Abu Dhabi National Energy Company PJSC (TAQA) Annual Report energy for growth

Transcription

1 Abu Dhabi National Energy Company PJSC (TAQA) Annual Report 2011 energy for growth

2 energy for growth Over the past 40 years, the United Arab Emirates (UAE) and Abu Dhabi have pursued a vision embodying progressive development, investment and the highest global standards. We have adopted these standards within TAQA, pursuing them with enthusiasm, vigour, focus and commitment to underpin our role as a confident and trusted global operator. Our world-class team and dynamic portfolio of assets ensure that we are delivering energy for growth. Over the past 40 years, Abu Dhabi and the UAE have experienced phenomenal growth, maintaining a pace of development almost unmatched anywhere in the world.

3 2011 Highlights Total assets AED Billions Total countries Net profit AED Millions Safety record Recordable injury rate per 200,000 hours worked Assets by region UAE 48.2% North America 27.9% Europe 12.3% Other 11.6% Revenue AED Billions EBITDA AED Billions Net profit AED Billions Oil & Gas Proven and probable reserves: 583 mmboe Total average daily oil and gas production: mboed Current gas storage capacity: 710 Nm3 Planned gas storage capacity: 4.6 billion Nm3 Power & Water Total power generation capacity: 15,413 MW Total power production: 67,390 GWh Total daily water desalination capacity: 887 MIGD Total water desalination: 220,530 MIG Operating and Financial Review Highlights 02 TAQA at a Glance 04 Chairman s Statement 06 Letter from the Chief Executive Officer 08 Board of Directors 10 Executive Management 12 Our World Operational Review Oil & Gas Operational Review Power & Water 26 Market Review 28 Financial Review 31 Corporate Governance 32 Health, Safety, Security and Environment 35 Community Relations 36 Shareholder and Bondholder Information Financial Statements 38 Board Report 39 Independent Auditor s Report 40 Consolidated Income Statement 40 Consolidated Statement of Comprehensive Income 41 Consolidated Statement of Financial Position 42 Consolidated Statement of Changes in Equity 44 Consolidated Statement of Cash Flows 45 Notes to the Consolidated Financial Statements 96 Glossary of Terms 01

4 TAQA at a Glance Applying world-class expertise to a dynamic and exciting portfolio of assets, TAQA has transformed into a global operator. Oil & Gas Crude oil and natural gas exploration, production, storage and transmission % of total revenue 50 Key strengths Strong, well-resourced centres of excellence supporting a portfolio of assets with solid growth potential North America: onshore centre of excellence with a wide-ranging portfolio of natural gas and oil properties UK North Sea: experienced offshore operator with a focus on oil production, combining expertise in optimising production from existing infrastructure and mature fields with proven exploration success The Netherlands: natural gas production, pipelines and storage, enhanced by key organic growth projects such as Bergermeer Gas Storage Key achievements Successfully brought the Falcon field in the UK North Sea into production in record time with an appraisal and development phase of less than two years Final approvals for the Bergermeer Gas Storage facility granted and final appeals now pending with significant amounts of capacity sold Completed complex overhauls of our North Cormorant platform (UK North Sea) and East Crossfield gas plant (sour gas installation outside Calgary), on time and on budget Strategic investment made in WesternZagros Resources, a company holding acreage in the Kurdish region of Iraq, expanding TAQA s presence in the MENA region Looking ahead Pursuit of operational excellence across all of our global operations Rigorous ongoing focus on health, safety, security and the environment Enhance performance through greater collaboration across our production stream and global workforce Find growth opportunities that complement our existing portfolios and infrastructure and divest non-core assets Continue our expansion in the MENA region For more detail Oil & Gas indepth page 14 TAQA Annual Report 2011

5 Power & Water Power generation and water desalination % of total revenue 50 Key strengths Our portfolio makes us one of the world s largest global independent power producers and the largest owner of power and water assets in the UAE Power & Water business performance continues to generate stable, predictable cash flows Top-quartile performance for technical availability, due to our modern plants, skilled technicians and rigorous maintenance programmes Pipeline of organic growth projects to continue driving expansion Key achievements Produced 67,390 GWh of electricity and 220,530 MIG of desalinated water during 2011 Added 3,500 MW of new power capacity in the UAE, at Fujairah 2 and Shuweihat 2 Reported more than one million man hours without a single lost-time incident during the expansion of our flagship plant at Jorf Lasfar in Morocco that began construction in March Our plant at Neyveli in India withstood a direct hit by cyclone Thane in December with no injuries nor any material impact on operations, largely due to careful forward planning Further expanded our team and capabilities in Abu Dhabi, both from a business development and operating experience standpoint Looking ahead Focus on sustainable expansion across the MENA region Explore opportunities outside conventional power generation in renewable and alternative forms of energy Continue our first-rate execution of on-going and upcoming expansion projects such as Jorf Lasfar, Takoradi and Neyveli as well as the Fujairah I water capacity expansion, adding an additional 30 MIGD capacity by the end of 2014 For more detail Power & Water indepth page / 03

6 Chairman s Statement 2011 witnessed the 40th anniversary of the UAE, our home market. Over the past 40 years the UAE, and Abu Dhabi in particular, has been characterised by a vision of progressive development, investment and pursuit of the highest global standards. At TAQA, we have taken this vision and built a global energy business that embodies these qualities. Since the foundation of the business in 2005, TAQA has evolved rapidly as one of the world s fastest-growing start-ups. Building out from our original position as a financial investor in Abu Dhabi s power and water production assets, we have expanded and diversified across the energy value chain and around the world. In every case, we have continued to embody Abu Dhabi s progressive vision: of looking at the long-term picture; of investment; and of nurturing our skills base and investing in our people. TAQA is an ambassador for Abu Dhabi and the UAE around the world, from exploration and production in the frozen north of Canada to power production in Ghana and from drilling offshore in the European North Sea to exploring for oil in Iraq. TAQA has rapidly built a high-quality asset base, including the largest power business in the UAE. We are a truly global operator. A key component of that growing global prominence has been the contribution of Carl Sheldon, and I was delighted that Carl was appointed as Chief Executive Officer during the course of the year. This reflects the contribution that his steady hand on the tiller has made in recent years and the vision he has to develop TAQA in the years to come. I would also like to take this opportunity to thank H.E. Abdulla Saif Al-Nuaimi for his commitment and the contribution he made to the business during his time as CEO of TAQA and for his continuing contribution as Vice Chairman of TAQA s Board and as Director General of the Abu Dhabi Water and Electricity Authority, our 51% shareholder. TAQA Annual Report 2011

7 On this important anniversary, we are taking time to reflect on how far we have come and look forward to redoubling our efforts. Hamad Al-Hurr Al-Suwaidi Chairman The growing strength of the business can be seen in our other operational indicators. For example, I am delighted to report that the expansion of our flagship power plant at Jorf Lasfar in Morocco has already recorded more than one million man hours without a single lost-time incident. Given the scale of the project, this is an impressive result and reflects our strong capability as a developer of assets. A few years ago we were relatively unknown; today we are a partner of choice. While TAQA has always had entrepreneurial flair, we are now able to deploy world-class expertise from one area of our business to another and to develop creative solutions to local energy needs. With our stronger centralised team headquartered in Abu Dhabi, we are starting to see the fruits of this, and I am sure the benefits will only grow over time. Over the past 40 years, Abu Dhabi and the UAE have experienced phenomenal growth and we have maintained a pace of development almost unmatched anywhere in the world. On this important anniversary, we are taking the opportunity to reflect on how far we have come and look forward to redoubling our efforts. TAQA has only existed for six of those 40 years but the scale of its achievements has been considerable. I have every confidence that this trajectory of success will continue in the future, further enhancing TAQA s position as one of the world s leading integrated energy businesses. 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, the Crown Prince of Abu Dhabi, Deputy Supreme Commander of the UAE Armed Forces and Chairman of Abu Dhabi Executive Council and His Excellency Dr. Ahmed Mubarak Al Mazrouei, Chairman of Abu Dhabi Water and Electricity Authority, for their contribution to TAQA s continued development. 04 / 05

