S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES ... 2016_EN.pdf · This is a free translation from the original Romanian binding version. S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES

This is a free translation from the original Romanian binding version.

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS FOR THE 6-MONTH PERIOD ENDED

JUNE 30, 2016

PREPARED IN ACCORDANCE WITH INTERNATIONAL ACCOUNTING STANDARD IAS 34

“INTERIM FINANCIAL REPORTING”

This is a free translation from the original Romanian binding version.

CONTENT PAGE INDEPENDENT AUDITOR’S REPORT 1 – 3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 4 – 5 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 6 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 7 – 8 CONSOLIDATED STATEMENT OF CASH FLOW 9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 – 79

Deloitte Audit SRL 4-8 Nicolae Titulescu Road, East Entrance, 2nd Floor, Sector 1 011141, Bucharest Romania Tel: +40 21 222 16 61 Fax: +40 21 222 16 60 www.deloitte.ro

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To the shareholders of,

S.P.E.E.H. Hidroelectrica S.A.

REPORT ON THE REVIEW OF INTERIM CONSOLIDATED FINANCIAL INFORMATION

Report on the Interim Consolidated Interim Financial Statements

1. We have reviewed the accompanying interim consolidated financial statements of

S.P.E.E.H. Hidroelectrica S.A. (“the Company”) and subsidiaries (“the Group”) which

comprise the interim consolidated balance sheet as at June 30, 2016, and the interim

consolidated statement of profit or loss and other comprehensive income, the interim

consolidated statement of changes in equity and the interim consolidated cash flow

statement for the six-month period then ended, and a summary of significant accounting

policies and other explanatory information.

Management’s Responsibility for the Interim Consolidated Financial Statements

2. Management is responsible for the preparation and fair presentation of these interim

consolidated financial statements in accordance with the International Financial Reporting

Standard 34 as adopted by the European Union and for such internal control as

management determines is necessary to enable the preparation of interim consolidated

financial statements that are free from material misstatement, whether due to fraud or

error.

Auditor’s Responsibility

3. Our responsibility is to express a conclusion on these interim consolidated financial

statements based on our review. We conducted our review in accordance with

International Standard on Review Engagements 2410, Review of Interim Financial

Information Performed by the Independent Auditor of the Entity. A review of interim

financial information consists of making inquiries, primarily of persons responsible for

financial and accounting matters, and applying analytical and other review procedures. A

review is substantially less in scope than an audit conducted in accordance with

International Standards on Auditing and consequently does not enable us to obtain

assurance that we would become aware of all significant matters that might be identified

in an audit. Accordingly, we do not express an audit opinion.

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2

Basis for Qualified Conclusion

4. As discussed in Note 3 to the consolidated financial statements, as at June 30, 2015, the

capital work in progress includes projects for which the Group has performed an

impairment analysis and has recorded allowances of RON 963,662 thousand. The provision

is made based on the assessment that these projects are not economically viable.

Additionally, as further discussed and detailed in note 4, for projects with a carrying value

of RON 715,833 thousand, no assessment and decision has been made, as to their nature.

This indicates further impairment to the construction work in progress balance as at year-

end. Furthermore, we note that for both of these categories of projects, the management

intends to keep them under conservation or potentially transfer to another governmental

body, subject to approval. It is unclear as to the Company’s obligation under the

circumstances when they are marked for non-completion. Due to lack of further analysis

and decision as at June 30, 2015, we were not able to determine during our review any

further impairment adjustments or liabilities that would arise in respect of these projects.

5. As discussed in the Note 28 to the interim consolidated financial statements, during the 6

months period ended June 30, 2016, the letter of guarantee issued by ING Bank

Amsterdam – Bucharest branch in favour of the National Agency of Fiscal Administration

(“ANAF”), in the amount of RON 214,385 thousand has been executed by ANAF. The

Group has not accounted for this transaction in the interim consolidated financial

statements. Therefore, as at June 30, 2016 the Provisions are understated by RON

214,385 thousand and the Profit for the 6 months period ended at the June 30, 2016 is

overstated by the same amount.

Qualified Conclusion

6. Based on our review, with the exception of the matters described in paragraphs 4 and 5,

nothing has come to our attention that causes us to believe that the accompanying interim

consolidated financial statements does not present fairly, in all material respects, the

interim consolidated financial position of S.P.E.E.H. Hidroelectrica S.A. and its subsidiaries

as of June 30, 2015, and its interim consolidated financial performance and its

consolidated cash flows for the six-month period then ended, in accordance with the

International Financial Reporting Standard 34 as adopted by the European Union.

Observations

7. We draw attention to the Note 1 to the consolidated financial statements which indicate

that the consolidated interim financial position and the consolidated interim operating

result of the Group are partially dependent on the decision taken by the Romanian Energy

Regulatory Authority (“ANRE”) on charges of sale of electricity delivered on regulated

market to supply and distributions suppliers, on tariff changes and / or decisions of the

Romanian authorities that are not influenced exclusively by the Group management

decisions. At the same time, permanent restructuring are recorded in the energy sector

which may have significant impact on the Group’s future business and the predictability of

future revenue these aspects diminishing its influence on the Group's consolidated

operating results, and the recoverability of the net book value of tangible assets used in

the production of electricity. These interim consolidated financial statements do not include

adjustments that might arise from the result of this uncertainty. Our conclusion is not

qualified in respect of this matter.

3

8. We draw the attention to Notes 1, 26 and 32 to the accompanying interim consolidated

interim financial statements discussing the re-organization process and end of judicial

administration process. This resulted in a number of suppliers and trader claim damages

against the company. Currently these cases are in court. This together with the impact of

paragraphs 4 and 5 above indicate an uncertainty, regarding the Company’s ability to

continue as a going concern. The Entity’s ability to continue as a going concern is

dependent on satisfactory resolution of these matters, its ability to generate sufficient

future earnings and on the continued financial support from its shareholders and creditors

and Romanian Government decisions. Company’s management believes that the Company

will continue as a going concern and that the going concern assumption used for the

preparation of these consolidated financial statements is appropriate. The accompanying

consolidated interim financial statements do not include any adjustments in respect of

these uncertainties. Our conclusion is not qualified in this respect.

Other Matters

9. This report is made solely to the Group's shareholders, as a body. Our review work has

been undertaken so that we might state to the Group's shareholders those matters we are

required to state to them in a review report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the

Group and the Group's shareholders as a body, for our review work, for this report, or for

the conclusion we have formed.

For signature, please refer to the original Romanian version.

Deloitte Audit S.R.L.

Bucharest, Romania

February 17, 2017

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT JUNE 30, 2016 (all amounts are in RON thousand, unless specified otherwise)

The accompanying notes are an integral part of these consolidated financial statements. This is a free translation from the original Romanian binding version.

4

June 30,

December 31,

Note 2016

2015

RON

RON

Assets

Non-current assets

Property, plant and equipment 3 17,460,897

17,730,479

Intangible assets 1,974 1,472 Other non-current assets 26,443

21,645

Total non-current assets 17,489,314

17,753,596

Current assets

Inventories 59,976

60,078

Trade and other receivables 4 389,371

322,855 Other current assets 5 74,519

27,986

Cash and cash equivalents 6 1,822,793

1,047,310

Total current assets 2,346,658

1,458,229

Total assets 19,835,972

19,211,825

Equity and liabilities

Equity

Share capital 7 4,481,482

4,481,482 Adjustments from the adoption of IAS 29 7 1,028,872 1,028,872 Public patrimony 7 39,347 39,347 Revaluation reserve 7 6,436,505

11,393,042

Retained earnings 7 5,290,795

339,004

Total equity 17,277,001

17,281,747

Liabilities

Non-current liabilities

Borrowings 9 334,036

334,294 Deferred revenues 11 185,889

189,033

Deferred tax liabilities 12 638,181

576,814 Financial derivative instruments 27 - 170,618 Employee benefits liabilities 13 75,950

75,950

Other non-current liabilities 14 25,927

26,735

Total non-current liabilities 1,259,983

1,373,443

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT JUNE 30, 2016 (all amounts are in RON thousand, unless specified otherwise)


5

June 30,

December 31,

Note 2016

2015

RON

RON

Current liabilities

Borrowings 8 22,164

24,181 Current portion of long term loans 9 67,017

156,756

Deferred revenue 11 10,657 16,690 Financial derivative instruments 27 - 17,354 Trade and other payables 10 216,663

136,750

Provisions 15 84,204 98,038 Other current liabilities 14 898,282

106,596

Total current liabilities 1,298,988

556,635

Total liabilities 2,558,972

1,930,078

Total equity and liabilities 19,835,973

19,211,825

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2016 (all amounts are in RON thousand, unless specified otherwise)


6

Year ended

June 30,

June 30,

Note 2016

2015

RON

RON

Revenues from electricity 16 1,613,106

1,831,511 Revenues from electricity from trading 16 - 16,459 Other operating income 18 8,923

9,329

Total revenues 1,622,029

1,857,299

Operating expenses

Purchases of electricity 17 (15,222)

(21,263)

Purchases of electricity for trading - (13,932) Depreciation/amortization and impairment 4 (342,068)

(479,001)

Payroll expenses (201,957)

(196,789) Other operating expenses 19 (324,216)

(408,607)

Materials and consumables (13,769) (18,749) Repairs and maintenance 860 (802)

Total operating expenses

(896,371)

(1,139,143)

Operating profit / (loss) 725,657

718,156

Financial income 20 8,960

5,002 Financial costs 20 (2,968)

(13,528)

Income from operations with embedded derivatives 20 187,972 - Expenses from operations with embedded derivatives 20 - -

Financial (loss) / profit 193,963

(8,526)

Profit / (loss) before income taxes 919,620

709,630

Income tax 12 (210,965)

(100,146)

Net profit / (loss) 708,656

609,484

Other comprehensive income Result from revaluation of properties - - Impact of deferred tax on revaluation reserve (37,325) - Re-measurement of post-employment benefits - -

Total comprehensive earnings / (loss) for the year 671,331

609,484

Earnings / (loss) per share 1,58

1,36

S.P.E.E.H. HIDROELECTRICA S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY



7

Share capital

Adjustments from the application of IAS 29

Public patrimony

Revaluation reserve

Retained earnings

Total

Balance as at January 1, 2016 4,481,482 1,028,872 39,347 11,393,042 339,004 17,281,747

Comprehensive loss for the year Profit for the year - - - - 708,656 708,656 Other comprehensive income - - - - -

Other comprehensive income for the year - - - - 708,656 708,656

Deferred tax on revaluation reserve - - - (37,325) - (37,325) Transfer of revaluation surplus related to depreciation of property, plant and equipment - - - (83,840) 83,840 - Transfer of revaluation surplus related to change of accounting policies - - - (4,834,479) 4,834,479 - Transfer of revaluation surplus from disposal of

tangible assets - - - (894) 894 - Contributions of and distributions to, owners Dividends declared - - - - (675,115) (675,115) Other movements - - - - (962) (962)

Total transactions with owners - - - - (676,077) (676,077)

Balance as at June 30, 2016 4,481,482 1,028,872 39,347 6,436,505 5,290,795 17,277,001

S.P.E.E.H. HIDROELECTRICA S.A AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY



8

Share capital

Adjustments from the application of IAS 29

Public patrimony

Revaluation reserve

Retained earnings

Total

Balance as at January 1, 2015 4,481,482 1,028,872 39,347 10,495,210 109,835 16,154,746

Comprehensive loss for the year Profit for the year - - - - 609,484 609,484 Other comprehensive income - - - - -

Other comprehensive income for the

year - - - - 609,484 609,484

Transfer of revaluation surplus from

disposal of tangible assets - - - (14,135) 14,135 Contributions of and distributions to,

owners Dividends declared - - - - (646,390) (646,390) Other movements - - - - (1,443) (1,443)

Total transactions with owners - - - - (647,833) (647,833)

Balance as at June 30, 2015 4,481,482 1,028,872 39,347 10,481,075 85,621 16,116,397

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS



9

Year ended

June 30, June 30,

2016 2015

RON RON

Cash flows from operating activities: Profit/(loss) before income tax 919,620 709,630

Adjustments for non-monetary items: Operating expenses on the impairment and depreciation of non-current

assets 342,068 479,001 Impairment of non-current provisions 7,965 6,828 Net movement of provisions (13,834) 957 Allowances for doubtful receivables 3,553 (81) Allowances for inventories 174 144 Loss on sale of tangible assets (2,175) (3,757) (Gain) / Loss from derivatives (187,972) - Unrealized forex differences (748) 8,358 Interest income (8,953) (4,959) Interest expense 2,764 5,162

1,062,463 1,201,284

Movements in working capital: (Increase)/Decrease in trade and other receivables (70,069) (18,699) Decrease in other assets (51,331) (54,601) Decrease / (Increase) in inventories (72) 2,239 (Decrease) / Increase in trade and other payables 95,017 (261,905)

Cash generated from operations 1,036,009 868,318

Interest paid (2,764) (5,162) Income tax paid (96,672) (128,044)

Net cash generated by operating activities 936,573 735,112

Cash flows from investing activities Purchase of property, plant and equipment (81,630) (48,411) Purchase of intangible assets (631) (32) Proceeds from disposal of property, plant and equipment 3,483 6,991 Interest received 8,953 4,959

Net cash used in investing activities (69,825) (36,493)

Cash flow generated by financing activities: Proceeds from borrowings - - Repayment of borrowings (91,266) (106,329) Dividends paid - (51,538)

Net cash generated by financing activities (91,266) (157,867)

Net (decrease)/increase in cash and cash equivalents 775,483 540,751

Cash and cash equivalents at beginning of the year 1,047,310 580,384

Cash and cash equivalents at end of the year 1,822,793 1,121,135

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIRIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


This is a free translation from the original Romanian binding version. 10

1. GENERAL INFORMATION Hidroelectrica S.A. ("Hidroelectrica" or the "Company") was founded in 1998 by Government decision ("GD") no. 365/1998, following the restructuring of the former National Electricity Company ("Renel"). On August 1, 2000, following the restructuring of the former National Electricity Company ("Conel") based on Government Decision no. 627/2000, the Company was allocated a new tax registration number, without changing its object of activity. The Group's registered address is Str. Ion Mihalache no. 15-17, Sector 1, Bucharest, Romania. Hidroelectrica’s main activity is the production and sale of electricity. Hidroelectrica is 80.06% owned by the Romanian state, represented by the Ministry of Economy, Trade and Business Environment ("METBE") and in proportion of 19.94% by Fondul Proprietatea. 2. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The consolidated financial statements have been prepared in accordance with IAS 34 Interim financial reporting. They do not include all the information required in a complete set of financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). Nevertheless, explanatory notes are included for significant events and transactions that help to understand the changes in the Group’s financial position and performance from the latest annual consolidated financial statements as at and for the year ended December 31, 2015. Use of estimates and judgments In preparing the financial statements, the management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities, revenues and expenses. The management’s assumptions in preparing the interim financial statements were the same with those used in the consolidated financial statements as at and for the year ended December 31, 2015. Significant accounting policies The accounting policies applied in these interim financial statements are the same with those applied in the annual consolidated financial statements of the Group as at and for the year ended December 31, 2014, except for the policies presented below: 1. Depreciation of fixed assets

Tangible assets are depreciated using the straight-line method over their useful lives. In 2015, the Group revised the useful lives of the assets in accordance with current international requirements. The new useful lives are adapted to best international practices, but take into account the normal wear and tear of the assets in Hidroelectrica.




2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The estimated useful lives used for tangible assets are as follows:

Category Useful live (years)

Buildings 65 – 97 Technological equipment 25 - 47 Metering and control equipment 15 - 23 Vehicles 16 - 24 Other fixed assets 15 - 23

2. Transfer of revaluation reserve to retained earnings representing surplus from revaluation reserves In 2015, the Company’s management approved the change of accounting policy as regards the transfer of the revaluation reserve to retained earnings representing surplus from revaluation reserves. According to the Accounting Policies Manual approved by the Company and in force in 2015, “The transfer from 105 “Revaluation reserves” to account 1175 “Retained earnings representing surplus from revaluation reserves” at Hidroelectrica is made when the asset is fully depreciated and/or when it is deregistered (scrapped/sold)”. According to MoPFO 1802/2014, Art. 109, para. (2) “gains on revaluation are deemed realized when the asset for which the revaluation reserve was created is deregistered. Nevertheless, part of the gains may be realized as the asset is used by the entity. In this case, the value of the reserve transferred is the difference between the depreciation calculated based on the revalued carrying amount and the value of the depreciation calculated based on the asset’s initial cost.” Starting from January 1, 2016, gains on revaluation are realized as the asset is used by the Company.




