OPLIFIKACIJ AD ‐ Skopje

19 65

ANNUAL REPORT

2009 YEAR

CONTENT

REVIEW OF 2009 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐1

KEY NUMBERS TOPLIFIKACIJA AD‐SKOPJE‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2

KEY NUMBERS TOPLIFIKACIJA GROUP ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐3

COMPANY DATA‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐7

INFORMATION FOR THE INVESTORS‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐8

INVESTMENT IN THE COMBINED PRODUCTION OF POWER AND HEAT ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐12

PRICE OF THE HEAT ENERGY ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐17

PRODUCTION OF HEAT ENERGY ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐19

DISTRIBUTION OF HEAT ENERGY‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐29

DISTRIBUCIJA NA TOPLINA DOOEL SKOPJE ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 30

SUPPLY WITH HEAT ENERGY‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ 37

SNABDUVANJE ZAPAD DOOEL SKOPJE‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 46

SNABDUVANJE CENTAR DOOEL SKOPJE‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 47

SNABDUVANJE ISTOK DOOEL SKOPJE ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 48

FINANCIAL STATEMENTS FOR TOPLIFIKACIJA AD‐SKOPJE ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐49

SKOPJE SEVER AD‐SKOPJE ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 60

TOPLIFIKACIJA INZENERING DOOEL SKOPJE ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 63

CORPORATE GOVERNANCE‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐‐ 64

REVIEW OF 2009

In 2009 Toplifikacija AD – Skopje achieved positive financial results despite the economic crisis that ruled the world. It shows the stability of the business that the company does.

The state regulative according to which Toplifikacija AD ‐ Skopje is working, guaranties realization of income from the business, adequate for covering the operational costs as well as gaining profit from the invested assets, profit that covers the cost for thed investe capital. According to this Toplifikacija AD ‐ Skopje is stable company in economic environment fulfilled with uncertainties.

Toplifikacija AD ‐ Skopje continues to follow its strategy through three strategic goals ‐ Collection of the compensation for heat energy through measurement devices also in joint residential objects; Liberalization of the heat energy market and Consistent enforcement of the Quality Policy.

In that direction in 2009 significant structural changes occurred in the company. Toplifikacija AD ‐ Skopje separated regulated activities distribution and supply of heat energy. We established three new companies for supply of heat energy in which Toplifikacija is full owner and a company to perform the activity distribution of heat energy. The employees who previously worked in the sectors of distribution and supply of heat energy moved to the newly established companies. These companies are:

 Snabduvanje Centar DOOEL  Snabduvanje Zapad DOOEL  Snabduvanje Istok DOOEL  Distribucija na toplina DOOEL

In 2009 Toplifikacija utilized the services of these companies for execution of distribution and supply of heat energy, thus they acted in the name of Toplifikacija AD ‐ Skopje. At the same time in October 2009 the three companies for the supply of heat energy obtained working license by Energy Regulatory Commission of Macedonia in order to carry out these activities. Since 2010 these companies operate as independent companies for supplying of heat energy in different districts in the city. In this way Toplifikacija AD ‐ Skopje improves its act on the heat energy market in conditions of high prices of the fuel and decreased economic power of our consumers.

In 2009 continues the tendency of concentration the capital in the business activity ‐ production of heat energy, following the minimization of the commercial risk and maximization of the shareholders value.

Using the stable ground in the primary business, in 2009 the company continued its investment in combined production in electricity and heat.

With this the ground has been established for Toplifikacija AD‐Skopje to reach its set financial goals i.e. sustainable strong cash flow and payment of attractive dividend beside the expectations for unfavorable economic environment.

1 of 66 KEY NUMBERS TOPLIFIKACIJA AD – SKOPJE

Basic Numbers (in denars) 2009 2008 2007 2006 2005 Serviced Heat Consumption Capacity (MW) 527.796 517.157 565.706 557.374 555.894 Average Air Temperature in the Environment (t ˚ C) 7.0 7.83 6.4 5.17 5.97 Delivered Heat Energy (MWh) 553,417 548,149 567,930 628,807 648,232 Produced Heat Energy (MWh) 655,059 623,604 645,742 709,925 736,627 Equivalents tons Fuel Oil by MWh Produced Heat Energy 0.09432 0.09711 0.09886 0.09893 0.099 Cost of MWh Produced Heat Energy 1,635 2,393 1,813 1,814 1,362 Average Supply Price by MWh Delivered Heat Energy 2,835 3,281 2,633 2,361 2,314 Number of employees 195 368 348 355 346

Key Ratios (in denars) 2009 2008 2007 2006 2005 Net Income Per Share 66.25 11.55 261.56 64.22 185.11 P/E ratio 59.1 738.23 41.1 41.8 15.8 Operating CF Per Share ‐217.5 ‐32.8 ‐12.3 ‐92.4 262.7 P/CF ratio n.a. n.a. n.a n.a 11.2 Book Value Per Share 3,514.21 3,529.71 3,705.26 3,880.85 3,713.00 P/Book ratio 1.1 2.4 2.9 0.9 0.8 Dividend Per Share n.a. n.a. 55.56 35.56 157.35 Dividend Yield n.a. n.a. 0.52% 0.93% 5.34%

Income Statement (in million denars) 2009 2008 2007 2006 2005 Sales Revenue 1,569.0 1,798.5 1,495.30 1,484.70 1,499.80 EBITDA 229.2 61.8 23 ‐109.3 175.3 EBIT 134.2 ‐7.4 ‐222.8 ‐71.9 110.4 EBT 30.5 7.8 136.7 29.6 99.9 Net income before minority interest 29.8 5.2 117.7 28.9 83.3 Net Income after minority interest 29.8 5.2 117.7 28.9 83.3

Bilance Sheet (in million denars) 2009 2008 2007 2006 2005 Total Assets 3,879.16 3,278.40 2,554.70 2,573.00 2,567.10 Accounts Receivables 790.6 918.3 757.5 883.8 800.1 Short‐term Liabilities 1,847.8 1,292.11 849.2 742.3 809.2 Shareholder capital 1,581.39 1,578.50 1,598.30 1,736.50 1,756.30 Leverage 59.2% 51.9% 37.4% 32.5% 31.6%

Cash Flow (in million denars) 2009 2008 2007 2006 2005 Operating cash flow ‐97.9 ‐14.8 ‐5.5 ‐41.6 118.2 Investment cash flow ‐783.5 ‐711.2 ‐19.4 34 ‐89.2

2 of 66 KEY NUMBERS – TOPLIFIKACIJA GROUP

Toplifikacija Group besides the mother company Toplifikacija AD – Skopje, consists of eight dependent companies in which the mother company has dominant control on the management of financial and operational policies, such as:

2009 Name of the company Area of business Share Skopje – Sever AD Heat supply 99.74% Toplifikacija – Bitola DOO Heat supply 98.34% Gas Trade DOOEL Skopje Trade and distribution of gas and gas fuels 100.00% Designing, engineering, trade, transport and Toplifikacija – Inzenering DOOEL Skopje etc 100.00% Snabduvanje Zapad DOOEL Skopje Heat supply 100.00% Snabduvanje Centar DOEEL Skopje Heat supply 100.00% Snabduvanje Istok DOOEL Skopje Heat supply 100.00% Distribucija na toplina DOOEL Distrbution of heat 100.00%

Skopje Sever AD ‐ Skopje

Skopje Sever AD is a company for heat energy, i.e. company for production of heat, distribution of heat and heat supply of the tariff consumers. Skopje Sever AD supplies the heat energy to consumers in the following districts of the city Skopje: Skopje Sever, Cair and Butel. In 2009 the number of employees was 13.

Key numbers

Income Statement (in denars) 2009 2008 Total Revenue 65,818,710 90,130,945 EBITDA 9,762,011 18,415,025 EBIT ‐1,555,117 5,730,694 EBT 113,300 232,404 Net Income/ Loss 75,701 232,404

Balance sheet (in denars) 2009 2008 Total Assets 251,026,786 259,557,982 Accounts Receivables 60,241,574 59,824,432 Total Liabilities 81,261,710 89,868,607 Long‐term Liabilities / /

3 of 66 Toplifikacija ‐ Inzenering DOOEL Skopje

Toplifikacija – Inzenering DOOEL is a company for designing and engineering services of distribution network, development and designing of measuring control equipment, reconstruction of substations, as well as engineering services in heating and air conditioning. In 2009 the number of employees was 9. Key numbers

Income Statement (in denars) 2009 2008 Total Revenue 33,682,964 19,622,483 EBITDA 6,553,592 4,391,101 EBIT 6,552,687 4,391,101 EBT 6,637,230 4,391,101 Net Income/ Loss 6,619,783 3,916,225

Balance sheet (in denars) 2009 2008 Total Assets 15,554,017 11,496,468 Accounts Receivables 4,436,661 2,385,957 Total Liabilities 3,213,684 5,775,918 Long‐term Liabilities / /

Snabduvanje Centar DOOEL Skopje

Snabduvanje Centar Dooel is a company for supplying of heat energy. Toplifikacija has utilized the services of this company for supplying of heat energy in a pre‐determined area in the City of Skopje. In 2010 Snabduvanje Centar obtained the working license by the Energy Regulatory Commission of Macedonia for supplying of heat energy. In this way this company completely took over the activity of heat energy supply in pre‐ determined area in the city from Toplifikacija AD – Skopje. The number of employees in 2009 was 30.

In addition are the key numbers from this company. The key numbers for 2008 are not shown because the company was established in November 2008.

Income Statement (in denars) 2009 2008 Total Revenue 15,129,196 n.a EBITDA 547,150 n.a EBIT 84,193 n.a EBT 75,421 n.a Net Income/ Loss 43,888 n.a

Balance sheet (in denars) 2009 2008 Total Assets 5,562,564 n.a Accounts Receivables 3,241,196 n.a Total Liabilities 2,959,676 n.a Long‐term Liabilities / n.a

4 of 66 Snabduvanje Zapad DOOEL Skopje

Snabduvanje Zapad Dooel is a company for supplying of heat energy. Toplifikacija AD has utilized the services of this company for supplying of heat energy in a pre‐determined area in the City of Skopje. In 2010 Snabduvanje Zapad obtained the working license by the Energy Regulatory Commission of Macedonia for supplying of heat energy. In this way this company completely took over the activity of supplying of heat energy in pre‐ determinate area in the City from Toplifikacija AD – Skopje. The number of employees in 2009 was 30.

In addition are the key numbers from this company. The key numbers for 2008 are not shown because the company was established in November 2008.

Income Statement (in denars) 2009 2008 Total Revenue 14,291,950 n.a EBITDA 346,181 n.a EBIT 83,671 n.a EBT 83,254 n.a Net Income/ Loss 41,904 n.a

Balance sheet (in denars) 2009 2008 Total Assets 6,175,718 n.a Accounts Receivables 4,446,513 n.a Total Liabilities 4,807,513 n.a Long‐term Liabilities / n.a

Snabduvanje Istok DOOEL Skopje

Snabduvanje Istok Dooel is a company for supplying of heat energy. Toplifikacija has utilized the services of this company for supplying of heat energy in a pre‐determined area in the City of Skopje. In 2010 Snabduvanje Istok obtained the working licence by the Energy Regulatory Commission of Macedonia for supplying of heat energy. In this way this company completely took over the activity of supplying of heat energy in pre‐ determinate area in the City from Toplifikacija AD – Skopje. The number of employees in 2009 was 27. In addition are the key numbers from this company. The key numbers for 2008 are not shown because the company was founded in November 2008.

Income Statement (in denars) 2009 2008 Total Revenue 13,442,362 n.a EBITDA 461,760 n.a EBIT 38,931 n.a EBT 39,181 n.a Net Income/ Loss 8,482 n.a

Balance sheet (in denars) 2009 2008 Total Assets 6,261,430 n.a Accounts Receivables 3,588,047 n.a Total Liabilities 3,886,648 n.a Long‐term Liabilities / n.a

5 of 66 Distribucija na toplina DOOEL Skopje

Distribucija na toplina DOOEL Skopje is a company for distribution of heat, i.e. it takes the produced heat from the producer and it distributes to the supplier of heat energy. The company is established in May 2009. The employees who previously worked in distribution of heat energy sector in Toplifikacija AD Skopje, moved to the newly established company. Toplifikacija AD Skopje has utilized services of this company for execution of the distribution of heat energy activity since July 2009. In 2009 the number of employees was 87.

In addition are the key numbers from this company. The key numbers for 2008 are not shown because the company became operationally active in July 2009.

Income Statement (in denars) 2009 2008 Total Revenue 31,277,176 n.a EBITDA 9,618,892 n.a EBIT 889,760 n.a EBT 888,818 n.a Net Income/ Loss 877,203 n.a

Balance sheet (in denars) 2009 2008 Total Assets 299,176,930 n.a Accounts Receivables 21,442,218 n.a Total Liabilities 11,945,528 n.a Long‐term Liabilities / n.a

Toplifikacija Bitola DOO

Toplifikacija Bitola DOO is a company for heat supply in the town Bitola in Republic of Macedonia. In 2009 the company didn’t operate, i.e. it didn’t supply its costumers with heat energy. The company currently works for the collection of debts from its customers. The number of employees in the company was 1.

Key numbers

Income Statement (in denars) 2009 2008 Total Revenue 294,017 1,229,821 EBITDA ‐1,422,730 ‐1,340,016 EBIT ‐2,333,056 ‐2,956,727 EBT ‐2,164,289 ‐3,003,966 Net Income/ Loss ‐2,164,845 ‐3,003,966

Balance sheet (in denars) 2009 2008 Total Assets 36,275,883 40,300,539 Accounts Receivables 22,663,009 25,667,092 Total Liabilities 54,255,117 56,114,927 Long‐term Liabilities 0 0

6 of 66 COMPANY DATA

Toplifikacija AD – Skopje is a joint stock company for production and distribution of heat, in private property. The Company was established in 1965. The first heating season was in 1965/66.

Organizational structure

The organizational structure of the company is composed of:

‐ Board of Directors ‐ Operating units (14)

The organizational structure of the company is adjusted for the execution of the three regulated activities for which the company possessed licenses for operation in compliance with the Energy Law of Republic of Macedonia.

Until the end of 2009 Toplifikacija AD – Skopje owned the working licenses for the three regulated activities: production of the heat energy, distribution of the heat energy and supply of heat energy. Toplifikacija AD – Skopje with the structural changes separated distribution and supply activities and established new companies to perform these activities. The execution of the three activities is regulated by the Energy Regulatory Commission of Macedonia, as public‐interest activities.

