Annual and Sustainability Report 2019 HEP Group

Annual and Sustainability Report HEP Group CONTENTS

RESPONSIBLE, SUSTAINABLE AND SUSTAINABLE MARKET APPROACH QUALITY EMPLOYER 8 Stability and security of generation and Working conditions and collective bargaining 141 distribution of energy and energy sources 76 STRATEGIC APPROACH Education and professional development 143 Modernization and overhaul of power plants 78 TO SUSTAINABILITY Diversity and equal opportunities 146 6 Distribution network development 81 INTRODUCTION BY THE Performance appraisal and feedback 148 Sustainable construction and development Material topics 32 Health and safety in the workplace 149 PRESIDENT OF THE of energy system 87 Material topics management HEP people in numbers 152 MANAGEMENT BOARD 6 4 HEP’s projects for the construction of and stakeholders’ opinions 34 renewable sources of energy and 1 Materiality matrix 42 high-efficiency cogeneration 88 Stakeholder engagement 44 Market development and competitiveness 92 HEP Group stakeholders 45 Customer oriented business 92 STAKEHOLDER DIALOGUE, Stakeholders’ opinions on Projects for customers and the community 97 ON HEP GROUP HEP Group progress in TRANSPARENT Responsible procurement management 99 sustainable development COMMUNICATION, HEP Group and recommendations for companies 12 improvements 46 AND EDUCATION Key data 15 Materiality in the context of sustainable development Awarding excellence 162 goals 48 Green projects for green communities 165 9 Support for culture, health 2 and humanitarian projects 166 INVESTING IN SUSTAINABLE ENVIRONMENTAL PROTECTION Engagement and informing stakeholders about HEP projects 167 AND RESPONSIBLE IMPACT Award-winning progress MANAGEMENT of our sustainability reports 171 HEP GROUP BUSINESS CORPORATE AND OPERATIONS IN 2019 7Management systems according to ETHICAL GOVERNANCE ISO norms in HEP Group 104 Business environment Environmental permits 106 and operations 54 The management structure Energy 107 of HEP d.d. during 2019 22 Financial results 59 Emissions into air in HEP Group 115 3 Corporate governance 24 Results by sectors 64 Water management in HEP Group 121 ABOUT THIS Responsible 5 Financial position 69 Biodiversity protection 126 REPORT and ethical operations 27 Credit rating 71 Hazardous and non-hazardous waste HEP Group memberships 29 Investments 72 management in HEP Group 132 10 GRI Index 175 INTRODUCTION by the President of the Management Board 1 6 Annual and Sustainability Report | HEP group Board Management of the President by the Introduction

President oftheManagementBoard Frane Barbarić I strengthening its energy sector position based on for EuropeEast South opportunity in its nies sees compa energy biggest the of one mind, as Group HEP in this With 2050. until continent climate neutral first the Europe making for Deal Green the adopted EuropeanCommission the 2019, late In EU. and Croatia both of policy energy-climate the by set demands to respond can which folio - productionport flexible diverseand a building at tant a to open new developmentdirection aimed of impor is characteristics it capacities, generation existing HEP’s the of view position in financial management efficient achieve to order In ble to positive. sta- from outlook the boosted and 2019 in (Ba2) rating credit long-term HEP’s affirmed Moody’s management. hydrology exposure volatility its price improved fuel and had HEP that stating vatska elektroprivreda from bb to bb+ and and (BB+) rating bb+ baseline company’s the to affirmed bb from elektroprivreda Hr- vatska of profile credit stand-alone the graded n lateNovember 2019,Standard &Poor’s up- renewable energy sources andacontinuationofgood the Croatian market to91%.Ourgenerationfacilities HRK 1.4billionandincreased itselectricityshare on The businessyear 2019inHEPGroup wasmarked business results. TheGroup generatedprofit of by the start ofasignificantinvestmentby cycle thestart in - - with localself-government units. some incooperation or continued, was launched projects plant power solar other several of ment Developprepared. was plants power solar Vrlika undergoing construction in 2019, and the erection also of Cres and was Vis of island the on plant power solar The price. incentivized an at takeoff (CroatianEnergy Market guaranteed on Operator) HROTE with contract a without electricity duce is the first new wind power plant in Croatia to pro- which MW), (58 VE Korlat HEP’s windfarm, of first erection the commenced also We system. our in plant power solar non-integrated large first the is Istria in Kaštelir plant Solar plant. solar operating an of purchase a was 2019 in out carried sition As part of our renewable scenario, our first acqui totheEuropeanmentary Green Deal. comple scenario development sustainable a for opted already has Group HEP 2030, until period the for strategy development its In economy. tral a green,advancedsustainable, and climateneu produced ofelectricity. 12.3TWh - - - -

7 8 Annual and Sustainability Report | HEP group d.o.o. responsible for the construction of the liq- the of construction the for responsible d.o.o. Hrvatska LNG recapitalized d.d. HEP 2019, ruary Feb in Government Croatian the by passed sion deci the to Pursuant prominent. more becoming is activities, gas business business other Among the project untilend2019. started from stations charging EV 117 of number stalled in- total a to of adding stations charging public installation 64 the in resulting implementation program eMobility the of continuation celerated ac- an include economy low-carbon the to sition tran- Croatia’s within activities Business project. revitalization network hot-water Zagreb the for Commission approved the grant of EUR 57 million European the while Osijek, in pipeline hot-water connection the replacing of project the for signed was Agreement Grant EU the 2019, late In nario. projects was intensified under the renewable sce increase efficiency energy of preparation the and measures of implementation the sources, energy carbon low from production and capacities ing In addition to business activities aimed at increas- tor andenergy ingeneral. sec energy renewable in investments for ditions to the low-carbon energy, and the creation of con Croatian Government towards Croatia’s transition the of stance clear very a by possible made were projects generation-related many Such permits. obtaining and documentation project preparing by continued also MW 400 than ca- more by its pacity increasing by system hydropower Senj existing the upgrading of project Also, development a commenced. MWt) 114 MWe, Zagreb (150 in EL-TO CCPP unit combined-cycle ficiency high-ef the of construction the on year, works the main of end the At 2019. in developed also were plants power conventional large of Projects ------tional economy and the entire Republic of Croatia. na- for importance strategic of company energy Croatian key a as elektroprivreda Hrvatska build to continue will we experts, our of knowledge and experience rich on Relying challenges. social and to environment, market, all to solutions respond successfully technological advanced of tation a regional indevelopmentleader andimplemen of excellenceHEP a center aims at becoming and creased rate than in the previous period. in- an at students university and school high to places, wehave continuedtoprovide scholarships work individual for term employment of long sustainability of purpose the for and Croatia in ers employdesirable most and biggest the of one As - workers. Group HEP of training education the in-house for center an as Academy HEP though addition, educationprograms continued in2019 of the new Collective Agreement for HEP Group. In had withtradeunionswhichresulted inthesigning our satisfaction with constructive negotiations we express to like would We employees. motivated and quality without possible been have not would Business results and success we achieved in 2019 Virovitica, a gas distribution and supply company. ment was made by the acquisition of Plin Vtc from develop business gas in forward step significant A (HERA). decision Regulator’s the to pursuant the obligation which will expire on 31 March 2021 in 2019, gas supplier asawholesale to operate continued d.d. HEP whole. a as Croatia and HEP for supply of security the increase will terminal LNG the route, supply gas new a As 2019. April in commenced which terminal, gas natural uefied President oftheManagementBoard Frane Barbarić

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Introduction by the President of the Management Board Management the of President the by 9 ON HEP 2GROUP On HEP Group 13 102-45, 102-48

Core activity Core Production of electricity and heat Production Electricity production services Telecommunication Electricity production Real estate operations Electricity production LNG (liquefied natural gas) operation Electricity transmission equipment maintenance Hydro and tourism Electricity distribution as a public Electricity supply of customers service Electricity supply distribution, supply, Heat production, of heat and purchase Gas distribution and supply trading and Electricity and emissions plant operations optimization of power Implementation and funding of energy efficiency projects of local infrastructure Development in the vicinity of Plomin TPP Management of non-operating assets improvement professional Training, and accommodation services Design and construction of multi-purpose system hydrotechnical Gas distribution and supply County in Virovitica-Podravina Electricity trading Electricity trading Electricity trading Electricity trading 50 84 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 share (%) share Ownership Ownership Serbia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Croatia Kosovo Croatia Croatia Slovenia Slovenia Country Bosnia and Bosnia and Herzegovina Herzegovina 1 4 3 6 5 7 2 Dependent companies Dependent HEP Proizvodnja d.o.o. HEP Proizvodnja Hrvatski operator prijenosnog sustava d.o.o. Hrvatski prijenosnog sustava operator HEP Telekomunikacije d.o.o. HEP Telekomunikacije SUNČANA ELEKTRANA POREČ d.o.o. IE – NEKRETNINE d.d. Nuklearna elektrana Krško d.o.o. LNG Hrvatska d.o.o. HEP Operator distribucijskog sustava d.o.o. sustava HEP Operator distribucijskog HEP ELEKTRA d.o.o. HEP Opskrba d.o.o. d.o.o. HEP TOPLINARSTVO HEP PLIN d.o.o. d.o.o. HEP Trgovina HEP ESCO d.o.o. Plomin Holding d.o.o. CS Buško Blato d.o.o. d.o.o. imovinom HEP Upravljanje HEP NOC d.o.o. HEP VHS Zaprešić d.o.o. PLIN VTC HEP Energija d.o.o. d.o.o. HEP Energija HEP Energija d.o.o. Ljubljana d.o.o. HEP Energija d.o.o. HEP Energija sh.p.k. d.o.o. HEP Energjia d.o.o. KORLAT PARK ENERGETSKI As of 1 July 2013, HOPS operates under the Independent Transmission Operator model (ITO) As of 1 July 2013, HOPS operates under the Independent Transmission Pursuant to the Agreement on the Purchase and Sale of Business Shares in Plin VTC d.o.o. concluded on 3 April 2019, HEP Plin d.o.o. company d.o.o. project park Korlat in Energetski a 100% share 2019, HEP d.d. acquired On 20 May In June 2019, Plomin Holding d.o.o. became a sole owner of Elektrane Sabadin d.o.o. (Elektrane Sabadin d.o.o. changed its name into As of July 2019, HEP d.d. is a sole company owner In consolidated financial statements, the share in NE Krško d.o.o. is shownby the method of joint asset and liabilities management, onto Krk of island the from pipelines evacuation LNG of operation and construction the for (84%:16%) d.o.o. Plinacro with venture Joint acquired a 100% ownership of said company’s business shares. The merger of Plin VTC d.o.o. with HEP Plin d.o.o. is planned for 2020 of Plin VTC The merger business shares. 100% ownership of said company’s a acquired SUNČANA ELEKTRANA POREČ d.o.o.) income and expenditure. across is shown for each asset and liability share HEP Group’s mainland and further final destinations towards 1 2 3 4 5 6 7 The Group consists of Hrvatska elektroprivreda d.d. as the parent company and its dependent companies listed here. listed companies dependent its and company parent the as d.d. elektroprivreda Hrvatska of consists Group The - HEP Group are generation, transmission, distribu transmission, generation, are Group HEP tion, supply, and trade of electricity. Additionally, HEP Group generates, distributes, and supplies and wholesale markets heat, supplies in retail gas other and system energy in services provides and sectors. non-energy and energy - - -

HEP d.d. (Hrvatska elektroprivreda d.d., with a seat a with d.d., elektroprivreda (Hrvatska d.d. HEP in is Zagreb) a fully state-owned company parent of HEP Group. It manages HEP daughter compa nies and is the owner of assets which are con tractually transferred to subsidiaries or daugh ter companies. The major business segments of companies Group HEP

HEP group HEP | Report Sustainability and Annual 12 On HEP Group 15 2 TS TS km 183 of HV lines 7,794 MW 26,567 (35-20-10 kV) HV substations (400-200-110 kV) 1,423 MV and LV substations MV and LV (overhead and cables) and (overhead installed capacity of 7 TPP and 50% NPP Krško 7 TPP and 50% *

1 km MW Excluding HPP Dubrovnik Unit B which generates electricity for Bosnia and Herzegovina HPP Dubrovnik Excluding operating as MV (36.0 km in total) lines currently Including 110 kV overhead Consolidated data presented include HOPS Consolidated data presented 1 2 Key data Key transmission, facilities, Generation network and distribution 28 HPP and RES installed capacity of 2,166 140,065 lines of MV and LV cables) and (overhead *

Independent sustava d.o.o. (HOPS) sustava LNG Hrvatska d.o.o. and GEN Energija co-owned by HEP d.d. co-owned by co-owned by HEP d.d. co-owned by d.o.o. and Plinacro NE Krško d.o.o. Transmission Operator Transmission Hrvatski operator prijenosnog Companies in mixed Companies in mixed ownership

HEP d.d. HEP-VHS Zaprešić d.o.o. HEP-VHS Zaprešić HEP NOC d.o.o., Beograd HEP-Energija d.o.o., Ljubljana HEP-Energija d.o.o., Mostar HEP-Energija sh.p.k., Priština HEP-Energjia Plin Vtc d.o.o. CS Buško blato d.o.o. BiH

Subsidiary companies HEP-Proizvodnja d.o.o. HEP-Proizvodnja HEP-Operator distribucijskog sustava d.o.o. distribucijskog sustava HEP-ELEKTRA d.o.o. HEP-Opskrba d.o.o. d.o.o. HEP-Trgovina d.o.o. HEP-Toplinarstvo HEP-Plin d.o.o. HEP ESCO d.o.o. HEP-Upravljanje d.o.o. imovinom d.o.o. HEP-Telekomunikacije Plomin Holding d.o.o. d.o.o. park Korlat Energetski d.o.o. Sunčana elektrana Poreč d.o.o. IE Nekretnine

wholly owned by HEP d.d. wholly owned by

HEP group HEP | Report Sustainability and Annual 14 On HEP Group 17

HRK m 11,894 11,011 +509 +2.8% 1,300.3 HRK m 1,364.8 HRK m net profit 2017 2018 11,520 HEP Group’s HEP Group’s 2017 2018 No. of employees 1,402.6

HRK m HRK m +2.4% +42.5% EBITDA 3,749.5 HRK m 3,876.8 HRK m 2,431.9 HRK m 2,376.1 HRK m Investments 2017 2018 2017 2018 3,967.9 3,386.6

HRK m HRK m +2.1% +5.5% 38,851.6 HRK m 40,349.6 HRK m 14,969.3 HRK m 15,198.3 HRK m Total assets Total 2017 2018 2017 2018 Operating income HEP sale in Croatia and abroad HEP sale in Croatia d.o.o. data included for 2019 Plin VTC 42,558.0 15,515.2 3 4

TWh 1.9 TWh 1.8 TWh -2.2% 1.8 Heat sales 2017 2018

TWh 6.2 TWh 5.9 TWh -1.7% 5.8 2017 2018 Gas wholesale

TWh 12.0 TWh 12.9 TWh -4.3% Electricity production 2017 2018 12.3

4 TWh 1.4 TWh 1.4 TWh +11.5% 1.6 Gas retail 2017 2018

TWh 17.4 TWh 17.5 TWh +4.5% Sale of electricity 2018 2017 18.3

Basic indicators Basic

HEP group HEP | Report Sustainability and Annual 16 CORPORATE and ethical governance 3 Corporate and ethical governance 21 - - - Meet the needs and fulfil the- require ples: Owner: Realize optimal business outcomes and for the owner. adequate profit Customers: ments of our customers by providing adequate value for their money. correctly, in Act compliance with professionally the good business and practice and generally accepted values, by build ing trust in our actions. Employees: Respect interests and capabilities of employees and develop the system of remunera tion and promotions. Ensure and constantly implement of measures advanced health and safety and spirit team learning, life-long support work, at professionalism. Business partners: Build and maintain relations with business partners, respecting their quality and professionalism. Conduct procurement - pro cesses fairly and prevent any potential - irregular ity. local communities: Society, Respect cultural, - re non-materialligious and all other material and commu- local with cooperation our in diversities nities in which we operate, creating friendly environment. Fundamental principles principles Fundamental relations in stakeholder To realize our mission and fulfill our vision,align we our business with the expectations of our stakeholders, by respecting the following princi -

HEP Group conducts its business in compliance with the law and ethical norms, based on the principles of As sustainable the the development and company corporate social bond responsibility. issuer, Finan- Croatian and Exchange Stock Zagreb by Code Governance Corporate of provisions applies also cial Services Supervisory Agency. All HEP managers and Management Board members are Croatian regions. Croatian various experts local citizens, from Fundamental Fundamental values innovation Competence and Our employees are the most valuable resource and support in achieving the company’s mission and vision and in creating values. With openness to new ideas we and develop skills creativity, and competencies. Quality and business excellence Following the requirements and expectations of all stakeholders, we improve the quality and services. company’s the goal is Our products of our business excellence. Integrity We act professionally and conscientiously in our customers, business partners, towards relations employees, and assets. We affirm zero-tolerance for corruption. Our Code of principles of business behavior. Ethics defines the responsibility Environmental We produce, transmit and distribute an environmentally energy friendly manner. We promote in efficient use of energy among our customersas en renewable of use and development the as well sources. ergy - - HEP is a regional energy leader, who develops inno- and advantage competitive technologies, vative business models focused on the future na- the with collaborates and needs customer compa- and institutions international and tional nies. Sustainable, reliable, and competitive gener and competitive Sustainable, reliable, ation, distribution and supply of energy in line thecustomers’with high de needs a with and of social responsibility. gree SION SSION

Vision and mission support the strategic areas of HEP Group business operations in four adapt- processes, directions: business of development and optimization, portfolio, energy flexible and sustainable collaboration. stakeholder and to markets ing

HEP group HEP | Report Sustainability and Annual 20 Corporate and ethical governance 23

------and members of the Management Board de fined under the Decision on determining salaries and other remuneration of the president and members of companies OG 77/2014). (OG 83/2009, Su the of members the to paid Remuneration pervisory Board is not defined in line with the company success contribution as each SB member receives a fixed and set remunera with the Decision tion amount in accordance of the Shareholders’ Assembly of HEP from 30 April d.d. 2009 under the Decision of the 120-02/09-01/14, class Government Croatian 2 April 2009. file no.: 5030105-09-1 from - eval of Board Supervisory the of practice The uating the work of the Management Board, middle management, and boards in terms of defined company targets in the previous pe riod does not exist. However, some mecha nisms serving as measures as defined in the Corporate Governance Action Plan are being set up. Said Plan also foresees the introduc tion of the Audit Committee competence for an of removal and appointment, selection, the internal auditor. • • - Dividend policy was not adopted as it within the jurisdiction of falls the Company owner is payout Dividend Croatia. of Republic the i.e. Act Budget the with accordance in out carried Act. and the National Budget Execution The Company did not introduce an independ of process the in is but officer compliance ent setting up said mechanism. The Supervisory Board did not employee reward set and up motivation system, the in particular with reference to the Management Board, in view of the salaries and other muneration - re made in favor of the president • • • Statement on the implementations of the Corporate Governance Code of the Corporate Governance Statement on the implementations Pursuant to Article elek- Hrvatska 22 120/2016), 134/2015, 78/2015, (OG of the the on Statement Accounting the produced has d.d. troprivreda Act Code. Governance Corporate of Implementation Corporate the implemented Company the 2019, In Governance Code for the companies in which the 132/2017). (OG has shares Republic of Croatia Code the of provision the to adheres Company The except for those the implementation of which at moment is not possible, applicable, and given a include the following: practical. Said exceptions Since February 15, 2018 15, February Since 20177, December Since 2017 7, December Since 201829, October Since 2018 29, October Since 2018 4, December Since JanuarySince 2018 1, 20144, December Since JanuarySince 2018 1, JanuarySince 2018 1, JanuarySince 2018 1, JanuarySince 2018 1,

Member President Member Member Member representative employee Member, Board Management the of President Member MB Member MB Member MB Member MB Member MB Supervisory Board Granić Goran Berger Jelena Zrinski Lulić Lukša Ivančić Ivo Meri Uvodić Management Board Barbarić Frane Dujmić Saša Rukavina Nikola Ćosić Marko Sprčić Petar Šambić Tomislav General Assembly Ćorić Tomislav The management structure structure The management 2019 d.d. during of HEP All members of the Management Boarda and managers in HEP Group are Croatian citizens and local regions. Croatian various expertsfrom 22 Corporate and ethical governance 25 - - - passes the Articles of Association amendments; and its Su the of members the revokes and appoints pervisory Board; gives gives prior consent to the decisions Management of Board the where this is set under the Articles of Association; Assem submits reports to the Shareholders carried supervision the on Company the of bly out, especially regarding financial operations and its consistency with business records; performs other activities set by the law and Company rules. appoints appoints and revokes Company’s employees and responsibilities; with special authorities plans; passes staff and employment proposes and takes necessary measures and issues direct orders to ensure operations of the Company, especially the safety and the system; operation of the power with line in tasks work-related other performs rules. the law and Company • • • • • • • • • Some large transactions, transactions, long term debt and Some large the establishment of a company in Croatia and abroad requires the consent of the Supervisory Board. The Supervisory Board appoints the - Au dit Committee responsible for the objectivity and to submitted reports and information of credibility the Supervisory Board. It also supervises the im- the in audits external and internal of plementation imple the supervises and prepares and Company mentation of the SB decisions regarding report submission and audits within HEP Group. - - - - - appoints and revokes the Management Board appoints and revokes of the Company; doc records, business reviews and examines securities and oth umentation, cash records, er documents related to the operations of the Company; gives consent to annual made by the Management Board of the Com financial reports pany; submits the report on the Company’s state- of-affairs to the General Assembly year; once a consolidatedsubmits the written annual company report the General Assembly; to appoints members of the Assembly and Su pervisory Boards of the companies in which significant or interest controlling has d.d. HEP influence; • • • • • • General Shareholders Assembly General Shareholders The Shareholders Assembly shareholders is and/or composed their of proxies. the under set issues on The decides Assembly holders - Share it: particular in Association, of Articles the and law Supervisory Board of Supervisorymaximum The a of consists Board 7 (seven) members. Six members are appointed by the Shareholders Assembly of the Company and Council one pursuant is elected the by Works to the provisions of the Labor Act. The Decision adopted by the General Assembly on appointing and revoking Supervisory Board members enters of its adoption. on the day into force The Supervisory Board supervises the manage ment of the Company’s business affairs. Pursu- ant to the Company’s Articles of Association and it: within the scope of its responsibilities, - - establishes and implementsthe business medium- and long-term plans; policy, carries out decisions passed by the Supervi- sory Board and the Shareholders Assembly, and issues instructions measures and takes for their implementation; passes Company internal rules as well as organizational rules; represents and acts for the signs Company, contracts within and the framework of the law and these ArticlesAssociation; of proposes decisions on scope of matters work of the Supervisory from Board and the Assembly of the Company; Shareholders submits reports to the Supervisory Board on business policy and other principle - issues re garding future operations as well as on - devi ations from earlier predictions providing the reason; submits annual financialreports to the Com Supervisory pany’s Board; • • • • • • • agement Board is an executive in charge of a cor a of charge in executive an is Board agement porate function. The main internal organization of HEP d.d. is based on a corporate governance approach and on the authority the Company has individual business activities. over

manages the business affairs of the Company; the of affairs business the manages n accordance with the HEP Group corporate governance model, HEP d.d. as well as carries out some corporate tasks manages and and monitors activities in coordinates directs, •

The President and the members of the Manage- ment Board are appointed and by revoked the Su- office of term The Company. the of Board pervisory of the president and the members of the Manage- ment Board is 4 years. The Management Board of whom of one members, 6 of consists Company the of structure current The President. the appointed is the Management Board consists of six functions: president of the Management Board, Board mem- functions, support affairs financial of charge in ber financial operations, procurement and EUregula- tion, Board member in charge of regulatory func- mem- Board activities, market and regulated tions, in member Board activities, market of charge in ber member Board and activities, production of charge in charge of investments, strategic and corporate IT. and development project development, Pursuant to the Articles of Company and for the purpose Association of the execution of of the and authorities,managerial tasks the Manage- carries out the following activities: ment Board Management Board Board Management governance Corporate Corporate

dependent companies. Each member of the Man- the of member Each companies. dependent

HEP group HEP | Report Sustainability and Annual 24 Corporate and ethical governance 27 - - - statement of the other party held is conversation a possible, If documentation. with the relevant better into the case on bothinsight to gain a sides and to make an opinion easier. Cooperation with all organizational units as well as individuals is excellent, and special work is being done to col lect feedback from participants in the proceed ings on how the case has been resolved. Furthermore, the Ethics Committee, among other tasks prescribed by the provisions of the Code of Ethics, analyzes the occurrence of violations of the Code of Ethics and monitors its application, as well as informs the of Code the of implementation the about d.d. HEP Management Board of Ethics and its observations at least twice a year, and more often as needed. Also, the Ethics Com to measures mittee encourages and proposes in HEP. ethical standards strengthen - - ursuant to the provisions of the Code of Ethics, HEP Group companies have their theiris who commissioner ethics own Com- Ethics Group’s the in representative mittee, and a member of the Ethics may also be a of representative trade unions - Committee reg HEP. with istered Ethics commissioners monitor the of application the Code of Ethics in the they company are in appointed, which promote ethical behavior in employee relations and customer relations, give advice to employees on ethical behavior, receive complaints from employees and other interested legal and natural persons on unethical and pos sible corrupt practices, carry out the procedure of examining the merits of complaints and keep complaints. of received records Procedures for examining the merits of the com plaint of the Ethics Commissioner, as well as the Ethics Committee of the HEP Group, include the Responsible Responsible ethical and operations P - decides on status changes and a dissolution dissolution decides changes on status a and of the Company; with carries out other work in accordance the law and the Articles of Association of the Company. • • - Manage the by adopted Plan Annual Department ment Board of HEP d.d. with the is consent audits internal of of purpose the The Committee. Audit to provide the Supervisory Board, the Audit Com mittee and the Management Board of HEP d.d. a reasonable guarantee of security, efficiency and effectiveness of the business system and cesses, - pro reliability and accuracy of compliance information, of business operations as d.d. HEP of documents official and regulations with laws, plans and business policies. well as HEP Group’s The Department also provides recommendations for the improvement of business assists processes, the Management it Board of HEP d.d. and im- in Group HEP of management responsible the and mitigating operating internal controls proving risks. Act on the Inter- the Act and Audit thePursuant to the Inter- nal System Control in the Public Sector, nal Audit Department falls under the jurisdiction Committee. of the Audit

- makes decisions on the use of profit; on the use of decisions makes revokes members of the Management Supervisory of the Company; Boards and of the Company; appoints the auditor the in or decrease decides increase on an Company; capital stock of the • • • •

Audit Committee Committee Audit of the Supervisory Board president Goran Granić, PhD, independent external member Boris Cota, PhD, Professor independent external member PhD, Boris Tušek, Professor The Internal Audit Department is responsible for the corporate function of internal audit such a and represents part of the internal supervision as of HEP Group. Business operations of Internal Audit are defined under the Act on the Internal Control System in the Public Sector (OG 78/15) and the Internal - Au dit Rules, which have been harmonized with the - Frame Practices Professional (International IPPF work). The Rules are based on the fundamental internal audit principles expertise) andconfidentiality, guarantee a quality (integrity, objectivity, normative framework necessary for the - profes sional conduct of the internal audit department tasks. The International Professional Practices Framework is a layout of professional rules and guidelines defining the work of the internalaudit, and integrated in a been structured which have the IIAdocument published by Global. The Internal Audit Department carries out inter nal auditsin line with the Strategic Plan and the Internal Auditor Internal

HEP group HEP | Report Sustainability and Annual 26 Corporate and ethical governance 29 - - ECLA (European Company Lawyers Association) Company Lawyers ECLA (European Sciences Academy of Technical Croatian Electrical Engineering Society Nuclear Society Croatian Society Protection Water Croatian Building Council Green Croatian Gas Association Croatian Treasurers Association of Corporate Croatian Association MIPRO Croatian Association Air Protection Croatian Croatian Association of Nature and Environmen Experts tal Protection Institute Standards Croatian Croatian Business Council for Sustainable - Devel opment Chamber of Commerce Croatian Chamber of Commerce Croatian-Austrian German-Croatian Chamber of Industry and Com merce CROMA - Croatian Association of Managers and Entrepreneurs Public Relations Association Croatian - - uring 2019, HEP d.d. members, collective companies were and HEP Group while numerous experts are individual members of many international - organi HEP Group Group HEP memberships zations, institutions, and associations: (Union of the Electricity Industry) EURELECTRIC CIGRE (International Council on Systems) Large and CIGRE National Committee of - Cro Electric atia Dams) Large of Commission (International ICOLD CIRED (Congres International des Réseaux Elec triques de Distribution) Association) Working (Live LWA Traders) Energy Federationof EFET (European Agency) IAEA Energy (International Atomic Nuclear Society) ENS (European UNICHAL (International Union of Heat Distribu tors) EUROHEAT & POWER (International organization focused on co-generations, long-distance heating, and cooling) (Institute of Internal Florida, Auditors, IIA GLOBAL Auditors Internal of Institute – HIIR through SAD), of Croatia) ISACA (Information Systems Auditand Association); through Croatian Control subsidiary ISACA Chapter Croatia D 4 0 0 0 2 1 4 0 4 2 3 7 53 57 59 59 26 12 59 UNJUSTIFIED 2 0 0 0 0 0 0 0 0 1 8 1 6 28 28 29 29 12 29 JUSTIFIED 6 0 0 0 2 1 4 0 4 3 4 34 81 85 88 88 19 18 88 TOTAL

h) calculation and invoicing g) customer relations f) public procurement e) nepotism d) conflict of interest c) corruption b) discrimination Number of non-anonymous complaints filed by other filed Number of non-anonymous complaints subjects legal and private interested (stated potential areas type Number of complaints by of complaints) a) labor relations Number of non-anonymous complaints filed by complaints filed Number of non-anonymous suppliers energy - number of non-anonymous complaints - number of non-anonymous complaints filed Number of non-anonymous HEP employees by Number of received complaints Number of received complaints Number of solved complaints - number of anonymous i) connection to LV network i) connection to LV k) other j) unauthorized consumption j) unauthorized Total Total

Structure of complaints received in 2019 received of complaints Structure

HEP group HEP | Report Sustainability and Annual 28 STRATEGIC approach to sustainability4 Material topics:

Stability and security of generation, distribution Investing in sustainable environmental protection and supply of energy and responsible environmental impacts management Sustainable construction and energy sector development Continuous market growth and maintained competitiveness on domestic and regional markets A responsible, sustainable and quality employer Stakeholder dialogue, transparent communica- Successful and profitable business tion and public education

Strategic goals HEP2030:

Sustainable and flexible energy portfolio Market adaptability Material Optimization and development of business pro- Stakeholder collaboration topics cesses Annual and Sustainability Report | HEP group Annual

EP Group publishes its sixth Sustaina- interconnected within the material areas. As in the 32 33 bility Report. In the past several years previous reporting period, we evaluated material we considered our material topics care- areas in the context of our strategic goals and the fully and checked them with our stake- UN sustainable development goals (SDGs). The Hholders. We considered the integration of material process of materiality check was initiated inter- topics in the strategic and development objec- nally with discussions in our Working Group for tives of HEP Group and our impact management Sustainability Reporting, and then examined them in those areas. Our approach to responsibility and with our stakeholders. Compared to the previous sustainability in economic relations, society and reporting period, very slight corrections were de- 102-47 the environment were included in the HEP Group manded within the material areas. To describe the 2030 Strategic Goals. Considering the Group size aspects and boundaries of our impacts, within the and diversity of our companies and businesses, material areas we defined very precise material our impacts are versatile. However, they are fully topics. Strategic approach to sustainability 35 - - - - - HEP Group actively manages this topic, was which specifically accentuated duringlaunching projects 2019, of by generation from renewa ble sources of energy. The planned construction of new generation facilities always includes po tential risks of realization. HEP Group decreases these risks by providing flexible plans and timely assessments. This material area includes the following topics: fa- generation of revitalization RSE, in investment cilities and network, in investment highly efficient co-generation facilities, use of efficiency in distribution. techniques, and energy best available Successful and profitable business is part of the HEP Group 2030 Strategic comprises management within this material area Goals. Successful long-term investment planning, adequate replies to dynamic changes in regulations and changes busi successful Furthermore, prices. purchase in govern corporate responsible in reflected is ness ance and utilization of Group synergies. As one of financially most significant business organizations in the country, being fully state-owned, HEP Group is aware of its strategic importance for Croatia. This material area corresponds with the strategic goal optimization and development of business processes, especially in realizing op erational efficiency in managingvarious sectors. Besides, this area corresponds to in- segment of the in collaboration strategic goal, stakeholder fees or subsidies various or realization vestments for local communities. Compared to the previous this area evaluate reporting periods, stakeholders but sustainability, their for importance higher with still giving precedence to stability and security, which points out to the context in which - stake successful operations. holders interpret Risks in the domain of successful and profitable business are largely generated in the framework sustainable business to to ensure responsible provisions regulatory or legal as such companies, or other standards and expectations from the ------are closely connected with the previous national critical infrastructure for generation and distribution of electricity. area material this within realization the ensure To we collaborate bodies, with state local communi ties, academic community, and other stakehold ers. Our stakeholders evaluate this material area as the most important and crucial for their own their decision making. sustainability and We manage risks within this material area by - re sponsible adapting to regulatory and legal - provi sions and responsible management by which we We customers. our all for conditions better create continuously advance and modernize our opera tions to ensure high quality and secure genera than More energy. of supply and distribution, tion, gener electricity for capacity installed percent 50 ation is in our hydropower plants, which renders - hydro on dependable very system generation the logic conditions. We manage this risk by - devel oping diversification of our generation portfolio. reliability and security and system ICT of Security of operating facilities are ensured by continuous - devel process and modernization in investments opment. comprises the following This mate- material area rial topics: investment planning, diversified gen eration mix, reliable distribution systems and en abling national critical infrastructure. - sector devel Sustainable construction and energy opment material area. They are based on strengthening own generation and planning and development of new projects. The development of sustainable construction we impact the development of local influ investment, community incite communities, ence economic dynamics, and enable the - devel opment of critical infrastructure. Our stakehold ers evaluate this material area as very important particular- is area The sustainability. own their for ly incorporated in our strategic goal sustainable portfolio.and flexible energy - - - opment of all Croatian regions and raising quality of our business and the quality of life of our customers. Development of technology and the citizens and economy of dependability increasing on the access to and the quality of distribution and supply of electricity, heat, and gas, encour advancement the in invest continuously to us age of generation and infrastructure. Stability security are and primarily visible in the preparation of capital investments and their realization, de velopment of distribution network and responsi ble portfolio management. This material topic is reflected in all our strategic goals, but primarily in sustainable and flexible energy portfolio and securing diversified generation mix. stake- Our distribution the of reliability the recognize holders it because topic important increasingly as system the as Additionally, supply. of stability the ensures the ensure we country, the in group energy largest

or many years, HEP Group has conduct- areas material the within business its ed which reflect its economic, environmental, and social impacts. Each year we record

opinions opinions stakeholders’ and and management management Material topics topics Material

certain progress in connecting our strategic goals certain progress with material areas and material topics are Group. fully HEP of Goals Strategic 2030 the in included strategic of description present we chapter this In approach and materiality management as well as the connections of material topics with strategic eachwithin approach management risk and goals material area which is crucial for of management impact active stakeholders’ an making decision HEP Group. Stability and security of generation, distribution ma- and umbrella basic a is and supply of energy terial topic of HEP Group. As a leader in energy sector development in Croatia, we are aware of our responsibility towards the economic - devel F

