Download IMPORTANT NOTICE IMPORTANT: You must read the following

IMPORTANT NOTICE
IMPORTANT:
You must read the following before continuing.
This translation of the Prospectus from Romanian into English is not an official translation and is not
a substitute for the original Romanian version of the Prospectus. This translation has not been reviewed or
approved by the Romanian FSA. The accuracy or completeness of this translation is not guaranteed.
The following applies to the prospectus (the ‘‘Prospectus’’) following this page and you are therefore
advised to read the disclaimers set out in this electronic transmission carefully before reading, accessing or
making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the
following terms and conditions, including any modifications to them from time to time, each time you
receive any information from the Company or the Managers (each as defined in the Prospectus) as a result
of such access. You acknowledge that this electronic transmission and the delivery of the Prospectus is
confidential and intended for you only and you agree you will not forward, reproduce or publish this
electronic transmission and/or the Prospectus in any manner whatsoever to any other person.
NOTHING IN THIS ELECTRONIC TRANSMISSION OR THE PROSPECTUS CONSTITUTES
AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY JURISDICTION
WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES REFERRED TO IN THE
PROSPECTUS HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE US
SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, US PERSONS (AS DEFINED IN REGULATION S
(‘‘REGULATION S’’) UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS.
NEITHER THE PROSPECTUS NOR ANY PART OF IT MAY BE FORWARDED OR
DISTRIBUTED TO ANY OTHER PERSON, REPRODUCED IN ANY MANNER WHATSOEVER
AND, IN PARTICULAR, FORWARDED TO ANY US PERSON OR TO ANY US ADDRESS. ANY
FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE PROSPECTUS IN WHOLE OR
IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN
A VIOLATION OF THE SECURITIES ACT OR APPLICABLE LAWS OF OTHER
JURISDICTIONS.
NEITHER THE PROSPECTUS NOR ANY PART OR COPY OF IT MAY BE TAKEN
TRANSMITTED INTO AUSTRALIA, CANADA OR JAPAN OR TO ANY RESIDENT
AUSTRALIA, CANADA OR JAPAN, OR DISTRIBUTED DIRECTLY OR INDIRECTLY
AUSTRALIA, CANADA OR JAPAN OR TO ANY RESIDENT OF AUSTRALIA, CANADA
JAPAN.
OR
OF
IN
OR
THIS ELECTRONIC TRANSMISSION, THE PROSPECTUS AND THE OFFERING (AS
DEFINED IN THE PROSPECTUS) ARE AVAILABLE ONLY TO INVESTORS WHO ARE EITHER:
(1) ‘‘QUALIFIED INSTITUTIONAL BUYERS’’ (‘‘QIBs’’) UNDER RULE 144A (‘‘RULE 144A’’) UNDER
THE SECURITIES ACT OR (2) NON-US PERSONS (AS DEFINED IN REGULATION S) OUTSIDE
OF THE UNITED STATES.
THIS ELECTRONIC TRANSMISSION, THE PROSPECTUS AND THE OFFERING MADE
PURSUANT THERETO ARE ADDRESSED ONLY TO AND DIRECTED ONLY AT PERSONS IN
MEMBER STATES OF THE EUROPEAN ECONOMIC AREA (‘‘EEA’’), OTHER THAN ROMANIA,
WHO ARE ‘‘QUALIFIED INVESTORS’’ WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE
PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC), AS AMENDED (‘‘QUALIFIED
INVESTORS’’), TO FEWER THAN 100, OR IF THE MEMBER STATE HAS IMPLEMENTED THE
RELEVANT PROVISION OF DIRECTIVE 2010/13/EU, 150 INDIVIDUALS OR LEGAL ENTITIES
OTHER THAN QUALIFIED INVESTORS AND IN ANY OTHER CIRCUMSTANCES FALLING
WITHIN ARTICLE 3(2) OF THE PROSPECTUS DIRECTIVE. IN ADDITION, IN THE UNITED
KINGDOM, THIS ELECTRONIC TRANSMISSION AND THE PROSPECTUS IS BEING
DISTRIBUTED ONLY TO, AND IS DIRECTED ONLY AT, QUALIFIED INVESTORS WHO (I) ARE
PERSONS WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO
INVESTMENTS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND
MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED (THE
‘‘FINANCIAL PROMOTION ORDER’’), (II) ARE PERSONS WHO FALL WITHIN ARTICLE 49(2)(A)
TO (D) OF THE FINANCIAL PROMOTION ORDER OR (III) ARE OTHER PERSONS TO WHOM
THEY MAY OTHERWISE LAWFULLY BE COMMUNICATED (ALL SUCH PERSONS,
INCLUDING QUALIFIED INVESTORS, TOGETHER BEING REFERRED TO AS ‘‘RELEVANT
PERSONS’’). THIS ELECTRONIC TRANSMISSION AND THE PROSPECTUS MUST NOT BE
ACTED ON OR RELIED ON (I) IN THE UNITED KINGDOM, BY PERSONS WHO ARE NOT
RELEVANT PERSONS, AND (II) IN ANY MEMBER STATE OF THE EEA OTHER THAN
ROMANIA, BY PERSONS WHO ARE NOT QUALIFIED INVESTORS. ANY INVESTMENT OR
INVESTMENT ACTIVITY TO WHICH THIS ELECTRONIC TRANSMISSION AND THE
PROSPECTUS RELATES IS AVAILABLE ONLY TO, (I) THE PUBLIC IN ROMANIA, (II) IN THE
UNITED KINGDOM, RELEVANT PERSONS, AND (III) IN ANY MEMBER STATE OF THE EEA
OTHER THAN ROMANIA, QUALIFIED INVESTORS, AND WILL BE ENGAGED IN ONLY WITH
SUCH PERSONS.
Confirmation of your Representation: In order to be eligible to view the Prospectus or make an
investment decision with respect to the securities described herein, you must be either (1) a QIB or
(2) subscribing for or purchasing the securities outside the United States in reliance on Regulation S. This
electronic transmission and the Prospectus is being sent at your request and by accepting the e-mail and
accessing the Prospectus, you shall be deemed to have represented to Societatea Comercială de
Distribuţie şi Furnizare a Energiei Electrice ‘‘ELECTRICA’’ S.A. (‘‘Electrica’’ or the ‘‘Company’’) and
Raiffeisen Bank S.A., Citigroup Global Markets Limited, Société Générale, BRD-Groupe Société
Générale S.A. and Swiss Capital S.A. (together, the ‘‘Managers’’) that (i) you are a person that is outside
the United States for the purpose of Regulation S or a QIB, and in the latter case, you are acquiring the
securities for your own account and/or for the account of another QIB, or (ii) you are a person in a
member state of the EEA, other than Romania and you are a Qualified Investor and/or a Qualified
Investor acting on behalf of Qualified Investors or Relevant Persons, to the extent that you are acting on
behalf of persons or entities in the EEA or Romania, or (iii) you are a person in the United Kingdom and
you are a Relevant Person and/or a Relevant Person acting on behalf of Relevant Persons or Qualified
Investors, to the extent that you are acting on behalf of persons or entities in the United Kingdom or in the
EEA, or (iv) you are an institutional investor that is otherwise eligible to receive this electronic
transmission and the Prospectus. You shall also be deemed to have represented to the Company and each
of the Managers that you consent to delivery of this electronic transmission and the Prospectus by
electronic transmission.
You are reminded that the Prospectus has been delivered to you on the basis that you are a person
into whose possession the Prospectus may be lawfully delivered in accordance with the laws of the
jurisdiction in which you are located and you may not nor are you authorised to deliver the Prospectus,
electronically or otherwise, to any other person. If you receive the Prospectus by e-mail, you should not
reply by e-mail. Any reply to e-mail communications, including those you generate by using the ‘‘reply’’
function on your e-mail software, will be ignored or rejected. If you receive the Prospectus in electronic
format by e-mail, your use of such Prospectus in electronic format and such e-mail is at your own risk and
it is your responsibility to take precautions to ensure that each is free from viruses and other items of a
destructive nature.
The materials relating to the Offering do not constitute, and may not be used in connection with, an
offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction
requires that the Offering be made by a licensed broker or dealer and the underwriters or any affiliate of
the underwriters is a licensed broker or dealer in that jurisdiction, the Offering shall be deemed to be
made by the underwriters or such affiliate on behalf of the Company in such jurisdiction.
The Prospectus has been sent to you in an electronic format. You are reminded that documents
transmitted via this medium may be altered or changed during the process of electronic transmission and,
consequently, none of the Managers, or any person who controls any of them, nor any director, officer,
employee nor agent of any of them or affiliate of any such person accepts any liability or responsibility
whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and
the hard copy version available to you on request from Raiffeisen Bank S.A. and BRD-Groupe Société
Générale S.A., S.S.I.F. SWISS CAPITAL S.A.
None of the Managers nor any of their respective affiliates accepts any responsibility whatsoever for
the contents of this electronic transmission or the Prospectus or for any other statement made or
purported to be made by it, or on its behalf, in connection with the Company or the securities or the
offering referred to herein. The Managers and each of their affiliates disclaim all and any liability whether
arising in tort, contract, or otherwise which they might otherwise have in respect of this electronic
transmission, the Prospectus or any such statement. No representation or warranty, express or implied, is
made by any of the Managers or any of their respective affiliates as to the accuracy, completeness or
sufficiency of the information set out in this electronic transmission or the Prospectus.
2JUN201418130522
SOCIETATEA COMERCIALA DE DISTRIBUTIE SI FURNIZARE
A ENERGIEI ELECTRICE ‘‘ELECTRICA’’ S.A.
(A joint stock company incorporated under the laws of Romania, registered with the Trade Registry under No. J40/7425/2000, Sole
Registration Code (C.U.I.) 13267221)
Offering of 177,188,744 Shares in the form of Offer Shares
and Offer Global Depositary Receipts, each GDR representing four Shares, by Electrica S.A.
Offer Price Range between RON 11 and 13.50 per Offer Share and
between US$13.55 and 16.63 per Offer Global Depositary Receipt
This document has been approved by the Romanian Financial Supervisory Authority (the ‘‘Romanian FSA’’), which is the
Romanian competent authority for the purposes of Directive 2003/71/EC, as amended (the ‘‘Prospectus Directive’’) and relevant
implementing measures in Romania, as a prospectus (the ‘‘Prospectus’’) in accordance with Law no. 297/2004 on capital markets (the
‘‘Capital Markets Law’’), Regulation no. 1/2006 on issuers and operations with securities issued by the Romanian National Securities
Commission (the ‘‘Regulation No. 1/2006’’) and Regulation (EC) No. 809/2004 of 29 April 2004 implementing the Prospectus Directive.
This Prospectus relates to an offering (the ‘‘Offering’’) by Societatea Comerciala de Distributie si Furnizare a Energiei Electrice
‘‘ELECTRICA’’ S.A. (‘‘Electrica’’ or the ‘‘Company’’), a joint stock company incorporated under the laws of Romania, of 177,188,744
ordinary shares in the share capital of the Company each of which will be issued, fully paid with a par value of RON 10 and carrying one
vote in a GMS (the ‘‘Shares’’). The Offering comprises an offering of 177,188,744 Shares in the form of Shares (the ‘‘Offer Shares’’) and
global depositary receipts (the ‘‘GDRs’’ and, together with the Shares, the ‘‘Securities’’) having Shares as underlying securities (the
‘‘Offer GDRs’’ and, together with the Offer Shares, the ‘‘Offer Securities’’) with one GDR representing an interest in four Shares. The
GDRs are to be issued against the deposit of Shares with Raiffeisen Bank S.A., as custodian (the ‘‘Custodian’’) for The Bank of New
York Mellon, as depositary (the ‘‘Depositary’’). The final offer price (the ‘‘Final Offer Price’’) of the Offer Securities will be within the
offer price range (the ‘‘Offer Price Range’’). For details on the mechanism for calculating the Final Offer Price, see ‘‘Subscription and
Sale’’.
The Company expects that the Stabilisation Managers, in connection with the Offering, will have the right to acquire, Offer
Securities not exceeding 8,420,000 Offer Shares, in order to stabilise the stock market price of the Offer Securities at a level higher than
that which would otherwise prevail. The acquisition of the Offer Securities as part of stabilising transactions will be subject to the
applicable provisions of the Stabilisation Regulation (defined elsewhere in this Prospectus). The transactions to purchase the Offer
Securities may be effected only during the period commencing on the first listing day of the Shares on the BSE and of the GDRs on the
London Stock Exchange and terminating 30 days of that date (the ‘‘Stabilisation Period’’). The transactions to purchase the Offer
Securities may only be effected at a price not exceeding the Final Offer Price. The Stabilisation Managers will not, however, be required
to take any stabilisation actions. If any such actions are taken by the Stabilisation Managers, they may be discontinued at any time, but
not later than before the end of the Stabilisation Period. No assurance may be given that such stabilisation actions, if taken, will bring the
expected results.
Application will be made to: (1) Bucharest Stock Exchange S.A. (the ‘‘Bucharest Stock Exchange’’ or ‘‘BSE’’) for admission of the
Shares to trading on the Regulated Spot Market of the Bucharest Stock Exchange; and (2) (i) the United Kingdom Financial Conduct
Authority (the ‘‘FCA’’), in its capacity as competent authority under the United Kingdom Financial Services and Markets Act 2000 (the
‘‘FSMA’’), for the GDRs to be admitted to listing on the official list of the FCA (the ‘‘Official List’’) and (ii) the London Stock
Exchange plc (the ‘‘London Stock Exchange’’), for admission of the GDRs to trading on the London Stock Exchange’s main market for
listed securities. The Bucharest Stock Exchange and the London Stock Exchange are both regulated markets in the European Economic
Area (the ‘‘EEA’’) for the purposes of Directive 2004/39/EC (the ‘‘Directive on Markets in Financial Instruments’’). Prior to the
Offering, there has been no public market for the Securities.
This Prospectus has been approved by the Romanian FSA but has not been, and will not be, approved by the FCA or any other
competent authority of the EEA. The Company has requested that the Romanian FSA notify the FCA by providing a certificate of
approval attesting that this Prospectus has been drawn up in accordance with the Prospectus Directive (the ‘‘Notification’’).
Admission of the Shares to trading on the Regulated Spot Market of the Bucharest Stock Exchange is expected to take place on or
around 3 July 2014 (the ‘‘Closing Date’’). The Shares are expected to be traded on the Regulated Spot Market of the Bucharest Stock
Exchange under the symbol ‘‘EL’’. Admission to the Official List and unconditional trading in the GDRs on the London Stock Exchange
through the International Order Book (‘‘IOB’’) is expected to take place on or around the Closing Date, which will take place following
the FCA’s receipt of Notification from the Romanian FSA. The GDRs are expected to be traded on the London Stock Exchange under
the symbol ELSA.
The Offering is structured as an offering of Offer Securities: (1) in Romania to the public; (2) in the United States to certain
qualified institutional buyers (‘‘QIBs’’) as defined in, and in reliance on, Rule 144A (‘‘Rule 144A’’) under the US Securities Act of 1933,
as amended (the ‘‘Securities Act’’) or another exemption from the registration requirements of the Securities Act; and (3) outside the
United States and Romania in offshore transactions in reliance on Regulation S under the Securities Act (‘‘Regulation S’’).
An investment in the Securities involves a high degree of risk. See ‘‘Risk Factors’’ beginning on page 43 for a
discussion of certain matters that investors should consider prior to making an investment in the Securities.
THIS PROSPECTUS HAS BEEN APPROVED BY THE ROMANIAN FSA. THE APPROVAL VISA APPLIED ON THIS
PROSPECTUS DOES NOT CONSTITUTE A GUARANTEE OR ANY OTHER KIND OF ASSESSMENT BY THE ROMANIAN FSA
WITH REGARD TO THE OPPORTUNITY, ADVANTAGES OR DISADVANTAGES, THE PROFIT OR RISKS INVOLVED IN THE
TRANSACTIONS TO BE EXECUTED FOLLOWING THE ACCEPTING OF THE OFFERING, OBJECT OF THE APPROVAL
DECISION; THE APPROVAL CERTIFIES ONLY THE CONFORMITY OF THIS PROSPECTUS WITH THE LEGAL
REQUIREMENTS AND THE RULES ADOPTED FOR THE APPLICATION THEREOF.
Joint Global Coordinators and Joint Bookrunners
Citigroup
Raiffeisen Bank
Société Générale Corporate & Investment Banking
Manager
Distribution Agent
BRD-Groupe Société Générale
The date of this Prospectus is 11 June 2014.
Swiss Capital
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
This document comprises a prospectus relating to the Company and the Securities for the purposes of
the Prospectus Directive.
The Offering does not constitute an offer to sell, or solicitation of an offer to buy, securities in any
jurisdiction in which such offer or solicitation would be unlawful. The Securities have not been and will not
be registered under the Securities Act or with any securities regulatory authority of any state or other
jurisdiction of the United States and may not be offered or sold within the United States, except to persons
reasonably believed to be QIBs in reliance on Rule 144A or another exemption from the registration
requirements of the Securities Act or outside the United States in offshore transactions in reliance on
Regulation S. Prospective purchasers are hereby notified that sellers of the Securities may be relying on the
exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a discussion
of these and certain further restrictions on offers, sales and transfers of the Securities and the distribution
of this Prospectus, see ‘‘Terms and Conditions of the Global Depositary Receipts’’ and ‘‘Selling and Transfer
Restrictions’’.
The Offering may be extended at any time without cause. The GDRs will be issued in master form.
The GDRs offered and sold in the United States (the ‘‘Rule 144A GDRs’’) will be evidenced by a
Rule 144A Master Global Depositary Receipt (the ‘‘Rule 144A Master GDR’’) deposited with The Bank of
New York Mellon in New York as custodian for, and registered in the name of Cede & Co. as nominee for,
The Depository Trust Company (‘‘DTC’’) in New York. The GDRs offered and sold outside the United
States (the ‘‘Regulation S Master GDRs’’) will be evidenced by a Regulation S Master Global Depositary
Receipt (the ‘‘Regulation S Master GDR’’ and, together with the Rule 144A Master GDR, the ‘‘Master
GDRs’’) registered in the name of The Bank of New York Depository (Nominees) Limited, as nominee for
The Bank of New York Mellon, London Branch, as common depositary for Euroclear Bank SA/NV
(‘‘Euroclear’’) and Clearstream Banking, société anonyme (‘‘Clearstream, Luxembourg’’). Except as
described herein, beneficial interests in the Master GDRs will be shown on, and transfers thereof will be
effected only through, the records of DTC with respect to the Rule 144A GDRs and Euroclear and
Clearstream, Luxembourg with respect to the Regulation S GDRs. It is expected that delivery of the GDRs
will be made against payment therefor in US dollars in same day funds through the facilities of DTC,
Euroclear and Clearstream, Luxembourg on the Closing Date.
The Company accepts responsibility for the information contained in this Prospectus. To the best of
the Company’s knowledge (having taken all reasonable care to ensure that such is the case), the
information contained in this Prospectus is in accordance with the facts and does not omit anything likely
to affect the import of such information. Certain information in this Prospectus has been extracted from
public sources including ANRE, Eurostat, the National Prognosis Commission, IMF, the Romanian
National Institute for Statistics, the National Bank of Romania, Transelectrica and OPCOM. While we
accept responsibility for the accurate extraction and summarisation of such industry and market
information and data, we have not independently verified the accuracy of such information and data and
we accept no further responsibility in respect thereof.
No person is authorised to give any information or to make any representation in connection with the
Offering or sale of the Securities other than as contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorised by the Company or any
of the Managers or their respective affiliates. If anyone provides any investor with different or inconsistent
information, such investor should not rely on it.
This Prospectus is being furnished by the Company for the purpose of enabling a prospective investor
to consider subscribing for and purchasing the Offer Securities. This Prospectus is not intended to provide
the basis of any credit or other evaluation and should not be considered as a recommendation by the
Company, the Depositary or any Manager that any recipient of this Prospectus should subscribe for or
purchase the Offer Securities. No representation or warranty, express or implied, is made by any Manager,
the Depositary or any of their respective affiliates or advisors as to the accuracy or completeness of any
information contained in this Prospectus, and nothing contained in this Prospectus is, or shall be relied
upon as, a promise or representation by any Manager or the Depositary as to the past or the future. Any
reproduction or distribution of this Prospectus, in whole or in part, any disclosure of its contents, except to
the extent that such contents are otherwise publicly available, and any use of any information herein for
any purpose other than considering an investment in the Securities, is prohibited. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the Company’s affairs since the date hereof, or that the information contained
i
herein is correct at any time subsequent to such date. Each prospective investor, by accepting delivery of
this Prospectus, agrees to the foregoing.
Each potential subscriber for or purchaser of the Offer Securities should determine for itself the
relevance of the information contained in this Prospectus, and its subscription for or purchase of the Offer
Securities should be based upon such investigation, as it deems necessary, including the assessment of risks
involved and its own determination of the suitability of any such investment, with particular reference to
their own investment objectives and experience and any other factors that may be relevant to such investor
in connection with the subscription for or purchase of the Offer Securities.
Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant
to Capital Markets Law Regulation No. 1/2006 and Regulation (EU) No. 382/2014 with regard to
regulatory technical standards for publication of supplements to the Prospectus, neither the delivery of this
Prospectus nor any purchase made in connection therewith shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since, or that information
contained herein is correct as at any time subsequent to, the date of this Prospectus.
Prospective investors should not consider any information in this Prospectus to be investment, legal or
tax advice. Each prospective investor should consult its own legal counsel, financial adviser, accountant and
other advisors for legal, tax, business, financial and related advice regarding subscribing for or purchasing
the Securities. None of the Company, the Depositary or any of the Managers makes any representation to
any offeree or purchaser of or subscriber for the Securities regarding the legality of an investment in the
Securities by such offeree or purchaser or subscriber under appropriate investment or similar laws. The
price of the Securities as well as the income and dividends, if any, from them can go down as well as up.
In connection with the Offering, the Managers and any of their respective affiliates acting as an
investor for its or their own account(s) may subscribe for or purchase the Securities and, in that capacity,
may retain, subscribe for, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in
such securities, any other securities of the Company or other related investments in connection with the
Offering or otherwise. Accordingly, references in this Prospectus to the Securities being issued, offered,
subscribed or otherwise dealt with should be read as including any issue or offer to, or subscription or
dealing by, the Managers or any of their respective affiliates acting as an investor for its or their own
account(s). The Managers do not intend to disclose the extent of any such investment or transactions
otherwise than in accordance with any legal or regulatory obligation to do so.
The Company and the Managers reserve the right, as a result of applying the allocation procedure, to
reject any offer to subscribe for or purchase the Offer Securities, in whole or in part, and to sell to any
prospective investor less than the full amount of the Offer Securities sought by such investor.
Information on the Company’s website, any website mentioned in this Prospectus or any website
directly or indirectly linked to the Company’s website is not incorporated by reference into this Prospectus
and any decision to subscribe for or purchase the Offer Securities should not be made in reliance on such
information.
This Prospectus does not constitute an offer to sell, or a solicitation by or on behalf of the Company,
the Depositary or any Manager to any person to subscribe for or purchase any of the Offer Securities in
any jurisdiction where it is unlawful for such person to make such an offer or solicitation. The distribution
of this Prospectus and the offer and sale of the Securities may be restricted by law in certain jurisdictions.
You must inform yourself about, and observe any such restrictions. No action has been taken by the
Company, the Depositary or the Managers that would permit, otherwise than in Romania and the United
Kingdom under the Offering, an offer of the Securities, or possession or distribution of this Prospectus or
any other offering material or application form relating to the Securities in any jurisdiction where action
for that purpose is required. This Prospectus may not be used for, or in connection with, any offer to, or
solicitation by, anyone in any jurisdiction or under any circumstances in which such offer or solicitation is
not authorised or is unlawful. Further information with regard to restrictions on offers and sales of the
Securities is set forth below and under ‘‘Subscription and Sale’’, ‘‘Terms and Conditions of the Global
Depositary Receipts’’ and ‘‘Selling and Transfer Restrictions’’. None of the Company or the Managers is
making an offer to sell the Securities or a solicitation of an offer to buy any of the Securities to any person
in any jurisdiction except where such an offer or solicitation is permitted.
The Managers are acting exclusively for the Company and no one else in connection with the
Offering, and will not be responsible to any other person for providing the protection afforded to their
clients or for providing advice in relation to the Offering. None of the Managers accepts any responsibility
ii
whatsoever for the contents of this Prospectus or for any other statement made or purported to be made by
it or any of them or on its or their behalf in connection with the Company or the Securities. Each of the
Managers accordingly disclaims, to the fullest extent permitted by applicable law, all and any liability
whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in
respect of this Prospectus or any such statement.
In connection with the Offering, the Stabilising Manager(s) (or persons acting on behalf of the
Stabilising Manager(s), may (but will be under no obligation to), to the extent permitted by applicable law,
effect transactions with a view to supporting the market price of the Securities at a level higher than that
which might otherwise prevail in an open market for a limited period. However, there is no assurance that
the Stabilising Manager(s) (or persons acting on behalf of it/them) will undertake stabilisation action. Any
stabilisation action may begin on the date of the commencement of trading of the Securities and, if begun,
may be ended at any time but must end no later than 30 calendar days thereafter (the ‘‘Stabilisation
Period’’). Any stabilisation action must be undertaken in accordance with applicable laws and regulations.
Save as required by law or regulation, the Stabilising Manager(s) do not intend to disclose the extent of any
stabilisation transactions concluded in relation to the Offering.
This Prospectus will be available on the website of the Bucharest Stock Exchange at www.bvb.ro, and
on the website of the Company at www.electrica.ro and hard copies thereof will be provided free of charge
upon request during normal business hours at the headquarters of Raiffeisen Bank S.A. located at Office
Building, 246D Calea Floreasca, 1st District, Bucharest, Romania, BRD-Groupe Société Générale S.A.
located at Bd. Ion Mihalache Nr. 1-7, 1st District, Bucharest, Romania, Swiss Capital S.A., Romania
Offices located at 20 Dacia Bd., 4th Floor, Bucharest, Romania, and at the headquarters of the Company.
The English-language Prospectus will be available on the website of the Company at www.electrica.ro and
hard copies thereof will be provided free of charge upon request during normal business hours at the
headquarters of Raiffeisen Bank S.A. located at Office Building, 246D Calea Floreasca, 1st District,
Bucharest, Romania BRD-Groupe Société Générale S.A. located at Bd. Ion Mihalache Nr. 1-7,
1st District, Bucharest, Romania and Swiss Capital S.A., Romania Offices located at 20 Dacia Bd.,
4th Floor, Bucharest, Romania. The information set forth in this Prospectus is only accurate as of the date
on the front cover of this Prospectus. The Company’s business and financial condition may have changed
since that date.
The Company’s Articles of Incorporation are available on the Company’s website at www.electrica.ro.
NOTICE TO INVESTORS IN THE UNITED STATES
The Securities have not been and will not be registered under the Securities Act or with any securities
regulatory authority of any state or other jurisdiction in the United States for offer or sale as part of their
distribution and, subject to certain exceptions, may not be offered or sold in the United States. The
Securities offered hereby are being offered and sold in the United States only to QIBs in reliance on
Rule 144A or another exemption from the registration requirements of the Securities Act and outside the
United States in offshore transactions in reliance on Regulation S. Prospective investors are hereby
notified that any seller of the Securities may be relying on the exemption from the provisions of Section 5
of the Securities Act provided by Rule 144A. The Securities are not transferable except in accordance with
the restrictions described herein. See ‘‘Selling and Transfer Restrictions’’.
Neither the United States Securities and Exchange Commission (the ‘‘SEC’’) nor any state securities
commission nor any non-US securities authority except the Romanian FSA has approved or disapproved of
the Securities or determined that this Prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF
THE NEW HAMPSHIRE UNIFORM SECURITIES ACT (‘‘RSA 421-B’’) WITH THE
STATE OF NEW HAMPSHIRE, NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE, CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW
HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE,
iii
COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT, NOR THE FACT
THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION, MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE
HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO INVESTORS IN EEA
This Prospectus has been prepared on the basis that all offers of the Offer Securities (other than in
Romania) will be made pursuant to an exemption under Article 3 of the Prospectus Directive, as
implemented in member states of the EEA, from the requirement to produce a prospectus for offers of the
Offer Securities. Accordingly, any person making or intending to make any offer within the EEA of the
Securities should only do so in circumstances in which no obligation arises for the Company, the Managers
or any other person to produce a prospectus for such offer. The Company and the Managers have not
authorised, nor do they authorise, the making of any offer of the Offer Securities through any financial
intermediary, other than offers made by the Managers, including through the Distribution Group (as
defined in the ‘‘Definitions and Glossary of Selected Terms’’), which constitute the final placement of the
Offer Securities contemplated in this Prospectus.
In relation to each member state of the EEA that has implemented the Prospectus Directive (each, a
‘‘Relevant Member State’’), with effect from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State, the offer of any Offer Securities which are the subject of the
Offering contemplated by this Prospectus is not being made and will not be made to the public in that
Relevant Member State (other than in Romania), other than: (a) to any legal entity which is a ‘‘Qualified
Investor’’ as defined in Article 2(1)(e) of the Prospectus Directive; (b) to fewer than 100 or, if the Relevant
Member State has implemented the relevant provision of the 2010 PD Amending Directive (as defined
below), 150 natural or legal persons (other than Qualified Investors as defined in the Prospectus Directive)
in any Relevant Member State; or (c) in any other circumstances falling within Article 3(2) of the
Prospectus Directive; provided that no such offer of the Securities shall require the Company to publish a
prospectus pursuant to Article 3 of the Prospectus or supplement a prospectus pursuant to Article 16 of
the Prospectus Directive.
For the purposes of this notice to investors, the expression an ‘‘offer of the Offer Securities’’ in
relation to the Offer Securities in any Relevant Member State means the communication in any form and
by any means of sufficient information on the terms of the offer and the Offer Securities to be offered so as
to enable an investor to decide to subscribe for or purchase the Offer Securities, as the same may be varied
in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant
Member State.
Each subscriber for or purchaser of Offer Securities in the Offering located within a member state of
the EEA (other than in Romania) will be deemed to have represented, acknowledged and agreed that it is
a Qualified Investor. The Company, the Managers and their affiliates, and others will rely upon the truth
and accuracy of the foregoing representation, acknowledgment and agreement.
For the purposes of this Prospectus, the expression ‘‘Prospectus Directive’’ means
Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent
implemented in each Relevant Member State), and includes any relevant implementing measure in each
Relevant Member State of the EEA and the expression ‘‘2010 PD Amending Directive’’ means
Directive 2010/73/EU.
NOTICE TO INVESTORS IN THE UNITED KINGDOM
This Prospectus is for distribution only to, and is directed only at Qualified Investors who (i) are
persons who have professional experience in matters relating to investments falling within Article 19(5) of
the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the
‘‘Financial Promotion Order’’), (ii) are persons falling within Article 49(2)(a) to (d) (high net worth
companies, unincorporated associations, etc.) of the Financial Promotion Order or (iii) are other persons
iv
to whom they may otherwise lawfully be communicated (all such persons, including Qualified Investors,
together being referred to as ‘‘Relevant Persons’’).
In the United Kingdom, this Prospectus is directed only at Relevant Persons and must not be acted on
or relied on by anyone who is not a Relevant Person. In the United Kingdom, any investment or
investment activity to which this Prospectus relates is available only to Relevant Persons and will be
engaged in only with Relevant Persons.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus are not historical facts and are ‘‘forward-looking’’ within the
meaning of Section 27A of the Securities Act and Section 21E of the US Securities Exchange Act of 1934,
as amended (the ‘‘Exchange Act’’). This Prospectus includes forward-looking statements, which include,
without limitation, any statements preceded by, followed by or that include the words ‘‘may’’, ‘‘will’’,
‘‘would’’, ‘‘should’’, ‘‘expect’’, ‘‘intend’’, ‘‘estimate’’, ‘‘forecast’’, ‘‘anticipate’’, ‘‘project’’, ‘‘believe’’, ‘‘seek’’,
‘‘plan’’, ‘‘predict’’, ‘‘continue’’, ‘‘commit’’, ‘‘undertaking’’ and similar expressions or their negatives. Such
forward-looking statements involve known and unknown risks, uncertainties and other important factors
beyond the Company’s control that could cause its actual results, performance or achievements to be
materially different from future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are based on numerous assumptions
regarding the present and future business strategy of the Company and its Subsidiaries (the ‘‘Group’’) and
the environment in which the Group will operate in the future. Among the important factors that could
cause the Company’s actual results, performance or achievements to differ materially from those expressed
in such forward-looking statements are those in ‘‘Operating and Financial Review’’, ‘‘Risk Factors’’ and
elsewhere in this Prospectus. These factors include, but are not limited to:
Risks Relating to the Group’s Business and Industry
• The Group’s supply segment will face an increase in competition for the supply of electricity as the
electricity supply market continues to be liberalised
• The Group’s financial performance could be adversely affected by changes in tariffs set for the regulated
market
• The Group’s supply segment could lose its status as supplier of last resort
• After the Offering, the State will continue to have significant influence over the Company
• The Group’s financial performance could be adversely affected by changes in electricity prices and the
Group has no hedging protection in place against such event
• Demand for electricity in Romania is dependent on various factors over which the Group has no control,
such as economic, political, climatic conditions
• The Group is subject to significant regulatory requirements and is required to maintain regulatory
approvals; as such it may be exposed to significant liabilities if it fails to maintain such approvals or
comply with such requirements or approvals
• Components of the Group’s distribution network are subject to deterioration over time
• A strike or other labour disruption could adversely affect the Group’s business
• The Group’s assets and/or business could be damaged by natural and man-made acts or disasters
• The Group’s IT systems are outdated and are not integrated
• The migration of the Group to a new integrated ERP system may encounter difficulties and delays
• The Group has limited experience in financial reporting based on IFRS-EU
• The Group’s distribution segment subsidiaries may be operating under concessions agreements which
have not entered into force
• A minority shareholder in the Group’s distribution and supply segment subsidiaries (EDMN, EDTN,
EDTS and Electrica Furnizare) may be entitled to require Electrica to sell a portion of its shares in such
companies on the Bucharest Stock Exchange
• The Group may face risks associated with restitution claims with regard to certain real estate properties
v
• Ownership title over certain real estate properties owned by members of the Group may be deemed
uncertain
• Electrica Furnizare may be prohibited from suspending or interrupting the supply of electricity to certain
of the Group’s customers, even if such customers are in payment default
• Failure to execute management’s business strategy may lead to cost savings and revenue forecasts being
lower than predicted for the Group
• The Group’s reputation, future prospects or results of operations may be materially adversely affected by
claims or litigation
• Failure to observe public procurement legislation by members of the Group may lead to fines and voided
contracts
• The Group may be subject to insurance claims for which it has not adequately made provision
• The Capital Increase may be annulled and/or the Offering may be cancelled
• Share capital increases resulting from State land contributions may result in the State holding more than
50% of Electrica’s shares
• Members of the Group may not have valid legal title for the lands on which the network or the network
infrastructure they operate is located
• Share capital increases in the Company from in-kind contributions of real estate may be voided
• Fondul Proprietatea, a minority shareholder of the distribution and supply subsidiaries of the Group,
may seek to block decision making
• Failure by the State to amend the law restricting share acquisitions by Electrica will restrict the Group’s
strategy
• The Group’s position in electricity distribution and supply markets may expose it to claims relating to
abuse of dominant position
• Provisions contained in certain financing agreements to which members of the Group are party may
restrict their operations
• The Group may be exposed to liabilities in respect of State Aid
• The Company may face additional claims from tax authorities for budgetary debts due for previous
periods
Risks relating to the Reorganisation
• Liquidation and insolvency of the Group’s service subsidiaries and the Spin-off may result in residual
legal liability for the Company
• The Spin-off may be challenged by third parties or may be unenforceable against ENEL, EON and CEZ
Risks relating to Romania
• Investing in developing markets, including Romania, entails certain risks, which may be greater than
risks inherent in more developed markets
• The value of investments in Romania, including the value of the Offer Securities, could be adversely
affected by political and economic uncertainty
• Legal uncertainty as to the State entities involved in the privatisation of the Company may delay the
closing of the Offering
• Political instability in Ukraine could materially and adversely affect the Group
• Certain global events may indirectly affect the outlook for Romania and adversely affect the Group
• The Group’s ability to conduct business and its financial condition, results of operations and prospects
could be adversely affected by corruption and money laundering
• Romania can be subject to high levels of volatility in exchange rate and inflation which may adversely
affect the Group
vi
• Romania may face difficulties related to its post-accession process to the European Union
• Romania’s infrastructure is in poor condition, which could disrupt normal business activity and in turn
the Group’s business, result of operations and prospects
• The Romanian legal system and Romanian legislation continue to develop, which may create an
uncertain environment for investment and for business activity
• The Romanian taxation system is subject to change and may issue inconsistent interpretations of tax
legislation
Risks relating to the Offer and the Offer Securities
• The Company is a holding company with limited operations and relies on its operating subsidiaries to
provide it with funds necessary to meet its financial obligations and to pay dividends on the Offer
Securities
• There is currently no trading market for the Offer Securities
• The Securities may be subject to price volatility
• The prevailing trading price of the Offer Securities could be adversely affected by future sales, or the real
or perceived possibility of sales, of a significant number of the Securities in the public market
• The Offer Securities may not be transferred freely especially in the United States or other countries
• Holders of the Offer Securities in certain jurisdictions (including the United States) may not be able to
exercise their pre-emptive rights and ownership interests may therefore be diluted
• Inability to admit the Securities to trading on the Bucharest Stock Exchange and London Stock
Exchange, as applicable
• Suspension of trading in the Shares
• Investors may not be able to enforce judgments obtained in US courts against the Company
• Exchange rate fluctuations may impair the return in the investment in the Shares
• The Company may not pay dividends in the future, and foreign shareholders and holders of the GDRs
may also be subject to limitations or delays in repatriating their earnings from distributions made on the
underlying Shares
• Following the Offering, holders of Shares may not be able to deposit the Shares in the Company’s GDR
facility in order to receive GDRs, and changes in Romanian regulatory policy with respect to the
placement and circulation of the Shares outside Romania in the form of GDRs or otherwise may
negatively affect the market for the Securities being offered
• Voting rights with respect to the Shares represented by the GDRs are subject to procedural steps and
practical limitations imposed by the terms of the Deposit Agreement and the relevant requirements of
Romanian law
• The rights of minority shareholders may be limited under Romanian law
The above list of important factors is not exhaustive. When reviewing forward-looking statements,
investors should carefully consider the foregoing factors and other uncertainties and events, especially in
light of the political, economic, social and legal environment in which the Company operates. Other
sections of this Prospectus describe additional factors that could adversely affect the Company’s results of
operations, financial condition and the development of the industry in which the Group operates. New
risks affecting the Group’s operations and business can emerge from time to time, and it is not possible for
the Company to predict all such risks, nor can the Company assess the impact of all such risks or the extent
to which any such risks, or combination of such risks and other factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these risks and uncertainties,
investors should not rely on forward-looking statements as a prediction of actual results.
Forward-looking statements contained in this Prospectus speak only as at the date of this Prospectus.
The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to
any forward-looking statements contained herein to reflect any change in the Company’s expectations with
vii
regard thereto or any change in events, conditions or circumstances on which any of such statements are
based unless required to do so by any applicable regulatory regime.
AVAILABLE INFORMATION
For so long as any Securities are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under
the Securities Act, the Company will, during any period in which the Company is neither subject to
Section 13 or Section 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b)
thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective
purchaser of such restricted securities designated by such holder or beneficial owner upon the request of
such holder, beneficial owner or prospective purchaser, the information required to be delivered to such
person pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to
permit compliance with Rule 144A in connection with resales of GDRs.
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
The Company is incorporated under the laws of Romania. Certain persons referred to herein are
residents of Romania and certain entities referred to herein are organised under the laws of Romania. All
or a substantial portion of the assets of such persons and entities are located in Romania. As a result, it
may not be possible for investors to:
• effect service of process within the United States or other countries upon any of the Company’s
directors and senior managers named in this Prospectus; or
• enforce, in the United States or other countries, court judgments obtained in courts of the United
States or such other countries against the Company or any of its directors and senior managers
named in this Prospectus in any action.
In addition, it may be difficult for investors to enforce, in original actions brought in courts in
jurisdictions located outside the United States, liabilities predicated upon US securities laws, as the case
may be.
Furthermore, the United States and Romania currently do not have bilateral or other treaties between
them providing for the reciprocal recognition and enforcement of judgments (other than arbitration
awards) in civil and commercial matters. However, under Romanian law reciprocity is presumed to exist in
fact (de facto) unless there is proof to the contrary, such proof to be determined by the Romanian Ministry
of Justice, in consultation with the Romanian Ministry of Foreign Affairs. A final and conclusive judgment
for the payment of money rendered by any federal or state court in the United States based on civil
liability, whether or not predicated solely upon US federal securities laws, would not automatically be
recognised or enforceable in Romania.
A judgment of a court of law of a non-EU member state made in personam for a certain sum, which is
not impeachable as void or voidable under the internal laws of the foreign jurisdiction (a ‘‘Non-EU
Judgment’’) would be recognised in Romania provided that the relevant conditions in respect of
recognition and enforcement of foreign judgments set out under the Romanian Civil Procedure Code are
met, which includes without limitation the following: (a) the Non-EU Judgment is final (‘‘hotarare
definitiva’’) and enforceable according to the law of the state where it was given; (b) the Non-EU Judgment
must have been rendered by a competent court, according to lex fori, but without relying exclusively on the
presence in that jurisdiction of the defendant or of some of its assets which are not directly connected to
that litigation; (c) there exists reciprocity regarding the effects of foreign judgments between Romania and
the foreign jurisdiction which rendered the Non-EU Judgment whose recognition is sought; (d) when given
in default of appearance of the losing party, the Non-EU Judgment must ascertain that the party who lost
the trial was served in due course with the summons for the hearing where the court tried the merits of the
case and with the document which instituted the proceedings and that such party was given the possibility
to defend itself and to challenge the Non-EU Judgment; (e) such Non-EU Judgment was not obtained by
fraud or in a manner manifestly inconsistent with or contrary to public order of Romanian international
private law and the enforcement thereof would not be inconsistent with or contrary to the public order of
Romanian private international law; (f) where the Non-EU Judgment is rendered in an area of law where
persons cannot dispose freely of their rights, the Non-EU Judgment was not obtained exclusively for the
purpose of withholding the matter from the incidence of the law that would otherwise be applicable
pursuant to Romanian conflict of law rules; (g) no substantially similar action or proceeding involving the
same parties resulted in a judgment (even if not final) of the Romanian courts or is pending before
viii
Romanian courts as at the date the foreign jurisdiction which rendered the Non-EU Judgment is vested;
(h) the Non-EU Judgment is not irreconcilable with a prior foreign judgment which may be recognised in
Romania; (i) Romanian courts did not have exclusive jurisdiction to try the subject matter of the Non-EU
Judgment pursuant to Romanian civil procedure laws; (j) the right of defence was not breached; (k) the
Non-EU Judgment may not be challenged in any other manner in the state where it was rendered; and
(l) the application for recognition before Romanian courts is duly made according to the Romanian
procedural rules and encloses all the documentation thereby required. Additionally, the recognition of the
Non-EU Judgment may not be refused solely for the reason that the foreign court rendering the Non-EU
Judgment applied another law than the law that would have been applicable according to Romanian
conflict of law rules, except where the trial concerns the civil status and the capacity of a Romanian citizen
and the solution adopted by the court differs from the solution that would have been reached according to
the Romanian law.
A Non-EU Judgment can be enforced in Romania based on a final decision of a Romanian competent
court approving the enforcement, only if: (i) the requirements mentioned above for the recognition in
Romania of Non-EU Judgments are met; (ii) where the Non-EU Judgment establishes an obligation
arising from a foreign fiscal law, there exists reciprocity regarding the effects of foreign judgments in the
relevant fiscal matter between Romania and the foreign jurisdiction which rendered the Non-EU
Judgment whose recognition and enforcement is sought; (iii) the enforcement of such Non-EU Judgment
does not constitute, directly or indirectly, the enforcement of foreign criminal laws; (iv) the right to require
enforcement is not time barred according to the statute of limitation provisions (‘‘prescriptia dreptului de a
cere executarea silita’’) of Romanian law; and (v) the application for enforcement before Romanian courts
is duly made according to the Romanian procedural rules and encloses all the documentation thereby
required.
A court judgment rendered in an EU member state other than Romania (an ‘‘EU Judgment’’) would
be recognised in Romania only if the relevant conditions provided by Council Regulation (EC) No 44/2001
on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
(‘‘EC Regulation No. 44/2001’’) are met, including: (a) such recognition is not manifestly contrary to public
order in Romania; (b) where it was given in default of appearance, if the defendant was served with the
document which instituted the proceedings or with an equivalent document in sufficient time and in such a
way as to enable him to arrange for his defence and failing that, if the defendant failed to commence
proceedings to challenge the judgment when it was possible for him to do so; (c) it is not irreconcilable
with a judgment given in a dispute between the same parties in Romania; (d) it is not irreconcilable with an
earlier judgment given in a EU member state (other than Romania) or in a third state involving the same
cause of action and between the same parties, provided that the earlier judgment fulfils the conditions
necessary for its recognition in Romania; and (e) the EU Judgment does not conflict with the provisions of
EC Regulation No. 44/2001 dealing with jurisdiction in matters relating to insurance, jurisdiction over
customer contracts and exclusive jurisdiction. Other conditions may be applicable with respect to specific
matters, under special Romanian legislation or international conventions.
An EU Judgment can be enforced in Romania based on a final decision of a Romanian competent
court approving the enforcement, only if the provisions provided by EC Regulation No. 44/2001 are met,
including: (i) it is enforceable in the EU member state where the EU Judgment was made; (ii) the
Romanian competent court is provided with a copy of the EU Judgment which satisfies the conditions
necessary to establish its authenticity; (iii) the Romanian competent court is provided with an original
certificate issued by the relevant EU member state’s court or other competent authority substantially in the
form set out in Annex V of EC Regulation No. 44/2001 and none of the conditions above preventing the
recognition of an EU Judgment is applicable; (iv) where the EU Judgment orders a periodic payment by
way of penalty (including, but not limited to, default interest), the amount of the payment has been finally
determined by the courts of the EU member state of origin; and (v) the right to enforce the final judgment
is not restricted by any limitation period.
In addition to and independently from the procedure provided by EC Regulation No. 44/2001,
EC Regulation No. 805/2004 of the European Parliament and of the European Council regulates the
creation of a European enforcement order for uncontested claims in civil and commercial matters (the
‘‘European Enforcement Order’’). Under EC Regulation No. 805/2004, a claim shall be regarded as
uncontested if: (a) the debtor has expressly agreed to it by admission or by means of a settlement which has
been approved by a court or concluded before a court in the course of proceedings; or (b) the debtor has
never objected to it, in compliance with the relevant procedural requirements under the law of the EU
member state of origin, in the course of the court proceedings; or (c) the debtor has not appeared or been
ix
represented at a court hearing regarding that claim after having initially objected to the claim in the course
of the court proceedings, provided that such conduct amounts to a tacit admission of the claim or of the
facts alleged by the creditor under the law of the EU member state of origin; or (d) the debtor has
expressly agreed to it in an authentic instrument.
A judgment that has been certified as a European Enforcement Order in the EU member state of
origin shall be recognised and enforced in the other EU member states without the need for a declaration
of enforceability and without any possibility of opposing its recognition.
A judgment on an uncontested claim delivered in a EU member state shall, upon application at any
time to the court of origin, be certified as a European Enforcement Order if: (a) the judgment is
enforceable in the EU member state of origin; and (b) the judgment does not conflict with the rules on
jurisdiction as laid down in EC Regulation No. 44/2001; and (c) the court proceedings in the EU member
state of origin meet the minimum requirements as set out in EC Regulation No. 805/2004 (where the claim
is deemed uncontested because the debtor has never objected to the claim or has not appeared or been
represented at a court hearing as detailed above); and (d) the judgment was given in the EU member state
of the debtor’s domicile within the meaning of EC Regulation No. 44/2001, in cases where: (i) a claim is
uncontested (where the debtor has never objected to the claim or has not appeared or been represented at
a court hearing as detailed above); and (ii) it relates to a contract concluded by a person (a ‘‘consumer’’)
for a purpose which can be regarded as being outside his trade or profession; and (iii) the debtor is the
consumer.
The European Enforcement Order certificate shall take effect only within the limits of the
enforceability of the judgment. The enforcement procedures shall be governed by the law of the EU
member state of enforcement. A judgment certified as a European Enforcement Order shall be enforced
under the same conditions as a judgment handed down in the EU member state of enforcement.
Enforcement shall, upon application by the debtor, be refused by the competent court in the EU
member state of enforcement if the judgment certified as a European Enforcement Order is irreconcilable
with an earlier judgment given in any EU member state or in a third country, provided that: (a) the earlier
judgment involved the same cause of action and was between the same parties; and (b) the earlier
judgment was given in the EU member state of enforcement or fulfils the conditions necessary for its
recognition in the EU member state of enforcement; and (c) the irreconcilability was not and could not
have been raised as an objection in the court proceedings in the EU member state of origin. Under no
circumstances may the judgment or its certification as a European Enforcement Order be reviewed as to
its substance in the EU member state of enforcement.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
General
Investors should rely only on the information in this Prospectus. No person has been authorised to give
any information or to make any representations other than those contained in this Prospectus in connection
with the Offer and, if given or made, such information or representations must not be relied upon as having
been authorised by or on behalf of the Company or the Managers. No representation or warranty, express or
implied, is made by any Manager or any selling agent as to the accuracy or completeness of such
information, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or
representation by the Managers or any selling agent as to the past, present or future. Without prejudice to
any obligation of the Company to publish an amendment to the prospectus pursuant to section 87G of the
FSMA and PR 3.4.1 of the prospectus rules of the Financial Conduct Authority (the ‘‘FCA’’) made pursuant
to Section 73A of the FSMA (the ‘‘Prospectus Rules’’) or article 179 of the Capital Markets Law, neither the
delivery of this Prospectus nor any subscription or sale made under this Prospectus shall, under any
circumstances, create any implication that there has been no change in the business or affairs of the
Company taken as a whole since the date hereof or that the information contained herein is correct as of any
time subsequent to its date.
The contents of this Prospectus are not to be construed as legal, business or tax advice. Each
prospective investor should consult his or her own lawyer, financial advisor or tax advisor for legal,
financial or tax advice in relation to any subscription, purchase or proposed subscription or purchase of
Offer Securities.
In connection with the Offer, each of the Managers and any of their affiliates, acting as investors for
its or their own accounts, may subscribe for and/or purchase Offer Securities, and in that capacity may
x
retain, purchase, sell, offer to sell or subscribe for or otherwise deal for its or their own accounts in such
Offer Securities and other securities of the Company or related investments in connection with the Offer
or otherwise. Accordingly, references in this Prospectus to the Offer Securities being issued, offered,
subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or
subscription, acquisition, placing or dealing by, any Manager and any of its affiliates acting as an investor
for its own accounts. The Managers do not intend to disclose the extent of any such investment or
transactions otherwise than in accordance with any legal or regulatory obligations to do so.
None of the Company or the Managers is making any representation to any offeree or purchaser of
the Offer Securities regarding the legality of an investment by such offeree or purchaser. None of the
Managers accepts any responsibility whatsoever for, or makes any representation or warranty, express or
implied, as to, the contents of this Prospectus or for any other statement made or purported to be made by
it, or on its behalf, in connection with the Company, the Offer Securities or the Offer and nothing in this
Prospectus will be relied upon as a promise or representation in this respect, whether or not to the past or
future. Each of the Managers accordingly disclaims all and any responsibility or liability whatsoever,
whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in
respect of this Prospectus or any such statement.
Prior to making any decision as to whether to subscribe for or purchase the Offer Securities,
prospective investors should read this Prospectus in its entirety. In making an investment decision,
prospective investors must rely upon their own examination of the Company and the terms of this
Prospectus, including the risks involved.
Financial Statements of the Company
The Company’s audited consolidated financial statements as of and for the years ended 31 December
2013, 2012 and 2011 (the ‘‘Audited Consolidated Financial Statements’’), the Company’s unaudited
financial information for the three months ended 31 March 2014 and 2013 (the ‘‘Interim Unaudited
Consolidated Financial Statements’’ and, together with the Audited Consolidated Financial Statements, the
‘‘Consolidated Financial Statements’’) and the Company’s unaudited pro forma financial information dated
31 December 2013 and 31 March 2014 showing the effect of the Spin-off of the minority interests held by
the Company (the ‘‘Unaudited Pro Forma Financial Information’’) are included in this Prospectus. The
Audited Consolidated Financial Statements included in this Prospectus have been prepared in accordance
with International Financial Reporting Standards (‘‘IFRS’’), as adopted by the European Union
(‘‘IFRS-EU’’). The Interim Unaudited Consolidated Financial Statements have been prepared in
accordance with IAS 34 ‘‘Interim Financial Reporting’’. The Consolidated Financial Statements are
presented in Romanian Lei (‘‘RON’’) rounded to the nearest thousand.
Unaudited operating information
The Group’s unaudited operating information in relation to its business is derived from the following
sources: (i) internal records related to the volumes and customer numbers in the Group’s distribution
segment and customer numbers in the Group’s supply segment; (ii) accounting systems (based on invoices
issued and/or received); (iii) internal reporting systems supporting the preparation of financial statements;
(iv) management assumptions and analyses; and (v) discussions with key operating personnel. Operating
information derived from management accounts or internal reporting systems in relation to the Group’s
business is to be found principally in ‘‘Operating and Financial Review’’ and ‘‘Business’’.
Non-IFRS measures
The Company has included certain measures in this Prospectus that are not measures defined by
IFRS. These include EBITDA, Group adjusted EBITDA, net income margin, capital expenditure and net
debt (cash). The Company has included these measures for the reasons described below; however, these
measures should not be used instead of, or considered as alternatives to, its historical financial results
based on IFRS-EU.
The Company defines and calculates EBITDA as consolidated profit (loss) before tax adjusted for
(i) consolidated depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, (ii) consolidated net finance (cost)/income, (iii) consolidated share of
profit (loss) of equity-accounted investees (as disclosed in the income statements). The Company defines
and calculates Group adjusted EBITDA as EBITDA adjusted for non-recurrent events (i) consolidated
impairment/reversal of impairment of trade and other receivables, net and (ii) consolidated write down/
xi
reversal of write down of inventories, net. The Company defines profitability margin as net profit dividend
by revenue. The Company defines and calculates net debt (cash) as total of interest-bearing loans and
borrowings, financing of property, plant and equipment and lease liabilities less cash and cash equivalents.
The Company defines working capital as current assets less current liabilities as at the end of the period.
The Company believes that the presentation of these non IFRS measures enhances an investor’s
understanding of the Group’s financial performance. These non IFRS measures are not presented in
accordance with IFRS and the Company’s use of them may vary from others in the Group’s industry.
These non IFRS measures have limitations as an analytical tool, and should not be considered in isolation
or as a substitute for financial information as reported under IFRS. For example, adjusted EBITDA does
not reflect the effect of finance costs, income tax expense or depreciation, amortisation and impairment on
the Group’s operating performance. In addition, EBITDA and adjusted EBITDA should not be
considered as alternatives to net profit or any other performance measures derived in accordance with
IFRS or as an alternative to cash flow from operating activities or as a measure of the Group’s liquidity. In
particular, adjusted EBITDA should not be considered as a measure of discretionary cash available to the
Group to invest in the growth of its business.
Market information
Market data used in this Prospectus under the captions ‘‘Summary’’, ‘‘Risk Factors’’, ‘‘Operating and
Financial Review’’, ‘‘Market Overview’’ and ‘‘Business’’ has been extracted from official and industry sources
and other sources the Company believes to be reliable. Sources of such information, data and statistics
include ANRE, Eurostat, the National Prognosis Commission, the IMF, OPCOM and the Romanian
Institute for Statistics. Such information, data and statistics have been accurately reproduced and, as far as
the Company is aware and is able to ascertain from information published or provided by the
aforementioned sources, no facts have been omitted which would render the reproduced information, data
and statistics inaccurate or misleading.
Countries
In this Prospectus, all references to ‘‘US’’ are to the United States of America, all references to ‘‘UK’’
are to the United Kingdom, all references to the ‘‘EU’’ are to the European Union and its member states
as of the date of this Prospectus, and all references to the ‘‘EEA’’ are to the European Economic Area and
its member states as of the date of this Prospectus.
Currencies
In this Prospectus, all references to ‘‘RON’’ and ‘‘Lei’’ are to the lawful currency of Romania, all
references to ‘‘E’’, ‘‘EUR’’ and ‘‘euro’’ are to the lawful currency introduced at the start of the third stage of
European economic and monetary union, and as defined in Article 2 of Council Regulation (EC)
No. 974/98 of 3 May 1998 on the introduction of the euro, as amended, and all references to ‘‘US$’’, ‘‘$’’,
‘‘US dollar’’, ‘‘USD’’ and ‘‘dollar’’ are to the lawful currency of the United States.
Solely for the convenience of the reader, and except as otherwise stated, this Prospectus contains
translations of certain RON amounts, derived from the Consolidated Financial Statements and other
financial information included in the Prospectus, into US dollars/euro at the average rate for 2013 of
RON 3,3279 to US$ 1.00 and, respectively, RON 4,4190 to EUR 1.00. The translations of some RON or
US dollar/euro amounts derived from third party sources may differ from the convenience translations
used in this Prospectus. The Company makes no representation that the RON amounts referred to in this
Prospectus could have been or could be converted into any currency at the above exchange rate, at any
other rate or at all. The Company’s functional and reporting currency is the RON, as it reflects the
economic substance of the Company’s underlying events and circumstances. See also, ‘‘Exchange Rate
Information’’.
Rounding
Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly,
figures shown for the same category presented in different tables may vary slightly and figures shown as
totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
xii
EXCHANGE RATE INFORMATION
The following tables show, for the periods indicated, information relating to the exchange rates
between the RON and the US dollar, based on information derived from the National Bank of Romania.
The columns titled ‘‘Average’’ in the tables below show the average of the daily reference rates for the
respective periods.
Years ended 31 December
2009
2010
2011
2012
2013
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
High
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3-month period ended 31 March
3.4257
3.5697
3.3423
3.8343
3.4628
High
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Month ended
3.4497
3.3514
High
April 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2536
3.2468
Low
Average
Period End
(RON per US dollar)
2.7883
2.8388
2.7408
3.2357
3.2033
3.0493
3.1779
3.0486
3.4682
3.3279
2.9361
3.2045
3.3393
3.3575
3.2551
Low
Average
Period End
(RON per US dollar)
3.2033
3.2298
3.3221
3.2863
3.4455
3.2304
Low
Average
Period End
(RON per US dollar)
3.2029
3.1799
3.2299
3.2205
3.2194
3.2307
Source: National Bank of Romania
The following tables show, for the periods indicated, information relating to the exchange rates
between the RON and the EUR, based on information derived from the National Bank of Romania. The
columns titled ‘‘Average’’ in the tables below show the average of the daily reference rates for the
respective periods.
Year ended 31 December
2009
2010
2011
2012
2013
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
High
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3-month period ended 30 March
4.3127
4.3688
4.3620
4.6481
4.5535
High
Low
Average
(RON per EUR)
4.0296
4.0653
4.0735
4.3219
4.3072
4.2373
4.2099
4.2379
4.4560
4.4190
Low
Average
(RON per EUR)
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4286
4.5447
3.4497
4.4514
April 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4762
4.4419
4.4403
4.3934
4.3852
4.5021
Period End
4.2282
4.2848
4.3197
4.4287
4.4847
Period End
4.4154
4.4553
(RON per EUR)
4.4620
4.4245
4.4503
4.3986
Source: National Bank of Romania
The Company makes no representation that the RON amounts referred to in this Prospectus could
have been or could be converted into any currency at the above exchange rates, at any other rate or at all.
xiii
CONTENTS
Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION . . . . . . . .
73
THE REORGANISATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
UNAUDITED PRO FORMA FINANCIAL INFORMATION AND REPORTS THEREON . . .
79
OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91
MARKET OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
146
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
159
BOARD AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198
PRINCIPAL SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
214
DESCRIPTION OF SHARE CAPITAL AND CORPORATE STRUCTURE . . . . . . . . . . . . . .
215
RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
223
MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
224
REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
228
TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS . . . . . . . . . . . . .
244
SUMMARY OF THE PROVISIONS RELATING TO THE GLOBAL DEPOSITARY
RECEIPTS WHILST IN MASTER FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
262
DESCRIPTION OF ARRANGEMENTS TO SAFEGUARD THE RIGHTS OF THE
HOLDERS OF THE GLOBAL DEPOSITARY RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . . .
264
CERTAIN ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
267
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
269
SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
282
SELLING AND TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
298
SETTLEMENT AND TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
302
INFORMATION RELATING TO THE GDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
307
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
308
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
309
DEFINITIONS AND GLOSSARY OF SELECTED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .
311
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-1
APPENDIX A—DISTRIBUTION NETWORK FOR RETAIL INVESTORS . . . . . . . . . . . . . .
A-1
APPENDIX B—INFORMATION NOT APPLICABLE TO THE PROSPECTUS UNDER
REGULATION (EC) NO. 809/2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B-1
xiv
SUMMARY
Summaries are made up of disclosure requirements known as ‘‘Elements’’. These Elements are numbered
in Sections A-E (A.1-E.7). This summary contains all the Elements required to be included in a summary for
this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in
the numbering sequence of the Elements. An Element may be required to be inserted in the summary because of
the type of securities offered and the issuer, although no relevant information can be given. In this case a short
description of the Element is included in the summary referenced as ‘‘not applicable.’’
Section A—Introduction and warnings
A.1
Warning.
This summary should be read as an introduction to the
Prospectus; any decision to invest in the Offer Securities should
be based on consideration of the Prospectus as a whole by the
investor; where a claim relating to the information contained in
the Prospectus is brought before a court, the plaintiff investor
might, under the national legislation of the member states, have
to bear the costs of translating the Prospectus before the legal
proceedings are initiated; civil liability attaches only to those
persons who have tabled the summary including any translation
thereof, but only if the summary is misleading when read
together with the other parts of the Prospectus or if it does not
provide, when read together with the other parts of the
Prospectus, key information in order to aid investors when
considering whether to invest in such securities.
A.2
Consent by the issuer or
person responsible for
drawing up the prospectus
to the use of the prospectus
for subsequent resale or
final placement of securities
by financial intermediaries.
Not applicable. Societatea Comercială de Distribuţie şi
Furnizare a Energiei Electrice ‘‘ELECTRICA’’ S.A. has not
consented to the use of the Prospectus for subsequent resale or
final placement of securities by financial intermediaries.
Section B—Issuer
B.1
The legal and commercial
name of the issuer.
The Company’s corporate name is Societatea Comercială de
Distribuţie
şi
Furnizare
a
Energiei
Electrice
‘‘ELECTRICA’’ S.A. and its registered commercial name is
‘‘ELECTRICA S.A.’’
B.2
The domicile and legal form
of the issuer, the legislation
under which the issuer
operates and its country of
incorporation.
The Company is a joint stock company, registered with the
Romanian Trade Registry Office attached to the Bucharest
Court (the ‘‘Trade Registry’’) under number J40/7425/2000,
having sole registration code 13267221. The Company’s
corporate seat is in 9 Grigore Alexandrescu Street, 1st District,
Bucharest, Romania and its business address is 9 Grigore
Alexandrescu Street, 1st District, Bucharest, Romania. The
Company was founded in the form of a joint stock company in
accordance with the provisions of GD no. 627/2000, and the
provisions of Law no. 31/1990 on companies, as amended (the
‘‘Companies Law’’).
1
B.3
A description of, and key
factors relating to, the
nature of the issuer’s current
operations and its principal
activities, stating the main
categories of products sold
and/or services performed
and identification of the
principal markets in which
the issuer competes.
The Group is the leading distributor and supplier of electricity in
Romania. The Group’s core business segments are the
distribution of electricity to users and the supply of electricity to
households and non-household consumers. Electrica’s
distribution segment operates through its subsidiaries EDMN,
EDTS, EDTN and Electrica Serv and is geographically limited
to Northern Muntenia, Northern Transylvania and Southern
Transylvania. The Group holds exclusive Distribution Licences
for these regions which have a remaining term of 13 years and
may be extended. Electrica’s supply segment operates through
its subsidiary Electrica Furnizare and supplies electricity to
consumers both on the regulated electricity market (in the
regions where the distribution subsidiaries of the Group
operate) and the competitive electricity market (throughout
Romania). The Group also holds two supply licences covering
the whole of Romania, which have a remaining term of 7 and
8 years respectively and which may be renewed. As part of its
distribution
business,
Electrica
provides
equipment
maintenance, repair and other ancillary services to its network
and, to a small degree, to third parties. In the year ended
31 December 2013, the Group generated consolidated revenues
of approximately RON 5.2 billion and consolidated EBITDA of
approximately RON 749 million from its operations. The Group
distributed approximately 16.1 TWh representing approximately
39% of electricity distributed in Romania and supplied
approximately 9.7 TWh of electricity representing approximately
22.1% of electricity supplied in Romania to approximately
3.56 million end consumers over the same period.
The Group operates in highly populated and industrialised areas
of Romania. As at 31 March 2014, Electrica’s distribution
business operated 8,389 km of high voltage lines, 45,643 km of
medium voltage lines and 134,834 km of low voltage lines, with
approximately 3.6 million users across its distribution network.
B.4a
A description of the most
significant recent trends
affecting the issuer and the
industries in which it
operates.
The Group operates in a significantly regulated industry. As a
consequence, the legal and regulatory framework relating to
electricity distribution and supply in Romania, significantly
affects the Group’s business. Approximately 74% of the Group’s
consolidated revenue was generated from regulated activities in
2013. As part of EU wide legislative changes to unbundle
vertically integrated power generators, distributors and
suppliers, Romania is in the process of liberalising the supply of
electricity to household consumers through gradual tariff
adjustments and encouraging the development of modern
electricity distribution networks through regulatory treatment
that benefits certain capital expenditures by operators, including
the Group.
Electricity supply liberalisation in Romania will increase
competitive pressure for the Group. In addition, the Group’s
activities are affected by general macroeconomic conditions in
Romania and therefore demand for electricity.
2
B.5
If the issuer is part of a
group, a description of the
group and the issuer’s
position within the group.
The Company is a holding company for the Group, which
comprises four subsidiaries in its distribution segment, EDMN,
EDTN, EDTS and Electrica Serv, and one subsidiary, Electrica
Furnizare, in its supply segment. The Group also includes five
service entities owned by Electrica, i.e. SEMU, SEB, SED,
SEMO and SEO. SEO is under insolvency proceedings and
SEB, SED, SEMO are currently subject to dissolution and
liquidation. However, with respect to SED and SEMO the
appointed liquidators submitted to the Company the
documentation attesting the insolvency status of these two
entities in May 2014 and with respect to SEB, Electrica Serv has
requested the opening of the insolvency proceedings in April
2014.
B.6
In so far as is known, the
name of any person who,
directly or indirectly, has an
interest in the issuer’s
capital or voting rights
which is notifiable under the
issuer’s national law,
together with the amount of
each such person’s interest.
Whether the issuer’s major
shareholders have different
voting rights if any. To the
extent known to the issuer,
state whether the issuer is
directly or indirectly owned
by controlled and by
whomand describe the
nature of such control.
As at the date of the Prospectus, the State, represented by the
Ministry of Economy (acting through the Department for
Energy) is the sole shareholder and has 100% interest in the
Shares, equating to a holding of 168,751,185 Shares. Following
the Offering, the State represented by the Ministry of Economy
(acting through the Department for Energy) will hold a 48.8%
interest in the Shares, equating to a holding of 168,751,185
Shares, subject to a potential increase to 49.9% in the event the
stabilisation actions contained in the Underwriting Agreement
are exercised in full. There is only one class of Shares in the
Company and all Shares rank equally. There are no different
voting rights attached to the Shares.
3
B.7
Selected historical key financial
information regarding the issuer,
presented for each financial year
of the period covered by the
historical financial information,
and any subsequent interim
financial period accompanied by
comparative data from the same
period in the prior financial year
except that the requirement for
comparative balance sheet
information is satisfied by
presenting the year-end balance
sheet information. This should
be accompanied by a narrative
description of significant change
to the issuer’s financial
condition and operating results
during or subsequent to the
period covered by the historical
key financial information.
The financial information set forth below for the years ended
31 December 2013, 2012 and 2011 has been extracted from the
Audited Consolidated Financial Statements as of and for the
years ended 31 December 2013, 2012 and 2011 and the financial
information set forth below for the three month period ended
31 March 2014 has been extracted from the Interim Unaudited
Consolidated Financial Statements for the three months ended
31 March 2014 included in the Prospectus.
Summary of consolidated income statements and of consolidated
statements of profit or loss and other comprehensive income
3-month period
ended 31 March
2014
2013
Year ended 31 December
2013
(Pro-forma)(1)
(RON million)
(Unaudited)
2012
2011
(Pro-forma)(1)
Revenues . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . .
Electricity purchased . . . . . . . . . . .
Green certificates . . . . . . . . . . . .
Salaries and other employee benefits . .
Repairs, maintenance and materials . . .
Depreciation and amortisation . . . . . .
Reversal of impairment/(Impairment)of
property plant and equipment, net . .
Reversal of impairment/(Impairment) of
trade and other receivables, net . . . .
Reversal of write down/(Write down) of
inventories, net . . . . . . . . . . . .
Other operating expenses . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,211
32
(624)
(92)
(172)
(11)
(103)
1,396
30
(837)
(107)
(177)
(17)
(98)
5,157
133
(2,845)
(414)
(766)
(103)
(398)
(Audited)
5,157 5,253 5,368
133
124
216
(2,845) (3,089) (3,650)
(414) (302)
(91)
(766) (755) (793)
(103) (161) (209)
(398) (398) (372)
. .
0
0
(13)
(13)
(4)
. .
3
15
21
21
53
(148)
(7)
. .
. .
—
(123)
—
(123)
1
(434)
1
(434)
(18)
(458)
(14)
(406)
Operating profit/loss . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . .
119
3
(4)
83
5
(9)
338
24
(35)
338
24
(35)
246
22
(46)
(104)
35
(53)
Net finance cost . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted
investees, net of tax . . . . . . . . . . . .
(1)
(4)
(12)
(12)
(24)
(17)
—
16
—
63
247
75
Profit/(loss) before tax . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . .
118
(29)
94
(12)
327
(75)
390
(75)
468
(53)
(47)
(33)
Profit/(loss) for the year . . . . . . . . . . .
Profit/(loss) for the year attributable to:
—owner of the Company . . . . . . . . . .
—non-controlling interests . . . . . . . . . .
88
82
251
314
416
(80)
60
28
62
19
180
71
243
71
356
60
(113)
34
Profit/(loss) for the year . . . . . . . . . . .
88
82
251
314
416
(80)
0.29
0.30
n/a
1.18
1.73
(0.55)
—
—
n/a
—
—
270
—
—
n/a
—
—
(45)
—
—
n/a
—
(82)
—
—
—
n/a
3
(14)
13
—
—
n/a
(0)
4
(1)
Earnings per share
Basic and diluted earnings per share (RON)
Other comprehensive income
Items that will never be reclassified to profit or
loss
Revaluation of property, plant and
equipment . . . . . . . . . . . . . . . . .
Tax related to revaluation of property, plant
and equipment . . . . . . . . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . . . . .
Remeasurement of the defined benefit
liability . . . . . . . . . . . . . . . . . . .
Tax related to remeasurements of the
defined benefit liability . . . . . . . . . .
Share of changes in other comprehensive
income of equity accounted investees . . .
—
—
n/a
(0)
108
Other comprehensive income, net of tax . . .
—
—
n/a
3
16
382
Total comprehensive income . . . . . . . . .
Total comprehensive income . . . . . . . . .
88
82
n/a
317
431
302
60
62
n/a
246
374
216
28
88
19
82
n/a
n/a
72
317
57
431
86
302
—attributable to the owner of the
Company . . . . . . . . . . . . . . . .
—attributable to the non-controlling
interests . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . .
(1)
Year ended
31 December
2013
145
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘The Reorganisation’’ and ‘‘Pro
Forma Financial Information and Reports Thereon’’.
4
Summary of consolidated statements of financial position 31 March
Year ended
31 December
31 March
2014
2014
(Pro-forma)(1)
2013
Year ended 31 December
2013
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets . . . . . . .
Equity-accounted investees . .
Other investments . . . . . .
Deferred tax assets . . . . . .
Other non-current assets . . .
5,956
55
—
—
74
1
5,933
59
—
—
85
1
5,933 5,718 5,590
59
42
46
— 1,042 1,602
— 1,138
224
85
106
121
1
6
4
Total non-current assets . . . . . . . . . . .
6,087
6,087
6,078
6,078 8,052 7,587
Current assets
Trade receivables . . . . . .
Other receivables . . . . . .
Cash and cash equivalents .
Inventories . . . . . . . . .
Prepayments . . . . . . . .
Income tax receivable . . .
Assets held for distribution
.
.
.
.
.
.
.
1,018
37
668
28
15
29
—
1,018
37
668
28
15
29
2,232
1,088
63
651
34
6
37
—
1,088 1,011 1,192
63
95
134
651
642
499
34
35
33
6
40
37
37
17
8
2,243
—
—
Total current assets . . . . . . . . . . . . .
1,796
4,029
1,878
4,122 1,840 1,904
Total assets . . . . . . . . . . . . . . . . . .
7,883
10,116
7,956
10,200 9,892 9,491
EQUITY AND LIABILITIES
Equity
Share capital . . . . . . . . . . . . . . .
Additional contributions from shareholder
Revaluation reserves . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . .
.
.
.
.
.
2,004
50
680
204
742
2,511
50
1,068
612
1,671
2,002
48
693
204
658
2,509 2,493 2,493
48
55
53
1,081 1,133 1,164
612
599
579
1,598 1,327
948
Total equity attributable to the owner of the
Company . . . . . . . . . . . . . . . . . .
3,680
5,913
3,605
5,848 5,607 5,237
Non-controlling interests . . . . . . . . . . .
839
839
811
Total equity . . . . . . . . . . . . . . . . . .
4,520
6,752
4,416
6,659 6,372 5,946
Liabilities
Non-current liabilities
Bank borrowings . . . . . . . .
Finance lease . . . . . . . . . .
Financing of property, plant and
Deferred revenue . . . . . . .
Deferred tax liabilities . . . . .
Employee benefits . . . . . . .
Other payables . . . . . . . . .
.
.
.
.
.
.
.
—
0
115
1,417
254
214
62
—
0
115
1,417
254
214
62
—
0
130
1,422
256
213
66
—
—
10
0
1
5
130
196
117
1,422 1,234 1,131
256
263
276
213
217
189
66
77
39
Total non-current liabilities . . . . . . . . .
2,062
2,062
2,087
2,087 1,987 1,767
.
.
.
.
.
.
.
.
.
.
—
38
0
135
516
269
15
106
137
85
—
38
0
135
516
269
15
106
137
85
—
80
0
143
628
261
15
89
152
85
Total current liabilities . . . . . . . . . . . .
1,302
1,302
1,453
Total liabilities . . . . . . . . . . . . . . . .
3,364
3,364
3,540
3,540 3,521 3,545
Total equity and liabilities . . . . . . . . . .
7,883
10,116
7,956
10,200 9,892 9,491
Current liabilities
Bank borrowings . . . . . . . .
Bank overdrafts . . . . . . . .
Finance lease . . . . . . . . . .
Financing of property, plant and
Trade payables . . . . . . . . .
Other payables . . . . . . . . .
Current income tax liability . .
Deferred revenue . . . . . . .
Employee benefits . . . . . . .
Provisions . . . . . . . . . . .
(1)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(Audited)
5,956
55
—
—
74
1
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
(Pro-forma)(1)
(RON million)
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . .
. . . . . .
equipment
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
equipment
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
811
—
80
0
143
628
261
15
89
152
85
765
9
167
27
114
746
182
11
78
120
80
710
30
281
26
104
930
165
4
83
100
53
1,453 1,534 1,778
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘The Reorganisation’’ and ‘‘Pro
Forma Financial Information and Reports Thereon’’.
5
Summary of consolidated statements of cash flows
3-month period
ended
31 March
2014
2013
(Unaudited)
Cash flow from operating activities
Profit/(loss) for the period/year . . . . . . . . . . . . . . .
Adjustments for:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss on property, plant and equipment/reversal
of impairment of property, plant and equipment, net . .
Loss on disposal of property, plant and equipment . . . . .
Impairment loss on trade and other receivables, net/
reversal of impairment of trade and other receivables,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of inventories, net . . . . . . . . . . . . . . .
Release of deferred revenue . . . . . . . . . . . . . . . .
Net finance costs/(income) . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted investees, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .
Year ended 31 December
2013
2012
2011
(RON million)
(Audited)
88
82
314
416
(80)
99
4
95
3
383
14
381
16
352
20
(0)
0
(0)
0
13
6
4
6
7
5
(3)
—
(21)
1
(15)
—
(18)
4
(21)
(1)
(77)
12
(53)
18
(68)
24
148
14
(62)
17
—
29
(16)
12
(63)
75
(247)
53
(75)
33
198
148
656
550
380
.
.
.
.
.
.
.
.
71
38
(9)
5
(45)
(11)
(14)
32
(90)
(54)
(28)
2
5
69
(10)
64
(118)
21
34
2
37
38
36
276
103
7
(4)
(19)
127
59
65
181
(470)
(80)
(8)
(18)
427
46
(48)
161
Cash generated from operating activities . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . . . . . . . . . . . .
266
(3)
(13)
106
(7)
(13)
983
(21)
(47)
1,070
(29)
(45)
389
(32)
(40)
Net cash from operating activities
251
85
915
996
318
.
(147)
(95)
(379)
(378)
(405)
.
.
.
.
.
.
(22)
(0)
0
141
6
—
(38)
(5)
0
—
11
—
(246)
(31)
1
—
21
—
(181)
(15)
1
—
23
—
(161)
(8)
2
—
32
35
. . . . . . . . . . . .
(22)
(127)
(635)
(549)
(505)
(37)
—
—
(1)
(36)
—
—
(1)
(130)
(10)
(39)
(6)
(151)
(30)
(8)
(6)
(126)
(10)
(29)
(6)
Changes in:
Trade receivables
Other receivables
Prepayments . . .
Inventories . . . .
Trade payables . .
Other payables .
Employee benefits
Deferred revenue
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
and provisions
. . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . . . . . . . . .
Cash flows from investing activities
Payments for purchases of property, plant and equipment
Payments for purchases of property, plant and equipment
from customer contribution . . . . . . . . . . . . . . .
Payments for purchases of intangible assets . . . . . . . .
Proceeds from sale of property, plant and equipment . .
Proceeds from sale of investments . . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities
Cash flow from financing activities
Repayment of financing of property, plant and
Repayment of borrowings . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . .
Payment of finance lease liabilities . . . . . .
equipment
. . . . . .
. . . . . .
. . . . . .
.
.
.
.
Net cash used in financings activities . . . . . . . . . . . .
(38)
(37)
(185)
(194)
(171)
Net increase/(decrease) in cash and cash equivalents . . .
Cash and cash equivalents at 1 January . . . . . . . . . . .
Effect of movements in exchange rates on cash held . . . .
190
571
(2)
(79)
474
(0)
95
474
2
252
218
4
(358)
574
1
Cash and cash equivalents at 31 December/31 March . . .
760
395
571
474
218
On 18 December 2013, an EGMS of the Company proposed the
transfer of the Company’s interests in: ENEL Energie
Muntenia S.A., ENEL Distributie Muntenia S.A., ENEL
Distributie Banat S.A., ENEL, Distributie Dobrogea S.A.,
ENEL Energie S.A., E.ON Moldova Distributie S.A., E.ON
Energie Romania S.A., Electrica Soluziona S.A., Bursa Romana
De Marfuri S.A. and Hidro Tarnita S.A. to SAPE through the
Spin-off. As part of the Spin-off, which was approved by the
court in April 2014 and registered with the Trade Registry in
May 2014, Electrica reduced its capital by approximately RON
431 million through the cancellation of 43,123,780 Shares.
6
Pursuant to an EGMS of the Company on 25 April 2014,
Electrica’s share capital was increased by RON 38,467,970
through the issue of 3,846,797 shares to the State as an in-kind
contribution corresponding to the value of 24 plots of land for
which Electrica obtained ownership titles.
On 25 April 2014, Electrica Furnizare concluded a convention
with CFR regarding the discharge of CFR’s debts to the Group
for electricity supply. Pursuant to this convention, on 13 May
2014 CFR paid the principal amount of the debts owed to
Electrica Furnizare that had been accrued during 2012-2013, in
the sum of RON 221 million.
Except as described above, there has been no significant change
since 31 December 2013 (which represents the end of the last
financial period in relation to which audited financial
information has been published) in the financial position of the
Company.
7
B.8
Selected key pro forma financial
information, identified as such.
The selected key pro forma
financial information must
clearly state the fact that
because of its nature, the pro
forma financial information
addresses a hypothetical
situation and, therefore, does
not represent the company’s
actual financial position or
results.
Through the Spin-off, the Company has contributed its interests
in ENEL Energie Muntenia S.A., ENEL Distributie
Muntenia S.A., ENEL Distributie Banat S.A., ENEL Distributie
Dobrogea S.A., ENEL Energie S.A., E.ON Moldova
Distributie S.A., E.ON Energie Romania S.A., Electrica
Soluziona S.A., Bursa Romana De Marfuri S.A. and Hidro
Tarnita S.A. to SAPE, a newly-formed State-owned company.
The effect of the Spin-off is reflected in the Group’s
consolidated pro forma financial information included in the
section ‘‘Pro Forma Financial Information and Reports Thereon’’.
Pro-forma statement of financial position as at 31 December 2013
Unadjusted
Electrica Group
31 December
2013
Adjustments
for spin-off of
investments
Pro forma as at
31 December
2013
(RON million)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets . . . . . . .
Deferred tax assets . . . . . .
Other non-current assets . . .
.
.
.
.
5,933
59
85
1
—
—
—
—
5,933
59
85
1
Total non-current assets . . . . . . . . . . .
6,078
—
6,078
Current assets
Trade receivables . . . . .
Other receivables . . . . .
Cash and cash equivalents
Inventories . . . . . . . .
Prepayments . . . . . . .
Income tax receivable . .
Assets held for distribution
1,088
63
651
34
6
37
2,243
Total current assets
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
—
—
—
—
—
—
(2,243)
1,088
63
651
34
6
37
—
. . . . . . . . . . . . .
4,122
(2,243)
1,878
Total assets . . . . . . . . . . . . . . . . . .
10,200
(2,243)
7,956
.
.
.
.
.
2,509
48
1,081
612
1,598
(507)
—
(388)
(408)
(940)
2,002
48
693
204
658
Total equity attributable to the owner of the
Company . . . . . . . . . . . . . . . . . .
5,848
(2,243)
3,605
Non-controlling interests . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . .
811
6,659
—
(2,243)
811
4,416
Liabilities
Non-current liabilities
Finance lease . . . . . . . . . .
Financing of property, plant and
Deferred revenue . . . . . . . .
Deferred tax liabilities . . . . .
Employee benefits . . . . . . .
Other payables . . . . . . . . .
.
.
.
.
.
.
0
130
1,422
256
213
66
—
—
—
—
—
—
0
130
1,422
256
213
66
Total non-current liabilities . . . . . . . . .
2,087
—
2,087
80
—
143
628
261
15
89
152
85
—
—
—
—
—
—
—
—
—
80
—
143
628
261
15
89
152
85
EQUITY AND LIABILITIES
Equity
Share capital . . . . . . . . . . . . . . .
Additional contributions from shareholder
Revaluation reserve . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . .
Current liabilities
Bank overdrafts . . . . . . . .
Finance lease . . . . . . . . . .
Financing of property, plant and
Trade payables . . . . . . . . .
Other payables . . . . . . . . .
Current income tax liability . .
Deferred revenue . . . . . . . .
Employee benefits . . . . . . .
Provisions . . . . . . . . . . . .
.
.
.
.
.
. . . . . .
equipment
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
equipment
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
. . . . . .
.
.
.
.
.
.
.
.
.
Total current liabilities . . . . . . . . . . . .
1,453
—
1,453
Total liabilities . . . . . . . . . . . . . . . .
3,540
—
3,540
Total equity and liabilities . . . . . . . . . .
10,200
8
(2,243)
7,956
Pro-forma statement of profit or loss for the year ended 31 December 2013
Revenues . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . .
Electricity purchased . . . . . . . . . . . . . . . .
Green certificates . . . . . . . . . . . . . . . . .
Salaries and other employee benefits . . . . . . .
Repairs, maintenance and materials . . . . . . . .
Depreciation and amortisation . . . . . . . . . . .
Impairment of property, plant and equipment, net
Reversal of impairment of trade and other
receivables, net . . . . . . . . . . . . . . . . . .
Reversal of write down of inventories, net . . . . .
Other operating expenses . . . . . . . . . . . . .
Unadjusted
Electrica Group
for 2013
Adjustments
for spin-off of
investments
Pro forma
for 2013
5,157
133
(2,845)
(414)
(766)
(103)
(398)
(13)
—
—
—
—
—
—
—
—
5,157
133
(2,845)
(414)
(766)
(103)
(398)
(13)
21
1
(434)
—
—
—
21
1
(434)
Operating profit . . . . . . . . . . . . . . . . . .
338
—
338
Finance income . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . .
24
(35)
—
—
24
(35)
Net finance costs . . . . . . . . . . . . . . . . . .
(12)
(12)
—
Share of profit or loss of equity-accounted
investees, net of tax . . . . . . . . . . . . . . .
63
(63)
—
Profit before tax . . . . . . . . . . . . . . . . . .
390
(63)
327
Income tax expense
. . . . . . . . . . . . . . . .
(75)
(75)
Profit for the year . . . . . . . . . . . . . . . . .
314
(63)
251
Profit for the year attributable to:
owner of the Company . . . . . . . . . . . . . .
non-controlling interests . . . . . . . . . . . . .
243
71
(63)
—
180
71
Profit for the year . . . . . . . . . . . . . . . . .
314
(63)
251
Pursuant to the Spin-off, the share capital of Electrica was
reduced by RON 431,237,800 through the cancellation of
43,123,780 Shares. The difference between the nominal amount
of the decrease of Company’s share capital and the amount of
the adjustment for Spin-off of investments represents the effect
of the application of IAS 29 ‘‘Financial Reporting in
Hyperinflationary Economies’’ on the investments in these
companies.
The adjustment of the profit or loss account of the
represents the elimination of the share of the profit or
equity-accounted investees recognised by the Group
consolidated financial statements for the year
31 December 2013 of RON 63 million.
Group
loss of
in its
ended
B.9
Where a profit forecast or
estimate is made, state the
figure.
Not applicable. The Prospectus does not include a profit
forecast or estimate by the Company.
B.10
A description of the nature of
any qualifications in the audit
report on the historical financial
information.
Investments that were transferred to SAPE pursuant to the
Spin-off were accounted as held for distribution by the Company
as at 31 December 2013 and 31 March 2014, and equity
accounted investees and available for sale financial instruments
as at 31 December 2012 and 2011.
9
The Company’s auditors have qualified their opinion on the
Audited Consolidated Financial Statements as at and for the
years ended 31 December 2013, 2012 and 2011 as they could
not obtain sufficient and appropriate audit evidence related to
the accounting treatment of the Company’s interest in these
entities due to: (a) unavailability of financial information
prepared in accordance with International Financial Reporting
Standards as endorsed by the European Union in order to
account for the equity accounted investees, (b) uncertainties
regarding the date when significant influence of the Company
over these entities ceased, and (c) uncertainties regarding the
accounting for the exit options relating to certain investments.
Consequently, the Company’s auditors were unable to
determine whether adjustments might have been necessary for
the following financial statements items: assets held for
distribution as at 31 December 2013, equity accounted
investees and other investments/available for sale financial
instruments as at 31 December 2012 and 2011, retained
earnings and reserves as at 31 December 2013, 2012 and 2011,
share of profit or loss of equity-accounted investees, profit or
loss and other comprehensive income for the years ended
31 December 2013, 2012 and 2011.
The Company’s auditors have qualified their conclusion on the
Unaudited Consolidated Interim Financial Statements as at
and for the three month period ended 31 March 2014 as the
auditors could not obtain sufficient and appropriate evidence
related to the accounting treatment of the Company’s interest
in these entities due to: (a) unavailability of financial
information prepared in accordance with International
Financial Reporting Standards as endorsed by the European
Union in order to account for the equity accounted investees,
(b) uncertainties regarding the date when significant influence
of the Company over these entities ceased, and
(c) uncertainties regarding the accounting for the exit options
relating to certain investments. Consequently, the Company’s
auditors were unable to determine whether adjustments might
have been necessary for assets held for distribution, retained
earnings and reserves as at 31 March 2014.
For the full text of the audit report on the Audited
Consolidated Financial Statements as at and for the years
ended 31 December 2013, 2012 and 2011 and of the review
report on the Interim Unaudited Consolidated Financial
Statements as at and for the three month period ended
31 March 2014 refer to Appendix A of this Prospectus.
B.11
If the issuer’s working capital is
not sufficient for the issuer’s
present requirements, an
explanation should be included.
Not applicable. Management is of the opinion that the Group
has sufficient working capital for its present requirements, that
is, for at least the 12 months following the date of publication
of this Prospectus.
10
B.31
Information about the issuer of the underlying shares
B.1
The legal and
commercial name of the
issuer.
The Company’s corporate name is Societatea Comercială de
Distribuţie
şi
Furnizare
a
Energiei
Electrice
‘‘ELECTRICA’’ S.A. and its registered commercial name is
‘‘ELECTRICA S.A.’’
B.2
The domicile and legal
form of the issuer, the
legislation under which
the issuer operates and
its country of
incorporation.
The Company is a joint stock company, registered with the
Romanian Trade Registry Office attached to the Bucharest
Court under number J40/7425/2000, having sole registration
code 13267221. The Company’s corporate seat is in 9 Grigore
Alexandrescu Street, 1st District, Bucharest, Romania and its
business address is 9 Grigore Alexandrescu Street, 1st District,
Bucharest, Romania. The Company was founded in the form of
a joint stock company in accordance with the GD no. 627/2000
and the provisions of the Companies Law.
B.3
A description of, and key
factors relating to, the
nature of the issuer’s
current operations and its
principal activities, stating
the main categories of
products sold and/or
services performed and
identification of the
principal markets in
which the issuer
competes.
The Group is the leading distributor and supplier of electricity
in Romania. The Group’s core business segments are the
distribution of electricity to users and the supply of electricity to
households and non-household consumers. Electrica’s
distribution segment operates through its subsidiaries EDMN,
EDTS, EDTN and Electrica Serv and is geographically limited
to Northern Muntenia, Northern Transylvania and Southern
Transylvania. The Group holds exclusive Distribution Licences
for these regions which have a remaining term of 13 years and
may be extended. Electrica’s supply segment operates through
its subsidiary Electrica Furnizare and supplies electricity to
consumers both on the regulated electricity market (in the
regions where the distribution subsidiaries of the Group
operate) and the competitive electricity market (throughout
Romania). The Group also holds two supply licences covering
the whole of Romania, which have a remaining term of seven
and eight years respectively and which may be renewed. As part
of its distribution business, Electrica provides equipment
maintenance, repair and other ancillary services to its network
and, to a small degree, to third parties. In the year ended
31 December 2013, the Group generated consolidated revenues
of approximately RON 5.2 billion and consolidated EBITDA of
approximately RON 749 million from its operations. The
Group distributed approximately 16.1 TWh, representing
approximately 39% of electricity distributed in Romania and
supplied approximately 9.7 TWh of electricity, representing
approximately 22.1% of electricity supplied in Romania to
approximately 3.56 million end consumers over the same
period.
The Group operates in highly populated and industrialised
areas of Romania. As at 31 March 2014, Electrica’s distribution
business operates 8,389 km of high voltage lines, 45,643 km of
medium voltage lines and 134,834 km of low voltage lines, with
approximately 3.6 million users across its distribution network.
11
B.4a
A description of the most
significant recent trends
affecting the issuer and
the industries in which it
operates.
B.4b
The Group operates in a significantly regulated industry. As a
consequence, the legal and regulatory framework relating to
electricity distribution and supply in Romania, significantly
affects the Group’s business. Approximately 74% of the
Group’s consolidated revenue was generated from regulated
activities in 2013. As part of EU legislative changes to unbundle
vertically integrated power generators, distributors and
suppliers, Romania is in the process of liberalising the supply of
electricity to household consumers through gradual tariff
adjustments and encouraging the development of modern
electricity distribution networks through regulatory treatment
that benefits certain capital expenditures by operators,
including the Group.
Electricity supply liberalisation in Romania will increase
competitive pressure for the Group. In addition, the Group’s
activities are affected by general macroeconomic conditions in
Romania and therefore demand for electricity.
The Group operates in a significantly regulated industry. As a
consequence, the legal and regulatory framework relating to
electricity distribution and supply in Romania significantly affects
the Group’s business. Approximately 74% of the Group’s
consolidated revenue was generated from regulated activities in
2013. As part of EU legislative changes to unbundle vertically
integrated power generators, distributors and suppliers, Romania
is in the process of liberalising the supply of electricity to
household consumers through gradual tariff adjustments and
encouraging the development of modern electricity distribution
networks through regulatory treatment that benefits certain
capital expenditures by operators, including the Group.
Electricity supply liberalisation in Romania will increase
competitive pressure for the Group. In addition, the Group’s
activities are affected by general macroeconomic conditions in
Romania and by demand for electricity.
B.5
If the issuer is part of a
group, a description of
the group and the issuer’s
position within the group.
The Company is a holding company for the Group, which
comprises four subsidiaries in its distribution segment, EDMN,
EDTN, EDTS and Electrica Serv, and one subsidiary, Electrica
Furnizare, in its supply segment. The Group also includes five
service entities owned by Electrica, i.e. SEMU, SEB, SED, SEMO
and SEO. SEO is under insolvency proceedings and SEB, SEO,
SEMO are currently subject to dissolution and liquidation.
However, with respect to SED and SEMO the appointed
liquidators submitted to the Company the documentation
attesting the insolvency status of these 2 entities in May 2014 and
with respect to SEB, Electrica Serv requested the opening of
insolvency proceedings in April 2014.
B.6
In so far as is known, the
name of any person who,
directly or indirectly, has
an interest in the issuer’s
capital or voting rights
which is notifiable under
the issuer’s national law,
together with the amount
of each such person’s
interest. Whether the
issuer’s major shareholders
have different voting rights
if any. To the extent
known to the issuer, state
whether the issuer is
directly or indirectly owned
by controlled and by
whom and describe the
nature of such control.
As at the date of the Prospectus, the State, represented by the
Ministry of Economy (acting through the Department for
Energy) is the sole shareholder and has 100% interest in the
Shares equating to a holding of 168,751,185 Shares. Following
the Offering, the State, represented by the Ministry of
Economy (acting through the Department for Energy) will hold
a 48.8% interest in the Shares, subject to a potential increase to
49.9% in the event the stabilisation actions contained in the
Underwriting Agreement are exercised in full.
There is only one class of shares in the Company and all shares
rank equally. There are no different voting rights attached to
the Shares.
12
B.7
Selected historical key
financial information
regarding the issuer,
presented for each
financial year of the
period covered by the
historical financial
information, and any
subsequent interim
financial period
accompanied by
comparative data from
the same period in the
prior financial year
except that the
requirement for
comparative balance
sheet information is
satisfied by presenting the
year-end balance sheet
information. This should
be accompanied by a
narrative description of
significant change to the
issuer’s financial
condition and operating
results during or
subsequent to the period
covered by the historical
key financial
information.
The financial information set forth below as of and for the years
ended 31 December 2013, 2012 and 2011 has been extracted
from the Audited Consolidated Financial Statements as of and
for the years ended 31 December 2013, 2012 and 2011 and the
financial information set forth below as of and for the three
month period ended 31 March 2014 has been extracted from the
Company’s Interim Unaudited Consolidated Financial
Statements as of and for the three months ended 31 March 2014
included in the Prospectus.
Summary of consolidated income statements and of consolidated
statements of profit or loss and other comprehensive income
3-month period ended
31 March
2014
(Pro-forma)(2)
Year ended
31 December
2013
Year ended 31 December
2013
1,211
32
(624)
(92)
(172)
(11)
(103)
2012
2011
(Pro-forma)(2)
(RON million)
(Unaudited)
Revenues . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . .
Electricity purchased . . . . . . . . . .
Green certificates . . . . . . . . . . . .
Salaries and other employee benefits . .
Repairs, maintenance and materials . . .
Depreciation and amortisation . . . . .
Reversal of impairment/(Impairment)of
property plant and equipment . . . .
Reversal of impairment/(Impairment) of
trade and other receivables, net . . . .
Reversal of write down/(Write down) of
inventories, net . . . . . . . . . . . .
Other operating expenses . . . . . . . .
1,396
30
(837)
(107)
(177)
(17)
(98)
(Audited)
5,157
133
(2,845)
(414)
(766)
(103)
(398)
5,157 5,253 5,368
133
124
216
(2,845) (3,089) (3,650)
(414) (302)
(91)
(766) (755) (793)
(103) (161) (209)
(398) (398) (372)
0
0
(13)
(13)
(4)
3
15
21
21
53
(148)
—
(123)
—
(123)
1
(434)
1
(434)
(18)
(458)
(14)
(406)
Operating profit/(loss) . . . . . . . . .
Finance income . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . .
119
3
(4)
83
5
(9)
338
24
(35)
338
24
(35)
246
22
(46)
(104)
35
(53)
Net finance cost . . . . . . . . . . . . .
Share of profit or loss of equityaccounted investees, net of tax . . . .
(1)
(4)
(12)
(12)
(24)
(17)
—
16
—
63
247
75
Profit/(loss) before tax . . . . . . . . .
Income tax expense . . . . . . . . . . .
118
(29)
94
(12)
327
(75)
390
(75)
468
(53)
(47)
(33)
Profit/(loss) for the year/period . . . . .
Profit/(loss) for the year/period
attributable to:
—owner of the Company . . . . . . . .
—non-controlling interests . . . . . . .
88
82
251
314
416
(80)
60
28
62
19
180
71
243
71
356
60
(113)
34
Profit/(loss) for the year/period . . . . .
88
82
251
314
416
(80)
Earnings per share
Basic and diluted earnings per share
(RON) . . . . . . . . . . . . . . . .
0.29
0.30
n/a
1.18
1.73
(0.55)
.
—
—
n/a
—
—
270
.
—
—
n/a
—
—
(45)
.
—
—
n/a
—
(82)
—
.
—
—
n/a
3
(14)
13
.
—
—
n/a
(0)
4
(1)
.
Other comprehensive income
Items that will never be reclassified to
profit or loss
Revaluation of property, plant and
equipment . . . . . . . . . . . . . .
Tax related to revaluation of property,
plant and equipment . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . .
Remeasurement of the defined benefit
liability . . . . . . . . . . . . . . .
Tax related to remeasurements of the
defined benefit liability . . . . . . .
Share of changes in other
comprehensive income of equity
accounted investees . . . . . . . . .
(7)
—
—
n/a
(0)
108
145
Other comprehensive income, net of tax
—
—
n/a
3
16
382
Total comprehensive income . . . . . . .
Total comprehensive income . . . . . . .
88
82
n/a
317
431
302
60
62
n/a
246
374
216
28
88
19
82
n/a
n/a
72
317
57
431
86
302
—attributable to the owner of the
Company . . . . . . . . . . . . . .
—attributable to the non-controlling
interests . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . .
(2)
2013
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘The Reorganisation’’ and ‘‘Pro
Forma Financial Information and Reports Thereon’’.
13
Summary of consolidated statements of financial position
Year ended
31 December
31 March
2014
2014
(Pro-forma)(1)
2013
Year ended 31 December
2013
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets . . . . . . .
Equity-accounted investees . .
Other investments . . . . . .
Deferred tax assets . . . . . .
Other non-current assets . . .
5,956
55
—
—
74
1
5,933
59
—
—
85
1
5,933 5,718 5,590
59
42
46
— 1,042 1,602
— 1,138
224
85
106
121
1
6
4
Total non-current assets . . . . . . . . .
6,087
6,087
6,078
6,078 8,052 7,587
Current assets
Trade receivables . . . . . .
