LA DISCRIMINACIÓN

Business Environment in the Power Industry

Although the Energy Act liberalized the Bulgarian electricity market on July 1, 2007, the country still uses a system of quotas to determine supplies of electricity at prices regulated by the State. Over 70% of electricity supply volume for internal consumption (25 TWh) is at regulated prices. 159 participants (89 customers, 60 dealers, and 10 producers) are registered in the open market. The government has substantially intervened in the market by raising the export fee to approximately 12 EUR/MWh (approximately CZK 300), and this combined with a fall in electricity prices in the area makes exporting power a less attractive option.

In 2010, certain partial changes to the market rules were approved, and are expected to enter into force in 2011. Also anticipated during 2011 are an amendment to the Energy Act and continued preparation of a conceptual plan for an energy exchange in Bulgaria.

In 2010, electricity generation grew 7%. Internal consumption remained roughly unchanged and exports increased to a level exceeding 7 TWh. Of the new power sources currently in the planning stages, preparations for building the Belene Nuclear Power Station (2 x 1,000 MW) are of fundamental importance for Bulgaria. In 2010, however, the situation became significantly more complicated and it is still not clear how the project will be financed. The country is also planning to build three hydro power plants with an aggregate total installed capacity of 775 MW. Utilization of renewable sources of energy is growing fast, with solar power plants especially attractive due to mandated prices with guaranteed purchasing and plenty of sunlight throughout practically the entire country. In 2010, installed capacities reached approximately 40 MW for solar power plants (up 33 MW), approximately 400 MW for wind power plants (up 200 MW), approximately 2,100 MW for small- scale hydro power plants (up 600 MW), and 3 MW for biomass power plants (up 1 MW).

Electricity Generation

CEZ Group’s sole power plant in Bulgaria, Varna Power Station, generated a total of 2,850 GWh of electricity in 2010, up 609 GWh (+27.2%) from 2009. The main driver of this growth was higher generation for the regulated market, and in particular the activation of a cold reserve after outages of other power sources in Bulgaria in the second half of 2010.

Electricity Generated in Bulgaria, Gross (GWh)

Installed Capacity

CEZ Group’s largest coal-fired power plant, Varna Power Station with 1,260 MW of installed capacity, is located in Bulgaria. 128 CEZ Group / CEZ Group Operations Abroad

coal, gas, and CCGT power plants

2,241 2,850 Total 0 500 1,000 1,500 2,000 2,500 2009 2010

VARNA VARNA Sofia Sofia VARNA Sofia Power Plant black coal

Location of CEZ Group Power Source in Bulgaria

List of CEZ Group Power Plants in Bulgaria

Coal-fired Power Plants

Plant Owner Type of fuel Installed capacity (MW) Year

at December 31, 2010 commissioned

Varna TEC Varna EAD black coal 6 x 210 1968–1969

1977–1979

Coal-fired power plants, total 1,260.0

Solid Fossil Fuels and Sorbents

In 2010, Varna Power Station consumed a total of 1,333,000 tons of black coal. Its needs were covered by imports from Russia and Ukraine. Coal prices rose significantly in 2010.

Electricity Generation Outlook

In view of anticipated development in terms of electricity prices in the Bulgarian market and the expected decline in generation for the regulated market, Varna Power Station is planning to reduce electricity generation volume in 2011, compared to 2010.

Heat

Varna Power Station generated and supplied only a small amount of heat (7 TJ) to sites in its vicinity. Revenue from this commodity, at CZK 1.3 million, was only of marginal importance.

Distribution of Electricity

Electricity Distributed to End Customers in Bulgaria (GWh)

The volume of electricity distributed by CEZ Group in Bulgaria increased 1.2% year-on-year. This increase was driven primarily by residential and large end-customers; a decline was registered in the small commercial end-customers segment. The main reasons for the increase were connection of new customers to the distribution grid and, at the same time, reductions in distribution grid losses thanks to targeted grid capital expenditures and optimizing of the process of managing non-technical losses.

Sale of Electricity

Electricity Sold to End Customers in Bulgaria (GWh)

Sales of electricity by CEZ Group to end customers reached 8,795 GWh in 2010, up 98 GWh (+1.1%) year-on-year. Growth was seen in the residential (+2.3%) and large corporate (+3.3%) customer segments, while the small commercial segment declined (by 2.1%) due to the economic crisis.

Sale of Electricity for 2011

In 2011, sales and distribution of electricity are expected to rise by approximately 1%.

Capital Expenditure

Investment in the distribution grid reached approximately CZK 860 million in 2010. Capital expenditures went, in particular, on the following: increasing the quality of the distribution grid, new connections to the distribution grid, and purchasing of power-related buildings pursuant to the Energy Act. The same approach will be followed in 2011 as well.

Equity Stakes in Bulgaria

CEZ Bulgaria EAD

The company’s primary aim is to provide administrative and managerial services to CEZ Group in Bulgaria. At the same time, the company comprehensively represents CEZ Group in the country and provides support to the acquisition team in the event of further acquisitions.