102-46 102-44,

HEP group HEP | Report Sustainability and Annual 34 Strategic approach to sustainability 37 Impact Revitalization of Revitalization generation facilities and network in highly Investment efficient co-generations Importance Use of best available techniques RSE investments Energy efficiency Energy in distribution Ensuring national critical infrastructure Strategic planning Reliable distribution system Responsible corporate governance Diversified generation mix Diversified New market models planning Investment Business synergies Prices of energy Risk management Innovations and digitalization Innovations supply chain Responsibility in development Use of EU funds and other institutional sources development performance Active market Active Customer trust Products and services Products Products and services Products Stakeholders’ assessments on the the on assessments Stakeholders’ importance of material and impacts and development in business topics segments market - - - - - households and businesses, customer relations households businesses,and customer relations advancement is vitally important to us, especial ly in educating market on responsible consump tion, energy efficiencyHEP and Group manages market shares risks by - cre potential savings. and services,ating newproducts brand strength ening, marketing communications and by foster ing customer relations. Special risk is emergence of energy poverty, which we manage by bringing adequate measures and participating in various projects and by collaboration with stakeholders (e.g. state bodies, local communities, and society), which ameliorate the consequences. We civil respond to the challenges of the liberalized market by exploring opportunities of various models HEP positioning as well as expansion, business of expanding by and leader energy regional as Group our business operations in the region. topics: following the comprises area material This development of products and services, customer power purchase performance, market active trust, en chain, supply responsible poverty, energy and and digitalization. prices, innovations, ergy - - - - -

environment. environment. We invest efforts to manage such risks by timely recognizing Responsible our governance and opportunities. operations ensure positive financialresult. Having in mind the size direct results financial positive our Group, HEP of ly influences the realization of profit for the own positive GDP growth, economic development, er, employment trends and local community - devel opment. This material area includes the following topics: - corporate gov strategic planning, responsible ernance, new market models, EU funds and other institutional financing sources, synergy effects in and risk management. business environment and maintained com- growth Continuous market is markets on domestic and regional petitiveness the fourth material area which stakeholders con sider very important in generating ensures Group HEP impacts. management, responsible our By market and economic sustainability in this area. technologi to due rapidly change markets Energy but development, infrastructure and industrial cal, also by changes in social trends and customers’ im- extremely is it market, liberalized a On habits. customers’ portanttrust, be ca- keep and to win pable of agile adaptation to new trends and - re material This policies. pricing approach sponsibly area is specifically included in our strategic goal develop market our build We adaptability. market products new of development continuous on ment to Compared segments. market all in services and reporting periods,our stakeholders the previous still accentuate the importance of customer trust servic- and products new of development the and impact on their own great elementshaving es as sustainability. primar- manage can Group HEP that risks Market ily relate to adaptations to new regulations and but also to our own capabilities trends, market to adequately respond to those adaptations and trends. Having in mind that HEP Group, the due wide to spectrum of its sectors, reaches to all

HEP group HEP | Report Sustainability and Annual 36 Strategic approach to sustainability 39 Impact Importance Sustainable waste management Energy efﬁciency Energy Reduction of emissions into air Climate change and greenhouse gas emissions Climate change and greenhouse Use and protection of waters Use and protection Biodiversity network assessments Environmental and ecological Environmental Stakeholders’ assessments on on assessments Stakeholders’ the importance of and impacts of the segment topics in material management environmental ------is a substantially significant material area

Investing in sustainable environmental protection protection in sustainable environmental Investing impacts manage environmental and responsible ment in the energy sector and development plans HEP of Group. We understand our responsibility to adapt our business operationsto climate change activities develop continuously we and challenges to contribute to the mitigation of consequences. Sustainability in environmental segment is en sured by investing in responsible management of the emissions into air, responsible protecting use waters and and developing ciency projects. Responsible energy waste management effi- and high quality of environmental assessments are also important. Systematic sustainability is impacted by increasing costs of environmental protection and costs of trading with greenhouse emissions. Environmental material topics management is integrated in all HEP strategic Group. Our goals stakeholders consider of this area vital for to their business decision making related operations and sustainability. In the HEP segment Group faces various challenges. of They partially environmental emerge from the impacts, surroundings and to relate regulatory and legal provisions ards, to which HEP Group and fully adapts to all stand- new requirements. Risks related to the development of projects are decreased by timely and quality during various communication with stakeholders environmental assessment processes. By - pro to con public content, we strive viding versatile tribute to public awareness in the topics of en vironmental protection and our management of our manage actively We segment. that in impacts our standards and improve risks environmental obtaining certificates.by This material area comprises the following top ics: climate change emissions, and energy efficiency, sustainable greenhouse waste gasses management, use reduction of emissions into air, and protection of waters, biodiversity, and envi and ecological network assessments. ronmental

HEP group HEP | Report Sustainability and Annual 38 Strategic approach to sustainability 41 Impact Importance Stakeholder collaboration Stakeholder and partnerships Community investments Stakeholder engagement Stakeholder Attractive employer Attractive Contemporary channels communications Diversity and inclusion Diversity workplace Dialogue with social partners Safe and healthy Safe Stakeholders’ assessments on the the on assessments Stakeholders’ importance of material and impacts in social segments topics - - - - is a material area cru area material a is sion, safe and healthy workplace, and dialogue with social partners. communica dialogue, transparent Stakeholder tion and public education cial for relationship building with all our - stake holders related to all material topics. HEP Group manages this area by creating and maintaining partnershipsvarious with institutions, - associa - tions, and local communities, including the stake holders vital for HEP Group business operations, by participating in policies development. We particularly carefully approach the responsibility of communicationsmarketing and our disclosure of is recognized data on impacts. This material area importantless as on average our stakeholders by for their business decision-making and sustainability. HEP Group recognizes the importance of this material area and in our Strategy HEP 2030 we listed a specific strategic goal for stakehold er collaboration. In this area we manage risks by timely and transparent communication on all is- concluding ver by education and customersues, satile partnerships with stakeholders. comprises the following This mate- material area collaboration engagement, stakeholder topics: rial with stakeholders and partnerships, community investment and contemporary communications channels. - - -

A responsible, sustainable and quality employer sustainable and quality employer A responsible, comprises HEP Group responsibility as a organization large which operates in all parts country. of As one the of the largest and most significant employers in Croatia, HEP Group influences communities local all in potential employment the and has significant impact on the labor market. This does not only reflect in the size of the employer, but also in the needs for employment of - There experts. and employees of profiles various reputation the maintain to important very is it fore, in invest continuously to employer, attractive an of education of our employees, their protection and safety at work. In this way we ensure opportuni ties for our employees to develop professionally, to manage their careers in a sustainable way and we enable a motivating and healthy workplace. Besides internal development, we achieve by creating partnerships this and by our investments in science and education. This material topic is vitally important to our external employees, stakeholders evaluate while it as our of average importance. Material area is integrated into our strategic goal optimization and development of which supportsbusiness processes, continuous growth of competences and innovation potential of our employees as well as efficient knowledge management on the corporate level. The highest risks in the domain of workplace in Croatia during 2019 related to the dynamic de velopment of labor market, large competition in employees and experts, potentials, high for search those to respond To professions. specific some in risks, we continuously develop the reputation of develop and employer attractive an as Group HEP partnershipIn environment. working motivating a to develop with educational institutions we strive professionalism and quality of our present and potential employees. By providing and quality working competitive conditions, we strive to keep loyalty. our employees’ material following the includes area material This topics: responsible diversity employer, and inclu

HEP group HEP | Report Sustainability and Annual 40 Strategic approach to sustainability 43 3 4 10 32 employer Attractive and inclusion Diversity and healthy Safe Dialogue with Contemporary engagement Stakeholder collaboration Stakeholder Community investments 1 27 Social topics 30. 31. 32. workplace 33. social partners34. channels communication 35. 36. and partnerships37. 24 17 29 15 6 26 21 11 25 22 23 Climate change efﬁciency Energy Sustainable waste Reduction Use and protection Biodiversity Eia and ecologic Environmental topics Environmental 23. emissions and greenhouse 24. 25. management 26. of emissions into air 27. of waters 28. 29. network assessments 8 5 16 9 30 33 36 Products Customer trust market Active power Purchase Responsible supply Prices of energy Innovation 34 Market topics Market 16. and services development 17. 18. approach 19. poverty and energy 20. chain 21. 22. and digitalization 20 28 13 18 12 SIGNIFICANCE OF ECONOMIC, ENVIRONMENTAL AND SOCIAL IMPACTS SIGNIFICANCE OF ECONOMIC, ENVIRONMENTAL 37 19 35 7 2 14 Strategic planning Responsible corporate models New market and other institutional Eu in business effects Synergy Risk management

1. planning Investment 2. generation Diversified mix 3. Reliable distribution systems 4. Ensuring national critical infrastructure 5. Res investments 6. of Revitalization generation facilities and network 7. in Investment cogenerations high-efficiency 8. Use of best available techniques 9. efficiency in distribution Energy 10. 11. governance 12. 13. financing sources 14. 15. Economic topics Economic

31 INFLUENCE ON STAKEHOLDERS ASSESSMENTS AND DECISIONS AND ASSESSMENTS STAKEHOLDERS ON INFLUENCE -

aving aving in mind the specific characteristics of the industry and stabile in trends our environment, material topics of HEP Group have not changed signifi-

matrix Materiality Materiality cators within the boundaries. Thematic chapters also contain descriptions of various projects and activities undertaken by HEP Group, which reflect topics and in managing material our approach sustainability and responsibility. developing cantly, compared to the previous reporting period. reporting previous the to compared cantly, Compared material indicators i.e. stakeholders’ views of the importance of economic, mental and - environ social impacts of HEP Group and the impacts of material topics on the decisions and in ma- is presented sustainability of stakeholders teriality matrix. The materiality matrix was composed compliant to GRI guidelines and is a result process. engagement stakeholder of individual - mate to our stakeholders, According social impacts and rial economic, environmental of HEP Group have various importance for their decisions and assessments. Materiality matrix helped us to determine the boundaries of tainability sus- report. Thematic chapters of this - re indi relevant all to port according comprise data

HEP group HEP | Report Sustainability and Annual 42 Strategic approach to sustainability 45 102-40 - - SHAREHOLDERS’ REPRESENTATIVES: General Assembly, Supervisory Board General Assembly, STATE BODIES: STATE Croatian Croatian Government, Ministry of Environ mental Protection and Energy, Ministry of State Property, Ministry of Finance, Ministry of Economy, Economy, Entrepreneurship and Crafts, - Minis try of Construction and Physical Planning, Envi- ronmental ronmental Protection and Energy EfficiencyFund, Croatian Croatian Environment and Croatian Nature Agency, Water Management Company, Croatian Parliament Croatian Management Company, Water REGULATORY BODIES: REGULATORY Croatian Croatian Energy Regulatory Agency (HERA), Croatian sources sources as well as the development of new - mar models. ket More than a HEP half Group’s sustainability of reports. 78 our of them think percent that the reports are interesting and stakeholders read substantial and state that the content is of high information. relevant quality and contains Competition Agency (AZTN), Croatian Financial Servic - es Supervisory Agency (HANFA) CAPITAL MARKETS: CAPITAL - investors, creditors, investment partners, investment rating agencies, creditors, investors, Zagreb Stock Exchange Zagreb MARKET: Croatian Croatian Energy Market Operator (HROTE), commercial cus tomers, residential customers, competition, business partners,tomers, residential suppliers, CROPEX and other energy exchange and emissions trading exchange LOCAL COMMUNITIES: LOCAL counties, cities, municipalities INTERNAL STAKEHOLDERS: INTERNAL employees, employees, managers, unions, workers’ councils, HEP war veteran association, HEP pensioners association ACADEMIC AND SCIENTIFIC INSTITUTIONS: AND SCIENTIFIC ACADEMIC

universities, scientific institutes, secondaryuniversities, schools ASSOCIATIONS (INTERNATIONAL AND NATIONAL): (INTERNATIONAL ASSOCIATIONS expert associations, interest associations, Croatian Chamber of Economy expert associations, Croatian associations, interest

CIVIL SECTOR: consumer protection associations, environmental NGO’s associations, environmental consumer protection MEDIA: national, local, expert stakeholders pared pared to the reporting previous periods. - Manage ment in the segment of stability and security of generation, distribution was and supply of energy evaluated as the most successful while there is room for improvement in the areas of success ful and profitable business, especially EU in using financing and financing by other institutional HEP Group ------ations. HEP d.d. participateemployees in internal satisfaction. on employee survey and stability is impact of area important most The security of generation, distribution and supply of of percent 68 even by important evaluated energy, (62%) stakeholders less Slightly stakeholders. our in sustainable environ consider investments that management responsible and mental protection impor significantly are impacts environmental of tant. Sustainable construction and development of energy system is evaluated as very important by 55 percent of our stakeholders, while 50 per cent of stakeholders think that successful profitable and business is equally important to com business operations on the domestic and petitive markets. regional state that the most importantStakeholders material topics for HEP Group management are - relia ble distribution systems (80%), ensuring national critical infrastructure and use and protection of waters (74% respectively), customers’ trust and strategic planning (72% respectively). Stakeholders evaluated success of HEP Group in managing material areas by an average grade of com increase qualitative a is which 5), of (out 3.6 pact and environmental permits assessments. regularly collectWe opinions from our customers and users of services on their satisfaction potentials to and improve HEP Group business oper

n this reporting period we conducted specialn this reporting stakeholder engagement with detailed questions related to HEP po- topics, material development, sustainable Group impacts within

engagement Stakeholder Stakeholder

tentials of HEP Group to contribute to contribute to the SDGs, responsible behavior of HEP and the success in implementing sustainability and - re sponsibility. Stakeholder engagement was conducted in two ways. The survey online conducted channels by included 78 representatives all of key stakeholder groups of HEP Group: authorities state and organization, local units, customers community and service users, HEP Group suppliers, scientific and educational institutions, civil society associations, media, social partners and other external stakeholders. We conducted individual interviews with five stakeholders,representatives of academic community and energy experts to gain a deeper insight into HEP Group sustainability, success in impact and management the potential of the future HEP Group in the context of energy sector development and its of context.social wider the in role development - pro engagement stakeholder conducted Besides cess, HEP Group processes business continuously our in ways various in involves holders - stake and business operations. Stakeholders’ opinions are collected in legally assess- public engagement in the environmental provided processes of ecological network im- ment impact procedures, I

102-43 102-42,

HEP group HEP | Report Sustainability and Annual 44 Strategic approach to sustainability 47 - - ening of corporate governance. HEP Group has the exactly and experts high-quality exceptionally highest expertise should always lead. Stakehold ers expect the rejuvenation of the system, which would be challenging in terms of developing organization and culture capable of retaining the highest potentials and attracting new ones. HEP but generations, new for employer attractive an is and them opportunities to develop must provide it implement their know-how and abilities. …strengthening with relations expert and research community is vitally important for the of development sector … energy …long-term …long-term success market by can be ensured not only advancing customer but experience also forming partnerships with customers … A more agile approach by HEP in most segments recognize Stakeholders lately. visible become has long-term sustainability of the system in further adaptation to external trends and the strength ------utilization of experience … expertise and …HEP acts with its potentials of but can improve but can improve more agility today agility today more HEP Group traditionally develops good relations and partner collaborations with the academic community, higher education and experts. This to en strengthened be maintained and must role able dynamic development of new solutions to the benefits of HEP as well as the economy and ca- show to potentials has HEP society. entire the even and startups of development the in pabilities establish an aggregator company. The combina development to approaches contemporary of tion and partner collaborationsstakeholders with could really result in brave but very developments. successful Technological development, and innovations dig Technological italization can considerably influence the level of service for customers. The importance of acces sibility and stable supply of energy is increasing, and customers demand more complex and so- phisticated services at affordable prices. The de models, management contemporary of velopment advanced networks, multidisciplinary approach to energy sector development as well as the rise of prosumerism should form the base for future contem using by that all And relations. customer porary communication channels and transparent relations. stakeholder -

…the progress in …the progress is RES investment visible and, in this HEP Group area, assumed the … leading role HEP Group is one of the few large companies in Croatia which can prove partial visibility contribution to the sustainable development of its strategic goals within its business planning, but it business its closely more connect to potential has policies with the realization of SDGs. Low-carbon approach changes the paradigm of energy development which provides huge potential for HEP Group development. Stakeholders regional market of position its increases HEP that expect but also underline the importance that the leader, state-owned. remains group of sustainability is on the part of the state, whose and approaches to set sustainable goals is task However, strategies. sectoral and national in both accentuatealso responsi the the stakeholders bility of the companies, especially large ones and of a strategic importance, sustainable in realizing development goals in Croatia. They perceive the role of HEP Group as one of the leaders of sus- impacts of management responsible and tainable society and the environment. on economy, - - - - and HEP can development is development more decisively … decisively more approach this issue this approach carbon development carbon development sustainable and low- …the only imaginable

Stakeholders Stakeholders specifically commend HEP Group’s increased investments in a more dynamic de ducted interviews with five relevant representa tives of academic community and experts in the energy and sustainable development. All of them express substantial understanding of the rising importance of sustainable development and - re sponsible business conduct hold them vital and for successful management of a significant and sizeable organization like HEP Group. Stakehold reporting period, think that the previous ers, like enabling institutional for responsibility largest the velopment of RSE energy modernization of generation generation facilities as and well as the the development of infrastructure. According to the initiated have should Group HEP stakeholders, investments even earlier, thus they expect more significant investments and development of RES in expect Stakeholders future. that HEP in- Group creases investments in exploring new solutions, does and new technologies,it that so innovation not stand out only by its economic and strategic by its modern approach. significance but also Within stakeholder engagement process we con Stakeholders’ opinions on HEP Group Group on HEP opinions Stakeholders’ development in sustainable progress for improvements and recommendations

HEP group HEP | Report Sustainability and Annual 46 Strategic approach to sustainability 49 - gy Affordable and clean energy: energy: clean and Affordable for and modern energy sustainable reliable, to affordable, access ensure services and modern energy reliable access to affordable, universal 7.1 ensure mix in the global energy energy of renewable substantially the share 7.2 increase efficiency energy in rate of improvement 7.3 double the global 7A enhance international cooperation to facilitate access to clean energy research and material areas: in these this goal is reflected of realization Contributions to the sector development and energy Sustainable construction distribution and supply of ener Stability and security of generation, and economic Decent work growth: full and productive and sustainable economic growth, sustained, inclusive promote and decent work for all employment 8.2 achieve higher levels of economic productivity through diversification, techno and added value high on focus a through including innovation, and upgrading logical sectors labor-intensive men, and women all for work decent and employment productive and full achieve 8.5 including for young people and persons with disabilities, and equal pay for work of equal value 8.8 protect labor rights and promote safe and secure working environments workers, of including migrant all workers, particularly women migrants, and those in - pre carious employment in these material areas: of this goal is reflected Contributions to the realization business Successful and profitable Responsible, sustainable and quality significant employer

tial contributions to SDGs relate to the material tial contributions to SDGs relate 2030. Group of HEP goals strategic the and areas

n relation to the previous reporting period, the reporting previous to the n relation potentials of contribution of HEP Group to the realization of particular UN sustainable - devel - Poten same. the remained have goals opment

goals development development sustainable context of context in the in Materiality Materiality

HEP group HEP | Report Sustainability and Annual 48 Strategic approach to sustainability 51 Climate action: Climate action: its impacts action to combat climate change and urgent take nat- and hazards climate-related to capacity adaptive and resilience strengthen 13.1 ural disasters in all countries education, and awareness-raising human 13.3 and improve institutional capacity on and early warning climate change mitigation, adaptation, impact reduction in these material areas: of this goal is reflected Contributions to the realization im- environmental and responsible protection in sustainable environmental Investing pacts management education communication and stakeholders’ dialogue and transparent Stakeholder Responsible consumption and and consumption Responsible production: patterns consumption and production sustainable ensure resources natural management and efficient use of the sustainable 12.2 achieve 12.4 achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in accordance with agreed international frameworks, and significantlyreduce theirrelease to water air, and soil in order to minimize their ad- on human health and the environment impacts verse 12.5 substantially reduce waste generation through prevention, reduction, recycling and reuse 12.6 encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle 12.7 promote public procurement practices that are sustainable, in accordance with national policies and priorities in these material areas: of this goal is reflected Contributions to the realization management and responsible protection in sustainable environmental Investments impacts of environmental Continuous market development and competitiveness on national and international markets education communication and stakeholder dialogue and transparent Stakeholder - - - - gy gy

tries her natural and cultural world’s the safeguard and protect to efforts strengthen 11.4 itage links between urban, 11 A support economic, social and environmental positive plan- development national and regional strengthening by per-urban and rural areas ning 11 B substantially increase the number of cities and human efficien resource settlements inclusion, towards plans and policies integrated implementing and adopting mitigation and cy, adaptation to climate change, resilience to disasters, and develop and implement holistic disaster risk management at all levels in these material areas: of this goal is reflected Contributions to the realization markets regional and national on competitiveness and development market Continuous Stability and security of generation, distribution and supply of ener management and responsible protection in sustainable environmental Investments impacts of environmental Sustaibnable cities and cities and Sustaibnable communities: and sustainable resilient safe, cities and human settlements inclusive, make 11.3 enhance inclusive and sustainable urbanization and capacity for participatory, integrated humansustainable settlement and planning coun and management in all Industry, innovation and and innovation Industry, infrastructure: and sustainable industrialization and inclusive promote infrastructure, build resilient foster innovation 9.1 develop quality, reliable, sustainable and resilient infrastructure, gional to and infrastructure, supporttransborder economicand human development including - re for all and equitable access focus on affordable well-being, with a 9.4 upgrade infrastructure and retrofit industries to make them sustainable, within creased resource-use efficiency and greater adoption of clean and environmentally countries with all acting in accordance sound technologies and industrialprocesses, capabilities with their respective 9.5 enhance scientificresearch, upgrade thetechnological capabilities of industri al sectors in all countries, in particular developing countries, countries, including all in particularsectors in encouraging al developing innovation and substantially increasing the number of research and workers development in these material areas: of this goal is reflected Contributions to the realization distribution and supply of ener Stability and security of generation, sector of energy Sustainable construction and the development

HEP group HEP | Report Sustainability and Annual 50 HEP Group BUSINESS operations in 2019

(The report on HEP Group business operations in 2019 is consolidated for the entire Group, including HOPS) 5 HEP Group business operations in 2019 55 - - - - age exchange rate in 2018 (6.28), which reflected the on USD the against euro the of weakening the world financial markets. Favorable trends throughout the year were con con a and season tourist successful a by tributed tinued growth of nominal and real paid gross and per of recovery the stimulated which salaries, net low of retention the as well as consumption sonal interest rates. According to the Croatian Bureau of Statistics data, the registered unemployment compared percent 7.8 was 2019 December in rate to 8.9% in December 2018. Despite seemingly fa- unem the reduced trends, labor market vorable ployment rate was a result of not only new jobs but also of a continued emigration of the working population. credit-rating & Poor’s Standard 2019, In March agency upgraded Croatia’s investment rating to the level it had lost in 2012. The rating level - re flecting adequate credit quality was affirmedrat- in Croatia’s graded Moody’s Fitch. by 2019 June - - strengthening the Group’s financial position. financial the Group’s strengthening HEP Group continued to fulfil its mission of a its mission to fulfil continued HEP Group preserved, and good business results achieved achieved and good business results preserved, distribution and supply of energy in line with the in line with supply of energy distribution and sustainable, reliable and competitive production, production, and competitive reliable sustainable, responsibility in 2019. HEP Group core values were were values core Group in 2019. HEP responsibility customers’ needs and retaining a high level of social a high level and retaining customers’ needs s the Croatian economy continued strengthen in to 2019, the first estimated Bureau Croatian the by published figures of Statistics showed a 2.9% increase of the gross domestic product compared to 2.6% in 2018. This was the fifth consecutiveyear of the GDP growth. The stable growth of economic activities during the year was slowed down in late - pro 0.5% rise of industrial in mere 2019 resulting duction, a consequence of slowed down produc tion of the processing industry which accounts for more than 80 percent The average annual rate of of inflation in 2019 total was production. 0.8 percent. The exchange rate of the kuna against the euro was relatively stable. According to the Croatian National Bank lists of exchange rates the in average 2019, exchange rate of the kuna the euro was against 7.42, which was an increase of only ex- average The 2018. in 7.41 to compared 0.04% was dollar US the against kuna the of rate change 6.63 i.e. a 5.5% increase compared to the aver A

(58 MW) commenced

Construction of HEP WPP Korlat Korlat HEP WPP of Construction

operations environment and Business Business

HEP group HEP | Report Sustainability and Annual 54 HEP Group business operations in 2019 57 - - - - . Dividend of HRK 212.4 million was paid 9 into the State Budget. Pursuant to the decision the decision to of Budget. Pursuant State into the the Croatian Government, HEP d.d. injected addi- company the d.o.o., Hrvatska LNG in capital tional termi- LNG the of construction the for responsible nal, which was launched in April. HEP Group continued to be one of the biggest investors in Croatia in 2019 with HRK 3.39 bn invested, including the HRK 262.3 m investment in Krško NPP. Pursuant to the decision passed by the Croatian of funds additional injected d.d. HEP Government, HRK 216.1 million in LNG Hrvatska d.o.o. - Invest ments were funded from the company own funds due to good liquidity as a result of a good busi ness year. Main works on the construction of the gas-fired high efficiency Unit (150 L MWe and 114 MWt) commenced. Construc EL-TOat Zagreb CCPP The Group recorded net profitof HRK 1.40 billion, which was by HRK 37.9 million (2.8%) more than in 2018 i.e. HRK 1.36 bn. The profit was earned from electricity, while all other activities reported loss. Financial activities reported profit of HRK 24.0 m, - val fair the of change The 2018. in than less bit a ue of the cross-currency swap for the bonds issued in 2015 accounted for a major part of financial income while financial expenses are mainly of interests. the result due period within settled were liabilities All throughout 2019. The Group ended the business equiv cash and cash in billion 3.35 HRK with year alents, an increase of HRK 571.9 million (20.6%) compared to end 2018. The repurchase of com pany bonds issued on the international market was capital carried out on four occasions during 2019 ------, while 8 . Total income from the sale 7 Under the Regulatorydecision Energy passed the by Croatian Agency d.d. 28 was October (HERA) from 2019, Hrvatska elektroprivreda until 31 October 2018 22 February from issued in 2015 in the amount of USD 550 million were Eurobonds of gas decreased by 29.7 percent as a result of gas supply to domestic customer in 2018 appointed a wholesale gas market supplier for the period from 1 April 2020 until 31 March 2021 1 April 2020 until 31 March supplier for the period from appointed a wholesale gas market 7 8 9 In 2019, HEP ensured 20.7 i.e. 4.2 percent TWh more than in of 2018, for customer electricity supply, sale abroad, losses in the transmission and distribution network, pumping station oper ation and captive use, 12.3 TWh of which (60%) was produced by power plants owned or partially volume remaining the while Group, HEP by owned was procured on the market and purchased from the Croatian Electricity Market Operator (renewa cogenera high-efficiency and sources energy ble of incentives). tions in the system The year 2019 was characterized by average hydrology resulting in hydro generation of 5.8 TWh, due (partly 2018 in than (15.7%) TWh 1.1 by lower early since HPP Dubrovnik of non-operation the to 2019), while the production by HEP thermal pow er plants increased by 502 GWh (15.7%). In 2019, Krško NPP produced 2.8 TWh, and HEP’s incen tivized solar and cogeneration plants 23 GWh. In hydropower by volume production lower a of light purchase electricity the sale, increased and plants on the market (including the repurchase from - re newable sources and high efficiency(18.3%) TWh 1.3 cogenera by i.e. TWh, 8.3 to amounted tion) more than in 2018, which affected the growth of 23.9 percent. by costs electricity purchase HEP d.d. continued to be the wholesale gas mar- supplier in 2019 ket income from the wholesale and retail sale of gas increased. Gas business made a major step for and distribution gas the acquiring by 2019 in ward Virovitica. d.o.o. from supply company Plin VTC as decreased energy heat of sale the from Income a result of a 2.2.% reduction in demand affected by warmer weather during a part of the heating season. - - - , the average reduction of reduction average the , 6 tricity surpluses generated in HEP Group power the higher well as as price and plants and resale, customers. supply to regional increased tariff items for electricity fortransmission and distri- items tariff compared 2019, in customers business for bution to 2018, was 10-15 percent (depending of sale the from Income on level). voltage connection the sale the of result a as increased abroad electricity elec of price higher the HB, HZ Elektroprivreda to ber of activities focused on improving customer permanent servicerelations, enhancement, de velopment of the existing and offering of the new marketing as well as products and innovative campaigns aimed at the strengthening of brand which HEP resulted in the increase of the market share in the supply of electricity to domestic customers of 91.4 percent. Activities on regional continued particularwith a emphasis on markets the Slovenian market where the electricity supply contracts with a number of large customers had been concluded. HEP sold 14.9 TWh of customers electricity (312 GWh to more domestic than in 3.3 2018), TWh and of electricity to (482GWh more neighboring than in markets 2018). Income from the sale of electricity in Croatia increased by 3.6 per cent as a result of the increase of selling price for the business customers average of HEP Ele- ktra (guaranteed supply) and HEP Opskrba (sup- to sale the in share HEP’s of increase the and ply), result a as time, same the At customers. business of reducing a part of tariff items as of 1 January 2019, income from the use of transmission and distribution network was also reduced. - Accord decisions HERA’s to ing

2 - - - gas 2 spot market in late 2018 4 , a 39.4% decrease compared to compared , a 39.4% decrease 5 in 2019 was 62.88 EUR/MWh, was 12.56 EUR/MWh, which was 1 3 emission units. The price of oil in late 2018 late in oil of price The units. emission https://markets.businessinsider.com/commodities/coal-price 2 https://narodne-novine.nn.hr/clanci/sluzbeni/2018_12_112_2186.html

https://narodne-novine.nn.hr/clanci/sluzbeni/2018_12_112_2185.html

Day Ahead Market Day Gas Hub Central European Exchange Energy European Source: Hungarian Derivative Energy Exchange Energy Hungarian Derivative which was a 33.1 percent to 47.25 EUR/MWh increase in 2018. compared A significant rise of electricity wholesale prices in July and 2019 August was a result of bad hydrology and reduced water flows in the region, a short-lived growth of CO of prices high record and prices, coal and gas price on CEGH tween China and the USA as well as of the Middle the of as well as USA the and China tween East unrests. The average price of power futures on the HUDEX was 45.15 USD per Barrel and was mostly rising in rising mostly was and Barrel per USD 45.15 was per USD 66.24 – April in was peak price (the 2019 Barrel). The price of oil levelled off at 61.14 USD per Barrel in late 2019. The 2019 price stabiliza- tion was the result of easing trade tensions be emissions. In late 2019, the sport market 3 4 5 6 1 2 ing two notches below the investment level, but it level, ing two notches below investment the stable to positive. from upgraded the outlook External factors affecting HEP’s business oper ations include the price of electricity, energy fuel CO and was 23.40 EUR/t compared to late 24.93 2019, which was EUR/t a 6.5% increase. in The price of coal continued its decreasing trend started in late 2018 to reach its lowest level in September 2019 (43.55 USD/t). In late 2019, the price of coal was 45.55 USD/t 75.15 USD/t in late 2018. Despite being faced with market challenges - re power on prices electricity of rise the from sulting exchanges and increasingly complex customer demands in 2019, HEP Group conducted a num a 43.9% decrease compared to 22.38 EUR/MWh in 2018. The price of European Emission - Allow ances (EUA) on the EEX

HEP group HEP | Report Sustainability and Annual 56 HEP Group business operations in 2019 59 - +2.1% +2.1% +2.2% +2.8% +2.9% %2018 +35.8 +37.9 +39.3 +316.9 +281.1 HRK m Δ 2018 2019 1,694.3 1,402.6 1,404.0 HRK m 15,515.2 13,820.9 result of increased income from sale of electricity of sale from income increased of result in- operating other of and (6.2%), m 727.2 HRK by sale the from income while m, 169.3 HRK by come HRK 606.3 m (61.4%). by of gas decreased increased m 13,820.9 HRK of expenses Operating increase This 2018. to compared m 281.1 HRK by elec of cost purchase increased of effect the was tricity (23.9%) as the result of increased market electricity purchase for allowances emission of customerprice increased and trade supply and (53.3%) due to higher prices and increased - vol ume compared to 2018, while the purchase value - re the as primarily (32.4%) decreased gas sold of in 2018. sult of gas sale to a domestic customer 2018 1,658.5 1,364.8 1,364.8 HRK m 15,198.3 13,539.8 (abridged) ccording ccording HEP to Group is one of the biggest business financial groups in the Republic of Croatia. operatinggenerated Group the 2019, In indicators, Consolidated profit and loss account Consolidated profit Operating income Operating expenses Profit from operations from Profit Net profit of the Group Net profit Net profit attributable to owners of the parent Net profit profit of HRK 1,694.3 m, an increase by HRK 35.8 m 35.8 HRK by increase an m, 1,694.3 HRK of profit operating better a to due 2018 to compared (2.2%) income/cost ratio. Financial activities generated profit of HRK 24.0 m, increase an of than HRK 0.7 m in 2018. Net profit of HEP Group amounted to HRK 1,402.6 m, of which HRK 1,404.0 m was attributable to equity owners, and interest. m to non-controlling 1.4 HRK the loss of Operating income of HRK 15,515.2 m increased a as primarily 2018, to compared m 316.9 HRK by Financial Financial results A - - In late November 2019, Standard & Poor’s upgrad & Poor’s Standard 2019, In late November ed the stand-alone credit profile of Hrvatska ele d.d. ktroprivreda from bb to bb+, and affirmed the HEP that stating (BB+) rating baseline company’s had improved its hydrology and fuel price - vola tility exposure management. Moody’s affirmed HEP’s long-term credit rating (Ba2) and boosted stable to positive. the outlook from HEP Group had 11,520 employees at the end of 2019, which was by 509 more than in late 2018, the result of new employment as a consequence of downsizing HEP DSO employees as part of the company reorganization scheme carried out in the end 2018. Work relations and workers’ rights in HEP Group companies were regulated under the Collective Agreement for HEP Group in effect for the period 1 January 2018 until 31 December 2019. ------

tion development of Kosinj hydropower system and Senj 2 HPP continued. - invest significant of cycle a launched Group HEP ments in renewable energy sources. Non-inte grated solar power plant SE Kaštelir (1 MW) was wind first HEP’s of construction the and acquired, plant – VE Korlat (58 MW) started as well as the works on the construction of plant (3.5 Vis MW). Project acquisition solar was initiated power as well as the erection of solar power plant Cres solar other of number a of Development MW). (6.5 power plant projects continued. Further imple mentation of the eMobility project resulted in the stations. installation of 64 public charging ba- ongoing an on replaced being was Equipment sis as well as the reconstructions and refurbish ments of the existing generation facilities and of the transmission and distribution network, which was carried out primarily by engaging domestic and contractors. producers The implementation of energy efficiencyinten - meas was projects EE of preparation the and ures sified. In late 2019,the agreement on the award of the connecting grant for the replacement of EU Com European The signed. was Osijek in pipeline mission also awarded a EUR 57 m grant for the revitalization of the Zagreb hot-water network. Photovoltaic plants were installed on the roofs of HEP corporate buildings and operating facilities for the purpose of reducing captive energy con sumption.

