Rurelec Regulatory News (RUR)

 (AIM:RUR)

8 June 2011

FINAL RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2010

Rurelec PLC ("Rurelec" or "the Company"), the electric utility company focused on the development of power generation and rural electrification projects in Latin America, announces its final results for the year ended 31 December 2010.

Financial Highlights:

·; Post tax profit £16.4m (2009 - loss of £2.9m)

·; Loss from continuing operations £0.1m (2009 - loss of £2.9m)

·; Notional compensation for nationalisation* £47m

·; Earnings per Share continuing operations loss 0.06p (2009 - loss of 1.89p)

·; Net asset value per share** 20.2p

* This notional compensation level has been calculated for accounting purposes only and does not reflect the full fair market value of the nationalised assets that Rurelec and its subsidiary Guaracachi America Inc are entitled to and will claim under the applicable bilateral investment treaties and international law in the pending international arbitration proceedings against Bolivia.

** Pro-forma - based on net asset value at 31.12.10 adjusted for shares issued in March 2011.

Operational Highlights:

·; Progress being made towards arbitration process for compensation on nationalisation of assets in Bolivia

·; Assets in Argentina performing well and trading profitably

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

"Looking to the future, we have seen a return to profit of £0.6m, at Energia del Sur (EdS) our business in Argentina. With the Resolution 220 contract now in force and with the enhanced cashflow from the power purchase contract finally resulting in strong cash flow at EdS. Rurelec is now virtually debt free and releasing back to London some of the cash tied up in Argentina.

 "In Bolivia the administration of Evo Morales has acknowledged its obligation to pay compensation in respect of the nationalisation of Rurelec's investments in Guaracachi yet no payment or offer of payment has been put forward to date. Accordingly, Rurelec and its subsidiary Guaracachi America Inc have initiated arbitration proceedings against Bolivia to seek full and fair compensation for their expropriated assets. Rurelec's board is determined to obtain the maximum compensation for shareholders and will work tirelessly until that occurs.

In accordance with the AIM Rules, copies of the results are also available on the Company's website, www.rurelec.com

 CHAIRMAN'S STATEMENT

I am pleased to present my first report of the results of Rurelec PLC ("Rurelec" or the "Company") for the year-ended 31 December 2010. As shareholders are already aware, it has been an eventful period since the end of the financial year on which my predecessor made his report.

The profit for the financial year under review is £16.4 million. This figure includes a one off gain of £15.1 million and a notional compensation level that corresponds to the audited book value of Rurelec's interest in Empresa Guaracachi S.A. ("Guaracachi") and which is reported as discontinued operations and includes an estimated trading profit from Guaracachi of £1.4m. As last year, the Auditors have noted that they are unable to report on this element of the Group accounts as they were unable to gain access to the necessary papers in order to form their opinion.

For the purposes of these accounts a notional compensation level of £47m, being the Company's share of the latest audited book value of Guaracachi (at 31 December 2009) prior to the expropriation of our interest, plus declared but unpaid dividends has been used as a proxy for the value of the claim in respect of the asset. The Directors have carefully considered the inclusion of this amount. Effectively, the ongoing business of electricity generation was expropriated and replaced by an asset of equal value being an international right to the market value of that business prior to any threat of expropriation. The Directors do, however, note that this figure does not reflect the full fair market value that Rurelec and its subsidiary Guaracachi America Inc ("Guaracachi America") are entitled to claim (and will claim) under the applicable bilateral investment treaties and international law in the pending international arbitration against Bolivia (any more than the audited book value as at 31 December 2009 reflected the market value of the operating business).

As a result of the expropriation of our controlling shareholding in Guaracachi, turnover during the year fell to £10.8m and is based solely on the 50 per cent. equity interest in Energia del Sur S.A. ("EdS") (2009- £36.2m). I am pleased to say that we did see operating profits return at £0.6m, following the initiation of the Resolution 220 power purchase contract late in the third quarter, against last year's loss of £1.3m. The loss after tax on continuing operations was £0.1m (2009- loss of £2.9m).

