Annual report 2011 by gen energija

ANNUAL REPORT of the GEN Group

AT THE CORE OF ENERGY Energy is what gives us incredible inner strength to achieve the seemingly impossible. Mysteriously, it is everywhere around us yet cannot be touched. Still, we need to understand it as fully as possible in order to grasp what is happening around us today and what will be happening around us tomorrow... For this reason the GEN Group builds all its activities on the sound foundation of knowledge. Expertise and experience are the two essential ingredients that make it possible for us to deliver a comprehensive supply of electricity. In doing so, we seek to set all the electrons of our activity in motion towards the common goals of simultaneously achieving operational efficiency of our power plants, business excellence of the entire Group, environmental responsibility and care for the society. Our development is based around the needs, expectations and wishes of the environment in which we operate. We also contribute to increasing the knowledge and awareness of energy and the energy challenges our future holds, as well as to promoting interest in this area. And so we begin where it all comes from and where we ourselves operate – at the core of energy.

Published by: GEN energija, d.o.o., Vrbina 17, 8270 Krško Conceptual design and texts: GEN energija, d.o.o. Creative design, layout and production: Pristop, d.o.o. Photography: Borut Peterlin, Shutterstock Printed by: Tiskarna Eurograf, d.o.o. Print run: 300 Krško, May 2012 www.gen-energija.si info@gen-energija.si

Contents 1 Introduction

1.1 Key data

1.2 Letter from the Director

1.3 Company profile 1.3.1 Company ID 1.3.2 Corporate governance 1.3.3 Subsidiaries and affiliated companies

14 14 14 15

1.4 GEN‘s holding activities 1.4.1 Krško Nuclear Power Plant 1.4.2 GEN-I, trgovanje in prodaja električne energije 1.4.3 Savske elektrarne Ljubljana 1.4.4 Termoelektrarna Brestanica

17 17 18 19 19

1.5 Corporate Policy of the GEN Group 1.5.1 Vision 1.5.2 Mission 1.5.3 Values 1.5.4 Strategic goals 1.5.5 Fulfilling the GEN Group’s corporate policy

20 20 20 20 20 21

2 Business report

2.1 Economic trends and their impact on the electricity business and the GEN Group

2.2 Electricity production and ancillary services 2.2.1 Production of electricity 2.2.2 Ancillary services

2.5.4 Purchase of business shares in SEL 2.5.5 Capital injections in GEN-I and NKBM 2.5.6 ZEL-EN 2.5.7 SRESA 2.5.8 Miscellaneous investments 2.5.9 Investments and development of the GEN Group companies

37 37 37 37 38 38

2.6 Human resources 2.6.1 Employees 2.6.2 Scholarships

39 39 39

2.7 Financial operations 2.7.1 Settling liabilities to the NEK Fund and securing funding for NEK‘s fixed annual costs 2.7.2 Servicing operations and debts 2.7.3 Report on investments of surplus cash 2.7.4 Performance indicators

2.8 Overall responsibility 2.8.1 General social responsibility 2.8.2 Environmental responsibility 2.8.3 Economic responsibility

44 44 45 47

25 25 30

2.9 Risks 2.9.1 Quantity risks 2.9.2 Market risks 2.9.3 Financial risks 2.9.4 Operational risks 2.9.5 Ecological risks 2.9.6 Legal risks

48 48 48 48 49 49 49

2.3 Electricity purchasing

3 Summary financial report of the company GEN energija, d.o.o.

2.4 Electricity trading and sales 2.4.1 Trading 2.4.2 Sales

32 32 34

3.1 Independent auditors’ report

3.2 Basis for drawing up the summary financial report

2.5 Research & development and investments of GEN Group companies 2.5.1 HESS construction project 2.5.2 JEK 2 construction project 2.5.3 GEN Information Centre construction project

35 35 35 37

3.3 Financial statements

40 40 41 42

Contents Index of tables 3.3.1 Balance sheet 3.3.2 Income statement and statement of other comprehensive income 3.3.3 Statement of changes in equity 3.3.4 Balance-sheet profit account

54 56 58 61

4 Summary financial report of the GEN Group

4.1 Independent auditors’ report

4.2 Basis for drawing up the summary financial report of the GEN Group 4.2.1 About the GEN Group 4.2.2 Audit 4.2.3 Balance sheet of the Group 4.2.4 Income statement and statement of other comprehensive income of the Group 4.2.5 Consolidated statement of changes in equity 4.2.6 Balance-sheet profit account

65 65 65 66 68 70 74

Acronyms and abbreviations

Table I 1: Key data on the company GEN energija, d.o.o., for 2011 against 2010 Table I 2: Key data on the GEN Group for 2011 against 2010 Table II 1: NEK monthly electricity production (GWh) in 2011 Table II 2: Large-scale HPP electricity production (GWh) in 2011 Table II 3: Large-scale HPP monthly electricity production (GWh) in 2011 Table II 4: TEB monthly electricity production (GWh) in 2011 Table II 5: Monthly supplied electricity (GWh) from HESS in 2011 Table II 6: Large-unit electricity production (GWh) available to the GEN Group in 2011 Table II 7: Investments made by GEN Group companies in 2011 (in EUR million) Table II 8: Number of employees by level of education as at 31/12/2011 Table II 9: Number of scholarship recipients as at 31/12/2011 Table II 10: Indicators for the company GEN Table II 11: Indicators for the GEN Group Table III 1: Balance sheet as at 31/12/2011 Table III 2: Income statement for 2011 Table III 3: Statement of other comprehensive income for 2011 Table III 4: Statement of changes in equity for 2010 Table III 5: Statement of changes in equity for 2011 Table III 6: Annex to the statement of changes in equity – balance-sheet profit Table IV 1: About the GEN Group Table IV 2: Balance sheet of the Group as at 31/12/2011 Table IV 3: Income statement of the Group for 2011 Table IV 4: Statement of other comprehensive income of the Group for 2011 Table IV 5: Consolidated statement of changes in equity for 2010 Table IV 6: Consolidated statement of changes in equity for 2011 Table IV 7: Balance-sheet profit of the Group

8 9 26 27 27 28 28 29 35 39 39 42 43 54 56 57 58 60 61 65 66 68 69 70 72 74

Index of figures Figure 1: Diagrams of key data on the company GEN and the GEN Group for 2011 against 2010 Figure 2: The GEN Group as at 31/12/2011 Figure 3: Diagram of connections of the GEN balance subgroup Figure 4: Electricity production (GWh) available to the GEN Group in 2011 against 2010 Figure 5: Electricity purchased by the GEN Group (GWh) – 50% consolidation of GEN-I and NEK Figure 6: Electricity (GWh) purchased by GEN Group companies Figure 7: Geographic presence of the GEN Group Figure 8: Electricity sold by the GEN Group (GWh)

10 16 25 29 31 31 33 34

Introduction Matter is the basic ingredient of everything around us. Smaller particles fuse into larger ones, and those into larger still, until they form a whole that displays in a multitude of forms and shapes before our eyes. Nuclear energy is the centrepiece of this incredible jigsaw puzzle we call the world. Operating nuclear power plant systems requires expertise and experience, and the main means of gaining them is by using a training simulator. Visually, the training simulator is a precise replica of NEKâ&#x20AC;&#x2122;s main control room, with all its controls and instrumentation. With the help of the simulator we raise the existing theoretical knowledge, practical skills and teamwork to a higher level. It is a vital part of introductory and ongoing training of power plant operators.

Photo: The simulator of the main control room at NEK

Introduction Annual report of the GEN Group 2011

1.1 Key data

Table I 1: Key data on the company GEN energija, d.o.o., for 2011 against 2010

Company GEN

Table I 2: Key data on the GEN Group for 2011 against 2010

2011

2010

Assets in EUR million

517.93

505.73

Equity in EUR million

430.09

Revenues in EUR million

GEN Group

2011

2010

Assets in EUR million

719.84

679.90

420.62

Equity in EUR million

528.64

525.26

186.78

171.35

Revenues in EUR million

573.97

385.09

EBIT in EUR million

17.21

28.50

EBIT in EUR million

25.93

32.93

EBITDA in EUR million

18.06

29.45

EBITDA in EUR million

74.78

64.23

Net profit in EUR million

9.43

30.52

Net profit in EUR million

20.72

31.74

Value added in EUR million

20.23

31.28

Value added in EUR million

105.29

92.53

Return on assets

1.84%

6.02%

Return on assets

2.96%

4.76%

Return on equity

2.22%

7.28%

Return on equity

3.93%

6.06%

Electricity sold in GWh

3,432

3,253

Electricity sold in GWh

9,509

7,239

Introduction Annual report of the GEN Group 2011

Figure 1: Diagrams of key data on the company GEN and the GEN Group for 2011 against 2010

2011

2010

Assets in EUR million

Equity in EUR million 720

518

529

680

430

506

EBIT in EUR million

525

Net profit in EUR million

26 21

421

Company GEN

GEN Group

Company GEN

Revenues in EUR million

GEN Group

Company GEN

Value added in EUR million

171

Company GEN

GEN Group

Company GEN

GEN Group

Return on assets

385 187

Company GEN

Return on equity

105

574

GEN Group

Company GEN

GEN Group

Company GEN

GEN Group

Introduction Annual report of the GEN Group 2011

1.2 Letter from the Director

Dear Reader, For the GEN Group, the 2011 business year was full of unforeseeable challenges, but we tackled them successfully and finished the year on target. Our generation facilities recorded stable and competitive operation, enabling us to supply our consumers with electricity in a timely and reliable manner. The successful year was also marked by a number of realized investments and preparations for the upcoming planned maintenance outage of Krško Nuclear Power Plant (NEK). We also faced some unplanned challenges such as the capital injection in NKBM, disconnection of NEK from the grid, subnormal hydrology, the natural disaster in Japan and the resulting rise in electricity prices on power exchanges. In 2011 we also reached two major milestones. We marked 30 years of operation of our largest power generation facility, NEK. By opening GEN Information Centre, which features a modernized control centre and an interactive centre on energy and energy technologies named The World of Energy, GEN symbolically entered its second decade of operation. NEK operated at full capacity all year long, apart from an unplanned outage that took place in March 2011 due to external factors, an incident on the power grid, and finished the year with business results that were in line with its economic targets. Already in 2011 NEK started intensive preparation for the regular annual planned maintenance outage, which started in April 2012. Some important replacements are going to be made during the maintenance outage: reactor head, rotor on the main power generator, and a third stand-by emergency diesel generator. Another project that was also started was the construction of flood defences in order to improve flood safety. The natural disaster that struck Japan and also

damaged the Fukushima nuclear power plant stressed the need to increase nuclear safety standards. With full support from partners GEN and HEP, NEK developed and implemented a number of short-term activities and also laid down a five-year safety investment programme, which will raise the level of nuclear safety even further. At the end of 2011 Slovenia submitted the final national report on the stress tests to determine the level of safety of operating nuclear power plants in compliance with the requirements of the European Commission and ENSREG provisions. NEK continues to work on extending the service life of its power plant until 2043. The service life extension is expected to be granted in 2012. Unfavourable hydrology marked the whole of 2011, so SEL was only able to meet 83% of its production target. The company SEL carried out all scheduled overhauls and inspections of its generating units and replaced the 110 kV switching station at Mavčiče HPP in 2011. GEN bought business shares of ten minority partners of the company SEL in 2011 and became the sole owner of the company. This allowed SEL to join the joint company SRESA and to continue its efforts towards the construction of hydroelectric power plants in the middle course of the Sava River. TEB completed the regular annual inspections of its gas units PB1, PB2 and PB3 successfully and on schedule, and in the process they also carried out a thorough inspection of the gas units‘ hot parts and replaced the computer supervision and control systems. Through our subsidiary GEN-I we are also increasing our market share in the category of direct electricity sales to consumers. Our sales networks recorded strong growth and expansion in 2011. We launched trading activities along Turkish borders, we increased our market share in Slove-

nia and Croatia in the category of direct sales to commercial consumers, and we maintained our market position in Italy and Austria. Securing our own sustainable and stable energy sources allows us to make a vital contribution towards reducing reliance on imports and to promoting the country‘s economic development as a result. A strong sense of commitment shared by the employees of the GEN Group and the experienced and prudent management teams make it possible for us to deliver good business results and to carry out all planned development activities. Investments in the development of suitable and qualified human resources is the single most important factor in ensuring long-term success.