8 Letter from the Chief Executive Officer It was a turbulent year for the global economy, but TAQA has performed strongly, showing our growing operational maturity and our confidence in addressing the many opportunities and challenges that we face. TAQA recorded a strong top line performance with a 13% increase in revenues due to higher oil prices and growth in our Power & Water portfolio. Meanwhile, EBITDA increased by 30% as a result of tight control of operational expenses. The decline in net profit was partially due to a non-cash impairment in North America, due to weak North American gas prices, following the annual revaluation of TAQA s oil and gas assets. Our performance in 2011 was also affected by the unforeseen change in taxation relating to our oil and gas holdings in the UK. In light of these factors, it is even more important that we continue to focus on controlling costs efficiently and executing our capital programme. This discipline has also led us to dispose of non-core acreage in Canada, concentrating our portfolio around our infrastructure in order to minimise costs and maximise operational leverage. I have been particularly pleased with the progress made in building our team at TAQA headquarters in Abu Dhabi. We now have a very strong operational centre, which we can leverage for opportunities as they arise across our footprint. An excellent example of this was our acquisition of a stake in WesternZagros in Iraq, which we were able to consummate quickly with expertise drawn from our team in North America. Similarly, when a turbine required maintenance at our Takoradi facility in Ghana, we were able to secure and fit a replacement rotor in approximately half the typical time, due to close co-operation across our power businesses, pooling expertise and relationships. In the UK North Sea, we have focussed on opportunities where our infrastructure gives us a powerful advantage in developing adjacent licence blocks cost-effectively. We have also seen increased interest from other operators eager to partner with us to benefit from our access to infrastructure. This operational excellence saw us bring the Falcon Field into full production in less than two years from discovery, which is possibly a record for the UK North Sea. In addition, we completed full turnarounds of the North Cormorant platform in the UK North Sea and the East Crossfield Gas Plant, a gas installation outside Calgary. These were very complex operations, with numerous logistical challenges and both were completed safely, on time and on budget. During the year, we made further progress on securing final approval of our permits for the Bergermeer Gas Storage facility in the Netherlands. The importance of this project to the European energy market is evident in the demand for capacity that we have seen, with 90% of the first open season s capacity having been bought already. TAQA Annual Report 2011

9 I would like to thank our employees for their dedication was another great year for TAQA, but there is much more we can achieve. Carl Sheldon Chief Executive Officer Power & Water has had a very busy year, with 3,500 MW of new capacity being brought on-line at Fujairah 2 and Shuweihat 2 in the UAE. Fujairah 2 is the second-largest power and desalination plant in the world. Operationally, all our power plants performed well with the exception of Takoradi, which suffered from the failure of a major component. Several aspects of our performance stand out in particular. At Neyveli, our plant withstood a direct hit by a cyclone with no injuries or effect on production. This was due principally to our team anticipating the event and preparing the site to ensure minimum disruption. At Jorf Lasfar, in Morocco our expansion plans have continued apace, with ground broken during the year on our two new units. Not only is this project on target from a timing and budget perspective but also from a safety perspective; we have surpassed more than one million man hours without a lost time incident. Our rigorous focus on safety reduced our recordable injury rate by 14% and our days away from work rate by 34%. Health, safety, security and environment (HSSE) are critical priorities for our business. Finally, we appointed Dr Saif Al Sayari as Executive Officer and Head of TAQA Energy Solutions, responsible for developing TAQA s alternative and technology-driven energy initiatives. We are currently pursuing several alternative energy initiatives at different levels, and Dr Al Sayari will help us realise these projects within a focussed global team led from our headquarters in Abu Dhabi. This team, which sits as a separate business stream, will continue to provide the technical assurance support to our other businesses. I would like to thank our employees for their dedication and commitment was another great year for TAQA. We know that we still have so much more we can achieve and feel better placed than ever to make the most of the opportunities ahead. We would like to extend our gratitude to our Board of Directors and the Government of Abu Dhabi for their continued, unwavering support. TAQA would also like to congratulate the UAE on celebrating its 40th anniversary, a significant landmark in the history of this young and dynamic society. 06 / 07

10 Board of Directors His Excellency Hamad Al-Hurr Al-Suwaidi Chairman of the Board since 2005 Hamad Al-Hurr Al-Suwaidi serves as Chairman of the Board and was appointed in 2005, and re-elected in He has also been a member of the Executive Council of the Emirate of Abu Dhabi since 2004 and is Chairman of the Department of Finance. His Excellency s strategic vision and foresight have been instrumental in involving the private sector within the Emirate s economic growth and activating the public-private partnership. This was achieved through his involvement in the board of several high profile companies including but not limited to, The Supreme Petroleum Council, Abu Dhabi Investment Authority (ADIA), Mubadala, Etisalat, and the International Petroleum Investments Company. His Excellency is also the Chairman of the Financial Support Fund for Farm Owners in the Emirate of Abu Dhabi. 2 His Excellency Abdulla Saif Al-Nuaimi Vice Chairman Board Member of TAQA since 2005 Abdulla Saif Al-Nuaimi serves as Vice- Chairman of the Board and was originally appointed to the Board in 2005, as well as serving as CEO of the company from 2010 to He is also Director General and Director of the Privatisation Directorate of the Abu Dhabi Water and Electricity Authority (ADWEA) and serves on the boards of a number of its subsidiaries, including, but not limited to, Chairman of the Board of Abu Dhabi Distribution Company (ADDC), Abu Dhabi Transmission & Despatch Company (TRANSCO) and Abu Dhabi Water and Electricity Company (ADWEC). He also serves on the board of First Energy Bank and is a member of the Infrastructure and Environment Sub Committee of the Executive Council. Prior to joining TAQA, he held the positions of Chairman of Al Wathba Central Services Company, Director of Abu Dhabi Sewerage Services Company, Director of Oman Insurance Company and Senior Analyst at ADIA. He holds a BSc in Management from UAE University. 3 Mr Carl Sheldon Board Member of TAQA since 2011 Carl Robert Sheldon was appointed as member of the Board and then as TAQA s Chief Executive Officer in Previously, Mr Sheldon held positions with TAQA as General Counsel, Deputy General Manager and General Manager. Prior to joining TAQA in 2008, he was a Partner with Allen & Overy LLP where his main focus was the energy sector. During more than 20 years of practice, he was involved in many major international oil, gas and power projects. At Allen & Overy, he was also instrumental in building the firm s German and US operations. Mr Sheldon is a qualified lawyer admitted to practice in New York and in England. He is a US national and holds a Master s degree from Cambridge University. TAQA Annual Report 2011

