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Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period

ended June 30, 2019

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

TABLE OF CONTENTS KEY FINANCIAL RESULTS OF THE PGE CAPITAL GROUP ...... 3 1. PGE Capital Group...... 4 1.1. Characteristics of activities ...... 4 2. Risks in the Group’s operations ...... 5 2.1. Risk factors and mitigating actions ...... 6 2.2. Strategic risk ...... 10 3. Electricity market and regulatory and business environment ...... 11 3.1. Macroeconomic environment ...... 11 3.2. Market environment ...... 12 3.3. Prices of certificates ...... 20 3.4. Prices of CO2 emission rights ...... 20 3.5. Regulatory environment ...... 22 4. Activities of PGE Capital Group ...... 30 4.1. Business segments ...... 30 4.2. PGE Group's key financial results ...... 31 4.3. Operational segments ...... 38 4.4. Significant events of the reporting period and subsequent events ...... 61 5. Other elements of the report ...... 66 5.1. Significant changes in organisation of the Capital Group ...... 66 5.2. Publication of financial forecasts ...... 68 5.3. Information about shares and other securities ...... 68 6. Statements of the Management Board ...... 68 7. Approval of the Management Board’s Report ...... 69 Glossary………………………………………………………………………………………………………………………………………………………70

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

KEY FINANCIAL RESULTS OF THE PGE CAPITAL GROUP

Period ended Period ended % Key financial data Unit June 30, 2019 June 30, 2018 change PLN Sales revenues* 18 236 12 871 42% million PLN EBIT 2 446 1 859 32% million PLN EBITDA 4 395 3 703 19% million

EBITDA margin* % 24% 29% PLN Recurring EBITDA 3 299 3 803 -13% million Recurring EBITDA margin* % 18% 30% PLN Net profit 1 765 1 296 36% million PLN Capital expenditures 2 543 2 244 13% million PLN Net cash from operating activities 3 193 2 683 19% million

PLN Net cash from investing activities -3 186 -2 905 10% million

PLN Net cash from financial activities 1 -1 122 - million

As at June Key financial data As at December 31, 2018 % change 30, 2019 PLN Working capital 2 606 -3 395 - million Net debt/ LTM EBITDA** x 1.55 1.51

* With regard to introduction of 100% power exchange obligation (the obligation to publicly sell electricity), the lower share of trading was realised bilaterally within the Capital Group than in the first half of 2018. This change significantly attributed to the growth of sales and purchase of electricity (see p. 4.2 of this report) and as a result - level of consolidated revenues and costs. It had limited impact on actual profitability of PGE Capital Group.

** LTM EBITDA - Last Twelve Months EBITDA.

As at June As at June One-offs affecting EBITDA % change 30, 2019 30, 2018 PLN Additional CO emission rights 1 393 0 - 2 million PLN Change in reclamation provision -246 -17 1 347% million PLN Change in actuarial provision -36 0 - million PLN LTC compensations -15 -83 -82% million PLN Total 1 096 -100 - million

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

1. PGE Capital Group 1.1. Characteristics of activities Capital Group of PGE Polska Grupa Energetyczna S.A. (“PGE Capital Group”, the “Capital Group”, “PGE Group”, the “Group”) is the largest vertically integrated producer of electricity and heat in Poland. With a mix of own fuel sources, generation assets and distribution network, PGE Group provides a safe and reliable supply of electricity to more than five million households, businesses and institutions.

The parent company of PGE Capital Group is PGE Polska Grupa Energetyczna S.A. (also “PGE S.A.”, “PGE”, the “Company”, the “Issuer”). PGE Group organizes its activities in six business segments:

CONVENTIONAL GENERATION

Core business of the segment includes extraction of lignite, production of electricity and heat from conventional sources. Rybnik power plant, formally being part of PGE Energia Ciepła S.A. holding, due to character of its operations, has been included in Conventional Generation.

DISTRICT HEATING

Core business of the segment includes production of electricity and heat from conventional sources as well as transmission and distribution of heat.

RENEWABLES

Core business of the segment includes electricity generation from renewable sources and in pumped-storage power plants and provision of ancillary services.

SUPPLY

Core business of the segment includes wholesale trading of electricity on domestic and international market, sale of electricity to final off-takers, trading of CO2 allowances and energy certificates and fuels and provision of services of the Corporate Centre to companies from the PGE Group.

DISTRIBUTION

Core business of the segment includes supply of electricity to final off-takers through the grid and HV, MV and LV infrastructure.

OTHER OPERATIONS

Other operations include provision of services, through the subsidiaries, to PGE Group, which include organisation of capital raising in form of Eurobonds, provision of IT, payroll and HR services, transportation and car sharing services. Its activities also include subsidiaries formed to prepare and implement a project to build a nuclear power plant, to manage investment funds and to invest in start-ups.

The composition of the Capital Group is presented in note 1.3 to the consolidated financial statements.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

2. Risks in the Group’s operations PGE S.A., as the Corporate Centre managing the Group, creates and implements integrated risk management architecture at PGE Group. In particular, it shapes PGE Group’s risk management policies, standards and practices, designs and develops internal IT tools to support these processes, specifies global risk appetite and adequate limits as well as monitors these.

PGE Capital Group companies, as well as other entities from the electrical and power sector, are exposed to a number of risks and threats resulting from the specific operating activities and operating in specific market and regulatory environment.

In PGE Group risk management process is pursued based on the GRC (Governance - Risk - Compliance) model. It allows adaptation and integration of each of the operational areas at all levels of management. Having established a top-level Risk Committee, which reports directly to the Management Board, supervision over the effectiveness of risk management in the Group is ensured. Function definition within corporate risk management allows an independent assessment of particular risks, their impact on PGE Group and limiting and controlling major risks using the capital exposed to risk concept via dedicated instruments. Formation of a separate compliance function within the Group guarantees that PGE Group’s activities are in line with legal conditions and ensures observance of the adopted internal standards.

The PGE Capital Group has consequently developed a comprehensive risk management system. We measure and assess risks in the key companies of the Group. Mechanism allowing identification of areas exposed to risk and risk level measurement methods are constantly verified and developed. Thanks to that, the significant risks concerning various areas of operations are identified and kept within the assumed limits by reducing negative effects of such risks and by taking preventive or corrective measures, in accordance with the presented cycle.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

2.1. Risk factors and mitigating actions The main risks and threats of PGE S.A. and the PGE Group are presented below along with their assessment and outlook in the horizon of the next year.

Risk level Mitigating actions low medium high and main tools used for the management of the risk ↘ ↗ ↔ Risk outlook decrease growth stable Low level Risk does not pose a threat and may be tolerated, Medium level Risk which needs preparation of the proper reaction based on analysis of costs and benefits, High level Intolerable risk, which needs immediate and active reaction, leading simultaneously to limitation of possible consequences and of probability of occurrence thereof. Market and Actions: Prices of electricity and related products – product risks  resulting from a lack of certainty with regard to Using consistent guidance in respect of process organisation in the context of commercial strategy and mid-term Related to prices and planning (strategy for hedging key exposures in the area of electricity and related product trading that correspond the future levels and volatility of commodity ↔ volumes of offered prices relative to open contract positions - this to the adopted risk appetite in the mid-term). products and services particularly concerns electricity and associated  Establishing position hedging levels with consideration given to the results of analysing pricing risk in respect of products (property rights, CO2 emission electricity and related products, VaR-based. Target hedging levels are specified taking into consideration the allowances). Group’s financial standing, including in particular its strategic objectives.  Research, monitoring and analysing the electricity and related products markets in order to optimally use generation and selling capacities. Electricity sales volumes – this risk derives from  Acquiring new customers - diversification of channels to reach final off-takers and diversification of target groups a lack of certainty with regard to the conditions by maintaining an extensive product portfolio and adapting offering to market. determining the demand and supply of ↔  Current clients retention - a diversified portfolio of customer loyalty schemes and client-acquisition activities and electricity, directly affecting the volume of special offers dedicated to former clients who moved over to the competitors. market sales by PGE Group.  Care for a high level of customer service by developing employees’ competences and building relations with business and retail clients.  Use of tools to supporting customer relations processes allows the Group better sales planning and organisation Tariffs (regulated prices) – resulting from the of sales. requirement to approve rates for distribution ↘ services and electricity and heat prices for particular groups of entities.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Property risks Failures – connected with the operation and Actions : degradation over time of energy equipment and  Related to development ↔ Active pursuing of a strategy for building up and modernization of the production capacities. and maintenance of the facilities (maintenance and repair work,  Performing maintenance repairs in line with the highest sector standards – PGE Group’s plants have the lowest assets diagnostics). breakdown rates in the country Damage to property – connected with the  Diversification of the current structure of the production sources due to energy generation technology. physical protection of energy equipment and  Our main generation assets were insured against failure and damage to property .  Assets are insured based on an analysis of insurance costs, capabilities of insurance markets for particular risks or facilities against destructive external factors ↔ (including fire, weather phenomena and for particular types of assets, costs related to asset replacement and potential lost revenue intentional damage).  The reliability of the power supply to the end users has been systematically improved through modernization of the distribution grid. Investment and development – connected with strategic plans for expanding the generation, ↗ distribution and sales potential as well as ongoing investments.

Operational risks Electricity and heat production – connected Actions :

with production planning and impact of the ↔  Optimisation of costs inter alia through monitoring of fuel prices and reserves and securing supply through long- Related to pursuing of factors that determine production capacities. ongoing economic term contracts with suppliers and through price fixing formulas.  processes Fuel management – connected with Sales margins are secured by purchasing deficit CO2 emission allowances uncertainty regarding the costs, quality,  Optimisation of equipment lifecycles and the availability of key assets. timeliness and volumes of fuel supply (mainly  Inspections, repairs and modernisation of the existing assets ↔ coal) and production raw material as well as the  PGE’s active participation in internship programmes and cooperation with educational institutions in order to effectiveness of inventory management secure a pipeline of qualified personnel processes.  Assessment and training of personnel in order to make optimal use of it within the Group’s structures  Conducting an intensive and effective dialogue in order to avoid escalation of potential disputes with the social Human Resources – pertaining to provision of partners and to work out the most favourable solutions with regard to employment and employment costs within personnel with the relevant experience, PGE Capital Group connected therewith. ↗ competences and ability to perform specific tasks. Social dialogue – connected with a failure in achieving agreement between the Group’s ↗ management and employees, what could lead to strikes/collective labour disputes.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Regulatory and legal  Actions: risks Legal changes in support systems – connected  Monitoring of the changes being introduced or proposed provides that our operations in key business segments are with uncertainty as to the future shape of the ↔ carried in compliance with the law and that PGE Capital Group has solutions which take into account potential Related to compliance support system for production of energy. with external and changes in the legal environment internal legal provisions  Active participation of PGE S.A. as the member of the Polish Electricity Committee that opened its office in Brussels. Environmental protection – resulting from Through the Committee’s operations, the Company actively influences proceeding and shaping of EU law and industry regulations specifying which engages a dialogue with the EU institutions. "environmental" requirements energy  Adaptation of internal regulations and practices to make sure that the activities are in compliance with the power installations should meet and what the sector regulations and binding law. principles for using the natural environment are.  Improvement of activities aimed at protecting and improving the state of the environment by implementing ↔ The future environmental regulations and technological and organisational solutions ensuring efficient and effective management in this area. uncertainty concerning their final shape (in  Monitoring of the process of preparing the license application in the PGE Group companies (development, checking particular with regard to the revision of BAT / the completeness of data and documentation, internal arrangements), monitoring the terms of the license, BREF) may translate into a change in the level of monitoring legal changes in terms of license requirements. capital expenditures of the PGE Group.  Giving opinions on activities and documentation in terms of compliance with the law and the Compliance Program, appointment of the function of Compliance Inspector (mainly at PGE Dystrybucja). Concessions – resulting from the statutory  Requests for binding tax interpretations and using the services of external tax advisers. requirement to hold concessions with regard to ↗ conducted operations.

Discriminatory activities – connected with application by the Group of practices that limit ↔ or eliminate competition and infringe on legal regulations or consumer interests.

Taxes – related to uncertainty surrounding the future shape of tax regulations and their ↔ interpretation.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Financial risks Credit risk – connected with the counterparty Actions: default, partial and/or late payment of Related to finance  receivables or a different type of breach of Prior to executing a transaction, a counterparty assessment is carried out and forms a base for applying credit management ↔ contractual conditions (for example failure to limits, that are regularly updated and monitored. Exposures that exceed established limits are hedged in deliver/collect goods or failure to pay for any accordance with the Group’s credit risk management policy.  associated damages or contractual penalties). Applying a central financing model, which assumes – as a rule – that external capital is raised by PGE S.A. PGE Group subsidiaries use a variety of intra-group financing sources and liquidity risk is monitored using periodic planning for Liquidity risk – connected with the possibility of operating, investing and financing activities losing the ability to meet current liabilities and  As regards currency risk and interest rate risk, PGE Group has implemented internal management procedures. PGE ↗ obtaining financing sources for business Group companies execute derivative transactions involving interest rate- and/or currency-based instruments (IRS, operations. CCIRS) only in order to hedge identified risk exposures.

Interest rate risk – resulting in particular from the negative impact of changes in market interest rates on PGE Group's cash flows ↔ generated by floating-rate financial assets and liabilities.

Foreign exchange risk – understood in particular as risk that PGE Group's cash flows denominated in currencies other than the functional currency ↔ are exposed to due to negative exchange rate movements.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 2.2. Strategic risk PGE Capital Group identifies, assesses and analyses risks concerning on-going activities as well as risks that may have an impact on the Group's functioning in a longer timeframe. Assessment of impact on the Group's objectives, image and business continuity is performed at the top management level. This allows us to prepare for arising challenges and ensure the Group's development in the long term.

Unlike threats to PGE's day-to-day business and results, strategic risks might have an impact on strategy implementation and the future of the entire organisation. Their identification is the key to ensuring PGE Group's sustainability.

Presented below are the key identified strategic risks along with their assessment.

Impact     

very low low medium high very high

 Cybersecurity Risk associated with intentional disruption of generation and distribution assets and IT systems used at PGE Group.  Forces of nature Risk associated with more frequent extreme weather events having impact on ability to generate and distribute electricity, as well as prices of generation and distribution costs of electricity and heat.  Legal Risk associated with the changes of national legislation governing PGE Group’s activities and an increase in the volume and scope of EU regulations having impact on the Group  Environmental restrictions Risk connected with stricter environmental restrictions applicable to PGE Group's electricity and heat production and mining activities  Energy policy Risk associated with changes in the concept for the energy sector in Poland and PGE Group’s role in it  Human resources Risk associated with restricted availability of employees who are of key importance to PGE Group's processes  Employee and client safety Risk associated with unexpected events that generate naturally irreversible material losses and heavy injuries or deaths  Competition Risk associated with the development by competition of a product offering that would decrease PGE Group's share of the energy market  Technological revolution Risk of technological change causing a limited competitiveness of electricity and heat production in baseload assets owned by the Group and their distribution using grid assets owned by PGE Group  Macroeconomics and geopolitics Risk associated with changes in economic and geopolitical situation, causing swings in macroeconomic indicators and commodity prices that have impact on PGE Group’s activities

In analysing these risks as threats for PGE, the Company tries at the same time to identify any opportunities that such changes might bring about. Countering risks becomes an opportunity for the Group’s development if it manages to adapt to a changing world in advance.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 3. Electricity market and regulatory and business environment 3.1. Macroeconomic environment PGE Group’s main operating area is Poland, and the domestic macroeconomic backdrop has a substantial impact on Group’s results. At the same time, the condition of Poland’s economy remains largely tied to the situation across the European Union and in global markets. The Group’s financial results are affected by both the situation in specific segments of the economy and the financial markets, which affect the terms of PGE Group’s debt financing.

As a rule of thumb, there is a historical correlation between change in electricity demand and change in the rate of economic growth in Poland. Considering PGE Group’s position on the Polish power generation market, as well as its substantial share in the electricity sales and distribution market, changes in power and heat demand may have a significant impact on the Group’s results.

In the first half of 2019, gross electricity consumption went down by 0.1% y/y. In the analogical period of previous year the electricity consumption increased by 1.9% y/y. The decrease was due to higher temperatures recorded in Poland in the first quarter of 2019. In the first quarter of the average daily temperature reached 2.4°C and was by 3.1°C higher than in the analogical period of the previous year. In the second quarter of 2019 the electricity consumption increased by 1.4% y/y.

Economic trends in the first half of 2019 remained positive in general. According to initial estimates by the Central Statistical Office of Poland gross domestic product (not seasonally adjusted) in the second quarter of 2019 grew by approx. 4.4% y/y (by 0.2 p.p. lower than in the first quarter of 2019) vs 5.2% in the analogical period of 2018.

Diagram: Seasonally adjusted GDP change vs. change in domestic gross electricity consumption.

7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 Seasonally adjusted GDP Gross electricity consumption

Source: Central Statistical Office of Poland, PSE S.A. In the first half of 2019, the average Purchasing Managers' Index (“PMI”) reading for the industry was 48.5 points (53.9 points in analogical period of 2018), thus remained below the 50 points mark, below which the managers surveyed expect the situation in the sector to worsen. In June 2019, the PMI index recorded a value below the threshold of 50 points for the eighth consecutive month, signaling the longest period of continuous economic downturn in the Polish manufacturing sector in six years. What is more, the main index fell from 48.8 points, noted in May, to the lowest level in four months (48.4 points). The most recent reading of the index has reflected an accelerated production downturn and reduced number of new orders, longer delivery times and a faster increase in inventories of purchased items, partly offset by an increase in employment. The Eurozone PMI averaged 48.4 points in the first half of 2019, while it was 56.9 points in the analogical period of the previous year.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Diagram: Manufacturing PMI in Poland and Eurozone (in points).

65 60 55 50 45

Eurozone Poland 50 points (growth/recession)

Source: Markit Economics Development in the Polish economy is reflected by inter alia dynamics in overall industrial production. In the first half of 2019 it went up by 5.1% y/y, compared to 6.2% in the first half of 2018. Production in the whole energy sector increased by 1.9% y/y in the first half of 2019 vs 8.4% in the first half of 2018. The mining segment increased by 5.7% y/y in the first half of 2019 versus decrease by 1.6% in the analogical period of 2018. CPI reading in the first half of 2019 amounted to 1.8% y/y. 3.2. Market environment SITUATION IN NPS

Table: Domestic electricity consumption (GWh).

Q2 2019 Q2 2018 Change H1 2019 H1 2018 Change Domestic electricity consumption 40 565 40 022 1% 85 028 85 110 0% Wind farms 2 691 2 662 1% 7 343 5 830 26% Industrial thermal hard-coal fired power plants 18 542 18 118 2% 39 110 39 957 -2% Industrial thermal lignite fired power plants 10 418 11 917 -13% 21 431 24 194 -11% Industrial gas-fired power plants 2 857 2 192 30% 5 673 4 789 18% International trading balance 2 841 2 286 24% 4 592 3 839 20% Other (industrial plants, hydro power plants, other 3 216 2 847 13% 6 879 6 501 6% RES)

Source: data from PSE S.A. Second quarter of 2019 In the second quarter of 2019, there was a decrease in electricity production from lignite. Lower generation by centrally dispatched generating units (CDGU) was linked to higher supply from non-CDGUs, while the y/y demand remained similar. Higher supply from non-CGDUs resulted from the extended heating season (due to low temperatures at the beginning of May 2019). Other factor that decreased the generation by CDGUs was higher y/y import volumes. The increase in production from hard coal was influenced by the launch of units 5 and 6 in the Opole Power Plant. The launch is connected with the continuous operation of new units – including outside peak hours – which results in lower utilisation of lignite power plants. Lower generation in lignite power plants was also connected with longer maintenance downtimes in the Bełchatów Power Plant (units 2 and 12), as well as the Turów Power Plant (unit 12).

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Energy balance in the National Power System in the second quarter of 2019 y/y (TWh). Energy balance in the National Power System - Q2 2019 42 Energy consumption Energy in Poland ∆ hard coal fired consumption Q2 2019 41 power plants ∆ crossborder other in Poland 40.57 0.42 trade balance 0.37 Q2 2018 ∆ wind ∆ gas fired 0.56 40.02 0.03 power 40 plants

0.67

TWh 39 ∆ lignite fired power plants -1.50 38

Source: own work based on data from PSE S.A.

Chart: Extended heating season in April-May 2019 (average temperature in °C).

25 Exctended heating season in Q2 2019 (average temperature)

5 temperature [degrees Celsius] [degrees temperature 2018 2019 12 degrees Celsius

0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 april may

Source: proprietary computations based on data from IMGW - The Institute of Meteorology and Water Management (average readings for selected stations).

First half of 2019 Domestic energy demand has not changed compared to the base year. Due to strong winds (in the first quarter of 2019), wind generation increased by 1.51 TWh y/y – which meant a decreased need for energy production in thermal power stations in order to balance the energy system.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Energy balance in the National Power System in the first half of 2019 y/y (TWh).

88 ∆ wind 87 1.51

∆ crossborder 86 H1 2018 trade other H1 2019 85.11 ∆ hard coal fired balance 0.38 85.03 ∆ gas fired 85 power plants 0.75 -0.85 power plants

TWh 0.88 84

83 ∆ lignite fired 82 power plants -2.76

Source: own work based on data from PSE S.A.

ELECTRICITY PRICES – DOMESTIC MARKET Day-ahead market (RDN)

Market/measure Unit Q2 2019 Q2 2018 % change H1 2019 H1 2018 % change RDN – average price PLN/MWh 239 210 14% 229 197 16% RDN – trading volume TWh 7.01 5.43 29% 14.33 11.49 25%

Analysis – selected price factors affecting RDN quotations

Factor Unit Q2 2019 Q2 2018 % change H1 2019 H1 2018 % change

CO2 emission rights EUR/t 25.57 14.49 76% 23.59 12.57 88% Polish Steam Coal Market PLN/GJ 11.97 10.76 11% 11.93 10.65 12% Index PSCMI1 Wind generation NPS TWh 2.69 2.66 1% 7.34 5.83 26% International trading TWh 2.84 2.29 24% 4.59 3.84 20% balance Ratio: wind generation/NPS % 6.6% 6.7% 8.6% 6.8% consumption Ratio: international % 7.0% 5.7% 5.4% 4.5% trading/ NPS consumption

In the second quarter of 2019, the average electricity price on the day-ahead market1 was PLN 239/MWh, i.e. 14% higher than the average price (PLN 210/MWh) in same period in the preceding year. The increased electricity price (y/y) was a result of the situation on the related markets: in the second quarter of 2019, prices for CO2 emission rights were by 76% higher than in the same period in the base year. An increase was also observed with regard to coal prices, as the average PSCMI1 was PLN 11.97/GJ in the second quarter of 2019, i.e. 11% higher than in the same period in the preceding year (PLN 10.76/GJ). The wind generation was at the level similar to the one in the previous year. The increase of prices on RDN market was partly mitigated by larger net (+0.6 TWh y/y).

Cumulatively, in the first half of 2019 the average electricity price on the day-ahead market was at PLN 229/MWh, i.e. 16% higher than the average price (PLN 197/MWh) in the first half of 2018. The increase of prices on RDN market was related to cost

1 Statistics calculated on the basis of fixings data. 14 of 73

WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 pressure and situation on related markets. In the first half of 2019, prices for CO2 emission rights were higher by 88% y/y. The average PSCMI1 was PLN 11.93/GJ in the first half of 2019 – by 12% higher than in the same period in the preceding year (PLN 10.65/GJ). Factors easing the dynamics of the increasing electricity prices were: wind generation higher by 1.5 TWh y/y and net import higher by 0.8 TWh y/y.

Chart: Average monthly prices at the day-ahead market in 2018–2019 (TGE).*

300 5

250 229 249 4 197 200

150 TWh

PLN/MWh 2 100

1 50

0 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 2018 2019 Volume - fixing (right axis) Day-Ahead Market (left axis) semi-annual average

* Average monthly price of RDN index calculated on the base of hourly quotations (fixing), weighted by the trading volume. Forward market

Market/measure Unit Q2 2019 Q2 2018 % change H1 2019 H1 2018 % change BASE Y+1 – average price PLN/MWh 270 206 31% 266 198 34% BASE Y+1 – trading volume TWh 28.16 29.24 -4% 49.37 47.31 4% PEAK5 Y+1 – average price PLN/MWh 337 270 25% 340 259 31% PEAK5 Y+1 – trading volume TWh 3.48 1.45 140% 5.66 2.02 180%

Chart: Average monthly prices on the forward market in 2018–2019 (TGE)*.

420 380 370 340

340

300 259 266

260 270 PLN/MWh 220 198 180 140 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 2018 2019 Base_Y+1 Peak_Y+1 Base_Y+1 semi-annual average Peak_Y+1 semi-annual average

* Monthly average index level for forward contracts for the next year (Y+1), baseload and peak, weighted by the trading volume. 15 of 73

Chart: Comparison of average electricity prices on Polish market and on selected European markets in the first half of 2019 (prices in PLN/MWh, average exchange rate EUR/PLN 4.29).

Source: TGE, EEX, Nordpool. Chart: Evolution of spot market prices.

300

250

200

150

PLN/MWh 100 Poland Sweden Germany 50

0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 2018 2019

Source: TGE, EEX, Nordpool.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Price difference on spot market.

140 Poland - Sweden 120 Poland - Germany

100

60 PLN/MWh 40

0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 -20 2018 2019

Source: TGE, EEX, Nordpool.

In the first half of 2019, growth in wholesale electricity prices in neighbouring countries was in the range of PLN 6-18/MWh y/y (i.e. by 4-11%). The price growth in Poland by PLN 31/MWh (i.e. by 16%) was higher than in the neighbouring countries due to differences in the fuel and technological mix. The price differential between Poland and its neighbours increased. In the first half of 2019 the average price of electricity in Poland was higher than in Germany (by PLN 63/MWh), Czech Republic (by PLN 55/MWh) and in Sweden (by PLN 54/MWh). International trading

Chart: Monthly imports, exports and cross-border exchange balance in 2018-2019 (in GWh).

1200 Import Export Balance 1000 800 600

400

GWh 200 0 -200 -400 -600 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 2018 2019

Source: own work based on PSE S.A. data.

In the first half of 2019, Poland remained a net importer of electricity: trading balance reached 4.24 TWh (import 4.89 TWh, export 0.66 TWh). In the analogical period of 2018 the balance amounted to 3,76 TWh (import 4.52 TWh, export 0.76 TWh). The surplus of imports over exports has been constant since March 2017. The leading sources of net imports were: Sweden (balance 1.45 TWh), Lithuania (balance 0.90 TWh), Germany (balance 0.80 TWh) and Ukraine (net import growth to 0.67 TWh). Net import from Czech Republic increased to 0.47 TWh .

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Diagram: Geographical structure of commercial exchange in the first half of 2019 (in GWh).

Source: own work based on PSE S.A. data.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Retail market

The diversity of electricity prices for retail customers in the European Union depends both on the level of the wholesale prices of electricity and fiscal system, regulatory mechanism and support schemes in particular. In Poland in the second half of 20182 an additional burden (over sale price and cost of electricity distribution) for individual customers accounted for 36% of the electricity price and in comparison to EU average of 31%. In Denmark and Germany the proportion of additional charges in the price of electricity exceeded 50%.

Chart: Comparison of average prices for individual customers in selected EU countries in the second half of 2018 (prices in PLN/MWh, average exchange rate EUR/PLN 4.30).

Source: own work based on Eurostat data.

Diagram: The share of additional charges in electricity prices for the individual customers in selected EU countries in the second half of 2018 (prices in PLN/MWh, average exchange rate EUR/PLN 4.30).

1 400 Price of electricity and distribution Taxes and levies 1 200

1 000 864 698 800 302 600 238 123 202 264 159 218 400 102 140 593 554 559 480 492 448 451 200 365 383 379 332

- Denmark Germany Sweden Finland Czechia Latvia Slovakia Estonia Poland Hungary Lithuania

Source: own work based on Eurostat data.

2 Eurostat data are published in semi-annual intervals (during preparation of this report, the data for the first half of 2019 were not yet available). 19 of 73

WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

3.3. Prices of certificates In the second quarter of 2019 the average price of green certificates (index OZEX_A) reached PLN 133 PLN/MWh and was higher by 79% compared to the analogical period of the previous year. An obligation to redeem green certificates increased from 17.5% in 2018 to 18.5% in 2019 – as a result the demand for the certificates increased. The wind generation in NPS in the second quarter of 2019 was at the similar level as in the previous year. The prices of certificates were affected by the awareness of limited supply thereof in future connected with the closure of a certification system for new units and the upcoming end of a 15- year support period for first installations that had entered the system in 2005. The average price for green certificates in the second quarter of 2019 was slightly above the substitute fee, which is PLN 129.78/MWh in 2019.

Chart: Average quarterly prices of certificates (PLN/MWh).

Green certificates (OZEX_A) Yellow certificates (OZEX_A) and substitution fee and substitution fee 120

149 118 117 133 116 116 115 115

113

74 111 111 63 79% y/y 109 110 43 43 -2% y/y 92,04 48,54 129,78

Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19

substitution fee substitution fee

Source: Own work based on TGE quotations.

3.4. Prices of CO2 emission rights EUA (European Union Allowances) prices are one of the key factors determining wholesale energy prices and PGE Group’s financial results. Installations emitting CO2 in the process of electricity or heat production bear the expenses for purchasing EUA allowances to cover the deficit (i.e. the difference between CO2 emissions at PGE Group’s generating units and the free-of-charge allowances received under derogation in accordance with the National Investment Plan). Wherein, last allocations granted free of charge are planned for realisation of investment tasks for 2019. It means that the free allocations in accordance with the currently used method will end in 2020.

In the second quarter of 2019, the weighted average price of EUA DEC 19 reached EUR 25.57/t and was 76% y/y higher than the average price for EUA DEC 18 (EUR 14.49/t) in the similar period of 2018. In the whole first half of 2019 the weighted average price of EUA DEC 19 reached EUR 23.60/t and was by 88% y/y higher than the average price of EUR 12.57/t of EUA DEC 18 in the analogical period of the previous year.

The increase in CO2 emission prices, lasting from 2017, is a result of market perception of the EU ETS reform.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Prices of CO2 emission rights.

30 Volume EUA_DEC (right axis) 100 EUA_DEC (left axis) 90

25 EUA_DEC semi-annual average

80 ) EUA_DEC annual average 23.60 70 20 60 16.51

15 50 EUR/t 12.57 40 10

30 volume (thousand tonnes (thousand volume 20 5 10

0 0

2018-01 2018-02 2018-03 2018-04 2018-05 2018-06 2018-07 2018-08 2018-09 2018-10 2018-11 2018-12 2019-01 2019-02 2019-03 2019-04 2019-05 2019-06

Source: own work based on ICE quotations.

EMISSION RIGHTS GRANTED FREE OF CHARGE FOR YEARS 2013-2020

PGE’s installations accounts were credited with free allowances for heat and energy for 2018, while free allowances for electricity for 2019 will be received by the Group by the end of April 2020, after verification of reports from investments submitted to the National Investment Plan.

At the same time, redemption of emission rights resulting from CO2 emissions in 2018 was completed in April 2019.

Table: Emission of CO2 broken down into electricity and heat production in relation to allocation of CO2 emission rights for 2019 (in tonnes).

Allocation of CO emission rights for Product CO emissions in H1 2019* 2 2 2019**

Electricity 28 194 365 10 623 187 Heat 2 747 609 1 265 990

TOTAL 30 941 974 11 889 177

* Estimates, emissions not verified - the data will be settled and certified by the authorised verifier of CO2 emission on the ground of yearly reports of volume of CO2 emissions.

** Amount of granted CO2 emission rights were confirmed in the Regulation of the Council of Ministers in the first quarter of 2020.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

3.5. Regulatory environment DOMESTIC REGULATORY ENVIRONMENT

PGE Group operates in an environment with a significant impact of domestic and foreign regulations. Below we present a summary of the most significant decisions, which took place in the first half of 2019 and which could have an impact on PGE's operations in the coming years.

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group

Act on promoting of This act intends to support units producing electricity in The law was voted through in Three other ordinances This will secure stable revenue (for up electricity produced in highly-efficient cogeneration in as far as the costs of such December 2018. It entered into are the subject of work to 15 years) covering the costs of highly-efficient production exceed the market price of energy: force on January 1, 2019. On at the Ministry of substantial modernisations of existing cogeneration.  units <50MW - existing and modernised: guaranteed April 15, 2019, the European Energy. cogeneration units and the bonus, the level of which is set by the Minister of Commission approved the construction of new ones. Energy; new and significantly modernised: bonus set support mechanism resulting in auctions, from the Act.  units >50MW - existing and modernised: guaranteed bonus, the level of which is set annually by the ERO On August 21, 2019, three President; new and significantly modernised: bonus ordinances to the Act were set in selection. published. Amendment to the act  Indication of volumes for auctions in 2019 – allowing The draft amendment was The designed solutions affect the PGE on renewable energy auction organisation in 2019. adopted by the Council of CG. sources. Ministers and submitted to  Change in the method of settling the support -  Parliament on July 9, 2019. The organisation of auctions for limitation of positive balance reimbursement only to large volumes will enable the amount of repaid negative balance. The amended las was voted participation of the PGE CG’s  Broadening of the category of prosumer entitled to through by the parliament on projects, but also increase the RES make settlements with discounts on introduction into July 19, 2019 and signed by the capacity and can worsen the the grid of generated and unused energy also to President of Poland on August 9, economics of operation of the PGE entrepreneurs . 2019. It entered onto force on Group’s conventional assets  Broadening of the beneficiaries of the support in the August 29, 2019.  The broadening of using discounts form of premiums obtained outside of an auction to for prosumers to entrepreneurs producers of energy from biomass and biogas in units introducing into the grid the with the capacity of up to 2.5 MW . energy unused by them will  Extension of the age of devices that can be installed in increase the loss of the Supply units applying for support and the time of first segment of PGE Group’s on generation of energy and its introduction into the grid providing service to those entities. from the date of obtaining support.  Extension of the connection agreements until the end of May 2021 for grid connection agreements which can be terminated based on Article 191 of the Energy law Act or which were concluded prior to May 4, 2015 and were not covered by the mode of procedure specified in Article 192 paragraph 1 of the Energy Law Act. 22 of 73

WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group

 Determination of the value of the duty to redeem certificates of origin of energy from renewable energy sources for 2020 to 19.50% (PM OZE A) and 0.50% (PM OZE BIO). Updated energy law -  Introduction of a 100% exchange obligation while Voted through in November - The need to adapt trading strategy to exchange obligation. maintaining the existing exemptions from the 2018, entered into force on new level of power exchange exchange commitment (e.g. renewable energy, January 1, 2019. obligation. cogeneration).  Regulation of reserve sales. Act regulating  Reduction in excise duty rates for electricity. Voted through in November - The act has an impact on Supply electricity prices in  Reduction in transition fee rates. 2018, entered into force on segment companies due to the 2019.  Introduction of maximum sale prices for electricity in January 1, 2019, significantly obligation to specify electricity sales 2019 (in both trade and distribution) and amended in February 2019 and prices in 2019 at the level from 2018 introduction of compensation for trading companies. in June 2019. The latest (specific method of determining the  The amendment introduced various conditions of amendment entered into force prices for particular cases is provided using allowances for the lowered price in the first and on June 29, 2019. in the Act and ordinance). Enterprises second half of 2019. were obliged to adapt to the Act’s  In the first half of 2019, end recipients will be entitled On August 14, 2019, the regulations no later than within 30 for compensation, whereas in the second half – the executive regulations to the days from the date entry into force of selected end recipients will be entitled to request aforementioned Act entered into the ordinance of the minister of Energy price lowering i.e. households, hospitals, one-man force, i.e. ordinance of the on compensations (i.e. by September businesses, micro- and small enterprises. Minister of Energy on the 13, 2019), effective January 1, 2019.  Large and medium enterprises can apply for method of calculating the Supply segment companies will be compensation as part of de minimis support. difference in price and financial entitled to claim compensation. compensation as well as the method of specifying the reference price.

