8/11/2019 2007 Annual

1/129

Annual Report 2007

8/11/2019 2007 Annual

2/129

HRK 10.82 bn

HRK 26 mn

HRK 3.08 bn

2.43 mn

15.3 TWh

Operating income

Net income

Investments

Number of customers (metering points)

Electricity sales

(electricity, heat and gas)

(domestic)

HEP Group 2007

HEP Group 2007

8/11/2019 2007 Annual

3/129

Contents

hum

reports

CHAIRMANS REPORT 006

PRESIDENTS REPORT 008

COMPANY PROFILE 011

Mission and visison 012

HEP Group companies 013

Legal framework 016

International cooperation 018

Short history 019

CORPORATE GOVERNANCE 021

Governing bodies of HEP d.d. 022

Members of governing bodies 024

Audit 032

Certificates 033

BUSINESS OPERATIONS IN 2007 035

Macroeconomic environment 036

Business result HEP Group 039

Results by activity 045

Financial position 050

Investments 051

CUSTOMER RELATIONS 055

HUMAN RESOURCES MANAGEMENT 061

Number of employees 062

Employment and trade union relations 064

Education and training 065

SUSTAINABLE DEVELOPMENT 067

Monitoring, policy and organization of environmental and nature protection function 068

Harmonization with the EU legislation 068

Basic indicators 069

Major achievements in 2007 074

SAFETY AT WORK 079

SOCIAL RESPONSIBILITY 083

DEVELOPMENT OF ELECTRICITY AND BUSINESS SYSTEM 091

AUDITORS REPORT AND HEP GROUP CONSOLIDATED FINANC. STATEMENTS 095

REPORTS BY HEP GROUP COMPANIES WITH FINANCIAL STATEMENTS 175

HEP d.d. 176

HEP-Proizvodnja d.o.o. 182

HEP - Operator prijenosnog sustava d.o.o. 194

HEP - Operator distribucijskog sustava d.o.o. 204

HEP-Toplinarstvo d.o.o. 214

HEP-Plin d.o.o. 222

REPORTS BY OTHER HEP GROUP COMPANIES 233

HEP-Opskrba d.o.o. 234

HEP-Trgovina d.o.o. 236

HEP ESCO d.o.o. 240

APO d.o.o.usluge zatite okolia 242

HEP-Obnovljivi izvori energije d.o.o. 244

Ustanova HEP-Nastavno-obrazovni centar 246

ADDRESS LIST 249

LIST OF ABBREVIATIONS 255

8/11/2019 2007 Annual

4/129

ity market will be fully harmonized with the EUlegislation in force.

In 2007, work began to harmonize and amendthe energy development strategy of the Repub-lic of Croatia. The analyses showed that the in-crease in electricity consumption had exceededall projections made in the current strategy. It isexpected that over the next years the increasein electricity consumption will continue to beabout 3 percent. Accordingly, a priority of thenew strategy will be to set an optimum scenarioin which the growing dependence on electric-ity import will be efciently reduced by building

new generating capacity. We hope that the newstrategy will help HEP achieve its mission ofproviding secure and reliable electricity supplyto customers at minimum costs.

Croatia ratied the Kyoto Protocol on April 27,2007. In the next period environmental require-ment will be additionally tightened up. The per-formance of HEP Group is a proof that in a sec-tor in which development unavoidably entailsincreased emissions of pollutants there can ex-ist a model of maximum natural resources pro-tection and green energy production. We hopethat such an approach will be more stronglyvalued and that HEP will know how to use thesecomparative advantages to the benet of thewhole society.

Towards the end of 2007, ten-year bonds wereissued in the value of 700 million kuna and list-ed in the 1st quotation of the Zagreb Stock Ex-change, allowing the continuation of signicantinvestments in electric facilities, district heat-ing, gas distribution, information technologyand telecommunications infrastructure. The to-tal value of the investments made in 2007 wasmore than 3 billion kuna. It is especially impor-

tant that investments in transmission and distri-bution networks make it possible to satisfy theconstant growth of electricity consumption inCroatia.

For HEP Group future operations it is signicantthat the development of the business systemhas moved into other energy activities such assales and distribution of natural gas, electricityproduction from renewable sources and man-

agement of energy efciency projects. Althougha young company, HEP ESCO in 20 07 receivedaward as the best European energy servicecompany for energy efciency projects.

A major step forward in the gas sector is ex-pected from the construction of new supplyroutes and an LNG terminal and from the im-plementation of high-efciency cogenerationprojects in Sisak, Slavonia and Dalmatia whichare in HEP Group plans for the next decade.We support the decision of HEP Group to takean even more active part in the gas market, butalso in the development of district heating s ys-

tems.

The ambitious plans in which HEP will becomea respectable participant in the regional marketand create a Croatian energy cluster through anumber of interlinked businesses that comple-ment and build on each other can be achievedonly with competent and adequately trainedemployees. In this segment too HEP promotesexcellence, providing opportunities for life-longprofessional improvement through its educa-tion and training center. In the segment of em-ployment and human resources management,as well as in the customer relations policy, HEPshows social sensitivity and responsibility, andit is the degree of corporate social responsibil-ity that is the measure and capital which will beincreasingly important in the future.

Chairman of Supervisory BoardLeo Begovi

Every day we are witnessing the growing impor-tance of energy in the world, in the global econo-my and politics, from selection of energy optionsin light of climate change and the Kyoto Protocolto security of supply routes and fuel prices, espe-cially oil. The energy industry is a key economicleverage, the basis of security and a guarantor ofdevelopment of a country. A strong, modern anddeveloped energy sector is a precondition for acompetitive economy. Therefore, every country,so Croatia too, has a particular responsibility inorganizing its energy sector and conducting itsenergy policy.

In such circumstances, HEP Group, today stillfully owned by the State, is a guarantor of se-curity of supply to all customers as well as ofimplementation of Croatias energy priorities,both those within the country (providing ener-gy for large infrastructure projects, commercialzones, etc.), and in regional and/or international

projects.In 2007, Croatia successfully continued mem-bership negotiations with the European Unionand launched a number of activities to facilitateacceptance of new opportunities and challengesat this social and economic turning point. The re-form of the energy sector continued in line withthe EU legislation, which will enable energy un-dertakings to operate in the internal Europeanmarket on an equal footing. At the time of pre-

paring this Report, on July 1, 2008, all custom-ers have been granted the right to choose theirelectricity supplier, whereby the electricity mar-ket has fully opened. The amendments to pri-mary energy laws passed in July of 2007 madethe legal framework fully harmonized with the EUlegislation. The successfully transposed acquiscommunautaire of the European Union allowedthe negotiations to begin on Chapter 15, Energy,and Chapter 21, Trans-European Networks.

Croatia wishes to be an equal participant in thecreation of the EU internal market. The signing ofthe Energy Community Treaty with the EuropeanUnion accelerated the process of strengtheninginstitutional capacities, especially the regulatorybody and energy undertakings that cannot dotheir business without being part of internationalinterconnected systems. The signicance of theTreaty is all the more greater considering thatin 2007 the European Commission publisheda third energy package of legislative propos-als which will allow member states to create amore competitive and a more interconnectedenergy market. The main characteristics of thepackage are greater powers and strengthen-ing of independence of national regulators, andcooperation among member states and theirtransmission system operators aimed at improv-ing security of supply. I stress that at the timeof Croatias entry into the European Union theenergy sector and the functioning of the electric-

Chairmans report

repo

8/11/2019 2007 Annual

5/129

repo

mestic currency bonds in the nominal valueof 700 million kuna, in public offering in theCroatian capital market. At the end of Decem-ber the bonds were listed in the 1st quotationof the Zagreb Stock Exchange and have beenactively traded since in the secondary market.The funds are intended for the nancing of theinvestment plan 2007.The investment plan was realized in an amounthigher than three billion kuna. In the productionbusiness we have continued with the construc-tion of Lee HPP (42 MW), which is planned tobe put into operation in 2009. In the location ofTE-TO in Zagreb, construction work continuedon a new unit for production of electricity and

heat (100 MWe, 80 MWt), which is expected togo into service in early 2009. We have signedcontracts for supply of equipment and for con-struction of a combined-cycle cogenerationreplacement unit at Sisak TPP (230 MWe, 50MWt) and currently underway are preparatoryactivities to build Slavonija TPP and DalmacijaTPP (400 MW each) and a replacement unit atPlomin TPP (500 MW). These projects consti-tute a ten-year construction program totaling1,700 MW in new power plants, which is about40 percent of the total capacity at our disposaltoday. The planned pace of construction is a re-sponse to the growth in electricity consumptionin Croatia of more than 3 percent a year and tothe need to decrease Croatias dependence onelectricity imports. In addition to constructionof conventional electricity sources, we havebeen developing renewable energy projects. Byestablishing a company for renewable energysources, HEP Obnovljivi izvori energije d.o.o.,we have set out, as one of the leading par-ticipants in Croatia, to build wind, small hydro,geothermal and biomass power plants.In the transmission business, the most signi-cant events were the signing of a contract forthe construction of a 2x400 kV Ernestinovo-Pecs (Hungary) line, a letter of intent for the con-struction of an undersea cable between Croatia

and Italy and a contract for modernization ofthe National Dispatch Center and constructionof regional remote control centers. In the dis-tribution business, too, signicant investmentswere made in construction of transformer sta-tions across Croatia, and in modernization ofthe network and control systems. By improv-ing the overall customer service, including theintroduction of a single customer databasemanagement system, HEP Billing, and by ap-

