Independent Auditor’s Report

To the Shareholders of ACWA Power Company (A Saudi Joint Stock Company)

Opinion

We have audited the consolidated financial statements of ACWA Power Company (A Saudi Joint Stock Company) and its subsidiaries (‘the Group’), which comprise the consolidated statement of financial position as at 31 December 2023, the consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, comprising material accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards) that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by the Saudi Organisation for Chartered and Professional Accountants (SOCPA).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards), that is endorsed in the Kingdom of Saudi Arabia that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with the Code’s requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

KPMG Professional Services, a professional closed joint stock company registered in the Kingdom of Saudi Arabia with a paid-up capital of SAR 40,000,000 (previously known as ‘KPMG Al Fozan & Partners Certified Public Accountants’) and a non-partner member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

.كي بي إم جي للاستشارات المهنية شركة مهنية مساهمة مقفلة، مسجلة في المملكة العربية السعودية، رأس مالها (40,000,000) ريال سعودي مدفوع بالكامل، المسماة سابقاً ’شركة كي بي إم جي الفوزان وشركاه محاسبون ومراجعون قانونيون‘. و هي عضو غير شريك في الشبكة العالمية لشركات كي بي إم جي المستقلة والتابعة لـ كي بي إم جي العالمية المحدودة، شركة انجليزية محدودة بضمان. جميع الحقوق محفوظة.

Impairment of non‑financial assets (other than goodwill)
The key audit matter	How the matter was addressed in our audit
As at 31 December 2023, the carrying value of the property, plant and equipment and investment in Equity Accounted Investees (EAI) included in the consolidated statement of financial position amounted to SAR 10,292 million (2022: SAR 10,106 million) and SAR 15,873 million (2022: SAR 12,624 million) respectively. Property, plant and equipment mainly comprise of plants operated by the Group under operating lease arrangements. Further, results of EAI primarily depend on the performance of the plants held by EAI. Any changes in technology, market expected returns or regulatory changes may impact the recoverable amount of these plants and consequently impact the Group’s valuation of these plants either capitalised as property, plant and equipment or forming part of the net assets of EAIs. Where indicators of impairment are identified, management performs impairment assessment on the recoverable amount of property, plant and equipment and investment in EAIs at both Group and investee level, in case of EAIs. The recoverable amounts were mostly determined based on value‑in‑use calculations using discounted cash flows models. The models were based on most recent financial plan and included projection periods over the term of the relevant agreements with the offtaker or the remaining economic useful life of an asset. We identified impairment of property, plant and equipment and investment in equity accounted investees as a key audit matter as determining recoverable amount involves significant judgements and use of assumptions by management such as: Estimating cash flows that the Cash‑Generating Unit (CGU) is expected to generate including assessment of underlying assumptions with respect to useful life, production volumes and capacity variations etc.; and Determination of the pre‑tax discount rates to use for discounting these cash flows.	We performed the following procedures: Obtain an understanding of the management’s process of identifying the impairment indicators and performing impairment assessment on non‑financial assets where impairment indicators exists. Performed multiple risk assessment procedures including and not limited to inquiries with management and internal audit, inspection of minutes of meetings, and financial performance of the assets to identify and assess impairment indicators at the plant and investee company level. For the assets where the impairment indicators were identified, we performed the following procedures: Obtained and evaluated the impairment assessment performed by management for each component where indicators for impairment were identified; Assessed and tested the reasonableness of assumptions used by management in impairment assessment; Discussed with management and inspected the underlying evidence based on which impairment assessments were prepared; Engaged KPMG valuation specialists to consider the appropriateness of the discount rate used for impairment assessment; and Tested the accuracy of the impairment assessment model. Assessed adequacy of Group`s disclosures in the consolidated financial statements.

Impairment of non‑financial assets (other than goodwill)

The key audit matter

How the matter was addressed in our audit

As at 31 December 2023, the carrying value of the property, plant and equipment and investment in Equity Accounted Investees (EAI) included in the consolidated statement of financial position amounted to SAR 10,292 million (2022: SAR 10,106 million) and SAR 15,873 million (2022: SAR 12,624 million) respectively.

Property, plant and equipment mainly comprise of plants operated by the Group under operating lease arrangements. Further, results of EAI primarily depend on the performance of the plants held by EAI. Any changes in technology, market expected returns or regulatory changes may impact the recoverable amount of these plants and consequently impact the Group’s valuation of these plants either capitalised as property, plant and equipment or forming part of the net assets of EAIs.

Where indicators of impairment are identified, management performs impairment assessment on the recoverable amount of property, plant and equipment and investment in EAIs at both Group and investee level, in case of EAIs.

The recoverable amounts were mostly determined based on value‑in‑use calculations using discounted cash flows models. The models were based on most recent financial plan and included projection periods over the term of the relevant agreements with the offtaker or the remaining economic useful life of an asset.