Number of employees and professional degrees

At the end of 2009 the number of employees in the company was 195, which included only employees who work in sector of production of heat energy. The remaining employees moved into the newly established companies. The composition and the professional degree of the employees enable a complete execution of all foreseen operational activities in the company.

The following table shows the number of the employees on the basis of their qualification structure and the level in the organizational structure as of 31.12.2009.

Table 1 – Qualification structure Education level Number of employees VIII1 1

VII2 1

VII1 26 VI 7 V 20 IV/HSD 79 III/QW 40 II/SQW 12 I/NKW 9 Total 195

7 of 66 INFORMATION FOR THE INVESTORS

The shares of Toplifikacija AD – Skopje are registered for trade on the Macedonian stock market of securities. They are classified on the official market in the segment of Super quotation – ordinary shares under the symbol of TPLF.

The share of Toplifikacija AD – Skopje is a part of the MBI 10 index and is one of the most liquid shares on the Macedonian stock market.

A total of 450,000 ordinary shares have been issued after the nominal value of 51.13 euro. Out of them, 884 are treasury shares, while the others are available for trade.

Stock‐market performance

Table 2 – Trading data (price, value and capitalization are in denars) Average Number of Traded Traded Market month price transactions Values Quantity Capitalization January 3,001 47 3,783,782 1,261 1,350,450,000 February 2,957 33 2,167,275 733 1,330,650,000 March 2,126 94 4,981,323 2,343 956,700,000 April 2,212 102 5,673,098 2,565 995,400,000 May 2,680 94 5,778,077 2,156 1,206,000,000 June 3,797 168 13,835,874 3,644 1,708,650,000 July 3,700 130 10,044,226 2,715 1,665,000,000 August 3,953 150 10,222,412 2,586 1,778,850,000 September 5,221 212 19,990,471 3,829 2,349,450,000 October 5,976 309 27,350,794 4,577 2,689,200,000 November 5,651 199 16,675,725 2,951 2,542,950,000 December 4,998 129 9,741,988 1,949 2,249,100,000 Total 3,915 1,667 130,245,045 31,309 1,872,000,000

In 2009 a total of 31,309 ordinary shares of Toplifikacija AD – Skopje were traded on the Macedonian stock market, which represents 6.96% of the total number of issued shares. The total traded value amounted to 130,245,045 denars and it was realized in 1667 transactions. In average, about 19 shares per transaction were traded.

During the trade in 2009, the highest price in the amount of 6,445.16 denars was realized on October 15. On the other hand, the lowest realized price amounted to 2,000.00 denars and it was realized on March 26.

The bad investors’ climate that was present in 2008, has been over and this was positively reflected on the Macedonian Stock Exchange. We can notice increasing tendency on the offered prices for the shares on the Macedonian stock market, hence on the share of Toplifikacija AD – Skopje. There was a small decline of the price in March and tApril, bu generally the price of the share of Toplifikacija AD Skopje had increasing tendency.

The comparison of the movement of the main stock exchange index MBI 10 of the Macedonian stock market and the price of the share of Toplifikacija AD – Skopje is shown in the following chart.

8 of 66

Graph 1 – Comparison of the movement of the MBI 10 and TPLF in 2009

250

200

150

100 MBI10 TPLF 50

0

It can be noticed the increasing tendency of the price of our share. The major reason is better general investor climate that ruled in 2009.

The movement of the price of the share of Toplifikacija AD – Skopje is shown in the following figure.

Graph 2 – Movement of the price of TPLF in 2009

7,000

6,000

5,000

4,000

3,000 TPLF 2,000

1,000

The total increase of the price of our share in 2009 is 63.48%, so we can confirm once again the increasing tendency of the price of our share.

The following chart shows the realized average price and quantity of trade per months in 2009.

9 of 66

Graph 3 – Quantity and average price of trading by months in 2009

Key ratios

Table 3 – Key ratios Ratio 2009 2008 change % 2007 2006 2005 EBITDA Per Share 509.33 137.33 270.87% 51.11 n.a. 389.56 EBIT Per Share 298.22 n.a. n.a. n.a. n.a. 245.38 Basic Earnings Per Share 66.25 11.55 473.59% 262.03 65.60 186.00 Diluted Earning Per Share 66.25 11.55 473.59% 262.03 65.60 185.44 Return on Assets (ROA) 1.85% 0.40% 366.30% 4.59% 1.12% 3.62% Return on Equity (ROE) 4.19% 0.73% ‐89.70% 7.06% 1.65% 4.99% Book Value Per Share 3514.21 3529.71 ‐4.74% 3705.26 3880.85 3713.00 P/E ratio 59.09 738.23 1693.13% 41.17 41.82 15.8 P/Bоок ratio 1.11 2.4 ‐17.24% 2.9 0.94 0.77 Dividend Per Share n.a. n.a. n.a. 55.56 35.56 157.35 Dividend Payout ratio n.a. n.a. n.a. 21.20% 54.21% 84.60% Dividend Yield n.a. n.a. n.a. 0.52% 0.93% 5.34%

Shareholder structure

The shareholders’ structure of Toplifikacija AD – Skopje is diversified to a great extent. The biggest shareholder is POTEZA, borzno posredniska druzba d.d. from Slovenia with 17.51% (date taken from the Shareholders’ Book of Toplifikacija AD – Skopje on 31.12.2009). All other shareholders participate with 1% or lesse in th equity.

10 of 66

The total number of shareholders with the balance on 31.12.2009 was 2,848.

Their structure is shown in the following chart.

Graph 4 – Shareholder structure as on 31.12.2009

11 of 66

INVESTMENT IN THE COMBINED PRODUCTION OF POWER AND HEAT

A summary of the project In 2009, the realization of the project for the construction of the gas power plant for the combined production of power and heat continued. The project operationally commenced in May 2007. It is being expected the commercial operation to begin in April 2010.

The project is being realized through the project company ТЕ ‐ ТО АD ‐ Skopje.

Participation of Toplifikacija AD – Skopje in the project is 20%, and 80% belonging to BITAR HOLDINGS LIMITED (Russia).

The basic works are performed by the Consortium GAMA POWER SYSTEM (Turkey) as the main contractor and ALSTOM (Switzerland) as the producer of the main equipment on the basis of the Turn‐Key Contract of performance. The contractual price is 135,000,000 EUR.

The project is financed by 30% share of the shareholders and 70% credit assets. The main creditors of the project are Landesbank Berlin AG (Germany) and Komercijalna Banka AD – Skopje.

The power plant shall manage the capacity of 220MW for the production of power and capacity of 160 MW for the production of heat.

12 of 66 With the start of the commercial operation, the income shall be realized under three bases – sale of power, sale of heat and sale of CO2 certificates. The last two bases are due to the participation of Toplifikacija AD‐ Skopje in the project and the comparative advantage of the project.

Activities in 2009

The activities undertaken by the Consortium were realized in compliance with the Performance Contract. In 2009 a total of 8 “key points” were achieved out of which 7 were achieved by GAMA POWER SYSTEM and 1 by ALSTOM.

The realization of activities is shown from through photographs of the construction site.

Construction site on 28 February 2009

Construction site on 22 May 2009

13 of 66 Construction site on 21 August 2009

Construction site on 30 December 2009

14 of 66 A total of 28,760,779 EUR were paid to the Consortium out of which 28,178,779 EUR to GAMA POWER SYSTEM and 582,000 EUR to ALSTOM.

In compliance with the contractual financial construction, these amounts are covered by 4 sources:

*In the end of 2009 it was signed commercial loan, but it wasn’t operational so this amount was covered by the shareholders. The amount of 1,647,059 EUR was covered by BITAR HOLDINGS LIMITED, while the amount of 3,623,529 EUR was covered by Toplifikacija AD – Skopje. In February 2010 the commercial loan became operational, thus the obligations to investors were settled.

A total of 124,617,702 EUR were paid to the Consortium out of 135,000,000 EUR, i.e. 92.3% of obligations are settled. Sources of funding for the remainder of the obligations are fully secured.

Other activities were under way in 2009 mainly in connection with the realization of the infrastructural and system connections:

 A 110 kW connection to the power transfer system (MEPSO)  A 10/20 kW connection to the distribution power system (EVN)  A connection to the water‐works net of the city of Skopje  A connection to the sewerage of the city of Skopje  A connection to the atmospheric drainage of the city of Skopje  A connection to the natural gas transfer system  A connection to Toplifikacija AD – Skopje (heat plant “East”) with the heat generator for evacuation of heat  A telephone connection  System for supervision and control (SCADA system)  System for fire protection

These activities shall end in 2010.

Activities for the protection of the environment based on the law of environmental protection took place in 2009. Based on that were prepared the following documents:

 Study for the impact of TE‐TO AD ‐ Skopje on the environment

15 of 66  Elaborate on the impact of 110 kW TE‐TO AD ‐ Skopje connection on the environment  Elaborate on the impact of the TE‐TO AD ‐ Skopje connection to the atmospheric drainage of the city of Skopje

Also in 2009 they began providing the necessary documents for providing an integrated environmental permit.

Financing the participation of Toplifikacija AD – Skopje

The total investment of Toplifikacija AD – Skopje in the project in 2009 amounted to 11,602,309 EUR.

Out of which 7,160,541 EUR refer to the financing of the basic expenses for the performance of the project in compliance with the Contract with the Consortium while the rest referred to the financing of the associated costs for the performance of the project (in the greatest part expenditures for VAT financing for the import of equipment ,the engaged consultant for technical monitoring, as well as expenditures for additional works) and the expenses for the current operation of ТЕ ‐ ТО АD – Skopje in compliance with the approved budget for the year 2009.

The financing assets were secured from several sources:

 € 5,783,000 from short‐term loans  € 4,305,000 from long‐term loans  € 312,000 from earmarked deposit  The rest (about € 1,202,261) was financed with the assets from the current operation

In 2009 Toplifikacija AD ‐ Skopje paid amount of 1,367 thousand Euros for the interests and commissions to the commercial banks for the short and long‐term loans. A part of the TE‐TO investment was financed by selling of shares of Komercijalna Banka AD – Skopje. The part of the sale of shares in 2006 amounting to 114 million denars, at that time it was used for current operations of Toplifikacija AD – Skopje. But in 2009 Toplifikacija AD utilized these funds for their original purpose, for investment in gas plant.

The most part of the short‐term loans were taken to overcome the time gap until the approval of commercial loan of TE‐TO AD Skopje by Komercijalna Banka AD ‐ Skopje. For that part Toplifikacija signed loans amounting to 3,623,529 thousand Euros. In February 2010 the commercial loan granted to TE‐TO AD became operational, thus Toplifikacija AD settled its obligations to the commercial banks. With lower credit exposure Toplifikacija AD – Skopje will have a reduction of financial costs, which Toplifikacija AD will pay in 2010 loans taken for the gas plant.

In 2009 Toplifikacija AD ‐ Skopje provided short‐term loan of 3 million Euros to finance the VAT in the TE‐TO project. In March 2010 with the return of VAT by the State Toplifikacija settled this loan. The rest of the short‐term loans are provided as a temporary solution in circumstances when due to the global economic crisis negotiating with banks for investment loans is getting more difficult.

16 of 66 PRICE OF THE HEAT ENERGY

In the beginning of 2009 Toplifikacija AD – Skopje performed three activities from public interest in its operation and in compliance with the Energy Law of Republic of Macedonia. Those activities are: production of heat, distribution of heat and heat supply of the tariff consumers. Because the activities are of public interest, the same are regulated by the independent body of the Energy Regulatory Commission of Macedonia on the basis of a Rule Book on the manner and the conditions for regulation of prices for heat energy used for heating.

Although there have been structural changes in the company in 2009, Toplifikacija AD – Skopje divided regulated activities distribution of heat and heat supply for the tariff consumers, the price given by Energy Regulatory Commission included costs for all activities.

From 1st January 2010 the price of the heat energy is given separately for all activities for each company. The following table shows the price of the heat in 2009.

from from Date of validity of price 01.01.2009 01.08.2009 Unit Price in Price in Tariffs measure denars denars RESIDENTIAL SPACE Fixed Payment On 12 settlements m2 27.73 32.48 On 6 settlements m2 55.46 64.96 Payment by measuring Heat Capacity MW 535,977.29 627,683.00 Delivered Heat MWh 1,783.50 2,088.66 BUSINESS SPACE Fixed payment MW 4,165,305.83 4,877,989.66 Payment by measuring Heat Capacity MW 726,842.66 1,067,061.11 Delivered Heat MWh 2,867.66 3,550.72 ELEMENTARY SCHOOLS Fixed payment MW 2,317,220.18 2,713,696.55 Payment by measuring Heat Capacity MW 545,729.29 815,987.91 Delivered Heat MWh 2,127.56 2,715.25

Changes in the price of heat energy

The price of the heat energy for heating of Toplifikacija AD – Skopje was corrected twice in 2009 in compliance with the decision of the Energy Regulatory Commission of Republic of Macedonia.

On January 22, 2009 the Energy Regulatory Commission of Macedonia with the decision no. 02‐208/1 reduced the average price of the heat energy for heating of Toplifikacija AD – Skopje for 35.94%, which became valid on January 1, 2009.The reason for the reduce of the price was due to decreased fuel expenses for that period.

On July 21, 2008 the Energy Regulatory Commission of Macedonia with the decision no. 02‐1823/1 increased the average price of the heat energy for heating of Toplifikacija AD – Skopje for 17.12%,

17 of 66 which became valid on August 1, 2009. The reason for the increase of the price was due to increased fuel expenses for that period and the non‐realized income of Toplifikacija AD – Skopje for the past period.

Submitted documentation for the price of the heat

In January 2009 the economic and technical documentation was submitted by the three regulated activities to the Energy Regulatory Commission of Macedonia for regular control of prices of heat in compliance with the Rule Book on the manner and the conditions for regulation of prices for heat energy used for heating.

In June 2009 the economic and technical documentation was submitted by Toplifikacija AD ‐ Skopje to the Energy Regulatory Commission of Macedonia as request for approval of prices of heat in compliance with the Rule Book on the manner and the conditions for regulation of prices for heat energy, for production and distribution of heat energy. Energy Regulatory Commission of Macedonia approved separate expenses for all three activities within Toplifikacija AD ‐ Skopje.

In November 2009 the economic and technical documentation was submitted by Toplifikacija AD ‐ Skopje to the Energy Regulatory Commission of Macedonia as request for approval of prices of heat in compliance with the Rule Book on the manner and the conditions for regulation of prices for heat energy, for production and distribution of heat energy. All three companies that supply heat energy separately submitted economic and technical documentation for the price of heat energy. The Energy Regulatory Commission of Macedonia approved separate prices for all three activities which prices are valid from 01 January 2010.

