Abu Dhabi National Energy Company PJSC ( TAQA ) MANAGEMENT DISCUSSION & ANALYSIS AND INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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1 Abu Dhabi National Energy Company PJSC ( TAQA ) MANAGEMENT DISCUSSION & ANALYSIS AND INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 31 MARCH 2012 (UNAUDITED)

2 Abu Dhabi National Energy Company PJSC ( TAQA ) MANAGEMENT DISCUSSION & ANALYSIS 31 MARCH 2012

3 Abu Dhabi National Energy Company PJSC ( TAQA ) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 31 MARCH 2012 (UNAUDITED)

4 REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE BOARD OF DIRECTORS OF ABU DHABI NATIONAL ENERGY COMPANY PJSC ( TAQA ) Introduction We have reviewed the accompanying interim condensed consolidated financial statements of Abu Dhabi National Energy Company PJSC ( TAQA ) and its subsidiaries (the Group ) as at 31 March 2012, comprising of the interim consolidated statement of financial position as at 31 March 2012 and the related interim consolidated statements of income, comprehensive income, changes in equity and cash flows for the three month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ( IAS 34 ). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34. Signed by: Bassam E Hage Partner Ernst & Young Registration No May 2012 Abu Dhabi

5 INTERIM CONSOLIDATED INCOME STATEMENT Three month period ended Three month Three month period ended period ended 31 March 31 March Notes AED million AED million Revenues Revenue from oil and gas 2,606 2,586 Revenue from electricity and water 1,889 1,663 Fuel revenue Gas storage revenue Other operating revenue ,743 5,480 Cost of sales Operating expenses (2,137) (2,099) Depreciation, depletion and amortisation (1,345) (1,275) (3,482) (3,374) GROSS PROFIT 2,261 2,106 Administrative and other expenses (226) (188) Finance costs (1,260) (1,077) Changes in fair value of derivatives and fair value hedges Net foreign exchange losses (43) (65) Bargain purchase gain Gain on sale of land and oil and gas assets Share of results of associates Share of results of joint ventures Gain from sale of joint venture - 28 Interest income 6 17 Other income 29 8 PROFIT BEFORE TAX 1, Income tax expense 4 (724) (650) PROFIT FOR THE PERIOD Attributable to: Owners of the parent Non-controlling interests PROFIT FOR THE PERIOD Basic and diluted earnings per share attributable to equity holders of the parent (AED) The attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 2

6 INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Three month period ended Three month Three month period ended period ended 31 March 31 March AED million AED million Profit for the period Other comprehensive income Changes in fair values of derivative instruments in cash flow hedges 88 (226) Share of other comprehensive income of associates (6) (4) Reclassification adjustment for losses included in the income statement Exchange differences arising on translation of overseas operations Changes in fair value of available for sale investments Other comprehensive income for the period 1, Total comprehensive income for the period 2,078 1,285 Attributable to: Owners of the parent 1,672 1,029 Non-controlling interests ,078 1,285 The attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 3

7 INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION At (Audited) 31 March 31 December Notes AED million AED million Non-current assets Property, plant and equipment 7 78,095 77,439 Operating financial assets 4,399 4,363 Available for sale investments 8 1,502 1,122 Intangible assets 9 13,854 13,430 Investment in associates Investment in joint ventures Advance and loan to an associate Other assets ,000 98,419 Current assets Inventories 3,158 3,122 Operating financial assets Advance and loan to associates Accounts receivable and prepayments 6,447 6,537 Cash and short-term deposits 5,318 3,988 16,151 14,874 Assets classified as held for sale 11-1,400 16,151 16,274 TOTAL ASSETS 116, ,693 EQUITY AND LIABILITIES Equity attributable to owners of the parent Issued capital 6,225 6,225 Treasury shares (293) (293) Equity contributed capital Other reserves 4,048 4,048 Retained earnings 1,672 1,138 Proposed dividends Foreign currency translation reserve 94 (554) Cumulative changes in fair value of available for sale investments Cumulative changes in fair value of derivatives in cash flow hedges (4,134) (4,344) 9,094 7,422 Equity attributable to non-controlling interests Non-controlling interests 1,675 1,433 Loans from non-controlling interest shareholders in controlled subsidiaries 1,048 1,060 Loan from Abu Dhabi Water and Electricity Authority (ADWEA) 2,675 2,675 5,398 5,168 Total equity 14,492 12,590 Non-current liabilities Investment in associate Interest bearing loans and borrowings 12 66,390 67,178 Islamic loans 12 2,412 1,661 Deferred tax 4,562 4,606 Asset retirement obligations 7,848 7,502 Advances and loans from related parties Loan from non-controlling interest shareholders in subsidiaries Other liabilities 6,874 7,317 88,582 88,789 Current liabilities Accounts payable, accruals and other liabilities 6,245 6,627 Interest bearing loans and borrowings 12 5,042 4,911 Islamic loans Loans from non-controlling interest shareholders in subsidiaries Amounts due to ADWEA and other related parties Taxes payable 1, Bank overdrafts ,077 13,253 Liabilities classified as held for sale ,077 13,314 Total liabilities 101, ,103 TOTAL EQUITY AND LIABILITIES 116, ,693 DIRECTOR DIRECTOR CHIEF EXECUTIVE OFFICER The attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 4