Regulation of the The amendments concern: The regulation was published on - Changes in the rules for granting Minister of Energy  Rules for granting discounts for failure to meet March 15, 2019 and entered into discounts to electricity consumers amending regulation electricity quality parameters and customer service force on March 16, 2019. specify in what circumstances the on detailed rules for quality standards. company must automatically (and not determining and  Introduction of possibility to create separate tariff at the request of the off-taker) grant calculating tariffs and group for off-takers who use electricity for needs of him an appropriate discount. settlements in trade of public road transport. electricity.  Provisions were removed with regard to ceased support scheme for highly efficient co-generation in form of certificates. Regulation on the Low- The drafts set forth detailed rules for the functioning of In February 2019, the public The regulations are The support granted under the Fund Carbon Transport the Low-Carbon Transport Fund established under the consultations on the draft expected to enter into can be used, in particular, for the Fund. Act on Biocomponents and Liquid Biofuels. regulations were ended. force in Q3 2019. construction of the infrastructure for The draft regulation on the detailed conditions for the charging electrical vehicles and for the granting and settlement of support granted under the The ME expects the first production of biomethane used in applications to be filed 23 of 73

WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group

Fund determines, in particular, the maximum amount of in Q4 2019. transport. support, the list of eligible costs and the intensity of support. The draft regulation on the detailed criteria for selection of projects to be granted support under the Fund, specifies the following key criteria: (i) significance of the project for purposes of market development, (ii) appropriateness and relevance of the activities planned and their implementation, (iii) assessment of the planned costs of the project in relation to the scope of works, (iv) organisational capacities of the applicant to complete the project and institutional arrangements for its implementation.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

INTERNATIONAL REGULATORY ENVIRONMENT

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group

Regulations determining within the power sector the methods to achieve greenhouse gas emission reduction targets by 2030

EU ETS directive Combating climate On March 19, 2018, Directive (EU) 2018/410 of the Transposition date for most of Improvement in the competitiveness of and implementing change and performance European Parliament and of the Council amending Directive the directive's provisions into renewable and gas sources to the detriment and delegated acts, of obligations resulting 2003/87/EC to enhance cost-effective emission reductions national law - October 9, 2019. of generation assets using fuels emitting CO2. decision on MSR from the Paris and low-carbon investments, and Decision (EU) 2015/1814, Increase in operating costs for conventional Agreement. was published in the EU's Official Journal, in connection Adoption of the implementing generation of electricity. Development of with which the EU ETS and MSR amendment entered into act on the functioning of the investment incentives force on April 8, 2018. Modernisation Fund expected Option to obtain direct investment support through a CO2 price signal On December 19, 2018 a delegated act was adopted, on before the end of 2020, and the from 2021 from the Modernisation Fund or to develop low-emission harmonised free allocation of emission allowances pursuant first draft of the implementing Innovation Fund. sources. to Article 10a of the EU ETS Directive, including district act is expected to appear in the heating. second half of 2019. On February 26, 2019 a delegated act was adopted on the Innovation Fund.

„Clean energy for all Europeans”

RED II Directive Promoting the The directive was published in the EU's Official Journal Mandatory transposition of the Increase in share of renewables with zero development of on December 21, 2018 and entered into force on directive to national law - by variable cost will cause a change in renewable energy December 24, 2018. June 30, 2021. conventional units' operation profile. sources in the power, Impact on investment programme in district heating and generation segment (including renewables) transport sectors, and district heating by necessity to take into intended for the EU to account development of renewables units. reach the 32% Impact on Supply segment through renewables target in development of prosumer segment, overall consumption by constituting an alternative for end users to 2030. buying energy. EED Directive Promoting The directive was published in the EU's Official Journal Mandatory transposition of the Impact on all segments, i.e. reduction of improvements in energy on December 21, 2018 and entered into force on directive to national law - by growth in energy consumption by taking efficiency as regards December 24, 2018. June 25, 2020. energy efficiency actions. both primary energy consumption and final Impact on Supply segment resulting from energy consumption, costs of white certificate system. intended for the EU to reach its target 32.5% improvement in energy efficiency by 2030.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group Introduction of The regulation was published in the EU's Official Journal A draft Integrated National Plan Regulation's impact is the same as Directives Governance framework for on December 21, 2018, and provisions of importance to for Energy and Climate has been RED II and EED. This results from the fact that regulation implementation of the the electricity sector went into force on January 10, submitted by Poland to the the regulation's key provisions introduce EU's energy and climate 2019. European Commission. mechanisms intended to achieve the EU's targets by establishing a targets specified in these directives, system for setting and The European Commission collectively by EU member states. monitoring targets by expressed its concerns to the member states. draft plan on June 18, 2019. The The most important duty resulting from the European Commission Ordinance is the duty of developing and postulates, among others, an submitting to the EC of a National Energy and increase in the declared Climate Plan – a document with the scope contribution to the Union’s RES similar to the energy policy. The Plan must objective until 2030 from 21% include declaration on the issues concerning, to 25%. among others, emissivity limitation and national contributions to the EU objectives on Deadline for final version of the energy effectiveness and RES resulting plan - by December 31, 2019. respectively from: the amended EE Directive and the new RED II Directive.

EMR regulation Establishment of legal The regulation was officially adopted by the European The majority of the provisions of Capacity contracts executed by PGE Group in framework for further Parliament on March 26, 2019. Then, on May 22, 2019, the regulation will be effective auctions won on the capacity market in 2018 integration of internal the Directive was formally adopted by the Council. The from January 1, 2020. and 2019 will have vested rights protected electricity market. Directive was published in the EU Official Journal on June throughout their entire term. 14, 2019 and after 20 days it entered into force on July 4, 2019. New units which exceed the emissions standard 550 g CO2/kWh (EPS 550) will not be eligible to receive any payments from the capacity market from the entry into force of the regulation (July 4, 2019), except for those which will have concluded contracts by the end of 2019. Existing coal units that exceed the emissions standard 550 g CO2/kWh (EPS 550) and 350 kg CO2/kW/year will not participate in the capacity market from July 1, 2025. Need to include lack of support for existing generating assets after 2025 in assesments of capacity sufficiency. A potential drop in volume of and price for electricity sold on the wholesale market by domestic units. Further business consequences will also result from the way in which the solutions included in the Regulation are implemented wherever there is room to act by national authorities.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group EMD directive Key goals of EMD directive The directive was officially adopted by the European Mandatory transposition of the Impact on the Distribution segment, especially revision: Parliament on March 26, 2019. Then, May 22, 2019, the directive to national law - by as regards restricting activity related to energy  Strengthen the Directive was formally adopted by the Council. The December 31, 2020. storage and operating EV charging stations and consumer's role on Directive was published in the EU Official Journal on June development of flexibility services as well as the electricity 14, 2019 and after 20 days it entered into force on July 4, realisation of obligation to implement market. 2019. intelligent metering.  Protect sensitive customers. Impact on Supply segment, mainly through  New solutions in the imposition of additional information scope of, among requirements for consumers, reduction of time others, electrical car to replace seller, no fees for switching sellers, charging, energy development of contracts with dynamic storage and demand pricing. activation.

The regulations concerning the EU's Multiannual Financial Framework and financing for sustainable economic growth

EU's Multiannual EU's financial framework In March 2019, the European Parliament adopted its Trilogues regarding the regulation Impact of regulation on decrease in funding Financial (income and position on the regulation on the European Regional on the European Regional that can be secured by PGE Group Framework expenditures) Development Fund and the Cohesion Fund, and in Development Fund and the companies for investments. established for 2021- February 2019 it adopted its position on the regulation on Cohesion Fund and the regulation 2027. common rules for European funds. At the same time, in on common rules for European February 2019, the Council adopted a general approach funds – H2 2019. on the both aforementioned regulations. Work at the Council on adoption of Some key issues that are included in the aforementioned a general approach to financial positions and approach, respectively, of the European issues of MFF and the related Parliament and the Council, are as follows: specific legislative acts – H2  Exclude the following from this funding: 2019/2020.  investments in emission reductions at units subject to EU ETS,  investments in generation, processing, transport, distribution, storage and combustion of fossil fuels,  funding for the construction of nuclear power plants and scrapping costs.  Funds are not available under these funds for any investments in renewables unless the national renewables target for 2020 has been achieved. Once the target is achieved, the funds are available.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Segments Regulation Regulation objectives Latest conclusions Next stage Impact on PGE Group EU package for Implementation of In February and March 2019, trialogues were concluded Entry into force of the regulation Possible impact of regulation on availability funding sustainable regulations intended to regarding the regulation on reporting duties and the on reporting duties and the and cost of funding obtained by PGE Group economic growth facilitate funding for regulation on benchmarks. regulation on benchmarks – H2 companies for investments. sustainable economic In March 2019, the European Parliament adopted its 2019. growth in EU. position on the regulation on criteria for assessment of economic activities in terms of their environmental Expected adoption of the general sustainability. approach by the Council regarding Key issues referred to the aforementioned position are as the regulation for criteria based on follows: which economic activities will be  Recognition as environmentally sustainable of assessed to determine whether activities aimed at minimising anthropogenic they are environmentally emissions of greenhouse gasses (without indicating sustainable - the second half of their source). 2019.  Exclusion from environmentally sustainable The Technical Expert Group activities of any activities aimed at improving energy commenced public consulting efficiency of electricity generation with the use of concerning the report on the solid fossil fuels. technical screening criteria – PGE  Introduction of the obligation for the EC to S.A. submitted comments on time determine technical conditions for verification in i.e. in the middle of September what circumstances a given activity can be 2019. recognised as environmentally sustainable. These requirements are to ensure that the following activities will not be recognised as sustainable:  Activities involving generation of electricity with the use of solid fossil fuels,  Activities involving generation of electricity which leads to production of non- renewable waste. In June 2019, the Technical Expert Group, as part of support for the EC’s work, published the report concerning technical screening criteria applied to the evaluation of economic activity to determine whether the given activity is conducted in an environmentally- sustainable manner. According to the Group’s proposal, an economic activity related to gas- and nuclear energy-based generation sources will not be deemed as environmentally- sustainable. At the same time, investments in the transmission and distribution grid to/from these sources will not be deemed as environmentally-sustainable.

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ACTION BROUGHT AGAINST THE EUROPEAN COMMISSION’S DECISION NOT TO RAISE OBJECTIONS TO THE POLISH CAPACITY MARKET

Segments Proceeding Objective of the action Key events Next stage Impact on PGE Group brought Action brought against the European Commission’s decision not to raise objections to the Polish capacity market (SA. 46100), case file no. T-167/19

Proceedings The objective of the action  On February 7, 2018 the European Commission issued a decision It is difficult to estimate the Depending on the outcome of the brought by Tempus is to annul the European not to raise objections to the Polish capacity market (case file no. duration of the proceedings dispute, the case may have an Energy Germany Commission’s Decision not VI 46100). The declassified text was published on the website of before the General Court of the impact on the conditions for the and T Energy to raise objections to the the European Commission on April 18, 2018 and the decision EU, but the British experience performance of capacity contracts. Sweden against the Polish capacity market was published in the Official Journal only on December 21, 2018. shows that they may even take European (SA. 46100)  On November 15, 2018 the General Court of the EU in its several years. Commission (case judgement on the case Tempus Energy and Tempus Energy file no. T-167/19) Technology versus the European Commission (case T-793/14) The proceedings pending before annulled the decision C (2014) 5083 final of July 23, 2014 not to the European Court of Justice raise objections to the aid scheme for the capacity market concerning the appeal in the case proposed by the UK. Tempus Energy and Tempus  On March 14, 2019 Tempus Energy Germany and T Energy Energy Technology versus the EC Sweden brought an action against the EC decision concerning the (case file no. C-57/19 P) may Polish capacity market (case T-167/19). The summary of main have an impact on the action reproaches and arguments brought up in the complaint was brought. published in the EU Official Journal on May 6, 2019. From the published abstract it results, that in their action brought they argue that the EC failed, in particular, to initiate formal investigation proceedings (the second stage of the capacity evaluation mechanism) and that the demand side response (DSR) suffered alleged discriminatory treatment within the Polish capacity market.

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Conventional Generation District Heating Renewables Distribution Supply 14 wind farms 5 conventional power plants 1 photovoltaic power plant Key assets of the 291 908 km 2 CHP plants 14 CHP plants 29 run-of-river hydro power plants - of distribution lines segment 2 lignite mines 4 pumped-storage power plants, including 2 with natural flow

Electricity volumes Net electricity generation Net electricity generation Net electricity generation Electricity distribution Sales to final off-takers 23.71 TWh 4.52 TWh 1.28 TWh 18.13 TWh 21.34 TWh

Heat production Heat production Heat volumes 3.28 PJ 26.12 PJ

PGE Group is the leader of lignite mining PGE Group is the largest electricity One of the leaders in wholesale and in Poland (approx. 90%) producer from RES with market share Second domestic electricity distributor Market position retail trading in Poland of approx. 8% (including biomass co- with regard to number of customers

combustion) PGE Group is also a national leader in electricity and heat generation

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

4.2. PGE Group's key financial results The best way to measure the profitability of energy companies is EBITDA. This is a result before depreciation, amortization, income tax and financial operations, including interest from drawn debt. It approximately reflects cash flows from operating activities and makes it possible to compare the results of companies regardless of the value of their assets, level of debt and existing income tax rates.

PGE Group's consolidated results are composed of the financial results of each of its operating segments. The Conventional Generation segment and Distribution segment made the largest contribution to the Group's result, participating respectively in 48% and 28% of the Group’s EBITDA. District Heating segment accounts for 18% of EBITDA, Supply segment 11%, the Renewables segments contributed 7% to the Group’s EBITDA. EBITDA of the Capital Group by segments (PLN million)

Change y/y → 19% 66% 28% 40% -5% 76% 4 395 I pół.H1 2019 2019

3 703 I pół.H1 2018 2018

2 106

1 269 1 211 1 270 772 603 473 310 222 268

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Key factors affecting recurring EBITDA in PGE Capital Group (in PLN million) – managerial perspective.

6 000

5 500

5 000

4 500

4 000

3 500

3 000

2 500

2 000

Result on Result on the Revenues the sale of EBITDA sale of Costs CO Personnel EBITDA 2 from electricity Other HY 2018 electricity at of fuel costs costs HY 2019 certificates to final producers* customers

Change 1 538 -269 -1 180 -151 -223 -176 -43

Reported EBITDA HY 2018 3 703

One-offs HY 2018 -100

Recurring EBITDA HY 2018 3 803 5 710 1 833 644 272 249 2 467

Recurring EBITDA HY 2019 7 248 2 102 1 824 121 26 2 643 3 299

One-offs HY 2019 1 096

Reported EBITDA HY 2019 4 395

Reversal of impact of total one-offs reducing the reported result

Reversal of impact of total one-offs increasing the reported result

* Revenue from the sale of electricity reduced by the purchase cost of electricity.

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Chart: Structure of assets and equity and liabilities (in PLN million).

79 901 75 905 79 901 75 905 12% 12% 15% 16%

27% 21%

85% 88% 61% 63%

Assets at Assets at Assets at Assets at June 30, December 31, June 30, December 31, 2019 2018 2019 2018 Total equity Non-current assets Non-current liabilities Current assets Current liabilities

CONSOLIDATED STATEMENT OF CASH FLOWS Chart: Net change in cash (in PLN million).

4 500 4 000 3 500 3 000 2 500

2 000 1 500 1 000 500 0 Balance of Cash Purchase of repayments/ Cash and cash Net cash property, plant inflows of and cash equivalents from and equipment loans, Interest paid Other equivalents at January operating and intangible borrowings, at June 30, 1, activities assets bonds and 2019 2019 finance lease

Impact on 3 193 -3 180 439 -163 -281 level of cash

Cash and 1 279 1 287 cash equivalents

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Net debt (in PLN million).

6 000

7 000

8 000

9 000

10 000

11 000

12 000

Increase in Purchase of liabilities due Net financial Net financial debt Net cash from property, plant to the entry debt December 31, operating and equipment into force of Other June 30, 2018 activities and intangible IFRS 16 from 2019 assets January 1, 2019*

Change in net debt -3 193 3 180 881 480

Financial net debt 9 600 10 948 *See note 4 to the consolidated financial statements.

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Conventional District Heating Renewables Distribution Supply Generation

18 236 Sales revenues H1 2019 12 871 H1 2018 9 298 9 142 5 970 6 918 3 101 2 985 3 028 2 920 558 402

42% y/y 56% y/y 4% y/y 39% y/y 4% y/y 32% y/y

4 395 EBITDA 3 703

2 106 1 269 1 211 1 270 772 603 310 222 473 268

19% y/y 66% y/y 28% y/y 40% y/y -5% y/y 76% y/y

2 446 EBIT 1 859

1 216

609 688 503 481 457 271 255 180 95

32% y/y 142% y/y 77% y/y 89% y/y -11% y/y 79% y/y

2 543 Capital expenditures 2 244

1 580 1 298 818 596 283 111 31 48 6 5

13% y/y 22% y/y -61% y/y -35% y/y 37% y/y 20% y/y

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 BALANCE OF ENERGY OF PGE CAPITAL GROUP Table: Sales, purchase, production and consumption of electricity in the PGE Capital Group (in TWh).

Volume H1 2019 H1 2018 % change A. Sales of electricity outside the PGE Capital Group: 50.63 37.80 34% Sales to end-users * 21.89 20.73 6% Sales on the wholesale and balancing market 28.74 17.07 68% B. Purchases of electricity from outside of PGE Group (wholesale and 23.40 7.12 229% balancing market) C. Net production of electricity in units of PGE Capital Group 29.50 32.92 -10% D. Own consumption DSO, lignite mines, pumped-storage power 2.27 2.24 1% plants (D=C+B-A) * Sale mainly by PGE Obrót S.A. and PGE Energia Ciepła S.A.

The total volume of purchased and generated electricity is higher than the volume of electricity sold. The difference presented in point D results from the necessity to cover grid losses in the distribution business (Distribution System Operator), consumption of energy at lignite mines and consumption of energy at pumped-storage power plants.

An increase in the volume of electricity sales and in the volume of electricity purchases result from the higher trading in electricity on the power exchange, which has been caused by the introduction of the 100% power exchange obligation.

Part of the increased volume of sales to end customers is a consequence of difficult situation on retail market in 2018 resulting in bankruptcy of some companies that sold electricity to end customers and fulfilling the reserve seller by PGE Group companies. In addition absence of an active sales market is reflected in a smaller migration of customers between the retail sale companies.

Production of electricity

Table: Electricity production (TWh).

Electricity generation volume H1 2019 H1 2018 % change Electricity production in TWh, including: 29.50 32.92 -10% Lignite-fired power plants 17.01 19.25 -12% Coal-fired power plants 6.39 7.93 -19% including co-combustion of biomass 0.02 0.05 -60% Coal-fired CHP plants 2.41 2.44 -1% including co-combustion of biomass 0.01 0.01 0% Gas-fired CHP plants 2.26 2.24 1% Biomass-fired CHP plants 0.13 0.08 63% CHP plants fuelled by municipal waste 0.02 0.00 - Pumped-storage power plants 0.33 0.20 65% Hydroelectric plants 0.27 0.25 8% Wind power plants 0.68 0.53 28% including RES generation 1.13 0.92 23%

The level of electricity generated in the first half of 2019, as compared to the first half 2018, was affected mainly by lower generation at lignite-fired power plants (a decrease by 2.24 TWh) and at hard coal-fired power plants (a decrease by 1.54 TWh). This is primarily a result of lower load factors and longer downtime of reserve units, mostly due to lower demand from the national power grid and higher generation of wind energy and electricity import. In addition, lower production results from the modernisation of units in the Opole power plant and the Turów power plant (see p. 4.2 of this report).

Lower generation at lignite-fired power plants results from lower average load factors at the Bełchatów power plant (by 26 MW, i.e. by 8%) and at Turów power plant (by 26 MW, i.e. by 16%). Furthermore, lower generation results from the longer repair- related downtime of units. Units no. 2-14 in Bełchatów power plant were in overhauls longer by 2 041 h (unit no. 2 has been in modernisaton since February 28, 2019) while units in Turów power plant were in overhauls longer by 736 h (unit no. 1 has been in renovation since May 2018 and unit no. 3 since April 2019).

Lower generation at hard coal-fired power plants results mainly from lower generation at the Opole power plant which was caused by the longer (by 5 320 h) repair-related downtime of units 1-4 (unit no. 1 has been in renovation since December 29, 2018) and by a lower load factor of units 1-4 (by 33 MW, i.e by 13%). The above effect was partly compensated by electricity 36 of 73

WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 generation from unit no. 5 at the Opole power plant (0.69 TWh)3. Lower generation at the Dolna Odra power plant results from longer reserve downtime of units by 4 850 h (including longer by 2 537 h reserve downtime of units 1 and 2 used by PSE S.A. as cold reserve) and longer by 323 h downtime of units being in overhauls. Lower generation in the Rybnik power plant was caused by longer reserve downtime of units 3-8 (by 4 607 h) and lower load factor (by 6 MW), what was partly compensated by shorter by 3 257 h time of units 3-8 in overhauls.

Generation at hard coal-fired CHP plants and gas-fired CHP plants remained at similar level as in the base period.

Higher generation at wind farms results from better wind conditions in months: February, March and May. Load factor at wind farms in the first half of 2019 was higher by 6 p.p. on average.

Higher production in pumped-storage power plants results from the nature of these generation units which were used more extensively by PSE S.A. in the first half of 2019.

Higher production at biomass CHP plants results from technical conditions for operation of the boiler at the Szczecin CHP plant, where higher production of electricity was necessitated by lower heat generation (result of higher external temperatures) in order to keep the technical minimum of boiler operation.

Higher generation in hydro power plants was triggered by more favourable hydrological conditions.

Generation from municipal waste is a result of commissioning of thermal waste processing installation with energy recovery in Rzeszów in the third quarter of 2018.

Table: Production of heat (PJ).

Heat production volume H1 2019 H1 2018 % change Heat production in PJ, including: 29.40 29.87 -2% Lignite-fired power plants 1.51 1.50 1% Coal-fired power plants 0.50 0.42 19% Coal-fired CHP plants 21.22 21.69 -2% Gas-fired CHP plants 5.24 5.22 0% Biomass-fired CHP plants 0.76 0.93 -18% CHP plants fuelled by municipal waste 0.06 0.00 - Other CHP plants 0.11 0.11 0%

External temperatures contributed more than any other factor to lower generation of heat in 2019 (y/y). As compared to 2018, the average temperature was by 0.6°C higher, which translated into lower production of heat (by 2% or 0.47 PJ) by CHP plants and power plants. Sales of heat

In the first half of 2019 the heat sales volume in PGE Capital Group totalled 28.47 PJ and were lower by 0.43 PJ y/y. The above result was caused mainly by lower demand for heat due to the higher average outside temperatures by 0.6oC y/y.

3 The above the list includes production of units no. 5 and 6 of the Opole power plant since the start of the test run, i.e. from May 1, 2019 for unit no. 5. Production from unit no. 6 is not presented (test run from August 30, 2019).

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This segment includes lignite mining, generation of electricity in conventional sources.

The main source of revenue in the Conventional Generation segment is revenue from the sale of electricity on the wholesale market, based on electricity prices that are shaped by supply and demand mechanisms, taking into account the variable costs of generation. At the same time, the segment's key cost items, given their size and volatility, and thus their impact on operating results, are the cost of production fuels, mainly hard coal and natural gas, as well as fees for CO2 emissions. Lignite-based production, which is of key significance for the Group, is based on own mines, therefore its cost is relatively stable and reflected mainly in fixed-cost items, i.e. personnel costs, third-party services and depreciation.

A significant item in the segment's revenue constitutes revenues from the provision of regulatory system services based on an agreement with the Polish transmission system operator, PSE S.A. This revenue is in parallel to revenue generated on the electricity market and is related to the need to ensure stable operations for the national power system. Regulatory system services are provided by power plants of PGE GiEK and by Rybnik power plant.

In addition, this segment generates revenues from sales of heat produced both at industrial plants and at the Szczecin CHP plant and Pomorzany CHP plant which form part of Zespół Elektrowni Dolna.

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Conventional Generation segment consists of: 2 lignite mines, 5 conventional power plants and 2 CHP plants.

Conventional Generation is the leader of lignite mining (its share in the extraction market of this raw material accounting for 88%4 of domestic extraction), it is also the largest generator of electricity as it generates approx. 33%5 of domestic gross electricity production. The generation is based on lignite extracted from mines owned by the company as well as hard coal and biomass.

Diagram: Main assets of the Conventional Generation segment.

Ec. Szczecin 76 MWe

Ec. Pomorzany 134 MWe MWe MWe El. Dolna Odra 1 362 MWe MWe

El. Bełchatów 5 298 MWe

El. Turów 1 499 MWe

El. Opole 2 450 MWe El. Rybnik 1 840 MWe

El. - power plant Hard coal Lignite Ec. - CHP plant Biomass

4 Own calculations based on data from Central Statistical Office 5 Own calculations based on data from PSE S.A. 39 of 73

WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 KEY FACTORS FOR THE RESULTS OF THE SEGMENT Chart: Key changes of recurring EBITDA in Conventional Generation (in PLN million) – managerial perspective.

2 800

2 300

1 800

1 300

800

300

Result on the Electricity Electricity Revenues optimization EBITDA production production from Costs Costs of Personnel EBITDA of the Other difference difference in agreement H1 2018 electricity of fuel CO2 costs H1 2019 in volume price with TSO trade Change -642 1 696 105 18 -54 -1 036 -71 21 Reported EBITDA H1 2018 1 269 One-offs H1 2018 -15

Recurring EBITDA H1 2018 1 284 4 679 84 164 1 009 572 1 340 Recurring EBITDA H1 2019 5 733 189 182 1 063 1 608 1 411 1 321 One-offs H1 2019 785

Reported EBITDA H1 2019 2 106

Reversal of the impact of the sum of one-off events reducing the reported result Reversal of the impact of the sum of one-off events improving the reported result

Key factors affecting the recurring EBITDA result of Conventional Generation segment on y/y basis included:

 Lower electricity production volume in PGE GiEK by 3.7 TWh due to lower degree of use of units by PSE S.A. resulting from

decreased demand in NPS and higher wind generation (see p. 3.2 of this report).  Increase in electricity sales prices (see p. 4.2 of this report).  Higher result on optimisation of electricity portfolio due to higher volume of electricity trading by 7.4 TWh (PLN +127 million), with lower margin realized on electricity trading by PLN 1.6/MWh (PLN -20 million).  Higher revenues from ancillary control services, mainly higher revenues from Operational Capacity Reserve (“OCR”) in Rybnik power plant due to higher volume of capacity at disposal (units 1 and 2 in downtime in the first quarter of 2018).  Higher fuel consumption costs, mainly hard coal, due to higher prices of hard coal on the domestic and international market, what directly translated into higher contractual prices. The above effect was limited due to lower production based on this fuel. Main changes on different types of fuel are presented on the chart below.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

 Higher CO2 costs as a result of higher price of allowances and lower allocation of allowances granted free of charge. The above

effect was reduced as a result of lower emissions of CO2 due to lower electricity production. Main changes are shown in the chart below.  Higher personnel costs mainly due to ongoing process to optimise salaries.

Chart: Costs of production fuels consumption in Conventional Generation (in PLN million).

1 100 + 9.03 + 6.43 + 0.08 + 2.98 + 0.15 PLN/GJ PLN/GJ GJ m 1 050 - 15.90 PLN/GJ GJ m GJ m 1 000

950

900

850

800

750

700

650

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Cost of fuels Hard coal Biomass Light and Light and Cost of fuels Hard coal price Biomass price H1 2018 volume volume heavy oil heavy oil price H1 2019 volume

Change -177 206 3 13 3 6 Fuels H1 2018 1 009 946 38 25 Fuels H1 2019 975 54 34 1 063

Table: Data on use of production fuels consumption in Conventional Generation.

H1 2019 H1 2018 Fuel type Volume Cost Volume Cost (tons ths) (PLN million) (tons ths) (PLN million) Hard coal 3 158 975 3 927 946 Biomass 213 54 190 38 Fuel oil – light and heavy 752 34 673 25 TOTAL 1 063 1 009

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: CO2 costs in Conventional Generation segment(in PLN million).

1 800 + 49.3

PLN/t CO2 1 600

1 400

1 200

1 000

800 - 1.71 - 4.11 m t CO2 m t CO 600 2

400

200

Allocation of free CO costs Average CO costs 2 allowances for CO CO emission 2 H1 2018 2 2 CO costs H1 2019 emissions 2

Change 40 -96 1 092

CO2 costs H1 2018 572

CO2 costs H1 2019 1 608

Table: Capital expenditures incurred in Conventional Generation segment in the first half of 2019 and 2018.

PLN million H1 2019 H1 2018 % change

Investments in generating capacities, including: 1 336 1 043 28%  Development 787 597 32%  Modernisation and replacement 549 446 23% Other 31 24 29% Rybnik power plant 32 64 -50% TOTAL 1 399 1 131 24% Capitalised costs of overburden removal in mines 181 167 8% TOTAL with capitalized costs of overburden removal 1 580 1 298 22%

KEY DEVELOPMENTS IN THE FIRST HALF OF 2019 IN THE CONVENTIONAL GENERATION SEGMENT Key development investments:

 On January 15, 2019 the generator in unit no. 5 at the Opole power plant was initially synchronised with the national power system.  On February 7, 2019 unit no. 5 at the Opole power plant reached capacity of 931 MWe.  On March 29, 2019 annex no. 9 was signed to the contract for the construction of unit no. 7 at the Turów power plant.  On April 19, 2019 the coal-fired boiler in unit no. 6 at the Opole power plant was put in operation.  On May 14, 2019 unit no. 6 at the Opole power plant was synchronised with the NPS for the first time.  On May 31, 2019 unit no. 5 at the Opole power plant was commissioned.  On June 12, 2019, a contract notice in a tender for the selection of the General Contractor for the construction of two gas-steam units in PGE GiEK S.A. Branch Zespół Elektrowni Dolna Odra was published.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Key modernisation investments related to emission reductions:

 On January 26, 2019 the trial run of unit no. 2 at the Turów power plant was performed after its modernisation.  On January 31, 2019 the SCR installation of boiler B was put into operation in the Pomorzany power plant.  In February 2019, commissioning reports were signed for the AKPiA island, generator and electro-filter island and boiler island in unit no. 2 at the Turów power plant after their modernisation.  On March 1, 2019 unit no. 2 at the Bełchatów power plant was stopped for modernisation.  On April 1, 2019 unit no. 3 at the Turów power plant was stopped for modernisation.

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Capital Capital expenditures expenditures Budget (net, incurred so far in H1 2019 Fuel/ Net Expected date of Aim of the project without costs Contractor Status (net, without (net, without efficiency completion of financing) costs of costs of financing) financing) Construction of new units in Opole power plant Construction of PLN 10.94 PLN 9.66 billion PLN 473 million Hard coal/ Syndicate of companies: unit 5 – June 15, On May 31, 2019 unit no. 5 was placed into commecial two power units of billion 45.5% Rafako, Polimex-Mostostal 2019; unit 6 – operations. Thus, the commissioning of unit no. 5 took place 900 MW each and Mostostal Warszawa September 30, 2019. before scheduled date of June 15, 2019, which was set by the with co-operation of GE as annex to the agreement. Project manager on behalf Unit 6 is currently undergoing regulation in order to optimise of the syndicate the work of individual installations and technological systems, as well as tests at different loads. Overall work progress on this project at the end of June 2019 was approx. 99%. Construction of new unit in Turów power plant Construction of PLN 4.26 billion PLN 2.75 billion PLN 163 Lignite / syndicate of companies: October 2020. Installation works were continued at the construction site. The power unit with a million 43.1% MHPSE, Budimex installation of process pipelines is in progress. Silencers have capacity of 490 MW and Tecnicas Reunidas been installed on the cooling tower. The assembly works on the unit coal supply system are in progress. In April 2019, documentation approved by PSE S.A. for the connection of a new unit in the Turów Power Plant was delivered. At the end of June 2019 the overall work progress on the project was approx. 90%. On March 29, 2019 annex no. 9 to the contract for the construction of a unit was signed, which expands the scope of works, increases the value of the contract and extends the deadline for the completion of the unit by six months, i.e. until October 2020. The value of the annex amount to approx. PLN 108 million. The increase in the contract value and the prolongation of the deadline result from need of technological adaptations and broader scope of works.

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Core business of the segment includes production of heat and electricity from conventional sources as well as transmission and distribution of heat.

* includes sales of heat, contracted capacity and distribution of heat. As in the case of Conventional Generation, this segment's revenues are primarily revenues from electricity sales, however, they are usually directly related to generation of heat which in turn depends on demand that is highly seasonal and depends on external temperatures. This is why, in contrast to industrial power plants in Conventional Generation, as a rule, CHP plants do not have any considerable impact on the development of prices for electricity on the wholesale market.

Revenues from the sale and distribution of heat are regulated revenues. Energy companies independently set tariffs and present them to the President of the Energy Regulatory Office (URE President) for approval. Heat production at PGE Group takes place in cogeneration units, which offer the opportunity to set tariffs for heat using a simplified approach (compared to tariffs based on a full cost structure), based on reference prices, which are mainly based on the average sales prices for heat generated in units with specific fuel other than cogeneration units. They are published each year by the ERO President. Tariffs for heat production for cogeneration units in a given tariff year thus reflect changes in the costs of heat-generation units (not co-generation units) in the previous calendar year. The cost approach is applied in the case of tariffs for heat distribution, which allows to cover justified costs (mainly the costs of heat losses and property tax) and a return on invested capital, in line with guidelines from the ERO President. Distribution tariffs for heat are in place at branches in Gorzów and Zgierz, as well as by Kogeneracja S.A., PGE Toruń and Zielona Góra CHP.