At the operating level in Argentina, and therefore based on 100% of EdS's activities, EdS's revenues increased to £21.7m (AR$131) million this year (2009 - £10.5m / AR$63 million). Gross operating profit also increased substantially, to £7.7m (AR$48 million) (2009 - £1.7m / AR$11 million). The overall improvement at EdS is significant as it reports a loss after tax of £106k / AR$640k (2009 - loss of £4.9m / AR$30.2).

As a result of the support of shareholders and Sterling Trust in particular, the share issue in March this year went ahead as described in the circular dated 11 March 2011 and the Group is now virtually debt free, with only £1.6m of non-shareholder debt at the operating company level. Rurelec is now the primary lender to EdS and is in the process of restructuring the debt in order to accelerate payments back to London. Indeed since the capital increase closed, Rurelec has received a capital repayment of US$2m from EdS.

Progress towards obtaining compensation for the nationalisation of our assets in Bolivia is slower than we would wish. Whilst President Morales's May day Supreme Decree provided that compensation for the nationalisation of Guaracachi's shares would be established within 120 days, neither payment nor a compensation offer have been made within the stipulated timeframe, nor subsequently. We are therefore pursuing with all vigour the international arbitration claim that we and our US subsidiary initiated against the Government of Bolivia. The costs of the legal case will be met from internal resources.

During the year we said goodbye to Mr Jimmy West and Sir Robin Christopher, and more recently to Mr Mike Eyre. Their contributions to the Company have been important and I wish them all well for the future. I extend a warm welcome to Larry Coben, who joined the Board recently. Larry has extensive experience in Latin America and I am looking forward to working with him to achieve our goals.

For Rurelec, now that we see a stable future for our investment in Argentina, we intend to return to our stated objectives of seeking to develop power generation assets or businesses in the Southern Cone of South America and we will consider the possibility of returning money to shareholders in due course by means of a special dividend once the arbitration against Bolivia is settled.

Andrew Morris

Chairman

07 June 2011

CHIEF EXECUTIVE'S REVIEW OF OPERATIONS

As anticipated in my last review, our operations in Argentina have improved their operational and financial performance. The cost per MWh shows the benefit of combined cycle operations with the average heat rate falling once again as the steam turbine was in service for the full year. The promised financial improvement is not quite so evident in the final results for the year since the new power purchase contract under Resolution 220 did not start until the very end of the third quarter 2010 and inflation in Argentina has continued to run high.

Gross energy output at EdS was just under 809 GWh (2009 - 517 GWh), rising substantially with a full year of operating in combined cycle and the addition of auxiliary firing in the last quarter as the Resolution 220 contract came into force. The cost of gas in AR$ increased by over 20% in 2010. However, more efficient use of the gas consumed allowed EdS to reduce the increase in the gas cost per MWh of electricity generated to just over 6% and so the efficiency improvements of the CCGT conversion may clearly be seen.

The real disappointment in Argentina was the fact that EdS was unable to refinance its construction finance as anticipated. Bank debt in Argentina is still very difficult to find, with banks wishing to hold back on any commitment until the new Resolution 220 contract was tested commercially. The Directors examined the possibility of raising debt from overseas funds based outside Argentina. However, the rate required by the funds that expressed a willingness to lend together with the complexities of the Argentine foreign exchange regulations resulted in a costly proposal being rejected by our partners in EdS. This meant that the strain on Rurelec's cashflow continued into the beginning of 2011 since the expected 2010 year-end return of funds loaned to EdS did not materialise.

When the opportunity to acquire the senior debt of EdS arose in March 2011, even though this would mean considerable dilution for existing shareholders, the Board felt that it was in shareholders' interests to do so. Control of the senior debt would allow Rurelec to restructure repayments to allow Rurelec, along with its partner Basic Energy, to receive timely payments of principal and interest.

In addition to the financing delays in Argentina, the Bolivian Government's nationalisation of Guaracachi on 1 May meant that 2010 was the most challenging year in Rurelec's history.

Since May Day 2010, my colleagues and I have tried to engage with the Bolivian Government to secure a negotiated settlement to the expropriation of Rurelec's investments in Guaracachi as well as the release of two dual fuel motors directly owned by Rurelec's Energais subsidiary. In spite of attending a number of meetings with representatives of the Bolivian Government in La Paz and Santa Cruz, no settlement offer has been tabled by Bolivia.

