the Government of the Republic of Armenia and the Russian Federation on 5 February 2015 to finance the above project. The project is implemented and managed by Rosatom Service JSC. As a result of the extension works the lifetime of the plant will be extended till 2026. It is planned to finalize the extension works by the end of 2020. The amount of capitalized borrowing costs is AMD 1,283,594 thousand in 2018 (2017: drams 529,406 thousand), which have arisen as a result of borrowing costs incurred on special purpose loans. During 2017 the Company has performed valuation of its property, plant and equipment implemented by contracting an independent valuator, which resulted in the impairment loss of AMD 6,195,070 thousand. In addition, impairment loss of AMD 302,476 thousand has been recognized as a result of management intention to discontinue exploitation of certain equipment. Depreciation charge has been charged to: 2018 2017 AMD’000 AMD’000 Restated Cost of sales 4,198,582 3,954,016 Administrative expenses 155,717 107,931 Other operating expenses 48,864 37,408 4,403,163 4,099,355 12 Intangible assets Licenses, patents Formulas Total and software AMD’000 AMD’000 AMD’000 Cost Balance as of 1 January 2017 830,461 164,864 995,325 Additions 45,921 20,100 66,021 Reclassifications from/(to) PPE (164,419) 5,690 (158,729) Balance as of 31 December 2017 711,963 190,654 902,617 Additions 60 20,100 20,160 Write-offs (40,333) - (40,333) Internal movements 23,854 (23,854) - Balance as of 31 December 2018 695,544 186,900 882,444 Accumulated amortization Balance as of 1 January 2017 589,727 132,827 722,554 Charge for the year 68,507 17,608 86,115 Internal movements 23,117 (23,117) - Reclassification from PPE (42,281) - (42,281) Balance as of 31 December 2017 639,070 127,318 766,388 Charge for the year 28,947 15,368 44,315 Write-offs (40,333) - (40,333) Balance as of 31 December 2018 627,684 142,686 770,370 Carrying amount As of 1 January 2017 240,734 32,037 272,771 As of 31 December 2017 72,893 63,336 136,229 As of 31 December 2018 67,860 44,214 112,074 21 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Amortization expense has been charged to: 2018 2017 AMD’000 AMD’000 Cost of sales 8,475 10,510 Administrative expenses 27,045 66,684 Other operating expenses 8,795 8,920 44,315 86,114 13 Non-current prepayments Non-current prepayments represent amounts paid to TN International for the acquisition of storage tanks for the used nuclear fuel. 14 Inventories 2018 2017 AMD’000 AMD’000 Nuclear fuel in reactor 9,232,020 10,160,457 Nuclear plant in inventories 7,213,600 6,812,815 Materials 1,989,359 2,048,050 Spare parts 2,398,612 2,255,825 Fuel 134,373 138,465 Other materials 574,408 1,736,402 21,542,372 23,152,014 15 Trade and other receivables 2018 2017 AMD’000 AMD’000 Trade receivables 2,852,214 3,291,173 Prepaid taxes 690,824 1,671,204 Prepayments and other balances 59,640 254,908 3,602,678 5,217,285 Trade receivables as at 31 December 2018 and 2017 represent receivables from “Electric Networks of Armenia” CJSC. 16 Bank deposits CCY Maturity Interest rate 2018 2017 (%) ‘000 AMD ‘000 AMD Deposit in local large AMD 2019 12․ 76% 8,133,963 - bank Deposit in local large AMD 2018 12․ 75% - 8,948,517 bank 8,133,963 8,948,517 17 Cash and cash equivalents 2018 2017 ‘000 AMD ‘000 AMD Bank accounts 127,398 173,287 Cash on hand 5,879 168 133,277 173,455 22 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 18 Loans and borrowings Loans and borrowings represent loans received from the Ministry of Finance under the Sub-Loan Agreements, which are financed within the loan agreements with the Ministry of Finance and International Bank for Reconstruction and Development and the Russian Federation. Loans and borrowings from the Ministry of Finance are presented below by contracts: Nominal 2018 2017 Date of interest rate Currency maturity (%) AMD’000 AMD’000 Intergovernmental loan from RF USD 2029 3.00% 65,490,638 25,748,903 Co-financing for Intergovernmental loan from RF AMD 2029 3.00% 5,830,890 3,385,313 International Bank for 3.85%* Reconstruction and Development (IBRD) USD 2040 3,722,193 3,604,261 Budget loan from the Ministry of Finance AMD 2035 0.75% 582,153 599,376 75,625,874 33,337,853 (*) The interest rate of the loan is floating and equals the sum of the Base rate and Margin as defined in the loan agreement #8615-AM signed on May 12 2016 between RA Government and International Bank for Reconstruction and Development. The Loan Agreements for current and non-current portions are presented below: Non-current Non-current Current Current Total Total 2018 2017 2018 2017 2018 2017 AMD’000 AMD’000 AMD’000 AMD’000 AMD’000 AMD’000 Intergovernmental loan from RF 64,826,545 25,473,398 664,092 275,505 65,490,637 25,748,903 Co-financing for Intergovernmental loan from RF 5,764,595 3,345,361 66,296 39,953 5,830,891 3,385,314 International Bank for Reconstruction and Development 3,722,192 3,604,261 (IBRD) 3,703,788 3,591,954 18,404 12,307 Budget loan from the Ministry of Finance 519,400 536,621 62,754 62,754 