3. PROPERTY, PLANT AND EQUIPMENT

Land and land

improvements

Buildings and special

installations

Plant and machinery

Intangible assets in progress

TOTAL

000 RON

000 RON

000 RON

000 RON

000 RON

COST

Balance as at December 31, 2015 756,629 10,054,621 2,936,429 5,018,617 18,766,295

Additions 402 - 2,101 79,121 81,624 Transfers - 8,698 22,565 (31,264) - Disposals (239) (1,093) (134) - (1,465)

Balance as at June 30, 2016 756,792 10,062,226 2,960,960 5,066,481 18,846,453

CUMULATED DEPRECIATION

Balance as at December 31, 2015 - 42 (1) - 41

Depreciation expense 32 187,259 154,647 - 341,938 Eliminated on disposal of assets - (67) (89) - (156)

Balance as at June 30, 2016 32 187,234 154,557 - 341,823




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Land and land

improvements


installations

Plant and machinery


TOTAL

000 RON

000 RON

000 RON

000 RON

000 RON

IMPAIRMENT ALLOWANCE Balance as at December 31, 2015 461 17,749 1,300 1,016,258 1,035,768

Impairments recognized in profit or loss - - 2 7,995 7,997 Impairment decreases - (32) - - (32)

Balance as at June 30, 2016 461 17,717 1,302 1,024,253 1,043,733

BOOK VALUE

Balance as at December 31, 2015 756,168

10,036,830

2,935,130

4,002,352

17,730,479

Balance as at June 30, 2016 756,300 9,857,274 2,805,102 4,042,228 17,460,897





Land and land

improvements


installations

Plant and machinery


TOTAL

000 RON

000 RON

000 RON

000 RON

000 RON

COST


Additions - 2,100 864 235,602 238,567 Transfers 328 31,865 69,984 (102,177) - Disposals (2,496) (13,230) (4,676) (1,811) (22,213) Impact of revaluation 68,620

(1,363,842)

(525,184)

-

(1,820,405)


CUMULATED DEPRECIATION

Balance as at December 31, 2014 64 1,253,068 740,346 - 1,993,478

Depreciation expense 32 616,024 338,133 - 954,190 Eliminated on disposal of assets - (1,536) (1,565) - (3,101) Impact of revaluation (96) (1,867,514) (1,076,915) - (2,944,526)

Balance as at December 31, 2015 - 42 (1) - 41





Land and land

improvements


installations

Plant and machinery


TOTAL

000 RON

000 RON

000 RON

000 RON

000 RON

IMPAIRMENT ALLOWANCE Balance as at December 31, 2014 461 18,081 2,927 988,493 1,009,962

Impairments recognized in profit or loss - 5,906 162 27,765 33,833 Impairment decreases - (6,237) (1,789) - (8,027)

Balance as at December 31, 2015 461 17,749 1,300 1,016,258 1,035,768

BOOK VALUE

Balance as at December 31, 2014 689,652

10,126,579

2,652,168

3,898,510

17,366,908





3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The Group’s property, plant and equipment comprise mainly special buildings, hydropower plants, power pumping stations, micro hydropower plants, locks, hydro-aggregates, equipment and installations. The Company manages 206 hydropower plants at an installed power of 6434.5 MW and 5 pumping stations. According to the amended Reorganization Plan, approved by the Creditors’ Committee on December 18, 2014, open tenders were held to sell 14 packages of assets – Low Power Hydro Power Plants (LPHPP). In May 2016, 1 Micro HPP was sold: - Micro HPP on the Slănic river basin, Buzău county: LPHPP Lopătari (IP = 0.840 MW), which was

successfully bid by SAMUEL’S M.H.P.P. SRL for RON 2,503, delivered as at June 30, 2016. As at the end of the year, 3 micro HPPs out of the 3 sold during January-June 2015 were delivered along with all the related assets, and also micro HPP Manastirea Dej 1 and Manastirea Dej 2, sold in 2013, for which the company concluded the sale-purchase contract and the transfer of assets in March 2015. Out of the 8 Micro HPPs sold in November 2015, 5 were delivered to the purchasers by June 2016, and in August 2016 Micro HPP Horezu 2, Micro HPP Boia2 and Micro HPP Boia3 will be delivered also. Out of the total RON 5,066,481, representing advances for non-current assets and tangible assets in progress, the RON 4,965,682 is represented by investments in progress as at June 30, 2016, broken down by the following investments sites:

Name of investment Balance as at

June 30, 2016

Functional investments, not received HPD CORNETU-AVRIG 206,509 HPD SIRIU SURDUC 7,943 HPD STREI 842 HPD along Siret river on Cosmeşti-Movileni stretch 73,855 HPD BISTRA-POIANA MARULUI 143,545 HPD RAUL MARE RETEZAT 128,191

TOTAL 560,885

Investments for which there are firm commitments HPD CORNETU-AVRIG 405,248 HPD RASTOLITA 670,270 HPD Livezeni–Bumbesti 568,893 HPD Cosmeşti-Movileni 457 HPD SIRIU SURDUC 623,839 HPD STREI 193,875

TOTAL 2,462,582





Name of investment Balance as at

June 30, 2016

Impairment allowances for investment in progress in 2016 HPD PASCANI 367,605 HPD FAGARAS-HOGHIZ 174,473 HPD along Siret river on Cosmeşti - Movileni stretch 94,451 HPD SIRIU SURDUC 17,344 HPD along Jiu river on Valea Sadului Vadeni stretch 164,920 HD RUNCU-FIRIZA 84,917 Nord-Fagaras secondary waterwork 34,642 HPD OLT SECT IZBICENI-DUNARE HPP ISLAZ 13,492 HPD Borca-Poiana Teiului - HPP GALU 9,654 HPD BISTRA-POIANA MARULUI 2,106 HPD STREI 58

TOTAL 963,662

Name of investment Balance as at June 30, 2016

Investments to be analyzed HPD Cerna Belareca 316,114 HPD Cornetu Avrig - Caineni and Lotrioara steps 105,294 Hydro-power facility Cerna Motru Tismana stage II 86,246 Sebes lake 31,465 HPP Oiesti by-pass 28,888 Sebes lake 23,566 Olt river dam safety by restoring the transit capacity 22,972 HPD Poneasca 22,680 Increase of safety degree on Lower Olt 21,764 Others 56,844

TOTAL 715,833

Spare parts in the form of inventories 61,650 Other investments 166,387

TOTAL investments in progress 4,965,682

Advance payments for non-current assets in progress 100,799

Adjustments of investments in progress (1,024,253)

TOTAL investments in progress, net 4,042,228




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The outstanding advances for property, plant and equipment in progress as at June 30, 2016, in amount of RON 100,799, represent mainly advances to: - upgrade HPP Stejaru in amount of RON 67,985; - upgrade HPP Portile de Fier II in amount of RON 14,365; - investment objective HPD Bumbesti Livezeni in amount of RON 8,011; - investment objective HPP Caineni in amount of RON 8,817. Adjustments for non-current assets in progress outstanding as at June 30, 2016, in amount of RON 1,024,253 represent:

the value of investments started prior to 2000 for which the approved Restructuring Plan provides the cessation of funding or transfer to other public entities – RON 963,662;

impairment for functional non-current assets in progress, not received as at June 30, 2016 - RON 22,728;

the consultancy services for investment objective HPP AP Tarnita Lapustesti, sold to Project Company Hidro Tarnita – RON 12,150;

the value of the down payment for investment works granted to UCM Resita, company in insolvency - RON 8,817;

the value of investment works for site HPP MP Vicov - RON 6,766;

other impairment allowances in amount of RON 10,130. Further to the cessation of funding for certain complex function investment objectives, based on the provisions of the Reorganization Plan, starting from 2015, the Company established a Commission for Investment Analysis (appointed by Decision 668/2015) which examines the need and timing for optimizing ongoing investments for projects started before 2000, which are in different stages of completion. Complex function investments consist of historical investments regarding special function hydropower development schemes, which ever since the design stage have been treated as having only a secondary energy function. The primary complex functions of such investment objectives are the rational and safe management of water, comprising:

- mitigation of flood - protection of population, settlements and agricultural land - water supply for riparian settlements - supply of water reserve for the population and the industry - supply of water flow for irrigations, in dry seasons - retention of solid flow in the inactive storage of the dam - other social functions

The social functions described above are specific for not-for-profit public authorities. The Group is a commercial company established based on Commercial Company Law 31/1990 and is not a not-for-profit organization. In addition, the Group no longer receives public funds to complete social investments which, if carried on, violate the supreme objective of maximizing the shareholders’ wealth.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The “historical” hydropower projects were initially developed between 1982 and 1989 following successive State Council Decrees and funding was provided by public funds through the ministries involved and investment holders. After 1989, some of such projects continued to be developed by Apele Române, financed by public funds, until the Group took them over. The economic and energy conditions changed significantly from the 1980s and 1990s, in particular the following: - the electricity consumption, compared to the consumption estimated in the ‘80s for 2000-2020,

reduced substantially (the consumption dropped from 80 TWh in 1989 to 59 TWh in 2008 and 52 TWh in 2013, mainly because of the decrease of consumption in the industry after 1989), thus there is no longer a pressure of consumption that would determine investments in new energy capacities;

- due to the elimination of the State’s central investment fund, the beneficiaries of complex use works

ceased to fund the specific works under hydropower projects, the costs of such works bearing solely with the Group.

After Hidroelectrica S.A. entered insolvency in June 2012 and in view of the future listing of the company’s shares, the Juridical Administrator set the company on a position of profitability and the prudent use of money. Thus, it revised the investment program in the sense that it sought the completion of such investment objectives and commissioning thereof in a 2 to 3 years’ timeline, that would use important energy, without requiring the use of complex use hydropower developments which are practically loss-generating objectives for Hidroelectrica if carried on (because the income obtained if they are carried on in their initial versions does not cover the investment costs). The commission appointed by decisions nos. 668/06.05.2015 and 1767/02.11.2015 drew up the Substantiation notes regarding the investment objectives. For all the projects analyzed and presented below (item Projects Analyzed), until the approval by the General Meeting of Shareholders and until the issuance of any regulations enforcing the proposals described, to eliminate/minimize the qualified opinion, given that this qualification was expressed ever since 2012 – the year when the financing was ceased by the Reorganization Plan, the company made an impairment allowance out of the amounts corresponding to the investments disclosed in the table below, through the correction of the balance sheet values from previous years (allowance approved by GSM no. 12/27.05.2016). According to the Substantiation Notes approved by the management regarding the need and timing for optimizing ongoing investments drawn up by the Working Commission and in correlation with the provisions of the Reorganization Plan, the Company created provisions (that can be reversed at any time depending on the success of transferring them) for the following ongoing investments, started from 2012, the insolvency year, when the Company also decided to cease funding until solutions are found:




3. PROPERTY, PLANT AND EQUIPMENT (continued) Table 3.2

Branch Hydro-power development Object Provision

2012 Provision

2013 Provision

2014 Provision

2015

Total Provision

2012-2015

Bistrita

HPD Pascani HPD Pascani 348,553 3,871 13,746 1,435 367,605

Sebes HPD Fagaras - Hoghiz

HPD Fagaras-Hoghiz 173,446 893 - 134 174,473

Portile de Fier

HPD Valea Sadului - Vadeni

HPD Valea Sadului-Vadeni 164,300 620 - 164,920

Bistrita HPD Cosmesti-Movileni HPP Cosmesti 94,178 274 - 94,451

Cluj HPD Runcu Firiza HPD Runcu FirizS 81,508 2,018 630 760 84,917

Curtea de Arges

HPD Dambovita - Clabucet

Secondary headrace Nord-Fagaras 34,508 247 - -113 34,642

Curtea de Arges

HPD Surduc-Siriu HPP Surduc 17,270 74 - - 17,344

Ramnicu Valcea

HPD Islaz HPD Islaz 12,837 455 200 - 13,492

Bistrita HPD Borca - Poiana Teiului HPP Galu 12,254 (2,613) 4 9 9,654

Hateg HPD Bistra - Poiana Marului-Ruieni-PR Scorilo fall 2,122 (17) - - 2,106

Hateg HPD Strei along the Subcetate – Simeria stretch

Bacia and Simeria steps 903 (845) - - 58

TOTAL PROVISION: 941,879 4,978 14,580 2.226 963,662





The Group’s management estimates that it will make a decision regarding the below projects in the following financial year:

Name of investment Balance as at June 30, 2016

HPD Cerna Belareca 316,114 HPD Cornetu Avrig – Caineni and Lotrioara steps 105,294 Hydropower complex Cerna Motru Tismana Stage II 86,246 Sebes lake 31,465 Branching at HPP Oiesti 28,888 Sebes lake 23,566 Dam security on the Olt river by restoring the transit capacity 22,972 HPD Poneasca 22,680 Safety increase on the Lower Olt 21,764 Others 56,844

TOTAL 715,833

The value of the works for safeguarding the investment objectives shut down temporarily starting from 2012 by the decisions of the Juridical Administrator and mentioned in the Reorganization Plan was established in joint analyses conducted on site by the Group specialists within the Investment Development Directorate, the specialists of the Contractors and those of the General Designer and is presented in the table below: Security, lighting, heating, depletions, technical

inspections 2013 2014 2015 Estimate

2016

HPD along river Olt on Izbiceni – Dunăre. HPP Islaz stretch - - - - HPD along river Jiu on Valea Sadului-Vădeni stretch 287 287 260 254 HPD along river Jiu on Livezeni – Bumbesti stretch 486 2,814 717 - HPD Cerna Motru Tismana stage II 35 - - - HPD along river Olt on Fagaras-Hoghiz stretch 568 569 273 159 HPD along the river Olt gorge on Cornetu – Avrig of which: HPP Racovita 264 - - - HPP Caineni 759 756 446 325 HPD Pașcani 1,031 623 402 261 HPD along river Siret on Cosmești – Movileni stretch 537 825 573 405 HPD Runcu Firiza 551 420 268 262 HPD Rastolita 353 - - - Sebes lake 184 177 133 96 HPD Surduc - Siriu 1,490 1,736 130 - HPD along river Strei on Subcetate-Simeria stretch. HPP Bretea 220 - - - HPD Bistra Poiana Marului Ruieni Poiana Rusca 1,410 993 493 413 HPD Cerna - Belareca 1,701 1,54 960 587

TOTAL 9,877 10,747 4,655 2,763




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Until it makes a decision on the investments in progress presented in the table above, the Group maintains such projects under conservation and will bear all the expenses in this regard. Projects analyzed I. INVESTMENT OBJECTIVE “HPD Pașcani”

Approval documents: - State Council Decree no. 403/26.12.1985 approves the investment objective “Paşcani development

on river Siret in Iaşi and Suceava counties”, whose beneficiary is the National Water Council; - State Council Decree no. 24/1989 approves the investment objective “Hydropower plant Paşcani on

river Siret”, whose beneficiary is the Ministry of Electricity; - GR no. 554/30.05.2002 orders the transfer free of charge of investment objective HPP Pașcani to the

Group, implemented through the Delivery-receipt protocol concluded on 08.07.2002; - GR no. 866/28.06.2006 orders the transfer free of charge of investment objective “Pascani

Development” from the administration of the Ministry of Environment and Water Management, Apele Romane National Administration to the administration of the Ministry of Economy and Trade – the Group and approves the joining of investment objectives (dam + plant) called “Paşcani Hydropower development”, implemented through Protocol no. 1186/17.01.2007;

- METBE Order no. 2910/ 9.11.2011 approving the latest revised general estimate of the investment according to the technical and economic documentation on the substantiation of the revision ratio of the General Estimate for the remaining works as at January 1, 2011;

Works commencement date:

1985 – for dam

1989 – for plant According to the technical and economic parameters approved by State Council Decree no. 24/1989 and METBE Order no. 2910/2011, for the completion of HPD Pascani, the general estimate includes a total value of RON 500,419 for the remainder of the execution, out of which RON 90,966 for HPP Pascani, plus the expenses of building the Pascani Storage in amount of RON 409,453. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is non-fundable. According to Substantiation Note no. 20761/2016, issued by the commission mentioned above and approved by the management, the company proposed to transfer Pascani Development to Apele Romane or another public entity, and the Group would fund the works on HPP Pascani, provided Pascani Development is finalized. The proposal has not been yet validated by the General Meeting of Shareholders. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group suspends such project and will bear all the costs required to preserve it.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) II. INVESTMENT OBJECTIVE “Complex hydropower development of the Olt river on the Fagaras – Hoghiz stretch” Approval documents

State Council Decree no. 24/1989 approving the investment;

GR no. 1211/1996 on the transfer free of charge of the works performed on certain complex dams, to the Ministry of Waters, Forests and Environmental Protection - "Apele Romane" Autonomous Company and the measures to continue and complete the investment objectives and divide the investment objective "Hydropower development of the Olt river on the Făgăraș-Hoghiz stretch” into Veneția Dam on the Olt River and Hydropower Plant Făgăraș- Hoghiz and the transfer of the works performed at Venetia Dam from the Autonomous Electricity Company "RENEL" subordinated to the Ministry of Industry to the "Apele Romane" Autonomous Company subordinated to the Ministry of Waters, Forests and Environmental Protection;

GR no. 424/2003 on the measures to continue the works on complex hydropower investment objectives, abrogating the provisions of GR 1211/1996;

METBE Order no. 2910/2011 – approving the total revised value of the general investment estimate as per the prices valid as at December 31, 2010 on January 1, 2011.

Works commencement date: 1989 According to the development scheme as approved by Decree 24/1989 for the completion of the complex HPD of the Olt river on the Fagaras-Hoghiz stretch, the general estimate includes a total value of RON 2,361,750 for the remainder of the execution. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is non-fundable. According to Substantiation Note no. 20761/2016, issued by the commission mentioned above and approved by the management, the company proposed to transfer “Complex hydropower development of Olt river on Fagaras-Hoghiz stretch” to Apele Romane or another public entity. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group suspends such project and will bear all the costs required to preserve it.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) III. INVESTMENT OBJECTIVE “Hydropower development of the Jiu river on the Valea Sadului-Vădeni stretch”

Approval documents: - Decree no. 40/21.02.1989 – approval of investment; - Government Resolution no. 1211/1996 on the transmission, free of charge, of the works performed

to some complex water dams, to the Ministry of Waters, Forests and Environmental Protection – Autonomous Company "Apele Române" and the measures to continue and complete the investment objectives;

- Government Resolution no. 424/2003 on the measures to continue works on complex hydropower

investment objectives, abrogating Government Resolution no. 1211/1996; - Ministry of Economy, Trade and Business Environment Order no. 2910/09.11.2011 on the approval of

the total revised value of the General Estimate of the investment as at December 31, 2010. Works commencement date: 1989 To complete “HPD of the Jiu river on the Valea Sadului-Vădeni stretch”, the general estimate includes a value of RON 2,375,714. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is partially non-fundable. According to Substantiation Note no. 20761/2016, issued by the commission mentioned above and approved by the management, the company proposed: For Valea Sadului step: - for Valea Sadului dam: the transfer of Valea Sadului dam to Apele Romane (ANAR) or another public

entity. - for HPP Valea Sadului, the completion of HPP Valea Sadului provided Apele Romane or another

public entity completes Valea Sadului dam.

