CEZ Group in Romania Country Report 2008

We know how important it is to maintain balance between meeting our needs and conserving the quality of the environment in which we live. We comply with strictethical standards, which include behaving responsibly toward society and theenvironment. We take seriously our responsibility to the environment, to people, and to the future.

the pathof harmony between man and nature

The companies of CEZ Group in Romania are part of a major power conglomerateoperating in many countries of Central and Southeastern Europe. CEZ Group’s business in Romania is focused primarily on the distribution and sale of electricity.

180capital expenditure(RON millions) 8,281

electricity distributed(GWh)

133net income(RON millions)

We pay continual attention to environmental protection. We obtained certification of compliance with the requirements of the international standard EN ISO 14001 –Environmental Management System, which demonstrates that we are aware of the extraordinary responsibility we have for protecting the environment.

2,575number of employees (as at 31 December 2008)

239 EBITDA(RON millions)

CEZ Group in Romania respects the principles of sustainable development. Currently,we are building a wind farm of unprecedented size. As a financial investor, we are takingpart in the development of nuclear power in Romania through the construction of newpower generation units.

Introduction

CEZ Group is a dynamic, integrated electricity conglomeratebased in the Czech Republic and with operations in a numberof countries of Central and Southeastern Europe. Its principalbusinesses encompass generation, distribution, and sale ofelectricity and heat as well as coal mining. The shares of theparent company ČEZ, a. s. are traded on the Prague andWarsaw Stock Exchanges, where they form a significant part ofthe respective indexes. The Czech Republic continues to bethe company’s largest shareholder with a 63% stake as of 31 December 2008.A critical part of CEZ Group’s mission is to maximize returnsand ensure long-term growth in shareholder value. To this end,CEZ Group focuses its efforts on fulfilling the vision ofbecoming the leader in the power market of Central andSoutheastern Europe. At the same time, however, CEZ Groupadheres to sustainable growth principles, furthers energyconservation, systematically reduces the environmental burdensposed by its business, and furthers the development ofeducation, childcare, and health.The realization of CEZ Group’s vision rests on three strategicpillars. The first is Operational Excellence, within which a newprogram was introduced in March 2007 as part of the ongoingintegration process. The aim of the program is to increaseperformance and improve the cost effectiveness of keyprocesses in order to make CEZ Group one of the mostefficient players in the European power industry by 2012.

The second strategic pillar is to develop operations in selectedtarget countries outside of the Czech Republic. CEZ Group’spriority focus is on markets in Central and SoutheasternEurope, where we can best apply our unique experience inmanaging an electricity conglomerate during a period oftransition to a liberalized power market and in achievingoperational excellence.The purpose of the third pillar – Plant Portfolio Renewal – is toensure the CEZ Group’s continued successful operation in thefuture. The Group is investing, and will continue to invest,significant sums in upgrading aging Czech brown coal powerplants and building new, high-efficiency plants in the CzechRepublic, including some based on renewable sources ofenergy. CEZ Group is also planning to upgrade existing powerplants and build new ones in Hungary, Romania, Bulgaria,Poland, and Slovakia as well. In order to achieve the goals wehave set, it is critical to have a functioning organization.Therefore, CEZ Group has come up with and is implementinga set of seven principles that are fundamental values for allemployees:1. creating value safely,2. responsibility for results,3. playing as one team,4. developing our potential,5. growing beyond borders,6. seeking new solutions,7. playing fair.CEZ Group’s business is governed by strict ethical standardsthat include behaving responsibly toward society and theenvironment. CEZ Group is a major supporter of a number ofnon-profit organizations and public-benefit projects.

2 CEZ Group

CEZ Group

CEZ Group Operations

In addition to the Czech Republic, CEZ Group currently has actively operating companies in Poland, Bulgaria, Romania, the Netherlands,Germany, Hungary, Serbia, Turkey, Kosovo, Bosnia and Herzegovina, and Slovakia.

CEZ Group 3

CEZ Group Territory

power-related operations

trading

countries of conditional

interest

active subsidiaries

4 CEZ Group

Czech RepublicIn the Czech Republic, CEZ Group companies produce,distribute, and sell electricity and heat, trade in electricity, andmine coal.As of 31 December 2008, CEZ Group companies in the CzechRepublic owned power plants with an aggregate installedcapacity of 12,298 MW (of which: nuclear 3,760 MW, coal6,603 MW, hydro 1,933 MW, wind 2 MW, and solar 0.01 MW).The 4 MW drop in installed capacity resulted from terminationof the lease on the Mohelnice gas-fired power station,modification of the installed capacity of the Les Království small-scale hydro power station, and an increase in the installedcapacity of the Brno – Komín small-scale hydro power stationfollowing a retrofit.

Power and Heat CompaniesThe following companies operated in the Czech Republic:ČEZ, a. s. – the largest Czech power company, at 31 December 2008 it had an aggregate installed capacity of 12,231 MW. It operated both Czech nuclear power plants as well as a broad portfolio of coal and hydro power plants.

ČEZ Obnovitelné zdroje, s.r.o. – operates small-scale hydropower plants and a large hydro power plant in the Elbe Rivervalley under Střekov Castle, whose sluiceway is a technicallandmark. In addition, the plant plays an important role inensuring sufficient water depth and conditions for shipping onthe river and, since 2002, it has been fitted with a modern fish passage allowing all types of fish to pass through it. At 31 December 2008 the company’s aggregate installed capacitywas 67 MW.Energetika Vítkovice, a.s. – dissolved without liquidation asa result of its merger into ČEZ, a. s., with merger date 1 January 2008 and effective date 1 October 2008. In 2008,Energetika Vítkovice, a.s. generated electricity and heat, inaddition to distributing and selling heat. After the merger, theseoperations passed to ČEZ, a. s., Production Division. Otheroperations – distribution system operation, grid operation andmaintenance – passed to the appropriate CEZ Group processcompanies as of 1 January 2008.ALLEWIA leasing s.r.o. – owns district heat networks inBohumín, North Moravia.ČEZ Teplárenská, a.s. – operates district heat networks inNorth Bohemia and also generates a small amount of heat in itsown plant.

CEZ Group Power Production in the Czech RepublicIn 2008, CEZ Group power plants in the Czech Republicproduced a total of 61,136 GWh of electricity, i.e. 4,856 GWh (-7.4%) less than in 2007.

2007

2008

0 20,000 40,000 60,000 total

65,992

61,136

nuclear

coal, gas, and CCGT

hydro, solar and wind

1,663 (2%)

1,548 (3%)

38,157 (58%)

33,037 (54%)

26,172 (40%)

26,551 (43%)

CEZ Group Power Production in the Czech Republic, Gross (GWh)

CEZ Group 5

Sales of Electricity in Countries where CEZ Group Does Not Operate a Distribution CompanyCEZ Group is successfully developing sales of electricity to endcustomers in other countries of Central Europe as well. In our2009 sales campaign, we succeeded in penetrating the Polishand Hungarian markets, where we acquired five and 19 customers, respectively, and we will supply 587 GWh and746 GWh, respectively. In Slovakia, the number of customers inthe 2009 campaign increased by 69 from the 2008 campaign.

Power Distribution and Sale in the Czech RepublicPower is distributed by ČEZ Distribuce, a. s.Power for final consumption is sold through ČEZ Prodej, s.r.o.

Electricity TradingTrading in wholesale markets for electricity and other energycommodities in the various European countries where CEZGroup has operations is run centrally by the relevant section ofČEZ, a. s. It encompasses the following functions:

wholesale sale of in-house generated electricity,sale of ancillary services provided by CEZ Group power plants,procuring electricity in the wholesale market for resale to end customers,trading in electricity, EUAs, CERs, natural gas, and blackcoal, in wholesale markets.

In their operations in individual country markets, CEZ Groupcompanies must respect the local situation, which is based onlocal energy legislation, the state of power market liberalization,the relative balance between supply and demand, cross-bordertransmission capacity, etc. In countries where no license is required to trade in electricityor where eligibility for such a license is not limited to entitiesformed under local law (Austria, Germany, Poland, Kosovo),ČEZ, a. s. conducts trading directly. In other countries (Hungary,Slovakia, Romania, Bulgaria, Serbia), ČEZ, a. s. operatedthrough subsidiaries who hold the necessary local license. CEZ Group companies engaged in production or supply to endcustomers are always organized under local law. In markets forother commodities (EUAs, CERs, black coal, natural gas), ČEZ, a. s. operates directly.

Mining CompaniesSeveročeské doly a.s. – holds the largest share of the browncoal market (46.9%). In 2008 coal was extracted in twolocations: Bílina Mines and Nástup Tušimice Mines. In 2008,the company sold a total of 22.3 million tons of coal, of which16.7 million tons of coal was supplied to ČEZ, a. s. power plants.

BulgariaIn Bulgaria, CEZ Group distributes and sells electricity in thewestern part of the country and produces electricity in its owncoal-fired power plant near Varna, the Black Sea port city.Varna Power Station has an installed capacity of 1,260 MW,which gives it first place among CEZ Group conventional power plants.Electricity distribution in Bulgaria is the business of CEZRazpredelenie Bulgaria AD, which covers approximately 40% ofend customers in the country. Electricity sales in Bulgaria arehandled by CEZ Elektro Bulgaria AD.In conjunction with preparations for a project to build a CCGTpower plant in Varna with planned installed capacity of 880 MW,a new company, CEZ Elektroproizvodstvo Bulgaria AD, wasestablished in 2008. This project is important in terms ofoptimizing the production plant portfolio and will also reinforceCEZ Group’s position in the Bulgarian market.

RomaniaIn Romania, CEZ Group owns companies that distribute andsell electricity.The company charged with selling electricity in Romania is CEZ Vanzare S.A., while CEZ Distributie S.A. is in charge ofelectricity distribution.On 26 August 2008, CEZ Group acquired a project to build theFântânele and Cogealac wind farms in Constanţa County,Romania. The two farms, with an aggregate total installedcapacity of 600 MW, are planned to be completed gradually inthe years 2009–2010. Construction of the project’s first phasehas already begun, while the second phase is in building permitproceedings. ČEZ, a. s. is taking part in the preparation of a project toexpand the Cernavodă Nuclear Power Station by adding Units 3and 4 (2x720 MW) in consortium with Nuclearelectrica andother large power companies.

On 20 November 2008, ČEZ, a. s. signed a Memorandum ofUnderstanding concerning cooperation with the Romanianpower companies Termoelectrica and Electrocentrale GalaţiSA. The signed Memorandum defines all necessary steps forestablishing a joint venture between ČEZ, a. s. andElectrocentrale Galaţi SA, with ČEZ, a. s. to become themajority owner. The aim of the joint venture is to upgrade theexisting gas-fired power plant and to build a new generatingunit. The installed capacity of the new CCGT is to be 400 MW.The design of the new CCGT will be finalized on the basis ofa feasibility study.Last but not least, CEZ Group is developing severalopportunities in the biomass combustion field.

PolandIn Poland, CEZ Group has two black coal-fired power plantsnear the country’s border with the Czech Republic.The installed capacity of CEZ Group power plants in theRepublic of Poland was 730 MW (728 MW of which wasattributable to coal power plants and 2 MW to hydro powerplants). As of May 2008 the Skawinka small-scale hydro powerstation has been shut down pending overhaul.In 2008, the Republic of Poland’s stake in Skawina PowerStation was purchased, bringing CEZ Group’s stake in theplant’s equity to 99.91%. The stake in ELCHO Power Stationremained at 75.2%. Both plants are owned through companiesregistered in the Netherlands.

TurkeyČEZ, a. s. entered the Turkish market by acquiring thedistribution company Sakarya Elektrik Dağıtım A.Ş. inpartnership with the Turkish holding company Akkök. Thiscompany has a 30-year concession to distribute electricity inthe Sakarya distribution service area.

Other CountriesIn other countries, the Group’s holdings are companies thatfunction as holding companies or engage in financing activities(the Netherlands); most frequently, they are trading companiesand companies that monitor developments in a particularcountry in order to take advantage of possible acquisitionopportunities there.