Inaccuracies

During 2009 certain expenses that previously the Energy Regulatory Commission of Macedonia didn’t approve, with the price approved for 2009 they were recognized for Toplifikacija AD ‐ Skopje. It primarily refers to the recognition of real costs for the category other services and recognition of the total cost of amortization for all three activities. There are still inaccuracies with Energy Regulatory Commission in regard to cost of the write‐off of the receivables from the consumers. Actually the Energy Regulatory Commission of Macedonia with the new Rulebook on the manner and conditions for regulations of the prices of district heating for supply activity of heat energy, where it appears this cost, approved margin for its operations. The amount of margin that it was approved is small compared to the cost of the amortization of receivables that actually has this activity.

Books of Regulations

In 2009 Energy Regulatory Commission of Macedonia adopted the following Books of Regulations that affect the activities of Toplifikacija AD – Skopje:

‐ Rulebook on the manner and conditions for regulations of the prices of district heating for production and distribution activity of heat energy ‐ Grid codes for distribution of heat energy ‐ Rulebook for the conditions for district heating supply ‐ Tariff system for district heating sale

18 of 66 PRODUCTION OF HEAT ENERGY

GENERAL DATA

The activity production of heat in the frames of Toplifikacija AD – Skopje is realized through the sector for production of heat that represents a special organizational whole composed of 13 operating units (OU):

‐ OU for production of heat ‐ OU for machine maintenance ‐ OU for electrical maintenance ‐ OU for maintenance of the measuring‐regulating equipment (MRE) and automatics ‐ OU for the chemical preparation of water (CPW) and ecology ‐ OU for accounting ‐ OU for management of financial assets and liquidity ‐ OU for supply, warehouses and forwarding ‐ OU for Information Technology ‐ OU for Legal Affairs ‐ OU for security and general affairs ‐ OU for managing human resources ‐ OU for support of the processes of current operation

The first five operating units are the so called technical operating units in the sector for production of heat and the other seven operating units are performing services for the sector.

The sector is managed by an executive director and the operating units are run by chiefs.

PRODUCTION OF HEAT ENERGY

The production of heat is realized through the heat capacity located in 3 heat sources:

‐ Heat Plant “East”, located in the east industrial zone of the city ‐ Heat Plant “West” located in the settlement Taftalidze ‐ Heat Plant “11 October” located in the settlement Kisela Voda

Additionally, there is available production capacity in the boiler rooms Vodno and Park. From technological reasons these capacities were not used in 2008. The total heat capacity (active and conserved) amounts to 523.850 MW and the same is composed of 22 boiler plants. The distribution of the heat in the distribution net is performed in accordance with the external temperature on the basis of the Instruction for delivery of heat and the output temperature diagram.

Climate indicators

The average external temperatures for every month separately as well as for the whole year, according to the data of the Republic Hydro ‐Meteorological Institute, are shown in the following table in comparison with the projected temperatures.

19 of 66

Table 4 – Monthly Average Air Temperature (ºС) month projected measured

January 0.9 1.8

February 2.7 4.5

March 6.5 8.1

April 11 14.6

October 11 11.1

November 7.3 8.9

December 3 5.4

average: 5.29 7.0

The following table shows the movement of the maximum and minimum temperatures by months. This movement is important for a better inspection of the operation of the heat plants.

Table 5 – Max and Min Air Temperatures ( ºС)

month Min temperatures Max temperatures

January ‐9.5 14.2 February ‐4.9 16.8 March ‐0.3 22.0 April 6.3 25.3 October 1.4 22.1 November 0.1 18.5 December ‐8.0 15.3

Heating period

The time of operation of the heating system in 2009 deviated from the foreseen due to the low external temperatures in the months of April and October so the heating season of 2008/2009 ended on 16.04.2009, and the heating season of 2009/2010 commenced on 15.10.2009. The heating period in 2009 lasted for 184 days.

The total time of operation of the heat plants (time of operation of the pump stations in the heat plants) in 2009 is shown in the following table. It should be emphasized that the greater part of the working hours are realized in the months with lower external temperature (January and February). Difference can be observed in the time of operation between separate heat plants which is a result of the local climatic conditions, the scope of

20 of 66 the connected consumer and the time which the necessary output temperature diagram should achieve.

Table 6 – Total working time of heat plants (hours) month plan “East” “West” “11 Oct.” January 554 539 577 554 February 469 461 469 469 March 459 447 442 459 April 112 106 103 112 October 211 212 214 211 November 421 413 413 421 December 505 495 488 505 total 2731 2673 2706 2731

The following table shows the average realized daily delivery time of heat separately for every month and for every heat plant.

Table 7 – Average time of delivery of heat (h/day) month plan “East” “West” “11 Oct.” January 15 17.87 17.39 18.61 February 15 16.75 16.46 16.75 March 15 14.81 14.42 14.26 April 15 7.00 6.63 6.44 October 15 12.41 12.47 12.59 November 15 14.03 13.77 13.77 December 15 16.29 15.97 15.74 average 15 14.84 14.53 14.71

Production of heat energy

In 2009, in compliance with the obligations foreseen by the Rule Book on the manner and the conditions for regulation of prices for heat energy used for heating, from the month of February 2008, the produced heat energy is measured by the measuring devices – calorimeters mounted on all nine output heating lines from the heat plants.

The following table shows the quantity of the produced heat per heat plants and months for the year 2009, by fuel type. The quantity of heat, includes the amount of consumed heat for own needs.

21 of 66 Table 8 – Produced heat energy in 2009, by fuel type (MWh) “East” – “East” – natural “11.Oct” “11.Оct. “11 month “East” “West” Total fuel oil gas – fuel oil gas” Oct.”

January 68460.0 23907.5 92367.5 49843.7 7585.1 2489.7 10074.8 152286.0 February 73852.1 73852.1 39445.3 6217.5 1097.2 7314.8 120612.2 March 61776.2 61776.2 32899.2 5470.1 965.3 6435.4 101110.7 April 13867.0 13867.0 6689.7 1105.0 195.0 1300.0 21856.6 October 26741.7 26741.7 12209.7 2234.4 2234.4 41185.8 November 57080.0 57080.0 29478.6 5756.4 5756.4 92315.0 December 77604.8 77604.8 40339.4 7748.6 7748.6 125692.8 total 217955.3 185334.0 403289.3 210905.6 20377.7 20486.6 40864.4 655059.2

For the production of the heat in 2009 fuel oil and natural gas were used as plant fuel. Out of the totally produced heat, with the use of fuel oil a production of 449238,6 MWh was realized, i.e. 68.6%, while 205820,6 with the use of natural gas, i.e. 31.4%. The participation of separate heat plants as well as the participation of separate months in the total production of heat during 2009 is shown in the following graphical presentation.

Graph 5 – Participation of separate plants and months in total production

West December 32,2% 20% 24% November January 14%

East February 61,6% 18%

11 October April October 6,2% 3% March 6% 15%

The following table shows the quantity of the produced heat per heat plants and months for the year 2009, according the measured amount of heat energy by calorimeters.

Table 9 – Produced heat energy in 2009 (MWh) month “East” “West” “11 Oct.” Total January 91945 49601.4 10049.2 151595.6 February 73421.7 39256.7 7290.6 119968.9 March 61440.6 32747.6 6416.4 100604.5 April 13792.2 6660.2 1296.4 21748.8 October 26734 12151,.2 2234.4 41119.6 November 57059.6 29348.2 5756.4 92164.2 December 77573.7 40158.3 7748.6 125480.6 total 401966.7 209923.6 4079.9 652682.2

22 of 66

According to the measured external temperatures in the heating period in 2009, the calculated necessary heat at average daily delivery of 15 hours is 629164 MWh. With the realized production the needs are exceeded by 3.47%.

The compared necessary, planned and realized production of heat is shown in the following graph.

Graph 6 – Need, plan and realization of production of heat energy

160000 realization

140000 planed 120000 need

100000

80000 60000

40000

20000

0 January February March April October November December

In Heat Plant “East” and Heat Plant “11 October “ in the first half of the year, actually from 06.01.2009 because of the interruption of the delivery of natural gas from the Russian supplier, such as power fuel oil was used, while in the second half of the year only natural gas was used. Due to the lack of construction of the natural gas distribution net in the part of the city where the heat plant “West” is located exclusively fuel oil was used as plant fuel.

The use of fuel oil and natural gas in certain months of the heating season is shown in the following chart.

Graph 7 – Use of fuel oil and natural gas by months

100%

75% fuel oil natural gas 50%

25%

0% January February March April October November December

23 of 66 Fuel consumption

A total of 42475,3 tons of fuel oil were consumed in 2009. The realized consumption of fuel oil per certain heat plant and months is given in the following table.

Table 10 ‐ Consumption of fuel oil by months and heat plants (tons) month “East” “West” “11 Oct.” total January 7052.200 4549.560 632.190 12233.950 February 7353.770 3568.050 596.590 11518.410 March 6041.260 2962.840 469.780 9473.880 April 1311.370 649.010 86.760 2047.140

October 0 1195.060 0 1195.060

November 0 2556.820 0 2556.820

December 0 3450.070 0 3450.070 total 21758.600 18931.400 1785.300 42475.330

In the first half of 2009 the fuel oil as fuel for the production of heat was used in all heat plants because since 06.01.2009 the deliveries of natural gas were interrupted and heat plants that used to work on natural gas, switch to fuel oil. In the second half of 2009, only the heat plant “West” used fuel oil as fuel for the production of heat. The heat plants “East” and “11 October” used natural gas as ecological fuel in compliance with the Decision by the State Inspectorate on Environment.

In 2009 a total of 22084835 Nm³ of natural gas was consumed. The realized natural gas consumption per separate heat plants and months is given in the following table.

Table 11 ‐ Consumption of natural gas by months and heat plants (Nm³) month “East” “West” “11 Oct.” total January 2635264 0 324859 2960123 February 0 0 120532 120532 March 0 0 101915 101915

April 0 0 18006 18006

October 2805000 0 266742 3071742

November 6112814 0 582926 6695740

December 8329920 0 786857 9116777 total 19882998 0 2201837 22084835

24 of 66 UNDERTAKEN MEASURES FOR PROTECTION, SAFETY AND EFFICIENCY

Protection of buildings and equipment from external influence and failures and insurance of the buildings and the equipment for performing the energy activity

For an uninterrupted and safe technological process, protection of the property and the employees and the protection of the immediate environment from failures during 2009 the activities envisaged with the our already established plan and submitted to the Energy Regulatory Commission of Macedonia, Plan for protection of equipment and buildings from external influences and failures were completely executed.

Protection at work

Regarding the protection at work, great attention was dedicated to the fulfillment of obligations envisaged with the existing Collective Agreement for the Protection at work of Toplifikacija AD – Skopje regarding the following: - organization and protection at work (preparation of procedures, manuals, transcripts and flow‐charts) - training and qualification of workers for safe work (the newly employed workers, relocated workers and workers that are directly involved in the production process prior to the beginning of the heating season) - occasional reviews and controls of the means and conditions of work (analysis of the reports submitted by the operating units regarding the functionality of the existing plants, the performed preventive and repair activities, setting new plants, reports from attested machines) - health check‐ups of workers who work under special conditions (regular annual controls after the end of the heating season) - regular supply with means for protection at work (uniforms, shoes, etc.) - improvement of the work conditions

Training and expert qualification of the employees due to safe, secure and quality execution of the energy activity

As a constituent part of the heat production process with the aim of the realization of the same with a high degree of efficiency and increase of the level of security and quality of the life of the employees, special attention is dedicated to the training and the expert qualification of the employees, consisting of the following: - when employing new employees and relocating employees to new working post, a theoretical and practical introduction with the activities is conducted and they are preventionally introduced with the potential dangers in compliance with the description of the work post. The introduction is theoretical, performed through discussion and literature and practically with actual examples from the employee’s chief. In compliance with the regulations, the employees are subjected to training performed by an expert organization for protection at work authorized for conducting the training. Occasionally controls of the knowledge and the application of the regulations for secure and safe operations are performed. - Before the start of the season, the employees who are directly involved in the process of heat production are involved in discussions about the prescribed measures necessary to be applied for safe operation.

During 2009 regular annual training of the employees directly involved in the process of heat production and maintaining of the machines and equipment for heat production was conducted. The

25 of 66 biggest raining was performed in the OU for production of heat where the training included 40 employees and where 36 areas were covered. In the operating units for maintaining of machines and equipment about 30 employees were included and 14 thematic areas were covered. In accordance with the testing performed after the completion of the training, all employees show a good professional readiness for a safe, secure and quality performance of their work assignments.

Protection of the environment, the life and health of the people

During 2009 and in the past years, a monitoring was performed of the issue of harmful matter in the air through the ecological measuring of the boilers that are performed once in a month for every boiler. The reports for the performed ecological measuring with the findings were submitted to the Ministry of Environment and Physical Planning.

In compliance with the ban of fuel oil – based operation acquired by the State Inspectorate on Environment, the heat plants “East” and “11 October” during the 2009 exclusively used the natural gas. But, because deliveries of natural gas were interrupted by the Russian supplier, from 06.01.2009 the fuel oil was used as fuel for the production of heat. The use of fuel oil continued till the end of the heating season 2008/2009.

In the first half of 2009 the fuel oil as fuel for the production of heat was used in all heat plants because since 06.01.2009 the deliveries of natural gas were interrupted and heat plants that used to work on natural gas, switch to fuel oil.

The heat plant “West” which due to the non‐constructed natural gas distribution network, used fuel oil, but under a strict control of the competent Ministry (once a month the content of sulphur was controlled in an independent laboratory, every week the boilers were subjected to ecological measuring and measuring of the ambient air in the vicinity of the heat plant, etc.).

The imbedded equipment on all stacks for prevention of release of solid particles in the air was regularly aired and the same is in impeccable functionality.

All this contributed to the non‐existence of ecological incidents that would negatively influence the environment.

Execution of monitoring of own operation

During 2009 continuous monitoring of the own operation was performed through everyday transcripts of parameters in all production units in compliance with the installed software package for “Machine reports”. With this software, all data for the realized parameters at the level of the production unit as well as the data at the level of the heat plant are written down for every hour.

The operating units perform an everyday monitoring on their operation in compliance with the procedures for the maintenance of the machines. The data and the comments from the everyday control are registered in special forms that are controlled by the persons responsible in these operational services.

This year, the system for data acquisition from the operation of the heat plants “East” and “West” was released into use, with which all heat plants are covered with this system.