8 INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Three month period ended Attributable to owners of the parent Cumulative Loan from changes in non-controlling fair value of Cumulative interest Equity available changes in Non- shareholders Share Treasury contributed Other Retained Proposed Translation for sale fair value of controlling in controlled Loan from Total capital shares capital reserves earnings dividends reserve investments derivatives Total interests subsidiaries ADWEA equity AED million AED million AED million AED million AED million AED million AED million AED million AED million AED million AED million AED million AED million AED million Balance at 1 January ,225 (293) 341 3,881 1, (2,822) 9,504 2, ,752 15,238 Profit for the period Other comprehensive income for the period Total comprehensive income for the period , ,285 Dividends paid to non-controlling interest shareholders (180) - - (180) Repayment of loans (33) (49) (82) Balance at 31 March 2011 (unaudited) 6,225 (293) 341 3,881 1, , (2,806) 10,533 2, ,703 16,261 Balance at 1 January ,225 (293) 341 4,048 1, (554) 254 (4,344) 7,422 1,433 1,060 2,675 12,590 Profit for the period Other comprehensive income for the period , ,397 Total comprehensive income for the period , ,078 Dividends paid to non-controlling interest shareholders (164) - - (164) Repayment of loans (12) - (12) Balance at 31 March 2012 (unaudited) 6,225 (293) 341 4,048 1, (4,134) 9,094 1,675 1,048 2,675 14,492 The attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 5

9 INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Three month period ended Three month Three month period ended period ended 31 March 31 March Notes AED million AED million OPERATING ACTIVITIES Profit before tax 1, Adjustments for: Depreciation, depletion and amortisation 1,345 1,275 Employee benefit obligations, net 5 4 Loss on exchange - loans and borrowings and operating financial assets Exploration and evaluation costs derecognised during the period Bargain purchase price 3 (92) - Gain on sale of assets 11 (378) - Gain on sale of joint venture - (28) Interest expense and notional interest 1, Accretion expense Share of results of associates (47) (58) Share of results of joint venture (22) (32) Unrealised gains on fair valuation of derivatives and fair value hedges (99) (42) Interest income (14) (17) Working capital changes: Inventories (20) (292) Accounts receivables, prepayments and other assets Amounts due to ADWEA and related parties 30 (35) Accounts payable, accruals and other liabilities (393) (559) Income tax paid (748) (271) Interest paid (1,145) (831) Asset retirement obligation payments (48) (38) Movement of operating financial assets Net cash from operating activities 1,724 1,581 INVESTING ACTIVITIES Proceeds from sale of interest in joint venture - 1,151 Proceeds from the sale of property, plant and equipment and intangible assets 1,798 - Purchase of property, plant and equipment (1,303) (1,436) Receipt on acquisition of subsidiaries Additions to operating financial assets (250) (437) Purchase of available for sale investments (100) (11) Purchase of intangible assets (347) (53) Dividend received from associates 4 - Advance from a related party 2 - Interest received 6 17 Other assets 11 - Net cash used in investing activities (59) (769) FINANCING ACTIVITIES Interest bearing loans and borrowings received 12-1,644 Islamic loans received Repayment of interest bearing loans and borrowings 12 (851) (3,261) Repayment of Islamic loans 12 (22) (21) Dividend paid to non-controlling interest shareholders (164) (180) Repayment of loans from ADWEA - (49) Repayment of loans from non-controlling interest shareholders (17) (72) Net cash used in financing activities (275) (1,939) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,386 (1,127) Net foreign exchange difference 33 (11) Cash and cash equivalents at 1 January 3,819 5,489 CASH AND CASH EQUIVALENTS AT 31 MARCH 10 5,238 4,351 The attached notes 1 to 17 form part of these interim condensed consolidated financial statements. 6

