Rurelec Regulatory News (RUR)

 31 May 2012

Rurelec PLC

("Rurelec" or "the Company")

Unaudited Preliminary results for the year ended 31st December 2011

Rurelec PLC (AIM: RUR), the electricity utility focused on the development of power generation capacity and rural electrification projects in Latin America, announces its unaudited results for the year ended 31 December 2011. The annual report will be posted to shareholders on 6th June 2012.

Highlights

·; Focus on increasing capacity following the successful fundraising of £18.0 million

·; Profit before tax from continuing operations £1.9 million (2010: £0.1 million)

·; Revenues increased 25 per cent. to £13.5 million (2010: £10.8 million)

·; Group borrowings of £1.7 million (2010: £13.7 million)

·; Guaracachi has been independently valued at US$142.3 million as the claim in the arbitration proceedings against Bolivia is lodged

·; Expansion into Peru and Chile

·; Earnings per share 0.47p (2010: loss 0.06p)

·; Net Asset Value per share 20.41p (2010: 31.38p)

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

"This year we have expanded into Peru and Chile, replacing some of the generating capacity lost through the Bolivian nationalisation in 2010. At last we are looking to a future of growth and liquidity for Rurelec and I will welcome the day on which I can also announce a return to the payment of dividends from ordinary activities as the dramas of the world events finally subside."

For further information please contact:

chairman's statement

I am pleased to present the report of the unaudited results of Rurelec PLC ("Rurelec" or the "Company") for the year ended 31 December, 2011. The past year has seen the Group consolidate its position following the fundraising of £18 million, before expenses, in March 2011 and prepare to refocus on adding capacity. A welcome change from the torrid couple of years that preceded.

Group Results

The profit after tax for the financial year under review is £1.8 million (2010: £15.7 million). This figure compares with a 2010 loss after tax, for continuing operations of £0.1 million.

Turnover during the year rose to £13.5 million (2010: £10.8 million) and is based solely on our 50 per cent. equity interest in Energia del Sur S.A. ("EdS") in Argentina. These figures include a full year of revenues from the Resolution 220 power purchase contract.

As a result of the support of shareholders and Sterling Trust in particular, the share issue in March last year went ahead as described in the circular dated 11 March, 2011 and the Group is now virtually debt free, with only £1.7 million of non-shareholder borrowings 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 capital repayments of US$2.5 million from EdS.

Operating profit, before exchange adjustments, improved in Argentina from £1.5 million to £2.4 million resulting in an increase in Group operating profit, after head office costs, from £0.4 million to £1.6 million.

EdS Results

At the operating level in Argentina, and therefore based on 100 per cent. of EdS's activities, EdS's revenues increased to £27 million (AR$180 million) this year (2010: £21.7 million/AR$131 million). Gross operating profit also increased substantially, to £10.5 million (AR$70 million) (2010: £7.7 million/AR$47 million). Exchange losses of £2.6 million (2010: loss of £0.9 million) due to weakness of the Argentine Peso reduced operating profits to £1.5 million (2010: profit £2.3 million).

Inflation in Argentina and downward foreign exchange pressure on the peso have eroded part of our margin on the Resolution 220 power purchase agreement which continues to provide us with a premium pricing on our incremental at EdS.

Update on Bolivian Arbitration

Throughout 2011 the Executive Directors have been working with our legal advisers, Freshfields Bruckhaus Deringer, preparing the statement of claim in the arbitration proceedings against the Government of Bolivia. This was lodged with the Court on 1 March, 2012, and as expected the claim is substantially in excess of the notional value used in these financial statements. The valuation of our former interest in Guaracachi has been set by the independent valuation expert at US$142.3 million, just under twice the notional value used in the accounts. As agreed in the procedural orders, the statement of claim is available to the public and we provide a copy in both English and Spanish on our website. The Government of Bolivia must publish their defence on or before 1 August, 2012.

Outlook

In addition, the Directors have been looking to add new capacity to Rurelec's operating business. We have announced the launch of initiatives to develop new assets in Peru and in Chile through our 50 per cent. interest in Cascade and Termonor, respectively. Pending receipt of any proceeds from the arbitration claim, expansion will be funded from internally generated funds or through borrowings.

During 2012 we expect to be able to announce additional capacity under development in Chile and in Peru as our presence on the ground in these two countries increases.