CEZ Trade Bulgaria EAD

This company is tasked primarily with wholesale trading in electricity and supplying electricity to eligible end customers. The company holds an electricity trading license and is actively engaged in this activity.

CEZ Razpredelenie Bulgaria AD

This company is involved primarily in distribution of electricity in western Bulgaria. It is owned by ČEZ, a. s. (67% stake) and the Republic of Bulgaria (33% stake).

130 CEZ Group / CEZ Group Operations Abroad

8,786 8,892 Total 0 2,000 4,000 6,000 8,000 2009 2010 8,697 8,795 Total 0 2,000 4,000 6,000 8,000 2009 2010

CEZ Elektro Bulgaria AD

The company was established as a result of the unbundling process (i.e., the separation of distribution operations from other power company operations) and its principal business is the sale of electricity to end customers. ČEZ, a. s. owns a 67% stake and the remaining 33% is held by the Republic of Bulgaria.

TEC Varna EAD

As of October 2006, ČEZ, a. s. is the sole owner of the coal-fired Varna Power Station. CEZ Laboratories Bulgaria EOOD

In 2008, the company obtained a license from the State Agency for Metrological and Technical Supervision to perform initial and periodic checks of electric meters. Granting of this license was preceded by the process of obtaining ISO certification. The company is planned to be liquidated in 2011, since in view of Bulgarian legislation and a subsequent decision of the Anti-trust Office, it can no longer do business in the field of electric meter verification. Activities not subject to licensing, such as container logistics and the delivery, installation, deinstallation, and liquidation of electric meters, were shifted to CEZ Razpredelenie Bulgaria AD.

CEZ Elektroproizvodstvo Bulgaria AD

This company was formed in conjunction with preparation of a project to build a CCGT power source in Varna, with a planned installed capacity of 880 MW. This project was suspended in 2010 and, in conjunction with the strategic objectives of CEZ Group, the company is planned to be merged with TEC Varna EAD in 2011.

Romania

Business Environment in the Power Industry

The energy sector is continuing to harmonize and converge with the model commonly seen in other European Union Member States. Individual functions have been legally separated (unbundled) and partially privatized. Most production assets are concentrated in the hands of three State-owned companies, depending on the type of power plant (Thermoelectrica, Hydroelectrica, Nuclearelectrica), with certain city and local power heating plants under municipal ownership. The generation segment is now being opened to foreign investment, typically through joint ventures with a local partner. The transmission grid is managed by Compania Naţională de Transport al Energiei Electrice “TRANSELECTRICA” S.A. The distribution segment is by far the most open: three regions are served by the State-owned Electrica, while another five have been privatized into the hands of foreign investors. Regulatory activity is carried out by Autoritatea Naţională de Reglementare în domeniul Energiei.

A significant portion of generation volume is traded through one-year contracts and single-day supplies. The organizer of the electricity market is Societatea Comercială Operatorul Pieţei de Energie Electrică – OPCOM S.A. Romania supports the generation of electricity from renewable sources of energy through green certificates. When it became a member of the European Union, Romania became a member of the EU ETS and approved a LCPD compliance plan (regulation of SO_X, NO_Xand solid particulate emissions).

Electricity Generation

2010 saw the ongoing construction, in the east of Romania in Constanţa County, of the Fântânele-Cogealac wind farm, consisting of two parts – Fântânele Vest (F. West) and Fântânele Est (F. East) – which are being built at the same time. The substation in Tariverde (110–400 kV), one of the largest installations of its kind in Romania and through which the electricity generated in the wind power plants will flow into the grid, was connected to the grid on May 27, 2010. Subsequently, on June 1, 2010, the first of 139 planned turbines was commissioned. Each turbine will have 2.5 MW of installed capacity. 120 turbines had been installed by the end of 2010, and they generated a total of 256 GWh of electricity in 2010.

Bucure Bucureşştiti Re

Reşşiiţţaa

F FÂÂNTNTÂÂNENELELE Bucureşti Reşiţa FÂNTÂNELE Power Plants wind Installed Capacity

Location of CEZ Group Power Sources in Romania

At December 31, 2010, CEZ Group project companies in Romania had a total of 300 MW of installed capacity in wind power plants. These plants were in trial operation.

Electricity Generation Outlook

By the end of 2011, we plan to complete the construction and commissioning of the last 19 turbines at the Fântânele power plant. Total generation volume in 2011 is expected to be 0.8 TWh.

The first electricity generated by the Cogealac wind farm should flow into the grid in the second half of 2011. Construction commenced in 2010, but it had to be suspended due to efforts by local officials to obstruct the project. Construction was renewed in February 2011 and connection and commissioning of the first turbines is expected to take place in the second half of the year. The entire farm is to be completed in 2012.