11 His Excellency Saeed Mubarak Al-Hajeri Board Member of TAQA since 2011 Saeed Mubarak Al-Hajeri was appointed to the Board in He holds a Bachelor of Business Administration from Lewis and Clark College in the United States and a Chartered Financial Analyst designation, as well as attending the Executive Education Programme of Harvard Business School. He has more than 15 years experience in international finance. He was distinguished and elected by the World Economic Forum in 2007 as one of the top 250 Young Global Leaders for his contribution to the public and financial Sectors in the UAE. He is currently the Executive Director, Information Technology Department in ADIA. In addition, His Excellency is a governor of the Board of CFA Institute and a member of the Executive Advisory Boards of MSCI Barra and Zayed University. He also serves on the Boards of various other Abu Dhabi and UAE government entities, including Abu Dhabi Media Company and Abu Dhabi Tourism Development and Investment Company. 5 His Excellency Salem Sultan Al-Dhaheri Board Member of TAQA since 2011 Salem Sultan Obaid Sultan Al-Dhaheri was appointed to the Board in He is currently Deputy Director at ADIA, having held various positions since joining in A Certified Public Accountant, he graduated with a Bachelor of Science in Accounting from Metropolitan State College in Denver. In addition to his position at ADIA, he is a member of several government department Audit Committees and several public and private companies Audit Committees and a Board Member of the Federal Credit Bureau. His Excellency is also currently a member of the Illinois CPA Society and the American Institute of Certified Public Accountants and the Institute of Leadership and Management. 6 His Excellency Abdulaziz Al-Hemaidi Board Member of TAQA since 2011 Abdulaziz Abdulrahman Al-Hemaidi was appointed to the Board in He is a Civil Engineering graduate from UAE University who joined ADWEA in Since then, he has held a number of key positions and is currently the General Manager of ADWEC. His Excellency is the Chairman of Shuweihat Asia Power Company, and a Board Member of Taweela Asia Power Company, Al Ain Distribution Company, ADDC and TRANSCO. Prior to joining ADWEA, His Excellency held positions at Abu Dhabi Health Services Company, Al Ain International Airport and the Privatisation Committee for Water and Electricity Sector of the Emirate of Abu Dhabi. 7 His Excellency Ahmed Mohamed Al-Mehairi Board Member of TAQA since 2011 Ahmed Mohamed Al-Meheiri was appointed to the Board in He is currently the Legal Division Manager at ADWEA. Prior to this, he was a Legal Expert (Privatisation Directorate) at ADWEA and Legal Advisor to the Department of Under Secretary Office at the Ministry of Interior. His Excellency has a Bachelor of Laws from Abu Dhabi Police Academy and a Master in US Legal Studies from Case Western Reserve University in Ohio. 08 / 09

12 Executive Management Carl Sheldon Chief Executive Officer Carl Robert Sheldon was appointed as member of the Board and then as TAQA s Chief Executive Officer in Previously, Mr Sheldon held positions with TAQA as General Counsel, Deputy General Manager and General Manager. Prior to joining TAQA in 2008, he was a Partner with Allen & Overy LLP where his main focus was the energy sector. During more than 20 years of practice, he has been involved in many major international oil, gas and power projects. At Allen & Overy, he was also instrumental in building the firm s German and US operations. Mr Sheldon is a qualified lawyer admitted to practice in New York and in England. He is a US national and holds a Master s degree from Cambridge University. 2 Stephen Kersley Chief Financial Officer Stephen Kersley joined TAQA as Chief Financial Officer in May This followed 23 years working for Royal Dutch Shell based in the UK, the Netherlands, China, Syria and Indonesia. During this time, he held a variety of positions in corporate finance, strategic planning and financial management. Most recently, he worked as Vice President of Finance for Shell s Global Lubricants business in the UK. Before his time at Shell, he worked for KPMG, where he qualified as a Chartered Accountant. Mr Kersley holds a Law degree(llb) from Birmingham University and is a Chartered Accountant. Mr Kersley is a UK national. 3 Steven Phillips General Counsel and Company Secretary Steven Phillips is TAQA s General Counsel and Company Secretary. Before taking this position, he was the Group Vice- President and General Counsel, Power for TAQA New World Inc. Mr Phillips previously worked for CMS Enterprises Company in Asia and North America from May 1996 until the acquisition by TAQA in His principal role at CMS Enterprises Company was the acquisition, development, financing and disposition of energy infrastructure companies and assets across North America, Asia, Australia, Africa and the Middle East. Mr Phillips also worked for Morrison and Foerster LLP from 1981 to 1996 and has served on the Board of US and Canadian public companies. Mr Phillips is a US national and earned his Juris Doctorate from the University of California, Hastings College of Law. TAQA Annual Report 2011

13 David Cook Executive Officer, Head of Oil & Gas David Cook is Executive Officer of Oil & Gas having joined TAQA following more than 20 years experience in the upstream and midstream businesses at Amoco, BP and TNK-BP. Prior to joining TAQA, Mr Cook was Vice-President for BP Russia, responsible for BP s non-tnk-bp exploration and development activities in Russia. He has held a variety of global technical, commercial and managerial positions based in the US, UK and Russia, as well as Board of Directors roles. He holds a BSc in Geophysics and a PhD in Geological Sciences from Michigan State University. Mr Cook is a US national. 5 Frank Perez Executive Officer, Head of Power & Water Frank Perez joined TAQA in July He has more than 25 years experience in the power and utility sector. Prior to joining TAQA, he was General Manager of PSEG Americas Latin America Electric and Gas Utilities portfolio, Chief Political and Regulatory Officer for PSEG, Chief Executive Officer and President of a subsidiary of DPL Inc (the parent company of Dayton Power & Light) and Corporate Officer of DPL Inc. Mr Perez has also worked for ABB s power business. He is a founding partner of a global energy investment advisory firm and was previously a Board member of several international electric and gas utility and power companies. He holds a BSc in Civil Engineering from Tulane University. Mr Perez is a US national. 6 Dr Saif Al Sayari Executive Officer, Head of Energy Solutions Saif Al Sayari joined TAQA in 2010 and has more than 12 years experience in the energy business, having previously worked at Abu Dhabi National Oil Company (ADNOC) where he held a variety of technical and managerial positions. Dr Al Sayari is Vice President Operations Technology and Innovations for TAQA s Oil & Gas business stream and now heads the Energy Solutions business. Dr Al Sayari holds a PhD in Petroleum Engineering from Imperial College London and is a UAE national. 7 Ken Boyle Group Vice President, Human Resources Ken Boyle joined TAQA in 2011 from BP, where he worked as Vice President of HR for the Middle East and Pakistan, and as Vice President of HR for the North Sea and Norway. Prior to that, he held a number of HR Director roles with Rolls Royce, Gas Turbines in Manufacturing, the Aftermarket (Repair and Overhaul) and the Industrial Power Group. In addition, he has also held roles in Business Improvement, Quality, and Manufacturing. Mr Boyle is a UK national and a Companion of the Chartered Institute of Personnel and Development. He holds a degree in Psychology and has an MA in Human Resource Management from the University of Newcastle-Upon-Tyne. 10 / 11

14 Our World With a portfolio of high quality assets around the world, TAQA is building centres of excellence to help ensure we make the most of every opportunity Oil & Gas centres of excellence: North America Onshore oil and gas and unconventional UK Offshore oil and gas Netherlands Gas storage Power & Water: Focussed on greenfield and brownfield investments in the MENA region 1 Canada Oil & Gas 2 USA Oil & Gas 3 UK Oil & Gas 4 The Netherlands Oil & Gas 5 Iraq (Kurdistan) Oil & Gas 6 USA Power & Water Proven and probable reserves: mmboe 2011 average daily production: 85,800 boed Gas storage and transmission Growth: Focus on oil and liquids-rich acreage Proven and probable reserves: 26.2 mmboe 2011 average daily production: 2,300 boed Proven and probable reserves: mmboe 2011 average daily production: 42,900 boed Oil storage, processing and transmission Growth: Focus on acreage adjacent to infrastructure footprint Proven and probable reserves: 11.1 mmboe 2011 average daily production: 8,100 boed Gas and CO 2 storage and oil and gas processing and transmission Growth: Bergermeer Gas Storage Project 19.9% shareholding in WesternZagros Resources Ltd Power Plant Power generation capacity: 832 MW Gross power generation for 2011: 5,014 GWh Red Oak toll in a joint-venture with Morgan Stanley TAQA Annual Report 2011

