Abu Dhabi National Energy Company (TAQA) PJSC · Peter Barker-Homek, CEO ... the Abu Dhabi National...

Abu Dhabi National EnergyCompany (TAQA) PJSC

Annual Report 2007

ABU DHABI24O 28’ 00” N54O 22’ 00” E

(1,1) -1- 4/2/08 TAQA_RA_COVER ENG TP.indd 8/4/08 17:11:51(1,1) -1- 4/2/08 TAQA_RA_COVER ENG TP.indd 8/4/08 17:11:51

THE HAGUE52O 04’ 60” N04O 17’ 60” E

Peter Barker-Homek, CEO

BUILDING A GLOBAL ENERGY COMPANYTAQA ANNUAL REPORT 2007 01

CONTENTS

Operating and Financial Review

02 Key Figures03 2007 in Brief04 Business Overview06 Chairman’s Statement10 Our Operational Footprint12 Letter from CEO16 The Board & Executive Management18 Management Discussion & Analysis18 Operational Review 28 Financial Review34 Corporate Governance36 Health, Safety, Security and Environment (HSSE) Program38 TAQA in the Community40 Shareholder & Bondholder Information

Financial Statements

42 Board Report

43 Auditors’ Report44 Consolidated Income Statement45 Consolidated Balance Sheet46 Consolidated Statement of Changes in Equity48 Consolidated Cash Flow Statement49 Notes to the Consolidated Financial Statements95 Glossary of Terms

02

Assets

AED 68.0 billion**PrimeWest not included

Geographic reach

9 countries

Employees

Total number of employees: 2,383*

Full time employees: 1,083

Independent contractors: 182

Employees of independent O&Mcontractors of subsidiaries: 1,118*PrimeWest not included

Key fi nancial fi gures

Group revenue: AED 8.3 billion*

Net Profi t: AED 1.0 billion*

Total Capex: AED 5 billion**PrimeWest not included

Upstream

Proven and probable reserves: 247 mmboe*

Reserve replacement ratio: 69%*

Total average daily oil & gasproduction: 42 mboe/d** *PrimeWest not included**PrimeWest and TAQA Bratani not included

Midstream

Current and future gas capacity storage volume: 700 million Nm3 current/ 3,900 million Nm3 future

Downstream

Gross power global generationcapacity: 9,423 MW

Total power production: 48,229 GWh

Total water desalination capacity: 594 MIGD

Total water desalination: 182,382 MIG

1.0bn

NET PROFIT

68.0bnAED

AED

ASSETS

8.3bn

GROUP REVENUE

0.102SAFETY RECORDRecordable injury rateper 200,000 hours worked

KEY FIGURES SCALE, RESPONSIBILITY, PERFORMANCE

AED


2007 was a transformational year for TAQA, marking our entry into new geographies together with the considerable expansion of our energy operations within our chosen key markets. Through a series of signifi cant strategic acquisitions, we have created a global energy company that now operates in nine countries.

The year started with our purchase of Talisman’s Brae assets and this transaction completed on 31 December 2007. During January, we also tied up our acquisition of BP Netherlands’ gas exploration and production (E&P) assets. Both deals position us at the heart of the North Sea oil basin.

During the second quarter we acquired CMS Generation, a subsidiary of the US integrated energy fi rm CMS Energy, as well as ownership interests in generation assets held by ABB in Morocco and India, providing additional breadth to our portfolio of power assets. We now have downstream activities in UAE, Morocco, Saudi Arabia, Ghana and India.

The third quarter was signifi cant for TAQA as it marked our entry into North America. This began in August with the acquisition of 100 per cent of Northrock Resources Ltd (NRL), a Canadian oil and gas E&P company with operations in the Western Canadian Sedimentary Basin. Acquired from Pogo Producing Company for a total purchase price of US$2 billion, we have renamed the company TAQA North Limited.

During the same month, we announced the US$540 million acquisition of Pioneer Canada, an oil and gas E&P company with operations in the Western Canadian Sedimentary Basin.

We further cemented our North American presence when we announced in September that we had agreed to buy Calgary-based PrimeWest Energy Trust. The total consideration paid for the business, a conventional oil and gas royalty trust, was approximately Cdn$5 billion. The transaction completed on 16 January 2008 and, when combined with TAQA North’s other assets, has established TAQA as a top twelve Canadian oil and gas E&P company in its newest market.

We continue to look at opportunities across the Middle East and into other emerging markets. October saw us sign an agreement to co-operate on joint developments with National Power Company (NPC), an affi liate of the Al Zamil and Al Seif Groups, regional investment groups based in Saudi Arabia. We also signed a Letter of Intent with Kuwait Energy Company (KEC), a Kuwait-based oil E&P company, in respect of opportunities in the oil and gas sector.

During November, we completed the sale to Marubeni Corporation of 40 per cent of Emirates CMS Power Company and 100 per cent of Taweelah A2 Operating Company – the company responsible for the management, operations and maintenance of the Taweelah A2 Plant - demonstrating our commitment to retaining majority positions in performing assets, while fostering and benefi ting from partnerships with world-class international organizations.

2007 IN BRIEFA TRANSFORMATIONAL YEAR

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BUSINESS OVERVIEWCAPTURING THE BENEFITS OF INVESTING ACROSS THE VALUE CHAIN

TAQA plans to build a diversifi ed international portfolio of operations and investments, balanced across stable developed economies and growing emerging markets.Peter Barker-Homek, CEO

Founded in 2005, the Abu Dhabi National Energy Company (TAQA) PJSC is a global energy company with a growing asset base that now exceeds AED 68 billion. One of the largest companies listed on the Abu Dhabi Securities Market (ADSM), TAQA is a fl agship corporation for the Government of Abu Dhabi. TAQA carries an AA- credit rating from Standard & Poor’s and was recently upgraded to Aa2 by Moody’s.

TAQA employs 2,383 people from 38 different nations and operates from its offi ces inAbu Dhabi, Michigan, Aberdeen, Calgary, Amsterdam and The Hague. Our footprint is further extended through partnerships and investments across Africa, the Middle East, Europe, North America and India.

By capitalizing on our position as the leading electricity generation and water desalination company in the UAE, we have quickly emerged as a signifi cant global energy company. Since inception, our business portfolio has expanded to capture benefi ts from across the energy value chain and we now have operations in exploration, production, storage, transmission and generation.

Our operations are now organized into three businesses: downstream, midstreamand upstream.

Downstream (power generation and water desalinisation)

TAQA provides 90 per cent of the water and electricity requirements of the Emirate of Abu Dhabi through domestic generation subsidiaries situated in various locations in the Emirate of Abu Dhabi and the Emirate of Fujairah. Each domestic subsidiary is partially owned by us and operated with one or more leading international utilities, oil and gas companies and project developers.

Our domestic market position has provided a springboard for regional and international expansion within the power and water sectors. Our international power generation activities now span four countries: Ghana, India, Morocco and Saudi Arabia.

As at 31 December 2007, we had combined installed power capacity of 9,423 MW, of which 7,347 MW were from our domestic subsidiaries and 2,076 MW were from our international subsidiaries. For the same period we had 594 MIG/d of desalinated water capacity.

Midstream (storage, transportation and processing infrastructure)

Our existing midstream operations include two important gas storage assets in The Netherlands acquired from BP Netherlands Energie B.V. in January 2007, as well as our interests in the East Cantaur Gas Storage facility in Canada. Additionally, TAQA holds a long-term pipeline position on the Alliance pipeline system, transporting gas from Western Canada to the Chicago cantaur.


The midstream portfolio consists of three natural gas storage assets. PGI Alkmaar wasthe fi rst peak gas shaver storage installation in The Netherlands. Commissioned in 1997, it has a working gas volume of 500 million Nm3 and a production capacity of 36 million Nm3/d as well as signifi cant expansion potential of its processing capacity. The other storage asset in TAQA’s Dutch portfolio is the Bergermeer Gas Storage Project, which consists of the development of the Bergermeer reservoir into an underground gas storage facility with a future working gas capacity of approximately 3.2 billion Nm3. As of November 2007, Bergermeer is the largest gas storage development project in Europe based on working gas capacity and allows us to play a crucial and strategic role in solving Europe’s “Security of Supply” issue by investing in local storage and helping new long-distance gas suppliers service the Northwest European market securely all year round.

In Canada, we are optimizing our East Cantuar storage facility in Saskatchewan which is jointly-owned with Husky Oil and provides a small working gas capacity of 7 BCF. Additionally, we are successfully managing our long-term position of 75 MMcf/d on the Alliance pipeline system until 2015 which we optimize daily by primarily fl owing our own produced gas from Western Canada to the more profi table Chicago market in the United States. Both Canadian midstream positions have been acquired through our Pioneer and Northrock acquisitions in 2007.

Our focus is on developing these existing midstream operations and their synergies with our upstream and downstream assets, while selectively targeting midstream acquisitions which will add value to our global asset portfolio.

Upstream (exploration and production)

Our oil and gas operations grew signifi cantly during 2007 and now comprise upstream interests in Europe and North America.

In Europe, we have an operating interest in the Bergen Licence, an area off the western coast of The Netherlands, which comprises four fi elds that are currently producing, together with six shut-in fi elds. Following our acquisition of Talisman Energy Inc.’s interests in the Brae Area oil and gas fi elds and associated pipeline1, we now have a presence in the UK North Sea.

As at 31 December 2007, our combined European upstream operations comprised approximately 40 mmboe of proven plus probable reserves. The acquisition of the Brae assets was completed on 31 December 2007.

As at 31 December 2007, TAQA North’s properties2 consisted of 2,506,732 gross acres, of which 1,834,177 are as yet undeveloped. For the 12 months to 31 December 2007, TAQA North had average production of 36,656 boe/d, consisting of 18,091 boe/d of oil, condensate, and natural gas liquids and 111.4 mmcf/d sales gas. As at 31 December 2007, TAQA North had proven plus probable reserves of approximately 207.5 mmboe, consisting of 99.98 mmbbls of oil, condensate and natural gas liquids and 645,518 mmcf of sales gas.

PrimeWest’s property, as at 31 December 2007, represented 1,140,329 gross acres, of which 737,566 are as yet undeveloped. For the comparable 12 months to 31 December 2007, PrimeWest had average production of 50,274 boe/d, consisting of 15,000 boe/d of oil, condensate, and natural gas liquids and 211.643 mmcf/d sales gas. As at 31 December 2007, PrimeWest had proven plus probable reserves of approximately 253.629 mmboe, consisting of 79.970 mmbbls of oil, condensate and natural gas liquids and 1,041,954 mmcf of sales gas.

1 The producing Brae assets and infrastructure are operated by Marathon Oil UK Limited. The SAGE terminal and associated pipeline is operated by Mobil North Sea Limited

2 The acquisition of PrimeWest closed subsequent to the year end in January 2008.

GLOBAL ASSETS BY REGION

UAE 60% Americas 20% Africa 9% Europe 9% Others 2%


CHAIRMAN’S STATEMENTA SHARED VISION FOR GLOBAL REACH

I am pleased to present our fi rst annual report on TAQA’s activities, together with the audited fi nancial statements for the year ended 31 December 2007.

Looking back, 2007 was a transformational year for TAQA and one in which we succeeded in delivering against our strategic objectives.

With entry into new markets, 2007 was the year we took TAQA, an Abu Dhabi champion, onto the world stage. From a performing base of domestic assets, our aim has been to develop TAQA into a global energy company with a diversifi ed and geographically varied portfolio. I am proud of our achievements to date.

Through a series of strategic acquisitions we have strengthened our traditional focus on downstream power and water activities, while also entering into the exploration and production market in North America and Europe and establishing an important base from which to grow our midstream operations.

TAQA has become one of the few enterprises which has managed to transform itself into a major oil and gas company outside its country of origin and we are unwavering in our commitment to become a standard bearer for other such enterprises. We set ourselves the highest standards throughout our operations and aspire to lead the way in demonstrating exceptional conduct in overseas markets.

TAQA’s vision is underpinned by a strategy that focuses on acquiring quality assets that are vertically diversifi ed, where we can enhance them or add further value. This has led to rapid expansion of our organization. Our priority is now to ensure that we create a cohesive business that is sustainable into the future and we have implemented a comprehensive program to bring about the swift integration of these acquisitions in order to create a best-in-class operator.

All of our assets have world-class track records for health and safety, and by drawing on the expertise we bring into the TAQA group and sharing knowledge across our entire organization, we are developing a robust framework to ensure these standards are rigorously upheld.

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ABERDEEN57O 07’ 60” N02O 06’ 00” W

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Furthermore, we are acutely aware of the potential environmental impact of TAQA as a global energy business and strive to make reductions in the company’s impact on the environment. We have become the fi rst GCC company to join the global 3C (Combat Climate Change) Initiative and are taking steps to monitor and minimise emissions from our portfolio of assets.

I view health & safety and the environment as business critical undertakings; a view that is shared across our organization and by those with whom we choose to work.

As our organization grows, we will continue our steadfast commitment to corporate governance and transparency and have sought to bring a consistency of approach across TAQA by establishing an enterprise-wide code of ethics built on the values of innovation, excellence, teamwork, integrity and performance. Such practices shape the character of our company and provide it with the supporting framework necessary to ensure full legal and regulatory compliance. They also provide our management team with the optimum architecture for innovation and productive decision-making as TAQA continues to grow.

Today, TAQA is a global business and diversity forms the backbone of our success and I take great pride in the breadth of skills and experience that our employee base brings to TAQA. We are now able to draw on this vast pool of talent and expertise, sharing knowledge and learnings across borders in order to continually enrich our organization. Our success is very much down to the drive and commitment of our people who are highly-skilled and passionate about their work. In particular, I would like to mention Peter Barker-Homek, our Chief Executive Offi cer, who has guided TAQA expertly during this transformational year.

Moving forward, the focus of our organization is on integrating our asset base into the TAQA family, creating further value and identifying new opportunities to contribute to the ongoing development of our business. I am fully confi dent of our abilities and that we will continue to grow and excel as a profi table, safe and environmentally responsible company.

Finally, on behalf of the Board and myself, I would like to express our gratitude and appreciation to His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the United Arab Emirates, Supreme Commander of the UAE Armed Forces and Ruler of Abu Dhabi,His Highness Sheikh Mohammed Bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi, Deputy Supreme Commander of the UAE Armed Forces and Chairman of Abu Dhabi executive council and His Highness Sheikh Diab Bin Zayed Al Nahyan, Chairman of Abu Dhabi Water and Electricity Authority, for their continuing and outstanding support.

Hamad Mohamed Al-Hurr Al-SuwaidiChairmanAbu Dhabi National Energy Company (TAQA)

CHAIRMAN’S STATEMENT

I view health & safety and the environment as business critical undertakings; a view that is shared across our organization and by those with whom we choose to work

10 BUILDING A GLOBAL ENERGY COMPANYTAQA ANNUAL REPORT 2007 11

OUR OPERATIONAL FOOTPRINT

Saudi ArabiaDownstream- Cogeneration Project- Power generation capacity: 250 MW- Gross power generation for 2007: 1,765,199 MWh

GhanaDownstream - Power Plant- Power generation capacity: 220 MW- Gross power generation for 2007: 1,417,330 MWh

The NetherlandsUpstream- Oil & Gas exploration and production- Proven and probable reserves: 11 mmboe

Midstream- Gas storage and transmission

IndiaDownstream - Power Plant- Power generation capacity: 250 MW - Gross power generation for 2007: 1,693,068 MWh

UAEDownstream - 6 Power generation and water desalination facilities- Power generation capacity: 7,347 MW- Gross power generation for 2007: 33,540 GWh- Total desalination capacity: 594 MIGD- Total water desalination output for 2007: 182,382 MIG

CONTRIBUTION TO REVENUES

Downstream

Power generation and water desalinisation assets 83%

Midstream

Storage and transmission assets 4%

Upstream

Exploration and production assets 13%

CanadaUpstream- Oil & Gas exploration and production- Proven and probable reserves: 207.5 mmboe* *includes Northrock Resources Ltd and Pioneer Natural Resources Canada Inc. Does not include PrimeWest which was acquired in January 2008


MoroccoDownstream- Power Plant- Power generation capacity: 1,356 MW- Gross power generation for 2007: 9,812,330 MWh

United KingdomUpstream- Oil & Gas exploration and production- Proven and probable reserves: 29 mmboe



LETTER FROM CEOGLOBAL REACH & DIVERSIFICATION

TAQA’s strategic goal is to build and operate a geographically diversifi ed global portfolio of energy businesses across the value chain. We strive to behave with the greatest integrity in all our markets and to ensure our business is responsible and sustainable into the future.

We seek to complement our strong domestic water and electricity production businessby identifying, purchasing and enhancing high-quality energy assets in upstream, midstream and downstream sectors across the Middle East, North Africa, India, Europe and North America.

Dear Stakeholders,

2007 was the year that TAQA put a solid stake in the ground. Early last year, we announced that we expected TAQA to be a AED 220 billion company in assets by 2012. I am pleased to report that the results of the past 12 months confi rm that we are executing on our plan. In one year we have gone from being a domestic power generation and desalination utility to a truly global energy company, that operates in nine countries and is comprised of qualityenergy assets. The dramatic reshaping of our business to encompass all aspects of the energy value chain has created new opportunities for TAQA around the world.

A year of diversifi cation

During the course of the year, we have grown our asset base by over 30 per cent to AED 68 billion and we are poised to build on the success of 2007 to create an enduring reputation for delivery and strength. Total revenues of AED 8.3 billion and net profi t of AED 1.0 billion for the year are clear demonstrations of our progress to-date.

In upstream oil and gas, we have made good inroads into North America, with the creation of TAQA North, and have built a strong foothold in Europe, with our collection of assets in the UK North Sea and off the Dutch coast. This was brought about by the completion of our acquisition of BP Netherlands’ gas exploration and production (E&P) assets and Talisman’s Brae assets, but the move that truly put TAQA on the world map was our entry into Canada. During the course of 2007, we executed successfully on transactions totaling more than US$2.5 billion. This does not include our Cdn$5 billion acquisition of PrimeWest Energy Trust, which was announced last year, but completed in January 2008. This is TAQA’s largest acquisition to date and now affords us a position as one of Canada’s top ten companies in terms of net proven natural gas reserves and in the top 12 in terms of oil and gas production.

The formation of an upstream business, which by the end of 2007 already had total proven and probable reserves of over 247 mmboe and our total average daily oil and gas production of 42 mboe/d (excluding TAQA Bratani and PrimeWest) is a remarkable achievement. Moreover, this does not include PrimeWest’s proven and probable reserves (the acquisition closed in January 2008), which at year end stood at approximately 254 mmboe. This provides us with an excellent platform upon which to build.

We are continually investing in businesses we acquire. Our gas storage assets inThe Netherlands are currently undergoing a dramatic enhancement program, targeting total gas storage capacity equivalent to the annual gas consumption of 1.6 million households by 2012.

14

Within our domestic power generating business, we currently have 7,347 megawatts. The acquisitions of selected CMS Generation and ABB downstream assets in Morocco, Saudi Arabia, Ghana and India have added a further 2,076 megawatts of power capacity and we hope to substantially increase the capacity of our domestic and international downstream business in the next three to fi ve years. As I look back over the past year, I see we have an excellent team in place at TAQA who share a common mission to build a sustainable global energy business. Our record of identifying acquisition opportunities, negotiating and completing them is testament to the talent of our team and a measure of our determination and shared vision. By diversifying our operations into several new markets we now offer an attractive spread of market and operational risk. And while the pace of development has been dramatic, we are making rapid progress in swiftly integrating these assets to ensure they reach their full potential as part of TAQA.

With our business expanding dramatically into new segments and new geographies, that we are able to double the dividend that we have generated for our shareholders to AED415 million, is a clear endorsement of this strategy.

Developing the TAQA way

In building the TAQA business we have also developed the fi rm’s character, a commonality of approach that is central to the integration of our acquired assets, as well as championing ethics that are integral to TAQA.

The protection of our people, the communities our operations touch and the environment in which we operate are values which are central to everything we do. This starts with our workforce and at the core of this commitment is health and safety, to ensure both the welfare of our employees and the continuity of our operations.

Across the assets we have acquired in 2007, we had a recordable injury frequency rate of just 0.102 per 200,000 hours worked. Every member of our team shares the responsibility for ensuring our standards are upheld and our safety record is continually improved through regular evaluation and assessment.

It is important to me that the standards we set and share with our employees, across multiple geographies, are clearly defi ned and understood. As such, we developed a Code of Business Ethics that makes clear our stance on appropriate professional conduct in the offi ce, in the fi eld, and when representing the company. The code is rooted in an absolute compliance with local laws, an acceptance of transparent behavior at all times, and a respect for others’ cultures.

In 2007, we started the process of building a Corporate Social Responsibility (CSR) program. Our objective with CSR is to implement programs of ethical, environmental and social benefi t to all of the company’s stakeholders. As such, we have engaged with external auditors that will monitor our CSR efforts to ensure that our practices are effective and embedded throughout the organization.

Diversity and inclusion is an important part of our CSR policy since the company has over 2,383 employees from 38 different nationalities. In recognizing that our workforce consists of a diverse population of people, I believe that harnessing these differences helps to create a productive environment where people feel valued, where they feel that their talents are fully utilized, and in which the organizational goals are being met. TAQA prides itselfon being a meritocracy.

LETTER FROM CEOGLOBAL REACH & DIVERSIFICATION


Our place in the world

As a new company with a vision to become a global player in the energy sector, I believe we have a responsibility to lead the way in reducing our environmental impact and supporting the move towards a low emissions economy.

We were the fi rst GCC company to join the 3C (Combat Climate Change) Initiative, a global opinion group of prominent business leaders demanding the integration of climate issues into markets and trade. As the fi rst member from a non G8 + 5 country, TAQA joins forces with business leaders from nearly 50 large organizations committed to contributing to a common vision of a low emitting, sustainable society. The 3C Initiative’s goal is to set a global limit to the maximum temperature increase and defi ne emission reduction targetsfor 2030 and 2050 based on the best available research.

On a day to day basis, TAQA’s operations around the world are taking steps to monitor and reduce emissions of harmful greenhouse gases. Emission reduction initiatives include the introduction of solar powered equipment to eliminate the venting of greenhouse gases, upgrades to new technology to reduce fugitive, vented and fl ared methane, and the purchase of compression equipment with improved fuel performance. As a 3C Initiative signatory, we have committed to play a proactive role in combating climate change, andas the fi rst GCC member, we hope to set a precedent in the region.

I believe that changing individual behavior is an important step in combating environmental problems and will help to infl uence society’s collective response. To help our employees make a positive step, and to demonstrate our commitment to the environment, in 2007 we put in place a hybrid car buying program for our employees.

Looking ahead

I am convinced, not just by the success of 2007, but also by the energy and enthusiasm I see throughout the company, that the strategy we are implementing will allow TAQA to reach its potential of becoming a major blue chip company. If prudent opportunities continue to manifest themselves, TAQA will soon occupy the position of a market-leading energy company that we know it should.

To all of our people, I would like to say a sincere thank you for the commitment, professionalism, and for the determination they have shown in managing the many changes that were asked of them as part of the integration process. It is to their ability and dedication that we owe much of our success in 2007 and it is their skill that is TAQA’s greatest asset.

Finally, I would like to thank the Board and the Government of Abu Dhabi for their continued support in helping TAQA to fulfi l its potential.

Yours sincerely,

Peter Barker-HomekChief Executive Offi cerAbu Dhabi National Energy Company (TAQA)

As a new company with a vision to become a global player in the energy sector, I believe we have a responsibility to lead the way in reducing our environmental impact and supporting the move towards a low emissions economy

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The Board has delegated the day-to-day management of TAQA to executive offi cers appointed by the Board. The current members of TAQA’s executive management are as follows:

Name Position Date of joining

Peter Barker-Homek Chief Executive Offi cer May 2006Doug Fraser Chief Financial Offi cer January 2008Carl Sheldon General Counsel and Deputy General Manager April 2008Frédéric Lesage GVP Integration and Optimization February 2007Daniel Dexter GVP Global Power May 2007Tim Granger Managing Director, TAQA North January 2008Gopal Gopalakrishnan GVP Accounting and Control May 2007Paul van Gelder Managing Director, TAQA Energy & TAQA Bratani July 2007Klaus Reinisch Head of Midstream December 2007Abdulla Khunji Chief of Staff, GVP Corporate Communications June 2007Yasser El-Zein GVP Technology September 2006Jos Schiffelers Head of HSSE July 2007

THE BOARD AND EXECUTIVE MANAGEMENT

DirectorsThe current members of the Board of Directorsof TAQA (the “Board’’) are as follows:

Name Position

H.E. Hamad MohamedAl-Hurr Al-Suwaidi ChairmanH.E. Ahmed Saif Al-Darmaki Deputy Chairman H.E. Abdulla Saif Al-Nuaimi DirectorH.E. Salem Al-Sayaari DirectorH.E. Mohammed Foulad Director

01 His Excellency Hamad Mohamed Al-Hurr Al-Suwaidi serves as Chairman of the Board and was appointed in 2005. His Excellency’s principal responsibilities outside TAQA are Under-Secretary of the Department of Finance of the Government of Abu Dhabi, Director of Mubadala Development Company, Chairman of the Financial Support Fund for Farm Owners in the Emirate of Abu Dhabi, Executive Director of the Abu Dhabi Investment Authority (“ADIA’’) and Chairman of the Board of Emirates Power Company.

02 His Excellency Ahmed Saif Al-Darmaki serves as Vice-Chairman of the Board and was appointed in 2005. His Excellency’s principal responsibilities outside TAQA include Chairman of ADWEC, Director of Planning and Development of ADWEA, and Offi ce Manager of the Chairman of ADWEA.

03 His Excellency Abdulla Saif Al-Nuaimi serves as a Director of the Board and was appointed in 2005. In addition, His Excellency is Director of the Privatization Directorate of ADWEA, Deputy Managing Director of ADWEC and Chairman of Gulf Power Company.

04 His Excellency Salem Al-Sayaari serves as a Director of the Board and was appointed in 2005. His Excellency is currently Deputy General Manager of Abu Dhabi Distribution Company and is a Director of Arabian Power Company.

05 His Excellency Mohammed Fouladserves as a Director of the Board and was appointed in 2005. His Excellency was previously Chairman and Managing Director of Taweelah Power Company.

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10 11 1207

01 Peter Barker-Homek is Chief Executive Offi cer. His professional background includes Senior Adviser in M&A at BP plc, Director of Worldwide Downstream Gas Distribution Development at BG International and Vice-President of Development for Eastern Europe and Latin America at Pacifi c Enterprises. He has worked at the US State Department and was an institutional sales consultant within the Capital Markets Group at Merrill Lynch. Peter Barker-Homek is a US national and holds an MBA from the University of Southern California.

02 Doug Fraser is Chief Financial Offi cer. He has previously held senior fi nancial positions as Assistant Controller with Imperial Oil Ltd, Treasurer at Petro-Canada, Vice President and Chief Financial Offi cer at Husky Energy and most recently as Vice President Finance and Chief Financial Offi cer at PrimeWest Energy. Doug Fraser is a Canadian national and is a Chartered Accountant.

03 Carl Sheldon is General Counsel and Deputy General Manager. He was previously a partner at Allen & Overy LLP where over his career he practiced in the energy sector, as well as running the fi rm’s German and U.S. operations. He is a dual qualifi ed lawyer admitted to practice in New York and in England. He holds an MA from Cambridge University.

04 Frédéric Lesage is Group Vice-President, Integration & Optimization. Prior to joining TAQA, he worked as a senior consultant for McKinsey & Co. and practiced law for eight years at a leading Canadian law fi rm, specializing in Labour & Employment litigation. He holds a law degree from Université de Montréal and a Master of Business Administration (with distinction) from the Ivey School of Business at the University of Western Ontario. Frederic Lesage is a Canadian national.

05 Daniel Dexter is Group Vice President of the Global Power Group. His professional background includes the positions of Executive Managing Director of International Operations with CMS Enterprises, various CEO/President level positions for a number of independent power businesses and General Manager of the Johnson City, Tennessee, Power Board. He has an MBA from New Mexico State University, which includes a specialised study emphasis on regulatory economics. Daniel Dexter is a US national.

06 Tim Granger is Managing Director of TAQA North. He previously held overall responsibility for Development and Production Operations at PrimeWest and, prior to this, undertook a variety of management roles at Pogo Canada Ltd, Petro-Canada and Amerada Hess Canada Ltd, in addition to engineering positions at Dynex Petroleum Ltd, Canterra Energy Ltd and Dome Petroleum Ltd. Tim Granger holds a P.Eng. (Mechanical) from Carlton University and is a Canadian national.

07 Gopal Gopalakrishnan is Group Vice President Accounting and Control. He is a Chartered Accountant and has held senior management positions in accounting and fi nance for 20 years. He has been a director of Utilicorp New Zealand Ltd and Utilicorp Finance Company, both subsidiaries of Aquila Inc in New Zealand. Prior to joining TAQA, Gopal Gopalakrishnan was Director of Accounting for CMS Enterprises. He is a New Zealand national.