6 CEZ Group

Shares and Shareholder Structure

Stated CapitalThe total stated capital of the parent company, ČEZ, a. s.,recorded in the Commercial Register at 31 December 2008was CZK 59,221,084,300. A court resolution on registration ofa decrease in the Company’s stated capital entered into legalforce on 12 February 2009. The Company’s stated capital wasdecreased by CZK 5,422,108,400 to CZK 53,798,975,900. Asof that date, the Company’s stated capital is divided into537,989,759 shares, each with a nominal value of CZK 100. On27 February 2009, 9.16% of the shares booked in the shareregister – i.e. the Prague Securities Center – were terminated.As at 31 December 2008, ČEZ, a. s. was aware of four entitieswith stakes of over 3% of the stated capital. The first of thesewas the Czech Republic, represented by the Ministry of Financeof the Czech Republic and the Ministry of Labor and SocialAffairs of the Czech Republic. During the year 2008, the CzechRepublic’s stake declined to 63.39% on the sale of some ČEZ, a. s. shares previously owned by the State. The CzechRepublic’s share in the voting rights, on the other hand, rose to70.43%, because the increase in the number of treasury sharesheld by ČEZ, a. s. exceeded the decrease in the number ofshares held by the Czech Republic. The second entity witha stake of over 3% in the stated capital of ČEZ, a. s. was theCompany itself, with 9.99% of the stated capital; of course,under Czech law this stake has no voting rights. The third andfourth such shareholders were asset management firms.

DividendsČEZ, a. s. has been paying regular dividends to shareholderssince 2001. Pay out takes place once per year. Starting with thedividends for the fiscal year 2007, ČEZ, a. s. applies a dividendpolicy of paying out to shareholders 50–60% of theconsolidated net income. The General Meeting decides on theBoard of Directors’ proposed specific dividend amount andapproves the actual dividend amount.

Credit RatingsThe credit ratings of ČEZ, a. s. remained unchanged over theperiod. On 19 November 2008, the credit rating agencyMoody’s reaffirmed the A2 rating with stable outlook and on 11 December 2008 the credit rating agency Standard & Poor’sreaffirmed the A- rating with stable outlook.

Corporate Social Responsibility

As a modern corporation with a strong economic base, CEZGroup considers social responsibility a pillar of business ethics.We evaluate all of our operations for their overall benefits andforecast the impacts they will have on our customers,shareholders, and employees. Steps taken by CEZ Group in theenvironmental protection area affect all residents of the regionsin question. In the past few years, approximately 60% ofpersonal safety aids purchased by CEZ Group are sourcedfrom so-called protected workshops – i.e. operations whereover half of the employees are handicapped.CEZ Group’s approach to social responsibility is summarized inthe CEZ Group Corporate Social Responsibility Report, thelatest version of which was published in October 2008. Thereport is available in the form of an interactive DVD-ROM in bothCzech and English languages as well as on the CEZ Groupwebsite, where a Polish language version is available too. TheReport’s interactive format makes it possible to utilize a richvariety of accompanying materials such as charts, images, anddocuments so as to better illustrate CEZ Group’s activities andinitiatives in this area. The report is issued every two years withthe possibility of updates in-between. In its internationalbusiness operations, CEZ Group applies an identical approachto social responsibility as it does in the Czech Republic. Alloperations are evaluated for their overall benefits, and impactson customers, employees, and co-owners are considered.

CEZ Group 7

600MW Wind energy generationCEZ Group purchased the Fântânele and Cogealac wind farmproject in Constanţa County which, when completed, will be the largest on-shore wind power installation in Europe. The completion of both farms, with a combined installed capacity of 600 MW, will take place over several phases.

By rolling out new technologies, and upgrading old ones, we reduced toa minimum the risks associated with impacts on biodiversity in the locationswhere we operate. We pay extraordinary attention to our facilities andoperations, both in protected natural areas and everywhere we do business.

55km from the port of Constanţa and 17 km from the Black Sea coast, close to the ancientGreek town Histria, in a location with excellent wind intensity,we are building an installation that, when completed, will give CEZ Group a significant share in local market for renewable power generation.

Information on Persons Responsible for the Country Report 11Letter from the Country Manager 13Most Important Events 16Situation in the Romanian Power Sector 17Equity Holdings in the Country 18Business Performance of CEZ Group in Romania 19Revenues, Expenses, Income 19Structure of Assets 20Equity and Liabilities 20Financial Risk Management Policies 21Occupational Safety and Health Management 24CEZ Group Investments in Romania 25Fântânele and Cogealac Wind Farm 25Capital Expenditures 26Electricity Procured and Supplied Within CEZ Group 28Generation of Electricity in Romania 29Distribution and Sale of Electricity in Romania 31Financing 35Human Resources 38Legislative Environment 42Environmental Protection 44Carbon Emissions 45Donorship and Sponsorship Program 46Litigation 47Results of Individual Companies in Romania 48List of Tables and Graphs 54Awards Received 55

10 CEZ Group in Romania | Contents

Contents

Information on Persons Responsible for the Country Report | CEZ Group in Romania 11

Leon Vrška (*1972), Financial Director, CEZ RomâniaGraduated from the Electrical Engineering Faculty of the Brno University of Technology, in the Czech Republic, in 1995 and fromthe Business Faculty of the same institution in 1996. He began his career in the same year, as an auditor with Deloitte&TouchePrague and was appointed Chief Financial Officer of Dental a.s. in 1999. Later, in 2001, he joined Carborundum Electrite a.s., alsoas Chief Financial Officer but here he was responsible for the Human Resources and IT functions as well as the FinancialDepartment. He came to Romania in 2007, where he is currently Financial Director of CEZ România.

Information on Persons Responsible for the Country Report

Dear shareholders:

I am pleased to present you with the 2008 Country Report andwould like to ask you to go through this summary of CEZGroup’s financial and operating performance results inRomania. The results we have achieved can be an assurance toyou that our ambition to become the leader in the power marketof Southeastern Europe is moving closer to its goal. Our efforts in 2008 focused on three principal objectives:financial performance, consolidation of operations, anddevelopment of the business.Once again we posted excellent financial results: EBITDAreached RON 239 million and net income was RON 133.2 million,exceeding budget forecasts by 3% for EBITDA and 15% for netincome. We achieved solid results in distribution services andset up a RON 1.5 billion utilizable budget income provision. Thesustained high level of financial performance enabled us tocontinue in an ambitious program of capital expenditures, andwe are ready to maintain the same philosophy in the years tocome as well. Our capital expenditures in 2008 totaled RON 180 million.2008 was marked by a fundamental change in terms ofconsolidation of operations. A reorganization of CEZ DistributieS.A. and a transformation project, entitled PROGRES IV, werethe main drivers of our success. The objective of the projectwas growth in the Company’s productivity and efficiency, aswell as to improve customer services. At the same time, we tookgreat strides in terms of our employees’ professionaldevelopment. We placed extraordinary emphasis on ourcorporate social responsibility in view of the large number ofpeople that left the Company and because ČEZ wanted toknow the situation of each of them. In this way, we managed topre-empt any social crisis.

I am very pleased to announce that 2008 was a successful onein terms of the development of CEZ Group’s financialperformance in Romania. For us, the date 20 November 2008means not only a 9.15% stake in Units 3 and 4 of Cernavodă,but also the signing of a Memorandum of Understandingconcerning the formation of a joint venture with Termoelectrica,in which ČEZ will be the majority shareholder. The venture’sfirst task will be to upgrade the Galaţi Power Station and builda new, natural gas-fired generating unit with an installedcapacity of approximately 400 MW. In 2008, ČEZ continued itsseries of successful acquisitions by closing a deal withContinental Wind Partners for the largest land-based windpower project in Europe: “Fântânele and Cogealac wind farms”.Construction on the site is already ongoing and the first 139 turbines, with total installed capacity of 347.5 MW, will goon-line starting in the first half of 2010. Another 252.5 MW ofinstalled generating capacity will be commissioned in 2011.I would like to thank all of our partners, team members and,most importantly, the employees of CEZ Group in Romania forthe accomplishments detailed above, and for the hard workand dedication they showed all year long. And, last but notleast, I want to give a positive message to you, dearshareholders: ČEZ has consolidated its operations in Romaniaand formed a going concern here.

Very truly yours,

Jan Veškrna Country Manager, CEZ Romania S.R.L.Chairman of the Board of Directors of CEZ Romania S.R.L. Chairman of the Board of Directors of CEZ Distributie S.A.

Letter from the Country Manager | CEZ Group in Romania 13

Letter from the Country Manager

EUR2.2billionfor expansion of CernavodăNuclear Power StationCEZ Group will participate in the constructionand operation of the third and fourth reactorunits of the Cernavodă Nuclear Power Stationin Romania. The project will be implementedin consortium with Nuclearelectrica and othermajor power engineering companies.

Nuclear energy produces practically no so-called greenhouse gases.On the contrary, it is a major contributor to reducing global emissionsof these gases. Currently, nuclear plants are enjoying a worldwiderenaissance, being frequently cited for their environmental advantages,combined with large generating capacity.

Most Important Events

16 CEZ Group in Romania | Most Important Events

2008

JanuaryFirst set of financial statements sent to Prague along withreport on financial situation Financial audit by Ernst & Young yields positive results

AprilCEZ Servicii S.A. implements payroll process in SAP for allCEZ Group companies in Romania

MayStarts the implementation of PROGRES IV, CEZ Distributie S.A.transformation and reorganization project

JulyCEZ Call Center for electricity customers put into operationNon-technical Losses Department formed

AugustSales Team is awarded CODECS diploma for participation insales and negotiation techniques training Sales Team is awarded CODECS diploma for participation inPersonal Positive Contribution training

OctoberFirst sales center (CRC Piteşti) being upgraded to meet ČEZ standardsAnnual event – meeting with key customers from the cities of Craiova, Piteşti, Râmnicu Vâlcea, Drobeta Turnu Severin,Alexandria, and Târgu Jiu

NovemberReorganization of ICT Department completed and Phase Oneof Customer Services Department reorganization completedCost savings for CEZ Vanzare S.A. and CEZ Distributie S.A.from centralizing invoicing and payments collectioncalculated at RON 1,000,000 in 2008 Meter reading function outsourced

2009

Customer Care optimization project enters Phase II, consisting of the following components:

optimization of back office functions through centralization,CEZ Call Center development and optimization,revamping of operations in Customer Care centers.

Situation in the Romanian Power Sector | CEZ Group in Romania 17

Framework for Business in Romania The principal institutions in the power sector are the following: National Office for Regulation of Energy (ANRE), National Office for Regulation of General Public Infrastructure Services (ANRSC),the Ministry of Economy and Trade/Ministry of Economy and Finance, and the Economic Competition Council. The regulatory framework has been set up and harmonized in accordance with EU legislation.The electricity market has been fully liberalized since July 2007. In July 2008, the real level of the Romanian market wasapproximately 47%.Five of the eight distribution/supply companies in Romania have been privatized. The energy generation sector remains State-held.Former Electrica Oltenia S.A. was a player in the Romanian electricity market as the holder of an electricity distribution and supplylicense: license no. 457/29.04.2002 for distribution and supply of electricity, and license no. 458/29.04.2002 for supply ofelectricity, both issued by ANRE.In order to meet unbundling requirements, as of 15 March 2007 the Company was legally broken up into CEZ Distributie S.A. andCEZ Vanzare S.A. As a result, the licenses were changed as follows: license no. 457/2005 for distribution and license no.776/15.03.2007 for supply. By ANRE Regulation No. 15/2007, CEZ Vanzare S.A. was designated as the supplier of last resort (FUO) for the period 1 July 2007 –30 June 2008 for customers in the area in which CEZ Distributie S.A. provides services.

Situation in the Romanian Power Sector

Equity Holdings in the Country

18 CEZ Group in Romania | Equity Holdings in the Country

The structure of shareholders in CEZ companies in Romania was unchanged in 2008. The following table shows the structure of shareholders and their holdings in the stated capital of CEZ Group companies in Romania.

Structure of Shareholders and Their Holdings in the Stated Capital of CEZ Group Companies in Romania

Shareholder CEZ Distributie S.A. CEZ Vanzare S.A. CEZ Servicii S.A. CEZ Romania S.R.L. CEZ Trade Romania S.R.L.ČEZ, a. s. 51.0062159% 51.0062159% 51% 100% ČEZ, a. s.

36,481,415 shares 36,481,415 shares 3,111,000 shares 50,000 unit certificates 15,999 unit certificates

RON 344,384,557.6 RON 20,429,592.4 RON 3,111,000 RON 500,000 ČEZ Správa majetku

1 unit certificate

RON 1,600,000

Electrica S.A. 18.9937837% 18.9937837% 37%

13,585,013 shares 13,585,013 shares 2,257,000 shares

RON 128,242,522.72 RON 7,607,607.28 RON 2,257,000 – –

Fondul Proprietatea S.A. 30.0000004% 30.0000004% 12%

21,457,041 shares 21,457,041 shares 732,000 shares

RON 202,554,467.04 RON 12,015,942.96 RON 732,000 – –-

During 2008, two members of the Board of Directors of CEZ Servicii S.A. were replaced: a representative of Electrica S.A., Mr. Corneliu Stan left the Board and was replaced by Mrs. Carmen Bora, and Mr. Pavel Duchoň, a representative of ČEZ, a. s., wasreplaced by Mrs. Maria Andrei.A proposal to dismiss Mr. Dan Morega, a representative of Electrica S.A., from the Board of Directors of CEZ Vanzare S.A. wasdenied by the Company’s General Meeting held on 30 July 2008.A proposal to dismiss Mr. Tudor Şerban, a representative of Electrica S.A., from the Board of Directors of CEZ Distributie S.A. wasdenied by the Company’s General Meeting held on 16 December 2008.

