Kenon (KEN) 6-K Report of the Board of Directors regarding the Company’s Matters

Exhibit 99.2

OPC Energy Ltd.

Condensed Consolidated Interim Financial Statements

At June 30, 2020

(Unaudited)

OPC Energy Ltd.

Condensed Consolidated Interim Financial Statements

At June 30, 2020

Unaudited

Contents

	Page
Auditors’ Review Report	2
Condensed Consolidated Interim Statements of Financial Position	3 – 4
Condensed Consolidated Interim Statements of Income	5
Condensed Consolidated Interim Statements of Comprehensive Income	6
Condensed Consolidated Interim Statements of Changes in Equity	7 – 9
Condensed Consolidated Interim Statements of Cash Flows	10 – 12
Notes to the Condensed Consolidated Interim Financial Statements	13 – 34

 

Somekh Chaikin KPMG   Millennium Tower 17 Ha’arba’a St., POB 609, Tel-Aviv 6100601   03-6848000

Review Report of the Independent Auditors to the Shareholders of OPC Energy Ltd.

Introduction

We have reviewed the accompanying financial information of OPC Energy Ltd. (hereinafter – “the Company”) and its subsidiaries, including the condensed consolidated interim statement of financial position as at June 30, 2020 and the condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the six-month and three-month periods then ended. The Board of Directors and Management are responsible for the preparation and presentation of financial information for these interim periods in accordance with IAS 34 “Financial Reporting for Interim Periods”, and are also responsible for the preparation of financial information for these interim periods in accordance with Section D of the Securities Regulations (Periodic and Immediate Reports), 1970. Our responsibility is to express a conclusion on the financial information for these interim periods based on our review.

Scope of the Review

We conducted our review in accordance with Review Standard (Israel) 2410, “Review of Financial Information for Interim Periods Performed by the Independent Auditor of the Entity” of the Institute of Certified Public Accountants in Israel. A review of financial information for interim periods consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the above‑mentioned financial information was not prepared, in all material respects, in accordance with International Accounting Standard IAS 34.

In addition to that mentioned in the previous paragraph, based on our review, nothing has come to our attention that causes us to believe that the above‑mentioned financial information does not comply, in all material respects, with the disclosure requirements of Section D of the Securities Regulations (Periodic and Immediate Reports), 1970.

Sincerely,

Somekh Chaikin

Certified Public Accountants (Isr.)

August 17, 2020

2

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Financial Position

	At June 30				At December 31
	2020		2019		2019
	(Unaudited)				(Audited)
	In Thousands of New Israeli Shekels
Current Assets
Cash and cash equivalents		503,782		378,885		384,748
Short-term deposits and restricted cash		56,317		277,583		115,765
Trade receivables and accrued income		105,722		111,530		134,794
Other receivables and debit balances		53,162		54,221		69,975
Short-term derivative financial instruments		612		–		188
Total current assets		719,595		822,219		705,470
Non‑Current Assets
Long-term deposits and restricted cash		342,435		234,423		266,803
Long-term prepaid expenses		128,427		88,025		104,317
Deferred tax assets, net		7,796		3,547		5,240
Long-term derivative financial instruments		4,405		15,740		7,077
Property, plant and equipment		2,458,322		*2,367,554		2,344,920
Right‑of‑use assets		292,773		*60,274		56,832
Intangible assets		4,310		4,098		4,259
Total non‑current assets		3,238,468		2,773,661		2,789,448
Total assets		3,958,063		3,595,880		3,494,918

* Reclassified.

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

3

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Financial Position

	At June 30				At December 31
	2020		2019		2019
	(Unaudited)				(Audited)
	In Thousands of New Israeli Shekels
Current Liabilities
Current maturities		161,833		128,734		157,147
Trade payables		137,537		214,516		123,812
Other payables and credit balances		40,679		31,847		41,641
Short-term derivative financial instruments		22,566		12,227		21,678
Current maturities of lease liabilities		54,216		2,378		2,400
Current tax liabilities		15,397		–		–
Total current liabilities		432,228		389,702		346,678
Non‑Current Liabilities
Long-term loans from banks and others		1,756,654		1,807,784		1,740,607
Debentures		627,243		267,593		252,309
Long-term lease liabilities		15,520		16,513		15,960
Long-term derivative financial instruments		28,994		–		–
Other long‑term liabilities		2,375		1,222		2,307
Employee benefits		177		177		177
Liabilities for deferred taxes, net		284,247		247,283		281,105
Total non-current liabilities		2,715,210		2,340,572		2,292,465
Total liabilities		3,147,438		2,730,274		2,639,143
Equity
Share capital		1,433		1,371		1,433
Premium on shares		635,283		479,398		635,283
Capital reserves		20,432		74,379		65,384
Retained earnings		94,677		234,566		85,226
Total equity attributable to the Company’s owners		751,825		789,714		787,326
Non‑controlling interests		58,800		75,892		68,449
Total equity		810,625		865,606		855,775
Total liabilities and equity		3,958,063		3,595,880		3,494,918

_______________________________	________________________	_________________________
Avisar Paz Chairman of the Board of Directors	Giora Almogy CEO	Tzahi Goshen CFO

Approval date of the financial statements: August 17, 2020

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

4

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Income

	For the
	Six Months Ended				Three Months Ended					Year Ended
	June 30				June 30					December 31
	2020		2019		2020			2019		2019
	(Unaudited)				(Unaudited)					(Audited)
	In Thousands of New Israeli Shekels
Sales		577,467		658,614		264,916			304,915		1,329,988
Cost of sales (net of depreciation and
amortization)		413,034		454,232		207,905			230,682		910,347
Depreciation and amortization		47,222		54,241		24,386			27,411		110,997
Gross profit		117,211		150,141		32,625			46,822		308,644
Administrative and general expenses*		26,003		28,508		13,315			13,063		54,805
Business development expenses*		6,269		3,020		3,904			1,512		6,938
Other income, net		200		4,483		130			3,482		21,409
Operating income		85,139		123,096		15,536			35,729		268,310
Financing expenses		48,863		55,469		31,790			35,852		100,028
Financing income		1,718		2,192		358			1,438		6,879
Financing expenses, net		47,145		53,277		31,432			34,414		93,149
Income (loss) before taxes on income		37,994		69,819		(15,896	)		1,315		175,161
Taxes on income		16,186		18,060		259			465		50,425
Income (loss) for the period		21,808		51,759		(16,155	)		850		124,736
Income (loss) attributable to:
The Company’s owners		9,451		39,835		(18,310	)		224		90,495
Non‑controlling interests		12,357		11,924		2,155			626		34,241
Income (loss) for the period		21,808		51,759		(16,155	)		850		124,736
Income (loss) per share attributable to the Company’s owners

Basic income (loss) per share (in NIS)	0.066	0.300	(0.128	)	0.002	0.661
Diluted income (loss) per share (in NIS)	0.065	0.296	(0.128	)	0.002	0.651

* Reclassified – see Note 2D.

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

5

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Comprehensive Income

	For the
	Six Months Ended						Three Months Ended						Year Ended
	June 30						June 30						December 31
	2020			2019			2020			2019			2019
	(Unaudited)						(Unaudited)						(Audited)
	In Thousands of New Israeli Shekels
Income (loss) for the period		21,808			51,759			(16,155	)		850			124,736
Components of other comprehensive
income (loss) that after the initial
recognition in the statement of
comprehensive income were or will be
transferred to the statement of income
Effective portion of the change in the fair
value of cash-flow hedges		(45,585	)		512			(5,931	)		2,113			(28,989	)
Net change in fair value of derivative
financial instruments used for hedging
cash flows recorded to the cost of the
hedged item		7,100			(2,322	)		3,656			(2,251	)		4,668
Net change in fair value of derivative
financial instruments used to hedge
cash flows transferred to the statement
of income		12,801			(5,330	)		5,100			(5,330	)		9,778
Taxes in respect of items of other
comprehensive income		205			412			377			28			615
Total other comprehensive income (loss)
for the period, net of tax		(25,479	)		(6,728	)		3,202			(5,440	)		(13,928	)
Total comprehensive income (loss) for the
period		(3,671	)		45,031			(12,953	)		(4,590	)		110,808
Total comprehensive income (loss)
attributable to:
The Company’s owners		(16,028	)		33,107			(15,108	)		(5,216	)		76,567
Holders of non‑controlling interests		12,357			11,924			2,155			626			34,241
Total comprehensive income (loss) for the
period		(3,671	)		45,031			(12,953	)		(4,590	)		110,808