Andrew Morris

Chairman

chief executive's review of operations

Introduction

2011 was a year of consolidation and expansion for Rurelec. After the shocks of the previous year, 2011 was the year in which Rurelec substantially eliminated its borrowings and prepared the groundwork for a full and fair compensation claim against the Government of Bolivia at the Permanent Court of Arbitration in The Hague. These actions have in turn allowed Rurelec to begin the process of replacing the power generation capacity which was lost through the May Day 2010 nationalisation of Guaracachi.

A year in Review

Our 136 MW Argentine combined cycle power plant at Comodoro Rivadavia in Patagonia has performed to the very high expectations which we had of it when it was originally planned. EdS's new plant capacity has been meeting the predicted increased demand for power in southern Argentina with record levels of dispatch and the highest level of reliability of any plant in the southern wholesale electricity market. This in turn has meant increased cash flow from operations which has permitted EdS to start paying down debt owed to Rurelec.

Overall operations at EdS have been satisfactory. An increase in spot market capacity and operations and maintenance prices came in to effect in January 2011. However, cash releases from the business have been less than expected due to CAMMESA delaying payment of the increase from July 2011.

In March 2012 the Ministry of Energy announced that this capacity price increase was formally cancelled, reducing revenues by approximately US$2.4 million per annum. This is regarded as a temporary suspension pending a wider review of spot market prices which we believe is long overdue. Resolution 220 income remains unaffected.

Reported earnings in Argentina continue to be adversely affected by Peso weakness and by local inflation rates, salary inflation remains above 20 per cent. per annum, even though the official inflation rate is reported as 9.8 per cent. (March 2012). Recent changes to the foreign exchange control rules appear to be having the effect of increasing liquidity in the local banking system, so we are redoubling efforts to refinance EdS in order to mitigate the impact of foreign exchange variations on earnings.

Inflation in Argentina and downward foreign exchange pressure on the peso have eroded part of our margin on the Resolution 220 power purchase agreement which continues to provide us with a premium pricing on our incremental capacity at EdS. Nonetheless, the past year has seen a solid performance in Argentina and we continue to expect to operate at full plant capacity in the coming years.

During 2011, Rurelec raised £16 million of new funds by way of a capital increase to acquire the project loan provided by Standard Bank in 2008 for the construction of the EdS combined cycle capacity. Rurelec also raised a further £2 million of new capital by issuing Ordinary shares in exchange for loans, thereby taking the overall capital increase to £18 million and eliminating all of Rurelec's bank borrowings, loan notes and loans. This has left Rurelec in an almost unique position among global power companies of being almost completely ungeared other than in the form of trade creditors at the operating company level.

EdS is currently looking to refinance part of its loans to Rurelec by means of a peso denominated loan at the EdS level. This loan is expected to complete before the year end and will reduce the quantum of debt which Rurelec will have lent to the combined cycle project. At present Rurelec is owed, directly and indirectly, some US$50 million by EdS. Recycling this money back to Rurelec will allow us to use the funds released to buy into new generation capacity in Chile and Peru.

The primary focus of management during the year was preparing the very detailed information and financial models required to mount a serious claim for compensation against the Plurinational State of Bolivia pursuant to the UK-Bolivia investment treaty. This complex and laborious process was undertaken with great determination by a Rurelec team operating out of London, Denver, Buenos Aires and Santa Cruz de la Sierra in Bolivia. It was complemented by a Freshfields legal team split between New York and Washington DC. On 2 February, 2012 Rurelec announced that it had submitted its Statement of Claim to the Permanent Court of Arbitration in The Hague. The value of the claim for the expropriation of its controlling share stake in Guaracachi and other associated assets was assessed by independent valuation experts at US$142.3 million.

Previously, in a highly significant move, the Government of Bolivia had agreed to full transparency relating to documents filed in the arbitration process and at the hearings, which will now be held in public. Both Rurelec and the Government of Bolivia are bound by the decision of the arbitration tribunal, which is not appealable on the merits.

In accordance with the process laid down in the 2010 Arbitration Rules of the United Nation Commission on International Trade Law (UNCITRAL) and the Tribunal's rulings, if no earlier settlement is reached, the final hearing of the arbitration panel following submission of all written submissions is now scheduled for April 2013. Given the progress made in the expropriation claim during 2011, we expect that the Bolivian Government will pay compensation in full which will enable the Rurelec Group to reinvest in replacement power generation assets in Latin America. Details of the claim have been posted on the Rurelec website.