08 Paul van Gelder is Managing Director of TAQA Energy and TAQA Bratani. His previous positions included Project Director Bergermeer Gas Storage, Maintenance Manager for BP and Director of Logistics for Driessen Aerospace Systems. This followed a career in the Royal Netherlands Navy where he rose to Commanding Offi cer of a Navy General Purpose Ship and Commanding Offi cer Maintenance and Logistics for 323 Squadron. Paul van Gelder is a graduate from the Royal Netherlands Naval College and has a Masters degree in Operations Management and Logistics from the Technische Universiteit Eindhoven. He is a Dutch national.

09 Klaus Reinisch is Head of Midstream. He previously headed up the business development function at Gazprom Marketing & Trading and has been instrumental in setting up various projects and businesses in gas storage, LNG, pipeline asset management, power generation, and carbon credit sourcing. Klaus Reinisch has an MBA in International Management from Thunderbird School of Global Management in Arizona. He is an Austrian national.

10 Abdulla Khunji is Chief of Staff, GVP Corporate Communications. He previously worked at the Environment Agency of Abu Dhabi, where his most recent position was Head of Public Relations, Marketing & Communication. Prior to this role he was a senior member of the System Support team at the Environment Agency. Abdulla Khunji holds a Masters in Innovation & Entrepreneurship HCT/CERT (Harvard, Stanford, MIT), UAE and a Bachelor of Business & Public Administration, Management Information Systems from Eastern Washington University, USA. He is a UAE national.

11 Yasser El-Zein is Group Vice President Technology. He has worked in various technical and managerial capacities for IBM, PaineWebber, The New York Mercantile Exchange (NYMEX) and, more recently, as Director of Engineering and Advanced Development for Major League Baseball AM. Yasser El-Zein holds an MSE in Electrical and Computer Engineering from the University of Iowa and has authored scientifi c publications in periodicals such as the Physics of Plasmas Journal, Planetary Space Science Journal, Journal of Applied Physics and Journal of Plasma Physics. He is a US national.

12 Jos Schiffelers is Head of HSSE. He has worked in various technical and managerial positions at Refi nery, Chemical and Oil & Gas assets. He has experience of European and North American industry with Exxon and BP, most recently as the HSE Manager for BP Netherlands. He has a diploma of Business administration of the Netherlands Open University. In Q2 2008 he will achieve his Master degree of Safety, Health & Environment from the Delft University of Technology. He is a Dutch national.

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AMSTERDAM52O 22’ 23” N04O 53’ 32” E

18


2007 marked TAQA’s emergence onto the world stage as a global energy company. During the fi nancial year under review, we took signifi cant steps in both announcing and completing six acquisitions. Our priority has then been to begin the integration work to bring these companies together under the TAQA umbrella, while taking care to contain business disruption.

The year was therefore characterized by two key objectives: to ensure sound and rapid deal execution and to strive for operational excellence within companies we acquire. Both of these objectives are designed to bring us nearer to our strategic goal of building and operating a geographically diversifi ed global portfolio of energy businesses across the value chain. We maintain an unwavering commitment to ongoing investment and asset optimization, the highest standards of health and safety, environmental stewardship and diversity and inclusion.

By building and rationalizing our diversifi ed portfolio, we went from an asset base of AED 52.0 billion to AED 68.0 billion. The growth in our footprint is already generating total revenues for the year of AED 8.3 billion. This does not yet include a full-year contribution of those assets acquired during the course of the year, nor does it include the PrimeWest transaction, which only closed in January 2008, but gives an indication of our potential scale.

During 2007, we established our fi rst operating presence in seven additional jurisdictions; Morocco, India, Ghana, Saudi Arabia, The Netherlands, The UK and Canada. Many of these acquisitions were foundational, in that we entered the market with each acquisition. In these instances, we acquired a quality, going-concern and retained a leadership team; both of which have combined to provide TAQA with a springboard for future expansion.

Our integration mandate is designed to bring acquisitions into the TAQA way of doing things and ensure that all functional areas are completely integrated into the group where they need to be. We have been working with an international management consultancy fi rm since June 2007 to build a world-class, best practice integration process specifi c to TAQA which defi nes how we approach integration projects. The integration of our assets will enable TAQA to bring harmony to our diverse in multiple geographies; a process which has already allowed us to build signifi cant integration knowledge and skills internally.

As the asset base has grown during the year, so too has the relative fi nancial strength of the company. Today our diversifi ed portfolio of assets generates robust cash fl ows, with cash and cash equivalents at year end 2007 of AED 7.0 billion. When combined with the benefi t of our low-risk domestic utility business and strong support from our majority shareholder, this allows us to sustain current levels of debt and maintain a low cost of capital. Profi t for the period reached AED 1.0 billion, a rise of 113 per cent when compared to 31 December 2006.

Downstream (power generation and water desalinsation)

During 2007, we built on our solid downstream foundation, leveraging our team’s experience of developing, commissioning and operating power generation facilities to grow our downstream assets both in the familiar territory of the UAE as well as internationally.

TAQA’s downstream capability now represents total global generation capacity (gross) of approximately 9,423 MW. During 2007, total power production ran to 48,229 GWh. Our total water desalination capacity is approximately 594 MIGD, with total water desalination of 182,382 MIG in 2007.

Downstream activities comprised 83 per cent of total revenues during 2007 and 72 per cent of profi t for the period.

MANAGEMENT DISCUSSION & ANALYSISOPERATIONAL REVIEW

20


Our objective in the global power business is to provide the group with a base of stable earnings and cash fl ows. The development of TAQA’s downstream business is critical to cementing our position as a leading global energy company. Downstream provides a vital component of our integrated offering and helps to ensure our enlarged business remains sustainable into the future.

During 2007, the acquisition of CMS Generation substantially developed our downstream footprint beyond the domestic market, expanding into Saudi Arabia, Morocco, Ghanaand India.

The integration of CMS Generation was greatly assisted by a commonality of standards. The objectives we had at TAQA were largely aligned with the operational success CMS achieved over its years of operation.

Domestic assets

TAQA’s six domestic subsidiaries, or Independent Water and Power Producers (IWPPs), are characterized by low-risk utility operations, underpinned by quasi-Government off-take agreements.

Combined, our domestic subsidiaries provide over 90 per cent of Abu Dhabi’s power and water needs, thus performing a vital domestic role. These assets consist of modern, gas-fi red plants. The Abu Dhabi Water and Electricity Company (ADWEC) has undertaken to purchase the entire net capacity of the plants owned by TAQA’s subsidiaries under long-term off-take agreements.

The domestic downstream portfolio is the heart of the TAQA group as it has provided us with a stability of cash fl ow upon which to build our global diversifi ed strategy. It is our intention to retain majority positions in these performing assets, while fostering and benefi ting from partnerships with world-class organizations.

In May 2007, as part of the acquisition of CMS Generation, we acquired a further 40 percent interest in Emirates CMS Power Company (ECPC) which operates the Taweelah A2 facility. In line with our stated strategy, we sold 40 per cent of ECPC and 100 per cent of the plant’s associated O&M company to Marubeni Corporation in October 2007. TAQA and its affi liates have retained a 60 per cent interest in ECPC. This transaction, worth US$140million in cash, represented excellent value for TAQA. It is also another example of Abu Dhabi attracting the highest quality of international investor, keen to share in the country’s growth potential.

As part of the CMS Generation acquisition, we also acquired a further 20 per cent interest in Shuweihat S1 and a 50 per cent interest in Shuweihat O&M Ltd Partnership, which is responsible for the management, operation and maintenance of the plant.

Abu Dhabi is the second largest economy in the Gulf Cooperation Council (GCC) region, after Saudi Arabia. Real GDP growth in Abu Dhabi reached 6 per cent in 2007. It is forecast to remain at these levels in 2008 and remain signifi cantly above that of the MENA region. GDP per capita in Abu Dhabi is one of the highest in the world at US$49,700


Domestic factfi le

Emirates CMS Power Company (Plant Taweelah A2)TAQA ownership interest: 54%

A combined cycle gas-fi red facility located on the coastal Taweelah site approximately 50 kilometers north-east of Abu Dhabi City. Taweelah A2 is owned and operated pursuant to a joint venture agreement with Marubeni Corporation.

Gross power generation capacity 777 MW

2007 gross power generation 4,123,060 MWh

Total desalination capacity 50 MIGD

2007 water desalination output 16,863 MIG

Gulf Total Tractebel Power Company (Plant Taweelah A1)TAQA ownership interest: 54%

A gas-fi red power generation and water desalination plant on the coastal Taweelah site approximately 50 kilometers north-east of Abu Dhabi City. Taweelah A1 is owned and operated pursuant to a Joint Venture agreement with Suez Energy and Total.

Gross power generation capacity 1,350 MW




Taweelah Asia Power Company (Plant Taweelah B)TAQA ownership interest: 54%

A gas-fi red power generation and water desalination plant on the coastal Taweelah site. Owned and operated in a Joint Venture agreement with Marubeni Corporation, BTU Power Company, Pendekar Power and JGC Corporation, the Taweelah B power plant is a brownfi eld development, commissioned in 2002.





Emirates SembCorp Water and Power Company (Plant Fujairah 1)TAQA ownership interest: 54%

Located in the Emirate of Fujairah, Fujairah 1 is owned and operated in a Joint Venture agreement with SembCorp Utilities. It is the latest of the partially privatized Independent Water and Power Producers (IWPPs)





GROSS POWER GENERATION CAPACITYBY DOMESTIC SUBSIDIARY

Emirates CMS Power Company (Plant Taweelah A2) 11%

Gulf Total Tractebel Power Company (Plant Taweelah A1) 18%

Taweelah Asia Power Company (Plant Taweelah B) 19%

Emirates SembCorp Water and Power Company (Plant Fujairah 1) 9%

Arabian United Power Company (Plant Umm Al Nar) 23%

Shuweihat CMS International Power Company (Plant Shuweihat S1) 20%

TOTAL DESALINATION CAPACITYBY DOMESTIC SUBSIDIARY

Emirates CMS Power Company (Plant Taweelah A2) 8%

Gulf Total Tractebel Power Company (Plant Taweelah A1) 14%

Taweelah Asia Power Company (Plant Taweelah B) 17%

Emirates SembCorp Water and Power Company (Plant Fujairah 1) 17%

Arabian United Power Company (Plant Umm Al Nar) 27%

Shuweihat CMS International Power Company (Plant Shuweihat S1) 17%

22

Arabian United Power Company (Plant Umm Al Nar)TAQA ownership interest: 54%

Located in Sas Al-Nakeel (previously Umm Al Nar) at the entrance of Abu Dhabi island. Umm Al Nar is owned and operated in a Joint Venture agreement with International Power plc, Mitsui Corporation and Tokyo Electric Power Company.





Shuweihat CMS International Power Company (Plant Shuweihat S1)TAQA ownership interest: 74%

Located on the coast of the Arabian Gulf, Shuweihat S1 is owned and operated in a Joint Venture agreement with International Power plc. Shuweihat S1 is one of the largest plants in the UAE representing close to 15 per cent of the UAE’s desalination capacity and 19% of its power capacity.





International assets

In May 2007, TAQA acquired CMS Generation for a total purchase price of US$900 million. As a result, our interests in power production and water desalination assets now extend beyond the UAE, across Morocco (Jorf Lasfar), India (Neyveli), Ghana (Takoradi) and Saudi Arabia (Jubail).

The CMS Generation acquisition has been benefi cial to TAQA in three main ways: the company’s long-term contracts and established customer relationships in the jurisdictions in which it operated together with an experienced management team with a proven track record, and technical expertise and specialized skills in the fi eld of independent power and water project development.

In May 2007, TAQA also purchased the 50 per cent indirect interests of ABB Ltd in the Jorf Lasfar (Morocco) and Neyveli (India) power plants for a total purchase price of US$490 million. This acquisition gave TAQA 100 per cent ownership of both assets.

Our focus for the international downstream business, since acquiring this portfolio has been to make substantial progress in asset optimization. In most instances, this has been a question of business structure, rather than operational enhancement.



International factfi le

Jorf Lasfar Energy Company, MoroccoTAQA ownership interest: 100%

The largest privatization on the African continent to date, Jorf Lasfar supplies on average 50 per cent of the electricity demand for Morocco and represents approximately one third of the country’s total installed capacity. Electricity from Jorf Lasfar is sold to Morocco’s Offi ce National d’Electricite under a 30-year power purchase agreement.



ST CMS Electric PvT Limited, Neyveli, IndiaTAQA ownership interest: 100%

A lignite-fi red power plant at Neyveli in Tamil Nadu. One of eight fast-track projects counter-guaranteed by the Indian government, it has a 30-year agreement to sell power generated by the plant to the Tamil Nadu Electricity Board.



Saudi ArabiaTAQA ownership interest: 25%

Steam plant located at Jubail in Saudi Arabia.



GhanaTAQA ownership interest: 90%

A three-stage Power Plant project, the third stage of which is yet to be implemented. The entire existing power generation capacity is purchased by the Volta River Authority.



GROSS POWER GENERATION CAPACITYBY INTERNATIONAL SUBSIDIARY/ASSOCIATE

Jorf Lasfar Energy Company, Morocco 65% ST CMS Electric PvT Limited, Neyveli, India 12% Saudi Arabia 12% Ghana 11%

24

Midstream (storage, transportation and processing infrastructure)

We extended our reach in 2007 by expanding into the midstream market, acquiring assets with signifi cant existing gas storage capacity and even higher storage development potential in The Netherlands and have taken our fi rst steps towards establishing a midstream presence in North America, with the combined storage and pipeline assets now held as part of TAQA North in Canada.

The rationale behind TAQA’s acquisitions and our focus on developing best-in class midstream operations is that we believe these operations are central to extracting optimal value from our comprehensive portfolio of upstream and downstream assets and therefore vital to the long-term sustainability of our fully integrated global energy business.Our midstream revenues also provide an ideal source of income diversifi cation, bolstering TAQA’s growing fi nancial position and further strengthening our creditworthiness by delivering a new source of high-quality cash fl ows.

By having acquired a key peak shaving gas storage facility in The Netherlands and developing a new even much larger storage facility, TAQA is investing in assets to ease the security of supply issue Europe is facing. As local European gas reserves decline sharply in the coming years, the continent will become increasingly dependent on long-distance imports primarily from Russia, as well as other continents, via LNG. Russia accounts for one-fi fth of the EU’s total energy consumption today, but is expected by some analysts to provide up to 66 per cent of Europe’s gas supplies by 2025. By investing in storage in the highly strategic Northwest European gas market, we are making sure that a suffi cient supply of gas is available to European consumers during times of supply problems or unexpected high demand.

Furthermore, we now own our fi rst North American midstream assets through the acquisitions of Northrock and Pioneer. The East Cantuar storage facility is a gas cap on top of an oil fi eld in Saskatchewan, Canada which can deliver up to 7 bcf of working gas capacity. East Cantuar is jointly owned in equal parts with our partner Husky Oil who also operates the facility on our behalf. The long-term position and booking on the Alliance gas pipeline system connecting the Western Canada producing regions with the Chicago market in the USA is our fi rst global gas pipeline position. This is managed through our TAQA North subsidiary.

European assets

Through our acquisition in January 2007, TAQA acquired two natural gas storage projects from BP Netherlands Energie BV. The fi rst is a mature and operating peak shaving gas storage facility at PGI Alkmaar and the second is Northwest Europe’s largest seasonal gas storage project at Bergermeer which is now being developed by TAQA to become operational in 2012 or earlier.

PGI Alkmaar

PGI Alkmaar was the fi rst peak gas shaver in The Netherlands designed and built specifi cally to provide a back-up gas storage service, including meeting peak requirements in the west of the Netherlands during winter and to meet emergency gas supply requirements in the event of network interruptions. Commissioned in 1997, the facility has a working gas volume of 500 million Nm3 and a production capacity of 36 million Nm3/d.

We intend to further enhance PGI Alkmaar’s service offering beyond the current capacity contract to fulfi ll short-term as well as seasonal demand for gas storage capacity, while maintaining a strict asset/return profi le. We are also currently evaluating a further expansion of the storage project which would increase capacity signifi cantly as early as 2010.



Bergermeer Gas Storage

Bergermeer is a high-permeability, well-defi ned onshore reservoir in the Bergen Licence, 35 kilometers from the Dutch landfall of the Balgzand Bacton Line (“BBL”) pipeline to the UK and is connected to the H-Gas (high calorifi c gas) grid. The development and conversion of the gas reservoir into Northwest Europe’s largest seasonal gas storage asset is already well under way with the fi rst commercial storage capacity becoming operational by 2012.

As early as 1994, Bergermeer was recognized by a government commission as one of the most suitable fi elds for gas storage in the Netherlands. Tests conducted in summer 2007 reconfi rmed that the depleted Bergermeer gas fi eld is ideal for gas storage and our intentions have been met with keen interest from the market. As Europe’s own local gas production is declining rapidly, new storage capacity is now high on the strategic agenda of all European energy players as well as local governments and regulators.

TAQA has therefore started to develop the Bergermeer reservoir into an underground gas storage facility with a working gas capacity of approximately 3.2 billion Nm3 which is equivalent to the annual gas consumption of 1.6 million households.

Full development and construction of the Bergermeer gas storage project is scheduled for 2012. Once the entire facility is operational, Bergermeer Gas Storage is expected to remain in service for 40 to 50 years, providing the European consumer market with much-needed fl exibility for generations to come. Bergermeer is the largest gas storage development project in Europe, based on planned working gas capacity, and we are proud to be the driving force in ensuring this strategic asset is developed to its full potential as quickly as possible.

North American Assets

Through our Canadian acquisitions, we now own two distinct midstream assets in North America, allowing us to gain insights into the commercialization of storage in the regional market as well as the optimization possibilities of gas pipeline capacity bookings.

The East Cantuar project is owned in equal parts with Husky Oil and is operated by Husky Marketing. TAQA provides input on operational decisions and seeks to optimize its capacity commercially. East Cantuar is a gas cap on top of an oil fi eld which can be blown down and emptied to regulate and control oil production while providing a valuable alternative source of revenues as a regional gas storage facility.

Furthermore, the Alliance Pipeline booking allows us to fl ow gas from Western Canada to the Chicago market to take advantage of the higher prices in the Metropolitan Chicago area. By making use of our own upstream production gas in Western Canada, we are able to enhance returns on the sale of gas to a higher priced market, while optimizing the physical fl ow on the pipeline on a daily basis. This allows us to take advantage of additional transportation capacities being made available to us by the operator for low additional costs. We continue to monitor the differences between the Western Canadian and Chicago gas prices to ensure we receive maximum returns from the long-term pipeline booking, which expires in 2015.

While we apply best-in-class principles in the way we operate and optimize our current midstream assets, we are also always on the look out for new and profi table midstream projects that best utilize our existing infrastructure. TAQA has designed and proposed to construct a LNG regasifi cation terminal drawing upon our existing Dutch pipeline assets offshore, and have received very positive indications of interest from many market participants. We will continue to explore this and other LNG terminal opportunities in all our global markets.

As we grow into a more integrated global energy company, we will continue to look to acquire midstream assets and companies in all of our markets. Our aim is to extract value-adding synergies from our integrated portfolio and to build a sustainable and highly diversifi ed midstream business wherever opportunities that fi t with our corporate strategy arise.

We believe our midstream operations are central to extracting optimal value from our comprehensive portfolio of upstream and downstream assets and therefore vital to the long-term sustainability of our fully integrated global energy business

26 26

Upstream (exploration and production)

2007 was the year TAQA moved into the upstream market in earnest, with a strong foothold at the heart of the European oil and gas industry and with our acquisition of Canadian assets (including PrimeWest which closed in January 2008) we have become one of Canada’stop ten companies in terms of net proven natural gas reserves and in the top 12 companies in terms of oil and gas production.

Our substantial upstream presence stems from the acquisition of a series of quality exploration and production (E&P) assets throughout the year, providing us with operations in Canada, The Netherlands and the UK.

From this foundation we are focused on qualifying other upstream opportunities, optimizing our acquired footprint and sharing knowledge and experience across TAQA in order to grow and develop our capabilities further.

Demonstrating our commitment to supporting local communities and managing the impact of our presence, wherever we operate, has been key to TAQA in 2007 and will remain a company priority into the future. As a new upstream operator venturing into new geographical regions for the rst time, it is vital we underline TAQA’s commitment to corporate social responsibility.

European assets

In January 2007, TAQA furthered its upstream aims when it acquired BP’s Netherlands exploration and production business. Assets added to TAQA’s portfolio include upstream oil and gas facilities (both on- and offshore in the Netherlands), pipelines, gas processing operations and storage facilities. The attraction was not only the potential of BP’s operating assets, but also its management and workforce expertise; together they have provided a launch pad for TAQA’s push into the European oil and gas sector.

Though indigenous European oil and gas production is typically viewed to be on a long-term downward trajectory, the North Sea is proving an increasingly active market, helped by the high oil price climate. The area has become an increasingly active play for TAQA and other operators as the majors release mature assets to concentrate their E&P investment programs in other parts of the world. The result has seen the North Sea penetrated by a raft of new entrants buying prospective acreage thought to have substantial upside growth potential. The industry believes there could still be a further 22-39 billion barrels of oil and gas yet to be produced from the region, providing healthy upstream opportunities to niche players for years to come.

TAQA is planning to double or triple its European upstream asset base and workforce over the next two to four years. Annual production of our combined European upstream operations is currently approximately 2.1 mmboe and the current workforce comprises85 staff and 35 long-term contractors. Proven and probable reserves are approximately40 mmboe.

Shortly before the BP Netherlands’ purchase was completed, TAQA announced that it was adding to its European energy sector portfolio by purchasing Talisman Energy’s non-operated interest in the North Sea Brae eld. The acquisition closed on 31 December 2007, therefore the plants production gures have not been included for the year under review. The operation produces 14,600boe/d and has boosted TAQA’s proven reserves by 29 mmboe.


Our substantial upstream presence stems from the acquisition of a series of quality exploration and production (E&P) assets throughout the year, providing us with operations in Canada, The Netherlands and the UK

CONTRIBUTION TO 2P RESERVESBY REGION

European Assets 16% North American Assets 84%


North American Assets

Our entry into the Canadian upstream market began when we acquired Northrock Resources Ltd. from Pogo Producing Company in May 2007. A Calgary-based oil and gas exploration company, it has operations in the Western Canadian Sedimentary Basin (WCSB).

This upstream presence in the WCSB was bolstered following a second transaction in August 2007, which saw us acquire the wholly-owned Canadian subsidiaries of Pioneer Natural Resources Canada Inc.

In January 2008, we went on to complete the acquisition of PrimeWest Energy Trust, a conventional oil and gas royalty trust that actively acquires, develops, produces and sells natural gas, crude oil and natural gas liquids. Complementing its top-quartile asset base, Reserve Life Index and signifi cant development portfolio, PrimeWest has achieved recognition for its commitment to health and safety in the workplace, receiving the Alberta Safe Work award three years in a row (2003-2006).

Combined, these three acquisitions have enabled TAQA to establish a solid platform of quality assets with signifi cant upside development potential and our objective is to continue improving the asset base, realizing opportunities from the undeveloped acreage and creating operational synergies to enhance capital effi ciency together with supply chain and operational cost effi ciencies. This coming year the largest portion of our capital expenditure budget will be directed towards these assets, now grouped under the name TAQA North, where we are investing up to US$500m.

2007 was another year of strong, but volatile, oil prices with Brent crude averaging 11 per cent higher than in 2006 at US$72.55/bbl – a new record in money-of-the-day terms. Having started the year at below US$60/bbl, it ended 2007 at US$96.02/bbl. Continued strong consumption growth in China (up 4.5 per cent on 2006), moderate supply growth and the weakness of the US dollar all contributed to this rise.

Crude prices initially fell sharply in January, reaching their lowest levels since May 2005, because of the combined effects of warm weather on demand, ample OPEC supply and rising US stocks. Brent Crude averaged US$53.68/bbl, 14 per cent lower than December 2006.

From the mid-January low, prices recovered as revived geopolitical tensions and rising demand powered a strong rise to over US$67/bbl on average in April. Prices stabilized at this level in May when it became clear that the US held healthy inventories. Between May and the end of July prices rose close to US$10/bbl on average (with July Brent averaging US$77.01/bbl) before easing in August (to US$70.73/bbl) when concerns that economic growth and equity market instability might adversely effect oil demand estimates emerged. The upward trend was resumed (to US$76.87/bbl) in September as storms hit in the Gulf of Mexico and US interest rates were cut.

In October, US dollar weakness, tensions in the Middle East and unrest in West Africa all contributed to a further rise of about US$6/bbl (averaging US$82.50/bbl). Brent crude was a further 12 per cent higher in November (at US$92.62/bbl on average) as a weak US dollar contributed to increased speculative activity in the energy futures market. This upward trend moderated in December as concerns over economic growth in 2008 began to impact estimates of oil demand. Nevertheless, the average Brent price in December 2007 was over 46 per cent higher than its level in the same month in 2006.

28

CALGARY51O 04’ 60” N

114O 04’ 60” W

28


Revenues

TAQA receives revenue from the generation, production and sale of electricity, water,oil and gas, and the storage of gas. In 2006, 100 per cent of the revenues related to our activities in the UAE.

Total revenues were AED 8.3 billion for 2007, an increase of 72 per cent compared to AED 4.8 billion for 2006. Of this, AED 4.8 billion, or 58 per cent, was attributable to our business interests in the UAE and AED 3.5 billion, or 42 per cent, was derived from our activities outside our domestic market. The acquisitions made in 2007, and those that subsequently closed in 2008, do not fully feature in this consolidated fi gure.

The UAE generation assets were forced to run on back-up fuel periodically during 2006and 2007, due to a shortage of gas. Supplemental back-up fuel revenue was AED 2.0 billion in 2007 versus AED 1.5 billion in 2006. For 2007, the fuel revenue also includes the fuel recovery from the offtaker in our subsidiaries in Morocco and India.

Revenue from the oil and gas and gas storage businesses accounted for AED 1.4 billion (there is no comparable like-for-like fi gure in 2006).

In the space of a year, upstream activities have gone from a zero revenue contribution in2006 to AED 1.4 billion for the period under review, equivalent to 13 per cent of total revenues.

Cost of Sales

Cost of sales was AED 4.8 billion for 2007, an increase of 65 per cent compared with costof sales of AED 2.9 billion for 2006. Cost of sales for the period decreased as a percentage of revenues from 61 per cent in 2006 to 59 per cent in 2007.

Depreciation, depletion and amortisation was AED 1.4 billion for 2007, an increase of 64 per cent compared with AED 0.87 billion for 2006, which was primarily due to the acquisitions made during 2007.

Gas storage expenses of AED 129 million was a new cost due to the acquisition of BP Netherlands Energie BV in January 2007 which provided two natural gas storage projects in The Netherlands.

The increase in cost of sales was also driven by a 48 per cent increase in fuel expenses, due to fuel costs at Emirates Sembcorp Water and Power Company (ESWPC) and at the newly acquired subsidiaries, partially offset by decreases in other domestic subsidiaries. Fuel expenses are linked to back up fuel income explained under our revenue breakdown, but these do not correspond exactly because on the revenue line this is taken at market price, while on the cost line fuel is taken as consumption from inventory. Costs related to repairs, maintenance and consumables due to acquisitions and due to full year operations at ESWPC.

MANAGEMENT DISCUSSION & ANALYSISFINANCIAL REVIEW

30 30

MICHIGAN42O 16’ 31” N83O 43’ 51” W


Gross Profi t

2007 gross profi t was AED 3.5 billion, a year-on-year increase of 83 per cent, compared with AED 1.9 billion in 2006. This represents an improvement in our gross margin from 39 per cent to 41 per cent.

Administrative and Other Expenses

Administrative and other expenses were AED 409 million in 2007, an increase of AED 352 million compared with 2006. The increase was driven by our acquisitions throughout the year and was primarily impacted by increases in salaries and related expenses, business development expenses and professional fees.

Finance Costs

Finance costs were AED 2.5 billion for 2007, an increase of AED 1.2 billion, or 87 percent, compared with fi nance costs of AED 1.4 billion for 2006. The increase in fi nance costs primarily results from full impact of three-part US$3.5 bond issue in October 2006, and US$2 billion two-part bond issues in October 2007 to fund acquisitions during 2007.

Interest and Investment Income

Interest and investment income for 2007 amounted to AED 568 million, compared with interest income of AED 294 million for 2006. The increase was attributable to interest generated on TAQA’s bank deposits which rose from AED 288 million to AED 521 million, primarily as a result of a signifi cant portion of the proceeds of TAQA’s October 2006 US$3.5 billion bond issue that were utilized for acquisitions only during the second half of 2007.

Foreign Exchange

TAQA conducts operations in nine countries around the world and reports its consolidated fi nancial statements in UAE Dirham. As a result, its results of operations are affected by exchange rate fl uctuations between the UAE Dirham and other currencies, in particular the Canadian Dollar, Euro and Sterling.

The main driver of the foreign exchange gain of AED 78 million recorded in 2007 is from our Moroccan subsidiary, relating to net investment in Euro.

Profi tability

Profi t from Ordinary Activities and Profi t for the YearProfi t for the year for 2007 was AED 1.4 billion compared to AED 0.8 billion in 2006. Net profi t after minority interests increased 131 percent from AED 0.5 billion to AED 1.0 billion. The profi t for the year included an income tax credit of AED 57 million relatingto deferred income tax less current income tax.

In 2007, basic and diluted earnings per share attributable to equity holders of TAQA more than doubled to AED 0.25 compared to AED 0.12 in 2006.