15 UAE Power & Water 8 Morocco Power & Water 9 Ghana Power & Water 10 Saudi Arabia Power & Water 11 Oman Power & Water 12 India Power & Water Eight power generation and desalination facilities Power generation capacity: 12,494 MW Gross power generation for 2011: 48,087 GWh Total desalination capacity: 887 MIGD Power Plant Power generation capacity: 1,356 MW Gross power generation for 2011: 10,210 GWh Growth: Planned 700 MW expansion due to complete by 2013/2014 Power Plant Power generation capacity: 220 MW Gross power generation for 2011: 657 GWh Growth: Planned 110 MW expansion Cogeneration project Power generation capacity: 260 MW Gross power generation for 2011: 1,694 GWh Power plant and aluminium smelter Power generation capacity: 1,000 MW Aluminium production capacity: 360,000 tonnes pa Power Plant Power generation capacity: 250 MW Gross power generation for 2011: 1,728 GWh Growth: Planned 250 MW expansion project Total water desalination for 2011: 220,530 MIG 12 / 13

16 2011 Operational Review Oil & Gas Our Oil & Gas business delivered a solid performance during 2011, benefiting from high global oil prices but dampened by weak North American natural gas prices. innovative TAQA Annual Report 2011

17 Proven and Probable Reserves mmboe Average Daily Oil & Gas Production mboed Production boed 13 9, Revenue from Oil & Gas AED Billions North America North America United Kingdom United Kingdom The Netherlands The Netherlands In 2011, the quality and efficiency of our businesses enabled us to work safely while growing production volumes. We kept a tight rein on costs in the face of an increasingly competitive market. Critically, our commitment to a focussed growth strategy saw us identify several exciting new growth opportunities for the years to come. 14 / 15

18 Oil & Gas continued dynamic investment Oil & Gas delivered a healthy performance during 2011, with total production within management guidance at mboed. Importantly, we achieved this safely and efficiently. We continue to bring greater focus to the management of our portfolio, building our regional centres of excellence, which is opening up new areas of opportunity. Over the past 12 months we have continued to invest in our portfolio, identifying, planning and executing several growth projects that saw our reserves remain stable across the portfolio. Solid operational performance Operating to the highest international standards of safety and efficiency is our priority. This was put to the test in North America, particularly in Southern Alberta and Montana, where an extraordinarily harsh winter and prolonged break up period hampered our team s ability to drill new wells to schedule. Consequently, we quickly reallocated capital to those projects that were sited in less affected areas and were able to make up almost all of the production shortfall. This swift and pragmatic action demonstrates our growing maturity as an operator. The UK North Sea is our offshore centre of excellence. Here our team met and exceeded 2011 production targets reaching 42.9 mboed, which reflects our expertise in operating mature fields. We have focussed on developing our footprint around our existing platforms and subsea infrastructure, including the development of the Falcon Field, which was brought into full production in July in record time. We also acquired new acreage in the Otter Field, close to our existing infrastructure, giving us a critical cost advantage over other potential operators. In the Netherlands, we exceeded production targets, averaging 8.1 mboed. Our fields here are mature with declining production rates, but we will pursue new opportunities driven by investment during Our underground gas storage business performed well with the Peak Gas Installation (PGI) facility maintaining its excellent track record of 100% availability. Industry-leading project execution The sharing of knowledge and skills across TAQA enables us to manage complex projects safely, on time and to budget. In North America, as an essential part of our maintenance programme, we planned and successfully executed the bi-annual shutdown and maintenance of Alberta s East Crossfield Gas Plant between April and June For more information on how we successfully managed this complex project see our case study on page 19. TAQA Annual Report 2011

19 Martin Munday Team Leader, Falcon Field Development I am responsible for the delivery of development projects from the concept selection phase through to handover to our operations team in the UK. As part of the Falcon Field development, I was responsible for developing budgets, schedules as well as HSSE, procurement, engineering, construction, commissioning and start-up of the project. The project presented its own distinct challenges. It was TAQA s first own development project in the UK North Sea but, despite this, we delivered it within an industry leading time frame. Furthermore, we delivered it on budget and have had trouble free operation since first oil, despite having to develop the field and operate it in the harsh environment of the North Sea. Since the field went on stream in July, we have successfully produced over one million barrels of oil from which we have already recovered our costs associated with the field s development. 16 / 17

20 Oil & Gas continued trusted growth TAQA Annual Report 2011

21 Terrence Dumont Manager, Plant Operations My role at TAQA includes managing and maintaining safe and efficient day-to-day operations, as well as managing integrated capital projects, specifically at the Crossfield facility. In 2011, we completed a significant maintenance project at the company s flagship facility, the East Crossfield Gas Plant, which involved an array of projects aimed at debottlenecking, upgrading and modernizing the facility. The work allowed us to consolidate production from neighbouring facilities into the Crossfield facility, ultimately delivering significant operating efficiencies. The project took 36 months to plan and execute and required careful planning, execution and start up. The commercial and technical aspects of the project made it critically important to maintain continuity throughout. The team worked tirelessly, with additional contractors on-site over 50 days to get the project completed. One of the true successes of this extremely demanding project was our safety record; we reported no significant incidents and injuries. The expansion and turnaround project has secured TAQA s ability to process gas for years to come, driven down net operating costs and greatly improving safety systems in the facility. In the UK, we announced first oil from the Falcon Field, a subsea tie-back to the Tern Alpha platform, via the Kestrel Field. This followed an appraisal and development phase of just under two years, representing a record project turnaround for the UK North Sea. For more information on how we brought this new field on-stream in record time see our case study on page 17. Across our UK North Sea asset base we made a raft of successful upgrades, including installing a new control system at the North Cormorant platform. In the Netherlands, we have made significant progress with the Bergermeer Gas Storage Project. This is expected to be North West Europe s largest open access gas storage facility. During the past 12 months, we received all required approvals, although this is currently subject to an appeal at the Dutch Council Of Ministers, the last stage before ratification. Some 90% of the facility s capacity made available during the first open season has already been forward sold. 2012: Well positioned for strategic growth We have rigorously managed costs to protect margins against continuing low prices in the North American natural gas market and shifted future investment towards attractively priced oil and liquidsrich based projects. We made significant progress in moving to continuous drilling operations on selected large projects, lowering costs and increasing recovery. We have prioritised six projects three are oil based, two liquid rich and one dry gas based for 2012 and continued to focus drilling programmes on acreage close to our existing infrastructure. Through our portfolio management, we will continue to evaluate our holdings for divestment and acquisition opportunities. Early in 2012, the disposal of non-core acreage in North America, raised US$ 500 million. In the UK, we signed an agreement with Valiant, operator of the Causeway field, for the export of crude via our North Cormorant platform, with production expected to commence in 2012 or early This was our first third-party business and we expect to sign further agreements going forward. The Bergermeer Gas Storage project continues to represent significant future value and, in a first for TAQA in the Netherlands, we are investing in an off-shore drilling programme in 2012, in conjunction with our on-shore drilling programme. In line with our strategy to build our Oil & Gas footprint in the MENA region, we made a strategic investment in WesternZagros Resources Ltd, opening up opportunities in oil and gas exploration in the Kurdish region of Iraq. Financial performance Our Oil & Gas business generated AED 12.0 billion in revenues during the financial year, compared with AED 9.2 billion in EBITDA for the year was AED 8.1 billion. For more information, please visit 18 / 19