propriate stafng of HEP Opskrba do.o., wehave prepared ourselves for a full opening ofthe electricity market in Croatia, July 1, 20 08.Among the most signicant events in 2007 isthe implementation of a comprehensive con-struction and energy management project atthe University Hospital Rebro in Zagreb basedon a new business model. Currently underwayis an extensive reconstruction of the hot watersystems in Osijek and Zagreb. Gas businesshas also received our very serious attention. Byconnecting the rst customers in Beli Manastirto the supply area of HEP Plin d.o.o. we haveexpanded into Baranja. Also, HEP is prepar-ing for participation in a strategic Croatian en-

ergy project construction of a LNG terminal which is of an exceptional business impor-tance for us. This project ts into our plans fordevelopment of international activities trad-ing, construction of renewable energy projects,energy transit, joint venture projects in Croatiaand countries of South-East Europe within theframework of Energy Community, but also inother markets.In conclusion of this review of the most impor-tant achievements of HEP Group businesses orcompanies, it is worth mentioning that in 2007our company HEP ESCO received an award asthe best European energy service company forenergy efciency projects, within the frameworkof the EUs Intelligent Energy program.This is a conrmation of our good approachto supporting and developing competenciesof young specialists in the eld of electric -ity. Our company currently provides scholar-ships to 250 university students with half of thecontracts being concluded in 2007. During theyear we expended more than 23 million kunafor post-graduate studies, training and profes-sional improvement of our employees and forscholarships to secondary school and univer-sity students. With the strong education andlife-long learning and training provided to ouremployees we want to reinforce the intellectual

capital of our company which will, among otherthings, enable us to gain a competitive advan-tage in the electricity market in Croatia.

Ivan MravakPresident of the Management Board

At the end of February 2008 the term of ofce ofthe previous Management Board expired and anew HEP d.d. Management Board took over asfrom March. In the fact that I remained to headthe Management Board I see a conrmation ofthe satisfaction of our Owner, or the Governmentof the Republic of Croatia as the representativeof the Owner, with the business operations andthe role of HEP in the Croatian economy overthe past four years. In this Annual Report 2007we will give an overview of the situation at thebeginning of the term of the new ManagementBoard and determine our objectives for the nextfour years.First of all I am pleased to report that in 2007, ina year of great uncertainties and changes in theinternational energy and fuel market, we fullledour mission: to provide secure and reliable elec-tricity supply to all our customers at minimumcosts. By ensuring availability of all our plantsand facilities in the production, transmissionand distribution without any even a minor fail-ure of the electricity system, we have reafrmedthat reliability and security are the fundamentalvalues of our system and of our company.In 2007 HEP Group achieved the highest operat-ing income ever 10.8 billion kuna, which is a 5.5percent increase compared to 2006. Thus HEPremained one of the largest business groupingsin the Republic of Croatia. Net prot was 26 mil-lion kuna, which is signicantly lower comparedto 2006 (241.9 million kuna). The reason for sucha result is exceptionally unfavorable business

conditions in 2007. Due to the growth in energyinput prices and unfavorable hydrologic circum-stances, operating expenses increased consid-erably. Electricity production and procurementcosts increased as the price of fuel oil grew by7.6 percent, gas by 15 percent, coal by 19 per-cent, and the price of electricity bought on themarket by 36 percent. Due to the 28 percent low-er hydroelectric production than in 2006, we hadto increase electricity production in more expen-sive sources thermal power plants.The increased expenses were not followed byan appropriate growth in income, due to un-changed electricity and heat prices as well asgas prices (electricity prices were last increasedon September 1, 2005: 5 percent for residen-tial and 6 percent for business customers). Thepositive business result in such circumstancesis primarily a result of further implementation ofmeasures to cut HEPs operating costs. Thanksto the investments into construction and recon-struction of the transmission and distributionnetworks and to continued activities to reduceillegal consumption, transmission and distribu-tion losses were reduced. By concentrating theprocurement we have achieved signicant sav-ings in materials and spare parts and generallyimproved business operations in HEP Group.The nancial stability is illustrated by theconrmation of the credit rating issued byStandard&Poors, according to which, with BBBrating, HEP is an investment grade company. Inearly December 2007 HEP issued ten-year do-

Presidents report

8/11/2019 2007 Annual

6/129

repo

8/11/2019 2007 Annual

7/129

HEP Group is a 100% state-owned energycompany which has been active in electricityproduction, transmission and distribution formore than one century and in district heatingand natural gas supply for the past few de-cades.

Shortly after becoming independent in 1990,the Republic of Croatia founded Hrvatska Elek-troprivreda as a public enterprise which thenbecame a stock company in full state owner-ship in 1994. In July 2002 it was restructuredinto HEP Group which consists of the parentcompany HEP d.d. and limited liability com-panies (d.o.o.) active in electricity production,transmission, distribution and supply, districtheating and gas distribution, and other busi-nesses (environmental services, energy ef-ciency).

HEP Group has consistently carried out the un-bundling with respect to legal form, accounts,organization and decision-making of the regu-lated companies (natural monopoly) HEP- Operator prijenosnog sustava d.o.o. (Trans-mission System Operator) and HEP - Operatordistribucijskog sustava d.o.o. (Distribution sys-tem Operator) from other activities of HEPGroup which are or will be exposed to competi-tion and/or operate in a competitive market.

HEP - Proizvodnja d.o.o.

HEP - Operator prijenosnog sus-tava d.o.o. (OPS)

HEP - Operator distribucijskogsustava d.o.o. (OPS)

HEP - Opskrba d.o.o.

HEP - Trgovina d.o.o.

TE Plomin d.o.o. (50%)

CS Busko blato d.o.o.

NE Krko d.o.o. (50%)

A related company outside HEP Group

HEP d.d.

HEP - Toplinarstvo d.o.o.

HEP - Plin d.o.o.

HEP - ESCO d.o.o.

Plomin Holding d.o.o.

APO d.o.o. usluge zatite okolia

HEP - Odmor i rekreacija d.o.o.

HEP - Nastavno - obrazovni centar

HEP - Obnovljivi izvori energije d.o.o.

HEP Group companies

repo

8/11/2019 2007 Annual

8/129

HEP-Plin d.o.o., headquartered in Osijek, supplies natural gas to customers in theareas of Osijek-Baranja County, Poega-Slavonia County and Virovitica-Podravina County.

APO d.o.o.usluge zatite okolia(APO Environmental Services) is a consulting and

engineering company specializing in environmental protection, especially hazardous andradioactive waste and radioactive material.

HEP Odmor i rekreacija d.o.o.(HEP Leisure and Recreation) provides touristand hospitality services and organizes sporting recreation.

Ustanova HEP - Nastavno-obrazovni centar, Velika, (HEP Training and Educa-

tion Center) is an educational institution which, in addition to providing training in live work,conducts secondary school programs for adults and organizes professional gatherings, seminars

and courses.

HEP-ESCO d.o.o.a company providing energy services, develops, implements andnances market-based energy efciency projects.

HEP Obnovljivi izvori energije d.o.o.(HEP Renewable Energy Sources) dealswith preparation, construction and use of renewable energy sources (wind, small waterways,

geothermal water, etc.)

Plomin Holding d.o.o.develops local infrastructure and entrepreneurial projects inthe vicinity of the Plomin power plant.

NE Krko d.o.o. (Nuklearna elektrana Krko) , Republic of Slovenia, is acompany outside HEP Group, co-owned by HEP d.d. and GEN Energija (50%:50%).

HEP-Toplinarstvo d.o.o.(HEP District Heating) is active in heat production, distributionand supply in the the cities of Zagreb, Osijek and Sisak and in a part of the Zagreb County.

HEP d.d. (Hrvatska elektroprivreda d.d.)is the parent company of HEPGroup, the founder and the sole (100%) owner of the companies that have been founded; it

consolidates management of HEP Group subsidiary companies and is the owner of the

assets which are contractually transferred to subsidiary or daughter companies for

management.

HEP-Opskrba d.o.o. (HEP Supply) has the license for electricity supply to eligiblecustomers in Croatia.

TE Plomin d.o.o., co-owned by HEP d.d. and RWE Power (50%:50%), operates a 210 MWpower plant.

HEP - Operator prijenosnog sustava d.o.o.(HEP Transmission System Operator)is responsible for the transmission of electricity produced in Croatian power plants or importedfrom other countries for Croatian customers, at minimum costs and maximum possible standardsof electricity quality and system security. The company is also responsible for transmission ofCroatia-produced electricity for export purposes, and it manages electricity transit through theCroatian system.

HEP-Proizvodnja d.o.o.(HEP Production) carries out the activity of electricityproduction, and heat production for district heating systems in the cities of Zagreb, Osijek and

Sisak. C.S. Buko Blato d.o.o., a daughter-company of HEP Proizvodnja d.o.o., is located inBosnia-Herzegovina.

HEP-Trgovina d.o.o.(HEP Trade) carries out the activities of purchase and sale of elec-tricity, optimization of power plants operation and trading intermediation in the domestic andinternational market.

HEP Operator distribucijskog sustava d.o.o. (HEP Distribution SystemOperator) is responsible for secure supply to tariff customers. The company distributes the elec-tricity taken from the t ransmission network, and performs selling, metering, billing and paymentcollection for the electricity supplied. It is also responsible for the maintenance and operation ofdistribution network and plants.

8/11/2019 2007 Annual

9/129

In 2002 Croatia began to apply market-based energy laws. These are: Energy Act, Energy Activities Regu-lation Act, Electricity Market Act, Gas Market Act and Oil Market and Oil Products Act. In December 2004,the Croatian Parliament passed the Act on the Amendments to the Energy Act, a new Electricity MarketAct and a new Energy Activities Regulation Act, and in July 2007 the Parliament further amended theseacts to fully comply with the EU legislation.