In Bangladesh, discussions with regards to providing technical services for the construction of new generation capacity are ongoing, although no firm agreement has been reached at this stage.

Growth Strategy

The job of finding suitable projects has begun in Chile and Peru and at the end of 2011 we announced our first ever project in Peru, a small 4 MW run-of-river hydro plant at Canchayllo to be developed by Cascade Hydro. This was soon followed by the announcement of a 38 MW liquid fuel plant at Arica in northern Chile.

In Peru, Rurelec has helped to establish a new, specialist hydroelectric power plant development and owning company. Cascade is 50 per cent. owned by Rurelec, although that percentage is likely to diminish through dilution as Cascade raises capital for new projects. Initially, however, Rurelec will be the sponsor of Canchayllo and other small hydros. This role of project manager, arranger and sponsor has allowed Cascade to win an important tender to acquire the 255 MW Santa Rita hydro project, a world scale hydro development. Rurelec's track record in project development and its historical ties with the region's development banks contributed to Cascade's selection by Trading Emissions PLC in April 2012 as the new owner of Electricidad Andina SPA, the owner of the Santa Rita project. Cascade will be undertaking a small capital increase in 2012 with a view to a flotation in London and Lima in 2013 at which time Rurelec's shareholders may be able to acquire shares directly as well as participate via Rurelec's shareholding in Cascade.

However, it is Chile which the Directors believe presents the most important opportunities for rapid expansion in the coming years. Northern Chile requires at least 2,300 MW of new clean tech capacity over the next five years and Rurelec is well placed to fill a large part of that requirement. This is as a result of cooperation in 2011 between Rurelec and Independent Power Corporation PLC ("IPC"), the leading UK power developer which is owned by Sterling Trust, Rurelec's largest shareholder. IPC has spent the last two years preparing feasibility studies and competing in Chilean tenders held by international mining companies for new generation capacity.

This early development allowed Rurelec to enter the Chilean market in a 38 MW diesel fired project in Arica which is now 50 per cent. owned by Rurelec and 50 per cent. by local Chilean partners, Invener and Enerbosch. Arica is the main Pacific sea port serving trade into and out of Bolivia. It is also where Chilean mining expansion requires reserve capacity to ensure grid stability for electricity transmission. The Arica project is therefore only a first phase for a wider expansion in 2012 as Rurelec seeks to win power contracts for new thermal plants in Arica, Iquique and Antofagasta with a view to owning and operating close to 1,000 MW of clean tech thermal generation based on LNG and liquid fuels to be operational by 2015. The first 38 MW of capacity at Arica is due on-line by the end of 2013.

Outlook

Peru and Chile are expected to be the two countries where Rurelec will own new capacity to replace the 540 MW of generation capacity lost through nationalisation. However, in addition to replacing lost capacity, Rurelec has committed to use part of the proceeds of any Bolivian settlement to undertake a significant buy-back of Rurelec shares in order to reverse some of the equity dilution suffered by shareholders since the nationalisation of the Company's Bolivian assets on 1 May, 2010. Such a buy-back will be subject to shareholder approval and can only occur once cash funds are received from Bolivia. In anticipation of that receipt in the near future, the Directors are now seeking the necessary authority to buy back up to 40 per cent. of Rurelec shares currently in issue. A resolution will be put to shareholders at this year's annual general meeting to be held on 29 June, 2012.

Shareholders have been extraordinarily patient since 2008 as Rurelec has suffered first the effects of the global financial crisis and then the unprovoked nationalisation of Company assets. Now at last we are looking to a future of growth and liquidity for the Company and I will welcome the day on which I can also announce a return to the payment of dividends from ordinary activities as the dramas of world events finally subside.

Peter Earl

Chief Executive

Unaudited CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2011

unaudited CONSOLIDATED STATEMENT OFCOMPREHENSIVE INCOME

for the year ended 31 December 2011

unaudited CONSOLIDATED STATEMENT OF FINANCIAL POSITION

for the year ended 31 December 2011

unaudited PARENT COMPANY STATEMENT OF FINANCIAL POSITION

for the year ended 31 December 2011

unaudited CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2011

unaudited COMPANY STATEMENT OF CASH FLOWS

for the year ended 31 December 2011

unaudited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2011

unaudited COMPANY STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2011

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

for the year ended 31 December 2011

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 2011.

