CSC & Co Chartered Accountants Mahamati Bhawan 175, Gairidhara Marg, Gairidhara PO Box: 4861, Kathmandu, Nepal Tel: +977-1-4004580, 4004581, 4004582 Fax: +977-1-4004578 E-mail: csc@cscnepal.com Web: www.cscnepal.com Independent Auditor's Report To the Shareholders of Kabeli Energy Limited Report on the audit of the Financial Statements Opinion We have audited the accompanying financial statements of Kabeli Energy Limited ("the Company"), which comprise the statement of financial position as at 15 July 2020, the statement of profit or loss, the statement of other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and explanatory information. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as on 151 July 2020, and its financial performance and cash flows for the year then ended in accordance with Nepal Financial Reporting Standards (NFRS). Basis for Opinion We conducted our audit in accordance with Nepal Standards on Auditing (NSA). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ICAN's Handbook of Code of Ethics for Professional Accountants together with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAN's Handbook of Code of Ethics for Professional Accountants. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 2.20 "Significant Events and Conditions" of the financial statements which indicates that construction activities of the project are suspended since December 2018 and due to cancellation of undisbursed foreign debt of US$ 38.6 million there is uncertainty regarding availability of source of debt financing for further progress of the project. These events or conditions, along with other matters as set forth in Note 2.20, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Nepal Financial Reporting Standards (NFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guar t an audit conducted in accordance with 9111T NSA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with NSA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Kabeli Energy Limited's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. * Conclude on the appropriateness of Management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Kabeli Energy Limited's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause Kabeli Energy Limited to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements We have obtained all information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit. In our opinion, the statement of financial position, profit or loss, other comprehensive income, changes in equity and cash flows have been prepared in accordance with the provisions of Companies Act 2063 and conform to the books of accounts of the Company and the books of accounts and records are properly maintained in accordance with the prevailing laws. During the course of our audit, we did not come across the cases where the Board of Directors or the representative or any employee of the Company has acted deliberately contrary to the provisions of the law or caused loss or damage to the Company or misappropriated funds of the Company, nor have we been informed of any such case by the management. 4Cc & Co Jitendra Kumar ra Place: Kathmandu Partner Date: 28 May 2021 CSC & Co. UDIN: 210604CA00264WpVLC Chartered Accountants Knbell Energy Limited Statement of Iinaniciil Position As at 31s Ashnd 2077 (15 July 2020) Fq`'ures in NIPR Note As at 31st Ashad As at 31st Ashad 2077 2076 ANETS Non-Cnrrent Assets Properly, plant and equipment 4 6,720,840 10,462,053 Intangible assets under development 5 1,352,594,314 1,352,594,314 Other non current assets 6 - 4,100,642 OIlier financial assets 7 4,416 5,416 Tax assets (ne() 1,474,860 990,554 Towl Non-Current Assets 1.360,794.430 1.368,152,979 Current assets Financial assets Cash and cash equivalents 8 81,986,542 207,304,5 10 Bank Balance other than Cash and Cash Equivalents 9 859,905,853 531,882,800 Other financial assets 7 - 117,828,143 Other current assets 6 31,865,475 113,440,417 Total current assets 973,757,870 970,455870 Total assets 2.334,552,300 2,338,608,849 EQUITY AND LIABILITIES Equity Equity share capital 10 1,085,014,947 1,085.014.947 Other equity II (147,015.898) 861.179 Total Equity 937,999,049 1,085,876,126 Liabilities Non-Current Liabilities Financial liabilities Borrowings 12 1,182,997,106 1,074,547,465 Other financial liabilities 14 - - Provision 15 - 1,489,219 Other non-current liabilities 16 - - Total Non-Cuirient Liabilities 1,182.997,106 1,076,036,684 Cuirrent Liabilities Financial liabilities Borrowings 12 - - Sundry Creditors 13 78,804,969 43,991,793 Other financial liabilities 14 133,530,494 129,520,839 Provisions 15 - 544,622 Other current liabilities 16 1,220,682 2.638,785 Total Current Liabilities 213556,145 176,696,039 Total Liabilities 1,396,553,251 1,252,732,723 Total Equity and Liihilities 2,334,552,300 2.338 608849 The accompanying notes are integral part of these financial statements, Aspcr epo ofe a Co Sher Sin h ine Lirn Hsi-Yun Pradeep Kumar Shrestha Jitendra Kumar Chief ExecutveOfer- rctor irctor Chairman art *6 CSC & Co Chartered Accountants Anrcn ngh Rathour Vivek Krishan Gupta Ian Menzies McAlister Chief Financial Officer Director Director Date: ? May,202l(. 41cstha,2078) Place: Kathmandu, Nepal statiiei of Profit or Loss and olher Comprelsive incorne For hlie year etled 31st Ashud 2077 (15 July 2020) F/gures In NP1R Nte 2076-77 2075-76 Revenuc during construtction phase 5- 97,656,35,1 Cosi ineured during constmfcion piase 5 -(197.656,354) Gross profit - - Other income 17 302,578,112 8,934,306 Administrative and othfer operling expenlses 18 (283,657,935) 22,477,684 Finance Costs 19 (166,797,254) (15,361,976) Profit / (Loss) Before Tax (147,877,077) 16,050,014 Income Tax Expense Currenit tax - Profit from continuing operations (147,877,077) 16,050,014 Net Profit for the year (147,877,077) 16,050.0) l14 Other comprehensive Incoine: Ofler conprelrhnsive gainl(loss) for lie year, nel of tax - Total Conprehensive gainl(loss) for hlie year, nel of (ax f[147,177,077) 16,050,014 Earnings per equity share of Rs. 100 cach Basic Earnings pet share - Rs. 20 (13,64) 1.48 Diluted Earnings per share - Rs. 20 (13.63) 1.48 The accompanying notes are integral part oltthese financial statements. ~) c20 As per* ourt repori of evci eäg CO Sher singb B at Claudine Lim Hsi-Yun adi a oii Pradeep Kumiar Sirestha Jitendra Kunar Mi re ChiefExecutive Olcer Director Director Chairman Partner CSC &Co Chartered Accountants Amen Ratour Vivek Krislian Gupta lan Menzies MeAlister Chief Financial Ollicer Director Director Date: 2 May,2021(.1+.lestiha,2078) Place: Kalltiandu, Nepal Nihell Energy Limited S(itement ( Cash Flows For the year ended 31st Ashad 2077 (15 July 2020) Figures /in NPR 2076-77 2075-76 CASH FLOWS FIOM OPERATING ACTIVITIES Prolit for the year (147.877.077) 16.050.014 Adjustments for: Depreciation and amortization 3.741.212 3,3417,228 Provision for expenses (2.033,840) (056,420) Unrcalizcd foreign exchange difference 68,803,553 51.089,804 Adjustment for sctleient anount received from CIVIL/IIM contractor (267,962,967) - Working capital adjustmtents: (Increase) / decrease in Other Financial Assets 117,829,143 (21,953,917) (Increase) /decrease in Bank Balance other than Cash & Cash Equivalents (60,060,086) (530,942,800) (lncrease) / decrease in Other Assets 85,675,584 477,117,190 Increase / (decrease) in Sundry Creditors 34,813,176 16,585,552 Increase / (decrease) in Other Financial Liabilities 4,009,655 (4,894,032) Increase / (decrease) in Other Liabilities (1,4 18,103) 1,696,036 (increase) / decrease in Advance Tax (484.306) (813,975) Cash generated from operations (164,964,056) 6,324,680 NET CASH FLOWS FROM OPERATING ACTIVITIES (164,964,056) 6,324,680 CASIH FLOWS FROM / (USED IN) INVESTING ACTIVITIES (lnerease)/decrease in Intangible assets under development - (197,656,355) Acquisition olProperty, plant and Equipment (476,537) N E T C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S -( 1 9 8 , 1 3 2 , 8 9 2 ) CASII FLOWS FROM FINANCING ACTIVITIES Additional borrowings 108,449,641 303,562.500 Additional Capital from share holder - - NET CASH FLOWS FROM FINANCING ACTIVITIES 108,449,641 3033562500 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (56,514,415) 111,754,288 Net foreign exchange difference on cash and cash equivalents (68,803,553) (51,089,804) CASH AND CASH EQUIVALENTS, Beginning of Period 207,304,510 146,640,026 CASH AND CASH EQUIVALENTS, End of Period 81,986,542 207,304510 This is the same tal pp icial position referred to our report of even date attache As per our report of even dite (I\ Sher Singh Bhat 3Claudine Lini Hsi-Yun PD m yoti Pradeep Kumar Shrestha lendra Ku a Chief Executive Officer Director Director Chairman ner C Chartered Accountants Anrendra Singh Rathour Vivek Krishan Gupta Ian Menzies McAlister Chief Financial Officer Director Director Date:2..May,2021(..