Some of the main provisions of the current legal framework applicable to HEP:

- Croatian Energy Regulatory Agency (CERA) is a guarantor of non-discriminatory andtransparent competitive market in the eld of electricity and ensures efcientfunctioning and development of the electricity market;

- permission to build new generating capacity can be obtained under eitherauthorization or tendering procedure;

- network access is based on Regulated Third Party Access, and producers andcustomers are obligated to obtain consent from the transmission or distribution systemoperator for a new connection to the network or for increase in connected power;

- electricity production and electricity supply are separate from the activities oftransmission and distribution;

- regulated energy businesses are carried out as public services, namely: electricityproduction for tariff customers, electricity transmission, electricity distribution,electricity supply for tariff customers and organization of the electricity market;

- HEP Group performs regulated activities as public services for electricity in theRepublic of Croatia.

Opening of the electricity market

Under the Electricity Market Act, eligible customers may freely choose their electricity supplier. As froJuly 1, 200 8 all customers in Croatia, including residential, became eligible customers, whereby theCroatian electricity market fully opened.

Energy strategy

The fundamental document that determines the energy policy and denes plans for the development the energy system at the national level is the Energy Development Strategy, passed by the Croatian Pliament at the proposal of the Government, for a period of ten years. Based on the Energy DevelopmeStrategy, the Government produces the Program for Implementation of the Energy DevelopmentStrategy.HEP does not have a monopoly on energy businesses and all legal entities licensed by the CroatianEnergy Regulatory Agency can engage in these businesses. The responsibility for planning andconstruction of Croatias electricity system lies on legal entities engaged in energy businesses, CroatEnergy Regulatory Agency and other relevant authorities and institutions.

Legal framework

8/11/2019 2007 Annual

10/129

Under the Hrvatska Elektroprivreda Privatization Act (Ofcial Gazette NN 32/2 002), at least 51% ofHEP shares will remain in government ownership up until the Republic of Croatia joins the EuropeanUnion. Croatian Homeland War veterans and their families will receive, without compensation, up toseven percent of the shares, and up to seven percent will be sold to current and former HEP employeesunder special privileges. At least 15 percent of the shares will be offered to Croatian nationals through apublic offering with pre-emptive rights and privileges yet to be determined, while the remaining shareswill be offered on the capital market. The pace of the implementation of the Act will follow the strategicdeterminants and plans of the Republic of Croatia.

HEP d.d. and other members of HEP Group maintained contacts and cooperated with power companiesin neighboring countries but also with those in the rest of Europe and even from the USA. Intensive co-operation continued with international organizations and national organizations of other countries underagreements entered into by Croatias Government or by the Ministry of Economy, Labour and Entrepre-neurship, in particular the Energy Community Treaty. HEP Group representatives have been participatingin the work of regional energy forums (so-called Athens Forum).

Due to the changed regulatory framework and new institutions in the EU electricity market, representa-tives of HEP Group companies intensied their participation in 20 07 in executive and administrative bod-ies of international organizations and their working groups.

HEP is a full member of Eurelectric. Activities are now underway to transfer Croatian membership in Eur-electric to the association of electricity undertakings of the Croatian Chamber of Economy. HEP Trgovinad.o.o. is an associate member of the Eu ropean Federation of Energy Traders (EFET). HEP Operatorprijenosnog sustava d.d. (HEP OPS) is a full member of the Union for the Coordination of Transmission ofElectricity (UCTE) and an associate members of ETSO (European Transmission System Operators).

Of the other activities of HEP OPS at bilateral (and trilateral) level with other transmission system opera-tors (especially neighboring operators), especially worth mentioning is the signing of the contract for theconstruction of a 2x400 kV Ernestinovo-Pecs transmission line with the Hungarian transmission systemoperator (MAVIR).As part of the negotiations on Croatias accession to the European Union, HEP representatives have par-

ticipated in working groups for chapters of the acquis, 15 (Energy) and 21 (Transeuropean Networks).HEPs specialists have been continuously presenting their papers and participating in national and inter-national congresses and conferences of CIGRE, CIRED and other professional associations.

1895 First alternating current electricity system in Croatia, Krka HPP - ibenik1912 Kraljevac HPP, among the largest hydro power plants at the time, is built1925 Ante upuk i sin (Ante upuk & Son), ibenik, among UNIPEDE founders1937 Vice Roys Electrica Company is founded1941 State electrical company is founded1943 110 kV line Rakitje (Zagreb) - Brestanica (Slovenia) is built1945 Electrical company of Croatia is founded

1954 Union of electricity companies of Croatia is founded Beginning of district heating: hot water pipeline for Konar factory from EL-TO

Zagreb plant1957 110kV Zagreb Jajce (BiH) line goes into service; synchronous operation of western

and central system

1961 Business association of electricity distribution companies of Croatia is founded1962 First line of 220 kV network Zakuac HPP (Split) - Brinje Mraclin (Zagreb)1965 United electricity industry of Croatia is founded

1974 Union of electricity organizations of Croatia is foundedGas distribution and supply begins within Elektroslavonija Osijek

1977 First 400 kV transformer station, Ernestinovo (Osijek), and rst 400 kV line,Ernestinovo Mladost, are built

1981 Krko nuclear power plant goes into service1990 Public enterprise Hrvatska elektroprivreda (HEP) is founded1991 Heavy war destruction to power plants and facilities1992 400 kV line TS Meline (Rijeka) TS Tumbri (Zagreb) is put into operation

1993 About 120 MW emergency diesel and gas power plants arwe installed in Dalmatia1994 Island interconnection 110 kV TS Melina (Rijeka) Krk Rab - Pag Zadar is built1995 Reconstruction and refurbishment of Perua dam is completed (blasted in 1993)1997 Eastern Slavonia reintegrated into the Croatian electricity sy stem1998 Gas-re power plant (2x26 MW) is put into operation at EL-TO Zagreb location1999 Double circuit line 400 kV erjavinec/Tumbri (Zagreb) Heviz, Hungary is put into service2000 Plomin 2 TPP (210 MW) begins commercial operation2001 HEP becomes a member of UCTE

2002 Hrvatska Elektroprivreda d.d. is restructured into HEP Group2003 Combined-cycle cogeneration unit K (200 MWe/150 MWt) at TE-TO Zagreb is put into oepratio2004 TS 400/220/110 kV erjavinec and the reconstructed TS 400/110 kV Ernestinovo

are put into operation Reconnection of UCTE zones 1 and 2 is coordinated from HEPs headquarters2005 Construction work on Lee HPP (42 MW) begins2006 HEP issues corporate bonds worth 500 million kuna Construction begins of a combined-cycle cogeneration unit L (100 MWe, 80 MWt) at TE-TO Zagre

2007 Contracts are signed for construction of a combined-cycle unit (230 Mwe, 50 MWt) at Sisak TPP Contracts are signed for the construction of a 2x400 kV Ernestinovo-Pecs (Hungary)

transmission line HEP issues corporate bonds worth 700 million kuna

Privatization Short history

8/11/2019 2007 Annual

11/129

orporate gove

repo

8/11/2019 2007 Annual

12/129

(from HEP d.d. Articles of Association)

The Management Board of theCompany

The Management Board of the Companyconsists of 6 members, one of which is ap-pointed president of the Management Board.The president is appointed and removed bythe Supervisory Board. The term of ofce ofthe president and members of the Manage-ment Board is 4 years.

For the realization of its managerial tasks andpowers the Management Board performs thefollowing work:

1. manages the business affairs of the Com-pany,

2. establishes and implements the businesspolicy, medium-term and long-term plans,

3. carries out the decisions made by theSupervisory Board and the ShareholdersAssembly, and takes measures and issuesinstructions for their implementation,

4. passes internal rules and regulations of theCompany and organizational rules,

5. represents and acts for the Company, andsigns contracts within the framework of thelaw and these Articles of Association,

6. proposes decisions on matters falling inthe scope of work of the Supervisory Boardand Shareholders Assembly of the Company,

7. appoints members to shareholders assem-blies and to supervisory boards of the com-panies in which HEP has controlling interestsor signicant inuence,

8. appoints and revokes the Companys of-cers,

9. decides whether new employees areneeded,

10. proposes and takes necessary measures

and issues direct orders to ensure operationsof the Company, especially the safety andfunctioning of the power system,

The Management Board of the Companymay, subject to approval by the SupervisoryBoard, decide on:

1. Formation of companies in this countryand abroad ,

2. Sale and purchase of shares and stakesheld by the Company in other companies,and sale of real property,

3. Sale and purchase of and charges on realproperty exceeding HRK 20,000,000.00

4. Borrowing and issuance of s ecurities ex-ceeding HRK 100,000,000.00

5. Giving of power of attorney and waivingof rights without compensation above HRK5,000,000.00

The Supervisory Board

The Supervisory Board consists of 7 mem-bers. Six members are appointed andrevoked by the Shareholders Assembly ofthe Company and one member is electedand revoked by workers pursuant to provi-sions of the Labor Act. The term of ofce ofthe members of the Supervisory Board is four

years and after the expiry of their term themembers of the Supervisory Board may bereelected. The members of the SupervisoryBoard elect the chairperson and an alternatechairperson from among themselves. The Su-pervisory Board supervises the managementof the Companys business affairs.