In 2008, the General Meeting of CEZ Distributie S.A. passed the following significant agenda items, inter alia:execution of electricity distribution contracts with CEZ Vanzare S.A.;regulation of prices in Service Level Agreements (SLAs);execution of a framework agreement on sale of merchandise with CEZ Romania S.R.L.;execution of an agreement with CEZ Romania S.R.L. on provision of management services;amendment of the Company’s Founder’s Deed to comply with new NACE codes;execution of an agreement with CEZ Romania S.R.L. on provision of transportation-related services.

In 2008, the General Meeting of CEZ Vanzare S.A. passed the following significant agenda items, inter alia:execution of electricity distribution contracts with CEZ Distributie S.A.;regulation of prices in Service Level Agreements (SLAs);execution of a “Full Supply Agreement” with CEZ Trade Romania S.R.L., as a complement to the EFET framework agreement onpurchase and sale of electricity;electricity purchasing principles necessary to address an urgent situation that arose in one calendar month – based on the “FullSupply Agreement”.

In 2008, the General Meeting of CEZ Servicii S.A. passed the following significant agenda items, inter alia:execution of an agreement on printing of electricity bills for households and corporate customers;regulation of prices in Service Level Agreements (SLAs);approval of the Company’s Restructuring Plan.

Business Performance of CEZ Group in Romania | CEZ Group in Romania 19

Business Performance of CEZ Group in Romania

Selected Indicators of CEZ Group in Romania

Units 2007 2008 Index 2008/2007 (%)Installed capacity MW x x x

Distribution of electricity to end customers GWh 8,698 8,281 95

Sales of electricity 1) GWh 3,634 3,439 95

Total revenue RON millions 1,389 1,463 105

of which: electricity sales RON millions 1,366 1,424 104

Operating expenses (net of depreciation and amortization) RON millions 1,143 1,224 107

EBITDA RON millions 246 239 97

EBIT RON millions 141 131 92

Net income RON millions 134 133 99

Shareholders’ equity (including minority interests) RON millions 1,863 2,010 108

Capital expenditures (CAPEX) – All sources RON millions 220 180 62

Employee head count at December 31 persons 3,246 2,575 79

1) Sold to end customers.

Consolidated results of CEZ Group in Romania – includes 2008 results for all companies, adjusted for intra-Group transactions.Consolidated results of CEZ Group in Romania – 2007 figures taken from the CEZ Group 2007 Country Report for Romania.

Revenues, Expenses, Income

The net income of CEZ Group companies in Romania reached RON 133 million in 2008, compared to 2007, when it reached RON 134 million. The planned net income for the Romania-based companies of CEZ Group in 2008 was RON 115 million.Operating revenue grew to RON 1,463 million in 2008, compared with the amount reached in 2007, which was RON 1,389 million.This growth was driven by higher distribution rates and electricity selling prices at CEZ Distributie S.A. and CEZ Vanzare S.A.2008 also saw growth in operating expenses, which reached RON 1,224 million, due in particular to expenses relating to the workforce restructuring that took place in all CEZ Group companies in Romania. EBITDA was 3% higher than plan, but lower than theEBITDA recorded in 2007. This was because of the above mentioned restructuring expenses and the creation of a provision forCFR (Compania Naţională de Căi Ferate – the State railway company).

Structure of Assets

At year end 2008, assets totaled RON 2,731 million, up 15% from the previous year on an increase in current assets. Current assets reached RON 1,030 million in 2008, compared to RON 720 million in 2007. This substantial increase was due inparticular to growth in cash and cash equivalents, from RON 351 million in 2007 to RON 662 million in 2008.

Structure of Assets

Units 2007 2008Property, plant and equipment and intangibles RON millions 1,647 1,657

Financial assets RON millions 0 44

Current assets RON millions 720 1,030

Total RON millions 2,367 2,731

Equity and Liabilities

There was no change in the stated capital of CEZ Group in Romania in 2008.

Structure of Equity and Liabilities

Units 2007 2008Stated capital RON millions 806 806

Reserves and retained earnings RON millions 1,057 1,204

Liabilities and deferred tax RON millions 314 318

Impairment allowances, accruals and deferrals RON millions 190 403

Total RON millions 2,367 2,731

20 CEZ Group in Romania | Business Performance of CEZ Group in Romania

Financial Risk Management Policies

CEZ Group in Romania has no bank debt. Its companies have many financial assets, e.g. trade receivables, cash and cashequivalents, and short-term deposits. Risks with the potential to seriously impact performance include foreign exchange rate risk, customer-related credit risk, and litigation.Financial risk management is the central element of the Company’s strategic management. The principal objective is to identify anddeal with risks relating to the Company’s financial assets, focusing on prevention and elimination of potentially damaging influences.

Foreign Exchange Rate RiskIn terms of FX risk, the Company considers the following financial strategies most appropriate:

passive approach: the degree of certainty relating to FX forecasts is too low and the Company can decide to not take any steps toprotect itself from this risk;active approach: the degree of certainty relating to FX forecasts is high and the Company can decide to take measures to protectitself from FX risk;FX settlement known in advance: the Company has the option of fixing a rate in advance (for selling/buying a foreign currency);choice of rate: the Company has the option to purchase full or partial protection against unfavorable rate movements and, at thesame time, retain exposure to favorable rate movements.

At this time, the companies are exposed to FX-related risk through their business transactions. The present policy eliminatestransactions and balances denominated in foreign currencies.

Credit RiskUnder law, the Company is obligated to provide electricity distribution services to new customers without undertaking any review oftheir financial situation. The Company has set up provisions for this risk, according to a receivables aging analysis. In cases wherecorporate customers have poor payment discipline, the Company demands a bank guarantee. For eligible customers, credit risk is assessed before any contract is signed. Customers whose credit risk is uncertain are dealt withby the regulatory body, which takes these expenses into account when setting rates. The highest credit risk is associated with the balance of trade receivables as at 31 December 2008.Cash funds are placed with financial institutions that are judged to represent the lowest risk for cash deposits. The amounts of suchdeposits are in line with the level of risk.

Liquidity RiskThe Company’s policy with regard to liquidity risk consists of maintaining a sufficient volume of liquid funds to enable the Companyto meet its obligations on time. The Company monitors liquidity on an annual basis, through the regular budgeting process. Inaddition, Group cash flows are monitored daily.

Business Performance of CEZ Group in Romania | CEZ Group in Romania 21

400MWpower output of new CCGT unit In Romania, CEZ Group is cooperating withRomanian power companies Termoelectricaand Electrocentrale Galaţi SA. The companiesare endeavoring to set up a joint venture whosegoal is to upgrade an existing natural gaspower plant and build a new generating unitthere. The planned installed capacity of thenew unit is estimated at 400 MW.

In our acquisitions, we have never purchased any equipment containingpolychlorinated biphenyls (PCBs); only small amounts of them are contained in a small number of capacitors that are part of some equipment.Decommissioning of this equipment is planned to take place by the end of 2010.

In a company such as ours, OSH policies are extremelyimportant and we take OSH-related issues very seriously.We believe that all injuries can be prevented and that taking a responsible approach toward occupational safety and healthleads to excellent business performance and better results. At our worksites, all of our contractual partners are obligated tocomply with OSH rules. Injuries they are involved in must bedisclosed and investigated in the same manner as accidents ofour own employees.

The scope of our Company’s commitment to OSH is alsodemonstrated by OSH investments undertaken in 2008:

risk assessment of every job position in CEZ România;training, informing, and preparing employees;sourcing and provision of personal protective equipment; OSH-related site studies and research;revamping and improvement of work sites;updating of functional modifications;health protection;monitoring of industrial health and hygiene parameters;training of employees in fire fighting and first aid;contingency plans for emergencies and crisis situations.

Compliance with the requirements of the OHSAS 18001standard and Romanian legislation in this area is compulsory.

24 CEZ Group in Romania | Occupational Safety and Health Management

Occupational Safety and Health Management

Fântânele and Cogealac Wind Farm

From Continental Wind Partners, a major developer ofrenewable energy projects, ČEZ, a. s. purchased two projectsthat will form the biggest on-shore wind park in Europe:Fântânele and Cogealac, with a total installed capacity of 600 MW. This generating capacity is nearly three times higherthan that of the largest wind farm presently operated in Europe.Fântânele and Cogealac are located in Dobrogea, in thenorthern portion of Constanţa County, 17 km (10.6 miles) fromthe Black Sea.ČEZ, a. s. plans to invest EUR 1.1 billion in this project. Workbegan in October 2008. In the first phase, 139 turbines will beinstalled with an aggregate capacity of 347.5 MW, height 100 meters (328 feet) and rotor diameter 99 meters (325 feet).These turbines will come on-line in the first half of 2010. In the following year, the wind farm will be expanded with theaddition of another 252.5 MW. The wind speed at the site isexcellent and the entire project is being closely watched toensure maximum reduction of environmental impacts. It is thefirst major wind project to be built in Romania, which currentlygenerates only 7 MW of wind energy.The project is being coordinated by a team from CEZ Romaniaand a team from Continental Wind Partners, which is theinvestment fund that originally developed the project. The team that manages the project is composed of ten people –both Romanians and expatriates who work for CEZ. There isalso a working group of approximately 20 persons who workwith CEZ for Continental Wind Partners. The principal partners are France-based Eneria, which isrunning the project, Viarom, which will do construction work,and Energobit, which will do electrical work. The equipment –wind turbines – was sourced under a contract signed with theindustrial conglomerate General Electric, which is covering thefirst phase of the project, i.e. 139 turbines, each with an outputof 2.5 MW.In terms of the project’s impact on local residents, it is obviousthat it will be favorable. Dozens of new jobs will be created, and in addition to infrastructure development, other projectswill be implemented in the vicinity of the sites to benefit thelocal population.

Strong points of the projectbiggest wind farm in Europeexcellent wind intensity for an on-shore installationturbines contracted for a good price, compared to theirstandard price levelrisks associated with construction are covered by a set ofagreements

Fântânele347.5 MWNet capacity factor 28.1%Integrated permitTurbines contracted forCommissioning – 2010

Cogealac252.5 MWNet capacity factor 28.2%Permit to be obtained in 2009Commissioning – 2011

Shareholder Structure

ČEZ, a. s. CEZ Poland Tomis Distribution B.V. Team S.R.L.

Tomis Team S.R.L. 95 5 –

M.W. Team Invest S.R.L. – – 100

Ovidiu Development S.R.L. 95 5 –

At the time of purchase, the stated capital of these threecompanies was RON 200. In late 2008, the stated capital wasincreased to a new level of RON 467,771,030 for Tomis TeamS.R.L. and RON 87,494.53 for M.W. Team Invest S.R.L.

CEZ Group Investments in Romania | CEZ Group in Romania 25

CEZ Group Investments in Romania

Capital Expenditures

Fântânele and Cogealac Projects The projects will be implemented by three Romania-based companies in the following manner: Tomis Team S.R.L. and its 100%subsidiary, M.W. Team Invest S.R.L., is implementing the Fântânele project and Ovidiu Development S.R.L. will run and implementthe Cogealac project.Ovidiu Development S.R.L. and Tomis Team S.R.L. are subsidiaries of ČEZ, a. s. (which holds 95%). The remaining 5% is held byCEZ Poland Distribution B.V., which is a Netherlands-based subsidiary 100% owned by ČEZ, a. s. The subsidiaries are also knownas “special purpose vehicles” (“SPV”) and were purchased in late August 2008.

FântâneleThe Fântânele wind farm consists of two projects that are being built at the same time: (1) Fântânele Est (85 MW) and (2) Fântânele Vest(262.5 MW).

Current status of the Fântânele project: all turbines and other basic plant and equipment contracted for, land contracted for, all official statements and permits obtained (statement on environmental status, building permit, permit for connection to thetransmission grid).

Current status of the Cogealac project: building permit to be issued in early 2009,start of the construction is planned for late 2009, commissioning in 2011.

