Abu Dhabi National Energy Company PJSC ( TAQA ) REPORT OF THE BOARD OF DIRECTORS AND INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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1 Abu Dhabi National Energy Company PJSC ( TAQA ) REPORT OF THE BOARD OF DIRECTORS AND INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 SEPTEMBER 2008 (UNAUDITED)

2 Abu Dhabi National Energy Company PJSC ( TAQA ) REPORT OF THE BOARD OF DIRECTORS 30 SEPTEMBER 2008 (UNAUDITED)

3 ABU DHABI NATIONAL ENERGY COMPANY ( TAQA ) DIRECTORS REPORT FOR THE PERIOD ENDED 30 SEPTEMBER 2008 On behalf of the Board of Directors of Abu Dhabi National Energy Company PJSC, I am pleased to present the interim condensed financial statements of Abu Dhabi National Energy Company PJSC ( TAQA or the Company ) and its subsidiaries (the Group ) for the nine months ended 30 September TAQA was established pursuant to the provisions of Emiri Decree (16) of 2005 as a public joint stock company with Abu Dhabi Water and Electricity Authority ( ADWEA ) as its founding shareholder with a 51% equity interest. Accordingly, the Company is a subsidiary of ADWEA. The principal activity of TAQA is to own, invest and/or operate companies engaged in the oil and gas, power generation, water, energy and infrastructure sectors, in addition to making other investments as considered appropriate to meet its objectives. The results for the first nine months and the third quarter have been discussed in detail under the section Management Discussion and Analysis. Key highlights of the results for the first nine months of the year: Net profit after minority interests increased 318%, reaching AED 1.6 billion in the first nine months of 2008 compared with AED 381 million in the same period in 2007 Basic earnings-per-share rose 275% to AED 0.35 for the first three quarters of the year, compared with AED 0.09 for the same period of The oil & gas segment contributed 60% of the total segment profits (EBIT) compared with only 11% in the corresponding period in Net cash from operating activities (including working capital movements) increased by 323% to AED 5.0 billion compared to AED 1.2 billion for the first nine months of Key highlights of the results for the third quarter of 2008: Net profit after minority interests for the quarter increased by 448% to AED 723 million, compared with AED 132 million in the third quarter of Revenue in the third quarter grew 81% to AED 4.5 billion in 2008 from AED 2.5 billion in 2007.

4 Basic earnings-per-share rose 306% to AED 0.13 for the quarter compared with AED 0.03 for the same period of During the quarter, TAQA issued AED 4.15 billion of mandatory convertible bonds. The bonds were converted into shares of the Company at the ratio of 500 shares per AED 1,000 bond as of 1 September Accordingly 2,075,000,000 ordinary shares of AED 1 each were issued as of that date and the paid up share capital was increased by AED 2,075 million to become AED 6,225 million. Global credit crisis: As required by recent letters received from the Emirates Securities and Commodities Authority (ESCA) and the Abu Dhabi Securities Exchange (ADX), we are pleased to report that TAQA has suffered minimal impact from the recent credit crisis. Recent events in the global financial markets have led to a loss of liquidity making it extremely difficult for businesses to obtain loans to finance expenditures and a substantial decline in the value of global equities. TAQA is in a strong financial position to manage its business within the current credit environment. As at September 30, 2008 the company has unused credit lines of approximately AED 14.0 billion plus cash and short term cash deposits of approximately AED 5.8 billion. The company has no refinancing requirements until This strong financial liquidity will allow the Company to actively pursue attractive investment opportunities that are expected to arise due to the challenging financial market conditions. The following information has been provided as required: Apart from an investment in the Carlyle Fund in the USA, we have no investments in financial papers, real estate, land and commercial companies other than investment in TAQA s subsidiaries and associates involved in oil and gas, gas storage, power generation and water desalination. The investment in the Carlyle Fund has been classified as assets available for sale. The Carlyle Fund has investments in infrastructure projects located in the USA. The investment as of 30 September 2008 was AED 186 million and the fair value as per the latest available report was AED 170 million. The investment has been classified as assets available for sale and the temporary changes in fair value are taken directly to equity as required by IAS 39.

5 Size of company s foreign bank deposits are as disclosed in note 7 in the interim condensed consolidated financial statements. As can be seen from the financial results, TAQA has delivered another quarter of outstanding operating performance. We intend to closely watch the developments in the world s economic scene and are cautiously optimistic about making further investments in accordance with TAQA s stated strategy. On behalf of the Board Hamad Al Hurr Al Suwaidi Chairman Abu Dhabi 29 October 2008

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7 Abu Dhabi National Energy Company PJSC ( TAQA ) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 SEPTEMBER 2008 (UNAUDITED)

8 REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE BOARD OF DIRECTORS OF ABU DHABI NATIONAL ENERGY COMPANY PJSC ( TAQA ) Introduction We have reviewed the accompanying interim condensed consolidated financial statements of Abu Dhabi National Energy Company PJSC ( TAQA or the Company ) and its subsidiaries (the Group ) as at 30 September 2008, comprising of the interim consolidated balance sheet as at 30 September 2008 and the related interim consolidated income statement for the three month period and nine month period then ended and the interim consolidated statements of changes in equity and cash flows for the nine month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ( IAS 34 ). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information 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 International Standards on Auditing 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 accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34. Signed by: Bassam E Hage Partner Ernst & Young Registration No October 2008 Abu Dhabi