For Curtisoara step: - for Curtisoara dam: the transfer of Curtisoara dam to Apele Romane (ANAR) or another public entity. - HPP Curtisoara: the completion of HPP Curtisoara provided Apele Romane or another public entity

completes Curtisoara dam.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) III. INVESTMENT OBJECTIVE “Hydropower development of the Jiu river on the Valea Sadului-Vădeni stretch” (continued) Proposal: (continued) For Turcinesti step: to waive the construction of such step through a Government Resolution of optimization of the technical and economic parameters. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Company suspends such project and will bear all the costs required to preserve it. IV. INVESTMENT OBJECTIVE “HPD of the Siret river on the Cosmești – Movileni stretch”

Approval documents:

GR no. 311/1990 for approval of investment;

GR no. 1598/2009 – declaring the national interest investment “Hydropower development of the Siret river on the Cosmeşti – Movileni stretch” as being of public use;

METBE Order no. 2910/2011 approving the latest revision of the general investment estimate for prices as at January 1, 2011;

Works commencement date: 1990 For HPP Cosmești, the remainder of the works to be executed determined based on the General Estimate, from which the works for 2011 – 2015 were deducted, is in amount of RON 648,167. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is non-fundable. According to Substantiation Note no. 20761/2016, issued by the commission mentioned above and approved by the management, the company proposed: to finish the works on Movileni step (plant and dam) and to transfer Cosmesti step (less HPP Cosmesti) to Apele Romane (ANAR) or another public use entity and to complete HPP Cosmesti provided Apele Romane or another public entity completes Cosmesti dam. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group suspends such project and will bear all the costs required to preserve it, except for Movileni step for which completion works are executed




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) V. INVESTMENT OBJECTIVE “Hydropower development of Runcu - Firiza” Approval documents: - Decree no. 95/11.04.1989 – on the approval of the technical and economic indicators of the

investment objective in progress at “Runcu – Firiza Hydropower Development”;

- GR no. 489/21.06.1996 on the approval of the revised technical and economic indicators of the investment objective in progress at “Runcu – Firiza Hydropower Development”;

- GR no. 190/30.04.1998 declaring the national interest works as being of public use;

- METBE Order no. 2910/ 09.11.2011 approving the total revised value of the investment objective for

prices as at December 31, 2010. Works commencement date: 1989 To complete investment objective “HPD Runcu - Firiza”, approved by GR no. 489/1996, the general estimate includes a total value of RON 360,109 for the remainder of the execution. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is non-fundable. According to Substantiation Note no. 51550/2016, issued by the commission mentioned above and approved by the management, the company proposed to transfer “HPD Runcu – Firiza” to Apele Romane or another public entity. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group maintains such project under conservation and will bear all the costs required to conserve it. VI. INVESTMENT OBJECTIVE “HYDROPOWER PLANT DÂMBOVIŢA - CLĂBUCET” Approval documents: - Decree no. 10/18.01.1977 approving the investment objective “Hydropower Plant Dâmboviţa -

Clăbucet”, beneficiary the Ministry of Electricity;

- Decree no. 126/9.06.1980 regarding the location of investment works outside the built-up areas of localities, construction of service roads, expropriation of real estate, the deregistration from agricultural production, from the forest fund and the logging of land, and the demolition of buildings, beneficiary Ministry of Electricity;




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued)

VI. INVESTMENT OBJECTIVE “HYDROPOWER PLANT DÂMBOVIŢA - CLĂBUCET” (continued) Approval documents: (continued) - Decree no. 139/19.05.1982 regarding the expropriation, deregistration from agricultural production

and forest fund of land, logging of forest areas and construction of service roads; - Ministry of Economy, Trade and Business Environment Order no. 2050/17.11.2009 regarding the

approval of the total revised value of the General Investment Estimate as at 01.04.2009.

Works commencement date: 1977 To complete HPP Dâmboviţa Clăbucet, the general estimate includes a total value of RON 440,547 for the remainder of the execution. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is non-fundable. According to Substantiation Note no. 48803/2016, issued by the commission mentioned above and approved by the management, the company proposed: - for Ramura Sud – no expenses are required in the approved works remaining to be executed;

- for Ramura Nord – the remaining assets will be realized through their transfer by a documents issued

by a ministry/the Government etc. to another entity. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group suspends such project and will bear all the costs required to preserve it.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) VII. INVESTMENT OBJECTIVE “Hydropower development Surduc – Siriu” Approval documents and other relevant documents:

Decree 351/1979 – approval of the Order Note for the preparation of the technical engineering project and constructions-installations project for objective “Surduc-Siriu Hydropower Development”;

Decree 294/1981 and Expert Appraisal Report IGSIC/1982 – approval of the technical and economic documentation and measures to carry out investment “Surduc-Siriu Hydropower Development”;

GR 1211/1996 1211/1996 on the transmission free of charge, of the works performed on some complex water dams, to the Ministry of Waters, Forests and Environmental Protection – Autonomous Company "Apele Române" and the measures to continue and complete the investment objectives;

GR 1087/2002 – declaring the investment as objective of national interest and public use;

GR 424/2003 regarding the measures to carry on the works on complex hydropower investment objectives;

METBE Order no. 2910/2011 approving the revision of the latest General Estimate – total investment value, at prices as at December 31, 2010 based on the documentation prepared by ISPH S.A. “SURDUC – SIRIU HPD. Technical and economic documentation on the justification of the revision ratio of the general estimate for the remainder of the works as at January 1, 2011 at prices as at December 31, 2010”.

Works commencement date: 07.10.1981 To finish HPD Surduc – Siriu, the general estimate includes a total remainder of the works in amount of RON 2,335,832. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is partially non-fundable. According to Substantiation Note no. 20761/2016, issued by the commission mentioned above and approved by the management, the company proposed:

- for Siriu-Nehoiașu step – to carry on and complete the investment; - for Surduc-Nehoiașu step – to continue and finish the works at hydro-aggregate 1 at HPP Nehoiasu II. - for Cireșu-Surduc step – to transfer Ciresu-Surduc step (less HPP Surduc) to “Apele Romane (ANAR)”

or another public entity and complete HPP Surduc and hydro-aggregate 2 at HPP Nehoiasu II provided Apele Romane or another public entity completes the works on the dam and Ciresu adjacent waterworks.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) VII. INVESTMENT OBJECTIVE “Hydropower development Surduc – Siriu” Proposal: (continued) The proposal has been validated by the General Meeting of Shareholders through Decision no.18/16.09.2016.

VIII. INVESTMENT OBJECTIVE “Hydropower development of the Olt river on the Izbiceni – Dunăre stretch. HPP Islaz” Approval documents:

GR no. 9 of 9 January 2003 regarding the approval of the technical and economic indicators of investment objective “Hydropower development of the Olt river on the Izbiceni Dunăre stretch - HPP Islaz”

GR no. 1929 of November 10, 2004 approving the revised technical and economic indicators of investment objective “Hydropower Development of the Olt river on the Izbiceni – Dunăre stretch. HPP Islaz”, Olt and Teleorman counties.

METBE Order no. 2910/ 09.11.2011 approving the total revised value of the investment objective. To finish “Hydropower Development of the Olt river on the Izbiceni – Dunăre stretch. HPP Islaz”, the general estimate includes a total remainder of the works in amount of RON 1,419,700. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is non-fundable. According to Substantiation Note no. 20761/2016 issued by the commission mentioned above and approved by the Management, the company approved all the steps necessary (for example, without limitation, studies, approvals, projects, substantiation notes etc.) for the issuance of a regulation that abrogates the documents approving the investment. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group suspends such project and will bear all the costs required to preserve it.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) IX. INVESTMENT OBJECTIVE “HPD of the Bistriţa river on the Borca - Poiana Teiului stretch”

Approval documents:

State Council Decree no. 95/11.04.1989 approving the investment;

GR 489/1996 approving the revised technical and economic indicators;

Ministry of Economy, Trade and Business Environment Order no. 2910/09.11.2011 approving the total revised value of the general estimate of the objective as at December 31, 2010.

Works commencement date: 1989 To complete the Galu step, the net value of the remainder of the works to be executed is RON 659,129. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is partially non-fundable. According to Substantiation Note no. 48806/2016 issued by the commission mentioned above and approved by the Management, the following was proposed: - for Poiana Teiului step, completion of works following the optimization of the remainder of the

works to be executed from the general estimate; - for Galu step, cessation of the works on this step.

The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group suspends such project and will bear all the costs required to preserve it. X. INVESTMENT OBJECTIVE “HPD Bistra, Poiana Mărului, Ruieni, Poiana Rusca” Approval documents:

State Council Decree no. 294/1981 approving the main technical and economic indicators of the investment;

METBE Order no. 2910/09.11.2011 approving the General Estimate – remainder to be executed as at January 1, 2011 at prices valid as at December 31, 2010.

Works start date: 1981 To finish “Hydropower Development Bistra, Poiana Mărului, Ruieni, Poiana Rusca”, the value of the remainder of the works to be executed as at January 1, 2016 is RON 1,618,480.




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued)

X. INVESTMENT OBJECTIVE “HPD Bistra, Poiana Mărului, Ruieni, Poiana Rusca” (continued) Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is partially non-fundable. According to Substantiation Note no. 48810/2016 issued by the commission mentioned above and approved by the Management, the following were proposed: - for Ruieni step, the company proposed the continuation of the works for the completion of Bistra–

lake Poiana Marului secondary waterwork, which will generate power of 32.32 GWh/year; Completion of safety works at Zerveşti Storage, which consist in finishing the connection between the canal that diverts the Sebeş river and the power dissipater, finishing the canal that diverts the Dalci river and finishing the water regulation works downstream of HPP MP Zerveşti.

- for Raul Alb step, the proposal is to renounce the works at the Raul Lung secondary water delivery

canal, Raul Alb catchment system, Raul Lung catchment system, located in the protected area “SIT NATURA 2000 Muntii Tarcu” and to finish works at the Raul Alb step, which consist in constructing the fish ladder at HPP MP Raul Alb, restoring the initial state of the land occupied temporarily by the technological platform downstream of the Poiana Rusca dam and restoring the initial state of the land occupied temporarily by the Poiana Rusca site;

- for Scorilo step, the proposal is to renounce the construction of this step as approved by State

Council Decree no. 294/1981. The proposal has not been validated by the General Meeting of Shareholders yet. Until the approval of the GMS as regards the proposals presented in the Substantiation Note, the Group maintains such project under conservation and will bear all the costs required to conserve it. XI. INVESTMENT OBJECTIVE “Hydropower development of the Strei river on the Subcetate – Simeria stretch”

Approval documents:

Decree no. 40/1989 - approving the investment;

GR no. 392/2002 – declaring the investment as being of public use and national interest, according to Law no. 33/1994;

METBE Order no. 2910/2011 – revising the latest General Estimate of the Investment as at January 1, 2011 at prices valid as at December 31, 2010 based on the documentation “Technical and economic documentation regarding the justification of the revision ratio of the general estimate for the remainder of the works as at January 1, 2011 at prices valid as at December 31, 2010” prepared by ISPH, 2011.

Works commencement date: 1989




3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Projects analyzed (continued) XI. INVESTMENT OBJECTIVE “Hydropower development of the Strei river on the Subcetate – Simeria stretch” (continued) Completion of “Hydropower development of the Strei river on the Subcetate – Simeria stretch” for the solutions in Decree no. 40/1989 and METBE Order 2910/2011 means an investment of RON 908,747. Proposal: Based on internal calculations, such values have generated negative financial analyses (even without considering the amounts already expensed) as regards the profitability of the investment. Therefore, for any investor interested to obtain profit, such investment is partially non-fundable. According to Substantiation Note no. 48802/2016, issued by the commission mentioned above and approved by the Management, the company proposed: - for Bretea step – to finish the works; - for Strei, Călan, Băcia and Simeria steps – not to start the execution of such steps based on an

optimization survey.

The proposal has been validated by the General Meeting of Shareholders through Decision no.18/16.09.2016. The main investments to be analyzed I. INVESTMENT OBJECTIVE “HPD Cerna-Belareca” Approval documents:

- Decree 351/1979 approving the Order Note for the preparation of the technical engineering project and constructions-installations project and measures to carry out the investment Belareca-Cerna Hydropower Development;

- Decree no. 158/13.05.1980 approving the execution project, construction solutions and the other elements with the main technical and economic indicators and the measures to carry out investment Belareca-Cerna Hydropower Development, as a development with two dams, Herculane and Cornereva, one plant, Herculane, common for the two falls, equipped with 3 turbines.

- the scheme is under construction, until present the Herculane fall, including Herculane plant and some works at Belareca fall have been completed.

- Ministry of Economy, Trade and Business Environment Order no. 2910/09.11.2011 regarding the approval of the total revised value of the general estimate of the investment as at December 31, 2010.

Works commencement date: 1980.





The main investments to be analyzed

II. INVESTMENT OBJECTIVE “Hydropower development of the Olt river gorge on the Cornetu –Avrig stretch” Approval documents:

- State Council Decree no. 24/03.02.1989 approving the investment;

- Ministry of Economy, Trade and Business Environment Order no. 2910/09.11.2011 regarding the approval of the total revised value of the General Estimate of the investment, based on the supporting documentation for the revision of the General Estimate at prices valid as at December 31, 2010 as at January 1, 2011.

Works commencement date: 1989

4. TRADE AND OTHER RECEIVABLES As at June 30, 2016 and December 31, 2015, the trade and other receivables are as follows:

June 30, December 31,

2016 2015

000 RON 000 RON

Trade receivables 419,941 349,872 Other receivables - - Allowance for doubtful receivables (30,570) (27,017)

Total 389,371 322,855

As at June 30, 2016 and December 31, 2015, the customers (gross value) are as follows:


2016 2015

000 RON 000 RON

Electrica 58,816 33,750 Transelectrica S.A. 128,722 124,270 Transenergo 41,205 33,482 Gen-I Trgovanje in prodaja electricne 17,208 8,148 E-On 8,747 12,804 Enel 35,143 21,437 Alro Slatina 8,741 15,707 Tinmar Ind 2,650 13,687 OPCOM 9,487 2,012 CET Brasov (in litigation) 18,725 18,725 Other doubtful clients or under litigation 11,093 7,563 Other 79,404 58,287

419,941 349,872




4. TRADE AND OTHER RECEIVABLES (CONTINUED) Movement in the allowance for trade receivables is as follows:


2016 2015

000 RON 000 RON

Balance at the beginning of the year 27,017 26,924

Allowances for doubtful customers 3,555

170

Reversal of allowance for doubtful customers (2) (77)

Balance at the end of the period 30,570 27,017

5. OTHER CURRENT ASSETS As at June 30, 2016 and December 31, 2015, other assets are as follows:

June 30,

December 31,

2016

2015

000 RON

000 RON

Advances to suppliers 6,617

361 VAT recoverable -

6,943

Prepaid expenses 51,020 3,681 Green allowances granted 10,748 10,029 Other current assets 6,134

6,972

Total 74,519

27,986

6. CASH AND CASH EQUIVALENTS As at June 30, 2016 and December 31, 2015, the cash and cash equivalents are as follows:

June 30,

December 31,

2016

2015

000 RON

000 RON

Bank accounts 1,822,517

1,047,082 Petty cash 200

160

Cash equivalents 76

68

Total cash and cash equivalents 1,822,793

1,047,310

A part of the collections resulted from the operating activity of the Group is pledged to banks (see Notes 10 and 11).




7. EQUITY As at June 30, 2016 and December 31, 2015 the Group’s share capital fully authorized and paid is divided into 448,148,224 ordinary shares with a nominal value of RON 10/share. As at June 30, 2015 the Group’s shareholders are: the Romanian State through METBE, which owns 358,769,989 shares, representing 80.056% from the share capital and Fondul Proprietatea, who owns 89,378,235 shares with a weight of 19.94% in the share capital. As at June 30, 2016 the share capital presented in the consolidated financial statements in amount of RON 5,510,354 includes the effect of restatements recorded in prior years and the effects of hyperinflation under IAS 29: “Financial reporting in Hyperinflationary Economies”. Reconciliation of share capital:

June 30,

December 31,

2016

2015

000 RON

000 RON

Statutory share capital (nominal value) 4,481,482

4,481,482 Adjustments resulting from the adoption of IAS 29 1,028,872

1,028,872

Share capital 5,510,354

5,510,354

The shareholders have the right to dividends and each share offers voting rights in shareholders’ meetings. Revaluation reserve The revaluation reserve in amount of RON 6,362,148 as at June 30, 2016 is the result of the revaluation of tangible assets at December 31, 2015, December 31, 2012, December 31, 2009 and December 31, 2006, December 31, 2003 and revaluation prior to 2003. Retained earnings Retained earnings include cumulated profit or loss, statutory legal reserves, reserves representing revaluation surplus and specific reserves for energy as presented below:

The special destination fund for the energy sector in amount of RON 97,000 thousand (as at December 31, 2012: RON 97,000), the reserves thus set up being used for financing own investment works destined for the upgrading and development of the energy objectives stated in GO no. 89/2004. As of 1 January 2005, according to GO no. 89/2004 approved by Law no.529/2004, the Company made reserves every month within the limit of 6% of the income made from the supply of electricity, within the limit of the accounting profit, deductible in determining the accounting profit. The reserves made are used for the financing of own investment works destined for upgrading and development of the energy objectives, according to the destinations stated by GEO no. 89/2004. The provisions of GO no. 89/2004 were applicable until 31 December 2006.

As at June 30, 2016 the legal reserves in amount of RON 215,394 (as at December 31, 2015: RON 215,394) represent legal reserve according to the statutory financial statements of the Company. The Company transfers to legal reserve maximum 5% of its annual accounting profits until the cumulative balance reaches 20% of its paid up share capital.




7. EQUITY (CONTINUED) Retained earnings (continued)

Reserves representing revaluation reserves surplus in amount of RON 5,491,022 as at June 30, 2016 (RON 1,121,022 as at December 31, 2015), representing surplus from the revaluation reserves further to the scrapping, sale and full depreciation of fixed assets and transfer of revaluation reserves further to changes in the accounting policy for realizing the revaluation reserves to retained earnings representing surplus from revaluation reserves as the fixes assets are depreciated.