Project FinancingBoth projects will be financed by a combination of loans and equity. Some of the loans could come from independent banks. Theloan conditions will be finalized in 2009. The bulk of the capital expenditures (approximately EUR 400 million) are expected tocome in the second half of this year.

26 CEZ Group in Romania | CEZ Group Investments in Romania

CEZ Distributie S.A.In 2008, CEZ Distributie S.A. had a program of distribution services investment financed from its own equity, totaling RON 132,788,490and a commissioning program totaling RON 142,069,880. Capital expenditures realized as at 31 December 2008 totaled RON 133,213,214. The value of work already commissioned as at 31 December 2008 was RON 137,523,570.

The funds were allocated among the following:upgrade of 494.29 km (307.14 miles) of low-voltage power grid and 28,266 low-voltage grid connections;improvement of low-voltage power grid by connecting 23 new transformer sites and 4.17 km (2.59 miles) of medium-voltage grid;upgrade of medium-voltage grid to approximately 237.845 km (147.79 miles) and installation of 20 remote-controlled switchgearsand seven separators;upgrade of 70.6 km (43.9 miles) of high-voltage grid;upgrade of 143 transformer sites.

The year 2008 saw the commissioning of 178 projects in a total value of RON 107,441,690 and equipment valued at RON 30,081,310.

The most important projects built and commissioned in 2008 by CEZ Distributie S.A. in terms of technology were the following:upgrade of transformers 238, 475, 184, 452, 87, 337, 483, 373, 323 and 20 kV underground power lines of transformers 475–368, 452–451, 323–378, 323–376, connected to MV outputs from the Craiova Sud station for the purpose of increasingreliability of electricity supplies to consumers. Total investment: RON 1,893,930;upgrade of transformers 535, 519, 449, 192, 406, CFR Contact and 20 kV underground power lines of transformers 449–359,192–226, connected to MV outputs of the Prefabricate station for the purpose of increasing reliability of electricity supplies toconsumers in Dolj County. Total investment: RON 1,617,310;automation of distribution grids by installing GVR switchgears on equipment belonging to the Râmnicu Vâlcea center. Totalinvestment: RON 1,567,076;upgrade of 10 transformers in masonry structure in Râmnicu Vâlcea, Vâlcea County. Total investment: RON 1,231,236; upgrade of 110 kV overhead power line Severin Topleţ, Mehedinţi County. Total investment: RON 1,179,611.upgrade of remote-controlled PAHCC equipment, Caracal, Olt County. Total investment: RON 1,535,776.

Distribution Grid Investment, 2005–2008 (RON thousands)

CEZ Group Investments in Romania | CEZ Group in Romania 27

2005

2006

2007

2008

Total0 50,000 100,000 150,000 200,000

91,059

181,469

187,349

133,213

Electricity Procured and Supplied in Romania (GWh)

2007 2008 Index 2008/2007 (%)Electricity procured:

Generated in-house (gross) – – –

In-house consumption, including pumping in pumped-storage plants – – –

Supplied to customers – – –

Purchased for distribution and sale 5,536 5,190 93.8

Electricity procured, total 5,536 5,190 93.8Electricity consumed:

Sold to end customers 3,634 3,439 94.6

of which: sold to end customers in CEZ Group in Romania, including sales to cover losses – 248 –

Sold in the wholesale market (net) 672 541 80.5

sold outside CEZ Group in Romania 672 541 80.5

purchased outside CEZ Group in Romania – – –

Grid losses 1,230 1,210 98.3

Electricity consumed, total 5,536 5,190 93.8

Sales to customers in 2008 reached 3,439 GWh, down 5.4% from 2007. Based on unbundling rules, certain customers chose a different supplier in 2007.

28 CEZ Group in Romania | Electricity Procured and Supplied Within CEZ Group

Electricity Procured and Supplied Within CEZ Group

Generation of Electricity in Romania | CEZ Group in Romania 29

Generation of Electricity in Romania

Generation of Electricity in Romania and ČEZ, a. s. Projects Designed to Develop Electricity Generation Investment in electricity generation rose substantially after 1950, when installed capacity in the country totaled a mere 740 MW. By 1989,it had reached 22,904 MW. The installed capacity figure for 2007 was 18,516 MW. Of this figure, hydro power plants accounted for 6,366 MW while 12,150 MW wasattributable to power heating plants, plants that run on heavy fuel oil or natural gas, and nuclear power plants.

Installed Capacity in Romania, 1950–2007 (MW)

During the period 1980–2007, the volume of electricity produced in Romania fell from 70 TWh to 60 TWh. Peak production (75.8 TWh) occurred in 1989.

1980

1975

1970

1965

1960

1955

1950

1985

1989

1990

2004

2003

2002

2001

2000

1995

1992

2005

2006

2007

hydro power plants

power heating plants

0 5,000 10,000 15,000 20,000

Power Production in Romania, 1950–2007 (GWh)

In 2007, the country sourced a total of 61.8 TWh of electricity, 97.9% of which was produced in power plants and 2.1% wasimported. Of the total, 62.2% was generated in power heating plants that fire solid fuels, 26.3% in hydro power plants, and 11.5% in Units 1 and 2 of the Cernavodă Nuclear Power Station.In 2005, ČEZ, a. s. in Romania purchased Electrica Oltenia S.A. as part of the privatization process commenced by Electrica S.A. andthe Ministry of the Economy. At present, ČEZ, a. s. controls approximately 17% of the electricity distribution and sale market in Romania.In 2007, ČEZ, a. s. decided to participate in a process commenced by Termoelectrica, Nuclearelectrica and the Ministry ofEconomy with the aim of finding private investors for the projects Borzeşti, Galaţi, and Cernavodă – Units 3 and 4. ČEZ, a. s. was declared the winner of the tender for the Galaţi project – an existing 375 MW power plant and a new-build, 400 MWCCGT plant. The memorandum of understanding was signed on 20 November 2008.ČEZ, a. s. was also declared a strategic partner for the 3 and 4 nuclear plant generating units. The Investors Agreement was signedon 20 November 2008 and ČEZ, a. s. to receive a 9.15% equity stake.With the aim of diversifying the plant portfolio, ČEZ, a. s. acquired two wind farm projects in Romania, at the Fântânele andCogealac sites, together representing a total of 600 MW. The projects are currently in construction, with commissioning planned for2009 and 2010.

30 CEZ Group in Romania | Generation of Electricity in Romania

1980

1975

1970

1965

1960

1955

1950

1985

1989

1990

2004

2003

2002

2001

2000

1995

1992

2005

2006

2007

hydro power plants

power heating plants

0 20,000 40,000 60,000

Energy MarketThe main players in the wholesale electricity market are: producers, suppliers, distributors, the transmission grid operator (C.N.Transelectrica S.A.), and the market operator (OPCOM S.A.). The electricity market in Romania consists of the following sub-markets:

The bilateral contracts market, where license holders can freely engage in bilateral electricity transactions;The next day market (PZU) is a centralized market on which trading takes place on the basis of offers sent in by PZU participants.Each trading day, the trades that take place relate to the date of supply. This is a centralized market, voluntarily managed by theelectricity market operator, OPCOM S.A.;The balancing market (PE) is a centralized market that is mandatory for electricity producers. Here, the transmission marketoperator purchases generated electricity and/or sells it to market participants, who hold units corresponding to electricity usethat can be managed by the grid control center for the purpose of compensating for deviations from planned values of electricitygeneration and consumption;The grid technical services market is a centralized market utilizing market mechanisms – auctions for a certain period and/orbilateral contracts for the purpose of ensuring a sufficient volume of grid technical services to meet the needs of the transmissiongrid operator;The centralized market for allocating cross-border capacity is a voluntary market organized by the transmission grid operator;allocation takes place by auctions, separately for imports realized under contracts for a period of up to one year and on the basisof PZU trading. The emission allowances market is a centralized market organized by the electricity market operator for trading in emissionallowances for the purpose of promoting generation from renewable sources of energy;The centralized market for bilateral contracts traded through public auctions is a voluntary market organized by the electricitymarket operator, on which market participants engage in contractual trading in physically supplied electricity according todetailed rules. In 2007, OPCOM formed a new platform: PCCB – NC (futures contract).

Wholesale Electricity Market

Bilateral contracts Next day market Day market Clearing

The power generation structure in 2008 was as follows: nuclear 17%, hydro 26%, gas and oil 14%, coal 43%; the commissioning ofa second reactor in late 2007 increased the nuclear share.

Distribution and Sale of Electricity in Romania | CEZ Group in Romania 31

Distribution and Sale of Electricity in Romania

Parties responsible for settlement

Market operator

Simple offers for enterprises

Physical notification

Transmission grid operator

Transmission grid operator– Market operator

Balancing market

Measurement operator

Settlement by party responsible

for settlement

Settlement to next day market

Trading on the balancing market

Meteringdata

Suppliers

Producers

Contracts

Next day market

QR Q

P

PR

Binding amount for participantOffers

Offers

Power Trading The Romanian power market is constantly growing. At year end 2008, there were 138 companies that held licenses to supplyelectricity. Of these, 68 were active in the market and 55 companies, on average, traded on the PZU. At the end of 2008, there were22 large producers and 38 producers were selected by ANRE decision for priority generation of electricity.According to official statistics, overall power generation in Romania in 2008 totaled 65.56 TWh, up 6% from 2007. Domesticconsumption was 53.03 GWh (up 4.2% from 2007), and export rose by 53.9% compared to 2007, reaching 1.81 TWh.

CEZ Trade Romania S.R.L. sold 621.68 GWh in 2008. Its customers were the following: customers from within CEZ Group: CEZ Vanzare S.A., CEZ Trade Bulgaria EAD, CEZ Trade Serbia, and CEZ Magyarország Kft.; OPCOM on the PZU; Transelectrica on the balancing market;domestic traders: Grivco, Energy Holding, EGL Romania, RE Energie, Timnar, Energy Market Consulting, Electrica, Ennet,Electrabel, Enel Energie, EFT Romania.

Electricity trades were made through tenders on the PCCB, bilateral contracts entered into directly and through OTC-type tradingplatforms. Upon being approved by the General Meeting of CEZ Vanzare S.A., as of June 1st an agreement (FSA) entered intoforce, based on which all electricity that CEZ Vanzare S.A. needs for the competitive market, it purchases wholesale from CEZTrade Romania S.R.L.Trading on the Romanian free market, accounting for approximately 50% of the overall amount of electricity consumed, wasdistributed as follows: 15.66% and 9.65%, respectively, on the PCCB and PZU (which are managed by the market operator, OPCOM),4 – 6% on the balancing market organized by Transelectrica, and the rest of the trading being through direct, bilateral contracts.

Important events of 2008 in the wholesale market:from July 1, OPCOM introduced a system based on a centralized counterparty, which is BCR (Commercial Bank of Romania);on December 12, Transelectrica together with MAVIR put into commercial operation the cross-border line Arad – Békéscsaba;under a Government regulation passed in fast-track proceedings, a power company was established that is vertically integratedunder Electrica S.A. However, later the regulation was not passed by Parliament.

Since November 2008, three passive “energy islands” have been operated in Romania, powered by electricity imported from Transnistria.

Sale of Electricity

Degree of Power Market Liberalization, January 2004 – November 2008

32 CEZ Group in Romania | Distribution and Sale of Electricity in Romania

40

50

60

70

80

90

100%

30

20

10

0

2004 2005 2006 2007 2008

Degree of market liberalization under Government Regulation

Volume of electricity consumption by customers who have changed their electricity supplier or renegotiated their contract – in relation to total consumption

Government Decision 1563/2003: 40%

Government Decision 1823/2004: 55%

Government Decision 644/2005: 83.5%

Government Decision 638/2007: 100%

For captive customers (customers subject to regulation), there used to be unified tariffs throughout the entire country. These arecalculated on the principle of regulated expenses and a regulated profit of 2.5%, which is added to purchasing expenses. In 2007, other than a 3.95% increase in April, there was no further regulation of tariffs for end customers. The commissioning of thesecond nuclear reactor and the fact that the year was a normal one in hydrogeological terms, offset the need to increase tariffs.

Tariff Development – 1 January 2008Tariffs for all captive household customers were unchanged in 2007;The biggest tariff increase for captive customers in industry, 1.7%, was granted for ČEZ; as of 2008, ANRE approves regionaltariffs for this customer category.

Tariff Development – 1 July 2008Tariffs for captive household customers grew 4.4% for all suppliers;Tariffs for captive customers in industry grew 6.0% for ČEZ.