Generation of heat and electricity is directly related to key variable costs of the segment, i.e. the cost of production fuel used (in particular, hard coal and gas) and the cost of fees for CO2 emissions. Electricity production in high-efficiency cogeneration is additionally remunerated. Until 2018, CHPs generated revenue from the sale of energy origin certificates, i.e. cogeneration certificates (yellow and red). From 2019, due to a change in support model, they will receive support at a level covering increased operating costs related to production. For large units, this will be set on an individual basis. In the first half of 2019, the support concerned was not paid, as the implementing regulations to the Act on Promotion of Electricity from Highly Efficient Cogeneration had not yet been introduced. The support mechanism in the form of certificates is in place also for biomass-fired generating assets. This type of production is additionally remunerated by awarding origin certificates, i.e. green certificates, the sale of which generates additional revenue, within the segment obtained only in biomass unit in Kielce CHP.

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District Heating within PGE Capital Group combines CHP plants separated from the EDF assets acquired on November 14, 2017 and CHP plants separated from PGE GIEK. Since January 2, 2019 the segment's composition has been as follows: PGE EC S.A., Kogeneracja S.A., PGE Toruń S.A. and Elektrociepłownia Zielona Góra S.A.

District Heating is the largest heat producer in Poland. Generation is based mainly on hard coal and gas. Diagram: Main assets of the District Heating segment.

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Due to the fact that the income on heat sales for CHP plant are tariffed as part of the so-called simplified method, they are characterised by a relative delay in the transfer of costs (annual or two-year). They are based on the year-to-year dynamics of average costs (taking into consideration the fuels used) incurred by entities that are not co-generation entities for the year preceding the time of tariff establishment.

Charts: Changes in the reference price of heat for hard coal and natural gas (PLN/GJ).

Price of heat from coal Price of heat from gas 43 41.89 80 41.52 75.24 42 +6% -6% 75 71.47 41 -1% -5% 40.23 70 66.87 39.65 63.55 40 65 39 60 38 55 2015 2016 2017 2018 2015 2016 2017 2018

Source: ERO.

Charts: Changes in costs of fuels – hard coal (PLN/GJ) and gas (PLN/MWh).

Price of hard coal PSCMI2 +5% Price of gas TGE* +11% +22% +15% 12.91 120 14 12.26 102.64 103.29 92.99 12 100 86.03 10.05 10.03 81.00 10 8.34 80 8 60 6 40 4 2 20 0 0 2015 2016 2017 2018 IH1 pół. 2019 2019 2015 2016 2017 2018 I pół.H1 2019 2019

Source: ARP, TGE.

* Weighted average from forward contracts, RDN and RDB contracted on TGE for a given period.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Changes in price of CO2 emission rights (PLN/t).

Price of CO2 emission rights 120 +44% 101.28 100 80 70.37 +177% 60 40 32.05 23.69 25.42 20 0 2015 2016 2017 2018 I H1pół. 2019 2019 Source: ICE.

Despite the fact that the reference price of heat produced from hard coal increased in 2018 by 6% (contributing to the increase in heat prices for co-generation entities establishing the tariff also for 2019), the average market prices of hard coal increased by

22%, while the prices of CO2 emission rights - by 177%. In the conditions of increasing prices, the costs for the CHP plant can be even higher – in the first half of 2019, the prices of hard coal were higher by another 5% and the prices of CO2 emissions - by another 44%. Aside from the time delay in costs transfer, it is also important that the CO2 cost is only partially transferred in the reference unit price. This is related to the fact that only approx. 45% of heating entities in Poland is part of the ETS system (capacity above 20 MW), i.e. is obliged to redeem the carbon dioxide emission allowances. The reference price also transfers only approx. 45% of the real CO2 consumption costs at the average heat sales price. In addition, in 2018 and in the first half of 2019, an increase in natural gas prices was observed, while the relatively high average price for the first half of 2019 was primarily related to the collection of gas contracted in earlier periods. The average spot market price was just under PLN 84/MWh, falling to below PLN 40/MWh at the end of the first half of 2019.

Weather also substantially affects the segment’s results. Temperatures directly shape the level of heat demand. Simultaneously, the level of heat production determines the level of electricity production in co-generation, which is an additional source of revenues that decisively affects the CHP plant’s profitability.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019 KEY FACTORS FOR THE RESULTS OF THE SEGMENT Chart: Key changes of recurring EBITDA in District Heating (in PLN million) – managerial perspective.

1 200

1 000

800

600

400

200

Electricity Electricity Revenues EBITDA Heat Heat Costs Costs of Personnel EBITDA production production - production - production - from Other of fuel CO costs H1 2018 * - volume price volume price certificates 2 H1 2019 Change -8 8 42 266 -211 -127 -120 -12 -9 Reported EBITDA H1 2018 603 One-offs H1 2018 -85 Recurring EBITDA H1 2018 688 1 037 818 223 898 93 258 Recurring EBITDA H1 2019 1 037 1 126 12 1 025 213 270 517 One-offs H1 2019 255 Reported EBITDA H1 2019 772

Reversal of the impact of the sum of one-off events reducing the reported result Reversal of the impact of the sum of one-off events improving the reported result

* Includes sales of heat, of contracted capacity and distribution of heat.

Key factors affecting the recurring EBITDA result of District Heating segment on y/y basis included:

 Lower volume of heat production is a result of higher outside temperatures. The average temperatures were higher by 0.6oC, which translated into lower sales of heat (by 0.20 PJ).  Increase of heat sale price is connected with the publishing new tariffs by the ERO for seven CHP plants and new tariffs for distribution of heat for units in Toruń, Zielona Góra and Gorzów, where price grew by approx. 1.4% y/y.  Higher volume of electricity generation by 0.2 TWh due to higher use of co-generation generating units vs. Peak units and operation of cogeneration devices in pseudo-condensation.  Increase in electricity sale prices (see p. 3.2 of this report).  Lower revenues from sale of certificates as a result of ceasing the support for production of electricity in highly efficient cogeneration in 2019.  Higher costs of fuels caused by increasing prices of main fuels: hard coal, gas and biomass.

 Higher CO2 costs are a result of higher price of allowances and lower allocation of allowances granted free of charge. The main changes are shown in the chart below.  Higher personnel cost result mainly from the consolidation and change in structure of a new segment.  Higher level in item other results mainly from positive impact of LTC compensations.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: Consumption costs of production fuels in District Heating (in PLN million).

1 050 + 4.18 + 5.22 + 0.02 - 13.60 PLN/GJ PLN/GJ GJ m PLN/GJ

1 000

+ 0.74 + 0.24 950 PLN/GJ GJ m +1.01 GJ m 900

850

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Costs of Light and Light and Costs of Hard coal Hard coal Gas Gas Biomass Biomass fuel H1 heavy oil heavy oil Other fuel H1 volume price volume price volume price 2018 volume price 2019

Change 13 27 6 76 0 3 1 -2 3

Fuels H1 2018 898 442 427 13 10 6

Fuels H1 2018 482 509 16 9 9 1 025

Table: Data on use of production fuels consumption in District Heating.

H1 2019 H1 2018 Fuel type Volume Cost Volume Cost (tons ths) (PLN million) (tons ths) (PLN million) Hard coal 1 598 482 1 516 442 Gas (cubic metres ths) 600 798 509 602 944 427 Biomass 71 16 70 13 Fuel oil – light and heavy 105 18 93 16 TOTAL 1 025 898

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Chart: CO2 costs in District Heating segment(in PLN million).

250 + 34

PLN/t CO2

200

150

- 0.29 - 0.14 m t CO 2 m t CO2 100

Allocation of free CO costs Average CO costs 2 allowances for CO CO emission 2 H1 2018 2 2 CO costs H1 2019 emissions 2

Change 8 -4 116

CO costs H1 2018 93 2 CO2 costs H1 2019 213 CAPITAL EXPENDITURES Table: Capital expenditures incurred in District Heating segment in the first half of 2019 and 2018.

PLN million H1 2019 H1 2018* % change

Investments in generating capacities, including: 98 271 -64%  Development 12 122 -90%

 Modernisation and replacement 86 149 -42% Other 13 12 8% TOTAL 111 283 -61%

Presented data were restated for the sake of data comparability, because District Heating segment was not separated for the first half of 2018.

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Program of adaptation of PGE EC’s assets to requirements of BAT conclusions, including:

 Decision of the Marshal of the Podkarpackie voivodship was obtained with regard to change of Integrated permit for boilers WR25 regarding reduction of capacity of boiler WR25 K2 from 35 MW to 29 MW in fuel in Rzeszów CHP plant.  A decision of the Marshal of the Pomorskie Voivodeship, amending the decision on the Integrated Permit for the Gdańsk CHP Plant was obtained, with exemption from the emission limit values from the BAT Conclusions on SOx and NOx for the peak load boiler plant and NOx for the unit boilers.  A decision of the Marshal of the Pomorskie Voivodeship, amending the decision on the Integrated Permit for the Gdynia CHP Plant was obtained, with exemption from the emission limit values from the BAT Conclusions on NOx for the unit boilers.  A decision of the Marshal of the Lesser Poland Voivodeship, amending the decision on the Integrated Permit for the Kraków CHP Plant was obtained, regarding the conditions for introducing cooling water and sewage from IMOS into the Vistula River.  Tender proceedings were continued with regard to selection of contractors for adaptation of CHP plants to BAT conclusions.  The works on the process of selecting a contractor for the construction of a new steam-gas unit at Czechnica CHP Plant for Kogeneracja S.A. were continued .

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

RENEWABLES Segment description and its business model

This segment is involved in the generation of electricity from renewable sources and in pumped storage plants.

* Managerial perspective.

The Renewables segment generates revenue mainly from the sale of electricity, however contrary to production at industrial plants within the Conventional Generation segment, this revenue is subject to a larger degree to changes in weather conditions and prices on the spot market due to the renewables sales model in place. Electricity output volume translates into property rights (green) and revenue from the sale of energy origin certificates obtained by the segment's assets, excluding hydropower plants over 5 MWe.

A stable part of the segment's results is related to the provision of ancillary services using pumped-storage plants, which is performed on the basis of an agreement with the transmission system operator, PSE S.A.

On the cost side, the most important items include: depreciation of segment assets, use of energy to pump water at pumped- storage plants and third-party services, mainly in the form of repair services. Property tax and employee wages also constitute a significant cost item in this segment. Assets

The PGE Capital Group’s operations in renewable energy are managed by the PGE Energia Odnawialna S.A. Due to the profile of operations, the segment includes PGE Baltica sp. z o.o., which is recognized in presentation of Renewables segment. This company is responsible for all activities related to off-shore wind farms.

Assets in the segment include:  14 wind farms,  1 photovoltaic power plant,  29 run-of-river hydro power plants,  4 pumped-storage power plants, including 2 with natural flow.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Diagram: Main assets of the Renewables segment.

KEY FACTORS FOR THE RESULTS OF THE SEGMENT

Chart: Key changes of EBITDA in Renewables (in PLN million) – managerial perspective.

400 380 360 340 320 300 280 260 240 220 200

Revenues EBITDA Electricity Certificates ancillary Personnel EBITDA Other H1 2018 revenues revenues control costs H1 2019 services * Change 62 39 -3 -3 -7 EBITDA H1 2018 222 145 52 131 42 EBITDA H1 2019 207 91 128 45 310 * Excluding revenues and costs relating to Balancing market not affecting EBITDA result.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

Key factors affecting the y/y results of Renewables included:

 Increase in revenues from electricity sales resulting from: higher electricity sale price by PLN 33/MWh y/y, what resulted in growth of revenues by approx. PLN 32 million; higher generation volume by 152 GWh, what translated into revenues increase by approx. PLN 27 million; FIT/FIP support scheme for 9 small hydro power plants in place of certificates, which has been in force for those installations from January 2019, what attributed to increase of revenues by approx. PLN 3 million y/y.  The increase of revenues from sales of certificates resulting mainly from: higher prices, what resulted in an increase in revenues by approx. PLN 27 million; higher volume of certificates sales, what translated directly into revenues growth by PLN 12 million.  Lower sales revenues from ancillary control services result mainly from lower rate by PLN 1.0/MW determined in accordance with the terms of the current contract.  Increase of personnel costs resulting from: increased employment level caused by switching to proprietary maintenance of wind; establishing of new company - PGE Baltica sp. z o.o., which deals with the development of the offshore project. CAPITAL EXPENDITURES Table: Capital expenditures incurred in Renewables segment in the first half of 2019 and 2018.

PLN million H1 2019 H1 2018 % change

Investments in generating capacities, including: 30 47 -36%

 Development 7 13 -46%

 Modernisation and replacement 23 34 -32%

Other 1 1 -

TOTAL 31 48 -35%

KEY DEVELOPMENTS IN THE FIRST HALF OF 2019 IN THE RENEWABLES SEGMENT  On January 4, 2019 an agreement was signed for the design and construction of 110 kV cable line along the route: Kamień Pomorski substation (GPZ) – Rybice switchboard (RS) – Skrobotowo substation (GPZ), including the Rybice switchboard, and for the expansion of the Skrobotowo substation for the offtake from Rybice Wind Farm, Starza Wind Farm and Karnice II Wind Farm with the total capacity of 88 MW.  In February 2019, the construction works concerning access roads and HV lines were commenced which formed part of the construction of Rybice Wind Farm, Starza Wind Farm and Karnice II Wind Farm with the total capacity of 88 MW.  In May 2019, public tender procedures were announced for strategic investment tasks carried out as part of the comprehensive modernisation programme of the Porąbka – Żar pumped-storage power plant.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

DISTRIBUTION Segment description and its business model

Core business of the segment includes supply of electricity to final off-takers through the grid and HV, MV and LV infrastructure.

Segment revenue is based on a tariff for electricity distribution services, which is approved by the ERO President every year at company request and is regulated. The tariff allows costs related to the distribution system operator's on-going activities to be transferred, that were considered justified by the ERO President. These are both operating costs, depreciation as well as costs related to the necessity to cover grid losses on electricity distribution or the purchase of transmission services from the transmission system operator. At the same time, the tariff reflects the transferred costs in fees such as the RES fee, transition fee or - starting from 2019 - cogeneration fee.

The key element shaping the Distribution segment's result is return on company's invested capital. This is based on the Regulatory Asset Base (“RAB”), which is established on the basis of completed investments and taking into account asset depreciation. The Regulatory Asset Base serves as the basis for calculating return on capital, using weighted average cost of capital, which is published by the ERO President in accordance with a set formula and using as the risk free rate the average yield on 10-year State Treasury bonds with the longest maturity during the 18-month period preceding the tariff application submission. Moreover, in the quality regulation for years 2018-2025 the ERO President obliged the company to reach until the end of 2025 the efficiency ratios including: efficiency indicators that cover: interruption time, interruption frequency, connection time and time to provide metering and settlement data.

The act regulating electricity prices in 2019 kept the DSO tariffs unchanged at the level from December 31, 2018 and decreased the transition fee. The amended act eliminated the necessity to apply 2018 rates, but reduced transition fee was upheld. DSO tariff rates for 2019 was approved by the ERO President on March 22, 2019 and are used by PGE Dystrybucja S.A. from April 6, 2019.

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VOLUME, CUSTOMERS AND OPERATING DATA

PGE Dystrybucja S.A. operates in the area of 123 425 sq. km and delivers electricity to approximately 5.4 million customers.

Diagram: Area of PGE distribution grid.

Table: Volume of distributed energy and number of customers in the first half of 2019 and 2018. Number of customers according to power take-off Tariff Volume (TWh)* points

H1 2019 H1 2018 H1 2019 H1 2018

A tariff group 2.74 2.79 109 109 B tariff group 7.10 6.90 11 890 11 546 C+R tariff groups 3.48 3.50 483 069 480 935 G tariff group 4.81 4.80 4 937 432 4 882 720 TOTAL 18.13 17.99 5 432 500 5 375 310 * with additional estimation of sales.

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KEY FACTORS FOR THE RESULTS OF THE SEGMENT

Chart: Key changes of EBITDA in Distribution (in PLN million) – managerial perspective.

1 350

1 300

1 250

1 200

1 150

1 100

1 050

1 000

Electricity Change of EBITDA Network Personnel EBITDA distribution distribution Property tax Other H1 2018 losses ** costs H1 2019 volume tariff *

Change 16 42 -35 -11 -77 6

EBITDA Q1 2018 1 270 2 121 184 192 542

EBITDA Q1 2019 2 179 219 203 619 1 211

* Excluding cost of transmission services from PSE S.A. ** Adjusted for revenues from the Balancing market. Key factors affecting the results of Distribution y/y included:

 Increase of fixed charge in tariff for 2019 compared to the previous year, that translated into an increase in revenues from the sale of distribution services.  Increased volume of distributed energy by 138 GWh resulting from – inter alia – higher number of customers measured by power take-off points (by approx. 57 thousand y/y) and from growth of the economic activity of customers, mainly from group B, in the area of operation of PGE Dystrybucja S.A.  Increase in personnel costs, related to higher employment level and an increase in wages as a result of signed agreements with the social partners.  Higher costs of energy to cover balancing difference as a result of higher prices on the wholesale market.  Increase of costs of tax on real estate in connection with an increase of grid assets value as a result of investments; tax rates on land and buildings.

CAPITAL EXPENDITURES

Table: Capital expenditures incurred in Distribution segment in the first quarter of 2019 and 2018.

PLN million H1 2019 H1 2018 % change Development investments 352 268 31% Modernisation and replacement 431 304 42% Other 35 24 46% TOTAL 818 596 37%

In the first half of 2019 the largest expenditures in amount of PLN 334 million were incurred for connection of new off-takers.

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WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51 Management Board’s report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2019

SUPPLY Segment description and its business model

Supply segment activities include Group’s wholesale and retail trading of electricity. Wholesale trading include mainly electricity trading on behalf of and for Conventional Generation segment, District Heating segment and Renewables segment.

As part of retail-market activities, the key source of segment’s revenue is sale of electricity to final customers. This is sale to business and institutional clients, which constitutes approx. 3/4 of the sales volume, and to retail clients. The segment's revenue also includes the sale of fuels, mainly: pulverised coal and fat coal, which is sold by PGE Paliwa sp. z o.o., and sale of gas.

Electricity sales are matched by the costs to purchase electricity on the wholesale market and costs to redeem certificates as part of the support system for renewable sources and energy efficiency.

The Supply segment also covers costs related to the Group's corporate centre.

VOLUME, CUSTOMERS AND OPERATING DATA

Table: Volume of electricity sales to final off-takers and number of customers in the first half of 2019 and 2018.

Number of customers according to power take-off Tariff Volume (TWh)* points

H1 2019 H1 2018 H1 2019 H1 2018

A tariff group 4.77 5.03 163 149 B tariff group 7.73 6.52 12 653 11 223 C+R tariff groups 3.82 3.33 453 970 432 456 G tariff group 5.02 4.78 4 835 987 4 758 238 TOTAL 21.34 19.66 5 302 773 5 202 066 *PGE Obrót S.A.

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KEY FACTORS FOR THE RESULTS OF THE SEGMENT

Chart: Key changes of recurring EBITDA in Supply (in PLN million) – managerial perspective.

500 450 400 350 300 250 200 150 100 50

0 Revenues from services Balance of Result on Result on provided to Result on Valuation of provisions EBITDA Personnel EBITDA electricity electricity other sale of financial for Other H1 2018 costs H1 2019 - volume - margin segments of coal instruments oncerous the PGE contracts Group

Change 7 -230 130 -41 82 -25 224 -15 Recurring EBITDA H1 2018 268 249 265 48 -36 148 0 111

Recurring EBITDA H1 2019 26 395 7 46 173 224 127 400 One-offs H1 2019 73

Reported EBITDA H1 2019 473

Reversal of the impact of the sum of one-off events improving the reported result

Key factors affecting recurring EBITDA of Supply segment y/y included:  Lower result from electricity by PLN 223 million resulting mainly from achieving lower unit margin on sale of electricity, due to: increase of prices on the wholesale market, particularly on spot market, partly used for balancing of electricity demand resulting from sales to final off-takers; lowering prices for final off-takers billing pursuant to the act on electricity prices in 2019; recognition of expected return of lost revenues in form of compensation pursuant to the act on electricity prices in 2019.  Increase of revenues from services performed within the Group resulting mainly from increased revenues from the Agreement for Commercial Management of Generation Capacities (“ZHZW”) (PLN (+) 131 million) as a consequence of higher sale and purchase prices of electricity under management and covering new assets under ZHZW agreement.  Lower result on sale of hard coal mainly a result of achieving lower unitary trade margin.

 Valuation of financial instruments i.e. forward contracts connected with trading of CO2 emission rights.  Increased personnel expenses in connection with ongoing process to optimise salaries and determination of FTEs, mainly as a result of organizational changes within PGE Capital Group.  Balance of provisions for onerous contracts mainly in relation to the act on electricity prices in 2019. The provision in retail sale companies was recalculated at the end of the first half of 2019 and as a result the provision in the amount of PLN 261 million was released and the provision in the amount of PLN 37 million was recognised.

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4.4. Significant events of the reporting period and subsequent events

BEGINNING OF TALKS REGARDING POTENTIAL COOPERATION ON CONSTRUCTION PROJECT OF 1 000 MW UNIT IN OSTROŁĘKA In response to the invitation from Energa S.A. and Enea S.A., on January 7, 2019 the companies started talks that may potentially result in involvement of PGE in the construction project of 1 000 MW unit in Ostrołęka, which is currently pursued by Energa S.A. and Enea S.A. Current report of PGE S.A.: . Beginning of talks regarding potential cooperation on construction project of 1 000 MW unit in Ostrołęka>>

SIGNING OF AN ANNEX TO THE AGREEMENT FOR DESIGNING AND CONSTRUCTION OF POWER UNIT IN TURÓW POWER PLANT

On March 29, 2019 PGE GiEK S.A. signed the annex to the agreement for designing and turn-key construction of power unit in Turów power plant, that is being pursued by the consortium formed by companies: Mitsubishi Hitachi Power Systems Europe GmbH, Budimex S.A. and Tecnicas Reunidas SA. Due to need of technological adaptations and broader scope of works, the value of the Agreement was increased by PLN 108.5 million net to PLN 3 647 million net, and date of completion of works was prolonged by 6 months, i.e. till October 30, 2020. Current report of PGE S.A.: . Signing of an annex to the agreement for designing and construction of power unit in Turów power plant>> GRANTING OF ADDITIONAL CO2 ALLOWANCES FOR PGE GROUP’S INSTALLATIONS On the ground of the announcement of the Minister of Environment of April 16, 2019, the Company had taken information about the number of CO2 emission rights, which had been granted to installations generating electricity, belonging to PGE Group in 2019. As a result of settlement of capital expenditures in PGE Group, generation assets acquired from EDF group in 2017 received in April

2019 an additional allocation of CO2 emission allowances for the years 2013-2017 in amount of approx. 11 million emission rights. (see

Note 25.2 to the consolidated financial statements). Results of valuation of additional CO2 emission rights are recognised in the operational result. Current report of PGE S.A.: . Granting of additional CO2 allowances for PGE’s installations >> WITHDRAWAL FROM THE PROCESS OF ACQUISITION OF ALL SHARES IN PGE EJ1

On April 17, 2019 PGE decided to withdraw from the process of acquisition of shares of PGE EJ1 sp. z o.o. (“PGE EJ1”) held by other partners, that was initiated in the fourth quarter of 2018. Thus, PGE’s share in PGE EJ1 will remain at 70%. Current report of PGE S.A.: . Initial interest in buying all shares in the company PGE EJ1>> . Withdrawal from the process of acquisition of all shares in PGE EJ1 >> ACQUISITION OF SHARES OF 4MOBILITY BY PGE NOWA ENERGIA

On April 24, 2019 PGE Nowa Energia sp. z o.o. (“Nowa Energia”) concluded an agreement for the purchase of 51.47% of shares in 4Mobility S.A. 4Mobility provides car-sharing services and is the third company in Poland in terms of the number of cars available to customers. It provides services in Warsaw and in Poznań. Information regarding the acquisition of shares in 4Mobility have been provided in section 5.1 of this report and in note 1.3 to the consolidated financial statements. ISSUE OF BONDS WITH TOTAL VALUE OF PLN 1.4 BILLION Bonds amounting to total value of PLN 1.4 billion were issued in two series: PLN 1 billion with 10-year maturity (series PGE003210529) and PLN 400 million with 7-year maturity (series PGE002210526). On May 21, 2019, both series of issues were settled, and on May 23, 2019, Fitch Ratings assigned the final national rating of the issue at AA (pol). Information regarding the issue and terms of the bonds were published in the following current reports: . Potential issue of bonds on Polish market>> . Fitch Ratings assigns upcoming domestic bonds an expected senior unsecured National Rating>> 61 of 73

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. Terms of domestic bonds issue by PGE Polska Grupa Energetyczna S.A.>>

COMMISSIONING OF UNIT 5 IN OPOLE POWER PLANT

On May 30, 2019 PGE GiEK S.A. obtained the concession to produce electricity in the unit 5 in Opole Power Plant and on May 31, 2019 issued the certificate of completion of the investment and the above mentioned unit was handed over and placed into service.

Unit no. 5 is a part of the agreement for construction of units 5 and 6 in Opole Power Plant being realized by the General Contractor (consortium formed by companies: Polimex-Mostostal S.A., Mostostal Warszawa S.A. and Rafako S.A.) and GE Power, which is the general designer and consortium leader managing the contract execution.

SIGNING OF THE AGREEMENT REGARDING THE FIZAN EKO-INWESTYCJE FUND

On July 30, 2019 PGE, PGE Energia Ciepła S.A., PGE Górnictwo i Energetyka Konwencjonalna S.A. and PGE Energia Odnawialna S.A. signed the investment agreement with Towarzystwo Funduszy Inwestycyjnych Energia S.A. (“TFI Energia” – investment fund company), which plans to establish a closed-end investment fund under the name "Closed-end Investment Fund of Non-public Assets Eco-Investments". The details are presented in Note 25.3 to the consolidated financial statements.

ACT ON THE AMENDMENT OF THE ACT ON THE EXCISE TAX AND CERTAIN OTHER ACTS

On December 28, 2018, the Act on the amendment of the act on the excise tax and certain other acts (the “Act on electricity prices”) was adopted. The aim of this act is to stabilise the prices of electricity sale to the end recipient in 2019. The act was amended twice: with the Act of February 21, 2019 and Act of June 13, 2019. Furthermore, on July 19, 2019, the act on the system of compensation for energy-intensive sectors and subsectors, which affects the Act on electricity, was adopted. Specific information and the effects of the Act on electricity prices were discussed in note 25.1 to the consolidated financial statement.

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CHANGES IN THE MANAGEMENT BOARD AND SUPERVISORY BOARD

Management Board members

As at June 30, 2019 and as at the publication date of this report, the Management Board worked in following composition:

Name and surname of the Management Board Position

Henryk Baranowski President of the Management Board Wojciech Kowalczyk Vice-President for Capital Investments Marek Pastuszko Vice-President for Corporate Affairs Paweł Śliwa Vice-President for Innovations Ryszard Wasiłek Vice-President for Operations Emil Wojtowicz Vice-President for Finance

Supervisory Board members

As at June 30, 2019 and as at the publication date of this report, the Supervisory Board worked in following composition:

Name and surname Position Anna Kowalik Chairman of the Supervisory Board Artur Składanek Vice-Chairman of the Supervisory Board – independent Grzegorz Kuczyński Secretary of the Supervisory Board - independent Janina Goss Supervisory Board Member - independent Tomasz Hapunowicz Supervisory Board Member - independent Mieczysław Sawaryn Supervisory Board Member - independent Jerzy Sawicki Supervisory Board Member - independent Radosław Winiarski Supervisory Board Member

As at June 30, 2019 and as at the publication date of this report, the committees worked in following compositions:

Name and surname of Strategy and Appointment and Corporate Governance the member of the Audit Committee Development Remuneration Committee Supervisory Board Committee Committee

Janina Goss Member Member

Member Tomasz Hapunowicz Member Chairman

Anna Kowalik Member Member Member

Member Grzegorz Kuczyński Member Chairman Member Mieczysław Sawaryn Member Chairman

Jerzy Sawicki Member Member Member

Member Artur Składanek Member Chairman

Radosław Winiarski Member Member

ACTIVITIES RELATED TO NUCLEAR ENERGY Business partnership

PGE EJ1 is PGE Group’s entity directly responsible for preparing the investment process, consisting of conducting environmental and location surveys and obtaining all of the necessary decisions for the construction of the first Polish nuclear power plant, and implementing the investment. PGE EJ1 was established in 2010. In 2014, a shareholder agreement was signed, pursuant to which Enea S.A., KGHM Polska Miedź S.A. and TAURON Polska Energia S.A. (the “Shareholders”) each purchased from PGE a 10% stake in 63 of 73

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PGE EJ1 (30% in total). The Shareholders agreement requires the parties to jointly finance, proportionately to the stakes held, activities related to implementing the investment. Site characterisation and environmental surveys

Current scope of Program conducted by PGE EJ 1 assumes location and environmental surveys at two potential Lubiatowo- Kopalino, Żarnowiec and preparing an Environmental Impact Assessment Report and Site Report.

Selecting an appropriate location is one of the key aspects in ensuring nuclear safety and the efficient and reliable operation of a nuclear power plant. The results of these works are necessary in order to develop solutions that ensure the power plant’s safe operation and minimise its impact on the natural environment and the everyday life of local residents. Social acceptance At the same time, with a view toward ensuring social acceptance for the project to build the first Polish nuclear power plant, PGE Group is conducting activities aiming to maintain a high level of community support at the planned nuclear plant sites and to deliver knowledge about nuclear power. In the first half of 2019, works were continued within the Site Municipality Development Support Programme intended to reinforce partner relations with the local communities and authorities of the municipalities by providing support to initiatives that are of significance to the residents and development of the region.

Prospects for the project implementation and financing capabilities

Decisions with regard to the continuation of the Programme will be made based on decisions by the government administration concerning a role of nuclear energy in Polish fuel mix, mode for the procurement of nuclear power plant technology, investment financing model and an updated Programme for Poland’s Nuclear Power. Compensations from WorleyParsons

WorleyParsons initiated a lawsuit for payment of PLN 59 million for due remuneration, according to the claimant, and return of an amount unduly collected, according to the claimant, by PGE EJ1 from a bank guarantee, and subsequently expanded its claim to PLN 104 million (i.e. by PLN 45 million). On March 31, 2018, the company filed a response to WorleyParsons’ expanded claim. PGE Group does not accept the claim and regards its possible admission by the court as unlikely.

LEGAL ASPECTS Claims for annulment of the resolutions of the General Meetings of PGE S.A.

Information on claims for annulment of the resolutions of the General Meetings of PGE S.A. are described in note 22.4 to the consolidated financial statements. The issue of compensation regarding the conversion of shares

Information on the issue of compensation regarding the conversion of shares are described in note 22.4 to the consolidated financial statements.

INFORMATION CONCERNING PROCEEDINGS IN FRONT OF COURT, BODY APPROPRIATE FOR ARBITRATION PROCEEDINGS OR IN FRONT OF PUBLIC ADMINISTRATION AUTHORITIES

Significant proceedings pending in front of courts, competent arbitration authority or public administration authority are described in note 22.4 to the consolidated financial statements. Claims related to agreements for sale of certificates signed with Energa-Obrót S.A.

Information on claims related to agreements for sale of certificates signed with Energa-Obrót S.A. are described in note 22.1 to the consolidated financial statements. Termination by Enea S.A. of agreements for sale of certificates

Information on termination by Enea S.A. of agreements for sale of certificates are described in note 22.4 to the consolidated financial statements.

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INFORMATION CONCERNING THE GUARANTEES FOR LOANS GRANTED BY THE COMPANY OR A SUBSIDIARY

Within the Group, as at June 30, 2019 PGE S.A. and subsidiaries did not grant guarantees to other entities or to a subsidiary, where a value of guarantees constitutes at least 10% of the Company’s equity.

INFORMATION ON ISSUE, REDEMPTION AND REPAYMENT OF DEBT SECURITIES AND OTHER SECURITIES

Information on issue, redemption and repayment of debt securities and other securities is described in p. 5.1 of the foregoing report and in note 1.3 to the consolidated financial statements.

TRANSACTIONS WITH RELATED ENTITIES

Information about transactions with related entities is presented in note 24 to the consolidated financial statements.

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5. Other elements of the report 5.1. Significant changes in organisation of the Capital Group Changes which occurred in the PGE Capital Group’s structure in the period from January 1, 2019 until the publication date of this report, are presented in note 1.3 to condensed interim consolidated financial statements and described below. ACQUSITION OR DISPOSAL OF SHARES BY THE COMPANIES

Segment Shares of the company Date of Comment transaction/ registration in the National Court Register Other Operations ElectroMobility Poland S.A. October 4, 2018/ On October 4, 2018 the Extraordinary General Meeting of ElectroMobility adopted resolution on a share capital increase by („ElectroMobility”) - acquisition by January 7, 2019 PLN 40 000 000 to PLN 70 000 000 by increasing the nominal value of existing shares. In exchange for a cash contribution, PGE S.A. of increased value of the PGE S.A. took up increased nominal value of 2 500 shares, the total nominal value of which increased from PLN 7 500 000 to shares held in ElectroMobility PLN 17 500 000, i.e. by PLN 10 000 000. As a result of the share capital increase, PGE S.A.'s stake in ElectroMobility did not change (25% shareholding). District Heating Pracownicze Towarzystwo February 18, 2019 On February 18, 2019 PGE EC as the buyer and PGE S.A. as the seller entered into the agreement for the sale of Emerytalne „Nowy Świat” S.A. z June 25, 2019 (transfer one registered share in PTE Nowy Świat with the total nominal value of PLN 10 which is 0.002% of the share capital. On June siedzibą w Warszawie („PTE Nowy of ownership of shares) 25, 2019 transfer of ownership of shares to PGE EC took place (the Financial Supervision Authority granted approval for the Świat”) – acquisition of shares by acquisition of shares of PTE Nowy Świat). The acquisition of the share resulted in PGE EC becoming a shareholder in PTE PGE EC (as a result of conditional Nowy Świat and PGE S.A. ceasing to be a shareholder in that company. share sale agreement) Other Operations 4Mobility S.A. seated in Warsaw April 24, 2019/ On April 24, 2019 the Extraordinary Assembly of Partners of 4Mobility adopted resolution on a share capital increase by PLN („4Mobility”) – acquisition by PGE May 8, 2019 187 500 to PLN 364 316, through issue of new bearer shares. On April 24, 2019 PGE Nowa Energia sp. z o.o. signed an Nowa Energia sp. z o.o. of shares in agreement to acquire all newly issued bearer shares, i.e. total of 1 875 000 shares in the increased share capital of 4Mobility the increased share capital of with a total nominal value of PLN 187 500 in exchange for a cash contribution. The acquired shares constitute 51.47% in the 4Mobility share capital of the company. District Heating PGE Gaz Toruń sp. z o.o. („PGE Gaz June 14, 2019 On May 15, 2019, Fundusz Inwestycji Infrastrukturalnych – Kapitałowy Fundusz Inwestycyjny Zamknięty Aktywów Toruń”) – acquisition of shares by Niepublicznych (Infrastructure Investment Fund - Private Assets Closed-end Capital Investment Fund) with its registered PGE Nowa Energia sp. z o.o. (as a office in Warsaw (partner of PGE Gaz Toruń), represented by Polski Fundusz Rozwoju S.A. with its registered office in Warsaw, result of accepting the share submitted a statement of acceptance of the offer submitted by PGE EC to acquire 662 shares in PGE Gaz Toruń, constituting purchase offer) 49.96% of the share capital. On June 14, 2019 – the day of payment of the purchase price for the shares – the ownership right to the above mentioned shares in PGE Gaz Toruń was transferred to PGE EC, which resulted in PGE EC becoming the sole shareholder in PGE Gaz Toruń, holding 100% of shares in its share capital.