9 INTERIM CONSOLIDATED INCOME STATEMENT Period ended 30 September 2008 (Unaudited) Three months ended Nine months ended 30 September 30 September Notes AED 000 AED 000 AED 000 AED 000 Revenues Revenue from oil and gas 2,052, ,437 6,197, ,799 Revenue from electricity and water 3 1,463,343 1,364,827 4,039,614 3,447,491 Supplemental fuel income 820, ,458 2,183,293 1,273,618 Gas storage revenue 89,121 26, , ,864 Other operating revenue 90,080 19, ,525 42,093 4,515,719 2,494,975 13,068,239 5,330,865 Cost of sales Staff costs (62,682) (15,380) (192,496) (36,108) Repairs, maintenance and consumables used (359,524) (338,349) (1,229,565) (740,290) Fuel expenses (833,617) (753,511) (2,189,944) (1,252,219) Depreciation, depletion and amortisation (864,876) (391,556) (2,640,833) (964,899) Gas storage expenses (89,680) (18,917) (274,736) (59,338) Other operating expenses (342,625) (83,679) (813,889) (83,680) (2,553,004) (1,601,392) (7,341,463) (3,136,534) GROSS PROFIT 1,962, ,583 5,726,776 2,194,331 Administrative and other expenses (192,621) (65,922) (575,062) (195,740) Finance costs (984,457) (644,027) (2,837,678) (1,795,463) Changes in fair values of derivatives (32,701) (61,772) (41,303) (29,884) Foreign exchange gain 84,439 28, ,957 36,508 Share of results of associates 11,065 8,209 36,482 22,105 Interest and investment income 58,448 89, , ,402 Gain on disposal of interest in a subsidiary and an associate 6(ii) 323, ,893 - Other income 2, ,540 8,532 PROFIT BEFORE TAX 1,233, ,029 2,935, ,791 Income tax expense 4 (393,640) (33,313) (1,081,532) (68,552) PROFIT FOR THE PERIOD 6 839, ,716 1,854, ,239 Attributable to: Equity holders of the parent 723, ,944 1,592, ,203 Minority interests 116,502 83, , ,036 PROFIT FOR THE PERIOD 839, ,716 1,854, ,239 Basic earnings per share attributable to equity holders of the parent (AED) The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 2

10 INTERIM CONSOLIDATED BALANCE SHEET At 30 September 2008 (Unaudited) (Audited) 30 September 31 December Notes AED 000 AED 000 ASSETS Non-current assets Property, plant and equipment 10 59,183,314 46,050,830 Operating financial assets 2.2 5,476,164 5,800,588 Initial spares fee 105, ,246 Advances to a related party 206, ,645 Available for sale investments 170,412 99,481 Intangible assets 11 8,497,958 3,467,032 Investment in associates 207, ,822 Other assets 350, ,663 74,197,380 56,068,307 Current assets Inventories 1,694,186 1,494,808 Operating financial assets , ,439 Loan to an associate 32,100 32,100 Accounts receivable, prepayments, and unbilled revenues 3,365,576 2,380,579 Bank balances and cash 5,837,199 7,601,093 11,203,590 11,776,019 TOTAL ASSETS 85,400,970 67,844,326 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 12 6,225,000 4,150,000 Other reserves 13 3,366,130 1,295,130 Equity contributed capital 25,131 25,131 Retained earnings 2,661,389 1,070,224 Proposed dividends ,000 Translation reserve (330,516) 440,909 Cumulative changes in fair value of available for sale investments (16,695) - Cumulative changes in fair value of derivatives (1,006,413) (702,285) 10,924,026 6,694,109 Minority interests 1,682,943 1,050,192 Loans from minority interest shareholders in subsidiaries 950, ,124 Loan from Abu Dhabi Water and Electricity Authority (ADWEA) 163,285 92,640 Total equity 13,720,639 8,129,065 Non-current liabilities Interest bearing loans and borrowings 14 56,098,832 44,999,272 Islamic loans 14 2,028,209 2,017,379 Deferred tax 3,939,662 2,309,850 Employee benefit obligations 67,602 57,024 Assets retirement obligations 1,608,392 1,107,820 Advances and loan from related parties 48,844 48,844 Other liabilities 2,367,388 1,650,455 66,158,929 52,190,644 Current liabilities Trade and other payables and accruals 4,190,792 2,489,236 Interest bearing loans and borrowings 14 1,018,275 3,547,770 Islamic loans ,291 1,124,914 Loans from minority interest shareholders in subsidiaries 19,770 19,770 Amounts due to ADWEA and other related parties 24,785 96,242 Income tax payable 143,489 76,216 Bank overdrafts - 170,469 5,521,402 7,524,617 Total liabilities 71,680,331 59,715,261 TOTAL EQUITY AND LIABILITIES 85,400,970 67,844,326 CHAIRMAN DIRECTOR CHIEF EXECUTIVE OFFICER The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 3