ČEZ’s position in the retail market is approximately 8.11% of total consumption by end customers.In late 2008, CEZ Vanzare S.A. had 1,371,723 customers. Of this figure, 335 connection points were at eligible customers and1,371,388 were at captive customers, and 23 connection points were high voltage, 2,684 were medium voltage, and 1,369,016 werelow voltage; 82,075 were economic entities, 552,282 were households in urban areas, and 737,366 were households in rural areas.In 2008, CEZ Vanzare S.A. sold 3,439,076 MWh of electricity to end customers – 86.4% of which to captive customers and 13.6%to eligible customers – and 33,097 MWh of the total was to customers outside its service area.The volume of electricity sold to other electricity traders during the period was 81,955 MWh, 68.2% of which was traded within theGroup. Other traders with whom CEZ Vanzare S.A. traded electricity: S.C. EFT Romania, S.C. TEN TRANSILVANIA.

Electricity sales volume by voltage:Customers connected to the high voltage grid: 340,901 MWh, Customers connected to the medium voltage grid: 783,234 MWh, Customers connected to the low voltage grid: 2,314,940 MWh.

Distribution of electricityAll aspects of distribution are regulated by ANRE;Price restriction methodology for distribution tariffs has been in place since 2005, was revised in 2007;2008 is the first year of the second regulation period (2008–2012);Joint program with ANRE for reducing technical losses (goal 9.5% reduction by 2012);CAPEX plan – approved by ANRE prior to beginning of regulation period.

In 2008, CEZ Distributie S.A. distribution grid handled 11,871,640 MWh of electricity, compared to 12,344,811 MWh in 2007. The peakhourly load, 1,811 MW, occurred on January 23rd, at 7:00 p.m.The volume of distributed electricity fell in 2008 to 8.28 TWh from 8.7 TWh in 2007. The decrease in distributed, invoiced electricityoccurred, in particular, because SC ALRO S.A. was reclassified from distribution grid operator to transmission grid operator.In 2008, CEZ Distributie S.A. focused on meeting the CAPEX plan approved by the ANRE, which is designed to improve the quality ofdistribution services. 39% of total capital expenditure went on the low voltage grid, while 28% went on the medium voltage grid. The objectives set for 2008 were reached. They were: to improve operations and grid control, lower grid losses, improve qualityindicators (SAIFI and SAIDI), and improve meter-reading.

Distribution and Sale of Electricity in Romania | CEZ Group in Romania 33

General goals of the distribution plant and equipment development strategy:Increase safety while supplying all customers with electricity; Reduce electricity losses; Increase level of safety in utilization of electrical equipment and operational safety; Reduce number of electrical equipment faults and lower average duration of electricity supplies to consumers; Ensure that quality parameters of electricity supplied to consumers meet ANRE regulations; Reduce amount of electricity not supplied to customers due to accidental interruptions in supply; Reduce repair and maintenance expenses.

Specific GoalsUpgrade 110/MV transformer stations and equip them with new technologies; Migrate 6 kV equipment to 20 kV; Develop automated distribution system (SAD) by installing remote-controlled switchgears and automated section switches;Include all transformer stations in SCADA; Replace porcelain insulators on 110 kV overhead lines and 20 kV overhead lines with silicon versions; Overall modernization of overhead lines and low-voltage connections; Expand remote-controlled power quality control and monitoring system; Complete system of call centers; Roll out a customer services management system; Roll out GIS and TIS systems.

Specific Distribution Tariffs as of January 2008 (RON/MWh)

1) Cap for HV2) Cap for MV3) Cap for LV* CEZ Distributie (additional revenues postponed for April 08/July 09)

34 CEZ Group in Romania | Distribution and Sale of Electricity in Romania

ENEL Banat

ENEL Dobrogea

EoN Moldova

Muntenia Nord

Muntenia Sud

CEZ Distributie*

Transilvania Nord

Transilvania Sud

(ENEL Dobruja)

(Muntenia North)

(Muntenia South)

(Transylvania North)

(Transylvania South)

0 20 40 60 80 100 120 140

1) 2) 3)

High voltage

Medium voltage

Low voltage

CEZ Group’s liquidity in Romania is excellent. CEZ Group companies in Romania met their obligations on time and in full. In thissection, we describe in detail the loan situation of each individual company.

CEZ Distributie S.A.This company has no bank loans. At year end 2008, cash funds were higher than RON 580 million. The bulk of disposable fundswas invested in short and medium-term deposits with the Group’s partner banks.

CEZ Vanzare S.A.This company’s financial situation is influenced by how our customers make payments – due to the fact that CEZ Vanzare S.A.bears the bulk of the risk associated with payments and the payment morale of our customers. The largest debtor is CFR(Romanian Railways), whose debt at year-end 2008 stood at RON 79.4 million. CEZ Vanzare S.A. managed to compensate this cashflow shortfall by improving debt collection from other customers. During 2008, CEZ Vanzare S.A. did not need any external financing.

CEZ Romania S.R.L., CEZ Servicii S.A.The bulk of these two companies’ income consists of proceeds from providing services within CEZ Group in Romania. Positivecash flow is maintained by profitability and careful attention to managing working capital. There was no need to utilize outsidefinancing in 2008.

CEZ Trade Romania S.R.L.CEZ Trade Romania S.R.L. also has positive cash flow. Nevertheless, in 2008 its cash funds were impacted by non-receipt of VATrefunds. For this reason, the company has an overdraft facility, limited to RON 7 million, to cover temporary delays caused byRomanian tax authorities in refunding VAT amounts.

Tomis Team S.R.L., M.W. Team Invest S.R.L., Ovidiu Development S.R.L.At the time of acquisition, these companies were showing very low financial performance. The total value of funds provided by ČEZ, a. s. in 2008 was EUR 125.3 million. Of this amount, EUR 119.9 million corresponds to the shareholders’ equity of Tomis Team S.R.L. at year-end 2008.M.W. Team Invest S.R.L. is financed through an EUR 141 million inter-company loan, EUR 22.4 million of which corresponds to thecompany’s shareholders’ equity at year-end 2008.Ovidiu Development S.R.L. is financed through a RON 100 thousand loan provided to cover the operating expenses of Tomis Team S.R.L.

Financing | CEZ Group in Romania 35

Financing

494.29kmof upgraded low-voltage power gridCEZ Distributie S.A. upgraded 494.29 km of low-voltage power grid and 28,266 gridconnections, as well as improving the quality of its low-voltage power grid by connecting 23 new transformer sites and 4.17 km of medium-voltage grid.

The distribution objectives set for 2008 were achieved. They included improving operations and grid control, reducing losses in the grid, improving quality indicators (SAIFI and SAIDI) and improving meter reading operations.

Employee Training Program Employee training, as a continual process of building and maintaining knowledge and skills, is designed to meet needs in twoareas: the needs of achieving the organization’s goals, and the needs of employees in terms of their job position.In the first place, employee training is a legal obligation of the employer. At the same time, it is a tool for growth in employees’ skillsand, what is more, a way to increase performance and make their work more effective.CEZ Group in Romania is of the opinion that the most important investment is investment in human resources and that, togetherwith commensurate training programs, can stimulate employees’ professional development. As a result, two projects werecommenced in 2008 to train employees: the first relates to the preparation of a strategy for unified training at the Group level andthe second is preparing for SAP implementation in the Human Resources function. Also, a 2009 Training Plan was drafted for eachcompany. These plans were submitted to the labor unions and employee representatives for consultation and were attached to theCollective Labor Agreements.

As part of a project focusing on preparing a CEZ Group-wide training strategy, employee training was classified into the followingcategories:

basic professional training, consisting of training that is completely necessary for doing a particular job (statutory OSH training,environmental training, various permits, etc.);professional training required for company certification, including training related to the implementation of an integrated systemof quality, environmental, and OSH management;various types of professional training required for develop skills, including training in various areas (management, finance, sales,human resources, IT, foreign languages, etc.), resulting in employees’ professional development.

The project preparing for implementation of the SAP Human Resources module will make it possible to determine differences, ifany, between the training requirements set for a given job position and the training that a given employee has undergone. It will alsomake possible the generation of various reports on numbers of trained employees, currently ongoing training programs, andtraining-related expenses.

The following types of training courses took place at CEZ Group România in 2008:management skills development;negotiating skills development;language skills development;power industry skills development;customer relations skills development;economic and financial skills development;sales skills development;basic training in the integrated quality, environmental, and OSH management system;basic negotiating skills training;basic economic and financial training;basic IT training (Microsoft Excel and SAP);training to fulfill certification requirements under Romanian legislation for certain types of job activities.

38 CEZ Group in Romania | Human Resources

Human Resources

The following table illustrates employee participation in CEZ Group in Romania training courses and training expenses:

Employee Participation in CEZ Group in Romania Training Courses and Training Expenses

CEZ Group company in Romania Number of employees that Professional training expenses participated in professional training courses (RON ’000)

CEZ Distributie S.A. 130 205

CEZ Servicii S.A. 65 140

CEZ Romania S.R.L. 35 258

CEZ Vanzare S.A. 50 200

Company Information Reporting CEZ News is a monthly magazine with a pleasant format and modern graphics, which is distributed to each employee of CEZ Group.On the magazine’s pages, we find regular themes and features such as “Internal News”, “Interview of the Month”, and “Editorial”, aswell as articles written at employees’ request, such as “We Answer You”, “PROGRES IV”, etc. Every issue of the magazine contains articles on the business of various CEZ Group companies in Romania, as well as local reportsfrom counties. Company employees have continual access to CEZ News magazine through the email address ceznews@cez.ro andthe editorial board.The Intranet is a database that is continually available to all employees with access to a computer. It includes processes, procedures,work instructions, forms, annexes, and documents from all the companies.

Work Conditions The companies of CEZ Group in Romania make all efforts to organize and institutionalize a system whose objective is to continuallyimprove job conditions.

With regard for this goal, they are responsible for:assessing risks at the source and taking measures to eliminate them;keeping records of risks that cannot be eliminated and carrying out appropriate employee training;putting in place detailed instructions, technologies, and standards;ensuring commensurate personal protective equipment;forming an OSH committee; creating conditions necessary for OSH committee to operate with the scope of authority and activity stipulated by law;planning for prevention of work-related risks;planning and implementing further enterprise-specific measures.

Human Resources | CEZ Group in Romania 39

CEZ Group in Romania is continually active in preventing on-the-job injuries and occupational illnesses, having taken andimplemented a large number of measures in this area.

The companies of CEZ Group in Romania are undertaking the following measures to maintain and improve workplace conditions:ergonomic workplace furnishings and equipment;reducing emissions of pollutants, and completely eliminating them wherever possible;ensuring proper living environment and microclimate conditions (lighting, noise, vibrations, temperature, ventilation, humidity);ensuring proper facilities at worksites (e.g. sanitary facilities);continually checking the state of materials, equipment, and substances used in the work process.

During periods with extreme temperatures, the companies of CEZ Group in Romania will utilize measures stipulated by applicablelegislation with the aim of improving work conditions and maintaining good employee health. CEZ Group companies in Romania continually provide free protective nutrition (in line with occurrence of harmful substances,medical prescriptions, or for other reasons) to employees who work at eligible sites. They also take measures to ensure that purewater for drinking and washing is available at all worksites. Employees receive free health and personal hygiene aids.

Employee MotivationThe management of CEZ Group companies in Romania are aware that employees are the most important resource, crucial for thecompanies to run well. In this regard, then, they have – through their personnel policies – stated that they will make it a priority tomodernize human resources, create a certain level of employee participation in results, and provide incentives in line with thedemands of the current stage of development.Managers have at their disposal various motivation strategies for getting employees more involved in professional activity, resultingin both growth in personal satisfaction and labor productivity. Wages are a deserved reward that can satisfy a number of employees’ needs.In the companies of CEZ Group in Romania (with the exception of CEZ Distributie S.A.), wages consist of a fixed and a variablecomponent.The variable component consists of a performance bonus, paid monthly according to individual and collective performance andresults achieved.Effective from 1 October 2008, the Board of Directors of CEZ Distributie S.A. approved the introduction of a performance bonus forits entire management. Performance bonuses give employees a set of clear goals and precisely state what is expected of each of them.Regular performance evaluations lead employees to be aware of their skill level and associate it with their level of pay. They alsoaccelerate career planning and development for each employee. In order to stimulate employees from teams that implement projects, a bonuses fund was created, representing up to 10% of thetotal amount earmarked for wages.