(+Jestha,2078) Place Kathmandu, Nepal Klibeli Einergy Länmited1 Sltemlnicil of Chaliges in .quity For tc year iinded 31st Aslit 2077 (15 July 2020) 1;igtre.v in NPR Particulars Shure Capital Aivancc towvards Reimined Eårnings Total share capilal Balance at Ist Slirmwan 2075 1,085,014,947 1,260,044 (16,448,879) 1,069,826,112 Profit lr ile year -16,050,014 16,050,014 Ofher comprelensive income-- Total conpreliensive incorne - -14,050,014 16,050,014L Slarc Capita issued during lie year Balance at 32nd Ashad 2076 1.085.014.947 1.260.1044 (398.865) 1.1)85,876.126 Profil for (lie year (147,877,077) (147,877,077) Ollitc comprhiciinsive incoilie Total comprehensive inconc - - (1.17,877,077) (147,877,077) Siarc Capita] issued during te year - - Balancc at 3[st Ashd 2077 1,085,014,947 1,260,044 (148,275.942) 937.9990449 The accomnpazyp g'i part of Ihese financial statements. As per our report of even date Co Shier Singhi Bhiat Clauidine Limi Hsi-Yuni \ a a Jyofi Pradeep Kumari Shiresthla Jitendra Kumni Chief Executive Officer Director irecor Chalinnian- - CSC Churtecred Accountan Amnrendra5 ingh Rathiour Vivek Krishanl Giupta lan Menzies McAlister ChlieflFinanlcial Officer Director Director Date:2&vay,2021(..(.esflha,2078) Place: Kathmlandu, Nepal Kabeli Energy).mte No3e lu [he finneial stline rin- rie yer endel 31s1 Ahlsbl 2077 äIres in NPR Notc 4 Properly, philn iid equipmient: Office Plani 1 nnd F .ni1rea Com1p11nier n Vehirles Ttna] Fquipmruent Mnchinery Fixture Accessories C,.sl Balance ii 32nd Ashad 2075 l 19,264 1.207,008 327,629 452,972 16,415,427 18,522,300 Additions 145,517 - 331,020 - - 476,537 Written Of/Disposal (17,911) - (13.500) (12,400) - (43,811) Adjusiments 17,026 5,381 - 66,170 - 88,577 Balancc at 31s1 Asld 2076 263,896 1,212,389 645,149 506,742 16,415,427 19,043,603 Additions - - - - - Wriatcn OfT/Disposil (29,000) (769,949) (260,228) - - (1,059,177) Adjustimet - - - - Brlance t 31st Ashad 2077 234,896 442,440 384,921 506,742 16,415,427 17,984,426 Accumulaled ielreciation Balance at 32n1d Ashad 2075 42,480 664,264 129,256 124,534 4,229,022 5,189,556 Charge 1o, tle year 65,755 260,026 159,177 137,836 3,283,085 3,905,879 Writtl Off/Disposal (17,911) - (13,500) (12,400) - (43,811) Adjlstments (4,979) 807 - (27,953) (437,949) (470,074) Balancc at 31st Ashad 2076 85,345 925,097 274,933 222,017 7,074,158 8,581,550 Chlarge for Ihe ye 66,017 66,234 161,439 126,856 3,286,274 3,706,820 Written Of/Disposal (25,060) (766,819) (232,905) - - (1,024,784) Adjuistmnets - - - - - - Balance at 3 Ist Ashad 2077 126,302 224,512 203,467 348,873 10,360,432 11,263,586 Net book valuc At 32nd Ashad 2075 76,784 542,744 198,373 328,438 12,186,405 13,332,744 At 31st Ashad 2076 178,551 287,292 370,216 284,725 9,341,269 10,462,053 At 31 st Ashad 2077 108,594 217,928 181,454 157,869 6,054,995 6,720,840 a) Refer Note no: 12 for tc details in respect ofassets hypothecated/Plcdged/ mortgaged as security for borrowings. &Co fl ere6 n er Knbeli Elnergy Limited Notes it) the fininciil sininents for the year ended 31st Ashad 2077 h7gurex in NIPR Note 5 Intangible assets under deveoloeni Particulars As at 31st Ashad As a( 31st Aslnd 2077 2076 Pre-Operating Expenses (A ) 490,783,113 490,783,113 Depreciation 16,524,023 16,524,023 Employee related cost 134,824.514 134,824,514 Other Project Operation Espenses 158,399,384 158,399,384 Licensing & Other Development Fees 2,058,750 2,058,750 Interest, Commission & Fees 178,976,442 170,976,442 Land & Building (B) 23,982,809 23,982,809 Land Acquisition 6.531,017 6,531,017 Building 17,451,792 17,451,792 Civil Works (C) 310,326,805 310,326,805 Bonker Construction 9,223,952 9,223,952 Access Road 678,326 678,326 Other Civil Works 4,367,875 4,367,875 Power Plant 296,056,652 296,056,652 Environment and Social Cost (D) 77,235,112 77,235,112 Community & Social Expenses 8,413,437 8,413,437 Financial Support 62,147,340 62,147,340 Compensation Expenses 6,674,335 6,674,335 Management and Consultancy (E) 450,266,475 450,266,475 Development Fee 63,939,270 63,939,270 Consultaney Fee & Expenses 261,331,430 261,331,430 Management Contract 19,393,823 19,393,823 Legal Fee & Expenses 100,675,609 100.675,609 Foreign Expert Expenses 4,926,343 4,926,343 Total (A+B+C+1D-E) 1,352,594,314 1,352,594,314 a) The Company is a developer ofthydro electricity. The company is yet to start generation of hydro electricity and cunently it is at initial stage of* construction phase. Revenue and margin from the construction phase cannot be estimated reliably. Hence, profit margin on construction phase is assumed to be 0% and accordingly revenue and cost during construction phase has been recognized which is equal to actual construction cost during the period. It is also assumed that the PPA agreement will be renewed in the years to come and 100% of the ownership will be transfened to NEA. For more detail refer note 2.4 and note 2.17. b) The RCOD of the Project has been expired since 15th Feb 2020. NEA Board has decided to recommend the Electricity Regulatoty Authority (ERC) for extension ofthe such RCOD date of the Project by 232 days i.e. till 3rd October 2020. The Project Company has further applied for RCOD extension to MOEWRI and also has separately applied to NEA for the extension . c) Refer Note no: 12 for the details in respect ofassets hypothecated/Pledged/ mortgaged as security for borrowings. & Co ttoe Kobeli E.lergy Iiie Nolts to lie fimocial flalements rli he year enled 31sl AhAmd 2077 Nol no: 6 Ollher cuirrent and n m-yrelasels Iirticuatirs As ut 31s Aslind 2077 As at 3st Ashad 2076 Current Non-Currcen Currenl Non-Current Advanec lo Suipplicis / nacordSub-Contraets 27,162,371 79,193,830 - Other Advances 278,003 305.912 - Piepaid Ixpenses 4,425,100 - 33,940,675 4,100,6.42 31,865,474 - 113,440,417 4,100,642 a) Advance to Supplieirs/ConllraIcrIN/Suib-cointracs includes oulstanding imoiunt ol' NPIR 24,779,300.01 (USD 2 16,167.67) reecivable roll Ilie EleelrCo-m eai conilltor M/s Chongqing Waler and Turbinc Works (CWIV), China, jigainst Advance Payment Security (APS) aller the settlenict Agreement execuerd on 31 Mach 2021.Tihis viiount has now been reecived into designiated Bank Account of KEL on 19 May 2021, The remnaining alount pertains to ån advancc paid to lie lender Engincer, M/s Ficlhner GMbh & Co. KG, Gcrmany. Fichltcr lhas iready agrced for iutual teriationir,l 01of11 tcontract . Refer notc: 2.21 for subscquent eveins relating to settlcimeiii agreenent wiith CWTW. b) Refer Notc No: 12 for tie deails in respect of assets Iypotliecated/P)ledged/mnontgaged as security for boriowing. Noe no: 7 Other finicial issels Parliculars As at 31s( Ashad 2077 As u( 31st Ashid 2076 Current Nwn-Current Current Noin-Current Ui,imortizcd ComitientFee - - 49,134,605 - Uniamo,irtized ioan processing fees - - 68,693.538 - Otier Advance & Deposits - 4,4 - 5,416 - 4,416 1 7,828,143 5,416 a) Tic unamnortized ctiomitmcit fee and oviamortized lon procssing fee hias been fuly expesed off in i Current yetr as Iltese Vere paid to International Finance Corporafion (IFC) in carlier year as per lie fiancc agreceicin. As on tlie balance slhcel date, Ilere was a clear indication from, IFC regarding tenination of lie loan agreement. Subsequeni to (lie balance sliet date, tle Company ias reecived notice af loan canecllition from lFC on Dec 21, 2020. b) Refler Note No: 12 for Ilie delails in respect of assets lylollecated/ledged/mlolgaged as security for borrowings. Nolte ni: 8 Cish and rash equil ents P,irliiu,rs As at 31st Ashad As al 3lst Asiad 2077 2076 Balance vithl Banks Local currency account 23,666,802 40,967,389 Converlible currencies account 58,308,083 166,318,823 Cash en hand 11,657 18298 81,986,542 207,304,510 Refer Note No: 12 far ti details in respect of assels lypolltheated/Pledged/imorigaged as security for borrowings. Not no: 9 Bank Blanct otlier than Cash and Casi Equivalents Parliculars As at 31st Aslhid As at 3st Ashad 2077 2076 Balances wille Bank Dollar Insurance and Compensation Account 858,965,853 530,942,800 Earnarked Balance withi Banks Margini Money Account 940,000 940,000 859,905,853 531,88280ß a) Dollar Insurance and Compensation Account has been iaintained at NIC Asia Bank Limlited as per Collateral Accounits Agreenent dated 16 Jurie, 2017. Tie total deposit in tilis account comprises of amnount of NPR 546,478,800 (USD 4.855 million) received as a result of forfeiture of Advance Payment Security (APS) ofZIHCIC and after termination of Civil / HM contraet witlh ZHCIC w.e.f 9th April, 2019 due to unsatisfactory performance of work. This account furtlher includes Ile amount of NPR 267,452,721 (USD 2.25 million) recived on 10t11 March, 2020 from ZHCIC as part ofamiicable Settlement reacled wit, ZHCIC. b) Refer Note No: 12 for tlhe details in respeel of assets lypollteated/Pledged/mlorgaged as security for borrowings. Co ed1 Kanheli Inergy Limiled Noles to ite inanilI sinteeni,fs fm ithe year ended 31st Ashad 2077 F'igutres int NVI Noit u: 10 Equity Share capitld Pnirenilars As i 31st Aslnd, 2077 As it 31st Ashad, 2076 Not ni Sihres A out No. of Shnres Amount A. Equity Shares Anihorized Equity Shares o Rs. 100 each with voting rights 20,000.000 2.000,000,000 20.000,000 2,000,000,000 Issued Equity Shres of Rs 100 aci with votinglights 20,000,000 2,000,000,000 20,000,000 2,000,000,000 Fully Paid Equity Shares ofRs. 100 each weith