22 2011 Operational Review Power & Water We are one of the world s largest independent power producers, delivering strong financial and operational performance, while pursuing attractive growth projects of more than 2,400 MW in capacity. expertise TAQA Annual Report 2011

23 Water Desalination MIG Power Generation GWh 15, Gross Power Generation Capacity MW Gross Water Desalination Capacity MIGD Revenue from Power & Water AED Billions UAE , , ,226 UAE ,629 International , , ,383 Total ,397 48,087 67,390 68,189 65,012 Our extensive Power & Water portfolio once again delivered a significant robust income stream, generating 67,390 GWh of power and 220,530 MIG of water during the year. Technical availability for the year was 92.4%, in line with 2010 performance and representing a top-quartile performance across the various generating technologies. Meanwhile, we made progress on several growth projects, including breaking ground at the Jorf Lasfar expansion project in Morocco. 20 / 21

24 Power & Water continued focussed reliable Our extensive Power & Water portfolio stretches across the MENA region and beyond. We recorded impressive technical availability of 92% for 2011 across our entire portfolio of generating assets, with our plants in the UAE reaching 93% technical availability. Throughout the course of the year we generated 67,390 GWh of power and desalinated 220,530 MIG of water. Meanwhile, we made progress on several growth projects including breaking ground at the Jorf Lasfar expansion project, signing an MOU in India and developing our first competitive bid for a power project in Dubai, for which we are now the low bidder. High quality assets delivering exceptional performance A key driver of our profitability is maintaining high availability. This is an area where we rank in the top quartile globally, largely due to our modern plants, skilled technicians and a rigorous maintenance programme. As one of the world s largest independent power producers, our reputation as a leading operator of plants continues to grow and strengthen. Our domestic portfolio generated 48,087 GWh of power and desalinated 220,530 MIG of water. In our home market, we incorporated two new plants into our portfolio during the year. Fujairah 2, a 2,000 MW, 130 MIGD plant, came on-stream in July and this is now the world s second-largest combined power and water plant. Shuweihat 2, a 1,500 MW and 100 MIGD plant was completed in the second half of Since commissioning, these assets have operated at high levels of technical availability. The addition of these assets strengthened our footprint in the region and now effectively makes us one of the largest owners of power and water plants in the MENA region. Meanwhile, our international plants generated 19,303 GWh of electricity. In Morocco, our Jorf Lasfar plant continued to operate at high levels of availability (92%) for the year, although it was affected by an unplanned outage in March, due to the failure of a transformer. Our 220 MW Takoradi plant in Ghana was affected by an unplanned outage due to a rotor failure in the generator during the late summer months. Our global team worked swiftly to resolve the issue and a replacement was manufactured in the UK and air-freighted to Ghana. The resulting downtime of three months compares well with a typical turnaround time of between four and six months. TAQA Annual Report 2011

25 Abdelkader Hilmi Technical Director, Morocco I am responsible for the technical development of the expansion project at the Jorf Lasfar thermal power plant in Morocco. After establishing the technical specifications for the expansion units, including implementation of the lessons learned from constructing and operating the existing four units, I now focus on all technical aspects of the project execution. Together with my technical team we ensure that equipment and systems of the plant comply with our strict specifications and meet industrial best practice. One of the key elements of the project was the selection of an engineering, procurement and construction (EPC) contractor. It was critical to have a clear and robust contract in place with a competitive, competent and cooperative EPC contractor to deliver the best plant possible to all stakeholders we chose to partner with Mitsui and Daewoo. As site construction is in full swing, we are now responsible for ensuring the smooth running of the project. We have completed over 40% of the project and are on target to deliver a world class facility to the satisfaction of our off taker and lenders. One of the key achievements thus far has been our safety record, with over one million man hours reported without incident. The technical team will continue to work ceaselessly to maintain its strong track record and deliver this much needed power plant to Morocco. 22 / 23

26 Power & Water continued stable ambitious TAQA Annual Report 2011

27 Ahmed Bin Abbood Al Adawi Director of Business Development for Power & Water, based in Abu Dhabi As a Business Development Director, my responsibilities range from developing strategy and generating business ideas, to leading projects and ensuring perfect execution. Currently, I am responsible for business development and negotiations at several projects across the power portfolio, including projects in Oman, Kuwait, Saudi Arabia and UAE. My role includes developing our strategy, selecting the best EPC contractors, negotiating term sheets and project documents, creating project financing structures and then negotiating the financing with international and regional banks. One of our current projects is bidding for the development of the Hassyan IPP in Dubai. A significant challenge we faced in the development of our Hassyan bid was to develop a unique financing structure. Our team was creative in pulling together a diverse and competitive financing package that was built upon a syndicate of leading international banks. At TAQA, we have a strong relationship with Alstom and Marubeni, our consortium partners, and work with them to achieve the most effective plant configuration, as well as being highly competitive on price. Our Business Development team was able to compete successfully against the best in the market, and provide the most competitive project for Dubai. Building opportunities for future growth We continued to build our portfolio in key markets, in line with our focussed strategy to leverage our MENA footprint. Supporting all our growth initiatives is our central team in Abu Dhabi, which provides guidance and negotiating power to our regional teams and projects. Over the past 18 months, we have invested in building this team further. The result is that we have seen several instances where we have been able to secure more favourable terms with suppliers and partners, while ultimately enhancing our margins. One of our most significant achievements in 2011 was partnering with Marubeni and bidding for the 1,600 MW Hassyan IPP in Dubai. Our Abu Dhabi-based businessdevelopment team worked with trusted third parties to submit a compelling and cost-effective bid, which ultimately resulted in TAQA and our partners being awarded low bidder status. For more information on how we pulled this bid together, see the case study on page 25. During the year, we broke ground on the Jorf Lasfar expansion project, which will add a further 700 MW of capacity to a plant that already supplies more than 40% of Morocco s power. The project development continues to run to schedule and budget, and commissioning and takeover of units five and six is planned for the end of 2013 and early 2014, respectively. A significant achievement of this project during 2011 was our impressive safety record of more than a million man hours reported with no safety incidents. For more information on how the TAQA team got this project off the ground, look at the case study on page 23. In Ghana, we have now received the vast majority of regulatory approvals and appointed equipment manufacturers for the expansion of our Takoradi plant. This project will use waste heat from the current plant to effectively increase capacity by 50% with minimal increases in fuel usage. Full regulatory approval is expected imminently, and we provisionally plan to break ground in early We signed a Memorandum of Understanding with Jyoti Structures Limited to explore opportunities in the power sector in India, initially focussing on a project to expand TAQA s existing 250 MW power plant in Neyveli. Revenue and cash generation 2011 operational performance translated into strong financial performance. We exceeded our targets for both EBITDA and Net Income and reported very strong cash generation. Total revenue for the year was AED 12.2 billion, resulting in EBITDA of AED 5.9 billion. For more information, please visit 24 / 25