The Supervisory Board:

1. appoints and revokes the ManagementBoard of the Company;

2. examines and reviews business records,documentation, cash records, securities andother documents related to the operations ofthe Company;

3. gives prior approval on the decisions of theManagement Board where required by theseArticles of Association;

4. submits reports to the Shareholders As-sembly of the Company on the supervision

carried out, especially with respect to nan-cial operations and their consistency withbusiness records,

The Shareholders Assembly

The Shareholders Assembly is composedof shareholders and/or their proxies. TheShareholders Assembly decides on mattedetermined by the law and these Articles oAssociation, in particular:

1. passes the Articles of Association andtheir amendments;

2. appoints and revokes the members of thSupervisory Board;

3. makes decisions on annual nancial staments and use of prot;

4. appoints the auditor of the Company;

5. decides on increase or decrease in thecapital stock of the Company;

6. decides on status changes and dissolutof the Company;

7. carries out other work in accordance witthe law and these Articles of Association.

The meeting of the Shareholders Assembof the Company is convened by the Managment Board of the Company. The Manage-ment Board of the Company is obligated toconvene the Shareholders Assembly whenrequested by the Supervisory Board or shaholders who hold at least 20% of the capitstock of the Company. The ManagementBoard and the chairperson of the SupervisBoard participate in the work of the Share-holders Assembly.

orporate governance

ompany governing bodies

8/11/2019 2007 Annual

13/129

8/11/2019 2007 Annual

14/129

Born in 1970. Graduate mechanical engineer. From 1998 to 2008worked in the company T-Mobile Hrvatska d.d., Zagreb, with responsi-bilities in planning and investment of radio GSM and UMTS networks,implementation of SAP system, legalization and planning and invest-ment in infrastructure. Work positions: technical leader of ProductionGroup (1998-2000), specialist for construction of mobile networks(2000-2002), head of Investment and Infrastructure (2002-2005) andmanager for construction and quality assurance.

Born in 1959. Graduate safety engineer. Has worked in HEP since 1981,rst at Elektra Karlovac until 2004 except during the Homeland War(1991-1995) when he was a commander and ofcer in the Croatian ArmedForces. From 2004 to 2008, worked in HEP d.d. as a coordinator of cor-porate security and safety for HEP Group. He is captain rst class of the

Croatian Armed Forces, recipient of a high decoration of the President ofthe Republic for participation in the Homeland War. He was president ofAssociation of Homeland War Veterans of HEP and president of Federationof Homeland War Veterans of Croatian Public Enterprises

Born in 1957. Graduate electrical engineer, MSc (1990) and DSc degree(2001). First employment at the factory TEP Zagreb, rst as developmentand construction engineer in Section for Research and Development ofElectrical Distribution Equipment (1981-1987), then as head of the Sec-tion.(1987-1991). In 1991 joined the Faculty of Electrical Engineering andComputing in Zagreb, High Voltage Department. In 2002 he was energy-economic planner in the Nuclear Energy Department of the IAEA in Vienna.From 2004 to 2008 Assistant Minister for Energy and Mining in the Minis-try of Economy, Labour and Entrepreneurship. From 2006 to March 2008,he was chairman of HEP d.d. Supervisory Board. He is the leader of theworking group for negotiations with the EU for chapter 15 Energy, a mem-ber of the Croatian Academy of Engineering and a member of IEEE andEuropean Nuclear Society

Born in 1954. Graduate electrical engineer, MSc degree in 1994. Firstemployment as maintenance engineer at the sugar factory in Ba, 1980.From 1982 worked in the company Borovo, rst as a senior electricaldesign engineer in Engineering, then as a technical director in Energy. In1988 joined HEP as head of technical affairs in Vukovar operative area.During the Homeland War (1991), organized an autonomous electricitysupply system for Vukovar. In HEP Distribution Division, he was coor-dinator for construction and a team member for Project 35 kV AdriaticIslands (1992-1995), coordinator of reconstruction of electric facilitiesdamaged in the war (1995-1997) and leader of reintegration of EasternSlavonia electricity system into HEP system (1997). From 1997 to 2 004,director of Technical Department in HEP Distribucija d.o.o., and since2004 president of HEP d.d. Management Board.

Born in 1955. Graduate electrical engineer. First employment as ateacher at the secondary school Sinj (1980-1982). From 1982 to 1984worked in the company Konar Elektroureaji, Split, then in Engineer-ing of the Shipbuilding Industry Split (1984-1988), in Safety Institute,Split (1988-1993) and in the Communal Fund of the city of Solin (1993-

1996). Joined HEP in 1996, rst as head of Safety and Fire Protection inElektrodalmacija and then as a director of Hydo Production Area South,Split, HEP Proizvodnja d.o.o. (2004-2008).

Born in 1973. MSc degree in 1998 and DSc in 2006. First employment(1998) at the company AIPK as a marketing manager. Joined Siemensd.d. Zagreb in late 1998, rst as head of GSM Sales, then as Key Ac-count Manager (2000-20 01) and head of Business Strategy and Devel-opment Department (2001-2004). At the same time he was a memberof Telecommunications Council (independent regulator). From 2004 to2008 Assistant Minister of Sea, Tourism, Transport and Development inTelecommunications and Postal Service Directorate. He is a member ofthe National Council for Information Society, a member of Council forEstablishment of Computer Communication Network in GovernmentBodies and a member of Working Group for negotiations with the EU forChapter 10 Information society and media.

anagement Board

Ivan Mravak

President of Management Board

Darko Dvornik

Member of Management Board

eljko Kljakovi GapiMember of Management Board

Nikola Rukavina

Member of Management B

eljko TomiMember of Management B

Stjepan TvrdiniMember of Management B

8/11/2019 2007 Annual

15/129

anagement Board

8/11/2019 2007 Annual

16/129

Shareholders Assembly 2007

The annual meeting of the Shareholders Assembly was held on May 28, 2007. TheAssembly considered annual business and nancial reports and adopted the Deci-sion on the use of the operating prot achieved in 2006. The Assembly gave a state-ment of release to the president and members of the Management Board and to thechairman and members of the Supervisory Board of HEP d.d. for the business year2006.

Management

HEP GROUP COMPANIES

(at the end of the reporting period, December 31, 2007)

Marija Modri

Ante Matijevi

Frane Barbari

Goran Slipac

Branimir Deli

Stanko Toki

HEPProizvodnja d.o.o.

HEP Operator prijenosnog sustava d.o.o.

HEP Operator distribucijskog sustava d.o.o.

HEP-Opskrba d.o.o.

HEP-Trgovina d.o.o.

HEP-Toplinarstvo d.o.o.

HEP-Plin d.o.o.

HEP ESCO d.o.o.

APO Usluge zatite okolia d.o.o

HEP Obnovljivi izvori energije d.o.o.

HEP - Odmor i rekreacija d.o.o.

Plomin Holding d.o.o.

HEP Nastavno-obrazovni centar

* Since March 17, 2008 director is Petar ubeli

eljko Dori, Director*

Dubravko Saboli,Director

Mio Jurkovi, Director

Ivan Mrljak, Director

arko Mudrovi, Director

Robert Krklec, Director

Nikola Liovi, Director

Gordana Lui, Director

Damir Subai, Director

Zoran Stani, Director

Edo Virgini, Director

Marino Roce, Director

Zdenko Mileti, Head of the Institution

Head of the Ofce of the Management Board

Director of Economic Affairs Division*

Director of Human Resources Management, Legal and General Affairs Division

Director of Corporate Development and Strategy Division*

Director of Information Technology and Telecommunications Department

Director of Internal Audit and Control Department

* As of July 1, 2008 the position of director of the Division does not exist

8/11/2019 2007 Annual

17/129

Audit

Independent auditorAt the extraordinary meeting of the Sharehold-ers Assembly held on October 2, 2007, theAssembly appointed the auditing rm Deloitted.o.o. Zagreb as the auditor of HEP d.d. forthe year ended December 31, 2007.

Internal auditInternal Audit Department is a business func-tion of HEP d.d. and a pivotal function of HEPd.d. Management Board, and a part of theinternal supervision. Internal audit contributesto the improvement and development of busi-ness operations and management processesin HEP Group and to the increase of securityand reliability of the business system. The in-ternal supervision consists of internal controlsand internal control system, internal audit,controlling, treasury, risk management andother forms of control.The task of the internal audit is to conductaudit of business operations and to reporton the effects of internal control and in ternalcontrol system, business operations of theaudited area, compliance with laws and HEPinternal rules, plans and programs and busi-ness policy, security and reliability of businessand information systems of HEP Group, andabout methods of managing business risks. Asignicant area of work of the internal audit isthe examination and conrmation of internalcontrols over nancial reporting and their ef-fects.The internal audit helps the ManagementBoard and the Supervisory Board of HEPd.d. in overseeing the business operations ofHEP Group. Internal controls and the internalcontrol system are fundamental supervisingfunctions and they are the responsibility of themanagement. The management is responsible

for their establishment, organization, function-ing and supervision, and the internal audit isresponsible for verifying how they work.The carrying out of internal audits ensuresan independent and objective assessmentof business operations of the audited area.Internal Audit Department prepared WorkPlan and Program for 2007 and a separate

Audit Implementation Program. The Plan andProgram encompassed all activities of theDepartment, especially those in implement-ing the audits. Based on the assessment ofbusiness risks and considering the numberof staff, the Department carried out 51 auditscovering: procurement, legal, personnel andproperty law functions, information system,safety at work and re protection, inventoriesof materials, illegal consumption, power plantoverhauls and ad hoc controls. Based on theaudits carried out in 2007, the Departmentsassessment is that the internal control systemin HEP is reliable, that the main business risksare recognized and that they are well man-aged.All audits have been performed as required byHEP.d.d. rules and the Departments docu-ments: Internal Audit Manual, Guidelinesfor Internal Auditors, Work Methodology forInternal Audit and working documentationof the internal control. To implement certainaudits, teams were set up which involvedspecialists at the level of HEP d.d., subsidiarycompanies and other organizational parts ofHEP Group.The Department submits to HEP d.d. Man-agement Board annual and semi-annualreports on its work. The reports are basedon the audits and other tasks and activitiescarried out by the Department. The reports onthe audits carried out systematically reporton the audits and give relevant ndings andconclusions as well as corrective measuresand activities. The Report on the Work of theDepartment in 2007 addressed all tasks andobligations that the Department has underinternal rules and regulations of HEP d.d., theDepartments documents, and Plan and Pro-gram of Work of the Department for 2007.