HEP group HEP | Report Sustainability and Annual 58 HEP Group business operations in 2019 61 - - - public service. Pursuant to decision HERA’s from October 2019, HEP shall carry out said until 31 March 2021. activity As per the above, the Group generated income of HRK 971.9 m for 6 accounting percent of its operating revenue. This rep resented an increase of HRK 36.2 m compared to 2018 as a result of the rise in the selling price as of 1 April 2019. Income from the sale of ers gas amounted to to HRK end 380.7 custom 2 m accounting percent for of operating income, HRK 606.3 a m compared to decrease 2018 as the by result of gas sale to a domestic customer in 2018 which did not continue in 2019. amounted to energy heat of sale the Income from HRK 655.2 m, which accounted for 4 percent of operating income. This HRK 9.3 million decrease was the result of a 2.2% percent lower demand at selling price. higher average a 0.8 percent increased m 972.8 HRK of income operating Other overall by HRK 169.3 m (21.1%) compared to the year before as the result of a better collection of increased m, 46.8 HRK by adjustments value billed income from connection fees by HRK 46.3 m, as operatingincome gener other increased as well ated by Krško NPP by HRK 40.4 million, while income from the sale of material, default interests cancellation decreased. and provision

- - The Group earned 81 percent of its operating income (HRK 12.5 bn) A from the sale of electricity. 6.2 percent increase (HRK 727.1 m) compared to the year before was the result of increased HEP’s business customers, to and the sale the in share rise of the average selling price of electricity for business customers of HEP Elektra and HEP - Op skrba. Income from the sale of electricity Said 5.0 income by customers percent. increased to Croatian increase was the result of HEP’s increased share in the sale to business customers and the rise of the average selling price for business customers of HEP Elektra and HEP Opskrba due to a growth of market prices. The average price for business customers of HEP Elektra and HEP Opskrba increased by 27.4 and 15.8 percent, respectively. At the same time, HERA adopted a decision reducing on tariff items for electricity transmission and distribution for business customers 1 January 2019. In as light of the implementation of of Economy of Ministry the by passed Regulation the on the Criteria for Obtaining the Status of a - Vul Sys- Networked from Energy of Customer nerable tems (OG 95/2015) and the Decision adopted by the General Shareholders Assembly of HEP d.d., under which the electricity price for customers household did not change, the solidarity charge reduced income HEP’s from the sale of electricity HRK 170.2 million. to households by As of 1 April 2014, HEP d.d. has been the whole sup to gas of sale the including supplier gas sale the of part as households to gas supply that pliers HRK mil HRK mil 972.8 12,534.6 Income from electricity sale from Income Other income from operations Other income from

81% HRK mil

6% 2% 15,515.2 +2.1% 6%

Operating income (HRK m) and its share in overall operating income (%) in overall Operating income (HRK m) and its share HRK mil HRK mil HRK mil 655.2 heat from Income sale energy 380.7 gas sale from Income to customers in supply 971.9 wholesale from Income of gas

Operating income Operating

HEP group HEP | Report Sustainability and Annual 60 HEP Group business operations in 2019 63 - - The purchase value of sold gas was HRK 1,327.0 million, a decrease by HRK 634.7 million (32.4%) compared to 2018 primarily due to gas purchase customer in 2018. for sale to a domestic The cost of staff amounted to HRK 1,922.4 m, an increase by HRK 81.2 million (4.4%) as a result of adopted with em- hiring in accordance increased 2 a as well as 2019 and 2018 from plans ployment percent increase in salary points as of 1 January 2019. Gross salary deductions reduced in light of a reduced rate of contributions as of 1 January 17.2 to 16.5 percent. 2019 from Compared to 2018, the 3.8 percent increase other of operating expenses to was increased costs for primarily emission allowances due HRK by 140.3 m resulting from a 21.1 percent price increase in 2019 compared to 2018 at increased emission unit volumes by 332 - In addition, maintenance costs, litigation-relat thousand tons. ed provisions, severance provisions and jubilee and en material rights workers’ well as as awards ergy savings procurement costs also increased. The cost of the value adjustment of trade receiv ables decreased by HRK 270.0 million, as well as the materials, and services chargeable of cost the value adjustment of reserves and long-term fixed assets, and severance provisions under - employ ment contract terminations. - - - Energy fuel for electricity and heat production and production heat and electricity for fuel Energy electricity purchase accounted for 38 percent of overall costs amounting to HRK 5,200.0 million. The cost of energy fuel natural and coal lower to due primarily m in 4.2 HRK 2019 decreased by gas prices, while electricity purchase increased by HRK 677.7 million as the result electricity purchase of volume for customer a supply higher and trade. Electricity import rose 13.5 percent higher purchase price than in 2018. by 1.5 produc off-system from purchase electricity The TWh at ers and traders in Croatia the increased by 224 GWh elec less GWh 365 price. lower percent 8.5 the at tricity was purchased from incentivized eligible producers as a result of lowering the mandatory purchase volume of produced incentivized elec 100 to 70 percent. tricity from mil- 4.2 HRK by decreased fuel energy of cost The lion (0.2%) compared to 2018. Despite increases in electricity production by 15.8 percent and increased consumption of all energy er energy fuels, fuel prices were low- primarily the result of lower coal and natural gas prices. 16.7 percent more coal was used at the price 18.6 as well percent as 9.5 lower percent more natural gas at the 8.7 percent lower price. The cost of wood biomass used in the operation of Osijek BE-TO and a of light in rose plants cogeneration Sisak BE-TO 29.6 percent increase in the wood biomass price consumed. volume more at 12.2 percent

HRK mil HRK mil HRK mil of sold gas Cost of fuel Cost of staff Procurement cost Procurement

1,922.4 1,691.1 1,327.0 14% 10%

HRK mil 12% 15% mil. kn 2,069.4 Cost of depreciation

13,820.9 +2.1% 24% 25%

HRK mil HRK mil Operating expenses (HRK m) and its share in overall operating expenses (%) expenses operating overall in share its and m) (HRK expenses Operating Other operating expenses 3,302.2 procurement 3,508.9 Cost of electricity

Operating expenses Operating m. HRK 281.1 million to HRK 13,820.9 by increased operating expenses in 2019 The Group’s

HEP group HEP | Report Sustainability and Annual 62 HEP Group business operations in 2019 65

40% 13% 18% 28% 2019 35% 14% 16% 35% 2018 2019, the operating profit of HRK 1,944.3 m was generated, which was by HRK 321.8 million less than in 2018. Income from the sale of electricity totaled at HRK was which of m) 11,223.1 (HRK 89.5% m, 12,534.6 earned from the supply of domestic customers, abroad. sale the from m) 1,311.5 (HRK % 10.5 and - - plants plants Purchase Krško NPP Hydropower Hydropower Thermal power 8,258 2,766 3,709 5,849 2019 6,982 2,745 3,206 6,939 2018 NOTE: Solar power plants and bio plants owned by HEP recorded production of 23 GWh in 2019 in GWh of 23 production recorded HEP owned by and bio plants power plants Solar NOTE: in 2018 and 2019. and purchase production in overall (15 GWh in 2018) accounting for 0.1% share Electricity Electricity generation, transmission, distribution Group HEP by out carried activities are supply and is Group The Croatia. of territory entire the across the biggest supplier of electricity in the Republic of Croatia with 14.9 TWh of electricity sold do mestically, 3,341 GWh more supplied to custom ers in Slovenia, Serbia, Bosnia and Herzegovina and as export of surplus electricity and resale. In (GWh) ELECTRICITY AVAILABLE %2018 -29.4% -90.3% -39.1% gas 2019 -35.5 1,374.1 1,409.6 2018 -367.7 1,947.2 2,314.9 -0.5% -3.0% %2018 -10.6% heat 2019 718.3 932.8 -214.5 to lower costs of energy fuel as a result of a lower price of natural gas. The share of gas wholesale and retail in operating income accounted for 8.9 percent recording HRK 35.5 million of operating loss compared to HRK 367.7 m of operating effect the was amount loss 2018 The 2018. in loss trade reprogrammed of value of adjustment the of receivables domestically. Better mance was 2019 also a consequence of reduced perfor- loss wholesale.in gas 2018 722.0 962.0 -240.0 +7.1% %2018 -14.2% +11.8% 2019 1,944.3 13,422.8 11,478.5 electricity 2018 2,266.1 12,529.0 10,262.9

he major share of the Group’s operating overall Group’s the of and (86.5%) income electric- from earned was profit operating ity. Compared to 2018, a decrease of the

expenses Operating in HRK m operations Profit (loss) from (loss) from Profit Operating income Operating result Operating result

sectors by Results Results

operating results was a consequence of reduced transmission and distribution business tariff customers, and of an items increase of - vari for able operating costs. District heating accounted for 4.6 percent of operating income and recorded operating loss of HRK 214.5 million. Compared to the year before, the loss was decreased due T

HEP group HEP | Report Sustainability and Annual 64 HEP Group business operations in 2019 67 - - - creased creased in light of reduced tariff items for busi ness customers. Income from electricity export amounted to HRK 1,311.5 million, an increase by HRK 191.4 million (17.1%). ers accounted for 57.9% (1,032 GWh) and 42.1% (751 GWh), respectively. The sale to households and business customers in 2019 decreased overall by 1.4 and 3.3 percent, respectively compared to 2018. Said was the result of warmer decrease weather during the part of the heating season (February 77 GWh, March 15 GWh, December 31 GWh). 94 GWh, November domestic domestic sale by HRK 379.4 m (3.6%) result was of increased the demand, the increased share of HEP in the sale to business the customers, rise of the and average selling price for business customers of HEP Opskrba and HEP Elektra. The sale of 584 GWh of electricity produced in power plants sta- with eligible the producer incentivized HRK by i.e. m 329.2 HRK of income generated tus 71.8 m more than in 2018. Despite an increase in the income, overall a portion of income attributed to electricity transmission and distribution de accounted for 23.5 percent and 76.5 percent, - re spectively. The sale to compared less GWh 40 or 2.2% a of i.e. GWh 1,783 heat custom business energy and households which of 2018, in 2019 reached ------14.9 TWh of electricity was sold to domestic cus domestic to sold was electricity TWhof 14.9 tomers: 5.7 TWh to households and 9.2 TWh to business customers. HEP Group sales account ed for 91.4% share in the overall electricity sale to end customers in Croatia in 2019. which was to customersthe region, sold in was 861 GWh remain The 2018. in than more (1.2%) GWh 10 by ing volume of electricity sold abroad (2.5 TWh) increased by 472 GWh compared to 2018, and it included the export of electricity surpluses gen sale electricity plants, power Group HEP by erated to Elektroprivreda HZ HB and the sale of balanc in the region. to the system operator ing energy Compared to 2018, income from the sale of elec tricity increased by HRK 727.1 million (6.2%) to HRK 12,534.6 million. Increased income from District heating Heat energy production, distribution and supply are conducted on the territory of Zagreb, Osijek, Samobor and Sisak. Gorica, Zaprešić, Velika District Heating generated the 2018, to Compared 2019. in million 214.5 HRK operating loss low- to due of million 25.5 HRK by reduced was loss er energy fuel costs resulting from a reduction in the price of natural gas. produced was energy heat of GWh 2,223 of total A less 32 GWh or 1.4 percent in 2019, which was by than in 2018. HEP-District Heating plants gener ated 130 GWh, while 2,093 GWh was produced in cogeneration facilities of HEP Proizvodnja. - To heat and steam process generated volumes, tal - - 3% 5% 13% 79% 2019 3% 5% 11% 81% 2018 er supply accounted for 5,972 GWh. Furthermore, 1,844 GWh was purchased by HEP Group on HROTE the basis of the from production exist- from ing renewable energy sources and cogeneration in the system of incentives (365 GWh less as a result of reducing the mandatory volume of pur 70%), to 100% from electricity incentivized chased while 361 GWh was purchased from the off-system (including producers electricity from take-off traders from and production) own with customers in Croatia. HEP’s incentivized power plants produced GWh, 584 which was an increase of marily due 123 to increased GWh production pri- by Unit L in TE-TO Zagreb CCGT, which underwent a capital in the last quarter 2018. overhaul than in 2018. The regular 18-month power plant 2019. was conducted in October overhaul in- and production hydro decreased of result a As region, the and Croatia in supply customer creased 8,258 GWh of energy was procured off-system (40 of percent demand), which was by 1,276 GWh the overall From 2018. to compared more (18.3%) procured amount, electricity import for custom Croatia - - - Foreign sales Foreign Incentivized producers Incentivized Supply of customers in Supply of customers in region 584 861 2,480 2019 14,920 460 851 2,008 2018 14,607

Power Power plants wholly or partially owned Group generated by 12.3 the TWh of electricity, which for accounting 2018 in than less GWh 559 by was Group the by demand electricity overall the of 60% in 2019. The year 2019 was marked by (in particular a January, dry March and first April) half and increased water inflows in October and November. At the end of hydro generation the year, account ed for 5.8 TWh of electricity (28% demand), which met generation levels in average hydro circum stances. Compared to 2018 characterized by fa- lower was production 2019 the hydrology, vorable by 1,090 GWh (15.7%). A decrease in production compared to 2018, in addition to hydrology, was also the result of the Dubrovnik HPP outage early in 2019, which accounted for of only produced electricity compared 24 to 767 GWh GWh in 2018. and plants power thermal in generation Electricity cogeneration facilities increased by 502 GWh to 3,709 GWh, accounting for 18 percent of total en ergy demand in 2019. Krško nuclear power plant supplied 2,766 GWh, which was by 22 GWh more (GWh) SALE OF ELECTRICITY

HEP group HEP | Report Sustainability and Annual 66 HEP Group business operations in 2019 69 - -0.3% +4.1% +5.1% +5.5% +5.5% +11.6% +12.0% +22.9% 2018 %2019/ 3% 81% 19% 60% 26% 11% 100% 100% share emission unit reserves. Other 2 31 Dec 2019 8,152.4 1,195.4 4,671.8 34,405.6 25,610.3 11,080.6 42,558.0 42,558.0 HRK m 3% 9% 82% 18% 60% 28% 100% 100% short-term receivables increased by HRK million as the result of advanced payments made 91.0 trade receivables capital, while working towards HRK 30.8 million. by decreased The value of short-term assets of represents an HRK increase by HRK 844.3 8.2 million due bn to increased cash and cash equivalents by HRK 571.9 m and reserves by HRK 222.1 of m in increased light CO cial statements by applying the equity method, in balance sheet posi which lead to an increase to 2018. tions compared share 31 Dec 2018 7,308.1 1,067.5 3,800.8 33,041.6 24,369.4 11,112.0 40,349.6 40,349.6 HRK m Long-term asset Consolidated balance (abridged) Short-term asset asset Total Capital and reserves Long-term provisions Long-term liabilities Short-term liabilities Total liabilities and equity Total Financial Financial position Assets The value of HEP Group’s total assets at the end of 2019 was HRK 42.6 bn, an increase by 2.2 HRK bn. Long-term assets accounted for 81% of an in- which marked value, asset the Group’s crease of HRK 1.4 bn as a value result of property, of plants and increased equipment by HRK and assets financial of value fair increased bn, 1.3 property investments. Pursuant to the decision passed by the Croatian Government, HEP d.d. injected additional funds in LNG Hrvatska d.o.o. in February - finan the 2019. in represented was d.o.o. Hrvatska Thus, LNG - - - - - Plin Vtc company shares. Said company’s 101 GWh in 2019. sale amounted to gas and decisions Act Market Gas Pursuant to the adopted by HERA, HEP d.d. has been the whole sale gas This supplier. business activity includes the sale of gas to those public service suppliers that supply gas to deci household opted for HEP d.d. Pursuant to have HERA’s customers who continue will d.d. HEP 2019, October 28 from sion 2021. to perform said activity until 31 March Government Croatian the by set was price gas The August 1 of As 2018. March 31 until period the for Methodol the to according set is price said 2018, ogy for setting the amount of tariff items for the sup guaranteed and supply servicegas public of ply under which the price of gas for the supplier and thesuppliers under whole the market sale obligation of public supply supplying household customers is set. The gas wholesale activity HRK 971.9 earned million accounting for income 6.3 percent of of total operating income. Said income HEP Group’s 2018 to compared higher million 36.2 HRK by was as a result of a 9.7% increase in the gas 1,152.9 was gas sold of selling value purchase The price. compared million 30.1 HRK by decrease a million, to 2018 as a result of slower sales and a gas transportation cost. lower - - - -

ply to HRK 380.7 million, and wholesale gas sup ply to HRK 971.7 million. Total income from gas result a as million 570.2 HRK by decreased supply customer industrial domestic a to sale gas HEP of in 2018. Retail gas distribution and supply is conducted in the Osječko-baranjska, Virovitičko-podravska and Požeško-slavonska counties. Following the gas market liberalization, HEP Plin d.o.o. started supplying customers across other areas distribution (Zagreb, Varaždin, Sveta Bjelovar, Zadar, Križevci, Nedjelja, Kutina, Ivanić Grad, Pula, Si- sak, Slavonski Brod, Samobor, Koprivnica, omača, Pit- Virovitica, Rijeka, Zabok, Čakovec, Jastrebarsko, Vrbovec, Karlovac, Vinkovci, Đurđevac, Dugo Selo, Pakrac, Orahovica, Umag, Pitomača, Krapina, etc.) Daruvar, Gradiška, Vukovar, Nova Income from retail gas distribution and generated supply by HEP Plin in 2019 increased by 4.3 percent to 1,458 GWh. The sale of gas to house hold and business customers rose by 0.3% and The 7.9%, sale respectively. to customers on HEP com 0.9% by increased area distribution own Plin customers to sale gas of increase 22.3% a to pared on other distribution areas in Croatia. As a result of increased sale volume as well as an increase of the average selling price by 4.8%, income from 9.2 percent. by gas distribution and supply rose Under the Agreement on the Purchase and Sale of Business Shares in Plin Vtc concluded in April 2019, HEP PLIN acquired a 100% ownership of HEP Group conducts the HEP gas Group activity dis- of retail As of 1 April 2014, tribution and customer supply. it has also become the wholesale gas supplier. These business activities generated loss of HRK operating 35.5 million compared to HRK 367.7 in 2018. million of loss incurred In total, income from gas sale in 2019 amounted to HRK 1,352,6 million, gas distribution and sup Gas

HEP group HEP | Report Sustainability and Annual 68 HEP Group business operations in 2019 71 - ba2 bb+ Standalone credit quality Standalone credit clean transformation focused on reducing profit volatility served as a hedging factor for financial indicators during the last seven-year cycle fected by both favorable af- and unfavorable - hydrol ogy. The analysts emphasized that the upgrade of the company’s standalone credit quality was the result of the expectations of reduced HEP’s volatilityprofit in view of hydrology or fuel prices. They believe that HEP will continue being subject to some volatility, which is characteristic of hydropower generation; however, they expect such volatility to be more contained than in the past. HEP has restructured its operations to ensure a long-term efficient and flexible cost structure on that expected is it and level, group consolidated a HEP will continue posting sound financial perfor mance. - BB+ (stable) Ba2 (positive) Baseline credit assessment Baseline credit Moody's CREDIT AGENCY CREDIT EP is rated by both Standard & Moody’s 2019, April late In Poor’s Moody’s. and affirmed the long-term credit rating of Hrvatska elektroprivreda (Ba2) and up- Standard & Poor's Standard Credit Credit rating graded its outlook from stable to positive. Due to the methodology and criteria used by Moody’s in grading said HEP, upgrade was the result of the upgraded sovereign rating. In its report, Moody’s finan- strong its retain would HEP that stated also period. the future in profile cial up & Poor’s 2019, Standard In late November graded the stand-alone credit profile of Hrvatska elektroprivreda to bb+. In its report, S&P improved stated (HEP) d.d. Elektroprivreda Hrvatska that its ability to manage exposure to historically very volatile hydrological conditions and commodity price fluctuations. In addition, HEP’s gradual but H term loan-related liabilities increased in view of security funding NPP using the loan for Krško the upgrade program. Short-term liabilities amounted to HRK 4.7 billion, an increase by HRK 871.0 million compared to early 2019. Other short-term liabilities also increased due to increased deferred income from the financial support for the building of the LNG terminal. Trade and staff liabilities increased by HRK 189.7 m and HRK 32.2 m, respectively. Tax as decreased liabilities and contribution-related maturity of long-term loans. well as current - - - Capital and liabilities Capital amounted 2019 of end the at reserves and Capital to HRK 25.6 billion, a rise of HRK 1.2 bn in com parison with 2018 as the result of higher retained profit. Dividend of HRK 212.4 million State Budget. to the the 2018 profits from was paid Long-term provisions increased by sever for amounts provision HRK higher to due million 127.9 ance payments and thermal power plant decom missioning. Long-term liabilities amounted to HRK 1.1 billion accounting for 26% of the Group’s total liabilities and capital. They were reduced by HRK 31.4 mil- - transaction-re swap decreased of result a as lion liabilities, while the long- lated and bond-related HEP Group business operations in 2019 73

- the annual unconsolidated the Inde and reports on signed were 2019 for Report Auditor’s pendent May 15, 2020 and published on the Internet page at these links: available of HEP Group, http://www.hep.hr/investors/financial-data/ financial-statements/consolidated-financial- statements/2460 and http://www.hep.hr/investors/financial-data/ financial-statements/unconsolidated-financial- statements/2461 - - Published financial financial Published reports HEP d.d. General Assembly, at HEP its d.d. annual General meeting Assembly, held on July 22, 2020, reviewed consolidated and unconsolidated annual financial statementsthe including 2019, for Group HEP of and of d.d. HEP Independent Auditor’s Report, the Annual Report on the state of affairs and operations of HEP d.d. Su Reportthe the of and 2019, in Group HEP and pervisory Board on the supervision conducted in 2019. Acts of the members of the Management and the Supervisory Boards of HEP d.d., respec for 2019. ratified were tively, Annual consolidated financialreports and the In- dependent Auditor’s Report for 2019 as well as - 42.5% %19/18 2019 3,386.6 2018 2,376.1 and electricity generation from renewable energy sources. Through investments, HEP Group meets precon ditions for Croatia’s future reach of an adequate level of energy independence in electricity sector, by taking current electricity consumption and the well as consideration into growth its of projection as necessary decommissioning of thermal facilities, unable to meet the prescribed conditions of due to their technological protection environment old age. generation facilities and the reconstruction of the transmission new of construction the and existing infrastructure. network and distribution - 2017 2,431.9

plants and equipment Investments in HRK m Investments Investments in property, in property, Investments

n 2019, the Group made investment in thein investment made Group the 2019, n amount of HRK 3,386.6 m. Main investments focused on the reconstruction and the modernization of generation facilities and electric

tiveness of HEP’s power system, the development development the system, power HEP’s of tiveness of HEP Group’s business system, to sustainability contribution and the continuity of the - Croa tian energy sector by taking into consideration the increasing presence of other participants on the open market, especially in electricity supply

Through Through continuous investments in the maintenance and modernization of the existing facilities capacities generation new of construction the and and network systems, HEP meets the following objectives: security of energy supply, competi Investments

power system plants, the construction of new

HEP group HEP | Report Sustainability and Annual 72 Sustainable MARKET APPROACH6 Sustainable market approach 77 - - - - - quality of life of our customers. quality of life tion of new production facilities, revitalization of existing facilities, replacement and renewal obsolete equipment, which of increases production effi- units and increases and power of production ciency to ensure reliability and availability of en technological of harmonization and facilities ergy economic line with in development development of Croatia. Replacing plants, equipment and de vices at the end of their life and increasing efficiency the of existing plants and equipment op timizes the production process and reduces the risks of long-term downtime and the occurrence of major and serious malfunctions, thus prevent losses. ing production development development of projects in wind and solar power technologies, are one of the focuses of a long- term goal based on the concept of sustainable development. The basic goal of the investment is the construc - of HEP Group on various aspects of business and aspects of on various of HEP Group a high level of security of generation, distribution of security of generation, a high level aware of the importance of our role and the impact and the impact the importance of aware of our role and business entities in Croatia. In this role, we are we are role, In this entities in Croatia. and business and supply of energy and energy sources to citizens to citizens sources and energy energy and supply of The primary business goal of HEP Group is to ensure to ensure is The primary of HEP Group business goal - regula in included is Group HEP of role he plans, tions, strategies and development expectations the in stated clearly also but - extreme of time a At stakeholders. our of ly intensive technological development, the importance of reliability of production, distribution and supply is becoming even more pronounced. The development and investment HEP activities Group are aimed of at maintaining the values infrastructure energy existing the of functions and system and ensuring the long-term stable - devel activities. Group’s of HEP opment generation in ca- and investments Development pacities are aimed at increasing the value of key, strategic production facilities, while investments in new generation capacities seek sources and energy sources to to ensure long-term diversify reliability and availability of the group’s genera tion portfolio. At the same time, investments in renewable energy sources, primarily through the T

of HPP Senj in preparation of HPP Senj of hydro power plants, reconstruction reconstruction power plants, of hydro Continued reconstruction and overhaul overhaul and reconstruction Continued

sources and energy of energy of energy distribution generation and generation security of security Stability and Stability

HEP group HEP | Report Sustainability and Annual 76 Sustainable market approach 79 ------tion of the plant were delivered and installed. In TPP-HP Osijek, the pipe inserts of the hot water heater were replaced. The goal of the investment is to replace obsolete equipment (older than 30 years) in order to increase the operational readi ness of the hot water system of the city of Osijek Re consumers. to supply heat of security the and construction of the primary air supply system of has Osijek TPP-HP in MW 45 block of boilers WBK also been completed. Reconstruction of the pri- of reliability the increases system supply air mary the system, reduces the stress of primary equip combustion of characteristics the improves ment, control in boilers and achieves savings of primary and electricity by applying energy measures. efficiency In PP-HP Zagreb, we removed boiler K7 and built low-pressure steam boiler number 3. This enables the provision of heat consump tion that is endangered by the decommissioning of units A, B and K7, and soon H and J, as increasing production as efficiency andreliability well of superheated steam supply in transitional peri not is units plant other from production when ods economical or available. In TPP-HP Sisak, the construction of the “steam block” plant 1x10t/h has been completed. All - re quired indicators (boiler capacity and efficiency) - operation, during the trial and the re proven were alization of planned savings would be quantified one during operation constant in is plant the after sedimentation lamellar the 2019, In year. reference tank was reconstructed at TPP Plomin 2, and the plant was put into operation. The reconstruction of the settling tank envisages the construction of a filter plant on the south side of the existing settling tank, and its purpose is to further purify and improve the quality of the water discharged into the Čepić canal. During 2019, TPP-HP Zagreb - re constructed the combustion system of hot water and analysis for devices and VK6, and VK5 boilers measurement of gas flow of the total consump ------/sec and addi- 3 for 110 years, it is quite understandable that they are at the end of their life and need to be rebuilt to the extent allowed by their monument protec tion. Revitalization of the Ozalj 1 HPP generator includes the replacement of and secondary obsolete equipment and the network primary con nection (except for turbines, which were replaced about twenty years ago). The installation of new character technical the improved has equipment istics of the unit and at the same time will extend the service life and improve the availability and reliability of the power plant. The replacement of re- the 2017, in completed was generator first the placement of the second generator in 2018, and generator in 2019. of the third the replacement The location permit for HPP Senj was the obtained and the activities on reconstruction the of preparation of tender documentation for the - re placement of primary equipment on the begun have recon Activities continued. project struction on the development of the main project for Reconstruction the of HPP Varaždin, and the tender documentation for turbines and generators is in a high stage of preparation. The replacement of the USZMR system, uninterruptible power supply Đale HPP in system consumption own and system is in progress, as well as the replacement of the sup water and regulation turbine system, control ply in MHPP Miljacka. energy exceptional of is reservoir Blato Buško The importance in the Cetina River Basin because it is a multi-purpose and multi-year reservoir with an available volume of about 800 million m³ of water, which is used at a drop of about 400 m in seal- underground the on Works Orlovac. HPP the ing startedand the completion 2019, is August in expected in 2021. The investment is expected to save water loss of approx. 1-2 m tional production on the threshold of HPP Orlovac Orlovac HPP of threshold the on production tional 30-60 GWh. Activities continued in the preparation of umentation for doc the construction of the Drežnica Field retention. ------The final activities on putting the (Produc- CPZ tion Center West) into operation are in progress. It will provide better management, respect for the and whole a as system the and work of boundaries consequently, facilities and plants of hydropower plants based on the new model of management and optimization of HES PP benefits include improved HPP planning and manage- West. Direct ment in the PP HPP West basins, which leads to increased production of hydropower plants - (re duction of overflows and minimization of specific - redistribu efficient more and consumption) water electric- of energy) basic and variable of (ratio tion water and conditions hydrological same the for ity use, which ultimately has its economic equivalent operating costs. maintenance and reduced and At the end of the the works year, on the last, third stage of revitalization were completed in the Go jak hydroelectric power plant. After the replace ment of generators, A and B, their trial run performed, was and the replacement of generator C was performed. After the trial run of that part of the plant and the technical inspection, use per a mit was obtained for the entire reconstruction of high-pow revitalization, the of part As Gojak. HPP er block transformers, control, signaling, protec tion, measurement and regulation systems and generator excitation systems were replaced, as well as all three turbines, which improved energy plant. kV 35 the reconstructed and characteristics Following the completion of an extensive revitali capaci the million, 100 HRK around worth zation, MW. 57 to 48 from increased was Gojak HPP of ty been have stage 3rd the of works all Ozalj, HPP At successfully completed and a trial run is in - pro gress. HPP Ozalj 1 is a flow-through power plant built and put into operation in 1908. fact Given that the the generators have been in operation - - - - -

tion of process automation and remote control. increase to are revitalization of goals primary The the availability of power plants for the needs of hydropow of life the extend to system, power the er plants and to reduce the costs of maintenance goal primary the Although plants. of operation and of hydropower revitalization is not to - previ to it is, according power and production, increase ous study research, achieved where possible. In - re the in cycle investment the of result a as total, construction, upgrade and revitalization of existing hydropower plants, HEP expects to generate an additional 160 megawatts of new power. The expected increase in annual production is about 380 million kilowatt hours. The revitalization cycle began in 2012 and by the end of 2019, around HRK 1.4 billion had been invested. By 2030, HEP HRK 2.2 billion. another plans to invest In HPP Zakučac, the overhaul of unit A was per turbine increased of problem the which on formed, vibrations was successfully solved. In RHPP - Vel the replacement with overhauled ebit, unit A was of the the pump-turbine frequency rotor, start-up system and equipment of the 35 kV switchyard own con and the power plant’s replaced, were sumption, cooling and drainage equipment was replaced. In HPP Dubrovnik, activities were carried out for the purpose of training the equipment so that the power plant would be put into opera year. the of beginning the at accident the after tion In 2019, the cycle of reconstruction and - revital ization of hydropower plants continued. These interventions replace obsolete equipment with new ones at the level of the latest technological and technical solutions, and the improvement of the technological process and modernization of equipment is achieved, often with the introduc Modernization and and Modernization plants of power overhaul