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

6

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Changes in Equity

Attributable to the owners of the Company

Capital

reserve for

transactions

with

non-

controlling

Capital

Capital

interests

reserve for

reserve for

Premium

and in

transactions

share-

Non-

Share

on

respect of

Hedging

with

based

Retained

controlling

Total

capital

shares

merger

reserve

shareholders

payments

earnings

Total

interests

equity

(Unaudited)

In Thousands of New Israeli Shekels

For the six‑month

period ended

June 30, 2020

Balance at

January 1, 2020

1,433

635,283

(3,510

)

(13,477

)

77,930

4,441

85,226

787,326

68,449

855,775

Acquisition of non-

controlling interests

–

–

(21,147

)

–

–

–

–

(21,147

)

(6

)

(21,153

)

Share-based payment

–

–

–

–

–

1,674

–

1,674

–

1,674

Dividends to holders

of non-controlling

interests

–

–

–

–

–

–

–

–

(22,000

)

(22,000

)

Other comprehensive

loss for the period,

net of tax

–

–

–

(25,479

)

–

–

–

(25,479

)

–

(25,479

)

Income for the period

–

–

–

–

–

–

9,451

9,451

12,357

21,808

Balance at

June 30, 2020

1,433

635,283

(24,657

)

(38,956

)

77,930

6,115

94,677

751,825

58,800

810,625

For the six‑month

period ended

June 30, 2019

Balance at

January 1, 2019

1,319

361,005

2,598

451

77,930

3,770

230,731

677,804

80,480

758,284

Issuance of shares

52

118,393

–

–

–

–

–

118,445

–

118,445

Acquisition of non-

controlling interests

–

–

(6,005

)

–

–

–

–

(6,005

)

5

(6,000

)

Share-based payment

–

–

–

–

–

2,363

–

2,363

–

2,363

Dividends to the

Company’s

shareholders

–

–

–

–

–

–

(36,000

)

(36,000

)

–

(36,000

)

Dividends to holders

of non-controlling

interests

–

–

–

–

–

–

–

–

(17,600

)

(17,600

)

Elimination of

non-controlling

interests due to sale

of subsidiary

–

–

–

–

–

–

–

–

1,083

1,083

Other comprehensive

loss for the period,

net of tax

–

–

–

(6,728

)

–

–

–

(6,728

)

–

(6,728

)

Income for the period

–

–

–

–

–

–

39,835

39,835

11,924

51,759

Balance at

June 30, 2019

1,371

479,398

(3,407

)

(6,277

)

77,930

6,133

234,566

789,714

75,892

865,606

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

7

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Changes in Equity

Attributable to the owners of the Company

Capital

reserve for

transactions

with

non-

controlling

Capital

Capital

interests

reserve for

reserve for

Premium

and in

transactions

share-

Non-

Share

on

respect of

Hedging

with

based

Retained

controlling

Total

capital

shares

merger

reserve

shareholders

payments

earnings

Total

interests

equity

(Unaudited)

In Thousands of New Israeli Shekels

For the three‑month

period ended

June 30, 2020

Balance at

April 1, 2020

1,433

635,283

(24,657

)

(42,158

)

77,930

5,225

112,987

766,043

56,645

822,688

Share-based payment

–

–

–

–

–

890

–

890

–

890

Other comprehensive

income for the period,

net of tax

–

–

–

3,202

–

–

–

3,202

–

3,202

Income (loss) for the

period

–

–

–

–

–

–

(18,310

)

(18,310

)

2,155

(16,155

)

Balance at

June 30, 2020

1,433

635,283

(24,657

)

(38,956

)

77,930

6,115

94,677

751,825

58,800

810,625

For the three‑month

period ended

June 30, 2019

Balance at

April 1, 2019

1,319

361,005

1,097

(837

)

77,930

4,969

234,342

679,825

74,179

754,004

Issuance of shares

52

118,393

–

–

–

–

–

118,445

–

118,445

Acquisition of non-

controlling interests

–

–

(4,504

)

–

–

–

–

(4,504

)

4

(4,500

)

Share-based payment

–

–

–

–

–

1,164

–

1,164

–

1,164

Elimination of

non-controlling

interests due to sale

of subsidiary

–

–

–

–

–

–

–

–

1,083

1,083

Other comprehensive

loss for the period,

net of tax

–

–

–

(5,440

)

–

–

–

(5,440

)

–

(5,440

)

Income for the period

–

–

–

–

–

–

224

224

626

850

Balance at

June 30, 2019

1,371

479,398

(3,407

)

(6,277

)

77,930

6,133

234,566

789,714

75,892

865,606

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

8

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Changes in Equity

Attributable to the owners of the Company

Capital

reserve for

transactions

with

non-

controlling

Capital

Capital

interests

reserve for

reserve for

Premium

and in

transactions

share-

Non-

Share

on

respect of

Hedging

with

based

Retained

controlling

Total

capital

shares

merger

reserve

shareholders

payments

earnings

Total

interests

equity

(Audited)

In Thousands of New Israeli Shekels

For the year ended

December 31, 2019

Balance at

January 1, 2019

1,319

361,005

2,598

451

77,930

3,770

230,731

677,804

80,480

758,284

Issuance of shares

(less issuance

expenses)

110

271,485

–

–

–

–

–

271,595

–

271,595

Acquisition of

non-controlling

interests

–

–

(6,108

)

–

–

–

–

(6,108

)

5

(6,103

)

Share-based payment

–

–

–

–

–

3,468

–

3,468

–

3,468

Exercise of options

and RSUs

4

2,793

–

–

–

(2,797

)

–

–

–

–

Issuance of capital notes

to holders of non-

controlling interests

–

–

–

–

–

–

–

–

240

240

Dividend to the

Company’s

shareholders

–

–

–

–

–

–

(236,000

)

(236,000

)

–

(236,000

)

Dividends to holders

of non-controlling

interests

–

–

–

–

–

–

–

–

(47,600

)

(47,600

)

Elimination of rights

of holders of

non-controlling

interests due to sale

of subsidiary

–

–

–

–

–

–

–

–

1,083

1,083

Other comprehensive

loss for the year,

net of tax

–

–

–

(13,928

)

–

–

–

(13,928

)

–

(13,928

)

Income for the year

–

–

–

–

–

–

90,495

90,495

34,241

124,736

Balance at

December 31, 2019

1,433

635,283

(3,510

)

(13,477

)

77,930

4,441

85,226

787,326

68,449

855,775

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

9

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Cash Flows

	For the
	Six Months Ended						Three Months Ended						Year Ended
	June 30						June 30						December 31
	2020			2019			2020			2019			2019
	(Unaudited)						(Unaudited)						(Audited)
	In Thousands of New Israeli Shekels
Cash flows from operating activities
Income (loss) for the period		21,808			51,759			(16,155	)		850			124,736
Adjustments:
Depreciation and amortization and  use of
diesel oil		56,009			77,490			27,114			42,282			146,647
Financing expenses, net		47,145			53,277			31,432			34,414			93,149
Taxes on income		16,186			18,060			259			465			50,425
Gain on sale of subsidiary		–			(1,777	)		–			(1,777	)		(1,777	)
Share-based payment transactions		1,674			2,363			890			1,164			3,468
Revaluation of derivatives		–			1,080			–			–			1,080
		142,822			202,252			43,540			77,398			417,728
Change in trade and other receivables		34,718			21,180			29,009			(2,310	)		(3,015	)
Change in trade and other payables		(27	)		45,792			22,938			(542	)		(18,965	)
		34,691			66,972			51,947			(2,852	)		(21,980	)
Taxes refunded (paid), net		245			(4,102	)		(6	)		(60	)		(4,189	)
Net cash provided by operating activities		177,758			265,122			95,481			74,486			391,559

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

10

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Cash Flows

	For the
	Six Months Ended						Three Months Ended						Year Ended
	June 30						June 30						December 31
	2020			2019			2020			2019			2019
	(Unaudited)						(Unaudited)						(Audited)
	In Thousands of New Israeli Shekels
Cash flows from investing activities
Interest received		653			1,308			275			271			6,563
Short-term deposits and restricted cash, net		59,448			(94,844	)		22,990			(93,952	)		69,695
Withdrawals from long-term restricted cash		7,416			1,943			570			429			2,082
Deposits in long-term restricted cash		(84,352	)		(54,214	)		(19,600	)		(37,978	)		(91,000	)
Deferred proceeds from sale of subsidiary
less cash sold		341			2,731			–			2,731			3,158
Long-term advance deposits and prepaid
expenses		(188,448	)		–			(39	)		–			(11,184	)
Acquisition of property, plant and
equipment		(88,467	)		(66,218	)		(37,460	)		(37,528	)		(121,681	)
Deferred consideration in respect of
acquisition of subsidiary – see Note 6C(2)		(46,648	)		–			–			–			–
Acquisition of intangible assets		(412	)		(433	)		(412	)		(151	)		(919	)
Receipts (payments) in respect of
derivative financial instruments, net		(1,914	)		(1,327	)		828			(177	)		(3,313	)
Net cash used in investing activities		(342,383	)		(211,054	)		(32,848	)		(166,355	)		(146,599	)

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

11

OPC Energy Ltd.