Dividend

TAQA’s proposed cash dividend for 2007 of AED 415 million increased by 100 per cent,up from AED 208 million in 2006.


BUSINESS CONTRIBUTION TO NET PROFIT

Power and Water 80% Oil and Gas 20%

32

Cash Flow Statement

Changes in cash fl ow from operating activities have been affected by changes in amounts due to/from other parties and principal payments to related parties. Net cash earned in operating activities was AED 1.3 billion in the year ended 31 December 2007 comparedwith AED 2.3 billion for the year ended 31 December 2006. The decrease was primarily due to interest paid.

Changes in cash fl ow from investing activities were driven mainly by purchases of subsidiaries and investments in property, plant and equipment. Net cash used in investing activities was AED 17.1 billion in the year ended 31 December 2007 compared with almost AED 8.0 billion in the year ended 31 December 2006. The increase was primarily due to the cost of acquisitions of subsidiaries completed during 2007.

TAQA’s cash requirements arise primarily from the capital intensive nature of its power generation and water desalination operations, its oil and gas exploration and production and the operation of its gas storage and peak gas facilities, debt servicing costs and dividends as well as the expansion of its business portfolio.

The commitments to TAQA’s ongoing operations are expected to be fi nanced with cash provided by the operations themselves. The authorized capital expenditures contracted at 31 December 2007, but not provided for, amounted to AED 19.6 billion, which primarily includes the commitment for the PrimeWest acquisition.

Balance Sheet

In 2007, total assets grew 31 per cent to AED 68 billion compared to AED 52 billion for 2006. The main drivers behind this increase were oil and gas assets, which accounted for AED 14.7 billion (there is no comparable like-for-like fi gure in 2006), direct fi nance lease receivable at AED 5.8 billion and intangible assets which increased to 3.5 billion from AED 1.0 billion

The book value of equity increased by 7.4 per cent to AED 8.1 billion from AED 7.6 billion, mainly as a result of a 76 per cent increase in retained earnings at AED 1.0 billion from AED 0.6 billion in 2006. In 2007, foreign currency translation reserves which are used to record exchange differences arising from the translation of the fi nancial statements of foreign subsidiaries and to record the effect of hedging net investments in foreign operations, were AED 440 million. There was no like-for-like fi gure in 2006.

Non-current liabilities rose 28 per cent to AED 51.2 billion for the year, mainly due to the increase of interest bearing loans and borrowings by 23 per cent to AED 44.9 billion and deferred tax at AED 2.3 billion (there was no like-for-like fi gure in 2006). Current liabilities rose 98 per cent to AED 8.5 billion, driven by interest bearing loans and Islamic loans.

The 2007 increase in interest bearing loans and borrowings was driven by the issue of Abu Dhabi National Energy Notes at a value of AED 7.3 billion and two term loans for subsidiaries, Jorf Lasfar Energy Company (AED 1.5 billion) and ST-CMS Electric Company India Private Limited (AED 640 million).



Funding Strategy

Our stated strategy of investing in strategic growth opportunities to grow to an asset base of AED 220 billion by 2012 requires signifi cant fi nancial support.

In 2007, we were recognized by Euromoney as ‘Best Borrower – Middle East and Northern Africa’ for our initial bond offering of US$3.5 billion. The award recognizes our long-term approach and our ability to expand our global operations rapidly while protecting our credit rating.

In 2007, we established a global Medium Term Note Program which debuted in 2007with a US$2 billion offering in a two-part bond sale. The Program is rated Aa2 by Moody’s Investors Service and AA- by Standard & Poor’s, both with a stable outlook.

In July 2007, TAQA established a working capital facility of US$1 billion with National Bank of Abu Dhabi, of which no amount was drawn and the entire US$1 billion was available at 31 December 2007.

Subsequent to the period under review, we put in place a US$3.1 billion 1-year Multi-Currency Revolving Credit Facility. This was signed on 10 January 2008 and represents a debut for TAQA in the syndicated loan market.

We continue to target strategic expansion across the energy sector, including upstream oil and gas, midstream distribution systems such as pipelines, LNG regasifi cation, and gas storage and power generation and water activities. While competition for acquisitions can be intense, especially with high energy prices boosting the purchasing power of companies in this sector, TAQA’s management team has considerable mergers and acquisitions experience, allowing it to expediently screen targets, assess risks and structure deals.

We will consider raising additional debt to fi nance our growth strategy, but are continually reviewing our fi nancing to ensure the most balanced and effi cient capital structure for the business.

TAQA’s Medium Term Note Program is rated Aa2 by Moody’s Investors Service and AA- by Standard & Poor’s, both with a stable outlook

34 34

ABERDEEN57O 07’ 60” N02O 06’ 00” W


The Securities & Commodities Authority (“SCA”) is in the process of introducing a new corporate governance code to be adopted by all companies listed on the ADSM and DFM. TAQA is in the process of developing a corporate governance framework supported by a system of internal controls based on international best practices to ensure compliance with the SCA’s new corporate governance requirements.

TAQA’s Code of Ethics describes and reinforces conduct that is based on its guiding core values, consistent with its policies and practices and essential for its legal and regulatory compliance obligations. A summary of the Code of Ethics is publicly available on TAQA’s website.

Committees

Audit Committee

TAQA’s audit committee is comprised of the following members who are appointed for a term of two years:Name Position

H.E. Salem Al-Sayaari Chairman H.E. Abdulla Saif Al-Nuaimi Member H.E. Mohammed Foulad Member

The Board establishes the duties, responsibilities, procedures and meeting schedule for the audit committee. The responsibilities of the audit committee include:

establishing guidelines and procedures to co-ordinate the program of auditing TAQA’s operating and fi nancial activities in order to safeguard its assets and to protect its shareholders’ interests;

assessing the accuracy of expenditure reports, costs and fi nancial statements; and

ensuring that TAQA’s activities conform to applicable laws and regulations, decisionsof the Board, duties, responsibilities and authorities vested in management and employees, if any, and its constitutional documents.

The audit committee’s responsibilities include policies and processes covering organizational initiatives (including fi nancial, procurement and administrative policies), fi nancial reporting processes and outputs, internal control and risk management and internal audit processes and outputs.

Remuneration CommitteeThe remuneration committee is comprised of the following members who are appointed for a term of two years:

Name Position

H.E. Ahmed Saif Al-Darmaki Chairman H.E. Abdulla Saif Al-Nuaimi Member H.E. Mohammed Foulad Member Peter Barker-Homek, CEO Member

The remuneration committee has responsibility for making recommendations to the Board regarding TAQA’s policy on the remuneration of certain senior executives and key managerial personnel, including performance bonuses and other benefi ts. In addition to making recommendations on remuneration and benefi ts packages, the remuneration committee maintains reports for corporate governance purposes.

CORPORATE GOVERNANCETRANSPARENCY & CONTROL

36

HEALTH, SAFETY, SECURITY AND ENVIRONMENT (HSSE) PROGRAM

TAQA is an organization that strives to embed the values of health, safety, security and environment(HSSE) at every level. TAQA strives to create an injury-free and incident-free workplace for all its employees,and all contractor staff employed at its sites.The success of our operations stems from a relentless focus on these values. All of our acquisitions, together with existing assets, have world-class HSSE records.By sharing expertise drawn from the entire organization and developing a robust HSSE program, we strive for continual improvements which is refl ected in our 2007 recordable injury rate of 0.102 per 200,000 hours worked.

At the core of TAQA’s business philosophy, no operational priority is more important than protection of the health, safety and security of employees, contractors and the public, in parallel with the respect, understanding and protection of the natural environment.

TAQA therefore manages all of its business operations according to the following principles:

We comply with all applicable laws and regulations; make use of international and industry standards and best practices where appropriate.

We require full commitment and accountability from every TAQA worker, supervisor, manager and offi cer to implement the policy and all elements of the associated HSSE management system.

We provide suffi cient resources, training, equipment and controls to assure a safe and secure working environment and to develop and maintain highest standard of HSSE systems in support of this policy.

We seek opportunities to conserve energy and natural resources, prevent pollution and to reuse and recycle materials.

We protect our business activities, employees and other stakeholders from security concerns.

We identify, assess, manage and minimize HSSE risks.

We continuously improve HSSE performance by monitoring our progress through regular evaluation and assessment.

We communicate openly with all stakeholders regarding HSSE performance.

We create a culture where all employees are empowered to report, investigate and resolve the root causes of all incidents and near misses.

We establish guidelines and more detailed procedures within individual business units as needed to implement this policy.


There are two core elements to our HSSE policy; leadership and personal responsibility.

Leadership is at the heart of TAQA’s HSSE policy. Protection of people, equipment, materials and the environment is a question of leadership at all levels of our business and taking personal responsibility for safety. Leaders allocate resources to nurture a safe environment, set expectations for performance and formally recognize or educate others based on their behaviors.

TAQA encourages an open reporting culture and asks its employees to take personal responsibility for HSSE management at all levels of the organization. Leaders are asked to take ownership of a situation and lead by example, ensuring the right lessons are learned, whilst maintaining people’s confi dence and a sense of perspective. At the same time, TAQA recognizes it is just as important to identify what is being done correctly and seekto repeat it. Our goal is to follow best practice in every scenario.

We will focus on personal safety, process safety and the protection of the environment. We will continuously improve our processes and the people to ensure TAQA is recognized as a world-class international energy company – one that is not only differentiated by our international assets, but by our diversity of talent and human potential.

In 2007, we developed a global HSSE leadership network and strategy that is intended to embed HSSE values throughout TAQA’s business to help us achieve our growth objectives.

The HSSE network sets out actions to maintain and develop TAQA’s high levels of performance and culture that are crucial to the company’s growth. The actions include the development of TAQA Global HSSE Management Program which includes policies, expectations, key performance indicators (KPIs) and critical work standards, procedures and protocols.

Our primary focus is on risks core to TAQA’s operations: occupational injuries, asset integrity, environment protection and security, giving special attention to preventing incidents such that there is no harm to our people, the public, the environment or our assets. TAQA’s HSSE strategy is to set out a global direction through its HSSE Management System and measure performance of results through comprehensive audits and self-assessments. Our Global HSSE Management Program articulates expectations that are suitable for our existing operations and adaptable for future growth.

In 2008, we will focus on the acquisition, integration/optimization and operation phases.

We will measure our global performance of results through the monitoring of KPIs that will help guide us with continuous improvement to our management program.

Our priorities are:

Due diligence (pre and post-acquisition)

Integration and optimization

Robust measurement of performance and global reporting

Ongoing operational auditing and self-assessments against TAQA Global Management System expectations and compliance requirements

We will also further develop current initiatives, including, carbon management, energy and resource effi ciency, the physical impacts of climate change on our assets, corporate social responsibility and sustainable development.

Our top priority for 2008 is to develop and expand the HSSE and Asset Integrity Network organization in which we draw expertise, best practice and knowledge from our global subsidiaries and apply it where needed.

Leaders allocate resources to nurture a safe environment, set expectations for performance and formally recognize or educate others based on their behavior

38

TAQA IN THE COMMUNITY

Through its global operations, TAQA is present in a growing number of countries around the world and is committed to having a positive impact on the lives of people in the communities in which it operates.

We are committed to the highest standards of behavior and take pride in our diverse and transparent organization, which, while expanding rapidly, is achieving sustainable business growth.

Our objective is to be a leading responsible global company and, to succeed, we understand it is vital that CSR is embedded into all that we do, throughout TAQA. This has led to the development of a comprehensive framework underpinning our CSR programs. Segmented into the three distinct areas, it covers ethical responsibility, environmental responsibility and social responsibility.

Ethical responsibility

As an employer of a global workforce made up of 2,383 people drawn from 38 different nations and employed in various locations around the world, embracing diversity and inclusion is fundamental to our success. It enables us to leverage a multitude of strengths to drive our business forward and creates a solid platform for sustainable global growth.

We have a formalized Diversity and Inclusion Policy to guide us as we strive to develop a professional, supportive and respectful workplace culture where people feel valued for their talents and contribution and can fl ourish.

TAQA places equal importance on ethical behavior outside the workplace in our conduct with stakeholders. We have a Code of Business Ethics that makes clear our stance on appropriate professional conduct, which is rooted in absolute compliance with local laws, an acceptance of transparent behavior at all times and a respect for others’ cultures.We recognize the rights and respect the cultures of indigenous peoples wherever we operate, according to local laws and global best practice.


Environmental responsibility

We take our stewardship of the environment seriously, seeking to minimize the environmental impact of our operations. TAQA was the fi rst GCC company to become a member of the global 3C (Combat Climate Change) Initiative and we have received a number of environmental accreditations including the Exploration & Production (E&P) Steward of Excellence Award from the Canadian Association of Petroleum Producers in 2002 and ISO 14001 certifi cation for environmental management systems at our operations in the UAE, Morocco, The Netherlands and India.

TAQA also seeks to minimize the environmental impact of its offi ces through initiativessuch as investment in green technology, effi cient heating and cooling systems and the launch of an employee hybrid car program.

Environmental responsibility extends to ensuring that our employees and contractorswork in a safe environment and we are committed to maintaining the highest industry standards. For more information on Health and Safety please refer to our HSSE program on page 36.

Social Responsibility

In our efforts to make a valuable contribution to the communities in which we operate,TAQA supports local organizations active in education, health & welfare and the environment. Education speaks to the future – TAQA’s future talent pool, ensuring the sustainability of the energy industry, and the development of new technologies and solutions to lessen the environmental impacts of the extractive industries. Health and welfare is at the heart of everything an energy company does, but moves beyond ensuring the welfare of staff and contractors to taking on responsibilities for the broader community. As an energy company, TAQA must also ensure we are a respectful of the environment, while still creating value and growth for our employees, shareholders and the communities in which we are based.

We take our defi nition of Corporate Social Responsibility (CSR) from the World Business Council for Sustainable Development: “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development, whilst improving the quality of life of the workforce and their families, as well as of the local community and society at large”

40

Shareholder information

Share Price Performance 1 January 2007 to 31 December 2007

Bondholder information

Credit ratings

Ratings Long-term Moody’s Investor Services Aa2 (Stable Outlook) Standard & Poor’s AA- (Stable Outlook)

Bond maturity schedule

Description Size Coupon % Currency

TAQA bond due October 2012 1,500 Million 5.620 USD

TAQA bond due October 2013 750 Million 4.375 EUR


TAQA bond due October 2017 500 Million 6.165 USD


SHAREHOLDER & BONDHOLDER INFORMATION

ANALYSIS OF SHAREHOLDERSAS AT YEAR END 2007

ADWEA 51% Farmers’ Fund 24.1% ADSM public listing 24.9%

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

AED4.0

3.5

3.0

2.5

2.0

1.5

Share Priceas at 31 December 2007:AED 3.55

Professional AdvisorsAuditorsErnst & YoungP.O. Box 136 11th fl oor Al Ghaith Tower Hamdan StreetAbu DhabiUnited Arab Emirates

T +971 (0) 2 627 7522F +971 (0) 2 627 3383

SolicitorsAllen & Overy LLPPO Box 7907Abu DhabiUnited Arab Emirates

T +971 (0) 2 418 0400 F +971 (0) 2 418 0499

RegistrarsNational Bank of Abu DhabiIntersection of Sh. Khalifa St.and Baniyas St.P.O.Box 2993

T +971 (0) 2 611 1111F +971 (0) 2 627 5738

Contact detailsMailing Address:

Abu Dhabi National Energy CompanyPJSC “TAQA”P.O. Box 55224 Abu DhabiUnited Arab Emirates

T +971 (0) 2 691 4900F +971 (0) 2 642 2555

www.taqa.ae

For information on investor relations email: [email protected]


FINANCIAL STATEMENTS CONTENTS

42 Board Report

43 Auditors’ Report

44 Consolidated Income Statement

45 Consolidated Balance Sheet

46 Consolidated Statement of Changes in Equity

48 Consolidated Cash Flow Statement

49 Notes to the Consolidated Financial Statements

95 Glossary of Terms

42

BOARD REPORT

On behalf of the Board of Directors of Abu Dhabi National Energy Company PJSC, I am pleased to present the fi nancial statements of Abu Dhabi National Energy Company PJSC (“TAQA” or the “Company”) and its subsidiaries (the “Group”) for the year ended 31 December 2007. The Group revenues grew 72% to AED 8.3 billion (2006: AED 4.8 billion) and the basic earnings per share more than doubled to 25 fi ls from 12 fi ls in 2006. The total assets of the Group grew 31% from a year ago to reach AED 68 billion.

As required by the U.A.E. Commercial Companies Law of 1984 and the Articles of Association of the Company, AED 103 million being 10% of the net profi ts have been allocated to a statutory reserve. Additional legal reserve of AED 50 million being 10% of TAQA’s share of the net profi ts of the Special Purpose Vehicles holding the domestic subsidiaries was also allocated as required in the respective Articles of Association. The board has proposed a cash dividend of 10fi ls per share (2006: 5 fi ls), subject to the approval of the shareholders at the forthcoming Annual General Meeting of the company.

During 2007, TAQA made strategic acquisitions in international energy assets consisting of operations and investments that are balanced across stable developed economies and emerging markets. Today, TAQA operates in 9 countries, and employs 2,300 people who come from 38 different nations. TAQA prides itself on being a meritocracy, has a strong and committed management team and has positioned itself with a fi rm foundation for further growth in the coming years.

2007 was an eventful year for TAQA:

In January, TAQA completed its acquisition of BP Netherland’s gas exploration and production (E&P) assets. This company is now known as TAQA Energy B.V.

In May, TAQA completed its acquisition of CMS Generation, a subsidiary of the US integrated energy fi rm CMS Energy as well as the acquisition of ownership interests held by ABB in Morocco and India, providing TAQA with a portfolio of quality assets in Morocco, Saudi Arabia, Ghana, UAE and India.

In August, TAQA acquired from Pogo Producing Company, 100 per cent of Northrock Resources Ltd. (NRL), a Canadian oil and gas exploration company with operations in the Western Canadian Sedimentary Basin. This company has subsequently been renamed as TAQA North Limited.

In November, TAQA completed the acquisition of Pioneer Canada, an oil and gas exploration and production company with operations in the Western Canadian Sedimentary Basin.

In December, TAQA completed the purchase of Brae assets from Talisman Energy.

In November, TAQA completed the sale of 40% minority stake in Emirates CMS Power Company, acquired from CMS, to Marubeni Corporation.

TAQA has started 2008 with the acquisition of PrimeWest Energy Trust, a Calgary-based conventional oil and gas royalty trust.

TAQA is committed to enhancing the environment through its global enterprise. The company has established “Green Teams” at all of its business locations to help create greener working environments by recycling, using low-energy light bulbs, bicycling or carpooling and other similar activities. Incentives and prizes are awarded to the location that makes the most signifi cant contributions to help improve the environment. The company endeavors to be a good corporate citizen in all the countries it operates.

In 2008 and beyond, TAQA’s strategy is to continue to focus on building an energy conglomerate with a portfolio of high quality assets that add value to all our stakeholders. I wish to thank our shareholders for their continued trust and support. I also wish to place on record my appreciation to the management team led by Peter Barker-Homek, CEO, and all our employees for their hard work and unstinted dedication and passion working as a team.

Hamad Mohamed Al-Hurr Al-SuwaidiChairman

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF ABU DHABI NATIONAL ENERGY COMPANY PJSC (“TAQA”)


Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated fi nancial statements of Abu Dhabi National Energy Company PJSC (“TAQA” or the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity and consolidated cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated fi nancial statements in accordance with International Financial Reporting Standards and the applicable provisions of the articles of association of the Company and the UAE Commercial Companies Law of 1984 (as amended). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated fi nancial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated fi nancial statements present fairly, in all material respects, the fi nancial position of the Company and its subsidiaries as of 31 December 2007 and their fi nancial performance and their cash fl ows for the year then ended in accordance with International Financial Reporting Standards.

Report on Other Legal and Regulatory RequirementsWe also confi rm that, in our opinion, the consolidated fi nancial statements include, in all material respects, the applicable requirements of the UAE Commercial Companies Law of 1984 (as amended) and the articles of association of the Company; proper books of account have been kept by the Company; an inventory was duly carried out and the contents of the report of the Board of Directors relating to these consolidated fi nancial statements are consistent with the books of account. We have obtained all the information and explanations which we required for the purpose of our audit and, to the best of our knowledge and belief, no violations of the UAE Commercial Companies Law of 1984 (as amended) or of the articles of association of the Company have occurred during the year which would have had a material effect on the business of the Company or on its fi nancial position.

Signed by

Bassam E HagePartnerErnst & YoungRegistration No. 258

16 March 2008Abu Dhabi

CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2007

44

2007 2006 NOTES AED ’000 AED ’000

Revenues Revenue from water and electricity 6.1 4,716,741 3,162,950 Revenue from oil and gas 6.2 1,121,263 – Supplemental fuel income 2,027,194 1,465,258 Gas storage revenue 303,056 – Net liquidated damages received 7 161,892 212,373 Other operating income 6,641 –

8,336,787 4,840,581

Cost of sales Staff costs (67,077) (31,175) Repairs, maintenance and consumables used (378,429) (167,426) Operation and maintenance charges (711,717) (542,168) Gas storage expenses (128,543) – Fuel expenses (1,986,932) (1,344,493) Other expenses 10 (186,228) – Depreciation, depletion and amortisation 8 (1,427,632) (872,067)

(4,886,558) (2,957,329)

Gross profi t 3,450,229 1,883,252Gain on disposal of interest in subsidiaries 157,902 –Administrative and other expenses 9 (409,108) (56,761)Finance costs 11 (2,528,802) (1,353,913)Gain on exchange 78,393 –Share of profi t of associates 22 25,454 7,896Changes in fair values of derivatives (43,779) 8,020Interest and investment income 12 567,713 294,205Other income 20,310 23,455

Profi t before tax 1,318,312 806,154Income tax credit 13 57,314 –

Profi t for the year 1,375,626 806,154

Attributable to: Equity holders of the parent 1,034,599 484,963 Minority interests 341,027 321,191

1,375,626 806,154Basic and diluted earnings per share attributable to equity holders of the parent (AED) 14 0.25 0.12

The attached notes 1 to 50 form part of these consolidated fi nancial statements.


CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007


2007 2006 NOTES AED ’000 AED ’000

Assets

Non-current assetsProperty, plant and equipment 15 46,050,830 29,328,361Direct fi nance lease receivable 16 5,800,588 –Initial spares fee 17 113,246 123,285Advances to a related party 18 212,645 229,083Available for sale investments 19 99,481 140,854Intangible assets 20 3,467,032 987,589Investment in associates 22 185,822 122,066Other investments 23 324 1,233,456Other assets 24 138,339 28,787 56,068,307 32,193,481Current assetsInventories 25 1,494,808 945,938Direct fi nance lease receivable 16 267,439 –Advances to a related party 18 22,604 14,385Loan to an associate 32,100 –Amounts due from related parties 26 832,267 1,831,241Accounts receivable, prepayments, and unbilled revenues 27 1,525,708 761,168Bank balances and cash 28 7,601,093 16,021,167 11,776,019 19,573,899 67,844,326 51,767,380

Total assets Equity and liabilities Equity attributable to equity holders of the parentShare capital 29 4,150,000 4,150,000Statutory reserve 30 299,520 196,061Legal reserve 30 245,610 196,061General reserve 30 750,000 750,000Foreign currency translation reserve 30 440,909 –Equity contributed capital 40 25,131 25,131Retained earnings 1,070,224 606,633Proposed dividends 31 415,000 207,500Cumulative changes in fair value of available for sale investments – 26,253Cumulative changes in fair value of derivatives (702,285) (318,115) 6,694,109 5,839,524Minority interests 32 1,050,192 1,244,311Loans from minority interest shareholders in subsidiaries 33 292,124 392,149Loan from Abu Dhabi Water and Electricity Authority 34 92,640 92,640Total equity 8,129,065 7,568,624Non-current liabilitiesInterest bearing loans and borrowings 35 44,999,272 36,504,981Islamic loans 36 2,017,379 3,056,750Deferred tax 13 2,309,850 –Employees’ benefi t liabilities 37 57,024 1,364Assets retirement obligations 38 1,107,820 257,388Advances from related parties 39 21,691 23,006Loan from related party 40 27,153 25,844Other liabilities 41 624,415 –

51,164,604 39,869,333

Current liabilitiesTrade and other payables 42 629,208 1,207,746Interest bearing loans and borrowings 35 3,547,770 826,208Islamic loans 36 1,124,914 53,717Loans from minority interest shareholders in subsidiaries 19,770 19,770Amounts due to Abu Dhabi Water and Electricity Authority (ADWEA) and other related parties 43 96,242 91,312Accruals and other liabilities 44 2,962,284 1,897,993Bank overdrafts 28 170,469 232,677 8,550,657 4,329,423Total liabilities 59,715,261 44,198,756Total equity and liabilities 67,844,326 51,767,380

Chairman Director Chief Executive Offi cer


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYYEAR ENDED 31 DECEMBER 2007

46

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT FOREIGN CURRENCY EQUITY SHARE STATUTORY LEGAL GENERAL TRANSLATION CONTRIBUTED CAPITAL RESERVE RESERVE RESERVE RESERVE CAPITAL AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

Balance at 1 January 2006 4,150,000 147,565 147,565 – – 25,131 Movement in changes in fair values – – – – – – Board of directors’ remuneration – – – – – – Reclassifi cation to the income statement of cash fl ow hedge – – – – – – Total income for the year recognised directly in equity – – – – – – Profi t for the year – – – – – –

Total income for the year – – – – – – Transfer to statutory reserve – 48,496 – – – – Transfer to legal reserve – – 48,496 – – – Transfer to general reserve – – – 750,000 – – Proposed dividends (note 31) – – – – – – Dividend paid to minority shareholders – – – – – – Repayment of loans – – – – – – Share capital introduced – – – – – –

Balance at 31 December 2006 4,150,000 196,061 196,061 750,000 – 25,131 Movement in changes in fair values – – – – – – Board of directors’ remuneration – – – – – – Gain on sale of available for sale investment realised in income statement – – – – – – Foreign currency translation – – – – 440,909 – Total income and (expense) for the year recognised directly in equity – – – – 440,909 – Profi t for the year – – – – – –

Total income and (expense) for the year – – – – 440,909 – Transfer to statutory reserve – 103,459 – – – – Transfer to legal reserve – – 49,549 – – – Transfer to general reserve – – – – – – Proposed dividends (note 31) – – – – – – Dividends paid (note 31) – – – – – – Dividend paid to minority shareholders – – – – – – On acquisition of subsidiaries – – – – – – Acquisition of minority interest in subsidiaries – – – – – – Part disposal of a subsidiary – – – – – – Repayment of loans – – – – – –

Balance at 31 December 2007 4,150,000 299,520 245,610 750,000 440,909 25,131


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYYEAR ENDED 31 DECEMBER 2007

46

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT FOREIGN CURRENCY EQUITY SHARE STATUTORY LEGAL GENERAL TRANSLATION CONTRIBUTED CAPITAL RESERVE RESERVE RESERVE RESERVE CAPITAL AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

Balance at 1 January 2006 4,150,000 147,565 147,565 – – 25,131 Movement in changes in fair values – – – – – – Board of directors’ remuneration – – – – – – Reclassi cation to the income statement of cash ow hedge – – – – – – Total income for the year recognised directly in equity – – – – – – Pro t for the year – – – – – –

Total income for the year – – – – – – Transfer to statutory reserve – 48,496 – – – – Transfer to legal reserve – – 48,496 – – – Transfer to general reserve – – – 750,000 – – Proposed dividends (note 31) – – – – – – Dividend paid to minority shareholders – – – – – – Repayment of loans – – – – – – Share capital introduced – – – – – –

Balance at 31 December 2006 4,150,000 196,061 196,061 750,000 – 25,131 Movement in changes in fair values – – – – – – Board of directors’ remuneration – – – – – – Gain on sale of available for sale investment realised in income statement – – – – – – Foreign currency translation – – – – 440,909 – Total income and (expense) for the year recognised directly in equity – – – – 440,909 – Pro t for the year – – – – – –

Total income and (expense) for the year – – – – 440,909 – Transfer to statutory reserve – 103,459 – – – – Transfer to legal reserve – – 49,549 – – – Transfer to general reserve – – – – – – Proposed dividends (note 31) – – – – – – Dividends paid (note 31) – – – – – – Dividend paid to minority shareholders – – – – – – On acquisition of subsidiaries – – – – – – Acquisition of minority interest in subsidiaries – – – – – – Part disposal of a subsidiary – – – – – – Repayment of loans – – – – – –

Balance at 31 December 2007 4,150,000 299,520 245,610 750,000 440,909 25,131

The attached notes 1 to 50 form part of these consolidated nancial statements.


ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT CUMULATIVE LOANS FROM LOAN FROM CHANGES IN MINORITY ABU DHABI FAIR VALUE OF CUMULATIVE INTEREST WATER AVAILABLE CHANGES IN SHAREHOLDERS AND

RETAINED PROPOSED FOR SALE FAIR VALUE OF MINORITY IN ELECTRICITY TOTALEARNINGS DIVIDENDS INVESTMENTS DERIVATIVES TOTAL INTERESTS SUBSIDIARIES AUTHORITY EQUITY

AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

1,177,662 – – (390,610) 5,257,313 965,738 428,880 92,640 6,744,571– – 26,253 47,999 74,252 40,863 – – 115,115

(1,500) – – – (1,500) – – – (1,500)

– – – 24,496 24,496 20,867 – – 45,363

(1,500) – 26,253 72,495 97,248 61,730 – – 158,978 484,963 – – – 484,963 321,191 – – 806,154

483,463 – 26,253 72,495 582,211 382,921 – – 965,132(48,496) – – – – – – – –(48,496) – – – – – – – –

(750,000) – – – – – – – –(207,500) 207,500 – – – – – – –

– – – – – (105,403) – – (105,403)– – – – – – (36,731) – (36,731)– – – – – 1,055 – – 1,055

606,633 207,500 26,253 (318,115) 5,839,524 1,244,311 392,149 92,640 7,568,624– – 19,890 (384,170) (364,280) (343,806) – – (708,086)

(3,000) – – – (3,000) – – – (3,000)

– – (46,143) – (46,143) – – – (46,143)– – – – 440,909 – – – 440,909

(3,000) – (26,253) (384,170) 27,486 (343,806) – – (316,320)1,034,599 – – – 1,034,599 341,027 – – 1,375,626

1,031,599 – (26,253) (384,170) 1,062,085 (2,779) – – 1,059,306(103,459) – – – – – – – –(49,549) – – – – – – – –

– – – – – – – – –(415,000) 415,000 – – – – – – –

– (207,500) – – (207,500) – – – (207,500)– – – – – (57,648) – – (57,648)– – – – – 43,737 – – 43,737– – – – – (434,648) (79,458) – (514,106)– – – – – 257,219 – – 257,219– – – – – – (20,567) – (20,567)

1,070,224 415,000 – (702,285) 6,694,109 1,050,192 292,124 92,640 8,129,065


ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT CUMULATIVE LOANS FROM LOAN FROM CHANGES IN MINORITY ABU DHABI FAIR VALUE OF CUMULATIVE INTEREST WATER AVAILABLE CHANGES IN SHAREHOLDERS AND

RETAINED PROPOSED FOR SALE FAIR VALUE OF MINORITY IN ELECTRICITY TOTALEARNINGS DIVIDENDS INVESTMENTS DERIVATIVES TOTAL INTERESTS SUBSIDIARIES AUTHORITY EQUITY

AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

1,177,662 – – (390,610) 5,257,313 965,738 428,880 92,640 6,744,571– – 26,253 47,999 74,252 40,863 – – 115,115

(1,500) – – – (1,500) – – – (1,500)

– – – 24,496 24,496 20,867 – – 45,363

(1,500) – 26,253 72,495 97,248 61,730 – – 158,978 484,963 – – – 484,963 321,191 – – 806,154

483,463 – 26,253 72,495 582,211 382,921 – – 965,132(48,496) – – – – – – – –(48,496) – – – – – – – –

(750,000) – – – – – – – –(207,500) 207,500 – – – – – – –

– – – – – (105,403) – – (105,403)– – – – – – (36,731) – (36,731)– – – – – 1,055 – – 1,055

606,633 207,500 26,253 (318,115) 5,839,524 1,244,311 392,149 92,640 7,568,624– – 19,890 (384,170) (364,280) (343,806) – – (708,086)

(3,000) – – – (3,000) – – – (3,000)

– – (46,143) – (46,143) – – – (46,143)– – – – 440,909 – – – 440,909

(3,000) – (26,253) (384,170) 27,486 (343,806) – – (316,320)1,034,599 – – – 1,034,599 341,027 – – 1,375,626

1,031,599 – (26,253) (384,170) 1,062,085 (2,779) – – 1,059,306(103,459) – – – – – – – –(49,549) – – – – – – – –

– – – – – – – – –(415,000) 415,000 – – – – – – –

– (207,500) – – (207,500) – – – (207,500)– – – – – (57,648) – – (57,648)– – – – – 43,737 – – 43,737– – – – – (434,648) (79,458) – (514,106)– – – – – 257,219 – – 257,219– – – – – – (20,567) – (20,567)

1,070,224 415,000 – (702,285) 6,694,109 1,050,192 292,124 92,640 8,129,065

CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2007

48

2007 2006 NOTES AED ’000 AED ’000

Operating activitiesProfi t before tax 1,318,312 806,154Adjustments for: Depreciation and depletion 15 1,388,831 832,500 Amortisation 17&20 38,801 39,567 Employees’ benefi t liabilities, net 44,281 1,257 Changes in fair values of derivatives 43,779 (8,020) Interest expense 2,498,114 1,338,373 Gain on disposal of interest in subsidiaries (157,902) – Notional interest expense 11 1,309 2,381 Accretion expense 11 29,379 13,159 Interest and investment income 12 (567,713) (294,205) Loss on disposal of property, plant and equipment – 5,195 Share of profi t of associates 22 (25,454) (7,896) Provision for obsolete inventories – 2,539

4,611,737 2,731,004Working capital changes: Inventories (169,347) (267,563) Accounts receivables, prepayments and unbilled revenues 240,438 (394,518) Amounts due from related parties 998,974 (322,912) Amount due to ADWEA and other related parties 4,930 (44,204) Accounts payable and accruals (1,985,332) 1,727,302 Other liabilities (51,685) –

Cash from operations 3,649,715 3,429,109Income tax paid (111,660) -Interest paid (2,270,250) (1,111,448)

Net cash from operating activities 1,267,805 2,317,661

Investing activitiesPurchase of subsidiaries, net of cash acquired 28 (14,248,778) –Disposal of interest in subsidiaries, net of cash disposed 514,220 –Purchase of investments in associates (38,302) (114,170)Purchase of property, plant and equipment (4,194,413) (6,778,062)Advance to related party 8,219 –Advances from related party (1,315) 5,761Loan to an associate (32,100) –Purchase of available for sale investments (173,946) (113,925)Interest received 578,112 294,205Proceeds from sale of available for sale investments 235,209 –Purchase of other investments (238) (1,233,456)Asset retirement obligation payments (7,556) –Other assets 56,225 (28,787)Lease rentals received 161,202 –

Net cash used in investing activities (17,143,461) (7,968,434)

Financing activitiesInterest bearing loans and borrowings 8,906,168 18,657,906Islamic loans 31,826 (19,710)Issue of share capital – 920Acquisition of minority interests 4 (693,789) –Net movement in minority interests 43,737 –Dividend paid to equity holders of the parent 31 (207,500) –Dividend paid to minority interest shareholders (78,217) (103,199)Loans from minority interest shareholders in subsidiaries (100,025) (36,731)

Net cash from fi nancing activities 7,902,200 18,499,186

(Decrease) increase In cash and cash equivalents (7,973,456) 12,848,413Net foreign exchange difference (384,410) –Cash and cash equivalents at the beginning of the year 15,788,490 2,940,077

Cash and cash equivalents at the end of the year 28 7,430,624 15,788,490


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS31 DECEMBER 2007


1 Corporate informationAbu 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 through an Initial Public Offering (IPO) and 24.1% were offered through a private offering. ADWEA retained a 51% interest holding in the Company and, accordingly, the Company is a subsidiary of ADWEA. ADWEA was established pursuant to the provisions of Law 2 of 1998, concerning the regulation of the Water and Electricity Sector.

The principal activity of TAQA is to own and invest in companies engaged in power generation, water desalination and development, production and storage of oil and gas, in addition to other investments as considered appropriate to meet its objectives. TAQA’s registered head offi ce is P O Box 55224, Abu Dhabi, United Arab Emirates.

The consolidated fi nancial statements of TAQA and its subsidiaries (the “Group”) for the year ended 31 December 2007 includes the fi nancial statements of TAQA and its subsidiaries as described in note 47.

The consolidated fi nancial statements of the Group were authorised for issuance by the Board of Directors on 16 March 2008.

2.1 Basis of preparationThe consolidated fi nancial statements of TAQA have been prepared in accordance with International Financial Reporting Standards and the applicable requirements of the UAE Commercial Companies Law 1984 (as amended).

The consolidated fi nancial 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 thousand (AED ’000) except when otherwise indicated.

The consolidated fi nancial statements are prepared under the historical cost convention as modifi ed for the measurement at fair value of available for sale investments and derivative fi nancial instruments and certain loans from related parties.

Basis of consolidationThe consolidated fi nancial statements incorporate the fi nancial statements of the Company and each of its subsidiaries as at 31 December each year.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved where the Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities.

The fi nancial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

All signifi cant inter-company balances, transactions and profi ts have been eliminated on consolidation.

Minority interests represent the portion of profi t or loss and net assets not held by the Group and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet, separately from the parent shareholders’ equity. Acquisitions of minority interests are accounted for using the parent equity extension method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised in goodwill.

2.2 Changes in accounting policy and disclosuresThe accounting policies adopted are consistent with those of the previous fi nancial year except as follows:

The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the fi nancial performance or position of the Group. They did however give rise to additional disclosures.

IFRS 7 Financial Instruments: Disclosures

IAS 1 Amendment - Presentation of Financial Statements

IFRIC 8 Scope of IFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

The principal effects of these changes in policies are discussed below:

IFRS 7 Financial Instruments: DisclosuresThis standard requires disclosures that enable users of the fi nancial statements to evaluate the signifi cance of the Group’s fi nancial instruments and the nature and extent of risks arising from those fi nancial instruments. The new disclosures are included throughout the fi nancial statements. While there has been no effect on the fi nancial position or results, comparative information has been revised where needed.

IAS 1 Presentation of Financial StatementsThis amendment requires the Group to make new disclosures to enable users of the fi nancial statements to evaluate the Group’s objectives, policies and processes for managing capital. These new disclosures are shown in note 49.


50

2.2 Changes in accounting policy and disclosures continued

IFRIC 8 Scope of IFRS 2This interpretation requires IFRS 2 to be applied to any arrangements in which the entity cannot identify specifi cally some or all of the goods received in particular where equity instruments are issued for consideration which appears to be less than fair value. As there are no such arrangements, the interpretation had no impact on the fi nancial position or performance of the Group.

IFRIC 9 Reassessment of Embedded DerivativesIFRIC 9 states that the date to assess the existence of an embedded derivative is the date that an entity fi rst becomes a party to the contract, with reassessment only if there is a change to the contract that signifi cantly modifi es the cash fl ows. As the Group has no embedded derivative requiring separation from the host contract, the interpretation had no impact on the fi nancial position or performance of the Group.

IFRIC 10 Interim Financial Reporting and ImpairmentThe Group adopted IFRIC Interpretation 10 as of 1 January 2007, which requires that an entity must not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a fi nancial asset carried at cost. As the Group had no impairment losses previously reversed, the interpretation had no impact on the fi nancial position or performance of the Group.

2.3 Signifi cant accounting judgements, estimates and assumptionsThe preparation of the Group’s consolidated fi nancial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

JudgementsIn the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most signifi cant effect on the amounts recognised in the fi nancial statements:

Operating lease – Subsidiaries as lessorThe Company’s domestic (United Arab Emirates) subsidiaries have entered into a long-term Power and Water Purchase Agreement (“PWPA”) with Abu Dhabi Water and Electricity Company (“ADWEC”), a wholly owned subsidiary of ADWEA. Under the PWPA, the subsidiaries receive payment for the provision of electrical and water capacity, whether or not ADWEC requests electrical and water output, (“capacity payments”) and for the variable costs of production (“energy and water payments”). The subsidiaries have determined the PWPA to be a lease and based on the contractual arrangements in place, that they retain the principal risks and rewards of ownership of the plants and so account for the PWPA as an operating lease (see also note 47).

Certain foreign subsidiaries have entered into Power Purchase Agreements (PPA’s) with offtakers in their respective countries where they are operating. Under the PPA’s, the subsidiaries undertake to make available and the offtakers undertake to purchase the available net capacity of the plants for a period of time in accordance with various agreed terms and conditions as specifi ed in the PPA’s. The Group has determined the PPA’s to be lease arrangements and based on the contractual terms in place, the principal risks and rewards of ownership of the plants have been transferred to the offtakers and therefore accounts for the PPA’s as fi nance leases (see also note 47).

Investments and other fi nancial assetsFinancial assets within the scope of IAS 39 are classifi ed as either fi nancial assets at fair value through income statement, loans and receivables, held to maturity investments, or available for sale fi nancial assets, as appropriate. The Group determines the classifi cation of its fi nancial assets after initial recognition and where allowed and appropriate, re-evaluates the designation at each fi nancial year end.

The Group treats available for sale investments as impaired when there has been a signifi cant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “signifi cant” or “prolonged” requires considerable judgement. There was no impairment loss on available for sale investments as of 31 December 2007 (2006: nil).

Estimates and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below:

Impairment of non-fi nancial assetsThe Group assesses whether there are any indicators of impairment for all non-fi nancial assets at each reporting date. Goodwill is tested for impairment annually and at other times when indicators of potential impairments exist. Other non-fi nancial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

When value in use calculations are undertaken, management must estimate the expected future cash fl ows from the asset or cash generating unit and choose a suitable discount rate in order to calculate the present value of those cash fl ows. Further details of key assumptions are given in note 21.

Impairment of available for sale investments The Group classifi es certain assets as available for sale and recognises movements in their fair value in equity. When the fair value declines, management makes assumptions about the decline in value to determine whether it is an impairment that should be recognised in the consolidated income statement. The carrying value of available for sale investments was AED 99,481 thousand (2006: AED 140,854 thousand).

Impairment of amounts due from ADWEC and trade receivablesAn estimate of the collectible amount is made when collection of the full amount is no longer probable.

At the balance sheet date, the amounts due from ADWEC and trade receivables were AED 833,546 thousand (2006: AED 1,839,107 thousand) and AED 1,231,459 thousand (2006: nil) respectively. The provisions for doubtful debts against ADWEC and trade receivables were AED 11,425 thousand (2006: AED 10,962 thousand) and AED nil (2006: nil) respectively. Any difference between the amounts actually collected in future periods and the amounts expected to be recovered will be recognised in the consolidated income statement.


Impairment of inventoriesInventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually signifi cant amounts this estimation is performed on an individual basis. Amounts which are not individually signifi cant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the Group’s policy for inventory provisioning. The gross carrying amount of inventories at 31 December 2007 was AED 1,519,352 thousand (2006: AED 962,477 thousand) and the provision for old and obsolete items was AED 24,544 thousand (2006: AED 16,539 thousand).

Impairment of property, plant and equipmentManagement determines whether there are any indications of impairment to the carrying values of property, plant and equipment on an annual basis because of the difference between the duration of contracted cash fl ows and accounting depreciation of assets. This requires an estimation of the value in use of the cash generating units. Estimating the value in use requires the Company’s subsidiaries to make an estimate of the expected future cash fl ows for the period lying beyond the term of the initial PWPA and also choose a suitable discount rate in order to calculate the present value of those cash fl ows. The net carrying amount of property, plant and equipment at 31 December 2007 was AED 46,050 million (2006: AED 29,328 million). No impairment provision was recognised during year ended 31 December 2007 (2006: AED nil).

Useful lives of property, plant and equipmentThe Group’s’ management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value and useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates.

Estimation of oil and gas reservesOil and gas reserves are estimated by reference to available reservoir and well information, including production and pressure trends for producing reservoirs and, in some cases, subject to defi nitional limits, to similar data from other producing reservoirs.

All proven and probable reserves estimates are subject to revision, either upward or downward, based on new information, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms or development plans. In general, changes in the technical maturity of hydrocarbon reserves resulting from new information becoming available from development and production activities have tended to be the most signifi cant cause of annual revisions.

Changes in oil and gas reserves are an important element in testing for impairment and will also affect the unit-of-production depreciation charges to the income statement.

Assets retirement obligationsThe Group has recognised an asset retirement obligation provision associated with the plants and oil and gas assets owned by certain subsidiaries. In determining the amount of the provision assumptions and estimates are required in relation to infl ation rates, discount rates and the expected cost to dismantle and remove all plant and oil and gas assets from the sites. The carrying amount of the provision as at 31 December 2007 is AED 1,127 million (2006: AED 257 million).

Post employment benefi ts For certain employees the Group retains an obligation for certain post employment benefi ts consisting of a share of retiree health insurance premiums and reimbursement of retiree payments for certain benefi ts. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to uncertainty.

2.4 Summary of signifi cant accounting policiesRevenue recognitionOil and gasRevenue from the sale of crude oil and natural gas is recognised when signifi cant risks and rewards of ownership are transferred to the buyer and the amount of revenue and the costs of the transaction can be measured reliably.

Gas storageThe income from gas storage is recognised when the service is provided and accepted by customers.

Water and electricity and supplemental fuel incomeThe Company’s domestic subsidiaries have entered into long term Power and Water Purchase Agreements (PWPA) with the offtaker, Abu Dhabi Water and Electricity Company (ADWEC) a wholly owned subsidiary of ADWEA. In addition a number of the foreign subsidiaries acquired during 2007 have Power Purchase Agreements (PPA) with offtakers to sell their output of energy. Under these PPA arrangements the Group’s foreign subsidiaries receive payment for the provision of electrical capacity (whether or not the offtaker requests the electrical output) and for the variable revenue towards costs of production (energy payments).

The revenue recognition of the Group is as follows:

(i) Where the Group determines that the PWPA/PPA contains a fi nance lease, capacity payments are recognised as fi nance income using a rate of return specifi c to the plant to give a constant periodic rate of return on the net investment in each year.

(ii) Where the Group determines that the PWPA/PPA contains an operating lease, capacity payments are recognized as operating lease rentals on a systematic basis and for those payments which are not included within minimum lease payments, as revenue including supplemental fuel income in accordance with the contractual terms of the PWPA/PPA, to the extent that capacity has been made available to the Offtaker during the year.

(iii) Energy and water payments are recognised as revenue when the contracted power and water is delivered to the Offtaker.


52

2.4 Summary of signifi cant accounting policies continuedLiquidated damagesLiquidated damages in respect of loss of revenue due to late commissioning are included in revenue net of liquidated damages incurred.

Interest incomeInterest revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial instruments to the net carrying amount of the fi nancial asset).

RoyaltiesRevenue from the sale of crude oil and natural gas are recognised net of the amount of royalties where applicable.

TaxesCurrent income taxCurrent income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to taxation authorities using tax rates and tax laws that are enacted or substantively enacted at the balance sheet date.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the consolidated income statement.

Deferred income taxDeferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except:

where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

- where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss; and

- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profi t will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profi t will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax relating to items recognised directly in equity is recognised in equity and not in profi t or loss. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Foreign currency translationThe consolidated fi nancial statements are presented in UAE Dirhams (AED), which is the Group’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the fi nancial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated income statement with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity and foreign currency monetary items that form part of the Company’s net investment in a foreign operation between the parent and its subsidiaries. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the consolidated income statement. Tax charges and credits attributable to exchange differences on those borrowings are accounted for in equity. Non monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

The assets and liabilities of foreign operations are translated into AED at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the consolidated income statement.

Interest in a joint ventureThe Group has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The Group recognises its interest in the joint venture using the equity method. The fi nancial statements of the joint venture are prepared for the same reporting period as the parent company. Adjustments are made where necessary to bring the accounting policies into line with those of the Group.

Adjustments are made in the Group’s fi nancial statements to eliminate the Group’s share of unrealised gains and losses on transactions between the Group and its jointly controlled entity. Losses on transactions are recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss.


Certain of the Group’s activities in the oil and gas segment are conducted through joint ventures where the venturers have a direct ownership interest in and jointly control the assets of the venture. The income, expenses, assets and liabilities of these jointly controlled assets are included in the consolidated fi nancial statements in proportion to the Group’s interest.

LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfi lment of the arrangement is dependent on the use of a specifi c asset or assets or the arrangement conveys a right to use the asset.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of IFRIC 4.

Group as a lesseeFinance leases, which transfer to the Group substantially all of the risks and benefi ts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are refl ected in the consolidated income statement.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the consolidated income statement on a straight line basis over the lease term.

Group as a lessor – Finance leases Where the Group determines the PWPA/PPA to contain a fi nance lease and the Group transferred substantially all of the risks and benefi ts of ownership of the asset through its contractual arrangements to the off-taker the arrangements are considered as a fi nance lease. The amounts due from the lessee are recorded in the balance sheet as fi nancial assets (fi nance lease receivable) and are carried at the amount of the net investment in the lease after making provision for bad and doubtful debts.

Group as a lessor – Operating leasesLeases where the Group does not transfer substantially all the risks and benefi ts of ownership of the asset are classifi ed as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is recorded at fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditures are refl ected in the consolidated income statement in the year in which the expenditures are incurred.

The useful lives of intangible assets are assessed to be either fi nite or indefi nite.

Intangible assets with fi nite lives which represent acquisition of connection rights are amortised on a straight line basis over the earlier of the useful life of the asset and the connection rights term and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a fi nite useful life are reviewed at least at each fi nancial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefi ts embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with fi nite lives is recognised in the consolidated income statement in the expense category consistent with the function of the intangible asset.

Intangible assets with indefi nite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefi nite life is reviewed annually to determine whether indefi nite life assessment continues to be supportable. If not, the change in the useful life assessment from indefi nite to fi nite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised.

Business combinations and goodwillBusiness combinations are accounted for using the purchase method. Goodwill is initially measured at cost being the excess of the cost of the business combination over the Group’s share in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

When the Group acquires a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that signifi cantly modifi es the cash fl ows that would otherwise be required under the contract.

Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfi ed. All other repair and maintenance costs are recognised in the consolidated income statement as incurred.


54

2.4 Summary of signifi cant accounting policies continuedProperty, plant and equipment continuedDepreciation is calculated on a straight line basis over the estimated useful lives of assets, except for oil and gas properties as follows:

Buildings 30 to 40 yearsPlant and machinery 3 to 40 years (with 0 - 25% estimated residual value)Offi ce equipment, fi xtures and fi ttings 3 to 5 yearsPlant spares 10 to 20 yearsAsset retirement obligations 30 to 40 years

The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each fi nancial year end.

The carrying amounts are reviewed at each balance sheet date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.

The cost of spare parts held as essential for the continuity of operations and which are designated as strategic spares are depreciated on a straight line basis over the estimated remaining operating life of the plant and equipment to which they relate. Spare parts used for normal repairs and maintenance are expensed when issued.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year the asset is derecognised.

Oil and gas properties and other related assetsThe successful efforts method of accounting is used for oil and gas explorations costs. Under this method, initial acquisition costs of oil and gas properties and costs of drilling and equipping exploration wells are capitalised when incurred and, if subsequently determined to be unsuccessful, are charged to dry hole expense. All other exploration expenses, including geological and geophysical costs and annual lease rentals, are charged to exploration expense when incurred.

Capitalised costs of proved oil and gas properties in property, plant and equipment are depleted using the unit-of-production method based on estimated proven plus probable (“2P”) oil and gas reserves. Changes in reserves are accounted for prospectively.

As is common in the industry, a portion of these assets are held via joint ventures and in such cases the assets in the balance sheet refl ect the Company’s share in each asset.

Exploration expenditureGeological and geophysical exploration costs are charged against income as incurred. Costs directly associated with an exploration well are capitalised as an intangible asset until the drilling of the well is complete and the results have been evaluated. If hydrocarbons are not found, the exploration expenditure is written off as exploration expense. If hydrocarbons are found and, subject to further appraisal activity, which may include the drilling of further wells (exploration or exploratory-type stratigraphic test wells), are likely to be capable of commercial development, the costs continue to be carried as an asset. All such carried costs are subject to technical, commercial and management review at least once a year to confi rm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off. When proved reserves of oil and natural gas are determined and development is sanctioned, the relevant expenditure is transferred from intangible assets to property, plant and equipment.

Capital work in progressCapital work in progress is included in plant and machinery at cost on the basis of the percentage completed at the balance sheet date. The capital work in progress is transferred to the appropriate asset category and depreciated in accordance with the above policies when construction of the asset is completed and commissioned.

Borrowing costsBorrowing costs that are directly attributable to the design, development, procurement and construction of each part of a plant up to the date when all activities necessary to prepare each part of the plant for its intended use are complete, are capitalised net of interest income on temporary investment of borrowings, as part of capital work in progress. Borrowing costs in respect of completed parts of the plant are recognised as an expense in the year in which they are incurred.

Initial spares feeThe fee paid for initial spares to be provided under a long-term maintenance contract is amortised over the equivalent operating hours of the related power generating equipment.

Investment in associatesThe Group’s investment in associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has signifi cant infl uence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is not amortised. The income statement refl ects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Profi ts and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The fi nancial statements of the associate are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

Impairment of non-fi nancial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount,


the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

Impairment losses of continuing operations are recognised in profi t or loss in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated income statement.

The following criteria are also applied in assessing impairment of specifi c assets:

GoodwillThe Group assesses whether there are any indicators that goodwill is impaired at each reporting date. Goodwill is tested for impairment annually during the fourth quarter of each year and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

AssociatesAfter application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss for the Group’s investment in its associates. The Group determines at each balance sheet date whether there is any objective evidence that the investment in an associate is impaired. If this is the case the Group calculates the amount of impairment as being the difference between the fair value of the associate and the acquisition cost and recognises the amount in the consolidated income statement.

InventoriesInventories are valued at the lower of cost, determined on the basis of weighted average cost, and net realisable value. Costs are those expenses incurred in bringing each item to its present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Accounts receivableAccounts receivable are stated at original invoice amount less a provision for any uncollectible amounts.

Investments and other fi nancial assetsFinancial assets within the scope of IAS 39 are classifi ed as fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments, or available-for-sale fi nancial assets, as appropriate. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly attributable transaction costs.

The Group determines the classifi cation of its fi nancial assets on initial recognition and, where allowed and appropriate, re-evaluates this designation at each fi nancial year end.

All regular way purchases and sales of fi nancial assets are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

Financial assets at fair value through profi t or lossFinancial assets at fair value through profi t or loss includes fi nancial assets held for trading and fi nancial assets designated upon initial recognition as at fair value through profi t or loss.

Financial assets are classifi ed as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classifi ed as held for trading unless they are designated as effective hedging instruments or a fi nancial guarantee contract. Gains or losses on investments held for trading are recognised in profi t or loss.

The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group fi rst becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that signifi cantly modifi es the cash fl ows that would otherwise be required.

Held-to-maturity investmentsNon-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities are classifi ed as held-to-maturity when the Group has the positive intention and ability to hold to maturity. After initial measurement held-to-maturity investments are measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the investments are derecognised or impaired, as well as through the amortisation process.

Loans and receivablesLoans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. After initial measurement loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profi t or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.


56

2.4 Summary of signifi cant accounting policies continuedAvailable for sale fi nancial investmentsAvailable for sale fi nancial assets are those non-derivative fi nancial assets that are designated as available-for-sale or are not classifi ed in any of the three preceding categories. After initial measurement, available for sale fi nancial assets are measured at fair value with unrealised gains or losses recognised directly in equity until the investment is derecognised or determined to be impaired at which time the cumulative gain or loss previously recorded in equity is recognised in the consolidated income statement.

Fair valueThe fair value of investments that are actively traded in organised fi nancial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash fl ow analysis or other valuation models.

Amortised costHeld-to-maturity investments and loans and receivables are measured at amortised cost. This is computed using the effective interest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.

Impairment of available for sale investmentsThe Group assesses at each balance sheet date whether a fi nancial asset or group of fi nancial assets is impaired.

If an available for sale investment is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the consolidated income statement is transferred from equity to the consolidated income statement. Reversals in respect of equity instruments classifi ed as available-for-sale are not recognised in the consolidated income statement.

Accounts payable and accrualsLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

Pensions and other post employment benefi tsEmployees’ end of service benefi tsThe Group provides end of service benefi ts to certain employees. The entitlement to these benefi ts is usually based upon the employees’ length of service and the completion of a minimum service year. The expected costs of these benefi ts are accrued over the years of employment. With respect to its UAE national employees, the Group makes contributions to the Abu Dhabi Retirement Pensions and Benefi ts Fund calculated as a percentage of the employees’ salaries. The Company’s obligations are limited to these contributions, which are expensed when due.

Defi ned benefi t pension planThe cost of providing benefi ts under defi ned benefi t plans is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses for the plan at the end of the previous reporting period exceeded the higher of the defi ned benefi t obligation and the fair value of plan assets at that date. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plans. The past service cost is recognised as an expense on a straight line basis over the average period until the benefi ts become vested. If the benefi ts are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognised immediately.

The defi ned benefi t asset or liability comprises the present value of the defi ned benefi t obligation less past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognised and the present value of any economic benefi ts available in the form of refunds from the plan or reductions in the future contributions to the plan.

Cash and cash equivalentsCash and short term deposits in the balance sheet comprise cash at banks and on hand and short term deposits with an original maturity of three months or less.

For the purpose of the consolidated cash fl ow statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above, net of outstanding bank overdrafts.

Interest bearing loans and borrowings including Islamic loansAll loans and borrowings are initially recognised at fair value less directly attributable transaction costs, and have not been designated ‘as at fair value through profi t or loss’. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process.

Derecognition of fi nancial assets and liabilitiesFinancial assetsA fi nancial asset (or, where applicable a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised when:

the rights to receive cash fl ows from the asset have expired;

the Group retains the right to receive cash fl ows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass through’ arrangement; or

the Group has transferred its rights to receive cash fl ows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash fl ows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.


When continuing involvement takes the form of a written and/or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilitiesA fi nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing fi nancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profi t or loss.

ProvisionsGeneralProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that refl ects, where appropriate, the risks specifi c to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a fi nance cost.