Effective teamwork, diligence, experience and an active role of our employees and partners are of key importance when it comes to achieving and fulfilling our common vision. I would like to thank all the employees and the management staff of the company GEN and the GEN Group for adding their valuable share and knowledge to our overall success. A special thanks also goes to all the representatives of the owners, the local communities, business partners and service providers for their constructive roles and help in achieving such good business results. Martin Novšak Director, GEN energija, d.o.o.

Introduction Annual report of the GEN Group 2011

1.3 Company profile

1.3.1 Company ID

1.3.3 Subsidiaries and affiliated companies Registered company name: Short registered name: Type of entity: Registered office:

GEN energija, d.o.o. GEN, d.o.o. limited liability company Vrbina 17, 8270 Krško

Telephone: +386 7 49 10 112 Fax: +386 7 49 01 118 Website: www.gen-energija.si E-mail: info@gen-energija.si Year of foundation: 2001 Founder and sole partner: Republic of Slovenia VAT ID number: SI44454686 Registration number: 1646613 Bank accounts: NLB 02924-0090457150 Banka Celje 06000-0904571665 SKB banka 03155-1000503323 Activity: K/64.200 Activities of holding companies, D/35.140 Electricity trading, and other activities. Share capital: EUR 26,059,796.00

CEO - director: Chairman of the Supervisory Board:

Number of employees:

Martin Novšak Danijel Levičar (until 30/11/2011) 50

1.3.2 Corporate governance The company GEN energija, d.o.o., (hereinafter: GEN) is governed by the founder directly and through the following company bodies: Supervisory Board: Chairman: Danijel Levičar (until 30/11/2011) Vice Chairman: Gorazd Skubin (until 25/07/2011) Tomaž Savšek, PhD (from 26/08/2011) Board members:

Rudi Brce, MSc (until 25/07/2011) Andro Ocvirk, PhD Davorin Dimič, MSc Uroš Saksida, MSc (from 25/07/2011) Tomaž Savšek, PhD (from 25/07/2011 until 25/08/2011)

Martin Novšak

CEO - director:

GEN is the parent company of the GEN Group. The main activity of the company is activities of holding companies, and GEN had the following subsidiaries as at 31/12/2011: • Nuklearna elektrarna Krško, d.o.o., (hereinafter: NEK) (50.0%), • GEN-I, trgovanje in prodaja električne energije, d.o.o., (hereinafter: GEN-I) (50.0%), • Savske elektrarne Ljubljana, d.o.o., (hereinafter: SEL) (100.0%), and • Termoelektrarna Brestanica, d.o.o., (hereinafter: TEB) (100.0%). In addition to the subsidiaries, GEN also had the following indirectly affiliated companies as at 31/12/2011: • Companies wholly owned by GEN-I: GEN-I, d.o.o. Zagreb, Croatia; GEN-I, d.o.o. Belgrade, Serbia; GEN-I Budapest KFt, Hungary; GEN-I DOOEL Skopje, Republic of Macedonia; GEN-I, d.o.o. Sarajevo, Bosnia and Herzegovina; GEN-I Tirana Sh.p.k., Albania; GEN-I Tirana Sh.p.k. – Kosovo branch; GEN-I Athens SMMLC, Greece; S.C. GENI Bucharest s.r.l., Romania; GEN-I Sofia SpLLC, Bulgaria; GEN-I Milano S.r.l., Italy; GEN-I Vienna GmbH, Austria, and • The company HSE Invest, d.o.o., in which SEL holds a 25% equity interest.

The GEN Group includes two jointly controlled companies: NEK and GEN-I. In view of the above, the data in this Annual Report, unless specified otherwise, are based on the equity interest held by GEN; specifically, for NEK as a company and for GEN-I as a group, since GEN, holding a 50% interest in the company GEN-I, is also an indirect owner of the companies owned by GEN-I. Whenever data refer to whole companies or groups of companies, disregarding GEN’s equity interests in individual companies and the rules of consolidation, a special annotation is used to indicate that the relevant data refer to the GEN Group companies. GEN also holds a 12.6% equity interest in the company Hidroelektrarne na Spodnji Savi (hereinafter: HESS), and a 2.8% equity interest in HESS is also held by TEB. The company Srednjesavske elektrarne d.o.o. (hereinafter: SRESA) was founded in 2011. The companies GEN and SEL hold equity interests of 10% and 30% respectively in this company. In addition to interests in energy production companies, GEN also holds a 9.28% equity interest in the company ZEL-EN, razvojni center energetike, d.o.o., (hereinafter: ZEL-EN) and a 6.4% equity interest in Nova KBM d.d. (hereinafter: NKBM).

Introduction Annual report of the GEN Group 2011

1.4 GEN‘s holding activities

NEK, d.o.o.

100%

SEL, d.o.o.

25%

30% 10%

100%

OTHER INVESTMENTS

PRODUCTION

Figure 2: The GEN Group as at 31/12/2011

50%

GEN’s principal operations include activities of holding companies, that is, governing other legally independent companies through equity interests held in them by the company GEN as the controlling company. As a holding company, GEN carries out management operations through equity interests in subsidiaries and jointly controlled entities by participating in general meetings, managing financial results of subsidiaries and approving required documents, by appointing its representatives into supervisory boards of subsidiaries and jointly controlled entities, all in compliance with relevant articles of incorporation and memorandums of association. GEN management regularly coordinates its actions with the managements of subsidiaries and jointly controlled entities.

HSE Invest, d.o.o.

SRESA, d.o.o.

TEB, d.o.o.

Based on the business results of individual companies within the GEN Group and the Group as a whole, we find that GEN manages the Group well, that the companies are successful in keeping costs under control, and that they fully follow their respective business plans.

2.8%

12.6%

HESS, d.o.o. GEN-I,

OTHER INVESTMENTS

TRADING AND SALES

d.o.o. Belgrade,

Serbia

50%

GEN-I, d.o.o.

100%

GEN-I,

d.o.o. Zagreb,

Croatia

6.4%

9.3%

Nova KBM, d.d.

ZEL-EN, d.o.o.

Introduction Annual report of the GEN Group 2011

GEN-I,

Budapest Kft,

d.o.o. Sarajevo,

Athens SMMLC,

Sofia SpLLC,

Vienna Gmbh,

100%

Hungary

GEN-I,

Tirana Sh.p.k.,

Albania

BiH

GEN-I,

Tirana Sh.p.k.,

Kosovo Branch

Greece

GEN-I,

DOOEL Skopje,

Macedonia

Bulgaria

S.C. GEN-I,

Bucharest s.r.l.,

Romania

Austria

GEN-I,

Milano S.r.l.,

Italy

1.4.1 Krško Nuclear Power Plant

Registered name: Nuklearna elektrarna Krško, d.o.o. Registered office: Vrbina 12, 8270 Krško Pursuant to the Intergovernmental Agreement on NEK, GEN is the successor in title of Slovenian electricity boards with respect to the rights and obligations regarding the construction and operation of Krško Nuclear Power Plant (NEK). NEK is a jointly controlled company, with GEN and HEP each holding a 50% interest in the company‘s share capital. Krško Nuclear Power Plant is the only facility in Slovenia that uses nuclear energy for the commercial production of electricity. It is the largest power generation facility in Slovenia, which, after having undergone modernization and replacement of low-pressure turbines, has a declared net capacity of around 696 MW in optimal conditions. Now that the plant has switched to an 18-month fuel cycle and the low-pressure turbines were replaced, it can generate more than 5,900 GWh per year when no planned maintenance shutdown is carried out, and around 5,400 GWh per year when a planned maintenance shutdown is carried out. This means that, in accordance with the Intergovernmental Agreement on NEK, the available amount of electricity for the Slovenian market ranges between 2,700 GWh and 2,900 GWh or even above.

Apart from producing a substantial share of electricity, NEK is also renowned for its remarkably high production reliability rates. By consistently meeting its ambitious goals, NEK ranks in the top 25% of the best-performing nuclear power plants in operation worldwide. In spite of an unplanned shutdown, caused by external factors in the switching station, and the harsh economic situation, NEK recorded safe and reliable operation at full capacity and finished the year with business results that match the economic plan. The natural disaster that damaged Japan‘s Fukushima nuclear power plant stressed the need to introduce more stringent nuclear safety standards. In response to the events in Japan, NEK developed and implemented a number of shortterm activities and also laid down a five-year safety investment programme, which will help maintain the required level of nuclear safety in the long run.

Introduction Annual report of the GEN Group 2011

1.4.2 GEN-I, trgovanje in prodaja električne energije

1.4.3 Savske elektrarne Ljubljana

1.4.4 Termoelektrarna Brestanica

Registered name: GEN-I, d.o.o. Registered office: Vrbina 17, 8270 Krško

Registered name: Savske elektrarne Ljubljana, d.o.o. Registered office: Gorenjska cesta 46, 1215 Medvode

Registered name: Termoelektrarna Brestanica, d.o.o. Registered office: Cesta prvih borcev 18, 8280 Brestanica

The company GEN-I is a jointly controlled company owned by partners GEN and IG Energetski sistemi d.o.o. (hereinafter: IGES). The principal areas of activity of the company GEN-I and the GEN-I Group are classified into two main categories: • Electricity trading, • Selling electricity to consumers and purchasing electricity from producers.

GEN bought business shares of ten minority owners of the company SEL in 2011 and became its sole partner, which allows it to make autonomous decisions on the issues defined in the Articles of Incorporation adopted by GEN on 13/09/2011.

Holding a 100% equity interest, GEN is the sole owner of TEB. For Slovenia‘s electric power grid, TEB, with its ancillary services, is a reliable backup energy source in the most critical of moments. With its fast generating units, the power plant specifically ensures: • Rapid deployment in the event of system overload or power failure in other Slovenian power plants or electric power transmission lines. • Protection against electric power grid breakdown thanks to its speedy deployment capability. • Recovery of the electric power grid following failure and serving as an independent direct power source for NEK.

The two activities are organized in profit centres and two separate portfolios, which are linked together by market prices and incorporated into the GEN-I balance group, which is managed under the electricity trading activity. An extensive international trading network enables the company to effectively expand and steer its ever-growing balance group in Slovenia with trading activities in the liquid neighbouring markets of Austria, Germany, Italy, as well as in the less liquid markets of the former Yugoslavia and the rest of Southeast Europe. To facilitate business operations in individual markets, subsidiaries wholly owned by the parent company GEN-I, d.o.o., have been founded. Most of the trading activity is done by the Slovenia-based parent company, specifically by the trading division in Ljubljana, whereas the local presence in individual markets allows the Group to better understand the market in question and to promptly and properly react to market changes.

SEL has a long tradition in its main economic activity of producing electricity in hydroelectric power plants (HPPs). Završnica HPP, the company‘s oldest hydroelectric power plant, has been in operation ever since 1914, and since then the company has built four new hydroelectric power plants: Moste HPP, Mavčiče HPP, Medvode HPP and Vrhovo HPP. SEL fulfils an important function in the Group as it produces base load as well as peak load power. SEL utilizes exclusively renewable energy sources for generating electricity and, in addition to the large hydroelectric power plants, also runs two small-scale hydroelectric and several small-scale photovoltaic power plants, one wind turbine and one cogeneration (CHP) plant.

Introduction Annual report of the GEN Group 2011

1.5 Corporate Policy of the GEN Group

The corporate policy of the GEN Group derives from the Revised GEN Energija Development Plan. GEN adheres to this policy in its entirety, is its holder and ensures that it is implemented on all levels. As a result, the corporate policy of the Group is becoming the cornerstone of operations of all the companies in the Group.

1.5.3 Values

The vision of the GEN Group is to become the driver of development in the areas of electric power production and comprehensive supply of electricity generated from clean, sustainable and renewable energy sources and to contribute to the sustainable development of Slovenia.

