TEAMWORK.
TOGETHER WE WIN
The challenges posed by the Business Plan required a further strengthening of the organization of the strategic units that operate the Group’s natural gas business. Specifically, the Business Units that are responsible for managing the Group’s activities concerning electric power and natural gas procurement, production and distribution are now supported by a new Gas Supply and Logistics Business Unit.
The Electric Power and Hydrocarbons Business Units Assets are responsible, respectively, for managing electric power production facilities and carrying out natural gas and oil exploration and production.
The Renewable Sources Department is specifically concerned with developing the Group’s wind power operations and coordinating the management of CO2 emissions rights and other environmental securities and certificates.
The Marketing and Sales Business Unit operates in the end markets, in which Edison is active through both direct and indirect channels, offering customers electric power, natural gas and all related services.
The Energy Management Business Unit is responsible for trading electric power in the wholesale market and handles sales on the Italian Power Exchange (IPEX). In addition, it is responsible for electric power planning and dispatching and for the overall optimization of the electric power and natural gas operations.
The Gas Supply & Logistics Business Unit is charged with supplying the Group’s thermoelectric power plants with natural gas and with developing Edison’s end markets by managing domestic and international supply contracts and the operational aspects of transmission and storage contracts.
BUSINESS PLAN.
MISSION SUSTAINABLE
Strategy
The 2007-2012 Industrial Plan, which was approved in December 2006, is designed to strengthen Edison’s position as a leading player in the electric power and hydrocarbons industries. Over the duration of the Plan, the Company will invest 4 billion euros in transnational infrastructures for the importation of natural gas, in hydrocarbon exploration and production projects and in activities that will expand its presence in the electric power area, with special emphasis on renewable sources (the total amount to be invested includes 50% of the capital expenditures of Edipower Spa).
An overview of the Plan’s strategic guidelines is provided below.
Hydrocarbons Operations
In this area, we intend to play an increasingly significant role by increasing our market share while at the same time securing an affordable supply of fuel for our combined-cycle power plants, thereby strengthening the integration between the electric power and hydrocarbons operations, which we view as a critical success factor in an oil market that will continue to be characterized by significant pressure on prices.
Our 2012 objective is to increase our Italian supply base to 22 billion cubic meters of natural gas per year (about 20% of all natural gas available in Italy), which we will accomplish in part by developing European-level infrastructures that will help transform Italy from a mere consumption market into a hub of strategic importance in meeting the growing needs of the Europe.
In addition, the Rovigo regasification terminal, the only LNG project currently under construction in Italy, will come on stream during the Plan period. It will deliver about 8 billion cubic meters of natural gas per year to the Italian market, 6.4 billion cubic meters of which will be available to the Group. Edison has a 10% interest in GNL Adriatic, the company building the facility, and Qatar Petroleum and ExxonMobil each own 45%.
In 2006, we signed important agreements with Sonatrach, in Algeria, to import 2 billion cubic meters per year of natural gas through an upgraded Transmed-TTPC natural gas pipeline and an additional 2 billion cubic meters per year through the new Galsi pipeline that will link Algeria with Italy (Edison is the main Italian shareholder).
A third key project that Edison is pursuing is the IGI natural gas pipeline linking Italy and the Caspian Sea through Greece and Turkey. Edison has acquired the right to import 6.4 billion cubic meters per year for 25 years through the IGI pipeline. EU authorities have designated the IGI and GALSI pipelines as “Projects of European Interest.” At that point, the Group will have a well-structured portfolio of long-term contracts for natural gas from a variety of geographic regions and will be supplied directly by the producing countries, thereby gaining greater autonomy and flexibility. In order to increase the reliability of the system, the Group will expand its natural gas storage network, increasing total working gas
capacity to more than 2 billion cubic meters (equal to more than 10% of total Italian storage capacity) by 2012. This will be accomplished by expanding the Group’s existing facilities in Collalto (Treviso) and Cellino (Teramo) and by developing newly acquired concessions in San Potito-Cotignola (Ravenna) and Mafalda-Sinarca. Lastly, special attention will be paid to hydrocarbon exploration projects in North Africa and other high-potential regions, with the goal of increasing reserves and annual production.
Hydrocarbon production will contribute to the Group’s profitability while at the same time providing a “natural” hedge against fluctuations in purchasing costs caused by the volatility of the oil markets. Our long-term objective is to achieve annual production equal to 15% of the Group’s requirements.
Electric Power Operations
The planned 2007 startup of the Group’s Simeri Crichi power plant (800 MW) and of Edipower’s Turbigo facility (800 MW, 50% available to Edison) will mark the completion of one of the most ambitious production capacity construction programs carried out in Europe in the last 10 years.
Plans for the 2007-2012 period call for the construction of another 800-MW combined-cycle power plant and for the development of renewable-source facilities, which will require investments of about 500 million euros. Specifically, we intend to double our installed wind-power capacity (currently 260 MW) through new projects that we will develop directly.
The hydroelectric operations will work to expand the existing facilities, with the resulting benefit of increasing the output of green certificates, ad the portfolio of CIP6 power plants will be streamlined. Total generating capacity is expected to rise to 14,000 MW by 2012. Edison plans to increase its market share by seizing the opportunities provided by full market deregulation and the high flexibility of its portfolio of production facilities. Specifically, we expect to boost sales to customers in the deregulated market to about 50 terawatt-hours by 2012, with about 80% of the total sold in the retail market and 20% sold to wholesalers.
Lastly, we are pursuing growth opportunities outside Italy, particularly in the Balkans and in Greece. Greece and Italy have already established a fruitful relationship in the hydrocarbons area with the IGI project.
The operating and financial objectives of the 2007-2012 Plan are:
  • EBITDA growing at an average annual rate of 6% to 8%;
  • EBIT increasing at an average annual rate of 11% to 13%;
  • Steadily increasing returns on invested capital (ROI) that will average about 10% over the Plan period;
  • Assumption of distributing dividends equal to about 50% of net profit;
  • Significant reduction of net indebtedness over the Plan period.