Asset retirement obligationsCertain of the Company’s subsidiaries have legal obligations to remove the power generation and water desalination assets at the end of their useful lives and restore the land (i.e. decommissioning costs). The Company’s subsidiaries are required to record the fair value of the cost to remove the assets at the end of their useful lives. Accordingly, a corresponding asset is recognised in property, plant and equipment. Decommissioning costs are recorded at the present value of expected costs to settle the obligations using estimated cash fl ows. The cash fl ows are discounted at the appropriate discount rate specifi c to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the consolidated income statement as a fi nance cost. The estimated future costs of the asset retirement obligation are reviewed annually and adjustments made to the carrying amount of the asset to refl ect changes made to the estimated discount and/or infl ation rates.

Abandonment and site restorationWhere required under existing production sharing contracts, the Group records the estimated costs of future abandonment and site restoration of oil and gas properties, which are added on to the carrying value of oil and gas properties. The abandonment and site restoration costs initially recorded are depleted using the unit-of-production method based on estimated Proven plus Probable (“2P”) oil and gas reserves. Subsequent revisions to abandonment and site restoration costs are considered as a change in estimates and are accounted for on a prospective basis.

Derivative fi nancial instruments and hedgingThe Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting are taken directly to the consolidated income statement.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profi les. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classifi ed as:

fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised fi rm commitment (except for foreign currency risk); or

cash fl ow hedges when hedging exposure to variability in cash fl ows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised fi rm commitment; or

hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identifi cation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash fl ows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash fl ows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the fi nancial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Fair value hedgesThe change in the fair value of a hedging derivative is recognised in the consolidated income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in the consolidated income statement. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the consolidated income statement over the remaining term to maturity. Any adjustment to the carrying amount of a hedged fi nancial instrument for which the effective interest rate method is used is amortised through the consolidated income statement.

Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.


58

2.4 Summary of signifi cant accounting policies continuedFair value hedges continued If the hedge item is derecognised, the unamortised fair value is recognised immediately in the consolidated income statement. When an unrecognised fi rm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the fi rm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the consolidated income statement. The changes in the fair value of the hedging instrument are also recognised in the consolidated income statement.

Cash fl ow hedgesThe effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the consolidated income statement.

Amounts taken to equity are transferred to the consolidated income statement when the hedged transaction affects the consolidated income statement, such as when the hedged fi nancial income or fi nancial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-fi nancial asset or non-fi nancial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-fi nancial asset or liability. If the forecast transaction or fi rm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the consolidated income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or fi rm commitment occurs.

Hedges of a net investmentHedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash fl ow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the consolidated income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the consolidated income statement.

Financial instrumentsFinancial instruments comprise fi nancial assets and fi nancial liabilities.

Financial assets comprise investments in associates, available for sale investments, loans and receivables, deposits and bank balances and cash. Financial liabilities comprise payables, bank overdrafts, interest bearing loans and Islamic loans and fi nance leases.

The fair value of interest bearing items is estimated based on discounted cash fl ows using interest rates for items with similar terms and risk characteristics. The fair value of investments traded in organised markets is determined by reference to quoted market bid prices, at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include recent arm’s length market transactions, reference to the current market value of another investment which is substantially the same, discounted cash fl ow analysis or other valuation models.

2.5 Future changes in accounting policies – standards issued but not yet effectiveIAS 1 Presentation of Financial StatementsThe Group has not adopted the revised IAS 1 (Presentation of Financial Statements) which will be effective for the year ending 31 December 2009. The application of this Standard will result in amendments to the presentation of the fi nancial statements.

IAS 23 Borrowing CostsA revised IAS 23 Borrowing costs was issued in March 2007, and becomes effective for fi nancial years beginning on or after 1 January 2009. The standard has been revised to require capitalisation of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Group already capitalises borrowing costs relating to qualifying assets. Accordingly, the revision in IAS 23 will not have an impact on the Group’s fi nancial statements.

IFRS 8 Operating SegmentsIFRS 8 Operating Segments was issued in November 2006, becoming effective for periods commencing on or after 1 January 2009. The new standard may require changes in the way the Group discloses information about its operating segments.

IFRS 3 Business CombinationsIFRS 3 revised is effective for annual periods beginning on or after 1 July 2009. Whilst it is not possible to estimate the outcome of adoption, the key features of the revised IFRS 3 include a requirement for acquisition-related costs to be expensed and not included in the purchase price; and for contingent consideration to be recognised at fair value on the acquisition date (with subsequent changes recognised in the income statement and not as a change to goodwill). The standard also changes the treatment of non-controlling interest (formerly minority interests) with an option to recognise these at full fair value as at the acquisition date and a requirement for previously held non-controlling interests to be fair valued as at the date control is obtained, with gains and losses recognised in the income statement.

IAS 27 Consolidated and Separate Financial StatementsIAS 27 revised is effective for annual periods beginning on or after 1 July 2009, with earlier application only permitted when the revised IRS 3 is applied. The revised standard applies retrospectively with some exceptions. IAS 27 revised no longer restricts the allocation to minority interest of losses incurred by a subsidiary to the amount of the non-controlling equity investment in the subsidiary. A partial disposal of equity interest in a subsidiary that does not result in a loss of control will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to any gain or loss. Where there is loss of control of a subsidiary, any retained interest will have to be remeasured to fair value, which will impact the gain or loss recognised on disposal. The Group is currently assessing the impact on its fi nancial statements from adopting IAS 27 revised.

IFRIC 12 Service Concession ArrangementsIFRIC Interpretation 12 was issued in November 2006 and becomes effective for annual periods beginning on or after 1 January 2008. This Interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. Management is in the process of assessing the applicability, if any, to its operations.

IFRIC 14 IAS 19 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their InteractionIFRIC Interpretation 14 was issued in July 2007 and becomes effective for annual periods beginning on or after 1 January 2008. This Interpretation provides guidance on how to assess the limit on the amount of surplus in a defi ned benefi t scheme that can be recognised as an asset under IAS 19 Employee Benefi ts. The Company expects that this Interpretation will have no impact on the fi nancial position or performance of the Group as no such schemes currently exist.


3 Business combinationsDuring the year ended 31 December 2007, TAQA has made the following acquisitions:

(i) TAQA on behalf of its wholly-owned subsidiary TAQA Europa BV signed a Share Purchase Agreement (“SPA”) with AMOCO Netherlands Petroleum Company and BP Corporation North America Inc (the “Seller”) for the purchase of the entire share capital of BP Nederland Energie B.V. with an economic effective date from 1 July 2006 (“Economic date”). The acquisition was completed on 31 January 2007 (the “Completion date”) and accordingly as of that date BP Nederland Energie B.V. became a wholly owned subsidiary of TAQA.

(ii) TAQA signed a Share Purchase Agreement (“SPA”) with each of CMS Enterprises Company (a subsidiary of CMS Energy, a company incorporated in the United States) and ABB Group (referred to as: Acquisition transaction - CMS and ABB). The businesses included in the sale deal with CMS Enterprises are CMS Generation ownership interests in the Jorf Lasfar Energy Company in Morocco (50% interest), the ST-CMS Electric Company in Neyveli, India (50% interest), the Jubail Energy Company in the Kingdom of Saudi Arabia (25% interest), the Takoradi International Company in Ghana (90% interest), Emirates CMS Power Company in U.A.E. (an existing subsidiary – 40% interest), Shuweihat CMS International Power Company in U.A.E (an existing subsidiary – 20% interest) and the related Operation and Maintenance companies and the special purpose companies set up to own the interests of CMS Generation Company in these companies. The businesses included in the ABB Group sale deal are the ABB Group interest in Jorf Lasfar Energy Company in Morocco (50% interest) and ST CMS Electric Company in Neyveli, India (50% interest) and the special purpose companies set up to own the interests of ABB Group in these companies. The two deals were completed on 2 May 2007 and were structured to be completed simultaneously.

(iii) TAQA signed a Share Purchase Agreement (“SPA”) with POGO Producing Company (the “Seller”) for the sale of Northrock Resources Ltd (“Northrock”) entire share capital to TAQA for an amount of US$ 2,000 million with an economic effective date of 1 January 2007 (“Economic date”). The acquisition was completed on 14 August 2007 (the “Completion date”) and, effective that date, Northrock and the special purpose company formed for the purpose of acquiring Northrock were amalgamated to form TAQA North.

(iv) In August 2007 TAQA North, a wholly owned subsidiary of TAQA signed a Share Purchase Agreement (“SPA”) with Pioneer International Resources Company for the acquisition of its wholly owned Canadian subsidiaries, Pioneer Natural Resources Canada Inc., Pioneer Natural Resources Canada, and Pioneer Natural Resources Canada ULC. Pioneer Canada is an oil and gas exploration and production company with operations across the West Canadian Sedimentary Basin. Completion of this acquisition was achieved on 27 November 2007 (the “Completion date”).

(i) Acquisition of BP Nederland Energie B.V (“Taqa Energy BV”)The fair value of the identifi able assets and liabilities of BP Netherland Energie B.V. as at the completion date were:

FAIR VALUE PREVIOUS RECOGNISED CARRYING ON ACQUISITION VALUE (UNAUDITED) (UNAUDITED) AED ’000 AED ’000

Property, plant and equipment 2,336,187 485,063Other assets 276 276Trade receivables 105,798 105,798Other receivables, deposits and prepayments 72,698 72,698Inventory 4,903 4,903Bank balances and cash 380,083 380,083

2,899,945 1,048,821

Trade and other payables (6,421) (6,421)Asset retirement obligations (235,315) (235,315)Deferred tax liability (474,086) (8,906)Other liabilities (132,711) (132,711)

(848,533) (383,353)

Net assets acquired 2,051,412 665,468

Goodwill arising on acquisition * 600,744

Total acquisition cost 2,652,156

The total acquisition cost of AED 2,652 million, which was paid in cash, comprises of the cost of the acquisition of AED 2,636 million and other directly attributable costs of AED 16 million.

AED ’000 (UNAUDITED)

Cash outfl ow on acquisition: Net cash acquired with the subsidiary 380,083 Acquisition cost paid in cash (2,652,156)

Net cash outfl ow (2,272,073)

*Balance of goodwill as at the date of acquisition 600,744 Exchange difference 73,660

Balance of goodwill as at 31 December 2007 674,404

The fair value is based on the purchase price allocation undertaken at the time of acquisition. The allocation has been fi nalised as at 31 December 2007.

The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of BP Netherland Energie BV with those of the Group as well as the expected cash fl ows from the development of oil and gas fi elds and gas storage facilities.

From the date of acquisition, Taqa Energy BV has contributed AED 79 million to the profi t of the Group.


60

3 Business combinations continued(ii) Acquisition transaction - CMS and ABBThe fair value of the identifi able assets and liabilities of the entities acquired from CMS Generation Company and ABB Group excluding Jubail Energy Company in the Kingdom of Saudi Arabia (25% interest), Emirates CMS Power Company in U.A.E. (an existing subsidiary – 40% interest) and Shuweihat CMS International Power Company in U.A.E (an existing subsidiary – 20% interest), as at the completion date were:


Net investment in lease 6,013,781 5,159,077Property, plant and equipment 33,486 48,651Other assets 53,457 53,457Accounts receivables 607,964 633,547Inventory 297,514 262,514Bank balances and cash 520,155 520,155

7,526,357 6,677,401

Term loans (2,309,685) (2,303,481)Trade and other payables (563,118) (653,862)Employees’ end of service benefi ts (11,379) (11,379)Deferred tax liability (324,538) (71,594)

(3,208,720) (3,040,316)

Net assets acquired 4,317,637 3,637,085

Goodwill arising on acquisition 60,002






The fair value has been based on the purchase price allocation undertaken at the time of acquisition. The allocation has been fi nalised at 31 December 2007. The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of the entities acquired with those of the Group.

From the date of acquisition, the entities acquired have contributed AED 382 million to the profi t of the Group.

CONSOLIDATED BALANCE SHEET 31 DECEMBER 2007


(iii) Acquisition of Northrock Resources LimitedThe fair value of identifi able assets, liabilities of TAQA North as at the completion date were:


Property, plant and equipment 8,178,424 8,636,856Intangible assets – 2,895,640Inventories 58,629 94,188Accounts receivable and prepayments 237,612 165,685Other assets 111,639 57,058Bank balances and cash 102,788 102,788

8,689,092 11,952,215

Accounts payable (432,260) (415,719)Asset retirement obligations (177,163) (190,950)Deferred tax liability (1,641,413) (2,517,180)Other liabilities (64,287) (12,010)

(2,315,123) (3,135,859)


Goodwill arising on acquisition* 945,669






*Balance of goodwill as at the date of acquisition 945,669 Exchange difference 56,444

Balance of goodwill as at 31 December 2007 1,002,113

The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of Northrock Resources Limited with those of the Group as well as cash fl ows from the development of oil fi elds and gas storage facilities. The fair value is based on a provisional purchase price allocation undertaken at the time of the completion date. The allocation will be fi nalised at a later date.

From the date of acquisition, TAQA North has contributed AED 325 million to the profi t of the Group.


62

3 Business combinations continued(iv) Acquisition of Pioneer Canada LimitedThe fair value of identifi able assets, liabilities of Pioneer Canada Limited as at the date of acquisition were:


Property, plant and equipment 1,961,775 2,022,354Intangible assets – 248,228Inventories 18,477 21,575Accounts receivable and prepayments 37,448 47,470Other assets 405 70Deferred tax asset 60,957 –Bank balances and cash 8,801 8,801

2,087,863 2,348,498

Accounts payable (69,913) (54,570)Asset retirement obligations (80,572) (112,335)Other liabilities (604,414) -Deferred tax liability – (190,350)

(754,899) (357,255)


Goodwill arising on acquisition* 607,131






*Balance of goodwill as at the date of acquisition 607,131 Exchange difference (60)

Balance of goodwill as at 31 December 2007 607,071

The goodwill recognised above is attributable to the expected synergies from combining the assets and activities of Northrock Resources Limited with those of the Group as well as cash fl ows from the development of oil fi elds and gas storage facilities. The fair value is based on a provisional purchase price allocation undertaken at the time of the completion date. The allocation will be fi nalised at a later date.

From the date of acquisition, Pioneer Canada Limited has contributed AED 7.1 million to the profi t of the Group.

Acquisitions – profi t and revenuesIf all of the above acquisitions had taken place at the beginning of the year, the profi t of the Group would have been AED 1,709 million and revenues would have been AED 11,478 million.


4 Acquisition of minority interestsAs fully explained under note 3, the Group has acquired from CMS Enterprises Company their 40% shareholding interest in Emirates CMS Power Company in U.A.E. (an existing subsidiary) and their 20% shareholding interest in Shuweihat CMS International Power Company in U.A.E (an existing subsidiary). The Group accounting policy for such acquisition is using the parent extension method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill.

AED ’000

Book value of the share of the net assets acquired 434,648Goodwill on acquisition 259,141

Consideration paid 693,789

Effective 1 October 2007 the Group sold its 40% shareholding interest in Emirates CMS Power Company in U.A.E. (an existing subsidiary) to Marubeni Corporation for US $130 million (AED 478 million). A gain of AED 124 million was recognised on the sale.

5 Segmental analysisThe primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected predominantly by differences in the products and services produced. Secondary information is reported geographically. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

For management purposes the Group is organised into two major business segments:

Power and Water Generation SegmentThis segment is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid. In addition, this segment is engaged in generation of electricity in Morocco, India and Ghana.

Oil and Gas SegmentThis segment is engaged in Upstream and Midstream oil and gas activities in the Netherlands, Canada and United Kingdom.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

The Group’s geographical segments are based on the location of the Group’s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.


64

5 Segmental analysis continuedBusiness segmentThe following table presents revenue, results and certain asset and liability information regarding the Group’s business segments:

POWER AND WATER OIL GENERATION AND GAS UNALLOCATED TOTAL AED ’000 AED ’000 AED ’000 AED ’000

Year ended 31 December 2007:

ResultsRevenue 6,912,468 1,424,319 – 8,336,787

Segment results 2,806,881 389,223 (203,472) 2,992,632

Share of results of associates 8,304 – 17,150 25,454Gain on disposal of subsidiaries 157,902 – – 157,902Finance costs – – (2,528,802) (2,528,802)Gain on exchange – – 80,810 80,810Interest and investment income – – 567,713 567,713Other income – – 22,603 22,603

Profi t before tax 1,318,312

Income tax credit 57,314

Profi t for the year 1,375,626

Assets and liabilities Segment assets 44,097,575 18,657,586 4,903,343 67,658,504Investment in associates 38,902 – 146,920 185,822

Total assets 44,136,477 18,657,586 5,050,263 67,844,326

Segment liabilities 3,164,133 4,170,479 52,380,649 59,715,261

Other segment informationCapital expenditure: Property, plant and equipment 2,342,785 2,679,558 16,862 5,039,205 On business combinations 34,258 12,475,614 – 12,509,872 Intangible assets 319,143 2,153,544 – 2,472,687Depreciation 898,205 489,911 715 1,388,831Amortisation of connection rights 28,762 – – 28,762Amortisation of initial spares 10,039 – – 10,039

Year ended 31 December 2006

ResultsRevenue 4,840,581 – – 4,840,581

Segment results 1,861,419 – (26,908) 1,834,511

Share of results of associates – – 7,896 7,896Finance costs – – (1,353,913) (1,353,913)Interest and investment income – – 294,205 294,205Other income – – 23,455 23,455

Profi t for the year 806,154

Assets and liabilitiesSegment assets 36,121,380 – 15,523,934 51,645,314Investment in associates – – 122,066 122,066

Total assets 36,121,380 – 15,646,000 51,767,380

Segment liabilities 3,606,421 – 40,592,335 44,198,756

Other segment informationCapital expenditure: Property, plant and equipment 6,803,713 – – 6,803,713 Attributable to acquisition of subsidiaries 284,157 – – 284,157 Intangible assets acquired from a related party 451,900 – – 451,900Depreciation 832,500 – – 832,500Amortisation of connection rights 28,755 – – 28,755Amortisation of initial spares 10,812 – – 10,812


Geographical segmentsThe following tables present revenue, expenditure and certain asset and liability information relating to the Group’s geographical segments:

UAE AMERICAS EUROPE AFRICA OTHERS TOTAL AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

Year ended 31 December 2007:Revenue 4,769,550 879,255 547,468 1,887,152 253,362 8,336,787

Other segment information: Segment assets 40,525,919 13,365,165 6,190,872 6,358,403 1,218,145 67,658,504 Investment in associates 150,464 - - - 35,358 185,822

Total assets 40,676,383 13,365,165 6,190,872 6,358,403 1,253,503 67,844,326

Segment liabilities 52,377,145 2,946,903 1,506,875 2,146,306 738,032 59,715,261

Capital expenditure: Property, plant and equipment 2,324,354 328,466 2,374,726 6,920 4,739 5,039,205 On business combinations – 10,139,999 2,335,615 31,186 3,072 12,509,872 Intangible assets 259,141 1,552,800 600,744 23,000 37,002 2,472,687

Year ended 31 December 2006:Revenue 4,840,581 – – – – 4,840,581

Other segment information: Segment assets 51,645,314 – – – – 51,645,314 Investment in associates 122,066 – – – – 122,066

Total assets 51,767,380 – – – – 51,767,380

Segment liabilities 44,198,756 – – – – 44,198,756

Capital expenditure: Property, plant and equipment 6,803,713 – – – – 6,803,713 Intangible assets 451,900 – – – – 451,900

6 Revenues6.1 Revenue from water and electricity 2007 2006 AED ’000 AED ’000

Operating lease revenue 3,229,184 2,584,645Finance lease revenue 546,478 –Energy payments and other related revenue 941,079 578,305

4,716,741 3,162,950

The domestic subsidiaries namely; ECPC, GTTPC, APC, SCIPCO, TAPCO and ESWPC (note 47) have entered into power and water purchase agreements (PWPA) with Abu Dhabi Water Electricity Company (ADWEC) a wholly owned subsidiary of ADWEA. Under the PWPA, the domestic subsidiaries undertake to make available and ADWEC undertakes to purchase the available net capacity of the plant for periods ranging between 20 years to 23 years, in accordance with various agreed terms and conditions as specifi ed in the PWPA. Natural gas fuel is supplied by ADWEC at no cost. Back up fuel (supplemental fuel income) is billed to ADWEC when consumed. The ownership of the plants will be retained by the domestic subsidiaries at the end of the PWPA term.

The foreign subsidiaries namely Jorf Lasfar Energy Company SCA (Jorf Lasfar), ST-CMS Electric Company Pvt LTD (Neyveli) and Takoradi International Company (Takoradi) have entered into a power purchase agreement (PPA) with an offtaker in the country where they are operating. Under the PPA the foreign subsidiaries undertake to make available and the offtakers undertake to purchase the available net capacity of the plant for a period of time in accordance with various agreed terms and conditions as specifi ed in the PPA as follows:

Jorf Lasfar:The subsidiary has the right of possession for the site and the plant units for a period of 30 years ending in September 2027. After the 30 years period, the ownership of the site and the plants will be transferred to the offtaker.

Neyveli:The subsidiary has a 30 year PPA with the offtaker ending in December 2032. On the expiry date of the PPA, the offtaker has the option to acquire the plant at a price equal to 50% of the terminal value as defi ned in the PPA.

Takoradi:The subsidiary has a 25 year PPA with the offtaker ending in March 2024. On expiry date of the PPA, the plant is to be transferred to the offtaker at a nominal amount.


66

6 Revenues continued6.2 Revenue from oil and gas 2007 2006 AED ’000 AED ’000

Gross oil and gas revenue 1,346,871 –Less: royalties (225,608) –

1,121,263 –

7 Net liquidated damages receivedThe above represents delay liquidated damages recognised by the Company’s subsidiaries from their respective contractors as compensation for loss of revenue. These are recognised by the subsidiaries net of the amounts incurred by them as delay liquidated damages to ADWEC.

8 Depreciation, depletion and amortisation 2007 2006 AED ’000 AED ’000

Depreciation of property, plant and equipment (note 15) 1,388,831 832,500Amortisation of initial spares fees (note 17) 10,039 10,812Amortisation of intangible assets (note 20) 28,762 28,755

1,427,632 872,067

9 Administrative and other expenses 2007 2006 AED ’000 AED ’000

Salaries and related expenses 168,515 10,371Business development expenses 55,902 10,200Professional fees 87,408 21,317Others 97,283 14,873

409,108 56,761

10 Other expenses 2007 2006 AED ’000 AED ’000

Oil and gas operating costs 90,462 –Transportation costs 19,151 –Production and other taxes 10,173 –Exploration costs written off 13,149 –Others 53,293 –

186,228 –

11 Finance costs 2007 2006 AED ’000 AED ’000

Finance costs relating to bonds and notes 828,920 135,678Finance costs relating to interest bearing loans and borrowings and Islamic loans 1,669,194 1,202,695Notional interest expense (note 40) 1,309 2,381Assets retirement obligation accretion expense (note 38) 29,379 13,159

2,528,802 1,353,913

12 Interest and investment income 2007 2006 AED ’000 AED ’000

Gain from sale of available for sale investments 46,143 5,520Interest income on bank deposits 521,570 288,685

567,713 294,205


13 Income taxThe major components of income tax credit for the years ended 31 December 2007 and 2006 are: 2007 2006 AED ’000 AED ’000

Consolidated income statementCurrent income tax: Current income tax charge (187,876) –

Deferred income tax: Relating to origination and reversal of temporary differences 245,190 –

Income tax credit reported in the consolidated income statement 57,314 –

A reconciliation between tax expense and the product of accounting profi t multiplied by effective income tax rate for the years ended 31 December 2007 and 2006 is as follows:

2007 2006 AED ’000 AED ’000

Accounting profi t before income tax 1,318,312 806,154Non-taxable income (971,997) (806,154)

Total taxable income 346,315 –

At the effective income tax rate of 20.5% (2006: nil) 70,995 –IFRS conversion related adjustments (32,451) –Non-deductible expenses 8,136 –Reduction in tax rates (182,519) –Petroleum tax in Netherlands 68,592 –Others 9,933 –

Income tax credit reported in the consolidated income statement (57,314) –

Deferred income taxDeferred income tax at 31 December relates to the following: CONSOLIDATED CONSOLIDATED BALANCE SHEET INCOME STATEMENT 2007 2006 2007 2006 AED ’000 AED ’000 AED ’000 AED ’000

Deferred tax liability:Accelerated depreciation for tax purposes 54,751 – (3,366) –Fair value adjustments on acquisition 2,471,256 – 59,530 –IFRS conversion related differences (9,677) – 3,828 –Post-employment medical benefi ts (13,550) – (1,001) –Reduction in tax rates (182,712) – 182,297 –Losses available for offset against future taxable income (5,987) – 6,086 –Others (4,231) – (2,184) –

2,309,850 – 245,190 –

The Group has tax losses which arose in Taqa Bratani of AED 12 million that are available indefi nitely for offset against future taxable profi ts of the companies in which the losses arose.

At 31 December 2007, there was no recognised deferred tax liability (2006: nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as there are no tax consequences relating to receipt of dividends

There are no income tax consequences attaching to the payment of dividends in either 2007 or 2006 by TAQA to its shareholders.

14 Basic and diluted earnings per shareBasic earnings per share amounts are calculated by dividing profi t for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the profi t attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for the effects of dilutive instruments.

The following refl ects the income and shares data used in the earnings per share computations: 2007 2006

Profi t for the period attributable to equity holders of the parent (AED ’000) 1,034,599 484,963

Weighted average number of ordinary shares issued (‘000) 4,150,000 4,150,000

Basic earnings per share (AED) 0.25 0.12

No fi gure 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.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these fi nancial statements.


68

15 Property, plant and equipment BUILDING, CAPITAL EQUIPMENT, WORK IN PLANT AND OIL AND PLANT PROGRESS MACHINERY GAS ASSETS SPARES TOTAL AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

2007Cost: At 1 January 2007 6,181,309 25,703,199 – 152,164 32,036,672 Additions 2,368,880 69,136 2,565,840 35,349 5,039,205 Disposals – (4,305) – – (4,305) Attributable to acquisition of subsidiaries (note 3) 19,324 475,859 12,014,689 – 12,509,872 Transfers (3,150,478) 3,159,708 411 (9,641) – Exchange adjustment (1,428) 14,775 564,926 – 578,273

At 31 December 2007 5,417,607 29,418,372 15,145,866 177,872 50,159,717

Depreciation and depletion At 1 January 2007 – 2,693,916 – 14,395 2,708,311 Charge for the year – 912,680 469,619 6,532 1,388,831 Adjustments for disposals – (237) – – (237) Exchange adjustment – 1,111 10,871 – 11,982

At 31 December 2007 – 3,607,470 480,490 20,927 4,108,887

Net carrying amount: At 31 December 2007 5,417,607 25,810,902 14,665,376 156,945 46,050,830

2006Cost: At 1 January 2006 5,025,513 20,111,964 – 268,476 25,405,953 Additions 2,006,463 4,764,674 – 32,576 6,803,713 Disposals – (5,251) – – (5,251) Attributable to acquisition of subsidiaries – 284,157 – – 284,157 Transfer to related party – (451,900) – – (451,900) Transfers (850,667) 999,555 – (148,888) –

At 31 December 2006 6,181,309 25,703,199 – 152,164 32,036,672

Depreciation: At 1 January 2006 – 1,794,465 – 9,003 1,803,468 Charge for the year – 827,108 – 5,392 832,500 Accumulated depreciation of subsidiary’s assets acquired – 72,399 – – 72,399 Adjustments for disposals – (56) – – (56)

At 31 December 2006 – 2,693,916 – 14,395 2,708,311

Net carrying amount: At 31 December 2006 6,181,309 23,009,283 – 137,769 29,328,361

During the fourth quarter of 2006, TAQA on behalf of its wholly-owned subsidiary TAQA Bratani Limited signed a Share Purchase Agreement (“SPA”) with Talisman Energy UK Limited and Talisman LNS Limited (the “Seller”) for the sale of the Seller’s interest in Brae oil and gas fi eld and certain pipeline assets for an amount of US$ 550 million with an economic effective date from 1 January 2007 (“Economic date”). It was agreed that the assets will be transferred to TAQA on Completion date which is the same date when TAQA obtains control over the new assets as per the terms of the Agreement. The completion was achieved on 31 December 2007 (the “Completion date”) and accordingly TAQA took control over the assets. Included in the additions to oil and gas assets referred to above is an amount of AED 2,149 million relating to the Brae oil and gas fi eld and certain pipeline assets.

In the opinion of management, the acquisition of the Brae oil and gas assets does not represent a business combination and is therefore treated as additions to property, plant and equipment.

The activities of the Company’s domestic subsidiaries are carried out from premises and equipment constructed on land leased from ADWEA. The initial term of the leases is 25 years (renewable for future years) and no rental is payable by them. Leasehold land is carried in the books at nil value.

During 2006, plant and machinery with a net book value of AED 452 million was transferred to Abu Dhabi Transmission and Despatch Company PJSC, a fellow subsidiary in accordance with the terms of an agreement and represents the acquisition cost of right of connection to the transmission system at the connection sites owned by the related party. No such transfer was made during the current year.

Capital work in progress mainly represents the rehabilitation, upgrade and extension of existing power generation and water desalination plants. Capital work in progress additions include capitalised borrowing costs of AED 269.7 million (2006: AED 192.6 million).

