Rurelec Regulatory News (RUR)

6 June 2014

Rurelec PLC

("Rurelec" or "the Company")

Audited results for the year ended

31st December 2013

Rurelec PLC (AIM: RUR), the electricity utility focused on ownership and operation of power generation plants in Latin America, announces its audited results for the year ended 31 December 2013.

Highlights

· Continued strong performance in Argentina

· Focus now on completing finance of Rurelec sponsored projects in Chile and Peru

· In Chile - two projects with 295 MW of thermal capacity under development

· In Peru - commercial operation of the 5.3MW run of river hydro early in third quarter 2014; a further 12MW under development with PPA awarded by the Government; and a 255 MW run of river hydro under development awaiting PPA bid process from the Government

· Acquisition of Independent Power Corporation PLC which has provided profit of £2.1 million

· Revenues improve to £15.1 million (2012: £13.4 million)

· Loss before tax of £39.2 million (2012: loss £2.5 million)

· Loss per share 7.92p (2012: loss 0.75p)

· Group borrowings of £26.1 million (2012: £13.6 million)

· Net Asset Value per share 10.46p (2012: 19.33p)

· Payment of US $31.5 million received in settlement by Bolivia of the Arbitration Award of the Permanent Court of Arbitration in The Hague in February 2014.

Commenting on the results, Peter Earl, Rurelec's Chief Executive, said:

"The results released today are massively affected by the write down we have been forced to take against the book value of our Bolivian assets following the disastrous Arbitration Award of the Permanent Court of Arbitration in The Hague on 1st February 2014 and the subsequent pressure placed on us by an avaricious and mean spirited lender whose lack of support forced us to agree with the Government of Bolivia a large discount against the already unsatisfactory PCA Award.

In spite of these recent traumas, the underlying performance of the Company's business has shown a real improvement. The Energia del Sur plant in Patagonia, Argentina continues to run well and contribute positive cash flow to the Group. The reported loss at EdS is due to foreign exchange write downs. Argentina's recent announcement of a Paris Club settlement is a major step towards resolving the country's debt and currency issues, and we believe that we are now in Argentina at the start of a new period of economic resurgence. We already see positive signs and expect to be able to take advantage of new opportunities to supply power profitably.

In Peru we are in the final weeks of completing our first run-of-river hydro plant and we have a further two plants under development. In Chile, during 2013, we have laid the foundations for an exciting year in 2014, when we expect to commence commercial operations on the first of our two greenfield plants, which will overall add 295 MW to our portfolio and which will see us generating electricity in three countries in South America.

With the Bolivian claim now settled and paid, albeit at a fearful cost to us all, I look forward to returning Rurelec to being a reliable power producer, capable of paying dividends and demonstrating growth through hard work and ingenuity."

- Ends -

For further information please contact log on to our website www.rurelec.com or contact:

CHAIRMAN'S STATEMENT

Dear Shareholder

I hereby present the results of Rurelec PLC ("Rurelec") for the financial year ended 31 December 2013, my first since joining the Board in October 2013. It has been a pivotal year for the Company as the arbitration hearing against Bolivia was completed in April 2013, and although the compensation award, which was announced by the Permanent Court of Arbitration ("PCA") in February 2014, was significantly less than management expected, it allows us to look to the future away from the shadow of Bolivia.

In doing so, and in a bid to diversify our business, we acquired Independent Power Corporation PLC ("IPC") in June 2013, a company with an eighteen year history of developing, constructing and operating power generation facilities for corporate and government clients on four continents. The acquisition has seen us continue to switch from being a pure owner of power plants to an active developer and operator, both in Latin America and elsewhere.

In October, with my appointment to the Board, Andrew Morris stood down after three and a half years as Non-Executive Chairman to take over as Group Finance Director, whilst Elizabeth Shaw has become Executive Director Project Finance. In addition, we are pleased to welcome Brian Rowbotham to the Board as Senior Independent Non-Executive Director. Brian is a qualified Chartered Accountant and brings with him extensive corporate finance experience accumulated through his time working in the City.

Strategy

The Group strategy is to seek generation opportunities for small to medium sized power plants in countries where we can leverage our significant proven experience of power plant development and operation. We have concentrated on the southern cone of South America in Argentina, Chile and Peru in recent years. However, we are also looking at opportunities in Africa, Europe and Asia where the addition of the past experience of IPC has been a critical development in the year. The objective of the Group is to own and operate a portfolio of generating assets in a number of different countries with differing ownership structures. In this way we minimise the country risk whilst bringing in funding partners to ensure that our capital is used in the most efficient way.

Further details of the operations of the Company can be found in the Chief Executive's Review of Operations.

I present the results of Rurelec PLC for the financial year ended 31 December 2013.

Group Results

The Group loss after tax for the financial year under review is £39.2 million (2012: £3.1 million loss). Most of the loss is due to the low level of award in the arbitration against the Government of Bolivia. The carrying value of the Bolivian entity was £51.5 million and was reported as a receivable in the 2012 Report and Accounts. The amount of the investment claimed under Bilateral Investment Treaties, as submitted to the Permanent Court of Arbitration in The Hague, was US$142.3 million and the Arbitration proceedings were held in April 2013. The award amount was for US$28.9 million (approximately £17.5 million) plus interest from 1 May 2010 to the date when the award was paid leading to a write down of £29.5m. In addition the Tribunal representing the ("PCA") decided not to award costs to either side. The cost of the Arbitration to Rurelec was £4.9 million. The book loss for the period is £34.4 million in relation to the Bolivian settlement.