10 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 2008, 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 interim condensed consolidated financial statements of TAQA and its subsidiaries ( the Group ) for the period ended 31 March 2012 were authorised for issuance by the Board of Directors on 9 May BASIS OF PREPARATION AND ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The interim condensed consolidated financial statements for the three months ended 31 March 2012 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The interim condensed consolidated financial statements have been presented in United Arab Emirates Dirhams (AED), which is the functional currency of the Company. All values are rounded to the nearest million (AED million) except otherwise indicated. The interim condensed consolidated financial statements do not include all information and disclosures required in the annual financial statements and should be read in conjunction with the Group s annual consolidated financial statements for the year ended 31 December In addition, results for the three months ended 31 March 2012 are not necessarily indicative of the results that may be expected for the financial year ending 31 December SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual consolidated financial statements for the year ended 31 December 2011, except for the adoption of the following new standards and interpretations as of 1 January 2012, noted below: IAS 12 Income Taxes Deferred tax: Recovery of Underlying Assets (Amendment) IFRS 7 Financial Instruments: Disclosures- Enhanced Derecognition Disclosure Requirements (Amendment) The adoption of the above standards and interpretations did not have a material effect on the financial position or performance of the Group. 7

11 3 BUSINESS COMBINATION Acquisition of undivided interest in Otter Assets TAQA made the following acquisition which represents a business combination under IFRS 3: On 1 July 2011, TAQA Bratani completed the acquisition of a 31% undivided interest in the producing Otter field and associated infrastructure and agreements. The Otter field is tied back to the TAQA operated Eider subsea platform in the Northern North Sea (NNS) area of the UK continental shelf. There is no non-controlling interest related to the acquisition. The acquisition agreement for the 31% undivided interest included an option clause under which TAQA could acquire a further 50% undivided interest on commercially agreed terms. The option was exercised during January The acquisition of this interest was completed on 24 February The fair values of the identifiable assets and liabilities relating to the 50% undivided interests as at the transaction completion date were as follows: Fair value recognised on acquisition AED million Property, plant, and equipment 10 Deferred tax assets 113 Accounts receivables and prepayments 78 Accounts payable, accruals and other liabilities (37) Asset retirement obligations (192) 201 (229) Net liabilities (28) Bargain purchase gain (92) Net receipt on acquisition (120) The fair values presented above represent the provisional acquisition accounting for the business combination undertaken at the completion date. The acquisition accounting will be finalised at a later date. From the date of acquisition, Otter assets have contributed AED 5 million of revenue and AED 21 million to the profit of the Group (revenue is recognised on a lifting basis, profit on a production entitlement basis and entitlement in the period was greater than the production in the period). If the above acquisition had taken place at the beginning of the year, the profit of the Group would have been AED 725 million and revenue would have been AED 5,607 million. The bargain purchase gain has arisen on the above transaction as a result of the change in fair values between the economic date of the agreement (1 September 2009) and the legal completion date when purchase accounting was applied. 8

12 4 INCOME TAX Three month Three month period ended period ended 31 March 31 March AED million AED million Current income tax: Current income tax charge Deferred income tax: Relating to origination and reversal of temporary differences (19) 88 Income tax expense BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Basic earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding during the period, adjusted for the effects of dilutive instruments. The following reflects the income and share data used in the earnings per share computations: Three month Three month period ended period ended 31 March 31 March Profit for the period attributable to owners of the parent (AED million) Weighted average number of ordinary shares issued (million) 6,066 6,066 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 takes into account the treasury shares as at period end. 9

