Meritocracy Accountability Transparency. Abu Dhabi National Energy Company PJSC (TAQA) Annual Report 2008

Transcription

1 Meritocracy Accountability Transparency Abu Dhabi National Energy Company PJSC (TAQA) Annual Report

2 Contents Highlights 2 Business Overview and Strategy 4 Chairman s Statement 6 Board of Directors 8 Letter from the CEO 10 Executive Management 14 Operational Footprint 16 Management Discussion and Analysis 19 Operational Review 19 Financial Review 29 Health, Safety, Security and Environment (HSSE) Program 34 TAQA in the Community 36 Corporate Governance 39 Shareholder and Bondholder Information 40 Consolidated Financial Statements Board Report 42 Independent Auditors Report 43 Consolidated Income Statement 44 Consolidated Balance Sheet 45 Consolidated Statement of Changes in Equity 46 Consolidated Cash Flow Statement 48 Notes to the Consolidated Financial Statements 49 Glossary of Terms 107 Cert no. SW-COC It is important to us that all corporate publications are produced in an environmentally responsible manner. This Annual Report was printed in the United Arab Emirates using organic inks and water based varnishes and sealants. The paper is Neenah Classic Crest 352, 148 and 118 gsm. This paper is FSC certified (sourced from well-managed forests and Chlorine free) and Green Seal certified (contains a minimum of 30% post consumer fiber). When you have finished with this item, please dispose of it in your recycled paper waste. Designed and produced by Origin Communications Group

3 was characterized by the ongoing integration of our businesses across the group, whilst clear leadership from TAQA s management has ensured that we have been able to deliver a strong performance despite unpredictable market conditions

4 2 Highlights Optimal performance our common goal 86.4bn 1.8bn bn 68.9bn 1.0bn bn Assets AED Net profit AED Earnings per share fils Group revenue AED +25% +76% +44% +102% 9Countries Geographical reach Upstream Proven and probable reserves: 621 mmboe Total average daily oil & gas production: 114,100 boe/d 86.4bn AED Assets Midstream Current gas storage capacity: 700 million Nm3 Planned gas storage capacity: 4,600 million Nm3 Planned CO2 storage capacity: Up to 61 mt capacity Oil terminal throughput capacity: 1.4 million bbls/d Gas terminal throughput capacity: 1,890 mscf/d Downstream Total power generation capacity: 10,609 MW Total power production: 47,705 GWh Total daily water desalination capacity: 654 MIGD Total water desalination: 191,151 MIG 2,734 Total number of employees Full time employees: 1,413 Independent contractors: 352 Employees of independent O&M contractors of subsidiaries: Recordable injury rate per 200,000 hours worked Safety record 3.1bn AED Total capex

5 3 was a year where TAQA built on the progress we made in, which transformed our business into a global integrated energy company. The year was characterized by two key achievements: our ability to deliver financial growth in the context of market volatility, and the execution of transactions that will be value accretive to our group. The year started with our completion of the Cdn$5 billion acquisition of PrimeWest Energy Trust. This positioned TAQA as one of Canada s top 10 energy companies in terms of net proven natural gas reserves, and in the top 12 in terms of oil and gas production. This set the tone for the remainder of, which saw TAQA establish itself in new markets and in new partnerships. In January, TAQA became a major operator in North America with the completion of the Cdn$5 billion acquisition of PrimeWest Energy Trust. TAQA agreed to a US$3.1 billion, one-year credit facility to partially finance this acquisition. The one-year facility was successfully refinanced in August. At our AGM in April we declared a dividend of AED 415 million for our shareholders. In June, TAQA announced the issuance of AED 4.15 billion of convertible bonds, which converted into billion common shares on 1 September. This financing helped ensure that TAQA is well financed to continue to fund its operations and growth plans. In the third quarter, TAQA Bratani signed an agreement with Shell U.K. Limited and Esso Exploration and Production (UK) Limited to purchase six offshore fields in the UK North Sea. The US$631 million acquisition closed on 2 December, and was followed by a significant expansion in personnel in the UK that established TAQA Bratani as a major operator in the North Sea. At the end of July, TAQA completed a bond offering in the US market totaling US$1.5 billion in five- and ten-year notes. In September, we completed the sale of a 20% interest in Shuweihat CMS International Power Company (SCIPCO), a power generation and water desalination facility near Jabal Dhana, Abu Dhabi; and a 50% interest in Shuweihat O&M Limited Partnership, the company responsible for the management, operation and maintenance of the plant, to Sumitomo Corporation. TAQA retains a 54% interest in SCIPCO and will work closely with Sumitomo to deliver a core part of TAQA s business in the future. We continued to seek out opportunities that would develop our offering in established regions and markets. Using our experience and expertise to take advantage of our strong financial position, December saw the creation of TAQA GEN-X, a joint venture with RBS Sempra Commodities which focuses on investments in the downstream energy business in North America. Simultaneously, TAQA GEN-X announced its first investment in a tolling agreement for the Red Oak power plant, an 764 MW combined cycle gas turbine plant located in Sayreville, New Jersey, USA. ended with TAQA, and the Bergermeer project consortium, signing a Memorandum of Understanding with Gazprom Export, in respect of the cushion gas required for the Bergermeer gas storage facility. The facility will enhance the security of energy supply to Dutch and European consumers, and will contribute significantly to the liquidity of the North-West European gas markets.

6 4 Business Overview and Strategy Diversification the bedrock of our future Our strategic goal is to build and operate a geographically diverse global portfolio of energy businesses across the value chain. Downstream Operations TAQA Generation is the company s downstream power generation and water desalination business, with operations in Abu Dhabi, Ghana, India, Morocco, Saudi Arabia, and North America. TAQA Generation TAQA Generation provides over 98% of the water and electricity requirements of the Emirate of Abu Dhabi through domestic generation subsidiaries situated in various locations in the Emirate of Abu Dhabi and the Emirate of Fujairah. Each domestic subsidiary is majority owned by us and operated, under long-term off-take agreements with Abu Dhabi Water and Electricity Company (ADWEC), by one or more leading international utilities, oil and gas companies and project developers. As at 31 December, we had combined installed power capacity of 10,609 MW, of which 8,533 MW were from our domestic subsidiaries and 2,076 MW were from our international subsidiaries. Total power generation for the year was 47,705 GWh, of which 33,050 GWh were from our domestic subsidiaries and 14,654 GWh were from our international subsidiaries. For the same period we had 654 MIGD of desalinated water capacity, and total water desalination for the year was 191,151 MIG. Upstream and Midstream Operations Our oil and gas operations continued to grow throughout, as we closed the acquisition of PrimeWest in January and announced and completed the acquisition of North Sea upstream assets by the end of the year. TAQA NORTH Following the completion of the PrimeWest acquisition in January, our North American operations, known as TAQA NORTH, now give us a top-12 market position in Canada with significant proven and probable oil and gas reserves and production capacity, as well as expertise in coalbed methane (CBM) exploration and production. For, TAQA NORTH had an average production of 93,735 boe/d, consisting of 21,801 bbl/d of oil, 10,597 bbl/d of natural gas liquids, and 368 mmcf/d of gas. As at 31 December, TAQA NORTH had proven plus probable reserves of approximately 454 mmboe, consisting of 135 mmbbls of oil, 40 mmbbls of natural gas liquids and 1.7 bcf of gas. TAQA Europa TAQA Europa includes the European upstream businesses of TAQA. With operations concentrated in The Netherlands and the northern North Sea, TAQA Europa employs approximately 400 people. TAQA Europa is the holding company of TAQA Energy, which includes upstream assets in The Netherlands, and TAQA Bratani, which includes upstream assets in the northern North Sea. Following several acquisitions over the past few years, we now have a substantial presence in Europe. Notably, following the completion of the acquisition of assets from Shell and Esso, we now have a 100% interest and operatorship of the Tern, Kestrel, Eider, Cormorant North, South Cormorant and Pelican Fields, and a combined 26.73% interest in the Dana operated Hudson field, together with a 16% interest in the Brent System and a 24% interest in the Sullom Voe Terminal. This provides us a significant uplift in our European footprint, reserves and daily production.

7 5 We also have an operating interest in the Bergen Licence, an area on the western coast of The Netherlands, which comprises four producing fields. As at 31 December, our combined European upstream operations comprised approximately 167 mmboe of proven plus probable reserves consisting of 141 mmbbl of oil, 1 mmbbl of natural gas liquids, and 145 mmcf of natural gas. TAQA Midstream Our midstream portfolio primarily consists of peak gas activity and gas storage. This portfolio consists of two natural gas storage projects: the Alkmaar Piek Gas Installatie (PGI) is the first peak gas shaver in The Netherlands. Commissioned in 1997, it has a current storage capacity of 500 million Nm3, as well as a significant expansion potential of 500 million Nm3. The second asset is Bergermeer, which is a high permeability, well-defined offshore reservoir in the Bergen Licence. Bergermeer has a 4,100 million Nm3 future storage working volume. In December, we announced the signing of a Memorandum of Understanding with Gazprom to convert Bergermeer into Europe s largest new gas storage project. The new gas storage facility will enhance the security of energy supply to Dutch and European consumers, and will contribute significantly to the liquidity of North-West European gas markets. The project is an essential step in the Dutch Government s ambition to realize the North-West European Gas Roundabout in The Netherlands. In Canada, our East Cantuar storage facility in Saskatchewan, which is jointly owned with Husky Oil, provides a current storage working volume of 200 million Nm3. In addition, we are effectively managing our long-term position of 75 mmcf/d on the Alliance pipeline system until 2015, which we optimize daily by flowing our own produced gas from Western Canada to Chicago, United States. As part of the acquisition from Shell U.K. Limited and Esso Exploration and Production (UK) Limited in the northern North Sea, we acquired two non-operated subsea tie-backs, the Sullom Voe Oil Terminal and SAGE Terminal, both located in Scotland, UK. Sullom Voe is a 1,000 acre site containing: 16 storage tanks with 9 million barrels of total capacity; three oil pipelines Brent System, Ninian and Clair; two gas pipelines WOS gas system and Magnus EOR pipeline; and four jetties. The site has a throughput design capacity of 1.4 mmbbls/d. SAGE Terminal, with a throughput design capacity of 1,890 mscf/d, is currently capable of handling 20% of the UK s demand. Our focus is to continue developing TAQA s existing midstream operations, while selectively targeting acquisitions in markets where additional storage and transmission capabilities will enhance our significant upstream presence.

8 6 Chairman s Statement Making TAQA s vision a reality I am pleased to present TAQA s annual report on our activities, together with the audited financial statements for the year ended 31 December. was a year shaped by significant global economic challenges, and whilst the energy sector has not escaped this downturn, TAQA remains well positioned and has succeeded in delivering against our strategic objectives. The acquisitions made in and early have seen TAQA transform into a diversified global energy provider and put in place a strong and sustainable business model for the future. TAQA s presence in North America and Europe has increased with the acquisition of the upstream assets in Canada and the North Sea. These acquisitions have helped to build a robust upstream portfolio and act as a natural balance to our less volatile midstream and downstream activities. The structure of our business acted as a natural hedge in when our diversified assets and global spread were able to respond to fluctuations in the energy market. The first half of the year saw record energy prices contribute to the group s strong performance from our upstream businesses, whilst in the second half of the year our mid- and downstream businesses helped to smooth the effect of sharp falls in the oil price. TAQA s year was characterized by the ongoing integration of our businesses across the group, whilst clear leadership from TAQA s management has ensured that we have been able to deliver a strong performance despite unpredictable market conditions. In a pragmatic and prudent manner, we undertook a series of financing initiatives which were completed prior to the extreme economic volatility witnessed in the second half of. This has ensured that TAQA will be well positioned in 2009 to continue to deliver its global business strategy. Moreover, TAQA s strong financial position will allow us to take advantage of future opportunities for growth, although we remain committed to acquiring only the very best assets which deliver our long-term business objectives. As a result of our strong performance over the course of, we were able to deliver shareholder value through regular dividends. I remain convinced that excellence in health and safety is a statement of the Group s approach to its global operations. TAQA has demonstrated a world-class health and safety record, and our efforts to ensure we operate to the highest standards across all assets continue to receive independent recognition and will remain a core focus in Furthermore, as a global energy business TAQA understands the potential impact that its operations have on the environment. We continue to ensure that our work is undertaken to the highest standards in order to minimize our environmental footprint. Going forward, TAQA will operate to the standards that people have come to expect from the group, and which have been further reinforced as our operations develop in new and existing sectors and regions. We recognize that as TAQA s operational footprint increases, so too does our environmental impact; as such we will continue to communicate the work we do to mitigate this impact. Recent economic volatility, and the implications for corporations across all sectors and regions, has demonstrated the importance of strong and transparent corporate governance. Since our inception we have worked to ensure that we have in place a robust management, legal and regulatory infrastructure delivering confidence in our decisionmaking and communication processes.

9 7 TAQA s strong financial position will allow us to take advantage of future opportunities for growth, although we remain committed to acquiring only the very best assets which deliver our long-term business objectives. TAQA is now a global business, which has been shaped by a management team who have worked tirelessly to build a successful global energy business and help realize and grow our ambitions. Under the management of our Chief Executive Officer, Peter S Al-Din E Barker-Homek, TAQA has successfully broadened the group s horizons, without forgetting the core business values that it was built upon. TAQA has in place an excellent management team who have all played a significant role in establishing TAQA as a diversified and integrated global energy business that is well positioned in Finally, on behalf of the Board and myself, I would like to express our gratitude and appreciation to His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the United Arab Emirates, Supreme Commander of the UAE Armed Forces and Ruler of Abu Dhabi, His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, Deputy Supreme Commander of the UAE Armed Forces and Chairman of the Abu Dhabi Executive Council, and His Highness Sheikh Diab Bin Zayed Al Nahyan, Chairman of the Abu Dhabi Water and Electricity Authority, for their continuing and outstanding support. Hamad Al Hurr Al Suwaidi Chairman

10 8 Board of Directors His Excellency Hamad Al Hurr Al Suwaidi has served as Chairman of the Board since He has been a member of the Executive Council of the Emirate of Abu Dhabi since 2004, where he serves as Undersecretary of the Department of Finance. His Excellency s strategic vision and foresight have played an effective role in involving the private sector within the Emirate s economic growth and activating public-private partnership. This was achieved through his involvement in the board of several high-profile companies including The Supreme Petroleum Council, Abu Dhabi Investment Authority, Mubadala, Etisalat, the Securities and Commodities Authority, the Abu Dhabi Food Control Authority, the Abu Dhabi Water and Electricity Authority, and the International Petroleum Investments Company. His Excellency is the Chairman of the financial support fund for farm owners in the Emirate of Abu Dhabi. He holds a Masters degree in Business Administration. His Excellency Ahmed Saif Al-Darmaki has served as Vice-Chairman of the Board since His Excellency is the Chairman of ADWEC, Director of Planning and Development Directorate of ADWEA, Office Manager of the Chairman of ADWEA, and Board Member in MASDAR. He holds a masters degree in business administration. His Excellency Abdullah Saif Al Nuaimi has served as a Director of the Board since His Excellency serves on the Privatization Directorate of ADWEA, is Chairman of Taweelah Asia Power Company and Gulf Power Company, is Vice Chairman of Gulf Total Tractebel Power Company, and holds Directorships in Emirates Power Company, Abu Dhabi Water and Electricity Company, and Abu Dhabi Sewerage Services Company. He has previously held the positions of Deputy Chairman of AL Ain Distribution Company and Chairman of Al Wathbah Central Services Company.

11 9 His Excellency Salem Saleh Al Sayari has served as a Director of the Board since His Excellency is also the Executive Director of Business Support Services in Abu Dhabi Education Council. He held the positions of the Deputy Managing Director and Finance Manager of Abu Dhabi Distribution Company. He also held the position of the Group Finance Manager and Acting Human Resource Manager of Abu Dhabi Water and Electricity Authority (ADWEA). He is also actively involved as board member of several high-profile companies including tawteen, Al Ain Distribution Company, Arabian Power Company and United Arabian Power Company. He is a certified Public Accountant (CPA) and holds a Master in Innovation and Entrepreneurship. His Excellency Mohamed AR Foulad has served as a Director of the Board since His Excellency was previously Chairman and Managing Director of Al Taweelah Power Company and is currently Chairman of Mirfa Power Company. He holds a M.Sc. in Mechanical Engineering.

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13 11 Letter from the CEO Achieving tomorrow s ambition today TAQA is a dynamic organization that has developed an impressive global footprint in a relatively short period of time. TAQA s strategy is underpinned by strategic acquisitions in Europe, North America, North Africa, the Middle East, and Asia, which enable the company to utilize its expertise as a bestin-class developer and operator of upstream, midstream, and downstream assets. Dear Stakeholders, was a year that no one could have predicted. However, despite the turbulence in global markets, TAQA s performance has remained resilient due to the diversity of our business model. Consequently, we have been able to focus our attention firmly on optimizing the high-quality assets acquired in and. A Focus on Integration and Optimization While our year in was defined by unprecedented acquisition activity, our focus in was on the integration and consolidation of these assets. The merging of diverse corporate cultures and systems while meeting our regulatory disclosure obligations is a significant achievement. I am extremely proud of the excellent teamwork that has ensured we delivered our corporate objectives and created synergies across the whole business. In, we made real strides towards our objective of achieving a balance of assets across North America, Europe, and the Middle East, when we completed a significant asset acquisition in the North Sea, acquiring fields and infrastructure from Shell and Esso. We are now the UK s 15th largest producer. That we were able to undertake this acquisition without any delays or disruption to production speaks volumes about the high-quality team that we have assembled. A crucial part of our integration process has been to reinforce a common organizational culture. At TAQA we ensure that all our employees are given the opportunity to excel and progress their careers through a wide range of training and career development programs. This commitment to our employees was officially recognized when our Canadian subsidiary, TAQA NORTH, was selected as one of Alberta s Top 40 Employers. The award recognizes the best-performing companies in the region based on eight criteria, including training and skills development, employee communications, and work atmosphere. As a global energy company we endeavor to set the benchmark in everything we do, and workplace health and safety is a critical component of our ongoing success. One of the areas we are most proud of is our Health, Safety, Security and Environment (HSSE) record. TAQA strives to embed the values of HSSE at every level and the success of our operations stems from a relentless focus on these values. We had no material HSSE incidents during the year and I believe that this is testament to the fact that we are all focused on meeting the highest standards of health and safety. Our ongoing commitment and investment into workplace health and safety best practices has been recognized by the industry, and in TAQA NORTH was awarded the prestigious Work Safe Alberta Best Safety Performer Award for exceptional performance in workplace health and safety. UAE 42.5% Americas 33.6% Europe 14.6% Africa 7.8% Other 1.5% Global assets by region

14 12 Letter from the CEO continued was testament to the benefits of our company s diversity across markets and the energy value chain. The benefit of the portfolio we are constructing is that 52% of it, the downstream portion, tends to be insulated from macro events, giving a stable foundation for the more volatile upstream segment.

15 13 Furthermore, our continued commitment to corporate responsibility, transparency and openness was rewarded when TAQA was named one of the world s Top 250 Global Energy Companies, in the Platts Global Energy rankings. We were one of only two companies from the Gulf region to be listed in this prestigious survey. We are very proud of this accolade and we will continue to strive for greater transparency and disclosure. Our Community Relationships We continue to have a beneficial relationship with the communities in which we operate. Earlier last year, we underlined our commitment to adopting the highest standards of corporate social responsibility by joining the United Nations Global Compact ( Compact ), the world s largest voluntary corporate responsibility initiative. The Compact is an initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies and procedures, focused on addressing human rights issues, environmental concerns, and corporate corruption. With nearly 2,800 employees and a presence in nine countries worldwide, TAQA aspires to uphold the highest standards of ethical and sustainable practices. Testament to TAQA s Diverse Portfolio was testament to the benefits of our company s diversity across markets and the energy value chain. The benefit of the portfolio we are constructing is that 52% of it, the downstream portion, tends to be insulated from macro events, giving a stable foundation for the more volatile upstream segment, which performed very strongly in the first half of, but which was severely impacted by the decline in the oil price from $147 in July to approximately $40 at the end of the year. Despite the challenges of the year, our team has pulled together and placed the company in a strong position going into Looking Ahead In the context of the current turbulent market, TAQA is looking closely at our cost structure and our capital programs. Consequently, we are taking a very conservative view on the pricing environment for oil and gas products and are only investing in those projects that are commercially sustainable. TAQA s strength, due to the diversity of our business model and the talent and professionalism of our employees, makes us an exciting and dynamic company. I am incredibly proud of what we have built in such a short time, and our focus is to continue optimizing the assets we have acquired while looking for new opportunities that offer value within our target markets. I would like to take this opportunity to thank all of our employees who have shown such dedication and enthusiasm to uniting our subsidiaries and creating the TAQA way. It is not an easy task, but when you see the synergies develop across the business, it is incredibly rewarding so thank you. Finally, for their continued support in helping TAQA to realize its potential, I would like to extend my gratitude to the Board and the Government of Abu Dhabi. Yours sincerely, Peter S Al-Din E Barker-Homek Chief Executive Officer

16 14 Executive Management Peter S Al-Din E Barker-Homek Chief Executive Officer His professional background includes Senior Adviser in M&A at BP plc, Director of Worldwide Downstream Gas Distribution Development at BG International, and Vice-President of Development for Eastern Europe and Latin America at Pacific Enterprises. He has worked at the US State Department and was an institutional sales consultant within the Capital Markets Group at Merrill Lynch. Peter is a US national and holds an MBA from the University of Southern California. 04 Abdulla Khunji Chief of Staff Group Vice President, Public Relations and Corporate Communications He previously worked at the Environment Agency of Abu Dhabi, where his most recent position was Head of Public Relations, Marketing & Communication. Prior to this role he was a senior member of the System Support team at the Environment Agency. Abdulla Khunji holds a Master s degree in Innovation & Entrepreneurship HCT/CERT (Harvard, Stanford, MIT), UAE, and a Bachelor of Business & Public Administration, Management Information Systems from Eastern Washington University, USA. He is a UAE national. 02 Doug Fraser Chief Financial Officer He has previously held senior financial positions as Assistant Controller with Imperial Oil Ltd, Treasurer at Petro-Canada, Vice President and Chief Financial Officer at Husky Energy, and most recently as Vice President Finance and Chief Financial Officer at PrimeWest Energy. Doug Fraser is a Canadian national and is a Chartered Accountant. 05 Frédéric Lesage Managing Director, Canada Frédéric joined TAQA as Group Vice- President, Integration & Optimization, and moved to Abu Dhabi. After working closely with the management teams of Northrock, Pioneer, and PrimeWest on the integration of these organizations into TAQA NORTH, Frédéric was offered the Managing Director s role. Prior to joining TAQA, he worked as a senior consultant for McKinsey & Co. and practiced law for eight years at a leading Canadian law firm, specializing in Labour & Employment litigation. He holds a law degree from Université de Montréal and a Master of Business Administration (with distinction) from the Ivey School of Business at the University of Western Ontario. Frédéric Lesage is a Canadian national. 03 Carl Sheldon General Counsel and Deputy General Manager He was previously a partner at Allen & Overy LLP where over his career he practiced in the energy sector, as well as running the firm s German and US operations. He is a dual qualified lawyer admitted to practice in New York and in England. Carl is a US national and holds an MA from Cambridge University. 06 Paul van Gelder Managing Director, TAQA Energy and TAQA Bratani Mr van Gelder also serves as vice-chairman of The Netherlands Oil and Gas Exploration and Production Association (NOGEPA). In his position as managing director, Mr van Gelder oversees TAQA s European operations. Before this appointment, he led the development of Europe s largest gas storage facility, Bergermeer Gas Storage, as project director within TAQA in The Netherlands. He joined TAQA from BP Nederland Energie. Prior to BP, he held the position of Director Logistics at Driessen Aerospace Systems in The Netherlands and Czech Republic following a career in the Royal Netherlands Air Force and Royal Netherlands Navy where he served as commanding officer. Paul van Gelder is a graduate from the Royal Netherlands Naval Academy and has a Master s degree from the Eindhoven University of Technology. He is a Dutch national.

17 Ryan Wong Group Vice President of Treasury He has over 25 years of extensive oil and gas industry experience, including previous senior financial positions as Manager of Corporate Planning with Anderson Exploration Ltd. and Devon Canada. Most recently, he was the Treasurer at PrimeWest Energy. Mr Wong graduated from the University of Calgary with a Bachelor of Commerce degree in 1978 and obtained a Master of Business Administration (MBA) degree in He is also a Certified Management Accountant (CMA). He is a Canadian national. 10 Osafo Adjei General Manager for Takoradi, Ghana He has previously served in several capacities, including Short-Term Communications Consultant to the World Bank, Community Relations Coordinator for the Volta River Authority (Ghana s Public Power Utility), and Corporate/Public Relations Manager for Takoradi. He holds a postgraduate degree in Communication Studies and completed an Executive Master of Business Administration at the University of Ghana. Osafo is a member of the Institute of Public Relations, Ghana, as well as the Ghana Journalists Association. He is a Ghanaian national. 08 Johanna Kornelius Head of Strategic Planning Prior to joining TAQA she worked at ConocoPhillips and BP in Europe and the US. Her roles were both in upstream and downstream in business development, strategy, and optimization. Johanna Kornelius has an MBA from Rotterdam School of Management. She is an Icelandic national. 11 Pablo H. Chavez Executive General Manager, TAQA New World He has over 38 years experience in the power plant industry of countries including Canada, Venezuela, USA, Panama, and Saudi Arabia. He has spent the last 20 years in Saudi Arabia for the Saudi Electricity Company (SEC) and the Power and Water Utility Company for Jubail and Yanbu (MARAFIQ). Pablo is a Registered Professional Engineer at the Association of Professional Engineers of the Province of British Columbia, Canada, and graduated from the National University of Engineering of Lima, Peru. He is a Canadian national. 09 Richard Mukhtar Head of Global Power He was previously employed by CMS Generation Co. as the Business Manager for Emirates CMS Power Company in Abu Dhabi, and at Dearborn Industrial Generation, Dearborn, Michigan, a subsidiary of CMS Energy Company. Prior to this he worked for MCN Investment Company, responsible for commercial analysis of various projects for acquisition/divesture recommendations. Richard Mukhtar has an MBA in Business Administration from Walsh College. He is a US national. 12 Ramanathan Balachandar Managing Director for Indian Assets and Development He is also the vice chairman of the Takoradi board. Prior to this he was head of two of the CMS generation assets. Ramanathan has been in the power industry for more than 28 years at various levels in development, construction, and operation of large thermal power plants. He has a Mechanical Engineering degree with a postgraduate diploma in management. He is an Indian national.

18 16 Operational Footprint United Kingdom The Netherlands Upstream Oil & gas exploration and production Proven and probable reserves: 156 mmboe Midstream Gas storage and transmission Upstream Oil & gas exploration and production Proven and probable reserves: 11 mmboe Midstream Gas storage and transmission Morocco Downstream Power plant Power generation capacity: 1,356 MW Gross power generation for : 9,841,666 MWh Saudi Arabia Ghana Downstream Cogeneration project Power generation capacity: 250 MW Gross power generation for : 2,036,362 MWh Downstream Power plant Power generation capacity: 220 MW Gross power generation for : 1,062,610 MWh Contribution to revenues 56% 4% 40% Upstream Exploration and production assets Midstream Storage and transmission assets Downstream Power generation and water desalination assets

19 17 Canada USA Upstream Oil & gas exploration and production Proven and probable reserves: 454 mmboe Downstream Joint venture with RBS/Sempra for tolling agreement Infrastructure investments Midstream Gas storage and transmission UAE India Downstream 6 power generation and water desalination facilities Power generation capacity: 8,533 MW Gross power generation for : 33,050 GWh Total desalination capacity: 654 MIGD Total water desalination output for : 191,151 MIG Downstream Power plant Power generation capacity: 250 MW Gross power generation for : 1,713,634 MWh

20 18 Drilling success rate of 99.7% for TAQA NORTH has been an exciting year for the expansion of the business, with TAQA NORTH delivering a Cdn$440 million capital program, by far the largest capital program any of our legacy companies had ever undertaken Upstream Canada, United Kingdom, The Netherlands AED 7.5 billion of revenues

21 19 Management Discussion and Analysis: Operational Review Integration and optimization Following a period of unprecedented acquisition activity in, which transformed TAQA from being an Abu Dhabi focused Independent Water and Power Plant (IWPP) investor, to being a global vertically-integrated energy company, focused on consolidating and integrating these assets. During the course of the year, TAQA made the largest ever asset acquisition in the North Sea, when we acquired fields and infrastructure from Shell and Esso. That we were able to grow so rapidly into being the UK s 15th largest producer, without any delays or disruption to production, is testimony to the highquality team that we have assembled. also saw significant progress on the Bergermeer Gas Storage facility, Europe s largest new seasonal gas storage project and a critical resource for European energy security, with us signing an agreement with Gazprom to become a potential supplier of cushion gas to the project and all engineering design and processes in place to start construction in The breadth of TAQA s business across the energy value chain and diverse markets means that our risk exposure is balanced. So, while in the first half of we benefited from the high oil price due to our upstream exposure, the strength of our midstream and downstream businesses helped to offset the sharp drop in oil prices in the second half of. Upstream Upstream and midstream activity generated revenues of AED 8 billion (comprising oil & gas and gas storage), 47% of total revenues and 46% of net profit. TAQA NORTH was a year of consolidation and integration for TAQA NORTH following the acquisition of Northrock in August, Pioneer in November, and PrimeWest in January. Whereas previously these had all been locally focused small and medium sized companies, they now had to be integrated into the global matrix reporting structure that TAQA utilizes. We also reviewed the procedures at each organization and rolled out the best in class across the company. For example, human resources processes at PrimeWest were the most sophisticated and structured with world-class policies, so we decided to adopt those company-wide. As at 31 December, TAQA NORTH had average production of 93,735 boe/d, consisting of 21,801 bbl/d of oil, 10,597 bbl/d of natural gas liquids, and 368 mmcf/d of gas. As at 31 December, TAQA NORTH had proven plus probable reserves of approximately 454 mmboe, consisting of 135 mmbbls of oil, 40 mmbbls of natural gas liquids, and 1.7 bcf of natural gas. An important step during the year was the creation of a customized Long Term Incentive Plan (LTIP) that had competitive characteristics to allow us to attract and retain the best staff in Calgary. The LTIP was implemented in July and has provided a structure which can inspire similar programs across TAQA. has also been an exciting year for the expansion of the business, with TAQA NORTH delivering a Cdn$440 million capital program, by far the largest capital program any of our legacy companies had ever undertaken. The drilling program helped TAQA NORTH produce 93,735 boe/d. This was despite the overheated nature of the Canadian oil and gas industry in the first ten months of the year, which made securing drilling rigs and contractors a challenge, against a backdrop of rising costs. TAQA NORTH drilled 320 gross wells (184 net) in, of which 195 are operated. In terms of reserve replacement, we have added 27.4 mmboe of reserves in, which replaced 80% of production. Our drilling program focused on seven areas of major activity. We have had particularly successful wells in Kaybob South, Caroline, Brant Farrow, and have also been active in Ferrier and Valhalla. In late, we started a major program on the Bakken zone in South East Saskatchewan, an oil-rich geological formation, and early results are promising. This program will continue in Another area of focus is our coal bed methane (CBM) program in Lone Pine Creek. Phase two of this program started late in, with the objective to drill over 80 wells by the end of the first quarter of This production is expected to come on stream in the first quarter of 2009.