voting rights 10,890,450 1,089,045,000 10,890,450 1,089,045,000 Less: Calls in arrear 50,000 4,030,053 50,000 4,030,053 Asia Pacific Power Tech 150,000 shares 0 NRs. 80.60111 10,840,450 1,085,014,947 10,840,450 1 _05014 947 B. Reconcilinot of the ttlumber of shares outsttnding it (lte beginning Unit end of the year Particulars As ni 31st Ashd, 2077 As i 31st Ashd, 2076 No. of Shares No. ofShnres Balance Us at tie beginning of lie year 10,840,450 10,840,450 Changes during tie year - - Bulance os at cite end of the year 10,840,450 10,840,450 C. Details ofshareholding Particuinrs As nt 31st Ashad, 2077 As it 31st Ashd, 2076 No. tfShtres Share % No. of Shares Share % GUrans Energy Ltd. 7,873,590 72.30% 7,873.590 72.30% Butwal Power Co. Ltd. 2,966,860 27.24% 2,966,860 27.24% Asia Pacific Power Tech 50000 0.46% 50,000 0.46% Total 10,890,450 100%/ 10,890,450 100% a) Shareholders of tihe company are Butwval Power Co. Ltd., Gurans Energy Ltd. and Asia Pacific Power Tech Co Ltd, (APPT). Of the shareholders, APPT vide letter dated 18 February 2014 intended to sell its portion of share. Subsequently, Gurans Energy Ltd. had agreed to purchase shares of APPT and approval from Department of Electricity Department was received on 12 July 2016. However, Gurans Energy Ltd, is yet to purchase the initial shares of APPT along with right issue made since initial issue of shares pending approval frot Department of Industry (DO). Total unsubscribed shares by APPT till Ashad end 2076 is 520,550 shares (equivalent to Rs. 52,055,000). b) The Company has only one class of equity shares having par value ofNPR 100 per share. Every mnember iholding equity shares therein shall have voting rights in proportiontI the member's share oftie paid op equity share capital. Note no: II Other equity Advance towards Rejoined earnings Tolat share capital Balance at I Shravon 2075 1,260,044 (16,448,879) (15,188,835) Profit for tire year - 16,050,014 16,050,014 Other comprehensive income - Adjusted with Share Capital issued during the year - - - Balance at 32nd AShad 2076 1,260,044 1398,865) 861,179 Profit for the year - (147,877,077) (147,877,077) Other comprehensive income Adjusted with Share Capital issued during the year - - - Balance at 31st Ashad 2077 1,260,044 (148,275,942) (147,015,898) Terms and condition of advance towards share capital Advance towards share capital are provided by one of the shareholder(s) for meeting company's operating expenses. The balance under Advance towards Share capital represents the remaining amount after adjustments against allotment of right shares, which is outstanding since FY 2073-74, This amount could be osed towards future issue of shares by the Company upon mutual consent of both the Company and Shareholder(s). Since no fresh call for right issue to the shareholders has been made after 21st Oct 2016, the amiount is expected to be settled as and when new subscription for right shares shall be called up by KEL in due course. n andu an u Ac00~ /•7А пгг. ;и л77г П�п11• 111г: I2 I1u1'1'и»I11Yn 1'лг11гп1л1т An.171.1 A,h.1131177 Aa.u 71.1 A.Lx,12x7l. ('игп•nI Nun-1'urrrnl 1'пгггпl Nun-('urrcnl Р1гм rril и1 пп1иг11(г11 сплl \г1•игг1l 1lпгги»IпУл Г1'ии111�и11lл �1 ci п1 1,1�iu 1.1 М1.'1'17,11I1, 1 1П.t.:.17.•1п: 1,1Ч2;)Ч7,l11L а - 1.117J 5J7.J('S 11'I'11е а,»1�,,пп 1ьn С1иг1ачl min'F:1�.1. tiu1,.aJia1)• л111Сгп1а'п1' 1iu .11гапМа•1пСп1 �11 1г1п1 11,an г\п1, 11)'J11'г1ССп1а'1ry' 1т'гнпlгпi лп11 1)г\'а•1,�1,п.п1 L'ппlryпП' 1.1J (1111)l'1.1 и 1 I71Ii M1Iu1CI1 21)I1�. 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FJесио-МедипК.1. 11рдм,чпгдlлие.�1 1�: т:п• Ьг иррlКаhlе). мпЧ:Кlт Fплг:и»Сс.: пп и и�и,пд Ch�rE hам.. пГ 11,с 1hu1rcl :а..с1а In 11I1)С1. b)'1'ачпп пПггР�алигт ai'Ггтll.пиыч Раг11ги1игл Ал и1 71а1 AnhлJ 31177 А. и1 71л1 АлhиJ 2П76 3-3 уr.ик - - fi-1 П Уеш. '_н'_ 1К12,1',J 1 2ц,•77Г1,1н11 11c\'ип� 111сглгл 9U'_,(,115.КН5 %'_П,45i.NN11 Nп1с пп: 17 Sun11n' СггЛllигл Риnlгиlпп Ал .1 71г1 NhxJ 2п77 Ал .t 71в1 A.h+d 2Ч76 \ипслу l'гcJilnl� 7н,МIЧ цM1'1 4.1!1'11,77.1 7Н.НПJ:)L7 J7:)11.717 Nп1г пп: 1J 01hгг Ппипг1.111иL111ди Р+г11ги1пп Аа и1 71n1 АвhаЛ 2U77 М и1 J1в1 АлhвЛ 2П76 Сигггпl NптСипгпl Сигггпl Nпп-Сигггпl 11пг1iа 1':»•ahlc 1'-1 7n6.i1U `ll•257.И%I Ra•1cnli.�nn,una•v1':iv:�1,1C 7.5113.2М1 - 15•7J7.'_'13 - 1.u:ml•иlптilпtп111�Сс1':,1:'h1ь• - " � 1').-0Г,1.7GП - I:n1П1,1vьt•гг1:Чь'11:КСпv�1 41).1н.4'1Г - 5'19.511'1 � l)1hcr1,:'У:'1де '_н2.4117 JГг27'1Г � 137siJ11.J')J 12'1 5211 М7'1 Nи1и : 15 РгоvЫип Риг11си1ап Ал и1 71в1 Aahad 2U77 � Ал вt J1e1 АвhвJ 21176 Сигггпl Nпп-Сигггпl Сипм1 Nпп-Сигггпl 1hn\'isiunliul.ьv\'e1�:nпvdlntCnl - - 2П1.?11) 1Jx9,'1') 1'гп\'iчiun fitt 1'1.1 - - 741 l72 " Р1и\iмип би г.lкпа., 5.1J.Г±2 1,lЧ7.211 ' rvмг пи: 1ь отп гигггПl иПг1 Пг,п-гигггпl пиьиlпгг Раг11ги1лгв Ав и1 71л1 AahuJ 2П77 Ал и1 71г1 АвhаЛ 2117L Сигггпl Nпп-Сигггпl Сипгпl �7ип-Сиггепl ГгаlпiП' Ра}'и1,1г - 1,н'_З,iЧб 'fUti Р:п�:,Ыс 1,2211.G%1 н15.1но ,,. 1,2211.6N2 2.GЖ.7NG .. � ``�. ��\ 1 I/' n \� rJJ �1 . � � а gC & г���% jl� � l' G С' .1 � Гр Э Г/-СТ� О / Q' ` г � �- * V 7� i`� ' С \� �.. ��_ <. , ' л апди и �`:� �r_,.~Г� �г �С j ег дАссо°� i ! ` Milex In Onr fina It Cht I x I it I, It I,, IN (,it- lh y,nr 11dr, I 31m Ashad 21177 Figni-eiv In Nil]? Note :17 Other Income Pa.-liculurs I FV 2076-77 F FY 207 -76 Finance nictune Id.778,061 5,875,291) Gain (Lois) ol'Sale ol'Assets and Matcrials 3,01081 Payalik, %witten back 19,837,08-1 C(unper.1111441 FCCCIVial flour CiVil/liNi COMiactor 267,962,967 Miscellaneous Income - 31)2,578,112 8,934,306 Noleno: 18 Athninistralive and other pc.-aling expenses PRI'ticulm's F- FY 2076-77 For FY 2075-76 Salaries and other employee cost 20.269,690 1,550,206 Contribution towards Provident Fund and Gratuity 1.501,108 2,11,908 Audit Fee and related expenses Refer note (a) 375.186 1,087,514 AGM and Board a-penscs 45,244 165,415 Legal Fee and related expenses Refernote (h) 100.430,450 22,207.818 Consull-ey fees 25,987.609 - Rent 1.523,102 163,677 Depreciation andainortisation 3.706,813 334,723 Repair and Maintenance 353,205 33,276 Insuran" 33,525,296 29,978 Foreign Currency (Gain) / Loss Refer note (c) 35,288,451 (48.,132,383) Compensation Paid to EM Contractor Refer note 2 21 52.974,000 - Other e pcnscs 7,677,775 80,18,11 283,657,935 122,477,684) n) Audit Fee and related expenses includes fallmving: For F)'2076-77 For FY 2117 -76 Statutory Audit Fees 226,000 226,FOO IFRS Audit Fees 130,801 282,500 Internal Audit Fees - 339,000 Others Fees for other audit related services - 158,200 Reimbursement of out-of-pocket pcnscs 18,385 81,814 375,186 1,087,514 h) Legal fees paid to Herbert Smith Fice hills LLP (Singapore Office), Pioneer law Associates etc. to act as foreign legal counsel ofilic Company in connection %vith ongoing legal procccifingwilh ZHCIC for terminationand drawing upon the performance bond. e) KEL has realized foreign currency loss of N13R 2,088,525 vitich %%,as recognized at the time of making the Payment in foreign currency denominations. Further. this includes unrealized foreign exchange loss ofNPR 103,393,980 on account ofrc-luation offoreign borrowings after the suspension of active construction of tire project. These lo. cs aTe reduced by tire revaluation gain of NPR 68,803,549 on account of reinstatement of dollaraccourn as on reporting date. Note No:19 Finimcc Costs P-flculr- Far FY 2076-77 Far FY 2075-76 Interest Expenses 78969-110 15,361.976 Loall Commitment Fees 117,828,144 - 16 6 7 9_ 2 -4 15,361,976 a) 100% off he B or ro%vi all cost has been ex peas ed offas I lie a ct iv e co nst ruct i on oft he proj ect %vas s uspended for the ent i re fit n an cia I Y ca r. b) The unamortized commitment fee and urennortized loan processing fee has been fully expensed off in the current year as these %%,ere paid to International Finance Corporation (ITC) in earlier year as per the finance agreement. As on the balance sheet date, there %vas a clear indication front lFC regarding termination of the loan agreenient. Subsequent to tire balance sheet date, tire Company has received notice or loan cancellation from IFC on Dec 21. 