HEP group HEP | Report Sustainability and Annual 78 Sustainable market approach 81 ability of most production units. difficulties With during certain contracting and timelycution exe- of overhaul activities, the planned - annu al maintenance works of production units were mainte- corrective while performed, successfully reasonable a within performed were works nance oper- eliminate and malfunctions to order in time deficiencies. and faults ational atia aimed at creating conditions for sustainable islands. Croatian of development During 2019, a number of significant transformer stations and other facilities on the - revital or reconstructed built, were network tion distribu- ized, and the emphasis of investment activities was on continuing and completing a number of - and launch in progress long-term investments investments. capital new of number smaller a ing Also, a significantprogress has beenthe project in made preparation for the construction kV Zamošće. (20) SS 110/10 of inAmong 2019the was most significant projects the construction of the new SS 110/10 (20) kV Medulin. During 2019, the degree of introduction - remote-con the into levels voltage all of plants of trol system continued to increase. Activities of construction, revitalization and modernization of - volt of facilities 53 in system remote-control the age level x / 10 (20) 115 kV, facilities of voltage level 10 (20) 60 / switching 0.4 devices kV, in the the in indicators failure 50 and kV (20) 10 network air network. kV (20) 10 In addition, it is extremely important to mention investments in metering devices and infrastructure by repairing and reconstructing billing metering points and connections, with the aim - non-technical losses, but also recon reducing of - (pow application PPE the from data to According er plant indicators), production in - 2019 the aver plants hydropower of availability operational age availability operational the and percent, 70.3 was of thermal power plants was 57.8 percent. With appropriate preventive maintenance of generation facilities of electricity and heat, HEP - Proiz vodnja in 2018 maintained a high level of - avail network Distribution development Continuous improvements in electricity bution distri- are ensured by the construction, - recon struction and revitalization of several significant transformer stations and other distribution - sys tem facilities. Key activities in the business area of distribution network development are related to the successful implementation of the - invest ment plan. In 2019, eight capital investments in (MV) voltage medium main and points connection complet- of value total The completed. were lines ed investments amounts to more than HRK 62.6 was million 17.6 HRK than more which (of million invested in 2019). It should be emphasized that during 2019 in the area of Elektra Sisak the final kV 20 to network kV 10 of transition the on works the Sisak Elektra making intensified, were voltage first electricity distribution area to fully complete - 10 kV to 20 kV operating volt the transition from age. elec- the in invest to continued ODS HEP 2019, In tricity distribution network on the coast and on the islands, planned in the amount of about HRK 800 million for the period 2018-2021. These investments will directly contribute to the further success of Croatian tourism and of the better living, creation working and staying conditions strategic the with accordance in islands, the on plans of the Government of the Republic of - Cro 20 7.2 5.5 41.2 1.09 55.5 36.8 6.54 0.38 92.65 79.78 77.44 AVAILABLE AVAILABLE POWER (MWe)

solar solar FUEL FUEL FUEL fuel oil nuclear GORIVO bituminous coal bituminous coal natural gas / gas oil natural gas / gas oil natural gas / gas oil natural gas / gas oil natural gas / gas oil Flow untreated wood pellets untreated wood pellets untreated HPP Ozalj HPP Krčić HPP Gojak HPP Lešće HPP Rijeka HPP Jaruga HPP Golubić HPP Dubrava HPP Čakovec HPP Varaždin GHPP Miljacka HPP Lešće ABM HYDRO POWER PLANTS POWER PLANTS HYDRO Includes MHPP Prančevići available power 1.15 MWe 1.15 power available Prančevići MHPP Includes *

* 2 1 48 1.7 0.8 348 303 105 210 90.0 60.0 46.4 40.8 22.5 237.0 216.0 539.15 3/10/12 3/10/12 126/117 0.8 (-1.2) 4.6/(-5.7) 270 (-240) 229 / 0 / 121 80 / 316 / 206 89 / 210 / 160 410 / 708 / 334 AVAILABLE POWER AVAILABLE 7.5/4.2/(-10.2/-4.8) (-MW pumping work) AVAILABLE POWER (MWe) AVAILABLE AVAILABLE POWER (MWe) AVAILABLE AVAILABLE POWER (MWe) / (MWe) POWER AVAILABLE (MWe, MWt, t/h tech.steam) (MWe, AVAILABLE POWER (MWe, MWt, t/h) POWER (MWe, AVAILABLE

* PLANTS HPP Đale TPP Rijeka MHPP Senj NPP Krško HPP Sklope HPP Peruća HPP Vinodol HPP Zavrelje PHPP Fužine RHPP Velebit TPP Plomin 1 TPP Plomin 2 Accumulation HPP Zeleni vir HPP Zeleni HPP Kraljevac TPP-HP Sisak BPP-HP Sisak PP-HP Zagreb MHPP Orlovac CTPP Jertovec CTPP Integrated (36) TPP-HP Osijek BPP-HP Osijek HPP Dubrovnik PS Buško blato MHPP Zakučac RHPP Lepenica TPP-HP Zagreb PHOTOVOLTAIC PHOTOVOLTAIC POWER PLANTS THERMAL POWER Non-integrated (1) BIO ENERGY PLANTS HYDRO POWER PLANTS POWER PLANTS HYDRO HEP disposes of a half of the capacity of NPP Krško of NPP capacity half of the of a disposes HEP

NUCLEAR POWER PLANT * PS: pumping station, PHPP: pumping HPP, RHPP: reversible HPP, HPP, reversible RHPP: HPP, pumping PHPP: station, pumping PS:

Available capacities of HEP Group of capacities Available

HEP group HEP | Report Sustainability and Annual 80 structing dilapidated and technically obsolete ity, power reliability and service quality. Further port infrastructure projects. In 2019, work was exchange of data between equipment and central connections. In accordance with the strategic investment in the distribution network will ensure done on the communication connection of distri- control devices and systems. Coordination of the 2030 goals of HEP Group, HEP ODS applies mod- its long-term ability to follow the development of bution dispatch centers with the HOPS platform extended project team were held throughout the ern technological solutions by which the existing consumption and enable the development of the for the exchange of data required for calcula- year, where experiences and information related network is gradually developed and transformed electricity market and increase the capacity for tions in the virtual control center that will manage to the optimization of pilot work were exchanged. into an advanced electricity network. Special at- production from renewable energy sources con- the reactive power compensation devices in the In the second half of the year, presentations for tention is paid to monitoring and improving sup- nected to the distribution network and increase HOPS network. the interested public were held at the locations of ply quality indicators consisting of voltage qual- the quality of supply. the pilot projects, where the ideas of the 3Smart 3Smart project. In December 2019, the pro- project and the results achieved were presented. ject “Smart building - Smart grid - Smart city” Introduction in advanced networks (3Smart) was completed, which is co-financed Revitalization of heating network. Every year, in from the Interreg Danube program. The project accordance with the development plans and fi- Investments in metering devices and infrastruc- will be replaced by advanced ones. Summary me- brought together 18 partners from six countries in nancial possibilities, HEP Toplinarstvo carries out ture through the rehabilitation and reconstruction ters will be installed in 6,125 transformer stations, the Danube region, including HEP ODS, HEP ESCO the works of revitalization of the heating network of metering points and connections are especially and the existing 449 transformers will be replaced and HEP d.d. The total value of the project is in the heating systems it manages. This con- important in the distribution system. This directly with new, more energy efficient ones. EUR 3.8 million, of which HEP’s share is around stantly ensures increased quality of stability and affects the reduction of non-technical losses. As SINCRO.GRID is one of three projects in the field EUR 444,500. Co-financing of 85 percent of the security of heat distribution, which has a positive the use of innovations and progress of the digi- of advanced networks (Smart Grid) which will use project costs with EU funds has been approved. impact on the development of local communities tal transition is one of the material issues of the advanced forecasting tools to effectively integrate The main goal of the project is to prepare a tech- in Zagreb, Osijek, Sisak, Velika Gorica, Samobor HEP Group, pilot projects are especially important the activities of all network users to achieve max- nological and regulatory basis for cross-energy and Zaprešić. Planned revitalization of the heat- to test various technological solutions that can imum efficiency of the transmission and distribu- management among buildings, distribution net- ing network reduces the number of emergency in- contribute to the modernization of the distribution network. The purpose of the project is to use work and urban infrastructures in the Danube re- terventions in the heating network, losses in heat tion system, increase energy efficiency and re- advanced technical systems and algorithms to gion. transfer and maintenance costs of the network, liability of electricity supply and development of manage power flows in order to improve the quality prevents failures and increases the operational Most of the activities in 2019 were focused on advanced networks. of voltage in the power system which will result in safety of heating systems and reliability of end achieving the full functionality of devices and customers’ heat supply. The pilot project for the introduction of advanced increased transmission capacity of existing lines, equipment of pilot projects, and on ensuring the networks is partly financed by grants provid- thus ensuring better integration of renewable en- ed from EU funds in the amount of HRK 149.95 ergy sources into the power system and increase Annual and Sustainability Report | HEP group Annual million. The purpose of the project is the com- security of network users. The project also brings puterization of part of the electricity distribution other improvements: reduction of dependence on 82 network. The pilot project is taking place in five energy imports, reduction of the impact of fossil distribution areas (Zagreb, Osijek, Split, Zadar and fuels on the environment, increase of transmis- Dubrovnik) and will be implemented until 2022. sion cross-border capacities and development of The remaining HRK 26.86 million for the imple- new technologies and the economy. The project mentation of the project is provided by HEP ODS. is the result of many years of successful cooper- In addition, HEP ODS will invest an additional HRK ation between Slovenian and Croatian operators, 52 million, so the total investment in advanced and the goal of the project is to solve the challeng- networks will amount to almost HRK 230 million. es in managing the power system and eliminating This project will establish an advanced metering congestion in the power network. infrastructure, which will enable more accurate In February 2017, the project was assessed as calculation of losses and locating areas with in- the most innovative and was granted the total re- creased network losses, monitoring electricity quested co-financing of EUR 40.5 million, which Planned revitalization of the heating consumption and its active management at the is 51 percent of the project value, under the Con- network reduces the number of end user level where 24 thousand existing meters necting Europe Facility (CEF), a program to sup- emergency interventions Sustainable market approach 85 ------4,518.00 10,464.50 27,159.60 62,082.70 35,840.70 Total (km) Total 140,065.50 252 141.7 393.70 Submarine cables (km) energy energy consumed by electricity customers, and relate mostly to measurement errors, unauthor electricity consumption etc. ized electricity to the existing methodology, According losses between the are difference the energy that entered the distribution network (from the transmission network and power plants connected to the distribution network) and the energy charged to end customers. Losses are percentage expressed of as the total a electricity supply. Loss- es in the distribution network for 2019 amount ed to 1,276 GWh, or 7.64 percent, of which tech and percent, amounted about 51 nical losses to non-technical 49 percent. Losses in the distribu tion network decreased compared to 2018 when amounted to 1,288 GWh, or 7.68 percent. they sulting houses, non-profit organizations) in Cen tral and Eastern Europe. Project partners seek to ensure that best environmentally friendly heating implemented across and cooling practices are Europe, replicating the KeepWarm in other countries and regions. proach project ap- tors (energy agencies, national CHS associations, associations, CHS national agencies, (energy tors con institutes, agricultural chambers, research 1,383.70 5,822.70 11,126.90 17,874.70 12,969.40 49,177.40 Cables (km) - - (km) 4,641.80 2,992.60 15,780.70 44,208.00 22,871.30 90,494.40 Overhead lines lines Overhead Voltage level Voltage Lines 20 kV Lines 10 kV Lines 35(30) kV Network 0.4 kV Home connections (0.4 kV) Total Electricity losses in the distribution network Electricity losses in the distribution Electricity losses are indicators of business efficiency and quality of electricity distribution activities in HEP ODS. Reducing electricity losses is one of the most important business goals and to and operational measures it, investment achieve have been implemented for many years. The im- a in resulted has measures these of plementation in the amount trend of electricity downward loss- the years. es over divided losses are to their character, According into two key groups. Technical losses, which are a consequence of the operating condition of the distribution networkand the technical character istics of the network elements, relate to the mag- of number large a of cores the of losses netization transformers and to the heat losses on lines and transformers. Non-technical losses, which are a consequence of unmeasured and unaccounted Distribution network data Distribution network Length and category of distribution network lines the EU and aims to accelerate a investment cost-effective in modernizing district heating systems, modernizing CHS across the reducing region greenhouse gas and emissions by - improv ing system performance and promoting the transition from fossil fuels to less polluting sources such as renewables. The project brings together sec relevant various from partners project eleven - - - - - in Osijek. HRK 6.4 million was invested in the - re and Osijek in network water hot the of vitalization Sisak. HRK 3.2 million in the optimizing for system a introduced we 2019, In production of thermal energy in the boiler room in of reconstruction the out carried and Gorica Velika the boiler rooms in Zagreb and Zaprešić. We successfully realized 30 major emergency interven- network, in which the com- tions on the hot water ones. new with replaced were pipes water hot plete Works on thermal systems are financed through power and production heat for power of items tariff for heat distribution, which in accordance with the tariff of amount the determining for methodologies items for production and distribution of heat are bills.heat monthly customers in end to charged In December 2019, HEP Toplinarstvo signed an - pro the for funds EU supportfrom for Agreement ject “Replacement of the connecting hot pipeline from water TPP-HP Osijek to the heating plant Osijek”. The project includes of the the connecting hot replacement water pipeline that is laid between the heating plant and the thermal power plant-heating plant Osijek, about 4.5 km long. hot of development further ensure will project The water consumption, expansion of the hot water network and possible further increase of the ef ficiency of the central heating systemby lower ing the temperature regime. Also, the goal of the of reliability and security the increase to is project energy. thermal with customers end of supply the The of total is the value HRK 78 project million, of which HRK 46 million is co-financedby EU funds, while the rest of the funds are provided by HEP. The project is implemented through the Opera- for Cohesion and Competitiveness Program tional the financial period 2014-2020. During Project. Participation in the KeepWarm 2019, HEP Toplinarstvo participated in the Keep Warm project to increase the efficiency of cen tral heating systems (CHS) in Central and East ern Europe. The KeepWarm project is funded by - - - - -

At the end of November 2019, the European Com European the 2019, November of end the At mission approved mission funds approved for the project of replac ing sections of hot water highways and distribu tion networks for 18 settlements in Zagreb. The hot of km 68.5 replace to is project this of purpose distribution and hot water networks mains water in the Zagreb area to achieve the goal of - increas water and heat reducing i.e. efficiency, system ing losses in the system. million, 556.13 HRK is project the of value total The of which HRK 421.50 million are grants from the Operational Program Competitiveness and Cohe- sion for the financial period 2014-2020, while the HEP. by provided million is HRK 134.63 remaining - work was done on the re In 2019, intensive placement of the hot water distribution network in Zagreb, and the implementation of the capital investment project of connecting the settlement to the Dubrava central heating system of Za- greb continued. This enables the replacement of expensive fuel production from block and house boilers with more efficient heat production from TPP-HP Zagreb cogeneration units. Reconstruc tion of the existing steam pipeline reduces distribution losses the of the eastern steam pipeline network, and indirectly the emissions of harmful substances into the environment. In 2019, HRK 16.3 million of own funds were invested project in of connecting the the Dubrava settlement to the CHS Zagreb. Also, parts of the hot water route in Velika Gorica and Samobor were revitalized, which increases the energy efficiency of the heating system and the reliability of thermal energy supply in these running water heat losses, reduces cities, reduces replenishment losses and reduces the number of emergency interventions in the system. HRK 2.2 hot the of revitalization the in invested was million water network in Velika Gorica in 2019, and HRK net water hot the of Parts Samobor. in million 2.4 work in Osijek and Sisak were revitalized, while a smaller part of the steam pipeline was revitalized

HEP group HEP | Report Sustainability and Annual 84 Sustainable market approach 87

higher than in the previous year, we made a special a made we year, previous the in than higher ener- renewable launching in 2019 in forward step gy and high-efficiency cogeneration projects. By diversifying our portfolio, we ensure stability and of sustainability long-term the as well as security, the system, and, with in our accordance HEP2030 strategy, but also following the guidelines of the Energy Strategy draft, we position ourselves as a construction.planning and in sustainable leader n accordance with the set strategic goals, HEP goals, strategic set the with accordance n en- renewable of share the increase to intends ergy sources from 35 to 50 percent by 2030. During 2019, most of our investments in the of energy of energy system Sustainable Sustainable construction and development total value of HRK 3.4 billion were focused on the renovation and modernization of production facilities and power system facilities, as well as the construction of new production power facilities. With these investments, which were 42.5 percent I In accordance with the Conditions for the - quali ty of electricity supply, HEP ODS keeps electronic records of planned and unplanned power outages (power outages), and their frequency (SAIFI - - av erage number of power outages per per customer, year). The frequency of power outages for 2019 is 1.05 for planned outages and 2.21 for unplanned outages (with force majeure). The average duration of power outages per network user per year (SAIDI) in 2019 was 153 minutes for planned out- majeure force without outages unplanned for ages, force with outages unplanned for and minutes 100 minutes. 345 of total or a minutes, 192 majeure During 2019, after the final investmentwas decision made, activities on the realization of the first phase of the floating terminal for liquefied natural main The intensified. were Krk of island the on gas site atconstruction activities included opening the execution the monitoring and location terminal the obliga- the monitoring as well as land, on works of tions during the conversion of the ship in - accord FSRU of procurement the for contract the with ance documenta- permit and project obtaining and ship tion. Following the closure of the binding capacity lease (Open procedure Season and procedure) the adoption of the Final Investment Decision in Jan- uary 2019, contracts for the use of the terminal on concluded were meters cubic billion 0.52 of total a the leased 2019 April in d.d. HEP INA. and HEP with terminal capacity of 0.42 billion cubic meters per year for a period of 10 years, i.e. from 1 January 2030.2021 to 30 September In February 2019, the Croatian Energy Regulatory Agency designated HEP d.d. for suppliers on the wholesale gas market for a period of two years - sup- 34 of Out 2021. March 31 to 2019 April 1 from pliers in Croatia, 33 concluded contracts with HEP the to compared is an improvement which in 2019, 32 of them. were there when year, previous

A step forward on the gas market A step forward In 2019, investments were made in facilities and equipment that needed to be replaced or renewed in order to increase the reliability of network op- and preparation the in investments and eration construction of new gas governments where HEP pipelines Plin distributes gas in and all where there local is a need to expand the network. The dynamics of realization is conditioned by the obligations from the concession contracts, for the construction of which it is estimated that there is took Plin HEP 2019, April In justification. economic over the company Plin VTC d.o.o. Virovitica. This takeover is part of HEP Group’s strategy, is focused which on the further development of the gas participationbusiness and active in the consolida- tion on process the gas Croatian With market. this as position its confirmed has Plin HEP acquisition, one of the leading gas distributors and suppliers experience of century a half almost with Croatia, in business tradition. and Based on the decision of the Government of the Republic of Croatia in creased February 2019, equity HEP of in- the d.o.o. in charge of company building a liquefied natural gas LNG Hrvatska terminal, which also began in April. As a new gas supply route, the LNG terminal will increase curity se- of supply for HEP and the whole of Croatia. Distribution network reliability network Distribution the of part is supply energy of stability and Security mission of the HEP Group and is a material topic that all stakeholders assess as an issue of the greatest importance and impact for the economy and society and for their sustainability and business. That is why safe and stable energy supply is into the woven strategic goals of HEP 2030.Group The realization of goals is reflected in the - respon serviceconstant and reliable of management sible efforts to reduce the frequency and power outages and reduce electricity losses in the duration of network. distribution

HEP group HEP | Report Sustainability and Annual 86 Investment cycle in solar power plants initieated with the acquisition of operating SPP Kaštelir

of 5.5 hectares, on the hill Griževa glavica, at an WPP Korlat. In May 2019, the construction of altitude of about 250 meters, near the village of WPP Korlat began, which will be the first wind Žena Glava. A total of 11,200 340 Wp photovol- farm in HEP’s portfolio. WPP Korlat is located on taic modules will be installed in the power plant, the eponymous location, eight kilometers north- a 5.2 km long medium-voltage cable network will west of Benkovac. The connected power of the be installed, and five frequency converters with wind farm is 58 MW, while the expected annual a nominal power of 720 kW, products of the do- production is about 170 GWh, which is 1 percent mestic manufacturer Končar, will be installed in of the annual electricity consumption in Croatia. cooperation with HEP. The expected annual pro- The electricity produced is enough to supply more duction is about 5 million kWh of electricity, which than 50,000 households. The total value of the in- can meet the needs of about 1,600 households. vestment is more than 500 million kuna. The wind It will also produce electricity without incentives. farm will have 18 wind turbines with an individual The value of the investment is HRK 31.3 million. installed capacity of 3.6 MW. The commissioning of the power plant is planned by the end of SPP Vrlika Jug. The Vrlika Jug solar power plant 2020. WPP Korlat does not have the status of a represents the realization of the first phase of the HEP’s projects for the privileged producer, i.e. it does not have a con- planned construction in the southern part of the tract with the Croatian Energy Market Operator Kosora Work Zone in the town of Vrlika. The con- construction of renewable (HROTE). It will be the first new wind farm in Cro- nected power of the power plant will be 2.1 MW, atia to produce electricity without a guaranteed sources of energy and high- and the expected annual production will be around purchase at an incentive price. The profitability of 2.9 million kWh. The value of the investment is the investment was determined according to the efficiency cogeneration HRK 11 million. During 2019, the construction of market prices of electricity. the power plant was prepared, which is planned for 2020, and the power plant will start operating In 2019, we significantly increased the dynamics SE Cres is located about 2 kilometers north of the by the end of the same year. SPP Vrlika Jug will of the development of renewable energy sourc- settlement Orlec on the island of Cres. The con- also produce electricity without incentives. es and high-efficiency cogeneration. We recog- nected power of the power plant is 6.5 MW with nize this area as a strategically important area an expected production of about 8.5 million kWh Annual and Sustainability Report | HEP group Annual of business, and we have launched a series of per year, which corresponds to the consumption investments. of about 2,500 households. The power plant is ex- 88 pected to be commissioned in 2020. The planned SPP Kaštelir. In 2019, HEP acquired the company operation of the power plant is 25 years. The that operated the 1 MW Kaštelir solar power plant. power plant is financed from HEP’s own funds. It is the first non-integrated solar power plant in The unit planned reduction of greenhouse gas HEP’s portfolio. The power plant is in Sabadin emissions is 1.985 tCO2/y. This project has multi- in the municipality of Kaštelir-Labinci in Istria. ple positive impacts on the local community and SE Kaštelir, which is in the incentive system, pro- the domestic economy, through financial contri- duced 1.5 million kWh in 2019. butions after the construction of the power plant, SPP Cres (Orlec Trinket East). In 2018, HEP took but also during the construction itself, because it over the project for the construction of the Cres will involve 60 percent of domestic companies. It Solar Power Plant, which had been developed by will produce electricity without incentives. the Primorje-Gorski Kotar County until then, and SPP Vis. In September 2019, the construction of in 2019 concluded a contract for the construc- the Vis solar power plant began, with a connection of the power plant. The construction site of tion capacity of 3.5 MW. It is located on an area The construction of WPP Korlat; investment worth more than HRK 500 million Visualization of the construction of the new block in PP TP Zagreb, which started in late 2019

Also, the KKE PP-TP Zagreb project with a total ef- built in the first phase, by which it is intended to ficiency of 90 percent and primary energy savings use the remaining hydro potential in the Lika and of more than 25 percent in the combined process Gacka river basins. Namely, the existing HES Senj of electricity and heat production, is certainly jus- has been using part of their hydro potential for 54 tified in terms of reducing the impact on climate years by operating HPP Sklope (22.5 MW) on the change, which was confirmed by the EBRD, which fall created by the dam Kruščica and HPP Senj gave it the highest rating from an environmental (216 MW) on the fall from Gusić field to the Adri- point of view. atic Sea (440 m gross). Realization of the second phase of the unified system, i.e. construction The construction of such highly efficient com- HES Kosinj will enable additional electricity pro- bi-cogeneration plants is in the function of build- duction, complete protection against flood waters ing and maintaining a diversified and flexible pro- in Kosinjsko polje, increase the security of water duction energy portfolio. The realization of this supply of the southern branch of the water supply project is in the function of harmonizing the work system of the Croatian coast and improve road of production units with the Directive on Industrial Solar power plants on the roofs of HEP’s office infrastructure was relocated, and the location was and other communal infrastructure in the wider Emissions and meeting the emission limit values buildings. In accordance with the National Re- prepared to accommodate the new block. area. Today, the Senj hydropower system has an prescribed by the environmental permit. At the newable Energy Action Plan, which stimulates the average annual production of 1.15 TWh. The con- For this investment worth HRK 900 million, HEP same time, natural gas, although a fossil fuel, is construction of small solar power plants, in 2018, struction of the second phase facilities, HES Ko- signed in July 2018 a Contract on construction an acceptable transitional energy source which, in addition to the construction of large solar pow- sinj and HPP Senj 2 envisages additional produc- and procurement and installation of equipment due to its lower environmental effects than other er plants with a total planned capacity of 350 MW tion of 320 GWh per year, with the largest part of and a long-term maintenance agreement with fossil fuels, is an important energy source in the the total new production of 1.45 TWh being peak (by 2030), HEP initiated the construction of 10 to FATA SpA (a member of the Danieli Group) from It- long-term transition to a low-carbon economy. 50 kW solar power plants on roofs own business aly, and a loan agreement with the European Bank and control energy. In 2019, a location permit was and production buildings that will use electrici- for Reconstruction and Development (EBRD) and HES Kosinj / HPP Senj 2. In 2019, Hrvatska elek- obtained for HES Kosinj and an investment deci- ty at the place of production. During 2019, HEP the Loan Agreement with the European Invest- troprivreda continued to develop the hydropower sion was made. The investment value of HES Ko- system (HES) Kosinj and HPP Senj 2, with a capac- financed, and HEP’s energy efficiency company ment Bank (EIB). Through the EIB, the project was sinj is HRK 1.54 billion, and for HPP Senj 2 HRK ity of 412 MW and a total investment value of EUR HEP ESCO carried out the construction of 22 so- also included in the Investment Plan for Europe. 1.91 billion. 460 million. These projects represent the second lar power plants to cover its own electricity con- The new 150 MWe and 114 MWt plant will use phase of the construction of HES Senj, a system Annual and Sustainability Report | HEP group Annual sumption with a total power of 645 kW. Any sur- natural gas and replace two production units at pluses will be delivered over to the network under the existing location to ensure long-term heat 90 market conditions. supply to more than 80,000 residents of western On-site energy production has multiple benefits and northern Zagreb and steam to industrial consumers. and is one of the determinants of European energy policy. With small solar power plants, whether In addition, the new block L in PP-HP Zagreb will Continued development of on business or residential buildings, the idea is be a reliable source of electricity for the power HES Kosinj and HPP Senj 2, system. With more power, it will enable more flex- capacity of 412 MW - visualization to produce the optimal amount of energy for the of the future HPP Kosinj needs of the building. ible operation of existing units and their longer stay in operation, i.e. higher production on site Block L in PP-TP Zagreb. At the end of 2019, the with less impact on the environment, because main works on the construction of the combi-co- with the application of state-of-the-art energy generation high-efficiency block “L” in PP-TP Za- solutions carbon dioxide emissions will be re- greb began. Previously, during 2019, building per- duced by about 150,000 tons per year. In compar- mits were obtained, documentation was prepared ison, the old plant that the new unit replaces has for all phases of project implementation, old a specific emission of 682 g/kWh, while the new buildings on the site were removed, all necessary unit will have a specific emission of 187 g/kWh. Sustainable market approach 93 - - 144 2019 2019 1,822 35,146 59,866 96,551 17,952 59,801 95,012 174,304 176,270 139 carried out, of which 84 disconnections of cus tomers in the residential category and 105 dis- cat- commercial the in customers connections of the contract with some Out of this number, egory. of customers 24 with - terminated was customers the household category and 48 customers of the category. commercial The share of timely submitted requests of sup to electricity supply of re-establishment for pliers the end customer, after the cessation of reasons for temporary suspension of electricity in supply, tomer satisfaction survey. To ensure faster and better resolution of customer requirements, new communication channel - messenger Chat- a bot - has been implemented on the Opskrba. of HEP page Facebook nation of contracts due to non-performance of customer contractual obligations (irregular - pay ment). The number of measuring points percent 15.8 of rate a at grew category residential in the to 2018. compared 2018 2018 1,795 36,328 51,646 94,426 15,667 51,646 87,974 161,739 163,673 - Customer category No of customers - commercial Customer category High voltage Medium voltage No of customers – residential No of customers – residential Total - commercial Low voltage - public lighting Low voltage - residential Low voltage low voltage Total Total Apart from the category of voltage, where high the and number medium of is relatively metering stable, an increase points in the number of other all voltage at metering pointsrecorded was the in increase significant The 2019. during levels number of metering points in public lighting is a consequence of the public tenders won, as well as the increase in the number of metering points municipalities). and (cities customers existing for In 2019, due to non-payment, at the request HEP of Opskrba, a total of 189 disconnections were tiation from competition, nomic and technological, social sustainability, improvement of eco- HEP’s reputation, reduction of costs for printing, sending and archiving invoices, and digitalization improvement of cash HEP flow. Opskrba During independently 2019, conducted a cus- customers on 31/12/2019 Number of HEP Opskrba decline slight in the num a we recorded 2019, In ber of customers in compared the to 2018. This decline commercial is mainly due to category network operators, with customer deregistration the closure of business entities and the termi- on 31/12/2019 levels voltage HEP Supply customers by Number of billing metering points of

electricity market, HEP Group set ambitious mar- mostly were 2019 in which goals, development ket focused on defining and designing new products and services and developing the user experience. Steps have been made in this, and HEP Group is constantly improving the use of synergy effects among its companies and exploring the bilities - possi of other business expansion models. We also improve quality by communicating with our market stakeholders, especially customers, users and suppliers. the possibility of co-financingfrom and defined, was case business the 2019, funds. EU During elaborated. was principle trading the During 2019, an E-invoice was introduced customers for in the public procurement category, and E-invoices were successfully delivered to about 4,200 customers. This initiative enabled harmonization with legal provisions, - differen

esponsible market relations are one of the of one are relations market esponsible foundations of a healthy and successful business. Increasing demands for development of the industries, business, in-

frastructure frastructure and public activities encourage the products new develop constantly to sector energy portfolio, the enriching to addition In services. and the is market retail and wholesale the of focus the requirements of users and customers and user experience as a prerequisite for the development of competitiveness. As a leader in the Croatian HEP Opskrba - digitaliza on based services new introducing By the of transformation of trends the following tion, dif- ensure to strives Opskrba HEP sector, energy - There competition. the to relation in ferentiation fore, one of the initiatives in 2019 was focused on “peer to peer” trading. The initiative contrib- utes to the realization of European and national goals related to the promotion and increase of the share of renewable sources, which indicates Customer oriented oriented Customer business Market Market competitiveness development development and