13 6 OPERATING SEGMENT INFORMATION For management reporting purposes the Group is organised into business units based on their geography, products and services, and has five reportable operating segments as follows: Power and Water Segment- U.A.E This segment is engaged in generation of electricity and production of desalinated water for supply in UAE. Power Segment Others This segment is primarily engaged in generation of electricity in Morocco, India, Ghana, Saudi Arabia, and North America. Oil and Gas Segment-North America This segment comprises of the TAQA NORTH business unit and is engaged in Upstream and Midstream oil and gas activities in Canada and the United States. Oil and Gas Segment-United Kingdom This segment comprises of the TAQA Bratani business unit and is engaged primarily in Upstream oil and gas activities in the United Kingdom. Oil and Gas Segment-Netherlands This segment comprises of the TAQA Energy business unit and is engaged primarily in Upstream and Midstream oil and gas activities in the Netherlands. No operating segments have been aggregated to form the above reportable segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss. Group financing (including finance costs except for the subsidiaries involved in power and water generation with project financing arrangements and interest income) is managed on a group basis and is not allocated to operating segments. Investment in certain associates with activities other than power and water generation and oil and gas and available for sale investments are managed on a group basis and are therefore not allocated to operating segments. Interest bearing loans and borrowings and Islamic loans except for the subsidiaries involved in power and water generation with project financing arrangements and bank overdrafts are managed on a group basis and are therefore not allocated to operating segments. 10

14 6 OPERATING SEGMENT INFORMATION continued The following table presents revenue and profit information for the Group s operating segments for the three months ended 31 March 2012 and 2011 respectively: Adjustments, Power and water Power Oil and Oil and Oil and eliminations generation - generation- gas - gas - gas - and UAE others North America UK Netherlands unallocated Consolidated AED million AED million AED million AED million AED million AED million AED million Three months ended 31 March 2012: Revenue from external customers 1,658 1, , ,743 Operating expenses (350) (957) (394) (374) (57) (5) (2,137) Administrative and other expenses (28) (32) (106) (22) (9) (29) (226) Share of results of associates Share of results of joint venture Earnings before interest, tax, depreciation and amortisation (EBITDA) 1, , ,449 Depreciation, depletion and amortization (420) (27) (507) (318) (67) (6) (1,345) Earnings (loss) before interest and tax (EBIT) (87) ,104 Finance costs (590) (55) (36) (63) (3) (513) (1,260) Changes in fair value of derivatives and fair value hedges (12) Net foreign exchange gains (losses) - (32) (2) (10) (1) 2 (43) Bargain purchase gain Interest income Gain on sale of assets Other income Income tax (expense) credit - (60) (54) (608) (48) 46 (724) Profit for the period (445) 681 Three months ended 31 March 2011: Revenue from external customers 1, ,123 1, ,480 Operating expenses (484) (766) (449) (355) (40) (5) (2,099) Administrative and other expenses (31) (27) (67) (20) (13) (30) (188) Share of results of associates Share of results of joint venture Earnings before interest, tax, depreciation and amortisation (EBITDA) 1, , ,283 Depreciation, depletion and amortization (349) (24) (528) (285) (84) (5) (1,275) Earnings before interest and tax (EBIT) ,008 Finance costs (460) (54) (20) (57) (4) (482) (1,077) Changes in fair value of derivatives and fair value hedges (10) - - (1) 42 Net foreign exchange gains (losses) 1 (23) 4 (24) (1) (22) (65) Interest income Gain on sale of joint venture Other income Income tax (expense) credit - (5) (23) (624) (48) 50 (650) Profit for the period (419)