Other receivables . . . . . .
Cash and cash equivalents .
Inventories . . . . . . . . .
Prepayments . . . . . . . .
Income tax receivable . . .
Assets held for distribution
.
.
.
.
.
.
.
1,018
37
668
28
15
29
—
1,018
37
668
28
15
29
2,232
1,088
63
651
34
6
37
—
1,088 1,011 1,192
63
95
134
651
642
499
34
35
33
6
40
37
37
17
8
2,243
—
—
Total current assets . . . . . . . . . . .
1,796
4,029
1,878
4,122 1,840 1,904
Total assets . . . . . . . . . . . . . . . .
7,883
10,116
7,956
10,200 9,892 9,491
2,004
2,511
2,002
2,509 2,493 2,493
.
.
.
.
50
680
204
742
50
1,068
612
1,671
48
693
204
658
48
55
53
1,081 1,133 1,164
612
599
579
1,598 1,327
948
Total equity attributable to the owner of
the Company . . . . . . . . . . . . . .
3,680
5,913
3,605
5,848 5,607 5,237
Non-controlling interests . . . . . . . . .
839
839
811
Total equity . . . . . . . . . . . . . . . .
4,520
6,752
4,416
—
0
—
0
—
0
.
.
.
.
.
115
1,417
254
214
62
115
1,417
254
214
62
130
1,422
256
213
66
130
196
117
1,422 1,234 1,131
256
263
276
213
217
189
66
77
39
Total non-current liabilities . . . . . . .
2,062
2,062
2,087
2,087 1,987 1,767
—
38
0
—
38
0
—
80
0
—
80
0
9
167
27
30
281
26
135
516
269
15
106
137
85
135
516
269
15
106
137
85
143
628
261
15
89
152
85
143
628
261
15
89
152
85
114
746
182
11
78
120
80
104
930
165
4
83
100
53
EQUITY AND LIABILITIES
Equity
Share capital . . . . . . . . .
Additional contributions from
shareholder . . . . . . . .
Revaluation reserves . . . . .
Other reserves . . . . . . . .
Retained earnings . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . .
.
.
.
.
Liabilities
Non-current liabilities
Bank borrowings . . . . . . . .
Finance lease . . . . . . . . . .
Financing of property, plant and
equipment . . . . . . . . . .
Deferred revenue . . . . . . .
Deferred tax liabilities . . . . .
Employee benefits . . . . . . .
Other payables . . . . . . . . .
Current liabilities
Bank borrowings . . . . . . . .
Bank overdrafts . . . . . . . .
Finance lease . . . . . . . . . .
Financing of property, plant and
equipment . . . . . . . . . .
Trade payables . . . . . . . . .
Other payables . . . . . . . . .
Current income tax liability . .
Deferred revenue . . . . . . .
Employee benefits . . . . . . .
Provisions . . . . . . . . . . .
(3)
.
.
.
.
.
.
.
.
.
.
.
.
.
(Audited)
5,956
55
—
—
74
1
.
.
.
.
.
.
.
.
.
.
.
.
.
2011
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
(Pro-forma)(3)
(RON million)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . .
. . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . .
. . . . .
. . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
811
765
710
6,659 6,372 5,946
—
0
—
1
10
5
Total current liabilities . . . . . . . . . .
1,302
1,302
1,453
1,453 1,534 1,778
Total liabilities . . . . . . . . . . . . . .
3,364
3,364
3,540
3,540 3,521 3,545
Total equity and liabilities . . . . . . . .
7,883
10,116
7,956
10,200 9,892 9,491
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘The Reorganisation’’ and ‘‘Pro
Forma Financial Information and Reports Thereon’’.
14
Summary of consolidated statements of cash flows
3-month period
ended
31 March
2014
2013
(Unaudited)
Cash flow from operating activities
Profit/(loss) for the period/year . . . . . . . . . . . . . . .
Adjustments for:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss on property, plant and equipment/reversal
of impairment of property, plant and equipment, net . .
Loss on disposal of property, plant and equipment . . . . .
Impairment loss on trade and other receivables, net/
reversal of impairment of trade and other receivables,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of inventories, net . . . . . . . . . . . . . . .
Release of deferred revenue . . . . . . . . . . . . . . . .
Net finance costs/(income) . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted investees, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .
Year ended 31 December
2013
2012
2011
(RON million)
(Audited)
88
82
314
416
(80)
99
4
95
3
383
14
381
16
352
20
(0)
0
(0)
0
13
6
4
6
7
5
(3)
—
(21)
1
(15)
—
(18)
4
(21)
(1)
(77)
12
(53)
18
(68)
24
148
14
(62)
17
—
29
(16)
12
(63)
75
(247)
53
(75)
33
198
148
656
550
380
.
.
.
.
.
.
.
.
71
38
(9)
5
(45)
(11)
(14)
32
(90)
(54)
(28)
2
5
69
(10)
64
(118)
21
34
2
37
38
36
276
103
7
(4)
(19)
127
59
65
181
(470)
(80)
(8)
(18)
427
46
(48)
161
Cash generated from operating activities . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . . . . . . . . . . . .
266
(3)
(13)
106
(7)
(13)
983
(21)
(47)
1,070
(29)
(45)
389
(32)
(40)
Net cash from operating activities
251
85
915
996
318
.
(147)
(95)
(379)
(378)
(405)
.
.
.
.
.
.
(22)
(0)
0
141
6
—
(38)
(5)
0
—
11
—
(246)
(31)
1
—
21
—
(181)
(15)
1
—
23
—
(161)
(8)
2
—
32
35
. . . . . . . . . . . .
(22)
(127)
(635)
(549)
(505)
(37)
—
—
(1)
(36)
—
—
(1)
(130)
(10)
(39)
(6)
(151)
(30)
(8)
(6)
(126)
(10)
(29)
(6)
Changes in:
Trade receivables
Other receivables
Prepayments . . .
Inventories . . . .
Trade payables . .
Other payables .
Employee benefits
Deferred revenue
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . .
and provisions
. . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . . . . . . . . .
Cash flows from investing activities
Payments for purchases of property, plant and equipment
Payments for purchases of property, plant and equipment
from customer contribution . . . . . . . . . . . . . . .
Payments for purchases of intangible assets . . . . . . . .
Proceeds from sale of property, plant and equipment . .
Proceeds from sale of investments . . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities
Cash flow from financing activities
Repayment of financing of property, plant and
Repayment of borrowings . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . .
Payment of finance lease liabilities . . . . . .
equipment
. . . . . .
. . . . . .
. . . . . .
.
.
.
.
Net cash used in financings activities . . . . . . . . . . . .
(38)
(37)
(185)
(194)
(171)
Net increase/(decrease) in cash and cash equivalents . . .
Cash and cash equivalents at 1 January . . . . . . . . . . .
Effect of movements in exchange rates on cash held . . . .
190
571
(2)
(79)
474
(0)
95
474
2
252
218
4
(358)
574
1
Cash and cash equivalents at 31 December/31 March . . .
760
395
571
474
218
On 18 December 2013, an EGMS of the Company proposed the
contribution of the Company’s interests in: ENEL Energie
Muntenia S.A., ENEL Distributie Muntenia S.A., ENEL
Distributie Banat S.A., ENEL Distributie Dobrogea S.A., ENEL
Energie S.A., E.ON Moldova Distributie S.A., E.ON Energie
Romania S.A., Electrica Soluziona S.A., Bursa Româna De
Marfuri S.A. and Hidro Tarnita S.A. to a newly-formed State
owned entitiy, SAPE, through the Spin-off. As part of the
Spin-off which has been approved by the court in April 2014 and
registered with the Trade Registry in May 2014, Electrica
reduced its capital by approximately RON 431 million through
the cancellation of 43,123,780 Shares.
15
Pursuant to an EGMS of the Company on 25 April 2014,
Electrica’s share capital was increased by RON 38,467,970
through the issue of 3,846,797 shares to the State as an in-kind
contribution corresponding to the value of 24 plots of land for
which Electrica obtained ownership titles.
On 25 April 2014, Electrica Furnizare concluded a convention
with CFR regarding the discharge of CFR’s debts to the Group
for electricity supply. Pursuant to this convention, on 13 May
2014 CFR paid the principal amount of the debts owed to
Electrica Furnizare that had accrued during 2012-2013, in the
sum of RON 221 million.
Except as described above, there has been no significant change
since 31 December 2013 (which represents the end of the last
financial period in relation to which audited financial
information has been published) in the financial position of the
Company.
B.9
Where a profit forecast or
estimate is made, state
the figure.
Not applicable. The Prospectus does not include a profit
forecast or estimate by the Company.
B.10
A description of the
nature of any
qualifications in the audit
report on the historical
financial information.
Investments that were transferred to SAPE pursuant to the
Spin-off were accounted as held for distribution by the
Company as at 31 December 2013 and 31 March 2014, and
equity accounted investees and available for sale financial
instruments as at 31 December 2012 and 2011.
The Company’s auditors have qualified their opinion on the
Audited Consolidated Financial Statements as at and for the
years ended 31 December 2013, 2012 and 2011 as the auditors
could not obtain sufficient and appropriate audit evidence
related to the accounting treatment of the Company’s interest
in these entities due to: (a) unavailability of financial
information prepared in accordance with International
Financial Reporting Standards as endorsed by the European
Union in order to account for the equity accounted investees,
(b) uncertainties regarding the date when significant influence
of the Company over these entities ceased, and
(c) uncertainties regarding the accounting for the exit options
relating to certain investments. Consequently, the Company’s
auditors were unable to determine whether adjustments might
have been necessary for the following financial statements
items: assets held for distribution as at 31 December 2013,
equity accounted investees and other investments/available for
sale financial instruments as at 31 December 2012 and 2011,
retained earnings and reserves as at 31 December 2013, 2012
and 2011, share of profit or loss of equity-accounted investees,
profit or loss and other comprehensive income for the years
ended 31 December 2013, 2012 and 2011.
16
The Company’s auditors have qualified their conclusion on the
Unaudited Condensed Consolidated Interim Financial
Statements as at and for the three month period ended
31 March 2014 as the auditors could not obtain sufficient and
appropriate evidence related to the accounting treatment of the
Company’s interest in these entities due to: (a) unavailability of
financial information prepared in accordance with
International Financial Reporting Standards as endorsed by the
European Union in order to account for the equity accounted
investees, (b) uncertainties regarding the date when significant
influence of the Company over these entities ceased, and
(c) uncertainties regarding the accounting for the exit options
relating to certain investments. Consequently, the Company’s
auditors were unable to determine whether adjustments might
have been necessary for assets held for distribution, retained
earnings and reserves as at 31 March 2014.
For the full text of the audit report on the Audited
Consolidated Financial Statements as at and for the years
ended 31 December 2013, 2012 and 2011 and of the review
report on the Unaudited Condensed Consolidated Interim
Financial Statements as at and for the three month period
ended 31 March 2014 refer to Appendix A of this Prospectus.
D.4/
D.2
Key information on the key risks
that are specific to the issuer.
Risks Relating to the Group’s Business and Industry
• The Group’s supply segment will face an increase in
competition for the supply of electricity as the electricity supply
market continues to be liberalised
• The Group’s financial performance could be adversely affected
by changes in tariffs set for the regulated market
• The Group’s supply segment could lose its status as supplier of
last resort
• After the Offering, the State will continue to have significant
influence over the Company
• The Group’s financial performance could be adversely affected
by changes in electricity prices and the Group has no hedging
protection in place against such event
• Demand for electricity in Romania is dependent on various
factors over which the Group has no control, such as economic,
political, climatic conditions
• The Group is subject to significant regulatory requirements and
is required to maintain regulatory approvals; as such it may be
exposed to significant liabilities if it fails to maintain such
approvals or comply with such requirements or approvals
• Components of the Group’s distribution network are subject to
deterioration over time
• A strike or other labour disruption could adversely affect the
Group’s business
• The Group’s assets and/or business could be damaged by
natural and man-made acts or disasters
• The Group’s IT systems are outdated and are not integrated
• The migration of the Group to a new integrated ERP system
may encounter difficulties and delays
17
• The Group has limited experience in financial reporting based
on IFRS-EU
• The Group’s distribution segment subsidiaries may be operating
under concessions agreements which have not entered into force
• A minority shareholder in the Group’s distribution and supply
segment subsidiaries (EDMN, EDTN, EDTS and Electrica
Furnizare) may be entitled to require Electrica to sell a portion
of its shares in such companies on the Bucharest Stock
Exchange
• The Group may face risks associated with restitution claims
with regard to certain real estate properties
• Ownership title over certain real estate properties owned by
members of the Group may be deemed uncertain
• Electrica Furnizare may be prohibited from suspending or
interrupting the supply of electricity to certain of the Group’s
customers, even if such customers are in payment default
• Failure to execute Management’s business strategy may lead to
cost savings and revenue forecasts being lower than predicted for
the Group
• The Group’s reputation, future prospects or results of operations
may be materially adversely affected by claims or litigation
• Failure to observe public procurement legislation by members of
the Group may lead to fines and voided contracts
• The Group may be subject to insurance claims for which it has
not adequately made provision
• The Capital Increase may be annulled and/or the Offering may
be cancelled
• Share capital increases resulting from State land contributions
may result in the State holding more than 50% of Electrica’s
shares
• Members of the Group may not have valid legal title for the
lands on which the network or the network infrastructure they
operate is located
• Share capital increases in the Company from in-kind
contributions of real estate may be voided
• Fondul Proprietatea, a minority shareholder of the distribution
and supply subsidiaries of the Group, may seek to block
decision making
• Failure by the State to amend the law restricting share
acquisitions by Electrica will restrict the Group’s strategy
• The Group’s position in electricity distribution and supply
markets may expose it to claims relating to abuse of dominant
position
• Provisions contained in certain financing agreements to which
members of the Group are party may restrict their operations
18
• The Group may be exposed to liabilities in respect of State Aid
• The Company may face additional claims from tax authorities
for budgetary debts due for previous periods
Risks relating to the Reorganisation
• Liquidation and insolvency of the Group’s service subsidiaries
and the Spin-off may result in residual legal liability for the
Company
• The Spin-off may be challenged by third parties or may be
unenforceable against ENEL, EON and CEZ
Risks relating to Romania
• Investing in developing markets, including Romania, entails
certain risks, which may be greater than risks inherent in more
developed markets
• The value of investments in Romania, including the value of the
Offer Securities, could be adversely affected by political and
economic uncertainty
• Legal uncertainty as to the State entities involved in the
privatisation of the Company may delay the closing of the
Offering
• Political instability in Ukraine could materially and adversely
affect the Group
• Certain global events may indirectly affect the outlook for
Romania and adversely affect the Group
• The Group’s ability to conduct business and its financial
condition, results of operations and prospects could be adversely
affected by corruption and money laundering
• Romania can be subject to high levels of volatility in exchange
rate and inflation which may adversely affect the Group
• Romania may face difficulties related to its post-accession
process to the European Union
• Romania’s infrastructure is in poor condition, which could
disrupt normal business activity and in turn the Group’s
business, result of operations and prospects
• The Romanian legal system and Romanian legislation continue
to develop, which may create an uncertain environment for
investment and for business activity
• The Romanian taxation system is subject to change and may
issue inconsistent interpretations of tax legislation
19
B.32
Information about the issuer of the depositary receipts.
Name and registered office of the
issuer of the depositary receipts.
Legislation under which the
issuer of the depositary receipts
operates and legal form which it
has adopted under the
legislation.
The depositary is The Bank of New York Mellon (the
‘‘Depositary’’), a state chartered New York banking corporation
and a member of the United States Federal Reserve System,
subject to regulation and supervision principally by the United
States Federal Reserve Board and the New York State Banking
Department. The Depositary was constituted in 1784 in the
State of New York. It is a wholly-owned subsidiary of The Bank
of New York Mellon Corporation, a New York bank holding
company. Its principal administrative offices are located at 101
Barclay Street, 22 Floor West, New York, NY 10286. A copy of
the Depositary’s articles of association, as amended, together
with copies of The Bank of New York Mellon Corporation’s
most recent financial statements and annual report are
available for inspection at the principal office of the Depositary
located at One Wall Street, New York, NY 10286 and at The
Bank of New York Mellon, One Canada Square, London
E14 5AL.
20
Section C—Securities
C.1
A description of the type and the
class of the securities being
offered and/or admitted to
trading, including any security
identification number.
The Offering comprises an offer by the Company of 177,188,744
Shares in the form of Offer Shares and Offer GDRs, with one
GDR representing the interest in four Shares.
In connection with the Offering the Stabilising Managers have
the right to acquire Offer Securities on the BSE and or the
London Stock Exchange representing not more than 8,420,000
Offer Shares by retaining the Stabilisation Proceeds in order to
stabilise the price of the Offer Securities at a level higher than
that which may otherwise prevail if stabilisation actions were not
taken. It is anticipated that under the Underwriting Agreement,
the acquisition of the Offer Securities as part of stabilising
transactions by the Stabilising Managers will be subject to the
applicable provisions of the Stabilisation Regulation. The
purchase transactions related to the Offer Securities may be
effected during the period not longer than the Stabilisation
Period at a price not higher than the Final Offer Price. The
Stabilising Managers will not, however, be required to take any
of the above stabilisation actions. If such actions are taken by the
Stabilising Managers, they may be discontinued at any time,
however, not later than before the end of the Stabilisation
Period. At the end of the Stabilisation Period the Stabilising
Manager(s) will return to the Company any Offer Securities
which have been purchased in the market as a result of
stabilisation activities and/or any remaining Stabilisation
Proceeds which were not used for stabilisation activities, as well
as any interest that has accumulated for the amounts
corresponding to the Stabilisation Proceeds. The Company’s
GMS shall gather in order to decide on the subsequent
cancellation of those Offer Securities.
The security codes and identification numbers and trading
symbols of the Shares and GDRs are expected to be as follows:
Shares ISIN: ROELECACNOR5
Bucharest Stock Exchange Share trading symbol: EL
Regulation S GDR ISIN: US83367Y2072
Regulation S GDR Common Code: 107810803
Regulation S GDR CUSIP: 83367Y 207
Regulation S GDR SEDOL: BN80132
Rule 144A GDR ISIN: US83367Y1082
Rule 144A GDR Common Code: 107811192
Rule 144A GDR CUSIP: 83367Y 108
Rule 144A GDR SEDOL: BN80121
London Stock Exchange GDR trading symbol: ELSA
C.2
Currency of the securities issue.
The currency of the Shares is RON.
The currency of the GDRs is US dollar.
21
C.3
The number of shares issued
and fully paid and issued but
not fully paid. The par value per
share, or that the shares have no
par value.
As at the date of the Prospectus, the Company’s issued share
capital comprises 168,751,185 shares, each of which is fully paid
with a par value of RON 10.
C.4
A description of the rights
attached to the securities.
Each Offer Share is an ordinary share of par value RON 10
carrying similar rights.
All shareholders are to be treated equally to other shareholders
that own the same type of Shares, with the material rights set
forth below:
• the pre-emptive right of the shareholders to subscribe for any
issue of new shares on a pro rata basis, unless such
pre-emptive right is limited by the GMS in accordance with the
law and the Articles of Incorporation;
• the right to vote and participate in the general meetings of the
shareholders;
• the right to receive dividends;
• the right to information (e.g. to be informed about the activity
of the Company in line with and subject to the applicable law,
to obtain any information regarding the exercise of voting
rights and information regarding the voting results in the
general shareholders meetings);
• the right to withdraw from the Company and to request the
Company to acquire their shares, in case the shareholders did
not vote in favour of a certain decision in the general meeting
of shareholders;
• the right to challenge the decisions of the general meeting of
shareholders; and
• other rights provided under the Company’s Articles of
Incorporation, the Companies Law and other pieces of
legislation and regulations currently in force.
Each GDR represents an interest in four Shares on deposit with
Raiffeisen Bank S.A., as custodian (the ‘‘Custodian’’) and
registered in the name of the Depositary (the ‘‘Deposited
Shares’’). A holder of GDRs (each, a ‘‘Holder’’) will have the
rights set out in the terms and conditions of the GDRs (as
endorsed on each GDR certificate) and the Master GDRs, which
may be summarised as:
• the right to withdraw the Shares and all rights, interests and
other securities, property and cash deposited with the
Custodian which are attributable to the Deposited Shares;
• the right to receive payment in US dollars from the Depositary
of an amount equal to cash dividends or other cash
distributions received by the Depositary from the Company in
respect of the Deposited Shares;
22
• the right to receive from the Depositary additional GDRs
representing additional Shares received by the Depositary
from the Company by way of dividend or free distribution (or
if the issue of additional GDRs is deemed by the Depositary
not to be reasonably practicable or to be unlawful, the net
proceeds in US dollars of the sale of such Shares;
• the right to receive from the Depositary any dividend or
distribution in the form of property other than Shares or cash
received by the Depositary from the Company (or if such
distribution is deemed by the Depositary not to be reasonably
practicable or to be unlawful, the net proceeds in US dollars of
the sale of such property);
• the right to request the Depositary to exercise subscription or
similar rights made available by the Company to holders of
Shares (or if such process is deemed by the Depositary not to
be lawful and reasonably practicable, the right to receive the
net proceeds in US dollars of the sale of the relevant rights or
the sale of the assets resulting from the exercise of such
rights);
• the right to instruct the Depositary regarding the exercise of
any voting rights notified by the Company to the Depositary
subject to conditions;
• the right to receive from the Depositary copies received by the
Depositary of notices provided by the Company to holders of
shares or other material information; and
• in each case subject to applicable law, and the detailed terms
set out in the terms and conditions of the GDRs (as endorsed
on each GDR certificate) and the Master GDRs.
C.5
A description of any restrictions
on the free transferability of the
securities.
The Securities are freely transferable (subject, in the case of the
Shares to the rules of the Regulated Spot Market of the
Bucharest Stock Exchange, and clearing and settlement rules of
S.C. Depozitarul Central S.A. (the ‘‘Central Depositary’’), in the
case of Offer Shares underlying the GDRs, to the rules and
limitations of the specific legislation issued by the Romanian
FSA, and in the case of the GDRs, to the clearing and settlement
rules of The Depository Trust Company (in the case of the GDRs
represented from time to time by the Rule 144A Master GDR)
and Euroclear Luxembourg (in the case of the GDRs
represented from time to time by the Regulation S Master
GDR), as applicable and the terms and conditions of the GDRs),
subject to selling and transfer restrictions under the relevant laws
in certain jurisdictions applicable to the transferor or transferee,
including the United States, the United Kingdom, the EEA and
Romania and contractual lock-up arrangements applicable to
each of the Ministry of Economy (acting through the
Department for Energy) as representative of the State as sole
Shareholder, and the Company with the Managers.
23
C.6
An indication as to whether the
securities offered are or will be
the object of an application for
admission to trading on a
regulated market and the identity
of all the regulated markets
where the securities are or are to
be traded.
Application will be made to: (1) Bucharest Stock Exchange for
admission of the Shares to trading on the Regulated Spot Market
of the Bucharest Stock Exchange; and (2) (i) to the FCA in its
capacity as competent authority under the FSMA, for the GDRs
to be admitted to listing on the Official List of the FCA and
(ii) to the London Stock Exchange, for admission to trading of
the GDRs on the London Stock Exchange’s main market for
listed securities. The Bucharest Stock Exchange and the London
Stock Exchange are both regulated markets in the EEA for the
purposes of the ‘‘Directive on Markets in Financial Instruments’’.
C.7
A description of dividend policy.
Dividends, if and when declared, are distributed to shareholders
on a pro-rata basis proportionately to their participation in the
paid-up share capital of the Company. Each fully paid Share
gives its owner the right to receive dividends. The Company will
pay any dividends in RON.
Prior to the Offering, the Company was subject to Government
Ordinance no. 64/2001 on distribution of profits of national
companies and State owned companies (the ‘‘Dividend
Ordinance’’).
There is uncertainty as to whether the Dividend Ordinance will
apply to the Company following completion of the Offering.
Management will distribute dividends on the basis of the
Company’s annual financial statements which starting with 2014
will be prepared in accordance with IFRS-EU. Management’s
intention is to distribute dividends, based on a guidance of
approximately 85% of consolidated profit attributable to
shareholders of Electrica SA.
The GMS determines the amount of dividends to be distributed
considering the specific provisions on the distribution of profits
applicable to national companies and companies fully or partially
owned by the State.
Profits for the financial years ended 31 December 2012, 2011 and
2010, respectively, were distributed subject to the accounting
profits registered under the statutory financial statements. The
statutory financial statements of the Company are drafted in
accordance with OMF 3055/2009.Following listing of the Shares,
the Company will distribute dividends based on profits calculated
according to IFRS-EU.
For the financial years ending 31 December 2011 and 2012,
State-owned companies are obliged to distribute 85% share of
their distributable profit as dividends.
According to the Companies Law, in case of assignment of
shares, the assignee shall be entitled to the right to dividends due
for the period after the assignment is complete. Thus, the
investors shall be entitlted to dividends according to this rule.
24
C.13
Information about the underlying shares
C.1
A description of the type and
the class of the securities
being offered and/or admitted
to trading, including any
security identification number.
The Offering comprises an offer by the Company of
177,188,744 Shares (in the form of Shares and/or GDRs) at
the Final Offer Price per Share.
The security identification number and trading symbol of
the Shares are expected to be as follows:
Shares ISIN: ROELECACNOR5
Bucharest Stock Exchange Share trading symbol: EL
C.2
Currency of the securities
issue.
The currency of the Shares is RON.
C.3
The number of shares issued
and fully paid and issued but
not fully paid. The par value
per share, or that the shares
have no par value.
As at the date of the Prospectus, the Company’s issued
share capital is 168,751,185 Shares, each of which is fully
paid with a par value of RON 10.
C.4
A description of the rights
attached to the securities.
All shareholders are to be treated equally to other
shareholders that own the same type of Shares, with the
material rights set forth below:
• the pre-emptive right of the shareholders to subscribe for
any issue of new shares on a pro rata basis, unless such
pre-emptive right is limited by the GMS in accordance
with the law and the Articles of Incorporation;
• the right to vote and participate in the general meetings
of the shareholders;
• the right to receive dividends;
• the right to information (e.g. to be informed about
activity of the Company in line with and subject to
applicable law, to obtain any information regarding
exercise of voting rights and information regarding
voting results in the general shareholders meetings)
the
the
the
the
• the right to withdraw from the Company and to request
the Company to acquire their shares, in case the
shareholders did not vote in favour of a certain decision
in the general meeting of shareholders;
• the right to challenge the decisions of the general meeting
of shareholders; and
• other rights provided under the Company’s Articles of
Incorporation, the Companies Law and other pieces of
legislation and regulations currently in force.
C.5
A description of any
restrictions on the free
transferability of the securities.
The Shares are freely transferable subject to the rules of the
Regulated Spot Market of the Bucharest Stock Exchange,
clearing and settlement rules of Central Depositary, in the
case of Offer Shares underlying the GDRs, to the rules and
limitations of the specific legislation issued by the
Romanian FSA, and to selling and transfer restrictions
under the relevant laws in certain jurisdictions applicable to
the transferor or transferee, including the United States, the
United Kingdom, the EEA and Romania and contractual
lock-up arrangements applicable to the Ministry of
Economy (acting through the Department for Energy) or
representative of the State as sole shareholder, and the
Company.
25
C.6
An indication as to whether
the securities offered are or
will be the object of an
application for admission to
trading on a regulated market
and the identity of all the
regulated markets where the
securities are or are to be
traded.
Application will be made to the Bucharest Stock Exchange
for an admission of the Shares to trading on the Regulated
Spot Market of the Bucharest Stock Exchange.
C.7
A description of dividend
policy.
Dividends, if and when declared, are distributed to
shareholders on a pro-rata basis proportionately to their
participation in the paid-up share capital of the Company.
Each fully paid Share gives its owner the right to receive
dividends. The Company will pay any dividends in RON.
Prior to the Offering, the Company was subject to the
Dividend Ordinance.
There is uncertainty as to whether the Dividend Ordinance
will apply to the Company following completion of the
Offering. Management will distribute dividends on the basis
of the Company’s annual financial statements which starting
with 2014 will be prepared in accordance with IFRS-EU.
Management’s intention is to distribute dividends based on
a guidance of approximately 85% of consolidated profit
attributable to shareholders of Electrica.
The GMS currently determines the amount of dividends to
be distributed considering the specific provisions on the
distribution of profits applicable to national companies and
companies fully or partially owned by the State.
Profits for the financial years ended 31 December 2012,
2011 and 2010, respectively, were distributed subject to the
accounting profits registered under the statutory financial
statements. The statutory financial statements of the
Company are drafted in accordance with OMF 3055/2009.
Following listing of the Shares, the Company will distribute
dividends based on profits calculated according to
IFRS-EU.
26
C.14
Information about the global depositary receipts
C.1
A description of the type and
the class of the securities
being offered and/or admitted
to trading, including any
security identification number.
The Offering comprises an offer by the Company of
177,188,744 Shares (in the form of Shares and/or GDRs) at
the Final Offer Price, with one GDR representing an
interest in four Shares.
The security identification codes and numbers and trading
symbol of the GDRs are expected to be as follows:
Regulation S GDR ISIN: US83367Y2072
Regulation S GDR Common Code: 107810803
Regulation S GDR CUSIP: 83367Y 207
Regulation S GDR SEDOL: BN80132
Rule 144A GDR ISIN: US83367Y1082
Rule 144A GDR Common Code: 107811192
Rule 144A GDR CUSIP: 83367Y 108
Rule 144A GDR SEDOL: BN80121
London Stock Exchange GDR trading symbol: ELSA
C.2
Currency of the securities
issue.
The currency of the GDRs is US dollars.
C.4
A description of the rights
attached to the securities.
Each GDR represents an interest in four Deposited
Shares. A Holder will have the rights set out in the terms
and conditions of the Master GDRs, which may be
summarised as:
• the right to withdraw the Shares and all rights, interests
and other securities, property and cash deposited with
the Custodian which are attributable to the Deposited
Shares;
• the right to receive payment in US dollars from the
Depositary of an amount equal to cash dividends or
other cash distributions received by the Depositary from
the Company in respect of the Deposited Shares;
• the right to receive from the Depositary additional
GDRs representing additional Shares received by the
Depositary from the Company by way of dividend or free
distribution (or if the issue of additional GDRs is
deemed by the Depositary not to be reasonably
practicable or to be unlawful, the net proceeds in US
dollars of the sale of such Shares);
• the right to receive from the Depositary any dividend or
distribution in the form of property other than Shares or
cash received by the Depositary from the Company (or if
such distribution is deemed by the Depositary not to be
reasonably practicable or to be unlawful, the net
proceeds in US dollars of the sale of such property);
27
• the right to request the Depositary to exercise
subscription or similar rights made available by the
Company to holders of Shares (or if such process is
deemed by the Depositary not to be lawful and
reasonably practicable, the right to receive the net
proceeds in US dollars of the sale of the relevant rights
or the sale of the assets resulting from the exercise of
such rights);
• the right to instruct the Depositary regarding the
exercise of any voting rights notified by the Company to
the Depositary subject to conditions; and
• the right to receive from the Depositary copies received
by the Depositary of notices provided by the Company to
holders of shares or other material information,
in each case subject to applicable law, and the detailed
terms set out in the terms and conditions of the GDRs (as
endorsed on each GDR certificate) and the Master GDRs.
C.5
A description of any
restrictions on the free
transferability of the securities.
The GDRs will be freely transferable, subject to the
clearing and settlement rules of The Depository Trust
Company (in the case of the GDRs represented from time
to time by the Rule 144A Master GDR) and Euroclear and
Clearstream, Luxembourg (in the case of the GDRs
represented from time to time by the Regulation S Master
GDR), as applicable, and subject to selling and transfer
restrictions under the relevant laws in certain jurisdictions
applicable to the transferor or transferee, including the
United States, the United Kingdom, Romania and the
EEA, contractual lock-up arrangements applicable to the
Ministry of Economy (acting through the Department for
Energy), and the Company and the terms and conditions of
the GDRs.
C.14
Information about the
depositary receipts.
The terms and conditions of the GDRs (as endorsed on
each GDR certificate) set out the provisions relating to the
exercise of and benefit from the rights attaching to the
Shares underlying the GDRs. The following summarises
relevant provisions of the terms and conditions of the
GDRs relating to the exercise of and benefit from rights
attaching to the underlying shares.
The final number of Shares underlying the Offer GDRs
that will be issued and allocated to investors within the
Offering will not exceed 2⁄3 of the total number of Offer
Shares.
28
Describe the exercise of and
benefit from the rights
attaching to the underlying
shares, in particular voting
rights, the conditions on
which the issuer of the
depositary receipts may
exercise such rights, and
measures envisaged to obtain
the instructions of the
depositary receipt holders—
and the right to share in
profits and any liquidations
surplus which are not to be
passed on to the holder of the
depositary receipt.
Distributions
Each Holder of GDRs is entitled to the following
distributions:
Cash Distributions—any cash dividend or other cash
distribution on or in respect of the Deposited Shares
(including any amounts received in the liquidation of the
Company) or otherwise in connection with the Deposited
Shares and all rights, interests and other securities,
property and cash deposited with the Custodian which are
attributable to the Deposited Shares (together with the
Deposited Shares, the ‘‘Deposited Property’’) received by
the Depositary from the Company. The Depositary shall, as
soon as and if practicable: (i) convert the same into US
dollars as prescribed; (ii) if practicable in the opinion of the
Depositary, give notice to the Holders of its receipt of such
payment, specifying the amount per Deposited Share
payable in respect of such dividend or distribution and the
earliest date, determined by the Depositary, for
transmission of such payment to Holders and
(iii) distribute any such amounts to the Holders in
proportion to the number of Deposited Shares represented
by the GDRs so held by them respectively, subject to
conditions. Any distributions in cash will be made on the
record date established by the Depositary (such date to be
as close to the record date set by the Company as is
reasonably practicable) in US dollars (if reasonably
practicable) by cheque drawn upon a bank in New York
City or, in the case of Master GDRs, according to usual
practice between the Depositary and Clearstream,
Luxembourg, Euroclear or DTC, as the case may be.
Distributions of Shares—any distribution in respect of
Deposited Shares which consists of a dividend or free
distribution of Shares received by the Depositary from the
Company. The Depositary shall cause to be distributed to
the Holders entitled thereto, in proportion to the number
of Deposited Shares represented by the GDRs held by
them respectively, additional GDRs representing an
aggregate number of Shares received pursuant to such
distribution. Such additional GDRs shall be distributed by
an increase in the number of GDRs represented by the
Master GDRs or by an issue of certificates in definitive
registered form in respect of GDRs, according to the
manner in which the Holders hold their GDRs unless the
Depositary deems any such distribution to all or any
Holders not to be reasonably practicable (including,
without limitation, due to the fractions which would
otherwise result or to any requirement that the Company,
the Custodian or the Depositary withhold an amount on
account of taxes or other governmental charges) or to be
unlawful, in which case the Depositary shall (either by
public or private sale and otherwise at its discretion, subject
to all applicable laws and regulations) sell such Shares so
received and distribute the net proceeds of such sale as a
cash distribution as specified above to the Holders entitled
thereto.
29
Distributions other than Cash or Shares—any dividend or
distribution in securities (other than Shares) or in other
property (other than cash) on or in respect of the
Deposited Property received by the Depositary from the
Company. The Depositary shall distribute or cause to be
distributed such securities or other property to the Holders
entitled thereto, in proportion to the number of Deposited
Shares represented by the GDRs held by them respectively,
in any manner that the Depositary may deem equitable and
practicable for effecting such distribution unless Depositary
deems any such distribution to all or any Holders not to be
reasonably practicable or to be unlawful, in which case the
Depositary shall deal with the securities or property so
received, or any part thereof, in such way as the Depositary
may determine to be equitable and practicable, including,
without limitation, by way of sale (either by public or
private sale and otherwise at its discretion, subject to all
applicable laws and regulations) and shall (in the case of a
sale) distribute the resulting net proceeds as a cash
distribution as specified above to the Holders entitled
thereto.
Delivery of any securities or other property or rights other
than cash shall be made as soon as practicable to the
Holder on the record date established by the Depositary
for that purpose.
Rights Issues
Each Holder of GDRs is entitled, subject in each case to
applicable law and to the provision by the Holder of
relevant information required by the Depositary and the
relevant payments (including fees, taxes, duties, charges,
costs and expenses required under the Deposit Agreement,
as defined below), and to the extent reasonably practicable,
either: (i) to request the Depositary to exercise rights to
subscribe for or to acquire Shares, securities or other assets
where such rights are made available by the Company to
Holders of Shares (and where applicable, to subscribe for
additional rights not subscribed by other Holders of
GDRs); or (ii) to receive a distribution of such rights or the
proceeds of any sale thereof.
Voting Rights
Each Holder, following receipt from the Depositary of
copies of the information provided by the Company
(including notice and agenda for a meeting of shareholders
of the Company and any proposed written resolution of the
Company) is entitled to give instructions to the Depositary
to vote for or against each and any resolution specified in
the agenda for the meeting. In order for each voting
instruction to be valid, the voting instructions form must be
completed and duly signed by the respective Holder (or in
the case of instructions received from the clearing systems
should be received by authenticated SWIFT message) in
accordance with the written request containing voting
instructions and returned to the Depositary by such record
date as the Depositary may specify.
30
Exercise of voting rights from Holders will be subject in
each case to Romanian law and the Depositary’s
determination of what is reasonably practicable.
Payment Entitlements
The only cash amounts to which a Holder of GDRs are
entitled are:
• a US dollar amount equal to: (i) the amount of any cash
dividend or other cash distribution on or in respect of the
shares represented by the Holder’s GDRs (including any
amounts received in the liquidation of the Company) or
otherwise in connection with such shares received by the
Depositary; (ii) the net proceeds of sale of any shares
received by the Depositary from the Company by way of
dividend or free distribution where issuance of GDRs
representing such shares is deemed by the Depositary
not to be reasonably practicable or to be unlawful;
(iii) the net proceeds of sale of assets (other than shares
or cash) received by the Depositary from the Company
where distribution of such assets to GDR Holders is
deemed by the Depositary not to be reasonably
practicable or to be unlawful or (iv) the net proceeds of
sale of subscription or other rights made available to the
Depositary as a holder of shares by the Company (or the
sale of the assets resulting from the exercise of such
rights) where the exercise of such rights by the GDR
Holders is deemed not to be lawful or reasonably
practicable; and
• on cancellation of GDRs or termination of the Deposit
Agreement (as defined below), amounts equal to the
cash amounts currently held by the Depositary for the
Holder of each cancelled GDR or GDR in issue at the
time of termination of the Deposit Agreement,
in each case subject to applicable law, and the detailed
terms set out in the terms and conditions of the GDRs and
the Master GDRs.
Description of the bank or
other guarantee attached to
the depositary receipt and
intended to underwrite the
issuer’s obligations.
Not applicable. There are no bank or other guarantees
attached to the GDRs.
31
Section D—Risks
D.1
Key information on the key risks
that are specific to the issuer or
its industry.
Risks Relating to the Group’s Business and Industry
• The Group’s supply segment will face an increase in competition
for the supply of electricity as the electricity supply market
continues to be liberalised
• The Group’s financial performance could be adversely affected by
changes in tariffs set for the regulated market
• The Group’s supply segment could lose its status as supplier of
last resort
• After the Offering, the State will continue to have significant
influence over the Company
• The Group’s financial performance could be adversely affected by
changes in electricity prices and the Group has no hedging
protection in place against such event
• Demand for electricity in Romania is dependent on various
factors over which the Group has no control, such as economic,
political, climatic conditions
• The Group is subject to significant regulatory requirements and is
required to maintain regulatory approvals; as such it may be
exposed to significant liabilities if it fails to maintain such
approvals or comply with such requirements or approvals
• Components of the Group’s distribution network are subject to
deterioration over time
• A strike or other labour disruption could adversely affect the
Group’s business
• The Group’s assets and/or business could be damaged by natural
and man-made acts or disasters
• The Group’s IT systems are outdated and are not integrated
• The migration of the Group to a new integrated ERP system may
encounter difficulties and delays
• The Group has limited experience in financial reporting based on
IFRS-EU
• The Group’s distribution segment subsidiaries may be operating
under concessions agreements which have not entered into force
• A minority shareholder in the Group’s distribution and supply
segment subsidiaries (EDMN, EDTN, EDTS and Electrica
Furnizare) may be entitled to require Electrica to sell a portion of
its shares in such companies on the Bucharest Stock Exchange
• The Group may face risks associated with restitution claims with
regard to certain real estate properties
• Ownership title over certain real estate properties owned by
members of the Group may be deemed uncertain
• Electrica Furnizare may be prohibited from suspending or
interrupting the supply of electricity to certain of the Group’s
customers, even if such customers are in payment default
32
• Failure to execute management’s business strategy may lead to
cost savings and revenue forecasts being lower than predicted for
the Group
• The Group’s reputation, future prospects or results of operations
may be materially adversely affected by claims or litigation
• Failure to observe public procurement legislation by members of
the Group may lead to fines and voided contracts
• The Group may be subject to insurance claims for which it has
not adequately made provision
• The Capital Increase may be annulled and/or the Offering may
be cancelled
• Share capital increases resulting from State land contributions
may result in the State holding more than 50% of Electrica’s
shares
• Members of the Group may not have valid legal title for the
lands on which the network or the network infrastructure they
operate is located
• Share capital increases in the Company from in-kind
contributions of real estate may be voided
• Fondul Proprietatea, a minority shareholder of the distribution
and supply subsidiaries of the Group, may seek to block
decision making
• Failure by the State to amend the law restricting share
acquisitions by Electrica will restrict the Group’s strategy
• The Group’s position in electricity distribution and supply
markets may expose it to claims relating to abuse of dominant
position
• Provisions contained in certain financing agreements to which
members of the Group are party may restrict their operations
• The Group may be exposed to liabilities in respect of State Aid
• The Company may face additional claims from tax authorities
for budgetary debts due for previous periods
Risks relating to the Reorganisation
• Liquidation and insolvency of the Group’s service subsidiaries
and the Spin-off may result in residual legal liability for the
Company
• The Spin-off may be challenged by third parties or may be
unenforceable against ENEL, EON and CEZ
Risks relating to Romania
• Investing in developing markets, including Romania, entails
certain risks, which may be greater than risks inherent in more
developed markets
• The value of investments in Romania, including the value of the
Offer Securities, could be adversely affected by political and
economic uncertainty
33
• Legal uncertainty as to the State entities involved in the
privatisation of the Company may delay the closing of the
Offering
• Political instability in Ukraine could materially and adversely
affect the Group
• Certain global events may indirectly affect the outlook for
Romania and adversely affect the Group
• The Group’s ability to conduct business and its financial
condition, results of operations and prospects could be adversely
affected by corruption and money laundering
• Romania can be subject to high levels of volatility in exchange
rate and inflation which may adversely affect the Group
• Romania may face difficulties related to its post-accession
process to the European Union
• Romania’s infrastructure is in poor condition, which could
disrupt normal business activity and in turn the Group’s
business, result of operations and prospects
• The Romanian legal system and Romanian legislation continue
to develop, which may create an uncertain environment for
investment and for business activity
• The Romanian taxation system is subject to change and may
issue inconsistent interpretations of tax legislation
D.3
Key information on the key risks
that are specific to the securities.
• The Company is a holding company with limited operations and
relies on its operating subsidiaries to provide it with funds
necessary to meet its financial obligations and to pay dividends
on the Offer Securities
• There is currently no trading market for the Offer Securities
• The Securities may be subject to price volatility
• The prevailing trading price of the Offer Securities could be
adversely affected by future sales, or the real or perceived
possibility of sales, of a significant number of the Securities in
the public market
• The Offer Securities may not be transferred freely especially in
the United States or other countries
• Holders of the Offer Securities in certain jurisdictions (including
the United States) may not be able to exercise their pre-emptive
rights and ownership interests may therefore be diluted
• Inability to admit the Securities to trading on the Bucharest
Stock Exchange and London Stock Exchange, as applicable
• Suspension of trading in the Shares
• Investors may not be able to enforce judgments obtained in US
courts against the Company
34
• Exchange rate fluctuations may impair the return in the
investment in the Shares
• The Company may not pay dividends in the future, and foreign
shareholders and holders of the GDRs may also be subject to
limitations or delays in repatriating their earnings from
distributions made on the underlying Shares
• Following the Offering, holders of Shares may not be able to
deposit the Shares in the Company’s GDR facility in order to
receive GDRs, and changes in Romanian regulatory policy with
respect to the placement and circulation of the Shares outside
Romania in the form of GDRs or otherwise may negatively
affect the market for the Securities being offered
• Voting rights with respect to the Shares represented by the GDRs
are subject to procedural steps and practical limitations imposed
by the terms of the Deposit Agreement and the relevant
requirements of Romanian law
• The rights of minority shareholders may be limited under
Romanian law
35
D.4
Information about the underlying shares
D.2
Key information on the key
risks that are specific to the
issuer.
Risks Relating to the Group’s Business and Industry
• The Group’s supply segment will face an increase in
competition for the supply of electricity as the electricity
supply market continues to be liberalised
• The Group’s financial performance could be adversely
affected by changes in tariffs set for the regulated market
• The Group’s supply segment could lose its status as supplier
of last resort
• After the Offering, the State will continue to have significant
influence over the Company
• The Group’s financial performance could be adversely
affected by changes in electricity prices and the Group has no
hedging protection in place against such event
• Demand for electricity in Romania is dependent on various
factors over which the Company has no control, such as
economic, political, climatic conditions
• The Group is subject to significant regulatory requirements
and is required to maintain regulatory approvals; as such it
may be exposed to significant liabilities if it fails to maintain
such approvals or comply with such requirements or
approvals
• Components of the Group’s distribution network are subject
to deterioration over time
• A strike or other labour disruption could adversely affect the
Group’s business
• The Group’s assets and/or business could be damaged by
natural and man-made acts or disasters
• The Group’s IT systems are outdated and are not integrated
• The migration of the Group to a new integrated ERP system
may encounter difficulties and delays
• The Group has limited experience in financial reporting
based on IFRS-EU
• The Group’s distribution segment subsidiaries may be
operating under concessions agreements which have not
entered into force
• A minority shareholder in the Group’s distribution and
supply segment subsidiaries (EDMN, EDTN, EDTS and
Electrica Furnizare) may be entitled to require Electrica to
sell a portion of its shares in such companies on the
Bucharest Stock Exchange
• The Group may face risks associated with restitution claims
with regard to certain real estate properties
• Ownership title over certain real estate properties owned by
members of the Group may be deemed uncertain
36
• Electrica Furnizare may be prohibited from suspending or
interrupting the supply of electricity to certain of the Group’s
customers, even if such customers are in payment default
• Failure to execute management’s business strategy may lead
to cost savings and revenue forecasts being lower than
predicted for the Group
• The Group’s reputation, future prospects or results of
operations may be materially adversely affected by claims or
litigation
• Failure to observe public procurement legislation by members
of the Group may lead to fines and voided contracts
• The Group may be subject to insurance claims for which it
has not adequately made provision
• The Capital Increase may be annulled and/or the Offering
may be cancelled
• Share capital increases resulting from State land
contributions may result in the State holding more than 50%
of Electrica’s shares
• Members of the Group may not have valid legal title for the
lands on which the network or the network infrastructure
they operate is located
• Share capital increases in the Company from in-kind
contributions of real estate may be voided
• Fondul Proprietatea, a minority shareholder of the
distribution and supply subsidiaries of the Group, may seek
to block decision making
• Failure by the State to amend the law restricting share
acquisitions by Electrica will restrict the Group’s strategy
• The Group’s position in electricity distribution and supply
markets may expose it to claims relating to abuse of
dominant position
• Provisions contained in certain financing agreements to
which members of the Group are party may restrict their
operations
• The Group may be exposed to liabilities in respect of State
Aid
• The Company may face additional claims from tax
authorities for budgetary debts due for previous periods
Risks relating to the Reorganisation
• Liquidation and insolvency of the Group’s service
subsidiaries and the Spin-off may result in residual legal
liability for the Company
• The Spin-off may be challenged by third parties or may be
unenforceable against ENEL, EON and CEZ.
37
Risks relating to Romania
• Investing in developing markets, including Romania, entails
certain risks, which may be greater than risks inherent in
more developed markets
• The value of investments in Romania, including the value of
the Offer Securities, could be adversely affected by political
and economic uncertainty
• Legal uncertainty as to the State entities involved in the
privatisation of the Company may delay the closing of the
Offering
• Political instability in Ukraine could materially and adversely
affect the Group
• Certain global events may indirectly affect the outlook for
Romania and adversely affect the Group
• The Group’s ability to conduct business and its financial
condition, results of operations and prospects could be
adversely affected by corruption and money laundering
• Romania can be subject to high levels of volatility in
exchange rate and inflation which may adversely affect the
Group
• Romania may face difficulties related to its post-accession
process to the European Union
• Romania’s infrastructure is in poor condition, which could
disrupt normal business activity and in turn the Group’s
business, result of operations and prospects
• The Romanian legal system and Romanian legislation
continue to develop, which may create an uncertain
environment for investment and for business activity
• The Romanian taxation system is subject to change and may
issue inconsistent interpretations of tax legislation
38
D.5
Information about depositary receipts
D.3
Key information on the key
risks that are specific to the
securities.
• The Company is a holding company with limited operations
and relies on its operating subsidiaries to provide it with funds
necessary to meet its financial obligations and to pay
dividends on the Offer Securities
• There is currently no trading market for the Offer Securities
• The Securities may be subject to price volatility
• The prevailing trading price of the Offer Securities could be
adversely affected by future sales, or the real or perceived
possibility of sales, of a significant number of the Securities in
the public market
• The Offer Securities may not be transferred freely especially in
the United States or other countries
• Holders of the Offer Securities in certain jurisdictions
(including the United States) may not be able to exercise their
pre-emptive rights and ownership interests may therefore be
diluted
• Inability to admit the Securities to trading on the Bucharest
Stock Exchange and London Stock Exchange, as applicable
• Suspension of trading in the Shares
• Investors may not be able to enforce judgments obtained in
US courts against the Company
• Exchange rate fluctuations may impair the return in the
investment in the Shares
• The Company may not pay dividends in the future, and
foreign shareholders and holders of the GDRs may also be
subject to limitations or delays in repatriating their earnings
from distributions made on the underlying Shares
• Following the Offering, holders of Shares may not be able to
deposit the Shares in the Company’s GDR facility in order to
receive GDRs, and changes in Romanian regulatory policy
with respect to the placement and circulation of the Shares
outside Romania in the form of GDRs or otherwise may
negatively affect the market for the Securities being offered
• Voting rights with respect to the Shares represented by the
GDRs are subject to procedural steps and practical
limitations imposed by the terms of the Deposit Agreement
and the relevant requirements of Romanian law
• The rights of minority shareholders may be limited under
Romanian law
39
Section E—Offer
E.1
The total net proceeds and an
estimate of the total expenses of
the issue/offer, including estimated
expenses charged to the investor
by the issuer or the offeror.
The Company will receive all the proceeds of the Offering, less
the Stabilisation Proceeds. At the end of the Stabilisation
Period, the Stabilising Manager(s) will return to the Company
any remaining Stabilisation Proceeds which were not used for
stabilisation activities, as well as any interest that has
accumulated for the amounts corresponding to the
Stabilisation Proceeds.
The total commissions, fees and expenses payable by the
Company in connection with the Offering are expected to be
between approximately RON 67 million and RON 80 million.
E.2a
Reasons for the offer, use of
proceeds, estimated net amount of
the proceeds.
The Company will receive all the proceeds from the
subscription of the Offer Securities, less the proceeds used for
stabilisation, and will use them to implement its investment
programme, which comprises:
•
refurbishment
infrastructure;
of
the
Group’s
existing
network
•
network development to connect new consumers;
•
investment in smart metering systems; and
•
consolidation of the Group’s support functions including
HR, finance, procurement, support and IT in a single
Shared Service Centre.
In addition the Company may also use the proceeds from the
subscription of the Offer Securities for acquisition
opportunities in the future that are consistent with its core
business, strategy and risk return profile, in accordance with
applicable law.
E.3
A description of the terms and
conditions of the offer.
The Offering is structured as an offering of Offer Securities:
(1) in Romania to the public; (2) in the United States to
certain qualified institutional buyers as defined in, and in
reliance on, Rule 144A under the Securities Act or another
exemption from the registration requirements of the Securities
Act; and (3) outside the United States and Romania in
offshore transactions in reliance on Regulation S under the
Securities Act.
The Offering is split into three Offer Tranches as follows:
(1) Small Retail Tranche: 7% of the Offer Shares (12,403,212
Shares (in the form of Offer Shares)) to be initially offered
to Retail Investors who submit orders from 250 Offer
Shares up to and including 20,000 Offer Shares in
aggregate (‘‘Small Retail Investors’’);
(2) Large Retail Tranche: 8% of the Offer Securities
(14,175,100 Shares (in the form of Offer Shares and/or
Offer GDRs)) to be initially offered to Retail Investors
who submit on a cumulative basis orders for over 20,000
Offer Shares per investor (‘‘Large Retail Investors’’); and
40
(3) Institutional Investors Tranche: 85% of the Offer
Securities (150,610,432 Shares (in the form of Offer
Shares and/or Offer GDRs)) will be initially offered to
(i)
credit
institutions,
(ii)
investment
firms,
(iii) undertakings for collective investments (collective
investment schemes, investment companies and/or
investment management companies), (iv) insurance/
reinsurance companies, (v) pension funds and
management companies of such funds, (vi) traders,
(vii) trust companies, (viii) international financial
institutions (IFIs), and (ix) other financial institutions,
(‘‘Institutional Investors’’).
On the Allocation Date, the Company shall re-allocate 5.0%
of the full number of Offer Shares from the Institutional
Investors Tranche to the Small Retail Tranche and/or Large
Retail Tranche in case the Small Retail Tranche and the Large
Retail Tranche have a subscription level higher than the
Institutional Investors Tranche. The Company may decide
following consultation with the Joint Global Coordinators on
an additional re-allocation of Offer Shares from the
Institutional Investors Tranche to the Small Retail Tranche and
Large Retail Tranche, on the Allocation Date.
The final number of Shares underlying the Offer GDRs that
will be issued and allocated to investors within the Offering
will not exceed 2⁄3 of the total number of Offer Shares.
Offer Price Range:
RON 11 to 13.50 per Offer Share.
US$13.55 to 16.63 per Offer GDR.
Small and Large Retail Investors must subscribe for Offer
Shares at the fixed price of RON 13.50 per Offer Share and
Large Retail Investors can also subscribe for Offer GDRs at
the fixed price of USD 16.63 per Offer GDR (i.e. in each case,
at the top of the Offer Price Range).
Institutional Investors may validly subscribe for Offer
Securities at any price within the Offer Price Range (including
the bottom and the top of the price range). The price tick for
the subscription by Institutional Investors is of RON 0.05 for
Offer Shares and of USD 0.01 for Offer GDRs, respectively.
Offer Period: 8 business days, from 16 June 2014 to 25 June
2014.
Allocation Date: The first business day following the expiry of
the Offer Period, i.e. 26 June 2014.
Transaction Date: 26 June 2014.
Settlement Date: 1 July 2014.
Closing Date: Expected to be on or about 3 July 2014.
41
The timetable above may be subject to change. Certain events
provided therein are beyond the control of the Company. The
Company, in agreement with the Joint Global Coordinators
and Joint Bookrunners, reserves the right to change the above
timetable for the Offering, including the subscription periods
for the Offer Shares. Information about any changes to the
proposed timetable of the Offering will be subject to
notification to investors and/or supplements to the Prospectus
in accordance with applicable regulations.
E.4
A description of any interest that
is material to the issue/offer
including conflicting interests.
Other than disclosed in B.6, there are no other interests
(including conflicting interests) that are material to the
Offering.
E.5
Name of the person or entity
offering to sell the security.
Lock-up agreements: the parties
involved; and indication of the
period of the lock-up.
Societatea Comercială de Distribuţie şi Furnizare a Energiei
Electrice ‘‘ELECTRICA’’ S.A.
Pursuant to the terms of the Underwriting Agreement the
Company will agree with the Managers, that during the
Lock-Up Period it will not offer, issue, sell, contract to sell,
pledge, grant options over or otherwise dispose (or publicly
announce any such issuance, offer, sale or disposal) of the
Securities, or any of the Company’s securities that are
substantially similar to the Securities, or enter into any
transaction with the same economic effect as any of the
foregoing, without the prior written consent of the Managers,
save that the Company shall not be prohibited from issuing or
allotting shares to the extent it is so obliged to do pursuant to
the applicable laws in Romania.
The Ministry of Economy (acting through the Department for
Energy) will agree with the Managers that during the Lock-Up
Period, it will not offer, sell, contract to sell, pledge, grant
options over or otherwise dispose (or publicly announce any
such issuance, offer, sale or disposal) of the Securities, or any
of the Company’s securities that are substantially similar to the
Securities, or enter into any transaction with the same
economic effect as any of the foregoing, without the prior
written consent of the Managers.
E.6
The amount and percentage of
immediate dilution resulting from
the offer.
Offer Shares will be issued pursuant to the Capital Increase.
The Offer Shares will represent 105% of the shares in issue
before the registration of Capital Increase and 51.2% of the
shares in issue following the registration of capital increase.
E.7
Estimated expenses charged to the
investor by the issuer or offeror.
Not applicable. No commissions, fees or expenses in
connection with the Offering will be charged to investors by
the Company. The Depositary will be entitled to charge certain
fees to the Holders of GDRs.
42
RISK FACTORS
An investment in the Offer Securities involves a high degree of risk. You should carefully consider the
following information about these risks, together with the information contained elsewhere in this Prospectus,
before deciding whether to invest in the Offer Securities. Any of the following risks, individually or together,
could have a material adverse effect on the Company’s business, financial condition and results of operations
and the trading price of the Offer Securities, and you could lose all or part of your investment.
The Company has described the risks and uncertainties that it believes are material, but these risks and
uncertainties may not be the only ones the Company faces. Additional risks and uncertainties, including those
about which it is currently not aware or which it deems immaterial, could have the effects set forth above.
Prospective investors should be aware that the value of the Securities and any income from them (if any) may
decrease as well as increase and that investors may not be able to realise their initial investment.
Risks relating to the Group’s Business and Industry
The Group’s supply segment will face an increase in competition for the supply of electricity as the electricity
supply market continues to be liberalised
The Group’s supply business faces increasing competition from new and existing market participants
due to the liberalisation of the Romanian electricity supply market. The Romanian regulated electricity
market for household consumers is in the process of gradual tariff liberalisation which is scheduled to
complete by 1 January 2018. Price liberalisation increases competition and it is possible that this may result
in customers switching their electricity supplier from the Group to other competitors. This switching is
known as ‘‘churn’’. Full liberalisation of the non-household retail electricity market, which occurred at the
end of 2013, has resulted in increasing churn in the Group’s industrial customer base. As a result of
increasing price liberalisation the Group’s financial performance could be adversely affected by
competition from other suppliers who may offer better terms for electricity supply to the Group’s existing
or potential consumers than those offered by the Group. Increased competition may force the Group to
lower prices or lead to a decrease in the volume of electricity supplied by it. This could have a material
adverse effect on the Group’s business, results of operations, financial condition and prospects.
The Group’s financial performance could be adversely affected by changes in tariffs set for the regulated
market
The majority of the Group’s revenues are generated from sales in its regulated distribution and supply
segments. Tariffs for electricity distribution and supply on the regulated market in Romania are set by
ANRE. The regulator may delay or refuse to approve electricity distribution and sales tariffs and the tariffs
approved by ANRE may not reach levels required to match management’s expected return on capital
expenditure. In particular, the Group may not be able to operate at the level of efficiency assumed by
ANRE. For example, opex allowances, targets of network loss and cost of debt targets could all be
insufficient to cover for actual levels of costs. In addition, capital expenditure in the Group’s distribution
segment to upgrade or extend the distribution network may not ultimately be fully recognised by ANRE as
part of the RAB. Any of these risks could prevent the Group from achieving its financial target. These
targets are set by ANRE and there can be no assurance that they will be met by the distribution
subsidiaries.
In addition, the Group may not receive approval to increase tariffs for any given regulatory period
and/or regulated tariffs may be set at a level which would prevent the Group maintaining or improving its
margins. Furthermore, the Group’s supply business is currently subject to tariff reductions which could
potentially turn out to be larger and more significant than expected. See ‘‘Operating and Financial Review—
General regulatory and legal framework and ANRE’s policies—Electricity distribution and supply tariffs—
General information—Electricity supply tariffs’’.
Any adverse change in regulated tariffs set by ANRE as well as a failure by the Group to meet
operating and financial targets set by ANRE could have a material adverse effect on the Group’s business,
results of operations, financial condition and prospects.
The Group’s supply segment could lose its status as supplier of last resort
The Group’s supply segment operator, Electrica Furnizare, supplies electricity to household
consumers who do not have access to another supplier in each of the licence regions where EDMN, EDTS
43
and EDTN operate, as a ‘‘supplier of last resort’’. The Group generates a significant portion of its revenue
from these customers.
Under new draft regulations published by ANRE, suppliers of last resort in Romania may be
re-appointed under a competitive tender. Under this tender, a supplier may be appointed over a maximum
of three supply areas for a period of four years. Consequently, there is a risk that Electrica Furnizare could
lose its status of supplier of last resort, in which event there could be a material adverse effect on the
Group’s revenues, results of operations, financial condition and prospects.
After the Offering, the State will continue to have significant influence over the Company
Immediately following the Offering, the State acting through the Department of Energy, will be the
beneficial owner of 48.8% of the Shares (or 49.9% if the stabilisation actions contained in the under
Underwiting Agreement is exercised in full). As a result, the State will be able to exercise significant
influence over matters requiring shareholder approval, such as the election of directors, business strategy,
dividend distribution and significant corporate transactions. Certain voting decisions may reflect
Government policy and complying with them could lead to significant capital expenditure to members of
the Group. There may also be significant expenditure and risks involved in complying with such decisions,
including, but not limited to, liabilities or legal claims affecting members of the Group. Certain voting
decisions of the State could be taken with the economic interests of the State being inconsistent with the
interests of shareholders who purchased shares in the Offering. As a result, differences between the
interests of the State and the other shareholders of the Company may result in conflicts and/or restrict the
Group’s ability to implement its business strategy, which could materially adversely affect the Company’s
business, results of operations, financial condition and prospects.
The Group’s financial performance could be adversely affected by changes in electricity prices and the Group
has no hedging protection in place against such event
Electrica Furnizare has exposure to the Romanian wholesale electricity price as the Group currently
purchases the entire amount of electricity it sells to its customers. Changes in the wholesale electricity price
may generate volatility to the Group’s results of operations as it is not able to adjust its sales price to
effectively match changes in the price it pays for electricity as the regulated provider of electricity is set
every six months. Furthermore, the Group has no contractual hedging protection against movements in
electricity prices.
In addition, the Group’s distribution business also has certain exposure to wholesale electricity prices
equivalent to the potential difference between the cost for covering network losses allowed by ANRE and
the actual cost for covering network losses of the Group’s distribution business at any given time. In
addition, even if the Group performs in line with the regulatory assumptions in terms of network losses, an
increase in electricity prices may lead to a delay in recovering the difference through tariffs that may lead
to additional costs for financing the Group’s working capital needs
Wholesale market prices for electricity are likely to substantially impact the Group’s future revenues,
profitability, cash flows and rate of growth and any change in wholesale electricity prices could result in a
reduction in the Group’s net income or increase in the Group’s net losses, impair the Group’s ability to
make planned capital expenditures or incur costs that are necessary for the development of its operations.
Any of these effects could materially and adversely affect the Group’s business, results of operations,
financial condition and prospects.
Accordingly, there is no assurance that the Group will be able to purchase electricity at current or
historic prices. If the price of electricity purchased by the Group varies significantly from the price at which
it sells electricity, this could materially adversely affect the Group’s business, results of operations, financial
condition and prospects.
Demand for electricity in Romania is dependent on various factors over which the Group has no control, such
as economic, political, climatic conditions
Demand for electricity is subject to a variety of factors over which the Group has no control, including
economic and political developments in Romania (and elsewhere), consumer demand (which includes a
shift towards renewable energy sources), climatic conditions and the impact of economic and political
events. A decrease in demand for electricity could result in lower revenues, in particular for the Group’s
44
supply business, which could have a material adverse effect on its business, results of operations, financial
condition and prospects.
The Group is subject to significant regulatory requirements and is required to maintain regulatory approvals;
as such it may be exposed to significant liabilities if it fails to maintain such approvals or comply with such
requirements or approvals
The Group is subject to various regulatory requirements governing the operation and maintenance of
its distribution network and operation of its electricity supply activity. Material licences, such as the Supply
Licence and Distribution Licences, and other permits held by the Group, require periodic renewal or
review and place an obligation on the Group to monitor the quality of the distribution service and
electricity supply operations, and to report its compliance with licence and permit conditions to ANRE. If
the Group is unable to comply with, and/or renew such licences or permits, or if material changes to its
licences or permits are imposed that require significant expenditure, the Group’s business could be
adversely affected. Violations of laws and regulations applicable to the Group, or breaches of any
conditions of the Group’s licences or permits, may result in fines or legal proceedings being commenced
against members of the Group or other sanctions (such as suspension and/or withdrawal of the relevant
licences).
The Group may not at all times fully comply with laws and regulations applicable to it and it is
possible that its compliance costs may exceed the amount that the Group has budgeted for in respect of its
future capital and operating expenditures. This will be particularly true if any of the laws that materially
affect the Group’s operations change or become more stringent in the future or if new laws that materially
affect the Group’s operations are adopted. The Group’s costs of complying with current and future
regulatory requirements and any loss of its material operating licences or permits could have a material
adverse effect on its business, results of operations, financial condition and prospects.
Components of the Group’s distribution network are subject to deterioration over time
Components of the Group’s distribution network are adversely impacted by continual operation and
natural processes, such as erosion and corrosion, the effects of which increase as the components grow
older. The Company may fail to adequately anticipate the level of capital expenditure required to maintain
its distribution network and incur expenditures in excess of those budgeted for. Such corrosion and erosion
may also result in an unexpected impairment of the relevant property, plant or equipment. Furthermore,
the Group may not be able to successfully implement effective inspections and maintenance practices,
including proactively repairing or replacing equipment and components before they fail. Each of these
risks could increase the likelihood of operational failure, increase capital expenditure for the Group’s
distribution business and result in a material adverse effect on the Group’s business, results of operations,
financial condition and prospects.
A strike or other labour disruption could adversely affect the Group’s business
A substantial number of the Group’s employees are represented by labour unions and covered by its
CBA. The Group’s strategy to reduce costs and improve production efficiencies in furtherance of its
strategy may include the reduction of its workforce. In the event that agreements cannot be reached with
labour unions for the method in which the workforce reduction occurs, this part of management strategy
may fail, could be impaired by strikes, threats of strikes or other resistance or work stoppages, which could
have a material adverse effect on the Group’s business, results of operations, financial condition and
prospects. In the event members of the Group are the subject of labour related litigation, this could result
in significant liabilities for the Group, which could have a material adverse effect on its results of
operations and financial condition.
The Group’s assets and/or business could be damaged by natural and man-made acts or disasters
The Group’s operations may be adversely affected by a number of natural and man-made events or
acts of terrorism, including human error, acts of theft or vandalism, adverse weather conditions,
earthquakes and other natural disasters, terrorist attacks and other phenomena of nature or force majeure
events. In addition, the Group’s distribution infrastructure will, following the implementation of the
investment programme, incorporate a complex smart grid that may suffer damage from malfunction,
cyber-attack or virus. Each of these could lead to failure of its equipment and systems and could disrupt
electricity supply to the Group’s consumers or result in personal injury or damage to property. These risks
45
could result in significant expenditures and costs of repairs, or adversely impact the Group’s reputation
leading to loss of consumers, or could otherwise have a material adverse effect on its business, results of
operations, financial condition or development prospects.
The Group’s IT systems are outdated and are not integrated
The Group’s business increasingly relies on a complex structure of different IT systems, such as the
ERP-SAP system, which have not currently been uniformly implemented for each company within the
Group. At the same time, the Group’s intranet has not been implemented in an efficient way. This may
give rise to delays in management reporting at consolidated level.
In addition, the current IT infrastructure is outdated and comprises operating systems and servers
which have passed their technical life; this may impact on the efficiency of the activity of the Group.
The Group’s IT security policies and the documentation of workflows are not up-to-date, nor are all
personnel trained to follow the instructions and policies correctly. This may expose the Group’s IT
infrastructure to security issues, which could materially adversely affect the Group’s business, results of
operations, financial condition and prospects.
The migration of the Group to a new integrated ERP system may encounter difficulties and delays
As part of the Group’s investment programme, management intends to implement a single integrated
ERP system for the Group to replace its legacy IT infrastructure. There are risks associated with such a
project that are inherent in all data migration projects (such as those arising from inadequate setup and
structuring, data corruption during migration, poor data quality in the legacy system and lack of correct
data cleansing), and from a lack of timely and effective training of relevant personnel to correctly and
efficiently use the new system.
Any failure in such integrated system or in its implementation may result in loss or corruption of
customer and operational data. Any such possible loss or corruption of such data may have a material
adverse effect on the Group’s business, results of operations, financial condition or prospects.
The Group has limited experience in financial reporting based on IFRS-EU
The Group prepares its statutory financial statements based on OMF 3055/2012 and annual financial
statements based on IFRS-EU. After the Offering, the Group will be required to prepare statutory
quarterly and annual financial statements based on IFRS-EU. The Group’s limited experience in quarterly
reporting under IFRS-EU, means that it may be difficult for the Group’s subsidiaries to adapt to a change
to such reporting, given the large volume of adjustments, processing and consolidation of data in a short
period of time. As a result, the Group may face difficulties to report timely financial information on a
quarterly basis. In addition, the Group has identified a need to recruit additional employees with IFRS
expertise and, to address this issue, the Group is actively seeking to recruit additional personnel with IFRS
expertise by the end of 2014. Although the shortage of employees with IFRS expertise will not be fully
remedied by the time of admission to the BSE and the Official List, the Company does not believe that the
shortage will result in inaccuracies or delays in the financial or other information which it is required to
publish as a company with securities admitted to the BSE and the Official List.
The Group’s distribution segment subsidiaries may be operating under concessions agreements which have not
entered into force
Under the energy law in force at the time the distribution companies EDMN, EDTN and EDTS
entered into concession agreements for the operation of their distribution networks, these agreements
were required to be published by the Ministry of Economy and Trade, as concedent, in the Official Gazette
in order for them to be effective. However, none of these concession agreements were published in the
Official Gazette. To the Company’s knowledge, similar concession agreements of its competitors were also
not published in the Official Gazette. Therefore there is a risk that the concession agreements concluded
by EDTS, EDMN and EDTN with the Ministry of Economy and Trade are not effective. Until these
concession agreements are published in the Official Gazette, EDTS, EDMN and EDTN may not be
considered electricity distribution operators for the purposes of computing the electricity distribution
service tariff approved by ANRE and this could result in ANRE being unable or unwilling to compute and
approve distribution tariffs for EDTS, EDMN and EDTN. The Company has received no indication from
ANRE that this will occur. However, in the event that ANRE is unable or unwilling to compute and
46
approve distribution tariffs for the Group’s distribution segment, this will have a material adverse effect on
the Group’s business, results of operations, financial condition or prospects until such time as this
publication is made.
A minority shareholder in the Group’s distribution and supply segment subsidiaries (EDMN, EDTN, EDTS
and Electrica Furnizare) may be entitled to require Electrica to sell a portion of its shares in such companies
on the BSE
Romanian law provides that various entities charged with privatisation tasks have the obligation to
commence initial or secondary public offerings for equity stakes of at least 5% in State owned enterprises
including EDMN, EDTN, EDTS and Electrica Furnizare, with a view to having the shares of such entities
listed on the BSE. The law requires the procedures for admission to trading to be finalised by
31 December 2014. Fondul Proprietatea currently holds minority interests in each of EDMN, EDTN,
EDTS and Electrica Furnizare. As a result Fondul Proprietatea may be entitled to require that secondary
public offers, comprising at least 5% of Electrica’s interests in each of EDMN, EDTN, EDTS and
Electrica Furnizare be undertaken and their shares listed on the BSE following the closing of the Offering
and before the end of 2014. Such listing will entail a reduction in Electrica’s interests in such companies,
resulting in a corresponding reduction in dividend payments distributed to it from these entities. In
addition, a public offer will require significant management time and expense to execute and maintain and
will significantly increase compliance costs within the Group. As a result, all these could adversely affect
the Group’s business and results of operations.
The Group may face risks associated with restitution claims with regard to certain real estate properties
Between 1945 -1989, during the communist era, the State nationalised large quantities of real estate
(including land and buildings). Real estate was transferred to the administration of various State owned
companies for civil or economic purposes. After December 1989, the issue of real estate restitution arose
and based on several restitution legal enactments, the ownership right over the real estate expropriated
during the Communist era was reinstated in favour of the former owners or their successors. In
circumstances where such reinstatement was not possible, fair compensation for such owners or successors
was to be provided. Under Romanian law, restitution claims are not time barred and may be filed with the
relevant court by any third party who can justify an interest over a particular land plot. There is therefore a
general risk of such claims being filed with the competent courts in respect of the lands owned by the
Group. Since Romania is a civil law jurisdiction and is not generally based on a precedents system, case law
on restitution issues is unpredictable. If the Group is subject to significant restitution claims, this could
have a material adverse effect on the Group’s business, results of operations, financial condition or
prospects.
Ownership title over certain real estate properties owned by members of the Group may be deemed uncertain
Members of the Group derive their ownership title over certain real estate assets as successors to
CONEL, a predecessor entity of the Company. Ownership over these land plots is evidenced by ownership
certificates issued pursuant to Law no. 15/1990 and GD no. 834/1991. Such ownership certificates were
issued by the public institution involved at the time in the Group’s business (including, for example, the
Ministry of Economy and Commerce) following review of the relevant documentation by an appointed
commission. The commission is obliged to consider the legal regime of the titles over the land plots in
question (including, but not limited to, all relevant laws, orders, decisions, agreement, approvals), as well
as the plans and schedules thereof, to determine, inter alia, the extent of the land plots to coordinate the
cadastral measurements, and to review the issue of ownership certificates.
Ownership certificates can be challenged and voided if it can be proved that either the entity seeking
the issuance of an ownership certificate in its name did not require the land for which the ownership
certificate was issued in order to perform its activity or the commission establishes that the entity did not
undertake all necessary verifications and obtain all mandatory documents and/or approvals before the
issuance of the ownership certificate in question. Therefore, in addition to the risk of restitution claims
being filed, there is also a risk for actions being initiated for the annulment of such certificates.
Furthermore, the surface areas and the boundaries of property registered with the land registry are
not always accurately recorded or cross-checked against those of other registered properties. This makes
title to property vulnerable to claims with respect to the extent of their boundaries.
47
Given the complexity of the development of the energy market in Romania and the number of the
restructurings of State-owned companies involved, the specific circumstance relating to the ownership
rights acquired under Law no. 15/1990 and GD no. 834/1991 and the generally complex issue of real estate
ownership rights in Romania, there can be no assurance that the ownership rights of the members of the
Group over certain real estate or constructions will not be successfully challenged in the future. In the
event that a material number of ownership certificates owned by the Group are subsequently challenged,
this could have a material and adverse effect on the operations, financial condition and prospects of the
Group.
Electrica Furnizare may be prohibited from suspending or interrupting the supply of electricity to certain of the
Group’s customers, even if such customers are in payment default
Under Romanian law, certain electricity consumers, such as hospitals, rescue stations, schools,
retirement homes, or air, naval and railroad traffic services are deemed of special importance, and cannot
be disconnected by an electricity supplier. As a result, electricity must be provided to them by Electrica
Furnizare even if they are in payment default, such as the case of CFR, which is a significant customer of
the Group’s supply business.
In addition, pursuant to the Insolvency Law, electricity suppliers cannot suspend or interrupt the
supply of electricity to a consumer that qualifies as a ‘‘captive consumer’’. A ‘‘captive consumer’’ is defined
as a consumer which is unable to choose its energy supplier due to technical, commercial or regulatory
conditions. This could lead to the Group’s supply subsidiary not being able to disconnect large power
consumers which are undergoing insolvency proceedings and which have considerable overdue amounts in
respect of electricity consumed subsequent to entering into the insolvency proceedings. There are currently
proposals to amend the Insolvency Law and permit electricity suppliers to suspend the supply of electricity
in circumstances where a consumer does not pay the value of the electricity consumed, for more than
90 days following commencement of insolvency proceedings. However, these proposals, if ratified, will not
apply to insolvency proceedings initiated prior to its entering into force. In the event that this law reform is
not passed and significant members of the Group’s supply consumers default on payments for electricity
supply this could have a material adverse effect on the Group’s business, results of operations, financial
condition or prospects.
Failure to execute Management’s business strategy may lead to cost savings and revenue forecasts being lower
than predicted for the Group
The Company believes that its strategy and investment projects will lead to operational cost savings
and additional revenues. The Group has made detailed plans in order to seek to ensure the successful
implementation of its strategy and investment programme. Successful implementation of the investment
programme and, in particular the creation of the Shared Service Centre, will require a significant amount
of management time and this may affect or impact the ability of management to run the Group’s business
effectively during the implementation period. Implementation of the proposed investment projects may be
complex. There is a risk that the expected synergies of: the Shared Services Centre, and the projected
operational cost savings and additional revenues from the installation of smart meters and smart grid
network infrastructure (such as SCADA systems) or the refurbishment of the Group’s existing distribution
network, will not be realised, or may be lower than have been estimated.
The Group’s reputation, future prospects or results of operations may be materially adversely affected by claims
or litigation
Members of the Group are party to material litigation. See ‘‘Legal Proceedings’’. Any litigation carries
an inherent risk of an adverse outcome. Any successful investigation or claim could have a material
adverse effect on the Group’s reputation, future prospects, financial condition or results of operations. In
addition, even if the Group is successful in defending any such claim, claims of this nature could have a
negative impact on customer confidence in its products and on the Group itself. Also, the Group may face
a risk related to potential employment and tax litigations arising from the fact that part of the employees
obtained in court upgraded salary classes.
Historically, the Group’s level of litigation claims has not been material either individually or in
aggregate and management currently has no reason to believe that the situation will change. However, if
there was a significant increase in the number or materiality of claims for which there was no insurance
48
cover, the future prospects, financial condition or results of operations of the Group could be adversely
affected.
Failure to observe public procurement legislation by members of the Group may lead to fines and voided
contracts
Because the distribution of electricity through an electricity distribution network is deemed to be
sectorial activity in Romania, electricity distribution companies are considered to be contracting
authorities and are required to observe applicable public procurement rules provided by EGO no. 34/2006
on the awarding of public procurement contracts, public works concession agreements and services
concession agreements. The same rule is applicable to the incumbent suppliers of electricity. Public
procurement procedures are mandatory where a contracting authority acquires works, equipment or
services. Any failure by the Group to observe applicable public procurement rules could lead to the Group
being subject to various fines from the competent authorities and the risk that the agreements concluded
without the observance of the public procurement rules be cancelled by the court. In the event that any of
these fines or the cancelled agreements are significant, this could have a material adverse effect on the
Group’s business, results of operations, financial condition or prospects.
The Group may be subject to insurance claims for which it has not adequately made provision
The Group is substantially self-insured. The business pursued by the Group also carries a number of
risks which are not covered by the insurance policies held by the Group. Insurance claims frequently take
many years to crystallise and therefore where self insurance is used, management have to estimate
provisions in respect of historic claims for the purposes of self-insurance. To the extent that these estimates
are inaccurate, the Group does not hold appropriate levels of insurance for its operations, or the Group
does not have coverage for certain risks at all. The Group may be under-provisioned for in respect of
claims, which could, in the event of claims, result in a material adverse effect on the Group’s results of
operations and cash flows and adversely affect the prospects or financial condition of its business.
The Capital Increase may be annulled and/or the Offering may be cancelled
Under Romanian law, resolutions passed by GMS of a joint-stock company can be challenged by
interested third parties such as creditors, trade unions or employees. In addition, a public offer of shares,
such as the Offering, may be annulled if the conditions for the approval of the Prospectus are not complied
with or if the FSA decision approving the relevant prospectus is annulled in court.
As a result, if the resolution issued by the EGMS of Electrica approving the Capital Increase or any
subsequent acts or deeds (including, without limitation, the Company’s board decision acknowledging the
Successful Closing of the Offering) or the resolution issued by the Company’s EGMS approving the
issuance of GDRs are determined to be void, or if the Offering is annulled, the Offer Securities issued in
the Offering would be cancelled and a holder of such cancelled Offer Securities is entitled to be refunded
the subscription price by the Company. If the owner of the cancelled Offer Securities acquired them on a
market transaction at a price higher than the subscription price, such holder will incur a loss equivalent to
the difference between the Shares’ subscription price and the purchase price of the Offer Securities.
Any delay of the Trade Registry to approve and register the Capital Increase before the Closing Date
will lead to a corresponding delay of the Offer Securities being granted to the investors and admitted to
trading. In addition, if a court orders the suspension of the resolution of Electrica’s EGMS approving the
Capital Increase or any subsequent decisions, as a result of a potential annulment request, whether or not
the annulment is successful, the period of time in which the Offer Securities will not be received by the
investor and admitted to trading will likely become extended.
Share capital increases resulting from State land contributions may result in the State holding more than 50%
of Electrica’s shares
Under Romanian privatisation legislation, the share capital of the Company shall be automatically
increased by operation of law with the value of the relevant plots of land for which the Company obtains
the relevant ownership certificates after the Offering or, for which it obtained the certificates before the
Offering, but for which it did not increase its share capital. The Company has submitted documentation
with the Ministry of Economy for the issue of ownership certificates for real estate that is currently used by
the Group or the Company’s privatised subsidiaries and the issuance of the ownership certificates is
49
pending. Also, these entities use lands for which ownership certificates have been obtained by the
Company, but the correspondent share capital increase in the Company has not been performed.
Such capital increases will be deemed as in-kind contributions of the State, and newly issued shares in
the Company will be allotted to the State, represented by the Ministry of Economy, acting through the
Department of Energy. The rest of the shareholders in Electrica will have a preference right to purchase a
number of shares that would allow them to maintain their initial shareholding quota. However, if such
shareholders do not exercise their preference rights, they will be diluted and if the value of the real estate
contributed in kind is large enough, the State might increase its stake in the Company to over 50%, thereby
returning to majority control. In this event differences between the interests of the Government as
representative of the State and the other shareholders of the Company may result in conflicts and/or
restrict the Group’s ability to implement its business strategy, which could materially adversely affect the
Company’s business, results of operations, financial condition and prospects.
Members of the Group may not have valid legal title for the lands on which the network or the network
infrastructure they operate is located
The ownership by EDMN, EDTN and EDTS of the electric grid infrastructure is generally not
evidenced by documentation. Based on the Energy Law, real estate on which such infrastructure is located
is owned by the State, unless held otherwise, and, therefore, it cannot be assumed that EDMN, EDTN or
EDTS are the owners of the constructions located thereon. Consequently there is a risk that EDMN,
EDTN or EDTS do not have a valid title over all real estate where the distribution network is located or
over the infrastructure pertaining to the electricity grid. In case third parties challenge such title and, if
such challenge is successful, this may negatively impact the business of the Group’s distribution companies.
Share capital increases in the Company from in-kind contributions of real estate may be voided
Romanian law generally requires share capital increases from in-kind contribution of real estate to be
made based on an authenticated resolution of a GMS or additional act to the articles of association. There
is a risk that this requirement applies even in the case where the share capital increase is performed based
on the legal obligation of State-owned companies to increase their share capital with the value of plots of
land for which ownership certificates are obtained. Most share capital increases of this nature of the Group
companies did not comply with the requirement for an authenticated document. Therefore there is a risk
that a substantial number of such share capital increases could be challenged and declared null and void.
Any shares issued through the share capital increases that are declared null and void would be
subsequently annulled and the share capital reduced accordingly. At the same time, as consequence of the
privatisation, the share capital of the respective Group companies would be increased by operation of law
with the updated value of the real estate for which ownership certificates have been issued. The value of
the share capital increase in favour of the State would be re-assessed in accordance with the legislation,
depending on the indexed value of the real estate and the rest of the Company’s shareholders would have a
preference right to purchase a number of supplementary shares that would allow them to maintain their
shareholding quota.
If the revaluation is materially different from the original value, the consequent increase in the value
of the State’s holding in Electrica may be sufficient to result in the State’s holding becoming in excess of
50%. In this event differences between the interests of the State and the other shareholders of the
Company may result in conflicts and/or restrict the Group’s ability to implement its business strategy,
which could materially adversely affect the Company’s business, results of operations, financial condition
and prospects.
Fondul Proprietatea, a minority shareholder of the distribution and supply subsidiaries of the Group, may seek
to block decision making
Fondul Proprietatea is a minority shareholder of the Group’s distribution and supply subsidiaries,
holding 22% in each of such companies, which entitles it to challenge decisions passed by the GMS of each
of these subsidiaries and request the suspension of the enforcement of such decisions, subject to the
payment of a security, if decided by the court. As an example, Fondul Proprietatea has recently challenged
the decision of the GMS of each of the distribution and supply subsidiaries to approve the Unitary
Corporate Governance Strategy of the Group, as well as the EDMN board decision appointing the current
general manager of EDMN.
50
If challenges by Fondul Proprietatea are successful, this may lead to important decisions of EDMN,
EDTN, EDTS and Electrica Furnizare being annulled, as well as the Company being potentially liable for
payment of damages, which may have a material adverse effect on the Group’s business or financial
condition.
Failure by the State to amend the law restricting share acquisitions by Electrica will restrict the Group’s
strategy
According to EGO no. 88/1997 regarding the privatisation of companies, a Romanian entity in which
the State or a local public administrative authority holds more than 33% of the total voting shares in the
GMS may not act as a purchaser of shares in other companies. Although the law is unclear, it can be
construed that this restriction applies to the acquisition of shares not only in a privatisation process, but
also outside such process. The restriction shall continue to be applicable to Electrica after the Successful
Closing of the Offering, considering that the State shall continue to hold 48.8% of Electrica’s share capital
(or 49.9% stabilisation actions contained in the Underwriting Agreement are exercised in full).
Consequently, the provisions of EGO no. 88/1997 could impede the Group’s business development
strategy by acquiring shares in other entities.
The Group’s position in electricity distribution and supply markets may expose it to claims relating to abuse of
dominant position
The Group’s distribution operators are natural monopolies in their respective markets and as such,
they enjoy a dominant position. Also, the Group’s distribution operators have a legal monopoly in their
relevant regions and hence, other entities cannot set up a competing electricity distribution business. In
addition, the Group’s supply operations enjoy a dominant position on the electricity supply market, due to
it being a supplier of last resort. Therefore, the Group is subject to competition rules prohibiting abuse of
dominant position. Failure to fulfil the obligations resulting from its dominant position so as to prevent
committing an abuse of dominant position by any of the relevant members of the Group may result in
sanctions, which could have a material adverse effect on their business, results of operations, financial
condition or development prospects.
Provisions contained in certain financing agreements to which members of the Group are party may restrict
their operations
The Group’s financing contracts contain provisions that might limit the ability of the Group to finance
its future operations and cash requirements, as well as its capacity to develop certain important
commercial activities. For example, financing agreements concluded by the Company and certain of its
subsidiaries with ING contain negative pledge provisions, pursuant to which the relevant borrower
undertakes not to create, extend or supplement any guarantee in favour of any party other than ING
without the latter’s written consent. If the Company or the relevant subsidiary defaults under any of these
loans and is unable to remedy the default or obtain a default exemption from creditors, the Company or
the relevant subsidiary may be held liable for failure to fulfil its contractual obligations. Failure by
members of the Group to meet obligations under any of these loan agreements may result in a default
under other financing contracts to which members of the Group are party, which may result in creditors
under those agreements to accelerate the maturity of all the debts due under them.
The Group may be exposed to liabilities in respect of State Aid
The European Commission has launched investigation no. SA.33451 (2012/C) (ex 2012/NN)
concerning a possible breach of State Aid rules by Electrica in relation to two bilateral power purchase
contracts with Hidroelectrica that were concluded in 2010. Should this investigation conclude that
Electrica received illegal State Aid under these contracts, an amount shall be recoverable against Electrica,
together with the applicable interest. Management estimates that such amount may be up to approximately
RON 30 million, plus the recovery rate.
In addition, the Company has granted a loan in the amount of RON 60 million to Electrica Serv. This
loan was converted into Electrica Serv shares in March 2014. Taking into consideration that Electrica is a
State-owned company and that no private investor test has been done in relation to this conversion, State
Aid implications may arise. If the European Commission deems that such conversion qualifies as illegal
State Aid, this may trigger the reimbursement by Electrica Serv of the amount determined to be illegal
State Aid, along with payment of the recovery interest rate.
51
Any significant liability for members of the Group to repay amounts due in respect of illegal State Aid
would have a material adverse impact on the Group’s financial condition or results of operations.
The Company may face additional claims from tax authorities for budgetary debts due for previous periods
In the first quarter of 2014, ANAF performed a tax audit of the Company for the period 1 January
2008 to 30 April 2013 and 1 January 2007 to 31 December 2012 in case of profit tax. as a result of this
investigation, ANAF preliminarily established supplementary tax liabilities totalling approximately RON
11.2 million, out of which approximately RON 9.3 million represents tax on income obtained from
Romania by non-resident legal persons and the remainder of RON 1.9 million representing additional
profit tax and related VAT computed by the fiscal authorities by reconsideration of deductible expenses, as
well from a correction of an accounting registration by the Company. In addition, EDMN is undergoing a
tax audit which commenced on 28 February 2014 in respect of tax years 2008 to 2013. Tax audits are
frequent in Romania, and consist of detailed verifications of the accounting records of tax payers, as well as
the tax treatment applied by them for various operations. Such audits sometimes may take place months or
years after the relevant tax year in question, generally within the statutes of limitation for the relevant tax
duty. Moreover, tax legislation is subject to frequent changes and the authorities demonstrate
inconsistency in interpretation of the law. Income tax returns may also be subject to revision and
corrections by tax authorities. Consequently, members of the Group may be found liable for significant
taxes and fines in respect of historic tax liabilities and imposition of such taxes and fines may have an
adverse effect on the Group’s financial condition.
Risks relating to the Reorganisation
Liquidation and insolvency of the Group’s service subsidiaries and the Spin-off may result in residual legal
liability for the Company
Under Romanian law the Company is jointly liable with SAPE for payment of receivables due by
SAPE up to the value of the net assets allocated to it as part of the Spin-off.
As part of the Reorganisation, SEB, SEMO and SED are in liquidation proceedings and SEO entered
insolvency proceedings. As a general rule under Romanian law, shareholders remain liable for a company’s
debts or liabilities but only up to the value of their contributions to the subscribed share capital. However,
in the context of liquidation, shareholders may be liable for additional amounts in limited circumstances.
These are when the shareholder, by fraud caused to creditors, abuses the limited liability and the distinct
legal personality of its liquidated subsidiary, when the assets remaining in the liquidated subsidiary
deregistered from the Trade Registry are entrusted to the shareholders, when the shareholders are liable
up to the value of the assets remaining in the liquidated subsidiary for covering the debts or when the
liquidator makes payments to the shareholders before all the liquidated subsidiary’s creditors are paid off.
Furthermore, shareholders may be held liable if it is provided that they benefited by an unjust
enrichment as a result of the liquidation. In addition, any person who is alleged to have suffered prejudice
due to a reference in the Trade Registry has the right to request the removal of such reference. As a result,
the liquidated subsidiary may recover its legal personality and its creditors could claim recovery against it.
As regards liquidation, specific rules on residual liability in case of environmental obligations exist
such that where an operator has caused environmental damage or an imminent threat which can produce
such damage as part of a consortium or a multinational company, such operator is jointly liable with the
respective consortium or company. Although the law is not clear, it could be construed as being applicable
in the case of a liquidation of a subsidiary of a parent company such as Electrica and trigger joint liability
for the parent with its subsidiary in the event the latter has breached environmental obligations.
Finally, tax authorities may hold shareholders liable for the taxes due by the insolvent company. As a
result, the Company may have residual liability for the liquidation of SEB, SED, SEMO and the insolvency
of SEO as part of the Reorganisation.
As regards insolvency, during the course of insolvency proceedings the judge may order that part of
the liabilities of the company be borne by the members of the company’s management bodies
(e.g. directors), as well as by any other person who caused the company to become insolvent (such as the
shareholders i.e. the Company) as a result of certain specific actions provided by law (e.g. ordering, in their
personal interest, the continuation of an activity that was obviously leading the company to financial
default, using the assets or credits of the company for their own benefit or for the benefit of another
person, etc.).
52
In the event that any liability of the Company arising from the Spin-off and its liquidation or
insolvency of its service subsidiaries is significant this could have a material adverse effect on the results of
operations, financial condition and prospects of the Group.
The Spin-off may be challenged by third parties or may be unenforceable against ENEL, EON and CEZ
The Spin-off was approved by the Bucharest Tribunal on 10 April 2014 and subsequently successfully
registered in the Trade Registry, becoming effective on 7 May 2014. Under the Companies Law, the
Spin-off can be challenged as null and void only if the decision of the shareholders approving the Spin-off
is challenged within six months from the date of effectiveness of the Spin-off. In addition, the court
approval of the Spin-off can be challenged with appeal by third parties within 30 days as of the date when
such parties became aware of such decision, but not later than one year as of the date when the decision
was issued, i.e. until 10 April 2015. If the Spin-off is annulled, the State will resume a stake of more than
50% in Electrica. As a result, differences between the interests of the State and the other shareholders of
the Company may result in conflicts and/or restrict the Group’s ability to implement its business strategy,
which could materially adversely affect the Company’s business, results of operations, financial condition
and prospects.
In addition, approvals from ENEL, EON and CEZ were necessary for the transfer of the privatisation
agreements through the Spin-off, which were not obtained. This may lead to such transfer through Spin-off
to SAPE being unenforceable against ENEL, EON and CEZ and Electrica remaining liable for the
obligations under such agreements and to potential claims from such entities from the Spin-off within
six months after registration of the Spin-off (until 7 November 2014), which could lead the potential
cancellation of the share capital decrease under the Spin-off, followed by the State increasing its
shareholding in the Company to over 50%.
Risks relating to Romania
Investing in developing markets, including Romania, entails certain risks, which may be greater than risks
inherent in more developed markets
An investment in a country such as Romania is subject to greater risks than an investment in a country
with a more developed economy and more developed political and legal systems. Romania joined the EU
in 2007, but is still an emerging market. Although progress has been made in reforming Romania’s
economy and political and legal systems, the development of Romania’s legal infrastructure and regulatory
framework is still ongoing. An investment in Romania therefore carries risks that are not typically
associated with investing in more mature markets. Investors should therefore exercise particular care in
evaluating the risks involved and must decide for themselves whether, in light of those risks, an investment
in a Romanian company controlled by the State is appropriate. Generally, investments in developing
countries, such as Romania, are only suitable for sophisticated investors who can fully appreciate the
significance and consequences of the risks involved.
Furthermore, international investors’ reactions to events occurring in one country sometimes
demonstrate a ‘‘contagion’’ effect, in which an entire region or class of investment is disfavoured by
international investors. Accordingly, negative economic or financial developments in other countries could
adversely affect investment in the Company. In addition, conditions resulting from any crises similar to the
Russian annexation of Crimea, the global financial and economic crisis that started in 2008, the ongoing
European sovereign debt crisis or the recent political turmoil in Europe, the Middle East and Africa may
also negatively affect the economic performance of, or investor confidence in, developing markets,
including Romania.
The value of investments in Romania, including the value of the Offer Securities, could be adversely affected by
political and economic uncertainty
Romania has undergone major changes during its recent history and, whilst several political and
economic reforms have taken place, Romania’s economy still has a number of structural weaknesses.
There were repeated street protests in Bucharest and in other important Romanian cities in January 2012
in light of the austerity measures taken by the Romanian Government in 2010 and 2011 to counter the
effects of the global financial and economic crisis.
Since the beginning of 2012, there have been three changes of government in Romania. Since May
2012, the Social Liberal Union (‘‘USL’’) supported Governments led by Prime Minister Victor Ponta have
53
governed Romania. During the summer of 2012, a conflict arose between the President, Traian Băsescu,
and the Government regarding Romania’s representative at a European Council summit. The tensions
culminated in the impeachment of President Băsescu by the Romanian Parliament on 6 July 2012, which
was subject to a popular referendum, the results of which were subsequently declared invalid due to a
failure to attain the legal quorum. President Băsescu resumed his functions on 28 August 2012.
Parliamentary elections took place on 9 December 2012 and USL won the majority of seats in the
Parliament and designated a Government lead by Victor Ponta. The Ponta Government has the support of
a strong USL majority of over 67% in the Romanian Parliament.
Internal struggles within USL began to surface in February 2014 and the National Liberal Party, the
second leading party in the USL, began to distance itself from the ruling coalition. The political tension
inside USL further escalated, when the Social Democratic Party and the two minority parties of USL, the
Conservative Party and the National Union for the Progress of Romania (Uniunea Naţională pentru
Progresul Romaniei), agreed to participate together in the 2014 euro-parliamentary elections as the newlyestablished USD, finally the National Liberal Party deciding to abandon USL and withdraw its ministers
from the Government in March 2014, a Government supported by the USD and UDMR (the ethnic
Hungarian party) and led by Prime Minister Victor Ponta was elected by the Parliament.
Since September 2013, Bucharest and other larger Romanian cities have been faced with repeated
street protests against the Ponta Government and, in particular, regarding its support of the potential gold
mining project in Roşia Montană, which it had promised before its election in 2012 would cease, as well as
various projects to drill for shale gas within the country.
The new government may not continue implementing the former Government policy of addressing
structural weaknesses in the Romanian economy. Even if such policy continues to be implemented,
increased social pressures or a decline in political support in light of ongoing adjustment and fiscal
consolidation measures that the Romanian authorities have undertaken in connection with financing
agreements with the IMF and the EC may make further reforms difficult. Political differences may also
arise between the constituent parties, which may result in further domestic political turmoil and social
disruption.
Legal uncertainty as to the State entities involved in the privatisation of the Company may delay the closing of
the Offering
On May 5 2014, EGO no. 20/2014 that created the Privatization and Administration of the State
Ownership Department (‘‘PASOD’’) was published in the Romanian Official Gazette (‘‘EGO 20/2014’’).
The PASOD is established as a public institution with legal capacity under the Ministry of Economy, that
determines privatisation strategies and policies, through the reorganisation of the Office of State
Ownership and Privatization in Industry. The rights and attributions in the privatisation field will be taken
over by PASOD upon the entering into force of a GD which is supposed to approve the organisation,
functioning and number of positions for PASOD, while EGO 20/2014 provides for a 45 days term for the
passing of such government decision. No specific reference is made in EGO 20/2014 to the Department of
Energy, which is currently the public institution involved in the privatisation of Electrica. As a result, there
may be uncertainty with respect to whether the Department of Energy is still in charge of the privatisation
of the Company and any confusion on this issue may cause delays in the completion of the Offering and
uncertainty as to the powers and capacity of the Department of Energy as public institution involved in the
privatisation.
Political instability in Ukraine could materially and adversely affect the Group
Recent events in eastern Ukraine, including the annexation of Crimea by Russia and continued
political and social instability in eastern Ukraine, may escalate to military conflict. Romania has a
significant land border with Ukraine and as a result, ongoing instability or any occurrence of military
conflict in Ukraine could have a significant and adverse effect on Romania’s economic and financial
stability either directly or indirectly as a result of sanctions or restrictions in gas exports from Russia. The
Group’s revenues are obtained solely from operations in Romania and are significantly influenced by the
Romanian economy. As a result, the Group business, financial condition, results of operations and
prospects may be significantly and adversely affected by any deterioration in the political and social
environment in Ukraine.
54
Certain global events may indirectly affect the outlook for Romania and adversely affect the Group
From mid-2007 and continuing into 2009, the global economy experienced a significant downturn, the
effects of which are ongoing. Governments in the United States, Europe and elsewhere have implemented
(and continue to implement) significant economic stimulus packages in response to this global financial
crisis. These have included, amongst other things, the recapitalisation of banks through state purchases of
common and preferred equity securities, state guarantees, certain forms of bank debt and distressed assets
from banks and other financial institutions, as well as the purchase of sovereign debt by central banks, and
the provision of guarantees of distressed assets held by banks and other financial institutions by the state.