Condensed Consolidated Interim Statements of Cash Flows

	For the
	Six Months Ended						Three Months Ended						Year Ended
	June 30						June 30						December 31
	2020			2019			2020			2019			2019
	(Unaudited)						(Unaudited)						(Audited)
	In Thousands of New Israeli Shekels
Cash flows from financing activities
Interest paid		(36,020	)		(38,214	)		(21,104	)		(22,690	)		(75,841	)
Costs paid in advance in respect of taking
out of loans		(19,962	)		(1,170	)		(6,739	)		(186	)		(6,535	)
Dividends paid to the Company’s
shareholders		–			(36,000	)		–			(36,000	)		(236,000	)
Dividends paid to holders of non-controlling
interests		(22,000	)		(17,600	)		–			(17,600	)		(47,600	)
Investments of holders of non-controlling
interests in the in the capital of a subsidiary		–			–			–			–			240
Proceeds from issuance of shares, less
issuance expenses		–			118,562			–			118,562			271,595
Proceeds from issuance of debentures, less
issuance expenses		395,820			–			395,820			–			–
Repayment of short-term loans from
banks, net		–			–			(219,400	)		–			–
Receipt of long-term loans from banks
and others		89,000			–			64,000			–			–
Repayment of loans from banks and others		(69,016	)		(20,148	)		(28,556	)		(10,219	)		(67,682	)
Repayment of debentures		(15,520	)		(7,360	)		(15,520	)		(7,360	)		(11,488	)
Acquisition of non-controlling interests		(25,680	)		(1,500	)		–			(1,500	)		(1,500	)
Payment in respect of derivative financial
instruments		(10,630	)		(714	)		(5,306	)		(714	)		(11,370	)
Repayment of principal of lease liabilities		(666	)		(907	)		(335	)		(324	)		(1,562	)
Net cash provided by (used in) financing
activities		285,326			(5,051	)		162,860			21,969			(187,743	)
Increase (decrease) in cash and cash
equivalents		120,701			49,017			225,493			(69,900	)		57,217
Cash and cash equivalents at beginning of
the period		384,748			329,950			279,404			448,687			329,950
Impact of changes in the currency exchange
rate on the balances of cash and cash
equivalents		(1,667	)		(82	)		(1,115	)		98			(2,419	)
Cash and cash equivalents at end of
the period		503,782			378,885			503,782			378,885			384,748

The accompanying notes to the condensed consolidated interim financial statements are an integral part thereof.

12

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 1  – General

A. The Reporting Entity

OPC Energy Ltd. (hereinafter – “the Company”) was incorporated in Israel on February 2, 2010. The Company’s registered address is 121 Menachem Begin Blvd., Tel‑Aviv, Israel. The Company is controlled by Kenon Holdings Ltd. (hereinafter – “the Parent Company”), a company incorporated in Singapore, the shares of which are “dual listed” for trading on both the New York Stock Exchange (NYSE) and the Tel‑Aviv Stock Exchange Ltd. (hereinafter – “the Stock Exchange”).

The Company is a publicly‑held company, and its securities are traded on the stock exchange. The Company and its subsidiaries, the financial statements of which are consolidated with those of the Company (hereinafter – “the Group”) are engaged in the area of generation of electricity and supply thereof to private customers and Israel Electric Company Ltd. (hereinafter – “IEC”), including initiation, development, construction and operation of power plants and facilities for the generation of energy. As at the date of the Report, the Group’s activities are carried on only in Israel. The Group’s electricity generation activities and the supply thereof focus on generation of electricity using conventional technology and cogeneration technology. The Group is also taking action to construct an open‑cycle power plant using conventional technology (a Peaker plant).

The Company owns two power plants: the Rotem Power Plant, which is owned by OPC Rotem Ltd. (hereinafter – “Rotem”) (which is held by the Company (80%) and by another shareholder (20%)), which operates using conventional technology having generation capacity of about 466 megawatts (MW); and the Hadera Power Plant which is owned by OPC Hadera Ltd. (hereinafter – “Hadera”), which runs using cogeneration technology and has an installed capacity of 144 MW (the commercial operation of which commenced subsequent to the date of the report, on July 1, 2020). For additional details regarding Hadera – see Note 6D. In addition, the Company holds Zomet Energy Ltd. (hereinafter – “Zomet”), which is in the construction stages of a power plant powered by means of natural gas using conventional technology in an open cycle (a Peaker plant) having a capacity of about 396 MW, located proximate to the Plugot Intersection, in the area of Kiryat Gat, under Regulation 914 of the Electricity Authority. In February 2020, notification was received from the Electricity Authority whereby Zomet is in compliance with the conditions for proof of a financial closing, in accordance with that stipulated in its conditional license for construction of the power plant and in accordance with all law. For additional details regarding Zomet – see Note 6C.

13

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 1  – General (Cont.)

A. The Reporting Entity (Cont.)

The Group’s activities are subject to regulation, including, among other things, the provisions of the Electricity Sector Law, 1996, and the regulations promulgated thereunder, resolutions of the Electricity Authority, the provisions of the Law for Promotion of Competition and Reduction of Business Concentration, 2013, the provisions of the Economic Competition Law, 1988, and the regulations promulgated thereunder, and regulation in connection with licensing of businesses, planning and construction, and environmental quality (protection). The Electricity Authority is authorized to issue licenses under the Electricity Sector Law (licenses for facilities having a generation capacity in excess of 100 MW also require approval of the Minister of Energy), supervise the license holders (including supply licenses and private generation licenses), determine tariffs and provide benchmarks for the level, nature and quality of the services that are required from a holder of a “Essential Service Provider” license. Accordingly, the Electricity Authority supervises both Israel Electric Company (IEC) and private electricity generators.

The Group’s activities are subject to seasonal fluctuations as a result of changes in the official Time of Use of Electricity Tariff (hereinafter – “the TAOZ”), which is regulated and published by the Electricity Authority. The year is broken down into 3 seasons: “summer” (July and August), “winter” (December, January and February) and “transition” (March through June and September through November) and for each season a different tariff is set. The Company’s results are based on the generation component, which is part of the TAOZ, and as a result there is a seasonal effect.

B. Impacts of the Spread of the Coronavirus

At the end of 2019 and in the first quarter of 2020, there was an outbreak in China and thereafter throughout the world of the Coronavirus (COVID‑19), which in March 2020 was declared as a worldwide pandemic by the World Health Organization (hereinafter – “the Coronavirus Crisis”). Due to the Coronavirus Crisis, in the period of the Report and thereafter, movement (traffic) restrictions and restrictions on business activities were imposed by the State of Israel and countries throughout the world. In addition, the said Coronavirus crisis has caused, among other things, uncertainty and instability in the Israeli and global financial markets and economy. As at the date of the report, the operations of the Company’s active power plants, Rotem Power Plant and Hadera Power Plant are continuing as a result of their being “essential enterprises” while safeguarding the work teams and taking precautionary measures in order to prevent outbreak and spreading of the infection at the Company’s sites. As at the publication date of the Report, the Coronavirus crisis had not had a significant impact on the Company’s results and activities.

14

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 1  – General (Cont.)

B. Impacts of the Spread of the Coronavirus (Cont.)

The Coronavirus Crisis and the movement restrictions, as referred to above, have impacted the Group’s activities, as stated below:

– Due to the continued travel restrictions, both in Israel and worldwide, along with the need for equipment from overseas, the Company estimates that construction of the Zomet Power Plant could extend beyond the end of 2022, and as at the publication date of the report, completion is expected to take place in the first quarter of 2023. For details regarding revision of the Zomet Power Plant construction agreement – see Note 6C(4).