15 6 OPERATING SEGMENT INFORMATION continued The following table presents segment assets of the Group s operating segments as at 31 March 2012 and 31 December 2011: Adjustments, Power and water Power Oil and Oil and Oil and eliminations generation - generation- gas - gas - gas - and UAE others North America UK Netherlands unallocated Consolidated AED million AED million AED million AED million AED million AED million AED million At 31 March 2012 Investment in associates Investment in joint venture Advance and loan to an associate ,188 1,208 Operating financial assets - 4, ,817 Other assets 54,610 5,215 31,604 9,235 4,751 3, ,824 Segment assets 54,610 10,105 31,604 9,235 5,530 5, ,151 At 31 December 2011 Investment in associates Investment in joint venture Assets classified as held for sale - - 1, ,400 Advance and loan to an associate ,188 1,208 Operating financial assets - 4, ,780 Other assets 55,338 4,884 30,632 8,824 4,501 1, ,058 Segment assets 55,338 9,738 32,032 8,824 5,236 3, ,693 7 PROPERTY, PLANT AND EQUIPMENT During the three month period ended 31 March 2012 the Group acquired assets with a cost of AED 1,385 million (31 March 2011: AED 1,454 million), not including property, plant and equipment acquired through a business combination (note 3). 8 AVAILABLE FOR SALE INVESTMENTS At 31 March At 31 December AED million AED million Listed outside UAE 1, Listed in UAE 11 7 Unquoted investment in managed fund outside UAE Total 1,502 1,122 Movement during the period is as follows: At 1 January 1, Additions during the period Changes in fair value during the period At 31 March 1,502 1,122 Subsequent to the reporting date on, 8 April 2012, the Group successfully completed the sale of its holding in Tesla Motors, a listed investment outside the UAE, for a total consideration of AED 956 million (USD 260 million) realising a gain of AED 415 million. 12

16 9 INTANGIBLE ASSETS Exploration and evaluation Tolling Connection Computer assets agreement rights Goodwill software Total AED million AED million AED million AED million AED million AED million Cost: At 1 January , ,388 9, ,351 Additions Transfers to oil and gas assets (44) (44) Sale of assets (1) - - (11) - (12) Derecognised during the period (13) (13) Exchange adjustment At 31 March , ,388 9, ,827 Amortisation: At 1 January Amortisation for the period At 31 March Net book value before fair value adjustment: At 31 March , ,150 9, ,343 Fair value adjustment (note 16(vi)) Net book value after fair value adjustment: At 31 March 2012 (unaudited) 1,508 1,150 1,150 9, ,854 At 31 December 2011 (audited) 1,203 1,187 1,160 9, , CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the interim consolidated statement of cash flows comprise the following amounts: At 31 March At 31 March AED million AED million Bank balances and cash 5,318 4,361 Bank overdrafts (80) (10) 11 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE 5,238 4,351 During the year ended 31 December 2011, the Board of Directors approved the sale of certain non-core assets in Canada which was classified as assets and liabilities held for sale at 31 December During the period, the group realised an amount of AED 1,798 million upon completion of the sale, which resulted in a gain of AED 378 million recognised in the consolidated income statement. 13

17 12 INTEREST BEARING LOANS AND BORROWINGS AND ISLAMIC LOANS Receipts: Loans received during the period are as follows: Three month Three month period ended period ended 31 March 31March AED million AED million Interest bearing loans and borrowings - 1,644 Islamic loans (note i) Repayments: The Group made the following repayments during the period: Interest bearing loans and borrowings 851 3,261 Islamic loans (i) In November 2011, TAQA had established a MYR 3.5 Billion (USD 1.1 billion) Sukuk programme. During the period ended 31 March 2012, an amount of MYR 650 million (USD 215 million) was issued under the programme. The 10 year Sukuk was raised with a profit rate of 4.65% with a full swapped rate to US Dollars of 5.3%. 13 SEASONALITY OF OPERATIONS Due to higher electricity demand in the summer period in the United Arab Emirates, higher revenues and operating profits are usually expected for the power and water generation domestic subsidiaries in the second and third quarters of the year compared to the first and fourth quarters of the year. Due to high demand for natural gas in Canada and Europe in the winter period, higher revenues and operating profits are usually expected in the first and fourth quarters of the year compared to the second and third quarters of the year. Revenue from European midstream operations is generated during the first and fourth quarters of the year. 14 RELATED PARTY TRANSACTIONS The following table provides a summary of significant related party transactions included in the interim consolidated income statement during the three month period: Three month Three month period ended period ended 31 March 31March AED million AED million Fellow subsidiary (Abu Dhabi Water and Electricity Company): Revenue from electricity and water 1,622 1,370 Supplemental fuel income