Given this lack of progress, Rurelec has exercised its rights under Bolivia's bilateral investment treaties with the United Kingdom and the United States (the "Treaties"). to seek full compensation for the value of its expropriated Bolivian assets through international arbitration proceedings under the arbitration rules of the United Nations Commission on International Trade Law. The arbitral tribunal that will adjudicate Rurelec's and its subsidiary's claims against Bolivia is in the process of being constituted (with two out of the three arbitrators having been appointed at the time of writing) and the legal process will progress throughout the remainder of 2011, assuming no settlement is reached with the Bolivian Government before then.

The profit for the 2010 financial year has been calculated taking into account a notional compensation level for the nationalisation of US$75.0 million which corresponds to the audited book value of Rurelec's interest in Guaracachi together with the US $5.5 million of declared but unpaid dividends owed to Rurelec. This calculation, however, is based on accounting principles only and is significantly inferior to the fair market value of Rurelec's expropriated investments in Guaracachi that Rurelec is entitled to and will claim under the Treaties and international law in the pending international arbitration. Past experience shows that Bolivia prefers to settle arbitration claims in advance rather than risk a higher pay out enforced by an international tribunal.

The Bolivian electricity sector has suffered over the last twelve months since nationalisation. On May Day 2011 governmental authorities warned the Bolivian people that they could expect an imminent round of blackouts in the approaching winter. The Central Bank of Bolivia in the last month has made a loan of US $160.0 million available to ENDE, the state electricity company, to finance 160 MW of new emergency power generation capacity. This is in marked contrast to the period between 2006 and 2010 when Rurelec developed, financed and installed 185 MW of new capacity at a cost before interest of US$90.0m which it financed using locally issued bank debt and highly rated bonds together with a project loan from CAF. During that time Bolivia could boast the highest GDP growth in Latin America as the only country on the continent not to have suffered from power shortages due to lack of generation capacity.

In spite of the problems encountered during 2010, Rurelec is now able to move ahead and return to its business as a result of the substantial fundraising completed in April this year. The support which we have received from our shareholders over the last year has been extraordinary and the latest capital increase is a transformational event. While shareholders may still have to wait to see fair compensation for their expropriated assets, the Directors will be able to work to increase the value of the Company through developing the business through optimisation and acquisition.

Peter Earl

Chief Executive

07 June 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

for the year ending 31 December 2010

The financial statements were approved by the Board of directors on 07 June 2011 and were signed on its behalf by P Earl (Chief Executive) and E Shaw (Finance Director).

PARENT COMPANY STATEMENT OF FINANCIAL POSITION

for the year ended 31 December 2010

The financial statements were approved by the Board of directors on 07 June 2011 and were signed on its behalf by P Earl (Chief Executive) and E Shaw (Finance Director).

CONSOLIDATED STATEMENT OF CASH FLOWS

COMPANY STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity shareholders Minority

COMPANY STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2010

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2010

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 2010.

The results of Guaracachi, which were consolidated in prior years, have been shown as discontinued operations in the Consolidated Statement of Comprehensive Income.

A detailed review of the Group's business activities and recent developments is set out in the Chairman's Statement and the Chief Executive's Report.

On 31 March 2011, the Company issued 200m new ordinary shares of 2p each raising £16.0m after expenses and capitalising £1.7m of Company indebtedness. £15.0m of these funds were used to repay all but £1.6m of the Group's borrowings, including the loan by Standard Bank to Energia del Sur S.A. ("EdS"), leaving £1.0m available for working capital.

These funds, together with the improved trading performance of EdS, mean that the directors consider that the Company and the Group has sufficient working capital for at least the next 12 months and accordingly, the directors continue to adopt the going concern basis in preparing these financial statements.

