ENERGY DIVISION

The existence of industrial companies within Grupo Villar Mir, with high rates of energy consumption, together with  the growing expansion of the gas and electricity markets that has taken place in recent years, make it appropriate for Villar Mir Energía to work as an integrated operator with the capacity to act in most of the gas and electricity value chain, tapping the current synergies between generation and consumption and the various generation activities.

Villar Mir Energía pursues the following objectives, among others:

• Search for gas supplies.

• Development and/or purchase of electricity production assets.

• Development and/or purchase of assets for gas storage and logistics management.

• Acting as a trader on the various energy markets.

2010 can be considered the starting point for the materialisation of Grupo Villar Mir's energy strategy, with Villar Mir Energía's purchase of the Spanish trader, Centrica Plc, currently known as Enérgya VM.

In line with  these objectives, in 2010 the following activities were carried out: (see following tabs)

ACQUISITION  OF ENÉRGYA VM

The experience  acquired through  managing Grupo Ferroatlántica's power stations and the assessment made of the criteria that should be followed in order to provide the industrial companies in the Group with a more efficient gas and electricity supply have highlighted that recent trends on energy markets offer a highly significant incentive to adopt contracting systems that allow for continuously optimised energy supply income and costs through ongoing management of energy sales and purchases.

On this basic premise, in October 2009, the Group established a trading company to participate in the management of energy operations within the Grupo Villar Mir companies. In 2010, Villar Mir Energía acquired Enérgya VM, the main activities of which are:

•  Supply of electricity and gas.

•  Acting as sales representative   for the electricity produced by the special regime power stations.

•  Advising on improving energy efficiency.

The new company's basic short-term strategy will focus on, among other issues, increasing gas supply activities and participation in European electricity markets.

ENERGÁS PROJECT

The industrial groups, Fertiberia and Ferroatlántica, have high energy dependence, given their strong nature as basic energy-intensive industries. Thus, Fertiberia is the leading industrial consumer of natural gas in Spain, consuming 0.55 bcm (550 million cubic meters) per year, and Grupo Ferroatlántica is the third largest electricity consumer in Spain, with consumption of around 2,300 GWh.

With the two-fold aim of ensuring a long-term independent supply at competitive prices of both natural gas and electricity and of participating more actively on energy markets, through its subsidiary Energía y Gas de Huelva, S.A.U., Grupo Villar Mir has an application for government authorisation procedures in progress for the construction of an energy complex known as «Energás Project» in the outer port of Huelva, consisting of:

•  A regasification plant with a capacity for regassing 4 bcm of gas per year, expandable to 6 bcm.

•  Two liquid natural gas storage tanks of 150,000 cubic metres each, with  a third tank planned for the expansion.

•  Two combined cycle units for electricity production from natural gas, with 430 MW of power each; and

•  Port  infrastructures for the berthing of methane vessels, as well as direct gas supply lines to Fertiberia's ammonia plant in Palos and to the combined cycle plants.

The project is included in the «Gas and Electricity Sectors Planning Schedule for 2008-2016» as a plant exempt from the obligation to provide third-party access to the facilities.

This year, work has continued for the granting of environmental authorisations for the regasification and combined cycle plant.

The environmental authorisations for the plant are expected to be received in 2011, in addition to the relevant administrative authorisations, entering into operation in 2015.

HYDRAULIC  PLANTS PROJECT IN CHINA

Through Villar Mir (Ganzi) Energy Development Company Limited (VMGED), Villar Mir Energía S.L. is promoting the construction and operation of four hydroelectric power stations on the LiQiu river, in the Sichuan province (China).

The goal of these power  stations is to guarantee the power supply to the silicon metal and photovoltaic-solar-quality silicon plant that Grupo Ferroatlántica is going to build in the Ganzi Department.

The project consists of building four hydroelectric power stations with installed power of around 700 MW and a flood-control reservoir with a storage capacity of some 247 million m3. The total estimated investment amounts to 720 million Euros and, once operational, it will generate 2,800 GWh a year.

After the concession for the first three power stations was granted in August 2009, VMGED began work in 2010 to receive all the permits needed for the construction and operation of these power stations. Likewise, in 2010, negotiations continued to progress in order to be awarded the concession on the fourth power station, which should be received in 2011.

The project as a whole is expected to be operational in 2015.