22 20 Management Discussion and Analysis: Operational Review continued We have maintained or improved our health, safety and environment performance during the year along the key dimensions of recordable injuries, reportable spills and compliance, while implementing a vibrant HSSE culture in all of our acquired assets. This is a culture of reporting safety opportunities in a non-threatening, non-blame environment, which gives maximum transparency and the potential to improve on a daily basis. Our strategy in Canada is focused on growth, but our capital program remains flexible to respond to fluctuating commodity prices. We do see opportunities in upstream and synergies and opportunities in midstream, but we will proceed only if investments are economic. At least Cdn$2 billion of projects are already identified for the coming years and these will be reviewed carefully in the context of commodity price fluctuations and acquisition opportunities. We are constantly analyzing the market for potential acquisitions with the right fit with our portfolio and strategy. TAQA Europa TAQA Europa includes the European upstream and midstream businesses of TAQA. With operations concentrated in The Netherlands and the northern North Sea, TAQA Europa employs approximately 400 people. As at 31 December, our combined European upstream operations comprised approximately 167 mmboe of proven plus probable reserves consisting of 141 mmbbls of crude oil, 1.2 mmbbl of natural gas liquids, and 145 mmcf of natural gas. During, TAQA Europa underwent significant development, including the dramatic expansion of TAQA Bratani, which grew from eight to 275 employees following the acquisition of Shell and Esso assets in the northern North Sea. This has led to a clearer division of responsibilities within TAQA Europa, with oil exploration and production managed through TAQA Bratani in Aberdeen, Scotland, and gas exploration and production managed through TAQA Energy in The Netherlands. TAQA Europa sits above both and includes Treasury, IT and business development functions. TAQA Midstream remains a separate division that reports through the Upstream business division. TAQA Bratani and TAQA Energy already work very closely together, and in 2009 the focus will be on further integration of these two operations. From an IT perspective, the organization is completely integrated and there is growing co-operation between sourcing and human resources. We are also starting to share systems such as Maximo, the maintenance and engineering system, and certain typical subsurface E&P applications across both companies. TAQA Energy TAQA Energy was the first subsidiary that was acquired by TAQA. The assets include TAQA s upstream assets, which are predominantly gas producing, and the midstream assets in the northern part of The Netherlands. These assets used to be owned by BP, and the people who came with the acquisition have contributed significantly to the success of TAQA immediately from the first take-over. (boe/day) Q4 Q4 FY FY TAQA NORTH 37,400 93,800 36,656 93,735 TAQA Bratani - 19,100-13,678 TAQA Energy 7,100 6,000 5,836 6,686 (mmboe) TAQA NORTH TAQA Bratani TAQA Energy Total Average daily oil & gas production Q4 Q4 FY FY TAQA reserves TAQA North TAQA Bratani TAQA Energy Total

23 21 Our strategy in Canada is focused on growth, but our capital program remains flexible to respond to fluctuating commodity prices. We do see opportunities in upstream and synergies and opportunities in midstream, but we will proceed only if investments are economic. In, we were looking at maximizing production to offset a decline in offshore production. This was partly achieved by the improved performance of the Groet-oost well, which had a strong performance, combined with better onshore production. In addition, we placed a work over unit on the offshore assets of the P15 platform and were able to increase production substantially from one of the main producing wells. By working over other gas producing wells, like P15 Golf, we will further improve production in The Dutch assets have a strong track record in HSSE. In TAQA was able to continue this record and operations were managed with a very strong safety performance. During the year, we cooperated with Nederlandse Aardolie Maatschappij BV (NAM) on a farm-in in the Middelie area, which recorded a better than expected result. We also drilled a well in the Q14 block with Cirrus Energy; however, while we had gas shows we were unable to flow the well, and are now drilling with them in the L8 block. The Peak Gas Installation (PGI), an underground gas storage facility, was operated in by TAQA Energy on behalf of TAQA Midstream. Great efficiencies were achieved by the combination of upstream and midstream assets operated by one team. In preparation for the Bergermeer Gas Storage project, gas was re-produced from the Bergermeer Field to test the reservoir. The gas had been injected in and, under better price conditions, produced back in the winter months of. Although small in volume, this test clearly demonstrated the reservoir qualities of the field and the feasibility of gas storage. The Netherlands, both North Sea and onshore, still represents a very attractive area for TAQA. In the coming years we will continue to evaluate exploration opportunities given the low costs, shallow water, and easily accessible local infrastructure. We strive for operational excellence and with operator costs below US$10/boe we are known as one of the most efficient North Sea operators. TAQA Bratani TAQA Bratani includes TAQA s upstream oil assets in the northern North Sea as well as a number of associated midstream assets. was a transformational year for TAQA Bratani, which started the year with a team of eight people managing the production of 12,000 boe/d from the non-operated assets in the Brae field acquired from Talisman Energy. By the end of the year, we were the 15th largest oil producer in the UK both in terms of reserves and production, following the acquisition of a 100% interest and operatorship of the Tern, Kestrel, Eider, Cormorant North, South Cormorant, and Pelican Fields, and a combined 26.73% interest in the Dana operated Hudson field, together with a 16% interest in the Brent System and a 24% interest in the Sullom Voe Terminal. As at 31 December, we had grown to more than 200 employees and production of over 40,000 boe/d. We are very proud that we were able to complete the largest ever asset acquisition in the North Sea, with no HSSE incidents and the maintenance of production. Despite the decline in global oil prices during the course of the year, our three year, 500 million investment program, is continuing as part of the wider Shape the Future program focused on doubling production, through a combination of organic growth and acquisition. This program seeks to optimize the efficiency of the platforms, improving water injection and production rates through tubing rotational drilling, and by applying other new and innovative techniques. We have decided to invest counter-cyclically because service rates and costs are currently going down, so we feel this is a good time to improve our reserves and production rates. As a company, we remain focused on operational excellence to keep these assets in the best possible condition and, given lower commodity prices, we are adopting a smart spending policy to get the best contracts with suppliers. As these are mature platforms, we have initially been investing in the living quarters and are now looking to improve the general reliability and uptime of the platforms. Our programs have already had an impact, increasing uptime from around 70% when we took them over to over 84%.

24 22 Management Discussion and Analysis: Operational Review continued In terms of growth projects, we are working with Wood Group and Synergy to acquire more seismic data to see if there is further potential in the deeper reservoirs of the Triassic play. We are shooting 820 square kilometers of 3-D seismic over all of our northern North Sea assets, to get a better definition of the subsurface and help ensure that we position our drilling targets in the best possible position. Given our installed infrastructure base, we are looking to attract more third party business. We already have third party business from Otter, a Total operated platform, which is tied back to our Eider platform; and Hudson, which is tied back to our Tern platform. There are several other smaller fields that we are hoping to tie back to our infrastructure in the future. TAQA will also take over operations of the Brent system later in While Wood Group is currently our duty holder, by the end of 2009 we want to not only be a capable and able operator, but also be duty holder. Midstream TAQA Midstream is a main shareholder and the operator of the Alkmaar Piek Gas Installatie (PGI Alkmaar) peak shaver gas storage facility, as well as the Bergermeer gas storage project in The Netherlands. Additionally, TAQA owns 50% of the Canadian East Cantuar gas storage facility as well as a large pipeline capacity position in the Alliance pipeline in Canada and the United States. While this year has focused on consolidating, optimizing and fully integrating our assets in The Netherlands, Canada and the United States, we continue to pursue acquisition and organic growth opportunities in the midstream sector to add diversified midstream revenues to further balance our portfolio. While TAQA uses most of its embedded midstream infrastructure to take its own upstream products to market, we are increasingly seeking to make the most of any idle capacity and tie in other third-party production to use our infrastructure on a fee basis. Not only will this growing third-party service business allow us to optimize utilization of our existing embedded midstream assets such as pipelines, terminals, and oil and gas processing plants, but it also allows us to extend the useful life of our assets for many decades to come. A key focus of 2009 will therefore be to better utilize and monetize our embedded UK midstream positions such as the Brent System pipeline, as well as the Sullom Voe and SAGE terminal assets. This will provide additional midstream revenues which are not directly commodity-price driven, and therefore diversify our revenues even further. In The Netherlands, we have operated and optimized our existing storage facility at PGI Alkmaar (PGI), where we recorded 100% operational efficiency in. Commissioned in 1997, this facility has a current storage capacity of 500 million Nm3, as well as a significant expansion potential to double this capacity in the future with further investments. With its very fast gas production rate, PGI Alkmaar is already a key contributor to ensuring reliable supply and flow of gas to Northwest European consumer markets, and in fact the facility has performed a key function to ensure sufficient European gas flows during the most recent temporary European gas supply shortage in January The biggest development has been with our Bergermeer gas storage project, which will strategically contribute to the security of energy supply to Dutch and European consumers, as well as significantly increase the liquidity of the North-West European gas markets. We are currently finalizing all technical design, permitting and planning processes to start converting the existing depleted Bergermeer gas reservoir into Europe s largest new seasonal gas storage facility in 2009, with a first phase storage working volume of 4,100 million Nm3 and further expansion possibilities in the future. In December, TAQA, for and on behalf of the Bergermeer project consortium (consisting of Energie Beheer Nederland (EBN), Dyas B.V. and Petro-Canada) signed a Memorandum of Understanding with Gazprom Export, a subsidiary of the world s largest gas company JSC Gazprom, to become a potential cushion gas supplier and partner in this strategic project. A final investment decision is expected to be reached in While limited pre-cycling storage capacities might become available in two to three years, the facility is expected to commence full commercial storage operations in early 2013.

25 23 Midstream Canada, United Kingdom, The Netherlands AED 0.5 billion of revenues PGI Alkmaar recorded 100% operational efficiency in While this year has focused on consolidating, optimizing and fully integrating our assets in The Netherlands, Canada and the United States, we continue to pursue acquisition and organic growth opportunities in the midstream sector to add diversified midstream revenues to further balance our portfolio

26 24 Management Discussion and Analysis: Operational Review continued In Canada and the United States, we have generated significant efficiency and optimization improvements in our two midstream assets and positions: the 50% stake in the East Cantuar Gas Storage facility in Saskatchewan, Canada, and our 75 mmcf/d long-term capacity stake in the Alliance pipeline between Canada and the United States. The East Cantuar storage facility provides a current working volume of 200 million Nm3, which is constantly optimized together with our partner Husky Oil. We are jointly looking at implementing a strategy to increase revenues from this facility through better optimization and marketing around the asset in At the same time, our stake in the Alliance Pipeline was increasingly used to take our own equity gas from Canada to the higher priced markets in the Chicago area, while at the same time we continuously optimized the pipeline position and bought, transported, and sold gas from third parties to profit from arbitrage opportunities. Both assets have benefited from their tight integration into TAQA NORTH which allows us to optimize and reallocate resources and skills between our upstream and midstream operations in the area. In 2009, TAQA will continue to optimize its existing midstream assets, while growing its midstream business with the addition of two new business sectors: Liquefied Natural Gas (LNG) and Carbon Capture and Storage (CCS). We continue to evaluate an investment in potential LNG liquefaction and export options in Western Canada, which will allow us to open up a new pricing market for Canadian natural gas and position TAQA at the forefront of a new era of North American gas exportation to the Asian Pacific market. At the same time, TAQA is pursuing attractive possibilities in the complete LNG value chain which will transform TAQA into a leading LNG player on a global scale. Secondly, our Dutch reservoir assets primarily located near the Rotterdam area are ideally placed close to large CO2 producing industrial areas and therefore optimal for long-term carbon storage, and we aim to expand our midstream business in 2009 to convert our reservoirs to CO2 storage with a maximum total storage capacity of up to 61 mtons and annual injection capacity of 2 to 5 mtons. In we joined the Rotterdam Climate Initiative (RCI) supported by the Clinton Foundation as well as other industry initiatives, and have already invested heavily to become a key player in the fight to reduce CO2 emissions globally by providing long-term storage capabilities to the market. Overall TAQA has invested heavily in to integrate and focus on growing our existing midstream businesses, while we continue to look for new midstream revenue opportunities in 2009 to further grow the overall share of diversified and stable midstream income cash flows in the TAQA portfolio. Downstream Downstream activities generated revenues of AED 5.5 billion in, excluding supplemental fuel, comprising 33% of total revenues in, and 54% of net profit. TAQA Generation TAQA Generation is the downstream power and water producing business of TAQA, with operations in Abu Dhabi, Ghana, India, Morocco, Saudi Arabia, and the United States of America. TAQA Generation has provided stable earnings and cash flow during a period of high volatility in the wider energy market.

27 25 The biggest development has been with our Bergermeer gas storage project, which will strategically contribute to the security of energy supply to Dutch and European consumers, as well as significantly increase the liquidity of the North-West European gas markets. As at 31 December, we had combined installed power capacity of 10,609 MW, of which 8,533 MW were from our domestic subsidiaries and 2,076 MW were from our international subsidiaries. Total power generation for the year was 47,705 GWh, of which 33,050 GWh were from our domestic subsidiaries and 14,654 GWh were from our international subsidiaries. For the same period we had 654 MIGD of desalinated water capacity and total water desalination for the year was 191,151 MIG. Having assumed 100% control of the Jorf Lasfar Electricity Company (JLEC) plant in Morocco and the Neyveli plant in India in, our focus over the last year was to optimize the businesses, as well as arrange the refinancing of JLEC. This refinancing means that we are in a position that would allow us to expand the plant by adding two additional power-generating units, as demand growth in Morocco is continuing to increase and further baseload capacity needs to be added quickly. As part of our portfolio optimization, in September we sold a 20% interest in Shuweihat CMS International Power Company and a 50% interest in Shuweihat O&M Limited Partnership to Sumitomo Corporation. We retain a 54% stake in this plant. In December, we announced the creation of TAQA GEN-X, a joint venture together with RBS Sempra Commodities, focused on investments in the downstream energy business in North America. Simultaneously, we announced TAQA GEN-X s first investment in a tolling agreement for the Red Oak power plant located in Sayreville, New Jersey. Red Oak is an 674 MW combined cycle gas turbine power plant. TAQA GEN-X is a platform for future growth in North America. In recent years, independent power producers (IPP) have become increasingly attractive as their inherent advantages over other structures are seen. We see further growth and opportunities for IPPs around the world. While we are still looking at growth through acquisition, there is still considerable greenfield organic growth available within the portfolio. We are currently studying the potential for the expansion of the Jorf plant in Morocco, at the Neyveli plant, where we completed a formal engineering study in Q4, and at Takoradi, where we will be discussing with the new Ghanaian Government the potential to convert Takoradi from a single cycle to combined cycle plant. We are very proud of our environmental and safety record our two highest priorities. Plant availability is also key, and our operation and maintenance standards are in the top quartile. We also maintain strict cost controls to ensure that these businesses are meeting their long-term investment targets. In line with our corporate commitment to the 3Cs program, we are looking at many different ways to minimize our carbon exposure and our fossil fuel requirement. We are exploring new environmental technologies, such as synthetic fuels, wind projects, and solar technology, to help our environmental performance. Our key objectives for 2009 are to ensure that we grow through the acquisition of quality assets by following our guidelines of stable and predictable earnings and cash flow, whether they be greenfield or organic growth. We want to expand our footprint in renewables and seek to implement new technologies together with our partner, the Massachusetts Institute of Technology. (GWh) Q4 Q4 FY FY International 3,749 2,749 14,688 14,654 Domestic 8,063 7,774 33,540 33,050 (MIG) Q4 Q4 FY FY 47,100 49, , ,150 Electricity generation Q4 Q4 FY FY Water desalination Q4 Q4 FY FY

28 26 Management Discussion and Analysis: Operational Review continued DOMESTIC FACILITIES Gulf Total Tractebel Power Company (Taweelah A1 Plant) TAQA ownership interest: 54% A gas-fired power generation and water desalination plant located on the coastal Taweelah site, approximately 50 kilometers north-east of Abu Dhabi City. Taweelah A1 is owned and operated pursuant to a Joint Venture agreement with Suez Energy and Total. Gross power generation capacity 1,350 MW gross power generation 6,371,915 MWh Total desalination capacity 84 MIGD water desalination output 27,292 MIG Emirates CMS Power Company (Taweelah A2 Plant) TAQA ownership interest: 54% A combined cycle gas-fired facility located on the coastal Taweelah site, approximately 50 kilometers north-east of Abu Dhabi City. Taweelah A2 is owned and operated pursuant to a joint venture agreement with Marubeni Corporation. Gross power generation capacity 777 MW gross power generation 3,689,428 MWh Total desalination capacity 50 MIGD water desalination output 17,199 MIG Taweelah Asia Power Company (Taweelah B Plant ) TAQA ownership interest: 54% A gas-fired power generation and water desalination plant located on the coastal Taweelah site, approximately 50 kilometers north-east of Abu Dhabi City. The Taweelah B is owned and operated pursuant to a joint venture agreement with Marubeni Corporation, BTU Power Company, Pendekar Power and JGC Corporation. The Taweelah B power plant is a brownfield development, commissioned in Gross power generation capacity 2,000 MW gross power generation 3,828,508 MWh Total desalination capacity 160 MIGD water desalination output 36,609 MIG Arabian United Power Company (Umm Al Nar Plant) TAQA ownership interest: 54% Located in Sas Al-Nakeel (previously Umm Al Nar) at the entrance of Abu Dhabi Island. Umm Al Nar is owned and operated pursuant to a joint venture agreement with International Power plc, Mitsui Corporation, and Tokyo Electric Power Company. Gross power generation capacity 2,256 MW gross power generation 7,966,910 MWh Total desalination capacity 160 MIGD water desalination output 43,507 MIG Shuweihat CMS International Power Company (Shuweihat S1 Plant) TAQA ownership interest: 54% Located on the coast of the Arabian Gulf, Shuweihat S1 is owned and operated pursuant to a joint venture agreement with International Power plc. Gross power generation capacity 1,500 MW gross power generation 7,171,466 MWh Total desalination capacity 100 MIGD water desalination output 33,231 MIG Emirates SembCorp Water and Power Company (Plant Fujairah 1) TAQA ownership interest: 54% Located in the Emirate of Fujairah, Fujairah 1 is owned and operated pursuant to a joint venture agreement with SembCorp Utilities. It is the latest of the partially privatized Independent Water and Power Producers (IWPPs). Gross power generation capacity 650 MW gross power generation 4,022,042 MWh Total desalination capacity 100 MIGD water desalination output 33,313 MIG

29 27 INTERNATIONAL FACILITIES Jorf Lasfar Energy Company, Morocco TAQA ownership interest: 100% The largest privatization on the African continent to date, Jorf Lasfar supplies on average 44% of the electricity demand for Morocco and represents approximately one fourth of the country s total installed capacity. Electricity from Jorf Lasfar is sold to Morocco s Office National d Electricité under a 30-year power purchase agreement. Gross power generation capacity 1,356 MW gross power generation 9,841,666 MWh STCMS Electric Company Pvt Ltd., India TAQA ownership interest: 100% A lignite-fired power plant at Neyveli in Tamil Nadu. One of eight fast-track projects counter-guaranteed by the Indian government, it has a 30-year agreement to sell power generated by the plant to the Tamil Nadu Electricity Board. Gross power generation capacity 250 MW gross power generation 1,713,634 MWh Takoradi International Company, Ghana TAQA ownership interest: 90% A three-stage Power Plant project, the third stage of which is yet to be implemented. The entire existing power generation capacity is purchased by the Volta River Authority under a 25-year power purchase agreement. Gross power generation capacity 220 MW gross power generation 1,062,610 MWh Jubail Power Company, Saudi Arabia TAQA ownership interest: 25% Co-generation plant located at Jubail Industrial City in Saudi Arabia. Gross power generation capacity 250 MW gross power generation 2,036,362 MWh Umm Al Nar Plant 21% Taweelah B Plant 19% Shuweihat Plant 14% Taweelah A1 Plant 13% Jorf Lasfar Energy Co. 13% Taweelah A2 Plant 7% Fujairah 1 Plant 6% Jubail Power Co. 2% Neyveli Power Co. 2% Takoradi Int. Co. 2% Taweelah B Plant 24% Umm Al Nar Plant 24% Shuweihat S1 Plant 15% Fujairah 1 Plant 15% Taweelah A1 Plant 13% Taweelah A2 Plant 8% Power generation capacity by plant Water desalination capacity by plant

30 28 Technical availability of power generation businesses averaged 93% In recent years, independent power producers (IPP) have become increasingly attractive as their inherent advantages over other structures are seen. We see further growth and opportunities for IPPs around the world Downstream UAE, Morocco, Ghana, Saudi Arabia, India, USA AED 8.5 billion of revenues

31 29 Management Discussion and Analysis: Financial Review Our diversification strategy at work Revenues TAQA s revenues are derived from the generation, production and sale of electricity; water desalination; oil and gas production; gas storage; and supplemental fuel income. This balanced portfolio provides us with greater stability and flexibility through lower commodity price cycles. Equally, as commodity prices pick up, it offers us the opportunity to capitalize on higher growth and returns typically seen in the oil and gas industry. was a year when the benefits of our diversification strategy could be seen to good effect. Total revenues reached AED 16.8 billion for, an increase of 102% compared with AED 8.3 billion in. The sharp decline in commodity prices during the fourth quarter was balanced by stable revenues from our downstream operations. The stability of these cash flows, which are derived from TAQA s power generation and midstream operations, enables us to service our debt obligations and meet our operating and capital requirements, through more challenging times. Of this, AED 4.4 billion, or 26%, was attributable to our business interests in the UAE and AED 12.4 billion, or 74%, was derived from our activities outside our domestic market. This represents a significant shift from the geographic composition of TAQA s revenues in, when 57% of total revenues were derived from the UAE, and demonstrates the impact of acquisitions made in which fully feature in our consolidated results for the first time. We are committed to both geographical and vertical diversification as our strategy of risk mitigation. Full year revenues from the sale of electricity and water reached AED 5.5 billion, an increase of 17%. This increase was partially driven by the inclusion of AED 1.2 billion of revenue from TAQA Generation during compared to AED 781 million for the eight months (post-acquisition) period in, and by increased revenue from Taweelah B, due to the facility expansion commissioned in October, as well as the full year impact of the Arabian Power expansion commissioned in. Supplemental revenues reached AED 3.0 billion in versus AED 2.0 billion in due to the inclusion of TAQA Generation s full year supplemental fuel revenues, as opposed to just eight months of such revenues in and the impact of higher average coal prices in versus. The increased revenue from TAQA Generation was partly offset by lower supplemental fuel revenue from the domestic power generation assets as they did not have to run on back-up fuel during. Revenue from the gas storage business accounted for AED 506 million compared with AED 303 million in, equivalent to 13% of total revenues. This increase was attributable to revenues for East Cantuar, which was only included as part of TAQA NORTH from August. As the acquisitions made in became fully consolidated, our revenues from oil and gas activities rose significantly when viewed over the twelve-month period. Oil and gas revenues have gone from 13% of our revenue base in to 44% of our revenue base in. Total oil and gas revenues reached AED 7.5 billion versus AED 1.1 billion in. This increase was driven primarily by the revenues from TAQA NORTH of AED 5.8 billion (from all three acquisitions in Canada) compared with AED 743 million in (which only included the Northrock and Pioneer acquisitions for part of the year) and revenue from TAQA Bratani of AED 1.0 billion (AED 67,000 in ). To put this performance in context, it is important to understand commodity pricing during the year. At TAQA NORTH in North America, the average net realized price of crude oil grew from US$83 per barrel in the first quarter of to a peak of US$118 per barrel in July to US$43 in the fourth quarter of. This represents a decline of 63%. For TAQA Energy and TAQA Bratani in Europe, average prices went from US$101 per barrel in the first three months of to US$54 per barrel in the final quarter a decline of 47%.

32 30 Management Discussion and Analysis: Financial Review continued The average net realized price for natural gas sold moved from US$7.8 per thousand cubic feet (mcf) in the first quarter of to US$5.9/mcf in the final quarter of for TAQA NORTH. For TAQA Energy and TAQA Bratani in Europe, average net realized price for natural gas sold moved from US$8.7/mcf in the first quarter of to US$9.4/ mcf in the final quarter of. Other operating revenues of AED 341 million in, compared with AED 169 million in, were primarily attributable to processing and tariff income of TAQA NORTH,TAQA Energy, and TAQA Bratani, related to the offshore facilities which provide processing, compression and transport services. This higher amount was partly offset by lower liquidated damages received by the domestic plants. Cost of Sales As our revenue base has grown by acquisition, so also our cost base has increased proportionately. TAQA s cost of sales consists of staff costs; repairs, maintenance and consumables used; operation and maintenance charges; gas storage expenses; fuel expenses; depreciation, depletion and amortization; and other operating expenses. Cost of sales reached AED 9.7 billion for compared with AED 4.7 billion in. Cost of sales for the period, as a percentage of revenues, showed a marginal improvement from 59% in to 58% in. Costs related to repairs, maintenance and other operating expenses increased by 107% to AED 2.6 billion, as a result of the expansions at Taweelah Asia Power Company (Taweelah B) and Arabian United Power Company (Plant Umm Al Nar Plant), and the TAQA NORTH and TAQA Bratani acquisitions which became fully consolidated in. The increase in total cost of sales was also driven by a 51% increase in fuel expenses, totaling AED 3.0 billion for the year, which are passed through to offtakers from our power generation subsidiaries. Fuel expenses are linked to fuel income, explained under our revenue breakdown. Depreciation, depletion and amortization increased sharply during the period to reach AED 3.5 billion at 31 December. This increase is primarily due to the increase in depreciation and amortization of AED 2 billion relating to the TAQA NORTH and TAQA Bratani acquisitions, which became fully consolidated in. Gross Profit gross profit was AED 7.1 billion, a year-onyear increase of 103%, compared with AED 3.5 billion in. Gross margin remained stable despite significant falls in commodity prices seen during the later half of the year, rising marginally from 41% in to 42% in. Administrative and Other Expenses TAQA s administrative and other expenses consist of salaries and related expenses, business development expenses, professional fees, and other expenses. Administrative and other expenses were AED 773 million in, an increase of AED 363 million compared with the same period in. The increase was primarily attributable to expenses relating to the TAQA NORTH acquisition, and withholding taxes and penalties (net of recoveries) at Jorf Lasfar arising from a tax audit. Impairment Charge We have recorded an impairment charge of AED 387 million related to the oil and gas reserves at TAQA NORTH, and AED 30 million for an impairment loss on an available for sale investment outside UAE. There was no corresponding expense in. Finance Costs Finance costs were AED 3.8 billion in, an increase of AED 1.3 billion compared with finance costs of AED 2.5 billion incurred in. This increase primarily reflects the draw-down on the revolving facility for the PrimeWest acquisition and our five- and ten-year term notes totaling US$1.5 billion issued in July.