Equal Treatment of EmployeesThe companies of CEZ Group in Romania comply with the principles of equality that are set forth in Collective Labor Agreementsand internal standards of their respective organizations. The Collective Labor Agreements state that, in stipulating and granting wages, there shall be no discrimination whatsoever on thebasis of criteria such as gender, sexual orientation, genetic characteristics, age, nationality, race, color, ethnic, religion, politicalviews, social origin, physical handicap, family situation and/or family responsibility, or labor union membership/activity.The internal standards of the respective CEZ Group in Romania organizations dedicate to this subject an entire chapter, entitled“Rules for Compliance with Principles of Equality and Eliminating Any Form of Disregard for Dignity”, which deals with respectingthe terms of the ban on direct and indirect discrimination set forth in Act No. 53/2003, the Labor Code, as amended.

40 CEZ Group in Romania | Human Resources

Benefits: Employees May Choose Their Own Benefits from a List Under provisions negotiated in Collective Labor Agreements (or, in the case of CEZ Vanzare S.A., under an agreement entered intowith employee representatives in conjunction with the provision of certain additional entitlements not listed in the NationwideUnified Collective Agreement), employees of CEZ Group in Romania receive additional benefits that are granted under the followingconditions:

maternity leave and paid child care leave for children up to 2 years of age, or 3 years in the case of a handicapped child;payment for medical care in specialized facilities, free prostheses or healthcare materials in the event of an occupational illness orinjury, or injury related to work, as well as in cases of serious illnesses; matching the difference between disability pension and base wage in cases where an employee has become unable to work dueto an on-the-job injury, injury related to work, or occupational illness;holiday vouchers and discounts on treatments;annual provision of material aid in the form of free electricity consumption up to a certain amount for retired former employees;provision of bonuses for special life jubilees, marriage, birth or adoption of a child, upon retirement, death of an employee orfamily member; support for finding accommodations at the beginning of their careers for non-local graduates;provision of an EUR 350 per month (paid in RON) benefit package when an employee is transferred to another location differentfrom his or her place of permanent residence (i.e. to a different county);provision of support in the event of lay-off, by number of years with the company;individual meal contributions, paid in the form of food vouchers;increased pay on annual holidays and Christmas gifts for children.

In 2008, employees of CEZ Group companies in Romania received a total of RON 25,929,000 in benefits and bonuses, brokendown as follows:

Benefits and Bonuses

RON ’000 Holiday bonus 8,559

Marriage, retirement contributions 81

Life jubilee bonuses 635

Bonuses provided to employees 3,705

Easter, Christmas, and Power Industry Employees Day bonuses 3,304

Bonuses for employees transferred to another county 2,043

Holiday vouchers and treatment vouchers 770

Support in times of illness and natural disasters 255

Gifts for children 216

March 8th gifts 80

Death in the family support 85

Birth of a child support 88

Meal vouchers for employees 3,800

Electricity for retirees 2,271

Other amounts paid for social security 37

Total 25,929

The following measures were taken to mitigate the social impacts of work force reduction:payment of severance pay to laid-off employees, according to the Collective Labor Agreement;other compensation payments in addition to those set forth in the Collective Labor Agreement.

As part of these compensational measures, we need also mention support from the Human Resources function:free advice on finding a new job through the “You’ve Got a Chance!” program;information on the job market and employment development;professional focus and requalification programs.

Human Resources | CEZ Group in Romania 41

ANRE issued 134 regulations in 2008. Here, we mention onlythe most important:

Regulation No. 35/2008 amending Regulation No. 64/2007relating to the approval of an average tariff for transmissionservices, a tariff for grid services, a tariff for services providedby the operator of centralized market to participants in themarket managed by it, and area tariffs for transmissionservices provided by enterprises in the power industry;Regulation No. 36/2008 relating to a regulated transit tariffcollected by the transmission grid operator from economicentities who enter into an agreement on provision oftransmission services for electricity to/from neighboringcountries through the power system; Regulation No. 38/2008 approving a standard for designingunderground power cable grids; Regulation No. 48/2008 – Methodology for issuing permitsfor grid operator locations; Regulation No. 54/2008 amending Regulation No. 29/2003relating to approval of the Methodology for setting tariffs forconnecting users to the medium and low-voltage electricitydistribution grids; Regulation No. 55/2008 amending and expanding ANRERegulation No. 15/2004 for approving tariffs and specificindicators used to set tariffs for connecting users to mediumand low-voltage power grids;

Regulation No. 57/2008 relating to approval of amethodology for setting prices and amounts of electricitysold by producers under regulated contracts and prices forheat supplied from combined generation of heat and power; Regulation No. 58/2008 relating to stipulation of suppliers of last resort of electricity for the period 1 July 2008 – 30 June 2009; Regulation No. 59/2008 relating to a methodology fordrawing up Financial Reports by license holders; Regulation No. 60/2008 – Methodology for monitoring theretail electricity market; Regulation No. 63/2008 amending Regulation No. 64/2007relating to the approval of an average tariff for transmissionservices, a tariff for grid services, a tariff for services providedby the operator of centralized market to participants in themarket managed by it, and area tariffs for transmissionservices provided by enterprises in the power industry; Regulation No. 65/2008 relating to the approval of regulatedtariffs for electricity sold by default suppliers and suppliers oflast resort to captive customers, i.e. to customers other thanhouseholds and household-related customers, such as tariffsfor reactive power; Regulation No. 66/2008 relating to the approval of regulatedtariffs for electricity sold by default suppliers and suppliers oflast resort to households and household-related customers; Regulation No. 119/2008 amending Regulation No. 33/2006relating to rules of tender on the PE;

42 CEZ Group in Romania | Legislative Environment

Legislative Environment

Regulation No. 122/2008 concerning the approval of Rulesrelating to provision of information to households, asconsumers of electricity and natural gas; Regulation No. 124/2008 relating to the method of paymenton the balancing market and for fluctuations by partiesresponsible for compensation; Regulation No. 127/2008 relating to stipulation of mandatoryquotas for electricity suppliers for 2008 concerning thepurchase of emission allowances; Regulation No. 128/2008 approving Technical Code I ofpower distribution grids – Revision 1; Regulation No. 130/2008 approving special tariffs forelectricity distribution services provided by key distributionoperators; Regulation No. 131/2008 amending the methodology fordetermining, implementing, and utilizing grid technicalservice reserve capacities approved by Regulation No. 19/2007; Regulation No. 132/2008 relating to the approval of a medium transmission service tariff, a tariff for grid services,a tariff for services provided by the operator of a centralizedmarket to participants in the market managed by it, and areatariffs for transmission services provided by power enterprises; Regulation No. 133/2008 relating to the approval of a calculation methodology necessary for stipulating regulatedprices and tariffs; Regulation No. 134/2008 relating to the approval ofregulated tariffs for electricity sold by default suppliers andsuppliers of last resort to captive customers, i.e. to customersother than households and household-related customers,such as tariffs for reactive power.

Of a total of 2,920 decisions issued by the ANRE in 2008, welist here the most important, which had a direct impact on CEZGroup companies in Romania:

Decision No. 386/2008 relating to a permit for establishingand building the Fântânele Vest Wind Farm;Decision No. 387/2008 relating to a permit for establishingand building Station 400/110 Gălbiori, Constanţa County;Decision No. 441/2008 relating to a permit for establishingand building Station Fântânele Est Wind Farm;Decision No. 589/2008 relating to the stipulation of degree ofcompliance with mandatory purchasing of emission allowancesby suppliers for the year 2007 and the principal utilization ofcash amounts from non-compliance with these quotas.

Legislative Environment | CEZ Group in Romania 43

The basic strategy of CEZ România is to comply with legislative requirements in the environmental area and with our contractualobligations. We have obtained certification of compliance with the international standard EN ISO 14001 – Environmental Management System,demonstrating that we are aware of the extraordinary responsibility we have for protecting the environment, and that we managethe entire system very well. The Environmental Management System (EMS), which helps to improve performance in the environmental area, demonstrates that,in all our operations, we comply with legislative requirements and help to address any environmental impacts of the operations.Responsibility toward the environment is fundamental – not just for obtaining the general public’s support for what we do, but forobtaining permits for our operations as well.We conducted a study with the aim of determining environmental impact, which is leading us to further improve performance.We continually support efforts to realize the necessity of protecting the environment. Actively and on a regular basis, we acquaintemployees with environmental issues and climate change, so as for us all to change our behavior and attitudes, both at work and athome as well. Education gives people an opportunity to change their lifestyles, which can have a favorable impact on the environment as well.We paid extraordinary attention to our facilities and operations in protected natural areas, in accordance with our obligations underapplicable legislation. Thanks to the increased care with which we utilized these localities, we reduced to a minimum the risksassociated with impacts on biodiversity. In a large number of locations where we have plant and equipment, there is broadbiodiversity because they cover large areas with low population density, including nature reserves and protected areas.We made great efforts not only to reduce environmental impacts in protected natural areas, but also to change the way they aremanaged, renewed, and developed.Large birds are not aware of the danger our high-voltage lines pose to them. For this reason, the companies of CEZ Group inRomania introduced special signs and made places where birds can rest safely, without coming into contact with live wires. In our procurement operations, we have never purchased any equipment containing polychlorinated biphenyls (PCBs); only smallamounts of them are contained in a small number of capacitors that are part of the equipment.This equipment is maintained and managed in compliance with applicable environmental protection legislation (relating to the useof PCBs and other hazardous substances) and all equipment that could contain such substances is registered with the Agency forthe Environment. Similar non-compliant equipment will be decommissioned by the end of 2010. Sulfur hexafluoride is present in some equipment. The equipment is monitored to prevent pollution and discharge of greenhousegases, and specific response measures are in place in the event of accidents.Waste is generated by all our activities, even the day-to-day activities of our employees. Our objectives are to reduce the amount ofwaste generated, ensure that it is reused and recycled as much as possible, increase efficiency of operations, reduce the use ofnatural resources, as well as pollution and expenses.The objective of the European Waste Electrical and Electronic Equipment Directive is to reduce the volume of waste from electricaland electronic equipment and improve the environmental performance of all entities that come in contact with it, throughout itslifetime. IT equipment that was rendered redundant by upgrades was disposed of in accordance with these requirements. We did not receive any environment-related complaints at any time during 2008.

44 CEZ Group in Romania | Environmental Protection

Environmental Protection

Environmental protection compliance is part of every proceeding related to any purchase of electricity. There was an increase in the shares of energy from less polluting sources, and of “Green Energy”.CEZ Group in Romania meets its obligations to invest profits from sales of CO2 allowances saved in environmentally-friendly technologies.

Carbon Emissions | CEZ Group in Romania 45

Carbon Emissions

DonorshipCenter of Care and Aid for the Elderly in town of Slatina, Olt CountyDuring the pre-Christmas season, CEZ Group employees inRomania donated personal items and Christmas cakes to this center.House for Handicapped Children in town of Drobeta TurnuSeverin, Mehedinţi CountyCEZ Group employees in Romania donated clothing, books,toys, and learning aids in honor of the Christmas holidays.“Vasiliada” FoundationCEZ Vanzare S.A. paid the electricity bill of a monastery inOltenia.

SponsorshipVară cu aromă studenţească (Summer with Student Flavor) –Târgu Jiu, Gorj CountyCEZ Group provided substantial assistance to the StudentLeague of Constantin Brâncuşi University in organizing thisevent, which took place under extraordinary conditions.Directors from CEZ Group took part in a panel discussion onthe topic “Alternative Sources of Energy”. Young companyemployees took part in discussions conducted during thefestival as well as evening events organized by students. In2008, the festival was attended by students from Germany,Poland, Bulgaria, Serbia, Bosnia, Croatia, Kosovo,Macedonia, Turkey, Ukraine, the Republic of Moldova,Belarus, Azerbaijan, Hungary, and France. Romanianstudents also came to Târgu Jiu from the following traditionalRomanian university towns: Cluj, Timişoara, Iaşi, Bucharest,Arad and Craiova. With the support of CEZ România, thestudents successfully organized a major event whose goalwas to foster intercultural exchange between young people inauthentic surroundings and festive atmosphere.Career Opportunities Fair – Craiova, Dolj CountyCEZ România was the general partner of this event, whichwas dedicated to young students and graduates from Craiova.The aim was to offer opportunities for beginning a career andat the same time identify potential future employees.WASHI Karate Club – Craiova, Dolj CountySponsorship of the karate club took place throughout 2008.The children’s biggest accomplishment came in the finale ofthe National Traditional Karate Championships for Childrenin Prague, and CEZ România sponsored the children’s trip.The children from Washi won three gold medals.Earth Hour – Slatina, Olt County Electricity consumption was monitored on March 28, 2008 attransformer stations in the hour from 8:00–9:00 p.m. Thereduction was 10%.