Certifcates

ISO 14001 Certicate forenvironmental manage-ment within HEP Proizvodnja d.o.o. issued to TE-TOZagreb (by BVQI), EL-TOZagreb, CCPP Jertovecand hydro productionareas North and West (byDet Norske Veritas) withall hydro power plants in-cluded, within HEP ODS toElektra Zagreb, and withinHEP OPS to Zagreb Trans-mission Area (by Bureau

Veritas)

ISO 9001 Certicatefor quality managementissed to TE-TO Zagreb(by Bureau Veritas), EL-TOZagreb and CCPPJertovec and hydroproduction areas Northand West (by Det NorskeVeritas) with all hydropower plants included

All HEPs hydro power

plants have since 2003certicates of a hundredpercent production fromrenewable sources, orgreen energy (issued byTV)

8/11/2019 2007 Annual

18/129

Business operations

repo

8/11/2019 2007 Annual

19/129

In 2007 the real growth rate of gross domestic product (GDP) was 5.6 percent (4.8 percent in

2006). Croatias GDP was 37.497 billion euros or 8,452 euros per capita. Industrial production

grew 5.6 percent compared to 2007. Average unemployment rate fell to 9.6 percent (using ILO

definition). External debt was 32.929 billion euros (87.8 percent of GDP), an increase of 3.655

billion euros over 2006. External debt growth in 2007 was 12.5 percent (13.7 percent in 2006).The state deficit in 2007 was 6.3 billion kuna or 2.3 percent of GDP-a (u 2006 3 percent of

GDP).

Macroeconomic environment

2007

Source: Croatian National Bank, Croatian Chamber of Economy

2005 2006Croatia basic macroeconomic indicators

Credit rating

Standard&Poors raised credit rating of HEP d.d. on July 19, 2005 for foreign currency debt to BBBfrom BBB-. This raising reects the December 2004 increase in Croatias sovereign credit rating.HEPs rating BBB for local currency debt was conrmed at the same time and this rating has notchanged since 1998.On May 25, 20 07 Standard&Poors changed the outlook for HEP d.d. from negative to stable. In itsreport of June 27, 2008 the rating agency Standard&Poors conrmed the credit rating BBB ofHrvatska Elektroprivreda d.d. for long-term debt, with stable outlook

HEP credit rating: BBB/Stable/- -

Credit rating history Local currency Foreign currencyNovember 13, 1998 BBB BBB-July 19, 2005 BBB BBB

2007

31,263

7,038

4.3%

3.3%

25,748

12.7%

4.44

7.4000

5.9500

GDP

GDP per capita

GDP annual growth rate

Average annual inflation rate

Foreign debt

Unemployment rate

Population (estimate)

Average exchange rate

Average exchange rate

34,220

7,707

4.8%

3.2%

29,274

11.2%

4.44

7.3228

5.8392

37,497

8,452

5.6%

2.9%

32,929

9.6%

4.44

7.3360

5.3660

in EUR mn, current prices

in EUR

constant prices

in EUR mn, at year end

using ILO definition

in mn

HRK : 1 EUR

HRK : 1 USD

repo

Business operations in 2007

8/11/2019 2007 Annual

20/129

HEPs bond issue

In early December 2007 HEP issued ten-year domestic currency bonds in the nominal value of HRK 700

million, through public offering in the Croatian capital market. The entire funds are intended for the nancing

of the investment plan 2007. Towards the end of December bonds were listed in the rst quotation of the

Zagreb Stock Exchange and since then they have been actively traded in the secondary market.

HEP Group consolidated nancial statements (IFRS)

According to nancial indicators, HEP Group is one of the biggest business groupings in Croatia. Theyear 2007 was marked by exceptionally unfavorable business conditions. Due to the price growth ofenergy inputs and un favorable hydrologic conditions, operating costs increased signicantly. Since the

prices of electricity and heat and gas were not increased, this was reected on operating prot whichdecreased to 204.8 million kuna (in 2006 it was 40 0.6 million kuna). Group net prot is 26 million kuna,of which 3.8 million kuna is attributable to equity holders of the parent.

Operating income

Operating expenses

Operating prot

Group net prot

Net prot (attributable to equity holders of the parent)

Total assets

Capital and reserves (attributable to equity holders of the parent)

Gross debt

Investment in property, plant and equipment

Cash from operating activities

Free cash ow

EBITDA

EBIT

Net prot rate (attributable to equity holders of the parent)

ROE

Debt/equity rate

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

HRK mn

%

%

%

%

%

unit

9,653.3

9,108.9

544.4

469.2

441.3

28,076.0

17,808.7

4,374.3

2,443.0

2,892.3

445.2

26.4%

6.1%

5.0%

2.5%

24.6%

10,247.3

9,846.6

400.6

241.9

216.9

29,335.6

18,013.4

4,663.5

2,761.9

2,817.6

48.0

23.9%

4.2%

2.3%

1.2%

25.9%

10,815.5

10,610.7

204.8

26.0

3.8

31,070.2

18,013.1

5,643.3

3,077.0

2,045.8

-943.5

19.9%

2.2%

0.04%

0.02%

31.3%

5

7

-48

-89

-98

5

-0.00

21

11

-27

Business result HEP Group

2005 2006 2007 07

8/11/2019 2007 Annual

21/129

Operating income

Operating expenses

EBIT

Group net prot

Net prot attributable to equity holders of the parent

9,653.3

9,108.9

544.4

469.2

441.3

Consolidated prot and loss account (abridged) HRK mn

10,247.3

9,846.6

400.6

241.9

216.9

6.2%

8.1%

-26.4%

-48.4%

-50.8%

10,815.5

10,610.7

204.8

26.0

3.8

5.5%

7.8%

-48.9%

-89.2%

-98.2%

Operating income

In 2007 the Group achieved the highest operating income ever 10,815.5 million kuna, an increase of 568.2million kuna (5.5 percent) compared to 2006. The growth in operating income is due to the increase in otheroperating income while income from the sales of electricity, heat and gas decreased.Income from electricity sales, which accounts for 80.8 percent of total operating income, is slightly lowerthan in 2006 (0.1 percent or 7.8 million kuna) and amounts to 8,739.2 million kuna. Income from domesticsales increased 4.6 percent (366.2 million kuna) as a result of a higher domestic consumption. Income fromexport decreased by 374 million kuna (43.7 percent) due to decreased sales of electricity outside Croatia. Asa result, the share of export in electricity sales income decreased from 9.8 percent in 2006 to 5.5 percent in2007.Income from heat sales is 450.9 million kuna, lower by 6.9 million kuna (1.5 percent) compared to 2006.Income from gas sales is 235.5 million kuna, lower by 6.8 million kuna (2.8 percent) than in 2006. Incomedecreased due to the fall in consumption resulting from weather conditions in the rst quarter of 20 07.Other operating income was realized in the amount of 1,389.8 million kuna, an increase of 73 .7 percent(589.7 million kuna). The increase is mostly due to cancellation and decrease of long-term provisions (forvalue adjustment of the share in Krko NPP, severances and jubilee rewards, legal costs, payments underthe collective agreement, and decommissioning of thermal power plants) and to the increase in income from

lease of electricity transmission capacity and in income from s ervices rendered.

other operating inco

electricity sales

heat sales

gas sales

other operating income

8,739.2

450.9

235.5

1,389.8

80.8%

4.2%

2.2%

12.8%

10,815.5

+5.5%

gas sales

electricity sales

heat sales

Operating income (HRK mn)

8/11/2019 2007 Annual

22/129

Operating expenses

Operating expenses increased by 764.1 million kuna (7.8 percent) and amount to 10,610.7 millionkuna, realizing a growth which is by 195.8 million kuna higher than the growth in operating income.

Electricity production and procurement costs increased, although less electricity and heat wereproduced and procured, by 615 GWh and 78 GWH respectively, compared to 20 06

These costs increased due to the following factors:

- rise of 7.6 percent in oil price, 15 percent in gas price, 19 percent in coal price and of36 percent in electricity purchased on the market;

- lower hydroelectric production by 28 percent (1.7 TWh);- higher production by thermal power plants by 26 percent (1.4 TWh).

Electricity procurement costs, which include electricity from Krko NPP, imports and procurement fromrenewable energy sources are 2,504.4 million kuna, an increase of 475.1 million kuna (23.4 percent).Although electricity procurement amounting to 7.8 TWh decreased by 4 percent compared to 2006 asa result of lower sales outside Croatia (by 41 percent), the effect of this decrease was offset by higherelectricity procurement costs.

Due to the lower hydroelectric production as a result of signicantly lower ow than the perennial aver-age (by 28 percent, from 6.07 TWh to 4.4 TWh), thermal electric production increased (by 26 percent- from 5.4 TWh to 6.8 TWh).