HEP group HEP | Report Sustainability and Annual 92 Sustainable market approach 95 - - - 2019 6,426 121,954 128,380 representatives of representatives co-owners, into a special fold er that the program / robot scans and compares with the master data in the NAPTOP application being after way, this in loaded data The database. verifiedby the clerk, are entered into the applica tion database with one click. This facilitates and representatives authorized of work the speeds up of co-owners, speeds up and facilitates the work of possibility the reduces and Toplinarstvo HEP of in manual data entry. errors During December 2019, an anonymous survey of end customers’ satisfaction with the work services and of HEP Toplinarstvo was conducted at the HEP Toplinarstvo End in Customer units organizational the in and Zagreb in Center Reception respondents. 104 of sample a on Sisak and Osijek The survey confirmed that end customers- appre ciate and notice the efforts of HEP Toplinarstvo the quality of - to customer improve re employees lations. High marks and positive comments were recorded primarily on the speed of our response to inquiries and complaints, the availability of information about our services and our profession alism and expertise. In 2019, the supply of thermal energy was suspended due to non-payment for eight customers in the household category and six customers in the industry and business consumers category. 2018 6,333 121,081 127,414 - - - - Customer category Residential Industry and business premises Total HEP Toplinarstvo HEP Toplinarstvo Number of end customers HEP Toplinarstvo regularly provides advice energy savings on in the household with advice on energy savings of thermal energy on its website, customers. end to invoices with leaflets as well as relationship the interactive improved 2019, we In with our customers and optimized business - pro com transparent and dialogue of terms in cesses munication with stakeholders. In March 2019, HEP Toplinarstvo introduced new My a Account application which enables end customers to review and download heat bills for the past 12 months, review debits and payments made for heat bills, review and download annual heat consumption bills for the past three years. serve for the purposes of issuing the energy cer tificate of the space,review of the annualreports on the operations of HEP Toplinarstvo within the and clar- activities of of thermal theenergy buyer ification of the model for the distribution and cal- applica The energy. thermal delivered of culation tion is easy to use and clear and is available to 24 hours a day. end customers of thermal energy In June 2019, HEP Toplinarstvo started robotiz ing the business process of entering data on the number of household members used to calculate and distribute the costs of thermal energy for the NAPTOP the in water hot domestic of preparation loading by out carried is Robotization application. the forms for reporting the number of household members, electronically filled in by authorized 0% +2.8% +0.9% +2.2% +0.9% +0.9% +0.9% +0.9% -21.2% -10.5% %19/18 %19/18 1 272 2019 2019 1,643 83,579 85,495 2,026,349 2,026,349 2,111,571 2,111,844 2,111,844 3,870 written complaints were received, of which 3,851 or 99.51 percent were resolved within one day. The call center received a total of 1,092,341 calls, of which 41,676 or 3.82 percent were an- within one minute. swered HEP Opskrba, in cooperation with HEP ESCO, offered its customers in the commercial category electricity supply energy services that can help them meet and reduce their consumption - (cov ering 560 largest customers of Customers HEP of HEP Opskrba). Opskrba can take advantage program: the from packages service two of one of Systematic Energy Management (SGE) and ESCO Servic- Educational or (ESCO) Preparation Project es. 1 - - 304 2018 2018 2,084 81,295 83,684 2,008,848 2,008,848 2,092,227 2,092,532 2,092,532

Low voltage - public lighting Low voltage - residential Low voltage low voltage Total Total Total Medium voltage - commercial Low voltage High voltage Residential Commercial Customer category Customer category

During 2019, HEP Elektra timely submitted a total of 32,216 requests to re-establish the supply of cessation the after customer end the to electricity of the reasons for the temporary suspension of Of these, 31,789 or the 98.61 supply of electricity. percent were resolved within one day. A total of Number of billing metering points according to customer status Number of billing metering points according HEP Elektra levels voltage HEP Elektra customers by Number of billing metering points of 2019 was 98.77 percent, or 2019 of was the 98.77 percent, total number of with- resolved 160 with 162, were which requests in one day. addi- in and, offer its expanding constantly is HEP com increasingly offers energy, supplying to tion plex and modern energy services to the Group HEP market. for Program Benefit the is them Among customers based on the one-stop-shop princi ple, which combines electricity supply and multiple energy services in one place. Thus, in 2019,

HEP group HEP | Report Sustainability and Annual 94 Sustainable market approach 97 - - - - emissions, developing an emissions, developing 2 ment and the development of tools for self-assessment of water management in the tourism sector and strengthening the capacity of and regional self-government in sustainable local water management in tourism. character a developmental In addition to having both in technological and market terms, projects en renewable and efficiency energy of field the in ergy sources financedby EU funds contribute to operations of scope and profitability of growth the can activities EU-funded addition, In ESCO. HEP of be considered as exports of intellectual and - pro 85 financed are projects These services. fessional funds. own by percent 15 and funds EU by percent The project in which HEP ESCO also participates, and is fully funded by European funds, is Social optimal financing model for energy efficiency pro- efficiency energy for model financing optimal jects and an e-learning platform in Central - Euro pean schools. The TOUREST project includes the development of a study and recommendation of the community of regional and local self-govern In 2019, there there 2019, In projects. Cooperation on Interreg were three ongoing projects from which in cooperation program cross-border the Interreg HEP ESCO participates. propose to is project TEESCHOOLS the of aim The optimal financing models forenergy projects (nZEB) efficiency that will help mayors and school principals to conduct energy audits of buildings in a simple way so that they can decide on tech nical solutions and optimal financing models for energy efficiency projects in schools. TheFEED- SCHOOLS project focuses on developing and tools methodologies to help develop energy efficiency and renewable energy projects in schools (nZEB), calculating CO ------HEP EE solar plus is a program program a is plus solar EE HEP Projects for customers and and customers for Projects the community Since Sep HEP ODS Customer Center in Vukovar. tember 2019, the HEP ODS Customer Call Center in Vukovar employs twenty people, and togeth er with the customer center in million 2.4 for Knin ODS HEP of system support unique it forms a network users in Croatia. The unique customer center is in the function of further improving the of communication with customers. standards HEP EE solar plus. of construction of integrated solar power plants in combination with energy efficiency measures for public buildings, office buildings, hotels and industrial facilities. Since July 2019, HEP Group offers its business customers the possibility of building integratedturn solar power plants on a through conditions favorable very under basis key the HEP EE solar plus program. The program is performed according to the ESCO model, which means that there is no technical or financial risk for the customer of HEP Group, and the - invest ment is paid out of the savings. The implementation of this project - achieves vari of integration The business. in improvements ous photovoltaic power plants into HEP’s distribution network requires the modernization of the distribution network, and therefore HEP ODS is work- grid. smart a of introduction the on intensively ing The introduction of smart grids improves energy management and encourages efficient use of en ergy in buildings. At the same time, energy com panies have more precise information based on which they can procure energy, which results in a reduced share of unused energy. External con tractors, i.e. local companies, are involved in the implementation of the program. - 108.25 139.23 266.67 110.11 2019/2018(%) 433 8,558 3,896 64,882 77,769 16 2019 No of customers 5.877 71.876 77,769 tomers and took care of paying the bills. of paying tomers and took care sic Direct Debit Scheme in Croatia. Through SEPA SEPA Through Croatia. in Scheme Debit Direct sic direct debit, it is possible to pay bills at the same ser- payment debit Direct the of case the in as fee vice. With this, HEP Plin met the needs of its cus 6 2018 4.221 66.399 70,626 ) ) 3 3

Osijek-Baranja County County Požega-Slavonia County Virovitica-Podravina Other counties Total Supply area Supply area Customer category Residential TM1-TM4 (up to 1 mil. m TM1-TM8 Commercial Commercial TM9-TM12 (over 1 mil.m (over TM9-TM12 Commercial Total

Plin Vtc, a company owned by HEP Plin, as of 31 December 2019 had a total of 7,950 customers, of which 7,045 households and 905 in the entrepreneurship category. All customers are in the - Viroviti County. ca-Podravina Last year, HEP Plin introduced the possibility of invoices by direct paying debit SEPA and thus - re modern a with orders standing placed standard method of direct debit according to the amount of each individual invoice. SEPA direct debit is a all to use for available instrument payment of type Ba- SEPA unique the joined have who clients bank TM = tariff model supply areas Number of customers by HEP Plin HEP Plin Number of customers

HEP group HEP | Report Sustainability and Annual 96 Sustainable market approach 99 - - ducted based on exemptions from the application application the from exemptions on based ducted of value total a with Act Procurement Public the of procurement 71 2018 in while 1,042,040,583, HRK exemptions on based conducted were procedures from the application of the Public Procurement of HRK 614,373,080. Act with a total value The total number of suppliers for HEP Group in 2019 is 8,846, of which 8,605 are domestic and a 241 and paid, was 10,655,191,610.45 HRK of total 5,225,682,378.83. HRK paid were suppliers foreign in changes significant no were there 2019, During the procurement system or the selection of sup pliers. Procurement procedures are carried out in - with the applicable Public Procure accordance ment Law and internal acts of companies. up to HRK 200,000 and works up to HRK 500,000 in 2019 amounts to a total of HRK 509,994,412. belongs share largest the amount, total the of Out to the procurement of goods in the HRK 221,339,996. amount of con were procedures procurement 2019, 101 In Responsible procurement procurement Responsible management HEP d.d. is obliged a to sectoral apply contracting the which entered into force Public on 1 authority January 2017. The Procurement Act, current Public Procurement Act is with harmonized the Acquis Communautaire in the public field procurement, i.e. of with Directive 2014/24/ EU and Parliament of of the the European Council of 26 February 2014 on public procurement and with Directive 2014/25/EU of the European - Par on 2014 February 26 of Council the of and liament water the in operating entities of procurement the postal the and sector transport and energy sector, services sector. During 2019, HEP Group conducted 603 procurement public procedures, of which 45.6 percent percent 19.1 goods, of procurement the to related to services. to works and 35.3 percent The total value of amounts the to HRK conducted 3,130,192,488, procedures of percent refers to the which procurement of goods, 24.3 50.5 percent to the procurement of works of services. to the procurement percent and 25.2 procurement i.e. procurement, simple of value The of goods and services with an estimated value of - cal Engineering and Computing and the company 2021. be implemented by will NEOS. The project infrastructure infrastructure and enable efficient use and management of the charging network for electric - ve hicles. The project has been implemented since March 2018 and is financed from the Operational Program Competitiveness and Cohesion for the financial period 2014-2020 (IRI project),HRK over which (of million 19.7 HRK of value total with a 11 million is co-financedby Union). European the HEP is the holder of the project, and the partners Electri of Faculty the Zagreb, of University the are - The purpose of the bigEVdata project E-chargers erected within bigEVdata project within bigEVdata erected E-chargers

Watt Watt as part of the Horizon 2020 program. - innova an of development the on The focuses project Europe. in poverty energy alleviate to program tive It will develop tools to enable energy to suppliers identify energy poverty among their custom ers, analyze and plan energy poverty alleviation and monitor their implementation. measures BigEVdata. is to develop an innovative complete solution that an innovative is to develop will integrate big data modeling of behavior and habits of consumers (users) of charging station

HEP group HEP | Report Sustainability and Annual Investing in sustainable ENVIRONMENTAL PROTECTION

and responsible impact management 7 HPP Jaruga, operating since 1903, within the National Park Krka Objectives related to investment in sustainable environmental protection in HEP Group are planned annually in accordance with the requirements of legal regulations, as well as on the basis of monitoring best practices and best available techniques in the field of sustainable environmental management in electricity generation and distribution and HEP’s development strategy until 2030. Investing in

or the purpose of systematically setting tion of natural gas as a transition fuel to low-car- sustainable goals in the field of environmental protec- bon energy production and e-mobility. Activities tion, energy management and monitor- related to sustainable waste management, biodi- ing the success of the implementation of versity conservation and water management and Fthese goals, the headquarters and companies of protection were continued. environmental HEP Group have introduced certified integrated The biggest risk was related to the increase in the Annual and Sustainability Report | HEP group Annual systems according to ISO norms. During 2019, price of greenhouse gas emissions. This risk is HEP Group emphasized the implementation of managed by purchasing emission units in quan- 102 EU policy objectives in the field of climate pro- 103 tities corresponding to CO2 emissions from HEP’s protection and tection, therefore, the most important activities sources in the EU-ETS system at the same time were related to the preparation of construction as purchasing fossil fuels, and by continuously and construction of renewable energy sources monitoring changes in market prices. No cases responsible and high-efficiency cogeneration, energy savings of non-compliance with environmental laws and in business and production processes, reducing regulations were recorded during the reporting impact consumption liquid fuel and increasing consump- period. management Investing in sustainable environmental protection and responsible impact management 105 began. The process was successfully completed in the planned period and the Customer Service received ISO certification for years a periodwith mandatory recertification audits each three of year. in 2017 it was successfully certified for thetime according first to the OHSAS 18001:2007 standard. In 2019, the transition of this system to of requirements the ISO 45001:2018 standard was the commitmentbasic The implemented. successfully of HEP-ODS in energy management is to achieve permanent improvement of energy performance on all business facilities, equipment and devices, including reduction of losses in manage- energy implemented the through the network distribution ment system according to ISO 50001:2011 which Croatia.by TÜV confirmed is plementation of internal audits, where it checks compliance with legal and other The requirements. appointed person responsible for monitoring the company’s compliance with legal and other a keeps list requirements of legal regulations and of assessment the with along requirements, other compliance. - - - - HEP Opskrba HEP Opskrba’s customer service was the first in Croatia to receive the ISO 9001:2015 certificate for service quality with its exceptional commit ment and high level of service provided. second In part of 2017, the preparations for the certifi 9001:2015 ISO Servicefor Customer the of cation HEP-ODS - environmen safety, and health worker of Protection are management energy efficient and protection tal part of the business strategy of HEP Operator distribucijskog sustava (HEP ODS). The - environmen tal management system according to the interna- ISO 14001 tional is standard the first management areas distribution 21 of level the at certified system and HEP ODS headquarters in 2013. In 2018, the the of requirements the to system this of transition new standard ISO 14001:2015 was successfully implemented. The occupational health and safety and 2015, in established was system management HEP Toplinarstvo HEP Toplinarstvo implemented the first super visory audit of the integrated vironmental quality management and en system 2019, in in accordance October with ISO 14001:2015. ISO The assessment of compliance 9001:2015 and with legal and other requirements is carried out through the assessment of environmental pects at as- least once a year and through the im- -

time, HEP Upravljanje imovinom is certified in the segment of operations that form an inseparable unit with HEP d.d., also according to the interna tional standards ISO 9001:2015, ISO 14001:2015, ISO 50001:2018 and ISO 45001:2018. requirements and informs the environment coor- dinators/representatives for the environment about areas production atand plants of locations the all changes. In September and October 2019, the second supervisory audit of the integrated environmental and quality management system at the - accord in conducted was Proizvodnja HEP of level ance with ISO 14001:2015 and ISO 9001:2015 and the first supervisory audit of the energy management system in accordance with ISO 50001:2018 headquarters.the in and plants all in -

al standards ISO same the At 9001:2015, 45001:2018. ISO and 50001:2018 ISO ISO 14001:2015, compliance of assessment the Proizvodnja, HEP In with legal and other is requirements given through the Assessment of the environmental, quality and energy management system in accordance with ISO 14001 and 9001 and ISO 50001 and when as- reviewed are which aspects, environmental sessing at least once a year. In addition, the evaluation is carried out through the implementation of internal compliance meeting at aimed are which audits, - environ quality, for representative The obligations. other and legal of register a keeps energy and ment HEP Group HEP HEP Proizvodnja ISO norms in ISO norms imovinom HEP d.d. and HEP Upravljanje Hrvatska elektroprivreda d.d. became the holder of the integrated quality management environmental protection, energy and health - pro system, tection certificate according to the internation according to according systems systems Management Management

HEP group HEP | Report Sustainability and Annual 104 Investing in sustainable environmental protection and responsible impact management 107 - - - - -

energy energy consumption for the production process, energy consumption outside the production - pro wa- total lighting), conditioning, air (heating, cess to- (m³), sanitary) only HPPs (for consumption ter tal sanitary water consumption (m³), total energy thresh (at energy delivered total (kWh), produced old) (kwh), total average number of employees, total area (m²) (facilities where people live follow the identified also audit and energy The work). ing parameters / indicators of energy efficiency consumption energy EnPI: performance energy or [consumed kWh / delivered kWh], con air heating, (lighting, employee per sumption energy con ditioning) [kWh/employee], energy consumption per m² of space (lighting, heating, air condition ing) [kWh/m²], water consumption (sanitary) per employee [m³/employee] and water consumption kWh (only for TPP) [m³/kWh]. per delivered - - ll HEP Proizvodnja plants prepared En- ergy Review Reports where the data on consumption and production average for 2016-2018 was used, as well as Analyses of energy indicators (2018 and 2019). The Joint Report on the HEP Proizvodnja was Energy also prepared on the basis Inspection of of data from the Energy Inspections Analysis. and Energy performance and energy perfor- Plant based on monitoring and are mance improvement EnPIs. including measuring results Energy performance through the which Energy Review, considered the indicators are average consumption and production for the defined pe riod 2016-2018. The following parameters have been established for energy consumption - ener gy base (ENB): total energy consumption (kWh), Energy HEP Proizvodnja HEP Proizvodnja Energy consumption in in consumption Energy A - - - 0 0 6.32 0.01 2.14 10.91 19.38 Investments (in HRK m) Investments 1.73 1.87 8.13 0.44 9.90 67.95 90.02 harmonization of environmental permits - re lated to the said Decision of the Commission rated with boilers new of construction the and plant the at MWt 50 than lower power thermal submit and full in completed been have sites ted to the Ministry of Environmental Protec tion and Energy. Decisions on new environ expected during 2020. mental permits are PP-HP Zagreb – in addition to expert basis the for the consideration of prepared the Com- - re mission Decision, it deals with measures lated to the construction of a new KKE PP-HP Zagreb, a plant larger than 50 MWt, given that it is a condition for obtaining a use permit for a new plant. The decision on the environmental permit is expected in the second half of 2020, inspectionpublic and hearing public a because issuing of purpose the for documentation the of conducted. be must plant new the for measures not have they – Jertovec CTPP and Rijeka TPP the have not do they because processed been stated obligation to comply, given that these are plants that have obtained exemptions for until the end of 2023. a limited lifespan • • Costs of regular operations (in HRK m) Costs of regular

ll existing thermal HEP Proizvodnja power with a nominal thermal facilities of power of more than 50 are which permits, environmental tained MWt have ob-

TE Plomin 1 - obtained a new environmental permit 02/25/2019 and until the specified therein measures are implemented, the block cannot be put into operation. TE Plomin 2, TPP-HP Zagreb, TPP-HP Osijek, TPP-HP Sisak - Expert basis for the needs of • •

Waste waters Waste Waste waters of soil and underground Protection and landscape of nature Protection and implementation of energy Other – fees in final consumption efficiency measures for 2019 Total Air and climate Environmental protection area protection Environmental

Total expenditures and investments in environmental protection in 2019 protection in environmental and investments expenditures Total

permits Environmental Environmental

also a precondition for the operation of the plant, i.e. the production of electricity and Environmental heat the of provisions the in with cordance ac- harmo- and changes 2019, During Act. Protection leg- the with permits environmental all of nization islation were made due to the new requirements (EU) Decision Implementing Commission the from 2017/1442 on establishing conclusions with best available techniques (BAT) for large combustion plants in accordance with the Directive 2010/75/ Council. the of and Parliament European the of EU Status of harmonization of environmental permits plants: by A

HEP group HEP | Report Sustainability and Annual 106 Investing in sustainable environmental protection and responsible impact management 109 - - - - ica). Following the activities from previous the planning periods, of the introduction of remote read ing of energy and water consumption buildings in continued. these Remote reading is carried out by installing measuring and communication equipment on the building, which enables automatic and remote connection of the building with the computer-business system ESCO the ensure will activity this of implementation The Monitor. control over energy and water consumption and enable the measurement and verification of- sav efficiency energy of implementation the after ings measures. The introduction of the ESCO Monitor the by used and owned buildings all in application HEP Group will create a unique database of gen eral and energy data on its buildings and provide insight into consumption and costs for and water. energy and energy optimization was performed for two buildings (Elektra Varaždin, HEP ODS Velika Gor ergy ergy efficiency indicators in 2019 (compared to Nu- base). energy the to relation in also but 2018, merous investments made in the last three years efficiency, energy improved significantly have that such as the construction of new energy efficient buildings, reconstruction of existing installation buildings, of new heating and air conditioning systems, installation of LED lighting and projects have a great impact on the improvement other - param efficiency energy and indicators energy of eters. etc.). Energy efficiency indicator - sanitary water consumption per employee and sanitary and an increase consumption indicator recorded water the reason for this is the rupture of drinking - wa ter pipelines which was not noticed on a monthly as well as Plomin, TPP of location the for as basis consumptionwater due to renovation increased of HPP Dubrovnik. The data indicates a trend of improving most en ------Consumption in HEP Group buildings buildings in HEP Group Consumption In February 2019, the Management Board of HEP adopted a Decision on the implementation of the second phase of the Program for the Establish- ment of Management the System Energy (SGE) in the buildings of Hrvatska elektroprivreda. More than 80 projects will be the implemented system through of systematic energy plans HEP Thus, program. SGE HEP the as known management to comprehensively manage energy in its build ings with the aim of effectively managing ener gy costs by identifying potentials for energy and water savings and reducing the impact of HEP’s buildings on the environment. The HEP SGE program is in line with the revised Building Energy Efficiency Directive whichcourages the use en of new smart technologies to reduce energy consumption in buildings and pri- oritize energy efficiency. During 2019, 13 energy managers and 79 associates were appointed, 43 instal- the for selected were ODS HEP of locations lation of remote readings (128 metering points) the improvement the of improvement energy indicators and energy parameters. efficiency The indicator of total energy consumption indi cates a decrease in relation to the energy base and in 2018. In itself, consumption total energy is de largely is it (because parameter relevant a not pendent on production). all However, energy efficiency indicators and especially the most impor tant - energy consumption per committed kWh - indicate positive trends. The indicator of energy also process consumption outside the production shows a decreasing trend, which is confirmedby consumption (energy indicators efficiency energy per employee and energy consumption per m² of space), which is in turn directly related to the implementation of numerous investments in ener gy efficiency inrecent years (construction of new exist- of reconstruction facilities), efficient energy ing buildings, installation of new heating and air conditioning systems, installation of LED lighting 94.1% 91.3% 90.5% 90.0% 99.7% 84.6% 92.9% 92.9% 96.8% 124.7% 102.6% 100.5% 151.0% 101.1% 106.6% 2019/2018 2019/2018 2019 2019 1,991 54.19 387.21 1,25358 0.03085 17,466.09 127,275.94 130,574.62 3,206,240.54 33,967,962.08 262,858,953.55 12,060,847,799.83 11,669,407,794.28 16,001,749,422.05 16,069,730,374.85 in energy efficiency indicators of most indicators in 2019 (compared to 2018, but also in relation to in made investments Numerous base). energy the the last three years which have significantly improved energy efficiency have a great impact on 2018 2018 1,970 43.46 424.28 1,25681 0.03277 86,498.82 20,654.93 126,694.00 3,126,275.78 35,094,422.71 246,523,403.62 13,332,289,597.47 12,960,891,386.08 17,233,248,057.98 17,303,521,040.95

] 3

] 3 of space 2

] 2 ] 2

Water consumption per delivered kWh consumption per delivered Water (only for TPP) [m³/kWh] Water consumption (sanitary) per Water [m³/employee] employee Total fuel consumption for vehicles [kWh] fuel consumption for vehicles Total Total energy produced [kWh]: produced energy Total [kWh] delivered energy Total number of employees Total [m area Total (lighting. heating. air conditioning) [kWh/m Sanitary consumption [m water (only for TPP, technological + sanitary) (only for TPP, (spaces where people live and work) people live (spaces where Energy consumption per employee consumption per employee Energy (lighting. heating. air conditioning) [kWh/employee] consumption per m Energy Energy consumption Energy kWh] [consumed kWh/delivered Energy consumption for the production consumption for the production Energy at (including water energy [kWh] process HPPs and fuel for auxiliary units, etc.) consumption outside the Energy [kWh] process production (lighting, heating, air conditioning) water consumption [m Total Total energy consumption [kWh] consumption energy Total fuel, vehicle including sources, (all energy at HPPs) water energy

The analysis was conducted on the basis of the Analysis of energy indicators from all locations (Plants/PP) for 2018 and 2019 using the data on the energy base from the Energy Review (2016- 2018). The data indicate a trend of improvement Analysis of energy efficiency parameters energyor performance EnPI for comparison between 2019/2018: 2018 and 2019 and their Using data for 2018 and 2019 from the Analysis of energy indicators of all plants, energy consumption consumption plants, energy of all indicators Analysis of energy the from and 2019 for 2018 Using data are: comparison 2019/2018 d.o.o. and their for HEP Proizvodnja indicators

HEP group HEP | Report Sustainability and Annual 108 Investing in sustainable environmental protection and responsible impact management 111 - - 2019 -5,459,184 -4,135,701 -1,768,927 19,615,308 29,386,849 43,481,271 2019/2015 -11,363,812 2018 +617,371 -1,525,668 -2,528,604 -3,436,901 21,140,976 28,769,478 46,009,875 2019/2018 ergy ergy costs than in the year of the energy base. In 2019, HEP ODS was also preparing for the imple mentation of new energy audits of the process in - pro the of audits energy of locations 133 at 2020 buildings. registered total 780 include which cess With new energy reviews of the process in 2020 which with base energy new a adopt will ODS HEP it will compare significant energy consumption in period. the next five-year benefits of the energy management system and in and system management energy the of benefits 2019 invested a total of HRK 7,227,198 in energy efficiency measures and HRK 6,373,886 were invested in 2018. This is the largest investment in so far. efficiency measures energy According to financialHEP ODS allocated 38 percent less funds for en accounting, in 2019 2017 - - -1,228,109 -2,097,419 -2,832,117 -6,157,645 22,323,862 30,866,898 48,867,302 2018/2017 Energy consumption in 2 largest buildings consumption in 2 largest Energy to the DP according consumption Fuel Total significant energy consumption significant energy Total HEP ODS TOTAL Total energy consumption in the 2 largest in the 2 largest consumption energy Total kWh) buildings per DP (in year consumption by Reduction of energy (w/o kWh losses) Energy consumption by year consumption by Energy consumption (in kWh) fuel Total consumption (in energy significant Total kWh) Reduction of energy and fuel consumption in HEP ODS and fuel consumption Reduction of energy Total Total energy consumption in buildings of all distribution areas accounts for 45 the two largest percent of total significant energy consumption. In 2019 the total energy consumption in the two largest buildings decreased by 4,135,701 compared to kWh the energy base and by 1,525,668 kWh compared to 2018. By establishing, certify- ing and improving the energy management system, as well ef in investments as energy through ficiency measures and continuous education and raising the awareness of workers in energy management, a continuous trend of decreasing en ergy consumption has been recorded compared to the energy base years. and/or Based on the previous commitment to business continuous improvement of energy performance in management, energy HEP ODS also recognized all other Significant energy consumption, energy and fuel consumption in the two largest buildings in each buildings largest in the two and fuel consumption energy consumption, energy Significant of HEP ODS distribution area -20.48% -15.58% +27.55% 2019/2018 % 2019 24,975 1,758,004 1,743,395 certified energy management systemaccording to ISO 50001. At all locations of the process energy audit significant energy consumption is monitored recorded are values the measured and controlled, and in the measurement plans on a monthly basis. In accordance with the defined criteria, significant energy consumption accounts for 67 percent of consumption (without losses). total energy 2018 - - 19,580 2,210,775 2,065,143 * * The second phase of the implementation of the energy The second phase of the implementation of the energy management system in HEP buildings is underway Heat energy [kWh] Heat energy Natural gas [kWh] Energy source Energy Electricity [kWh] HEP ODS wants to be a leader in the field of ener of field the in leader a be to wants ODS HEP gy efficiency and promote energy efficiency both among its employees and in the wider economic and social environment. The basic commitment of the company in energy achieve permanent improvement management of energy is per to and equipment facilities, business all in formance devices, including the reduction of losses in the an implemented and distribution networkthrough Energy management in HEP ODS ODS in HEP management Energy Total energy consumption on the location of the HEP Group headquarters HEP Group the location of the consumption on in 2019 energy Total Investing in sustainable environmental protection and responsible impact management 113 - 2 tCO 18.24 28.24 46.48 Total kWh 70,015.80 105,784.53 175,764.33 2 9.12 8.28 tCO 4,491 52,107 139,163.13 519,031.75 5,017,910.72 5,999,324.62 2019 11,017,235.34 kWh 35,007.9 35.249,51 2 9.12 8.28 tCO sumption devices. ers with extra light fuel oil with gas condensing boilers, replacement of hot water pipes with new pre-insulated pipes with installed fault detection and replacement of pumps with new pumps with frequency regulation where the greatest energy achieved. are savings placement of lighting fixtures with energycon fuel of installation the and lighting LED cient effi- Reconstructions of thermal substations / (kWh saved) Reconstructions of thermal substations 2018 - - kWh 35,007.9 35,249.51 2 8.28 tCO 2017 kWh 35,249.51 e) 2 emissions/(kgCO 2 TOTAL SAVED TOTAL Phase II. Fleet CO Phase I. Total fleet vehicle power/(kW) vehicle fleet Total consumption/(l) Total consumption/(kWh) energy Total 2018 2019 SAVED/kWh TOTAL Savings achieved by implementing the measure: Zagreb Complex - Replacement of existing lighting Zagreb implementing the measure: by achieved Savings efficient LED lighting with energy fixtures The analysis of consumption energy showed that the largest wa- energy hot and equipment room boiler consumers i.e. equipment, are production ter and steam pipelines. In its regular operations, HEP Toplinarstvo implements energy efficiency measures related to the modernization of boil er rooms, such as replacement of existing boil for 2018 and 2019 of thermal substations for the reconstruction Savings Certain savings are also achieved measures by to applying increase the energy buildings. efficiency These of measures referred to the - re Fleet consumption analysis Fleet consumption - - - 2018 5,490 217,900 3,586,317 26,525,928 139,813,872 3,206 367,208 1,047,614 2017 4,406 646,768 4,024,254 34,555,560 144,206,868 Consumption in buildings * port on energy inspections of buildings and analysis an of fleet consumption was made; 2018 year. was chosen as the reference Data for heat commercial buildings for electricity, and water consumption were taken from the Re is 5 percent). The average EnPI of diesel fuel for passenger cars in 2015 was 9.4 l 6.6 l/100 km, while for trucks in 2015 it and was 14.9, in 2019 and in 2019 12.2 l/100 km. The average value of the energy performance indicator (EnPI) for die the over decreasing continuously is petrol and sel trend this and base energy the to according years is efficient fleet management and fuel consump tion. 2016 - 12,482 4,082,972 2,092,789 34,386,972 146,813,000 ) ) 3 3

Electricity consumption/(kWh) consumption/(kWh) Thermal energy consumption/(m Water Energy source Energy Energy source Energy Electricity consumption/ (kWh) Natural gas consumption/(kWh) Extra light fuel oil consumption/(kWh) Medium light fuel oil consumption/(kWh) consumption/(m Water

the significant increase in water consumption in 2016 is the result of a rupture during which there was there which during rupture a of result the is 2016 in consumption water in increase significant the * consumption in office buildings Energy Energy consumption in boiler rooms Energy During 2019, prepared HEP a Toplinarstvo Report on the energy audit of a large company in which data on electricity consumption of boiler rooms, data on water consumption for boiler rooms and data on consumption and energy costs required for the operation of boiler rooms were analyze used plant to consumption in 2016, 2018. 2017 and Energy savings in HEP Toplinarstvo in HEP Toplinarstvo savings Energy HEP ODS: reduction of diesel and gasoline fuel consumption and gasoline of diesel reduction HEP ODS: In 2019, there was a decrease in fuel consump tion by energy base (base year 2015) by 1,768,927 by 2015) year (base base energy by tion kWh (179,404 l) and an increase in consumption by 2 percent compared to the previous 2018 by 617,371 kWh (62,614 l) due to the increased - vol ume of electricity distribution activities. The - val ue of the Energy Performance Indicator (EnPI) for fuel is a relevant indicator of how efficiently and how the fleet and fuel consumption are managed (the share of petrol fuel in total fuel consumption a significant water leak

HEP group HEP | Report Sustainability and Annual 112 Investing in sustainable environmental protection and responsible impact management 115 - - - -