Notwithstanding these actions, the volatility and market disruption in the global banking and other
economic sectors have continued to a degree unprecedented in recent history.
Like many other countries, Romania has recently experienced some contraction in its economy and
other adverse economic and financial effects as a result of the global financial crisis, including a correction
in the real estate sector and limited access to international capital markets, followed by a moderate
resumption of growth starting in 2011. For example, gross domestic product (‘‘GDP’’) declined by 1.1%. in
2010 as compared to 2009 and 6.6% in 2009 as compared to 2008, before increasing by 2.3% in 2011 as
compared to 2010, by 0.6% in 2012 as compared to 2011 and by 3.5% in the first months of 2013 compared
to 2012. Due to these and other pressures resulting from the global economic crisis, Romania recorded
(cash) budget deficits of 6.4% and 4.3% of GDP in 2010 and 2011, 2.5% of GDP as at 31 December 2012
and 2.5% of GDP as at 31 December 2013, respectively.
In 2010, high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy,
Portugal and Spain, which created concerns about the ability of these states to continue to service their
sovereign debt obligations, triggered a sovereign financial crisis in Europe. These concerns impacted
financial markets and resulted in high and volatile bond yields on the sovereign debt of many EU nations.
There have been various national and supra-national responses to these concerns, including the creation of
a joint EU-IMF European Financial Stability Facility in May 2010, assistance packages to Greece, Ireland
and Portugal, and plans to expand financial assistance to Greece; although notwithstanding these,
uncertainty over the outcome of the EU governments’ financial support programmes and worries about
sovereign finances persisted and, despite increased purchases of sovereign bonds by the European Central
Bank and measures taken by other central banks to enhance global liquidity, ultimately concerns spread
from ‘‘peripheral’’ to ‘‘core’’ EU member states during the latter part of 2011. In December 2011,
European leaders agreed to implement steps (and continue to meet regularly to review, amend and
supplement such steps) to encourage greater long term fiscal responsibility on the part of the individual
member states and bolster market confidence in the euro and European sovereign debt. Since then, the
financial support for stressed nations and financial institutions has continued, with a further offer of
bail-out funds to Greece in the amount of A130 billion in February 2012, a A10 billion support package,
financed by the IMF and the European Stability Mechanism (ESM), and a support package of A41.4 billion
to Spain. As a member state outside of the Eurozone, Romania does not have access to any support
package funds from the European Financial Stability Facility (ESFS) or the ESM, although it was offered
rescue loans of A18.6 billion and A5 billion from the EU’s Balance of Payments Programme and the IMF in
May 2009 and May 2011 respectively. In September 2013, Romania was offered rescue loans totalling
rescue (standby) loans of c. A4 billion by the IMF and the EU. To date Romania has avoided the need to
draw on its third loan.
Investors should ensure that that they have sufficient knowledge and awareness of the global financial
crisis, the Eurozone crisis and the economic situation and outlook in Romania as they consider necessary
to enable them to make their own evaluation of the risks and merits of an investment in the Securities. In
particular, investors should take into account the current uncertainty as to how the global financial crisis,
the Eurozone crisis and the wider economic situation will develop over time and how they will affect the
Romanian economy.
The Group’s ability to conduct business and its financial condition, results of operations and prospects could
be adversely affected by corruption and money laundering
Whilst Romania has passed important money laundering legislation needed to fully transpose the
provisions of Directive 2005/60/EC of the European Parliament and Council of 26 October 2005 on the
prevention of the use of the financial system for the purpose of money laundering and terrorist financing
and of Commission Directive 2006/70/EC of 1 August 2006 regarding politically exposed persons,
independent analysts and media reports have identified corruption and money laundering as problems in
55
Romania. In 2013’s Transparency International’s Corruption Perceptions Index, which evaluated data on
corruption in countries throughout the world and ranked countries from 1 (least corrupt) to 177 (most
corrupt), Romania was ranked 69th.
In its twelfth report under the Cooperation and Verification Mechanism (‘‘CVM’’) with Romania,
published on 30 January 2013, the European Commission noted in particular the advances made by the
National Anti-corruption Directorate, Public Ministry and High Court of Cassation and Justice against
high-level corruption and the progress of the National Agency for Integrity (‘‘ANI’’). The EC did, however,
stress the need to accelerate progress on its recommendations concerning integrity, the fight against
corruption at all levels of Romanian society, the prosecution of money laundering and confiscation and the
prevention and sanctioning of corruption relating to public procurement. In the 2014 CVM Report, the EC
recognised that Romania made progress in many areas since the previous CVM reports but noted that the
history of the CVM although advances in one area can be constrained or negated by the setbacks.
Nevertheless, it also noted progress in judicial reform and the fight against corruption. The final section of
the 2014 CVM Report contains 18 recommendations under four themes: (i) judicial independence;
(ii) judicial reform; (iii) integrity and (iv) the fight against corruption.
The Romanian economy may be adversely affected by any future allegations or evidence of corruption
or money laundering in Romania, which in turn could materially adversely affect the Company’s ability to
attract foreign investment and thereby negatively affect the Company’s business, financial condition,
results of operations and prospects.
Furthermore, the Company or its current or former officers could be accused of or found guilty of
corruption or corruption related offences, either of which could have a material nagative impact on the
Company’s business, financial condition, results of operations and prospects. By way of example, according
to information in the media, the National Anticorruption Department of Romania has recently
commenced an investigation of alleged bribery in relation to the privatisation of certain state nuclear assets
involving certain representatives of the institutions that were involved in the privatisation of the Company.
Romania can be subject to high levels of volatility in exchange rate and inflation which may adversely affect the
Group
The RON is subject to a managed-floating exchange rate regime, whereby the value of the RON
against foreign currencies is determined in the interbank foreign exchange market. The NBR’s monetary
policy strategy is inflation targeting. The managed-floating exchange rate regime is in line with using
inflation targets as a nominal anchor for monetary policy and allowing for a flexible policy response to
unpredicted shocks likely to affect the economy; the NBR does not target any level or range for the
exchange rate. The ability of the NBR to limit volatility of the RON is contingent on a number of
economic and political factors, including the availability of foreign currency reserves and foreign direct
investment inflows, as well as developments in market sentiment and investors’ risk aversion in the wake of
the global economic crisis. In December 2009, against the same period of the previous year, the RON
depreciated on average against the euro by 6.1% in nominal terms while against the US dollar the RON
depreciated by 3.6% in nominal terms. During 2010, the RON depreciated against the euro by 1.4% in
nominal terms, while against the US dollar, it depreciated by 9.0% in nominal terms. In 2011, the RON
depreciated against the euro by 1.2% in nominal terms, and depreciated against the US dollar by 4.2%, in
nominal terms. In December 2012 as compared to December 2011, the RON depreciated in nominal terms
by 2.5% against the euro and by 0.5% against the US dollar. In December 2013, compared to December
2012 the RON depreciated against the euro by 2.5% in nominal terms, while compared to US dollar it
appreciated by 0.5% in nominal terms.
Any further deterioration of global economic prospects may lead to further depreciation of the RON,
which in turn could adversely affect the country’s economic and financial condition. Any higher than
expected inflation could lead to a temporary reduction in customer purchasing power and erosion of
customer confidence, which may have a material adverse effect on the Company’s business, financial
condition and results of operations.
Romania may face difficulties related to its post-accession process to the European Union
Romania joined the EU in January 2007, and is subject to certain post-accession benchmarks imposed
by the EU under the Mechanism for Cooperation and Verification to help Romania address certain
shortcomings in various social fields, such as judicial reform, respect for the rule of law, independence of
the judiciary and fight against corruption. On 30 January 2013, the EC presented a report welcoming
56
recent steps taken by Romania as regards restoration of the rule of law and independence of the judiciary,
but explained that much remained to be done to fully implement its recommendations. If Romania fails to
adequately address these benchmarks, the EU is entitled to apply certain sanctions against Romania,
including the suspension of EU member states’ obligation to recognise and enforce, under the conditions
laid down in the EU laws, the decisions of Romanian courts. The application of any of the sanctions
referenced above could have a negative effect on the Romanian economy and investor confidence in the
Romanian economic environment, which could lead to material adverse consequences on the Company’s
business, financial conditions or results of operations in Romania.
Romania’s infrastructure is in poor condition, which could disrupt normal business activity and in turn the
Group’s business, result of operations and prospects
Infrastructure in Romania, particularly the transportation system, is underdeveloped as compared to
Western Europe. Romania currently has plans to undertake various development projects to improve
infrastructure in the country. Various financing plans have been proposed and attempted to further this
infrastructure development, including the use of public-private partnerships. Romania also funds
infrastructure development using EU funds, and in November 2011, the Government approved a list of
100 infrastructure investment projects to be financed with EU funds. However, there can be no assurances
that infrastructure projects will be financed or constructed successfully or that continued poor Romanian
physical infrastructure would not disrupt normal business activity of the Company.
The Romanian legal system and Romanian legislation continue to develop, which may create an uncertain
environment for investment and for business activity
The uncertainties relating to the Romanian legal and judicial system could have a negative effect on
the economy and thus create an uncertain environment for investment and for business activity. Compared
to more mature jurisdictions, the court system is underfunded. Romania is a civil law jurisdiction and
judicial decisions under Romanian law generally have no precedential effect and courts are generally not
bound by earlier court decisions taken under the same or similar circumstances, which can result in the
inconsistent application of Romanian legislation to resolve the same or similar disputes. Though, the role
of judicial decisions as guidelines in interpreting applicable Romanian legislation to the public at large is
generally limited, all decisions of the High Court of Cassation and Justice are now available on-line and
judges and clerks are increasingly given access to court decisions from all other courts of the country, which
may improve uniformity of decision making. Still, whilst the Romanian judicial system has gone through
several reforms to modernise and strengthen the independence of the judiciary, these reforms do not go
far enough to effectively tackle the problem of non-unified jurisprudence. Nonetheless, the new civil and
criminal procedure codes introduce a new mechanism for unifying jurisprudence, effective measures to
achieve the envisaged results are ongoing. Similarly, the uniform application of law is hindered by the
quality (particularly clarity and transparency) and stability of the legal framework. Inconsistent
interpretation and application of the law is also reflected in the public (e.g., fiscal) administration, but
steps for improving this problem are being taken, including issuance by the competent institutions of
decisions for the unitary interpretation and application of the relevant legal provisions.
The credibility of the system may be put at risk by issues raised with respect to the integrity of public
servants and officials, as well as by high level corruption cases. Measures to mitigate such risks, such as the
ex-ante verification of conflicts of interest in the awarding process of public procurement contracts, or
implemented (such as improvements in court practice in terms of indictments and convictions of powerful
political, magistrates and public figures). New criminal codes that criminalise attempts in certain
circumstances to pressure the judiciary and, generally, introduce institutions influencing the fight against
corruption are also expected to address this problem. The uncertainties pertaining to the Romanian legal
and judicial system could have a negative effect on the economy and in turn on the Group’s business,
results of operations, financial condition and prospects.
The Romanian taxation system is subject to change and may issue inconsistent interpretations of tax legislation
The legal and fiscal framework within Romania is changing on a continuous basis. The Romanian
government has implemented certain austerity measures and tight budgetary controls, resulting both in the
imposition of tax increases, the introduction of new taxes and the broadening of tax base and in certain
fiscal relieves. There can be no assurance that these austerity measures will not be continued or increased
or that new taxes would not be imposed in the future, should the budgetary objectives be missed. For
example, as of 1 January 2014 the EGO no. 102/2013 entered into effect introducing the special
57
constructions tax which is a property tax imposed, inter alia, on electricity poles, grids and power
transformer stations. Under this ordinance, legal entities subject to its provisions, including members of
the Group, must pay a yearly tax of 1.5% of the value of the constructions owned by them. It is not clear
whether this tax is a pass-through cost in the distribution tariff or not for the distribution subsidiaries and
this issue depends on the willingness of ANRE and Ministry of Finance to confirm this. Hence, this may
have a material adverse effect on their financial condition and results of operation of the Group.
Additionally, as per the privatisation legislation the Ministry of Economy through the Department of
Energy had the obligation to request the issuance of a budgetary debt certificate from the tax authorities in
view of privatisation. This certificate has not been requested nor issued and hence, there is a risk of
uncertainty about the amount of any outstanding budgetary debts as at the date of the Prospectus.
Furthermore, whilst the relevant legislation is being harmonised with EU legislation, there are still
inconsistent interpretations of the tax legislation. For example, under certain circumstances, tax authorities
tend to be form-driven and may apply a different treatment to particular matters which would trigger the
calculation of late payment interest (of 0.03% per day of delay of the tax obligation) and delay penalties (of
0.02% per day of delay of the tax obligation). Late payment interest and delay penalties qualify as
non-deductible tax expenditure and their imposition on members of the Group will have an adverse impact
on the Company’s consolidated profit and cash flow.
Risks relating to the Offer and the Offer Securities
The Company is a holding company with limited operations and relies on its operating subsidiaries to provide
it with funds necessary to meet its financial obligations and to pay dividends on the Offer Securities
The Company is a holding company with no material direct operations. The Company’s principal
assets are the equity interests that the Company holds directly or indirectly in its subsidiaries and which
own the Group’s operating assets. As a result, the Company will be dependent on, among other things,
dividends and other payments from its subsidiaries to generate the funds necessary to meet its financial
obligations and to pay dividends on the Offer Securities. The Company’s subsidiaries are legally distinct
from the Company and may be prohibited or restricted from paying dividends or otherwise making funds
available to the Company under certain conditions. If the Company is unable to obtain funds from its
subsidiaries, the Company is unlikely to be able to pay dividends on the Offer Securities.
There is currently no trading market for the Offer Securities
There has been no trading market for the Offer Securities prior to the Offering and there is no
assurance that a trading market for the Offer Securities will develop or be sustained after the Offering, or
that the price at which the Offer Securities will trade in the public markets subsequent to the Offering will
not be lower than the Final Offer Price. There is no obligation on the Managers to create a market in the
Offer Securities, and to the extent they do undertake any market-making activity, these activities may be
terminated at any time without notice. Investors may experience difficulty in selling the Offer Securities if
no trading market develops for the Offer Securities.
The Securities may be subject to price volatility
The share or GDR price of listed companies can be highly volatile and their shares and GDRs may
have limited liquidity, and shares traded on the BSE are less liquid and more volatile than shares traded on
major markets. An active trading market for the Offer Securities may not develop and the trading price for
the Offer Securities may fluctuate significantly. Investors may be unable to recover their original
investment.
As well as being affected by the Company’s actual or forecast operating results, the market price of
the Offer Securities may also fluctuate significantly as a result of factors beyond the Company’s control,
including, among others:
• changes in research analysts’ recommendations or estimates of earnings or financial performance of
the Company or the industry, or the failure to meet expectations of research analysts;
• fluctuations in stock market prices and volumes, and general market volatility;
• changes in laws, rules and regulations applicable to the Group, its operations and the operations in
which members of the Group have interests, and involvement in litigation; and
• general economic and political conditions, including in Romania.
58
Other factors, such as the general economic, political or regulatory outlook, movements in or the
outlook for interest rates and inflation rates, currency fluctuations, commodity prices, changes in investor
sentiment towards particular market sectors and the demand for and supply of capital may affect equity
market conditions. Trading in the Offer Securities by other investors, such as large purchases or sales of
Offer Securities, may also affect the price of the Offer Securities. Accordingly, the market price of the
Offer Securities may not reflect the underlying value of the Company’s investments and the price at which
investors may dispose of their Offer Securities at any point in time may be influenced by a number of
factors, only some of which may pertain to the Group while others may be outside the Group’s control.
Investors should not expect that they will necessarily be able to realise, within a period that they would
regard as reasonable, their investment in the Offer Securities. The trading price of the Offer Securities may
be adversely affected if the Company’s consolidated results and prospects from time to time are below the
expectations of market analysts and investors.
The prevailing trading price of the Offer Securities could be adversely affected by future sales, or the real or
perceived possibility of sales, of a significant number of the Securities in the public market
Following the expiry of the applicable Lock-Up Period, or earlier in the event of a waiver of the
provisions of the lock-up, the Company’s shareholder, who would be otherwise subject to the lock-up, may
sell Shares either in the form of Shares or GDRs in the public or private market, and the Company may
undertake a public or private offering of Shares either in the form of Shares or GDRs. The availability of
Shares either in the form of Shares or GDRs that are eligible for public sale could adversely affect the
trading price of the Offer Securities.
The market price of the Offer Securities could be adversely affected if the Company’s existing
shareholder was to sell, or the Company were to issue and sell, a substantial number of Shares either in the
form of Shares or GDRs in the public market. Sales by the Company’s existing shareholder could also
make it more difficult for the Company to sell Shares either in the form of Shares or GDRs in the future at
a time and price that it deems appropriate. Such parties may effect transactions upon the expiry of the
applicable Lock-Up Period or any earlier waiver of the provisions of the lock-up. The sale of a significant
amount of Shares either in the form of Shares or GDRs in the public market, or the perception that such
sales may occur, could materially affect the market price of the Offer Securities.
The Offer Securities may not be transferred freely especially in the United States or other countries
The Offer Securities have not been registered under the Securities Act or any United States state
securities laws. Accordingly, the Offer Securities may not be offered or sold except pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and
applicable United States state securities laws. See ‘‘Selling and Transfer Restrictions’’. Investors must ensure
that their offers and sales of the Offer Securities within the United States and other countries comply with
any applicable securities laws.
Holders of the Offer Securities in certain jurisdictions (including the United States) may not be able to exercise
their pre-emptive rights and ownership interests may therefore be diluted
In order to raise funding in the future, the Company may issue additional Shares either in the form of
Shares or GDRs. Whilst existing holders of ordinary shares in Romanian companies are in certain
circumstances entitled to pre-emptive rights on the issue of new ordinary shares in that company as
described in ‘‘Description of Share Capital and Corporate Structure’’, holders of the Offer Securities in
certain jurisdictions (including the United States) may not be able to exercise pre-emptive rights with
respect to any new equity issuances by the Company unless the applicable securities law requirements in
such jurisdiction (including, in the United States, in some circumstances the filing of a registration
statement under the Securities Act) are adhered to or an exemption from such requirements is available.
The Company is unlikely to adhere to such requirements and an exemption may not be available.
Accordingly, such holders may not be able to exercise their pre-emptive rights on future issuances of the
Offer Securities, and, as a result, their percentage ownership interests in the Company would be reduced.
Inability to admit the Securities to trading on the Bucharest Stock Exchange and London Stock Exchange, as
applicable
The admission of the Shares to trading on the Regulated Spot Market of the Bucharest Stock
Exchange requires that the Bucharest Stock Exchange approve the trading thereon. Similarly, the
59
admission of the GDRs to listing and trading on the Official List and London Stock Exchange,
respectively, requires the approval of the FCA and the London Stock Exchange. Admission of the Shares
to trading on the Regulated Spot Market of the Bucharest Stock Exchange, admission to listing of the
GDRs to the Official List and admission to trading of the GDRs on the London Stock Exchange, are
subject to certain requirements. Whilst the Company intends to take all necessary steps to ensure that the
Shares are admitted to trading on the Regulated Spot Market of the Bucharest Stock Exchange as soon as
possible after the closing of the Offering and that the GDRs are admitted to listing on the Official List and
to trading on the London Stock Exchange, there can be no assurance that, should such admission
conditions change, all such listing and/or trading conditions will be met, in which case the Shares may not
be admitted to trading on the Regulated Spot Market of the Bucharest Stock Exchange or the GDRs may
not be admitted to listing on the Official List or to trading on the London Stock Exchange, in each case on
the estimated date or at all.
Suspension of trading in the Shares
The Romanian FSA is authorised to suspend from trading or, where the Shares are intended to be
traded, to request the regulated market to suspend these from trading if the situation of the relevant issuer
is such that the continuation of trading would affect the investors’ interests. The Romanian FSA is
authorised to request the BSE to suspend the trading of securities of an issuer, based on the measures
taken against market manipulation and transactions carried out based on inside information. The BSE
must suspend trading in securities that do not meet the requirements of the regulated market, unless such
action could materially adversely affect the investors’ interests or the proper functioning of the market. If
the BSE does not take such action, the Romanian FSA may request the suspension of trading in securities
if this serves the proper functioning of the market and does not affect the investors’ interests. The operator
of a regulated market is also entitled to suspend from trading shares in other circumstances, in accordance
with its regulations. Any suspension could affect the trading terms of the Shares.
If the trading of the Shares is suspended, this could also affect the trading of the GDRs. According to
Romanian legislation governing GDRs, after the trading of the Shares is suspended, the Romanian FSA
must notify the suspension, the causes and the duration of the suspension to the supervisory authority of
the regulated market where the GDRs are traded. If the duration of the suspension is not known, the
Romanian FSA must notify the relevant supervisory authority that the suspension has been lifted. The
operator of the regulated market where the suspended Shares are traded must make a similar notification
to the operator of the regulated market where the GDRs are traded.
Investors may not be able to enforce judgments obtained in US courts against the Company
The Company is incorporated under Romanian law, the majority of the Company’s directors and
executive officers are non-residents of the United States and the Company’s assets, directors and officers
are located outside of the United States. As a result, investors in the Securities may be unable to effect
service of process on the Company or on these non-US resident directors and officers in the United States,
and may be unable to enforce judgments against them obtained in the United States. A foreign court may
not accept jurisdiction and impose civil liability if proceedings were commenced in a foreign jurisdiction
predicated solely upon US federal securities laws.
Exchange rate fluctuations may impair the return on the investment in the Shares
The Shares will be traded on the Bucharest Stock Exchange in RON. Investors will therefore be
subject to fluctuations in the exchange rate and may be unable to recover their original investment. In
addition, the NBR may also impose certain restrictions and requirements with respect to foreign currency
operations carried out in Romania.
The Company may not pay dividends in the future, and foreign shareholders and holders of the GDRs may also
be subject to limitations or delays in repatriating their earnings from distributions made on the underlying
Shares
The payment of dividends, if any, by the Company to its shareholders and holders of the GDRs will
depend on (in addition to applicable regulatory requirements), among other things, the Company’s future
profits, financial position and capital requirements, the sufficiency of the Company’s distributable reserves,
credit terms, general economic conditions and other factors that the Directors and/or shareholders deem
60
to be important from time to time. The price of the Securities may be adversely affected if the Company or
its shareholders decide against declaring dividends in the future.
The Company anticipates that any dividends that it may pay in the future in respect of the Shares held
by its shareholders or by the Depositary or its nominee on behalf of GDR holders will be declared and
paid in RON, and in the case of the GDRs will be paid to the Depositary and will be converted into US
dollars by the Depositary and distributed to holders of the GDRs, net of all fees, taxes, duties, charges, cost
and expenses which may become or have become payable under the Deposit Agreement (as defined
below) or under applicable law in respect of such GDRs. Accordingly, the value of dividends received by
foreign shareholders would be subject to fluctuations in the exchange rate. Similarly, the value of dividends
received by holders of the GDRs will be subject to fluctuations in the exchange rate between the RON and
the US dollar, which could have an adverse effect on the price of the Offer Securities.
Furthermore, even though current Romanian legislation permits distributions in RON to be converted
into US dollars by the Depositary without restriction, the ability to convert RON into US dollars is subject
to the availability of US dollars in Romanian currency markets. Whilst there is an existing, albeit limited,
market within Romania for the conversion of RON into US dollars, including the interbank currency
exchange and over-the-counter and currency futures markets, further development of this market is
uncertain. The NBR could also impose certain restrictions and requirements with respect to foreign
currency operations carried out in Romania.
In addition, dividends that the Company may distribute to the GDR Depositary will be subject to
applicable Romanian withholding taxes. See ‘‘Taxation’’.
Following the Offering, holders of Shares may not be able to deposit the Shares in the Company’s GDR facility
in order to receive GDRs, and changes in Romanian regulatory policy with respect to the placement and
circulation of the Shares outside Romania in the form of GDRs or otherwise may negatively affect the market
for the Securities being offered
Whenever the Depositary believes that the Shares deposited with it against issuance of GDRs
represent (or, upon accepting any additional shares for deposit, would represent) a percentage exceeding
any limit established by any applicable law, directive, regulation or permit, or trigger any condition for the
making of any filing, application, notification or registration, or for obtaining any approval, licence or
permit under any applicable law, directive or regulation, or for taking any other action, the Depositary may
(i) close its books to deposits of additional Shares to prevent such thresholds or limits being exceeded or
conditions being satisfied, or (ii) take such steps as are, in its opinion, necessary or desirable to remedy the
consequences of such thresholds or limits being exceeded or conditions being satisfied and to comply with
any such law, directive or regulation, including, without limitation, causing pro rata cancellation of GDRs
and withdrawal of the Shares from the Company’s GDR facility to the extent necessary or desirable to so
comply.
Romanian securities regulations provide that no more than two thirds of the number of shares
comprising any initial public offering of a Romanian company may be circulated in the form of GDRs. The
Romanian FSA may grant exemptions from this rule, depending on the issuer’s share capital and the
number of shares subject to the public offering, in order to ensure that the minimum necessary conditions
are met for the admission to trading on a Romanian regulated market. There can be no assurance that the
Company will be able to obtain approval from the Romanian FSA for a deposit of a greater number of the
Shares with the Depositary under the Company’s GDR facility than it currently has approval for and any
remaining capacity may be used by its other existing shareholders. Once these thresholds have been
reached, the Company may therefore not be able to deposit the Shares with the GDR Depositary under
the Company’s GDR facility to receive GDRs and under certain circumstances an investor may be
required to withdraw Shares from the Company’s GDR facility, which may in either case affect the
liquidity and the value of the Offer Securities.
Furthermore, the statutory and Romanian FSA regulations relating to the GDRs are very new and not
entirely clear in a number of respects, including the extent to which existing permissions are grandfathered
following changes in regulations and the applicability of domestic offering requirements and limits on the
percentage of shares that can be sold in the form of GDRs pursuant to follow-on offerings. Any adverse
interpretation and/or application of these regulations may further limit the ability to deposit the Shares
into the Company’s GDR facility.
61
These restrictions have been recently enacted and may be subject to changes at any time in the future
by the Romanian regulatory authorities, which may adversely affect the legality and/or size of the
Company’s GDR facility and in turn the price of the Offer Securities.
Voting rights with respect to the Shares represented by the GDRs are subject to procedural steps and practical
limitations imposed by the terms of the Deposit Agreement and the relevant requirements of Romanian law
The holders of the GDRs will have no direct voting rights with respect to the Shares represented by
the GDRs. They will be able to exercise voting rights with respect to the Shares represented by the GDRs
only in accordance with the provisions of the terms and conditions of the GDRs (the ‘‘GDR Terms and
Conditions’’) and the relevant requirements of Romanian law. See ‘‘Terms and Conditions of the Global
Depositary Receipts’’. There are, therefore, practical limitations upon the ability of the holders of the GDRs
to exercise their voting rights due to the additional procedural steps involved in communicating with them.
To exercise their voting rights, the holders of the GDRs must instruct the Depositary how to vote with
respect to the Shares represented by the GDRs they hold. Because of this additional procedural step
involving the GDR Depositary, the process for exercising voting rights may take longer for holders of the
GDRs than for holders of the Shares, and the Company cannot assure the holders of the GDRs that they
will receive voting materials in time to enable them to return voting instructions to the Depositary in a
timely manner. The Depositary will not vote on GDRs if it does not receive timely complete, legible and
clear voting instructions.
Furthermore, whilst Romanian securities regulations expressly permit the Depositary to split the votes
with respect to the Shares underlying the GDRs in accordance with instructions from GDR holders, the
relevant regulations are very recently enacted and there is no court or regulatory guidance on the
application of such regulations. The holders of the GDRs may therefore have significant difficulty in
exercising voting rights with respect to the Shares underlying the GDRs. There can be no assurance that
holders and beneficial holders of GDRs will (i) receive notice of shareholders’ meetings to enable the
timely return of voting instructions to the Depositary, (ii) receive notice to enable the timely cancellation
of GDRs with respect to shareholder actions (as discussed below) or (iii) be given the benefit of dissenting
or minority shareholders’ rights with respect to an event or action in which the holder or beneficial owner
has voted against, abstained from voting or not given voting instructions. The Depositary is only required
to execute the voting instructions of the holders of GDRs insofar as practicable and as permitted under
applicable law. In practice, holders of GDRs may not be able to instruct the Depositary to: (i) vote the
Shares represented by their GDRs on a cumulative basis, (ii) introduce proposals for the agenda of
shareholders’ meetings or request that a shareholders’ meeting be called or (iii) nominate candidates for
the board of directors (the ‘‘Board of Directors’’ or ‘‘Board’’) or certain other of the Company’s
governance bodies. If holders of GDRs wish to take such actions, they should request in a timely manner
that their GDRs be cancelled and instead take delivery of the Shares and thus become the holders of the
Shares on the Company’s share register.
The rights of minority shareholders may be limited under Romanian law
The rights of minority shareholders, as well as other matters affecting such rights, may be different in
Romania from those elsewhere, and an investor’s ability to exercise such rights may be limited.
62
THE OFFERING
The Company . . . . . . . . . . . . . . . . . .
Societatea Comercială de Distribuţie şi Furnizare a Energiei
Electrice ‘‘ELECTRICA’’ S.A.
The Offering . . . . . . . . . . . . . . . . . .
The Offering comprises an offering by the Company of up to
177.188.744 Offer Shares in the form of Shares and/or Offer
GDRs.
The Offering is structured as an offering of Offer Securities:
(1) in Romania to the public; (2) in the United States in private
placements to certain QIBs in reliance on Rule 144A under the
Securities Act or another exemption from the registration
requirements of the Securities Act; and (3) outside the United
States and Romania in offshore transactions in private
placements in reliance on Regulation S.
Joint Global Coordinators and Joint
Bookrunners . . . . . . . . . . . . . . . . .
Citigroup Global Markets Limited, Raiffeisen Bank S.A. and
Société Générale Corporate and Investment Banking.
Manager . . . . . . . . . . . . . . . . . . . . .
BRD-Groupe Société Générale S.A.
Distribution Agent . . . . . . . . . . . . . .
SSIF Swiss Capital S.A.
Managers . . . . . . . . . . . . . . . . . . . . .
Citigroup Global Markets Limited, Raiffeisen Bank S.A.,
Société Générale, BRD-Groupe Société Générale S.A. and
SSIF Swiss Capital S.A.
Offer Tranches . . . . . . . . . . . . . . . . .
The Offering is split into three Offer Tranches as follows:
(1) 7% of the Offer Shares (12,403,212 Shares (in the form of
Offer Shares)) will be initially offered to Small Retail
Investors in Romania;
(2) 8% of the Offer Securities (14,175,100 Shares (in the form
of Offer Shares and/or Offer GDRs)) will be initially
offered to Large Retail Investors in Romania; and
(3) 85% of the Offer Securities (150,610,432 Shares (in the
form of Offer Shares and/or Offer GDRs)) will be initially
offered to Institutional Investors.
On the Allocation Date, the Company shall re-allocate 5% of
the total Offer Shares from the Institutional Investors Tranche
to the Small Retail Tranche and/or Large Retail Tranche in case
the Small Retail Tranche and the Large Retail Tranche have a
subscription level (percentage of subscription of the initial
tranche size) higher than the Institutional Investors Tranche.
The Company may decide following consultation with the Joint
Global Coordinators on an additional re-allocation of Offer
Shares from the Institutional Investors Tranche to the Small
Retail Tranche and the Large Retail Tranche on the Allocation
Date.
The final size of each Offer Tranche will be decided by the
Company upon the recommendation of the Joint Global
Coordinators and Joint Bookrunners, based on the level of
subscriptions, on the Allocation Date. See ‘‘—Allocation of the
Offer Securities’’ below.
The final number of Shares underlying the Offer GDRs that will
be issued and allocated to investors within the Offering will not
exceed 2⁄3 of the total number of Offer Shares.
63
The GDRs . . . . . . . . . . . . . . . . . . . .
Each GDR will represent four Offer Shares on deposit with the
Custodian, as custodian for the Depositary. The GDRs will be
issued by the Depositary pursuant to the Deposit Agreement to
be entered into between the Company and the Depositary on or
around the Closing Date. The Rule 144A GDRs will be
evidenced initially by the Rule 144A Master GDR and the
Regulation S GDRs will be evidenced initially by the
Regulation S Master GDR and each such Master GDR will be
issued pursuant to the Deposit Agreement. See ‘‘Settlement and
Transfer’’.
Following the Offering, pursuant to the Deposit Agreement, the
Offer Shares represented by the GDRs will be held by the
Custodian, for the account of the Depositary and for the benefit
of the holders and beneficial holders of the GDRs.
From time to time the Depositary may deduct per-GDR fees
and other fees, charges and expenses as well as taxes and
governmental charges from dividend distributions and may
otherwise assess other per-GDR fees and other fees, charges
and expenses to the GDR holders. See ‘‘Terms and Conditions of
the Global Depositary Receipts—Depositary’s Fees, Costs and
Expenses’’.
Except in the limited circumstances described herein, definitive
GDR certificates will not be issued to holders in exchange for
interests in the GDRs represented by the Master GDRs. Subject
to the terms of the Deposit Agreement, interests in the
Regulation S Master GDR may be exchanged for interests in the
corresponding number of GDRs represented by the Rule 144A
Master GDR, and vice versa. See ‘‘Terms and Conditions of the
Global Depositary Receipts’’.
Depositary . . . . . . . . . . . . . . . . . . . .
The Bank of New York Mellon.
Custodian . . . . . . . . . . . . . . . . . . . . .
Raiffeisen Bank S.A.
Offer Period . . . . . . . . . . . . . . . . . . .
8 business days, from 16.06.2014 to 25.06.2014.
Allocation Date . . . . . . . . . . . . . . . .
The first business day following the expiry of the Offer Period,
i.e. 26 June 2014.
Transaction Date . . . . . . . . . . . . . . .
The first Business Day following the expiry of the Offer Period,
i.e. 26 June 2014
Settlement Date . . . . . . . . . . . . . . . .
1 July 2014.
Closing Date . . . . . . . . . . . . . . . . . .
3 July 2014. The timetable above may be subject to change.
Certain events provided therein are beyond the control of the
Company. The Company, in agreement with the Joint Global
Coordinators and Joint Bookruners, reserves the right to change
the above timetable for the Offering, including the subscription
periods for the Offer Shares. Information about any changes to
the proposed timetable of the Offering will be subject to
notification to investors and/or supplements to the Prospectus in
accordance with applicable regulations.
Successful Closing . . . . . . . . . . . . . . .
The Offering will be considered successful if, at close of business
on the last day of the Offer Period, at least 100% of the Offer
Securities have been validly subscribed for. If this condition is
not satisfied, the Company may, in its discretion, reject all
subscriptions made pursuant to the Offering.
64
Offer Price Range . . . . . . . . . . . . . .
RON 11 to 13.50 per Offer Share.
US$13.55 to 16.63 per Offer GDR.
Small and Large Retail Investors must subscribe for Offer
Shares at the fixed price of RON 13.50 per Offer Share and
Large Retail Investors can also subscribe for Offer GDRs at the
fixed price of USD 16.63 per Offer GDR (i.e. in each case, at
the top of the Offer Price Range).
Institutional Investors may validly subscribe for Offer Securities
at any price within the Offer Price Range (including the bottom
and the top of the price range). The price tick for the
subscription by Institutional Investors is of RON 0.05 for Offer
Shares and of USD 0.01 for Offer GDRs, respectively.
Final Offer Price . . . . . . . . . . . . . . .
The Final Offer Price shall be determined on the Allocation
Date. See ‘‘Subscription and Sale’’.
Intermediation method . . . . . . . . . . .
Best efforts.
Distribution Group . . . . . . . . . . . . . .
Raiffeisen Bank S.A., BRD- Groupe Société Générale and Swiss
Capital.
Listing and Trading . . . . . . . . . . . . . .
Application will be made: (1) to the Bucharest Stock Exchange
for an admission of the Shares to trading on the Regulated Spot
Market of the Bucharest Stock Exchange; and (2) (i) to the
FCA, in its capacity as competent authority under the FSMA,
for an admission to listing of the GDRs on the Official List and
(ii) to the London Stock Exchange, for an admission to trading
of the GDRs on the London Stock Exchange’s main market for
listed securities. The Bucharest Stock Exchange and the London
Stock Exchange are both regulated markets in the EEA for the
purposes of the Directive on Markets in Financial Instruments.
Admission of the Offer GDRs to the Official List and their
unconditional trading on the London Stock Exchange through
its IOB is expected to take place on or around the Closing Date,
which will take place following the FCA’s receipt of notification
from the Romanian FSA.
Prior to the Offering, there has been no public market for the
Offer Securities.
The security identification numbers and trading symbols of the
Securities are expected to be as follows:
Shares ISIN: ROELECACNOR5
Bucharest Stock Exchange Share trading symbol: EL
Regulation S GDR ISIN: US8336742072
Regulation S GDR Common Code: 107810803
Regulation S GDR CUSIP: 83367Y 207
Regulation S GDR SEDOL: BN80132
Rule 144A GDR ISIN: US83367Y1082
Rule 144A GDR Common Code: 107811192
Rule 144A GDR CUSIP: 83367Y 108
Rule 144A GDR SEDOL: BN80121
London Stock Exchange GDR trading symbol: ELSA
65
Settlement and Transfer . . . . . . . . . .
Payment for the Offer Shares is expected to be made in RON
through the facilities of RoClear (the Romanian ClearingSettlement, Custody, Depository and Registration System),
which is administered by the Central Depositary. See ‘‘Settlement
and Transfer’’. Transfers of Offer Shares within the Offering and
secondary market sales of Offer Shares will be settled and
cleared through the settlement system managed by the Central
Depositary, in accordance with applicable Romanian
regulations.
Payment for the Offer GDRs is expected to be made in US
dollars in same-day funds through the facilities of DTC,
Euroclear and Clearstream, Luxembourg on the Closing Date.
On the Settlement Date, the Depositary shall issue the Offer
GDRs and Citigroup Global Markets Limited shall prefund, on
behalf of the Managers, an amount in US dollars representing
the subscription monies for them to an account held by it in the
name of Electrica. On the date of delivery of the Offer GDRs to
investors who subscribe for, and have been allocated, Offer
GDRs, Citigroup Global Markets Limited shall effect settlement
of the Offer GDRs on a delivery versus payment basis to
investors who have subscribed for, and been allotted, Offer
GDRs. The Company has applied to DTC to have the
Rule 144A GDRs accepted for clearing and settlement through
DTC and to Euroclear and Clearstream, Luxembourg to have
the Regulation S GDRs accepted for clearing and settlement
through the systems of Euroclear and Clearstream,
Luxembourg. Upon acceptance by DTC, a single Rule 144A
Master GDR will be issued and deposited with The Bank of
New York Mellon in New York as custodian for DTC and
registered in the name of Cede & Co., as nominee for DTC. The
Regulation S Master GDR will be registered in the name of The
Bank of New York Depository (Nominees) Limited, as nominee
for The Bank of New York Mellon, London Branch, as common
depositary for Euroclear and Clearstream, Luxembourg. Except
in limited circumstances described herein, investors may hold
beneficial interests in the GDRs evidenced by the corresponding
Master GDRs only through DTC, Euroclear or Clearstream,
Luxembourg, as applicable. Transfers within DTC, Euroclear
and Clearstream, Luxembourg will be in accordance with the
usual rules and operating procedures of the relevant system. See
‘‘Settlement and Transfer’’.
Stabilising Managers . . . . . . . . . . . . .
Citigroup Global Markets Limited and Raiffeisen Bank S.A.
Stabilisation . . . . . . . . . . . . . . . . . . .
In connection with the Offering the Stabilising Managers have
the right to acquire Offer Securities on the BSE and or the
London Stock Exchange pertaining to not more than 2.75% of
the Company’s share capital by retaining the Stabilisation
Proceeds in order to stabilise the price of the Offer Securities at
a level higher than that which may otherwise prevail if
stabilisation actions were not taken. It is anticipated that under
the Underwiting Agreement, the acquisition of the Offer
Securities as part of stabilising transactions by the Stabilising
Managers will be subject to the applicable provisions of the
Stabilisation Regulation. The purchase transactions related to
the Offer Securities may be effected during the period not
longer than the Stabilisation Period at a price not higher than
the Final Offer Price. The Stabilising Managers will not,
however, be required to take any of the above stabilisation
66
actions. If such actions are taken by the Stabilising Managers,
they may be discontinued at any time, however, not later than
before the end of the Stabilisation Period. At the end of the
Stabilisation Period the Stabilising Manager(s) will return to the
Company any Offer Securities which have been purchased in the
market as a result of stabilisation activities free and clear of all
encumbrances and/or any remaining portion of the Stabilisation
Proceeds which was not used for the stabilisation activities, as
well as any interest that has accumulated for the amounts
corresponding to the Stabilisation Proceeds.
Lock-Up . . . . . . . . . . . . . . . . . . . . .
The Company will agree with the Managers, that during the
Lock-Up Period, it will not offer, issue, sell, contract to sell,
pledge, grant options over or otherwise dispose (or publicly
announce any such issuance, offer, sale or disposal) of the
Shares, or any of the Company’s securities that are substantially
similar to the Offer Securities, or enter into any transaction with
the same economic effect as any of the foregoing, without the
prior written consent of the Managers, save that the Company
shall not be prohibited from issuing or allotting shares to the
extent it is so obliged to do pursuant to the applicable laws in
Romania.
The Ministry of Economy (acting through the Department of
Energy) will agree with the Managers, that during the Lock-Up
Period, it will not offer, sell, contract to sell, pledge, grant
options over or otherwise dispose (or publicly announce any
such issuance, offer, sale or disposal) of the Shares, or any of the
Company’s securities that are substantially similar to the Offer
Securities, or enter into any transaction with the same economic
effect as any of the foregoing, without the prior written consent
of the Managers.
Use of Proceeds . . . . . . . . . . . . . . . .
The Company will receive all the proceeds from the subscription
of the Offer Securities less the proceeds used for stabilisation,
and intends to use such proceeds from the Offering for the
purposes described in ‘‘Use of Proceeds’’.
The total commissions, fees and expenses payable by the
Company in connection with the Offering are expected to be
between approximately RON 67 million and RON 80 million.
Taxation . . . . . . . . . . . . . . . . . . . . . .
For a discussion of certain United States, United Kingdom and
Romanian tax consequences of purchasing and holding the
Securities, see ‘‘Taxation’’.
Dividend Policy . . . . . . . . . . . . . . . .
Under the current legislation and in accordance with the
Articles of Incorporation, each fully paid Share gives its owner
the right to receive dividends. Dividends are distributed to the
shareholders on a pro-rata basis proportionately to their
participation in the paid-up share capital of the Company. The
Company expects to pay dividends, if at all, in RON. To the
extent that the Company declares and pays dividends, holders of
GDRs on the relevant record date will be entitled to receive
dividends payable in respect of Offer Shares underlying the
GDRs, subject to the terms of the Deposit Agreement.
Management will distribute dividends on the basis of the
Company’s annual financial statements which starting with 2014
will be prepared in accordance with IFRS-EU.
67
Management’s intention is to distribute dividends, based on a
guidance of approximately 85% of consolidated profit
attributable to shareholders of Electrica.
See ‘‘Dividend Policy’’ and ‘‘Description of Share Capital and
Corporate Structure’’.
Voting Rights . . . . . . . . . . . . . . . . . .
Each Offer Share carries one vote for the purposes of
shareholder meetings. Each GDR carries the right to exercise
the voting rights of the relevant underlying Shares, subject to the
provisions of the Deposit Agreement and Romanian law. The
Deposit Agreement will contain arrangements allowing holders
of GDRs to instruct the GDR Depositary how to vote the
underlying Shares in accordance with Romanian law. See ‘‘Terms
and Conditions of the Global Depositary Receipts’’ and
‘‘Description of Share Capital and Corporate Structure’’.
Selling and Transfer Restrictions . . . .
The Offer Securities will be freely transferable, subject to certain
restrictions as described under ‘‘Selling and Transfer
Restrictions’’.
Risk Factors . . . . . . . . . . . . . . . . . . .
Investors should consider carefully certain risks discussed under
‘‘Risk Factors’’.
68
USE OF PROCEEDS
The Company will receive all the proceeds from the subscription of the Offer Securities, less the
Stabilisation Proceeds and will use them to implement its investment programme, which comprises:
• refurbishment of the Group’s existing network infrastructure;
• network development to connect new consumers;
• investment in smart metering systems; and
• consolidation of the Group’s support functions including HR, finance, procurement, support and IT
in a single Shared Service Centre.
In addition the Company may also use the proceeds from the subscription of the Offer Securities for
acquisition opportunities in the future that are consistent with its core business, strategy and risk return
profile, in accordance with applicable law.
For further details, see ‘‘Business—Investment Programme’’.
The total commissions, fees and expenses payable by the Company in connection with the Offering
are expected to be between approximately RON 67 million and RON 80 million.
69
DIVIDEND POLICY
Dividends, if and when declared, are distributed to shareholders on a pro-rata basis proportionately to
their participation in the paid-up share capital of the Company. Each fully paid Share gives its owner the
right to receive dividends. The Company will pay any dividends in RON.
The GMS determines the amount of dividends to be distributed in respect of the Company’s financial
year following approval of the annual statutory financial statements for that year by the Board of Directors.
Dividends must be paid no later than six months from the approval of the annual statutory financial
statements.
Prior to the Offering, the Company was subject to Government Ordinance no. 64/2001 as
subsequently amended and completed on distribution of profits of national companies and State owned
companies (the ‘‘Dividend Ordinance’’). This requires that a minimum of 50% of distributable profit be
distributed as dividends, after deducting: (i) legal reserves; (ii) other reserves representing tax facilities
provided by law; (iii) any accounting losses for the previous years; (iv) constituting own financing resources
for the projects cofinanced with external loans, as well as for constituting the necessary sources for the
reimbursement of capital rates, the payment of interests, fees and other costs in relation to such external
loans and (v) other liabilities provided by law.
The Dividend Ordinance also requires State-owned companies to pay dividends to their shareholders
within 60 days of the legal deadline for the submission of the annual statutory financial statements to the
competent fiscal authorities, which must be approved by the GMS by the end of May of the relevant year.
Failure to pay dividends within this deadline results in penalty interest being payable to shareholders on
the amount of declared dividends at an annual rate of 4% above the NBR reference interest rate.
For the year ended on 31 December 2010, dividends were declared at 90% of the Company’s
distributable profits for that period, and for the financial years ended on 31 December 2011 and 2012
dividends equal to 85% of distributable profits for those respective periods. The dividends in respect of the
year ended on 31 December 2013 were approved by OGMS of the Company no. 29 of 28 May 2014 and
will be distributed to the State as of the date of their approval.
There is uncertainty as to whether the Dividend Ordinance will apply to the Company following
completion of the Offering. Management will distribute dividends on the basis of the Company’s annual
financial statements which starting with 2014 will be prepared in accordance with IFRS-EU.
Management’s intention is to distribute dividends, based on a guidance of approximately 85% of
consolidated profit attributable to shareholders of Electrica.
The table below sets forth dividends paid by the Company in the years ended 31 December 2013, 2012
and 2011.
Dividends
2013
2012
(RON million)
2011
Dividends distributed to the sole shareholder of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
6
29
Gross dividend per Share (RON/share) . . . . . . . . . . . . . . . .
0.064
0.029
0.143
206,229,044
206,229,044
202,772,994
st
Number of shares at 1 January . . . . . . . . . . . . . . . . . . . . .
Dividends for the years 2011, 2012 and 2013 were declared on the basis of individual annual statutory
financial statements. Dividends for the year following the Offering will be declared on the basis of
individual annual financial statements prepared on the basis of IFRS-EU.
To the extent that the Company declares and pays dividends, holders of GDRs on the relevant record
date will be entitled to receive dividends payable in respect of Shares underlying the GDRs, subject to the
terms of the Deposit Agreement.
The Company grants to its employees the right to participate in the Company’s profit, in accordance
with the law and the CBA. According to Government Ordinance no. 64/2001 and Minister of Finance
Order no. 144/2005, State-controlled companies which have established in their budgets the obligation of
participation to the profit of their employees based on the financial results for the year, may grant these
rights limited to 10% of the net profit, but no more than the average monthly basic salary at the entity
level, in the respective financial year. In the past three years, the Company has allocated profits to the
employees, in the amount of RON 399,000 for 2011, RON 1,100,000 for 2012 and RON 1,042,836 for 2013.
In future, employees may have the right to participate in the Company’s profit subject to the applicable
legal provisions and the CAB then in force.
70
CAPITALISATION AND INDEBTEDNESS
The following table sets forth the capitalisation and indebtedness of the Group as at 31 March 2014
and 31 December 2013. The following tables should be read in conjunction with ‘‘Selected Consolidated
Financial and Operating Information’’, ‘‘Use of Proceeds’’, ‘‘Operating and Financial Review’’, ‘‘Business’’ and
the Consolidated Financial Statements and the related notes thereto.
As at 31 March 2014
(Pro forma)(1)
Unaudited
(RON million) (RON million)
Total current debt . . . . . . . . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment .
Total non-current debt (excluding current
portion of long-term debt) . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment .
Total equity . . . . . . . . . . . . . . . . . . . . . . . .
Equity attributable to the owner of the
Company . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . .
Additional contributions from shareholder . .
Revaluation reserves . . . . . . . . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . .
As at 31 December 2013
(Pro forma)(1)
Audited
(RON million) (RON million)
.
.
.
.
.
173
—
38
—
135
173
—
38
—
135
223
—
80
—
143
223
—
80
—
143
.
.
.
.
.
115
—
—
115
4,520
115
—
—
115
6,752
130
—
—
130
4,416
130
—
—
130
6,659
.
.
.
.
.
.
.
3,680
2,004
50
680
204
742
839
5,913
2,511
50
1,068
612
1,671
839
3,605
2,002
48
693
204
658
811
5,848
2,509
48
1,081
612
1,598
811
Total Indebtedness and equity . . . . . . . . . . . .
4,808
7,040
4,769
7,012
The following table sets forth net financial indebtedness of the Group as at 31 March 2014 and
31 December 2013:
As at 31 March 2014
(Pro forma)(1)
Unaudited
(RON million) (RON million)
As at 31 December 2013
(Pro forma)(1)
Audited
(RON million) (RON million)
Cash and cash equivalents . . . . . . . . . . . . . .
Liquidity(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
668
668
668
668
651
651
651
651
Current bank overdrafts . . . . . . . . . . . . . . .
Current portion of non-current borrowings .
Financing of property, plant and equipment .
Other current financial debt(3) . . . . . . . . . . .
Current financial debt(4) . . . . . . . . . . . . . . .
Net current financial indebtedness(5) . . . . . .
.
.
.
.
.
.
38
—
135
—
173
(495)
38
—
135
—
173
(495)
80
—
143
—
223
(428)
80
—
143
—
223
(428)
Non-current bank borrowings . . . . . . . . . . .
Financing of property, plant and equipment .
Other non-current financial debt(6) . . . . . . .
Non-current financial indebtedness(7) . . . . .
.
.
.
.
—
115
—
115
—
115
—
115
—
130
—
130
—
130
—
130
(380)
(380)
(298)
(298)
Net financial indebtedness(8) . . . . . . . . . . . . .
(1)
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘The Reorganisation’’ and
‘‘Unaudited Pro Forma Financial Information and Report Thereon’’.
(2)
Total of cash and cash equivalents.
(3)
Current finance lease liabilities.
(4)
Total of current borrowings (short term of non-current borrowings), current portion of Financing of property, plant and
equipment and current finance lease liabilities.
71
(5)
Current financial debt minus liquidity.
(6)
Non-current finance lease liabilities.
(7)
Total non-current borrowings, non-current portion of Financing of property, plant and equipment and non-current finance lease
liabilities.
(8)
Total net current financial indebtedness and non-current financial indebtedness. Financial indebtedness refers only to
borrowings, financing of property, plant and equipment and finance lease liabilities.
There has been no significant change since 31 March 2014 in the capitalisation of the Group, except
for the following:
On 18 December 2013, an EGMS of the Company proposed the contribution of the Company’s
interests in: ENEL Energie Muntenia S.A., ENEL Distributie Muntenia S.A., ENEL Distributie
Banat S.A., ENEL Distributie Dobrogea S.A., ENEL Energie S.A., E.ON Moldova Distributie S.A., E.ON
Energie Romania S.A., Electrica Soluziona S.A., Bursa Romana De Marfuri S.A. and Hidro Tarnita S.A.
to SAPE through the Spin-off and Electrica reduced its capital by approximately RON 431 million through
the cancellation of 43,123,780 Shares.
Pursuant to an EGMS of the Company on 25 April 2014, Electrica’s share capital was increased by
RON 38,467,970 through the issue of 3,846,797 shares to the State as an in-kind contribution
corresponding to the value of 24 plots of land for which Electrica obtained ownership titles.
On 25 April 2014, Electrica Furnizare concluded a convention with CFR regarding the discharge of
CFR’s debts to the Group for electricity supply. Pursuant to this convention, on 13 May 2014, CFR paid
the principal amount of the debts owed to Electrica Furnizare that had accrued during 2012-2013, in the
amount of RON 221 million.
72
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The summary consolidated financial and operating information set forth below shows the Group’s
summary of the Audited Consolidated Financial Statements and the Interim Consolidated Financial
Statements and operating information for the periods indicated.
The summary historical interim consolidated financial and operating information as of 31 March 2014
and for the three-month periods ended 31 March 2014 and 2013 have been derived from the Unaudited Interim
Consolidated Financial Statements included elsewhere in this Prospectus. The summary historical consolidated
financial and operational information as of and for the years ended 31 December 2013, 2012 and 2011 has
been derived from the Company’s Audited Consolidated Financial Statements included elsewhere in this
Prospectus.
The Unaudited Interim Consolidated Financial Statements contained in this Prospectus have been
prepared using the same accounting principles and on the same basis as the Audited Consolidated Financial
Statements and, in the opinion of the management, include all adjustments, consisting of normal recurring
adjustments that the management considers necessary for a fair representation of interim results. These interim
results are not necessarily indicative of results to be expected for the full year and historical results are not
necessarily indicative of results to be expected for future periods.
Information included under columns in the table below marked ‘‘Pro Forma’’ reflect the pro forma
adjustments made to reflect the Spin-off. For more information, see ‘‘‘‘The Reorganisation’’ and ‘‘Unaudited
Pro Forma Financial Information and Report Thereon’’.
The summary consolidated financial and operating information should be read in conjunction with
‘‘Operating and Financial Review’’, ‘‘Presentation of Financial and Other Information’’, as well as with the
Consolidated Financial Statements and the notes thereto contained elsewhere in this Prospectus.
73
Summary of consolidated income statements and of consolidated statements of profit or loss and other
comprehensive income
3-month period
ended 31 March
2014
2013
(Pro-forma)(1)
Year ended
31 December
2013
(Pro-forma)(1)
(RON million)
Year ended 31 December
2013
2012
2011
(Unaudited)
Revenues . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . .
Electricity purchased . . . . . . . . . . . . . .
Green certificates . . . . . . . . . . . . . . . .
Salaries and other employee benefits . . .
Repairs, maintenance and materials . . . .
Depreciation and amortisation . . . . . . .
Reversal of impairment/(Impairment)of
property plant and equipment, net . . .
Reversal of impairment/(Impairment) of
trade and other receivables, net . . . . .
Reversal of write down/ (Write down) of
inventories, net . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . .
.
.
.
.
.
.
.
1,211
32
(624)
(92)
(172)
(11)
(103)
1,396
30
(837)
(107)
(177)
(17)
(98)
(Audited)
5,157
133
(2,845)
(414)
(766)
(103)
(398)
5,157
133
(2,845)
(414)
(766)
(103)
(398)
5,253
124
(3,089)
(302)
(755)
(161)
(398)
5,368
216
(3,650)
(91)
(793)
(209)
(372)
(7)
.
0
0
(13)
(13)
(4)
.
3
15
21
21
53
(148)
—
(123)
—
(123)
1
(434)
1
(434)
(18)
(458)
(14)
(406)
119
83
338
338
246
(104)
.
.
Operating profit/(loss) . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . .
3
(4)
5
(9)
24
(35)
24
(35)
22
(46)
35
(53)
Net finance cost . . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted
investees, net of tax . . . . . . . . . . . . . .
(1)
(4)
(12)
(12)
(24)
(17)
—
16
—
63
247
75
Profit/ (loss) before tax . . . . . . . . . . . . .
118
94
327
390
468
(47)
Income tax expense . . . . . . . . . . . . . . . .
(29)
(12)
(75)
(75)
(53)
(33)
Profit/(loss) for the year/period . . . . . . . .
88
82
251
314
416
(80)
Profit/(loss) for the year/period
attributable to:
—owner of the Company . . . . . . . . . . . .
—non-controlling interests . . . . . . . . . . .
60
28
62
19
180
71
243
71
356
60
(113)
34
Profit/(loss) for the year/period . . . . . . . .
88
82
251
314
416
(80)
Earnings per share
Basic and diluted earnings per share
(RON) . . . . . . . . . . . . . . . . . . . . . .
0.29
0.30
n/a
1.18
1.73
(0.55)
Other comprehensive income
Items that will never be reclassified to profit
or loss . . . . . . . . . . . . . . . . . . . . . .
Revaluation of property, plant and
equipment . . . . . . . . . . . . . . . . . . .
Tax related to revaluation of property,
plant and equipment . . . . . . . . . . . .
Impairment of property, plant and
equipment . . . . . . . . . . . . . . . . . . .
Remeasurement of the defined benefit
liability . . . . . . . . . . . . . . . . . . . . .
Tax related to remeasurements of the
defined benefit liability . . . . . . . . . . .
Share of changes in other comprehensive
income of equity accounted investees .
.
—
.
—
—
n/a
—
—
270
.
—
—
n/a
—
—
(45)
.
—
—
n/a
—
(82)
—
.
—
—
n/a
3
(14)
13
.
—
—
n/a
(0)
4
(1)
.
—
—
n/a
(0)
108
145
Other comprehensive income, net of tax . .
—
—
n/a
3
16
382
Total comprehensive income . . . . . . . . . .
88
82
n/a
317
431
302
60
62
n/a
246
374
216
28
88
19
82
n/a
n/a
72
317
57
431
86
302
Total comprehensive income . . . . . . . . . .
—attributable to the owner of the
Company . . . . . . . . . . . . . . . . . . .
—attributable to the non-controlling
interests . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . .
(1)
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘The Reorganisation’’ and
‘‘Unaudited Pro Forma Financial Information and Reports Thereon’’.
74
Summary of consolidated statements of financial position
31 March
2014
2014
(Pro-forma)(1)
31 December
2013
(Pro-forma)(1)
(RON million)
2013
31 December
2012
2011
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets . . . . . . . . . .
Equity-accounted investees . . .
Other investments . . . . . . . . .
Deferred tax assets . . . . . . . .
Other non-current assets . . . .
.
.
.
.
.
.
5,956
55
—
—
74
1
5,956
55
—
—
74
1
5,933
59
—
—
85
1
5,933
59
—
—
85
1
5,718
42
1,042
1,138
106
6
5,590
46
1,602
224
121
4
Total non-current assets . . . . . . . . . . . . . . .
6,087
6,087
6,078
6,078
8,052
7,587
Current assets
Trade receivables . . . . . . .
Other receivables . . . . . . .
Cash and cash equivalents .
Inventories . . . . . . . . . . .
Prepayments . . . . . . . . . .
Income tax receivable . . . .
Assets held for distribution .
.
.
.
.
.
.
.
1,018
37
668
28
15
29
—
1,018
37
668
28
15
29
2,232
1,088
63
651
34
6
37
—
1,088
63
651
34
6
37
2,243
1,011
95
642
35
40
17
—
1,192
134
499
33
37
8
—
Total current assets . . . . . . . . . . . . . . . . . .
1,796
4,029
1,878
4,122
1,840
1,904
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
7,883
10,116
7,956
10,200
9,892
9,491
EQUITY AND LIABILITIES
Equity
Share capital . . . . . . . . . . .
Additional contributions from
Revaluation reserves . . . . . .
Other reserves . . . . . . . . . .
Retained earnings . . . . . . . .
.
.
.
.
.
2,004
50
680
204
742
2,511
50
1,068
612
1,671
2,002
48
693
204
658
2,509
48
1,081
612
1,598
2,493
55
1,133
599
1,327
2,493
53
1,164
579
948
Total equity attributable to the owner of the
Company . . . . . . . . . . . . . . . . . . . . . . . .
3,680
5,913
3,605
5,848
5,607
5,237
Non-controlling interests . . . . . . . . . . . . . . .
839
839
811
811
765
710
Total equity . . . . . . . . . . . . . . . . . . . . . . . .
4,520
6,752
4,416
6,659
6,372
5,946
Liabilities
Non-current liabilities
Bank borrowings . . .
Finance lease . . . . . .
Financing of property,
Deferred revenue . . .
Deferred tax liabilities
Employee benefits . .
Other payables . . . . .
.
.
.
.
.
.
.
—
—
115
1,417
254
214
62
—
—
115
1,417
254
214
62
—
—
130
1,422
256
213
66
—
—
130
1,422
256
213
66
—
1
196
1,234
263
217
77
10
5
117
1,131
276
189
39
Total non-current liabilities . . . . . . . . . . . . .
2,062
2,062
2,087
2,087
1,987
1,767
.
.
.
.
.
.
.
.
.
.
—
38
—
135
516
269
15
106
137
85
—
38
—
135
516
269
15
106
137
85
—
80
—
143
628
261
15
89
152
85
—
80
—
143
628
261
15
89
152
85
9
167
27
114
746
182
11
78
120
80
30
281
26
104
930
165
4
83
100
53
Total current liabilities . . . . . . . . . . . . . . . .
1,302
1,302
1,453
1,453
1,534
1,778
Total liabilities . . . . . . . . . . . . . . . . . . . . . .
3,364
3,364
3,540
3,540
3,521
3,545
Total equity and liabilities . . . . . . . . . . . . . .
7,883
10,116
7,956
10,200
9,892
9,491
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . . . . .
shareholder
. . . . . . . . .
. . . . . . . . .
. . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
plant and equipment
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Current liabilities
Bank borrowings . . . . . . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment
Trade payables . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . .
Current income tax liability . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . . . . . . . . .
(1)
.
.
.
.
.
.
(Audited)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Pro forma financial information reflects the effect of the Spin-off. For more information, see ‘‘Reorganisation’’ and ‘‘Unaudited
Pro Forma Financial Information and Reports Thereon’’.
75
Summary of consolidated statements of cash flows
3-month
period ended
Year ended
31 March
31 December
2014
2013
2013
2012
2011
(RON million)
(Unaudited)
(Audited)
Cash flow from operating activities
Profit / (loss) for the period/year . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss on property, plant and equipment/reversal of
impairment of property, plant and equipment, net . . . . . . . .
Loss on disposal of property, plant and equipment . . . . . . . . . .
Impairment loss on trade and other receivables, net/reversal of
impairment of trade and other receivables, net . . . . . . . . . . .
Write-down of inventories, net . . . . . . . . . . . . . . . . . . . . . . . .
Release of deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Net finance costs / (income) . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted investees, net of tax .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...
88
82
314
416
(80)
...
...
99
4
95
3
383
14
381
16
352
20
...
...
—
—
—
—
13
6
4
6
7
5
(3)
—
(21)
1
—
29
(15)
—
(18)
4
(16)
12
(21)
(1)
(77)
12
(63)
75
(53)
18
(68)
24
(247)
53
148
14
(62)
17
(75)
33
198
148
656
550
380
.
.
.
.
.
.
.
.
71
38
(9)
5
(45)
(11)
(14)
32
(90) (118)
(54)
21
(28)
34
2
2
5
37
69
38
(10)
36
64
276
Cash generated from operating activities . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
266
(3)
(13)
106
(7)
(13)
Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
251
85
Changes in:
Trade receivables . . . .
Other receivables . . . .
Prepayments . . . . . . .
Inventories . . . . . . . .
Trade payables . . . . . .
Other payables . . . . . .
Employee benefits and
Deferred revenue . . . .
........
........
........
........
........
........
provisions
........
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Cash flows from investing activities
Payments for purchases of property, plant and equipment . . . . .
Payments for purchases of property, plant and equipment from
customer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for purchases of intangible assets . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment . . . . . . . .
Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
983 1,070
(21)
(29)
(47)
(45)
389
(32)
(40)
915
318
996
(147)
(95) (379)
(378) (405)
(22)
(0)
—
141
6
—
(38) (246)
(5) (31)
—
1
—
—
11
21
—
—
(181) (161)
(15)
(8)
1
2
—
—
23
32
—
35
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . .
(22) (127) (635)
(549) (505)
Cash flow from financing activities
Repayment of financing of property, plant
Repayment of borrowings . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . .
Payment of finance lease liabilities . . . . .
.
.
.
.
(37)
—
—
(1)
(36) (130)
—
(10)
—
(39)
(1)
(6)
(151) (126)
(30) (10)
(8) (29)
(6)
(6)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . .
(38)
(37) (185)
(194) (171)
Net increase/(decrease) in cash and cash equivalents . . . . . . . . . . .
Cash and cash equivalents at 1 January . . . . . . . . . . . . . . . . . . . . .
Effect of movements in exchange rates on cash held . . . . . . . . . . .
190
571
(2)
(79)
474
—
95
474
2
252
218
4
(358)
574
1
Cash and cash equivalents at 31 December/31 March . . . . . . . . . .
760
395
571
474
218
and equipment
............
............
............
76
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
...
103 (470)
7
(80)
(4)
(8)
(19) (18)
127
427
59
46
65
(48)
181
161
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Other financial data
3-month period ended
Year ended
31 March
31 December
2014
2013
2013
2012
2011
(Unaudited)
(RON million)
Group Adjusted EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group Adjusted EBITDA margin(2) . . . . . . . . . . . . . . . . . . . . . . . .
219
165
727
613
436
18% 12% 14% 12%
8%
(1)
The Company defines Group adjusted EBITDA as Group EBITDA adjusted for non-recurring events (i) consolidated
impairment / reversal of impairment of trade and other receivables, net and (ii) consolidated write down / reversal of write
down of inventories, net (as disclosed in the income statement in the Consolidated Audited Financial Statements and
Unaudited Consolidated Financial Statements). Adjusted EBITDA should not be considered as an alternative to net profit or
any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities or
as a measure of the Group’s liquidity. Moreover, other companies in the industry in which the Group operates may calculate
adjusted EBITDA differently or may use it for different purposes than the Group does, limiting its use as a comparative
measure.
(2)
The Group defines adjusted EBITDA margin as adjusted EBITDA divided by revenue.
The table below provides a reconciliation of profit/loss to adjusted EBITDA for the Group:
3-month
period ended
Year ended
31 March*
31 December**
2014
2013
2013
2012
2011
(RON million)
Profit/(loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add back:
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted investees, net of tax . .
Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization, impairment of property, plant and
equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment / (reversal) of impairment of trade and other
receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down / (reversal of write down) of inventories, net . . . . . . .
..
88
82
314
416
(80)
..
..
..
29
—
1
12
(16)
4
75
(63)
12
53
(247)
24
33
(75)
17
..
103
98
411
402
379
(15)
—
(21)
(1)
(53)
18
148
14
165
727
613
436
..
..
Adjusted EBITDA*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
—
219
Source: * Unaudited Consolidated Financial Statements; **Audited Consolidated Financial Statements; *** Unaudited
77
THE REORGANISATION
Prior to the Offering, the Group commenced a corporate reorganisation (the ‘‘Reorganisation’’)
which comprised the following elements:
Service company liquidations and insolvency proceedings
GD no. 760/2010 mandated the reorganisation of certain of Electrica Serv’s assets and liabilities
through a partial transfer of the same (by spin-off) to five new companies: Societatea Comerciala ‘‘Servicii
Energetice Banat’’ S.A. (‘‘SEB’’), Societatea Comerciala ‘‘Servicii Energetice Dobrogea’’ S.A. (‘‘SED’’),
Societatea Comerciala ‘‘Servicii Energetice Moldova’’ S.A. (‘‘SEMO’’), Societatea Comerciala ‘‘Servicii
Energetice Oltenia’’ S.A. (‘‘SEO’’) and Societatea Comerciala ‘‘Servicii Energetice Muntenia’’ S.A.
(‘‘SEMU’’). Electrica Serv continued to exist following this spin-off. The Reorganisation was endorsed by
Electrica Serv’s Board of Directors through decision no. 17/01 July 2011 and approved by an EGMS of
Electrica Serv no. 7/24 August 2011.
As part of the Reorganisation, liquidation proceedings were commenced in relation to three of these
service companies, as they were operating at a loss. As a result, EGMSs of SEB, SED and SEMO approved
their voluntary dissolution and liquidation on 20 December 2013, 19 December 2013 and 19 December
2013, respectively. During May 2014, the selected liquidators have submitted to Electrica the
documentation attesting the insolvency status of SED and SEMO. For SEB, the selection process of the
liquidators is in progress. Meanwhile, Electrica Serv requested the opening of the insolvency procedure for
SEB. In January 2014, the Board of Directors of SEO also decided to commence of insolvency proceedings
as part of the Reorganisation and on 14 May 2014, the court admitted SEO’s request and opened the
insolvency proceedings.
SEMU, which services the Bucharest area, is not being dissolved or liquidated as part of the
Reorganisation. Challenges from trade unions to the dissolution and liquidation of SEB, SED and SEMO
have been filed. For more information on these challenges, see ‘‘Business—Legal Proceedings—Service
company liquidation proceedings’’.
Spin-off of the Group’s minority interests
On 18 December 2013, an EGMS of the Company proposed the contribution of the Company’s
interests in the following companies: ENEL Energie Muntenia S.A., ENEL Distributie Muntenia S.A.,
ENEL Distributie Banat S.A., ENEL Distributie Dobrogea S.A., ENEL Energie S.A., E.ON Moldova
Distributie S.A., E.ON Energie Romania S.A., Electrica Soluziona S.A., Bursa Română De Mărfuri S.A.
and Hidro Tarnita S.A., through the Spin-off to SAPE (the ‘‘Spin-off’’). The Spin-off was published on
23 December 2013 on the Company’s website and the website of the National Trade Registry Office. No
creditor opposition was raised within the relevant time period and the Spin-off was approved by an EGMS
of the Company on 20 March 2014. The Spin-off file was subsequently submitted to the Trade Registry on
24 March 2014 and sent to the Bucharest Tribunal for court approval, which was granted on basis of the
ruling no. 343 of 10 April 2014. The Spin-off became effective as of 7 May 2014 when it was registered with
the Trade Registry. As part of the Spin-off approved by the court, Electrica reduced its capital in an
amount corresponding to the value of the minority interests prior to the Spin-off. Under the Companies
Law, the Spin-off can be challenged as null and void only if the decision of the shareholders approving the
Spin-off is challenged within six months from the Spin-off effectiveness date. In addition, the court
approval of the Spin-off can be challenged with appeal by third parties within 30 days as of the date when
such parties become aware of such decision, but not later than one year as of the date when the decision
was issued, i.e. until 10 April 2015.
The effect of the Spin-off is reflected in the Group’s consolidated pro forma financial information
included in the section ‘‘Pro Forma Financial Information and Reports Thereon’’.
Based on the general rules of residual liability under the Companies Law and the Civil Code, if a
creditor is not paid by SAPE, the Company is jointly liable with SAPE for such payment up to the value of
its net assets distributed following the Spin-off. In addition, liquidation and insolvency procedures in
Romania for corporate entities may in certain circumstances, result in liability to its shareholders.
For a description of risks relating to such liability or the potential challenge of the Spin-off see ‘‘Risk
Factors—Risks Relating to the Reorganisation—Liquidation and insolvency of the Group’s service subsidiaries
and the Spin-off may result in residual legal liability for the Company’’ and ‘‘—The Spin-off may be challenged
by third parties or may be unenforceable against ENEL, EON and CEZ’’.
78
PRO FORMA FINANCIAL INFORMATION AND REPORTS THEREON
The following reports have been extracted without amendment from the reports of KPMG
entitled in each case ‘‘Independent auditor’s assurance report on pro forma financial information’’
and each dated 11 June 2014
Independent auditor’s assurance report on pro forma financial information
To the Board of Directors
S.C. Electrica S.A.
We report on the pro forma financial information of S.C. Electrica S.A. (the ‘‘Company’’) and its
subsidiaries (together the ‘‘Group’’) (the ‘‘pro forma financial information’’) set out on pages 81 to 84 of
the Prospectus. The applicable criteria on the basis of which management has compiled the pro forma
financial information are specified in Commission Regulation (EC) No 809/2004 and the basis of
compilation is described in Note 2 to the pro forma financial information.
The pro forma financial information has been compiled by the Company for illustrative purposes only,
to provide information about how the spin-off of the minority interests held by the Company in 10 entities
(Enel Distributie Muntenia, Enel Energie Muntenia, Enel Distributie Banat, Enel Distributie Dobrogea,
Enel Energie, E.On Moldova Distributie, E.On Energie, Electrica Soluziona, Hidro Tarnita and BRM)
might have affected the financial information presented on the basis of the accounting policies adopted by
the Group in preparing the condensed consolidated interim financial statements for the three month
period ended 31 March 2014. As part of this process, information about the Group’s consolidated financial
position has been extracted by management from the Group’s condensed consolidated interim financial
statements for the three month period ended 31 March 2014 prepared in accordance with IAS 34, ‘Interim
Financial Reporting’ as endorsed by the European Union, on which a review report has been published.
Management’s Responsibilities
The Company’s management is responsible for the compilation of the pro forma financial information
in accordance with the requirements of the Commission Regulation (EC) No 809/2004.
Practitioner’s Responsibilities
Our responsibility is to express an opinion as required by item 7 of Annex II of the Commission
Regulation (EC) No 809/2004, as to whether the pro forma financial information has been compiled, in all
material respects, on the basis specified in Note 2 to the pro forma financial information, and whether the
basis is consistent with the accounting policies of the Group.
We conducted our engagement in accordance with International Standard on Assurance
Engagements 3420, ‘‘Assurance Engagements to report on Pro Forma Financial Information Included in a
Prospectus’’. This standard requires that the practitioner comply with ethical requirements and plan and
perform procedures to obtain reasonable assurance about whether management has compiled, in all
material respects, the pro forma financial information on the basis specified in Note 2 to the pro forma
financial information and that such basis is consistent with the accounting policies of the Group.
For the purposes of this engagement, we are not responsible for updating or reissuing any reports or
opinions on any historical financial information used in compiling the pro forma financial information, nor
have we, in the course of this engagement, performed an audit or review of the financial information used
in compiling the pro forma financial information.
The purpose of pro forma financial information included in a prospectus is solely to illustrate the
impact of significant events or transactions on unadjusted financial information of the entity as if the event
had occurred or the transaction had been undertaken at an earlier date selected for purposes of the
illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or
transaction at 31 March 2014 would have been as presented.
A reasonable assurance engagement to report on whether the pro forma financial information has
been compiled, in all material respects, on the basis of the applicable criteria involves performing
procedures to assess whether the applicable criteria used by the Company’s management in the
compilation of the pro forma financial information provide a reasonable basis for presenting the significant
79
effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about
whether:
• The related pro forma adjustments give appropriate effect to those criteria; and
• The pro forma financial information reflects the proper application of those adjustments to the
unadjusted financial information.
The procedures selected depend on the practitioner’s judgement, having regard to the practitioner’s
understanding of the nature of the entity, the events or transactions in respect of which the pro forma
financial information has been compiled, and other relevant engagement circumstances.
The engagement also involves evaluating the overall presentation of the pro forma financial
information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Opinion
In our opinion:
• the pro forma financial information has been properly compiled on the basis stated; and
• such basis is consistent with the accounting policies of the Group.
Other matter
This report is required by the Commission Regulation (EC) No 809/2004 and is given for the purpose
of complying with that Regulation and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company and the Board of Directors as a
body, for our work, for our report or for the opinion we have formed.
Our work has not been carried out in accordance with auditing or other standards and practices
generally accepted in the United States of America and accordingly should not be relied upon as if it had
been carried out in accordance with those standards and practices.
KPMG Audit S.R.L.
11 June 2014
Bucharest, Romania
80
SC Electrica SA Pro-Forma Financial Information as at 31 March 2014
Purpose
The pro-forma financial information of Electrica SA (‘‘the Company’’) and its subsidiaries (together
‘‘the Group’’) has been prepared for illustrative purposes only. The pro-forma financial information has
been prepared in accordance with Annex II of the TEU Regulation 809/2004.
The pro-forma financial information has been authorised for issuance by the Board of Directors on
6 May 2014.
The pro-forma financial information has been prepared to illustrate how the transaction described
below which is expected to have a significant gross impact on the Group’s consolidated financial position,
might have affected the assets, liabilities and equity of the Group as at 31 March 2014.
Consequently, as a result of its nature, the pro-forma financial information addresses a hypothetical
situation and therefore does not represent the actual financial position or results following the transaction.
Proposed spin-off of minority interests held by Electrica SA
On 18 December 2013 the shareholder of the Company approved the spin-off of the interests held by
the Company in the entities listed in Section 4 of this Pro forma financial information, into a new company
wholly owned by the Company’s shareholder (the Romanian State, represented by the Ministry of
Economy—Department for Energy). This reorganisation puts into practice the commitments assumed by
Romanian authorities in the Letter of Intent dated September 2013 on which the new stand-by agreement
approved by the International Monetary Fund at the end of September 2013 was based, and the provisions
of the Memorandum on ‘‘Measures for increasing the attractiveness for privatisation of Electrica’’
approved by the Romanian Government on 11 December 2013. The spin-off project was approved by the
Board of Directors of the Company on 19 December 2013 and published in the National Trade Registry on
23 December 2013. On 20 March 2014 the shareholder of the Company approved the spin-off project as
published on 23 December 2013 and the set-up of the new company.
During the three month period ended 31 March 2014, the Company’s holdings in the investments
classified as held for distribution have changed following the sale of part of the shares to E.On on
17 February 2014 following the exercise of the Call options by E.On. As a result, E.On received 17% of the
ordinary shares of E.On Moldova Distributie and 2.38% of the ordinary shares of E.On Energie
Romania. E.On paid to the Company the exercise price of RON 141 million, based on the price established
by the International Court of Arbitrage. According to the spin-off project mentioned above, the Company
will transfer to the new company the remaining shares in E.On Moldova Distributie (10% of the ordinary
shares of E.On Moldova Distributie) and in E.On Energie Romania (1.4% of the ordinary shares of E.On
Energie Romania) as well as the cash received from the sale less the directly attributable costs (legal costs
and taxes), of RON 130 million.
Basis of compilation
The pro-forma statement of financial position has been prepared to illustrate the effect on the
financial position of the Group as if the transaction had taken place on the date of the statement of
financial position.
A pro-forma statement of profit or loss has not been prepared as the transaction would have had no
effect on the Group’s profit or loss for the three month period ended 31 March 2014 if the transaction had
taken place on the first day of the period.
The pro forma information is prepared in a manner consistent with the accounting policies adopted by
the Group in the condensed consolidated interim financial statements of the Group for the three month
period ended 31 March 2014 prepared in accordance with IAS 34 ‘‘Interim Financial Reporting’’ as
endorsed by the European Union.
Sources of financial information
The sources of unadjusted financial information from which the pro-forma financial information has
been prepared are the condensed consolidated interim financial statements of the Group as at and for the
three month period ended 31 March 2014.
81
The sources of the adjustments for the proposed transaction described above are as follows:
Proposed spin-off of minority interests held by Electrica SA
• The spin-off project approved by the Board of Directors of the Company on 19 December 2013 and
published in the National Trade Registry on 23 December 2013;
• The Shareholder Decision of 20 March 2014 for approval of the spin-off and the decrease of the
share capital; and
• The condensed consolidated interim financial statements of the Group as at and for the three
month period ended 31 March 2014.
82
Pro-forma statement of financial position as at 31 March 2014
Unadjusted
Electrica Group
31 March 2014
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets . . . . . . . . . .
Deferred tax assets . . . . . . . .
Other non-current assets . . . .
5,956
55
74
1
—
—
—
—
5,956
55
74
1
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . .
6,087
—
6,087
Current assets
Trade receivables . . . . . . . .
Other receivables . . . . . . .
Cash and cash equivalents .
Inventories . . . . . . . . . . . .
Prepayments . . . . . . . . . . .
Income tax receivable . . . .
Assets held for distribution
.
.
.
.
.
.
.
1,018
38
668
28
15
29
2,232
—
—
—
—
—
—
(2,232)
1,018
38
668
28
15
29
0
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,029
(2,232)
1,796
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,116
(2,232)
7,883
.
.
.
.
.
2,511
50
1,068
612
1,671
(507)
—
(388)
(408)
(929)
2,004
50
680
204
742
Total equity attributable to the owner of the Company . . . .
5,913
(2,232)
3,680
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
839
6,752
—
(2,232)
839
4,520
Liabilities
Non-current liabilities
Finance lease . . . . . . . . . .
Financing of property, plant
Deferred revenue . . . . . . .
Deferred tax liabilities . . . .
Employee benefits . . . . . . .
Other payables . . . . . . . . .
.
.
.
.
.
.
—
115
1,417
254
214
62
—
—
—
—
—
—
—
115
1,417
254
214
62
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . .
2,062
—
2,062
.
.
.
.
.
.
.
.
.
38
—
135
516
269
15
106
137
85
—
—
—
—
—
—
—
—
—
38
—
135
516
269
15
106
137
85
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
1,302
—
1,302
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,364
—
3,364
Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . .
10,116
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
EQUITY AND LIABILITIES
Equity
Share capital . . . . . . . . . . . . . . . . . . . .
Additional contributions from shareholder
Revaluation reserve . . . . . . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . .
Current liabilities
Bank overdrafts . . . . . . . .
Finance lease . . . . . . . . . .
Financing of property, plant
Trade payables . . . . . . . . .
Other payables . . . . . . . . .
Current income tax liability
Deferred revenue . . . . . . .
Employee benefits . . . . . . .
Provisions . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
............
and equipment .
............
............
............
............
............
............
and equipment .
............
............
............
............
............
............
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Administrator
Marius Eugen Untescu
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Pro forma as at
31 March 2014
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Adjustments for
spin-off of
investments
(RON million)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
General Director
Ioan Rosca
Economic Director
Emilia Elena Marin
83
(2,232)
7,883
Adjustments for the proposed spin-off of minority interests held by Electrica SA
On 18 December 2013 the shareholder of the Company approved the spin-off of the interests held by
the Company in the companies listed in the table below into a new company wholly owned by the
Company’s shareholder (the Romanian State, represented by the Ministry of Economy—Department for
Energy).
Effect on assets
As of 31 March 2014 the assets that are to be transferred to the new company were presented as assets
held for distribution to the shareholder in the unadjusted condensed consolidated statement of financial
position, as follows:
31 March2014
(RON thousand)
Enel Distributie Muntenia S.A.
Enel Energie Muntenia S.A. . .
Enel Distributie Banat S.A. . .
Enel Distributie DobrogeaS.A.
Enel Energie S.A. . . . . . . . . .
E.On Moldova Distributie S.A.
E.On Energie Romania S.A. . .
Electrica Soluziona S.A. . . . . .
Hidro Tarnita S.A. . . . . . . . . .
Bursa Romana de Marfuri . . . .
Cash and cash equivalents . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
823,183
91,054
552,147
394,297
158,667
79,011
4,069
49
57
40
129,902
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,232,476
Effect on equity
The shareholder approved the spin-off of these investments through a decrease in share capital with
respect to the investments held in Enel and E.On companies listed above (these being former subsidiaries
of Electrica, privatized in 2005 and 2007). There will be no compensation for Electrica from this
transaction.
In accordance with the spin-off project, the nominal share capital of Electrica will be reduced by
43,123,780 ordinary shares with a nominal value of RON 10 per share. The difference between the nominal
amount of the decrease in share capital and the amount of the pro forma adjustment represents the effect
of the application of IAS 29 ‘‘Financial Reporting in Hyperinflationary Economies’’ on the investments in
these companies.
Part of these investments were equity accounted by the Group in the past. Therefore, the adjustments
presented in this pro-forma financial information in relation to this transaction include equity elements
corresponding to the investments disposed of, as presented in the table below.
31 March 2014
(RON million)
Share of revaluation reserve of equity-accounted investees .
Share of other reserves of equity-accounted investees . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
388
408
929
1,725
Independent auditor’s assurance report on pro forma financial information
To the Board of Directors
S.C. Electrica S.A.
We report on the pro forma financial information of S.C. Electrica S.A. (the ‘‘Company’’) and its
subsidiaries (together the ‘‘Group’’) (the ‘‘pro forma financial information’’) set out on pages 87 to 90 of
the Prospectus. The applicable criteria on the basis of which management has compiled the pro forma
financial information are specified in Commission Regulation (EC) No 809/2004 and the basis of
compilation is described in Note 2 to the pro forma financial information.
The pro forma financial information has been compiled by the Company for illustrative purposes only,
to provide information about how the spin-off of the minority interests held by the Company in 10 entities
(Enel Distributie Muntenia, Enel Energie Muntenia, Enel Distributie Banat, Enel Distributie Dobrogea,
Enel Energie, E.On Moldova Distributie, E.On Energie Romania, Electrica Soluziona, Hidro Tarnita and
Bursa Romana de Marfuri) might have affected the financial information presented on the basis of the
accounting policies adopted by the Group in preparing the consolidated financial statements for the year
ended 31 December 2013. As part of this process, information about the Group’s consolidated financial
position and consolidated financial performance has been extracted by management from the Group’s
consolidated financial statements for the year ended 31 December 2013 prepared in accordance with
International Financial Reporting Standards as endorsed by the European Union, on which an audit report
has been published.
Management’s Responsibilities
The Company’s management is responsible for the compilation of the pro forma financial information
in accordance with the requirements of the Commission Regulation (EC) No 809/2004.
Practitioner’s Responsibilities
Our responsibility is to express an opinion as required by item 7 of Annex II of the Commission
Regulation (EC) No 809/2004, as to whether the pro forma financial information has been compiled, in all
material respects, on the basis specified in Note 2 to the pro forma financial information, and whether the
basis is consistent with the accounting policies of the Group.
We conducted our engagement in accordance with International Standard on Assurance
Engagements 3420, ‘‘Assurance Engagements to report on Pro Forma Financial Information Included in a
Prospectus’’. This standard requires that the practitioner comply with ethical requirements and plan and
perform procedures to obtain reasonable assurance about whether management has compiled, in all
material respects, the pro forma financial information on the basis specified in Note 2 to the pro forma
financial information and that such basis is consistent with the accounting policies of the Group.
For the purposes of this engagement, we are not responsible for updating or reissuing any reports or
opinions on any historical financial information used in compiling the pro forma financial information, nor
have we, in the course of this engagement, performed an audit or review of the financial information used
in compiling the pro forma financial information.
The purpose of pro forma financial information included in a prospectus is solely to illustrate the
impact of significant events or transactions on unadjusted financial information of the entity as if the event
had occurred or the transaction had been undertaken at an earlier date selected for purposes of the
illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or
transaction at 31 December 2013 or for the year then ended would have been as presented.
A reasonable assurance engagement to report on whether the pro forma financial information has
been compiled, in all material respects, on the basis of the applicable criteria involves performing
procedures to assess whether the applicable criteria used by the Company’s management in the
compilation of the pro forma financial information provide a reasonable basis for presenting the significant
effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about
whether:
• The related pro forma adjustments give appropriate effect to those criteria; and
• The pro forma financial information reflects the proper application of those adjustments to the
unadjusted financial information.
85
The procedures selected depend on the practitioner’s judgement, having regard to the practitioner’s
understanding of the nature of the entity, the events or transactions in respect of which the pro forma
financial information has been compiled, and other relevant engagement circumstances.
The engagement also involves evaluating the overall presentation of the pro forma financial
information.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Opinion
In our opinion:
• the pro forma financial information has been properly compiled on the basis stated; and
• such basis is consistent with the accounting policies of the Group.
Other matter
This report is required by the Commission Regulation (EC) No 809/2004 and is given for the purpose
of complying with that Regulation and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company and the Board of Directors as a
body, for our work, for our report or for the opinion we have formed.
Our work has not been carried out in accordance with auditing or other standards and practices
generally accepted in the United States of America and accordingly should not be relied upon as if it had
been carried out in accordance with those standards and practices.
KPMG Audit S.R.L.
11 June 2014
Bucharest, Romania
86
SC Electrica SA pro-forma financial information as at and for the year ended 31 December 2013
Purpose
The pro-forma financial information of Electrica SA (‘‘the Company’’) and its subsidiaries (together
‘‘the Group’’) has been prepared for illustrative purposes only. The pro-forma financial information has
been prepared in accordance with Annex II of the Prospectus Directive regulation (Directive 2003/71/EC).
The pro-forma financial information has been authorised for issuance by the Board of Directors on
15 April 2014.
The pro-forma financial information has been prepared to illustrate how the transaction described
below which is expected to have a significant gross impact on the Group’s consolidated financial position
and performance, might have affected the assets, liabilities, equity and earnings of the Group as at and for
the year ended 31 December 2013.
Consequently, as a result of its nature, the pro-forma financial information addresses a hypothetical
situation and therefore does not represent the actual financial position or results following the transaction.
Proposed spin-off of minority interests held by Electrica SA
On 18 December 2013 the shareholder of the Company approved the spin-off of the interests held by
the Company in the entities listed in Section 5 of this Pro forma financial information, into a new company
wholly owned by the Company’s shareholder (the Romanian State, represented by the Ministry of
Economy—Department for Energy). This reorganisation puts into practice the commitments assumed by
Romanian authorities in the Letter of Intent dated September 2013 on which the new stand-by agreement
approved by the International Monetary Fund at the end of September 2013 was based, and the provisions
of the Memorandum on ‘‘Measures for increasing the attractiveness for privatisation of Electrica’’
approved by the Romanian Government on 11 December 2013.
The spin-off project was approved by the Board of Directors of the Company on 19 December 2013
and published in the National Trade Registry on 23 December 2013. On 20 March 2014 the shareholder of
the Company approved the spin-off project as published on 23 December 2013 and the set-up of the new
company.
Basis of compilation
The pro-forma statement of profit or loss has been prepared to illustrate the effect on the Group for
the year ended 31 December 2013 as if the transaction had taken place on the first day of the period.
The pro-forma statement of financial position has been prepared to illustrate the effect on the
financial position of the Group as if the transaction had taken place on the date of the statement of
financial position.
The pro forma information is prepared in a manner consistent with the accounting policies adopted by
the Group in the Consolidated Financial Statements of the Group for the years ended 31 December 2013,
31 December 2012 and 31 December 2011 prepared in accordance with International Financial Reporting
Standards as endorsed by the European Union (‘‘IFRS-EU’’).
Sources of financial information
The sources of unadjusted financial information from which the pro-forma financial information has
been prepared are the consolidated financial statements of the Group as at and for the year ended
31 December 2013.
The sources of the adjustments for the proposed transaction described above are as follows:
Proposed spin-off of minority interests held by Electrica SA
• The spin-off project approved by the Board of Directors of the Company on 19 December 2013 and
published in the National Trade Registry on 23 December 2013; and
• The consolidated financial statements of the Group as at and for the year ended 31 December 2013.
87
Pro-forma statement of financial position as at 31 December 2013
Unadjusted
Electrica Group
31 December 2013
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets . . . . . . . . . .
Deferred tax assets . . . . . . . .
Other non-current assets . . . .
5,933
59
85
1
—
—
—
—
5,933
59
85
1
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . .
6,078
—
6,078
Current assets
Trade receivables . . . . . . .
Other receivables . . . . . . .
Cash and cash equivalents .
Inventories . . . . . . . . . . .
Prepayments . . . . . . . . . .
Income tax receivable . . . .
Assets held for distribution
.
.
.
.
.
.
.
1,088
63
651
34
6
37
2,243
—
—
—
—
—
—
(2,243)
1,088
63
651
34
6
37
—
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,122
(2,243)
1,878
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,200
(2,243)
7,956
.
.
.
.
.
2,509
48
1,081
612
1,598
(507)
—
(388)
(408)
(940)
2,002
48
693
204
658
Total equity attributable to the owner of the Company . . .
5,848
(2,243)
3,605
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
811
6,659
—
(2,243)
811
4,416
Liabilities
Non-current liabilities
Finance lease . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment
Deferred revenue . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
—
130
1,422
256
213
66
—
—
—
—
—
—
—
130
1,422
256
213
66
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . .
2,087
—
2,087
.
.
.
.
.
.
.
.
.
80
—
143
628
261
15
89
152
85
—
—
—
—
—
—
—
—
—
80
—
143
628
261
15
89
152
85
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
EQUITY AND LIABILITIES
Equity
Share capital . . . . . . . . . . . . . . . . . . . .
Additional contributions from shareholder
Revaluation reserve . . . . . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Current liabilities
Bank overdrafts . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment
Trade payables . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . .
Current income tax liability . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Pro forma as at
31 December 2013
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Adjustments for
spin-off of
investments
(RON million)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
1,453
—
1,453
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,540
—
3,540
Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . .
10,200
Administrator
Marius Eugen Untescu
General Director
Ioan Rosca
Economic Director
Emilia Elena Marin
88
(2,243)
7,956
Pro-forma statement of profit or loss for the year ended 31 December 2013
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electricity purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Green certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and other employee benefits . . . . . . . . . . . . . . . .
Repairs, maintenance and materials . . . . . . . . . . . . . . . . .
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . .
Impairment of property, plant and equipment, net . . . . . .
Reversal of impairment of trade and other receivables, net
Reversal of write down of inventories, net . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Unadjusted
Electrica Group
for 2013
Adjustments for
spin-off of
investments
Pro forma
for 2013
5,157
133
(2,845)
(414)
(766)
(103)
(398)
(13)
21
1
(434)
—
—
—
—
—
—
—
—
—
—
—
5,157
133
(2,845)
(414)
(766)
(103)
(398)
(13)
21
1
(434)
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
338
—
338
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
—
24
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35)
—
(35)
Net finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12)
—
(12)
Share of profit or loss of equity-accounted investees, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
(63)
—
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
390
(63)
327
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(75)
—
(75)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
314
(63)
251
Profit for the year attributable to:
owner of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . .
243
71
(63)
—
180
71
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
314
(63)
251
Administrator
Marius Eugen Untescu
General Director
Ioan Rosca
Economic Director
Emilia Elena Marin
Adjustments for the proposed spin-off of minority interests held by Electrica SA
On 18 December 2013 the shareholder of the Company approved the spin-off of the interests held by
the Company in the companies listed in the table below into a new company wholly owned by the
Company’s shareholder (the Romanian State, represented by the Ministry of Economy—Department for
Energy).
89
Effect on assets
As of 31 December 2013 these assets that are to be transferred to the new company were presented as
assets held for distribution to the shareholder in the unadjusted consolidated statement of financial
position, as follows:
Carrying amount at
31 December 2013
(RON thousand)
Enel Distributie Muntenia S.A.
Enel Energie Muntenia S.A. . .
Enel Distributie Banat S.A. . . .
Enel Distributie Dobrogea S.A.
Enel Energie S.A. . . . . . . . . . .
E.OnMoldova Distributie S.A. .
E.On EnergieRomaniaS.A. . . .
Electrica Soluziona S.A. . . . . .
Hidro Tarnita S.A. . . . . . . . . .
Bursa Romana de Marfuri S.A.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
823,183
91,054
552,147
394,297
158,667
213,000
11,000
49
57
40
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,243,494
Percentage
ownership interest
23.57%
23.57%
24.87%
24.90%
36.99%
27.00%
3.78%
49.00%
50.00%
Effect on equity
The shareholder approved the spin-off of these investments through a decrease in share capital with
respect to the investments held in Enel and E.On companies listed above (these being former subsidiaries
of Electrica SA, privatized in 2005 and 2007). There will be no compensation for Electrica from this
transaction.
In accordance with the spin-off project, the nominal share capital of Electrica SA will be reduced by
43,123,780 ordinary shares with a nominal value of RON 10 per share. The difference between the nominal
amount of the decrease in share capital and the amount of the pro forma adjustment represent the effect
of the application of IAS 29 ‘‘Financial Reporting in Hyperinflationary Economies’’ on the investments in
these companies.
Part of these investments were equity accounted by the Group in the past. Therefore, the adjustments
presented in this pro-forma financial information in relation to this transaction include equity elements
corresponding to the investments disposed of, as presented in the table below.
31 December 2013
(RON million)
Share of revaluation of equity-accounted investees . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of other reserves of equity-accounted investees . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
388
408
940
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,736
Effect on profit or loss
The adjustment of profit or loss represents the elimination of the share of the profit or loss of equityaccounted investees recognised by the Group in its consolidated financial statements for the year ended
31 December 2013 prepared in accordance with IFRS-EU of RON 63 million.
90
OPERATING AND FINANCIAL REVIEW
The following discussion of Electrica’s Group operating and financial condition is based primarily on its
Consolidated Financial Statements. This section should be read in conjunction with the Consolidated Financial
Statements, including the accounting policies and the notes thereto, as well as other financial information
contained elsewhere in this Prospectus. A summary of the critical accounting policies that have been applied in
the preparation of the Consolidated Financial Statements is set forth in ‘‘—Critical accounting policies and
estimates’’ below. Unless otherwise indicated, financial information in this section is sourced from the Audited
Consolidated Financial Statements, Unaudited Consolidated Financial Statements and Group’s accounting
and operating systems.
Certain information presented in this section, including information regarding Electrica’s capital
expenditures, described in ‘‘Capital Expenditures’’ below, and information presented elsewhere in this
Prospectus, has not been derived from the Consolidated Financial Statements and has not been audited or
reviewed by independent auditors. Such information should not serve as an indicator of Electrica’s past or
future operating performance, financial condition or development prospects or be used to analyse Electrica’s
business in isolation from the Consolidated Financial Statements (including the accounting policies and the
notes thereto), and other financial information contained elsewhere in this Prospectus. This information is
included in this Prospectus as investors may find this information helpful in assessing Electrica’s business.
This section contains certain forward-looking statements. These statements are subject to numerous risks
and uncertainties, including, but not limited to, those described in ‘‘Important Information’’ and ‘‘Risk
Factors’’.
Overview
Electrica’s core business segments are the distribution of electricity to users and the supply of
electricity to household and non-household consumers. Electrica’s distribution segment operates through
EDMN, EDTS, EDTN and Electrica Serv and is geographically limited to the Northern Muntenia,
Northern Transylvania and Southern Transylvania geographical areas of Romania. Electrica’s supply
segment operates through Electrica Furnizare and supplies electricity to consumers, both on the regulated
electricity market in the regions where the distribution subsidiaries of the Group operate and the
competitive electricity market throughout Romania. The most relevant regions of Electrica’s supply
business, however, are the ones where Electrica also distributes electricity. As part of its distribution
business, Electrica also provides, through Electrica Serv, equipment maintenance, repair and other
ancillary services to its own networks and, to a small degree, to other electricity distributors’ networks.
Electrica is the largest electricity distributor in Romania both in terms of quantities of electricity
distributed to end-users and in terms of number of connections. As at 31 March 2014, Electrica’s
distribution segment operated 8,389 km of high voltage lines, 45,643 km of medium voltage lines and
134,834 km of low voltage lines supported by 28,514 transformers and with approximately 3.6 million users
across its distribution network.
Furthermore, the Group’s electricity supply segment is also the largest in Romania both in terms of
quantity of electricity supplied to consumers and in terms of number of consumers.
In the three-month periods ended 31 March 2014 and 2013 Electrica distributed, respectively,
4.1 TWh and 4.0 TWh of electricity, and in the years ended 31 December 2013, 2012 and 2011,
respectively, it distributed approximately 16.1 TWh, 16.3 TWh and 16.2 TWh of electricity.
As at 31 March 2014 Electrica supplies electricity to approximately 3.56 million household and
non-household consumers. The quantity of electricity Electrica supplied to consumers was 2.4 TWh and
2.5 TWh, respectively, in the three month periods ended 31 March 2014 and 2013, and approximately
9.7 TWh, 10.7 TWh and 11.6 TWh, respectively, in the years ended 31 December 2013, 2012 and 2011.
91
The table below sets forth selected financial data related to Electrica’s core business segments for the
periods indicated.
Three month period ended 31 March*
2014
Year ended 31 December
2013
2013
2012
2011
(RON million) (%)** (RON million) (%)** (RON million) (%)** (RON million) (%)** (RON million) (%)**
Revenue
Electricity distribution . . .