In addition to this loss, are the costs of the Birdsong loan of US$15.45 million taken out in July 2012 which relate to interest on the loan and contingent value rights related to the award from Bolivian arbitration amounting to £3.9 million. The Birdsong loan was repaid on 2 June 2014.

The Group figures also include a loss attributed to the unrealised foreign exchange losses from the Argentinian operation of £3.1 million.

The individual results for the operations in Argentina, Peru, Chile and for IPC are shown below.

Energia del Sur S.A. Results

At the operating level, and therefore based on 100 per cent of Energia del S.A.'s ("EdS") activities, the gross operating profit for the plant in Comodoro Rivadavia for the year was £10.9 million (2012: £9.7 million) on revenues of £19.3 million (2012: £26.5 million). In local currency terms the revenues decreased to AR$167 million (2012: AR$192 million) whilst the operating profit was AR$115 million (2012: AR$70 million). The increase in operating profit was due to the change in the contracting terms with CAMMESA the buyer of the power from the plant, whereby the sales of spot power shows a net payment for the power less the costs of the gas to make the power. The increase in the net loss for the year in EdS of £4.2 million (2012: £2.4 million) was largely due to the one-off write-back of interest payable in 2012 on loans between EdS and Patagonia Energy Limited, which is 50 per cent. owned by Rurelec, and the effects of a significant deterioration in the Peso exchange rate.

Independent Power Corporation PLC

IPC was acquired in June 2013 and has made a profit for the year of £2.1 million. The activities of the company involve the development work for new projects, the supply of engineering services to Group companies and also the administration of the London office. The administration expenses for the year were £1.1 million.

Rurelec Chile

The development operations in Chile have incurred limited direct costs in the year of £111,000. However, we have purchased the land, the turbine and transformer for the Arica project at a cost of £4 million.

Development costs during the year have been £1 million on both the Central Illapa and Arica projects.

Cascade Hydro Power

In Peru we have been constructing the Canchayllo run-of-river hydro plant since the end of 2012. The value of the plant under construction at the year-end is £5.7 million. Rurelec has outstanding loans of £5.8 million to the Cascade group at the year end, whilst there is a bank loan with the Corporacion Interamericana de Inversion ("IIC") of £4.2 million and other loans of £0.9 million. The other assets of the Cascade group include £3.5 million of bonds held by IIC and the Ministry of Minerals and Energy.

Outlook

In spite of the set back of the disappointing judgment of the PCA early in 2014 and the considerable write-off against reserves which this entails, the Board of Rurelec is optimistic that the outlook for the Group is good. We are now active in Peru and Chile, two of the strongest economies in Latin America, and we are now in a position to choose long-term equity partners for both of those countries with whom to share ownership of our excellent projects. Receipts from the sale of this equity will both recycle funds of over US$30 million to Rurelec for us to reinvest in other projects as well as enable us to engage with regional partners with whom to share the challenges of building greenfield plants many thousands of miles away from the United Kingdom. Rurelec has demonstrated its capability to grow organically and by acquisition over the last ten years. Now we can look forward to accelerated roll-out of new capacity with the saga of the Bolivian nationalisation finally a thing of the past.

I would like to congratulate the executive team under Peter Earl's leadership for the persistent and tireless way they pursued the Bolivian settlement. Under extreme pressure from outside sources to settle early, they obtained a pragmatic solution that now allows us to continue to grow our business.

Colin Emson

Chairman

5 June, 2014

CHIEF EXECUTIVE'S REVIEW OF OPERATIONS

The year 2013 was perhaps the most frustrating for the Board and shareholders alike since Rurelec came to the AIM Market in 2004 as the first AIM quoted utility and power company. The year was dominated by delays in the process to achieve an independent determination at the PCA, in The Hague, of Rurelec's claim for compensation from the Government of Bolivia for the May 2010 nationalisation of its Bolivian generation assets.

The final decision of the three man arbitration tribunal was expected to be handed down between October and November 2013, and all of Rurelec's financing arrangements were geared to this court-led timetable following the actual final hearing of the tribunal which took place in early April 2013 in Paris. Instead, the judgment was only released in the early hours of 1 February 2014.

From the first moment of the nationalisation, when armed military took over the Guaracachi power plants early on May Day 2010, Rurelec had expected compensation to be no less than the pro rata book value of its Bolivian assets. That would have suggested compensation of around US$75 million before interest and other adjustments, and this figure has been constantly maintained in the audited accounts of the Rurelec Group. Incredibly, the arbitration tribunal decided that the fair market value of Rurelec's investment in Guaracachi as at 1 May 2010 was US$28.9 million. This represented a sum of less than two years of Guaracachi EBITDA, as projected immediately prior to the nationalisation for the full year 2011 following completion of the Guaracachi combined cycle gas turbine ("CCGT") power plant. Inclusive of interest to 31 January 2014, the full value of the PCA award was US$35.5 million, roughly the same price paid by Rurelec in 2006 for its controlling stake in Guaracachi before it added over 170 MW of new, high tech gas fired generation capacity and before Rurelec had successfully doubled the EBITDA of Guaracachi with the installation of Bolivia's first CCGT plant.