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DE-MERGERS Segment Spun off company /acquiring Date of Comment company transaction/ registration in the National Court Register Conventional Generation PGE GiEK/ PGE EC October 18, 2018 The Extraordinary General Meetings of PGE GiEK and PGE EC adopted resolutions on the division of PGE GiEK (divided On January 2, 2019 de- company) through a carve out, pursuant to art. 529 § 1 point 4 of the Polish Commercial Companies Code, by way of transfer merger was registered to PGE EC (acquiring company) of selected PGE GiEK assets in the form of six PGE GiEK branches (Branches), i.e.: (1) Zespół in the National Court Elektrociepłowni Bydgoszcz, (2) Elektrociepłownia Gorzów, (3) Elektrociepłownia Zgierz, (4) Elektrociepłownia Lublin Register Wrotków, (5) Elektrociepłownia Kielce and (6) Elektrociepłownia Rzeszów. The Branches constitute an organised part of enterprise and are functionally related to the generation of electricity, generation of electricity and heat in cogeneration and distribution of heat and electricity. The transfer of the Branches to PGE EC was carried out by lowering PGE GiEK’s share capital by PLN 406 847 180 and increasing PGE EC’s share capital by PLN 763 432 450 through cancelling 40 684 718 shares of PGE GiEK, with nominal value of PLN 10 each, and issue of 76 343 245 new shares of PGE EC, with nominal value of PLN 10 each. As the sole shareholder of PGE GiEK, PGE S.A. acquired all new shares in PGE EC’s increased share capital in exchange for the cancelled PGE GiEK shares.

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5.2. Publication of financial forecasts PGE S.A. did not publish financial forecasts. 5.3. Information about shares and other securities

SHAREHOLDERS WITH A SIGNIFICANT STAKE

According to the best knowledge, on the ground of the letter from the Ministry of the State Treasury of April 27, 2016, the State Treasury holds 1 072 984 098 ordinary shares of the Company, representing 57.39% of the Company’s share capital and entitling to 1 072 984 098 votes on the General Meeting of the Company, constituting 57.39% of total votes.

Table: Shareholders holding directly or indirectly by subsidiaries at least 5% of the total votes at the General Meeting of PGE S.A.

% in total votes on General Shareholder Number of shares Number of votes Meeting State Treasury 1 072 984 098 1 072 984 098 57.39% Others 796 776 731 796 776 731 42.61% Total 1 869 760 829 1 869 760 829 100.00%

Shares of the parent company owned by the members of management and supervisory authorities

According to the best knowledge of the Management Board of the Company, members of management and supervisory authorities of the Company as of the date of submission of this report and as of the date of publishing of the report for the first quarter of 2019 did not hold shares of PGE S.A.

6. Statements of the Management Board

STATEMENT ON THE RELIABLE PREPARATION OF THE FINANCIAL STATEMENTS

To the best knowledge of the Management Board of PGE S.A., the half-yearly financial report, containing interim condensed consolidated financial statements of PGE Capital Group, interim condensed standalone financial statements for PGE S.A. and comparative data were prepared in accordance with the governing accounting principles, present a fair, true and reliable view of the material and financial situation of PGE Capital Group and its financial result.

The report of the Management Board on the activities of PGE Capital Group presents a true view of the development, achievements and situation of the Capital Group. STATEMENT ON THE ENTITY AUTHORISED TO AUDIT THE FINANCIAL STATEMENTS

The Management Board of PGE S.A. declares that the entity authorised to audit the financial statements, which reviews the interim consolidated financial statements and interim condensed standalone financial statements for PGE S.A., has been appointed in accordance with provisions of the law. The entity and the statutory auditors, who performed the review, fulfilled all the requirements for issuing an unbiased and independent report on the review, in accordance with the governing provisions and professional standards.

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7. Approval of the Management Board’s Report The foregoing Management Board’s Report on activities of the Capital Group of PGE Polska Grupa Energetyczna S.A. was approved for publication by the Management Board of the parent company on September 24, 2019.

Warsaw, September 24, 2019

Signatures of Members of the Management Board of PGE Polska Grupa Energetyczna S.A.

President of the Henryk Management Baranowski Board

Vice- President Wojciech of the Kowalczyk Management Board

Vice- President Marek of the Pastuszko Management Board

Vice- President Paweł of the Management Śliwa Board

Vice- President Ryszard of the Wasiłek Management Board

Vice- President Emil of the Wojtowicz Management Board

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Glossary AKPiA Control, measurement and automation apparatus area Ancillary control services provided to the transmission system operator, which are indispensable for the proper services (ACS) functioning of the National Power System and ensure the keeping of required reliability and quality standards. Achievable capacity the maximum sustained capacity of a generating unit or generator, maintained continuously by a thermal generator for at least 15 hours or by a hydroelectric generator for at least five hours, at standardized operating conditions, as confirmed by tests. Balancing market a technical platform for balancing electricity supply and demand on the market. The differences between the planned (announced supply schedules) and the actually delivered/off-taken volumes of electricity are settled here. The purpose of the balancing market is to balance transactions concluded between individual market participants and actual electricity demand. The participants of the balancing market can be the generators, customers for electricity understood as entities connected to a network located in the balancing market area (including off-takers and network customers), trading companies, electricity exchanges and the TSO as the balancing company. Base, baseload standard product on the electricity market: a constant hourly power supply per day in a given period, for example week, month, quarter or year. BAT Best Available Technology Best Practices Document „Best Practice for GPW Listed Companies 2016” adopted by the resolution of the GPW Supervisory Board of October 13, 2015 and effective from January 1, 2016. Biomass solid or liquid substances of plant or animal origin, subject to biodegradation, obtained from agricultural or forestry products, waste and remains or industries processing their products as well as certain other biodegradable waste in particular agricultural raw materials. Black energy popular name for energy generated as a result of combustion of black coal or lignite. Circular economy system that minimises the consumption of resources and the level of waste as well as emissions and energy losses by creating a closed loop of processes in which waste from one process is used as resources in other processes so as to maximally reduce the quantity of production waste Co-combustion the generation of electricity or heat based on a process of combined, simultaneous combustion in one device of biomass or biogas together with other fuels; part of the energy thus generated can be deemed to be energy generated with the use of renewable sources. Co-generation the simultaneous generation of heat and electricity or mechanical energy in the course of one and the same technological process. Constrained the generation of electricity to ensure the quality and reliability of the national power system; this generation applies to generating units in which generation must continue due to the technical limitations of the operation of the power system and the necessity of ensuring its adequate reliability. CVC fund Corporate Venture Capital; in the CVC model, portfolio companies, aside from financial support, receive the opportunity to verify their ideas in a corporate setting Distribution transport of energy through distribution grid of high (110 kV), medium (15kV) and low (400V) voltage in order to supply the customers. Distribution System a power company engaging in the distribution of gaseous fuels or electricity, responsible for traffic in the Operator (DSO) gas or electricity distribution systems, current and long-term security of operation of the system, the operation, maintenance, repairs and indispensable expansion of the distribution network, including connections to other gas or power systems. Energy cluster civil-law arrangement that may include natural persons, legal entities, scientific units, research institutes or local government units, concerning the generation, distribution or trade in energy and energy demand balancing, with this energy being from renewable sources or other sources or fuels, within a distribution grid with nominal voltage below 110 kV, within the operational area of the given cluster, not exceeding the area of one district (powiat) in the meaning of the act on district authorities) or 5 municipalities (gmina) in the meaning of the act on municipal authorities; an energy cluster is represented by a coordinator, which is a cooperative, association, foundation appointed for this purpose or any member of the energy cluster indicated in the civil-law arrangement ERO Energy Regulatory Office (pol. URE).

EUA European Union Allowances: transferable CO2 emission allowances; one EUA allows an operator to release one tonne of CO2. EU ETS European Union Greenhouse Gas Emission Trading Scheme) EU emission trading scheme. Its operating rules are set out in the ETS Directive, amended by the Directive 2009/29/EC of the European Parliament and of the Council of April 23, 2009 (OJ EU L. of 2009, No. 140, p. 63—87).

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FIT/FIP Feed-in-Tariff (FIT) and Feed-in-Premium (FIP): system of subsidies to the market price of electricity performed by Zarządca Rozliczeń S.A. Generating unit a technically and commercially defined set of equipment belonging to a power company and used to generate electricity or heat and to transmit power. GJ Gigajoule, a unit of work/heat in the SI system, 1 GJ = 1000/3.6 kWh = approximately 278 kWh. GPZ main power supply point, a type of transformer station used for the processing or distribution of electricity or solely for the distribution of electricity. Green certificate popular name for energy generated from renewable energy sources. GW gigawatt, a unit of capacity in the SI system, 1 GW = 109 W. GWe one gigawatt of electric capacity. GWt one gigawatt of heat capacity. HICP Harmonised Index of Consumer Prices High Voltage Network a network with a nominal voltage of 110 kV. (HV) IED Industrial Emissions Directive IGCC Integrated Gasification Combined Cycle. Installed capacity the formal value of active power recorded in the design documentation of a generating system as being the maximum achievable capacity of that system, confirmed by the acceptance protocols of that system (a historical value, it does not change over time. IRiESP the Transmission Network Operation and Maintenance Manual required to be prepared by a transmission system operator pursuant to the Energy Law; instructions prepared for power networks that specify in detail the terms and conditions of using these networks by system users as well as terms and conditions for traffic handling, operation and planning the development of these networks; sections on transmission system balancing and system limitation management, including information on comments received from system users and their consideration, are submitted to the ERO President for approval by way of a decision. IRZ Cold Intervention Reserve Service – service consisting of maintaining power units ready for energy production. Energy is produced on request of PSE S.A. KRI Key Risk Indicator KSE the National Power System, a set of equipment for the distribution, transmission and generation of electricity, forming a system to allow the supply of electricity in the territory of Poland. KSP the National Transmission System, a set of equipment for the transmission of electricity in the territory of Poland. kV kilo volt, an SI unit of electric potential difference, current and electromotive force; 1kV= 103 V. kWh kilowatt-hour, a unit of electric energy in the SI system defined as the volume of electricity used by the 1 kW equipment over one hour. 1 kWh = 3,600,000 J = 3.6 MJ. Low Voltage Network a network with a nominal voltage not exceeding 1 kV. (LV) LTC long-term contracts on the purchase of capacity and electricity entered into between Polskie Sieci Elektroenergetyczne S.A. and electricity generators in the years 1994-2001. Medium-voltage an energy network with a nominal voltage higher than 1 kV but lower than 110 kV. network (MV) MEV Minimum Energy Volumes.

MSR Market Stability Reserve (relating to CO2) MW a unit of capacity in the SI system, 1 MW = 106 W. Mwe one megawatt of electric power. MWt one megawatt of heat power. NAP National emissions Allocation Plan, prepared separately for the national emission trading system and for the EU emission trading system by the National Administrator of the Emission Trading System.

NAP II National CO2 emissions Allocation Plan for the years 2008-2012 prepared for the EU emission trading system adopted by the Ordinance of the Council of Ministers of July 1, 2008 (Dz. U. of 2008, No. 202, item 1248). Nm3 normal cubic meter; a unit of volume from outside the SI system signifying the quantity of dry gas in 1 m3 of space at a pressure of 101.325 Pa and a temperature of 0°C.

NOx nitrogen oxides. N:W ratio Ration of volume of overburden removed in m3 to the mass of extracted coal in tons

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OTF Organized Trading Facilities Operational Capacity ORM constitutes of generation capacities of active Production Schedular Units (JGWa) in operation or Reserve (ORM) layover, representing excess capacity over electricity demand available to the TSO under the Energy Sale Agreements and on the Balancing Market in unforced generation Peak, peakload a standard product on the electricity market; a constant power supply from Monday to Friday, each hour between 7:00 a.m. and 10:00 p.m. (15-hour standard for the Polish market) or between 8:00 a.m. and 8:00 p.m. (12-hour standard for the German market) in a given period, for example week, month, quarter or year. Peak power pumped special type of hydro-power plant allowing for electricity storage. It uses the upper reservoir, to which storage plants water is pumped from the lower reservoir using electricity (usually excessive in system). The pumped storage facilities provide ancillary control services for the national power system. In periods of increased demand for electricity, water from the upper reservoir is released through the turbine. This way, electricity is produced. PJ Petajoule, a unit of work/heat in the SI system, 1 PJ = approx. 278 GWh Property rights negotiable exchange-traded rights under green and co-generation certificates Prosumer end customer who purchases electricity under a comprehensive agreement and generates electricity only from renewable sources at a micro-installations for own purposes, unrelated to economic activities PSCMI1 Polish Steam Coal Market Index 1 - average level of prices of coal dust sold to industrial-scale power plants in Poland RAB Regulatory Asset Base. Red certificate a certificate confirming generation of electricity in co-generation with heat. Red energy popular name for electricity co-generated with heat. Regulator the President of ERO, fulfilling the tasks assigned to him in the energy law. The regulator is responsible for, among others, giving out licenses for energy companies, approval of energy tariffs, appointing Transmission System Operators and Distribution System Operators. Renewable Energy a source of generation using wind power, solar radiation, geothermal energy, waves, sea currents and Source (RES) tides, flow of rivers and energy obtained from biomass, landfill biogas as well as biogas generated in sewage collection or treatment processes or the disintegration of stored plant or animal remains. SAIDI System Average Interruption Duration Index - index of average system interruption time (long, very long and disastrous), expressed in minutes per customer per year, which is the sum of the interruption duration multiplied by the number of consumers exposed to the effects of this interruption during the year, divided by the total number of off-takers. SAIDI does not include interruptions lasting less than three minutes and is determined separately for planned and unplanned interruptions. It applies to breakdowns in the low (LV), medium (MV) and high voltage (HV), wherein SAIDI in quality tariff does not include interruptions on low voltage. SAIFI System Average Interruption Frequency Index - index of average system amount of interruptions ( long, very long and disastrous ), determined as number of off-takers exposed to the effects of all such interruptions during the year divided by the total number of off-takers. SAIFI does not include interruptions lasting less than three minutes and is determined separately for planned and unplanned interruptions. It applies to breakdowns in the low (LV), medium (MV) and high voltage (HV), wherein SAIFI in quality tariff does not include interruptions on low voltage . SCR Selective catalytic reduction SNCR Selective non-catalytic reduction Start-up early-stage company established in order to build new products or services and characterised by a high level of uncertainty. The most common features of start-ups are: short operational history (up to 10 years), innovativeness, scalability, higher risk than in the case of traditional businesses but also potential higher returns on investment Tariff the list of prices and rates and terms of application of the same, devised by an energy enterprise and introduced as binding on the customers specified therein in the manner defined by an act of parliament. Tariff group a group of customers off-taking electricity or heat or using services related to electricity or heat supply to whom a single set of prices or charges and terms are applied. TGE Towarowa Giełda Energii S.A. (Polish Power Exchange), a commodity exchange on which trading can take place in electricity, liquid or gas fuels, extraction gas, emission allowances and property rights whose price depends directly or indirectly on electric energy, liquid or gas fuels and emission allowances, admitted to commodity exchange trading. TPA, TPA rule Third Party Access, the owner or operator of the network infrastructure to third parties in order to supply goods/services to third party customers.

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Transmission transport of electricity through high voltage (220 and 400 kV) transmission network from generators to distributors. Transmission System a power company engaging in the transmission of gaseous fuels or electric energy, responsible for traffic Operator (TSO) in a gas or power transmission system, current and long-term security of operation of that system, the operation, maintenance, repair and indispensable expansion of the transmission system, including connections with other gas or power systems. In Poland, for the period from July 2, 2014 till December 31, 2030 Polskie Sieci Elektroenergetyczne S.A. was chosen as a TSO in the field of electricity transmission. 9 TWh terawatt hour, a multiple unit for measuring of electricity unit in the system SI. 1 TWh is 10 kWh. Ultra-high-voltage an energy network with a voltage equal to 220 kV or higher. network (UHV)

V (volt) electrical potential unit, electric voltage and electromotive force in the International System of Units (SI), 1 V= 1J/1C = (1 kg x m2) / (A x s3). W (watt) a unit of power in the International Systems of Units (SI), 1 W = 1J/1s = 1 kg x m2 x s-3. Yellow certificate a certificate confirming generation of energy in gas-fired power plants and CCGT power plants. Yellow energy popular name for energy generated in gas-fired power plants and CCGT power plants.

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PGE Polska Grupa Energetyczna S.A. Semi-annual financial report for the 6-month period

ended June 30, 2019 in accordance with IFRS EU (in PLN million) y

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TABLE OF CONTENTS I. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2019, IN ACCORDANCE WITH IFRS EU ...... 4 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...... 4 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 5 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...... 6 CONSOLIDATED STATEMENT OF CASH FLOWS ...... 7 GENERAL INFORMATION, BASIS FOR PREPARATION OF FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION ...... 8 1. General information ...... 8 1.1 Information on the parent ...... 8 1.2 Information on PGE Group ...... 8 1.3 PGE Group's composition ...... 9 2. Basis for preparation of financial statements ...... 11 2.1 Statement of compliance ...... 11 2.2 Presentation and functional currency...... 11 2.3 New standards and interpretations published, not yet effective ...... 12 2.4 Professional judgment of management and estimates ...... 12 3. Impairment tests for property, plant and equipment, intangible assets and goodwill ...... 13 3.1 Analysis of indications of impairment of generation assets in the Conventional Generation and District Heating segments ...... 13 3.2 Analysis of indications of impairment of generation assets in the Renewables segment ...... 13 4. Changes in accounting principles and data presentation ...... 14 5. Fair value hierarchy ...... 18 EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...... 19 EXPLANATORY NOTES TO OPERATING SEGMENTS ...... 19 6. Information on operating segments ...... 19 6.1 Information on business segments ...... 20 EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ...... 22 7. Revenues and expenses ...... 22 7.1 Revenue from sales ...... 22 7.2 Costs by nature and function ...... 23 7.3 Other operating income and expenses ...... 24 7.4 Financial income and expenses ...... 25 7.5 Share of profit (loss) of entities accounted for using the equity method ...... 25 8. Impairment losses on assets ...... 26 9. Tax in the statement of comprehensive income ...... 26 EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION ...... 27 10. Significant additions and disposals of property, plant and equipment and intangible assets ...... 27 11. Future investment commitments ...... 27 12. Shares accounted for using the equity method ...... 28 13. Deferred tax in the statement of financial position ...... 28 13.1 Deferred tax assets ...... 28 13.2 Deferred tax liabilities ...... 29 14. Inventories ...... 29

15. CO2 emission allowances for captive use ...... 30 16. Selected financial assets ...... 30 16.1 Trade and other financial receivables...... 30 16.2 Cash and cash equivalents ...... 31 17. Derivatives and other assets measured at fair value through profit or loss ...... 31 18. Equity ...... 32 18.1 Share capital ...... 32 18.2 Hedging reserve ...... 32 18.3 Dividends paid and proposed ...... 33

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19. Provisions ...... 33 19.1 Provisions for employee benefits ...... 34 19.2 Rehabilitation provisions ...... 34

19.3 Provision for shortages of CO2 emission allowances...... 34 19.4 Provision for energy origin units held for redemption ...... 34 19.5 Provisions for claims concerning non-contractual use of property ...... 34 20. Financial liabilities ...... 35 20.1 Loans, borrowings, bonds and leases ...... 35 20.2 Trade and other financial liabilities ...... 37 21. Other non-financial liabilities ...... 37 OTHER EXPLANATORY NOTES ...... 38 22. Contingent liabilities and receivables. Legal claims ...... 38 22.1 Contingent liabilities...... 38 22.2 Other significant issues related to contingent liabilities ...... 39 22.3 Contingent receivables ...... 39 22.4 Other legal claims and disputes ...... 39 23. Tax settlements ...... 40 24. Information on the related parties ...... 41 24.1 Associates and jointly controlled entities ...... 41 24.2 State Treasury-related companies ...... 41 24.3 Management remuneration ...... 42 25. Significant events during and after the reporting period ...... 43 25.1 Act amending the Act on Excise Duty and Some Other Acts ...... 43

25.2 Granting of additional CO2 emission allowances for PGE installations ...... 44 25.3 Establishment of Fundusz Eko-Inwestycje ...... 44 II. CONDENSED SEPARATE INTERIM FINANCIAL STATEMENTS OF PGE POLSKA GRUPA ENERGETYCZNA S.A. FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2019, IN ACCORDANCE WITH IFRS EU ...... 45 SEPARATE STATEMENT OF COMPREHENSIVE INCOME ...... 45 SEPARATE STATEMENT OF FINANCIAL POSITION...... 46 SEPARATE STATEMENT OF CHANGES IN EQUITY ...... 47 SEPARATE STATEMENT OF CASH FLOWS ...... 48 1. General information ...... 49 2. Professional judgment of management and estimates ...... 49 3. Impact of new regulations on the Company's future financial statements ...... 49 4. Changes in accounting principles and data presentation ...... 50 5. Fair value hierarchy ...... 51 6. Revenues from sales ...... 51 7. Costs by nature and by function...... 52 8. Financial income and expenses ...... 52 9. Shares in subsidiaries ...... 52 10. Financial assets ...... 53 11. Cash and cash equivalents ...... 54 12. Derivatives and other receivables measured at fair value through profit or loss ...... 54 13. Other current assets...... 55 14. Selected financial assets ...... 55 15. Loans, borrowings, bonds and cash pooling ...... 55 16. Contingent liabilities ...... 57 17. Other legal claims and disputes ...... 57 18. Information on the related parties ...... 57 19. PGE Group subsidiaries ...... 57 20. State Treasury-related companies ...... 58 21. Management remuneration ...... 58 22. Significant events during and after the reporting period ...... 58 III. APPROVAL OF THE SEMI-ANNUAL FINANCIAL REPORT ...... 59

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Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

I. PGE GROUP CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2019, IN ACCORDANCE WITH IFRS EU CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Period ended Period ended

Note June 30, 2019 June 30, 2018 (unaudited) (unaudited) Data restated * STATEMENT OF PROFIT OR LOSS

SALES REVENUE 7.1 18,236 12,871 Cost of goods sold 7.2 (15,848) (9,898) GROSS PROFIT ON SALES 2,388 2,973

Distribution and selling expenses 7.2 (582) (711) General and administrative expenses 7.2 (508) (511) Net other operating income 7.3 1,148 108 OPERATING PROFIT 2,446 1,859

Net financial expenses 7.4 (228) (236) Share of profit of entities accounted for using the equity method 7.5 22 43 GROSS PROFIT 2,240 1,666

Current income tax 9. (340) (322) Deferred income tax 9. (135) (48) NET PROFIT FOR THE REPORTING PERIOD 1,765 1,296

OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss in the future: Valuation of debt financial instruments 17. 3 (1) Valuation of hedging instruments 17. (146) 35 Foreign exchange differences from translation of foreign entities (1) 4 Deferred tax 9. 27 (6) Items that may not be reclassified to profit or loss in the future: Actuarial gains and losses (142) - Deferred tax 9. 27 - Share of (loss)/profit of entities accounted for using the equity method (1) 1 OTHER COMPREHENSIVE INCOME FOR THE REPORTING PERIOD, NET (233) 33

TOTAL COMPREHENSIVE INCOME 1,532 1,329

NET PROFIT ATTRIBUTABLE TO: – equity holders of the parent company 1,702 1,281 – non-controlling interests 63 15

COMPREHENSIVE INCOME ATTRIBUTABLE TO: – equity holders of the parent company 1,469 1,314 – non-controlling interests 63 15

EARNINGS AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE 0.91 0.69 PARENT COMPANY (IN PLN)

* restatement of comparative data is described in note 4 to these financial statements

Explanatory notes constitute an integral part of the consolidated financial statements. 4 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at As at Note June 30, 2019 December 31, 2018 (unaudited) audited Data restated* NON-CURRENT ASSETS Property, plant and equipment 63,463 62,274 Investment property 49 48 Intangible assets 719 1,046 Right-of-use assets 4. 1,252 - Financial receivables 16.1 178 168 Derivatives and other assets measured at fair value through profit or loss 17. 125 117 Shares and other equity instruments 60 53 Shares accounted for using the equity method 12. 800 776 Other non-current assets 475 528

CO2 emission allowances for captive use 15. 239 1,203 Deferred income tax assets 13.1 406 552 67,766 66,765

CURRENT ASSETS Inventories 14. 4,171 2,699 CO2 emission allowances for captive use 15. 964 408 Income tax receivables 15 69 Derivatives and other assets measured at fair value through profit or loss 17. 79 114 Trade and other financial receivables 16.1 4,908 4,102 Shares and other equity instruments 1 1 Other current assets 706 457 Cash and cash equivalents 16.2 1,289 1,281 12,133 9,131

ASSETS CLASSIFIED AS HELD FOR SALE 2 9

TOTAL ASSETS 79,901 75,905

EQUITY Share capital 18.1 19,165 19,165 Reserve capital 19,669 19,872 Hedging reserve 18.2 (168) (52) Foreign exchange differences from translation (2) (1) Retained earnings 9,511 7,743 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 48,175 46,727 Equity attributable to non-controlling interests 887 1,074 TOTAL EQUITY 49,062 47,801

NON-CURRENT LIABILITIES Non-current provisions 19. 7,570 6,428 Loans, borrowings, bonds and lease 20.1 10,955 6,361 Derivatives 17. 72 26 Deferred income tax liabilities 13.2 1,551 1,616 Deferred income and government grants 603 611 Other financial liabilities 20.2 518 521 Other non-financial liabilities 21. 43 15 21,312 15,578

CURRENT LIABILITIES Current provisions 19. 2,524 2,608 Loans, borrowings, bonds and leases 20.1 1,025 4,347 Derivatives 17. 313 110 Trade and other financial liabilities 20.2 3,725 3,613 Income tax liabilities 102 14 Deferred income and government grants 79 87 Other non-financial liabilities 21. 1,759 1,747 9,527 12,526

TOTAL LIABILITIES 30,839 28,104 TOTAL EQUITY AND LIABILITIES 79,901 75,905

* restatement of comparative data is described in note 4 to these financial statements

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Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Exchange Reserve differences Retained Non-controlling Total Share capital Hedging reserve Total capital from earnings interests equity translation Note 18.1 18.2 JANUARY 1, 2019 19,165 19,872 (52) (1) 7,743 46,727 1,074 47,801 Net profit for the reporting period - - - - 1,702 1,702 63 1,765 Other comprehensive income - - (116) (1) (116) (233) - (233) COMPREHENSIVE INCOME FOR THE PERIOD - - (116) (1) 1,586 1,469 63 1,532 Previous years’ profit distribution - (203) - - 203 - - - Dividend ------(4) (4) Settlement of purchase of additional shares - - - - (21) (21) (254) (275) in subsidiaries Acquisition of a new subsidiary ------8 8 TRANSACTIONS WITH OWNERS - (203) - - 182 (21) (250) (271) JUNE 30, 2019 19,165 19,669 (168) (2) 9,511 48,175 887 49,062

Exchange Reserve differences Retained Non-controlling Total Share capital Hedging reserve Total capital from earnings interests equity translation Note 18.1 18.2 DECEMBER 31, 2017 19,165 15,328 83 (4) 10,556 45,128 1,250 46,378 Effect of IFRS 15 implementation - - - - 340 340 - 340 JANUARY 1, 2018 19,165 15,328 83 (4) 10,896 45,468 1,250 46,718 Net profit for the reporting period - - - - 1,281 1,281 15 1,296 Other comprehensive income - - 28 4 1 33 - 33 COMPREHENSIVE INCOME - - 28 4 1,282 1,314 15 1,329 Dividend ------(39) (39) Inclusion of companies in consolidation - - - - 27 27 20 47 Settlement of purchase of additional shares - - - - 34 34 (142) (108) in subsidiaries Other changes - - - - (1) (1) (1) (2) TRANSACTIONS WITH OWNERS - - - - 60 60 (162) (102) JUNE 30, 2018 19,165 15,328 111 - 12,238 46,842 1,103 47,945

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Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

CONSOLIDATED STATEMENT OF CASH FLOWS

Period ended Period ended Note June 30, 2019 June 30, 2018 (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Gross profit 2,240 1,666 Income tax paid (238) (370)

Adjustments for: Share of profit of entities accounted for using the equity method (22) (43) Depreciation, amortisation, disposal and impairment losses 1,949 1,844 Interest and dividend, net 106 188 Profit/(loss) on investing activities (30) (5) Change in receivables (818) 227 Change in inventories (1,472) (391) Change in liabilities, excluding loans and borrowings 956 (380) Change in other non-financial assets, 123 436 prepayments and CO2 emission allowances Change in provisions 292 (430) Other 107 (59) NET CASH FROM OPERATING ACTIVITIES 3,193 2,683

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets (3,180) (2,847) Recognition of deposits with maturity over 3 months (94) (213) Termination of deposits with maturity over 3 months 83 200 Purchase of financial assets (14) (81) Inclusion of companies in consolidation - 18 Other 19 18 NET CASH FROM INVESTING ACTIVITIES (3,186) (2,905)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans, borrowings 4,436 337 Proceeds from issue of bonds 1,400 - Repayment of loans, borrowings and finance leases (3,258) (180) Redemption of bonds issued (2,139) (1,000) Interest and commission paid (163) (172) Increase of share in Group companies (275) (111) Other - 4 NET CASH FROM FINANCING ACTIVITIES 1 (1,122)

NET CHANGE IN CASH AND CASH EQUIVALENTS 8 (1,344) Net foreign exchange differences (1) (3) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD 16.2 1,279 2,551 CASH AND CASH EQUIVALENTS AT THE END OF PERIOD 16.2 1,287 1,207

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Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

GENERAL INFORMATION, BASIS FOR PREPARATION OF FINANCIAL STATEMENTS AND OTHER EXPLANATORY INFORMATION

1. General information 1.1 Information on the parent PGE Polska Grupa Energetyczna S.A. ("Parent," "Company,” "PGE S.A.”) was founded on the basis of a notary deed of August 2, 1990, and registered in the District Court in Warsaw, XVI Commercial Department on September 28, 1990. The Company was registered in the National Court Register of the District Court for the capital city of Warsaw, XII Commercial Department, under no. KRS 0000059307. The Parent Company's registered office is in Warsaw, ul. Mysia 2. As at January 1, 2019, June 30, 2019 and as at the date on which these financial statements were published, the Company's Management Board was as follows:  Henryk Baranowski – President of the Management Board,  Wojciech Kowalczyk – Vice-President of the Management Board,  Marek Pastuszko – Vice-President of the Management Board,  Paweł Śliwa – Vice-President of the Management Board,  Ryszard Wasiłek – Vice-President of the Management Board,  Emil Wojtowicz – Vice-President of the Management Board. Ownership structure As at June 30, 2019, the parent's ownership structure was as follows:

State Treasury Other shareholders Total As at December 31, 2018 57.39% 42.61% 100.00% As at June 30, 2019 57.39% 42.61% 100.00%

The ownership structure as at particular reporting dates was prepared on the basis of data available to the Company. According to information known to the Company as of the date on which these financial statements were prepared, the State Treasury was the only shareholder with at least 5% of votes at the general meeting of PGE S.A. 1.2 Information on PGE Group PGE Group ("PGE Group," "Group") includes the parent, PGE Polska Grupa Energetyczna S.A., 58 consolidated subsidiaries, 4 associates and 1 jointly controlled entity. For additional information about subordinated entities included in the consolidated financial statements please refer to note 1.3. These consolidated financial statements of PGE Group comprise financial data for the period from January 1, 2019 to June 30, 2019 (“financial statements,” “consolidated financial statements”) and include comparative data for the period from January 1, 2018 to June 30, 2018 and as at December 31, 2018. These condensed consolidated interim financial statements do not cover all of the information and disclosures required in annual financial statements and they should be read in conjunction with the Group's consolidated financial statements for the year ended December 31, 2018, approved for publication on March 8, 2019. The financial statements of all subordinated entities were prepared for the same reporting period as the financial statements of the parent company, using consistent accounting principles. PGE Group companies' core activities are as follows:  production of electricity,  distribution of electricity,  wholesale and retail trade in electricity, energy origin rights, CO2 emission allowances and gas,  production and distribution of heat,  provision of other services related to these activities. Business activities are conducted under appropriate concessions granted to particular Group companies. Going concern These financial statements were prepared under the assumption that the Group's companies will continue to operate as a going concern in the foreseeable future. As at the date of the approval of these consolidated financial statements, there is no evidence indicating that the significant Group companies will not be able to continue their business activities as a going concern.