39 103 +164.1 PM 10 t/y emissions due Solid particles 2 t/y x +9.1 1.517 1.391 NO air in line with an increase in electricity produc pow thermal and power plants thermal from tion er plants and a decrease in SO ology based on the fuel consumption balance and balance consumption fuel the on based ology periodic emission measurements prescribed for medium combustion plants. Emissions from urban heating boilers are calculated on also the basis of the fuel consumption balance and periodic emission measurements plants. for medium combustion prescribed to reduced liquid fuel and increased natural gas consumption. Emissions of all pollutants from HEP’s bioenergy plants to forest biomass were higher due to the application of the emission calculation method t/y 2 248 386 -35.8 SO ) - car 2 , CO and solid particles from thermal power plants and ther and thermal power plants solid particlesand CO , from ), sulfur 2 X , SO , X 199 162 +22.8 CO t/y , CO and particles into the X ) and solid particles. During 2019, 2 y performing the activity of production of electricity and heat using uid fuel, natural gas coal, and forest biomass, liq- air emissions are generated. Pollutants 2019 2018 2019/2018 % from HEP’s sources are carbonsources are (CO dioxide HEP’s from Emissions Emissions in air into Group HEP Emissions of pollutants into air - NO - pollutants into air of Emissions bon monoxide (CO), nitrogen oxides (NO dioxide dioxide (SO there there were no emissions of pollutants into air during the the normal operation of HEP’s plants. thermal pow- Also, in thermal power plants and er plants-heating plants of HEP production, measures all prescribed by environmental permits implemented. were emis- in increase an was there 2018, to Compared sions of polluting NO mal power plants for heat production B - - -4.1 +9.5 -75.0 -23.0 +16.7 +12.4 2019/2018 (%) 2019/2018 (%) 1.8 68.0 2019 6,128 1,828 579.8 2019. 13,737.4 reduction reduction of the need for thermal energy produc tion due to the milder winter and partly due to the reconstruction of boiler rooms. which aimed to plants. the efficiency of production increase HEP Toplinarstvo HEP signed Toplinarstvo a grant agreement from connect the replacing of project the for funds EU ing hot water pipeline in Osijek and the European Commission approved support in the amount of EUR 57 million for the project of revitalizing the network of Zagreb. hot water pipeline the number of operating hours of BE-TO Sisak. The production of electricity from plants in hydropower 2019 decreased compared to 2018 by 15.72 percent due to a decrease in the amount of precipitation, i.e. water used by plants for production. hydropower At the same time, the - pro duction of electricity from thermal power plants increased by 13.93 percent compared to 2018 in the supply of customers. to ensure order 7.2

60.5 2018 2018 5,598 2,375 496.8 14,328.6 t 3 3 MWh 3 t t 3 3 t 3

Natural gas/ x 10 Forest biomass/ x 10 Forest Liquid fuel/ x 10 Liquid fuel/x 10 Type of fuel Type Type of fuel Type Natural gas/ x 10 m Coal / x 10

The amount of liquid fuel for used in boiler rooms heating cities during 2019 decreased by - rea The percent. 4.20 by gas natural and percent 23.10 son for the decrease in fuel consumption is the for city heating Quantities and types of fuels used in boiler rooms HEP Toplinarstvo fuel consumption in boiler rooms for city heating fuel consumption in boiler rooms HEP Toplinarstvo Coal consumption increased in 2019 by 14.32 per- 14.32 by 2019 in increased consumption Coal cent compared to 2018 due to the increase in the power coal-fired a of operation of hours of number power thermal in fuel liquid of Consumption plant. plants plants-heating power thermal and plants decreased by 74.73 percent compared to and 2018 the consumption of more percent. 8.65 by increased gas natural friendly environmentally Consumption of forest biomass in 2019 was by 23.4 percent reduced due to the reduction in Fuel consumption in thermal power plants and thermal power plants-heating and thermal power plants-heating in thermal power plants consumption Fuel Proizvodnja plants of HEP Energy Energy projects co-financedby European funds. In additionin- to business aimed at activities creasing capacity and production from low-carbon energy sources as part scenario, we have intensified the implementation of the renewable of measures and preparation of projects to crease in- energy efficiency. At the end of year, the in thermal power plants. thermal power plants and bioenergy Quantities and types of used fuels

HEP group HEP | Report Sustainability and Annual 114 Investing in sustainable environmental protection and responsible impact management 117 - - - - for 2 emis- 2 / kWh. 2 During 2019,

were emitted from all HEP 2 /kWh. The intensity of CO 2 / kWh. 2 sions for the production of total available elec tricity and heat of the HEP Group TPP-HP, (TPP, 50% NPPK, purchase from RES, - im HPP, BPP-HP, ports and boiler rooms for city heating) for 2019 was 130 g CO (TPP, TPP-HP, BPP-HP, HPP, 50% NPPK, purchase HPP, BPP-HP, TPP-HP, (TPP, RES and import) was 131 g CO from sources sources for the generation of electricity and heat (thermal power plants. for thermal heat production, bioenergy power plants and boiler plants rooms for urban heating). The emission intensity was 199 g CO Intensity of greenhouse CO gas emissions Intensity of greenhouse gy policy. “Prosumer”, i.e. a customer with its own its with customer a i.e. “Prosumer”, policy. gy production, is a term that in is the EU increasingly and the used world. With small solar power build plants, whetheron business or residential amount the optimal produce to ings, the idea is of energy for the needs of the building. Consum ers are active, key players in the energy markets of the future. In the future, they will have a more diverse offer and the possibility of producing and selling their own electricity. On-site energy production has multiple benefits and is one of the determinants of ener European generated and electricity heat. 2,674,236 tons of CO

2 - for 2 /kWh, 2 emission emission 2 emissions for produced produced for emissions 2 Based on the submitted emissions for the produc 2 Solar power plant on the roof of HEP ODS of HEP Solar power plant on the roof is one of 22 such SPPs building in Varaždin installed in 2019 tion of total electricityavailable of the HEP Group units for the production of thermal energy by the MEPE, in 2019 HEP was allocated 189,052 emission units. free CO gas emissions Intensity of greenhouse were were released from HEP’s thermal power plants, thermal power plants for heat production and bioenergy plants in the electricity production - pro CO of intensity The cess. electricity from HEP’s electricity thermal from HEP’s and thermal power CO g 589 was 2019 for bioenergy and plants Free emission allowances allocated to HEP’s fa- emission allowances allocated to HEP’s Free cilities in the EU-ETS. Requests for the allocation of free CO of plants on the roofs power Solar office buildings HEP’s In accordance with the National Action Plan for Renewable Energy Sources which stimulates the construction of small solar power plants, in addition to the construction and takeover of large solar power plants (Kaštelir, Vis Cres and Vrlika) with a total capacity of 350 MW (by solar kW 2030), 50 to 10 of construction HEP the initiated has power plants on the roofs of HEP’s business and the at electricity use will that buildings production production site. During 2019, HEP financed and HEP’s energy efficiency company HEP ESCO car- plants power solar 22 of construction the out ried to- a with consumption electricity own its cover to handed be will surpluses Any kW. 645 of power tal conditions. to the network under market over while intensity of CO During 2019, 2,196,633 t CO t 2,196,633 2019, generated electricity During

2 - - - -14.3 +64.5 +13.0 +13.7 * * 2019/2018 % 2019/2018 NA NA 9.54 27.88 +192.2 2019 76,772 26,534 2,570,930 2,674,236 Solid particles PM 10 t/y Solid particles PM 10 t/y emissions uses the meth emissions uses 2 2018 46,667 30,973 2,274,841 2,352,481 t/y t/y x x 2 9.12 -78.9 54.79 26.87 43.27 +103.9 NO NO odology and emission factors defined in the approved Greenhouse Gas Plans for HEP Emission Proizvodnja thermal power plants, Monitoring i.e. those prescribed by Panel the on Intergovernmental Climate Change (IPCC) for HEP plants. narstvo Topli emission with legal regulations, In accordance units were transferred to HEP’s accounts opened in the European Union Register during April 2020 for 2019, whereby HEP, as every year since start of trading in 2013, fulfilled its the obligation in a timely manner. emissions. The calculation of CO try of Environmental Protection and Energy. Dur ing 2019 the only HEP Toplinarstvo plant in the EU-ETS, the Osijek plant, did not work, so the authorized verifier confirmed that there were no CO - - - - t/y t/y 2 2 0.84 0.27 8.40 5.30 +58.5 , CO and solid particles from boilers for city heating , CO and solid particles from +211.1 SO SO 2 2 emissions , SO 2 x / tCO * 2 and particles from bioenergy plants bioenergy and particles from X emissions from HEP’s 2 5.2 8.63 5.20 14.36 +66.0 CO t/y CO t/y +176.2 , NO 2 greenhouse gas emissions from HEP sources from gas emissions greenhouse greenhouse gas emissions greenhouse 2 2 emissions from bioenergy plants are not in the emissions trading system plants are bioenergy emissions from 2 emissions from bioenergy was due to the ap- the to due was bioenergy from emissions 2

2019/2018 % 2019 2018 2019 Boilers for heating cities / tCO Bioenergy plants on wood biomass Bioenergy 2018 2019/2018 % Total Thermal power plants and thermal power plants for heat production/ tCO production/ heat for plants and thermal power power plants Thermal

CO NA - Below the level of emissions that need to be reported to the Pollution Register need to be reported of emissions that to the Pollution NA - Below the level Total CO Total odic emission measurements that are prescribed prescribed are that odic emission measurements for medium combustion plants. CO plication of the emission calculation methodology methodology calculation emission the of plication based on the fuel consumption balance and peri * CO Compared to 2018, CO * Emissions of pollutants into air – NO Emissions of pollutants Emissions of CO, SO of CO, Emissions from city heating boilers have been reduced com reduced been have boilers heating city from to 2018. pared Reports on greenhouse gas emissions for 2019 have been prepared for all HEP plants that are in Trading Emissions Gas Greenhouse European the System (EU-ETS), namely HEP Proizvodnja ther mal power plants thermal power plants and the HEP Toplinarstvo Osijek plant, were verified authorized by verifiers and submitted to the Minis- thermal power plants, thermal power plants-heat thermal powerplants, thermal in the increase in line with ing plants increased electricity and heat production. The increase in CO

HEP group HEP | Report Sustainability and Annual 116 The most significant investments Other emissions - halogenated in energy efficiency and air hydrocarbons (HFC. PFC) and SF6 i n protection in HEP Proizvodnja HEP ODS

TPP-HP Sisak TPP-HP Zagreb HEP ODS submits data on the consumption of SF6 was supplemented in plants where there was halogenated hydrocarbons and SF to the Ministry less gas than required. At the beginning of 2019, a new steam boiler PK3 In TPP-HP Zagreb, the reconstruction of hot wa- 6 of Environmental Protection and Energy. In 2019, with a capacity of 12.5 t / h was put into opera- ter boilers VK5 and VK6 has been completed. The tion, and in July 2019 a use permit was obtained. pressure system burners and the process con- Consumption of halogenated hydrocarbons (HFC. PFC) and SF6 2018 2019 The commissioning of the new steam boiler in- trol system regulation and protection of hot wa- Amount of switchgear (pcs) 11.689 12.332 creased the energy efficiency of steam production ter boilers have been replaced, and natural gas is Filling the switch gear with SF gas (t) 31.33 32.59 in TPP-HP Sisak because the auxiliary boiler room used as fuel. This reduced emissions of SO , NO , Switchgear and 6 2 x Leakage of SF from equipment in operation (kg) 60.50 38.56 does not work in the summer months, when the CO and solid particles. All medium fuel oil tanks control gear - high- 6 voltage appliances and Handling used SF ** ** need for steam is lowest, and therefore the emis- that will no longer be used as propellant have also 6 assemblies SF gas handling and switching equipment after sion of pollutants into the air, primarily NOx, is low- been cleaned and preserved. 6 56.1 64.8 er as well. service life (kg) Energy efficient lighting Reconstruction of the combustion and control During 2019, the existing lighting systems in all system was made on the auxiliary boiler PK2, HEP Proizvodnja plants were replaced with more which improved the combustion and manage- energy-efficient LED lighting. The implementa- ment of the technological process of combustion. tion of this measure has reduced consumption in Reconstruction increased the degree of boiler plants. utilization, and the installation of new equipment reduced Electrical energy consumption and the replacement of burners reduced NOx emissions into the air.

Reconstruction of hot water boilers VK5 and VK6 and other investments in TPP-HP Zagreb reduce

the SO2, NOx, CO and solid particles Investing in sustainable environmental protection and responsible impact management 121 -

ants in accordance with water permits. with ants in accordance All HEP-Proizvodnja production facilities - discharg water to conditions related prescribed have rights water and permits (TE) environmental in es permits (TE and HE). ard. ard. During 2019, there were no exceedances of pollut of concentrations permitted maximum the n the reservoirs PP HE Sjever, of PP HE Zapad hydropower and PP whose HE operator systems Jug is HEP Proizvodnja, tests regular of physico-chemical, biological and at Water Water management Group in HEP HEP Proizvodnja certain locations ichthyological parameters are - in accord prepared carried are out and reports ance with the Regulation on water quality stand- I - rest stations in 2019 rest HEP launched the first superchargers on highway on highway superchargers the Ordinance on air quality monitoring. The data are publicly available and there were no overruns in the parameters related to 2019. air quality during Hungary to the Adriatic Sea, and the Republic of sta- charging of network the to connect to Croatia tions for electric vehicles on the Trans-European Transport Network. A new cycle charging of stations for setting electric vehicles up at tourist points in Dalmatia followed. Thus, new ELEN fill- on the coast and cities up in set ing stations were Makar Jelsa, Grad, Stari Ploče, in namely islands, ska and Drvenik-Gradac. In November 2019 the installation of one hundred bottling plants was marked. HEP’s 100th charging station located on by co-financed is Zagreb in Square Tomislav King funds from the EU project EAST-E within which HEP will install 27 fast charging stations with a capacity of 50 kW throughout Croatia. With the planned realization, HEP will have a total of Zagreb. public filling stations in the City of 35 - - - Among the business activities within the tran- the Among the businesswithin activities sition of Croatia to a low-carbon economy, should we mention the accelerated continuation of public fill- 64 which within program, eMobility the ing stations were installed in 2019 out of a total of 117 installed from the beginning of the project until the end of 2019. On the occasion of the Day, National Nikola Tesla HEP marked the commissioning of the first charging stations 16 for electric vehicles on motor ways through co-financed EAST-E andNEXT-E projects, within which HEP will - stations and 4 ultra-fast charg / DC charging AC install 53 fast ers with power above 150kW. For the first time, enabled stations electric own car these charging ers to drive from the border with Slovenia and eMobility continues! eMobility Imissions into air air into Imissions The PP-HP Zagreb and TPP Plomin plants have installed automatic measuring stations for moni - Measure air. surrounding the of quality the toring ments are carried out continuously according to Investing in sustainable environmental protection and responsible impact management 123 - - - ) 3 902 482 (m 5,054 Water Water 14,220 91,460 131,413 quantity Sea City City DIS- canal Palčić Palčić stream stream system system sewage sewage CHARGE Jertovec Jertovec Dubračina BIO device BIO device no treatment no treatment oil separation oil separation oil separation oil separation neutralization and precipitation Imhof precipitator Treatment system Treatment treatment of waste treatment treatment of waste treatment waters. neutralization waters. neutralization waters. neutralization and depositing device device and depositing and depositing device and depositing device in 2020 while the procedure for obtaining a water permit for CTPP Jertovec is in progress. In 2019, concessions for the use of water for the genera tion of electricity for the plants of HPP Golubić. HPP Jaruga and HPP Ozalj expired, so requests - En of Ministry the to sent were extension their for and Energy. Protection vironmental In 2019, there was no pollution or expansion of plants in terms of impact on the spread of - inva in species, pathogens or parasites, reduction sive chang habitat species, indigenous of number the changes sa- in processes, es, changes natural in linity or groundwater levels. No significant envi in 2019 either. recorded spills were ronmental waters waters waters system oily waters oily waters oily waters Wastewater Wastewater clean rainfall technological technological technological Technological Technological sanitary waters sanitary waters sanitary waters sanitary waters sanitary waters fuel management waters from liquid waters from waters and rainfall ) 3 954 482 902 (m 2,502 9,110 Water Water 11,907 265,571 834,410 quantity river Wells Wells Rijeka supply supply supply supply supply system system system system system Krapina SOURCE The Drava The Drava Public water Public water Public water Public water Public water HPP CTPP CTPP PP-HP PLANT OSIJEK TPP-HP ZAGREB VINODOL During March 2019, concessions for water abstraction for technological needs for the plants TPP-HP Zagreb, PP-HP Zagreb, TPP-HP Sisak, TPP-HP Osijek, TPP Plomin and CTPP Jertovec expired. In accordance with the quirements to the Ministry submitted of Environmental - Pro - re tection and Energy and the decisions of Hrvat- ske vode, water permits have been obtained for these plants. In 2019, requests for the issuance of water permits for the abstraction of water for technological needs were sent to Hrvatske vode and water permits were obtained for min, TPP TPP Plo- Osijek, TPP Sisak and PP-HP Zagreb. A water permit was obtained for TPP-HP Zagreb HPP SENJ JERTOVEC ) 3 0 230 634 (m 6,231 4,394 Water Water 20,478 10,456 129,590 629,987 quantity 21,118,600 84,474,400 48,593,202 242,285,498 Sea City lake river river DIS- Čepić Savica Savica system sewage CHARGE The Sava The Sava The Sava The Sava canal-sea BIO device BIO device no treatment no treatment no treatment no treatment no treatment no treatment oil separation oil separation oil separation oil separation lamellar settler Treatment system Treatment treatment of waste treatment treatment of waste treatment treatment of waste treatment treatment of waste treatment waters. neutralization waters. neutralization waters. neutralization waters. neutralization waters. neutralization and depositing device and depositing device and depositing device depot waters waters waters waters oily waters oily waters oily waters oily waters Wastewater Wastewater technological technological technological technological cooling waters cooling waters cooling waters cooling waters sanitary waters sanitary waters sanitary waters sanitary waters rainfall from coal rainfall from ) 3 0 (m 4,394 Water Water 23,062 22,625 447,539 181,525 quantity 1,381,273 48,593,202 259,625,546 105,593,000 river river supply supply supply supply system system system waters) waters) waters) Wells (+ Wells system) SOURCE The Sava The Sava The Sava The Sava The Sava public water Public water Sea (cooling Public water Sea (cooling Public water river (cooling river Bubić burrow TPP TPP SISAK

PLANT RIJEKA

TPP-HP TPP-HP PLOMIN ZAGREB Affected water and water intakes and the types. quantities and discharges of wastewater from thermal from wastewater of discharges and quantities types. the and intakes water and water Affected in 2019 of HEP Proizvodnja production power plants for heat and thermal power plants

HEP group HEP | Report Sustainability and Annual 122 HEP ODS The most significant investments in water management and protection HEP ODS has 12 locations with a valid water per- performed. These are discharges of technolog- mit registered in the Register of Environmental ical wastewater at the locations of transformer in HEP-Proizvodnja Pollution. All 12 locations with water permits be- workshops, transformer warehouses with larger long to the Danube Basin, but except in the case quantities of transformer oil, car washes and food TPP-HP Sisak ter filter in the distribution chamber rinsing of the of Skrad, all wastewater is poured into the pub- preparation and serving facilities. Discharges are Dubračina riverbed was conducted after the con- By replacing the pH control system at the neu- lic drainage system, and before that it is treated usually indirect (except for the Skrad site) and the clusion works on the rehabilitation of the riverbed tralization basins in the wastewater and sludge at wastewater treatment plants. Based on water receiver is a public drainage system with a central for which Hrvatske vode is responsible. permits, regular annual water quality tests are wastewater treatment plant. treatment plant in TPP-HP Sisak, the monitoring of wastewater quality before discharge into the PA HPP South internal drainage system has been improved. The amount of discharged technological wastewater from the HEP ODS plant In 2019, the RHPP Velebit plant underwent a major TPP Plomin overhaul of Unit 1, which included the replacement Total volume of wastewater Distribution area Location of the pump in the drainage system and the pump discharged (m3/god) During heavy rains, and due to the increased in- in the cooling system. In order to determine the Elektra Požega Central warehouse 199.2 flow of rainwater in a short period of time, the presence of oil, a detector of the occurrence of oil existing lamellar sedimentation tank failed to re- Elektra Zabok Central warehouse 8,516.144 in the cooling system was installed, and the de- duce the total value of the suspended matter to Elektra Zagreb Transformer workshop 1,228.36 tector will also be installed in the drainage system. the legally prescribed value. Such events occur Elektra Virovitica Kitchen (HQ) 231 several times a year. Reconstruction of the sedi- In September 2019, work began on the replace- Elektra Virovitica Workshop (HQ) 11,877.6754 mentation tank ensured adequate removal of sus- ment of the drainage system, i.e. the instal- Elektroprimorje Rijeka Skrad (workshop) 9,552.9 pended particles during heavy rainfall. Construc- lation of separators and oil level indicators in Elektroprimorje Rijeka Skrad (biodevice) 118 tion began in 2018, and by the end of the year, all GHPP Orlovac. Instead of the existing well pumps, Elektra Zagreb Autopark 1,986.6 construction work was completed, as well as the new generation drainage pumps have been in- Elektra Zagreb Autopark 2 1,986.6 installation of mechanical equipment. In 2019, a stalled in the drainage system, the so-called sub- Elektra Čakovec Autopark 180 technical inspection was performed at the plant mersible pumping units, which are used in waste- Elektra Čakovec Kitchen (HQ) 66 and a use permit was obtained. water systems and drainage systems in water transfer, which may contain a certain content of Elektra Sisak Carwash 79.741 PA HPP West Annual and Sustainability Report | HEP group Annual solids. In GHPP Vinodol, regular cleaning of the tank and 124 cooling water intake inspection of the cooling wa-

RHPP Velebit underwent a major overhaul of Unit 1 Investing in sustainable environmental protection and responsible impact management 127 HR 1000013 Drava reservoirs HR 1000013 Drava reservoirs HR 1000013 Drava reservoirs HR 1000013 Drava of Drava stream HR 1000014 Upper polje) to Terezino Donja Dubrava (from HR 1000021 Lika carst fields HR 1000022 Velebit HR 1000019 Gorski kotar and north Lika - HR1000019 Gorski kotar and north Lika - - - HR 1000021 Lika carst fields HR 1000022 Velebit - HR 1000026 Krka and surrounding plateau - HR 1000026 Krka and surrounding plateau HR 1000028 Dinara - Areas of protection significant for of protection Areas birds HR 2001307 Drava - accumulation - HR 2001307 Drava accumulation - HR 2001307 Drava accumulation – HR 2001307 Drava of Drava stream HR 5000014 Upper polje) to Terezino Donja Dubrava (from HR 2001012 Ličko polje park Nature HR 5000022 Velebit - Sunger - Fužine HR 2001353 Lokve HR 5000019 Gorski kotar and north Lika HR 2001042 Ličko polje HR2001300 Zebar HR 2000658 Rječina and Zeleni prolaz HR2001345 Vražji Vir HR 5000019 Gorski kotar and north Lika HR 2000592 Ogulin – Plaški area HR 2000642 Kupa HR 2000592 Ogulin – Plaški area HR 2001267 Ričice HR 2001268 Otuča HR 2001269 Obsenica park Nature HR 5000022 Velebit HR 2000641 Zrmanja - HR 2000918 NP Krka wider area HR 2000917 Krčić HR 2000918 NP Krka wider area HR 3000171 Confluence of Krka HR 5000028 Dinara HR 2000936 Rude - Areas of protection significant for wild significant for of protection Areas species and habitats PRODUCTION AREA NORTH PRODUCTION HPP Varaždin HPP Čakovec HPP Dubrava AREA WEST PRODUCTION HES Senj / HPP Senj HES Senj / HPP Sklope HES Vinodol / PHPP Fužine HS Vinodol / RHPP Lepenica HES Vinodol / HPP Vinodol HPP Rijeka Vir HPP Zeleni HPP Gojak HPP Ozalj HPP Lešće AREA SOUTH PRODUCTION RHPP Velebit HPP Golubić HPP Miljacka mHPP Krčić HPP Jaruga HPP Orlovac PS Buško blato HPP / HES HEP Proizvodnja HPPS and ECOLOGICAL NETWORK and ECOLOGICAL HPPS HEP Proizvodnja - - re parks, nature parks, national such as ed areas of significant landscape. gional parks and areas A large number of HEP’s hydropower plants are located in the area of the Natura 2000 ecological protect in partially or fully are some and network,

EP’s EP’s thermal power plants are located within urbanized or industrial areas and not locatedwithin the Natura 2000 are or protected ecological network area

HEP Proizvodnja protection Biodiversity Biodiversity

areas areas at the national level. Some protected - are as are close to production facilities, such as the significant Savica landscape near Thermal power plant – heating plant Zagreb or Thermal power plant – heating plant Osijek near the Mura-Drava border. Regional Park

HEP group HEP | Report Sustainability and Annual 126 Investing in sustainable environmental protection and responsible impact management 129

Haliaeetus albicilla Falco vespertinus Falco Falco peregrinus Falco Grus Milvus migrans Circus aeruginosus Circus marsh harrier, Western cyaneus Circus Hen harrier, pygargus Circus harrier, Montagu’s columbarius Merlin, Falco naumanni Falco Lesser kestrel, falcon, Peregrine Red-footed falcon, Common crane, Gyps fulvus Griffon vulture, White – tailed eagle, Black kite, Haliaetus Osprey, Pernis buzzard, honey European Protected area Protected - - - - canyon Cetina river Significant landscape canyon Cetina river Significant landscape - - - Circaetus gallicus Circaetus Bubo Aquila chrysaetos HPP / HES HPP Orlovac PS Buško blato HPP Peruća HPP Đale since 1961/1981) HPP Zakučac (operating (operating since 1912/1932) HPP Kraljevac PLANT HPP DUBROVNIK HPP Dubrovnik HPP Zavrelje HEP ODS HEP is obliged to plan and structure in build a way that prevents and energy reduces the infra- species. bird protected strictly of extinction of risk Natura 2000 conservation areas important birds and related species to which for energy measures apply have been identified. Within the con servation area Natura 2000 significant forbirds is located just over 5,000 kilometers of overhead medium voltage lines, part of measures The birds. which to threat a pose is not does and isolated Red the on are that species bird 17 of total a cover Species: Bird List of Endangered Golden eagle, Eurasian eagle - owl, eagle Eurasian White stork, Ciconia cicionia eagle, Short- toed snake - - HR 1000029 Cetina HR 1000029 Cetina Trogir and Kozjak HR 1000027 Mosor. hinterland HR 1000029 Cetina HR 1000029 Cetina Areas of protection significant for significant of protection Areas birds Protected area Protected Regional park Mura- Drava Regional park Mura- Drava Regional park Mura- Drava park nature Velebit - - - Zeleni Vir and Vražji prolaz Significant landscape - - - park nature Velebit - Significant landscape Krka – upper stream National park Krka Significant landscape Krka – upper stream Significant landscape Krka – lower stream National park Krka Significant landscape Krka – upper stream Significant landscape - Krčić - - HR 2000929 Cetina river - canyon river HR 2000929 Cetina HR 2000929 Cetina river - canyon - canyon river HR 2000929 Cetina HR 2001352 Mosor HR 2000929 Cetina river - canyon river HR 2000929 Cetina - Areas of protection significant for wild significant of protection Areas species and habitats

HPP Zavrelje HPP DUBROVNIK PLANT HPP DUBROVNIK HPP Dubrovnik HPP Kraljevac HPP Zakučac HPP Đale HPP Peruća HPP / HES HYDROPOWER PLANTS' PRODUCTION AREA NORTH PRODUCTION PLANTS' HYDROPOWER (operating since 1975) HPP Varaždin 1982) (operating since HPP Čakovec 1989) (operating since HPP Dubrava AREA WEST PRODUCTION PLANTS' HYDROPOWER HES Senj / HPP Senj (operating since 1965) HPP Sklope HES Vinodol / PHPP Fužine HES Vinodol / RHPP Lepenica HES Vinodol / HPP Vinodol HPP Rijeka Vir (operating since 1921) HPP Zeleni HPP Gojak HPP Ozalj HPP Lešće AREA SOUTH PRODUCTION PLANTS' HYDROPOWER (operating since 1984) RHPP Velebit HPP Golubić HPP Miljacka (operating since 1906) HPP Jaruga (operating since 1895/1904) (operating since 1988) mHPP Krčić HPP / HES

HEP Proizvodnja system and protected areas system and protected HEP Proizvodnja

HEP group HEP | Report Sustainability and Annual 128 The most important investments tion within the park. In cooperation with Elektra Contribution to the development of action plans Križ and Elektra Sisak, the protection of all poten- for the management of strictly protected species. in the protection of biological tially dangerous sections of the network within As part of the project of the Ministry of Environ- diversity in HEP Proizvodnja the nature park is planned. There have been 70 mental Protection and Energy funded by EU funds dangerous poles identified for protection, and the “Development of proposals for management Production area HPP North. The project docu- protected species living in the area of Drava pow- activities are expected to be completed by mid- plans for strictly protected species (with action mentation for the Reconstruction of HPP Varaž- er plants, i.e. in the area of the UNESCO trans- 2020. plans)”, HEP ODS was recognized as one of the most important stakeholders for strictly protect- din was prepared and reviewed, in which the tech- boundary biosphere reserve Mura-Drava-Danube The application for the LIFE Danube Free Sky ed species of griffon vultures, golden eagles and nical solution of the new fish path was proposed. as well as the Mura-Drava Regional Park and the project has been made, where HEP ODS, Elektro- golden crows. During 2019, a series of working The proposed solution defines a new route and area of the ecological network Natura 2000. Info slavonija Osijek is one of the users in cooperation meetings and workshops with stakeholders were improvement of the fish path. boards were made in cooperation with Public In- with the Kopački rit Nature Park. The concept of held to determine the necessary activities for the stitution Priroda of Varaždin County and the City the project has been given the green light, and the During the rehabilitation of the bridge over the protection of these species. At the end of 2019, of Varaždin. result will be known in mid-2020. The project en- drainage canal of HPP Varaždin, two themati- a conference was held with presentations of the visages the protection of all hazardous lines with- cally different info boards on ornithofauna and results of action plans and concrete measures in the boundaries of the Kopački rit Nature Park related to HEP ODS. This completes the process by applying long-term solutions (insulated guide) of joint development of action plans that are cur- and installing insulation equipment with funding The most important investments rently in the phase of approval and signing by the from European Union funds. in the protection of biological Minister of Environmental Protection and Energy diversity in HEP ODS after which they become binding.