26 of 66 Securing the conditions for a safe, continuous and quality execution of the energy activity

During 2009 in compliance with the obligations from the Energy Law, all preparations for safe continuous and quality execution of the energy activity – production of heat energy were performed:

- all necessary envisaged positions from the repair plans were completed - all necessary reconstructive and investment actions for safe and secure operation of the production capacities were performed - before the beginning of the heating seasons all controls of the machines (cold and hot testing) were performed - unobtrusive and continuous delivery of fuel was provided ‐ regular training of the employees directly involved in the heat production process and professional expertise performed

Provision of energy efficiency

During 2009 the provision of the energy efficiency of the machines in the heat plants, especially the boilers was continuously secured with the aim of achieving the assigned coefficient of useful action. In compliance with the measurements of the temperature of the flue gases of the boilers and the measurements of the content of oxygen in the flue gases, 25 washings of the boilers were performed in order the energy efficiency of the same to be obtained. That is remarkably more than the number of washings in the 2008 (16 washings), but the reason for this is because in the first half of the year deliveries of natural gas were interrupted and heat plants that used to work on natural gas, switch to fuel oil. Moreover, with the aim of continuously measuring the content of the oxygen in the flue gases, instruments were imbedded in the flue channels and the boilers ВКСМ 20/1 and ВКСМ 20/1 with which all boilers are covered with this measurement that s the best indicator for the efficient operation of the boilers.

REALIZATION OF THE PLAN FOR MAINTENANCE OF THE PRODUCTION CAPACITIES

During 2009 the regular plans for maintenance of the production capacities were realized (Repair Plan) and the plans for reconstructive and investment actions of the same (Additional repair). At the same time, everywhere where it was deemed necessary, the repaired equipment and the machines for the production of heat were also checked. A total of 1503 positions out of the envisaged 1729 positions in the plans for regular repair are finished. The positions from the repair plan that are not realized, are controlled and it was concluded that they can perform their function without intervention and without any consequences on the quality of the delivery of heat and part of them are realized in the scope of the reconstructive actions of the boilers. The most significant investment and reconstructive actions made in the heat plants are the following:

‐ Supply and installation of tank with capacity of water of 225 m3 ‐ Reconstruction of the plumps in the pumping station in order to link the heat plant “East” with heat changer of TE‐TO ‐ Editing the area around heatt plan East (parking, grassed areas, sidewalks, manholes, hydrant system, lighting, video‐etc.) ‐ Supply and installation of 2 (two) controls of gas flow for boiler VKSM 40 / 3 ‐ Repair of roof construction over the command room in heat plant “East” ‐ Auditing and rehabilitation at the top of the concrete chimney in theat plan “East” ‐ Construction of office space for young designers in the assembly room for maintenance ‐ Renovation of sanitary facilities in a machine workshop and fleet

27 of 66 ‐ Repair and replacement of boiler tubes screen VKSM 60 / 1,5 and VKSM 40 / 2,3,4 in heat plant ”East” ‐ Restoration and replacement of screen pipes of boiler BKCM 60/1, BKCM 60/5, BKCM 40/2, BKCM 40/3 and BKCM 40/4 in the heat plant “East” ‐ Dismantling of the sand filter and installation of a new ion filter in a room for HPV in the heat plant “West” ‐ Repairs of the system to raise the boiler burner VKSM 50 / 3 with a hydraulic pump ‐ Supply and replacement of the old pump for recirculation of hot pot VKSM 50 / 4 ‐ Auditing and mechanical cleaning of boilers chimneys VKSM 20 / 1,2 and VKSM 50 / 3.4 ‐ Supply and replacement of instruments for measuring the intensity of the smoke pots VKSM 20/1.2, VKSM 50/3.4 and BKG boilers ‐ Supply, installation and putting into operation of the automatic diesel aggregate 15 KVA in then heat plant “West” ‐ Replacement of existing gas burners from BKG 80 / 1.2e with th combined burners of the boiler BKG 200 / 3, type SKVG ‐A 82, the production of sake ‐ Supply and installation of new boiler for combined burners of BKG 200 / 3 with new burners SKVG type A‐102, production of sake.

28 of 66 DISTRIBUTION OF HEAT ENERGY

The heat distribution sector functions as a complete technological whole in the frames of the company with clearly defined operational assignments in the part of receiving, distribution and giving heat to the consumers at the threshold of the building. This is an activity of public interest in which the price given by the Energy Regulatory Commission of Macedonia has purpose eto cover th cost of operations of the company and allows the realization of return on invested capital.

In 2009 the license for the distribution of heat energy had Toplifikacija AD ‐ Skopje. The structural changes that occurred in Toplifikacija AD ‐ Skopje lead to separation of the distribution of heat energy activities into a separate company established by Toplifikacija AD ‐ Skopje. All employees who were previously part of the sector distribution of heat energy within the Toplifikacija AD Skopje, moved into the newly formed company, Distribucija na toplina DOOEL Skopje. Also in the new company the assets, with which this business operated in Toplifikacija, were invested.

In 2009 Toplifikacija AD ‐ Skopje, as a company, also used the services of Distribucija na toplina DOOEL ‐ Skopje to perform the activity of distribution.

In 2009 in the price of heat energy approved by the Energy Regulatory Commission of Macedonia also included the price for the sector distribution of heat energy. Therefore in 2009 Toplifikacija used this new company as provider for this activity with signed contract to perform this service.

In the subsequent part of this report will be shown the operating results of this activity through Distribucija na toplina DOOEL that pursued this activity in 2009 on behalf of Toplifikacija AD ‐ Skopje.

The financial results of the activity will be shown through Toplifikacija AD ‐ Skopje because the costs and revenues of this activity in 2009 were approved to Toplifikacija AD ‐ Skopje by the Energy Regulatory Commission of Macedonia.

29 of 66 DISTRIBUCIJA NA TOPLINA DOOEL SKOPJE

Organizational structure

Regulated activity distribution of heat energy in 2009 was performed by employed personnel who, with structural changes in the company, during the year moved from Toplifikacija AD Skopje in the newly formed company Distribucija na toplina DOOEL Skopje. Because newly formed company is registered on 27.05.2009 and the employees moved in the new formed company on 01.07.2009, for more adequate consideration, the displayed annual report relates to the whole calendar year and also for the sector distribution of heat energy.

The heat distribution sector functions as a complete technological whole in the frames of the company with clearly defined operational assignments in the part of receiving, distribution and giving heat to the consumers at the threshold of the building.

The following table shows the number of the employees on the basis of their qualification structure and the level in the organizational structure as of 31.12.2009.

Table 13 ‐ Qualification structure Education level Distribution of heat energy VII/2 1 VII/1 12 VI 1 V 4 IV/HSD 36 III/QW 32 I/NQW 1 TOTAL 87

Operating units in the range of the sector for distribution of heat:

‐ OU for distribution of heat ‐ OU for measure and maintenance of the measuring‐regulating equipment (MRE) and invoicing ‐ OU for reception of distribution machines and heating installations ‐ OU for monitoring and remote regulation of the distribution machines ‐ OU for the GIS and documentation

The new company was established in order to increase efficiency and accountability of staff and to be in line with European directives for work in the field of energy that are reflected in the Energy Law. The 5 (five) business that transfer to Distribucija na toplina DOOEL Skopje are now organized into 3 (three) which are individually suitable working units.

Namely, the two working units OU for reception of distribution machines and heating installations and OU for the GIS and documentation that belong to OU Distribution of heat energy transferred in the same OU as one department named department for admission to distribution plants and heating systems and GIS. The success of the operation of the business units are determined according degree of the fulfillment of defined norms.

30 of 66 Distributed heat

The activity distribution of heat energy is performed by the company Distribucija na toplina DOOEL ‐ Skopje. The distribution of the heat is performed mainly through the distribution system that consists of a distribution network and distribution machines. The distribution network is in property of the state. The Company has concluded an agreement for use of the distribution network for a certain amount of compensation and it has the responsibility to maintain and expand the same.

The distribution network consists of channel set pipe works in the length of 185 kilometers and separating pits and the belonging regulations and closing armature. The produced heat is taken from the production capacities in the distribution network and it is distributed to the heat stations of the buildings of the tariff consumers. During 2009 553,417 MWh heat energy was distributed to the tariff customers.

Table 14 – distributed heat energy 2009 2008 Distributed heat energy to tariff customers (MWh) 553,417 567,930

The average flow per lines in the heat distribution network from separate buildings for heat production is the following:

Graph 8 ‐ Flows by heat plant to MW connected capacity

The greater flow of the heat‐carrier after MW connected consumer in the heat plant “West” occurs due to the structure of the connected consumer. The participation of individual residential buildings and business buildings in which the engaged flows are significantly bigger than the theoretic ones is important.

During 2009, 35 network defects are repaired and the same number of defects represents an increase of 11.42% in regard to the previous year (31). Out of the total number of defects, 34 defects are on the secondary network and 1 defect is on the magisterial network.

Reconstructions performed in the repair period of 2009 are given in continuation:

- Cable V1. part: 180, 190, and 200 cable from K29 to S 416 - Reparation with replacement of cable V1.020 part: 090, 100 and 110 to 16 Makedonska Udarna brigada in Avtokomanda

31 of 66 - Partizanska from O. Revolucija to street Nikola Tesla (cable V2. part: 230, 240 and 250) (partizanska) - Cable A1. 020.020 part. 001 cable for library St Cyril and Methodius and primary school (library) - Cable V1.080. part: 001 and 010 cable for old bazaar from MNT till mall Ilinden - Cable V2.310 part:001 – 040 Vodno - Cable V2.310 part:001 – 040 cable through street Nikola Tesla - Skopje fair street Jani Lukrevski V1 020

During 2009 monitoring of 8 reconstructions of the distribution network was performed.

Heating substation

The medium for distribution of the received heat is hot water and the same is distributed to the consumers through heat stations. The heat stations are in function of supplying the consumers with heat energy and they perform fine regulations of temperature of the heat –carrier for the consumers according to the external temperature and measuring the delivered heat energy. The heat stations are connected to the central system for monitoring and management of the distribution system. On the distribution system 3114 buildings are connected through 3427 heat stations. In 2009 a total of 182 circulating pumps are replaced in the heat stations of the buildings and in 2008, 151 pumps. This represents increase for 17% of the number of replace pumps compared with the previous year. This increase is not due to larger number of defects, but the fact that in 2009, 30 pumps are replaced because of the need for greater pressure drops in TA due to embed heat exchangers. Out of the total number of replaced pumps, three pumps were replaced due to increased noise of the same. Circulating pumps the broke down in 2009 is at the same level as in 2008. In 2009 maintenance was performed on 28 different pieces of armature for substations, which saved the company significant money resources in terms of if the same pieces were maintenance in foreign countries or replaced with new pieces, because in Macedonia there is no service units for that kind of specific armature how they should be serviced out or replaced with new one because such specific reinforcement.

Consumers’ care

The users of the services of Toplifikacija AD – Skopje had the possibility of reporting their complaints from the area of delivery of heat during 2009 by a telephone call to the machine and by an e‐mail through the web site of Toplifikacija AD – Skopje and with sms message on the telephone number 071260300, 075496662 и 078205820. In 2009 total number of 25655 messages with complaints was received from the customers. There is increase compared to 2008 for 26.6% and this number represents the largest number of complaints received in the last 3 years.

Registered complaints

In 2009 a total of 34,376 complaints are registered. We classified the complaints in 5 groups: for leaking, heating, requests from customers that are not directly associated with the delivery of heat (requests the measuring devices to be read in their presence, the heat station to be opened or closed, the installation to be emptied due to interventions, etc.), handing complaints (working tasks between working units in the sector through the program REKLAMACII) and complaints on the control and adjustment of parameters with the remote control and management equipment.

32 of 66 The structure of the complaints divided into the five basic groups: leaking, temperature, other requests from the customers, transfer between working units, control monitoring is shown in the following chart:

Graph 9 ‐ Percentage of request by groups

Leaking 9.8%

Temperature 21.1%

Other requests from the customers 7.7% Transfer between working units 20.0% Control monitoring 41.4%

Graf 10 ‐ Total registered complaints per months

8000 7000 6000 5000 4000 3000 2000 1000 0 Jan. Feb. Mar. Apr May. Jun. July Aug. Sep Oct. Nov. Dec. .

The classification of the registered compaints per months has the same tendency of increase and decrease as the recorded calls from the users, i.e. it rapidly increases at the start of the heating season and then gradually decreases. In 2009 the users complained more on the quality of heating (not enough heating, too much heating or the heating is off) and 2.5 times less had problems with leakages of the internal installations. Since 01.09.2009 a new application was put to use for the reception and processing of complaints and interventions TECAC‐P integrated with the module TESAS (Telephone Email Sms Application System).

Monitoring and remote control of the distribution machines

After 8 years from the beginning of the project and 30 mounted heat stations in 2002, now we terminate with 1676 mounted heat stations and 1887 measuring devices. Compared with 2008 there is an increase of 4.1% eof th number of mounted heat stations due to entrance of new buildings in the system and business objects in the project save of heat energy.

It was performed on: - Control of the parameters of the heat stations after regular control , after complaint on the quality of heating and after the request of the other operating units

33 of 66 - Various adjustments of the lines of the regulator and plant interventions - Change of the regime of heat delivery - Reading of the measuring devices

Table 15 – Activities connected with monitoring of heat stations (without reading the measuring devices) 2009 2008 2007 2006 Total control made on parameters in 21039 18945 16754 10644 heat stations and settings

Disconnection and connection of users of heat energy

In 2009 the trend of more connected than disconnected from the existing customers is retained. This year, from the existing customers, 1858 were disconnected and 491 new users were connected.

Measuring and regulations of the delivered heat energy

Activities: - Control and current maintenance of the measuring devices of heat - Calibration of the measuring devices of heat in the repair period - Installation of the equipment for remote reading - Activities for current maintenance of the regulation equipment and communication unit - Connection with the measuring and regulation equipment in the new buildings

In 2009 a total of 3255 measuring points were controlled, from which 112 measuring points are inactive, i.e. they have installed device for measuring of heat energy but they are not yet connected on heating system.

In the repair period 337 ultrasonic flow measuring instruments, 21 mechanical meters and 398 units, were calibrated. In the heating period, two extraordinary calibrations were made due to complaint of accuracy of measuring instruments for heat energy. This year total calibration of 480 new units and 600 new mechanical meters were done. Also 30 measurement devices for heat energy for Skopje Sever and 8 measurement devices for heat energy for Energetika were calibrated. In the heating and repair period 26 monitoring at KSO and 17 replacement of equipment for the Project for saving were installed. With this installed monitoring, coverage of equipment for remote control is 99% of the envisaged measuring stations on which remote control equipment should be installed.