Electricity supply . . . . . .
External electricity
network maintenance(1) .
Headquarter . . . . . . . .
Consolidation elimination
and adjustments . . . . .
Group revenue . . . . . . .
EBITDA(2)
Electricity distribution . . .
Electricity supply . . . . . .
External electricity
network maintenance(1) .
Headquarter . . . . . . . .
Group EBITDA(3) . . . . .
Group Adjusted
EBITDA(4) . . . . . . . .
Net profit (loss) . . . . . .
Capital expenditure . . . .
Cash & cash equivalents .
Debt(5) . . . . . . . . . . . .
536
1,103
32%
67%
528
1,312
28%
70%
2,056
4,780
30%
69%
1,944
4,801
28%
70%
1,873
4,825
27%
70%
16
0
1%
0%
28
0
2%
0%
101
0
1%
0%
153
0
2%
0%
235
0
3%
0%
(444)
1,211
(472)
1,396
(1,780)
5,157
(1,645)
5,253
(1,564)
5,368
187
60
84%
27%
147
49
82%
27%
681
117
91%
16%
623
116
96%
18%
440
(110)
160%
(40)%
(23)
(1)
222
(10)%
(0)%
100%
(18)
2
180
(10)%
1%
100%
(42)
(7)
749
(6)%
(1)%
100%
(92)
0
647
(14)%
0.0%
100%
(32)
(23)
275
(12)%
(9)%
100%
219
88
109
668
289
—
—
—
—
—
165
82
119
572
n/a
—
—
—
—
—
727
314
650
651
353
—
—
—
—
—
613
416
617
642
513
—
—
—
—
—
436
(80)
554
499
575
—
—
—
—
—
Source: * Unaudited Consolidated Financial Statements; **% of the total for reportable segments
(1)
External electricity network maintenance is defined as repair, maintenance and other services for electricity networks owned by other distributors
(including Servicii Energetice Banat SA, Servicii Energetice Dobrogea SA, Servicii Energetice Moldova SA, Servicii Energetice Oltenia SA and
Servicii Energetice Muntenia SA)
(2)
EBITDA for operating segments is defined and calculated as segment profit (loss) before tax adjusted for (i) segment depreciation, amortisation
and impairment /reversal of impairment of property, plant and equipment and intangible assets, ii) segment net finance (cost)/income, and
(iii) segment share of profit (loss) of equity-accounted investees as disclosed in the income statement in the Audited Consolidated Financial
Statements and Interim Unaudited Consolidated Financial Statements.
(3)
Group EBITDA is defined and calculated as consolidated profit (loss) before tax adjusted for (i) consolidated depreciation, amortisation and
impairment /reversal of impairment of property, plant and equipment and intangible assets, ii) consolidated net finance (cost)/income,
iii) consolidated share of profit (loss) of equity-accounted investees as disclosed in the income statement in the Consolidated Audited Financial
Statements and Interim Unaudited Consolidated Financial Statements.
(4)
Group Adjusted EBITDA is defined as Group EBITDA adjusted for non-recurring events (i) consolidated impairment / reversal of impairment of
trade and other receivables, net and (ii) consolidated write down / reversal of write down of inventories, net (as disclosed in the income statement
in the Consolidated Audited Financial Statements and Unaudited Consolidated Financial Statements).
A calculation of the EBITDA and Adjusted EBITDA is presented in detail in ‘‘Selected Consolidated Financial and Operating Information—Other
Financial Information’’. Neither EBITDA nor Group Adjusted EBITDA are IFRS measures and should not be treated as alternatives to IFRS
measures. Moreover, neither EBITDA nor Group Adjusted EBITDA are uniformly defined outside of this document. The method of calculating
EBITDA and Group Adjusted EBITDA used by other companies may differ significantly from that used by us the Group. In consequence, the
EBITDA and Group Adjusted EBITDA presented in this chapter cannot, as such, be relied upon for the purpose of comparison to other
companies. A reconciliation of net profit/(loss) for the period/year and EBITDA and Adjusted EBITDA, is presented in ‘‘Selected Consolidated
Financial and Operating Information—Other Financial Information’’.
(5)
Debt is defined and calculated as consolidated financing for property, plant and equipment, finance lease, bank overdrafts and bank borrowings
(as disclosed in the Consolidated Statements of Financial Position in the Consolidated Audited Financial Statements and Interim Unaudited
Consolidated Financial Statements).
Key factors, drivers and significant market trends affecting the results of Electrica’s operations
Management believes that the following factors, drivers and market trends significantly affected the
results of the Group’s operations for the periods covered by the Consolidated Financial Statements, and
expects that they will continue to have a significant impact on the results of the Group’s operations in the
future. Management distinguishes between key factors, drivers and significant market trends it cannot
control and those that it can (albeit often only to a limited degree) control. Key factors, drivers and
significant market trends that management cannot control include (i) the general regulatory and legal
framework under which the Group operates, including ANRE’s policies; (ii) distribution and electricity
supply tariffs set by ANRE; (iii) the cost of electricity purchased; (iv) macroeconomic trends in the
Romanian economy; and (v) demand for electricity. Key factors and drivers that management can at least
partially control include the Group’s capital expenditures and operating expenses.
General regulatory and legal framework and ANRE’s policies
Electrica’s operations have been influenced in the past and, Management believes, they will likely
continue to be influenced in the future, by numerous laws and regulations, including the Energy Law, EU
legislation and international conventions dealing with, amongst other things, environmental protection and
92
climate change regulations. A significant part of Electrica’s business is regulated. As such, Electrica’s
business has been influenced in the past and, Management believes, will likely continue to be influenced in
the future by the policies of ANRE and other public administrative regulatory bodies, as well as by
individual administrative decisions, interpretations and recommendations issued by those bodies in
relation to its operations, especially tariffs and regulatory obligations. See ‘‘Regulation—Regulation of the
Electricity Market’’ and ‘‘Risk Factors—The Group’s financial performance could be adversely affected by
changes in tariffs set for the regulated market’’.
Management believes that the Group’s performance will be particularly influenced by (i) the
continued deregulation of the electricity supply market (particularly in relation to households) which may
result in increased competition and churn in this segment but may also create an opportunity through the
expansion of the Group’s supply segment targetable market, and (ii) future changes in the regulatory
targets for calculating tariffs on electricity distribution, including in particular any changes to the permitted
regulated rate of return or any changes to efficiency targets such as network losses, other operating
expenditures and changes to approved capital expenditure plans.
In the periods covered by the Consolidated Financial Statements the greatest influence on Electrica’s
performance caused by regulatory factors is attributed to the change in the regulated target return on
capital with impact in the distribution tariffs that were implemented in 2013, a transition year from the
second to the third five year regulatory periods set by ANRE, and in 2014 for a new five year regulatory
period, which caused an increase in Electrica’s revenue from the distribution business. See ‘‘—Electricity
distribution and supply tariffs—Distribution tariffs’’ below. Other important regulatory factors that have
affected Electrica’s financial condition in the period in question include: (i) the deregulation of the supply
of electricity to non-households on 1 January 2014, when the supply tariffs were deregulated, deregulation
of supply for households (which term includes SMEs) starting from July 2013 and which is scheduled to be
completed by 1 January 2018, and (ii) the obligation to supply electricity to certain types of consumers
which are deemed of special importance such as hospitals, rescue stations, schools, retirement homes, or
air, naval and railroad traffic services (including the State-owned railway operator, CFR) or to entities
undergoing insolvency proceedings (such as Oltchim), irrespective of whether these entities have observed
their payment obligations under their respective electricity supply agreements or not. See ‘‘Risk Factors—
Electrica Furnizare may be prohibited from suspending or interrupting the supply of electricity to certain of the
Group’s customers, even if such customers are in payment default’’.
Electricity distribution and supply tariffs
General information
A significant part of Electrica’s revenue (before consolidation adjustments) comes from the
distribution and supply of electricity at prices set by regulated tariffs. Revenue based on tariffs approved by
ANRE represented 75% and 75% of Electrica’s revenue in the three month periods ended 31 March 2014
and 2013, respectively, and 74%, 70% and 65% in the years ended 31 December 2013, 2012 and 2011,
respectively. According to the Energy Law, tariffs approved by ANRE are intended to cover the justified
costs of business activity of the electricity company related to the distribution of electricity on the regulated
market plus a justified return on capital involved in that business. Tariffs are intended to be
non-discriminatory, based on objective criteria and determined in a transparent manner based on target
returns approved by ANRE.
Distribution tariffs
The distribution segment contributes most to Electrica’s operating profitability. Electricity distribution
is a regulated activity in Romania and the specific tariffs applicable to electricity distribution services must
be approved by ANRE under a ‘‘tariff basket-price-cap’’ mechanism as established by Orders no. 31/2004
(applicable during the first regulatory period from 2005 to 2007), no. 39/2007 (applicable during the second
regulatory period from 2008 to 2012), no. 51/2012 (applicable during the 2013 transitional year) and
no. 72/2013 (applicable during the third regulatory period from 2014 to 2018). The ‘‘tariff basketprice-cap’’ methodology is intended to reduce revenue fluctuation and avoids significant fluctuation in the
price charged to customers for electricity. The tariff model is based on the principle of remuneration in the
tariff of justifiable costs incurred by the distribution operator, with the main source of profit for the
distribution company being the return on capital employed in its distribution business. ANRE sets the
required regulated annual revenue for each year of the regulatory period based on projections provided by
the distribution operators according to methodology requirements. Annual revenue is established by taking
93
into account the distribution costs and the return of the regulated asset base or ‘‘RAB’’. Distribution costs
include: operating and maintenance costs relating to the distribution network (such as personnel costs, raw
materials and consumables, maintenance and repair, rent, insurance and services provided by third
parties); depreciation and amortisation calculated from a regulatory standpoint over the RAB; taxes on
network assets; the cost of electricity to cover network losses calculated based on the regulated allowance
for such losses; and working capital requirements. Revenue collected from reactive energy provided by
users as regulated tariffs is deducted from the required annual revenue and tariffs are typically approved
for the period of one calendar year. ANRE determines the duration of regulatory periods, which are
currently five years, for which the model of calculating operating cost and the principles of determining a
reasonable level of network losses apply. For details regarding the methodology of calculating the
distribution tariffs, see ‘‘Regulation—Tariffs—Tariff calculation methodology for energy distribution’’.
The current regulatory period (the ‘‘third regulatory period’’) under which the Group operates started
on 1 January 2014 and will end on 31 December 2018. It is expected that the current regulatory framework
and rules regarding the determination of the RAB and distribution tariffs will remain unchanged at least
until the end of 2018. ANRE sets the annual level of distribution tariffs in RON per MWh for each
distribution company for each level of voltage (high, medium and low). The tariffs billed to customers are
cumulated depending on the respective voltage level (i.e. the tariff for medium voltage includes the tariff
for high voltage and the tariff for low voltage includes the tariff for high and medium voltage).The table
below presents the regulated distribution tariffs for the years 2013, 2012 and 2011 by voltage levels and
distribution company. The tariffs are presented cumulatively for medium and low voltage
Transylvania Nord .
Transylvania Sud . .
Muntenia Nord . . .
1 January - 31 December 2013
High
Medium
Low
voltage
voltage
voltage
1 July - 31 December 2012
High
Medium
Low
voltage
voltage
voltage
RON/MWh
1 January 2011 - 30 June 2012
High
Medium
Low
voltage
voltage
voltage
22.07
22.07
18.92
21.00
21.00
18.00
20.96
21.00
15.30
66.21
66.19
63.06
172.80
195.75
209.15
63.00
62.98
60.00
164.42
186.25
199.00
62.96
59.53
53.79
151.60
174.30
190.07
Starting 1 January 2014, the electricity distribution tariffs (presented cumulatively for medium and low
voltage) are as follows:
Starting 1 January 2014
High
Medium
Low
voltage
voltage
voltage
RON/MWh
Transylvania Nord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transylvania Sud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Muntenia Nord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.65
23.46
18.90
67.28
70.45
63.13
178.75
194.74
206.05
The table below sets out the average distribution tariffs for each of the Group’s distribution
subsidiaries during the indicated periods:
Three month period
ended 31 March
2014
2013
RON/MWh RON/MWh
Transylvania Nord . . . . . . . . . . . . . . . . . . . . . . . . . .
Transylvania Sud . . . . . . . . . . . . . . . . . . . . . . . . . . .
Muntenia Nord . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124.43
120.05
112.28
123.17
116.54
115.40
Year ended 31 December
2013
2012
2011
RON/MWh
119.26
116.36
110.97
110.33
107.73
101.54
105.60
105.89
95.92
For detailed information regarding the structure of Electrica’s regulated revenue and the contribution
of distribution services in terms of value and quantities in the periods covered by the Consolidated
Financial Statements, see ‘‘Business—Distribution Segment’’.
Electricity supply tariffs
As a result of the implementation of the EU Second Energy Package, the deregulation of the
Romanian electricity market commenced on 1 January 2007. As at the date of this Prospectus, the tariffs
for supply of electricity to non-households have been completely deregulated and only the tariffs for supply
of electricity to households are still subject to approval by ANRE. Household consumers are free to switch
their electricity supplier, but will retain access to regulated electricity supply tariffs until this market
94
segment is fully deregulated in 2018. Since 1 January 2014, the tariffs for supply of electricity to
non-households are market-driven and freely negotiable. It is possible that increased competition in this
market segment which no longer operates under regulated tariffs will induce consumers to switch
electricity suppliers, see ‘‘Regulation—Regulation of the Electricity Market’’, and this may result in increased
migration of consumers from the Group to competitors.
The Romanian electricity supply market might also experience consumer migration in the household
and SME segment as liberalisation advances. However, as a result of the relatively small or non-existent
savings households might achieve by switching their electricity supplier, Management expects the effect of
deregulation in the household segment to be relatively small.
Currently, Electrica is the electricity ‘‘supplier of last resort’’ for approximately 3.56 million customers.
According to the Energy Law, Supplier of last resort means a supplier designated by the regulatory
authority to provide an universal electricity supply service under specific regulated conditions.
The table below illustrates the average electricity supply tariffs for the customer groups Electrica
serves for the periods indicated (the tariffs include the cost of Green Certificates).
Tariff groups (including Green Certificates)
Three month
period ended
31 March*
2014
2013
Regulated market
Household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competitive market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
446
459
389
Tariff groups (without Green Certificates)
Three month
period ended
31 March*
2014
2013
Regulated market
Household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competitive market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
410
423
354
448
522
438
396
470
387
Year ended
31 December(*)
2013
2012
2011
(RON/MWh)
445
504
413
379
438
358
358
409
291
Year ended
31 December(*)
2013
2012
2011
(RON/MWh)
402
461
370
350
409
329
349
400
282
Until 2018, when full deregulation of the household segment is scheduled to occur, the tariffs
applicable to households must be approved each year by ANRE based on reported cost categories and a
regulated profit margin. The tariffs are calculated to cover the cost of electricity (including transmission,
network services, distribution costs and a regulated profit margin). ANRE’s former methodology provided
for a maximum of 2.5% profit calculated over the cost of electricity for the supply of households until
1 December 2013. The new methodology under ANRE Order No. 82/2013 sets a maximum limit for the
profit per unit of energy sold to consumers (RON/MWh), and until applying competitive criteria for
selecting last resort suppliers is implemented, the value of profit per unit of energy sold to customers will
be set by ANRE. In addition, Electrica incurs supply costs which include the cost of concluding
agreements, invoicing, cash collection, database management and IT and telecommunication infrastructure
costs.
Since 1 September 2012 and the implementation of Order no. 82/2013 suppliers of last resort are
permitted, to determine in the invoice issued to end-customers who did not use their eligibility right to
switch suppliers, a new electricity tariff consisting of a mix of the regulated tariff component and ‘‘the
competitive market component’’ (‘‘CPC’’) as approved by ANRE. The acquisition prices paid to Statecontrolled producers for electricity purchased for delivery to consumers on the regulated market are also
set by ANRE. The CPC tariff component is based on the average purchase price of the electricity
purchased by the relevant supplier from the centralised electricity markets to be supplied to its
non-household consumers and is capped at this price multiplied by 1.1. Any difference between the tariff
components forecasted and fulfilled by a power supplier during the last month of a certain deregulation
phase of the timetable for eliminating regulated tariffs will be adjusted in the following deregulation phase.
95
According to Law No. 134/2012 since September 2012, the cost of Green Certificates is billed to
consumers separately from the tariffs for electricity. Electricity suppliers have an obligation by law to
purchase each year Green Certificates on the basis of annual targets or quotas calculated by ANRE based
on the gross generation from renewable sources and the total net final electricity consumption in Romania.
The value of Green Certificates included in the invoice to a consumer additional to the tariff was
35.71 RON/MWh and 51.50 RON/MWh in the three month period ended 31 March 2014 and 2013,
respectively and 42.74 RON/MWh, 28.98 RON/MWh and 9.03 RON/MWh in 2013, 2012 and 2011,
respectively.
Despite the cost of Green Certificates being billed separately for reasons of transparency as of
September 2012, ANRE did not simultaneously reduce the approved tariff for the cost of the Green
Certificates. This essentially resulted in duplicative charges to customers for the cost of Green Certificates
(once via the original tariff incorporating the cost of Green Certificates and a second time by way of the
new separate charges for the cost of Green Certificates) during the period September 2012 to July 2013.
ANRE decided that these overpayments were to be returned to customers over time by way of
subsequent tariff reductions. Management believes that the amount overcharged by Electrica Furnizare
and, hence, the overall exposure resulting therefrom amounts to approximately RON 50 million.
Since July 2013, according to the tariff approved by ANRE, the price, without accounting for Green
Certificates, at which Electrica Furnizare supplies electricity to households on the regulated market
decreased by 1.3%. Management believes that this industry-wide tariff reduction over the regulatory
period July 2013 to July 2014 resulted in savings to Electrica Furnizare’s customers of approximately RON
20 million.
Electrica Furnizare expects further tariff reductions for the regulatory period starting in July 2014
compensating customers for the entire and remaining amount of overpayments.
Recent newspaper articles allege that ANRE vice-president Claudio Dumbraveanu, who is currently
being investigated for bribery offences, agreed to lower the compensatory tariff-reduction from 6% to
1.3% in return for favourable contracts entered into by one of Electrica’s competitors which benefited a
company with which Claudio Dumbraveanu was affiliated. For information regarding the structure of
Electrica’s supplies of electricity in terms of quantities and price of electricity sold in the periods covered
by the Consolidated Financial Statements, see ‘‘Business—Overview’’.
Cost of electricity purchased
The most important cost item related to both Electrica’s electricity distribution and supply segments is
the cost of electricity purchased. Cost of electricity purchased includes (i) the cost of electricity purchased
for the purpose of supply to end consumers or to other electricity suppliers (RON 397 million in the three
months period ended 31 March 2014, RON 587 million in the three months period ended 31 March 2013,
RON 2,020.2 million in 2013, RON 2,269.6 million in 2012 and RON 2,846.5 million in 2011), (ii) the cost
of transmission and system services (RON 70 million in the three months period ended 31 March 2014,
RON 61 million in the three months period ended 31 March 2013), RON 303.6 million in 2013,
RON 345.4 million in 2012 and RON 287.1 million in 2011), and (iii) the cost of electricity acquired to
compensate for network losses (RON 157 million in the three months period ended 31 March 2014,
RON 189 million in the three months period ended 31 March 2013), RON 521.4 million in 2013,
RON 474.1 million in 2012 and RON 516.4 million in 2011).
However, unless electricity purchased is supplied to consumers who buy electricity under
non-regulated tariffs, the cost of electricity is passed through to the consumer and therefore does not, with
the exception of electricity acquired to cover network losses, have an impact on Electrica’s results of
operations. Such pass-through of these increases to the electricity regulated tariffs, however, is subject to a
time lag of six-months. As a result, the Group may be exposed to short term fluctuations in the electricity
price. See ‘‘Risk Factors—The Group’s financial performance could be adversely affected by changes in
electricity prices and the Group has no hedging protection in place against such event’’.
The Group acquires electricity from various producers, the majority of them being State-controlled
companies, suppliers in the DAM and Balancing Market). Until April 2013, the Group acquired electricity
to cover its network losses from State-controlled power producers mandated by ANRE and at a regulated
price set by ANRE. Since 1 April 2013, however, distribution companies can acquire electricity freely on
the CMBC, the DAM and the Balancing market.
96
Macroeconomic trends in the Romanian economy
Electrica’s operations are based exclusively in Romania, where it generates all of its revenue.
Macroeconomic trends in the Romanian economy have and are expected to continue to have an impact on
Electrica’s business and results of operations. In particular, Romanian real GDP growth, industrial
production, service sector growth and domestic consumption can influence the demand for and
consumption of electricity.
In recent years, the Romanian economy performed better than most European Union economies, and
has implemented significant structural reforms. According to Eurostat, Romania’s real GDP growth
amounted to 2.2% in 2011, 0.7% in 2012, and 3.5% in 2013. According to the European Commission’s
‘‘European Economic Forecast Winter 2014’’ report the 3.5% real GDP growth in Romania was supported
by a strong export performance driven by a robust industrial output and a good agricultural year. In each of
these years, real GDP growth was higher than the average for the EU as a whole (1.7% in 2011, 0.4% in
2012, and 0.1% in 2013). Furthermore, Romania has a large domestic market and reform agenda to
liberalise its markets. According to the European Commission’s European Economic Forecast—Spring
2014 report, real GDP is estimated to continue to grow in Romania by 2.5% and 2.6% in 2014 and 2015,
respectively, which is higher than the projected growth of 1.6% in 2014 and 2.0% in 2015, for the EU as a
whole. This reflects increased confidence in the Romanian economy and positive international economic
developments as well as reflecting the results of product and labour market reforms implemented under
financial support programmes from the IMF.
The table below presents Romania’s real GDP growth and selected additional macroeconomic data
for Romania for the periods indicated.
Year ended
31 December
2013
2012
2011
(%)
Real GDP growth* . . . . . . . . . . . . . . . . . . . . . . .
Prices—Inflation rate (annual average)* . . . . . . . .
Change in gross monthly salary** . . . . . . . . . . . .
Unemployment rate (percent of the labour force)*
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3.5
3.2
5.0
7.3
0.6
3.4
4.2
7.0
2.3
5.8
4.1
7.4
Source: *Eurostat; ** National Commission for Prognosis
Demand for electricity
According to the National Institute for Statistics of Romania, in 2011, Romania’s annual electricity
consumption was 53.74 TWh and decreased to 52.36 TWh in 2012, a decrease of 2.6%. According to data
from the National Institute for Statistics of Romania, in 2013, electricity consumption decreased to
49.69 TWh, or 5% compared to the preceding year. Management believes that the decrease was a result of
a number of factors, including the decrease in consumption by large energy intensive consumers (steel,
chemical and petrochemical industries etc.) and the efficiency measures adopted by some industrial
consumers.
Management believes that in the mid- to long-term the continued growth of Romania’s real GDP, and
of the Romanian economy generally, will have some positive impact on electricity consumption in
Romania, which, in turn, will have a positive effect on Electrica’s business (in particular its supply segment)
and its results of its operations. In particular, Management believes that as long as Romanian economic
growth continues to outpace that of the EU, per capita electricity consumption in Romania is likely to
continue to rise. Conversely, a significant slowdown in the growth of Romania’s GDP and of the Romanian
economy in general could have some negative effect on energy consumption in Romania and, in turn, on
Electrica’s business (in particular with respect to its supply segment) and its results of operations. See
‘‘Risk factors—Demand for electricity in Romania is dependent on various factors over which the Company has
no control, such as economic, political, climatic conditions’’.
Capital expenditures
A core part of Management’s business strategy includes implementing an investment plan principally
in its distribution segment. Electrica’s operations require significant capital expenditures mostly connected
with its operations in the electricity distribution segment. Management plans to invest RON 6,271 million
in the 2014 - 2018 period. Furthermore, Electrica’s assets require periodic renovation and modernisation in
97
order to improve operational efficiency. For details of Electrica’s investment programme, see ‘‘Business—
Investment Programme’’.
Capital expenditures will only have the anticipated positive impact on Electrica’s result of operations
to the extent they are recognised in the RAB by ANRE and considering the rate of return approved by the
regulatory authority.
Electrica’s capital expenditures in the three month periods ended 31 March 2014 and 2013 amounted
to RON 109 million and RON 119 million, respectively, whereas in the years ended 31 December 2013,
2012 and 2011 they amounted to RON 650 million, RON 617 million and RON 554 million, respectively.
The volume of capital expenditure had a material impact, and according to Electrica’s expectations, will
continue to have an impact, on the results of Electrica’s operations, Electrica’s indebtedness, and future
cash flows. Any delays in the implementation of the investment programme, amendments to it or any
overspending in relation to it may have a material impact on Electrica’s capital expenditures in the future,
and on Electrica’s operations, financial condition and development prospects. Detailed information about
Electrica’s capital expenditures in the three month period ended 31 March 2014 and in the years ended
31 December 2013, 2012 and 2011, as well as the current and planned capital expenditures are presented
under ‘‘Capital expenditures’’ below.
Operating expenses
Electrica incurs considerable operating expenses, some of which it can influence and some of which it
does not control and which bear no correlation to Electrica’s revenue and results of operation. Operating
expenses that Electrica can control include electricity purchased, salaries and repair, and maintenance and
materials. Operating expenses that Electrica do not control include accidental repairs and related
materials, depreciation and amortisation and impairment of property, plant and equipment, tax and duties
paid according to the legislation in force and taxes and wages on salaries. Electrica’s operating expenses in
the three month periods ended 31 March 2014 and 2013 amounted to RON 1,124 million and
RON 1,343 million, respectively, whereas in the years ended 31 December 2013, 2012 and 2011 they
amounted to RON 4,951 million, RON 5,132 million and RON 5,689 million, respectively. The volume of
operating expenses had a material impact, and according to Electrica’s expectations, will continue to have
a material impact on the results of Electrica’s operations, Electrica’s indebtedness, and future cash flows.
Trend information and material developments post-balance sheet date
Trend information
Smart grid networks
Smart grid networks are being introduced across European electricity distribution and supply
industries. Smart grids, smart distribution networks and smart metering are intended to introduce real time
adjustment to the provision of electricity within an electricity distribution and supply network in order to
provide increased network flexibility and enable increased renewable electricity import, a reduction in
generation capacity requirements due to increased network efficiency and a strengthening of price
signalling in the market. The long term goal of these measures is to help to reduce electricity prices,
increase competition and reduce CO2 emissions. The introduction of smart metering to the Romanian
distribution network is a key part of the Group’s investment strategy and it was the first operator in
Romania to commence a major project in respect of the same, see ‘‘Business—Strengths—Strong
technological capability and management expertise’’.
Value Added Services
Management intends to leverage the Group’s strong brand identity to provide new value-added
services to existing and new customers, including electricity management, electricity efficiency consulting,
operation and maintenance, on-site distributed electricity generation and other energy solutions to
diversify its revenue streams from existing customers and generate revenue from new customers. In
addition, Management intends to reinforce the terms on which the Group purchases electricity on the
wholesale market by leveraging its market position and scale, increasing the efficiency of its operations by
investing in its sales’ function, and improving the customer collection rate in the Group’s supply segment
by streamlining its billing procedures.
In Management’s view, no significant changes other than those described above occurred since
31 December 2013 in the trends concerning Electrica’s business.
98
Material developments post-balance sheet date
Spin-off
Under the Spin-off, interests held by Electrica in Enel Distributie Muntenia S.A., Enel Energie
Muntenia S.A., Enel Distributie Banat S.A., Enel Distributie Dobrogea S.A., Enel Energie S.A., E.ON
Moldova Distributie S.A., E.ON Energie Romania S.A., Electrica Soluziona S.A., Bursa Romana de
Marfuri S.A. and Hidro Tarnita S.A. were transferred to SAPE. The Spin-off file was submitted to the
Trade Registry on 24 March 2014 and sent to the Bucharest Tribunal for court approval, which was granted
on basis of the ruling no. 343 of 10 April 2014. Subsequently, the Spin-off was registered with the Trade
Registry on the basis of the certificates for amendments registration No. 160229 of 6 May 2014, issued on
9 May 2014. Through the Spin-off, Electrica transferred to SAPE (together with the interests listed above)
all the rights and obligations resulting from the privatisation contracts previously signed with Enel, E.ON
and CEZ for the sale of Electrica’s shares in the above mentioned entities as well as all litigations or
disputes in which Electrica is currently involved with Enel, E.ON and CEZ regarding the transferred
minority interests and privatisation contracts. As part of the Spin-off, Electrica’s shareholder (the State
represented by the Ministry of Economy acting through the Department for Energy) has approved the
decrease of the share capital of Electrica by approximately RON 431 million (by cancellation of 43,123,780
ordinary shares, each with a nominal value of RON 10). The difference between the nominal amount of
the decrease of share capital and the amount of the adjustment included in the Consolidated Pro Forma
Financial Information represent the effect of the application of IAS 29 ‘‘Financial Reporting in
Hyperinflationary Economies’’ on the Group’s investments in these companies. See ‘‘Unaudited Pro Forma
Financial Information and Reports Thereon’’.
There is a possibility that the Spin-off impact to Electrica’s equity, save for the effect of the impact on
the share capital, may be different than the information presented throughout the Prospectus but not to a
significant extent.
Liquidation/insolvency of service subsidiaries
In 2013, SEMO, SED and SEB were placed under special administration procedure, and on
19 December 2013, respectively 20 December 2013 the GMSs of SEMO, SED and SEB approved their
dissolution and entry into liquidation. The procedure for selecting their liquidators started in February
2014 and on 17 April 2014 Electrica signed the contracts with the liquidators for SED and SEMO. During
May 2014, the liquidators have submitted to Electrica the documentation attesting the insolvency status for
SED and SEMO. For SEB, the procedure for selecting the liquidators is currently in progress. At the same
time, Electrica Serv has requested the opening of the insolvency procedure for SEB. SEO also
encountered financial difficulties and on 14 January 2014 its Board of Directors decided to commence of
insolvency proceedings relating to this subsidiary, as part of the Reorganisation. On 14 May 2014, Dolj
Court admitted the request from SEO and opened the general insolvency proceedings against SEO. For a
description of the liquidation of the service subsidiaries see ‘‘Reorganisation’’.
As at 31 March 2014, the carrying amount of the assets and liabilities of SEB, SED, SEMO and SEO,
included in the Unaudited Interim Consolidated Financial Statements are as follows:
SEMO
Property, plant and equipment . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . .
Payables to the State budget . . . . . . . . . . . . . . .
Social security and other salary taxes . . . . . . . . .
Provisions, employee benefits and deferred taxes
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Source: Unaudited Consolidated Financial Statements
99
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
41
1
0
42
(5)
(39)
(27)
(8)
(79)
31 March 2014
SED SEB SEO
(RON million)
14
50
2
1
1
0
17
51
(2) (7)
(22) (32)
(15) (24)
(3) (9)
(42) (72)
Total
36
141
4
8
0
2
40
151
(2) (15)
(4) (97)
(4) (70)
(13) (33)
(23) (215)
CFR repayment
As at 31 March 2014 and 31 December 2013, 2012 and 2011, the gross amount of the Group
receivable from CFR was RON 221 million and RON 241 million, RON 121 million and RON 609 million,
respectively. CFR had significant delays in paying the invoices; therefore, significant amounts were
recovered by means of compensations, forced executions or from amounts granted by the Government to
CFR, especially for the payment of electricity delivered on an ad-hoc basis. Following GD no. 1246/2011
for the increase of the budget of the Ministry of Transportation and Infrastructure for the payment of debts
towards energy suppliers and EGO no. 25/2012 for granting by the Ministry of Finance of a loan to CFR
for the payment of debts towards energy suppliers, Electrica Furnizare and CFR signed the 2012 CFR
Settlement Agreement under which an amount of approx. RON 315 million has been collected and late
payment penalties of RON 238 million have been written-off.
In addition, on 25 April 2014, Electrica Furnizare signed a second convention with CFR, the 2014
CFR Settlement Agreement, pursuant to which, on 13 May 2014, CFR paid the principal amount of the
debts owed to Electrica Furnizare that had accrued during 2012-2013, in the sum of RON 221 million.
Following that, approx. RON 30 million representing penalties for late payment will be cancelled (based on
an enactment to be issued allowing Electrica Furnizare to implement such measure). See ‘‘Material
Contracts—Power supply agreements between Electrica Furnizare and CFR’’
Description of key consolidated income statement items
For the purposes of the following discussion of Group’s results of operations, below is an explanation
of the key consolidated income statement items in the Audited Consolidated Financial Statements.
Revenue
Revenue. Revenue comprises the following items: revenue from the distribution of electricity,
revenue from the supply of electricity and other revenue. Revenue is recognised when it is probable that
the economic benefits associated with the transaction will flow to the Group, and the amount of the
revenue can be measured reliably. Revenue is recognised net of VAT, excises or other taxes related to the
sale.
Revenue from the distribution of electricity. Revenue from the distribution of electricity comprise
mainly revenue from the distribution tariffs charged for the distribution service as well as revenue from
settlements on the Balancing Market and DAM.
Revenue from the supply of electricity. Revenues from the supply of electricity comprises mainly the
value of electricity supplied to consumers on the retail market and on the wholesale market and revenues
from Green Certificates invoiced to consumers see ‘‘—Green Certificates’’ below). Electrica Furnizare is
designated as the sole supplier of last resort in the Northern Muntenia, Northern Transylvania and
Southern Transylvania.
Other revenue. Other revenue includes mostly repairs and maintenance and other services rendered,
release of depreciation of assets acquired from connection fees (customers’ contributions), reconnection
fees and sale of merchandise.
Other income
Other income. Other income includes mostly rent income, late payment penalties from clients and
commissions for the collection of radio and TV taxes.
Rent income. Rent income is generated by the distribution segment for pole and fibre optic rental to
telecom companies.
Commissions for the collection of radio and TV taxes. Commissions for the collection of radio and TV
taxes includes radio and TV taxes. Electrica Furnizare collects on behalf of the Romanian Radio Company
and the Romanian Television Company in accordance with Law no. 533/2003 that amended
Law no. 41/1994.
100
Operating expenses
Supply and distribution expenses.
The components of supply and distribution expenses are:
Electricity purchased. Electricity purchased includes the cost of electricity for the supply to
consumers or to other electricity suppliers, the cost of transmission and system services, and electricity
acquired to cover network losses.
Green Certificates. Green Certificates are accrued in Electrica’s consolidated income statement
based on the quantitative quota determined by ANRE representing the amount of Green Certificates that
Electrica has to purchase for the year based on the price of Green Certificates on the CMBC.
Salaries and other employee benefits. Salaries and other employee benefits include the cost of salaries
and related social security contributions and other employee benefits (e.g. meal tickets, termination
benefits, electricity quota, bonuses and other benefits provided under collective bargaining agreements,
etc.).
Repairs, maintenance and materials. Repairs, maintenance and materials include mainly maintenance
and repair works to the electricity distribution network and other third party services related to repairs to
technological buildings, control meters and safety equipment and maintenance of auxiliary equipment.
Depreciation and amortisation. Depreciation and amortisation consists mainly of the depreciation of
buildings, electricity distribution network and special constructions related to the electricity distribution
networks.
Impairment of property, plant and equipment, net. Impairment of property, plant and equipment, net
reflects both created and reversed impairment losses. In 2012, Electrica has recorded impairment losses
with respect to property, plant and equipment of the subsidiaries in financial distress (land and buildings
were adjusted under a forced sale assumption, and the value of measuring and control devices, vehicles,
furniture and office equipment has been estimated close to nil).
Reversal of impairment/ (Impairment) of receivables, net. Reversal of impairment/ (Impairment) of
receivables, net reflects impairment of receivables from clients in litigation, insolvency or bankruptcy
procedures, many of them being older than three years. The Group will derecognise these receivables
(together with related allowances) after the finalisation of the relevant bankruptcy process. Reversal of
impairment is mostly related to the collection of electricity invoices that were recovered by means of
compensations, forced executions or other means.
Reversal of write down/ (Write down) of inventories, net. Reversal of write down/ (Write down) of
inventories are mainly related to the inventories of the subsidiaries in financial distress.
Other operating expenses. Other operating expenses comprise mainly items related to rent expenses,
meter readings, printing and distribution of invoices, cash collection services, IT services, postage and
telecommunication and other taxes and duties and contractual penalties.
Financial income
Financial income comprises mainly interest income on deposits and foreign exchange gains on
financial assets and liabilities.
Finance costs
Finance costs comprise mainly interest expense, interest cost for employee benefits and net foreign
exchange losses.
Income tax
Income tax reported in Electrica’s consolidated income statement consists of the current tax expense
and deferred tax expense/(revenue). Current tax comprises the expected tax payable or receivable on the
taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous
years. Income tax also reflects any tax arising from dividends received by Electrica. Deferred tax is
recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
101
Results of Operations
Selected financial information from the consolidated income statement
The table below sets out selected financial information derived from Electrica’s consolidated income
statements included in the Audited Consolidated Financial Statements and Unaudited Consolidated
Financial Statements as well as EBITDA and adjusted EBITDA for the periods indicated.
Three month
period ended
31 March*
Year ended 31 December
2014
2013
2013
2012
2011
(RON million, unless specified otherwise)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electricity purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Green Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and other employee benefits . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repairs, maintenance and materials . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of property, plant and equipment, net . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment / (Reversal of impairment) of receivables, net .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down / (Reversal of write down) of inventories, net .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted investees, net
of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit / (loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit / (loss) for the period . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,211
32
2.6%
624
51.5%
92
7.6%
172
14.2%
11
0.9%
103
8.5%
0
0.0%
(3)
(0.2)%
0
0.0%
123
10.2%
119
9.8%
3
0.2%
4
0.3%
1,396
30
2.1%
837
60.0%
107
7.7%
177
12.7%
17
1.2%
98
7.0%
0
0.0%
(15)
(1.1)%
0
0.0%
123
8.8%
83
5.9%
5
0.4%
9
0.6%
5,157
133
2.6%
2,845
55.2%
414
8.0%
766
14.9%
103
2.0%
398
7.7%
13
0.3%
(21)
(0.4)%
(1)
0.0%
434
8.4%
338
6.6%
24
0.5%
35
0.7%
5,253
124
2.4%
3,089
58.8%
302
5.7%
755
14.4%
161
3.1%
398
7.6%
4
0.1%
(53)
(1.0)%
18
0.3%
458
8.7%
246
4.7%
22
0.4%
46
0.9%
0
0.0%
118
29
88
7.3%
222
18.3%
219
18.1%
16
1.1%
94
12
82
5.9%
180
12.9%
165
11.8%
63
1.2%
390
75
314
6.1%
749
14.5%
727
14.1%
247
4.7%
468
53
416
7.9%
647
12.3%
613
11.7%
5,368
216
4.0%
3,650
68.0%
91
1.7%
793
14.8%
209
3.9%
372
6.9%
7
0.1%
148
2.8%
14
0.3%
406
7.6%
(104)
(1.9)%
35
0.7%
53
1.0%
75
1.4%
(47)
33
(80)
(1.5)%
275
5.1%
436
8.1%
Source: Unaudited Consolidated Financial Statements.
(1)
EBITDA is defined and calculated as consolidated profit (loss) before tax adjusted for (i) consolidated depreciation,
amortisation and impairment /reversal of impairment of property, plant and equipment and intangible assets, ii) consolidated
net finance (cost)/income, iii) consolidated share of profit (loss) of equity-accounted investees (as disclosed in the income
statement in the Audited Consolidated Financial Statements and in the Unaudited Consolidated Financial Statements).
(2)
Adjusted EBITDA is defined as EBITDA adjusted for non-recurrent events (i) consolidated impairment / reversal of
impairment of trade and other receivables, net and (ii) consolidated write down / reversal of write down of inventories, net (as
disclosed in the income statement in the Audited Consolidated Financial Statements and in the Unaudited Consolidated
Financial Statements).
102
Neither EBITDA nor Adjusted EBITDA are IFRS measures and should not be treated as alternatives to IFRS measures.
Management believes that the presentation of EBITDA and Adjusted EBITDA enhances an investor’s understanding of the
Group’s financial performance. These non IFRS measures are not presented in accordance with IFRS and the Group’s use of
them may vary from others in the Group’s industry. These non IFRS measures have limitations as an analytical tool, and should
not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net profit/
(loss) for the period/year and EBITDA and Adjusted EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating
Information’’.
Three months period ended 31 March 2014 as compared to the three months period ended 31 March
2013
Revenue
The table below sets forth Electrica’s revenue for the periods indicated.
Three month
period ended
31 March
2014
2013
(RON million)
Electricity distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electricity supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External electricity network maintenance** . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Headquarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue before consolidation eliminations and adjustments
Consolidation eliminations and adjustments . . . . . . . . . . . . . . . . .
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
536
136
400
32.4%
1,103
1,059
44
66.6%
16
16
0
1.0%
0
0
0
0.0%
1,655
(444)
1,211
528
117
411
28.3%
1,312
1,251
61
70.2%
27
27
0
1.5%
0
0
0
0.0%
1,868
(472)
1,396
Source: Unaudited Consolidated Financial Statements. *75% of the electricity distribution segment business was performed
towards the supply segment for the three month period ended 31 March 2014; **External electricity network maintenance
include repairs, maintenance and other services for electricity networks owned by other distributors (includes services provided by
SEB, SED, SEMO, SEO and SEMU);***percentage of total revenue before consolidation eliminations and adjustments.
Electrica’s revenue in the three month periods ended 31 March 2014 and 2013 amounted to RON
1,211 million and RON 1,396 million, respectively. The decrease of revenue by RON 185 million, or 13.3%
in the three months period ended 31 March 2014 as compared to the three months period ended 31 March
2013 resulted mainly from the factors related to key line items included in revenue discussed below.
The contributions to Electrica’s revenue in the three month period ended 31 March 2014 by
Electrica’s distribution and supply segments were 32.4% and 66.6%, respectively; and in the three month
period ended 31 March 2013 were 28.3% and 70.2%, respectively. See ‘‘—Reporting by segments’’ below.
Revenue from the distribution segment increased by RON 8 million, or 1.5%, to RON 536 million in
the three month period ended 31 March 2014 from RON 528 million in the three month period ended
31 March 2013. This increase was mainly attributable to an increase of 1.4% in revenue from distribution
of electricity resulting from the 0.3% increase of the average regulated distribution tariff and 1.0%
increase in the quantities distributed. In the three month ended 31 March 2014 and 2013, revenue from the
distribution of electricity represented 90% from the total revenue of the distribution segment for both
periods (other revenue representing mainly distribution of reactive energy and revenue from the release
depreciation of assets acquired from connection fees).
103
Revenue from the supply segment decreased by RON 209 million or 15.9%, to RON 1,103 million in
the three month period ended 31 March 2014 from RON 1,312 million in the three month period ended
31 March 2013. In the three month period ended 31 March 2014 and 2013, revenue from the supply of
electricity represented 94% and 90%, respectively, of the revenue from the supply segment the difference
consisting in revenue from electricity trading activities. Revenue from the electricity supply decreased by
RON 143 million, or 12.1% to RON 1,034 million in the three month period ended 31 March 2014 from
RON 1,177 million in the three month period ended 31 March 2013. This decrease was mainly attributable
to a 5.0% decrease in the average supply tariff and to 30.7% decrease in the value of Green Certificates
included in the invoice to the final consumer from 51.50 RON/MWh in the three month ended 31 March
2013 to 35.71 RON/MWh in the three month period ended 31 March 2014, in accordance with the ANRE
regulation (see ‘‘Green Certificates’’ below). Additionally, the quantities supplied decreased by 4.6% due to
a decrease in electricity consumption nationally as a consequence of market liberalisation. Currently,
Electrica’s trading activity consists only of transactions on the Balancing Market and DAM.
Electrica’s revenue from the external electricity network maintenance in the three month period
ended 31 March 2014 and 2013 amounted to RON 16 million and RON 27 million, respectively. The
external electricity network maintenance for these periods were performed by SEB, SED, SEMO,SEO and
SEMU. A significant portion of the sales of these services subsidiaries relates to transactions with
distribution companies that have been privatised such as Enel, E.On and CEZ. The financial position of
SEB, SED, SEMO and SEO significantly deteriorated after the privatisation of the electricity distribution
operators in the Banat, Dobrogea, Moldova and Oltenia areas. Please see also, ‘‘The Reorganisation’’.
Operating expenses
The table below presents the structure of the operating expenses for the periods indicated.
Three month
period ended
31 March
2014
2013
(RON million)
Electricity purchased . . . . . . . . . . . . .
Green Certificates . . . . . . . . . . . . . . .
Salaries and other employee benefits .
Repairs, maintenance and materials . .
Depreciation and amortisation . . . . . .
Impairment / (Reversal of impairment)
Other operating expenses . . . . . . . . . .
Total operating expenses . . . . . . . . . .
..
..
..
..
..
of
..
..
............
............
............
............
............
trade and other
............
............
............
............
............
............
............
receivables, net
............
............
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
624
837
92
107
172
177
11
17
103
98
(3)
(15)
123
123
1,122 1,344
Source: Unaudited Consolidated Financial Statements
Electricity purchased
The table below presents the structure of the electricity purchased for the periods indicated.
Three month
period ended
31 March
2014
2013
(RON million)
Electricity acquired to cover network losses .
Transmission and system services . . . . . . . . .
Electricity purchased for supply and trading .
Total electricity purchased . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
157
70
397
624
189
61
587
837
Source: Unaudited Consolidated Financial Statements
The expense for electricity purchased decreased by RON 213 million, or 25.4%, to RON 624 million
in the three month period ended 31 March 2014 from RON 837 million in the three month period ended
31 March 2013. This decrease was primarily attributable to the decrease in the cost of the electricity
purchased for supply and trading by RON 190 million, or 32.4%, to RON 397 million in the three month
period ended 31 March 2014 from RON 587 million in the three month period ended 31 March 2013. The
104
decrease was mainly attributable to a 4.6% decrease in quantities supplied and to a 22.6% decrease in the
average electricity acquisition price.
The cost of the electricity purchased to cover network losses decreased by RON 32 million, or 16.9%,
to RON 157 million in the three month period ended 31 March 2014 from RON 189 million in the three
month period ended 31 March 2013. The decrease was mainly attributable to an 8.9% decrease in the
quantity of electricity acquired to cover the network losses and 9.0% decrease in the electricity acquisition
price.
As a percentage of revenue, the cost of electricity purchased was the main cost of the Group,
representing 51.6% in the three month period ended 31 March 2014 and 60% in the three month period
ended 31 March 2013.
Green Certificates
Green Certificates are accrued in the profit and loss based on the quantitative quota determined by
the regulator representing the amount of the Green Certificates that the Group has to purchase for the
year and based on the price of Green Certificates on the centralised market. The cost with the acquisition
of Green Certificates is a pass through cost.
The cost with the acquisition of the Green Certificates decreased by RON 15 million, or 14%, to RON
92 million in the three month period ended 31 March 2014 from RON 107 million in the three month
period ended 31 March 2013. This decrease was mainly attributable to the 38.3% reduction in the price of
Green Certificates from RON 243 per Green Certificate in the three month period ended 31 March 2013
to RON 150 per Green Certificate in the three month ended 31 March 2014. In 2014, the regulatory Green
Certificates quota imposed to the electricity suppliers by ANRE increased to 0.237 Green Certificates
per MWh supplied from 0.2117 Green Certificates per MWh supplied for the three month period ended
31 March 2013. As a percentage of revenue, the cost with the acquisition of Green Certificates represented
7.6% in the three month period ended 31 March 2014 and 7.7% in the three month period ended
31 March 2013.
Salaries and employee benefits
Expense for salaries and employee benefits decreased by RON 5 million, or 2.8%, to RON 172 million
in the three month period ended 31 March 2014 from RON 177 million in the three month period ended
31 March 2013. This decrease was primarily attributable to lay-offs implemented by Electrica Serv in 2013.
As a percentage of revenue, the expense for salaries and employee benefits represented 14.2% in the three
month period ended 31 March 2014 and 12.7% in the three month period ended 31 March 2013.
Repairs, maintenance and materials
Repairs, maintenance and materials expenses decreased by RON 6 million, or 35.3%, to RON
11 million in the three month period ended 31 March 2014 from RON 17 million in the three month
period ended 31 March 2013. This decrease was primarily attributable to a decrease of activity of the
services companies of the Group performing external electricity network maintenance. As a percentage of
revenue, the expense for repairs, maintenance and materials represented 0.9% in the three month period
ended 31 March 2014 and 1.2% in the three month period ended 31 March 2013.
Other operating expenses
Other operating expenses remained relatively constant in the three month period ended 31 March
2014 and 2013. As a percentage of revenue, other expenses represented 10.2% in the three month period
ended 31 March 2014 and 8.8% in the three month periods ended 31 March 2013.
Profit before tax
As a result of the factors described above, profit before tax increased by RON 24 million, or 25.5% to
RON 118 million in the three month period ended 31 March 2014 from RON 94 million in the three
month period ended 31 March 2013.
105
Income tax
The income tax increased by RON 17 million, or 141.7%, to RON 29 million in the three month
period ended 31 March 2014 from RON 12 million in the three month period ended 31 March 2013. This
increase was primarily attributable to an increase in the profitability of the distribution segment.
Net profit for the period
For the reasons discussed above, net profit for the year increased by RON 6 million, or 8.2%, to RON
88 million in the three month period ended 31 March 2014 from RON 82 million in the three month
period ended 31 March 2013.
EBITDA
Three month
period ended
31 March
2014
2013
(RON million)
EBITDA(*)
Electricity distribution segment . . . . . . .
Electricity supply segment . . . . . . . . . . .
External electricity network maintenance
Headquarter segment . . . . . . . . . . . . . .
EBITDA Electrica Group . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
187
60
(23)
(1)
222
147
49
(18)
2
180
Source: Unaudited Consolidated Financial Statements
* EBITDA for operating segments is defined and calculated as segment profit (loss) before tax adjusted for (i) segment depreciation,
amortisation and impairment /reversal of impairment of property, plant and equipment and intangible assets, ii) segment net finance
(cost)/income, iii) share of profit (loss) of equity-accounted investees (as disclosed in the income statement in the Unaudited
Consolidated Financial Statements). EBITDA is not an IFRS measure and should not be treated as alternative to IFRS measures.
Management believes that the presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance.
This non IFRS measure is not presented in accordance with IFRS and the Group’s use of them may vary from others in the Group’s
industry. This non IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
financial information as reported under IFRS. A reconciliation of net profit/(loss) for the period/year and EBITDA, is presented in
‘‘Selected Consolidated Financial and Operating Information’’.
EBITDA increased by RON 42 million or 23.3%, to RON 222 million in the three month period
ended 31 March 2014 from RON 180 million in the three month period ended 31 March 2013.
EBITDA from the distribution segment increased by RON 40 million or 27.2% to RON 187 million in
the three month period ended 31 March 2014 from RON 147 million in the three month period ended
31 March 2013. This increase was primarily attributable to an increase of 1.4% in the revenue from the
electricity distribution and a decrease of 17% of the cost of the electricity acquired to compensate for
network losses.
EBITDA from the supply segment increased by RON 11 million or 22.4% to RON 60 million in the
three month period ended 31 March 2014 from RON 49 million in the three month period ended
31 March 2013. This evolution was primarily attributable to a decrease of 32.4% in the cost of the
electricity purchased for supply and trading that partially offset the decrease of 15.9% in the revenue from
the supply segment.
As a percentage of revenue, EBITDA for the three month periods ended 31 March 2014 and 2013 was
18.3% and 12.9%, respectively.
106
Year ended 31 December 2013 as compared to the year ended 31 December 2012 and the year ended
31 December 2012 as compared to the year ended 31 December 2011
Revenue
The below table sets forth Electrica’s revenue for the periods indicated.
Year ended 31 December
2013
2012
2011
(RON million)
Distribution of electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue** . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supply of electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External electricity network maintenance . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Headquarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
External revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of revenue*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue before consolidation eliminations and adjustments
Consolidation eliminations and adjustments . . . . . . . . . . . . . . . . .
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2,056
1,944
1,873
486
447
423
1,570
1,498
1,449
29.6% 28.2% 27.0%
4,780
4,801
4,825
4,570
4,653
4,710
210
147
115
68.9% 69.6% 69.6%
101
153
235
101
153
235
—
—
—
1.5%
2.2%
3.4%
—
—
—
—
—
—
—
—
—
0.0%
0.0%
0.0%
6,937
6,898
6,932
(1,780) (1,645) (1,564)
5,157
5,253
5,368
Source: Audited Consolidated Financial Statements. *for the year ended 31 December 2013, 76% of the electricity distribution
segment business is performed towards the supply segment; **External electricity network maintenance include repairs,
maintenance and other services for electricity networks owned by other distributors (includes services provided by SEB, SED,
SEMO, SEO and SEMU); *** percentage of total revenue before consolidation eliminations and adjustments.
Electrica’s revenue in the years ended 31 December 2013, 2012 and 2011 amounted to RON
5,157 million, RON 5,253 million and RON 5,368 million, respectively. The decrease in revenue of RON
96 million, or 1.8%, in the year ended 31 December 2013 as compared to the year ended 31 December
2012 and the decrease in revenue of RON 115 million, or 2.2%, in the year ended 31 December 2012 as
compared to the year ended 31 December 2011, resulted primarily from the factors discussed below.
The contributions to Electrica’s revenue by the distribution and supply segments for the year ended
31 December 2013 were 29.6% and 68.9%, respectively; for the year ended 31 December 2012 were 28.2%
and 69.6%, respectively; and for the year ended 31 December 2011 were 27%, and 69.6%, respectively. See
‘‘—Reporting by segments’’ below.
Revenue from the distribution segment increased by RON 112 million, or 5.8%, to RON 2,056 million
in the year ended 31 December 2013 from RON 1,944 million in the year ended 31 December 2012. This
increase was mainly attributable to an increase of 7.2% in revenue from distribution of electricity resulting
from the 8.6% increase of the average regulated distribution tariff that partially offset the 1.2% decrease in
the quantities distributed. Revenue from the distribution segment increased by RON 71 million, or 3.8%,
to RON 1,944 million in the year ended 31 December 2012 from RON 1,873 million in the year ended
31 December 2011. This increase was mainly attributable to an increase of 4.6% in revenue from
distribution of electricity resulting from the 4.1% increase of the average regulated distribution tariff in the
second half of 2012 and a relatively constant level of quantities distributed. In 2013, 2012 and 2011,
revenue from the distribution of electricity represented 90%, 89% and 88%, respectively from the total
revenue of the distribution segment (other revenue representing mainly distribution of reactive energy and
revenue from the release of connection fees).
Revenue from the supply segment decreased by RON 21 million or 0.4%, to RON 4,780 million in the
year ended 31 December 2013 from RON 4,801 million in the year ended 31 December 2012. In 2013,
2012 and 2011, revenue from the supply of electricity represented 91%, 87% and 83%, respectively, of the
revenue from the supply segment the difference consisting in revenue from electricity trading activities.
107
Revenue from the electricity supply increased by RON 216 million, or 5.2% to RON 4,370 million in the
year ended 31 December 2013 from RON 4,154 million in the year ended 31 December 2012. This increase
was mainly attributable to a 13% increase in the average supply tariff. Additionally, the regularized value
of the Green Certificates included in the invoice to the final consumer increased from RON 28.98
per MWh in 2012 to RON 42.74 per MWh in 2013, by 47%, following the increase in the quota of Green
Certificates, see ‘‘Green Certificates’’ below. This increase in tariffs (inclusive of Green Certificates) offset
the 9.1% decrease in quantities supplied due to a decrease in electricity consumption nationally and the
cessation of supply to one of Electrica’s major clients, Oltchim which is currently in insolvency, as well as to
other clients facing financial difficulties. Revenue from the supply segment decreased by RON 24 million
or 0.5%, to RON 4,801 million in the year ended 31 December 2012 from RON 4,825 million in the year
ended 31 December 2011. Revenue from the electricity supply increased by RON 127 million, or 3.15% to
RON 4,154 million in the year ended 31 December 2012 from RON 4,027 million in the year ended
31 December 2011. This increase was mainly attributable to a 6% increase in the average supply tariffs.
Additionally, the value of Green Certificates included in the invoice to the consumer increased from RON
9.03 per MWh in 2011 to RON 28.98 per MWh in 2012, by 221%, following the increase in the quota of
Green Certificates. This increase in tariffs (inclusive of Green Certificates) offset the 8.2% decrease in
quantities supplied due to a decrease of the electricity consumption at the national level and, starting the
second half of 2012, cessation of supply to Oltchim. Revenue from the supply segment was also affected by
the decrease of the revenue from Electrica’s trading activity by 37% in 2013 as compared to 2012 and by
19% in 2012 as compared to 2011. Currently, Electrica’s trading activity consists only of transactions on the
Balancing Market and DAM.
Electrica’s revenue from the external electricity network maintenance in the years ended
31 December 2013, 2012 and 2011 amounted to RON 101 million, RON 153 million and RON 235 million,
respectively. The external electricity network maintenance for these periods was performed by SEB, SED,
SEMO, SEO and SEMU. A significant portion of the sales of these services subsidiaries relates to
transactions with distribution companies that have been privatised, such as Enel, E.On and CEZ. The
financial position of SEB, SED, SEMO and SEO significantly deteriorated after the privatisation of the
electricity distribution operators in the Banat, Dobrogea, Moldova and Oltenia areas. See ‘‘The
Reorganisation’’.
Operating expenses
The table below presents the structure of the operating expenses for the periods indicated.
Year ended 31 December
2013
2012
2011
(RON million)
Electricity purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Green Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and other employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repairs, maintenance and materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of property, plant and equipment, net . . . . . . . . . . . . . . . . . .
Impairment / (Reversal of impairment) of trade and other receivables, net
Write down / (Reversal of write down) of inventories, net . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Source: Audited Consolidated Financial Statements.
108
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2,845 3,089 3,650
414
302
91
766
755
793
103
161
209
398
398
372
13
4
7
(21)
(53)
148
(1)
18
14
434
458
406
4,951 5,132 5,690
Electricity purchased
The table below presents the structure of the electricity purchased for the periods indicated.
Year ended 31 December
2013
2012
2011
(RON million)
Electricity acquired to cover network losses .
Transmission and system services . . . . . . . . .
Electricity purchased for supply and trading .
Total electricity purchased . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
521
304
2,020
2,845
474
345
2,270
3,089
516
287
2,846
3,650
Source: Audited Consolidated Financial Statements.
The cost of electricity purchased decreased by RON 244 million, or 7.9%, to RON 2,845 million in the
year ended 31 December 2013 from RON 3,089 million in the year ended 31 December 2012. This
decrease was primarily attributable to the decrease in the cost of the electricity purchased for supply and
trading by RON 250 million, or 11%, to RON 2,020 million in the year ended 31 December 2013 from
RON 2,270 million in the year ended 31 December 2012. The decrease was mainly attributable to the
following factors: (i) a decrease in quantities supplied, (ii) an increase of 4% in the average electricity
acquisition price and (iii) a decrease of 19% in the electricity trading activity. According to the current
legislation, more than 80% of the electricity acquisition contracts related to electricity supplied to
consumers on the regulated market are regulated. Therefore, the electricity acquisition prices depend on
the type of electricity producer that has been mandated by ANRE.
The cost of the electricity acquired to cover network losses increased by RON 47 million, or 9.9%, to
RON 521 million in the year ended 31 December 2013 from RON 474 million in the year ended
31 December 2012. The increase was mainly attributable to a 10% increase in the acquisition price.
The cost of electricity purchased decreased by RON 561 million, or 15.4%, to RON 3,089 million in
the year ended 31 December 2012 from RON 3,650 million in the year ended 31 December 2011. This
decrease was primarily attributable to the decrease in the cost of the electricity purchased for supply and
trading by RON 576 million, or 20.2%, to RON 2,270 million in the year ended 31 December 2012 from
RON 2,846 million in the year ended 31 December 2011. The decrease was mainly attributable to the
following factors: (i) a decrease in quantities supplied, (ii) a decrease of 5% in the average electricity
acquisition price and (iii) a decrease of 19% in the electricity trading activity. In 2012, Electrica mostly
acquired electricity from producers with lower tariffs such as Hidroelectrica as opposed to 2011 when
weather conditions caused Hidroelectrica to declare force majeure and Electrica was forced to buy
electricity from more expensive thermo electric (i.e. coal fired) power producers.
The cost of electricity acquired to cover network losses decreased by RON 42 million, or 8.1%, to
RON 474 million in the year ended 31 December 2012 from RON 516 million in the year ended
31 December 2011. The decrease was mainly attributable to a 9% decrease in its acquisition price.
As a percentage of revenue, the cost of electricity purchased was the main cost of the Group,
representing 55% in the year ended 31 December 2013, 59% in the year ended 31 December 2012 and
68% in the year ended 31 December 2011.
Green Certificates
The impact of the acquisition and sale of Green Certificates is accrued in the consolidated income
statement of the Group based on the quantitative quota determined by ANRE representing the amount of
Green Certificates that the Group has to purchase for the year and based on the price of Green
Certificates on the Green Certificates Market. The cost of acquisition of Green Certificates is passed
through to customers.
The cost of acquisition of Green Certificates increased by RON 112 million, or 37.1%, to
RON 414 million in the year ended 31 December 2013 from RON 302 million in the year ended
31 December 2012. This increase was mainly attributable to the fact that in 2013 ANRE almost doubled
the regulatory Green Certificates quota imposed to the electricity suppliers from 0.1188 Green Certificates
per MWh supplied in 2012 to 0.224 Green Certificates per MWh supplied in 2013. This increase was
partially offset by a 22% reduction in the price of Green Certificates from RON 244 per Green Certificate
in 2012 to an average of RON 191 per Green Certificate in 2013.
109
The cost of acquisition of Green Certificates increased by RON 211 million, or 232%, to
RON 302 million in the year ended 31 December 2012 from RON 91 million in the year ended
31 December 2011. This increase was mainly attributable to the fact that in 2012 ANRE tripled the
regulatory Green Certificates quota imposed to the electricity suppliers from 0.03746 Green Certificates
per MWh supplied in 2011 to 0.1188 Green Certificates per MWh supplied in 2012. The price of Green
Certificates increased by 1.2% from RON 241 per Green Certificate in 2011 to RON 244 per Green
Certificate in 2012.
Salaries and employee benefits
The table below presents the structure and level of the salaries and employee benefits costs for the
periods indicated.
Year ended
31 December
2013
2012
2011
(RON million)
Wages and salaries . . . . . . .
Social security contributions
Meal tickets . . . . . . . . . . . .
Termination benefits . . . . . .
Other employee benefits . . .
Total . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
563
165
21
4
13
766
559
165
21
1
8
755
575
153
23
42
0
793
Source: Audited Consolidated Financial Statements.
Salaries and employee benefits increased by RON 11 million, or 1.46%, to RON 766 million in the
year ended 31 December 2013 from RON 755 million in the year ended 31 December 2012. This increase
was attributable to employee bonuses accrued by the distribution companies and by lay-off expenses
incurred by Electrica Serv. Electrica’s employees benefit from a bonus mechanism established by law.
According to Government Ordinance no. 64/2001 and Minister of Finance Order no. 144/2005, companies
controlled by the State which have established in their budgets the obligation of participation to the profit
of their employees based on the financial results for the year, may grant these rights limited to 10% of the
net profit, but no more than the average monthly basic salary at the entity level, in the respective financial
year. During 2013, the Group used a restructuring provision of RON 3.7 million raised in 2012, on
settlement of lay-off liabilities. As a percentage of revenue, the salaries and employee benefits increased
slightly to 14.9% in the year ended 31 December 2013 from 14.4% in the year ended 31 December 2012.
Salaries and employee benefits decreased by RON 38 million, or 4.8%, to RON 755 million in the
year ended 31 December 2012 from RON 793 million in the year ended 31 December 2011. The decrease
was primarily attributable to the restructuring of Electrica Serv and the Spin-off and implementation of a
collective lay-off plan for its employees. During 2011, the Group used the restructuring provision of
RON 41.9 million recorded in 2010, after the lay-off of 1,354 employees, on settlement of lay-off liabilities.
As a percentage of revenue, the salaries and employee benefits decreased to 14.4% in the year ended
31 December 2012 from 14.8% in the year ended 31 December 2011.
Repairs, maintenance and materials
Repairs, maintenance and materials expenses decreased by RON 58 million, or 36%, to
RON 103 million in the year ended 31 December 2013 from RON 161 million in the year ended
31 December 2012. The decrease was primarily attributable to a decrease of activity of the services
companies of the Group performing external electricity network maintenance, as well as a decrease in
accidental and force majeure repair costs with both factors leading to lower expenses for spare parts and
other materials.
Repairs, maintenance and materials expenses decreased by RON 47 million, or 23%, to
RON 161 million in the year ended 31 December 2012 from RON 209 million in the year ended
31 December 2011. The decrease was primarily attributable to a decrease of external electricity network
maintenance by the Group’s service companies.
As a percentage of revenue, repairs, maintenance and materials expenses amounted to 2%, 3% and
4% in the years ended 31 December 2013, 2012 and 2011, respectively.
110
Impairment / (Reversal of impairment) of trade and other receivables, net
The table below presents the movements in the impairment of trade and other receivables for the
periods indicated.
Year ended 31 December
2013
2012
2011
(RON million)
Impairment of Trade receivables
Balance as at 1 January . . . . . . . . . . .
Impairment recognised . . . . . . . . . . . .
Impairment reversed . . . . . . . . . . . . .
Amounts written-off . . . . . . . . . . . . . .
Balance as at 31 December . . . . . . . . .
Impairment of Other receivables
Balance as at 1 January . . . . . . . . . . .
Impairment recognised . . . . . . . . . . . .
Impairment reversed . . . . . . . . . . . . .
Amounts written-off . . . . . . . . . . . . . .
Balance as at 31 December . . . . . . . . .
Impairment / (Reversal of impairment)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
..............
..............
..............
..............
..............
of trade and other
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.........
.........
.........
.........
.........
receivables
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,189 1,443 1,298
54
67
288
(75) (134) (143)
(2) (188)
—
1,166 1,189 1,443
39
1
(5)
35
(21)
25
27
(12)
—
39
(53)
22
3
—
—
25
148
Source: Audited Consolidated Financial Statements.
A significant part of the Group’s bad debt allowances refer to customers in litigation, insolvency or
bankruptcy procedures, many of them being older than three years. As at 31 December 2013, 33% of the
Group’s gross trade receivable balances are older than three years. Electrica will derecognise these
receivables together with the related allowances after the finalisation of the relevant bankruptcy process
relating to their customers.
Significant movements recorded in the impairment of trade and other receivables during the indicated
period relate mainly to receivables due from Oltchim and CFR.
On 31 December 2011, the Group receivable from CFR was about RON 609 million (provisioned for
55%). CFR had significant delays in paying the invoices; therefore, significant amounts were recovered by
means of compensations, forced executions or from amounts granted by the Government to CFR,
especially for the payment of electricity on an ad-hoc basis. As a result of such aids granted by the State, in
2012 Electrica Furnizare and CFR signed the 2012 CFR Settlement Agreement under which an amount of
RON 315 million has been collected and late payment penalties of RON 238 million have been written-off.
Consequently, the Group released allowances of RON 96 million related to the amounts collected and
used an allowance of RON 181 million related to the penalties cancelled. In 2012 and 2013, the remaining
provision for CFR receivables was reversed and in 2013 no provisions were recorded for CFR receivables.
See ‘‘Material Contracts—Power supply agreements between Electrica Furnizare with CFR’’.
During the indicated period, significant allowances were booked for Oltchim, due to its financial
difficulties, which entered in insolvency in January 2013. The receivable from Oltchim in amount of
RON 715 million has been fully provisioned during the indicated period.
111
Other operating expenses
The table below presents the structure and level of other operating expenses for the periods indicated.
Year ended
31 December
2013
2012
2011
(RON million)
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meter readings . . . . . . . . . . . . . . . . . . . . . . . .
Printing and distribution of invoices . . . . . . . . .
Cash collection services . . . . . . . . . . . . . . . . . .
IT services . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postage and telecommunication . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Call center . . . . . . . . . . . . . . . . . . . . . . . . . . .
Penalties to the State for late payment of taxes
Contractual penalties . . . . . . . . . . . . . . . . . . .
Other taxes and duties . . . . . . . . . . . . . . . . . .
Movement in provisions . . . . . . . . . . . . . . . . .
Legal and consultancy fees . . . . . . . . . . . . . . .
Cost of the merchandise sold . . . . . . . . . . . . . .
Bank commissions . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other operating expenses . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
49
38
35
26
38
28
29
7
7
13
24
46
5
10
10
10
62
434
43
36
33
25
48
21
28
6
5
29
10
26
27
10
10
10
91
458
37
34
47
25
48
23
29
7
6
57
14
26
(42)
3
15
6
68
406
Source: Audited Consolidated Financial Statements.
Other operating expenses decreased by RON 24 million, or 5%, to RON 434 million in the year ended
31 December 2013 from RON 458 million in the year ended 31 December 2012 and increased by
RON 52 million, or 13%, to RON 458 million in the year ended 31 December 2012 from RON 406 million
in the year ended 31 December 2011.
As a percentage of revenue, other operating expenses amounted to 8.4%, 8.7% and 7.6% in the years
ended 31 December 2013, 2012 and 2011.
The main changes in the evolution of other operating expenses during the period under review
occurred at the level of penalties to the State for late payment of taxes, contractual penalties, other taxes
and duties and provisions (restructuring & other).
Penalties to the State for late payment of taxes represent fiscal obligations of the Group to the State
mainly in relation to Electrica Serv including, VAT, social insurance contribution for its employees and
other payables to the State budget, that were rescheduled for a period of 48 months from August 2012.
GD no. 5/2013 introduced a monopoly tax on the distribution activity of RON 0.75 per MWh which
resulted in additional tax expenses of RON 11 million. As a result other taxes and duties increased in 2013.
However, the monopoly tax is passed through to consumers of the Group.
The increase in contractual penalties registered in 2013 relates to penalties incurred by the Group
from the early termination of several contracts with electricity producers due to unfavourable pricing
conditions.
Provision expenses include mainly provisions for litigation and other risks and provisions for restructuring.
The provisions raised in 2013 refer mainly to fiscal risks and litigations with the Romanian Fiscal Authority,
ANAF for late payment penalties claimed by the fiscal authority. During 2013, the Group used a restructuring
provision of RON 3.7 million raised in 2012 on settlement of termination benefits and reversed provisions
related to litigations and other risks of RON 15.8 million. The main provisions recorded in 2012 refer to RON
15.6 million representing claims of individuals over land of the Group; RON 2.6 million representing damages
claimed by a company for flaws in the electricity network; and RON 8.6 million representing late payment
penalties claimed by ANAF. In 2012, the Group provisioned in the amount of RON 16.5 million for losing
litigation with ANAF and reversed provisions related to litigations and other risks of RON 8.7 million. The
main provisions recorded in 2011 refer to RON 8.2 million representing late payment penalties claimed by
ANAF. During 2011, the Group used a restructuring provision of RON 41.9 million recorded in 2010 after the
lay-off of 1,354 employees on settlement of termination benefits.
112
Other includes expenses such as marketing, transportation, losses related to assets sold, etc. This
represents 14.3% of the total other operating expenses in the year ended 31 December 2013, 19.9% in the
year ended 31 December 2012 and 16.7% in the year ended 31 December 2011.
Net finance costs
The table below presents Electrica’s net finance cost for the periods indicated.
Year ended
31 December
2013
2012
2011
(RON million)
Interest income on deposits . . . . . .
Other finance income . . . . . . . . . .
Total finance income . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . .
Interest cost for employee benefits .
Net foreign exchange losses . . . . . .
Other finance costs . . . . . . . . . . . .
Total finance costs . . . . . . . . . . . .
Net finance cost . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
23
0
24
(20)
(12)
(2)
(1)
(35)
(12)
22
0
22
(28)
(13)
(2)
(2)
(46)
(24)
28
8
35
(33)
(13)
(5)
(2)
(53)
(17)
Source: Audited Consolidated Financial Statements.
Net finance cost decreased by RON 12 million, or 50%, to RON 12 million in the year ended
31 December 2013 from RON 24 million in the year ended 31 December 2012. The decrease was primarily
attributable to a decrease in interest expense due to repayments of bank borrowings and financial leases.
Net finance cost increased by RON 7 million, or 41.2%, to RON 24 million in the year ended
31 December 2012 from RON 17 million in the year ended 31 December 2011. The change in net finance
cost was primarily attributable to a decrease in the total finance income by 37.5% mainly due to a decrease
in the interest income on deposits and a decrease in the total finance costs by 12.3% mainly due to a
decrease in the interest expense due to repayments of bank borrowings and financial leases.
Profit before tax
As a result of the factors described above, profit before tax decreased by RON 78 million, or 16.7% to
RON 390 million in the year ended 31 December 2013 from RON 468 million in the year ended
31 December 2012 and profit before tax increased by RON 515 million, to RON 468 million in the year
ended 31 December 2012 from a loss of RON 47 million in the year ended 31 December 2011.
Income tax
The table below presents Electrica’s income tax for the periods indicated.
Year ended
31 December
2013
2012
2011
(RON million)
Current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense/ (release) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
13
75
48
5
53
38
(5)
33
Source: Audited Consolidated Financial Statements.
Electrica’s income tax increased by RON 22 million, or 41.5%, to RON 75 million in the year ended
31 December 2013 from RON 53 million in the year ended 31 December 2012. The current tax expense
increased by RON 14 million, or 29.2%, to RON 62 million in the year ended 31 December 2013 from
RON 48 million in the year ended 31 December 2012. The increase was mainly attributable to changing
the destination of statutory reserves from release of revaluation reserve. Electrica recorded in 2013 an
amount of RON 11 million current income tax on this operation. The deferred tax expense increased by
RON 8 million, or 160%, to RON 13 million in the year ended 31 December 2013 from RON 5 million in
the year ended 31 December 2012. In 2012, deferred tax releases were performed in connection with tax
113
losses carried forward (deferred tax revenue of RON 26 million) and with changes in the value of property,
plant and equipment (deferred tax revenue of RON 12 million) which offset the deferred tax expense
related to changes in the impairment of trade receivables (deferred tax expense of RON 42 million). In
2013, the deferred tax expense resulted mainly from changes in the impairment of trade receivables
(deferred tax expense of RON 10 million). The effective tax rates were 19% and 11% in the years ended
31 December 2013 and 31 December 2012, respectively.
Electrica’s income tax increased by RON 20 million, or 60.6%, to RON 53 million in the year ended
31 December 2012 from RON 33 million in the year ended 31 December 2011. The current tax expense
increased by RON 10 million, or 26%, to RON 48 million in the year ended 31 December 2012 from RON
38 million in the year ended 31 December 2011. In 2011, deferred tax releases were performed in
connection with employee benefits (deferred tax revenue of RON 5 million) and with changes in the value
of property, plant and equipment (deferred tax revenue of RON 2 million) which offset a deferred tax
expense related to the changes in the impairment of trade receivables (deferred tax expense of RON
3 million). The effective tax rates were 11% and 71% in the years ended 31 December 2012 and
31 December 2011, respectively.
Deferred tax assets have not been recognised in respect of the following items, because it is not
probable that future taxable profit will be available to set it against at the relevant Group entity.
Year ended
31 December
2013
2012
2011
(RON million)
Tax losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
263
383
319
Tax losses recorded by companies within the Group have been generated and expire as follows:
Tax Losses
Year ended
31 December
2013
2012
2011
(RON million)
Year when the tax loss was generated:
2013 (expiring in 2020) . . . . .
2012 (expiring in 2019) . . . . .
2011 (expiring in 2018) . . . . .
2010 (expiring in 2016 - 2017)
2009 (expiring in 2014) . . . . .
2008 (expiring in 2013) . . . . .
Total . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
66
70
—
67
60
—
263
—
70
67
67
67
112
383
—
—
67
67
67
118
319
The Group has not recognised deferred tax assets for tax losses related to the service subsidiaries with
financial difficulties. The Group also has not recognised deferred tax assets for tax losses generated before
2011 (this was generated by one company within the Group), as it is considered unlikely that future taxable
profit would be sufficient to recover such assets.
Net profit/(loss) for the financial year
For the reasons discussed above, Electrica’s net profit for the year decreased by RON 102 million, or
24.5%, to RON 314 million in the year ended 31 December 2013 from RON 416 million in the year ended
31 December 2012. Electrica’s net profit for the year increased by RON 496 million, or 620%, to RON
416 million in the year ended 31 December 2012 from a loss of RON 80 million in the year ended
31 December 2011.
114
EBITDA
The table below presents Electrica’s EBITDA for the periods indicated:
Year ended
31 December
2013
2012
2011
(RON million)
EBITDA(*)
Electricity distribution segment . . . . . . . . . . . . . .
Electricity supply segment . . . . . . . . . . . . . . . . .
External electricity network maintenance segment
Headquarter segment . . . . . . . . . . . . . . . . . . . . .
EBITDA Electrica Group . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
681 623
440
117 116 (110)
(42) (92) (32)
(7) —
(23)
749 647
275
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, ii) segment net finance (cost)/income, and (iii) share of profit (loss) of equity-accounted investees
(as disclosed in the income statement) . EBITDA is not an IFRS measure and should not be treated as alternative to IFRS measures.
Management believes that the presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance.
This non IFRS measure is not presented in accordance with IFRS and the Group’s use of them may vary from others in the Group’s
industry. This non IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
financial information as reported under IFRS. A reconciliation of net profit/(loss) for the period/year and EBITDA, is presented in
‘‘Selected Consolidated Financial and Operating Information’’.
EBITDA increased by RON 102 million or 15.8% to RON 749 million in the year ended 31 December
2013 from RON 647 million in the year ended 31 December 2012.
EBITDA from the distribution segment increased by RON 58 million or 9.3% to RON 681 million in
the year ended 31 December 2013 from RON 623 million in the year ended 31 December 2012. The
increase was primarily attributable to an increase of 7.2% in revenue from electricity distribution mainly
due to an 8.6% increase in the average regulated distribution tariff, partially offsetting a 1.2% decrease in
quantities distributed and a 2.5% increase in operating expenses.
EBITDA from the supply segment remained relatively constant in the year ended 31 December 2013
and in the year ended 31 December 2012.
EBITDA increased by RON 372 million or 135.3% to RON 647 million in the year ended
31 December 2012 from RON 275 million in the year ended 31 December 2011.
EBITDA from the distribution segment increased by RON 183 million or 41.6% to RON 623 million
in the year ended 31 December 2012 from RON 440 million in the year ended 31 December 2011. The
increase was primarily attributable to an increase of 4.6% in revenue from distribution of electricity
resulting from the 4.1% increase of the average regulated distribution tariff and a relatively constant level
of quantities distributed while the operating expenses decreased by 3.5%.
EBITDA from the supply segment increased by RON 226 million to RON 116 million in the year
ended 31 December 2012 from a negative EBITDA of RON 110 million in the year ended 31 December
2011. In 2011 EBITDA has been influenced by the impairment losses recorded by Electrica for Oltchim in
amount of RON 227 million. In 2012, Electrica collected receivables from CFR in the amount of RON
315 million and late payment penalties of RON 238 million have been written-off. Consequently, the
Group released allowances of RON 96 million related to the amounts collected and used an allowance of
RON 181 million related to the penalties cancelled. See ‘‘Material Contracts—Power supply agreements
between Electrica Furnizare with CFR’’.
As a percentage of revenue, EBITDA for the years ended 31 December 2013, 2012 and 2011 was
14.5%, 12.3% and 5.1%, respectively.
Reporting by Segments
The external financial reporting of the Group is based on business segments. The Group’s core
business segments are distribution and supply of electricity. In addition, the Group has two other segments
being external electricity network maintenance services and headquarter. For the purpose of this
Prospectus, management considers these two additional segments to be non-material and non-core to the
Group.
115
The electricity distribution segment includes the distribution of electricity and other activities directly
or indirectly related to the distribution business, including operation of a maintenance and service
business, related to its own distribution network.
The electricity supply segment comprises the activity of purchasing and supplying electricity to
consumers.
Third party electricity network maintenance includes repairs, maintenance and other services for
electricity networks owned by other distributors and headquarter include corporate services at parent level.
Three month period ended 31 March 2014 as compared to the three month period ended 31 March 2013
The table below shows the allocation of selected financial data to the four business segments for the
three month periods ended 31 March 2014 and 2013.
Three month period ended
31 March 2014
(RON million)
External revenue . . . . . . .
Inter-segment revenue . . .
Segment revenue . . . . . . .
Segment profit (loss)
before tax . . . . . . . . . .
Net finance (cost)/income .
Depreciation, amortisation
and impairment of
PP&E, net . . . . . . . . . .
EBITDA* . . . . . . . . . . . .
Segment net profit (loss) . .
Salaries and other
employee benefits . . . . .
Share of profit (loss) of
equity accounted
investees . . . . . . . . . . .
Segment assets . . . . . . . .
Trade and other receivables
Cash and cash equivalents .
Assets held for distribution
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . .
Bank overdrafts . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . .
Capital expenditure . . . . .
External
electricity
Total for
Consolidated
Electricity Electricity
network
reportable eliminations and Consolidated
supply
distribution maintenance Headquarter segments
adjustments
total
1,059
44
1,103
136
400
536
16
0
16
0
0
0
1,211
444
1,655
0
(444)
(444)
1,211
0
1,211
59
0
86
0
(24)
0
(3)
(2)
118
(1)
0
0
118
(1)
(1)
60
42
(100)
187
74
(1)
(23)
(24)
(1)
(1)
(3)
(103)
222
88
0
0
0
(103)
222
88
(19)
(128)
(21)
(4)
(172)
0
(172)
0
1,226
1,012
113
0
0
6,767
633
404
0
0
362
41
2
0
0
268
0
148
2,232
0
8,624
1,686
668
2,232
0
1,492
(630)
0
0
0
10,116
1,056
668
2,232
784
0
327
12
398
0
2
26
1,511
38
(538)
0
973
38
0
1
251
108
0
0
0
0
251
109
0
0
251
109
Source: Unaudited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment /reversal of impairment of property, plant and
equipment and intangible assets, ii) segment net finance (cost)/income, iii) share of profit (loss) of equity-accounted investees (as
disclosed in the income statement in the Unaudited Consolidated Financial Statements). EBITDA is not an IFRS measure and
should not be treated as alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an
investor’s understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and
the Group’s use of them may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool,
and should not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net
profit/(loss) for the period/year and EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating Information’’.
116
Three month period ended
31 March 2014
(RON million)
External revenue . . . . . . . . . .
Inter-segment revenue . . . . . .
Segment revenue . . . . . . . . . .
Segment profit (loss) before
tax . . . . . . . . . . . . . . . . . .
Net finance (cost)/income . . . .
Depreciation, amortisation and
impairment of PP&E, net . .
EBITDA* . . . . . . . . . . . . . . .
Net profit (loss) . . . . . . . . . . .
Salaries and other employee
benefits . . . . . . . . . . . . . . .
Segment assets . . . . . . . . . . .
Trade and other receivables . . .
Cash and cash equivalents . . . .
Trade and other payables, and
short term employee benefits
Bank overdrafts . . . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . . . .
Capital expenditure . . . . . . . .
Distribution
Muntenia
Nord
Distribution
Transilvania
Nord
Distribution
Transilvania
Sud
Electricity
network
maintenance
Eliminations
3
80
83
0
(78)
(78)
136
400
536
50
128
179
Total
Electricity
distribution
43
144
187
40
125
165
26
1
34
0
27
(1)
(1)
0
0
0
86
0
(26)
51
26
(35)
69
28
(36)
64
22
(4)
3
(1)
0
0
0
(100)
187
74
(31)
2,341
160
329
(29)
1,822
132
16
(27)
1,989
147
47
(42)
529
281
12
0
87
(87)
0
(128)
6,767
633
404
(87)
0
327
12
0
0
251
108
109
0
99
0
101
12
104
0
81
29
47
33
123
46
1
0
Source: Unaudited Consolidated Financial Statements *EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment /reversal of impairment of property, plant and
equipment and intangible assets, and ii) segment net finance (cost)/income. EBITDA is not an IFRS measure and should not be
treated as alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an investor’s
understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and the
Group’s use of them may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net
profit/(loss) for the period/year and EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating Information’’.
Three month period ended
31 March 2013
(RON million)
External revenue . . . . . . . . .
Inter-segment revenue . . . . . .
Segment revenue . . . . . . . . .
Segment profit (loss) before
tax . . . . . . . . . . . . . . . . .
Net finance (cost)/income . . .
Depreciation, amortisation and
impairment of PP&E, net . .
EBITDA* . . . . . . . . . . . . . .
Segment net profit (loss) . . . .
Salaries and other employee
benefits . . . . . . . . . . . . . .
Share of profit (loss) of equity
accounted investees . . . . . .
Capital expenditure . . . . . . . .
External
Consolidated
electricity
Total for eliminations
Electricity Electricity
network
reportable
and
Consolidated
supply
distribution maintenance Headquarter segments adjustments
total
1,251
61
1,312
117
411
528
27
0
27
0
0
0
1,396
472
1,868
0
(472)
(472)
1,396
0
1,396
47
0
50
(2)
(19)
0
0
(2)
78
(4)
16
0
94
(4)
(2)
49
39
(94)
147
47
(1)
(18)
(19)
(1)
2
(1)
(98)
180
66
0
0
16
(98)
180
82
(19)
(128)
(26)
(4)
(177)
0
(177)
0
0
0
118
0
0
16
0
16
118
0
0
16
118
Source: Unaudited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, ii) segment net finance (cost)/income, and (iii) share of profit (loss) of equity-accounted investees
(as disclosed in the income statement). EBITDA is not an IFRS measure and should not be treated as alternative to IFRS measures.
Management believes that the presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance.
This non IFRS measure is not presented in accordance with IFRS and the Group’s use of them may vary from others in the Group’s
industry. This non IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
117
financial information as reported under IFRS. A reconciliation of net profit/(loss) for the period/year and EBITDA, is presented in
‘‘Selected Consolidated Financial and Operating Information’’.
Three month period ended
31 March 2013
Distribution
Muntenia
Nord
(RON million)
External revenue . . . . . . . . . .
Inter-segment revenue . . . . . .
Segment revenue . . . . . . . . . .
Segment profit (loss) before
tax . . . . . . . . . . . . . . . . . .
Net finance (cost)/income . . . .
Depreciation, amortisation and
impairment of PP&E, net . .
EBITDA* . . . . . . . . . . . . . . .
Net profit (loss) . . . . . . . . . . .
Salaries and other employee
benefits . . . . . . . . . . . . . . .
36
152
188
Distribution
Transilvania
Nord
36
124
160
Distribution
Transilvania
Sud
41
132
173
Electricity
network
maintenance
Eliminations
4
80
84
0
(77)
(77)
Total
Electricity
distribution
117
411
528
22
2
23
(2)
7
(2)
(2)
0
0
0
50
(2)
(25)
45
24
(32)
58
20
(33)
42
5
(4)
2
(2)
0
0
0
(94)
147
47
(31)
(28)
(26)
(43)
0
(128)
Source: Unaudited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, and ii) segment net finance (cost)/income. EBITDA is not an IFRS measure and should not be
treated as alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an investor’s
understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and the
Group’s use of them may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net
profit/(loss) for the period/year and EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating Information’’.
Electricity distribution segment
Contributions to the Group’s EBITDA for the three month periods ended 31 March 2014 and 2013 by
the electricity distribution segment were 84.2% and 81.7%, respectively.
Revenue from the electricity distribution segment increased by RON 8 million, or 1.5%, to RON
536 million in the three month period ended 31 March 2014 from RON 528 million in the three month
period ended 31 March 2013. This increase was mainly attributable to an increase of 1.5% in revenue from
distribution of electricity resulting from the 0.3% increase of the average regulated distribution tariff and
1.0% increase in the quantities distributed.
The main cost incurred by the electricity distribution segment is the cost of electricity purchased to
cover the network losses. The cost of the electricity acquired to cover network losses decreased by RON
32 million, or 16.9%, to RON 157 million in the three month period ended 31 March 2014 from RON
189 million in the three month period ended 31 March 2013. The decrease was mainly attributable to an
8.9% decrease in the quantity of electricity acquired to cover the network losses and 9.0% decrease in the
electricity acquisition price. The decrease in the electricity price was due to the fact that until April 2013,
the Group acquired electricity for compensating for network losses from State-controlled electricity
producers licenced by ANRE and at a regulated price set by ANRE. From April 2013, the acquisition of
the electricity to compensate for the network losses is no longer regulated by ANRE. Currently, the Group
distribution companies acquire the electricity to cover the network losses on CMBC and DAM.
Electricity supply segment
The contributions to the Group’s EBITDA for the three month periods ended 31 March 2014 and
2013 by the electricity supply segment were 27.0% and 27.2%, respectively.
Revenue from the electricity supply segment decreased by RON 209 million or 15.9%, to RON
1,103 million in the three month period ended 31 March 2014 from RON 1,312 million in the three month
period ended 31 March 2013. In the three month period ended 31 March 2014 and 2013, revenue from the
supply of electricity represented 94% and 90%, respectively, of the revenue from the electricity supply
segment the difference consisting in revenue from electricity trading activities. Revenue from the
electricity supply decreased by RON 143 million, or 12.1% to RON 1,034 million in the three month
period ended 31 March 2014 from RON 1,177 million in the three month ended 31 March 2013. This
decrease was mainly attributable to (i) a decrease in the average electricity supply tariff by 5.0%, (ii) a
118
decrease in the value of the Green Certificates included in the invoice to the final consumer by 30.7% and
(iii) a decrease of quantities supplied by 4.6%.
The main cost incurred by the electricity supply segment is the cost of electricity purchased. The cost
of electricity purchased by the electricity supply segment (in its computation, the consolidation
eliminations and adjustments are not included) decreased by RON 304 million, or 27.2%, to RON
813 million for the three month period ended 31 March 2014 from RON 1,117 million for the three month
period ended 31 March 2013. The decrease was mainly attributable to a decrease of 4.6% in the quantities
supplied and to a decrease of 22.6% in the cost of the electricity acquired.
External electricity network maintenance segment
For the three month ended 31 March 2014 and 2013, the external electricity network maintenance
segment had a negative influence on the Group’s EBITDA of RON 23 million and RON 18 million,
respectively.
Revenue from the external electricity network maintenance segment decreased by RON 11 million, or
40.7%, to RON 16 million in the three month period ended 31 March 2014 from RON 27 million in the
three month period ended 31 March 2013. A significant portion of the segment revenue relates to
transactions with electricity distribution companies that have been privatised (ENEL, E.ON and CEZ).
The financial condition of this segment has significantly deteriorated after the privatisation of the
electricity distribution operators in the Banat, Dobrogea, Moldova and Oltenia areas. See ‘‘The
Reorganisation’’.
The main cost incurred by the electricity network maintenance segment is the cost with salaries and
other employees’ benefits. The cost with salaries and other employees’ benefits decreased by RON
5 million or 19.2%, to RON 21 million in the three month period ended 31 March 2014 from RON
26 million in the three month period ended 31 March 2013. The decrease in salaries was mainly
attributable to lay-offs performed in this segment as part of its restructuring programme.
Headquarter
For the three month period ended 31 March 2014, the Headquarter segment had a negative influence
on the Group’s EBITDA of RON 1 million. For the three month period ended 31 March 2013, the
contribution to the Group’s EBITDA by the Headquarter segment was 1.1%.
For the three month period ended 31 March 2013, the main revenue source for this segment was the
share of profit of equity accounted investees. For the full detail regarding the investments held by Electrica
as of 31 December 2013 and further developments as at 31 March 2014 see Notes 9 and 14 of the
Condensed Consolidated Interim Financial Statements, as well as ‘‘Spin-off’’ above.
The main cost incurred by the Headquarter segment is the cost with salaries and other employees’
benefits. The cost with salaries and other employees’ benefits remained relatively constant during the
analysed period.
119
Year ended 31 December 2013 as compared to the year ended 31 December 2012 and the year ended
31 December 2012 as compared to the year ended 31 December 2011
The table below shows the allocation of selected financial data for the years ended 31 December 2013,
2012 and 2011 for the four business segments.
Year ended 31 December 2013
(RON million)
External revenue . . . . . . . .
Inter-segment revenue . . . .
Segment revenue . . . . . . . .
Segment profit (loss)
before tax . . . . . . . . . . .
Net finance (cost)/income .
Depreciation, amortisation
and impairment of
PP&E, net . . . . . . . . . . .
EBITDA* . . . . . . . . . . . . .
Segment net profit (loss) . .
Salaries and other
employee benefits . . . . .
Share of profit (loss) of
equity accounted
investees . . . . . . . . . . . .
Segment assets . . . . . . . . .
Trade and other receivables
Cash and cash equivalents .
Assets held for distribution
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . .
Capital expenditure . . . . . .
External
Consolidated
electricity
Total for eliminations
Electricity Electricity
network
reportable
and
Consolidated
supply
distribution maintenance Headquarter segments adjustments
total
4,570
210
4,780
486
1,570
2,056
101
—
101
—
—
—
5,157
1,780
6,937
—
(1,780)
(1,780)
5,157
—
5,157
(27)
(90)
390
(12)
110
(0)
279
(15)
(45)
0
74
94
417
79
(7)
117
90
(387)
681
225
(3)
(42)
(47)
(13)
(7)
74
(411)
749
342
(27)
(411)
749
314
(85)
(574)
(85)
(23)
(766)
—
(766)
—
1,410
1,214
92
—
—
6,646
650
413
—
—
372
44
2
—
63
215
—
144
2,243
63
8,642
1,908
651
2,243
—
1,558
(757)
—
—
63
10,200
1,151
651
2,243
880
42
418
0
383
—
3
37
1,684
80
(588)
—
1,096
80
—
5
273
635
—
1
—
—
273
640
—
9
273
650
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, ii) segment net finance (cost)/income, and (iii) share of profit (loss) of equity-accounted investees
(as disclosed in the income statement) . EBITDA is not an IFRS measure and should not be treated as alternative to IFRS measures.
Management believes that the presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance.
This non IFRS measure is not presented in accordance with IFRS and the Group’s use of them may vary from others in the Group’s
industry. This non IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
financial information as reported under IFRS. A reconciliation of net profit/(loss) for the period/year and EBITDA, is presented in
‘‘Selected Consolidated Financial and Operating Information’’.
120
Year ended 31 December 2013
(RON million)
External revenue . . . . . . . .
Inter-segment revenue . . . .
Segment revenue . . . . . . . .
Segment profit (loss) before
tax . . . . . . . . . . . . . . . . .
Net finance (cost)/income . .
Depreciation, amortisation
and impairment of PP&E,
net . . . . . . . . . . . . . . . . .
EBITDA* . . . . . . . . . . . . .
Net profit (loss) . . . . . . . . .
Salaries and other employee
benefits . . . . . . . . . . . . .
Segment assets . . . . . . . . . .
Trade and other receivables .
Cash and cash equivalents . .
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . . .
Capital expenditure . . . . . .
Distribution
Muntenia
Nord
158
580
737
129
7
Distribution
Transilvania
Nord
150
469
619
Distribution
Transilvania
Sud
167
511
679
Electricity
network
maintenance
Eliminations
Total
Electricity
distribution
11
385
396
—
(375)
(375)
486
1,570
2,056
75
(7)
73
(12)
1
(2)
—
—
279
(15)
(103)
225
106
(134)
216
52
(134)
220
56
(16)
20
12
—
—
—
(387)
681
225
(145)
2,344
164
325
(132)
1,841
134
32
(122)
1,988
156
47
(175)
601
323
9
—
(127)
(127)
—
(574)
6,646
650
413
133
—
140
0
133
—
138
—
(127)
—
418
0
79
211
54
214
140
207
1
2
—
—
273
635
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, and ii) segment net finance (cost)/income. EBITDA is not an IFRS measure and should not be
treated as alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an investor’s
understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and the
Group’s use of them may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net
profit/(loss) for the period/year and EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating Information’’.
121
Year ended 31 December 2012
(RON million)
External revenue . . . . . . . .
Inter-segment revenue . . . .
Segment revenue . . . . . . . .
Segment profit (loss)
before tax . . . . . . . . . . .
Net finance (cost)/income .
Depreciation, amortisation
and impairment of
PP&E, net . . . . . . . . . . .
EBITDA* . . . . . . . . . . . . .
Segment net profit (loss) . .
Salaries and other
employee benefits . . . . .
Share of profit (loss) of
equity accounted
investees . . . . . . . . . . . .
Segment assets . . . . . . . . .
Trade and other receivables
Cash and cash equivalents .
Equity-accounted investees .
Other investments . . . . . . .
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . . .
Bank borrowings . . . . . . . .
Bank overdrafts . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . .
Capital expenditure . . . . . .
External
Consolidated
electricity
Total
eliminations
Electricity Electricity
network
reportable
and
Consolidated
supply
distribution maintenance Headquarter segments adjustments
total
4,653
147
4,801
447
1,498
1,944
153
—
153
—
—
—
5,253
1,645
6,898
97
(10)
223
(22)
(105)
1
12
14
228
(18)
(9)
116
79
(378)
623
176
(13)
(92)
(92)
(1)
0
12
(79)
(553)
(101)
(22)
—
(1,645)
(1,645)
5,253
—
5,253
240
(6)
468
(24)
(402)
647
175
240
(402)
647
416
(755)
—
(755)
—
1,223
998
101
—
—
—
6,362
667
350
—
—
—
401
68
5
—
—
247
294
—
185
1,042
1,138
247
8,280
1,734
642
1,042
1,138
—
1,613
(628)
—
—
—
247
9,892
1,106
642
1,042
1,138
874
—
68
451
—
43
351
—
—
41
9
56
1,718
9
167
(606)
—
—
1,112
9
167
—
14
337
597
—
3
—
—
337
615
—
2
337
617
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, ii) segment net finance (cost)/income, and (iii) share of profit (loss) of equity-accounted investees
(as disclosed in the income statement) . EBITDA is not an IFRS measure and should not be treated as alternative to IFRS measures.
Management believes that the presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance.
This non IFRS measure is not presented in accordance with IFRS and the Group’s use of them may vary from others in the Group’s
industry. This non IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
financial information as reported under IFRS. A reconciliation of net profit/(loss) for the period/year and EBITDA, is presented in
‘‘Selected Consolidated Financial and Operating Information’’.
122
Year ended 31 December 2012
(RON million)
External revenue . . . . . . . .
Inter-segment revenue . . . .
Segment revenue . . . . . . . .
Segment profit (loss) before
tax . . . . . . . . . . . . . . . . .
Net finance (cost)/income . .
Depreciation, amortisation
and impairment of PP&E,
net . . . . . . . . . . . . . . . . .
EBITDA* . . . . . . . . . . . . .
Net profit (loss) . . . . . . . . .
Salaries and other employee
benefits . . . . . . . . . . . . .
Segment assets . . . . . . . . . .
Trade and other receivables .
Cash and cash equivalents . .
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . . .
Capital expenditure . . . . . .
Distribution
Muntenia
Nord
137
563
700
106
0
Distribution
Transilvania
Nord
138
436
574
Distribution
Transilvania
Sud
143
493
636
Electricity
network
maintenance
Eliminations
Total
Electricity
distribution
29
374
403
—
(368)
(368)
447
1,498
1,944
62
(7)
58
(10)
(3)
(5)
—
—
223
(22)
(97)
203
82
(133)
202
53
(129)
197
46
(19)
22
(5)
—
—
—
(378)
623
176
(128)
2,209
161
301
(120)
1,742
124
23
(114)
1,874
142
17
(190)
636
339
9
—
(99)
(99)
—
(553)
6,362
667
350
132
—
142
18
127
25
149
—
(99)
—
451
43
93
166
63
200
153
222
27
9
—
—
337
597
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, and ii) segment net finance (cost)/income. EBITDA is not an IFRS measure and should not be
treated as alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an investor’s
understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and the
Group’s use of them may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net
profit/(loss) for the period/year and EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating Information’’.
123
Year ended 31 December 2011
(RON million)
External revenue . . . . . . . .
Inter-segment revenue . . . .
Segment revenue . . . . . . . .
Segment profit (loss)
before tax . . . . . . . . . . .
Net finance (cost)/income .
Depreciation, amortisation
and impairment of
PP&E, net . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . .
Segment net profit (loss . . .
Salaries and other
employee benefits . . . . .
Share of profit (loss) of
equity accounted
investees . . . . . . . . . . . .