Retained earnings as at June 30, 2016 represents RON 5,378,652 (as at December 31, 2015: RON 339,004). The retained earnings are distributable based on the statutory financial statements. According to Romanian Fiscal Code, 5% from the statutory profit (from the statutory financial statements) for the year should be transferred to the legal reserve, until it reaches a value of 20% of share capital. Change in accounting policy In 2015, the Company’s management approved the change in accounting policy as regards the transfer of the revaluation reserve to retained earnings representing surplus from revaluation reserves. Starting from January 1, 2016, gains on revaluation are realized as the asset is used by the Company. Effects of changes to accounting policies The change of the accounting policy presented above requires the company to create reserves representing surplus from revaluation reserves of approximately RON 4,842 thousand. 8. SHORT-TERM BORROWINGS As at June 30, 2016 and December 31, 2015, the short-term borrowings are as follows:

June 30,

December 31,

2016

2015

000 RON

000 RON

BRD Bank - - CITI Bank -

-

-

-

Other short-term borrowings (facility credit lines contracted by subsidiaries) 22,164

24,181

Total short-term borrowings 22,164

24,181




9. LONG-TERM BORROWINGS

As at June 30, 2016, the RON 334,036 owed to credit institutions in more than one year represents:

Description June 30,

2016 December 31,

2015

Contract: International Bank for Reconstruction and Development

(“BIRD”) from July 13, 2005 for EUR 66 thousand – loan taken for the rehabilitation of hydropower from Lotru and institutional development of the society. The loan agreement is effective from January 25, 2006, after ratification by the Parliament of Romania of the agreement between BIRD and Romanian State.

Repayment: on a quarterly basis starting with March 15, 2010 and ending with the last installment in September 15, 2021.

Guarantees: The loan is guaranteed by the Romanian Government through the Ministry of Finance.

138,578 151,313

Contract: Banca Comerciala Romana – Bucharest Branch – dated December 9, 2010, in amount of EUR 50 thousand– facility will be utilized for the financing of investments in the developing of hydro electrical plants (new and/or existing).

Repayment: 23 quarterly installments beginning with July 9, 2012, with December 8, 2017 as the final reimbursement date.

Guarantees: Comfort letter (no. 4103/2010) issued by the Ministry of Economy, Commerce and Business Environment and security interest over all the accounts opened with BCR.

68,798

88,523

Contract: ING Bank NV Dublin – dated March 22, 2011 for EUR 60

million – loan contracted for the financing of investment/maintenance of the network of hydro electrical plants.

Repayment: Reimbursement started on 07.06.2012, with the principal amount distributed over 17 equal quarterly installments during 07.06.2012-07.06.2016. On August 29, 2014 was approved the reimbursement of the loan in the period 7 March 2016 – 7 December 2018, and a considerable discount of costs was obtained.

Guarantees: assignment of receivables related to electricity supply contracts: no. 47CE/08.09.2005 with ALRO Slatina SA, no. 5/03.01.2011 with Electrica Furnizare and no. 9/03.01.2011 concluded with Enel Energie and by a security interest over all bank accounts opened with the bank.

95,738 127,750




9. LONG-TERM BORROWINGS (CONTINUED)


2016 December 31,

2015

Contract: BRD Groupe Societe Generale – June 10, 2011, EUR 30 thousand – loan taken to finance the investment / rehabilitation of hydroelectric network. Repayment: 16 equal quarterly installments during 05.10.2012-10.06.2016. Guarantees: Comfort letter issued by METBE and assignment of Company’s receivables based on electricity supply contracts no: 865/17.02.2015 E.ON Energie Romania, 950/18.03.2015 Electrica Furnizare, 951/18.03.2015 Electrica Furnizare, 985/20.04.2015 Axpo Energy, 987/21.04.2015 Axpo Energy, 1037/25.05.2015 GEN-I Slovenia, 1038/25.05.2015 GEN-I Slovenia, 1039/25.05.2015 GEN-I Slovenia, 1085/15.07.2015 Transenergo COM, 1086/15.07.2015- Transenergo COM, 1087/15.07.2015 Transenergo COM, 1088/15.07.2015 Transenergo COM, 1089/15.07.2015 Transenergo COM, 1090/15.07.2015 Transenergo COM, 1115/03.08.2015 E.ON Energie Romania, 1116/04.08.2015 E.ON Energie Romania, 1117/04.08.2015 E.ON Energie Romania, 1120/05.08.2015 Imperial Development, 1139/26.08.2015 Transelectrica SA, 1140/26.08.2015 Transelectrica SA, 1141/26.08.2015 Transelectrica SA, 1147/04.09.2015 Curent Alternativ, 1153/15.09.2015 RCS& RDS, 1156/16.09.2015 Electrica Distributie Transilvania Sud, 1157/16.09.2015 RCS & RDS, 1158/16.09.2015 Electrica Distributie Transilvania Sud, 1159/16.09.2015 Electrica Distributie Transilvania Sud, 1160/16.09.2015 RCS & RDS, 1164/17.09.2015 Enel Distributie Muntenia, 1165/17.09.2015 Enel Distributie Dobrogea, 1166/17.09.2015 Imperial Development, 1171/25.09.2015 Electrica Distributie Transilvania Sud, 1172/25.09.2015 General Com Invest, 1173/25.09.2015 Menarom, 1174/25.09.2015 Electrica Distributie Transilvania Sud, 1175/25.09.2015 Electrica Distributie Transilvania Sud, 1176/25.09.2015 Three Wings, 1177/25.09.2015 Icco Energ, EFET/14.01.2015 EDS, EFET/25.05.2015 Enel Energie, EFET/25.05.2015 Enel Energie Muntenia. To secure the financial liabilities generated based on such long-term financing contract, the company agreed on a security interest in personal property over the accounts opened BRD, established in favor of the Bank.

- 25,450

Contract: ING Bank NV Amsterdam – November 16, 2009, EUR 60 million – the facility will be used to fund the investments in the development of the network of hydropower plants (new and/or existing). The credit facility was taken over by ING Bank NV Dublin as at December 3, 2009. Repayment: 10 equal quarterly instalments, in the period September 7, 2016 – December 7, 2018. Guarantees: the assignment of receivables that the Company must collect from ALRO Slatina SA (contract of energy supply 47CE/08.09.2005), Electrica Furnizare (contract of energy supply no. 5/03.01.2011) and Enel Energie (contract of energy supply no. 9/03.01.2011) and real security interest in personal property established on all the accounts opened with ING except for the account related to the contract concluded with IBRD in amount of EUR 66 million.

18,084 18,098




9. LONG-TERM BORROWINGS (CONTINUED)


2016 December 31,

2015

Contract: BRD GSG - ING Bank – April 7, 2015, EUR 50 million – loans for general financing needs. Repayment: 20 equal quarterly instalments, starting from the payment date of the interest which falls immediately after the last draw. Guarantees: real security interest in personal property over the accounts opened with BRD and ING Bank and the assignment of receivables that the company must collect based on contracts of electricity supply: no. 1/03.01.2011 - E.ON Energie Romania, 7/03.01.2011 - Enel Energie Muntenia, 15/03.01.2011 - CEZ Vanzare, 529/05.08.2014 - Eolian Project, 534/06.08.2014 - Entrex Services SRL, 709/17.10.2014 - Electrica Furnizare, 714/23.10.2014 - Three Wings, 727/03.11.2014 - Getica 95, 728/03.11.2014 - Enex, 729/03.11.2014 - Getica 95, 731/04.11.2014 - OMV Petrom, 736/11.11.2014 - Energy Distribution SRL, 737/11.11.2014 - Getica 95, 754/20.11.2014 - Energy Distribution SRL, 756/20.11.2014 - Energy Distribution SRL, 757/20.11.2014 - Energy Distribution SRL, 759/26.11.2014 - Arelco Power, 760/26.11.2014 - Arelco Power, 761/26.11.2014 - Arelco Power, 762/26.11.2014 - Arelco Power, 766/27.11.2014 - Arelco Power, 769/28.11.2014 - Electrica Distributie Transilvania Sud, 770/28.11.2014 - E.ON. Energie Romania, 772/03.12.2014 - Enel Energie, 773/03.12.2014 - Enel Energie, 774/03.12.2014 - Enel Energie, 775/03.12.2014 - Tinmar, 789/16.12.2014 - Electrica Distributie Transilvania Sud, 792/16.12.2014 - Transelectrica SA, 796/18.12.2014 - Electrificare CFR, 797/18.12.2014 - OMV Petrom, 798/18.12.2014 - OMV Petrom, 392/30.05.2014 - Enel Energie, 878/19.02.2015 - Alro Slatina, 883/23.02.2015 - Repower Furnizare, 884/23.02.2015 - Repower Furnizare, 891/27.02.2015 - Electrica Furnizare, 921/10.03.2015 - Electrica Furnizare, 956/19.03.2015 - C-Gaz & Energy Distributie, 957/19.03.2015 - Eolian Project, 968/31.03.2015 - Eolian Project, 972/01.04.2015 - Industrial Energy, 985/20.04.2015 - Axpo Energy, 987/21.04.2015 - Axpo Energy, 997/05.05.2015 - CEZ Distributie, 1026/14.05.2015 - Arelco Power, 1027/14.05.2015 C-Gaz & Energy Distributie, 1028/14.05.2015 - Arelco Power, 1118/05.08.2015 - Imperial Development, 1119/05.08.2015 - Imperial Development, 1121/06.08.2015 - Menarom.

79,855 79,916

Total long-term liabilities 401,053 491,050

Less current portion (67,017) (156,756)

Total long-term borrowing net of current instalments 334,036 334,294




10. TRADE AND OTHER PAYABLES As at June 30, 2015 and December 31, 2015, trade and other payables were as follows:

June 30,

December 31,

2016

2015

000 RON

000 RON

Suppliers of energy 11,046

10,911 Suppliers of fixed assets 59,465

34,025

Water suppliers 98,788 24,149 Repairs suppliers 4,513 6,085 Other payables 42,851

61,580

Total 216,663

136,750

The suppliers of energy are:

June 30,

December 31,

2016

2015

000 RON

000 RON

Transelectrica SA 10,913

6,078 SN Nuclearelectrica SA -

2,053

Others 133

2,780

Total 11,046

10,911

11. DEFERRED REVENUES As at June 30, 2016 and December 31, 2015, deferred revenues mainly consist of subsidies for investments received from METBE, for the financing of certain investment projects: Short-term revenues changed as follows:

June 30,

December 31,

2016

2015

000 RON

000 RON

Balance as at January 1

16,960

19,888

Deferred proceeds from investment subsidies

-

-

Deferred proceeds from sales of electricity

78,414

216,972 Reversal to income from investment subsidies

(4,436)

(4,634)

Reversal to income from sale of electricity

(87,305)

(220,501) Other deferred revenues

(14)

362

Reclassification of subsidies from long-term to short-term investments 7,038

4,873

Balance as at the end of the period

10,657

16,960




11. DEFERRED REVENUES (CONTINUED) Long-term revenues changed as follows:

June 30,

December 31,

2016

2015

000 RON

000 RON

Balance as at January 1

189,034

183,477

Deferred proceeds from investment subsidies

5

5,026

Reclassification of investment subsidies from long-term to short-term (7,038)

(4,873)

Deferred proceeds from deferred green allowances

3,888

5,403

Balance as at end of the period

185,889

189,033

Deferred revenues Short-term Long-term portion

June 30, 2016

portion within 1 year

in more than 1 year

000 RON 000 RON 000 RON

Investment subsidies 176,477 7,698 168,779 Deferred green allowances 17,110 - 17,110 Deferred revenues from sales of electricity 2,346 2,346 - Other revenues 400 400 - Deferred revenues for assets received by transfer from clients 214 214 -

Balance as at the end of the year 196,547 10,658 185,889

Deferred revenues Short-term Long-term portion

December 31, 2015

portion within 1 year

in more than 1 year

000 RON 000 RON 000 RON

Investment subsidies 180,908 5,096 175,812

Deferred green allowances 13,222 - 13,222 Deferred revenues from sales of electricity 11,237 11,237 - Other revenues 413 413 - Deferred revenues for assets received by transfer from clients 214 214 -

Balance as at the end of the year 205,994 16,960

189,034




12. INCOME TAX

The income tax expense for the period ended June 30, 2016 and December 31, 2015 consists of current and deferred tax recognized in the consolidated income statement:

June 30,

December 31,

2016

2015

000 RON

000 RON

Current income tax expense 186,922

210,973 Deferred tax expense / (income) 24,043

(42,575)

Total 210,965

168,398

The current income tax of the Group for the period ended June 30, 2016 and December 31, 2015 is determined based on statutory profits, adjusted for non-deductible expenses and non-taxable income at a statutory rate of 16%. As at June 30, 2016 and December 31, 2015, deferred taxes related to temporary differences as at such dates are as follows:

June 30, 2016 December 31, 2015

Cumulated temporary differences

Deferred tax (receivable) /

liability

Cumulated temporary differences

Deferred income

(receivable) / liability

Deferred tax from revaluation reserve 3,823,198 611,712

3,805,797

608,928

Deferred tax from different useful lives 178,166 28,507 - -

Deferred tax from financial instruments - - 187,972 (30,076)

Employee benefits 10,389 (1,662) 10,389 (1,662) Other provisions 2,353 (376) 2,353 (377)

Total deferred tax

liability 4,014,105 638,181

4,006,511 576,813




12. INCOME TAX (CONTINUED)

December 31, 2015

Recognised in profit or loss

Comprehensive income

June 30, 2016

000 RON

000 RON

000 RON

000 RON

Deferred tax from: Revaluation reserve 608,928 (34,540) 37,325 611,712

Different life spans - 28,507 - 28,507 Financial instruments (30,076) 30,076 - - Employee benefits to

subsidiary’s employees (1,662) - - (1,662) Other provisions (376) - - (376)

Total deferred tax liability 576,814 (24,043) 37,325 638,181

Starting from May 1, 2009 in accordance with changes in the tax treatment of revaluation reserve according to GEO no 34/2009 amending the Fiscal Code, the revaluations made by the Group after January 1, 2004 and recorded in the statutory financial statements, are taxed while depreciation expense is deducted, i.e. at the removal / disposal of the related fixed assets. Therefore, the Company recognized a deferred tax liability for revaluation reserve directly in equity. In the 6-month period ended June 30, 2016, the Group management identified a correction of deferred tax related to the revaluation reserve, registered in the year ended December 31, 2015 in amount of RON 37,325 thousand. The Group management considers that the impact of such adjustment is not material for the interim consolidated financial statements and registered such correction in the interim consolidated financial statements for the 6-month period ended June 30, 2016. 13. EMPLOYEE BENEFITS

As at June 30, 2016, the Group recorded a liability regarding the employee benefits, in amount of RON 75,950 (December 31, 2015: RON 75,950). The employee benefit obligations were determined by an independent firm of actuaries, KPMG Advisory SRL (“KPMG”), and recorded by the Group in the financial statements at 31 December 2015. The Group’s management did not update the liabilities with employees’ benefits as at June 30, 2016, since it deems that the structure of the variables taken into account in this estimate did not change significantly compared to December 31, 2015.

The estimation of these obligations has been made considering the following:

Number of employees at December 31, 2015 and number of employees estimated by the Group based on the projected rates of departure from the National Institute of Statistics („INS”), other statistical data provided by INS;

Salary base as at December 31, 2015 and base salaries estimated by the Group for the future periods;

The inflation rate for the period January – December, 2015 (including data from December, 2015), published by the INS and the inflation rate estimated by the Group for future periods;




Electricity price at December 31, 2015 and the estimated price of the Group for future periods.

The interest rate obtained considering the Treasury bill issued by the Ministry of Finance, assessment of the country risk, evaluation of the EUR exchange rate issued by the European Central Bank.




14. OTHER PAYABLES As at June 30, 2016 and December 31, 2015, other payables are as follows:

June 30, 2016

December 31, 2015

Current Long-term

Current

Long-term

000 RON 000 RON

000 RON

000 RON

Advances received from customers 6,700 -

6,789 - Payables towards State Budget 175,137 -

60,954 -

Dividends payable 675,115 -

- - Project execution bonds 25,293 25,923 23,754 26,730 Other sundry debtors 16,036 -

15,099 -

Other long-term payables - 4 - 5

Total 898,281 25,927

106,596 26,735

15. PROVISIONS

June 30,

December 31,

2016

2015

000 RON

000 RON

Provisions for litigation 62,820

64,338 Provisions for restructuring 8,915

8,915

Other provisions 12,469

24,785

TOTAL 84,204

98,038

Provisions in amount of RON 84,204 represent the value of the provisions for litigation, compensatory salaries, and other provisions as follows:

Hidroelectrica went into insolvency on June 20, 2012, reason for which there were provisions created for litigations related to claims submitted in the table of creditors rejected by the judicial administrator from the preliminary table of debts. These provisions are mainly:

for the litigation concerning penalties and interest required by Termoelectrica and admitted in the table of creditors, totaling RON 8,499;

provision for litigation (pending case) for salary claims required by employees of Sebes working point, in total amount of RON 1,605, admitted in the table of creditors under the condition.

provision for disputes regarding land expropriations related to the INVESTMENT OBJECTIVE “Hydropower development of the Strei river on the Subcetate – Simeria stretch” in amount of RON 14,691;




15. PROVISIONS (CONTINUED)

provision ANDRITZ HYDRO, for enforcement of good performance bond no. 8813G1014112A001 for the project "Refurbishment of HPP Lower OLT" in amount of RON 35,618;

provision for restructuring in amount of RON 8,045 – representing gross compensatory salaries and unit’s contributions owed to dismissed employees under the collective labor agreement;

provision for untaken leaves as at June 30, 2016 in amount of RON 8,233;

Provisions for

litigation

Provisions for restructuring

Other provisions

Total

Balance as at January 1 64,338 8,915 24,785 98,038

Provisions recognized in

profit or loss - - 8,464 8,463 Provisions reversed

through profit or loss (1,518) - (20,779) (22,297)

Balance as at the end of

the period 62,820 8,915 12,470 84,204

16. ELECTRICITY REVENUES The Group has sold approximately 9,243 thousand MWh in the first 6 months of 2016 (11,472 thousand MWh in the first 6 months of 2015). The price of electricity for the energy rendered on the regulated market is regulated by RERA. The revenues for the periods ended June 30, 2016 and June 30, 2015 are as follows:

U.M.