582,154 599,375 74,814,328 32,947,334 811,546 390,519 75,625,874 33,337,853 23 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Intergovernmental loan from Russian Federation In accordance with the agreement between the Russian Federation and the Government of the Republic of Armenian dated 5 February 2015, the Russian Federation has provided an intergovernmental loan of USD 270,000 thousand and grant of USD 30,000 (Note 20) to finance the project for extension of the exploitation period of the plant. As of 31 December 2018, not utilized loans amounted to AMD 65,121,862 thousand (as of 31 December 2017: AMD 104,958,097 thousand). International Bank for Reconstruction and Development In accordance with the loan agreement 8615-AM dated 12 May 2016 International Bank for Reconstruction and Development provided a loan to HAEK CJSC at an amount of USD 8,550 thousand for the Power Sector Financial Recovery Program. As of 31 December 2018, unutilized loans amounted to AMD 413,870 thousand (as of 31 December 2017: AMD 534,794 thousand). The loan movement and outstanding balances are as follows: 2018 2017 AMD’000 AMD’000 Balance at the beginning of year 33,337,853 18,885,419 Cash receipts from loans 2,532,973 1,626,189 Interest expense in profit or loss 175,194 140,675 Interest accrued on capitalization of fixed assets 1,283,594 529,406 Direct payments to supplier by Russian Federation 39,350,220 12,596,168 Payment of principal amount in cash (62,753) (62,753) Payment of interest in cash (992,042) (419,298) Exchange differences 835 42,047 Balance at the end of year 75,625,874 33,337,853 19 Deferred tax liabilities Recognized in profit 31 December 31 December 2017 or loss 2018 AMD’000 AMD’000 AMD’000 Property, plant and equipment (3,460,003) 451,590 (3,008,413) Intangible assets 28,759 (28,759) - Inventory 115,367 38,468 153,835 Trade and other receivables 65,500 (65,500) - Borrowings given 362,176 1,892 364,068 Trade and other payables 282,979 47,549 330,528 (2,605,222) 445,240 (2,159,982) Recognized in profit 31 December 31 December 2016 or loss 2017 AMD’000 AMD’000 AMD’000 Property, plant and equipment (4,680,736) 1,220,733 (3,460,003) Intangible assets - 28,759 28,759 Inventory 113,495 1,872 115,367 Trade and other receivables 65,500 - 65,500 Borrowings given 364,208 (2,032) 362,176 Trade and other payables 221,459 61,520 282,979 (3,916,074) 1,310,852 (2,605,222) 24 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Unrecognized tax loss of the Company by the years of the occurrence and the validity period is presented below: Unrecognized Tax loss deferred tax Year Validity period assets AMD’000 AMD’000 2018 31/12/2023 818,932 163,786 20 Grants related to assets 31.12.2018 31.12.2017 AMD’000 AMD’000 Balance at the beginning of year 7,827,343 6,749,173 Received during reporting year 4,878,125 1,497,783 Credited to profit or loss ( recognized in other income) (424,391) (419,613) Balance at the end of year 12,281,077 7,827,343 As described in note 1, according to the agreement signed between the Government of the Republic of Armenia and the Government of the Russian Federation, the Russian Federation has provided an intergovernmental loan to the Government of the Republic of Armenia to finance the project for extension of the exploitation period of the plant. According to the same agreement the Russian Federation had to provide grants at an amount of US 30,000 thousand. 21 Provisions 31.12.2018 31.12.2017 01․ 01․ 2017 AMD’000 AMD’000 AMD’000 Restated Restated Provision on plant exploitation/decommissioning of the nuclear power plant 9,418,426 9,324,993 9,222,631 Provision on storage of used nuclear fuel 2,056,130 1,423,895 1,100,491 11,474,556 10,748,888 10,323,122 The provision on plant exploitation represents the sum of all future annual discounted transferred amounts that the Company is obliged to transfer to the designated account set by the Government of Armenia up to the expected deadline for electricity production license. According to the RA Government Decree 1637-N, the amounts of the transfers by the Company are established by the Public Services Regulatory Commission, as included in the annual tariffs of the electric energy. As of December 31 2017 and 2018, the contributions payable on the mentioned provisions amounted to AMD 6,610,550 and AMD 6,210,550 thousand, respectively. The provision on storage of used nuclear fuel has been created at the discounted value of the estimated present obligation on structures that have not yet been built or prepaid in connection with the used nuclear fuels in reactor and basins. 