Refresher on Interpretation of IFAS no. 16 · Fitri Budiman Subject: Irwan Lau - Director,...
Transcript of Refresher on Interpretation of IFAS no. 16 · Fitri Budiman Subject: Irwan Lau - Director,...
Power BreakfastRefresher on Interpretation of FinancialAccounting Standards No. 16 (ServiceConcession Arrangements)
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1. The relevance of ISAK 16
2. How the standard is affecting IndonesianIPPs
3. Key learning points
Agenda
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Overview of Service Concession Accounting
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It’s an IFRS standard. ISAK 16 isadopted from IFRIC 12, ‘Serviceconcession arrangements. ’
It applies to public to privatepartnership arrangements.
Government (regulator)controls the infrastructure tobe used in serving public
service obligation.
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The Relevance of Service Concession Accounting
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Difference between fixed asset powerplant Vs financial (or intangible)asset on balance sheet
Determines howrevenues & expensesare recorded
Affects key financial ratiosand timing of dividenddistribution
Interaction with tax and deferredtax accounting
Why do youneed to workout theaccountingbefore youstart theproject …
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Public service obligation to provide electricityIPPs play an important role in this supply chain
A number of laws and regulations task PLN with a public service obligation to provideelectricity to general public (including Electricity Law No. 30/ 2009).A number of laws and regulations task PLN with a public service obligation to provideelectricity to general public (including Electricity Law No. 30/ 2009).
IPP’s power plants are integrated to PLN’s electricity supply chain.IPP’s power plants are integrated to PLN’s electricity supply chain.
Generation Transmission Distribution Retail
Public Service ObligationIntegral infrastructure
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Control of power plants by PLN (grantor)ISAK 16 specifies a few factors to establish control
IPP
1 Does PLN control the outputs of the power plant?
2 Does the government control prices of electricity?
3 Is the power plant built & operated by a privatesector?
4 Will PLN (or government) receive residualinterest of the power plant?
Sell all electricityproduced
MoEMR regulationson prices
O&M service
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Multiple element approach to record revenueRevenue from sale of electricity is split across its multiple elements
A. Capital cost recovery
Dividingelectricitytariff to its
differentcomponents
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Construction CoD Operations
A. Construction revenue isrecognised up to COD
B. O&M income isrecognised as the IPPperforms its services
C. Energy payments arerecognised for fuel torun the power plant(pass through)
D. O&M income isrecognised as the IPPperforms its services
E. PLN may ask IPP tobuild a special facility(e.g. transmission line)
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ISAK 16 requires IPP to record a financial (orintangible) asset
Who bearsdemand risk?
Features of PPAssigned with PLN
IPP ISAK 16 assets
PLN pays fixed, determinable,amounts (e.g. take-or-pay)
1 Financial asset
PLN purchases all outputs produced(e.g. must pay based on availability)
2Likely financialasset
PLN pays based on usage3 Intangible asset
PLN guarantees to pay a certainamount (take-or-pay) in the first fewyears and will pay based on usage inlater years
4Hybrid – financial& intangible asset
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A comparison of revenue profileISAK 16 Vs traditional owner operated model
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Revenue from sale of electricity
Revenue from construction
Interest income
Construction Operation
O&M income
Traditionalowner
operatedISAK 16
Constructionphase
Revenue -
Operationphase
Revenue
O&M income -
EBITDA
Depreciation -
Financeincome
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PBT
O&MIncome
Construction
Financeincome
Sale ofelectricity
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Year
A comparison of cumulative profits profileISAK 16 Vs traditional owner operated model
$
Traditional owner operated
ISAK 16
Construction Operation
ISAK 16cumulativeprofits build upgradually overtime
Some assumptions are simplified for illustrativepurposes only
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Mapping the terms of your PPAThe terms of your PPA will determine the accounting model
Category Power is supplied to PLN
Typicalarrangement
Service /maintenancecontract
Build-own-operate- transfer ("BOOT")* Build-own-operate ("BOO")
Asset ownership PLN (grantor) IPP
Capital investment PLN (grantor) IPP (operator)
Demand risk PLN (grantor) PLN (grantor)Both PLN and IPPare responsible fordemand risk
IPP (operator) PLN IPP
Take-or-payarrangement
- YesOnly during aspecified period ofthe PPA
- Yes -
Typical duration < 5 years 25 - 30 years (life of the asset)Over the economic life of the asset or shorter, ranges from 5 - 30years
Residual interestbelongs to
PLN (grantor) IPP
Relevant PSAKs(IFRSs)
PSAK 23 (IAS18) on revenue
ISAK 16 (IFRIC 12) - service concessionarrangement
ISAK 8 (IFRIC 4) andPSAK 30 (IAS 17) on leasing
Accounting model
Power plantbelongs to PLN,privatecontractorsimply recordsO&M revenues
IPP records afinancial assetfor the amountsguaranteed byPLN
A hybrid offinancial asset &an intangible assetmodel. Financialreceivable isrecognised up tothe guaranteedamount by PLN,the remainingportion is recordedas intangible asset
Intangible assetis recorded byIPP based onthe fair value ofthe power plant
Assessment of terms and conditions of the contracts are necessary.
Where the offtake period only covers less than half of the economiclife of the power plant, it is likely that it is an operating lease.
On the contrary, where (1) the offtake period covers substantially allof the economic life of the asset, (2) there is a minimum amountguaranteed by PLN, and (3) almost of all the capital investment canbe recovered from the PPA; it is likely for the IPP to have a financelease. It is also possible for IPP to conclude that ISAK 16 (IFRIC 12)applies in this case.
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Key learning pointsIssues that all investors should look out for …
Pay attention to the key terms of your PPA. Not all PPAs willhave the same accounting treatment.
If you are not in ISAK 16 (IFRIC 12), you may still have touse ISAK 8 (IFRIC 4) lease accounting model.
POJK No. 6/2017 provides some reliefs from complexaccounting for listed entities. Not expected to be many.
If you need more information, reach out to your PwCconsultants.
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Q & A
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Thank you
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