Analysis and projects

Analysis of the specific consumption of heat energy on the collective buildings for 2009:

In 2009 the collection of heat energy among all members in collective residential buildings was performed by the registered energy on the measurement device. With this method of calculation based on consumption, there were opportunity to increase the delivery of heat energy in buildings where all tenants will agree to have greater comfort in terms of ambient temperature and thus bigger invoices for heat energy. The determination of the diagrams of delivery of heat energy, whether carried out by measurements (new buildings) or by written request of users is done by

34 of 66 suppliers of heat. The role of Distributor is to take all technological, technical and organizational measures to keep that diagram. Particular attention is paid to the analysis of the causes of increased consumption of heat energy who continuously or occasionally occur in certain buildings. This condition is neither in the interest nor for the consumers (who pay higher bills), or Toplifikacija AD ‐ Skopje who wants satisfied customers. Each object that shows increased consumption, received complaints and interventions in that period are checked in order to identify whether increased consumption is due to fault in regulation equipment. After the reparation, the object continues to be controlled in order to improve the condition.

Analysis and solutions on problematic objects of the aspect of heating

This year several analyses are made on the object with problematic heating, in which for several reasons, in some point, not enough energy was delivered in the part or in the whole object. In order temporary to solve the problem, extra pump was built. Several analysis concerns problems with newly connected users. At all of them, as a symptom appeared low return temperature heat carrier, and somewhere, uneven heat (greater temperature difference) of the various rooms in the building. It was established that there was air in the installation or impurities in heat bodies as a result of the performance of the installation or because pumps were installed on the weaker speed (lower number of revolutions) of the required.

Analysis of the relationship between external temperature and the number of complaints about heating:

It was established that the number of consumer complaints about the quality of heating, does not depend on external temperature, but the accuracy of the internal installation. Therefore, complaints are most numerous in the first quarter of the season, and then decrease.

Analysis of the return water temperature at ambient temperature different than 20 °C:

It was established that the temperature depends on the return flow in the internal installation of consumers, rather than ambient temperature. Still, there is an influence, but a small one ‐ in greater case, at temperatures of entry and exit from the heating bodies from 90/70 °C, the change of return temperature is 0,35 °C for a change of 1 °C of ambient temperature.

Project Heat ‐ exchangers

From 2004 Toplifikacija AD – Skopje started the implantation of lamella - like soldered heat exchangers in the heat sub‐stations. The main reason for this was the frequent events of clogging in the internal installation of the users especially in the buildings that are located at the end of the distribution network. Annually, the frequency of the clogging with these consumers after the performed intervention of purification is two to three times. This occurrence provokes consumer dissatisfaction. In 2009, from the planed 42 heat ‐ exchangers, 35 were implemented in the system, which is 25% more than in 2008. Up to 2009 there are 133 heat exchanges implemented in the system.

Project Remote regulation of heat stations for the big consumers

The project that was promoted under the name “Let’s be economic with the energy out of our homes” was purposed for the big consumers with the aim of savings of heat energy through the reduction or stoppage of delivery of heat in periods when there are no people in the buildings.

35 of 66 The gain from the project of the end consumer is the reduction of the cost of heat. The gain for the company is the improvement of the competition in situation of expensive energies. The mutual gain is the protection of the environment through the reduced emission of harmful gases in the atmosphere.

Table 17 ‐ Statistics of the project for savings of heat energy through the years 2007 2008 2009 Во однос на 2008 32 Increase for 52% Total number of objects in the project 12 21

Total capacity ( kW) 4414 9339 13617 Increase for 45% Realized savings of heat energy by end 675 2120 3275 Increase for 54% consumers (MWh) Reduced emission of pollutants 205 620 965 Increase for 54% (CО2,СО2,NОx) in the atmosphere (тons)

GIS and documentation

During 2009, technical supervision and adoption of heat channels across the heat network Toplifikacija AD ‐ Skopje was carried out, according to issued projects and technical solutions.

Supervision was done at total 101 objects. On 67 of them final reception was done, while on 44 objects there is still unfinished technical supervision, that continues in 2010. For every admissions, record of technical adoption was made, which is part of the dossier of each newly building in the system. Copies of the minutes are submitted to the OU for GIS and documentation and for the contractor. For all stages of execution of projects for heat water network, a complete record was done within the GIS environment of the information system of Toplifikacija AD ‐ Skopje.

36 of 66 SUPPLY WITH HEAT ENERGY

The supply with heat energy is an activity that deals with heat supply of the tariff consumers, recording and suing the liabilities that result from the relations between the company and the consumers of heat energy.

In 2009 Toplifikacija AD Skopje as a company performed this activity through three companies: ‐ Snabduvanje Zapad DOOEL ‐ Snabduvanje Centar DOOEL ‐ Snabduvanje Istok DOOEL.

In all these three companies Toplifikacija AD ‐ Skopje is the owner. These companies were established in late 2008 in order to separate the activity of supplying of heat energy from Toplifikacija AD Skopje. The aim was to liberalize the market of heat energy, to create competition and ensure better access to consumers of energy and greater costumer care.

In 2009 in the cost of heat energy, approved by the Energy Regulatory Commission of Macedonia to Toplifikacija AD ‐ Skopje contained also the price for activity supply with heat energy. So in 2009, Toplifikacija AD Skopje was using these new companies as providers for this activity with signed contracts to perform this service.

In October 2009, Energy Regulatory Commission of Macedonia gave licenses to these three new companies to perform the activity supply with heat energy. Thus, from January 2010 these companies are fully responsible for carrying out this activity and each received a price for performing this activity. This means that from 2010 Toplifikacija AD ‐ Skopje no longer holds the license for this activity.

In the subsequent part of this report we will show the results of the operational activity through the three companies that pursue this activity in 2009 on behalf of Toplifikacija AD ‐ Skopje. We will show the operating results on the total level of Toplifikacija AD Skopje which represent a consolidation of the results from the three companies that are engaged in this activity.

We will show the financial results of the activity through Toplifikacija AD Skopje because the costs and revenues of this activity in 2009 were approved to Toplifikacija AD Skopje from the Energy Regulatory Commission of Macedonia.

37 of 66 Heat consumer and delivered heat by category of users

The delivered heat and the engaged heat power by categories of consumers connected to the distribution network that regulated activity was performed on, is shown in the following table.

Table 19 ‐ Delivered heat energy and used heat capacity type of consumer Snabduvanje Snabduvanje Snabduvanje Total Istok Centar Zapad collective residential objects Used Heat Capacity MW 346.7 106.41 116.85 123.44 Delivered Heat MWh 363,206.41 111,473.93 122,414.19 129,314.46 individual residential objects Used Heat Capacity MW 12.89 10.09 2.78 0.026 Delivered Heat MWh 13,701.95 10,720.87 2,952.54 27.26 special consumers Used Heat Capacity MW 17.25 6.91 5.27 5.07 Delivered Heat MWh 17,448.72 6,985.00 5,335.19 5,128.52 Business area Used Heat Capacity MW 134.73 25.02 92.27 17.44 Delivered Heat MWh 141,910.07 26,357.80 97,182.58 18,375 Elementary Schools Used Heat Capacity MW 16.22 6.06 6.97 3.1967 Delivered Heat MWh 17,149.83 6,406.94 7,368.01 3,379.90 Total Used Heat Capacity MW 527.79107 154.48307 224.13732 149.17519 Delivered Heat MWh 553,416.98 161,944.54 235,252.52 156,224.70

The following chart shows percentage of delivered heat by type of consumers and total delivered heat energy in the year.

Graph 14 ‐ Delivered heat energy by type of consumer SC ES 3% 3% BA 26%

CLO ILO 66% 2%

38 of 66

The following chart shows delivered heat energy in MWh by months.

Graph 15 ‐ Delivered heat energy by consumer by months

М Wh 140,000 120,000 100,000 80,000 129,586 103,919 105,591 60,000 90,825 30,65 76,237 40,000 16,607 1 20,000 0 Jan Feb. Mar Apr Oct Nov Dec

The following chart shows the participation of months in the heat consumption in percentage.

Graph 16 ‐ Participation of months in consumption of heat energy

Dec Jan 19.1% 23.4% Nov 13.8% Feb. Oct Mar 18.8% 16.4% 5.5% Apr 3.0%

New users connected

During the 2009 test heating was done on 50 buildings with a total installed heat power of 9.468 MW. The following table shows the number of objects and their power by type of buildings in which an experimental heating was installed.

Table 20 ‐ New users connected ‐ test heating Total Snabduvanje Zapad Snabduvanje Centar Type of Number Installed Number Installed Number Installed objects of capacity (МW) of capacity of capacity (МW) objects objects (МW) objects CLO 32 3.329 16 1.630097 16 1.699 BA 15 6.007 0 0 15 6.007 ILO 3 0.131 2 0.1176 1 0.013 Total 50 9.468 18 1.747697 32 7.720

The buildings in which heating test was carried out in a regular mode of operation as new consumers are connected to 45 buildings with a total installed heat power of 7.219 MW.

39 of 66

Connected consumption by category of consumers is shown in the following table.

Table 21 ‐ New users connected Total Snabduvanje Zapad Snabduvanje Centar Type of Number Installed Number Installed Number Installed objects of capacity (МW) of capacity (МW) of capacity (МW) objects objects objects CLO 28 2.218 15 1.4787 13 0.739 BA 14 4.870 0 0.0000 14 4.870 ILO 3 0.131 2 0.1176 1 0.013 Total 45 7.219 17 1.5963 28 5.622

Following chart shows the structure of new users connected by type of consumers

Graph 17 ‐ structure of new users connected

Individual leaving objects Collective 1.4% leavind objects 35.2%

Business area 63.5%

One of the services provided to customers are service for connection and disconnection of customers. The number of disconnected customers is several times greater than the number of customers connected again. The most common reason for requests for exclusion was the inability of consumers to pay the bills for delivered heat energy.

Based on the new tariff system for the sale of heat energy there are two categories of consumers:

‐ households (collective and individual objects) ‐ other consumers (business area, special consumers and elementary schools)

Following chart shows invoiced amount in MW engaged heat capacity by different type of consumers in 2009.

Graph 18 – Invoiced income in unite measure by category of consumers

40 of 66 Collection of accounts receivable

In 2009, according to the contract, the payment of accounts receivable for Toplifikacija AD Skopje from consumers on behalf and on for Toplifikacija AD Skopje was carried out by companies that supply heat energy. The following table shows money inflow by months in respect of an obligation from the previous month and total paid in the year in the correlated with billed.

Table 22 ‐ Money inflow from collection of accounts receivable by months (in denars) period billed period paid differ+/‐ cumulative % 12/08 406,033,469 01/09 171,718,675 ‐234,314,794 ‐234,314,794 42.3% 01/09 233,702,492 02/09 183,937,690 ‐49,764,802 ‐284,079,596 78.7% 02/09 204,438,540 03/09 270,497,651 66,059,111 ‐218,020,485 132.3% 03/09 221,703,990 04/09 226,511,851 4,807,861 ‐213,212,624 102.2% 04/09 105,262,740 05/09 149,367,885 44,105,145 ‐169,107,479 141.9% 05/09 88,898,005 06/09 148,891,437 59,993,432 ‐109,114,047 167.5% 06/09 91,512,698 07/09 142,460,047 50,947,349 ‐58,166,698 155.7% 07/09 86,794,128 08/09 95,195,401 8,401,273 ‐49,765,425 109.7% 08/09 104,575,893 09/09 131,149,057 26,573,164 ‐23,192,261 125.4% 09/09 100,427,335 10/09 149,007,874 48,580,539 25,388,278 148.4% 10/09 161,890,159 11/09 162,361,772 471,613 25,859,891 100.3% 11/09 236,814,414 12/09 256,650,485 19,836,071 45,695,962 108.4% total 2,042,053,863 2,087,749,825 102.2%

Previous table shows that the money inflow is for сса 2.2 % larger than invoiced. From the review it is evident that in the months January and February inflows of money are significantly less than the invoiced amount and in the same period there is highest consumption of fuel and this result with liquidity problem in this period.

The total amount of major inflows in the year is achieved with payments of old debts.

Graph 19 ‐ Monthly collection

(000 ден) 450,000

400,000 credited amount 350,000 colections 300,000

250,000 200,000

150,000

100,000 183,938

50,000 233,702 226,512 131,149 142,460 95,195 236,814 221,704 149,368 91,513 162,362 256,650 171,719 148,891 406,033 88,898 100,427 149,008 86,794 104,576 161,890 105,263 270,498 204,439 0 01/09 02/09 03/09 04/09 05/09 06/09 07/09 08/09 09/09 10/09 11/09 12/09

Collection of account receivables from category other consumers

Category other consumers contains category business area, special consumers and elementary schools.

41 of 66 The realized collection of account receivables from category other consumers for 2009 according to accounts receivable and payments, by months, is shown in the following table.

Table 23 ‐ Collection of receivables from category other consumers (in denars) months Credit amount Balance on Collected in % of 31.12.2009 2009 collection January 148,124,236 10,046,322 138,077,914 93.2% February 128,710,937 7,630,296 121,080,641 94.1% Mart 113,173,949 7,185,073 105,988,876 93.7% April 25,602,209 916,456 24,685,753 96.4% October 52,709,199 13,191,489 39,517,710 75.0% November 127,039,992 52,885,475 74,154,517 58.4%

Graph 20 ‐ Collection of account receivables by month of occurrence – other consumers

Realized percentage of collection of receivables per month from category others consumers in the period before the due payment date and after the due payment date is shown in the following table.

Table 24 ‐ collection of receivables from other consumers in due dates 30 days 60 days 90 days 120 days > 120 days In due date after due after due after due after due after due date date date date date January 20% 44% 69% 79% 82% 91% February 21% 52% 67% 74% 80% 91% March 25% 51% 61% 76% 78% 92% April 29% 54% 68% 71% 73% 93% October 29% 54% 60% 0% 0% 0% November 36% 59% 0% 0% 0% 0%

In the previous table last month is November because collection of receivables for December is in the next calendar year. The collection from the category other consumers is characterized with bad collection in due payment date and 30 days after the due payment date which speaks of liquid problems. Percentage between total invoiced amounts, without December, and the collection of receivables from this category is 84%. It is characteristic that even after a year of due payment date the achieved percentage of collected receivables does not exceed more than 91% to 93% of the invoiced amount. This speaks of severe bad habits and financial lack of discipline from certain customers. It is mostly obvious in small business consumers where measures to sanction such behavior are not

42 of 66 always possible because they are connected to the collective installations and disconnection is possible only if they allow it. The total percentage of collection with this category of consumers is increased with the collection from the previous periods.