1c New accounting standards

The Group has adopted the following new interpretations, revisions and amendments to IFRSs issued by the International Accounting Standards Board, which are relevant to and effective for the Group's financial statements for the annual period beginning 1 January 2010:

o IAS 1 Presentation of Financial Statements (Revised 2007)

o Amendments to IFRS 7 Financial Instruments: Disclosures - improved disclosures about financial instruments

o IFRS 8 Operating Segments

The adoption of IAS 1 Presentation of Financial Statements (Revised 2007) requires, in some circumstances, presentation of a comparative balance sheet at the beginning of the first comparative period. Management considers that this is not required in these financial statements as the 31 December 2007 balance sheet is the same as that previously published.

The following new standards, amendments and interpretations are effective for the first time in these financial statements but none have had a material effect on the group:

·; IAS27 (revised) Consolidated Financial Statements

·; Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items

·; IFRIC 17 Distributions of Non-cash Assets to Owners

·; Revised IFRS 1 First-time Adoption of international Financial Reporting Standards

·; IFRIC 18 Transfer of Assets from Customers

·; Improvements to IFRSs (2009)

·; Group Cash-settled Share-based Payment Transactions (Amendments to IFRS 2)

·; Additional Exemptions for First-time Adopters (Amendments to IFRS 1)

New standards and interpretations currently in issue but not effective for accounting periods commencing on 1 January 2010 are:

·; IFRS 9 Financial Instruments (effective 1 January 2013)

·; IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011)

·; Amendment to IAS 32 Classification of Rights Issues* (effective 1 February 2010)

·; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments* (effective 1 July 2010)

·; Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14* (effective 1 January 2011)

·; Improvements to IFRS issued May 2010 (some changes effective 1 July 2010, others effective 1 January 2011)

·; Disclosures - Transfers of Financial Assets - Amendments to IFRS 7* (effective 1 July 2011)

·; Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12 Income Taxes* (effective 1 January 2012)

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 and its 50% interest in EdS.

The results for the prior year also include the Group's 50.00125% interest in Empresa Electrica Guaracachi S.A. ("Guaracachi") which, as noted above, was nationalised by the Bolivian Government on 1 May 2010.

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 cost, 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 purchase 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 balance sheet 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 balance sheet of the Company.

In a business combination achieved in stages (a "step acquisition"), any revaluation of the Group's existing interest in the identifiable assets and liabilities of the company, which may arise following recognition of the fair value of the identifiable assets and liabilities of the acquired company at the most recent acquisition date, is taken directly to a revaluation reserve.

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 cost ("negative goodwill") 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 in administrative expenses.

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 balance sheet 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 charged / (credited) to the Foreign Currency Reserve.

2.4 Income and expense recognition

Revenue is recognised upon the performance of services or transfer of risk to the customer. Revenues represent the total amount receivable by the Group for electricity sales, excluding VAT. Electricity sales includes the income from the sale of electricity generated and the income received for keeping power plants operating and available for despatch into the grid as required. 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 (2010 - 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 is 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 balance sheet date, the Group reviews the carrying amount of its tangible 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 profit or loss.

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 profit or loss.

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 balance sheet 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 balance sheet 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 re-measured 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 CERs

CERs (Carbon Emission Reduction credits) are recognised at fair value on acquisition of a subsidiary, associate or joint venture company and are revalued by reference to an active market at each balance sheet date. A liability is recognised in respect of any payments received for CERs in advance of their generation. CERs arising subsequent to an acquisition are credited to the revenue in the period that they are generated.

2.14 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.

"Retained earnings" represents retained profits.

"Other reserves" comprises unrealised revaluations of plant and machinery and Carbon Emission Reduction credits.

2.15 Pensions

During the year under review, the Group did not operate or contribute to any pension schemes (2009 - nil).

2.16 Employee indemnity provision

This provision is determined in accordance with current legislation in Bolivia and reflects the liability accrued at the year-end.

2.17 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 make 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 consider 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. 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.

c) Deferred tax assets and liabilities and pre-paid VAT - 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 and also the recoverability, in Argentina, of pre-paid VAT.

d) The amount which will be recovered from the claim for compensation following the Nationalisation of the Group's interest in Guaracachi. Further details are set out in note 12b.

4 Segment analysis

The Group has adopted IFRS 8 'Operating Segments' with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Board.

Management currently identifies the Group's two geographic operating segments, Argentina and Bolivia, 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 2010 and 2009 for each geographic segment. In both Argentina and Bolivia, the main customer (accounting for over 90% of revenues) is a body which is subject to supervision by the Government electricity regulator.