The key values of the GEN Group are: • sustainable, reliable and environmentally friendly production of electricity; • care for the environment at the local and global level, which constitutes the driving force behind the company‘s operations and investments; • delivering a complete customer-oriented package for the supply of electricity and provision of related services; • acceptability and transparency of the Group‘s activities and openness towards two-way communication with all interested parties.

1.5.2 Mission

1.5.4 Strategic goals

The mission of the GEN Group is to ensure reliable and safe production and supply of electricity with a clear focus on the end user. This will be achieved by investing in clean, sustainable and renewable energy sources used for the production of electricity needed to meet Slovenia‘s energy needs, with the strongest emphasis placed on maintaining and expanding nuclear capabilities as the cornerstone of sustainable development. In this way, the GEN Group will add its share to increasing competitiveness, promoting a clean environment and reducing Slovenia‘s reliance on imported energy.

The strategic goals of the GEN Group are to: • manage, run, perform maintenance on and invest in its existing facilities with the aim of ensuring safe, reliable, eco-friendly and economical operation of the existing production units in the long term; • expand its sales portfolio for electricity and electricity-related services with the aim of increasing competition in the market; • invest in new production capabilities built around renewable and sustainable sources and technologies in order to increase the reliability of electricity supply to consumers and, in this way, to contribute to the sustainable development of Slovenia.

1.5.1 Vision

1.5.5 Fulfilling the GEN Group’s corporate policy The Revised GEN Energija Development Plan was discussed and passed by the 181st regular session of the Government of the Republic of Slovenia, acting in the power of the General Meeting of the company GEN, on 1 October 2008. The Revised GEN Energija Development Plan superseded the previous development plan passed by the Government of the Republic of Slovenia in December 2005. With this the GEN Group has obtained a strategic document which serves as the foundation stone of the Group‘s further development.

Open communication among all the GEN Group companies allows uninterrupted flow of and access to information critical to managing the companies, steering their operation, monitoring approved investments and handling development activities. We pay special attention to the specific nature of running and operating a nuclear installation, since its owner must possess a thorough understanding of the need for securing suitable human resources and for obtaining appropriate financial resources in order to ensure reliable and safe operation of Krško Nuclear Power Plant.

The GEN Group continues to be at the helm of the nuclear option in Slovenia, which is at the same time the backbone of the Group‘s future development. Moreover, the GEN Group is increasing its volume of investments in renewable energy sources and the gas technology.

The GEN Group meets all its strategic goals: by expanding the trading network and by launching the GEN Control Centre (hereinafter: GEN CC), the Group optimizes the production and trading inside both the GEN-I balance group and the GEN balance subgroup.

Uvod Letno poročilo skupine GEN 2011

Business report Like all great things, electricity too is a result of work. It is a transient form of energy which is the easiest to use, given that we know how to generate it, safely transmit it across large distances and transform it into other forms of energy. That way it reaches the consumer in the purest and most convenient form, and seeing its immediate effects is most of the time as easy as flipping a switch. The switching station at TEB is the largest and most advanced 110 kV switching station in Slovenia. It connects the thermal power plant to the grid and is also an important energy junction of the transmission lines for the Posavje, Zasavje and Dolenjska regions. It further strengthens TEB’s role as a key component in the national power grid. TEB is also a critical backup power source for a safe shutdown of NEK.

Photo: The 110 kV switching station at TEB

2.1 Economic trends and their impact on the electricity business and the GEN Group

It was at the beginning of 2011 that all the major macroeconomic indicators predicted the end of the crisis; however, as the end of the year approached, there was growing concern over a new wave of recession because the declining economic activity caused the situation in the European and global economies to deteriorate at a rapid pace. Credit ratings of the USA and most of the leading European economies except Germany and France were downgraded in 2011. The situation in the financial sector again took a drastic turn for the worse. The looming bankruptcy of Greece, which Europe is trying to save with new bailouts, the imminent downfall of Italy and severe financial problems of Portugal and Spain brought the common European currency to the verge of collapse. Also, the strengthening of the U.S. dollar against the euro has left a huge impact on the markets in raw materials and precious metals. The Slovenian economy, like the European ones, experienced a sharp slowdown of economic growth. Exports were the key driver of the economy. The domestic economic situation was also heavily affected by the crisis in the construction industry, which caused the collapse of a number of construction companies which had contributed a significant share to Slovenia‘s past economic growth.

Business report Annual report of the GEN Group 2011

The electricity generation industry and also the operations of the GEN Group in 2011 were deeply affected by the natural disaster which damaged Japan‘s Fukushima nuclear power plant, as a result of which both Germany and Switzerland already announced that they were going to phase out nuclear energy as part of their national energy programmes. This resulted in a hike in electricity prices, which was short-lived; the prices of electricity on the power futures exchange went down again to the 2010 levels at the end of the year. In the light of the bleak economic outlook and the resulting decline in industrial activity, which translates to lower consumption of electricity, electricity prices in the wholesale market are not expected to increase markedly in 2012.

Business report Annual report of the GEN Group 2011

2.2 Electricity production and ancillary services

2.2.1 Production of electricity In order to ensure stability of the national electric power grid, the companies in the GEN Group not only generated electricity in 2011 but also provided ancillary services in line with the operational characteristics of their generation facilities. With the aim of providing a central platform for steering the operations of individual subsidiaries and the whole balance group in real time, under normal and emergency operating conditions, a project to set up and implement a joint GEN Control Centre (GEN CC) got underway in 2007. The Control Centre has brought together – at the highest level, both functionally and technically – activities of individual companies in the Group, the purpose of which is to facilitate maximum utilization of available production resources and to seize the opportunities presented by the access to the domestic and international electricity markets. The introduction of a unified management process for companies within the Group has lessened the business risks (for example, the unplanned shutdown of NEK in March 2011) faced by individual companies and the Group as a whole.

Figure 3: Diagram of connections of the GEN balance subgroup

Consumers

Sales and purchases in the home market

Thanks to GEN CC, which coordinates the operation of the entire GEN balance subgroup, the production units operated in sync, and the effects of unpredictable events were effectively mitigated. Although electricity sales and trading in the GEN Group is in the domain of GEN-I, GEN too has an independent role within its balance subgroup with respect to trading in electricity and power with other balance groups.

SEL 118 MW 314 GWh

GEN-I balance group

Sales and purchases in foreign markets

GEN balance subgroup

HESS 78 MW 275 GWh

NEK 696 MW 5,400 – 6,000 GWh

TEB 312 MW 5 – 100 GWh

Business report Annual report of the GEN Group 2011

NEK Krško Nuclear Power Plant (NEK), the largest production unit in the GEN Group, delivers base load power on the daily load curve throughout the year. Having generated 5,902 GWh in 2011, NEK exceeded its economic target. The amount of electricity that went to the GEN Group in accordance with the Intergovernmental Agreement on NEK was 2,951 GWh. On 23/03/2011 at 10:27 a.m., NEK registered that the G2 busbar in the 400 kV switching station had failed, which caused all the systems connected to this busbar to fail as well. And because electricity could no longer be fed into the grid, the power plant automatically shut down. The shutdown was in effect from 10:27 a.m. on 23/03/2011 until 03:00 a.m. on 30/03/2011, during which time the busbar protection power supply was modified and corrective work on the generator lubrication and sealing systems and the reactor coolant pump lubrication system was carried out. Despite the shutdown, NEK exceeded its annual target. Operating on an 18-month fuel cycle, NEK underwent no annual regular maintenance outage in 2011. Nevertheless, NEK carried out technological upgrades and intensive preparations for the maintenance outage that started in April 2012, when the most important activities will be the replacement of the reactor head, the rotor of the main power generator and the third stand-by emergency diesel generator. In the months after the Fukushima event NEK conducted what is known as stress tests, which confirmed that the nuclear power plant‘s safety culture was on a remarkably high level. Before that, the Slovenian Nuclear Safety Administration adopted in September 2011 a Decision on the implementation of safety upgrades to prevent and

mitigate the consequences of severe accidents. The proposed improvements are expected to be implemented by NEK between 2012 and 2016. Table II 1: NEK monthly electricity production (GWh) in 2011 Target

Target (50%)

Result

Ratio

January

503

252

258

1.027

February

460

230

234

1.019

March

505

253

200

0.792

April

484

242

249

1.029

May

502

251

255

1.016

June

485

243

247

1.020

July

495

248

251

1.015

Month

August

495

248

251

1.014

September

485

243

241

0.994

October

505

253

256

1.013

November

490

245

249

1.018

December

491

246

258

1.052

5,900

2,950

2,951

1.000

TOTAL

SEL Within the national power grid, SEL‘s production units are primarily intended for delivering electricity on the daily load curve and have an option to utilize accumulation for carrying night-time energy over into daytime. The hydroelectric power plants on the Sava River are mainly runof-the-river-type facilities with daily water accumulation, which means that they can participate in the system-wide frequency control on a day-to-day basis in response to unevenly distributed load curve (at different times of the day).

In 2011 the aggregated output of large-scale SEL hydroelectric power plants was 259 GWh, which is 82.76% of the production target. The lower output is the result of subnormal hydrology year-round. Table II 2: Large-scale HPP electricity production (GWh) in 2011 HPP

Target

Result

Ratio

MOSTE HPP

0.914

MAVČIČE HPP

0.841

MEDVODE HPP

0.898

VRHOVO HPP

114

0.727

TOTAL

313

259

0.828

Table II 3: Large-scale HPP monthly electricity production (GWh) in 2011 Month

Target

Result

Ratio

January

1.571

February

0.909

March

1.104

April

0.624

May

0.596

June

1.014

July

0.824

August

1.086

September

0.594

October

0.739

November

0.491

December TOTAL

0.825

313

259

0.828

The company carried out all scheduled overhauls and inspections of its generating units and replaced the 110 kV switching station at Mavčiče HPP in 2011. The only exception was the inspection of generating unit 2 at Vrhovo HPP, which was pushed back to 2012, when the turbine control system will also be replaced during the regular inspection. TEB The amount of electricity generated at TEB largely depends on the power plant‘s backup operation for the purposes of intervention in the event of failures of larger units in the national electric power grid. When conditions in the electricity market are favourable, however, a portion of TEB‘s production is also offered in the market. TEB generated 12 GWh of electricity in 2011. But since GEN supplied TEB with electricity from other production units in the GEN balance subgroup in order to meet TEB‘s on-site energy needs, TEB‘s net production was 7 GWh.

Table II 4: TEB monthly electricity production (GWh) in 2011 Month

Target

Result

Ratio

Business report Annual report of the GEN Group 2011

GEN received 28 GWh of electricity from HESS in 2011, which represents a mere 65.57% realization of the target. The reason for the gap was subnormal hydrology throughout the year.

January

0.027

February

0.010

March

0.287

April

0.160

May

0.204

Month

June

0.020

July

August

September

Table II 5: Monthly supplied electricity (GWh) from HESS in 2011

Large production units of the GEN Group The data given below shows that the production units in the GEN balance subgroup recorded optimal operation in 2011. Thanks to GEN CC, which coordinates the operation of the entire GEN balance subgroup, the production units operated in sync, and the effects of any unpredictable events were effectively mitigated, which is clearly reflected in the Group‘s business results.

Despite the subnormal hydrology and the unplanned shutdown of NEK in March, the 2011 production of the GEN balance subgroup was higher than in 2010, which is not unusual given that no annual maintenance outage of NEK was carried out in 2011.

Table II 6: Large-unit electricity production (GWh) available to the GEN Group in 2011

In addition to the large production units, the GEN Group companies also operate several small-scale production units: 2 small-scale hydroelectric power plants, 9 photovoltaic power plants, 1 wind turbine and 1 CHP plant running on natural gas.

Target (15,4%)

Result

Ratio

January

1.321

0.020

February

0.565

0.197

March

0.657

0.236

April

0.455

1.991

May

0.480

November

0.061

June

0.887

December

0.024

July

0.777

100

0.119

August

0.847

September

0.397

October

0.608

November

0.442

December

0.626

427

0.656

October

TOTAL

In terms of tertiary frequency control interventions, there were a total of 26 activations, or 38 start-ups, of individual gas units recorded in 2011, generating a total of 6 GWh of electricity. TEB completed the regular annual inspections of its gas units PB1, PB2 and PB3 successfully and on schedule. Gas units PB4 and PB5 underwent what is known as a Level A inspection, which entailed the opening of the combustion chamber and a thorough inspection of the gas units‘ hot parts.