2020, Note No:20 Earnings per, share Particulars For FY 207&-77 For- FY 207 76 Profit for the year (147,877,077) 16,050,014 Weighted average number of equity shares outstanding 10,840,450 10.840.450 Earrdn? Per Share (Rs.) - Basic (Face value ofRs. 100 per share) ___LI3.64L 1.48 Add: Weighted average number of potential equity shares 12.600 12,600 Weighted average number of Equity shares (including dilutive 10 853,050 10.853,050 shares) outstanding Earnings Per Share JRs.) - Diluted (Face value of.Rs 400 per- share) (13.63) 1.48 ZVI rg.l C& f7' m ndu At Kahell Energy Lililed Notes t lite flnunalii staitments lir the year ended 31st Ashd 2077 Figures in NPH Note No: 21 RELATED PARTY DISCLOSIIlES (a) Relationship The company is controlled by Gurans Energy Limited which owns 72.3% of the compny's shares. Gurls Energy Limited is a joint venture between Ifraco Asia himalayn Hydro Pie Lid, a company incolporaled in Singapore and Buiwal Power Company Limited, a company inceorporated in Nepal Relationship i1cItled Parties Holding Company Giurans Energy Limited Company with substantial influence InfraCo Asia Ilialaynn Hydro Power Pie LAd Shareholder with substantial influence Butwal Power Company Limited Subsidiary of Shareholder with substantial B13C Services Liitied inluence Subsidiary o Sharcholder with sUbstantial Hlydro Consult Engineering Ltd. influence Company with common directors Panchakanya SSP Ltd (b) Those charged with governance Those charged with governance otf he KEL include metitbers of Board of directors namely: Name Designition * Pradeep Kumar Shrestha Claiperson 2. Padtta Jyoli Director 3. Ian Menzies McAlister Director 4 Vivek Krishan Gupta Director 5. Claudine lim Hsi-Yun Director 6. Uttar Kumar Shrestlia Alternate Director Directors of the company are not provided any facilities or paid any fee by the company except reimbursement of travel expenses and allowances. (c) Transactions with key management personnel Key Management Personnel and his complesation . Particulars Current year Previous Year Slier Singh Bhat (ChiefxEecutive Officer) 2,760,000 2,760,000 Apart from remuneration, there are no other facilities provided. (d) Other related party transctions Name of the related party N"ture ofteansaction Transaction Outstanding ballnce Current Year Previous Yer Current Yenr Previous Year Gurons Energy Limited Advance towards Share - - -- Capital Buswal Power Company Limited Reimbursement of rent 1.735,921 1,757,195 - 69,201 and utilities Interest payable - - 79,190,659 79,190,659 Advance towards Share - - 1,260,444 1,260,444 Capital Panchakanya S.S.P Lid Construction of Pre-Fab - 10,511,129 - - .Buildine at site Hydro Consult Engineering Ltd. Owner Engineering 1,900,546 1,997,520 1,900,546 1,997.520 services BPC Services Limited Outsourcing fee - 36,082 - 36,082 Note No: 22 CAPITAL COMMITMENTS Particulars As at . As at 31 Ashadh, 2077 31 Ashadh, 2076 a) Capital commitments Consulting Contract with M/S, TATA consulting Engineers imited for Construction 4,626,657 4,042,951 supervision and other Consulancy Services b) Batk Guarantee Bank Name Purpose Amount Expiry Date (A. D.) NIC Asia Bank Linited As per requirement o Power Purchase Agreement (PPA) with Nepal 37,600,000 11/15/2021 Electricity Authority (NEA) (0d Kabeli Energy Limited Notes to the financial statements for (lie year ended 31st Ashad 2077 1. Background Kabeli Energy L,imited (KEL) is registered under the Companies Act 2063 and under the existing laws of Nepal, for (lie purpose of' implementation, ownership and operation of' the hydroelectricity generation project with its registered office at Buddhanagar, Kathmandu, Nepal. The company was registered on 2066.10.13 (27.01.2010) as a public limited company and obtained approval for commencement of business on 2066.10.13 (27.01.2010) for (lie development of 37.6 MW Kabeli "A" Hydroelectric project located in Panclithar district. The project is peaking run of river (P)ROR) type. The power purchase agreement (PPA) with Nepal Electricity Authority (NEA) was signed oil 2072.06.07 (24.09.2015) and the financial closure has been completed on 2072.12.04 (17.03.2016). The extended Required Commercial Operation Date (RCOD) is 15 February 2020; the company has applied to NEA for extension of'the RCOD date till 9' October 2020, and the NEA Board has already provided its recommendation to Electricity Regulatory Authority (ERC) for the RCOD extension. The final approval on RCOD extension is yet to be received firom ERC. There were no construction activities during the current fiscal year and the project is at complete halt during this period. As a result, the physical progress of the project till 15th July 2020 cannot be achieved beyond 20%. The construction of the project has been suspended since December 2018 after the Company's instruction to the Civil and Hlydro Mechanical (lHM) contractor, Zhejiang Hydropower Construction aid Installation Co. Ltd. (ZI-ICIC) to suspend its works due to repeated non-colipliance with environmental, health and safety standards and the Company's subsequent termination of the ZHCIC contract. The financial statements apply to the financial year ended 31st Ashad 2077(15th July 2020). In the Financial Statements, Kabeli Energy Limited has been referred as "KEL" or "Company". The accompanied financial statements have been approved for publication by the Board of'Directors ofthe KEL in its meeting held on Jestha 14, 2078 (May 28, 2021). 'he Board of Directors acknowledges the responsibility of preparation of financial statements. 2. Significant accounting policies 2.1 Basis of Preparation and measurement i. Statement of Compliance The financial statements have been prepared in accordance with applicable Nepal Financial Reporting Standards (NFRS) as issued by the Institute of Chartered Accountants of Nepal (ICAN). The Financial Statements have also been prepared in accordance with the relevant presentational requirements of' the Company Act, 2063 of Nepal. ii. Basis of preparation The financial statements have been prepared on accrual and going concern basis. The accounting policies are applied consistently to all the periods presented in the financial statements. All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle. Based oil the nature of' products and the time between acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current or non-current classification of assets and liabilities. The financial statements are presented in functional and presentation currency of the Company i.e. Nepalese Rupee ("NPR") which is the currency of the primary economic environment in which the Company operates. iii. Basis of measurement These financial statements are prepared under historical cost convention except for certain material items that have been measured at fair value as required by the relevant NFRS and explained in the ensuing policies below. 2.2 Critical accounting estimates and judgments The preparation of the financial statements in conformity with Nepal Financial Reporting Standards requires the use of certain critical accounting estimates and judgments. It also requires management to exercise judgment in the process of applying the Company's accounting policies. The Company makes certain estimates and assumptions regarding the future events. Estimates and judgments are continuously evaluated based on histopicalexperience and other fiactors, including expectations of future events that are AdIA Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 believed to be reasonable under the circumstances. Management believes that the estimates used in the preparation of te linancial statements are prudent and reasonable. 1uture results could differ froi these estimates. Aiy revision to accounting estimates is recognized prospectively in current and future periods. The estimates and assumptions (liat have a significant risk of causing a material adjustnient to the carrying amounts o 'assets and liabilities within tlie next tinancial year primarily includes: - Useful life and residual value of property, plant and equipment Management reviews the useful life and residual values of property, plant and equipment at least once a year. Such life is dependent upon aii assessment of both the technical lile of the assets and also their likely economic life, based on various internal and external factors including relative efficiency and operating costs. Accordingly, depreciable lives are reviewed annually using the best information available to the Management. Impairment of property plant and equipment At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is usually determined on the basis of discounted estimated future cash flows. This involves management estimates oii anticipated commodity prices, market demand and supply, economic and regulatory environment, discount rates and other factors. Any subsequent changes to cash flow due to changes in the above-mentioned factors could impact the carrying value of assets. Contingencies In the nomial course of business, contingent liabilities may arise from litigation and other claims against the Company. Potential liabilities that are possible but not probable of crystallizing or are very difficult to quantify reliably are treated as contingent liabilities. Such liabilities are disclosed in the notes but are not recognized. Recognition of deferred tax assets Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The Company based its assumptions and estimates oii parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. 2.3 Property, plant and cquipment . All other items of property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. ii. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset are derecognized when replaced. All other repairs and maintenance are charged to profit and loss (except allocated to intangible asset under development as referred in 2.4) during the reporting period in which they are incurred. iii. The Company identifies and determines cost of each component/part of the asset separately, if the component/part has a cost which is significant to the total cost of the asset having useful life that is materially different from that of the remaining asset. These components are depreciated over their useful lives: the remaining asset is depreciated over the life of the principal asset. iv. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. v. An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized. vi. Assets in the course of construtio n are capitalized in the assets under capital work in progress account (CWIP). At the point t starts operating at management's intended use, the cost of r As Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 construction is transferred to the appropriate eategory of property, plant and equipment and depreciation commences. Where an obligation (legal or constructive) exists to dismantle or remove an asset or restore a site to its lorier condition at the end of its useful life, the present value of the estimated cost of' dismantling, removing or restoring the site is capitalized along with (lie cost of acquisition or construction upon completion and a corresponding liability is recognized. RCvCnuC generated froin production during the trial pcriod is capitalized. 2.4 Intangible Assets under Development Kabeli Energy Limited has business of'gencration ofhydro power energy and for this it has obtained license firom Nepal Government which is valid till 2104.05.20 3.S. Further Article 15.13 of the PPA between KEL.. & Nepal Electricity Authority reads as follows- "Upon the expiration of the term (i.e., 25 years from the date of Commercial Operation), company shall arrange flor the transfer to NEA of fifty percent (50%) ownership interest, firee and clear of all lines and encumbrances created by the financial documents, in the project for a nominal consideration of I Rupee". The service concession of Kabeli Energy Limited is accounted for under the Intangible Asset Model according to IFRIC 12 Service Concession Arrangements. The carrying amount of the concession right is NPR 1,352,594,313.94 as on July 15, 2020. Replacemcnts and extensions are capitalizcd as intangible assets and amortized over the remaining usefil life of* the concession. Amortization of intangible assets will begin from date of commercial operation. Refer notc 2.17 for policy regarding service concession arrangement and refer Note 5 for detail of intangible assets under development. For accounting purpose, it is assumed that the PPA agreement will be renewed in the years to come and 100% of the ownership will be transferred to NEA and profit margin during construction phase is assumed to be Nil. All the expenscs incurred during the suspended period have been fully charged to revenue on basis of management's best estimates considering status of the project. 2.5 Depreciation and Amortization i. Depreciation is recognized so as to write ofl the cost of assets (other than properties under construction) less their residual values over their useful lives, using the straight-line method. ii. Amortization is recognized on a straight-line basis over their estimated useful lives. '[ie estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. iii. Depreciation is provided on the straight-line method based on the estimated useful lives of the assets determined by the management. Depreciation on additions to fixed assets is charged on pro-rata basis in the year of purchase. The useful life of the assets and the corresponding rates at which the assets are depreciated are as follows: - Category of asset Estimated useful life Depreciation Rate Building, Structure 20 years 5% Plant and Machinery 7 years 14.29% Office equipment 4 years 25% Furniture and Fixtures 4 years 25% Computers 4years 25% Automobiles 5 years 20% Asset with net book value under NPR. 5,000 is written off. Useful life is either the period of time which the asset is expected to be used or the number of production or similar units expected to be obtained fiom the use of asset. '[he estimated useful life, residual values and depreciation method are reviewed at the end of'each repoiling period, with the effect of any changes in estimate accounted for on a prospective basis. iv. Leasehold improvements-are depreciated over the period of lease or estimated useful life, whichever is lower, on straight 1 :Iiasi W 1qV - -.17 C, '. Z11 ~Pd h Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 v. Depreciation on assets under construction does not commence until the)' are complete and available for usc. vi. Depreciation and amortization expense are allocated to "Intangible Assets under development and 'Administrative and other operating expenses" oii basis of managenient's best estimates. 2.6 Impairment of tangible and intangible assets i. At tie end of each reporting period, the Company reviews the carrying aiounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. 1 1any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if' any). When it is not possible to estimate the recoverable amount ofan individual asset, the Company estimates the recoverable amount ofthe cash- generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-gencrating units, or otherwise they are allocated to the smallest cash-gencrating units for which a reasonable and consistent allocation basis can be identified. ii. Intangible assets vith indefinite usefil lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. iii. Recoverable amount is tbe higher of Fiir value less costs of disposal and value in use. In assessing value in use, the estimated Future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments ofthe time value of'money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. iv. If the recoverable amount ofan asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in Statement of Profit and Loss. v. When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of'an impairment loss is recognized immediately in Statement of Profit and Loss. 2.7 Borrowing cost Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of Funds. Borrowing cost also includes exchange differences to the extent regarded as aii adjustment to the borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of'time to get ready for its intended use or sale are capitalized as part of the cost of the asset until such time as the assets are substantially ready for the intended use or sale. All other borrowing costs are expensed in the period in which they occur. In determining the borrowing cost eligible for capitalizations under Intangible Assets under Development, any investment income i.e., interest income derived on Bank Call Account is deducted from the borrowing cost incurred in gross. All the Borrowing cost incurred during this year has not been capitalized and expensed off under finance cost and Administrative and other operating expenses as tbe active construction of the project was suspended from this date. Also, the foreign exchange difference after such suspension date has not been regarded as an adjustment to the borrowing cost and has been charged to Profit and Loss as foreign currency gain under other income. 2.8 Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and demand deposits with an original maturity of three months or less and highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value net of outstanding bank overdrafts as they are considered an integral part of the Company's cash management. 2.9 Inventories Cost of inventories includes cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventories of stores, spare parts and loose tools are stated at the lower of weighted average cost and net realizable value. Net realizable value represents the *0 Sb Kabeli Energy Lilited Notes to the financial statements for the year ended 31st Ashad 2077 estimated selling price for inventories in the ordinary course of business less all estimated Costs ofl' completion and estimated costs necessary to make the sac. 2.10 Foreign currency transactions i. The fitnctional currency of the Company is determined on the basis of the primary economic environment in which it operates. The functional currency of thc Company is Nepalese Rupee (NPR). ii. In preparing the financial statements the Company, transactions in currencies other than the entity's functional currency (lforeign currencies) are recognized at the rates of cxchange prevailing at the dates of the transactions. iii. At the end ofcach reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-nionetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. iv. Non-monetary items that are measured in terms of' historical cost in a foreign currency are not retranslated. v. Exchange differences on monetary items (excluding foreign currency borrowing) are recognized in Statement of Profit and Loss in the period in which they arise. 