The PCA judgment did not award costs to Rurelec even though the judgment confirmed that Bolivia had failed to pay adequate compensation for the expropriation of Rurelec's assets. The costs of the arbitration were around US$7 million. The net award to Rurelec was thus only US$28.9 million before costs. One of the three panellists on the tribunal issued a minority report stressing the inequity of not awarding us costs but the two man majority view prevailed.

As this annual report goes to print, Bolivia has paid a discounted sum of US$31.5 million to Rurelec in full and final settlement of the award. With this matter behind us we can concentrate all our efforts in developing, funding and constructing a portfolio of power plants in a number of countries using a range of renewable and high technologies.

Argentina

Operations at the power plant continue to allow EdS to show an excellent availability record. Gross energy output was approximately 840 GWh (2012: 928 GWh) a fall of 10.5 per cent due to a major outage in November at which time the steam turbine was stopped for the first time in three years. Ahead of the outage the heat rate had improved slightly to 8.43 MMBTU/ MWh (2012: 8.1). 

During 2013, the Ministry of Energy has enacted a number of changes in the electricity sector largely driven by the weak performance of the distribution sector, the increase in demand and the widening gap between the official and unofficial exchange rates. 

The major impact of the changes for EdS has been to remove theobligation to pay for gas, thus reducing turnover whilst increasing gross margin. Since May thedispatch centre, CAMMESA, has been accounting for gas consumption for the gas turbines and the auxiliary firing of the steam turbines reducing revenues and expenditure. The average notional cost of gas per MWhgenerated was AR$118.36 (2012: AR$108.25), in US$ terms the gas cost has moved to US$21.50 per MWh from US$23.7 in 2012. The average price of electricity in peso terms increased by 28.5 per cent to AR$265.17 (2012: AR$206.40) and by 7 per cent in dollar terms, US$48.17 (2012: US$45.16) as a result of the weakening of the peso. The Res 220 contract is the main driver of the strengthening performance at the EBITDA level, as the proportion of US$ based revenue is boosted by the exchange rate as well as the removal of gas (a US$ expense) from the revenue line and the increased proportion of peso based expense. Turnover at EdS during 2013 fell to AR$166.5 million from AR$192.2 million in 2012, which figure also included AR$7.5 million in respect of the final CERs under the CAF/KfW contract. No CERs were registered in 2013 as the low CER prices currently do not cover the cost of registration. Even so, gross margin increased in peso terms to AR$115 million from AR$70 million. Large foreign exchange losses due to the impact of the revaluation of US$ borrowings arising from the weakening peso exchange rate once again increased the after tax loss. Cash flow was strong, allowing EdS to remit US$6 million to the UK during the year, however, the electricity sector is still held back by cash flow restrictions imposed as a result of the low tariffs of the two largest electricity distribution companies. CAMMESA has struggled to maintain timely payment of invoices to generators since the middle of the year.

Exchange rates in Q4 saw the biggest correction as the Government finally allowed the official peso exchange rate to move towards the unofficial exchange rate. At the start of the year it was AR$4.96 to the US$, by year-end it was AR$6.2, which has been relatively stable throughout the first half of 2014 after a 17 per cent devaluation in January 2014. The deterioration in the exchange rate was having an impact on our receivables, until a new directive was brought in to compensate generators for the impact for the late payment of their invoices.

Chile

Arica

In April 2013, we took delivery of the industrial frame GE 6B turbine in Arica. Construction was delayed when local interest groups objected to the change in the environmental approval. After a number of intensive stakeholder meetings at which the impact of the new plant on the local area was fully discussed the objections were assuaged. However, in the meantime, a review of the approval was put through the Chilean legal system and although the case was found largely in our favour, the Supreme Court did require the permit to be reviewed once again by the local environmental office. Final approval for the use of the gas turbine is expected shortly. Construction is expected to commence in the second half of the year.

Central Illapa

Following receipt of the environmental approval for the Central Illapa plant using Siemens 701 DU turbines, Rurelec acquired two refurbished turbines from IPSA Group PLC in June 2013. Pending the conclusion of project financing Rurelec is finalising the selection of a joint venture partner for the project. The selection of a partner and the closing of bank financing is expected to be achieved in the latter half of 2014.

Peru 

During 2013, the construction of the 5.3 MW Canchayllo project continued apace. The successful closing of the financing of the plant with IIC together with further equity funding from Rurelec in 2014 has allowed to continue of the construction of the 5.3MW Canchayllo plant and the development of a further 30 MW of new projects. Although we were able to submit the new projects successfully for the new renewable tender round in Q4, the slow pace of the Bolivian arbitration process has meant that we elected to fund only one project to close a power purchase agreement in this round. The two other projects have had to be held back for the next round planned for later this year.

At the present time, Canchayllo is 95 per cent complete, with commercial operation targeted for August this year. Rurelec has arranged additional funds to cover cost overruns, largely due to unforeseen geological conditions found in the construction of the power house, a 10 per cent overspend in the waterways and increased labour costs due to lack of funds.

The overall cost per MW installed is 18 per cent over budget, at US$2.36 million per MW, and the plant is financed with 52 per cent debt and 48 per cent equity. The plant is still expected to be the first to commence operations of the second renewables round. With one of the lowest tariffs awarded, the challenge now is to secure a new PPA in order to improve returns once the plant enters production.

The Canchayllo project has proved challenging, but having gauged the pricing correctly in the third tender round, we can look forward to the portfolio growing steadily both in size and profitability in future years.