TOTAL

Business report Annual report of the GEN Group 2011

GEN Group

Target

Result

Ratio

TOTAL

3,405

3,250

0.954

Figure 4: Electricity production (GWh) available to the GEN Group in 2011 against 2010 3,250

3,123

12 287

2,951

2,690

HESS A portion of electricity from HESS was also available to the GEN balance subgroup in 2011, which, proportional to GEN‘s equity interests in HESS, amounted to 15.4% of HESS‘s total electricity production.

2011

2010

GSP

HPP

NPP

Small production units of the GEN Group

In all, the GEN Group‘s small-scale units generated 1.3 GWh of electricity in 2011. In 2011 the company GEN received a grant – operational support for the electricity generated from renewable energy sources – in the amount of EUR 302, which has been disclosed by the company GEN in accordance with Article 4 of the Transparency of Financial Relations and Maintenance of Separate Accounts for Different Activities Act (Official Gazette of the Republic of Slovenia, No. 33/2011).

Business report Annual report of the GEN Group 2011

2.3 Electricity purchasing

2.2.2 Ancillary services Due to its remarkably stable operation and ability to generate large amounts of reactive power, NEK also plays a key support role in the balancing of critical operational and voltage conditions in the electric power grid within the European UCTE (Union for the Coordination of Transmission of Electricity) system. SEL units provide tertiary frequency control and reactive power and have black-start capability, which means their generating units can be started up without external power supply. TEB‘s principal function within Slovenia‘s electric power grid is to provide ancillary services (tertiary frequency control, capability to perform secondary frequency control by operating the larger gas unit, black-starting generating units, and delivering independent direct power supply to NEK). Playing a special role, TEB‘s systems, wiring, piping and installations all operate under specific, harsh operating conditions, with many start-ups and a small number of operating hours, which calls for a specific approach to maintenance. Pursuant to the relevant agreement, GEN provided ELES, the transmission system operator, with power in the amount of 200 MW for the purposes of providing ancillary services of tertiary frequency control, for blackstarting generating units, for voltage control and reactive power. The revenues derived from it totalled EUR 9.18 million and were below the target by 2.07% on account of reduced availability of voltage control and reactive power at NEK.

The purchase portfolio of the GEN Group comprises electricity generated in the Group’s own production units and electricity purchased elsewhere. Nuclear power is the prevailing source of electricity. A significant share in the composition of the portfolio is also occupied by renewable energy sources and the capability of providing ancillary services, particularly tertiary frequency control.

The growth of the GEN Group is also reflected in the increased electricity purchase and sales volumes. In 2011 the Group‘s electricity purchase and sales volumes went up by a total of 31.36%; however, due to the proportional consolidation of NEK and GEN-I, their trading and sales figures are only recognized on a fiftyfifty basis.

Electricity is purchased from the production units based on annual contracts.

For the sake of clarity, the electricity purchase and sales volumes presented below reflect the proportional consolidation of NEK and recognize the total amounts for GEN-I.

In addition to purchases from major producers, purchases from producers with a declaration for their production facility (hereinafter: DP) also make up a significant part of the purchase portfolio. This is the GEN Group‘s important contribution to promoting electricity from environment-friendly sources. Electricity is purchased in the home and foreign markets. Still, purchases from the GEN Group‘s own production units make up a large part of the overall purchase portfolio. Figure 5: Electricity purchased by the GEN Group (GWh) – 50% consolidation of GEN-I and NEK

Totalling 18,094 GWh, the amount of electricity purchased by the GEN Group companies in 2011 was much higher than it was in 2010. This includes 178 GWh purchased from DP and 3,250 GWh provided by GEN from its own generation units. The rest of the electricity purchase side of the portfolio refers to supplies from the GEN-I trading division. Figure 6: Electricity (GWh) purchased by GEN Group companies 18,094

9,509

178 7,239

3,250

13,645 141 3,123

14,667 10,380

2010

2011

2010

2011

GEN

OTHER

Business report Annual report of the GEN Group 2011

2.4 Electricity trading and sales

In terms of electricity trading and sales, we stood firmly on course in 2011. An increasingly large amount of electricity from our own sources is being sold through our in-house know-how and competences. The GEN Group is an effective electricity trader, as its cross-border wholesale trading infrastructure gives it access to all the necessary pricing data and information needed to ensure optimal utilization of production resources. From the perspective of electricity retailing in Slovenia, the connection between GEN and GEN-I is crucial for the GEN Group. The key feature of the relationship between the two companies is that GEN-I sells electricity for GEN on clearly defined terms and conditions. Most of GEN’s annual production is sold based on GEN’s annual sales strategy, on which the GEN Supervisory Board delivers its opinion. The provision of the right amounts of electricity on a day-to-day basis, in order to deliver on the signed deals and to optimize the sales process, is carried out through short-term purchases of electricity to make up for shortfalls and through sales of excess electricity, if and whenever applicable.

2.4.1 Trading The sale of electricity generated by our own production units to consumers and distribution companies was the basis for trading in 2011. The total amount of electricity for trading went up from 13,645 GWh in 2010 to 18,094 GWh in 2011. The economy of scale has increased as we entered new markets, and instruments have been put in place and all required authorizations obtained for comprehensive management of excess electricity and electricity shortfalls as provided for in agreements on purchasing electricity from production sources and on supplying electricity to consumers. Slovenia is our most important retail market, but the increasingly large balance group is expanded and coordinated through trading activities in the neighbouring markets. The major buyers‘ markets are Germany, Hungary, Bulgaria and Romania, and the major sellers‘ markets are Germany, Austria and Italy, then Greece, Hungary and Romania and, depending on hydrology, also Croatia, Serbia, Kosovo, Albania, Macedonia and Montenegro. The keystones of expansion into foreign markets are the Group‘s subsidiaries, which possess all the required authorizations, competences to adapt to distinctive local circumstances, and a proper trading infrastructure.

Figure 7: Geographic presence of the GEN Group GEN-I balance group

Trade representation office

Subsidiary

CZ D

SLO

CRO RS

IT BiH

BG MNE

KV MK AL

Business report Annual report of the GEN Group 2011

2.5 Research & development and investments of GEN Group companies

2.4.2 Sales The increase in electricity retailing volumes and our entry into the household supply segment are proof that our products, with varying degrees of risk for the customer and ranges of services offered, have undergone further development. Among the GEN Group‘s customers are large corporations, as well as small- and mid-sized businesses, and households. The GEN Group was a major player in all the electricity sales segments in Slovenia in 2011 and was estimated to have an overall market share of a little over 23%. The GEN Group is also actively engaged in supplying electricity to consumers abroad. The key focus in this re-

spect shifted to Croatia in 2011, and also important are the Italian and Austrian markets. The experience gained this way is also used to good effect in ensuring rapid development and in looking for new opportunities for retailing elsewhere as well, particularly in the Southeastern European markets. In 2011 the GEN Group companies sold 4,178 GWh of electricity in the domestic market: 2,577 GWh to commercial customers, 174 GWh to households and small commercial customers (SCC) and 1,427 GWh to other buyers (OB), which also purchased electricity from GEN in order to satisfy household demand.

Figure 8: Electricity sold by the GEN Group (GWh)

GEN Group GEN

174 1,427

100 1,480 13,917

COMMERCIAL CUSTOMERS HOUSEHOLDS AND SCC

9,773

OTHER BUYERS ABROAD 2011

48.68 2.23

JEK 2 construction project

1.10

GEN IC construction project

4.91

Purchase of SEL business shares

15.41

Capital injection in GEN-I

1.50

Capital injection in NKBM

20.00

ZEL-EN

0.12

SRESA

0.01 3.39 27.10

SEL

5.22

TEB

0.82

GEN-I (50%)

0.43

TOTAL

2,292

Investment cost

HESS construction project

NEK (50%) 2,577

2010

Table II 7: Investments made by GEN Group companies in 2011 (in EUR million)

Miscellaneous investments

18,094

13,645

Some important steps were made by the GEN Group companies in the areas of R&D and investments in 2011. Funds allocated to this end totalled EUR 82.25 million.

82.25

The company GEN made EUR 48.68 million worth of capital investments in 2011, both in the form of direct investments and financial investments. Since the company‘s profits are the only viable source of finance, the capital investments were financed largely by the profits from the current and previous years. In 2011 the company GEN financed its capital investments by depreciation allowances in the amount of EUR 0.85 million and by the current profits and retained earnings from previous years totalling as much as EUR 47.83 million.

The company will continue its intensive investment activity into 2012, which will again be financed largely by current profits and retained earnings. However, if we were to go ahead with the purchase of a large business share in the company HESS, we would also have to take out a loan.

2.5.1 HESS construction project With the transfer of an interest in the HESS Joint Venture on 01/01/2008, GEN became a direct stakeholder in the HESS construction project. Payments for HESS are provided for in the memorandum of association, and the exact amounts are decided by the company‘s annual general meeting. GEN put EUR 2.23 million into the HESS project in 2011, and the investment of the entire GEN Group in HESS totalled EUR 2.73 million. Payments began in February and ended in September. The amount of payments for 2011 was planned to be higher, but the October, November and December payments were skipped due to a delay in the construction of the Krško HPP reservoir and the preparation of the national spatial plan for Brežice HPP.

2.5.2 JEK 2 construction project In October 2006 the Government of the Republic of Slovenia adopted the Resolution on Key National Development Projects for the Period from 2007 to 2023 (ReNEP) and included among measures and projects supporting sustainable development of Slovenia the option of constructing a second reactor unit of Krško Nuclear Power Plant. This was a clear indication the interest and direction of the Government of the Republic of Slovenia in shaping the future of energy in Slovenia. In Slovenia the situation in electricity supply has intensified in recent years, and electricity consumption has increased

much like in other developed EU Member States. The situation has changed due to the global economic crisis, but when the economy recovers, electricity consumption will begin to climb again. Slovenia is facing a problem of relatively old energy-production facilities, which are going to have to be eventually replaced. At the same time we are growing increasingly aware of environmental impacts and of the importance of keeping in line with the EU climate and energy package. All this calls for a closer look into the option to expand the output capacity of Krško Nuclear Power Plant by building a new reactor unit, as confirmed by the draft National Energy Programme (hereinafter: NEP). The installed capacity of the planned second reactor unit would be somewhere between 1100 and 1600 MW. According to NEP, the construction of the new unit and its connection to the power grid would be completed between 2020 and 2030, with commercial operation most likely to start by 2025. Several subprojects and activities are currently underway in the preliminary stage of the JEK 2 project, which is divided into four stages: a) Preliminary stage: activities until a decision on construction is reached at the national and local levels; preparation and organization of the project; b) Preparatory stage: siting and location analysis, laying down specifications for tendering procedures, negotiations, and signing the construction agreement; c) Construction stage: preparation of project documentation, construction of the facility, manufacture and assembly of plant equipment, and obtaining a building permit and operating licence; and d) Operating stage: 60 years of commercial operation. In accordance with its business plan, GEN also purchased land where inhabitants of Vrbina are to be relocated. The cost of substitute land was EUR 1.10 million. Due to the complexity of the JEK 2 project, GEN has already started training its existing personnel in a number of ways.