28 Market Review Energy demand remained steady in 2011 despite global economic volatility. Crude oil The price of crude oil continued the trend of 2010 in 2011, steadily rising throughout the year, although external influences and unrest within oil producing nations created a large spike during the second quarter of Brent crude began the year at US$ and rose by 13% during the course of the year, hitting a high of US$ in April, due to the weaker dollar and the civil war in Libya. The loss of Libyan oil production led to a cut in global supply of 1.3 million bpd. This shortfall was filled by a temporary increase in production from Saudi Arabia. Brent closed the year at US$ bbl. WTI, which has lagged the price of Brent crude in recent years, averaged US$ during 2011, reaching a high of US$ towards the end April, and a low of US$ in early October The trend of growing demand from non- OECD countries continued in Whilst China s increase in demand for oil failed to continue at a pace of 17.5%, as seen in 2010, demand continued to rise, albeit at slower rate. Current estimates suggest that China s overall annual increase in oil demand is expected to aggregate at 6.7% per annum between now and 2015, predominantly driven by the increase in vehicle ownership. Signs of global economic uncertainty were evidenced towards the end of 2011 with oil demand declining by 0.3 mmbbl/d in the fourth quarter of This remained a far cry from the 2.6% decline in demand seen in 2009, the greatest oil consumption decline since Russia remained the world s largest oil producing nation having replaced Saudi Arabia in Russian oil production grew from an average 10.2 mmbbl/d in 2010 to 10.5 mmbbl/d in 2011, while output from Saudi Arabia increased from 8.3 mmbbl/d in 2010 to 8.8 mmbbl/d in In December 2011, the Organization of the Petroleum Exporting Countries (OPEC) agreed to increase its production target for the first time in three years. The increase in the production target to 30 mmbbl/d is expected to have little effect on the long term price of oil as the increase is in line with current output levels. Natural gas Unlike global crude oil prices, natural gas prices differ from region to region and are not a barometer for global economic health. US natural gas prices have remained lower over recent months compared with those in Europe, where gas prices are more consistently linked to the fluctuating oil price. TAQA Annual Report 2011

29 Crude oil prices US$/bbl Brent Close WTI Close Jan 2008 Jan 2009 Jan 2010 Jan 2011 Dec 2011 Henry Hub natural gas prices US$/mmbtu Henry Hub Close Jan 2008 Jan 2009 Jan 2010 Jan 2011 Dec 2011 In the US, natural gas prices continued the decline seen in 2010, reaching a low of US$ 2.83/mmbtu in November. The year high came in June, with a price of US$ 4.92/mmbtu. Overall, the average Henry Hub price for US natural gas was almost exactly US$ 4.00/mmbtu in 2011, slightly down from the average of US$ 4.37/mmbtu seen in 2010, in contrast to the high of US$ 7.51/mmbtu seen in US natural gas prices failed to reach over US$ 5.00/mmbtu during the entirety of The shale gas revolution, arguably the biggest development in the energy sector of the past decade, resulted in the US remaining on par with Russia in terms of net production. Outlook While the global economic outlook appears fragile, the outlook for the energy sector and growth in demand remains strong. As in 2011, economic growth in 2012 is expected to be led by non-oecd countries, with increases in energy demand coming from these markets. The International Energy Agency s (IEA) January 2012 forecast outlined that oil consumption is expected to increase by 800,000 bpd in 2012, slightly down from a forecast of 1.1 million bpd made in December The IEA remains committed to the projection of a rise in global energy demand by 40% by 2030, with fossil fuels making up some 80% of this demand. In China, now the world s second largest consumer of energy, conservative estimates put economic growth at around 9%, while the demand for oil is expected to level out at around 6%. Looking beyond 2012, it is expected that over the next 25 years, 90% of all global energy demand growth will come from non-oecd economies. China alone will account for more than 30%, resulting in it taking the position as the world s largest energy consumer. To meet this demand, China will become a net energy importer. Natural gas will continue to play an increasingly important role in the global energy economy, with its share in output expected to rise to above 20% by 2035, based on the assumption that the energy industry is able to manage the environmental pitfalls. We are committed to playing a central role in delivering this energy over the coming years. 26 / 27

30 Financial Review 2011 delivered robust revenues and EBITDA of AED 24.2 billion and AED 14.0 billion respectively, reflecting strong operational performance during the period. excellence transparent TAQA recorded strong top line performance with a 13% increase in revenues due to higher oil prices, and growth in our Power & Water portfolio. Gross Profit increased 19% compared with 2010, despite an impairment charge taken in North America. Net Profit decreased by 27% to AED 744 million in 2011 compared to 2010, due primarily to a higher tax expense in the United Kingdom. The basic earnings per share decreased from 17 fils to 12 fils. Our financial position remains solid with high levels of liquidity and a proven ability to access additional finance in international bond markets. Overview TAQA s financial performance during 2011 can be characterised by robust business performance delivering strong operating profit growth, offset by the effect of an impairment at our North American business and an increase in tax expenses in the United Kingdom. The continued excellence of our Power & Water business, where we operate at the highest levels of technical availability, means that we benefit from stable, predictable revenues, alongside a predictable cost structure. This has been enhanced during 2011 with the addition of two new plants, Fujairah 2 and Shuweihat 2, which are contributing directly to TAQA s top and bottom line. Our Oil & Gas assets have delivered solid production performance in a positive oil price environment. However, North American gas prices have remained challenging, and this has had some dampening effect on profitability. As a consequence, we have concentrated on tight cost control, the disposal of excess acreage, and a focus on oil and liquidrich plays within our existing portfolio. A more detailed study of the commodity price environment can be found in the Market Review section on page 26/27. Funding strategy Operational performance, as always, was underpinned by careful management of our finances and a solid funding strategy. During 2011, we took further steps to ensure TAQA started 2012 in a strong financial position, with ample liquidity and appropriate leverage. TAQA retains its A3 (stable outlook) rating from Moody s Investor Services, alongside an A (stable outlook) rating from Standard & Poor s. Both recognise the strength inherent in TAQA s business, combined with support from the Government of Abu Dhabi. Our cautious and proactive approach to funding led us to refinance our 2012 bond maturity obligations earlier than required, completing a US$ 1.5 billion bond offering during December. While market conditions were volatile during 2011, we took advantage of a window of favourable market conditions, completing this transaction at attractive prices. Moreover, the offering was five times oversubscribed, demonstrating confidence in our financial position, business strategy and performance. Additionally, during October, we put in place TAQA s first Sukuk programme which opens a new source of financing for TAQA, enabling us to further diversify our investor base. The programme, which allows for up to MYR 3.5 billion, allows TAQA to quickly take advantage of favourable market conditions as and when they arise. TAQA made its first issuance under this programme in February 2012 raising US$ 215 million at an attractive profit rate of 4.65%. Retaining a cautious eye on the future, our refinancing focus for 2012 is on securing required financing well in advance of 2013 maturities, allowing us to be opportunistic in issue timing to secure the most advantageous pricing. TAQA Annual Report 2011