11 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Nine month period ended 30 September 2008 (Unaudited) Attributable to equity holders of the parent Cumulative Loan from changes in minority fair value of Cumulative interest Equity available changes in shareholders Share Other contributed Retained Proposed Translation for sale fair value of Minority in Loan from Total capital reserves capital earnings dividends reserve investments derivatives Total interests subsidiaries ADWEA equity AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Balance at 1 January ,150,000 1,142,122 25, , ,500-26,253 (318,115) 5,839,524 1,244, ,149 92,640 7,568,624 Exchange differences arising on translation of overseas operations , , ,236 Movement in changes in fair values (6,070) (37,177) (43,247) (69,847) - - (113,094) Total income and expense for the period recognised directly in equity ,236 (6,070) (37,177) 405,989 (69,847) ,142 Profit for the period , , , ,239 Total income for the period , ,236 (6,070) (37,177) 787, , ,381 Dividend paid (207,500) (207,500) (207,500) Dividends declared to minority interest shareholders (43,553) - - (43,553) On acquisition of subsidiaries , ,737 Acquisition of minority interests (439,909) (79,458) - (519,367) Repayment of loans (20,554) - (20,554) Balance at 30 September 2007 (unaudited) 4,150,000 1,142,122 25, , ,236 20,183 (355,292) 6,419, , ,137 92,640 7,744,768 Balance at 1 January ,150,000 1,295,130 25,131 1,070, , ,909 - (702,285) 6,694,109 1,050, ,124 92,640 8,129,065 Exchange differences arising on translation of overseas operations (771,425) - - (771,425) (771,425) Board of directors remuneration (1,000) (1,000) (1,000) Movement in changes in fair values (16,695) (304,128) (320,823) (317,924) - - (638,747) Total expense for the period recognised directly in equity (1,000) - (771,425) (16,695) (304,128) (1,093,248) (317,924) - - (1,411,172) Profit for the period ,592, ,592, , ,854,245 Total income and expense for the period ,591,165 - (771,425) (16,695) (304,128) 498,917 (55,844) ,073 Increase in share capital 2,075,000 2,071, ,146, ,146,000 Dividend paid (415,000) (415,000) (415,000) Share capital injection by minority interest shareholders , ,496 Dividends declared to minority interest shareholders (154,078) - - (154,078) Part disposal of a subsidiary ,177 64, ,942 Loans received from minority interest shareholders ,188 91, ,416 Repayment of loans (14,692) (20,583) (35,275) Balance at 30 September 2008 (unaudited) 6,225,000 3,366,130 25,131 2,661,389 - (330,516) (16,695) (1,006,413) 10,924,026 1,682, , ,285 13,720,639 The attached notes 1 to 20 form part of these interim condensed consolidated financial statements. 4

12 INTERIM CONSOLIDATED CASH FLOW STATEMENT Nine month period ended 30 September 2008 (Unaudited) 5 Nine month Nine month period ended period ended 30 September 30 September Note AED 000 AED 000 OPERATING ACTIVITIES Profit before tax 2,935, ,791 Adjustments for: Depreciation, depletion and amortisation 2,640, ,899 Net movement in employees benefit obligations 10,578 1,323 Gain on foreign exchange of operating financial asset 48,104 - Loss on foreign exchange of interest bearing loans and borrowings (147,687) - Provisions recognised on business combination released to income statement (34,490) - Gain on disposal of interest in a subsidiary and an associate (323,893) - Interest expense 2,750,538 1,776,641 Notional interest 5,621 1,100 Accretion expense 81,519 17,722 Share of results of associates (36,482) (22,105) Changes in fair value of derivatives 41,303 29,884 Interest and investment income (131,172) (415,402) 7,840,549 3,009,853 Working capital changes: Inventories (197,707) (106,497) Accounts receivables, prepayments, unbilled revenue and advance to a related party (278,144) 1,079,714 Amounts due to ADWEA and related parties (72,438) 22,646 Accounts payable, accruals and other liabilities 427,462 (1,399,950) 7,719,722 2,605,766 Income tax paid (466,274) (108,252) Interest paid (2,438,103) (1,374,348) Board of directors remuneration paid (4,000) - Lease rentals received 218,331 65,159 Net cash from operating activities 5,029,676 1,188,325 INVESTING ACTIVITIES Purchase of property, plant and equipment (1,778,728) (1,785,159) Purchase of subsidiaries, net of cash acquired (16,926,895) (12,331,811) Purchase of investments in associates - (36,109) Dividends received from associates 5,510 - Disposal of interest in subsidiaries and an associate, net of cash disposed 639,882 - Purchase of available for sale investments (87,626) (230,521) Advances to related parties 6,165 (27,428) Interest received 175, ,069 Advances from related party - (295) Other investments - 2,212 Other assets (209,953) (31,654) Restricted cash - (198,342) Asset retirement obligation payments (68,883) - Net cash used in investing activities (18,244,826) (14,241,038) FINANCING ACTIVITIES Interest bearing loans and borrowings received 23,437,582 4,008,378 Islamic loans received 107,627 84,161 Repayment of interest bearing loans and borrowings (16,280,762) (577,868) Repayment of Islamic loans (1,097,420) (26,569) Increase in share capital 4,146,000 - Acquisition of minority interests - (693,783) Net movement in minority interests - 43,737 Share capital injection by minority interest shareholders 698,496 - Dividend paid to equity holders of the parent (415,000) (207,500) Dividend paid to minority interest shareholders (105,281) (28,281) Loans received from Abu Dhabi Water and Electricity Authority 91,228 - Repayment of loans from Abu Dhabi Water and Electricity Authority (20,583) - Loans received from minority interest shareholders in subsidiaries 672,953 - Repayment of loans from minority interest shareholders in subsidiaries (14,692) (119,782) Net cash from financing activities 11,220,148 2,482,493 DECREASE IN CASH AND CASH EQUIVALENTS (1,995,002) (10,570,220) Net foreign exchange difference 401,577 (456,685) Cash and cash equivalents at the beginning of the period 7,430,624 15,788,490 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 7 5,837,199 4,761,585 The attached notes 1 to 20 form part of these interim condensed consolidated financial statements.