Independent Power Corporation

In June 2013, Rurelec completed the acquisition of IPC, one of the United Kingdom's leading power developers and the former parent company of the original Rurelec business. IPC's team of engineers, financial modellers and environmental specialists has now been integrated within the Rurelec Group giving Rurelec the capability not only to manage its own greenfield planning and project supervision but also the ability to earn revenues from third party clients.

IPC is currently short-listed in a government tender for the construction of a new power plant of 80 MW for GibElec in Gibraltar as well as being retained as lead developer on two dual fuel power developments in Ghana. IPC is also in advanced negotiations for a similar third party project in Ivory Coast and for the repowering of a combined heat and power plant in Russia.

After a tough and less satisfying year, we expect the future to be better. We are working hard to make sure that it really is.

Peter EarlChief Executive Officer5 June, 2014

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 31 DECEMBER 2013

The financial statements were approved by the Board of Directors on 5 June, 2014 and were signed on its behalf by P. Earl (Chief Executive) and A. Morris (Group Finance Director).

PARENT COMPANY STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 31 DECEMBER 2013

The financial statements were approved by the Board of Directors on 5 June, 2014 and were signed on its behalf by P. Earl (Chief Executive) and A. Morris (Group Finance Director).

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1 General information, basis of preparation and new accounting standards

1a General information

Rurelec PLC is the Group's ultimate parent company. It is incorporated and domiciled in England and Wales. The address of Rurelec's registered office is given on the information page. Rurelec's shares are traded on the AIM market of the London Stock Exchange PLC.

The nature of the Group's operations and its principal activities are the generation of electricity in South America.

1b Basis of preparation, including going concern

The Company and the consolidated financial statements have been prepared in compliance with International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union and company law applicable to companies reporting as at 31 December 2013. The Directors have continued to adopt the going concern basis for the preparation of these financial statements since 2 June 2014 the Group received US$31.5 million from the Government of Bolivia in full settlement of the Bolivian arbitration and also settled the full amount of the outstanding Birdsong loan of US$25.9 million.

1c New accounting standards

At the date of authorisation of these financial statements certain new standards, amendments and interpretations to existing standards have been published but are not yet effective. The Group has not early adopted any of these pronouncements. The new Standards, amendments and Interpretations that are expected to be relevant to the Group's financial statements are as follows:

* Not expected to have a material impact on the Group.

IFRS 9, 'Financial instruments: Classification and measurement'

In November 2009, the Board issued the first part of IFRS 9 relating to the classification and measurement of financial assets. IFRS 9 will ultimately replace IAS 39. The standard requires an entity to classify its financial assets on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset, and subsequently measures the financial assets as either at amortised cost or fair value. The new standard is mandatory for annual periods beginning on or after 1 January, 2015.

IFRS 10 Consolidated Financial Statements

IFRS 10 replaces the portion of IAS 27 'Consolidated and Separate Financial Statements' that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 'Consolidation - Special Purpose Entities'. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January, 2014.

IFRS 11 Joint Arrangements

IFRS 11 supersedes IAS 31 'Interests in Joint Ventures' (IAS 31). It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. In addition, IAS 31's option of using proportionate consolidation for joint ventures has been eliminated.

The Directors do not anticipate that the adoption of these standards and interpretations in future periods will have any material impact on the financial statements of the Group.

2 Summary of significant accounting policies

2.1 Basis of consolidation

The Group financial statements consolidate the results of the Company, its 50 per cent interest in EdS, its 100 per cent interest in entities in Chile and in Peru.

Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

Joint ventures are arrangements in which the Group has a long-term interest and shares control under a written contractual agreement. The Group reports its interests in jointly controlled entities using proportionate consolidation such that the Group's share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line by line basis.

Goodwill, or the excess of interest in acquired assets, liabilities and contingent liabilities over Fair Value of consideration, arising on the acquisition of the Group's interest in subsidiary or jointly controlled entities is accounted for in accordance with the Group's accounting policy for goodwill arising on the acquisition of a subsidiary.

Unrealised gains on transactions between the Group and subsidiary and joint venture entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiary and joint venture entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Acquisitions of subsidiaries and joint venture entities are dealt with by the acquisition method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the acquired company, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the entity prior to acquisition. On initial recognition, the assets and liabilities of the acquired entity are included in the consolidated statement of financial position at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group's accounting policies. Investments in subsidiaries and joint ventures are stated at cost in the statement of financial position of the Company.

2.2 Goodwill

Goodwill representing the excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is capitalised and reviewed annually for impairment. Goodwill is stated after separating out identifiable assets and liabilities. Goodwill is carried at cost less accumulated impairment losses. Any excess of interest in acquired assets, liabilities and contingent liabilities over fair value is recognised immediately after acquisition through the income statement.

2.3 Foreign currency translation

The financial information is presented in pounds sterling, which is also the functional currency of the parent company.

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions ("spot exchange rate"). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of remaining balances at year-end exchange rates are recognised in the income statement within 'other expense'.

In the consolidated financial statements, all separate financial statements of subsidiary and jointly controlled entities, originally presented in a currency different from the Group's presentation currency, have been converted into sterling. Assets and liabilities have been translated into sterling at the closing rate at the reporting date. Income and expenses have been converted into sterling at the average rates over the reporting period. Any differences arising from this procedure have been recognised in other comprehensive income and accumulated in the Foreign Currency Reserve.