– In March 2020, the maintenance contractor of the Rotem Power Plant (hereinafter – “Mitzubishi”) gave notice that in light of the restrictions on entry and the quarantine rules of the State of Israel, the maintenance work (hereinafter – “the Maintenance”) that was planned to be performed for the Rotem Power Plant in April 2020 will be postponed to October 2020. Mitzubishi’s position, which was rejected by Roterm, is that the above‑mentioned circumstances constitute “force majeure” pursuant to the provisions of the agreement with it. In April 2020, Rotem shutdown the power plant for a number of days in order to perform internally‑initiated technical tests and treatments. The shutdown for several days and the postponement of the maintenance date, as stated, did not have and are not expected to have a significant impact on the generation activities of the Rotem Power Plant and its results. In light of postponement of the date of the Maintenance in March 2020, Rotem slowed the reduction (amortization) of the maintenance component in the Rotem Power Plant. The impact of the slowing of the reduction (amortization) on the results of the activities in the period of the report amounted to about NIS 3 million.

15

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 2  – Basis of Preparation of the Financial Statements

A. Declaration of compliance with International Financial Reporting Standards (IFRS)

The condensed consolidated interim financial statements were prepared in accordance with IAS 34, “Financial Reporting for Interim Periods” and do not include all of the information required in complete, annual financial statements. These statements should be read together with the financial statements as at and for the year ended December 31, 2019 (hereinafter – “the Annual Financial Statements”). In addition, these financial statements were prepared in accordance with the provisions of Section D of the Securities Regulations (Periodic and Immediate Reports) 1970.

The condensed, consolidated, interim financial statements were approved for publication by the Company’s Board of Directors on August 17, 2020.

B. Functional and presentation currency

The New Israeli Shekel (NIS) is the currency that represents the principal economic environment in which the Group operates. Accordingly, the NIS is the functional currency of the Group. The NIS also serves as the presentation currency in these financial statements. Currencies other than the NIS constitute foreign currency.

C. Use of estimates and judgment

In preparation of the condensed consolidated interim financial statements in accordance with IFRS, Company management is required to use judgment when making estimates, assessments and assumptions that affect implementation of the policies and the amounts of assets, liabilities, income and expenses. It is clarified that the actual results are likely to be different than these estimates.

Management’s judgment, at the time of implementing the Group’s accounting policies and the main assumptions used in the estimates involving uncertainty, are consistent with those used in the Annual Financial Statements, except for that stated in Note 1 regarding update of the estimate of the balance of the remaining useful life of various components in light of postponement of the maintenance at Rotem Power Plant, and in Note 3.

D. Reclassification

In the period of the report, the Company classified business development expenses that were previously presented in the “administrative and general expenses” category in a separate category in the statement of income. Accordingly, the Company reclassified from the “administrative and general expenses” category to the “business development expenses” category the amounts of NIS 3,020 thousand, NIS 1,512 thousand and NIS 6,938 thousand for the six‑month and three‑month periods ended June 30, 2019 and for the year ended December 31, 2019, respectively.

16

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 3  – Significant Accounting Policies

A. The Group’s accounting policies in these condensed consolidated interim financial statements are the same as the accounting policies applied in the Annual Financial Statements.

B. First-time application of new accounting standards, amendments to standards and interpretations

1. Amendment to IFRS 3 “” Business Combinations” (hereinafter – “the Amendment”)

The Amendment clarifies whether a transaction to acquire activities is the acquisition of a “business” or an asset. For purposes of this examination, the Amendment added the possibility of utilizing the concentration test so that if substantially all of the fair value of the acquired assets is concentrated in a single identifiable asset or a group of similar identifiable assets, the acquisition will be of an asset. In addition, the minimum requirements for definition as a business have been clarified, such as for example the requirement that the acquired processes be substantive so that in order for it to be a business, the operation shall include at least one input element and one substantive process, which together significantly contribute to the ability to create outputs. Furthermore, the Amendment narrows the reference to the outputs element required in order to meet the definition of a business and examples were added illustrating the aforesaid examination. The Amendment is effective for transactions to acquire an asset or business for which the acquisition date is in annual periods beginning on or after January 1, 2020.

2. Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: Recognition and Measurement” and IFRS 7 “Financial Instruments: Disclosures: Reform of Benchmark Interest Rates” (hereinafter – “the Amendments”)

The Amendments include a number of mandatory leniencies that are relevant to examination of the effectiveness of hedge accounting ratios that are impacted by uncertainty deriving from reform of the IBOR interest rates (this reform is intended to result in cancellation of interest rates such as LIBOR and EURIBOR). For example:

– Determination of the probability of occurrence of the hedged cash flows is to be based on the existing contractual cash flows and future changes due to the IBOR reform are to be ignored.

– When examining prospective effectiveness, account is to be taken of the existing contractual conditions of the hedged item and the hedging instrument, and the uncertainty deriving from the reform is to be ignored.

17

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 3  – Significant Accounting Policies (Cont.)

B. First-time application of new accounting standards, amendments to standards and interpretations (Cont.)

2. Amendments to IFRS 9 “Financial Instruments”, IAS 39 “Financial Instruments: Recognition and Measurement” and IFRS 7 “Financial Instruments: Disclosures: Reform of Benchmark Interest Rates” (hereinafter – “the Amendments”) (Cont.)

The Amendments were applied retroactively commencing from January 1, 2020. The leniencies included as part of the Amendments will be discontinued prospectively at the earlier of: clarification of the uncertainty arising from the reform or the date on which the hedge ratios are discontinued.

In the Group’s estimation, application of the Amendments did not have a significant impact on the financial statements.

C. New standards and amendments to standards not yet adopted

1. Amendment to IAS 1 “Presentation of Financial Statements: Classification of Liabilities as Current or Non‑Current”

The Amendment replaces certain classification requirements of liabilities as current or non‑current. For example, pursuant to the Amendment, a liability will be classified as non‑current where an entity has a right to postpone the payment for a period of at least 12 months after the period of the report, which is “material” and exists at the end of the period of the report. A right exists as at the date of the report only if an entity is in compliance with the conditions for postponement of the payment as at this date. In addition, the Amendment clarifies that a conversion right of a liability will impact is classification as current or non‑current, unless the conversion component is capital.

The Amendment will enter into effect for reporting periods commencing on January 1, 2023. Early application is permissible. The Amendment is to be applied retroactively, including adjustment of the comparative data.

The Group has not yet commenced examination of the impacts of application of the Amendment on the financial statements.

2. Amendment to IAS 16 “Property, Plant and Equipment: Receipts prior to Intended Use”

The Amendment cancels the requirement whereby in calculation of the costs that may be attributed directly to property, plant and equipment, a reduction is to be made from the costs of testing the proper functioning of the asset for the net proceeds from sale of any items produced in the process (such as samples produced at the time of testing the equipment). Instead, the said proceeds are to be recognized in the statement of income in accordance with the relevant standards and the cost of the items sold is to be measured pursuant to the measurement requirements of IAS 2 “Inventory”.

18

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 3  – Significant Accounting Policies (Cont.)

C. New standards and amendments to standards not yet adopted (Cont.)

2. Amendment to IAS 16 “Property, Plant and Equipment: Receipts prior to Intended Use” (Cont.)

The Amendment will enter into effect for reporting periods commencing on January 1, 2022 or thereafter. Early application is permissible. The Amendment is to be applied retroactively, including revision of the comparative data, but only for items of property, plant and equipment that were brought to the location and position required for them to be able to function in the manner contemplated by management after the earliest reporting period presented on the initial application date of the Amendment. The cumulative impact of the Amendment will adjust the opening balance of the retained earnings of the earliest reporting period presented.

The Group has not yet commenced examining the impacts of the Amendment on the financial statements.

3. Amendment to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets – Contract Performance Costs”

Pursuant to the Amendment, when examining whether a contract is onerous, the costs for performance of the contract that are to be taken into account are costs relating directly to the contract, which include the following costs:

– Incremental costs; and

– Allocation of other costs relating directly to the contract (such as depreciation expenses on property, plant and equipment used to perform this contract and other additional contracts).

The Amendment is to be applied retrospectively, commencing on January 1, 2022, for contracts the entity has not yet completed its obligations in respect thereof. Early application is permissible. Upon initial application of the Amendment, the entity is not to restate the comparative data but, rather, it is to adjust the opening balance of the retained earnings on the initial application date, in the amount of the cumulative impact of the Amendment.