13 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 1 CORPORATE INFORMATION Abu Dhabi National Energy Company PJSC ( TAQA or the Company ) was established on 21 June 2005 pursuant to the provisions of Emiri Decree number 16/2005 as a public joint stock company with Abu Dhabi Water and Electricity Authority ( ADWEA ) as its founding shareholder and 100% owner. During the period from 23 July 2005 to 1 August 2005, 24.9% of TAQA s shares were offered to the public on the Abu Dhabi Securities Exchange through an Initial Public Offering (IPO) and 24.1% were offered through a private offering with the remaining 51% interest holding in the Company retained by ADWEA and, accordingly, the Company is a subsidiary of ADWEA. As a result of issuance of mandatory convertible bonds and conversion of the bonds into ordinary shares during the third quarter of 2008 (see note 12), ADWEA s holding increased to 51.05%. ADWEA was established pursuant to the provisions of Law 2 of 1998, concerning the regulation of the Water and Electricity Sector. The principal activity of TAQA is to own and invest in companies engaged in power generation, water desalination and development, production and storage of oil and gas, in addition to other investments as considered appropriate to meet its objectives. TAQA s registered head office is P O Box 55224, Abu Dhabi, United Arab Emirates. The interim condensed consolidated financial statements of TAQA and its subsidiaries ( the Group ) for the period ended 30 September 2008 comprise of the financial statements of TAQA, the subsidiaries listed in the annual consolidated financials statements for the year ended 31 December 2007 and PrimeWest Energy Inc, a newly acquired subsidiary in 2008 (see note 8). The interim condensed consolidated financial statements of the Group were authorised for issuance by the Board of Directors on 29 October BASIS OF PREPARATION AND ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The interim condensed consolidated financial statements of the Group are prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The interim condensed consolidated financial statements do not include all information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group s annual consolidated financial statements for the year ended 31 December Results for the nine months ended 30 September 2008 are not necessarily indicative of the results that may be expected for the financial year ending 31 December SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual financial statements for the year ended 31 December 2007, except for the adoption of the following new Interpretation, noted below: IFRIC 12 Service Concession Arrangements IFRIC Interpretation 12 was issued in November 2006 and became effective for annual periods beginning on or after 1 January This Interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. While the adoption of this interpretation did not have any impact on the financial position and performance of TAQA s domestic subsidiaries, the impact on certain foreign subsidiaries was mainly the reclassification of direct finance lease receivables to Operating financial assets. The adoption of this Interpretation did not have any material impact on the financial performance of the Group. 6

14 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 2.2 SIGNIFICANT ACCOUNTING POLICIES continued A summary of the characteristics of the Service Concession Arrangements is described below: The foreign subsidiaries namely Jorf Lasfar Energy Company SCA (Jorf Lasfar), ST-CMS Electric Company Pvt Ltd (Neyveli) and Takoradi International Company (Takoradi) have entered into power purchase agreements (PPA) with offtakers in the countries where they are operating. Under the PPA the foreign subsidiaries undertake to make available and the offtakers undertake to purchase the available net capacity of the plant for a period of time in accordance with various agreed terms and conditions as specified in the PPA as follows: Jorf Lasfar: The subsidiary has the right of possession for the site and the plant units for a period of 30 years ending in September After the 30 year period, the ownership of the site and the plants will be transferred to the offtaker. Neyveli: The subsidiary has a 30 year PPA with the offtaker ending in December On the expiry date of the PPA, the offtaker has the option to acquire the plant at a price equal to 50% of the terminal value as defined in the PPA. Takoradi: The subsidiary has a 25 year PPA with the offtaker ending in March On expiry date of the PPA, the plant is to be transferred to the offtaker at a nominal amount. 3 REVENUE FROM ELECTRICITY AND WATER Three months Three months Nine months Nine months ended ended ended ended 30 September 30 September 30 September 30 September AED 000 AED 000 AED 000 AED 000 Operating lease revenue 1,053, ,864 2,870,802 2,700,329 Revenue from operating financial assets 201, , , ,946 Energy payments and other related revenue 208, , , ,216 1,463,343 1,364,827 4,039,614 3,447,491 4 INCOME TAX Three months Three months Nine months Nine months ended ended ended ended 30 September 30 September 30 September 30 September AED 000 AED 000 AED 000 AED 000 Current income tax: Current income tax (229,317) (77,243) (533,547) (108,252) Deferred income tax Relating to origination and reversal of temporary differences (164,323) 43,930 (547,985) 39,700 (393,640) (33,313) (1,081,532) (68,552) 7