Segment assets . . . . . . . . .
Trade and other receivables
Cash and cash equivalents .
Equity-accounted investees .
Other investments . . . . . . .
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . . .
Bank borrowings . . . . . . . .
Bank overdrafts . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . .
Capital expenditure . . . . . .
External
Consolidated
electricity
Total
eliminations
Electricity Electricity
network
reportable
and
Consolidated
supply
distribution maintenance Headquarter segments adjustments
total
4,710
115
4,825
423
1,449
1,873
235
—
235
—
—
—
5,368
1,564
6,932
(126)
(7)
57
(24)
(49)
(7)
(5)
20
(122)
(18)
(9)
(110)
(138)
(359)
440
35
(9)
(32)
(48)
(2)
(23)
(5)
(69)
(546)
(157)
(21)
—
(1,564)
(1,564)
5,368
—
5,368
76
1
(47)
(17)
(379)
275
(155)
76
(379)
275
(80)
(793)
—
(793)
—
1,386
1,234
60
—
—
—
5,809
461
234
—
—
—
538
86
11
—
—
75
320
—
195
1,602
224
75
8,053
1,780
499
1,602
224
—
1,438
(453)
—
—
—
75
9,491
1,327
499
1,602
224
1,026
—
168
563
20
73
52
—
—
26
21
40
1,666
41
281
(446)
—
—
1,221
41
281
—
6
253
542
—
4
—
—
253
551
—
3
253
554
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, ii) segment net finance (cost)/income, and (iii) share of profit (loss) of equity-accounted investees
(as disclosed in the income statement) . EBITDA is not an IFRS measure and should not be treated as alternative to IFRS measures.
Management believes that the presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance.
This non IFRS measure is not presented in accordance with IFRS and the Group’s use of them may vary from others in the Group’s
industry. This non IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for
financial information as reported under IFRS. A reconciliation of net profit/(loss) for the period/year and EBITDA, is presented in
‘‘Selected Consolidated Financial and Operating Information’’.
124
Year ended 31 December 2011
(RON million)
External revenue . . . . . . . .
Inter-segment revenue . . . .
Segment revenue . . . . . . . .
Segment profit (loss) before
tax . . . . . . . . . . . . . . . . .
Net finance (cost)/income . .
Depreciation, amortisation
and impairment of PP&E,
net . . . . . . . . . . . . . . . . .
EBITDA* . . . . . . . . . . . . .
Net profit (loss) . . . . . . . . .
Salaries and other employee
benefits . . . . . . . . . . . . .
Segment assets . . . . . . . . . .
Trade and other receivables .
Cash and cash equivalents . .
Trade and other payables,
and short term employee
benefits . . . . . . . . . . . . .
Bank borrowings . . . . . . . .
Bank overdrafts . . . . . . . . .
Financing for PP&E and
finance lease . . . . . . . . . .
Capital expenditure . . . . . .
Distribution
Muntenia
Nord
121
547
667
Distribution
Transilvania
Nord
115
419
534
Distribution
Transilvania
Sud
Electricity
network
maintenance
Eliminations
Total
Electricity
distribution
131
474
605
56
362
418
—
(353)
(353)
423
1,449
1,873
72
(0)
29
(7)
14
(12)
(58)
(6)
—
—
57
(24)
(91)
163
59
(114)
150
24
(132)
157
10
(22)
(31)
(57)
—
—
—
(359)
440
35
(132)
2,035
155
197
(121)
1,656
114
18
(111)
1,774
135
13
(182)
438
150
6
—
(93)
(93)
—
(546)
5,809
461
234
140
—
—
151
20
20
153
—
54
212
—
—
(93)
—
—
563
20
73
70
153
45
172
107
211
31
6
—
—
253
542
Source: Audited Consolidated Financial Statements * EBITDA for operating segments is defined and calculated as segment profit
(loss) before tax adjusted for (i) segment depreciation, amortisation and impairment/reversal of impairment of property, plant and
equipment and intangible assets, and ii) segment net finance (cost)/income. EBITDA is not an IFRS measure and should not be
treated as alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an investor’s
understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and the
Group’s use of them may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net
profit/(loss) for the period/year and EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating Information’’.
Electricity Distribution Segment
Contributions to the Group’s EBITDA for the years ended 31 December 2013, 2012 and 2011 by the
electricity distribution segment were 90.9%, 96.2% and 160.3%, respectively.
Revenue from the electricity distribution segment increased by RON 112 million, or 5.8%, to RON
2,056 million in the year ended 31 December 2013 from RON 1,944 million in the year ended
31 December 2012. The increase was mainly attributable to the 8.6% increase of the average regulated
distribution tariff to RON 115.12 per MWh in 2013 from RON 106.05 per MWh in 2012. The tariff
increase has offset the 1.2% decrease in quantities distributed to 16.1 TWh in 2013 from TWh 16.3 in 2012
which was mainly caused by the cessation or restructuring of operation of significant industrial customers
of the Group facing financial difficulties such as Mechel Romania, or Arcelor Mittal Galati and the
development of on-site electricity generation units by companies such as OMV Petrom and Lukoil.
Revenue from the electricity distribution segment increased by RON 71 million, or 3.8%, to RON
1,944 million in the year ended 31 December 2012 from RON 1,873 million in the year ended
31 December 2011. The increase was attributable to the combined effect of a 4.6% increase in the average
regulated distribution tariff to RON 106.05 per MWh in 2012 from RON 101.83 per MWh in 2011 and to
an increase of 0.6% in quantities distributed to 16.3 TWh in 2012 from 16.2 TWh in 2011.
The main cost incurred by the electricity distribution segment is the cost of electricity purchased to
cover network losses. The cost of the electricity acquired to compensate network losses increased by RON
47 million, or 10%, to RON 521 million in the year ended 31 December 2013 from RON 474 million in the
year ended 31 December 2012. The increase was mainly attributable to 10% increase in its acquisition
price. The cost of the electricity acquired to compensate for network losses decreased by RON 42 million,
125
or 8%, to RON 474 million in the year ended 31 December 2012 from RON 516 million in its year ended
31 December 2011. The decrease is mainly attributable to a 9% decrease in the acquisition price. The
Group acquires electricity from various producers, the majority of them being State-controlled companies,
and also from energy traders. Until April 2013, the Group’s purchases of electricity for compensating for
network losses were from State-controlled electricity producers licenced by ANRE and at a regulated price
set by ANRE. From 1 April 2013, distribution companies could also acquire electricity freely from the
CMBC and the DAM. In 2013 and 2011 most of the electricity acquired from electricity producers through
regulated contracts was from coal fired power producers, as compared with 2012 where most of the
electricity was acquired from Nuclearelectrica and Hidroelectrica at lower prices.
Electricity Supply Segment
Contributions to Electrica’s EBITDA for the years ended 31 December 2013 and 2012 by the
electricity supply segment were 15.6% and 18%, respectively. In 2011, the electricity supply segment had a
negative contribution to Group EBITDA of RON 110 million.
Revenue from the electricity supply segment decreased by RON 21 million or 0.4%, to RON
4,780 million in the year ended 31 December 2013 from RON 4,801 million in the year ended
31 December 2012. In 2013, 91% and in 2012, 87% of the revenue from the electricity supply segment
represented revenue from electricity supply, the difference represented by revenue generated from
electricity trading activities. Revenue generated from electricity supply increased by 5.2% in 2013 as
compared to 2012. The increase was due mainly to: (i) an increase in the average electricity supply tariff by
13%, (ii) an increase in the value of Green Certificates included on invoices to consumers by 47% and
(iii) a decrease of quantities supplied by 9.1%. Revenues from the electricity supply segment decreased by
RON 24 million, or 0.5% to RON 4,801 million in the year ended 31 December 2012 from RON
4,825 million in the year ended 31 December 2011. In 2012, 87%, and in 2011, 83%, of electricity supply
segment revenue represented revenue generated from electricity supply, the difference consisting in
revenue from electricity trading activities. Revenue from electricity supply increased by 3.15% in 2012 as
compared to 2011. The increase was due mainly to: (i) an increase in the average electricity supply tariff by
6%, (ii) an increase in the value of Green Certificates included on invoices to final consumers by 270% and
(iii) a decrease of the quantities supplied by 8.2%. The decrease in quantities supplied in 2013 and 2012
was mainly due to a decrease of electricity consumption at the national level and, starting the second half
of 2012, cessation of electricity supply to Oltchim.
The main cost incurred by the electricity supply segment is the cost of electricity purchased. The cost
of electricity purchased of the electricity supply segment (in its computation, the consolidation eliminations
and adjustments are not included) decreased by RON 155 million, or 3.6%, to RON 4,094 million in the
year ended 31 December 2013 from RON 4,249 million in the year ended 31 December 2012. The
decrease was mainly attributable to a decrease in the quantities supplied. The cost of electricity purchased
of the electricity supply segment decreased by RON 430 million, or 9.2%, to RON 4,249 million in the year
ended 31 December 2012 from RON 4,679 million in the year ended 31 December 2011. The decrease was
mainly attributable to a decrease in the quantities supplied.
External electricity network maintenance segment
For the years ended 31 December 2013, 2012 and 2011, the external electricity network maintenance
segment had a negative influence on the Group’s EBITDA of RON 42 million, RON 92 million and RON
32 million, respectively.
Revenue from the external electricity network maintenance segment decreased by RON 52 million or
34%, to RON 101 million in the year ended 31 December 2013 from RON 153 million in the year ended
31 December 2012 and decreased by RON 82 million or 34.9%, to RON 153 million in the year ended
31 December 2012 from RON 235 million in the year ended 31 December 2011. A significant portion of
the segment relates to transactions with electricity distribution companies that have been privatised
(ENEL, E.ON and CEZ). The financial condition of this segment has deteriorated significantly
post-privatisation of the electricity distribution operators in the Banat, Dobrogea, Moldova and Oltenia
areas. See ‘‘The Reorganisation’’.
The main cost incurred by the external electricity network maintenance segment is the cost with salaries
and other employees’ benefits. The cost with salaries and other employees’ benefits decreased by RON
16 million or 15.8%, to RON 85 million in the year ended 31 December 2013 from RON 101 million in the
year ended 31 December 2012 and decreased by RON 56 million or 35.7%, to RON 101 million in the year
ended 31 December 2012 from RON 157 million in the year ended 31 December 2011. The decrease in salaries
was mainly attributable to lay-offs performed in this segment as part of its restructuring program.
126
Headquarter
For the years ended 31 December 2013 and 2011, the Headquarter segment had a negative influence
on the Group’s EBITDA of RON 7 million and RON 23 million, respectively, and a nil impact on the
Group’s EBITDA for the year ended 31 December 2012.
For the years ended 31 December 2013, 2012 and 2011, the main revenue source for this segment was
the share of profit of equity accounted investees. For the full detail regarding the investments held by
Electrica as of 31 December 2013, 2012 and 2011 see Note 22 of the Consolidated Audited Financial
Statements as well the section ‘‘Spin-off of Minority Interests’’ above.
The main cost incurred by the Headquarter segment is the cost with salaries and other employees’
benefits. The cost with salaries and other employees’ benefits remained relatively stable during the
analysed period, amounting to RON 23 million in the year ended 31 December 2013, RON 22 million in
the year ended 31 December 2012 and RON 21 million in the year ended 31 December 2011.
Liquidity and Capital Resources
Liquidity
The Group’s principal sources of liquidity are cash generated primarily from its operating activities
and to a small degree, external financing. Electrica S.A.’s principal source of liquidity is dividends from its
subsidiaries.
As at 31 March 2014, cash and cash equivalents of the Group amounted to RON 668 million, and the
total amount of financing of the Group (composed of bank borrowings, bank overdrafts, finance lease and
financing of property, plant and equipment) amounted to RON 289 million. Electrica has twelve overdraftfacilities and facilities for issuance of contingent liabilities under which, as of 31 March 2014, RON
399 million was committed and RON 38 million was drawn from the overdraft facility and RON 97 million
was used for issuance of bank letters of guarantee.
Electrica covers and plans to cover its working capital needs principally from internally generated
funds and, in case of short-term needs, through drawings under its overdraft facilities. The level of
Electrica’s net current assets, calculated as an excess of the current assets (excluding the Assets held for
distribution in amount of RON 2,232 million as at 31 March 2014 and RON 2,243 million as at
31 December 2013) over current liabilities was RON 494 million as at 31 March 2014 and RON
425 million, RON 307 million and RON 126 million, respectively as at 31 December 2013, 2012 and 2011,
respectively.
127
The following table presents selected net current assets parameters for the periods indicated.
Three-month
period ending
31 March*
2014
Current assets**(computed based on the below selected items) . .
Trade receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash & cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current assets (computed based on the above selected items)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,129
1,018
37
28
15
29
1,302
0
38
0
135
516
269
15
106
137
85
668
494
Year ended 31 December
2013
2012
2011
(RON million)
1,227
1,088
63
34
6
37
1,453
0
80
0
143
628
261
15
89
152
85
651
425
1,198
1,011
95
35
40
17
1,534
9
167
27
114
746
182
11
78
120
80
642
307
1,405
1,192
134
33
37
8
1,778
30
281
26
104
930
165
4
83
100
53
499
126
Source: *Unaudited Consolidated Financial Statements.**The current assets as at 31 March 2014 and 31 December 2013 do not
include the position Assets held for distribution in amount of RON 2,232 million and RON 2,243 million respectively.
Capital resources
The Group’s liquidity needs are primarily to finance operations, capital expenditures and repayment
of liabilities as they fall due. These are financed from cash, cash equivalents and drawings under Group
overdraft facilities.
In the three month periods ended 31 March 2014 and 2013 Electrica’s net cash from operating
activities was RON 251 million and RON 85 million, respectively. In the years ended 31 December 2013,
2012 and 2011, net cash flow from operating activities amounted to RON 915 million, RON 996 million
and RON 318 million, respectively. The Company’s ability to generate cash flow from the Group’s
operations will depend on the Group’s future operating performance, which in turn depends, to a large
extent, on general economic, competitive and other factors, many of which are beyond Electrica’s control.
For a discussion of these factors, see ‘‘Risk Factors—Risks Relating to the Group’s Business and Industry’’
and ‘‘Risks Relating to Romania’’.
Additionally, the Group has twelve overdraft facilities and facilities for issuance of contingent
liabilities in place, under which RON 399 million are committed. As at 31 March 2014, Electrica had drawn
RON 38 million of the overdraft facilities and RON 97 million from the facilities for the issuance of
contingent liabilities were committed, or 34% of the principal available under those facilities.
The Group’s low level of debt is due to limited maintenance expenditures and investments in the
network in the periods under review. As Electrica pursues its strategy of increased maintenance and
network improvements through its investment programme, its level of debt might increase and Electrica
might seek new and additional sources of debt financing. In the long run, such investments are expected to
decrease maintenance cost. Information regarding Electrica’s expected capital requirements in the future
is provided in ‘‘Operating and Financial Review—Capital expenditures’’ below and in ‘‘Business—Investment
Programme’’. .
The Group’s financial condition and liquidity is and will continue to be affected by a number of
factors, such as (i) its ability to generate cash flows from operating activity; (ii) the level of its outstanding
indebtedness, and the interest it is obligated to pay on such indebtedness, which affects its finance costs;
(iii) prevailing interest rates affecting its debt service requirements; (iv) its ability to obtain new financing
from banks or domestic and international capital markets; and (v) the needs related to capital expenditures
128
and development projects. Furthermore, the Group’s business development activity through potential
acquisitions in its sector might have an impact on its financial condition.
There are no restrictions on the use of the Group’s capital resources that have materially affected or
could materially affect (directly or indirectly) its operations.
The table below summarises information regarding the Group’s financing structure as at 31 March
2014.
As at 31 March 2014
(% of equity
(RON million) and liabilities)*
Equity . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . .
Current liabilities . . . . . . . . . . . .
Liabilities directly related to assets
Total equity and liabilities . . . . . .
............
............
............
recognised on a
............
..............
..............
..............
liquidation basis**
..............
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
6,752
2,062
1,086
216
10,116
66.8%
20.4%
10.7%
2.1%
100%
Source: Unaudited Consolidated Financial Statements; * Company (unaudited data); ** SEMO, SED, SEB and SEO.
Cash flows
The table below summarises net cash flows from operating activities, investing activities and financing
activities for the periods indicated.
Three month
period ended
31 March*
2014
2013
Net cash from operating activities . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . .
Net increase/(decrease) in cash and cash equivalents . . .
Cash and cash equivalents at the beginning of the period
Effect of movements in exchange rates on cash held . . .
Cash and cash equivalents at the end of the period . . . .
Source: * Unaudited Consolidated Financial Statements.
129
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Year ended 31 December
2013
2012
2011
(RON million)
250.7
85.2
914.7
996.0
317.8
(22.5) (127.4) (634.6) (549.5) (504.8)
(37.9) (36.9)
(185) (194.4) (170.6)
190.3
(79.1)
95.1
252.1 (357.6)
571.2
474.3
474.3
217.9
574.0
(1.8)
(0.5)
1.7
4.3
1.5
759.7
394.8
571.2
474.3
217.9
Net cash flows from operating activities
The table below summarises net cash flows from operating activities for the periods indicated.
Three month
period ended
31 March*
2014
2013
Cash flows from operating activities
Profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss on property, plant and equipment/ (reversal
of impairment of property, plant and equipment, net) . . . .
Loss on disposal or property, plant and equipment . . . . . . .
Impairment loss on trade and other receivables, net . . . . . .
Write-down of inventories, net . . . . . . . . . . . . . . . . . . . . .
Release of deferred revenue . . . . . . . . . . . . . . . . . . . . . . .
Net finance costs/ (income) . . . . . . . . . . . . . . . . . . . . . . .
Share of profit or loss of equity-accounted investees, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits and provisions . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash from operating activities . . . . . . . . . . . . . . . . .
.
.
.
.
88.5
109.9
99.4
3.8
81.8
65.8
94.5
3.4
.
.
.
.
.
.
0
(0.4)
0
0.4
(2.7) (15.3)
0
0
(20.7) (17.7)
1.1
4.4
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0
29.0
68.2
71.2
38.0
(9.0)
5.4
(44.9)
(11.0)
(13.9)
32.4
(2.8)
(13.0)
250.7
Year ended 31 December
2013
2012
2011
(RON million)
314.3
341.6
383.1
14.5
415.8
134.6
381.4
16.2
(79.7)
459.2
352.4
19.6
13.2
5.8
(20.8)
(1.1)
(76.9)
11.6
4.2
6.1
(52.6)
17.7
(68.3)
24.1
6.8
5.3
147.8
13.8
(62.1)
17.3
(15.7)
(63.0) (246.8)
(74.7)
12.2
75.2
52.6
33.0
(41.9)
326.8
519.1
9.8
(89.7) 118.0
103.2 470.1
(53.8)
21.2
7.0
(80.3)
(28.3)
33.9
(3.8)
(8.3)
1.5
2.2
(19.4)
(18.0)
5.5
37.2
127.3
427.1
69.3
38.4
58.5
46.1
(10.0)
36.1
65.3
(47.7)
63.6
275.8
181.0
161.0
(7.4)
(20.9) (28.7)
(31.7)
(13.0)
(47.2) (44.9)
(39.9)
85.2
914.7
996.0
317.8
Source: * Unaudited Consolidated Financial Statements.
Three month periods ended 31 March 2014 and 2013
In the three month periods ended 31 March 2014 and 2013, Electrica reported net cash from
operating activities in the amount of RON 250.7 million and RON 85.2 million, respectively.
In the three month period ended 31 March 2014, net cash from operating activities amounted to RON
250.7 million. The profit before tax for the period was RON 117.5 million. The key adjustments were:
(i) adding depreciation and amortisation in the amount of RON 103.2 million, a net change in trade and
other receivables of RON 106.5 million (mainly due to a decrease in the trade receivables collection period
in the first quarter of 2014 compared to 2013), and other adjustments amounting to RON 9.1 million
(resulting mostly from a net change in deferred revenues of RON 11.6 million related mainly to connection
fees paid by customers), and (ii) deducting a change in trade and other payables of RON 55.9 million
(mainly due to a decrease in trade payables driven by decrease in the acquisition cost of electricity in the
first quarter of 2014 compared to 2013, resulting mainly from the acquisition of cheaper hydro and nuclear
based producers rather than the more expensive thermal energy producers) and a change in employee
benefits and provisions of RON 13.9 million. Income tax and interest paid amounted to a total of RON
15.8 million.
In the three month period ended 31 March 2013, net cash from operating activities amounted to RON
85.2 million. The profit before tax for the period was RON 93.9 million. The key adjustments were:
(i) adding depreciation and amortisation in the amount of RON 97.9 million, a change in trade and other
payables of RON 74.7 million (mainly due to an increase in the VAT payable), a net change in deferred
revenues of RON 46 million (related mainly to connection fees paid by customers), and (ii) deducting a net
130
change in trade and other receivables of RON 158.8 million (mainly due to an increase in receivables from
CFR),the share of profit of equity-accounted investees in the amount of RON 15.7 million related to the
minority stakes held by Electrica in the privatised electricity distribution and supply companies Enel
Distributie Banat, Enel Distributie Dobrogea and Enel Energie) and a change in employee benefits and
provisions of RON 10 million and other adjustments amounting to RON 22.4 million (related mostly from
net finance costs of RON 4.4 million). Income tax and interest paid amounted to a total of RON
20.4 million.
Years ended 31 December 2013, 2012 and 2011
In the years ended 31 December 2013, 2012 and 2011 Electrica reported net cash from operating
activities in the amount of RON 914.7 million, RON 996.0 million and RON 317.8 million.
In the year ended 31 December 2013, net cash from operating activities amounted to RON
914.7 million. The profit before tax for that year was RON 389.5 million. The key adjustments were:
(i) adding depreciation and amortisation in the amount of RON 397.5 million, a net change in deferred
revenue of RON 198.9 million related mainly to connection fees paid by consumers and EU grants, a
change in trade and other payables of RON 75.6 million mainly resulting from the fact that starting from
September 2013, a reverse VAT charge on the energy acquired was implemented, causing the increase of
the VAT payable as at 31 December 2013 and other adjustments amounting to RON 101.8 million resulting
mainly from an increase in employee benefits driven by overdue salaries and security and other salary taxes
related to the four service subsidiaries with financial difficulties, and (ii) deducting the share of profit of
equity-accounted investees in the amount of RON 63 million related to the interests held by Electrica in
the privatised electricity distribution and supply companies Enel Distributie Banat, Enel Distributie
Dobrogea and Enel Energie, a change in net trade and other receivables of RON 117.6 million driven
mostly by an increase in receivables from CFR. Income tax and interest paid amounted to a total of RON
68.1 million. Due to the provisions of Government Ordinance no. 8/2014, which stipulates that CFR can
receive upon request from the Ministry of Finance loans of RON 579 million in order to pay its overdue
payables, and based on past experience, Electrica has not recorded any bad debt allowance related to CFR
receivables as at 31 December 2013 as it estimates that it will collect the outstanding receivable from CFR
on 31 December 2013 during 2014. See ‘‘—Material developments post-balance sheet date—CFR
Repayment’’. In 2013, Electrica’s receivables from CFR worth RON 54 million were compensated by
payables of the same amount related to electricity acquisitions from State-controlled power generators as a
result of existing payables to CFR of those power generators.
In the year ended 31 December 2012, the net cash from operating activities amounted to RON
996.0 million. The profit before tax for that year was RON 468.4 million. The key adjustments were:
(i) adding depreciation and amortisation in the amount of RON 397.7 million, a change in trade and other
payables of RON 185.8 million mainly as a result of CFR receivables settlement and a change in net trade
and other receivables in the amount of RON 57.6 million also mainly as a result of the 2012 CFR
Settlement Agreement on the basis of which Electrica Furnizare collected the value of electricity as
invoiced up until 31 March 2012 at RON 314.7 million and write-off late payment penalties in the amount
of RON 238.4 million, a net change in deferred revenue of RON 112.7 million related mainly to release of
depreciation of assets acquired from connection fees paid by customers, a change in employee benefits and
provisions of RON 65.3 million resulting from actuarial losses on certain post-employment and other
long-term employee benefits and (ii) deducting the share of profit of equity-accounted investees of RON
246.8 million related to the interests held by Electrica in the privatised electricity distribution and supply
companies Enel Distributie Muntenia, Enel Energie Muntenia, Enel Distributie Banat, Enel Distributie
Dobrogea and Enel Energie. Interest and income tax paid amounted to a total of RON 73.6 million. In
2012, RON 145 million of CFR receivables were offset against payables to State-controlled power
generators as a result of existing payables to CFR from those generators.
In the year ended 31 December 2011, net cash from operating activities amounted to RON
317.8 million. The loss before tax for that year was RON 46.7 million. The key adjustments were: (i) adding
depreciation and amortisation in the amount of RON 372 million, a change in trade and other payables of
RON 473.2 million resulting mainly from an increase in trade payables driven by payables related to
acquisitions of electricity and a net change in deferred revenue of RON 98.9 million (related mainly to
release of depreciation of assets acquired from connection fees paid by customers) and (ii) deducting the
share of profit of equity-accounted investees in the amount of RON 74.7 million, a change in employee
benefits and provisions of RON 47.7 million (resulting mainly from the use of provisions for restructuring
in amount of RON 41.9 million after the lay-off of 1,354 employees, on settlement of lay-off liabilities) and
131
a change in trade and other receivables in the amount of RON 402.6 million (mainly driven by an increase
of trade receivables from CFR). Interest and income tax paid amounted to a total of RON 71.6 million. In
2011, RON 233 million CFR receivables were offset against payables to State-controlled power generators
as a result of existing payables to CFR from those generators.
In order to record its share of the associates’ profit or loss and changes in other comprehensive
income, the Group used information from the statutory financial statements of its associates, as financial
statements prepared in accordance with IFRS/ IFRS-EU were not available. The Company’s Management
estimates that the profit or loss and the changes in other comprehensive income based on the statutory
accounting regulations are not substantially different from those that would have been determined in
accordance with IFRS-EU.
Net cash flows from investing activities
The table below summarises net cash flows from investing activities for the periods indicated.
Three month
period ended
31 March*
2014
2013
Cash flows from investing activities
Payments for purchases of property, plant and equipment
Payments for purchases of property, plant and equipment
from customers contributions . . . . . . . . . . . . . . . . . . .
Payments for purchases of intangibles assets . . . . . . . . . .
Proceeds from sale of property, plant and equipment . . .
Proceeds from sale of investments . . . . . . . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . .
..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(147.2)
Year ended 31 December
2013
2012
2011
(RON million)
(95.5) (378.8) (377.5) (405.4)
(21.6) (37.5) (246.3) (181.0) (161.0)
(0.4)
(5.3) (31.3) (14.5)
(7.9)
0
0.2
0.9
0.8
2.3
140.9
5.8
10.7
20.8
22.8
31.8
0
0
0
0
35.4
(22.5) (127.4) (634.6) (549.5) (504.8)
Source: * Unaudited Consolidated Financial Statements.
Three month periods ended 31 March 2014 and 2013
In the three month periods ended 31 March 2014 and 2013, Electrica reported net cash outflows from
investing activities of RON 22.5 million and RON 127.4 million, respectively.
Net cash outflows from investing activities in the three month period ended 31 March 2014 were
related mainly to the acquisition of property, plant and equipment and intangible assets for RON
169.2 million, out of which RON 21.6 million were purchases with payments from customers’ contributions,
that are primarily related to (i) the distribution network modernisation in order to improve the reliability
of the distribution service, (ii) expansion and modernisation of the network and (iii) smart metering and
other elements related to the implementation of smart grid network. Cash outflows from investing
activities in the three months period ended 31 March 2014 were in large part offset by an inflow of cash of
RON 140.9 million from the sale of the 17% stake in E.On Moldova Distributie and 2.38% stake in E.On
Energie Romania following the exercise of a Call Option by E.On. Cash inflows from interest received on
Electrica’s bank deposits amounted to RON 5.8 million.
Net cash outflows from investing activities in the three month period ended 31 March 2013 were
related mainly to the acquisition of property, plant and equipment and intangible assets for RON
138.3 million, out of which RON 37.5 million were purchases with payments from customers’ contributions
that are primarily related to (i) the distribution network modernisation in order to improve the reliability
of the distribution service, (ii) expansion and modernisation of the network and (iii) smart metering and
other elements related to the implementation of smart grid network. Cash outflows from investing
activities in the three month period ended 31 March 2013 were partly offset by an inflow of cash of RON
10.7 million coming from interest received on Electrica’s bank deposits.
Years ended 31 December 2013, 2012 and 2011
In the years ended 31 December 2013, 2012 and 2011 Electrica’s net cash outflows from investing
activities were RON 634.6 million, RON 549.5 million and RON 504.8 million, respectively.
132
Net cash outflows from investing activities in the year ended 31 December 2013 were related mainly to
the acquisition of property, plant and equipment and intangible assets for RON 656.4 million, out of which
RON 246.3 million were purchases with payments from customers’ contributions. Net cash outflows from
investing activities in the year ended 31 December 2012 were related mainly to the acquisition of property,
plant and equipment and intangible assets for RON 573.1 million, out of which RON 181.0 million were
purchases with payments from customer contributions. Net cash outflows from investment activities in the
year ended 31 December 2011 were related mainly to the acquisition of property, plant and equipment and
intangible assets for RON 574.3 million, out of which RON 161.0 million were purchases with payments
from customer contributions. These cash outflows were primarily related to (i) the distribution network
modernisation in order to improve the reliability of the distribution service, (ii) expansion and
modernisation of the network and (iii) smart metering and other elements related to the implementation
of smart grid network
Cash outflows from investing activities in the year ended 31 December 2013, 2012 and 2011 were
partly offset by cash inflows from interest income on Electrica’s bank deposits in amount of RON
20.8 million, RON 22.8 million and RON 31.8 million, respectively. In the year ended 31 December 2011,
the Group had an additional cash inflow from dividends received mainly from Enel Distributie Banat
(RON 20.8 million) and Enel Distributie Dobrogea (RON 14 million)
Net cash flows from financing activities
The table below summarises net cash flows from financing activities for the periods indicated.
Three month
period ended
31 March*
2014
2013
Cash flows from financing activities
Repayment of financing of property, plant and equipment
Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to the owner of the Company . . . . . . . . .
Dividends paid to non-controlling interests . . . . . . . . . . .
Payment of finance lease liabilities . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Year ended 31 December
2013
2012
2011
(RON million)
(36.9) (35.9) (130.4) (150.7) (125.6)
0
0
(10.3) (30.4) (10.3)
0
0
(13.2)
(6.0) (29.1)
0
0
(25.5)
(1.8)
0
(1.0) (0.9)
(5.6)
(5.6)
(5.6)
(37.9) (36.9)
(185) (194.4) (170.6)
Source: * Unaudited Consolidated Financial Statements.
Three month periods ended 31 March 2014 and 2013
In the three month periods ended 31 March 2014 and 2013 Electrica reported net cash outflows from
financing activities in the amount of RON 37.9 million and RON 36.9 million, respectively.
Cash flow used in financing activities in the three month period ended 31 March 2014 was related to
net cash outflows representing repayment of financing of property, plant and equipment of RON
36.9 million and payment of finance lease liabilities of RON 1 million.
Cash flow used in financing activities in the three month period ended 31 March 2013 was related to
net cash outflows representing repayment of financing of property, plant and equipment of RON
35.9 million and payment of finance lease liabilities of RON 0.9 million.
Years ended 31 December 2013, 2012 and 2011
In the years ended December 2013, 2012 and 2011 Electrica reported a net cash outflow from
financing activities in the amount of RON 185.0 million, RON 194.4 million and RON 170.6 million,
respectively.
Net cash outflows from financing activities in the year ended 31 December 2013 were mainly related
to outflows from repayment of financing of property, plant and equipment, repayment of borrowings,
dividend payments to the State as Electrica’s sole shareholder and dividend payments to Fondul
Proprietatea due to its non-controlling interests in the Company’s subsidiaries.
Net cash outflows from financing activities in the year ended 31 December 2012 were mainly related
to outflows from repayment of financing of property, plant and equipment, repayment of borrowings,
133
dividend payments to the State as Electrica’s sole shareholder and dividend payments to Fondul
Proprietatea due to its non-controlling interests in the Company’s subsidiaries-.
Net cash flows from financing activities in the year ended 31 December 2011 were mainly related to
repayment of financing of property, plant and equipment and repayment of borrowings and dividend
payments to the State as Electrica’s sole shareholder.
Romanian companies can distribute dividends from statutory earnings only, based on individual
financial statements prepared in accordance with Romanian accounting regulations. The level of dividends
in the years ended 31 December 2013, 2012 and 2011 was impacted by the fact that the distribution
segment subsidiaries could not pay dividends to Electrica because they had to use their net profit to cover
retained losses from prior years.
Indebtedness
Financial indebtedness
The table below summarises selected information concerning Electrica’s short- and long-term
indebtedness under loans, borrowings and financial leases, as at the dates indicated.
Year ended
31 December
31 March
2014*
2013
2012
2011
(RON million)
Short-term financial indebtedness (including the current portion of
long-term debt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment . . . . . . . . . . . . . . . .
Long-term indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing of property, plant and equipment . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
174
0
38
0
135
115
0
0
115
289
223
0
80
0
143
130
0
0
130
353
317
9
167
27
114
197
0
1
196
514
441
30
281
26
104
132
10
5
117
573
Source: * Unaudited Consolidated Financial Statements.
The table below presents the Group’s net indebtedness (calculated as a total of interest-bearing loans
and borrowings, bank overdrafts, financing of property, plant and equipment and lease liabilities less cash
and cash equivalents) and the leverage ratio (calculated as a ratio of net indebtedness to equity increased
by net indebtedness) as at the dates indicated.
As at
31 March
2014*
Bank borrowings . . . . . . . . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . . . . . . . . . . . . . .
Financial lease liabilities . . . . . . . . . . . . . . .
Financing of property, plant and equipment .
Cash and cash equivalents . . . . . . . . . . . . .
Net indebtedness . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity increased by net indebtedness . . . . . .
Leverage ratio . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0
38
1
250
(668)
(379)
6,752
6,373
5.9%
As at
As at
31 December 31 December
2013
2012
(RON million)
0
80
1
272
(651)
(298)
6,659
6,361
4.7%
As at
31 December
2011
9
167
27
309
(642)
(130)
6,372
6,242
2.1%
41
281
31
222
(499)
76
5,946
6,022
1.3%
Source: *Company (unaudited).
For a description of the Group’s indebtedness, see ‘‘Business—Description of indebtedness’’.
In the periods discussed, the Group preferred to finance its investments mostly by cash and by
extended credit terms from fixed assets suppliers. This approach resulted mainly from the fact that the
Group, as a State-owned entity, must observe public procurement legislation when contracting loans,
134
which can be very time consuming. Therefore, the Group’s investment programme has been kept at a
minimum level and was financed solely from operations and the limited financing sources mentioned
above.
In the three month period ended 31 March 2014 and in the years 2011-2013 the majority of the
Group’s external debt financing was incurred for the purposes of the Group’s working capital financing
and issue of potential commitments and for financing its investment programme in the distribution
segment. See ‘‘—Capital Expenditures’’. Financing of property, plant and equipment by the Group is based
on suppliers’ credit with extended terms. The amounts are denominated in EUR and are backed by
promissory notes issued by the Group to its suppliers of property, plant and equipment. Certain of these
promissory notes are discounted by the suppliers to banks for early payment. Such financing is measured at
amortised cost, by using an average effective interest rate of 5% in 2013 compared to 5.93% in 2012 and
6.29% in 2011. As at 31 March 2014, the amount due by Electrica to the suppliers of property, plant and
equipment was of RON 250 million.
As at 31 March 2014, the Group had outstanding bank letters of guarantee of RON 97 million
compared to RON 90 million as at 31 December 2013, RON 124 million as at 31 December 2012 and RON
59 million as at 31 December 2011 issued in favour of its suppliers.
Financial liabilities
The table below summarises, as at 31 March 2014, the Group’s carrying amount of financial liabilities
by maturity date.
Total
Bank overdrafts . . . . . . . . . . . . . . . . . . . . .
Financial lease liabilities . . . . . . . . . . . . . . .
Financing of property, plant and equipment
Trade payables . . . . . . . . . . . . . . . . . . . . . .
Total financial liabilities . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
38
1
250
516
805
Short term Long term
(RON million)
38
0
135
516
690
—
0
115
0
115
Source: Unaudited Consolidated Financial Statements.
Capital Expenditures
In the years ended 31 December 2013, 2012 and 2011, most of the Group’s capital expenditures were
associated with the distribution segment, whose operations require high levels of capital expenditure.
In the three month period ended 31 March 2014 and 2013, the Group’s total capital expenditure
amounted to RON 109 million and RON 119 million, respectively and were mainly related to expenditure
in the distribution segment in the amount of RON 108 million and RON 118 million which included, inter
alia, (i) distribution network modernisation in order to improve the reliability of the distribution service,
(ii) expansion and modernisation of the network, and (iii) smart metering and other elements related to
the implementation of smart grid networks. Part of the capital expenditure in the distribution segment
consists of new connections to the network financed by connection fees collected from customers in the
amounts of RON 22 million and RON 38 million in the three month period ended 31 March 2014 and
2013, respectively.
In the years ended 31 December 2013, 2012 and 2011, the Group’s total capital expenditures
amounted to RON 650 million, RON 617 million and RON 554 million, respectively, and were mainly
related to expenditures in the distribution segment in the amount of RON 635 million, RON 597 million
and RON 542 million, respectively which included, inter alia, (i) distribution network modernisation in
order to improve the reliability of the distribution service, (ii) expansion and modernisation of the
network, and (iii) smart metering and other elements related to the implementation of smart grid network
Part of the capital expenditure in the distribution segment consists of new connections to the network
financed by connection fees collected from customers in the amounts of RON 246 million, RON
181 million and RON 161 million in the years ended 31 December 2013, 2012 and 2011 respectively.
135
The table below summarises capital expenditures of the Group in the relevant periods with a
breakdown into particular business segments as at the dates indicated.
Three month period ended
31 March*
2014
2013
(RON
(RON
million)
(%)
million)
(%)
Electricity distribution . . .
Electricity supply . . . . . . .
External electricity
network maintenance . .
Headquarter . . . . . . . . . .
Total for reportable
segments . . . . . . . . . .
Consolidation eliminations
and adjustments . . . . . .
Total consolidated . . . . . .
Year ended 31 December**
2013
2012
2011
(RON
(RON
(RON
million)
(%)
million)
(%)
million)
(%)
108
1
99.1%
0.9%
118
0
99.8%
0.2%
635
5
99.1%
0.8%
597
14
97.1%
2.4%
542
6
98.3%
1.0%
0
0
0.0%
0.0%
0
0
0.0%
0.0%
1
0
0.1%
0.0%
3
0
0.5%
0.0%
4
0
0.7%
0.0%
109
100.0%
119
100.0%
640
100.0%
615
100.0%
551
100.0%
0
109
0
119
9
650
2
617
3
554
Source: *Unaudited Consolidated Financial Statements; ** Audited Consolidated Financial Statements.
Distribution
The Group intends to finance its future capital expenditure, including the investments described
above, using its own funds generated by the Group’s operating activities, and debt. To that end, the Group
may explore additional debt financing options and instruments such as term loans and potentially bonds
following the Offering. For a description of Electrica’s future capital expenditures investment programme,
see ‘‘Business—Investment Programme’’.
Contingent Liabilities
As at 31 March 2014 and at 31 December 2013, Electrica was involved in various litigation, of which
the most significant, in terms of contingent liabilities, were the following:
• The Group is party to proceedings with Orange Media and Terradox Solutions, whereby Orange
Media and Terradox Solutions claimed payment of RON 17 million, and RON 12 million,
respectively, representing alleged damages resulting from the cancellation of a public acquisition
contract with the Group. By sentence no. 4890/13.06.2013 issued by Bucharest Court, Orange
Media’s claim was dismissed. This decision is subject to appeal. By sentence no. 527/07.02.2014
issued by Bucharest Court, Terradox Solutions’s claim was also dismissed. This decision is also
subject to appeal. The Group expects a favourable outcome for both cases. Consequently no
provisions have been recorded by the Group for this action.
• The Group has also contested decisions issued by ANAF in 2012 and 2013 for an amount of RON
26 million representing interest and penalties for taxes due to the State in court. No provisions have
been recorded by the Group for this action.
For a description of other material litigation to which the Group is subject, see ‘‘Business—Legal
Proceedings’’.
Qualitative and quantitative information about risks
The Group’s operations expose it to a variety of risks. The main risks are: interest rate risk and foreign
currency exchange risk, the risk of fluctuations in electricity prices on the wholesale market, liquidity risk
and credit risk. The materialisation of any of these risks could have an adverse impact on the Group’s
business, financial condition and results of operations.
Regulatory risk
A significant portion of the Group’s revenues are generated by sales in its regulated distribution and
supply segments. Tariffs for electricity distribution and supply on the regulated market in Romania are set
by ANRE. The regulator may delay or refuse to approve electricity distribution and sales tariffs, and the
approved tariffs may not reach levels required to match management’s expected return on capital
expenditure. In particular, the Group may not be able to operate at the level of efficiency assumed by
ANRE: for example, Opex allowances, targets of network loss ratios and cost of debt targets could all be
136
insufficient to cover for actual levels of cost. Besides, some Capex spent in the distribution segment for the
purpose of upgrading or extending the electricity network may not ultimately be fully recognised by ANRE
as part of the Regulated Asset Base. All these could prevent the Group from reaching the regulated rate of
return target set by ANRE. This regulated rate of return is simply a target set by ANRE and there can be
no assurance that it will be met by the distribution subsidiaries.
In addition, the Group may not receive approval to increase tariffs for any given regulatory period
and/or regulated tariffs may be set at a level which would prevent the Group maintaining or improving its
margins.
Any adverse change in regulated tariffs set by ANRE, in regulated operating metrics or parameters or
a failure by the Company to meet the operating and financial targets set by ANRE could have a material
adverse effect on the Company’s business, results of operations, financial condition and prospects.
Risks of electricity price fluctuations on the wholesale market
One of the key risk areas in Electrica’s supply business is market risk, resulting from fluctuations in
electricity purchase prices on the wholesale market with respect to long-, medium- and short-term
contracts on the Romanian forward electricity market. The risk related to fluctuations of purchase prices
on the wholesale market, however, is mitigated, as Electrica is generally able to pass through increases of
electricity prices to its customers albeit with a six month time lag.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet
its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable
losses. The Group aims to maintain the level of its cash and cash equivalents at an amount in excess of
expected cash outflows on financial liabilities. The Group also monitors the level of expected cash inflows
on trade and other receivables together with expected cash outflows on trade and other payables. In
addition, the Group maintains lines of credit for financing the working capital needs and future
commitments.
The maturity profile of the Group’s financial liabilities as at 31 March 2014 is presented in
‘‘—Indebtedness—Financial liabilities’’ above.
Credit risk
Electrica defines credit risk as the probability that a consumer or counterparty fails to meet its
contractual obligations and arises principally from the Group’s receivables from customers. According to
Electrica’s policy, credit risk is mitigated by conducting value-based assessments of risk, monitoring the
financial condition of partners and securing trade credit using any available tools such as bank guarantees,
sureties, etc. Electrica credit risk in respect of receivables is concentrated around State-controlled
companies and mainly CFR, its largest customer, which in turn are also affected by the status of the
Romanian economy. As a consequence, the Group has a risk exposure that can be affected by Government
policies.
137
The aging of the Group’s trade receivables as at 31 December 2011, 2012 and 2013 was as follows:
31 December 2013
Gross
Bad debt
value
allowance
RON million
31 December 2012
Gross
Bad debt
value
allowance
RON million
31 December 2011
Gross
Bad debt
value
allowance
RON million
686
202
65
122
181
245
753
2,253
403
603
45
55
332
271
490
2,200
411
536
118
186
829
282
273
2,635
Gross trade receivables
Neither past due nor impaired
Past due 1-90 days . . . . . . . . .
Past due 90-180 days . . . . . . . .
Past due 180-360 days . . . . . . .
Past due 1-2 years . . . . . . . . .
Past due 2-3 years . . . . . . . . .
Past due more than 3 years . . .
Total . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net trade receivables
Neither past due nor impaired .
Past due 1-90 days . . . . . . . . .
Past due 90-180 days . . . . . . . .
Past due 180-360 days . . . . . . .
Past due 1-2 years . . . . . . . . . .
Past due 2-3 years . . . . . . . . . .
Past due more than 3 years . . .
Total . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
—
—
(2)
(34)
(132)
(245)
(753)
(1,166)
—
(53)
(6)
(38)
(331)
(271)
(490)
(1,189)
(22)
(64)
(37)
(129)
(636)
(282)
(273)
(1,443)
31 December 2013
31 December 2012
RON million
31 December 2011
686
202
63
88
48
—
—
1,087
403
550
39
17
2
—
—
1,011
389
472
81
57
193
—
—
1,192
Source: Audited Consolidated Financial Statements.
The Group supplies electricity to CFR and had an exposure of RON 241 million as at 31 December
2013 (RON 221 million as at 31 March 2014). Further information concerning CFR is provided in Note 17
to the Consolidated Financial Statements, Note 12c) to the Condensed Consolidated Interim Financial
Statements and under ‘‘—Material Contracts Power supply agreements between Electrica Furnizare with
CFR’’.
Net receivables past due for more than one year presented above refer to receivables from CFR which
were not provided for based on Electrica’s management specific analysis considering subsequent
collections and legislation in force existing before year-end that provided information about financial
support that CFR receives for payment of its electricity consumption.
Electrica has devised appropriate procedures to minimise the risk related to insolvency of Electrica’s
customers. When selling to customers with the highest turnover (generally non-household customers), it is
particularly important to examine their credit worthiness, trade limits and contractual provisions. For
customers with poor credit status, Electrica requires security prior to providing its services. Also, Electrica
monitors receivables on a day-to-day basis using software which indicates when receivables are not paid
when due. After maximum 60 days of non-payment, Electrica may terminate its services to the non-paying
customer, with five days prior termination notice. For further information concerning the credit risk, see
Note 30 (c) (i) to the Consolidated Financial Statements for the years 2013, 2012 and 2011.
Interest rate risk
The Group’s policy is to use mainly supplier credit for financing its investments. The Group does not
have significant long-term bank facilities.
138
The interest rate profile of the Group’s interest-bearing financial instruments as at 31 December 2011,
2012 and 2013 is as follows:
31 December
2013
2012
2011
(RON million)
Fixed-rate instruments
Financial assets
Bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities
Financing of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
542
392
(272) (309) (222)
(1) (27) (31)
269
Variable-rate instruments
Financial liabilities
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
528
191
139
0
(9) (41)
(80) (167) (281)
(80) (177) (322)
Source: *Audited Consolidated Financial Statements
The Group does not account for any fixed rate financial assets and liabilities at fair value and does not
use derivatives. Therefore, a change in interest rates at the end of the reporting periods would not affect
the result for the year or retained earnings.
Currency risk
Electrica is exposed to currency risk to the extent that there is a mismatch between the currencies in
which sales, purchases and borrowings are denominated and the functional currency of Electrica. The
functional currency of the Group is RON.
The currencies in which these transactions are primarily denominated are RON and EUR. Certain
liabilities are denominated in EUR. Electrica also has bank accounts denominated in EUR. Electrica’s
policy is to use local currency in its transactions as much as possible. Electrica does not use derivative or
hedging instruments to manage currency risk.
The summary quantitative data about the Group’s exposure to currency risk for the years ended
31 December 2011, 2012 and 2013 is as follows:
2013
EUR
(RON million)
Cash and cash equivalents . . . . . . . . . . . . .
Financing of property, plant and equipment
Finance lease . . . . . . . . . . . . . . . . . . . . . . .
Net statement of financial position exposure
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
31 December
2013
2013
EUR
EUR
136
(272)
(1)
(137)
162
(309)
(27)
(175)
180
(222)
(31)
(73)
Source: * Audited Consolidated Financial Statements
Electrica’s exposure related to fluctuations in the EUR/RON exchange rate is not significant. For the
year ended 31 December 2013, Electrica’s exposure to the currency risk was approximately EUR
31 million.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with International Reporting
Standards (‘‘IFRS’’) as endorsed by the European Union (‘‘IFRS-EU’’). In preparing these consolidated
financial statements, management has made judgements, estimates and assumptions that affect the
application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
139
Electrica defines ‘‘critical accounting policies’’ as the policies which Electrica believes are most
important to the presentation of Electrica’s financial condition and results of operations, and which
require management to make what it believes are the most difficult and subjective judgments, often as a
result of the need to make estimates on matters that are inherently uncertain. Based on this definition,
management has identified the following critical accounting policies and estimates addressed below, which
were applied in the preparation of the Audited Consolidated Financial Statements. Electrica also has other
key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant
to understanding Electrica’s results. See Notes 4, 5 and 6 to the Audited Consolidated Financial
Statements for further information on (a) significant professional judgments and accounting estimates and
(b) a summary of significant accounting policies, which were applied in the preparation of the Audited
Consolidated Financial Statements.
The accounting policies adopted in the preparation of the Unaudited Interim Consolidated Financial
Statements are consistent with those applied to the Audited Consolidated Financial Statements, except for
the accounting policies described in the section ‘‘—New accounting standards, interpretations and revisions
to accounting standards’’ below.
Service Concession Arrangements
The European Union adopted IFRIC 12 ‘‘Service Concession Arrangements’’ effective for financial
years starting on or after 1 April 2009. The distribution subsidiaries (as operators) concluded concession
contracts with the Ministry of Economy and Commerce (as grantor) in 2005, updated in 2009 by an
addendum, which concerns the operation of electricity distribution service in the established territory
(Transilvania Nord, Transilvania Sud, Muntenia Nord), on the risk and responsibility of the operators and
taking into account the technical regulations applicable to the operation, modernization, rehabilitation and
development of energy distribution networks specified in the Electricity Law, the terms and conditions of
the licence for electricity distribution and the regulations issued by ANRE. Before entering into these
service concessions, the distribution infrastructure was held by the operators and accounted as property,
plant and equipment.
The concession contracts are concluded for a period of 49 years and may be extended for a period
equal to no more than half of that period. As a price for the concession, the companies pay an annual
royalty fee recognized in the distribution tariff of 1/1000 of the revenues from electricity distribution.
According to the concession contracts, the companies use the assets representing the distribution network
owned by them located in the above-mentioned territory for the electricity distribution. According to the
concession contracts, the grantor will buy at the end of the concession contract the ownership right on the
‘‘relevant assets’’, that is the electricity distribution networks, at a price equal to the value of the regulated
assets base at the end of the concession.
The Group is controlled by the State. IFRIC 12 deals with public-to-private service concession
arrangements. Since the Group is controlled by the State, the concession arrangement is a form of
public-to-public service arrangement and therefore does not fall under the provisions of IFRIC 12.
However, due to the initial public offering, the management should re-analyse the accounting treatment
used and applicability of IFRIC 12.
One of the main factors considered by management is the public-to-private characteristic of the
relationship. Based on the IPO strategy established by GD no. 85/2013, the State will hold a 49% interest
in Electrica after the IPO; 51% of the shares will be offered to both individual and institutional investors.
Based on the current strategy of the Government, the State is expected to continue to hold its interest for a
considerable period after the IPO, and there are no plans by the Government to sell further shares in
Electrica in the foreseeable future. A minimum of 10% of the share capital will be offered for retail, with
the possibility of increasing the percentage. The voting power arrangements after the IPO are currently
under discussion. Therefore the determination of control over the Group would be possible after the
evaluation of the actual exercise of voting powers.
After this evaluation the management will conclude whether the concession arrangement remains a
form of public-to-public service arrangement and therefore not falling under the provisions of IFRIC 12 or
it would become a public-to-private service arrangement. It is possible that in the future the Group change
its accounting policy regarding the accounting of service concession arrangements.
In case the Group will change its accounting policy according to IFRIC 12, the management applied
its judgment and estimated that the impact of the financial statements as of 31 December 2013, 2012 and
140
2011 will be mainly as follows: reclassification from property, plant and equipment to intangible assets of
the amount related to the network assets with no significant impact on the total non-current assets or total
assets, and recognition of a construction revenue and construction costs in the statement of profit or loss
with no significant impact on the net profit for the years 2013, 2012 and 2011.
In concluding this, management has made a judgment related to the depreciation life and method of
the intangible asset based on economic factors related to the economic benefits that would be received by
the entity and based on the expected pattern of the expected future economic benefits determined by the
methodology for distribution tariff setting.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the
property, plant and equipment, which are measured based on revaluation model. The assets and liabilities
of the subsidiaries in financial distress (Servicii Energetice Banat, Servicii Energetice Dobrogea, Servicii
Energetice Moldova, Servicii Energetice Oltenia) are not prepared on a going concern basis but on an
alternate basis, as disclosed in Note 32 to the Audited Consolidated Financial Statements.
Revenue
Revenue is recognised when it is probable that the economic benefit associated with the transaction
will flow to the Group, and the amount of the revenue can be measured reliably. Revenue is recognised at
the fair value of the services rendered or goods delivered, net of VAT, excises or other taxes related to the
sale.
Supply and distribution of electricity
The revenue from supply and distribution of electricity to consumers is recognised when electricity is
delivered to consumers, based on meter readings and based on estimates for electricity delivered and for
which no reading was performed yet. The invoicing of electricity sales is performed on a monthly basis.
Monthly electricity invoices are based on meter readings or on estimated consumptions based on the
historical data of each consumer. Electricity supplied to consumers which is not yet billed as at the
reporting date is accrued on the basis of recent average consumptions or based on subsequent meter
readings. Differences between estimated and actual amounts are recorded in subsequent periods.
Customer contributions
According to the law, the value of new connections to the electricity network is charged to the final
users as a connection fee. The new connections to the electricity network are the property of the Group.
The Group recognises the connection fee received as deferred revenue in the consolidated statement of
financial position and subsequently records it as revenues on a systematic basis over the useful life of the
asset.
Rendering of services
Revenues related to services rendered are recognised in the period in which the services were
rendered based on statements of work performed, regardless of when paid or received, in accordance with
the accrual basis.
Sales of goods
Revenue from sale of goods is recognised when the goods are delivered and significant risks and
rewards of ownership of the goods have passed to the buyer.
Employee benefits
Short-term employee benefits
Short-term employee benefits are measured on an undiscounted basis and are expensed as the related
service is provided. A liability is recognised for the amount expected to be paid if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided by the employee and
the obligation can be estimated reliably.
141
Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as the related service is
provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction
in future payments is available.
Defined benefit plans
The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in the current and prior periods,
discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the
projected unit credit method.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, are
recognised immediately in other comprehensive income. The Group determines the net interest expense
(income) on the net defined benefit liability for the period by applying the discount rate used to measure
the defined benefit obligation at the beginning of the annual period to the then-net defined benefit
liability, taking into account any changes in the net defined benefit liability during the period as a result of
contributions and benefit payments. Net interest expense and other expenses related to defined benefit
plans are recognised in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit
that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss.
The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement
occurs.
Other long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit
that employees have earned in return for their service in the current and prior periods. That benefit is
discounted to determine its present value. Remeasurements are recognised in profit or loss in the period in
which they arise.
Termination benefits
Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer
of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to
be settled wholly within 12 months of the end of the reporting period, then they are discounted.
Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the
extent that it relates to items recognised directly in equity or in Other Comprehensive Income (OCI), in
which case the tax is recognised directly in equity or in OCI.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the
year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax
rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from
dividends received by Electrica.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is
not recognised for (i) temporary differences on the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit or loss;
(ii) temporary differences related to investments in subsidiaries, associates and joint arrangements to the
extent that the Group is able to control the timing of the reversal of the temporary differences and it is
probable that they will not reverse in the foreseeable future; and (iii) taxable temporary differences arising
on the initial recognition of goodwill.
142
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against which they
can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates
that are expected to be applied to temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences
that would follow from the manner in which the Group expects, at the reporting date, to recover or settle
the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain
criteria are met.
Property, plant and equipment
Property, plant and equipment are stated initially at cost, which includes purchase price and other
costs directly attributable to acquisition and bringing the asset to the location and condition necessary for
their intended use. After initial recognition, items of property, plant and equipment, except construction in
progress, are measured at revalued amounts, which includes any accumulated depreciation and any
accumulated impairment losses since the most recent valuation. Until 31 December 2003, the Group has
restated the cost of property, plant and equipment according to IAS 29 ‘‘Financial Reporting in
Hyperinflationary Economies’’, with its effect being recognised in retained earnings.
Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ
materially from that which would be determined using the fair value at the end of the reporting period.
The difference between the revalued amount and the net carrying amount of property, plant and
equipment is recognised as revaluation reserve included in equity. When an item of property, plant and
equipment is revalued, the accumulated depreciation is eliminated against the gross carrying amount of
that item, then the net amount restated to the revalued amount of the asset.
If an asset’s carrying amount is increased as a result of a revaluation, the increase is recognised and
accumulated in equity under the heading of revaluation reserve. However, the increase is recognised in
profit and loss to the extent that it reverses a revaluation decrease of the same amount of the asset
previously recognised in profit and loss. If an asset’s carrying amount is decreased as a result of a
revaluation, the decrease is recognised in profit or loss. However, the decrease is recognised in equity in
revaluation reserves if there is any credit balance existing in the revaluation reserve in respect of that asset.
The revaluation reserve is transferred to retained earnings through the use of the asset (as the asset is
depreciated) and upon disposal of the asset.
Assets held for distribution
Non-current assets, or disposal groups comprising assets and liabilities, are classified as
held-for-distribution if it is highly probable that they will be recovered primarily through distribution rather
than through continuing use.
Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less
costs of disposal. Impairment losses on initial classification as held-for-distribution and subsequent gains
and losses on remeasurement are recognised in profit or loss.
Impairment of financial assets
Financial assets measured at amortised cost
The Group considers evidence of impairment for these assets at both an individual asset and a
collective level. All individually significant assets are individually assessed for impairment. Those found not
to be impaired are then collectively assessed for any impairment that has been incurred but not yet
individually identified. Assets that are not individually significant are collectively assessed for impairment.
Collective assessment is carried out by grouping together assets with similar risk characteristics. In
assessing collective impairment, the Group uses historical information on the timing of recoveries and the
amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that
the actual losses are likely to be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an asset’s carrying amount and the present
value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are
recognised in profit or loss and reflected in an allowance account. For household customers the receivables
are written off when the Group considers that there are no realistic prospects of recovery of the asset. For
143
customers other than households, the amounts are written off after the legal proceedings regarding the
bankruptcy or liquidation of the customer are completed. If the amount of impairment loss subsequently
decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised, then the previously recognised impairment loss is reversed through profit or loss.
Equity-accounted investees
An impairment loss in respect of an equity-accounted investee is measured by comparing the
recoverable amount of the investment with its carrying amount. An impairment loss is recognised in profit
or loss, and is reversed if there has been a favourable change in the estimates used to determine the
recoverable amount.
Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than
inventories and deferred tax assets) to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or cash generating units (CGUs). The recoverable
amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use
is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time, value of money and the risks specific to the asset or
CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable
amount.
Impairment losses are recognised in profit or loss, except for the property, plant and equipment
measured at the revalued amount, in which case the impairment loss is recognised in other comprehensive
income and decreases the revaluation reserve within equity to the extent that it reverses a previous
revaluation surplus related to the same asset. An impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised. A reversal of an impairment loss
is generally recognised in profit or loss. A reversal of an impairment loss on a revalued asset is recognised
in profit or loss to the extent that it reverses an impairment loss on the same asset that was previously
recognised as an expense in profit or loss. Any additional increase in the carrying amount of the asset is
treated as a revaluation increase.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be
required to settle the obligation. Provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the liability. The unwinding of the discount is recognised as a finance cost.
In particular, Electrica establishes provisions for:
a)
employee benefits, including retirement and disability payments, jubilee bonuses, benefits in kind
in the form of free electricity to employees who retired from the Group, cash benefits to
employees depending on the seniority and years of service at retirement;
b)
claims and litigation;
c)
severance payments related to individual redundancy programmes and schemes; and
d)
other provisions
Provisions for pension benefits and other post-employment benefits
The amount of provisions for pension benefits and other post-employment benefits is estimated by an
independent actuary (Deloitte) using the projected unit credit method with benefits calculated
144
proportionally to period to services. Electrica establishes provisions for the following post-employment
benefits:
(i) Retirement and disability payments
According to enterprise remuneration systems and the binding law, employees of the Group are
entitled to retirement and disability payments. These payments are one-off, at the time of retirement due
to age or disability. The amount of a payment depends on the length of the employee’s employment and
his/her average remuneration. Electrica establishes provisions for future retirement payments in order to
allocate the costs to the periods to which they pertain. The accrued liabilities are equal to discounted
payments that will be made in the future, considering staff turnover, and they relate to the period ending
with the end of the reporting period. Demographics and staff turnover data are based on historical
information.
(ii) Provision for cash equivalent related to special tariffs for employees of the electricity industry
In accordance with GD no. 1041/2003, as amended, the Group provides benefits in kind in the form of
free electricity to employees who retired from the Group.
(iii) Provision for other benefits for retirees and disability pensioners
The Group also provides cash benefits in the form of jubilee and retirement bonuses. to employees
depending on seniority and years of service at retirement.
Third party claims and litigations
Provisions for third party claims and litigations and outcomes of pending litigations are established in
amounts corresponding to the realistic value of the claim, with account taken of litigation costs, if any.
Severance payments related to individual redundancy programmes and schemes
A provision for restructuring is recognised when the Group has approved a detailed and formal
restructuring plan, and the restructuring either has commenced or has been announced publicly. Future
operating losses are not provided for.
Other provisions
Other provisions mainly include those related to excise tax representing a tax obligation related to the
electricity sold to end-consumers, and adjustments to the corporate income tax for the preceding years.
Subsequent events
Events occurring after the reporting dates 31 December 2013, 2012 and 2011, which provide
additional information about conditions prevailing at those reporting dates (adjusting events) are reflected
in the consolidated financial statements. Events occurring after the reporting dates that provide
information on events that occurred after the reporting dates (non-adjusting events), when material, are
disclosed in the notes to the consolidated financial statements. When the going concern assumption is no
longer appropriate at or after the reporting period, the financial statements are not prepared on a going
concern basis.
New Accounting Standards, Interpretations and Revisions to Accounting Standards
For a description of the new standards, amendments to standards and interpretations that are
effective for annual periods beginning after 1 January 2013 and have not been applied in preparing the
Audited Consolidated Financial Statements, please refer to Note 7 to the Audited Consolidated Financial
Statements.
The Group has adopted the following new standards and amendments to standards, including any
consequential amendments to other standards, with a date of initial application of 1 January 2014 under
IFRS-EU: (i) IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other
Entities (2011); (ii) Offsetting Financial Assets and Financial Liabilities—Amendments to IAS 32;
(iii) Recoverable Amount Disclosures for Non-Financial Assets—Amendments to IAS 36 and
(iv) IFRIC 21 Levies. For a description of the new standards and amendments to standards, including any
consequential amendments to other standards, please refer to Note 3 to the Interim Unaudited
Consolidated Financial Statements.
145
MARKET OVERVIEW
Macroeconomic overview
The Romanian economy was the third largest in Central and Eastern Europe in terms of GDP value
in 2013, after Poland and the Czech Republic. According to Eurostat, the total GDP of all Central and
Eastern European countries in 2013 was EUR 1,008 billion, 14% of which was contributed by Romania. In
2013, Romania was ranked second among all EU member states in terms of year on year real GDP growth.
Growth in real GDP in the years 2011-2013 in selected Central and Eastern European countries and
the EU as a whole is set out below.
2013
EU (28 member
Poland . . . . . . .
Czech Republic
Romania . . . . .
Bulgaria . . . . . .
Hungary . . . . .
states) .
......
......
......
......
......
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
2011
0.1 (0.4) 1.7
1.6
1.9 4.5
(0.9) (1.0) 1.8
3.5
0.7 2.2
0.9
0.8 1.8
1.1 (1.7) 1.6
Source: Eurostat
Industrial production growth in 2013 and compounded for the years 2004-2013 in selected Central and
Eastern European countries and the EU as a whole is set out below:
EU (28 member states)
Romania . . . . . . . . . . .
Poland . . . . . . . . . . . .
Bulgaria . . . . . . . . . . .
Hungary . . . . . . . . . . .
Czech Republic . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2004 - 2013
(CAGR)
2013
(%)
0.1
7.8
5.8
2.2
1.7
0.7
(0.5)
3.8
2.4
0.0
1.8
2.9
Source: Eurostat
According to the National Statistics Institute, the increase in Romania’s real GDP in 2013 of 3.5% was
mainly due to industry (+2.3%) and agriculture (+1.1%).
Romanian GDP per capita, government budget and government debt for the years 2011-2013 (in
current prices) is set out in the table below.
GDP per capita (RON) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Budget Deficit (million RON) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government Debt (million RON) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
2012
(current prices)
2011
31,523
9,845
241,080
29,306
14,668
222,946
27,732
23,964
193,383
Source: Eurostat, Ministry of Finance
In recent years the level of public debt in Romania has slightly increased in absolute terms, reaching
RON 241 billion, which amounts to 38.2% of Romania’s GDP. By comparison, the average level of public
debt in relation to GDP for all the 28 EU member states was 86.8% and in Central and Eastern European
countries was 73.3%.
146
Information on budget deficit and government debt, in each case as a percentage of GDP for selected
Central and Eastern European countries and the EU as a whole as of 31 December 2013 was:
EU (28 member states)
Bulgaria . . . . . . . . . . .
Czech Republic . . . . . .
Hungary . . . . . . . . . . .
Poland . . . . . . . . . . . .
Romania . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Budget Deficit
(% of GDP)
Government
Debt
(% of GDP)
3.3
1.5
1.5
2.2
4.3
2.3
87
19
46
79
57
38
.
.
.
.
.
.
Source: Eurostat
Inflation in Romania and the exchange rate between EUR and RON for the years 2005-2013 is set out
below:
2005
2006
2007
2008
2009
2010
2011
2012
2013
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Inflation
(%)
EUR/RON
Year-end
9.1
6.6
4.9
7.9
5.6
6.1
5.8
3.4
3.2
3.68
3.38
3.61
3.99
4.23
4.28
4.32
4.43
4.48
Source: National Bank of Romania, INSSE
In 2013, Romania’s budget deficit amounted to RON 9.8 billion, while the deficit in the public finance
sector totalled RON 15.77 billion, accounting for 2.5% of GDP (according to the Ministry of Finance). As
part of a broader range of measures to stimulate the Romanian economy, in September 2013, Romania
entered in to a stand-by arrangement with the IMF.
The Romanian Electricity Industry
History
Electricity use in Romania commenced in 1882 with the introduction of public electric lighting in
Bucharest. By the end of the 19th century the public electric lighting network was supplied by several coal
fired and hydroelectric power plants. In 1930, the first aerial electricity distribution line was constructed in
Bucharest and by 1939 electricity production and use had expanded to most parts of the country. In 1948,
the Romanian electricity industry was centralised and nationalised, under the coordination of a new
government ministry, and in 1955 the National Electroenergy System was created through the merger of
local power companies and electrical distribution networks. Development of the Romanian electricity
supply and distribution industry accelerated with the rapid industrialisation of the country between 1955
and 1989 and through the incorporation of several regional energy companies and the creation of several
developers and manufacturers of electricity distribution and supply equipment.
In 1990, the Romanian government created a vertically integrated State-owned enterprise, the
National Electricity Autonomous Administration, RENEL, to produce, transport and distribute electricity
and heat, to develop the National Electroenergy System and conduct electricity import and export to and
from Romania. In 1998, RENEL was subsequently restructured into three companies: the National
Electricity Company CONEL, the National Company Nuclearelectrica and the Autonomous
Administration for Nuclear Activities. CONEL was responsible for the production, transmission,
distribution and supply of electricity and the production and sale of thermal energy, through three whollyowned subsidiaries, Hidroelectrica, a hydro power generator, Termoelectrica, a thermal power producer
and Electrica, an electricity producer, distributor and supplier, which was a predecessor company but not
the same legal entity as the Company.
147
In 2000, CONEL was reorganised into four independent companies: the National Electricity
Transmission Company ‘‘Transelectrica’’, the Electricity and Heat Production Company ‘‘Termoelectrica’’,
the Electricity Production Company ‘‘Hidroelectrica’’ and the Electricity Distribution and Supply
Company ‘‘Electrica’’. In 2002, under GO no.1342/2001, Electrica was reorganised into eight wholly-owned
regional distribution and supply subsidiaries: Electrica Moldova, Electrica Dobrogea, Electrica Muntenia
Nord, Electrica Oltenia, Electrica Banat, Electrica Transilvania Nord, Electrica Transilvania Sud and
Electrica Muntenia Sud. Between 2004 and 2005, as part of a privatisation programme, Enel completed the
acquisition of controlling interests in Electrica Banat and Electrica Dobrogea, while E.ON acquired a
controlling interest in Electrica Moldova. During the same period, CEZ acquired a controlling interest in
Electrica Oltenia and between 2007 and 2008, Enel acquired the majority shareholding in Electrica
Muntenia Sud.
The electricity market in Romania has gradually liberalised since 2000, with further liberalisation
initiatives commencing on 1 January 2007 as a result of the implementation of European Directives
2003/54/EC and 2009/72/EC of the European Parliament and of the Council (the ‘‘Second Energy
Package’’). As a result, liberalisation of the electricity supply market is ongoing and full liberalisation is
scheduled to be completed by 1 January 2018 when regulated tariffs for household consumers and SMEs,
which have not exercised their eligibility right to switch their electricity supplier, will be eliminated. For
non-household consumers (excluding SMEs which have not used eligibility rights), regulated tariffs were
eliminated from 1 January 2014.
The table below shows the percentage of energy supplied to household consumers and SMEs who
have not yet exercised their eligibility right to switch their electricity supplier, which the supplier of last
resort is obliged to buy from the competitive market.
Date
1 January 2014 . . .
1 July 2014 . . . . .
1 January 2015 . . .
1 July 2015 . . . . .
1 January 2016 . . .
1 July 2016 . . . . .
1 January 2017 . . .
1 July 2017 . . . . .
31 December 2017
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
% of supplied
energy acquired
from the regulated
market
% of supplied energy
acquired from the
competitive market
80
70
60
50
40
30
20
10
0
20
30
40
50
60
70
80
90
100
Liberalisation of the electricity supply market is being implemented gradually in Romania in order to
protect household consumers from sudden price increases. By the end of 2017, the regulated supply
contracts will not be permissible under Romanian law, except for legally protected classes of vulnerable
consumers defined as household consumers which, due to age, bad health or reduced income, are at risk of
social marginalization.
Liberalisation is intended to create a transparent market, where competition allows consumers to
benefit from lower prices and higher quality services. In addition, the introduction of renewable
production sources to the network, such as wind and photovoltaic sources, which have a more variable
output than conventional and nuclear production sources, require electricity networks to be more flexible
in order to match variable supply with demand more efficiently. By 31 December 2012, as a result of this
increasing market liberalisation, approximately half of the total electricity consumed in Romania was
traded through regulated contracts. For more information on the regulation of electricity supply and
distribution in Romania, see ‘‘Regulation’’.
Electricity generation capacity in Romania
Romanian electricity generation capacity is comprised of hydroelectric, thermoelectric, nuclear, wind,
solar and biomass generators within the Romanian National Power System (‘‘NPS’’). Total gross installed
148
capacity in the NPS as at 31 March 2014 was 23,976 MW. The table below presents total gross available
capacity by generation source in Romania in March 2014.
Gross Available
Capacity
(GW)
Thermal power plants (coal) . . . . . . .
Hydropower plants . . . . . . . . . . . . . .
Thermal power plants (hydrocarbons)
Nuclear power plants . . . . . . . . . . . .
Wind power plants . . . . . . . . . . . . . .
Solar power plants . . . . . . . . . . . . . .
Biomass and Geothermal . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
5,447
6,331
4,488
1,413
2,619
1,073
96
21,467
Percentage of
Gross
Available
Capacity (%)
25
29
21
7
12
5
0
Source: Transelectrica
Electricity is produced in dispatchable and undispachable units. Dispatchable units are used by the
relevant operator of the transmission network, or grid, to balance electricity supply and demand. The grid
operator in Romania is Transelectrica, which is a member of UCTE and ENTSO-E. Romanian annual
production of electricity (TWh) in the period 2011 to 2013 in dispatchable units is broken down by source
as follows:
2013
Coal . . . . .
Hydro . . . .
Nuclear . . .
Oil & Gas .
Wind . . . . .
Others . . . .
Total (TWh)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
29.0%
28.3%
20.6%
14.9%
7.1%
0.1%
55.78
2012
39.7%
22.8%
20.2%
13.7%
3.5%
0.1%
56.71
2011
40.0%
26.0%
19.4%
12.7%
1.9%
0.0%
60.39
Source: ANRE
Electricity production capacity in Romania is facing a series of challenges, in particular the
exceedance of the technical limit of generation plant life. Appoximately 30% of the Romanian production
capacities are more than 40 years old and another 25% are approximately 30 years old. In the last five
years only approximately 15% of new Romanian electricity production capacity has been commissioned.
Over the last ten years, nearly 3 GW of Romanian thermal production capacity has been shut down. It is
expected that other plant closures are to be made in the next ten years, as many power stations require
re-tubing and modernisation in order to meet EU requirements within agreed mandatory deadlines.
Electricity consumption and projected demand for electricity in Romania
Internal consumption of electricity in Romania in 2013, according to ANRE, was 49.7 TWh, having
decreased by 5.1% compared to 2012 and by 7.5% compared to 2011. This decrease was a result of a
number of factors, including the decrease in consumption by large energy intensive industrial consumers
such as steel, chemical and petrochemical plants and efficiency measures adopted by some industrial
consumers.
In 2013, Romania exported 2.47 TWh, while in 2012 exports were 1.15 TWh and in 2011 exports were
2.94 TWh According to its national energy policy, Romania intends to remain an exporter of electricity
until 2020, and to continue to be an active player on the free electricity market in Central Europe.
The bulk of electricity consumption in Romania is by non-household consumers, which accounted for
65.1% of the total consumption in 2012 and 62.1% in 2013. Household consumers accounted for 23.0% of
electricity consumption in 2012 and 22.6% in 2013. The table below sets out total Romanian electricity
149
consumption by consumer types, together with network losses and net (import)/export of electricity for
2011, 2012 and 2013.
Total delivered energy, of which:
Domestic consumption . . . . . . .
Non-household . . . . . . . . . . .
Household . . . . . . . . . . . . . .
Transmission network losses . . .
Net (Import)/Export . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2013
2012
(TWh)
2011
51.70
49.69
32.10
11.67
1.03
2.02
52.11
52.36
33.90
11.98
1.00
(0.25)
55.64
53.74
34.22
11.59
1.07
1.90
Source: ANRE
According to ANRE, electricity consumption by consumers (net of consumption in the power sector),
totalled approximately 43.77 TWh in 2013 and 45.88 TWh in 2012.
The average electricity consumption per capita in Romania is still significantly lower than the average
electricity consumption in the 28 EU member states. In 2012, Romanian electricity consumption per capita
was 2.3 MWh, whilst the average electricity consumption per capita in all the EU countries was 6.0 MWh
and in the selected Central and Eastern European countries (excluding Romania) in the table above it was
4.3 MWh. At the same time, the 1.1% compounded annual growth rate (CAGR) in electricity consumption
per capita in the years 2007-2012 calculated as total domestic electricity consumption divided by the
number of inhabitants was much higher than in most other Central and Eastern European countries, as
this figure for all 28 EU member states is 0.7%.
The table below sets forth per capita electricity consumption for selected Central and Eastern
European countries, and the EU as a whole, in the years 2010-2012:
EU (28 member states)
Poland . . . . . . . . . . . .
Czech Republic . . . . . .
Romania . . . . . . . . . . .
Bulgaria . . . . . . . . . . .
Hungary . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
2011
(MWh)
2010
6.0
3.5
5.9
2.3
4.2
3.9
6.0
3.5
5.9
2.3
4.2
3.8
6.2
3.4
6.0
2.2
4.0
3.7
Source: Eurostat
During 2010-2012 the electricity consumption (in MWh) related to EUR 1 million of GDP in certain
countries of Central and Eastern Europe and in the EU, as a whole, was the following:
EU (28 member states)
Poland . . . . . . . . . . . .
Czech Republic . . . . . .
Romania . . . . . . . . . . .
Bulgaria . . . . . . . . . . .
Hungary . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
2011
(MWh)
2010
235
351
405
350
763
396
240
359
399
355
807
381
252
367
417
365
823
388
Source: Eurostat
Electricity Prices
The Romanian electricity market has experienced significant changes in recent years. The most
material changes have been driven by regulatory measures including gradual liberalisation of the market,
the prohibition of competitive power purchase agreements (PPAs) outside of the OPCOM market and the
unbundling of vertically integrated operators.
Despite the significant liberalisation of the Romanian electricity market, prices of electricity in
Romania vary from average prices in the EU. By way of comparison, the prices of electricity for household
150
and non-household consumers in Romania remain significantly lower than those in selected European
countries. The table below presents prices of electricity for household and non-household consumers in
Romania and other selected Central and Eastern European countries as well as the EU as a whole in 2013.
EU (28 member states) .
Poland . . . . . . . . . . . . .
Czech Republic . . . . . .
Romania . . . . . . . . . . .
Bulgaria . . . . . . . . . . . .
Hungary . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Price to nonhousehold
consumers
(EUR/MWh)
Price to household
consumers
(EUR/MWh)
94.2
88.3
101.2
90.4
80.3
90.4
137.0
115.5
124.9
89.0
77.1
106.1
.
.
.
.
.
.
Source: Eurostat
In 2013, the average wholesale market price computed on the basis of ANRE monthly reporting, was
RON 181.1 per MWh and the average wholesale price in 2012 and 2011, was RON 196.1 per MWh and
RON 180.5 per MWh, respectively. The change between 2012 and 2013 amounts to a 7.6% decrease.
The table below presents average electricity prices on the competitive retail market, i.e. the market for
sales of electricity to end consumers.
Average Weighted Price (RON/MWh) . . . . . . . . . . . . . . . . . . . .
2013
2012
2011
2010
2009
2008
297
293
257
244
242
224
Source: Calculated based on ANRE Monthly Reports. The average weighted price is calculated by weighting prices per client
category (as defined by ANRE) by the total consumption per category during the respective period. Prices are before VAT, excise
and other tax, but include services by the supplier. Amounts are rounded to the nearest integer.
The retail price of electricity (without the distribution fee) is influenced by many factors including
market conditions, the regulatory environment and average wholesale prices of electricity. According to
ANRE, the average retail price of electricity in 2013 was RON 297 per MWh, while in 2012 it was RON
293 per MWh, which represented an increase of 0.3%.
Electricity transmission
Electricity transmission is defined as the transportation of electricity by means of transmission lines
with voltage higher than 110kV from generators to distribution networks, or in rare cases to
end-consumers directly connected to the transmission network. In Romania, electricity transmission uses
the highest rated voltage networks of 440kV and 220kV and is operated by Transelectrica in accordance
with ANRE regulations. As well as managing the Romanian high voltage transmission network,
Transelectrica also manages and operates the Balancing Market in order to ensure the safe and efficient
operation of the NPS and ensure Romania’s energy security.
The Romanian Electricity Distribution and Supply Industry
Distribution
Electricity distribution is the transition of electricity over distribution networks from the transmission
network to end-consumers. Electricity is distributed via high voltage (110 kV), medium voltage (from 1 kV
to 110 kV) and low voltage (up to 1 kV) lines. According to ANRE, 48 entities in Romania held a licence
to engage in electricity distribution as at 19 May 2014. Of these, eight distribution operators had a
concession from the State to operate as regional monopolies in a respective region of the country. These
operators control energy distribution in Romania. This group includes EDMN, EDTN and EDTS. Each is
responsible for the exclusive distribution of electricity within its licensed region under a natural monopoly,
based on a concession agreement entered with the State. Tariffs for electricity distribution are set by
ANRE.
Electricity distribution networks are comprised of electricity power lines, substations, transformers
and other equipment. Major parts of the Romanian distribution network were constructed in the
1950-1960s and require material maintenance and upgrade for their continued operation. The technical
condition of the distribution network varies. In some areas of the country there are problems with
maintaining the electricity supply parameters, mostly in rural areas with long routes of low-voltage lines.
151
Electricity parameters for some of the medium and low voltage lines with low technical specifications, for
example conducting sections, worn out insulation, high charges and large lengths are at the limit imposed
by the performance standard for energy distribution as approved by ANRE.
Key information for each of the three electricity distributors in the Electrica group for the years ended
31 December 2013 and 2012 is summarised in the table below.
Number of
Energy
Relative Number of
Energy
Relative
connections(1) Length of distribution market connections(1) Length of distribution market
in millions lines - km
(TWh)
share(2) in millions lines - km
(TWh)
share(2)
(2013)
(2013)
(2013)
(2013)
(2012)
(2012)
(2012)
(2012)
Electricity Distributor
EDMN . . . .
EDTN . . . .
EDTS . . . . .
Group Total
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1.3
1.2
1.1
3.6
67,788
67,137
53,879
188,804
6.2
4.6
5.3
16.1
15%
11%
13%
39%
1.3
1.2
1.1
3.6
67,544
66,710
53,527
187,781
6.3
4.6
5.3
16.3
15%
11%
13%
39%
(1)
Connections are points in the distribution system where electricity is either supplied from or provided to the network
(2)
Calculated based on distributed volumes
Supply
As at 31 December 2012 there were approximately 9.0 million total consumers on the Romanian
electricity market, 94% of which were households. The total electricity supplied in Romania in 2013
amounted to 43.8 TWh. In 2013, approximately 26% of the total electricity supply was delivered to
household consumers, while approximately 74% of the total electricity supply was delivered to
non-household consumers. The table below presents electricity supplies by household and non-household
consumers for the years 2010-2013.
2013
(TWh)
(%)
Supply from the network to consumers: . . . . . .
Of which:
Household . . . . . . . . . . . . . . . . . . . . . . . . .
Non-household . . . . . . . . . . . . . . . . . . . . . .
2012
(TWh)
(%)
2011
(TWh)
(%)
2010
(TWh)
(%)
43.8
100
46.0
100
45.8
100
43.4
100
11.7
32.1
25
75
12.0
34.0
26
74
11.6
34.2
25
75
11.2
32.2
26
74
Source: ANRE
Key information for the top ten Romanian electricity supply companies (including those serving the
regulated and competitive market segments) is summarised in the table below:
Market share
2013
(%)
Supplier
Electrica Furnizare . . . . . . .
ENEL Energie . . . . . . . . . .
ENEL Energie Muntenia . .
E.ON Energie Romania . . .
CEZ Vanzare . . . . . . . . . . .
Alro . . . . . . . . . . . . . . . . . .
Tinmar-Ind . . . . . . . . . . . . .
OMV Petrom . . . . . . . . . . .
Repower Furnizare Romania
EFT Romania . . . . . . . . . .
Arcelormittal Galati . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
22.0
10.1
9.9
8.2
7.7
6.9
4.8
3.0
3.0
3.0
2.7
Source: ANRE
The Romanian Electricity Market
Romania has a decentralised electricity market structure where participants enter into transactions
relating to the purchase and sale of electricity. Governing principles for the electricity market are laid
down in the Energy Law and detailed in secondary legislation including government decisions, resolutions
and orders issued by ANRE. These principles are based on non-discriminatory and regulated access of all
152
participants to the electricity market, transparency of electricity tariffs, prices and fees, improvement of the
competitiveness of the internal electricity market and active participation in the formation of both the
regional and the internal EU energy market and development of cross-border electricity trading.
According to the Energy Law, the Romanian electricity market is divided into a regulated market and a
competitive market, with each of these markets having a wholesale and a retail component.
The regulated market governs the sale and purchase of electricity for regulated tariff based prices,
with transactions on this market made on the basis of regulated agreements. The regulated market serves
electricity consumption by household consumers and SMEs which have not yet exercised their eligibility
right. Electricity prices and regulated quantities to be traded between market participants on the regulated
market are set by ANRE. ANRE also establishes quantities and prices for wholesale transactions between
producers and suppliers of household consumers.
The competitive market governs the sale and purchase of electricity on the basis of terms and
conditions regarding prices and quantities which are established on the centralised energy markets
managed by OPCOM. The Group’s supply segment, operating through Electrica Furnizare, has been the
leading participant by overall volume of electricity supplied for the past three years.
For more information on how the Romanian electricity market is regulated, see ‘‘Regulation’’.
The Wholesale Electricity Market
Overview
The wholesale electricity market provides the framework through which electricity suppliers purchase
electricity from producers (or the other way around) or from other suppliers for resale. Network operators
also purchase electricity on the wholesale electricity market for their own technological consumption. The
wholesale electricity market includes all transactions performed between participating members, except for
transactions to end consumers of electricity, which are made on the retail market. The size of the wholesale
electricity market is determined by the volume of transactions performed by participants. The volume of
these transactions exceeds the aggregate amount of electricity physically transferred from generators to
consumers because traded energy includes resale transactions as well as the energy meant for exports.
Trading in electricity consists of the purchase of electricity from generators or other entities engaged
in electricity trading. Trading in electricity includes the wholesale of electricity and the sale of electricity to
end-consumers. Wholesale electricity trading takes place between generators, suppliers and grid operators.
The purchase and sale of electricity on the Romanian wholesale market is made either under bilateral
contract carried out on the regulated market or through the Centralised Market of Bilateral Contracts (the
‘‘CMBC’’), the Negotiated Bilateral Contracts Market, The Day Ahead Market, the Intra-Day Market and
the recently introduced Centralised Market for Bilateral Contracts with Double Continuous Trading and
Electricity Market for Large Consumers (‘‘LCM’’). These markets are administered by OPCOM. The
purchase and sale of electricity is also conducted through the Next Day Market and the Balancing Market.
OPCOM ensures the transparency of prices for electricity. According to OPCOM the total quantity of
electricity traded in 2013 was approximately 32.8 TWh, or about 66% of total demand in Romania.
The table below presents electricity sales on the wholesale market (excluding trading activities) in the
years 2011-2013 by type.
Centralised Market for Negotiated Bilateral Contracts
Centralised Market for Bilateral Contracts . . . . . . . . .
Regulated Market . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Day Ahead Market . . . . . . . . . . . . . . . . . . . . . .
The Intra-Day Market . . . . . . . . . . . . . . . . . . . . . . . .
Source: ANRE
153
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2013
(% of
internal
consumption)
2012
(% of
internal
consumption)
2011
(% of
internal
consumption)
31.0
37.8
33.7
32.9
0.028
69.8
16.3
45.3
20.5
0.014
110.1
9.4
52.1
16.5
0.009
In Romania the wholesale electricity market is structured into the following main segments:
Centralised Market for Negotiated Bilateral Contracts
The Negotiated Bilateral Contracts Market is the most significant wholesale electricity market based
on the amount of electricity traded. In 2013, 15,386 GWh were traded on this market, amounting to 31% of
domestic consumption. In 2011 59,147 GWh were traded on this market, or 110.1% of total Romanian
electricity consumption, whereas in 2012 this figure dropped to 36,536 GWh, or 69.8% of total Romanian
electricity consumption. The average trading price on this market, according to ANRE, was 177.88 RON/
MWh in December 2011, 204.15 RON/MWh in December 2012 and 185.82 RON/MWh in December 2013
Centralised Market for Bilateral Contracts (CMBC)
CMBC participants include electricity producers, suppliers and other grid operators (transport and
distribution). Most electricity produced in Romania is traded on the CMBC which is a market conducted
through open bidding of offers by market participants. Participants on the Centralised Market for Bilateral
Contracts engage in fixed term bilateral electricity sale and purchase transactions, including bilateral
electricity import / export transactions, in accordance with the Wholesale Electricity Market Commercial
Code of the and relevant licence conditions for the sale and purchase of electricity. The term of the
bilateral contracts on this market must be at least one month.
Centralised Market for Bilateral Contracts with Continuous Trading
The Centralised Market for Bilateral Contracts with Continuous Trading is open to producers and
suppliers and grid operators and has a higher degree of standardisation than the CMBC in terms of
quantity, load profile and delivery period. The volume of transactions performed on this market is much
lower than that on the CMBC. Trading on this market is conducted on-line from the terminals of registered
participants and the identity and bids of market participants is public.
Regulated Market
The Regulated Market is the regulated component of the wholesale electricity market that ensures
supply, at regulated tariffs, to household and non-household consumers that have not exercised their right
to choose their supplier, and to cover losses in the transmission and distribution grids. The Regulated
Market was the second most important component of the wholesale electricity market in 2013, with
transactions in 2013 amounting to 16,755 GWh, or 33.7% of total Romanian consumption. Average trading
prices on this market range from 164.29 RON/MWh in 2011 to 151.85 RON/MWh in 2012 and to 171.13
RON/MWh in 2013.
The Day Ahead Market
The Day Ahead Market (the ‘‘DAM’’) is the spot market for trading in electricity in Romania. The
DAM is intended to create a centralised market framework for buying and selling wholesale electricity
which is necessary in order to:
• facilitate the creation of a competitive, transparent and non-discriminatory wholesale electricity
market;
• adjust contractual positions of the participants
• reduce electricity trading prices;
• establish reference prices for other transactions in the wholesale electricity market; and
• optimise use of interconnection capacities with neighbouring countries by integrating the use of
those capacities within the DAM.
The DAM is managed by OPCOM and governs the sale and purchase of electricity for each trading
interval of the following delivery day, based on standard product bids submitted by participants to the
DAM. The DAM creates independent markets for each trading interval of the day of delivery. Each
transaction corresponds to a delivery of electricity at constant power for the relevant trading interval.
Transactions executed on the DAM require respective market participants to deliver electricity based on
selling offers, and to accept the delivery of electricity in the case of purchase offers, in accordance with
given transaction specifications.
154
Each transaction refers to a delivery day, a trading interval and a trading area. OPCOM is the central
counterparty for each participant in the transactions executed on the DAM. In order to reduce settlement
risk for these transactions, OPCOM requires a security deposit system from participants as a condition of
their participation. Transactions are completed by physical delivery of electricity in the NPS on the delivery
day. Each day of delivery has 24 consecutive trading intervals of one hour each, with the first trading
interval starting at 00:00 hrs on the day of delivery. Exceptions are the transition days from summer time to
winter time and respectively from winter time to summer time, when the delivery day has 25 and 23 trading
intervals, respectively. According to ANRE Order no. 53/2011 (establishing the deadline for submission of
offers on the trading day preceding the delivery day on the DAM), a participant in the DAM may submit
offers for the delivery day to OPCOM before 11:15am on the trading day preceding the delivery day which
is the closing time of this market.
On 31 December 2013, 248 participants were registered on the DAM, of which 141 had sent at least
one offer throughout the month. The average trading price in 2013 was 156.05 RON/MWh compared to
217.47 RON/MWh in 2012 and 220.55 RON/MWh in 2011. The share of spot transactions in terms of total
consumption increased from 16.5% or 8,870 GWh in 2011, to 20.5% or 10,718 GWh in 2012, and to 32.9%
or 16,346 GWh in 2013.
The Intra-Day Market
The contribution of electricity produced from wind and solar generation in Romania is increasing and
as a result, supply/demand imbalances are occurring. OPCOM has therefore developed an intra-day
electricity market, to seek to reduce such imbalances by enabling participants to trade electricity for each
hourly delivery interval up to two hours before the relevant delivery time. Participants on this market
include licensed power generators, electricity suppliers, distributors and network operators. In 2013,
transactions on the intra-day market amounted to 14.15 GWh or 0.03% of total Romanian electricity
consumption, whereas for December 2012 transactions on this market were approximately 7.4 GWh or
0.01% of total Romanian electricity consumption. Average trading prices on this market ranged from
297.57 RON/MWh in 2012 to 194.30 RON/MWh in 2013.
New Markets
OPCOM is developing two new electricity markets.
The Centralised Market for Bilateral Contracts with Double Continuous Trading became operational
on 16 May 2014, when the first trading offer was initiated. Trading agreements will be negotiated between
the parties, prior to trading, based on standard EFET (European Federation of Energy Traders) contracts,
establishing all contractual terms except for delivery profile, price and delivery period. Market participants
will be required to submit to OPCOM eligibility lists specifying at least four counterparties with which the
respective participant is willing to conclude agreements.
OPCOM has also developed the LCM for major final customers with an annual consumption in excess
of 70,000 MWh. Products traded on this market are similar to those available on other centralised bilateral
energy markets, but for larger quantities of energy, with standard products having average hourly powers
of at least 10 MWh and contracts being concluded for at least a year.
Markets operated by Transelectrica
The Balancing Market
Due to differences that can occur between forecasted production of electricity and actual
consumption, active balancing of electricity production with electricity consumption is required on the
wholesale electricity market. This is achieved through the Balancing Market. All participants on the
wholesale electricity market assume a balancing responsibility or transfer this responsibility to another
party. Transelectrica, as the operator of the Balancing Market, is the counterparty for all transactions
conducted on this market.
Amounts of electricity traded on the Balancing Market are normally relatively low, but in certain
situations, where unexpected variation in consumption or production occurs, these quantities may become
significant. Volumes traded on the Balancing Market are higher because of the introduction of increasing
levels of Romanian renewable energy production to the NPS, which is inherently difficult to predict.
155
Both Transelectrica, the Romanian transmission operator, and the regional electricity distributors,
including EDMN, EDTN and EDTS, require ancillary electricity to operate their distribution business and
compensate for network losses. Purchase of such ancillary consumption is achieved through
non-discriminatory market mechanisms, structured as auctions on OPCOM centralised markets.
The Technological Services Market
All electricity producers must ensure delivery of reserves and must maintain available primary
reserves for purchase by Transelectrica on the technological services market. Producers that trade on
technological services market (including secondary reserves and tertiary reserves) must offer to trade
electricity on the Centralised Balancing Market in a minimum quantity corresponding to the technological
services amounts. Members of the Group do not participate in this market.
The Centralised Market for Allocation of International Interconnection Capacities
A supply licence is required to transit electricity through the Romanian transportation grid or to
export or import electricity from or to Romania. A participant must be registered on the Balancing Market
and must participate in auctions for interconnection capacities. Participation on this market is ensured by
signing a contract with Transelectrica for this service. Electrica is party to such a contract.
The Retail Electricity Market
On this market, electricity is purchased for consumption by end-consumers and is traded between
electricity suppliers and electricity consumers on the retail electricity market. The five suppliers of last
resort supply the largest volumes on the retail market.
The table below illustrates the structure of the regulated and competitive segments of the retail
market in 2011 and 2012 by types of consumers. The ‘‘Total Market’’ value in this table reflects the
aggregate electricity quantities supplied in the two retail market segments:
Regulated consumption . .
Household . . . . . . . . .
Non-household . . . . . .
Competitive consumption
Household . . . . . . . . .
Non-household . . . . . .
Total Market . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2012
(GWh)
(%)
2011
(GWh)
(%)
20,780
12,029
8,852
25,105
0
25,105
45,986
20,289
11,590
8,699
25,525
0
25,525
45,814
46
26
19
55
0
55
—
44
25
19
56
0
56
—
Increase
2011/2012
(%)
3
4
2
(2)
N/A
(2)
—
Source: ANRE (competitive consumption data is not yet available for 2013)
Market share data for the regulated market
As part of the Romanian electricity market liberalisation, electricity consumers have been free to
change their electricity supplier by contract negotiation since 2007. Consumers may exercise this option
either on the regulated market or the competitive market segments of the retail electricity market. On the
regulated market, where consumers are supplied with electricity under a regulated regime, there are five
mandated suppliers of last resort, including Electrica Furnizare. Suppliers of last resort are suppliers
nominated by ANRE to provide the universal supply service under regulated conditions. In 2013
18,965 GWh of electricity was supplied to 8,991,881 captive consumers who had not exercised their
eligibility right to switch electricity supplier, a decrease from 20,780 GWh being supplied in 2012.
Market share data for the competitive market
In 2012 25,105 GWh of electricity was supplied to approximately 13,300 consumers through the
competitive market, a decrease of approximately 2% from the year prior. In 2013, 24,805 GWh of
electricity was supplied to consumers through the competitive market, down from the year before.
156
Green Certificates Market
Green Certificates are issued to renewable energy producers for renewable energy they deliver to the
grid and must be purchased by the electricity suppliers in order to comply with the regulatory Green
Certificates acquisition quota established yearly by ANRE. Green Certificates are issued in electronic
book-entry form and are traded separately from the electricity they represent. Renewable energy sources
qualifying under the Green Certificate scheme are hydropower (plants with less than 10MW of installed
power), wind, solar, biomass, bioliquid, landfill gas and sewage treatment plant, Green Certificates may be
traded on the Centralised Market for Green Certificates (‘‘CMGC’’). OPCOM administers the CMGC.
The trading of Green Certificates on the CMGC is performed on two markets, a Green Certificates
centralised market, where participants submit anonymous offers to buy or sell Green Certificates and the
OPCOM platform calculates a closing price on matched trade basis, and a Green Certificates bilateral
contracts market (‘‘GCCMBC’’), where participants compete in public bids for contracts to buy and sell
Green Certificates.
Suppliers of energy and certain producers must acquire a certain number of Green Certificates
annually in order to meet a mandatory quota of Green Certificates established yearly by ANRE. Failure to
meet this mandatory quota leads to sanctions being imposed by ANRE. In this case, a sum equal to twice
the maximum trading value of the Green Certificate must be paid to the Environment Fund
Administration for each Green Certificate not acquired. In 2013, Electrica Furnizare was required to
purchase RON 413,874,470.92 of Green Certificates (the figure is made up of the value of the green
certificates to which costs of RON 27,939.55 are paid to OPCOM) based on its volume of electricity
supplied. Based on the estimated quota established by ANRE and on its own calculations, Electrica
Furnizare has met its current acquisition quota of Green Certificates for 2013.
Information regarding the trading prices for Green Certificates (per year and per certificate) in the
period 2011 - 2013 is summarised below:
GCCMBC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average
weighted price
2013 (RON)
Average
weighted price
2012 (RON)
Average
weighted price
2011 (RON)
Average
weighted price
2010 (RON)
190.71
244.09
239.24
232.36
Source: OPCOM
In 2013, Electrica Furnizare incurred costs of RON 414 million from buying Green Certificates, as
8.0% of consolidated revenue compared to RON 302 million or 5.7% of consolidated revenue in 2012 and
RON 91 million in 2011 or 1.7% of consolidated revenue.
Competition
Competition in the Romanian electricity supply market has increased following market liberalisation
and it is expected that competition will increase as liberalisation measures continue to be implemented.
Competition impacts mainly Electrica Furnizare, as the Group’s distribution segment is a fully regulated
monopoly and therefore closed to competition. Electricity supply is presently not fully liberalised. ANRE
has set up a calendar to eliminate regulated tariffs, with the intention that they be gradually replaced by
tariffs on the competitive market (CPC). These are vetted with ANRE and applied to consumers which
have not used their eligibility right. Through this method, the regulated tariffs have been eliminated
starting 1 January 2014 for non-household consumers. For household consumers, tariffs currently have a
competitive market component while the regulated part will be fully eliminated starting 1 January 2018.
In 2013, the retail electricity supply market recorded 20 suppliers covering approximately 93.7% of the
market, including the five mandated suppliers of last resort. Pursuant to a recent legislative initiative,
suppliers of last resort will be re-elected by ANRE based on a competitive procedure and hence, there is a
risk that Electrica Furnizare may no be re-nominated in this capacity. See ‘‘Risk Factors—The Group’s
supply segment could lose its status of supplier of last resort’’. Electrica Furnizare was the leading participant
by market share on the retail electricity supply market in 2013 with 22.1% of electricity supplied.
Electrica Furnizare was also the leading supplier by electricity supplied in the regulated segment of
the retail market by market share for the year ended 31 December 2013. The market share of the major
157
electricity suppliers by electricity supplied in the regulated segment of the retail market in the year ended
31 December 2013 is shown below:
Supplier
Electrica Furnizare . . . .
E.On Furnizare . . . . . .
Enel Energie . . . . . . . .
Enel Energie Muntenia .
CEZ Vanzare . . . . . . . .
Total regulated market .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Regulated
market
Consumers at
December 2013
Electricity
supplied in
2013
(TWh)
Market share by
electricity
supplied
[%]
3.53
1.42
1.47
1.17
1.40
8.99
6.9
2.5
3.5
3.7
2.4
18.97
36
13
18
20
13
100
.