2.4 Income and expense recognition

Revenue represents amounts receivable for goods or services provided in the normal course of business, net of trade discounts, VAT and other sales-related taxes, and excluding transactions with or between Group companies. Revenues from the sale of electricity are recorded based upon output delivered at rates specified under contract terms or prevailing market rates as applicable. Revenue is recognised on the supply of electricity when a contract exists and supply has taken place. Revenue received for keeping power plants operating and available for dispatch into the grid as required is recognised on a straight-line basis over the contractual period. During the year under review and the prior year, no revenues were derived from the sale of equipment purchased with a view to subsequent resale.

Operating expenses are recognised in the income statement upon utilisation of the service or at the date of their origin. All other income and expenses are reported on an accrual basis.

2.5 Dividends

Dividends paid/receivable are recognised on a cash paid/cash received basis. No dividends were paid or received during the year (2012: nil).

2.6 Borrowing costs

All borrowing costs are expensed as incurred except where the costs are directly attributable to specific construction projects, in which case the interest cost is capitalised as part of those assets.

2.7 Property, plant and equipment

Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction.

All operational buildings and plant and equipment in the course of construction are recorded as plant under construction until such time as they are brought into use by the Group. Plant under construction includes all direct expenditure and may include capitalised interest in accordance with the accounting policy on that subject. On completion, such assets are transferred to the appropriate asset category.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations and overhauls is included in the carrying amount of the assets where it is probable that the economic life of the asset is significantly enhanced as a consequence of the work. Major renovations and overhauls are depreciated over the expected remaining useful life of the work.

Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment other than freehold land by equal annual instalments over their estimated useful economic lives. The periods generally applicable are:

Material residual values are updated as required, but at least annually. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

2.8 Impairment of tangible and intangible assets

At each reporting date, the Group reviews the carrying amount of its property, plant and equipment and intangible assets 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). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell 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 of the time value of money and the risks specific to the asset.

If the recoverable amount of an 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 recognised immediately in the income statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement.

2.9 Taxation

Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement or through the statement of changes in equity.

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in respect of non-tax deductible goodwill. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided for in full with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided that they are enacted or substantially enacted at the reporting date.

Deferred tax is provided on differences between the fair value of assets and liabilities acquired in an acquisition and the carrying value of the assets and liabilities of the acquired entity and on the differences relating to investments in subsidiary and joint venture companies if the difference is a temporary difference and is expected to reverse in the foreseeable future.

Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

2.10 Financial assets

The Group's financial assets include cash and cash equivalents, loans and receivables.

Cash and cash equivalents include cash at bank and in hand as well as short-term highly liquid investments such as bank deposits.

Loans and receivables are non-derivative financial assets with fixed or determinable payment dates that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Receivables are measured initially at fair value and subsequently remeasured at amortised cost using the effective interest method, less provision for impairment. Any impairment is recognised in the income statement.

Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated cash flows.

2.11 Financial liabilities

Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Group becomes a party to the contractual provisions of the instrument. All transaction costs are recognised immediately in the income statement.

A financial liability is derecognised only when the obligation is extinguished, that is when the obligation is discharged, cancelled or expires.

Bank and other loans are raised for support of long-term funding of the Group's operations. They are recognised initially at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

2.12 Inventories

Inventories comprise spare parts and similar items for use in the Group's plant and equipment. Inventories are valued at the lower of cost and net realisable value on a first in, first out basis.

2.13 Shareholders' equity

Equity attributable to the shareholders of the parent company comprises the following:

"Share capital" represents the nominal value of equity shares.

"Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

"Foreign currency reserve" represents the differences arising from translation of investments in overseas subsidiaries. "Share option reserve" represents the fair value of options granted and outstanding at the year-end.

"Retained earnings" represents retained profits.

"Other reserves" comprises unrealised revaluations of plant and machinery.

2.14 Pensions

During the year under review, the Group did not operate or contribute to any pension schemes (2012: nil).

2.15 Segment reporting

In identifying its operating segments, management follows the Group's geographic locations. The activities undertaken by segments are the generation of electricity in their country of incorporation within South America.

Each of the operating segments is managed separately as the rules and regulations vary from country to country.

The measurement policies used by the Group for segment reporting under IFRS 8 are the same as those used in the financial statements.

3 Key assumptions and estimates

When preparing the financial statement, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities income and expenses. The actual results may differ from the judgements, estimates and assumptions made and will seldom equal the estimated results. The areas which management considers are likely to be most affected by the significant judgements, estimates and assumptions on recognition and measurement of assets, liabilities, income and expenses are:

a) Useful lives of depreciable assets - management reviews, with the assistance of external expert valuers, the useful lives of depreciable assets at each reporting date. This review includes consideration of the book value of plant under construction which at the year-end amounted to £9.8 million. Actual results, however, may vary due to changes in technology and industry practices.

b) Impairment - management reviews tangible and intangible assets at each balance sheet date to determine whether there is any indication that those assets have suffered an impairment loss. This review process includes making assumptions about future events, circumstances and operating results. The actual results may vary from those expected and could therefore cause significant adjustments to the carrying value of the Group's assets. Details of the assumptions underlying management's forecasts for the Group's main Cash-Generating Unit ("CGU") are set out in note 15.

c) Deferred tax assets and liabilities - there exists an element of uncertainty regarding both the timing of the reversing of timing differences and the tax rate which will be applicable when the reversing of the asset or liability occurs.

d) Asset acquisitions - where the Group acquires assets or a company which is not considered to be a business as defined by IFRS 3, the transaction is accounted for as an asset acquisition and not a business combination.

e) The compensation claim is judged to be an asset due to the fact that an inflow of future economic benefit is virtually certain in accordance with the Bilateral Investment Treaties. The compensation asset is measured at cost (plus legal fees and interest) because, although a successful claim is virtually certain, management cannot reliably determine the fair value of these cash flows as there is a significant variability in the range of possible outcomes. Accordingly, and by analogous reference to IAS 39, the asset is recorded at cost.