We identified impairment of property, plant and equipment and investment in equity accounted investees as a key audit matter as determining recoverable amount involves significant judgements and use of assumptions by management such as:

Estimating cash flows that the Cash‑Generating Unit (CGU) is expected to generate including assessment of underlying assumptions with respect to useful life, production volumes and capacity variations etc.; and
Determination of the pre‑tax discount rates to use for discounting these cash flows.

We performed the following procedures:

Obtain an understanding of the management’s process of identifying the impairment indicators and performing impairment assessment on non‑financial assets where impairment indicators exists.
Performed multiple risk assessment procedures including and not limited to inquiries with management and internal audit, inspection of minutes of meetings, and financial performance of the assets to identify and assess impairment indicators at the plant and investee company level.
For the assets where the impairment indicators were identified, we performed the following procedures:
- Obtained and evaluated the impairment assessment performed by management for each component where indicators for impairment were identified;
- Assessed and tested the reasonableness of assumptions used by management in impairment assessment;
- Discussed with management and inspected the underlying evidence based on which impairment assessments were prepared;
- Engaged KPMG valuation specialists to consider the appropriateness of the discount rate used for impairment assessment; and
- Tested the accuracy of the impairment assessment model.
Assessed adequacy of Group`s disclosures in the consolidated financial statements.

Refer to note 3 in the consolidated financial statements for material accounting policies, note 4 for estimates, assumptions and judgements relating to impairment of non-financial assets, note 5 for property, plant and equipment and note 7 for investment in equity accounted investees.

Impairment of goodwill
The key audit matter	How the matter was addressed in our audit
As of 31 December 2023, the carrying value of the goodwill in the Group’s financial statements amounted to SAR 1,915 million. The goodwill is allocated at operating segment level of Thermal & Water Desalination, and Renewable. Management of the Company has performed an annual impairment assessment of goodwill and concluded that the goodwill is not impaired as at 31 December 2023. The model was based on the most recent financial plans and cash flows that are estimated over the expected period of the underlying projects’ lives within a particular operating segment. We considered this to be a key audit matter given the significant judgement and estimation required to determine recoverable amounts of the operating segments and uncertainty inherent in underlying forecasts and assumptions.	We performed the following procedures: We considered the process followed by management for the identification of the Cash‑Generating Unit (CGU) and assessed its appropriateness. Further, we assessed reasonableness of allocation of goodwill to each identified operating segment. We obtained the impairment assessment model used by management to assess Goodwill impairment and we performed the following procedures: We checked the accuracy and reasonableness of the underlying information, on a sample basis, used for the impairment assessment of Goodwill; We considered reasonableness of the assumptions used in the impairment assessment by considering management’s most approved plans, cash flow estimates, our understanding of the business and other corroborating evidence gathered during the audit; We involved KPMG valuation specialist for assessing the calculation performed by management in determining the discount rate; We assessed the sensitivity of the results of the recoverable amount to the various key assumptions, such as long‑term growth rate and discount rate, within a reasonably possible range reflective of the current environment; and We tested mathematical accuracy of the calculations. We assessed the adequacy of disclosures in the consolidated financial statements in respect of goodwill impairment assessment.

Impairment of goodwill

The key audit matter

How the matter was addressed in our audit

As of 31 December 2023, the carrying value of the goodwill in the Group’s financial statements amounted to SAR 1,915 million.

The goodwill is allocated at operating segment level of Thermal & Water Desalination, and Renewable.

Management of the Company has performed an annual impairment assessment of goodwill and concluded that the goodwill is not impaired as at 31 December 2023.

The model was based on the most recent financial plans and cash flows that are estimated over the expected period of the underlying projects’ lives within a particular operating segment.

We considered this to be a key audit matter given the significant judgement and estimation required to determine recoverable amounts of the operating segments and uncertainty inherent in underlying forecasts and assumptions.

We performed the following procedures:

We considered the process followed by management for the identification of the Cash‑Generating Unit (CGU) and assessed its appropriateness. Further, we assessed reasonableness of allocation of goodwill to each identified operating segment.
We obtained the impairment assessment model used by management to assess Goodwill impairment and we performed the following procedures:
- We checked the accuracy and reasonableness of the underlying information, on a sample basis, used for the impairment assessment of Goodwill;
- We considered reasonableness of the assumptions used in the impairment assessment by considering management’s most approved plans, cash flow estimates, our understanding of the business and other corroborating evidence gathered during the audit;
- We involved KPMG valuation specialist for assessing the calculation performed by management in determining the discount rate;
- We assessed the sensitivity of the results of the recoverable amount to the various key assumptions, such as long‑term growth rate and discount rate, within a reasonably possible range reflective of the current environment; and
- We tested mathematical accuracy of the calculations.
We assessed the adequacy of disclosures in the consolidated financial statements in respect of goodwill impairment assessment.

See Note 3 to the consolidated financial statements for the accounting policy relating to goodwill and note 6.1 for the related disclosure.