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Changes in accounting policies The same accounting rules (policies) and calculation methods were applied in these financial statements as in the most recent annual financial statements, except for changes resulting from the entry into force of IFRS 16 Leases and presentation changes described in detail in note 4. These financial statements should be read in conjunction with PGE Group's consolidated financial statements for the year ended December 31, 2018, approved for publication on March 8, 2019. 1.3 PGE Group's composition During the reporting period, PGE Group consisted of the following subsidiaries, consolidated directly and indirectly: Stake held by Stake held by PGE Group PGE Group Entity Entity holding stake entities as at entities as at December 31, June 30, 2019 2018 SEGMENT: SUPPLY PGE Polska Grupa Energetyczna S.A. 1. Parent Warsaw PGE Dom Maklerski S.A. 2. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Trading GmbH 3. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Berlin PGE Obrót S.A. 4. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rzeszów ENESTA sp. z o.o. 5. PGE Obrót S.A. 87.33% 87.33% Stalowa Wola PGE Centrum sp. z o.o. 6. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Paliwa sp. z o.o. 7. PGE Energia Ciepła S.A. 100.00% 100.00% Kraków SEGMENT: CONVENTIONAL GENERATION PGE Górnictwo i Energetyka Konwencjonalna S.A. 8. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów ELBIS sp. z o.o. 9. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rogowiec MegaSerwis sp. z o.o. 10. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bogatynia „ELMEN” sp. z o.o. 11. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rogowiec "Przedsiębiorstwo Usługowo-Produkcyjne 12. „ELTUR-SERWIS” sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bogatynia" Przedsiębiorstwo Transportowo-Sprzętowe 13. „BETRANS” sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów Przedsiębiorstwo Wulkanizacji Taśm i Produkcji Wyrobów 14. Gumowych BESTGUM POLSKA sp. z o.o. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Rogowiec RAMB sp. z o.o. 15. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Piaski EPORE sp. z o.o. PGE Górnictwo i Energetyka 16. 85.38% 85.38% Bogatynia Konwencjonalna S.A. „Energoserwis – Kleszczów” sp. z o.o. PGE Górnictwo i Energetyka 17. 51.00% 51.00% Rogowiec Konwencjonalna S.A. SEGMENT: DISTRICT HEATING PGE Energia Ciepła S.A. * 18. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Toruń S.A. 19. PGE Energia Ciepła S.A. 95.22% 95.22% Toruń PGE Gaz Toruń sp. z o.o. 20. PGE Energia Ciepła S.A. 100.00% 50.04% Warsaw Zespół Elektrociepłowni Wrocławskich 21. KOGENERACJA S.A. PGE Energia Ciepła S.A. 58.07% 58.07% Wrocław Elektrociepłownia Zielona Góra S.A. Zespół Elektrociepłowni Wrocławskich 22. 98.40% 98.40% Zielona Góra KOGENERACJA S.A. MEGAZEC sp. z o.o. 23. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bydgoszcz 24. Przedsiębiorstwo Energetyki Cieplnej sp. z o.o. PGE Górnictwo i Energetyka 50.98% 50.98%

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Stake held by Stake held by PGE Group PGE Group Entity Entity holding stake entities as at entities as at December 31, June 30, 2019 2018 Zgierz Konwencjonalna S.A.

PGE Ekoserwis sp. z o.o. 25. PGE Energia Ciepła S.A. 84.15% 84.15% Wrocław SEGMENT: RENEWABLES PGE Energia Odnawialna S.A. 26. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw Elektrownia Wiatrowa Baltica-1 sp. z o.o. 27. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw Elektrownia Wiatrowa Baltica-2 sp. z o.o. 28. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw Elektrownia Wiatrowa Baltica-3 sp. z o.o. 29. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Baltica sp. z o.o. 30. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Klaster sp. z o.o. 31. PGE Energia Odnawialna S.A. 100.00% 100.00% Warsaw SEGMENT: DISTRIBUTION PGE Dystrybucja S.A. 32. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Lublin SEGMENT: OTHER ACTIVITIES PGE EJ 1 sp. z o.o. 33. PGE Polska Grupa Energetyczna S.A. 70.00% 70.00% Warsaw PGE Systemy S.A. 34. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Sweden AB (publ) 35. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Stockholm PGE Synergia sp. z o.o. 36. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw „Elbest” sp. z o.o. 37. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów Elbest Security sp. z o.o. 38. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Bełchatów PGE Inwest 2 sp. z o.o. 39. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Ventures sp. z o.o. 40. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 8 sp. z o.o. 41. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 9 sp. z o.o. 42. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 10 sp. z o.o. 43. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 11 sp. z o.o. 44. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 12 sp. z o.o. 45. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 13 S.A. 46. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 14 sp. z o.o. 47. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Nowa Energia sp. z o.o. 48. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 16 sp. z o.o. 49. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 17 sp. z o.o. 50. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 18 sp. z o.o. 51. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw PGE Inwest 19 sp. z o.o. 52. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw Towarzystwo Funduszy Inwestycyjnych Energia S.A. 53. PGE Polska Grupa Energetyczna S.A. 100.00% 100.00% Warsaw 54. BIO-ENERGIA sp. z o.o. PGE Energia Odnawialna S.A. 100.00% 100.00%

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Stake held by Stake held by PGE Group PGE Group Entity Entity holding stake entities as at entities as at December 31, June 30, 2019 2018 Warsaw Przedsiębiorstwo Transportowo-Usługowe 55. „ETRA” sp. z o.o. PGE Dystrybucja S.A. 100.00% 100.00% Białystok Energetyczne Systemy Pomiarowe sp. z o.o. 56. PGE Dystrybucja S.A. 100.00% 100.00% Białystok ZOWER sp. z o.o. 57. PGE Energia Ciepła S.A. 100.00% 100.00% Czerwionka-Leszczyny Przedsiębiorstwo Usługowo-Handlowe TOREC sp. z o.o. 58. PGE Toruń S.A. 50.04% 50.04% Toruń 4Mobility S.A. 59. PGE Nowa Energia sp. z o.o. 51.47% - Warsaw * Elektrownia Rybnik (Rybnik Power Plant) belonging to PGE Energia Ciepła S.A. is presented in note 6 to these financial statements in the Conventional Generation segment.

The table above includes the following changes in the structure of PGE Group companies subject to full consolidation which took place during the period ended June 30, 2019:  On January 2, 2019, the demerger of PGE Górnictwo i Energetyka Konwencjonalna S.A. was entered in the National Court Register. The demerger was effected by transferring the following PGE Górnictwo i Energetyka Konwencjonalna S.A. branches to PGE Energia Ciepła S.A.:  Elektrociepłownia Kielce,  Elektrociepłownia Gorzów,  Elektrociepłownia Rzeszów,  Elektrociepłownia Lublin Wrotków,  Elektrociepłownia Zgierz,  Zespół Elektrociepłowni Bydgoszcz. The transaction did not affect these consolidated financial statements.  On April 17, 2019 PGE S.A. decided to withdraw from the process of acquisition of shares held by other shareholders of PGE EJ1 sp. z o.o. Thus, PGE S.A’s share in PGE EJ1 sp. z o.o. will remain at 70%.  On April 24, 2019, PGE Nowa Energia sp. z o.o. acquired new shares in the increased share capital of 4Mobility S.A. The shares acquired account for 51.47% of the increased share capital. Following the accounting for the acquisition, the PGE Group recognised goodwill of PLN 7 million.  On June 14, 2019, PGE Energia Ciepła S.A. acquired 49.96% of shares in PGE Gaz Toruń sp. z o.o. and became the sole shareholder of this company. Following the transaction, equity decreased by PLN 275 million, including PLN 254 million attributable to non-controlling interests.

2. Basis for preparation of financial statements 2.1 Statement of compliance These financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and in the scope required under the Minister of Finance Regulation of March 29, 2018 on current and periodic information provided by issuers of securities and conditions of recognition as equivalent information required by the law of a non-Member State (Official Journal 2018, items 512 and 685). IFRS comprise standards and interpretations, approved by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretation Committee (“IFRIC”). 2.2 Presentation and functional currency The functional currency of the parent company and the presentation currency of these consolidated financial statements is Polish Zloty ("PLN"). All amounts are in PLN millions (PLN), unless indicated otherwise. For the purpose of translation at the reporting date of items denominated in currency other than PLN the following exchange rates were applied: June 30, 2019 December 31, 2018 June 30, 2018 USD 3.7336 3.7597 3.7440 EUR 4.2520 4.3000 4.3616

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2.3 New standards and interpretations published, not yet effective The following standards, changes in already effective standards and interpretations are not endorsed by the European Union or are not effective as at January 1, 2019: Standard Description of changes Effective date Standard in the current IFRS 14 Regulatory Deferral Accounting and disclosure principles for regulatory deferral accounts. version will not be Accounts effective in the EU Amendments to IFRS 10 Deals with the sale or contribution of assets between an investor and its joint Postponed indefinitely and IAS 28 venture or associate. Amendments to the Conceptual These amendments aim to harmonise the Conceptual Framework January 1, 2020 Framework IFRS 17 Insurance contracts Defines a new approach to recognising revenue and profit/loss in the period in January 1, 2021 which insurance services are provided Amendments to IFRS 3 These changes clarify the definition of economic activity January 1, 2020 Amendments to IAS 1 and IAS 8 The amendments concern the definition of 'material.' January 1, 2020

PGE Group intends to adopt the above mentioned new standards, amendments to standards and interpretations published by the International Accounting Standards Board but not yet effective at the reporting date, when they become effective. These regulations will not have a significant effect on the future financial statements of PGE Group. 2.4 Professional judgment of management and estimates Judgments and estimates made by the management in the process of applying accounting rules that are described below had the most significant impact on the amounts presented in the consolidated financial statements, including in other explanatory information. The estimates are based on the best knowledge of the Management Board relating to current and future operations and events in particular areas. Detailed information on the assumptions made is presented below or in respective explanatory notes.  In the previous reporting periods PGE Group recognised impairment losses on assets, in particular of property, plant and equipment. In the reporting period, the Group did not identify premises for performing impairment tests and for reversing impairment losses recognised in previous periods. Estimate of recoverable amount of property, plant and equipment is based on a number of significant assumptions to the factors, realisation of which is uncertain and mostly beyond PGE Group's control. The Group believes that it has assumed the most accurate volumes and values. Nevertheless, realisation of the particular assumptions may diverge from the ones established by the Group.  On December 28, 2018, an act amending the act on excise duty and certain other acts (“Act on Electricity Prices") was adopted. The Act, as amended, regulated prices for final customers of electricity for 2019 and introduced a system of compensation for energy companies offering reduced prices. In connection with the provisions of the Act, the Group made estimates of revenues from compensation due and estimates of reductions in revenues. For details, see note 25.1 to these financial statements.  Provisions are liabilities of uncertain amount or timing. During the reporting period, the Group changed estimates regarding the validity or amounts of some provisions.  In particular, the rehabilitation provision and provisions for employee benefits were remeasured in the reporting period due to a decrease in the discount rate. For details, see note 19 to these financial statements.  Uncertainties concerning tax treatment are described in note 23 to the consolidated financial statements.

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Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

3. Impairment tests for property, plant and equipment, intangible assets and goodwill Property, plant and equipment constitute the most significant component of the PGE Group's assets. Due to the volatile macroeconomic environment, PGE Group verifies on a regular basis any indications that the recoverable amount of its assets may be impaired. When assessing the market situation, PGE Group uses both its own analytical tools and the support of independent analytical centres. 3.1 Analysis of indications of impairment of generation assets in the Conventional Generation and District Heating segments In previous reporting periods, PGE Group recognised significant impairment losses for non-current assets in the Conventional Generation segment and the District Heating segment. Key assumptions used in asset impairment tests carried out in 2018 are described in the consolidated financial statements of PGE Group for 2018. In the current reporting period, the Group analysed the impairment indications in order to verify whether these assets have been impaired or whether previously recognised impairment losses have reversed. The most significant factors analysed included:  analysis of the financial plan,  confirmation whether the investment plan remains valid,  analysis of energy and gas prices,  analysis of assumptions concerning the so-called Capacity Market, support for cogeneration after 2018,  analysis of estimated margins on production and sale of electricity in future periods, in the light of the most recent projections of prices of energy, hard coal and CO2 emission rights. The analysis of indications for the Conventional Generation segment showed that most of the generating units implement the financial plan in accordance with the assumptions. New electricity, coal and CO2 price projections available to PGE Group indicate that current margin projections can be upheld. Moreover, the change in assumptions concerning the Capacity Market results in an increase in the projected revenues from the Capacity Market. Therefore, PGE Group believes that as at the reporting date there are no indications for recognising impairment losses on non-current assets of the Conventional Generation segment or for reversing impairment losses recognized in prior periods. The analysis of indications for the Heating segment showed that the generating units implement the financial plan in accordance with the assumptions. New electricity, coal and CO2 price projections available to PGE Group indicate that current margin projections can be upheld. Moreover, the change in assumptions concerning the Capacity Market results in an increase in the projected revenues from the Capacity Market for most units. At the same time, PGE Group believes that the assumptions adopted in 2018 regarding the support for cogeneration remain valid as at June 30, 2019. Therefore, PGE Group believes that as at the reporting date there are no indications for recognising impairment losses on non-current assets of the District Heating segment or for reversing impairment losses recognized in prior periods. Some material regulatory assumptions made in impairment tests are beyond the control of PGE Group and it is uncertain whether they will materialise in the future. This applies in particular to issues concerning the shape of the Polish Capacity Market after July 1, 2025, support for cogeneration after 2018 and the allocation of free of charge CO2 emission rights after 2020. In these areas, the Group uses existing assumptions as to the development of regulations which are subject to risk. Changes in these regulations in the future versus PGE’s existing expectations might have an impact on the recoverable amounts of generating assets in the Conventional Generation and Heating segments. 3.2 Analysis of indications of impairment of generation assets in the Renewables segment In previous reporting periods, PGE Group recognised significant impairment losses for non-current assets in the Renewables segment. Key assumptions used in asset impairment tests carried out in 2018 are described in the consolidated financial statements of PGE Group for 2018. In the current reporting period, the Group analysed the impairment indications in order to verify whether these assets have been impaired or whether previously recognised impairment losses have reversed. The most significant factors analysed included:  analysis of the financial plan,  confirmation whether the investment plan remains valid,  analysis of energy, gas and energy origin rights prices,  analysis of assumptions concerning the so-called Capacity Market,  analysis of estimated margins on production and sale of electricity in future periods, in the light of the most recent projections of prices of energy, hard coal and CO2 emission rights.

Explanatory notes constitute an integral part of the consolidated financial statements. 13 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

The analysis of indications for the Renewables segment showed that the generating units implement the financial plan above the assumed values. New electricity and property right price projections available to PGE Group indicate that current margin projections can be upheld. The change in assumptions concerning the Capacity Market results in an increase in the projected revenues from the Capacity Market for pumped-storage power plants and hydropower plants. Therefore, PGE Group believes that as at the reporting date there are no indications for recognising impairment losses on non-current assets of the Renewables segment or for reversing impairment losses recognized in prior periods. Some material regulatory assumptions made in impairment tests are beyond the control of PGE Group and it is uncertain whether they will materialise in the future. This applies in particular to projections of prices of energy origin rights the uncertainty of which results from the unstable legal and regulatory situation related to the functioning of the energy origin system. 4. Changes in accounting principles and data presentation New standards and interpretations which became effective on January 1, 2019 The accounting principles (policies) applied in preparing these consolidated financial statements are consistent with those applied in preparing the Group's consolidated financial statements for 2018, except as stated below. The amendments to IFRSs are applied in these financial statements in line with their effective dates. Amendments relating to IFRS 16 are described below. The other amendments did not have material impact on the presented and disclosed financial information or they were not applicable to the Group's transactions:  Amendments to IFRS 9 – Amendments related to the early repayment option with negative compensation;  Amendments to IFRIC 23 – This interpretation applies to establishing taxable revenue, tax base, unsettled tax losses, unused tax rebates and tax rates;  Annual improvements to IFRS (cycle 2015-2017) – amendments to IFRS 3, IFRS 11; IFRS 12; IAS 23;  Amendments to IAS 28 – This amendment concerns measurement of non-current investments in associates;  Amendments to IAS 19 – Amendments concern defined-benefit plans. IFRS 16 Leases PGE Group has implemented the new IFRS 16 Leases starting from financial statements prepared for the periods starting after January 1, 2019. The Group has selected the implementation option set out in paragraph C5.b) of IFRS 16, i.e. retrospectively, with the cumulative effect of the initial application of the standard recognised as at January 1, 2019 as an adjustment to the opening balance of retained earnings. The new standard changes principles for the recognition of contracts which meet the criteria of lease. The main change is to eliminate the classification of leases as either operating leases or finance leases in the lessee’s accounts. All contracts which meet the criteria of a lease will be recognised as a finance lease. IFRS 16 had the most significant effect on the following types of agreements:  right to perpetual usufruct of land (“RPUL”) – both purchased and received as contribution-in-kind or received free of charge based on an administrative decision;  land easements and transmission service easements;  tenancy agreements, lease agreements, etc. related to the installation of power line and technical infrastructure (heat transfer systems, transformers);  tenancy agreements, lease agreements, etc. related to office space;  tenancy agreements, lease agreements, etc. related to buildings, structures and technical equipment. After analysis, the Group concluded that the following types of contracts are outside the scope of IFRS 16:  tenancy agreements, lease agreements, easements which are not burdensome for the owner of the property (e.g. establishment of easement for the purposes of an overhead line);  agreements on use of road strip for the infrastructure purpose. For these agreements, the definition of a lease is not met because the Group does not derive substantially all the economic benefits and does not have the right to manage the use of the identified asset. The Group did not recognise any lease agreements or lease decisions related to underground infrastructure. As at the date of these financial statements, market practice in this respect is not uniform. Additionally, in June 2019 a decision of the IFRS Interpretation Committee was issued concerning a similar case in which it was found that the agreement meets the definition of a lease. At present, the Group is in the process of re-examining this issue. As regards lease agreements for lines/fibre-optic cables/cable ducts, the Group does not utilise the majority of the asset's capacity. Therefore, the asset does not meet the criteria for an identified asset under IFRS 16 and the above agreements (e.g. an agreement for the lease of capacity in fibre optic cables) do not meet the definition of a lease. In accordance with the selected implementation option, the Group did not restate comparative data. As at the date of implementation of IFRS 16, the Group recognised a right-of-use asset for leases previously classified as an operating lease applying IAS 17 Leases in the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application, in accordance with paragraph C8.b.ii).

Explanatory notes constitute an integral part of the consolidated financial statements. 14 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

Furthermore, PGE Group decided to use the following practical expedients as at January 1, 2019 provided for in paragraph C10 of IFRS 16 with respect to leases previously classified as operating leases in accordance with IAS 17:  PGE Group applied a single discount rate to a portfolio of leases with similar characteristics (such as real property).  PGE Group elected not to apply the requirements in paragraph C8 to leases for which the lease term ends within 12 months of the date of initial application, i.e. January 1, 2019. The Group accounted for those leases in the same way as short-term leases.  PGE Group decided to exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application.  PGE Group used hindsight, in determining the lease term for contract containing options to extend or terminate the lease. As a result of the application of IFRS 16:  Recognised right-of-use assets for new lease agreements and lease liabilities increased by PLN 890 million as at January 1, 2019.  Following reclassification of contracts meeting the definition of a lease and recognised before January 1, 2019 under intangible assets and property, plant and equipment, right-of-use assets increased and intangible assets and property, plant and equipment decreased by PLN 365 million.  As at January 1, 2019, retained earnings remained unchanged.  The gross profit for the first half of 2019 is lower by approximately PLN 17 million.  As estimated, EBITDA for the first half of 2019 is higher by PLN 25 million. Accounting policy Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. IFRS 16 does not apply to lease agreements to explore for or use lignite resources, including in particular agreements for the establishment of mining rights and RPUL, rental agreements and similar land lease agreements for mining sites, forefields and dumping sites. In accordance with the Group's interpretation, agreements concerning the production from lignite deposits are excluded from the scope of IFRS 16. The Group defines the lease period as the non-cancellable period for which a lessee has the right to use an underlying asset, together with both:  periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option and  periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. In determining the lease term and assessing the length of the non-cancellable period of a lease, the Group applies the definition of a contract and determine the period for which the contract is enforceable. A lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The concept of a penalty includes any economic 'disadvantage' of any kind that creates barriers to exit from the contract. If only a lessee has the right to terminate a lease, that right is considered to be an option to terminate the lease available to the lessee that an entity considers when determining the lease term. If only a lessor has the right to terminate a lease, the non-cancellable period of the lease includes the period covered by the option to terminate the lease. The lease term begins at the commencement date (date of making the underlying asset available for use by the lessee) and includes any rent-free periods provided to the lessee by the lessor. At the lease commencement date, the Group takes into account all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option to extend the lease or to purchase the underlying asset, or not to exercise an option to terminate the lease. The interest rate implicit in the lease is the rate that causes the present value of the lease payments and the unguaranteed residual value to equal the sum of the fair value of the underlying asset and any initial direct costs of the lessor. The lessee's incremental borrowing rate of interest is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The lessee recognises a right-of-use asset at the commencement date. The Group as a lessee applies the exemption in respect of recognition, measurement and presentation in relation to:  short-term leases, i.e. leases with a term of up to 12 months and without a purchase option;  leases for which the underlying asset is of low value and is not sub-leased. The Group considers that the underlying asset is of low value (value of the asset when it is new, regardless of the age of the asset being leased) if that value is not higher than PLN 18,000. The election for short-term leases is made by class of underlying asset to which the right of use relates. The election for leases for which the underlying asset is of low value is made on a lease-by-lease basis. At the commencement date, the lessee measures the right-of-use asset at cost. The cost of the right-of-use asset should comprise:  the amount of the initial measurement of the lease liability;

Explanatory notes constitute an integral part of the consolidated financial statements. 15 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

 any lease payments made at or before the commencement date, less any lease incentives received,  any initial direct costs incurred by the lessee; and  an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a particular period. After the commencement date, a lessee measures the right-of-use asset applying a cost model. The lessee measures the right-of-use asset at cost:  less any accumulated depreciation and any accumulated impairment losses. Depreciation charges are recognised throughout the lease term, from the moment the asset is placed in service. No depreciation charges are recognised for righ-of-use assets classified as non-current assets held for sale.  adjusted for any remeasurement of the lease liability (e.g. to reflect revised lease payments). Lease liability is recognised by the lessee at the commencement date. At the commencement date, the lessee measures the lease liability at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee uses the lessee's incremental borrowing rate. At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:  fixed payments (including in-substance fixed payments), less any lease incentives receivable;  variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;  amounts expected to be payable by the lessee under residual value guarantees;  the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and  payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. After the commencement date, the lessee measures the lease liability by:  increasing the carrying amount to reflect interest on the lease liability which, in each period during the lease term, are the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability.  reducing the carrying amount to reflect the lease payments made; and  remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect revised in-substance fixed lease payments. Changes in applied accounting principles and data presentation The statement of comprehensive income includes the following net amounts, respectively: other operating income and other operating expenses as well as financial income and expenses. In the current period, the Group decided to change the manner of presentation of the following valuations: valuations of currency forwards related to the purchase and sale of CO2 emission rights for captive use were transferred from financing activities to other operating activities, and valuations of derivatives related to coal trading transactions were transferred from operating activities to other operating activities. The changed presentation more accurately reflects the nature of the Group's operations – in particular, all transactions related to trading in CO2 allowances and coal are included in the same section of the statement. The Group also decided to change the method of division of liabilities concerning loans, borrowings and bonds into long-term and short- term portions. The previous present value of cash flows generated was replaced by the payment term method.

Explanatory notes constitute an integral part of the consolidated financial statements. 16 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

In connection with these changes, the Group has restated the comparative data. The restatement is shown in the tables below.

CONSOLIDATED STATEMENT OF Period ended Net presentation of Change in the Period ended COMPREHENSIVE INCOME June 30, 2018 other operating recognition of forwards June 30, 2018 activities and financing related to trading of coal Data published Data restated activities and CO2 allowances SALES REVENUES 12,871 - - 12,871 Cost of goods sold (9,854) - (44) (9,898) GROSS PROFIT ON SALES 3,017 - (44) 2,973 Distribution and selling expenses (711) - - (711) General and administrative expenses (511) - - (511) Other operating income 207 (207) - - Other operating expenses (171) 171 - - Net other operating income - 36 72 108 OPERATING PROFIT 1,831 - 28 1,859 Financial income 97 (97) - - Financial expenses (305) 305 - - Net financial expenses - (208) (28) (236) Share of profit of entities accounted for 43 - - 43 using the equity method GROSS PROFIT 1,666 - - 1,666

As at Change As at CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2018 of presentation December 31, 2018 Data published Data restated NON-CURRENT LIABILITIES, including: Loans, borrowings, bonds and leases 6,247 114 6,361 TOTAL NON-CURRENT LIABILITIES 15,464 114 15,578

CURRENT LIABILITIES, including: Loans, borrowings, bonds and leases 4,461 (114) 4,347 TOTAL CURRENT LIABILITIES 12,640 (114) 12,526

TOTAL LIABILITIES 28,104 - 28,104

Explanatory notes constitute an integral part of the consolidated financial statements. 17 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

5. Fair value hierarchy The principles for valuatiom of inventories, derivatives, shares and instruments not quoted on active markets, for which fair value may not be determined reliably, are the same as presented in the financial statements for the year ended December 31, 2018. The Group measures derivatives at fair value using valuation models for financial instruments based on publicly available exchange rates, interest rates, discount curves in particular currencies (applicable also for commodities which prices are denominated in these currencies) derived from active markets. The fair value of derivatives is determined based on discounted future cash flows from transactions, calculated on the difference between the forward rate and transaction price. Forward exchange rates are not modelled as separate risk factor, but are derived from the spot rate and appropriate forward interest rate for foreign currencies in relation to PLN.

As at June 30, 2019 As at December 31, 2018 FAIR VALUE HIERARCHY Level 1 Level 2 Level 1 Level 2 Hard coal in trading activities 140 - 140 -

CO2 emission rights in trading activities 1,393 - 4 - Inventories 1,533 - 144 - Currency forwards - 23 - 24 Commodity forwards - 35 - 6 Contracts for purchase/sale of coal in trading - 20 - 2 activities Valuation of CCIRS - 30 - 113 Valuation of IRS - - - 4 Commodity SWAP - 18 - 4 Options - 10 - 12 Fund participation units - 68 - 66 Financial assets - 204 - 231 Currency forwards - 188 59 Commodity forwards - 2 - Commodity SWAP - 123 - 46 Contracts for purchase/sale of coal in trading - 2 - 7 activities Valuation of IRS - 70 - 24 Financial liabilities - 385 - 136

During the current and comparative reporting periods, there have been no transfers of financial instruments between the first and the second level of fair value hierarchy.

Explanatory notes constitute an integral part of the consolidated financial statements. 18 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPLANATORY NOTES TO OPERATING SEGMENTS

6. Information on operating segments PGE Group companies conduct their business activities based on relevant concessions, including primarily concession on: production, trade and distribution of electricity, generation, transmission and distribution of heat, granted by the President of Energy Regulatory Office and concessions for the extraction of lignite deposits, granted by the Minister of the Environment. Concessions, as a rule, are issued for the period between 10 and 50 years. Relevant assets are assigned to the held concessions on lignite mining and generation and distribution of electricity and heat, which was presented in detailed information on operating segments. For its concessions concerning electricity and heat the Group incurs annual charges dependent on the level of turnover, whereas for conducting licensed extraction of lignite the exploitation charges as well as fees for the use of mining are borne. The exploitation charges depend on the current rate and the volume of the extraction. PGE Group presents information on operating segments in the current and comparative reporting period in accordance with IFRS 8 Operating Segments. PGE Group’ segment reporting is based on the following business segments:  Conventional Generation comprises exploration and mining of lignite and production of electricity in the Group’s power plants as well as ancillary services.  District Heating comprises the generation of electricity and heat from cogeneration units and the transmission and distribution of heat.  Renewables comprise generation of electricity in pumped-storage power plants and from renewable sources.  Supply includes sales and purchases of electricity and gas on the wholesale market, trading in emissions certificates and energy origin rights, sales and purchases of fuel, as well as sales of electricity and rendering services to final customer.  Distribution comprises management over local distribution networks and transmission of electricity.  Other operations comprise services rendered by the subsidiaries for the Group, e.g. fund raising, IT, telecommunication, accounting and HR, and transport services. Additionally, the other operations segment comprises the activities of a subsidiary whose main business is preparation and implementation of a nuclear power plant construction project, investments in startups. Organisation and management over PGE Group is based on segment reporting separated by nature of the products and services provided. Each segment represents a strategic business unit, offering different products and serving different markets. Assignment of particular entities to operating segments is described in note 1.3 of these consolidated financial statements. Inter-segment transactions are disclosed as if they were concluded with third parties – under market conditions. When analysing the results of particular business segments the management of PGE Group draws attention primarily to EBITDA. Starting from 2019, PGE Group has distinguished a new segment, District Heating. In previous periods, assets and performance figures of this segment were recognised and analysed within the Conventional Generation segment. Comparative figures presented in the segment note have been restated accordingly. The new presentation format is designed to improve transparency and strengthen supervision over the implementation of the District Heating Strategy, which is one of the key areas of the Group's development. Seasonality of business segments Main factors affecting the demand for electricity and heat are: weather conditions – air temperature, wind force, rainfall, socio- economic factors – number of energy consumers, energy product prices, growth of GDP and technological factors – advances in technology, product manufacturing technology. Each of these factors has an impact on technical and economic conditions of production, distribution and transmission of energy carriers, thus influence the results obtained by PGE Group. The level of electricity sales is variable throughout a year and depends especially on weather conditions - air temperature, length of the day. Growth in electricity demand is particularly evident in winter periods, while lower demands are observed during the summer months. Moreover, seasonal changes are evident among selected groups of final consumer. Seasonality effects are more significant for households than for the industrial sector. In the Renewables segment, electricity is generated from natural resources such as water, wind and sun. Weather conditions are an important factor affecting electricity generation in this segment. Sales of heat depend in particular on air temperature and are higher in winter and lower in summer.

Explanatory notes constitute an integral part of the consolidated financial statements. 19 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

6.1 Information on business segments Information on business segments for the period ended June 30, 2019

Conventional Other District Heating Renewables Supply Distribution Adjustments Total Generation activities STATEMENT OF PROFIT OR LOSS Sales to external customers 6,038 2,168 522 6,510 2,982 51 (35) 18,236 Inter-segment sales 3,260 933 36 2,632 46 177 (7,084) - TOTAL SEGMENT REVENUE 9,298 3,101 558 9,142 3,028 228 (7,119) 18,236 Cost of goods sold (8,430) (2,674) (344) (8,294) (2,293) (202) 6,389 (15,848) EBIT *) 1,216 481 180 457 609 (15) (482) 2,446 Depreciation, amortisation, disposal and impairment losses 890 291 130 16 602 42 (22) 1,949 recognised in profit or loss EBITDA **) 2,106 772 310 473 1,211 27 (504) 4,395 ASSETS AND LIABILITIES Assets excluding trade receivables 41,025 8,115 3,311 2,687 18,182 729 (2,011) 72,038 Trade receivables 708 350 180 3,530 902 60 (2,388) 3,342 Shares accounted for using the equity ------800 method Unallocated assets ------3,721 TOTAL ASSETS ------79,901 Liabilities excluding trade liabilities 9,446 1,719 384 3,048 2,855 112 (2,068) 15,496 Trade liabilities 942 312 38 2,121 204 39 (2,331) 1,325 Unallocated liabilities ------14,018 TOTAL LIABILITIES ------30,839 OTHER INFORMATION ON BUSINESS

SEGMENT Capital expenditures on PPE/ IA 1,580 111 31 6 818 93 (96) 2,543 Increases of ROUA 1 - 1 3 2 7 - 14 Impairment losses on financial and non- 95 90 1 10 4 - (1) 199 financial assets Other non-monetary expenses ***) 2,177 255 38 277 157 20 89 3,013 *) EBIT = operating profit (loss) **) EBITDA = EBIT + depreciation, amortisation, disposal and impairment losses (property, plant and equipment (PPE), intangible assets (IA), right-of-use assets (ROUA), investment property (IP) and goodwill) that are recognised in profit or loss ***) Non-monetary expenses include mainly changes in provisions such as: rehabilitation provision, provision for CO2 emission allowances, provision for jubilee awards, employee tariff and non-financial liabilities concerning employee benefits that are recognised in profit or loss and other comprehensive income

Explanatory notes constitute an integral part of the consolidated financial statements. 20 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

Information on business segments for the period ended June 30, 2018

Conventional Other Data restated District Heating Renewables Supply Distribution Adjustments Total Generation activities STATEMENT OF PROFIT OR LOSS Sales to external customers 2,089 2,342 251 5,234 2,869 81 5 12,871 Inter-segment sales 3,881 643 151 1,684 51 163 (6,573) - TOTAL SEGMENT REVENUE 5,970 2,985 402 6,918 2,920 244 (6,568) 12,871 Cost of goods sold (5,023) (2,542) (289) (5,998) (2,126) (217) 6,297 (9,898) EBIT *) 503 271 95 255 688 (12) 59 1,859 Depreciation, amortisation, disposal and impairment losses 766 332 127 13 582 43 (19) 1,844 recognised in profit or loss EBITDA **) 1,269 603 222 268 1,270 31 40 3,703 ASSETS AND LIABILITIES Assets excluding trade receivables 35,398 7,600 3,158 1,624 17,146 605 (911) 64,620 Trade receivables 860 275 77 2,927 840 84 (2,345) 2,718 Shares accounted for using the equity 720 method Unallocated assets 2,984 TOTAL ASSETS 71,042 Liabilities excluding trade liabilities 6,843 1,194 351 1,296 1,715 119 (485) 11,033 Trade liabilities 742 301 24 2,094 225 26 (2,257) 1,155 Unallocated liabilities 10,909 TOTAL LIABILITIES 23,097 OTHER INFORMATION ON BUSINESS

SEGMENT Capital expenditures 1,298 283 48 5 596 70 (56) 2,244 Impairment losses on financial and non- 92 51 - 18 10 - - 171 financial assets Other non-monetary expenses ***) 840 173 12 409 87 18 - 1,539 *) EBIT = operating profit (loss) **) EBITDA = EBIT + depreciation, amortisation, disposal and impairment losses (property, plant and equipment (PPE), intangible assets (IA), right-of-use assets, investment property (IP) and goodwill) that are recognised in profit or loss. ***) Non-monetary expenses include mainly changes in provisions such as: rehabilitation provision, provision for CO2 emission allowances, provision for jubilee awards, employee tariff and non-financial liabilities concerning employee benefits that are recognised in profit or loss and other comprehensive income

Explanatory notes constitute an integral part of the consolidated financial statements. 21 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

7. Revenues and expenses 7.1 Revenue from sales Revenue from sales in the period ended June 30, 2019, by category A reconciliation of revenue disclosure by category and information on revenue that the entity discloses for each reporting segment is presented below. Conventional District Heating Renewables Supply Distribution Other activities Adjustments Total Generation

Revenue from contracts with 9,288 3,087 455 8,233 3,005 226 (7,110) 17,184 customers Revenue from recognised compensations based on the Act on 4 20 - 907 - - - 931 Electricity Prices Revenue from leases 6 9 103 2 23 2 (9) 136 LTC compensations - (15) - - - - - (15) TOTAL REVENUE FROM SALES 9,298 3,101 558 9,142 3,028 228 (7,119) 18,236

Revenue from contracts with customers by category reflecting impacts of economic factors on the nature, amounts, maturity dates and uncertainty of revenue and cash flows have been presented in the table below.