18 14 RELATED PARTY TRANSACTIONS continued Compensation of key management personnel For subsidiaries key management personnel are provided by operation and maintenance companies under contractual agreements with the controlled subsidiaries. The remuneration of senior key management personnel of the Group during the three month period was as follows: Three month Three month period ended period ended 31 March 31March AED million AED million Short-term benefits 6 10 Post employment benefits COMMITMENTS AND CONTINGENCIES (i) Capital expenditure commitments The authorised contracted capital expenditure contracted for at 31 March 2012 but not provided for amounted to AED 1,811 million (31 December 2011: AED 1,663 million). (ii) Operating lease commitments Group as a lessor: Future capacity payments to be received by the Group under the power and water purchase agreement ( PWPA ) based on projected plant availability as at 31 March 2012 amount to AED billion (31 December 2011: AED billion). Group as a lessee: Future minimum rentals payable under non-cancellable operating leases as at 31 March 2012 amount to AED 3.3 billion (31 December 2011: AED 3.3 billion). (iii) Other commitments a) TAQA has entered into an agreement with an infrastructure fund 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. As of 31 March 2012, an amount of AED 507 million (US $138 million) (31 December 2011: AED 400 million) (US $109 million) was invested in the fund and has been treated as an available for sale investment. b) During 2009, Office National de l'electricité ("ONE"), Jorf Lasfar Energy Company ("JLEC") and TAQA signed a strategic partnership agreement to extend the capacity of JLEC by two new units of an approximate gross capacity of 350 Mw each. As per this agreement, JLEC or an affiliate will build, own, and operate the new units 5 and 6 under a 30-year power purchase agreement with ONE. The EPC contract has been signed which commits the Group to spend approximately AED 3,805 million in the construction of the facilities, out of which AED 1,292 million has been incurred as at 31 March 2012 (31 December 2011 AED 1,027 million). 15

19 15 COMMITMENTS AND CONTINGENCIES continued (iii) Other commitments continued c) As of the reporting date TAQA Energy has entered into contracts under which it is committed to spend AED 1,159 million in the development of the Bergermeer gas storage project in the Netherlands. The commitments are however subject to final permitting and have not therefore been included within the capital commitments value disclosed above. On 2 May 2012 the Dutch Council of State upheld the issue of permits and the project will now proceed. d) As at the reporting date TAQA North has entered into contractual commitments, mainly pipeline usage and drilling, under which they are committed to spend AED 593 million prior to 31 December (iv) Contingencies a) As a result of acquisitions made in prior periods, 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 for the periods prior to date of the respective acquisitions. b) TAQA GEN X LLC ( LLC ) 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. LLC entered into an Energy Management Agreement ( EMA ) and an ISDA Master Agreement ( ISDA ) both dated 28 December 2010 with Morgan Stanley Capital Group Inc. to manage the energy products under the Tolling Agreement and ancillary rights and agreements. At the end of the reporting period, the Group guaranteed the obligations of LLC to Morgan Stanley Capital Group Inc. under the EMA and ISDA agreement. Payments under this guarantee shall not exceed US $100 million (AED 367 million) over the life of the EMA c) In August 2010, the former CEO of TAQA parent filed a lawsuit against TAQA parent and its subsidiary TAQA New World Inc. alleging various causes of action, including breach of contract, retaliatory termination, and physical and emotional distress. TAQA filed a motion to dismiss on jurisdictional grounds, and this motion was granted by the U.S. District Court on 28 September The former CEO gave notice of his intention to appeal the dismissal on 24 October 2011 and filed his opening brief on 25 January TAQA filed its brief on 5 March 2012, followed by the former CEO s reply brief on 12 April A hearing on the appeal has been set for 24 July d) In addition to the above, there are certain guarantees and letters of credit arising in the ordinary course of business to which TAQA and certain other subsidiaries are parties. These do not create any material additional obligations other than what is disclosed in the statement of financial position as at year end. 16