Contribution to the protection of white storks acteristics, can pose a threat to strictly protect- in Croatia. Through almost two decades of im- ed bird species due to electrocution on hazard- plementation of activities for the protection of ous elements (electric shock). Legal obligations white storks within the 14 distribution areas of to implement protection measures to reduce this HEP ODS, a real coexistence has developed be- threat have been recognized within the Natura tween field workers and this strictly protected bird 2000 area of conservation important for birds and species. Although activities on the protection of cooperation has been established with the com- storks nesting on electric poles are regulated by petent public institutions for protected areas and Annual and Sustainability Report | HEP group Annual a voluntary agreement with the Ministry of Envi- interested associations for the protection of birds. ronmental Protection and Energy and 14 public The island of Cres has been recognized as a pri- 130 institutions for protected area management, they ority habitat for the implementation of measures have become an integral part of regular network to protect birds from electrocution, as the main maintenance activities and one of the recogniz- habitat of the highly endangered and legally pro- able symbols of the HEP Group. Thus, in 2019, at tected griffon vulture species. A field visit to the the level of HEP ODS, about 200 activities were lines in 2019 determined a significant reduction carried out that contribute to the safe nesting of in the threat thanks to the installed protective white storks, mostly related to the replacement equipment at key points. Also, for the most criti- or repair of nest holders, installation of protective cal section about five kilometers long (Srem-Plat- equipment and technical assistance in ringing Verin branch), a long-term solution was applied young storks. There are more than 1,000 stork using an insulated conductor and an underground nests on the pillars of HEP ODS, and a special cable. In 2019, over HRK 1.5 million were invested decision of the competent ministry has been ob- in measures to protect endangered bird species. tained for all activities. At the initiative of the representatives of the Lon- Reduction of negative impacts on biodiversity. jsko Polje Nature Park, an agreement was reached Stork protection activities are The power grid, depending on its technical char- on the topic of protection of birds from electrocu- recognized symbol of HEP Group Investing in sustainable environmental protection and responsible impact management 133

3 - - - /kWh(el) or 3 and a net weight of 24,860.3 kg were the stored in Krško NPP, i.e. 1.0971x10-8 m Waste Waste data are also entered every year by March 31st for the previous calendar year in the elec tronic database Environmental Pollution Register (ROO) maintained by the Ministry of Environmen Energy. and tal Protection Krško Nuclear Power management from Waste Plant (NEK). Hrvatska elektroprivreda takes over 50 percent of the annual electricity produced in the Krško Nuclear Power Plant. This makes it - re sponsible for half of the waste produced at this nuclear power plant. During 2019, a total of 287 packages of LILW (low el and radioactive waste) intermediate with a - lev volume of 60.9 m 4,493 µg/kWh(el). In - 2019. high-lev considered is 56 (it replaced fuel were fuel elements spent of or U, kg 22,538.84 i.e. (HLW)), waste radioactive el 4.11x10 µgU/kWh(el). economy - the use of ash in the construc- Circular tion industry.. In cooperation with the Faculty of Civil Engineering, University of Zagreb and CKTL (Central Chemical Technology Laboratory), HEP made an analysis of the wood possibilities biomass of ash in using the construction industry and thus reduced the amount of waste disposed of in landfills and contributedgoals of the circular economy. The results of the to meeting the gener ash wood biomass showed that research used be can plants bioenergy HEP’s of two in ated in the construction industry for the production of project the Within curbs. park and heads overpass potential companies were identified thatuse could ash in their production process after drying as a substitute for minerals and reduce the cost of production. - - - Croatia Croatia does not have a hazardous waste landfill, and energy reuse capacities are limited and it is thermally possible to recover only some types of busi Group’s HEP in generated not are that waste ness processes, authorized waste management companies export hazardous waste. arrival of authorized waste management Until compa the nies, waste is temporarily stored, for a maximum of one year, in warehouses that are regulated in accordance with the provisions of the Ordinance on waste management. HEP’s only landfill islocated on the site of Plo- min thermal power plants where non-hazardous production only waste is its disposed of own and only when companies in the that surroundings have a waste accordance recovery with market permit requirements (e.g. cannot, - pro in duction capacity. plant maintenance) take over part of the non-hazardous waste. During 2019, a total of 8,405.30 tons of non-hazardous waste was disposed of at the landfill in Plomin, which is 11.28 percent of non-hazardous waste produced in Plomin. The largest amount of fly ash generat ed in Plomin is not disposed of in landfillsbut is handed over to cement plants in Croatia and the surrounding area because the quality of fly ash generated in TPP Plomin 2 is much better power than both of operation during generated ash the plants. The amount of disposed non-hazardous - in comparison the pre with decreased has waste - recov a have that companies because year vious amount of waste. a larger ery permit took over on data Group, HEP the in generated waste all For HEP’s in kept are waste of flow and generation the electronic database INFOZOK (Environmental In- to connected also is INFOZOK System). formation Ministry the by maintained database electronic an of Environmental Protection and Energy e-ONTO. For now, TE Plomin is the only one obliged to fill in the e-ONTO because it has a permit for waste disposal. - - - properties of waste and, where possible, is managed in accordance with the order of priority of waste management. All waste generated in the in accordance with le- HEP Group is handed over, waste a to companieshave that gal regulations, - in the appro entered management permit or are an to waste the After handing over register. priate authorized waste management company, in ac- responsibility the regulations, legal with cordance for the waste producer ceases, and the responsi Depend company. authorized the to passes bility ing on the type of waste and the existing waste management system in Croatia, waste is hand ed over for further recovery and disposal. Since - - -

n 2019, HEP Group produced a total of 3,105.98 of total a produced Group HEP 2019, n tons of hazardous waste and 81,001.11 tons of non-hazardous waste. The increase in the amount of hazardous waste of 1,650.49 com

pared to the previous year is a consequence of the of consequence a is year previous the to pared cleaning of fuel oil tanks in thermal power plants. The increase in the amount mainly waste to 9,306.32 by non-haz tons of refers non-hazardous construction waste generated as a result ardous of overhaul, revitalization bioener and in generated ash to due and plants rehabilitation HEP’s of fuel. as chips wood untreated use which plants gy Waste generated in the HEP Group is separated at the place of origin according to the type and Group in HEP management management waste waste hazardous hazardous and non- and Hazardous Hazardous

HEP group HEP | Report Sustainability and Annual 132 Investing in sustainable environmental protection and responsible impact management 135

Biomass ash can be used in construction industry - BPP Sisak - - -

greb. greb. Detailed reports from inspections were given in the Plant Reports and no violations of regu found during the inspections. lations were During 2019, began the cooperation with the com pany Beton Lučko RBG for Contractual Research - chemical and physical analysis of wood chips and ash for the purpose of “Development of in- building novative composites using bio ash”. The cooperation with the Faculty of Civil Engineering from Zagreb also continued within Tarec2 - the “Transformation of ash from project wood bio value”. added with composites building into mass The laboratory continued its faculties during 2019 visits with and cooperation professional with to visits partcourses. the as of Thus, internships. the laboratory of students of the Faculty of Min- ing, Geology and Petroleum Engineering and the Faculty of Chemical Engineering and Technology from Zagreb were organized. Also, several - pro internships fessional of third year students of the Faculty of Chemical Engineering and Technology conducted in CKTL. were

Coordinated inspections inspections Coordinated car- inspections were During 2019, coordinated heat- - plant power Thermal plants the in out ried ing plant Sisak, Thermal power plant - plant Osijek and Power heating plant – heating plant Za- in HEP Proizvodnja During 2019 CKTL conducted the largest number of tests so far and doubled the number samples. The largest share of samples consisted of test of solid biofuels (51%), ash (22%), and coal and (15%). coke At the beginning of signed 2019, with the an certification house agreement TÜV Croatia was for laboratory testing of wood chips and pellets to according certification their of purposes the for the European certification schemes EN Plus and performto testing able be to order In Chips. Good activities under these schemes, CKTL expanded its scope of accreditation in September - accord ing to the requirements of the HRN EN ISO / IEC 17025 standard, thus fulfilling all the conditions to become a testing body for the Good EN Chips Plus certification and schemes that are part of the European umbrella organization Bioenergy test- recognized only the is CKTL now, For Europe. ing laboratory for the certification of pellets and and Southeast Europe. wood chips in the region Record number of tests in the in the tests of number Record Chemical Technology Central Laboratory (CKTL)

HEP group HEP | Report Sustainability and Annual 134 Responsible, sustainable and quality EMPLOYER8 Responsible, sustainable and quality employer 139

- - - - satisfaction of our employees. satisfaction

precisely because it is a significant because it is a significant precisely tion of life, health and dignity of workers and en suring their health and safety. In 2019, HEP d.d. and HEP Upravljanje imovinom has introduced a certified health and safety management sys- to the international standard tem according ISO 45001: 2018. In addition to these two com health certified a introduced has ODS HEP panies, management system. and safety The main goal in 2019 in the field of performance management was to coordinate the functioning sys- reward and management performance the of tem in HEP Opskrba and HEP Trade, with special emphasis on HEP Trade, which introduced this system in 2019. The implementation was carried out in accordance with the Ordinance on Perfor both and Remuneration, and Management mance companies successfully completed the ation period, - evalu which was reflected in the positive assessment of the Supervisory Boards of these companies and the payment of a variable salary Also, health and safety issues are covered by the Collective Agreement and relate to the protec - - - employer. Therefore, we always strive to strive we always Therefore, employer. employer for the HEP Group is important Group for the HEP employer in professional growth, health, safety and and health, safety growth, in professional Being a responsible, sustainable and quality sustainable a responsible, Being raise the attractiveness of all jobs and invest all jobs and invest of raise the attractiveness n 2019, a signed, new according to which all employees, Collective - re Agreement gardless was of employment status, i.e. whether they have a fixed-term or indefiniteemploy- ment contract, exercise the same level of rights. Investments in the education al and profession development of HEP through professional employees development and continued training, as well as the acquisition of additional and new professional and specialist knowledge and skills and compet crucial for the development in areas of HEP. itiveness During the reporting HEP Academy’s internal trainings in all segments period, the of business processes catalog was expanded in - accord of ance with the - needs of re the market HEP Group, of conducted trainings. and evaluations search The safety management system in all HEP Group companies derives from the obligation set by the Occupational Safety and Health Act, company and has each its own regulations tional on safety occupa which further regulate this area. I

employer and quality and quality sustainable sustainable Responsible, Responsible,

HEP group HEP | Report Sustainability and Annual 138 Responsible, sustainable and quality employer 141 102- 41

- -

reward reward for long-term work with the - employ er (according to the conditions set out in this Agreement) Collective extraordinary assistance (according to the conditions set out in this Collective Agree ment) allowance the full amount of the holiday full amount of payment on HEP Day, Christ mas and Easter the full amount of employer the with employment continuous for the salary supplement the full amount of the salary supplement for the total length of service the full amount of the dietary supplement • • • • • • • In addition to the prescribed legal deadlines legal in additionthe prescribed to In notified are business in changes significant which in advance, the Collective Agreement obliges the employer to inform the unions in a timely the about months, man- two every once least at and ner,

- - he Collective Agreement elektroprivreda for concluded Hrvatska on 30 Octo- ber 2019 applies from 1 January to 31 2020 December 2021; the previous one full amount for transportation costs • and collective collective and bargaining Working Working conditions was in force during the reporting 1 January 2018 period to 31 December (from 2019). The Col lective Agreement was concluded by two - repre sentative trade unions (Croatian Electricity Trade Union - HES and the Independent Trade Union of Croatian Electric Power Industry - NSRHEP) and the Association of Employers of Croatian Electric Group HEP are which of members Industry, Power companies. The Collective Agreement applies to of the signatory companies. all employees All workers, regardless of their employment status, i.e. whether they have a fixed-term or indefi nite the employment contract, same - exercise lev el of rights from the Collective Agreement. Also, the Collective Agreement provides for part-time workers: T - - - - defunct company HEP Opskrba in 2019. with HEP Trgovina merged were plinom, which Special attention is paid to defining goals (stra tegic and individual) and measures for their - real ization. In HEP Trgovina, this process was com with a detailed elaboration of pleted successfully, goals all and employee a clearly defined monitor ing of performance at each individual goal. The achievement of goals was assessed by the suc cess of the implementation of all activities of the performance management system and employee remuneration, analysis of the level level, individual and strategic the at goals, of of ment - achieve and acceptance of performance assessments as superviso - by individually employees and whole a ry boards. -

for all employees who exercised this right in the observed year. Change in management due to the necessary - ad justment of management and employees to the in the im- risk a assessed as new situation was plementation of the performance management system in The HEP. company successfully went through a period of adjustment and this did not manifest itself in the quality of the functioning of strategic of achievement final the in or system the and individual goals. It was crucial for HEP Trgo vina to accustom employees covered by to the system in the terms of proper activities fulfill- ment of obligations prescribed by the Ordinance on Performance Management and Remuneration and inclusion in the system of employees of the

HEP group HEP | Report Sustainability and Annual 140 Responsible, sustainable and quality employer 143 - 49.54

oke 78.04 329.40

anagement 151.17 tion plan for the current year. tion plan for the current Compared to 2018, in 2019 the interest of workers workers of interest the 2019 in 2018, to Compared for online education in a shorter period increased and a slightly lower interest was expressed for one-year or several-month professional training and education. The needs for education of employees are determined at the level of - organiza tional units and companies of the HEP and Group with the educa implemented in accordance are 2018 2019 55.61 en 83.17 72.52

omen 33.70 n 2019, HEP Group invested a total of 13,963,864 in the HRK education of employees, of training professional for 7,516,436 HRK which and HRK 4,690,099 for professional training. On average, HRK 1,355 per worker was invested in education, and 37.33 percent of workers were education. some form of in involved Education and and Education professional development Average number hours of training Average in 2019 I - Gas Conference 2019 Gas Conference participated in various participated in various HEP Group employees employees HEP Group expert gatherings in 2019 - corporate corporate values that guide us in our business. The brochure was designed in a simple way make it to easier for new employees to get used to relevant provide the new business environment, information based on which they will get a more detailed insight into HEP’s activities, encourage and achieve image business professional more a and strengthen corporate culture. Some practical experiences and insights are listed that will help com and challenges professional accept to them mit more successfully to professional standards of work. The brochure was published on the in- tranet in Decemberin cooperation 2019 the with the and Strategy Marketing and Market for Sector Sector for Corporate Communications and is for internal use. preparation preparation of plans for restructuring and - privati zation of the employer. Also, during 2016, HEP Group companies made decisions on incentive measures for termination of employment, which are still in force. - Accord the exercising for limit age the decision, the to ing right to incentive measures for retirement is 63.5 can condition this meet who Workers age. of years initiate the conclusion of an agreement to termi- contract with the employer. nate the employment to Hrvatskaelektroprivreda. brochure Welcome The Human Resources Department has prepared a Welcome Brochure to Hrvatska elektroprivreda with the aim of improving the corporate culture and bringing new employees closer to the basic Responsible, sustainable and quality employer 145 ------for employees of HEP Elektra contact centers, contact Elektra HEP of employees for three internal trainings “Effective communi cation with customers” (a total of 21 - employ ees) and internal training “Stress organized were Manage- ment” (13 employees) In-house trainings “Time Management” employees), “Strategic (9 Thinking and Change Management for Workers and (30 employees) Assessors” and internal training “State of the Electricity Market” were organized for HEP Opskrba employees within the work per workers) formance management system (36 as part of the system, performance an management in-house skills” was training organized for the management of “Leadership (7 employees) HEP Trgovina as part of the HEP Balance program, an in- house lecture “Personal Finance for HEP d.d. ment” employees. was organized Manage- (36 workers) at the initiative of the Diversity and Non-Dis crimination Policy Team, two in-house lec tures on diversity in total) held (82 workers were and non-discrimination part of “Review trainings internal professional of data on HEP Proizvodnja d.o.o.” (17 workers) and “Energy production in HEP produc tion plants” (59 workers) and also organized. were (24 workers) NE Krško” “Overhaul of GDPR - 1,763 workers successfully complet ed the training Excel basic - 55 workers successfully com pleted the training workers 57 - tables pivot and Databases Excel successfully completed the training Excel Calculations and mands - 29 workers conditional successfully completed com the training • • • • • • • • • • Through Through the e-learning system of HEP Academy, also organized: online trainings are - - - three three internal trainings for a total of 22 employees spondence” “Business - Corre two internal trainings “Communication skills and business etiquette” for a total of 18 employees • • they they will acquire professional new, and specialist by workers future attracting skills, and knowledge awarding scholarships to full-time students, and cooperating with the scientific and educational that activities different introducing by community will present HEP Group as a socially responsible employer. HEP Academy. The Human Resources Depart- ment project, as an internal educational center of the manages HEP actively Group, the ideas, information and knowledge possessed by our employees and identifies, selects and disseminates key knowledge located inside and organization. In addition to internal trainings that outside the are performed in the classic way, HEP Academy bases its work on the organization of trainings through Moodle, an e-learning system to tailored the needs of the HEP with other Group sectors of the company. In in 2019, HRK cooperation 144,521 was spent for the needs of the and project the procurement of internal employees Group HEP 2,278 of total A e-learning. education for participated in trainings organized by HEP Acad emy in 2019. The HEP by selection Acad of trainings procured emy is based on qualitative and quantitative - re well as trends, and markets of analysis and search units, organizational needs of the to according as - accord is directed process and the procurement ingly. The trainings organized by HEP Academy for the employees of the HEP Group are ly most- trainings of general importance for the entire HEP Academy, by system of Organized the group. following the Department, Resources Human HEP internal trainings were held with internal and external trainers for the needs of HEP Group com panies: - - - - tion related to law, public procurement, account public procurement, to law, tion related ing, auditing, finance, controlling, ISO standards, office management, project management, MBA, information and communication energy, environmental technologies, protection, but also soft / social skills (communication skills, customer - re lations, negotiation, meeting management). Or- in Center Education HEP-Teaching the by ganized programs training specialist attended they Velika, in the field of live workverified by the Ministry of Science and Education, as well as other - profes to related training professional and training sional the electrical profession. In 2019, the system of monitoring ing in and the field report- of education for the needs of the the application through was improved HEP Group Sec the with cooperation In Records”. “Education tor for Human Resources and the Sector for In- formation and Communication Technologies, the existing reports were revised and new reports on the realized educational activities were prepared, and development professional of modules the and ac- The supplemented. were training professional tivity of connecting applications from the field of continued. development professional In accordance with the Long-Term Human Re sources Development Strategy of the HEP Group for the period 2017-2030, work continued on the development of a mentoring system for toring trainees with moni the aim of standardizing the process of introducing new to employees work at the level of the HEP Group, as well as preserving and making optimal use of existing key knowledge. The method of monitoring, reporting and conducting internships has been a defined, proposal for application and support in the establishment of a mentoring system has been - devel oped. A training program for the development of the in assist to manual a and skills mentoring key evaluation and appraisal of trainees’ work have also been prepared. workers continue to plan directing we 2020, In to those types of education by attending which ------

We We invest in additional training which ensures their acquisition of of additional and employees, new professional and specialist knowledge and skills in areas key to the development and com petitiveness of HEP. petitiveness However, the of company HEP. does not have formal programs for skills and lifelong learning which support permanent employment opportunities and help successfully employment. complete Respecting the educational needs of employees, businessand development with accordance in goals, we refer employees to postgraduate stud ies, further education, retraining, targeted fessional development and - pro professional training. Thus, we encourage lifelong learning of workers at all hierarchical levels with the aim of adapting their engage and needs, motivation to market ment, ensuring their professional and personal advancement. and career development In accordance with the need to acquire additional and new knowledge and skills from the scope of expected the and employee the by performed work internal an whole, a as business HEP’s for benefits tender was announced for attending postgraduate specialist and doctoral studies in HEP Group. 2019 Commission motivational for interviews were conducted, and a decision was made for 39 education. of type to this be referred to workers A total of 28 workers were directed to additional training, and given the growing challenges of the technologies new of impact the market, electricity on business and changes in the business envi ronment, the interest of workers for profession al development was expressed primarily in technical the profession - conferences, conferences, - courses, pro seminars, workshops, congresses, fessional meetings CIGRE, MIPRO, CIRED, spe cialist certifiedprograms for trading energy exchanges, on but also other certified programs and job legislation, to (according training professional needs, professional exams, driving exams, occu pational firesafety, protection). Also, the workers attended foreign language courses and educa

HEP group HEP | Report Sustainability and Annual 144 Responsible, sustainable and quality employer 147 - - - nation Policy Adoption Team was which worked diligently established, in the coming months to review the current situation regarding diversity in the HEP Group and to draft the Diversity and Non-Discrimination Policy, which was officially adopted in May 2019. From that moment on, we continuously the promote and Diversity Non-Dis crimination Policy through interactive lectures, online education, publication of articles on Info HEP and HEP Vjesnik. No cases of - re were complaints no i.e. companies, discrimination Group HEP were recorded in due ceived to violation of the Code of Ethics, both internally or by end customers and other - stake holders. In November for families. A company that cares stand- advanced the awarded was d.d. HEP 2019, ard Mamforce Company (Change category), and during the year the of employees HEP d.d. participated in thematic conferences organized within this project and other relevant programs in this area (The Change Code, Equality is better for all, Children are our most important job, Responsible 2.0). parenting for responsible employers In May 2018, the Diversity and Non-Discrimi - - - - At At the end of 2017, In HEP Group companies, the range of coefficients coefficients of range the companies, Group HEP In for salary calculation is definedby the Collective Agreement; the data shown in the table com refer Group HEP to in salary paid lowest average the panies. adopted. Policy Diversity HEP Group signed the Diversity Charter, the aim of which is to encourage the implementation of diversity policy in the business sector. As a signatory to the Diversity committed Charter, itself to adopting the Diversity HEP Policy. has also It commits the HEP Group to develop an - organi zational culture where individual differences and contributions of each employee are recognized encourage to cooperation, together and valued, on based ness and interpersonal relationships the to promote and appreciation, mutual respect values of diversity, equality and non-discrimina tion among management, employees and other that a working environment provide stakeholders, - devel thinking and creative will enable innovative opment of each worker, ensure equal opportuni ties for professional and personal development for all workers, create a working atmosphere free from violent behavior, harassment, victimization to use and discrimination and empower workers existing anti-discrimination mechanisms. Ratio Average Average 6,757.63 12.3% entry salary 2019/2018 Ratio 10.6% omen Ratio Average Average 6,038.89 8.1% 2019/2018 minimal salary tion on the selection or promotion of candidates, including the advertisement (internal or external), the emphasis is on the fact that employers in the HEP Group seek and provide sexes. both of persons for jobs the all to access equal possibility of In the HEP Group, the employer regulated the issue of discrimination with the Ordinance on the and procedure measures for the protection of the dignity of workers for each HEP Group company and the Code of Ethics. - Ratio Average Average 8,568.00 17.8% entry salary 2019/2018 Ratio en 0.1%

ll jobs in the HEP Group on are available equal terms to qualified women, of regardless marital and family men and status, pregnancy and maternity, - sex Ratio Average Average 8,577.21 19.5%

2019/2018 minimal salary

ual orientation and any discriminatory grounds. When publishing the vacancy announcement, it was clearly pointed out that persons of both sexes can apply for the advertised position. Also, the name of the job in the masculine and feminine gender is used in advertising. In the documenta

The ratio of the average minimum and starting salary 2018 gender and comparison with The ratio of the average in 2019 by opportunities and equal equal and Diversity Diversity A

HEP group HEP | Report Sustainability and Annual 146 Performance Health appraisal and safety in and feedback the workplace

he fourth evaluation period for HEP Op- final, development interviews) were carried out skrba in 2019 was joined by the first eval- with the support of the Human Resources De- ertified health and safety management are subject to the highest levels of protection of uation period for HEP Trgovina. The sys- partment. All employees participated in internal systems according to the international the health and safety of workers at work. tem is fully applied and during the year we trainings and courses on the system, attended standard ISO 45001: 2018 has the rul- Tworked on improving the existing functionalities external trainings, all in order to achieve the set ing company HEP d.d. and subsidiaries CHEP ODS and HEP Upravljanje imovinom. of the Work Performance application, as well as individual goals and strategic goals of the com- on the development of new ones, in cooperation pany. At the end of the evaluation period, it was The safety management system in all HEP Group with the Sector for Information and Communica- determined that 71 HEP Opskrba employees meet companies arises from the obligation set by the tion Technologies. the condition for performance appraisal. Of the Occupational Safety and Health Act, and each Employee trainings on safety Out of 90 HEP Opskrba employees, 83 of them met 71 workers who qualify for performance apprais- company has its own Occupational Safety and al, 38 (54%) are women and 33 (46%) are men. In at work is continuously the formal prerequisites for participation in the Health Regulations which further regulate this implemented - rescue exercise Annual and Sustainability Report | HEP group Annual performance management system, which makes HEP Trgovina, 39 employees met the condition for area. Also, health and safety issues are covered at HEP ODS in 2019 up 92% of HEP Opskrba employees. Namely, ac- performance appraisal. Out of 39 employees who by the Collective Agreement and relate to the pro- 148 meet the condition for evaluation in the perfor- cording to the Ordinance on Performance Man- tection of life, health and dignity of workers and mance system, 16 (41%) are women in HEP Trgo- agement and Remuneration, trainees and workers ensuring their health and safety. The total work- vina and 23 (59%) are men. employed for an (un)determined period of less force is represented through the Occupational than six months within the evaluation period do not In the context of a hierarchical structure, the per- Safety and Health Committee, with the election of participate in the performance appraisal system. formance of managers within the performance commissioners of occupational safety and health In 2019, there were 7 (8%) such workers in HEP Op- system is observed through the performance of workers in all organizational units where working skrba. In HEP Trgovina, out of 58 employees, 47 of the organizational unit they manage. In addition, conditions require it. them met the formal prerequisites for participation they were assessed in the developmental aspect, Workers with a high frequency or high risk of in the performance management system, which more precisely in behavioral competencies and illness, as well as other workers who are sub- makes up 81% of the company’s employees. work behavior, as were all other workers. Regard- ject to high risks in business and performance of Within the evaluation period, all activities pre- ing other hierarchical levels, out of the total num- work tasks are generally covered by the Collective scribed by the Ordinance on Performance Man- ber of rated employees, 15 (21%) are managers in agement and Remuneration (conducted annual HEP Opskrba, 56 (79%) are operational managers, Agreement, while internal acts of subsidiaries de- interviews with employees, mandatory semi-an- while 5 (15%) are managers in HEP Trgovina and scribe and recognize such jobs as potential dan- nual and additional consultations as needed and 29 are operational level managers (85%). gers, harms and efforts in the workplace. They Responsible, sustainable and quality employer 151 ------Health Day is an event that, in ble regulations. The programs include workplaces include programs The regulations. ble for jobs located within Hrvatska elektroprivreda. For low-risk jobs and jobs with special powers, training programs designed for distance learning are used, while for all other training, training and practical way. conducted in a theoretical is on Adverse effects health and prevent are safety ed by informing employees and them in the threaten the dangers that about all other workers are instructions work purpose, this For workplace. published, and signs and notices are highlighted. In companies located within the HEP Group, supervision is carried out over the measures application and of rules in the field of occupational protection. and fire safety Health services. The Collective Agreement - pro vides all HEP Group employees with an health annual checkup. Also, all employees who work in high-risk jobs perform periodic examinations to determine their health status and ability to per form jobs. For each job, the worker must obtain a certificatedoctor’s that he is capable of perform ing them, and if a worker has a limited ability to is initiated to determine wheth procedure work, a er the worker can use aids (glasses, hearing aids, etc. on which the work medicine specialist gives consent) to continue to perform these tasks. health. Promoting addition to plenty of positive experiences, vides - pro employees with many new insights into the importance of sports, healthy and and regular eating habits, diet as well as valuable informa numerous and analysis composition body on tion tips from other areas of healthy living. During the Health Day 2019, participants were able to analyze body composition by weighing on a scale, tanita get useful advice from nutritionists to im- variety a and habits, eating change and diet prove workers workers perform during working hours. For the implementation of training and / or training, - pro har- and 2019 in revised were used that are grams monized with all changes in the law and applica - - - - Procedures for Risk identification and training. hazard identification, risk assessment cident and ac- investigation are regulated by the Hazard Identification and Risk Assessment Procedure. This procedure determines the procedures and responsibilities of the occupational health safety and management system of the documented scope of HEP Group companies for continuous identification of hazards, harmfulness and work nec of determination and assessment risk effort, essary occupational in the field of health controls and safety management. The procedure defines the ways and methods of making a risk assessment, the mandatory contents covered assessment and the data on which as- the risk by the sessment is based the regarding classification of work. harmfulness and work-related hazards, - Pres the by appointed expertgroup, The working ident of the Management Board and about twenty gathering members from HEP Group compa nies and organizational units, is in charge of harmonizing, consolidating and coordinating work, existing valid acts and instructions, and drafting plans and programs of measures to improve oc cupational safety and health and safety from fire with familiar are who themselves, Workers HEP. in all the elements of hazards and risks they face, part in the risk assessment for jobs. take Every accident at work must be investigated to determine neg whetherdue to the accident was ligent work, unprofessional and improperly used means of work or the accident occurred for some reason beyond the worker’s control at the time. Based on the obtained data, assessed and adopted, and attempts are protection are ures meas- the made to anticipate actions that can prevent of the accident. recurrence Worker training is carried out when continuously, hiring new workers, changes in jobs, changes in work technology and after the occurrence of an injury at work. The training is conducted in accordance with the work processes and jobs that - - 6 3 0 4 21 124 158 2019 4 2 4 1 7 109 127 dioxide), dioxide), hydrogen chloride (HCl), formaldehyde meas- were parameters These dust. total O), (CH2 25 measuring at points within the engine ured room of HPP Dubrovnik. Based on the minutes, an expert opinion was prepared on the personal protective equipment that had to be used during the plant. works in the conduct of reconstruction carried out were activities intensive During 2019, to replace the destroyed and repair the damaged equipment, with the aim of establishing the func tionality of the equipment at the level it was be of safety. with a high degree the fire fore ur- an Dubrovnik, HPP in fire the after Immediately production Proizvodnja HEP all of inspection gent of safety the improve To out. carried was facilities facilities and the working environment, a special established team was power that visited all plants regulations their complianceall with and checked - safe issues of safety, and instructions governing ty at work and fire protection. The cause and cir- are Dubrovnik HPP at accident the of cumstances the subject of an investigation and judicial - pro still ongoing. ceedings, which are Due to the tragic accident and possible traumatic consequences, all employees at the power plant were provided with upon psychological request. In relation assistance to the families injured of workers, the HEP has fulfilled allarising the rights from the Collective and other regulations. HEP Group Agreement for the 2018 ------

HEP Plin HEP Elektra TOTAL HEP ODS HEP Toplinarstvo Company HEP d.d. HEP Proizvodnja

Compared Compared to the the number previous year, of in- three of injuries fatal with increased, work at juries Jan- on out broke that fire the in Namely, workers. Dubrovnik the of room engine the in 2019 10, uary hydroelectric power plant, three workers of the power plant were killed, and six workers were injured. Significant material damage occurred, and electricity production was interrupted. The event detrimental impact on the environ a did not have ment, nor on the health and safety of the popula Immediately plant. power the of vicinity the in tion after the accident, an internal audit was conduct ed, and a crisis team was established. the Prior commencement to of rehabilitation works, safe terms established in working conditions were of air quality and cleanliness, protection of working the environment from the consequences of fire and checking the stability and safety of the construction of HPP Dubrovnik. As proof and confirmationthe of conducted the cleaning success and remediation of burned of all and fire-contaminated surfacesengine room and other underground parts of the of the conduct company authorized an Dubrovnik, HPP ed the measurement of chemical hazards in the and composed the plant, in the environment work on the inspection. includ records Measurements fibers glass of number the of determination the ed in the dust and the concentration of the follow ing compounds: aromatic PAH-polycyclic - hydro carbons, hydrocarbons monoxide (CO), carbon Injuries at work according to companies in 2019 to companies in work according Injuries at

HEP group HEP | Report Sustainability and Annual 150 Responsible, sustainable and quality employer 153 Total 782 167 60-65 7,979 2,272 1,429 440 1,319 385 10,251 55-60 50-55 Male Female 1,120 313 1,267 316 40-45 45-50 693 293 35-40 456 120 657 212 30-35 25-30 256 26 18-25 Age Employees according to age age to according Employees 0% 8.4% 100% 100% 100% 100% 42.6% 83.5% 16.5% 57.4% 47.5% 44.1% 77.8% 22.2% % out of the total % out of the total no. of employees no. of employees 0 49 96 19 66 858 115 115 4,871 4,522 7,979 2,272 10,251 10,251 31/12/2019 31/12/2019 than ever it is necessary to encourage physical - provid Group HEP the 2019, in Therefore, activity. ed its employees with the use of the MultiSport card, with which employees can participate various sports facilities daily, in and in 2019 it was employees. 1,771 HEP Group used by 0.9% 7.9% 100% 100% 100% 100% 40.9% 78.3% 21.7% 58.3% 48.7% 43.4% 78.6% 21.4% - % out of the total % out of the total no. of employees no. of employees 1 47 90 25 67 782 115 115 4,814 4,285 7,766 2,115 9,881 9,881 31/12/2018 31/12/2018 <30 <30 50> 50> MALE MALE 30 - 50 30 - 50 FEMALE FEMALE

TOTAL TOTAL AGE GROUP AGE GENDER AGE GROUP AGE YEAR YEAR TOTAL GENDER TOTAL

Management in 2019 HEP people in numbers numbers in HEP people in 2019 number of employees Total of tips for tasty and nutritious meals, as well as posture. on proper physiotherapist advice Regular physical activity is one of the prerequi sites for a healthy and quality life. Given that the sedentary a imposes that lifestyle and age modern lifestyle and thus insufficientmovement, more

HEP group HEP | Report Sustainability and Annual 152 Responsible, sustainable and quality employer 155 0 2 7 0 4 2 4 6 3 2 9 2 1 17 21 19 16 16 10 35 31 33 174 Departure 2019 Departure 0 0 5 4 0 3 0 5 5 5 5 9 10 10 11 14 84 66 74 397 125 601 231 Departure 2018 Departure do 18 18-25 25-30 30-35 35-40 40-45 45-50 50-55 55-60 60-65 65-70 18-25 25-30 30-35 35-40 40-45 45-50 50-55 60-65 65-70 55-60 TOTAL TOTAL Age group 1 2 2 0 0 9 0 0 1 79 79 44 34 23 13 20 44 35 22 11 109 386 187 Employed 2019 Employed 2 5 5 2 0 6 3 4 0 0 0 89 51 28 19 14 35 18 16 10 92 112 327 Employed 2018 Employed do 18 18-25 25-30 30-35 35-40 40-45 45-50 50-55 55-60 60-65 65-70 18-25 25-30 30-35 35-40 40-45 45-50 50-55 60-65 65-70 55-60 TOTAL TOTAL Age group MALE FEMALE New employees and employee turnover turnover employee and New employees Age 74 13 60-65 Open end 29 86 16 53 134 587 918 890 1,470 3,796 7,979 MALE 145 24 55-60 7,820 2,175 104 20 50-55 Male Female 55 10 45-50 2 5 5 28 50 41 34 801 275 1,031 2,272 FEMALE Total 25 10 40-45 10,251 Female 80 5 1 35-40 159 97 Total 497 9 2 Male 30-35 Female 417 0 0 Male 25-30

no skills Total associate degree elementary school master's degree degree master's degree Bachelor’s secondary school highly skilled skilled semi-skilled Education degree Education doctoral degree

Persons with disability Persons Fixed term Fixed Employees according to contract type contract type to according Employees Educational structure of employees of employees structure Educational

HEP group HEP | Report Sustainability and Annual 154 Responsible, sustainable and quality employer 157 339 2024 250 2023 Total 2022 908 191 84 2021 44 2020 Number of workers fulfilling conditions for retirement in the next five years in the next five retirement conditions for fulfilling workers Number of 7% 6% 5% 2% 8% 6% 8% -2% 24% 33% 14% RATIO M/F RATIO MALE Total ratio Total 9,135.69 8,101.41 7,514.70 7,680.87 9,907.08 20,941.78 20,197.65 15,123.62 11,296.86 12,134.69 Monthly amount FEMALE 8,583.10 6,097.87 7,402.26 9,087.70 6,763.08 9,361.64 21,336.39 18,872.75 14,409.84 11,276.40 Total 146 7% 5% 6% 8% 2% 6% 8% -2% 33% 24% 14% RATIO M/F RATIO MALE Total ratio Total Average gross salaries in 2019 (HRK) salaries in 2019 gross Average 97,216.92 92,170.48 90,176.39 251,301.39 242,371.80 181,483.42 109,628.23 145,616.25 135,562.31 118,884.98 Annual amount Annual 122 Female FEMALE 73,174.44 81,156.96 88,827.13 256,036.74 226,473.03 172,918.06 102,997.17 135,316.86 109,052.41 112,339.67 24 Male

EDUCATION doctoral degree master's degree Bachelor’s Bachelor’s degree semi-skilled skilled associate degree highly skilled no skills secondary school elementary school

Parental leave Parental Salaries

HEP group HEP | Report Sustainability and Annual 156 Stakeholder DIALOGUE transparent communication, and education 9 In 2019 we continued informing stakeholders on new and existing projects - visualization of the future HPP Kosinj

Encouraging growth and development of society is one of the tasks of large corporations. Therefore, HEP continued to implement socially responsible project in 2019, aimed at encouraging youth, environmental protection, art and culture heritage, science and society, humanitarian actions, scholarships for pupils and students, acquisition of ICT equipment for elementary schools to encourage IT literacy.