46 CEZ Group in Romania | Donorship and Sponsorship Program

Donorship and Sponsorship Program

Legal disputes in 2008 varied in terms of both type andnumber. Some were typical for our line of work, while othersrelated to new problems. These were mainly technical incharacter, related to new operations undergone in the givenarea (e.g. cases of non-technical losses).

Most of the cases fell into the following categories:The largest category in terms of number of cases concernscollection of overdue electricity bills. It contains over 1,500 cases in the seven counties we cover. Property cases, i.e. disputes over ownership of real property(claims related to payment of rent by ČEZ for use of land, orto restitution of certain land); in other cases, the disputesconcern a change in the direction of power lines, relocationof electrical equipment, etc. It is not at all easy to monitor thelegislative situation in the real property area. There areseveral laws that have created irreconcilable ownershipclaims to land and buildings, and courts in different areashave handed down decisions that differ on key points.In cases of insolvency lasting several years (in which we arethe creditor), their result in the current period of crisis andgiven the state of the economy can be foreseen; this categoryis relatively small – numbering about 50 cases.There are also cases in which the sole purpose of courtproceedings was to re-connect customers or sign new salesagreements; this category, too, contains a very small numberof cases and they are without risk for ČEZ.Also, labor-related disputes occurred in our operations,mainly relating to a new calculation of wage entitlements.Here again, the number of cases is small and relativelyinsignificant.As we have already mentioned, a new type of case appeared,relating to losses that are non-technical in character. Thecases seek granting of receivables for electricity use basedon a new calculation of energy use that was not registered byelectric metering devices, or they area cases where electricityconsumption occurred illegally.Currently, a large number of cases are in the debt collectionphase. Typically these cases move forward more slowly thandesirable for collecting on unpaid electricity use. The debtcollection process takes a long time even for small debts,since there are a large number of activities that the court-appointed debt collector must carry out, and eachcarries a long deadline.

Important cases, with high financial risk, were settled favorably.In 2008, we can mention the Zahărul Calafat case (for a highvalue, in which ČEZ was the respondent), in which two courts(the court of first instance and the appeals court) decided in ourfavor. Thus, only one possibility of appeal remains, after whichthe verdict will be final and binding. We also obtained a substantial portion of our receivable for electricity use by theCFR (Romanian Railways) – both through direct payments andthrough foreclosure.In the future, we plan to improve our operations in this area byintroducing a program of managing legal files, the maincontours of which will be: keeping records on legal files fromthe seven counties, generation of reports for various users(managers, other stakeholders such as labor unions and legalcounsel); unification of legal counsel’s approach in cases thatare already before courts, management of responses sent in tocourts as well as all kinds of documents that be utilized in a case that is before a court. This program will bring improved communication between theLegal Department and other functions that monitor the activitiesof CEZ Group in Romania before the courts.

Litigation | CEZ Group in Romania 47

Litigation

CEZ Distributie S.A.CEZ Distributie S.A. (the “Company”) is a joint stock company that was formed by the break-up of S.C. DFEE Electrica Oltenia S.A.and registered on 15 May 2007. Its operations take place in the Company’s seat at Brestei 2, Craiova, Romania. In 2008, CEZ Distributie S.A. distributed electricity in the Olt, Dolj, Gorj, Vâlcea, Argeş, Mehedinţi, and Teleorman Counties, where itoperated 215 transformer stations, 10,120 distribution stations, and a total of 53,075 kilometers of power lines (0.4 kV and 110 kV).During 2008, the net value of property, plant and equipment rose from RON 1,639,632,000 to RON 1,652,341,000.As at 31 December 2008, the authorized appraiser PriceWaterhouseCoopers carried out a new valuation of property, plant andequipment owned by the Company. The purpose of the new appraisal was to bring the net book value of these assets into line withtheir fair value. The appraisal took into account the physical state of the assets and their market value.

As at 31 December 2008, the impact of the new valuation on the net book value of property, plant and equipment was as follows:

New valuations carried out before 2008 RON 598,758,000

New valuation in 2008 RON -43,996,000

Total new valuations as at 31 December 2008 RON 554,762,000

The impact of the new valuation on the income statement was as follows:

Reductions in value recorded as losses RON 2,193,000

Increases in value recorded as gains RON 26,161,000

The net book value of non-current intangible assets declined from RON 2,029,000 to RON 1,637,000. This decline was due inparticular to accumulated depreciation.Trade receivables at year end 2008 totaled RON 206,601,000 (net); i.e., down from RON 361,918,000 in 2007. The receivables aremostly for electricity distribution and late payment penalties, and most fall due within 30 to 60 days. Impairment allowances onoverdue trade receivables totaled RON 113,992,000. The most problematic customer in this regard is the State railway company.As at 31 December 2008, all receivables totaled RON 82,021,000 and payables stood at RON 34,701,000.During 2008, cash and cash equivalents grew by RON 328,025,000. As at 31 December 2008, cash and cash equivalents totaledRON 581,665,000. This growth was driven by two factors: better debt collection, and centralized cash management for all of CEZGroup in Romania. Interest revenues in 2008 totaled RON 46,468,000.

48 CEZ Group in Romania | Results of Individual Companies in Romania

Results of Individual Companies in Romania

As the above information would indicate, the Company has no contractual loan and pays all its obligations on time and in full. In thecontext of the international financial crisis, CEZ Distributie S.A. enjoys a very good reputation in the Romanian market thanks to itspayment discipline.The Company’s liabilities as at 31 December 2008 totaled RON 140,574,000. Of this figure, trade liabilities totaled RON 114,129,000and trade liabilities to external companies (third party suppliers) totaled RON 79,428,000. None of these liabilities were overdue; thestandard payment terms are 60 days.A total of RON 15,248,000 was added to the legal reserve in 2008, bringing the total legal reserve to RON 33,404,000. A limitedamount of this reserve was distributed in accordance with statutory requirements.As at 31 December 2008, the Company recorded deferred income of RON 294,018,000. Subsidized connection fees account formost of this amount. Subsidized connection fees include the non-amortized portion of the capitalized value of this fee which comesin from customers when they are connected to the nationwide power grid.In 2008, CEZ Distributie S.A. recorded RON 616,665,000 in income from electricity distribution, RON 87,288,000 from sale ofactive and reactive power, RON 27,793,000 from rent, and RON 4,930,000 in other service revenues. Thus, total revenue from salesof services was RON 736,676,000.In addition, the Company recorded RON 1,566,000 in sales of merchandise, RON 32,000 from movements in inventory, RON 935,000 from sales of its own products, RON 66,102,000 in other operating revenues, and RON 53,495,000 in financialrevenues. Overall, revenues in 2008 totaled RON 858,806,000.Expenses incurred by the Company in 2008 reached RON 691,379,000. Of this amount, RON 204,034,000 were expenses for rawmaterials, other materials, energy and related services, RON 36,329,000 were expenses for adjusting the value of current assets,RON 200,085,000 were other operating expenses, RON 8,108,000 were expenses related to impairment, RON 106,027,000 wereexpenses associated with amortization and depreciation, and RON 135,776,000 were staff expenses. Financial expenses totaledRON 1,020,000.CEZ Distributie S.A. closed the year 2008 with RON 167,427,000 in income before income tax and net income of RON 127,866,000.

The 2008 net income was allocated as follows:

Net income for allocation RON 127,866,000

Legal reserve RON 15,248,000

Retained earnings RON 112,618,000

The Company’s management proposed that the 2007 retained earnings of RON 134,062,000 not be allocated. Therefore, as at 31 December 2008 the Company’s retained earnings totaled RON 461,915,000.

Results of Individual Companies in Romania | CEZ Group in Romania 49

CEZ Vanzare S.A.CEZ Vanzare S.A. is a joint stock company with its seat at Brestei 2, Craiova, Romania. It was formed by the break-up of FDFEEElectrica Oltenia S.A. and was registered on 15 March 2007.The operations of CEZ Vanzare S.A. are regulated by the National Office for Regulation of Energy (“ANRE”). Purchase prices fromState-owned electricity traders and purchase prices of electricity obtained from the national power grid, as well as tariffs for suppliesof electricity, are not only at the Company’s discretion; they are subject to regulation by the ANRE.The principal business of CEZ Vanzare S.A. is: 3514 “Electricity Trading”.The bulk of revenues comes from operating activity, as follows:Electricity sales revenues, RON 1,284,582,000; and revenues from provision of services, RON 9,309,000. In addition, the Companyrecorded RON 57,736,000 in other operating revenues and RON 6,492,000 in financial revenues.The financial revenues were from investing of cash in short-term deposits in the money market.Overall, revenues in 2008 totaled RON 1,358,119,000.Of the total expenses of RON 1,339,890,000, the biggest component was expenses for purchase and distribution of electricity atRON 1,164,243,000. This component was composed of the following:

Electricity purchases RON 644,917,000

Distribution services RON 519,326,000

Other expenses, at RON 175,293,000, consist predominantly of the following expense categories:

Staff expenses RON 4,858,000

Expenses related to services procured RON 62,096,000of which: Services within the Group (SLA) RON 42,957,000

Third-party services RON 2,049,000

Expenses related to bank fees for collection RON 17,090,000

Expenses related to late fees RON 10,553,000,

mostly due to lack of cash funds due to overdue

receivables from SNCFR (the State railway company).

As at 31 December 2008, impairment allowances in accordance with the CEZ Group policy regarding impairment allowances aswell as with applicable legislation, totaled RON 116,589,000 and can be broken down as follows:

Impairment allowances for outstanding receivables RON 115,326,000

of which: impairment allowances for outstanding receivables from SNCFR RON 74,392,000

Allowance for employee performance bonuses RON 447,000

Other allowances RON 816,000

The balance of trade receivables at 31 December 2008 totaled RON 208,827,000. These are late fees, due in 10 days plus 30 daysdeferment. Of the overall receivables amount, RON 9,054,000 are amounts due from associates. Impairment allowances for overduereceivables total RON 115,326,000 and are made in accordance with CEZ Group policies in the area of impairment allowances.The biggest receivables category, at RON 79,374,000, are amounts owed by SNCFR, a customer which under law may not bedisconnected. A sustained effort is being made to collect on this debt. The liabilities of CEZ Vanzare S.A. at 31 December 2008 totaled RON 280,130,000. All of the liabilities are associated with due dates.Cash and cash equivalents totaled RON 74,198,000 at 31 December 2008 and consist of cash on current accounts and in short-term deposits.As at 31 December 2008, provisions include legal reserves totaling RON 5,490,000.The Company’s trade payables as at 31 December 2008 totaled RON 230,914,000. Of this amount, payables to associates accountfor RON 155,712,000.As at 31 December 2008, the Company has no contractual loans.CEZ Vanzare S.A. ended the year 2008 with RON 2,063,000 in income before income tax.

50 CEZ Group in Romania | Results of Individual Companies in Romania

CEZ Servicii S.A.CEZ Servicii S.A. (the “Company”) is a joint stock company formed in 2007 and its registered seat is at the address: Blvd. RepubliciiNo. 148, 2nd and 3rd floor, Piteşti, Argeş, Romania. The Company is incorporated in the Commercial Register under the numberJ03/985/2007.The Company is a part of CEZ Group. The year-end consolidated financial statements are compiled at the level of the corporateparent, ČEZ, a. s., whose seat is at Duhová 2/1444, Prague 4, 140 53, Czech Republic.The Company was formed upon the approval, by the Board of Directors of CEZ Distributie S.A., of outsourcing of treasury functions,data processing, controlling, IT, HR, and customer services along the CEZ Group model, with the aim of improving service qualityand accuracy.As at 31 December 2008, the Company had opened 36 worksites in the following counties: Argeş, Dolj, Gorj, Mehedinţi, Olt,Vâlcea, Teleorman.The Company reduced the net book value of its property, plant and equipment from RON 4,017,351 at 31 December 2007 to RON 3,397,175 at 31 December 2008. This reduction was effected, in particular, by selling assets during 2008 (the net book valueof property, plant and equipment sold in 2008 was RON 626,523). The net book value of property, plant and equipment acquired in2008 was RON 1,827,754.The net book value of intangibles decreased from RON 330,744 at 31 December 2007 to RON 207,974 at 31 December 2008. Thereduction occurred as a result of amortization. The net book value of intangibles acquired in 2008 was RON 57,429.Remaining financial assets were valued at RON 9,000 at 31 December 2008 and consisted of unit certificates of ACUE (Associationof Power Companies).Receivables as at 31 December 2008 totaled RON 11,263,866, down from RON 17,739,611 at year end 2007. Most of thereceivables originated from business transactions with other CEZ Group companies in Romania, so there is no uncertainty overwhether they will be paid. Trade receivables are subject to late fees, and payment terms are 30 days with the possibility of anextension to 90 days. Compared to 31 December 2007, cash and cash equivalents grew by RON 3,660,840 to reach RON 4,232,749 at 31 December2008. The growth was driven by improved collection of receivables and improved performance from centralized cash management.Interest revenues for 2008 totaled RON 547,278.As at 31 December 2008, the Company has no contractual loans.As at 31 December 2008, the Company had liabilities totaling RON 9,502,615. Of this figure, RON 7,444,403 were trade liabilities,of which liabilities outside CEZ Group account for RON 1,529,162 and liabilities to associates total RON 0. The payment terms onthese liabilities are 60–90 days, and none are overdue.The Company’s 2008 turnover of RON 75,032,169 consists primarily of services provided to other CEZ Romania companies (CEZDistributie S.A., CEZ Vanzare S.A., CEZ Romania S.R.L., CEZ Trade Romania S.R.L., Tomis Team S.R.L., M.W. Team Invest S.R.L.,Ovidiu Development S.R.L.).During 2008, CEZ Servicii S.A. recorded RON 644,699 in revenue from sales of assets, RON 18,341 in other operating revenues,and financial revenues of RON 556,333. The Company’s total revenues in 2008 were RON 76,251,542.Expenses in 2008 totaled RON 72,594,858, of which: expenses of materials and short-term consumption items RON 1,846,579,expenses related to services RON 43,594,313, expenses impairment allowances (net) RON -556,813, expenses related to assignedassets RON 626,523, other operating expenses RON 12,372, expenses related to amortization and depreciation RON 2,001,606,staff expenses RON 25,065,144, and financial expenses RON 5,134.The Company closed the year 2008 with RON 3,656,684 in income before income tax and net income of RON 2,978,486.The income tax expense on 2008 income was RON 678,198.