Business report Annual report of the GEN Group 2011

One of them is the provision of engineering services in the framework of setting up the technical specifications design for the construction of a nuclear power plant in Sudan. On this collaborative project, the experts from the company GEN were entrusted with the task of laying down a part of the technical specifications. This allows them to gain valuable practical experience, which will be of vital importance in the preparation of the documentation for JEK 2. The social and political acceptability of new nuclear power plant construction projects in the EU and around the world was deeply impacted by the earthquake and tsunami in Japan, which also damaged the Fukushima nuclear power plant. Even though the power plant withstood the effects of the earthquake well, its external power supply was cut and its crucial components were flooded by the tsunami, which resulted in a limited release of radioactive materials, luckily without casualties. A markedly negative decision with regard to future utilization of nuclear energy was only taken by Germany, which announced that all its 17 nuclear power plants would be decommissioned by 2022. Italy and Switzerland aborted all activities related to investments in and expansion of nuclear capabilities, while the rest of the countries with active nuclear programmes decided to stick with their original plans. The project is now entering a stage where, in order for it to continue, it will be up to the owner to take a clear position on the construction of JEK 2. So far we have completed all the expert studies needed for a well-grounded, broader political and social discourse on the energy future of Slovenia and on the future role of nuclear energy. Given that activities for the adoption of a new National Energy Programme are to take place in 2012, all the bases have been covered to go ahead with the siting procedure and to defend the preservation and expansion of the nuclear option in the new national strategic document. An application to obtain an energy licence, the first authorization document in line in the decision-making process, has already been submitted to the ministry responsible for the energy industry.

2.5.3 GEN Information Centre construction project The construction of GEN Information Centre (hereinafter: GEN IC) premises was completed in 2011. The move to the new building was made on 18/06/2011, and the official opening took place on 06/07/2011. GEN IC brings under one roof not only the company headquarters with all its divisions and GEN CC, but also a state-ofthe-art visitor centre named The World of Energy, whose purpose is to provide comprehensive information, explanations, interactive exhibits and experiments to bring energy and energy technologies closer to visitors and to spark the interest in natural and technical sciences among young people. Taking into account the value of the contract and annexes to the contract, the total cost of GEN IC was EUR 7.3 million. EUR 4.91 million was spent to this end in 2011.

2.5.4 Purchase of business shares in SEL The purchase of minority business shares in SEL was carried out in accordance with the business plan for 2011. The purchase cost EUR 15.41 million and was financed by retained earnings from previous years. This purchase made GEN the sole owner of SEL. It also marks the fulfilment of the goal to enable the subsidiary SEL to rejoin the present and future projects undertaken on the Sava River. This way, the company will be able to continue to evolve.

2.5.5 Capital injections in GEN-I and NKBM The rapid business growth of the company GEN-I created a need for increasing capital adequacy, so a cap-

Business report Annual report of the GEN Group 2011

ital injection in the amount of EUR 1.50 million was made in January. In accordance with the decision of the Capital Assets Management Agency of the Republic of Slovenia to amend the Articles of Incorporation of the company GEN and with the relevant decision to make a capital injection, EUR 20 million worth of NKBM shares were purchased in April. The purchase was not envisaged in the business plan.

2.5.6 ZEL-EN The Faculty of Energy Technology of the University of Maribor, in association with the municipality of Krško and 12 businesses, founded a consortium, which set up the ZELEN project with the aim of encouraging the companies in the consortium to invest in the development of new technologically advanced products and services in the area of sustainable energy, particularly energy efficiency and renewable energy sources. The project was submitted to the call for proposals announced by the Ministry of the Economy to receive funding from the European Regional Development Fund and was the winner in the energy category. In accordance with the Deed of Partnership for the establishment of the company ZEL-EN, GEN paid in a portion of the new company‘s share capital in the amount of EUR 0.12 million.

2.5.7 SRESA Pursuant to the Decree on the concession for the use of water for electricity generation on the Sava River section from Ježica to Suhadol, the construction of nine or ten hydroelectric power plants on the middle course of the Sava River is planned, in the following locations: Ježica (or Tacen and Gameljne), Šentjakob, Zalog, Jevnica, Kresnice,

Business report Annual report of the GEN Group 2011

2.6 Human resources Ponoviče, Renke, Trbovlje and Suhadol. By signing the Deed of Partnership of the limited liability company Srednjesavske elektrarne d.o.o. on 25/11/2011, GEN joined the project as a 10% owner of the company and paid in a portion of the company‘s share capital in the amount of EUR 0.01 million. In 2011 the company founders coordinated the Concession Agreement with the Ministry of the Environment and Spatial Planning.

2.5.8 Miscellaneous investments The development of the GEN Group also commits the parent company to making other investments important for its future operation. In 2011, GEN primarily invested in fixed assets and information technology, with investment cost totalling EUR 3.39 million.

2.5.9 Investments and development of the GEN Group companies

id implementation of modifications undertaken in order to comply with the requirements for providing alternative cooling systems in the form of a mobile unit in the event a large commercial airliner crashed into the power plant (NRC requirements collectively referred to as B.5.b requirements), as well as in response to the events at Japan’s Fukushima power plant. As a result, internal safety assessment was carried out, which identified specific short-term measures to prevent and mitigate the consequences of beyond design basis nuclear accidents. NEK continued to undergo comprehensive technological modernization in accordance with its long-term investment programme. The investment cost was EUR 54.20 million. SEL SEL consistently carries out regular major maintenance work on its facilities and makes intense development efforts in terms of tapping renewable energy sources. In 2011, SEL spent EUR 5.22 million in depreciation allowances and other own resources on investments and development.

2.6.1 Employees The number of employees in the GEN Group is directly proportional to the Group’s development and the challenges it entails. We always seek to streamline the recruitment process at the level of the whole Group. The companies in the GEN Group employed a total of 1026 people as at 31/12/2011.

According to business plan, GEN envisaged adding 9 new jobs in 2011. In effect, the company GEN added 8 people to its team in 2011, and one employee left the company, so GEN employed a team of 50 people at the end of the calendar year.

Table II 8: Number of employees by level of education as at 31/12/2011 Level 6/II (higher ed. and Bologna BA/BSc)

Level 7 (BA/BSc & MA/MSc Bologna

Level 8/I (MA/ MSc)

Level 8/II (PhD)

TOTAL

Level 1

Level 2

Level 3

Level 4

Level 5

Level 6/I (voc.)

GEN

GEN-I

121

NEK

269

176

623

SEL

115

TEB

117

TOTAL

372

121

297

1026

GEN GROUP

All the companies in the GEN Group maintain a high level of availability and operational reliability on account of regular maintenance and ongoing investments. Appropriate control, maintenance and modernization ensure operational readiness of the systems at all times.

The most important part of SEL‘s investing activity in 2011 was stage 2 of the reconditioning of Moste HPP, which started as early as March 2008. What is more, SEL became a 30% owner of the company SRESA in 2011, and this allowed it to participate in the project to build hydroelectric power plants on the middle course of the Sava River.

The data in Table II 8 refer to whole companies or the Group, disregarding GEN’s equity interests in individual companies and the rules of consolidation.

NEK

TEB

NEK follows the conventional strategy for operating nuclear power plants, which entails ongoing investments in technological upgrades and modernization. The established procedure is to make five-year investment plans, and the average annual value of investments in technological modernization is around EUR 38 million. Based on the aftermath of the natural disaster in Japan, which also struck the Fukushima nuclear power plant, and the results of stress tests, which revealed the need to make additional modifications to NEK, we expect the value of capital investments to increase in the years ahead. For the nuclear industry, the year 2011 was marked by a rap-

TEB focuses its investment and development activities chiefly on the development of its existing processes and expands its operation into other areas as well. A total of EUR 0.82 million was spent on investments and development in TEB in 2011.

A shortage of suitable, qualified human resources has become increasingly apparent around the country in recent years, and the situation is quite serious in the Posavje region as well. Individual companies are experiencing a shortage of specific human resources at various levels, particularly in the sphere of natural and technical sciences.

GEN-I GEN-I‘s development in the areas of sales and trading in 2011 was a step up from previous years. The company spent a total of EUR 0.86 million of its own resources on investments and development.

2.6.2 Scholarships

The companies in the Group provide company scholarships and participate in the uniform, region-wide Posavje Scholarship Scheme. Scholarships under this scheme are awarded to secondary school and undergraduate students studying for professions that are the most sought after or in demand among employers, who must clearly define what they are looking for in a call for tenders. The number

of scholarships awarded is subject to the amount of available public funds, developmental priorities and professionspecific prospects in a given developing region. Table II 9: Number of scholarship recipients as at 31/12/2011 GEN GROUP GEN GEN-I

No. of scholarships 24 1

NEK

SEL

TEB TOTAL

5 64

GEN had 24 scholarship recipients as at 31/12/2011, and the GEN Group 64.

Business report Annual report of the GEN Group 2011

2.7 Financial operations

The financial operations of the company and the Group are, alongside obligations of controlled and jointly controlled companies, also significantly influenced by the commitments GEN has entered upon founding that originate in the Intergovernmental Agreement on NEK. Under this agreement, GEN not only received the right to one-half of the electricity produced by NEK but also assumed the responsibility to pay back the loans taken out for its construction, to meet its financial obligations to the NEK Fund, and to secure funding to compensate for fixed costs in the event of unplanned outages of NEK. While the GEN Group companies meet their financing obligations mostly through depreciation allowances, GEN‘s main source of funding used for this purpose is the profit it generates. All the obligations arising from the financial operations of the company and the GEN Group were fulfilled within deadlines and within appropriate financial frameworks in 2011.

2.7.1 Settling liabilities to the NEK Fund and securing funding for NEK‘s fixed annual costs Pursuant to the Intergovernmental Agreement on NEK, the Act on the Fund for Financing Decommissioning of NEK and Disposal of Radioactive Waste from NEK, and the Decision of the Government of the Republic of Slovenia No. 311-01/2001-21 of 7 October 2004, the company is obligated to pay into the NEK Fund by no later than the 20th day of each month a contribution in the amount of 0.30 euro cents for each kWh of electricity produced by NEK and collected in the preceding month.

Based on the amount of electricity produced in 2011, GEN paid EUR 8.85 million into the NEK Fund. Under the Intergovernmental Agreement on NEK, the company GEN is obligated to cover NEK‘s fixed costs incurred over a period of one year regardless of whether NEK is in or out of service. Since NEK is the dominating production unit in the GEN Group, which means the performance and operations of the Group are heavily dependent on NEK‘s production, the Group is exposed to considerable risks even in the event of short outages of the power plant. To secure funding for NEK‘s fixed costs, the company GEN decided to make long-term provisions in the amount of one-half of NEK‘s annual fixed costs (the other half is to be provided by the other owner of NEK).

2.7.2 Servicing operations and debts One of the fundamental functions of financial operations in 2011 was to keep an adequate level of liquid funds for ensuring solvency. A major part in ensuring solvency is played by obligations with respect to the supplied electricity and power. Particularly important is the obligation to cover NEK‘s fixed costs, which is one of the principal leverages for our prompt settlement of GEN‘s liabilities and for the optimization of surpluses and shortfalls among the companies in the GEN Group. Appropriate liquidity was also ensured through consistent collection of past-due receivables. This aspect is particularly relevant in the case of GEN-I, but since GEN-I has this issue well taken care of with contractual terms and conditions, no major problems have been encountered to date. Borrowing activities were focused on securing sufficient funding both for short- and long-term operations. All the companies in the Group take out loans for their own account.

Long-term loans were taken out in 2011 by the following GEN Group companies: • GEN, for the purchase of minority interests in TEB, which was repaid in full in 2011 with the last four payments made on the principal; • NEK, for its modernization and fulfilment of obligations under Annex III to the Intergovernmental Agreement on NEK, for fuel purchase, replacement of the reactor head and application of welds on the pressurizer. A short-term loan was taken out by the company: • GEN-I, for securing liquid assets for trading. The loans have been secured by bank guarantees. The financing liabilities were denominated in EUR.

2.7.3 Report on investments of GEN's surplus cash The Supervisory Board of the company GEN adopted on 16/05/2007 the GEN Investment Strategy for surplus cash. The company followed its investment strategy and placed its surplus cash predominantly in deposits with maturity ranging from one to six months. The deposited funds were spread over several different banks, with an average rate of return of 3.45%.

Spurred by the developments in the financial markets, GEN reviewed the surplus cash management methods in place in its subsidiaries and found that the companies in the Group rely on similar management methods aimed at reducing the risks associated with such investments.