33 31 Foreign Exchange Gain on exchange consists of foreign exchange gains from the settlement of transactions denominated in currencies other than the dirham, our functional currency. Gains on exchange were AED 264 million in compared with AED 78 million in, primarily arising from TAQA NORTH (on US$ monetary assets), TAQA Bratani (on GBP deposits), and Neyveli (US$ net investment). Interest and Investment Income Interest and investment income for amounted to AED 158 million, compared with interest income of AED 568 million for. The decrease was attributable to higher interest income in, reflecting higher cash balances from the proceeds of TAQA s issue of bonds in October 2006 that were not fully invested until August. Gain on Disposal of Interest in Subsidiaries A gain of AED 323 million was recognized in from the sale of an interest in a subsidiary (Shuweihat), which was AED 165 million higher than the corresponding number in, which related to the sale of an interest in Taweelah A2. Gains on Repurchase of Bonds A gain of AED 222 million gains was recorded in from the buy-back of bonds of a nominal value of US$ 264 million. There was no such gain in. Profit for the Year Profit for the year ended 31 December (before minority interests) was AED 2.2 billion compared with AED 1.4 billion in an increase of 57%. Net profit (after minority interests) increased 76% from AED 1.0 billion in to AED 1.8 billion. In, basic and diluted earnings per share attributable to equity holders of TAQA increased by 44% to AED 0.36 compared with AED 0.25 in, despite a 50% increase in outstanding shares due to the conversion of convertible debentures in September. Dividend TAQA s proposed cash dividend for is AED 0.15 per share, up from AED 0.10 per share in. Cash Flow Statement Net cash earned in operating activities was AED 4.1 billion in compared with AED 1.4 billion for, as a result of acquisitions made within and fully consolidated for the 12-month period in. The 197% increase is driven by the strong cash flows from the oil and gas acquisitions during. Changes in cash flow from investing activities were driven mainly by purchases of subsidiaries and investments in property, plant, and equipment. Net cash used in investing activities was AED 21.8 billion in, compared with AED 17.9 billion during the same period in. Maintaining flexibility in our capital program allows us to maintain financial strength through periods of lower or volatile commodity prices. In TAQA invested approximately Cdn$440 million in Canada to maintain and strengthen production. TAQA Bratani s development program consists of a capital expenditure of 500 million to be made over the next three years. None of this capital expenditure is under long-term commitments and it can be scaled up or down as dictated by market conditions. (AED millions) FY ,016 FY 5,155 FY 10,150 (AED millions) FY FY 1,000 FY 1,800 EBITDA Net income

34 32 Management Discussion and Analysis: Financial Review continued Balance Sheet The company has approximately AED 4.2 billion equivalent in cash on its balance sheet. Furthermore, TAQA has significant undrawn credit lines available to it totaling more than AED 5 billion. This liquidity is available to us for ongoing operations, as well as to pursue attractive acquisition opportunities. In, total assets grew 30% to AED 86 billion compared with AED 68 billion for the year ended. The main driver behind this was the transformation of our oil and gas business, which accounted for assets of AED 41 billion, compared with AED 19 billion at year end. Intangible assets increased from AED 3.5 billion in to AED 10.4 billion as a result of the PrimeWest and northern North Sea acquisitions made in. In, foreign currency translation reserves, which are used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries offset by hedging net investments in foreign operations, were negative AED 4.1 billion, compared with positive AED 440 million for the same period in. The movement during is primarily due to the weakness of the Canadian dollar. Other reserves increased from AED 1.2 billion in to AED 3.6 billion in as a result of the convertible debenture TAQA issued in July, and which converted to ordinary shares in September. The bonds were converted into TAQA shares at a ratio of 500 shares per AED 1,000 bond. Accordingly 2,075,000,000 ordinary shares of AED 1.00 each were issued and the paid up share capital was increased by AED 2.1 billion net of transaction costs. This has been treated as a share premium and transferred to a statutory reserve. Our domestic power businesses are required, as per the terms of the power and water purchase agreements, to swap a minimum of 75% of their floating interest rate obligations into fixed rate obligations. These interest rate swaps are derivative instruments that are sensitive to interest rate changes. We record the fair value movements in equity. In, this amount increased from AED 702 million in to AED 2.4 billion, reducing equity by AED 1.7 billion. Current liabilities decreased 13% to AED 6.6 billion, as interest-bearing loans and borrowing and Islamic loans were reduced due to conversion of equity bridge loans at Arabian Power Company and Taweelah Asia Power Company into equity and shareholders loans during. Non-current liabilities rose 38% to AED 72 billion for the year, mainly due to the increase of interestbearing loans and borrowings by 23% to AED 55 billion and a 126% increase in deferred tax to AED 5.2 billion. There were three material drivers impacting the change to non-current liabilities. Firstly, TAQA issued AED 5.5 billion (US$ 1.5 billion) in five- and ten- year term notes in July. Secondly, our asset retirement obligations increased from AED 1.2 billion to AED 4.8 billion from the PrimeWest and northern North Sea acquisitions. Finally, deferred tax increased by AED 2 billion to AED 5.2 billion as a result of fair value adjustments on acquisitions. The book value of equity decreased by 5% to AED 7.7 billion from AED 8.1 billion, mainly as the increase in share capital, other reserves, retained earnings was more than offset by the movement in currency translation reserves and negative cumulative changes in the fair value of derivatives. (AED billions) FY FY 69 FY 86 Total assets

35 33 Profit for the year ended 31 December (before minority interests) was AED 2.2 billion compared with AED 1.4 billion in an increase of 57%. Net profit (after minority interests) increased 76% from AED 1.0 billion in to AED 1.8 billion. Funding Strategy The global economic environment remains depressed in Even though a number of financial assistance programs to the banking sector have been implemented by various governments around the world, access to bank credit remains very restricted. Losses suffered from bad loans have severely weakened the capital structure of many international and domestic banks. This has in turn led to reduced investment activity in all industries, lower consumer spending, increased unemployment, and lower demand for energy. Commodity prices have fallen as a result with crude oil dropping from over $140 per barrel during the summer of to around $40 per barrel during the first quarter of TAQA is in a strong financial position with large unused credit facilities and short-term cash deposits. The company has no short-term refinancing needs among its corporate debt portfolio until the middle of 2010 because of prompt and decisive financial transactions executed during the course of. The company is well-placed to pursue attractive acquisition opportunities that have become available due to these challenging economic conditions. During, TAQA completed a number of financing transactions to enhance its financial position. In July, TAQA issued a mandatory convertible debenture equivalent to AED 4.15 billion (US$1.1 billion). The purpose of this transaction was to increase the equity component in TAQA s capital structure. The mandatory conversion took place on 1 September pursuant to a resolution of the Board of Directors on 8 September. The bonds were converted into TAQA shares at the ratio of 500 shares per AED 1,000 bond. Accordingly 2,075,000,000 ordinary shares of AED 1.00 each were issued and the paid-up share capital was increased by AED 2.1 billion net of transaction costs. The remaining balance from the debenture issuance has been treated as a share premium and transferred to a statutory reserve. The new shares were available for trading on 16 October. Toward the end of July, TAQA completed a private placement bond offering in the US market totaling $1.5 billion in five- and ten-year term notes. In August a three year $3.15 billion revolving credit facility was arranged with 16 international and local UAE banks to refinance the $3.1 billion one year multi-currency revolving credit facility that was put in place to partially finance the PrimeWest acquisition. During the 4th quarter of, TAQA implemented a bond repurchase program utilizing its cash reserves to create value for our shareholders. Under this program, TAQA purchased for cancellation AED 1.0 billion (US$ 264 million) of the 2036 Abu Dhabi National Energy Company Bonds. These financial transactions have given TAQA strong financial liquidity in the current challenging credit environment. Recent events Subsequent to the close of the period, we announced that TAQA had secured approval from the Securities and Commodities Authority (SCA) for a new share repurchase program authorizing up to 10% (or million shares) of the share capital of the company to be repurchased. We will fund the repurchases made under this program from our available funds. The buyback program was approved by SCA on 19 February 2009, and should be completed within a year.

36 34 Health, Safety, Security and Environment (HSSE) Program Embedding corporate HSSE values across the business HSSE Integration within our New Assets When we integrate new assets we provide them with our corporate HSSE strategy and program, and perform gap analysis against their existing systems, processes, and tools. Global HSSE explains the model that we use within TAQA and the way that we work together, the processes and tools that we use. The local TAQA HSSE leader plays a key role to get the new assets integrated and optimized. We give access to our best practices and ensure that we do not destroy value. In some cases, newly acquired assets have a better way of getting things done. Those new best practices are shared within the HSSE leadership network, and the HSSE manager of the new assets will immediately become part of the HSSE network. Management at new assets are coached on TAQA s 11 HSSE E&E, critical standards and critical procedures, and provided with the flexibility to determine how they will meet those minimum requirements. The Global HSSE approach can be summarized as: Allowing that asset to have the opportunity to make their system the best-in-class for their business unit while meeting TAQA s Global E&E. TAQA is committed as an organization in its pursuit and attainment of world-class health, safety, security, and environmental (HSSE) performance. It is our pledge to demonstrate respect for the natural environment and to work to achieve our goals of no harm to people, a safe and secure workplace, and minimal impact on the environment. We believe that our commitment to safe, secure and incident-free operations goes hand-in-hand with improved operations reliability, lower costs, and higher productivity. In, the Recordable Injury Rate (RIR) for employees and contractors was per 200,000 hours worked. Global HSSE Global HSSE strives to achieve operational excellence within TAQA. Operational excellence refers to excelling as a team in all that we do, continuously striving for improvement, goaloriented thinking and acting, and learning from mistakes. TAQA is committed to operate in a responsible manner towards all lives we touch and within our shared environment. Our ambition is to be a leader in the energy industry with our safety and environmental performance as a result of our high standards and sustainable processes. By sharing expertise drawn from the organization as a whole and developing a robust HSSE program based on best practices from all our business units, we not only combine best-in-class processes, but fully utilize the potential of our workforce. Global HSSE Strategy While was a transitional year for TAQA, acquiring numerous assets across the globe and establishing a true global footprint, for global HSSE was a benchmarking year. Global HSSE established the guiding processes and strategy towards achieving operational excellence. This gave global HSSE the opportunity to establish common processes and interfaces, and create consistency. In, global HSSE s focus lay on three key areas: Due Diligence (Pre- and Post-acquisition) Integration & Optimization Normal Operations Together with the global HSSE network that is composed of HSSE directors and managers across the TAQA footprint, global HSSE developed and implemented the corporate HSSE Management Program, Elements & Expectations (E&E). This program succeeded in embedding corporate HSSE values within each business unit s operations to help TAQA achieve its growth objective. To achieve this goal, every business unit s safety management system conformed to meet 11 E&Es while complying with applicable local and national regulations. These 11 E&Es serve as a common link between all TAQA assets while establishing the minimum global standards that business units are expected to meet and exceed. Therefore, our global HSSE strategy allows individual business units to establish policies tailored to suit their operations while ensuring that TAQA s commitment to excellence is universal. Working with the Business Unit HSSE Leads, global HSSE established a program to measure our HSSE performance results via industry-accepted key performance indicators and adopting best-practice audit protocol. Other highlights include: Development of a performance management process to improve reporting and monitor audit actions. Development of a self-assessment tool to facilitate business units self-evaluations and the sharing of best practices across the TAQA footprint. Development of HSSE networks (Global HSSE Business Unit Leads and Asset Integrity Leads) from which to draw expertise, best practices, and synergies across our subsidiaries.

37 35 Safety Performance In, TAQA experienced no fatalities. Across TAQA, the Days Away From Work Rate (DAFWR) was days per 200,000 hours worked for our total workforce (employees and contractors). TAQA s RIR was injuries per 200,000 hours worked in. TAQA defines Recordable Injuries as Lost-Time Injuries, Medical Aid Cases or Modified Duty Cases/ Restricted Work Injury Accidents. is the first time TAQA has included the Total Work Force (Employees + Contractors) in our RIR measurement. Global HSSE is pleased that the Corporate HSSE Management Program has already been recognized, resulting in a couple of awards/ certificates: TAQA NORTH received recognition for being a best safety performer from the Province of Alberta. TAQA Energy received OSHAS18001 (Safety) certification. Environmental Performance TAQA s operational greenhouse gas emissions (GHG) total was million tonnes CO2 equivalent. TAQA places the highest priority on managing GHG emissions, despite its aggressive acquisition strategy. In, we developed and executed numerous energy efficiency improvements to minimize GHG emissions. Examples of energy efficiency improvements include: Ghana T2 Takoradi: received award for T2 Takoradi s continuous commitment to environmental stewardship in. Demonstrated high level of compliance with environmental laws and regulations of Ghana for the year. Saudi Arabia Jubail: installed gas turbine compressor on-line backwash. Prior to this the gas turbine load had to be reduced to 90% to carry out a water wash. This change resulted in a power loss reduction of 100 MWH on a weekly basis. The Netherlands TAQA Energy: optimized the number of compressor start-ups, resulting in a decrease of GHG emissions of 20,000 tonnes CO2 equivalent. The Way Ahead 2009 In 2009, Global HSSE intends to build upon successes achieved in while rigorously addressing opportunities for improvement. Global HSSE will establish corporate standards while providing the necessary resources to ensure the successful execution at the business unit level. Global HSSE recognizes that the best policies and tools cannot be successful without a proper supportive safety culture. TAQA aspires to establish a Generative level of safety culture, whereby HSSE is fully embedded into all operational activities and considerations. Therefore, a key initiative of global HSSE is to conduct safety perception studies to establish baselines of the TAQA Safety Culture. Results from these studies will provide TAQA s business leaders with focal points for improvement. TAQA leaders face the challenges of improving the operational performance of their areas of responsibility amidst uncertain energy prices, mounting regulations, and potential skill shortages. Therefore, Global HSSE intends to provide initiatives addressing the proper application of management of change concepts for our business leaders, and efficiency improvements in the areas of asset integrity and process safety. (Per 200,000 hours) Days away from work rate employees Days away from work rate contractors Days away from work rate total workforce (Per 200,000 hours) Recordable injury rate employees Recordable injury rate contractors Recordable injury rate total workforce Days away from work rate Recordable injury rate

38 36 TAQA in the Community TAQA a standard bearer for best practice At TAQA, two key principles underpin everything we do to be a best-in-class global company, while creating a sustainable future. As a global company we strongly believe our responsibilities extend far beyond creating jobs and making profit, to being a responsible employer and corporate citizen. This means that at the heart of our business is a firm commitment to finding ways of minimizing our impact on the environment while simultaneously maximizing the positive contribution we make to the communities in which we operate. We are committed to the highest standards of behavior and in were proud to become the first Abu Dhabi company to join the United Nations Global Compact Initiative. : A Year of Momentum Over the past twelve months TAQA has made significant progress in its CSR activities, supporting a wide range of projects all directly related to the three distinct areas that characterize our CSR policy: ethical responsibility; social responsibility; and environmental responsibility. Projects ranged from employee initiatives and environmental projects to medical assistance and education schemes. We are proud that each and every project has had a significant impact on the people involved no matter how small or large. Below is a sample of just some of the many projects TAQA has supported throughout. Ethical Responsibility TAQA is a meritocratic, diverse, and transparent organization capable of delivering sustainable growth. In line with our commitment to the UN, we are steadfast in our pledge to the highest standards of corporate behavior. TAQA employs nearly 2,800 people across the world, from 41 nationalities working across 9 countries. As a committed global employer, we place a firm emphasis on diversity and inclusion, and fully embrace the significant and multiple strengths this global workforce offers us recognizing its critical importance to our ongoing success. This approach is underpinned by our formal Diversity and Inclusion (D&I) policy, which guides us in developing a supportive and positive workplace culture. Our D&I policy applies not only to ourselves but will also be used by TAQA in the selection of suppliers, who will need to demonstrate their compliance with our standards. During TAQA was recognized for its efforts to be a best-in-class employer, as TAQA NORTH, its North American subsidiary, was selected as one of Alberta s Top 40 Employers. The annual competition, now in its fourth year, recognizes the best performing companies in the region based on eight criteria, including training & skills development, employee communications, and work atmosphere. In September, TAQA signed an agreement with LRN, a company that helps businesses develop ethical corporate cultures. LRN will support TAQA s Global Compliance and Ethics Awareness Program with online ethics, compliance education, and automated certification for TAQA s multilingual workforce. Social Responsibility While TAQA is a global company, our success is inextricably linked to the prosperity and wellbeing of each and every community in which we operate. We actively support these communities through a series of projects and initiatives that extend far beyond the people who work for us. In we prioritized health and education initiatives that were directly beneficial to our local communities. Canada: TAQA donated money to STARS the Shock Trauma Air Rescue Society an emergency air ambulance service that transports trauma victims to hospitals within the critical one hour timeframe. TAQA s financial support helped with operating costs and also contributed towards a rural education program to train doctors who are otherwise unable to leave their communities. USA: TAQA donated considerable funds to university programs with a focus on the arts, including the University of Michigan s Musical Society where part of the funds supported the Honors Society. The remaining funds supported the Arab Music Education program, with TAQA a co-sponsor of the Performing Arts of the Arab World concert series.

39 37 TAQA model school provides education to more than 500 students By sharing expertise drawn from the organization as a whole and developing a robust HSSE program based on best practices from all our business units, we not only combine best-in-class processes, but fully utilize the potential of our workforce TAQA NORTH one of Alberta s Top 40 Employers

40 38 TAQA in the Community continued The United Nations Global Compact Initiative In TAQA joined the UN Global Compact, the world s largest voluntary corporate responsibility initiative. The Compact is an initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies and procedures, focused on addressing human rights issues, environmental concerns, and corporate corruption. As part of the Compact initiative, TAQA has agreed to adhere to ten universally accepted principles derived from various treaties, including: the Universal Declaration of Human Rights; The International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work; The Rio Declaration on Environment and Development; and the UN Convention Against Corruption. TAQA Code of Business Ethics As a responsible employer we also have in place a formal Code of Business Ethics outlining TAQA s stance on professional conduct Every stakeholder whether they are an employee, a member of the local community or the environment should be treated with respect. Absolute compliance with local laws, acceptance of transparent behavior at all times, respect for the environment and local cultures, and keeping an active dialog with the communities in which we operate are elements of our success. To ensure ethical behavior throughout the organization, TAQA has a dedicated reporting mechanism for anyone wishing to report behavior that contravenes any policy. Ghana: the TAQA model school provides education to more than 500 young students (60% females, 40% males). Since the construction of the school there has been an increase in enrolment rates for girls. TAQA also funds scholarships for bright, underprivileged local students to ensure they have access to primary and secondary education. Morocco: TAQA has supported organizations such as the Association Attadamoun and the Association des Amis et Parents d Enfants Sourds Muets, helping to improve the learning conditions for deaf and communicatively disabled children, and children with other handicaps and disabilities. India: TAQA funded the construction of a drinking water bore well to provide clean and safe water for the Uthangal villagers, who previously traveled long distances to collect their supply. The Netherlands: TAQA sponsored a program of activities for the housebound mentally handicapped (Leekerweide). Separately, TAQA also sponsored activities for schoolchildren whose parents could not afford to go on holidays. UAE: TAQA employees participated in the 50 Days of Action campaign to help raise awareness for poverty and human development by the UN. Environmental Responsibility As a member of the global 3C (Combat Climate Change) Initiative, we take our commitment very seriously. Throughout, we supported many environmental projects aimed at both minimizing our own footprint, while also educating others and encouraging them to do the same. At a corporate level, we announced our strategic partnership with Iberdorla, the world s fourth largest electricity company and world leader in renewable energy, to explore co-investment and development opportunities in renewables, as well power generation and upstream assets in the Middle East, North Africa, Europe, and North America. TAQA is firmly committed to minimizing the environmental impact of all of its offices and operations. To meet this target we have invested in green technology and initiatives to reduce the footprint of our offices. This commitment also extends to our up-, mid- and downstream operations and we are dedicated to maintaining the highest possible industry standards. For more information on Health and Safety, please refer to our HSSE program on page 34. In addition to the steps we have taken as a company, below is a selection of some of the projects and initiatives we have implemented in. UAE: TAQA provided support to the Emirates Environmental Group (EEG), an NGO working to raise awareness of environmental issues. Through this project, TAQA helped in placing recycling centers for 10 schools in the UAE; supported the Clean Up UAE drive, and participated in CSR Network initiatives such as training and workshops for the UAE. The Netherlands: To stimulate the awareness of children regarding nature and the environment, TAQA sponsored a children s farm (Rekerhout) in Alkmaar. Worldwide: TAQA has now put in place schemes that allow our employees to purchase hybrid vehicles. Our Vision for 2009 Throughout TAQA has made significant progress on its CSR policy and implementation, building on the strong foundations that were laid in. Our vision for 2009 is to take this one step further. In particular, we will to continue to raise the level of employee satisfaction and expand our investment in hands-on projects in local communities, while ensuring that employees across our organization are actively engaged in our extensive range of CSR initiatives. Each and every one of the projects that TAQA undertakes will ultimately take us one step closer to meeting our two core objectives to be a best-in-class global company and create a sustainable future.

41 39 Corporate Governance Transparency control and accountability TAQA is constantly updating its corporate governance framework to ensure compliance with international best practices and applicable regulatory requirements. TAQA s Code of Ethics describes and reinforces conduct that is based on its guiding core values, consistent with its policies and practices and essential for its legal and regulatory compliance obligations. Committees Audit Committee TAQA s audit committee is comprised of the following members, who are appointed for a term of two years: Name H.E. Salem Saleh Al Sayari H.E. Abdullah Saif Al Nuaimi H.E. Mohamed AR Foulad Position Chairman Member Member The Board establishes the duties, responsibilities, procedures and meeting schedule for the audit committee. The responsibilities of the audit committee include: establishing guidelines and procedures to co-ordinate the program of auditing TAQA s operating and financial activities in order to safeguard its assets and to protect its shareholders interests; The audit committee s responsibilities include policies and processes covering organizational initiatives (including financial, procurement and administrative policies), financial reporting processes and outputs, internal control and risk management, and internal audit processes and outputs. Remuneration Committee The remuneration committee is composed of the following members, who are appointed for a term of two years: Name H.E. Ahmed Saif Al-Darmaki H.E. Abdullah Saif Al Nuaimi H.E. Mohamed AR Foulad Peter S Al-Din E Barker-Homek, CEO Position Chairman Member Member Member The remuneration committee has responsibility for making recommendations to the Board regarding TAQA s policy on the remuneration of certain senior executives and key managerial personnel, including performance bonuses and other benefits. In addition to making recommendations on remuneration and benefits packages, the remuneration committee maintains reports for corporate governance purposes. assessing the accuracy of expenditure reports, costs and financial statements; and ensuring that TAQA s activities conform to applicable laws and regulations, decisions of the Board, duties, responsibilities and authorities vested in management and employees, if any, and its constitutional documents.

42 40 Shareholder and Bondholder Information Shareholder information TAQA relative share price performance AED TAQA ADXI Relative performance (rebased to TAQA share price) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Bondholder information Credit ratings Moody s Investor Services Standard & Poor s Ratings Long-term Aa2 (Stable Outlook) AA- (Stable Outlook) Bond maturity schedule Description Size Coupon % Currency TAQA bond due October 2012 USD 1,500 million USD TAQA bond due August 2013 USD 1,000 million USD TAQA bond due October 2013 EUR 750 million EUR TAQA bond due October 2016 USD 1,000 million USD TAQA bond due October 2017 USD 500 million USD TAQA bond due August 2018 USD 500 million USD TAQA bond due October 2036 USD 1,236 million USD Professional Advisors Auditors Ernst & Young P.O. Box 136, 11th floor, Al Ghaith Tower Hamdan Street, Abu Dhabi United Arab Emirates T F Solicitors Allen & Overy LLP PO Box 7907, Abu Dhabi United Arab Emirates T F Registrars National Bank of Abu Dhabi Intersection of Sh. Khalifa St. and Baniyas St. P.O. Box 2993 T F Contact details Mailing Address Abu Dhabi National Energy Company PJSC (TAQA) P.O. Box Abu Dhabi United Arab Emirates T F For information on investor relations ir@taqaglobal.com Tanis Thacker Head of Investor Relations Direct: Mohammed Mubaideen Investor Relations Manager Direct:

43 Consolidated Financial Statements Contents Board Report 42 Independent Auditors Report 43 Consolidated Income Statement 44 Consolidated Balance Sheet 45 Consolidated Statement of Changes in Equity 46 Consolidated Cash Flow Statement 48 Notes to the Consolidated Financial Statements 49 Glossary of Terms 107

44 42 Board Report On behalf of the Board of Directors of Abu Dhabi National Energy Company PJSC, I am pleased to present the financial statements of Abu Dhabi National Energy Company PJSC ( TAQA or the Company ) and its subsidiaries (the Group ) for the year ended 31 December. The net profit (after minority interests) grew 76% to AED 1.8 billion compared with AED 1.0 billion in. Increasing the basic earnings per share by 44% to 36 fils from 25 fils in, despite a 50% increase in outstanding shares due to the issue of convertible debentures in July. The Group revenues grew 102% to AED 16.8 billion (: AED 8.3 billion).the total assets of the Group grew 25 % from a year ago to reach AED 86 billion. As required by the U.A.E. Commercial Companies Law of 1984 and the Articles of Association of the Company, AED 183 million being 10% of the net profits has been allocated to a statutory reserve. Additional legal reserve of AED 46 million being 10% of TAQA s share of the net profits of the Special Purpose Vehicles holding the domestic subsidiaries was also allocated as required in the respective Articles of Association. The board has proposed a cash dividend of 15 fils per share (10 fils in ), subject to the approval of the shareholders at the forthcoming Annual General Meeting of the company. January marked TAQA s completion of its Cdn$4.7 billion acquisition of PrimeWest Energy Trust. This positioned TAQA as one of Canada s top ten energy companies in terms of net proven natural gas reserves and in the top 12 in terms of oil and gas production. In January, TAQA agreed to a US$3.1 billion, one-year credit facility to partially finance the PrimeWest acquisition. The one year facility was refinanced in August and syndicated to multiple international lenders with a term of three years. At its AGM in April, TAQA declared a dividend of AED 415 million to its shareholders. In June, TAQA announced the issuance of AED 4.15 billion (US$1.1bn) of convertible bonds which converted into common shares on 1 September. The new shares commenced trading on the Abu Dhabi Securities Exchange on 16 October. On 7 July, TAQA announced that TAQA Bratani had 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 in the UK North Sea. The US$438 million acquisition closed on 1 December. At the end of July, TAQA completed a bond offering in the US market totaling US$1.5 billion in five and ten year notes. In September, TAQA completed the sale of a 20% interest in Shuweihat CMS International Power Company (SCIPCO) and a 50% interest in Shuweihat O&M Limited Partnership ( SOMLP ) to Sumitomo Corporation. TAQA retains a 54% interest in SCIPCO. TAQA also agreed to purchase EnCore Oil Nederland B.V., a wholly owned subsidiary of EnCore Oil plc. In December, TAQA and the Bergermeer project consortium signed a joint venture agreement with and Gazprom export, in respect of cushion gas for the Bergermeer gas storage facility. December also saw the creation of TAQA Gen X, a joint venture with RBS Sempra Commodities focused on investments in the downstream energy business in North America. Simultaneously, TAQA Gen X announced its first investment in a tolling agreement for the Red Oak power plant, an 764 MW combined cycle gas turbine plant, located in Sayreville, New Jersey, USA. In the coming years, TAQA s strategy is to continue to focus on building an energy conglomerate with a portfolio of high quality assets that add value to all our stakeholders. I wish to thank our shareholders for their continued trust and support. I also wish to place on record my appreciation to the management team led by Peter S Al-Din E Barker-Homek, CEO, and all our employees for their hard work and unstinted dedication and passion working as a team. Hamad Al Hurr Al Suwaidi Chairman

45 43 Independent Auditors Report to the Shareholders of Abu Dhabi National Energy Company PJSC ( TAQA ) Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Abu Dhabi National Energy Company PJSC ( TAQA or the Company ) and its subsidiaries (the Group ), which comprise the consolidated balance sheet as at 31 December and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the applicable provisions of the articles of association of the Company and the UAE Commercial Companies Law of 1984 (as amended). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of 31 December and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements We also confirm that, in our opinion, the consolidated financial statements include, in all material respects, the applicable requirements of the UAE Commercial Companies Law of 1984 (as amended) and the articles of association of the Company; proper books of account have been kept by the Company; an inventory was duly carried out and the contents of the report of the Board of Directors relating to these consolidated financial statements are consistent with the books of account. We have obtained all the information and explanations which we required for the purpose of our audit and, to the best of our knowledge and belief, no violations of the UAE Commercial Companies Law of 1984 (as amended) or of the articles of association of the Company have occurred during the year which would have had a material effect on the business of the Company or on its financial position. Signed by Bassam E Hage Partner Ernst & Young Registration No March 2009 Abu Dhabi

46 44 Consolidated Income Statement Year ended 31 December Notes Revenues Revenue from oil and gas 5.1 7,456,159 1,121,263 Revenue from electricity and water 5.2 5,534,691 4,716,741 Supplemental fuel income 2,967,730 2,027,194 Gas storage revenue 505, ,056 Net liquidated damages received , ,892 Other operating revenue ,356 6,641 16,805,538 8,336,787 Cost of sales Staff costs (244,477) (67,077) Repairs, maintenance and other operating expenses 6 (2,647,145) (1,276,374) Fuel expenses (2,998,676) (1,986,932) Depreciation, depletion and amortisation 7 (3,535,143) (1,427,632) Gas storage expenses (319,807) (128,543) (9,745,248) (4,886,558) GROSS PROFIT 7,060,290 3,450,229 Administrative and other expenses 8 (772,596) (409,108) Provisions for impairment 9 (416,732) - Finance costs 10 (3,761,927) (2,528,802) Changes in fair values of derivatives (48,728) (43,779) Net foreign exchange gain 263,766 78,393 Share of results of associates 20 39,802 25,454 Interest and investment income , ,713 Gain on sale of interest in subsidiaries and associate 322, ,902 Gain on repurchase of bonds 32(iii) 222,449 - Other income 41,350 20,310 PROFIT BEFORE TAX 3,108,453 1,318,312 Income tax (expense) credit 12 (913,312) 57,314 PROFIT FOR THE YEAR 2,195,141 1,375,626 Attributable to: Equity holders of the parent 1,825,168 1,034,599 Minority interests 369, ,027 PROFIT FOR THE YEAR 2,195,141 1,375,626 Basic and diluted earnings per share attributable to equity holders of the parent (AED) The attached notes 1 to 44 form part of these consolidated financial statements.