4 Segment Analysis

Management currently identifies the Group's four geographic operating segments-Argentina, Chile, Peru and the head office in the UK-as operating segments as further described in the accounting policy note. These operating segments are monitored and strategic decisions are made on the basis of segment operating results.

The following tables provide an analysis of the operating results, total assets and liabilities, capital expenditure and depreciation for 2013 and 2012 for each geographic segment. The main customer (accounting for over 90 per cent of revenues) in Argentina is a body which is subject to supervision by the Government electricity regulator.

5 Exchange rate sensitivity analysis

The key exchange rates applicable to the results were as follows:

If the exchange rate of sterling at 31 December 2013 had been stronger or weaker by 10 per cent with all other variables held constant, shareholder equity at 31 December 2013 would have been £0.9 million (2012: £1.5 million) lower or higher than reported.

If the average exchange rate of sterling during 2012 had been stronger or weaker by 10 per cent with all other variables held constant, the profit for the year would have been £0.4 million (2011: £0.2 million) higher or lower than reported.

6 Cost of sales

7 Administrative expenses

1 Audit and non-audit services include £75,300 paid to the Auditor for the audit of the Company and the Group financial statements and £nil paid to the Company's Auditor for non-audit professional services provided to the Company in connection with the review of overseas activities (2012: £6,000). Fees paid to other auditors, in respect of the audit of joint venture companies, amounted to £11,500 (2012: £20,000).

8 Employee costs

The average number of employees in the Group, including Directors, during the year was as follows:

The average number of employees in the Company, including Directors, during year was as follows:

c) Directors' remuneration, including social security costs

The total remuneration paid to the Directors was £615,000 (2012: £292,000). The total remuneration of the highest paid Director was £230,000 (2012: £107,000). Other emoluments paid were health insurance costs, there were no bonuses, pension costs or share based payments paid during the year (2012: nil)

9 a) Other expense

1 In 2009, EdS contracted to sell Carbon Emission Reduction (CER) credits over a four year period 2009 to 2012. The number of CERs actually generated was less than the original forecast and the £670,000 charge in the prior year represent the adjustment arising from this reduction.

2 Loan arrangement fees relate to the arrangement fees charged in connection with the US$15.45 million set out in note 25.

3 Foreign exchange losses have arisen in Argentina on US$ denominated loans and in the UK on US$ denominated receivables.

9 b) Other expense

1. The loss on the settlement with the Plurinational Government of Bolivia has been arrived at further to the agreement in April 2014 from meetings held between the senior management of Rurelec plc and the Attorney General of Bolivia. The agreed settlement is US$31.5 million or £19.1 million which is made up of £17.5 million compensation claim and interest of £1.6 million. The carrying value of the claim, excluding interest and reimbursement of costs, as at 31 December 2012 was £47.0 million and therefore the loss was £29.5 million.

2. The arbitration costs were not awarded to Rurelec and so £4.9 million has been taken as a charge in 2013, in 2012 these costs had been shown as a debtor from the claim.

9 c) Other expense

1 Interest on the Birdsong loan of US$15.45 million has been shown in the table above and accrued until May 2014.

2 The Birdsong loan included a contingent value right which amounted to 15 per cent of the Bolivian claim plus interest.

3 The Birdsong lender charges for extending the loan past 31st December 2013 have been accrued in 2013.

10 Finance income & Expense

1 Inter-group interest arises on loans by the Company to its 50 per cent owned joint venture companies (PEL and EdS). The loans by the Company to PEL and EdS exceed the loans of the other 50 per cent shareholder by £13.5 million (2012: £14.4 million). Interest on inter-group loans has been changed at rates of between 8 per cent and 19 per cent.

2 The settlement of the Bolivian claim includes interest of £1.58 million on the settlement from May 2010, being the date that the assets were nationalised, up to the payment date in May 2014. The effective interest rate for this amount on the award of £17.5 million (US$ 28.9 million) is a rate of 2.14 per cent. This has let to a write down of £0.2 million of the interest accrual in 2013.

3 Interest paid/payable includes interest on bank borrowings and other loans in Peru and Argentina whilst excludes interest accrued on the US$15.45 million loan referred to in note 25, however the amount shown for 2012 included accrued interest on the loan of £578,000. The details of amounts due under the loan are shown in note 25 

Sensitivity analysis arising from changes in borrows costs is set out in note 25.

11 Tax expense

The relationship between the expected tax expense at the basic rate of 23.75 per cent. (31 December 2012: 24 per cent) and the tax expense actually recognised in the income statement can be reconciled as follows:

12 Earnings per share

Basic loss per share is calculated by dividing the loss for the period attributable to shareholders by the weighted average number of shares in issue during the period.

There is no difference between the Basic and Diluted loss per share as there was a loss in the year and therefore the outstanding options were anti-dilutive.

