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Trading and procurement policy

As far as the gas sector is concerned, the first half of the year featured once again the trends that emerged after the financial crisis of 2008: consumption hitting a low for the last six years (-7.1% and Ė 9.3% with respect to the comparable periods of 2012 and 2011, respectively) as a result, especially, of the continuing fall in thermo-electric consumption. The relative recovery in consumption recorded in the services and domestic sector (+1.4%) was more than offset by the decline in the industrial sector (-2.3%) and in the thermo-electric sector (-21.9%).

In this market context, which did not have a negative impact on the Groupís results in the sector, the first half of 2013 was devoted, on the one hand, to balancing and optimising the Groupís short-term position and, on the other hand, to finalising new procurement contracts for the 2013-14 thermal year.

As far as shipping activities conducted by Hera Trading are concerned, the positions taken in the early months of 2012 for thermal year 2012-2013 and their short-term optimisation in the first half of 2013 made it possible to curb the effects of the reduction in value of the capacity held on the TransAustria Gasleitung Gmbh (TAG); this reduction was due to the effects of the daily auctions held by the AEEG (Gas and Electricity Authority) starting from April 2012.

Short-term adjustments, supported by efficient requirement forecasting activities, were made through purchase or sales adjustments at the Virtual Exchange Point (VEP) in Baumgarten on the Title Transfer Facility (TTF) and at NCG Germany. These transactions generally took place at favourable prices and made it possible to meet the expected results. ††

†In June trading began in modulated gas intended for universal-service customers through Hera Comm, with approximately 1.5 billion cubic metres for thermal year 2013-2014, in reference to the new terms and conditions of supply approved by AEEG starting October 2013. The activity, which ended in July, made it possible to obtain highly favourable prices thanks to the strong competition in the wholesale market.††

A little later than usual, compared to previous years, procurement activities began also for gas intended for the contestable market of Hera Comm, for approximately 0.5 billion cubic metres, and the storage capacity provided by Hera Trading was filled. †

During the first semester the contacts for the long-term gas supply negotiation †through the expected TAP gas pipeline with ShahDeniz Consortium restarted.

As regards the electricity market, the first six months of 2013 were further evidence to the seriousness of the crisis under way, as demand for electricity fell by 3.9% compared to the first half of 2012.††

Reduction in demand, combined with significant over capacity, also caused by the turbulent and unplanned development of renewable sources (photovoltaic in particular), caused a situation that is no longer sustainable for the thermoelectric sector which, from every quarter, never misses an opportunity to request a reorganization and new rules for the market.††

The negative market scenario is having an impact on producers. In particular, the Hera Group, taking into account the limited installed capacity compared with the final market, was able to curb the adverse effects thanks to the operations of the plants in the DSM (Dispatching Service Market). The Teverola and Sparanise plants managed to achieve satisfactory results, although not as good as those in the same period of the previous year.

In the second quarter of 2013, the Ortona Combined Cycle Gas Turbine (CCGT) commenced operations, with a total installed power of 100 MW. This CCGT is owned by Tamarete, a company which is 32% held by Hera.†

The situation of the COGEN/Imola plant remains a problem as, despite being offset by the positive district heating results, it cannot operate in the DSM due to cogeneration restrictions.

As far as trading in the electricity sector and environmental certificates are concerned, the first half of 2013 saw an increase in European operations, with positive results, in line with expectations. †

Special attention was paid to the management/optimisation of Hera Commís purchase portfolio through transactions carried out on the Power Exchange and over-the-counter (OTC) platforms.

†Management of commodity and foreign exchange risk - which is conducted for both gas and electricity through a concentrated portfolio which provides for destructuring formulas, the netting of positions and hedging of volumes - was particularly effective in the first half of 2013, even though it was affected, in quantitative terms, by the progressive delinking of gas and electricity prices from oil. †