Business report Annual report of the GEN Group 2011

2.7.4 Performance indicators Table II 10: Indicators for the company GEN Performance indicators

Table II 11: Indicators for the GEN Group 2011

2010

Equity financing rate

83.04%

83.17%

Long-term financing rate

96.47%

95.59%

Performance indicators

2011

2010

Equity financing rate

73.44%

77.26%

Long-term financing rate

84.79%

88.45%

Operating fixed assets rate

2.67%

1.05%

Operating fixed assets rate

50.92%

54.52%

Long-term investment rate

78.24%

73.07%

Long-term investment rate

58.82%

60.73%

Equity to operating fixed assets

31.12

79.21

Equity to operating fixed assets

1.44

1.42

Long-term financing of fixed assets

1.21

1.28

Long-term financing of fixed assets

1.41

1.43

Immediate solvency ratio - acid test ratio

4.44

4.71

Immediate solvency ratio - acid test ratio

1.47

2.04

Quick ratio

5.75

5.76

Quick ratio

2.65

2.92

Current ratio

5.77

Current ratio

3.26

3.43

Operating efficiency ratio

1.11

1.21

Operating efficiency ratio

1.05

1.10

Net return on equity ratio

0.02

0.07

Net return on equity ratio

0.04

0.06

Pursuant to Article 70, paragraph 2 of the Companies Act (CA-1) and SAS 29, the indicators that best reflect the financial position or the suitability of the composition of assets and liabilities of the company and the Group are presented below. The indicators show that the company is in a healthy financial position. Still, it may be noted that the global recession is also reflected in the selling prices of electricity and the falling rate of profit as a result. The company is, therefore, ready to make new capital investments. In this respect, in view of the harsh economic situation and the owner‘s high expectations regarding profit rates, it is crucial that the new investments meet these expectations.

Overall, the indicators show that the GEN Group’s performance in 2011 was similar to that of 2010. Noticeable declines were only recorded in the operating efficiency and the return on equity ratios, which can be attributed chiefly to the events that had a negative impact on the performance of the parent company.

Business report Annual report of the GEN Group 2011

2.8 Overall responsibility

In the Revised GEN Energija Development Plan, social responsibility is defined as the factor which plays a significant part in creating and maintaining a positive business and social environment. The GEN Group companies recognize that, in order to be successful, it is vital that social responsibility is developed on various levels. So, with this in mind, the social responsibility of the GEN Group is divided into these main categories: • general social responsibility, • environmental responsibility, and • economic responsibility.

2.8.1 General social responsibility With their operation and energy production facilities in individual locations, the GEN Group companies are tightly integrated into their local environments. From this integration with the environment stems the general social responsibility of GEN. A special focus is placed on sponsorships and donations directed to diverse areas by GEN. Sponsorships and donations The amount of funds earmarked for donations and sponsorships is determined in the annual business plan and does not exceed the amount of tax-deductible expenses. The GEN Group companies receive several hundred requests each year. Requests that are granted are those that best match the values of individual companies and the Group.

When apportioning funds, we place a special emphasis on the intended purpose of the funds and look at whether the funds are going to be used in the environments into which our individual facilities are integrated. The funds are given out for sporting, cultural, educational, development, science and research, charitable, health, ecological, humanitarian, disability and social security purposes. From a broad spectrum of sponsorships and donations given out in 2011, the following deserves special attention: our support for development and education projects and for the organization of various events, conferences, contests and competitions in the areas of energy industry, nuclear energy and renewable energy sources. For a number of years GEN has been sponsoring the Reaktor Prize Contest on the topic of nuclear energy, aimed at students of natural and technical sciences. GEN also works together with the Faculty of Energy Technology in Krško, both on the organization of the annual expert conference EnRe and on other science projects. Aiming to promote a constructive debate on, and increase the understanding of, energy-related topics, GEN also supported the organization of many expert conferences and meetings: “Nuclear Energy for New Europe 2011”, the strategic energy conference “En.Odmev 2011”, the expert conference “Energy Industry and the Environment 11”, the 10th Conference of Slovenian Electric Power Engineers, and the strategic meeting of participants in the energy market “Innovation in Energy – Revolution in Business”, to name a few.

Energy literacy and raising awareness of sustainable electricity sources, the future of energy and the importance of energy efficiency among young people In June GEN completed the construction of a visitor centre named The World of Energy. The World of Energy is an innovative and, most importantly, instructive addition to the Posavje energy region and the whole of Slovenia. The aim of the centre is to provide comprehensive information and explanations and interactive exhibits and experiments to bring energy technologies closer to visitors and to spark interest in natural and technical sciences among the young. Smaller in scope but still an important part of activities at the World of Energy is the preparation of special programmes and workshops, which GEN develops in collaboration with teachers from the schools in the Posavje region, for talented primary and secondary school students. By the end of the year, the centre registered over 3400 visitors, 19 primary and nursery schools and 11 secondary schools. The Energy-Efficient School project deserves special attention among the Group’s general social responsibility projects. GEN revamped the project in the 2011/2012 school year, linked it to the World of Energy and renamed it “The Young in the World of Energy”. In the course of the project, groups of primary and secondary school students led by mentors will be setting up projects on the topics found in the World of Energy, focusing on energy literacy and sustainable production of electricity.

Business environment and partners The economic and financial crises prevented some businesses from forecasting offtakes of electricity and complying with all relevant contract terms. Taking into account the given circumstances and the fact that the economic situation tends to have a delayed effect on the energy industry, GEN successfully tuned in to its business partners, consumers of electricity.

2.8.2 Environmental responsibility In accordance with its environmental policy, the GEN Group has undertaken to produce electricity in an ecologically sound manner and to follow the Kyoto Protocol directives on reducing greenhouse gas emissions. Among the energy sources that can make this happen is also nuclear power. And it is the nuclear power produced by NEK that is essential for the successful and environmentally friendly operation of the entire Group. Recognizing the importance of renewable energy sources, GEN added to its Group hydroelectric power plants on the Sava River through the acquisition of SEL and through active participation in the construction of hydroelectric power plants on the lower Sava River (HESS) and on the middle course of the Sava River (SRESA). GEN‘s production portfolio is complemented by TEB, which uses natural gas and extra light fuel oil, the most environmentally acceptable fossil fuels, to generate power. Thanks to such a production portfolio and a low number of TEB

start-ups, more than 99% of all the electricity produced by the GEN Group was generated without greenhouse gas emissions in 2011. Given the importance of nuclear power in the operations of the Group and in maintaining a low level of greenhouse gas emissions in Slovenia, the greatest emphasis is placed on ensuring effective risk management in the field of nuclear safety. Special attention is focused on ensuring and checking adherence with nuclear technology regulations and standards. To this end, it is important to keep abreast of best practices concerning nuclear safety around the world and of OSART Mission recommendations and to incorporate them into NEK. Great emphasis is placed on equipment modernization and maintenance and on improving the safety culture and conscience among all company employees. Owing to all the activities outlined above, NEK ranks in the top 25% of nuclear power plants worldwide in terms of operation safety and stability. NEK, SEL and TEB have all implemented environmental management systems according to the ISO 14001 standard. In this context, separate collection of municipal waste was introduced. Municipal wastewater is processed by special wastewater treatment facilities. The water‘s pH value, temperature, amount of undissolved material and chemical and biological oxygen demand are measured at discharge. A maximum of one-fourth of the river‘s flow rate may be withdrawn from the Sava for cooling purposes. The temperature of the Sava River has never increased by

Business report Annual report of the GEN Group 2011

more than the permissible maximum limit of 3°C after discharging back into the river. NEK also places special attention on radiological monitoring. NEK‘s impact on the environment in 2011 was minimal, since no increased radiation levels as a result of the power plant operation was detected for the nearby residents. So, based on scientific models, it has been calculated that the impact is approximately 1 mSv or less than 0.1% of the average dose received by an individual from natural radiation sources (around 2500 mSv). 78 radioactive waste packages in a total volume of 34.7 m3 were stored in 2011. The total volume of radioactive waste stored in the temporary storage facility at the end of 2011 was 2,234.1 m3, and the total activity was 20.5 TBq. The spent fuel pool holds 984 spent fuel assemblies from the past 24 fuel cycles. The total mass of the spent fuel material is 402 tonnes. The GEN Group is committed to promoting production of electricity from renewable energy sources. This area is dominated by SEL, which not only operates and services its existing hydroelectric power plants but also invests in small-scale photovoltaic power plants (SPPs), wind turbines and combined heat and power (CHP) plants. TEB too invests in small-scale photovoltaic power plants. The GEN Group operated a total of nine photovoltaic power plants, with a combined installed capacity of 0.799 MW, at the end of 2011. Three of those power plants were completed and put into operation in 2011: at Vrhovo HPP, Medvode HPP and at GEN. Purchasing electricity from producers with a declaration for their production facility (DP) holds a special place

in the GEN Group. In this segment, the GEN Group, together with its partner with which it jointly controls the company GEN-I, is the leader in Slovenia. In this way the Group provides important support to DPs of electricity. Willing to offer more than the regulated price, the Group gives them a direct financial incentive. With this business decision, the GEN Group contributes to a cleaner environment and promotes further development of ecofriendly ways of generating electricity. The amount of CO2 emission allowances granted to the GEN Group for 2011 was 65,200 tonnes, of which only 10,662 tonnes were used up in the end. The reason why emissions were below the permissible level lies in the fact that the production output was lower than planned and that the other units in the Group recorded remarkably good production results. On top of that, natural gas, which emits less CO2 in the burning process than extra light fuel oil does, was used in power generation as much as possible. As we make further investments in HESS and SRESA and other investments in renewable energy sources, renewable energy sources will get to play an increasingly important role in the Group. Electricity generated this way has an additional advantage as the producer is eligible to obtain Guarantees of Origin (hereinafter: GO). In 2011 the production companies in the GEN Group generated 287 GWh of electricity from renewable energy sources, which means they were eligible to obtain that same amount worth of GOs.

Business report Annual report of the GEN Group 2011

2.8.3 Economic responsibility Economic responsibility represents one of the cornerstones of social responsibility. Judging from experience, only economically efficient businesses can be fully socially responsible. The GEN Group and its individual constituent companies fulfil their economic responsibility by ensuring shortand long-term profitability, by choosing economically efficient technologies for the production of electricity, and by developing competitive products and services that meet customers‘ needs. As it can already be seen in other sections of the annual report, the GEN Group is indeed economically responsible. The Group closed the year 2011 with encouraging business results and continues to pursue clearly defined goals and an ambitious development plan in accordance with the adopted Revised GEN Energija Development Plan.

Business report Annual report of the GEN Group 2011

2.9 Risks

Risks as a component part of the GEN Group’s operations are dealt with in the same way as other key operating factors. The GEN Group seeks to promptly identify, monitor and address risks so as to ensure that there are no major discrepancies from the targets.

2.9.1 Quantity risks Quantity risks are risks associated with produced and purchased electricity which arise from the gap between the forecast and the actual amount of electricity. Quantity risks are internal, relating to technological and logistic limitations with regard to production and timely procurement of fuels, and external, mostly having to do with weather and hydrological conditions. Internal risks are managed and controlled independently by each individual production facility based on extensive experience and established operation modes, maintenance shutdowns, etc. NEK, SEL, TEB and HESS ensure uninterrupted operation of their production units and other electricity-generation systems independently by performing regular maintenance and periodic checks (measurements, mechanical diagnostics). The GEN Group paid a lot of attention to limiting and managing external quantity risks. For this purpose, it has developed IT support for long- and short-term forecasting of electricity offtake and feed profiles as well as for daily monitoring of variations in quantity at most of its offtake and feeding points. The pivotal role in IT support is played by GEN CC, which fully fulfilled its function in 2011. The GEN Group has lessened its exposure to risks also by signing suitable quantity and financial contracts.

2.9.2 Market risks Price risks arise from the volatility of prices of energy products in the global electricity market, both at home and abroad. For managing the price risks the companies in the Group sign long-term contracts to minimize the risks. Despite heavy exposure to the global market in fuels and energy products, the risks are manageable because nuclear energy makes up the majority of the portfolio, and the impact of nuclear fuel on the price of electricity from NEK is limited to as low as 15%.