25 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 The main judgments and assumptions regarding the assessment of mentioned provisions are as follows: 2018․ 2017 AMD’000 AMD’000 Discount rate 3․ 0% 3․ 0% Expected deadline for the electricity production license 2026 2026 Nuclear fuel storage provision utilization date 2020-2033 2020-2031 Annual inflation forecasts 2․ 0% 2․ 0% The movements of provisions for 2017 and 2018 are presented below: Notes 2018 2017 AMD’000 AMD’000 Restated Balance at the beginning of year 10,748,888 10,323,122 Increase of provision 589,518 323,404 Interest accretion of provision 9 136,150 102,362 Balance at end of year 11,474,556 10,748,888 22 Trade and other payables 2018 2017 AMD’000 AMD’000 Trade payables 6,546,117 6,878,698 Payables to employees 1,991,008 1,916,606 Payables on taxes and duties 1,919 1,682,503 Other payables 8,016 4,383 Total trade and other payables 8,547,060 10,482,190 Current portion 8,547,060 6,943,075 Non-current portion - 3,539,115 As of 31 December 2018, the payable for the purchase of nuclear fuel included in the trade payables was with one counterparty and amounted to AMD 6,486,051 thousand (as of 31 December 2017: AMD 6,768,083 thousand AMD, of which AMD 3,539,115 thousand were classified as non-current trade payables). The fair value of trade and other payables classified as financial liabilities at amortized cost does not significantly differ from the carrying amount. 26 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 23 Capital and reserves Share capital As of 31 December 2018 and 2017 the share capital of the company amounted AMD 14,663,599 thousand comprised of 4,000 ordinary shares with a nominal value of AMD 3,665,899.8. Reserve capital According to the charter the Company has to create a reserve capital at 15% of the share capital. The reserve capital is created through transfers from accumulated profit. Additional capital Additional capital represents the difference between the fair value and the contractual amount of the borrowings received from the owner. 24 Transactions with related parties 100% owner of the Company's shares and the ultimate controlling party is the Government of the Republic of Armenia. (a) Transactions with the Shareholder Information on borrowings and interest expense from shareholders is presented in Note 9 and 18. (c) Compensation for key management personnel 2018 2017 AMD'000 AMD'000 Salaries and other benefits 101,175 65,380 25 Contingencies 25․ 1 Responsibility for the possible damage caused Under the Vienna Convention on the Civil Responsibility for the Nuclear Damage the Company as an operator of the nuclear plant is liable for compensation of any nuclear damage caused as a result of the plant exploitation. The amount, terms and conditions of the compensation are determined by the legislation of the Republic of Armenia. According to the above Convention the amount of compensation can be limited to minimum of USD 5,000,000 for each incidence of damage. According to the legislation the Company is obliged to have sufficient financial resources to cover its responsibility for any possible damages caused. To meet the above requirement, the Company has to make annual allocations to specifically designated fund at the amount of AMD 150,000 thousand. The mentioned amount included in the tariffs for the electrical energy for the Company. No provision has been recognized in respect of this obligation in the Company’s financial statements, since management believes the probability of the damage to occur is remote. 25․ 2 Insurance The Company does not have full coverage for its business interruption and third party liability arising from the Company operations. 27 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 25․ 3 Contingent liabilities and provisions As at December 31, 2018 and up to the date of sign-off of these financial statements the Company is not involved in such legal proceedings that may have a material impact on the financial position of the Company. 25․ 4 Environmental matters Management is of the opinion that the Company has met the Government’s requirements concerning environmental matters and, therefore, believes that the Company does not have any current material environmental liabilities. However, environmental legislation in Armenia is in process of development and potential changes in the legislation and its interpretation may give rise to material liabilities in the future. 26 Capital risk management The Company manages its capital to ensure that it will be able to continue as a going concern and provide adequate return to the shareholder. The capital structure of the Company consists of loans and borrowings (current and non-current liabilities) and equity (comprising share capital, reserves, other capital and retained earnings.) The amounts managed as capital by the Company for the reporting periods are summarized as follows: 2018 2017 AMD’000 AMD’000 Loans and borrowings 75,625,874 33,337,853 Less cash and cash equivalents (133,277) (173,455) Less short term bank deposits (8,133,963) (8,948,517) 67,358,634 24,215,881 Equity 49,210,503 52,403,341 1.37 0.46 27 Summary of Accounting Policies 27․ 1․ Functional and presentation currencies The national currency of the Republic of Armenia is the Armenian Dram (“AMD”), which is the currency in which the Company’s financial statements are presented. All financial information presented in AMD has been rounded to the nearest thousand. 