.
.
.
.
.
Source: Company data, ANRE
Electrica Furnizare was the leading supplier by electricity supplied in the competitive segment of the
retail market by market share for the year ended 31 December 2013. The market shares of the major
electricity suppliers by electricity supplied in the competitive segment of the retail market in the year
ended 31 December 2013 is shown below:
Supplier
Electrica Furnizare . . . . . . .
Alro . . . . . . . . . . . . . . . . . .
Tinmar Industries . . . . . . . .
OMV Petrom . . . . . . . . . . .
Repower Furnizare Romania
Total competitive market . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Electricity
supplied in 2013
(TWh)
Market share by
energy supplied
[%]
2.8
3.0
2.1
1.3
1.3
24.8
11
12
8
5
5
100
Source: Company data, ANRE
The Group’s supply segment is vulnerable to both existing and new market entrants particularly in the
context of ongoing market liberalisation in the supply of electricity to household consumers. These
competitors may have greater resources available to them, and may decide to price their electricity supply
competitively in relation to prices offered by the Group. For a description of the risks that the Group faces
as a result of this competition in its supply segment particularly as a result of electricity market
liberalisation in Romania, see ‘‘Risk Factors—The Group’s supply segment will face an increase in
competition for the supply of electricity as the electricity supply market continues to liberalise risks relating to the
Group’s business and industry’’.
158
BUSINESS
General Overview
Electrica is the leading distributor and supplier of electricity in Romania. The Group’s core business
segments are the distribution of electricity to users and the supply of electricity to households and
non-households consumers. Electrica’s distribution segment operates through EDMN, EDTS, EDTN and
Electrica Serv and is geographically limited to the Northern Muntenia, Southern Transylvania and
Northern Transylvania areas of Romania. The Group holds exclusive distribution licences for these
regions. Electrica’s supply segment operates through Electrica Furnizare and supplies electricity to
consumers both on the regulated electricity market (in the regions where the distribution subsidiaries of
the Group operate) and the competitive electricity market (throughout Romania). The Group holds two
supply licences, which can be extended covering the whole of Romania, which have a remaining term of
seven and eight years respectively. As part of its distribution business, Electrica provides equipment
maintenance, repair and other ancillary services to its network and, to a small degree, to third parties
through its energy services subsidiary, Electrica Serv. In the year ended 31 December 2013, the Group
generated revenues of approximately RON 5.2 billion and EBITDA of approximately RON 749 million
from its operations, distributed approximately 16.1 TWh, representing approximately 39% of electricity
distributed in Romania and supplied approximately 9.7 TWh of electricity, representing approximately
22.1% of electricity supplied in Romania to approximately 3.56 million end consumers.
The Group operates in highly populated and industrialised areas of Romania. As of 31 March 2014,
Electrica’s distribution business operates 8,389 km of high voltage lines, 45,643 km of medium voltage lines
and 134,834 km of low voltage lines sustained by 28,514 transformers, serving approximately 3.6 million
users across its distribution network.
The Group recently undertook the Reorganisation pursuant to which voluntary liquidation and
insolvency proceedings were commenced in respect of four out of the five electricity service subsidiaries
that operated outside the geographic area of operation of the Group’s distribution segment, while the
Group’s minority interests were spun-off to SAPE, a company newly incorporated for the purpose of
managing these assets and which is wholly- owned by the State. For more information on the
Reorganisation, see ‘‘Reorganisation’’, and for a description of the effect of the Spin-off on the Audited
Consolidated Financial Statements and the Unaudited Consolidated Financial Statements, see ‘‘Unaudited
Pro Forma Financial Information and Reports Thereon’’.
Management considers the operations of SEMU, the Group’s service subsidiary that operates in
Bucharest and its surrounding region, as non-material and non-core. As such the operations of this
subsidiary are not included in the Group’s distribution or supply segment but are included together with
the four distressed services subsidiaries in the external electricity network maintenance segment as
reflected in the Audited Consolidated Financial Statements.
159
The Group structure following the Reorganisation, showing key financial and operational data as at
31 December 2013 for each of Electrica’s subsidiaries but excluding SEMU and the four distressed services
subsidiaries, is set out below:
ELECTRICA S.A.
78%(1)
78%(1)
78%(1)
78%(1)
100%
ELECTRICA
DISTRIBUTIE
TRANSILVANIA NORD
S.A.
ELECTRICA
DISTRIBUTIE
TRANSILVANIA
SUD S.A.
ELECTRICA
DISTRIBUTIE
MUNTENIA NORD S.A.
ELECTRICA SERV S.A.
(“EDTN”)
(“EDTS”)
(“EDMN”)
(“ELECTRICA SERV”)
ELECTRICA
FURNIZARE S.A.
(“ELECTRICA
FURNIZARE”)6
Revenues : RON 619mn
Revenues : RON 679mn
Revenues : RON 737mn
Revenues : RON 396mn
8.9% of Group total(2)
9.8% of Group total(2)
10.6% of Group total(2)
5.7% of Group total(2)
68.9% of Group total(2)
EBITDA(3): RON 216mn
EBITDA(3): RON 220mn
EBITDA(3): RON 225mn
EBITDA(3): RON 19.6mn
EBITDA(3): RON 117mn
1.2 million Users
1.1 million Users
1.3 million Users
3.56 million Customers
National market share
11%(4)
National market share
13%(4)
National market share
15%(4)
National market share 22.1%(5)
DISTRIBUTION SEGMENT
TOTAL Revenue: RON 2,056 million
29.6% of Group total(2)
Total EBITDA: RON 681 million(3)
Total Users: 3.6 million
Revenues : RON 4,780mn
SUPPLY SEGMENT(6)
TOTAL Revenue: RON 4,780 million
68.9% of Group total(2)
Total EBITDA: RON 117 million(3)
Total Customers: 3.56 million
6JUN201415344852
(1)
The remaining 22% of EDTN, EDTS, EDMN and Electrica Furnizare is owned by Fondul Proprietatea S.A.
(2)
For the year ended 31 December 2013; Group total represents the Group revenue before the consolidation elimination and
adjustments.
(3)
EBITDA for operating segments is defined and calculated as segment profit (loss) before tax of a given operating segment
adjusted for i) depreciation, amortisation and impairment/ reversal of impairment of property, plant and equipment and
intangible assets in the operating segment, ii) net finance (cost)/income in the operating segment and iii) share of profit (loss) of
equity-accounted investees in the operating segment (as disclosed in the Consolidated Audited Financial Statements)
EBITDA is not an IFRS measure and should be treated as an alternative to IFRS measures. Management believes that the
presentation of EBITDA enhances an investor’s understanding of the Group’s financial performance. This non IFRS measure
is not presented in accordance with IFRS and the Group’s use of it may vary from others in the Group’s industry. This non
IFRS measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial
information as reported under IFRS.
(4)
Based on volume of electricity distributed for the year 2013.
(5)
Based on volume of electricity supplied for the year 2013.
(6)
The figures refer to Group’s supply segment, which also include Electrica S.A.’s trading operations.
The Group defines any producer, transmission system operator, distribution system operator,
supplier, eligible consumer or captive consumer of electricity and also any consumer that is connected to
the distribution network operated by the Group segment as ‘‘user’’ and defines any natural person or legal
entity that enters into a purchase contract for electricity either with the consumer or otherwise, with a
supplier as a ‘‘consumer’’.
Users have connection points to the distribution network which are governed under individual
contracts for network connection with the relevant Group distribution company.
The Group defines its supply consumers using the same terminology as ANRE, which are either
‘‘household’’, comprising residential consumers and SMEs (defined as companies with less than 50
employees and an annual turnover or total assets less than EUR 10 million) assimilated to household
consumers, who have not exercised their right to switch electricity suppliers, and ‘‘non-household’’,
comprising medium and large industrial consumers.
160
In 2013, the Group distributed 16.1 TWh of electricity to its consumers, representing a 1.2% decrease
over 2012, and supplied 9.7 TWh of electricity to its consumers, representing a 9% decrease over 2012. In
the three months ended 31 March 2014, the Group distributed 4.1 TWh of electricity representing a 1.0%
increase over the same period in 2013, and supplied 2.4 TWh of electricity to its consumers, representing a
4.6% decrease over the same period in 2013.
The table below sets forth selected financial data related to the Group for the respective periods
shown:
Three-month period ended 31 March
2014
2013
(RON
(%)
(RON
(%)
million)
million)
Revenue
EDMN . . . . .
EDTN . . . . . .
EDTS . . . . . .
Electrica Serv .
Electricity supply
segment . . . . .
Other . . . . . . . .
Consolidated
eliminations
and adjustments
Total revenues . .
EBITDA
EDMN(1) . . . .
EDTN(1) . . . . .
EDTS(1) . . . . .
Electrica Serv(1)
Electricity supply
segment(1) . . . .
Other(1) . . . . . . .
Consolidated
eliminations
and adjustments
Group EBITDA(2)
Group Adjusted
EBITDA(3) . . . .
Net profit (loss)
EDMN . . . . .
EDTN . . . . . .
EDTS . . . . . .
Electrica Serv .
Electricity supply
segment . . . . .
Other . . . . . . . .
Consolidated
eliminations
and adjustments
Total net profit
(loss) . . . . . . .
Capital
expenditure(4)
EDMN(4) . . . .
EDTN(4) . . . . .
EDTS(4) . . . . .
Electrica Serv(4)
Electricity supply
segment . . . . .
Other(4) . . . . . . .
Consolidated
eliminations
and adjustments
Total capital
expenditure(4) .
2013
(RON
million)
(%)
Year ended 31 December
2012
2011
(RON
(%)
(RON
(%)
million)
million)
187
165
179
83
15%
14%
15%
7%
188
160
173
85
13%
11%
12%
6%
737
619
679
396
14%
12%
13%
8%
700
574
636
403
13%
11%
12%
8%
667
534
605
418
12%
10%
11%
8%
1,103
16
91%
1%
1,312
27
94%
2%
4,780
101
93%
2%
4,801
153
91%
3%
4,825
235
90%
4%
(522)
1,211
(43)%
100%
(549)
1,396
(39)%
100%
(2,155)
5,157
(42)%
100%
(2,013)
5,253
(38)%
100%
(1,917)
5,368
(36)%
100%
51
69
64
3
23%
31%
29%
1%
45
57
42
2
25%
32%
23%
1%
225
216
220
20
30%
29%
29%
3%
203
202
197
22
31%
31%
30%
3%
163
150
157
(34)
59%
55%
57%
(11)%
60
(24)
27%
(11)%
49
(16)
27%
(9)%
117
(49)
16%
(7)%
116
(92)
18%
(14)%
(110)
(55)
(40)%
(20)%
0
222
0%
100%
0
180
0%
100%
0
749
0%
100%
0
647
0%
100%
0
275
0%
100%
219
—
165
—
727
—
613
—
436
—
26
28
22
(1)
30%
32%
25%
(1)%
24
20
5
(2)
29%
24%
6%
(2)%
106
52
56
12
34%
17%
18%
4%
82
53
46
(5)
20%
13%
11%
(1)%
59
24
10
(57)
(74)%
(30)%
(13)%
71%
42
(28)
48%
(32)%
39
(20)
48%
(24)%
90
27
29%
9%
79
(79)
19%
(19)%
(138)
(53)
173%
66%
0
0%
16
20%
(27)
(9)%
240
58%
76
(95)%
88
100%
82
100%
314
100%
416
100%
(80)
100%
29
33
46
0
27%
30%
42%
0%
30
48
40
0
25%
40%
34%
0%
211
214
207
2
32%
33%
32%
0%
166
200
222
9
27%
32%
36%
1%
153
172
211
6
28%
31%
38%
1%
1
0
1%
0%
0
0
0%
0%
5
1
1%
0%
14
3
2%
0%
6
4
1%
1%
0
0%
0
0%
9
1%
2
0%
3
1%
109
100%
119
100%
650
100%
617
100%
554
100%
(1)
EBITDA for operating segments is defined and calculated as segment profit (loss) before tax of a given operating segment
adjusted for i) depreciation, amortisation and impairment/ reversal of impairment of property, plant and equipment and
intangible assets in the operating segment, ii) net finance (cost)/income in the operating segment and iii) share of profit (loss) of
equity-accounted investees in the operating segment (as disclosed in the income statements).
(2)
Group EBITDA is defined and calculated as consolidated profit (loss) before tax adjusted for i) consolidated depreciation,
amortisation and impairment/ reversal of impairment of property, plant and equipment and intangible assets, ii) consolidated
net finance (cost)/income and iii) consolidated share of profit (loss) of equity-accounted investees (as disclosed in the income
Statements)
161
(3)
Group Adjusted EBITDA is defined as Group EBITDA adjusted for non-recurring events (i) consolidated impairment /
reversal of impairment of trade and other receivables, net and (ii) consolidated write down / reversal of write down of
inventories, net (as disclosed in the income Statements).
Neither EBITDA nor Adjusted EBITDA are IFRS measures and should be treated as alternatives to IFRS measures.
Management believes that the presentation of EBITDA and Adjusted EBITDA enhances an investor’s understanding of the
Group’s financial performance. These non IFRS measures are not presented in accordance with IFRS and the Group’s use of
them may vary from others in the Group’s industry. These non IFRS measures have limitations as an analytical tool, and should
not be considered in isolation or as a substitute for financial information as reported under IFRS. A reconciliation of net profit/
(loss) for the period/year and Adjusted EBITDA, is presented in ‘‘Selected Consolidated Financial and Operating
Information’’.
(4)
Capital expenditure is defined as funds invested to acquire, to upgrade or to replace property, plant and equipment.
In 2013, the Group generated revenues of RON 5,157 million, EBITDA of RON 749 million and net
profit of RON 314 million, representing a 1.8% decrease, 15.7% increase and 24.4% decrease,
respectively, from 2012.
In the three month period ended 31 March 2014, the Group generated revenues of RON
1,211 million, EBITDA of RON 222 million and net income of RON 88 million from its operations,
representing a 13.2% decrease, 23.2% increase and 7.9% increase, respectively, over the same period in
2013.
The following table sets out information relating to the development of the Group’s distribution
network and volume of electricity distributed for the respective periods shown:
Power lines length (km) . . . .
High voltage (HV) . . . . . .
Medium voltage (MV) . . .
Low voltage (LV) . . . . . . .
Number of users (millions) . .
Electricity distributed (GWh)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2013
2012
2011
188,804
8,389
45,630
134,785
3.6
16,066
187,781
8,363
45,399
134,019
3.6
16,268
186,600
8,356
45,165
133,079
3.6
16,190
The following table sets out information relating to the development of the Group’s supply segment
customer base broken down by type of customer and type of market and volume of electricity supplied for
the respective periods shown:
Number of consumers (‘000) . . . . . .
Regulated . . . . . . . . . . . . . . . . . .
Household . . . . . . . . . . . . . . . . .
Non-Household . . . . . . . . . . . . . .
Competitive . . . . . . . . . . . . . . . .
Electricity sold to consumers (GWh)
Regulated . . . . . . . . . . . . . . . . . .
Competitive . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2013
2012
2011
3,566
3,532
3,335
197
34
9,685
6,896
2,789
3,549
3,532
3,313
219
17
10,658
7,473
3,185
3,529
3,516
3,294
222
13
11,607
7,380
4,227
History and Development
In 1998, the Romanian Government restructured the Electricity Autonomous Administration
RENEL, a vertically integrated State-owned electricity production, transmission, distribution and supply
company, the production and transmission of thermal power plants and the operation and development of
the national energy system, in accordance with GD no. 365/1998. As a result, in 1998, RENEL was
restructured into three companies which led to the establishment of the National Electricity Company
CONEL S.A., a State-owned entity responsible for electricity generation, transmission, distribution and
sale and production and sale of thermal power and the operation and development of the national energy
system. CONEL SA was wholly owned by the State, represented at that date by the Ministry of Industry
and Commerce. Subsequently, as part of CONEL’s restructuring, Electrica was established as an electricity
distribution and supply company in 2000, through the GD no. 627/2000. As an effect of the same
government decision, Termoelectrica S.A., the State-owned thermal power and heat co-generator,
Hidroelectrica S.A., the State-owned hydropower producer and Transelectrica, the State-owned electricity
transmission network and market operator, were formed. In 2002, as an effect of GD no. 1342/2001
regarding Electrica’s reorganisation, eight regional distribution and supply companies were incorporated.
Between 2004 and 2008, controlling interests in five of these eight regional companies were acquired by
162
international operators ENEL, E.ON and CEZ, with Electrica retaining minority interests in Enel
Distributie Muntenia S.A. (23.57%), Enel Energie Muntenia S.A. (23.57%), Enel Distributie Dobrogea
(24.90%), Enel Distributie Banat S.A. (24.87%), Enel Energie S.A. (36.99%), E.ON Moldova
Distributie S.A. (27%) and E.ON Energie Romania S.A. (3.78%). Each of these companies were formed
as part of the State’s privatisation of the electricity distribution and supply businesses. Prior to the Spin-off,
the remaining participations held by Electrica in addition to its minority interests, comprised of a 78%
interests in each of the three regional distribution companies, EDMN, EDTN and EDTS, a 78% interest in
the supply company, Electrica Furnizare and 100% interests in Electrica Serv and in a number of five
regional service subsidiaries.
The three distribution companies of the Group in which Electrica holds a 78% stakes, were initially
formed through the reorganisation of Electrica according to GD no. 1342/2001 as distribution and supply
companies. In 2007, the supply business was split-off from the distribution business (through a spin-off of
these three entities) according to GD no. 675/2007 through the creation of three separate supply entities
leaving EDMN, EDTS and EDTN operating as distribution businesses.
Electrica Furnizare was created in 2011, in accordance with GD No. 930/2010, by the merger of three
supply companies held by Electrica. The services company Electrica Serv, which was 100% owned by
Electrica, was spun off into six separate energy services operators between 2011 and 2012 in accordance
with GD no. 760/2010. As part of the Reorganisation, three of these, SEB, SED and SEMO, entered
liquidation, SEO entered insolvency, and the remaining service operations of the Group are now
conducted solely by Electrica Serv and SEMU. For more information on the Reorganisation, see
‘‘Reorganisation’’, ‘‘Operating and financial review—Material developments post-balance sheet date—
Liquidation of service subsidiaries’’. All of Electrica’s subsidiaries are located in Romania. For more
information on the history of the Group in the context of development of the Romanian electricity
industry, see ‘‘Market Overview—The Romanian Electricity Industry’’.
Electrica is the holding company for the Group’s operating subsidiaries. The Group operates its
distribution and service operations through its distribution segment, and its electricity supply business
through its supply segment. Electrica is headquartered in Bucharest and as at 31 March 2014 had 149
employees. Its responsibilities comprise the implementation and monitoring of the Group’s strategy for the
overall coordination of operational management of the Group’s business segments and it has recently
implemented the installation of a Group wide financial and accounting system to enable timely operational
management and IFRS reporting across the Group’s operating segments. In addition, management plans
to create a Shared Services Centre, to be managed by Electrica, in order to consolidate the Group’s
support functions, including HR, finance, procurement, customer support and IT.
The Group operates in a highly regulated sector. The Romanian electricity market is governed
primarily by the Energy Law and detailed secondary legislation including government decisions,
regulations and regulations issued by ANRE. Romanian electricity market liberalisation commenced in
2003 and was enhanced in 2007, following implementation of the EU Second Energy package.
Liberalisation principles introduced under the former energy law no. 13/2007 and further developed by the
Energy Law included the grant of non-discriminatory and regulated access to all participants in the
electricity market and the underpinning of electricity tariffs, and prices paid to the Group for its regulated
activities. The Energy Law divides the electricity markets in which the Group operates into a regulated
market and a competitive market, with each of these two segments having a wholesale and a retail
component.
The regulated market governs the sale and purchase of electricity for regulated prices, with
transactions on this market made on the basis of regulated agreements in order to ensure supply and
demand for captive consumers. Electricity prices on the regulated market are regulated by ANRE on the
basis of decisions establishing prices and quantities for wholesale transactions between producers and
suppliers of household consumers. Electrica, through its supply segment, is one of five suppliers of last
resort on the regulated market for household consumers. The competitive market is fully liberalised and
governs all other non-regulated transactions.
Ongoing energy market liberalisation and reform significantly affects the results of operations from,
and management’s strategy relating to the Group’s distribution and supply segments. The Group’s supply
segment in particular is expected to experience significant impact from market liberalisation.
163
Strengths
Management believe that the Group’s historical success and its potential for future growth are
primarily due to its following key strengths.
Leading electricity distribution business operating under long term concession
The Group’s electricity distribution business is the largest in Romania both in terms of volume of
electricity distributed to users and number of users. According to ANRE, in 2013 the Group distributed
16.1 TWh electricity to approximately 3.6 million users, representing 39% of the volume of electricity
distributed The distribution segment operates under long-term concession arrangements granted by
ANRE until 2054 based on licences granted by ANRE valid until 2027, which have a renewal option for
another 25 years. In 2011, 2012 and 2013, respectively, the distribution segment contributed 160%, 96%
and 91% of Group EBITDA. The Group has enjoyed an 8% and 2% increase in its regulated asset base, or
RAB in 2012 and 2013, respectively. RAB is a key driver of regulated revenue growth for the Group’s
electricity distribution activities. Group revenues have also increased due to an increase in the RAB
pre-tax rate of return expressed in real terms from 7% to 8.52% starting 1 January 2013, leading to an
increase in the tariffs applicable to the Group’s distribution operations. Management believe that the
regulatory methodology under which the Group operates its distribution segment provides an opportunity
for it to predictably forecast revenue growth from additional capital investment in its distribution segment.
Leading supply business
The Group’s electricity supply business is the largest in Romania both in terms of volume of electricity
supplied to consumers and number of consumers. According to ANRE, in 2013 the Group supplied 9.7
TWh of electricity to approximately 3.56 million consumers, representing 22.1% of the volume of
electricity supplied in Romania. Management believes that as full market liberalisation becomes
implemented, the Group’s size and extensive investment in its IT and billing systems and personnel
training, as well as the Group’s detailed customer database of energy demand behaviour, will afford it a
scalable competitive advantage over new market entrants. Management further believes that the Group’s
brand, credit quality and perceived stability provides it with strong customer loyalty as an electricity
supplier, serves to reduce churn with existing consumers and supports its electricity sale and procurement
activities. Further, Management believes that the Group’s brand strength will also enable it to diversify its
service offering to both existing and new consumers in other service regions.
Stable regulatory regime providing steady and predictable cash flows
The Romanian energy market regulator, ANRE, has been in existence for 16 years. During this time it
has implemented several significant regulatory reforms required under EU energy policy and has
successfully implemented steps towards full electricity market liberalisation. ANRE has closed two
regulatory periods of three years (2005-2007) and respectively five years (2008-2012) for the setting of
tariffs which has provided an attractive regulatory environment for the Group to conduct its business. 2013
was treated by ANRE as an intermediary year between the second and the third regulatory period
(2014-2018). The RRR calculated on a WACC basis for the current regulatory period ending on
31 December 2018, expressed on a pre-tax basis in real terms increased from 7.00% for 2005-2008, to
8.52% from 1 January 2013, one year prior to the commencement of the current regulatory period. In
addition, the RRR for privatised distribution operators in Romania was significantly greater than that
applicable to the Group’s distribution subsidiaries for the last two regulatory periods, but has recently been
equalised for all market participants from 1 January 2014 for the current five-year regulated period.
ANRE sets tariff levels where regulated operators can maintain an acceptable level of profitability,
provided that they meet various performance targets. The regulator is considered to be supportive of
Electrica’s development and responsive to Electrica’s requests. The Group’s current regulated revenue
targets, based on certain economic assumptions, have recently been set by ANRE for the current five year
regulated period which commenced in January 2014. Under the current regulatory regime, the Group also
enjoys a measure of protection from inflation because the calculation of regulated revenue is adjusted for
inflation. Management believes that the strength of its relationship with ANRE and the stable regulatory
environment under which the Group conducts its business, provides the Group a high level of visibility and
predictability over its future cash flows. The Group’s net cash from operations was RON 318 million,
996 million and 915 million in 2011, 2012 and 2013, respectively. This allows the Group to implement
network infrastructure improvements, plan for balance sheet efficiencies and provide a stable basis for
dividend payments to shareholders.
164
Financial capacity to support growth and dividends
The Group’s operations generate a high level of predictable revenue. The Group’s EBITDA
amounted to RON 275 million, RON 647 million and RON 749 million in 2011, 2012 and 2013
respectively, with the distribution segment contributing 160%, 96% and 91% of consolidated EBITDA in
2011, 2012 and 2013, respectively. Management expect that the stability of revenues from the Group’s
operations and, in particular, the regulated revenue from operations in the electricity distribution segment,
constitute a solid basis for further development of operations, implementation of the Group’s investment
programme and the ability of the Company to pay long-term dividends. The Group has managed
historically to provide high levels of service quality with relatively low capital investment, and low levels of
indebtedness. In addition, the Group has grown its net cash position from a RON 76 million liability in
2011 to RON 298 million in cash in 2013.
Strong technological capability and management expertise
Management has a proven track record in the operation and management of electricity distribution
and supply. The Group is the first operator in Romania to have embarked on a pilot programme to
implement smart metering. Management believes that this experience not only allows the Group to
efficiently and cost-effectively manage its current operations but will assist with implementation of the
Group’s significant distribution network enhancements.
Strategy
The Group’s overall goal is to create value for its shareholders and other stakeholders, by leveraging
its strengths through the following strategy.
Focus on core regulated distribution activities in Romania
Management seeks to outperform key performance targets set by ANRE and enhance the Group’s
operational efficiency when allocating capital by increasing the size of its RAB. Smart grid investments are
remunerated by ANRE through a RRR of 9.02% compared to 8.52% for other RAB investments, subject
to target network losses being achieved. Management intends to invest in network development and
improvement through the installation of smart meters and smart grid network infrastructure in order to
reduce network losses, improve network flexibility, improve the quality, reliability and safety of the
Group’s operations and take advantage of increased tariffs for the implementation of, among other things,
smart grid systems. The introduction of smart distribution networks incorporating ‘‘smart grids’’ and smart
metering is driven by EU wide energy market legislation whose term goal is to reduce electricity price,
increase competition in the electricity market and reduce CO2 emissions. Management intends to maintain
a proactive, constructive dialogue with ANRE in order to seek to ensure that the Group’s capital
investment is given positive regulatory treatment and to maximise shareholder value. As a result,
management intends to invest RON 4.7 billion to increase the size of the Group’s regulated asset base or
RAB, in its distribution segment over the 2014 - 2018 period. ANRE is open to accept the investment
programme, conditional upon the compliance with the tariff methodology for the electricity distribution
activity.
Grow and diversify the Group’s supply segment
In order to preserve market share in the regions where it is the incumbent supplier and to increase its
market share in new regions, Management intends to improve the Group’s customer service and widen its
service and product offering to its consumers, with a view towards increasing their service satisfaction and
loyalty. Management also intends to leverage Electrica’s strong brand identity to provide new value-added
services to existing and new consumers, including energy management, energy efficiency consulting,
operation and maintenance and on-site distributed power generation and energy solutions in order to grow
and diversify the Group’s revenue streams from both existing and new consumers. In addition,
Management intends to improve the method and terms on which the Group’s supply segment purchases
electricity on the wholesale electricity market by using its scale and customer data. Management also
intends to increase the efficiency of the supply segment’s operations by investing in its sales’ function, and
improving its customer collection rate by streamlining its billing operations.
165
Reinforce the Group structure and improve operating efficiencies
Management seeks to align its operating performance with the highest benchmarks in the power
distribution and supply sector. Following the successful implementation of the Reorganisation, the Group
plans to undertake additional measures to reinforce the Group’s strategic direction as a consolidated and
integrated electricity distribution and supply business. In addition, Management intends to improve labour
productivity and operational performance which is comparatively low compared to its peers in both its
distribution and supply segments. For example, management intends to consolidate the Group’s support
functions, including HR, finance, procurement, customer support and IT, in a single Shared Services
Centre. Management believes that this will deliver significant synergies, provide cost savings from
economies of scale, process standardisation and optimisation of staff levels and result in increased
operational expenditure efficiency for the Group.
Maintain and grow a profitable and low risk business and financial profile
The Group derives the majority of its revenues from regulated activities. In operating its core
distribution business, Management seeks to preserve an efficient, conservative capital structure and intend
to continue to invest in the Group’s core regulated business in order to maintain a stable, consistent and
profitable business profile and enable the Company to finance capex and pay dividends. Assuming that the
necessary legal framework is in place, the Group may also seek to identify and acquire other regulated
businesses within Romania and in its vicinity where these are consistent with its regulated business profile
and its strict financial investment criteria. Management further believes that the Group’s low level of
indebtedness and stable capital structure will enable it to finance acquisition opportunities on a
competitive basis in the future.
Enhance the Group’s environmental and sustainability profile
Management believes that as a leading Romanian utility company it has a duty to preserve and
enhance the environment in which it operates its business. As a result, Management will strive to promote
environmentally friendly policies and procedures for the Group’s operations in order to minimise their
impact on the environment when implementing the Group’s business strategy. For example, the
implementation of smart grid networks and the expected reduction in network losses that this is intended
to achieve, is expected to improve energy efficiency and a reduction in CO2 emissions in Romania. In
addition the Group intends to improve its waste management costs, and generate cost savings from its
energy and material consumption.
Investment Programme
Overview
Total projected capital expenditure for the Group for the period until 31 December 2018 is estimated
to be RON 6.3 billion. RON 4.7 billion of this total is earmarked for capital investments in the distribution
network, in investments that are considered by ANRE in the calculation of the distribution tariff applicable
to the Group. Management intends to develop the Group’s distribution network through refurbishment of
its existing network infrastructure in order to reduce network losses, improve network flexibility and
improve the quality, reliability and safety of the distribution network, as well as through the installation of
smart meters and smart grid network infrastructure, such as EMS/DMS/OMS SCADA systems, to improve
operating efficiencies.
166
The table below presents the breakdown of the Group’s investment programme for the period until
31 December 2018 by segment:
2014
2015
2016
2017
2018
Total
2014 - 2018
.....
.....
.....
357
250
607
1,079
246
1,325
1,085
237
1,322
1,094
231
1,325
1,094
243
1,336
4,709
1,207
5,916
.....
128
72
52
52
52
355
Total Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
734
1,397
1,374
1,377
1,389
6,271
RON million
Distribution
Regulated investment . . . . . . . . . . . . . . .
Non regulated capex . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supply, services related to external distribution
networks and headquarters
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The table below presents the breakdown of the Group’s proposed investment programme by types of
investment.
2014 - 2018
Amount
Proportion
(RON million)
(%)
Efficiencies . . . . . .
Smart grid . . . . . .
Smart metering .
New connections
Others . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3,081
1,524
104
1,093
469
49%
24%
2%
17%
7%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,271
100%
Distribution segment
Refurbishment of existing network infrastructure
Management intends to invest approximately RON 3.0 billion over the 2014 - 2018 period to
modernise its distribution network and reduce network losses, and improve the quality, reliability and
safety of the Group’s service offering. Refurbishment of the existing distribution network infrastructure
will include upgrading a number of legacy transformers, high, medium and low voltage lines, including
upgrading medium voltage lines of lower level to 20kV in order to reduce network losses. Management
expects that the Group’s network losses will reduce and that its SAIDI and SAIFI figures will improve as a
result of the refurbishment of the distribution segment’s network infrastructure.
Network development to connect new users
The Group is required to connect new users in its licenced region, which requires investments in the
power grid at all voltage levels operated by its distribution segment. Over the 2014 - 2018 period
management expects to invest approximately RON 1.1 billion on development of the grid in order to
enable the connection of additional users. This expected level of investment is an estimate and is
dependent upon the actual number of requests that are made for new connections by new and existing
users. Capital expenditure spent on new connections are not recognised in the RAB and are not
remunerated in the distribution tariff, but are realised from the clients’ distribution and included in the
fixed assets of the distribution company where the connection is established.
Investment in smart metering systems
The implementation of advanced metering infrastructure in order to:
• increase the network’s operational efficiency and profitability;
• enhancing the reliability and quality of supply;
• improving the quality of service provided to the Group’s consumers; and
• establishing the development of more widely dispersed electricity generation, particularly from
renewable sources, in the Group’s licenced regions.
167
Management plans to invest approximately RON 1.5billion in introducing smart metering systems and
smart network infrastructure to its network over the next four years. Investment in smart metering and
smart network infrastructure will be granted a RRR 0.5% points higher than other investments on a
pre-tax basis under current ANRE methodology, subject to actual network losses being lower than the
target network losses agreed with ANRE with 1%. The Group’s investment in smart metering systems is
expected to commence in 2015, following final determination by ANRE of the level of recognition smart
metering system investment will achieve.
Other non-core activities to be discontinued
Before the changes in the Romanian renewable regulatory framework that made investments in
renewable generation in Romania relatively less attractive in terms of risk/ return profile, Management had
employed relatively limited resources in renewable generation projects. However, the Company will be
seeking to discontinue such activities given: (i) the unfavourable changes in renewable generation regime;
(ii) Group’s strategy to focus on investments in its core electricity distribution and supply business and,
(iii) limited synergies of renewable generation with distribution and supply activities. The financial
statements reflect Management’s plan to discontinue these projects.
Supply segment and headquarters
Shared Service Centre
Management intends to create operational synergies through the creation of a Shared Service Centre
to consolidate, professionalise and automate its support functions. The Shared Service Centre will help
optimise staff levels and by centralising back office functions, improve operating efficiencies and includes
investment in a new consolidated SAP ERP system. Investment in the Shared Services Centre is scheduled
to begin in 2014 and to be fully implemented by the end of 2015. Expenditure on the Shared Service
Centre will be treated as operating and capital expenditure. Management believes that, following
implementation of the Shared Services Centre, the Group’s operating expenditure will be more consistent
with ANRE’s tariff calculation methodology with respect to operating expenditures.
Investment criteria
In implementing its investment programme, Management will endeavour to fulfill the following
criteria:
• An investment must be consistent with the Group’s strategy and in particular with Management’s
objective to maintain a strong regulated company profile.
• The proposed investment project is allowed under the legal regime in which the Group conducts its
business and the benefits of the investment are technically confirmed.
• Including in RAB the regulated investments in view of their remuneration by applying the RRR in
accordance with the methodology for establishment of the tariffs for the electricity distribution
service.
• Investments in the Group’s non-regulated business must deliver a forecasted internal rate of return
that exceeds its weighted average cost of capital.
• The proposed investment will be consistent with the Group’s financial strategy to maintain a
conservative and stable capital structure.
In addition the Company may also consider acquisition oportunities in the future that are consistent
with its core business, strategy and risk return profile, in accordance with applicable law.
Distribution Segment
EDMN, EDTN and EDTS
The Group conducts its distribution activity through three regional distribution subsidiaries, EDMN,
EDTN and EDTS. EDMN distributes electricity to users in Northern Muntenia (covering Prahova, Buzau,
Dambovita, Braila, Galati and Vrancea counties), EDTN distributes electricity to users in Northern
Transylvania (covering Cluj, Maramures, Satu Mare, Salaj, Bihor and Bistrita—Nasaud counties) and
EDTS distributes electricity to users in Southern Transylvania (located in the middle of Romania and
covering Brasov, Alba, Sibiu, Mures, Harghita and Covasna counties). The distribution segment also
168
includes a services business operated through Electrica Serv, which provides equipment maintenance,
repair and other ancillary services to EDMN, EDTN and EDTS. As part of its growth strategy, Electrica
Serv also intends to provide its services to third party electricity distribution and other electricity related
service providers throughout Romania.
The Group’s electricity distribution activities are carried out by EDMN, EDTN and EDTS under the
Distribution Licences. The Distribution Licences cover the service and distribution of electricity to users by
EDMN, EDTN and EDTS in their respective region of operations. Each Distribution Licence lasts for
25 years, with the possibility of extension for a further 25 year period, and includes compliance
requirements for the operation, modernisation, rehabilitation and development of networks for electricity
distribution provided under the Energy Law, the licence conditions and ANRE regulations. Each of the
Distribution Licences expires in 2027. For more detail on the Distribution Licences, see ‘‘—Material
Operating Licences and Concessions’’. Each of EDMN, EDTN and EDTS are party to energy distribution
contracts pursuant to which the suppliers offer supply services for consumers connected to their electricity
distribution network. These consumers purchase electricity from power suppliers who are also parties to
the relevant distribution agreement.
EDMN, EDTN and EDTS are each party to distribution agreements with Electrica Furnizare. In 2013
under these agreements, EDMN, EDTN and EDTS collectively distributed approximately 9.4 TWh of
electricity to Electrica Furnizare. Each of these distribution agreements conform to the framework
distribution agreement provided by ANRE Order no. 43/2004.
The distribution segment’s RAB was RON 4,076 million in 2013 and it operated 188,804 km of voltage
lines over 97,382 km2 of Romania, or 40.8% of the country. Operating information for each of the Group’s
subsidiaries in its distribution segment for the year ended 31 December 2013 is set out in the table below:
Serviced Area (km) . . . . . . .
Population (million) . . . . . . .
Users (million) . . . . . . . . . .
Distributed Electricity (GWh)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
169
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
EDMN
EDTN
EDTS
Total
29,151
2.9
1.3
6,170
34,160
2.7
1.2
4,599
34,071
2.3
1.1
5,297
97,382
7.9
3.6
16,066
The table below presents selected financial information for each of the Group’s subsidiaries in its
distribution business segment for each of the periods shown.
Year ended 31 December
2013
2012
2011
(RON million)
Revenue
EDMN . . . . . . . . . . . . . . . . . . . . . . . . .
EDTN . . . . . . . . . . . . . . . . . . . . . . . . .
EDTS . . . . . . . . . . . . . . . . . . . . . . . . .
Electrica Serv . . . . . . . . . . . . . . . . . . . .
Consolidated eliminations and adjustments
Total Revenue . . . . . . . . . . . . . . . . . . . . .
EBITDA(1)
EDMN(1) . . . . . . . . . . . . . . . . . . . . . . .
EDTN(1) . . . . . . . . . . . . . . . . . . . . . . . .
EDTS(1) . . . . . . . . . . . . . . . . . . . . . . . .
Electrica Serv(1) . . . . . . . . . . . . . . . . . .
Total EBITDA(1) . . . . . . . . . . . . . . . . . . .
EBITDA margin(2) . . . . . . . . . . . . . . . . . .
Net profit
EDMN . . . . . . . . . . . . . . . . . . . . . . . . .
EDTN . . . . . . . . . . . . . . . . . . . . . . . . .
EDTS . . . . . . . . . . . . . . . . . . . . . . . . .
Electrica Serv . . . . . . . . . . . . . . . . . . . .
Total Net profit . . . . . . . . . . . . . . . . . . . .
Capital expenditure(3)
EDMN(3) . . . . . . . . . . . . . . . . . . . . . . .
EDTN(3) . . . . . . . . . . . . . . . . . . . . . . . .
EDTS(3) . . . . . . . . . . . . . . . . . . . . . . . .
Electrica Serv(3) . . . . . . . . . . . . . . . . . .
Total Capital Expenditure(3) . . . . . . . . . . .
Net Debt/(net cash)(4)
EDMN(4) . . . . . . . . . . . . . . . . . . . . . . .
EDTN(4) . . . . . . . . . . . . . . . . . . . . . . . .
EDTS(4) . . . . . . . . . . . . . . . . . . . . . . . .
Electrica Serv(4) . . . . . . . . . . . . . . . . . .
Total net debt/(net cash)(4) . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
737
700
667
619
574
534
679
636
605
396
403
418
(375) (368) (353)
2,056 1,944 1,873
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
225
216
220
20
681
33%
203
202
197
22
623
32%
163
150
157
(31)
440
23%
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
106
52
56
12
225
82
53
46
(5)
176
59
24
10
(57)
35
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
211
214
207
2
635
166
200
222
9
597
153
172
211
6
542
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(246)
23
93
(9)
(139)
(208)
57
162
19
30
(128)
68
147
25
112
(1)
EBITDA for operating segments is defined and calculated as profit (loss) before tax of a given operating segment adjusted for
i) depreciation, amortisation and impairment/ reversal of impairment of property, plant and equipment and intangible assets in
the operating segment, ii) net finance (cost)/income in the operating segment and iii) share of profit (loss) of equity-accounted
investees in the operating segment (as disclosed in the Consolidated Audited Financial Statements). EBITDA is not an IFRS
measure and should not be treated as an alternative to IFRS measures. Management believes that the presentation of EBITDA
enhances an investor’s understanding of the Group’s financial performance. This non IFRS measure is not presented in
accordance with IFRS and the Group’s use of it may vary from others in the Group’s industry. This non IFRS measure has
limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information as reported
under IFRS.
(2)
EBITDA margin is calculated as EBITDA divided by revenue.
(3)
Capital expenditure is defined and calculated as funds invested to acquire, to upgrade or to restore property, plant and
equipment.
(4)
Net debt/(cash) is defined and calculated as the total interest-bearing loans and borrowings, financing of property, plant and
equipment and lease liabilities less cash and cash equivalents.
In 2013, the Group’s distribution segment generated revenues of RON 2,056 million from its
operations and distributed 16.1 TWh, representing 39% of electricity distributed in Romania, while serving
approximately 3.6 million users. In addition to regulated revenue from electricity distribution, the
distribution subsidiaries also generate non-regulated revenue from leasing poles to mobile
telecommunications operators and connection fees paid for by users. Approximately 5.6% of the
distribution segment’s revenues were from non-regulated revenue in 2013.
170
Electrica, acting on behalf of its distribution subsidiaries is party to various framework agreements
regarding the temporary use of poles that support low and medium voltage distribution power lines, in
order to route cables for telecommunication operators. Under these agreements, Electrica’s distribution
subsidiaries concluded subsequent agreements with these telecommunication operators, such as RCS &
RDS, Romtelecom, UPC and Vodafone. The agreements concluded with RCS & RDS expire in 2021. The
agreement concluded with Romtelecom expires at the end of 2014 while the others are renewed every two
years.
Regulated revenues
As at 31 March 2014, approximately 94% of the Group’s distribution segment revenue was generated
from regulated revenue. Regulated revenue for each of EDMN, EDTN and EDTS is determined under
tariffs approved by ANRE. For these subsidiaries, the regulated profit is calculated by ANRE based on a
RRR from its RAB. The distribution segment RAB for 2013 was RON 4,076 million. Target revenue for
each year for each subsidiary is set by multiplying the pre-tax RRR, which is 8.52% for the current
five-year regulatory period, by the value of its RAB plus its operating and maintenance costs, its allowance
for technological consumption (which is the electricity required by it to distribute electricity as determined
by ANRE), and regulatory depreciation of the RAB.
For a detailed explanation of the RAB, tariff calculations and the regulatory environment in which the
distribution segment operates, see ‘‘Regulation’’.
The table below presents the range distribution percentage in respect of the components of the
regulated revenues for all distribution subsidiaries over the years 2013, 2012 and 2011 respectively.
2013
Costs for acquisition of energy to cover network
Controllable opex . . . . . . . . . . . . . . . . . . . . . .
Non-controllable opex . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .
RAB return . . . . . . . . . . . . . . . . . . . . . . . . . .
losses
.....
.....
.....
.....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Year ended 31 December
2012
2011
21 - 27%
32 - 34%
5 - 6%
15 - 20%
18 - 20%
25 - 35%
30 - 35%
4 - 7%
15 - 20%
14 - 15%
25 - 35%
30 - 35%
4 - 6%
15 - 20%
14 - 15%
The table below represents the system and network losses over the years 2013, 2012 and 2011
respectively.
Year ended 31 December
2013
2012
2011
Electricity acquired to cover the network losses (RON million) . . . . . . . . . . . . .
Annual losses (GWh) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
521
2,375
474
2,360
516
2,334
The table below presents total revenues and selected financial information for each of EDMN, EDTN
and EDTS for the periods indicated.
Year ended 31 December
2013
2012
2011
EDMN
RAB(1) . . . . .
RRR (%)(2) .
Total revenue
EDTN
RAB(1) . . . . .
RRR (%)(2) .
Total revenue
EDTS
RAB(1) . . . . .
RRR (%)(2) .
Total revenue
...............................................
...............................................
...............................................
1,446 1,408 1,313
8.52% 7.00% 7.00%
737
700
667
...............................................
...............................................
...............................................
1,298 1,258 1,169
8.52% 7.00% 7.00%
619
574
534
...............................................
...............................................
...............................................
1,332 1,321 1,213
8.52% 7.00% 7.00%
679
636
605
(1)
RAB is reported at year end for calculation in the following financial year.
(2)
Real, pre-tax. In 2008-2012, the RRR was 7% for State-controlled operators and 10% for privatised operations. During
2005-2007, the RRR was 7% for State-controlled operators and 12% for privatised companies.
171
The table below presents an overview of technical losses for each of EDMN, EDTN and EDTS for the
periods indicated.
Year ended
31 December
2013
2012
2011
EDMN
Actual technical losses (GWh) . . . . . .
Actual technical losses (%) . . . . . . . . .
Regulated technical losses (%) . . . . . .
Costs due to technical losses (RONm)
EDTN
Actual technical losses (GWh) . . . . . .
Actual technical losses (%) . . . . . . . . .
Regulated technical losses (%) . . . . . .
Costs due to technical losses (RONm)
EDTS
Actual technical losses (GWh) . . . . . .
Actual technical losses (%) . . . . . . . . .
Regulated technical losses (%) . . . . . .
Costs due to technical losses (RONm)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
939
12.2
9.5
210
932
11.8
9.5
175
892
11.3
9.6
197
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
623
11.6
9.5
138
631
11.7
9.5
132
638
11.9
9.8
143
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
813
12.2
9.5
173
797
12.1
9.5
166
804
12.2
10.0
176
Network losses
An amount of electricity is lost in distribution networks when distributed. This phenomenon is known
as ‘‘network loss’’ and all distribution networks are affected by this phenomenon irrespective of the
operator. The level of this loss is proportional with the network wear. Network losses are also caused by
commercial losses resulting from the theft of electricity as of result of bypassing metering systems,
limitations of accuracy of metering systems or non-simultaneous readings at entrance and exit points of the
network. Distribution companies must acquire electricity in order to compensate for these network losses
and to operate their distribution business.
Network losses are a key factor affecting the distribution segment’s results of operations because both
approved consumption by ANRE for the relevant regulatory period and the cost of purchasing electricity
to cover the Group’s network losses are used when the relevant distribution tariffs are set. The level of
network losses in the distribution segment was 12.2% at EDMN, 11.6% at EDTN, 12.2% EDTS in 2013.
This compares positively with other Romanian electricity distributors but compares negatively with the EU
average, and, as a result, a key part of the Group’s investment programme is designed to reduce network
losses through modernisation and upgrade of the distribution network, including the installation of new or
modernised lines, cables and transformers and the installation of smart metering systems. Electricity
distributors in Romania are indirectly bound by European regulations that require the installation of smart
metering systems which, among other things, can continually report network performance in order to help
identify the causes of network losses. Distribution automation and smart metering result in greater
monitoring efficiency, reduction of monitoring expenses and enables better scheduling of energy
distribution for balancing loads and reducing power outages, and as a result, more dynamic pricing based
on more timely and accurate data. Introduction of smart metering and implementation of intelligent
network infrastructure under the Group’s investment programme is also expected to decrease the
frequency of failures and shorten interruptions in electricity supplies. For more information of the Group’s
investment programme and how it is intended to reduce network losses, see ‘‘—Strategy’’ and ‘‘—
Investment Programme’’, above.
172
The table below sets out network losses in the distribution networks operated by each of EDMN,
EDTN and EDTS, by voltage network and for the periods indicated.
EDMN
Evolution of technical losses (GWh, %)
High voltage . . . . . . . . . . . . . . . . . . .
Medium voltage . . . . . . . . . . . . . . . . .
Low voltage . . . . . . . . . . . . . . . . . . . .
EDTN
Evolution of technical losses (GWh, %)
High voltage . . . . . . . . . . . . . . . . . . .
Medium voltage . . . . . . . . . . . . . . . . .
Low voltage . . . . . . . . . . . . . . . . . . . .
EDTS
Evolution of technical losses (GWh, %)
High voltage . . . . . . . . . . . . . . . . . . .
Medium voltage . . . . . . . . . . . . . . . . .
Low voltage . . . . . . . . . . . . . . . . . . . .
2013
GWh
2012
2011
2013
% Losses
2012
2011
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
939
75
373
491
932
75
389
468
892
73
373
446
12.2% 11.9% 11.5%
1.1% 1.0% 1.0%
6.9% 7.2% 7.0%
16.2% 15.3% 14.9%
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
624
62
212
350
631
72
214
345
638
61
213
364
11.6% 11.7% 11.9%
1.2% 1.4% 1.2%
4.5% 4.6% 4.6%
12.3% 12.1% 12.9%
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
813
69
219
526
797
72
219
506
804
78
212
514
12.2% 12.1% 12.2%
1.1% 1.1% 1.2%
4.2% 4.3% 4.0%
18.3% 17.5% 18.1%
The actual level of total network losses is determined by the distribution operators based on the
quantities reported in distribution meters in the network. These figures are confirmed by OMEPA, a
subsidiary of Transelectrica. Different voltage levels imply different network losses levels. As such,
differences in the network losses between the distribution subsidiaries results mainly from the different
voltage mix characteristics of each distribution company and in particular from the voltage mix for each
route which is followed to reach a final consumer.
The cost of purchasing electricity to cover the Group’s network losses may differ from the cost
estimated by ANRE for the relevant period. The distribution segment purchases electricity to compensate
for its network losses under contracts concluded with producers through OPCOM and Electrica operates
on the DAM and the Balancing Market as its Balancing Market agent in this regard. Each of EDTS,
EDMN and EDTN have concluded power transmission agreements with Transelectrica for transmission
and system services for electricity provided to compensate for network losses.
The table below presents the ratio of costs due to network losses included in the tariff by ANRE to the
total costs due to network losses of the Group’s distribution business segment for the periods indicated.
Year ended
31 December
2013
2012
2011
Costs of system losses deemed justified by ANRE (RON million) . . . . . . . . . . . . .
Electricity acquired to cover the network losses (RON million) . . . . . . . . . . . . . . .
Actual costs/ justified costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
411
521
1.27
523
474
0.91
494
516
1.04
ANRE has recently announced revisions to its target regulated network losses for the current
regulatory period from 2014-2018.
Actual percentage network losses for each of EDMN, EDTN and EDTS for each of 2011, 2012 and
2013 are set out below together with ANRE’s target regulated network losses for this period and its
173
recently announced target regulated network losses for the next five years under the current regulatory
period:
2018 2017 2016 2015 2014 2013 2012 2011
(%)
EDMN
Actual
Target
EDTN
Actual
Target
EDTS
Actual
Target
......................................
......................................
— — — — — 12.2 11.8 11.3
9.8 10.1 10.3 10.5 10.8 9.5 9.5 9.6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 11.6 11.7 11.9
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 11.0 11.3 11.6 11.7 9.5 9.5 9.8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — 12.2 12.1 12.2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 10.9 11.1 11.4 11.7 9.5 9.5 10.0
Source: ANRE
Management expects that as its investment programme is implemented with respect to the Group’s
distribution network, network losses should decrease. Management considers as likely that the ANRE’s
target regulated network losses will be revised downward for the year 2015 through 2018 following the
recent acceptance by ANRE of an increase in regulated capex., Management believes that the investment
programme will allow the Group to meet the network losses targets as imposed by ANRE.
Interruptions in electricity distribution
Interruptions of electricity distribution in the network are reflected in the System Average
Interruption Duration Index (SAIDI) which indicates the average duration of long system interruptions
expressed in minutes per user per year and in the System Average Interruption Frequency Index (SAIFI)
which indicates the average frequency of long system interruptions expressed in amount per user per year.
SAIDI and SAIFI indices are calculated separately for planned and unplanned interruptions, taking or not
taking into account force majeure cases.
As part of its investment programme, the Group is implementing a new IT platform for its distribution
segment. The platform enables centralised registration of planned and accidental outages resulting in
interruptions to the electricity supply to users, with interruptions in electricity supply recorded in a detailed
and uniform manner across each of the distribution businesses operated by EDMN, EDTN and EDTS.
174
The table below presents distribution interruptions measured by SAIFI and SAIDI for each of
EDMN, EDTN and EDTS split by rural and urban areas for each of the years indicated.
2013
EDMN
Amount of energy not delivered due to incident (MWh, annual
average) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of interruptions per year / SAIFI
in urban area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in rural area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interruption duration per year (min/year) / SAIDI
in urban area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in rural area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EDTN
Amount of energy not delivered due to incident (MWh, annual
average) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of interruptions per year / SAIFI
in urban area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in rural area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interruption duration per year (min/year) / SAIDI
in urban area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in rural area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EDTS
Amount of energy not delivered due to incident (MWh, annual
average) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of interruptions per year / SAIFI
in urban area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in rural area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interruption duration per year (min/year) / SAIDI
in urban area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in rural area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
......
1,159
2,324
1,025
......
......
1.41
3.47
2.50
5.43
1.75
3.42
......
......
220.64
712.18
314.55
1,526.73
170.19
871.55
......
910
923
1,057
......
......
1.93
7.75
2.01
6.43
2.50
7.61
......
......
382.88
1,251.35
383.40
935.98
384.13
1,024.09
......
1,361
1,089
1,128
......
......
4.29
8.01
4.56
8.64
4.80
9.09
......
......
379.59
1,160.59
446.66
1,465.72
470.11
1,543.01
As can be seen from the above, SAIDI and SAIFI are higher in rural areas than in urban areas. This is
due to the enhanced vulnerability of the network in rural areas as a result of greater exposure to wear and
tear from weather conditions and of network distribution by aerial lines
The Group’s investment programme in its distribution network should lead to improvements to the
continuity of supply and reduction in network losses. Operation and maintenance efforts aimed at
eliminating the risks relating to unfavourable weather conditions currently also serve to improve continuity
of supply and reduce network losses. In addition, the Group carries out planned works in a manner that do
not result in disruption to users and through the use of work technologies such as live line works.
Users
For the year ended 31 December 2013, the most significant users of the distribution segment by
distributed quantities were in case of EDTN: Electrica Furnizare, Repower Furnizare Romania SRL,
OMV Petrom SA and E.ON Energie Romania SA; in the case of EDTS: Electrica Furnizare,
Tinmar-Ind SA, Energy Holding SRL, E.ON Energie Romania SA, Repower Furnizare Romania SRL and
Icco Energ SRL; and in the case of EDMN: Electrica Furnizare, Arcelor Mittal SA, OMV Petrom SA,
Repower Furnizare Romania SRL and GDF Suez Energy SA. Save for Electrica Furnizare, no single user
of the distribution segment exceeded 10% of Group revenues in the past three years.
Electricity distribution network
Electricity distribution is the transportation of electricity over distribution networks from the
transmission network to end-consumers. Electricity is distributed via high voltage (110 kV), medium
voltage (from 1 kV to 35 kV) and low voltage (up to 1 kV) lines which are either aerial or underground.
Underground lines are more prevalent in urban areas. Electricity distribution in Romania is currently
controlled by eight licensed concessionary regional electricity distribution companies. Each is responsible
for the exclusive distribution of electricity within its licensed region under a natural monopoly, based on a
175
concession agreement entered with the State. These include EDMN, EDTN and EDTS. Tariffs for
electricity distribution are set by ANRE.
Electricity distribution networks are comprised of overhead lines and underground cable lines,
stations and transformer stations, transformers and other equipment. Major parts of the Romanian
distribution network were constructed in the 1950-1960s and require material maintenance and upgrade
for their continued operation. The technical condition of the distribution network varies. In some areas of
the country there are problems with maintaining the electricity supply parameters, mostly in rural areas
with long routes of low-voltage aerial lines. These networks require modernisation and refurbishment.
The table below presents selected data regarding total key assets used in EDMN, EDTN and EDTS
business as at the date indicated.
As at 31 March
2014
Total length of overhead lines* . . . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of underground cable lines . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of lines (overhead and underground cable
lines) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of 110 kV/MT substations . . . . . . . . . . . . .
Number of MT/MT substations . . . . . . . . . . . . . . . .
Number of transformers in substations . . . . . . . . . . .
*
Length of lines plus connections.
176
As at 31 December
2013
2012
2011
(km, unless stated)
..
152,696
152,659
152,090
151,483
.
.
.
.
.
.
.
.
8,323
34,981
109,392
36,170
8,323
34,970
109,366
36,145
8,308
34,871
108,911
35,691
8,309
34,789
108,384
35,117
..
..
..
66
10,662
25,442
66
10,660
25,419
55
10,528
25,108
47
10,376
24,694
188,866
8,389
45,643
134,834
313
125
28,514
188,804
8,389
45,630
134,785
312
125
28,486
187,781
8,363
45,399
134,019
311
124
28,214
186,600
8,356
45,165
133,079
310
126
28,085
.
.
.
.
.
.
.
.
.
.
.
.
.
.
The table below presents selected data regarding key assets used in EDMN’s business as at the date
indicated.
As at 31 March
As at 31 December
2014
2013
2012
2011
(km, unless stated)
Total length of overhead lines* . . . . . . . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of underground cable lines . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of lines (overhead and underground cable lines)
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of 110 kV/MT substations . . . . . . . . . . . . . . . . . .
Number of MT/MT substations . . . . . . . . . . . . . . . . . . . .
Number of transformers in substations (PT-PA) . . . . . . . . .
*
56,987
56,975
56,724
56,510
3,431
13,070
40,486
10,814
3,431
13,070
40,474
10,814
3,411
13,037
40,276
10,820
3,411
13,021
40,079
10,741
15
4,085
6,714
67,801
3,446
17,155
47,200
124
92
10,546
15
4,085
6,713
67,788
3,446
17,155
47,187
124
92
10,528
15
4,110
6,695
67,544
3,426
17,147
46,971
124
92
10,550
15
4,054
6,671
67,251
3,426
17,076
46,750
124
93
10,647
Length of lines plus connections.
EDMN operates in the region between the Southern Carpathian Mountains and the Danube River.
EDMN’s distribution network is the largest operated by the Group and covers the most industrialised
region in which the Group’s distribution segment operates, having the highest percentage of high voltage
electricity distributed. Wear rates for EDMN are between 40-90%.
The table below presents selected data regarding key assets used in EDTN’s business as at the date
indicated.
As at 31 March
As at 31 December
2014
2013
2012
2011
(km, unless stated)
Total length of overhead lines* . . . . . . . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of underground cable lines . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of lines (overhead and underground cable lines)
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of 110 kV/MT substations . . . . . . . . . . . . . . . . . . . .
Number of MT/MT substations . . . . . . . . . . . . . . . . . . . . . .
Number of transformers in substations (PT-PA) . . . . . . . . . .
*
Length of line per one line track plus connections.
Wear rates for EDTN are between 25-90%.
177
52,301
52,277
52,077
51,816
2,634
11,628
38,039
14,884
2,634
11,618
38,026
14,859
2,634
11,578
37,865
14,633
2,634
11,537
37,644
14,402
24
3,371
11,489
67,186
2,658
14,999
49,528
91
28
8.880
24
3,369
11,467
67,137
2,658
14,986
49,493
90
28
8.870
13
3,307
11,313
66,710
2,647
14,885
49,178
90
27
8.658
13
3,252
11,137
66,217
2,647
14,790
48,781
90
28
8.588
The table below presents data regarding key assets used in EDTS’s business as at the date indicated.
As at 31 March
As at 31 December
2014
2013
2012
2011
(km, unless stated)
Total length of overhead lines* . . . . . . . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of underground cable lines . . . . . . . . . . . . . . . .
including
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total length of lines (overhead and underground cable lines)
(km) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LV lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of 110 Kv/MT substations . . . . . . . . . . . . . . . . . .
Number of MT/MT substations . . . . . . . . . . . . . . . . . . . .
Number of transformers in substations(PT-PA) . . . . . . . . .
*
43,407
43,407
43,289
43,157
2,258
10,283
30,867
10,471
2,258
10,283
30,867
10,471
2,263
10,256
30,769
10,238
2,265
10,231
30,661
9,974
27
3,206
7,239
27
3,206
7,238
27
3,111
7,100
19
3,069
6,886
53,879
2,285
13,488
38,105
98
5
9,088
53,878
2,285
13,488
38,105
98
5
9,088
53,527
2,290
13,368
37,869
97
5
9,006
53,131
2,284
13,300
37,548
96
5
8,850
Length of lines plus connections.
Wear rates for EDTS are between 50-85%.
Electrica Serv
Electrica Serv maintains, repairs, builds and provides technical advice and support services in relation
to the distribution segment’s network infrastructure, services offered under service contracts. Electrica
Serv mainly repairs the networks and the distribution segment’s power equipment provides the necessary
vehicle fleets for the distribution segment to operate its business through third party lease agreements, and
offers electricity distribution network design services. Electrica Serv had 3,338 employees as at 31 March
2014 and has over 100 offices and premises that are principally located in the licenced regions where the
distribution segment operates. Approximately 97% of Electrica Serv’s revenue was sourced from members
of the Group in 2013.
Electrica Serv generated revenues of RON 396 million and EBITDA of RON 20 million in 2013 with
a net income of RON 12 million. In 2013, Electrica Serv contributed 8% of consolidated Group revenue.
Management intends to expand Electrica Serv’s customer base and market share by reallocating its
operational resources from repair and maintenance to the provision of other more value-added services
such as energy audit, energy efficiency studies and other services relating to connections and the Group’s
customers’ equipment. In addition, Electrica Serv is expected to play a key role in the implementation of
management’s Investment Programme through the implementation of network development activities, the
creation of new connections and the implementation of the Group’s smart grid network infrastructure. As
a result, the Group intends to train Electrica Serv’s technical staff in order to enable it to extend its service
offering when tendering for and executing electrical design consultancy contracts in the energy sector and
other elements of its expanded proposed service offerings.
Supply Segment
Electrica Furnizare
The Group supplies electricity to household and non-household consumers throughout Romania
through its subsidiary, Electrica Furnizare. The total size of the Romanian electricity supply market was
43.8 TWh in 2013. Electrica Furnizare is the leading supplier of electricity in Romania, with a 22.1%
market share by electricity supplied in 2013. It is also the leading supplier on the regulated retail market,
with a 36.3% market share by electricity supplied and one of the leading suppliers on the competitive
market, with an 11.1% market share by electricity supplied, in each case in 2013. Electrica Furnizare had
194 working units and 1,227 employees as at 31 December 2013.
178
Electrica Furnizare also sells electricity on the wholesale electricity market managed by OPCOM.
Electrica Furnizare is registered as a participant on four trading platforms managed by OPCOM: (i) the
DAM, (ii) the Bilateral Contracts Centralised Market, (iii) the Green Certificates Market, and
(iv) Centralised Market for Bilateral Contracts with Double Continuous Trading. To this end, Electrica
Furnizare has concluded an agreement with OPCOM which has standard provisions approved by OPCOM
and which are endorsed by ANRE to allow them to trade electricity on the DAM, on the Bilateral
Contracts Centralised Market and on the Centralised Market for Bilateral Contracts with Double
Continuous Trading. Electrica Furnizare also concluded a Green Certificates Market participation
agreement with OPCOM on 8 April 2013. Under this agreement, Electrica Furnizare is entitled to trade
Green Certificates both on the CMGC and on the Green Certificates Bilateral Agreements Market.
Electrica Furnizare has also concluded a power transmission agreement with Transelectrica, pursuant to
which Transelectrica carries out transmission and system services for the electricity supplied by Electrica
Furnizare to its customers.
Electrica Furnizare’s electricity supply activities are covered under the Supply Licence valid for a
period of ten years, with expiry on 18 August 2021 with the possibility of extension for a further ten years,
and includes technical compliance requirements for the supply of electricity under the Energy Law, the
licence conditions and ANRE regulations. Under the Supply Licence, Electrica Furnizare supplies
electricity to the competitive market throughout Romania, and supplies electricity to the regulated market
in the regions where the Group operates its supply business as a supplier of last resort, i.e. a supplier that is
designated by ANRE to deliver universal service of supply under regulated conditions. Tariffs for
electricity supply under this licence for eligible consumers who are permitted to choose their supplier in
the competitive market are set by bilateral contracts, and tariffs for electricity supply under this licence in
the regulated market are approved by ANRE. For more information on the Supply Licence, see
‘‘—Material Operating Licences and Concessions’’.
The following table presents selected financial data for the electricity supply segment of the Group, as
at and for the periods indicated.
2013
Financial information
Sales to external clients . . . . . . .
Inter-segment sales . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . .
EBITDA(1) . . . . . . . . . . . . . . . . .
EBITDA margin (%)(2) . . . . . .
Net profit (loss) . . . . . . . . . . . . .
Net profit (loss) margin (%)(3) .
Net debt/(cash)(4) . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
4,570
210
4,780
117
2.4%
90
1.9%
(50)
31 December
2012
(RON millions)
4,653
147
4,801
116
2.4%
79
1.6%
(33)
2011
4,710
115
4,825
(110)
(2.3)%
(138)
(2.9)%
109
(1)
EBITDA for operating segments is defined and calculated as profit (loss) before tax of a given operating segment adjusted for
i) depreciation, amortisation and impairment/ reversal of impairment of property, plant and equipment and intangible assets in
the operating segment, ii) net finance (cost)/income in the operating segment and iii) share of profit (loss) of equity-accounted
investees in the operating segment (as disclosed in the Income Statements). EBITDA is not an IFRS measure and should not
be treated as an alternative to IFRS measures. Management believes that the presentation of EBITDA enhances an investor’s
understanding of the Group’s financial performance. This non IFRS measure is not presented in accordance with IFRS and the
Group’s use of it may vary from others in the Group’s industry. This non IFRS measure has limitations as an analytical tool, and
should not be considered in isolation or as a substitute for financial information as reported under IFRS.
(2)
EBITDA margin is calculated as EBITDA divided by revenue.
(3)
Net profit (loss) margin is defined and calculated as net profit (loss) divided by revenue.
(4)
Net debt/(cash) is defined and calculated as the total interest-bearing loans and borrowings, financing of property, plant and
equipment and lease liabilities less cash and cash equivalents.
As at 31 March 2014, 67% of the Group’s supply segment revenue was generated from regulated
revenue.
For the supply of electricity under regulated contracts to consumers, the cost of electricity is driven by
(i) the evolution of the purchase price of electricity on the competitive wholesale market, (ii) the purchase
price of electricity on the regulated market and (iii) the proportion of electricity purchased from the
regulated and the competitive wholesale markets. As per the regulations, the proportion of electricity
179
purchased from regulated wholesale market is set to gradually decline to zero by the end of 2017. For a
more detailed explanation of tariff calculations and how they affect the Group’s supply segment, see
‘‘Regulation—Tariffs’’.
In the year ended 2013, the Group’s supply business to end consumers generated revenues of RON
4,373 million from its operations, providing 9,685 GWh of electricity while serving approximately
3.56 million consumers.
The following tables present selected operational data for the electricity supply business of the Group,
for each of the periods indicated.
2013
No.
% of
consumption
annual
points
average
Churn
Regulated market . .
Competitive market
Household . . . . . . .
Non-household . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2,080
543
1
2,622
0.06%
2.30%
0.00%
1.12%
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
547
205
0
752
2013
GWh
%
Quantities supplied and market share
Quantities supplied . . . .
Regulated market . . . .
Competitive market . .
Market share by volumes
Regulated . . . . . . . . .
Competitive . . . . . . . .
2012
No.
% of
consumption
annual
points
average
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
9,685
6,896
2,789
9,685
6,896
2,789
2011
No.
% of
consumption
annual
points
average
0.02%
1.49%
0.00%
0.32%
920
585
1
1,504
2012
GWh
100% 10,411
71% 7,473
29% 2,939
22% 10,411
36% 7,473
11% 2,939
%
0.03%
5.24%
0.00%
0.64%
2011
GWh
100% 10,069
72% 7,380
28% 2,689
23% 10,069
38% 7,380
12% 2,689
%
100%
73%
27%
22%
39%
10%
A large number of the supply segment customers are State-owned companies and CFR is Electrica
Furnizare’s largest customer on the retail market.
Material Operating Licences and Concessions
Distribution segment
Electricity distribution concessions
For a description of the Group’s concession agreements, see ‘‘Material Contracts’’.
Electricity distribution licences
Under the Distribution Licences, EDMN, EDTN and EDTS are each granted the following rights:
(i) to perform the electricity distribution activity in its licensed region, (ii) to receive the distribution tariff,
(iii) to request ANRE to take into consideration, when calculating and approving the distribution tariff,
operating costs incurred from performing the distribution activity for inclusion in the categories of costs
acknowledged under ANRE regulations, (iv) to purchase the electricity necessary for its own technical
consumption from the wholesale energy market or from imported electricity, (v) to negotiate the use or
lease of distribution capacities already existing in its licensed region and/or, pursuant to its exclusive
distribution right, to prevent other distributors from connecting new clients and/or increasing the capacity
of their distribution networks without the prior approval of the incumbent licensed distributor. In addition,
the licences grant EDMN, EDTN and EDTS the legal use and easement rights over the plots of land
necessary for operation and maintenance of the distribution network.
In addition, under the Distribution Licences, each of EDMN, EDTN and EDTS have the following
obligations (i) to provide access to consumers to its distribution network, (ii) to use only the ANRE
regulated tariffs when charging for electricity for its energy distribution, (iii) to separate its costs for
distribution activity from its costs for other activities, and (iv) not to supply electricity. Additionally, each of
EDMN, EDTN and EDTS must notify ANRE 30 days in advance of its shareholders’ intention to
undertake operations that would result in (i) the transfer of assets designated to its energy distribution
activity to legal or natural persons by way of sale, joint venture or any other method, (ii) a reduction of
share capital of 25% or more in aggregate, or (iii) any trading of its shares.
180
Under the Distribution Licences, EDMN, EDTN and EDTS also have an obligation to notify ANRE
regarding any breach of the conditions of the Distribution Licences, change of registered office, legal
status, share capital or general manager. The Distribution Licences may also be temporarily suspended by
ANRE, for a period of at least 30 working days, where the licensed distributor: (i) does not fulfil its legal
obligations; (ii) does not observe an essential condition within the licence or repeatedly breaches one or
more conditions three times or more in any twelve month period and, in each event, the situation that was
created could have been remedied, and (iii) a general insolvency procedure is opened against the relevant
licensed distributor. ANRE may withdraw a Distribution Licence from EDMN, EDTN or EDTS if it (i) is
unable to fulfil its prescribed obligations, being the distribution of energy to at least 50% of consumers
from its licensed region, without being able to remedy such situation, (ii) is declared bankrupt, (iii) if there
has been a reduction in the relevant assets and ANRE determined that, due to such reduction, the
distributor is no longer able to continue the distribution of electricity to at least 50% of the consumers
from its licensed region without being able to remedy such situation, or (iv) the relevant distributor has
requested the withdrawal of its licence in writing.
Pursuant to the Distribution Licences, the licencee is obliged to give financial guarantees ensuring the
continued performance of their energy distribution activities by (i) insurance policy, (ii) deposit, or comfort
letter from a group company. Electrica has issued a comfort letter for each of the three distribution
subsidiaries to this effect. Such guarantee must be given within two years of the date of each Distribution
Licence and the amount guaranteed must, in each case, equate to a minimum of 2% of the share capital of
the respective distribution operators. The potential sanction for such breach is the suspension of the
Distribution Licence for a minimum of 30 days or, where such breach is not remedied within the
suspension period, withdrawal of the licence. Suspension of the Distribution Licence will not, however,
limit the distribution operator’s right to carry on its distribution activity or collect the relevant tariffs.
For more information on the Distribution Licences, tariffs and the Romanian electricity regulatory
environment, see ‘‘Regulation—The Electricity Industry’’.
Electricity servicing authorisations
Electrica Serv holds two certificates issued by ANRE (Certificate no. 5415/11.03.2010 valid until
11 March 2015 and Certificate no. 8827/25.03.2013 valid until 25 March 2018) under which Electrica Serv
is authorised to: (i) test electrical equipment, (ii) design and build of electrical installation of up to 0.4 kV
in civil and industrial construction, (iii) design of electrical lines of up to 0.4 kV - 110 kV and
transformation station having a voltage not exceeding 20 kV, (iv) build aerial and underground electricity
lines of 0,4 kV - 110 kV capacity and transformation station having a voltage not exceeding 20 kV, (v) build
aerial and underground electrical lines of 110 - 400 kV, and electrical underground lines between 110 - 220
kV, (vi) build electricity sub-stations and power generation plants, (vii) perform painting of elements to
support electricity networks and clear obstruction under aerial electricity lines, (viii) design electricity
sub-station at 110-400 kV and underground electricity lines with a capacity of 110 kV or 220 kV, and
(ix) design electricity sub-stations and equipment for power generation plants.
Supply segment
Electricity supply licences
Electrica Furnizare holds the Supply Licence, which is valid for a period of ten years from its issuing.
Under this Supply Licence Electrica Furnizare has the right to trade electricity by way of regulated
sale-purchase agreements and contracts negotiated on the centralised electricity markets operated by
OPCOM, as well as to conclude contracts for electricity distribution with electricity distribution companies
and transport contracts with the Transelectrica. Electrica Furnizare may also conclude contracts for the
import and export of electricity, in accordance with the provisions under the Supply Licence. Electrica
Furnizare also has the right to transfer its balancing responsibility to another balancing party registered
with Transelectrica.
Electrica Furnizare holds the right to supply electricity under regulated tariffs in the regions where the
Group distribution subsidiaries, as well as under negotiated tariffs throughout Romania.
Electrica Furnizare has the right to request ANRE to consider any of the costs determined by the
performance of this activity, if these are provided for in the legislation when calculating or approving the
energy supply tariff applicable to the regulated market, and has the right to apply penalties, limit or
181
suspend its service in case of late payment subject to certain restrictions for special consumers, such as
hospitals and emergency services.
Under its Supply Licence, Electrica Furnizare has obligations to conclude regulated energy purchase
agreements for electricity for household consumers to supply energy at regulated tariffs in the conditions
established by ANRE for household consumers, to keep separate accounts for its licensed activities and to
provide a financial guarantee for ensuring the continuous performance of its licensed activities of no less
than 10% of the average monthly turnover registered in the previous year for the performance of the
licensed activities.
The potential sanction for any breach of these obligations is the suspension of the Supply Licence for
a minimum of 30 days or, where such breach is not remedied within the suspension period, withdrawal of
the licence. Suspension of the Supply Licence will not, however, limit Electrica Furnizare’s right to carry on
its supply activity or collect the relevant tariffs.
Electrica Furnizare must also assume the balancing responsibility towards Transelectrica for the
purchase and sale and the import and export of electricity.
In addition, Electrica Furnizare must (i) purchase a number of Green Certificates corresponding to
the annual quantity of electricity supplied to consumers under the quota set by ANRE; (ii) seek to ensure
that the consumption places it supplies are fitted with energy metering units, to notify ANRE prior to a
decrease by more than 25% of its share capital; and (iii) notify to ANRE any breach of the Supply Licence
conditions, as well as any change of registered offices, business purpose, legal status, share capital or
general manager and transactions regarding its assets or shares.
If Electrica Furnizare breaches a material condition of the Supply Licence, or if non-material licence
conditions are breached at least three times in any one year period, ANRE may suspend the Supply
Licence for a period of at least 30 business days, pending remediation of the breach. ANRE may also
suspend the Supply Licence if Electrica Furnizare enters into insolvency proceedings.
If Electrica Furnizare is unable to fulfil its obligations under the law or the conditions attached to the
Supply Licence regarding energy supply to at least half its consumers, is wound up can no longer operate
following a reduction of its assets or submits a written request in this respect, ANRE may also withdraw
the Supply Licence.
For more information on the Supply Licence and the Romanian electricity regulatory environment,
see—‘‘Regulation—The Electricity Industry—Other key areas of regulation—Exclusive right to supply
electricity’’.
In addition, Electrica also holds supply licence no. 1091/13 July 2012 which is valid for a period of ten
years from its issuance.
Under its supply licence, Electrica has the right to trade energy by way of sale and purchase contracts
negotiated on the centralised electricity markets operated by OPCOM, as well as the right to conclude
contracts for electricity distribution with electricity distribution companies and transport contracts with
Transelectrica and to conclude contracts for the import and export of electricity, subject to applicable legal
restrictions. Under this supply licence, Electrica also has the right to transfer its balancing responsibility to
another balancing party registered with Transelectrica.
Electrica also has obligations under its supply licence to keep separate accounts for the licensed
activities, to provide a financial guarantee for ensuring the continuous performance of the licensed
activities of no less than 10% of the average monthly turnover registered in the previous year for the
performance of the licensed activities. The potential sanction for such breach is the suspension of the
Supply License for a minimum of 30 days or, where such breach is not remedied within the suspension
period, withdrawal of the licence.
Electrica also has obligations under its supply licence to notify ANRE prior to a decrease by more
than 25% of its share capital; and notify to ANRE upon any breach of the supply licence conditions, any
change of registered offices, business purpose, legal status, share capital or general manager and
transactions regarding its assets or shares. Electrica notified ANRE of the intention to increase the share
capital.
182
Description of Indebtedness
Loan facilities
The following are the material credit facility agreements concluded by the companies in the Group at
the date of the Prospectus.
The Group has in place four facility agreements with ING Bank NV Amsterdam Bucharest Branch
(‘‘ING’’), which comprise both an overdraft facility and a facility for the issuance of bank letters of
guarantee. These facilities are revolving and drawn amounts can vary on a day to day basis. As regards
overdraft facilities, the interest payable is computed daily by reference to the daily debit balance. In all the
facilities provided by ING, the relevant borrower is subject to similar market standard provisions,
including, without limitation, pari passu ranking clauses, standard events of default and acceleration
clauses, cross default and negative pledge. Failure to comply with any of its obligations undertaken under
these agreements constitutes an event of default giving the bank the right, inter alia, to accelerate any
financial obligation. Each borrower under the ING facilities must promptly inform ING in respect of any
direct or indirect change of control. Additionally, the State ceasing to hold directly or indirectly 51% of the
borrower’s share capital is considered an event of default, except the case in which the decrease of the
State’s holding is the result of a listing of the borrower on a stock exchange. Taking into consideration the
Offering, the Company is carved out of such event of default, while the Group’s subsidiaries obtained
ING’s approval in this respect.
The cross-default clause under these facility agreements provides that any default by Electrica or its
supply/ distribution subsidiaries in the performance of any other agreement for borrowed monies (whether
with ING or any other lender) shall be deemed an event of default.
As mentioned above, these facilities also contain customary negative pledge provisions, pursuant to
which the borrower undertakes not to create, extend or supplement any guarantee in favour of any party
other than ING without the latter’s written consent.
Electrica’s facilities
The Company has entered into an unsecured facility agreement dated 9 October 2013 with ING,
comprising a term overdraft facility and a letter of guarantee facility of up to an aggregate of RON
80 million. The facility may be used for Electrica’s working capital and to issue bank letters of guarantee.
The overdraft facility expires on 8 October 2014 and the letter of guarantee facility expires on 9 October
2015. The Company can draw the facility in RON. Amounts drawn on this facility bear interest a maximum
of between zero and one month ROBOR minus a margin of 2.5% computed on the basis of a 360 day year
(without the possibility of the interest rate falling below zero) with a default interest set of 1% over the
interest rate. As at 31 March 2014, an amount of RON 45.9 million was drawn under this facility from
which RON 25.6 million were drawn from the overdraft facility and RON 20.3 million were committed
from the facility to issue bank letters of guarantee. As at 31 March 2014, the balance under this facility was
of 25.6 million RON.
Facilities of the Group’s subsidiaries
Electrica Furnizare has entered into an unsecured facility agreement dated 27 September 2013 with
ING, comprising a term overdraft facility and a letter of guarantee facility of up to an aggregate of RON
200 million. The overdraft facility expires on 26 September 2014 and the letter of guarantee facility expires
on 26 September 2015. Electrica Furnizare can draw the facility in RON. Amounts drawn under this
facility bear interest at a maximum of between zero and one month ROBOR minus a margin of 2.5%
computed on the basis of a 360 day year (without the possibility of the interest rate falling below zero),
with default interest set at 1% over the interest rate. As at 31 March 2014, the overdraft facility was
undrawn while RON 64.7 million had been committed under the facility for issuance of bank letters of
guarantee.
183
On 9 October 2013 EDTS entered into a facility agreement with ING, comprising a term overdraft
facility and a letter of guarantee facility of up to an aggregate of RON 60 million. The facility is used to
finance EDTS’s working capital and to issue bank letters of guarantee. The overdraft facility expires on
8 October 2014 and the letter of guarantee facility expires on 8 October 2015. EDTS can draw the facility
in RON Amounts drawn on the overdraft facility bear interest at a maximum of between zero and one
month ROBOR minus a margin of 2.5% computed on the basis of a 360 day year (without the possibility of
the interest rate falling below zero), with default interest set at 1% over the interest rate. As at 31 March
2014, RON 12.1 million had been drawn pursuant to the overdraft and RON 3.3 million committed under
the facility for issuance of bank letters of guarantee.
EDTN entered into a facility agreement with ING on 9 October 2013, comprising a term overdraft
facility and a letter of guarantee facility of up to an aggregate of RON 50 million. The facility may be used
to finance EDTN’s working capital and to issue bank letters of guarantee. The overdraft facility expires on
8 October 2014 and the letter of guarantee facility expires on 8 October 2015. EDTN can draw the facility
in RON. Amounts drawn on this facility bear interest at a maximum of between zero and one month
ROBOR minus a margin of 2.5%, computed on the basis of a 360 day year (without the possibility of the
interest rate falling below zero), with default interest set at 1% over the interest rate. As at 31 March 2014,
this facility had not been drawn.
Projects developed by the Group with non-refundable EU funds
Electrica, EDTS, EDTN and EDMN have each benefited from non-refundable grants from European
Union funds for the financing of the modernisation of EDTS’s, EDTN’s and EDMN’s distribution
networks and for Electrica’s participation in the SINGULAR project (Smart and Sustainable Insular
Electricity Grids Under Large Scale Renewable Integration). These EU funds may become repayable in
certain circumstances, as provided under the respective financing agreements.
As at 31 March 2014, the Group had financing contracts benefiting from EU funds, with a total
eligible value of RON 144 million. The total value of the European Union funds made available to the
Group companies represents 88% of the total eligible value of the projects and amounts to RON
71 million, out of which RON 12.6 million has been cashed.
Employees
As at 31 March 2014, the Group employed 11,245 people.
The table below provides an overview of employment in the Group, by operating business, as at the
dates indicated.
As at
31 March
2014
Electricity Distribution .
EDMN . . . . . . . . . .
EDTN . . . . . . . . . . .
EDTS . . . . . . . . . . .
Electrica Serv . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
As at 31 December
2012
2011
2013
.
.
.
.
.
9,317
2,100
2,012
1,867
3,338
9,366
2,092
2,026
1,874
3,374
9,551
2,111
2,026
1,859
3,555
11,878
2,099
2,027
1,848
5,904
Services related to external distribution networks
SEMU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
555
639
686
707
1,224
1,227
1,236
1,176
149
11,245
149
11,381
199
11,672
247
14,008
Supply
Electrica Furnizare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Headquarter
Electrica SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Approximately 60% of the Group’s employees are directly productive and 40% indirectly productive,
which includes technical, economic, social and administrative personnel.
The Group’s total number of employees decreased by 2,763 employees from 31 December 2011 to
31 March 2014. This was due in part to the rationalisation of the Group’s legacy service activities and the
laying off of 50 employees in 2012 and 53 employees in 2013 by Electrica Serv. These redundancies were
184
conducted in accordance with the Group’s existing CBAs. Electrica collectively dismissed 42 employees in
December 2013.
The Group has provisioned the amounts required in connection with these lay-offs.
The table below presents the Group’s employment, broken down by age as at the date indicated.
As at
31 December 2013
Below 18 years of age
18 - 30 . . . . . . . . . . .
31 - 40 . . . . . . . . . . .
41 - 50 . . . . . . . . . . .
51 - 60 . . . . . . . . . . .
above 60 years of age
Total . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0%
6.76%
21.39%
38.42%
28.85%
4.58%
100%
As at 31 March 2014, approximately 98% of the Group’s employees are members of labour unions
and their employment conditions are governed by a collective bargaining agreement that is renegotiated at
least every two years and filed with the relevant labour authorities in Romania. As at 31 December 2013,
the Group has defined benefit liability and other long-term employee benefits in amount of RON
224.6 million, based on actuarial reports prepared by an independent actuary. None of Electrica and its
subsidiaries has experienced any strike or other form of labour disturbances that have interfered with its
operations, and Management considers its relationship with employees of the Group to be good.
The Group’s employees are members of a State managed retirement benefit plan and, from
17 September 2007, employees up to the age of 45 may voluntarily subscribe to a private pension fund. For
employees under the age of 35, the subscription to a private pension fund is compulsory.
As regards envisaged dismissals within the Group, Electrica Furnizare intends to reduce its number of
personnel by 10% by the end of 2016 in accordance with its management and administration plan. This will
be mainly as a result of the restructuring of the Group’s supply activity, in accordance with Electrica
Furnizare’s Management strategy.
The Group’s recruitment procedures focus on attracting and retaining individuals who are motivated
to advance within the organisation and meet the Group’s evolving needs. The Group’s recruitment process
involves a test or exam. Vacant positions and their occupancy conditions are posted to the headquarters
and are required to be made public by law. Promotion to management positions is made by appointment of
the general manager. Management positions are exercised for the duration provided in the addendum to
the relevant employment agreement. Competition for qualified employees in Romania among companies
that rely heavily on engineering and technology is intense. The Group has a standard form employment
agreement, pursuant to the legal provisions in force, annexed to the CBAs, which is described below under
‘‘Standard individual employment agreement’’.
In compliance with Law No. 319/2006 on labour safety and health and its methodological norms, each
member of the Group has established a committee for labour safety and health. These committees are
legally required to comprise an equal number of employee representatives and employer representatives,
together with a practitioner of labour medicine, and should meet at least once every quarter or any time it
is required. From 1 January 2011 to 31 March 2014, a total number of 27 labour accidents were recorded
within the Group in which 29 people were involved, out of which 8 accidents were fatal.
Electrica’s training programmes aim to upgrade the skills of the Group’s employees so they can adapt
to broader tasks to better utilise its existing resources. Management believes that its emphasis on training
and development helps its employees meet business challenges effectively.
Internal regulation
Each of the Company and its subsidiaries have in place internal regulations that generally relate to
general employment provisions, non-discrimination, labour safety and health, rights and obligations of the
employer and of the employees, employee complaint procedures, rules on labour discipline, disciplinary
sanctions and disciplinary infringements, rules regarding disciplinary procedure, the criteria and procedure
for the professional evaluation of employees and final provisions.
185
Standard individual employment agreement
The Group uses a standard individual employment agreement (‘‘IEA’’) in relation to employees (hired
for a determined and for an undetermined period of time) as provided by Order no. 64/2003, for the
approval of the sample IEA, modified for the relevant employing company’s activity.
Such IEA include, inter alia, clauses such as: parties’ identity, work place details, position, job
description, criteria for the evaluation of the professional activities of the employee, leave duration, prior
notice period, base salary and other bonuses and benefits, etc.
Representative trade union
Representative trade unions were set up within Electrica and each of its subsidiaries with the right to
negotiate and conclude CBAs. As at 31 March 2014, the representative trade unions which represent the
Group’s labour force comprise:
• Sindicatul Liber al Lucratorilor din Electrica, having 139 employee members out of 149 employees
within Electrica;
• Sindicatul Electrica Ploiesti, having 1,100 employee members out of 2,156 employees within EDMN;
• Uniunea Sindicatelor din Retele Electrice ‘‘Transilvania Nord’’, having 1,997 employee members out
of 2,012 employees within EDTN;
• Sindicatul Electrica ‘‘Transilvania Sud’’ having 1,402 members out of 1,867 employees within EDTS;
• Sindicatul Electrica Braila, having 1,205 members out of 1,224 employees within Electrica Furnizare;
• Sindicatul Independent Energia Electrica Pitesti, having 1,863 members out of 3,338 employees within
Electrica Serv;
• Sindicatul Liber si Independent Energia having a number of 554 members out of 555 employees
within SEMU.
Collective Bargaining Agreements
CBAs have been concluded throughout the Group which have similar terms and conditions and
regulate the work conditions, payments, working time, labour safety, and other rights and obligations of
and in respect of the Group’s employees.
The CBAs will expire in December 2014. Under the CBAs, the Group is bound to observe certain
obligations, such as:
• to take the necessary operative measures necessary for accomplishing the performance objectives
and indicators assumed;
• to grant employees salary rights and other benefits negotiated through the CBAs (including
compensatory payments for dismissal, retirement payments, bonuses to the base salary and days
off);
• to ensure the labour safety and health of the employees; and
• to organise and manage the activity based on professional competences, credibility, economic
efficiency and profitability.
Under the CBAs, employees individually dismissed for reasons not related to them (removal of the
position, relocation of the headquarters) may benefit from compensatory payments between four and 10
average net salaries at company level, whilst employees collectively dismissed may benefit of compensatory
payments ranging between four and 20 average net salaries at company level, depending on the work
seniority. According to SEMU’s CBA, dismissed employees may receive compensatory payments ranging
between two and eight gross salaries (one gross salary amounting to RON 1,500), depending on the work
seniority, irrespective of being dismissed individually or collectively.
Members of the Group must pay to their employees upon retirement between one and three base
salaries, calculated according to the years worked for such member and the gross salary of the employee,
except for SEMU, which must pay to its employees upon retirement RON 5,000 if certain seniority
requirement is met. Also, if certain seniority thresholds are met, each member of the Group (except
186
SEMU) must grant a benefit representing the counter value for an annual domestic consumption up to
1,200 KWh.
The CBAs also contain certain rights of the representative trade unions such as approvals for
exceeding the maximum gross base salary ceiling, overtime working programmes and terms of
employment.
IT Platform
The Group has a large IT infrastructure and relies upon its IT systems to support and monitor its
businesses. While the Group’s strategy is to consolidate and streamline its operations through the creation
of the Shared Services Centre, an important part of which will be a shared data center. Historically, each of
the Group’s subsidiaries have been responsible for the implementation of their own IT systems and
infrastructure, while consolidation will seek to achieve a coordinated and uniform use of technology and
systems of the Group, similar to other utilities companies. A combination of generic and sector specific
software is used under license by members of the Group. Management believes that licensing of SAP
enterprise software at Group level as well as implementing a uniform IT system will facilitate the
implementation of the shared data center, as an important part of the Shared Services Centre.
With respect to its main IT related agreements, Group companies have concluded several service and
products supply agreements with various external providers, such as (i) Q’Net International S.A. for
Microsoft Licensing, (ii) S.C. Electrica Soluziona S.A. for IT maintenance services for Open BDI, Open
SGC systems, (iii) S.C. Information Business Consulting S.R.L. for support services related to EMID and
SAP Systems (iv) S.C. Fair Value Com S.R.L. for SAP Licensing; (v) S.C. Focality S.R.L for IBM systems
maintenance; and (vi) Romsys SRL for CISCO equipment maintenance.
One of the priorities of the Group is to use exclusively licensed software. Software licenses have been
purchased at Group level from specific licensors such as Microsoft, Oracle and SAP based on enterprise
agreements and distributed down to each Group company. The Group uses specialized software for
maintenance of the system and the control of licenses such as SAP Solution Manager, Microsoft System
Center Configuration Manager, and Microsoft Windows Server Update Services.
The Group contemplates the replacement of the OPEN —SGC system with the SAP —ISU system,
thus enabling the same utilities system at the Group level for the distribution and supply activities,
simplifying the data exchange process imposed at the moment of separation of the two activities.
For a description of the risks associated with the Group’s IT systems, see ‘‘Risk Factors—Risks Relating
to the Group’s Business and Industry—The Group’s IT systems are outdated and are not integrated’’ and
‘‘—The migration of the Group to a new integrated ERP system may encounter difficulties and delays’’.
Insurance
The Group is substantially self insured. At Group level, Electrica, Electrica Furnizare, EDTS and
Electrica Serv also have in place insurance policies for professional liability of directors and managers. No
such policies are in place for the directors and managers of the other distribution or services subsidiaries.
The business pursued by the Group also carries a number of risks which are not covered by the insurance
policies currently held by the Group.
While no business insurance policy is concluded by any member of the Group, the Group hold
minimal insurance policies required by the law for its vehicles and buildings.
For a description of the risks associated with the Group’s insurance, see ‘‘Risk Factors—Risks Relating
to the Group’s Business and Industry—The Group may be subject to insurance claims for which it has not
adequately made provision’’.
Intellectual Property
Management believes that the Group’s material intellectual property is its brand name. The Company
is the registered owner of two nationally registered trademarks, ‘‘ELECTRICA S.A.’’ (no. 053512) and
‘‘SURSA TA DE ENERGIE’’ (no. 053515) for transmission and distribution of electricity. The registered
trademark ‘‘ELECTRICA SERV’’ (no. 113044) is owned by Electrica Serv, and the registered trademark
‘‘EF ELECTRICA FURNIZARE S.A. CONTACTUL TAU CURENT’’ (no. 125525), is owned by Electrica
Furnizare. The Group operates nine ‘‘.ro’’ domain names. The Group’s management do not consider the
Group’s business to be materially dependent on any patents, designs or other copyright.
187
Legal Proceedings
Members of the Group are a party to various proceedings arising in the ordinary course of their
business. Other than as described below, no member of the Group is involved in, nor is it aware of, any
legal, arbitral or administrative proceedings or governmental investigations that could reasonably be
expected to have a material and adverse effect on the Group’s business, financial condition or results of
operations.
ANAF tax investigation
In the first quarter of 2014, ANAF has performed a tax investigation at the level of Electrica for the
period 1 January 2008-30 April 2013 (or, respectively, 1 January 2007- 31 December 2012 in case of the
profit tax) and the tax authorities preliminarily established supplementary fiscal duties totalling approx.
RON 11.2 million, out of which an amount of approximately RON 9.3 million represents tax on income
obtained from Romania by non-resident legal persons. The remaining RON 1.9 million, represents
additional profit tax and related VAT computed by the fiscal authorities following the audit by
reconsideration of the deductible expenses, as well as further to the correction of accounting registrations
performed by the Company. EDMN is also undergoing a tax audit which commenced on 28 February 2014
in respect of 2008 to 2013. Tax audits are frequent in Romania, consisting of detailed verifications of the
accounting records of tax payers, as well as the tax treatment applied by them for various operations. Such
audits sometimes take place after months, even years, from the date tax liabilities are born. Moreover, tax
legislation is subject to frequent changes and the authorities demonstrate inconsistency in interpretation of
the law. Income tax returns may be subject to revision and corrections by tax authorities, generally within
the statutes of limitation for the relevant tax duty. For a description of the risks associated with this
investigation, see ‘‘Risk Factors—Risks Relating to the Group’s Business and Industry—The Company may
face additional claims from tax authorities for budgetary debts due for previous periods’’.
Electricity purchase contracts with Hidroelectrica
The European Commission has launched investigation no. SA.33451 (2012/C) (ex 2012/NN)
concerning possible breach of State aid rules by counterparties to Hidroelectrica SA under several bilateral
power purchase contracts it concluded between 2004 and 2010 under which it is alleged that Hidroelectrica
sold electricity at prices significantly below market rate. Two of these agreements are concluded in 2010
with Electrica. In accordance with the provisions of Art. 14 of the Council Regulation (EC) no. 659/1999
unlawful State Aid must be recovered from beneficiaries under the contracts. If it is determined that
Electrica has received unlawful State aid, the recovered amount would be calculated as the difference
between the electricity price paid by Electrica under the contracts and the average electricity price in the
relevant period (Management estimates that such amount may be up to approximately RON 30 million),
plus applicable interest up to the recovery date. The recovery rate is obtained by adding 100 basis points to
the base rate as set by the European Commission. For Romania, the base rate during the relevant period
ranges from 9.92 to 3.72 per cent.
Service companies liquidation proceedings
Sindicatul Liber si Independent I.R.E. Timisoara (the ‘‘Timisoara Union’’) filed an opposition with
the Trade Registry to the registration with the Trade Registry of the EGMS decision no. 1/20 December
2013 approving the dissolution and liquidation of SEB, one of the Group’s service companies that is being
liquidated as part of the Reorganisation. Through the opposition request, Timisoara Union has also
requested the annulment of the EGMS decision no. 1/20 December 2013 and payment by SEB of damages
and of relevant legal expenses for this action. The Timisoara Union justified the action by the fact that the
dissolution of SEB would prevent the employees benefiting from their rights. SEB has sent a statement of
defence in response which was registered on 20 February 2014. In its defence, SEB has pleaded a lack of
legal standing of Timisoara Union and that the request is premature and ungrounded. In addition to the
above mentioned opposition, Timisoara Union has submitted with Timis Tribunal a claim for the
annulment of EGMS decision no. 1/20 December 2013. The request was registered with Timis Tribunal on
6 January 2014, being object file no. 23/30/2014. Through this request Timisoara Union has requested the
following: (i) to admit the request, (ii) to acknowledge the absolute voidance of EGMS decision
no. 1/20 December 2013 and (iii) to order SEB to pay the legal expenses. The grounds alleged by
Timisoara Union refer mainly to issues related to the organization of the meeting and issues of opportunity
that have grounded the resolutions passed under EGMS no. 1/20 December 2013. SEB has sent a
statement of defence in file no. 23/30.2014, being registered at Timis Tribunal on 20 February 2014.
188
Through the statement of defence SEB has asked the court to dismiss the request, mainly for the following
reasons: (i) lack of active legal standing of Timisoara Union, (ii) prematurity of the request and (iii) lack of
a real damage.
Sindicatul Liber Independent Energia—Filiala Constanta (the ‘‘Constanta Union’’) filed an
opposition with the Trade Registry to the registration of the EGMS decision no. 5/19 December 2013
approving the dissolution and liquidation of SED, one of the Group’s service companies that is being
liquidated as part of the Reorganisation. Through the opposition request, Constanta Union has requested
the annulment of the EGMS decision no. 5/19 December 2013 on the ground that the liquidation would
prevent employees recovering their compensatory payments in case of dismissal, and ordering SED to pay
the relevant legal expenses for this action. SED has sent a statement of defence in response which was
registered on 20 February 2014. In its defence SED is pleading a lack of legal standing of Constanta Union,
that the request is premature and the lack of the damages alleged. A separate opposition to SED’s
liquidation was filed by COMCM S.A. who also opposed the registration with the Trade Registry of the
EGMS decision no. 5/19 December 2013 requesting the suspension and annulment of that decision on the
grounds that it has an uncontested, liquid and due to pay receivable against SED and its recovery would be
harder if SED were to enter into the liquidation procedure. COMCM S.A. has also requested payment of
the incurred damages and legal expenses.
Sindicatul Electroenergia Piatra Neamt (the ‘‘Piatra Neamt Union’’) filed an opposition with the
Trade Registry to the registration with the Trade Registry of the EGMS decision no. 4/19 December 2013
approving the dissolution and liquidation of SEMO, one of the Group’s service companies that is being
liquidated as part of the Reorganisation. Through the opposition request, Piatra Neamt Union has also
requested the suspension and the annulment of the EGMS decision no. 4/19 December 2013 on the
ground that the liquidation would prevent employees recovering their compensatory payments in case of
dismissal, and ordering SEMO to pay the relevant legal expenses for this action. SEMO has sent a
statement of defence in response which was registered on 20 February 2014. In its defence SEMO is
pleading a lack of legal standing of Piatra Neamt Union, that the request is premature and lack of the
damages alleged. Through its statement of defence SEMO has asked the court to dismiss the request due
to a lack of legal standing of Piatra Neamt Union and a lack of representative capacity of the Achim &
Bulai law firm representing Piatra Neamt Union. Other claims were initiated by certain employees of
SEMO for the annulment of EGMS decision No. 4/19 December 2013 and against the resolution
no. 421/ 16 January 2014 of the Trade Registry based on which EGMS decision no. 4/19 December 2013 of
SEMO was recorded in the Trade Registry and published in the Official Gazette of Romania. SEMO is
defending this claim. The claimants requested, by means of a supplemental claim, that Electrica also
become defendant in the file along with SEMO.