June 30, 2016

June 30, 2015

1. Total electric energy delivered MWh 9,243,311 10,213,362 (A+B+C) out of which : lei 1,412,485 1,592,450 A. Electric energy delivered on the MWh 1,502,426 2,415,567 Regulated market lei 179,797 291,136 B. Electric energy delivered on other markets MWh 7,740,885 7,797,795 Competitive, out of which: lei 1,232,688 1,301,315

Licensed suppliers (Alro) MWh 178,680 173,720

lei 30,041 29,876

Export MWh - 92,920

lei - 16,256

Day Ahead Market MWh 294,978 922,010

lei 51,903 180,285




16. ELECTRICITY REVENUES (CONTINUED)

U.M.

June 30, 2016

June 30, 2015

Centralized Market for Bilateral Contracts (CMBC+OTC)

MWh 5,246,578 5,539,685

lei 782,288 859,288

Centralized Market for Universal Service MWh 1,379,230 414,960

lei 206,865 66,182

Intraday MWh 13 0

lei 3 0

Balancing market MWh 639,929 648,781

lei 159,450 146,986

PRE members MWh 5 2

lei 1 1

Direct consumers MWh 5,456 5,716

lei 2,133 2,441

Micro HPP purchasers MWh 0 1

lei 0 0

End consumers MWh 17 0

lei 3 0 2. System services, transmission, market administration out of which: lei 192,917 249,014 Delivered to Transelectrica SA (secondary regulation of frequency/power, power reserve, assurance of reactive power and tension regulation) lei 174,687 149,582 Transmission services for the electricity sold on the regulated market lei 3,035 25,338 System, transmission and market administration services on the competition market lei 15,195 74,094 3. Green allowances lei 7,250 6,287 4. Other revenues lei 454 219

TOTAL TURNOVER (1+2+3+4) lei 1,613,106 1,847,970

17. PURCHASES OF ELECTRICITY The purchases for the years ended June 30, 2016 and June 30, 2015 are as follows:

June 30,

June 30,

2016

2015

000 RON

000 RON

Transelectrica SA (balancing market) 4,702

5,449 OPCOM 8,079

9,816

Interenergo Energy Engineering 987 1,494 Ezpada Sro 101 1,331 Other energy suppliers 1,353

3,173

Total 15,222

21,263




18. OTHER OPERATING INCOME Other operating income was as follows:

June 30,

June 30,

2016

2015

000 RON

000 RON

Deferred revenues reversal 4,435

3,479

Income from repair and maintenance activity 1,088 2,238 Other income 3,400

3,612

Total 8,923

9,329

19. OTHER OPERATING EXPENSES Other operating expenses are as follows:

June 30,

June 30,

2016

2015

000 RON

000 RON

Transport and energy distribution 22,175

102,729 Water expenses 206,291

216,835

Services sub-contracted for repairs and maintenance 293

382 Provisions for current assets 3,727

60

Provisions for non-current assets 7,964

6,766 Other provisions (13,834)

1,103

Penalties for delay in payments to suppliers 21,953

3,478 Security expenses 5,108

5,316

Transportation expenses 2,918

3,490 Carrying value of disposed items (2,117)

(3,772)

Tax on special constructions 27,275 49,997 Revaluation impact 30 - Others 42,433

22,223

Total 324,216

408,607

Penalties in amount of RON 21,953 represent mainly the value of a the fine imposed by the Competition Council in amount of RON 20,436. The Competition Council imposed a fine of RON 20,436 on the Company according to Decision no.82/24.12.2015 of the Competition Council communicated on April 25th, 2016 which established that Hidroelectrica SA had breached Art5. para.(1) letter b) of Competition Law no.21/1996, republished, as subsequently amended and suplemented by taking part in an anti-competition agreement consisting in limiting the trading of electricity for other electricity suppliers and/or eligible consumers in Romania, and limiting other producers in selling to contractual partners of Hidroelectrica SA.




20. FINANCIAL RESULT Financial result is presented as follows:

June 30,

June 30,

2016 2015

000 RON 000 RON Interest income 8,953

4,959

Other financial income 6

43 Gain from operations with embedded derivatives 187,972 -

Financial income 196,931

5,002

Interest expense (2,764)

(5,162)

Other financial expenses (952)

(8) Loss from operations with embedded derivatives - -

Financial expenses (3,176)

(5,170)

Net foreign exchange loss on financing activities 748 (8,358)

Financial profit / (loss) 193,963

(8,526)

21. TAXATION The taxation system in Romania is undergoing a continuous development phase and is subject to various interpretations and constant changes which may sometimes be retroactive. Although the actual tax due for a certain transaction can be minimal, penalties can be significant, as they can be calculated at the value of the transaction and at a minimum ratio of 0.02% per day starting with January 1, 2016, and 0.01% penalties for each day of delay. In Romania, the fiscal year remains open for tax audit for a period of 5 years. The management considers that the tax liabilities included in these consolidated financial statements are adequate; there is a risk that the tax authorities could interpret them in a different manner. Their impact could not be determined at this date, but management believes that will not significantly affect the financial position and financial result of the Group. In accordance with the requirements issued by the Ministry of Public Finance, which relates to the fiscal treatment of the elements of equity that have not been subject to the calculation of the income tax as at the date of their recording in the accounts, due to their nature, should the entities members of the Group change in the future the destination of the statutory revaluation reserves (to cover losses or to distribute to the shareholders), this will lead to additional income tax liabilities.




22. OPERATIONAL ENVIRONMENT Although Romania is a member of the European Union since 1 January 2007, the economy of Romania has the characteristics of an emerging market with a high current account deficit, a relatively underdeveloped financial market and exchange rate variations. International financial markets are currently feeling the effects of the global financial crisis of 2008. These effects were felt on Romanian financial market in the form of a decrease in the price and liquidity of capital markets and by an increase in the average interest rate due to the global liquidity crisis. Significant losses experienced by global financial markets may affect the Group's ability to obtain new loans at terms and conditions similar to those used in previous transactions. The financial statements do not include adjustments relating to the recovery and classification of assets or the classification of liabilities that could result if the Group is unable to continue its work because it applies the principle of going concern. Management believes that the assumptions underlying the financial statements are entitled, given the strategic importance position held by the Group in the national energy system.

The financial status of the Group depends on future steps to be taken in terms of rate and / or the support of the Romanian Government. Given that the activity of the Group is controlled partly by RERA, the most important risks faced are:

The regulatory environment is relatively new and prone to changes, which may impact the Group's performance;

RERA decisions on price changes may affect the Group's business, (energy price for distribution companies is not only determined by the Group, but is regulated by RERA);

Retirement of certain assets could generate a reduction in the regulated asset base, which can lead to lower selling prices approved by RERA, having a negative impact on the Group’s profit. 23. COMMITMENTS AND RESTRICTIONS

1) Contracts for the refurbishment and upgrading of hydropower plants/hydro aggregates Refurbishment of HPP Portile de Fier II In 2001, the Company entered into an agreement with VA Tech Hydro (now Andritz Hydro) Ltd. in the amount of EUR 254,850 for the rehabilitation and upgrading of the Portile de Fier II hydroelectric (8 groups) and hydropower plant from Gogosu (2 units), with deadline for completion in 2014. At the beginning of 2013, works for HPP Gogosu were denounced with a value stipulated in the contract of EUR 54,500. As at the end of 2015, the refurbishment works were finalized for 7 groups at hydro power plant Portile de Fier II with an increased installed power by 7 x 4.4MW = 30.8 MW and the works for the refurbishments to the 8th group (HA1) have started.




23. COMMITMENTS AND RESTRICTIONS (continued)

1) Contracts for the refurbishment and upgrading of hydropower plants/hydro aggregates (continued) Refurbishment of HPP Portile de Fier II (continued) On June 6, 2013, the management of the Group, by its representatives, decided to terminate the Refurbishment Contract for HPP Porţile de Fier II no. 2I/50765/21.12.2001 (clause 42 of the Business Terms of the contract), and the remainder of the works would become Hidroelectrica S.A.’s responsibility. After the cessation of the Contractual Agreement, in 2013, HA 1 was placed in a state of preservation, in order to avoid the deterioration of parts and equipment. Because of the constant refusal of Andritz Hydro to return the assets at HA 1 which were placed in its custody, in 2012, SPEEH Hidroelectrica SA filed an application for injunction, ordering the forced takeover of the assets of HA1 that belong de facto and de jure to SPEEH Hidroelectrica SA. The application for injuction was accepted and consequently, on 23.08.2016 “Minutes for Execution of Direct Enforcement through the Forced Delivery of the Tangible Assets” was signed according to the Enforcement Title consisting of Civil Judgment no. 3417/06.06.2016 issued by the Sixth Civil Section of the Bucharest Tribunal in File no. 42914/3/2015, through which the judicial enforcement officer delivered the assets identified at HA1 to SPEEH Hidroelectrica SA.

Further to such action, the procedure to purchase the remainder of the works to be executed in order for

HA1 at HPP Portile de Fier II to become operational as soon as possible.

To continue the works at HA 1, Hidroelectrica allocated RON 5,000 in the 2016 investment program, the works being completed in the years to come Refurbishment of Lower Olt In International Arbitration File 20540 - Hidroelectrica v. Voith Hydro and Andritz Hydro, the Arbitrational Tribunal sent the Full Statement of Defense of defendants Voith Hydro and Andritz Hydro. On June 8, 2016, the Group submitted the technical report to the Arbitration Tribunal. Until present, the final acceptance minutes for the following have been postponed:

the 20 hydro-aggregates due to corrosion in the steel components of the turbine, namely impeller blade, AD blades and impeller room, and in four hydro-aggregates temperature differences higher than 100C were found in various points of the generator stator

for block 2 at HPP Rusanesti;

for the equipment and installations at HPP Rusanesti and HPP Izbiceni. Following the successful settlement of the trial against Andritz Hydro, in Wien, in 2015 the company enforced the bank guarantees established by such contractor, in amount of EUR 7,979. In the trial against Voith Hydro the guarantees remained blocked in the bank until the completion of the proceedings pending at the International Court of Arbitration in Paris. In International Arbitration File 20528 - Voith Hydro and Andritz Hydro v. Hidroelectrica, the parties negotiated through the representing Law Firms, the signing of an Agreement to withdraw the arbitration application and termination of the arbitration. The final form of the Termination Agreement was agreed and the parties will set its signing date. The Termination Agreement was signed on February 13, 2017.








1) Contracts for the refurbishment and upgrading of hydropower plants/hydro aggregates (continued) Refurbishment of HPP Stejaru At the end of 2014, the public tender proceedings to award the refurbishment contract for HPP Stejaru were resumed. Following the open tender, in accordance with the provisions of GEO no. 34/2006, contract no. 1008/08.05.2015 was signed for the refurbishment of HPP Stejaru, between Hidroelectrica SA and the association formed of SC Romelectro SA – Litostroj Power D.O.O. in which SC Romelectro SA was association leader. The contract value is EUR 74,996, VAT not included, plus sundry and incidental expenses in amount of EUR 3,750 (5%), VAT not included. HPD SIRIU-SURDUC To optimize the investment by energetic criteria only, starting from 2003 the Company conducted optimization studies as follows: In 2003, a study was conducted on the construction solutions at HPD Surduc-Siriu, Cireşu – Surduc step and Surduc – Nehoiaşu step, whose primary purpose was to reduce the investment costs by optimizing technically the works in the development, the installed flow and installed capacity at Nehoiaşu II HPP, if the annual electricity production approved by Decree 294/1981 is maintained. The optimized scheme of Surduc – Nehoiaşu development comprises the same elements as the initial project, but, due to changes in energy conditions, the installed flow in the 2 plants was reduced from 2x20 cm/s to 2 x 13 cm/s and so was the useful volume of Cireşu reservoir from 160 million cm to 90 million cm, corresponding to a NWL of 965.75 mdM. The diameter of the headraces of the two plants remained the same, 4 m, and the diameter of Surduc – Nehoiaşu pressure gallery was reduced from 3.5m to 3.1m on section 3 (horizontally and inclined). The installed capacity at Nehoiaşu HPP – Surduc step was reduced from 2x83 MW to 2x55 MW. Surduc weir dam, located on Bâsca Mare river, will serve to catch and regulate the river water to allow the operation of Surduc – Nehoiaşu step, independently of the construction of Cireşu dam and Surduc plant. Surduc storage will have a useful volume of 282,000 cm, ranging between 868.50 and 873.00 mdM. Investment Directorate prepared Substantiation Note no. 140666/21.12.2015 for the optimization of investment “HPD Surduc – Siriu”. According to such substantiation note, Resolution no. 29/18.08.2016 of the Supervisory Board and EGMS Resolution no. 18/16.09.2016 were issued, which endorsed the taking of action for the issuance of a Government Resolution to optimize the development scheme in investment objective “HPD Surduc – Siriu”. The contracted value is RON 139,081.




23. COMMITMENTS AND RESTRICTIONS (continued) HPD RASTOLITA Approval documents: Decree no. 95/1989 GR 489/1996 – approving the optimization of technical and economic indicators of the site Works commencement date: 1989 Location: Răstoliţa river/Mureş hydrographic basin/ Răstoliţa, Borzia localities / Mureş county Need and opportunity: The purpose of HPD Rastolita is to use the hydrological potential of Rastolita river and the right side tributaries of Mures river on Lunca Bradului – Bistra Muresului sector. In the catchment sections, such small rivers total a multi-annual normal flow of Qm = 5.92 cm/s, and the construction of Rastolita dam at the final NWL rate of 760.00 mdM generates a gross fall of 267.50 m. Following the environmental permit and the requirements of the National Energy System, the development scheme was optimized and approved by GR no. 489/1996. The optimized development scheme at Pi = 35.2 MW and Ea = 116.5G Wh/year at Qi = 17cm/s was endorsed by the Board of Directors of CONEL by Resolution no. 17/31.05. 1995 and approved by the Inter-ministerial Committee of the Government of Romania on 21.03.1996. The contracted value is RON 107,296. HPD STREI Approval documents: Investment approval decree no. 40/1989 Location - Strei river/ Mureș river hydrographic basin / Subcetate, Plopi, Bretea Româna, Strei, Călan, Băcia, Simeria localities / Hunedoara county Need and opportunity (according to the approval documents)

The purpose of the investment objective is to use the hydropower potential of the lower sector of Strei river, by constructing hydropower plants with a total installed capacity of 84 MW and electricity production of 170,100 Mwh in an average year.

The site is located between Subcetate locality and the junction of Strei river with Mureş river. The development will serve the following functions: electricity production, development of the irrigation system in the area, protection of localities and land against floods and water supply.

Main objectives of the development scheme

According to the approved scheme, the hydropower development on Strei river consists of the construction of five dams and seven hydropower plants which will regulate the flow of Strei river on a 32.5 km distance, at a fall of 105 m and flow of 100 cm/s, along with the plants existing on Râul Mare. Works started in 1989.

In 2003, an optimization study was conducted, which was endorsed by CTE Hidroelectrica under no. 203/2003. The Company approved the most advantageous solution from an energy and economic stand point, with approximately equal steps and three lakes: Subcetate of 5.75 million cm, Strei of 1.8 million cm and Simeria of 1.8 million cm.




23. COMMITMENTS AND RESTRICTIONS (continued) In 2008, the Company conducted the “Study for optimizing construction solutions and energy indicators for sites HPP Strei, HPP Călan, HPP Băcia and HPP Simeria”, which provided:

- the building of a single storage at Strei, and the construction of a MHPP at HPP Strei for the returned flow

- installed flow on all four plants of 50 cubic meters/sec

- returning a flow of 50 cubic meters/sec on Mureş river

- the procurement of green allowances

The study was endorsed by CTE Hidroelectrica under no. 53/2009. Given that Hidroelectrica SA continued the actions provided in the Development Strategy for 2005 - 2025, program 1 sub-program 3 ”New hydropower investment objectives to continue to use the economic potential that can be developed”. To continue the execution works at Strei HPD the company prepared “Feasibility study regarding the modification of technical and economic indicators and divide in stages the completion of the objective” which was approved by CTE Hidroelectrica SA, under approval 70/2013 for Stages I and II and approval 29/2014 for Stage III. Investment Directorate prepared Substantiation Note no. 48802/26.04.2016 for the optimization of investment HPD Strei. The substantiation note was endorsed by the special administration and juridical administration, and, based on it, Resolution no. 28/18.08.2016 of the Supervisory Board and EGMS Resolution no. 18/16.09.2016 were issued, which endorsed the taking of action for the issuance of a Government Resolution to optimize the development scheme in investment objective Hydropower development of the Strei river on the Subcetate – Simeria stretch. The contracted value is RON 33,995. HPD LIVEZENI-BUMBESTI Through the investment “HPD of the Jiu river on the Livezeni-Bumbeşti stretch” the following main functions are achieved:

Production of electricity from natural sources; 259 GWh/year

Reduction of imports of black oil for the power in heat plants;

Reductions of carbon dioxide emissions in the atmosphere by replacing the equivalent power in heat plants; 150,000 t/year

Through the implementation of project “HPD of the Jiu river on the Livezeni-Bumbeşti stretch” the following will be achieved:

the annual power production of 259 GWh/year in hydropower plants Dumitra and Bumbeşti accounts for around 50% of the current production at HPP Târgu-Jiu. The commissioning of these power sites will significantly contribute to increasing the safety of national power security. Further to the endowment of such plants with modern control systems, the quality of the electricity delivered in the system will improve sensibly;





creation of new jobs, both during construction and in the operation stage;

improvement of transportation means in the area;

economic development of the surrounding localities by including the objective in the taxation system.