27․ 2 Foreign currency transactions Foreign currency transactions are translated to AMD at the rates of exchange prevailing on the dates of the transactions. The currency rate applied is the average rate prevailing in the currency market published by the Central Bank of Armenia. At each reporting date foreign currency monetary assets and liabilities are translated at the rates defined by the Central Bank of Armenia prevailing on the reporting date. Revaluation differences arising from the outstanding monetary assets and liabilities are immediately recognized in the profit or loss. 28 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 27․ 3 Property, plant and equipment Property, plant and equipment are stated at cost which includes the purchase price, directly attributable costs and the present value of an unavoidable costs of dismantling and removing the item and restoring the site on which it is located. Respective liability is recognized as provisions. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Expenditure to replace a component of an item of property, plant and equipment that is accounted for separately is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized if future economic benefits will arise from the expenditure. All other expenditure, including repair and maintenance, is recognized in profit or loss as incurred. Land is not depreciated. Depreciation of construction in progress assets begins when the assets are available for use, complete and ready for use. For the remaining property, plant and equipment items depreciation is calculated for the purpose of allocating the carrying amount during the expected useful life of the assets. The estimated useful lives are as follows. Property, plant and equipment Useful life Buildings and constructions 20-50 years Transmission lines 10 years Machinery and equipment 5-10 years Other 1-10 years 27.4 Intangible assets Intangible assets, which are acquired by the Company and which have finite useful lives, are stated at cost less accumulated amortization and impairment losses. The estimated useful life of intangible assets is 2-5 years. 27.5 Inventories Inventories are assets held for sale in the ordinary course of business or in the form of materials or supplies to be consumed in the production process or in the rendering of services. Inventories are valued at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale. Costs comprise purchase price and other charges incurred in bringing inventory to its present location and condition. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Nuclear fuel Nuclear fuel is recognized in the statement of financial position under inventories. The fuel is received in rods, which are used by the Company within 5 to 6 years once placed into the reactor. Nuclear fuel is recognized as an expense based on calculations made on monthly basis by the technicians according to specially elaborated formulas. At the end of each reporting period the amount recognized as an expense is adjusted by the amount of actually used fuel. 29 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 27․ 6 Financial instruments Financial assets and financial liabilities are recognized when the Company becomes a part to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred to third parties. Financial assets are derecognized when they are extinguished, discharged, cancelled or expire. Financial assets The Company's financial assets are financial assets measured at amortized cost. These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. Impairment provisions for current and non-current trade receivables are recognized based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognized within cost of sales in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. The Company's financial assets measured at amortized cost in statement of financial position include trade receivables, bank deposits, cash and cash equivalents as well as other financial assets. Cash and cash equivalents include cash and demand deposits in banks. Financial liabilities The Company's financial liabilities include loans and borrowings and trade payables. Loans and borrowings are initially recognized at fair value, less transaction costs. Subsequent to initial recognition, loans and borrowings are stated at amortized cost with any difference between cost and redemption value recognized in profit or loss over the period of the borrowings on an effective interest basis. Interest and other costs incurred in connection with borrowings are expensed as incurred as part of finance expenses, except for the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, which are capitalized as part of that asset. Trade and other payables are recognized at fair value and subsequently measured at amortized cost. 27․ 7 Impairment At each reporting date, property, plant and equipment, and intangibles assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset (or group of related assets) is estimated and compared with its carrying amount. If estimated recoverable amount