The net income for the 2008 fiscal year was allocated as follows:

Total income to be allocated RON 2,978,486

Legal reserve RON 199,794

Settlement of 2007 loss RON 2,645,000

Retained earnings RON 133,692

The reserve fund was created in the amount of 5% of income (for accounting purposes), in accordance with applicable law.

Results of Individual Companies in Romania | CEZ Group in Romania 51

CEZ Romania S.R.L.CEZ Romania S.R.L. (the “Company”) is a limited-liability company, under entirely private ownership, which was established in 2005and which has its seat in Bucharest, Ion Ionescu de la Brad 2A, City District 1, Romania. The Company is incorporated in theCommercial Register under no. J40/20570/2005.The Company’s sole equity holder is ČEZ, a. s., which is a company registered and operating under Czech law, with its seat atDuhová 2/1444, Prague 4, 140 53, Czech Republic. It is incorporated in the Commercial Register under ID no. 45274649, VAT IDno. CZ45274649. The Company has no subsidiaries or associates. The stated capital of RON 500,000 is divided into 50,000 unit certificates, each with a nominal value of RON 10. As at 31 December 2008,the stated capital was fully paid in.During 2008, the net book value of property, plant and equipment fell, compared to 31 December 2007, from RON 1,445,909 toRON 1,388,302. This decline was caused, in particular, by accumulated depreciation. The book value of property, plant andequipment acquired in 2008 was RON 1,230,285.As at 31 December 2008, the net book value of non-current intangible assets declined, compared to 31 December 2007, from RON 465,397 to RON 42,959. This decrease was caused, in particular, by the sale of licenses during 2008.The net book value of assets sold in 2008 as a result of the outsourcing of meter-reading operations was RON 858,837. Of thisfigure, intangibles (licenses) accounted for RON 231,542 and tangible assets RON 627,542.Overall, receivables as at 31 December 2008 totaled RON 25,732,010, having fallen compared to 31 December 2007, when theystood at RON 33,539,919. Most of the receivables originate from commercial transactions engaged in with other CEZ Groupcompanies in Romania, so there is no uncertainty that they will be paid. Trade receivables are subject to late fees and the paymentterms are 30–90 days. Cash and cash equivalents at 31 December 2008 totaled RON 1,902,390, having fallen from RON 2,214,279 in 2007. During thecourse of 2008, the Company endeavored to improve debt collection and gain revenues from short-term deposits. Interest revenuesfrom deposits totaled RON 393,170 in 2008. As at 31 December 2008, the Company has no contractual loans; contractual obligations are paid on time. The Company’s liabilities as at 31 December 2008 totaled RON 33,016,585. Of this amount, RON 30,930,562 are trade liabilities,RON 19,217,065 of them outside CEZ Group. None of these were past due, and payment terms are 60-90 days. Liabilities tolenders totaled RON 11,559. The Company’s revenues in 2008 were up RON 68,648,678 and their year-end total was RON 126,279,580. The bulk of revenuescome from services provided to other CEZ Group companies (CEZ Distributie S.A., CEZ Vanzare S.A., CEZ Romania S.R.L., CEZTrade Romania S.R.L., Tomis Team S.R.L., M.W. Team Invest S.R.L., Ovidiu Development S.R.L.). One of the drivers of this growthwas the fact that the Company took over acquisition operations for all CEZ Group companies in Romania.In 2008, the Company recorded RON 1,051,916 in revenues from sales of assets, RON 24,256 in other operating revenues, andRON 847,352 in financial revenues. Together, the Company’s operating and financial revenues totaled RON 128,203,104 in 2008.The Company’s overall expenses in 2008 totaled RON 127,690,319 and were comprised as follows: expenses for materials andshort-term consumption items RON 2,506,052, expenses related to energy RON 1,584,598, expenses related to goods RON 31,919,671, expenses related to third-party services RON 67,887,542, expenses related to impairment allowances (net) RON -1,156,487, expenses related to assigned assets RON 858,837, other operating expenses RON 229,695, expenses related toamortization and depreciation RON 851,493, staff expenses RON 22,066,821, and financial expenses RON 942,098.The Company closed the year 2008 with RON 512,785 in income before income tax and net income of RON 309,565. The 2008 income tax expense was RON 203,220.

The net income of fiscal year 2008 was allocated as follows:

Net income to be allocated RON 309,565

Legal reserve RON 85,735

Retained earnings RON 223,830

The reserve fund was created in the amount of 5% of net income, in accordance with applicable law.The amount RON 223,830 constitutes retained earnings brought forward into 2009 and includes RON 175,689 in retained earningsfrom 2007.

52 CEZ Group in Romania | Results of Individual Companies in Romania

CEZ Trade Romania S.R.L.CEZ Trade Romania S.R.L. (the “Company”) is a limited-liability company established on 26 March 2007 with its seat at Ion Ionescu dela Brad 2B, 1st Floor, Office No. 2, Bucharest. The Company is incorporated in the Commercial Register under no. J40/6143/2007. The Company is consolidated within ČEZ, a. s., a company domiciled in the Czech Republic with its seat at Duhová 2/1444, Prague 4,140 53, Czech Republic.The Company’s principal business is the sale of electricity. The Company is regulated by the ANRE. The Company has two equityholders: ČEZ, a. s., with 15,999 unit certificates representing 99.99375% of the stated capital, and ČEZ Správa majetku, s.r.o., withone unit certificate representing 0.00625% of the stated capital.As at 31 December 2008, the Company had no property, plant and equipment or intangible assets. At year end 2008, receivables totaled RON 4,793,978 overall, up from RON 3,848,500 in 2007. The bulk are trade receivablesoriginating from electricity transactions, both with other CEZ Group companies in Romania and with non-affiliated partners.The payment terms on most trade receivables are 30 days, with the possibility of an extension up to 90 days.Compared to year end 2007, cash and cash equivalents were down RON 953,551 to a total of RON 7,188,910 as at 31 December 2008.The Company improved debt collection and endeavored to make more effective use of cash and cash equivalents. Interestrevenues on deposits totaled RON 181,301 in 2008.As at 31 December 2008, the Company has no contractual loans; contractual obligations are met on time. The Company’s liabilities as at 31 December 2008 totaled RON 10,370,768. Of the total, RON 10,367,173 were trade liabilities, RON 8,885,948 toward third parties and RON 1,481,225 to affiliated partners. None of the liabilities are overdue; payment terms are60–90 days. Liabilities toward lenders totaled RON 3,594.The Company recorded RON 121,043,649 in sales revenues in 2008, the bulk of which came from sales of electricity.In addition, the Company had RON 667,200 in other operating revenues and RON 1,155,883 in financial revenues. The totalrevenues figure for 2008 was RON 122,866,732.The Company’s expenses totaled RON 122,795,676. Of this figure, expenses for short-term expense items, purchased electricityand related services accounted for RON 120,585,849 RON, third-party services RON 372,346, depreciation and amortization RON -56,850 (net), other operating expenses RON 24,716, staff expenses RON 1,055,710, and financial expenses RON 813,906.The Company closed the year 2008 with RON 71,056 in income before income tax. Net income was RON 68,675. The income tax expense for 2008 was RON 2,381.

The allocation of 2008 net income was as follows:

Net income to be allocated RON 68,675

Legal reserve RON 17,035

Settlement of previous year’s losses RON 5,902

Retained earnings, brought forward to 2009 RON 45,738

The reserve fund was created in the amount of 5% of net income, in accordance with applicable law.

Results of Individual Companies in Romania | CEZ Group in Romania 53

List of Tables

Structure of Shareholders and Their Holdings in the Stated Capital of CEZ Group Companies in Romania 18Selected Indicators of CEZ Group in Romania 19Structure of Assets 20Structure of Equity and Liabilities 20Shareholder Structure 25Electricity Procured and Supplied in Romania (GWh) 28Employee Participation in CEZ Group in Romania Training Courses and Training Expenses 39Benefits and Bonuses 41

List of Graphs

Distribution Grid Investment, 2005–2008 (RON thousands) 27Installed Capacity in Romania, 1950–2007 (MW) 29Power Production in Romania, 1950–2007 (GWh) 30Wholesale Electricity Market 31Degree of Power Market Liberalization, January 2004 – November 2008 32Specific Distribution Tariffs as of January 2008 (RON/MWh) 34

54 CEZ Group in Romania | List of Tables and Graphs

List of Tables and Graphs

CEZ Romania S.R.L. won the extraordinary award “The Best Investor 2008 in HR”.CEZ Vanzare S.A. placed 62th in the 100 TOP Romania 2007 ranking. This is one of the most prestigious business competitionsin Romania.CEZ Distributie S.A. received recognition, in the form of an extraordinary diploma from the Chamber of Commerce and Industryin Oltenia, for placing in the Top 3 in each of the past three years;CEZ Distributie S.A. received an award and diploma from the Chamber of Commerce and Industry in Oltenia for placing in theTop 3 in 2007.CEZ Distributie S.A. placed 19th in the “Ranking of Private Companies in Romania, 2007”, which ranks the top 500 companies ineach category.

Awards Received | CEZ Group in Romania 55

Awards Received

56 CEZ Group in Romania

CEZ Distributie S.A.2 Brestei Street200 581 Craiova, Dolj CountyRomaniatel.: +40 251 215 002fax: +40 251 215 004e-mail: office@cez.ro

CEZ Romania S.R.L.2B Ion Ionescu de la Brad Blvd.013 813 BucharestRomaniatel.: +40 728 113 474fax: +40 212 692 566e-mail: office@cez.ro

CEZ Servicii S.A.148 Republicii Blvd.110 177 Piteşti, Argeş CountyRomaniatel.: +40 248 254 002fax: +40 248 254 004e-mail: cez_servicii@cez.ro

CEZ Trade Romania S.R.L.2B Ion Ionescu de la Brad Blvd.013 813 BucharestRomaniatel.: +40 722 283 244fax: +40 212 692 566e-mail: ion.lungu@cez.ro

CEZ Vanzare S.A.2 Brestei Street200 581 Craiova, Dolj CountyRomaniatel.: +40 251 216 000fax: +40 251 216 004e-mail: cez_vanzare@cez.ro

Ovidiu Development S.R.L.20 Nicolae Iorga Street900 612 Constanţa, Constanţa CountyRomaniatel.: +40 728 113 474fax: +40 251 405 089e-mail: office@cez.ro

M.W. Team Invest S.R.L.20 Nicolae Iorga Street900 612 Constanţa, Constanţa CountyRomaniatel.: +40 728 113 474fax: +40 251 405 089e-mail: office@cez.ro

Tomis Team S.R.L.20 Nicolae Iorga Street900 612 Constanţa, Constanţa CountyRomaniatel.: +40 728 113 474fax: +40 251 405 089e-mail: office@cez.ro

Design and production:© B.I.G. Prague, 2009