Furthermore, the acquisition of a complex of hydro power plants at the Reşiţa site, currently with 18 MW of installed capacity, is to be completed by the end of 2011 and the installation is to be upgraded in 2012. After the respective anti-trust authorities grant their consent, CEZ Romania S.A. will acquire a 100% stake in the company TMK Hydroenergy Power S.R.L., which owns the complex of hydro power plants.

Distribution of Electricity

Electricity Distributed to End Customers in Romania (GWh)

The CEZ Group company that distributes electricity in Romania is CEZ Distributie S.A., which in 2010 intermediated the supply of 6,994 GWh to end-customers, down 79 GWh year-on-year.

132 CEZ Group / CEZ Group Operations Abroad

7,073 6,994 Total 0 2,000 4,000 6,000 2009 2010

Sale of Electricity

Electricity Sold to End Customers in Romania (GWh)

The Romanian sales company CEZ Vanzare S.A. sold 3,463 GWh of electricity to end customers in 2010, up 134 GWh year-on-year. Within CEZ Group, it sold to CEZ Distributie S.A. to cover losses.

Distribution and Sale of Electricity in 2011

The planned level of sales of electricity to end customers is 3.4 TWh. The volume of electricity distributed to end customers in 2011 is planned at 7.0 TWh.

Capital Expenditure

In addition to construction of the wind farm, other capital expenditures in Romania were incurred in 2010 to improve distribution grid parameters. Over 583 km of grid at various voltage levels and 170 transformers were upgraded. 70 new transformers were connected and over 156 new low- and medium-voltage power lines were built. The SCADA microdispatching system was implemented in 14 substations.

Equity Stakes in Romania

CEZ Romania S.A.

The company’s primary objective is to provide administrative and management services to CEZ Group within Romanian territory and, at the same time, to represent CEZ Group in Romania. ČEZ, a. s. owns a 99.9998% stake in the company, with the remaining portion belonging – for reasons of compliance with Romanian legislation – to CEZ Poland Distribution B.V., a member of CEZ Group headquartered in the Netherlands. In 2010, the company was transformed from a limited-liability company (CEZ Romania S.R.L.) into a joint-stock company (CEZ Romania S.A.).

CEZ Trade Romania S.R.L.

The company was established for the purpose of electricity trading. In 2009, wholesale electricity trading operations were transferred to ČEZ, a. s. and the company’s principal task was changed to providing wholesale support and trading in natural gas. The company obtained a natural gas license in February 2010.

CEZ Distributie S.A.

CEZ Distributie S.A. is involved in distribution of electricity. The company was 100% owned by ČEZ, a. s. but, due to Romanian legislation, in 2010 a 0.00000139% stake was sold to CEZ Poland Distribution B.V. ČEZ, a. s. now owns a 99.99999861% stake in CEZ Distributie.

CEZ Vanzare S.A.

This company sells electricity to end customers. It has been 100% owned by ČEZ, a. s. since October 2009. Due to Romanian legislation, 2010 saw the sale of a 0.00000139% stake to CEZ Poland Distribution B.V. and, since that time, ČEZ, a. s. has owned a 99.99999861% stake in the company. In 2009, CEZ Vanzare S.A. also obtained a license to sell natural gas and in 2010 it engaged in the sale of natural gas to end customers.

CEZ Servicii S.A.

CEZ Servicii S.A. was established in 2007 for the purpose of providing shared services to CEZ Group companies in Romania. In 2009, ČEZ, a. s. purchased a 12% stake from Fondul Proprietatea S.A., thereby increasing its overall stake in the company to 63%. The remaining 37% was purchased by ČEZ, a. s. in July 2010 from the company Electrica S.A. The company ceased to exist as at December 31, 2010 due to a merger with the company CEZ Romania S.A.

CEZ Group Operations Abroad / CEZ Group 133

outside of CEZ Group within CEZ Group

3,329 3,463 Total 0 1,000 2,000 3,000 2009 2010 116 244 3,213 3,219

Tomis Team S.R.L.

ČEZ, a. s. acquired a stake in Tomis Team S.R.L. in 2008, in conjunction with the acquisition of the Fântânele wind farm project. ČEZ’s stake in the company is 99.999998%, and the remaining 0.000002% is owned by CEZ Poland Distribution B.V., headquartered in the Kingdom of the Netherlands.

MW Team Invest S.R.L.

MW Team Invest S.R.L. is a 100% subsidiary of Tomis Team S.R.L. and it, too, is a part of the Fântânele project. Ovidiu Development S.R.L.

ČEZ, a. s. acquired a stake in Ovidiu Development S.R.L. in conjunction with the acquisition of the Cogealac wind farm in 2008. ČEZ, a. s. owns a 95% stake in the company. The remaining 5% is owned by CEZ Poland Distribution B.V. Energonuclear S.A.

Energonuclear S.A. was established for the purpose of building and operating Units 3 and 4 of the Cernavodă Nuclear Power Station in Romania. ČEZ, a. s. owned a 9.15% stake in the company until December 2010, when it was sold.