The figures for the year ended 31 December 2011 are based on unaudited accounts for the year ended 31 December 2011.

The financial information set out in this announcement does not constitute the company's statutory accounts within the meaning of Section 434 of the Companies Act 2006.

In 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.

As a result of the share issue in March 2011 and the improved trading performance of EdS, 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 2011:

IAS 1 Presentation of Financial Statements (Revised 2007)

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

IFRS 8 Operating Segments

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:

IAS 27 (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)

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)

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group in the 31 December 2011 financial statements

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:

Applicable for financial

Standard/interpretation Content years beginning on/after

IFRS 9 Financial instruments: Classification and measurement 1 January, 2015

IFRS 10 Consolidated Financial Statements 1 January, 2013

IFRS 11* Joint Arrangements 1 January, 2013

IFRS 12* Disclosure of Interests in Other Entities 1 January, 2013

IFRS 13* Fair Value Measurement 1 January, 2013

IAS 19 (Revised June 2011)* Employee Benefits 1 January, 2013

IAS 28 (Revised)* Investments in Associates and Joint Ventures 1 January, 2013

Amendments to IFRS 7* Disclosures - Transfers of Financial Assets and Offsetting Financial

Assets and Financial Liabilities - 1 July, 2011

Amendments to IAS 12* Deferred Tax: Recovery of Underlying Assets 1 January, 2012

Amendments to IAS 1 Presentation of Items of Other Comprehensive Income 1 July, 2012

Amendments to IAS 32* Offsetting Financial Assets and Financial Liabilities - 1 January, 2014

*Not expected to be relevant to 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, 2013.

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, 2013.

Amendments to IAS 1 Presentation of Financial Statements (IAS 1 Amendments)

The IAS 1 Amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual periods beginning on or after 1 July, 2012. The Group's management expects this will change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items.

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 per cent. interest in EdS.

The results for the prior year include, within 'discontinued operations', the Group's 50.00125 per cent. interest in Empresa Electrica Guaracachi S.A. ("Guaracachi") which 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.

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:

Buildings 25 to 50 years

Plant and equipment 3 to 15 years

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 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 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 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 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 (2010: nil).

2.16 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 review, 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 review 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 - 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) 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 11.

4 Segment analysis

Management currently identifies the Group's two geographic operating segments, Argentina 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 2011 and 2010 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 Group's electricity generating assets are located in Argentina 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 2011 had been stronger or weaker by 10 per cent. with all other variables held constant, shareholder equity at 31 December 2011 would have been £2.0 million (2010: £1.4 million) lower or higher than reported.

If the average exchange rate of sterling during 2011 had been stronger or weaker by 10 per cent. with all other variables held constant, the profit for the year, would have been £0.2 million (2010: £0.1 million) higher or lower than reported.

6 Cost of sales

7 Administrative expenses

1 Audit and non-audit services include £30,000 paid to the auditors for the audit of the Company and the Group financial statements and £5,000 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, amounted to £20,000 (2010: £20,000).

2 The exchange losses (2010: gains) have arisen primarily of borrowings in Argentina which are US$ denominated.

8 Employee costs

c) Directors' remuneration

The total remuneration paid to the Directors, including national insurance, was £322,000 (2010: £301,000). The total remuneration of the highest paid Director was £99,000 (2010: £68,000).

9 Finance income and 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 £14.2 million (2010: £9 million). Interest on inter-group loans has been charged at rates of between 8 per cent. and 12 per cent.

Sensitivity analysis arising from changes in borrowing costs is set out in note 23.

10 Tax expense

The relationship between the expected tax expense at the basic rate of 26 per cent. (31 December 2010: 28 per cent.) and the tax expense actually recognised in the income statement can be reconciled as follows:

11 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, is not less than £47.0 million and has been used for accounting purposes only and does not represent fair market value of the investment to be claimed under Bilateral Investment Treaties. The actual amount claimed, as submitted to the Permanent Court of Arbitration in The Hague, is $142.4 million. The increase from £47.0 million to £48.0 million represents costs incurred in preparing and submitting the claim for compensation to the Permanent Court of Arbitration in The Hague.

12 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 profit for the year was £3.4 million (2010: loss £1.5 million).

13 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. There were no outstanding options or warrants to acquired shares at the year-end and therefore there was no difference between the basic and diluted earnings per share.

