Management report

Business description

The ERG Group, also through its own subsidiaries and joint ventures with primary international operators, operates in the following segments:

•    Renewable energy sources

Through ERG Renew (in which it owns 93%), ERG is active in the generation of electricity from renewable sources, with 1,340 MW of wind power in operation as at 31 December 2013, of which 587 were already present at the end of 2012, to which, during the year, 636 MW were added as a result of the acquisition of IP Maestrale and 42 MW (ERG share) were acquired through the LUKERG Renew Joint Venture (out of a gross amount of 84 MW).
Upon completing the transactions, ERG Renew became the first wind power operator in Italy and one of the first ten in Europe. To these assets were added, at the end of 2013, the new wind farms built during the year in Italy (34 MW) and in Romania through LUKERG Renew (82 MW, of which ERG's share is 41 MW), which will provide their full contribution from 2014 onwards.
Wind farms are mainly concentrated in Italy (1,087 MW), but with a significant presence also in Germany (86 MW), in France (64 MW) and, through LUKERG Renew, in Romania (where ERG's share is 76 MW) and in Bulgaria (ERG's share: 27 MW).
Moreover, since October 2013, through the acquisition of ERG Renew O&M, the company started to carry out internally the operations and maintenance activities of approximately half of the wind farms in Italy, with the goal of extending this activity to the other Italian parks in the future.

•    Power & Gas

The Group is active in the production and marketing of electric energy, steam and gas. ERG's main equity investments in the segment are:

• ISAB Energy S.r.l. / ISAB Energy Services S.r.l. (51%): the former is the company that owns a plant (528 MW) that operates within the scope of a twenty-year CIP6 agreement and is fuelled by synthesis gas obtained from a process of gasification of asphalt originating
  from the ISAB Refinery in Priolo (Sicily); the latter performs O&M services for ISAB Energy S.r.l. and ERG Power S.r.l.;
• ERG Power S.r.l.: this company owns the North Plant (480 MW) located in the industrial site of Priolo, comprising a combined cycle plant fuelled by natural gas and other smaller facilities necessary to meet the site's demand for steam and other utilities. The plant started commercial operations in April 2010.

At the end of 2013, ERG reached two significant agreements, described in greater detail farther on, which provide, during 2014, subject to the fulfilment of certain conditions precedent, the purchase of the remaining 49% equity investment in ISAB Energy, the early termination of the CIP 6/92 agreement and the sale of the ISAB Energy plant.

•    Refining & Marketing

The Group is active in the Integrated Downstreammarket, where it is one of the foremost operators, through TotalErg, a joint venture with Total, with a network of approximately 3,000 sale outlets, and through ERG Oil Sicilia (EOS), 100% owned by ERG, operating in the retail market in Sicily.
TotalErg also operates in the logistics and refining business mainly through a major logistical facility for the storage and handling of petroleum products in central Italy and through Raffineria Sarpom of Trecate, of which it owns 24%, with a processing capacity of 0.8 million tonnes per year (ERG's share).
In 2013, ERG was still active in Coastal Refining through the 20% equity investment in the ISAB refinery in Priolo. As a result of the sale of said equity investment, at the end of 2013, ERG definitively left this business, which in recent years had been characterised by high volatility and by severely depressed processing margins. In 2014, instead, trading in crude oils and products will continue, seeking profit opportunities which may arise on the market for these commodities, within the scope of restrictive risk management policies.