Fuel costs were 2,504.6 million kuna, an increase of 729.1 million kuna or 41.1 percent compared to theyear before. The cause of the increase is a greater use of all energy sources fuel (due to higher thermalelectric production) and their price increase.

Operating expenses (HRK mn)

Staff costs in 2007 amounted to 1,645.2 million kuna, higher than in 2006 by 70 million kuna or 4.4cent. Staff costs are determined in the Collective Agreement which came into force at the beginnin2006 and which increases the basic salary by 5.7 percent compared to 2006. The rise in net salaryalso due to a growth in the number of higher qualication employees and reduction in lower qualiemployees.

Depreciation costs decreased by 188.7 million kuna (10.6 percent) compared to 2006 and amount 1,592.4 million kuna since, based on an assessment, useful life of some long-term assets for prod

tion, transmission and distribution of electricity, was extended.

Other operating expenses amounted to 2,364.1 million kuna, a decrease of 12 percent (321.4 milliokuna), primarily as a result of a temporary reduction or deferral of maintenance costs(reduction of 30 percent) in order to compensate for the effect of high rise in energy costs.

electricity procurement

electricity procurement

fuel

staff costs

depreciation

other operating expenses

2,504.4

2,504.6

1,645.2

1,592.4

2,364.1

23.6%

23.6%

15.5%

15.0%

22.3%

10,610.7

+7.8%

staff costs

depreciation

other opera

fuel

8/11/2019 2007 Annual

23/129

Prot

Change in operating prot effect of income and expenses (HRK mn)

As a result of the above described factors, operating prot decreased by 48.9 percent: from 400.6 mil-lion kuna to 204.8 million kuna.

Net prot attributable to equity holders of the parent was 3.8 million kuna, a decrease of 98.2 percentcompared to 2006. This is due to the fall in operating income, a more unfavorable nancial result and

higher tax expenses than in 20 06. Prot rates in 20 07 decreased compared to previous years.

Income from sales

Prot before interest, tax and depreciation

Operating prot

Net prot attributable to equity holders of the parent

EBITDA

EBIT

Net prot rate (attributable to equity holders of theparent)

8,895.9

2,346.9

544.4

441.3

26.4%

6.1%

5.0%

9,447.2

2,259.3

400.6

216.9

23.9%

4.2%

2.3%

6.2%

-3.7%

-26.4%

-50.8%

9,425.7

1,873.3

204.8

3.8

19.9%

2.2%

0.04%

-0.2%

-17.1%

-48.9%

-98.2%

HRK mnProt structure

Change in operating prot by activity (HRK mn)

Most of the operating income (93 percent) as well as the total operating prot were achieved in theelectricity business. The share in Group operating income slightly increased (from 92.6 to 93 percecompared to 2006.District heating business made an operating loss of 113.6 million kuna, 60.9 percent more than in2006. The share in Group income decreased from 5 percent to 4.6 percent..Gas distribution business has the smallest share in operating income (2.4 percent). Operating lossdecreased to 1.5 million kuna.

Operating income

Operating prot

9,484.4

482.1

500

400

300

200

100

2006

400.6

-162.2

-43.0

+9.3 204.8

2007electricity heat

+ positive effect due to loss decrease or prot increase- negative effect due to loss increase or prot decrease

gas

10,057.1

319.9

6.0%

-33.6%

509.4

-70.6

253.4

-10.8

502.1

-113.6

256.3

-1.5

-1.4%

60.9%

HRK mn

electrcity heat energy Gas distributi

Business result

Results by activity

8/11/2019 2007 Annual

24/129

Electricity

The businesses of electricity production, transmission, distribution and supply achieved in 2007 an op-erating prot of 319.9 million kuna, a decrease of 162.2 million kuna (33.6 percent) compared to 2006.

Income from electricity sales is 8,739.2 million kuna, a slight decrease (of 7.8 million kuna or 0.1 per-cent) compared to 2006. Income from domestic sales is higher by 4.6 percent (366.2 million kuna) dueto a 2.7 percent higher domestic consumption.Export income is lower by 374 million kuna (43.7 percent) due to signicantly lower export (41 percent).

operating income

operating expenses

operating prot

8,860.6

8,246.0

614.6

9,484.4

9,002.3

482.1

7.0%

9.2%

-21.6%

10,057.1

9,737.2

319.9

6.0%

8.2%

-33.6%

HRK millionOperating result

Income from electricity sales (HRK mn)

tariff customers

eligible customers

export

tariff customers

eligible customers

export

In its own power plants HEP produced 11,202 GWh of electricity, which is 5 9 percent of total avelectricity, 14 percent (2,714 GWh) was delivered by Krko NPP and 27 percent (5,133 GWh) wacured from outside Croatia.HEP-produced electricity slightly (3 percent) declined compared to 2006, with hydro power pla

ducing 28 percent (318 GWh) less and thermal power plants 26 percent more. Hydrologic cond2007 were far more unfavorable than the average. Electricity import decreased by 7 percent.

Domestic sales were 15,331 GWh of electricity 14,411 GWh (94 percent) was sold to tariff cusand 920 GWh (6 percent) to eligible customers. Electricity import fell (41 percent), decreasing itin total energy sold from 13.7 percent in 20 06 to 8.3 percent in 2007.

hydro power plants

thermal power plants

Krko nuclear power plant

electrcity procurement

6,388

5,150

2,807

5,919

6,070

5,436

2,645

5,513

4,357

6,845

2,714

5,133

-28%

26%

3%

-7%

GWhElectrcity production and procurement

7,950.3

307.1

481.8

91.0%

3.5%

5.5%

8,739.2

-0.1%

8/11/2019 2007 Annual

25/129

Electrcity sales (GWh)

2007

2006

2005

0 5,000

13,568 701 3,400

13,976 947 2,371

14,411 920 1,395

10,000 15,000 20,000

tariff customers

eligible customers

export

Electricity sales to domestic customers were calculated using the tariff system, and the most recentincrease in tariff rates was in 20 05. Under the Electricity Market Act, as from July 1, 2007 all exceptresidential customers have the right to choose their supplier. However, only 17 customers have con-tracts with HEP Opskrba d.o.o., while all the rest still buy electricity on conditions for tariff customers.

The business activity of heat production, distribution and supply is performed by HEP Toplinarstvod.o.o. and covers the areas of Zagreb, Osijek and Sisak.

District heating

operating income

operating expenses

operating prot

527.3

596.5-69.2

509.4

580.0-70.6

-3.4%

-2.8%2.0%

502.1

615.7-113.6

-1.4%

6.2%60.9%

HRK mnOperating result

From this business HEP Group made 4.6 percent of operating income in 2007, decreasing its sharefrom 5 percent in 2006.

An operating loss of 113.6 million kuna was realized. Compared to 2006, the loss increased by 43 lion kuna due to the strong growth in fuel prices while at the same time selling price did not changFuel costs and heat procurement costs in 2007 constituted as much as 94.8 percent of income froheat sales, leaving only 5.2 percent for coverage of xed costs.Production of heat and process steam was 2.49 TWh, a decrease of 3.1 percent compared to 2006Heat consumption was 2.09 TWh, a decrease of 5.6 percent compared to 2006. The higher outdootemperatures in the heating season resulted in lower consumption. Due to the fall of consumption,sales income is 450.9 million kuna, a decrease of 6.9 million kuna (1.5 percent) compared to 2006.

Although heat selling prices do not cover operating costs and fuel prices continued to rise in 2007increasing thereby unit cost price, selling prices did not change. Since the heating business is in clin the process of liberalization and regulation of the energy sector, it is expected that selling prices be changed in 2008, which should enable this business to make prot and develop.

In gas distribution, which is performed by the company HEP-Plin d.o.o., gas consumption decreseby 2.6 percent due to weather conditions in the rst quarter, reducing consumption of gas for heating. Income from gas sales decreased by 6.7 million kuna (2.8 percent) to 235.5 million kuna. Frombusiness HEP Group made 2.4 percent of operating income.

In 2007, an operating loss of 1.5 million kuna was made which is a decrease of 9.3 million kuna copared to 2006.

Gas

Operating income

Operating expenses

Operating prot

265.4

266.4-0.96

253.4

264.2-10.8

-4.5%

-0.8%

256.3

257.8-1.5

1.1%

-2.4%

HRK mnOperating result

8/11/2019 2007 Annual

26/129

F inancial position

Non-current assets

Current assets

Total assets

Capital and reserves attributable to equity holders of the parent

Minority interest

Total liabilities

Long-term liabilities

Short-term liabilities

Total liabilities. capital and minority interest

26,575.4

2,760.2

29,335.6

18,013.4

137.7

11,184.5

7,837.3

3,347.2

29,335.6

Dec 31, 2006

HRK mn HRK mnshare share

Dec 31, 2007

91%

9%

100%

61%

1,0%

38%

27%

11%

100%

28,040.2

3,030.0

31,070.2

18,013.1

122.1

12,935.0

8,495.3

4,439.7

31,070.2

90%

10%

100%

58%

0.4%

42%

27%

14%

100%

Consolidated balance sheet (abridged)

Total assets of HEP Group increased by 1,734.6 million kuna to 31,070 .2 million kuna in 2007. The in-crease was realized as a result of an increase in cur rent assets of 269.8 million kuna and in non-currentassets of 1,464.8 million kuna.The majority of non-current assets consists of property, plant and equipment (including capital work inprogress), the value of which increased by 1,486.3 million kuna (to 25,694 million kuna). The increasewas realized as a result of investment in construction as well as in replacement and reconstruction ofenergy facilities in the amount of 3,077 million kuna, the highest investment made to date in a single yearand also 1.5 billion kuna above the amount of annual depreciation. Prepayments for tangible assets also

increased, by 60.8 million kuna.The value of current assets is 3.030.3 million kuna. It increased by 269.8 million kuna due to the effect ofthe increase of 234.5 million kuna in other current receivables and of the increase of 124.4 million ku-nai in inventories. Most current assets consist of trade receivables, which decreased by 96 million kunacompared to 2006 and amount to 1,227.3 million kuna.