2.11 Employment Bencits The Company has schemes of employment benefits namely provident fund, gratuity fund, and accumulated leave payable as per its personnel bye law. Defined contribution plan - Provident Fund and Gratuity Under defincd contribution plans, provident fund, the Company pays pre-defined amounts to separate funds and does not have any legal or infiormal obligation to pay additional sums. Contributions to defined contribution schemes (Provident fund) are charged to the profit or loss statement (except allocated to intangible asset under development as referred in 2.4) in the year to which they relate as the company has no further defined obligations beyond monthly contributions. Provident funid is deposited with Employees Provident Fund (Karmachari Sanchaya Kosh). As per the provision of new Labor Act enacted and effective from September 4, 2017, gratuity plan has been converted into contribution plan from defined benefit plan. Contribution of' 8.33% of basic salary needs to be deposited on monthly basis to the separate Social Security Fund. As on date, the Company has set aside the contribution towards gratuity in books of accounts and deposited the same to approved CIT fund. Short term and long-terni employment benefits i. A liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period when the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. ii. Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount ofthe benefits expected to be paid in exchange for the related service. iii. Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the obligation as at the Balance sheet date determined based on actual calculation as per Personnel Bye Laws of the company. Actuarial valuation of compensated absence has not been done as amount is not significant. The Board meeting of the company held on 15th July 2020 has decided not to renew the existing service contracts of employees whose contracts are expiring on 15th July 2020, except for a few necessary staff who have been retained and with whom the existing service contracts have been extended. For employee whose service contracts were not renewed, the Company has made full and final settlement of employees" dues and paid additional severance allowance amounting to 6 months Basic pay for each s employee. 0 & Co Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 2.12 Taxation Income Tax Income tax on tle profit or loss for the year comprises current taxes anti deferred taxes. Income tax is recognized in the profit or loss statement exccpt to the extent that it relates to items recognized directly to equity. The tax assets (net) as on 15"' July 2020 amounting to NPR 1,474,860 (PY: NPR 990,554) disclosed in (le Statement of Financial Position are (lie tax withheld at source by the third party. Currcnt tax Current tax is tle expected tax payable on the taxable income for the year using tax rates at the balance sheet date. Tax Exemption As per section 1](3gha), of Income Tax Act, 2058 Nepal, Institution having license to generate, transmit and distribute electricity shall be provided 100% tax exemption up to 10 years and 50% tax exemption up to subsequent 5 years if the commercial electricity generation, transmission or distribution commences up to Chaitra 2080 B.S. Deferred tax i. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based oii the expected realization or settlement of the carrying amount of assets and liabilities using enacted tax rates at the balance sheet date. ii. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Hence, at this point, deferred tax assets has not been recognized against deductible temporary differences. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. iii. Deferred tax liabilities and assets 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. 2.13 Earnings per share Basic earnings per share is computed by dividing the profit/ (loss) for the year by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for treasury shares, bonus issue, bonus element in a rights issue to existing shareholders, share split and reverse share split (consolidation of shares). Diluted earnings per share is computed by dividing the profit/ (loss) for the year as adjusted for dividend, interest and other charges to expense or income (net of any attributable taxes) relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. 2.14 Pi-ovisions, contingencies and commitments i. Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of tle obligation. ii. When the Company expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. iii. The expense relating to a provision is presented in the statement of profit and loss (except allocated to it ible asset under devielofil referred i 2.4) net of ay reimbursement. m ndu deelfiIeere dfkiQ Kabeli Energy Limited Notes to (lie financial statements for the year ended 31st Ashad 2077 iv. If the ef'feet of the time value of nioney is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability- When discounting is used, the increase in (lie provision due to the passage oftime is recognizedts a finance cost. v. A provision for onerous contracts is-recognized when the expected benefits to be derived by (lie Company from a contract are lower than the unavoidable cost of' meeting its obligations under the contract The provision is measured at the present value of the lower of the expected cost of' terminating the contract antI the expected net cost of continuing with the contract. Beftore a provision is established, the Company recognizes any impairment loss oin (be assets associated with that contract. vi. A contingent liability is a possible obligation that arises from past events whose existence will he confirmed by the occurrence or non-occurrence of one or more uncertain fiture events beyond the control of the Company or a present obligation that is not recognized because it is not probable that in outilow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognizcd because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the standalone financial statements. vii. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of'one or more uncertain future events not wholly within the control of the entity. viii. Commitments include the amount of' purchase order (net of advances) issued to parties for completion of assets. ix. Provisions, contingent liabilities, contingent assets and commitments are reviewed at each reporting period. 2.15 Financial Instruments i. Financial instruments Financial assets and financial liabilities are recognized when the Company becomes a party to the contract embodying the related financial instruments. All financial assets, financial liabilities and financial guarantee contracts are initially measured at transaction cost and where such values are different from the fair value, at fair value. Transaction costs that are directly attributable to the acquisition or issue of'financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value measured on initial recognition of'financial asset or financial liability. Transaction costs directly attributable to the acquisition of' financial assets and financial liabilities at fair value through profit and loss are immediately recognized in the statement of profit and loss. ii. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter period. Income/ expense arising on financial instruments alter applying an effective interest rate is recognized in Statement of Profit and Loss. iii. Financial assets Financial assets at amortized cost Financial assets are subsequently measured at anortized cost if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets measured at fair value Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is to hold these assets in order to collect contractual cash flows or to sell these financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company in respect of equity investments (other than in subsidiaries, associates and joint ventures) which are not held for trading has made an irrevocable election to present in other comprehensive income subsequent changes in the fair value of'such equity instruments. Such an election is made by the Company oii an instrument-by-instrument-bas is at the time of initi 1'recognition of such equity investments. a du -~ ( J- Ar,.,.X Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 -inancial asset not measured at anortived cost or at f'air value through other Comprehensive income is carried at fair value through the statement of' prolit and loss. For financial assets maturing within one year froi the balance slieet date, the carrying amounts approximate fair valuc due to the shorter Maturity of these in strumenits. Impairment of financial assets Loss allowance for expected credit losses is recognized for finaicial assets measured at amortized cost anid fair value through the statement of profit of loss. The company recognizes impairment loss oii trade receivables using expected credit loss model. For financial assets whose credit risk has not significantly increased since initial recognition, loss allowance equal to twelve months expected credit losses is recognized. Loss allowance equal to the lifetime expected credit losses is recognized if the credit risk on the financial instruments has significantly increased since initial recognition. De-recognition of financial assets The Company de-recognizes a financial asset only when the contractual rights to the cash flows from the tiiancial asset expire, or it transfers the fiiancial asset, and the transfer qualifies for dc-recogiiitioi under NFRS 9. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the assets and aii associated liability for amounts it may have to pay. Iftthe Company retains substantially all the risks and rewards of-ownership of'a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. On de-recognition ofa financial asset in its entirety, the difference between the carrying amounts measured at the date of de-recognition and the consideration received is recognized in statement of profit or loss or retained earnings, as applicable. iv. Financial liabilities and equity instruments Classification as debt or equity Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions ofa financial liability and an equity instrument. Equity Instruments An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. Financial Liabilities Financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost, using the effective interest rate method where the time value of money is significant. Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently measured at amortized cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognized over the term of the borrowings in the statement of profit and loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments. Financial guarantee contracts Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as I*I¶i&dw S' iA aI &w Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 a liability at fair value. adjusted or transaelion costs that are directly attributable to the issuance of the guarantee. De-recognifion of financial liability A financial liability is derecognized when the obligation under (lie liability is discharged or canceIled or expired. When ani existing financial liability is replaced by another from the same tender on substantially dif'erent terms, or the terms of an existing liability are substantially modifled, such an exchange or modifleation is treated as the de-recognition oftli original liability and the recognition of a new liability. The diflerence in the respective carrying amounts is recognized in the statementof profit and loss. v. Off-setling of tinancial instruments Financial assets and financial liabilities are offset, and the net atiount is reported in the standalone balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. vi. Fair Value measurement The Company measures financial instruments, such as, investment in equity instrutnents at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in atn orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transl'er the liability takes place either: (i) In the principal market for the asset or liability, or (ii) In the absence ofa principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level I - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. 2.16 Leases The determination of whether an arrangement is (or contains) a lease is based on the substance of' the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. A lease is classified at the inception date as a finance lease or an operating lease. Company as a lessee A lease that transfers substantially all the risks and rewards incidental to ownership to the Co any is classified as a finance lease. roO\ Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 A leased asset is depreciated over the usefli II le of lie asset. Ilowever, if there is no reasonable certainty that the Company will obtain ownership by (lie end of' the lease term, the asset is depreciated over tle shorter of the estimated usefil life o l'the asset and the lease tecrm. Finance leases are capitalized at the commencement of' the lease at the inception date Cair value of' (lie leased asset or, at the present Value o lthe minimum iulease payments at the inception of the lease, whichever is lower. Lease payments are apportioned between fiiance charges and reduction of'the lease liability so as to achieve a Constant rate of' interest oii the remaining balance of' the liability. Finance charges are recognized in finance costs in the statement of' profit and loss, unless they are directly attributablc to qualifying assets, in which case they are capitalized in accordance vith the Company's general policy on the borrowing costs. Operating lease payments are recognized as an expense in the statement ofprofit and loss (except allocated to intangible asset under development as ref'erred in 2.4) on a straight-line basis over the lease term unless either: a. another systematic basis is more representative of the time pattern of the uscr's bencilit even if the payments to the lessors are not on that basis; or b. the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessor's expected inflationary cost increases. If payments to the lessor vary because of factors other than general inflation, then this condition is not met. The future lease liability relating to operating lease of the company at the balance sheet date is as follows: Particulars Amount (NPR) Due Within I Year 1,231,659 Due from I Year to 5 Years - Due After 5 Years 2.17 Service concession arrangements Under IFRIC 12 - Service Concession Arrangements applies to public-to-private ser-vice concession arrangements if: a. The grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what prices: and b. The grantor controls through ownership, beneficial entitlement or otherwise any significant residual interest in the infrastructure at the end of the term of the arrangement c. Is the infrastructure constructed or acquired by the operator from a third party for the purpose of the service arrangement OR is the infrastructure existing infrastructure of the grantor to which the operator is given access for the purpose of the service arrangement? Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole life of assets) is within the scope of this IFRIC, if the conditions in (a) above are met. These arrangements are accounted on the basis of below mentioned models depending on the nature of consideration and relevant contract law. Financial asset model: The Financial asset model is used when the Company, being an operator, has an unconditional contractual right to receive cash or another financial asset froin or at the direction of the grantor for the construction services. Unconditional contractual right is established when the grantor contractually guarantees to pay the operator (a) specific or determinable amount; (b) the shortfall, if any, between amounts received from the users of the public services and specilied or determinable amounts. Intangible asset model: The intangible asset model is used to the extent that the Group, being an operator, receives a right (a license) to charge users of the public service. A right to charge users of a public services is not an unconditional right to receive cash because the amounts are contingent on to the extent that public uses the services. Both type of arrangements may exist within a single contract to the extent that the grantor has given an unconditional guarantee of payment for the construction and the operation i.e. considered as a Financial asset and to the extent that the operator has to rely on the public using the service in order to obtain payment, the operation has an intangible asset. &Co ed~ it~naii .C..d CAl~ Kabeli Energy Limited Notes to the financial statements for the year ended 31st Ashad 2077 The Coipany is constructing hydro power project aler obtaining license from DOED and will maintain miu service the inrastructutre (luring the concession period up to 51' September 2047 A.D. The concession arrangement provides KEl . obligation to construct the hydrO power, generate electricity and sell the same to Nepal Electricity Authority at rates agreed as per Power Purchase agreement. Further, the concession arrangement gives KEL right to use the hydro power project for generating clectricity and earn revenue by selling electricity to NEA. The right to consideration gives rise to air intangible asset and accordingly, the intangible asset models is applied. At this point oftine, the pro ject is in construction period so all the incidenital cost attributable to set up of' the project is charged to "Intangible Assets under Development". 