Main objectives of the development scheme The projects provides a scheme of hydropower development on the Jiu pass sector, on a length of around 20 km and a fall of 263 m, through the construction of 2 hydropower plants, namely HPP Dumitra and HPP Bumbeşti. The hydropower development of the Jiu river on the Livezeni-Bumbesti stretch according to the approved scheme, consist in the construction of a dam, of 19.5 km of underground waterworks and 2 hydropower plants that will ensure the use of the flow of the Jiu river, exploiting a fall of 263 m and a flow of 36 cm/s. The contracted value is RON 254,228. 2) Other commitments: In 2016, the Company initiated and organized tenders for the following refurbishment/upgrading projects: 1) “Refurbishment of HPD Vidraru” In 2015, the Company initiated the proceedings for the award of the procurement contract in relation to the preparation of the documentation for the Technical project, which was prepared and delivered to HE in December 2015. In 2016, the awarding documentation was prepared to initiate the tender proceedings. The total estimated value of the purchase of works for ”Refurbishment of HPD Vidraru” is EUR 82,000. 2) “HPP Beresti. Upgrading of HA2” In 2015, the documentation for the Technical Project, contracted in 2014 by tender, was completed. In 2016, the bids were opened in the tender for awarding the public works contract and on 09.06.2016 contract no. 184 with SSH Hidroserv SA was concluded. The value of the works contract is RON 18,231, without VAT. 3) “CHE Slatina. Upgrading of HA1” In 2016, the awarding proceedings for the services contract having as its object “Upgrading of HA1 HPP Calimanesti” by open tender. The purchase value of the upgrading works was set at RON 20,000 (without VAT).




23. COMMITMENTS AND RESTRICTIONS (continued) 4) “Level 4 works (LN 4) and upgrading of HA2 HPP Remeti, including the 110 kV plant, the general installations of the plant, the pressure node and Dragan dam”; The investment objective and the related technical and economic indicators were approved, at the estimated value of RON 51,300 (without VAT) in the General Estimate. 5) “Refurbishment of HPP Mărișelu” The investment objective and the related technical and economic indicators were approved, at the estimated value of RON 285,035 (without VAT) in the General Estimate. 3) Guarantees granted and received 3.1 Guarantees granted

Payment guarantee in amount of RON 214,385 issued in favor of ANAF In January 2014, further to the general tax inspection on the commercial and financial activity carried out between January 1, 2006 and June 30, 2012, ANAF communicated to Hidroelectrica SA its tax return no. F-MC no. 851/21.01.2014 regarding the additional payment obligations in amount of RON 232,520. On February 19, 2014 Hidroelectrica SA submitted to the General Directorate for the Settlement of Appeals of ANAF an appeal against the entire amount imposed by ANAF. For the purpose of admitting and settling the appeal filed, according to the provisions of Art. 2051 and Art. 2072 of the Tax Procedure Code, the Company contracted from BRD GSG a bank letter of guarantee in amount of RON 232,520 issued in favor of ANAF and submitted in original at the headquarters of such institution.

By Decision no. 406/18.12.2014, the General Directorate for the Settlement of Appeals admitted in part the appeal filed by Hidroelectrica SA, and maintained the additional tax payment obligations in amount of RON 214,385. Consequently, on February 17, 2015 an amendment to Bank Letter of Guarantee no. 14229/18.02.2014, issued by BRD GSG was submitted to ANAF, whereby the value of the payment guarantee was reduced from RON 232,520 to RON 214,385. In February 2016, the good performance bond in amount of RON 214,385 was renewed in the sense of changing the issuing bank and extending the validity period. Further to an open tender, the credit contract for issuing a bank letter of guarantee in amount of RON 214,385 was awarded to ING Bank. Therefore, the bank issued on February 16, 2016 bank letter of guarantee no. GI-16/0826, in amount of RON 214,385, valid until August 18, 2016.




23. COMMITMENTS AND RESTRICTIONS (continued) 3.2 Guarantees received

The balance as at June 30, 2016 of the guarantees received in amount of RON 498,707 consists mainly in guarantees for investments in progress, as follows:

Guarantees for various objectives in progress issued by Hidroconstructia SA in amount of RON 177,954;

Guarantees for upgrading of HPP Stejaru in amount of RON 176,131;

Guarantees for objective Bumbesti-Livezeni issued by Romelectro SA in amount of RON 39,183;

Guarantees for refurbishment of PF I and PF II issued by Andritz Hydro in amount of RON 32,448;

Guarantees for refurbishment of Lower Olt issued by Voith Hydro in amount of RON 33,973;

Guarantees for various sites in progress issued by Energomontaj SA in amount of RON 3,320;

Guarantees for refurbishment of PF 1 lock issued by Romenergo in amount of RON 5,568;

Guarantees for works at HPD Surduc-Siriu issued by Energomontaj in amount of RON 5,711;

Insurance policy for design and ERP IT system implementation services, issued by SC Information Business Consulting in amount of RON 4,462;

Other guarantees issued in favor of the Group in amount of RON 19.957. 4) Environment related restrictions Romania is in a phase of rapid harmonization of its environment legislation with the relevant European Economic Community laws in force. As at June 30, 2016, the Company did not register any liability regarding anticipated costs, including legal and consulting fees, studies, design and implementation of environmental recovery plans. The Company considers that costs associated with environmental aspects are not material In Semester I 2016, the company executed several environmental protection works, of which:

- flood prevention works at SH Bistriţa, SH Cluj, SH Curtea de Argeş, SH Rm. Vâlcea and SH Sebeş - landscape improvement works at SH Curtea de Argeş - waste management actions, both self-generated waste and waste collected from the retention

areas and water intake structures, were executed in all of the company’s subsidiaries - control actions and laboratory analyses at SH Curtea de Argeş, SH Haţeg, SH Râmnicu Vâlcea

and SH Sebeş.

Out of the total 215 hydropower objectives that require permits at the end of Semester I 2016, there were valid environmental permits for 208 of them, which accounts for approximately 96.74% of the total. For all the other objectives, the documentation was submitted to renew the environmental permits. The procedure is pending. To comply with the conditions imposed by the environmental permits, the company initiated actions to monitor and measure the physical and chemical indicators in lake water and turbined water.




23. COMMITMENTS AND RESTRICTIONS (continued) In Semester I 2016, the territorial environmental protection authorities conducted 59 controls at the company’s work points and ordered 89 actions. No fines were imposed. Hidroelectrica paid much attention to the actions ordered by the controls conducted by the environmental authorities. No breaches of the limits admitted by the legislation were registered and no accidental water pollution by oil products was discovered. 5) Employee benefits The Group grants financial and in-kind benefits both to employees and former employees. In accordance with IAS 19 “Employee benefits”, the Group registered a provision for employee benefits in amount of RON 75,950 as at June 30, 2016 (December 31, 2015: RON 75,950). The value of this provision was determined by an independent actuary and registered in the Group’s financial statements and is subject to revisions from time to time. 6) Litigation a) Arbitration disputes As at June 30, 2016 the Company is involved in more arbitration disputes as follows:

I. Arbitration file ICC 19414/MHM Arbitration disputes regarding Contract no. 2I/50765/09.11.2001 between Hidroelectrica and Companies Andritz – the refurbishment and the upgrading of hydropower plant Porțile de Fier II and hydropower plant Gogoșu. Plaintiffs: Andritz Hydro GmbH Germania and Andritz Hydro GmbH Austria Defendants: the Electricity Company “Hidroelectrica” SA The object of the arbitration disputes is represented by the following claims of Andritz:

(i) To declare that Hidroelectrica is not entitled to claim Andritz the return of EUR 13,625, representing the down payment performed by it in May and June 2003 for Phase III of project PF II, according to Contract 2I/50675/09.11.2001, as amended by additional acts 4 and 6 executed by parties as at 5.12.2002 and 26.03.2003

(ii) To declare that the alleged notice of termination of Contract 2I/50675/09.11.2001 sent by Hidroelectrica’s letter of 06.06.2013 is ungrounded, and that contract 2I/50675/09.11.2001 as amended and supplemented is still valid, survives and still produces effects between parties.

(iii) To order Hidroelectrica to pay Andritz the amount of EUR 6,363 plus an interest of 6%/year starting from 26.06.2013.

(iv) To declare that Hidroelectrica cannot claim the recovery of the prejudices allegedly caused by Andritz “by failing to deliver the parts from the last group at plant Porțile de Fier II, for the cutting of costs and recovering the down payment paid for Gogoșu, and for certain technical issues that will remain open after the execution of the works that are currently being performed at one of the groups under the refurbishment project of plant Porțile de Fier II”.




23. COMMITMENTS AND RESTRICTIONS (CONTINUED)

(v) To order Hidroelectrica to issue the Final Reception Certificate for hydro-aggregates 6 and 8. Alternately, the Arbitration Tribunal shall issue the Final Reception Certificate for hydro-aggregates 6 and 8 on behalf of Hidroelectrica.

(vi) To order Hidroelectrica to pay the arbitration costs. Litigation value EUR 19,988 excluding the value of claims 4 and 5 above that were not assessed

until present. Arbitration Tribunal Miguel Virgós Soriano (President), Georg von Segesser and Paolo Michele Patocchi. Stage of arbitration litigation: In accordance with Procedure Order no. 13 of August 18, 2016, the following stage in the expert appraisal was scheduled for October 21, 2016 – the transmission of the draft expert appraisal report to the Parties. The expert appraiser has not communicated the draft report yet, which delays all the other stages in the development and completion of the expert appraisal. The hearings on the merits will take place on September 25 – 27, 2017. The exact dates will be set. II. Arbitration file ICC 20861/MHM Arbitration litigation regarding Contract no. 2I/50765/09.11.2001 between Hidroelectrica and Companies Andritz – the refurbishment and the upgrading of hydropower plant Porțile de Fier II and hydropower plant Gogoșu. Plaintiff: Electricity Company “Hidroelectrica” SA Defendants: Andritz Hydro GmbH Germany and Andritz Hydro GmbH Austria The object of the arbitration dispute is represented by the following claims of Hidroelectrica:

(i) To order Andritz Companies to deliver Hidroelectrica based on inventory the equipment and machinery related to hydro-aggregate no. 1 that were not included in the works

(ii) To order Andritz Companies to pay Hidroelectrica claims further to the prejudice caused to it by the failure of Andritz Companies to deliver the equipment and machinery

(iii) To order Andritz Companies to pay the arbitration costs. Litigation value estimated at EUR 8,957 consisting of EUR 6,834 (estimated value of claim no. 1)

and EUR 2,123 plus a monthly EUR 129 and legal interest of 6% per year (estimated value of claim no. 2).

Arbitration Tribunal Eduardo Silva Romero (President), Michelangelo Cicogna, Inka Hanefeld Stage of arbitration litigation: The hearings on the exception of the lack of jurisdiction and the application for suspension and the other procedural requests of Andritz will be held on February 9, 2017 in Bucharest.




23. COMMITMENTS AND RESTRICTIONS (CONTINUED) By a partial arbitration award, the tribunal will rule on the jurisdiction and the application for suspension, and the other procedural requests of Andritz, and, if it establishes it is territorially competent and rejects the application for suspension, the debates on the merits will start. In such debates, two rounds of memoranda on the merits will be submitted:

- the defendants [Andritz] will submit Statement of Defense within two months from the date of the partial award

- Hidroelectrica will submit Reply within two months from the completion of the phase of exchange of documents, if required

- the defendants [Andritz] will submit Rejoinder within two months from the Reply The dates for the hearings on the merits and the issuance of the final arbitration award have not been set yet. III. Arbitration file ICC 20540/MHM Arbitration litigation regarding Contract no. 23.534/h.700.116004 having as its object the refurbishment of the hydropower plants located on Lower Olt: Ipotești, Drăgănești, Frunzaru, Rusănești and Izbiceni Plaintiff: Electricity Company “Hidroelectrica” S.A. Defendant 1: Voith Hydro Holding GmbH & CO KG (Voith) Defendant 2: Andritz Hydro GmbH (Andritz) Object of the file The plaintiff requested the arbitration tribunal to issue a decision (the claim was stated in terms of value of the Memorandum on the merits after the completion of the expert appraisal on value, submitted along with the Memorandum on the merits on 24.09.2015) to: (i) order the defendants to replace the defective works by others that are compliant with the Contract,

thus executing the object of the Contract or to pay EUR 35,540 representing the contractual value of the defective works, plus (in both cases) interest calculated as of the date of the payment made by the plaintiff until the full repayment by the defendants in amount of EUR 10,254 (for 2015);

(ii) order the defendants to pay damages for the prejudice incurred further to the failure to fulfill the

object of the Contract, as follows:

a. the plaintiff’s retaining in full ownership of the defective works both if they are replaced by the defendants or by a third party with works that enable the conclusion of the final reception minutes according to law, or payment of the value of the defective works, and

b. the payment of damages for any prejudice incurred by the failure to fulfill the Contract object on the term laid down in the Contract, namely in amount of (i) EUR 2,229 and USD 17,734 if the defendants will be ordered to replace the defective works, or (ii) USD 138,134 and EUR 2,229 of which 35,540 will be deducted if the defendants indemnify the plaintiff by paying the value of the defective works.

(iii) order the defendants to incur the arbitration costs; (iv) order other measures that they deem appropriate in favor of the plaintiff.




23. COMMITMENTS AND RESTRICTIONS (CONTINUED) Litigation value resulting from the file object (approx. EUR 150,000) Arbitration Tribunal Yves Derains (President), Patrick Thieffry, Siegried H. Elsing Stage of proceedings On January 17, 2017, the Plaintiff will submit a Memorandum on its objections to

the scope of the Memorandum submitted in Reply to the Memorandum submitted by the Plaintiff on July 8, 2016 - submitted by the Defendants on December 16, 2016 and on the identification of witnesses and experts who will be cross-examined.

IV. Arbitration file ICC 20528/MHM Arbitration litigation regarding Contract no. 23.534/h.700.116004 having as its object the refurbishment of the hydropower plants located on the Lower Olt: Ipotești, Drăgănești, Frunzaru, Rusănești and Izbiceni Plaintiff 1: Voith Hydro Holding GmbH & Co. KG (“Voith”) Plaintiff 2: Andritz Hydro GmbH (“Andritz”) Defendant: Electricity Company “Hidrocelectrica” S.A. Object The plaintiffs requested the Arbitration Tribunal to issue a decision to: (i) declare that none of the plaintiffs is liable for the alleged defects invoked by the defendant in

Notification no. HBR-VHAH-057/19.05.2014; (ii) declare that the alleged claims mentioned in Notification no. HBR-VHAH-057/19.05.2014 do not

constitute deficiencies within the meaning of the Contract; (iii) declare that the alleged defects mentioned in Notification no. HBR-VHAH-057/19.05.2014 do not

represent grounds for the enforcement of the letters of bank guarantee issued at the plaintiffs’ request;

(iv) declare that the enforcement of the letters of bank guarantee was ungrounded and inadmissible; (v) order the defendant to revoke the enforcement of letters of bank guarantee and to refrain from the

enforcement thereof based on the reasons mentioned in Notification no. HBR-VHAH-057/19.05.2014;

(vi) order the defendant to pay the arbitration costs, including the costs with the plaintiffs’ actions before the Austrian courts to obtain the temporary suspension of enforcement;

Litigation value EUR 15,673 (total value of bank guarantees)

Arbitration Tribunal Piotr Nowaczyk (President), Patrick Thieffry, Claudia Kalin-Nauer Stage of proceedings The Parties continue the discussions to close this arbitration file. If the arbitration procedure continues, in the phase of settlement of exceptions, the Plaintiff will submit the Memorandum in Reply to the Memorandum submitted by the Defendant on April 29, 2016 . The Termination Agreement was signed on February 13, 2017.




23. COMMITMENTS AND RESTRICTIONS (continued) V. Arbitration file ICC 20444/MHM – file closed further to the admission by the Arbitration Tribunal of

the exception of inadmissibility of the application of Andritz invoked by Hidroelectrica Arbitration litigation regarding Contract no. 16636/31.10.1997 for the upgrading and increase of power of the 6 hydro-aggregates of HPP Porțile de Fier I Plaintiff: ANDRITZ HYDRO AG Defendant: Electricity Production Company “HIDROELECTRICA” S.A. Object of the file The plaintiff requested the arbitration court to issue a decision to: i. acknowledge that the expert appraisal conducted by MPA Stuttgart on July 19, 2013 is final and

binding for the parties in accordance with sub-clause GC 6.1.2; ii. order the plaintiffs to bear the costs of the arbitration. Value of litigation USD 11,420 The initial value of the litigation according to the estimate of the Plaintiff was USD

1,000. On January 27, 2016 the ICC Secretariat communicated to the parties that it had been informed by the Arbitration Tribunal that the litigating amount is CHF 9,693 and RON 2,486 totaling USD 11,420.

Arbitration Tribunal Alexander Bělohlávek (President), Patrick Thieffry, Johannes Hock Jun. Stage of litigation: file closed further to the admission by the Arbitration Tribunal of the exception of inadmissibility of the application of Andritz invoked by Hidroelectrica. The arbitration decision may be appealed by an application for annulment by the party interested. VI. Arbitration file 20901/MHM Arbitration litigation regarding Contract no. 16636/31.10.1997 regarding the refurbishment and increase of power in the 6 hydro-aggregates at HPP Porțile de Fier I Plaintiff: Electricity Company “HIDROELECTRICA” S.A. Defendant: ANDRITZ HYDRO AG Object of the file The plaintiff requested the arbitration court to issue a decision to: (i) order the defendant to pay EUR 53,378, representing the repayment of the value of improper works

plus interest;




23. COMMITMENTS AND RESTRICTIONS (continued) (ii) order the defendant to pay damages for the prejudice incurred by the failure to fulfill the Contract

object as follows:

- the plaintiff’s retaining in full ownership of the defective works,

- the payment of EUR 43,270, representing damages for the prejudice incurred for any other reason in connection with the failure to fulfill the object of the Contract plus interest. The amount represents a temporary value which shall be determined by an expert appraisal.