15 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 5 BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for the effects of dilutive instruments. The following reflects the income and shares data used in the earnings per share computations: Three months Three months Nine months Nine months ended ended ended ended 30 September 30 September 30 September 30 September Profit for the period attributable to equity holders of the parent (AED 000) 723, ,944 1,592, ,203 Weighted average number of ordinary shares issued ( 000) 5,548,370 4,150,000 4,619,526 4,150,000 Basic earnings per share (AED) PROFIT FOR THE PERIOD (i) (ii) Seasonality of operations Due to higher electricity demand in the summer period in the United Arab Emirates, higher revenues and operating profits are usually expected for the power and water generation domestic subsidiaries in the second and third quarters of the year compared to the first and fourth quarters of the year. Due to high demand for natural gas in Canada, Europe and the United Kingdom in the winter period, higher revenues and operating profits are usually expected in the first and fourth quarters of the year compared to the second and third quarters of the year. Other The increase in revenues, cost of sales, administrative and other expenses, finance costs, income tax and profit for the period is in part attributable to several acquisitions made by TAQA during 2007 and 2008 and the gain on disposal of an interest in a subsidiary and associate (20% of its holding in Shuweihat CMS International Power Company and its 50% holding in Shuweihat O & M Company Limited). 7 CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the interim consolidated cash flow statement comprise the following balance sheet amounts: 30 September 30 September AED 000 AED 000 Short term bank deposits, bank balances and cash 5,837,199 4,959,927 Less: restricted cash - (198,342) 5,837,199 4,761,585 8

16 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 7 CASH AND CASH EQUIVALENTS continued Included in bank balances and cash is an amount of AED 504 million (2007: AED 78 million) representing short term bank deposits made in foreign banks. Significant non-cash transactions, which have been excluded from the cash flow statement are as follows: Nine month Nine month period ended period ended 30 September 30 September AED 000 AED 000 Interest receivable 3,165 17,333 Interest payable 856, ,218 Accrual for capital expenditure 347,544 - Accrual for taxes 143,489 - Dividends payable to minority interests 48,797-8 BUSINESS COMBINATION Acquisition of PrimeWest Energy Inc. In January 2008, TAQA North, a wholly owned subsidiary of TAQA, completed the acquisition of all of the issued and outstanding trust units and outstanding exchangeable shares of PrimeWest Energy Inc. ( PrimeWest ) under a plan of arrangement. PrimeWest is a Calgary-based conventional oil and gas royalty trust that actively acquires, develops, produces and sells natural gas, crude oil and natural gas liquids for the benefit of its unitholders. The acquisition was completed on 16 January 2008 (the completion date ). The fair value of the identifiable assets and liabilities of PrimeWest as at the completion date were: Fair value Previous recognised carrying on acquisition value (unaudited) (unaudited) AED 000 AED 000 Property, plant and equipment 14,823,783 13,690,823 Intangible assets - 1,166,638 Other assets 1,627 1,627 Inventories 1,671 1,671 Accounts receivables, prepayments, and unbilled revenues 756, ,022 Bank balances and cash 246, ,255 15,829,358 15,863,036 Interest bearing loans and borrowings (1,572,201) (1,467,003) Trade and other payables (note 1 below) (130,865) (2,322,866) Abandonment provision (486,806) (486,806) Deferred tax liabilities (1,176,851) (964,375) Accruals and other liabilities (770,157) (759,173) (4,136,880) (6,000,223) Net assets 11,692,478 9,862,813 Goodwill arising on acquisition * 5,480,672 Total acquisition cost 17,173,150 9

17 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 8 BUSINESS COMBINATION continued The total acquisition cost of AED 17,173 million, comprised a payment of AED 17,120 million and an amount of AED 53 million relating to costs directly attributable to the acquisition. AED 000 (Unaudited) Cash outflow on acquisition: Net cash acquired with the subsidiary 246,255 Acquisition cost paid in cash (17,173,150) Net cash outflow (16,926,895) * Balance of goodwill as at the date of acquisition 5,480,672 Exchange difference (222,155) Balance of goodwill as at 30 September ,258,517 The fair value is based on a provisional price allocation at the time of acquisition. The allocation will be finalised at a later date. The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of the entities acquired with those of the Group. From the date of acquisition, PrimeWest has contributed AED 754 million to the profit of the Group. If the combination had taken place at the beginning of the period, the profit for the Group would have been AED 1,855 million and revenues would have been AED 13,240 million. Note 1 The previous carrying value of trade and other payables includes the value of secured notes, convertible debentures and other related items which was settled by TAQA subsequent to the acquisition date and is included in the total acquisition cost. 9 SEGMENTAL ANALYSIS Business segments For management purposes the Group is organised into two major business segments: Power and Water Generation Segment This segment is engaged in generation of electricity and production of desalinated water for supply into Abu Dhabi and Fujairah. In addition, this segment is engaged in generation of electricity in Morocco, India, Ghana and the Kingdom of Saudi Arabia. Oil and Gas Segment This segment is engaged in Upstream and Midstream oil and gas activities in Canada, the United States, the Netherlands and the United Kingdom. 10