Challenges by Fondul Proprietatea
Fondul Proprietatea, a significant minority shareholder of EDMN, EDTN, EDTS and Electrica
Furnizare has challenged the Group’s Unitary Corporative Governance Strategy that its management is
seeking to implement, arguing that it:
• removes important executive management functions of these subsidiaries and violates OECD
principles regarding corporate governance, the Bucharest Stock Exchange Corporate Governance
Code and the Companies Law;
• results in Electrica committing a series of criminal offences stipulated by Companies Law by
exercising its vote in the relevant subsidiaries’ GMS under a conflict of interest as it would be
undertaking to cast its vote in the GMS for a monetary gain (by rendering the services mentioned in
the agreements with its subsidiaries, such as the analysis and monitoring of expense and revenue
budgets, analysis of reports requested by the shareholders or provided by law, or facilitating the
approval process of the subsidiaries’ initiatives which have to be endorsed within a GMS);
• interferes in EDMN, EDTN, EDTS and Electrica Furnizare’s activities when Electrica and its
subsidiaries are deemed to be vertically integrated operators and are required to be independent in
terms of organization and management under unbundling obligations under the Energy Law;
• results in loss of profits by EDMN, EDTN, EDTS and Electrica Furnizare due to their paying prices
for the services to be rendered by Electrica, and therefore a loss of dividend received by Fondul
Proprietatea;
189
• results in the obligation of EDMN, EDTN, EDTS and Electrica Furnizare to conclude certain type
of service agreements exclusively with Electrica, thus constituting anti-competitive arrangements
sanctioned by the Competition Law;
• results in breaches of EGO 34/2006, considering that the subsidiaries of Electrica are obliged to
apply such regulations when concluding services agreements; and
• is unnecessary for EDMN, EDTN, EDTS and Electrica Furnizare as these functions are already
covered by their internal departments and that this is supported in a Court of Accounts report for
2012.
In conclusion, Fondul Proprietatea has requested Electrica to waive approving the UCGS in the
GMSs of EDMN, EDTN, EDTS and Electrica Furnizare. However, EDMN, EDTS, EDTN and Electrica
Furnizare have approved the UCGS specifying that mandate agreements, services agreements and
representation agreements in relation to the UCGS will be subsequently approved by the relevant boards.
Fondul Proprietatea did not attend the above mentioned GMSs and has demanded in court the annulment
of each GMS decision. Management believe that the founding note underlying EGO 109/2011 considered
a series of objectives, including (i) ensuring the economic performance and economic competitiveness of
public undertakings through the application of basic principles, ensuring the appropriate operation of
private entities, and (ii) a sufficient level of autonomy for managers. At the same time, Fondul Proprietatea
has invoked the OECD principles in the field of corporate governance of public undertakings, regarding
the following (i) determining the coordinating role of the State in public undertakings, (ii) the State
exercising its capacity of shareholder without intervention in the company’s management, (iii) ensuring the
independence of administration and management decisions, and (iv) additional protection and
representation rules for minority shareholders such as cumulative voting and simpler proxy voting
conditions. Although Fondul Proprietatea took formal proceedings for the annulment of the GMS
decisions that approved the UCGS, management believes that the Company has defences regarding the
actions taken by Fondul Proprietatea in this regard.
In addition, Fondul Proprietatea has requested the annulment of EDMN’s Board of Director’s
decision appointing its new general manager. EDMN has challenged the legitimacy of this request in court
and the request was considered inadmissible by both the court of first instance and the appellate court. File
no. 3980/281/2013 having as its object the second appeal of Fondul Proprietatea is currently pending before
the Ploiesti Court of Appeal.
Fondul Proprietatea has also requested in a separate claim the annulment of an EDMN’s GMS
decision appointing its general manager. EDMN has also challenged the legitimacy of this request in court
and the case is currently pending in front of the Prahova Tribunal.
For a description of the risks associated with Fondul Proprietatea’s actions in this regard, see ‘‘Risk
Factors—Risks Relating to the Group’s Business and Industry—Fondul Proprietatea, a minority shareholder of
the distribution and supply subsidiaries of the Group, may seek to block decision making’’.
Tax litigations
Electrica has submitted several complaints against enforcement proceedings initiated by the
Romanian National Agency for Fiscal Administration (ANAF) and requested the cancelation of several
decisions issued by this authority. These decisions impose supplementary tax obligations on Electrica of
approximately RON 64.5 million, representing corporate tax, salary tax and health/social insurance
contributions and accessories to such amounts (delay penalties and/or interest).
Insolvency proceedings
Electrica or its subsidiaries are currently creditor claimants in various insolvency proceedings. As a
result, certain unsecured receivables of these companies may be only partially recovered or not recovered
at all. The total value of the claims of Electrica and its subsidiaries in insolvency proceedings of third
parties is RON 992 million, the amount for which a bad debt allowance was recorded.
Litigation with the Court of Accounts
Decision no. 53/05.12.2013 of the Court of Accounts has ascertained the acquisition by EDTN of
unnecessary services from Electrica and uneconomical expenditures in the relation with this company in
amount of approximately RON 22 million. The court file no. 1499/117/2014 having as object the request of
190
EDTN for the annulment of this decision is currently pending in front of the Cluj Court of Appeal. The
Company has already implemented the measures imposed by this decision.
Decision no. 75/23.12.2013 of the Court of Accounts has ascertained irregularities in the contractual
relations between EDTS and Electrica Serv and EDTS and Electrica resulting in uneconomical
expenditures and illegal payments in amount of approximately RON 40.5 million. The court file
no. 2251/62/2014 having as object the request of EDTS for the annulment of this decision is currently
pending in front of the Brasov Tribunal. The first hearing will be on 26 June 2014.
Decision no. X/40147/2013 of the Court of Accounts has ascertained several irregularities with respect to
the post-privatisation monitoring activities of Electrica with respect to privatisation agreements concluded
by the latter and imposed several obligations on Electrica for remedying such irregularities, determining
and implementing measures to recover the damages caused to Electrica. Electrica has requested
annulment of this decision by the Bucharest Court of Appeal in file no. 5699/2/2013. A request by Electrica
for the suspension of the measures imposed by the Court of Accounts by this decision until final settlement
of the case has already been rejected by the Bucharest Court of Appeal. This litigation file will be taken
over by SAPE and at the hearing of 30 May 2014, the court has granted the plaintiff a term for operating
this substitution. The next hearing will be on 27 June 2014 when Electrica will most probably cease to be a
party to this litigation.
Decision no. X/40194/2012 of the Court of Accounts has ascertained several irregularities with respect to
the post-privatisation monitoring activities of Electrica with respect to privatisation agreements concluded
by the latter and the imposed several obligations on Electrica for remedying such irregularities,
determining and implementing measures to recover the damages caused to Electrica. Electrica has
requested annulment of this decision by the Bucharest Court of Appeal in the court file no. 8335/2/2012.
The Bucharest Court of Appeal has already dismissed both the request for annulment of the decision as
well as the request for suspension of the measures imposed by the Court of Accounts until final settlement
of the case. The decision was appealed by Electrica in front of the High Court of Cassation and Justice.
The next hearing on the suspension of the decision until final settlement of the case will be on 19 June and
the next hearing on the merits of the case will be on 29 January 2015. In implementing the measures
imposed by the Court of Accounts, Electrica has initiated several arbitral proceedings in front of the
International Court of Arbitration under certain privatisation agreements. This litigation, as well as the
arbitration proceedings will be taken over by SAPE.
Decision no. 20/17.06.2013 of the Court of Accounts has ascertained multiple irregularities in the activity
of Electrica Furnizare with respect to: the organisation of the patrimonial inventory, clarification of the
legal regime of the plots of land for which it holds ownership certificates, illegal contractual payments of
approximately RON 500,000, the professional training of employees and the payment of certain salary
rights and uneconomical expenditures in amount of approximately RON 13.9 million based on contracts
concluded with Electrica. The court file having as object the request of Electrica Furnizare for the
annulment of this decision makes object of file no. 5755/2/2013 of the Bucharest Court of Appeal. The
request was rejected almost entirely by decision no. 822/11/03.2014 of the Bucharest Court of Appeal.
Decision no. 32/04.11.2013 of the Court of Accounts has ascertained several irregularities among which,
(i) illegal payments of RON 3,050,065 representing interest paid by Electrica Serv to Electrica on a RON
60,000,000 received from the latter, which exceeds the interest that would have been due if the NBR
reference interest rate is applied, (ii) illegal payments by Electrica Serv in amount of RON 174,294 to
Dorle SRL and in amount of RON 1,999,190 to Beny Alex SRL, (iii) illegal payments exceeding RON
2 million on contracts for various types of works, and (iv) illegal payments of salary rights. The decision
imposed obligations for remedying these irregularities. Electrica Serv has contested several measures
imposed by this decision in the court file no. 368/2/2014 pending before Bucharest Court of Appeal.
Measures referred at items (i) and (ii) above were not contested. On 24 April 2014 the court has admitted
the request of Electrica Serv but only in part. The decision of the Bucharest Court of Appeal can be
appealed within 15 days from its communication to Electrica Serv, which has not yet occurred.
Criminal proceedings
Electrica Serv is a civil (damaged) party in a criminal trial before the High Court of Cassation and
Justice after being victim of a criminal group organised for deceiving the company by sale of Siemens
devices not fulfilling the conformity standards. Through the last court decision enacted so far by the Brasov
Court of Appeal, the defendants were obliged to pay to the Company damages in the amount of
approximately RON 17.7 million.
191
Pecuniary claims against the CFR Group
Electrica Furnizare has filed over time a large number of payment claims and enforcement
proceedings against CFR and its subsidiaries (CFR Group). The claims and enforcement titles resulting
from non-payment of the supplied electricity by Electrica Furnizare to CFR Group were finalized through
the conclusion of the 2014 CFR Settlement Agreement on 25 April 2014, through which CFR Group paid
RON 221 million, representing the value of the energy supplied in 2012-2013, following that approximately
RON 30 million, representing penalties for late payment, will be cancelled when a normative act will be
adopted, in a three-month term, allowing the implementation of such measure.
Other significant litigations
Claims against ANRE
In March 2013 Electrica Furnizare has formulated a claim against ANRE requesting the court to
oblige the authority: (i) to modify the tariff approved by the ANRE Order no. 53/2012 for electricity
delivered to dwellings and assimilated consumers that did not exercise the eligibility right so as to allow the
recovery of losses and profit not obtained due to this tariff and (ii) to pay compensations for the difference
that cannot be covered by the modified tariff. Electrica has evaluated the damages caused by the tariff
approved by the aforementioned ANRE Order at RON 470,596,422, corresponding to the years
2008-2013. The claim was rejected by the Bucharest Court of Appeal and the file is now pending in appeal
in front of the High Court of Cassation and Justice. The first hearing in the appeal trial will be on 3
February 2015.
Order no. 40/2013 has replaced Order no. 53/2012 and in July 2013 Electrica Furnizare has filed a new
claim against ANRE having the same object by referring to the tariff approved by this new order of the
authority. The damages Electrica Furnizare claims to have suffered for the same period 2008-2013 caused
by the tariff approved by ANRE Order 40/2013 are in amount of RON 600,905,871. These damages
include those claimed in the file based on ANRE Order no. 53/2012. The next hearing in this trial currently
pending in front of the Bucharest Court of Appeal will be on 26 June 2014.
Delay penalties claim by Termoelectrica
Termoelectrica claims an amount of RON 25,047,353.32 as delay penalties under electricity
sale-purchase agreements valid between 1 January 2005 - 30 June 2007, which were transferred to Electrica
by its subsidiaries. By decision no. 6576/13.11.2013 the Bucharest Tribunal has dismissed the claim as
ungrounded. This decision may be challenged by appeal within 15 days as of its communication to the
parties, which is still to take place.
Claim by Terradox Solutions contesting the termination of a services agreement
Terradox Solutions requested (i) the cancellation of a contract termination notice served by Electrica
under the framework services agreement no. 132/23.06.2011 (as a consequence of the contractual partners
Terradox Solutions and Orange Media leaving the partnership); (ii) compelling Electrica to continue the
execution of this agreement and the subsequent services agreement no. 138/28.06.2011, and (iii) ordering
the separation of the two agreements for the benefit of the claimant for a ratio of 33.50% of the total value
of the object of the public procurement contract. The value of the litigation is approximately RON
12.5 million. By decision no. 527/07.02.2014, the Bucharest Tribunal rejected the claim of Terradox
Solutions due to its lack of active legal standing apparently caused by the fact that only Orange Media is a
party to the aforementioned agreements and proof of a consortium/partnership agreement between the
claimant and the latter was not made. The decision of the Bucharest Tribunal can be appealed within
15 days from communication to the parties, which is still to take place.
Damages claim by Orange Media
Orange Media requests to be ascertained the abusive termination by Electrica of the framework
services agreement no. 132/23.06.2011 and of the subsequent services agreement no. 138/28.06.2011, and
Electrica to be obliged to pay damages of approximately RON 17 million. The agreement has been
terminated by Electrica as a consequence of the claimant having left the partnership with Terradox created
by this agreement. The Bucharest Tribunal has dismissed the claim of Orange Media as ungrounded by
decision no. 4890/13.06.2013. The decision was appealed by the claimant and, by decision
no. 573/24.02.2014, the Bucharest Court of Appeal cancelled the judgment of the first court due to the fact
192
that this court did not state on the claim regarding the ascertaining of the abusive contract termination and
consequently ordered a re-trial of the case by the Bucharest Tribunal. This case is currently pending before
Bucharest Tribunal.
Land ownership claim
Several individuals claim to be the owners of a plot of land surface of 38,893 sqm, located in Ploiesti,
295 Republicii Blvd., of which EDMN owns approximately 30,000 sqm. Allegedly the claimants obtained
the ownership over the land by acquisitive prescription. The expert appointed by the court has evaluated
this plot of land at RON 19.3 million, of which RON 15.6 million related to EDMN. By decision
no. 3102/12.12.2013 the Prahova Tribunal dismissed the claim as ungrounded. The claimants have appealed
the decision. Currently this case is pending in front of the Ploiesti Court of Appeal. EDMN made a
provision in the amount of RON 15.6 million for this litigation.
Except as specified above, no provisions have been made by the Company for the above litigations or
investigations.
Environmental Matters
The Group’s Management systems in relation to environmental and health and operational safety
matters of its commercial activities are implemented and operated on a standalone basis by each of the
Group’s subsidiaries. The annual capital investment budgets of each of the Group’s subsidiaries include
expenditure for environmental matters.
The Group’s activities are subject to specific environmental laws and regulations impacting its
business. The Group’s activities impact the environment, principally as a result of emissions of noise by
equipment and transformer posts from the transformers’ stations, and secondly, because the Group uses
equipment containing insulating oil with polychlorinated biphenylsor ‘‘PCBs’’, sulphuric acid and other
polluting substances, whose operation is subject to regulation. According to the provisions of the EGO
no. 195/2005 relating to environmental protection (the ‘‘Environmental Protection Law’’), public
environmental protection authorities are empowered to authorise economic activities that impact the
environment. These authorities issue environmental authorisations which are either ‘‘ordinary’’ or
‘‘integrated’’ and which are valid for five years. Environmental permits must be obtained for new public or
private investment projects or for modifications to existing projects, including the transfer or closure of
projects that have a significant impact on the environment. These environmental permits are valid during
the period of the project. Environmental authorities monitor the compliance with granted authorisations
and endorsements, which may be suspended for compliance failures. A company whose authorisations or
permits have been suspended is given up to six months to remedy such non-compliance. During the
suspension period, the company is forbidden from carrying on its activity at the relevant authorised
location. Thereafter, the environmental authority may order the cancellation of the authorisation or permit
and cessation of the activity if the conditions specified in the notification have not been fulfilled. In
addition to compliance with the Environmental Protection Law, the Group is also subject to:
• EGO no. 68/2007 on the environmental liability with respect to the prevention and remedying of
environmental damage to land water and air in the case of pollution event;
• Law no. 104/2011 regarding air quality published in the Official Gazette on 28 June 2011, which
relates to restrictions on atmospheric pollutants and the elaboration of air quality plans;
• Law no. 211/2011 on waste management, published in the Official Gazette on 25 November 2011,
which relates to ensuring a high level of environmental protection and the safety of the public’s
health through management of waste and prevention or reduction of the adverse impact of waste
generation; and
• other specific restrictions relating to package and packaging waste, disposal of waste oils, batteries,
tyres, PCBs and other materials used in the distribution segment’s business.
Compliance with environmental laws and regulations requires, among other things, that the Group
commissions environmental impact studies for some future projects and that the Group obtains licenses,
permits and other authorisations required to conduct its business. As the Group is subject to various
regulations in the area of environmental protection, it may have to bear compliance costs and/or apply for
new environmental permits resulting from environmental regulations becoming more stringent and from
the implementation of best industrial practices. As at the date of this Prospectus, the Group holds all
193
material permits required for it to conduct its business, and Management believes that the Group’s
business is conducted in compliance with all specific environmental regulations. Integrated Quality,
Environment, Occupational Health and Safety management systems certified in accordance with
ISO 9001:2008, ISO 14001:2014 and EN OHSAS 18001:2007 have been implemented in each of the
Group’s subsidiaries.
In addition to the Environmental Protection Law, environmental-related requirements are also
imposed the under Romanian privatisation legislation in the case where a company is undergoing
privatisation. Under Law no. 137/2002 regarding certain measures for privatisation acceleration which was
published in the Official Gazette on 28 March 2002, as further amended and completed, (the
‘‘Privatisation Law’’), a company subject to privatisation must notify the National Agency for
Environmental Protection, and the National Agency for Environmental Protection determines its
environmental obligations and liabilities by means of a letter of notification. Electrica has notified the
National Agency for Environmental Protection on its proposed privatisation, requesting clarification on
the relevant environmental obligations and liabilities of the Group, and a process has been initiated for
determining which members of the Group have environmental obligations that need to be fulfilled in this
regard. Electrica has received from APM Bucuresti a letter confirming that the establishment of
environmental obligations for the Company is not required in the privatisation process.
EDMN, EDTS and EDTN and Electrica Furnizare have also notified the competent environmental
protection agency, in order for the latter to establish the relevant environmental obligations in the
privatisation process. None of the above mentioned companies have been established such obligations,
except for EDMN in respect of compliance with the regulation of the special regime on management and
control of PCBs. Electrica Serv, SISE Transilvania Sud, SISE Transilvania Nord and SISE Muntenia Nord
have notified the competent environmental protection agency for the establishment of environmental
obligations for these subsidiaries. Environmental obligations have been established for the following
agencies: AISE Buzau, AISE Galati, AISE Ploiesti, AISE Targoviste, AISE Focsani, AISE Brasov, AISE
Miercurea Ciuc, AISE Sibiu, AISE Bistrita, AISE Baia Mare, AISE Satu Mare, AISE Cluj, AISE Braila.
The Group’s environmental compliance obligations comprise of mainly the obligation to monitor and
report the quality of wastewater production of monthly reports of waste management, verification of
integrity, wear condition of the sewerage system of wastewater and integrity of existing underground tanks,
contracting with authorised operators for the collection and transportation of waste in order to deliver
them for capitalisation/elimination, and the observation of the provisions of existing environmental
authorisations.
As part of its negotiations with EBRD of a Framework Agreement, the Company contemplates
putting in place an environmental and social action plan.
194
Company Shareholdings
The table below sets out the Company’s shareholdings in other entities as at 31 December 2013:
Entity
Distribution
EDMN . . . . . . . . . . . . . . . . .
Business object
Equity interest
held by Electrica SA
(%)
Other shareholders
Electricity distribution in the
Muntenia Nord area
78
Fondul Proprietatea
EDTN . . . . . . . . . . . . . . . . .
Electricity distribution in the
Transilvania Nord area
78
Fondul Proprietatea
EDTS . . . . . . . . . . . . . . . . . .
Electricity distribution in the
Transilvania Sud area
78
Fondul Proprietatea
Electrica Serv . . . . . . . . . . . .
Network maintenance and repair
100
None
78
Fondul Proprietatea
Supply
Electrica Furnizare . . . . . . . . .
Electricity supply
Services related to external
distribution networks
SEB . . . . . . . . . . . . . . . . . . .
External electricity network
maintenance and repair
100
None
SED . . . . . . . . . . . . . . . . . . .
External electricity network
maintenance and repair
100
None
SEMO . . . . . . . . . . . . . . . . .
External electricity network
maintenance and repair
100
None
SEO . . . . . . . . . . . . . . . . . . .
External electricity network
maintenance and repair
100
None
SEMU . . . . . . . . . . . . . . . . .
External electricity network
maintenance and repair
100
None
Other . . . . . . . . . . . . . . . . . .
Enel Distributie Muntenia . . . .
Electricity distribution in
geographical area of Muntenia Sud
23.57
Enel
Fondul Proprietatea
Enel Energie Muntenia . . . . . .
Electricity supply
23.57
Enel
Fondul Proprietatea
Enel Distributie Banat . . . . . .
Electricity distribution in
geographical area of Banat
24.87
Enel
Fondul Proprietatea
Enel Distributie Dobrogea . . . .
Electricity distribution in
geographical area of Dobrogea
24.90
Enel
Fondul Proprietatea
Enel Energie . . . . . . . . . . . . .
Electricity supply
36.99
Enel
Fondul Proprietatea
E.ON Moldova Distributie . . . .
Electricity distribution in
geographical area of Moldova
27.00
E.ON
Fondul Proprietatea
E.ON Energie Romania . . . . . .
Electricity and gaz supply
3.78
E.ON
Fondul Proprietatea
Ministry of
Economy
Electrica Soluziona . . . . . . . . .
IT systems development
49.00
ISCE S.A.
ISPE S.A.
Romelectro S.A.
Indra Systems S.A.
Hidro Tarnita . . . . . . . . . . . .
Electricity generation
50.00
Complexul Energetic
Hunedoara
Bursa Romana de Marfuri . . . .
Administration of financial
markets
0.5
Kapraras Consulting
S.R.L.
Elba S.A.
and others
For information related to the transfer of the Companies minority participations in the entities above
under the Spin-off, see ‘‘The Reorganisation’’.
195
Property, Plant and Equipment
The Group’s material property, plant and equipment include mainly the distribution assets described
in ‘‘—Electricity distribution network’’ above. The material property, plant and equipment also comprise
our real properties.
The Group uses properties based on various rights (ownership, leasehold transmission easements or
other rights deriving from civil law contracts). In addition, certain of the Group’s ownership and rights of
access to land derive from Romanian legislation on electricity distribution passed in 2003 and subsequently
amended.
However, the Group’s title and/or property rights are not always clear and are affected by third party
rights, such as easements, encumbrances or restitution claims.
Restitution Laws
During the communist regime in Romania (c.1945 - 1989), large portions of real estate assets
(e.g. land, buildings, factories) were transferred to the State by force or under legal decrees. From 1991,
various special restitution laws were passed that were intended to revert title in properties transferred
under such regime to their former owners. The provisions of such special legislation have proven to be
contradictory and in certain cases incomplete and/or vague. Consequently, the rules applied in restitution
procedures may differ between local authorities and this lack of uniformity has resulted in the invalidation
of certain rulings by the Romanian courts.
Under Romanian law (apart from restitution claims filed under procedures provided for by the aforementioned special restitution laws), it is possible for former presumptive owners of properties to make
restitution claims based on the general provisions of the Romanian Civil Code, even if such claims are filed
after the expiry of the terms provided for under the special restitution laws.
The prevalent approach taken by the Romanian courts has been to dismiss such restitution actions if
they do not comply with the procedures under the special restitution laws. However, court practice in the
application of the restitution laws has been subject to scrutiny by the European Court of Human Rights
following several resolutions issued against the State by the European Court of Human Rights.
Currently under Romanian law, real estate restitution claims (claims made by the purported actual
owners of a real estate against persons that hold title over the same) are not subject to the statute of
limitations. Hence, absolute proof of ownership over real estate may only be ascertained beyond any doubt
by following the chain of ownership from the current owner through the previous owners to the owner of
the real estate prior to its acquisition by the State during the communist regime. As a matter of principle, if
any of the transfers within such ownership chain is not valid, it would invalidate all subsequent transfers.
Real estate publicity
Under Romanian laws, the current real estate publicity system has two purposes: (i) to register the
ownership title in relation to a property, and (ii) to inform interested third parties of any legal rights over
and in respect of and the legal status or condition of, the relevant property. Real estate transfers,
mortgages, concessions, leases, as well as any other legal rights over or in respect of real estate, must be
registered with the land registry in respect of the relevant real estate in the relevant administrative unit.
While the failure to register the ownership title in the land registry does not invalidate such title, third
parties are not deemed by law to have notice of such title, nor the legal rights over and status of the real
estate in question. However, Romanian law regarding the effect of the registration in the land registry has
changed pursuant to the New Civil Code, change which will come into force once the cadastral works are
finalised within each administrative unit within Romania. Once effective, these provisions of the New Civil
Code will mean that ownership right and other real rights over real estate will only be acquired upon the
registration date in the land registry.
Ownership certificates and related share capital increase
Pursuant to Romanian laws passed in 1990 and 1991, ownership certificates were issued in respect of
real estate assets used by a State-owned company in the performance of their activities. Such certificates
are issued and contributed to the relevant State-owned company in return for an issue and allotment of
shares. The process of issuing all of the Group’s ownership certificates and the subsequent share capital
increases is ongoing and shall continue after completion of the Offering.
196
Considering that the contribution method provided by Government Ordinance no. 31/2004 is
uncommon as compared to the method applied to other privatised companies, several risks may derive
from its implementation.
The procedure of the share capital increase with the value of the lands for which ownership
certificates have been obtained, as provided under the Romanian privatisation regulations, is not yet
finalised. Consequently, the share capital of the Company shall be automatically increased by operation of
law with the value of the relevant plots of land for which the Company obtains the relevant ownership
certificates after the Offering or, for which it obtained the certificates before the Offering, but for which it
did not increase its share capital.
For a description of the risks the Group faces with respect to real estate matters, see ‘‘Risk Factors—
Risks Related to the Group’s Business in Industry’’: ‘‘The Group may face risks associated with restitution
claims with regard to certain real estate properties’’, ‘‘Ownership title over certain real estate properties owned by
members of the Group may be deemed uncertain’’, ‘‘Share capital increases resulting from State land
contributions may result in the State holding more than 50% of Electrica’s shares’’, ‘‘Members of the Group
may not have valid legal title for the lands on which the network or the network infrastructure they operate is
located’’ and ‘‘Share capital increases in the Company from in-kind contributions of real estate may be voided.’’
197
BOARD AND MANAGEMENT
Board of Directors
The Company is a joint-stock company having a management structure organized in a one-tier system.
The Board of Directors, a one-tier management board, comprises executive members (the ‘‘Executive
Directors’’) and non-executive members (the ‘‘Non-Executive Directors’’). The members of the Board are
appointed and revoked by the general meeting of shareholders. The Board of Directors elects one of its
members as chairman of the Board of Directors. The members of the Board of Directors can be appointed
for a term that cannot exceed four years.
The process for the appointment of the current Board of Directors has been carried out by the
Company pursuant to the provisions of EGO No. 109/2011 regarding corporate governance in State-owned
enterprises. In this respect, the Ministry of Economy acting through the Department for Energy carried
out a complex selection procedure, following principles and regulations derived from the general
applicable provisions of the Companies’ Law and the EGO No. 109/2011 regarding corporate governance
in State-owned enterprises. For the purpose of appointing the Company’s Board of Directors, the
candidates proposed for these positions were selected by an independent expert, considering that the
Company met the following cumulative conditions; (i) its turnover for the previous year exceeded the
RON equivalent of EUR 7,300,000; and (ii) it had at least 50 employees. Currently, the Board of Directors
comprises four (4) members appointed by the shareholders’ meeting in June 2013, following the selection
procedure; in February 2014 one position became vacant and, through the Board Decision no. 9/2014, a
new interim director was appointed until the completion of a new selection procedure according to the
EGO No. 109/2011 regarding corporate governance in State-owned enterprises.
The purpose of EGO No. 109/2011 is to set forth the corporate governance rules applicable to Stateowned companies, from the appointment of the members of the Board of Directors to establishing rules
regarding the transparency of the annual financial statements and the companies’ decisions to the
shareholders. Additionally, it sets out certain measures for guaranteeing the transparency and
objectiveness of the process for selecting the management and the members of the boards of directors of
such companies, as well as ensuring the professionalism and the responsibility of the management teams.
According to the provisions of EGO No. 109/2011, the Board of Directors may include a maximum
number of two members selected from among public officers or other categories of personnel within public
authorities or institutions. Mr. Marius Eugen Untescu is currently public officers working within the
Ministry of Economy.
Ethical codes were implemented at Group level (except for services branches), regulating the values,
principles and norms of ethical conduct to be observed. Such principles include integrity, loyalty towards
the company and clients, as well as compliance with the law. Such codes are applicable to employees,
seconded personnel, collaborators, management and include anti-corruption rules, such as prohibition of
conflicts of interests, obtaining of personal benefits by using the reputation and facilities of the company,
transparency in relation with the authorities and independency in performing their attributions.
In addition, the Company intends to comply with the recommendations set forth in the Bucharest
Stock Exchange Corporate Governance Code (the ‘‘BSE Corporate Governance Code’’) following listing
on the Bucharest Stock Exchange. Companies admitted to trading on the regulated market of the
Bucharest Stock Exchange adopt and comply with the provisions of the principles and recommendations of
the BSE Corporate Governance Code on a voluntary basis. The principles and recommendations address
share and other financial instruments holders’ rights, roles and duties of the Board of Directors and
composition of the Board.
The members of the Board of Directors, who have been appointed following the selection procedure
in accordance with the applicable legal provisions through the decisions of the general meeting of the
shareholders no. 40 dated 21 June 2013 and no. 5 dated 13 February 2014 except for the interim member,
198
appointed through the decision of the Board of Directors no. 9/2014 until the selection of a new member
for the vacant position, are the following:
Name
Date of birth
Ioan Rosca . . . . . . . . .
Marius Eugen Untescu .
Niculae Plesa . . . . . . . .
Constantin Dinescu . . .
Rares Ion Popescu . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
19
13
18
22
29
March 1962
October 1962
June 1967
July 1977
August 1978
Position
General Manager, Executive Director
Member, Non-Executive Director (Chairman)
Member, Non-Executive Director
Member, Non-Executive Director
Member, Non-Executive Director (interim)
The place for the performance of the directors’ mandate is the Company’s headquarters, or the place
where they act as representatives of the Company. The Company may change the place for the
performance of such mandate.
Mr. Ioan Rosca is the general manager of Electrica since May 2012. Prior to holding this position, he
has worked as chief executive officer of Electrica Distributie Transilvania Sud for five years and of
Electrica Transilvania Sud, the distribution and supply company for the Transilvania Sud region, for three
years. He joined the predecessor company of Electrica in 1991, assuming various positions and with
increasing responsibilities, gaining experience in both the distribution and supply sector. Mr. Rosca has a
PhD in electrical engineering from the Transylvania University of Brasov, a post-graduate professional
diploma in management from the Open University UK and has graduated in electromechanics and
electroenergetics from the Faculty of Electrotechnics, Transylvania University of Brasov.
Mr. Marius Eugen Untescu is the chairman of the Board of Directors. He has been with Ministry of
Economy, the Energy and Environmental Division since 1992, last as director. He also worked as an
engineer for Hidroconstructia SA between 1988 and 1992. Since 1996 he has been member of the
supervisory board or board of directors for CE Oltenia, CE Craiova, and Termoelectrica. Mr. Untescu has
graduated in hydro-energetics from the Faculty of Energetics, Bucharest Polytechnic University and holds
a post-university degree in management of public institutions from the Bucharest Academy of Economic
Studies.
Mr. Nicolae Plesa is member of the Board of Directors. He was also vice president of commercial
operations and marketing department for RCS&RDS (telecom) since 2009 to 1 November 2013. Prior to
holding these positions, he was general manager for InfoGate Telecom (2004-2009), 2k Telecom
(2004-2006) and business consultant for EBRD (2002-2003). He also occupied different management
positions in the telecom business sector since 1992. Mr. Plesa has graduated in automatic control and
computers from the Faculty of Automatic Control and Computers, Bucharest Polytechnic University and
holds a post-university degree in management from the same university
Mr. Constantin Dinescu is member of the Board of Directors and advisor to the general manager of
Metrorex SA (Bucharest Metro Company) since 2012 to present. Prior to holding these positions, he was
general manager for Metrorex SA (2011-2012), general manager of Clean Earth Solutions (waste
management) and Global Resources (IT) (2005-2012) and personal advisor for the Ministry—General
Secretary of the Government (2001-2005). Mr. Dinescu has graduated in management from the Bucharest
Academy of Economic Studies.
Mr. Rares Ion Popescu is the interim member of the Board of Directors. He is also an advisor to the
Minister, Ministry of Economy—Department for Energy since January 2014 to present. He also worked
for EDTS and its predecessor Electrica Transilvania Sud between 2005 and 2014. His most recent positions
in EDTS were Head of Energy Inspection Department and Head of PR, Regulator Relations and
Customer Protection. Mr. Popescu has graduated in electrical engineering and computer science from the
Faculty of Electrical Engineering and Computer Science, Transylvania University and he has a master’s
degree in energetic management.
Consultative Committees constituted within the Board of Directors
There are currently four consultative committees organised at the level of the Board of Directors:
(i) the nomination and remuneration committee, (ii) the audit committee, (iii) the strategy and
development consultative committee, and (iv) the management of ownership and privatisation committee.
The nomination and remuneration committee has the following duties: to prepare proposals for the
implementation of a transparent, ethical and efficient corporate governance system, to ensure (i) efficient
and well-balanced roles and responsibilities for the members of the Board of Directors, (ii) transparency
199
and accuracy in supplying all information to the Company’s shareholders and other third parties, and
(iii) an ethical attitude and integrity of the members of the Board of Directors, managers and employees;
to submit proposals for the positions as members of the Board of Directors, and prepare and submit the
selection procedure for the candidates to the positions of executive officers and for other managerial
positions; to assess the personal and professional skills of the members of the Board of Directors,
managers and other individuals holding management positions; to assess the training requirements for
personnel holding managerial positions; to prepare the policy for the remuneration of directors, managers
and individuals holding managerial positions; and any other duties as per the applicable law. According to
the Emergency Government Ordinance no. 109/2011, the nomination and remuneration committee shall
be formed of non-executive directors. Currently, it comprises three non-executive and independent
directors, one of them being the chairman of the board.
The audit committee has the following duties: to assist managers of the Company to perform their
duties in connection with financial reporting, internal audit and financial control, as well as supervising the
credibility and integrity of the financial information reported by the Company; to approve the annual plan
of the internal audit, analyse the internal audit reports and propose solutions in connection with any
identified shortcomings; and to monitor the independence and correctness of the internal and external
financial auditors. Currently, the audit committee has two members being non-executive and independent
(one having relevant financial experience).
The strategy and development committee has the following duties: to monitor and adjust the
Company’s strategy to reflect evolving macro and micro drivers, by assisting the Board in relation to the
preparation and update of the Company’s general development strategy; reviewing the opportunities
identified in relation to the business development and issuance of recommendations to the Board;
monitoring the fulfilment of the strategic and action plans; and monitoring and reviewing the achievement
of the Company’s economic and financial performance goals. Currently, it comprises two members, one of
them being the General Manager of the Company.
The management of ownership and privatisation committee has the following duties: (i) to manage in
a more efficient manner its shareholdings, depending on the nature of their activity, in view of: increasing
the business efficiency, implementing unitary management techniques, enacting measures to efficiently use
the resources and optimize costs, coordinate the major investment processes, increasing the attractiveness
for and value of sales; and (ii) to undertake integrated management of preliminary activities and measures
prior to listing on the stock exchange. It comprises three members, including the chairman of the board.
The current members of the nomination and remuneration committee are Marius Eugen Untescu,
Niculae Plesa and Rares Ion Popescu, the current members of the audit committee are Niculae Plesa and
Constantin Dinescu, the current members of the strategy and development committee are Ioan Rosca and
Niculae Plesa and the current members of the management of ownership and privatisation committee are
Marius Eugen Untescu, Constantin Dinescu and Rares Ion Popescu.
Corporate Governance Action Plan
The Company intends to implement a corporate governance action plan (the ‘‘Corporate Governance
Action Plan’’) within 6 months as of the admission to trading of the Company’s shares, to enhance the
Company’s corporate governance principles, set out below. The Company is also currently in advanced
negotiations with EBRD with a view to conclude a Framework Agreement regarding a corporate
governance action plan in line with such principles:
Independent Directors
The Company shall seek to ensure that the board of directors shall have 5 directors, out of which the
State can only propose 2, while the other 3 candidates must be independent and non-executive in
accordance with best practices, the BSE Corporate Governance Code and Companies Law and can only be
proposed by the other shareholders of the Company (i.e. excluding the State). At least one of such
independent and non-executive directors will be selected through an international reputable executive
search agency. In all cases, independent non-executive directors shall not be and have not been in the last
5 years state or local government officials. Independent non-executive directors shall possess the relevant
expertise and qualification according to the scope and responsibilities of the board and the committees
where they sit. The nomination of all directors, including the independent non-executive directors shall be
done pursuant to a nomination policy in line with best practices and subject to any limitations imposed by
law. The Company’s annual report shall clearly identify who the independent non-executive directors are
200
and state the grounds (i.e., the negative criteria established by law or by the BSE Corporate Governance
Code) and the positive circumstances upon which they are considered independent (e.g., explaining how
they have acted independently from the executives, to ensure that the interests of all shareholders are
properly protected—for instance—in relation to financial reporting and internal control). The nomination
of all directors to shareholders shall be accompanied by a statement attesting each director’s independence
(if relevant), integrity, expertise and qualification and explaining how the proposed director is adding value
to the work of the board and of the committees.
Nomination and Remuneration Policies
The Company shall seek to adopt, following the recommendation of the Nomination and
Remuneration Committee, adequate nomination and remuneration policies, in line with best practices. In
particular, as mentioned under ‘‘Independent Directors’’ above, the nomination policy shall provide that the
search for ‘‘at least one’’ candidate to the board shall be undertaken by international reputable executive
search agency according to appropriate qualification and independence requirements clearly set in
advance. Subject to any limitations imposed by law, the remuneration policy shall ensure that the
remuneration of directors is in line with the market, and aligned to prudent risk taking and long term
interest of the Company. In particular, it is foreseen that the remuneration of each director shall be made
by a fixed part and a variable part. The variable part of the directors’ remuneration shall be linked to the
director’s achievement of specific objectives and to the Company’s performance. However, in order to
preserve the independence of the independent non-executive directors, it is foreseen that their variable
compensation shall not be linked to the Company’s performance, but it shall be determined in an
independent manner and commensurate with their key role in the Company.
Board Committees
The Company shall seek to strengthen the functions and responsibilities of its Audit Committee and
the Nomination and Remuneration Committee by making sure that they are made at least by a majority of
independent non-executive directors. The General Manager/CEO (in Romanian: directorul general) and
executive directors cannot be members of the Audit Committee and of the Nomination and Remuneration
Committee. The frequency of meetings of the committees, the attendance by their members (in person or
in absentia) and a summary of the significant issues dealt with by the committees shall be included in the
Company’s annual report. Independent non-executive directors shall chair the committees. All members of
each committee shall possess the relevant expertise and qualification according to the scope and
responsibilities of the committees. The Audit Committee shall also be in charge of reviewing the
Company’s risk appetite and risk position and to review related party transactions. The Nomination and
Remuneration Committee shall be in charge of the development of a nomination policy and a
remuneration policy and their implementation.
Internal Control Framework
The Company shall seek to ensure that the internal control framework and internal audit function are
set in accordance with international best practice (e.g., ‘‘International Standards for Professional Practice
of Internal Auditing’’ as established by the Institute of Internal Auditors or similar professional standards).
In particular, the Company shall seek to ensure that its internal audit function (i) operates independently,
(ii) reports directly to the Audit Committee, and (iii) performs its activities on the basis of the audit plan
approved by the Audit Committee. The internal audit function shall report quarterly to the Audit
Committee on the implementation of the audit plan.
Company’s Articles of Incorporation
The Company shall seek to ensure that the Articles of Incorporation of the company is amended in
order to (i) strengthen minority shareholders protection and equal treatment of shareholders
(e.g., cumulative voting); (ii) establish a super majority of 55% of the total voting rights for both the first
and subsequent convening for certain defined issues (i.e. changes to the Articles of Incorporation,
eligibility and independence criteria for the Board members, investment projects of the Company over
Euro 30,000,000 for this decision the prerequisite shall apply only at first calling, appointment of financial
auditor, annual investment plan consolidated at group level (CAPEX plan), mergers, the corporate
governance strategy of the Company, including the corporate governance action plan and donations
exceeding EUR 50,000 per deed or any donation which, together with the previous ones, exceeds during
one year the threshold of EUR 1,000,000); (iii) establish that the State can only propose 2 nominees, while
201
the other 3 nominees can only be proposed by the other shareholders; (iv) requiring the company to
develop and publish a dividend policy; (v) establish that the Board will be called by the chairman at the
request of one independent non-executive director, upon the chairman’s approval for such calling, which
will not be unreasonably withheld; if the chairman withholds such approval, he will explain the reasons for
such refusal in the Board of Directors’ meeting, and (vi) establishing a corporate secretary function for the
board and the committees in line with best practices (e.g., ICSA Guidance on Corporate Governance Role
of the Company Secretary).
Most of these principles have already been implemented by the Company through the GMS decision
No. 9 of 10 June 2014, approving amendments to the articles of incorporation, which would enter into
force only once the Closing of the Offering occurs (the ‘‘New Articles of Incorporation’’) which may be
inspected on the Company’s website at: www.electrica.ro.
Clear Lines of Responsibility and Accountability
The Company shall identify and map the key functions and businesses in the Company and its
subsidiaries and seek to establish clear reporting and accountability lines between these functions,
businesses and the Board. The Board of Directors and the committees shall approve in advance at
beginning of each year the calendar of their meetings so as to ensure regular reporting from each of the
identified key functions and businesses.
Code of Conduct
The Company shall seek to introduce/strengthen its code of conduct to be substantially in line with
requirements of the BSE Corporate Governances Code and any other codes pertaining to exchanges
where the securities of the Company are listed to the extent these do not conflict with the BSE Corporate
Governance Code. In particular, the code shall include provisions aimed at (i) introducing a yearly board
evaluation in line with best practices; (ii) ensuring that the board and senior management receive proper
induction and regular training on key issues related to corporate governance and other key issues related
to the company’ business and board/management activities; (iii) ensuring that board members have an
adequate D&O insurance; (iv) ensuring that the chairman of the board and the CEO are separate;
(v) preventing legal and regulatory violations and introducing a whistle-blower function; (vi) fostering
employee loyalty and retention; (vii) building strong relations with suppliers and other business partners;
(viii) strengthening trust and respect of stakeholders; and (ix) building a strong reputation for integrity in
line with best practice.
Further, the Company shall take all necessary steps to ensure that the code’s provisions are
implemented in practice by, among other things, the appointment of a dedicated senior officer to monitor
the implementation of the code. Such officer shall regularly report directly to the Board of Directors and
include a note on the code’s implementation in the Company’s annual report.
Within a maximum of 60 days as of registration of the share capital increase with the Central
Depositary, a GSM shall be convened for the nomination of the new Board based on the above methods
and principles.
202
Management
Pursuant to the decision of the Board of Directors no. 24 dated 5 July 2013, the Board of Directors
has appointed Mr. Ioan Rosca to the position of general manager of the Company. The main duties of the
general manager are set out in the regulation regarding the organisation and the functioning of the
Company, which are completed accordingly by the provisions of the mandate agreement concluded
between the Company and the general manager, and which have been delegated to him by the Board of
Directors, respectively:
• to ensure the Company’s business leadership, coordination and control regarding the use of
financial, material and human resources in order to achieve the objectives and criteria established
by the mandate agreement;
• to implement the decisions of the Board of Directors, in established deadlines;
• to ensure monitoring the provisions / indicators of revenue and expenses budget; and
• to ensure the management and operation of the Company as well as administration and
organisation of the Company’s activity in accordance with the Company’s Articles of Incorporation.
In addition to the above, the general manager has also been delegated with certain representation
powers, as follows: representing the Company before third parties with respect to issuing and concluding
legal acts and representation before judicial authorities.
The members of the Company’s management, who have had powers delegated to them by the Board
of Directors, are:
Name
Ioan Rosca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date of birth
Position
Name and Address of the
Employer
19 March 1962
CEO
Electrica S.A.
For details regarding Mr. Ioan Rosca’s experience please see ‘‘—Board of Directors’’ above.
203
Senior Officers and Key Employees
The senior officers and key employees who are not part of the management as regulated by the
Companies Law, and, therefore, do not have delegated powers from the Board of Directors, are:
Name
Date of birth
Position
Name and Address of the
Employer
Angelescu RamiroRobert Eduard
12.10.1979
Deputy Executive
Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Dumbrava Ioan
26.10.1966
Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Petre Marin
06.07.1958
Deputy Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Geanta Marian
15.10.1952
Deputy Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Marin Emilia - Elena
14.12.1974
Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Popescu Borislavschi
Alexandra Romana
Augusta
23.02.1979
Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Crisan Mariana
26.03.1961
Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Pindichi Valentin
Cosmin
07.12.1971
Deputy Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Armenecea GabrielMihai
23.09.1950
Head of budgets, cost
centers, economic
analysis and
compensation service
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Panduru Gabriela
16.05.1961
Head of accounting
department
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Bulumacu Raluca
02.04.1979
Head of investors
relationships and
corporate
communication
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
204
Name
Date of birth
Position
Name and Address of the
Employer
Stan Corneliu
01.09.1950
Deputy Manager
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Silvas Ioan
01.10.1951
Professional Counsellor
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Andruhovici Stefania
09.01.1980
Chief of the Legal and
Contentious
Department
Electrica S.A.,
headquartered in
Bucharest, 9 Grigore
Alexandrescu, District 1
Professional biographies
Ms. Alexandra Borislavschi has been the managing manager of corporate finance and governance
since February 2014. Prior to holding this position, she worked as deputy chief financial officer & head of
corporate affairs since June 2013 and has previously worked for BRD Corporate Finance (part of Groupe
Societe Generale), having eight years experience in corporate and investment banking, being involved in a
broad range of advisory and mergers & acquisitions mandates in energy generation, distribution and
trading. Mrs. Borislavschi graduated in business administration from the Bucharest Academy of Economic
Studies and holds a master’s degree in finance and controlling from University of Orleans.
Mr. Ramiro Angelescu has been deputy executive manager since August 2013. Prior to holding this
position, he worked as vice president with State Undersecretary rank within the National Public
Communal Utilities Services Regulatory Authority (ANRSC). Mr. Angelescu holds an engineering
diploma from the Bucharest Polytechnic University and is a law graduate from the University of Bucharest,
the Faculty of Law. He also holds a master’s degree in radioprotection and nuclear security from the
Faculty of Energetics, Bucharest Polytechnic University.
Mr. Ioan Dumbrava has been operations manager since August 2012. Prior to holding this position, he
worked as employee of Electrica and its subsidiaries from 1990, holding the positions of electrician, head
of office and head of service. He has been a member of the board of directors of al SC Alt Univers
Company 2002 for five years. Mr. Dumbrava has an engineer’s degree from the Faculty of Electrotechnics,
Transylvania University of Brasov and a master’s degree in human resources management of the Faculty of
Management, Bucharest Academy of Economic Studies.
Ms. Emilia-Elena Marin has been economic manager since February 2014. Prior to holding this
position, she worked as economy and corporate affairs director, chief financial, fiscal service. She in the
energy field since graduating from university, being employed as an economist by the companies RENEL,
CONEL and Electrica. Mrs. Marin has graduated from the Faculty of Finances, Insurance, Banks and
Stock Exchanges from the Bucharest Academy of Economic Studies, with a master’s degree in European
economics and finance.
Mr. Pindichi Valentin Cosmin has been deputy manager of human resources, management control
and communication since February 2013. Prior to holding this position, he worked in different positions
within the Group, such as chief of the control service general inspection, chief executive officer of Servicii
Energetice Dobrogea, director of SISE Electrica Dobrogea and president of the board of directors of
Servicii Energetice Dobrogea / Servicii Energetice Moldova and has 19 years of work experience within the
energy sector, all within Electrica, and seven years of top management experience within the Electrica
Group. Mr. Pindichi graduated from the Faculty of Energetics, Bucharest Polytechnics University, having a
master’s degree in international financial banking relations from the Romanian Arts and Science
University Gheorghe Cristea of Bucharest.
Mr. Marin Petre has been deputy operations manager since June 2013. Prior to holding this position,
he was the director of development of the National Company Posta Romana, Bucharest Regional
Direction, and administrative director of SC Victoria International S.A. Mr. Marin has faculty studies and
a master’s degree.
205
Mrs. Mariana Crisan has been manager of human resources, management control and the
communication direction since February 2014. Prior to holding this position, she was head of performance
indicators service within Electrica Furnizare and has 30 years’ experience in the energy sector, working in
the Electrica Group for almost ten years, within the investments and human resources services.
Mrs. Crisan has graduated in electromechanics and management.
Mr. Marian Geanta is operations manager director within Electrica and is the president of the board
of directors of Electrica Distributie Transilvania Sud. Prior to holding this position, he worked as
development director and as chief of the development and network analysis studies department.
Mr. Geanta Marian has a degree in technical studies, having an electroenergetician engineering diploma
from the Polytechnic University of Bucharest.
Mr. Corneliu Stan is deputy manager of Electrica. Prior to holding this position, he worked as
marketing director of SD Ilfov and as director of the commercial operations department, director of the
analysis and general control department, director of the maintenance and energetical services department,
director of the maintenance and energetical services divison, chief executive and deputy director-general
within Electrica. Mr. Stan Corneliu graduated from the Faculty of Electrical Engineering of the
Polytechnic University of Bucharest.
Mr. Ioan Silvas has been a professional counsellor in Electrica SA since June 2013. Prior to this this,
he was a manager of the electricity sale department, manager of the technical-development department,
general manager of EDMN’s predecessor, branch manager of EDMN’s predecessor, marketing manager in
Electrica’s predecessors. Mr. Silvas has 35 year’s experience in the electricity filed. Mr. Silvas has a PhD in
technical science, electricity, a masters degree in financial-banking management and graduated from the
Bucharest Polytechnic University—Faculty of Electro-Energetics.
Mr. Gabriel Mihai Armenecea has been the head of the Budgets, Cost Centers, Economic Analysis
and Compensations Service since 2013. He has been an employee of Electrica for eight years and held
positions of head of office and head of service within the same department. Prior to this, he worked in the
line ministry (for a period of 8 years), beginning as inspector and finishing as a deputy manager and in
Distrigaz Sud (currently GDF Suez) for a period of 9 years, beginning as economist and finishing as head
of service. He graduated the Bucharest Academy of Economic Studies.
Ms. Gabriela Panduru has been the head of accounting department since November 2013. Prior to this
position she worked in the accounting department of Electrica since 2008, while before she was the head of
accounting department and patrimony at the subsidiary Electrica Oltenia (1991-2007). She worked for
Electrica and its predecessors from 1985. She graduated from the Finance-Accounting Faculty of the
Bucharest Academy of Economic Studies and has a masters degree in accounting audit and counseling.
Ms. Raluca Bulumacu is head of investor relations and corporate communications. She joined
Electrica in September 2013 as Head of Privatisation. Prior to joining Electrica she was the VP of
Operations of a software localization company and CEO of its Romanian Branch for 6 years and was
responsible for client relations, compliance and project management and coordinated clients, suppliers and
subordinates in more than 30 countries. She previously worked as a software localization project manager
for the same USA company, and before that worked for the German branch of a Romanian company.
Ms. Bulumacu graduated in Computer Science for Business from the Bucharest Academy of Economic
Studies, Cybernetics, Statistics and Economic Informatics Faculty.
Mrs. Andruhovici Stefania is a bachelor of laws with a master’s degree in business law, holding the
position of chief of the Legal and Contentious Department within Electrica from 9 April 2014. She has
11 years’ experience in the legal field. Also, she was a member within the board of directors of companies
in the transport field.
From the information currently available in the Company, there are no family relationships between
any of the members of the Company’s Board of Directors, the general manager and/or senior officers.
206
Positions held by the Board of Directors and Senior Officers
In addition to their directorships of the Company, the Company’s directors, the general manager and
the senior officers hold, or have held within the past five years, the following directorships:
Name
Rosca Ioan . . . . . . . . . . .
Popescu Ion Rares . . . . . .
Entity
Position
FDEEE Electrica Distributie
Transilvania Sud
FDEEE Electrica Distributie
Transilvania Sud
FDEEE Electrica Distributie
Muntenia Nord
Electrica Furnizare
FISE Electrica Serv
Electrica SA
Ministry of Economy
FDFEE Electrica
Disteributie Transilvania Sud
SC FFEE Electrica
Furnizare Transilvania Sud
Position currently held
(Yes/No)
Director
YES
General Manager
NO
Director
YES
Director
Director
General Manager
YES
NO
YES
Professional Counselor
YES
Head of Energy
Inspection Department
NO
Head of Public relations,
Regulator Relations and
Costumer Protection
NO
Head of department and
Manager
Director
YES
NO
Director
NO
Vicepresident of
Marketing and
Commercial Operations
Director
NO
YES
Director
YES
General Manager
Counselor
Director/General
Manager
Director/General
Manager
Director
YES
Electrica SA
Deputy General Manager
YES
Electrica SA
SEO
SEMU
FDEE Electrica Distributie
Transilvania Nord
SC Alt Univers Company
2002 SA
Manager
Chairman of BoD
Chairman of BoD
Director
YES
YES
YES
YES
Director
NO
Petre Marin . . . . . . . . . . .
Electrica SA
Deputy Manager
YES
Geanta Marian . . . . . . . .
Electrica and its subsidiaries
Electrica and its subsidiaries
FDEE Electrica Distributie
Transilvania Sud
FDEE Electrica Distributie
Transilvania Sud
Manager
Deputy Manager
Director
NO
YES
NO
Chairman of BoD
YES
SISE Electrica Dobrogea SA
SEMO
Electrica SA
Electrica SA
General Manager
Director
Head of department
Deputy Manager—
NO
NO
NO
YES
Marius Eugen Untescu . . .
Department for Energy
Complexul Energetic
Craiova
CEZ
Plesa Nicolae . . . . . . . . . .
RCS&RDS SA
SC Global Fiber
Communications SRL
SC Powerfull Connections
EOOD
Dinescu Constantin . . . . .
SC Metrorex SA
SC Zebra Terminals SA
SC Global Resources
SC Clean Earth Solutions
Romania
Angelescu Ramiro-Robert
Eduard . . . . . . . . . . . .
Dumbrava Ioan . . . . . . . .
Pindichi Valentin-Cosmin .
207
NO
NO
YES
Name
Entity
Alexandra Romana
Augusta Popescu
Borislavschi . . . . . . . . .
Position
Position currently held
(Yes/No)
Electrica SA
Electrica SA
SEO
Deputy Manager
Manager
Director
NO
YES
YES
Crisan Mariana . . . . . . . .
Electrica Furnizare
Electrica SA
Head of department
Manager
NO
YES
Marin Elena-Emilia . . . . .
Electrica
Electrica
SED
Electrica
Electrica
Electrica
SEB
E-On Moldova Furnizare
Head of department
Manager
Director
Deputy General Manager
Project manager
Deputy manager
Director
Director
NO
YES
NO
NO
NO
YES
NO
NO
Stan Corneliu . . . . . . . . .
Silvas Ioan . . . . . . . . . . .
Remuneration of Members of the Board of Directors and Senior Officers
The members of the Board of Directors receive remuneration established in accordance with the
EGO no. 109/2011 concerning the corporate governance of State-owned enterprises, namely:
• The fixed monthly allowance of non-executive members cannot exceed the last twelve months’
average of the average monthly gross salary in the industry where the Company operates, as
communicated by the Romanian National Institute for Statistics prior to the appointment.
• Generally, the remuneration of the members of the Board of Directors is established under the
management contract and the resolutions of the GMSs.
• The remuneration of the members of the Board of Directors consists of a fixed monthly allowance
and a variable component consisting of a form of remuneration based on performance objectives
and indicators approved in the management plan.
• The fixed monthly allowance of the executive members (the general manager) cannot exceed six
times the last twelve months’ average of the average monthly gross salary in the industry where the
Company operates, as communicated by the Romanian National Institute for Statistics prior to the
appointment.
The fixed remuneration of the members of the Board of Directors determined as stated above, is
payable monthly as from each director’s respective appointment to office.
According to EGO no. 79/2008 on economic and financial measures within certain undertakings, the
remuneration of the State’s representatives in the management bodies of the companies which capital is
totally or partially State-owned could not exceed 1% of the remuneration of the general manager;
otherwise the management agreements would have terminated by operation of law. EGO no. 79/2008 was
repealed as of 1 September 2013 by EGO no. 26/2013 on the strengthening of financial discipline within
certain undertakings in which the State or State units are sole or majority shareholders or hold, directly or
indirectly, a majority participation. The management agreements of the members of the Board of
Directors were executed on 6 September 2013 and were registered by the Company as follows
(i) no. 27/06.09.2013 for Mr. Marius Eugen Untescu, (ii) no. 29/06.09.2013 for Mr. Niculae Plesa,
(iii) 30/06.09.2013 for Mr. Constantin Dinescu, and (iv) no. 31/06.09.2013 for Mr. Ioan Rosca, mentioning
that after the delegation of the Company’s management to Mr. Ioan Rosca the mandate agreement
no. 32/03.10.2013 was executed, becoming executive director.
208
The table below presents the remuneration and benefits granted to the Board of Directors members
of Electrica for 2013:
Gross Remuneration for 2013 (RON)
Fixed
Variable
Name
component Component
Ioan Rosca . .
1,003
0
Marius Eugen
Untescu . . . .
22,433
10,636
Niculae Plesa
Constantin
Dinescu . . . .
Rares Ion
Popescu . . . .
21,026
21,026
10,636
10,636
0
0
Other Remuneration
Total
24,892—Member in the Committee for coordination
of the privatisation process—Electrica S.A
39,073—Substitute member in the Committee for
Coordination of the privatisation process—SC FDEE
Muntenia Sud SA
28,897—Member in the Committee for preparation
and monitoring of the privatisation process—SC
FDFEE Muntenia Sud SA
8,604—Member in the Committee for coordination
of the privatisation process—SC FDEE Transilvania
Sud SA
8,604—Member in the Committee for coordination
of the privatisation process—SC FDEE Transilvania
Nord SA
8,604—Member in the Committee for coordination
of the privatisation process—SC FDEE Muntenia
Nord SA
68,028—Director—Electrica Furnizare
85,032—Director—EDMN
21,480—Director EDTS until May 2013
99,809—Interim General Manager for Electrica
between January and June 2013 (95.617 fixed
component and 4.192 variable component)
130,555—General Manager for Electrica between
July-December 2013.
524,581
40,152—Member in the Committee for Coordination
of the privatisation process—SC FDFEE Muntenia
Sud SA
708—President in the Committee for establishing and
evaluating the land plots in Electrica’s patrimony.
11,904—Member in the Consultative Committee for
the development of the methodologies regarding the
reports between the Board of Directors and AGA, as
well as following their application.
8,604—Substitute member in the Committee for
coordination of the privatisation process—SC FDEE
Transilvania Sud SA
94,437
31,662
31,662
209
The table below presents the remuneration and benefits granted to the senior officers and key
employees of Electrica in 2013.
Name
Gross
remuneration
2013(RON)
Angelescu Ramiro Robert Eduard
119,490
Dumbrava Ioan . . . . . . . . . . . . .
250,089
Other benefits 2013(RON)
Total
0
119,490
3,213-participation to the profit of the Company
287,877
25,971-substitute member of the Coordinating
Commission for the Privatisation of SC D.F.E.E.
Electrica S.A.
8,604-titular member of the Commission for the
Preparation and Monitoring of the SC FDEE
Transilvania SUD S.A. privatisation process
Petre Marin . . . . . . . . . . . . . . .
129,570
Geanta Marian . . . . . . . . . . . . .
210,309
0
129,570
7,742-participation to the profit of the Company
276,652
8,604-substitute member of the Coordinating
Commission of the SC FDEE Transilvania Sud SA
privatisation process
49,997-President of the Board of Directors of EDTS
Marin Emilia-Elena . . . . . . . . . .
182,765
19,494-titular member of the Commission for the
Preparation and Monitoring of the SC FDEE
Transilvania Sud SA privatisation process
202,259
Popescu Borislavschi Alexandra
Romana Augusta . . . . . . . . . .
128,322
201-proxy of SC Electrica S.A. in the General
Meeting of Shareholders of S.C. ENEL Distributie
Muntenia S.A. and S.C. ENEl Energie Muntenia
S.A.
161,401
13,384-substitute member of the Commission for
the Preparation and Monitoring of the SC FDFEE
Muntenia Sud S.A. privatisation process
19,494-titular member of the Commission for the
Preparation and Monitoring of the S.C. D.F.E.E.
Electrica S.A. privatisation process
Crisan Mariana . . . . . . . . . . . . .
117,324
0
117,324
Pindichi Valentin Cosmin . . . . . .
180,007
5,010-participation to the profit of the Company
185,017
Armencea Gabriel-Mihai . . . . . .
91,896
6,518-participation to the profit of the Company
98,414
Panduru Gabriela . . . . . . . . . . .
76,181
5,032-participation to the profit of the Company
81,213
Bulumacu Raluca . . . . . . . . . . .
25,783
5,352-Secretary of the Commission for the
Preparation and Monitoring of SC FDFEE
Muntenia Sud S.A. privatisation process
37,827
6,692-substitute member of the Commission for the
Preparation and Monitoring of SC DFEE Electrica
S.A. privatisation process
Stan Corneliu . . . . . . . . . . . . . .
98,275
Andruhovici Stefania . . . . . . . . .
0
Silvas Ioan . . . . . . . . . . . . . . . .
174,675
104,082
5,807-substitute member of the Commission for the
Preparation and Monitoring of SC DFEE Electrica
S.A. privatisation process
0
0
10,038-substitute member of the Commission for
the Preparation and Monitoring of SC FDFEE
Muntenia Sud S.A. privatisation process
5,895-titular member of the Commission for the
Preparation and Monitoring of S.C. D.F.E.E.
Electrica S.A. privatisation process
8,604-substitute member of the coordinating
Commission of SC FDEE Muntenia Nord S.A.
privatisation process
210
199,212
If a directorship is revoked in a vexatious or unjustified manner, the relevant director is entitled to
receive compensation from the Company with respect to the remaining unexecuted period of the
management contract, irrespective of the moment when the revocation took place, but not exceeding
twelve fixed monthly allowances determined as described below:
• if the revocation takes place at any time before the beginning of the last year in office, the director
will receive compensation of twelve fixed monthly allowances;
• if the revocation takes place during the last year of the term in office, compensation equal to the
remaining months in office will be paid, but it will not be greater than six fixed monthly allowances.
This form of compensation is the only form of indemnity owed to a director when his or her
appointment is revoked in an unjustified manner. If the director’s appointment is revoked for grounded or
justified reasons, the Company does not owe any compensation for the unexecuted period.
Litigation Statement Relating to Directors and Senior Officers
At the date of this Prospectus, save as disclosed below, none of the members of the Board of
Directors, the general manager and the senior officers has at any time within the last five years:
(i) had any convictions in relation to fraudulent offences;
(ii) held an executive function in the form of a senior executive officer or a member of the
administrative, management or supervisory bodies of any company at the time of or preceding
any bankruptcy, receivership or liquidation, except for Popescu Borislavschi Alexandra Romana
Augusta (member of the Board of Directors of SEO from 8 July 2013), Dumbrava Ioan (member
of the Board of Directors of SEO from October 2012), Pindichi Valentin Cosmin (member of the
Board of Directors of SED from January 2012 until December 2013 and SEMO from March 2013
until December 2013), Emilia Marin (member of the Board of Directors of SED from October
2012) and Marius Eugen Untescu (sole director (in liquidation) of Termoelectrica S.A.); or
(iii) been subject to any official public incrimination and/or sanctions by statutory or regulatory
authority (including any designated professional body) or has ever been disqualified by a court
from acting as a member of the administrative, management or supervisory bodies of a company
or from acting in the management or conduct of the affairs of any company.
From 7 April 2005 to 10 February 2009, Marius Eugen Untescu, the chairman of the Company, acted
as the representative of the Ministry of Economy and Finance with respect to the State’s interest in
Romgaz S.A. (‘‘Romgaz’’). According to press releases issued by the Direction for Investigation of Crimes
of Organised Criminal Activity and Terrorism (‘‘DIICOT’’) on 4 January 2012 and 2 September 2013, in
December 2011, 27 of Romgaz’s former and current employees (including members of management) were
notified by DIICOT that they were the subjects of an investigation initiated by the latter regarding
Romgaz’s gas sale contracts with Interagro S.A., a Romanian agro-industrial group. DIICOT alleges that
Romgaz’s former and current employees granted unauthorised discounts to Interagro S.A. between 2005
and 2010. DIICOT alleges that these discounts may have triggered losses for Romgaz and, in turn, reduced
the Romanian Government’s share of Romgaz’s profits, thereby ‘‘undermining the national economy’’.
One of the named individuals notified of the investigation is Marian Eugen Untescu, who, in his capacity
as representative of the Ministry of Economy and Finance, participated in the general shareholder meeting
of Romgaz approving the Interagro contracts. The DIICOT investigation is still ongoing. According to a
press release issued by DIICOT, on 2 September 2013, DIICOT requested that the Prosecutor General
notify the State and President Traian Basescu of the intention to draw up a request for the commencement
of a criminal investigation of former Minister of Economy and Commerce Varujan Vosganian and former
Minister of Economy Adrian Videanu over allegations of collusion and undermining the national economy
by approving the Company’s discounted sales of gas to Interagro S.A. Mr. Untescu has been cooperating
with the Romanian authorities with respect to the investigation. Mr. Untescu also mentioned that under
the provisions of the new Criminal Code of Romania (entered into force on 1 February 2014), the crime of
‘‘undermining the national economy’’ does not exist anymore and thus currently he is investigated for
‘‘abuse in performing duties’’ (abuz de serviciu in Romanian).
Conflicts of Interests
There are no conflicts of interest between the obligations assumed by Board members towards the
Company and their private interests and/or other obligations. Moreover, the Board members are not party
211
to any contracts concluded with the Company (e.g. loan agreements), save for the management agreements
concluded by Non-Executive Directors and the mandate agreement executed by the Executive Director.
Directors & Management Liability Insurance Policies
On 5 July 2013, the Board of Directors through the decision no. 24/2013, and on 16 July 2013 the
GMS through the shareholders’ resolution no. 45/2013, approved the execution of insurance policies for
the professional liability of the directors. In October 2013, the Board of Directors through decision
no. 32/2013 established the execution of any insurance policy for professional liability in respect of the
general manager. According to the decisions mentioned above and the clauses of the management/
mandate agreement it was established that the premiums for the insurance policies shall be borne by the
Company. The Company has subsequently executed, in accordance with the applicable legal provisions, a
services agreement with OMNIASIG VIENNA INSURANCE GROUP S.A., for professional liability
coverage in an insured amount of EUR 600,000 per director and general manager.
Legal Implications of Significant State Ownership
Court of Accounts’s Review
The Company is subject to review by the Romanian Court of Accounts (‘‘Court of Accounts’’). The
Court of Accounts is a public entity that controls the management and use of the State’s financial
resources, in accordance with the provisions of Law no. 94/1992 regarding the organisation and functioning
of the Court of Accounts (‘‘Law 94/1992’’). According to Law 94/1992, the Court of Accounts controls
among others the companies where the State holds more than 50% of the share capital.
The Court of Accounts has the right, but not the obligation, to carry out controlling activities at other
entities as well, such as: (i) entities that benefit from governmental guarantees for loans, or various forms
of State aid from the State, the territorial-administrative units or public institutions; (ii) entities managing,
on the basis of a concession or lease agreement, assets belonging to the State public or private domain or
to territorial-administrative units or public services.
Although the State shall no longer be a majority shareholder in the Company following completion of
the Offering, the land on which the Group’s electricity distribution networks and substations are located
will remain the public property of the State. Accordingly, management believe that the distribution
operators will remain subject to the scrutiny of the Court of Accounts.
Rules on integrity in exercising the public office
Law 176/2010 regarding the integrity in exercising public office will continue to apply to Board
Members and management, as well as persons holding management positions in the national or local
interest, autonomous companies and national companies, or companies in which the State or a local
administrative authority is a majority or significant shareholder following the Offering. Under this law,
such persons are obliged to declare certain assets and interests.
Restrictions on acquisition of shares
According to GEO no. 88/1997, a Romanian entity in which the State or a local public administrative
authority holds more than 33% of the total voting shares in the GMS may not purchase shares in other
companies. This restriction may apply to any acquisition of shares irrespective of whether the acquisition
takes place in the context of a privatisation. This restriction will be applicable to Electrica after the closing
of the Offering, as the State shall continue to hold a 48.8% interest in Electrica’s share capital, subject to a
potential increase to 49.9% in the event the stabilisation actions contained in the Underwriting Agreement
is exercised in full. As a result, the Group may not be capable of implementing its strategy of growth
through comparative acquisitions. See ‘‘Risk Factors—Failure by the State to amend the law restricting share
acquisitions by Electrica will restrict the Group’s strategy’’.
Corporate governance
With respect to corporate governance, the Company falls within the provisions of EGO no. 109/2011
on corporate governance of public institutions which sets out, among others, the principles under which
members of the Board of Directors and managers should be appointed as well as certain corporate
governance aspects which must be complied with by State-owned companies.
212
EGO no. 109/2011, applies to companies where the State is a majority shareholder or holds control.
According to EGO no. 109/2011, ‘‘control’’ means in this context where the State:
(a) directly or indirectly holds the majority of the voting rights;
(b) can appoint or revoke the majority of the management and control bodies; and
(c) can exercise, in its capacity as shareholder, a decisive influence on the management strategy
either through agreements concluded with the company or in its articles of incorporation.
Considering the above provisions, as well as the fact that pursuant to the Offering, the State shall
continue to hold a ‘‘de facto’’ control over the Company, it could be interpreted that EGO no. 109/2011
shall continue to apply also after completion of the Offering.
213
PRINCIPAL SHAREHOLDER
The table below sets forth certain information regarding the ownership of the Shares prior to the
Capital Increase and the Offering, and Shares and GDRs immediately following the Offering assuming all
the Shares and the GDRs are sold in the Offering and that the Stabilisation Proceeds are not used by the
Stabilising Manager(s) to buy any Shares or GDRs in the market:
Shares owned before
the Offering
(Number)
(%)
Shareholder
The State, represented by the Ministry of Economy acting
through the Department for Energy . . . . . . . . . . . . . . . . . .
214
168,751,185
100
Shares owned after
the Offering
(Number)
(%)
168,751,185
48.8
DESCRIPTION OF SHARE CAPITAL AND CORPORATE STRUCTURE
General
The Company is a joint stock company, registered with the Romanian Trade Registry Office attached
to the Bucharest Court under number J40/7425/2000, having sole registration code 13267221. The
Company’s corporate seat is in Bucharest, 9 Grigorescu Alexandrescu Street, 1st District, Bucharest,
Romania and its business address is located at the same address. The Company was founded in the form of
a joint stock company in accordance with the Companies Law and has conducted business since that date
in conformity with its Articles of Incorporation and the Companies Law. In the event that the Offering
succeeds and the Company is admitted to trading on the Bucharest Stock Exchange, the Company shall
also be subject to the provisions of the Capital Markets Law as well as other applicable capital markets
regulations. The Company is registered under the trade name ‘‘ELECTRICA S.A.’’. The telephone
number of the Company’s registered office is (004)021-208.59.99. The Company is established for an
undetermined period.
The Companies Law establishes the main rules relating to the registration, operation, merger, spin-off
and winding-up of Romanian companies. Listed companies must also comply with additional rules
provided by the Capital Markets Law and special regulations issued by the Romanian FSA and the
Bucharest Stock Exchange, primarily addressing the reporting obligations of listed companies.
Following the Successful Closing of the Offering, the State will hold 48.8% of the Company’s share
capital subject to a potential increase to 49.9% in the event the stabilisation actions contained in the
Underwriting Agreement are exercised in full. As a result, certain legal provisions governing Statecontrolled companies may continue to apply to the Company’s activities, while others will cease to apply.
For a description of these provisions, see ‘‘Board and Management—Legal Implications of Significant State
Ownership’’.
The Company complies with all applicable rules relating to corporate governance in force under the
laws of Romania.
Corporate Purposes
Pursuant to Article 6 of the Articles of Incorporation, the Company’s main field of activity is
Consultancy activities for business and management, CAEN code 7022.
The secondary fields of activity are presented in Article 6 (Business Scope) of the Articles of
Incorporation of the Company.
Share Capital
Issued share capital
At the date of this Prospectus, the share capital of the Company amounts to RON 1,687,511,850
divided into 168,751,185 ordinary shares, each Share with a par value of RON 10. The Shares have been
issued in book entry form.
Evolution of changes in the Company’s share capital
The table below presents the changes in the Company’s share capital as of the date of this Prospectus
and as at 31 March 2014, 31 December 2013, 31 December 2012 and 31 December 2011:
Date
31 December 2011 . . . . . . .
31 December 2012 . . . . . . .
31 December 2013 . . . . . . .
31 March 2014 . . . . . . . . . .
As of date of the Prospectus
(1)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Number of shares
Share capital value(1)
(RON)
206,229,044
206,229,044
207,839,904
208,028,168
168,751,185
2,062,290,440
2,062,290,440
2,078,399,040
2,080,281,680
1,687,511,850
Statutory share capital as registered with the Trade Registry.
As a consequence of the Spin-off, the share capital of Electrica was reduced from RON 2,080,281,680
to RON 1,649,043,880. Subsequently, the share capital was increased up to the value of RON
215
1,687,511,850, by contribution in kind representing the value of 24 land plots for which Electrica obtained
certificates attesting to the ownership right.
Rights, preferences and restrictions attaching to existing Shares
All shareholders are to be treated equally to other shareholders that own the same type of Shares.
Shareholders must exercise its rights in good faith, by observing the rights and legitimate interests of the
Company and of other shareholders.
(a) Pre-emptive right
The Companies Law provides its shareholders with a pre-emptive right to subscribe for any issue of
new shares on a pro rata basis.
According to the provisions of the Companies Law, a shareholder may exercise pre-emptive rights
during a period of at least one month following the date of publication in Part IV of the Official Gazette of
Romania (the ‘‘Official Gazette’’) of any resolution of an extraordinary GMS (the ‘‘EGMS’’) which
approves an increase of the share capital.
According to the Companies Law, the pre-emptive right may be limited by a resolution of an EGMS,
attended by shareholders representing at least three quarters of the subscribed share capital and with the
majority of the votes of the present shareholders. By way of exemption, according to the Capital Markets
Law, in the event of a share capital increase by contribution in cash, the withdrawal of the pre-emptive
right of the shareholders to subscribe for new shares and the decision on the increase of the share capital
with contributions in kind must be decided by the EGMS attended by at least three quarters of the number
of holders of the share capital and, based on the vote of shareholders, representing at least 75% of the
voting rights.
(b) Voting right and the right to participate at the general shareholders’ meeting
The shareholders’ fundamental rights include the right to participate at the general shareholders’
meeting and the right to vote. See ‘‘GMS and Voting Rights’’ below.
(c) Rights to dividends
Shareholders have a right to receive dividends. According to the Companies Law, dividends may be
distributed only if the Company registers profit, as recorded in the annual financial statements.
Prior to the Offering the Company was subject to the Government Ordinance no. 64/2001 on
distribution of profits of national companies of State-owned companies. This requires that a minimum of
50% of the distributable profit be distributed as dividends, after deducting the following amounts: (i) legal
reserves; (ii) other reserves representing tax facilities provided by law; (iii) any accounting losses for the
previous years; (iv) setting up own sources of funding for projects co-financed from foreign loans as well as
for setting up necessary sources for capital reimbursement rates, payment of interest, fees and other costs
related to these foreign loans and (v) other liabilities provided by law.
In addition, as an exception to the requirement under the Companies Law that dividends must be paid
no later than six months from the approval of the annual financial statements, State-owned companies are
required to pay dividends to their shareholders within 60 days of the legal deadline for the submission of
the annual financial statements to the competent fiscal authorities, which must be approved by the GMS by
the end of May of the relevant year. Failure to pay a dividend within this deadline results in penalty interest
being payable to shareholders on the amount of the declared dividends at an annual rate of 4% above the
NBR reference interest rate.
There is an uncertainty as to whether this ordinance will apply to the Company following completion
of the Offering. See ‘‘Dividend Policy’’.
(d) Right to information
The shareholders’ right to be informed about the activity of the Company may, in general, be
exercised in accordance to the Companies Law and, following the completion of the Offering, the
legislation regulating the capital market. The shareholders have the right to obtain any information,
regarding the exercise of voting rights and information regarding the voting results in the general
shareholders meetings.
216
(e) Withdrawal right
According to the Companies Law, the shareholders that did not vote in favour of a certain decision
have the right to withdraw from the Company and to request the Company to acquire their shares. This
right may be exercised only if the decisions mentioned above refer to: (i) changing the Company’s main
object of activity as set out in the Articles of Incorporation; (ii) relocating the Company’s registered seat to
another country, (iii) changing the Company’s legal form, or (iv) the Company’s merger or spin-off.
In addition, according to the Capital Markets Law, the shareholders of a company admitted to trading
on a regulated market, who do not agree with the decisions taken by the general meeting as regards
mergers and spin-offs, which involve the allotment of shares that are not admitted to trading on a
regulated market, have the right to withdraw from the company and to obtain from the latter the countervalue of the shares.
(f) Right to challenge the decisions of the general meeting of shareholders
A shareholder who was absent at a GMS or has voted against a certain decision and has requested
that its vote against the decision is registered in the minutes of that GMS is entitled to challenge such
decision within 15 days as of its publication in the Romanian Official Gazette, Part IV.
Also, claims regarding an absolute nullity of a shareholders’ decision may be filed at any moment in
time by any interested person.
(g) Other rights of the shareholders
Certain shareholders’ rights are set out in the Companies Law, only in favour of shareholders holding
a minimum percentage of the share capital of the Company, as follows:
• shareholders holding individually or together at least 5% of the share capital of the Company have
the right to request the internal auditors to investigate allegations concerning the Company;
• shareholders holding individually or together at least 5% of the share capital of the Company have
the right to request the Board of Directors to convene a general meeting of shareholders;
• shareholders holding individually or together at least 5% of the share capital of the Company have
the right to request the Board of Directors to insert new items on the agenda of a general meeting
of shareholders;
• shareholders holding individually or together at least 10% of the share capital of the Company may
request the court to appoint an expert for the purpose of investigating matters concerning the
management of the Company;
• where the GMS fails to resolve matters dealing with founders, directors, managers or financial
auditors having caused losses (‘‘daune’’) to the Company by their conduct, shareholders holding,
individually or together, as the case may be, at least 5% of the share capital of the Company have
the right to take legal action in this respect. In these cases, such actions are carried out in the name
of the claimant shareholder but for the account of the Company.
(h) Obligation to refrain from deliberations
Any shareholder that, in a certain operation, has an interest contrary to the Company, either personal
or as a representative of another person, must refrain from deliberations. Any shareholder who fails to
observe this legal requirement may be held liable for any damages incurred by the Company if without the
vote of such shareholder the required majority for the passing of the respective resolution would not have
been met. According to the Companies Law, criminal liability could also be incident in this case.
(i) Obligation to notify
Following the admission to trading of the Company on the Regulated Spot Market of the Bucharest
Stock Exchange, certain shareholders of the Company will be subject to the information obligations
provided for by the applicable capital markets legislation.
As such, according to the Capital Markets Law, if following the acquisition or sale of the securities
issued by a company admitted to trading on a regulated market, the proportion of voting rights held by a
person reaches, exceeds or falls below one of the thresholds of 5%, 10%, 15%, 20%, 25%, 33%, 50%, 75%
217
or 90% of the total voting rights, that person must notify, within a maximum of three working days from
acknowledging this operation, the Company, the Romanian FSA and the regulated market where the
respective securities are admitted to trading.
In addition, a significant shareholder (being defined under the Capital Markets Law as a person
holding directly or indirectly 10% of the share capital or the voting rights) must notify the FSA and the
Company of any transactions carried out on its account in equity, derivatives or other financial instruments
linked to them.
(j) Provisions regarding mandatory acquisition public offers
According to the Capital Markets Law, a person who owns more than 33% of the voting rights in a
company pursuant to its own acquisitions of shares or the acquisition of shares of persons with whom the
respective person acts in a concentrated manner, is under the obligation to launch a public offer addressed
to all securities holders. The public offer shall have as its object all the holdings of all securities holders and
shall be launched as soon as possible, but no later than two months after reaching the 33% threshold.
Until the launching of the aforementioned public offer, the rights underlying the securities which
exceed 33% of the voting rights in the company shall be suspended and the respective shareholder and the
persons with whom the respective person acts in a concentrated manner shall not be able to purchase by
any other means securities issued by the same company.
The legal provisions regarding the mandatory public offer shall not apply where the threshold of 33%
of the voting rights in the company was exceeded pursuant to an excepted transaction, in accordance with
the provisions of the Capital Markets Law. An excepted transaction is one that results in the 33%
threshold being exceeded pursuant to:
• the privatisation process;
• purchasing shares from the Ministry of Public Finances or other legally entitled entities within the
procedure of enforcement of budgetary receivables;
• transfers of shares performed between a parent company and its subsidiaries or between the
subsidiaries of the same parent company;
• a voluntary acquisition public offer addressed to all holders of securities and having as its object all
securities held by such.
(k) Withdrawal of shareholders from a company—‘‘squeeze out’’/‘‘sell out’’
The Capital Markets Law establishes, in favour of the shareholder who launched a public purchase
offer addressed to all shareholders for all their holdings, the right to request the shareholders which have
not subscribed to the offer to sell to him the respective shares at an equitable price, if the respective
shareholder meets one of the following requirements:
(i) he holds shares accounting for at least 95% of the total number of shares of the share capital
conferring voting rights and at least 95% of the voting rights which can be actually exercised;
(ii) he has acquired within the offer, shares accounting for at least 90% of the total number of shares
of the share capital conferring voting rights and at least 90% of the voting rights targeted by the
offer.
Such right may be exercised within three months from the closing date of the public purchase offer.
Also, following a public purchase offer addressed to all holders and for all their holdings, a minority
shareholder has the right to require the shareholder falling under one of the situations provided under
points (i) and (ii) above to buy its shares at an equitable price. Such right may be exercised within three
months from the closing date of the public purchase offer.
Rules regarding changes in the share capital of the Company
(a) Increase in share capital
The EGMS is competent to pass resolutions to issue shares. The EGMS may authorise the Board of
Directors as a body competent to pass resolutions to increase the share capital.
218
According to the Articles of Incorporation the share capital may be increased by new contributions in
cash and/or in kind. The share capital may also be increased by incorporation of reserves (save for legal
reserves), as well as of the benefits or issue premiums, by swapping certain liquid and enforceable debts
against the Company into shares or by other means which may be decided by the EGSM or the Board of
Directors in compliance with the law.
According to the Companies Law, the increase in share capital must be decided with a majority of at
least 2⁄3 of the voting rights of the shareholders who are present or represented at the EGMS (which
majority may not be reduced by the articles of incorporation). The Articles of Incorporation require a
quorum of 3⁄4 of the share capital at the first meeting and a quorum of 1⁄2 at the second meeting. The
Capital Markets Law provides that share capital increases by contribution in kind must be approved by the
EGMS, attended by at least 3⁄4 of the number of holders of the share capital and based on the vote of
shareholders representing at least 75% of voting rights.
(b) Reduction of share capital
The EGMS may pass a resolution for the reduction of the issued share capital by withdrawing shares,
reducing the par value of the shares or by purchasing and cancelling the Company’s own shares.
Furthermore, according to the Companies Law, in the event that the directors acknowledge that, as a
result of certain losses established through the annual financial statements, the net assets (calculated as the
difference between the Company’s total assets and total liabilities) represent less than half of the
subscribed share capital, the directors will immediately convene the EGMS in order to decide to replenish
the share capital, to decrease the share capital or to dissolve the Company.
According to the applicable law, where it is not motivated by losses, the decrease of the share capital
may also be affected by: (i) total or partial write-off of contributions due by the shareholders; (ii) returning
to shareholders a part of their contributions, pro rata to the share capital decrease and calculated equally
for each share; and (iii) other methods set out in the law.
The share capital may be effectively decreased only upon expiry of a two-month period as of the
publication of the EGMS decision approving the share capital decrease in the Official Gazette, Part IV.
According to the Companies Law, the decrease of the share capital must be decided with a majority of
at least 2⁄3 of the voting rights of the shareholders who are present or represented at the EGMS (which
majority may not be reduced by the articles of incorporation). The Articles of Incorporation requires a
quorum of 3⁄4 of the share capital at the first meeting and a quorum of 1⁄2 at the second meeting.
Acquisition of shares in the Company’s share capital
Ownership over the shares is transferred freely under Romanian law by a statement made in the
register of shareholders, signed by the transferor and transferee, or their representatives. Following the
admission to trading of the Company on the Regulated Spot Market of the Bucharest Stock Exchange, the
shares issued by the Company shall be transferred pursuant to the regulations of the Bucharest Stock
Exchange and the clearing and settlement rules of the Central Depositary.
The Board of Directors
The Company is managed on a one-tier basis by a Board of Directors formed of five members, out of
which one of them is appointed as the chairman of the Board of Directors. The Directors are elected by
the OGMS, with observance of the applicable legal provisions, for a four-year mandate. According to the
provisions of EGO no. 109/2011 regarding corporate governance in State-owned enterprises, most of the
members of the Board of Directors must be non-executive independent directors and at least one of them
must have studied economics and have a minimum of five years’ experience in the economics, accounting,
audit and financial field. Within 90 days of its appointment, the Board of Directors must present to the
shareholders of the Company, for approval, the draft management plan which includes the management
strategy for the duration of the mandate in view of reaching the performance objectives and criteria as set
out in the management agreement.
According to the Articles of Incorporation, in the event of a vacancy on the Board of Directors, a new
director will be appointed by the Board of Directors for a duration equal to the time remaining until the
end of the predecessor’s mandate. According to the Companies Law, in the event that the vacancy reduces
the number of Directors below the minimum number provided for by law, the remaining Directors will
219
convene promptly the ordinary OGMS in order to restore the number of the members of the Board of
Directors.
The Board of Directors gathers as many times as necessary, but at least once every three months,
being convened by the chairman of the Board of Directors, either at its own initiative or following the
initiative of at least two members of the Board of Directors or of the general manager. The notice
regarding the assembly of the Board of Directors is sent to every member of the Board of Directors at least
seven days before the date of the meeting of the Board of Directors and must contain the date, the place
and the agenda of the meeting.
For the validity of the decisions of the Board of Directors, the presence of the majority of the
members of the Board of Directors is required, and the decisions must be taken with a majority of the
votes validly expressed. In the event of equality of votes, the vote of the Chairman of the Board of
Directors is decisive.
The directors may be represented in the Board of Directors’ meetings only by other directors, in
accordance with specific powers of attorney.
The Board of Directors is in charge of performing all necessary and useful acts for the
accomplishment of the Company’s objects of activity, save for the ones reserved to the General Meetings
of Shareholders (‘‘GMS’’) by law. The Board of Directors delegates the Company’s management, in
accordance with the provisions of the EGO no. 109/2011 regarding corporate governance in state-owned
companies and the provisions of the Articles of Incorporation, save for certain main duties of the Board of
Directors which may not be delegated according to the Companies Law, respectively: to prepare the
annual report of the Board of Directors; organise the GMS and implement the resolutions passed at the
GMS, to establish the main strategies and goals of activities and development of the Company, to establish
the accounting and financial control system and the financial planning, to appoint and dismiss the
managers and fix their remuneration (including the general manager) and supervise their activity to file the
application for the opening of insolvency proceedings against the Company and the responsibilities
received from GMS.
According to the Companies Law, the Board of Directors may delegate the Company’s management
(in full or in part) to one or more managers, appointing one of them as general manager. The Company’s
managers are responsible for taking all the measures related to the Company’s management within the
limits of the Company’s objects of activity and in compliance with the exclusive competences reserved by
law or the Articles of Incorporation and the GMS. The general manager represents the Company in
relation to third parties, including in front of the courts of law.
Directors have also concluded management agreements with the Company.
Dissolution and liquidation
The Company shall be dissolved in the following situations:
(a) impossibility of achieving the Company’s objects of activity;
(b) initiation of bankruptcy procedure in respect of the Company;
(c) the Company’s nullity is declared;
(d) resolution of the EGMS to commence the Company’s liquidation or dissolution;
(e) the Company’s net assets according to the annual financial statements (calculated as the
difference between the Company’s total assets and total liabilities) represent less than half of the
subscribed share capital, and the EGMS did not replenish or decrease the share capital;
(f) reduction of the number of shareholders below the minimum legal threshold; and
(g) for any other reasons provided by law.
In such circumstances, the Company will be dissolved through a winding up procedure, subject to the
exceptions provided by law. The winding up and the distribution of the Company’s remaining assets shall
be made in accordance and in compliance with the legal provisions and procedures provided for by law.
220
Liability of directors
Under Romanian law, members of the Board of Directors may be held jointly liable to the Company
for damages in the event of improper or negligent performance of their duties as well as breach of the
Articles of Incorporation or any relevant legal provisions. In addition, members of the Board of Directors
may be held liable to the Company in connection with their actions with respect to: (i) payments made by
the shareholders; (ii) the real existence of dividends paid; (iii) the registers required by law and their
correct updating; (iv) execution of the resolutions of the GMS; and (v) strict performance of the duties
imposed by law and by the Articles of Incorporation.
A member of the Board of Directors who votes against a resolution of the Board of Directors and
requests that his or her vote is recorded in the minutes of the Board of Directors’ meeting shall not be held
liable jointly with the remaining members of the Board of Directors that voted in favour of the passed
resolution, provided that such member of the Board of Directors submits written confirmation of his or her
opposing vote to the censors or the internal auditors as well as the financial auditor of the Company.
General Meetings of Shareholders and voting rights
The authorities and powers reserved for the GMS are divided between OGMS and EGMS.
The main powers of the OGMS include the approval or change of the annual financial statements of
the Company, appointing and dismissing Directors, appointing and dismissing the financial auditor,
approval of the incomes and expenditures budget and, as the case may be, the business plan for the next
fiscal year.
The main powers of the EGMS are to resolve upon modification of the legal form of the Company, to
resolve upon changing the Company’s headquarters, to resolve upon the change of the main object of
activity, to resolve upon the Company’s spin off or merger with other companies, or its dissolution, to
resolve upon an increase or decrease of the share capital, to resolve upon the issue of bonds and
conversion of bonds from one category to another, to resolve upon conversion of shares from one category
to another, to resolve upon the incorporation, the cancelling of any secondary offices as well as any other
amendment of the Articles of Incorporation of the Company.
The annual ordinary GMS must be held within five months after the end of each financial year.
Following the admission to trading of the Company on the Regulated Spot Market of the Bucharest Stock
Exchange, the Company must observe the provisions of the Capital Markets Law, according to which
companies admitted to trading on a regulated market must make available to the public, within a
maximum of four months of the end of the financial year, the annual financial statements, together with
the annual report, approved by the OGMS. Thus, the general five-month term for the approval of the
financial statements will no longer be applicable, the four-month term from the end of the financial year
referred, to in the capital markets legal framework, being applicable instead.
In addition, GMS will be held whenever deemed desirable by the Board of Directors. GMS may be
held as soon as one or several shareholders, holding either alone or in aggregate at least 5% of the share
capital, submit a written request to the Board of Directors, containing a precise statement of the objects to
be considered. If the Board of Directors has not taken the necessary steps to ensure that the GMS is held
within 60 days after such request, such shareholders may—on application to the court—be allowed to
convene a general meeting by a court order.
The notice of the GMS shall specify the place, the date and the time of the meeting as well as the
proposed agenda for the GMS and the record date. According to the Companies Law, the notice must be
published in the Romanian Official Gazette, Part IV at least 30 days prior to the date set for the meeting,
in a wide spread newspaper, as well as on the Company’s internet page. The notice may alternatively be
transmitted to the shareholders by registered letter, 30 days prior to the date set for the meeting.
In addition, according to the New Articles of Incorporation, the notice of the general meeting shall
contain a clear and precise description of the procedures that shareholders must comply with in order to be
able to participate and to cast their vote in the general meeting.
The Companies Law provides that the shareholders representing the entire share capital, may, if none
of them objects, hold and take any GMS decision without observing the convening formalities.
The Board of Directors shall determine a record date to establish which shareholders are entitled to
attend and vote in the GMS. The record date shall also be included in the notice of the GMS. All the
221
shareholders that at the record date are registered as shareholders of the Company may attend the GMS
and vote in person or by proxy.
Each share grants equal voting rights for its holder. The Company’s principal shareholder does not
have different voting rights. The Articles of Incorporation provide that each share represents a single vote.
In the event that the Offering succeeds and the Company is admitted to trading on the Bucharest
Stock Exchange, the Company must also comply with the specific provisions of the capital markets
legislation (among others, with the Capital Markets Law, Romanian National Securities Commission’s
Regulation no. 1/2006 regarding issuers and operations with securities and Romanian National Securities
Commission’s Regulation no. 6/2009 regarding the exercise of certain shareholders’ rights at general
meetings of companies) applicable to the convening process and holding of the general meetings of
shareholders.
According to the Articles of Incorporation, the OGMS is validly assembled and may pass decisions if,
at the first call, shareholders representing at least half of the share capital are present. In the event that the
general meeting may not act due to the failure to comply with the above-mentioned quorum conditions the
meeting may be re-convened to consider the matters included on the agenda of the first meeting in the
presence of shareholders holding any part of the share capital. If the OGMS is validly assembled, the
decisions are passed based on the majority of the votes expressed. The Articles of Incorporation set out
higher quorum requirements for the first call of the OGMS as compared to the minimum quorum set in
the Companies Law (i.e. 1⁄4 of total voting rights).
According to the Articles of Incorporation, the EGMS is validly assembled and may pass decisions if,
at the first call, shareholders representing at least three quarters of the share capital are present. In the
event that the general meeting may not act due to the failure to comply with the above-mentioned quorum
conditions, the meeting may be re-convened to consider the matters included on the agenda of the first
meeting in the presence of the shareholders representing half of the share capital. If the EGMS is validly
assembled, the decisions are passed based on the votes of the shareholders present or represented holding
half of the share capital (for the first call) or one third of the share capital (for the second call). The
Articles of Incorporation set out higher quorum requirements for the first call of the EGMS as compared
to the minimum quorum set in the Companies Law (i.e. 1⁄4 of total voting rights) and, also, higher quorum
requirements for the following calls of the EGMS as compared to the minimum quorum set out in the
Companies Law (i.e. one fifth of total voting rights).
Three are qualified majorities set out by the New Articles of Incorporation, as detailed in section a
‘‘Corporate Governance Action Plan’’, while for the rest of GMS decisions, the provisions of the law on
majorities are applicable.
Notwithstanding the above mentioned provisions, according to the Capital Markets Law for decisions
regarding withdrawal of the preference right of shareholders in the case of a share capital increase in cash
as well as for decisions regarding share capital increase through contributions in kind it is necessary the
presence of shareholders representing 3⁄4 of the number of holders of the total share capital and decisions
shall be passed by the vote of the shareholders representing 3⁄4 of the voting rights.
The Company grants equal rights to all its shareholders. For this purpose, the Company makes
available to its shareholders all information necessary for them to exercise their rights, including
information regarding the GMS, dividend allocation and distribution or issuance of new shares.
A shareholder may not vote in respect of any contract, arrangement or other proposal in which it, or a
person connected to it, is interested. The shareholder who fails to conform to this provision may be held
liable to the Company for any damage suffered, except in the case where, without the vote of the respective
shareholder, the legal majority required for passing the decision would have been obtained.
The Articles of Incorporation and the New Articles of Incorporation may be inspected on the
Company’s website at: www.electrica.ro.
222
RELATED PARTY TRANSACTIONS
For the purposes of the Audited Consolidated Financial Statements, parties are considered to be
related in line with the requirements of International Accounting Standard 24 (‘‘Related Party
Disclosures’’).
The Company is, and has been, a party to various agreements and other arrangements with certain
State-owned companies. Related Parties include, as required by IFRS, companies under joint control of
the State and in which the State has a significant influence.
As presented in the Audited Consolidated Financial Statements for the years 2013, 2012 and 2011 and
in the Unaudited Interim Consolidated Financial Statements as at 31 March 2014, the Group has
transactions with other State-controlled entities in the ordinary course of its business, related mainly to the
acquisition of electricity, transmission and system services and sale of electricity. For further details in
respect of these transactions, please see Note 31 Related parties of the Audited Consolidated Financial
Statements for the years 2013, 2012, 2011 and Note 12 of the Unaudited Interim Consolidated Financial
Statements as at 31 March 2014.
223
MATERIAL CONTRACTS
The following selected contracts have been entered into by members of the Group and are, or may be,
material or contain provisions under which the Company has an obligation or entitlement which is, or may be,
material to the Group as of the date of this Prospectus. Additionally, the Company has a number of significant
contracts to which members of the Group are party and which are entered in the ordinary course of business.
Electricity distribution concession agreements
EDTS, EDMN and EDTN currently carry out their licenced electricity distribution activity under the
following concession agreements concluded with the Romanian Ministry of Economy and Trade:
• Concession agreement no. 7 dated 1 August 2005 enabling EDTN to carry out a public electricity
distribution service on an exclusive basis in the Northern Transylvania, covering Maramures,
Bistrita-Nasaud, Cluj, Bihor, Salaj and Satu Mare counties;
• Concession agreement no. 10 dated 10 October 2005 enabling EDTS to carry out a public electricity
distribution service on an exclusive basis in the Southern Transylvania, covering Alba, Brasov,
Covasna, Harghita, Mures and Sibiu counties; and
• Concession agreement no. 9 dated 7 October 2005 enabling EDMN to carry out a public electricity
distribution service on an exclusive basis in the Northern Muntenia, covering Braila, Buzau,
Vrancea, Galati, Prahova and Dambovita counties.
(together, the ‘‘Concession Agreements’’).
The assets used by each concessionaire in order to carry out its activity comprise the electricity
distribution grid and corresponding land which either belongs to the concessionaire or to third parties. The
annual royalty to be paid by a concessionaire under each Concession Agreement equals 0.1% of the
electricity distribution tariff applied to the annual quantity of electricity distributed by it. The royalty is
calculated annually, and is due no later than 31 January of the year following the period for which it is
calculated (in 2013 the aggregate value of the royalties paid by the three distribution subsidiaries
was RON 1,849,522.21). The duration of each Concession Agreement is 49 years. Each Concession
Agreement’s duration may be extended for a period equal to half the initial duration. In the event of an
extension, the parties must sign an addendum to the Concession Agreement at least six months prior to the
expiry of its term. Pursuant to the provisions of art. 2. (2) (i) of law no. 219/1998 and art. 23 (1) of the law
no. 318/2003 assets belonging to the State connected with distribution activity, as well as the activity of
electricity distribution, may be the subject of a Concession Agreement. Upon expiry of the Concession
Agreement, the Romanian Ministry of Economy and Trade may purchase the relevant assets used for the
performance of the electricity distribution service from the concessionaires, together with any ancillary
rights. The purchase price for these assets is equal to the RAB in the case of a no fault termination, or the
RAB discounted by 10% in the event of termination due to the concessionaire’s fault or due to
concessionaire entering into insolvency, bankruptcy, liquidation or dissolution. The grantor shall make the
payment in a term that may not exceed two and a half years. For the period of time between the assets’
transfer until the date of effective payment, the concessionaire has the right to an interest at the market
banks interest level, interest payable to the concessionaire quarterly.
The Ministry of Economy and Trade may unilaterally terminate the concession agreements with a
60-day prior notice as follows:
(i) in the event that the company is subject to an insolvency procedure, judicial reorganisation or
bankruptcy, dissolution or liquidation;
(ii) in the event that ANRE withdraws the distribution license, or it expires without a new one being
obtained;
(iii) in the event that termination is determined by national or local interest.
Additionally, termination may occur in the event of a breach by a party of its obligations under the
Concession Agreement that is not remedied by the defaulting party in the term notified by the compliant
party (the remediation term cannot be less than 30 days). Termination shall occur upon receipt of the
termination notice by the defaulting party, without other formalities being required.