13 Holding company's result for the year

As permitted by Section 408 of the Companies Act 2006, the holding company's income statement is not shown separately in the financial statements. The loss for the year was £10.4 million (2012: £0.6 million).

14 Property, plant and equipment

Operating property, plant and equipment is located in Argentina.

Plant under construction comprises plant in Chile (£3.7 million) and Peru (£6.7 million).

b) Company

The Company had no property, plant and equipment.

15 Intangible assets

a) Goodwill represents the difference between the Group's share of the fair value of the net identifiable assets acquired and the consideration transferred on the acquisition of 50 per cent of PEL in June 2008 and the acquisition of 100 per cent of IPC in June 2013 including intangibles.

The Group tests goodwill and other intangible assets annually or more frequently if there are indications that the intangible asset might be impaired. The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the future cash flows (for a period of 5 years) which are based on the most recent financial projections prepared for each Cash Generating Unit ("CGU"). The projections incorporate management's assumptions regarding revenue volumes, revenue prices, operating costs, including gas and forecast growth and are based on historical experience and current information. A long term discount rate, derived from market data on comparable interest rates in the local markets in which the Group operates, is then applied to the projected future cash flows. The equity discount rate applied is 13 per cent (2012 - 14 per cent).

The following specific assumptions in respect of the Group's main CGU in Argentina include:

i) Resolution by no later than 2018 of the current foreign currency issues in Argentina which presently restrict the outflow of certain types of debt

ii) No adverse change in the gas price relative to the Government's set price tariff

iii) Existing contracts run their expected life and are renewed on terms no less favourable than the existing terms

iv) Operating costs remain stable

v) No major plant disruptions occur

vi) Maintenance expenditure remains in line with past experience

vii) Any period over and above the forecast period of 5 years assumes nil growth other than that applicable to inflation.

The assumptions in respect of the IPC CGU include the financial close and payment of development fees to IPC from the development company for developments in Chile and Peru, whilst also including engineering fees and recharge of expenses. The costs of the group that are charged into IPC are well known and are shown to rise at a reasonable inflationary rate of 3 per cent and expansionary rate of an additional 7 per cent per annum. The goodwill impairment test has been completed and shows no need for any impairment. Indeed the brand value of IPC and its experience over 20 years in the South American market supports the intangible assets shown within the IPC financial statements.

The amount of goodwill that has been included in the intangible asset is £1,276,621.

IPC has been active in the development, financing and construction of power generation plants in South America, Asia, Africa and Europe for 19 years and has customer bases in these markets which Rurelec did not have prior to this business combination. The Group can ascribe separate identifiable intangible assets in some of these markets where Rurelec has not been active over the past years. The direct cashflow basis has been used as the methodology to assess the value of the separate markets from Rurelec's established market in South America.

The main addition to the revenue streams are the engineering fees and costs reimbursement plus development fees outside South America. The effect is that the NPV of the separate markets can be valued at £514,000 which values the Goodwill and Intangibles at £1,791,000 with the goodwill element being £1,276,621.

b) IPC for the period up to acquisition had Revenues of £1,354k and Profit of £749k. For the full year Revenues were £5,604k and Profits were £2,108k.

c) Costs relating to the acquisition of IPC were £201k and these have been recognised as an expense and included in administrative costs. All issue costs were recognised as an expense.

d) IPC's gross contractual amounts of trade and other receivables were £46k and £1,510k respectively.

16 Trade and other receivables

1 Non-current trade receivables includes £22,297 (2012: £211,000) of retentions by the Electricity Regulator in Argentina (which is expected to be either released or contributed towards ongoing capital projects) and £513,000 (2012: £345,000) of trade receivables which are not expected to be received within the next 12 months.

2 Amounts due from joint venture companies represent the excess of the amounts lent by the Company, in excess of the amounts lent by the other 50 per cent shareholder, to PEL and EdS, including credit support provided to suppliers of EdS. Interest on these amounts has been accrued at rates of between 8 per cent and 18 per cent per annum.

3 Other receivables comprise £379,125 (2012: £379,000) of income tax paid by EdS which is expected to be recovered as an offset against future profits.

Other receivables and prepayments includes £921,000 of VAT recoverable in Peru.

The amounts by subsidiary companies include:

1 Loans to subsidiaries in Chile (£6.2 million) and Peru (£5.7 million) are repayable on demand. The loans to Chile are currently non-interest bearing. The loans to Chile and Peru bear zero per cent interest at rates.

2 The amounts owed by joint venture companies are interest bearing at rates of between 8 per cent and 18 per cent and are repayable on demand but are not expected to be fully received within the next 12 months. £7.7 million (2012: £10.7 million) is secured by a fi rst charge against the assets of EdS.

All trade and other receivables are unsecured, with the exception of the £7.7 million referred to in 16c above, and are not past their due by dates. The fair values of receivables are not materially different to the carrying values shown above.

17 Deferred tax

The Group deferred tax asset arises principally from tax losses carried forward in Argentina.

The Group deferred tax liability arises from deferred tax provisions on the fair value adjustments arising on the acquisition of 50 per cent of PEL.

18 Inventories

Spare parts and consumables are valued at cost

Inventories comprises of two Siemens 701DU Turbines acquired from IPSA in June 2013, these will be sold to Central Illapa SA for use in Chile during 2014.