Conventional District Heating Renewables Supply Distribution Other activities Adjustments Total Type of goods or services Generation

Revenue from sales of goods and products, 9,235 3,039 454 7,864 3,011 44 (6,444) 17,203 including taxes and charges Taxes and charges collected on behalf of third (2) (6) - (74) (34) - - (116) parties Revenue from sales of goods and 9,233 3,033 454 7,790 2,977 44 (6,444) 17,087 products, including: Sale of electricity 8,767 1,942 333 5,543 2 - (4,547) 12,040 Sale of distribution services 7 6 - 25 2,870 - (43) 2,865 Sale of heat 91 1,037 - 6 - - - 1,134 Sale of energy origin rights 15 12 91 8 - - (5) 121 Regulatory system services 182 - 26 - - - - 208 Sale of gas - - - 285 - - (30) 255 Sale of fuel - - - 647 - - (441) 206 Other sales of goods and materials 171 36 4 1,276 105 44 (1,378) 258 Revenue from sales of services 55 54 1 443 28 182 (666) 97 TOTAL REVENUE FROM CONTRACTS 9,288 3,087 455 8,233 3,005 226 (7,110) 17,184 WITH CUSTOMERS

Revenue from sales in the period ended June 30, 2018, by category A reconciliation of revenue disclosure by category and information on revenue that the entity discloses for each reporting segment is presented below.

Conventional District Heating Renewables Supply Distribution Other activities Adjustments Total Generation

Revenue from contracts with 5,963 3,058 295 6,915 2,901 244 (6,555) 12,821 customers Revenue from leases 7 10 107 3 19 - (13) 133 LTC compensations - (83) - - - - - (83) TOTAL REVENUE FROM SALES 5,970 2,985 402 6,918 2,920 244 (6,568) 12,871

Explanatory notes constitute an integral part of the consolidated financial statements. 22 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

Below the revenue from contracts with customers divided into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Conventional District Heating Renewables Supply Distribution Other activities Adjustments Total Type of goods or services Generation

Revenue from sales of goods and products, 5,900 3,035 295 6,855 3,171 49 (6,038) 13,267 without excluding taxes and fees Taxes and fees collected on behalf of third - (16) - (229) (301) - - (546) parties Revenue from sales of goods and 5,900 3,019 295 6,626 2,870 49 (6,038) 12,721 products, including: Sale of electricity 5,531 1,563 216 4,907 1 - (4,851) 7,367 Sale of distribution services 8 6 - 27 2,782 - (49) 2,774 Sale of heat 100 1,037 - 7 - - - 1,144 Sale of energy origin rights 15 223 52 - - - (18) 272 Regulatory system services 164 - 27 - - - - 191 Sale of gas - 1 - 341 - - (28) 314 Sale of fuel - - - 1,223 - - (824) 399 Other sales of goods and materials 82 189 - 121 87 49 (268) 260 Revenue from sales of services 63 39 - 289 31 195 (517) 100 TOTAL REVENUE FROM CONTRACTS 5,963 3,058 295 6,915 2,901 244 (6,555) 12,821 WITH CUSTOMERS 7.2 Costs by nature and function

Period ended Period ended June 30, 2019 June 30, 2018 COSTS BY NATURE Depreciation, amortisation and impairment losses 1,994 1,899 Materials and energy 2,660 2,344 External services 1,155 1,196 Taxes and charges 2,783 1,735 Employee benefits expenses 2,679 2,467 Other costs by nature 139 146 TOTAL COSTS BY NATURE 11,410 9,787 Change in inventories (20) (8) Cost of products and services for the entity’s own needs (569) (492) Distribution and selling expenses (582) (711) General and administrative expenses (508) (511) Cost of goods and materials sold 6,117 1,833 COST OF GOODS SOLD 15,848 9,898

Explanatory notes constitute an integral part of the consolidated financial statements. 23 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

7.2.1 Depreciation, amortisation, disposal and impairment losses The following presents depreciation, amortisation, disposals and impairment losses of property, plant and equipment (PPE), intangible assets (IA), right-of-use assets (ROUA) and investment property (IP) in the statement of comprehensive income.

Period ended Depreciation, amortisation, disposal Impairment losses June 30, 2019 PPE IA ROUA TOTAL PPE IA TOTAL Cost of goods sold 1,756 42 19 1,817 95 - 95 Distribution and selling expenses 6 1 - 7 - - - General and administrative 15 9 5 29 1 - 1 expenses RECOGNISED IN PROFIT OR LOSS 1,777 52 24 1,853 96 - 96 Cost of products and services for 45 - - 45 - - - the entity’s own needs TOTAL 1,822 52 24 1,898 96 - 96 Other operating income - - - - (1) - (1)

Period ended Depreciation, amortisation, disposal Impairment losses June 30, 2018 PPE IA TOTAL PPE IA TOTAL Cost of goods sold 1,631 45 1,676 129 - 129 Distribution and selling expenses 6 2 8 - - - General and administrative 17 13 30 1 - 1 expenses RECOGNISED IN PROFIT OR LOSS 1,654 60 1,714 130 - 130 Cost of products and services for 55 - 55 - - - the entity’s own needs TOTAL 1,709 60 1,769 130 - 130 Other operating income - - - (2) - (2)

The impairment losses recognised in the reporting period concern capital expenditure incurred in the units for which impairment losses were recognised in the previous periods. Under “Depreciation, amortisation, disposal”, the Group recognised the net disposals of PPE and IA of PLN 27 million in the current period and PLN 62 million in the corresponding period. 7.3 Other operating income and expenses

Period ended Period ended June 30, 2019 June 30, 2018 Data restated OTHER OPERATING INCOME/(EXPENSES)

CO2 emission allowances 1,391 - Effect of revaluation of rehabilitation provisions (246) (17) Penalties, fines and compensations 129 70 Recognition of impairment losses on receivables (97) (37) Valuation and exercise of derivatives, including: (44) 72

- CO2 33 28 - Coal (77) 44 Grants 14 11 Reversal / (recognition) of other provisions 9 (26) Gain on disposal of PPE/IA 6 4 Other (14) 31 TOTAL NET OTHER OPERATING INCOME/(EXPENSES) 1,148 108

The CO2 emission allowances have been described in note 25.2 to these financial statements.

Explanatory notes constitute an integral part of the consolidated financial statements. 24 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

7.4 Financial income and expenses

Period ended Period ended June 30, 2019 June 30, 2018 Data restated FINANCIAL INCOME/(EXPENSES) FROM FINANCIAL INSTRUMENTS Dividends 1 1 Interest (101) (78) Revaluation (6) (13) Exchange differences (14) (22) Loss on disposal of investments (7) (20) TOTAL NET FINANCIAL INCOME/(EXPENSES) FROM FINANCIAL INSTRUMENTS (127) (132) OTHER FINANCIAL INCOME/(EXPENSES) Interest expenses, including the effect of discount unwinding (97) (91) Interest on statutory receivables - 1 Reversal of provisions (1) (10) Other (3) (4) TOTAL NET OTHER FINANCIAL INCOME/(EXPENSES) (101) (104) TOTAL NET FINANCIAL INCOME/(EXPENSES) (228) (236)

Interest expenses mainly relate to bonds issued and credit and loans incurred as well as lease liabilities. The interest expenses (discount unwinding) on non-financial items mainly relate to rehabilitation provisions and employee benefit provisions. 7.5 Share of profit (loss) of entities accounted for using the equity method

Polska Grupa Polimex ElectroMobility PEC Bogatynia Energopomiar Górnicza Mostostal Poland SHARE IN VOTES 15.32% 16.48% 25.00% 34.93% 49.79% Period ended June 30, 2019 Revenue 4,486 632 - 8 34 Profit (loss) on continuing operations 128 (7) (3) - 3 Share in profit (loss) of equity-accounted entities 20 (1) (1) - 1 Elimination of unrealised gains and losses 2 - - - - SHARE IN PROFIT (LOSS) OF EQUITY-ACCOUNTED 22 (1) (1) - 2 ENTITIES Other comprehensive income (9) - - - - SHARE IN PROFIT (LOSS) OF EQUITY-ACCOUNTED (1) - - - - ENTITIES IN OTHER COMPREHENSIVE INCOME

Polska Grupa ElectroMobility Polimex Mostostal PEC Bogatynia Górnicza Poland SHARE IN VOTES 15.32% 16.48% 25.00% 34.93% Period ended June 30, 2018 Revenue 4,680 686 - 8 Profit (loss) on continuing operations 293 39 (4) - Share of profit (loss) of equity-accounted entities 45 6 (1) - Elimination of unrealised gains and losses (9) 2 - - SHARE IN PROFIT (LOSS) OF EQUITY-ACCOUNTED ENTITIES 36 8 (1) - Other comprehensive income 5 - - - SHARE IN PROFIT (LOSS) OF EQUITY-ACCOUNTED ENTITIES IN 1 - - - OTHER COMPREHENSIVE INCOME

Explanatory notes constitute an integral part of the consolidated financial statements. 25 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

8. Impairment losses on assets

Period ended Period ended June 30, 2019 June 30, 2018 IMPAIRMENT LOSSES ON PROPERTY, PLANT AND EQUIPMENT Recognition of impairment losses 241 130 Reversal of impairment losses 146 2 IMPAIRMENT LOSSES ON INVENTORY Recognition of impairment losses 37 5 Reversal of impairment losses 4 1

9. Tax in the statement of comprehensive income

Main components of income tax expense for the period ended June 30, 2019, and June 30, 2018 were as follows: Period ended Period ended June 30, 2019 June 30, 2018 INCOME TAX RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS Current income tax 329 321 Adjustments to current income tax for previous years 11 1 Deferred income tax 145 72 Adjustments to deferred income tax (10) (24) INCOME TAX EXPENSE RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS 475 370 INCOME TAX EXPENSE RECOGNISED IN OTHER COMPREHENSIVE INCOME On actuarial gains (losses) on valuation of employee benefit provisions (27) - From valuation of hedging instruments (27) 6 TAX BENEFIT RECOGNISED IN OTHER COMPREHENSIVE INCOME (54) 6

Explanatory notes constitute an integral part of the consolidated financial statements. 26 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

EXPLANATORY NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

10. Significant additions and disposals of property, plant and equipment and intangible assets In the current period, PGE Group purchased property, plant and equipment and intangible assets worth PLN 2,543 million and right-of- use assets worth PLN 14 million. The largest capital expenditure was incurred by Conventional Generation (PLN 1,581 million) and by Distribution (PLN 820 million). The key expenditure items included: construction of units 5 and 6 at the Opole power plant (PLN 473 million), construction of a new unit at the Turów power plant (PLN 163 million) and connection of new customers (PLN 334 million). In the current reporting period, an increase was reported in the value of property plant and equipment due to activating a rehabilitation costs by PLN 622 million, of which PLN 582 million results from a change of the discounting rate. In the current period, there were no significant disposals of property, plant and equipment.

11. Future investment commitments As at June 30, 2019, PGE Group incurred capital expenditure on property, plant and equipment in the amount of approximately PLN 5,267 million. The capital expenditure incurred mainly includes the construction of new energy units and wind farms, and for modernisation of the Group's assets and the purchase of machinery and equipment.

As at As at June 30, 2019 December 31, 2018 *Data restated Conventional Generation 2,967 3,694 Distribution 1,526 1,199 Renewables 490 177 District Heating 109 114 Other activities 175 187 TOTAL FUTURE INVESTMENT COMMITMENTS 5,267 5,371

* Restatement resulting mainly from the separation of the District Heating

The most significant future capital expenditure is as follows:  Conventional Generation:  Opole power plant – construction of new units no. 5 and 6 – approximately PLN 511 million  Turów power plant – construction of a new unit no. 7 – approximately PLN 1,255 million  Turów power plant – modernisation of units no. 1 to 3 – approximately PLN 176 million  Distribution – capital expenditure related to the network distribution assets with the total value of approximately PLN 1,526 million,  Renewables – capital expenditure related to the design and construction of Starza, Rybice and Karnice II wind farms – approximately PLN 412 million,  Other activities, PGE EJ 1 sp. z o. o. – agreement for the provision of technical advisory services with regard to the construction of the first Polish nuclear power plant – PLN 158 million (basic scope). The optional scope thereof amounts to approximately PLN 1,118 million. PGE EJ 1 sp. z o.o. is the PGE Group’s entity directly responsible for making preparations, consisting in conducting environmental and site surveys and obtaining all of the necessary decisions for the construction of the first Polish nuclear power plant and implementing the investment project. Decisions on the construction of the first Polish nuclear power plant will be made in the context of a decision issued by the Minister of Energy, concerning the model for acquiring technology for a nuclear power plant, the investment project's financing model and the updated version of the Poland's nuclear power programme. The current scope of the Programme conducted by PGE EJ 1 sp. z o.o. provides for carrying environmental and site surveys at two potential locations (Lubiatowo-Kopalino and Żarnowiec) and in preparing an environmental impact assessment report and a site report. The PGE Group intends to continue providing PGE EJ 1 sp. z o.o. with the financial support necessary to continue the works within the existing scope of preparatory works under the Programme. A decision on the investment project that consists in constructing a nuclear power plant depends, in particular, on the preparation of the dedicated financing model.

Explanatory notes constitute an integral part of the consolidated financial statements. 27 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

12. Shares accounted for using the equity method

As at As at June 30, 2019 December 31, 2018

Polska Grupa Górnicza Sp. z o.o., Katowice 658 640 Polimex-Mostostal S.A., Warsaw 107 108 ElectroMobility Poland S.A., Warsaw 15 15 PEC Bogatynia Sp. z o.o., Bogatynia 8 8 Energopomiar Sp. z o.o., Gliwice 12 5 SHARES ACCOUNTED FOR USING THE EQUITY METHOD 800 776

Polska Grupa Polimex ElectroMobility PEC Bogatynia Energopomiar Górnicza Mostostal Poland SHARE IN VOTES 15.32% 16.48% 25.00% 34.93% 49.79% AS AT JUNE 30, 2019 Current assets 2,601 917 45 4 26 Non-current assets 10,322 700 14 21 18 Current liabilities 3,738 647 1 1 12 Non-current liabilities 4,892 419 - 1 7 NET ASSETS 4,293 551 58 23 25 Share in net assets 657 91 15 8 12 Goodwill 1 16 - - - SHARES ACCOUNTED FOR USING THE EQUITY 658 107 15 8 12 METHOD

Polska Grupa Polimex ElectroMobility PEC Bogatynia Energopomiar Górnicza Mostostal Poland SHARE IN VOTES 15.32% 16.48% 25.00% 34.93% 47.30% AS AT DECEMBER 31, 2018 Current assets 2,759 1,223 52 5 31 Non-current assets 9,528 713 9 22 19 Current liabilities 3,679 840 2 2 18 Non-current liabilities 4,435 538 - 1 9 NET ASSETS 4,173 558 59 24 23 Share in net assets 639 92 15 8 11 Goodwill 1 16 - - (6) SHARES ACCOUNTED FOR USING THE EQUITY 640 108 15 8 5 METHOD

13. Deferred tax in the statement of financial position 13.1 Deferred tax assets

As at As at June 30, 2019 December 31, 2018 Difference between the tax value and the carrying amount of property, plant and 1,979 1,985 equipment Difference between the tax value and the carrying amount of right-of-use assets 157 - Difference between the tax value and the carrying amount of financial assets 142 65 Difference between the tax value and the carrying amount of liabilities 323 301 Difference between the tax value and the carrying amount of inventories 29 24 LTC compensations 90 61 Liability resulting from estimated decrease of revenue - Act on Electricity Prices 159 - Rehabilitation provisions 679 549

Provision for purchases of CO2 emission allowances 369 365 Provisions for employee benefits 669 604 Other provisions 105 131 Infrastructure acquired free of charge and connection fees received 32 34 Other 67 49 DEFERRED TAX ASSETS 4,800 4,168

Explanatory notes constitute an integral part of the consolidated financial statements. 28 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

13.2 Deferred tax liabilities

As at As at June 30, 2019 December 31, 2018 Difference between the tax value and the carrying amount of property, plant and 4,636 4,265 equipment Difference between the tax value and the carrying amount of lease liabilities 138 - Difference between the tax value and the carrying amount of energy certificates 20 48 of origin Difference between the tax value and the carrying amount of financial assets 391 399 Difference between the tax value and the carrying amount of liabilities 13 47

CO2 emission allowances 492 302 LTC compensations - 23 Receivables due to recognized compensations – Act on Electricity Prices 174 - Other 81 148 DEFERRED TAX LIABILITIES 5,945 5,232

AFTER OFF-SETTING ASSETS AND LIABILITIES IN INDIVIDUAL COMPANIES, THE GROUP’S DEFERRED TAX IS AS FOLLOWS: Deferred tax assets 406 552 Deferred tax liabilities (1,551) (1,616)

14. Inventories

As at As at June 30, 2019 December 31, 2018 Maintenance and operation materials 654 640 Hard coal 880 959 Mazut 44 52 Other materials 59 62 TOTAL MATERIALS 1,637 1,713 Green certificates of origin 877 576 Yellow certificates of origin - 169 White certificates of origin 20 1 Other certificates of origin - 13 TOTAL ENERGY CERTIFICATES OF ORIGIN 897 759 Hard coal 140 140

CO2 emission allowances 1,393 4 Other goods 21 15 TOTAL GOODS 1,554 159 OTHER INVENTORIES 83 68 TOTAL INVENTORIES 4,171 2,699

As described in note 25.2 to these consolidated financial statements, the CO2 emission allowances include EUA resulting from the additional allocation of the CO2 emission allowances for years 2013-2017. The rights are valuated as at every reporting day at fair value. Their fair value as at June 30, 2019, is PLN 1,391 million. These rights are held for trading activity.

Explanatory notes constitute an integral part of the consolidated financial statements. 29 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

15. CO2 emission allowances for captive use CO2 emission allowances (EUA) are granted to power generating units that belong to PGE Group and are covered by the Act on Scheme for Greenhouse Gas Emission Allowance Trading of June 12, 2015. From 2013 onwards, CO2 emission allowances (EUA) for the production of heat are granted unconditionally, but CO2 emission allowances for the production of electricity are, as a rule, not covered by the EUA. Pursuant to Article 10c of Directive 2009/29/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community, a derogation from the foregoing is possible providing that the investment tasks indicated in National Investment Plan are implemented. The condition under which the free-of-charge CO2 emission allowances can be obtained is the presentation of annual operational and financial reports on the completion of tasks included in National Investment Plan.

In September 2018, PGE Group submitted reports on tasks included in the National Investment Plan in order to obtain the CO2 EUA allocations concerning electricity produced in 2018. The allowances were issued in April 2019. The Group received 14 million EUAs for year 2018 and additional amount of 11 million EUAs (held for trading activity) for the years 2013-2017 as described in note 25.2 to these financial statements.

As far as the EUAs for CO2 emissions related to heating are concerned, the allocation schedule is different and EUAs were issued in February 2019, to serve as coverage for CO2 emissions for 2019 (1 million EUAs).

As at June 30, 2019 As at December 31, 2018 EUA Non-current Current Non-current Current Quantity (Mg million) 3 18 18 19 Value 239 964 1,203 408

Change in CO2 emission allowances for captive use Quantity (Mg EUA Value million) AS AT JANUARY 1, 2018 62 1,442 Purchase 39 1,714 Granted free of charge 17 - Redemption (70) (1,311) Sale (11) (234) AS AT DECEMBER 31, 2018 37 1,611 Purchase 40 1,475 Granted free of charge 15 - Redemption (70) (1,803) Reclassification to inventories (1) (80) AS AT JUNE 30, 2019 21 1,203

16. Selected financial assets The carrying amount of financial assets measured at amortised cost does not materially differ from the fair value thereof. 16.1 Trade and other financial receivables

As at June 30, 2019 As at December 31, 2018 Non-current Current Non-current Current Trade receivables - 3,342 - 3,155 Receivables from recognised compensations based on - 931 - - the Act on Electricity Prices Deposits 172 6 161 7 Deposits and collateral - 464 1 694 Damages and penalties - 101 - 193 Other financial receivables 6 64 6 53 TOTAL FINANCIAL RECEIVABLES 178 4,908 168 4,102

The deposits and collateral mainly consist of the transaction and hedging deposits and the guarantee fund, related with transactions on the electric energy and CO2. markets.

Explanatory notes constitute an integral part of the consolidated financial statements. 30 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

16.2 Cash and cash equivalents Short-term deposits have terms which differ, as a rule, from one day to one month depending on the Group’s actual requirement for cash. Cash and cash equivalents are, as follows:

As at As at June 30, 2019 December 31, 2018 Cash at bank and in hand 1,044 1,023 Overnight deposits 28 33 Short-term deposits 178 156 VAT accounts 39 69 TOTAL 1,289 1,281 Interest accrued on cash, not received at the reporting date - - Exchange differences on cash in foreign currencies (2) (2) Cash and cash equivalents recognised in the statement of cash flows 1,287 1,279

Undrawn credit limits 6,298 8,312 including overdrafts 980 934

For details on loan agreements, please see note 20.1 to these financial statements. Cash includes restricted cash in the amount of PLN 211 million (PLN 98 million in the comparable period) in the client accounts of PGE Dom Maklerski S.A. used as collateral for settlements with Izba Rozliczeniowa Giełd Towarowych S.A., cash in the VAT accounts in the amount of PLN 39 million (PLN 69 million in the comparable period) and deposits in the amount of PLN 13 million (PLN 13 million in the comparable period).

17. Derivatives and other assets valued at fair value through profit or loss

As at June 30, 2019 As at December 31, 2018 Assets Liabilities Assets Liabilities FINANCIAL INSTRUMENTS VALUED AT FAIR VALUE Currency forward 15 188 18 11

Commodity forward contract for CO2 35 2 6 - Commodity SWAP 18 123 4 46 Contracts for purchase/sale of coal 20 2 2 7 Options 10 - 12 - HEDGING DERIVATIVES CCIRS hedges 30 - 113 - IRS hedges - 70 4 24 Currency forward (USD) - - 2 - Currency forward (EUR) 8 - 4 48 OTHER ASSETS VALUED AT FAIR VALUE THROUGH

PROFIT OR LOSS Fund participation units 68 - 66 - TOTAL DERIVATIVES 204 385 231 136 Current 79 313 114 110 Non-current 125 72 117 26

Commodity and currency forwards

The commodity and currency forward transactions mainly relate to trade in CO2 emission allowances and to purchases and sales of coal. Options On January 20, 2017, PGE S.A. purchased a call option to purchase shares of Polimex-Mostostal S.A. from Towarzystwo Finansowe Silesia Sp. z o.o. The option is measured using the Black-Scholes method. The option exercise dates are: July 30, 2020, July 30, 2021 and July 30, 2022. Coal swaps In order to hedge the commodity risk related to the price of imported coal, PGE Paliwa sp. z o.o. carried out a number of hedging transactions through the use of commodity swaps for coal. The number and value of these transactions is correlated with the quantity and value of imported coal. Changes in fair value are recognised in profit or loss.

Explanatory notes constitute an integral part of the consolidated financial statements. 31 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

Purchase and sale contracts with physical delivery of coal PGE Paliwa Sp. z o.o. measures all of its sales and purchase contracts with physical delivery of coal at fair value using the trader-broker model. As at the reporting date, the Company held contracts with maturity dates falling within the period up to December 2020. IRS hedges PGE S.A. entered into IRS transactions to hedge interest rates on loans with the total nominal value of PLN 6,130 million. The Group uses hedge accounting in order to recognise these IRS transactions. The impact of hedge accounting on the revaluation reserve has been presented in note 18.2 to these consolidated financial statements. CCIRS hedges In connection with loans received from PGE Sweden AB (publ), PGE S.A. concluded CCIRS transactions hedging both the exchange rate and interest rate. In these transactions, banks-counterparties pay PGE S.A. interest based on a fixed rate in EUR and PGE S.A. pays interest based on a fixed rate in PLN. In the consolidated financial statements, the majority of the CCIRS transactions made are recognised as hedges for bonds issued by PGE Sweden AB (publ). In the current period, partially bought back PGE Sweden’s bonds, and the CCIRS hedge partially was settled. The Company uses hedge accounting in order to recognise the CCIRS transactions. The impact of hedge accounting on the hedging reserve has been presented in note 18.2 to these financial statements.

18. Equity The basic objective of the Group’s policy regarding equity management is to maintain an optimal equity structure over a long term perspective and to assure a good financial standing and a secure equity structure that is able to support the operating activities of PGE Group. It is also crucial to maintain a sound equity base that can be a basis for building confidence of potential investors, creditors and the market and for assuring further development of the Group. 18.1 Share capital

As at As at June 30, 2019 December 31, 2018 1 470 576 500 ordinary shares series A with a nominal value of PLN 10.25 per share 15,073 15,073 259 513 500 ordinary shares series B with a nominal value of PLN 10.25 per share 2,660 2,660 73 228 888 ordinary shares series C with a nominal value of PLN 10.25 per share 751 751 66 441 941 ordinary shares series D with a nominal value of PLN 10.25 per share 681 681 TOTAL SHARE CAPITAL 19,165 19,165

All of the Company's shares are paid up. After the reporting date and until the date on which these consolidated financial statements were prepared, there were no changes in the value of the Company’s share capital. Shareholder rights - State Treasury rights concerning the Company’s activities The Company forms part of PGE Group, and the State Treasury has special powers applicable thereto as long as it remains its shareholder. Special powers of the State Treasury that are applicable to PGE Group companies derive from the Act on Special Powers of the Minister of Energy and their Exercise in Certain Companies and Groups Operating in the Electricity, Oil and Gaseous Fuel Sectors of March 18, 2010 (Journal of Laws of 2016, item 2012). The Act specifies special powers of the Minister of Energy applicable to companies and groups operating in the electricity, oil and gaseous fuel sectors, whose assets are disclosed in the harmonised register of facilities, installations, equipment and services that form part of critical infrastructure. In accordance with the Act, the Minister of Energy has the right to object to any resolution or legal action of the Management Board, concerning disposal of any of the Company’s assets which may present a threat to the functioning, continuity of operations and integrity of critical infrastructure. The objection can also be made to any resolution on the following subjects:  Dissolution of the Company;  Changes in or discontinuation of the use of any asset that forms part of critical infrastructure;  Change in the Company’s principal business activity;  Sale or lease of the Company’s business or its organised part or establishment of limited property rights thereon;  Adoption of a budget, plan of investment activities or long-term strategic plan;  Relocation of the Company’s registered office abroad; if the implementation of such a resolution may constitute a material threat to the functioning, continuity of operations and integrity of critical infrastructure. The objection is made in the form of an administrative decision. 18.2 Hedging reserve

Period ended Year ended

June 30, 2019 December 31, 2018

Explanatory notes constitute an integral part of the consolidated financial statements. 32 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

AS AT JANUARY 1, (52) 83 Change in hedging reserve: (143) (166) Valuation of hedging instruments, including: (146) (158) Deferral of changes in the fair value of hedging financial instruments in the part (249) (62) considered as effective hedge Accrued interest on derivatives transferred from the hedging reserve and 4 (10) recognised in the interest expense Currency revaluation of CCIRS transactions transferred from the hedging reserve 92 (85) and recognised in the profit (loss) on foreign exchange differences Ineffective portion of change in the fair value of hedging derivatives recognised in 7 (1) profit or loss Valuation of other financial instruments 3 (8) Deferred tax 27 31 HEDGING RESERVE AFTER DEFERRED TAX (168) (52)

The hedging reserve includes mainly the effects of valuation of the financial instruments to which cash flow hedge accounting is applied. 18.3 Dividends paid and proposed On May 11, 2017, the Company's Management Board decided to change its dividend policy. In light of the need to finance an ambitious growth programme and with a view towards reducing debt growth, the Company's Management Board recommended that payment of dividends from profits for years 2016, 2017 and 2018 be suspended. After that period, the Company's Management Board intends to recommend to the General Meeting that dividends be paid to shareholders, amounting to 40-50% of the consolidated net profit attributable to the parent's shareholders, adjusted by impairment losses on property, plant and equipment and intangible assets. The payment of each dividend will particularly depend on the general amount of the Company’s debt, expected capital outlays and potential acquisitions. 19. Provisions The carrying amount of provisions is, as follows:

As at June 30, 2019 As at December 31, 2018 Non-current Current Non-current Current Employee benefits 2,652 246 2,460 245 Rehabilitation provisions 4,712 2 3,763 3

Provision for shortage of CO2 emission allowances 120 1,821 119 1,802 Provision for energy origin units held for redemption - 324 - 423 Provisions for non-contractual use of property 62 11 63 10 Other provisions 24 120 23 125 TOTAL PROVISIONS 7,570 2,524 6,428 2,608 Change in provisions Provision for Provision for Provision for Employee Rehabilitation shortages of energy origin non-contractual Other Total benefits provisions CO emission units held for 2 use of property allowances redemption JANUARY 1, 2019 2,705 3,766 1,921 423 73 148 9,036 Current service costs 46 - - - - - 46 Interest costs 40 57 - - - - 97 Change in discount rate 178 828 - - - - 1,006 Benefits paid/ Provisions used (70) (1) (1,803) (419) - (13) (2,306) Provisions reversed - - (1) (6) (8) (34) (49) Provisions recognised – costs - 21 1,823 315 8 38 2,205 Provisions recognised – expenditure - 41 - - - - 41 Other changes (1) 2 1 11 - 5 18 June 30, 2019 2,898 4,714 1,941 324 73 144 10,094

Due to the change of market interest rates, the PGE Group updated the discounting rate applied for the valuation of provisions for the rehabilitation costs and the employee benefits provision. The discounting rate for the costs of rehabilitation of mining excavations as at June 30, 2019 amounts to 3.0% (in comparison to 3.7% as at December, 31 2018). Whereas the discounting rate for the employee benefits provision and other provisions for rehabilitation costs as at June 30, 2019 amounts to 2.4% (in comparison to 3.0% as at December 31, 2018). Changes of the discounting rate resulted in:  An increase of the rehabilitation costs provisions, recognized correspondingly in other operating costs in the amount of PLN 246 million;  An increase of the rehabilitation costs provision, recognized correspondingly as an increase of tangible fixed assets in the amount of PLN 582 million;

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 An increase of provisions after the period of employment, recognized correspondingly as a decrease of other total income, in the amount of PLN 142 million;  An increase in jubilee bonuses provision, recognized correspondingly in operating costs in the amount of PLN 36 million.

Provision for Provision for Provision for Employee Rehabilitation shortages of energy origin non- Other Total benefits provisions CO2 emission units held for contractual use allowances redemption of property JANUARY 1, 2018 2,529 3,086 1,453 340 83 151 7,642 Actuarial gains and losses 179 - - - - - 179 Current service costs 94 - - - - - 94 Past service costs (105) - - - - - (105) Interest costs 86 103 - - - - 189 Change in discount rate and other 100 242 - - - - 342 variables Benefits paid/ Provisions used (181) (1) (1,311) (769) - (17) (2,279) Provisions reversed - (1) (29) (9) (18) (85) (142) Provisions recognised – costs - 276 1,808 861 8 94 3,047 Provisions recognised – expenditure - 58 - - - - 58 Acquisition of new subsidiaries 1 - - - - 6 7 Other changes 2 3 - - - (1) 4 DECEMBER 31, 2018 2,705 3,766 1,921 423 73 148 9,036 19.1 Provisions for employee benefits Provisions for employee benefits mainly include:  Post-employment benefits – PLN 1,998 million (PLN 1,845 million as at December 31, 2018),  Jubilee awards – PLN 900 million (PLN 860 million as at December 31, 2018). 19.2 Rehabilitation provisions Provision for rehabilitation of excavation voids PGE Group recognises provisions for rehabilitation of excavation voids. The provision disclosed in the financial statements includes also the Mine Liquidation Fund created in accordance with the Geological and Mining Law Act. As at June 30, 2019, the provision was PLN 4,226 million and as at December 31, 2018 it was PLN 3,338 million. Provision for rehabilitation of ash storage sites Power generating units recognise provisions for rehabilitation of ash storage sites. As at reporting date, the provision was PLN 229 million and as at December 31, 2018 it was PLN 195 million. Provision for rehabilitation of wind-farm sites Companies that own wind farms recognise provisions for rehabilitation of wind-farm sites. As at reporting date, the provision was PLN 56 million and as at December 31, 2018 it was PLN 49 million. Liquidation of property, plant and equipment The obligation to liquidate assets and reclaim the area results from the “Integrated permission for running electric energy and heat energy producing installation” in which the details on the restitution thereof are provided. As at the reporting date, the provision was PLN 203 million (PLN 184 million as at December 31, 2018) and covered assets used by Conventional Generation and Renewables.

19.3 Provision for shortages of CO2 emission allowances

As described in note 15 to thses consolidated financial statements, PGE Group is entitled to receive CO2 emissions allowances granted free of charge in connection to any expenditure made on the investment projects included in the National Investment Plan. The calculation of the provision also includes these rights. 19.4 Provision for energy origin units held for redemption Companies within PGE Group recognise provisions for certificates of origin relating to sales carried out during the reporting period or in the prior reporting periods, in an unredeemed part, until the reporting date. As at June 30, 2019, the provision was PLN 324 million (PLN 423 million in the comparable period) and was recognised primarily by PGE Obrót S.A. 19.5 Provisions for claims concerning non-contractual use of property PGE Group companies recognise provisions for claims concerning non-contractual use of property. This mainly relates to the distribution company that owns distribution networks. As at the reporting date, the total provisions were approximately PLN 73 million (including, PLN 31 million for litigations). In the comparable period, the provisions were PLN 73 million (including, PLN 34 million for litigations).