47 45 Consolidated Balance Sheet At 31 December Notes (Restated) ASSETS Non-current assets Property, plant and equipment 14 60,026,099 46,192,682 Operating financial assets 15 5,471,987 5,800,588 Initial spares fee , ,246 Available for sale investments ,877 99,481 Intangible assets 18 10,358,262 4,350,917 Investment in associates , ,822 Other assets , ,308 76,695,390 57,094,044 Current assets Inventories 22 1,729,226 1,494,808 Operating financial assets , ,439 Accounts receivable and prepayments 23 3,508,167 2,412,679 Bank balances and cash 24 4,190,749 7,601,093 9,692,164 11,776,019 TOTAL ASSETS 86,387,554 68,870,063 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 25 6,225,000 4,150,000 Treasury shares (21,693) - Other reserves 26 3,594,501 1,295,130 Equity contributed capital 35 25,131 25,131 Retained earnings 1,733,358 1,070,224 Proposed dividends , ,000 Translation reserve 27 (4,067,651) 440,909 Cumulative changes in fair value of available for sale investments 17 (13,595) - Cumulative changes in fair value of derivatives (2,439,139) (702,285) 5,968,575 6,694,109 Minority interests ,869 1,050,192 Loans from minority interest shareholders in subsidiaries , ,124 Loan from Abu Dhabi Water and Electricity Authority (ADWEA) ,021 92,640 Total equity 7,747,122 8,129,065 Non-current liabilities Interest bearing loans and borrowings 32 55,463,394 44,999,272 Islamic loans 33 1,997,600 2,017,379 Deferred tax 12 5,221,650 3,193,735 Asset retirement obligations 34 4,789,320 1,232,592 Advances and loan from related parties 35 50,367 48,844 Other liabilities 36 4,566,298 1,707,479 72,088,629 53,199,301 Current liabilities Trade and other payables and accruals 37 4,141,472 2,506,316 Interest bearing loans and borrowings 32 1,861,433 3,547,770 Islamic loans ,611 1,124,914 Loans from minority interest shareholders in subsidiaries 19,770 19,770 Amounts due to ADWEA and other related parties 38 16,667 96,242 Income tax payable 295,021 76,216 Bank overdrafts 24 91, ,469 6,551,803 7,541,697 Total liabilities 78,640,432 60,740,998 TOTAL EQUITY AND LIABILITIES 86,387,554 68,870,063 Chairman Director Chief Executive Officer The attached notes 1 to 44 form part of these consolidated financial statements.

48 46 Consolidated Statement of Changes in Equity Year ended 31 December Attributable to equity holders of the parent Share capital Treasury shares Other reserves Equity contributed capital Retained earnings Balance at 1 January 4,150,000-1,142,122 25, ,633 Exchanges difference arising on translation of overseas operations Board of directors remuneration (3,000) Gain on sale of available for sale investment realised in income statement Movement in changes in fair values Total income (expense) for the year recognised directly in equity (3,000) Profit for the year ,034,599 Total income (expense) for the year ,031,599 Transfer to statutory reserve ,459 - (103,459) Transfer to legal reserve ,549 - (49,549) Proposed dividends (note 28) (415,000) Dividends paid (note 28) Dividends paid to minority shareholders From business combination Acquisition of minority interest in subsidiaries Part disposal of a subsidiary Repayment of loans Balance at 31 December 4,150,000-1,295,130 25,131 1,070,224 Exchanges difference arising on translation of overseas operations Board of directors remuneration (1,000) Movement in changes in fair values Impairment loss on available for sale investment recognised in income statement Total income (expense) for the year recognised directly in equity (1,000) Profit for the year ,825,168 Total income (expense) for the year ,824,168 Transfer to statutory reserve ,517 - (182,517) Transfer to legal reserve ,854 - (45,854) Increase in share capital 2,075,000-2,071, Share capital injection by minority shareholders Proposed dividends (note 28) (932,663) Dividends paid (note 28) Dividends paid to minority shareholders Part disposal of a subsidiary Purchase of treasury shares - (21,693) Loan received from minority shareholders Repayment of loans Balance at 31 December 6,225,000 (21,693) 3,594,501 25,131 1,733,358 The attached notes 1 to 44 form part of these consolidated financial statements.

49 47 Attributable to equity holders of the parent Proposed dividends Translation reserve Cumulative changes in fair value of available for sale investments Cumulative changes in fair value of derivatives Total Minority interests Loans from minority interest shareholders in subsidiaries Loan from ADWEA Total equity 207,500-26,253 (318,115) 5,839,524 1,244, ,149 92,640 7,568, , , , (3,000) (3,000) - - (46,143) - (46,143) (46,143) ,890 (384,170) (364,280) (343,806) - - (708,086) - 440,909 (26,253) (384,170) 27,486 (343,806) - - (316,320) ,034, , ,375, ,909 (26,253) (384,170) 1,062,085 (2,779) - - 1,059, , (207,500) (207,500) (207,500) (57,648) - - (57,648) , , (434,648) (79,458) - (514,106) , , (20,567) - (20,567) 415, ,909 - (702,285) 6,694,109 1,050, ,124 92,640 8,129,065 - (4,508,560) - - (4,508,560) (4,508,560) (1,000) (1,000) - - (43,236) (1,736,854) (1,780,090) (1,556,491) - - (3,336,581) ,641-29, ,641 - (4,508,560) (13,595) (1,736,854) (6,260,009) (1,556,491) - - (7,816,500) ,825, , ,195,141 - (4,508,560) (13,595) (1,736,854) (4,434,841) (1,186,518) - - (5,621,359) ,146, ,146, , , , (415,000) (415,000) (415,000) (155,711) - - (155,711) , , (21,693) (21,693) , , , (12,420) (33,937) (46,357) 932,663 (4,067,651) (13,595) (2,439,139) 5,968, , , ,021 7,747,122

50 48 Consolidated Cash Flow Statement Year ended 31 December Notes (Restated) OPERATING ACTIVITIES Profit before tax 3,108,453 1,318,312 Adjustments for: Depreciation, depletion and amortisation 7 3,535,143 1,427,632 Employee benefit obligations, net 2,845 44,281 Gain on disposal of interest in subsidiaries and an associate (322,523) (157,902) Provisions for impairment 416,732 - Gain on repurchase of bonds (222,449) - Interest expense 10 3,648,365 2,498,114 Notional interest 10 1,535 1,309 Accretion expense ,027 29,379 Share of results of associates 20 (39,802) (25,454) Changes in fair values of derivatives 48,728 43,779 Interest and investment income 11 (158,256) (567,713) Working capital changes: Inventories (195,301) (169,347) Accounts receivables and prepayments (253,000) 1,239,412 Amount due to ADWEA and other related parties (79,575) 4,930 Trade payables, accruals and other liabilities (1,642,674) (2,083,275) Income tax paid (437,911) (111,660) Interest paid (3,491,330) (2,270,250) Board of directors remuneration (4,000) - Asset retirement obligation payments (108,788) (7,556) Repayment of operating financial assets 166, ,202 Net cash from operating activities 4,084,249 1,375,193 INVESTING ACTIVITIES Purchase of subsidiaries, net of cash acquired (19,372,882) (16,095,606) Disposal of interest in subsidiaries and an associate, net of cash disposed 638, ,220 Dividend received from associate 5,511 - Purchase of investments in associates - (38,302) Purchase of property, plant and equipment (3,097,746) (2,301,327) Advances to related parties 16,440 8,219 Advances from related party - (1,315) Loan to an associate 4,408 (32,100) Purchase of available for sale investments (90,632) (173,946) Interest received 203, ,112 Intangible assets (113,355) - Proceeds from sale of available for sale investments - 235,209 Acquisition of minority interests - (693,789) Other assets (42,042) 55,987 Net cash used in investing activities (21,848,108) (17,944,638) FINANCING ACTIVITIES Interest bearing loans and borrowings received 13,570,457 9,751,845 Repurchase of bonds (735,722) - Islamic loans received 104,776 85,549 Repayment of interest bearing loans and borrowings (3,665,327) (845,677) Repayment of Islamic loans (1,126,303) (53,723) Issue of share capital 4,146,000 - Purchase of treasury shares (21,693) - Net movement in minority interests - 43,737 Share capital injection by minority interest shareholders 732,729 - Dividend paid to equity holders of the parent 28 (415,000) (207,500) Dividend paid to minority interest shareholders (155,711) (78,217) Loans received from Abu Dhabi Water and Electricity Authority 182,318 - Repayment of loans from Abu Dhabi Water and Electricity Authority (33,937) - Loans received from minority interest shareholders in subsidiaries 672,953 - Repayment of loans from minority interest shareholders in subsidiaries (12,420) (100,025) Net cash from financing activities 13,243,120 8,595,989 DECREASE IN CASH AND CASH EQUIVALENTS (4,520,739) (7,973,456) Net foreign exchange difference 1,189,035 (384,410) Cash and cash equivalents at the beginning of the year 7,430,624 15,788,490 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 24 4,098,920 7,430,624 The attached notes 1 to 44 form part of these consolidated financial statements.

51 49 Notes to the Consolidated Financial Statements 31 December 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. Following the issuance of mandatory convertible bonds and conversion of the bonds into ordinary shares during the third quarter of (see note 25), ADWEA s holding increased to 51.05%. Public ownership increased to 27.95% and balance of 21% held by Farmers Fund. The Company continues to be a subsidiary of ADWEA which 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 consolidated financial statements of TAQA and its subsidiaries (the Group ) for the year ended 31 December include the financial statements of TAQA and its subsidiaries as described in note 41. The consolidated financial statements of the Group were authorised for issuance by the Board of Directors on 18 March BASIS OF PREPARATION The consolidated financial statements are prepared under the historical cost convention as modified for the measurement at fair value of available for sale investments and derivative financial instruments and certain loans from related parties. The consolidated financial statements have been presented in United Arab Emirates Dirhams (AED), which is the functional currency of the Group. All values are rounded to the nearest thousand () except when otherwise indicated. Statement of compliance The consolidated financial statements of TAQA have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the applicable requirements of the UAE Commercial Companies Law 1984 (as amended). Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and each of its subsidiaries as at 31 December each year. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All significant inter-company balances, transactions and profits have been eliminated in full on consolidation. Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from the parent shareholders equity. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised in goodwill. 2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended IFRS and IFRICs interpretations as at 1 January. IFRIC 12 Service Concession Arrangements IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction IFRIC 11 IFRS 2 Group and Treasury Share Transactions IAS 39 (Amended) Financial Instruments: Recognition and Measurement IFRS 7 (Amended) Financial Instruments: Disclosures The adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group. However, the adoption of IFRIC 12 resulted in certain changes as discussed 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.

52 50 Notes to the Consolidated Financial Statements continued 31 December 2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Group s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods. Judgments In the process of applying the Group s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements: Reserves base Oil and gas assets Oil and gas development and production properties are depreciated on a unit of production basis at a rate calculated by reference to proved and probable reserves and incorporating the estimated future cost of developing and extracting those reserves. Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices. Future development costs are estimated using assumptions as to number of wells required to produce the commercial reserves, the cost of such wells and associated production facilities, and other capital costs. The level of estimated commercial reserves is also a key determinant in assessing whether the carrying value of any of the Group s development and production assets has been impaired. Service concession arrangements The Company s foreign subsidiaries have entered into power purchase agreements (PPA) with offtakers in countries where they are operating. Management has determined these arrangements to be service concession arrangements under IFRIC Interpretation 12 Service Concession Arrangements since the offtakers control the usage of the power plants (see also note 15). The Company s domestic (United Arab Emirates) subsidiaries have entered into long term Power and Water Purchase Agreements (PWPA) with Abu Dhabi Water and Electricity Company (ADWEC). Based on the terms of the Power and Water Purchase Agreements, management has determined that ADWEC does not control any residual interest in the plants at the end of the term of the Power and Water Purchase Agreements and therefore does not consider the PWPA to fall within the scope of IFRIC Interpretation 12 Service Concession Arrangements. Operating lease Subsidiaries as lessor As mentioned above the Company s domestic subsidiaries have entered into a PWPA. Under the PWPA, the subsidiaries receive payment for the provision of electrical and water capacity, whether or not ADWEC requests electrical and water output, ( capacity payments ) and for the variable costs of production ( energy and water payments ). The subsidiaries have determined the PWPA to be a lease and based on the contractual arrangements in place, that they retain the principal risks and rewards of ownership of the plants and so account for the PWPA as an operating lease. Investments and other financial assets Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through income statement, loans and receivables, held to maturity investments, or available for sale financial assets, as appropriate. The Group determines the classification of its financial assets after initial recognition and where allowed and appropriate, re-evaluates the designation at each financial year end. The Group treats available for sale investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires considerable judgement. The impairment loss on available for sale investments amounted to AED 30 million as of 31 December (: nil). Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Impairment of amounts due from ADWEC and trade receivables An estimate of the collectible amount is made when collection of the full amount is no longer probable. At the balance sheet date, the amounts due from ADWEC and trade receivables were AED 732 million (: AED 834 million) and AED 1,118 million (: AED 1,231 million) respectively. The provision for doubtful debts against ADWEC was AED 16 million (: AED 11 million) and no provision was made for trade receivables. Any difference between the amounts actually collected in future periods and the amounts expected to be recovered will be recognised in the consolidated income statement. Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the Group s policy for inventory provisioning. The gross carrying amount of inventories at 31 December was AED 1,771 million (: AED 1,519 million) and the provision for old and obsolete items was AED 42 million (: AED 25 million). Fair value of financial instruments Where the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

53 51 Impairment of property, plant and equipment Power and water generation assets Management determines whether there are any indications of impairment to the carrying values of property, plant and equipment at each reporting date because of the difference between the duration of contracted cash flows and accounting depreciation of assets. This requires an estimation of the value in use of the cash generating units. Estimating the value in use requires the Company s subsidiaries to make an estimate of the expected future cash flows for the period lying beyond the term of the initial PWPA and also choose a suitable discount rate in order to calculate the present value of those cash flows. No impairment provision was recognised during year ended 31 December (: AED nil). Impairment indicators Oil and gas assets The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the oil and gas price assumption may change which may in turn impact the estimated life of the field and may then result in a material adjustment to the carrying value of goodwill and tangible assets. The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets at each reporting date. Impairment of non financial assets The Group s impairment test for non financial assets is based on the higher of value in use calculation and fair values less costs to sell. The cash flows are derived from the financial budgets as approved by management and do not include restructuring activities that the group is not yet committed to or significant future investments that will enhance the asset base of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model, as well as the expected future cash flows and the growth rate used for the extrapolation purposes. The key assumptions used to determine the recoverable amount are further explained in notes 9 and 19 to the consolidated financial statements. Estimation of oil and gas reserves Oil and gas reserves are estimated by reference to available reservoir and well information, including production and pressure trends for producing reservoirs and, in some cases, subject to definitional limits, to similar data from other producing reservoirs. All proven and probable reserves estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from development and production activities have tended to be the most significant cause of annual revisions. Changes in oil and gas reserves are an important element in testing for impairment and will also affect the unit-of-production depreciation charges to the consolidated income statement. Asset retirement obligations/ Decommissioning costs Decommissioning costs will be incurred by the Group at the end of the operating life of certain of the Group s facilities and properties. The ultimate decommissioning costs or asset retirement obligations provisions are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at production sites. The expected timing and amount of expenditure can also change, for example in response to changes in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial results. The carrying amount of the provision as at 31 December is AED 4,903 million (: AED 1,252 million). Income taxes The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods. Post employment benefits For certain employees the Group retains an obligation for certain post employment benefits consisting of a share of retiree health insurance premiums and reimbursement of retiree payments for certain benefits. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to uncertainty. Contingencies By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.

54 52 Notes to the Consolidated Financial Statements continued 31 December 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue recognition Oil and gas Revenue from sale of oil and gas is recognised when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. This generally occurs when product is physically transferred into a vessel, pipe or other delivery mechanism. Revenue is stated after deducting sales taxes, royalities, and other similar levies as applicable. Lifting or offtake arrangements for oil and gas produced by certain of the Group s jointly owned assets are such that each participant may not receive and sell its precise share of the overall production in each period. The resulting imbalance between cumulative entitlement and cumulative production is underlift or overlift. Underlift and overlift are valued at market value and included within current assets and current liabilities respectively. Movements during an accounting period are adjusted through cost of sales such that gross profit is recognised on an entitlements basis. Gas storage The income from gas storage is recognised when the service is provided and accepted by customers. Water and electricity and supplemental fuel income The revenue recognition of the Group is as follows: (i) (ii) (iii) Where the Group determines that the PWPA/PPA contains a finance lease or meet the financial asset model for service concession arrangements, capacity payments are recognised as finance income using a rate of return specific to the plant to give a constant periodic rate of return on the net investment in each year. Where the Group determines that the PWPA/PPA contains an operating lease, capacity payments are recognized as operating lease rentals on a systematic basis and for those payments which are not included within minimum lease payments, as revenue including supplemental fuel income in accordance with the contractual terms of the PWPA/PPA, to the extent that capacity has been made available to the Offtaker during the year. Energy and water payments are recognised as revenue when the contracted power and water is delivered to the Offtaker. Liquidated damages Liquidated damages in respect of loss of revenue due to late commissioning are included in revenue net of liquidated damages when the right to receive the liquidated damages is established. Interest income Interest revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instruments to the net carrying amount of the financial asset). Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the consolidated income statement. Deferred income tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

55 53 Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the consolidated income statement. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Business combinations and goodwill Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of acquisition, irrespective of the extent of any minority interest. Goodwill is initially measured at cost being the excess of the cost of the business combination over the Group s share in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities. If the value of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract. Foreign currency translation The consolidated financial statements are presented in UAE Dirhams (AED), which is the Group s functional and presentation currency. Functional currency is the currency of the primary economic environment in which an entity operates. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated income statement with the exception of differences on foreign currency borrowings accounted for as a hedge of a net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the consolidated income statement. Tax charges and credits attributable to exchange differences on those borrowings are accounted for in equity. Non monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate. The assets and liabilities of foreign operations are translated into AED at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the consolidated income statement. Interest in a joint venture Interest in the joint ventures which are jointly controlled entities are accounted for using the equity method. The financial statements of the joint venture are prepared for the same reporting period as the parent company. Adjustments are made where necessary to bring the accounting policies into line with those of the Group. Adjustments are made in the Group s financial statements to eliminate the Group s share of unrealised gains and losses on transactions between the Group and its jointly controlled entities. Losses on transactions are recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss. Certain of the Group s activities in the oil and gas segment are conducted through joint ventures where the venturers have a direct ownership interest in and jointly control the assets of the venture. The Group accounts for its share of the jointly controlled assets, any liabilities it has incurred, its share of any liabilities jointly incurred with other ventures, income from the sale or use of its share of the joint venture s output, together with its share of the expenses incurred by the joint venture, and any expenses it incurs in relation to its interest in the joint venture. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of IFRIC 4.

56 54 Notes to the Consolidated Financial Statements continued 31 December 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Leases continued Group as a lessee Finance leases, which transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the consolidated income statement. Leased assets are depreciated over the useful life of the asset. However if, there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an expense in the consolidated income statement on a straight line basis over the lease term. Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is recorded at fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditures are reflected in the consolidated income statement in the year in which the expenditures are incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight line basis over the earlier of the useful life of the asset and the term of the related intangible assets and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The useful life of intangible assets with finite life is disclosed under note 18. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Accounting for intangible assets arising from oil and gas exploration and evaluation expenditure are explained under oil and natural gas exploration, evaluation and development expenditure. Oil and natural gas exploration, evaluation and development expenditure Exploration & evaluation costs - Capitalisation Pre-license costs and geological and geophysical exploration costs incurred prior to obtaining the rights to explore are recognised in the income statement when incurred. Costs incurred after the rights to explore have been obtained, such as geological and geophysical costs, drilling and commercial appraisal costs and other directly attributable costs of exploration and evaluation activity, including technical and administrative costs for each exploration asset, are capitalised as intangible exploration and evaluation ( E&E ) assets. E&E costs are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered at each field level then, following development sanction, the carrying value of the relevant E&E asset is reclassified as a development and production ( D&P ) asset. This category reclassification is only performed after the carrying value of the relevant E&E asset has been assessed for impairment, and where appropriate, its carrying value adjusted. If commercial reserves are not discovered at the completion of appraisal activity of each field and it is not expected to derive any future economic benefits, the E&E asset is written off to the income statement. Exploration and evaluation assets swaps For exchanges or parts of exchanges that involve only exploration and evaluation assets, the exchange is accounted for at amortised cost. Exchanges of development and production assets are measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the assets given up nor the assets received can be reliably estimated. Development costs Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells, is capitalised within oil and gas properties. Property, plant and equipment and oil and gas properties Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long term construction projects, if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the consolidated income statement as incurred. The initial estimate of the decommissioning obligation of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. The capitalised value of a finance lease where the Group is a lessee is also included within property, plant and equipment.

57 55 Depreciation is calculated on a straight line basis over the estimated useful lives of assets, except for oil and gas properties as follows: Buildings Plant and machinery Office equipment, fixtures and fittings Plant spares Asset retirement obligations 30 to 40 years 3 to 40 years (with 0-10% estimated residual value) 3 to 5 years 10 to 20 years 30 to 40 years The assets residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. The cost of spare parts held as essential for the continuity of operations and which are designated as strategic spares are depreciated on a straight line basis over the estimated remaining operating life of the plant and equipment to which they relate. Spare parts used for normal repairs and maintenance are expensed when issued. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year the asset is derecognised. Oil and gas properties - Cost Oil and gas properties in the development and production phase ( D&P assets) and other related assets are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation, and for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Oil and gas properties Depreciation, amortization and depletion Oil and gas properties are depreciated on a unit-of-production basis over the proved and probable ( 2P ) reserves of the field concerned, except in the case of assets whose useful life is shorter than the lifetime of the field, in which case the straight-line method is applied. The unit-of-production rate for the amortisation of field development costs takes into account expenditures incurred to date, together with estimated future development expenditure. Depreciation on oil and gas properties does not commence until the commencement of production from the property. Development and production asset swaps Exchanges of development and production assets are measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable. The cost of the acquired asset is measured at the fair value of the asset given up, unless the fair value of the asset received is more clearly evident. Where fair value is not used, the cost of the acquired asset is measured at the carrying amount of the asset given up. Any gain or loss on derecognition of the asset given up is recognised in the consolidated income statement. Major maintenance and repairs Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the group, the expenditure is capitalised. Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. Inspection costs associated with major maintenance programs are capitalised when the recognition criteria is met and amortised over the period to the next inspection. All other maintenance costs are expensed as incurred. Capital work in progress Capital work in progress is included in plant and machinery at cost on the basis of the percentage completed at the balance sheet date. The capital work in progress is transferred to the appropriate asset category and depreciated in accordance with the above policies when construction of the asset is completed and commissioned. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Initial spares fee The fee paid for initial spares to be provided under a long-term maintenance contract is amortised over the equivalent operating hours of the related power generating equipment. Investment in associates The Group s investment in associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Group s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is not amortised. The consolidated income statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Profits and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

58 56 Notes to the Consolidated Financial Statements continued 31 December 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Investment in associates continued The share of profit of associates is included in the consolidated income statement. This is the profit attributable to equity holders of the associate and therefore is profit after tax and minority interests in the subsidiaries of the associates. The financial statements of the associate are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. Impairment of associates After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss for the Group s investment in its associates. The Group determines at each reporting date whether there is any objective evidence that the investment in an associate is impaired. If this is the case the Group calculates the amount of impairment as being the difference between the fair value of the associate and the acquisition cost and recognises the amount in the consolidated income statement. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses of continuing operations are recognised in the consolidated income statement in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated income statement. The following criteria are also applied in assessing impairment of specific assets: Goodwill The Group assesses whether there are any indicators that goodwill is impaired at each reporting date. Goodwill is tested for impairment annually during the fourth quarter of each year and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Exploration & evaluation costs - Impairment An impairment review is performed if and when facts and circumstances indicate that the carrying value of an E&E asset may exceed its recoverable amount. For the purpose of E&E asset impairment tests, Cash Generating Units ( CGUs ) are grouped at the business segment level, as defined by IAS 14. An impairment test performed in the E&E phase therefore involves grouping all E&E assets within the relevant segment with the development & production (D&P) assets belonging to the same segment. The equivalent combined carrying value of the segment is compared to the segment s recoverable amount and any resulting impairment loss identified within the E&E asset is written off to the income statement. The recoverable amount of the segment is determined as the higher of its fair value less costs to sell and its value in use. Normal purchase or sale exemption Contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group s expected purchase, sale or usage requirements fall within the exemption from IAS 32 and IAS 39, which is known as the normal purchase or sale exemption. These contracts are accounted for as executory contracts. The Group recognises such contracts in its balance sheet only when one of the parties meets its obligation under the contract to deliver either cash or a non-financial asset. Inventories Inventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realisable value. Costs are those expenses incurred in bringing each item to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Service concessions The Group accounts for service concession arrangements under IFRIC 12 when the following conditions are met: the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price and the grantor controls through ownership, beneficial entitlement or otherwise any significant residual interest in the infrastructure at the end of the term of the arrangement.

59 57 In view of the above, concession infrastructure that does not meet the requirements of IFRIC 12 is still presented as property, plant and equipment. Under IFRIC 12, the operator s rights over the plant operated under concession arrangements are accounted for based on the partly primarily responsible for payment: the intangible asset model is applied when users have primary responsibility to pay for the concession services; and the financial asset model is applied when the grantor has the primary responsibility to pay the operator for the concession services. Primary responsibility signifies that while the identity of the payer of the services is not an essential criterion, the person ultimately responsible for payment should be identified. In cases where the local authority pays the Group but merely acts as an intermediary fee collector and does not guarantee the amounts receivable ( pass through arrangement ), the intangible asset model should be used to account for the concession since the users are, in substance, primarily responsible for payment. However, where the local authority guarantees the amounts that will be paid over the term of the contract (e.g., via a guaranteed internal rate of return), the financial asset model should be used to account for the concession infrastructure, since the local authority is primarily responsible for payment. The financial asset model is used to account for BOT (Build, Operate and Transfer) contracts entered into with local authorities. Pursuant to these principles: infrastructure to which the operator is given access by the grantor of the concession at no consideration is not recognized in the consolidated balance sheet; start-up capital expenditure is recognized as follows: under the intangible asset model, the fair value of construction and other work on the infrastructure represents the cost of intangible asset and should be recognised when the infrastructure is built provided that this work is expected to generate future economic benefits - where no such economic benefits are expected, the present value of commitments in respect of construction and other work on the infrastructure is recognized from the outset, with a corresponding adjustment to concession liabilities, under the financial asset model, the amount receivable from the grantor is recognized at the time the infrastructure is built, at the fair value of the construction and other work carried out, when the grantor has a payment obligation for only part of the investment, the cost is recognized in receivables for the amount guaranteed by the grantor, with the balance included in intangible assets. Financial assets Initial recognition Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. Financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. The Group s financial assets include cash and short-term deposits, operating financial assets, loan to an associate, trade and other receivables, available for sale investments and investment in associates. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit and loss are carried in the consolidated balance sheet at fair value with gains or losses recognised in the consolidated income statement. The Group has not designated any financial assets as at fair value through profit or loss. Derivatives embedded in host contracts are accounted for as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value. These embedded derivatives are measured at fair value with gains or losses arising from changes in fair value recognised in the consolidated income statement. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

60 58 Notes to the Consolidated Financial Statements continued 31 December 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Financial assets continued Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity. After initial measurement held-to-maturity investments are measured at amortised cost using the effective interest method. This method uses an effective interest rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Gains and losses are recognised in the consolidated income statement when the investments are derecognised or impaired, as well as through the amortisation process. The Group did not have any held-to-maturity investments during the years ended 31 December and. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial measurement, available-for-sale financial assets are measured at fair value with unrealised gains or losses recognised directly in equity until the investment is derecognised, at which time the cumulative gain or loss recorded in equity is recognised in the consolidated income statement, or determined to be impaired, at which time the cumulative loss recorded in equity is recognised in the consolidated income statement. Financial liabilities Initial recognition Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, directly attributable transaction costs. The Group s financial liabilities include trade and other payables, bank overdraft, interest bearing loans and borrowings, Islamic loans and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by IAS 39. Gains or losses on liabilities held for trading are recognised in the consolidated income statement. The Group has not designated any financial liabilities as at fair value through profit or loss. Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Fair value of financial instruments The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. Amortised cost of financial instruments Amortised cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

61 59 Loans, receivables and advances to customers For amounts due from loans, receivables and advances to customers carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in the consolidated income statement. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. Available-for-sale investments For available-for-sale financial investments, the Group assesses at each balance sheet date whether there is objective evidence that an investment or a group of investments is impaired. For equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the consolidated income statement, is removed from equity and recognised in the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairment are recognised directly in equity. Derecognition of financial instruments Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement: and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognised to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset, is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. When continuing involvement takes the form of a written and/or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the Group s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the Group s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated income statement. Derivative financial instruments and hedge accounting Initial recognition and subsequent measurement The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign exchange risks and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge, are taken directly to the consolidated income statement. The fair value of forward currency contracts is the difference between the forward exchange rate and the contract rate. The forward exchange rate is referenced to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

62 60 Notes to the Consolidated Financial Statements continued 31 December 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Derivative financial instruments and hedge accounting continued Initial recognition and subsequent measurement continued For the purpose of hedge accounting, hedges are classified as: fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment (except for foreign currency risk); or cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment; or hedges of a net investment in a foreign operation. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument s effectiveness in offsetting the exposure to changes in the hedged item s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges The change in the fair value of a hedging derivative is recognised in the consolidated income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in the consolidated income statement. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the consolidated income statement over the remaining term to maturity. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedge item is derecognised, the unamortised fair value is recognised immediately in the consolidated income statement. When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the income statement. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the consolidated income statement. Amounts taken to equity are transferred to the consolidated income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the consolidated income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the consolidated income statement. Current versus non-current classification Derivative instruments that are not a designated and effective hedging instrument are classified as current or non-current or separated into a current and non-current portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows). Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting), for a period beyond 12 months after the balance sheet date, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. Embedded derivates that are not closely related to the host contract are classified consistent with the cash flows of the host contract. Derivative instruments that are designated as, and are effective hedging instruments, are classifed consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be made.