31 2011 Highlights Strong revenue growth of 13% EBITDA increased by 30% Proposed dividend of 10 fils per share Substantial liquidity of AED 17.9 billion Total assets AED Billions Revenue AED Billions EBITDA AED Billions Net profit AED Billions Results of operations Income statement Revenues TAQA s two core businesses generated AED 24.2 billion in revenues during 2011, an increase of 13% compared to AED 21.4 billion in Excluding supplemental fuel, full-year revenues from TAQA s Power & Water business increased 8% to AED 7.4 billion from AED 6.9 billion in 2010, contributing 38% of total revenues. The key driver for this uplift in performance was the growth in our portfolio during the year, with both Fujairah 2 and Shuweihat 2 coming on line. Oil & Gas revenues for 2011 were AED 12.0 billion, an increase of 30% compared with AED 9.2 billion in 2010 which represents 62% of total revenues. The key driver was a favourable commodity pricing environment (particularly given strong oil prices in Europe), combined with stable production. Cost of sales 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; provisions for impairment on property plant and equipment; and other operating expenses. Cost of sales were AED 15.7 billion, a 10% increase year on year in line with the increase in revenues recorded. We have successfully kept tight control of costs despite an increasingly heated oil and gas market is likely to see increasing cost pressures, but we have taken pre-emptive steps to ensure TAQA is well positioned to meet the demands of the market. Gross profit Gross profit increased 19% to AED 8.5 billion, reflecting incsreased revenues and careful management of operational expenses, offset by a net impairment charge of AED 470 million taken in North America. Finance costs TAQA s finance costs primarily consist of interest expense on bank loans and outstanding bonds. Finance costs were AED 4.6 billion for 2011 versus AED 4.0 billion in The increase is in part attributable to the acquisitions of Fujairah 2 and Shuweihat 2 which increased financing costs by AED 509 million. These high-quality, cash-generating assets are already contributing to TAQA s net income. Gain on disposal of interest in subsidiaries During 2011, we disposed of assets that were felt to be outside of our focussed strategy, including a stake in the joint venture with Marubeni in the Caribbean, plus several non-core assets in our North American Oil & Gas business. Gain on sales from disposal of non-core North American assets contributed AED 91 million in Income from Associates and Joint Ventures Investment income from associates increased 32% to AED 298 million. Income from joint ventures declined by 41% to AED 103 million due to the divestment of TAQA s investment in the Marubeni TAQA Caribbean Ltd joint venture in January Income tax Income tax expense was AED 2.5 billion for 2011, comprising AED 2.4 billion of current income tax expense and AED 163 million of deferred income tax expense, resulting in an effective tax rate of 62%, compared to an effective tax rate of 38% in The increase in total income tax expense in 2011 was primarily due to the significantly higher income achieved in the UK oil and gas business stream, exacerbated by the imposition of 12% additional taxes on UK oil and gas producing companies which came into effect on 24 March / 29

32 Financial Review continued Ryan Wong Group Vice President and Treasurer I was responsible for the overall execution of our successful US$ 1.5 billion bond issuance this year. This included the selection of the banking group to lead the offering, preparation of loan documentation, coordination of the various working groups, investor road show, and making the right call on the timing of the launch of the transaction to achieve the best possible pricing. In addition to the bond offering, TAQA made a cash tender offer for the 2012 bonds. We were successful in buying back close to US$ 600 million of the maturing bonds. Given the large volatility in the capital market mostly relating to the debt crisis in Europe, the biggest challenges were in picking the right time to launch the offering and then managing the pricing process to get the most advantageous funding cost while retaining strong investor participation. We were able to build a strong order book of more than five times the targeted amount of debt offering despite following two large debt issuances from other entities within the region. We were successful in raising the US$ 1.5 billion targeted amount in equal 5 and 10 year tranches. The coupons on the bonds were the lowest issued by TAQA. The pricing of the bonds meant we were under budget and consequently able to reduce the premium paid on the new bonds by 20 to 25 basis points under the initial price guidance. Profit for the period Profit for the period (after minority interests) was AED 744 million in 2011, a decrease of AED 275 million compared with AED 1.0 billion for the full year of The decline was principally attributed to a non-cash impairment charge of AED 470 million net of tax and a higher tax expense in the United Kingdom. Basic and diluted earnings per share attributable to equity holders of TAQA was 12 fils. Dividend TAQA s Board of Directors has proposed a cash dividend of 10 fils per share for This is subject to shareholder approval at the Annual General Meeting in April Cash-flow statement Net cash earned in operating activities was AED 6.9 billion in 2011, compared with AED 5.6 billion in Net cash used in investing activities was AED 5.1 billion in 2011, compared with AED 7.4 billion in Capital expenditures during the period totalled US$ 1.9 billion, an increase of US$ 0.7 billion. Our spending for the year was broadly in line with our target of US$ 2.0 billion. The increase related to our growth projects during the year, including the development of Shuweihat 2, the expansion of Jorf Lasfar in Morocco TAQA Annual Report 2011 and investment in our North American and UK North Sea fields. Balance sheet Consolidated cash available as of 31 December 2011 was AED 3.9 billion. TAQA also had AED 14.0 billion of unused credit lines available. Total assets were AED billion, down from AED billion at the end of 2010, due to the disposal of the Caribbean assets and the impairment charge in North America. As at 31 December 2011, TAQA s net debt position was AED 70.1 billion, resulting in a net debt/ebitda ratio of 5.0 times versus 6.6 times at the end of Interest-bearing loans and borrowings decreased to AED 73.9 billion, mainly due to lower drawdown of our revolving credit facilities and the buyback of US$ 589 million of notes due in 2012, offset by the US$ 1.5 billion bond offering in December. TAQA s total equity was AED 12.6 billion in 2011 compared with AED 15.2 billion at the end of The decline was attributable to both the impairment and disposal of non-core assets in North America. Risk management TAQA is exposed to many risks associated with its financing and operations. TAQA utilises, where appropriate, risk management tools to manage these risks in line with our stated policies. On the corporate debt portfolio, TAQA faces refinancing risks associated with the maturity of its corporate bonds and revolving bank loan facilities. TAQA manages these risks by spreading the maturity profile over a long time horizon; by taking a proactive approach to refinancing to avoid the need to raise debt under unfavourable market conditions; by diversifying its investor base to gain access to different pools of capital and by maintaining strong liquidity to fund any contingencies. In the short term, the risks associated with interest rate volatility are managed with over 90% of TAQA s non-project borrowings at year end carrying a fixed rate of interest and all of the maturing 2012 corporate bonds already pre-funded. To manage the exposure to commodity price volatility, TAQA relies on the steady and predictable cash flows from the power and water assets to provide financial protection. TAQA has also implemented a small commodity hedging programme in North America utilizing financial derivatives to hedge against unexpected fall in commodity prices. TAQA continuously reviews the effectiveness of this commodity hedging programme and will make changes where appropriate. TAQA also engages in limited hedging activities against its exposure to the key currencies associated with its international operations.