Valuation of derivative financial instruments and hedge effectiveness
The key audit matter	How the matter was addressed in our audit
As at 31 December 2023, the positive and negative fair value of derivatives held by the Group amounted to SAR 843 million and SAR 63 million respectively. The Group has entered into various derivative transactions, including interest rate swap, forward foreign exchange contracts and options. Swaps, forwards and options derivative contracts are over the counter (OTC) derivatives that are not traded in active markets and hence, the valuation of these contracts is subjective as it takes into account a number of assumptions which often involves the exercise of judgement by management. An inappropriate valuation of derivatives could have a material impact on the consolidated financial statements and can have an impact in hedge accounting thereon. Application of hedge accounting requires robust documentation and compliance with hedge effectiveness requirements and parameters. We considered this as a key audit matter as there is complexity and subjectivity involved in determining the valuation, where complex modelling techniques are being used. Further, assessing the hedge effectiveness, involves high degree of judgement and significant impact on the financial statements, in case of hedge ineffectiveness.	We performed the following procedures: Obtained an understanding about the Group’s valuation process with respect to its derivatives and accounting for hedge relationships. For a selected sample of derivatives, we performed the following procedures: Obtained counterparty bank confirmation for valuation of derivatives and compared with the valuation of derivatives reflected in the financial statements; Involved KPMG specialists to perform an independent valuations of the derivatives and compared the result with the valuation used by management and evaluated any variances noted; and Tested the accuracy of the particulars of derivatives selected for independent valuation by our specialist by tracing the details to the relevant derivative agreements; Inspected hedge documentation for a sample of hedge arrangements and performed the following procedures: Involved our specialists to evaluate the hedge effectiveness assessment performed by the Group; and Considered the appropriateness of hedge accounting and assessed whether the accounting is in line with the requirements of the relevant accounting and reporting standards. Considered the adequacy of the disclosures in the financial statements relating to the valuation basis and inputs used in the fair value measurement.

Valuation of derivative financial instruments and hedge effectiveness

The key audit matter

How the matter was addressed in our audit

As at 31 December 2023, the positive and negative fair value of derivatives held by the Group amounted to SAR 843 million and SAR 63 million respectively.

The Group has entered into various derivative transactions, including interest rate swap, forward foreign exchange contracts and options. Swaps, forwards and options derivative contracts are over the counter (OTC) derivatives that are not traded in active markets and hence, the valuation of these contracts is subjective as it takes into account a number of assumptions which often involves the exercise of judgement by management.

An inappropriate valuation of derivatives could have a material impact on the consolidated financial statements and can have an impact in hedge accounting thereon.

Application of hedge accounting requires robust documentation and compliance with hedge effectiveness requirements and parameters.

We considered this as a key audit matter as there is complexity and subjectivity involved in determining the valuation, where complex modelling techniques are being used. Further, assessing the hedge effectiveness, involves high degree of judgement and significant impact on the financial statements, in case of hedge ineffectiveness.

We performed the following procedures:

Obtained an understanding about the Group’s valuation process with respect to its derivatives and accounting for hedge relationships.
For a selected sample of derivatives, we performed the following procedures:
- Obtained counterparty bank confirmation for valuation of derivatives and compared with the valuation of derivatives reflected in the financial statements;
- Involved KPMG specialists to perform an independent valuations of the derivatives and compared the result with the valuation used by management and evaluated any variances noted; and
- Tested the accuracy of the particulars of derivatives selected for independent valuation by our specialist by tracing the details to the relevant derivative agreements;
Inspected hedge documentation for a sample of hedge arrangements and performed the following procedures:
- Involved our specialists to evaluate the hedge effectiveness assessment performed by the Group; and
- Considered the appropriateness of hedge accounting and assessed whether the accounting is in line with the requirements of the relevant accounting and reporting standards.
Considered the adequacy of the disclosures in the financial statements relating to the valuation basis and inputs used in the fair value measurement.

See Note 3 to the consolidated financial statements for the accounting policy relating to derivative financial instruments and note 22 for the related disclosure.

Other Matter

The consolidated financial statements of the Group for the year ended 31 December 2022 were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements on 9 Sha’ban 1444H (corresponding to 1 March 2023).

Other Information

Management is responsible for the other information. The other information comprises the information included in the Annual Report but does not include the consolidated financial statements and our auditor’s report thereon. The Annual Report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the Annual Report, when made available to us, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by SOCPA, the applicable requirements of the Regulations for Companies and Company’s By‑laws and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, the Board of Directors, is responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. ‘Reasonable assurance’ is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit of ACWA Power Company (A Saudi Joint Stock Company) and its subsidiaries (‘the Group’).

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

KPMG Professional Services

Dr Abdullah Hamad Al Fozan
License No 348

Riyadh on February 29, 2024
Corresponding to: Sha’ban 19, 1445