The Group has not yet commenced examining the impacts of the Amendment on the financial statements.

19

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 4  – Financial Instruments

Financial instruments measured at fair value for disclosure purposes only

The carrying amounts in the books of certain financial assets and liabilities, including short‑term and long‑term deposits, cash and cash equivalents, restricted cash, trade receivables, other receivables, derivative financial instruments, trade payables and other payables are the same as or approximate their fair values.

The fair values of the other financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

Fair value

	At June 30, 2020
	Book		Fair
	Value*		Value
	In Thousands of NIS
Loans from banks and others (Level 2)		1,883,684		2,093,765
Debentures (Level 1)		665,583		731,251
		2,549,267		2,825,016

	At June 30, 2019
	Book		Fair
	Value*		Value
	In Thousands of NIS
Loans from banks and others (Level 2)		1,918,227		2,284,207
Debentures (Level 1)		286,745		320,164
		2,204,972		2,604,371

	At December 31, 2019
	Book		Fair
	Value*		Value
	In Thousands of NIS
Loans from banks and others (Level 2)		1,867,448		2,243,290
Debentures (Level 2)		282,864		324,623
		2,150,312		2,567,913

* Includes current maturities and accrued interest.

20

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 4  – Financial Instruments (Cont.)

Derivative financial instruments are measured at fair value, using the Level 2 valuation method. The fair value is measured using the discounted future cash flows method, on the basis of observable data.

In addition, the Company enters into transactions in derivative financial instruments in order to hedge foreign currency risks and risks of changes in the CPI. Derivative financial instruments are recorded based on their fair value. The fair value of the derivative financial instruments is based on prices, rates and interest rates that are received from banks, brokers and through customary trading software. The fair value of the derivative financial instruments is estimated on the basis of the data received, using valuation and pricing techniques that are characteristic of the various instruments in the different markets. The fair value measurement of long-term derivative financial instruments is estimated by discounting the cash flows deriving from them, based on the terms and maturity of each instrument and using market interest rates for similar instruments as at the measurement date. Changes in the economic assumptions and the valuation techniques could materially affect the fair value of the instruments.

Set forth below is data regarding the representative rates of exchange of the United States dollar (hereinafter – “the dollar”) and the euro and the Consumer Price Index (CPI):

				Exchange			Exchange
				rate of			rate of
				the dollar			the euro
	CPI			against			against
	(in points)			shekel			shekel
June 30, 2020		100.1			3.466			3.883
June 30, 2019		101.7			3.566			4.062
December 31, 2019		100.8			3.456			3.878
Change during the six months ended:
June 30, 2020		(0.7	)%		0.3	%		0.1	%
June 30, 2019		1.2	%		(4.9	)%		(5.4	)%
Change during the three months ended:
June 30, 2020		(0.2	)%		(2.8	)%		(0.4	)%
June 30, 2019		1.5	%		(1.8	)%		(0.4	)%
Change during the year ended:
December 31, 2019		0.3	%		(7.8	)%		(9.6	)%

21

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 5  – Revenues from Contracts with Customers

Breakdown of the revenues from sales:

	For the
	Six Months Ended				Three Months Ended				Year Ended
	June 30				June 30				December 31
	2020		2019		2020		2019		2019
	(Unaudited)				(Unaudited)				(Audited)
	In Thousands of New Israeli Shekels
Revenues from sale of electricity		547,760		627,802		251,340		289,944		1,271,200
Revenues from sale of steam		29,707		30,812		13,576		14,971		58,788
		577,467		658,614		264,916		304,915		1,329,988

Note 6  – Additional Information

A. General

1. In January 2020, the decision of the Electricity Authority entered into effect regarding update of the electricity tariffs for 2020, whereby the rate of the generation component was reduced by 8% from NIS 290.9 per MWh to NIS 267.8 per MWh. The decline in the generation component, as stated, had a negative impact on the Company’s income in the period of the report compared with the corresponding period last year.

2. In February 2020, the Electricity Authority published its Decision from Meeting 573, held on January 27, 2020, regarding Amendment of Standards in connection with Deviations from the Consumption Plans (hereinafter – “the Decision”). Pursuant to the Decision, a supplier is not permitted to sell to its consumers more than the amount of the capacity that is the subject of all the undertakings it has entered into with holders of private generation licenses. In addition, the Authority indicates in the notes (clarifications) to the Decision that it is expected that the supplier will enter into private transactions with consumers in a scope that permits it to supply all their consumption from energy that is generated by private generators over the entire year. Actual consumption of energy at a rate in excess of 3% from the installed capacity allocated to the supplier will trigger payment of an annual tariff that reflects the annual cost of the capacity the supplier used as a result of the deviation, as detailed in the Decision (hereinafter – “the Annual Payment in respect of Deviation from the Capacity”). In addition, the Decision provides a settlement mechanism in respect of a deviation from the daily consumption plan (surpluses and deficiencies), which will apply concurrent with the annual payment in respect of a deviation from the capacity. Application of the Decision is commencing from September 1, 2020.

According to the Decision, the said amendment will apply to Rotem only after determination of supplemental arrangements for Rotem, which as the date of the Report had not yet been determined, and the Company is closely monitoring this matter. Therefore, as the approval date of the financial statements there is no certainty regarding the extent of the unfavorable impact of the Decision, if any, on the Company’s activities.

3. In the six‑month periods ended June 30, 2020 and 2019, the Group acquired property, plant and equipment not for cash, in the amounts of about NIS 3 million and about NIS 30 million, respectively.

22

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

B. The Company

1. In April 2020, Maalot reconfirmed a rating of A3 for the Company’s debentures (Series A) with a stable rating outlook. In January 2020, and subsequent to the date of the report in August 2020, Maalot reconfirmed a rating of A– for the Company’s debentures (Series A) with a stable rating outlook.

2. Further to that stated in Note 15C(4) to the Annual Financial Statements, in January 2020, Company withdrew a loan in the amount of about NIS 169 million from the short‑term credit framework (hereinafter – “the Loan”), which was used by the Company for purposes of payment of the Initial Assessment, as described in Note 6C(6). The loan bore interest at the annual rate of prime+0.6% for the first part of the period, while for the second part of the period the interest was at the rate of prime + 1.7%. The Loan principal and the accrued interest were repaid in April 2020.

3. In March 2020, the Company took out a loan from Bank Mizrahi Tafahot Ltd., a related party of the Company, in the amount of NIS 50 million. The loan bore interest at the annual rate of prime+1.25% and was repaid in May 2020.

4. In April 2020, the Company issued debentures (Series B) having a par value of NIS 400 million (hereinafter – “the Debentures”). The Debentures are registered for trading on the Tel‑Aviv Stock Exchange, are linked to the CPI and bear interest at the annual rate of 2.75%. The Debentures are to be repaid in unequal semi‑annual payments (on March 31, and September 30 of every calendar year), commencing from March 31, 2021 and up to September 30, 2028 (the first payment of interest falls on September 30, 2020). The Debentures were rated A3 by Midroog and A– by Maalot. Subsequent to the date of the report, in August 2020, Maalot reconfirmed a rating of A3 for the Debentures, with a stable rating outlook.

The trust certificate covering the debentures includes customary grounds for calling the Debentures for immediate repayment (subject to the cure periods provided), including insolvency events, liquidation proceedings, receivership, a stay of proceedings and creditors’ arrangements, certain structural changes, a significant worsening in the Company’s position, etc. In addition, there is a right to call the Debentures for early repayment: (1) in a case of calling another debenture series (traded on the Stock Exchange or on the Consecutive Institutional System) issued by the Company or other financial debt (or a number of debts, as stated, cumulatively) of the Company and of subsidiaries (not including a case of calling for immediate repayment of non‑recourse debt), including foreclosure of guarantees (which secure repayment of debt to a financial creditor) provided by the Company or by subsidiaries to a creditor, in an amount that is not less than $40 million; (2) upon breach of financial covenants provided during two consecutive examination periods; (3) in a case as stated in subsection (2) (this being even without waiting for the second examination period), if the Company executed an unusual transaction with a controlling shareholder (that is not in accordance with the Companies Regulations (Leniencies in Transactions with Interested Parties), 2000, without receipt of advance approval from the holders of the Debentures in a special decision);

23

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

B. The Company (Cont.)

4. (Cont.)