63 61 Treasury shares The Company s own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of the Company s own equity instruments. Pensions and other post employment benefits Employees end of service benefits The Group provides end of service benefits to certain employees. The entitlement to these benefits is usually based upon the employees length of service and the completion of a minimum service year. The expected costs of these benefits are accrued over the years of employment. With respect to its UAE national employees, the Group makes contributions to the Abu Dhabi Retirement Pensions and Benefits Fund calculated as a percentage of the employees salaries. The Company s obligations are limited to these contributions, which are expensed when due. Defined benefit pension plan The cost of providing benefits under defined benefit plans is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses for the plan at the end of the previous reporting period exceeded the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plans. The past service cost is recognised as an expense on a straight line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognised immediately. The defined benefit asset or liability comprises the present value of the defined benefit obligation less past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled. The value of any asset is restricted to the sum of any past service cost not yet recognised and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Share-based payment transactions Certain qualifying employees receive part of their remuneration in the form of share-based payment transactions. The employees are granted notional units of the Company s ordinary shares which are settleable in cash (cash-settled transactions). The cost of the cash settled transactions is measured initially at fair value at the grant date based on the unit value determined by management of the Company. The fair value is expensed to the consolidated income statement in the year of grant with recognition of a corresponding liability (shown under other non-current liabilities ). The liability is remeasured at each balance sheet date up to and including the settlement date with changes in fair value recognised in the consolidated income statement. Cash and cash equivalents Cash and short term deposits in the consolidated balance sheet comprise cash at banks and on hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Provisions General Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Asset retirement obligations/ decommissioning liability Certain of the Company s subsidiaries have legal obligations in respect of site restoration and abandonment of their power generation and water desalination assets and oil and gas properties at the end of their useful lives (decommissioning costs). The Company s subsidiaries are required to record the fair value of the site restoration and abandonment costs of the assets at the end of their useful lives. Accordingly, a corresponding asset is recognised in property, plant and equipment. Decommissioning costs are recorded at the present value of expected costs to settle the obligations using estimated cash flows. The cash flows are discounted at the appropriate discount rate specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the consolidated income statement as a finance cost. The estimated future costs of the asset retirement obligation are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.

64 62 Notes to the Consolidated Financial Statements continued 31 December 2.5 FUTURE CHANGES IN ACCOUNTING POLICIES - STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards and interpretations issued but not yet effective and not applied by the Group - Effective for financial period beginning on or after 1 January Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements Amendments to IFRS 7 Financial Instruments: Disclosures IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial Statements IFRS 8 Operating segment IAS 1 Revised Presentation of Financial Statements IFRS 2 Share Based Payments (Revised) IAS 23 Borrowing Cost (Revised) IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items IFRIC 13 Customer loyalty programme IFRIC 15 Agreement for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-Cash Assets to Owners IFRIC 18 Transfers of Assets from Customers Improvements to IFRSs ( Project) In the opinion of management, the adoption of the above standards and interpretations will have no material impact on the financial position or performance of the Group. 3 BUSINESS COMBINATIONS Acquisitions in During the year ended 31 December, TAQA made the following acquisitions: (i) Acquisition of PrimeWest Energy Inc. In January, 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 was a Calgarybased 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 unit-holders. The acquisition was completed on 16 January (the completion date ). The fair value of the identifiable assets and liabilities of PrimeWest as at the completion date were: Fair value recognised on acquisition Previous carrying value (unaudited) Property, plant and equipment 15,215,720 13,655,033 Other assets 1,627 1,627 Inventories 1,671 1,671 Accounts receivables and prepayments 774, ,061 Bank balances and cash 246, ,255 16,239,334 14,678,647 Trade and other payables and accruals (2,437,434) (2,218,784) Asset retirement obligations (486,806) (486,806) Deferred tax liabilities (1,279,679) (964,374) (4,203,919) (3,669,964) Net assets 12,035,415 11,008,683 Goodwill arising on acquisition * 5,137,734 Total acquisition cost 17,173,149

65 63 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. Cash outflow on acquisition: Net cash acquired with the subsidiary 246,255 Acquisition cost paid in cash (17,173,149) Net cash outflow (16,926,894) *Balance of goodwill as at the date of acquisition 5,137,734 Exchange difference (930,438) Balance of goodwill as at 31 December 4,207,296 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 to 31 December, PrimeWest has contributed a profit of AED 377 million to the Group. (ii) Acquisition of interest in upstream assets in the Northern North Sea ( North Sea Assets ) In November, TAQA Bratani Limited, a wholly owned subsidiary of TAQA, acquired a business from the UK subsidiaries of Shell UK Limited and Esso Exploration and Production UK Limited comprising a package of upstream assets in the Northern North Sea together with related infrastructure, personnel and processes with an economic acquisition date of 1 January. The principal assets acquired as part of the business combination were 100% operated interests in the Tern, Eider, Pelican, North Cormorant, South Cormorant and Kestrel producing fields and a non-operated interest in the producing Hudson field. In addition to producing fields, the acquired business included an operated interest in the Brent Pipeline system and a non-operated interest in the Sullom Voe terminal. The acquisition was completed on 1 December (the completion date ). The fair value of the identifiable assets and liabilities of North Sea Assets as at the completion date were: Fair value recognised on acquisition Property, plant and equipment 5,095,336 Inventories 37,446 Accounts receivables and prepayments 123,512 5,256,294 Trade and other payables and accruals (263,439) Asset retirement obligations (3,391,340) Deferred tax liabilities (1,034,893) (4,689,672) Net assets 566,622 Goodwill arising on acquisition 1,043,760 Total acquisition cost 1,610,382 It has not been considered practicable to present the carrying values of the assets and liabilities immediately prior to the acquisition as the relevant balances were subsumed within the Shell UK Limited and Esso Exploration and Production UK Limited financial statements and reported under a different GAAP framework. The total acquisition cost of AED 1,610 million, comprised a payment of AED 1,462 million and an amount of AED 148 million relating to costs directly attributable to the acquisition. No cash was received within the acquired business and therefore the net cash outflow resulting from the acquisition equates to the total acquisition costs of AED 1,610 million. The goodwill recognised above is attributable to the recognition of deferred tax liabilities on acquisition. The fair value is based on a provisional purchase price allocation undertaken at the time of the completion date. The allocation will be finalised at a later date. From the date of acquisition to 31 December, North Sea assets have contributed AED 25 million to the profit of the Group.

66 64 Notes to the Consolidated Financial Statements continued 31 December 3 BUSINESS COMBINATIONS continued Acquisitions in continued (iii) Acquisition of BE Red Oak Holding LLC ( BE Red Oak ) During the fourth quarter of, TAQA GEN X LP, a subsidiary of TAQA completed the acquisition of all of the issued and outstanding membership interests of BE Investment Holding Inc., a Delaware Corporation (BEIH) in BE Red Oak Holding LLC and all assigned contracts in the business owned by J.P Morgan Ventures Energy Corporation (JPMVEC), a Delaware Corporation. BE Red Oak Holding LLC (BE Red Oak) is a Delaware Limited Liability Company and has a wholly owned subsidiary BE Red Oak LLC, a Delaware Limited Liability Company which holds a contractual interest in the Tolling Agreement for a combined cycle generation facility with a design electric generation capacity of approximately 764 MW located in Sayreville, New Jersey which facility is owned by AES Red Oak. The Tolling Agreement is defined as certain Fuel Conversion Services, Capacity and Ancillary Services Purchase Agreement dated 17 September 1999 between BE Red Oak and AES Red Oak, as amended. The acquisition was completed on 31 December. The fair value of the identifiable assets and liabilities of BE Red Oak as at the completion date were: Fair value recognised on acquisition Intangible assets 835,608 Trade and other payables and accruals (21,603) Net assets 814,005 Goodwill arising on acquisition 21,601 Total acquisition cost 835,606 It has not been considered practicable to present the carrying values of the assets and liabilities immediately prior to the acquisition as the relevant balances were reported under a different GAAP framework. The total acquisition cost of AED million, comprised solely of a cash payment. No cash was received within the acquired business and therefore the net cash outflow resulting from the acquisition equates to the cash payment of AED million. The fair value is based on a provisional purchase price allocation undertaken at the time of the completion date. The allocation will be finalised at a later date. Since the acquisition occurred on 31 December, no profit was contributed by the operations of BE Red Oak during the year. Acquisitions Profit and revenues If all the above acquisitions had taken place at the beginning of the year, the profit of the Group would have been AED 2,607 million and revenues would have been AED 20,254 million.

67 65 Acquisitions in During the year ended 31 December, TAQA made the following acquisitions: (i) Acquisition of BP Nederland Energie B.V ( TAQA Energy BV ) TAQA on behalf of its wholly-owned subsidiary TAQA Europa BV signed a Share Purchase Agreement ( SPA ) with AMOCO Netherlands Petroleum Company and BP Corporation North America Inc (the Seller ) for the purchase of the entire share capital of BP Nederland Energie B.V. with an economic effective date from 1 July 2006 ( Economic date ). The acquisition was completed on 31 January (the Completion date ) and accordingly as of that date BP Nederland Energie B.V. became a wholly owned subsidiary of TAQA. The fair value of the identifiable assets and liabilities of BP Netherland Energie B.V. as at the completion date were: Fair value recognised on acquisition Previous carrying value (unaudited) Property, plant and equipment 2,336, ,063 Other assets Trade receivables 105, ,798 Other receivables, deposits and prepayments 72,698 72,698 Inventory 4,903 4,903 Bank balances and cash 380, ,083 2,899,945 1,048,821 Trade and other payables (6,421) (6,421) Asset retirement obligations (235,315) (235,315) Deferred tax liability (474,086) (8,906) Other liabilities (132,711) (132,711) (848,533) (383,353) Net assets acquired 2,051, ,468 Goodwill arising on acquisition * 600,744 Total acquisition cost 2,652,156 The total acquisition cost of AED 2,652 million, which was paid in cash, comprises of the cost of the acquisition of AED 2,636 million and other directly attributable costs of AED 16 million. Cash outflow on acquisition: Net cash acquired with the subsidiary 380,083 Acquisition cost paid in cash (2,652,156) Net cash outflow (2,272,073) *Balance of goodwill as at the date of acquisition 600,744 Exchange difference 73,660 Balance of goodwill as at 31 December 674,404 The fair value is based on the purchase price allocation undertaken at the time of acquisition. The allocation has been finalised as at 31 December. The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of BP Netherland Energie BV with those of the Group as well as the expected cash flows from the development of oil and gas fields and gas storage facilities. From the date of acquisition to 31 December, TAQA Energy BV has contributed AED 79 million to the profit of the Group.

68 66 Notes to the Consolidated Financial Statements continued 31 December 3 BUSINESS COMBINATIONS continued Acquisitions in continued (ii) Acquisition transaction - CMS and ABB TAQA signed a Share Purchase Agreement ( SPA ) with each of CMS Enterprises Company (a subsidiary of CMS Energy, a company incorporated in the United States) and ABB Group (referred to as: Acquisition transaction - CMS and ABB). The businesses included in the sale deal with CMS Enterprises are CMS Generation ownership interests in the Jorf Lasfar Energy Company in Morocco (50% interest), the ST-CMS Electric Company in Neyveli, India (50% interest), the Jubail Energy Company in the Kingdom of Saudi Arabia (25% interest), the Takoradi International Company in Ghana (90% interest), Emirates CMS Power Company in U.A.E. (an existing subsidiary - 40% interest), Shuweihat CMS International Power Company in U.A.E (an existing subsidiary - 20% interest) and the related Operation and Maintenance companies and the special purpose companies set up to own the interests of CMS Generation Company in these companies. The businesses included in the ABB Group sale deal are the ABB Group interest in Jorf Lasfar Energy Company in Morocco (50% interest) and ST CMS Electric Company in Neyveli, India (50% interest) and the special purpose companies set up to own the interests of ABB Group in these companies. The two deals were completed on 2 May and were structured to be completed simultaneously. The fair value of the identifiable assets and liabilities of the entities acquired from CMS Generation Company and ABB Group excluding Jubail Energy Company in the Kingdom of Saudi Arabia (25% interest), Emirates CMS Power Company in U.A.E. (an existing subsidiary - 40% interest) and Shuweihat CMS International Power Company in U.A.E (an existing subsidiary - 20% interest), as at the completion date were: Fair value recognised on acquisition Previous carrying value (unaudited) Net investment in lease 6,013,781 5,159,077 Property, plant and equipment 33,486 48,651 Other assets 53,457 53,457 Accounts receivables 607, ,547 Inventory 297, ,514 Bank balances and cash 520, ,155 7,526,357 6,677,401 Term loans (2,309,685) (2,303,481) Trade and other payables (563,118) (653,862) Employees end of service benefits (11,379) (11,379) Deferred tax liability (324,538) (71,594) (3,208,720) (3,040,316) Net assets acquired 4,317,637 3,637,085 Goodwill arising on acquisition 60,002 Total acquisition cost 4,377,639 The total acquisition cost of AED 4,378 million, which was paid in cash, comprises of the cost of the acquisition of AED 4,345 million and other directly attributable costs of AED 33 million. Cash outflow on acquisition: Net cash acquired with the subsidiary 520,155 Acquisition cost paid in cash (4,377,639) Net cash outflow (3,857,484) The fair value has been based on the purchase price allocation undertaken at the time of acquisition. The allocation has been finalised at 31 December. 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 to 31 December, the entities acquired have contributed AED 382 million to the profit of the Group.

69 67 (iii) Acquisition of Northrock Resources Limited TAQA signed a Share Purchase Agreement ( SPA ) with POGO Producing Company (the Seller ) for the sale of Northrock Resources Ltd ( Northrock ) entire share capital to TAQA for an amount of US$ 2,000 million with an economic effective date of 1 January ( Economic date ). The acquisition was completed on 14 August (the Completion date ) and, effective that date, Northrock and the special purpose company formed for the purpose of acquiring Northrock were amalgamated to form TAQA North. The fair value of identifiable assets, liabilities of TAQA North as at the completion date were: Fair value recognised on acquisition Previous carrying value (unaudited) Property, plant and equipment 8,178,424 8,636,856 Intangible assets - 2,895,640 Inventories 58,629 94,188 Accounts receivable and prepayments 237, ,685 Other assets 111,639 57,058 Bank balances and cash 102, ,788 8,689,092 11,952,215 Accounts payable (432,260) (415,719) Asset retirement obligations (177,163) (190,950) Deferred tax liability (1,641,413) (2,517,180) Other liabilities (64,287) (12,010) (2,315,123) (3,135,859) Net assets acquired 6,373,969 8,816,356 Goodwill arising on acquisition* 945,669 Total acquisition cost 7,319,638 The total acquisition cost of AED 7,320 million, which was paid in cash, comprises of the cost of the acquisition of AED 7,308 million and other directly attributable costs of AED 12 million. Cash outflow on acquisition: Net cash acquired with the subsidiary 102,788 Acquisition cost paid in cash (7,319,638) Net cash outflow (7,216,850) *Balance of goodwill as at the date of acquisition 945,669 Exchange difference 56,444 Balance of goodwill as at 31 December 1,002,113 The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of Northrock Resources Limited with those of the Group as well as cash flows from the development of oil fields and gas storage facilities. The fair value is based on the purchase price allocation undertaken at the time of the completion date. The allocation has been finalised in. From the date of acquisition to 31 December, TAQA North has contributed AED 325 million to the profit of the Group.

70 68 Notes to the Consolidated Financial Statements continued 31 December 3 BUSINESS COMBINATIONS continued Acquisitions in continued (iv) Acquisition of Pioneer Canada Limited In August TAQA North, a wholly owned subsidiary of TAQA signed a Share Purchase Agreement ( SPA ) with Pioneer International Resources Company for the acquisition of its wholly owned Canadian subsidiaries, Pioneer Natural Resources Canada Inc., Pioneer Natural Resources Canada, and Pioneer Natural Resources Canada ULC. Pioneer Canada is an oil and gas exploration and production company with operations across the West Canadian Sedimentary Basin. Completion of this acquisition was achieved on 27 November (the Completion date ). The fair value of identifiable assets, liabilities of Pioneer Canada Limited as at the date of acquisition were: Fair value recognised on acquisition Previous carrying value (unaudited) Property, plant and equipment 1,961,775 2,022,354 Intangible assets - 248,228 Inventories 18,477 21,575 Accounts receivable and prepayments 37,448 47,470 Other assets Deferred tax asset 60,957 - Bank balances and cash 8,801 8,801 2,087,863 2,348,498 Accounts payable (69,913) (54,570) Asset retirement obligations (80,572) (112,335) Other liabilities (604,414) - Deferred tax liability - (190,350) (754,899) (357,255) Net assets acquired 1,332,964 1,991,243 Goodwill arising on acquisition* 607,131 Total acquisition cost 1,940,095 The total acquisition cost of AED 1,940 million, which was paid in cash, comprises of the cost of the acquisition of AED 1,931 million and other directly attributable costs of AED 9 million. Cash outflow on acquisition: Net cash acquired with the subsidiary 8,801 Acquisition cost paid in cash (1,940,095) Net cash outflow (1,931,294) *Balance of goodwill as at the date of acquisition 607,131 Exchange difference (60) Balance of goodwill as at 31 December 607,071 The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of Pioneer Canada Limited with those of the Group as well as cash flows from the development of oil fields and gas storage facilities. The fair value is based on the purchase price allocation undertaken at the time of the completion date. The allocation has been finalised in. From the date of acquisition to 31 December, Pioneer Canada Limited has contributed AED 7.1 million to the profit of the Group.

71 69 (v) Acquisition of interest in Brae oil and gas fields During the fourth quarter of 2006, TAQA on behalf of its wholly-owned subsidiary TAQA Bratani Limited signed a Share Purchase Agreement ( SPA ) with Talisman Energy UK Limited and Talisman LNS Limited (the Seller ) for the sale of the Seller s interest in Brae oil and gas fields and certain pipeline assets for an amount of US$ 550 million with an economic effective date from 1 January ( Economic Date ). It was agreed that the assets would be transferred to TAQA on the completion date which is the same date when TAQA obtains control over the interests as per the terms of the Agreement. The acquisition was completed on 31 December (the Completion Date ). The acquisition was provisionally accounted for as of 31 December as an acquisition of assets and the acquisition cost was included in the additions to oil and gas assets in. Following receipt of further guidance and additional information in respect of the acquisition, it was concluded that the acquisition meets the requirements of IFRS 3 Business Combinations. The comparative figures for have been restated accordingly. The fair value of the identifiable assets and liabilities as at the completion date were: Fair value recognised on acquisition Property, plant and equipment 2,290,582 Trade and other payables and accruals (46,258) Asset retirement obligations (397,496) Deferred tax liabilities (883,885) (1,327,639) Net assets 962,943 Goodwill arising on acquisition 883,885 Total acquisition cost 1,846,828 There was no impact on the consolidated income statement as a result of treating the acquisition as a business combination. It has not been considered practicable to present the carrying values of the assets and liabilities immediately prior to the acquisition as the relevant balances were subsumed within the Talisman Energy UK Limited and Talisman LNS Limited financial statements. The total acquisition cost of AED 1,847 million, comprised solely of a cash payment. No cash was received within the acquired business and therefore the net cash outflow resulting from the acquisition equates to the total acquisition costs of AED 1,847 million. The goodwill recognised above is attributable to the recognition of deferred tax liabilities on acquisition. The fair value is based on a provisional purchase price allocation undertaken at the time of the completion date. The allocation has been finalised as at 31 December. Acquisitions profit and revenues If all of the above acquisitions had taken place at the beginning of, the profit of the Group would have been AED 1,709 million and revenues would have been AED 11,478 million. 4 SEGMENTAL ANALYSIS The primary segment reporting format is determined to be business segments as the Group s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. 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 the Abu Dhabi grid. In addition, this segment is engaged in generation of electricity in Morocco, India and Ghana. Oil and Gas Segment This segment is engaged in Upstream and Midstream oil and gas activities in the Netherlands, Canada and United Kingdom. Transfer prices between operating segments are on an arm s length basis in a manner similar to transactions with third parties. The Group s geographical segments are based on the location of the Group s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.

72 70 Notes to the Consolidated Financial Statements continued 31 December 4 SEGMENTAL ANALYSIS continued Business segment The following table presents revenue, results and certain asset and liability information regarding the Group s business segments: Power and water generation Oil and gas Unallocated Total Year ended 31 December Results Revenue 8,602,116 8,203,422-16,805,538 Segment results 3,114,464 3,378,897 (254,395) 6,238,966 Share of results of associates 10,073-29,729 39,802 Gain on sale of interest in subsidiaries and associate 322, ,523 Finance costs - - (3,761,927) (3,761,927) Net foreign exchange gain , ,766 Interest and investment income , ,256 Provisions for impairment - (387,091) (29,641) (416,732) Gain on repurchase of bonds , ,449 Other income 38,465 1,049 1,836 41,350 Profit before tax 3,108,453 Income tax charge (913,312) Profit for the year 2,195,141 Assets and liabilities Segment assets 44,778,450 40,465, ,548 86,176,766 Investment in associates 34, , ,788 Total assets 44,812,590 40,465,768 1,109,196 86,387,554 Segment liabilities 7,077,214 11,668,508 59,894,710 78,640,432 Other segment information Capital expenditure: Property, plant and equipment 1,147,647 1,727,652 12,657 2,887,956 On business combinations - 20,311,056-20,311,056 Intangible assets 1,183,674 6,489,530-7,673,204 Depreciation 982,425 2,506,561 2,936 3,491,922 Amortisation of connection rights 32, ,827 Amortisation of initial spares 10, ,394 Impairment of property, plant and equipment - 387, ,091

73 71 Power and water generation Oil and gas Unallocated Total Year ended 31 December Results Revenue 6,912,468 1,424,319-8,336,787 Segment results 2,806, ,223 (198,762) 2,997,342 Share of results of associates 8,304-17,150 25,454 Gain on disposal of subsidiaries 157, ,902 Finance costs - - (2,528,802) (2,528,802) Net foreign exchange gain ,393 78,393 Interest and investment income , ,713 Other income ,310 20,310 Profit before tax 1,318,312 Income tax credit 57,314 Profit for the year 1,375,626 Assets and liabilities Segment assets 44,097,575 19,683,323 4,903,343 68,684,241 Investment in associates 38, , ,822 Total assets 44,136,477 19,683,323 5,050,263 68,870,063 Segment liabilities 3,164,133 5,196,216 52,380,649 60,740,998 Other segment information Capital expenditure: Property, plant and equipment 2,342, ,828 16,862 2,890,475 On business combinations 34,258 14,766,196-14,800,454 Intangible assets 319,143 3,037,429-3,356,572 Depreciation 898, , ,388,831 Amortisation of connection rights 28, ,762 Amortisation of initial spares 10, ,039

74 72 Notes to the Consolidated Financial Statements continued 31 December 4 SEGMENTAL ANALYSIS continued Geographical segments The following tables present revenue, expenditure and certain asset and liability information relating to the Group s geographical segments: UAE Americas Europe Africa Others Total Year ended 31 December : Revenue 4,408,775 6,296,498 1,906,294 3,686, ,478 16,805,538 Other segment information: Segment assets 36,564,490 29,045,955 12,615,923 6,718,678 1,231,720 86,176,766 Investment in associates 176, , ,788 Total assets 36,741,135 29,045,955 12,615,923 6,718,678 1,265,863 86,387,554 Segment liabilities 60,855,796 8,028,624 6,902,440 2,213, ,492 78,640,432 Capital expenditure: Property, plant and equipment 1,111,321 1,494, ,951 17,435 4,473 2,887,956 On business combinations - 15,215,720 5,095, ,311,056 Intangible assets 348,066 6,216,911 1,108, ,673,204 Impairment of property, plant and equipment - 387, ,091 UAE Americas Europe Africa AED 000 Others Total Year ended 31 December : Revenue 4,769, , ,468 1,887, ,362 8,336,787 Other segment information: Segment assets 40,525,919 13,365,165 7,216,609 6,358,403 1,218,145 68,684,241 Investment in associates 150, , ,822 Total assets 40,676,383 13,365,165 7,216,609 6,358,403 1,253,503 68,870,063 Segment liabilities 52,377,145 2,946,903 2,532,612 2,146, ,032 60,740,998 Capital expenditure: Property, plant and equipment 2,324, , ,996 6,920 4,739 2,890,475 On business combinations - 10,139,999 4,626,197 31,186 3,072 14,800,454 Intangible assets 259,141 1,552,800 1,484,629 23,000 37,002 3,356,572 5 REVENUES 5.1 Revenue from oil and gas Gross oil and gas revenue 9,078,682 1,346,871 Less: royalties (1,622,523) (225,608) 7,456,159 1,121,263

75 Revenue from electricity and water Operating lease revenue 3,464,518 3,229,184 Revenue from operating financial assets (note 15) 804, ,478 Energy payments and other related revenue 1,265, ,079 5,534,691 4,716, Other operating revenue Transportation income for oil and gas 80,001 - Net processing income 68,484 - Sulphur sales 48,297 - Tariff income 24,525 - Other operating revenue 22,049 6, ,356 6, Net liquidated damages received The above represents delay liquidated damages recognised by the Company s subsidiaries from their respective contractors as compensation for loss of revenue. These are recognised by the subsidiaries net of the amounts incurred by them as delay liquidated damages to ADWEC. 6 REPAIRS, MAINTENANCE AND OTHER OPERATING EXPENSES Repairs, maintenance and consumables used 817, ,429 Operating and maintenance charges 758, ,717 Oil and gas operating costs 900,874 90,462 Transportation costs 79,770 19,151 Other 90,408 76,615 2,647,145 1,276,374 7 DEPRECIATION, DEPLETION AND AMORTISATION Depreciation of property, plant and equipment and depletion of oil and gas assets (note 14) 3,491,922 1,388,831 Amortisation of initial spares fees (note 16) 10,394 10,039 Amortisation of intangible assets (note 18) 32,827 28,762 3,535,143 1,427,632 8 ADMINISTRATIVE AND OTHER EXPENSES Salaries and related expenses 377, ,515 Professional fees and business development expenses 183, ,310 Withholding tax adjustments 65,540 - Others 146,514 97, , ,108

76 74 Notes to the Consolidated Financial Statements continued 31 December 9 PROVISIONS FOR IMPAIRMENT Property, plant and equipment (note below) 387,091 - Available for sale investment (note 17) 29, ,732 - At 31 December an impairment loss of AED 387 million (note 14) recognised in the consolidated income statement representing the write down of certain oil and gas properties located in the United States of America to their recoverable amount. These assets, included in the oil and gas segment, comprised of light oil reserves with long reserve life located mainly in North Dakota, Montana and Wyoming. The recoverable amount was based on value in use and was determined at the level of the cash generating unit. In determining value in use for the cash generating unit, the cash flows were discounted at the rate of 9% on a pre-tax basis. The write-down was mainly as a result of the deterioration in the economic environment and the value of these assets may be recovered in future periods if the economic environment recovers. 10 FINANCE COSTS Finance costs relating to bonds and notes 1,342, ,920 Finance costs relating to interest bearing loans and borrowings and Islamic loans 2,305,585 1,669,194 Notional interest expense (note 35(ii)) 1,535 1,309 Assets retirement obligation accretion expense (note 34) 112,027 29,379 3,761,927 2,528, INTEREST AND INVESTMENT INCOME Gain from sale of available for sale investments - 46,143 Interest income on short term bank deposits 158, , , , INCOME TAX The major components of income tax (expense) credit for the years ended 31 December and are: Consolidated income statement Current income tax: Current income tax charge (633,516) (187,876) Deferred income tax: Relating to origination and reversal of temporary differences (279,796) 245,190 Income tax (expense) credit reported in the consolidated income statement (913,312) 57,314 A reconciliation between tax expense and the product of accounting profit multiplied by effective income tax rate for the years ended 31 December and is as follows:

77 75 Accounting profit before income tax 3,108,453 1,318,312 Non-taxable income (including income in non-taxable jurisdictions) (1,289,827) (971,997) Total taxable income 1,818, ,315 At the effective income tax rate of 34% (: 20.5%) 617,892 70,995 Adjustment in respect to income tax of previous years 57,299 - Withholding tax 117,830 14,686 Reduction in tax rates - (182,519) Petroleum tax 173,110 68,592 Currency exchange (92,566) - Others 39,747 (29,068) Income tax expense (credit) reported in the consolidated income statement 913,312 (57,314) The effective income tax rate represents the rate to which the Group s taxable income is subject to and is therefore the weighted average of the tax rates in the different jurisdictions in which the Group operates. The increase in the effective tax rate is due to operations in a jurisdiction with higher tax rate than other locations. Deferred income tax Deferred income tax at 31 December relates to the following: Consolidated balance sheet Consolidated income statement Deferred tax liability: Accelerated depreciation for tax purposes 266,191 54,751 (344,200) (3,366) Fair value adjustments on acquisition 4,589,144 3,355, ,099 59,530 Post-employment medical benefits (9,978) (13,550) (1,907) (1,001) Income withholding 37,047 - (37,047) - Others 339,246 (202,607) (46,741) 190,027 5,221,650 3,193,735 (279,796) 245,190 The Group has tax losses of AED 19 million (: AED 12 million) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. At 31 December, the total unrecognised deferred tax liability that would be payable on the unremitted earnings of certain of the Group s subsidiaries amount to AED 48 million (: nil). There are no income tax consequences attaching to the payment of dividends in either or by TAQA to its shareholders. 13 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 year. 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 year, adjusted for the effects of dilutive instruments. The following reflects the income and shares data used in the earnings per share computations: Profit for the period attributable to equity holders of the parent () 1,825,168 1,034,599 Weighted average number of ordinary shares issued ( 000) 5,011,563 4,150,000 Basic earnings per share (AED) No figure for diluted earnings per share has been presented as the Company has not issued any instruments which would have an impact on earnings per share when exercised. The weighted average number of shares take into account the treasury shares as at year end.