The collection of the account receivables from other consumers after due payment date graphically is shown in the following chart.

Graph 21 ‐ Collection of receivables from business users in due date

100%

90%

80%

70% Јануари

60% Февруари

50% Март Април 40% Октомври 30% Ноември 20%

10% во валута 30 дена по валута 60 дена по валута 90 дена по валута 120 дена по валута > 120 дена по валута

Collection of account receivables from households

Category household contains individual residential object and collective residential objects. The collection of the account receivables from households for the current year per months is shown in the following table.

Table 25 ‐ collection of receivables from households (in 000 denars) on 31.12.2009 Balance on % of month Credited amount Collected in 31.12.2008 collection January 88,800,570 1,867,661 86,932,909 97.9% February 87,141,771 1,863,997 85,277,774 97.9% March 85,383,404 1,868,795 83,514,609 97.8% April 77,709,479 454,779 77,254,700 99.4% May 86,456,284 2,370,727 84,085,557 97.3% June 83,822,599 2,585,670 81,236,929 96.9% July 82,452,190 2,767,322 79,684,868 96.6% August 100,700,873 11,927,902 88,772,971 88.2% September 99,870,597 15,012,197 84,858,400 85.0% October 107,688,938 24,494,607 83,194,331 77.3% November 113,588,172 47,960,856 65,627,316 57.8%

End month is November because collection of receivables for December is in the next calendar year.

43 of 66 Graph 22 ‐ Collection of account receivables from sales by month of occurrence – households 110.0% 100.0% 90.0% 80.0% 70.0% 60.0% % collection of receivable per month 50.0% average annual % of collection of 40.0% receivable 30.0% Jan Feb Mar Apr Maj Jun Jull Aug Sep Oct Nev

At the end of the year, category households shows bigger percentage of collections of receivable per months than category other consumers except in several months were we can see bad collection in due payment date and 30 days after the due payment date which results with liquid problems. Collections of receivables per month covers 89% of total invoiced amount, which is cca 5% more than the other categories and still it is not at the satisfactory level.

The collection of receivable from households– residential area for the current year, per months, is shown in the following table.

Table 26 ‐ collection of receivable at category households in due payment date 30 after due 60 after due 90aftere du 120 after month Ine du date date date date due date January 50% 72% 83% 89% 92% February 33% 69% 82% 89% 91% March 42% 69% 82% 89% 91% April 30% 70% 84% 89% 90% May 21% 66% 81% 88% 88% June 37% 70% 84% 88% 0% July 45% 69% 83% 84% 0% August 46% 69% 79% 83% 0% September 51% 63% 73% 81% 0% October 56% 75% 0% 0% 0% November 56% 0% 0% 0% 0%

It is characteristic that even after a year of due date the achieved percentage of collected receivables does not exceed more than 92% of the invoiced amount. This speaks of severe bad habits and financial lack of discipline from certain customers at the category households. Analysis shows that this lack of discipline is most common in the area were live people with lower standard than in the other areas. Most often sanction for this kind of consumers is disconnection from the heating system, which is not always possible because access for disconnection should be allowed by consumers.

The collection of the demands from individual consumers – residential area per due payment date in 2009 is shown in the following chart.

44 of 66 Graph 23 ‐ Collection of receivables from category households per currencies 100% јануари 90% февруари 80% март 70% април 60% мај 50% јуни

40% јули

30% август септември 20% октомври 10% во валута 30 дена по валута 60 дена по валута 90 дена по валута 120 дена по валута

Collection of sued receivables

At the end of 2009, 805,045,354 denars are recorded as sued receivables from delivered heat energy. In 2009, 116,470,865 denars are collected from sued receivables and also there are 244,559,845 denars new sued receivables.

Total balance of sued receivables has increased for 108,088,980 denars.

Table 27 ‐ sued demands in 2009 Balance on Balance on sued receivables collected new sued 01.01.2009 31.12.2009 total 696,956,374 116,470,865 224,559,845 805,045,354

Category households record a total number of 78737 claims with receivables of 538,557,890 denars. From this a total of 538,371,623 denars are main debt and 186,267 denars is interest. During 2009, there are 13,384 new claims in total amount of 152,347,039 denars, and amount of old sued receivables that are collected are 94,618,503 denars. Category other consumers records total number of 266,487,464 sued receivables from delivered heat energy, from which in the name of main dept 265,587.824.5 denars and 899,639.5 in the name of interest. During the year new sued receivables are generated in the amount of 72,024,605.5 denars and old sued receivables are collected in the amount of 21,850,428.5 denars.

45 of 66 SNABDUVANJE ZAPAD DOOEL SKOPJE

Snabduvanje Zapad DOOEL ‐ Skopje is a company for supply of heat energy in private ownership. The company was established in November 2008 by Toplifikacija AD ‐ Skopje as a single partner ‐ founder of the company.

Organizational structure

The organizational structure of the company is composed of:  Directors Bureau  Working unit for sales, collection of receivables and records  Working unit for legal affairs, management, human resources and collection of sued receivables  Work unit for analysis, reception and control of consumers and quality customer service

The organizational structure of company is adapted to carry out priority activities i.e. supply of heat energy.

Number of employees and qualification structure

At the end of 2009 the number of employees in the company was 30.

The composition and the professional degree of the employees enable a complete execution of all foreseen operational activities in the company.

The following table shows the number of the employees on the basis of their qualification structure and the level in the organizational structure as of 31.12.2009.

Table 30 ‐ Qualification structure as on 31.12.2009 OU for legal РЕ for analysis, OU for sales affairs, reception and Required collection of management, control of Directors Biro total qualification receivables and human resources consumers and records and collection of quality customer sued claims service VII/2 2 1 1 1 5 VI/HSD 0 V 0 IV/ESD 20 3 2 25 III/QW 0 II/SQW 0 total 2 21 4 3 30

Operating results from the operating activities for this company are displayed above in the annual report where the results for the activity supply heat energy for Toplifikacija AD ‐ Skopje are shown.

46 of 66 SNABDUVANJE CENTAR DOOEL SKOPJE

Snabduvanje Centar Dooel ‐ Skopje is a limited liability company for supply of heat energy in private ownership. The company was established on 19 of November 2008 by Toplifikacija AD ‐ Skopje as a single partner ‐ founder of the company. According to the agreement for providing services with Toplifikacija AD, Snabduvanje Centar DOOEL provides services for activity supply of heat energy to customers connected to the heating system of Toplifikacija AD Skopje and which are supplied by lines A and B (without line B1) from heat station East and heat station 11th October. Following activities were performed: the delivery of invoices for delivered heating energy, collection of receivables, collection of sued receivables, acceptance of new consumers, preparing materials for determining the prices for the supply of heat energy and other related activities for supply of heat energy. According to agreement No. 02‐2244/1 from 6th of October 2009 of Energy Regulatory Commission of Macedonia, Snabduvanje Centar DOOEL is the license holder to perform the activity supply of heat energy (TE‐08.03.1/09). According to the license, Snabduvanje Centar supplies with heat energy area of municipality Centar ,Municipality Kisela Voda, Municipality Cair and the Municipality Aerodrom.

Organizational structure The organizational structure ofe th company is composed of:

• OU for sale, collection and record ‐ Department for invoicing ‐ Department for measurement • OU for collecting of disputed and sued receivables • OU for analysis, receipt and users control and quality of service

The organizational structure of company is adapted to carry out regulatory activity for which the company hold license, according to law on energy of Macedonia.

Number of employees and qualification structure

At the end of 2009 the number of employees in the company was 30. The composition and the professional degree of the employees enable a complete execution of all foreseen operational activities in the company. The following table shows the number of the employees on the basis of their qualification structure and the level in the organizational structure as on 31.12.2009.

Table 31 ‐ Qualification structure as on 31.12.2009 OU for OU for legal affairs Required OU sales, collection Directors Biro customer and and sued Total qualification and record invoice demands VII/2 ‐ 1 ‐ ‐ 1 VII/1 3 1 ‐ 1 5 VI ‐ ‐ 1 ‐ 1 IV ‐ HSD ‐ 3 18 2 23 III ‐ QW ‐ ‐ ‐ ‐ ‐ II ‐ SQW ‐ ‐ ‐ ‐ ‐ I ‐ NQW ‐ ‐ ‐ ‐ ‐ total 3 5 19 3 30 Operating results from the operating activities for this company are displayed above in the annual report where the results for the activity supply heat energy for Toplifikacija AD ‐ Skopje are shown.

47 of 66 SNABDUVANJE ISTOK DOOEL SKOPJE

Snabduvanje Istok DOOEL Skopje, company for supply of heat energy was established on 18.02.2008 by Toplifikcija AD ‐ Skopje, with the decision of the board of directors No. 02‐5649/1.

The company was established in order to:  to improve the quality of service towards final consumers  to realize the project for collection of receivables for heat energy on apartment level  Liberalization of heat energy market

Energy Regulatory Commission of Macedonia according to agreement No. 02‐2241/1 from 6.10.2009, to the company for supply of heat energy Snabduvanje Istok DOOEL ‐ Skopje issued a license for performing energy activities supply of heat energy with validity of 10 years.

Organizational structure

The organizational structure of the company is composed of:  Directors Bureau  Operating Unit commerce, collection and record  Operating Unit for legal affairs and sued receivables  Operating Unit for analysis, receipt, quality control and customer service

Number of employees and qualification structure

Qualification structure and number of employees on 31.12.2009 is given in the following table. The number of new employees in 2009 is 6; the remaining personnel are taken from Toplifikacija AD Skopje.

Table 32 ‐ Number of employees and qualification structure OU for legal OU for analysis, receipt, Required Directors OU for commerce, collection, affairs and quality control and Total qualification Bureau recording and invoicing sued customer service demands VII /2 2 1 1 1 5 IV/HSD 16 3 3 22 total 2 17 4 4 27

Operating results from the operating activities for this company are displayed above in the annual report where the results for the activity supply heat energy for Toplifikacija AD ‐ Skopje are shown.

48 of 66 FINANCIAL STATEMENTS FOR TOPLIFIKACIJA AD ‐ SKOPJE

Income statement (000 denars)

2009 2008 change 2007 2006 2005 % Sales revenue 1,568,987 1,798,530 ‐12.76% 1,495,346 1,484,731 1,499,787 Costs of delivered heat energy 1,071,220 1,492,277 ‐28.22% 1,170,487 1,287,964 1,003,116

Gross income 497,767 306,253 62.53% 324,859 196,767 496,671

Other operating revenue 74,904 76,970 ‐2.68% 163,891 219,449 164,002 Employee costs 128,006 173,249 ‐26.11% 171,567 170,183 165,982 depreciation 53,426 68,527 ‐22.04% 68,994 67,915 64,854 Amortization of receivables 41,583 687 5952.84% 176,715 27 111,110 Other operating costs 215,450 148,188 45.39% 228,385 249,967 208,307

EBIT 134,206 ‐7,428 1906.76% ‐156,911 ‐71,876 110,420

Financial revenue 45,942 88,353 ‐ 48.00% 51,584 75,765 16,539 Revenue from investments 7,667 0 n.m. 313,919 102,869 0 Financial costs 157,315 73,154 115.05% 71,902 77,177 27,016

Net income before taxes 30,500 7,771 292.48% 136,690 29,581 99,943

Income tax 688 2,572 ‐73.25% 18,987 696 16,642

Net income 29,812 5,199 473.42% 117,703 28,885 83,301

49 of 66 Balance sheet (000 denars) ‐assets

2009 2008 change 2007 2006 2005 % assets Current assets Cash and equivalents 33,150 29,085 13.98% 84,132 20,455 18,607 Accounts receivables 790,612 918,348 ‐13.91% 757,452 883,803 800,080 Receivable for advanced payments 1,718 16,906 ‐89.84% 2,802 6,493 10,100 Other current assets 40,669 28,339 43.51% 55,885 43,210 55,439 inventories 104,720 95,950 9.14% 107,296 100,927 187,897 Total current assets 970,869 1,088,628 ‐10.82% 1,007,567 1,054,888 1,072,123

Non‐current assets Investments in subsidiaries 473,174 204,165 131.76% 203,235 232,740 249,430 Investments in associated companies 462 1,689 ‐ 72.65% 462 315 465 Investments available for sale 5,319 5,640 ‐5.69% 5,640 265,279 241,633 Long term loans 1,584,600 872,218 81.67% 271,191 190 Investment in distribution grid 32,401 230,869 ‐85.97% 198,800 168,221 123,926 Real estate, plant and equipment 812,334 875,208 ‐7.18% 867,825 851,405 879,536 Total non‐current assets 2,908,290 2,189,789 32.81% 1,547,153 1,518,150 1,494,990

Total assets 3,879,159 3,278,417 18.32% 2,554,720 2,573,038 2,567,113

50 of 66 Balance sheet (000 denars) ‐ liabilities and capital

2009 2008 change 2007 2006 2005 % Liabilities and capital Current liabilities Liabilities to suppliers 280,792 569,873 ‐50.73% 507,538 471,908 571,529 Liabilities for advances received 9,497 11,132 ‐14.69% 10,513 7,634 6,247 Short term loans 1,216,094 597,217 103.63% 51,691 48,704 128,113 Current part from long term loans 225,240 0 152,242 63,515 Other current liabilities 116,143 113,886 1.98% 127,177 150,540 103,347 Total current liabilities 1,847,766 1,292,108 43.00% 849,161 742,301 809,236

Long term credits 450,000 407,841 10.34% 107,290 94,270 1,621

Total liabilities 2,297,766 1,699,949 35.17% 956,451 836,571 810,857

Equity Shareholder equity 1,394,100 1,394,100 0.00% 1,394,100 1,394,100 1,394,100 Treasury shares ‐1,257 ‐1,257 0.00% ‐1,257 ‐1,257 ‐1,242 Statutory reserves 98,667 97,887 0.80% 80,231 80,231 67,736 Reserves 3,446 Objective value and other reserves 0 0 0 205,553 166,644 Retained earnings 86,437 87,738 ‐1.48% 125,195 57,840 129,018 Total capital 1,581,393 1,578,468 0.19% 1,598,269 1,736,467 1,756,256

Total liabilities and capital 3,879,159 3,278,417 18.32% 2,554,720 2,573,038 2,567,113