(4) if an asset or number of assets of the Company was/were sold in an amount constituting more than 50% of the value of the assets in the consolidated financial statements during a consecutive period of 12 months or upon executing a change in the Company’s main activities (“the Company’s main activities” – the energy sector, including the area of generation of energy from power plants and from renewable energy sources); (5) upon occurrence of certain events of loss of control by the controlling shareholder; (6) in a case of discontinuance of a rating for a certain period of time; (7) in a case of discontinuance of trading for a certain period of time or elimination of the Debentures from trading; (8) if the Company ceases to be a reporting corporation; (9) in a case where a “going concern” caveat is recorded in the Company’s financial statements relating only to the Company itself, for a period of two consecutive quarters; and (10) if the Company breaches its commitment not to create a general floating lien on its existing and future assets and rights in favor of any third party without the conditions provided in the trust certificate having been fulfilled – all of the above as detailed in the trust certificate signed between the Company and Reznik Paz Nevo Trusts Ltd. on April 22, 2020.

In addition, the trust certificate includes a commitment of the Company to comply with financial covenants and restrictions provided (including restrictions applicable to a distribution, restrictions applicable to expansion of a series, provisions for adjustment of interest in a case of a rating change or non‑compliance with a financial covenant). Financial covenants include compliance with a ratio of the consolidated net financial debt less the financial debt designated for construction of projects that have not yet commenced producing EBITDA, to the adjusted EBITDA that does not exceed 13 (and for purposes of a distribution as defined in the trust certificate that does not exceed 11), there must be minimum shareholders’ equity of NIS 250 million (and for purposes of a distribution NIS 350 million), and the ratio of the shareholders’ equity to the total assets must be at a rate that is not less than 17% (and for purposes of a distribution a rate that is not less than 27%).

As at June 30, 2020: (1) the Company’s shareholders’ equity was NIS 752 million; (2) the ratio of the shareholders’ equity to the Company’s total assets was 51%; (3) the ratio of the net consolidated financial debt less the financial debt designated for construction of projects that have not yet commenced producing EBITDA and the adjusted EBITDA is 3.47.

In addition, the trust certificate includes a commitment not to create a general floating lien on the Company’s existing and future assets and rights in favor of any third party without one of the conditions provided in the draft trust certificate having been fulfilled – all of this in accordance with the conditions provided in the trust certificate (it is clarified that the Company and/or related companies (including partnerships) will be permitted to create a fixed or floating lien on a Company asset or assets, without any of the said conditions having been fulfilled).

24

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

B. The Company (Cont.)

4. (Cont.)

The terms of the Debentures also include the possibility of an increase in the interest rate in certain cases of a change of the rating and in certain cases of non‑compliance with a financial covenant (in accordance with clauses provided in the trust certificate). The Company’s ability to expand the debenture series was limited under certain conditions, including maintenance of the rating of the Debentures as it was immediately preceding expansion of the series and an absence of a breach.

5. As at the publication date of the financial statements, the Company had signed binding agreements for construction of electricity generation facilities (hereinafter – “the Generation Facilities”), which will be constructed in the consumer’s yard, with an aggregate capacity of 33.5 MW and which are powered using natural gas. The Company will sell electricity to consumers from the Generation Facilities for a period of 15 years from the commercial operation date of the Generation Facilities. The planned commercial operation dates are in accordance with the terms spelled out in the agreements, and in any event not later than 24 or 48 months from the signing date of the agreement.

6. In May 2020, the Company and Noy Power Plants, Limited Partnership (a partnership established by Noy Fund 3, Limited Partnership) (hereinafter – “the Noy Fund”) submitted a purchase offer in the framework of the tender for sale of the Ramat Hovav power plant, a power plant powered by natural gas, that was published by Israel Electric Company (hereinafter – “the Tender”) – this being through by means of a joint special purpose company (SPC) the shares of which are held in equal shares (50%–50%) by the Company and the Noy Fund – OPC Noy Ramat Hovav Ltd. (hereinafter – “the Joint Company”). In addition, for purposes of securing the commitments of the Joint Company in the framework of the purchase offer submitted, the Company and the Noy Fund provided a financial guarantee, in the aggregate amount of about NIS 30 million (in equal shares between them). In June 2020, the Company received notification whereby the Tenders Committee announced that the bid of a third party was the winning bid in the tender, and that the Company was announced as a “second qualifier” according to the tender documents, meaning that in a case of cancellation of the declaration of the winner or cancellation of the undertaking in an agreement with it, the Tenders Committee will be permitted to declare the second qualifier as the winner, subject to the terms of the Tender.

25

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

B. The Company (Cont.)

7. In May 2020, the Company signed an agreement, through a designated company that is wholly owned by the Company (hereinafter – “the Subsidiary”), with SMS IDE Ltd., which won a tender of the State of Israel for construction, operation, maintenance and transfer of a seawater desalinization facility on the “Sorek B” site (“the Desalinization Facility”), whereby the Subsidiary will construct, operate and maintain a power plant powered by natural gas with a generation capacity of up to 99 MW on the premises of the Desalinization Facility (“the Power Plant”), and will supply the energy required for the Desalinization Facility for a period that will end of 25 years after the operation date of the Desalinization Facility. At the end of the aforesaid period, ownership of the power plant will be transferred to the State. The Power Plant is expected to be constructed under the “Regulation for Generators of Ultra‑High Voltage that are Established Without a Competitive Process”, which was published by the Electricity Authority in March 2019.

8. In May 2020, the Company’s Board of Directors approved a private issuance to an officer of 99,228 options exercisable for 99,228 ordinary shares of NIS 0.01 par value of the Company and 28,732 restricted share units (RSUs) (hereinafter – “the Offered Securities”). The Offered Securities were issued in accordance with the Company’s options’ plan (for details see Note 17B to the annual financial statements) under the Capital Track (with a trustee), in accordance with Section 102 of the Income Tax Ordinance, in four equal tranches. The vesting conditions and expiration dates of the Offered Securities are as follows:

Tranche No.	Vesting Conditions	Expiration Dates
1st tranche	At the end of 12 months from the grant date	At the end of 36 months from the vesting date
2nd tranche	At the end of 24 months from the grant date	At the end of 24 months from the vesting date
3rd tranche	At the end of 36 months from the grant date	At the end of 24 months from the vesting date
4th tranche	At the end of 48 months from the grant date	At the end of 24 months from the vesting date

The exercise price of each of the options issued is NIS 25.81 (unlinked). The exercise price is subject to certain adjustments (including in respect of distribution of dividends, issuance of rights, etc.).

The average fair value of each option granted was estimate proximate to the issuance date, using the Black and Scholes model, at NIS 7.76 per option. The calculation is based on a standard deviation of 31.48%, a risk‑free interest rate of 0.36% to 0.58% and an expected life of 4 to 6 years. The fair value of the restricted share units (RSUs) was estimated based on the price of a Company share on May 11, 2020, which was NIS 26.80.

The cost of the benefit embedded in the securities offered based on the fair value on the date of their issuance amounted to about NIS 1,540 thousand. This amount will be recorded in the statement of income over the vesting period of each tranche.

26

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

B. The Company (Cont.)

9. In the period of the report, due to changes in the inflationary expectations and in light of the changes in the projected interest rates, the Company recorded an increase in the liabilities as a result of revaluation of the financial derivative in respect of the interest SWAP contracts, as described in Note 25N and Note 22D to the annual financial statements (hereinafter – “the Derivative”), in the amount of about NIS 43 million, which was recorded as part of other comprehensive income. As at the date of the report, the fair value of the Derivative amounted to about NIS 47 million. The Company deposits collaterals to secure its liabilities to the bank in connection with the Derivative. As at the date of the report, the collateral amounted to about NIS 33 million. Valuation of the Derivative was made by an external independent appraiser. The value of the Derivative was calculated by means of discounting the linked shekel cash flows expected to be received less the discounted fixed shekel cash flows payable. An adjustment was made to this valuation for the credit risks of the parties.

10. Guarantees provided by the Company in the period of the Report

– Further to that stated in Note 24A(3) to the Annual Financial Statements, in January 2020, the Company provided a bank guarantee in the name of Zomet for the benefit of Israel Lands Authority (hereinafter – “ILA”), in the amount of about NIS 60.5 million. For purposes of securing the guarantee, the Company made a bank deposit, in the amount of about NIS 30 million.

– Further to that stated in Note 24A(3) to the Annual Financial Statements regarding development levies to the Shafir Local Council, in March 2020 the Company updated the amount of the bank guarantee to the amount of about NIS 24 million, and subsequent to the date of the report, in July 2020 to the amount of about NIS 21 million. For additional details – see Note 6C(6).