Assets

Investments

Capital and reserves in 2007 amounted to 18,013.1 million kuna. Total liabilities increased by 1,75million kuna of which long-term liabilities accounted for 658 million kuna and short-term liabilitie1,092.5 million kuna.Long-term liabilities for loans, amounting to 2,928.7 million kuna, decreased by 200.2 million kunrepayments being higher than inow of new loans and due to the effect of valuation of loan princchanges in exchange rates. In December 2007 ten-year bonds were issued denominated in HRwith a xed interest rate, which increased long-term liabilities for securities by 698.9 million kunaIn long-term liabilities there is a signicant increase (618.9 million kuna) in deferred income contrby others, which is related to connection of new customers and increase in connected power forcustomers.

In short-term liabilities which amount to 2,579.8 million kuna there is a signicant increase in tradables (of 868.8 million kuna) as a result of a high rise in payables for procurement of fuel and eleand high investments. In 20 07, short-term loans increased by 519.1 million kuna to 905.4 million a result of extending the existing credit lines and taking n ew ones.Due to increase in interest-bearing debt being higher than increase in capital and reserves, debt ratio increased from 24.6 percent to 25.9 percent.

The investments in 2007 were in the amount of 3,077 million kuna of which 2,655.2 million kuna iconstruction, replacement and reconstruction of power plants and facilities. The remaining investof 421.8 million kuna were made in information and telecommunication infrastructure, remote co

systems, measuring devices and instruments, ofce spaces and transport vehicles.

Capital and liabilities

Investments in property, plant and equipment 2,443.0 2,761.9 3,077.0 11.4%

HRK mnInvestments

8/11/2019 2007 Annual

27/129

320.4752.4 1,435.0 2,507.8 135.9 11.5

HRK mn

gasdistribution

districtheatingtotal electricitydistributiontransmissionproduction

Investments in power plants and facilities

Construction of transmission and distribution networks allows continuous growth in electricity consump-tion in Croatia, and replacement and reconstruction to remove inefciencies of existing plants and facili-ties are aimed at improving the security and quality of electricity supply and reducing network losses.

Construction of new high-efciency generating plants will reduce the gap between generating capabilityof existing plants and growing needs for electricity. It will also allow closure of old, inefcient and there-fore expensive, plants.

Continuation of construction of Lee HPP (42 MW; potential annual production 98

GWh); continuation of construction of Unit L at TE-TO Zagreb (100 MWe, 80 MWt;

planned annual production 750 GWh of electrical and 250 GWh of thermal energy), and

start of construction of Un it C at Sisak TPP

Continuation of multi-year works on the hydro power plants Perua, Zakuac, and Senj

and necessary replacement and reconstruction of plants and facilities

Transmission plants whose construction or reconstruction was completed in 2007:

transmission facilities in Istria, Program Banovina (TS 110/10(20) kV Siscia), Program

Ernestinovo (110 kV akovo-upanja line), and investment into other 110 kV facilities (TS

Karlobag, TS Drni, RP Podsused, TS Varadin, TS vara, TS Buje, TS Krapina, EVP

Andrijevci, TS Novalja, TS Komolac)

Major investments

Transmission plants whose construction or reconstruction started in 2007 and will

continue in 2008: Program Banovina (110 kV Prano-Kostajnica line), Program Karlovac,

Program Ernestinovo (TS 110/20 kV Osijek 4), Program Dubrovnik, 2x400 kV

Ernestinovo-Pecz line, 2x220 (110 kV) Plomin-Vodnjan line, 110 kV line (Plomin-Dubrova

and Dubrova-Raa), TS 110/35 kV (Pazin and Zabok), TS 110/10(20) kV Buzet, Electricity

System Operation Function project.

In the distribution business, the following investments were made in 110 kV facilities (TS

Mlinovac, TS Kraica, TS Dugo Selo, TS Dubec, TS Sr), 35 kV (TS Vinkovci 5, TS

Mekuje, TS Grobnik, TS Varadinske Toplice, TS Istok, TS Ludbreg, TS Bilje, TS

Orlovnjak, DV Cecela-Rui) 10 kV (DV DubrovaVuetinec, DV NovigradDrnje) and

refurbishment of telecontrol centers Zagreb, Rijeka i Split.

Repair and reconstruction of war damage continued, restoration of voltage conditions in

distribution network, emergency meter replacements.

In the district heating business, a multi-year investment project is underway for refurbishme

and reconstruction of the heating networks of Zagreb and Osijek in order to improve

efciency and cut operating costs of the heating business

In the gas distribution business, the most signicant investment is the continuation of

construction of gas network in Baranja and start of construction of a gas pipeline in the

municipalities of Ernestinovo and Podgora.

In information and telecommunication technology, investments in consolidation and

development of the infrastructure continued.

8/11/2019 2007 Annual

28/129

Customer r

At the 1stConsumer ProtectionConvention (2004)HEP receivedaward forsimplifying thecalculation ofelectricityconsumption andfor protection ofelectricity customers. repo

8/11/2019 2007 Annual

29/129

Customer relations

HEP Group supplies its customers with electricity at 2,241 ,203 metering points. In 2007, the number ofmetering points increased by 47,852 of which residential customers account for 38,905 metering pointsand commercial customers account for 8,947 metering points. Of the total number of metering points atwhich HEP supplied electricity to its customers, 2,239,148 metering points belong to low voltage dis-tribution network, of which 2,028,935 belong to the residential category. There are 2,055 metering pointsbelonging to customers at high and medium voltage network.With the gradual opening of the market, on July 1, 200 7 the status of eligible customer was granted to allcommercial customers which account for about 55 percent of the total electricity consumption in Croa-tia. Eligible customers can choose their supplier in the electricity market, negotiate all supply conditions,prices, payment terms, payment security, etc.In the heat supply business, the number of customers in 2007 increased by 5 percent. At the end of the

year there were 120,583 customers, of which 114,824 residential and 5,759 corporate customers. To thegas supply system, 2,635 new customers were connected, an increase of 4 percent to a total of 63,82 6customers.

In line with HEP Group customer relations strategy, HEP Operator distribucijskog sustava d.o.o.(HEP ODS) places electricity customers in the center of its business interests. Through cus-tomer management HEP ODS besides supplying quality electricity and providing quality servicewants to recognize and fulll other needs and requirements of its customers.In addition to usual payment methods (cash, credit cards, standing orders), customers canpay their bills without extra charge at all FINA and Croatian Postal Service ofces. Thereby, byinvesting HEPs funds, customers are provided with a better service and a wide range of pay-ment options at lower costs.In order to make the practice in the entire Company uniform, the implementation of Billing ap-plication was completed which besides making the form of electricity bills look the same partlyfullled conditions for establishing a single contact center for the whole of Croatia. For now,customers have at their disposal a call center 9820 in ten local organizational units, which pro-vides services free of charge, for submission of meter readings or complaints or for informationof interest to customers.On the new HEP ODS website (www.hep.hr/ods) customers can communicate using web mailand get timely information about how HEP ODS distribution area does its business, submitmeter reading, learn about all laws and regulations and news per taining to electricity distribu-tion and supply or pr int the necessary applications, contract forms, etc.Each distribution area has organized receiving and processing of customer queries, informationand complaints, and customers of in the distribution areas of Zagreb and Pula can additionally

Number of customers

Relations with electricity customers HEP ODS

Relations with electricity customers- HEP Opskrba

Complaint commissions

use the services of Info Center. Info Center provides all information of interest for cur renor future customers: information regarding electricity supply, technical information abousavings and efcient use of electricity, and about electricity production, conditions for cnection to HEPs network, implementation of environmental measures, etc. Blind persocan get the Tariff System in Braille printed in collaboration with the Blind and Visually Impaired Persons Association.Supply Sections at each Elektra systematically take care, monitor and keep records ofservices and information requested as well as complaints submitted through any form ocommunication and make sure these are resolved as soon as possible. The Departmentfor Tariff Customers Supply coordinates the work of all Supply Sections and continuousmonitors and oversees relevant indicators in order to ensure that customers receive app

priate quality of service, in accordance with European standards.

In September 2007, a business decision was taken to enable HEP Opskrba d.o.o. to provide supto about 2,200 medium and large eligible customers in Croatia. The Company was therefore making intensive preparations to get ready to operate in a competitive market. The basis for operatinacross Croatia was set up by reorganizing and expanding the Sales Unit. One of the main objec-tives was fullled getting closer to customers.Customer relations have signicantly improved as a result of setting up sales units in regional centers. Through frequent contacts, including those through the Companys Call Center that has alsobeen set up, all relevant information was provided about organization and functioning of the markcustomer rights and duties, contracting, etc.

As required by the Consumer Protection Act, which also applies to HEP as a public service pro-vider, commissions have been set up for customer complaints in 21 distribution areas of HEPOperator distribucijskog sustava d.o.o., in HEP-Toplinarstvo d.o.o. and HEP-Plin d.o.o. The commsions are composed of representatives of individual HEP companies or areas and representativeconsumer associations. Consumer protection associations have recognized the quality of regionorganized commissions as allowing speedier complaint ling and processing procedure, and poito HEP as an example to be followed by similar companies in Croatia.