(iii) order the defendants to pay the arbitration costs; Litigation value EUR 96,648 (temporary value, prior to the expert appraisal for the amount) Arbitration Tribunal Alan Redfern (President), Anne Marie Whitesell, Georgios Petrochilos Stage of litigation – a procedural schedule will be set for the memoranda on the merits. VII. UNCITRAL Ad Hoc arbitration [EFT] Arbitration litigation regarding Contract no. RO 22 E for the supply of electricity by Hidroelectrica to EFT Energy Financing Team AG. Plaintiff: EFT Energy Financing Team (referred to as EFT) Defendant: Electricity Company “Hidroelectrica” SA The object of the arbitration litigation consists in the following claims of EFT:

(i) to order Hidroelectrica to pay damages to repair the prejudice resulting from the failure to execute Contract RO 22 E, in amount of EUR 42.6 thousand (initially approx. EUR 80 thousand)

(ii) to apply 5% interest on the amount at item (i) as of December 6, 2013 (middle date)

(iii) to order Hidroelectrica to pay arbitration costs, including in-house costs Litigation value EUR 42.6 thousand plus interest and other amounts, the amount is

temporary Arbitration Tribunal Luca Radicati di Brozolo (President), Alexis Mourre and David P. Roney. Stage of arbitration litigation: According to the parties’ arrangement of December 3, 2016, of which the Arbitration Tribunal took notice, both parties will submit simultaneously Post Hearing Briefs, on February 28, 2017, and the Plaintiff will have the opportunity to file comments only on the potential new elements invoked by Hidroelectrica (if any) by April 28, 2017. VIII. Arbitration File ICC 22047/MHM Arbitration litigation regarding Contract no. 23.534/H.700.116004 having as its object the upgrading of the hydro-power plants located on the Lower Olt: Ipotești, Drăgănești, Frunzaru, Rusănești and Izbiceni. Plaintiff: Andritz Hydro GmbH Germany (hereinafter “Andritz”) Defendant: Electricity Company “Hidroelectrica” SA The object of the arbitration litigation consists in the following claims of Andritz:





(i) To declare the compensation unlawful and ineffective [established by Hidroelectrica’s Administrator between EUR 7,262,095, representing a part of the receivables of Andritz registered unconditionally in the table of receivables of Hidroelectrica, and EUR 13,625,000, representing payment in advance made by Hidroelectrica in May and June 2003 for Stage III of Project PF II, according to Contract 2I/50675/09.11.2001, as amended by addenda 4 and 6 signed by the parties on December 5, 2002 and March 26, 2003];

(ii) To declare payable the receivable of Andritz against Hidroelectrica in amount of EUR 7,262,095 plus interest of 6% calculated as at June 30, 2013;

(iii) To compel Hidroelectrica to pay Andritz EUR 7,262,095 plus 6% interest calculated as at June 30, 2013;

(iv) To compel Hidroelectrica to pay arbitration costs;

(v) To order any other measures/actions that the Arbitration Tribunal deems appropriate. Litigation value: EUR 7,262 (assessment of Andritz as per the Request for Arbitration) Arbitration Tribunal: Stavros Brekoulakis – President Mag. Martin Platte – co-arbitrator appointed by

the Plaintiff; Dr. Beata Gessel-Kalinowska vel Kalisz – co-arbitrator appointed by Hidroelectrica

Stage of litigation – on January 12, 2017, the Parties communicated to the Arbitration Tribunal their agreement on the suspension of the trial. Procedure Order no. 2 is pending issuance by the Arbitration Tribunal, which will order the suspension of the trial. b) Other disputes

I. Challenges to the preliminary table

File no. 36861/3/2012* On the hearing of 20.04.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the challenge filed by creditor S.C ELSID S.A against the preliminary table of receivables of debtor S.C. SOCIETATEA DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A. by special administrator and judicial administrator. Final appeal A declaration of abstention was filed by the panel to which the case was assigned, in final appeal. On January 19, 2017 the motions for abstention will be settled.

File no. 36549/3/2012* On the hearing of 12.02.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the challenge filed by creditor S.C. ALPIQ ROMINDUSTRIES S.R.L. against the preliminary table of receivables of debtor S.C DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A by special administrator and judicial administrator EURO INSOL SPRL.




23. COMMITMENTS AND RESTRICTIONS (continued) Final appeal The file is the stage of final appeal. A motion for recusation was filed by appellant ALPIQ. The motion for recusation was rejected and the following hearing has not been set yet.

File no. 36561/3/2012* On the hearing of 23.12.2015, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal admitted the challenge filed by creditor S.C. TERMOELECTRICA S.A in voluntary liquidation, by liquidator MUŞAT & ASOCIAŢII SPRL against the preliminary table of receivables of debtor S.C. DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A by judicial administrator EURO INSOL SPRL and ordered the listing of creditor S.C. TERMOELECTRICA S.A. in the preliminary table of receivables of debtor S.C. SOCIETATEA DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A. by RON 7,415 as pure and simple receivable. Against the decision on the merits issued by the Seventh Civil Section of the Bucharest Tribunal, the appellant and SPEEH Hidroelectrica S.A. may file appeal according to Law no. 85/2006 applicable in the case in accordance with the provisions of Art. 343 of Law no. 85/2014, which will be settled by the Bucharest Court of Appeal.

File no. 36781/3/2012* On the hearing of 12.02.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the challenge filed by creditor S.C ALRO S.A against the preliminary table of receivables of debtor S.C. SOCIETATEA DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A. by special administrator and judicial administrator EURO INSOL SPRL. Final appeal Judgment 490/10.11.2016: rejects the final appeal as ungrounded. Irrevocable.

File no. 37379/3/2012* On the hearing of 16.03.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal rejected the challenge filed by creditor EFT AG against the preliminary table of receivables of debtor S.C. SOCIETATEA DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A. by special administrator and judicial administrator EURO INSOL SPRL. Final appeal Judgment 492/10.11.2016: rejects the final appeal as ungrounded. Irrevocable.





File no. 37358/3/2012* On the hearing of 12.02.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal admitted in part the challenge filed by creditor ANDRITZ HYDRO GmbH RAVENSBURG against debtor S.C. SOCIETATEA DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A by special administrator and judicial administrator EURO INSOL SPRL. It ordered the listing of the creditor in the final table of receivables of the debtor by EUR 11 as unsecured receivable and rejected the rest of the challenge. Final appeal Judgment 491/10.11.2016: rejects the final appeal as ungrounded. Irrevocable.

File no. 36545/3/2012* On the hearing of 16.03.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the challenge filed by creditor S.C ENERGY HOLDING S.R.L. against the preliminary table of receivables of debtor S.C. SOCIETATEA DE PRODUCERE A ENERGIEI ELECTRICE ÎN HIDROCENTRALE HIDROELECTRICA S.A. by special administrator and judicial administrator EURO INSOL SPRL. Final appeal Judgment 541/13.12.2016: rejects the final appeal as ungrounded. Irrevocable.

File no. 36857/3/2012*- Seventh Civil Section of the Bucharest Tribunal Object: challenge to the preliminary table of receivables for the amount of RON 18,074, representing damages for failure to deliver the entire amount of electricity in 2011 as effect of the force majeure clause Plaintiff: S.C ELECTROCARBON S.A. Respondent: Hidroelectrica S.A, by Judicial Administrator Merits Judgment 4128/07.06.2016: rejects as ungrounded the complaint filed by creditor SC ELECTROCARBON SA against the preliminary table of receivables of debtor ELECTRICITY COMPANY HIDROELECTRICA SA by special administrator and judicial administrator EURO INSOL SPRL. Subject to final appeal within 7 days from communication. Final appeal Judgment 559/20.12.2016: rejects the final appeal as ungrounded. Irrevocable.

File no. 36546/3/2012* - Seventh Civil Section of the Bucharest Tribunal Object: challenge to the preliminary table of receivables for the amount of RON 719,153 representing damages for failure to deliver the entire amount of electricity in 2011 as effect of the force majeure clause, and damages for the termination of the contract by judicial administrator.




23. COMMITMENTS AND RESTRICTIONS (continued) Plaintiff: S.C. ALPIQ ROMENERGIE SRL Respondent: Hidroelectrica S.A, by Judicial Administrator Merits On the hearing of 27.04.2016, in which the case was retried on the merits after being quashed and referred back for re-judgment, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the challenge filed by creditor SC ALPIQ ROMENERGIE SRL against the preliminary table of receivables of debtor SPEEH HIDROELECTRICA SA by special administrator and judicial administrator. Subject to final appeal within 7 days from communication. Final appeal The file is in the stage of final appeal. A motion for recusation was filed by appellant ALPIQ. The motion for recusation was rejected. The following hearing has not been set yet. II Other pending disputes on the dockets of the Romanian courts of law and related to the insolvency procedure:

i) Disputes for claims/damages

File no. 22062/3/2013 - Seventh Civil Section of the Bucharest Tribunal

At the hearing of October 12, 2016, the court rejected as ungrounded the application filed by plaintiff Energy Holding against defendant S.P.E.E.H HIDROELECTRICA S.A. by judicial administrator and special administrator having as its object application for damages provided by Art. 86 para. 2 of Law 85/2006, for the claimed prejudice in amount of RON 1,003,295 incurred further to the termination of contract no. 33 CE/2004 and RON 44,014 as legal interest calculated at the amount owed as prejudice. The plaintiff filed second appeal against the judgment of the first instance, which was rejected as ungrounded by Civil Judgment no. 29/2017. The judgment is irrevocable.

File no. 22371/3/2013

On the hearing of 20.04.2016, in which the case was tried on the merits, the Seventh Civil Section of the Bucharest Tribunal rejected the application filed by plaintiff S.C ALPIQ ROMINDUSTRIES S.R.L against defendant S.P.E.E.H. HIDROELECTRICA S.A. by judicial administrator and special administrator and defendant EURO INSOL SPRL for claims provided by Art. 86 para. 2 and Art. 22 para. 4 of Law 85/2006, for the prejudice claimed in amount of RON 398,615 incurred by the termination of contract no. 39 CE/2004. Against the decision on the merits, the appellant filed final appeal, which was rejected as ungrounded by Civil Judgment no. 533/29.11.2016. The judgment is irrevocable.





File no. 22367/3/2013 On the hearing of 23.03.2016, in which the case was tried on the merits, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the application filed by plaintiff S.C ALPIQ ROMENERGIE S.R.L against defendant S.P.E.E.H HIDROELECTRICA S.A by judicial administrator and special administrator and defendant EURO INSOL SPRL for claims provided by Art. 86 para. 2 and Art. 22 para. 4 of Law 85/2006, for the prejudice claimed in amount of RON 215,753 incurred by the termination of contract no. 89 CE/2008. Against the decision on the merits, the appellant filed final appeal, which was rejected as ungrounded by Civil Judgment no. 531/29.11.2016. The judgment is irrevocable. ii) Disputes for challenges to the enforcement of the force majeure clause during insolvency

File no. 31569/3/2012*, Seventh Civil Section of the Bucharest Tribunal

Object: Challenge against the enforcement of force majeure clause Plaintiff: S.C. ALRO S.A. SLATINA Respondent: Hidroelectrica S.A. Merits On the hearing of 27.04.2016, in which the case was tried on the merits, the Seventh Civil Section of the Bucharest Tribunal rejected as ungrounded the challenge filed by S.C ALRO S.A against the action of judicial administrator EURO INSOL of debtor S.P.E.E.H. HIDROELECTRICA S.A. regarding the enforcement of the force majeure clause. Against the decision on the merits issued by the Seventh Civil Section of the Bucharest Tribunal, the appellant may file appeal according to Law no. 85/2006 applicable in the case in accordance with the provisions of Art. 343 of Law no. 85/2014, which will be settled by the Bucharest Court of Appeal. 1. The total amount of the indemnification actions filed by energy distributors is RON 1,662,677. 2. The total amount claimed by energy distributors in the insolvency proceedings is RON 1,521,074. 3. The total amount claimed in arbitration actions is EUR 116,661. Final appeal Judgment 543/13.12.2016: rejects the final appeal as ungrounded. Irrevocable. Labor disputes with dismissed employees, in their name or represented by Branch Hidroelectrica Hidrosind, the Hidroelectrica Hidrosind Trade Union and Portile de Fier Trade Union As at June 30, 2016, 208 labor files were registered with the courts of law. In February 2015, the Constitutional Court issued Decision no. 64/2015 whereby the first thesis, Art. 86, para. 6 of Insolvency Law no. 85/2006 was declared unconstitutional for breach of the employee’s fundamental right to information and consultation in the collective dismissal process.




23. COMMITMENTS AND RESTRICTIONS (continued) Of the employees dismissed by the company in 2013 and 2014, when it was not mandatory to apply the collective dismissal procedure during insolvency, 122 employees who challenged the dismissal decision in court are bound by the decision of the Constitutional Court. Given that the company is in process of applying the Reorganization Plan, approved by the Meeting of Creditors and confirmed by the Syndic Judge and the jobs of the employees reinstated have been eliminated ever since 2013, 2014 or 2015 because the conditions for eliminating the jobs were kept in 2016, the company dismissed again the reinstated employees, granting them the legal right of 15-working day prior notice, according to Art 86, para. 6, final thesis of Insolvency Law. In the first 6 months of 2016, the company enforced the final civil judgments for the reinstatement of 57 employees. The total amount related to the damages for the employees’ reinstatement in the first 6 months of 2016 is RON 7,062. Further to the dismissals during 2013 – 2015, the company entered into 374 payment conventions with dismissed employees for the payment of compensatory salaries in tranches. The total amount paid by Hidroelectrica in the first 6 months of 2016 as compensatory salaries is RON 1,059. Disputes concerning the buildings taken for reasons of public utility The Company is involved in a number of legal disputes concerning real estate (mainly land) used in the current activity. Regarding buildings falling under Law 10/2001 (abusively taken during March 6, 1945 and December 22, 1989), the Company which is paying compensation is the National Authority for the Restitution of Properties, which was established to provide financial resources to compensate people abusively expropriated. For disputes not covered by Law 10/2001, the Company’s management regularly analyzes the pending litigation, and following the consultation with its legal representatives decide the need to create provisions for the amounts involved or their presentation in the unconsolidated financial statements. Based on information available to the Company, the management estimates that these disputes do not have a significant negative impact on the consolidated financial statements as at June 30, 2016.

iii) Other disputes The Group is or could become part of other legal disputes and other public institutions’ actions before various courts, resulting from the normal course of its business which involves various contractual issues related to value added tax or income tax. These processes and actions could have a significant negative impact on the Group's financial position or the results of its activity, but which cannot be evaluated by management on the Group balance sheet date.




23. COMMITMENTS AND RESTRICTIONS (continued) 6) Onerous contracts An onerous contract is a contract in which the costs required to fulfill the contractual obligations exceed the economic benefits to be gained from it. These costs reflect at least the net cost of exiting from the contract, which is minimum between the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfill it. The Group's management is not aware of the existence of onerous contracts at the balance sheet date and had no provisions in this regard in the consolidated financial statements. 7) Insolvency Further to the application filed by Hidroelectrica, the Seventh Civil Section of the Bucharest Tribunal, through Civil Judgment no. 7222/2012 issued in File no. 22456/3/2012 on 20.06.2012, ordered the opening of the general insolvency proceedings provided by Law no. 85/2006, as subsequently amended and supplemented and appointed Euro Insol S.P.R.L. as judicial administrator. On June 26, 2013, by Civil Judgment no. 6482 issued on 26.06.2013 by the Seventh Civil Section of the Bucharest Tribunal, in file no. 22456/3/2012, the court approved the Final Activity Report prepared by Judicial Administrator EURO Insol S.P.R.L., and pursuant to Art. 132, para. (1) of Law no. 85/2006 it ordered the closing of the judicial reorganization procedure opened against Hidroelectrica S.A. In accordance with EGMS Resolution no. 27/01.11.2012, after exiting the insolvency proceedings, the amended statute of Hidroelectrica S.A. became effective, and the company was managed as at December 31, 2013, under a two-tier system by the Supervisory Board and the Management Board. Given Civil Decision no. 456/25.02.2014 issued by the Fifth Civil Section of the Bucharest Court of Appeal in File no. 22456/3/2012/a1, which quashed Civil Judgment no. 6482/26.06.2013 issued by the Seventh Civil Section of the Bucharest Tribunal, Hidroelectrica resumed the judicial reorganization proceedings (initiated further to the application filed by Hidroelectrica and the decision of the Seventh Civil Section of the Bucharest Tribunal, which, by Civil Judgment no. 7222/2012 issued in File no. 22456/3/2012 on 20.06.2012, ordered the opening of the general insolvency proceedings provided by Law no. 85/2006, as subsequently amended and supplemented) and Euro Insol SPRL resumed its mandate as the company’s judicial administrator represented by lead practitioner attorney-at-law Remus Adrian Borza. In addition, by Resolution no. 8/28.02.2014, the Extraordinary General Meeting of Shareholders decided in accordance with the provisions of Art. 18 of Law no. 85/2006 on the insolvency proceedings, to appoint Mr. Gabriel Dumitraşcu as special administrator, who had filled this position until July 28, 2015, when, by Resolution no. 17/28.07.2015 of the Extraordinary General Meeting of Shareholders, the mandate of special administrator of Mr. Gabriel Dumitrascu was revoked and Mr. Nicolae Bogdan Codrut Stanescu was appointed special administrator representing the shareholders’ interests in the insolvency proceedings. In this context, based on the provisions of Law no. 85/2006 on the insolvency proceedings, the mandate of the members of the Supervisory Board and the Management Board ended. As regards the implementation period of the reorganization plan voted by the creditors of Hidroelectrica S.A. dated 18.06.2013 and confirmed by the syndic-judge by Civil Judgment no. 6251 issued on 20.06.2013, which became irrevocable by impossibility of being challenged by appeal, judicial administrator Euro Insol proposed the implementation of the reorganization plan over a period of maximum 24 months from confirmation, with possibility of revising the modalities of implementation, after maximum 18 months from the date of confirmation by the syndic-judge.