– Further to that stated in Note 24A(3) to the Annual Financial Statements regarding a bank guarantee provided by Zomet provided for the benefit of the Electricity Authority in respect of its conditional license, in March 2020, the said guarantee was cancelled and the Company provided a bank guarantee on behalf of Zomet, in an amount that was updated to about NIS 15 million (linked to the dollar), pursuant to that stipulated in Zomet’s conditional license.

– Further to that stated in Note 15C(3) to the Annual Financial Statements regarding provision of a bank guarantee in order to secure the commitment to provide shareholders’ equity to Zomet, in the period of the Report, the bank guarantee was reduced to the amount of about NIS 110 million (linked to the CPI), and the deposit for securing the guarantee was reduced to the amount of about NIS 56 million.

– In April 2020, the Company provided on behalf of the Joint Company a bank guarantee, in the amount of about NIS 12.5 million. For additional details – see Note 6C(6).

27

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

B. The Company (Cont.)

10. Guarantees provided by the Company in the period of the Report (Cont.)

– Further to that stated in Note 15C(2) to the Annual Financial Statements, in May 2020 the Company provided in favor of Hadera’s lenders a bank guarantee in the amount of NIS 50 million (which is secured by a deposit in the amount of NIS 25 million) in place of a commitment to company the minimum cash and cash equivalents balance requirement.

C. Zomet

1. In February 2020, the Supreme Court sitting as the High Court of Justice cancelled the petition that was filed against the Electricity Authority, the plenary Electricity Authority, the State of Israel – the Ministry of Energy and Zomet by Or Power Energies (Dalia) Ltd. and Dalia Power Energies Ltd., which mainly included claims in connection with decisions and actions of the Electricity Authority relating to Regulation 914, and with reference to Zomet’s conditional license, as described in Note 24A(3) to the Annual Financial Statements. Further to cancellation of the petition, as stated, notification of the Electricity Authority was received whereby Zomet is in compliance with the conditions for proving a financial closing, pursuant to that stated in the its conditional license and in accordance with law (hereinafter – “Financial Closing Approval”).

2. In February 2020, upon receipt of Financial Closing Approval, the conditions were completed for payment of the consideration in respect of Zomet’s shares in accordance with the third milestone, as described in Note 24A(3) to the Annual Financial Statements, in the amount of about $15.8 million (about NIS 54 million) and about NIS 21 million in respect of 95% and 5% of the shares of Zomet, respectively. As at the date of the Report, the Company had paid the full amount of the consideration for acquisition of Zomet’s shares and it holds 100% of the issued and paid‑up shares of Zomet.

3. In February 2020, Zomet made the first withdrawal, in the amount of NIS 25 million, from the long‑term loan framework, as described in Note 15C(3) to the Annual Financial Statements. The loan bears interest at the annual rate of prime+0.95% (which will be added to the loan principal up to the first interest payment date). The loan is to be repaid in quarterly payments, which will fall shortly before the end of the first or second quarter after the commencement date of the commercial operation of the Zomet Power Plant. Subsequent to the date of the Report, in July 2020, Zomet made an additional withdrawal from the long‑term loan framework, in the amount of about NIS 24 million.

28

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

C. Zomet (Cont.)

4. Further to that stated in Note 25D to the Annual Financial Statements, regarding Zomet’s construction agreement (hereinafter – “the Agreement”), against the background of the crisis caused by the outbreak of the Coronavirus and the restrictions imposed as a result thereof, March 2020, an amendment to the Agreement was signed whereby, among other things, it was agreed to issue a work commencement order to the construction contractor for commencement of the construction work and with respect to extension of the period for completion of the construction work pursuant to the Agreement by three months, and additional revisions were made taking into account extension of the period as stated.

In addition, in the period of the report, Zomet partly hedged its exposure to changes in the cash flows from payments in dollars in connection with the agreement by means of forward contracts on the exchange rates. Zomet chose to designate the said forward contracts as an accounting hedge.

5. Further to that stated in Note 25F to the Annual Financial Statements, regarding Zomet’s gas transmission agreement, in February 2020 Zomet delivered to Israel Natural Gas Lines Ltd. a notification for commencement of performance of the construction work.

6. In January 2020, ILA approved allotment of an area measuring about 85 dunams for purposes of construction of the Zomet Power Plant (hereinafter in this Section – “the Land”) and it signed a development agreement with Kibbutz Netiv Halamed Heh (hereinafter – “the Kibbutz”) in connection with the Land, which is valid up to November 5, 2024, which after fulfillment of its conditions a lease agreement will be signed for a period of up to November 4, 2044. In addition, in January 2020, the option agreement signed by Zomet and the Kibbutz for lease of the Land expired, and as part of its cancellation the parties signed an agreement of principles for establishment of a joint company, Zomet Netiv Limited Partnership (hereinafter – “the Joint Company” and “the Agreement of Principles for Establishment of the Joint Company”, respectively). In May 2020, transfer of the rights from the Kibbutz to Joint Company in the registration records of ILA was made.

The Joint Company was established by the Company and the Kibbutz as a limited partnership under the name “Zomet Netiv Limited Partnership”, where the composition of the partners therein is: (1) General Partner – will hold 1% of the Joint Company; and the shares of the General Partner will be held by the Kibbutz (26%) and Zomet (74%); (2) limited partners – the Kibbutz and Zomet will hold 26% and 73% of the rights in the Joint Company as limited partners, respectively.

29

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

C. Zomet (Cont.)

6. (Cont.)

As part of the agreement of principles for establishment of the Joint Company, it was provided that the Kibbutz will sell to the Joint Company its rights in the Land by force of which it will be possible to sign a development agreement with ILA – this being in exchange for an aggregate amount of NIS 30 million, plus VAT as per law, which the Joint Company paid to the Kibbutz in the period of the Report (amounts that were provided to it by Zomet). In the Agreement of Principles for Establishment of the Joint Company it was clarified that the Kibbutz acted as a trustee of the Joint Company when it signed the Development Agreement with ILA, and acted as an agent of the Joint Company when it signed the financial specification by virtue of which capitalization fees for the Land were paid, in the amount of about NIS 207 million (as detailed below). The Kibbutz also undertook that it will act as an agent and a trustee of the Joint Company, for all intents and purposes, in connection with every report that is required in connection with the transaction that is the subject of the above‑mentioned agreement of principles and regarding every matter that will be required from it by the Joint Company. Further to that stated above, in February 2020, an updated lease agreement was also signed whereby the Joint Company, as the owner of the Land, will lease the Land to Zomet, for the benefit of the project.

After approval by the competent authorities of ILA for allotment of the land for purposes of construction of the Zomet Power Plant, in January 2020, a financial specification was received from ILA in respect of the capitalization fees, whereby value of the Land (not including development expenses) was set based on the assessment at the amount of about NIS 207 million (not including VAT) (hereinafter – “the Initial Assessment”). The Initial Assessment is subject to control procedures that have not yet been completed and it may be updated at the close of the said control procedures. Pursuant to that stated in the Initial Assessment and for purposes of completion of the land transaction and receipt of the building permit (which was received in January 2020 and is required in order to receive approval for the financial close as described above), Zomet, in the name of the Joint Company and by means of the Kibbutz, arranged payment of the Initial Assessment in January 2020 at the rate of 75% of amount of the Initial Assessment and provided through the Company, the balance, at the rate of 25% as a bank guarantee in favor of ILA. For details regarding a short‑term loan the Company took out in order to pay the Initial Assessment, as stated, – see Note 6B(2). It is noted that the assessment in preliminary and there is no certainty regarding the amount of the final assessment that will be received. Pursuant to the arrangement with ILA, the Company will be permitted to contest the amount of the assessment when the final assessment is received after the conclusion of the required control processes. The Company intends to examine filing of a contest of the final assessment on the relevant dates. Furthermore, in April 2020, the Company provided a bank guarantee, in the amount of about NIS 12.5 million, at the request of the Taxes Authority in Israel, which requested to examine whether the Joint Company is subject to Purchase Tax in respect of payment of the capitalization fees made for the Land. In the position of Zomet, based on its legal advisors, it is more reasonable than not that the Joint Company will not be charged for payment of Purchase Tax, as stated and accordingly no provision was included in the financial statements.

30

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

C. Zomet (Cont.)

6. (Cont.)