78 76 Notes to the Consolidated Financial Statements continued 31 December 14 PROPERTY, PLANT AND EQUIPMENT Capital work in progress Building, equipment, plant and machinery Oil and gas assets Plant spares Total Cost: At 1 January (restated) 5,417,607 29,418,372 15,287, ,872 50,301,569 Additions 914, ,729 1,727,652 26,089 2,887,956 Attributable to acquisition of subsidiaries (note 3) ,311,056-20,311,056 Transfer to related party (note 40) (348,066) (348,066) Transfers (4,782,574) 4,617, ,855 (3,711) - Exchange adjustment (5) (25,003) (5,545,576) - (5,570,584) At 31 December 1,201,448 34,230,528 31,949, ,250 67,581,931 Depreciation and depletion: At 1 January - 3,607, ,490 20,927 4,108,887 Charge for the year - 1,017,147 2,467,868 6,907 3,491,922 Exchange adjustment - (4,246) (427,199) (623) (432,068) At 31 December - 4,620,371 2,521,159 27,211 7,168,741 Net carrying amount at 31 December before provision for impairment in value 1,201,448 29,610,157 29,428, ,039 60,413,190 Provision for impairment - - (387,091) - (387,091) Net carrying amount: At 31 December 1,201,448 29,610,157 29,041, ,039 60,026,099 (restated) Cost: At 1 January 6,181,309 25,703, ,164 32,036,672 Additions 2,368,880 69, ,110 35,349 2,890,475 Disposals - (4,305) - - (4,305) Attributable to acquisition of subsidiaries 19, ,859 14,305,271-14,800,454 Transfers (3,150,478) 3,159, (9,641) - Exchange adjustment (1,428) 14, , ,273 At 31 December 5,417,607 29,418,372 15,287, ,872 50,301,569 Depreciation and depletion: At 1 January - 2,693,916-14,395 2,708,311 Charge for the year - 912, ,619 6,532 1,388,831 Adjustments for disposals - (237) - - (237) Exchange adjustment - 1,111 10,871-11,982 At 31 December - 3,607, ,490 20,927 4,108,887 Net carrying amount: At 31 December 5,417,607 25,810,902 14,807, ,945 46,192,682 Capital work in progress additions include capitalised borrowing costs of AED million (: AED million). At 31 December the net book value of property, plant and equipment financed by Islamic financing arrangements amounted to AED 3,455 million (: AED 3,564 million). The estimated useful life of one of the subsidiary s plant and machinery was revised as from 1 January, following a review by a third party estimator, from 23 years (with 25% estimated residual value) to 40 years (with no residual value). The net effect of the revision in the estimated useful life of the subsidiary s plant and machinery is a reduction in the depreciation charge of AED 37 million for the year ended 31 December.

79 77 15 OPERATING FINANCIAL ASSETS Total consideration receivable 14,422,522 15,761,295 Unearned revenue (8,686,513) (9,693,268) Operating financial assets 5,736,009 6,068,027 Analysed in the balance sheet as follows: Non current portion 5,471,987 5,800,588 Current portion 264, ,439 5,736,009 6,068,027 The movement in unearned revenue is as follows: At 1 January 9,693,268 - Attributable to acquisition of subsidiaries - 10,081,641 Recognised during the year (note 5.2) (804,490) (546,478) Exchange adjustment (202,265) 158,105 At 31 December 8,686,513 9,693,268 TAQA manages three concession contracts as defined by IFRIC 12, mainly covering electricity generation. 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. 16 INITIAL SPARES FEE Cost: Balance at 1 January and 31 December 146, ,623 Amortisation: At 1 January (33,377) (23,338) Charge for the year (note 7) (10,394) (10,039) At 31 December (43,771) (33,377) Net carrying amount at 31 December 102, , AVAILABLE FOR SALE INVESTMENTS Investments in United Arab Emirates Unquoted investments Investments outside United Arab Emirates (UAE) Unquoted investment 146,201 98,805 Total available for sale investments 146,877 99,481

80 78 Notes to the Consolidated Financial Statements continued 31 December 17 AVAILABLE FOR SALE INVESTMENTS continued Movement in available for sale investments outside UAE is as follows: At 1 January 99, Additions 90,632 98,805 Changes in fair value during the year (13,595) - Impairment losses recognised in income statement (note 9) (29,641) - At 31 December 146,877 99,481 Unquoted investment outside UAE Unquoted investment outside UAE represents investment made in an infrastructure fund managed by a third party. The Company has committed to invest US $200 million (AED 753 million) in the fund over a period of 5 years. The total investment made to date in the fund amounted US $52 million (AED 191 million) (: US $27 million (AED 99 million)). All changes in the fair value of the available for sale investment are shown under equity. During the year impairment losses of AED 30 million has been charged to the consolidated income statement (note 9). 18 INTANGIBLE ASSETS Exploration and evaluation assets Tolling agreement Connection rights Goodwill Total Cost: At 1 January (restated) - - 1,042,676 3,392,090 4,434,766 Revision to purchase price allocation , ,080 Additions 113, , ,421 Acquisition of subsidiaries (note 3) - 835,608-6,203,095 7,038,703 Goodwill written off on partial disposal of subsidiary (162,486) (162,486) Exchange differences (10,048) - - (1,460,498) (1,470,546) At 31 December 103, ,608 1,390,742 8,145,281 10,474,938 Amortisation and impairment: At 1 January ,849-83,849 Amortisation for the year ,827-32,827 At 31 December , ,676 Net book value: At 31 December 103, ,608 1,274,066 8,145,281 10,358,262 (restated) Cost: At 1 January - - 1,042,676-1,042,676 Acquisition of subsidiaries ,097,431 3,097,431 Acquisition of minority interests , ,141 Goodwill written off on partial disposal of subsidiary (96,655) (96,655) Exchange differences , ,173 At 31 December - - 1,042,676 3,392,090 4,434,766 Amortisation and impairment: At 1 January ,087-55,087 Amortisation for the year ,762-28,762 At 31 December ,849-83,849 Net book value: At 31 December ,827 3,392,090 4,350,917

81 79 Tolling agreement As part of the acquisition of BE Red Oak Holding LLC on 31 December (see note 3), the Group acquired a fuel conversion services, capacity and ancillary services purchase agreement ( tolling agreement ) for an amount of AED million (US $227.5 million). Under the terms of the tolling agreement, the Group would be entitled to the economic rights (revenue from sale of electricity, capacity payments and any other ancillary services) of a power plant located in New Jersey, USA and the Group is obligated to supply the fuel and also make certain fixed and variable payments to the operator. The cost of the intangible asset will be amortised on a straight line basis over 14 years, being the remaining term of the tolling agreement. Connection rights The intangible assets arose from the transfer, made by the Company s subsidiaries Emirates CMS Power Company, Shuweihat CMS International Power Company, Arabian Power Company and Taweelah Asia Power Company during year ended 31 December 2002, 31 December 2005, 31 December 2006 and 31 December respectively, of certain assets to a related party in accordance with the terms of individual agreements and represent the acquisition cost of the right of connection to the transmission systems at the connection sites for a period of 38, 33, 37 and 40 years respectively. The connection rights cost is being amortised on a straight line basis over 38, 33, 37 and 40 years respectively, being the expected period of benefit. 19 IMPAIRMENT TESTING OF GOODWILL Goodwill acquired through business combinations have been allocated to two cash-generating units for impairment testing as follows: Oil and gas assets cash-generating unit; and Power and water generation assets cash-generating unit. Carrying amount of goodwill allocated to each of the cash-generating units: Oil and gas assets Power and water generation assets Total Carrying amount of goodwill 8,063,676 3,167,473 81, ,617 8,145,281 3,392,090 Oil and gas assets Goodwill acquired through business combinations has been allocated first to business segments and then down to the next level of cash generating unit that is expected to benefit from the synergies of the acquisition. The recoverable amount of the oil and gas assets has been determined using the value in use calculation using cash flow projections from financial budgets approved by senior management using a discounted cash flow model after taking into account the effect of synergies as described in note 3. These are derived from the exploration and production assets and gas storage facilities assets. In the case of exploration and production assets the cash flow projections are based on the cash flows expected to be generated by the projected oil or natural gas production profiles of each producing field using the appropriate models and key assumptions as approved by senior management and in most cases verified by third party reserve auditors. In the case of the gas storage facilities assets the cash flow projections are based on the projected 40 year business plan. Management believes that the business plan provides reliable and accurate estimates of the cash flows expected to be generated. The future cash flows are usually adjusted for risks specific to the asset and discounted using a pre-tax discount rate of 9% (see below). Power and water generation assets For power and water generation, goodwill has been kept at the segment level where the synergies are expected to be realised. The Group generally uses value in use to estimate the recoverable amount unless the fair value less costs to sell information is available and reliable. Where both information are available, the recoverable amount is the higher of fair value less costs to sell and value in use. The Group estimates value in use by using a discounted cash flow model. The future cash flows are usually adjusted for risks specific to the asset and discounted using a pre-tax rate range 8.85% to 11.59% (see below). Key assumptions used in value in use calculations oil and gas assets The calculation of value in use for oil and gas assets is most sensitive to the following assumptions: Production volumes; Inflation rates; Price of crude oil and gas; Cash flows relating to gas storage; Gross margin; and Discount rates Production volumes Estimated production volumes are based on data generated for each field taking into consideration the development plans for the field as approved by senior management.

82 80 Notes to the Consolidated Financial Statements continued 31 December 19 IMPAIRMENT TESTING OF GOODWILL continued Inflation rates Estimates are obtained from published indices for the countries from which products and services are originated, as well as data relating to specific commodities. Forecast figures are used if data is publicly available. Price of crude oil Prices are based on the forward average prices for 2009 and thereafter management s long term price assumptions. Cash flows relating to gas storage Cash flows relating to gas storage are based on assumptions on delivery capacity, injection capacity, working volumes and expected availability. The assumptions have been approved by management and in most cases validated by third party consultants and are supported by non-binding expressions of interests on demand for working volumes. Gross margins Gross margins are based on the expected long term contractual arrangements, the applicable economic production and cost profiles and forward price assumptions. The production profiles are derived from the recoverable fields reserve estimates. Discount rates Discount rates reflect management s estimate of risk. The discount rate is derived from the Group s post-tax weighted average cost of capital. Sensitivity to changes in assumptions oil and gas assets The implications of the key assumptions on the recoverable amount are oil and gas prices, production volumes and discount rate. A sensitivity analysis adjusting the prices, production volumes and discount rate by 5% did not cause any impairment of goodwill. Key assumptions used in value in use calculations power and water generation assets In estimating the recoverable amount of goodwill management used the fair value less costs to sell for similar recent transactions. The Group recognised a gain on sale of its 20% share in one of its domestic subsidiaries during (gain for a similar sale in ). 20 INVESTMENT IN ASSOCIATES The Company has the following investments in associates: Country of incorporation Ownership Al Wathba Company for Central Services PJSC UAE 49% 49% Jubail Energy Company Saudi Arabia 25% 25% Shuweihat O & M Limited Partnership Cayman Islands - 50% Al Wathba Company for Central Services PJSC is mainly involved in the leasing and management of vehicles and equipment. Jubail Energy Company is involved in the generation of electricity in Saudi Arabia. The Company sold its 50% holding in Shweihat O&M Limited Partnership during the year to a third party. The reporting dates for the associates are identical to TAQA. The following table illustrates summarised information of TAQA s investment in associates. Share of the associates balance sheets: Current assets 70, ,090 Non-current assets 354, ,476 Current liabilities (94,899) (140,665) Non-current liabilities (133,723) (120,599) Net assets 196, ,302 Fair value consideration in excess of book values 14,520 14,520 Carrying amount of investments 210, ,822 Share of the associates revenues and profits: Revenues 204, ,628 Profits 39,802 25,454 Management believes that the carrying value of the investments will be realised in full.

83 81 21 OTHER ASSETS Deferred expenditure 102, ,460 Advances to a related party (see note below) 196, ,645 Others 79,648 22, , ,308 Advances to a related party represent an advance made to Shuweihat Shared Facilities Company ( SSFC ) by a subsidiary against future use of the facilities. The advance is shown in the consolidated balance sheet as follows: Non-current assets (under other assets above) 196, ,645 Current assets (note 23) 30,824 22, , , INVENTORIES Fuel 997, ,120 Spare parts and consumables 773, ,232 1,770,976 1,519,352 Provision for slow moving and obsolete items (41,750) (24,544) 1,729,226 1,494,808 Cost of inventories recognised as expense is AED 2,188 million (: AED 1,784 million). 23 ACCOUNTS RECEIVABLE AND PREPAYMENTS Trade receivables 1,117,539 1,231,459 Amounts due from related parties 817, ,267 Accrued revenue 434,784 22,137 Advances to O&M contractors 236,154 28,071 Receivable of indemnification from seller 136,242 - Crude stock underlift 120,202 - Deposit 104,291 - Advances to suppliers 87,790 40,370 Advances to a related party (note 21) 30,824 22,604 Prepaid insurance 30,708 54,941 Loan to an associate 27,692 32,100 Income tax 25,049 24,857 Other receivables 339, ,873 3,508,167 2,412,679 (i) Trade receivables No provision has been made for trade receivables as of 31 December (: AED nil). As at 31 December, the ageing analysis of trade receivables is as follows: Total Neither past due nor impaired < 30 days days Past due but not impaired days days >120 days 1,117, , , ,381 26,943 38,477 70,040 1,231, , ,856 31,375 51, ,913

84 82 Notes to the Consolidated Financial Statements continued 31 December 23 ACCOUNTS RECEIVABLE AND PREPAYMENTS continued (ii) Amounts due from related parties Amounts due from related parties include the following: Abu Dhabi Water and Electricity Company (ADWEC) 716, ,121 Shuweihat Shared Facilities Company PJSC 4,710 7,299 Others 96,787 2, , ,267 The amounts due from ADWEC, a fellow subsidiary in respect of available capacity and supply of water and electricity, are payable within working days. As at 31 December, amounts due from related parties at nominal value of AED 16 million (: AED 11 million) were impaired and fully provided for. Movements in the provision for impairment of receivables are as follows: At 1 January 11,425 10,962 Charge for the year 6, Written off during the period (2,067) - At 31 December 15,602 11,425 As at 31 December, the ageing analysis of amounts due from related parties is as follows: Total Neither past due nor impaired < 30 days days Past due but not impaired days days >120 days 817, , , ,061 1,858 45, , , , , , The amounts due from related parties net of provisions are expected, on the basis of past experience, to be fully recoverable. For terms and conditions relating to related party receivables, refer to note CASH AND CASH EQUIVALENTS Cash at banks and on hand 1,234,663 1,223,607 Short term deposits 2,956,086 6,377,486 Bank overdrafts 4,190,749 7,601,093 (91,829) (170,469) 4,098,920 7,430,624 Short term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Bank overdrafts carry interest at floating rates and were secured by guarantees from certain shareholders of the subsidiaries. At 31 December, the Group had available AED 8,398 million (: AED 3,766 million) of undrawn committed borrowing facilities in respect of which all conditions precedent have been met. Significant non-cash transactions, which have been excluded from the consolidated cash flow statement are as follows: Interest receivable 2,272 47,695 Interest payable 695, ,746 Income tax payable 295,021 76,216 Accrual for capital expenditure 309, ,610 Transfer of property, plant an equipment to a related party 348,066 - Acquisition of intangible asset from a related party 348,066 -

85 83 25 SHARE CAPITAL Authorised, issued and fully paid Ordinary shares of AED 1 each 6,225,000 4,150,000 During July, TAQA issued AED 4.15 billion of mandatory convertible bonds. Pursuant to a resolution of the Board of Directors on 8 September, 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 of AED 2,075 million net of transaction costs of AED 4 million has been treated as share premium and transferred to statutory reserve (note 26). The new shares were available for trading from 16 October. 26 OTHER RESERVES Statutory reserve Legal reserve General reserve Total Balance at 1 January 196, , ,000 1,142,122 Transfer during the year 103,459 49, ,008 Balance at 31 December 299, , ,000 1,295,130 Transfer during the year 182,517 45, ,371 Share premium on increase of share capital (note 25) 2,075, ,075,000 Transaction costs on increase in share capital (4,000) - - (4,000) Balance at 31 December 2,553, , ,000 3,594,501 Statutory reserve As required by the UAE Commercial Companies Law of 1984 (as amended) and the articles of association of the Company and its subsidiaries, 10% of the consolidated profit for the year is transferred to the statutory reserve. The Company and its subsidiaries may resolve to discontinue such transfers when the reserve equals 50% of the share capital. The reserve is not available for distribution. Legal reserve subsidiaries In accordance with Article 35 of the Articles of Association of certain domestic subsidiaries, 10% of the profit for the year is transferred to a legal reserve. The subsidiaries may resolve to discontinue such annual transfers when the reserve totals 50% of the share capital or in accordance with a resolution taken to this effect by the shareholders at the Annual General Meeting upon the recommendation of the Board of Directors. This reserve may only be used for the purposes recommended by the Board of Directors and approved by the shareholders of the subsidiaries. General reserve The Board of Directors have recommended the establishment of the general reserve to enhance the capital base of the Company. This reserve may only be used for the purposes recommended by the Board of Directors and approved by the shareholders. 27 TRANSLATION RESERVE The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. 28 PROPOSED DIVIDENDS Cash dividends proposed in respect of : AED 0.15 per share other than treasury shares (: AED 0.10 per share) 932, ,000 Dividend on ordinary shares paid during the year amounted to AED 415 million (: AED million). 29 MINORITY INTERESTS Relating to Abu Dhabi Water and Electricity Authority 55, ,252 Relating to minority interest shareholdings in subsidiaries 529, , ,869 1,050,192

86 84 Notes to the Consolidated Financial Statements continued 31 December 30 LOANS FROM MINORITY INTEREST SHAREHOLDERS IN SUBSIDIARIES Equity Total Tractebel Emirates Power Company 212, ,667 Asia Gulf Power Holding 387,688 - ITM Investment Company Limited 220,500 - Shuweihat Limited Partnership 131,802 79, , ,124 The loans are from the minority interest shareholders in the Company s subsidiaries and are free of interest and unsecured. As the terms of repayment have not been specified for these loans, they are subject to terms of repayment as resolved by the board of directors of the subsidiaries and accordingly have been treated as equity. 31 LOAN FROM ABU DHABI WATER AND ELECTRICITY AUTHORITY Abu Dhabi Water and Electricity Authority 241,021 92,640 The above loan is interest free, with no repayment terms and is unsecured and is subject to term of repayment as resolved by the Board of Directors of the Company. Accordingly it has been treated as equity. 32 INTEREST BEARING LOANS AND BORROWINGS Revolving credit facilities 7,062,211 - Abu Dhabi National Energy Notes 12,836,962 7,337,089 Abu Dhabi National Energy Bonds 11,962,452 13,079,424 Terms loans subsidiaries (see below) 25,463,202 28,130,529 57,324,827 48,547,042 Disclosed in the balance sheet as follows: Non-current liabilities 55,463,394 44,999,272 Current liabilities 1,861,433 3,547,770 57,324,827 48,547,042 The term loans which are shown at amortised costs are in respect of the following subsidiaries: Emirate CMS Power Company PJSC 1,128,718 1,175,567 Gulf Total Tracetebal Power Company PJSC 3,778,478 3,648,724 Shuweihat CMS Power Company PJSC 3,119,516 3,252,975 Arabian Power Company PJSC 3,114,611 3,666,552 Taweelah Asia Power Company PJSC 7,531,032 9,307,839 Emirates SembCorp Water and Power Company PJSC 5,174,616 4,951,094 Jorf Lasfar Energy Company 1,170,306 1,487,298 ST-CMS Electric Company India Private Limited 445, ,480 25,463,202 28,130,529

87 85 Amounts payable by TAQA and its subsidiaries (before deducting prepaid finance costs) over the next five years from 31 December are as follows: Within 1 year 1,876,560 3,564,233 Between 1 2 years 4,542,330 1,890,655 Between 2 3 years 5,165,496 1,276,885 Between 3 4 years 6,898,731 1,314,130 Between 4 5 years 8,739,474 3,242,726 After 5 years 30,559,835 37,643,790 57,782,426 48,932,419 (i) Revolving credit facilities Non-current Liabilities US $3.15 billion facility, net of transaction costs 3,786,825 - CAD billion facility, net of transaction costs 3,275,386 - During the year the Group entered into two revolving credit facilities. 7,062,211 - On 7 August TAQA entered into an agreement with a syndicate of 16 banks for a three-year revolving credit facility in the amount of USD 3.15 billion. Amounts borrowed under this facility carry interest equal to LIBOR or EIBOR rates plus a margin. At 31 December, US $1,051 million (AED 3,860 million) (: nil) was drawn under this new credit facility. The facility is stated net of prepaid finance cost of US $20 million (AED 73 million) (: nil). 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 the lenders consent. On 16 January, 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 31 December, CAD 1.1 billion (AED 3.3 billion) (: nil) was outstanding under this credit facility. (ii) Abu Dhabi National Energy Global Medium Term Notes Abu Dhabi National Energy global medium term notes issued in and are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligation of the Company. The following table summarises the terms of the notes payable: Issue Rate % Effective interest rate % Repayment date Non-Current Liabilities US $500,000,000, net of transaction costs 100% 6.18% October ,834,411 1,834,239 US $1,500,000,000, net of transaction costs 100% 5.65% October ,504,080 5,502,850 US $500,000,000, net of discount and transaction costs 99.85% 7.29% August ,831,588 - US $1,000,000,000, net of discount and transaction costs 99.94% 6.64% August ,666,883-12,836,962 7,337,089 The notes liability is stated net of discount and transaction costs incurred in connection with the notes arrangements, amounting to AED 18.5 million (: AED 9.2 million) as of 31 December, 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. Accrued interest is included under trade and other payables and accruals.

88 86 Notes to the Consolidated Financial Statements continued 31 December 32 INTEREST BEARING LOANS AND BORROWINGS continued (iii) Abu Dhabi National Energy Company Bonds In 2006, TAQA issued long term fixed interest rate bonds at a discount. The bonds are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligation of the Company. TAQA s bonds were granted an Aa3 rating by Moody s and A+ rating by S&P. The following table summarises the terms of the bond payable: Issue Rate % Effective interest rate % Repayment date Non-Current Liabilities US $1 billion, net of discount and transaction costs % 5.98% October ,648,544 3,646,106 US $1.5 billion net of discount and transaction costs (see note below) % 6.6% October ,483,417 5,440,467 Euro 750 million net of discount and transaction costs % 4.53% October ,830,491 3,992,851 11,962,452 13,079,424 The bond liability is stated net of discount and transaction costs incurred in connection with the bond arrangements, amounting to AED million (: AED million) as of 31 December, which are amortised in the consolidated income statement over the repayment period of the bond using effective interest rate method. Interest on the US dollar bonds is payable semi-annually. Interest on the Euro bonds is payable annually. Accrued interest is included under accruals and other liabilities. Movement in the US $1.5 billion bond during the year is as follows: At 1 January 5,440,467 5,439,624 Repurchase of bonds (958,171) - Prepaid finance cost relating to repurchased bonds written off Amortisation of prepaid finance costs At 31 December 4,483,417 5,440,467 During the year TAQA repurchased bonds with a nominal value of US $264 million (AED 970 million). This has resulted in a realised gain of AED million in the consolidated income statement. (iv) Emirates CMS Power Company PJSC (ECPC) Effective interest rate % Maturity Current Term loan (1) LIBOR + margin ,620 66,735 Term loan (2) LIBOR + margin ,196-76,816 66,735 Non-current Term loan (1) LIBOR + margin ,035,854 1,108,832 Term loan (2) LIBOR + margin ,048-1,051,902 1,108,832 The term loan facility (1) is repayable in half yearly instalments until June 2020 in accordance with an agreed upon instalment schedule. Term loan (1) is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of ECPC, a pledge of the shares in ECPC by both shareholders and a pledge of the equity interest in Al Taweelah Shared Facilities Company ( TSFC ). Term loan (1) is also subject to various covenants as stipulated in the loan facility agreement. Term loan (1) is stated net of prepaid finance cost of AED 22, million (: AED 25 million). During, ECPC obtained loan facilities from a local bank (term loan facility (2)) to finance the construction of a Heat Recovery Plant. The term loan facility (2) is US $11 million (AED 40 million) of which US $6 million (AED 20 million) was drawn down at 31 December. Term loan (2) is repayable from June 2009 in accordance with an agreed upon repayment schedule, with the last repayment on 31 December Under the terms of its loan facility agreement, ECPC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 42).