At 31 December 2007 the net book value of property, plant and equipment fi nanced by Islamic fi nancing arrangements amounted to AED 3,564 million (2006: AED 2,916 million).

The estimated useful life of one of the subsidiary’s plant and machinery was revised as from 1 January 2007, following a review by a third party estimator, from 33 years (with 10% estimated residual value) to 40 years (with no residual value). The net effect of the revision in the estimated useful life of the subsidiary’s plant and machinery is a reduction in the depreciation charge of AED 105 million for the year ended 31 December 2007.

During 2006, the estimated useful life of the plant and machinery of one of its controlled subsidiaries was revised as from 1 January 2006, following a review by a third party estimator, from 20 years (with 25% estimated residual value) to 28 years (with no residual value). The net effect of the revision in the estimated useful life of the plant and machinery was a reduction in the depreciation charge of AED 31 million for the year ended 31 December 2006.


16 Direct fi nance lease receivable 2007 2006 AED ’000 AED ’000

Future minimum lease payments 15,761,295 –Unearned income (9,693,268) –

Direct fi nance lease receivable 6,068,027 –

Non current portion 5,800,588 –Current portion 267,439 –

6,068,027 –

(i) Future minimum lease payments

Total minimum lease payments 16,127,532 –Minimum lease payments for the year (707,680) –Exchange adjustment 341,443 –

Total future minimum lease payments 15,761,295 – (ii) Unearned income

Total unearned income 10,081,641 –Lease revenue for the year (546,478) –Exchange adjustment 158,105 –

Outstanding unearned income 9,693,268 –

The minimum lease payments and lease revenues for the next 5 years are as follows:

MINIMUM LEASE LEASE PAYMENTS REVENUESYEAR AED ’000 AED ’000

2008 1,072,027 811,0352009 1,072,912 779,4452010 1,059,602 742,0682011 1,046,033 702,2982012 1,026,401 660,176

The balance of the direct fi nance lease receivable is denominated in foreign currencies as follows:

All amounts are converted to AED 000

US Dollars 3,008,606Euros 2,439,442Indian Rupees 619,979

6,068,027

The effective interest rates on the fi nance lease receivable are in the range of 10.5% to 17.8% per annum.

17 Initial spares fee 2007 2006 AED ’000 AED ’000

Cost: Balance at 1 January and 31 December 146,623 146,623

Amortisation: At 1 January (23,338) (12,526) Charge for the year (10,039) (10,812)

At 31 December (33,377) (23,338)

Net carrying amount at 31 December 113,246 123,285


70

18 Advances to a related party 2007 2006 AED ’000 AED ’000

Analysed in the balance sheet as follows:

Non-current assets 212,645 229,083Current assets 22,604 14,385

235,249 243,468

The above represents an advance made to Shuweihat Shared Facilities Company (“SSFC”) by a subsidiary against future use of the facilities.

19 Available for sale investments 2007 2006 AED ’000 AED ’000

Investments in United Arab Emirates Unquoted investments 676 676

Investments outside United Arab Emirates Quoted investments – 140,178 Unquoted investment 98,805 –

Total available for sale investments 99,481 140,854

Unquoted investments - UAEUnquoted investments represent a subsidiary’s investment in Shuweihat Shared Facilities Company (SSFC) a closely held private company which maintains shared utility facilities for the supply and discharge of seawater and provides other related services to the subsidiary. Although the Company’s subsidiary has 53% interest holding, it does not exercise control or has signifi cant infl uence over SSFC and hence it is not consolidated or accounted for under the equity method. The carrying amount of the unquoted investments is stated at cost of AED 676 thousand (2006: AED 676 thousand) as there is no practical means of estimating the fair value of this investment.

Unquoted investment outside UAEUnquoted investment outside UAE represents investment made in an infrastructure fund managed by a third party. The Company has committed to invest US $ 200 million in the fund over a period of 5 years. During the year, an amount of US $ 27 million was invested in the fund. The fair value of the fund at the year end approximates its carrying value.

Quoted InvestmentsRepresent investments in global depositary receipts issued by one of the public oil and gas companies incorporated in Russia. The investment was denominated in United States Dollars. During the year, the investment in the global depositary receipts was sold for an amount of AED 235 million resulting in a gain of AED 46.1 million (note 12).


20 Intangible assets CONNECTION RIGHTS GOODWILL TOTAL AED ’000 AED ’000 AED ’000

2007:Cost: At 1 January 2007 1,042,676 – 1,042,676 Acquisition of subsidiaries (note 3) – 2,213,546 2,213,546 Acquisition of minority interests (note 4) – 259,141 259,141 Goodwill written off on partial disposal of subsidiary – (96,655) (96,655) Exchange differences – 132,173 132,173

At 31 December 2007 1,042,676 2,508,205 3,550,881

Amortisation and impairment: At 1 January 2007 55,087 – 55,087 Amortisation for the year 28,762 – 28,762

At 31 December 2007 83,849 – 83,849

Net book value: At 31 December 2007 958,827 2,508,205 3,467,032

2006:Cost: At 1 January 2006 590,776 – 590,776 Additions during the year 451,900 – 451,900

At 31 December 2006 1,042,676 – 1,042,676

Amortisation and impairment: At 1 January 2006 26,332 – 26,332 Amortisation for the year 28,755 – 28,755

At 31 December 2006 55,087 – 55,087

Net book value: At 31 December 2006 987,589 – 987,589

Connection rightsThe intangible assets arose from the transfer, made by the Company’s subsidiaries Emirates CMS Power Company, Shuweihat CMS International Power Company and Arabian Power Company during year ended 31 December 2002, year ended 31 December 2005 and year ended 31 December 2006 respectively, of certain assets to a related party in accordance with the terms of individual agreements and represent the acquisition cost of the right of connection to the transmission systems at the connection sites for a period of 38, 33 and 37 years respectively. The connection rights cost is being amortised on a straight line basis over 38, 33 and 37 years respectively, being the expected period of benefi t.

21 Impairment testing of goodwill Goodwill acquired through business combinations have been allocated to two cash-generating units for impairment testing as follows:

- Oil and gas assets cash-generating unit; and- Power and water generation assets cash-generating unit.

Carrying amount of goodwill allocated to each of the cash-generating units:

POWER AND WATER OIL AND GAS ASSETS GENERATION ASSETS TOTAL 2007 2006 2007 2006 2007 2006 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

Carrying amount of goodwill 2,283,588 – 224,617 – 2,508,205 –

Oil and gas assetsGoodwill acquired through business combinations has been allocated fi rst to business segments and then down to the next level of cash generating unit that is expected to benefi t from the synergies of the acquisition. It has been further allocated to each geographic region being, North America and Netherlands.

The recoverable amount of the oil and gas assets has been determined based on a value in use calculation using cash fl ow projections from fi nancial budgets approved by senior management using a discounted cash fl ow model. These are derived from the exploration and production assets and gas storage facilities assets. In the case of exploration and production assets the cash fl ow projections are based on the cash fl ows expected to be generated by the projected oil or natural gas production profi les of each producing fi eld using the appropriate models and key assumptions as approved by senior management and in most cases audited by third party reserve auditors. In the case of the gas storage facilities assets the cash fl ow projections are based on the projected 40 year business plan. The future cash fl ows are usually adjusted for risks specifi c to the asset and discounted using a pre-tax discount rate of 8% (see overleaf).


72

21 Impairment testing of goodwill continuedPower and water generation assetsFor power and water generation, goodwill has been kept at the segment level where the synergies are expected to be realised. The signifi cant portion of the goodwill allocated to power and water generation assets relates to the acquisition of minority interests. The Group generally uses value in use to estimate the recoverable amount unless the fair value less costs to sell information is available and reliable. Where both information are available, the recoverable amount is the higher of fair value less costs to sell and value in use. The Group estimates value in use by using a discounted cash fl ow model. The future cash fl ows are usually adjusted for risks specifi c to the asset and discounted using a pre-tax rate range 9.62% to 11.77% (see below).

Key assumptions used in value in use calculations – oil and gas assetsThe calculation of value in use for oil and gas assets is most sensitive to the following assumptions:

Production volumes; Infl ation rates; Price of crude oil and gas; Cash fl ows relating to gas storage; Gross margin; and Discount rates

Production volumesEstimated production volumes are based on data generated for each fi eld taking into consideration the development plans for the fi eld as approved by senior management.

Infl ation ratesEstimates are obtained from published indices for the countries from which products and services are originated, as well as data relating to specifi c commodities. Forecast fi gures are used if data is publicly available.

Price of crude oilPrices are based on the forward average prices as of 31 December 2007. It is estimated that the long term prices of oil and gas would not impact the recoverable amount to the level that will go below the carrying amounts.

Cash fl ows relating to gas storageCash fl ows relating to gas storage are based on assumptions on delivery capacity, injection capacity, working volumes and expected availability. The assumptions have been approved by management and in most cases validated by third party consultants and are supported by non-binding expressions of interests on demand for working volumes.

Gross margins Gross margins are based on the expected long term contractual arrangements, the applicable economic production and cost profi les and forward price assumptions. The production profi les are derived from the recoverable fi elds reserve estimates.

Discount ratesDiscount rates refl ect management’s estimate of the risks. The discount rate is derived from the group’s post-tax weighted average cost of capital.

The following table shows the carrying value of the goodwill allocated to each of the regions of the oil and gas segment and the amount by which the recoverable amount (value in use) exceeds the carrying amount of the goodwill and the other non-current assets in the cash generating units to which goodwill has been allocated.

NORTH AMERICA NETHERLANDS TOTAL AED MILLION AED MILLION AED MILLION

Goodwill 1,609 674 2,283Excess of recoverable amount over carrying amount 799 610 1,409

Sensitivity to changes in assumptions – oil and gas assetsThe implications of the key assumptions on the recoverable amount are oil and gas prices, production volumes and discount rate. A sensitivity analysis adjusting the prices production volumes and discount rate by 5% did not cause any impairment of goodwill. The management believes that there is no impairment charge required.

Key assumptions used in value in use calculations – power and water generation assetsIn estimating the recoverable amount of goodwill management used the fair value less costs to sell for similar recent transactions. The Group recognised a gain on sale of its 40% share in one of its domestic subsidiaries.


22 Investment in associatesThe Company has the following investments in associates:

OWNERSHIP COUNTRY OF INCORPORATION 2007 2006

Al Wathba Company for Central Services PJSC UAE 49% 49%Jubail Energy Company Saudi Arabia 25% –Shuweihat O & M Limited Partnership Cayman Islands 50% –

Al Wathba Company for Central Services PJSC is mainly involved in the leasing and management of vehicles and equipment.

Jubail Energy Company is involved in the generation of electricity in Saudi Arabia.

Shuweihat O&M Limited Partnership is involved in the provision of management operation and maintenance support to SCIPCO, a subsidiary. The investment is treated as an associate since TAQA does not have joint control over the activities of Shuweihat O&M Limited Partnership.

The reporting dates for the associates are identical to TAQA.

The following table illustrates summarized information of TAQA’s investment in associates.

2007 2006 AED ’000 AED ’000

Share of the associates’ balance sheets: Current assets 116,090 101,655 Non-current assets 330,996 81,177 Current liabilities (140,665) (57,836) Non-current liabilities (120,599) (2,930)

Net assets 185,822 122,066

Share of the associates’ revenues and profi ts:

Revenues 155,628 46,740

Profi ts 25,454 7,896

Carrying amount of the investments 185,822 122,066

Management believe that the carrying value of the investments will be realised in full.

During the year, TAQA acquired 25% interest holding in Jubail Energy Company (see note 3(ii)). The investment represents the following:

AED ’000

Share of net assets of associate 19,845Fair value consideration on acquisition in excess of book values 14,520

34,365

During the year, TAQA acquired 50% interest holding in Shuweihat O & M Limited Partnership.

23 Other investments 2007 2006 AED ’000 AED ’000

Investment in BP Nederland Energie BV (note 3) – 1,028,923Investment in Talisman Energy UK Limited (note 15) – 204,447Other investments 324 86

324 1,233,456

24 Other assets 2007 2006 AED ’000 AED ’000

Deferred expenditure 116,460 –Others 21,879 28,787

138,339 28,787

Others mainly represent costs incurred by TAQA for legal and advisory services in connection with the acquisition of equity investments (majority ownership in entities) that were in progress at 31 December 2007. These will be reclassifi ed to become part of the investment cost when TAQA obtains control over these entities and has the power to govern the fi nancial and operating policies.


74

25 Inventories 2007 2006 AED ’000 AED ’000

Fuel 784,120 444,429Spare parts and consumables 735,232 518,048

1,519,352 962,477Provision for slow moving and obsolete items (24,544) (16,539)

1,494,808 945,938

26 Amounts due from related parties 2007 2006 AED ’000 AED ’000

Abu Dhabi Water and Electricity Company (ADWEC) 822,121 1,828,145Shuweihat Shared Facilities Company PJSC 7,299 1,916Others 2,847 1,180

832,267 1,831,241

The amounts due from ADWEC, a fellow subsidiary in respect of available capacity and supply of water and electricity, are payable within 30 - 90 working days.

As at 31 December 2007, receivables from related parties at nominal value of AED 11,425 thousand (2006: AED 10,962 thousand) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:

2007 2006 AED ’000 AED ’000

At 1 January 10,962 331Charge for the year 463 10,631

At 31 December 11,425 10,962

As at 31 December, the ageing analysis of receivables from related parties is as follows:

PAST DUE BUT NOT IMPAIRED NEITHER PAST DUE NOR 30 – 60 60 – 90 90 – 120 TOTAL IMPAIRED < 30 DAYS DAYS DAYS DAYS >120 DAYS AED AED AED AED AED AED AED

2007 832,267 302,491 336,104 190,628 162 2,691 191

2006 1,831,241 522,492 160,450 936,596 37,836 – 173,867

Unimpaired receivables from related parties are expected, on the basis of past experience, to be fully recoverable. For terms and conditions relating to related party receivables, refer to note 46.

27 Accounts receivable, prepayments and unbilled revenues 2007 2006 AED ’000 AED ’000

Trade receivables 1,231,459 –Accrued revenue 22,137 –Income tax 24,857 –Positive fair value of derivatives (note 48) 9,600 237,146Prepaid insurance 54,941 28,204Advances to suppliers 40,370 22,787Interest receivable 47,695 104,237Prepaid spare parts 1,045 25,555Receivable from O&M contractors 28,071 285,544Other receivables 65,533 57,695

1,525,708 761,168

No provision has been made for impaired receivables as of 31 December 2007 (2006: AED nil).

As at 31 December, the ageing analysis of trade receivables is as follows:

PAST DUE BUT NOT IMPAIRED NEITHER PAST DUE NOR 30 – 60 60 – 90 90 – 120 TOTAL IMPAIRED < 30 DAYS DAYS DAYS DAYS >120 DAYS AED AED AED AED AED AED AED

2007 1,231,459 406,471 686,856 31,375 51,238 606 54,913

2006 – – – – – – –


28 Cash and cash equivalents 2007 2006 AED ’000 AED ’000

Cash at banks and on hand 1,223,607 628,167Short term deposits 6,377,486 15,393,000

7,601,093 16,021,167Bank overdrafts (170,469) (232,677)

7,430,624 15,788,490

Short term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

Bank overdrafts carry interest at fl oating rates and were secured by guarantees from certain shareholders of the subsidiaries.

At 31 December 2007, the Group had available AED 3,766 million (2006: nil) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

Signifi cant non-cash transactions, which have been excluded from the consolidated cash fl ow statement are as follows:

2007 2006 AED ’000 AED ’000

Movement in cumulative changes in fair value of available for sale investments 19,890 26,253Movement in cumulative changes in fair value of derivatives – accounts payable and accruals 727,976 9,118Movement in cumulative changes in fair value of derivatives – prepayment and other assets – 133,127Interest receivable 47,695 104,237Interest payable 543,746 315,882Accrual for capital expenditure 321,610 –Asset retirement obligation – Brae assets 272,024 –Accrual for taxes 76,216 –Dividends payable to minority interests – 20,569Loan from related parties 1,309 2,381Board of Directors’ remuneration 3,000 1,500

Acquisitions of subsidiaries (note 3)

Property, plant and equipment 12,509,872 –Finance lease receivable 6,013,781 –Other assets 165,777 –Inventories 379,523 –Accounts receivable, prepayments and unbilled revenues 1,061,520 –Goodwill 2,213,546 –Deferred tax asset 60,957 –Assets retirement obligations (493,050) –Accounts payables and accruals (1,071,712) –Interest bearing loans and borrowings (2,309,685) –Deferred tax liability (2,440,037) –Other liabilities (801,412) –Employees’ benefi t liabilities (11,379) –

Cash outfl ows at acquisition 15,277,701 –

Presented in consolidated cash fl ow statement as follows:Final purchase payment made on acquisition date 14,248,778 –Advance paid in prior year – included within other investments (note 24) 1,028,923 –

15,277,701 –

Acquisition of subsidiary assets

Net book value of TSFC property, plant and equipment acquired – (211,758)Advance from related parties – 23,006Minority interest – 135Accounts payables and accruals – 2,151Advance to related parties – 186,110Available for sale investments – 356

29 Share capital AUTHORISED, ISSUED AND FULLY PAID 2007 2006 AED ’000 AED ’000

Ordinary shares of AED 1 each 4,150,000 4,150,000


76

30 ReservesStatutory reserveAs required by the U.A.E. Commercial Companies Law of 1984 (as amended) and the articles of association of the Company and its subsidiaries, 10% of the consolidated profi t for the year is transferred to the statutory reserve. The Company and its subsidiaries may resolve to discontinue such transfers when the reserve equals 50% of the share capital. The reserve is not available for distribution.

Legal reserve – subsidiariesIn accordance with Article 35 of the Articles of Association of certain subsidiaries companies, 10% of the profi t for the year is transferred to a legal reserve. The subsidiaries may resolve to discontinue such annual transfers when the reserve totals 50% of the share capital or in accordance with a resolution taken to this effect by the shareholders at the Annual General Meeting upon the recommendation of the Board of Directors. This reserve may only be used for the purposes recommended by the Board of Directors and approved by the shareholders of the subsidiaries.

General reserve The Board of Directors have recommended the establishment of the general reserve to enhance the capital base of the Company. This reserve may only be used for the purposes recommended by the Board of Directors and approved by the shareholders.

Foreign currency translation reserveThe foreign currency translation reserve is used to record exchange differences arising from the translation of the fi nancial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations.

31 Proposed dividends 2007 2006 AED ’000 AED ’000

Cash dividends proposed in respect of 2007: AED 0.10 (2006: AED 0.05) 415,000 207,500

Dividend on ordinary shares paid during the year amounted to AED 207.5 million (2006: AED nil).

32 Minority interests 2007 2006 AED ’000 AED ’000

Relating to Abu Dhabi Water and Electricity Authority 270,252 257,724Relating to minority interest shareholdings in subsidiaries 779,940 986,587

1,050,192 1,244,311

33 Loans from minority interest shareholders in subsidiaries 2007 2006 AED ’000 AED ’000

EquityTotal Tractebel Emirates Power Company 212,667 212,667Shuweihat Limited Partnership 79,457 179,482

292,124 392,149

The loans are from the minority interest shareholders in the Company’s subsidiaries and are free of interest and unsecured. As the terms of repayment have not been specifi ed for these loans, they are subject to terms of repayment as resolved by the board of directors of the subsidiaries and accordingly have been treated as equity.

34 Loan from abu dhabi water and electricity authority 2007 2006 AED ’000 AED ’000

Abu Dhabi Water and Electricity Authority 92,640 92,640

The above loan is interest free, with no repayment terms and is unsecured and is subject to term of repayment as resolved by the Board of Directors of the Company. Accordingly it has been treated as equity.


35 Interest bearing loans and borrowings 2007 2006 AED ’000 AED ’000

Abu Dhabi National Energy Notes 7,337,089 –Abu Dhabi National Energy Bonds 13,079,424 12,685,667Terms loans (see below) 28,130,529 24,645,522

Total term loans, bonds, and notes 48,547,042 37,331,189

Disclosed in the balance sheet as follows:

Non-current liabilities 44,999,272 36,504,981Current liabilities 3,547,770 826,208

48,547,042 37,331,189

The term loans which are shown net of discount and transaction costs are in respect of the following subsidiaries:

2007 2006 AED ’000 AED ’000

Emirates Power Company PJSC 1,175,567 1,237,258Gulf Power Company PJSC 3,648,724 3,232,851Al Shuweihat Power Company PJSC 3,252,975 3,372,160Arabian United Power Company PJSC 3,666,552 3,868,341Taweelah United Power Company PJSC 9,307,839 8,017,562Union Power Holding Company PJSC 4,951,094 4,917,350Jorf Lasfar Energy Company 1,487,298 –ST-CMS Electric Company India Private Limited 640,480 –

28,130,529 24,645,522

Amounts payable by TAQA and its subsidiaries (before deducting prepaid fi nance costs) over the next fi ve years from 31 December 2007 are as follows:

2007 2006 AED ’000 AED ’000

Within 1 year 3,564,233 829,822Between 1 – 2 years 1,890,655 3,360,642Between 2 - 3 years 1,276,885 1,651,235Between 3 - 4 years 1,314,130 1,010,813Between 4 - 5 years 3,242,726 1,058,969After 5 years 37,643,790 29,668,409

48,932,419 37,579,890

(i) Abu Dhabi National Energy Global Medium Term NotesIn 2007, TAQA issued long term fi xed interest rate notes. The notes are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligation of the Company. TAQA’s notes were granted an Aa2 rating by Moody’s and AA rating by S&P. The following table summarises the terms of the notes payable:

EFFECTIVE REPAYMENT 2007 INTEREST RATE % DATE AED ’000

Non-Current LiabilitiesUS $500,000,000, net of transaction costs 6.18% October 2017 1,834,239US $ 1,500,000,000, net of transaction costs 5.65% October 2012 5,502,850

7,337,089

The notes liability is stated net of transaction costs incurred in connection with the notes arrangements, amounting to AED 9.2 million (2006: nil) as of 31 December 2007, which are amortised in the consolidated income statement over the repayment period of the notes using effective interest rate method. Interest is payable semi-annually commencing on 25 April 2008. Accrued interest is included under accruals and other liabilities.


78

35 Interest bearing loans and borrowings continued(ii) Abu Dhabi National Energy BondsIn 2006, TAQA issued long term fi xed interest rate bonds at a discount. The bonds are recorded at amortised cost using effective interest rates and are direct, unconditional, and unsecured obligation of the Company. TAQA’s bonds were granted an Aa3 rating by Moody’s and A+ rating by S&P. The following table summarises the terms of the bond payable:

ISSUE EFFECTIVE REPAYMENT 2007 2006 RATE INTEREST RATE % DATE AED ’000 AED ’000

Non-Current LiabilitiesUS $ 1,000,000,000, net of discount and transaction costs 99.485% 5.98% October 2016 3,646,106 3,643,667

US $ 1,500,000,000, net of discount and transaction costs 99.049% 6.6% October 2036 5,440,467 5,439,624

Euro 750,000,000, net of discount and transaction costs 99.357% 4.53% October 2013 3,992,851 3,602,376

13,079,424 12,685,667

The bond liability is stated net of discount and transaction costs incurred in connection with the bond arrangements, amounting to AED 122.2 million (2006: AED 129.9 million) as of 31 December 2007, which are amortised in the consolidated income statement over the repayment period of the bond using effective interest rate method. Interest on the US $ bonds is payable semi-annually commencing on 27 April 2007. Interest on the Euro bonds is payable annually commencing on 28 October 2007. Accrued interest is included under accruals and other liabilities.

(iii) Emirates Power Company PJSC (EPC) EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentTerm loan LIBOR + 0.95% 2008 66,735 61,291

Non-currentTerm loan LIBOR + 0.95% 2009 - 2020 1,108,832 1,175,967

During 1999, EPC’s subsidiary obtained loan facilities (the “old facilities”) from a syndicate of banks led by Barclays Capital Bank amounting to US $596,000,000 (AED 2,188,810,000) out of which US $556,000,000 (AED 2,041,910,000) was fully drawn by 31 December 2001 to fi nance the construction of the Plant. The loan carried interest at a variable rate of LIBOR plus a margin of between 0.8% and 1.5% per annum for the original remainder period of the term loan. The loan also carried a commitment fee of 0.35% per annum of the undrawn amount. On 15 March 2004, the subsidiary obtained a US $388 million (AED 1,425 million) conventional loan facility and US $150 million (AED 551 million) Islamic Ijara loan facility (note 28) (the “new facilities”) from a syndicate of international and UAE based banks to refi nance the term loan and repay up to US $35 million (AED 129 million) of the loan from shareholders. Both loans were fully drawn during the prior year.

During the year, the fi fth and sixth instalments amounting to US $23.9 million (AED 87.7 million) were paid, with the remaining balance repayable in half yearly instalments until June 2020 in accordance with an agreed upon instalment schedule. The conventional loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of the subsidiary, a pledge of the shares in the subsidiary by both shareholders and a pledge of the equity interest in TSFC. The conventional loan is also subject to various covenants as stipulated in the loan facility agreement. The arrangement fees incurred in connection with the debt refi nancing arrangements are recognised in the income statement over the repayment period of the new facilities. Under the terms of its loan facility agreement, the subsidiary is required to enter into interest rate swap agreements to hedge its interest cost exposure against fl uctuations in interest rates (note 48).

(iv) Gulf Power Company PJSC (GPC) EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentTerm loan LIBOR + 1.125% 2008 – 156,340

Non-currentTerm loan LIBOR + 1.125% 2019 3,648,724 3,076,511

During 2000, GPC’s subsidiary obtained a loan facility from a syndicate of banks led by BNP Paribas and Citibank, NA amounting to US $1,000,000 thousand (AED 3,673,000 thousand) which was fully drawn by 31 December 2002 to fi nance the acquisition, refurbishment and extension of the Taweelah A1 power and desalination plant. During 2003 the subsidiary drew down US$ 5 million (AED 18,355 thousand) of the US $15 million standby facility. No further drawings were made from the standby facility. The term loan and standby term loan of US $124,821 thousand were repaid during the period from 31 October 2003 to 31 October 2006 with a remaining outstanding balance of US $880,179 thousand as of 31 December 2006.

The term loan and standby term loan has been refi nanced on 14 February 2007 under an Amended and Restated Facility Agreement executed between the subsidiary and BNP Paribas for US $1,094,316 thousand and US $8,161 thousand respectively. Under the terms of the Amended and Restated Facility Agreement, the subsidiary is entitled to utilize the term loan and standby term loan for:

1) Repayment of the debt under the old Facility Agreement amounting to US $880,179 thousand2) Repayment of the Share capital to the extent of US $75,000 thousand3) Financing the A10 project with the remaining balance.


(iv) Gulf Power Company PJSC (GPC) continuedAs of 31 December 2007, the subsidiary has drawn down US $1,001,679 thousand, which has been utilized for the repayment of the old debt, capital reduction and fi nancing of A10 project as described above.

The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of the Company, a pledge of the shares in the subsidiary by both shareholders and a pledge of the equity interest in TSFC. The term loan is also subject to various covenants as stipulated in the loan facility agreement.

Under the terms of its loan facility agreement, the subsidiary is required to enter into interest rate swap agreements to hedge its interest cost exposure against fl uctuations in interest rates (note 48).

(v) Al Shuweihat Power Company PJSC (SPC) EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentTerm loan LIBOR + 1.15% 2008 133,459 119,185

Non-currentTerm loan LIBOR + 1.15% 2021 3,119,516 3,252,975

During 2001, SPC’s subsidiary obtained loan facilities from a syndicate of banks led by Barclays Bank (conventional loan facility and equity bridge loan facility) and Abu Dhabi Islamic Bank (Islamic loan facility) to fi nance the construction of the power generation and desalination plant. The Equity Bridge loan and Islamic loan facility were repaid in August 2004 and replaced by shareholder loans and increased paid up share capital.

The amount of the conventional term loan facility is US $1,035 million (AED 3,802 million) and the term loan is repayable in 35 half yearly instalments starting from December 2004 in accordance with an agreed upon instalment schedule. The term loan is secured by a number of security documents including a commercial mortgage over all tangible and intangible assets of the subsidiary. The term loan is also subject to various covenants as stipulated in the loan facility agreement. Under the terms of its loan facility agreement, the subsidiary is required to enter into interest rate swap agreements to hedge its interest cost exposure against fl uctuations in interest rates (note 48).

(vi) Arabian United Power Company PJSC (AUPC) EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentEquity bridge loan LIBOR + 0.5% 2008 546,427 –Term loan (1) LIBOR + 0.75% 2008 360,029 489,392

906,456 489,392

Non-currentEquity bridge loan LIBOR + 0.5% 2008 – 545,823Term loan (1) LIBOR + 0.75% 2008 – 354,814Term loan (2) LIBOR + 1% 2009 - 2023 2,760,096 2,478,312

2,760,096 3,378,949

During 2003, AUPC’s subsidiary obtained loan facilities from a syndicate of banks led by Bank of Tokyo-Mitsubishi (term loan facilities (1) and (2) and equity bridge facility) to fi nance the acquisition, refurbishment and extension of the UAN power and desalination plant. The equity bridge loan and term loans carry a commitment fee of 0.375% per annum on undrawn balances.