20 16 FINANCIAL INSTRUMENTS 16.1 Hedging Activities (i) Interest Rate Swaps- Cash flow hedges In order to reduce its exposure to interest and profit rate 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 notional amounts that match the outstanding interest bearing loans and borrowings and Islamic loans The derivative instruments were designated as cash flow hedges. The following table summarises the outstanding notional amounts and the fair value position of the derivate instruments for each subsidiary as of 31 March 2012 and 31 December 2011: Derivative fair value Subsidiary Notional amount Liabilities Liabilities 31 March 31 December 31 March 31 December AED million AED million AED million AED million ECPC 1,242 1, GTTPC 2,781 3, SCIPCO 3,367 3, APC 2,782 2, TAPCO 6,579 6,736 1,127 1,178 ESWPC 4,250 4, ,017 FAPCO 5,904 5,904 1,890 2,013 RPC 5,578 5,578 1,598 1,771 32,483 32,945 7,460 7,908 (ii) Cross currency swaps Cash flow hedges In December 2010, TAQA entered into cross currency interest rate swap agreements with a group of banks to hedge the Group s foreign exchange exposure for a portion of the Euro bond amounting to EUR 197 million. The notional amount outstanding at 31 March 2012 was EUR 197 million (31 December 2011: EUR 197 million). The derivative instrument had a positive fair value of AED 29 million at 31 March 2012, which is included within other assets in the consolidated financial position (31 December 2011: positive fair value of AED 6 million). During the period ended 31 March 2012, the Group entered into cross currency rate swap agreements to hedge the Group's exposure on the Malaysian Ringgit Sukuk issued during the period (note 12). Under the terms of the cross currency rate swaps, TAQA is required to pay fixed rate of 5.3% per annum on an initial exchange amount of USD 215 million and receive a fixed rate of 4.65% per annum on an amount of MYR 650 million.the derivative instrument had a negative fair value of AED 99 million at 31 March 2012, which was included within other liabilities in the consolidated financial position. (iii) Hedge of net investment in foreign operations Included in loans at 31 March 2012 is a borrowing of Euro 553 million (AED 2,710 million) (31 December 2011: Euro 553 million (AED 2,633 million)) which has been designated as a hedge of the net investment in the Netherlands subsidiary TAQA Energy BV and is being used to hedge the Group s exposure to foreign exchange risk on this investment. During the period ended 31 March 2012, a gain of AED 77 million (31 March 2011: loss of AED 157 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. There is no ineffectiveness in the period ended 31 March 2012 and period ended 31 March

21 16 FINANCIAL INSTRUMENTS continued 16.1 Hedging Activities continued (iv) Forward Foreign Exchange Contracts Cash flow hedges In order to reduce the exposure to foreign currency fluctuations on payments to overseas suppliers, certain subsidiaries have entered into forward foreign exchange contracts. These forward foreign exchange contracts have been designated as cash flow hedges and accordingly changes in fair values are recorded in equity. The following table summarises the outstanding notional amounts and the fair value position of the derivate instruments for each subsidiary as of 31 March 2012 and 31 December 2011: Derivative fair value Subsidiary Notional amount Assets Assets Liabilities Liabilities 31 March 31 December 31 March 31 December 31 March 31 December AED million AED million AED million AED million AED million AED million SCIPCO FAPCO RPC (v) 1,289 1, Forward Sales Transactions Cash flow hedges TAQA NORTH In order to reduce its exposure to commodity prices, the Company's wholly owned subsidiary TAQA NORTH utilises derivative financial instruments, including zero cost collars, to mitigate the impact of crude oil and natural gas price fluctuations on highly probable forecast (sale) transactions. These commodity derivatives are designated as cash flow hedges; the effective portion of gain and losses being initially recorded in other comprehensive income and deferred in equity before being transferred to the income statement when the hedged transaction affects the income statement or the forecast transaction is no longer highly probable. Effectiveness is assessed only during those periods in which there is a change in intrinsic value of the hedging instrument. Changes in the time value of the options are excluded from the assessment of effectiveness and together with any ineffective portion of gains and losses are recognised directly in the income statement in each reporting period. The notional amount outstanding at 31 March 2012 was bbls 2.7 million of crude oil and GJ natural gas nil (31 December 2011: 3.2 million bbls of crude oil and GJ 1.8 million of natural gas). The negative fair market value of these instruments as at 31 March 2012 was CAD 13 million (AED 47 million) (31 December 2011: CAD 12 million (AED 43 million)). The net realised and unrealised loss recognised in the income statement relating to such instruments are AED 29 million for the three months ended 31 March 2012 (31 March 2011: AED 11 million). Subsequent to reporting period the Board has authorised the suspension of the commodity hedging program by TAQA NORTH. (vi) Other Fair value hedges TAQA GEN X LLC, a subsidiary of TAQA utilises derivative instruments, which include futures and forwards as a hedge strategy to manage the exposure of the underlying Tolling Agreement. Forward and future transactions are contracts for delayed delivery of commodity instruments in which the counterpart agrees to make or take delivery at a specified price. As at 31 March 2012, the net fair value of exchange-traded derivative instruments was AED 123 million shown under other accounts receivable and prepayments (31 December 2011: AED 21 million). The net realised and unrealised losses recognised in the income statement relating to such instruments are AED 131 million for the period ended 31 March 2012 (31 March 2011: net realised and unrealised gains of AED 48 million). During the year ended 31 December 2010, the Tolling Agreement recognised as an intangible asset at acquisition was adjusted for the change in fair value for movements in the designated hedge risk in a fair value hedge relationship. The changes in the fair value of the Tolling Agreement as at 31 March 2012 was a loss of AED 22 million (note 9) (31 March 2011: gain of AED 67 million), which was recognised in the consolidated income 18