18 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 9 SEGMENTAL ANALYSIS continued The following table presents revenue and profit information for the Group s business segments for the nine months ended 30 September 2008 and 2007 respectively: Power and water Oil generation and gas Unallocated Total AED 000 AED 000 AED 000 AED 000 Period ended 30 September 2008: Revenue 6,304,225 6,764,014-13,068,239 Results Segment results* 2,351,469 2,964,006 (163,761) 5,151,714 Gain on disposal of interest in a subsidiary and an associate 323, ,893 Share of results of associates 3,698-32,784 36,482 Finance costs - - (2,837,678) (2,837,678) Changes in fair value of derivatives (36,863) - (4,440) (41,303) Gain on exchange , ,957 Interest and investment income , ,172 Other income ,540 16,540 Profit before tax 2,935,777 Income tax expense (1,081,532) Profit for the period 1,854,245 At 30 September 2008: Assets and liabilities Segment assets 43,494,539 39,829,947 1,869,015 85,193,501 Investment in associates 39, , ,469 Total assets 43,533,595 39,829,947 2,037,428 85,400,970 Segment liabilities 4,281,152 7,370,249 60,028,930 71,680,331 Period ended 30 September 2008: Other segment information Capital expenditure: Property, plant and equipment 647,342 1,240,252 14,655 1,902,249 On business combinations - 14,823,783-14,823,783 Intangible assets - 5,480,672-5,480,672 Depreciation, depletion and amortisation 783,956 1,853,917 2,960 2,640,833 11

19 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 9 SEGMENTAL ANALYSIS continued Power and water Oil generation and gas Unallocated Total AED 000 AED 000 AED 000 AED 000 Period ended 30 September 2007: Revenue 4,761, ,940-5,330,865 Results Segment results* 1,962, ,447 (94,034) 1,998,591 Share of results of associates 2,009-20,096 22,105 Finance costs - - (1,795,463) (1,795,463) Changes in fair value of derivatives (29,884) - - (29,884) Gain on exchange ,508 36,508 Interest and investment income , ,402 Other income - - 8,532 8,532 Profit before tax 655,791 Income tax expense (68,552) Profit for the period 587,239 At 31 December 2007: Assets and liabilities Segment assets 44,097,575 18,657,586 4,903,343 67,658,504 Investment in associates 38, , ,822 Total assets 44,136,477 18,657,586 5,050,263 67,844,326 Segment liabilities 3,164,133 4,170,479 52,380,649 59,715,261 Period ended 30 September 2007: Other segment information Capital expenditure: Property, plant and equipment 1,740,805 44,446-1,785,251 On business combinations 166,553 9,315,193-9,481,746 Intangible assets 271,868 2,660,531-2,932,399 Depreciation, depletion and amortisation 726, , ,899 *Segment results comprise gross profit less administrative and other expenses. 10 PROPERTY, PLANT AND EQUIPMENT During the nine month period ended 30 September 2008, the Group acquired assets with a cost of AED 1,902 million (2007: AED 1,785 million), not including property, plant and equipment acquired through a business combination (note 8). 12

20 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 11 INTANGIBLE ASSETS Connection rights Goodwill Total AED 000 AED 000 AED 000 Cost: At 1 January ,042,676 2,508,205 3,550,881 Acquisition of a subsidiary (note 8) - 5,480,672 5,480,672 Revision to Purchase Price Allocation - 43,134 43,134 Goodwill written off on partial disposal of subsidiary - (162,486) (162,486) Exchange differences - (306,066) (306,066) At 30 September ,042,676 7,563,459 8,606,135 Amortisation and impairment: At 1 January ,849-83,849 Amortisation for the period 24,328-24,328 At 30 September , ,177 Net book value: At 30 September ,499 7,563,459 8,497,958 At 31 December ,827 2,508,205 3,467, SHARE CAPITAL Authorised, issued and fully paid 30 September 31 December AED 000 AED 000 Ordinary shares of AED 1 each 6,225,000 4,150,000 During July 2008, TAQA issued AED 4.15 billion of mandatory convertible bonds. Pursuant to a resolution of the Board of Directors on 8 September 2008, the bonds were converted into shares of the Company at the ratio of 500 shares per AED 1,000 bond as of 1 September Accordingly 2,075,000,000 ordinary shares of AED 1 each were issued as of that date and the paid up share capital was increased by AED 2,075 million to become AED 6,225 million. The remaining balance of the proceeds AED 2,075 million net of transaction cost of AED 4 million has been treated as share premium and transferred to statutory reserve (note 13). The new shares were available for trading from 16 October OTHER RESERVES Statutory Legal General reserve reserve reserve Total AED 000 AED 000 AED 000 AED 000 Balance at 1 January 2007 and 30 September , , ,000 1,142,122 Balance at 1 January , , ,000 1,295,130 Share capital injection (note 12) 2,071, ,071,000 Balance at 30 September ,370, , ,000 3,366,130 13