The equity bridge loan is US $150 million (AED 551 million) and was fully drawn at 31 December 2003 and is repayable on 21 July 2008. The equity bridge loan is stated net of prepaid fi nance cost of AED 4,823 thousand (2006: AED 5,427 thousand).

The term loan facility (1) is US $232 million (AED 852 million) and was fully drawn at 31 December 2003. Term loan (1) is repayable from January 2007 in accordance with an agreed upon repayment schedule with the last repayment on 21 July 2008. Term loan (1) is stated net of prepaid fi nance cost of AED 3,178 thousand (2006: AED 8,394 thousand).

The amount of the term loan facility (2) is US $855 million (AED 3,140 million), of which US $758 million (AED 2,784 million) was drawn at 31 December 2007 (2006: AED 2,503 million). Term loan (2) is repayable from January 2009 in accordance with an agreed upon repayment schedule with the last repayment on 21 January 2023. Term loan (2) is stated net of prepaid fi nance cost of AED 24,361 thousand (2006: AED 24,639 thousand).

(vii) Taweelah United Power Company PJSC (TUPC) EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentEquity bridge loan LIBOR + 0.45% 2008 1,934,797 –Term loan (1) LIBOR + 0.7% 2008 57,899 –Term loan (2) LIBOR + 0.825% 2008 76,787 –

2,069,483 –

Non-currentEquity bridge loan – 1,931,570Term loan (1) LIBOR + 0.7% 2008 – 2025 3,111,908 2,620,153Term loan (2) LIBOR + 0.825% 2008 – 2025 4,126,448 3,465,839

7,238,356 8,017,562


80

35 Interest bearing loans and borrowings continued During 2005, the TUPC’s subsidiary obtained loan facilities from a syndicate of banks to fi nance the acquisition, refurbishment and extension of the Taweelah B power and water desalination plant.

The equity bridge loan is US $527.2 million (AED 1,936,441 thousand) and was fully drawn at 31 December 2005 and is repayable on 30 June 2008. The equity bridge loan is stated net of prepaid fi nance cost of AED 1,644 thousand (2006: AED 4,873 thousand).

The term loan facility (1) is US $940 million (AED 3,453 million), of which US $877 million (AED 3,221 million) was drawn at 31 December 2007 (2006: AED 2,663 million). The term loan is repayable from December 2008 in accordance with an agreed upon repayment schedule with the last repayment on 15 June 2025. Term loan (1) is stated net of prepaid fi nance cost of AED 51,658 thousand (2006: AED 43,074 thousand).

The term loan facility (2) is US $1,243 million (AED 4,566 million), of which US $1,155 million (AED 4,243 million) was drawn at 31 December 2007 (2006: AED 3,508 million). The term loan is repayable from December 2008 in accordance with an agreed upon repayment schedule with the last repayment on 15 June 2025. Term loan (2) is stated net of prepaid fi nance cost of AED 40,192 thousand (2006: AED 42,253 thousand).

(viii) Union Power Company PJSC (UPC) EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

Non-current liabilitiesEquity bridge loan A LIBOR + 0.25% 2009 484,516 483,977Equity bridge loan B LIBOR + 0.25% 2009 323,010 322,651Term loan LIBOR + margin 2010-2029 4,143,568 4,110,722

4,951,094 4,917,350

During 2006, the UPC’s subsidiary obtained loan facilities from a syndicate of banks led by Barclays Capital Bank and Societe Generale (equity bridge loan facilities (A) and (B) and term loan) to fi nance the acquisition and extension of the Fujairah Power and Desalination Plant. The equity bridge loans carry a commitment fee of 0.0875% and the term loan carries a commitment fee of 0.28% per annum of the undrawn amount.

The equity bridge loan A is US $132 million (AED 485 million), was fully drawn at 31 December 2006 and is repayable on project commercial operation date which is expected to be 15 February 2009. The equity bridge loan A is stated net of prepaid fi nance cost of AED 584 thousand (2006: AED 1,123 thousand).

The equity bridge loan B is US $88 million (AED 323 million), was fully drawn at 31 December 2006 and is repayable on project commercial operation date which is expected to be 15 February 2009. The equity bridge loan B is stated net of prepaid fi nance cost of AED 390 thousand (2006: AED 749 thousand).

The amount of the term loan facility is US $1,270 million (AED 4,667 million), of which US $1,139 million (2006: US $1,131 million) was drawn at 31 December 2007. The term loan is repayable from January 2010 in accordance with an agreed upon repayment schedule with the last repayment on 31 January 2029. The loan carries interest at a variable rate of LIBOR plus a margin of between 0.10% and 1.20% per annum. The term loan is stated net of prepaid fi nance cost of AED 43,376 thousand (2006: AED 45,338 thousand).

(ix) Jorf Lasfar Energy Company EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentUS EXIM 7.2% 2008 72,016 –OPIC Note A 10.23% 2008 18,518 –OPIC Note B 9.92% 2008 4,040 –SACE 5.73% 2008 103,899 –ERG Libor + 2.125% 2008 13,352 –World Bank Libor + 1.875% 2008 71,470 – 283,295 –

Non-currentUS EXIM 7.2% 2013 306,069 –OPIC Note A 10.23% 2013 78,702 –OPIC Note B 9.92% 2013 17,171 –SACE 5.73% 2013 441,569 –ERG Libor + 2.125% 2013 56,746 –World Bank Libor + 1.875% 2013 303,746 –

1,204,003 – The Company’s subsidiary Jorf Lasfar, which is part of the subsidiaries acquired in 2007, had term loans amounting to AED 1,487 million as of 31 December 2007 as follows:

US $ 135 million (AED 497 million) to be repaid quarterly with the fi nal instalment maturing on 15 February 2013. The loans were fully drawn as of 31 December 2007.

Euro 185 million (AED 990 million) to be repaid quarterly with the fi nal instalment maturing on 15 February 2013. The loans were fully drawn as of 31 December 2007.

Jorf Lasfar has entered into interest rate swaps to hedge its exposure against changes in the variable interest rates. Further information is disclosed under note 48.


(x) ST – CMS Electric Company Private Limited EFFECTIVE 2007 2006 INTEREST RATE % MATURITY AED ’000 AED ’000

CurrentTerm loan 7.87% 2008 88,354 –

Non-currentTerm loan 7.87% 2015 552,126 –

The Company’s subsidiary ST-CMS Electric Company, which is part of the subsidiaries acquired in 2007, had term loans amounting to AED 641 million as of 31 December 2007 as follows:

INR 237 million (AED 22 million) to be repaid quarterly with the fi nal instalment maturing on 31 March 2015 and carries a fi xed interest rate of 7.85% per annum until March 2008 and a variable interest rate thereafter.

The term loan is secured by a number of security documents including a commercial mortgage over all assets of the Company.

36 Islamic loansIslamic loans are with respect to the following subsidiaries:

2007 2006 AED ’000 AED ’000

Al Shuweihat Power Company PJSC 815,474 845,352Emirates Power Company PJSC 456,273 480,114Arabian United Power Company PJSC 1,870,546 1,785,001

3,142,293 3,110,467

Disclosed in the balance sheet as follows:

Non-current liabilities 2,017,379 3,056,750Current liabilities 1,124,914 53,717

3,142,293 3,110,467 Amounts payable by TAQA and its subsidiaries (before deducting prepaid fi nance costs) over the next fi ve years from 31 December 2007 are as follows:

2007 2006 AED ’000 AED ’000

Within 1 year 1,128,489 55,123Between 1 – 2 years 126,997 1,189,739Between 2 - 3 years 130,750 126,997Between 3 - 4 years 138,251 130,750Between 4 - 5 years 145,106 138,251After 5 years 1,512,994 1,514,531

3,182,587 3,155,391

(i) Al Shuweihat Power Company PJSC EFFECTIVE 2007 2006 RENTAL RATE % MATURITY AED ’000 AED ’000

CurrentIslamic Ijara loan LIBOR + 1.15% 2008 33,456 29,878

Non-currentIslamic Ijara loan LIBOR + 1.15% 2021 782,018 815,474

The Islamic Ijara loan is secured by an assignation of identifi ed parts of the plant and equipment purchased under the Islamic fi nancing arrangement, and is repayable in thirty fi ve semi-annual instalments starting from December 2004.

The Islamic Ijara loan is stated net of prepaid fi nance costs of AED 21 million (2006: AED 22 million).

(ii) Emirates Power Company PJSC EFFECTIVE 2007 2006 RENTAL RATE % MATURITY AED ’000 AED ’000

CurrentIslamic Ijara loan LIBOR + 0.95% 2008 25,944 23,839

Non-currentIslamic Ijara loan LIBOR + 0.95% 2020 430,329 456,279

The Islamic Ijara loan is secured by an assignment of identifi ed parts of the plant and equipment purchased under the Islamic fi nancing arrangement, and is repayable in thirty three semi annual instalments commencing from 30 June 2004. A fl uctuating profi t charge is paid under the Islamic fi nancing agreement, which is based on LIBOR plus a margin.

The Islamic Ijara loan is stated net of prepaid fi nance costs of AED 8 million (2006: AED 8 million).


82

36 Islamic loans continued(iii) Arabian United Power Company PJSC EFFECTIVE 2007 2006 RENTAL RATE % MATURITY AED ’000 AED ’000

CurrentIjara LIBOR + 0.5% 2008 1,065,514 –

Non-currentIjara LIBOR + 0.5% 2008 – 1,062,720Muqawala LIBOR + 1% 2009 – 2023 805,032 722,281

805,032 1,785,001

The Islamic Ijara loan is secured by an assignation of identifi ed parts of the plant and equipment purchased under the Islamic fi nancing arrangement. The facility of US $291 million (AED 1,068 million) is repayable on 21 July 2008. The Islamic Ijara loan is stated net of prepaid fi nance cost of AED 2,074 thousand (2006: AED 4,868 thousand).

The Muqawala loan is in respect of the procurement and manufacturing of certain generation assets under an Islamic loan facility agreement dated 2 July 2003. The facility of US $250 million (AED 918 million) is repayable in thirty semi annual instalments commencing from January 2009. The Muqawala loan is stated net of prepaid fi nance costs of AED 8,942 thousand (2006: AED 9,373 thousand).

At 31 December 2007, total unutilised Islamic funding available to the Company amounted to AED 105 million (2006: AED 187 million).

37 Employees’ benefi t liabilities 2007 2006 AED ’000 AED ’000

Employees ‘ end of service benefi ts 2,737 1,364Pensions and other post retirement benefi ts 35,744 –Other provision 18,543 –

57,024 1,364

United Arab Emirates:The movement on the provision for employees’ end of service benefi ts is as follows:

2007 2006 AED ’000 AED ’000

Balance at 1 January 1,364 107Net movement during the year 1,373 1,257

Balance at 31 December 2,737 1,364

Pensions and other post retirement benefi ts are analysed as follows:

Foreign subsidiaries: Jorf Lasfar Energy Company 13,664 – TAQA Energy B.V. 22,080 –

35,744 –


Post employment benefi t plansThe Group has a defi ned benefi t pension plan in Netherlands covering its employees in TAQA Energy B.V. requiring contributions to be made to separately administered funds. The Group also has post-employment obligations for certain employees in Jorf Lasfar Energy Company, Morocco. These are unfunded. There were no corresponding obligations in 2006 as both the above subsidiaries were acquired during the year.

The following tables summarise the components of the net benefi t expense recognised in the balance sheet for the respective plans.

JORF LASFAR POST TOTAL TAQA ENERGY EMPLOYMENT FOR THE PENSION PLAN OBLIGATIONS GROUP 2007 2007 2007 AED ’000 AED ’000 AED ’000

Net benefi t expense (for the Group’s ownership period)Current service cost 3,956 562 4,518Interest cost 3,697 364 4,061Expected return on plan assets (2,405) – (2,405)Net actuarial (gain) loss recognised in the year (833) 906 73Past service cost 2,151 – 2,151Exchange rate loss – 452 452

Net benefi t expense 6,566 2,284 8,850

Actual return on plan assets (1,961) – (1,961)

Benefi t asset (liability)Defi ned benefi t obligation (71,751) (13,664) (85,415)Fair value of plan assets 58,340 – 58,340

(13,411) (13,664) (27,075)Unrecognised actuarial (gains) (25,093) – (25,093)Unrecognised past service costs 16,424 – 16,424

Benefi t liabilities (22,080) (13,664) (35,744)

Changes in the present value of the defi ned benefi t obligation are as follows:

JORF LASFAR POST TOTAL TAQA ENERGY EMPLOYMENT FOR THE PENSION PLAN OBLIGATIONS GROUP 2007 2007 2007 AED ’000 AED ’000 AED ’000

Defi ned benefi t obligation at the beginning 81,519 11,380 92,899Interest cost 3,697 364 4,061Current service cost 3,956 562 4,518Actuarial (gains) losses on obligation (17,421) 906 (16,515)Exchange rate loss – 452 452

Defi ned benefi t obligation at 31 December 71,751 13,664 85,415

Changes in the fair value of the plan assets are as follows:

TAQA ENERGY PENSION PLAN 2007 AED ’000

Fair value of the plan assets at the beginning 56,445Expected return 2,405Contributions by employer 3,856Actuarial (gains) losses (4,366)

Fair value of plan assets at 31 December 58,340

The Group expects to contribute AED 3.5 million to its defi ned pension plan in 2008.

The major categories of the plan assets as a percentage of the fair value of total plan assets are as follows:

Equities – 20%

Bonds – 81%

Cash – (1%)

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.


84

37 Employees’ benefi t liabilities continuedThe principal assumptions used in determining pension and post-employment benefi t obligations for the Group’s plans are shown below:

TAQA ENERGY JORF LASFAR JORF LASFAR PENSION PLAN MEDICAL RETIREE COSTS ELECTRICAL CHARGES

Discount rate 5.63% 4.50% 4.50%Expected rate of return on assets 5.99% N/A N/AFuture salary increases 3.50% 6.50% 6.50%Future increases 2.00% 2.95% 1.00%

A one percentage point change in the assumed rate of increase in medical costs and retiree electrical charges would have the following effects:

INCREASE DECREASE AED ’000 AED ’000

Effect on the aggregate current service cost and interest cost (44) 44Effect on the defi ned benefi t obligation (3,217) 3,217

Other provision:Other provision relates to an early retirement plan in place in Taqa Energy BV for a closed group of employees older than 55 years old. A provision has been made for the expected payment obligation upon early retirement, based on current salaries, expected growth and partner participation. The discount rate used is 4%.

38 Assets retirement obligations (ARO)As part of the land lease agreements between ADWEA and the Company’s local subsidiaries, the subsidiaries have a legal obligation to remove the power and water desalination plants at the end of the plants’ useful lives or before if the subsidiaries became unable to continue their operations to that date and to restore the land. The subsidiaries shall at their sole cost and expense dismantle, demobilize, safeguard and transport the assets, eliminate soil and ground water contamination, fi ll all excavation and return the surface to grade of the designated areas.

In addition, the Company’s foreign subsidiaries involved in the oil and gas sector make provision for the future cost of decommissioning oil and gas properties and facilities at the end of their economic lives.

The fair value of ARO liability has been calculated using an expected present value technique. This technique refl ects assumptions such as costs, subsidiaries’ useful lives, infl ation and profi t margins that third parties would consider to assume the settlement of the obligations.

2007 2006 AED ’000 AED ’000

ARO liability at 1 January 257,388 218,578On acquisition of subsidiaries (note 3) 493,050 –On acquisition of Brae assets (note 15) 272,024 –Utilized during the year (7,556) –Provided during the year – 30,654Accretion expense 29,379 13,159Revision in estimated cash fl ows 42,643 (5,003)Exchange adjustment 40,389 –

ARO liability at 31 December 1,127,317 257,388

Disclosed in the consolidated balance sheet as follows:

Current liabilities (note 44) 19,497 –Non-current liabilities 1,107,820 257,388 1,127,317 257,388

39 Advances from related partiesThese represent advances received by the Company’s subsidiary Al Taweelah Shared Facilities from Abu Dhabi Power Corporation LLC against future use of the facilities. Amounts payable within one year have been included under current liabilities (accruals and other liabilities).

40 Loan from related party 2007 2006 AED ’000 AED ’000

Abu Dhabi Power Corporation LLC 27,153 25,844

Movement in the loan balance during the year was as follows:

Balance at 1 January 25,844 23,463Notional interest expense 1,309 2,381

Balance at 31 December 27,153 25,844


During 2005 the Company’s subsidiary was granted a loan amounting to AED 70 million. The loan is interest free and unsecured and is due for payment in full in June 2025. The Company’s management has measured the loan at its fair value of AED 23,463 thousand. The difference amounting to AED 46,537 thousand between the loan amount of AED 70 million and its fair value has been treated as an equity contribution from the ultimate holding company as follows:

2007 2006 AED MILLION AED MILLION

Attributable to equity holder of the parent 25.1 25.1Attributable to minority interests 21.4 21.4

46.5 46.5

41 Other liabilities 2007 2006 AED ’000 AED ’000

Provisions recognised on business combinations 601,701 –Others 22,714 –

624,415 –

Provisions recognised on business combinations relate mainly to certain onerous contracts in relation to market conditions recognised at fair value at the date of acquisition. The current portion of the provisions is shown under accruals and other liabilities (note 44).

42 Trade and other payables 2007 2006 AED ’000 AED ’000

Trade payables 597,327 1,187,177Payable to joint venture partners 31,382 –Dividend payable – 20,569Others 499 –

629,208 1,207,746

Terms and conditions of the above fi nancial liabilities:

- Trade payables are non-interest bearing and are normally settled between 30 to 60 day terms.

- Payable to joint venture partners are non-interest bearing and have an average term of 60 days.

- Interest payable is normally settled throughout the fi nancial year in accordance with the terms of the loans.

43 Amounts due to Abu Dhabi Water and Electricity Authority and other related parties 2007 2006 AED ’000 AED ’000

Abu Dhabi Water and Electricity Authority 92,456 91,300Taweelah Power Company PJSC 3,786 12

96,242 91,312

For terms and conditions relating to related parties, refer to note 46.

44 Accruals and other liabilities 2007 2006 AED ’000 AED ’000

Accrual for back up fuel – 349,821Accrued interest expense 543,746 315,882Accrual for operating costs 84,181 –Accrual for capital expenditure 321,610 –Accrual for royalty fees 49,937 –Provisions recognised on business combinations (note 41) 71,955 –Accrual for taxes 76,216 –Negative fair value of derivatives (note 48) 1,357,700 815,963Deferred income 63,279 250,283Accrued liquidated damages payable – 34,646Assets retirement obligations (note 38) 19,497 –Others 374,163 131,398

2,962,284 1,897,993


86

45 Commitments and contingencies(i) Capital expenditure commitmentsThe authorised capital expenditure contracted for at 31 December 2007 but not provided for amounted to AED 19,593 million (2006: AED 5,212 million).

(ii) Other commitmentsTAQA has entered into an agreement with an infrastructure fund managed by a third party and has committed to invest US $200 million in the fund over a period of fi ve years. During the year, an amount of US $27 million was invested in the fund and has been treated as available for sale investment.

(iii) Operating lease commitmentsGroup as a lessor:

Future capacity payments to be received by the Group under the PWPA based on projected plant availability are as follows: 2007 2006 AED ’000 AED ’000

Within one year 3,442,619 3,172,074After one year but not more than fi ve years 14,152,154 13,505,582More than fi ve years 46,241,075 49,020,942

63,835,848 65,698,598

Group as a lessee:

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows: 2007 2006 AED ’000 AED ’000

Within one year 1,211 –After one year but not more than fi ve years 4,846 –More than fi ve years 5,552 –

11,609 – (iv) ContingenciesAs a result of the acquisitions made during the year, there are contingent liabilities arising from (a) tax assessments or proposed assessments and (b) certain other disputes, all of which are being contested. Pursuant to the Purchase and Sale Agreements between TAQA and the sellers, the sellers have provided Taqa and its subsidiaries with indemnity obligations with respect to such contingent liabilities.

46 Related party transactionsThe following table provides summary of signifi cant related party transactions during the year:

2007 2006 AED ’000 AED ’000

Fellow subsidiary (ADWEC): Sale of water and electricity 4,170,263 3,162,950 Supplemental fuel income 671,852 1,465,258

Compensation of key management personnelFor subsidiaries key management personnel are provided by operation and maintenance companies under contractual agreements with the subsidiaries.

The remuneration of senior key management personnel of the Group during the year was as follows:

2007 2006 AED ’000 AED ’000

Short-term benefi ts 11,070 3,505Employees’ end of service benefi ts 493 –

11,563 3,505

During 2006, ADWEA (the holding company) transferred land located in Abu Dhabi and Al Ain to the Company at no cost. The Company did not fair value the land as of 31 December 2007 and 2006 and has carried the land at nominal value of AED 1 each.

Terms and conditions of transactions with related partiesThe sales to related parties are made at normal market prices. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash. Those have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2007, an amount of AED 11,425 thousand (2006: AED 10,962 thousand) was impaired and fully provided for. This assessment is undertaken each fi nancial year through examining the fi nancial position of the related party and the market in which the related party operates.


47 SubsidiariesThe consolidated fi nancial statements include the fi nancial statements of TAQA and the subsidiaries listed in the following table:

COUNTRY OF PERCENTAGE HOLDING REGISTRATION 31 DECEMBER 31 DECEMBER 2007 2006

Domestic Subsidiaries Emirates Power Company PJSC (EPC) U.A.E. 90% 90% Emirates CMS Power Company PJSC (ECPC) U.A.E. 54% 54% Gulf Power Company PJSC (GPC) U.A.E. 90% 90% Gulf Total Tractebel Power Company PJSC (GTTPC) U.A.E. 54% 54% Arabian United Power Company PJSC (AUPC) U.A.E. 90% 90% Arabian Power Company PJSC (APC) U.A.E. 54% 54% Al Shuweihat Power Company PJSC (SPC) U.A.E. 90% 90% Shuweihat CMS International Power Company PJSC (SCIPCO) U.A.E. 74% 54% Taweelah United Power Company (TUPC) U.A.E. 90% 90% Taweelah Asia Power Company PJSC (TAPCO) U.A.E. 54% 54% Union Power Holding Company PJSC (UPC) U.A.E. 90% 90% Emirates Semb Corp Water and Power Company PJSC (ESWPC) U.A.E. 54% 54% Taweelah Shared Facilities Company LLC (TSFC) U.A.E. 48% 48%

Foreign Subsidiaries TAQA New World, Inc. Delaware, U.S.A 100% 100% AGLAUROS, Inc. Delaware, U.S.A 100% 100% TAQA Bratani Limited U.K. 100% 100% TAQA Bratani LNS Limited U.K. 100% – TAQA Europa B.V. Netherlands 100% 100% TAQA Energy B.V. Netherlands 100% – TAQA Cyprus Cyprus 100% – TAQA Luxembourg S.A.R.L. Luxembourg 100% – ABB Power Investments (India) B.V. Netherlands 100% – AB Cythere 61 Sweden 100% – AB Cythere 63 Sweden 100% – Tre Kronor Investment AB Sweden 100% – TAQA North Ltd Canada 100% – TAQA Generation LLC Michigan, U.S.A 100% – TAQA Generation International LLC Michigan, U.S.A 100% – TAQA Generation Investment Company I Cayman Islands 100% – TAQA Generation Investment Company IV Cayman Islands 100% – TAQA Generation Investment Company II Cayman Islands 100% – CMS Generation Jorf Lasfar I Limited Duration Company Cayman Islands 100% – CMS Generation Netherlands B.V. Netherlands 100% – Jorf Lasfar Power Energy Aktiebolag Sweden 100% – Jorf Lasfar EnergiAktiebolag Sweden 100% – Jorf Lasfar Energy Company, SCA Morocco 100% – Jorf Lasfar Handelsbolag Sweden 100% – CMS Generation Jorf Lasfar II Limited Duration Company Cayman Islands 100% – Jorf Lasfar I HB Sweden 100% – Jorf Lasfar Power Energy HB Sweden 100% – TAQA Generation Investment Company VI Cayman Islands 100% – TAQA Takoradi Investment Company Cayman Islands 100% – TAQA Takoradi Investment Company II Cayman Islands 100% – Takoradi International Company Cayman Islands 90% – Shuweihat O & M General Partner Company Cayman Islands 100% – Shuweihat General Partner Company Cayman Islands 100% – Shuweihat Limited Partnership Cayman Islands 100% – TAQA Generation Investment Company VII Cayman Islands 100% – CMS Jubail Investment Company I Cayman Islands 100% – CMS Generation Taweelah Limited Cayman Islands 100% – CMS Energy UK Limited U.K. 100% – TAQA Generation Investment Company III Cayman Islands 100% – CMS Generation Neyveli Ltd. Mauritius 100% – ST-CMS Electric Company Pvt. Ltd. India 100% – TAQA Generation International Operating Company Cayman Islands 100% – CMS (India) Operations & Maintenance Company Private Limited India 100% – CMS Generation UK Operating Private Limited U.K. 100% – TAQA Generation Jorf Lasfar III Limited Duration Company Cayman Islands 100% – Jorf Lasfar Aktiebolag Sweden 100% – Jorf Lasfar Operations Handelsbolag Sweden 100% – CMS Morocco Operating Co., S.C.A. Morocco 100% –


88

47 Subsidiaries continuedFurther details on the main subsidiaries are as follows:

Emirates Power Company PJSCEmirates Power Company PJSC is a public stock company registered and incorporated in the United Arab Emirates. Its principal activity is to own and invest in companies engaged in power generation and water desalination. It has one subsidiary, Emirates CMS Power Company PJSC with a 60% interest. The subsidiary company is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid.

The subsidiary company has a management, operation and maintenance agreement with Al Taweelah A2 Operating Company, a related party to the subsidiary, whereby the latter has undertaken to manage the day to day operations and maintenance of the plant. The subsidiary has entered into a power and water purchase agreement (PWPA) with Abu Dhabi Water and Electricity Company (“ADWEC”), a related party, (a wholly-owned subsidiary of ADWEA). Under the agreement, the subsidiary company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until October 2021 in accordance with various terms and conditions. The output payments cover variable operations and maintenance costs and fuel effi ciency bonuses or penalty. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by the subsidiary at the end of the PWPA term.

Gulf Power Company PJSCGulf Power Company PJSC is a public joint stock company registered and incorporated in the United Arab Emirates. Its principal activity is to own and invest in companies engaged in power generation and water desalination. It has one subsidiary, Gulf Total Tractebel Power Company PJSC with a 60% interest. The subsidiary company is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid.

The subsidiary company has a management, operation and maintenance agreement with Total Tractebel Emirates O & M Company, a related party to the subsidiary, whereby the latter has undertaken to manage the day to day operations and maintain the plant. Further, the subsidiary has entered into a power and water purchase agreement with ADWEC, a related party (a wholly owned subsidiary of ADWEA). Under the agreement, the subsidiary company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until June 2023 in accordance with various agreed terms and conditions. The output payments cover variable operations and maintenance costs and fuel effi ciency bonuses or penalty. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by the subsidiary at the end of the PWPA term.

Arabian United Power Company PJSCArabian United Power Company PJSC is a public joint stock company registered and incorporated in the United Arab Emirates. Its principal activity is to own and invest in companies engaged in power generation and water desalination. It has one subsidiary, Arabian Power Company PJSC with a 60% interest. The subsidiary is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid.

The subsidiary has a management, operation and maintenance agreement with ITM O & M Company Limited, a related party to the subsidiary, whereby the latter has undertaken to manage the day to day operations and maintain the plant. Further, the subsidiary has entered into a power and water purchase agreement with ADWEC. Under the agreement, the company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until July 2027 in accordance with various agreed terms and conditions. The output payments cover variable operations and maintenance costs and fuel effi ciency bonuses or penalty. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by the subsidiary at the end of the PWPA term.

Al Shuweihat Power Company PJSCAl Shuweihat Power Company PJSC is a public joint stock company registered and incorporated in the United Arab Emirates. Its principal activity is to own and invest in companies engaged in power generation and water desalination. It has one subsidiary, Shuweihat CMS International Power Company PJSC with a 60% interest. The subsidiary is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid.

The subsidiary has a management operation and maintenance agreement with Shuweihat O & M Limited Partnership, a related party, whereby the latter has undertaken to manage the day-to-day operations and maintain the plant. Further the subsidiary has entered into a power and water purchase agreement with Abu Dhabi Water and Electricity Company (ADWEC). Under the agreement, the Company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until 2025 in accordance with various agreed terms and conditions. The output payments cover variable operations and maintenance costs and fuel effi ciency bonuses or penalty. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by the subsidiary at the end of the PWPA term.

Taweelah United Power Company PJSCTaweelah United Power Company is a public joint stock company registered and incorporated in the United Arab Emirates. Its principal activity is to own and invest in companies engaged in power generation and water desalination. It has one subsidiary Taweelah Asia Power Company PJSC with a 60% interest. The subsidiary is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid.

The subsidiary has a management operation and maintenance agreement with Asia Gulf Power Service Company, a related party, whereby the latter has undertaken to manage the day-to-day operations and maintain the plant. Further, the subsidiary has entered into a turnkey agreement with third party contractors for the engineering, procurement, construction and extension of a power and desalination plant in Taweelah. Further, the Company’s subsidiary has entered into a power and water purchase agreement with Abu Dhabi Water and Electricity Company (ADWEC). Under the agreement, the Company undertakes to make available, and ADWEC undertakes to purchase, the entire net capacity of the plant until 2028 in accordance with various agreed terms and conditions. The output payments cover variable operations and maintenance costs and fuel effi ciency bonuses or penalty. Natural gas fuel is supplied by ADWEC at no cost. The ownership of the plant will be retained by the subsidiary at the end of the PWPA term.