22 statement. 19

23 16 FINANCIAL INSTRUMENTS continued 16.2 Fair value hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Level 2: Level 3: Quoted (unadjusted) prices in active markets for identical assets or liabilities. Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Total Level 1 Level 2 Level 3 AED million AED million AED million AED million At 31 March 2012 Financial assets measured at fair value Available-for-sale investments 1,502 1, Forward foreign exchange contracts Cross currency interest rate swaps Futures and forward contracts Financial liabilities measured at fair value Interest rate swaps hedged 7,460-7,460 - Forward foreign exchange contracts Cross currency interest rate swaps Commodity forward contracts At 31 December 2011 Financial assets measured at fair value Available-for-sale investments 1, Forward foreign exchange contracts Cross currency interest rate swaps Futures and forward contracts Financial liabilities measured at fair value Interest rate swaps hedged 7,908-7,908 - Forward foreign exchange contracts Commodity forward contracts EVENTS AFTER REPORTING PERIOD At the Annual General Meeting held on 17 April 2012 the shareholders of the Company approved the payment of a dividend of 10 fils per share totaling AED 607 million payable by 17 May On 8 April 2012, TAQA signed a joint venture agreement with Mass Global Investments Company Limited ("MGIC"). Under the agreement, TAQA will acquire a 50% interest in the 1,000 MW gas fired IPP situated near Sulaymaniyah, in the Kurdish region of the Republic of Iraq. The power plant has been operating from 2009 and has a capacity of 750 MW with additional 250 MW under construction. The transaction is subject to the fulfillment of certain conditions precedent. Subsequent to the reporting date on 8 April 2012, the Group successfully completed the sale of all its holding in Tesla Motors, a listed investment outside the UAE, for a total consideration of AED 956 million (USD 260 million) realizing a gain of AED 415 million. 20

24 Abu Dhabi National Energy Company PJSC ( TAQA ) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 17 EVENTS AFTER REPORTING PERIOD (continued) On 2 May 2012 The Dutch Council of State delivered its judgment upholding the central government s land-use plan for a natural gas storage facility in the Bergermeer area. The Council of State ruling is not appealable and the project will now proceed. On 20 April 2012, TAQA Bratani signed a sale and purchase agreement for the acquisition of an additional 13.5% interest in the North Cladhan area of the UK Northern North Sea from Sterling Resources (UK) for an initial consideration of $47 million (AED 173 million) including an allocation to tax allowances. Legal completion of the acquisition is subject to the satisfaction of conditions precedent. The UK government has issued draft legislation to restrict tax relief available on decommissioning expenditure from the current 62% to 50%. The rate change has not been substantively enacted but the legislation is scheduled for finalisation during Upon substantive enactment of the rate change a oneoff additional tax charge would result from the revaluation of the decommissioning related deferred tax positions. 21