8/11/2019 2007 Annual

30/129

Number of complaints considered by commissions of HEP Operator distribucijskog sustava

d.o.o. - 2007

Number of complaints considered by commissions of HEP Toplinarstvo d.o.o. 2007

Billing

Quality ofsupply services(regarding meterreading, billing,collection)

Quality of heatenergy(temperature incustomerpremises,temperature ofhot water, steamparameters)

Change inconnected power

Change atmetering point(separation,linking, relocationof installations,etc.)

Redistribution ofquantity of heatsupplied

Other reasons TOTAL

Inaccuratemeter

Connections/Disconnection

Voltageconditions

Others

M

eetingsheld

To

talcomplaints

To

talaccepted

Reason for complaint

Reason for complaint

to

tal

total

to

tal

total

to

tal

total

to

tal

total

to

tal

total

total

total

ac

cepted

accepted

ac

cepted

accepted

ac

cepted

accepted

ac

cepted

accepted

ac

cepted

accepted

accepted

accepted

re

jected

rejected

re

jected

rejected

re

jected

rejected

re

jected

rejected

re

jected

rejected

rejected

r e j e c t e d

116

4

9

3

2

2

2

5

17

8 2 24

41

3

2

0

2

1

1

5

7

5 0 14

48 146 53

75

1

7

3

0

1

1

0

10

3 2 1

8/11/2019 2007 Annual

31/129

Human resources mana

repo

8/11/2019 2007 Annual

32/129

Number of employees

On December 31, 2007 of the total of 14,290 employees, 14,130 were employed on apermanent basis and 156 on a temporary basis (of which 141 trainees who are employedon a temporary basis), and four employees were on unpaid leave.

HEP - Operator distribucijskog sustava d.o.o.

HEP-Proizvodnja d.o.o.

HEP - Operator prijenosnog sustava d.o.o.

HEP d.d.

HEP-Toplinarstvo d.o.o.

HEP-Plin d.o.o.

CS Buko blato d.o.o.

HEP-Opskrba d.o.o.

APO d.o.o., usluge zatite okolia

HEP-ESCO d.o.o.

HEP-Trgovina d.o.o.

HEP - Odmor i rekreacija d.o.o.

Ustanova HEP - Nastavno-obrazovni centar

HEP - Obnovljivi izvori energije d.o.o.

Hrvatski operator trita energije d.o.o.*

Toplinarstvo Sisak d.o.o.**

HEP Group total

9,721

2,391

1,202

426

378

135

41

5

20

12

0

0

10

1

12

3

14,357

9,622

2,344

1,243

411

386

136

43

23

21

18

14

12

11

6

0

0

14,290

-99

-47

41

-15

8

1

2

18

1

6

14

12

1

5

-12

-3

-67

HEP Group company

Number of employees at December 31 D if ference

Number of employees by HEP Group company

* On January 1, 2007 separated from HEP Group** On January 1, 2007. became part of HEP Toplinarstvo d.o.o.

DSc and MSc.

BSc

Assoc. degree

Second. school

Element. school, unskilled and semi-skilled

Higly-skilled

Skilled

TOTAL

Years of age

under 20

20-25

25-30

30-35

35-40

40-45

45-50

50-55

55-60

60-65

TOTAL

No of employees

16

1,266

764

1,616

1,643

2,028

2,591

2,739

2,129

498

14,290

107

1,890

1,054

6,074

930

2,266

1,969

14,290

105

1,848

1,022

5,988

992

2,329

2,073

14,357

0.7

12.9

7.1

41.7

6.9

16.2

14.5

100

0

13

7

42

6

15

13

1

.% .%

Qualication structure

Age structure

Human resources management

8/11/2019 2007 Annual

33/129

Employment, trade union relations and workers councils

Development of human resources

Four trade unions are registered and active in HEP Group companies. Employment and r ights of HEPGroup employees are regulated in work rules of the companies and Collective Agreement for HEPGroup.

A new Collective Agreement for HEP Group was concluded on December 30, 2005 to be applied fromJanuary 1, 2006 to June 30, 20 08. As required by Article 144 of the Agreement the parties set up a jointcommission for interpretation. The commission met periodically in accordance with the Agreement anddepending on the requests they received.

At HEP Group level, an increasing attention is paid to the development and implementation of modernHR management practices in order to prepare the company and its employees for doing business in anopen and competitive market. Accordingly, to allow the company to hire those people whose compe-tencies and personality traits best t the work environment and corporate culture, a standard selectionprocedure was adopted for employment of new workers and for scholarship recipients (high school anduniversity students).In order to raise the quality and quantity of work performance of employees, preparations began to intro-duce a work performance monitoring system which will include denition of individual professional andpersonal objectives of each employee for a given period and an evaluation of success.A work performance monitoring system is interlinked with the motivation and reward system which willoffer appropriate forms of rewards to employees depending on their work performance. Certain forms ofnancial and non-nancial rewards have been in place for some time as part of HR management, but areview process has been initiated to evaluate their efciency, which may result in a redenition of exist-ing and introduction of new incentives for employees.

The company has began to perform an examination of the organizational climate and employee satisfac-tion in order to determine the degree of satisfaction with individual aspects of the work environment andmake improvements accordingly over a reasonable period.

Education and training

In the area of employee education, the company has been continuously allocating signicant funreferring its employees to postgraduate studies (37 at HEP Group level in 2007), training and professional improvement and for scholarships of secondary school and university students. In 2007alone HEP invested more than 23 million kuna for the purpose of education.

In addition to investing in employee professional competencies, special attention is paid to im-provement of their computer literacy and foreign language skills. In 20 07 a one-year implementation of ECDL education for 779 employees from across HEP Group was completed. Employeesattended other specialized computer courses, at home and abroad, as well as regular English anGerman conversation courses.

HEP d.d. in collaboration with HEP NOC (HEP Education and Training Center) and various edu-cational institutions, organized internal seminars for HEP Group employees on the topics of rec-onciliation, protection of employee dignity and work performance management, and rewarding. Alarge project was begun to educate window clerks in efcient communication with clients whichwould, over a one-year period, involve 250 employees of HEP ODS d. o.o. Based on a researchconducted to determine educational needs of HEP Group managers, special educational prograwere dened focused on the development of problem solving skills, time management, leadershand team building skills. HEP Group managers attended a program entitled Corporate Governanfor Members of Management and Supervisory Boards, organized by the faculties of economics iZagreb and Split.During 2007, a large number of employees of technical, economic, legal and other background atended professional conferences, topical seminars and courses, of which especially worth men-tioning was HRO CIGRE conference, MIPRO session and Energy Day Forum in Croatia.

Currently underway is the development of a Register of Education application to allow a computized monitoring of educational activities and/or of referral of employees to different forms of eduction.

8/11/2019 2007 Annual

34/129

Sustainable develo

HEPis the winner

of the nationalaward for generalcontribution toenvironmentalprotection by asociallyresponsiblecompany,

2003.

repo

8/11/2019 2007 Annual

35/129

Policy and organization of nature and environmental protection function

Harmonization with the EU legislation

HEP continuously monitors and analyzes the impact of its business processes on the environment. Thecompany reports on all environmental components timely and objectively to relevant institutions, units oflocal self-government and the interested public. Employees working in nature and environmental protec-tion function attend seminars and workshops to get informed about duties and activities arising fromenvironmental and nature protection legislation. Technical support to these employees that are active inindividual HEP Group companies is provided by the members of HEPs Team for Environmental Protec-tion Coordination and Standardization. There is a single accounting method for environmental expenses.

Analyses of the impact of the harmonization of the Croatian legislation with the EU nature and environ-mental legislation on the operation and development of the Croatian electricity system have shown thatthe greatest impact will come from provisions relating to air protection and climate change and to licenc-ing of thermal power facilities, but also from those relating to management of PCB (polychloride biphe-nyls) containing equipment and the provisions of Water Framework Directive.Large Combustion Plants Directive denes limit values of air emissions from plants above 50 MW of ther-mal capacity; its application will impact decisions on the duration of life of HEPs existing thermal powerplants and on the planning of new ones.

The provisions of the Integrated Pollution Prevention and Control Directive, which apply to all industrialplants and consequently to HEPs existing and future large combustion facilities, have been transposedinto the umbrella Environmental Protection Act. The Act requires all those to which it applies to prepareplans by 2010 for obtaining integrated environmental protection requirements based on which a plantor a part thereof will be allowed to operate. Due to the old age of HEP Group thermal power plants andtechnical constraints, if signicant improvements will be needed to meet the integrated environmentalprotection requirements, signicant funds will be necessary.

Transposing the EU climate change legislation into the Croatian legislation is planned to be completed bythe end of 200 8. By the passage of the ordinance on greenhouse gas emission quotas, which will applyfrom 2010, Croatia will establish an emission trading scheme for greenhouse gases. A plan for allocationof emission quotas, National Allocation Plan (NAP), will dene emission reduction for each plant, so the

issue of emission quotas for each thermal power plant will be the subject of a compromise betweeinterest of the state to reduce CO2to the level set out in Kyoto Protocol and HEP Group developmplans.

By ratifying the Stockholm Convention, Croatia has committed itself to disposing of PCB-containinequipment by 2025, but all EU member states have obligated themselves to withdraw such equipmby the end of 2010 in compliance with Directive 96/59. In 2007, HEP prepared a new