In addition, further to that stated in Note 24A(3) to the Annual Financial Statements, regarding imposition of development levies to the Shafir Local Council (hereinafter – “the Council”), in January 2020 the Council sent Zomet a charge notification in respect of calculation of the levies, in the amount of NIS 36.5 million, of which in December 2019 the amount of NIS 13 million, which is not in dispute, was paid. In light of that stated, the Company updated the amount of the automatic guarantee it provided for Zomet in favor of the Council in respect of the amount in dispute between the parties to about NIS 24 million. In March 2020, Zomet filed an administrative petition against the Council in respect of the amount in dispute, as stated. As part of its response to the petition, the Council updated the amount of the development levies, to the amount of about NIS 34 million and, accordingly, the Company reduced the guarantee provided to the Council to the amount of about NIS 21 million. As at the publication date of the Report, a decision regarding the matter had not yet been received. In Zomet’s estimation, based on an opinion of its legal advisors, it is more reasonable than not that Zomet will not be required to pay an additional amount beyond the amount it paid in respect of the development levies and, accordingly, no provision was included in the financial statements.

All of the amounts relating to acquisition of the Land, as stated, were classified in the Company’s statement of financial position as at June 30, 2020 in the category “right‑of‑use assets”. The unpaid balance of the Initial Assessment, in the amount of about NIS 52 million, was classified in the statement of financial position as at June 30, 2020, as part of “current maturities of lease liabilities”.

7. In January 2020, Zomet signed an agreement for acquisition of available capacity and energy and provision of infrastructure services between Zomet and Israel Electric Company (IEC). As part of the agreement, Zomet undertook to sell energy and available capacity from its facility to IEC, and IEC committed to provide Zomet infrastructure services and management services for the electricity system, including back‑up services – all of this in accordance with that stipulated in the agreement, the provisions of law and the benchmarks. Pursuant to the terms of the agreement, part of the rights and obligations of IEC pursuant to the agreement will be assigned in the future to the System Administrator.

31

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

C. Zomet (Cont.)

7. (Cont.)

The agreement will remain in effect up to the end of the period in which Zomet is permitted to sell available capacity and energy in accordance with the provisions of its generation license (that is, up to the end of 20 years from the commercial operation date of Zomet). Nonetheless, in a case where IEC will be prevented from acquiring available capacity and energy due non‑extension of its license or receipt of an alternative license, the agreement will come to an end on the date on which the preventing factor, as stated, occurs. The agreement provides that Zomet will allot all of the power plant’s capacity to a fixed availability arrangement, where a condition for acquisition of fixed availability will be compliance with mandatory criteria, as stipulated in Regulation 914. The power plant will be operated based on the directives of the System Administrator, pursuant to the provisions of Regulation 914. Furthermore, the agreement includes provisions that cover connection of the power plant to the electricity grid, provisions relating to the planning, construction and maintenance of the power plant, and provisions addressing acquisition of the power plant’s available capacity. The agreement provides, among other things, that the System Administrator will be permitted to disconnect supply of the electricity to the electricity grid if Zomet does not comply with the safety provisions as provided by law or a safety provision of the System Administrator that were delivered to it in advance and in writing. In addition, Zomet committed to comply with the availability and credibility requirements stipulated in its license and in Regulation 914, and to pay for non‑compliance therewith, in accordance with that provided in Regulation 914.

D. Hadera

1. On June 30, 2020, the Electricity Authority decided to grant a permanent license for generation of electricity to the Hadera Power Plant, a power plant using cogeneration technology having installed capacity off 144 MW and granting of a supply license (hereinafter – “the Licenses”). The Licenses are for a period of 20 years, which may be extended for an additional period of 10 years by the Electricity Authority and with approval of the Minister of Energy, which entered into effect after approval of the Minister of Energy on July 1, 2020. Hadera provided bank guarantees for the benefit of the Electricity Authority, in the amount of about NIS 4.5 million (some of which are linked to the dollar) as required by the Licenses, and a bank guarantee in favor of Israel Electric Company, in the amount of about NIS 27 million (linked to the dollar), as required in accordance with the benchmarks of the Electricity Authority.

It is noted that during the first year of activities, replacements or renovations of certain parts of the gas and steam turbines are expected to be executed by the head equipment contractor, which are expected to last for a period of about a month (cumulative), during which time the Hadera Power Plant will be operated on a partial basis.

2. Further to that stated in Note 25G to the Annual Financial Statements, in March 2020, the preconditions provided in the amendment to Hadera’s natural gas supply agreement with the Tamar Group were fulfilled.

32

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

D. Hadera (Cont.)

3. In the period of the report, Hadera withdrew about NIS 64 million from the framework amount in accordance with its financing agreement, as described in Note 15C(2) to the Annual Financial Statements. The interest rates on the amounts withdrawn in the period of the report range between about 2.4% and about 2.6% on the CPI‑linked loans an between about 3.6% and about 3.8% on the unlinked loans. In addition, in the period of the report Hadera made two payments based on the repayment schedule included in its financing agreement, in the amounts of about NIS 16 million in respect of principal and about NIS 14 million, in respect of interest. The said debt repayment was made out of sources the Company provided to Hadera.

4. Further to that stated in Note 25D to the Annual Financial Statements, pursuant to the construction agreement Hadera is entitled to receive agreed compensation from the construction contractor in respect of the delay in completion of the construction of the Hadera Power Plant (hereinafter – “the Compensation”). In Hadera’s estimation, as at the date of the report the amount of the Compensation due to it is about NIS 79 million. In addition, in accordance with the construction agreement, Hadera has a contractual right to offset every amount due to it under the construction agreement, including the amount of the Compensation, against amounts it owes the construction contractor.
Subsequent to the date of the report, in July 2020, upon completion of the construction of the Hadera Power Plant, a request was received from the construction contractor for the final milestone payment in accordance with the construction agreement, in the amount of about NIS 48 million, along with a letter stating that in accordance with the construction contractor’s position, Hadera is entitled to compensation, in the amount of about NIS 22 million only, as opposed to NIS 79 million as demanded by Hadera. In Hadera’s estimation, it has an unconditional contractual right to receive the Compensation as stated and it is more likely than not that its position will be accepted. Accordingly and based on the right of offset, as stated, Hadera offset the payment in respect of the final milestone against the Compensation it contends it is entitled to, such that as at the date of the report, the balance of the Compensation receivable is about NIS 31 million.

E. Rotem

1. Further to that stated in Note 25G to the Annual Financial Statements, in March 2020, the preconditions provided in the amendments to Rotem’s natural gas supply agreement with the Tamar Group and Energean were fulfilled.
As is indicated by publications of Energean in June 2020, commercial operation of the Karish Reservoir is expected to take place in the third quarter of 2021.

33

OPC Energy Ltd.

Notes to the Unaudited Interim Consolidated Financial Statements

At June 30, 2020

Note 6  – Additional Information (Cont.)

E. Rotem (Cont.)

2. In March 2020, Rotem distributed dividends, on two dates, in the aggregate amount of NIS 110 million. The shares of the Company and of the non‑controlling interests amount to NIS 88 million and NIS 22 million, respectively. For purposes of securing distribution of the dividends, Rotem’s shareholders provided bank guarantees in favor of Rotem’s lenders, in the aggregate amount of NIS 40 million – this being based on the relative shares of the shareholders in their holdings in Rotem (the Company share amounted to NIS 32 million). The guarantee will remain in effect up to the date the semi‑annual (six months) and/or annual financial statements of Rotem indicate that in accordance with the provisions of Rotem’s financing agreement, Rotem was entitled to make a distribution, based on the said statements, in a cumulative amount of at least NIS 40 million. As at the date of the Report, Rotem is in compliance with the conditions for cancellation of the guarantee.

3. In February 2020, the Rating Committee of Midroog Ltd. (hereinafter – “Midroog”) reconfirmed Rotem’s long‑term rating at the level of Aa2 with a stable rating outlook and the rating of Rotem’s senior debt at the level of Aa2 with a stable rating outlook.

Note 7  – Events Occurring Subsequent to the Date of the Statement of Financial Position

Further to that stated in Note 17(B) to the Annual Financial Statements, in July 2020, the Company issued 44,899 of the Company’s ordinary shares of NIS 0.01 par value each to six managers and officers in the Group, in light of the vesting of the second tranche of the Restricted Stock Units (RSUs) that were granted to them as part of the equity remuneration plan for Company employees.

34