2.9.3 Financial risks Credit risks are risks that arise when a business partner fails to fulfil his material (agreed supply/delivery of a certain amount of electricity) or financial obligations (non-payment of contractual obligations) within deadline. Credit risks in 2011 were identified and minimized by the companies in the Group by thoroughly checking their business partners‘ liquidity position and by signing properly secured contracts (by blank drafts, bank guarantees, and sureties). Currency risk is a risk that arises when the value of receivables and payables denominated in a foreign currency fluctuates due to volatile foreign exchange rates. In the markets outside the euro area the GEN Group uses foreign currency hedging instruments, which include forward contracts and foreign currency clauses. Liquidity risk arises when a company or a group of companies is unable to meet its current liabilities. The GEN Group managed the liquidity risk by laying down well-defined contract terms and conditions, by precisely

planning its cash flows, and by continually checking its contract partners and their payment track records.

2.9.4 Operational risks Operational risks are encountered in every business process. These are risks that could lead to a financial loss for the Group should ineffective business processes and controls be in place. IT or telecommunication system failure risks are managed by the companies by providing redundancy for all the key components and making sure they are regularly serviced and updated. Human resources risks arise because, in order to achieve business plans, employees are expected not only to continually expand their existing knowledge and skills and to acquire new knowledge and skills, but also to be effective in teamwork, show a high degree of flexibility, dynamism, motivation, to take initiative, and to have an excellent rapport and communication with each other. In general, the GEN Group minimized its exposure to operational risks in 2011 by taking the following measures: • coordination of the GEN Group; • introduction of ISO standards; • introduction of straightforward and open communication among all the partners in the Group; • establishment of suitable supervision - appointing authorized representatives from GEN to supervisory boards of subsidiaries and associated companies and in the GEN-I management; • clear definition of business processes; and • clear definition of roles, responsibilities and com-

petences of people with suitable qualifications and experience who are involved in the company‘s individual business processes.

2.9.5 Ecological risks Ecological risks refer primarily to damage that may occur on the environment and the GEN Group’s facilities. The companies manage this type of risk through preventive and predictive maintenance of their process systems, regular periodic particulate emission/concentration measurements, regular daily checks of their production facilities and wastewater flow measurements.

2.9.6 Legal risks Legal risks refer to losses incurred due to violation or misinterpretation and non-observance of the law, regulations, directives, recommendations, valid agreements, good practices or ethical standards. The GEN Group manages these risks primarily by laying down as welldefined contract terms and conditions as possible.

Summary financial report of the company GEN energija, d.o.o. In essence, electricity is a natural asset, one we have come to take for granted. It took us a long time to learn how to efficiently, reliably and safely distribute electricity so it can light up any home or office at any given time. Electricity trading in the GEN-I Group is concentrated in a central location in Ljubljana, which operates 24 hours a day every day of the week (24/7). Thanks to fixed amounts of power and electricity to be delivered, production units are guaranteed to receive steady and stable income, and consumers get access to high-quality comprehensive electricity supply and optimized purchase channels.

Photo: GEN-I 24/7 Trading Floor

Summary financial report of the company GEN energija, d.o.o. Annual report of the GEN Group 2011

3.1 Independent auditors' report

3.2 Basis for drawing up the summary financial report

Pursuant to the Companies Act, below is the summary financial report, which is an integral part of the Annual Report of the GEN Group 2011. The summary gives an overview of 2011 operations and includes condensed versions of financial statements based on audited principal financial statements: balance sheet, income statement, statement of other comprehensive income, cash flow statement, and statement of changes in equity. The financial statements are presented in EUR without cents.

Summary financial report of the company GEN energija, d.o.o. Annual report of the GEN Group 2011

3.3 Financial statements

3.3.1 Balance sheet Table III 1: Balance sheet as at 31/12/2011 As at 31/12/2011

As at 31/12/2010

ASSETS

517,925,627

505,734,318

A. Fixed assets

413,680,246

377,336,432

473,546

384,949

13,348,795

4,924,991

391,382,820

364,212,104

8,475,085

7,814,388

I. Intangible assets and long-term deferred expenses and accrued income II. Tangible fixed assets III. Long-term financial investments IV. Deferred tax assets

As at 31/12/2011

As at 31/12/2010

LIABILITIES

517,925,627

505,734,318

A. Equity

430,088,313

420,616,018

I. Called-up capital

26,059,796

II. Capital reserves

239,609,558

III. Revenue reserves

159,702,533

139,727,277

-39,442

4,716,426

15,258,829

69,539,807

62,833,555

69,539,807

62,833,555

39,581

18,079,920

22,259,776

3,005,559

18,079,920

19,254,217

178,006

24,969

2,586,396

2,040,003

IV. Revaluation surplus V. Net profit or loss for the financial year

B. Current assets

104,030,288

128,320,937

I. Short-term financial investments

80,193,156

104,787,281

II. Short-term operating receivables

23,835,338

23,533,284

1,794

372

III. Cash

B. Provisions and long-term accruals and deferred income I. Provisions and long-term accruals and deferred income C. Long-term liabilities

C. Short-term deferred expenses and accrued income OFF-BALANCE-SHEET ASSETS

215,093

76,949

2,586,396

2,040,003

I. Long-term financial liabilities Č. Current liabilities I. Current financial liabilities II. Current operating liabilities D. Short-term accruals and deferred income OFF-BALANCE-SHEET LIABILITIES

Summary financial report of the company GEN energija, d.o.o. Annual report of the GEN Group 2011

3.3.2â&#x20AC;&#x2C6;â&#x20AC;&#x2030;Income statement and statement of other comprehensive income Table III 3: Statement of other comprehensive income for 2011

Table III 2: Income statement for 2011 Financial year 2011

Financial year 2010

TOTAL INCOME

186,782,560

171,351,298

Operating income

180,757,040

162,857,837

Financing income

6,023,968

8,492,924

1,552

537

TOTAL EXPENSES

175,841,038

134,580,927

Operating expenses

163,546,402

134,359,392

143,235,338

120,873,337

2,177,788

1,822,027

Other income

Purchase cost of goods, materials and services Cost of labour Write-offs

845,944

956,225

17,287,332

10,707,803

12,294,630

221,530

10,941,522

36,770,371

INCOME TAX

1,508,670

6,252,713

TOTAL PROFIT

9,432,852

30,517,658

Other operating expenses Financing expenses Other expenses

TOTAL PROFIT OR LOSS

Net profit or loss for the period Gains and losses on remeasuring available-for-sale financial assets Total comprehensive income for the period

Financial year 2011

Financial year 2010

9,432,852

30,517,658

49,302

155,210

9,482,154

30,632,868

Summary financial report of the company GEN energija, d.o.o. Annual report of the GEN Group 2011

3.3.3 Statement of changes in equity Table III 4: Statement of changes in equity for 2010 Share capital

Capital reserves

Legal reserves

Other revenue reserves

Revaluation surplus

Net profit or loss from previous years

Net profit or loss

Total

I/1

III/1

III/5

VII

A.1. As at 31/12/2009

26,059,796

239,609,558

2,605,980

124,862,468

-131,609

24,258,876

417,265,069

A.2. As at 01/01/2010

26,059,796

239,609,558

2,605,980

124,862,468

-131,609

24,258,876

417,265,069

-3,000,000

-24,258,876

-27,258,876

-3,000,000

-24,258,876

-27,258,876

92,167

30,517,658

30,609,825

a) Input of net profit or loss for the reporting period

30,517,658

č) Gains and losses on remeasuring financial investments

92,167

15,258,829

-15,258,829

15,258,829

-15,258,829

26,059,796

239,609,558

2,605,980

137,121,297

-39,442

15,258,829

420,616,018

B.1. Changes in equity capital – transactions with owners g) Payment of dividends B.2. Total comprehensive income for the reporting period

B.3. Changes in equity b) Distribution of a part of net profit from the reporting period to other equity components – Management and Supervisory Board C. As at 31/12/2010

Summary financial report of the company GEN energija, d.o.o. Annual report of the GEN Group 2011

Table III 5: Statement of changes in equity for 2011 Share capital

Capital reserves

Legal reserves

Other revenue reserves

Revaluation surplus

Net profit or loss from previous years

Net profit or loss

Total

I/1

III/1

III/5

VII

A.1. As at 31/12/2010

26,059,796

239,609,558

2,605,980

137,121,297

-39,442

15,258,829

420,616,018

A.2. As at 01/01/2011

26,059,796

239,609,558

2,605,980

137,121,297

-39,442

15,258,829

420,616,018

39,442

9,432,852

9,472,294

a) Input of net profit or loss for the reporting period

9,432,852

č) Gains and losses on remeasuring financial investments

39,442

19,975,255

-19,975,255

a) D istribution of the rest of net profit from the comparative reporting period to other equity components

15,258,829

-15,258,829

b) D istribution of a part of net profit from the reporting period to other equity components – Management and Supervisory Board

4,716,426

-4,716,426

26,059,796

239,609,558

2,605,980

157,096,553

4,716,426

430,088,313

B.2. Total comprehensive income for the reporting period

B.3. Changes in equity

C. As at 31/12/2011

3.3.4 Balance-sheet profit account Table III 6: Annex to the statement of changes in equity – balance-sheet profit Financial year 2011

Financial year 2010

Net profit for the financial year

9,432,852

30,517,658

Increase in revenue reserves - Management or Supervisory Board

4,716,426

15,258,829

a) other revenue reserves

4,716,426

15,258,829

4,716,426

15,258,829

Balance-sheet profit

Summary financial report of the GEN Group Atoms, like people, change when interacting with each other. In this interaction, each atom can share electrons with another atom, giving an object a positive or negative electric charge. It is all based on mutual repulsion and attraction: objects with the same electric charge push each other apart, and objects with opposite electric charges attract one another. This is the fundamental principle behind the laws of electrostatics.

The World of Energy, which opened in July 2011, and its wealth of information are sure to hold immense attraction for visitors, who can explore multimedia exhibits and conduct interactive experiments to learn about the fundamental laws of physics, magnetism, electrical engineering and electrostatics.

Photo: The World of Energy experiment room and the Tesla coil, a special type of transformer producing high-frequency, high-voltage currents

Summary financial report of the GEN Group Annual report of the GEN Group 2011

4.1 Independent auditors' report

Summary financial report of the GEN Group Annual report of the GEN Group 2011

4.2 Basis for drawing up the summary financial report of the GEN Group

4.2.1 About the GEN Group The purpose of compiling consolidated financial statements is to present the financial position and the performance of a group of interconnected companies as if they were one. Companies whose statements are taken into account when compiling consolidated statements operate as individual companies which, given the relationships among them, constitute an economic unit but not a legal entity, since the unit as such is not an independent holder of rights and duties. Table IV 1: About the GEN Group Company name GEN energija

Status in the Group

Equity stake

Parent

GEN-I

Jointly controlled

50%

NEK

Jointly controlled

50%

TEB

Subsidiary

100%

SEL

Subsidiary

100%

The consolidation of the controlled companies is performed on the basis of the full consolidation method, and the jointly controlled companies are included in the Group based on the proportional consolidation method. The subsidiary GEN-I is also the controlling company of the following wholly owned subsidiaries: • GEN-I, d.o.o., Zagreb, Croatia; • GEN-I, d.o.o. Belgrade, Serbia; • GEN-I, Budapest KFt, Hungary; • GEN-I, Skopje, Republic of Macedonia;

• GEN-I, Sarajevo, Bosnia and Herzegovina; • GEN-I, Tirana, Albania; • GEN-I, Tirana, Kosovo Branch; • GEN-I, Athens, Greece; • S.C.GEN-I, Bucharest, Romania; • GEN-I, Sofia SpLLc, Bulgaria; • GEN-I, Milano, Italy; • GEN-I, Vienna, Austria. GEN-I‘s subsidiaries are incorporated into the Group based on the chain consolidation method or through consolidation of the subgroup of the subsidiary GEN-I. The subsidiary SEL: • Holds a 25% interest in the company HSE Invest, d.o.o., Obrežna 170a, 2000 Maribor, and has significant influence in this associated company. For the purposes of consolidation of the financial statements of the GEN Group, the company HSE Invest is recognized as an investment accounted for based on the equity method. • Holds a 30% interest in the company Srednjesavske elektrarne, d.o.o, Ob železnici 27, 1420 Trbovlje, and has significant influence in this associated company. For the purposes of consolidation of the financial statements of the GEN Group, the company SRESA is recognized as an investment accounted for based on the equity method.