Stakeholder he company also continued to provide ty of the duration of assessment procedures for professional internships for pupils and environmental impact assessment processes and students through work and direct contact ecological network impact processes in which the dialogue, with the business environment. The pro- public and the interested public are involved. This Tjects were implemented through the publication risk is beyond HEP’s influence, but all procedures of public tenders on HEP’s website. during 2019 were carried out in accordance with transparent In 2019, HEP continued to award journalists for the prescribed deadlines. their best works in the field of environmental pro- Space usage fees. In 2019, HEP Proizvodnja di- tection to encourage monitoring of the impact of rected a total of HRK 91.9 million in fees to the Annual and Sustainability Report | HEP group Annual the project and activities on the environment and local self-government units (municipalities and communication, informing the public. To encourage community cities) in whose area its power plants are located 160 161 investment in energy efficiency and renewable for the use of space used by electricity generation energy projects, in 2019, HEP continued with do- plants. The fee is paid on the basis of a decision and education nations from ZelEn. The total amount of all these of the Government of the Republic of Croatia and donations in 2019 thus reached HRK 14.4 million. represents compensation for the avoided benefit In addition to socially responsible projects, HEP is of the local community that cannot use the space involved in public information procedures for new occupied by power plants for other economic and existing projects that require an assessment purpose. The basic purpose of using the funds of the need to assess the impact of the project on raised is to finance the preparation of projects for the environment, environmental impact assess- European energy efficiency and renewable ener- ment processes and ecological network impact gy funds, preparation of spatial planning docu- processes. In 2019, two projects were implement- mentation and strategic environmental assessed in which property and legal relations were re- ment for energy projects, preparation of energy solved, as well as a project to improve the water infrastructure in business zones and technology regime in coordination with Hrvatske vode. The parks, building renovation projects and project most significant risk here relates to the uncertain- aimed to help vulnerable customers. Stakeholder dialogue, transparent communication, and education 163

anniversary of th 25 at the TPP-HP Zagreb at the TPP-HP to pupils IMAM ŽICU! award ------award ceremony for the students IMAM th IMAM ŽICU! for the jubilee 25th time! The - jubi lee 25 ŽICU!, which HEP to awards primary and second ary school students for achievements in the field of mathematics, physics and electrical engineer ing, was held in October 2019. A total of 37 students received the award in the amount of HRK 3,000, a which total of makes 787 the Among 1995. since awarded has HEP students schools whosestudents awards, won the most the XV Gymnasium from Zagreb stands out with eight awarded students, while School Vladimir of Natural Sciences Prelog from Zagreb, Private and Economics of School Futura and Gymnasium Informatics from Zagreb and Franjo Petrić Gym- nasium from Zadar have two awarded students each. Winners of the award for the school 2018/2019 are all students who won year first prize in national competitions in mathematics and phys in works experimental of exhibition public and ics physics, as well as students of secondary voca tional schools who won the first three places in the national competition in the category of Elec trical Installations. HEP’s of part is action This our little geniuses. For within the cooperationactivities the educa with tion system. As a holder of energy activities that require investments in expertise and knowledge, and as a company of strategic Croatia, HEP has recognized that investing importance in the for development of young people’s knowledge is an incentive for their further development and suc public the sensitize to is goal our Therefore, cess. about the state of equipment IT in our schools, to - - - - - HEP Group A total of 1,165 valid applications

tition. for the competition for do received were s many as 278 organizations received received organizations many as 278 s funding in the annual donation compe

nations “Light on the joint way 2019”, and selected HEP projects and programs of 278 associations, institutions and civil society organizations for co-financing. These organizations thus divided the grant fund for projects and programs into five youth, categories: environment, arts and and humanitarian action. science and society, cultural heritage, Continuing with scholarship program. has a great influence on the only with the number of employees, but also labor with market, not its needs for various profiles of experts. In each part of the HEP Group, the needs for new young workers are considered on an annual basis. For the school and academic conditions year for 2018/2019 awarding the seven scholarships full-time students of to the final grades of second ary schools and 14 scholarships to full-time students of graduate studies in technical speciali zations were met. For the school and academic year 2019/2020 at the of level the HEP Group, the need for scholarships for 89 full-time students in full- 40 and schools secondary of grades final the time graduate students in technical professions was expressed, and the implementation target By 2020. for planned is tender scholarship of the ed planning of scholarship needs for pupils and students, we provide professional staff that are importantsta- successful functioning and the for system. bility of the entire excellence Awarding Awarding A

HEP group HEP | Report Sustainability and Annual 162 Stakeholder dialogue, transparent communication, and education 165 - -

- re the and Varaždin, in School ondaryVocational placement of lighting and remote control at the Elementary Gaja Ljudevita School in Osijek. Story. HEP Opskrba: Our ZelEn HEP Opskrba launched in cooperation new in 2019 - action a Association, deals with which Argonaut the with - and pro protection and environmental nature moting sustainable development, the primarily island of Murter, Murter area and on the Kornati archipelago, HEP Opskrba employees organized cleaning of the hard-to-reach northern coast of Murter. The location was chosen because it is a difficult toreach place and therefore, unlike most and bays the coast on the island, this coastline is quite polluted by waste caused by sea currents and waves. For fiveyears in arow, HEP Opskrba employees and ZelEn customers have been cleaning the en vironment and planting trees around HEP’s hydroelectric power plants Ozalj, Kraljevac, Čako- vec, Zakučac and Vinodol with the aim of raising awareness of responsible business towards nature and the environment in which they live and work. The action “100 Green Trees” resulted in a significantly higher number of planted trees than new a launched Opskrba HEP 2019 in so planned, Story”.action “Our ZelEn the construction: the installation of a heat pump the Sec integratedpowerat and an plant solar - Funds Funds projects projects In 2019, donated energy elEn donation for energy efficiency. elEn donation for energy efficiency. generated by HEP Opskrba through sale of electricity the with a guarantee of origin exclusively from renewable sources are are collected in the fund from which projects in the field ofrenewable energy sources, energy efficiency and systematic energy management are implemented at public sector facilities. care for population. socially vulnerable categories of the In these facilities, in addition to improving ener At raised. also is living of quality the efficiency, gy the same time, these projects increase the - sav ings achieved by the HEP Group and thus reduce the Group’s financial liabilities under the savings liability system. By the end of 2019, nine projects worth almost HRK 2.4 million were realized from Fund. the ZelEn Allocation of funds in the name of compensation ZelEn. for the product efficiencyprojects were carried out in the Mor- ski konjić Kindergarten in Slatine on the island of Čiovo, in the administrative building of the Osijek Kindergarten in Osijek and in the Family Center building in Požega. A new public for the allocation of funds call in the name of the fee for the product ZelEn for with 2019, a total value of one million kuna, been has published. also Two projects were selected for Green green for communities Z - - - of Engineering in Rijeka, the Faculty of Science in Zagreb and the FSB. We also participated in two FSB by organized workshops Dating Speed Career and FER in Zagreb. In addition to the opportunity to find a job,young people are given the opportu - nity to practice their presentation skills and get the employer. from immediate feedback HEP monthly provides financial supportor schol arships for the children of its deceased - employ ees. In cooperation with the Rotary Club Zagreb Kaptol, through the humanitarian into action Life”, the “Step company awards scholarships for children without adequate parental care, which also supports people. the education of young for the highest than two decades of awards More May of occasion the On quality journalistic works. 22, the International Day for Biological Diversity and the Day of Nature Protection in the Repub lic of Croatia, the award for Degenija” “Velebit the environmental of field the in work journalistic best in written, radio and tele nature and protection vision journalism and newspaper photography in 2018 was awarded. This annual award for the best journalistic work in environmental protection was initiated in 1998 by the Association of Environmental Journalists of the Croatian Journalists’ Association and the company APO, which was succeeded in 2016 by Opskrba. HEP - Group HEP the of member another In the category of works published in the press and on the Internet, the winner of the monetary award and plaque “Velebit Degenija” for 2018 is Željko Bukša for the text “The fewer shows costs the are lower”, published in magazine the EGE. professional The winner of the category award of in television the works is Jagoda Bastalić for a series of reports on HRT’s the on broadcast illegal Obrovački, Zaton in grit disposal waste of show “Labyrinth”. Goran Šafarek won the award in the category of photography-reportage - re the in for River Drava the of photographs of series a published crossroads” a at river a “Drava, portage in the magazine Meridijani. In the category of ra- the in pollution oil fuel on report the for reports dio port of Bršica in the Raška the Bay, winner of the is award Mirjana the from Žugec Pavičić Croatian Radio. - - - -

give give our contribution to the Croatian education al system and to enable even better development of the youngest. and progress Together with the donation cycle for 2019, HEP as provided many as 250 computers for students in 74 primary schools throughout Croatia as part total The campaign. geniuses” little our “For the of 1.25 HRK almost is equipment IT donated of value million. New computers are donated to schools to enough computers relation in not have do that the number of students, schools with inadequate areas in are or equipment computer outdated and of special state concern. Cooperation with scientific and educational community. Within the program of professional ternships, HEP enables students to gain practical in- experience through work and direct contact with the business environment, under the profession al supervision of a From year mentor. to the year, - performingpro in students and pupils of interest at HEP is increasing. practice fessional on business cooperation agreement an 2019, In in areas of common interest was signed with the in Zagreb. of Economics Faculty The internship in 2019 was completed by almost 500 interns; 373 students from industrial-craft, vocational, (maritime) technical, electrical engi neering, mechanical, economicand administrative schools and 113 students, mostly mechan engineering,ical electrical engineering, chemical engineering and technology, computer and science information technology, and to a lesser extent social sciences - fields of law. We also economicssuccessfully implement the - and profes sional internships of EFFECTUS students based on business cooperation. on a signed agreement We are also involved in Program Internship Summer the as such programs professional internship of the Faculty of Electrical Engineering and Com- puting in Zagreb, then the industrial internship of the Faculty of Mechanical Engineering and Naval of Faculty system), (Atlantis Zagreb in Architecture Information and Computing Engineering, Electrical portal). (Stup Osijek Osijek FERIT Technology or- fairs career several in participated we 2019, In ganized by universities: FER (twice), the Faculty

HEP group HEP | Report Sustainability and Annual 164 Stakeholder dialogue, transparent communication, and education 167 - - - HEP-Proizvodnja is tember 2019 by HEP-Proizvodnja, Hrvatske vode and The Karlovac County. agreement aims to en sure the optimization of the water regime of the - hydro of improvement the and River, Dobra Donja logical, hydraulic and geomorphological parame ters, as well as the reduction of possible risks to the environment. Also, by the decision of Hrvat- ske vode from September 24, a joint operational body was appointed, in which HEP Proizvodnja representatives participate, with the task of ini- tiating all necessary activities for the permanent solution of the observed phenomena on the river Donja Dobra. in the future Resolving relations property-legal Drežničko polje Retention. planning a project in Drežničko polje that would the in retained is water which in period the extend for used be would which retention, natural existing additional production in the Gojak and Lešće hydroelectric power plants. By mid-2018, coverage hydroelectric hydroelectric power plant Lešće and preparation of regime ”. The agreement was signed in Sep - During the operation of HPP Lešće, HPP of operation the During mprovement of water regime downstream of downstream of water regime mprovement Lešće. HPP 2010, thewhich has been in operation since changed conditions of the water regime in the Engagement Engagement informing and stakeholders HEP about projects Dobra riverbed downstream of inten- more to contributed have plant power tric the - hydroelec sive coastal erosion. The impacts of HPP Lešće are monitored continuously and in a coordinated based manner, on the Agreement on Cooperation between HEP-Proizvodnja and Hrvatske vode for the period 2014-2018, which has been extended for the period 2019-2022. Observed damages on the downstream course of Donja Dobra are being in HEP-Proizvodnja by financed is which repaired, accordance with the established annual activity plans. Recognizing the interest of the local community, 2019 a in joint March commission was appointed to prepare the signing of the Partnership Agree ment on the Project “Improvement of water - re gime due to the operation of hydropower Lešće plant on the river Donja Dobra, downstream of I - - ness sector on children’s rights and the Advisory Body for Children’s Rights and Corporate Social Responsibility, which will work under UNICEF to realize children’s rights in the business commu nity. As one of the important business entities in Croatia with great social impact, HEP also participated in this research whose main objectives to understand were the extent to which children’s rights are recognized as part of corporate social responsibility in Croatia and to identify the most important barriers and motivating companies and other stakeholders factors in Croatia for for rights. engagement on children’s greater projects projects such as a donation to the Croatian Na- tional Theater Split for the adaptation of theater space for people with disabilities, support to Sveti Center, Health Metković - institutions health Duh Hospital, Osijek Clinical Clinical Hospital, Hospital and Zagreb Municipality Lovinac, also but donations for the realization of the project surgery”. “Fairytale the At HEP participated in the UNICEF survey. conference “Children are our work” held in November most 2019, the results of important the first national survey on the impact of the busi

With the desire to supportWith the desire and ensembles, sights and events. with the slogan “Proud light of with the slogan “Proud uring 2019, HEP continued support to national and regional to projects provide in the field of culture and tradition. Some of our most prominent partners are Sin-

Croatian culture”, which includes culture”, Croatian

HEP has for many years supportedHEP has for many years tradition and heritage. In 2019, the HEP KULTURA campaign continued HEP KULTURA numerous professional and amateur professional numerous preserve cultural heritage in Croatia, cultural heritage in Croatia, preserve but also projects aimed at preserving but also projects projects in the field of art projects and culture,

With the support to culture, the company participated and launched a number of humanitarian projects and humanitarian humanitarian and culture, health health culture, Supportfor

jska alka, Dubrovnik Summer Festival, Vinkovci Autumn, Klapa Festival in Omiš, but also projects of Croatian national theaters and regional and lo- organizations. cultural cal

HEP group HEP | Report Sustainability and Annual 166 Stakeholder dialogue, transparent communication, and education 169 ------for TPP Plomin 2, TPP Zagreb, TPP Osijek and and TPP Osijek Plomin Zagreb, TPP for TPP 2, TPP Sisak. Pursuant to the Environmental - Pro tection Act and the EC on Implementing establishing Decision conclusions for large combus tion plants published in the Official Journal of the EU on 31 December 2017, in 2019 HEP sent - re quests for the implementation of procedures for permit conditions with environmental reviewing plants. HEP’s Decision Commission European the Information on the procedures for reviewing the conditions of environmental permits for harmo nization with the Decision was published on the website of the Ministry of Environmental Protec tion and Energy, together with expert bases setting out the content of reviewing and amending the conditions of environmental permits. Based Environmental of Ministry the expertise, expert on new on decisions issue will Energy and Protection permits for these plants in 2020. environmental Cooperation energy with partners on renewable projects. Exploring the possibility of developing and building renewable energy projects and inte grating ready-made RES projects or those with a high level of development into its product portfolio, in February 2019 HEP issued a public invitation to interested partners to express interest in in Croatia. and selling RES projects developing The invitation was sent to local self-government units for joint preparation of development doc umentation for solar power plant (SE) in selling and legal or natural persons interested projects in pow non-integrated (stand-alone) SE projects er development greater than or equal to 2 wind farms MW, in development or operation and hy- power a operating or developing plants. dropower local 70 than More MW. 1 equal to or than greater self-government units responded to the call, and

- - - - From 15 January to 13 February 2019, the public inspection for the draft Decision on Amendments to the Conditions from the Decision on Integrated Environmental Protection Conditions for the TPP Rijeka lasted. Information on Plant the request and public insight, as well as the draft Decision, are published on the MEPE website. Feb- 25 On permit for TPP Plomin 1. Environmental ruary 2019, the Ministry of Environmental tection - Pro and Energy issued a Decision on the en vironmental permit for TPP Plomin 1, which was published on the Ministry’s website. For the Ex- pert Basis for Amendments to the Environmental Permit Conditions for the existing TPP Plomin 1, publica hearing and public inspection con was the of inspection public a and 2018, during ducted draft Decision on Environmental Permit was con back- expert information, All 2019. early in ducted published on decisions and solutions are ground, the MEPE website. theconditions of the for reviewing Procedures permit for compliance with the environmental Com Decision on Conclusions of the European (BAT) Techniques mission on Best Available sess the impact of removing the K7 boiler and the and boiler K7 the removing of impact the sess NTK3 boiler steam low-pressure a of construction at the EL-TO Zagreb site on the environment. In October 2019, the Ministry of Environmental - Pro tection and Energy adopted and published on its not is which it to Decisionwebsite a according necessary to carry out the procedure of assessing the impact of the project on the environment the of acceptability the of assessment main the or on the ecological network. project Modification of conditions from the Decision on conditions protection integrated environmental for the TPP Rijeka plant. ------bility of the project on the ecological network. The network. ecological the on project the of bility need that to be measures the decision prescribes Đale. implemented for SHPP In Zagreb. power plant TE-TO Small hydroelectric December 2019, HEP submitted a request to the Ministry of Environmental Protection and Energy for an assessment of the need to assess the impact of the project on the environment and sub mitted the Environmental Protection Study the small for hydropower plant TE-TO Zagreb with a capacity of 84.3 kW. Pursuant to the Decision of the Ministry of Environmental Protection and Energy from January 2020, which, like the Infor mation and was the published Study, on the ministry’s website, it is not necessary to conduct an or a impact assessment procedure environmental major assessment of the project’s acceptability. The procedure can be carried out with the imple mentation of the measures prescribed by the de cision. Sinjski. Solar power plant Obrovac In May 2019, the Environmental Protection Study and Informa- tion on HEP’s request for an assessment of the need to assess the environmental impact of the 60 MW Obrovac Sinjski solar power plant published were on the Ministry of Environmental - Pro tection and Energy website. In September 2019, the ministry issued a Decision that for proce the the out carry to necessary said is it intervention dure of assessing the impact of the intervention on the environment and the main assessment of the acceptability of the intervention for the eco pe a for issued was decision The network. logical HEP, period that in and years, two of validity of riod as should the submit project a holder, request for the implementation of the environmental impact assessment procedure. of boiler K7 and construction of Removal at the location steam boiler NTK3 low-pressure Zagreb. EL-TO In September 2019, HEP submitted a request to the Ministry Protection and of Energy to assess Environmental the need to as------

zones zones were defined,and activities were launched about detail more in population local the inform to the project. The landowners and members of the Drežnica Local Board are acquainted situation with and the the planned dynamics of the - pro ject, the location of future buildings with equip ment and the plan of further activities to initiate the procedure of property and legal affairs. The procedures for the purchase of land plots in the coverage area, started in September 2018, were carried out based on a subdivision study trans- parently and at a price determined by court experts. in the future Resolving property-legal relations During 2019, the accumulation of HPP Kosinj. bases were prepared for a fair solution of prop erty-legal i.e. compensation of property relations, owners in the settlements located on the location of the future Kosinj reservoir. The goal of HEP is solutioncommunication in a the lo- with reach to cal population, i.e. owners of land and buildings, and in accordance with the legal framework. The documentation that will be the basis for defining be will compensation owner of variant optimal the based on the data that will be obtained by a new is above the All HEP. by financed survey cadastral prepared in cooperation with the local - self-gov ernment competent and the the coun bodies at ty and state level. The method of compensation to landowners thus determined be presented will at public exhibitions planned to be held in 2020. Small hydroelectric power plant Đale. The Minis- try of Environmental Protection and Energy pub lished on its website the Information on request for an assessment of HEP’s the need to assess the environmental impact of the small 6.4 Đale plant hydropower together with the Environ MW February In 2019. June in Study Protection mental 2020, the Ministry of Environmental Protection and Energy issued a Decision according to which it is not necessary to carry out the procedure of assessing the impact of the project on the envi ronment or the main assessment of the accepta

HEP group HEP | Report Sustainability and Annual 168 Stakeholder dialogue, transparent communication, and education 171 - the Sectoral Supplement for Energy. A working group composed of more than 30 members from all parts of the HEP Group worked on the prepa ration of the report, and the online questionnaire also included stakeholders of the 71 of them HEP of different profiles. Group, They, as well as members of HEP’s working group, commented on the choice of material issues and the assess- contribution ment of the potential of HEP Group’s to achieving certain global goals of sustainable the in increasingly been have which development, focus of politics and the business sector. ccording ccording to the expert jury of the Green HEP Award, made Frog the - greatest pro gress in non-financialreporting in 2018 among Croatian companies. The award for progress, presented in the HEP Group Sustain- Group HEP the in presented progress, for ability Report for 2017, was given to HEP at the conference “Investing in Sustainability” Croatia Deloitte held by organized Zagreb, in 2019 April in and in cooperation with the Croatian Employers’ Association and the Global Compact Network of Croatia. GRI Standard, and to increase also includes transparency, data according to it the indicators of Award-winning Award-winning our of progress sustainability reports A in Zagreb on Stjepan Radić Square ELEN charger ------emissions and preservingemissions the en 2

vironment. vironment. To ensure suitable locations for the installation of charging stations, HEP enters into cooperation agreements municipalities and cities with interested the for HEP of project development the on construction of infrastructure for - charg ing electric vehicles. a dozen commercial projects were offered offered were projects commercial dozen a anal- the on Based purchase. potential for ysis of received expressions of interest and communication with local - self-gov ernment units as potential partners, HEP of development the on agreements signed solar power plant projects with five municipalities and cities by the end of 2019 signing agree more and initiated several ments. The total power of the mentioned while 100 megawatts is 120 MW, projects power solar of power total potential the is based on communica plants, which HEP, tion with local self-government units, be gan to develop independently at several other locations. Working with the local community helps us accelerate the realization of our newable - re development scenario. On the cities can other hand, municipalities and development the in strongly more engage of sustainable energy infrastructure contribute their to which will their area, in development. economic and overall on the de- Cooperation with stakeholders for infrastructure of charging velopment electric vehicles. For the successful im - - devel electromobility the of plementation opment project, it is important to coop local interested erate with stakeholders, governments (cities and municipalities) an in- who have and other stakeholders public and modernize to desire and terest transportprivate and contribute to reduc ing CO

HEP group HEP | Report Sustainability and Annual 170 ABOUT THIS REPORT About this report 175 7 13 99 99 29 29 32 12 12 12 13 12 Page Page 13, 65 92 -98 143-157 Scale of the organization and other workers Information on employees Supply chain and its supply chain Significant changes to the organization Precautionary Principle or approach External initiatives Membership of associations senior decision-maker Statement from impacts, risks, and opportunities Key Name of the organization and serviceActivities, brands, products, Location of headquarters Location of operations Ownership and legal form served Markets 102-8 102-10 102-11 102-12 102-13 Strategy 102-14 102-15 102-7 102-9 GRI 101: Foundation 2016 GRI 101: Foundation 2016 GRI 102: General Disclosures Disclosure profile Organizational 102-1 102-2 102-3 102-4 102-5 102-6 General disclosures General disclosures GRI GRI Index - The report is compiled according to the core op tion of the GRI Standard guidelines and includes data according to the indicators of the Sectoral The Supplement Sustainability for ReportEnergy. is not subject to an external verification process, but we are considering this option for future - re porting periods. http://www.hep.hr/

his is the firstHEP Group, which includes a Annualdescription Report of the management of financial and non- of the financial impacts of companies. It also

includes the sixth sustainability report according to according report sustainability sixth the includes Initiative, Reporting Global the of methodology the ingoals and strategies, activities which monitors 2019. The last report was published in June 2019 and is available on the link: UserDocsImages//dokumenti/Izvjesce%20o%20 . odrzivosti//HEP_2018_Sustainability.pdf this report About About T 102-49 About this report 177 77 80 85 86 86 87 85 80 55 116 141 Page 34,77 34,77 15,80 35,87 35,87 35,55 35,55 92-96 58,82- 84,90,114 16,57,65,80 Material topics and disclosures disclosures Material topics and the material topic and its Boundary103-1 Explanation of and its components approach 103-2 The management of the management approach 103-3 Evaluation and by primary source down by energy broken EU 1 Installed capacity, regime regulation and by primary source down by energy output broken EU 2 Net energy regime regulation industrial, institutional and commercial EU 3 Number of residential, customer accounts source by energy generation efficiency of thermal plants EU 11 Average regime regulation and by of total and distribution losses as a percentage EU 12 Transmission energy outage frequency EU 28 Power power outage duration EU 29 Average and its Boundary103-1 Explanation of the material topic and its components 103-2 The management approach of the management approach 103-3 Evaluation transmission and distribution and underground EU 4 Length of above regulatory regime lines by and by source energy factor by plant availability EU 30 Average regulatory regime 103-1 Explanation of the material topic and its Boundary and its components 103-2 The management approach approach of the management 103-3 Evaluation 201-2 Financial implications and other risks and opportunities due to climate change plans retirement 201-3 Defined benefit plan obligations and other government from 201-4 Financial assistance received Standard Standard of energy of generation, distribution and supply Stability and security GRI 103: Management 2016 Approach Sector supplement: Electric Utilities sector the energy of Sustainable construction and development GRI 103: Management 2016 Approach Sector supplements: Electric Utilities sector of the energy Sustainable construction and development GRI 103: Management 2016 Approach GRI 201: Economic Performance 2016 Specific disclosures disclosures Specific 13 34 33 13 27 22 45 44 44 34 174 174 174 174 180 174 175 174 141 Page Page 20,24 Entities included in the consolidated financial statements Entities included in the consolidated financial Defining reportDefining content and topic Boundaries List of material topics Restatements of information Changes in reporting Reporting period report Date of most recent Reporting cycle the report Contact point for questions regarding with the GRI Standards in accordance Claims of reporting GRI content index External verification Values, principles, standards, and norms of behavior principles, standards, Values, and concerns about ethics Mechanisms for advice Governance structure Governance List of stakeholder groups List of stakeholder Collective bargaining agreements bargaining Collective Identifying and selecting stakeholders Approach to stakeholder engagement to stakeholder Approach Key topics and concerns raised Key

Reporting practice 102-45 102-46 102-47 102-48 102-49 102-50 102-51 102-52 102-53 102-54 102-55 102-56 GRI 101: Foundation 2016 GRI 101: Foundation 2016 GRI 102: General Disclosures Disclosure Ethics and integrity 102-16 102-17 Governance Governance 102-18 Stakeholder engagement Stakeholder 102-40 102-41 102-42 102-43 102-44

HEP group HEP | Report Sustainability and Annual 176 About this report 179 149 149 143 144 148 152 146 157 103 107 110 113 121 122 122 126 129 Page 38,103 38,103 146,156 146,156 Material topics and disclosures and disclosures Material topics health and safety and mitigation of occupational 403-7 Prevention business relationships by linked impacts directly and safety an occupational health by covered 403-8 Workers management system injuries 403-9 Work-related per employee of training per year hours 404-1 Average assistance skills and transition for upgrading employee 404-2 Programs programs performance regular and receiving of employees 404-3 Percentage reviews development career bodies and employees of governance 405-1 Diversity of women to men 405-2 Ratio of basic salary and remuneration actions taken 406-1 Incidents of discrimination and corrective and ten in the next five eligible to retire of employees EU15 Percentage years and its Boundary103-1 Explanation of the material topic and its components 103-2 The management approach of the management approach 103-3 Evaluation weight or volume 301-1 Materials used by consumption within the organization 302-1 Energy consumption 302-4 Reduction of energy resource 303-1 Interactions with water as a shared impacts 303-2 Management of water discharge-related 304-1 Operational sites owned, leased, managed in, or adjacent to, outside protected value of high biodiversity and areas areas protected areas and services304-2 Significant impacts of activities, products, on biodiversity 304-4 IUCN Red List species and national conservation list species with operations by affected habitats in areas Standard Standard and quality employer Responsible, sustainable GRI 403: Occupational Health and Safety 2018 GRI 404: Training and Education 2016 GRI 405: Diversity and Equal Opportunity 2016 Sector supplement: Electric Utilities impacts management of environmental and responsible protection in sustainable environmental Investing GRI 103: Management 2016 Approach GRI 301: Materials 2016 GRI 302: Energy 2016 GRI 303: Water 2018 and Effluents GRI 304: 2016 Biodiversity GRI 406: Non- discrimination 2016 28 92 64 55 116 139 155 141 156 141 149 149 149 144 149 149 Page 36,92 36,92 93-95 93-97 40,139 40,139 emissions allowances or equivalent, broken down broken or equivalent, emissions allowances 2 Material topics and disclosures and disclosures Material topics of corruption and actions taken 205-3 Confirmed incidents EU 5 Allocation of CO by carbon trading framework by EU 27 Number of residential disconnections for non-payment, broken broken disconnections for non-payment, EU 27 Number of residential regulatory regime and by duration of disconnection down by and its Boundary103-1 Explanation of the material topic and its components 103-2 The management approach of the management approach 103-3 Evaluation 203-1 Infrastructure investments and services investments supported203-1 Infrastructure economic impacts 203-2 Significant indirect EU 3 Number of residential, industrial, institutional and commercial industrial, institutional and commercial EU 3 Number of residential, customer accounts and its Boundary103-1 Explanation of the material topic and its components 103-2 The management approach of the management approach 103-3 Evaluation turnover and employee hires 401-1 New employee to not provided that are to full-time employees 401-2 Benefits provided temporary or part-time employees leave 401-3 Parental operational changes 402-1 Minimum notice periods regarding management system 403-1 Occupational health and safety identification, risk assessment, and incident investigation 403-2 Hazard 403-3 Occupational health services with trade in formal agreements covered topics 403-4 Health and safety unions training on occupational health and safety 403-5 Worker health of worker 403-6 Promotion

Standard Standard sector of the energy and development Sustainable construction GRI 205: Anticorruption 2016 Sector supplement: Electric Utilities Continuous market growth and maintained competitiveness on domestic and regional markets; Innovation and and Innovation markets; on domestic and regional and maintained competitiveness growth Continuous market utilization of digital transition GRI 103: Management 2016 Approach GRI 203: Indirect GRI 203: Indirect Impact Economic 2016 Sector supplement: Electric Utilities Responsible, sustainable and quality employer GRI 103: Management 2016 Approach GRI 401: 2016 Employment GRI 402: Labour- management Relations 2016 GRI 403: Occupational Health and Safety 2018

HEP group HEP | Report Sustainability and Annual 178 About this report 181 i ([email protected]) ([email protected]) Impressum Fokus komunikacije d.o.o. Fokus Photos: (138. str.), Marko Ercegović Stanzl, PIXSELL Goran (9. str.), PIXSELL (6. str.) Boris Ščitar, Arhiv HEP-a www.pixabay.com, contacts: reporting Sustainability Tarnik Tamara Publisher: Publisher: 37 Ulica grada Vukovara d.d. Zagreb, Hrvatska elektroprivreda Editors: i Darko Alfirev Tarnik Tamara Reporting consultants: Hauska & Partner Graphic design: Darko Alfirev Darko Alfirev 55 115 124 132 115 121 103 161 167 167 115 116 116 Page 40, 161 40, 161 ), and other significant air ), and other significant X ), sulfur oxides (SO ), sulfur oxides X emissions quality and destination by discharge 306-1 Water and disposal method type by 306-2 Waste 306-3 Significant spills and/or runoff water discharges by bodies affected 306-5 Water laws and regulations 307-1 Non-compliance with environmental and its Boundary103-1 Explanation of the material topic and its components 103-2 The management approach of the management approach 103-3 Evaluation generated and distributed economic value 201-1 Direct 413-1 Operations with local community engagement, impact 413-1 Operations with local community programs assessments, and development impacts and potential negative 413-2 Operations with significant actual on local communities Material topics and disclosures and disclosures Material topics 1) GHG emissions (Scope 305-1 Direct intensity 305-4 GHG emissions GHG emissions 305-5 Reduction of (NO oxides 305-7 Nitrogen

GRI 306: Effluents GRI 306: Effluents 2016 and Waste GRI 307: Environmental Compliance 2016 communication and public education dialogue, transparent Stakeholder GRI 103: Management 2016 Approach GRI 201: Economic Performance 2016 GRI 413: Local Communities 2016 GRI 305: Emissions 2016 Standard Standard impacts management of environmental and responsible protection environmental in sustainable Investing

HEP group HEP | Report Sustainability and Annual 180

About this report 183

HEP group HEP | Report Sustainability and Annual 182