2.18 Financial risk management objectives and policies The Company's business activities expose it to a variety offinancial risks, namely primarily to Iluctuaiois in foreign currency exchange rates, interest rates, equity prices, liquidity and credit risk, which may adversely impact the fair value of its financial instruments. The Company's Board and senior management has overall responsibility for the establishment and oversight of the Company's risk management. The Company's risk management policies are established to identify and analyses the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Risk Management is done by the Company's management that provides assurance that the Company's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives. The Board of Directors reviews and agrees to policies for managing each of these risks which are summarized below: - a. Currency risk The Company is subject to the risk that changes in foreign currency values impact the Company's imports of services, inventories and property, plant and equipment. As at 31st Ashad, 2076, there is unhedged exposure to the Company on holding financial assets (Bank balances) and financial liabilities (borrowings and trade payables) other than in their functional currency. The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US Dollar. The following table demonstrate the unliedged exposure in USD exchange rate as at Ashad 31, 2077 and Asadh 31, 2076. Particulars Ashad 31,2077 (NPR) Ashad 31, 2076(NPR) Cash and bank balance 58,308,083 166,318,823 Bank Balance other than cash and cash equivalents 859,905,853 530,942,800 Borrowings 1,182,997,106 1,074,547,465 Interest payable 42,515,651 14,063,221 Retention money payable - 13,623,364 Loan Commitment Fee Payable - 19,461,360 b. Credit risk Credit risk refers to the risk that a counterparty including its subsidiaries and associates will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining suficient collateral, where appropriate, as a means ofimitigating the risk of financial loss from defaults. The Company's exposure and the credit ratings of its counterparties are continuously monitored. In addition, the Company is exposed to credit risk in relation to financial guarantees given to banks provided by the Company. The Company's maximum exposure in this respect is the maximum amount the Company could have to pay if thie guarantee is called on. No amount has been recognized in the financial position as financial liabilities. c. Interest rate risk KC Kabeli Energy Limited Notes to the finaincial s(atements for the year ended 31st Ashad 2077 Interest rate risk is the risk that the fair value or liture cash flows of' a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to tle risk of changes in market interest rates relates primarily to the Company's long-term debt obligations. Since. inl case of KEL. the interest rate risk is not much influenced by market forces, it has minimal risk associated with the interest rate fluctuations. d. Liquidity risk Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Company's approach to managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses, in doing this, management considers both normal and stressed conditions. A material and sustained shortfall in our cash flow could create potential business continuity risk. The Company's Finance department regularly monitors the cash position to ensure it has suficient cash on-going basis to meet operational needs. 2.19 Capital Management For the purpose of the Company's capital management, capital includes issued capital, and all other equity reserves attributable to the equity holders of' the company. The Company manages its capital so as to safeguard its ability to continue as a going concern and to optimize returns to the shareholders. The capital structure of the Company is based on management's judgment of the appropriate balance of'kcy elements in order to meet its strategic and day-to-day needs. We consider the amount of capital in proportion to risk and manage the capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company's aim to translate profitable growth to superior cash generation through efficient capital management. The Company's policy is to maintain a stable and strong capital structure with a focus on total equity so as to maintain investor, creditor, and market confidence and to sustain fiture development and growth of its business. The Company's focus is on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required, without impacting the risk profile of the Company. The Company will take appropriate steps in order to maintain, or if necessary, adjust, its capital structure. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 "Ashad 2077. 2.20 Significant Events and Conditions In addition to the closing and withdrawal ofthe loan facility of the World Bank /IDA after December 2019, the Company has also received a cancellation notice from International Finance Corporation (IFC) dated 21 December 2020, which notifies that in terms ofSec 2.13(a) (iv) (Suspension or Cancellation by IFC) of the IFC loan Agreement dated July 23, 2014, IFC has now cancelled the IFC loan amount of USD 38.6 million which as of the date remained undisbursed. The cancellation notice further provides that the cancellation will be effective on and from the date thereof and may not be reinstated or may no longer be disbursed. Thus, now the Company has no international financing available for the Project. (Refer Note 12). Further, the construction of project is still halted since December 2018 after the Company's suspension and subsequent termination of the Civil and Hydro Mechanical (HM) contract fbllowed by series of* legal proceedings with the contractor "Zhejiang Hydropower Construction and Installation Co. Ltd." (ZHCIC). The legal proceeding has ended after KEL and ZHCIC reached an amicable settlement and mutually executed a settlement agreement on December 26, 2019 (refer Note no. 2.23). The extended Required Commercial Operation Date (RCOD) as per the Power Purchase Agreement (PPA) with Nepal Electricity Authority (NEA) expired on 15 February 2020. The Company has already applied for a further extension of the RCOD till October 9, 2020 and the NEA Board has provided its recommendation to Electricity Regulatory Authority (ERC) for the RCOD extension. The final approval on RCOD extension is yet to be received frorm ERC. The Project Company has further applied for RCOD extension to MOEWRI and also has separately applied to NEA for extension. If the RCOD date is not extended as expected, KEL will be exposed to possible bilities as per the provisions of the PPA. & Co Cl red N Kabeli Energy Limited Notes to the financial stateients for the year ended 31st Aslad 2077 The non-extension of loan d isbursemen It period o IDA - W13 l oan beyon ( Deceibier 30, 2019, canec Ilat ion of IFC loan agreement, the suspended status of project construction activities since December 2018 and the expiry ol the current RCOD date aftcr February 15. 2020 with pending status of RCOD extension by ERC are idcitilled as significant cvents or conditions related with utiurc of the Project. KEL Management and those cinurged with Governance are considering and exploring various alternative measures to mitigate the associated risks and resolve these uncertainties. 2.21 Subsequent Events after balance sheet date: On January 20, 2021, the Company submitted a request for seeking a waiver triom HIDCL regarding repayment of the loan principal amount already drawn down and for the accrued interest on the grounds that, being a special purpose vehicle (SPV), the Company does not have alternative sources of income other than the revenue generated from the project and due to the closure of the IDA loan, the chances of achieving COD and generating revenue lfrom the project has become uncertain in the current situation. The Company has received a cancellation notice fiom IFC dated December 21, 2020. which notified that in terms of Sec 2.13(a) (iv) (Suspension or Cancellation by IFC), of the IFC loan Agreement dated July 23, 2014, IFC has now cancelled the IFC loan amount of USD 38.6 million which as ofthe date remained undisbursed. The cancellation notice firther provides that the cancellation will be effective on and fi-om the date thereofand the loan may not be reinstated or may no longer be disbursed. Thus, now the Company has no international financing available for the Project. IFC has, however, agreed to waive the repayment of all accrued commitment fees payable froim October 2018 to September 2020 (with no further accruals of commitment fees fi-om September 25, 2020), and the annual supervision fees payable for the fiscal years 2018 to 2020. After the termination of the CIVIL/HM contractor and on account of prolonged suspension of the Electromechanical (EM) contract, the Company has proposed a mutual termination of the EM contract with the EM Contractor, Chongqing Water and Turbine Works Co. Ltd. (CWTW). After negotiations with CWTW and in the interest of saving substantial time and costs for KEL, KEL reached an amicable settlement with CWTW on March 31, 2021, whereby (i) CWTW would retain US$ 450,000 ofthe Advance Payment, with CWTW returning to KEL the remaining US$ 216,167.67; (ii) KEL would return the Advanced Payment Guarantee to CWTW upon signing ofthe settlement agreement; (iii) KEL would return the Performance Guarantee to CWTW upon receipt of the aforementioned sum of US$ 216,167.67("Returnablesum") from CWTW. and CWTW upon bearing all applicable taxes in Nepal in relation to the payment of the aforementioned sum of US$ 450,000 by KEL to CWTW, as full and final settlement of both parties' claims against each other under the EM Contract. KEL has now received the returnable sum into its designated account on May 19, 2021 and KEL and CWTW are under the process of implementing the further terms of the Settlement Agreement. 3. Rounding off Figures are rounded offto nearest Rupees. re d