51 of 66 Cash flow Statement (0000 denars) ‐operating activities

2009 2008 change 2007 2006 2005 % Cash flow from operating activities Net income before taxes 30,500 7,771 292.48% 136,690 29,581 99,943 Adjustments for: depreciation 53,426 68,527 ‐ 22.04% 68,994 67,915 64,854 Correction of the value and write off debts 34,000 687 4849.05% 176,715 27 111,110 Amortization of receivables interest 151,138 69,881 116.28% 70,502 76,044 25,565 Cost and revenues from the contract for distribution grid, net 43 ‐6,149 100.70% 1,024 ‐3,509 ‐8,848 Revenues and costs from shortages and surpluses ‐657 10 ‐6670.00% 141 ‐756 ‐7,356 Capital gain from sale of securities 0 0 ‐306,199 ‐92,932 Revenues from dividends ‐7,667 0 ‐7,720 ‐9,937 ‐6,409 Revenues (costs) from previous periods ‐7,667 0 0 0 3,594 Revenues (costs) from investments 0 0 ‐329 59 Gain (Loss) before changes in Current assets 253,116 140,727 79.86% 140,147 66,104 282,512

Accounts receivables 93,736 ‐161,583 ‐158.01% ‐54,901 ‐83,508 ‐276,848 Receivable for advanced payments 15,188 ‐14,104 ‐207.69% 3,691 3,607 ‐8,551 Other current assets ‐25,618 43,487 ‐ 158.91% ‐36,606 30,186 ‐40,650 inventories ‐ 8,113 11,336 ‐ 171.57% ‐6,510 87,726 ‐102,473 liabilities of suppliers ‐289,124 68,484 ‐522.18% 34,606 ‐96,112 322,717 Liabilities for advances received ‐1,635 619 ‐364.14% 2,879 1,387 1,026 Other current liabilities ‐4,204 674 ‐723.74% 64 3,782 ‐5,066 Net cash used in operations 33,346 89,640 ‐62.80% 83,370 13,172 172,667

Paid interest ‐143,833 ‐69,702 106.35% ‐110,047 ‐36,108 ‐25,565 Returned (paid) income tax 12,600 ‐34,701 ‐136.31% 21,132 ‐18,653 ‐28,922 Net cash flow from operating activities ‐97,887 ‐14,763 563.06% ‐5,545 ‐41,589 118,180

52 of 66 Cash flow Statement (000 denars) ‐ investment and financing activities and net cash flow

2009 2008 промена 2007 2006 2005 % Cash flow from investing activities Sold (bought) investments in subsidiaries and active minority investments 1,227 ‐2,157 ‐156.88% ‐453 150 0 Sold (bought) available for sale investments 321 0 360,285 108,195 0 Received dividends 7,667 0 7,720 9,937 6,409 Approved long term loans ‐712,382 ‐601,027 18.53% ‐271,001 ‐190 Purchases for expansion of the Distribution grid ‐38,121 ‐43,067 ‐11.48% ‐39,846 ‐42,774 ‐34,273 Bought PPE ‐42,192 ‐64,912 ‐35.00% ‐76,147 ‐41,305 ‐61,374 Net cash flow from investing activities ‐783,480 ‐711,163 10.17% ‐19,442 34,013 ‐89,238

Cash floe from financing activities Received (paid) short‐term Loans net 618,877 545,526 13.45% 2,987 ‐79,409 52,542 Received (paid) long‐term loans , net 267,399 148,309 80.30% 101,747 156,164 ‐1,358 Bought treasury shares ‐844 0 0 0 0 Paid dividends 0 ‐22,956 ‐100.00% ‐16,070 ‐67,331 ‐74,380 Paid bonuses 0 0 ‐4,570 Net cash flow from financing activities 885,432 670,879 31.98% 88,664 9,424 ‐27,766

Net increase (decrease) in cash 4,065 ‐55,047 ‐ 107.38% 63,677 1,848 1,176 Cash on beginning of period 29,085 84,132 ‐ 65.43% 20,455 18,607 17,431 Cash on end of period 33,150 29,085 13.98% 84,132 20,455 18,607

53 of 66 Notes to the Income Statement

INCOME STATEMENT

Realized financial result Net profit for 2009 is in amount of 29,812 million denars. It has increased in comparison to 2008 for 473.4%. The increase in net profit is due to better positioned heat energy price for 2009.

Operating profit in 2009 is 134,206 thousand denars and has increased compared to 2008 for the absolute amount of 141,634 thousand denars. Unlike in 2008 when Toplifikacija AD Skopje had an operational loss, in 2009 the situation has significantly improved concerning Toplifikacija AD ‐ Skopje had operating profit of 134 million denars. Operating profit is the result of recognition of realized costs of the company in the price of heat energy by the Energy Regulatory Commission of the Republic of Macedonia. With setting the price of heat energy in 2009 by the Energy Regulatory Commission RM one part of the discrepancies are resolved in the total price of the heat energy.

Revenues from sale of heat energy Revenues from sale of heat energy in 2009 amounted to 1,568,987 thousand denars. This income is based on 553,417 MWh sold heat energy. Revenues from the sale of heat energy are lower for 12.76% in 2009 compared to 2008. This is primarily due to the reduced cost of heat energy, which is result of reduced operating cost respectively reduced fuel costs.

Cost of services sold Cost of services sold in 2008 amounts to 1,071,220 thousand denars. These include the cost of fuel (oil and gas), costs for electricity and cost for consumed water. The costs of services sold in 2009 are lower compared to 2008 to 28.22%. This reduction is due to lower prices of fuel oil and natural gas in 2009 compared to 2008.

Other operating income Other operating income for 2008 is in the amount of 74,904 million denars. It consists of income from investment in fixed assets, revenue from connection and disconnection of customers, revenue from approved discounts, income from court fees charge, income from projects, revenues from sale of materials, income from services to other outside parties and other revenues. The largest income in this group arises from investment in fixed assets in the amount of 43,236 million denars. Other operating income recorded growth in 2009 compared to 2008 to 15.0%. This is due to increased revenues from the projects, increased revenues from other services, court charge fees and so on.

Employee costs Employee costs in 2008 are in amount of 128,006 thousand denars. These include gross salaries of employees, cash benefits for employees, cash benefits for managers and other costs associated with employees in the company. These costs are lower by 26.11% compared to 2008 costs. This drastic reduction is due to the restructuring of the company. That is the separation of distribution and supply activities in separate companies and employees of Toplifikacija AD Skopje crossed in those companies. Thus by reducing the number of employees the costs for them also reduced. But because Toplifikacija AD Skopje in 2009 has used the services of the newly established companies for activities connected with distribution and supply of heat energy, costs for services dramatically increased. The main conclusion is that the reduction of employee costs is not result of reduction of fees but due to reducing the number of employees who were transferred in the new companies formed by Toplifikacija to perform activities of distribution and supply of heat energy.

54 of 66 Depreciation Depreciation of the company for 2009 is 53,426 thousand denars. It is calculated by the straight line method for long‐term assets adopted by the company. Depreciation of fixed assets in 2009 is lower compared to 2008 to 22.04%. That's because with the registration of new companies to carry out distribution and supply of heat energy, Toplifikacija AD‐Skopje invested fixed assets as capital, that these companies are using to perform the work. That part of the cost of depreciation of fixed assets passed into new companies.

Amortization of account receivables In 2009 the amortization of account receivables was in amount of 41,583 thousand denars.

Other operating expenses The other operating expenses in 2009 are in amount of 215,450 thousand denars. In this group of expenses are costs of sold goods and services, costs for materials and spare parts, telephone and internet costs, services for maintenance of assets, fees for bank guarantees, costs for payment operations, costs for engaging workers, costs for debt collections, expenses for use of distribution network, costs for court fees, various types of services, contributions, dues and other expenses.

Five main types of costs in this group in 2009 are shown in the next review

Services for carrying out distribution and supply of heat energy 75,003,489 Depreciation of distribution network 43,280,107 Costs for court fees 15,233,636 Services for investment maintenance 7,611,873 Spare parts for investment maintenance 7,137,603

Other operating expenses in 2009 are larger than the same in 2008 to 45.39%. The increase in this group of costs is due to the restructuring of the Toplifikacija‐AD Skopje in 2009 which used services from the new formed companies to perform activities of distribution and supply of heat energy. Due to the use of companies to carry out these activities Toplifikacija AD had cost for these services in 2009 cca 75 million denars.

Financial income Financial income in 2009 amounted to 53,609 thousand denars. This is income from interest from heat consumers, interest income from other companies, from banks and income from investments. The financial income in 2009 is for 39.3% less than in 2008.

Financial expenses Financial expenses in 2009 are in the amount of 157,315 thousand denars. These are interest costs from suppliers and interest costs from bans on taken loans. They are higher compared to 2008 for 115.05%. Large increase in financial expenses is due to loans Toplifikacija AD has taken to realize the investment in the gas plant for combined production of electricity and heat energy TE ‐TO AD Skopje. The amount of interest on these loans in 2009 is cca 88 million.

BALANCE SHEET

Total assets Total assets in 2009 amounted to 3,879,159 thousand denars. They are larger than 2008 to 18.32%. That was mostly due to the increased amount of given long‐term loans to TE‐TO AD Skopje and investments made in expanding the distribution network. Total current assets amounted to 970,869 thousand denars and are less than 2008 for 10.82%. The

55 of 66 decrease is the result of the reduction of receivables from sale. These include cash, account receivables, receivables from advances, prepaid expenses and inventories. Total non‐current assets amounted to 2,908,290 thousand denars and were higher compared to 2008 to 32.81%. Those are investments in subsidiaries and associated companies, available‐for‐sale investments, long‐term loans, investments in heating distribution network and property, plant and equipment.

Account receivables Account receivables in 2009 amounted to 790,612 thousand denars. They are smaller than in 2008 to 13.9%. This is primarily due to the reduced cost of heat energy in 2009 compared to 2008.

Long‐term loans Long‐term loans amounted to 1,584,600 thousand denars. These are long‐term loans given to TE‐TO AD Skopje as investment in building natural gas fired power plant for combined production of electricity and heat. Long‐term loans given in 2009 are higher than in 2008 for 712,382 thousand denars or 81.67%.

Liabilities The total liabilities in 2009 are 2,297,766 thousand denars. They are higher than 2008 for 35.17%. This increase is due to increased short‐term and long term borrowings. Total current liabilities amounted to 1,847,766 thousand denars, higher than 2008 to 43.0%. Those are account payables, payables for advances, short‐term borrowings, other liabilities and accrued expenses.

Account payables The amount of account payables for 2009 is 280,792 thousand denars. Those are liabilities in major part to the suppliers of fuel (fuel oil and natural gas), materials, and fixed assets. They are smaller in terms of 8200 for 50.73%.

Short‐term borrowings The short‐term borrowings in 2009 are 1,216,094 thousand denars. They are higher than 2008 for 103.63% or in absolute amount of 618.877 thousand denars. This increase is primarily due to short‐ term loans taken to invest in gas power plant for combined production of electricity and heat energy. This part of the short‐term borrowings at December 31 2009 is 733,752 thousand denars. These borrowings are temperately solution; the company is in ongoing negotiations with several banks for changing the time frame for reimbursement from short‐term to long‐term borrowings. The other part of the short‐term borrowings is taken for continuous operational activities of the company.

Long‐term borrowings The long‐term borrowings are 450,000 thousand denars. They are larger in respect of 2008 for 10.34%. The increase is due to full usage of the long‐term loan granted for investment in natural gas fired power plant for combined production of electricity and heat.

Equity The equity of the company is 1,581,393 thousand denars. It is comprised of shareholders equity in amount of 1,394,100 thousand denars, statutory reserves in the amount of 98,667 thousand denars, reserves amounting to 3,446 thousand denars and retained earnings in amount of 86,437 thousand denars.

56 of 66 CASH FLOW STATEMENT

Cash flow from operating activities The cash flow from operating activities for 2009 is negative and in the amount of 97,887 thousand denars. This situation is caused by more paid obligations to the suppliers although the accounts receivables are lower in 2009 than in 2008, which means that there is positive cash flow from the account receivables. Part of the paid obligations to suppliers is incurred from the period before 2009 when Toplifikacija had an operating loss in its operations. For purpose to calculate the cash flow from operating activities the income before is adjust for depreciation, amortization of account receivables, interest costs, revenues/costs (net) from using distribution heat network, revenues/costs (net) from inventory shortages and surpluses.

Cash flow from investing activities The cash flows from investing activities is negative and in the amount of 783,480 thousand denars i.e. in 2009 those funds were paid for investments. Most funds are for investment in gas power plant for combined production of electricity and heat in the amount of 712,382 thousand denars. During the year, purchases made for fixed assets for distribution network is in the amount of 38,121 million denars. The investment in existing property, plant and equipment is 42,192 thousand denars.

Cash flow from financing activities Net cash flows from financial activities in 2009 amounted to 885,432 thousand denars. During 2009 the company has taken short‐term loans amounting to 618,877 thousand denars. These loans are taken for settlement of obligations to suppliers and some to invest in gas power plant TE ‐TO AD Skopje for combined production of electricity and heat. In 2009 net inflow of long‐term loans is 267.399 thousand denars.

57 of 66 REPORTING SEGMENTS

Based on the licenses for conducting business activities, Toplifikacija AD‐Skopje is obliged for financial reporting by segments i.e. by regulated business activities. Because of that in the next table is given report for 2009 by segments: production of heat, distribution of heat and supply of heat.

Financial results by segments for 2009 (000 denars) production distribution supply other

Sales revenue of heat energy 1,340,699,545 139,639,859 88,647,776 0 Cost of oil 625,741,218 0 0 0 Cost of natural gas 371,656,553 0 0 0 Consumption of electricity 62,315,514 0 154,140 0 Water consumption 0 11,426,485 12,642 0

Gross income 280,986,261 128,213,374 88,480,994 0

Other revenue 3,338,187 47,581,161 16,001,660 7,982,577 Costs 11,858,103 4,737,526 5,987,273 389,669 Services for current and investment maintenance 4,354,380 5,732,062 1,178,027 0 Insurance for buildings and equipment 3,988,560 406,781 161,416 0 Gross wages 82,956,470 36,132,593 38,545,652 0 Managerial pay and rewards 11,377,435 2,883,780 3,700,439 0 Concession to use the distribution network 0 46,417,767 0 0 Other services 11,647,853 4,505,284 12,358,277 2,026,466 Other costs 16,803,153 2,743,617 4,077,661 230 depreciation 47,914,046 13,589,200 1,722,400 77,901 Costs for contribution, fees, duties and taxes 4,207,620 229,222 13,850,229 0 Amortization of receivables interest 5,000,000 0 36,582,980 0 Cost of goods purchase 0 0 234,821

EBIT 84,216,829 58,416,706 ‐13,681,699 5,253,490

Financial revenue 0 0 39,502,462 6,439,311 Revenue from investments 0 0 0 7,666,962 Financial costs 148,153 0 68,810,275 88,355,694 Net income before taxes 84,068,677 58,416,706 ‐42,989,512 ‐68,995,931

Current assets 527,087,533 56,947,104 218,827,105 168,007,293 Non‐current assets 797,197,781 43,740,106 1,039,259 2,066,311,777 Short term liabilities 911,598,047 56,597,598 17,255,752 755,075,540 Long term liabilities 107,239,678 0 0 450,000,000

The revenues from sale of heat are divided based on the following key Production 89.45% Distribution 8.90% Supply 5.65%

58 of 66 This division of the revenues is based on the approved revenues from sale of heat to each regulated business activity by the Energy Regulatory Commission of Macedonia.