224
Pursuant to the provisions of art. 2 (2) (i) of law no. 219/1998, as well as of art. 23 (1) of the energy law
no. 318/2003 in force on the Concession Agreements’ execution date, the assets in the public or private
property of the State, as well as the distribution of electricity activity may be granted into concession.
According to the Ministry of Industry and Resources Order no. 361/2002, the concession agreement of
the electricity distribution services should be awarded by open tender or by open tender with a
pre-selection phase. In the event that no winner is declared following the open tender, the contracting
authority shall initiate the direct negotiation procedure. The Concession Agreements provide in the
preamble that the conceding authority (i.e. the Ministry of Economy and Trade) is authorised to conclude
the Concession Agreements based on, inter alia, the concession awarding minutes no. 457/26.05.2005 (for
EDTS), no. 544/26.05.2005 (for EDMN) and no. 547/26.05.2005 (for EDTN).
It is important to note that, as per the energy law in force at the time of entering the Concession
Agreements (Law no. 318/2003), the concession agreements had to be published in the Official Gazette in
order to enter into force. In this regard, it is worth noting that neither of the concession agreements related
to the electricity distribution service applicable to all eight geographic areas in Romania were published in
the Official Gazette, but only the Ministry of Economy and Trade orders approving several of these
concession agreements were published. As regards the Company’s distribution subsidiaries, only the
Ministry of Economy and Trade Order no. 492/2006 approving EDTS Concession Agreement
no. 10/10.10.2005 was published in the Official Gazette.
According to the conditions associated to the Distribution Licences held by the Company’s
distribution subsidiaries, the latter are entitled to carry out the electricity distribution services on an
exclusivity basis, in their relevant areas (as mentioned above). However, pursuant to the methodology for
the computation of the electricity distribution service tariff approved by ANRE order no. 72/2013, the
distribution operator is defined as an entity which holds (i) the electricity distribution network, and (ii) the
concession of the electricity distribution service. Consequently, it is possible that until these concession
agreements are published in the Official Gazette, EDTS, EDMN and EDTN may not be considered
electricity distribution operators for the purposes of computing the electricity distribution service tariff
approved by ANRE and this could result in ANRE being unable or unwilling to compute and approve
distribution tariffs for EDTS, EDMN and EDTN. However, the absence of the publication formality has
not in practice prevented ANRE from approving the distribution tariff for EDTS, EDMN and EDTN.
Power supply agreements between Electrica Furnizare and CFR
Electrica Furnizare is party to 837 electricity supply agreements with CFR, in its capacity as regulated
consumer, Electrica Furnizare’s largest client on the retail market and the State-owned railway operator.
In 2011 CFR accumulated a significant debt towards Electrica Furnizare amounting to approximately
RON 609 million for the supply of electricity, which at the time represented 23.11% of the Group’s
consolidated gross receivables.
Following GD no. 1246/2011 for the increase of the budget of the Ministry of Transportation and
Infrastructure for the payment of debts towards energy suppliers and EGO no. 25/2012 for granting by the
Ministry of Finance of a loan to CFR for the payment of debts towards energy suppliers, Electrica
Furnizare and CFR concluded an agreement for the discharge of these debts (the ‘‘2012 CFR Settlement
Agreement’’).
The 2012 CFR Settlement Agreement provided that if CFR paid its principal debt, plus enforcement
expenses resulting from supply of energy of RON 316,396,000, then Electrica Furnizare would waive
delay penalties amounting to RON 222,903,000. This payment was supposed to be made no later than
30 November 2012. Additionally, the parties agreed that CFR would pay the expenses incurred by
Electrica Furnizare for the recovery of the debts of CFR until 31 December 2012, on the basis of a report
to be made by the National Fiscal Administration Agency.
According to the 2012 CFR Settlement Agreement, if CFR did not pay any of the amounts due
pursuant to electricity supply agreements concluded with Electrica Furnizare or due pursuant to the 2012
CFR Settlement Agreement, or if the 2012 CFR Settlement Agreement was terminated for any reason, the
waiver of the delay penalties would be revoked and all amounts outstanding would become due and
payable effective immediately. In addition, Electrica Furnizare would have the right to terminate the 2012
CFR Settlement Agreement on 30 days’ notice.
225
On 23 November 2012, CFR paid RON 314,721,000 to Electrica Furnizare in settlement of sums due
under the 2012 CFR Settlement Agreement and, consequently, Electrica Furnizare waived delay penalties
of RON 238,399,000.
On 25 April 2014, Electrica Furnizare concluded with CFR a convention regarding the discharge of
debts of CFR (the ‘‘2014 CFR Settlement Agreement’’). Pursuant to this convention, CFR will pay the
principal debt for the 2012-2013 period of RON 221,182,739.88 (RON 221,077,174.71 resulting from
supply of energy, RON 100,211.61 regarding legal expenses, RON 3,673.56 regarding disconnectionreconnection fees and RON 1,680.00 regarding radio and TV fees). When an enactment allowing Electrica
Furnizare to cancel all delay penalties amounting to RON 28,865,074.14 is adopted, Electrica Furnizare’s
management will take all necessary measures in order for Electrica Furnizare GMS to approve the
discharge of CFR from these penalties. On 13 May 2014, CFR paid to Electrica Furnizare the amount of
RON 221,182,739.88.
In the event that the enactment allowing Electrica Furnizare to cancel CFR penalties is not adopted
within three months as of the 2014 CFR Settlement Agreement signing date, CFR will have to
communicate to Electrica Furnizare, within 30 days as of the expiration of the three month period, the
manner in which it will pay the penalties.
Operational vehicle framework leasing agreements
Electrica Serv concluded seven vehicles leasing agreements with New Kopel Romania S.R.L., RCI
Finantare Romania S.R.L., Innercity Car Rental S.R.L., and Operational Autoleasing S.R.L. under which
these companies undertook to lease to Electrica Serv various vehicles for persons and freight
transportation, as well as industrial machinery such as excavators.
Framework Agreement no. 54 was concluded on 26 September 2013 between Electrica Serv (the
beneficiary) and Operational Autoleasing S.R.L. (the contractor) for a period of 57 months. Pursuant to
this agreement the contractor has agreed to lease up to 600 vehicles, for a price of EUR 9,831,816.
Payment under this agreement is done in 57 monthly instalments.
Under a subsequent agreement dated 16 October 2013 the contractor undertook to lease to the
beneficiary a number of 390 vehicles for a price of RON 29,557,957. As regards another subsequent
agreement concluded on 25 February 2014, the contractor undertook to lease to the beneficiary a number
of 205 vehicles for a price of RON 14,043,916.
Postal services agreement concluded by Electrica Furnizare with Tipo Direct S.R.L.
Electrica Furnizare entered into a services agreement with Tipo Direct S.R.L. on 21 December 2013
for the provision of postal distribution services. The agreement shall expire on 31 December 2014.
Pursuant to the agreement Electrica Furnizare is to pay an aggregate amount of RON 30,468,750 for the
services provided thereunder.
AMR services agreements concluded by Electrica with its distribution subsidiaries
Electrica concluded in 2012 services agreements with each of its distribution subsidiaries for the
provision of data acquisition services from the Automatic Meter Reading (‘‘AMR’’) system held by
Electrica. These services agreements expire after a period of 5 years. Under these contracts, all distribution
subsidiaries must pay Electrica, an aggregate monthly amount of RON 394,878 for the services provided by
Electrica.
Services agreements concluded by Electrica Serv with EDTN and EDMN
Under the framework agreement concluded in March 2012, Electrica Serv concluded services
agreements with EDTN and EDMN for the provision of maintenance, auto, design, work health and
medicine and fire safety services. These contracts expire at the end of June and August 2014 and have an
aggregate value of maximum RON 88.8 million.
Framework agreements concluded by Electrica’s subsidiaries with Sindserv S.A. and Alt Univers Company
2002 S.A.
Electrica concluded, on behalf of each of its distribution subsidiaries, framework services agreements
with Sindserv S.A. and Alt Univers Company 2002 S.A. for the supply of electricity meters reading services
226
and activities related to electrical power distribution. These agreements expire in March 2015 and have an
aggregate value of approximately RON 92.5 million.
Also, Electrica Furnizare concluded with Alt Univers Company 2002 S.A. and Sindserv S.A. a
Framework services agreement for the supply of customer related activities and services relating to energy
supply. The contract expires in April 2015 and the value of the services provided thereunder is of RON
32,615,840.
Framework agreement concluded by the distribution subsidiaries with Electrica Serv
Pursuant to a framework services agreement concluded in May 2014 by Electrica Serv with EDMN,
EDTS and EDTN, Electrica Serv shall provide on the basis of subsequent contracts integrated
maintenance, auto, design, work health and medicine services, for an overall price of maximum RON
906,783,873.98. The Framework agreement is concluded for a period of 24 months and shall expire in June
2016.
Lease agreements concluded by Electrica and its distribution subsidiaries with RCS&RDS and
Romtelecom
EDMN has concluded two lease agreements with RCS&RDS SA (‘‘RCS&RDS’’) on 15 January 2004,
for the lease of energy support poles for the placement of cables of RCS&RDS. These agreements were
concluded for a period of 17 years. Pursuant to these agreements, RCS&RDS pays a monthly rent to
EDMN per pole or per kilometre of line.
On the basis of another contract with RCS&RDS dated 15 January 2004, EDMN leases fibre optic
cable from RCS&RDS mounted on energy support poles. The contract is valid for 17 years. Under this
agreement, EDMN pays a monthly rent per kilometer of optic fibre to RCS&RDS.
Electrica, as proxy, together with each of its distribution subsidiaries EDTN, EDTS and EDMN as
lessors, has concluded a lease agreement with Romtelecom. dated 28 December 2012, valid until
31 December 2014, for the temporary use of the poles supporting its electricity distribution lines.
Collaboration convention between Electrica and RCS&RDS
Electrica has concluded a collaboration convention no. 91/20.07.1999 for a period of 20 years from the
signing date with Romania Cable Systems S.A. (a company from the RCS&RDS group). Under the
convention, Electrica and Romania Cable Systems S.A. have agreed to collaborate in the development of a
fibre optic network in exchange for providing Electrica data transmission support. The convention is
extended by law for a period agreed by the parties, if neither party requests the termination of the
collaboration with at least 60 days in advance of the expiry of its initial term.
Framework lease agreement concluded with Vodafone Romania S.A.
EDMN has concluded a framework lease agreement no. FN02-181/26.08.2002, valid until 20 July
2019, for the exclusive lease of fibre optic cables and a non-exclusive lease of energy poles with Vodafone
Romania S.A. Under this lease Vodafone Romania S.A. provides communication lines capacity, for a
monthly fee to EDMN. The agreement may not be unilaterally terminated by either of the parties thereto.
Joint venture agreement concluded by Electrica with City Hall Chirnogeni
Electrica has concluded the joint venture agreement no. 110 dated 30 November 2009 with City Hall
Chirnogeni, based on an association agreement concluded by City Hall Chirnogeni, SC Eolian Power SRL
and Electrica. Under the joint venture agreement Electrica has agreed to provide technical elements
necessary for the development of a wind farm and City Hall Chirnogeni has agreed to provide the land
necessary for the development of the project. The agreement is concluded for a term of 49 years and it
cannot be unilaterally terminated by either party, without a sanction of damages.
EBRD Framework Agreement
The Company is currently in advanced negotiations with EBRD for the conclusion of a framework
agreement in order to implement a corporate governance action plan and an environmental and social
action plan in the context of a potential strategic investment in the Company.
227
REGULATION
The Electricity Industry
Regulatory authority
Electricity distribution and supply in Romania are regulated by the National Regulatory Authority in
the Field of Energy (‘‘ANRE’’). ANRE approves regulated tariffs established on the basis of market based
principles for the distribution of electricity as well as for the supply of energy to consumers that have not
opted to exercise their eligibility right to change supplier. ANRE also implements and monitors
compliance with regulations governing the functioning of the energy market with a particular emphasis on
market efficiency, competition, transparency and consumer protection.
To this end, under the Energy Law and the EGO no. 33/2007, as further amended and supplemented
by Law 160/2012 on the organisation and functioning of ANRE, it adopts orders, decisions and approvals
for the implementation and creation of secondary legislation, including regulations governing:
• the issuance of authorisations and permits for the establishment of new energy generation
capacities, including energy and heat cogeneration capacities, or retrofitting thereof;
• the issuance of licenses for:
a)
commercial exploitation of energy generation capacities;
b)
commercial exploitation of thermal cogeneration capacities;
c)
energy transport service;
d)
provision of system service;
e)
energy distribution service;
f)
centralised markets management;
g)
energy supply activity.
• prices and tariffs, such as the regulated prices for energy supply to household consumers or the
tariffs for the services provided by Transelectrica and the electricity distributors;
• the technical and commercial conditions for the safe exploitation of the Romanian Grid and
national electricity distribution network;
• operation of the energy market;
• support for renewable energy production; and
• authorisation of individuals and legal entities acting in the energy sector.
Electricity distributors and suppliers, including Electrica, may prepare draft technical procedures and
regulations regarding aspects of their regulated activity, from grid connection and grid maintenance to
consumer protection standards, some of which are to be approved by ANRE.
Regulatory framework
Title I of the Energy Law transposes (i) a substantial number of legal provisions required under
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common
rules for the internal market in electricity and repealing Directive 2003/54/EC, part of the Third Energy
Package (‘‘Electricity Directive’’), (ii) Directive 2005/89/EC of the European Parliament and of the Council
of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure
investment, and (iii) Article 4 Paragraph (3) of Directive 2004/8/EC of the European Parliament and of the
Council of 11 February 2004 on the promotion of cogeneration based on a useful heat demand in the
internal energy market and amending Directive 92/42/EEC.
In July 2012, the Energy Law was enacted. The Energy Law requires that electricity supply activity in
Romania must be separated from electricity distribution activity, and further develops the provisions from
the previous energy law no. 13/2007 regarding separation of Romanian electricity distribution and supply
activities. In the case of the Group, this ‘‘unbundling’’ was carried out in 2007 under GD No. 675/2007.
228
As a result, if a distribution company is part of a vertically integrated undertaking, it must be
independent at least in terms of its legal form, organisation and decision making process in relation to its
other activities, in particular:
• persons responsible for its management may not participate in the governing bodies of the vertically
integrated undertaking which are directly or indirectly responsible for the daily operation of the
activity of electricity supply;
• adequate measures must be taken to ensure the independence of the persons responsible for its
management;
• it has the right to make independent decisions from the vertically integrated undertaking, with
respect to the assets necessary to operate, maintain and develop its regulated activity, instructions
from the parent company with respect to its daily operations or individual decision making with
respect to its distribution related activities.
On 17 July 2013, the EC referred Romania to the European Court of Justice claiming that certain
provisions of the Electricity Directive relating to the liberalisation of electricity prices in Romania still
remained unimplemented. This claim is currently pending with the European Court of Justice and the
Romanian Government is taking steps to address the referral.
According to the liberalisation timetable approved by the Romanian Government on 13 March 2012,
regulated tariffs for electricity supplied to household consumers and assimilated to household consumers,
which did not exercise their right to switch electricity suppliers (defined as companies having less than 50
employees and annual turnover or a total asset value of less than EUR 10 million) should be eliminated by
1 January 2018. In the case of non-household consumers, regulated tariffs for electricity were fully
liberalised from 1 January 2014. The competitive tariffs approved by ANRE are applied for consumers
which did not exercise their right to switch suppliers.
Licences
In order to perform distribution and supply activities in the electricity sector in Romania, an operator
must obtain certain authorisations and/or licences issued by ANRE. According to the Energy Law and the
Regulation approved by ANRE Order no. 48/2013 regarding the issuance of authorisations and licences in
the electricity sector (the ‘‘Electricity Authorisations and Licences Regulation’’), an authorisation issued
by ANRE is required for the operation of electricity distribution and supply business in Romania, as well
as for other regulated activities such as production of electricity, production of thermal energy in
cogeneration, electricity transportation, performance of system services and management of centralised
electricity markets. Licences granted prior to the entry into force of the Electricity Authorisations and
Licences Regulation remain valid under their pre-existing terms and conditions, until their expiry. The
maximum licence term is 25 years, except for an electricity supply licence, which may only be granted for a
period of up to ten years. The term of these licences cannot be extended for a period longer than the
maximum initial term. The Group’s material operating licences issued by ANRE are described under
‘‘Business—Main Operating Licences’’.
ANRE will not grant authorisations and/or licences to (i) legal entities whose controlling shareholder
or director formerly acted as controlling shareholder or director of a licensed entity that did not meet its
payment obligations resulting from transactions on the electricity market, (ii) legal entities placed under
insolvency procedures or that have entered bankruptcy, or (iii) applicants that have been sanctioned by
ANRE with the result of withdrawal of an authorisation or licence within the previous five years.
The licence can be amended by ANRE, ex officio or upon the request of the holder, in the following
situations:
• when the initial circumstances have changed after the date the licence was granted;
• when certain events occur that materially affect, or lead to the impossibility of the performance of
the authorised/licensed activities by a licence holder;
• if the status of a licence holder has changed following merger, demerger or transformation, or if the
holder has performed a change of name, registered office, share capital or assets;
• when it is necessary to update the technical details mentioned in the licence; and
• when a licence holder requests the extension of the validity term of a licence.
229
When a licence holder does not observe its legal obligations or the conditions set out in the licence,
ANRE will grant the holder a compliance term of no more than six months, if the failure to comply is not
due to its fault and the respective situation can be remedied. If the holder is in default, ANRE will suspend
the licence for the period necessary for remediation of the failure.
ANRE may withdraw a licence, irrespective of the holder’s default, if the situation that has resulted
from the non-compliance cannot be remedied.
ANRE may also suspend the licence (i) upon the reasoned request of the holder, (ii) if another
authority has suspended a piece of the documentation (i.e. permit, authorisation, agreement, approval)
filed by the holder with ANRE for obtaining the respective authorisation/licence, (iii) if the licenced
activity endangers or is harmful to individuals, property and/or the environment, or (iv) during checks
performed by ANRE following a challenge regarding the granting of the licence.
A licence may also be withdrawn by ANRE (i) upon the reasoned request of the holder, (ii) in the
event of the holder’s bankruptcy or incapacity, (iii) if the holder sells the relevant facility or the lease or
concession supporting the licenced activity expires, (iv) if another authority has cancelled a permit,
authorisation, agreement or approval filed by the holder with ANRE for obtaining the licence, (v) if the
holder loses title over real estate property where the facilities supporting the licenced activity are located,
following a final court decision, (vi) following a successful challenge in a court of law regarding the
granting of the licence (vii) following an injunction order or court decision stating that the facilities
supporting the licenced activity endanger or materially harm individuals, property and/or the environment,
(viii) upon the transport and system operator’s request following the repeated failure of the holder to
observe its payment obligations as a participant, or of its cogeneration contribution (where relevant), or
(ix) if the holder of a supply licence repeatedly fails to observe its obligation to purchase Green
Certificates.
All licence holders must:
• observe the conditions imposed in the licence;
• keep separate accounting books for each licensed activity, in the case of vertically or horizontally
integrated entities;
• maintain financial security to enable the performance of the licenced activity and to ensure service
continuity;
• provide ANRE with any requested information; and
• prepare and perform an audit and publish their consolidated annual accounting records in a timely
fashion.
Licence holders must pay ANRE a contribution amounting to 0.08% of the turnover made in the
previous year from the activities which represent the object of the licence. In 2014, this contribution may
not be less than RON 2,500. For computing the annual contribution, a licence holder must provide ANRE
with information regarding its turnover for the licensed activity and with a financial report.
Regulation of the Electricity Market
The electricity market is split into the regulated market and the competitive market. On both markets,
electricity can be sold/acquired either on a retail or wholesale basis.
The regulated market
The regulated market refers to the supply of electricity to end-consumers that have not exercised their
option to switch electricity suppliers, to household consumers and to non-household consumers.
The liberalisation for non-household consumers was finalised at the end of 2013. The liberalisation for
household consumers begun on 1 July 2013 and is scheduled to be completed on 31 December 2017.
The prices of the electricity traded on the regulated market are approved by ANRE. The supply of
electricity on the regulated market can be made only based on regulated agreements, which are approved
and published by ANRE.
ANRE sets the regulated tariffs for customers which do not elect to change their supplier, through
their regulated electricity buy/sale contracts. ANRE may approve different regulated tariffs and prices for
230
electricity supplied to customers which did not elect to change their supplier, until the complete
elimination of the regulated tariffs for customers at 1 January 2018. From 1 September 2012, the supplier
of last resort applies to the invoice a new tariff for active electricity named ‘‘Competitive market
component’’— CMC, which is approved by ANRE.
Under ANRE Order no. 30/2012, forecasted revenue must cover forecasted costs (for acquisition,
related to the TSO, for distribution, for supply and for that supplied by the centralised market operator)
plus the regulated profit of the electricity supply activity. This regulated profit was estimated at 2.5% from
the forecasted acquisition cost of electricity.
Once the ANRE Order no. 82/2013 entered into force, the regulated profit of the supply activity may
not exceed a maximum accepted value, which is determined as the product of profit per electricity sold unit
(RON/MWh) and electricity sold at regulated tariffs to final clients (MWh), removing the 2.5% from the
forecasted acquisition cost (for regulated costs).
ANRE has subsequently sent to all suppliers a notice, which communicates the fact that a profit of
RON 4 per MWh and a supply operating cost of RON 4.5 per client per month were recognized in the
computation of the regulated tariffs and in the CMC tariff. These amounts (i.e. a profit of RON 4 per
MWh and a supply operating cost of RON 4.5 per client per month) are the amounts currently prevailing
but such may change in the future as they are not provided by ANRE Order no. 82/2013.
Cost categories of the last instance supplier, recognised in the tariffs applied to final clients, but only
to the level considered justifiable by ANRE, are:
• electricity acquisition costs and CMC, based on the degree of ANRE allocation of the required
electricity from regulated contracts;
• costs related to the transport service;
• costs related to technological and functional system services;
• costs related to services provided by the centralized electricity market operator to the participants
in the centralised electricity market;
• costs related to the electricity distribution services;
• costs related to supply of electricity activity for final users which did not opted for the eligibility
right;
• occasional force majeure costs (if the case).
The competitive market
Trading on the wholesale competitive market is transparent, publicly reported, centralised and
non-discriminatory. Prices can be negotiated freely by the parties on the retail competitive market.
Participants on the wholesale market may trade electricity based on bilateral agreements concluded on the
dedicated centralised market. From 19 July 2012, the Energy Law does not allow the conclusion of
electricity sale and purchase agreements on the wholesale market off the centralised markets, save for
contracts for the import/export of energy.
Wholesale Electricity Market Commercial Code
In October 2004, the new Commercial Code of the Wholesale Electricity Market was adopted. Based
on this enactment and on the provisions of the Energy Law, a supply company may trade electricity on the
wholesale electricity market under specific conditions. One of these is a requirement to assume a balancing
responsibility or to transfer this responsibility to a third party. As at 31 March 2014, 11 electricity supply
companies and 98 electricity generators have transferred their balancing obligations to Electrica under
agreements for balancing services. As a result, Electrica, as a balancing responsible party, has assumed
responsibility for the sum of imbalances between production, acquisition, import, consumption, sale and
export for those license holders that have transferred their balancing responsibility to it.
The Wholesale Electricity Market
The Wholesale Electricity Market includes several independent markets operated by OPCOM.
Participants on the Wholesale Electricity Market are electricity producers, Transelectrica, OPCOM,
distribution operators and suppliers. In addition to electricity, technological system services, system
231
services, transportation services and distribution services are also traded on this market. Within the
Wholesale Electricity Market, OPCOM operates the CMBC, GMGC, CM-OTC, the DAM, the IDM, the
Balancing Market, the Technological Services Market, the Market for Allocation of International
Interconnection Capacities and the Electricity Market for Large Final Customers. For more information
on these markets, see ‘‘Market Overview—The Wholesale Electricity Market’’.
Tariffs
ANRE sets tariffs for the regulated electricity supply under ANRE Order no. 82/2013, which sets
prices and tariff calculation methodology for final consumers that do not exercise their eligibility right. The
methodology for the calculation of the distribution tariff is set under ANRE Order no. 72/2013.
Tariff calculation methodology for electricity supply in the regulated market
The calculation methodology for establishing the tariffs for electricity supplied under regulated
contracts is a cap-floor methodology. In calculating the supply tariffs ANRE takes into account the
reasonable costs incurred by an electricity supplier including, inter alia, those for acquisition of electricity,
the transport and distribution of electricity, technological system services and participation on the
OPCOM electricity market. On the basis of its forecasts of supply activity, ANRE estimates the tariffs and
the income of the suppliers. The forecasted income covers the envisaged costs plus a regulated profit.
These calculations will continue to be made until final liberalisation of the household electricity supply
market occurs, which is expected to be on 1 January 2018.
Tariff calculation methodology for energy distribution
The electricity distribution tariff is computed by dividing the amount of the regulated income by the
quantity of electricity forecasted to be distributed for each level of voltage prior to the beginning of each
year.
The distribution tariffs are approved for each of the electricity distribution operators that have been
granted a concession and are unique to the distribution grid operated by the relevant distribution operator.
Distribution tariffs are differentiated for each type of voltage (i.e. low, medium and high).
Regulated income is the linear income in nominal terms, upon which the annual corrections are
performed. Linear income is the income derived from the value of initial target incomes, expressed in real
terms of the last year of the previous regulated period, with a linearizing factor applied to the tariffs in
force in the previous year and the quantities of energy forecasted to be distributed.
The initial target income represents the annual income expressed in real terms of the last year of the
previous regulated period, calculated on the basis of the regulated forecasted costs of the distribution
service afferent to each year of the regulation period, obtained following the application of the efficiency
factor on the controllable operation and maintenance costs of the previous year.
In determining regulated income the following costs are excluded:
• costs incurred by affiliates of the distributor;
• costs relating to the connection of new users which are borne by third parties through connection
tariffs;
• costs incurred with respect to unregulated activities performed by the distribution operator for
which the distribution network and/or the employees involved in performing the distribution service
are used;
• costs resulting from payment of damages to users as a result of breaches by the distribution service
performance standard or from damage to energy receivers due to the fault of the distribution
operator;
• costs resulting from fines and penalties applied to the distribution operator;
• costs resulting from damages paid to legal or natural persons for accidents or damages caused by
the distribution operator which are determined by a court of law.
232
In order for ANRE to set the electricity distribution tariff, distribution operators must submit an
investment schedule relating to their investments envisaged to be included in the RAB at the beginning of
each five-year regulated period. Once approved by ANRE, the investment schedule of the distribution
operators is included in the RAB remunerated according to the methodology provided in ANRE Order
72/2013. The tariffs are subject to further correction annually, based on achieved operational performance,
adjusted quantities of electricity distributed, uncontrollable costs, depreciation and execution of planned
capital expenditure.
ANRE considers the following costs and income related to other activities regulated by the
distribution licenses when calculating distribution tariffs:
• the issue of emplacement approvals and technical connection permits;
• performing connection works to the distribution networks;
• the issue of solution studies in view of connecting users to the distribution networks; and
• costs and income relating to unregulated activities.
ANRE also verifies the following information provided by a distribution operator when tariffs are
being set or adjusted for it:
• the quantity of energy forecasted to be distributed, taking into account the economic growth index
provided by the National Prognosis Commission for the relevant period;
• performance standards and other requirements imposed on the distribution operator;
• the stability of tariffs;
• the regulated own technical consumption for each level of voltage according to a reduction plan
approved by ANRE;
• the optimal development of the distribution network;
• the regulated profitability rate applied to the RAB;
• taxes imposed by the State authorities in relation to the distribution service; and
• the financial viability of the distribution operator.
The distribution operator shall allocate the costs that are common to the regulated and/or deregulated
distribution activities based on the following principles:
• economic causality—allocation of costs to the activities that generated them;
• objectivity—allocation of costs based on an objective basis;
• transparency—allocation is based on determined rules; and
• continuity—allocation based on rules which are maintained over time, with amendments only in
necessary and justifiable cases.
233
The initial target income for each year ‘‘t’’ of the regulation period ‘‘p’’ is determined as per the
following formula:
Vtarget, initial, t = CCreference x (1 – Xinitial)t + CNCt + CPTt + NFRRt + AMrt + RBARt – Vt(ER)
where:
Vtarget, initial, t = the initial target income afferent to a year ‘‘t’’;
CCreference x (1 – Xinitial)t = the controllable operation and maintenance costs obtained further to the
application of an efficiency factor Xinitial to the reference controllable operation and maintenance
costs;
CNCt = the uncontrollable operation and maintenance costs;
CPTt = the cost of the energy for covering the own technological consumption approved by ANRE;
NFRR = the necessary working capital;
AMrt = the regulated amortisation for the existing assets and the new efficient investments, approved
by ANRE;
RBARt = the profitability of existing assets and new efficient investments approved by ANRE;
Vt(ER) = the income from applying the reactive energy regulated tariff.
The main controllable maintenance and operation costs comprise, inter alia, costs for raw materials
and consumables, utilities, materials, including measuring equipment, registered as inventory objects,
maintenance and repair works executed by third parties, property management and rents, insurance
premia, studies and researches, other services executed by third parties (including classes for staff training,
commissions and fees, protocol, advertising, business trips, transfers and secondments, postal fees and
communication taxes), staff salaries and allowances and damages paid to third parties for the execution of
maintenance works, established by the parties’ agreement.
The following costs are considered uncontrollable maintenance and operation costs by ANRE:
• costs resulting from payment of taxes and duties towards central and local authorities;
• regulated costs regarding special expenses;
• contributions towards health funds, special funds having a similar nature to the salary fund;
• regulated costs with distribution generated from using the distribution networks owned by third
parties;
• extraordinary costs determined by a force majeure case;
• costs generated from the impossibility to disconnect companies, based on a primary enactment;
• costs resulting from damages established by court decision and paid by the distribution operator to
third parties for the execution of maintenance works.
Costs relating to the energy necessary for covering own technological consumption is estimated
utilising the cost of energy and the costs for the transport service, system services and market
administration.
For the calculation of the necessary working capital the following formula is used:
NFRR = 1/12 x COM x RRR
where:
NFRR = the necessary working capital;
COM = controllable and uncontrollable operation and maintenance costs;
RRR = regulated profitability rate.
234
The cost of the regulated amortisation is determined as sum of the initial RAB amortisation and the
amortisation of fixed assets registered in the accounts each year, according to the following formula:
AMrt = AMBARinitial + AMexisting + AMinv
where:
AMrt = regulated amortisation afferent to a generic year ‘‘t’’;
AMBARinitial = initial RAB amortisation established through a linear method for a lifetime of 25 years;
AMexisting = total annual amortisation of fixed assets afferent to each year, registered in the fixed
assets list of the company between 1 January 2005 and 31 December of the year ‘‘t1’’;
AMinv = the amortisation of fixed assets envisaged to be put/put into operation during the year ‘‘t’’.
For determining the forecasted RBAR the following formula is used:
RBAR t = RRR x
BAR t1jan + BARt31dec
2 4JUN201405032530
where:
RBARt = regulated assets base profitability;
RRR = regulated profitability rate;
BARt1jan = RAB at 1 January of the year ‘‘t’’;
BARt31dec = RAB at 31 December of the year ‘‘t’’;
t = a generic year from the regulation period.
For determining RBAR achieved, the inputs/outputs of fixed assets effectively made in the respective
year are considered:
RBAR t = RRR x (BAR t1jan – AMINVt + IAt – EAt –
2
AM existing
)
2
4JUN201405014829
where:
RBARt = regulated assets base profitability;
RRR = regulated profitability rate;
BARt1jan = RAB at 1 January of the year ‘‘t’’;
t = a generic year from the regulation period;
AMINVt = fixed assets put into operation during year t’s amortisation;
IAt = inputs of fixed assets during year t, recognised and approved by ANRE for which amortisation
is registered;
EAt = outputs of fixed assets during year t by way of sale, decommissioning etc., from the fixed assets
put into operation after 1 January 2005;
AMexisting = amortisation of existing fixed assets (initial RAB and fixed assets put into operation after
1 January 2005).
235
For computing the distribution tariffs, RAB forecasted and achieved is calculated according to the
following formula:
BARt31dec = BARt1jan + IAt EAt AMrt
where:
BARt31dec = RAB at 31 December of the generic year ‘‘t’’;
BARt1jan = RAB at 1 January of the year t;
IAt = inputs of fixed assets during year t, recognised and approved by ANRE for which amortisation
is registered;
EAt = outputs of fixed assets during year t by way of sale, decommissioning etc., from the fixed assets
put into operation after 1 January 2005;
AMrt = amortisation afferent to year t.
The value of the RAB achieved at 31 December of the reference year of the period p+1 (BARp), in
real terms, is computed taking into consideration the input/output of fixed assets, already made and
accepted by ANRE and the corrected inflation rate (RI) according to the following formula, where k
represents the number of years of the regulation period:
k
BAR p = BAR p-1 x
k-1
(1 + RIi ) +
i=1
k
[(IAt – EA t – AMt) x
(1+RIi )] + IA k – EA k – AM k
i=t+1
t=1
3JUN201422184872
where the terms are defined as per the explanations to the formulas above.
The distribution operator must send to ANRE the forecasted investment plan, which, after being
approved by ANRE shall be included in the RAB.
The investment plan is divided into three types of investments, with an obligation to demonstrate the
resulting efficiency gain for each of them, as follows:
• essential investments which serve to ensure the safety of exploitation of the distribution network
and the continuity of the electricity supply, including without limitation, the following:
• retrofitting and modernisation of power lines and transformer stations which are overloaded or
which do not correspond to technical norms in force;
• the replacement of existing equipment which are worn and for which proper maintenance
works can no longer be made, the replacement of equipment for observing environmental
requirements;
• the acquisition of equipment for ensuring work safety;
• installations for compensating the power factor.
• necessary investments for the development, modernisation and increased efficiency of the
distribution grid for ensuring the performance standards, including without limitation, the
following:
• replacement of existing equipment which have been amortised, whose technical specifications
are no longer adequate for compliance;
• replacement of equipment, retrofitting and modernisation works for the reduction of own
technical consumption, replacement of measurement groups;
• improvements to the quality of the distribution service, including works for increasing the
voltage capacity;
• development of new capacities and the extension of the existing distribution network for
supporting new users;
• implementation of smart meter systems; and
• new connection works and network consolidation works;
236
• justifiable investments for which expenses need to be analysed in relation to the benefit they bring,
including without limitation, the following:
• acquisition of tools;
• improvement of working conditions, including the modernisation of office buildings,
acquisition of vehicles; and
• acquiring energy distribution capacities from third parties.
The regulated profitability rate (‘‘RRR’’) is calculated by ANRE in real terms on the basis of the
average weighted cost of capital prior to taxes, and is approved by ANRE order.
The cost of capital, in real terms, may be computed on the basis of the average weighted cost with
capital prior to taxes, according to the following formula:
RRR = CCP x Kp / (1 – T) + CCI x Ki (%)
where:
RRR = regulated profitability rate;
CCP = cost of equity in real terms, computed after taxes, recognised by ANRE (%);
CCI = Cost of debt in real terms, computed before taxes, recognised by ANRE (%);
Kp = proportion of own capital in the overall capital, established by ANRE (%);
Ki = proportion of borrowed capital in the overall capital, established by ANRE (%);
T = profit tax.
The cost of equity may be determined using the formula:
CCP = Rf + (Rm – Rf) x ȋ
where:
CCP = cost of equity in real terms, computed after taxes, recognised by ANRE (%);
Rf = profitability rate of risk free investments (e.g. interest from state/treasury bonds);
Rm = profitability rate on the stock market (expected income from the stock market portfolio)
(Rm–Rf) is the premium for the market risk;
ȋ – a coefficient which expresses the correlation between the income resulted from the market
portfolio and the individual income of the company representing a comparision of the market risk;
(Rm – Rf) *ȋ = the determination of the risk premium in percentages.
The Xfinal factor is determined on the basis of the following equation:
n
n
m
n
t
t
t
∑ {[1/(1+RRR) ] x (1 – X final ) x ∑ ∑ p 0 ij q tij } = ∑ { [1/(1+RRR) ] x Vt,target initial }
t=1
t=1 i=1
j=1
4JUN201405042640
where:
(1+RRRt) = update factor used for computing updated net incomes afferent to a generic year ‘‘t’’;
Vt,target initial = the initial target income afferent to t;
n
m
(1–Xfinal)t x ∑ ∑ p 0 ij q tij
t=1 i=1
= the yearly incomes computed with the tariffs afferent to the reference year
and quantities afferent to year t;
4JUN201405054088
i = voltage level;
j = the category of users connected to the voltage level i;
n = the number of voltage levels;
m = the number of categories of users.
237
The determination of yearly tariffs, of yearly regulated income including the corrections relating to the
previous year, in each year of the regulated period, is made on a cap and floor formula:
1 + RI t+1 – Xfinal +
– S
n
i =1
m
t+1 t
j =1 Pij q ij
n
i =1
j =1 Pij q ij
4JUN201405062743
m
t
t
where:
ptij = the prices used in the year ‘‘t’’ for the component ‘‘j’’ of tariff ‘‘i’’;
pt+1ij = the price proposed for the component ‘‘j’’ of tariff ‘‘i’’ in year t+1;
qtij = the quantities of energy afferent to the ‘‘j’’ component of tariff ‘‘i’’ registered in year t;
RIt+1 = regulated inflation rate considered by ANRE when computing the distribution tariffs;
S = incentive factor correlated with the distribution service quality level.
Any efficiency gain obtained by the distribution company on each voltage level, by reaching a network
losses level which is less than the approved target, remains in the distribution company in a percentage of
25% for high and medium voltage and 50% for low voltage, while the difference of up to 100% is
attributed to consumers.
Other key areas of regulation
Additional regulation of the electricity distribution and supply industry in Romania are set out below:
Exclusive right to distribute electricity
Electricity distribution services are governed by an exclusive concession included in concession
agreements concluded by distributors with the Ministry of Economy. These concession agreements,
together with the distribution licenses issued by ANRE, provide an exclusive right for an electricity
distribution company to conduct its electricity distribution operations in a certain area.
The Group’s three areas of exclusivity for its distribution operations are:
• for EDTN, the geographical area of Northern Transylvania, comprising Cluj, Bihor, Salaj, BistritaNasaud, Satu Mare and Maramures counties;
• for EDTS, the geographical area of Southern Transylvania, comprising Brasov, Sibiu, Alba, Mures,
Harghita and Covasna counties; and
• for EDMN, the geographical area of Northern Muntenia, comprising Prahova, Dambovita, Buzau,
Braila, Galati and Vrancea counties.
Distribution companies have the following rights under these concession and licence arrangements:
• to negotiate the acquisition or renting of existing distribution capacities in an exclusive region of
activity and/or to prevent the existing distributors from connecting any new clients and/or increasing
the capacity of their distribution networks without the prior approval of the exclusive distribution
license holder for that region;
• the right to refuse the issuance of a new distribution license for their region of exclusivity by ANRE,
in the absence of the approval of the respective distribution operator.
At the end of the distribution concession period, the grantor of the concession shall purchase the
ownership right over the relevant assets owned by the distribution company, together with any other rights
relating to their operation. The purchase price for such assets is equal to the RAB value considered by the
relevant authority upon the establishment of the tariffs for the year when the option is exercised in the case
of a no-fault termination, or with the RAB value considered by the relevant authority upon the
establishment of the tariffs for the year when the option is exercised, discounted by 10% in the case of an
earlier termination of the concession for cause or due to the concessionaire’s entry into insolvency,
bankruptcy, liquidation or dissolution procedure.
Development of the distribution network
According to the Energy Law, distribution operators are obliged to develop and extend distribution
networks operated by them to areas within their licenced region, upon the request of the local
238
administrative authorities. Within 60 days of such request, the distribution operators must submit to
ANRE a feasibility study for evaluating the financing options for such developments.
Distribution quality standards
Quality standards for electricity distribution are set out in ANRE Order 28/2007. Electricity
distribution quality standards include performance indicators regarding: (i) continuity in energy supply to
consumers; (ii) the technical quality of the electricity distributed, and (iii) the commercial quality of the
distribution service. Electricity distributors must provide ANRE annual reports regarding compliance with
the quality standards, which mainly refer to the observance of performance indicators, power outages and
client complaints.
The main energy distribution continuity indicators provided by ANRE Order 28/2007 are as follows:
(i) the number of long interruptions;
(ii) SAIFI (System Average Interruption Frequency Index). The index of average interruption
frequency in the network (system) for a consumer represents the average number of interruptions
borne by the consumers serviced by the distribution operator. This index is computed by dividing
the total number of consumers interrupted for more than 3 minutes (Ni) by the total number of
consumers serviced by the distribution operator (Nt);
3JUN201422084204
(iii) SAIDI (System Average Interruption Duration Index). The index of average interruption
duration in the network (system) for a consumer represents the average period of interruption of
the consumers at the distribution operator’s level (weighted average). The second formula
(i.e. the weighted average) is used in case the reconnection of the consumers is done in multiple
phases and not simultaneously for all the consumers. The index is computed by dividing the
aggregated duration of long interruptions by total number of consumers serviced by the
distribution operator.
or
3JUN201422083994
In which:
Di—duration (time) of user’s disconnection (from the moment of disappearance of tension until
reconnection) for disconnection i.
Dif—duration (time) of user’s disconnection (from the moment of disappearance of tension until
reconnection) for stage j of disconnection i.
As regards the other distribution performance indicators (ENS, AIT), they refer to various technical
parameters of the electricity, which have to be observed by the distribution operators, as well as to their
obligation to connect to their grid every consumers which file an application in this regard, provided that
this connection does not endanger the safety of the distribution system.
Connection to the grid
Pursuant to ANRE Order no. 59/2013 approving the Regulation for the connection of users to public
electricity networks, upon the written request of any interested person, a distribution operator must
provide information regarding the conditions and costs for their connection to the distribution network.
The distribution operator shall then establish a connection solution and issue a technical connection
permit for a regulated fee. The technical connection permit states that the main characteristics includes the
conditions for connection to the grid, such as the approved power, the technical conditions for connection,
the value of the connection tariff, its validity and other obligations, including the obligation to perform grid
reinforcement works, if necessary. A connection contract is concluded between the user and the
distribution grid operator and connection is made further to the carrying out of any grid reinforcement
239
works. A connection certificate is the final document issued by the distribution operator after all the works
are carried out and connection installation is made.
Public procurement procedures
Companies which undertake electricity distribution and supply services are considered as contracting
authorities and are required to observe applicable public procurement rules provided by the EGO
no. 34/2006 on the awarding of public procurement contracts, public works concession agreements and
services concession agreements. Public procurement procedures are mandatory in case of acquisition of
works, products or services by a contracting authority.
For a description of the risks connected with the Group’s compliance with public procurement
procedures, see ‘‘Risk Factors—Risks relating to the Group’s Business and Industry—Failure to observe public
procurement legislation by members of the Group may lead to fines and voided contracts’’.
Exclusive right to supply electricity
As part of the continuing liberalisation of the energy market, all categories of consumers in Romania
have the right to choose their electricity supplier.
Where consumers may not practically have access to a different supplier due to technical or
commercial reasons, or when consumers do not express an intention to contract the supply of energy from
a chosen supplier, ANRE has mandated the following companies to be last resort suppliers for their
corresponding regions:
• Electrica Furnizare SA;
• Enel Energie Muntenia SA;
• Enel Energie SA;
• E.On Energie SA;
• CEZ Vanzare SA.
These last resort suppliers provide the universal supply service under regulated conditions set by
ANRE to household consumers and to business benefiting from universal service (defined as companies
having less than 50 employees and annual turnover or total assets of less than EUR 10 million per year).
Electrica Furnizare has been nominated by ANRE Order no. 47/2013 to supply electricity to final
consumers with no supplier except for consumers that have been disconnected for theft or non-payment (a
‘‘supplier of last resort’’). Electrica Furnizare holds an exclusive right to supply electricity to captive
consumers and consumers which benefit from universal service in each of the regions covered by the
distribution licenses granted by ANRE to EDMN, EDTN and EDTS.
According to a new draft regulation for appointing the last resort suppliers, ANRE plans to appoint
suppliers of last resort under a competitive process, based on the best price offer principle. Under this
proposal, a supplier may be appointed for maximum of three supply areas. It is uncertain when this
regulation will be approved by ANRE or whether the current draft will be subject to amendments before
being adopted.
For domestic consumers, the process of elimination of regulated tariffs will be finalised by 1 January
2018. During the period of regulated tariff elimination, electricity shall be purchased both under regulated
contracts (decided by ANRE) as well as under contracts concluded on the PCCB. The ratio of each of
these two categories of contracts is determined according to the stage which deregulation has reached. For
more information on this market liberalisation, see ‘‘Market Overview—The Romanian Electricity Industry—
History’’.
Supply quality standards
The quality standards for electricity supply are set out in ANRE Order 1/2010. Electricity suppliers
must provide ANRE with annual reports regarding compliance with the quality standards, which mainly
refer to the contracting activity of suppliers, the number of claims regarding invoicing and other related
supply matters, such as client care services, change of supplier requests and failures to provide service.
240
Electricity suppliers must provide consumers who request an electricity supply agreement with
specified information regarding the procedures and costs involved. A licensed electricity supplier may not
refuse the conclusion of a supply agreement with a domestic consumer located in its licensed area or of a
domestic consumer located in another supplier’s area, where that consumer is in such close proximity to
the licencee’s region that it would be cheaper to contract the supply of electricity with the third party and
not the incumbent regional licence.
Other obligations related to supply
The tariff for the competitive market segment is computed by the supplier on the basis of the
acquisition of energy exclusively from the competitive market, and comprises the costs of acquisition of
electricity from the competitive centralised markets as well as the cost of services associated with this
electricity being provided to the consumer, and is approved by ANRE.
Under the terms of their supply licence, a supplier may also be required to purchase electricity from
producers that benefit from alternative support schemes such as renewable and cogeneration generators
that receive a feed-in tariff. In such cases, the licensed supplier must acquire all the energy produced by
renewable power generators with production capacity of up to one MW and cogeneration power
generators with production capacity of up to two MW. Electrica Furnizare currently is not required to
purchase electricity under this regime.
In accordance with EU principles regarding the liberalisation of cross border trading of energy,
Romanian suppliers of electricity are allowed to enter into import/export contracts with producers or
suppliers of energy from neighbouring countries. Electricity suppliers are required to disclose to their
customers (both consumers and suppliers), by way of the energy label, the quota of any electricity acquired
by types of sources (including imported electricity).
Electricity supply companies conclude regulated contracts for the long term supply of electricity to
residential consumers. ANRE provides the basic terms of these regulated contracts and establishes the
prices for electricity and the tariffs for the various other services provided, such as for the electricity
measurement. These regulated contracts are generally concluded for an undetermined period of time.
Termination may be voluntary by the consumer, by unilateral notice, or by the supplier, as a sanction for
the non-payment for the electricity or fraudulent consumption. However, consumers may, as the electricity
market is liberalised, be able to switch suppliers with increasing ease. This may represent a potential loss of
consumers by Electrica Furnizare and may have a significant and adverse effect on the Group. At the same
time, market liberalisation may provide an opportunity for Electrica Furnizare to gain new clients. For a
description of the risk that liberalisation poses to the Group, see ‘‘Risk Factors—Risks relating to the
Group’s Business and Industry—The Group’s supply segment will face an increase in competition for the supply
of electricity as the electricity supply market continues to be liberalised’’.
The contracted supply must be provided on terms set by the relevant technical connection permit.
Non-material amendments to the long term supply contract may be made by the electricity supplier and
the consumer, but basic terms may only be changed or amended by ANRE and the regulated fees under
the long term supply contract are set by ANRE. The regulated prices to be charged for the energy by
suppliers are currently set by ANRE Orders 40/2013 and 41/2013.
Payment under long term regulated supply contracts must be made within 15-30 days from issuance of
the invoice by the electricity supplier depending on customers’ category. In the event that payment is not
made within the 30 days, the licensed electricity supplier may charge penalties and, upon giving notice, may
suspend the supply of electricity to the consumer and terminate the contract if the invoice is not paid
within 60 days from the date of suspension, except in the case of special classes of consumers as outlined
below.
An additional obligation to supply energy derives from the GD no. 1007/2004 regarding the approval
of the energy supply regulation. Generally, subject to certain insolvency-related restrictions, if a consumer
does not pay for electricity supplied, the supplier may disconnect the consumer. However, certain types of
consumers are deemed of special importance, such as hospitals, rescue stations, schools, retirement homes,
or air, naval and railroad traffic services, and these consumers cannot be disconnected. As a result,
electricity must be provided to them even if they are in payment default.
Furthermore, under the provisions of the Insolvency Law suppliers of electricity are not allowed to
disconnect debtors involved in insolvency proceedings who are captive consumers until their bankruptcy is
approved.
241
Another special obligation to supply applies on the basis of art. 38 of the Insolvency Law. Pursuant to
this legal provision, an electricity supplier cannot suspend or interrupt the supply of electricity to a ‘‘captive
consumer’’, which is defined by the Insolvency Law as a consumer which may not choose its energy
supplier due to technical, commercial or regulatory conditions, during the observation period and/or
during the judicial reorganisation period undergone by the relevant consumer. The electricity supplier
could, however, request the court that the consumer establishes a guarantee for the provision of the
electricity supply service, in amount of up to 30% of the value of the services provided and unpaid prior to
the opening of the insolvency procedures. In the event that the consumer does not pay its current
electricity bills, the supplier could request the judge to require the consumer to pay or to approve the
interruption of the electricity supply. Pursuant to a new insolvency law which was approved by the
Romanian Parliament and which is pending promulgation by the Romanian President, the supplier is
entitled to interrupt the supply of electricity in the event that the debtor does not pay the value of the
supplied electricity consumed subsequent to the initiation of the insolvency proceedings for more than
90 days. However, the provisions of the new insolvency law will not apply to insolvency proceedings
initiated prior to its entering into force. For risks relating to the Insolvency Law, see ‘‘Risk Factors—Risks
Relating to the Group’s Business and Industry—Electrica Furnizare may be prohibited from suspending or
interrupting the supply of electricity to certain of the Group’s customers, even if such customers are in payment
default’’.
Interruption of electricity supply activity may be programmed for the execution of works or operations
relating to electrical installations, may be accidental due to incidents in the system or may be intentional in
order to limit network damage. In the event that of scheduled interruptions, the distribution network
operator must notify customers affected by power interruption prior to their intervention with a period of
time established through the performance standards then in force. Energy supply interruption may also be
made at the request of the consumer if notified to the supplier or distribution operator.
Contractual relationship with consumers
Consumer rights and customer support obligations are imposed under an electricity supply licence. As
a result, electricity suppliers must provide potential consumers with information regarding contracting of
supply services, costs, payment methods and other important information. Electricity suppliers must also
have in place contact centres where consumers may obtain the information regarding contracting the
supply service, as well as have client services in place to respond to consumers’ concerns regarding the
supply service. The number, variety and availability of the customer support services are a requirement of
the quality standard required under the supply licence. While these reporting obligations are significant,
management believes that the Group’s shared services centre will afford it a scalable cost base in relation
to its customer resource management platform, and as the largest incumbent supplier, data received
through these reporting requirements will afford the Group a significant advantage over its competitors in
terms of customer information. For more information, see ‘‘Business—Strengths’’.
Obligation to purchase Green Certificates
The incentives behind renewable electricity generation in Romania are based mainly on a system of
Green Certificates combined with mandatory quotas established annually by ANRE, which together result
in an obligation for electricity suppliers and certain producers to acquire them, in proportion to the volume
of electricity sold by them to end-consumers or used for own consumption, excluding electricity used for
their own technical consumption. As a result, Electrica Furnizare has an obligation to purchase Green
Certificates and in 2014 this estimated mandatory quota is of 0.237 green certificates per 1 MWh.
OPCOM operates the Green Certificates Market, which consists of the Green Certificates Centralised
Market and the Green Certificates Bilateral Agreements Market, on which Green Certificates are traded
by electricity generators and suppliers. Green Certificates are tradable certificates representing a quantity
of electricity that a power generator has obtained from renewable sources.
The Green Certificates scheme is implemented by Law no. 220/2008 pertaining to the promotion
system for energy produced from renewable energy sources, as subsequently amended (‘‘Law 220/2008’’)
and has been approved by the European Commission through Decision C (2011) 4.938. Each renewable
energy generator, after receiving accreditation from ANRE, is granted a number of green certificates by
Transelectrica. The number of Green Certificates granted per MWh depends on the type of renewable
energy source used by the respective generator, under Law 220/2008, as subsequently amended.
242
The legal framework defining Green Certificates comprises Law 220/2008, as amended and
supplemented by EGO no. 88/2011, approved by Law no. 134/2012 and EGO no. 57/2013 regarding the
amendment and supplementing of Law no. 220/2008 for the establishment of the promotion system for
energy generation from renewable sources and Law no. 23/14.03.2014.
In the event that suppliers and producers do not meet their annual mandatory Green Certificate
purchase quotas, they are required to pay a penalty to the Environmental Fund Administration for the
shortfall. Green Certificates cannot be traded outside of the Green Certificates Market.
The quota of renewable electricity which will benefit the Green Certificates scheme for 2014 has been
reduced from 15% to 11.1%, and therefore the Green Certificates mandatory purchase quota will also
decrease. Moreover, some large electricity consumers will be exempted from purchasing Green
Certificates, subject to certain condition. This could lead to an oversupply of Green Certificates in future,
with the result of a decrease in prices for Green Certificates and ultimately, a decrease in electricity bills.
243
TERMS AND CONDITIONS
TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS
The following terms and conditions (subject to completion and amendment and excepting sentences in
italics) will apply to the Global Depositary Receipts, and will be endorsed on each Global Depositary Receipt
certificate:
The Global Depositary Receipts (‘‘GDRs’’) represented by this certificate are issued in respect of
ordinary shares (the ‘‘Shares’’) in Societatea Comercială de Distribuţie şi Furnizare a Energiei Electrice
‘‘ELECTRICA’’ S.A. (the ‘‘Company’’) pursuant to and subject to an agreement dated on or before the
Settlement Date to be made between the Company and The Bank of New York Mellon in its capacity as
depositary (the ‘‘Depositary’’) for the ‘‘Regulation S Facility’’ and for the ‘‘Rule 144A Facility’’ (such
agreement, as amended from time to time, being hereinafter referred to as the ‘‘Deposit Agreement’’).
Pursuant to the provisions of the Deposit Agreement, the Depositary has appointed Raiffeisen Bank S.A.
as Custodian (the ‘‘Custodian’’) to receive and hold on its behalf any relevant documentation respecting
certain Shares (the ‘‘Deposited Shares’’) and all rights, interests and other securities, property and cash
deposited with the Custodian which are attributable to the Deposited Shares (together with the Deposited
Shares, the ‘‘Deposited Property’’). The Depositary shall hold Deposited Property for the benefit of the
Holders (as defined below) as bare trustee (other than any cash comprised in the Deposited Property
which is held as banker pursuant to Condition 26) in proportion to their holdings of GDRs. In these terms
and conditions (the ‘‘Conditions’’), references to the ‘‘Depositary’’ are to The Bank of New York Mellon
and/or any other depositary which may from time to time be appointed under the Deposit Agreement,
references to the ‘‘Custodian’’ are to Raiffeisen Bank S.A. or any other custodian from time to time
appointed under the Deposit Agreement and references to the ‘‘Main Office’’ mean, in relation to the
relevant Custodian, its head office in the city of Bucharest or such other location of the head office of the
Custodian in Romania as may be designated by the Custodian with the approval of the Depositary (if
outside the city of Bucharest) or the head office of any other custodian from time to time appointed under
the Deposit Agreement.
The GDRs will upon issue be represented by interests in a Regulation S Master GDR, evidencing
Regulation S GDRs, and by interests in a Rule 144A Master GDR, evidencing Rule 144A GDRs (as each such
term is defined in the Deposit Agreement). The GDRs are exchangeable in the circumstances set out in
[‘‘Summary of Provisions Relating to the GDRs while in Master Form’’] for a certificate in definitive registered
form in respect of GDRs representing all or part of the interest of the holder in the Master GDR.
References in these Conditions to the ‘‘Holder’’ of any GDR shall mean the person or persons
registered on the books of the Depositary maintained for such purpose (the ‘‘Register’’) as holder. These
Conditions include summaries of, and are subject to, the detailed provisions of the Deposit Agreement,
which includes the forms of the certificates in respect of the GDRs. Copies of the Deposit Agreement are
available for inspection at the specified office of the Depositary and each Agent (as defined in
Condition 17) and at the Main Office of the Custodian. Terms used in these Conditions and not defined
herein but which are defined in the Deposit Agreement have the meanings ascribed to them in the Deposit
Agreement. Holders of GDRs are not party to the Deposit Agreement and thus, under English Law, have
no contractual rights against, or obligations to, the Company or Depositary. However, the Deed Poll
executed by the Company in favour of the Holders provides that, if the Company fails to perform the
obligations imposed on it by certain specified provisions of the Deposit Agreement, any Holder may enforce
the relevant provisions of the Deposit Agreement as if it were a party to the Deposit Agreement and was the
‘‘Depositary’’ in respect of that number of Deposited Shares to which the GDRs of which he is the Holder
relate. The Depositary is under no duty to enforce any of the provisions of the Deposit Agreement on behalf
of any Holder of a GDR or any other person.
1.
Withdrawal of Deposited Property and Further Issues of GDRs
1.1 Any Holder may request withdrawal of, and the Depositary shall thereupon relinquish, the Deposited
Property attributable to any GDR upon production of such evidence of the entitlement of the Holder
to the relative GDR as the Depositary may reasonably require, at the specified office of the
Depositary or any Agent accompanied by:
(a) a duly executed order (in a form approved by the Depositary) requesting the Depositary to cause
the Deposited Property being withdrawn to be delivered at the Main Office of the Custodian, or
(at the request, risk and expense of the Holder, and only if permitted by applicable law from time
244
to time) at the specified office located in New York, London or Romania of the Depositary or any
Agent, or to the order in writing of, the person or persons designated in such order;
(b) the payment of such fees, taxes, duties, charges, costs, expenses and governmental charges as may
be required under these Conditions or the Deposit Agreement;
(c) the surrender (if appropriate) of GDR certificates in definitive registered form properly endorsed
in blank or accompanied by proper instruments of transfer satisfactory to the Depositary to which
the Deposited Property being withdrawn is attributable; and
(d) the delivery to the Depositary of a duly executed and completed certificate substantially in the
form set out in Part B of Schedule 4 to the Deposit Agreement (or as amended by the Depositary
in accordance with Clause 3.10 of the Deposit Agreement and Condition 1.8), if Deposited
Property is to be withdrawn or delivered in respect of surrendered Rule 144A GDRs.
1.2 Upon production of such documentation and the making of such payment as aforesaid for withdrawal
of the Deposited Property in accordance with Condition 1.1, the Depositary will direct the Custodian,
by tested telex, facsimile or SWIFT message, within a reasonable time after receiving such direction
from such Holder, to deliver at its Main Office to, or to the order in writing of, the person or persons
designated in the accompanying order:
(a) evidence of a book-entry transfer in respect of the relevant Deposited Shares, registered as
directed by the withdrawing Holder; and
(b) all other property forming part of the Deposited Property attributable to such GDR,
accompanied, if required by law, by one or more duly executed endorsements or instruments of
transfer in respect thereof; provided however that the Depositary may make delivery at its
specified office in New York of any Deposited Property which is in the form of cash;
PROVIDED THAT the Depositary (at the request, risk and expense of any Holder so surrendering a
GDR):
(i) will direct the Custodian to deliver the certificates for, or other instruments of title to, or
book-entry transfer in respect of, the relevant Deposited Shares and any document relative
thereto and any other documents referred to in sub-paragraphs 1.2(a) and (b) of this Condition
(together with any other property forming part of the Deposited Property which may be held by
the Custodian or its agent and is attributable to such Deposited Shares); and/or
(ii) will deliver any other property forming part of the Deposited Property which may be held by the
Depositary and is attributable to such GDR (accompanied, if required by law, by one or more
duly executed endorsements or instruments of transfer in respect thereof);
in each case to the specified office located in New York or London of the Depositary (if permitted by
applicable law from time to time) or at the specified office in Romania of any Agent as designated by
the surrendering Holder in the order accompanying such GDR.
1.3 Delivery by the Depositary, any Agent and the Custodian of all certificates, instruments, dividends or
other property forming part of the Deposited Property as specified in this Condition will be made
subject to any laws or regulations applicable thereto.
1.4 The Depositary may, in accordance with the terms of the Deposit Agreement and upon delivery of a
duly executed order (in a form reasonably approved by the Depositary) and a duly executed certificate
substantially in the form of (a) Schedule 3 of the Deposit Agreement (which is described in the
following paragraph) (or as amended by the Depositary in accordance with Clause 3.10 of the Deposit
Agreement and Condition 1.8) by or on behalf of any investor who is to become the beneficial owner
of the Regulation S GDRs or (b) Part A of Schedule 4 of the Deposit Agreement (which is described in
the second following paragraph) (or as amended by the Depositary in accordance with Clause 3.10 of
the Deposit Agreement and Condition 1.8) by or on behalf of any investor who is to become the
beneficial owner of Rule 144A GDRs from time to time execute and deliver further GDRs having the
same terms and conditions as the GDRs which are then outstanding in all respects (or the same in all
respects except for the first dividend payment on the Shares represented by such further GDRs) and,
subject to the terms of the Deposit Agreement, the Depositary shall accept for deposit any further
Shares in connection therewith, so that such further GDRs shall form a single series with the already
outstanding GDRs. References in these Conditions to the GDRs include (unless the context requires
245
otherwise) any further GDRs issued pursuant to this Condition and forming a single series with the
already outstanding GDRs.
The certificate to be provided in the form of Schedule 3 of the Deposit Agreement certifies, among other
things, that the person providing such certificate is located outside the United States and will comply with
the restrictions on transfer set forth under ‘‘Transfer Restrictions’’.
The certificate to be provided in the form of Part A of Schedule 4 of the Deposit Agreement certifies, among
other things that the person providing such certificate is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act (‘‘QIB’’)) or is acting for the account of another person and such
person is a QIB and, in either case, will comply with the restrictions on transfer set forth under ‘‘Transfer
Restrictions’’.
1.5 Any further GDRs issued pursuant to Condition 1.4 which (i) represent Shares which have rights
(whether dividend rights or otherwise) which are different from the rights attaching to the Shares
represented by the outstanding GDRs, or (ii) are otherwise not fungible (or are to be treated as not
fungible) with the outstanding GDRs, will be represented by a GDR certificate in definitive form or a
separate temporary Regulation SMaster GDR and/or temporary Rule 144AMaster GDR. Upon
becoming fungible with outstanding GDRs, such further GDRs shall be evidenced by a Regulation S
Master GDR and/or a Rule 144AMaster GDR (by increasing the total number of GDRs evidenced by
the relevant Regulation S Master GDR or Rule 144A Master GDR by the number of such further
GDRs, as applicable).
1.6 The Depositary may issue GDRs against rights to receive Shares from the Company (or any agent of
the Company recording Share ownership). No such issue of GDRs will be deemed a ‘‘Pre-Release’’ as
defined in Condition 1.7.
1.7 The provisions of Condition 1.6 and the following provisions of this Condition 1.7 shall only apply to
the extent a written opinion of Romanian counsel in form and substance acceptable to both the
Depositary and the Company is received by the Depositary confirming that the transactions described
therein are permissible under Romanian law.
The Depositary may execute and deliver GDRs or issue interests in a Regulation S Master GDR or a
Rule 144A Master GDR, as the case may be, prior to the receipt of Shares (a ‘‘Pre-Release’’). The
Depositary may, pursuant to Condition 1.1, deliver Shares upon the receipt and cancellation of GDRs,
which have been Pre-Released, whether or not such cancellation is prior to the termination of such
Pre-Release or the Depositary knows that such GDR has been Pre-Released. The Depositary may
receive GDRs in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release will be (a) preceded
or accompanied by a written representation and agreement from the person to whom GDRs or
Deposited Property are to be delivered (the ‘‘Pre-Releasee’’) that such person, or its customer,
(i) owns or represents the owner of the corresponding Deposited Property or GDRs to be remitted (as
the case may be), (ii) assigns all beneficial right, title and interest in such Deposited Property or
GDRs (as the case may be) to the Depositary in its capacity as such and for the benefit of the Holders,
and (iii) will not take any action with respect to such GDRs or Deposited Property (as the case may
be) that is inconsistent with the transfer of beneficial ownership (including without the consent of the
Depositary, disposing of such GDRs or Deposited Property, as the case may be), other than in
satisfaction of such Pre-Release, (b) at all times fully collateralised with cash or such other collateral
as the Depositary determines in good faith will provide substantially similar liquidity and security,
(c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to
such further indemnities and credit regulations as the Depositary deems appropriate. The number of
GDRs which are outstanding at any time as a result of Pre-Release will not normally represent more
than 30% of the total number of GDRs then outstanding; provided, however, that the Depositary
reserves the right to change or disregard such limit from time to time as it deems appropriate and
may, with the prior written consent of the Company, change such limit for the purpose of general
application. The Depositary will also set dollar limits with respect to Pre-Release transactions
hereunder with any particular Pre-Releasee on a case by case basis as the Depositary deems
appropriate. The collateral referred to in sub-paragraph (b) above shall be held by the Depositary as
security for the performance of the Pre-Releasee’s obligations in connection herewith, including the
Pre-Releasee’s obligation to deliver Shares and/or other securities or GDRs upon termination of a
Pre-Release transaction anticipated hereunder (and shall not, for the avoidance of doubt, constitute
Deposited Property hereunder).
246
The Depositary may retain for its own account any compensation received by it in connection with the
foregoing including, without limitation, earnings on the collateral.
The person to whom any Pre-Release of Rule 144A GDRs or Rule 144A Shares is to be made
pursuant to this Condition 1.7 shall be required to deliver to the Depositary a duly executed and
completed certificate substantially in the form set out in Part A of Schedule 4 of the Deposit
Agreement (or as amended by the Depositary in accordance with Clause 3.10 of the Deposit
Agreement and Condition 1.8). The person to whom any Pre-Release of Regulation S GDRs or
Regulation S Shares is to be made pursuant to this paragraph shall be required to deliver to the
Depositary a duly executed and completed certificate substantially in the form set out in Schedule 3 of
the Deposit Agreement (or as amended by the Depositary in accordance with Clause 3.10 of the
Deposit Agreement and Condition 1.8).
1.8 The Depositary may make such amendments to the certificates contained in the Deposit Agreement
in Schedule 3 and in Parts A and B of Schedule 4 as it may determine are required in order for the
Depositary to perform its duties under the Deposit Agreement, or to comply with any applicable law
or with the rules and regulations of any securities exchange, market or automated quotation system
upon which the GDRs may be listed or traded, or to comply with the rules or requirements of any
book entry system by which the GDRs may be transferred, or to confirm compliance with any special
limitations or restrictions to which any particular GDRs are subject.
1.9 In order to comply with any applicable laws and regulations, the Depositary may from time to time
request each Holder of GDRs to, and each Holder shall upon receipt of such request, provide to the
Depositary information relating to: (a) the capacity in which such Holder and/or any owner holds
GDRs; (b) the identity of any owners of GDRs or other person or persons then or previously
interested in such GDRs; (c) the nature of any such interests in the GDRs; and (d) any other matter
where disclosure of such matter is required to enable compliance by the Depositary with applicable
laws or the constitutional documents of the Company.
1.10 In order to comply with any applicable laws and regulations, the Depositary may from time to time
request Euroclear, Clearstream and DTC to provide the Depositary with details of the account
holders within such settlement systems that hold interests in GDRs and the number of GDRs
recorded in the account of each such accountholder, and each Holder or owner of GDRs, or
intermediary acting on behalf of such Holder or owner, hereby authorises each of Euroclear,
Clearstream and DTC to disclose such information to the Depositary as issuer of the GDRs.
1.11 In order to comply with any applicable laws and regulations, the Depositary may from time to time
request each Holder of GDRs to, and each Holder shall upon receipt of such request, provide to the
Depositary information relating to: (a) the capacity in which such Holder and/or any owner holds
GDRs; (b) the identity of any owners of GDRs or other person or persons then or previously
interested in such GDRs; (c) the nature of any such interests in the GDRs; and (d) any other matter
where disclosure of such matter is required to enable compliance by the Depositary with applicable
laws or the constitutional documents of the Company.
2.
Suspension of Issue of GDRs and of Withdrawal of Deposited Property
The Depositary shall be entitled, at its reasonable discretion, at such times as it shall determine, to
suspend the issue or transfer of GDRs (and the deposit of Shares) generally or in respect of particular
Shares. In particular, to the extent that it is in its opinion practicable for it to do so, the Depositary will
refuse to accept Shares for deposit, to execute and deliver GDRs or to register transfers of GDRs if it
has been notified by the Company in writing that the Deposited Shares or GDRs or any depositary
receipts representing Shares are listed on a U.S. Securities Exchange or quoted on a U.S. automated
inter dealer quotation system unless accompanied by evidence satisfactory to the Depositary that any
such Shares are eligible for resale pursuant to Rule 144A under the United States Securities Act of
1933, as amended (the ‘‘Securities Act’’). Further, the Depositary may suspend the withdrawal of
Deposited Property during any period when the Register, or the register of shareholders of the
Company is closed or, generally or in one or more localities, suspend the withdrawal of Deposited
Property or deposit of Shares if deemed necessary or desirable or advisable by the Depositary in good
faith at any time or from time to time, in order to comply with any applicable law or governmental or
stock exchange regulations or any provision of the Deposit Agreement or for any other reason. The
Depositary shall (unless otherwise notified by the Company) restrict the withdrawal of Deposited
Shares where the Company notifies the Depositary in writing that such withdrawal would result in
247
ownership of Shares exceeding any limit under any applicable law, government resolution or the
Company’s constitutive documents or would otherwise violate any applicable laws.
3.
Transfer and Ownership
The GDRs are in registered form. Title to the GDRs passes by registration in the Register and
accordingly, transfer of title to a GDR is effective only upon such registration. The Depositary will
refuse to accept for transfer any GDRs if it reasonably believes that such transfer would result in
violation of any applicable laws. The Holder of any GDR will (except as otherwise required by law) be
treated by the Depositary and the Company as its beneficial owner for all purposes (whether or not
any payment or other distribution in respect of such GDR is overdue and regardless of any notice of
ownership, trust or any interest in it or any writing on, or theft or loss of any certificate issued in
respect of it) and no person will be liable for so treating the Holder.
Interests in Rule 144A GDRs, represented by the Rule 144A Master GDR, may be transferred to a
person whose interest in such Rule 144A GDRs is subsequently represented by the Regulation S
Master GDR only upon receipt by the Depositary of written certifications (in the forms provided in
the Deposit Agreement) from the transferor and the transferee to the effect that such transfer is being
made in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act.
4.
Cash Distributions
Whenever the Depositary shall receive from the Company any cash dividend or other cash distribution
on or in respect of the Deposited Shares (including any amounts received in the liquidation of the
Company) or otherwise in connection with the Deposited Property, the Depositary shall, as soon as
practicable, convert the same into United States dollars in accordance with Condition 8. The
Depositary shall, if practicable in the opinion of the Depositary, give notice to the Holders of its
receipt of such payment in accordance with Condition 23, specifying the amount per Deposited Share
payable in respect of such dividend or distribution and the earliest date, determined by the
Depositary, for transmission of such payment to Holders and shall as soon as practicable distribute
any such amounts to the Holders in proportion to the number of Deposited Shares represented by the
GDRs so held by them respectively, subject to and in accordance with the provisions of Conditions 9
and 11; PROVIDED THAT:
(a) in the event that the Depositary is aware that any Deposited Shares are not entitled, by reason of
the date of issue or transfer or otherwise, to such full proportionate amount, the amount so
distributed to the relative Holders shall be adjusted accordingly; and
(b) the Depositary will distribute only such amounts of cash dividends and other distributions as may
be distributed without attributing to any GDR a fraction of the lowest integral unit of currency in
which the distribution is made by the Depositary, and any balance remaining shall be retained by
the Depositary beneficially as an additional fee under Condition 16.1(d).
5.
Distributions of Shares
Whenever the Depositary shall receive from the Company any distribution in respect of Deposited
Shares which consists of a dividend or free distribution of Shares, the Depositary shall cause to be
distributed to the Holders entitled thereto, in proportion to the number of Deposited Shares
represented by the GDRs held by them respectively, additional GDRs representing an aggregate
number of Shares received pursuant to such distribution. Such additional GDRs shall be distributed
by an increase in the number of GDRs represented by the Master GDRs or by an issue of certificates
in definitive registered form in respect of GDRs, according to the manner in which the Holders hold
their GDRs; PROVIDED THAT, if and in so far as the Depositary deems any such distribution to all
or any Holders not to be reasonably practicable (including, without limitation, due to the fractions
which would otherwise result or to any requirement that the Company, the Custodian or the
Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful,
the Depositary shall (either by public or private sale and otherwise at its discretion, subject to all
applicable laws and regulations) sell such Shares so received and distribute the net proceeds of such
sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto.
248
6.
Distributions other than in Cash or Shares
Whenever the Depositary shall receive from the Company any dividend or distribution in securities
(other than Shares) or in other property (other than cash) on or in respect of the Deposited Property,
the Depositary shall distribute or cause to be distributed such securities or other property to the
Holders entitled thereto, in proportion to the number of Deposited Shares represented by the GDRs
held by them respectively, in any manner that the Depositary may deem equitable and practicable for
effecting such distribution; PROVIDED THAT, if and in so far as the Depositary deems any such
distribution to all or any Holders not to be reasonably practicable (including, without limitation, due
to the fractions which would otherwise result or to any requirement that the Company, the Custodian
or the Depositary withhold an amount on account of taxes or other governmental charges) or to be
unlawful, the Depositary shall deal with the securities or property so received, or any part thereof, in
such way as the Depositary may determine to be equitable and practicable, including, without
limitation, by way of sale (either by public or private sale and otherwise at its discretion, subject to all
applicable laws and regulations) and shall (in the case of a sale) distribute the resulting net proceeds
as a cash distribution pursuant to Condition 4 to the Holders entitled thereto.
7.
Rights Issues
If and whenever the Company announces its intention to make any offer or invitation to the holders of
Shares to subscribe for or to acquire Shares, securities or other assets by way of rights, the Depositary
shall as soon as practicable give notice to the Holders, in accordance with Condition 23, of such offer
or invitation, specifying, if applicable, the earliest date established for acceptance thereof, the last date
established for acceptance thereof and the manner by which and time during which Holders may
request the Depositary to exercise such rights as provided below or, if such be the case, specifying
details of how the Depositary proposes to distribute the rights or the proceeds of any sale thereof. The
Depositary will deal with such rights in the manner described below:
(a) if and to the extent that the Depositary shall, at its discretion, deem it to be lawful and reasonably
practicable, the Depositary shall make arrangements whereby the Holders may, upon payment of
the subscription price in Lei or other relevant currency together with such fees, taxes, duties,
charges, costs and expenses as may be required under the Deposit Agreement and completion of
such undertakings, declarations, certifications and other documents as the Depositary may
reasonably require, request the Depositary to exercise such rights on their behalf with respect to
the Deposited Shares and to distribute the Shares, securities or other assets so subscribed or
acquired to the Holders entitled thereto by an increase in the numbers of GDRs represented by
the Master GDRs or an issue of certificates in definitive registered form in respect of GDRs,
according to the manner in which the Holders hold their GDRs; or
(b) if and to the extent that the Depositary shall at its discretion deem it to be lawful and reasonably
practicable, the Depositary will distribute such rights to the Holders entitled thereto in such
manner as the Depositary may at its discretion determine; or
(c) if and to the extent that the Depositary deems any such arrangement and distribution as is
referred to in paragraphs (a) and (b) above to all or any Holders not to be lawful and reasonably
practicable (including, without limitation, due to the fractions which would otherwise result or to
any requirement that the Company, the Custodian or the Depositary withhold an amount on
account of taxes or other governmental charges) or to be unlawful, the Depositary (i) will,
PROVIDED THAT Holders have not taken up rights through the Depositary as provided in
(a) above, sell such rights (either by public or private sale and otherwise at its discretion subject
to all applicable laws and regulations), or (ii) may, if such rights are not transferable, in its
discretion, arrange for such rights to be exercised and the resulting Shares or securities sold and,
in each case, distribute the net proceeds of such sale as a cash distribution pursuant to
Condition 4 to the Holders entitled thereto.
(d)
(i) Notwithstanding the foregoing, in the event that the Depositary offers rights pursuant to
Condition 7(a) (the ‘‘Primary GDR Rights Offering’’), if authorised by the Company to do
so, the Depositary may, in its discretion, make arrangements whereby in addition to
instructions given by a Holder to the Depositary to exercise rights on its behalf pursuant to
Condition 7(a), such Holder is permitted to instruct the Depositary to subscribe on its behalf
249
for additional rights which are not attributable to the Deposited Shares represented by such
Holder’s GDRs (‘‘Additional GDR Rights’’) if at the date and time specified by the
Depositary for the conclusion of the Primary GDR Rights Offering (the ‘‘Instruction Date’’)
instructions to exercise rights have not been received by the Depositary from the Holders in
respect of all their initial entitlements. Any Holder’s instructions to subscribe for such
Additional GDR Rights (‘‘Additional GDR Rights Requests’’) shall specify the maximum
number of Additional GDR Rights that such Holder is prepared to accept (the ‘‘Maximum
Additional Subscription’’) and must be received by the Depositary by the Instruction Date. If
by the Instruction Date any rights offered in the Primary GDR Rights Offering have not
been subscribed by the Holders initially entitled thereto (‘‘Unsubscribed Rights’’), subject to
Condition 7(d)(iii) and receipt of the relevant subscription price in Lei or other relevant
currency, together with such fees, taxes, duties, charges, costs and expenses as it may deem
necessary, the Depositary shall make arrangements for the allocation and distribution of
Additional GDR Rights in accordance with Condition 7(d)(ii).
(ii) Holders submitting Additional GDR Rights Requests shall be bound to accept the
Maximum Additional Subscription specified in such Additional GDR Rights Request but the
Depositary shall not be bound to arrange for a Holder to receive the Maximum Additional
Subscription so specified but may make arrangements whereby the Unsubscribed Rights are
allocated pro rata on the basis of the extent of the Maximum Additional Subscription
specified in each Holder’s Additional GDR Rights Request.
(iii) In order to proceed in the manner contemplated in this Condition 7(d), the Depositary shall
be entitled to receive such opinions from Romanian counsel and United States counsel as in
its discretion it deems necessary, which opinions shall be in a form provided by counsel
satisfactory to the Depositary and at the expense of the Company and may be requested in
addition to any other opinions and/or certifications which the Depositary shall be entitled to
receive under the Deposit Agreement and these Conditions. For the avoidance of doubt,
save as provided in these Conditions and the Deposit Agreement, the Depositary shall have
no liability to the Company or any Holder in respect of its actions or omissions to act under
this Condition 7(d) and, in particular, the Depositary will not be regarded as being negligent,
fraudulent, or in wilful default if it elects not to make the arrangements referred to in
Condition 7(d)(i).
The Company has agreed in the Deposit Agreement that it will, unless prohibited by applicable law or
regulation, give its consent to, and if requested use all reasonable endeavours (subject to the next
paragraph) to facilitate, any such distribution, sale or subscription by the Depositary or the Holders,
as the case may be, pursuant to Conditions 4, 5, 6, 7 or 10 (including the obtaining of legal opinions
from counsel reasonably satisfactory to the Depositary concerning such matters as the Depositary may
reasonably specify).
If the Company notifies the Depositary that registration is required in any jurisdiction under any
applicable law of the rights, securities or other property to be distributed under Conditions 4, 5, 6, 7 or
10 or the securities to which such rights relate in order for the Company to offer such rights or
distribute such securities or other property to the Holders or owners of GDRs and to sell the
securities corresponding to such rights, the Depositary will not offer such rights or distribute such
securities or other property to the Holders or sell such securities unless and until the Company
procures the receipt by the Depositary of an opinion from counsel reasonably satisfactory to the
Depositary that a registration statement is in effect or that the offering and sale of such rights or
securities to such Holders or owners of GDRs are exempt from registration under the provisions of
such law. Neither the Company nor the Depositary shall be liable to register such rights, securities or
other property or the securities to which such rights relate and they shall not be liable for any losses,
damages or expenses resulting from any failure to do so.
If at the time of the offering of any rights, at its discretion, the Depositary shall be satisfied that it is
not lawful or practicable (for reasons outside its control) to dispose of the rights in any manner
provided in paragraphs (a), (b), (c) and (d) above, the Depositary shall permit the rights to lapse. The
Depositary will not be responsible for any failure to determine that it may be lawful or feasible to
make such rights available to Holders or owners of GDRs in general or to any Holder or owner of a
GDR or Holders or owners of GDRs in particular.
250
8.
Conversion of Foreign Currency
Whenever the Depositary shall receive any currency other than United States dollars by way of
dividend or other distribution or as the net proceeds from the sale of securities, other property or
rights, and if at the time of the receipt thereof the currency so received can in the judgement of the
Depositary be converted on a reasonable basis into United States dollars and distributed to the
Holders entitled thereto, the Depositary shall as soon as practicable convert or cause to be converted,
by sale or in any other manner that it may reasonably determine, the currency so received into United
States dollars. If such conversion or distribution can be effected only with the approval or licence of
any government or agency thereof, the Depositary may make reasonable efforts to apply, or procure
that an application be made, for such approval or licence, if any, as it may deem desirable. If at any
time the Depositary shall determine that in its judgement any currency other than United States
dollars is not convertible on a reasonable basis into United States dollars and distributable to the
Holders entitled thereto, or if any approval or licence of any government or agency thereof which is
required for such conversion is denied or, in the opinion of the Depositary, is not obtainable, or if any
such approval or licence is not obtained within a reasonable period as determined by the Depositary,
the Depositary may distribute such other currency received by it (or an appropriate document
evidencing the right to receive such other currency) to the Holders entitled thereto to the extent
permitted under applicable law, or the Depositary may in its discretion hold such other currency
without liability for interest for the benefit of the Holders entitled thereto. If any conversion of any
such currency can be effected in whole or in part for distribution to some (but not all) Holders entitled
thereto, the Depositary may at its discretion make such conversion and distribution in United States
dollars to the extent possible to the Holders entitled thereto and may distribute the balance of such
other currency received by the Depositary to, or hold such balance for the account of, the Holders
entitled thereto, and notify the Holders accordingly.
9.
Distribution of any Payments
9.1 Any distribution of cash under Conditions 4, 5, 6, 7 or 10 will be made by the Depositary to Holders
on the record date established by the Depositary for that purpose (such date to be as close to the
record date set by the Company as is reasonably practicable) and, if practicable in the opinion of the
Depositary, notice shall be given promptly to Holders in accordance with Condition 23, in each case
subject to any laws or regulations applicable thereto and (subject to the provisions of Condition 8)
distributions will be made in United States dollars by cheque drawn upon a bank in New York City or,
in the case of the Master GDRs, according to usual practice between the Depositary and Clearstream,
Euroclear or DTC, as the case may be. The Depositary or the Agent, as the case may be, may deduct
and retain from all moneys due in respect of such GDR in accordance with the Deposit Agreement all
fees, taxes, duties, charges, costs and expenses which may become or have become payable under the
Deposit Agreement or under applicable law or regulation in respect of such GDR or the relative
Deposited Property.
9.2 Delivery of any securities or other property or rights other than cash shall be made as soon as
practicable to the Holders on the record date established by the Depositary for that purpose (such
date to be as close to the record date set by the Company as is reasonably practicable), subject to any
laws or regulations applicable thereto. If any distribution made by the Company with respect to the
Deposited Property and received by the Depositary shall remain unclaimed at the end of three years
from the first date upon which such distribution is made available to Holders in accordance with the
Deposit Agreement, all rights of the Holders to such distribution or the proceeds of the sale thereof
shall be extinguished and the Depositary shall (except for any distribution upon the liquidation of the
Company when the Depositary shall retain the same) return the same to the Company for its own use
and benefit subject, in all cases, to the provisions of applicable law or regulation.
10. Capital Reorganisation
Upon any sub-division, consolidation or other reclassification of Deposited Shares or any other part of
the Deposited Property or upon any reduction of capital, or upon any reorganisation, merger or
consolidation of the Company or to which it is a party (except where the Company is the continuing
corporation), the Depositary shall as soon as practicable give notice of such event to the Holders and
at its discretion may treat such event as a distribution and comply with the relevant provisions of
Conditions 4, 5, 6 and 9 with respect thereto, or may execute and deliver additional GDRs in respect
of Shares or may require the exchange of existing GDRs for new GDRs which reflect the effect of
such change.
251
11. Withholding Taxes and Applicable Laws
11.1 Payments to Holders of dividends or other distributions on or in respect of the Deposited Shares will
be subject to deduction of Romanian and other withholding taxes, if any, at the applicable rates.
11.2 If any governmental or administrative authorisation, consent, registration or permit or any report to
any governmental or administrative authority is required under any applicable law in Romania in
order for the Depositary to receive from the Company Shares or other securities to be deposited
under these Conditions, or in order for Shares, other securities or other property to be distributed
under Condition 4, 5, 6 or 10 or to be subscribed under Condition 7 or to offer any rights or sell any
securities represented by such rights relevant to any Deposited Shares, the Company has agreed to
apply for such authorisation, consent, registration or permit or file such report on behalf of the
Holders within the time required under such laws. In this connection, the Company has undertaken in
the Deposit Agreement to the extent reasonably practicable to take such action as may be required in
obtaining or filing the same. The Depositary shall not be obliged to distribute GDRs representing
such Shares, Shares, other securities or other property deposited under these Conditions or make any
offer of any such rights or sell any securities corresponding to any such rights with respect to which (as
notified to the Depositary by the Company) such authorisation, consent, registration or permit or such
report has not been obtained or filed, as the case may be, and shall have no duties to obtain any such
authorisation, consent, registration or permit, or to file any such report.
12. Voting Rights
12.1 Holders will have voting rights with respect to the Deposited Shares. The Company has agreed to
notify the Depositary of any resolution to be proposed at a General Meeting of the Company and the
Depositary will vote or cause to be voted the Deposited Shares in the manner set out in this
Condition 12.
The Company has agreed with the Depositary that it will promptly provide to the Depositary sufficient
copies, as the Depositary may reasonably request, of notices of meetings of the shareholders of the
Company and the agenda therefor as well as written requests containing voting instructions by which
each Holder may give instructions to the Depositary to vote for or against each and any resolution
specified in the agenda for the meeting, which the Depositary shall send to any person who is a Holder
on the record date established by the Depositary for that purpose (which shall be the same as the
corresponding record date set by the Company or as near as practicable thereto) as soon as
practicable after receipt of the same by the Depositary in accordance with Condition 23. The
Company has also agreed to provide to the Depositary appropriate proxy forms to enable the
Depositary to appoint a representative to attend the relevant meeting and vote on behalf of the
Depositary.
12.2
In order for each voting instruction to be valid, the voting instructions form must be completed and
duly signed by the respective Holder (or in the case of instructions received from the clearing
systems should be received by authenticated SWIFT message) in accordance with the written
request containing voting instructions and returned to the Depositary by such record date as the
Depositary may specify.
12.3
The Depositary will exercise or cause to be exercised the voting rights in respect of the Deposited
Shares so that a portion of the Deposited Shares will be voted for and a portion of the Deposited
Shares will be voted against any resolution specified in the agenda for the relevant meeting in
accordance with the voting instructions it has received.
12.4
If it is not permitted by Romanian law to exercise the voting rights in respect of the Deposited
Shares differently (so that a portion of the Deposited Shares may be voted for a resolution and a
portion of the Deposited Shares may be voted against a resolution) the Depositary shall, if
permissible under Romanian law, calculate from the voting instructions that it has received from all
Holders (x) the aggregate number of votes in favour of a particular resolution and (y) the aggregate
number of votes opposed to such resolution and cast or cause to be cast in favour of or opposed to
such resolution the number of votes representing the net positive difference between such aggregate
number of votes in favour of such resolution and such aggregate number of votes opposed to such
resolution.
12.5
The Depositary will only endeavour to vote or cause to be voted the votes attaching to Shares in
respect of which voting instructions have been received, except that if no voting instructions are
252
received by the Depositary from a Holder (either because no voting instructions are returned to the
Depositary or because the voting instructions are incomplete, illegible or unclear) from a Holder
with respect to any or all of the Deposited Shares represented by such Holder’s GDRs on or before
the record date specified by the Depositary the Depositary shall not vote in respect of such
Deposited Shares of such Holder.
12.6
If it is not permissible under Romanian law or the Depositary determines that it is not reasonably
practicable to vote or cause to be voted such Deposited Shares in accordance with Conditions 12.3,
12.4 or 12.5 the Depositary shall not vote or cause to be voted such Deposited Shares.
12.7
Where the Depositary is to vote in respect of each and any resolution in the manner described in
Conditions 12.3, 12.4 or 12.5 above the Depositary shall notify the Board of Directors of the
Company and appoint a person designated by him as a representative of the Depositary to attend
such meeting and vote the Deposited Shares in the manner required by this Condition. The
Depositary is entitled to request the Company to provide to the Depositary, and where such request
has been made shall not be required to take any action required by this Condition 12 unless it shall
have received, an opinion from the Company’s legal counsel (such counsel being reasonably
acceptable to the Depositary) at the expense of the Company to the effect that such voting
arrangement is valid and binding on Holders under Romanian law and the statutes of the Company
and that the Depositary is permitted to exercise votes in accordance with the provisions of this
Condition 12 but that in doing so the Depositary will not be deemed to be exercising voting
discretion.
12.8
By continuing to hold GDRs, all Holders shall be deemed to have agreed to the provisions of this
Condition as it may be amended from time to time in order to comply with applicable Romanian
law.
12.9
The Depositary shall not, and the Depositary shall ensure that the Custodian and its nominees do
not, vote or attempt to exercise the right to vote that attaches to the Deposited Shares, other than in
accordance with instructions given, or deemed given, in accordance with this Condition.
13.
Recovery of Taxes, Duties and Other Charges, and Fees and Expenses due to the Depositary
The Depositary shall not be liable for any taxes, duties, charges, costs or expenses which may
become payable in respect of the Deposited Shares or other Deposited Property or the GDRs,
whether under any present or future fiscal or other laws or regulations, and such part thereof as is
proportionate or referable to a GDR (the ‘‘Charges’’) shall be payable by the Holder thereof to the
Depositary at any time on request or may be deducted from any amount due or becoming due on
such GDR in respect of any dividend or other distribution. The Depositary may sell (whether by way
of public or private sale and otherwise at its discretion, subject to all applicable laws and regulations)
for the account of the Holder an appropriate number of Deposited Shares or amount of other
Deposited Property and will discharge out of the proceeds of such sale any Charges, and any fees or
expenses due to the Depositary from the Holder pursuant to Condition 16, and subsequently pay
any surplus to the Holder. Any request by the Depositary for the payment of Charges shall be made
by giving notice pursuant to Condition 23.
14.
Liability
14.1
In acting hereunder the Depositary shall have only those duties, obligations and responsibilities
expressly specified in the Deposit Agreement and these Conditions and, other than holding the
Deposited Property for the benefit of Holders as bare trustee, does not assume any relationship of
trust for or with the Holders or owners of GDRs or any other person.
14.2
Neither the Depositary, the Custodian, the Company, any Agent, nor any of their agents, officers,
directors or employees shall incur any liability to any other of them or to any Holder or owner of a
GDR or any other person with an interest in any GDRs if, by reason of any provision of any present
or future law or regulation of Romania or any other country or of any relevant governmental
authority, or by reason of the interpretation or application of any such present or future law or
regulation or any change therein, or by reason of any other circumstances beyond their control, or in
the case of the Depositary, the Custodian, any Agent, or any of their agents, officers, directors or
employees, by reason of any provision, present or future, of the constitutive documents of the
Company, any of them shall be prevented, delayed or forbidden from doing or performing any act or
253
thing which the terms of the Deposit Agreement or these Conditions provide shall or may be done
or performed; nor shall any of them incur any liability to any Holder or owner of GDRs or any other
person with an interest in any GDRs by reason of any exercise of, or failure to exercise, any voting
rights attached to the Deposited Shares or any of them or any other discretion or power provided for
in the Deposit Agreement. Any such party may rely on, and shall be protected in acting upon, any
written notice, request, direction or other document believed by it to be genuine and to have been
duly signed or presented (including a translation which is made by a translator believed by it to be
competent or which appears to be authentic).
14.3
Neither the Depositary nor any Agent shall be liable (except for its own wilful default, negligence or
fraud or that of its agents, officers, directors or employees) to the Company or any Holder or owner
of GDRs or any other person, by reason of having accepted as valid or not having rejected any
certificate for Shares or GDRs or any signature on any transfer or instruction purporting to be such
and subsequently found to be forged or not authentic or for its failure to perform any obligations
under the Deposit Agreement or these Conditions.
14.4
The Depositary and its agents may engage or be interested in any financial or other business
transactions with the Company or any of its subsidiaries or affiliates, or in relation to the Deposited
Property (including without prejudice to the generality of the foregoing, the conversion of any part
of the Deposited Property from one currency to another), may at any time hold or be interested in
GDRs for its own account, and shall be entitled to charge and be paid all usual fees, commissions
and other charges for business transacted and acts done by it as a bank, and not in the capacity of
Depositary, in relation to matters arising under the Deposit Agreement (including, without
prejudice to the generality of the foregoing, charges on the conversion of any part of the Deposited
Property from one currency to another and on any sales of property) without accounting to Holders
or any other person for any profit arising therefrom.
14.5
The Depositary shall endeavour to effect any such sale as is referred to or contemplated in
Conditions 5, 6, 7, 10, 13 or 21 or any such conversion as is referred to in Condition 8 in accordance
with the Depositary’s normal practices and procedures but shall have no liability (in the absence of
its own wilful default, negligence or fraud or that of its agents, officers, directors or employees) with
respect to the terms of such sale or conversion or if such sale or conversion shall not be reasonably
practicable.
14.6
The Depositary shall not be required or obliged to monitor, supervise or enforce the observance and
performance by the Company of its obligations under or in connection with the Deposit Agreement
or these Conditions.
14.7
The Depositary shall have no responsibility whatsoever to the Company, any Holders or any owner
of GDRs or any other person as regards any deficiency which might arise because the Depositary is
subject to any tax in respect of the Deposited Property or any part thereof or any income therefrom
or any proceeds thereof.
14.8
In connection with any proposed modification, waiver, authorisation or determination permitted by
the terms of the Deposit Agreement, the Depositary shall not, except as otherwise expressly
provided in Condition 22, be obliged to have regard to the consequence thereof for the Holders or
the owners of GDRs or any other person.
14.9
Notwithstanding anything else contained in the Deposit Agreement or these Conditions, the
Depositary may refrain from doing anything which could or might, in its opinion, be contrary to any
law of any jurisdiction or any directive or regulation of any agency or state or which would or might
otherwise render it liable to any person and the Depositary may do anything which is, in its opinion,
necessary to comply with any such law, directive or regulation.
14.10 The Depositary may, in relation to the Deposit Agreement and these Conditions, act or take no
action on the advice or opinion of, or any certificate or information obtained from, any reputable
lawyer, valuer, accountant, banker, broker, securities company or other expert whether obtained by
the Company, the Depositary or otherwise, and shall not be responsible or liable for any loss or
liability occasioned by so acting or refraining from acting or relying on information from persons
presenting Shares for deposit or GDRs for surrender or requesting transfers thereof.
14.11 Any such advice, opinion, certificate or information (as discussed in Condition 14.10 above) may be
sent or obtained by letter, telex or facsimile transmission and the Depositary shall not be liable for
254
acting on any advice, opinion, certificate or information purported to be conveyed by any such letter,
telex or facsimile transmission although (without the Depositary’s knowledge) the same shall contain
some error or shall not be authentic.
14.12 The Depositary may call for and shall be at liberty to accept as sufficient evidence of any fact or
matter or the expediency of any transaction or thing, a certificate, letter or other communication,
whether oral or written, signed or otherwise communicated on behalf of the Company by a director
of the Company or by a person duly authorised by a director of the Company or such other
certificate from persons specified in Condition 14.10 above which the Depositary considers
appropriate and the Depositary shall not be bound in any such case to call for further evidence or be
responsible for any loss or liability that may be occasioned by the Depositary acting on such
certificate.
14.13 The Depositary shall have no obligation under the Deposit Agreement except to perform its
obligations as are specifically set out therein without wilful default, negligence or fraud.
14.14 The Depositary may delegate by power of attorney or otherwise to any person or persons or
fluctuating body of persons, whether being a joint Depositary of the Deposit Agreement or not and
not being a person to whom the Company may reasonably object, all or any of the powers,
authorities and discretions vested in the Depositary by the Deposit Agreement and such delegation
may be made upon such terms and subject to such conditions, including power to sub-delegate and
subject to such regulations as the Depositary may in the interests of the Holders think fit, provided
that no objection from the Company to any such delegation as aforesaid may be made to a person
whose financial statements are consolidated with those of the Depositary’s ultimate holding
company. Any delegation by the Depositary shall be on the basis that the Depositary is acting on
behalf of the Holders and the Company in making such delegation. The Company shall not in any
circumstances and the Depositary shall not (provided that it shall have exercised reasonable care in
the selection of such delegate) be bound to supervise the proceedings or be in any way responsible
for any loss, liability, cost, claim, action, demand or expense incurred by reason of any misconduct or
default on the part of any such delegate or sub-delegate. However, the Depositary shall, if
practicable, and if so requested by the Company, pursue (at the Company’s expense and subject to
receipt by the Depositary of such indemnity and security for costs as the Depositary may reasonably
require) any legal action it may have against such delegate or sub-delegate arising out of any such
loss caused by reason of any such misconduct or default. The Depositary shall, within a reasonable
time of any such delegation or any renewal, extension or termination thereof, give notice thereof to
the Company. Any delegation under this Condition which includes the power to sub-delegate shall
provide that the delegate shall, within a specified time of any sub-delegation or amendment,
extension or termination thereof, give notice thereof to the Company and the Depositary.
14.15 The Depositary may, in the performance of its obligations hereunder, instead of acting personally,
employ and pay an agent, whether a solicitor or other person, to transact or concur in transacting
any business and do or concur in doing all acts required to be done by such party, including the
receipt and payment of money.
14.16 The Depositary shall be at liberty to hold or to deposit the Deposit Agreement and any deed or
document relating thereto in any part of the world with any banking company or companies
(including itself) whose business includes undertaking the safe custody of deeds or documents or
with any lawyer or firm of lawyers of good repute, and the Depositary shall not (in the case of
deposit with itself, in the absence of its own negligence, wilful default, or fraud or that of its agents,
directors, officers or employees) be responsible for any losses, liability or expenses incurred in
connection with any such deposit.
14.17 Notwithstanding anything to the contrary contained in the Deposit Agreement or these Conditions,
the Depositary shall not be liable in respect of any loss or damage which arises out of or in
connection with its performance or non-performance, or the exercise or attempted exercise of (or
the failure to exercise any of) its powers or discretions, under the Deposit Agreement, except to the
extent that such loss or damage arises from the wilful default, negligence or fraud of the Depositary
or that of its agents, officers, directors or employees. Without prejudice to the generality of the
foregoing, in no circumstances shall the Depositary have any liability for any act or omission of any
securities depository, clearing agency or settlement system in connection with or arising out of
book-entry settlement of Deposited Shares or otherwise.
255
14.18 No provision of the Deposit Agreement or these Conditions shall require the Depositary to expend
or risk its own funds or otherwise incur any financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers.
14.19 For the avoidance of doubt, the Depositary shall be under no obligation to check, monitor or
enforce compliance with any ownership restrictions in respect of GDRs or Shares under any
applicable Romanian law as the same may be amended from time to time. Notwithstanding the
generality of Condition 3, the Depositary shall refuse to register any transfer of GDRs or any
deposit of Shares against issuance of GDRs if notified by the Company, or the Depositary becomes
aware of the fact, that such transfer or issuance would result in a violation of the limitations set forth
above.
14.20 No disclaimer of liability under the Securities Act is intended by any provision of the Deposit
Agreement.
15.
Issue and Delivery of Replacement GDRs and Exchange of GDRs
Subject to the payment of the relevant fees, taxes, duties, charges, costs and expenses and such terms
as to evidence and indemnity as the Depositary may require, replacement GDRs will be issued by
the Depositary and will be delivered in exchange for or replacement of outstanding lost, stolen,
mutilated, defaced or dest