23. COMMITMENTS AND RESTRICTIONS (continued) On 27.11.2014, the judicial administrator registered with the court clerk office and the Trade Registry Office attached to the Bucharest Tribunal under no. 19715, the modification and extension of the period of implementation of the reorganization plan regarding debtor Hidroelectrica S.A. The Notice provided by Art. 99 para. 2 of Law no. 85.2006 and the Modification and Extension of the implementation duration of the reorganization plan regarding debtor Hidroelectrica S.A. were published in Insolvency Proceedings Bulletin no. 21155/27.11.2014. On 04.12.2014, the Call to the Meeting of the Creditors of Hidroelectrica S.A. for 18.12.2014 was published in Insolvency Procedures Bulletin no. 2153 with the following agenda: “to cast the vote on “the modification and extension of the implementation period of the reorganization plan regarding debtor Hidroelectrica S.A”. In the session of 18.12.2014, regarding the agenda, the creditors of Hidroelectrica S.A. voted as follows:

the modification of the reorganization plan - secured receivables - 100% of the secured receivables voted to amend the reorganization plan - unsecured receivables – 76.04% on the unsecured creditors to amend the reorganization plan

extension of the implementation term of the reorganization plan 10 creditors out of the 11 creditors, representing more than two thirds of the creditors outstanding as at such date, holding 84.71% of the total receivables, and receivables in amount of RON 966,091, voted to extend the duration of implementation of the reorganization plan. Further to the casting of the vote of the present creditors and those who voted by correspondence, the Meeting of the Creditors of Hidroelectrica voted “FOR” the Modification and Extension of the duration of implementation of the Reorganization Plan by one more year, until 20.06.2016. The minutes of the Meeting of Creditors of Hidroelectrica S.A. dated 18.12.2014 was registered at the court clerk office on 19.12.2014 and published in the Insolvency Proceedings Bulletin no. 22587/19.12.2014. By Resolution no. 4437/2016 issued in the public session of 21.06.2016 in file 22456/3/2012* on the dockets of Bucharest Tribunal, the insolvency proceedings against Hidroelectrica closed. The company is managed under a two-tier system by the Supervisory Board and the Directorate. 8) General tax inspection File no. 3288/2/2015 Between August 9, 2012 and December 5, 2013, SPEEH Hidroelectrica S.A. in judicial reorganization formed the object of a general tax inspection for the period January 1, 2006 – June 30, 2012. On January 23, 2014, the National Agency for Tax Administration communicated and Tax Inspection Report and the tax return regarding the additional tax payment obligations in amount of RON 232,520. As the Company considers that the tax return is unfair, on February 19, 2014, it submitted with the General Directorate for the Settlement of Appeals of ANAF an appeal against tax return no. F-MC 851/21.01.2014.




23. COMMITMENTS AND RESTRICTIONS (continued) The General Directorate for the Settlement of Appeals of ANAF issued decision no. 406/18.12.2014 whereby: it admitted in part the appeal filed by Hidroelectrica, it annulled in part the tax return for the amount

of RON 14,222; it annulled in part the tax return for the additional tax payment obligations, namely the amount of

RON 3,963; it rejected as ungrounded and unreasoned the appeal filed by Hidroelectrica against the additional

tax payment obligations, namely the amount of RON 214,385 which represents:

- RON 45,727 income tax - RON 94,780 delay interest/increases related to income tax - RON 15,549 delay penalties related to income tax - RON 35,492 value added tax - RON 12,466 delay interest/increases related to VAT - RON 8,067 delay penalties related to VAT - RON 934 unemployment fund withheld from policy holders - RON 1,230 delay interest/increases related to the personal contribution to the

unemployment fund withheld from policy holders - RON 140 delay penalties related to the personal contribution to the unemployment fund

withheld from policy holders Against Decision no. 406/18.12.2014, SPEEH Hidroelectrica S.A. filed complaint at the Administrative Dispute Section of the Bucharest Court of Appeal, which holds the substantive jurisdiction, within the 6-month legal term from the decision date, thus establishing File no. 3288/2/2015 at such court of law. File no. 3288/2/2015 was suspended until the settlement of the appeal against the payment application filed by ANAF for the entire amount of RON 232,520, for which it issued Tax Return no. F-MC 851/21.01.2014, and rejected by the judicial administrator of S.P.E.E.H Hidroelectrica S.A., and registered with the Seventh Civil Section of the Bucharest Tribunal, in File no. 22456/3/2012*/a1. Upon the hearing of July 17, 2015, on the merits, the Seventh Civil Section of the Bucharest Tribunal rejected the exception of the late submission of the appeal filed by S.P.E.E.H. Hidroelectrica S.A. and rejected as ungrounded the appeal filed by creditor National Agency for Tax Administration against the measure of the judicial administrator of debtor Electricity Production Company HIDROELECTRICA S.A. of rejecting the application to pay the current receivable in the activity report published in Insolvency Proceedings Bulletin no. 1310/22.01.2015. On the hearing of March 10, 2016, the Bucharest Court of Appeal rejected the appeal of ANAF as ungrounded. Therefore, the litigation regarding the tax obligations provided by the Tax Inspection Report prepared by ANAF on January 23, 2014 and for which Tax Return no. F-MC 851/21.01.2014 was issued, was finally and irrevocably settled in favor of S.P.E.E.H. Hidroelectrica S.A. In consideration of the above, File no. 3288/2/2015 was resumed by the Bucharest Court of Appeal, pending settlement on April 24, 2017.




23. COMMITMENTS AND RESTRICTIONS (CONTINUED) File 38194/299/2016 On the date of issuance of the Tax Return (January 21, 2014), the Group was not in insolvency, and it could have been subject to enforcement, as the tax return would become enforceable title on February 20, 2014. ANAF-DGAMC was entitled to garnish the bank accounts of Hidroelectrica if the Group had not submitted to the competent tax body a bank letter of guarantee for the tax liabilities it challenged, valid for minimum 6 months. The letter of guarantee was extended until the irrevocable settlement of the payment application filed by ANAF in the insolvency of Hidroelectrica, which occurred by Civil Judgment no. 135/10.03.2016. Thus, Hidroelectrica did not further extend the bank letter of guarantee issued by ING Bank, and it expired on August 18, 2016. On September 6, 2016, ANAF initiated the enforcement of ING Bank further to its refusal to comply with the payment application regarding the bank letter of guarantee in amount of RON 214,385. Both ING Bank and Hidroelectrica filed challenge to the enforcement on the dockets of the Bucharest Sector 1 District Court. At the hearing of January 09.01.2017 the court joined the ING’s challenge with Hidroelectrica’s challenge, so both challenges are judged in File 38194/299/2016, the hearing of which is scheduled for February 28, 2017. 24. RELATED PARTY TRANSACTIONS – TRANSACTIONS WITH OTHER ENTITIES UNDER STATE

OWNERSHIP The Group is a state-owned entity. The Ministry of Economy, Trade and Relationship with the Business Environment ("METBE") owns 80.0561% of the shares of the Group. The value of the Group's transactions with the Ministry of Economy and State-controlled entities, or over which the State exercises significant influence represents a significant portion of sales and purchases recorded in the 2016 financial year. 25. GROUP MANAGEMENT SALARIES The Group has no contractual obligations to pay pensions to former directors and administrators and has not granted any loans to managers or directors during their exercise. 26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Legislative and regulatory changes determined the Group to adopt a proactive approach in risk assessment, which continues to develop. As compliant with Order no. 946/2005 of the Ministry of Public Finances for the approval of the Internal Code of Control containing management/internal control standards for public entities and for the development of the managerial control system, completed and actualized, both for subsidiaries as well as for the Executive branch, decisions have been issued towards the Group in the purpose of supervision, coordination and methodological guidance of the implementation process for management/internal control standards.




26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) The branches and the executive of the group both have developed programs for the development of the internal control/managerial system. Strategic risks of major importance and their corresponding handling procedures have been determined as follows: Risk of the economic environment The process of value adjustment depending on risk that has taken place on international financial markets has affected their performance and this includes the financial-banking market in Romania, thus leading to an increasing lack of certainty regarding future economic evolution. The Group’s commercial partners may be affected by liquidity crisis situation, impairing their capacity to fulfill current obligations. Deteriorating operating conditions of creditors may also affect the managing of cash flow previsions and financial or non-financial asset depreciation analyses. To the degree that information is available, management has reviewed estimations of future cash flows in its depreciation policy. The identification and evaluation of influenced investments on a less liquid crediting market, the analysis of credit contract compliance and of other obligations raise new challenges.

The Group’s Management cannot estimate the events that could have an effect on the banking sector in Romania and which effect they might have on the consumer behavior of economic agents.


2016 2015

Financial assets 000 RON 000 RON

Cash and cash equivalents 1,822,793 1,047,310 Derivative instruments at FVTPL - - Receivables and other debts 463,889 350,841

Financial liabilities

Derivative instruments at FVTPL - 77,305 Financial liabilities at amortized cost 1,648,294 883,350 Price risk Currently, the price of electrical energy delivered to the regulated market is not influenced exclusively by the Group decisions, but is also convened and revised periodically by the National Authority for Regulation in the Energy market with the approval of the Competition Council, and the end consumer price is monitored by the Government. The legislative environment permits producers to sell electricity to eligible consumers on the free market through bilateral contracts. The risk of price fluctuations is not covered through derivatives.




26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) The Counterparty Risk The Counterparty Risk is the risk that the Group should suffer a financial loss following non-fulfillment of contract obligations towards a client or a counterparty to a financial instrument, and this risk stems mainly from commercial receivables, cash and cash equivalents. The treatment of the Counterparty Risk is based on internal and external Group success factors. External success factors that have a systematic effect on risk reduction are: the restructuring of the energy market, the privatization of SC Electrica SA subsidiaries, liberalization of the energy market and the perfecting of the market operator. Internal success factors include the diversification of the client portfolio. Financial assets that may facilitate the collection risk are mainly commercial receivables. The Group has a number of practices and policies in place to ensure that the sale of services occurs to clients with corresponding collection. The value of receivables, net of provisions, represents the maximum amount exposed to the collection risk. The collection risk regarding trade receivables is mitigated through guarantees issued by most of the Group's customers or through OPCOM that acts as a counterparty on certain markets. There are some markets that do not oblige participants to issue letters of guarantee, such as OTC, PCSU or regulated market. Hydrological risk The hydrological situation – The level of production is limited both by the installed capacity as well as by the predominant hydrological situation. Unfavorable weather, representing little precipitation, affects production capacity and the ability to fulfill contractual obligations, while humid weather offers an opportunity to attempt increasing revenues from additional production. As the Group cannot change the hydrological situation, they may still mitigate it through:

supervision of conditions and tendencies, for the highest quality data to be used in predictions and estimations;

a prudent approach to contractual obligations;

supervision of markets for additional revenues in case of surplus;

considering diversification strategies through alternative production sources, including the unconventional.

The interest rate risk The Group’s operating cash flows are affected by changes in interest rates, mainly due to foreign currency loans contracted with foreign financing banks. Changes that may occur exchange rates and interest rate levels, by raising them, may affect the Group’s result. If the interest rates would be higher / lower by 1% (100 basis points) and all other variables were held constant, the Group's net income would increase / decrease by RON 6,216.




26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) The risk to cash determined by the interest rate is the risk that interest rates and thus, the expense with these, to fluctuate over time. The Group has significant Long Term Loans, with variable interest rates, which presents a Risk to both Price and Cash for the Group.

June 30,

December 31,

2016

2015

000 RON

000 RON

Long and short-term borrowings

423,217

515,231

Cash and cash equivalents

(1,822,793)

(1,047,310)

Net debt

(1,399,576)

(532,079)

Equity 17277,001

17,281,747

Net debt to equity ratio

n/a

n/a

Legislative risks Fiscal Controls are frequent in Romania, consisting of detailed verifications of contributors’ accounting registers. These controls often occur months of years from the establishment of payment obligations. Thus, depending on the result of such controls, companies may owe additional taxes or fines. Also, fiscal legislation is modified frequently, with authorities often expressing inconsistency in legislation interpretation (starting with 2016, has been introduced a concealing penalty of 0.08% per day). However, Group Leadership feels that adequate reserves have been made for all significant fiscal obligations. Congruent to regulation emitted by the Ministry of Public Finance, which regulates the fiscal regime for elements of equity which have not been subjected to the calculation of profit tax at the date of their recording in accounting, due to their nature, if the Group shall change the destination of revaluation reserves in the future (through covering of losses or distribution to shareholders), this would lead to additional payables through the tax on profits. The actual value of financial instruments Financial instruments owned until maturity are included in the balance sheet at cost or recoverable value. The real value is the value at which the financial instrument may be exchanged in normal transactions, other than those determined through liquidation or forced sale. Real values are obtained from quoted market prices or cash flow models. At June 30, 2015, cash and equivalents, receivables and payables and other short term debt (including amounts owed to credit institutions) approaches their real value due to their short maturity.




27. EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS In 2010, the Group has entered into a long-term electricity supply contract valid until January 2018. The contract sets forth the quantities of electricity to be supplied each year that represent expected volumes to be sold by the Group. The agreed pricing contains an LME-linked price adjustment. Management has analyzed the contract and concluded that the price adjustment is not clearly and closely related to the host contract and therefore represents an embedded derivative which should be separated from the host contract and accounted for at fair value through profit and loss. The embedded derivative is recorded at fair value through profit and loss. In 2012, the Group renegotiated the energy supply contract, and the mechanism for setting the price was changed. For 2012, the prices as per addendum to the energy supply contract are fixed and there are no related embedded derivatives to be recorded separately. From 2013 to 2018, the agreed price includes an adjustment of the price correlated with the price of aluminum (different from the initial one), a minimum level, a maximum level and an element that cancels the minimum level if certain market conditions are cumulatively met (in respect of both the aluminum and energy market). As a result, the embedded derivatives that are separated from the main contract consist in the following four parts: - a set of 61 monthly forward contracts for sale of aluminum, whose theoretical values are determined

based on the aluminum quantities specified in the contract; the theoretical values of the forward contracts are determined based on the energy quantities specified in the contract, which represent the best estimate of the management as at the commencement date and, therefore, as at the renegotiation date, in respect of the energy quantities to be purchased;

- a set of 61 aluminum call option contracts, corresponding to the maximum price of energy stated in the contract;

- a set of 61 aluminum put option contracts, corresponding to the minimum price of energy stated in the contract;

- a set of 61 monthly aluminum put options contracts under which the base is an index of the energy price.

In June 2016, the purchaser exercised its option of no longer purchasing electricity from the Group in 2017. The table below presents a distribution of the derivatives as at June 30, 2016 and December 31, 2015:

June 30, 2016 Assets Liabilities

Embedded derivatives – short term - - Embedded derivatives – long term - -

Total -

-




27. EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

December 31, 2015 Assets Liabilities

Embedded derivatives – short term - 170,618 Embedded derivatives – long term - 17,354

Total - 187,972

Starting with January 1, 2010, the Group adopted the amendment to IFRS 7 for disclosure by level of the fair value measurement hierarchy. The fair values of financial assets and financial liabilities are determined as follows.

The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes listed redeemable notes, bills of exchange, debentures and perpetual notes).

The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.

The fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, the fair value of financial instruments is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value of LME forward swap over-the-counter derivatives is determined using LME aluminum quotes for each of the settlement dates provided by dealers.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Financial liability at FVTPL

June 30, 2016

Level 1 Level 2 Level 3 Total

Embedded derivatives - - - -

Total - - - -




27. EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

December 31, 2015

Level 1 Level 2 Level 3 Total

Embedded derivatives - 187,972 - 187,972

Total - 187,972 - 187,972

There were no transfers between Level 1 and 2 in the year ended December 31, 2015. For the 6 months period ended June 30, 2015 the Group has not updated the embedded derivatives computation, the value recorded in the interim consolidated financial statements as at June 30, 2015 being the same as the one recorded as at December 31, 2014. 28. SUBSEQUENT EVENTS Financial activity On September 30, 2016 the credit line from BRD was extended for another year. The value of the line was decreased from RON 300 thousand to RON 100 thousand and can be used both for cash drawings and for issuing bank letters of guarantee in RON and in EUR. The credit line is guaranteed by assignment of receivables.

ANAF In 2016, the Group signed Credit Contract no. 16271/09.02.2016 with ING Bank, which refers to the issuance by ING Bank, in favor of ANAF, of a bank letter of guarantee (BLG) in amount of RON 214,385. On February 18, 2016, ING Bank issued Bank Letter of Guarantee no. GI-16/0826 in favor of ANAF, in amount of RON 214,385 valid until August 18, 2016. By Resolution no. 21 of August 18, 2016, the Supervisory Board approved not to extend Bank Letter of Guarantee no. GI-16/0826 and, if applicable, to file a challenge to execution against any enforcement acts that ANAF might initiate based on Tax Return no. F-MC 851/21.01.2014 in the absence of a bank letter of guarantee validly extended according to the Fiscal Procedure Code. On August 18, 2016 ING Bank informed the Group that ANAF sent the bank a letter enforcing Bank Letter of Guarantee no. GI-16/0826, and ING Bank would analyze its appropriateness and would decide on the enforcement of the BLG within 5 business days. On August 25, 2016 ING Bank sent ANAF a letter refusing payment under the payment request issued by ANAF in connection with the BLG in amount of RON 214,385.




28. SUBSEQUENT EVENTS (CONTINUED) On September 6, 2016, ANAF initiated the enforcement against ING Bank further to its refusal to execute the payment request of ANAF in connection with the BLG in amount of RON 214,385. By Letter no. 100178/14.09.2016, the Group was informed that, further to the enforcement summons issued by ANAF on September 6, 2016, ING Bank paid the RON 214,385 to ANAF.

Documents

S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES ... 2016_EN.pdf · This is a free translation from the original Romanian binding version. S.P.E.E.H. HIDROELECTRICA S.A. AND SUBSIDIARIES