21 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 14 INTEREST BEARING LOANS AND BORROWINGS AND ISLAMIC LOANS Borrowings and repayment of debt (i) During the period ended 30 September 2008 the Group entered into two revolving credit facilities. At the parent level, TAQA entered into a one year revolving credit facility in January 2008 with a syndicate of banks committing to a total facility of USD 3.1 billion. Amounts borrowed under this facility carry interest equal to the LIBOR rate plus a margin. On January 16, 2008, this facility was fully drawn in Canadian currency, with the proceeds utilized to fund a portion of the PrimeWest acquisition cost. On 7 August 2008 TAQA concluded an agreement with a syndicate of 16 banks for a three-year revolving credit facility in the amount of USD 3.15 billion equivalent. Amounts borrowed under this facility carry interest equal to LIBOR or EIBOR rates plus a margin. On 18 August 2008, this new credit facility was drawn down fully to pay out the one-year credit facility, which expired as of the same date. At 30 September 2008, USD 488 million (AED 1,792 million) was outstanding under this new credit facility. At the subsidiary level, TAQA s wholly owned subsidiary TAQA North assumed a 3 year revolving credit agreement from the PrimeWest acquisition with a syndicate of banks committing a total facility of CAD billion (AED 4.8 billion). Amounts borrowed under this facility carry interest equal to the Canadian Bankers Acceptance rate plus a margin. This facility is scheduled to mature on 16 July 2010 but can be extended each year at anniversary into a new three-year maturity period subject to lenders consent. On 16 January 2008, CAD 1.1 billion (AED 4.0 billion) of the credit facility was drawn by TAQA North to pay for a portion of the PrimeWest acquisition cost. At 30 September 2008, CAD 1.1 billion (AED 3.8 billion) was outstanding under this credit facility. (ii) During the period ended 30 September 2008, TAQA issued under its Global Medium Term Note Programme long term fixed interest rate notes at a discount. The notes are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligations of the Company. 30 September Effective Repayment 2008 interest rate % date AED 000 Non-current liabilities US $ 500,000,000, net of discount and transaction costs 6.64% August ,831,502 US $ 1,000,000,000, net of discount and transaction costs 7.29% August ,666,606 5,498,108 The notes liability is stated net of discount and transaction costs incurred in connection with the notes arrangements, amounting to AED 11.4 million as of 30 September 2008, which are amortised in the consolidated income statement over the repayment period of the notes using effective interest rate method. Interest is payable semi-annually commencing on 1 February Accrued interest is included under trade and other payables and accruals. The Group made the following repayments during the period: Nine months Nine months ended ended 30 September 30 September AED 000 AED 000 Interest bearing loans 16,280, ,868 Islamic loans 1,097,420 26,569 14

22 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 15 RELATED PARTY TRANSACTIONS The following table provides summary of significant related party transactions during the nine month period: Nine months Nine months ended ended 30 September 30 September AED 000 AED 000 Fellow subsidiary (Abu Dhabi Water and Electricity Company): Revenue from electricity and water 3,165,514 2,968,333 Supplemental fuel income 70, ,668 Compensation of key management personnel For controlled subsidiaries key management personnel are provided by operation and maintenance companies under contractual agreements with the controlled subsidiaries. The remuneration of senior key management personnel of the Group during the nine month period was as follows: Nine months Nine months ended ended 30 September 30 September AED 000 AED 000 Short-term benefits 19,976 10,268 Post-employment benefits 1, Other long-term benefits 4,640-26,005 10,987 Terms and conditions of transactions with related parties The sales to related parties are made at normal market prices. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. There was no provision for impairment made during the period (2007: nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates. Transactions with other related parties Officer s loan In April 2008, a loan of AED 55 million bearing interest at 4% was advanced to one of the Group s key management personnel. Of this, a principal amount of AED 4.5 million was repaid in September 2008 and AED 5 million is repayable annually on 1 May 2009 and 1 May The remaining balance is to be repaid on 1 May Interest on the outstanding balance is payable monthly. All amounts outstanding are repayable immediately upon the employee ceasing to be an employee of TAQA or entering into any form of bankruptcy proceedings. Other transactions During 2006, ADWEA transferred land located in Abu Dhabi and Al Ain to the Company at no cost. The Company has recorded the value of each parcel of land at the nominal value of AED DIVIDENDS During the period, dividends of AED 415 million (AED 10 fils per share) were paid (2007: AED million, 5 fils per share). 15

23 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 17 COMMITMENTS AND CONTINGENCIES (i) Capital expenditure commitments The authorised capital expenditure contracted for at 30 September 2008 but not provided for amounted to AED 478 million (31 December 2007: AED 19,593 million). (ii) Other commitments TAQA has entered into an agreement, dated 28 September 2006, with an infrastructure fund managed by a third party and has committed to invest US $200 million in the fund over a period of five years. As of 30 September 2008, an amount of US $51 million (31 December 2007: US $27 million) was invested in the fund and has been treated as available for sale investment. (iii) Operating lease commitments Group as a lessor: Future capacity payments to be received by the Group under the PWPA based on projected plant availability as at 30 September 2008 amount to AED 67.3 billion (31 December 2007: AED 63.8 billion). Group as a lessee: Future minimum rentals payable under non-cancellable operating leases as at 30 September 2008 amount to AED 23.1 million (31 December 2007: AED 11.6 million). (iv) Contingencies As a result of the acquisitions made during 2007, there are contingent liabilities arising from (a) tax assessments or proposed or possible assessments and (b) certain other disputes which are being contested or under negotiation for settlement. Pursuant to the Purchase and Sale Agreements between the Group and the sellers, the sellers have provided the Group and/or its subsidiaries with indemnity obligations with respect to a portion of such contingent liabilities. Management has estimated that the Group has a possible, but not probable contingent liability of AED 42 million relating to one acquired subsidiary. This has not been provided for in these financial statements. 18 DERIVATIVE FINANCIAL INSTRUMENTS (i) Interest Rate Swaps In order to reduce its exposure to interest rates fluctuations on the interest bearing loans and borrowings and Islamic loans the Group s subsidiaries entered into interest rate swap arrangements with counter-party banks for a notional amount that matches the outstanding interest bearing loans and borrowings and Islamic loans. The following table summarises the outstanding notional amounts outstanding and the fair value position of the derivate instruments for each subsidiary as at 30 September 2008 and 31 December 2007: Derivative fair value Subsidiary Notional amount Assets Liabilities Assets Liabilities 30 September 31 December 30 September 30 September 31 December 31 December AED'000 AED'000 AED'000 AED'000 AED'000 AED'000 ECPC 1,609,000 1,664, , ,000 GTTPC 2,849,000 2,757, , ,000 SCIPCO 4,047,000 4,135, , ,000 APC 3,250,000 5,230, ,000-4,000 TAPCO 7,715,000 9,329, , ,000 ESWPC 4,375,000 4,161, ,000 9, ,700 JLEC 409, ,314-15,520-22,000 24,254,000 27,721,314-1,964,520 9,600 1,357,700 16