89 87 (v) Gulf Total Tractebel Power Company PJSC (GTTPC) Effective interest rate % Maturity Current Term loan LIBOR + margin ,827 - Non-current Term loan LIBOR + margin ,728,651 3,648,724 During 2000, GTTPC obtained a loan facility from a syndicate of banks amounting to US $1,000 million (AED 3,673 million) which was fully drawn by 31 December 2002 to finance the acquisition, refurbishment and extension of the Taweelah A1 power and desalination plant. During 2003 GTTPC drew down US$ 5 million (AED 18.4 million) of the US $15 million standby facility. No further drawings were made from the standby facility. The term loan and standby term loan of US $124.8 million (AED million) were repaid during the period from 31 October 2003 to 31 October 2006 with a remaining outstanding balance of US $880 million (AED 3,233 million) as of 31 December The term loan and standby term loan has been refinanced on 14 February under an Amended and Restated Facility Agreement executed between GTTPC and the lenders for US $1,094,316 thousand (AED 4,019,423 thousand) and US $8,161 thousand (AED 29,975 thousand) respectively. Under the terms of the Amended and Restated Facility Agreement, GTTPC is entitled to utilize the term loan and standby term loan for: 1) Repayment of the debt under the old Facility Agreement amounting to US $880,179 thousand. 2) Repayment of the Share capital to the extent of US $75,000 thousand 3) Financing the A10 project with the remaining balance. As of 31 December, GTTPC has drawn down US $1,036 million (AED 3,805 million) (: US $1,001 million (AED 3,677 million)). The term loan is stated net of prepaid finance cost of AED 29 million (: AED 31 million). The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of GTTPC a pledge of the shares in GTTPC by both shareholders and a pledge of the equity interest in TSFC. The term loan is also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, GTTPC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 42). (vi) Shuweihat CMS Power Company PJSC (SCIPCO) Effective interest rate % Maturity Current Term loan LIBOR + margin , ,459 Non-current Term loan LIBOR + margin ,975,927 3,119,516 The amount of the conventional term loan facility is US $1,035 million (AED 3,802 million) and is repayable in 35 semi annual instalments starting from December 2004 in accordance with an agreed upon instalment schedule. The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of SCIPCO. The term loan is also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, SCIPCO is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 42). The term loan is stated net of prepaid finance costs of AED 44 million (: AED 45 million). (vii) Arabian Power Company PJSC (APC) Effective interest rate % Maturity Current Equity bridge loan LIBOR + margin - 546,427 Term loan (1) LIBOR + margin - 360,029 Term loan (2) LIBOR + margin , , ,456 Non-current Term loan (2) LIBOR + margin ,958,348 2,760,096

90 88 Notes to the Consolidated Financial Statements continued 31 December 32 INTEREST BEARING LOANS AND BORROWINGS continued (vii) Arabian Power Company PJSC (APC) continued During 2003, APC obtained loan facilities from a syndicate of banks led by the Bank of Tokyo-Mitsubishi (term loan facilities (1) and (2) and equity bridge facility) to finance the acquisition, refurbishment and extension of the UAN power and desalination plant. The equity bridge loan and term loans facility (1) was fully repaid in. The term loan facility (2) is US $855 million (AED 3,140 million) and was fully drawn at 31 December (: AED 2,784 million). Term loan (2) is repayable from January 2009 in accordance with an agreed upon repayment schedule with the last repayment due on 21 January Term loan (2) is stated net of prepaid finance cost of AED 29 million (: AED 24 million). The loans are secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of APC and a pledge of the shares in APC by both shareholders. The loans are also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, APC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 42). (viii) Taweelah Asia Power Company PJSC (TAPCO) Effective interest rate % Maturity Current Equity bridge loan LIBOR + margin - 1,934,797 Term loan (1) LIBOR + margin ,530 57,899 Term loan (2) LIBOR + margin ,777 76, ,307 2,069,483 Non-current Term loan (1) LIBOR + margin ,119,620 3,111,908 Term loan (2) LIBOR + margin ,133,105 4,126,448 7,252,725 7,238,356 During 2005, TAPCO obtained loan facilities from a syndicate of banks to finance the acquisition, refurbishment and extension of the Taweelah B power and water desalination plant. The equity bridge loan is US $527.2 million (AED 1,936 million) and was fully drawn at 31 December 2005 and was fully paid on 30 June. The equity bridge loan is stated net of prepaid finance cost of nil (: AED 1.6 million). The term loan facility (1) amounting to US $ 911 million (AED 3,346 million) was fully drawn during December. In accordance with an agreed upon repayment schedule an amount of US $16 million (AED 58 million) was repaid during December. The last repayment is due on 15 June Term loan (1) is stated net of prepaid finance cost of AED 48 million (: AED 52 million). The term loan facility (2) amounting to US $1,200 million (AED 4,407 million) was fully drawn during December. In accordance with an agreed upon repayment schedule an amount of US $21 million (AED 77 million) was repaid during December. The last repayment is due on 15 June Term loan (2) is stated net of prepaid finance cost of AED 39 million (: AED 40 million). Under the terms of its loan facility agreement, the Company is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 42). (ix) Emirates SembCorp Water and Power Company PJSC (ESWPC) Effective interest rate % Maturity Current Equity bridge loan A LIBOR + margin ,516 - Equity bridge loan B LIBOR + margin , ,526 - Non-current Term loan LIBOR + margin ,367,090 4,143,568 Equity bridge loan A LIBOR + margin ,516 Equity bridge loan B LIBOR + margin ,010 4,367,090 4,951,094 During 2006, ESWPC obtained loan facilities from a syndicate of banks (equity bridge loan facilities (A) and (B) and term loan) to finance the acquisition and extension of the Fujairah Power and Desalination Plant. The equity bridge loans carry a commitment fee of % and the term loan carries a commitment fee of 0.28% per annum of the undrawn amount.

91 89 The equity bridge loan A of US $132 million (AED 485 million), was fully drawn at 31 December 2006 and is repayable on project commercial operation date which is expected to be 15 February The equity bridge loan A is stated net of prepaid finance cost of AED 0.6 million (: AED 1.1 million). The equity bridge loan B of US $88 million (AED 323 million), was fully drawn at 31 December 2006 and is repayable on project commercial operation date which is expected to be 15 February The loan carries interest at a variable rate of LIBOR plus a margin of 0.251% per annum (: 0.251% per annum). The equity bridge loan B is stated net of prepaid finance cost of AED 22 thousand (: AED 390 thousand). The amount of the term loan facility is US $1,270 million (AED 4,667 million), of which US $1,199 million (: US $1,139 million) was drawn at 31 December. The term loan is repayable from January 2010 in accordance with an agreed upon repayment schedule with the last repayment on 31 January The term loan is stated net of prepaid finance cost of AED 41 million (: AED 43 million). Under the terms of its loan facility agreement, ESWPC is required to enter into interest rate swap agreements to hedge its interest cost exposure against fluctuations in interest rates (note 42). (x) Jorf Lasfar Energy Company Effective interest rate % Maturity Current US EXIM 7.2% ,016 72,016 OPIC Note A 10.23% ,518 18,518 OPIC Note B 9.92% ,040 4,040 SACE 5.73% , ,899 ERG Libor + margin ,789 13,352 World Bank Libor + margin ,468 71, , ,295 Non-current US EXIM 7.2% , ,069 OPIC Note A 10.23% ,182 78,702 OPIC Note B 9.92% ,130 17,171 SACE 5.73% , ,569 ERG Libor + margin ,572 56,746 World Bank Libor + margin , , ,940 1,204,003 The Company s subsidiary Jorf Lasfar has term loans amounting to AED 1,170 million as of 31 December (: AED 1,487 million) as follows: US $135 million (AED 497 million) to be repaid quarterly with the final instalment maturing on 15 February The loans were fully drawn as of 31 December. Euro 185 million (AED 990 million) to be repaid quarterly with the final instalment maturing on 15 February The loans were fully drawn as of 31 December. Jorf Lasfar has entered into interest rate swaps to hedge its exposure against changes in the variable interest rates. Further information is disclosed under note 42. (xi) ST CMS Electric Company Private Limited Effective interest rate % Maturity Current Term loan 10.1% ,348 88,354 Non-current Term loan 10.1% , ,126 The Company s subsidiary ST-CMS Electric Company, which is part of the subsidiaries acquired in, had term loans amounting to AED 641 million as of 31 December as follows: INR 237 million (AED 18 million) to be repaid quarterly with the final instalment maturing on 31 March 2015 and carries a variable interest rate at a stipulated spread below the respective Prime Lending Rates (PLR) of the lending banks. Only about 10% of interest cost impacts revenues, since 90% of the cost of long term debt is passed through to the off taker based on current provisional capital cost. The term loan is secured by a number of security documents including a commercial mortgage over all assets of the Company.

92 90 Notes to the Consolidated Financial Statements continued 31 December 33 ISLAMIC LOANS Islamic loans are with respect to the following subsidiaries: Shuweihat CMS Power Company PJSC 782, ,474 Emirates CMS Power Company PJSC 430, ,273 Arabian Power Company PJSC 910,170 1,870,546 2,123,211 3,142,293 Disclosed in the balance sheet as follows: Non-current liabilities 1,997,600 2,017,379 Current liabilities 125,611 1,124,914 2,123,211 3,142,293 Amounts payable by TAQA and its subsidiaries (before deducting prepaid finance costs) over the next five years from 31 December are as follows: Within 1 year 126,997 1,128,489 Between 1 2 years 130, ,997 Between 2-3 years 138, ,750 Between 3-4 years 145, ,251 Between 4-5 years 147, ,106 After 5 years 1,470,610 1,512,994 2,158,874 3,182,587 (i) Shuweihat CMS Power Company PJSC Effective rental rate % Maturity Current Islamic Ijara loan LIBOR + margin ,722 33,456 Non-current Islamic Ijara loan LIBOR + margin , ,018 The Islamic Ijara loan is secured by an assignation of identified parts of the plant and equipment purchased under the Islamic financing arrangement, and is repayable in thirty five semi-annual instalments starting from December The Islamic Ijara loan is stated net of prepaid finance costs of AED 20 million (: AED 21 million). (ii) Emirates CMS Power Company PJSC Effective rental rate % Maturity Current Islamic Ijara loan LIBOR + margin ,219 25,944 Non-current Islamic Ijara loan LIBOR + margin , ,329 The Islamic Ijara loan is secured by an assignment of identified parts of the plant and equipment purchased under the Islamic financing arrangement, and is repayable in thirty three semi annual instalments commencing from 30 June A fluctuating profit charge is paid under the Islamic financing agreement, which is based on LIBOR plus a margin. The Islamic Ijara loan is stated net of prepaid finance costs of AED 7 million (: AED 8 million).

93 91 (iii) Arabian Power Company PJSC Effective rental rate % Maturity Current Ijara LIBOR + margin - 1,065,514 Muqawala LIBOR + margin ,670-60,670 1,065,514 Non-current Muqawala LIBOR + margin , ,032 The Muqawala loan is in respect of the procurement and manufacturing of certain generation assets under an Islamic loan facility agreement dated 2 July The facility of US $250 million (AED 918 million) is repayable in thirty semi annual instalments commencing from January The Muqawala loan is stated net of prepaid finance costs of AED 8.6 million (: AED 8.9 million). 34 ASSET RETIREMENT OBLIGATIONS As part of the land lease agreements between ADWEA and the Company s local subsidiaries, the subsidiaries have a legal obligation to remove the power and water desalination plants at the end of the plants useful lives or before if the subsidiaries became unable to continue their operations to that date and to restore the land. The subsidiaries shall at their sole cost and expense dismantle, demobilize, safeguard and transport the assets, eliminate soil and ground water contamination, fill all excavation and return the surface to grade of the designated areas. In addition, the Company s foreign subsidiaries involved in the oil and gas sector make provision for the future cost of decommissioning oil and gas properties and facilities at the end of their economic lives. The fair value of ARO liability has been calculated using an expected present value technique. ARO liability at 1 January 1,252, ,388 On acquisition of subsidiaries (note 3) 3,878, ,546 Utilised during the year (108,788) (7,556) Provided during the year 17,524 - Accretion expense (note 10) 112,027 29,379 Revision in estimated cash flows (42,338) 42,643 Exchange adjustment (205,608) 39,689 ARO liability at 31 December 4,903,052 1,252,089 Disclosed in the consolidated balance sheet as follows: Current liabilities (note 37) 113,732 19,497 Non-current liabilities 4,789,320 1,232,592 4,903,052 1,252, ADVANCES AND LOAN FROM RELATED PARTIES Advances from related parties (note i) 21,679 21,691 Loan from related party (note ii) 28,688 27,153 50,367 48,844 (i) Advances from related parties These represent advances received by the Company s subsidiary Al Taweelah Shared Facilities LLC from Abu Dhabi Power Corporation LLC against future use of the facilities. Amounts payable within one year have been included under current liabilities (trade and other payables and accruals).

94 92 Notes to the Consolidated Financial Statements continued 31 December 35 ADVANCES AND LOAN FROM RELATED PARTIES continued (ii) Loan from related party Abu Dhabi Power Corporation LLC 28,688 27,153 Movement in the loan balance during the year was as follows: Balance at 1 January 27,153 25,844 Notional interest expense (note 10) 1,535 1,309 Balance at 31 December 28,688 27,153 During 2005 the Company s subsidiary was granted a loan amounting to AED 70 million. The loan is interest free and unsecured and is due for payment in full in June The Company s management has measured the loan at its fair value of AED 23.5 million (US $6.4 million). The difference amounting to AED 46.5 million between the loan amount of AED 70 million and its fair value has been treated as an equity contribution from the ultimate holding company as follows: AED million AED million Attributable to equity holder of the parent Attributable to minority interests OTHER LIABILITIES Provisions recognised on business combinations (note i) 470, ,701 Negative fair value of derivatives 3,886,908 1,026,040 Employee benefits obligations (note ii) 59,869 57,024 Share based payment liabilities (note iii) 3,196 - Withholding tax payable 139,455 - Others 6,172 22,714 4,566,298 1,707,479 (i) Provisions recognised on business combinations Provisions recognised on business combinations relate mainly to certain onerous contracts in relation to market conditions recognised at fair value at the date of acquisition of Pioneer Canada Limited in (note 3). The current portion of the provisions is shown under accruals and other liabilities (note 37). Movement in total provision recognised on business combinations during the year is as follows: Balance at 1 January 673,656 - On acquisition of subsidiaries (note 3) - 604,414 Amortisation during the year (55,830) - Exchange adjustment (117,324) 69,242 Balance at 31 December 500, ,656 (ii) Employee benefit obligations Employees end of service benefits 5,139 2,737 Pensions and other post retirement benefits 31,495 35,744 Other provisions 23,325 18,543 59,869 57,024

95 93 United Arab Emirates: The movement on the provision for employees end of service benefits is as follows: Balance at 1 January 2,737 1,364 Net movement during the year 2,402 1,373 Balance at 31 December 5,139 2,737 Pensions and other post retirement benefits are analysed as follows: Foreign subsidiaries: Jorf Lasfar Energy Company 13,455 13,664 TAQA Energy B.V. 18,040 22,080 31,495 35,744 Post employment benefit plans The Group has a defined benefit pension plan in Netherlands covering its employees in TAQA Energy B.V. requiring contributions to be made to separately administered funds. The Group also has post-employment obligations for certain employees in Jorf Lasfar Energy Company, Morocco. These are unfunded. The following tables summarise the components of the net benefit expense recognised in the balance sheet for the respective plans. Taqa Energy BV pension plan Jorf Lasfar post employment obligations Total for the group Net benefit expense (for the Group s ownership period) Current service cost 4, ,547 Interest cost 4, ,930 Expected return on plan assets (3,781) - (3,781) N et actuarial (gain) loss recognised in the year (2,086) (1,210) (3,296) Past service cost 2,373-2,373 Exchange rate loss (285) (543) (828) Net benefit expense 5,154 (209) 4,945 Actual return on plan assets 1,544-1,544 Benefit asset (liability) Defined benefit obligation (79,318) (13,455) (92,773) Fair value of plan assets 66,453-66,453 (12,865) (13,455) (26,320) Unrecognised actuarial (gains) (18,662) - (18,662) Unrecognised past service costs 13,487-13,487 Benefit liabilities (18,040) (13,455) (31,495) Changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation at the beginning 71,751 13,664 85,415 Interest cost 4, ,930 Current service cost 4, ,547 Actuarial (gains) losses on obligation (2,086) (1,210) (3,296) Exchange rate loss 720 (543) 177 Defined benefit obligation at 31 December 79,318 13,455 92,773 Changes in the fair value of the plan assets are as follows: Taqa Energy BV pension plan Fair value of the plan assets at the beginning 58,340 Expected return 1,463 Contributions by employer 9,102 Actuarial losses (2,452) Fair value of plan assets at 31 December 66,453

96 94 Notes to the Consolidated Financial Statements continued 31 December 36 OTHER LIABILITIES continued Post employment benefit plans continued Taqa Energy BV pension plan Jorf Lasfar post employment obligations Total for the group Net benefit expense (for the Group s ownership period) Current service cost 3, ,518 Interest cost 3, ,061 Expected return on plan assets (2,405) - (2,405) Net actuarial (gain) loss recognised in the year (833) Past service cost 2,151-2,151 Exchange rate loss Net benefit expense 6,566 2,284 8,850 Actual return on plan assets (1,961) - (1,961) Benefit asset (liability) Defined benefit obligation (71,751) (13,664) (85,415) Fair value of plan assets 58,340-58,340 (13,411) (13,664) (27,075) Unrecognised actuarial (gains) (25,093) - (25,093) Unrecognised past service costs 16,424-16,424 Benefit liabilities (22,080) (13,664) (35,744) Changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation at the beginning 81,519 11,380 92,899 Interest cost 3, ,061 Current service cost 3, ,518 Actuarial (gains) losses on obligation (17,421) 906 (16,515) Exchange rate loss Defined benefit obligation at 31 December 71,751 13,664 85,415 Changes in the fair value of the plan assets are as follows: Taqa Energy BV pension plan Fair value of the plan assets at the beginning 56,445 Expected return 2,405 Contributions by employer 3,856 Actuarial (gains) losses (4,366) Fair value of plan assets at 31 December 58,340 The Group expects to contribute AED 1.5 million to its defined pension plan in 2009 (: AED 3.5 million). The major categories of the plan assets as a percentage of the fair value of total plan assets are as follows: Equities 14% 20% Bonds 82% 81% Cash 4% (1%) The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

97 95 The principal assumptions used in determining pension and post-employment benefit obligations for the Group s plans are shown below: TAQA Energy BV pension plan Jorf Lasfar medical costs Jorf Lasfar retiree electrical charges Discount rate 5.49% 4.60% 4.60% Expected rate of return on assets 4.29% N/A N/A Future salary increases 3.50% 6.50% 6.50% Future increases 2.00% 2.95% 1.00% A one percentage point change in the assumed rate of increase in medical costs and retiree electrical charges would have the following effects: Increase Decrease Effect on the aggregate current service cost and interest cost (428) 428 Effect on the defined benefit obligation (3,663) 3,663 Effect on the aggregate current service cost and interest cost (403) 403 Effect on the defined benefit obligation (3,717) 3,717 Other provision: Other provision relates to an early retirement plan in place in Taqa Energy BV for a closed group of employees older than 55 years old. A provision has been made for the expected payment obligation upon early retirement, based on current salaries, expected growth and partner participation. The discount rate used is 4%. (iii) Share based payments The employee incentive scheme ( the Scheme ) grants notional units of the Company s ordinary shares to certain qualifying employees on recommendation of the remuneration committee of the Company. These notional units of the Company s ordinary shares will be settled in cash in accordance with the terms of the scheme. At 31 December the employee incentive scheme had 5,451,728 outstanding notional units of the Company s ordinary shares. The weighted average fair value of notional units granted during the year was AED 2.86 per unit. The employee incentive scheme liability is re-measured at each balance sheet date up to and including the settlement date with changes in fair value recognised in the consolidated income statement. The carrying amount of liability as at 31 December was AED 4.8 million (: nil). The current portion of the liability is shown under accruals and other liabilities (note 37). 37 TRADE AND OTHER PAYABLES AND ACCRUALS Trade payables 671, ,327 Payable to joint venture partners 85,563 31,382 Payable for back up fuel 60,867 - Accrued interest expense 695, ,746 Accrual for operating costs 743,236 84,181 Payable for capital expenditure 309, ,610 Accrual for royalty fees 13,220 49,937 Provisions recognised on business combinations (note 36) 29,804 71,955 Negative fair value of derivatives 814, ,660 Deferred income ,279 Asset retirement obligations (note 34) 113,732 19,497 Other liabilities 603, ,742 4,141,472 2,506,316 Terms and conditions of the above financial liabilities: Trade payables are non-interest bearing and are normally settled between 30 to 60 day terms. Payable to joint venture partners are non-interest bearing and have an average term of 60 days. Interest payable is normally settled throughout the financial year in accordance with the terms of the loans.

98 96 Notes to the Consolidated Financial Statements continued 31 December 38 AMOUNTS DUE TO ADWEA AND OTHER RELATED PARTIES Abu Dhabi Water and Electricity Authority 15,148 92,456 Union Water and Electricity Company 1,519 - Al Taweelah Power Company PJSC - 3,786 16,667 96,242 For terms and conditions relating to related parties, refer to note COMMITMENTS AND CONTINGENCIES (i) Capital expenditure commitments The authorised capital expenditure contracted for at 31 December but not provided for amounted to AED 296 million (: AED 19,593 million). (ii) Other commitments TAQA has entered into an agreement with an infrastructure fund (note 17) managed by a third party and has committed to invest US $200 million (AED 735 million) in the fund over a period of five years. The total investment made to date in the fund amounted to AED 191 million (US $52 million) (: AED 99 million (US $27 million)) 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 are as follows: Within one year 3,658,865 3,442,619 After one year but not more than five years 14,874,484 14,152,154 More than five years 41,861,369 46,241,075 Group as a lessee: Future minimum payments under non-cancellable operating leases as at 31 December are as follows: 60,394,718 63,835,848 Within one year 365,664 1,211 After one year but not more than five years 1,653,344 4,846 More than five years 2,202,561 5,552 4,221,569 11,609 (iv) Contingencies As a result of the acquisitions made during the year, there are contingent liabilities arising from (a) tax assessments or proposed assessments and (b) certain other disputes, all of which are being contested. Pursuant to the Purchase and Sale Agreements between TAQA and the sellers, the sellers have provided Taqa and its subsidiaries with indemnity obligations with respect to such contingent liabilities. TAQA has, through its wholly-owned indirect subsidiary TNW Energy LLC ( TNW ), entered into a limited partnership, TAQA GEN X LP ( TGX ), with Royal Bank of Scotland plc for the purpose of acquiring energy tolling arrangements and related agreements and conduct any business related thereto. On 31 December, TGX acquired a wholly-owned indirect subsidiary BE Red Oak LLC (subsequently renamed TAQA GEN X LLC) ( LLC ) which is the owner by assignment of a Fuel Conversion Services, Capacity and Ancillary Services Purchase Agreement dated as of September 17, 1999 (the Tolling Agreement ) by and between AES Red Oak, L.L.C. ( AES ) and Williams Energy Marketing & Trading Company, as well as other ancillary rights and agreements. In connection with the above transaction, TAQA has guaranteed LLC s obligations to Sempra Energy Trading LLC (Beneficiary) under the Energy Management Agreement ( EMA ) and the ISDA Master Agreement both dated 31 December. Payments under this guarantee shall not exceed USD 100 million over the 15-year life of the EMA.

99 97 40 RELATED PARTY TRANSACTIONS The following table provides summary of significant related party transactions during the year: Fellow subsidiary (Abu Dhabi Water and Electricity Company): Sale of water and electricity 4,294,809 4,170,263 Supplemental fuel income 73, ,852 Compensation of key management personnel For subsidiaries key management personnel are provided by operation and maintenance companies under contractual agreements with the subsidiaries. The remuneration of senior key management personnel of the Group during the year was as follows: Short-term benefits 23,804 11,070 Post employment benefits 2, Other long-term benefits 4,640-30,561 11,563 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. Those have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December, an amount of AED 16 million (: AED 11 million) was impaired and fully provided for (note 23). 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, 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 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 1. During the year, property, plant and equipment amounting to AED 348 million (note 14) was transferred to TRANSCO, a fellow subsidiary of the Company.

100 98 Notes to the Consolidated Financial Statements continued 31 December 41 SUBSIDIARIES The consolidated financial statements include the financial statements of TAQA and all its subsidiaries. The Company s major subsidiaries are listed below: Country of registration Percentage holding 31 December 31 December Domestic Subsidiaries Emirates CMS Power Company PJSC (ECPC) UAE 54% 54% Gulf Total Tractebel Power Company PJSC (GTTPC) UAE 54% 54% Arabian Power Company PJSC (APC) UAE 54% 54% Shuweihat CMS International Power Company PJSC (SCIPCO) UAE 54% 74% Taweelah Asia Power Company PJSC (TAPCO) UAE 54% 54% Emirates Semb Corp Water and Power Company PJSC (ESWPC) UAE 54% 54% Taweelah Shared Facilities Company LLC (TSFC) UAE 48% 48% Foreign Subsidiaries TAQA New World, Inc. Delaware, USA 100% 100% TAQA GEN XLP Delaware, USA 85% - TAQA Bratani Limited UK 100% 100% TAQA Europa B.V. Netherlands 100% 100% TAQA Energy B.V. Netherlands 100% 100% TAQA North Ltd Canada 100% 100% Jorf Lasfar Energy Company, SCA Morocco 100% 100% Takoradi International Company Cayman Islands 90% 90% ST-CMS Electric Company Pvt. Ltd. India 100% 100% Further details on the main subsidiaries are as follows: Emirates CMS Power Company PJSC Emirates CMS Power Company PJSC ( ECPC ) is a private joint stock company registered and incorporated in the United Arab Emirates ( UAE ) and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. ECPC is 60% owned by Emirates Power Company PJSC, a subsidiary of Abu Dhabi National Energy Company PJSC ( TAQA ) which is a subsidiary of Abu Dhabi Water & Electricity Authority ( ADWEA ), and 40% owned by CMS Generation Taweelah Limited. The Company s registered head office is P O Box 47688, Abu Dhabi, United Arab Emirates. ECPC has a management operation and maintenance agreement with Taweelah A2 Operating Company whereby the latter has undertaken to manage the day-to-day operations and maintain ECPC s plant. The ECPC has entered into a power and water purchase agreement ( PWPA ) with Abu Dhabi Water and Electricity Company ( ADWEC ), a related party, (a wholly-owned subsidiary of ADWEA). Under the PWPA, the ECPC undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until October 2021 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by the ECPC at the end of the PWPA term. Gulf Total Tractebel Power Company PJSC Gulf Total Tractebel Power Company PJSC ( GTTPC ) is a private joint stock company registered and incorporated in the United Arab Emirates ( UAE ) and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. GTTPC is 60% owned by Gulf Power Company, a subsidiary of Abu Dhabi National Energy Company PJSC ( TAQA ) which is a subsidiary of Abu Dhabi Water and Electricity Authority ( ADWEA ), and 40% owned by Total Tractebel Emirates Power Company. GTTPC s registered head office is P O Box 52862, Abu Dhabi, United Arab Emirates. GTTPC has a management operation and maintenance agreement with Total Tractebel Emirates O & M Company, whereby the latter has undertaken to manage the day-to-day operations and maintain the GTTPC plant. Further, GTTPC has entered into a power and water purchase agreement with Abu Dhabi Water and Electricity Company ( ADWEC ), a related party (wholly-owned subsidiary of ADWEA). Under the agreement, GTTPC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until May 2023 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by GTTPC at the end of the PWPA term.

101 99 On 14 February, the A10 extension project was launched. It consists of two new gas turbines and two new heat recovery steam generators to the existing plant and a six year extension of the old PWPA. On the same date, an overall refinancing was also closed, which proceeds are partly used to fund the A10 extension project. GTTPC entered into a turnkey agreement with Doosan Heavy Industries and Construction Co. Ltd for the engineering, procurement and construction of the A10 extension project for US $168 million. The plant commercial operation date is scheduled in April The ownership of the plant and its A10 extension will be retained by GTTPC at the end of the PWPA term. Arabian Power Company PJSC Arabian Power Company PJSC ( APC ) is a private joint stock company registered and incorporated in the United Arab Emirates ( UAE ) and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. APC is 60% owned by Arabian United Power Company, a subsidiary of Abu Dhabi National Energy Company PJSC ( TAQA ) and 40% owned by ITM Investment Company Limited. The ultimate holding company is Abu Dhabi Water and Electricity Authority ( ADWEA ). APC s registered head office is P O Box 45810, Abu Dhabi, United Arab Emirates. APC has a management operation and maintenance agreement with ITM O & M Company Limited, whereby the latter has undertaken to manage the day-to-day operations and maintain APC s plant. Further, APC has entered into a power and water purchase agreement ( PWPA ) with Abu Dhabi Water and Electricity Company ( ADWEC ), a related party (a wholly-owned subsidiary of ADWEA). Under the PWPA, APC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until July 2027 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by APC at the end of the PWPA term. Taweelah Asia Power Company PJSC Taweelah Asia Power Company PJSC ( TAPCO ) is a private joint stock company registered and incorporated in the United Arab Emirates ( UAE ) and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. TAPCO is 60% owned by Taweelah United Power Company, a subsidiary of Abu Dhabi National Energy Company PJSC ( TAQA ) and 40% owned by Asia Gulf Power Holding Company Limited. The ultimate holding company is Abu Dhabi Water and Electricity Authority ( ADWEA ). TAPCO s registered head office is P O Box , Abu Dhabi, United Arab Emirates. TAPCO has a management operation and maintenance agreement with Asia Gulf Power Service Company Limited, whereby the latter has undertaken to manage the day-to-day operations and maintain TAPCO s plant. Further, TAPCO has entered into a power and water purchase agreement ( PWPA ) with Abu Dhabi Water and Electricity Company ( ADWEC ), a related party (a wholly-owned subsidiary of ADWEA). Under the PWPA, TAPCO undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until March 2028 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by TAPCO at the end of the PWPA term. Shuweihat CMS Power Company PJSC Shuweihat CMS International Power Company PJSC ( SCIPCO ) is a private joint stock company registered and incorporated in the United Arab Emirates ( UAE ) and is engaged in the generation of electricity and the production of desalinated water for supply into the Abu Dhabi grid. SCIPCO is 60% owned by Al Shuweihat Power Company, a subsidiary of Abu Dhabi National Energy Company PJSC ( TAQA ) which is a subsidiary of Abu Dhabi Water and Electricity Authority ( ADWEA ), and 40% owned by Shuweihat Limited Partnership. SCIPCO s registered head office is P.O. Box 32398, Abu Dhabi, United Arab Emirates. SCIPCO has a management operation and maintenance agreement with Shuweihat O & M Limited Partnership, whereby the latter has undertaken to manage the day-to-day operations and maintain SCIPCO s plant. Further, SCIPCO has entered into a power and water purchase agreement ( PWPA ) with Abu Dhabi Water and Electricity Company ( ADWEC ), a related party (wholly-owned subsidiary of ADWEA). Under the agreement, SCIPCO undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until June 2025 in accordance with various agreed terms and conditions. The output payments cover variable operation and maintenance costs and fuel efficiency bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by SCIPCO at the end of the PWPA term. Emirates SembCorp Water and Power Company PJSC Emirates SembCorp Water & Power Company PJSC ( ESWPC ) is a private joint stock company registered and incorporated in the United Arab Emirates ( UAE ) and is engaged in the generation of electricity and the production of desalinated water. ESWPC is 60% owned by Union Power Holding Company, a subsidiary of Abu Dhabi National Energy Company PJSC ( TAQA ), which is a subsidiary of Abu Dhabi Water and Electricity Authority ( ADWEA ) and 40% owned by SembCorp Gulf Holding Company Limited. ESWPC s registered head office is P O Box 3020, Fujairah, United Arab Emirates. ESWPC has a management operation and maintenance agreement with SembCorp Gulf O & M Company Limited, whereby the latter has undertaken to manage the day-to-day operations and maintain ESWPC s plant. Further, ESWPC has entered into a power and water purchase agreement ( PWPA ) with Abu Dhabi Water and Electricity Company ( ADWEC ), a related party, (a wholly-owned subsidiary of ADWEA). Under the PWPA, ESWPC undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until January 2029 in accordance with various agreed terms and conditions. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by ESWPC at the end of the PWPA term. ESWPC entered into a turnkey agreement with Iberdrola Ingenieria Construccion S.A.U. and Arabian Bemco Contracting Company Limited, for the engineering, procurement and construction of the Fujairah plant extension for an amount of US $159 million.