Union Power Holding Company PJSCUnion Power Company is a public joint stock company registered and incorporated in the United Arab Emirates in 2006. Its principal activity is to own and invest in companies engaged in power generation and water desalination. It has one subsidiary Emirates Semb Corp PJSC with a 60% interest. The subsidiary is engaged in generation of electricity and production of desalinated water for supply into the Abu Dhabi grid.

The Company has a management operation and maintenance agreement with SembCorp Gulf O & M Company Limited, a related party, whereby the latter has undertaken to manage the day-to-day operations and maintain the Company’s plant. Further, the Company has entered into a power and water purchase agreement (“PWPA”) with Abu Dhabi Water and Electricity Company (“ADWEC”). Under the PWPA, the Company undertakes to make available, and ADWEC undertakes to purchase, the available net capacity of the plant until January 2029 in accordance with various agreed terms and conditions. The output payments cover variable operations and maintenance costs and fuel effi ciency bonuses or penalty. Natural gas fuel is supplied by ADWEC at no cost. The subsidiary has entered into a turnkey agreement with Iberdrola Ingenieria Construccion S.A.U. and Arabian Bemco Contracting Company Limited, for the engineering, procurement and construction of the Fujairah plant extension. The ownership of the plant will be retained by the subsidiary at the end of the PWPA term.


Foreign operating subsidiariesTAQA Bratani Limited and TAQA Bratani LNS LimitedTaqa Bratani Limited was incorporated in 2006 to oversee Taqa’s investments in the UK. In 2006, Taqa Bratani Limited and Taqa Bratani LNS Limited acquired the working interests of Talisman Energy Inc. in the Brae area of the UKCS (UK Continental Shelf). The interests in the Brae asset area includes part ownership of platforms, pipelines and offshore facilities, together with a large number of contracts which were entered into as part of the acquisition (mainly processing, tariffi ng and supply contracts).

TAQA Energy B.V.In January 2007, TAQA, through its wholly owned subsidiary TAQA Europa B.V., acquired BP Nederland Energie B.V. (subsequently renamed TAQA Energy B.V.) from Amoco Netherlands Petroleum Company (“Amoco”). TAQA Energy is involved in the exploration, production and transportation of oil and natural gas in The Netherlands. TAQA Energy is also involved in the peak gas business by commissioning the fi rst peak shaver in The Netherlands, the Alkmaar Piek Gas Installatie (“PGI”).

TAQA North LtdTAQA North, formerly Northrock Resources Limited (“Northrock”) is a Calgary-based oil and gas exploration company with operations in Alberta, British Columbia, Saskatchewan, and the Northwest Territories. Northrock was acquired by TAQA in August 2007 from Pogo Producing Company and amalgamated with TAQA North. TAQA North has since entered into agreements to acquire Pioneer Canada Ltd. (“Pioneer”), a subsidiary of US-based Pioneer Natural Resources Company, and Calgary-based PrimeWest Energy Trust (“PrimeWest”). The former transaction closed on November 27, 2007 and the latter on January 16, 2008.

Jorf Lasfar Energy Company, SCA (JLEC)JLEC was incorporated in Morocco as a société en commandite par actions (which is similar to a Limited partnership) in January 1997. Through affi liated companies, TAQA owns 100% of JLEC. JLEC was established to operate two existing power generation units at Jorf Lasfar, each having 330 MW gross capacity (“units 1 and 2”), and to construct and operate two units of 348 MW gross capacity each (“units 3 and 4”) at the same site.

Through the power purchase agreement (“PPA”), transfer of possession agreement and the construction and procurement agreement, JLEC acquired the right to design, construct, fi nance and commission units 3 and 4, operate all four units and sell all power generation capacity and net electricity production generated by these four units to Morocco’s state-owned ONE for a period of thirty years from fi nancial close of the Jorf Lasfar project, which occurred in September 1997.

ONE retained legal title to units 1 and 2 and acquired legal title to each of units 3 and 4 as they were constructed. JLEC operates and possesses all four units and ancillary infrastructure comprising the Jorf Lasfar power station through a right of quiet enjoyment (droit de jouissance), a concept recognised under Moroccan law which transfers possession together with the right to use, enjoy and profi t from the assets transferred.

As of May 2007, the operating company, JLEC, became an indirect wholly owned subsidiary of TAQA when TAQA acquired a 50% interest in the operating company as part of the acquisition of TAQA Generation, and acquired the remaining 50% interest from an affi liate of ABB Ltd.

Takoradi International CompanyTakoradi International Company (TICO), the Ghana Branch of a Cayman Islands limited liability company. The company is authorised to develop, design, fi nance, construct, commission, complete, own, operate, and maintain a power generation plant to be located adjacent to the existing power station in Aboadze, near Takoradi, within the TTPP complex. As of May 2007, Taqa Generation, a wholly owned subsidiary of TAQA acquired a 90% interest in TICO.

ST-CMS Electric Company Pvt. Ltd. (SCECPL)SCECPL was incorporated on 17 November 1993, principally for the purposes of owning and operating the 250 MW lignite thermal power plant facility located in Neyveli, Tamil Nadu, Republic of India. SCECPL sells the entire capacity of the power plant to TNEB, the local state government owned utility, under a 30-year power purchase agreement. The plant was developed and constructed by SCECPL and commenced commercial operations in December 2002. The plant is operated by CMS (India) Operation and Maintenance Company Private Limited under a 30-year operation and maintenance agreement.

As of May 2007, the operating company, SCECPL, became an indirect wholly owned subsidiary of TAQA when TAQA acquired a 50% interest in SCECPL as part of the acquisition of TAQA Generation, and acquired the remaining 50% interest in May 2007 from an affi liate of ABB Ltd.

Other subsidiariesO&M CompaniesAs part of the acquisition of Jorf Lasfar, SCECPL and TICO as described above, TAQA also acquired the related operating and maintenance companies.

Taweelah Shared Facilities LLC (TSFC)TAQA acquired a controlling interest in Al Taweelah Shared Facilities LLC through its subsidiaries Al Taweelah Asia Power Company PJSC, Emirates CMS Power Company PJSC and Gulf Total Tractebel Power Company PJSC.TSFC is a closely held private company incorporated in United Arab Emirates which maintains shared utility facilities in Al Taweelah complex for the supply and discharge of sea water and provides other related services to TAQA subsidiaries.

TAQA Europa BVThe subsidiary was created in 2006 to oversee certain investments made by TAQA. As of 31 December 2007, the Company held investments in Taqa Energy, Taqa North, Taqa Bratani and Jorf Lasfar.

TAQA New World – Delaware and Aglauros Inc.The subsidiary was created in 2006 to oversee TAQA’s investments in United States.


90

48 Financial instruments Fair valuesThe fair values of the fi nancial assets and liabilities of the Group are not materially different from their carrying values at the balance sheet date except for certain fi xed interest borrowings and fi nance lease receivables. Set out below is a comparison of the carrying amounts and fair values of fi xed interest borrowings and fi nance lease receivables:

CARRYING AMOUNT FAIR VALUE 2007 2006 2007 2006 AED ’000 AED ’000 AED ’000 AED ’000

Interest-bearing loans and borrowings – fi xed rate borrowings 21,458,708 12,685,687 21,108,953 13,021,830Finance lease receivables 6,068,027 – 6,156,408 –

The fair value of fi xed rate borrowings has been calculated by discounting the expected future cash fl ows at the current market interest rates for a bond with similar terms and risk characteristics. The fair value of fi nance lease receivables is calculated by discounting the expected future cash fl ows using appropriate interest rates.

Hedging activitiesCash fl ow hedges

(i) Interest Rate SwapsIn order to reduce its exposure to interest rates fl uctuations on the interest bearing loans and borrowings and Islamic loans the Group’s subsidiaries entered into interest rate swap arrangements with counter-party banks for a notional amount that matches the outstanding interest bearing loans and borrowings and Islamic loans. The following table summarises the outstanding notional outstanding and the fair value position of the derivate instruments for each subsidiary as of 31 December 2007 and 31 December 2006:

DERIVATIVE FAIR VALUESUBSIDIARY NOTIONAL AMOUNT ASSETS LIABILITIES ASSETS LIABILITIES 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 2007 2006 2007 2007 2006 2006 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

ECPC 1,664,000 1,752,000 – 142,000 – 112,997GTTPC 2,757,000 2,733,000 – 242,000 – 225,000SCIPCO 4,135,000 4,286,000 – 360,000 – 246,966APC 5,230,000 5,678,458 – 4,000 167,146 –TAPCO 9,329,000 7,841,855 – 220,000 70,000 –ESWPC 4,161,000 4,414,000 9,600 367,700 – 231,000JLEC 445,314 – – 22,000 – –

9,600 1,357,700 237,146 815,963

A schedule indicating as at 31 December 2007 the periods when the hedged cash fl ows are expected to occur and when they are expected to affect the income statement is as follows:

WITHIN 1 OVER 8 YEAR 1-3 YEARS 3-8 YEARS YEARS+ TOTAL AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

Cash in fl ows (Assets) 45,299 – 9,921 6,886 62,106Cash outfl ows (Liabilities) - (14,967) (400,131) (995,108) (1,410,206)

Net cash infl ows (outfl ows) 45,299 (14,967) (390,210) (988,222) (1,348,100)

Income statement (39,287) (35,731) – – (75,018)

Emirates CMS Power Company PJSC (ECPC)In order to reduce its exposure to interest rates fl uctuations on the term loan and Islamic Ijara loan, the Company has entered into interest rate swap arrangements with counter-party banks for a notional amount that matches the outstanding term loan and Islamic Ijara loan. At 31 December 2007 the fi xed interest rates vary from 6.31% to 6.33% (2006: 6.31% to 6.33%). The fl oating interest rate is LIBOR. The notional amount outstanding at 31 December 2007 was AED 1,664 million (2006: AED 1,751 million). Up to 30 September 2007, the derivatives relating to interest rate swap arrangements (derivatives) did not qualify for cash fl ow hedge accounting and accordingly, gains and losses arising from changes in their fair value were taken to the income statement. Effective 1 October 2007, management changed its strategy and as a result, the derivatives effective that date qualifi ed for cash fl ow hedge accounting and accordingly, gains and losses arising from changes in their value are taken to equity.

The derivative instruments were entered into for the purpose of cash fl ow hedge. As a result of the debt refi nancing arrangements concluded by the Company in March 2004, derivatives existed prior to the refi nancing date have been extinguished and new interest rate swap contracts have been entered into as part of the debt refi nancing arrangements. Consequently, the related cumulative changes in fair values previously recognised in equity shall be reclassifi ed to the income statement over the period during which the previous hedged forecast transaction affects the income statement.

Gulf Total Tractebel Power Company PJSC (GTTPC)In order to reduce its exposure to interest rates fl uctuations on the term loan, the subsidiary GTTPC has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the term loan, covering at least 75% (2006: 85%) of the outstanding term loan. At 31 December 2007, the fi xed interest rates vary from 6.7% to 6.95% (2006: 6.7% to 6.95%). The fl oating interest rate is LIBOR. The notional amount outstanding at 31 December 2007 was AED 2,757 million (2006: AED 2,733 million). The derivative instruments were entered into for the purpose of cash fl ow hedge.


Shuweihat CMS International Power Company PJSC (SCIPCO)In order to reduce its exposure to interest rates fl uctuations on loans, the subsidiary SCIPCO has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 75% of the outstanding loans. At 31 December 2007 the fi xed interest rates vary from 5.04% to 6.354% (2006: 5.04% to 6.354%). The fl oating interest rate is LIBOR. The notional amount outstanding at 31 December 2007 was AED 4,135 million (2006: AED 4,286 million). The derivative instruments were entered into for the purpose of cash fl ow hedge.

Arabian Power Company PJSC (APC)In order to reduce its exposure to interest rates fl uctuations on the loans, the subsidiary APC has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 85% of the outstanding term loan. At 31 December 2007, the fi xed interest rates vary from 2.575% to 5% (2006: 2.575% to 5%). The fl oating interest rate is LIBOR. The notional amount outstanding at 31 December 2007 was AED 5,230 million (2006: AED 5,678 million). The derivative instruments were entered into for the purpose of cash fl ow hedge.

Taweelah Asia Power Company PJSC (TAPCO)In order to reduce its exposure to interest rates fl uctuations on the loans, the subsidiary TAPCO has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 75% of the outstanding loans. The notional amount outstanding at 31 December 2007 was AED 9,329 million (2006: AED 7,841 million). At 31 December 2007, the fi xed rates vary from 4.0396% to 4.16% (2006: 4.0396% to 4.16%). The fl oating interest rate is LIBOR. The derivative instruments were entered into for the purpose of cash fl ow hedge.

Emirates Sembcorp Water and Power Company PJSC (ESWPC))In order to reduce its exposure to interest rates fl uctuations on the loans, the subsidiary ESWPC has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of the loans, covering not less than 80% of the outstanding loans. The notional amount outstanding at 31 December 2007 was AED 4,161 million (2006: AED 4,414 million). At 31 December 2007, the fi xed rates vary from 5.67% to 5.85% (2006: 5.67% to 5.85%). The fl oating interest rate is LIBOR. The derivative instruments were entered into for the purpose of cash fl ow hedge.

Jorf LasfarIn order to reduce its exposure to interest rates fl uctuations on the loans, the subsidiary has entered into an interest rate arrangement with counter-party banks for a notional amount that mirrors the draw down and repayment schedule of its Euro loans that carry variable interest rates. The notional amount outstanding at 31 December 2007 was AED 445 million. At 31 December 2007, the fi xed rate varies between 6.406% and 6.4750%. The fl oating interest rate is LIBOR. The derivative instruments were entered into for the purpose of cash fl ow hedge.

(ii) Hedge of net investment in foreign operations

Included in loans at 31 December 2007 was a borrowing of Euro 553 million (AED 2,964 million) which has been designated as a hedge of the net investments in the Netherlands subsidiary TAQA Europa BV and is being used to hedge the Group’s exposure to foreign exchange risk on this investment. During the year ended 31 December 2007, a loss of AED 249 million on the retranslation of this borrowing was transferred to equity to offset any gains or losses on translation of the net investment in this subsidiary.

(iii) Forward Foreign Exchange Contracts

Emirates CMS Power Company PJSC (ECPC)The Company uses forward foreign exchange contracts to hedge its risk associated with foreign currency fl uctuations relating to scheduled maintenance cost payments to an overseas supplier. The outstanding forward foreign exchange commitment at 31 December 2007 was AED 141 million (2006: AED 173 million). The forward foreign exchange contracts do not qualify for hedge accounting and accordingly, changes in fair value are recorded in the consolidated income statement.

Shuweihat CMS International Power Company PJSC (SCIPCO)The Company uses forward foreign exchange contracts to hedge its risk associated with foreign currency fl uctuations relating to scheduled maintenance cost payments to an overseas supplier. The outstanding forward foreign exchange commitment at 31 December 2007 amounted to AED 225 million (2006: AED 278 million).

49 Financial risk management objectives and policies The Group’s principal fi nancial liabilities, other than derivatives, comprise bank and other loans and overdrafts, and trade payables. The main purpose of these fi nancial liabilities is to raise fi nance for the Group’s operations. The Group has various fi nancial assets such as trade receivables, receivable from related parties and cash and short-term deposits, which arise directly from its operations.

The Group also enters into derivative transactions, primarily interest rate swap and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and sources of fi nance.

It is, and has been throughout 2007 and 2006 the Group’s policy that no trading in derivatives shall be undertaken.

The main risks arising from the Group’s fi nancial instruments are cash fl ow interest rate risk, foreign currency risk, liquidity risk and credit risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.

Interest rate riskThe Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations and short-term deposits with fl oating interest rates. The Group’s policy is to manage its interest cost using a mix of fi xed and variable rate debts. To manage this, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specifi ed intervals, the difference between fi xed and variable rate interest amounts calculated by reference to an agreed upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 31 December 2007, after taking into account the effect of interest rate swaps, approximately 96% of the Group’s borrowings are at a fi xed rate of interest (2006: 97%).


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49 Financial risk management objectives and policies continuedInterest rate risk tableThe following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profi t and equity (through the impact on fl oating rate borrowings).

EFFECT ON PROFIT EFFECT ON EQUITY AED ’000 AED ’000

2007+15 increase in basis point (2,675) 208,463-15 decrease in basis point 2,675 (209,507)

2006+15 increase in basis point 950 215,271-15 decrease in basis point (950) (216,572)

Foreign currency riskAs a result of the Group’s investment in the Netherlands and Morocco, the Group is exposed to currency risk as a result of movements in the Euro to AED exchange rates. The Group seeks to mitigate the effect of its structural currency exposure by borrowing in Euro.

As a result of the Group’s investment in Canada, the Group’s balance sheet can be affected by movements in the CAD to AED exchange rates. The Group exposure to US $ is limited as the AED is pegged to the US $.

The Group also has transactional currency exposure mainly in US Dollars, Euros and Canadian Dollars. Information on the Group’s currency hedging is shown under note 48(i) and 48 (iii). It is the Group’s policy to have all forward currency contracts in the same currency as the hedged items and not to enter into forward contracts until a fi rm commitment is in place.

It is the Group’s policy to synchronise the terms of the hedge derivatives with the terms of the hedged item to maximise hedge effectiveness.

The following table demonstrates the sensitivity to a reasonably possible change in the Euro, CAD and GBP exchange rates, with all other variables held constant, of the Group’s profi t before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (due to changes in the fair value of forward exchange contracts, net investment hedges and foreign currency translation reserve).

INCREASE/ EFFECT ON DECREASE IN EURO, PROFIT EFFECT ON GBP AND CAD RATES BEFORE TAX EQUITY AED ’000 AED ’000

2007 +5% 32,013 (528,000) -5% (32,709) 528,000

The Group was not exposed to signifi cant foreign currency risk in 2006.

Credit riskThe Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not signifi cant. The maximum exposure is the carrying amount as disclosed in notes 26 and 27. The Group’s three largest customers account for approximately 49% of outstanding trade receivables at 31 December 2007 (2006: 3 customers - nil). With respect to credit risk arising from the other fi nancial assets of the Group, which comprise cash and cash equivalents, available-for sale fi nancial investments, and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Group seeks to limit its credit risk to banks by only dealing with reputable banks and fi nancial institutions.

Liquidity riskThe Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its fi nancial investments and fi nancial assets (eg, accounts receivable and other assets) and projected cash fl ow from operations.

The Group’s objective is to maintain a balance between continuity of funding and fl exibility through the use of bank overdrafts, bank loans and bonds. The Group’s policy is that the amount of borrowings that mature in the next 12 month period should not result in the current ratio to be less than 100%.


The table below summarises the maturity profi le of the Group’s fi nancial liabilities at 31 December 2007 based on contractual undiscounted payments:

ON LESS THAN 3 TO 12 1 TO 5 DEMAND 3 MONTHS MONTHS YEARS > 5 YEARS TOTAL AED ’000 AED ’000 AED ’000 AED ’000 AED ’000 AED ’000

At 31 December 2007Trade and other payables 68,644 524,880 35,684 – – 629,208Bank overdrafts 170,469 – – – – 170,469Interest bearing loans, borrowings and islamic loans – 642,757 4,245,511 23,648,682 48,893,426 77,430,376Loan from a related party – – – – 70,000 70,000Loans from minority interest shareholders in subsidiaries 19,770 – – – – 19,770Amounts due to ADWEA and other related parties – 96,242 – – – 96,242Derivative fi nancial instruments – – – 366,000 – 366,000

Total 258,883 1,263,879 4,281,195 24,014,682 48,963,426 78,782,065

At 31 December 2006Trade and other payables – 1,046,037 161,709 – – 1,207,746Bank overdrafts 232,677 – – – – 232,677Interest bearing loans and borrowings and islamic loans – 503,038 4,165,332 14,867,974 46,015,511 65,551,855Loan from a related party – – – – 70,000 70,000Loans from minority interest shareholders in subsidiaries 19,770 – – – – 19,770Amounts due to ADWEA and other related parties – 91,312 – – – 91,312Derivative fi nancial instruments – – – – 451,000 451,000

Total 252,447 1,640,387 4,327,041 14,867,974 46,536,511 67,624,360

Market price riskMarket price risk is the risk that the value of a fi nancial instrument will fl uctuate as a result of changes in market prices, whether those changes are caused by factors specifi c to the individual security, or its issuer, or factors affecting all securities traded in the market. The Group is exposed to market risk with respect to its available for sale investment.

The Group limits market price risk by actively monitoring the key factors that affect the market movements, including analysis of the operational and fi nancial performance of investees.

The following table demonstrates the sensitivity to a reasonably possible change in the market price of available for sale investment, on the Group’s equity.

2007 2006 CHANGE IN IMPACT ON IMPACT ON VARIABLES EQUITY EQUITY AED ’000 AED ’000

Available for sale investments 5% 4,974 7,043


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49 Financial risk management objectives and policies continued Capital managementThe primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. There are no regulatory imposed requirements on the level of share capital which the Group has not met. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 December 2007 and 31 December 2006.

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group’s policy is to keep the gearing ratio within a range to meet the business needs of the Group. The Group includes within net debt, interest bearing loans and borrowings, Islamic loans, less cash and cash equivalents. Capital includes total equity including minority interests less cumulative changes in fair value of derivatives and available for sale investments.

2007 2006 AED ’000 AED ’000

Interest bearing loans and borrowings 48,547,042 37,331,189Islamic loans 3,142,293 3,110,467Less cash and cash equivalents (7,430,624) (15,788,490)

Net debt 44,258,711 24,653,166

Equity 8,129,065 7,568,624Cumulative changes in fair value of available for sale investments – (26,253)Cumulative changes in fair value of derivatives 702,285 318,115

Total capital 8,831,350 7,860,486

Capital and net debt 53,090,061 32,513,652

Gearing ratio 83% 76%

50 Events after the balance sheet dateBusiness combinationOn 16 January 2008, TAQA North completed the acquisition of all of the issued and outstanding trust units and outstanding exchangeable shares of PrimeWest Energy Inc. (Primewest) under a plan of arrangement. The aggregate value of the transaction was Canadian Dollars 5.11 billion (AED 18.4 billion). PrimeWest is a Calgary-based conventional oil and gas royalty trust that actively acquires, develops, produces and sells natural gas, crude oil and natural gas liquids for the bene t of its unit-holders.

The purchase price allocation exercise relating to the Primewest acquisition was still in progress at the time when the consolidated nancial statements were prepared and hence, information relating to fair value, goodwill and other relating disclosures are not available.


GLOSSARY OF TERMS

3C Initiative – The 3C Initiative was launched on 11 January 2007 by a statement appealing to the global community and all its representatives to join forces with business leaders around a common vision of a low emitting, sustainable society and to cooperate to create a roadmap that leads to its realization. Following a six month process of open consultation with many of the initiative’s participating companies, a series of recommendations were launched in Washington D.C. on 9 November 2007.ADSM – Abu Dhabi Securities Market.

ADWEC – Abu Dhabi Water and Electricity Company, a subsidiary of ADWEA which is the sole buyer of IWPP Production in the UAE.

ADWEA – Abu Dhabi Water and Electricity Authority, a governmental authority which owns 51.0% of TAQA’s share capital.

AED – UAE Dirham.

API – American Petroleum Institute. API gravity is a standard method of measuring density of crude oils and is expressed in degrees.

Arabian Power – Arabian Power Company PJSC.

Barrel – Measure of crude oil equal to 42 USA gallons, 35 Imperial gallons or 159 liters. Takes its name because the rst oil produced in the USA was stored and transported in wooden barrels.

Basin – A dip in the earth’s crust usually lled or being lled with sediment. It is a basic concept in petroleum geology.

bbl – The abbreviation for barrel.

bbls/d – Barrels per day.

bcf – One billion cubic feet of gas.

boe – Barrels of oil equivalent. A gure used when expressing the combined volume of oil and gas reserves.

boe/d – Barrels of oil equivalent per day.

Completion – The nal preparation to ready a well for production.

Condensate – Hydrocarbons which are gaseous in a reservoir, but which condensate to form a liquid as they rise to the surface where the pressure is much less.

CSR – Corporate Social Responsibility.

ECPC – Emirates CMS Power Company PJSC.

Farm-in/out – An arrangement between one or more parties and the company or group holding a lease title to an exploration or production area whereby the former pays to earn an interest in the permit. Payment may be in cash or in the form of a work program.

Farmers Fund – Governmental Fund that owns 24.1% of TAQA.

GAAP – Generally Accepted Accounting Principles.

GCC – Gulf Cooperation Council.

Green eld – The construction of new plants. Taweelah A2 and Shuweihat S1 are examplesof green eld developments.

Group – TAQA and its subsidiaries.

GWh – Gigawatt –hour.

GDP per capita – Gross Domestic Product of a country divided by its total population.

H-gas – High calori c value gas.

Husky – Husky Energy Inc.

96

Hybrid car – A hybrid electric vehicle (HEV) is a vehicle which combines a conventional propulsion system with an on-board rechargeable energy storage system (RESS) to achieve better fuel economy than a conventional vehicle without being hampered by range from a charging unit like a battery electric vehicle, which uses batteries charged by an external source.

IFRS – International Financial Reporting Standards.

IWPPs – Independent Power and Water Producers.

JLEC – Jorf Lasfar Energy Company SCA.

Joint venture – A group of companies or individuals who share the cost and rewards of exploring for and producing oil or gas from a permit.

Light crude – Generally refers to crude oil with an API gravity of 30 degrees or more.

mcf – Thousand cubic feet.

mcf/d – Thousand cubic feet per day.

MIG – Million Imperial Gallons.

MIGD – Million Imperial Gallons per Day.

Mmbbls – Million barrels.

mmboe – Millions of barrels of oil equivalent.

mmcf – Million cubic feet of gas.

mmcf/d – Million cubic feet per day.

MW – Megawatt.

MWh – Migawatt-hour ( a unit of energy equal to one thousand watt hours).

Nm3 – A cubic meter of gas volume at normal, i.e. atmospheric pressure conditions.

Nm3/d – A normal cubic meter of gas per day.

Natural Gas – A naturally occurring mixture of hydrocarbon and nonhydrocarbon gases found in porous geological formations beneath the earth’s surface, often in association with petroleum. The principal constituent is methane.

O&M – Operation and Maintenance.

O&M Agreement – Management, operation and maintenance agreement between the operating subsidiary and a contractor.

Operator – The company which organizes the exploration and production programs in a permit on behalf of all the interest holders in the permit.

P1 reserves – See proved reserves.

P2 reserves – See probable reserves.

Peak-shaving facilities – Peak-shaving facilities are used for storing surplus natural gas that is to be used to meet the requirements of peak consumption later during winter or summer.

Permeability – The degree to which uids can move through a rock.

Permit – An area of a speci ed size within a sedimentary basin which is licensed or allocated to a company or companies by the government for the purpose of exploring for and producing oil and gas. In Australia separate licenses are issued for exploration and production.

PGI – Piek Gas Installatie.

Pioneer Canada – Pioneer Natural Resources Canada Inc., Pioneer Natural ResourcesCanada and Pioneer Natural Resources Canada ULC.

96

GLOSSARY OF TERMS


Possible reserves – Those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable plus possible reserves. [Society of Petroleum Engineers, www.spe.org].

PPA – Power Purchase Agreement.

Probable reserves – Those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves. [Society of Petroleum Engineers, www.spe.org].

Proved reserves – Are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of con dence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate. [Society of Petroleum Engineers, www.spe.org].

Production sharing contract or PSC – Production haring content, where an oil company is contracted to explore for and produce oil and gas under preset arrangements to share the proceeds with the host government or its natural petroleum company.

PWPA – Power and Water Purchase agreement.

Reservoir – A rock or formation which holds hydrocarbons within the pore spaces between individual grains.

S&P – Standard & Poor’s Rating Group, a division of The McGraw-Hill Companies, Inc.

Sales gas – Natural gas that is sold into the distributor/retail market after being treated to remove impurities.

SCA – Securities and Commodities Authority.

SCECPL – ST-CMS Electric Company Private Limited.

SCIPCO – Shuweihat CMS International Power Company PJSC.

Suspended – A well is suspended when it is likely to be re-entered at a later date, either to continue drilling or to run a test of a reservoir that was not possible or convenient during the original drilling. The well is suspended by setting cement plugs that can be drilled out when re-entry takes place.

Talisman – Talisman Energy (UK) Limited and Talisman LNS Limited.

TAPCO – Taweelah Asia Power Company PJSC.

TAQA – Abu Dhabi National Energy Company PJSC.

TAQA Bratani – TAQA Bratani Limited.

TAQA Energy – TAQA Energy B.V.

TAQA Europa – TAQA Europa B.V.

TAQA Generation – TAQA Generation LLC.

TAQA New World – TAQA New World, Inc.

TAQA North – TAQA North Ltd.

Taweelah A2 Operating – Taweelah A2 Operating Company LLC.

TNEB – Tamil Nadu Electricity Board.

TNERC – Tamil Nadu Electricity Regulatory Commission.

TUPC – Taweelah United Power Company PJSC.

UAE – United Arab Emirates.

UPC – Union Power Company PJSC.


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