24 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 18 DERIVATIVE FINANCIAL INSTRUMENTS continued (ii) Forward Foreign Exchange Contracts Certain of the Company s subsidiaries use forward foreign exchange contracts to hedge the risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to overseas suppliers. The outstanding forward foreign exchange commitments at 30 September 2008 were AED 336 million (31 December 2007: AED 366 million). (iii) Hedge of net investment in foreign operations Included in loans at 30 September 2008 was a borrowing of Euro 553 million (AED 2,933 million) (31 December 2007: Euro 553 million (AED 2,964 million)) which has been designated as a hedge of the net investment in the Netherlands subsidiary TAQA Europa BV and is being used to hedge the Group s exposure to foreign exchange risk on this investment. During the period ended 30 September 2008, a gain of AED 31 million (30 September 2007, a loss of AED 241 million) on the retranslation of this borrowing was transferred to equity to offset any gains or losses on translation of the net investment in this subsidiary. (iv) Commodity contracts At 30 September 2008, TAQA North held costless collars used as a hedge against commodity risks for part of future crude oil and natural gas revenues. The fair value as at 16 January 2008 (the date of acquisition of PrimeWest by TAQA North) was AED 65 million. The cash flow hedges against the expected future revenue were assessed as effective and as at 30 September 2008, an unrealised loss, net of deferred tax, of AED 24 million has been recognised in equity (31 December 2007: nil). 19 SUBSEQUENT EVENT Acquisition of interests On 4 July 2008, the Company s wholly owned subsidiary, TAQA Bratani Limited signed a Sale and Purchase Agreement with Shell U.K. Limited and Esso Exploration and Production (UK) Limited to purchase the equity pertaining to operating licenses for six offshore fields and two non-operated subsea tie-backs situated in the Northern North Sea. The acquisition cost has not been finalised. The sale includes all equity, associated infrastructure and production licenses relating to the Vendor s interests in the Tern, Eider, Cormorant North, South Cormorant, Kestrel and Pelican fields and related sub-sea satellite fields and is subject to fulfilment of certain conditions, including government consent. After the signing of the Sale and Purchase Agreement, certain co-owners of the Hudson and Otter fields exercised their rights of pre-emption, so these fields will not be acquired by TAQA Bratani Limited. 17

25 NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 September 2008 (Unaudited) 20 COMPARATIVE INFORMATION Certain comparative figures were reclassified to conform with the current year presentation. Such reclassifications as discussed below have no effect on the profit or the equity of the Group. Other investments amounting to AED 324 thousand as at 31 December 2007 previously disclosed as a separate item under non-current assets have now been included in the total of other assets under noncurrent assets. Advances to a related party and amounts due from related parties amounting to AED 22,604 thousand and AED 832,267 thousand respectively as at 31 December 2007 previously shown as separate components under current assets have now been included in the total balance of accounts receivable, prepayments and unbilled revenue within current assets. Statutory reserve, legal reserve and general reserve amounting to AED 299,520 thousand, AED 245,610 thousand and AED 750,000 thousand respectively as at 31 December 2007 previously shown as separate components within equity have now been combined under other reserves under equity. Advances from related parties and loan from a related party amounting to AED 21,691 thousand and AED 27,153 thousand respectively as at 31 December 2007 previously shown as separate components within non-current liabilities have now been combined under advances and loan from related parties within non-current liabilities. Trade and other payables and accruals and other liabilities amounting to AED 629,208 thousand and AED 2,962,284 thousand respectively previously shown as separate components within current liabilities have now been combined under trade and other payables and accruals within current liabilities. Negative fair value of derivatives amounting to AED 1,357 million as at 31 December 2007 previously included under accruals and other liabilities have now been split into current portion of AED 331 million and non-current portion of AED 1,026 million, with the current portion included under trade and other payables and accruals and the non-current portion included under other liabilities. Lease rental received amounting to AED 65,159 thousand for the period ended 30 September 2007 previously included under investing activities in the cash flow statement has now been reclassified under operating activities. Income tax payable amounting to AED 76,216 thousand at 31 December 2007 previously shown under trade and other payables and accruals have now been shown as a separate line item within current liabilities. Supplemental fuel income amounting to AED 182,583 thousand for the period 30 June 2007 previously included under revenue from electricity and water in the income statement has now been reclassified under supplemental fuel income. Processing fees income amounting to AED 15,890 thousand for the period 31 March 2008 previously included as a deduction from other operating expense in the income statement has now been reclassified under other operating revenue. Processing and tariff income amounting to AED 10 million for the period 31 March 2008 previously included under other income in the income statement has now been reclassified under other operating revenue. A credit adjustment to AED 49,967 thousand previously shown under other operating expenses as at 30 June 2008 has now been reclassified under administrative and other expenses. 18