102 100 Notes to the Consolidated Financial Statements continued 31 December 41 SUBSIDIARIES continued Foreign operating subsidiaries TAQA Bratani Limited and TAQA Bratani LNS Limited Taqa Bratani Limited was incorporated in 2006 to oversee Taqa s investments in the UK. In 2006, Taqa Bratani Limited and Taqa Bratani LNS Limited acquired the working interests of Talisman Energy Inc. in the Brae area of the UKCS (UK Continental Shelf). The interests in the Brae asset area includes part ownership of platforms, pipelines and offshore facilities, together with a large number of contracts which were entered into as part of the acquisition (mainly processing, tariffing and supply contracts). TAQA Energy B.V. In January, TAQA, through its wholly owned subsidiary TAQA Europa B.V., acquired BP Nederland Energie B.V. (subsequently renamed TAQA Energy B.V.) from Amoco Netherlands Petroleum Company ( Amoco ). TAQA Energy is involved in the exploration, production and transportation of oil and natural gas in the Netherlands. TAQA Energy is also involved in the peak gas business by commissioning the first peak shaver in the Netherlands, the Alkmaar Piek Gas Installatie ( PGI ). TAQA North Ltd TAQA North, formerly Northrock Resources Limited ( Northrock ) is a Calgary-based oil and gas exploration company with operations in Alberta, British Columbia, Saskatchewan, and the Northwest Territories. Northrock was acquired by TAQA in August from Pogo Producing Company and amalgamated with TAQA North. TAQA North has subsequently entered into agreements to acquire Pioneer Canada Ltd. ( Pioneer ), a subsidiary of US-based Pioneer Natural Resources Company, and Calgary-based PrimeWest Energy Trust ( PrimeWest ). The former transaction closed on 27 November and the latter on 16 January. Jorf Lasfar Energy Company, SCA (JLEC) JLEC was incorporated in Morocco as a société en commandite par actions (which is similar to a limited partnership) in January Through affiliated companies, TAQA owns 100% of JLEC. JLEC was established to operate two existing power generation units at Jorf Lasfar, each having 330 MW gross capacity ( units 1 and 2 ), and to construct and operate two units of 348 MW gross capacity each ( units 3 and 4 ) at the same site. Through the power purchase agreement ( PPA ), transfer of possession agreement and the construction and procurement agreement, JLEC acquired the right to design, construct, finance and commission units 3 and 4, operate all four units and sell all power generation capacity and net electricity production generated by these four units to Morocco s state-owned ONE for a period of thirty years from financial close of the Jorf Lasfar project, which occurred in September ONE retained legal title to units 1 and 2 and acquired legal title to each of units 3 and 4 as they were constructed. JLEC operates and possesses all four units and ancillary infrastructure comprising the Jorf Lasfar power station through a right of quiet enjoyment (droit de jouissance), a concept recognised under Moroccan law which transfers possession together with the right to use, enjoy and profit from the assets transferred. As of May, the operating company, JLEC, became an indirect wholly owned subsidiary of TAQA when TAQA acquired a 50% interest in the operating company as part of the acquisition of TAQA Generation, and acquired the remaining 50% interest from an affiliate of ABB Ltd. Takoradi International Company Takoradi International Company (TICO), the Ghana Branch of a Cayman Islands limited liability company. The company is authorised to develop, design, finance, construct, commission, complete, own, operate, and maintain a power generation plant to be located adjacent to the existing power station in Aboadze, near Takoradi, within the TTPP complex. As of May, Taqa Generation, a wholly owned subsidiary of TAQA acquired a 90% interest in TICO. ST-CMS Electric Company Pvt. Ltd. (SCECPL) SCECPL was incorporated on 17 November 1993, principally for the purposes of owning and operating the 250 MW lignite thermal power plant facility located in Neyveli, Tamil Nadu, Republic of India. SCECPL sells the entire capacity of the power plant to TNEB, the local state government owned utility, under a 30-year power purchase agreement. The plant was developed and constructed by SCECPL and commenced commercial operations in December The plant is operated by CMS (India) Operation and Maintenance Company Private Limited under a 30-year operation and maintenance agreement. As of May, the operating company, SCECPL, became an indirect wholly owned subsidiary of TAQA when TAQA acquired a 50% interest in SCECPL as part of the acquisition of TAQA Generation, and acquired the remaining 50% interest in May from an affiliate of ABB Ltd. TAQA GEN X LP TAQA GEN X limited partnership was incorporated during and is a 85% subsidiary of TAQA. During the fourth quarter of, TAQA GEN X acquired 100% holding in BE Red Oak holding LLC, a company which holds a contractual interest in tolling agreement for a combined cycle generation facility. More details on the activities are disclosed in note 3 (iii). Other subsidiaries O&M Companies As part of the acquisition of Jorf Lasfar, SCECPL and TICO as described above, TAQA also acquired the related operating and maintenance companies. Taweelah Shared Facilities LLC (TSFC) TAQA acquired a controlling interest in Al Taweelah Shared Facilities LLC through its subsidiaries Al Taweelah Asia Power Company PJSC, Emirates CMS Power Company PJSC and Gulf Total Tractebel Power Company PJSC.TSFC is a closely held private company incorporated in United Arab Emirates which maintains shared utility facilities in Al Taweelah complex for the supply and discharge of sea water and provides other related services to TAQA subsidiaries.

103 101 TAQA Europa BV The subsidiary was created in 2006 to oversee certain investments made by TAQA. As of 31 December, the Company held investments in TAQA Energy, TAQA North, TAQA Bratani, Jorf Lasfar and ST-CMS Electric Company. TAQA New World Delaware and Aglauros Inc. The subsidiary was created in 2006 to oversee TAQA s investments in United States of America. 42 FINANCIAL INSTRUMENTS Fair values The fair values of the financial assets and liabilities of the Group are not materially different from their carrying values at the balance sheet date except for certain fixed interest borrowings and operating financial assets. Set out below is a comparison of the carrying amounts and fair values of fixed interest borrowings and finance lease receivables: Carrying amount Fair value Interest-bearing loans and borrowings - fixed rate borrowings 25,622,781 21,458,708 22,226,964 21,108,953 Operating financial assets 5,736,009 6,068,027 5,696,726 6,156,408 The fair value of fixed rate borrowings has been calculated by discounting the expected future cash flows at the current market interest rates for a bond with similar terms and risk characteristics. The fair value of finance lease receivables is calculated by discounting the expected future cash flows using appropriate interest rates. Hedging activities Cash flow hedges (i) Interest Rate Swaps In order to reduce their exposures 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 outstanding and the fair value position of the derivate instruments for each subsidiary as of 31 December and 31 December : Subsidiary 31 December AED'000 Notional amount 31 December AED'000 Assets 31 December AED'000 Derivative fair value Liabilities 31 December AED'000 Assets 31 December AED'000 Liabilities 31 December AED'000 ECPC 1,619,000 1,664, , ,000 GTTPC 2,855,000 2,757, , ,000 SCIPCO 3,967,000 4,135, , ,000 APC 3,250,000 5,230, ,000-4,000 TAPCO 5,682,000 9,329,000-1,192, ,000 ESWPC 4,375,000 4,161,000-1,087,000 9, ,700 JLEC 345, ,314-22,000-22,000 22,093,000 27,721,314-4,674,000 9,600 1,357,700 Emirates CMS Power Company PJSC (ECPC) In order to reduce its exposure to interest rates fluctuations on the term loan and Islamic Ijara loan, ECPC has entered into interest rate swap arrangements with counter-party banks for a notional amount that matches the outstanding term loan and Islamic Ijara loan. At 31 December the fixed interest rates vary from 6.31% to 6.33% (: 6.31% to 6.33%). The floating interest rate is LIBOR. The notional amount outstanding at 31 December was AED 1,619 million (: AED 1,664 million). Up to 30 September, the derivatives relating to interest rate swap arrangements (derivatives) did not qualify for cash flow hedge accounting and accordingly, gains and losses arising from changes in their fair value were taken to the income statement. Effective 1 October, management changed its strategy and as a result, the derivatives effective that date qualified for cash flow hedge accounting and accordingly, gains and losses arising from changes in their value are taken to equity. The derivative instruments were entered into for the purpose of cash flow hedge. As a result of the debt refinancing arrangements concluded by ECPC in March 2004, derivatives existed prior to the refinancing date have been extinguished and new interest rate swap contracts have been entered into as part of the debt refinancing arrangements. Consequently, the related cumulative changes in fair values previously recognised in equity shall be reclassified to the income statement over the period during which the previous hedged forecast transaction affects the income statement.

104 102 Notes to the Consolidated Financial Statements continued 31 December 42 FINANCIAL INSTRUMENTS continued Hedging activities continued Cash flow hedges continued (i) Interest Rate Swaps continued Gulf Total Tractebel Power Company PJSC (GTTPC) In order to reduce its exposure to interest rates fluctuations on the term loan, GTTPC has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the term loan, covering at least 75% (: 75%) of the outstanding term loan. At 31 December, the fixed interest rates vary from 6.7% to 6.95% (: 6.7% to 6.95%). The floating interest rate is LIBOR. The notional amount outstanding at 31 December was AED 2,855 million (: AED 2,757 million). The derivative instruments were entered into for the purpose of cash flow hedge. Shuweihat CMS International Power Company PJSC (SCIPCO) In order to reduce its exposure to interest rates fluctuations on loans, SCIPCO has entered into an interest rate arrangement with counterparty banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 75% of the outstanding loans. At 31 December the fixed interest rates vary from 5.04% to 6.354% (: 5.04% to 6.354%). The floating interest rate is LIBOR. The notional amount outstanding at 31 December was AED 3,967 million (: AED 4,135 million). The derivative instruments were entered into for the purpose of cash flow hedge. Arabian Power Company PJSC (APC) In order to reduce its exposure to interest rates fluctuations on the loans, APC has entered into an interest rate arrangement with counterparty banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 85% of the outstanding term loan. At 31 December, the fixed interest rates vary from 2.575% to 5% (: 2.575% to 5%). The floating interest rate is LIBOR. The notional amount outstanding at 31 December was AED 3,251 million (: AED 5,230 million). The derivative instruments were entered into for the purpose of cash flow hedge. Taweelah Asia Power Company PJSC (TAPCO) In order to reduce its exposure to interest rates fluctuations on the loans, TAPCO has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 75% of the outstanding loans. The notional amount outstanding at 31 December was AED 5,682 million (: AED 9,329 million). At 31 December, the fixed rate was 5.28% (: % to 4.16%). The floating interest rate is LIBOR. The derivative instruments were entered into for the purpose of cash flow hedge. Emirates Sembcorp Water and Power Company PJSC (ESWPC)) In order to reduce its exposure to interest rates fluctuations on the loans, the subsidiary ESWPC has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 80% of the outstanding loans. The notional amount outstanding at 31 December was AED 4,375 million (: AED 4,161 million). At 31 December, the fixed rates vary from 5.67% to 5.85% (: 5.67% to 5.85%). The floating interest rate is LIBOR. The derivative instruments were entered into for the purpose of cash flow hedge. Jorf Lasfar In order to reduce its exposure to interest rates fluctuations on the loans, the subsidiary has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of its Euro loans that carry variable interest rates. The notional amount outstanding at 31 December was AED 345 million (: AED 445 million). At 31 December, the fixed rate varies between 6.406% and % (: 6.406% and %). The floating interest rate is LIBOR. The derivative instruments were entered into for the purpose of cash flow hedge. (ii) Hedge of net investment in foreign operations Included in loans at 31 December was a borrowing of Euro 553 million (AED 2,964 million) (: Euro 553 million) which has been designated as a hedge of the net investments 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 year ended 31 December, a gain of AED 125 million (: loss of AED 249 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. During the year, a borrowing of CAD 3,131 million (AED 11,377 million) (31 December : CAD nil) was designated as a hedge of the net investment in the Canadian subsidiary TAQA North Ltd and was being used to hedge the Group s exposure to foreign exchange risk on this investment. During the year ended 31 December, a gain of AED 326 million (: AED nil) 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. (iii) Forward Foreign Exchange Contracts Emirates CMS Power Company PJSC (ECPC) The Company uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The outstanding forward foreign exchange commitment at 31 December was AED 191 million (: AED 141 million). The forward foreign exchange contracts do not qualify for hedge accounting and accordingly, changes in fair value are recorded in the consolidated income statement. Shuweihat CMS International Power Company PJSC (SCIPCO) The Company uses forward foreign exchange contracts to hedge its risk associated with foreign currency fluctuations relating to scheduled maintenance cost payments to an overseas supplier. The outstanding forward foreign exchange commitment at 31 December amounted to AED 171 million (: AED 225 million). The forward foreign exchange contracts qualified for hedge accounting and accordingly changes in fair value recorded in the consolidated statement of equity.

105 103 Commodity Contracts At 31 December, 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 (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 31 December, an unrealised gain, net of deferred tax, of AED 45 million has been recognised in equity (31 December : nil). 43 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s principal financial liabilities, other than derivatives, comprise bank and other loans and overdrafts, and trade payables. The main purpose of these financial liabilities is to raise finance for the Group s operations. The Group has various financial assets such as trade receivables, receivable from related parties and cash and short-term deposits, which arise directly from its operations. The Group also enters into derivative transactions, primarily interest rate swap and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group s operations and sources of finance. It is, and has been throughout and the Group s policy that no trading in derivatives shall be undertaken. The main risks arising from the Group s financial instruments are cash flow interest rate risk, foreign currency risk, liquidity risk and credit risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below. Interest rate risk The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long-term debt obligations and shortterm deposits with floating interest rates. The Group s policy is to manage its interest cost using a mix of fixed and variable rate debts. To manage this, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 31 December, after taking into account the effect of interest rate swaps, approximately 88% of the Group s borrowings are at a fixed rate of interest (: 96%). Interest rate risk table The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group s profit and equity (through the impact on floating rate borrowings). Effect on profit Effect on equity +15 increase in basis point (11,223) 226, decrease in basis point 11,223 (229,664) +15 increase in basis point (2,675) 208, decrease in basis point 2,675 (209,507) Foreign currency risk As a result of the Group s investment in the Netherlands and Morocco, the Group is exposed to currency risk as a result of movements in the Euro to AED exchange rates. The Group seeks to mitigate the effect of its structural currency exposure by borrowing in Euro. As a result of the Group s investment in Canada, the Group s balance sheet can be affected by movements in the CAD to AED exchange rates. The Group exposure to US $ is limited as the AED is pegged to the US $. The Group also has transactional currency exposure mainly in US Dollars, Euros and Canadian Dollars. Information on the Group s currency hedging is shown under note 42(i) and 42(iii) It is the Group s policy to have all forward currency contracts in the same currency as the hedged items and not to enter into forward contracts until a firm commitment is in place. It is the Group s policy to synchronise the terms of the hedge derivatives with the terms of the hedged item to maximise hedge effectiveness. The following table demonstrates the sensitivity to a reasonably possible change in the Euro and CAD exchange rates, with all other variables held constant, of the Group s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group s equity (due to changes in the fair value of forward exchange contracts, net investment hedges and foreign currency translation reserve). Increase/ decrease in Euro, GBP and CAD rates Effect on profit before tax Effect on equity +5% 22,650 (88,000) -5% (22,650) 88,000 +5% 32,013 (528,000) -5% (32,709) 528,000

106 104 Notes to the Consolidated Financial Statements continued 31 December 43 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued Credit risk The Group trades only with recognised, creditworthy third parties. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group s exposure to bad debts is not significant. The maximum exposure is the carrying amount of the loan to an associate and all amounts disclosed in note 23. The Group s three largest customers account for approximately 76% of outstanding accounts receivables at 31 December (: 49%). With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for sale financial investments, and certain derivative instruments, the Group s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group seeks to limit its credit risk to banks by only dealing with reputable banks and financial institutions. Liquidity risk The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (eg, accounts receivable and other assets) and projected cash flow from operations. The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and bonds. The Group s policy is that the amount of borrowings that mature in the next 12 month period should not cause in the current ratio to be less than 100%. The table below summarises the maturity profile of the Group s financial liabilities at 31 December based on contractual undiscounted payments: On demand Less than 3 months 3 to 12 months 1 to 5 years > 5 years Total At 31 December Trade and other payables 152,171 1,155, , ,707,234 Bank overdrafts 91, ,829 Interest bearing loans, borrowings and Islamic loans - 1,273,281 3,361,409 24,936,985 57,181,718 86,753,393 Loan from a related party ,000 70,000 Loans from minority interest shareholders in subsidiaries 19, ,770 Amounts due to ADWEA and other related parties 10 13,654 3, ,667 Derivative financial instruments - 258,378 1,106,240 4,976,470 2,825,200 9,166,288 Total 263,780 2,701,143 4,869,885 29,913,455 60,076,918 97,825,181 At 31 December Trade and other payables 68, ,880 35, ,208 Bank overdrafts 170, ,469 Interest bearing loans, borrowings and Islamic loans - 642,757 4,245,511 23,648,682 48,893,426 77,430,376 Loan from a related party ,000 70,000 Loans from minority interest shareholders in subsidiaries 19, ,770 Amounts due to ADWEA and other related parties - 96, ,242 Derivative financial instruments - 326,807 1,269,773 5,351,526 3,277,854 10,225,960 Total 258,883 1,590,686 5,550,968 29,000,208 52,241,280 88,642,025

107 105 The disclosed financial derivative instruments in the above table are the gross undiscounted cash flows. However, those amounts may be settled gross or net. The following table shows the corresponding reconciliation of those amounts to their carrying amounts. Less than 3 months 3 to 12 months 1 to 5 years > 5 years Total At 31 December Inflows 116, ,163 2,129,842 1,269,694 3,981,916 Outflows (258,378) (1,106,240) (4,976,470) (2,825,400) (9,166,288) Net (142,161) (640,077) (2,846,628) (1,555,506) (5,184,372) Discounted at the applicable interbank rates (140,454) (628,251) (2,578,485) (1,314,943) (4,662,133) At 31 December Inflows 285,888 1,085,000 4,388,082 2,810,907 8,569,977 Outflows (326,807) (1,269,773) (5,351,526) (3,277,854) (10,225,960) Net (40,919) (184,673) (963,444) (466,947) (1,655,983) Discounted at the applicable interbank rates (39,127) (179,631) (812,070) (315,877) (1,346,705) Market price risk Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities traded in the market. The Group is exposed to market risk with respect to its available for sale investment. The Group limits market price risk by actively monitoring the key factors that affect the market movements, including analysis of the operational and financial performance of investees. The following table demonstrates the sensitivity to a reasonably possible change in the market price of available for sale investment, on the Group s equity. Change in variables Impact on equity AED '000 Impact on equity AED '000 Available for sale investments 5% 7,344 4,974 Capital management The primary objective of the Group s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. There are no regulatory imposed requirements on the level of share capital which the Group has not met. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December and 31 December. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group s policy is to keep the gearing ratio within a range to meet the business needs of the Group. The Group includes within net debt, interest bearing loans and borrowings, Islamic loans, less cash and cash equivalents. Capital includes total equity including minority interests less cumulative changes in fair value of derivatives and available for sale investments. Interest bearing loans and borrowings 57,324,827 48,547,042 Islamic loans 2,123,211 3,142,293 Less cash and cash equivalents (4,098,920) (7,430,624) Net debt 55,349,118 44,258,711 Equity 7,747,122 8,129,065 Cumulative changes in fair value of available for sale investments 13,595 - Cumulative changes in fair value of derivatives 2,439, ,285 Total capital 10,199,856 8,831,350 Capital and net debt 65,548,974 53,090,061 Gearing ratio 84% 83%

108 106 Notes to the Consolidated Financial Statements continued 31 December 44 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. Income statement The following amounts previously shown separately on the income statement have now been grouped under repairs, maintenance and other operating expenses. Repairs, maintenance and consumables used 378,429 Operation and maintenance charges 711,717 Other expenses 186,228 1,276,374 Balance sheet Advances to a related party amounting to AED 213 million and other investments amounting to AED 324 thousand as at 31 December previously disclosed as a separate item under non-current assets have now been included in the total of other assets under non-current assets. The following balances previously shown as separate components under current assets have now been included in the total balance of accounts receivable and prepayments. Advance to a related party 22,604 Amounts due from related parties 832,267 Loan to an associate 32,100 Statutory reserve, legal reserve and general reserve amounting to AED 300 million, 246 million and AED 750 million respectively as at 31 December 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 22 million and AED 27 million respectively as at 31 December previously shown as separate components within non-current liabilities have now been combined under advances and loan from related parties within non-current liabilities. Employees benefit liabilities amounting to AED 57 million as at 31 December previously shown as separate component within non-current liabilities have now been combined within other non-current liabilities. Trade and other payables and accruals and other liabilities amounting to AED 629 million and AED 2,962 million 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 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. Income tax payable amounting to AED 76 million at 31 December previously shown under trade and other payables and accruals have now been shown as a separate line item within current liabilities. As a result of the change in the treatment of the acquisition of interest in Brae oil and gas fields as a business combination as detailed under note 3, the following adjustments have been made to the consolidated balance sheet as at 31 December : Increase in property, plant and equipment 141,852 Recognition of goodwill 883,885 Increase in asset retirement obligations 124,772 Recognition of deferred tax liabilities 883,885 Increase in trade and other payables and accruals 17,080 The consolidated cash flow statement has been amended to reflect the above adjustments. Cash flow statement Repayments of operating financial assets amounting to AED 161 million for the year ended 31 December previously included under investing activities in the consolidated cash flow statement has now been reclassified under operating activities. Asset retirement obligation payments amounting to AED 8 million for the year ended 31 December previously included under investing activities in the consolidated cash flow statement has now been reclassified under operating activities. Net movements in interest bearing loans and borrowings, Islamic loans in the consolidated cash flow statement amounting to AED 8,906 million and AED 32 million respectively for the year ended 31 December have now been broken down between gross amounts received and repaid.

109 107 Glossary of Terms 3C Initiative The 3C Initiative was launched on 11 January by a statement appealing to the global community and all its representatives to join forces with business leaders around a common vision of a low emitting, sustainable society, and to cooperate to create a roadmap that leads to its realization. Following a six-month process of open consultation with many of the initiative s participating companies, a series of recommendations was launched in Washington D.C. on 9 November. ADSX Abu Dhabi Securities Exchange ADWEC Abu Dhabi Water and Electricity Company, is a subsidiary of ADWEA and is the sole buyer of water and power production in the UAE. ADWEA Abu Dhabi Water and Electricity Authority, a governmental authority which owns 51.1% of TAQA s share capital. AED UAE Dirham. API American Petroleum Institute. API gravity is a standard method of measuring density of crude oils and is expressed in degrees. Barrel Measure of crude oil equal to 42 US gallons, 35 imperial gallons or 159 liters. Basin A dip in the earth s crust usually filled or being filled with sediment. It is a basic concept in petroleum geology. bbl The abbreviation for barrel. bbls/d Barrels per day. bcf One billion cubic feet of gas. boe Barrels of oil equivalent. A figure used when expressing the combined volume of oil and gas reserves, that is calculated at a ratio of 6 mcf per boe. boe/d Barrels of oil equivalent per day. Coalbed methane (CBM) - A form of natural gas extracted from coal beds. Completion The final preparation to ready a well for production. Condensate Hydrocarbons which are gaseous in a reservoir, but which condensate to form a liquid as they rise to the surface where the pressure is much less. CSR Corporate Social Responsibility. Farm-in/out An arrangement between one or more parties and the company or group holding a lease title to an exploration or production area whereby the former pays to earn an interest in the permit. Payment may be in cash or in the form of a work program. Farmers Fund Governmental Fund that owns 21.0% of TAQA. GAAP Generally Accepted Accounting Principles. GCC Gulf Cooperation Council. Group TAQA and its subsidiaries. GWh Gigawatt/hour. GDP per capita Gross Domestic Product of a country divided by its total population. Greenhouse gas emissions (GHG) - gases in an atmosphere that absorb and emit radiation within the thermal infrared range. H-gas High calorific value gas. IFRS International Financial Reporting Standards. IWPPs Independent Power and Water Producers. Joint venture A group of companies or individuals who share the cost and rewards of exploring for and producing oil or gas from a permit. Light crude Generally refers to crude oil with an API gravity of 30 degrees or more. mcf Thousand cubic feet. mcf/d Thousand cubic feet per day. Mcsf/d Thousand standard cubic feet per day MIG Million imperial gallons. MIGD Million imperial gallons per day. Mmbbls Million barrels. mmboe Millions of barrels of oil equivalent. mmcf Million cubic feet of gas. mmcf/d Million cubic feet per day. MW Megawatt. MWh Megawatt-hour (a unit of energy equal to 1,000 watt hours). Nm3 A cubic meter of gas volume at normal (i.e. atmospheric pressure) conditions. Nm3/d A normal cubic meter of gas per day. Natural Gas A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in porous geological formations beneath the earth s surface, often in association with petroleum. The principal constituent is methane. O&M Operation and Maintenance. O&M Agreement Management, operation and maintenance agreement between the operating subsidiary and a contractor. Operator The company which organizes the exploration and production programs in a permit on behalf of all the interest holders in the permit. P1 reserves See proved reserves. P2 reserves See probable reserves. Peak-shaving facilities Peak-shaving facilities are used for storing surplus natural gas that is to be used to meet the requirements of peak consumption later during winter or summer. Permeability The degree to which fluids can move through a rock. Permit An area of a specified size within a sedimentary basin which is licensed or allocated to a company or companies by the government for the purpose of exploring for and producing oil and gas. In Australia separate licenses are issued for exploration and production. PGI Piek Gas Installatie, our Netherlands based peak shaver. Pioneer Canada Pioneer Natural Resources Canada Inc., Pioneer Natural Resources Canada and Pioneer Natural Resources Canada ULC. Possible reserves Those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable plus possible reserves. [Society of Petroleum Engineers: PPA Power Purchase Agreement. Probable reserves Those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves. [Society of Petroleum Engineers: Proved reserves Those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. [Society of Petroleum Engineers: Production sharing contract or PSC Production sharing content, where an oil company is contracted to explore for and produce oil and gas under preset arrangements to share the proceeds with the host government or its natural petroleum company. PWPA Power and Water Purchase agreement. Reservoir A rock or formation which holds hydrocarbons within the pore spaces between individual grains. S&P Standard & Poor s Rating Group, a division of The McGraw-Hill Companies, Inc. Sales gas Natural gas that is sold into the distributor/retail market after being treated to remove impurities. SCA Securities and Commodities Authority. Suspended A well is suspended when it is likely to be re-entered at a later date, either to continue drilling or to run a test of a reservoir that was not possible or convenient during the original drilling. The well is suspended by setting cement plugs that can be drilled out when re-entry takes place. TAQA Abu Dhabi National Energy Company PJSC. TAQA Bratani TAQA Bratani Limited. TAQA Energy TAQA Energy B.V. TAQA Europa TAQA Europa B.V. TAQA Generation TAQA Generation LLC. TAQA GEN-X a joint venture together with RBS Sempra Commodities. TAQA New World TAQA New World, Inc. TAQA NORTH TAQA NORTH Ltd. TCF Trillion Cubic Feet. UAE United Arab Emirates.

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