14 Property, plant and equipment

All property, plant and equipment is located in Argentina. The value of property, plant and equipment recognised upon the initial acquisition of 50 per cent. of EdS in Argentina in 2005 was £4.2 million. This amount included a negative fair value adjustment of £0.5 million resulting from a professional valuation carried out at the date of the acquisition. The value of property, plant and equipment recognised upon the acquisition of the remaining 50 per cent. of EdS in June 2008 was £19.7 million. This included a positive fair value adjustment of £5.0 million based on the Directors' estimate of the fair value of the plant under construction. Following the sale of 50 per cent. of EdS in June 2009, the fair value adjustment of £5.0 million was been reduced to £2.5 million.

b) Company - The Company had no property, plant and equipment.

15 Intangible assets

Goodwill represents 50 per cent. of 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.

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, which are based on management projections, taking into account experience, expected revenues and operating margins, and the discount rate applied to those cash flows. The discount rate applied is 15 per cent.

CERs (Carbon Emission Reduction credits) represent the fair value of the CERs in EdS. In June 2008, following the acquisition of the outstanding 50 per cent. of EdS, the value of the CERs was based on the Directors' estimate of the discounted value of the expected future income. During 2009, In a prior year, EdS entered into a contract under which EdS is required to deliver, in 2012, 475,000 CERs at a fixed price of €11.18 per CER. In addition, EdS agreed an advanced payment, which was paid in February 2010, in respect of 172,350 CERs. The carrying value at 31 December, 2011 of £225,000 represents 50 per cent. of the discounted value of the remaining CERs.

16 Trade and other receivables

1 Non-current trade receivables includes £37,000 (2010: £123,000) of retentions by the Electricity Regulator in Argentina (which is expected to be either released or contributed towards ongoing capital projects) and £337,000 (2010: £nil) of trade receivables which are not expected to be received within the next 12 months.

2 Amounts due from joint venture companies represent 50 per cent. of 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 12 per cent. per annum.

3 Other receivables includes £nil (2010: £1.5 million) of input VAT which has been paid by EdS and is recoverable as a deduction against future VAT liabilities and £0.6 million (2010: £0.3 million) of income tax paid by EdS which is expected to be recovered as an offset against future profits.

16b Group - current

Other receivables and prepayments includes £479,000 (2010: nil) of VAT recoverable by EdS.

16c Company - non-current

The amounts owed by subsidiary companies are non-interest bearing, unsecured and payable on demand but are not expected to be fully received within the next twelve months. Included within amounts due by subsidiary companies is an inter-company loan of £20.6 million which was supported by the Group's investment in Guaracachi and which the Directors consider will be recovered in full as part of the compensation claim against the Bolivian Government.

The amounts owed by subsidiary and joint venture companies are interest bearing at rates of between 8 per cent. and 12 per cent. and are payable on demand but are not expected to be fully received within the next twelve months. £11.2 million is secured by a first charge against the assets of EdS.

The Bolivian arbitration costs represent legal and professional expenses incurred in preparing and submitting the claim for compensation to the Permanent Court of Arbitration in The Hague.

16d Company - current

The £nil (2010: £7.4 million) due from joint venture companies is unsecured, interest free and payable on demand.

All trade and other receivables are unsecured, with the exception of the £11.2 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.

19 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.

20 Share capital

Reconciliation of movement in share capital

The prices per share of the allotments referred to above were: May and September 2010: 10 pence, and March 2011: 9 pence. 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 the allotments have been debited to the share premium account.

There have been no changes in the issued share capital of the Company since the balance sheet date.

21 Trade and other payables

1 The future CER liability represents the present value of CERs which were sold by EdS in 2009 for delivery between 2010 and 2012 and which had not been delivered at 31 December 2011. The liability is credited to the income statement as the CERs are generated.

22 Tax liabilities

This relates to an agreement reached with the tax authorities in Argentina 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 2011 was £360,000 (31 December 2010: £440,000) of which £306,000 (31 December 2010: £381,000) is due in more than 12 months. The current portion of the liability is included within note 21.

23 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 final repayment due in July 2016.

2 The loan note was repaid in full in March 2011.

3 The EdS bank loan was repaid in full in April 2011.

4 Other loans were repaid in full in March and April 2011.

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 £25,000 lower or higher than reported.

Sensitivity analysis to changes in exchange rates:

The Group's external borrowings are denominated in AR$. 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 £0.2 million (2010: £0.7 million).

24 Reconciliation of profit before tax to cash generated from operations