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20. Financial liabilities The value of financial liabilities measured at amortised cost is a reasonable approximation of their fair value, except for bonds issued by PGE Sweden AB (publ). Bonds issued by PGE Sweden AB (publ) are based on a fixed interest rate. Their value at amortised cost disclosed in these financial statements as at June 30, 2019 was PLN 602 million and their fair value was PLN 666 million. 20.1 Loans, borrowings, bonds and leases

As at June 30, 2019 As at December 31, 2018 Non-current Current Non-current Current Data restated Loans, borrowings 8,113 981 5,768 2,168 Bonds issued 1,984 21 592 2,177 Leases 858 23 1 2 TOTAL LOANS, BORROWINGS, BONDS AND LEASES 10,955 1,025 6,361 4,347

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Loans and borrowings As at June 30 2019 and December 31 2019, PGE Group’s loans are as follows:

Liability as at Liability as at Creditor Conclusion date Maturity date Amount Currency Interest rate 30/06/2019 31/12/2018 Bank Gospodarstwa 17/12/2014 31/12/2027 1,000 PLN Variable 1,001 1,001 Krajowego Bank Gospodarstwa 04/12/2015 31/12/2028 500 PLN Variable 500 500 Krajowego Bank consortium 07/09/2015 30/09/2023 3,630 PLN Variable 3,649 3,648 Bank consortium 07/09/2015 30/04/2019 1,870 PLN Variable - 1,171 European Investment 27/10/2015 26/10/2032 1,500 PLN Variable 1,505 - Bank European Investment 27/10/2015 26/10/2032 490 PLN Variable 493 - Bank European Bank for Reconstruction and 07/06/2017 06/06/2028 500 PLN Variable 502 - Development Revolving loan 17/09/2018 17/12/2023 4,100 PLN Variable - - Bank Pekao 05/07/2018 03/07/2021 500 PLN Variable 98 148 PKO BP 30/04/2018 29/04/2020 500 PLN Variable - - Bank Gospodarstwa 01/06/2018 31/05/2021 500 PLN Variable 438 420 Krajowego Millennium 08/06/2014 16/06/2021 7 PLN Variable 2 2 Bank Pekao 21/09/2017 21/09/2020 40 USD Variable 133 149 Bank Ochrony 30/05/2006 01/10/2020 136 PLN Variable 11 16 Środowiska Nordic Investment Bank 10/10/2005 20/06/2024 150 EUR Variable 338 387 Nordic Investment Bank 30/11/1999 28/05/2019 80 USD Variable - 30 Bank Ochrony 18/05/2007 31/03/2019 20 PLN Variable - 1 Środowiska SA Shareholders’ loan 08/11/2017 06/11/2020 9 PLN Fixed 9 9 Shareholders’ loan 02/03/2018 02/03/2021 14 PLN Fixed 15 15 November 2020 – NFOŚiGW 01/06/2014 250 PLN Fixed 203 203 December 2028 September December 2013 – 2021 – NFOŚiGW 212 PLN Variable 114 127 September 2017 September 2024 July 2019 – May 2012 – WFOŚiGW December 370 PLN Fixed 31 69 June 2014 2020 January 2019 – April 2013 – WFOŚiGW September 157 PLN Variable 52 40 December 2018 2026 TOTAL BANK AND OTHER LOANS 9,094 7,936

As at June 30, 2019, the value of undrawn overdrafts available to key PGE Group companies was PLN 980 million. In the first half-year of 2019 and after the reporting period, there were no cases of default on repayment or breach of other terms of loan agreements. Bonds issued Conclusion Maturity Tranche issue Tranche maturity Liability as at Liability as at Issuer Investor Amount Currency Interest rate date date date date 30/06/2019 31/12/2018 21/05/2019 21/05/2029 1,002 PGE SA Bondholders 27/06/2013 perpetual 5,000 PLN Variable - 21/05/2019 21/05/2026 401 PGE Sweden 09/06/2014 09/06/2019 - 2,168 Bondholders 22/05/2014 perpetual 2,000 EUR Fixed AB (publ) 01/08/2014 01/08/2029 602 601 TOTAL BONDS ISSUED 2,005 2,769

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Leases The recognition of lease liabilities results from the implementation of IFRS 16 Leases. Therefore, as at January 1, 2019, the Group recognised lease liabilities in the amount of PLN 890 million. The standard was implemented using a modified retrospective approach with the total effect of the initial application recognised as at January 1, 2019; therefore the data for the comparable period was not restated. For details on the implementation of IFRS 16, see note 4 to these financial statements. 20.2 Trade and other financial liabilities

As at June 30, 2019 As at December 31, 2018 Non-current Current Non-current Current Trade liabilities - 1,325 - 1,511 Revenue reduction estimates - 981 - - Purchases of property, plant and equipment and - 870 6 1,622 intangible assets Settlements related with stock market transactions - 355 - 278 Deposits received 26 91 38 83 Insurance - 14 - 17 LTC liabilities 472 11 455 11 Other 20 78 22 91 TRADE AND OTHER FINANCIAL LIABILITIES 518 3,725 521 3,613

The revenue reduction estimates include reductions in revenues in the first half-year of 2019 due to the application of the Act on Electricity Prices, which has been further described in section 25.1 of these financial statements. Other liabilities include, in particular, liabilities of PGE Dom Maklerski S.A. towards its clients on account of the funds deposited.

21. Other non-financial liabilities Significant other non-financial liabilities are, as follows:

As at As at

30 June 2019 31 December 2018 OTHER NON-CURRENT LIABILITIES Contract liabilities 40 10 Estimates of liabilities from the Voluntary Leave Program (VLP) 3 5 TOTAL OTHER NON-CURRENT LIABILITIES 43 15 OTHER CURRENT LIABILITIES Environmental fees 158 266 VAT liabilities 312 173 Excise tax liabilities 3 36 Payroll liabilities 194 279 Bonuses for employees 212 214 Unused holiday leave 178 132 Other employee benefits 143 47 Personal income tax 67 88 Social security liabilities 214 258 Contract liabilities 215 186 Other 63 68 TOTAL OTHER CURRENT LIABILITIES 1,759 1,747 TOTAL OTHER LIABILITIES 1,802 1,762

The environmental fees relate mainly to the charges for the use of water and for the gas emissions in conventional power plants, as well as to the exploitation charges paid by lignite mines. The “Other” item comprises mainly payments to the Employment Pension Programme, the State Fund for Rehabilitation of Persons with Disabilities and withholdings from employee salaries.

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OTHER EXPLANATORY NOTES

22. Contingent liabilities and receivables. Legal claims 22.1 Contingent liabilities

As at As at June 30, 2019 December 31, 2018 Contingent return of grants from environmental funds 711 756 Legal claims 223 222 Bank guarantee liabilities 29 177 Employee claims 1 1 Other contingent liabilities 35 36 TOTAL CONTINGENT LIABILITIES 999 1,192

Contingent return of grants from environmental funds These liabilities represent the value of possible future reimbursements of funds received by PGE Group companies from environmental funds for certain investment projects. The funds will be reimbursed, if investments for which they have been granted do not bring the expected environmental effect. Litigation liabilities Dispute with WorleyParsons This contingent liability is mainly related to the dispute with WorleyParsons. WorleyParsons initiated a lawsuit for payment of PLN 59 million for remuneration which, in its opinion, was due and for return of an amount which, in its opinion, was unduly collected by PGE EJ 1 sp. z o.o. from a bank guarantee. Subsequently, WorleyParsons increased its claim to PLN 104 million (i.e. by PLN 45 million). On March 31, 2018, the company filed a response to the WorleyParsons’ expanded claim. The Group has not recognised the claims and believes that the court is unlikely to award them to the claimant. Claims concerning sales contracts for energy certificates of origin concluded with Energa Obrót S.A. In October 2017, PGE Energia Odnawialna S.A. and PGE Energia Natury sp. z o. o. (acquired by PGE Energia Odnawialna S.A.) received lawsuits in which Energa Obrót S.A. demanded that legal relationships be cancelled that were established as a result of the conclusion of framework agreements for the sale of energy certificates of origin concerning electricity produced at FW Kisielice in 2009, FW Koniecwałd (Malbork) and FW Galicja. The claims of Energa Obrót S.A. were based on the allegation that the implementing agreements (sales contracts for specific certificates of origin) were concluded without regard to the provisions of the Public Procurement Law Act. Alternatively, if the framework agreements were to be considered the contract award agreements, Energa Obrót S.A. claimed that they were absolutely invalid, as their conclusion constituted a breach of the Public Procurement Law Act. In November 2017, PGE companies filed responses to the lawsuits, in which they indicated that the allegations made by Energa Obrót S.A. were groundless. The proceedings are pending. In all the proceedings, the courts recommended that the parties made use of mediations, but the mediations ended unsuccessfully on December 15, 2018. In the case of FW Galicja, the court set the first hearing to be held in October 2019, and in the case of FW Kisielice, the next hearing date is scheduled for October 2019. In the case of FW Koniecwałd (Malbork) hearings took place in May and July 2019 only to be adjourned till September 2019. In addition, by motions filed in September 2017, Energa-Obrót S.A. called on PGE Energia Odnawialna S.A. and PGE Energia Natury sp. z o. o. (currently acquired by PGE Energia Odnawialna S.A.) to settle in an amicable manner disputes for payment of claims in the total amount of PLN 71 million, concerning considerations paid, but allegedly undue under the 2009 framework agreements, which according to Energa Obrót S.A. were invalid. The parties failed to reach agreement at the meetings that were held in November and December 2017. Therefore, the claims of PLN 71 million have been disclosed herein as contingent liabilities. The Group has not recognised the claims and believes that the court is unlikely to award them to the claimants. Having claimed that the agreements concluded in 2009 were invalid, Energa Obrót S.A. refused to purchase the energy certificates of origin concerning electricity produced from renewable sources at FW Kisielice, FW Koniecwałd (Malbork) and FW Galicja, which constituted a breach of the agreements and resulted in contractual penalties of PLN 63 million being imposed (including PLN 18 million recognised as revenues in the first quarter of 2019 and PLN 45 million recognised in the previous years). As Energa Obrót S.A. refused to pay the contractual penalties, PGE Energia Odnawialna S.A. claimed the payment thereof during the court proceedings. PGE Energia Odnawialna S.A. filed counterclaims for payment of the principal amount due, along with capitalised interest, increased by statutory late payment interest, of the contractual penalties imposed in connection with the Energa Obrót S.A.'s failure to perform the framework agreements for the sale of energy certificates of origin concerning electricity produced at FW Kisielice (in April 2018), FW Koniecwałd (Malbork) (in May 2019) and FW Galicja (in August 2019). In August 2019, PGE Energia Odnawialna S.A. extended by further periods the counterclaims for payment of the principal amount due, along with capitalised interest, increased by statutory late payment interest, of the contractual penalties imposed in connection with the failure to perform the agreement related to FW Kisielice and FW Koniecwałd (Malbork).

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The estimated volume of green certificates covered by the agreements with Energa Obrót S.A. amounts to 801 thousand MWh. This volume was calculated based on the volume of production in the period from July 2017 (FW Koniecwałd/Malbork) or from August 2017 (other farms) to the end of the expected support periods for each of the wind farms. Bank guarantee liabilities These liabilities consist mostly of bank guarantees provided as collateral for the stock exchange transactions resulting from membership in the Stock Exchange Clearinghouse. As at June 30, 2019, the total amount of bank guarantees was PLN 29 million (PLN 177 million in the comparable period). Other contingent liabilities Other contingent liabilities comprise mainly a potential claim by WorleyParsons (in exceed of the claim already made as described above) in the amount of PLN 33 million. 22.2 Other significant issues related to contingent liabilities Non-contractual use of property As described in note 19.5, PGE Group recognises provisions for disputes under court proceedings concerning non-contractual use of properties intended for distribution activities. In addition, PGE Group is involved in disputes at the earlier stages of investigation, and the possibility cannot be ruled out that the number and value of similar claims will increase in the future. Contractual liabilities related to purchase of fuels According to the concluded agreements for the purchase of fuels (mainly coal and gas), PGE Group companies are obliged to collect the minimum volume of fuels and not to exceed the maximum level of collection of gas fuel in particular hours and months. Failure to collect the minimum volume of fuels specified in the contracts concluded may result in extra fees being imposed (in case of gas fuel, the volume not collected but paid up by power plants may be collected within the next three contractual years). In PGE Group’s opinion, the terms and conditions of fuel deliveries to its power generating units as described above do not differ from the terms and conditions of fuel deliveries to other power generating units in the Polish market. 22.3 Contingent receivables As at the reporting date, PGE Group held PLN 48 million in contingent receivables resulting from the imbalance between purchases and sales of energy in the domestic market (PLN 27 million in the comparable period). 22.4 Other legal claims and disputes Compensation for conversion of shares Former shareholders of PGE Górnictwo i Energetyka S.A. filed motions to courts to summon PGE S.A. to a conciliation hearing concerning payment of compensation for the incorrect (in their opinion) calculation of the exchange ratio for shares of PGE Górnictwo i Energetyka S.A. in the consolidation process that took place in 2010. The total claims resulting from the summons to a conciliation hearing made by the former shareholders of PGE Górnictwo i Energetyka S.A. amount to over PLN 10 million. Irrespective of the foregoing, on November 12, 2014, Socrates Investment S.A. (an entity which purchased claims from the former shareholders, i.e. from PGE Górnictwo i Energetyka S.A.) filed a claim for compensation in the total amount of over PLN 493 million (plus interest) for damage incurred as a result of the incorrect (in their opinion) calculation of the exchange ratio for shares in the merger of PGE Górnictwo i Energetyka S.A. and PGE S.A. The Company filed a response to the lawsuit. On November 20, 2018, a hearing was held which concerned the appointment of experts. At present, the first instance court proceedings are pending. The next court hearing has not been scheduled. By decision of April 19, 2019, the Court appointed experts responsible for drawing up an opinion on the aforementioned matter. A similar claim was also made by Pozwy sp. z o.o., an entity that purchased claims from the former shareholders, i.e. from PGE Elektrownia Opole S.A. Through a lawsuit filed to the District Court in Warsaw against PGE GiEK S.A., PGE S.A. and PwC Polska sp. z o.o. (“Defendants”), Pozwy sp. z o.o. demanded that the Defendants paid in solidum or jointly damages to Pozwy sp. z o.o. in the total amount of over PLN 260 million, together with interest, for the allegedly incorrect (in its opinion) calculation of the exchange ratio of PGE Elektrownia Opole S.A. shares into PGE Górnictwo i Energetyka Konwencjonalna S.A. shares in the merger of these companies. This lawsuit was served on PGE S.A. on March 9, 2017, and the deadline for responding to it, as set by the court, was July 9, 2017. PGE S.A. and PGE GiEK S.A. submitted their responses to the claim on July 8, 2017. On September 28, 2018, the District Court in Warsaw ruled in the first instance and the lawsuit by Pozwy sp. z o.o. against PGE S.A., PGE GiEK S.A. and PWC Polska sp. z o.o. was dismissed. On April 8, 2019, PGE S.A. received a copy of the appeal filed by the claimant on December 7, 2018. PGE Group companies have not recognised the claims made by Socrates Investment S.A., Pozwy sp. z o.o. and the rest of shareholders requesting conciliatory settlements. According to PGE S.A., these claims were groundless and the entire consolidation process was conducted in a fair and correct manner. The value of shares subject to the process of consolidation was established by an independent company, namely by PwC Polska sp. z o.o. In addition, the merger plans for the aforementioned companies, including the exchange ratios, were examined for accuracy and reliability by an expert appointed by the registration court, who found no irregularities therein. Afterwards the mergers of the aforementioned companies were registered by the court. PGE Group has not recognised a provision for this claim.

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Claims for annulment of resolutions adopted by the General Meetings On January 29, 2019, PGE S.A. received a copy of a lawsuit filed to the District Court of Warsaw by one of its shareholders. In the lawsuit, the shareholder requested that resolutions no. 7, 9 and 20 of the Company’s Ordinary General Meeting adopted on July 19, 2018 be annulled. The Company has not recognised the claim. It submitted a response to the lawsuit on February 28, 2019. At present, the first instance court proceedings are pending. The first hearing was held on May 31, 2019 and the second hearing during which witnesses were interviewed was held on August 13, 2019. The next hearing (to continue the proceedings) is scheduled to take place on November 27, 2019. Termination of contracts for the purchase of certificates of origin by Enea S.A. In October and November 2016, PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE Energia Odnawialna S.A. and PGE Energia Natury PEW sp. z o.o. (acquired by PGE Energia Odnawialna S.A.) were notified by Enea S.A. of the termination of the long-term contracts for the purchase of energy certificates of origin concerning electricity produced from renewable sources, i.e. “green certificates”. In the justification thereof, Enea S.A. claimed that the companies significantly breached the provisions of the contracts, i.e. that they failed to re-negotiate contractual provisions in accordance with the adaptive clause, as requested by Enea S.A. in July 2015 in connection with the alleged amendment to the legal regulations that had an impact on the performance of the aforementioned contracts. In the opinion of PGE Group, the termination notices presented by Enea S.A. were submitted in breach of contractual terms. The companies took appropriate steps to enforce their rights. With Enea S.A. refusing to perform long-term contracts for the purchase of energy certificates of origin received by PGE Group companies in connection with the production of renewable energy, PGE Górnictwo i Energetyka Konwencjonalna S.A. and PGE Energia Natury PEW sp. z o.o. required that Enea S.A. pay contractual penalties, and PGE Energia Odnawialna S.A. demanded that compensation be paid for damage resulting from the aforementioned actions. All the proceedings are pending, and the next hearings are scheduled for October and November 2019. Due to the fact that, according to PGE Group, the termination notices presented by Enea S.A. were submitted in breach of contractual terms, as at March 31, 2019, the Group recognised contractual penalty and compensation receivables of PLN 145 million (of which PLN 11 million were recognised as the present-period revenues). According to PGE Group companies, based on available legal opinions, a favourable resolution in the above disputes is more probable then an unfavourable one. The estimated volume of green certificates covered by the contracts with Enea S.A. amounts to 2,663 thousand MWh. The above amount was calculated for the period from the date at which the contracts were terminated to the end of the expected initial term of the contracts. In addition, PGE Górnictwo i Energetyka Konwencjonalna S.A., PGE Energia Natury PEW sp. z o.o. (acquired by PGE Energia Odnawialna S.A.) and PGE Energia Odnawialna S.A. filed lawsuits against Enea S.A. for payment of receivables totalling PLN 47 million, concerning invoices issued to Enea S.A. for the sale of certificates of origin under the aforementioned contracts. Enea S.A. refused to pay these receivables, claiming that they were offset by receivables from the Group's companies related to compensation for the alleged damages arising as a result of the failure to re-negotiate the contracts. According to the Group companies, such offsets are groundless because Enea S.A.'s receivables concerning payment of compensation have never arisen, and there are no grounds for acknowledging Enea S.A.'s claim that the companies breached contractual provisions. The proceedings are pending, and the next hearings are scheduled for October and November 2019.

23. Tax settlements Tax obligations and rights are specified in the Constitution of the Republic of Poland, tax regulations and ratified international agreements. According to the tax ordinance, tax is defined as public, unpaid, obligatory and non-returnable cash liability toward the State Treasury and/or provincial or other regional authorities resulting from the tax regulations. Taking into account the subject criterion, current taxes in Poland can be divided into five groups: taxation of incomes, taxation of turnover, taxation of assets, taxation of activities and other, not classified elsewhere. From the point of view of business entities, the most important is the taxation of income (corporate income tax), taxation of turnover (value added tax and excise tax), followed by taxation of assets (real estate tax and vehicle tax). Other payments classified as quasi-taxes must also be mentioned. Among these there are social security charges. Basic tax rates in 2019 are, as follows: corporate income tax rate – 19%, for smaller enterprises a 9% rate is likely; basic value added tax rate – 23%, reduced: 8%, 5%, 0%, furthermore some goods and products are subject to a VAT tax exemption. The tax system in Poland is characterised by a significant changeability of tax regulations, their high complexity and high potential fees for commitment of any tax crime or any violation of the tax regulations. Tax settlements and other activity areas are governed by regulations (customs or currency inspections) and can be subject to inspections by respective authorities that are entitled to impose fines and penalties, together with penalty interest. Inspections may cover tax settlements for the period of 5 years after the end of calendar year in which a given tax is due. Tax group An agreement for a tax group named PGK PGE 2015, whose representative is PGE S.A., was signed on September 18, 2014 for a period of 25 years. Companies included in the tax group must meet a number of requirements, including: appropriate level of equity, parent's stake in PGK companies of at least 75%, lack of capital ties between subsidiaries, no tax arrears, share in total revenue of at least 2% (calculated at

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the tax group level), and execution of transactions with related parties from outside the tax group only on market terms. Any violation of these requirements will result in the tax group being dissolved and losing its taxpayer status. When the tax group is dissolved, each of its member companies will become an independent payer of the corporate income tax. VAT split payment mechanism The Group uses funds received from counterparties in VAT accounts to pay its liabilities that contain VAT. The level of funds in these VAT accounts at a given date depends mainly on the number of the Group's counterparties that decide to use this mechanism and on the relation between the payment dates of receivables and liabilities. As at June 30, 2019, the cash in the VAT accounts was PLN 39 million. Excise tax As a result of the incorrect implementation of EU regulations into the Polish legal system, in 2009 PGE GiEK S.A. initiated proceedings regarding reimbursement of the improperly paid excise tax for the period from January 2006 to February 2009. The irregularity consisted in taxing electricity at the first stage of sales, i.e. at the sale by producers, when it was the sale to end users that should have been taxed. Having examined the company's complaints with regard to the restitution claims against decisions issued by tax authorities refusing to confirm the overpayment of excise tax, administrative courts ruled that the company did not bear the economic burden of the improperly calculated excise tax (which in the context of the resolution adopted by the Supreme Administrative Court on June 22, 2011, file no. I GPS 1/11, precludes the reimbursement of the amounts overpaid). According to the Supreme Administrative Court, the claims that the company sought, especially through the use of economic analyses, were of an offsetting nature and therefore could be sought only in civil courts. Given the above, PGE GiEK S.A. decided to withdraw from the proceedings concerning the restitution claims. Currently, the actions concerning the overpaid excise tax are pending in the civil courts. Given the significant uncertainty over the final ruling in this case, the Group has not recognised in its financial statements any effects related to any potential compensation in civil courts in connection with the improperly paid excise tax. Property tax A tax on property constitutes a significant burden on certain PGE Group companies. Regulations concerning the property tax are unclear in certain areas and give rise to a variety of interpretation doubts. Tax authorities, i.e. municipality head, mayor or city president, have often issued inconsistent tax interpretations in similar cases. As a result of the foregoing, PGE Group companies have been and may be a party to court proceedings concerning property tax. If the Group believes that adjustments to the settlements are probable, it recognises a relevant provision.

24. Information on the related parties The PGE Group's transactions with the related parties are concluded at market prices for the goods, products and services provided or are based on their cost of manufacturing. 24.1 Associates and jointly controlled entities The total value of transactions with associates and jointly controlled entities has been presented in the table below.

Period ended Period ended June 30, 2019 June 30, 2018 Sales to associates and jointly controlled entities 8 10 Purchases to associates and jointly controlled entities 1,074 963

As at As at June 30, 2019 December 31, 2018 Trade receivables from associates and jointly controlled entities 2 7 Trade liabilities towards associates and jointly controlled entities 224 120

The amounts presented above include transactions with Polska Grupa Górnicza S.A. and Polimex-Mostostal S.A. 24.2 State Treasury-related companies The State Treasury is the dominant shareholder in PGE Polska Grupa Energetyczna S.A. and as a result thereof, in accordance with IAS 24 Related Party Disclosures, State Treasury companies are treated as related parties. PGE Group companies disclose in detail transactions with the approximately 40 biggest State Treasury subsidiaries. The total value of transactions with these entities has been presented in the table below.

Period ended Period ended June 30, 2019 June 30, 2018 Sales to related parties 1,018 914 Purchases from related parties 2,730 2,332

As at As at June 30, 2019 December 31, 2018

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As at As at June 30, 2019 December 31, 2018 Trade receivables from related parties 310 230 Trade liabilities towards related parties 582 682

The largest transactions with companies in which the State Treasury holds a stake concern transactions with Polskie Sieci Elektroenergetyczne S.A., Polskie Górnictwo Naftowe i Gazownictwo S.A., Zakłady Azotowe PUŁAWY S.A., PKP Cargo S.A., Grupa LOTOS S.A., PKN Orlen S.A. and TAURON Dystrybucja S.A., Jastrzębska Spółka Węglowa S.A. Moreover, PGE Group enters into significant transactions in the energy market via Towarowa Giełda Energii S.A. (Polish Power Exchange). Due to the fact that this entity deals only with the organisation of trading, any purchases and sales made through this entity are not recognised as transactions with related parties. 24.3 Management remuneration The key management comprises members of the management boards and supervisory boards of the parent company and significant subsidiaries.

Period ended Period ended in PLN '000 June 30, 2019 June 30, 2018 Short-term employee benefits (salaries and salary related costs) 17,119 19,346 Post-employment benefits 1,427 2,685 TOTAL REMUNERATION OF KEY MANAGEMENT MEMBERS 18,546 22,031 Remuneration of management members in the entities that carry out non-core operations 11,747 10,847 TOTAL REMUNERATION OF MANAGEMENT MEMBERS 30,293 32,878

Period ended Period ended in PLN '000 June 30, 2019 June 30, 2018 Management Board of the parent company 3,947 3,937 Supervisory Board of the parent company 379 330 Management Boards – subsidiaries 12,447 16,412 Supervisory Boards – subsidiaries 1,773 1,352 TOTAL 18,546 22,031 Remuneration of management members in the entities that carry out non-core operations 11,747 10,847 TOTAL REMUNERATION OF MANAGEMENT MEMBERS 30,293 32,878

PGE Group companies (direct and indirect subsidiaries) apply a rule according to which management board members are employed on the basis of management services contracts. The above remuneration is included in other costs by nature disclosed in note 7.2 “Costs by nature and by function”.

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Condensed Consolidated Interim Financial Statements of PGE Group for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

25. Significant events during and after the reporting period 25.1 Act amending the Act on Excise Duty and Some Other Acts The Act amending the Act on Excise Duty and Some Other Acts (“Act on Electricity Prices”) was adopted on December 28, 2018. This Act aims to stabilise electricity prices for final customers in 2019. The Act on Electricity Prices had already been amended twice, i.e. on February 21, 2019 and on June 13, 2019. In addition, the Act on Compensation System for Energy Intensive Sectors and Subsectors, which has an effect on the Act, was adopted on July 19, 2019. The key provisions of the amended Act on Electricity Prices are as follows:  From January 1, 2019, the excise duty on electricity is reduced from PLN 20 to PLN 5 per MWh. The transition fee, paid each month by electricity customers, was reduced by 95%.  In 2019, supply companies are obliged to provide final customers with electricity at prices set in accordance with the Act. The pricing rules and beneficiaries of the Act are different in the first and in the second half-year of 2019.  From January 1, 2019 to June 30, 2019, electricity prices paid by final customers are to correspond to prices set as at December 31, 2018 in the tariffs approved by the President of the Energy Regulatory Office [Urząd Regulacji Energetyki] (“URE President”) or at prices applied as at June 30, 2018, if prices paid by final consumers differ from those specified in the tariffs. All final customers have the right to keep paying prices set in 2018. An exception to that rule are energy intensive companies which are to submit by September 12, 2019 a relevant statement disclaiming the right to use the electricity prices and fees reduced by the Act.  In the period from July 1, 2019 to December 31, 2019:  Households (including residential buildings, garages, holiday homes and allotments) are subject to prices applicable in 2018. In turn, micro and small enterprises, hospitals, public finance sector entities and state organisational units are obliged to submit a relevant statement if they wish to apply prices of 2018. The deadline for submission of such statements ended August 13, 2019.  Medium and large companies are not entitled to energy price from 2018 h. These entities may apply to Zarządca Rozliczeń S.A. for funding intended to cover an increase in electricity prices in accordance with the rules on the grant of de minimis aid.  Energy intensive companies are not beneficiaries of the Act on Electricity Prices in this period. Energy intensive companies may apply for support under the Act on Compensation System for Energy Intensive Sectors and Subsectors.  Retail companies (such as PGE Obrót S.A.) are entitled to receive compensation for the reduction in prices. Compensation depends on the average weighted electricity prices and on other unit costs of supply companies published by the URE President and also on the volumes sold. Compensations are granted at companies’ request. In the reporting period, PGE Group adjusted electricity prices applicable to households that pay tariff prices or derivative prices and electricity prices specified in the price lists for tariffs A, B, C and R, in accordance with the Act. In case of other beneficiaries of the Act in Electricity Prices are concerned, in the first half-year of 2019, PGE Group used prices set forth in the concluded agreements, because prices charged to such beneficiaries could only be changed if implementing regulations were published, and those have been published after June 30, 2019. As a consequence, supply companies are obliged to adjust the prices to all final customers by September 13, 2019, with the effect from January 1, 2019. Effects on reporting In assessing the reporting effects on the consolidated financial statements, the Group examined:  A difference between the revenue estimated in accordance with the Act and the unavoidable costs to satisfy the obligation to perform contracts at the level of individual companies – including mainly PGE Obrót S.A.  A positive energy balance between the value of the electricity produced and the sales to final customers.  The value of due compensations for both first-half-year and second-half-year of 2019.  Uncertainties related to the estimation of revenue’ reduction and compensations due. The majority of effects of the implementation of the Act are estimates made by PGE Group. The foregoing pertains, in particular, to the reduction in revenues from sales of electricity to customers other than households in the period from January 1, 2019 to June 30, 2019 and to the level of compensation expected, for both first-half-year and second-half-year of 2019. The Group based its estimates on its best assumptions, but the final settlement of the reduction in revenues and the compensations received may differ from the values specified in these financial statement. The requests for the price differences for the period from January 1, 2019 to June 30, 2019 are to be submitted within the time limit set by law, i.e. by October, 7 2019. If the request submitted is accepted, the price difference is to be paid within 30 days of receipt of the correctly prepared request. As far as onerous contracts are concerned within the meaning of IAS 37, in the supply segment the difference between the revenues estimated in accordance with the Act and unavoidable costs to satisfy the obligation to perform contracts amounts to PLN 173 million as at June 30, 2019 (surplus of costs over revenue). As a rule, costs include only those costs that are directly related to the contract that the entity would have avoided if it did not perform the contract. Calculating a loss on a contract in the meaning of IAS 37 does not include future operating losses. In regard to compensations due for second half-year 2019, the Group assumed that compensations are in fact due and should be accounted for in the financial statements to properly reflect the effects of the Act. In consequence, pursuant to IAS 37, the expected reimbursement of expenses in the form of a part of compensations due for second-half-year 2019 was recognized in the supply segment. The reimbursement amounts to PLN 136 million. The expected reimbursement was estimated for individual groups

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of contracts in accordance with the Group’s best knowledge, in an amount not higher than the value of the provision established for the given group of contracts. The final amount of compensations will depend on the publication of further parameters by the URE President and may differ from the Group’s estimates. In turn, in the Group’s opinion, there are no onerous contracts at the level of the consolidated financial statements due to the positive margin generated between the cost of producing energy and its sale to the end recipient. To sum up, these financial statements include disclosures of the following effects of the implementation of the Act:  Revenues from sales of electricity to households are invoiced and recognised, as from January 1, 2019, at prices applicable in 2018. The Group estimates that, if the Act had not been implemented, its revenues from sales to households would have been higher by approximately PLN 180 million.  The Group estimated an adjustment to revenues from sales of electricity to customers other than households. The adjustment amounted to PLN 856 million. The adjustment was recognised in the statement of comprehensive income as a reduction in revenues from sales and in the statement of financial position as a liability. For final customers, who were customers of PGE Obrót S.A. both as at June 30, 2018 and as at June 30, 2019, estimates were prepared according to the prices of these recipients as at June 30, 2018. Whereas for end recipients, for which no prices were available as at June 30, 2018 upon the estimation – estimates were prepared according to best available assumptions of the Group.  Compensation due for first-half-year 2019 for final customers was estimated, including households, in the amount of PLN 931 million. In the total income statement, the adjustment was recognized as an increase of sales, and in the report on the financial situation – as receivables.  The provisions for onerous contracts were remeasured, and receivables on the account of reimbursement of expenses in the supply segment were recognized. The provision as at June 30, 2019 amounts to PLN 169 million and receivables due to reimbursement of expenses amount to PLN 136 million. Both the provision and the receivables due to reimbursement are subject to reversal at the level of the Group's consolidated financial statements.

25.2 Granting of additional CO2 emission allowances for PGE installations As a result of the settlement of capital expenditures in PGE Group, in April 2019 generation assets acquired from EDF group in 2017 received additional allocation of CO2 emission allowances in the amount of approximately 11 million tonnes for the years 2013-2017. These rights are designated for trading activity. The received rights were recognized in Inventory (note 14). The rights are valuated as at every reporting day, at fair value. Their fair value as at June 30, 2019 amounts to PLN 1,391 million. 25.3 Establishment of Fundusz Eko-Inwestycje On July 30, 2019, PGE S.A., PGE Energia Ciepła S.A., PGE GiEK S.A. and PGE Energia Odnawialna S.A. concluded an investment agreement with Towarzystwo Funduszy Inwestycyjnych Energia S.A. according to which a closed-end investment fund of non-public assets was to be established under the name of “Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych Eko-Inwestycje”. The fund focuses on implementing investment projects of a complementary nature to the core activities of PGE Group, in accordance with its strategy and with the aim of developing new business lines. The Fund’s investment policy sets forth specific categories of its investments, market areas and criteria to be followed by the Fund's investment managers. The Fund pursues its investment objective through the investment of its funds in the entities operating in the following areas:  Electromobility,  Enhancement of flexibility and optimisation of energy systems,  Energy efficiency services,  Reduction of emissions in the energy sector, improvement of its efficiency, reliability and flexibility of production, including production from high-performing sources,  Use of digital technologies for the purpose of improving cost efficiency of production and supporting processes in the energy sector. The expected investment horizon is of at least five years, unless a shorter period is stipulated by the terms of the investment made. Investors are obliged to make payments to the Fund in the total amount of no less than PLN 1.5 billion by the end of the Fund's adjustment period, i.e. by the end of the 36-month period from the Fund’s registration, in accordance with the schedule provided in the agreement, with the majority of the payments to be made, however, in 2020. The Fund is opened for an indefinite period. The Fund may be terminated no earlier than after seven years from the entry of the Fund to the investment fund register.

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

II. CONDENSED SEPARATE INTERIM FINANCIAL STATEMENTS OF PGE POLSKA GRUPA ENERGETYCZNA S.A. FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2019, IN ACCORDANCE WITH IFRS EU

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

Period ended Period ended Note June 30, 2019 June 30, 2018 (unaudited) (unaudited) Data restated* STATEMENT OF PROFIT OR LOSS

SALES REVENUE 6. 8,048 5,179 Cost of goods sold 7. (7,488) (4,827) GROSS PROFIT ON SALES 560 352 Distribution and selling expenses 7. (8) (9) General and administrative expenses 7. (102) (104) Net other operating expenses - (1) OPERATING PROFIT 450 238 Net financial income 8. 1,021 64 PROFIT BEFORE TAX 1,471 302 Current income tax (44) (51) Deferred income tax (23) 5 NET PROFIT FOR THE REPORTING PERIOD 1,404 256

OTHER COMPREHENSIVE INCOME Items that may be reclassified to profit or loss in the future: Valuation of hedging instruments (39) (25) Deferred tax 7 5 OTHER COMPREHENSIVE INCOME FOR THE REPORTING PERIOD, NET (32) (20)

TOTAL COMPREHENSIVE INCOME 1,372 236

NET PROFIT AND DILUTED NET PROFIT PER SHARE 0.75 0.14 (IN PLN) * The restatement of comparable data has been described in note 4 to these separate financial statements.

