Annual Report - EDP

: corporate governance :attention is paid to these aspects in the planningstage, as the route is designed to minimisethese situations and the structure of the polesis adapted to birds that may perch or nest there.The lines are also flagged in migration corridorsto prevent collision. For further informationon EDP’s performance in this area, see theSustainability Committee section in Chapter II.3.Risk management in othercountries and activitiesAlthough market and regulatory conditions maybe different, the principles and methods describedabove also apply to the gas distribution andsupply business units and to Energias do Brasiland EDP Renováveis.EDP Renováveis has been the Group’s mainchannel of growth and geographical diversityof investments and clearly confirms the changein the Group’s generation profile to a portfolioless dependent on CO 2emissions and thereforelow exposure to the risks of greenhouse gasemissions. Its current size requires carefulmanagement of the pipeline of projects,flexible hire of wind turbines and operation andmaintenance conditions in order to prevent theoperational risks arising from the non-start or latecompletion of projects and failure to achieve thebest standards of operating efficiency. The natureof this type of generation means that the result ofinvestments is highly dependent on each country’senergy and regulatory policies and this aspect iscarefully considered in the criteria of acceptableminimum return. The American market has hugegrowth possibilities and a low country risk andthe Group is a major world player in renewableenergy. Its growth has been lower than originallyexpected, due to the exploitation of schist gas andconsequent thermoelectric generation at lowercosts and the fact that there is still no overallincentive framework. Exposure to the marketprice of electricity is mitigated considerably byremuneration from fixed-tariff generation, longtermPPAs (power purchase agreements) oreffective hedging strategies. On the energy salesside, in some countries remuneration also consistsof green certificates, whose value normally has amarket risk. This risk is also greatly mitigated bylong-term contracts (only for green certificatesor in some cases included in the energy salescontract). Risk mitigation options depend on theremuneration structure in place in each country.Group - wide riskmanagementInvestment risk - The process of assessingand deciding on investments has standardisedcriteria for defining the discount rates to be usedto assess expected cash flows and to modelscenarios (which entail different sensitivities,e.g. price, energy volume and regulatory risk).These criteria help to delimit the Group’s riskappetite and the capital cost of each businessunity or country is revised periodically. OurInvestment Committees (at business units andcorporate level) allow effective implementationof these mechanisms in the assessment stageand oversight of the execution of investments andmonitoring of operational risks in this stage andtheir potential impact on expected value.Financial risk - The Group’s financial risksare managed by the Financial ManagementDepartment, which manages the Group’s cashflow in the Iberian Peninsula, its debt portfolioand the interest rate and exchange risks withfinancial instruments on the market. In Brazil,Energias do Brasil abides by similar principlesand methods in coordination.122Liquidity risk -The liquidity risk continued towarrant particular attention. EDP’s strong creditprofile in this difficult context for Portugal is higherthan that of the country. There were bond issues,which were necessary for the habitual debt rolloverand to finance the Group’s growth. Financialdeleveraging is a strong strategic commitment forthe EDP Group, and its aim is therefore to improveits net debt/ EBITDA ratio in the next few years.The purchase of minority positions inEDP Renováveis to a total of 2 billion euros by ChinaThree Gorges by 2015 is fundamental in achievingthis deleveraging (acquisition of 49% of EDPRenováveis Portugal, S.A. agreed upon in 2012).Where liquidity was concerned, in December 2012total cash and credit lines amounted to 3.9 billioneuros: 1.7 billion euros in cash and cash equivalentsand 2.2 billion euros in available credit lines. Theliquidity risk has therefore been mitigated thanksto our debt management policy, the contracting ofnew financing and the availability of lines of creditobtained (underwritten) but not used. Thanks to theGroup’s financial management policies, there is stilla low market risk and a diversified counterpartyrisk involving highly credible financial entities.Liabilities resulting from the EDP Group DefinedBenefit Pensions Fund and health care benefitsin Portugal are fully covered by the pensionfund’s assets and specific provisions in the EDPbalance sheet. These liabilities are calculatedconducted annually by an independent actuary,using assumptions set out in the IAS-IFRS, takingaccount of various aspects, including the fund’sperformance, demographics, economic variablesand applicable requirements.Operational risk - Included in this group are thepotential losses resulting from events causedby failures or inadequate procedures, staff,equipment or systems or resulting from externaloccurrences (including the risk of failure tocomply with legislation and ethical standards;operating loss including economic and noneconomiceffects and loss of reputation).For information technology, the Information SystemDepartment has been consolidating the entire riskmanagement process and Group-wide work hasbeen done in terms of information security.The most significant risks that are transferable tothe insurance market have to do with industrialfacilities. Both for these and for the risk of claimsby third parties for material or personal lossesand their consequences that may arise from theactivities of Group companies, the Insurable RiskManagement Office at EDP Valor has followedthe approved Strategic Insurance Plan, whichis based on joint programmes for all Groupcompanies in Portugal and Spain. The plan isbased on direct contracts with the insurancemarket and boosting the reinsurance capacityof the Group – Energia RE. This joint policy hasmade it possible to optimise insurance costs andimprove control of them.Legal risks - In terms of litigation related to operations,licensing procedures for new facilities or fulfilmentof tax and accounting obligations, the Groupdoes not expect any adverse material impact.II.10. Powers of themanagement bodyto decide on sharecapital increasesThe Executive Board of Directors has powersinvested in it by the law and Articles of Associationfor the exercise of its competences, which aredescribed in more detail in Section II.3.Regarding the approval of decisions on increasesA World Full Of Energy