33 Corporate Governance As a public company, we continually strive for the highest standards of corporate governance. TAQA s Corporate Governance Policy and Code of Business Ethics Manual together form the backbone of TAQA s governance practices and serve to define and reinforce the core values of TAQA as an organisation. Audit Committee HE Salem Sultan Al-Dhaheri Chairman HE Ahmed Mohamed Al-Mehairi HE Abdulaziz Al-Hemaidi Nomination and Remuneration Committee HE Saeed Mubarak Al-Hajeri Chairman HE Ahmed Mohamed Al-Mehairi HE Abdulaziz Al-Hemaidi Structure of Board During 2011, we took steps to further strengthen the composition of TAQA s Board of Directors, which now comprises seven directors with a broad range of backgrounds, expertise and commercial experience. Each director is appointed for a term of three years and at the end of that period, the Board may be reconstituted. The Board is formed taking into consideration an appropriate balance between executive, non-executive and independent directors. At all times, at least one-third of the directors are to be independent and a majority of directors are to be non-executives who have technical skills and experience for the good of TAQA. Whenever directors are chosen, consideration is given to whether or not a director is able to pay adequate time and effort to his membership and that such membership is not in conflict with his or her other interests. The Board meets in person on a periodic basis pursuant to a formal schedule. Committees Presently, the Board has the following committees, each of which is established by a written charter setting forth its scope and responsibilities: (a) The Audit Committee; and (b) The Nomination and Remuneration Committee. Each committee consists of at least three non-executive directors, of whom at least two members shall be independent directors and are chaired by independent directors. The Chairman of the Board may not be a member of any such committees. The responsibilities of the Audit Committee include (i) establishing guidelines and procedures for the auditing of TAQA s financial and operating activities, (ii) assessing the accuracy of expenditure reports, costs, and financial statements, and (iii) ensuring TAQA s activities comply with applicable legal and internal corporate governance requirements. The responsibilities of the Nomination and Remuneration Committee include establishing the qualifications of Board members and recommending to the Board the remuneration of senior executives and management personnel, including benefits packages and bonuses. Current members of each committee are shown above. Internal controls TAQA maintains an Internal Audit Group that audits and assesses TAQA s risk management means and measures, the sound application of governance rules, and verification of compliance by TAQA and its employees with applicable laws, regulations and resolutions that govern its operations, as well as internal procedures and policies. The Internal Audit Group reports directly to the Audit Committee and provides independent and objective assessments of management in the execution of its duties. In addition, the Internal Audit Group supports a worldwide hotline service, operated by an external third party, that is open 24 hours a day seven days a week, providing a confidential mechanism for reporting perceived improprieties by telephone or internet. External auditor By statute, TAQA is required to engage an external auditor to review and sign off on TAQA s annual financial statements. TAQA has taken all requisite measures to ensure the independence of the external auditor, which is chosen through a competitive tender, and to ensure that all operations performed by the external auditor are free from any conflict of interests. For 2011, this was Ernst & Young. UK Bribery Act 2010 During 2011, we have ensured that all our businesses wherever they operate in the world have implemented UK Bribery Act guidelines as part of our commitment to international best practice. 30 / 31

34 Health, Safety, Security and Environment Our HSSE goals of no harm to people, safe and secure workplaces and minimal impact on the environment are common across every TAQA business and operation. TAQA Annual Report 2011

35 People benefiting from the Medical Caravan in Morocco in the first 24 hours Trees planted in and around Neyveli, India 30,000 Projects supported through the TAQA Culture Fund in the Netherlands Recordable Injury Rate Days Away From Work Rate responsible Health, safety, security and environment (HSSE) are core values and the top priorities of our business. In line with this commitment, during 2011, we implemented initiatives that were developed and driven by our employees across all of our subsidiaries. The initiatives build on the HSSE centralization process which started in 2009 and was initiated following a period of significant expansion and acquisition at TAQA. 32 / 33

36 Health, Safety, Security and Environment continued Key achievements in 2011 The Recordable Incident Rate (RIR) for the total workforce (employees and contractors) was 0.62 per 200,000 worked hours in 2011, compared to 0.72 per 200,000 worked hours in 2010, a decrease of 13.9% The Days Away From Work Rate (DAFWR) was 0.21 per 200,000 worked in 2011 compared to 0.32 per 200,000 worked in 2010, a decrease of 34.3% Completed the Safety Perception Survey at all TAQA operated business units Key regional highlights include tailored development programmes across Abu Dhabi, North America, the UK, the Netherlands, Morocco, India and Ghana HSSE performance Our HSSE goals of no harm to people, safe and secure workplaces, and minimal impact on the environment are common across every TAQA business and operation. The key to successful HSSE is the talent and dedication of every single employee. By continuing to use our existing talent, and incorporating the potential of newly acquired partners and employees, our management systems remain simple and practical. The TAQA Oil & Gas and Power & Water HSSE Manager networks have continued to work together to develop and implement best practices. In 2011, these networks have established the practical, yet thorough, TAQA Incident Notification, Classification, and Reporting guidelines and the TAQA Risk Management best practice process. In 2011, in accordance with TAQA s Process Safety Minimum Requirements, we assessed each of our subsidiaries to ensure they have in place the highest standards of operation to protect our people, our communities and the environment against threats to safety. HSSE training and sharing In 2011, we focussed on further improving the quality of our work by leveraging our internal expertise through training and knowledge sharing. Examples of this training in practice include: Self-Assessment: Conducted selfassessment training and facilitation in Saudi Arabia, Ghana and the Netherlands; Process Hazard Analysis (PHA): conducted training in the UK, the Netherlands, Ghana and Morocco; Non-Destructive Visual Testing Techniques: Conducted training in Morocco and provided weld inspection training support; Root Cause Analysis (RCA): Conducted root cause analysis training in India, Saudi Arabia and Ghana. TAQA Annual Report 2011

37 Community Relations TAQA is a global business. We give support to the local communities in which we operate. Our aim is to share our success and work together to help build a sustainable business that benefits everyone. This pledge to support economic and social development and environmental protection is core to the way we behave as a business whether as an employee, an operator, or a local partner. Key achievements in 2011 Continued and steadfast support across all the countries in which we operate Comprehensive programme supporting key health and social commitments which are important to our employees and their family, led by our local teams Support for the Small World event in Abu Dhabi to raise funds for less fortunate children in the Emirates These principles have long been important to TAQA and remained steadfast during 2011, when we continued to provide our support however it was needed whether funds, resources or time. In the UAE, our commitment means we have continued to build TAQA s presence as a responsible local employer, supporting the government s Emiratisation programme. Looking across our international operations, we have selected below a few examples of the projects TAQA has supported during In North America, we continued our support for the STARS Air Ambulance, which is dedicated to providing a safe, rapid, highly specialised emergency medical transport system for the critically ill and injured. We also supported the Alberta Children s Hospital and ARBI (Association for the Rehabilitation of the Brain Injured). Our Christmas campaign continued to raise money through a variety of initiatives for charities and families in need during the holidays with TAQA matching the funds raised. In the UK, we made a donation to the Owl and Pussycat Centre, a local social enterprise to assist with therapy for both children and adults. We also continued to match the funding raised by our employees for charities of their choice, contributing an additional 25,000 over the 12 months. We contributed to the revamp of Aberdeen s Maritime Museum, providing the first ever 3-D offshore film. We also continued to support important local organisations including StreetSport and Kidsafe. In the Netherlands, we have established a nature compensation area near the Bergermeer well site as an alternative breeding location for meadow birds. In 2011, TAQA established the TAQA Culture Fund supporting organisations and cultural groups in the communities in which we operate. In 2011, a total of 30 projects were supported. Furthermore, all of our employees donated any Christmas gifts they had received from business contacts to a raffle and auction. The money raised was matched by TAQA and totalled 15,000, which was donated to KWF, a foundation that funds cancer research. In Morocco, we funded a medical caravan for the villages surrounding the Jorf Lasfar power plant. More than 800 people used the service in the space of just 24 hours, which provided 11 doctors and 20 volunteer nurses. We also launched a campaign for the distribution of school materials to the disadvantaged schools located in the municipality of Sidi Abed. In Ghana, TAQA has continuously supported local infrastructure development for health and sanitation. Additionally, we funded educational scholarships for 105 students from basic to tertiary level education. As part of our local environmental and community development programme in India, TAQA has planted more than 30,000 trees around the plant. We have also supported the construction of critically-needed infrastructure, including water drains in the Uthangal village, plus the construction of an over-head water tank in Oomangalam and Uthangal. 34 / 35