19 Compensation claim

As detailed in the 2010 Report and Accounts, on 1 May 2010 the Bolivian Government nationalised by force Rurelec's controlling interest in Guaracachi. The Bolivian book value of the net assets of Guaracachi, together with declared but unpaid dividend for 2009, was not less than £47.0 million and was reported in the 2012 Report and Accounts. The amount of the investment claimed under Bilateral Investment Treaties as submitted to the Permanent Court of Arbitration in The Hague, was US$142.3 million and the Arbitration proceedings were held in April 2013. The award amount was for US$28.9million plus interest from 1 May 2010 to the date when the award is paid. As at 31 January the interest amounted to US$6.6 million making the total amount due to Rurelec in settlement of the claim US$35.5million or £21.5million. The Tribunal representing the Permanent Court of Arbitration decided not to award costs to either side. The costs of the Arbitration to Rurelec were £4.9 million.

After further negotiations with the Plurinational State of Bolivia at the end of April 2014 the total payment to be received by Rurelec would be $31.5 million or £19.1 million. This is a total loss of £34.6 million on the carrying value of the assets as at 31st December 2013 being a loss of £29.5 million on the underlying assets and £5.1 million on the legal fees and accrued interest.

Further details and information on this claim can be found in the Chief Executive Officer's Review of Operations.

20 Cash and cash equivalents

Cash and short-term bank deposits are held, where the balance is material, in interest bearing bank accounts, accessible at between 1 and 30 days' notice. The effective average interest rate is less than 1 per cent. The Group holds cash balances to meet its day-to-day requirements. Included within the Group and the Company's balance at 31 December 2012 was $2.15 million of cash held in a blocked account pending payment of a deposit on plant being shipped to Chile, this was settled in 2013.

21 Share capital

Reconciliation of movement in share capital

The allotment in June 2013 was at 12.5 pence per share. The difference between the total consideration arising from shares issued and the nominal value of the shares issued has been credited to the share premium account. Costs associated with allotments are debited to the share premium account.

22 Share option reserve

In March 2012, the Company introduced a share option plan and granted options over 19,525,000 shares at 9.5p per share. Of these options, 3,875,000 were exercisable from the date of grant. 5,216,667 options vested in 2013, the remuneration committee approved 50 per cent vesting of these, the remaining 50 per cent are dependent of performance targets being met or being waived at a future date. The remaining 10,433,333 shares vest in two equal tranches in March 2013 and March 2015 and are subject to performance targets.

The Black-Scholes option pricing model has been used to calculate the fair value of options granted during the year. Expected volatility in the share price has been based on 20 per cent.

All of the options granted to directors vest in the three equal tranches and are subject to performance criteria, as referred to above.

Options granted to the directors which were outstanding at the year-end:

No options were exercised during the year and the total number of options outstanding at the year-end was 19,525,000.

23 Trade and other payables

24 Tax liabilities

This liability for tax due in Argentina relates to an agreement reached with the tax authorities in 2009 in respect of a claim for tax on the capitalisation of a loan in earlier years before the Group had an interest in EdS which has been deemed taxable by the tax authorities. The tax is payable in equal quarterly instalments with the final instalment due in August 2019. The total liability outstanding at 31 December 2013 was £191,000 (2012: £263,000).

25 Borrowings

1 CAMMESA, the Argentine wholesale market administrator, has advanced funds to EdS to support capital expenditure. The loan bears interest at 7 per cent per annum. The loan is repayable in instalments with the fi nal repayment due in July 2016.

2 Other loans comprise a loan of US$15.45 million, plus accrued interest, to Birdsong Overseas Limited, a wholly owned subsidiary of Rurelec PLC. The loan was arranged in July 2012 in order to provide additional working capital for the Group's expansion in Chile and Peru and the costs of the Bolivian litigation. The loan was repayable by 31 December 2013 secured by a fi rst charge on the proceeds from the Bolivian Arbitration claim and the assets of Birdsong Overseas Limited. In December 2013 the term of the loan was extended to 30 April 2014. It was also extended a second time on 1 May 2014. Under the terms of the loan, the loan provider is entitled to a portion of the proceeds recovered in relation to the fi nal settlement of the award, in connection with the Bolivian arbitration. The portion of the proceeds payable to the loan provider is dependent upon a number of variables, including the length of time to recover such proceeds and the quantum of the proceeds. The minimum amount payable became 15 per cent of the proceeds recovered after 1January 2014 and based on the carrying value of the claim (see note 19), the portion of the proceeds which the lender will be entitled to receive amounts US$5.2 million and accordingly has been accrued at 31 December 2013. Interest on the loan is payable at 12 per cent per annum up to 31st December 2013 and 24 per cent thereafter.

Sensitivity analysis to changes in interest rates:

If interest rates on the Group's borrowings during the year had been 0.5 per cent higher or lower with all other variables held constant, the interest expense and pre-tax profits would have been £1.3 million lower or higher than reported.

Sensitivity analysis to changes in exchange rates:

The Group's external borrowings are denominated in AR$ and US$. As a result, the liability to the Group's lenders will change as exchange rates change. The Group's borrowings are substantially related to specific electricity generating assets and therefore the effect on the net equity of the Group is limited. The overall effect on the Group's net equity which would arise from changes in exchange rates is set out in note 5 above.

The effect on borrowings alone if exchange rates weakened or strengthened by 10 per cent with all other variables held constant would be to reduce or increase the value of the Group's borrowings and equity by £1.2 million (2012: £1.2 million).

26 Investments