4.2.2 Audit All the companies were audited prior to consolidation. The companies GEN, SEL and TEB were audited by Ernst & Young, d.o.o., and the companies NEK and GEN-I by KPMG Slovenija, d.o.o. All the companies in the Group received unqualified audit opinions.

Summary financial report of the GEN Group Annual report of the GEN Group 2011

4.2.3 Balance sheet of the Group Table IV 2: Balance sheet of the Group as at 31/12/2011 As at 31/12/2011

As at 31/12/2010

ASSETS

719,836,119

679,897,977

A. Fixed assets

432,790,088

421,462,202

As at 31/12/2011

As at 31/12/2010

LIABILITIES

719,836,119

679,897,977

A. Equity

528,642,268

525,256,902

1,758,872

1,561,152

I. Called-up capital

26,059,796

II. Tangible fixed assets

364,791,106

369,152,105

II. Capital reserves

242,535,098

III. Investment property

277,900

294,947

III. Revenue reserves

173,198,644

149,744,863

54,881,789

40,584,788

2,769,715

-728,125

I. Intangible assets and long-term deferred expenses and accrued income

IV. Long-term financial investments

IV. Revaluation surplus

V. Long-term operating receivables

2,011,058

1,613,437

V. Net profit from previous years

66,690,895

67,362,834

VI. Deferred tax assets

9,069,363

8,255,773

VI. Net profit for the financial year

17,532,834

19,593,871

20,815,826

-144,714

-127,261

75,549,194

67,675,643

75,499,157

67,612,941

50,037

62,702

6,175,200

8,445,005

5,027,719

8,301,672

138,739

143,333

1,008,742

88,023,662

75,286,475

I. Current financial liabilities

18,126,456

27,215,292

II. Current operating liabilities

69,897,206

48,071,183

21,445,795

3,233,952

164,332,650

156,233,506

VII. Minority interests B. Current assets I. Inventories

276,106,053

256,581,247

43,231,712

36,962,748

II. Short-term financial investments

118,619,286

144,497,665

III. Short-term operating receivables

103,731,146

66,258,087

10,523,909

8,862,747

10,939,978

1,854,528

164,332,650

156,233,506

IV. Cash C. Short-term deferred expenses and accrued income OFF-BALANCE-SHEET ASSETS

VIII. Translation adjustment to equity B. Provisions and long-term accruals and deferred income I. Provisions II. Long-term accruals and deferred income C. Long-term liabilities I. Long-term financial liabilities II. Long-term operating liabilities III. Deferred tax liabilities Č. Current liabilities

D. Short-term accruals and deferred income OFF-BALANCE-SHEET LIABILITIES

Summary financial report of the GEN Group Annual report of the GEN Group 2011

4.2.4â&#x20AC;&#x2C6;â&#x20AC;&#x2030;Income statement and statement of other comprehensive income of the Group Table IV 4: Statement of other comprehensive income of the Group for 2011

Table IV 3: Income statement of the Group for 2011 Financial year 2011

Financial year 2010

573,965,138

385,092,994

Operating income

562,157,545

377,460,555

Financing income

11,486,368

7,181,040

321,225

451,399

550,390,827

345,857,015

Operating expenses

536,229,980

344,534,485

Financing expenses

14,110,653

1,228,743

50,194

93,787

TOTAL INCOME

Other income

TOTAL EXPENSES

Other expenses

TOTAL PROFIT OR LOSS

INCOME TAX SHARE OF MINORITY OWNERS

TOTAL PROFIT OR LOSS OF MAJORITY OWNERS

23,574,311

39,235,979

2,853,504

7,412,138

87,103

20,720,807

31,736,738

Net profit or loss for the period Gains and losses on remeasuring available-for-sale financial assets Gains and losses from translation of financial statements of companies abroad (impact of changes in exchange rates) Other components of comprehensive income Total comprehensive income for the period

Financial year 2011

Financial year 2010

20,720,807

31,823,841

-671,406

-623,324

-17,453

-246,352

5,043,707

25,075,655

30,954,165

Net profit or loss of minority owners

87,103

Gains and losses on remeasuring available-for-sale financial assets of minority owners

82,977

Net profit or loss of majority owners

20,720,807

31,736,738

Total comprehensive income for the period for majority owners

25,075,655

30,784,085

Summary financial report of the GEN Group Annual report of the GEN Group 2011

4.2.5 Consolidated statement of changes in equity Table IV 5: Consolidated statement of changes in equity for 2010

A.1. As at 31/12/2009 b) Retroactive adjustments A.2. As at 01/01/2010 B.1. Changes in equity capital – transactions with owners

Share capital

Capital reserves

Legal reserves

Other revenue reserves

Revaluation surplus

Net profit or loss from previous years

Net profit or loss for the year

Translation adjustment to equity

Minority interests

Total

I/1

III/1

III/5

VII

VIII

26,059,796

242,535,098

5,207,970

130,717,573

-213,644

63,979,589

32,670,817

-114,885

20,808,274

521,650,588

95,374

26,059,796

242,535,098

5,207,970

130,717,573

-213,644

64,074,963

32,670,817

-114,885

20,808,274

521,745,962

-3,000,000

-24,258,876

-27,258,876

-3,000,000

-24,258,876

-27,258,876

-514,481

-233,976

31,823,841

-12,376

-79,552

30,983,456

a) Input of net profit or loss for the reporting period

31,823,841

č) Gains and losses on remeasuring financial investments

-514,481

-79,552

-594,033

e) G ains and losses from translation of financial statements of companies abroad

-233,976

-12,376

-246,352

778,774

16,040,546

27,780,724

-44,900,786

87,104

-213,638

a) Distribution of the rest of net profit from the comparative reporting period to other equity components

27,994,362

-27,994,362

b) D istribution of a part of net profit from the reporting period to other equity components – Management and Supervisory Board

778,774

16,040,546

-16,906,424

87,104

f) Other changes in equity

-213,638

26,059,796

242,535,098

5,986,744

143,758,119

-728,125

67,362,834

-127,261

20,815,826

525,256,902

g) Payment of dividends B.2. Total comprehensive income for the reporting period

B.3. Changes in equity

C. As at 31/12/2010

19,593,871

Summary financial report of the GEN Group Annual report of the GEN Group 2011

Table IV 6: Consolidated statement of changes in equity for 2011 Share capital

Capital reserves

Legal reserves

Other revenue reserves

Revaluation surplus

Net profit or loss from previous years

Net profit or loss for the year

Translation adjustment to equity

Minority interests

Total

I/1

III/1

III/5

VII

VIII

A.1. As at 31/12/2010

26,059,796

242,535,098

5,986,744

143,758,119

-728,125

67,362,834

19,593,871

-127,261

20,815,826

525,256,902

A.2. As at 01/01/2011

26,059,796

242,535,098

5,986,744

143,758,119

-728,125

67,362,834

19,593,871

-127,261

20,815,826

525,256,902

B.1. Changes in equity capital – transactions with owners

3,497,840

a) Input of net profit or loss for the reporting period

č) Gains and losses on remeasuring financial investments

d) Other components of comprehensive income – revaluation of derivative financial instruments

e) Gains and losses from translation of financial statements of the companies abroad

a) D istribution of the rest of net profit from the comparative reporting period to other equity components b) Distribution of a part of net profit from the reporting period to other equity components – Management and Supervisory Board

i) Other changes in equity capital B.2. Total comprehensive income for the reporting period

B.3. Changes in equity

C. As at 31/12/2011

-20,815,826

20,720,807

-17,453

24,201,194

20,720,807

-537,124

4,034,964

-17,453

976,743

22,477,038

-671,939

-22,781,844

923,253

17,252,451

-671,939

-17,503,766

53,490

5,224,587

-5,278,078

26,059,796

242,535,098

6,963,487

166,235,157

2,769,715

66,690,895

17,532,834

-144,714

528,642,268

Summary financial report of the GEN Group Annual report of the GEN Group 2011

Acronyms and abbreviations

4.2.6 Balance-sheet profit account Table IV 7: Balance-sheet profit of the Group Financial year 2011

Financial year 2010

Profit or loss from previous years

86,956,705

96,745,780

Group's net profit for the financial year

20,720,807

31,823,841

-976,743

-778,774

Increase in other revenue reserves – Management Board

-5,224,587

-16,040,547

Increase in other revenue reserves – General Meeting Board

-17,252,451

Release of other revenue reserves

3,000,000

Distribution of profit – General Meeting

-27,258,876

Other reductions to equity components

-534,719

- loss from translation of financial statements of companies abroad

-233,976

- tax effect of companies abroad

-213,639

- share of profit of minority owners

-87,104

84,223,731

86,956,705

Increase in legal reserves – Management

Balance-sheet profit

Acronyms and abbreviations Annual report of the GEN Group 2011

• • • • • • • • • • • • • • • • • • • • • • • • • • •

Banka Celje – Banka Celje d.d. BSc/BA – bachelor’s degree CA-1 – Companies Act CHP – combined heat and power CO2 – carbon dioxide d.d. - joint-stock company d.o.o. – limited liability company DP – producers with a declaration for their production facility EC – eligible customers ELES – Elektro-Slovenija d.o.o. ENSREG – European Nuclear Safety Regulators Group EU – European Union EUR – euro GEN – GEN energija, d.o.o. GEN CC – GEN Control Centre GEN IC – GEN Information Centre GEN-I – GEN-I, trgovanje in prodaja električne energije, d.o.o. GO – guarantee of origin GSP – gas-steam power plant GWh – gigawatt-hour HEP – Hrvatska elektroprivreda d.d. HESS – Hidroelektrarne na spodnji Savi, d.o.o. HPP – hydroelectric power plant HSE – Holding Slovenske elektrarne d.o.o. HSE Invest – HSE Invest, d.o.o. IGES – IG Energetski sistemi d.o.o. Intergovernmental Agreement on NEK – The agreement between the Government of the Republic of Slovenia and the Government of the Republic of Croatia governing the status and other legal relationships regarding investments in Krško Nuclear Power Plant, its operation and decommissioning;

• ISO standards – international standards for environmental management systems • JEK 2 – Krško Nuclear Power Plant – Unit 2 • kV – kilovolt • kW – kilowatt • kWh – kilowatt-hour • m3 – cubic metre • MSc/MA – master’s degree • MW – megawatt • MWh – megawatt-hour • NEK – Nuklearna elektrarna Krško, d.o.o. (Krško Nuclear Power Plant) • NEK Fund – Fund for Financing Decommissioning of NEK and Disposal of Radioactive Waste from NEK • NEP – National Energy Programme • NKBM – Nova kreditna banka Maribor, d.d. • NLB – Nova Ljubljanska banka, d.d. • NPP – nuclear power plant • NRC – United States Nuclear Regulatory Commission • OB – other buyers • OSART – Operational Safety Review Team • PB – gas unit • pH – measure of acidity • PhD – doctoral degree • R&D – research & development • ReNEP – Resolution on the National Energy Programme • RES – renewable energy sources • RS – Republic of Slovenia • SAS – Slovenian Accounting Standards

Acronyms and abbreviations • • • • • • • • • • • • •

SB – Supervisory Board SCC – small commercial customer SEL – Savske elektrarne Ljubljana, d.o.o. SHP – small-scale hydroelectric power plant SKB – SKB banka, d.d. SPP – small-scale photovoltaic power plant SRESA – Srednjesavske elektrarne d.o.o. TBq – terabecquerel, unit of radioactive activity TEB – Termoelektrarna Brestanica, d.o.o. (Brestanica Thermal Power Plant) UCTE – Union for the Coordination of Transmission of Electricity USA – United States of America ZEL-EN – ZEL-EN, razvojni center energetike, d.o.o. μSv – microsievert, unit of dose equivalent radiation

Acronyms and abbreviations Annual report of the GEN Group 2011