is lower, the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is recognized immediately in profit or loss. Similarly, at each reporting date, inventories are assessed for impairment by comparing the carrying amount of each item of inventory (or group of similar items) with its selling price less costs to complete and sell. If an item of inventory (or group of similar items) is impaired, its carrying amount is reduced to selling price less costs to complete and sell, and an impairment loss is recognized immediately in profit or loss. 30 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related assets) is increased to the revised estimate of its recoverable amount (selling price less costs to complete and sell, in the case of inventories), but not in excess of the amount that would have been determined had no impairment loss been recognized for the asset (group of related assets) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. 27․ 8 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense in the period in which they are incurred. 27․ 9 Grants Grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and the grants will be received. Grants with a primary condition to purchase, construct or otherwise acquire non-current assets are recognized as deferred income in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets. 27․ 10 Provisions A provision is recognized in the statement of financial position when the Company has a legal or constructive obligation as a result of past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimation can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability as applicable. 27․ 11 Deferred taxes Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset if there is legally enforceable right to set off the current tax assets against current tax liabilities, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority. 27.12 Revenue Performance obligation and timing of revenue recognition The majority of the company's revenue arises from the sale of electricity and provision of capacity, the revenue earned on which is recognized at the moment when the control is transferred to the customer. The control transfer is mainly carried out when the electricity is delivered to the customer. There is limited 31 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 judgement needed in identifying the point control passes: once physical delivery of the products to the agreed location has occurred, the Company no longer has physical possession, usually will have a present right to payment and retains none of the significant risks and rewards of the goods in question. Determining the transaction price and Allocating amounts to performance obligations Company’s revenue is derived from fixed price contracts and therefore the amount of revenue to be earned from each contract is determined by reference to those fixed prices, besides for all the products the unit price is fixed. 28 Correction of previous year errors The comparative information for previous years in these financial statements has been corrected by including the estimates of provision on exploitation/decommissioning of the nuclear power plant and provision on storage of used nuclear fuel as of January 1 and December 31 2017. The effect of correction of this error on the statement of comprehensive income for the year 2017 and on the statement of the financial position as of 1 January and 31 December 2017 is provided below: As of 31 As of 1 January Adjustment December 2016 2017 Restated AMD’000 AMD’000 AMD’000 Property, plant and equipment 65,773,690 4,512,572 70,286,262 Trade and other payables 19,895,050 (5,810,550) 14,084,500 Provisions - 10,323,122 10,323,122 As of 31 As of 31 December Adjustment December 2017 2017 Restated AMD’000 AMD’000 AMD’000 Property, plant and equipment 72,726,994 4,538,338 77,265,332 Trade and other payables 16,692,740 (6,210,550) 10,482,190 Provisions - 10,748,888 10,748,888 2017 Adjustment 2017 Restated AMD’000 AMD’000 AMD’000 Cost of sales 23,242,467 (102,362) 23,140,105 Financial expenses 155,832 102,362 258,194 32 “Armenian Nuclear Power Plant” CJSC Notes to the financial statements For the year ended 31 December 2018 Annex A – IFRS 13 Fair value measurement disclosures The following table sets out the assets and liabilities for which fair values are disclosed in the notes: Financial statements Fair value Fair value Significant account Valuation technique hierarchy unobservable ‘000AMD level inputs The carrying amount of short term (less than 12 months) Bank deposits 8,133,963 bank deposits approximates Level 2 Not applicable its fair values The carrying amount of short term (less than 12 months) Trade receivables Level 2 Not applicable trade receivables approximates its fair values 2,852,214 The carrying amount of Loans and 75,625,874 borrowings approximates its Level 2 Not applicable borrowings fair values The carrying amount of short term (less than 12 months) Trade payables 6,546,117 trade payables approximates Level 2 Not applicable its fair values 33