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

SEPARATE STATEMENT OF FINANCIAL POSITION

As at As at Note June 30, 2019 December 31, 2018 (audited) (unaudited) Data restated* NON-CURRENT ASSETS Property, plant and equipment 162 167 Intangible assets 1 1 Right-of-use assets 20 - Financial receivables 10. 13,440 13,000 Derivatives and other assets measured at fair value through profit or loss 12. 107 115 Shares in subsidiaries 32,065 32,024 Shares in associates and jointly controlled entities 101 101 Deferred tax assets 3 19 45,899 45,427 CURRENT ASSETS Inventories 2 4 Income tax receivables - 57 Trade and other receivables 10. 5,948 5,306 Derivatives 12. 278 231 Other current assets 13. 1,215 51 Cash and cash equivalents 11. 107 235 7,550 5,884 TOTAL ASSETS 53,449 51,311

EQUITY Share capital 19,165 19,165 Reserve capital 19,669 19,872 Hedging reserve (32) (2) Retained earnings 1,404 (201) 40,206 38,834 NON-CURRENT LIABILITIES Non-current provisions 18 16 Loans, borrowings and bonds 15. 9,582 5,733 Derivatives 12. 70 24 Other liabilities 18 21 9,688 5,794 CURRENT LIABILITIES Current provisions 9 9 Loans, borrowings, bonds, cash pooling 15. 2,414 5,439 Derivatives 12. 171 164 Trade and other liabilities 804 840 Income tax liabilities 43 - Other non-financial liabilities 114 231 3,555 6,683 TOTAL LIABILITIES 13,243 12,477 TOTAL EQUITY AND LIABILITIES 53,449 51,311 * The restatement of comparable data has been described in Note 4 to these separate financial statements.

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

SEPARATE STATEMENT OF CHANGES IN EQUITY

Hedging Retained Share capital Reserve capital Total equity reserve earnings AS AT JANUARY 1, 2019 19,165 19,872 (2) (201) 38,834 Net profit for the reporting period - - - 1,404 1,404 Other comprehensive income - - (30) (2) (32) COMPREHENSIVE INCOME FOR THE PERIOD - - (30) 1,402 1,372

Previous years’ profit distribution - (203) - 203 - Other changes - - - - - AS AT JUNE 30, 2019 19,165 19,669 (32) 1,404 40,206

Hedging Retained Share capital Reserve capital Total equity reserve earnings AS AT JANUARY 1, 2018 19,165 15,328 110 4,541 39,144 Net profit for the reporting period - - - 256 256 Other comprehensive income - - (20) - (20) COMPREHENSIVE INCOME FOR THE PERIOD - - (20) 256 236

Previous years’ profit distribution - - - - - Other changes - - - - - AS AT JUNE 30, 2018 19,165 15,328 90 4,797 39,380

Explanatory notes constitute an integral part of the consolidated financial statements. 47 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

SEPARATE STATEMENT OF CASH FLOWS

Period ended Period ended June 30, 2019 June 30, 2018 (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax 1,471 302 Income tax paid (66) 80

Adjustments: Depreciation, amortisation and impairment losses 6 7 Interest and dividends, net (1,034) (52) Profit (loss) on investing activities (118) 32 Change in receivables (168) 24 Change in inventories 2 (215) Change in liabilities, excluding loans and borrowings (68) (36) Change in other non-financial assets (203) (35) Foreign exchange differences 11 - NET CASH FROM OPERATING ACTIVITIES (167) 107

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets (2) (1) (Purchase)/buy-back of bonds issued by PGE Group companies (252) (203) Purchase of shares in subsidiaries (15) (18) Loans granted/(repaid) under the cash pooling agreement 527 (433) Loans granted (1,267) (522) Interest received 279 152 Repayment of loans granted 380 260 NET CASH FROM INVESTING ACTIVITIES (350) (765)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans, borrowings 4,420 282 Proceeds from issue of bonds 1,400 - Repayment of loans, borrowings and finance leases (5,271) - Redemption of the bonds issued - (1,000) Interest paid (160) (159) Other - (2) NET CASH FROM FINANCING ACTIVITIES 389 (879)

NET CHANGE IN CASH AND CASH EQUIVALENTS (128) (1,537) Net foreign exchange differences - - CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 233 1,831 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 105 294

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

1. General information PGE Polska Grupa Energetyczna S.A. (“Company”, “PGE S.A.”) was founded on the basis of a notary deed of August 2, 1990 and registered in the District Court in Warsaw, XVI Commercial Department on September 28, 1990. The Company was registered in the National Court Register of the District Court for the capital city of Warsaw, XII Commercial Department, under no. KRS 0000059307. The Company's registered office is in Warsaw, ul. Mysia 2. PGE S.A. is the parent company of PGE Group (“PGE Group” or “Group”) and prepares separate and consolidated financial statements in accordance with the International Financial Reporting Standards adopted by the European Union (“IFRS EU”). The Company’s majority shareholder is the State Treasury. The Company’s core business activities are, as follows:  Supply of electricity and other energy market products,  Oversight of head offices and holding companies,  Provision of financial services to PGE Group companies,  Provision of other services related to the aforementioned activities. PGE S.A.’s business activities are conducted under appropriate concessions, including concession for electricity trading granted by the Energy Regulatory Office. The concession is valid until 2025. No significant assets or liabilities are assigned to the concession. According to the concession, the annual fees paid depend on the level of trading. Revenues from sales of electricity and other energy market products are the only significant items in the operating revenues. They are generated in the domestic market. Therefore, the Company does not report any operating or geographical business segments. PGE S.A.'s accounting books are maintained by subsidiary PGE Synergia sp. z o.o. Statement of compliance These financial statements were prepared in accordance with the International Accounting Standard 34, Interim Financial Reporting, and pursuant to the Regulation of the Minister of Finance of March 29, 2018 on current and periodical information disclosed by issuers of securities, and on consideration as equivalent of information required by law of countries outside the EU (Journal of Laws from 2018, items 512 and 685). International Financial Reporting Standards („IFRS”) include standards and interpretations approved by the International Accounting Standards Board („IASB”) and the International Financial Reporting Interpretations Committee („IFRIC”). Going concern These condensed interim financial statements are prepared under the assumption that the Company will continue to operate as a going concern in the foreseeable future. As at the date of approval of these financial statements, there is no evidence indicating that the Company will not be able to continue its operations as a going concern. These financial statements comprise financial data for the period from January 1, 2019 to June 30, 2019 (“separate financial statements”) and comparable data for the period from January 1, 2018 to June 30, 2018 and as at December 31, 2018. The same accounting rules (policies) and calculation methods are applied in these financial statements as in the most recent annual financial statements, except for changes indicated in note 4, and they should be read in conjunction with PGE S.A.'s audited separate financial statements prepared in accordance with IFRS EU for the year ended December 31, 2018. Seasonality of business operations The main factors that affect the demand for electricity and heat are: weather conditions – air temperature, wind force, rainfall, socio- economic factors – number of energy consumers, energy carriers’ prices, growth of GDP and technological factors – advances in technology and product manufacturing technology. Each of these factors has an impact on technical and economic conditions of production and distribution of energy products, thus influences the financial performance of the Company. The level of electricity sales is variable throughout a year and depends especially on weather conditions - air temperature, length of the day. Growth in electricity demand is particularly evident in winter periods, while lower demands are observed during the summer months. Moreover, seasonal changes are evident among selected groups of end customers. Seasonality effects are more significant for households than for the industrial sector. The PGE S.A.'s sales seasonality results from the fact that the Company sells 92% of its electricity sales volume to PGE Obrót S.A. and PGE Dystrybucja S.A., whose demand for electricity is subject to seasonality. 2. Professional judgment of management and estimates In the period covered by these financial statements, no other significant changes in estimates took place that could have had an impact on the amounts disclosed in the financial statements. 3. Impact of new regulations on the Company's future financial statements New standards and interpretations that were published but are not yet in force have been described in note 2.3 to the consolidated financial statements.

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4. Changes in accounting principles and data presentation New standards and interpretations which became effective on January 1, 2019 An impact of new standards and interpretations that entered into force on January 1, 2019, and had no effect on the Company's separate financial statements, has been described in detail in note 3 to the consolidated financial statements. Effects of the implementation of IFRS 16 on the separate financial statements:  As at January 1, 2019, right-of-use assets and financial liabilities increased by PLN 20 million.  Retained earnings remained unchanged as at January 1, 2019.  Gross profit for the first half-year of 2019 was lower by PLN 125 thousand.  EBITDA for the first half-year of 2019 was higher by PLN 466 thousand. Changes in the applied accounting principles The statement of comprehensive income includes the following net financial income and expenses.

In the current period, the Company decided to change the presentation of derivatives relating to the trade in CO2 emission allowances by way of shifting their disclosure from the financial activities to the operating activities. The trade in CO2 emission allowances for the benefit of PGE Group forms part of the Company’s core activities, and therefore the new presentation reflects the nature of the activities carried out by the Company in a more suitable manner. The Company also decided to change the method of division of receivables from and liabilities on account of loans, borrowings and bonds into long-term and short-term portions. The current present value of the generated cash flows was replaced by the maturity date method. The Company believes that the amended presentation reflects the nature of these items in a more suitable manner. The Company restated the comparable data presented in the statement of financial position and in the statement of comprehensive income. The restatement has been presented in the tables below. Change in the Period ended recognition of Period ended Net presentation of June 30, 2018 forwards related to June 30, 2018 (unaudited) financing activities (unaudited) Data published trading in CO2 Data restated allowances STATEMENT OF PROFIT OR LOSS

REVENUE FROM SALES 5,179 - - 5,179 Cost of goods sold (4,791) - (36) (4,827) GROSS PROFIT ON SALES 388 - (36) 352 OPERATING PROFIT 274 - (36) 238 Financial income 239 (239) - - Financial expenses (211) 211 - - Net financial income - 28 36 64 PROFIT BEFORE TAX 302 - - 302 NET PROFIT FOR THE REPORTING PERIOD 256 - - 256

As at As at December 31, 2018 Change December 31, 2018 in the presentation Data published Data restated CURRENT ASSETS, including: Financial receivables 12,756 244 13,000 TOTAL NON-CURRENT ASSETS 45,183 244 45,427 CURRENT ASSETS, including: Trade and other receivables 5,550 (244) 5,306 TOTAL CURRENT ASSETS 6,128 (244) 5,884 TOTAL ASSETS 51,311 - 51,311

NON-CURRENT LIABILITIES, including: Loans, borrowings and bonds 5,628 105 5,733 TOTAL NON-CURRENT LIABILITIES 5,689 105 5,794 CURRENT LIABILITIES, including: Loans, borrowings, bonds, cash pooling 5,544 (105) 5,439 TOTAL CURRENT LIABILITIES 6,788 (105) 6,683 TOTAL LIABILITIES 12,477 - 12,477 TOTAL EQUITY AND LIABILITIES 51,311 - 51,311

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

5. Fair value hierarchy The principles for valuation of inventories, derivatives, shares and instruments not quoted on active markets, for which fair value may not be determined reliably, are the same as applied to the financial statements for the year ended December 31, 2018. The Company measures derivatives at fair value using valuation models for financial instruments based on publicly available exchange rates, interest rates, discount curves for currencies (valid also for commodities, prices of which are denominated in those currencies) derived from active markets. The fair value of derivatives is determined based on the discounted future cash flows from transactions, calculated on the difference between the forward rate and transaction price. Forward exchange rates are not modelled as separate risk factors, but are derived from the spot rate and appropriate forward interest rate for foreign currencies in relation to PLN. In the current and comparable reporting periods, financial instruments were not transferred between the first and the second level of fair value hierarchy. 6. Revenues from sales Revenues from sales in the period ended June 30, 2019, by category

Period ended Period ended

June 30, 2019 June 30, 2018 Revenues from contracts with customers 8,045 5,176 Revenues from leases 3 3 TOTAL REVENUES FROM SALES 8,048 5,179 The Company carries out its business activities primarily in Poland. The revenues from contracts with customers by category reflecting impacts of economic factors on the nature, amounts, maturity dates and uncertainty of revenues and cash flows have been presented in the table below.

Period ended Period ended

Type of goods or services June 30, 2019 June 30, 2018 Revenues from sales of goods, including: 7,578 4,780 Sales of electricity 6,026 4,319 Sales of gas 276 337

Sales of CO2 emission allowances 1,276 124 Revenues from sales of services 467 396 Total revenues from contracts with customers 8,045 5,176

An increase in the revenues from sales of electricity in the first half-year of 2019 in comparison to the corresponding period of the previous year results mainly from an increase in the turnover volumes and from higher selling prices, primarily in transactions with PGE Obrót S.A. The sales to PGE Obrót S.A. are carried out in order to satisfy the demand of retail customers for electricity supplies. A decrease in the sales of natural gas results from a decrease in the sales volumes, mainly, to the entities other than PGE Group companies and at the gas exchange.

An increase in other sales of goods and materials is caused mainly by an increase in the sales volumes of CO2 emission allowances . Information on key customers The Company’s key customers are PGE Group companies. In the first half-year of 2019, the sales to PGE Obrót S.A. were 68% of the revenues from sales, and to PGE Górnictwo i Energetyka Konwencjonalna S.A. approximately 18% of the revenues from sales. In the first half-year of 2018, the sales to these companies were 73% and 8%, respectively.

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

7. Costs by nature and by function

Period ended Period ended June 30, 2019 June 30, 2018 COSTS BY NATURE Depreciation, amortisation and impairment losses 6 7 Materials and energy 2 2 External services 33 27 Taxes and charges 2 2 Employee benefit costs 70 58 Other costs by nature 29 35 TOTAL COST BY NATURE 142 131 Distribution and selling expenses (8) (9) General and administrative expenses (102) (104) Value of goods and materials sold 7,456 4,809 COST OF GOODS SOLD 7,488 4,827

An increase in the value of the goods and materials sold in the first half-year of 2019, as compared to the first half-year of 2018, results mainly from the aforementioned increase in revenues from sales and from higher prices in the wholesale market. 8. Financial income and expenses

Period ended Period ended June 30, 2019 June 30, 2018 NET FINANCIAL INCOME/(EXPENSES) FROM FINANCIAL INSTRUMENTS Dividends 950 46 Interest 95 20 Revaluation of financial instruments 2 1 Foreign exchange differences (17) 3 Other (9) (6) TOTAL NET FINANCIAL INCOME/(EXPENSES) FROM FINANCIAL INSTRUMENTS 1,021 64 NET OTHER FINANCIAL INCOME/(EXPENSES) Interest expenses, including the effect of discount unwinding - - Other - - TOTAL NET OTHER FINANCIAL INCOME/(EXPENSES) - - TOTAL NET FINANCIAL INCOME/(EXPENSES) 1,021 64

In the period ended June 30, 2019, the Company recognised dividend income mainly from PGE Dystrybucja S.A. in the amount of PLN 935 million, and in the comparable period mainly from PGE Obrót S.A. in the amount of PLN 28 million. The Company recognises interest income mainly on the bonds issued by subsidiaries and on deposits. The interest expenses pertain mainly to the bonds issued and the loan incurred, as described in note 15 to these separate financial statments. 9. Shares in subsidiaries Analysis of impairment indications for PGE Obrót S.A. shares In the previous reporting periods, PGE S.A. recognised an impairment loss on its stake in PGE Obrót S.A. in the amount of PLN 5,536 million. The reason for this impairment loss was the donation of shares of PGE Dystrybucja S.A., in 2014, as a result of which the equity of PGE Obrót S.A. significantly decreased. After the donation, the value of PGE Obrót S.A. shares was estimated in accordance with IAS 36 using the discounted cash flows method. In the financial statements as at December 31, 2018, PGE S.A. tested PGE Obrót S.A. shares for impairment and their value was estimated to be PLN 1,647 million. At the end of the current reporting period, another analysis of indications for impairment tests was conducted in order to determine whether these assets were impaired or whether the earlier impairment losses could be reversed. The most important factors analysed included:  Analysis of the implementation of the financial plan in 2019,  Analysis of the sales volumes in the years 2019-2023,  Analysis of the estimated mark-ups on sales of electricity in the years 2019-2023,  Review of provisions and effects of the Act on Electricity Prices. The analysis of indications demonstrated that PGE Obrót S.A. complies with the financial plan as expected. The sales volumes and mark- ups are estimated assuming that the impact of competition will be smaller than that estimated in the preceding years, due to the fact that many companies selling electricity to final customers went bankrupt in 2018.

Explanatory notes constitute an integral part of the consolidated financial statements. 52 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

PGE S.A. believes that the planned cash flow generated by PGE Obrót S.A. throughout the forecast period did not change significantly, therefore at the reporting date there are no indications that the value of PGE Obrót S.A. shares should be impaired or that the impairment losses recognised in the previous periods should be reversed. 10. Financial assets

As at June 30, 2019 As at December 31, 2018 Non-current Current Non-current Current Trade receivables - 932 - 844 Bonds acquired 13,215 191 12,821 332 Cash pooling receivables - 999 - 1,204 Loans granted 225 3,605 179 2,785 Other financial receivables - 221 - 141 TOTAL FINANCIAL RECEIVABLES 13,440 5,948 13,000 5,306

Trade receivables The trade receivables in the amount of PLN 932 million related mainly to the sales of electricity and services to the subsidiaries in PGE Group. As at June 30, 2019, the receivables from the two largest costumers, i.e. from PGE Obrót S.A. and PGE Górnictwo i Energetyka Konwencjonalna S.A., were 87% of the total trade receivables. Bonds acquired

As at June 30, 2019 As at December 31, 2018

Non-current Current Non-current Current BONDS ACQUIRED – ISSUER PGE Górnictwo i Energetyka Konwencjonalna S.A. 12,130 13 11,736 154 PGE Energia Odnawialna S.A. 1,085 178 1,085 178 TOTAL BONDS ACQUIRED 13,215 191 12,821 332

PGE S.A. purchases bonds issued by PGE Group companies. The cash obtained from the issue of bonds is used for financing investment projects, repayment of financial liabilities and for financing current operations. Bonds with maturities not exceeding 12 months from the reporting date are classified as current assets, and bonds with maturities exceeding 12 months from the reporting date are classified as non-current assets; however, this classification depends not only on maturity dates, but also on the Company's intentions with regard to roll-overs. Inter-group bonds that mature within one year and are expected to be rolled over are classified as non-current instruments. This classification reflects the nature of cash management in a mid- and long-term. Cash pooling receivables Cash pooling services are rendered to 16 PGE Group companies by Powszechna Kasa Oszczędności Bank Polski S.A. and Bank Polska Kasa Opieki S.A. PGE S.A. coordinates cash pooling services in PGE Group. This means, in particular, that individual entities settle their positions with the Company and the Company makes settlements with banks. Therefore, financial receivables and liabilities of PGE S.A. include settlements between the entities that participate in the cash pooling system. Loans granted

As at June 30, 2019 As at December 31, 2018

Non-current Current Non-current Current LOANS GRANTED – CREDITOR PGE Energia Ciepła S.A. - 2,987 - 2,771 PGE Dystrybucja S.A. - 604 - - PGE Systemy S.A. 115 1 115 1 PGE EJ 1 sp. z o.o. 102 - 56 - PGE Trading GmbH - 13 - 13 Bestgum sp. z o.o. 5 - 5 - Betrans sp. z o.o. 3 - 3 - TOTAL LOANS GRANTED 225 3,605 179 2,785

Explanatory notes constitute an integral part of the consolidated financial statements. 53 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

11. Cash and cash equivalents Short-term deposits have terms which differ from one day to one month depending on the Company’s actual requirement for cash and they bear interest accrued according to the agreed interest rates. Cash and cash equivalents are, as follows:

As at As at June 30, 2019 December 31, 2018 Cash at bank 94 211 Overnight deposits - - VAT accounts 13 24 TOTAL 107 235 Exchange differences on cash in foreign currencies (2) (2) Cash and cash equivalents recognised in the statement of cash flows 105 233

Undrawn credit limits 5,064 7,290 including overdrafts 964 932

For more details on loan agreements, please refer to note 15 to these separate financial statements. 12. Derivatives and other receivables valued at fair value through profit or loss The Company recognises all financial derivatives in its financial statements at fair value.

As at June 30, 2019 As at December 31, 2018 Assets Liabilities Assets Liabilities FINANCIAL INSTRUMENTS VALUED AT FAIR VALUE Currency forward 14 171 4 48 Commodity forwards 50 - - 116 Futures 215 - 147 Options 10 - 12 - HEDGING DERIVATIVES CCIRS hedges 30 - 113 - IRS hedges - 70 4 24 OTHER ASSETS VALUED AT FAIR VALUE THROUGH PROFIT OR

LOSS Fund participation units 66 - 66 - TOTAL DERIVATIVES AND OTHER RECEIVABLES VALUED AT 385 241 346 188 FAIR VALUE THROUGH PROFIT OR LOSS Non-current 107 70 115 24 Current 278 171 231 164

Commodity and currency forwards

The commodity and currency forward transactions relate mainly to trade in CO2 emission allowances . IRS hedges The Company entered into IRS transactions to hedge interest rates on loans with a total nominal value of PLN 6,130 million. The Company uses hedge accounting in order to recognise these IRS transactions. The impact of hedge accounting on the equity has been presented in note 18.2 to these consolidated financial statements. CCIRS hedges In connection with loans from PGE Sweden AB (publ) with the nominal value of EUR 657.5 million, as described in note 15 to these separate financial statements, in June and August 2014, PGE S.A. entered into CCIRS transactions that hedged both the exchange rate and the interest rate. In these transactions, banks-counterparties pay PGE S.A. interest based on a fixed rate in EUR and PGE S.A. pays interest based on a fixed rate in PLN. The nominal value, payment of interest and repayment of nominal value in CCIRS transactions are correlated with the relevant terms of loan agreements. In the current period, the Company repaid the loan in the nominal amount of EUR 514 million, and the CCIRS hedge was settled. The Company uses hedge accounting in order to recognise the CCIRS transactions. The impact of hedge accounting on the equity has been presented in note 18.2 to these consolidated financial statements.

Explanatory notes constitute an integral part of the consolidated financial statements. 54 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

Options On January 20, 2017 PGE S.A. purchased a call option to purchase shares in Polimex-Mostostal S.A. from Towarzystwo Finansowe Silesia Sp. z o.o. The option is measured using the Black-Scholes method. The option exercise dates are: July 30, 2020, July 30, 2021 and July 30, 2022. Fund participation units In 2018, the Company purchased investment certificates from PGE Ventures (closed-end investment fund of non-public assets). As at the reporting date, their value was PLN 14 million. In 2017, the Company acquired units in three subfunds of PGE Towarzystwo Funduszy Inwestycyjnych S.A. As at the reporting date, their value was PLN 52 million. 13. Other current assets

As at As at June 30, 2019 December 31, 2018 Dividend receivables 950 - Advance payments for deliveries 203 37 Receivables from the tax group 19 8 VAT receivables 34 - Other 9 6 TOTAL 1,215 51

The dividend receivables include primarily receivables from PGE Dystrybucja S.A. The advance payments consist of funds transferred to the subsidiary, PGE Dom Maklerski S.A. for the purchase of electricity and gas in the amount of PLN 203 million in the current reporting period and in the amount of PLN 37 million in the comparable period. 14. Selected financial assets The carrying amount of financial assets measured at amortised cost does not materially differ from the fair value thereof. 15. Loans, borrowings, bonds and cash pooling

As at June 30, 2019 As at December 31, 2018 Non-current Current Non-current Current Borrowings received 610 8 606 2,232 Bonds issued 1,398 5 - - Loan liabilities 7,554 632 5,127 1,761 Cash pooling liabilities - 1,769 - 1,446 Lease liabilities 20 - - - TOTAL LOANS, BORROWINGS, BONDS AND CASH 9,582 2,414 5,733 5,439 POOLING

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Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

Loans received

Interest Liability as at Liability as at Creditor Loan type Conclusion date Maturity date Amount Currency rate 30/06/2019 31/12/2018 Loan for general PGE Sweden AB purposes 10/06/2014 05/06/2019 210 EUR Fixed - 904 Loan for general PGE Sweden AB purposes 10/06/2014 05/06/2019 300 EUR Fixed - 1,292 Loan for general PGE Sweden AB purposes 10/06/2014 05/06/2019 4 EUR Fixed - 17 Loan for general PGE Sweden AB purposes 27/08/2014 31/07/2029 43 EUR Fixed 187 189 Loan for general PGE Sweden AB purposes 27/08/2014 31/07/2029 100 EUR Fixed 431 436 TOTAL LOANS RECEIVED 618 2,838

In 2014, PGE S.A. and PGE Sweden AB (publ) launched the Medium-Term Eurobond Issue Program, under which PGE Sweden AB (publ) could issue Eurobonds in the amount up to EUR 2 billion with a minimum maturity period of 1 year. In 2014, PGE Sweden AB (publ) issued Eurobonds in the total amount of EUR 638 million. The funds acquired as a result thereof were used by the subsidiary to finance loans granted to the parent company. In the current period, the Company repaid a loan with the nominal value of EUR 514 million (PLN 2,186 million), and at the same time PGE Sweden AB (publ) redeemed bonds with the total value of EUR 500 million. Domestic market bond issues

Program Tranche Program maturity Tranche issue Liability as at Liability as at Investor conclusion Amount Currency Interest rate redemption date date 30/06/2019 31/12/2018 date date 21/05/2019 21/05/2029 1,002 Bondholders 27/06/2013 perpetual 5,000 PLN Variable - 21/05/2019 21/05/2026 401 TOTAL BONDS ISSUED 1,403 -

Bank loans Interest Liability as at Liability as at Creditor Loan type Conclusion date Maturity date Amount Currency rate 30/06/2019 31/12/2018 Bank Gospodarstwa Loans for general Krajowego purposes 17/12/2014 31/12/2027 1,000 PLN Variable 1,001 1,001 Bank Gospodarstwa Loans for general Krajowego purposes 04/12/2015 31/12/2028 500 PLN Variable 500 500 Loans for general Bank consortium purposes 07/09/2015 30/09/2023 3,630 PLN Variable 3,649 3,648 Loans for general Bank consortium purposes 07/09/2015 30/04/2019 1,870 PLN Variable - 1,171 Loan for the European modernisation of Investment Bank the network 27/10/2015 26/10/2032 1,500 PLN Variable 1,505 - Loan for the European construction of Investment Bank the CHP plant 27/10/2015 26/10/2032 490 PLN Variable 493 - Financing for European Bank for selected Reconstruction investment and Development projects 07/06/2017 06/06/2028 500 PLN Variable 502 - Loans for general Revolving loan purposes 17/09/2018 17/12/2023 4,100 PLN Variable - - Bank Pekao S.A. Overdraft 05/07/2018 03/07/2021 500 PLN Variable 98 148 PKO BP S.A. Overdraft 30/04/2018 29/04/2020 500 PLN Variable - - Bank Gospodarstwa Krajowego Overdraft 01/06/2018 31/05/2021 500 PLN Variable 438 420 TOTAL BANK LOANS 8,186 6,888

Explanatory notes constitute an integral part of the consolidated financial statements. 56 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

In the first half-year of 2019 and after the reporting period, there were no cases of default on repayment or breach of other terms of loan agreements. 16. Contingent liabilities

As at As at

June 30, 2019 December 31, 2018 Surety and bank guarantee liabilities 11,757 12,408 Other contingent liabilities - 1 TOTAL CONTINGENT LIABILITIES 11,757 12,409

Guarantee for PGE Sweden AB (publ) liabilities Due to establishment of the Eurobonds program in 2014, an agreement was concluded for the issue of a guarantee by PGE S.A. for the liabilities of PGE Sweden AB (publ). The guarantee was issued in the amount of up to EUR 2,500 million (PLN 10,630 million) and is valid until December 31, 2041. As at June 30, 2019, PGE Sweden AB (publ) liabilities from the bonds issued were EUR 142 million (PLN 603 million), and as at December 31, 2018 they were EUR 644 million (PLN 2,769 million). Surety for PGE Górnictwo i Energetyka Konwencjonalna S.A. liabilities In January 2014, the Company granted three sureties for a bank payment guarantee issued for PGE Górnictwo i Energetyka Konwencjonalna S.A. The total value of the sureties is PLN 126 million. The sureties granted are related to the investment project implemented by PGE Górnictwo i Energetyka Konwencjonalna S.A., which consists in the construction of new power units at the Opole power plant. In keeping with IFRS 9, guarantees are measured at the amount of provisions for the expected credit losses. This amount, estimated as at June 30, 2019, was not disclosed by the Company due to its insignificant value. 17. Other legal claims and disputes Compensation for share conversions and lawsuits seeking annulment of the General Meeting resolutions have been described in note 22.4 to the consolidated financial statements. 18. Information on the related parties Transactions with the related parties are concluded at market prices for the goods, products and services provided or are based on their cost of manufacturing. An exception from this rule pertains to the tax loss settlements within the tax group. Any benefits from the current settlement of tax losses are attributable to PGE S.A. 19. PGE Group subsidiaries

Period ended Period ended June 30, 2019 June 30, 2018 Sales to related parties 7,610 4,638 Purchases from related parties 3,548 4,110 Net financial income/ (expenses) 1,168 181

The Company recognises revenues from sales to subsidiaries in PGE Group mainly from sales of electricity.

As at As at December 31, 2018 June 30, 2019 RECEIVABLES FROM RELATED PARTIES Bonds issued by subsidiaries 13,406 13,153 Dividend receivables 950 - Trade receivables from subsidiaries 898 800 Loans granted to subsidiaries 3,830 2,964 Cash pooling receivables 999 1,204 Receivables from the tax group settlements 19 8 TOTAL RECEIVABLES FROM RELATED PARTIES 20,102 18,129

Explanatory notes constitute an integral part of the consolidated financial statements. 57 of 59 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51

Condensed Separate Interim Financial Statements of PGE Polska Grupa Energetyczna S A, for the 6-month period ended June 30, 2019, in accordance with IFRS EU (in PLN million)

As at As at December 31, 2018 June 30, 2019 LIABILITIES TOWARDS RELATED PARTIES Loans received from subsidiaries 618 2,838 Trade liabilities towards related parties 898 633 Cash pooling liabilities 1,769 1,446 Liabilities from the tax group settlements 62 174 TOTAL LIABILITIES TOWARDS SUBSIDIARIES 3,347 5,091

Standby commitments and sureties granted to subsidiaries by PGE S.A. have been described in note 16 to these separate financial statements. 20. State Treasury-related companies The State Treasury is the dominant shareholder in PGE Group and therefore, the State Treasury companies are recognised as related parties. The Company closely monitors transactions with its key State Treasury subsidiaries. The total value of transactions with these entities has been presented in the table below.

Period ended Period ended June 30, 2019 June 30, 2018 Sales to related parties 61 77 Purchases from related parties 106 82

As at As at December 31, 2018 June 30, 2019 Trade receivables from related parties 9 10 Trade liabilities towards related parties 30 29

The Company also concludes significant transactions in the energy market via Towarowa Giełda Energii S.A. (Polish Power Exchange). Due to the fact that this entity deals only with the organisation of trading, any purchases and sales made through this entity are not recognised as transactions with related parties. 21. Management remuneration The Company’s management comprises members of the Management Board and of the Supervisory Board.

Period ended Period ended in PLN '000 PLN June 30, 2019 June 30, 2018 Short-term employee benefits (salaries and salary related costs) 4,326 4,267 Post-employment and termination benefits - - TOTAL REMUNERATION OF MANAGEMENT MEMBERS 4,326 4,267

Period ended Period ended in PLN '000 PLN June 30, 2019 June 30, 2018 Management Board 3,947 3,937 Supervisory Board 379 330 TOTAL REMUNERATION OF MANAGEMENT MEMBERS 4,326 4,267

The Company’s Management Board members are employed on the basis of civil law contracts for management (management contracts). The above remuneration is included in other costs by nature disclosed in note 7 “Costs by nature and by function”. 22. Significant events during and after the reporting period Significant events in the period have been described in note 25 to the consolidated financial statements. No significant events took place between the end of the reporting period and the date on which these separate financial statements were approved.

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III. Approval of the semi-annual financial report This semi-annual financial report was approved for publication by the Management Board of the parent company on September 24, 2019.

Warsaw, September 24, 2019 Signatures of the Management Board members of PGE Polska Grupa Energetyczna S.A.

President of the Henryk Baranowski Management Board

Vice-President of the Wojciech Kowalczyk Management Board

Vice-President of the Marek Pastuszko Management Board

Vice-President of the Paweł Śliwa Management Board

Vice-President of the Ryszard Wasiłek Management Board

Vice-President of the Emil Wojtowicz Management Board

Signature of the Michał Skiba person responsible Director, for drawing up Reporting and Tax these financial Department statements

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Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. al. Jana Pawła II 22 00-133 Warszawa Polska

Tel.: +48 22 511 08 11 Fax: +48 22 511 08 13 www.deloitte.com/pl

INDEPENDENT AUDITOR’S REPORT ON REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders and Supervisory Board of PGE Polska Grupa Energetyczna S.A.

Introduction We have reviewed the accompanying condensed interim consolidated financial statements of PGE Polska Grupa Energetyczna S.A. Capital Group (hereinafter: the “Group”), for which Polska Grupa Energetyczna S.A. with its registered office in Warsaw, ul. Mysia 2 is the Parent (hereinafter: the “Parent”), comprising: the consolidated statement of comprehensive income for the period from 1 January 2019 to 30 June 2019, consolidated statement of financial position prepared as at 30 June 2019, consolidated statement of changes in equity, consolidated statement of cash flows for the period from 1 January 2019 to 30 June 2019 and selected explanatory notes (“interim condensed consolidated financial statements”).

The Management Board of the Parent is responsible for the preparation and presentation of these condensed interim consolidated financial statements in accordance with International Accounting Standard 34 “Interim Financial Reporting” announced in the form of Commission Regulations.

Our responsibility is to express a conclusion on these condensed interim consolidated financial statements based on our review.

Scope of Review We conducted our review in accordance with the International Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” in the version adopted as the National Standard of Review 2410 by the National Council of Statutory Auditors.

A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with National Standards on Auditing in line with the wording of International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on these interim condensed consolidated financial statements.

Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting” announced in the form of Commission Regulations.

Auditor conducting the review on behalf of Deloitte Audyt spółka z ograniczoną odpowiedzialnością sp. k. — entity entered under number 73 on the list of auditors kept by the National Council of Statutory Auditors:

Piotr Sokołowski Certified auditor No. 9752

Warsaw, 24 September 2019

This document is a foreign language version of the original Independent Auditor’s Report issued in Polish version and only the original version is binding. This document has been prepared for information purposes and could be used only for company’s internal purposes. In case of any discrepancies between the Polish and English version, the Polish version shall prevail.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/pl/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

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District Court for the city of Warsaw, XII Business Division of the National Court Register, KRS No. 0000446833, NIP: 527-020-07-86, REGON: 010076870 WorldReginfo - 5d0b6089-87fd-4ba9-ba1b-a1f245927c51