5 Exchange rate sensitivity analysis

The Group's electricity generating assets are located in Argentina (2009 - Argentina and Bolivia) and as a result, the Group's reported results are affected by currency movements.

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

If the exchange rate of sterling at 31 December 2010 had been stronger or weaker by 10% with all other variables held constant, shareholder equity at 31 December 2010 would have been £1.4m (2009 - £7.3m) lower or higher than reported.

If the average exchange rate of sterling during 2010 had been stronger or weaker by 10% with all other variables held constant, the profit for the year, would have been £1.4m (2009 - £0.5m) higher or lower than reported.

Audit and non-audit services include £30k paid to the auditors for the audit of the Company and the Group financial statements and £5k paid to the Company's auditors for non-audit professional services provided to the Company in connection with the review of overseas activities. Fees paid to other auditors, in respect of the audit of joint venture companies (2009 - joint venture and subsidiary companies), amounted to £20k (2009 - £38k).

c) Directors remuneration

The total remuneration paid to the directors, excluding social security costs, was £275k (2009 - £284k). The total remuneration of the highest paid director was £61k (2009 - £57k).

1In June 2009, the Company sold 50% of its interest in PEL.

1Inter-group interest arises on loans by the Company to its 50% owned joint venture (PEL). The loans by the Company to PEL exceed the loans of the other 50% shareholder. The credit in the current year represents a one-off adjustment arising from a waiver of interest payable by PEL to the Company.

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

11 Tax expense

The relationship between the expected tax expense at the basic rate of 28% (31 December 2009 - 28%) and the tax expense actually recognised in the income statement can be reconciled as follows:

1In Argentina and Bolivia, companies are required to pay a transaction tax which is levied on turnover. This tax is treated as a credit towards tax payable on trading profits but no refund is given in the event that the transaction tax paid exceeds the profit tax liability.

2The tax adjustment in Argentina in 2009 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 liability outstanding at 31 December 2010 was £440k (31 December 2009 - £445k).

12. Discontinued operations

On 1 May 2010 the Bolivian Government nationalised by force Rurelec's controlling stake in Empresa Electrica Guaracachi SA ("Guaracachi"), by expropriating the shares held by its wholly-owned indirect US subsidiary, Guaracachi America, Inc. (the "Nationalisation"). The Nationalisation was a part of the May Day 2010 programme in which three privately-owned power generating companies, a regional distribution company and a national electricity transmission company were brought into state ownership by means of a Supreme Decree issued by Bolivia's President Evo Morales on 1 May (the "Decree").On 13 May, Rurelec entities initiated the process to recover adequate compensation for the Nationalisation under each of the US and UK bilateral investment treaties ("BITs"), by notifying the relevant governmental authorities that an investment dispute had arisen. As announced on 1 December 2010, the Notice of Arbitration has being issued and the arbitration process is continuing.

a) Trading profit

In accordance with IFRS 5, the results of Guaracachi during the period from 1 January to 30 April, which are based on Guaracachi's management accounts for the period from 1 January 2010 to 28 February 2010, plus an estimate of the results for March and April, are disclosed as a single amount. Due to restrictions on access imposed by the new owners of Guaracachi, the directors are unable to verify these amounts.

The amount of £1.4m represents 100% of the estimated trading profit, of which 50% is attributable to minorities.

b) Other income

Notices of Dispute under the relevant BITs have been submitted and, unless settled beforehand, a claim for compensation, pursuant to the terms of the relevant BITs, will be made in accordance with the right to be paid fair market value for the expropriated investments. The Bolivian book value of the net assets of Guaracachi, together with the declared but unpaid dividend for 2009, is not less than £47.0m and has been used to determine the book gain to be recognised as other income for the purposes of these interim accounts. The figure of £47.0m has been used for accounting purposes only and does not represent the fair market value of the investment to be claimed under the relevant BITs.

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 £1.5m (2009 - profit £1.2m).

14 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. For diluted loss per share, the weighted average number of shares is adjusted to assume conversion of all dilutive potential ordinary shares.

ii) Continuing operations