The other revenues are divided based on the place of origination i.e. which business activity had made that revenue.

The costs by segments are generated based on the place of origination i.e. which business activity has made the cost.

The current assets are contained of account receivables, cash, receivables from advances, other current assets and inventories. The account receivables are divided based on the same key for division of revenues from sale of heat. The receivables for advances, inventories and other current assets are confirmed by the place of origination.

The non current assets are property, plant and equipment. The total property, plant and equipment are divided by the place of usage i.e. which business activity is using the assets.

The short‐term liabilities are comprised of account payables, short‐term borrowings and other current liabilities. These liabilities are divided based on place on origination i.e. which business activity has created the liability.

The long‐term liabilities are long‐term borrowings. The division of these liabilities is the same as for the short‐term liabilities, based on place of origination.

Beside the regulated business activities, the company also conducts other business activities. Those are sale of materials, goods and services. The revenues from these activities in 2009 are 7,983 thousands denars, the costs are 2,729 thousand denars, and the realized profit is 5,253 thousand denars.

The financial expenses for 2009 are in amount of cca 88 million denars. That is because of the interests paid to banks on loans that Toplifikacija AD – Skopje had taken for its investment in combined production of electricity and heat. In 2009 these costs aree paid by th profits of Toplifikacija AD – Skopje.

59 of 66 SKOPJE SEVER AD ‐ SKOPJE

Company data

Skopje Sever AD is a company whose business activity is production and distribution of heat energy. Initial construction activities started on 25th of February 1999 and continue during 1999 and 2000. On our request, technical review was done on 17.01.2001, and the company obtained approval to start working with the heat power plant from the Ministry of Transportation and Communications, first heating season started from 2000‐2001. Skopje Sever AD ‐ Skopje is a company founded as wholesale with metal, pipes and appliances, and equipment for central heating from Toplifikacija ‐ Odrzuvanje AD Skopje on 29.09.1998 which has 0.26% of the shares. Toplifikacija AD becomes dominant shareholder with 99.74 % with the decision to raise capital by issuing new shares from the Skopje Sever AD Skopje no.02‐302 / 1 of 17.05.2000,.

Price of heat energy

Skopje Sever AD performs its work in three regulated activities ofc publi interest, according to the Energy Law of the Republic of Macedonia. These activities are production, distribution and supply of heat which are regulated by the Independent Energy Regulatory Commission of the Republic of Macedonia. During 2009 the price of heat was corrected twice by the Regulatory Commission. The first change was made as a result of regular monitoring of expenditure under the Rules for regulating prices of heat energy when the price dropped 24.33%, and the second price change was in August as a result of the application to determine the maximum income under the new rules when the prices wa increased by 8.11%.

Production of heat

Table 33 – heat consumption capacity Capacity 2009 Jan. Feb. Mar Apr. Oct. Nov. Dec. Installed 27.355 27.410 27.414 27.414 25.387 27.977 27.993 Engaged 23.677 23.542 23.268 22.909 20.102 20.116 20.036 Planed Engaged 23.840 23.730 23.640 23.640 24.740 25.300 25.800

Table 34 ‐ Heat consumption of connected users as of 31/12/2009 year services Consumers Installed power (МW) Works power (МW) Individual users 21.841 13.780 Comercial‐standard 3.463 3.223 Special‐kindergarten 0.981 1.073 Primary‐schools 1.706 1.959 Total 27.991 20.035

Table 35 ‐ Fuel consumption of energy in certain types 2009 Jan. Feb. Mar Apr. Oct. Nov. Dec. Total 3 Gas (Нм ) 203760 413751 564629 1182140 Oil (tonnes) 686.9 465.92 420.68 97 1670.5 Total oil 686.9 465.92 420.68 97 178.15 361.75 493.66 2704.06

60 of 66 Table 36 ‐ Consumption of energy fuels by years Single measure 2009 2008 2007 2006 2005 2004 2003 2002 2001 Fuel (t) 2,704.1 2,851.0 3,227.1 3,866.0 3914,4 3806,2 3978,5 3195,4 3195,4 consumpti on of fuel (т/МW) 135.2 112.7 121.1 126.6 128.4 125.9 135.7 109.8 119.8 consumpti (kg/МW,S on of fuel 1 D) 50.2 48.2 48.5 50.9 51.2 47.6 46.8 39.5 44.0

Produced heat

In the following table will be presented realized production of heat by months during 2009.

Table 37 ‐ Production of heat by month 2009 Jan. Feb. Mаrch April Ocт Nov. Dec. Total Planned 6607.0 5389.6 4646.7 1498.9 1783.5 4534.4 6393.5 30853.7 Fuel oil 6944.7 4710.5 4253.2 980.7 16889.1 Natural gas 1806.0 3667.3 5004.6 10477.9 Total 6944.7 4710.5 4253.2 980.7 1806 3667.3 5004.6 27367

Distribution of heat The medium for distribution of heat is hot water and it is passed to consumers through the heat stations. The distribution system is connected to 65 buildings through 94 heat sub‐stations.

Complaints In 2009, are registered total of 1161 complaints in the area of Skopje Sever. Of these, 99 were for leaking (internal installation or heat station), and 173 for the quality of heating.

New connected heat capacity During 2009, 40 new users are connected with a total of 240,000 (W) power installed and 2400 (m2) heating space, and one secondary school of 420,000. (W)

Disconnection of the consumers In 2009, based on a request at least 126 disconnections are conducted, and 180 users (housing and local) of the heat system Skopje Sever are disconnected by force. The disconnections are mostly due to nonpayment of debts.

Supply of heat energy

Submission of lawsuits for individual consumers As of 31.12.2009 lawsuits are submitted to the individual consumers of heat energy who haven’t paid their debts regularly, a total number of 1792 lawsuits with main dept of 19,064,047denars and legal costs of 1,526,300.00 denars.

Collection of account receivables The percentage of collection and flow of funds is one of the most important factors that determine the liquidity of the firm and accurate payment of obligations to suppliers. During the 2009 concrete

61 of 66 actions are taken to improve the collection. 97 new agreements are concluded for installment payment in total amount of 9,463,999 denars. For the concluded agreements there are no additional legal costs. It provides a continuous cash flow. Also, consumer data base is updated in order to improve communication with the consumers and to reduce the lawsuits with insufficient data. The percentage of recovery of sued receivables is 40.29%, although it shows a trend of improvement it is still not satisfactory. The control of installed capacity and heated square meters area are increased. Percentage of payments of receivables according to category of consumers are for category business consumers 106.44% and for category individual consumers 82.75% . Annually, percentage of payment receivables at the consumers is 98.98% which is 4.69% points higher than in 2008 which was 94.55%.

Graph 27 – Collections in respect to invoiced amounts by years

Graph 28 –collection by year in %

62 of 66 TOPLIFIKACIJA INZENERING DOOEL ‐ SKOPJE

Company data

Toplifikacija Inzenering DOOEL ‐ Skopje is a limited liability company founded by Toplifikacija AD ‐ Skopje, in order to perform the following activities: designing and engineering services of distribution network, development and designing of measuring control equipment, reconstruction of substations, as well as engineering services in heating and air conditioning.

The company was established on 09 November 2007 like a limited liability company and it is registered in the trade register as “Company for designing, engineering, trade, transport and etc. Toplifikacija Inzenering DOOEL – Skopje”, Londonska b.b. Street, with the register number 30120070015554 by 15.11.2007. The amount of the founding capital is EUR 5,000, i.e. 306,150 denars.

Organizational Structure

The organizational structure of the company is composed of 4 operating units (OU):

 Designing and engineering of heat distribution network  Engineering services in heating and air conditioning  Development and designing of measuring control equipment  Reconstruction of heat substations

Number of employees and professional degrees

In 2009 the number of the employees was 9, with full‐time working contracts.

The organizational and professional structure of the employees insure the completely carrying out of the main activities of the company, while remaining general, legal and accounting activities are not carried out independently.

The following table shows the number of the employees on the basis of their qualification level:

Number of Education level employees VII/1 6 IV ‐HSD 3 Total 9

63 of 66 CORPORATE GOVERNANCE

Managing structure

The management in Toplifikacija AD – Skopje is organized on the basis of a two‐level system.

The highest managerial body is the Shareholders’ Assembly. The shareholders with their votes elect the members of the Supervisory Board through the Shareholders’ Assembly. In compliance with the legal regulations during the year one regular Assembly is hold on which the results achieved in the past year are discussed. If deemed necessary, as well as following the initiative of the shareholders, special Assemblies may be hold. On the regular Shareholders’ Assembly it have been taken a decision for supplements and changes of Toplifikacija’s Statue, as well as a decision for appointment of a new member of the Supervisory Board Matej Golob Matzele, replacing the member Gorazd Skubin.

The Supervisory Board consists of 5 members. The following are elected members of the Supervisory Board:  Zoran Kovacevski, President of the Supervisory Board, mandate until April 2011  Ljupco Sandrevski, independent member of the Supervisory Board, mandate until April 2011  Elizabeta Kubin Popevska, member of the Supervisory Board, mandate until April 2011  Miran Drobnjak, member of the Supervisory Board, mandate until April 2011  Branko Drobnak, member of the Supervisory Board, mandate until the next Shareholders’ Assembly

The Supervisory Board in its operation elects the members of the Management Board and controls its work. During 2009 the Supervisory Board held 9 meetings on which it brought 7 decisions and 5 previous approvals for making decisions by the Supervisory Board.

Because of the resignation of the member Matej Golob Matzle, at the Supervisory Board meeting on 31st August 2009, it has been taken a decision for appointment of Branko Drobnak as acting member. He will be a member of the Supervisory Board until the next Shareholders’ Assembly, when it will be elected a new member of the Supervisory Board, by the shareholders.

Compensation of the members of the Supervisory Board from Toplifikacija AD ‐Skopje:

Table 38 – realized compensations of members of the Supervisory Board for 2009 Compensation Name and Surname Function Gross salary for membership Total Elizabeta Popevska Kubin member 954,116 96,000 1,050,116 Ljupco Sandrevski Independent member 834,567 96,000 930,567 Zoran Kvacevski president 824,020 96,000 920,020 Miran Drobnjak member ‐ 0 ‐ Branko Drobnjak Acting member ‐ ‐ 0

The Management Board is composed of 7 members. The following are elected members of the Management Board:

 Dr.Ec.Sci. Dimitar Hadimisev, President of the Management Board ‐ mandate until April 2011  Gorgi Ninevski, member of the Management Board ‐ mandate until April 2011

64 of 66  Eftim Pocev, member of the Management Board ‐ mandate until April 2011  Hristo Kirovski, member of the Management Board ‐ mandate until April 2011  Dine Iliev, member of the Management Board ‐ mandate until April 2011  Sonja Boskovska, member of the Management Board ‐ mandate until April 2011  Aleksandra Maroevik, member of the Management Board ‐ mandate until April 2011

During 2009 the Management Board held 44 meetings on which it brought 284 decisions, 11 Rulebooks and Rulebooks of changing and amendments of Rulebooks as well as a plan for organizing of forced temporary holiday, due to economical, technological and structural changes that have been made.

Table 39‐realized compensations of the members of the Management Board in 2009 Compensation Name and surname function Gross salary for membership Total Dimitar Hadzimisev President 1,567,408 96,000 1,663,408 Hristo Kirovski Member 1,245,387 96,000 1,341,387 Gorgi Ninevski Member 1,169,033 96,000 1,265,033 Eftim Pocev Member 1,161,112 96,000 1,257,112 Dine Iliev Member 1,008,444 96,000 1,104,444 Aleksandra Maroevik Member 936,267 96,000 1,032,267 Sonja Boskovska Member 985,915 96,000 1,081,915

Certain members of the Supervisory and Management Board in 2009 employed in the Toplifikacija AD – Skopje moved to the newly established companies.

RISK MANAGEMENT AT THE OPERATION OF THE COMPANY

On the basis of the acquired experience and the problems which it faces in everyday operation, provoked by the influence of the internal and external factors, the company has identified 7 main risks:

‐ Organizational risk ‐ Technological risk ‐ Operational risk ‐ External risk ‐ Financial risk ‐ Liquid risk ‐ System risk

There is an elaborated and adopted risk management procedure for the management of these risks. In the discussions in the frames of the meetings of the Management Board, it was emphasized that two risks are dominant:

Liquid risk System risk

The liquid risk in the company may influence the regular and timely fulfillment of the liabilities towards its creditors, employees and shareholders and the same may appear due to:

‐ Non‐fulfillment of the norms in the part of the collection of the invoiced realization

65 of 66 ‐ Inadequate and untimely approved price of heat energy by the regulatory body. ‐ Limiting the financial assets of the company for the main inputs, i.e. for fuel for very short periods of maturity

The system risk results from the determination of the price of the heat energy in the part of the activities of distribution and supply by the regulatory body.

The company sees the elimination of the influence from this system risk in:

‐ Liberalization of the heat energy market ‐ Diversification in activities that are not under the influence of this risk

POLICIES AND STRATEGIC OBJECTIVES IN THE FUTURE PERIOD

The Management board of Toplifikacija AD – Skopje has defined three strategic objectives with whose realization the company is to overcome the problems it faces in its operation:

‐ Collection of the compensation for heat energy through measuring devices and the collective residential buildings ‐ Liberalization of the heat energy market ‐ Consistent execution of the Policy on Quality

CODE ON CORPORATE GOVERNANCE Toplifikacija AD – Skopje organizes its operation and management in compliance with the Code on corporate management of joint stock companies listed on the Macedonian stock market of securities.

66 of 66